Exhibit 10.1


 


EXECUTION
VERSION


 




 





SECOND AMENDED AND RESTATED
CREDIT AGREEMENT


 


dated as of


 


November 29, 2010


 


among


 


CLAYTON WILLIAMS ENERGY, INC.,


as Borrower


 


CERTAIN SUBSIDIARIES OF BORROWER,


as Guarantors


 


The Lenders Party Hereto


 


JPMORGAN CHASE BANK, N.A.,


as Administrative Agent


 


and


 


J.P. MORGAN SECURITIES LLC,


as Sole Bookrunner and Lead Arranger


 


$500,000,000 Senior Secured Credit Facility




 





 





 

















 


TABLE OF CONTENTS


 


	
  Article I                  Definitions

  	
  1

  
	
   

  	
   

  	
   

  
	
  Section 1.01.

  	
  Defined
  Terms

  	
  1

  
	
   

  	
   

  	
   

  
	
  Section 1.02.

  	
  Types
  of Loans and Borrowings

  	
  28

  
	
   

  	
   

  	
   

  
	
  Section 1.03.

  	
  Terms
  Generally

  	
  28

  
	
   

  	
   

  	
   

  
	
  Section 1.04.

  	
  Accounting
  Terms; GAAP

  	
  28

  
	
   

  	
   

  	
   

  
	
  Section 1.05.

  	
  Oil
  and Gas Definitions

  	
  29

  
	
   

  	
   

  	
   

  
	
  Section 1.06.

  	
  Time
  of Day

  	
  29

  
	
   

  	
   

  	
   

  
	
  Article II                The
  Credits

  	
  29

  
	
   

  	
   

  	
   

  
	
  Section 2.01.

  	
  Commitments

  	
  29

  
	
   

  	
   

  	
   

  
	
  Section 2.02.

  	
  Termination
  and Reduction of the Aggregate Commitment and Maximum Facility Amount

  	
  29

  
	
   

  	
   

  	
   

  
	
  Section 2.03.

  	
  Additional
  Lenders; Increases in the Maximum Facility Amount

  	
  30

  
	
   

  	
   

  	
   

  
	
  Section 2.04.

  	
  Loans
  and Borrowings

  	
  31

  
	
   

  	
   

  	
   

  
	
  Section 2.05.

  	
  Requests
  for Borrowings

  	
  31

  
	
   

  	
   

  	
   

  
	
  Section 2.06.

  	
  Letters
  of Credit

  	
  32

  
	
   

  	
   

  	
   

  
	
  Section 2.07.

  	
  Funding
  of Borrowings

  	
  36

  
	
   

  	
   

  	
   

  
	
  Section 2.08.

  	
  Interest
  Elections

  	
  37

  
	
   

  	
   

  	
   

  
	
  Section 2.09.

  	
  Repayment of
  Loans; Evidence of Debt

  	
  38

  
	
   

  	
   

  	
   

  
	
  Section 2.10.

  	
  Optional
  Prepayment of Loans

  	
  39

  
	
   

  	
   

  	
   

  
	
  Section 2.11.

  	
  Mandatory
  Prepayment of Loans

  	
  39

  
	
   

  	
   

  	
   

  
	
  Section 2.12.

  	
  Fees

  	
  41

  
	
   

  	
   

  	
   

  
	
  Section 2.13.

  	
  Interest

  	
  42

  
	
   

  	
   

  	
   

  
	
  Section 2.14.

  	
  Alternate
  Rate of Interest

  	
  42

  
	
   

  	
   

  	
   

  
	
  Section 2.15.

  	
  Increased
  Costs

  	
  43

  
	
   

  	
   

  	
   

  
	
  Section 2.16.

  	
  Break
  Funding Payments

  	
  44

  
	
   

  	
   

  	
   

  
	
  Section 2.17.

  	
  Taxes

  	
  44

  
	
   

  	
   

  	
   

  
	
  Section 2.18.

  	
  Payments
  Generally; Pro Rata Treatment; Sharing of Set-offs

  	
  46

  
	
   

  	
   

  	
   

  
	
  Section 2.19.

  	
  Mitigation
  Obligations; Replacement of Lenders

  	
  48

  
	
   

  	
   

  	
   

  
	
  Section 2.20.

  	
  Defaulting
  Lenders

  	
  49

  
	
   

  	
   

  	
   

  
	
  Article III               Borrowing
  Base

  	
  51

  



 


i

















 


	
  Section 3.01.

  	
  Reserve
  Report; Proposed Borrowing Base

  	
  51

  
	
   

  	
   

  	
   

  
	
  Section 3.02.

  	
  Scheduled
  Redeterminations of the Borrowing Base; Procedures and Standards

  	
  51

  
	
   

  	
   

  	
   

  
	
  Section 3.03.

  	
  Special
  Redeterminations

  	
  52

  
	
   

  	
   

  	
   

  
	
  Section 3.04.

  	
  Notice
  of Redetermination

  	
  52

  
	
   

  	
   

  	
   

  
	
  Section 3.05.

  	
  Additional
  Reductions in Borrowing Base

  	
  53

  
	
   

  	
   

  	
   

  
	
  Article IV               Representations
  and Warranties

  	
  53

  
	
   

  	
   

  	
   

  
	
  Section 4.01.

  	
  Organization;
  Powers

  	
  53

  
	
   

  	
   

  	
   

  
	
  Section 4.02.

  	
  Authorization;
  Enforceability

  	
  53

  
	
   

  	
   

  	
   

  
	
  Section 4.03.

  	
  Governmental
  Approvals; No Conflicts

  	
  53

  
	
   

  	
   

  	
   

  
	
  Section 4.04.

  	
  Financial
  Condition; No Material Adverse Change

  	
  54

  
	
   

  	
   

  	
   

  
	
  Section 4.05.

  	
  Properties

  	
  54

  
	
   

  	
   

  	
   

  
	
  Section 4.06.

  	
  Litigation
  and Environmental Matters

  	
  54

  
	
   

  	
   

  	
   

  
	
  Section 4.07.

  	
  Compliance
  with Laws and Agreements

  	
  55

  
	
   

  	
   

  	
   

  
	
  Section 4.08.

  	
  Investment
  Company Status

  	
  55

  
	
   

  	
   

  	
   

  
	
  Section 4.09.

  	
  Taxes

  	
  55

  
	
   

  	
   

  	
   

  
	
  Section 4.10.

  	
  ERISA

  	
  55

  
	
   

  	
   

  	
   

  
	
  Section 4.11.

  	
  Disclosure

  	
  55

  
	
   

  	
   

  	
   

  
	
  Section 4.12.

  	
  Labor
  Matters

  	
  56

  
	
   

  	
   

  	
   

  
	
  Section 4.13.

  	
  Capitalization

  	
  56

  
	
   

  	
   

  	
   

  
	
  Section 4.14.

  	
  Margin
  Stock

  	
  56

  
	
   

  	
   

  	
   

  
	
  Section 4.15.

  	
  Oil
  and Gas Interests

  	
  56

  
	
   

  	
   

  	
   

  
	
  Section 4.16.

  	
  Insurance

  	
  57

  
	
   

  	
   

  	
   

  
	
  Section 4.17.

  	
  Solvency

  	
  57

  
	
   

  	
   

  	
   

  
	
  Section 4.18.

  	
  Material
  Sales Contracts

  	
  58

  
	
   

  	
   

  	
   

  
	
  Section 4.19.

  	
  Common
  Enterprise

  	
  58

  
	
   

  	
   

  	
   

  
	
  Article V                Conditions

  	
  58

  
	
   

  	
   

  	
   

  
	
  Section 5.01.

  	
  Effective
  Date

  	
  58

  
	
   

  	
   

  	
   

  
	
  Section 5.02.

  	
  Each
  Credit Event

  	
  61

  
	
   

  	
   

  	
   

  
	
  Article VI               Affirmative
  Covenants

  	
  61

  
	
   

  	
   

  	
   

  
	
  Section 6.01.

  	
  Financial
  Statements; Other Information

  	
  61

  
	
   

  	
   

  	
   

  
	
  Section 6.02.

  	
  Notices
  of Material Events

  	
  63

  
	
   

  	
   

  	
   

  
	
  Section 6.03.

  	
  Existence;
  Conduct of Business

  	
  63

  
	
   

  	
   

  	
   

  
	
  Section 6.04.

  	
  Payment
  of Obligations

  	
  64

  
	
   

  	
   

  	
   

  
	
  Section 6.05.

  	
  Maintenance
  of Properties; Insurance

  	
  64

  



 


ii

















 


	
  Section 6.06.

  	
  Books
  and Records; Inspection Rights

  	
  64

  
	
   

  	
   

  	
   

  
	
  Section 6.07.

  	
  Compliance
  with Laws

  	
  64

  
	
   

  	
   

  	
   

  
	
  Section 6.08.

  	
  Use
  of Proceeds and Letters of Credit

  	
  65

  
	
   

  	
   

  	
   

  
	
  Section 6.09.

  	
  Mortgages
  and Other Security

  	
  65

  
	
   

  	
   

  	
   

  
	
  Section 6.10.

  	
  Title
  Data

  	
  66

  
	
   

  	
   

  	
   

  
	
  Section 6.11.

  	
  Swap
  Agreements

  	
  66

  
	
   

  	
   

  	
   

  
	
  Section 6.12.

  	
  Operation
  of Oil and Gas Interests

  	
  66

  
	
   

  	
   

  	
   

  
	
  Section 6.13.

  	
  Material
  Restricted Subsidiaries

  	
  66

  
	
   

  	
   

  	
   

  
	
  Section 6.14.

  	
  Pledged
  Equity Interests

  	
  67

  
	
   

  	
   

  	
   

  
	
  Section 6.15.

  	
  Designation
  and Conversion of Restricted and Unrestricted Subsidiaries

  	
  67

  
	
   

  	
   

  	
   

  
	
  Article VII              Negative
  Covenants

  	
  68

  
	
   

  	
   

  	
   

  
	
  Section 7.01.

  	
  Indebtedness

  	
  68

  
	
   

  	
   

  	
   

  
	
  Section 7.02.

  	
  Liens

  	
  70

  
	
   

  	
   

  	
   

  
	
  Section 7.03.

  	
  Fundamental
  Changes

  	
  71

  
	
   

  	
   

  	
   

  
	
  Section 7.04.

  	
  Dispositions

  	
  72

  
	
   

  	
   

  	
   

  
	
  Section 7.05.

  	
  Nature
  of Business

  	
  74

  
	
   

  	
   

  	
   

  
	
  Section 7.06.

  	
  Investments,
  Loans, Advances, Guarantees and Acquisitions

  	
  74

  
	
   

  	
   

  	
   

  
	
  Section 7.07.

  	
  Swap
  Agreements

  	
  75

  
	
   

  	
   

  	
   

  
	
  Section 7.08.

  	
  Restricted
  Payments

  	
  76

  
	
   

  	
   

  	
   

  
	
  Section 7.09.

  	
  Transactions
  with Affiliates

  	
  76

  
	
   

  	
   

  	
   

  
	
  Section 7.10.

  	
  Restrictive
  Agreements

  	
  77

  
	
   

  	
   

  	
   

  
	
  Section 7.11.

  	
  Disqualified
  Stock

  	
  77

  
	
   

  	
   

  	
   

  
	
  Section 7.12.

  	
  Amendments
  to Organizational Documents

  	
  77

  
	
   

  	
   

  	
   

  
	
  Section 7.13.

  	
  Financial
  Covenants

  	
  77

  
	
   

  	
   

  	
   

  
	
  Section 7.14.

  	
  Sale
  and Leaseback Transactions and other Off-Balance Sheet Liabilities

  	
  78

  
	
   

  	
   

  	
   

  
	
  Section 7.15.

  	
  Senior
  Notes Restrictions

  	
  78

  
	
   

  	
   

  	
   

  
	
  Article VIII            Guarantee
  of Obligations

  	
  79

  
	
   

  	
   

  	
   

  
	
  Section 8.01.

  	
  Guarantee
  of Payment

  	
  79

  
	
   

  	
   

  	
   

  
	
  Section 8.02.

  	
  Guarantee
  Absolute

  	
  79

  
	
   

  	
   

  	
   

  
	
  Section 8.03.

  	
  Guarantee
  Irrevocable

  	
  79

  
	
   

  	
   

  	
   

  
	
  Section 8.04.

  	
  Reinstatement

  	
  80

  
	
   

  	
   

  	
   

  
	
  Section 8.05.

  	
  Subrogation

  	
  80

  
	
   

  	
   

  	
   

  
	
  Section 8.06.

  	
  Subordination

  	
  80

  



 


iii

















 


	
  Section 8.07.

  	
  Payments
  Generally

  	
  80

  
	
   

  	
   

  	
   

  
	
  Section 8.08.

  	
  Setoff

  	
  81

  
	
   

  	
   

  	
   

  
	
  Section 8.09.

  	
  Formalities

  	
  81

  
	
   

  	
   

  	
   

  
	
  Section 8.10.

  	
  Limitations
  on Guarantee

  	
  81

  
	
   

  	
   

  	
   

  
	
  Section 8.11.

  	
  Amends
  and Restates

  	
  81

  
	
   

  	
   

  	
   

  
	
  Article IX               Events
  of Default

  	
  82

  
	
   

  	
   

  	
   

  
	
  Article X                The
  Administrative Agent

  	
  84

  
	
   

  	
   

  	
   

  
	
  Article XI               Miscellaneous

  	
  86

  
	
   

  	
   

  	
   

  
	
  Section 11.01.

  	
  Notices

  	
  86

  
	
   

  	
   

  	
   

  
	
  Section 11.02.

  	
  Waivers;
  Amendments

  	
  87

  
	
   

  	
   

  	
   

  
	
  Section 11.03.

  	
  Expenses;
  Indemnity; Damage Waiver

  	
  88

  
	
   

  	
   

  	
   

  
	
  Section 11.04.

  	
  Successors
  and Assigns

  	
  90

  
	
   

  	
   

  	
   

  
	
  Section 11.05.

  	
  Survival

  	
  93

  
	
   

  	
   

  	
   

  
	
  Section 11.06.

  	
  Counterparts;
  Integration; Effectiveness

  	
  94

  
	
   

  	
   

  	
   

  
	
  Section 11.07.

  	
  Severability

  	
  94

  
	
   

  	
   

  	
   

  
	
  Section 11.08.

  	
  Right
  of Setoff

  	
  94

  
	
   

  	
   

  	
   

  
	
  Section 11.09.

  	
  GOVERNING
  LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS

  	
  94

  
	
   

  	
   

  	
   

  
	
  Section 11.10.

  	
  WAIVER
  OF JURY TRIAL

  	
  95

  
	
   

  	
   

  	
   

  
	
  Section 11.11.

  	
  Headings

  	
  95

  
	
   

  	
   

  	
   

  
	
  Section 11.12.

  	
  Confidentiality

  	
  96

  
	
   

  	
   

  	
   

  
	
  Section 11.13.

  	
  Interest
  Rate Limitation

  	
  96

  
	
   

  	
   

  	
   

  
	
  Section 11.14.

  	
  USA
  PATRIOT Act

  	
  97

  
	
   

  	
   

  	
   

  
	
  Section 11.15.

  	
  Original
  Credit Agreement

  	
  97

  
	
   

  	
   

  	
   

  
	
  Section 11.16.

  	
  Reaffirmation
  and Grant of Security Interest

  	
  97

  
	
   

  	
   

  	
   

  
	
  Section 11.17.

  	
  Reallocation
  of Commitments and Loans

  	
  97

  
	
   

  	
   

  	
   

  
	
  Section 11.18.

  	
  Release
  of Guarantees and Liens

  	
  98

  
	
   

  	
   

  	
   

  
	
  Section 11.19.

  	
  Termination
  of Collateral Agency Agreement

  	
  98

  



 


iv

















 


EXHIBITS:


 


Exhibit A
— Form of Assignment and Assumption


Exhibit B
— Form of Opinion of Counsel for the Borrower


Exhibit C
— Form of Counterpart Agreement


Exhibit D
— Form of Interest Election Request


Exhibit E
— Form of Note


Exhibit F
— Form of Lender Certificate


 


SCHEDULES:


 


Schedule
1.01 — Existing Letters of Credit


Schedule
1.02 — Related Partnerships


Schedule
2.01 — Applicable Percentages and Commitments


Schedule
4.06 — Disclosed Matters


Schedule
4.13 — Capitalization


Schedule
7.01 — Existing Indebtedness


Schedule
7.02 — Existing Liens


Schedule
7.06 — Existing Investments


Schedule
7.09 — Transactions with Affiliates


Schedule
7.10 — Existing Restrictions


 


v






 












 


SECOND AMENDED AND RESTATED CREDIT AGREEMENT


 


This
SECOND AMENDED AND RESTATED CREDIT AGREEMENT, dated as of November 29,
2010, is among CLAYTON WILLIAMS ENERGY, INC., a Delaware corporation, as
Borrower, CERTAIN SUBSIDIARIES OF BORROWER, as Guarantors, the LENDERS party
hereto and JPMORGAN CHASE BANK, N.A., as Administrative Agent.


 


RECITALS


 


WHEREAS, the Borrower, certain
Subsidiaries of the Borrower, certain of the Lenders and JPMorgan Chase Bank,
N.A., as administrative agent, have entered into that certain Amended and
Restated Credit Agreement, dated as of May 21, 2004 (as amended,
supplemented or otherwise modified from time to time prior to the Effective
Date, the “Original Credit Agreement”), pursuant to which the lenders
party thereto agreed to provide the Borrower with a revolving credit facility
in the form and upon the terms and conditions set forth therein;


 


WHEREAS, the Borrower has requested
that the Administrative Agent and the Lenders amend and restate the Original
Credit Agreement in its entirety, and the Administrative Agent and the Lenders
have agreed to do so upon the terms and conditions set forth herein; and


 


WHEREAS, it is the intent of the
parties hereto that this Agreement shall not constitute a novation of the
obligations and liabilities existing under the Original Credit Agreement or
constitute repayment of any such obligations and liabilities and that this
Agreement shall amend and restate the Original Credit Agreement in its
entirety.


 


NOW, THEREFORE, in consideration of the
mutual covenants and agreements contained herein, the parties hereto hereby
agree that the Original Credit Agreement is hereby amended and restated in its
entirety to read as set forth herein:


 


Article I


 


Definitions


 


Section 1.01.          Defined
Terms.  As used in this Agreement,
the following terms have the meanings specified below:


 


“ABR”,
when used in reference to any Loan or Borrowing, refers to whether such Loan,
or the Loans comprising such Borrowing, are bearing interest at a rate
determined by reference to the Alternate Base Rate.


 


“Acquisition”
means, the acquisition by the Borrower or any Restricted Subsidiary, whether by
purchase, merger (and, in the case of a merger with any such Person, with such
Person being the surviving corporation) or otherwise, of all or substantially
all of the Equity Interest of, or all or substantially all of the business,
property or fixed assets of or business line or unit or a division of, any
other Person primarily engaged in the business of producing oil or 


 


1

















 


natural
gas or the acquisition by the Borrower or any Restricted Subsidiary of property
or assets consisting of Oil and Gas Interests.


 


“Adjusted LIBO Rate” means, with respect to any Eurodollar
Borrowing for any Interest Period, an interest rate per annum (rounded upwards,
if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such
Interest Period multiplied by (b) the Statutory Reserve Rate.


 


“Administrative
Agent” means JPMorgan Chase Bank, N.A., in its capacity as contractual
representative of the Lenders hereunder pursuant to Article X and not in
its individual capacity as a Lender, and any successor agent appointed pursuant
to Article X.


 


“Administrative
Questionnaire” means an Administrative Questionnaire in a form supplied by
the Administrative Agent.


 


“Advance
Payment Contract” means any contract whereby any Credit Party either
(a) receives or becomes entitled to receive (either directly or
indirectly) any payment (an “Advance Payment”) to be applied toward
payment of the purchase price of Hydrocarbons produced or to be produced from
Oil and Gas Interests owned by any Credit Party and which Advance Payment is,
or is to be, paid in advance of actual delivery of such production to or for
the account of the purchaser regardless of such production, or (b) grants
an option or right of refusal to the purchaser to take delivery of such
production in lieu of payment, and, in either of the foregoing instances, the
Advance Payment is, or is to be, applied as payment in full for such production
when sold and delivered or is, or is to be, applied as payment for a portion
only of the purchase price thereof or of a percentage or share of such
production; provided that  inclusion
of the standard “take or pay” provision in any gas sales or purchase contract
or any other similar contract shall not, in and of itself, constitute such
contract as an Advance Payment Contract for the purposes hereof.


 


“Affiliate”
means, with respect to a specified Person, another Person that directly, or
indirectly through one or more intermediaries, Controls or is Controlled by or
is under common Control with the Person specified.


 


“Aggregate
Commitment” means, at any time, the sum of the Commitments of all of the
Lenders at such time.  As of the
Effective Date, the Aggregate Commitment is $350,000,000.


 


“Aggregate
Commitment Usage” means, as of any date and for all purposes, the quotient,
expressed as a percentage, of (a) the Aggregate Credit Exposure as of such
date, divided by (b) the Aggregate Commitment as of such date.


 


“Aggregate
Credit Exposure” means, as of any date of determination, the sum of the
Credit Exposure of all of the Lenders as of such date.


 


“Agreement”
means this Second Amended and Restated Credit Agreement, dated as of November 29,
2010, as it may be amended, amended and restated, supplemented or otherwise
modified from time to time.


 


“Alternate
Base Rate” means, for any day, a rate per annum equal to the greatest of
(a) the Prime Rate in effect on such day, (b) the Federal Funds
Effective Rate in effect on such 


 


2

















 


day
plus one-half of one percent ( 1⁄2 of 1%) and (c) the LMIR on such day
plus 1.00%.  Any change in the Alternate
Base Rate due to a change in the Prime Rate, the Federal Funds Effective Rate
or the LMIR shall be effective from and including the effective date of such
change in the Prime Rate, the Federal Funds Effective Rate or the LMIR,
respectively.


 


“Applicable
Percentage” means, with respect to any Lender at any time, the percentage
of the Maximum Facility Amount represented by such Lender’s Maximum Credit
Amount at such time; provided that in the case of Section 2.20
only, when a Defaulting Lender exists, “Applicable Percentage” shall
mean the percentage of the Maximum Facility Amount (disregarding any Defaulting
Lender’s Maximum Credit Amount) represented by such Lender’s Maximum Credit
Amount.  The initial amount of each
Lender’s Applicable Percentage is as set forth on Schedule 2.01.  If the Maximum Facility Amount has terminated
or expired, the Applicable Percentage of any Lender shall be determined based
upon the Maximum Facility Amount most recently in effect, giving effect to any
assignments and to any Lender’s status as a Defaulting Lender at the time of determination.


 


“Applicable
Rate” means, with respect to any ABR Loan or Eurodollar Loan, or with
respect to the Unused Commitment Fees payable hereunder, as the case may be,
the applicable rate per annum set forth below under the caption “ABR Spread”, “Eurodollar
Spread” or “Unused Commitment Fee Rate”, as the case may be, based upon the
Borrowing Base Usage applicable on such date:


 


	
  Borrowing Base Usage:

  	
   

  	
  ABR

  Spread

  	
   

  	
  Eurodollar

  Spread

  	
   

  	
  Unused

  Commitment Fee

  Rate

  	
   

  
	
  Equal to or greater than
  90%

  	
   

  	
  2.000

  	
  %

  	
  3.000

  	
  %

  	
  0.500

  	
  %

  
	
  Equal to or greater than
  75% and less than 90%

  	
   

  	
  1.750

  	
  %

  	
  2.750

  	
  %

  	
  0.500

  	
  %

  
	
  Equal to or greater than
  50% and less than 75%

  	
   

  	
  1.500

  	
  %

  	
  2.500

  	
  %

  	
  0.500

  	
  %

  
	
  Equal to or greater than
  25% and less than 50%

  	
   

  	
  1.250

  	
  %

  	
  2.250

  	
  %

  	
  0.500

  	
  %

  
	
  Less than 25%

  	
   

  	
  1.000

  	
  %

  	
  2.000

  	
  %

  	
  0.500

  	
  %

  



 


Each change in the Applicable Rate shall apply during the period
commencing on the effective date of such change and ending on the date
immediately preceding the effective date of the next change.


 


“Approved
Counterparty” means, at any time and from time to time, (a) any Person
that is approved by the Administrative Agent (such approval not to be
unreasonably withheld) and has (or the credit support provider of such Person
has), at the time the Borrower or any Restricted Subsidiary enters into a Swap
Agreement with such Person, a long term senior unsecured debt credit rating of
BBB+ or better from S&P or Baal or better from Moody’s and (b) any
Lender Counterparty.


 


3

















 


“Approved
Fund” has the meaning assigned to such term in Section 11.04.


 


“Approved
Petroleum Engineer” means (a) Netherland, Sewell & Associates, Inc.,
(b) Ryder Scott Company Petroleum Consultants, L.P., (c) Williamson
Petroleum Consultants, Inc., or (d) any reputable firm of independent
petroleum engineers selected by the Borrower and reasonably acceptable to the
Administrative Agent.


 


“Assignment
and Assumption” means an assignment and assumption entered into by a Lender
and an Eligible Assignee, and accepted by the Administrative Agent, in the form
of Exhibit A or any other form approved by the Administrative Agent.


 


“Attributed
Interests” means any Oil and Gas Interests indirectly owned by any Credit
Party through the ownership of Partnership Interests and attributed to such Credit
Party in proportion to such Credit Party’s ownership of such Partnership
Interests; provided such Partnership Interests are subject to a first
priority security interest in favor of the Administrative Agents, for the
benefit of the Secured Parties, as required under Section 6.14.


 


“Availability
Period” means the period from and including the Effective Date to but
excluding the earlier of the Maturity Date and the date of termination of the
Aggregate Commitment.


 


“Bankruptcy
Event” means, with respect to any Person, such Person becomes the subject
of a bankruptcy or insolvency proceeding, or has had a receiver, conservator,
trustee, administrator, custodian, assignee for the benefit of creditors or
similar Person charged with the reorganization or liquidation of its business
appointed for it, or, in the good faith determination of the Administrative
Agent, has taken any action in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any such proceeding or appointment, provided
that a Bankruptcy Event shall not result solely by virtue of any ownership
interest, or the acquisition of any ownership interest, in such Person by a
Governmental Authority, provided, further, that such ownership
interest does not result in or provide such Person with immunity from the
jurisdiction of courts within the United States or from the enforcement of
judgments or writs of attachment on its assets or permit such Person (or such
Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts
or agreements made by such Person.


 


“Board”
means the Board of Governors of the Federal Reserve System of the United States
of America.


 


“Borrower”
means Clayton Williams Energy, Inc., a Delaware corporation, and its
successors and permitted assigns.


 


“Borrowing”
means Loans of the same Type, made, converted or continued on the same date
and, in the case of Eurodollar Loans, as to which a single Interest Period is
in effect.


 


“Borrowing
Base” means, at any time an amount equal to the amount determined in
accordance with Section 3.01, as the same may be redetermined, adjusted or
reduced from time to time pursuant to Article III.


 


4

















 


“Borrowing
Base Deficiency” means, as of any date, the amount, if any, by which the
Aggregate Credit Exposure on such date exceeds the Borrowing Base in effect on
such date; provided, that, for purposes of determining the existence and
amount of any Borrowing Base Deficiency, obligations under any Letter of Credit
will not be deemed to be outstanding to the extent such obligations are secured
by cash in the manner contemplated by Section 2.06(j).


 


“Borrowing
Base Properties” means all Direct Interests and Attributed Interests of the
Borrower and the Restricted Subsidiaries evaluated by the Lenders for purposes
of establishing the Borrowing Base.


 


“Borrowing
Base Usage” means, as of any date and for all purposes, the quotient,
expressed as a percentage, of (i) the Aggregate Credit Exposure as of such
date, divided by (ii) the Borrowing Base as of such date.


 


“Borrowing
Request” means a request by the Borrower for a Borrowing in accordance with
Section 2.05.


 


“Business
Day” means any day that is not a Saturday, Sunday or other day on which
commercial banks in Chicago, Illinois or New York, New York are authorized
or required by law to remain closed; provided that, when used in
connection with a Eurodollar Loan or to determine LMIR, the term “Business
Day” shall also exclude any day on which banks are not open for dealings in
dollar deposits in the London interbank market.


 


“Capital
Lease Obligations” of any Person means the obligations of such Person to
pay rent or other amounts under any lease of (or other arrangement conveying
the right to use) real or personal property, or a combination thereof, which
obligations are required to be classified and accounted for as capital leases
or lease obligations on a balance sheet of such Person under GAAP, and the
amount of such obligations shall be the capitalized amount thereof determined
in accordance with GAAP.


 


“Cash
Collateral Account” means a deposit account with, and in the name of, the
Administrative Agent, for the benefit of the Lenders, established and
maintained for the deposit of cash collateral required under or in connection
with this Agreement and the other Loan Documents.


 


“Cash
Management Agreements” means the agreements, documents, certificates and
instruments evidencing any Cash Management Obligations of any Credit Party.


 


“Cash
Management Obligations” means, with respect to any Credit Party, any
obligations of such Credit Party owed to any Lender (or any Affiliate of any
Lender) in respect of treasury management arrangements (including controlled
disbursement, automated clearinghouse transactions, return items, overdrafts
and interstate depository network services), depositary or other cash
management services, including commercial credit card and merchant card
services.


 


“Change
in Law” means (a) the adoption of any law, rule or regulation
after the date of this Agreement, (b) any change in any law, rule or
regulation or in the interpretation or application thereof by any Governmental
Authority after the date of this Agreement or (c) 


 


5

















 


compliance
by any Lender or the Issuing Bank (or, for purposes of Section 2.15(b), by
any lending office of such Lender or by such Lender’s or the Issuing Bank’s
holding company, if any) with any request, guideline or directive (whether or
not having the force of law) of any Governmental Authority made or issued after
the date of this Agreement.


 


“Change
of Control” means


 


(a) any
“person” or “group” of related persons (as such terms are used in
sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”)), other than Clayton Williams, Jr.
or any Affiliate or Related Party thereof (each, a “Permitted Holder”),
is or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that such person or group shall be deemed to
have “beneficial ownership” of all shares that such person or group has the
right to acquire, whether such right is exercisable immediately or only after
the passage of time), directly or indirectly, of more than 35% of the total
voting power of the outstanding capital stock (excluding any debt securities
convertible into equity) normally entitled to vote in the election of directors
(“Voting Stock”) of the Borrower (or its successor by merger,
consolidation or purchase of all or substantially all of its assets) (for
purposes of this clause, such person or group shall be deemed to beneficially
own any Voting Stock held by a parent entity, if such person or group “beneficially
owns” (as defined above), directly or indirectly, more than 35% of the voting
power of the Voting Stock of such parent entity);


 


(b) the
first day on which a majority of the members of the board of directors of the
Borrower are not, as of any date of determination, either (i) a member of
the board of directors of the Borrower on July 20, 2005, or (ii) individuals
who were nominated for election or elected to the Borrower’s board of directors
with the approval of the majority of the directors described in clause (i) (or
approved for nomination or election by the majority of directors described in
clause (i) or (ii) hereof) who were members of the Borrower’s board
of directors at the time of such nomination or election; or


 


(c) the
occurrence of a “Change of Control” as such term is defined in the Indenture.


 


“Charges”
has the meaning assigned to such term in Section 11.13.


 


“Collateral”
means all assets, whether now owned or hereafter acquired by any Borrower or
any other Credit Party, in which a Lien is granted or purported to be granted
to any Secured Party as security for any Obligation.


 


“Code”
means the Internal Revenue Code of 1986, as amended from time to time.


 


“Commitment”
means, with respect to each Lender, the commitment of such Lender to make Loans
and to acquire participations in Letters of Credit hereunder, expressed as an
amount representing the maximum aggregate amount of such Lender’s Credit
Exposure hereunder at such time, as such commitment may be (a) reduced
from time to time pursuant to Section 2.02, (b) increased from time
to time as a result of such Lender delivering a Lender Certificate pursuant to Section 2.03,
and (c) reduced or increased from time to time pursuant to assignments by
or to such Lender pursuant to Section 11.04.  The amount of each Lender’s Commitment shall
be at any time the lesser of (i) such Lender’s Maximum Credit Amount and (ii) such
Lender’s 


 


6

















 


Applicable
Percentage of the Borrowing Base then in effect.  The initial amount of each Lender’s
Commitment is set forth on Schedule 2.01, or in the Assignment and Assumption
or Lender Certificate pursuant to which such Lender shall have assumed or
agreed to provide its Commitment, as applicable.


 


“Consolidated
Current Assets” means, as of any date of determination, the total of (a) the
consolidated current assets of the Borrower and the Restricted Subsidiaries
determined in accordance with GAAP as of such date, plus, all Unused
Commitments as of such date, less (b) any consolidated current
assets attributable to Vendor Financings, less (c) any non-cash
assets required to be included in consolidated current assets of the Borrower
and the Restricted Subsidiaries as a result of the application of FASB
Accounting Standards Codification (“ASC”) 815 as of such date.


 


“Consolidated
Current Liabilities” means, as of any date of determination, the total of (a) consolidated
current liabilities of the Borrower and the Restricted Subsidiaries, as
determined in accordance with GAAP as of such date, less (b) any
consolidated current liabilities attributable to Vendor Financings, less
(c) current maturities of the Loans, less (d) any non-cash
obligations required to be included in consolidated current liabilities of the
Borrower and the Restricted Subsidiaries as a result of the application of FASB
ASC 815 as of such date, less (e) the current portion of any
operating lease obligations to the extent included in the calculation of
consolidated current liabilities of the Borrower and the Restricted
Subsidiaries.


 


“Consolidated
Current Ratio” means, as of any date of determination, the ratio of
Consolidated Current Assets to Consolidated Current Liabilities as of such
date.


 


“Consolidated
EBITDAX” means, with respect to the Borrower and its Restricted
Subsidiaries for any period, Consolidated Net Income for such period plus,
without duplication and to the extent deducted in the calculation of
Consolidated Net Income for such period, the sum of (a) income or
franchise Taxes paid or accrued; (b) Consolidated Net Interest Expense; (c) amortization,
depletion and depreciation expense; (d) any non-cash losses or charges on
any Swap Agreement resulting from the application of FASB ASC 815 for that
period; (e) oil and gas exploration expenses (including all drilling,
completion, geological and geophysical costs) for such period; (f) losses
from Dispositions of assets outside of the ordinary course of business and
other extraordinary or non-recurring losses; and (g) all other non-cash
charges, expenses or losses (excluding non-cash charges that constitute
accruals for future cash charges); minus, to the extent included in the
calculation of Consolidated Net Income, (h) the sum of (i) any
non-cash gains on any Swap Agreements resulting from the application of FASB
ASC 815 for that period; (ii) extraordinary or non-recurring gains; (iii) gains
from Dispositions of assets outside of the ordinary course of business; and (iv) all
other non-cash gains; provided that, with respect to the determination
of Borrower’s compliance with the Consolidated Leverage Ratio set forth in Section 7.13(b) for
any period, Consolidated EBITDAX shall be adjusted to give effect, on a pro
forma basis and consistent with GAAP, to any Acquisitions or Dispositions made
during such period as if such Acquisition or Disposition, as the case may be,
was made at the beginning of such period.


 


7

















 


“Consolidated
Funded Indebtedness” means, as of any date, without duplication, Indebtedness
of the Borrower and its Restricted Subsidiaries of the type described in
clauses (a), (b), (c), (d), (e), (f), (g) or (h) of the definition of
Indebtedness.


 


“Consolidated
Leverage Ratio” means, with respect to any fiscal quarter, the ratio of (a) Consolidated
Funded Indebtedness as of the end of such fiscal quarter to (b) Consolidated
EBITDAX for the trailing four fiscal quarter period ending on the last day of
such fiscal quarter.


 


“Consolidated
Net Income” means for any period, the consolidated net income (or loss) of
the Borrower and its Restricted Subsidiaries, as applicable, determined on a
consolidated basis in accordance with GAAP; provided that there shall be
excluded (a) the income (or loss) of any Person accrued prior to the date
it becomes a Restricted Subsidiary of the Borrower, or is merged into or
consolidated with the Borrower or any of its Restricted Subsidiaries, as
applicable, (b) the undistributed earnings of any Restricted Subsidiary of
the Borrower, to the extent that the declaration or payment of dividends or
similar distributions by such Restricted Subsidiary is not at the time
permitted by the terms of any contractual obligation (other than under any Loan
Document) or by any law applicable to such Restricted Subsidiary and (c) the
income (or loss) of any Person in which any other Person (other than the
Borrower or any of its Restricted Subsidiaries) has an Equity Interest, except
to the extent of the amount of dividends or other distributions actually paid
in cash to the Borrower or any of its Restricted Subsidiaries during such
period.


 


“Consolidated
Net Interest Expense” means, for the Borrower and the Restricted
Subsidiaries on a consolidated basis for any period, the sum of (a) aggregate
interest expense, amortization or writeoff of debt discount and debt issuance
costs and commissions, discounts and other fees, expenses and charges associated
with Indebtedness plus (b) capitalized interest, minus (c) interest
income, in each case determined in accordance with GAAP.


 


“Consolidated
Subsidiaries” means, for any Person, any subsidiary or other entity the
accounts of which would be consolidated with those of such Person in its
consolidated financial statements in accordance with GAAP.


 


“Control”
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of a Person, whether through the ability
to exercise voting power, by contract or otherwise.  “Controlling” and “Controlled”
have meanings correlative thereto.


 


“Counterpart
Agreement” means a Counterpart Agreement substantially in the form of Exhibit C
delivered by a Guarantor pursuant to Section 6.13.


 


“Credit
Exposure” means, with respect to any Lender at any time, the sum of the
outstanding principal amount of such Lender’s Loans and its LC Exposure at such
time.


 


“Credit
Parties” means collectively, Borrower and each Guarantor, and each
individually, a “Credit Party”.


 


“Crude
Oil” means all crude oil and condensate.


 


8

















 


“Default”
means any event or condition which constitutes an Event of Default or which
upon notice, lapse of time or both would, unless cured or waived, become an
Event of Default.


 


“Defaulting
Lender” means any Lender that (a) has failed, within two (2) Business
Days of the date required to be funded or paid, to (i) fund any portion of
its Loans, (ii) fund any portion of its participations in Letters of
Credit (unless such Letter of Credit was issued after receipt by the Issuing
Bank of written notice by such Lender that it has determined, in good faith,
that a condition precedent to the issuance of such Letter of Credit (specifically
identified and including the particular default, if any) has not been
satisfied) or (iii) pay over to the Administrative Agent, the Issuing Bank
or any Lender any other amount required to be paid by it hereunder, unless, in
the case of clause (i) above, such Lender notifies the Administrative
Agent in writing that such failure is the result of such Lender’s good faith
determination that a condition precedent to funding (specifically identified
and including the particular default, if any) has not been satisfied, (b) has
notified the Borrower, the Administrative Agent, the Issuing Bank or any Lender
in writing, or has made a public statement to the effect, that it does not
intend or expect to comply with any of its funding obligations under this Agreement
(unless such writing or public statement indicates that such position is based
on such Lender’s good faith determination that a condition precedent
(specifically identified and including the particular default, if any) to
funding a loan under this Agreement cannot be satisfied) or generally under
other agreements in which it commits to extend credit, (c) has failed,
within three (3) Business Days after request by the Administrative Agent,
the Issuing Bank or any Lender, acting in good faith, to provide a
certification in writing from an authorized officer of such Lender that it will
comply with its obligations (and is financially able to meet such obligations)
to fund prospective Loans and participations in then outstanding Letters of
Credit under this Agreement, provided that such Lender shall cease to be
a Defaulting Lender pursuant to this clause (c) upon receipt by the
Administrative Agent, the Issuing Bank or such Lender of such certification in
form and substance satisfactory to it and the Administrative Agent, or (d) has
become the subject of a Bankruptcy Event.


 


“Direct
Interests” means any Oil and Gas Interests directly owned by any Credit
Party.


 


“Disclosed
Matters” means the actions, suits and proceedings and the environmental
matters disclosed in Schedule 4.06.


 


“Disposition”
or “Dispose” means the sale, transfer, license, lease, exchange or other
disposition (including any sale and leaseback transaction) of any property by
any Person, including any sale, assignment, transfer or other disposal, with or
without recourse, of any notes or accounts receivable or any rights and claims
associated therewith.


 


“Disqualified
Stock” means any Equity Interest which, by its terms (or by the terms of
any security into which it is convertible or for which it is exchangeable), or
upon the happening of any event, matures or is mandatorily redeemable for any
consideration other than other Equity Interests (which would not constitute
Disqualified Stock), pursuant to a sinking fund obligation or otherwise, or is
redeemable for any consideration other than other Equity Interests (which would
not constitute Disqualified Stock) at the sole option of the holder thereof, in
whole or in part, on or prior to the date that is 91 days after the Maturity
Date.


 


9

















 


“Dollars”
or “$” refers to lawful money of the United States of America.


 


“Domestic
Subsidiary” means, with respect to any Person, a subsidiary of such Person
that is incorporated or formed under the laws of the United States of America,
any state thereof or the District of Columbia.


 


“Effective
Date” means the date on which the conditions specified in Section 5.01
are satisfied (or waived in accordance with Section 11.02).


 


“Eligible
Assignee” means any Person that qualifies as an assignee pursuant to Section 11.04(b)(i);
provided that, notwithstanding the foregoing, “Eligible Assignee” shall
not include the Borrower or any of the Borrower’s Affiliates or Subsidiaries.


 


“Engineered
Value” means, the value attributed to the Borrowing Base Properties for
purposes of the most recent Redetermination of the Borrowing Base pursuant to Article III
(or for purposes of determining the Initial Borrowing Base in the event no such
Redetermination has occurred), based upon the discounted present value of the
estimated net cash flow to be realized from the production of Hydrocarbons from
the Direct Interests and the Attributed Interests as set forth in the Reserve
Report.


 


“Environmental
Laws” means all laws, rules, regulations, codes, ordinances, orders,
decrees, judgments, injunctions, notices or binding agreements issued,
promulgated or entered into by any Governmental Authority, relating in any way
to the environment, preservation or reclamation of natural resources, the
management, release or threatened release of any Hazardous Material or to
health and safety matters.


 


“Environmental
Liability” means any liability, contingent or otherwise (including any
liability for damages, costs of environmental remediation, fines, penalties or
indemnities), of any Credit Party directly or indirectly resulting from or
based upon (a) violation of any Environmental Law, (b) the
generation, use, handling, transportation, storage, treatment or disposal of
any Hazardous Materials, (c) exposure to any Hazardous Materials,
(d) the release or threatened release of any Hazardous Materials into the
environment or (e) any contract, agreement or other consensual arrangement
pursuant to which liability is assumed or imposed with respect to any of the
foregoing.


 


“Equity
Interests” means shares of capital stock, partnership interests, membership
interests in a limited liability company, beneficial interests in a trust or
other equity ownership interests in a Person, and any warrants, options or
other rights entitling the holder thereof to purchase or acquire any such
equity interest.


 


“ERISA”
means the Employee Retirement Income Security Act of 1974, as amended from time
to time.


 


“ERISA
Affiliate” means any trade or business (whether or not incorporated) that,
together with any Credit Party, is treated as a single employer under
Section 414(b) or (c) of the Code or, solely for purposes of Section 302
of ERISA and Section 412 of the Code, is treated as a single employer
under Section 414 of the Code.


 


10






 












 


“ERISA
Event” means (a) any “reportable event”, as defined in
Section 4043 of ERISA or the regulations issued thereunder with respect to
a Plan (other than an event for which the 30-day notice period is waived);
(b) the failure of any Plan to satisfy the minimum funding standard
applicable to that Plan for a plan year under Section 412 of the Code or
Section 302 of ERISA; (c) the filing pursuant to Section 412(d)
of the Code or Section 303(d) of ERISA of an application for a waiver of
the minimum funding standard with respect to any Plan; (d) the incurrence
by any Credit Party or any of its ERISA Affiliates of any liability under
Title IV of ERISA with respect to the termination of any Plan;
(e) the receipt by any Credit Party or any ERISA Affiliate from the PBGC
or a plan administrator of any notice relating to an intention to terminate any
Plan or Plans or to appoint a trustee to administer any Plan; (f) the
incurrence by any Credit Party or any of its ERISA Affiliates of any liability
with respect to the withdrawal or partial withdrawal from any Plan or
Multiemployer Plan; or (g) the receipt by any Credit Party or any ERISA
Affiliate of any notice, or the receipt by any Multiemployer Plan from any
Credit Party or any ERISA Affiliate of any notice, concerning the imposition of
Withdrawal Liability or a determination that a Multiemployer Plan is, or is
expected to be, insolvent or in reorganization, within the meaning of
Title IV of ERISA.


 


“Eurodollar”,
when used in reference to any Loan or Borrowing, refers to whether such Loan,
or the Loans comprising such Borrowing, are bearing interest at a rate
determined by reference to the Adjusted LIBO Rate.


 


“Event
of Default” has the meaning assigned to such term in Article IX.


 


“Excluded
Hedges” means, collectively, Swap Agreements that (a) are basis
differential only swaps for volumes of Natural Gas included under other Swap
Agreements permitted by Section 7.07(a) or (b) are a hedge of volumes of Crude
Oil or Natural Gas by means of a price “floor” for which there exists no
deferred obligation to pay the related premium or other purchase price or the
only deferred obligation is to either pay the premium or other purchase price
on each settlement date so long as such settlement date occurs at least
monthly, or pay the financing for such premium or other purchase price.


 


“Excluded
Taxes” means, with respect to the Administrative Agent, any Lender, the
Issuing Bank or any other recipient of any payment to be made by or on account
of any obligation of the Borrower hereunder, (a) income or franchise taxes
imposed on (or measured by) its net income by the United States of America (or
any political subdivision thereof), or by the jurisdiction (or any political
subdivision thereof) under the laws of which such recipient is organized or in
which its principal office is located or, in the case of any Lender, in which
its applicable lending office is located, (b) any branch profits taxes imposed
by the United States of America or any similar tax imposed by any other
jurisdiction in which the Borrower is located, (c) in the case of a Foreign
Lender (other than an assignee pursuant to a request by the Borrower under
Section 2.19(b)), any withholding tax that is imposed on amounts payable to
such Foreign Lender at the time such Foreign Lender becomes a party to this
Agreement (or designates a new lending office) or is attributable to such
Foreign Lender’s failure to comply with Section 2.17(e), except to the extent
that such Foreign Lender (or its assignor, if any) was entitled, at the time of
designation of a new lending office (or assignment), to receive additional
amounts from the Borrower with respect to such withholding tax pursuant to
Section 2.17(a), and (d) any United States withholding tax that is imposed by
FATCA.


 


11

















 


“Existing
Letters of Credit” means the letters of credit issued under the Original
Credit Agreement and set forth on the attached Schedule 1.01.


 


“Existing
Senior Notes” means the 73⁄4% Senior Notes due August 2013 issued by the
Borrower pursuant to and in accordance with the terms of the Indenture.


 


“Existing
Senior Notes Indenture” means that certain Indenture dated as of July 20,
2005, by and between the Borrower, as issuer, and Wells Fargo Bank, National
Association, as trustee, as amended, restated, supplemented, renewed or
extended or otherwise modified from time to time to the extent permitted by
Section 7.15.


 


“Existing
Swap Agreements” means any Swap Agreements entered into between any Credit
Party and any Lender Counterparty (including any Lender Counterparty under and
as defined in the Original Credit Agreement) prior to the Effective Date and in
effect on the Effective Date.


 


“FASB”
means Financial Accounting Standards Board.


 


“FATCA”
means Sections 1471 through 1474 of the Code (and any successor sections
thereto) and any regulations or official interpretations thereof.


 


“Federal
Funds Effective Rate” means, for any day, the weighted average (rounded
upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight
Federal funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers, as published on the next succeeding Business Day by
the Federal Reserve Bank of New York, or, if such rate is not so published
for any day that is a Business Day, the average (rounded upwards, if necessary,
to the next 1/100 of 1%) of the quotations for such day for such transactions
received by the Administrative Agent from three Federal funds brokers of
recognized standing selected by it.


 


“Fee
Letter” means that certain fee letter, dated October 28, 2010, among the
Borrower, the Administrative Agent and the Lead Arranger.


 


“Financial
Officer” means the chief financial officer, principal accounting officer,
treasurer or controller of any Credit Party. 
Any document delivered hereunder that is signed by a Financial Officer
of a Credit Party shall be conclusively presumed to have been authorized by all
necessary corporate, partnership and/or other action on the part of such Credit
Party and such Financial Officer shall be conclusively presumed to have acted
on behalf of such Credit Party.


 


“Foreign
Lender” means any Lender that is organized under the laws of a jurisdiction
other than that in which any Credit Party is located.  For purposes of this definition, the United
States of America, each State thereof and the District of Columbia shall be
deemed to constitute a single jurisdiction.


 


“GAAP”
means generally accepted accounting principles in the United States of America
as in effect from time to time subject to the terms and conditions set forth in
Section 1.04.


 


12

















 


“Gas
Balancing Agreement” means any agreement or arrangement whereby the
Borrower or any Restricted Subsidiary, or any other party having an interest in
any Hydrocarbons to be produced from Oil and Gas Interests in which the
Borrower or any Restricted Subsidiary owns an interest, has a right to take
more than its proportionate share of production therefrom.


 


“Governmental
Authority” means the government of the United States of America, any other
nation or any political subdivision thereof, whether state or local, and any
agency, authority, instrumentality, regulatory body, court, central bank or
other entity properly exercising executive, legislative, judicial, taxing,
regulatory or administrative powers or functions of or pertaining to
government.


 


“Guarantee”
of or by any Person (in this definition, the “guarantor”) means any
obligation, contingent or otherwise, of the guarantor guaranteeing or having
the economic effect of guaranteeing any Indebtedness or other obligation of any
other Person (the “primary obligor”) in any manner, whether directly or
indirectly, and including any obligation of the guarantor, direct or indirect, (a) to
purchase or pay (or advance or supply funds for the purchase or payment of)
such Indebtedness or other obligation or to purchase (or to advance or supply
funds for the purchase of) any security for the payment thereof, (b) to
purchase or lease property, securities or services for the purpose of assuring
the owner of such Indebtedness or other obligation of the payment thereof,
(c) to maintain working capital, equity capital or any other financial
statement condition or liquidity of the primary obligor so as to enable the
primary obligor to pay such Indebtedness or other obligation or (d) as an
account party in respect of any letter of credit or letter of guaranty issued
to support such Indebtedness or obligation; provided, that the term
Guarantee shall not include endorsements for collection or deposit in the
ordinary course of business.


 


“Guaranteed
Liabilities” has the meaning assigned to such term in Section 8.01.


 


“Guarantor”
means the Borrower (with respect to the Obligations of the other Credit Parties)
and each Material Restricted Subsidiary that is a party hereto or hereafter
executes and delivers to the Administrative Agent and the Lenders, a
Counterpart Agreement pursuant to Section 6.13 or otherwise.


 


“Hazardous
Materials”  means all explosive or
radioactive substances or wastes and all hazardous or toxic substances, wastes
or other pollutants, including petroleum or petroleum distillates, asbestos or
asbestos containing materials, polychlorinated biphenyls, radon gas, infectious
or medical wastes and all other substances or wastes of any nature regulated
pursuant to any Environmental Law.


 


“Hedge
Modification” means the amendment, modification, cancellation,
monetization, sale, transfer, assignment, early termination or other
disposition of any Swap Agreement (including any Existing Swap Agreement) by
any Credit Party for Crude Oil or Natural Gas.


 


“Hydrocarbons”
means all Crude Oil and Natural Gas produced from or attributable to the Oil
and Gas Interests of the Credit Parties.


 


13

















 


“Incentive
Partnership” means any trust or limited partnership to which a Credit
Party, as general partner, contributes a portion of its after-payout working
interest in wells drilled within certain areas, and key employees and
consultants who promote the drilling and acquisition programs, as limited
partners contribute cash.


 


“Indebtedness”
of any Person means, without duplication, (a) all obligations of such
Person for borrowed money, (b) all obligations of such Person evidenced by
bonds, debentures, notes or similar instruments, (c) all obligations of
such Person under conditional sale or other title retention agreements relating
to property acquired by such Person, (d) all obligations of such Person in
respect of the deferred purchase price of property or services (excluding those
incurred in the ordinary course of business which are not greater than sixty
(60) days past the date of invoice or delinquent or which are being contested
in good faith by appropriate action and for which adequate reserves have been
maintained in accordance with GAAP), (e) all Indebtedness of others
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien on property owned or
acquired by such Person, whether or not the Indebtedness secured thereby has
been assumed by such Person, but limited to the lesser of (i) the amount of
such Indebtedness and (ii) the fair market value of the property securing such
Indebtedness, (f) all Guarantees by such Person of Indebtedness of others
to the extent of the lesser of the amount of such Indebtedness and the maximum
stated amount of such Guarantee, (g) all Capital Lease Obligations of such
Person, (h) all obligations, contingent or otherwise, of such Person as an
account party in respect of letters of credit and letters of guaranty and (i)
all obligations, contingent or otherwise, of such Person in respect of bankers’
acceptances.  The Indebtedness of any
Person shall include the Indebtedness of any other entity (including any
partnership in which such Person is a general partner) to the extent such
Person is liable therefor as a result of such Person’s ownership interest in or
other relationship with such entity, except to the extent the terms of such
Indebtedness provide that such Person is not liable therefor.


 


“Indemnified
Taxes” means Taxes other than Excluded Taxes.


 


“Indemnitee”
has the meaning assigned to such term in Section 11.03.


 


“Indenture”
means with respect to (a) the Existing Senior Notes, the Existing Senior Notes
Indenture and (b) any other Senior Notes, any indenture by and among any Credit
Party, as issuer, and a trustee, pursuant to which such Senior Notes are
issued, in each case, as the same may be amended, restated, supplemented,
renewed or extended or otherwise modified from time to time to the extent
permitted by Section 7.15.


 


“Information”
has the meaning assigned to such term in Section 11.12.


 


“Initial
Borrowing Base” has the meaning assigned to such term in Section 3.01.


 


“Interest
Election Request” means a request by the Borrower to convert or continue a
Borrowing in accordance with Section 2.08.


 


“Interest
Payment Date” means (a) with respect to any ABR Loan, the last day of
each March, June, September and December, and (b) with respect to any
Eurodollar Loan, the last day of the Interest Period applicable to the
Borrowing of which such Loan is a part and, in the case of 


 


14

















 


a
Eurodollar Borrowing with an Interest Period of more than three months’
duration, each day prior to the last day of such Interest Period that occurs at
intervals of three months’ duration after the first day of such Interest
Period.


 


“Interest
Period” means with respect to any Eurodollar Borrowing, the period
commencing on the date of such Borrowing and ending on the numerically
corresponding day in the calendar month that is one, two, three or
six months thereafter, as the Borrower may elect; provided, that
(a) if any Interest Period would end on a day other than a Business Day, such
Interest Period shall be extended to the next succeeding Business Day unless
such next succeeding Business Day would fall in the next calendar month, in
which case such Interest Period shall end on the next preceding Business Day
and (b) any Interest Period pertaining to a Eurodollar Borrowing that commences
on the last Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the last calendar month of such Interest Period)
shall end on the last Business Day of the last calendar month of such Interest
Period.  For purposes hereof, the date of
a Borrowing initially shall be the date on which such Borrowing is made and
thereafter shall be the effective date of the most recent conversion or
continuation of such Borrowing.


 


“Issuing
Bank” means JPMorgan Chase Bank, N.A., in its capacity as the issuer of
Letters of Credit hereunder, and its successors in such capacity as provided in
Section 2.06(i).  The Issuing Bank may, in
its discretion, arrange for one or more Letters of Credit to be issued by
Affiliates of the Issuing Bank, in which case the term “Issuing Bank” shall
include any such Affiliate with respect to Letters of Credit issued by such
Affiliate.


 


“LC
Disbursement” means a payment made by the Issuing Bank pursuant to a Letter
of Credit.


 


“LC
Exposure” means, at any time, the sum of (a) the aggregate undrawn amount
of all outstanding Letters of Credit at such time plus (b) the aggregate amount
of all LC Disbursements that have not yet been reimbursed by or on behalf of
the Borrower at such time.  The LC
Exposure of any Lender at any time shall be its Applicable Percentage of the
total LC Exposure at such time.


 


“Lead
Arranger” means J.P. Morgan Securities LLC in its capacity as the lead
arranger.


 


“Lender
Certificate” has the meaning assigned to such term in Section 2.03.


 


“Lender
Counterparty” means any Lender or any Affiliate of a Lender counterparty to
a Swap Agreement with any Credit Party.


 


“Lender
Hedging Obligations” means all obligations arising from time to time under
Swap Agreements permitted hereunder and entered into from time to time between
any Credit Party and a Lender Counterparty (including any such obligations
under any Existing Swap Agreements); provided that if such Lender
Counterparty ceases to be a Lender hereunder or an Affiliate of a Lender
hereunder, Lender Hedging Obligations shall only include such obligations to
the extent arising from transactions entered into at the time such Lender
Counterparty was a Lender hereunder or an Affiliate of a Lender hereunder
pursuant to any Swap Agreement or any Existing Swap Agreement.


 


15

















 


“Lenders”
means the Persons listed on Schedule 2.01 and any other Person that shall
have become a party hereto pursuant to an Assignment and Assumption or a Lender
Certificate, other than any such Person that ceases to be a party hereto
pursuant to an Assignment and Assumption.


 


“Letter
of Credit” means each Existing Letter of Credit and any letter of credit
issued pursuant to this Agreement.


 


“LIBO
Rate” means, with respect to any Eurodollar Borrowing for any Interest
Period, the rate appearing on Reuters Screen LIBOR01, formerly known as Page
3750 of the Moneyline Telerate Service (or on any successor or substitute page
of such service, or any successor to or substitute for such service, providing
rate quotations comparable to those currently provided on such page of such
service, as determined by the Administrative Agent from time to time for
purposes of providing quotations of interest rates applicable to dollar
deposits in the London interbank market) at approximately 11:00 a.m., London
time, two Business Days prior to the commencement of such Interest Period, as
the rate for dollar deposits with a maturity comparable to such Interest
Period.  In the event that such rate is
not available at such time for any reason, then the “LIBO Rate” with
respect to such Eurodollar Borrowing for such Interest Period shall be the rate
at which dollar deposits of $5,000,000 and for a maturity comparable to such
Interest Period are offered by the principal London office of the
Administrative Agent in immediately available funds in the London interbank
market at approximately 11:00 a.m., London time, two Business Days prior
to the commencement of such Interest Period.


 


“Lien”
means, with respect to any asset, (a) any mortgage, deed of trust, lien,
pledge, hypothecation, encumbrance, charge or security interest in, on or of
such asset, (b) the interest of a vendor or a lessor under any conditional
sale agreement, capital lease or title retention agreement (or any financing
lease having substantially the same economic effect as any of the foregoing)
relating to such asset and (c) in the case of securities, any purchase
option, call or similar right of a third party with respect to such securities.


 


“Limited
Partnership Interests” means any Equity Interests owned by any Person
(other than any Credit Party) in any Related Partnership.


 


“LMIR”
means, for any day, a rate per annum equal to the rate for one month U.S.
dollar deposits as reported on Reuters Screen LIBOR01, formerly known as Page
3750 of the Moneyline Telerate Service, as of 11:00 a.m., London time, on such
day, or if such day is not a Business Day, then the immediately preceding
Business Day (or if not so reported, then any successor to or substitute for
such service, providing rate quotations comparable to those currently provided
on such page of such service, as determined by the Administrative Agent from
time to time for purposes of providing quotations of interest rates applicable
to dollar deposits in the London interbank market).


 


“Loan
Documents” means this Agreement, any promissory notes executed in
connection herewith, the Security Instruments, the Letters of Credit (and any
applications therefore and reimbursement agreements related thereto), the Fee
Letter and any other agreements executed by any Credit Party in connection with
this Agreement and designated as a Loan Document therein.


 


16

















 


“Loans”
means the loans made by the Lenders to the Borrower pursuant to this Agreement.


 


“Majority
Lenders” means, at any time, Lenders having Credit Exposures and Unused
Commitments representing more than fifty percent (50%) of the sum of the
Aggregate Credit Exposure and all Unused Commitments at such time or, if the
Aggregate Commitment has been terminated, Lenders having Credit Exposures
representing more than fifty percent (50%) of the Aggregate Credit Exposure at
such time.


 


“Material
Adverse Effect” means a material adverse effect on (a) the business,
assets, operations, financial condition or results of operations of the
Borrower and its Restricted Subsidiaries taken as a whole, (b) the ability
of any Credit Party to perform any of its obligations under this Agreement and
the other Loan Documents or (c) the validity or enforceability of any Loan
Document against any Credit Party which is a party thereto or the rights of or
benefits available to the Lenders under this Agreement and the other Loan
Documents.


 


“Material
Gas Imbalance” means, with respect to all Gas Balancing Agreements to which
Borrower or any Restricted Subsidiary is a party or by which any Oil and Gas
Interests owned by Borrower or a Restricted Subsidiary is bound, a net
overproduced gas imbalance to Borrower and the Restricted Subsidiaries, taken
as a whole, in excess of $750,000.


 


“Material
Indebtedness” means Indebtedness (other than the Loans and Letters of
Credit), or obligations in respect of one or more Swap Agreements, of the
Borrower or any one or more of the Restricted Subsidiaries in an aggregate
principal amount exceeding $15,000,000. 
For purposes of determining Material Indebtedness, the “principal amount”
of the obligations of the Borrower or any Restricted Subsidiary in respect of
any Swap Agreement at any time shall be the Swap Termination Value.


 


“Material
Restricted Subsidiary” means any Restricted Subsidiary that is a Domestic
Subsidiary and that is not a Non-Material Restricted Subsidiary.


 


“Material
Sales Contract” means, as of any date of determination, any agreement for
the sale of Hydrocarbons from the Borrowing Base Properties to which the
Borrower or any Restricted Subsidiary is a party if the aggregate volume of
Hydrocarbons sold pursuant to such agreement during the twelve months
immediately preceding such date equals or exceeds 15% of the aggregate volume
of Hydrocarbons sold by the Borrower and the Restricted Subsidiaries, on a
consolidated basis, from the Borrowing Base Properties during the twelve months
immediately preceding such date.


 


“Maturity
Date” means November 29, 2015; provided that if on or prior to April
1, 2013 the Existing Senior Notes are not either (a) amended to extend the
scheduled repayment thereof until no earlier than May 29, 2016 or (b) retired,
redeemed, defeased, repurchased, prepaid or refinanced with the proceeds of any
Permitted Refinancing, the Loans or the issuance of Equity Interests of the
Borrower (or any combination thereof) in accordance with Section 7.15, then “Maturity
Date” shall mean April 1, 2013.


 


“Maximum
Credit Amount” means, as to each Lender, the amount set forth opposite such
Lender’s name on Schedule 2.01 under the caption “Maximum Credit Amount”, as
the 


 


17

















 


same
may be (a) reduced or terminated from time to time in connection with a
reduction or termination of the Maximum Facility Amount pursuant to Section
2.02, (b) increased from time to time pursuant to Section 2.03 or (c) modified
from time to time pursuant to any assignment permitted by Section 11.04.


 


“Maximum
Facility Amount” means, as of the Effective Date, $500,000,000, as such
amount may be adjusted from time to time thereafter in accordance with Section 2.02
or Section 2.03.


 


“Maximum
Liability” has the meaning assigned to such term in Section 8.10.


 


“Maximum
Rate” has the meaning assigned to such term in Section 11.13.


 


“Moody’s”
means Moody’s Investors Service, Inc.


 


“Mortgaged
Properties” means the Direct Interests described in one or more duly
executed, delivered and filed Mortgages evidencing a first and prior Lien in
favor of the Administrative Agent for the benefit of the Secured Parties and
subject only to the Liens permitted pursuant to Section 7.02.


 


“Mortgages”
means all mortgages, deeds of trust, amendments to mortgages, security
agreements, assignments of production, pledge agreements, collateral mortgages,
collateral chattel mortgages, collateral assignments, financing statements and
other documents, instruments and agreements evidencing, creating, perfecting or
otherwise establishing the Liens on the Mortgaged Properties as required by
Section 6.09, which shall be in form and substance reasonably satisfactory
to the Administrative Agent.


 


“Multiemployer
Plan” means a multiemployer plan as defined in Section 4001(a)(3) of
ERISA to which any Credit Party or any ERISA Affiliate contributed or has any
obligations (current or contingent).


 


“Natural
Gas” means all natural gas, distillate or sulphur, natural gas liquids and
all products recovered in the processing of natural gas (other than condensate)
including, without limitation, natural gasoline, coalbed methane gas,
casinghead gas, iso-butane, normal butane, propane and ethane (including such
methane allowable in commercial ethane).


 


“Net
Cash Proceeds” means, (A) with respect to any Disposition of any Borrowing
Base Properties (including any Equity Interests of any Restricted Subsidiary
owning Borrowing Base Properties) by the Borrower or any Restricted Subsidiary,
the excess, if any, of (a) the sum of cash and cash equivalents received in
connection with such sale, but only as and when so received, over (b) the sum
of (i) the principal amount of any Indebtedness that is secured by such asset
and that is required to be repaid in connection with the sale thereof (other
than the Loans) and (ii) the out-of-pocket expenses incurred by the Borrower or
such Restricted Subsidiary in connection with such sale, (B) with respect to
any Permitted Refinancing or issuance of Senior Notes, the cash proceeds
received from such Permitted Refinancing or issuance of Senior Notes, as the
case may be, net of underwriting discounts and commissions and other reasonable
costs and expenses associated therewith, including reasonable legal fees and
expenses, and (C) with respect to any Hedge Modification by the Borrower or any
Restricted Subsidiary, the excess, if 


 


18

















 


any,
of (a) the sum of cash and cash equivalents received in connection with such
Hedge Modification (after giving effect to any netting arrangements), over (b)
the out-of-pocket expenses incurred by the Borrower or such Restricted
Subsidiary in connection with such Hedge Modification.


 


“New
Lender” shall have the meaning assigned to such term in Section 11.17.


 


“Non-Consenting
Lender” has the meaning assigned to such term in Section 2.19(c).


 


“Non-Material
Restricted Subsidiary” means any Restricted Subsidiary that (a) does not
own or operate, by contract or otherwise, any Oil and Gas Interests included in
the Borrowing Base Properties and (b) does not own assets, properties and
interests having an aggregate fair market value in excess of $500,000.


 


“Obligations”
means (a) all obligations of every nature, contingent or otherwise, whether now
existing or hereafter arising, of any Credit Party from time to time owed to
the Administrative Agent, the Issuing Bank, the Lenders or any of them under
any Loan Document, whether for principal, interest, reimbursement of amounts
drawn under any Letter of Credit, funding indemnification amounts, fees,
expenses, indemnification or otherwise, (b) Lender Hedging Obligations and (c)
Cash Management Obligations.


 


“Off-Balance
Sheet Liability” of a Person means (i) any repurchase obligation or
liability of such Person with respect to accounts or notes receivable sold by
such Person, (ii) any liability under any Sale and Leaseback Transaction which
is not a Capital Lease Obligation, (iii) any liability under any so-called “synthetic
lease” transaction entered into by such Person, (iv) any Material Gas
Imbalance, (v) any Advance Payment Contract, or (vi) any obligation arising
with respect to any other transaction which is the functional equivalent of or
takes the place of borrowing but which does not constitute a liability on the
balance sheets of such Person, but excluding from the foregoing clauses (iii)
through (vi) operating leases and usual and customary oil, gas and mineral
leases.


 


“Oil
and Gas Interest(s)” means: (a) direct and indirect interests in and rights
with respect to oil, gas, mineral and related properties and assets of any kind
and nature, direct or indirect, including, without limitation, working, royalty
and overriding royalty interests, mineral interests, leasehold interests,
production payments, operating rights, net profits interests, other non-working
interests, contractual interests, non-operating interests and rights in any
pooled, unitized or communitized acreage by virtue of such interest being a
part thereof; (b) interests in and rights with respect to Hydrocarbons and
other minerals or revenues therefrom and contracts and agreements in connection
therewith and claims and rights thereto (including oil and gas leases,
operating agreements, unitization, communitization and pooling agreements and
orders, division orders, transfer orders, mineral deeds, royalty deeds, oil and
gas sales, exchange and processing contracts and agreements and, in each case,
interests thereunder), and surface interests, fee interests, reversionary
interests, reservations and concessions related to any of the foregoing; (c)
easements, rights-of-way, licenses, permits, leases, and other interests
associated with, appurtenant to, or necessary for the operation of any of the
foregoing; (d) interests in oil, gas, water, disposal and injection wells,
equipment and machinery (including well equipment and machinery), oil and gas
production, gathering, transmission, compression, treating, processing 


 


19

















 


and
storage facilities (including tanks, tank batteries, pipelines and gathering
systems), pumps, water plants, electric plants, gasoline and gas processing
plants, refineries and other tangible or intangible, movable or immovable, real
or personal property and fixtures located on, associated with, appurtenant to,
or necessary for the operation of any of the foregoing; and (e) all seismic,
geological, geophysical and engineering records, data, information, maps,
licenses and interpretations.


 


“Organizational
Documents” means (a) with respect to any corporation, its certificate or
articles of incorporation, organization or formation, as amended, and its
by-laws, as amended, (b) with respect to any limited partnership, its
certificate of limited partnership or formation, as amended, and its
partnership agreement, as amended, (c) with respect to any general partnership,
its partnership agreement, as amended, and (d) with respect to any limited
liability company, its certificate of formation or articles of organization, as
amended, and its limited liability company agreement or operating agreement, as
amended.


 


“Original
Credit Agreement” has the meaning provided for such term in the first
Recital to this Agreement.


 


“Original
Loans” means the loans and other extensions of credit outstanding under the
Original Credit Agreement as of the Effective Date.


 


“Other
Attributed Interests” means any Oil and Gas Interests indirectly owned by
any Person (other than any Credit Party) through the ownership of Limited
Partnership Interests and attributed to such Person in proportion to such
Person’s ownership of such Limited Partnership Interests.


 


“Other
Taxes” means any and all present or future stamp or documentary taxes or
any other excise or property taxes, charges or similar levies arising from any
payment made hereunder or from the execution, delivery or enforcement of, or
otherwise with respect to, this Agreement.


 


“Parent”
means, with respect to any Lender, any Person as to which such Lender is,
directly or indirectly, a subsidiary.


 


“Participant”
has the meaning assigned to such term in Section 11.04.


 


“Partnership
Interests” means any Equity Interests owned by any Credit Party in any
Related Partnership.


 


“Payment
Currency” has the meaning assigned to such term in Section 8.07.


 


“PBGC”
means the Pension Benefit Guaranty Corporation referred to and defined in ERISA
and any successor entity performing similar functions.


 


“Permitted
Encumbrances” means:


 


(a)           Liens imposed by law for Taxes,
assessments or other governmental charges or levies which are not yet
delinquent or which (i) are being contested in good faith by appropriate 


 


20

















 


proceedings,
(ii) the Borrower or such Restricted Subsidiary, as applicable, has set aside
on its books adequate reserves with respect thereto in accordance with GAAP and
(iii) the failure to make payment pending such contest could not reasonably be
expected to result in a Material Adverse Effect;


 


(b)          carriers’, warehousemen’s, mechanics’,
materialmen’s, repairmen’s and other like Liens imposed by law, and contractual
Liens granted to operators and non-operators under oil and gas operating
agreements, in each case, arising in the ordinary course of business or
incident to the exploration, development, operation and maintenance of Oil and
Gas Interests and securing obligations that are not overdue by more than 60
days or which (i) are being contested in good faith by appropriate proceedings,
(ii) the Borrower or such Restricted Subsidiary, as applicable, has set aside
on its books adequate reserves with respect thereto in accordance with GAAP and
(iii) the failure to make payment pending such contest could not reasonably be
expected to result in a Material Adverse Effect;


 


(c)           contractual Liens which arise in the
ordinary course of business under operating agreements, oil and gas partnership
agreements, oil and gas leases, farm-out agreements, division orders, contracts
for the sale, transportation or exchange of oil and natural gas, unitization and
pooling declarations and agreements, area of mutual interest agreements,
overriding royalty agreements, marketing agreements, processing agreements, net
profits agreements, development agreements, gas balancing or deferred
production agreements, injection, repressuring and recycling agreements, salt
water or other disposal agreements, seismic or other geophysical permits or
agreements, and other agreements which are usual and customary in the oil and
gas business and are for claims which are not delinquent or which are being
contested in good faith by appropriate action and for which adequate reserves
have been maintained in accordance with GAAP, provided that any such Lien
referred to in this clause does not materially impair the use of the property
covered by such Lien for the purposes for which such property is held by the
Borrower or any Restricted Subsidiary or materially impair the value of such
property subject thereto;


 


(d)          pledges and deposits in connection
with workers’ compensation, unemployment insurance and other social security
laws or regulations;


 


(e)           Liens on cash and securities and
deposits to secure the performance of bids, trade contracts, leases, statutory
obligations, surety and appeal bonds, performance bonds and other obligations
of a like nature, in each case in the ordinary course of business;


 


(f)           Liens arising solely by virtue of any
statutory or common law provision relating to banker’s liens, rights of set-off
or similar rights and remedies, or under general depositary agreements, and
burdening only deposit accounts or other funds maintained with a creditor
depository institution, provided that no such deposit account is a dedicated
cash collateral account or is subject to restrictions against access by the
depositor in excess of those set forth by regulations promulgated by the Board
and no such deposit account is intended by Borrower or any of its Restricted
Subsidiaries to provide collateral to the depository institution;


 


(g)          judgment liens in respect of judgments
that do not constitute an Event of Default under clause (k) of Article IX;


 


21






 












 


(h)           easements, zoning
restrictions, rights-of-way, servitudes, permits, surface leases, and similar
encumbrances on real property imposed by law or arising in the ordinary course
of business that do not secure any monetary obligations and that, in the aggregate,
do not materially detract from the value of the affected property or interfere
with the ordinary conduct of business of the Borrower or any Restricted
Subsidiary;


 


(i)            royalties, overriding
royalties, reversionary interests and similar burdens granted by the Borrower
or any Restricted Subsidiary with respect to the Oil and Gas Interests owned by
the Borrower or such Restricted Subsidiary, as the case may be, if the net
cumulative effect of such burdens does not operate to deprive the Borrower or any
Restricted Subsidiary of any material right in respect of its assets or
properties (except for rights customarily granted with respect to such
interests);


 


(j)            Liens arising from Uniform
Commercial Code financing statement filings regarding operating leases entered
into by the Borrower or any Restricted Subsidiary in the ordinary course of
business covering the property under the lease;


 


(k)           unperfected Liens reserved
in leases (other than oil and gas leases) or arising by operation of law for
rent or compliance with the lease in the case of leasehold estates; and


 


(l)            defects in or irregularities
of title (other than defects or irregularities of title to Direct Interests),
if such defects or irregularities do not deprive the Borrower or any Restricted
Subsidiary of any material right in respect of its assets or properties;


 


provided that the term “Permitted
Encumbrances” shall not include any Lien securing Indebtedness.


 


“Permitted
Investments” means:


 


(a) U.S.
Government Securities;


 


(b) investments
in commercial paper maturing within 270 days from the date of acquisition
thereof and having, at such date of acquisition, the highest credit rating
obtainable from S&P or from Moody’s;


 


(c) investments
in certificates of deposit, banker’s acceptances and time deposits maturing
within 180 days from the date of acquisition thereof issued or guaranteed by or
placed with, and money market deposit accounts issued or offered by, any
domestic office of any commercial bank organized under the laws of the United
States of America or any State thereof which has a combined capital and surplus
and undivided profits of not less than $500,000,000;


 


(d) fully
collateralized repurchase agreements with a term of not more than 30 days for
securities described in clause (a) above and entered into with a
financial institution satisfying the criteria described in clause (c) above;
and


 


(e) money
market funds that (i) comply with the criteria set forth in Securities and
Exchange Commission Rule 2a-7 under the Investment Company Act of 1940, (ii) are
rated AAA by S&P and Aaa by Moody’s and (iii) have portfolio assets of
at least $5,000,000,000.


 


22

















 


“Permitted
Refinancing” means any Indebtedness of the Borrower or any Restricted
Subsidiary, and Indebtedness constituting Guarantees thereof by the Borrower or
any Restricted Subsidiary, incurred or issued in exchange for, or renewing or
extending, or the Net Cash Proceeds of which are used to extend, refinance,
renew, replace, defease or refund, Senior Notes, in whole or in part, from time
to time; provided that (a) the principal amount of such Permitted
Refinancing (or if such Permitted Refinancing is issued at a discount, the
initial issuance price of such Permitted Refinancing) does not exceed the
principal amount of Indebtedness permitted under Section 7.01(g) (plus
the amount of any premiums paid and fees and expenses incurred in connection
therewith), (b) such Permitted Refinancing does not provide for any scheduled
repayment, mandatory redemption or payment of a sinking fund obligation prior
to the date that is six months after the fifth anniversary of the Effective
Date (except for any offer to redeem such Indebtedness required as a result of
asset sales or the occurrence of a “Change of Control” under and as defined in
the Indenture), (c)  the covenant, default and remedy provisions of such
Permitted Refinancing, taken as a whole, are not materially more onerous to the
Borrower and its Subsidiaries than those imposed by the Senior Notes being
refinanced, (d) the mandatory prepayment, repurchase and redemption
provisions of such Permitted Refinancing, taken as a whole, are not materially
more onerous to the Borrower and its Subsidiaries than those imposed by the
Senior Notes being refinanced, (e) the non-default cash interest rate on
the outstanding principal balance of such Permitted Refinancing does not exceed
the greater of (i) the non-default cash interest rate of the Senior Notes
being refinanced and (ii) the prevailing market rate then in effect for
similarly situated credits at the time such Permitted Refinancing is incurred, (f) such
Permitted Refinancing is unsecured, (g) no Subsidiary of the Borrower is
required to Guarantee such Permitted Refinancing unless such Subsidiary is (or
concurrently with any such Guarantee becomes) a Guarantor hereunder, and (h) to
the extent such Permitted Refinancing is or is intended to be expressly
subordinate to the payment in full of all of the Obligations, the subordination
provisions contained therein are either (x) on substantially the same
terms or at least as favorable to the Secured Parties as the subordination
provisions contained in the Senior Notes being refinanced or (y) reasonably
satisfactory to the Administrative Agent and the Majority Lenders.


 


“Person”
means any natural person, corporation, limited liability company, trust, joint
venture, association, company, partnership, Governmental Authority or other
entity.


 


“Plan”
means any employee pension benefit plan (other than a Multiemployer Plan)
subject to the provisions of Title IV of ERISA or Section 412 of the
Code or Section 302 of ERISA, and in respect of which any Credit Party or
any ERISA Affiliate is (or, if such plan were terminated, would under
Section 4069 of ERISA be deemed to be) an “employer” as defined in
Section 3(5) of ERISA.


 


“Prime
Rate” means the rate of interest per annum publicly announced from time to
time by JPMorgan Chase Bank, N.A. as its prime rate in effect at its principal
office in New York, New York, each change in the Prime Rate shall be effective
from and including the date such change is publicly announced as being
effective.  THE PRIME RATE IS A REFERENCE
RATE AND MAY NOT BE JPMORGAN CHASE BANK, N.A.’S LOWEST RATE.


 


“Projections”
means the Borrower’s forecasted (a) balance sheets, (b) profit and
loss statements, and (c) cash flow statements, all prepared on a basis
consistent with the historical 


 


23

















 


financial
statements described in Section 4.04 and after giving effect to the
Transactions, together with appropriate supporting details and a statement of
underlying assumptions, in each case in form and substance satisfactory to the
Lenders and for the period from the Effective Date through December 31, 2012.


 


“Redetermination”
means any Scheduled Redetermination or Special Redetermination.


 


“Redetermination
Date” means each date on which the Borrowing Base is redetermined pursuant
to the terms hereof, which shall be (a) with respect to any Scheduled
Redetermination, on or about May 1 and November 1 of each year,
commencing May 1, 2011, (b) with respect to any Special
Redetermination requested by the Borrower pursuant to Section 3.03, the
first day of the first month which is not less than twenty (20) days following
the date of a request by the Borrower for a Special Redetermination and (c) with
respect to any Special Redetermination requested by the Required Lenders, the
date notice of such Redetermination is delivered to the Borrower pursuant to Section 3.04.


 


“Register”
has the meaning assigned to such term in Section 11.04.


 


“Related
Parties” means, with respect to any specified Person, such Person’s
Affiliates and the respective directors, officers, employees, agents and
advisors of such Person and such Person’s Affiliates.


 


“Related
Partnerships” means the limited partnerships described on
Schedule 1.02 of which Southwest Royalties, Inc., a Delaware
corporation, and its successors and assigns, is the general partner or managing
general partner, and any successors to such limited partnerships; provided that
no such limited partnerships or successors thereto shall have any Indebtedness.


 


“Required
Lenders” means, at any time, Lenders having Credit Exposures and Unused
Commitments representing at least sixty-six and two-thirds percent (66-2/3%)  of the sum of the Aggregate Credit
Exposure and all Unused Commitments of all Lenders at such time or, if the
Aggregate Commitment has been terminated, Lenders having Credit Exposures
representing at least sixty-six and two-thirds percent (66-2/3%) of the
Aggregate Credit Exposure of all Lenders at such time.


 


“Requirements
of Law” means, as to any Person, any order, law, treaty, rule or
regulation or determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is subject.


 


“Reserve
Report” means an unsuperseded engineering analysis of the Borrowing Base
Properties, in form and substance reasonably acceptable to the Administrative
Agent, prepared in accordance with customary and prudent practices in the
petroleum engineering industry.


 


“Responsible
Officer” means the chief executive officer, president, vice president,
chief financial officer, principal accounting officer, treasurer or assistant
treasurer of a Credit Party.  Any
document delivered hereunder that is signed by a Responsible Officer of a
Credit Party shall be conclusively presumed to have been authorized by all
necessary corporate, partnership and/or 


 


24

















 


other
action on the part of such Credit Party and such Responsible Officer shall be
conclusively presumed to have acted on behalf of such Credit Party.


 


“Restricted
Payment” means any dividend or other distribution (whether in cash,
securities or other property) with respect to any Equity Interests in the
Borrower or any Restricted Subsidiary, or any payment (whether in cash,
securities or other property), including any sinking fund or similar deposit,
on account of the purchase, redemption, retirement, acquisition, cancellation
or termination of any such Equity Interests in the Borrower or any Restricted
Subsidiary or any option, warrant or other right to acquire any such Equity Interests
in the Borrower or any Restricted Subsidiary.


 


“Restricted
Subsidiary” means any Subsidiary that is not an Unrestricted Subsidiary.


 


“S&P”
means Standard & Poor’s Ratings Group, a division of The McGraw Hill
Corporation.


 


“Sale
and Leaseback Transaction” means any sale or other transfer of any property
by any Person with the intent to lease such property as lessee.


 


“Scheduled
Redetermination” means any redetermination of the Borrowing Base pursuant
to Section 3.02.


 


“Secured
Party” means each of the Administrative Agent, any Lender, any Lender
Counterparty and any Affiliate of any Lender to which Obligations are owed,
including any Cash Management Obligations and Lender Hedging Obligations.


 


“Security
Agreement” means that certain Amended and Restated Pledge and Security
Agreement dated as of the Effective Date, in favor of the Administrative Agent
for the benefit of the Secured Parties.


 


“Security
Instruments” means collectively, the Security Agreement and all Mortgages,
deeds of trust, security agreements, pledge agreements, guaranty agreements
(other than this Agreement), collateral assignments and all other collateral
documents, now or hereafter executed and delivered by the Borrower or any other
Person (other than Swap Agreements with the Lenders or any Affiliate of a
Lender or participation or similar agreements between any Lender and any other
lender or creditor with respect to any Indebtedness pursuant to this Agreement)
as security for the payment or performance of the Obligations, all such documents
to be in form and substance reasonably satisfactory to the Administrative
Agent.


 


“Senior
Notes” means (a) the Existing Senior Notes and (b) any other
senior, senior subordinated or senior convertible notes issued by the Borrower
pursuant to and in accordance with the terms of the applicable Indenture; provided
that, in the case of this clause (b), (i) the terms of such senior notes
do not provide for any scheduled repayment, mandatory redemption or payment of
a sinking fund obligation prior to the date that is six months after the fifth
anniversary of the Effective Date (except for any offer to redeem such Senior
Notes required as a result of asset sales or the occurrence of a “Change of
Control” under and as defined in the Indenture), (ii) such senior notes
are unsecured, (iii) the non-default interest rate on the outstanding
principal balance of such senior notes does not exceed the prevailing market
rate 


 


25

















 


then
in effect for similarly situated credits at the time such senior notes are
issued, (iv) no Subsidiary of the Borrower is required to Guarantee the
Indebtedness evidenced by such senior notes unless such Subsidiary is (or
concurrently with any such Guarantee becomes) a Guarantor hereunder, (v) the
covenant, default and remedy provisions of such senior notes, taken as a whole,
are not materially more onerous to the Borrower and its Subsidiaries than those
imposed by the Existing Senior Notes, (vi) the mandatory prepayment,
repurchase and redemption provisions of such Senior Notes, taken as a whole,
are not materially more onerous to the Borrower and its Subsidiaries than those
imposed by the Existing Senior Notes and (vii) with respect to any senior
subordinated notes, such notes are expressly subordinate to the payment in full
of all of the Obligations on terms and conditions reasonably satisfactory to
the Administrative Agent and the Majority Lenders, and in the case of the
Existing Senior Notes and the other Senior Notes described in clause (b) above,
as the same may be amended, restated, supplemented, renewed or extended or
otherwise modified from time to time to the extent permitted by Section 7.15.


 


“Senior
Notes Documents” means the Senior Notes, the Indenture and any documents or
instruments contemplated by or executed in connection with any of them (and
designated therein as having been executed in connection with the Senior
Notes), in each case, as amended, modified, supplemented or restated from time
to time to the extent permitted by Section 7.15.


 


“Sole
Bookrunner” means J.P. Morgan Securities LLC in its capacity as the sole
bookrunner.


 


“Special
Redetermination” means any redetermination of the Borrowing Base made
pursuant to Section 3.03.


 


“Statutory
Reserve Rate” means a fraction (expressed as a decimal), the numerator of
which is the number one and the denominator of which is the number one minus
the aggregate of the maximum reserve percentages (including any marginal,
special, emergency or supplemental reserves) expressed as a decimal established
by the Board to which the Administrative Agent is subject for eurocurrency
funding (currently referred to as “Eurocurrency Liabilities” in
Regulation D of the Board).  Such
reserve percentages shall include those imposed pursuant to such Regulation D.  Eurodollar Loans shall be deemed to
constitute eurocurrency funding and to be subject to such reserve requirements
without benefit of or credit for proration, exemptions or offsets that may be
available from time to time to any Lender under such Regulation D or any
comparable regulation.  The Statutory
Reserve Rate shall be adjusted automatically on and as of the effective date of
any change in any reserve percentage.


 


“subsidiary”
means, with respect to any Person (the “parent”) at any date, any other
Person the accounts of which would be consolidated with those of the parent in
the parent’s consolidated financial statements if such financial statements
were prepared in accordance with GAAP as of such date, as well as any other
Person (a) of which Equity Interests representing more than 50% of the
equity or more than 50% of the ordinary voting power or, in the case of a
partnership (other than any Related Partnership), more than 50% of the general
partnership interests are, as of such date, owned, controlled or held, or (b) that
is, as of such date, otherwise Controlled, by the parent or one or more
subsidiaries of the parent or by the parent and one or more subsidiaries of the
parent (other than any Related Partnerships).


 


26

















 


“Subsidiary”
means a subsidiary of the Borrower; provided that for the purposes of this
Agreement, (a) no Related Partnership shall be deemed to be a subsidiary
of the Borrower and (b) so long as (i) neither the Borrower nor any
subsidiary of the Borrower owns more than 5% of the Equity Interests of West
Coast Properties and (ii) West Coast Properties does not own or operate
any Oil and Gas Interests included in the Borrowing Base Properties, West Coast
Properties shall be deemed not to be a subsidiary of the Borrower.


 


“Super-Majority
Lenders” means, at any time, Lenders having Credit Exposures and Unused
Commitments representing at least eighty percent (80%) of the sum of the
Aggregate Credit Exposure and all Unused Commitments at such time or, if the
Aggregate Commitment has been terminated, Lenders having Credit Exposures
representing at least eighty percent (80%) of the Aggregate Credit Exposure of
all Lenders at such time.


 


“Swap
Agreement” means any agreement with
respect to any swap, forward, future or derivative transaction or option or
similar agreement involving, or settled by reference to, one or more rates,
currencies, commodities, equity or debt instruments or securities, or economic,
financial or pricing indices or measures of economic, financial or pricing risk
or value or any similar transaction or any combination of these transactions (other
than, with respect to any Credit Party, forward contracts for the purchase by,
and physical delivery to, a Credit Party of commodities used or consumed by
such Credit Party in the ordinary course of business); provided that no phantom stock or similar plan providing
for payments only on account of services provided by current or former
directors, officers, employees or consultants of the Credit Parties shall be a
Swap Agreement.


 


“Swap
Termination Value” means, in respect of any one or more Swap Agreements,
after taking into account the effect of any legally enforceable netting
agreement relating to such Swap Agreements, (a) for any date on or after
the date such Swap Agreements have been closed out and termination value(s) determined
in accordance therewith, such termination value(s) and (b) for any
date prior to the date referenced in clause (a), the amount(s) determined
as the mark-to-market value(s) for such Swap Agreements, as determined by
the counterparties to such Swap Agreements.


 


“Taxes”
means any and all present or future taxes, levies, imposts, duties, deductions,
charges or withholdings imposed by any Governmental Authority.


 


“Transactions”
means (a) the execution, delivery and performance by the Credit Parties of
this Agreement and the other Loan Documents, (b) the borrowing of Loans, (c) the
use of the proceeds thereof, and (d) the issuance of Letters of Credit
hereunder.


 


“Type”,
when used in reference to any Loan or Borrowing, refers to whether the rate of
interest on such Loan, or on the Loans comprising such Borrowing, is determined
by reference to the Adjusted LIBO Rate or the Alternate Base Rate.


 


“Unrestricted
Subsidiary” means any Subsidiary of the Borrower designated as such on
Schedule 4.13 or which the Borrower has designated in writing to the
Administrative Agent to be an Unrestricted Subsidiary pursuant to Section 6.15.


 


“Unused
Commitment Fee” has the meaning assigned to such term in Section 2.12(a).


 


27

















 


“Unused
Commitment” means, with respect to each Lender at any time, such Lender’s
Commitment at such time minus such Lender’s Credit Exposure at such time.


 


“U.S.
Government Securities” means direct obligations of, or obligations the
principal of and interest on which are unconditionally guaranteed by, the
United States of America (or by any agency or instrumentality thereof to the
extent such obligations are entitled to the full faith and credit of the United
States of America), in each case maturing within one year from the date of
acquisition thereof.


 


“Vendor
Financings” means vendor financings incurred by the Borrower or its
Restricted Subsidiaries for services, equipment or material on other than
customary trade payable terms.


 


“West
Coast Properties” means West Coast Energy Properties, L.P., a Texas limited
partnership and its successors


 


“Withdrawal
Liability” means liability to a Multiemployer Plan as a result of a
complete or partial withdrawal from such Multiemployer Plan, as such terms are
defined in Part I of Subtitle E of Title IV of ERISA.


 


Section 1.02.         Types of Loans and Borrowings.  For purposes of this Agreement, Loans may be
classified and referred to by Type (e.g., a “Eurodollar Loan” or an “ABR
Loan”).  Borrowings also may be
classified and referred to by Type (e.g., a “Eurodollar Borrowing” or an
“ABR Borrowing”).


 


Section 1.03.         Terms Generally.  The definitions of terms herein shall apply
equally to the singular and plural forms of the terms defined.  Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter forms.  The words “include”, “includes” and “including”
shall be deemed to be followed by the phrase “without limitation”.  The word “will” shall be construed to have
the same meaning and effect as the word “shall”.  Unless the context requires otherwise (a) any
definition of or reference to any agreement, instrument or other document herein
shall be construed as referring to such agreement, instrument or other document
as from time to time amended, supplemented or otherwise modified (subject to
any restrictions on such amendments, supplements or modifications set forth
herein), (b) any reference herein to any Person shall be construed to
include such Person’s successors and assigns, (c) the words “herein”, “hereof”
and “hereunder”, and words of similar import, shall be construed to refer to
this Agreement in its entirety and not to any particular provision hereof, (d) all
references herein to Articles, Sections, Exhibits and Schedules shall be
construed to refer to Articles and Sections of, and Exhibits and Schedules to,
this Agreement and (e) the words “asset” and “property” shall be construed
to have the same meaning and effect and to refer to any and all tangible and
intangible assets and properties, including cash, securities, accounts and
contract rights.


 


Section 1.04.         Accounting Terms; GAAP.  Except as otherwise expressly provided herein,
all terms of an accounting or financial nature shall be construed in accordance
with GAAP, as in effect from time to time; provided that, if the
Borrower notifies the Administrative Agent that the Borrower requests an
amendment to any provision hereof to eliminate the effect of any change
occurring after the date hereof in GAAP or in the application thereof on the 


 


28

















 


operation
of such provision (or if the Administrative Agent notifies the Borrower that the
Majority Lenders request an amendment to any provision hereof for such
purpose), regardless of whether any such notice is given before or after such
change in GAAP or in the application thereof, then such provision shall be
interpreted on the basis of GAAP as in effect and applied immediately before
such change shall have become effective until such notice shall have been
withdrawn or such provision amended in accordance herewith.


 


Section 1.05.         Oil and Gas Definitions.   For purposes of this Agreement, the terms “proved
reserves,” “proved developed reserves,” “proved undeveloped reserves,” “proved
developed nonproducing reserves” and “proved developed producing reserves,”
have the meaning given such terms from time to time and at the time in question
by the Society of Petroleum Engineers of the American Institute of Mining
Engineers.


 


Section 1.06.         Time of Day.  Unless otherwise specified, all references to
times of day shall be references to Central time (daylight or standard, as
applicable).


 


Article II


 


The Credits


 


Section 2.01.         Commitments.  Subject to the terms and conditions set forth
herein, each Lender that was a Lender under and as defined in the Original
Credit Agreement agrees to continue the Original Loans and each Lender agrees
to make one or more Loans to the Borrower from time to time on any Business Day
during the Availability Period in an aggregate principal amount that will not
result in (a) such Lender’s Credit Exposure exceeding such Lender’s
Commitment or (b) the Aggregate Credit Exposure exceeding the Aggregate
Commitment.  Within the foregoing limits
and subject to the terms and conditions set forth herein, the Borrower may
borrow, prepay and reborrow Loans.


 


Section 2.02.         Termination and Reduction of the Aggregate
Commitment and Maximum Facility Amount.


 


(a)          Unless previously terminated, the Aggregate
Commitment shall terminate on the Maturity Date.


 


(b)          The Borrower may at any time terminate, or from time
to time reduce, the Maximum Facility Amount; provided that (i) each
reduction of the Maximum Facility Amount shall be in an amount that is an
integral multiple of $1,000,000 and not less than $1,000,000 and shall be
applied among the Lenders in accordance with each Lender’s Applicable
Percentage and (ii) the Borrower shall not terminate or reduce the Maximum
Facility Amount if, after giving effect to any concurrent prepayment of the
Loans in accordance with Section 2.10 and Section 2.11, the Aggregate
Credit Exposure would exceed the Aggregate Commitment. If at any time the
Maximum Facility Amount is terminated or the Borrowing Base is reduced to zero,
then the Aggregate Commitment shall terminate on the effective date of such
termination or reduction.


 


(c)           The Borrower shall notify the Administrative Agent
of any election to terminate or reduce the Maximum Facility Amount under
paragraph (b) of this Section at least three Business Days prior
to the effective date of such termination or reduction, specifying such 


 


29

















 


election
and the effective date thereof.  Promptly
following receipt of any notice, the Administrative Agent shall advise the
Lenders of the contents thereof.  Each
notice delivered by the Borrower pursuant to this Section shall be
irrevocable; provided that a notice of termination of the Maximum
Facility Amount delivered by the Borrower may state that such notice is
conditioned upon the effectiveness of other credit facilities, in which case
such notice may be revoked by the Borrower (by notice to the Administrative
Agent on or prior to the specified effective date) if such condition is not
satisfied.  Any termination of the
Aggregate Commitment shall be permanent. 
Each reduction of the Maximum Facility Amount and any corresponding
reduction of the Aggregate Commitment shall be made ratably among the Lenders
in accordance with each Lender’s Applicable Percentage.


 


Section 2.03.         Additional Lenders; Increases in the Maximum
Facility Amount.  If (a) no
Default exists as of the date of such increase or would be caused by such increase,
(b) the Borrower shall concurrently pay any additional fees required as a
result of such increase and (c) at the time of and immediately after
giving effect to such increase, the Borrower is in pro forma compliance with
the financial covenants set forth in Section 7.13 as of the last day of
the most recently ended fiscal quarter for which the financial statements and
compliance certificate required under Section 6.01 have been delivered to
the Administrative Agent and the Lenders, the Borrower may, at any time and
from time to time, with the consent of the Administrative Agent, increase the
Maximum Facility Amount to an amount not to exceed $650,000,000 by providing
written notice of such increase to the Administrative Agent.  Each Lender shall have the right, but not the
obligation, in each such Lender’s sole discretion, to provide a portion of such
increase in the Maximum Facility Amount up to the portion of such increase that
such Lender’s existing Maximum Credit Amount bears to the aggregate amount of
the Maximum Credit Amounts of all Lenders electing to participate in such
requested increase by executing and delivering to the Borrower and the
Administrative Agent a certificate substantially in the form of  Exhibit F  hereto (a “Lender Certificate”).  In the event that within 10 Business Days of
the Administrative Agent’s receipt of such written notice the existing Lenders
fail to provide increases in their respective Maximum Credit Amounts sufficient
to satisfy such requested increase in the Maximum Facility Amount, the Borrower
may adjust the previously requested increase to reflect the increased Maximum
Credit Amounts of existing Lenders or one or more financial institutions
reasonably acceptable to the Administrative Agent may become a Lender under this
Agreement by executing and delivering to the Borrower and the Administrative
Agent a Lender Certificate.  Upon receipt
by the Administrative Agent of Lender Certificates representing increases to
existing Lender Maximum Credit Amounts and/or Maximum Credit Amounts and
corresponding Commitments from new Lenders as provided in this Section 2.03
in an aggregate amount equal to the requested increase (as the same may have
been adjusted), (1) the Maximum Facility Amount (including the Maximum
Credit Amount and corresponding Commitment of any Person that becomes a Lender
by delivery of such a Lender Certificate) automatically without further action
by the Borrower, the Administrative Agent or any Lender shall be increased on
the effective date set forth in such Lender Certificates by the amount
indicated in such Lender Certificates, (2) the Register shall be amended
to add the Maximum Credit Amount of each additional Lender or to reflect the
increase in the Maximum Credit Amount of each existing Lender, and the
Applicable Percentages of the Lenders shall be adjusted accordingly to reflect
each additional Lender or the increase in the Maximum Credit Amount of each
existing Lender, (3) any such additional Lender shall be deemed to be a
party in all respects to this Agreement and any other Loan Documents to which
the Lenders are a party, and (4) upon 


 


30

















 


the
effective date set forth in such Lender Certificate, any such Lender party to a
Lender Certificate shall purchase and each existing Lender shall assign to such
Lender a pro rata portion of the outstanding Credit Exposure of each of the
existing Lenders such that the Lenders (including any additional Lender, if
applicable) shall have the appropriate portion of the Aggregate Credit Exposure
of the Lenders (based in each case on such Lender’s Applicable Percentage, as
revised pursuant to this Section), and the Borrower shall have paid to the
Lenders any amounts due pursuant to Section 2.16 as a result of such
purchase and assignment.


 


Section 2.04.         Loans and Borrowings.


 


(a)          Each Loan shall be made as part of a Borrowing
consisting of Loans made by the Lenders ratably in accordance with their
respective Commitments.  The failure of
any Lender to make any Loan required to be made by it shall not relieve any
other Lender of its obligations hereunder; provided that the Commitments
of the Lenders are several and no Lender shall be responsible for any other
Lender’s failure to make Loans as required.


 


(b)          Subject to Section 2.14, each Borrowing shall
be comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may
request in accordance herewith.  Each
Lender at its option may make any Eurodollar Loan by causing any domestic or
foreign branch or Affiliate of such Lender to make such Loan; provided
that any exercise of such option shall not affect the obligation of the
Borrower to repay such Loan in accordance with the terms of this Agreement.


 


(c)           At the commencement of each Interest Period for any
Eurodollar Borrowing, such Borrowing shall be in an aggregate amount that is an
integral multiple of $1,000,000 and not less than $1,000,000.  At the time that each ABR Borrowing is made,
such Borrowing shall be in an aggregate amount that is an integral multiple of
$1,000,000 and not less than $1,000,000; provided that an ABR Borrowing
may be in an aggregate amount that is equal to the entire unused balance of the
Aggregate Commitment or that is required to finance the reimbursement of an LC
Disbursement as contemplated by Section 2.06(e).  Borrowings of more than one Type may be
outstanding at the same time; provided that there shall not at any time
be more than a total of four (4) Eurodollar Borrowings outstanding.


 


(d)          Notwithstanding any other provision of this
Agreement, the Borrower shall not be entitled to request, or to elect to
convert or continue, any Eurodollar Borrowing if the Interest Period requested
with respect thereto would end after the Maturity Date.


 


Section 2.05.         Requests for Borrowings.  To request a Borrowing, the Borrower shall
notify the Administrative Agent of such request by telephone (a) in the
case of a Eurodollar Borrowing, not later than 11:00 a.m., three Business
Days before the date of the proposed Borrowing or (b) in the case of an
ABR Borrowing, not later than 11:00 a.m., on the date of the proposed
Borrowing (so long as such date is a Business Day); provided that no
such notice shall be required for any deemed request of an ABR Borrowing to
finance the reimbursement of an LC Disbursement as contemplated by Section 2.06(e).  Each such telephonic Borrowing Request shall
be irrevocable and shall be confirmed promptly by hand delivery or telecopy to
the Administrative Agent of a written Borrowing Request in a form approved by
the Administrative Agent and signed by the Borrower.  Each such telephonic and written Borrowing
Request shall specify the following information in compliance with Section 2.04:


 


31






 












 


(i)           the aggregate amount of the
requested Borrowing;


 


(ii)          the date of such Borrowing,
which shall be a Business Day;


 


(iii)         whether such Borrowing is to
be an ABR Borrowing or a Eurodollar Borrowing;


 


(iv)         in the case of a Eurodollar
Borrowing, the initial Interest Period to be applicable thereto, which shall be
a period contemplated by the definition of the term “Interest Period”; and


 


(v)          the location and number of
the Borrower’s account to which funds are to be disbursed, which shall comply
with the requirements of Section 2.07.


 


If
no election as to the Type of Borrowing is specified, then the requested
Borrowing shall be an ABR Borrowing.  If
no Interest Period is specified with respect to any requested Eurodollar
Borrowing, then the Borrower shall be deemed to have selected an Interest
Period of one month’s duration.  Promptly
following receipt of a Borrowing Request in accordance with this Section, the
Administrative Agent shall advise each Lender of the details thereof and of the
amount of such Lender’s Loan to be made as part of the requested Borrowing.


 


Section 2.06.         Letters of Credit.


 


(a)          General.  Subject to the terms and conditions set forth
herein, the Borrower may request the issuance of Letters of Credit for its own
account or for the account of any Restricted Subsidiary in a form reasonably
acceptable to the Administrative Agent and the Issuing Bank, at any time and
from time to time during the Availability Period.  In the event of any inconsistency between the
terms and conditions of this Agreement and the terms and conditions of any form
of letter of credit application or other agreement submitted by the Borrower
to, or entered into by the Borrower with, the Issuing Bank relating to any
Letter of Credit, the terms and conditions of this Agreement shall control.


 


(b)          Notice of Issuance, Amendment, Renewal, Extension;
Certain Conditions.  To request
the issuance of a Letter of Credit (or the amendment, renewal or extension of
an outstanding Letter of Credit), the Borrower shall hand deliver or telecopy
(or transmit by electronic communication, if arrangements for doing so have
been approved by the Issuing Bank) to the Issuing Bank and the Administrative
Agent (reasonably in advance of the requested date of issuance, amendment,
renewal or extension) a notice requesting the issuance of a Letter of Credit,
or identifying the Letter of Credit to be amended, renewed or extended, and
specifying the date of issuance, amendment, renewal or extension (which shall
be a Business Day), the date on which such Letter of Credit is to expire (which
shall comply with paragraph (c) of this Section), the amount of such
Letter of Credit, the name and address of the beneficiary thereof and such
other information as shall be necessary to prepare, amend, renew or extend such
Letter of Credit.  If requested by the
Issuing Bank, the Borrower also shall submit a letter of credit application on
the Issuing Bank’s standard form in connection with any request for a Letter of
Credit.  A Letter of Credit shall be
issued, amended, renewed or extended only if (and upon issuance, amendment,
renewal or extension of each Letter of Credit the Borrower shall be deemed to
represent and warrant that), after giving effect to such issuance, amendment,
renewal 


 


32

















 


or
extension (i) the LC Exposure shall not exceed $25,000,000 and (ii) the
Aggregate Credit Exposure shall not exceed the Aggregate Commitment.


 


(c)           Expiration Date.  Each Letter of Credit (other than any
Existing Letter of Credit) shall expire at or prior to the close of business on
the earlier of (i) the date one year after the date of the issuance of
such Letter of Credit (or, in the case of any renewal or extension thereof, one
year after such renewal or extension) and (ii) the date that is five
Business Days prior to the Maturity Date. Each Existing Letter of Credit shall
expire at or prior to the close of business on the earlier of (i) the
expiration date of such Existing Letter of Credit as in effect on the Effective
Date (or, in the case of any renewal or extension thereof, one year after such
renewal or extension) and (ii) the date that is five Business Days prior
to the Maturity Date.


 


(d)          Participations.  By the issuance of a Letter of Credit (or an
amendment to a Letter of Credit increasing the amount thereof) and without any
further action on the part of the Issuing Bank or the Lenders, the Issuing Bank
hereby grants to each Lender, and each Lender hereby acquires from the Issuing
Bank, a participation in such Letter of Credit equal to such Lender’s
Applicable Percentage of the aggregate amount available to be drawn under such
Letter of Credit.  In consideration and
in furtherance of the foregoing, each Lender hereby absolutely and
unconditionally agrees to pay to the Administrative Agent, for the account of
the Issuing Bank, such Lender’s Applicable Percentage of each LC Disbursement
made by the Issuing Bank and not reimbursed by the Borrower on the date due as
provided in paragraph (e) of this Section, or of any reimbursement payment
required to be refunded to the Borrower for any reason.  Each Lender acknowledges and agrees that its
obligation to acquire participations pursuant to this paragraph in respect of
Letters of Credit is absolute and unconditional and shall not be affected by
any circumstance whatsoever, including any amendment, renewal or extension of
any Letter of Credit or the occurrence and continuance of a Default or
reduction or termination of the Aggregate Commitment, and that each such
payment shall be made without any offset, abatement, withholding or reduction
whatsoever.


 


(e)           Reimbursement. If the Issuing Bank shall
make any LC Disbursement in respect of a Letter of Credit, the Borrower shall
reimburse such LC Disbursement by paying to the Administrative Agent an amount
equal to such LC Disbursement not later than 12:00 noon on the date that such
LC Disbursement is made, if the Borrower shall have received notice of such LC
Disbursement prior to 10:00 a.m. on such date, or, if such notice has not
been received by the Borrower prior to such time on such date, then not later
than 12:00 noon on the Business Day immediately following the day that the
Borrower receives such notice; provided that the Borrower shall, subject
to the conditions to borrowing set forth herein, be deemed to have requested
that such payment be financed with an ABR Borrowing in an equivalent amount
and, to the extent so financed, the Borrower’s obligation to make such payment
shall be discharged and replaced by the resulting ABR Borrowing.  If the Borrower fails to make such payment
when due, the Administrative Agent shall notify each Lender of the applicable
LC Disbursement, the payment then due from the Borrower in respect thereof and
such Lender’s Applicable Percentage thereof. 
Promptly following receipt of such notice, each Lender shall pay to the
Administrative Agent its Applicable Percentage of the payment then due from the
Borrower, in the same manner as provided in Section 2.07 with respect to
Loans made by such Lender (and Section 2.07 shall apply, mutatis  mutandis,
to the payment obligations of the Lenders), and the Administrative Agent shall
promptly pay to the Issuing Bank the amounts so received by it from 


 


33

















 


the
Lenders.  Promptly following receipt by
the Administrative Agent of any payment from the Borrower pursuant to this
paragraph, the Administrative Agent shall distribute such payment to the
Issuing Bank or, to the extent that Lenders have made payments pursuant to this
paragraph to reimburse the Issuing Bank, then to such Lenders and the Issuing
Bank as their interests may appear.  Any
payment made by a Lender pursuant to this paragraph to reimburse the Issuing
Bank for any LC Disbursement (other than the funding of ABR Loans as
contemplated above) shall not constitute a Loan and shall not relieve the
Borrower of its obligation to reimburse such LC Disbursement.


 


(f)           Obligations Absolute.  The Borrower’s obligation to reimburse LC
Disbursements as provided in paragraph (e) of this Section shall
be absolute, unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement under any and all circumstances
whatsoever and irrespective of (i) any lack of validity or enforceability
of any Letter of Credit or this Agreement, or any term or provision therein, (ii) any
draft or other document presented under a Letter of Credit proving to be
forged, fraudulent or invalid in any respect or any statement therein being
untrue or inaccurate in any respect, (iii) payment by the Issuing Bank
under a Letter of Credit against presentation of a draft or other document that
does not comply with the terms of such Letter of Credit, or (iv) any other
event or circumstance whatsoever, whether or not similar to any of the
foregoing, that might, but for the provisions of this Section, constitute a
legal or equitable discharge of, or provide a right of setoff against, the
Borrower’s obligations hereunder. 
Neither the Administrative Agent, the Lenders nor the Issuing Bank, nor
any of their Related Parties, shall have any liability or responsibility by
reason of or in connection with the issuance or transfer of any Letter of
Credit or any payment or failure to make any payment thereunder (irrespective
of any of the circumstances referred to in the preceding sentence), or any
error, omission, interruption, loss or delay in transmission or delivery of any
draft, notice or other communication under or relating to any Letter of Credit
(including any document required to make a drawing thereunder), any error in
interpretation of technical terms or any consequence arising from causes beyond
the control of the Issuing Bank; provided that the foregoing shall not
be construed to excuse the Issuing Bank from liability to the Borrower to the
extent of any direct damages (as opposed to consequential damages, claims in
respect of which are hereby waived by the Borrower to the extent permitted by
applicable law) suffered by the Borrower that are caused by the Issuing Bank’s
failure to exercise care when determining whether drafts and other documents
presented under a Letter of Credit comply with the terms thereof.  The parties hereto expressly agree that, in
the absence of gross negligence or willful misconduct on the part of the
Issuing Bank (as finally determined by a court of competent jurisdiction), the
Issuing Bank shall be deemed to have exercised care in each such
determination.  In furtherance of the
foregoing and without limiting the generality thereof, the parties agree that,
with respect to documents presented which appear on their face to be in
substantial compliance with the terms of a Letter of Credit, the Issuing Bank
may, in its sole discretion, either accept and make payment upon such documents
without responsibility for further investigation, regardless of any notice or
information to the contrary, or refuse to accept and make payment upon such
documents if such documents are not in strict compliance with the terms of such
Letter of Credit.


 


(g)           Disbursement Procedures.  The Issuing Bank shall, promptly following
its receipt thereof, examine all documents purporting to represent a demand for
payment under a Letter of Credit.  The
Issuing Bank shall promptly notify the Administrative Agent and the Borrower by



 


34

















 


telephone
(confirmed by telecopy) of such demand for payment and whether the Issuing Bank
has made or will make an LC Disbursement thereunder; provided that any
failure to give or delay in giving such notice shall not relieve the Borrower
of its obligation to reimburse the Issuing Bank and the Lenders with respect to
any such LC Disbursement.


 


(h)          Interim Interest.  If the Issuing Bank shall make any LC
Disbursement, then, unless the Borrower shall reimburse such LC Disbursement in
full on the date such LC Disbursement is made (either with its own funds or a
Borrowing under Section 2.06(e)), the unpaid amount thereof shall bear
interest, for each day from and including the date such LC Disbursement is made
to but excluding the date that the Borrower reimburses such LC Disbursement, at
the rate per annum then applicable to ABR Loans.  Interest accrued pursuant to this paragraph
shall be for the account of the Issuing Bank, except that interest accrued on
and after the date of payment by any Lender pursuant to paragraph (e) of
this Section to reimburse the Issuing Bank shall be for the account of
such Lender to the extent of such payment.


 


(i)            Replacement of the Issuing Bank.  The Issuing Bank may be replaced at any time
by written agreement among the Borrower, the Administrative Agent, the replaced
Issuing Bank and the successor Issuing Bank. 
The Administrative Agent shall notify the Lenders of any such
replacement of the Issuing Bank.  At the
time any such replacement shall become effective, the Borrower shall pay all
unpaid fees accrued for the account of the replaced Issuing Bank pursuant to Section 2.12(b).  From and after the effective date of any such
replacement, (i) the successor Issuing Bank shall have all the rights and
obligations of the Issuing Bank under this Agreement with respect to Letters of
Credit to be issued thereafter and (ii) references herein to the term “Issuing
Bank” shall be deemed to refer to such successor or to any previous Issuing
Bank, or to such successor and all previous Issuing Banks, as the context shall
require.  After the replacement of an
Issuing Bank hereunder, the replaced Issuing Bank shall remain a party hereto
and shall continue to have all the rights and obligations of an Issuing Bank
under this Agreement with respect to Letters of Credit issued by it prior to
such replacement, but shall not be required to issue additional Letters of
Credit.


 


(j)           Cash Collateralization.


 


(i)           If any Event of Default
shall occur and be continuing, on the Business Day that the Borrower receives
notice from the Administrative Agent or the Required Lenders (or, if the
maturity of the Loans has been accelerated, Lenders with LC Exposure
representing greater than sixty-six and two-thirds percent (662/3%) of the total LC Exposure) demanding the deposit
of cash collateral pursuant to this paragraph, the Borrower shall deposit in
the Cash Collateral Account an amount in cash equal to the total LC Exposure as
of such date plus any accrued and unpaid interest thereon, if any; provided
that the obligation to deposit such cash collateral shall become effective
immediately, and such deposit shall become immediately due and payable, without
demand or other notice of any kind, upon the occurrence of any Event of Default
with respect to the Borrower described in clause (h) or (i) of Article IX.


 


(ii)          All cash collateral provided
by the Borrower or any other Credit Party pursuant to the request of the
Administrative Agent in accordance with Section 2.20(c) shall be
deposited in the Cash Collateral Account.


 


35

















 


(iii)         Deposits in the Cash
Collateral Account made pursuant to either the foregoing paragraph (i) of
this Section 2.06(j) or Section 2.20(c) shall be held by the
Administrative Agent as collateral for the payment and performance of the
Obligations under this Agreement and Borrower hereby grants a security interest
in such cash and each deposit account (including the Cash Collateral Account)
into which such cash is deposited to secure the Obligations under this
Agreement.  The Administrative Agent
shall have exclusive dominion and control, including the exclusive right of
withdrawal, over the Cash Collateral Account. 
Other than any interest earned on the investment of such deposits, which
investments shall be made at the option and sole discretion of the
Administrative Agent but in consultation with the Borrower and at the Borrower’s
risk and expense, such deposits shall not bear interest.  Interest or profits, if any, on such
investments shall accumulate in such account. 
Moneys in such account shall be applied by the Administrative Agent to
reimburse the Issuing Bank for LC Disbursements for which it has not been
reimbursed and, to the extent not so applied, shall be held for the
satisfaction of the reimbursement obligations of the Borrower for the LC
Exposure at such time or, if the maturity of the Loans has been accelerated
(but subject to the consent of Lenders with LC Exposure representing sixty-six
and two-thirds percent (662/3%) or more of
the total LC Exposure), be applied to satisfy other Obligations under this
Agreement and to the extent any excess remains after payment in full in cash of
all Obligations and the termination of all Commitments, such excess shall be
released to the Borrower.


 


(v)          If the Borrower is required
to provide an amount of cash collateral pursuant to either paragraph (i) of
this Section 2.06(j) or Section 2.20(c), the amount of such cash
collateral (to the extent not applied as aforesaid) shall be returned to the
Borrower within one (1) Business Day after (x) in the case of cash
collateral provided pursuant to paragraph (i) above, all Events of Default
have been cured or waived and (y) in the case of cash collateral provided
pursuant to Section 2.20(c), the date on which such cash collateral is no
longer required pursuant to Section 2.20(c).


 


Section 2.07.         Funding of Borrowings.


 


(a)          Each Lender shall make each Loan to be made by it
hereunder on the proposed date thereof by wire transfer of immediately
available funds by 12:00 noon to the account of the Administrative Agent most
recently designated by it for such purpose by notice to the Lenders.  The Administrative Agent will make such Loans
available to the Borrower by promptly crediting the amounts so received, in
like funds, to a deposit account of the Borrower designated by the Borrower in
the applicable Borrowing Request; provided that ABR Loans made to
finance the reimbursement of an LC Disbursement as provided in Section 2.06(e) shall
be remitted by the Administrative Agent to the Issuing Bank.


 


(b)          Unless the Administrative Agent shall have received
notice from a Lender prior to the proposed date of any Borrowing that such
Lender will not make available to the Administrative Agent such Lender’s share
of such Borrowing, the Administrative Agent may assume that such Lender has
made such share available on such date in accordance with paragraph (a) of
this Section and may, in reliance upon such assumption, make available to
the Borrower a corresponding amount.  In
such event, if a Lender has not in fact made its share of 


 


36

















 


the
applicable Borrowing available to the Administrative Agent, then the applicable
Lender and the Borrower severally agree to pay to the Administrative Agent
forthwith on demand such corresponding amount with interest thereon, for each
day from and including the date such amount is made available to the Borrower
to but excluding the date of payment to the Administrative Agent, at (i) in
the case of such Lender, the greater of the Federal Funds Effective Rate and a
rate determined by the Administrative Agent in accordance with banking industry
rules on interbank compensation or (ii) in the case of the Borrower,
the interest rate applicable to ABR Loans. 
If such Lender pays such amount to the Administrative Agent, then the
principal portion of such payment shall constitute such Lender’s Loan included
in such Borrowing.


 


Section 2.08.         Interest Elections.


 


(a)          Each Borrowing initially shall be of the Type
specified in the applicable Borrowing Request and, in the case of a Eurodollar
Borrowing, shall have an initial Interest Period as specified in such Borrowing
Request.  Thereafter, the Borrower may
elect to convert such Borrowing to a different Type or to continue such
Borrowing and, in the case of a Eurodollar Borrowing, may elect Interest
Periods therefor, all as provided in this Section.  The Borrower may elect different options with
respect to different portions of the affected Borrowing, in which case each
such portion shall be allocated ratably among the Lenders holding the Loans
comprising such Borrowing, and the Loans comprising each such portion shall be
considered a separate Borrowing.


 


(b)          To make an election pursuant to this Section, the
Borrower shall notify the Administrative Agent of such election by telephone by
the time that a Borrowing Request would be required under Section 2.05 if
the Borrower were requesting a Borrowing of the Type resulting from such election
to be made on the effective date of such election.  Each such telephonic Interest Election
Request shall be irrevocable and shall be confirmed promptly by hand delivery
or telecopy to the Administrative Agent of a written Interest Election Request
in the form attached hereto as Exhibit D and signed by the Borrower.


 


(c)           Each telephonic and written Interest Election
Request shall specify the following information in compliance with Section 2.04:


 


(i)           the Borrowing to which such
Interest Election Request applies and, if different options are being elected
with respect to different portions thereof, the portions thereof to be
allocated to each resulting Borrowing (in which case the information to be
specified pursuant to clauses (iii) and (iv) below shall be specified
for each resulting Borrowing);


 


(ii)          the effective date of the
election made pursuant to such Interest Election Request, which shall be a
Business Day;


 


(iii)         whether the resulting
Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and


 


(iv)         if the resulting Borrowing
is a Eurodollar Borrowing, the Interest Period to be applicable thereto after
giving effect to such election, which shall be a period 


 


37

















 


contemplated by the definition of the term “Interest
Period,” unless otherwise agreed upon by the Borrower and the Administrative
Agent.


 


If
any such Interest Election Request requests a Eurodollar Borrowing but does not
specify an Interest Period, then the Borrower shall be deemed to have selected
an Interest Period of one month’s duration.


 


(d)          Promptly following receipt of an Interest Election
Request, the Administrative Agent shall advise each Lender of the details
thereof and of such Lender’s portion of each resulting Borrowing.


 


(e)           If the Borrower fails to deliver a timely Interest
Election Request with respect to a Eurodollar Borrowing prior to the end of the
Interest Period applicable thereto, then, unless such Borrowing is repaid as
provided herein, at the end of such Interest Period such Borrowing shall be
converted to an ABR Borrowing. 
Notwithstanding any contrary provision hereof, if an Event of Default
has occurred and is continuing and the Administrative Agent, at the request of the
Majority Lenders, so notifies the Borrower, then, so long as an Event of
Default is continuing (i) no outstanding Borrowing may be converted to or
continued as a Eurodollar Borrowing and (ii) unless repaid, each
Eurodollar Borrowing shall be converted to an ABR Borrowing at the end of the
Interest Period applicable thereto.


 


Section 2.09.         Repayment of Loans; Evidence of Debt.


 


(a)          The Borrower hereby unconditionally promises to pay
to the Administrative Agent for the account of each Lender the then unpaid
principal amount of each Loan on the Maturity Date.


 


(b)          Each Lender shall maintain in accordance with its
usual practice an account or accounts evidencing the indebtedness of the
Borrower to such Lender resulting from each Loan made by such Lender, including
the amounts of principal and interest payable and paid to such Lender from time
to time hereunder.


 


(c)           The Administrative Agent shall maintain accounts in
which it shall record (i) the amount of each Loan made hereunder, the Type
thereof and the Interest Period applicable thereto, (ii) the amount of any
principal or interest due and payable or to become due and payable from the
Borrower to each Lender hereunder and (iii) the amount of any sum received
by the Administrative Agent hereunder for the account of the Lenders and each
Lender’s share thereof.


 


(d)          The entries made in the accounts maintained pursuant
to paragraph (b) or (c) of this Section shall be prima
facie evidence of the existence and amounts of the obligations recorded
therein; provided that the failure of any Lender or the Administrative
Agent to maintain such accounts or any error therein shall not in any manner
affect the obligation of the Borrower to repay the Loans in accordance with the
terms of this Agreement.


 


(e)           Any Lender may request that Loans made by it be
evidenced by a promissory note.  In such
event, the Borrower shall prepare, execute and deliver to such Lender a
promissory note payable to such Lender (or, if requested by such Lender, to
such Lender and its registered 


 


38

















 


assigns)
and in the form attached hereto as Exhibit E.  Thereafter, the Loans evidenced by such
promissory note and interest thereon shall at all times (including after
assignment pursuant to Section 11.04) be represented by one or more
promissory notes in such form payable to the payee named therein (or to such
payee and its registered assigns).


 


Section 2.10.         Optional Prepayment of Loans.


 


(a)          The Borrower shall have the right at any time and
from time to time to prepay without premium or penalty any Borrowing in whole
and or in part, subject to prior notice in accordance with paragraph (b) of
this Section and to payment of any funding indemnification amounts
required by Section 2.16.


 


(b)          The Borrower shall notify the Administrative Agent
by telephone (confirmed by telecopy) of any prepayment hereunder (i) in
the case of prepayment of a Eurodollar Borrowing, not later than 11:00 a.m.,
three Business Days before the date of prepayment, or (ii) in the case of
prepayment of an ABR Borrowing, not later than 11:00 a.m., one Business
Day before the date of prepayment.  Each
such notice shall be irrevocable and shall specify the prepayment date and the
principal amount of each Borrowing or portion thereof to be prepaid; provided
that, if a notice of prepayment is given in connection with a conditional
notice of termination or reduction of the Aggregate Commitment as contemplated
by Section 2.02, then such notice of prepayment may be revoked if such
notice of termination or reduction is revoked in accordance with Section 2.02.  Promptly following receipt of any such notice
relating to a Borrowing, the Administrative Agent shall advise the Lenders of
the contents thereof.  Each partial
prepayment of any Borrowing shall be in an amount that would be permitted in
the case of an advance of a Borrowing of the same Type as provided in Section 2.04.  Each prepayment of a Borrowing shall be
applied ratably to the Loans included in the prepaid Borrowing.  Prepayments shall be accompanied by accrued
interest to the extent required by Section 2.13.


 


Section 2.11.         Mandatory Prepayment of Loans.


 


(a)          Except as otherwise provided
in clauses (b), (c), (d) and (e) of this Section 2.11, in the
event a Borrowing Base Deficiency exists, the Borrower shall, within thirty
(30) days after written notice from the Administrative Agent to the Borrower of
such Borrowing Base Deficiency, either (i) by instruments satisfactory in
form and substance to the Administrative Agent, provide additional security
satisfactory to the Required Lenders in their sole discretion to eliminate such
Borrowing Base Deficiency, (ii) prepay, without premium or penalty, the
principal amount of the Loans (and cash collateralize any portion of such
Borrowing Base Deficiency attributable to LC Exposure) in an amount sufficient
to eliminate such Borrowing Base Deficiency (or by a combination of such
additional security and such prepayment eliminate such Borrowing Base
Deficiency), or (iii) notify the Administrative Agent that it intends to
prepay, without premium or penalty (but subject to any funding indemnification
amounts required by Section 2.16), the principal amount of such Borrowing
Base Deficiency in not more than five (5) equal monthly installments plus
accrued interest thereon and make the first such monthly payment on the 30th
day after the Borrower’s receipt of notice of such Borrowing Base Deficiency.


 


39

















 


(b)          Upon any redetermination or
adjustment to the Borrowing Base as a result of a Disposition of any Borrowing
Base Properties (including a Disposition of Equity Interests of a Restricted
Subsidiary) pursuant to Section 7.04(j), the Borrower shall (i) prepay
the Loans (and cash collateralize any portion of such Borrowing Base Deficiency
attributable to LC Exposure) to the extent necessary to eliminate any Borrowing
Base Deficiency that may have occurred as a result of such Disposition within
one (1) Business Day of the date it or any Restricted Subsidiary receives the
Net Cash Proceeds from such Disposition, or (ii) in the case of any
exchange of Borrowing Base Properties for other Oil and Gas Interests, take all
actions reasonably necessary that are requested by the Administrative Agent to
cause such Oil and Gas Interests received in such exchange to become additional
security for the Obligations by instruments satisfactory in form and substance
to the Administrative Agent.


 


(c)           Upon any redetermination or
adjustment to the Borrowing Base as a result of a Hedge Modification pursuant
to Section 7.04(j), the Borrower shall promptly, and in any event by the
later of (A) the date that is one (1) Business Day after the date it
or any Restricted Subsidiary receives the Net Cash Proceeds from such Hedge
Modification or (B) the date of such redetermination or adjustment to the
Borrowing Base, apply all of the Net Cash Proceeds received from such Hedge
Modification to prepay the Loans (and cash collateralize any portion of such
Borrowing Base Deficiency attributable to LC Exposure) to the extent necessary
to eliminate any Borrowing Base Deficiency that may have occurred as a result
of such Hedge Modification.


 


(d)          In the event any Borrowing
Base Deficiency occurs as a result of a reduction in the Borrowing Base
pursuant to Section 3.05 upon an issuance of Senior Notes, the Borrower
shall prepay the Loans (and cash collateralize any portion of such Borrowing
Base Deficiency attributable to LC Exposure) with the Net Cash Proceeds
received as a result of the issuance of such Senior Notes within one Business
Day after receipt of such Net Cash Proceeds to the extent necessary to
eliminate such Borrowing Base Deficiency.


 


(e)           If, after giving effect to
any termination or reduction of the Maximum Facility Amount and any
corresponding termination or reduction of the Aggregate Commitment pursuant to Section 2.02,
the Aggregate Credit Exposure exceeds the Aggregate Commitment, the Borrower
shall immediately prepay, subject to any funding indemnification amounts
required by Section 2.16, the principal amount of the Loans (and cash collateralize
any such excess attributable to LC Exposure) to the extent necessary to
eliminate such excess.


 


(f)           Amounts applied to the
prepayment of Borrowings pursuant to this Section shall be first applied
ratably to ABR Borrowings then outstanding and, upon payment in full of all
outstanding ABR Borrowings, second, to Eurodollar Borrowings then outstanding,
and if more than one Eurodollar Borrowing is then outstanding, to each such
Eurodollar Borrowing beginning with the Eurodollar Borrowing with the least
number of days remaining in the Interest Period applicable thereto and ending
with the Eurodollar Borrowing with the most number of days remaining in the
Interest Period applicable thereto. Any prepayments pursuant to this Section shall
be accompanied by accrued interest to the extent required by Section 2.13
and any funding indemnification amounts required by Section 2.16.


 


40

















 


Section 2.12.         Fees.


 


(a)          The Borrower agrees to pay to the Administrative Agent,
for the account of each Lender, an unused commitment fee (the “Unused
Commitment Fee”) equal to the Applicable Rate times the daily average of
the total Unused Commitments.  Such
Unused Commitment Fee shall be calculated on the basis of a year consisting of
360 days.  The Unused Commitment Fee
shall be payable in arrears on the last day of March, June, September and December of
each year, commencing with the first such date to occur after the Effective
Date, and on the Maturity Date for any period then ending for which the Unused
Commitment Fee shall not have been theretofore paid.  In the event the Aggregate Commitment
terminates on any date other than the last day of March, June, September or
December of any year, the Borrower agrees to pay to the Administrative
Agent, for the account of each Lender, on the date of such termination, the pro
rata portion of the Unused Commitment Fee due for the period from the last day
of the immediately preceding March, June, September or December, as the
case may be, to the date such termination occurs.


 


(b)          The Borrower agrees to pay (i) to the
Administrative Agent for the account of each Lender a participation fee with
respect to its participations in Letters of Credit, which shall accrue at the
same Applicable Rate used to determine the interest rate applicable to
Eurodollar Loans on the face amount of each Letter of Credit during the period
from and including the Effective Date to but excluding the later of the date on
which such Lender’s Commitment terminates and the date on which such Lender
ceases to have any LC Exposure, and (ii) to the Issuing Bank a fronting
fee for each Letter of Credit equal to 0.125% per annum on the face amount of
such Letter of Credit during the period from and including the Effective Date to
but excluding the later of the date of termination of the Aggregate Commitment
and the date on which there ceases to be any LC Exposure (but in no event less
than $500 per annum), as well as the Issuing Bank’s standard fees with respect
to the issuance, amendment, renewal or extension of any Letter of Credit or
processing of drawings thereunder. 
Participation fees and fronting fees accrued through and including the
last day of March, June, September and December of each year shall be
payable on the third Business Day following such last day, commencing on the
first such date to occur after the Effective Date; provided that all
such fees shall be payable on the date on which the Aggregate Commitment
terminates and any such fees accruing after the date on which the Aggregate
Commitment terminates shall be payable on demand.  Any other fees payable to the Issuing Bank
pursuant to this paragraph shall be payable within 10 days after demand.  All participation fees and fronting fees
shall be computed on the basis of a year of 360 days and shall be payable for
the actual number of days elapsed (including the first day but excluding the
last day).


 


(c)           The Borrower agrees to pay to the Administrative
Agent and J.P. Morgan Securities LLC, for their respective accounts, the fees
set forth in the Fee Letter payable to the Administrative Agent and J.P. Morgan
Securities LLC and such other fees payable in the amounts and at the times
separately agreed upon between the Borrower, the Administrative Agent and J.P.
Morgan Securities LLC.


 


(d)          All fees payable hereunder shall be paid on the
dates due, in immediately available funds, to the Administrative Agent (or to
the Issuing Bank, in the case of fees payable to it) for distribution, in the
case of Unused Commitment Fees and participation fees, to the Lenders.  Fees paid shall not be refundable under any
circumstances.


 


41






 












 


Section 2.13.         Interest.


 


(a)          The Loans comprising each ABR Borrowing shall
bear interest at the Alternate Base Rate plus the Applicable Rate.


 


(b)          The Loans comprising each Eurodollar Borrowing shall
bear interest at the Adjusted LIBO Rate for the Interest Period in effect for
such Borrowing plus the Applicable Rate.


 


(c)           Notwithstanding the foregoing, if any principal of
or interest on any Loan or any fee or other amount payable by the Borrower
hereunder is not paid when due, whether at stated maturity, upon acceleration
or otherwise, such overdue amount shall bear interest, after as well as before
judgment, at a rate per annum equal to (i) in the case of overdue principal of
any Loan, 2% plus the rate otherwise applicable to such Loan as provided in the
preceding paragraphs of this Section or (ii) in the case of any other amount,
2% plus the rate applicable to ABR Loans as provided in paragraph (a) of this
Section.


 


(d)          Accrued interest on each Loan shall be payable in
arrears on each Interest Payment Date for such Loan and upon termination of the
Aggregate Commitment and on the Maturity Date; provided that (i)
interest accrued pursuant to paragraph (c) of this Section shall be payable on
demand, (ii) in the event of any repayment or prepayment of any Loan (other
than a prepayment of an ABR Loan prior to the end of the Availability Period at
a time when no Borrowing Base Deficiency exists), accrued interest on the
principal amount repaid or prepaid shall be payable on the date of such
repayment or prepayment and (iii) in the event of any conversion of any
Eurodollar Loan prior to the end of the current Interest Period therefor,
accrued interest on such Loan shall be payable on the effective date of such
conversion.


 


(e)           All interest hereunder shall be computed on the
basis of a year of 360 days, except that interest computed by reference to the
Alternate Base Rate at times when the Alternate Base Rate is based on the Prime
Rate shall be computed on the basis of a year of 365 days (or 366 days in a
leap year), and in each case shall be payable for the actual number of days
elapsed (including the first day but excluding the last day).  The applicable Alternate Base Rate, Adjusted
LIBO Rate or LIBO Rate shall be determined by the Administrative Agent, and
such determination shall be conclusive absent manifest error.


 


Section 2.14.         Alternate Rate of Interest.  If prior to the commencement of any Interest
Period for a Eurodollar Borrowing:


 


(a)           the Administrative Agent determines (which
determination shall be conclusive absent manifest error) that adequate and
reasonable means do not exist for ascertaining the Adjusted LIBO Rate or the
LIBO Rate, as applicable, for such Interest Period; or


 


(b)           the Administrative Agent is advised by the Majority
Lenders that the Adjusted LIBO Rate or the LIBO Rate, as applicable, for such
Interest Period will not adequately and fairly reflect the cost to such Lenders
(or Lender) of making or maintaining their Loans (or its Loan) included in such
Borrowing for such Interest Period;


 


42

















 


then
the Administrative Agent shall give notice thereof to the Borrower and the
Lenders by telephone or telecopy as promptly as practicable thereafter and,
until the Administrative Agent notifies the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, (i) any Interest
Election Request that requests the conversion of any Borrowing to, or
continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective,
and (ii) if any Borrowing Request requests a Eurodollar Borrowing, such
Borrowing shall be made as an ABR Borrowing.


 


Section 2.15.         Increased Costs.


 


(a)          If any Change in Law shall:


 


(i)           impose, modify or deem
applicable any reserve, special deposit or similar requirement against assets
of, deposits with or for the account of, or credit extended by, any Lender
(except any such reserve requirement reflected in the Adjusted LIBO Rate) or
the Issuing Bank; or


 


(ii)          impose on any Lender or the
Issuing Bank or the London interbank market any other condition affecting this
Agreement or Eurodollar Loans made by such Lender or any Letter of Credit or
participation therein;


 


and the result of any of the foregoing shall be to
increase the cost to such Lender of making or maintaining any Eurodollar Loan
(or of maintaining its obligation to make any such Loan) or to increase the
cost to such Lender or the Issuing Bank of participating in, issuing or
maintaining any Letter of Credit or to reduce the amount of any sum received or
receivable by such Lender or the Issuing Bank hereunder (whether of principal,
interest or otherwise), then the Borrower will pay to such Lender or the
Issuing Bank, as the case may be, such additional amount or amounts as will
compensate such Lender or the Issuing Bank, as the case may be, for such
additional costs incurred or reduction suffered.


 


(b)          If any Lender or the Issuing Bank determines that
any Change in Law regarding capital requirements has or would have the effect
of reducing the rate of return on such Lender’s or the Issuing Bank’s capital
or on the capital of such Lender’s or the Issuing Bank’s holding company, if
any, as a consequence of this Agreement or the Loans made by, or participations
in Letters of Credit held by, such Lender, or the Letters of Credit issued by
the Issuing Bank, to a level below that which such Lender or the Issuing Bank
or such Lender’s or the Issuing Bank’s holding company could have achieved but
for such Change in Law (taking into consideration such Lender’s or the Issuing
Bank’s policies and the policies of such Lender’s or the Issuing Bank’s holding
company with respect to capital adequacy), then from time to time the Borrower
will pay to such Lender or the Issuing Bank, as the case may be, such
additional amount or amounts as will compensate such Lender or the Issuing Bank
or such Lender’s or the Issuing Bank’s holding company for any such reduction
suffered.


 


(c)           A certificate of a Lender or the Issuing Bank
setting forth the amount or amounts necessary to compensate such Lender or the
Issuing Bank or its holding company, as the case may be, as specified in
paragraph (a) or (b) of this Section shall be delivered to the Borrower
and 


 


43

















 


shall
be conclusive absent manifest error.  The
Borrower shall pay such Lender or the Issuing Bank, as the case may be, the
amount shown as due on any such certificate within 10 days after receipt
thereof.


 


(d)          Failure or delay on the part of any Lender or the
Issuing Bank to demand compensation pursuant to this Section shall not
constitute a waiver of such Lender’s or the Issuing Bank’s right to demand such
compensation; provided that the Borrower shall not be required to
compensate a Lender or the Issuing Bank pursuant to this Section for any
increased costs or reductions incurred more than 270 days prior to the date
that such Lender or the Issuing Bank, as the case may be, notifies the Borrower
of the Change in Law giving rise to such increased costs or reductions and of
such Lender’s or the Issuing Bank’s intention to claim compensation therefor; provided
further that, if the Change in Law giving rise to such increased costs
or reductions is retroactive, then the 270-day period referred to above shall
be extended to include the period of retroactive effect thereof.


 


Section 2.16.         Break Funding Payments.  In the event of (a) the payment of any
principal of any Eurodollar Loan other than on the last day of an Interest
Period applicable thereto (including as a result of an Event of Default), (b)
the conversion of any Eurodollar Loan other than on the last day of the
Interest Period applicable thereto, (c) the failure to borrow, convert,
continue or prepay any Eurodollar Loan on the date specified in any notice
delivered pursuant hereto (regardless of whether such notice may be revoked
under Section 2.10(b) and is revoked in accordance therewith), (d) the
assignment of any Eurodollar Loan other than on the last day of the Interest
Period applicable thereto as a result of a request by the Borrower pursuant to
Section 2.03 or Section 2.19, then, in any such event, the Borrower shall
compensate each Lender for the loss, cost and expense attributable to such
event.  In the case of a Eurodollar Loan,
such loss, cost or expense to any Lender shall be deemed to include an amount
determined by such Lender to be the excess, if any, of (i) the amount of
interest which would have accrued on the principal amount of such Loan had such
event not occurred, at the Adjusted LIBO Rate that would have been applicable
to such Loan, for the period from the date of such event to the last day of the
then current Interest Period therefor (or, in the case of a failure to borrow,
convert or continue, for the period that would have been the Interest Period
for such Loan), over (ii) the amount of interest which would accrue on such
principal amount for such period at the interest rate which such Lender would
bid were it to bid, at the commencement of such period, for dollar deposits of
a comparable amount and period from other banks in the Eurodollar market.  A certificate of any Lender setting forth any
amount or amounts that such Lender is entitled to receive pursuant to this
Section shall be delivered to the Borrower and shall be conclusive absent
manifest error.  The Borrower shall pay
such Lender the amount shown as due on any such certificate within 10 days
after receipt thereof.


 


Section 2.17.         Taxes.


 


(a)          Any and all payments by or on account of any
obligation of the Borrower hereunder shall be made free and clear of and
without deduction for any Indemnified Taxes or Other Taxes; provided
that if the Borrower shall be required to deduct any Indemnified Taxes or Other
Taxes from such payments, then (i) the sum payable shall be increased as
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section) the Administrative
Agent, Lender or Issuing Bank (as the case may be) 


 


44

















 


receives
an amount equal to the sum it would have received had no such deductions been
made, (ii) the Borrower shall make such deductions and (iii) the
Borrower shall pay the full amount deducted to the relevant Governmental
Authority in accordance with applicable law.


 


(b)          In addition, the Borrower shall pay any Other Taxes
to the relevant Governmental Authority in accordance with applicable law.


 


(c)           The Borrower shall indemnify the Administrative
Agent, each Lender and the Issuing Bank, within 10 days after written demand therefor,
for the full amount of any Indemnified Taxes or Other Taxes paid by the
Administrative Agent, such Lender or the Issuing Bank, as the case may be, on
or with respect to any payment by or on account of any obligation of the
Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or
asserted on or attributable to amounts payable under this Section) and any
penalties, interest and reasonable expenses arising therefrom or with respect
thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or
legally imposed or asserted by the relevant Governmental Authority.  A certificate as to the amount of such
payment or liability delivered to the Borrower by a Lender or the Issuing Bank,
or by the Administrative Agent on its own behalf or on behalf of a Lender or
the Issuing Bank, shall be conclusive absent manifest error.


 


(d)          As soon as practicable after any payment of
Indemnified Taxes or Other Taxes by the Borrower to a Governmental Authority,
the Borrower shall deliver to the Administrative Agent the original or a
certified copy of a receipt issued by such Governmental Authority evidencing
such payment, a copy of the return reporting such payment or other evidence of
such payment reasonably satisfactory to the Administrative Agent.


 


(e)           Any Foreign Lender that is entitled to an exemption
from or reduction of withholding tax under the law of the jurisdiction in which
the Borrower is located, or any treaty to which such jurisdiction is a party,
with respect to payments under this Agreement shall deliver to the Borrower
(with a copy to the Administrative Agent), at the time or times prescribed by
applicable law, such properly completed and executed documentation prescribed
by applicable law or reasonably requested by the Borrower as will permit such
payments to be made without withholding or at a reduced rate.  In addition, any Lender that is a “United
States person” within the meaning of Section 7701(a)(30) of the Code shall
deliver to the Borrower and the Administrative Agent executed originals of
Internal Revenue Service Form W-9 or such other documentation or information
prescribed by applicable laws and reasonably requested by the Borrower or the
Administrative Agent as will enable the Borrower or the Administrative Agent,
as the case may be, to determine whether such Lender is subject to backup
withholding or information reporting requirements to the extent providing such
documentation would not result in a material adverse consequence to such
Lender.


 


(f)           In the case of a Lender or Issuing Bank that would
be subject to withholding tax imposed by FATCA on payments made under this
Agreement or any other Loan Document if such Lender or Issuing Bank fails to
comply with the applicable reporting requirements of FATCA (including those
contained in Section 1471(b) or 1472(b) of the Code, as applicable), such
Lender or Issuing Bank shall provide such documentation prescribed by
applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the
Code) and such additional documentation reasonably requested by the Borrower or
the Administrative Agent as may be 


 


45

















 


necessary
for the Borrower or the Administrative Agent to comply with its obligations
under FATCA, to determine that such Lender or Issuing Bank has complied with
such Lender’s or Issuing Bank’s obligations under FATCA, or to determine the
amount to deduct and withhold from any such payments.


 


(g)           If the Administrative Agent or
a Lender determines, in its sole discretion, that it has received a refund of
any Taxes or Other Taxes as to which it has been indemnified by the Borrower or
with respect to which the Borrower has paid additional amounts pursuant to this
Section 2.17, it shall pay over such refund to the Borrower (but only to the
extent of indemnity payments made, or additional amounts paid, by the Borrower
under this Section 2.17 with respect to the Taxes or Other Taxes giving rise to
such refund), net of all out-of-pocket expenses of the Administrative Agent or
such Lender and without interest (other than any interest paid by the relevant
Governmental Authority with respect to such refund); provided, that the
Borrower, upon the request of the Administrative Agent or such Lender, agrees
to repay the amount paid over to the Borrower (plus any penalties, interest or
other charges imposed by the relevant Governmental Authority) to the
Administrative Agent or such Lender in the event the Administrative Agent or
such Lender is required to repay such refund to such Governmental Authority.
This Section shall not be construed to require the Administrative Agent or any
Lender to make available its tax returns (or any other information relating to
its taxes which it deems confidential) to the Borrower or any other Person.


 


Section 2.18.         Payments Generally; Pro Rata Treatment; Sharing of
Set-offs.


 


(a)          The Borrower shall make each payment required to be
made by it hereunder (whether of principal, interest, fees or reimbursement of
LC Disbursements, or of amounts payable under Section 2.15, Section 2.16 or
Section 2.17, or otherwise) prior to 12:00 noon on the date when due, in
immediately available funds, without set-off or counterclaim.  Any amounts received after such time on any
date may, in the discretion of the Administrative Agent, be deemed to have been
received on the next succeeding Business Day for purposes of calculating
interest thereon.  All such payments
shall be made to the Administrative Agent at its offices at Mail Code IL1-0010,
10 South Dearborn, Floor 07, Chicago, Illinois, 60603-2003, except payments to
be made directly to the Issuing Bank as expressly provided herein and except
that payments pursuant to Section 2.15, Section 2.16, Section 2.17 and Section
11.03 shall be made directly to the Persons entitled thereto.  The Administrative Agent shall distribute any
such payments received by it for the account of any other Person to the
appropriate recipient promptly following receipt thereof.  If any payment hereunder shall be due on a
day that is not a Business Day, the date for payment shall be extended to the
next succeeding Business Day, and, in the case of any payment accruing
interest, interest thereon shall be payable for the period of such
extension.  All payments hereunder shall
be made in Dollars.


 


(b)          If at any time insufficient funds are received by
and available to the Administrative Agent to pay fully all amounts of
principal, unreimbursed LC Disbursements, interest and fees then due hereunder,
such funds shall be applied (i) first, towards payment of interest and fees
then due hereunder, ratably among the parties entitled thereto in accordance
with the amounts of interest and fees then due to such parties, and (ii)
second, towards payment of principal and unreimbursed LC Disbursements then due
hereunder, ratably among the parties entitled thereto in accordance with the
amounts of principal and unreimbursed LC Disbursements 


 


46

















 


then
due to such parties; provided that in the event such funds are received
by and available to the Administrative Agent as a result of the exercise of any
rights and remedies with respect to any collateral under the Security
Instruments, the parties entitled to a ratable share of such funds pursuant to
the foregoing clause (ii) and the determination of each parties’ ratable share
shall include, on a pari passu
basis, (x) the Lender Counterparties with respect to Lender Hedging Obligations
then due and owing to each Lender Counterparty by any Credit Party (after
giving effect to any netting agreements) and (y) any Lender or any of its
Affiliates with respect to Cash Management Obligations then due and owing to
such Lender or any of its Affiliates by any Credit Party.


 


(c)           If any Lender shall, by exercising any right of
set-off or counterclaim or otherwise, obtain payment in respect of any
principal of or interest on any of its Loans or participations in LC
Disbursements resulting in such Lender receiving payment of a greater
proportion of the aggregate amount of its Loans and participations in LC
Disbursements and accrued interest thereon than the proportion received by any
other Lender, then the Lender receiving such greater proportion shall purchase
(for cash at face value) participations in the Loans and participations in LC
Disbursements of other Lenders to the extent necessary so that the benefit of
all such payments shall be shared by the Lenders ratably in accordance with the
aggregate amount of principal of and accrued interest on their respective Loans
and participations in LC Disbursements; provided that (i) if any such
participations are purchased and all or any portion of the payment giving rise
thereto is recovered, such participations shall be rescinded and the purchase
price restored to the extent of such recovery, without interest, and (ii) the
provisions of this paragraph shall not be construed to apply to any payment
made by the Borrower pursuant to and in accordance with the express terms of
this Agreement or any payment obtained by a Lender as consideration for the
assignment of or sale of a participation in any of its Loans or participations
in LC Disbursements to any assignee or participant, other than to the Borrower
or any Subsidiary or Affiliate thereof (as to which the provisions of this
paragraph shall apply).  The Borrower
consents to the foregoing and agrees, to the extent it may effectively do so
under applicable law, that any Lender acquiring a participation pursuant to the
foregoing arrangements may exercise against the Borrower rights of set-off and
counterclaim with respect to such participation as fully as if such Lender were
a direct creditor of the Borrower in the amount of such participation.


 


(d)          Unless the Administrative Agent shall have received
notice from the Borrower prior to the date on which any payment is due to the
Administrative Agent for the account of the Lenders or the Issuing Bank
hereunder that the Borrower will not make such payment, the Administrative
Agent may assume that the Borrower has made such payment on such date in
accordance herewith and may, in reliance upon such assumption, distribute to
the Lenders or the Issuing Bank, as the case may be, the amount due.  In such event, if the Borrower has not in
fact made such payment, then each of the Lenders or the Issuing Bank, as the
case may be, severally agrees to repay to the Administrative Agent forthwith on
demand the amount so distributed to such Lender or Issuing Bank with interest
thereon, for each day from and including the date such amount is distributed to
it to but excluding the date of payment to the Administrative Agent, at the
greater of the Federal Funds Effective Rate and a rate determined by the
Administrative Agent in accordance with banking industry rules on interbank
compensation.


 


47

















 


(e)           If any Lender shall fail to make any payment
required to be made by it pursuant to Section 2.06(d) or Section 2.06(e),
Section 2.07(b), Section 2.18(d) or Section 11.03(c), then the Administrative
Agent may, in its discretion (notwithstanding any contrary provision hereof),
(i) apply any amounts thereafter received by the Administrative Agent for the
account of such Lender for the benefit of the Administrative Agent or the
Issuing Bank to satisfy such Lender’s obligations to it under such Sections
until all such unsatisfied obligations are fully paid, and/or (ii) hold any
such amounts in a segregated account as cash collateral for, and application
to, any future funding obligations of such Lender under any such Section, in
the case of each of clauses (i) and (ii) above, in any order as determined by
the Administrative Agent in its discretion.


 


Section 2.19.         Mitigation Obligations; Replacement of Lenders.


 


(a)          If any Lender requests compensation under Section
2.15, or if the Borrower is required to pay any additional amount to any Lender
or any Governmental Authority for the account of any Lender pursuant to Section
2.17, then such Lender shall use reasonable efforts to designate a different
lending office for funding or booking its Loans hereunder or to assign its
rights and obligations hereunder to another of its offices, branches or
affiliates, if, in the judgment of such Lender, such designation or assignment
(i) would eliminate or reduce amounts payable pursuant to Section 2.15 or
Section 2.17, as the case may be, in the future and (ii) would not subject such
Lender to any unreimbursed cost or expense and would not otherwise be
disadvantageous to such Lender.  The
Borrower hereby agrees to pay all reasonable costs and expenses incurred by any
Lender in connection with any such designation or assignment.


 


(b)          If any Lender requests compensation under Section
2.15, or if the Borrower is required to pay any additional amount to any Lender
or any Governmental Authority for the account of any Lender pursuant to Section
2.17, then the Borrower may, at its sole expense and effort, upon notice to
such Lender and the Administrative Agent, require such Lender to assign and
delegate, without recourse (in accordance with and subject to the restrictions
contained in Section 11.04), all its interests, rights and obligations under
this Agreement to an assignee that shall assume such obligations (which
assignee may be another Lender, if a Lender accepts such assignment); provided
that (i) the Borrower shall have received the prior written consent of the
Administrative Agent (and if a Commitment is being assigned, the Issuing Bank),
which consent shall not unreasonably be withheld, (ii) such Lender shall have
received payment of an amount equal to the outstanding principal of its Loans
and participations in LC Disbursements, accrued interest thereon, accrued fees
and all other amounts payable to it hereunder, from the assignee (to the extent
of such outstanding principal and accrued interest and fees) or the Borrower (in
the case of all other amounts) and (iii) in the case of any such
assignment resulting from a claim for compensation under Section 2.15 or
payments required to be made pursuant to Section 2.17, such assignment will
result in a reduction in such compensation or payments.  A Lender shall not be required to make any
such assignment and delegation if, prior thereto, as a result of a waiver by
such Lender or otherwise, the circumstances entitling the Borrower to require
such assignment and delegation cease to apply.


 


(c)           If (i) in connection with any proposed amendment,
modification, termination, waiver or consent with respect to any of the
provisions of this Agreement or any other Loan Document that requires approval
of all of the Lenders, each Lender or each Lender affected thereby under
Section 11.02, the consent of the Required Lenders shall have been obtained but



 


48

















 


the
consent of one or more of such other Lenders (each a “Non-Consenting Lender”)
whose consent is required has not been obtained, (ii) notwithstanding anything
to the contrary in Section 3.03, in connection with any increase in the
Borrowing Base, the consent of the Super-Majority Lenders shall have been
obtained but the consent of all of the Lenders has not been obtained (any such
non-consenting Lender, a “Non-Consenting Borrowing Base Lender”), or
(iii) any Lender becomes a Defaulting Lender; then, in each case, the Borrower
may, at its sole expense and effort, upon notice to such Lender and the
Administrative Agent, elect to replace such Non-Consenting Lender,
Non-Consenting Borrowing Base Lender or Defaulting Lender, as the case may be,
as a Lender party to this Agreement in accordance with and subject to the
restrictions contained in, and consents required by Section 11.04; provided
that (x) the Borrower shall have received the prior written consent of the
Administrative Agent (and if a Commitment is being assigned, the Issuing Bank),
which consent shall not unreasonably be withheld and (y) such Lender shall have
received payment of an amount equal to the outstanding principal of its Loans
and participations in LC Disbursements, accrued interest thereon, accrued fees
and all other amounts payable to it hereunder, from the assignee (to the extent
of such outstanding principal and accrued interest and fees) or the Borrower
(in the case of all other amounts).  A
Lender shall not be required to make any such assignment and delegation if,
prior thereto, as a result of a waiver by such Lender or otherwise, the
circumstances entitling the Borrower to require such assignment and delegation
cease to apply or, in the case of a Defaulting Lender, such Lender is no longer
a Defaulting Lender.


 


Section 2.20.                   Defaulting
Lenders.  Notwithstanding any provision
of this Agreement to the contrary, if any Lender becomes a Defaulting Lender,
then the following provisions shall apply for so long as such Lender is a
Defaulting Lender:


 


(a)           the fees shall cease to
accrue on the unfunded portion of the Commitment of such Defaulting Lender
pursuant to Section 2.12(a);


 


(b)           the Commitment and Credit
Exposure of such Defaulting Lender shall not be included in determining whether
the Super-Majority Lenders, the Required Lenders or the Majority Lenders have
taken or may take any action hereunder (including any consent to any amendment,
waiver or other modification pursuant to Section 11.02), provided that
(i) any waiver, consent, amendment or modification otherwise requiring the
consent of such Lender or each affected Lender shall require the consent of
such Defaulting Lender and (ii) any waiver, consent, amendment or modification
requiring the consent of all Lenders shall require the consent of such
Defaulting Lender (except in respect of any increases in the Maximum Facility Amount);


 


(c)           if any LC Exposure exists at
the time such Lender becomes a Defaulting Lender then:


 


(i)            all or any part of the LC
Exposure of such Defaulting Lender shall be reallocated among the
non-Defaulting Lenders in accordance with their respective Applicable
Percentages but only to the extent the sum of all non-Defaulting Lenders’
Credit Exposures plus such Defaulting Lender’s LC Exposure does not exceed the
total of all non-Defaulting Lenders’ Commitments;


 


49

















 


(ii)           if the reallocation
described in clause (i) above cannot, or can only partially, be effected, the
Borrower shall, within one (1) Business Day following notice by the
Administrative Agent, cash collateralize for the benefit of the Issuing Bank
only the Borrower’s obligations corresponding to such Defaulting Lender’s LC
Exposure (after giving effect to any partial reallocation pursuant to clause
(i) above) in accordance with the procedures set forth in Section 2.06(j) for
so long as such LC Exposure is outstanding;


 


(iii)          if the Borrower cash
collateralizes any portion of such Defaulting Lender’s LC Exposure pursuant to
clause (ii) above, the Borrower shall not be required to pay any fees to such
Defaulting Lender pursuant to Section 2.12(b) with respect to such Defaulting
Lender’s LC Exposure during the period such Defaulting Lender’s LC Exposure is
cash collateralized;


 


(iv)          if the LC Exposure of the
non-Defaulting Lenders is reallocated pursuant to clause (i) above, then the
fees payable to the Lenders pursuant to Section 2.12(a) and Section 2.12(b)
shall be adjusted in accordance with such non-Defaulting Lenders’ Applicable
Percentages; and


 


(v)           if all or any portion of
such Defaulting Lender’s LC Exposure is neither cash collateralized nor reallocated
pursuant to clauses (i) or (ii) above, then, without prejudice to any rights or
remedies of the Issuing Bank or any Lender hereunder, all letter of credit fees
payable under Section 2.12(b) with respect to such Defaulting Lender’s LC
Exposure shall be payable to the Issuing Bank until and to the extent that such
LC Exposure is cash collateralized and/or reallocated; and


 


(d)           so long as such Lender is a
Defaulting Lender, the Issuing Bank shall not be required to issue, amend, or
increase any Letter of Credit, unless it is satisfied that the related exposure
and the Defaulting Lender’s then outstanding LC Exposure will be 100% covered
by the Commitments of the non-Defaulting Lenders and/or cash collateral will be
provided by the Borrower in accordance with Section 2.20(c), and any
participating interests in any newly issued or increased Letter of Credit shall
be allocated among non-Defaulting Lenders in a manner consistent with Section
2.20(c)(i) (and such Defaulting Lender shall not participate therein).


 


If (i) a Bankruptcy Event with respect to a Parent
of any Lender shall occur following the date hereof and for so long as such
event shall continue or (ii) the Issuing Bank has a good faith belief that any
Lender has defaulted in fulfilling its obligations under one or more other
agreements in which such Lender commits to extend credit, the Issuing Bank
shall not be required to issue, amend, or increase any Letter of Credit, unless
the Issuing Bank shall have entered into arrangements with the Borrower or such
Lender, satisfactory to the Issuing Bank to defease any risk to it in respect
of such Lender hereunder.


 


In the event that the Administrative Agent, the
Borrower, and the Issuing Bank each agrees that a Defaulting Lender has
adequately remedied all matters that caused such Lender to be a Defaulting
Lender, then the LC Exposure of the Lenders shall be readjusted to reflect the
inclusion of such Lender’s Commitment and on such date such Lender shall
purchase at par such 


 


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of
the Loans of the other Lenders as the Administrative Agent shall determine may
be necessary in order for such Lender to hold such Loans in accordance with its
Applicable Percentage.


 


Article III


 


Borrowing Base


 


Section 3.01.         Reserve Report; Proposed Borrowing Base.  During the period from the Effective Date
until the first Redetermination after the Effective Date, the Borrowing Base
shall be $350,000,000 (the “Initial Borrowing Base”).  As soon as available and in any event by April 1
and October 1 of each year, beginning April 1, 2011, the Borrower shall deliver
to the Administrative Agent and each Lender a Reserve Report, prepared as of
the immediately preceding December 31 and June 30, respectively, in form and
substance reasonably satisfactory to the Administrative Agent and prepared by
an Approved Petroleum Engineer (or, in the case of the Reserve Report due on
October 1 of each year, by one or more petroleum engineers employed by the
Borrower), said Reserve Report to utilize economic and pricing parameters
established from time to time by the Administrative Agent, together with such
other information, reports and data concerning the value of the Borrowing Base
Properties as the Administrative Agent shall deem reasonably necessary to
determine the value of such Borrowing Base Properties.  Simultaneously with the delivery to the
Administrative Agent and the Lenders of each Reserve Report, the Borrower shall
submit to the Administrative Agent and each Lender the Borrower’s requested
amount of the Borrowing Base as of the next Redetermination Date.  Promptly after the receipt by the
Administrative Agent of such Reserve Report and the Borrower’s requested amount
for the Borrowing Base, the Administrative Agent shall submit to the Lenders a
recommended amount of the Borrowing Base to become effective for the period
commencing on the next Redetermination Date. 
Attributed Interests shall not constitute more than 10% of the
Engineered Value included in the Borrowing Base.


 


Section 3.02.         Scheduled Redeterminations of the Borrowing Base;
Procedures and Standards. 
Based in part on the Reserve Reports made available to the
Administrative Agent and the Lenders pursuant to Section 3.01, the Lenders
shall redetermine the Borrowing Base on or prior to the next Redetermination
Date (or such date promptly thereafter as reasonably possible based on the
engineering and other information available to the Lenders).  Any Borrowing Base which becomes effective as
a result of any Redetermination of the Borrowing Base shall be subject to the
following restrictions: (a) such Borrowing Base shall not exceed the amount of
the Borrowing Base requested by the Borrower, (b) such Borrowing Base shall not
exceed the Maximum Facility Amount, (c) to the extent such Borrowing Base
represents an increase in the Borrowing Base in effect prior to such
Redetermination, such Borrowing Base must be approved by all Lenders, and (d)
to the extent such Borrowing Base represents a decrease in the Borrowing Base
in effect prior to such Redetermination or a reaffirmation of such prior
Borrowing Base, such Borrowing Base must be approved by the Administrative
Agent and Required Lenders.  If a redetermined Borrowing Base
is not approved by the Administrative Agent and Required Lenders within twenty
(20) days after the submission to the Lenders by the Administrative Agent of
its recommended Borrowing Base pursuant to Section 3.01, or by all Lenders
within such twenty (20) day period in the case of any increase in the Borrowing
Base, the Administrative Agent shall notify each Lender that the recommended
Borrowing Base has not been approved and request that each Lender submit to the
Administrative Agent within ten (10) days thereafter


 


51






 












 


its
proposed Borrowing Base.  Promptly
following the 10th day after the Administrative Agent’s request
for each Lender’s proposed Borrowing Base, the Administrative Agent shall
determine the Borrowing Base for such Redetermination by calculating the highest
Borrowing Base then acceptable to the Administrative Agent and a number of
Lenders sufficient to constitute Required Lenders (or all Lenders in the case
of an increase in the Borrowing Base). 
Each Redetermination shall be made by the Lenders in their sole
discretion, but based on the Administrative Agent’s and such Lender’s usual and
customary procedures for evaluating Oil and Gas Interest as such exist at the
time of such Redetermination, and including adjustments to reflect the effect
of any Swap Agreements of the Borrower and the Restricted Subsidiaries as such
exist at the time of such Redetermination. 
The Borrower acknowledges and agrees that each Redetermination shall be
based upon the loan collateral value which each Agent and each Lender in its sole
discretion (using such methodology, assumptions and discount rates as the
Administrative Agent and such Lender customarily uses in assigning collateral
value to Oil and Gas Interests) assigns to the Borrowing Base Properties at the
time in question and based upon such other credit factors consistently applied
(including, without limitation, the assets, liabilities, cash flow, business,
properties, prospects, management and ownership of the Credit Parties) as the
Administrative Agent and such Lender customarily considers in evaluating
similar oil and gas credits.  It is
expressly understood that the Administrative Agent and Lenders have no
obligation to designate the Borrowing Base at any particular amounts, except in
the exercise of their discretion, whether in relation to the Aggregate
Commitment or otherwise. If the Borrower does not furnish all information,
reports and data required to be delivered by any date specified in this Article III,
unless such failure is not the fault of the Borrower, the Administrative Agent
and Lenders may nonetheless designate the Borrowing Base at any amounts which
the Administrative Agent and Lenders in their reasonable discretion determine
and may redesignate the Borrowing Base from time to time thereafter until the
Administrative Agent and Lenders receive all such information, reports and
data, whereupon the Administrative Agent and Lenders shall designate a new
Borrowing Base, in accordance with the other provisions of this Section.


 


Section 3.03.                             Special
Redeterminations.  In addition
to Scheduled Redeterminations, the Borrower shall be permitted to request a
Special Redetermination of the Borrowing Base once between each Scheduled
Redetermination and the Required Lenders shall be permitted to request a
Special Redetermination once between each Scheduled Redetermination.  Any request by the Borrower pursuant to this Section 3.03
shall be submitted to the Administrative Agent and each Lender and at the time
of such request (or within twenty (20) days thereafter in the case of the
Reserve Report) the Borrower shall (1) deliver to the Administrative Agent
a Reserve Report prepared as of a date prior to the date of such request that
is reasonably acceptable to the Administrative Agent and such other information
which the Administrative Agent shall reasonably request, and (2) notify
the Administrative Agent of the Borrowing Base requested by the Borrower in
connection with such Special Redetermination. 
Any request by the Required Lenders pursuant to this Section 3.03
shall be submitted to the Administrative Agent and the Borrower. Any Special
Redetermination shall be made by the Administrative Agent and Lenders in
accordance with the procedures and standards set forth in Section 3.02;
provided that no Reserve Report is required to be delivered to the
Administrative Agent in connection with any Special Redetermination requested
by the Required Lenders pursuant to this Section 3.03.


 


Section 3.04.                             Notice of
Redetermination.  Promptly
following any Redetermination of the Borrowing Base, the Administrative Agent
shall notify the Borrower of the amount of the 


 


52

















 


redetermined
Borrowing Base, which Borrowing Base shall be effective as of the date
specified in such notice, and such Borrowing Base shall remain in effect for
all purposes of this Agreement until the next Redetermination.


 


Section 3.05.                             Additional
Reductions in Borrowing Base.  Unless otherwise waived in writing by the
Required Lenders, upon the issuance of any Senior Notes by any Credit Party
pursuant to Section 7.01(g) (other than any Permitted Refinancing
that extends, refinances, renews, replaces, defeases or refunds outstanding
Senior Notes), the Borrowing Base then in effect shall automatically be reduced
by the lesser of (a) $250 for each $1,000 in stated principal amount of
such Senior Notes on the date such Senior Notes are issued (without regard to
any initial issue discount) and (b) such other amount, if any, determined
by the Required Lenders in their sole discretion prior to the issuance of such
Senior Notes.


 


Article IV


 


Representations and
Warranties


 


The
Borrower represents and warrants to the Lenders that:


 


Section 4.01.                             Organization;
Powers.  Each Credit Party is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, has all requisite power and authority to
carry on its business as now conducted and, except where the failure to do so,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect, is qualified to do business in, and is in good
standing in, every jurisdiction where such qualification is required.


 


Section 4.02.                             Authorization;
Enforceability.  The
Transactions are within each Credit Party’s corporate, limited liability
company or partnership powers and have been duly authorized by all necessary
corporate, limited liability company or partnership and, if required, actions
by equity holders.  This Agreement has been
duly executed and delivered by each Credit Party and constitutes a legal, valid
and binding obligation of each Credit Party, enforceable in accordance with its
terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium
or other laws affecting creditors’ rights generally and subject to general
principles of equity, regardless of whether considered in a proceeding in
equity or at law.


 


Section 4.03.                             Governmental
Approvals; No Conflicts.  The
Transactions (a) do not require any consent or approval of, registration
or filing with, or any other action by, any Governmental Authority, except such
as have been obtained or made and are in full force and effect or have been
made or to be made in connection with the filing of the Security Instruments to
secure the Obligations, (b) will not violate any Requirement of Law
applicable to the Borrower or any Restricted Subsidiary, (c) will not
violate or result in a default under any indenture, agreement or other
instrument evidencing Material Indebtedness or a Material Sales Contract binding
upon the Borrower or any Restricted Subsidiary or any of their respective
assets, or give rise to a right thereunder to require any payment to be made by
the Borrower or any Restricted Subsidiary, and (d) will not result in the
creation or imposition of any Lien on any asset of the Borrower or any
Restricted Subsidiary not otherwise permitted under Section 7.02.


 


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Section 4.04.                             Financial
Condition; No Material Adverse Change.


 


(a)                                The Borrower
has heretofore furnished to the Lenders the audited consolidated balance sheet
and related statements of income, stockholders equity and cash flows of the
Borrower and its Consolidated Subsidiaries (i) as of and for the fiscal
year ended December 31, 2009, reported on by KPMG LLP, independent public
accountants, and (ii) as of and for the fiscal quarter ended September 30,
2010, certified by its Financial Officer. 
Such financial statements present fairly, in all material respects, the
financial position and results of operations and cash flows of the Borrower and
its Consolidated Subsidiaries as of such dates and for such periods in
accordance with GAAP, subject to year-end audit adjustments and the absence of
footnotes in the case of the statements referred to in clause (ii) above.


 


(b)                               Since December 31,
2009, no event or circumstance which has had or could reasonably be expected to
have a Material Adverse Effect has occurred.


 


Section 4.05.                             Properties.


 


(a)                                Except as
otherwise provided in Section 4.15 with respect to Oil and Gas Interests,
the Borrower and each Restricted Subsidiary has good title to, or valid
leasehold interests in, all such real and personal property material to its
business, except for (i) minor defects in title that do not, in the
aggregate, interfere with its ability to conduct its business as currently
conducted or to utilize such properties for their intended purposes and (ii) Liens
permitted under Section 7.02.


 


(b)                               The Borrower
and each Restricted Subsidiary owns, or is licensed to use, all trademarks,
tradenames, copyrights, patents and other intellectual property material to its
business, and the use thereof by the Borrower and such Restricted Subsidiaries,
as the case may be, does not infringe upon the rights of any other Person,
except for any such infringements that, individually or in the aggregate, could
not reasonably be expected to result in a Material Adverse Effect.


 


Section 4.06.                             Litigation and
Environmental Matters.


 


(a)                                There are no
actions, suits or proceedings by or before any arbitrator or Governmental
Authority pending against or, to the knowledge of the Borrower, threatened
against or affecting the Borrower or any Restricted Subsidiary, (i) as to
which there is a reasonable possibility of an adverse determination and that, if
adversely determined, could reasonably be expected, individually or in the
aggregate, to result in a Material Adverse Effect after taking into account
insurance proceeds or other recoveries from third parties actually received
(other than the Disclosed Matters) or (ii) that involve this Agreement or
the Transactions.


 


(b)                               Except for the
Disclosed Matters and except with respect to any other matters that,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect after taking into account insurance proceeds or other
recoveries from third parties actually received, neither the Borrower nor any
Restricted Subsidiary, to the Borrower’s knowledge, (i) has failed to
comply with any Environmental Law or to obtain, maintain or comply with any
permit, license or other approval required under any Environmental Law, 


 


54

















 


(ii)
has become subject to any Environmental Liability, (iii) has received
written notice of any claim with respect to any Environmental Liability or (iv) knows
of any basis for any claim with respect to any Environmental Liability.


 


(c)                                Since the date
of this Agreement, there has been no change in the status of the Disclosed
Matters that, individually or in the aggregate, has resulted in, or materially
increased the likelihood of, a Material Adverse Effect.


 


Section 4.07.                             Compliance with
Laws and Agreements.  The Borrower
and each Restricted Subsidiary is in compliance with all Requirements of Law
applicable to it or its property, its Organizational Documents and all
indentures, agreements and other instruments binding upon it or its property,
except where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.  No Default has occurred and is continuing.


 


Section 4.08.                             Investment
Company Status.  Neither the
Borrower nor any Restricted Subsidiary is an “investment company” as defined
in, or subject to regulation under, the Investment Company Act of 1940.


 


Section 4.09.                             Taxes.  The Borrower and each Restricted Subsidiary
has timely filed or caused to be filed all Tax returns and reports required to
have been filed and has paid or caused to be paid all Taxes required to have
been paid by it, except (a) Taxes that are being contested in good faith
by appropriate proceedings and for which the Borrower or such Restricted
Subsidiary, as applicable, has set aside on its books adequate reserves or
(b) to the extent that the failure to do so could not reasonably be
expected to result in a Material Adverse Effect.


 


Section 4.10.                             ERISA.  No ERISA Event has occurred or is reasonably
expected to occur that, when taken together with all other such ERISA Events
for which liability is reasonably expected to occur, could reasonably be
expected to result in a Material Adverse Effect.  The present value of all accumulated benefit
obligations under each Plan (based on the assumptions used for purposes of FASB
Statement 87) did not, as of the date of the most recent financial
statements reflecting such amounts, exceed by more than $1,000,000 the fair
market value of the assets of such Plan, and the present value of all
accumulated benefit obligations of all underfunded Plans (based on the
assumptions used for purposes of FASB Statement 87) did not, as of the
date of the most recent financial statements reflecting such amounts, exceed by
more than $1,000,000 the fair market value of the assets of all such
underfunded Plans.


 


Section 4.11.                             Disclosure.  The Borrower has disclosed to the Lenders all
agreements, instruments and corporate or other restrictions to which it or any
Restricted Subsidiary is subject, and all other matters known to it, that,
individually or in the aggregate, could reasonably be expected to result in a
Material Adverse Effect.  None of the
other reports, financial statements, certificates or other information
furnished by or on behalf of the Borrower or any Restricted Subsidiary to the
Administrative Agent or any Lender in connection with the negotiation of this
Agreement or delivered hereunder (as modified or supplemented by other
information so furnished) when taken as a whole contains any material
misstatement of fact or omits to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading as of the date made or deemed made; provided that,
with 


 


55

















 


respect
to projected financial information, the Borrower represents only that such
information was prepared in good faith based on assumptions believed to be
reasonable at the time and, if such projected financial information was
delivered prior to the Effective Date, as of the Effective Date.


 


Section 4.12.                             Labor Matters.  There are no strikes, lockouts or slowdowns
against the Borrower or any of its Restricted Subsidiaries pending or, to the
knowledge of the Borrower, threatened that could reasonably be expected to have
a Material Adverse Effect.  The hours
worked by and payments made to employees of the Borrower and, to the knowledge
of the Borrower, to employees of its Restricted Subsidiaries have not been in
violation of the Fair Labor Standards Act or any other Law dealing with such
matters to the extent that such violation could reasonably be expected to have
a Material Adverse Effect.


 


Section 4.13.                             Capitalization.  Schedule 4.13 lists as of the Effective Date,
(a) for the Borrower and each Restricted Subsidiary, its full legal name
and its jurisdiction of organization and (b) for each Restricted
Subsidiary, the number of shares of capital stock or other Equity Interests
outstanding and the owner(s) of such shares or Equity Interests. Schedule
1.02 lists as of the Effective Date, with respect to each Related Partnership,
the Partnership Interests owned by each Credit Party in such Related
Partnership.


 


Section 4.14.                             Margin Stock.  Neither the Borrower nor any Restricted
Subsidiary is engaged principally, or as one of its important activities, in
the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulation 
U issued by the Federal Reserve Board), and no part of the proceeds of
any Loan will be used to purchase or carry any margin stock or to extend credit
to others for the purpose of purchasing or carrying margin stock.


 


Section 4.15.                             Oil and Gas
Interests.  Each Credit
Party has good and defensible title to all proved reserves included in the
Direct Interests (for purposes of this Section 4.15, “proved Direct Interests”)
described in the most recent Reserve Report provided to the Administrative
Agent (other than such proved reserves that have been subsequently disposed of
in compliance with this Agreement), free and clear of all Liens except Liens
permitted pursuant to Section 7.02. 
All such proved Oil and Gas Interests are valid, subsisting, and in full
force and effect in all material respects, and all rentals, royalties, and
other amounts due and payable in respect thereof have been duly paid except for
such rentals, royalties and other amounts that are amounts being contested in
good faith by appropriate proceedings and for which the Borrower or the
applicable Restricted Subsidiary has set aside on its books adequate reserves,
or except to the extent such rentals, royalties and other amounts due, if left
unpaid, would not result in the loss or forfeiture of Oil and Gas Properties
having an aggregate fair market value in excess of $10,000,000.  Without regard to any consent or non-consent
provisions of any joint operating agreement covering any Credit Party’s proved
Direct Interests, such Credit Party’s share of (a) the costs for each
proved Oil and Gas Interest described in the Reserve Report (other than for
such proved Oil and Gas Interests that have been subsequently disposed of in
compliance with this Agreement) is not materially greater than the decimal
fraction set forth in the Reserve Report, before and after payout, as the case
may be, and described therein by the respective designations “working interests,”
“WI,” “gross working interest,” “GWI,” or similar terms (except in such cases
where there is a corresponding increase in the net revenue interest), and
(b) production from, allocated 


 


56

















 


to,
or attributed to each such proved Oil and Gas Interest is not materially less
than the decimal fraction set forth in the Reserve Report, before and after
payout, as the case may be, and described therein by the designations “net
revenue interest,” “NRI,” or similar terms. 
The wells drilled in respect of proved producing Oil and Gas Interests
described in the Reserve Report (other than wells drilled in respect of such
proved producing Oil and Gas Interests that have been subsequently disposed of
in compliance with this Agreement) (1) are capable of, and are presently,
either producing Hydrocarbons in commercially profitable quantities or in the
process of being worked over or enhanced, and the Credit Party that owns such
proved producing Oil and Gas Interests is currently receiving payments for its
share of production, with no funds in respect of any thereof being presently
held in suspense, other than any such funds being held in suspense pending
delivery of appropriate division orders, and (2) have been drilled, bottomed,
completed, and operated in compliance with all applicable laws, in the case of
clauses (1) and (2), except where any failure to satisfy clause (1) or
to comply with clause (2) would not have a Material Adverse Effect, and no
such well which is currently producing Hydrocarbons is subject to any material
penalty in production by reason of such well having produced in excess of its
allowable production.


 


Section 4.16.                             Insurance.  The certificate signed by a Responsible
Officer that attests to the existence of, and summarizes, the property and
casualty insurance program maintained by the Credit Parties that has been
furnished by the Borrower to the Administrative Agent and the Lenders as of the
Effective Date, is complete and accurate in all material respects as of the
Effective Date and demonstrates the Borrower’s and the Restricted Subsidiaries’
compliance with Section 6.05.


 


Section 4.17.                             Solvency.


 


(a)                                Immediately
after the consummation of the Transactions and immediately following the making
of the initial Borrowing, if any, made on the Effective Date and after giving
effect to the application of the proceeds thereof, (1) the fair value of
the assets of the Credit Parties on a consolidated basis, at a fair valuation,
will exceed the debts and liabilities, subordinated, contingent or otherwise,
of the Credit Parties on a consolidated basis; (2) the present fair
saleable value of the real and personal property of the Credit Parties on a
consolidated basis will be greater than the amount that will be required to pay
the probable liability of the Credit Parties on a consolidated basis on their
debts and other liabilities, subordinated, contingent or otherwise, as such
debts and other liabilities become absolute and matured; (3) the Credit
Parties on a consolidated basis will be able to pay their debts and
liabilities, subordinated, contingent or otherwise, as such debts and
liabilities become absolute and matured; and (4) the Credit Parties on a
consolidated basis will not have unreasonably small capital with which to
conduct the businesses in which they are engaged as such businesses are now
conducted and are proposed to be conducted after the date hereof.


 


(b)                               The Credit
Parties do not intend to, and do not believe that they will, incur debts beyond
their ability to pay such debts as they mature, taking into account the timing
of and amounts of cash to be received by it and the timing of the amounts of
cash to be payable on or in respect of its Indebtedness.


 


57

















 


Section 4.18.                             Material Sales
Contracts.  No Credit
Party is in default in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any Material Sales Contract
to which it is a party, except where such default could not reasonably be
expected to result in a Material Adverse Effect.


 


Section 4.19.                             Common
Enterprise.  The
successful operation and condition of each of the Credit Parties is dependent
on the continued successful performance of the functions of the group of the
Credit Parties as a whole and the successful operation of each of the Credit
Parties is dependent on the successful performance and operation of each other
Credit Party.  Each Credit Party expects
to derive benefit (and its board of directors or other governing body has
determined that it may reasonably be expected to derive benefit), directly and
indirectly, from (i) successful operations of each of the other Credit
Parties and (ii) the credit extended by the Lenders to the Borrower
hereunder, both in their separate capacities and as members of the group of
companies.  Each Credit Party has
determined that execution, delivery, and performance of this Agreement and any
other Loan Documents to be executed by such Credit Party is within its purpose,
will be of direct and indirect benefit to such Credit Party, and is in its best
interest.


 


Article V


 


Conditions


 


Section 5.01.                             Effective Date.  The obligations (i) of the Lenders to
continue the Original Loans and the obligation of the Lenders to make Loans and
(ii) of the Issuing Bank to permit the Existing Letters of Credit to
remain outstanding and to issue Letters of Credit hereunder shall not become
effective until the date on which each of the following conditions is satisfied
(or waived in accordance with Section 11.02):


 


(a)                                The
Administrative Agent (or its counsel) shall have received from each party
hereto either (i) a counterpart of this Agreement signed on behalf of such
party or (ii) written evidence satisfactory to the Administrative Agent
(which may include telecopy or electronic transmission of a signed signature page of
this Agreement) that such party has signed a counterpart of this Agreement.


 


(b)                               The
Administrative Agent shall have received (i) a certificate of each Credit
Party, dated the Effective Date and executed by its Secretary or Assistant
Secretary, which shall (A) certify the resolutions of its board of
directors, members or other body authorizing the execution, delivery and
performance of the Loan Documents to which it is a party, (B) identify by
name and title and bear the signatures of the officers of such Credit Party
authorized to sign the Loan Documents to which it is a party, and (C) contain
appropriate attachments, including the certificate of formation or articles of
incorporation or organization of each Credit Party certified by the relevant
authority of the jurisdiction of organization of such Credit Party and a true
and correct copy of its by-laws or operating, management or partnership
agreement, and (ii) a good standing certificate for each Credit Party from
its jurisdiction of organization.


 


(c)                                The
Administrative Agent shall have received a favorable written opinion (addressed
to the Administrative Agent and the Lenders and dated the Effective Date) of
Vinson & Elkins LLP, counsel for the Credit Parties, substantially in
the form of Exhibit B, and covering 


 


58

















 


such
other matters relating to the Credit Parties, this Agreement or the
Transactions as the Administrative Agent shall reasonably request.  The Credit Parties hereby request such
counsel to deliver such opinion.


 


(d)                               The
Administrative Agent shall have received a certificate, dated the Effective
Date and signed by a Responsible Officer of the Borrower, confirming that the
Credit Parties have (i) complied with the conditions set forth in
paragraphs (k) and (l) of this Section 5.01 and
paragraphs (a), (b) and (c) of Section 5.02,
(ii) complied with the covenants set forth in Section 6.05 (and
demonstrating such compliance by the attachment of an insurance summary and
insurance certificates evidencing the coverage described in such summary) and
(iii) complied with the requirements of Section 6.09 and Section 6.10.


 


(e)                                The
Administrative Agent, the Lenders and J.P. Morgan Securities LLC shall have
received all fees and other amounts due and payable on or prior to the
Effective Date under this Agreement and the Fee Letter, and, to the extent
invoiced, reimbursement or payment of all out-of-pocket expenses required to be
reimbursed or paid by the Borrower hereunder, including all reasonable fees,
expenses and disbursements of counsel for the Administrative Agent to the
extent invoiced on or prior to the Effective Date, together with such
additional amounts as shall constitute such counsel’s reasonable estimate of
expenses and disbursements to be incurred by such counsel in connection with
the recording and filing of Mortgages (and/or Mortgage amendments) and
financing statements; provided, that, such estimate shall not thereafter
preclude further settling of accounts between the Borrower and the
Administrative Agent.


 


(f)                                    The
Administrative Agent shall have received the Security Agreement, duly executed
and delivered by the appropriate Credit Parties, together with such other
assignments, conveyances, amendments, agreements and other writings, including,
without limitation, UCC-1 financing statements creating Liens prior and
superior in right to any other Person, subject to the Liens permitted under Section 7.02,
in all of the Collateral in which a security interest is required to be granted
pursuant to the Security Instruments, including all of the Equity Interests of
each Restricted Subsidiary and Related Partnership now or hereafter owned by
Borrower or any Restricted Subsidiary.


 


(g)                                 The
Administrative Agent shall have received promissory notes duly executed by the
Borrower for each Lender that has requested the delivery of a promissory note
pursuant to and in accordance with Section 2.09(e).


 


(h)                               In the event
any Loans are made on the Effective Date, the Administrative Agent shall have
received a Borrowing Request acceptable to the Administrative Agent and in
accordance with Section 2.05 setting forth the Loans requested by the
Borrower on the Effective Date, the Type and amount of each Loan and the
accounts to which such Loans are to be funded.


 


(i)                                   If the initial
Borrowing includes the issuance of one or more Letters of Credit, the
Administrative Agent shall have received a written request in accordance with Section 2.06
of this Agreement.


 


(j)                                   The
Administrative Agent shall have received such financing statements (including,
without limitation, the financing statements referenced in subclause (f) above)
as 


 


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Administrative
Agent shall specify to fully evidence and perfect all Liens contemplated by the
Loan Documents, all of which shall be filed of record in such jurisdictions as
the Administrative Agent shall require in its sole discretion.


 


(k)                                  Each Credit
Party shall have obtained all approvals required from any Governmental
Authority and all consents of other Persons, in each case that are necessary or
advisable in connection with the Transactions and each of the foregoing shall
be in full force and effect and in form and substance reasonably satisfactory
to the Administrative Agent.  All
applicable waiting periods shall have expired without any action being taken or
threatened by any competent authority which would restrain, prevent or
otherwise impose adverse conditions on the transactions contemplated by the
Loan Documents or the financing thereof and no action, request for stay,
petition for review or rehearing, reconsideration, or appeal with respect to
any of the foregoing shall be pending, and the time for any applicable agency
to take action to set aside its consent on its own motion shall have expired.


 


(l)                                     There shall not
exist any action, suit, investigation, litigation or proceeding or other legal
or regulatory developments, pending or threatened in any court or before any
arbitrator or Governmental Authority that, in the reasonable opinion of
Administrative Agent, singly or in the aggregate, materially impairs the
Transactions, the financing thereof or any of the other transactions
contemplated by the Loan Documents or that could reasonably be expected to
result in a Material Adverse Effect.


 


(m)                             All
partnership, corporate and other proceedings taken or to be taken in connection
with the Transactions and all documents incidental thereto shall be reasonably
satisfactory in form and substance to Administrative Agent and its counsel, and
Administrative Agent and such counsel shall have received all such counterpart
originals or certified copies of such documents as Administrative Agent may
reasonably request.


 


(n)                               The
Administrative Agent and the Lenders shall have received the Projections and
all of the financial statements described in Section 4.04(a).


 


(o)                               The
Administrative Agent shall have received Mortgages and title information, in
each case, reasonably satisfactory to the Administrative Agent with respect to
the Borrowing Base Properties, or the portion thereof, as required by Sections
6.09 and 6.10.


 


(p)                               The
Administrative Agent shall have received a solvency certificate dated the
Effective Date and signed by a Financial Officer of the Borrower.


 


(q)                               The
Administrative Agent shall have received such other instruments and documents
incidental and appropriate to the transactions provided for herein as the
Administrative Agent or its special counsel may reasonably request prior to the
Effective Date, and all such documents shall be in form and substance
satisfactory to the Administrative Agent.


 


The Administrative Agent shall notify the Borrower
and the Lenders of the Effective Date, and such notice shall be conclusive and
binding.  Notwithstanding the foregoing,
the obligations (i) of the Lenders to continue the Original Loans and the
obligation of the Lenders to make Loans and (ii) of the Issuing Bank to
permit the Existing Letters of Credit to remain outstanding and to issue
Letters of Credit hereunder shall not become effective unless each of the


 


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foregoing
conditions is satisfied (or waived pursuant to Section 11.02) at or prior
to 3:00 p.m. on December 15, 2010 (and, in the event such conditions
are not so satisfied or waived, the Aggregate Commitment shall terminate at
such time).


 


Section 5.02.                             Each Credit
Event.  The obligation of each Lender
to make a Loan on the occasion of any Borrowing, and of the Issuing Bank to
issue, amend, renew or extend any Letter of Credit, is subject to the
satisfaction of the following conditions:


 


(a)                                The
representations and warranties of each Credit Party set forth in this Agreement
and the other Loan Documents shall be true and correct on and as of the date of
such Borrowing or the date of issuance, amendment, renewal or extension of such
Letter of Credit, as applicable except to the extent that such representations
and warranties specifically refer to an earlier date, in which case they shall
be true and correct as of such earlier date.


 


(b)                               At the time of
and immediately after giving effect to such Borrowing or the issuance,
amendment, renewal or extension of such Letter of Credit, as applicable, no
Default shall have occurred and be continuing.


 


(c)                                At the time of
and immediately after giving effect to such Borrowing or the issuance,
amendment, renewal or extension of such Letter of Credit, as applicable, no
Borrowing Base Deficiency exists or would be caused thereby.


 


Each
Borrowing and each issuance, amendment, renewal or extension of a Letter of
Credit shall be deemed to constitute a representation and warranty by the
Borrower on the date thereof as to the matters specified in paragraphs (a), (b) and
(c) of this Section.


 


Article VI


 


Affirmative Covenants


 


Until
the Aggregate Commitment has expired or been terminated and the principal of
and interest on each Loan and all fees payable hereunder shall have been paid
in full and all Letters of Credit shall have expired or terminated and all LC
Disbursements shall have been reimbursed, the Borrower covenants and agrees
with the Lenders that:


 


Section 6.01.                             Financial
Statements; Other Information.  The Borrower will furnish to the
Administrative Agent and each Lender:


 


(a)                                  within 90 days
after the end of each fiscal year of the Borrower, the audited consolidated
balance sheet and related statements of operations, stockholders’ equity and
cash flows of the Borrower and its Consolidated Subsidiaries as of the end of
and for such year, setting forth in each case in comparative form the figures
for the previous fiscal year, all reported on by KPMG LLP or other independent
public accountants reasonably acceptable to the Administrative Agent (without a
“going concern” or like qualification or exception and without any
qualification or exception as to the scope of such audit) to the effect that
such consolidated financial statements present fairly in all material respects
the financial condition and results of operations of the Borrower and its
Consolidated Subsidiaries on a consolidated basis in accordance with GAAP
consistently applied;


 


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(b)                               within 45 days
after the end of each fiscal quarter of the Borrower, the consolidated balance
sheet and related statements of operations, stockholders’ equity and cash flows
of the Borrower and its Consolidated Subsidiaries as of the end of and for such
fiscal quarter and the then elapsed portion of the fiscal year, setting forth
in each case in comparative form the figures for the corresponding period or
periods of (or, in the case of the balance sheet, as of the end of) the
previous fiscal year, all certified by one of its Financial Officers as
presenting fairly in all material respects the financial condition and results
of operations of the Borrower and its Consolidated Subsidiaries on a
consolidated basis in accordance with GAAP consistently applied, subject to
normal year-end audit adjustments and the absence of footnotes;


 


(c)                                concurrently
with any delivery of financial statements under clause (a) or (b) above,
a certificate in a form reasonably acceptable to Administrative Agent signed by
a Financial Officer of the Borrower (i) certifying as to whether a Default
has occurred and, if a Default has occurred, specifying the details thereof and
any action taken or proposed to be taken with respect thereto, (ii) setting
forth reasonably detailed calculations demonstrating compliance with Section 7.13;


 


(d)                               promptly after
the same become publicly available, copies of all periodic and other reports,
proxy statements and other materials filed by the Borrower or any Restricted
Subsidiary with the Securities and Exchange Commission, or any Governmental
Authority succeeding to any or all of the functions of said Commission, or with
any national securities exchange, or distributed by the Borrower to its
shareholders generally, as the case may be;


 


(e)                                together with
the Reserve Reports required under Section 3.01, a report, in reasonable
detail, setting forth (i) the Swap Agreements then in effect, the notional
volumes of and prices for, on a monthly basis and in the aggregate, the Crude
Oil and Natural Gas for each such Swap Agreement and the term of each such Swap
Agreement and (ii) the notional volumes of Crude Oil and Natural Gas for
each such Swap Agreement; and


 


(f)                                  promptly
following any request therefor, such other information regarding the
operations, business affairs and financial condition of the Borrower or any
Subsidiary, or compliance with the terms of this Agreement, as the
Administrative Agent or any Lender may reasonably request.


 


Documents required to be delivered pursuant to this Section 6.01
(to the extent any such documents are included in materials otherwise filed
with the SEC) may be delivered electronically and if so delivered, shall be
deemed to have been delivered on the date (1) on which the Borrower posts
such documents, or provides a link thereto, on the Borrower’s website on the
Internet at www.claytonwilliams.com or (2) on which such documents are
posted on the Borrower’s behalf on an Internet or intranet website, if any, to
which each Lender and the Administrative Agent have access (whether a
commercial, third-party website or whether sponsored by the Administrative
Agent); provided that: (i) upon request, the Borrower shall deliver
paper copies of such documents to the Administrative Agent or any Lender until
a written request to cease delivering paper copies is given by the
Administrative Agent or such Lender and (ii) the Borrower shall notify the
Administrative Agent and, upon request, each Lender (by telecopier or
electronic mail) of the posting of any such documents and, upon request,
provide to the Administrative Agent by electronic mail electronic versions (i.e.,
soft copies) of such 


 


62

















 


documents.  Notwithstanding anything contained herein, in
every instance the Borrower shall be required to provide paper copies of the
compliance certificates required by Section 6.01(c) to the
Administrative Agent.  Except for such
compliance certificates, the Administrative Agent shall have no obligation to
request the delivery or to maintain copies of the documents referred to above,
and in any event shall have no responsibility to monitor compliance by the
Borrower with any such request for delivery, and each Lender shall be solely
responsible for requesting delivery to it or maintaining its copies of such
documents.


 


Section 6.02.                             Notices of
Material Events.  The Borrower
will furnish to the Administrative Agent and each Lender prompt written notice
of the following:


 


(a)                                as soon as
possible, but in any event within 5 days of obtaining knowledge thereof, the
occurrence of any Default;


 


(b)                               as soon as
possible, but in any event within 30 days after the filing or commencement of
any action, suit or proceeding by or before any arbitrator or Governmental
Authority against or affecting any Credit Party or any Affiliate thereof that,
if adversely determined, could reasonably be expected to result in a Material
Adverse Effect;


 


(c)                                as soon as
possible, but in any event within 30 days after the occurrence of any ERISA
Event that, alone or together with any other ERISA Events that have occurred,
could reasonably be expected to result in liability of the Borrower and the
Restricted Subsidiaries in an aggregate amount exceeding $1,000,000;


 


(d)                               as soon as
possible, but in any event within 30 days after any notice or claim to the
effect that any Credit Party is or may be liable to any Person as a result of
the release by any Credit Party, or any other Person of any Hazardous Material
into the environment, which could reasonably be expected to have a Material Adverse
Effect;


 


(e)                                as soon as
possible, but in any event within 30 days after any notice alleging any
violation of any Environmental Law by any Credit Party, which could reasonably
be expected to have a Material Adverse Effect;


 


(f)                                  as soon as
possible, but in any event within 30 days after the occurrence of any breach or
default under, or repudiation or termination of, any Material Sales Contract,
which could reasonably be expected to have a Material Adverse Effect; and


 


(g)                               as soon as
possible, but in any event within five days of becoming aware of any other
development that results in, or could reasonably be expected to result in, a
Material Adverse Effect.


 


Each
notice delivered under this Section shall be accompanied by a statement of
a Responsible Officer of the Borrower setting forth the details of the event or
development requiring such notice and any action taken or proposed to be taken
with respect thereto.


 


Section 6.03.                             Existence;
Conduct of Business.  The Borrower
will, and will cause each Restricted Subsidiary to, do or cause to be done all
things necessary to preserve, renew and keep in full force and effect its legal
existence and the rights, licenses, permits, privileges and 


 


63

















 


franchises
material to the conduct of its business; provided that the foregoing
shall not prohibit any merger, consolidation, liquidation or dissolution
permitted under Section 7.03 or any Disposition permitted under Section 7.04
nor shall the Borrower or any Restricted Subsidiary be required to preserve any
right or franchise unrelated to the Borrowing Base Properties if the Borrower
or such Restricted Subsidiary determines that the preservation thereof is no
longer desirable in the conduct of its business and that the loss thereof is
not adverse in any material respect to the Administrative Agent or any Lender.


 


Section 6.04.                             Payment of
Obligations.  The Borrower
will, and will cause each Restricted Subsidiary to, pay its obligations,
including Tax liabilities, that, if not paid, could result in a Material
Adverse Effect before the same shall become delinquent or in default, except
where (a) the validity or amount thereof is being contested in good faith
by appropriate proceedings, (b) the Borrower or such Restricted Subsidiary,
as applicable, has set aside on its books adequate reserves with respect
thereto in accordance with GAAP and (c) the failure to make payment
pending such contest could not reasonably be expected to result in a Material
Adverse Effect or any Collateral becoming subject to forfeiture or loss as a
result of such contest.


 


Section 6.05.                             Maintenance of
Properties; Insurance.  The
Borrower will, and will cause each Restricted Subsidiary and use commercially
reasonable efforts to cause each operator of Borrowing Base Properties to,
(a) keep and maintain all property material to the conduct of its business
in good working order and condition, ordinary wear and tear excepted, and
(b) maintain, with financially sound and reputable insurance companies,
insurance in such amounts and against such risks as are customarily maintained
by companies engaged in the same or similar businesses operating in the same or
similar locations.  Upon request of the
Administrative Agent, the Borrower will furnish or cause to be furnished to the
Administrative Agent from time to time a summary of the respective insurance
coverage of the Borrower and its Restricted Subsidiaries in form and substance
reasonably satisfactory to the Administrative Agent, and, if requested, will
furnish the Administrative Agent copies of the applicable policies.  Upon demand by Administrative Agent, the
Borrower will cause any insurance policies covering any such property to be
endorsed (a) to provide that such policies may not be cancelled, reduced
or affected in any manner for any reason without fifteen (15) days prior notice
to Administrative Agent, (b) to include the Administrative Agent as loss
payee with respect to all property/casualty policies and additional insured
with respect to all liability policies and (c) to provide for such other
matters as the Lenders may reasonably require.


 


Section 6.06.                             Books and
Records; Inspection Rights.  The Borrower will, and will cause each
Restricted Subsidiary to, keep proper books of record and account in which
full, true and correct entries are made of all dealings and transactions in
relation to its business and activities. 
The Borrower will, and will cause each Restricted Subsidiary, permit any
representatives designated by the Administrative Agent or any Lender, upon
reasonable prior notice, to visit and inspect its properties, to examine and
make extracts from its books and records, and to discuss its affairs, finances
and condition with its officers and independent accountants, all at such
reasonable times and as often as reasonably requested.


 


Section 6.07.                             Compliance with
Laws.  The Borrower will, and will
cause each Restricted Subsidiary to, comply with all Requirements of Law
applicable to it or its property, 


 


64

















 


except
where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.


 


Section 6.08.                             Use of Proceeds
and Letters of Credit.  The
proceeds of the Loans will be used only to (a) pay the fees, expenses and
transaction costs of the Transactions, (b) prepay, redeem or defease the
Existing Senior Notes to the extent permitted under Section 7.15 and (c) finance
the working capital needs of the Borrower, including capital expenditures, and
for general corporate purposes of the Borrower and the Guarantors, in the
ordinary course of business, including the exploration, acquisition and
development of Oil and Gas Interests.  No
part of the proceeds of any Loan will be used, whether directly or indirectly,
to purchase or carry any margin stock (as defined in Regulation U issued by the
Board).  Letters of Credit will be issued
only to support general corporate purposes of the Borrower and the Restricted
Subsidiaries.


 


Section 6.09.                             Mortgages and
Other Security.  The Borrower
will, and will cause each Material Restricted Subsidiary to, execute and
deliver to the Administrative Agent, for the benefit of the Secured Parties, (a) by
no later than each Redetermination Date and, at the request of the
Administrative Agent, at any time between Borrowing Base Redeterminations,
Mortgages in form and substance reasonably acceptable to the Administrative
Agent together with such other assignments, conveyances, amendments, agreements
and other writings, including, without limitation, UCC-1 financing statements
(each duly authorized and executed, as applicable) as the Administrative Agent
shall reasonably deem necessary or appropriate to grant, evidence and perfect
and maintain Liens in Direct Interests having an Engineered Value equal to or
greater than eighty percent (80%) of the Engineered Value of the Direct
Interests included in the Borrowing Base Properties as reflected on the Reserve
Report most recently delivered to the Administrative Agent pursuant to Section 3.01
or Section 3.03, (b) promptly after entering into any such agreement
(to the extent not already subject to a Lien pursuant to the Security
Instruments), collateral assignments of all right, title and interest of any
Credit Party in and to any gathering, handling, storing, processing,
transportation, supply, pipeline or marketing agreement with any Affiliate that
is not a Credit Party, and (c) Security Instruments in form and substance
reasonably acceptable to the Administrative Agent together with such other
assignments, conveyances, amendments, agreements and other writings, including,
without limitation, UCC-1 financing statements (each duly authorized and
executed, as applicable), as the Administrative Agent shall reasonably deem
necessary or appropriate to grant, evidence and perfect Liens in certain
personal property of the Borrower or such Restricted Subsidiary, as the case
may be, related to the Direct Interests subject of the Mortgages referred to in
clause (a) above, in each case, subject only to Permitted Encumbrances and
other Liens permitted under Section 7.02. 
Notwithstanding anything to the contrary in this Section 6.09, the
Borrower will, and will cause each Material Restricted Subsidiary to, execute
and deliver to the Administrative Agent (i) on the Effective Date,
Mortgages and amendments to Mortgages necessary or appropriate to grant,
evidence and perfect and maintain Liens in Direct Interests having an
Engineered Value equal to or greater than sixty five percent (65%) of the Engineered
Value of the Direct Interests included in the Borrowing Base Properties and (ii) no
later than 60 days after the Effective Date, Mortgages and amendments to
Mortgages necessary or appropriate to grant, evidence and perfect and maintain
Liens in Direct Interests having an Engineered Value equal to or greater than
eighty percent (80%) of the Engineered Value of the Direct Interests included
in the Borrowing Base Properties.


 


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Section 6.10.                             Title Data.  The Borrower will, and will cause each
Restricted Subsidiary to, deliver to the Administrative Agent title information
in form and substance reasonably acceptable to the Administrative Agent with
respect to that portion of the Oil and Gas Interests evaluated by such Reserve
Report as the Administrative Agent shall deem reasonably necessary or
appropriate to verify (i) the title of the Credit Parties to not less than
seventy percent (70%) of the Engineered Value of the Borrowing Base Properties
that are required to be subject to a Mortgage pursuant to Section 6.09,
and (ii) the validity, perfection and priority of the Liens created by
such Mortgages and such other matters regarding such Mortgages as
Administrative Agent shall reasonably request.


 


Section 6.11.                             Swap
Agreements.  Upon the
request of the Administrative Agent, the Borrower shall, within thirty (30)
days of such request, provide to the Administrative Agent copies of all
agreements, documents and instruments evidencing the Swap Agreements not previously
delivered to the Administrative Agent, certified as true and correct by a
Responsible Officer of the Borrower, and such other information regarding such
Swap Agreements as the Administrative Agent may reasonably request.


 


Section 6.12.                             Operation of
Oil and Gas Interests.


 


(a)                                The Borrower
will, and will cause each Restricted Subsidiary to, maintain, develop and
operate its Oil and Gas Interests in a good and workmanlike manner, and observe
and comply with all of the terms and provisions, express or implied, of all oil
and gas leases relating to such Oil and Gas Interests so long as such Oil and
Gas Interests are capable of producing Hydrocarbons and accompanying elements
in paying quantities, except where such failure to comply could not reasonably be
expected to have a Material Adverse Effect.


 


(b)                               Borrower will,
and will cause each Restricted Subsidiary to, comply in all respects with all
contracts and agreements applicable to or relating to its Oil and Gas Interests
or the production and sale of Hydrocarbons and accompanying elements therefrom,
except to the extent a failure to so comply could not reasonably be expected to
have a Material Adverse Effect.


 


Section 6.13.                             Material
Restricted Subsidiaries.  In
the event any Person is or becomes a Material Restricted Subsidiary, Borrower
will (a) promptly take all action necessary to comply with Section 6.14,
(b) promptly take all such action and execute and deliver, or cause to be
executed and delivered, to the Administrative Agent all such opinions, documents,
instruments, agreements, and certificates similar to those described in
Sections 5.01(b) and 5.01(c) that the Administrative Agent may
reasonably request, and (c) promptly cause such Material Restricted
Subsidiary to (i) become a party to this Agreement and Guarantee the
Obligations by executing and delivering to the Administrative Agent a
Counterpart Agreement in the form of Exhibit C, (ii) to the extent
required to comply with Section 6.09, execute and deliver Mortgages and
other Security Instruments creating Liens prior and superior in right to any
other Person, subject to Permitted Encumbrances, in such Material Restricted
Subsidiary’s Direct Interests and Partnership Interests, and (iii) to the
extent required to comply with Section 6.10, all title opinions and other
information.  Upon delivery of any such
Counterpart Agreement to the Administrative Agent, notice of which is hereby
waived by each Credit Party, such Material Restricted Subsidiary shall be a
Guarantor and shall be as fully a party hereto as if such Material 


 


66

















 


Restricted
Subsidiary were an original signatory hereto. 
Each Credit Party expressly agrees that its obligations arising
hereunder shall not be affected or diminished by the addition or release of any
other Credit Party hereunder.  This
Agreement shall be fully effective as to any Credit Party that is or becomes a
party hereto regardless of whether any other Person becomes or fails to become
or ceases to be a Credit Party hereunder. 
With respect to each such Material Restricted Subsidiary, the Borrower
shall promptly send to the Administrative Agent written notice setting forth
with respect to such Person the date on which such Person became a Material
Restricted Subsidiary of the Borrower, and supplement the data required to be
set forth in the Schedules to this Agreement as a result of the acquisition or
creation of such Material Restricted Subsidiary; provided that such
supplemental data must be reasonably acceptable to the Administrative Agent.


 


Section 6.14.                             Pledged Equity
Interests.  On the date
hereof and at the time hereafter that any Material Restricted Subsidiary of the
Borrower or any Related Partnership is created or acquired or any Unrestricted
Subsidiary or Non-Material Restricted Subsidiary becomes a Material Restricted
Subsidiary, the Borrower and the Material Restricted Subsidiaries (as
applicable) shall execute and deliver to the Administrative Agent for the
benefit of the Secured Parties, the Security Agreement (or an amendment or
amendment and restatement of the Security Agreement), in form and substance
reasonably acceptable to the Administrative Agent, from the Borrower and/or the
Material Restricted Subsidiaries (as applicable) covering all Equity Interests
owned by the Borrower or such Material Restricted Subsidiaries in such Material
Restricted Subsidiaries or any Related Partnership, together with all
certificates (or other evidence acceptable to the Administrative Agent)
evidencing the issued and outstanding Equity Interests of each such Material
Restricted Subsidiary or Related Partnership of every class owned by such
Credit Party (as applicable) which, if certificated, shall be duly endorsed or
accompanied by stock powers executed in blank (as applicable), as the
Administrative Agent shall deem necessary or appropriate to grant, evidence and
perfect a first priority security interest in the issued and outstanding Equity
Interests owned by Borrower or any Material Restricted Subsidiary in each
Material Restricted Subsidiary and each Related Partnership.


 


Section 6.15.                             Designation and
Conversion of Restricted and Unrestricted Subsidiaries.


 


(a)                                  Unless
designated as an Unrestricted Subsidiary on Schedule 4.13 as of the
Effective Date or thereafter, assuming compliance with Section 6.15(b),
any Person that becomes a Subsidiary of the Borrower or any of its Restricted
Subsidiaries shall be classified as a Restricted Subsidiary.


 


(b)                                 The Borrower
may designate by prior written notice thereof to the Administrative Agent, any
Restricted Subsidiary, including a newly formed or newly acquired Subsidiary,
as an Unrestricted Subsidiary if (i) immediately prior, and after giving
effect, to such designation, (A) the representations and warranties of the
Borrower and its Restricted Subsidiaries contained in each of the Loan
Documents are true and correct in all material respects on and as of such date
as if made on and as of the date of such redesignation (or, if stated to have
been made expressly as of an earlier date, were true and correct in all
material respects as of such date), and (B) no Default exists or would
result therefrom (and the Borrower shall be in compliance, on a pro forma
basis, with the covenants set forth in Section 7.13); (ii) such
Subsidiary (A) is not the owner or the operator, by contract or otherwise,
of any Oil and Gas Interests included in the 


 


67

















 


Borrowing
Base Properties and (B) is not a guarantor or the primary obligor with
respect to any indebtedness, liabilities or other obligations under any Senior
Notes; and (iii) the Investment deemed to be made in such Subsidiary
pursuant to the next sentence would be permitted to be made at the time of such
designation under Section 7.06.  The
designation of any Restricted Subsidiary as an Unrestricted Subsidiary shall
constitute an Investment in an Unrestricted Subsidiary in an amount equal to
the aggregate amount of the Borrower’s or any Restricted Subsidiary’s
Investments previously made in or to such Subsidiary.  Except as provided in this Section 6.15(b),
no Restricted Subsidiary may be redesignated as an Unrestricted Subsidiary.


 


(c)                                  The Borrower
may designate by prior written notice thereof to the Administrative Agent any
Unrestricted Subsidiary to be a Restricted Subsidiary if (i) immediately
prior, and after giving effect to such designation, the representations and
warranties of the Borrower and its Restricted Subsidiaries contained in each of
the Loan Documents are true and correct in all material respects on and as of
such date as if made on and as of the date of such redesignation (or, if stated
to have been made expressly as of an earlier date, were true and correct in all
material respects as of such date), (ii) no Default exists or would result
therefrom (and the Borrower shall be in compliance, on a pro forma basis, with
the covenants set forth in Section 7.13) and (iii) the Borrower is in
compliance with the requirements of Section 6.09.  Any such designation shall (x) be
treated as a cash dividend in an amount equal to the lesser of the fair market
value of the Borrower’s direct and indirect ownership interest in such
Subsidiary or the amount of the Borrower’s cash investment previously made for
purposes of the limitation on Investments under Section 7.06(b) or
under any other subsection of Section 7.06, as the case may be, and (y) constitute
the incurrence at the time of such designation of any Investment, Indebtedness
or Liens of such Subsidiary existing at such time.


 


Article VII


 


Negative Covenants


 


Until
the Aggregate Commitment has expired or terminated and the principal of and
interest on each Loan and all fees payable hereunder have been paid in full and
all Letters of Credit have expired or terminated and all LC Disbursements shall
have been reimbursed, the Borrower covenants and agrees with the Lenders that:


 


Section 7.01.                             Indebtedness.  The Borrower will not, nor will it permit any
of its Restricted Subsidiaries to, create, incur, assume or permit to exist any
Indebtedness, except:


 


(a)                                the Obligations
and Guarantees of the Obligations;


 


(b)                               Indebtedness
existing on the date hereof and set forth in Schedule 7.01 and extensions,
renewals and replacements of any such Indebtedness that do not increase the
outstanding principal amount thereof (except by an amount equal to the
reasonable premium paid and fees and expenses reasonably incurred therewith);


 


(c)                                intercompany
Indebtedness between the Borrower and any Restricted Subsidiary or between
Restricted Subsidiaries to the extent permitted by Section 7.06(b);  provided that any such
Indebtedness owed by either the Borrower or a Guarantor shall be subordinated
to the 


 


68

















 


Indebtedness
on terms set forth in the Article VIII or on such terms as are reasonably
acceptable to the Administrative Agent;


 


(d)                               (i) Indebtedness
of the Borrower and the Restricted Subsidiaries incurred to finance the
acquisition, construction or improvement of any fixed or capital assets
(including office equipment, data processing equipment and motor vehicles),
including Capital Lease Obligations and any Indebtedness assumed in connection
with the acquisition of any assets or secured by a Lien on any assets prior to
the acquisition thereof or (ii) any Indebtedness of any Restricted
Subsidiary issued and outstanding on or prior to the date on which such
Restricted Subsidiary was acquired by the Borrower or any Restricted
Subsidiary, and not incurred in contemplation thereof, in a transaction
permitted hereunder, and extensions, renewals and replacements of any such
Indebtedness that do not increase the outstanding principal amount thereof; provided
that (A) with respect to the Indebtedness incurred pursuant to clause (i) of
this Section 7.01(d), such Indebtedness is incurred prior to or within 180
days after such acquisition or the completion of such construction or
improvement and (B) the aggregate principal amount of Indebtedness
permitted by this Section 7.01(d) shall not exceed $15,000,000 at any
time outstanding;


 


(e)                                Indebtedness
incurred or deposits made by the Borrower or any Restricted Subsidiary (i) under
worker’s compensation laws, unemployment insurance laws or similar legislation,
(ii) in connection with bids, tenders, contracts (other than for the
payment of Indebtedness) or leases to which the Borrower or any Restricted
Subsidiary is a party, (iii) to secure public or statutory obligations of
the Borrower or any Restricted Subsidiary, and (iv) of cash or U.S.
Government Securities made to secure the performance of statutory obligations,
surety, stay, customs and appeal bonds to which the Borrower or any Restricted
Subsidiary is party in connection with the operation of the Oil and Gas
Interests, in each case in the ordinary course of business;


 


(f)                                  Indebtedness of
the Borrower or any Restricted Subsidiary under (i) Swap Agreements to the
extent permitted under Section 7.07, (ii) Advance Payment Contracts
permitted under Section 7.14 and (iii) Sale and Leaseback
Transactions to the extent permitted under Section 7.14;


 


(g)                               subject to any
adjustment of the Borrowing Base required under Section 3.05 and any
mandatory prepayment required under Section 2.11(d), unsecured
Indebtedness under the Senior Notes (and any Permitted Refinancing thereof),
including any Indebtedness constituting Guarantees thereof by the Borrower or
any Restricted Subsidiary, in an aggregate principal amount not to exceed
$475,000,000 at any time; provided that at the time of and immediately
after giving effect to each issuance of Senior Notes (and any Permitted
Refinancing thereof), no Default shall have occurred and be continuing;


 


(h)                               Guarantees in
respect of Indebtedness otherwise permitted pursuant to this Section 7.01;


 


(i)                                   Indebtedness
consisting of (i) non-recourse Vendor Financings in an aggregate amount
not to exceed $10,000,000 at any time outstanding and (ii) recourse Vendor
Financings 


 


69

















 


in
an aggregate amount not to exceed $10,000,000 at any time outstanding, in each
case, calculated based upon the invoice amount for such services, equipment or
materials;


 


(j)                                   Indebtedness in
connection with the endorsement of negotiable instruments, Cash Management
Obligations and other similar obligations in respect of netting services,
overdraft protection and similar arrangements, in each case in the ordinary
course of business;


 


(k)                                Indebtedness in
respect of insurance premium financing for insurance being acquired or
maintained by the Borrower or any Restricted Subsidiary under customary terms
and conditions; and


 


(l)                                   other unsecured
Indebtedness of the Borrower or any Restricted Subsidiary; provided that
the aggregate principal amount of Indebtedness permitted by this clause (l) shall
not exceed $15,000,000 at any time outstanding.


 


Section 7.02.                             Liens.  The Borrower will not, nor will it permit any
of its Restricted Subsidiaries to, create, incur, assume or permit to exist any
Lien on any property or asset now owned or hereafter acquired by it, except:


 


(a)                                any Lien
created pursuant to this Agreement or the Security Instruments;


 


(b)                               Permitted
Encumbrances;


 


(c)                                any Lien on any
property or asset of the Borrower or any Restricted Subsidiary existing on the
date hereof and set forth in Schedule 7.02; provided that (i) such
Lien shall not apply to any other property or asset of the Borrower or any
other Restricted Subsidiary (other than proceeds and accessions and additions
to such property) and (ii) such Lien shall secure only those obligations
which it secures on the date hereof and extensions, renewals and replacements
thereof that do not increase the outstanding principal amount thereof;


 


(d)                               any Lien
existing on any property or asset prior to the acquisition thereof by the
Borrower or any Restricted Subsidiary or existing on any property or asset of
any Person that becomes a Restricted Subsidiary after the date hereof prior to
the time such Person becomes a Restricted Subsidiary; provided that (i) such
Lien secures Indebtedness permitted by clause (d) of Section 7.01, (ii) such
Lien is not created in contemplation of or in connection with such acquisition
or such Person becoming a Restricted Subsidiary, as the case may be,
(iii) such Lien shall not apply to any other property or assets of the
Borrower or any other Restricted Subsidiary and (iv) such Lien shall
secure only those obligations which it secures on the date of such acquisition
or the date such Person becomes a Restricted Subsidiary, as the case may be and
extensions, renewals and replacements thereof that do not increase the
outstanding principal amount thereof;


 


(e)                                Liens on fixed
or capital assets (including office equipment, data processing equipment and
motor vehicles) acquired, constructed or improved by the Borrower or any
Restricted Subsidiary; provided that (i) such Liens, secure
Indebtedness permitted by clause (d) of Section 7.01,
(ii) such security interests and the Indebtedness secured thereby are
incurred prior to or within 180 days after such acquisition or the
completion of such construction or improvement, (iii) the Indebtedness secured
thereby does not exceed the cost of acquiring, 


 


70

















 


constructing
or improving such fixed or capital assets and (iv) such security interests
shall not apply to any other property or assets of the Borrower or any other
Restricted Subsidiaries (other than proceeds and accessions and additions to
such property);


 


(f)                                  Liens to secure
Vendor Financings; provided that the only property or assets of the
Borrower or any Restricted Subsidiary encumbered by such Liens is the equipment
acquired or the materials purchased from the Person providing such Vendor
Financings, and the proceeds thereof and accessions and additions to such
property or assets;


 


(g)                               Liens securing
insurance premium financing under customary terms and conditions, provided that
no such Lien may extend to or cover any property other than the insurance being
acquired with such financing, the proceeds thereof and any unearned or refunded
insurance premiums related thereto; and


 


(h)                               Liens on
property not constituting the Collateral and not otherwise permitted by this Section so
long as neither (i) the aggregate outstanding principal amount of the
obligations secured thereby nor (ii) the aggregate fair market value
(determined as of the date such Lien is incurred) of the assets subject thereto
exceeds (as to the Borrower and all Restricted Subsidiaries) $5,000,000 at any
one time.


 


Section 7.03.                             Fundamental
Changes.  The Borrower will not, nor
will it permit any of its Restricted Subsidiaries to, merge into or consolidate
with any other Person, or permit any other Person to merge into or consolidate
with it, or Dispose of (in one transaction or in a series of transactions) all
or substantially all of its assets, or liquidate or dissolve, except that, if at
the time thereof and immediately after giving effect thereto no Default shall
have occurred and be continuing:


 


(a)                                  any Restricted
Subsidiary may merge into the Borrower in a transaction in which the Borrower
is the surviving entity;


 


(b)                                 any Restricted
Subsidiary may merge into any other Restricted Subsidiary in a transaction in
which the surviving entity is a Restricted Subsidiary;


 


(c)                                  any Restricted
Subsidiary may Dispose of its assets to the Borrower or to another Restricted
Subsidiary;


 


(d)                                 Dispositions
permitted by Section 7.04 may be made;


 


(e)                                  any Restricted
Subsidiary may liquidate or dissolve if the Borrower determines in good faith
that such liquidation or dissolution is in the best interests of the Borrower
and is not materially disadvantageous to the Lenders; and


 


(f)                                    so long as the
Equity Interests, Oil and Gas Interests or other consideration, as the case may
be, received by the Borrower or any Restricted Subsidiary as a result of such
liquidation, dissolution or roll-up is pledged or mortgaged, as the case may
be, to secure the Obligations, the Borrower may, and may cause any Restricted
Subsidiary to, liquidate, dissolve or roll-up any Related Partnership.


 


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Section 7.04.                             Dispositions.  The Borrower will not, and will not permit
any Restricted Subsidiary to, Dispose of any property except:


 


(a)                                  the sale of
Hydrocarbons in the ordinary course of business;


 


(b)                                 farmouts of
undeveloped acreage and assignments in connection with such farmouts;


 


(c)                                  the Disposition
of equipment and other property in the ordinary course of business, that is
obsolete or no longer necessary in the business of the Borrower or any of its
Restricted Subsidiaries or that is being replaced by equipment of comparable
value and utility;


 


(d)                                 the Disposition
of Equity Interests in Unrestricted Subsidiaries;


 


(e)                                  Liens permitted
by Section 7.02, Investments permitted by Section 7.06 and
Restricted Payments permitted by Section 7.08;


 


(f)                                    Dispositions of
Permitted Investments in the ordinary course of business;


 


(g)                                 any Credit
Party may dispose of its property to another Credit Party;


 


(h)                                 sales or
discounts of overdue accounts receivable in the ordinary course of business, in
connection with the compromise or collection thereof, and not in connection
with any financing transaction;


 


(i)                                     the Borrower or
any Restricted Subsidiary may Dispose of Borrowing Base Properties (whether
pursuant to a Disposition of all, but not less than all, of the Equity
Interests of any Restricted Subsidiary or otherwise) or enter into Hedge
Modifications; provided that the Engineered Value (as assigned by the
Administrative Agent) of all Borrowing Base Properties Disposed of and the
economic effect (as determined by the Administrative Agent) of all Hedge
Modifications entered into between Scheduled Redeterminations does not exceed,
in the aggregate for the Borrower and the Restricted Subsidiaries taken as a
whole, five percent (5%) of the Borrowing Base most recently determined; provided,
further, that Borrower shall promptly and in any event within three (3) Business
Days thereafter, provide written notice to the Administrative Agent of any such
Hedge Modification, setting forth in reasonable detail the terms of such Hedge
Modification;


 


(j)                                     so long as no
Default exists or would exist after giving effect to such Disposition or Hedge
Modification, as the case may be, the Borrower and the Restricted Subsidiaries
may Dispose of Borrowing Base Properties (whether pursuant to a Disposition of
all, but not less than all, of the Equity Interests of any Restricted
Subsidiary or otherwise) and enter into Hedge Modifications not otherwise
permitted by Section 7.04(i); provided that:


 


(i) the Borrower
provides the Administrative Agent with (A) at least fifteen (15) days
prior written notice of such Disposition or (B) notice of such Hedge
Modification within three (3) Business Days thereafter, setting forth in
reasonable detail the Borrowing Base Properties that are subject to such Disposition
or the terms of such Hedge Modification, as the case may be;


 


72

















 


(ii) the Borrowing Base
shall be reduced, effective immediately upon such Disposition or Hedge
Modification by (A) in the case of a Disposition, an amount equal to the
value, if any, assigned to such property in the Borrowing Base then in effect
(as determined by the Administrative Agent and the Required Lenders) or (B) in
the case of a Hedge Modification, the economic effect of such Hedge
Modification (as determined by the Administrative Agent and the Required
Lenders);


 


(iii) with respect to
any Hedge Modification, all consideration received by the Borrower or
Restricted Subsidiary as a result of such Hedge Modification is cash and such
cash is held by the Borrower in a segregated account subject to a first
priority security interest in favor of the Administrative Agent to secure the
Obligations pending the completion of the Administrative Agent’s determination
of the economic effect of such Hedge Modification pursuant to any adjustment to
the Borrowing Base referenced in clause (ii) above;


 


(iv)(A) with respect to
any Disposition of Borrowing Base Properties, the consideration received shall
be at least equal to the fair market value of the Oil and Gas Interests subject
to such Disposition and (B) with respect to any Hedge Modification, the
consideration received for such Hedge Modification is at least equal to fair
market value, in each case, as reasonably determined in good faith by the board
of directors of the Borrower and, if requested by the Administrative Agent, the
Borrower shall deliver to the Administrative Agent a certificate of a
Responsible Officer certifying to that effect;


 


(v) at least 90% of the
consideration received by the Borrower or any Restricted Subsidiary in respect
of any such Disposition is cash or cash equivalents;


 


(vi) the Borrower
prepays the Loans (and cash collateralizes any portion of such Borrowing Base
Deficiency attributable to LC Exposure) to the extent required by Sections 2.11(b) and
2.11(c) as a result of such Disposition or Hedge Modification (as
determined after giving effect to the Administrative Agent’s determination of
the economic effect of such Hedge Modification pursuant to clause (ii) above),
which prepayment (and cash collateralization, if any) may be made with the
amounts deposited in the segregated account described in clause (iii) above;
and


 


(vii) unless otherwise
approved in writing by all of the Lenders, such Disposition by the Borrower or
the Restricted Subsidiaries (whether pursuant to one transaction or a series of
related transactions) is not a Disposition of all or substantially all of the
Borrowing Base Properties (whether pursuant to a Disposition of all, but not
less than all, of the Equity Interests of any Restricted Subsidiary or
otherwise); and


 


(k)                                  provided no
Default exists or would result therefrom, the Disposition of Oil and Gas
Interests to the Incentive Partnerships and to various employees of the
Borrower and its Restricted Subsidiaries as incentive compensation to such
employees; provided, that the aggregate amount of Oil and Gas Interests
transferred and assigned with respect to any well for such purposes shall not
exceed ten percent (10%) of the Borrower’s and the Restricted Subsidiaries’
undivided interest in such well, taken as a whole.


 


73

















 


Section 7.05.                             Nature of
Business.  The
Borrower will not, nor will it permit any of its Restricted Subsidiaries to,
engage to any material extent in any business other than businesses of the type
conducted by the Borrower and its Restricted Subsidiaries on the date of
execution of this Agreement and businesses reasonably related thereto.


 


Section 7.06.                             Investments,
Loans, Advances, Guarantees and Acquisitions.  The Borrower will not, nor will it permit any
of its Restricted Subsidiaries to, purchase, hold or acquire (including
pursuant to any merger with any Person that was not a wholly owned Restricted
Subsidiary prior to such merger) any capital stock, evidences of Indebtedness
or other securities (including any option, warrant or other right to acquire
any of the foregoing) of, make or permit to exist any loans or advances to,
Guarantee any Indebtedness of, or make or permit to exist any investment or any
other interest in, any other Person, or purchase or otherwise acquire (in one
transaction or a series of transactions) any assets of any other Person
constituting a business unit (all of the foregoing, “Investments”),
except:


 


(a)                                Permitted
Investments;


 


(b)                               Investments  (i) made by any Credit Party in or to
any Credit Party, (ii) made by any Restricted Subsidiary in or to any
Credit Party, (iii) made by the Borrower or any Restricted Subsidiary in
or to any Unrestricted Subsidiary in an aggregate amount for all such
Investments at any one time outstanding not to exceed $20,000,000, (iv) made by the Borrower or any Restricted Subsidiary
in or to any Non-Material Restricted Subsidiary in an aggregate amount for all
such Investments at any one time outstanding not to exceed $1,000,000 and (v) made
by the Borrower or any Restricted Subsidiary in or to any Related Partnership
in an aggregate amount for all such Investments at any one time outstanding not
to exceed $1,000,000;


 


(c)                                Guarantees
constituting Indebtedness permitted by Section 7.01 and performance
guarantees incurred in the ordinary course of business;


 


(d)                               Investments by
the Borrower and its Restricted Subsidiaries that are (i) customary in the
oil and gas business, (ii) made in the ordinary course of the Borrower’s
or such Restricted Subsidiary’s business, and (iii) made in the form of,
or pursuant to, oil, gas and mineral leases, operating agreements, farm-in
agreements, farm-out agreements, development agreements, unitization
agreements, joint bidding agreements, services contracts and other similar
agreements that a reasonable and prudent oil and gas industry owner or operator
would find acceptable;


 


(e)                                Investments
consisting of Swap Agreements to the extent permitted under Section 7.07;


 


(f)                                  Investments
existing as of the date hereof and set forth on Schedule 7.06;


 


(g)                               Investments
consisting of (i) loans and advances to employees for moving,
entertainment, travel and other similar expenses in the ordinary course of
business and (ii) other short term loans to employees not to exceed, with
respect to the foregoing clauses (i) and (ii) together, $250,000 in
the aggregate at any time outstanding;


 


74

















 


(h)                               Investments
representing the non-cash portion of the consideration received for any
Disposition of any assets permitted under Section 7.04, not to exceed 10%
of the total consideration received for such Disposition;


 


(i)                                   demand deposits
with financial institutions, prepaid expenses and extensions of trade credit in
the ordinary course of business (and any Investments received in satisfaction
or partial satisfaction thereof from financially troubled account debtors to
the extent reasonably necessary in order to prevent or limit loss);


 


(j)                                   other
Investments by the Borrower and the Restricted Subsidiaries; provided
that, (1) on the date any such Investment is made, the amount of such
Investment, together with all other Investments made pursuant to this clause (j) of
Section 7.06 (in each case determined based on the cost of such
Investment) since the Effective Date, does not exceed in the aggregate
$10,000,000;


 


(k)                                Investments by
the Borrower or any Restricted Subsidiary consisting of the payment of each
Incentive Partnership’s share of the costs and expenses incurred to drill,
complete and operate oil and gas wells located on the properties covered by the
Oil and Gas Interests owned by such Incentive Partnership; provided that such
Incentive Partnership’s share of such costs and expenses do not exceed 10% of
the total amount of such costs and expenses for the Borrower and the Restricted
Subsidiaries in such properties and the Borrower or any Restricted Subsidiary
receives all revenues from such Oil and Gas Interests until payout of its costs
and expenses, plus interest;


 


(l)                                   Investments in
West Coast Properties, including equity contributions, and loans, advances or
other extensions of credit to West Coast Properties; provided that the amount
of such investments made pursuant to this clause (l) of
Section 7.06 does not exceed in the aggregate, $10,000,000 and the
proceeds of such Investments are used by West Coast Properties to acquire and
develop Oil and Gas Interests; and


 


(m)                             Investments by
the Borrower or any Restricted Subsidiary consisting of the purchase,
redemption or acquisition of partnership interests in the Related Partnerships
pursuant to the exercise of certain rights under the partnership agreements of
such Related Partnerships by the holders of such interests.


 


Section 7.07.                             Swap
Agreements.  The Borrower
will not, nor will the Borrower permit any of its Restricted Subsidiaries to,
enter into any Swap Agreement, except the Existing Swap Agreements and Swap
Agreements entered into in the ordinary course of business and not for
speculative purposes to:


 


(a)                                hedge or
mitigate Crude Oil and Natural Gas price risks to which the Borrower or any
Restricted Subsidiary has actual exposure (whether or not treated as a hedge
for accounting purposes under GAAP); provided that at the time the
Borrower or any Restricted Subsidiary enters into any such Swap Agreement, such
Swap Agreement (x) does not have a term greater than sixty (60) months
from the date such Swap Agreement is entered into, and (y) when aggregated
with all other Swap Agreements then in effect would not cause the aggregate
notional volume per month for each of Crude Oil and Natural Gas, calculated
separately, under all Swap 


 


75

















 


Agreements
then in effect (other than Excluded Hedges) to exceed, as of the date such Swap
Agreement is executed, (A) for any month during the first three years of
the forthcoming five year period, eighty percent (80%) of the “forecasted
production from total proved reserves” (as defined below) of the Borrower and
the Restricted Subsidiaries, taken as a whole, and (B) for any month
during the last two years of the forthcoming five year period, eighty percent
(80%) of the “forecasted production from proved producing reserves” of the
Borrower and the Restricted Subsidiaries, taken as a whole; and


 


(b)                               effectively
cap, collar or exchange interest rates (from fixed to floating rates, from one
floating rate to another floating rate or otherwise) with respect to any
interest-bearing liability or investment of the Borrower or any Restricted
Subsidiary.


 


As used in this Section 7.07, “forecasted
production from proved producing reserves” and “forecasted production from
total proved reserves” means the forecasted production from proved producing
reserves or total proved reserves, as the case may be, of each of Crude Oil and
Natural Gas as reflected in the most recent Reserve Report delivered to the
Administrative Agent pursuant to Section 3.01, after giving effect to any
pro forma adjustments for the consummation of any Acquisitions or Dispositions
since the effective date of such Reserve Report.


 


Each Credit Party and each Lender agrees and
acknowledges that (i) the Existing Swap Agreements are Swap Agreements
permitted under this Section 7.07, (ii) as of the Effective Date, the
counterparty to each Existing Swap Agreement is a Lender Counterparty (or was a
Lender Counterparty under and as defined in the Original Credit Agreement), (iii) the
obligations of the Credit Parties under the Existing Swap Agreements are included
in the defined term “Lender Hedging Obligations” and such obligations are
entitled to the benefits of, and are secured by the Liens granted under, the
Security Instruments, and (iv) as of the Effective Date, the aggregate
notional volume of Hydrocarbons under all Swap Agreements of the Credit Parties
then in effect does not exceed the percentages of forecasted production from
total proved reserves and forecasted production from proved producing reserves,
as the case may be, permitted pursuant to this Section 7.07 (calculated as
if a Credit Party was entering into a new transaction under a Swap Agreement on
the Effective Date).


 


Section 7.08.                             Restricted
Payments.  The Borrower
will not, nor will it permit any of its Restricted Subsidiaries to, declare or
make, or agree to pay or make, directly or indirectly, any Restricted Payment,
except that (a) the Borrower may declare and pay dividends with respect to
its Equity Interests payable solely in additional shares of its common stock, (b) the
Borrower may make Restricted Payments pursuant to and in accordance with stock
option plans or other benefit plans for management or employees of the Borrower
and its Restricted Subsidiaries in an aggregate amount not to exceed $5,000,000
in any fiscal year, (c) any Restricted Subsidiary may make Restricted
Payments to the Borrower or any Guarantor and (d) Restricted Subsidiaries
may declare and pay dividends ratably with respect to their Equity Interests.


 


Section 7.09.                             Transactions
with Affiliates.  The Borrower
will not, nor will it permit any of its Restricted Subsidiaries to, sell, lease
or otherwise transfer any property or assets to, or purchase, lease or
otherwise acquire any property or assets from, or otherwise engage in any other
transactions with, any of its Affiliates (including any Related Partnership),
except (a) in the 


 


76

















 


ordinary
course of business at prices and on terms and conditions not less favorable to
the Borrower or such Restricted Subsidiary than could be obtained on an arm’s-length
basis from unrelated third parties, (b) transactions between or among the
Borrower and its Restricted Subsidiaries or between or among Restricted
Subsidiaries not involving any other Affiliate (including any Related Partnership),
(c) transactions described on Schedule 7.09, (d) any Restricted
Payment permitted by Section 7.08 and (e) Investments permitted by Section 7.06.


 


Section 7.10.                             Restrictive
Agreements.  The
Borrower will not, nor will it permit any of its Restricted Subsidiaries to,
directly or indirectly, enter into, incur or permit to exist any agreement or
other arrangement that prohibits, restricts or imposes any condition upon (a) the
ability of the Borrower or any Restricted Subsidiary to create, incur or permit
to exist any Lien upon any of its property or assets to secure the Obligations,
or (b) the ability of any Restricted Subsidiary to pay dividends or other
distributions with respect to any of its Equity Interests or to make or repay
loans or advances to the Borrower or any Restricted Subsidiary or to Guarantee
Indebtedness of the Borrower or any Restricted Subsidiary; provided that
(i) the foregoing shall not apply to restrictions and conditions imposed
by law or by this Agreement or the Indenture (or any documents evidencing or
relating to the issuance of any permitted Senior Notes or any Permitted
Refinancing), (ii) the foregoing shall not apply to restrictions and
conditions existing on the date hereof identified on Schedule 7.10 (but shall
apply to any extension or renewal of, or any amendment or modification
expanding the scope of, any such restriction or condition), and (iii) clause
(a) of the foregoing shall not apply to (A) restrictions or
conditions imposed by any agreement relating to secured Indebtedness permitted
by this Agreement if such restrictions or conditions apply only to the property
or assets securing such Indebtedness, (B) customary provisions in leases
and other contracts restricting the assignment thereof and (C) restrictions
with respect to Oil and Gas Interests that are not Borrowing Base Properties
and are not included in the most recent Reserve Report delivered pursuant to Section 3.01.


 


Section 7.11.                             Disqualified
Stock.  The Borrower will not, nor
will it permit any of its Restricted Subsidiaries to, issue any Disqualified
Stock.


 


Section 7.12.                             Amendments to
Organizational Documents.  The
Borrower will not, nor will it permit any of its Restricted Subsidiaries to,
enter into or permit any modification or amendment of, or waive any material
right or obligation of any Person under its Organizational Documents if the
effect thereof would be materially adverse to the Administrative Agent or any
Lender or violate Section 7.10.


 


Section 7.13.                             Financial
Covenants.


 


(a)                                Consolidated
Current Ratio.  The
Borrower will not permit the Consolidated Current Ratio as of the last day of
any fiscal quarter ending on or after the Effective Date, to be less than 1.00
to 1.00.


 


(b)                               Leverage Ratio.  The Borrower will not permit the Consolidated
Leverage Ratio as of the last day of any fiscal quarter ending on or after the
Effective Date to be greater than 4.00 to 1.00.


 


77

















 


Section 7.14.                             Sale and
Leaseback Transactions and other Off-Balance Sheet Liabilities.  The Borrower will not, nor will it permit any
Restricted Subsidiary to, enter into or suffer to exist any (i) Sale and
Leaseback Transaction, except Sale and Leaseback Transactions in which the
aggregate amount of liability incurred by the Borrower or any Restricted
Subsidiary does not exceed $5,000,000 for all such Sale and Leaseback
Transactions, taken as a whole, or (ii) any other transaction pursuant to
which it incurs or has incurred Off-Balance Sheet Liabilities, except for (x) Swap
Agreements permitted under the terms of Section 7.07 and (y) Advance
Payment Contracts; provided that the aggregate amount of all Advance
Payments received by the Borrower or any Restricted Subsidiary that have not
been satisfied by delivery of production at any time does not exceed, in the
aggregate $5,000,000.


 


Section 7.15.                             Senior Notes
Restrictions.  The Borrower will not, nor will it permit any
Restricted Subsidiary to, except for regularly scheduled payments of interest
required under the Senior Notes, directly or indirectly, retire, redeem,
defease, repurchase or prepay prior to the scheduled due date thereof any part
of the principal of, or interest on, the Senior Notes (or any Permitted
Refinancing thereof); provided that, so long as no Default or Borrowing
Base Deficiency shall have occurred and be continuing or would result
therefrom, the Borrower may retire, redeem, defease, repurchase or prepay (a) the
Senior Notes (or any Permitted Refinancing thereof) with the proceeds of any
Permitted Refinancing permitted pursuant to Section 7.01(g) or with
the net cash proceeds of any sale of Equity Interests  of the Borrower and (b) the Senior Notes
in an aggregate amount not to exceed $50,000,000 for the period from the
Effective Date to and including the Maturity Date (including with the proceeds
of Loans), provided that, in the case of this clause (b), immediately before
and after giving effect to each such payment, the Aggregate Commitment Usage is
less than eighty five percent (85%).  The
Borrower will not, nor will it permit any of its Restricted Subsidiaries to,
enter into or permit any modification or amendment of the Senior Notes
Documents the effect of which is to (i) increase the maximum principal
amount of the Senior Notes or the rate of interest on any of the Senior Notes
(other than as a result of the imposition of a default rate of interest in
accordance with the terms of the Senior Notes Documents), (ii) change or
add any event of default or any covenant with respect to the Senior Notes
Documents if the effect of such change or addition is to cause any one or more
of the Senior Notes Documents to be more restrictive on the Borrower or any of
its Subsidiaries than such Senior Notes Documents were prior to such change or
addition, (iii) shorten the dates upon which scheduled payments of
principal or interest on the Senior Notes are due, (iv) change any
redemption or prepayment provisions of the Senior Notes, (v) alter the
subordination provisions, if any, with respect to any of the Senior Notes
Documents, (vi) grant any Liens in any assets of the Borrower or any of
its Subsidiaries, or (vii) permit any Subsidiary to Guarantee the Senior
Notes unless such Subsidiary is (or concurrently with any such Guarantee
becomes) a Guarantor hereunder.  For the
avoidance of doubt, the Borrower may amend all or any portion of the Existing
Senior Notes and the related Indenture to extend the scheduled maturity date
thereof for an additional three (3) years so long as any such amendment is
permitted under the terms of this Section 7.15.


 


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Article VIII


 


Guarantee of Obligations


 


Section 8.01.                             Guarantee of
Payment.  Each
Guarantor unconditionally and irrevocably guarantees to the Administrative
Agent for the benefit of the Secured Parties, the punctual payment of all
Obligations now or which may in the future be owing by any Credit Party (the “Guaranteed
Liabilities”).  This Guarantee is a
guaranty of payment and not of collection only. 
The Administrative Agent shall not be required to exhaust any right or
remedy or take any action against the Borrower or any other Person or any
collateral.  The Guaranteed Liabilities
include interest accruing after the commencement of a proceeding under bankruptcy,
insolvency or similar laws of any jurisdiction at the rate or rates provided in
the Loan Documents, the Swap Agreements between any Credit Party and any Lender
Counterparty and the Cash Management Agreements, as the case may be.  Each Guarantor agrees that, as between the
Guarantor and the Administrative Agent, the Guaranteed Liabilities may be
declared to be due and payable for the purposes of this Guarantee
notwithstanding any stay, injunction or other prohibition which may prevent,
delay or vitiate any declaration as regards the Borrower or any other Guarantor
and that in the event of a declaration or attempted declaration, the Guaranteed
Liabilities shall immediately become due and payable by each Guarantor for the
purposes of this Guarantee.


 


Section 8.02.                             Guarantee
Absolute.  Each Guarantor
guarantees that the Guaranteed Liabilities shall be paid strictly in accordance
with the terms of this Agreement and the Swap Agreements to which any Secured
Party is a party.  The liability of each
Guarantor hereunder is absolute and unconditional irrespective of:  (a) any change in the time, manner or
place of payment of, or in any other term of, all or any of the Loan Documents
or the Guaranteed Liabilities, or any other amendment or waiver of or any
consent to departure from any of the terms of any Loan Document or Guaranteed
Liability, including any increase or decrease in the rate of interest thereon; (b) any
release or amendment or waiver of, or consent to departure from, any other
guaranty or support document, or any exchange, release or non-perfection of any
collateral, for all or any of the Loan Documents or Guaranteed Liabilities; (c) any
present or future law, regulation or order of any jurisdiction (whether of
right or in fact) or of any agency thereof purporting to reduce, amend,
restructure or otherwise affect any term of any Loan Document or Guaranteed
Liability; (d) without being limited by the foregoing, any lack of
validity or enforceability of any Loan Document or Guaranteed Liability; and (e) any
other setoff, defense or counterclaim whatsoever (in any case, whether based on
contract, tort or any other theory) with respect to the Loan Documents or the
transactions contemplated thereby which might constitute a legal or equitable
defense available to, or discharge of, the Borrower or a Guarantor (other than
the defense of payment or performance).


 


Section 8.03.                             Guarantee
Irrevocable.  This
Guarantee is a continuing guaranty of the payment of all Guaranteed Liabilities
now or hereafter existing under this Agreement, the Swap Agreements to which
any Secured Party is a party and the Cash Management Agreements, and shall
remain in full force and effect until payment in full of all Guaranteed
Liabilities and other amounts payable hereunder and until this Agreement, the
Swap Agreements and the Cash Management Agreements are no longer in effect or,
if earlier, when the Guarantor has given the Administrative Agent written
notice that this Guarantee has been revoked; provided that any notice
under this Section shall not release the revoking Guarantor from any
Guaranteed Liability, absolute 


 


79

















 


or
contingent, existing prior to the Administrative Agent’s actual receipt of the
notice at its branches or departments responsible for this Agreement and the
Swap Agreements and reasonable opportunity to act upon such notice.


 


Section 8.04.                             Reinstatement.  This Guarantee shall continue to be effective
or be reinstated, as the case may be, if at any time any payment of any of the
Guaranteed Liabilities is rescinded or must otherwise be returned by the
Administrative Agent, any Lender or any Lender Counterparty on the insolvency,
bankruptcy or reorganization of the Borrower, or any other Credit Party, or
otherwise, all as though the payment had not been made.


 


Section 8.05.                             Subrogation.  No Guarantor shall exercise any rights which
it may acquire by way of subrogation, by any payment made under this Guarantee
or otherwise, until all the Guaranteed Liabilities have been paid in full and
this Agreement and the Swap Agreements are no longer in effect.  If any amount is paid to the Guarantor on
account of subrogation rights under this Guarantee at any time when all the
Guaranteed Liabilities have not been paid in full, the amount shall be held in
trust for the benefit of the Secured Parties and shall be promptly paid to the
Administrative Agent to be credited and applied to the Guaranteed Liabilities,
whether matured or unmatured or absolute or contingent, in accordance with the
terms of this Agreement and the Swap Agreements.  If any Guarantor makes payment to any Secured
Party of all or any part of the Guaranteed Liabilities and all the Guaranteed
Liabilities are paid in full and this Agreement and the Swap Agreements are no
longer in effect, the Administrative Agent, Lenders and Lender Counterparties
shall, at such Guarantor’s request, execute and deliver to such Guarantor
appropriate documents, without recourse and without representation or warranty,
necessary to evidence the transfer by subrogation to such Guarantor of an
interest in the Guaranteed Liabilities resulting from the payment.


 


Section 8.06.                             Subordination.  Without limiting the rights of the
Administrative Agent, the Lenders and the Lender Counterparties under any other
agreement, any liabilities owed by the Borrower to any Guarantor in connection
with any extension of credit or financial accommodation by any Guarantor to or
for the account of the Borrower, including but not limited to interest accruing
at the agreed contract rate after the commencement of a bankruptcy or similar
proceeding, are hereby subordinated to the Guaranteed Liabilities, and such
liabilities of the Borrower to such Guarantor, if the Administrative Agent so
requests after the occurrence and during the continuation of a Default, shall be
collected, enforced and received by any Guarantor as trustee for the
Administrative Agent and shall be paid over to the Administrative Agent on
account of the Guaranteed Liabilities but without reducing or affecting in any
manner the liability of the Guarantor under the other provisions of this
Guarantee.


 


Section 8.07.                             Payments
Generally.  All
payments by the Guarantors shall be made in the manner, at the place and in the
currency (the “Payment Currency”) required by the Loan Documents and the
Swap Agreement, as the case may be; provided, however, that if
the Payment Currency is other than Dollars any Guarantor may, at its option
(or, if for any reason whatsoever any Guarantor is unable to effect payments in
the foregoing manner, such Guarantor shall be obligated to) pay to the
Administrative Agent at its principal office the equivalent amount in Dollars
computed at the selling rate of the Administrative Agent or a selling rate
chosen by the Administrative Agent, most recently in effect on or prior to the date
the Guaranteed Liability becomes due, for cable transfers of the Payment
Currency to the place where the Guaranteed 


 


80

















 


Liability
is payable.  In any case in which any
Guarantor makes or is obligated to make payment in Dollars, the Guarantor shall
hold the Administrative Agent, the Lenders and the Lender Counterparties
harmless from any loss incurred by the Administrative Agent, any Lender or any
Lender Counterparty arising from any change in the value of Dollars in relation
to the Payment Currency between the date the Guaranteed Liability becomes due
and the date the Administrative Agent, such Lender or such Lender Counterparty
is actually able, following the conversion of the Dollars paid by such Guarantor
into the Payment Currency and remittance of such Payment Currency to the place
where such Guaranteed Liability is payable, to apply such Payment Currency to
such Guaranteed Liability.


 


Section 8.08.                             Setoff.  Each Guarantor agrees that, in addition to (and
without limitation of) any right of setoff, banker’s lien or counterclaim the
Administrative Agent, any Lender or any Lender Counterparty may otherwise have,
the Administrative Agent, such Lender or such Lender Counterparty shall be
entitled, at its option, to offset balances (general or special, time or
demand, provisional or final) held by it for the account of any Guarantor at
any office of the Administrative Agent, such Lender or such Lender
Counterparty, in Dollars or in any other currency, against any amount payable
by such Guarantor under this Guarantee which is not paid when due (regardless
of whether such balances are then due to such Guarantor), in which case it
shall promptly notify such Guarantor thereof; provided that the failure
of the Administrative Agent, such Lender, or such Lender Counterparty to give
such notice shall not affect the validity thereof.


 


Section 8.09.                             Formalities.  Each Guarantor waives presentment, notice of
dishonor, protest, notice of acceptance of this Guarantee or incurrence of any
Guaranteed Liability and any other formality with respect to any of the
Guaranteed Liabilities or this Guarantee.


 


Section 8.10.                             Limitations on
Guarantee.  The
provisions of the Guarantee under this Article VIII are severable, and in
any action or proceeding involving any state corporate law, or any state,
federal or foreign bankruptcy, insolvency, reorganization or other law
affecting the rights of creditors generally, if the obligations of any
Guarantor under this Guarantee would otherwise be held or determined to be
avoidable, invalid or unenforceable on account of the amount of such  Guarantor’s liability under this Guarantee,
then, notwithstanding any other provision of this Guarantee to the contrary,
the amount of such liability shall, without any further action by the
Guarantors, the Administrative Agent, any Lender or any Lender Counterparty, be
automatically limited and reduced to the highest amount that is valid and
enforceable as determined in such action or proceeding (such highest amount
determined hereunder being the relevant Guarantor’s “Maximum Liability”).
This Section 8.10 with respect to the Maximum Liability of the Guarantors
is intended solely to preserve the rights of the Administrative Agent, Lenders
and Lender Counterparties hereunder to the maximum extent not subject to
avoidance under applicable law, and no Guarantor nor any other Person shall
have any right or claim under this Section 8.10 with respect to the
Maximum Liability, except to the extent necessary so that none of  the obligations of any Guarantor hereunder
shall not be rendered voidable under applicable law.


 


Section 8.11.                             Amends and
Restates.  The
Guarantee under this Article VIII amends and restates in its entirety each
Guaranty as defined in, and executed by any Credit Party pursuant to, the
Original Credit Agreement (the “Existing Guarantees”).  Nothing in this Agreement shall be deemed to
be or constitute a novation of any of the obligations and liabilities existing
under the Existing Guarantees.


 


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Article IX


 


Events of Default


 


If
any of the following events (“Events of Default”) shall occur:


 


(a)           the
Borrower shall fail to pay any principal of any Loan (including any payments
required under Section 2.11) or any reimbursement obligation in respect of
any LC Disbursement when and as the same shall become due and payable, whether
at the due date thereof or at a date fixed for prepayment thereof or otherwise;


 


(b)           the
Borrower shall fail to pay any interest on any Loan or any fee or any other
amount (other than an amount referred to in clause (a) of this Article)
payable under this Agreement, when and as the same shall become due and
payable, and such failure shall continue unremedied for a period of three (3) Business
Days;


 


(c)           any
representation or warranty made or deemed made by or on behalf of the Borrower
or any Restricted Subsidiary in or in connection with this Agreement or any
amendment or modification hereof or waiver hereunder, or in any report,
certificate, financial statement or other document furnished pursuant to or in
connection with this Agreement or any amendment or modification hereof or
waiver hereunder or in any Loan Document furnished pursuant to or in connection
with this Agreement or any amendment or modification thereof or waiver hereunder,
shall prove to have been incorrect in any material respect when made or deemed
made and such materiality is continuing;


 


(d)           the
Borrower or any Restricted Subsidiary shall fail to observe or perform any
covenant, condition or agreement contained in Section 6.02, Section 6.03
(with respect to the Borrower’s or any Restricted Subsidiary’s existence), Section 6.05
(with respect to insurance), Section 6.08, or in Article VII;


 


(e)           the
Borrower or any Restricted Subsidiary shall fail to observe or perform any
covenant, condition or agreement contained in this Agreement (other than those
specified in clause (a), (b) or (d) of this Article) or any Loan
Document, and such failure shall continue unremedied for a period of
30 days after receipt of written notice thereof from the Administrative
Agent to the Borrower (which notice will be given at the request of any
Lender);


 


(f)            the
Borrower or any Restricted Subsidiary shall fail to make any payment
(whether of principal or interest and regardless of amount) in respect of any
Material Indebtedness, when and as the same shall become due and payable and
such failure shall continue beyond the applicable grace period, if any.


 


(g)           any
event or condition occurs that results in any Material Indebtedness becoming due
prior to its scheduled maturity or that enables or permits (with or without the
giving of notice, the lapse of time or both) the holder or holders of any
Material Indebtedness or any trustee or agent on its or their behalf to cause
any Material Indebtedness to become due, or to require the prepayment,
repurchase, redemption or defeasance thereof, prior to its scheduled maturity; provided
that this clause (g) shall not apply to (i) secured Indebtedness
that becomes due as a result of the voluntary sale or transfer of the property
or assets securing such 


 


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Indebtedness
and (ii) Indebtedness that becomes due as a result of a change in law, tax
regulation or accounting treatment so long as such Indebtedness is paid when
due;


 


(h)           an
involuntary proceeding shall be commenced or an involuntary petition shall be
filed seeking (i) liquidation, reorganization or other relief in respect
of the Borrower or any Restricted Subsidiary or its debts, or of a substantial
part of its assets, under any Federal, state or foreign bankruptcy, insolvency,
receivership or similar law now or hereafter in effect or (ii) the
appointment of a receiver, trustee, custodian, sequestrator, conservator or
similar official for the Borrower or any Restricted Subsidiary or for a
substantial part of its assets, and, in any such case, such proceeding or
petition shall continue undismissed for 60 days or an order or decree
approving or ordering any of the foregoing shall be entered;


 


(i)            the
Borrower or any Restricted Subsidiary shall (i) voluntarily commence any
proceeding or file any petition seeking liquidation, reorganization or other
relief under any Federal, state or foreign bankruptcy, insolvency, receivership
or similar law now or hereafter in effect, (ii) consent to the institution
of, or fail to contest in a timely and appropriate manner, any proceeding or
petition described in clause (h) of this Article, (iii) apply for or
consent to the appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Borrower or any Restricted Subsidiary
or for a substantial part of its assets, (iv) file an answer admitting the
material allegations of a petition filed against it in any such proceeding, (v) make
a general assignment for the benefit of creditors or (vi) take any action
for the purpose of effecting any of the foregoing;


 


(j)            the
Borrower or any Restricted Subsidiary shall become unable, admit in writing its
inability or fail generally to pay its debts as they become due;


 


(k)           one
or more judgments for the payment of money in an aggregate amount in excess of
$15,000,000 shall be rendered against the Borrower or any Restricted Subsidiary
or any combination thereof and either the same shall remain undischarged or
unsatisfied for a period of 30 consecutive days during which execution
shall not be effectively stayed, or any action shall be legally taken by a
judgment creditor to attach or levy upon any assets of the Borrower or any
Restricted Subsidiary to enforce any such judgment;


 


(l)            an
ERISA Event shall have occurred that, in the opinion of the Majority Lenders,
when taken together with all other ERISA Events that have occurred, could
reasonably be expected to result in a Material Adverse Effect;


 


(m)          the
delivery by any Guarantor to the Administrative Agent of written notice that a
Guarantee under Article VIII has been revoked; or


 


(n)           a
Change of Control shall occur;


 


then,
and in every such event (other than an event with respect to the Borrower or
any Restricted Subsidiary described in clause (h) or (i) of this
Article), and at any time thereafter during the continuance of such event, the
Administrative Agent may, and at the request of the Majority Lenders shall, by
notice to the Borrower, take either or both of the following actions, at the
same or different times: (i) terminate the Aggregate Commitment, and
thereupon the Aggregate Commitment shall terminate immediately, and
(ii) declare the Loans then outstanding


 


83

















 


to
be due and payable in whole (or in part, in which case any principal not so
declared to be due and payable may thereafter be declared to be due and
payable), and thereupon the principal of the Loans so declared to be due and
payable, together with accrued interest thereon and all fees and other
obligations of the Borrower accrued hereunder, shall become due and payable
immediately, without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrower; and in case of any event with
respect to the Borrower described in clause (h) or (i) of this
Article, the Aggregate Commitment shall automatically terminate and the
principal of the Loans then outstanding, together with accrued interest thereon
and all fees and other obligations of the Borrower accrued hereunder, shall
automatically become due and payable, without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by the Borrower.  Without limiting the foregoing, upon the
occurrence and during the continuance of an Event of Default, the
Administrative Agent, the Issuing Bank and each Lender may protect and enforce
its rights under this Agreement and the other Loan Documents by any appropriate
proceedings, including proceedings for specific performance of any covenant or
agreement contained in this Agreement or any other Loan Document, and the
Administrative Agent, the Issuing Bank and each Lender may enforce payment of
any Obligations due and payable hereunder or enforce any other legal or
equitable right and remedies which it may have under this Agreement, any other
Loan Document, or under applicable law or in equity.


 


Article X


 


The Administrative Agent


 


Each
of the Lenders and the Issuing Bank hereby irrevocably appoints the
Administrative Agent as its agent and authorizes the Administrative Agent to
take such actions on its behalf and to exercise such powers as are delegated to
the Administrative Agent by the terms hereof, together with such actions and
powers as are reasonably incidental thereto.


 


The
bank serving as the Administrative Agent hereunder shall have the same rights
and powers in its capacity as a Lender as any other Lender and may exercise the
same as though it were not the Administrative Agent, and such bank and its
Affiliates may accept deposits from, lend money to and generally engage in any
kind of business with any Credit Party or other Affiliate thereof as if it were
not the Administrative Agent hereunder.


 


The
Administrative Agent shall not have any duties or obligations except those
expressly set forth herein.  Without
limiting the generality of the foregoing, (a) the Administrative Agent
shall not be subject to any fiduciary or other implied duties, regardless of
whether a Default has occurred and is continuing, (b) the Administrative
Agent shall not have any duty to take any discretionary action or exercise any
discretionary powers, except discretionary rights and powers expressly
contemplated hereby that the Administrative Agent is required to exercise in
writing as directed by the Majority Lenders (or such other number or percentage
of the Lenders as shall be necessary under the circumstances as provided in Section 11.02),
and (c) except as expressly set forth herein, the Administrative Agent shall
not have any duty to disclose, and shall not be liable for the failure to
disclose, any information relating to any Credit Party that is communicated to
or obtained by the bank serving as Administrative Agent or any of its
Affiliates in any capacity.  The
Administrative Agent shall not be liable for any action taken or not taken by
it with the consent or at the request of the Majority Lenders (or such other
number or percentage of the 


 


84

















 


Lenders
as shall be necessary under the circumstances as provided in Section 11.02)
or in the absence of its own gross negligence or willful misconduct.  The Administrative Agent shall be deemed not
to have knowledge of any Default unless and until written notice thereof is
given to the Administrative Agent by the Borrower or a Lender, and the
Administrative Agent shall not be responsible for or have any duty to ascertain
or inquire into (i) any statement, warranty or representation made in or
in connection with this Agreement, (ii) the contents of any certificate,
report or other document delivered hereunder or in connection herewith,
(iii) the performance or observance of any of the covenants, agreements or
other terms or conditions set forth herein, (iv) the validity, enforceability,
effectiveness or genuineness of this Agreement or any other agreement,
instrument or document, or (v) the satisfaction of any condition set forth
in Article V or elsewhere herein, other than to confirm receipt of items
expressly required to be delivered to the Administrative Agent.  No Person identified as a Sole Bookrunner or
Lead Arranger, in each case in its respective capacity as such, shall have any
responsibilities or duties, or incur any liability, under this Agreement or the
other Loan Documents.


 


The
Administrative Agent shall be entitled to rely upon, and shall not incur any
liability for relying upon, any notice, request, certificate, consent,
statement, instrument, document or other writing believed by it to be genuine
and to have been signed or sent by the proper Person.  The Administrative Agent also may rely upon
any statement made to it orally or by telephone and believed by it to be made
by the proper Person, and shall not incur any liability for relying
thereon.  The Administrative Agent may
consult with legal counsel (who may be counsel for the Borrower), independent
accountants and other experts selected by it, and shall not be liable for any
action taken or not taken by it in accordance with the advice of any such
counsel, accountants or experts.


 


The
Administrative Agent may perform any and all its duties and exercise its rights
and powers by or through any one or more sub-agents appointed by the
Administrative Agent.  The Administrative
Agent and any such sub-agent may perform any and all its duties and exercise
its rights and powers through their respective Related Parties.  The exculpatory provisions of the preceding
paragraphs shall apply to any such sub-agent and to the Related Parties of the
Administrative Agent and any such sub-agent, and shall apply to their
respective activities in connection with the syndication of the credit
facilities provided for herein as well as activities as Administrative Agent.


 


Subject
to the appointment and acceptance of a successor Administrative Agent as
provided in this paragraph, the Administrative Agent may resign at any time by
notifying the Lenders, the Issuing Bank and the Borrower.  Upon any such resignation, the Majority
Lenders shall have the right, with the consent of the Borrower (which consent
shall not be unreasonably withheld or delayed), to appoint a successor; provided
that no consent of the Borrower shall be required if any Event of Default has
occurred and is continuing.  If no
successor shall have been so appointed by the Majority Lenders and shall have
accepted such appointment within 30 days after the retiring Administrative
Agent gives notice of its resignation, then the retiring Administrative Agent
may, on behalf of the Lenders and the Issuing Bank, appoint a successor
Administrative Agent which shall be a bank with an office in Chicago, Illinois
or New York, New York, or an Affiliate of any such bank that is a financial
institution.  Upon the acceptance of its
appointment as Administrative Agent hereunder by a successor, such successor
shall succeed to and become vested with all the rights, powers, privileges and
duties of the retiring 


 


85

















 


Administrative
Agent, and the retiring Administrative Agent shall be discharged from its
duties and obligations hereunder.  The
fees payable by the Borrower to a successor Administrative Agent shall be the
same as those payable to its predecessor unless otherwise agreed between the
Borrower and such successor.  After the
Administrative Agent’s resignation hereunder, the provisions of this Article and
Section 11.03 shall continue in effect for the benefit of such retiring
Administrative Agent, its sub-agents and their respective Related Parties in
respect of any actions taken or omitted to be taken by any of them while it was
acting as Administrative Agent.


 


Each
Lender acknowledges that it has, independently and without reliance upon the
Administrative Agent or any other Lender and based on such documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. 
Each Lender also acknowledges that it will, independently and without
reliance upon the Administrative Agent or any other Lender and based on such
documents and information as it shall from time to time deem appropriate,
continue to make its own decisions in taking or not taking action under or
based upon this Agreement, any related agreement or any document furnished
hereunder or thereunder.


 


Each
Lender and the Issuing Bank hereby authorizes the Administrative Agent to
release any Collateral that it is permitted to be sold or released pursuant to
the terms of the Loan Documents.  Each
Lender and the Issuing Bank hereby authorizes the Administrative Agent to
execute and deliver to the Borrower, at the Borrower’s sole cost and expense,
any and all releases of Liens, termination statements, assignments or other
documents reasonably requested by the Borrower in connection with any
Disposition of Collateral to the extent such Disposition is permitted by the
terms of this Agreement or is otherwise authorized by the terms of the Loan
Documents.


 


Article XI


 


Miscellaneous


 


Section 11.01.        Notices.


 


(a)           Except
in the case of notices and other communications expressly permitted to be given
by telephone (and subject to paragraph (b) below), all notices and other
communications provided for herein shall be in writing and shall be delivered
by hand or overnight courier service, mailed by certified or registered mail or
sent by telecopy, as follows:


 


(i)           if to the Borrower, to Clayton Williams Energy, Inc.,
Six Desta Drive, Suite 6500, Midland, Texas 79705, Attention: Mel G.
Riggs, Facsimile No. (432) 688-3247;


 


(ii)          if to the Administrative Agent or Issuing Bank, to JPMorgan
Chase Bank, N.A., Mailcode IL1-0010, 10 South Dearborn, Chicago, Illinois
60603-2003, Facsimile No. (888) 292-9533, Attention: Teresita R. Siao;


 


86

















 


with a copy to: JPMorgan
Chase Bank, N.A., 2200 Ross Avenue, 3rd Floor,
Mailcode TX1-2911, Dallas, Texas 75201, Facsimile No. (214) 965-3280,
Attention: Kimberly A. Bourgeois;


 


(iii)         if to any other Lender, to its address (or telecopy number)
set forth in its Administrative Questionnaire.


 


(b)          Notices
and other communications to the Lenders hereunder may be delivered or furnished
by electronic communications pursuant to procedures approved by the
Administrative Agent; provided that the foregoing shall not apply to
notices pursuant to Article II unless otherwise agreed by the Administrative
Agent and the applicable Lender.  The
Administrative Agent or the Borrower may, in their discretion, agree to accept
notices and other communications to it hereunder by electronic communications
pursuant to procedures approved by it; provided that approval of such
procedures may be limited to particular notices or communications.


 


(c)           Any
party hereto may change its address or telecopy number for notices and other
communications hereunder by notice to the other parties hereto.  All notices and other communications given to
any party hereto in accordance with the provisions of this Agreement shall be
deemed to have been given on the date of receipt.


 


Section 11.02.        Waivers;
Amendments.


 


(a)           No
failure or delay by the Administrative Agent, the Issuing Bank or any Lender in
exercising any right or power hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power, preclude
any other or further exercise thereof or the exercise of any other right or
power.  The rights and remedies of the
Administrative Agent, the Issuing Bank and the Lenders hereunder are cumulative
and are not exclusive of any rights or remedies that they would otherwise
have.  No waiver of any provision of this
Agreement or consent to any departure by the Borrower therefrom shall in any
event be effective unless the same shall be permitted by paragraph (b) of
this Section, and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given.  Without limiting the generality of the
foregoing, the making of a Loan or issuance of a Letter of Credit shall not be
construed as a waiver of any Default, regardless of whether the Administrative
Agent, any Lender or the Issuing Bank may have had notice or knowledge of such
Default at the time.


 


(b)          Neither
this Agreement nor any provision hereof may be waived, amended or modified
except pursuant to an agreement or agreements in writing entered into by the
Credit Parties and the Majority Lenders or by the Credit Parties and the
Administrative Agent with the consent of the Majority Lenders; provided
that no such agreement shall:


 


(i) increase the
Borrowing Base without the written consent of each Lender;


 


(ii) increase the
Commitment of any Lender or, except as set forth in the definition of
Applicable Percentage, increase the Applicable Percentage of any Lender, in
each case, without the written consent of such Lender;


 


87

















 


(iii) except as
provided in Section 2.03, increase the Maximum Facility Amount without the
written consent of each Lender;


 


(iv) reduce the
principal amount of any Loan or LC Disbursement or reduce the rate of interest
thereon, or reduce any fees payable hereunder, without the written consent of
each Lender affected thereby;


 


(v) postpone the
scheduled date of payment of the principal amount of any Loan or LC
Disbursement, or any interest thereon, or any fees payable hereunder, or reduce
the amount of, waive or excuse any such payment, or postpone the scheduled date
of expiration of any of the Aggregate Commitment, without the written consent
of each Lender affected thereby (it being understood that any waiver of a
mandatory prepayment of the Loans or a mandatory reduction of the Commitments
shall not constitute a postponement or waiver of a scheduled payment or date of
expiration);


 


(vi) change Section 2.18(b) or
Section 2.18(c) in a manner that would alter the pro rata sharing of
payments required thereby, without the written consent of each Lender;


 


(vii) except in
connection with any Dispositions permitted in Section 7.04, release any
Guarantor from its obligations under Article VIII or release any of the
Collateral without the written consent of each Lender; or


 


(viii) change any of
the provisions of this Section or the definition of “Super-Majority
Lenders”, “Majority Lenders”, “Required Lenders” or any other provision hereof
specifying the number or percentage of Lenders required to waive, amend or
modify any rights hereunder or make any determination or grant any consent
hereunder, without the written consent of each Lender;


 


provided  further that no such
agreement shall (x) amend, modify or otherwise affect the rights or duties
of the Administrative Agent or the Issuing Bank hereunder without the prior
written consent of the Administrative Agent or the Issuing Bank, as the case
may be or (y) change any of the provisions of Section 2.20 without
the prior written consent of the Administrative Agent and the Issuing Bank.


 


(c)           Notwithstanding
anything to the contrary contained in this Section 11.02, the
Administrative Agent may, with the consent of the Borrower only, amend, modify
or supplement this Agreement or any of the other Loan Documents to correct any
clerical errors or cure any ambiguity, omission, mistake, defect or
inconsistency.


 


Section 11.03.        Expenses;
Indemnity; Damage Waiver.


 


(a)           The
Borrower shall pay (i) all reasonable out-of-pocket expenses incurred by
the Administrative Agent, the Lead Arranger and their Affiliates, including the
reasonable fees, charges and disbursements of counsel for the Administrative
Agent, in connection with the syndication of the credit facilities provided for
herein, the preparation and administration of this Agreement and the other Loan
Documents or any amendments, modifications or waivers of the provisions hereof
(whether or not the transactions contemplated hereby or thereby shall be 


 


88

















 


consummated),
(ii) all reasonable out-of-pocket expenses incurred by the Issuing Bank in
connection with the issuance, amendment, renewal or extension of any Letter of
Credit or any demand for payment thereunder and (iii) all reasonable
out-of-pocket expenses incurred by the Administrative Agent, the Issuing Bank
or any Lender, including the fees, charges and disbursements of any counsel for
the Administrative Agent, the Issuing Bank or any Lender, in connection with
the enforcement or protection of its rights in connection with this Agreement,
including its rights under this Section, or in connection with the Loans made
or Letters of Credit issued hereunder, including all such out-of-pocket
expenses incurred during  any workout,
restructuring or negotiations in respect of such Loans or Letters of Credit.


 


(b)          THE CREDIT PARTIES SHALL INDEMNIFY THE ADMINISTRATIVE
AGENT, THE LEAD ARRANGER, THE ISSUING BANK AND EACH LENDER, AND EACH RELATED
PARTY OF ANY OF THE FOREGOING PERSONS (EACH SUCH PERSON BEING CALLED AN “INDEMNITEE”)
AGAINST, AND HOLD EACH INDEMNITEE HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS,
DAMAGES, LIABILITIES AND RELATED EXPENSES, INCLUDING THE FEES, CHARGES AND
DISBURSEMENTS OF ANY COUNSEL FOR ANY INDEMNITEE, INCURRED BY OR ASSERTED
AGAINST ANY INDEMNITEE ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT
OF (I) THE EXECUTION OR DELIVERY OF THIS AGREEMENT OR ANY AGREEMENT OR
INSTRUMENT CONTEMPLATED HEREBY, THE PERFORMANCE BY THE PARTIES HERETO OF THEIR
RESPECTIVE OBLIGATIONS HEREUNDER OR THE CONSUMMATION OF THE TRANSACTIONS OR ANY
OTHER TRANSACTIONS CONTEMPLATED HEREBY, (II) ANY LOAN OR LETTER OF CREDIT
OR THE USE OF THE PROCEEDS THEREFROM (INCLUDING ANY REFUSAL BY THE ISSUING BANK
TO HONOR A DEMAND FOR PAYMENT UNDER A LETTER OF CREDIT IF THE DOCUMENTS
PRESENTED IN CONNECTION WITH SUCH DEMAND DO NOT STRICTLY COMPLY WITH THE TERMS
OF SUCH LETTER OF CREDIT), (III) ANY ACTUAL OR ALLEGED PRESENCE OR RELEASE
OF HAZARDOUS MATERIALS ON OR FROM ANY PROPERTY OWNED OR OPERATED BY THE BORROWER
OR ANY RESTRICTED SUBSIDIARY, OR ANY ENVIRONMENTAL LIABILITY RELATED IN ANY WAY
TO THE BORROWER OR ANY RESTRICTED SUBSIDIARY, OR (IV) ANY ACTUAL OR
PROSPECTIVE CLAIM, LITIGATION, INVESTIGATION OR PROCEEDING RELATING TO ANY
OF THE FOREGOING, WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY AND
REGARDLESS OF WHETHER ANY INDEMNITEE IS A PARTY THERETO; PROVIDED THAT
SUCH INDEMNITY SHALL NOT, AS TO ANY INDEMNITEE, BE AVAILABLE TO THE EXTENT THAT
SUCH LOSSES, CLAIMS, DAMAGES, LIABILITIES OR RELATED EXPENSES ARE DETERMINED BY
A COURT OF COMPETENT JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT TO HAVE
RESULTED FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE OR
FROM A CLAIM BROUGHT BY A CREDIT PARTY AGAINST SUCH INDEMNITEE FOR BREACH IN BAD
FAITH OF SUCH INDEMNITEE’S OBLIGATIONS UNDER THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENTS.  FOR THE AVOIDANCE OF DOUBT,
WITH RESPECT TO THE FOREGOING PROVISO “ANY INDEMNITEE” MEANS ONLY THE
INDEMNITEE OR INDEMNITEES, AS THE CASE MAY BE, THAT ARE DETERMINED BY SUCH
COURT TO HAVE BEEN GROSSLY 


 


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NEGLIGENT OR TO HAVE ENGAGED IN WILLFUL MISCONDUCT OR
BREACHED THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN BAD FAITH AND NOT ANY
OTHER INDEMNITEE.


 


(c)           To
the extent that any Credit Party fails to pay any amount required to be paid by
it to the Administrative Agent or the Issuing Bank under paragraph (a) or (b) of
this Section, each Lender severally agrees to pay to the Administrative Agent
or the Issuing Bank, as the case may be, such Lender’s Applicable Percentage of
such unpaid amount with respect to amounts to be paid to the Issuing Bank and
such Lender’s Applicable Percentage of such unpaid amount with respect to
amounts to be paid to the Administrative Agent (in each case, determined as of
the time that the applicable unreimbursed expense or indemnity payment is
sought); provided that the unreimbursed expense or indemnified loss,
claim, damage, liability or related expense, as the case may be, was incurred
by or asserted against the Administrative Agent or the Issuing Bank in its
capacity as such.


 


(d)          To
the extent permitted by applicable law, the Credit Parties shall not assert,
and hereby waive, any claim against any Indemnitee, on any theory of liability,
for special, indirect, consequential or punitive damages (as opposed to direct
or actual damages) arising out of, in connection with, or as a result of, this
Agreement or any agreement or instrument contemplated hereby, the Transactions,
any Loan or Letter of Credit or the use of the proceeds thereof.


 


(e)           All
amounts due under this Section shall be payable not later than 10 days
after written demand therefor.


 


Section 11.04.        Successors
and Assigns.


 


(a)           The
provisions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns permitted hereby
(including any Affiliate of the Issuing Bank that issues any Letter of Credit),
except that (i) no Credit Party may assign or otherwise transfer any of
its rights or obligations hereunder without the prior written consent of each
Lender (and any attempted assignment or transfer by such Credit Party without
such consent shall be null and void) and (ii) no Lender may assign or
otherwise transfer its rights or obligations hereunder except in accordance
with this Section.  Nothing in this
Agreement, expressed or implied, shall be construed to confer upon any Person
(other than the parties hereto, their respective successors and assigns
permitted hereby (including any Affiliate of the Issuing Bank that issues any
Letter of Credit), Participants (to the extent provided in paragraph (c) of
this Section) and, to the extent expressly contemplated hereby, the Related
Parties of each of the Administrative Agent, the Issuing Bank and the Lenders)
any legal or equitable right, remedy or claim under or by reason of this
Agreement.


 


(b)


 


(i)           Subject to the conditions set forth in paragraph (b)(ii) below,
any Lender may assign to one or more assignees all or a portion of its rights
and obligations under this Agreement (including all or a portion of its
Commitment and the Loans at the time owing to it) with the prior written
consent (such consent not to be unreasonably withheld) of:


 


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(A)        the Borrower, provided that no consent of the Borrower
shall be required for an assignment to a Lender, an Affiliate of a Lender, a
Federal Reserve Bank, an Approved Fund or, if an Event of Default has occurred
and is continuing, any other assignee;


 


(B)         the Administrative Agent; and


 


(C)         the Issuing Bank.


 


(ii)          Assignments shall be subject to the following additional
conditions:


 


(A)            except in the case of an assignment to a Lender, an
Affiliate of a Lender, an Approved Fund or an assignment of the entire
remaining amount of the assigning Lender’s Commitment or Loans, the amount of
the Commitment or Loans of the assigning Lender subject to each such assignment
(determined as of the date the Assignment and Assumption with respect to such
assignment is delivered to the Administrative Agent) shall not be less than
$5,000,000 unless each of the Borrower and the Administrative Agent otherwise
consent, provided that no such consent of the Borrower shall be required
if an Event of Default has occurred and is continuing;


 


(B)             each partial assignment shall be made as an assignment
of a proportionate part of all the assigning Lender’s rights and obligations in
respect of such Lender’s Commitment and such Lender’s Loans under this
Agreement;


 


(C)             the parties to each assignment shall execute and deliver
to the Administrative Agent an Assignment and Assumption, together with a
processing and recordation fee of $3,500; and


 


(D)             the assignee, if it shall not be a Lender, shall deliver
to the Administrative Agent an Administrative Questionnaire.


 


For the purposes of this Section 11.04(b), the term “Approved
Fund” has the following meaning:


 


“Approved
Fund” means any Person (other than a natural person) that is engaged in
making, purchasing, holding or investing in bank loans and similar extensions
of credit in the ordinary course of its business and that is administered or
managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an
entity or an Affiliate of an entity that administers or manages a Lender.


 


(iii)         Subject to acceptance and recording thereof pursuant to
paragraph (b)(iv) of this Section, from and after the effective date
specified in each Assignment and Assumption the assignee thereunder shall be a
party hereto and, to the extent of the interest assigned by such Assignment and
Assumption, have the rights and obligations of a Lender under this Agreement,
and the assigning Lender thereunder shall, to the extent of the interest
assigned by such Assignment and Assumption, be released from its obligations
under this Agreement (and, in the case of an Assignment and Assumption


 


91






 


 












 


covering all of the assigning Lender’s rights and
obligations under this Agreement, such Lender shall cease to be a party hereto
but shall continue to be entitled to the benefits of Section 2.15, Section 2.16,
Section 2.17 and Section 11.03). 
Any assignment or transfer by a Lender of rights or obligations under
this Agreement that does not comply with this Section 11.04 shall be
treated for purposes of this Agreement as a sale by such Lender of a
participation in such rights and obligations in accordance with paragraph (c) of
this Section except that any attempted assignment or transfer by any
Lender that does not comply with clause (C) of Section 11.04(b)(ii) shall
be null and void.


 


(iv)         The Administrative Agent, acting for this purpose as an
agent of the Borrower, shall maintain at one of its offices a copy of each
Assignment and Assumption delivered to it and a register for the recordation of
the names and addresses of the Lenders, and the Commitment and Applicable
Percentage of, and principal amount of the Loans and LC Disbursements owing to,
each Lender pursuant to the terms hereof from time to time (the “Register”).  The entries in the Register shall be
conclusive, and the Credit Parties, the Administrative Agent, the Issuing Bank
and the Lenders may treat each Person whose name is recorded in the Register
pursuant to the terms hereof as a Lender hereunder for all purposes of this
Agreement, notwithstanding notice to the contrary.  The Register shall be available for
inspection by the Credit Parties, the Issuing Bank and any Lender, at any
reasonable time and from time to time upon reasonable prior notice.


 


(v)          Upon its receipt of a duly completed Assignment and
Assumption executed by an assigning Lender and an assignee, the assignee’s
completed Administrative Questionnaire (unless the assignee shall already be a
Lender hereunder), the processing and recordation fee referred to in
paragraph (b) of this Section any written consent to such
assignment required by paragraph (b) of this Section, the Administrative
Agent shall accept such Assignment and Assumption and record the information
contained therein in the Register; provided that if either the assigning
Lender or the assignee shall have failed to make any payment required to be
made by it pursuant to Section 2.06(d) or Section 2.06(e), Section 2.07,
Section 2.18(d) or Section 11.03(c), the Administrative Agent
shall have no obligation to accept such Assignment and Assumption and record
the information therein in the Register unless and until such payment shall
have been made in full, together with all accrued interest thereon.  No assignment shall be effective for purposes
of this Agreement unless it has been recorded in the Register as provided in
this paragraph.


 


(c)


 


(i)           Any Lender may, without the consent of the Borrower, the
Administrative Agent or the Issuing Bank, sell participations to one or more
banks or other entities (a “Participant”) in all or a portion of such
Lender’s rights and obligations under this Agreement (including all or a
portion of its Commitment and the Loans owing to it); provided that
(A) such Lender’s obligations under this Agreement shall remain unchanged,
(B) such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations and (C) the Borrower, the
Administrative Agent, the Issuing Bank and the other Lenders shall continue to
deal solely and directly with such 


 


92

















 


Lender in connection with such Lender’s rights and
obligations under this Agreement.  Any
agreement or instrument pursuant to which a Lender sells such a participation
shall provide that such Lender shall retain the sole right to enforce this
Agreement and to approve any amendment, modification or waiver of any provision
of this Agreement; provided that such agreement or instrument may
provide that such Lender will not, without the consent of the Participant,
agree to any amendment, modification or waiver described in the first proviso
to Section 11.02(b) that affects such Participant.  Subject to paragraph (c)(ii) of this
Section, the Borrower agrees that each Participant shall be entitled to the
benefits of Section 2.15, Section 2.16 and Section 2.17 to the
same extent as if it were a Lender and had acquired its interest by assignment
pursuant to paragraph (b) of this Section. 
To the extent permitted by law, each Participant also shall be entitled
to the benefits of Section 11.08 as though it were a Lender, provided such
Participant agrees to be subject to Section 2.18(c) as though it were
a Lender.


 


(ii)          A Participant shall not be entitled to receive any greater
payment under Section 2.15 or Section 2.17 than the applicable Lender
would have been entitled to receive with respect to the participation sold to
such Participant, unless the sale of the participation to such Participant is
made with the prior written consent of the Borrower.  A Participant that would be a Foreign Lender
if it were a Lender shall not be entitled to the benefits of Section 2.17
unless the Borrower is notified of the participation sold to such Participant
and such Participant agrees, for the benefit of the Borrower, to comply with Section 2.17(e) as
though it were a Lender.


 


(d)          Any
Lender may at any time pledge or assign a security interest in all or any
portion of its rights under this Agreement to secure obligations of such
Lender, including without limitation any pledge or assignment to secure
obligations to a Federal Reserve Bank, and this Section shall not apply to
any such pledge or assignment of a security interest; provided that no
such pledge or assignment of a security interest shall release a Lender from
any of its obligations hereunder or substitute any such pledgee or assignee for
such Lender as a party hereto.


 


Section 11.05.      Survival.  All covenants, agreements, representations
and warranties made by the Credit Parties herein and in the certificates or
other instruments  delivered in
connection with or pursuant to this Agreement shall be considered to have been
relied upon by the other parties hereto and shall survive the execution and
delivery of this Agreement and the making of any Loans and issuance of any
Letters of Credit, regardless of any investigation made by any such other party
or on its behalf and notwithstanding that the Administrative Agent, the Issuing
Bank or any Lender may have had notice or knowledge of any Default or incorrect
representation or warranty at the time any credit is extended hereunder, and
shall continue in full force and effect as long as the principal of or any
accrued interest on any Loan or any fee or any other amount payable under this
Agreement is outstanding and unpaid or any Letter of Credit is outstanding and
so long as the Aggregate Commitment has not expired or terminated.  The provisions of Section 2.15, Section 2.16,
Section 2.17 and Section 11.03 and Article X shall survive and
remain in full force and effect regardless of the consummation of the
transactions contemplated hereby, the repayment of the Loans, the expiration or
termination of the Letters of Credit and the Aggregate Commitment or the
termination of this Agreement or any provision hereof.


 


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Section 11.06.      Counterparts;
Integration; Effectiveness.  This
Agreement may be executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an original, but all of
which when taken together shall constitute a single contract.  This Agreement and any separate letter
agreements with respect to fees payable to the Administrative Agent constitute
the entire contract among the parties relating to the subject matter hereof and
supersede any and all previous agreements and understandings, oral or written,
relating to the subject matter hereof.  THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT
THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES.  THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES. 
Except as provided in Section 5.01, this Agreement shall become
effective when it shall have been executed by the Administrative Agent and when
the Administrative Agent shall have received counterparts hereof which, when
taken together, bear the signatures of each of the other parties hereto, and
thereafter shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. 
Delivery of an executed counterpart of a signature page of this
Agreement by telecopy shall be effective as delivery of a manually executed
counterpart of this Agreement.


 


Section 11.07.      Severability.  Any provision of this Agreement held to be
invalid, illegal or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability without affecting the validity, legality and enforceability of
the remaining provisions hereof; and the invalidity of a particular provision
in a particular jurisdiction shall not invalidate such provision in any other
jurisdiction.


 


Section 11.08.      Right
of Setoff.  If an Event of Default
shall have occurred and be continuing, each Lender and each of its Affiliates
is hereby authorized at any time and from time to time, to the fullest extent
permitted by law, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
obligations at any time owing by such Lender or Affiliate to or for the credit
or the account of the Borrower against any of and all the obligations of any
Credit Party now or hereafter existing under this Agreement held by such
Lender, irrespective of whether or not such Lender shall have made any demand
under this Agreement and although such obligations may be unmatured.  The rights of each Lender under this Section and
Section 8.08 are in addition to other rights and remedies (including other
rights of setoff) which such Lender may have.


 


Section 11.09.      GOVERNING
LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS.


 


(a)          THIS
AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES THEREOF.


 


(b)           EACH CREDIT PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY
SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY
UNITED STATES FEDERAL OR NEW YORK STATE COURT SITTING IN NEW YORK, NEW YORK IN
ANY ACTION OR 


 


94

















 


PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE
PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN
RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN
SUCH NEW YORK STATE OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL
COURT.  EACH OF THE PARTIES HERETO AGREES
THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER
PROVIDED BY LAW.  NOTHING IN THIS
AGREEMENT SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT, THE ISSUING
BANK OR ANY LENDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT AGAINST ANY CREDIT PARTY OR ITS PROPERTIES IN THE
COURTS OF ANY JURISDICTION.


 


(c)           EACH CREDIT PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES, TO THE FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY
OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY
SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT IN ANY
COURT REFERRED TO IN PARAGRAPH (B) OF THIS SECTION.  EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT
FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.


 


(d)           EACH PARTY TO THIS AGREEMENT IRREVOCABLY CONSENTS TO
SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 11.01.  NOTHING IN THIS AGREEMENT WILL AFFECT THE
RIGHT OF ANY PARTY TO THIS AGREEMENT TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW.


 


Section 11.10.      WAIVER
OF JURY TRIAL.  EACH PARTY HERETO
HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY
(WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).  EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION,
SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE
OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.


 


Section 11.11.      Headings.  Article and Section headings and
the Table of Contents used herein are for convenience of reference only, are
not part of this Agreement and shall not affect the construction of, or be
taken into consideration in interpreting, this Agreement.


 


95

















 


Section 11.12.      Confidentiality.  Each of the Administrative Agent, the Issuing
Bank and the Lenders agrees to maintain the confidentiality of the Information
(as defined below), except that Information may be disclosed (a) to its
and its Affiliates’ directors, officers, employees and agents, including
accountants, legal counsel and other advisors (it being understood that the
Persons to whom such disclosure is made will be informed of the confidential
nature of such Information and instructed to keep such Information
confidential), (b) to the extent requested by any regulatory authority
having jurisdiction over any Lender, (c) to the extent required by
Requirements of Law or by any subpoena or similar legal process, (d) to
any other party to this Agreement, (e) in connection with the exercise of
any remedies hereunder or any suit, action or proceeding relating to this
Agreement or the enforcement of rights hereunder, (f) subject to an
agreement containing provisions substantially the same as those of this
Section, to (i) any assignee of or Participant in, or any prospective
assignee of or Participant in, any of its rights or obligations under this
Agreement or (ii) any actual or prospective counterparty (or its advisors)
to any swap or derivative transaction relating to the Credit Parties and their
obligations, (g) with the consent of the Borrower or (h) to the
extent such Information (i) becomes publicly available other than as a
result of a breach of this Section or (ii) becomes available to the
Administrative Agent, the Issuing Bank or any Lender on a nonconfidential basis
from a source other than a Credit Party. 
For the purposes of this Section, “Information” means all
information received from any Credit Party relating to any Credit Party or its
business, other than any such information that is available to the
Administrative Agent, the Issuing Bank or any Lender on a nonconfidential basis
prior to disclosure by any Credit Party; provided that, in the case of
information received from any Credit Party after the date hereof, such
information is clearly identified at the time of delivery as confidential.  Any Person required to maintain the
confidentiality of Information as provided in this Section shall be
considered to have complied with its obligation to do so if such Person has
exercised the same degree of care to maintain the confidentiality of such
Information as such Person would accord to its own confidential information.


 


Section 11.13.      Interest
Rate Limitation.  Notwithstanding
anything herein to the contrary, if at any time the interest rate applicable to
any Loan, together with all fees, charges and other amounts which are treated
as interest on such Loan under applicable law (collectively the “Charges”),
shall exceed the maximum lawful rate (the “Maximum Rate”) which may be
contracted for, charged, taken, received or reserved by the Lender holding such
Loan in accordance with applicable law, the rate of interest payable in respect
of such Loan hereunder, together with all Charges payable in respect thereof,
shall be limited to the Maximum Rate and, to the extent lawful, the interest
and Charges that would have been payable in respect of such Loan but were not
payable as a result of the operation of this Section shall be cumulated
and the interest and Charges payable to such Lender in respect of other Loans
or periods shall be increased (but not above the Maximum Rate therefor) until
such cumulated amount, together with interest thereon at the Federal Funds
Effective Rate to the date of repayment, shall have been received by such
Lender.  In the event that,
notwithstanding Section 11.09, applicable law is the law of the State of
Texas and such applicable law provides for an interest ceiling under Chapter
303 of the Texas Finance Code (the “Texas Finance Code”) as amended, for
each day, the ceiling shall be the “weekly ceiling” as defined in the Texas
Finance Code and shall be used in this Note 
and the other Loan Documents for calculating the Maximum Rate and for
all other purposes.  Chapter 346 of the
Texas Finance Code (which regulates certain revolving credit accounts (formerly
Tex. Rev. Civ. Stat. Ann. Art. 5069, Ch. 15)) shall not apply to this 


 


96

















 


Agreement
or to any Loan, nor shall this Agreement or any Loan be governed by or be
subject to the provisions of such Chapter 346 in any manner whatsoever.


 


Section 11.14.      USA
PATRIOT Act.  Each Lender that is
subject to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56
(signed into law October 26, 2001)) (the “Act”) hereby notifies each
Credit Party that pursuant to the requirements of the Act, it is required to
obtain, verify and record information that identifies each Credit Party, which
information includes the name and address of each Credit Party and other
information that will allow such Lender to identify each Credit Party in
accordance with the Act.


 


Section 11.15.      Original
Credit Agreement.  On the Effective
Date, this Agreement shall supersede and replace in its entirety the Original
Credit Agreement; provided, however, that (a) all loans,
letters of credit, and other indebtedness, obligations and liabilities outstanding
under the Original Credit Agreement on such date shall continue to constitute
Loans, Letters of Credit and other indebtedness, obligations and liabilities
under this Agreement, (b) the execution and delivery of this Agreement or
any of the Loan Documents hereunder shall not constitute a novation,
refinancing or any other fundamental change in the relationship among the
parties and (c) the Loans, Letters of Credit, and other indebtedness,
obligations and liabilities outstanding hereunder, to the extent outstanding
under the Original Credit Agreement immediately prior to the date hereof, shall
constitute the same loans, letters of credit, and other indebtedness,
obligations and liabilities as were outstanding under the Original Credit
Agreement.


 


Section 11.16.      Reaffirmation
and Grant of Security Interest.  Each
Credit Party hereby (a) confirms that each Collateral Document (as defined
in the Original Credit Agreement) to which it is a party or is otherwise bound
and all Collateral encumbered thereby, will continue to guarantee or secure, as
the case may be, to the fullest extent possible in accordance with the Loan
Documents, the payment and performance of all Obligations and Guaranteed
Liabilities under this Agreement and the Secured Indebtedness (as such term is
defined in the Mortgages) and all other indebtedness, obligations and
liabilities under the Mortgages, as the case may be, and (b) reaffirms its
grant to the Administrative Agent for the benefit of the Secured Parties of a
continuing Lien on and security interest in and to such Credit Party’s right,
title and interest in, to and under all Collateral as collateral security for
the prompt payment and performance in full when due of the Obligations and
Guaranteed Liabilities under this Agreement and the Secured Indebtedness and
all other indebtedness, obligations and liabilities under the Mortgages
(whether at stated maturity, by acceleration or otherwise) in accordance with
the terms thereof.


 


Section 11.17.      Reallocation
of Commitments and Loans.  The
Lenders party to the Original Credit Agreement have agreed among themselves to
reallocate their respective Commitments (as defined in the Original Credit
Agreement) as contemplated by this Agreement, and to, among other things, allow
certain financial institutions identified by the Lead Arranger in consultation
with the Borrower, to become a party to this Agreement as a Lender (each, a “New
Lender”) by acquiring an interest in the Aggregate Commitment.  On the Effective Date and after giving effect
to such reallocation and adjustment of the Aggregate Commitment, the Commitment
and Applicable Percentage of each Lender, including each New Lender, shall be
as set forth on Schedule 2.01 and each Lender, including each New Lender, shall
own its Applicable Percentage of the outstanding Loans.  The reallocation and adjustment to the
Commitments of each Lender, including each New Lender, as contemplated by this Section 


 


97

















 


11.17
shall be deemed to have been consummated pursuant to the terms of the
Assignment and Assumption attached as Exhibit A hereto as if each of the
Lenders, including each New Lender, had executed an Assignment and Assumption
with respect to such reallocation and adjustment.  The Borrower and the Administrative Agent
hereby consent to such reallocation and adjustment of the Commitments and each
New Lender’s acquisition of an interest in the Aggregate Commitment.  The Administrative Agent hereby waives the
$3,500 processing and recordation fee set forth in Section 11.04(b)(ii)(C) with
respect to the assignments and reallocations of the Commitments contemplated by
this Section 11.17.  To the extent
requested by any Lender, and in accordance with Section 2.16, the Borrower
shall pay to such Lender, within the time period prescribed by Section 2.16,
any amounts required to be paid by the Borrower under Section 2.16 in the
event the payment of any principal of any Eurodollar Loan or the conversion of
any Eurodollar Loan other than on the last day of an Interest Period applicable
thereto is required in connection with the reallocation contemplated by this Section 11.17.


 


Section 11.18.      Release
of Guarantees and Liens.


 


(a)           At
such time as the Loans and the other obligations under the Loan Documents (other
than contingent indemnification obligations and obligations under or in respect
of Swap Agreements and Cash Management Agreements) shall have been paid in
full, the Aggregate Commitment has been terminated and no Letters of Credit
shall be outstanding (other than Letters of Credit that have been cash
collateralized or otherwise backstopped in a manner satisfactory to the Issuing
Bank), the Collateral shall be released from the Liens created by the Security
Instruments, and the Security Instruments and all obligations (other than those
expressly stated to survive such termination) of each Credit Party under the
Security Instruments shall terminate, all without delivery of any instrument or
performance of any act by any Person; and


 


(b)           If
any of the Collateral shall be sold, transferred or otherwise disposed of by
the Borrower or any Restricted Subsidiary in a transaction permitted by this
Agreement, then the Administrative Agent, at the request and sole expense of
the Borrower or any Restricted Subsidiary, shall execute and deliver to  the Borrower or any Restricted Subsidiary all
releases or other documents reasonably necessary or desirable for the release
of the Liens created by the Security Instruments on such Collateral.  At the request and sole expense of the
Borrower, a Guarantor shall be released from its obligations hereunder and
under the other Security Instruments in the event that all the Equity Interests
of such Guarantor shall be Disposed of in a transaction permitted by this
Agreement; provided that the Borrower shall have delivered to the
Administrative Agent, at least five (5) Business Days prior to the date of
the proposed release, a written request for release identifying the relevant
Guarantor and the terms of the Disposition in reasonable detail, including the
price thereof and any anticipated expenses in connection therewith, together
with a certification by the Borrower stating that such transaction is in
compliance with this Agreement and the other Loan Documents.


 


Section 11.19.      Termination
of Collateral Agency Agreement.  The
Lenders, the Administrative Agent, the Issuing Bank and the Credit Parties
hereby terminate the Collateral Agency Agreement (as defined in the Original
Credit Agreement) and acknowledge that such agreement is hereby terminated and
of no further force or effect.  From and
after the Effective Date, all references to the “Collateral Agent” in the
Mortgages (as defined in the Original Credit 


 


98

















 


Agreement)
shall be deemed to refer to JPMorgan Chase Bank, N.A. in its capacity as the
Administrative Agent under this Agreement and the other Loan Documents.


 


[Signature Page Follows]


 


99

















 


IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by their respective authorized officers as of the day and year first
above written.


 


 


	
   

  	
  BORROWER:

  
	
   

  	
   

  
	
   

  	
  CLAYTON WILLIAMS ENERGY, INC.

  
	
   

  	
  a
  Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Mel G. Riggs

  
	
   

  	
   

  	
  Mel
  G. Riggs, Senior Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  GUARANTORS:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  SOUTHWEST ROYALTIES, INC.

  
	
   

  	
  a
  Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Mel G. Riggs

  
	
   

  	
   

  	
  Mel
  G. Riggs, Vice President

  
	
   

  	
   

  
	
   

  	
  WARRIOR GAS CO.

  
	
   

  	
  a
  Texas corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Mel G. Riggs

  
	
   

  	
   

  	
  Mel
  G. Riggs, Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CWEI ACQUISITIONS, INC.

  
	
   

  	
  a
  Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Mel G. Riggs

  
	
   

  	
   

  	
  Mel
  G. Riggs, Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ROMERE PASS ACQUISITION L.L.C.

  
	
   

  	
  a
  Delaware limited liability company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Mel G. Riggs

  
	
   

  	
   

  	
  Mel
  G. Riggs, Vice President

  



 


Signature Page


 

















 


	
   

  	
  CWEI ROMERE PASS ACQUISITION CORP.

  
	
   

  	
  a
  Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Mel G. Riggs

  
	
   

  	
   

  	
  Mel
  G. Riggs, Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BLUE HEEL COMPANY

  
	
   

  	
  a
  Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Mel G. Riggs

  
	
   

  	
   

  	
  Mel
  G. Riggs, Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  TEX-HAL PARTNERS, INC.

  
	
   

  	
  a
  Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Mel G. Riggs

  
	
   

  	
   

  	
  Mel
  G. Riggs, Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  DESTA DRILLING GP, LLC

  
	
   

  	
  a
  Texas limited liability company

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  L. Paul Latham

  
	
   

  	
   

  	
  L.
  Paul Latham, Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  DESTA DRILLING, L.P.

  
	
   

  	
  a
  Texas limited partnership

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Desta
  Drilling GP, LLC, its general partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  L. Paul Latham

  
	
   

  	
   

  	
  L.
  Paul Latham, Manager

  



 


Signature Page


 






 












 


	
   

  	
  WEST COAST ENERGY PROPERTIES GP, LLC

  
	
   

  	
  a
  Texas limited liability company

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Mel G. Riggs

  
	
   

  	
   

  	
  Mel
  G. Riggs, Manager

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CLAJON INDUSTRIAL GAS, INC.

  
	
   

  	
  a
  Texas corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Mel G. Riggs

  
	
   

  	
   

  	
  Mel
  G. Riggs, Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CLAYTON WILLIAMS PIPELINE CORPORATION

  
	
   

  	
  a
  Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Mel G. Riggs

  
	
   

  	
   

  	
  Mel
  G. Riggs, Vice President

  



 


Signature Page


 

















 


	
   

  	
  JPMORGAN CHASE BANK, N.A., as Administrative Agent,
  Issuing Bank and a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Mark E. Olson

  
	
   

  	
   

  	
  Name:
  Mark E. Olson

  
	
   

  	
   

  	
  Title:  Authorized Officer

  



 


Signature
Page


 

















 


	
   

  	
  BANK OF SCOTLAND,

  as Syndication Agent and a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Julia R. Franklin 

  
	
   

  	
   

  	
  Name:
  Julia R. Franklin 

  
	
   

  	
   

  	
  Title:   Assistant Vice President 

  



 


Signature
Page


 

















 


	
   

  	
  UNION BANK, N.A.,

  as Co-Documentation Agent and a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Alison Fuqua 

  
	
   

  	
   

  	
  Name:
  Alison Fuqua 

  
	
   

  	
   

  	
  Title:   Vice President

  



 


Signature Page


 

















 


	
   

  	
  BNP PARIBAS,

  as
  Co-Documentation Agent and a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Betsy Jocher

  
	
   

  	
   

  	
  Name:
  Betsy Jocher

  
	
   

  	
   

  	
  Title:   Director

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Edward Pak

  
	
   

  	
   

  	
  Name:
  Edward Pak

  
	
   

  	
   

  	
  Title:   Vice President

  



 


Signature
Page


 

















 


	
   

  	
  NATIXIS (formerly
  Natexis Banques Populaires),

  as
  a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Donovan C. Broussard

  
	
   

  	
   

  	
  Name:
  Donovan C. Broussard

  
	
   

  	
   

  	
  Title:   Managing Director

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Liana Tchernysheva

  
	
   

  	
   

  	
  Name:
  Liana Tchernysheva

  
	
   

  	
   

  	
  Title:   Director

  



 


Signature
Page


 

















 


	
   

  	
  COMPASS BANK,

  as a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Kathleen J. Bowen

  
	
   

  	
   

  	
  Name:
  Kathleen J. Bowen

  
	
   

  	
   

  	
  Title:   Senior Vice President

  



 


Signature
Page


 

















 


	
   

  	
  THE FROST NATIONAL BANK,

  as a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Stewart Alcorn

  
	
   

  	
   

  	
  Name:
  Stewart Alcorn

  
	
   

  	
   

  	
  Title:   Market President

  



 


Signature
Page


 

















 


	
   

  	
  BANK OF TEXAS, N.A.,

  as a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Wm. Mark Cranmer

  
	
   

  	
   

  	
  Name:
  Wm. Mark Cranmer

  
	
   

  	
   

  	
  Title:   Senior Vice President

  



 


Signature
Page


 

















 


	
   

  	
  KEYBANK NATIONAL ASSOCIATION,

  as a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Todd Coker

  
	
   

  	
   

  	
  Name:
  Todd Coker

  
	
   

  	
   

  	
  Title:   Vice President

  



 


Signature
Page


 






 












 


	
   

  	
  UBS LOAN FINANCE LLC,

  as
  a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Irja R. Otsa

  
	
   

  	
   

  	
  Name:
  Irja R. Otsa

  
	
   

  	
   

  	
  Title:   Associate Director

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Mary E. Evans

  
	
   

  	
   

  	
  Name:
  Mary E. Evans

  
	
   

  	
   

  	
  Title:   Associate Director

  



 


Signature Page


 

















 


	
   

  	
  THE ROYAL BANK OF SCOTLAND plc,

  as
  a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  John Preece

  
	
   

  	
   

  	
  Name:
  John Preece

  
	
   

  	
   

  	
  Title:   Director

  



 


Signature
Page


 

















 


	
   

  	
  SOCIETE GENERALE,

  as
  a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Stephen W. Warfel

  
	
   

  	
   

  	
  Name:
  Stephen W. Warfel

  
	
   

  	
   

  	
  Title:   Managing Director

  



 


Signature
Page


 

















 


EXHIBIT A


 


ASSIGNMENT AND ASSUMPTION


 


This Assignment and Assumption (the “Assignment and Assumption”)
is dated as of the Effective Date set forth below and is entered into by and
between [Insert name of Assignor] (the “Assignor”) and [Insert name of
Assignee] (the “Assignee”). 
Capitalized terms used but not defined herein shall have the meanings
given to them in the Credit Agreement identified below (as amended, the “Credit
Agreement”), receipt of a copy of which is hereby acknowledged by the
Assignee.  The Standard Terms and
Conditions set forth in Annex 1 attached hereto are hereby agreed to and
incorporated herein by reference and made a part of this Assignment and
Assumption as if set forth herein in full.


 


For an agreed consideration,
the Assignor hereby irrevocably sells and assigns to the Assignee, and the
Assignee hereby irrevocably purchases and assumes from the Assignor, subject to
and in accordance with the Standard Terms and Conditions and the Credit
Agreement, as of the Effective Date inserted by the Administrative Agent as
contemplated below (i) all of the Assignor’s rights and obligations in its
capacity as a Lender under the Credit Agreement and any other documents or
instruments delivered pursuant thereto to the extent related to the amount and
percentage interest identified below of all of such outstanding rights and
obligations of the Assignor under the respective facilities identified below
(including any letters of credit and guarantees included in such facilities)
and (ii) to the extent permitted to be assigned under applicable law, all
claims, suits, causes of action and any other right of the Assignor (in its
capacity as a Lender) against any Person, whether known or unknown, arising
under or in connection with the Credit Agreement, any other documents or
instruments delivered pursuant thereto or the loan transactions governed
thereby or in any way based on or related to any of the foregoing, including
contract claims, tort claims, malpractice claims, statutory claims and all
other claims at law or in equity related to the rights and obligations sold and
assigned pursuant to clause (i) above (the rights and obligations sold and
assigned pursuant to clauses (i) and (ii) above being referred to herein
collectively as the “Assigned Interest”).  Such sale and assignment is without recourse
to the Assignor and, except as expressly provided in this Assignment and
Assumption, without representation or warranty by the Assignor.


 


	
  1.

  	
  Assignor:

  	
                                                                                

  
	
   

  	
   

  	
   

  
	
  2.

  	
  Assignee:

  	
                                                                                

  
	
   

  	
   

  	
  [and
  is an Affiliate/Approved Fund of [identify Lender]]

  
	
   

  	
   

  	
   

  
	
  3.

  	
  Borrower:

  	
  Clayton
  Williams Energy, Inc.

  
	
   

  	
   

  	
   

  
	
  4.

  	
  Administrative
  Agent:

  	
  JPMorgan
  Chase Bank, N.A., as the administrative agent under the Credit Agreement

  
	
   

  	
   

  	
   

  
	
  5.

  	
  Credit
  Agreement:

  	
  Second
  Amended and Restated Credit Agreement, dated as of November 29, 2010 among
  Clayton Williams Energy, Inc., as Borrower, certain Subsidiaries of Borrower,
  as Guarantors, the

  



 


1

















 


	
   

  	
   

  	
  Lenders
  parties thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent

  
	
   

  	
   

  	
   

  
	
  6.

  	
  Assigned
  Interest:

  	
   

  



 


	
  Facility
  Assigned

  	
   

  	
  Aggregate

  Commitment/Loans

  for all Lenders

  	
   

  	
  Amount of

  Commitment/Loans

  Assigned

  	
   

  	
  Applicable

  Percentage of

  Commitment/Loans

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
  %

  
	
   

  	
   

  	
  $

  	
   

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
  %

  
	
   

  	
   

  	
  $

  	
   

  	
   

  	
  $

  	
   

  	
   

  	
   

  	
  %

  



 


Effective
Date:                                   ,
20   


 


The
terms set forth in this Assignment and Assumption are hereby agreed to:


 


	
   

  	
  ASSIGNOR

  
	
   

  	
   

  
	
   

  	
  [NAME
  OF ASSIGNOR]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ASSIGNEE

  
	
   

  	
   

  
	
   

  	
  [NAME
  OF ASSIGNEE]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Title:

  



 


2

















 


	
  [Consented
  to and] Accepted:

  
	
   

  
	
  JPMORGAN
  CHASE BANK, N.A.

  
	
  as
  Administrative Agent and Issuing Bank

  
	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Title:

  
	
   

  
	
   

  
	
  [Consented
  to:]

  
	
   

  
	
  CLAYTON
  WILLIAMS ENERGY, INC.

  
	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Title:

  



 


3

















 


ANNEX 1


 


Second
Amended and Restated Credit Agreement dated as of November 29, 2010 among
Clayton Williams Energy, Inc., as Borrower, certain Subsidiaries of Borrower,
as Guarantors, the Lenders party thereto and JPMorgan Chase Bank, N.A., as
Administrative Agent.


 


STANDARD TERMS AND CONDITIONS FOR


ASSIGNMENT AND ASSUMPTION


 


1.  Representations and
Warranties.


 


1.1   Assignor.  The Assignor (a) represents and warrants that
(i) it is the legal and beneficial owner of the Assigned Interest, (ii) the
Assigned Interest is free and clear of any lien, encumbrance or other adverse
claim and (iii) it has full power and authority, and has taken all action
necessary, to execute and deliver this Assignment and Assumption and to
consummate the transactions contemplated hereby; and (b) assumes no
responsibility with respect to (i) any statements, warranties or
representations made in or in connection with the Credit Agreement or any other
Loan Document, (ii) the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Loan Documents or any collateral
thereunder, (iii) the financial condition of the Borrower, any Subsidiary or
Affiliates or any other Person obligated in respect of any Loan Document or (iv)
the performance or observance by the Borrower, any Subsidiary or Affiliates or
any other Person of any of their respective obligations under any Loan
Document.


 


1.2.  Assignee.  The Assignee (a) represents and warrants that
(i) it has full power and authority, and has taken all action necessary, to
execute and deliver this Assignment and Assumption and to consummate the transactions
contemplated hereby and to become a Lender under the Credit Agreement, (ii) it
satisfies the requirements, if any, specified in the Credit Agreement that are
required to be satisfied by it in order to acquire the Assigned Interest and
become a Lender, (iii) from and after the Effective Date, it shall be bound by
the provisions of the Credit Agreement as a Lender thereunder and, to the
extent of the Assigned Interest, shall have the obligations of a Lender
thereunder, (iv) it has received a copy of the Credit Agreement, together with
copies of the most recent financial statements delivered pursuant to Section 6.01
thereof, as applicable, and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
this Assignment and Assumption and to purchase the Assigned Interest on the
basis of which it has made such analysis and decision independently and without
reliance on the Administrative Agent or any other Lender, and (v) if it is a
Foreign Lender, attached to the Assignment and Assumption is any documentation
required to be delivered by it pursuant to the terms of the Credit Agreement,
duly completed and executed by the Assignee; and (b) agrees that (i) it will,
independently and without reliance on the Administrative Agent, the Assignor or
any other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Loan Documents, and (ii) it will perform in
accordance with their terms all of the obligations which by the terms of the
Loan Documents are required to be performed by it as a Lender.


 


1

















 


2.   Payments.  From and after the Effective Date, the
Administrative Agent shall make all payments in respect of the Assigned
Interest (including payments of principal, interest, fees and other amounts) to
the Assignor for amounts which have accrued to but excluding the Effective Date
and to the Assignee for amounts which have accrued from and after the Effective
Date.


 


3.  General Provisions.
This Assignment and Assumption shall be binding upon, and inure to the benefit
of, the parties hereto and their respective successors and assigns.  This Assignment and Assumption may be executed
in any number of counterparts, which together shall constitute one
instrument.  Delivery of an executed
counterpart of a signature page of this Assignment and Assumption by telecopy
or other electronic means shall be effective as delivery of a manually executed
counterpart of this Assignment and Assumption. 
This Assignment and Assumption shall be governed by, and construed in
accordance with, the law of the State of New York.


 


2

















 


EXHIBIT B


 


OPINION OF COUNSEL FOR THE BORROWER


 


[See attached]


 


1






 












 


[LETTERHEAD OF VINSON & ELKINS LLP]


 


November 29, 2010


 


Each
of the Addressees Listed in 

the Attached Schedule 1


 


RE:                              Second Amended
and Restated Credit Agreement


 


Ladies
and Gentlemen:


 


We
have acted as special New York and Texas counsel to (a) Clayton Williams
Energy, Inc., a corporation organized under the laws of the State of
Delaware (the “Company”), (b) the subsidiaries of the Company
listed in Part A of Schedule 2 hereto (each a “Delaware
Subsidiary”, and together with the Company, the “Delaware Companies”),
and (c) the subsidiaries of the Company listed in Part B of Schedule
2 hereto (each a “Texas Subsidiary”, and together with the Delaware
Companies, the “Opinion Parties”), in connection with the transactions
contemplated by the Second Amended and Restated Credit Agreement dated as of November 29,
2010 (the “Credit Agreement”), among the Company, the other Opinion
Parties party thereto, JPMorgan Chase Bank, N.A., as administrative agent (the “Administrative
Agent”), and the lenders party thereto (the “Lenders”).  This opinion letter is furnished to you
pursuant to Section 5.01(c) of the Credit Agreement.  Capitalized terms used herein shall, unless
otherwise defined herein (or in the Schedules hereto), have the meanings
ascribed to such terms in the Credit Agreement. 
Terms defined in the Schedules hereto shall have the same meanings when
used in the text of this opinion letter, and terms defined in the text of this
opinion letter shall have the same meaning when used in the Schedules.  Unless otherwise indicated, references herein
to “this opinion” or “this opinion letter” shall include the Schedules hereto.


 


In
rendering the opinions set forth below, we have reviewed an execution copy of
the following documents and instruments:


 


(i)                                     the Credit Agreement;


 


(ii)                                  each of the Notes, dated the date hereof, and executed and delivered by
the Company on the date hereof;


 


(iii)                               the Amended and Restated Pledge and Security Agreement dated as of November 29,
2010 (the “Security Agreement”) among the Opinion Parties party thereto
and the Administrative Agent;


 


(iv)                              the Deed of Trust, Mortgage, Assignment of Production, Fixture Filing and
Financing Statement dated as of November 29, 2010 (the “Deed of Trust”),
from the Company to the Trustee named therein and the Administrative Agent;


 


	
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  Elkins LLP Attorneys at Law

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(v)                                 the Opinion Parties’ constitutive documents and resolutions listed in Part A
of Schedule 3 hereto (the “Organizational Documents”);


 


(vi)                              the certificates of existence and good standing listed in Part B
of Schedule 3 hereto issued by the Secretary of State of Delaware
for each of the Delaware Companies (collectively, the “Delaware Good
Standing Certificates”);


 


(vii)                           the certificates of existence and good standing listed in Part C
of Schedule 4 hereto issued by the Secretary of State of the State
of Texas and the Texas Comptroller of Public Accounts, for each of the Texas
Subsidiaries (collectively, the “Texas Good Standing Certificates”);


 


(viii)                        unfiled copies of the UCC-1 Financing Statements listed in Schedule 4
hereto and shown in Schedule 4 to have the Delaware Filing Office
as the Applicable Filing Office (the “Delaware Financing Statements”);
and


 


(ix)                                unfiled copies of the UCC-1 Financing Statements listed in Schedule 4
hereto and shown in Schedule 5 to have the Texas Filing Office as
the Applicable Filing Office (the “Texas Financing Statements” and,
together with the Delaware Financing Statements, the “Financing Statements”).


 


The
documents listed in clauses (i) through (iv) above are referred to
herein as the “Opinion Documents”. 
The documents listed in clauses (i) through (iii) above
are referred to herein as the “New York Opinion Documents”.  The Security Agreement and the Deed of Trust
are collectively referred to herein as the “Security Documents”.  Additionally, in rendering the opinions set
forth below, we have reviewed such other records, certificates and documents as
we have deemed appropriate for the purposes of such opinions.  As to any facts material to our opinion, we
have made no independent investigation of such facts and have relied, to the
extent that we deem such reliance proper, upon statements of public officials
and officers or other representatives of the Opinion Parties and on the
representations and warranties relating to factual matters set forth in the
Opinion Documents.


 


In
rendering the opinions expressed below, we have assumed the legal capacity of
all natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, and the conformity to authentic
original documents of all documents submitted to us as copies, which
assumptions we have not independently verified. 
In addition, with your permission and without independent investigation,
we have made the following assumptions:


 


(A)                              Each party to each document referred to in this opinion letter is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization (except that we have not made such assumption as
to the Opinion Parties to the extent set forth in our opinions in
paragraph 1 below);


 


(B) 
Each party to each document referred to in this opinion letter has full power
and authority to execute, deliver and perform its obligations under each such
document to which it is


 


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a party (except that we
have not made such assumption as to the Opinion Parties with respect to the
Opinion Documents to the extent set forth in our opinions in paragraphs 2 and 3
below);


 


(C) 
Each document referred to in this opinion letter has been duly executed and
delivered by each party thereto (except that we have not made such assumption
as to the Opinion Parties with respect to the Opinion Documents to the extent
set forth in our opinions in paragraphs 2 and 3 below);


 


(D) 
The execution, delivery and performance of each document referred to in this
opinion letter by each party thereto have been duly authorized by all necessary
action (corporate, partnership, limited liability company or otherwise) by or on
behalf of each such party (except that we have not made such assumption as to
the Opinion Parties with respect to the Opinion Documents to the extent set
forth in our opinions in paragraphs 2 and 3 below);


 


(E) 
The execution, delivery and performance of each document referred to in this
opinion letter by each party thereto do not violate or result in the breach of
any such party’s organizational documents or any contract, document or
instrument binding on any such party (except that we have not made such
assumption as to the Opinion Parties with respect to their Organizational
Documents to the extent set forth in our opinion in paragraph 6(a) below;


 


(F) 
The execution, delivery and performance of each document referred to in this
opinion letter by each party thereto do not contravene any provision of any
law, rule, regulation, order, writ, judgment, injunction, decree, determination
or award applicable to any of them (except that we have not made such
assumption with respect to Applicable Laws, in each case applicable to the
Opinion Parties with respect to the Opinion Documents, to the extent set forth
in our opinion in paragraph 6(b) below);


 


(G) 
No authorization, approval, consent, order, license, franchise, permit or other
action by, and no notice to or filing with, any Governmental Authority, or any
other third party is required for the due execution, delivery and performance
of any document referred to in this opinion letter by any party thereto that
has not been duly obtained or made and that is not in full force and effect
(except that we have not made such assumption with respect to Governmental
Approvals (as defined in paragraph 7 below) required to be obtained or taken by
the Opinion Parties with respect to the Opinion Documents to the extent set
forth in our opinion in paragraph 7 below);


 


(H)                               Each document
referred to in this opinion letter constitutes the valid, binding and
enforceable obligation of each party thereto (except that we have not made such
assumptions as to the applicable Opinion Parties to the extent set forth in our
opinions in paragraphs 4 and 5 below); and


 


(I)                                    The laws of any
jurisdiction other than the laws that are the subject of this opinion letter do
not affect the terms of the Opinion Documents or adversely affect the opinions
rendered herein.


 


Unless
otherwise indicated, as used in this opinion letter (i) “New York UCC”
means the Uniform Commercial Code as in effect on the date hereof in the State
of New York (without regard to 


 


3

















 


laws
referenced in Section 9-201 thereof), (ii) “Texas UCC” means
the Uniform Commercial Code as in effect on the date hereof in the State of
Texas (without regard to laws referenced in Section 9.201 thereof), (iii) “Delaware
UCC” means the Uniform Commercial Code as in effect on the date hereof in the
State of Delaware (without regard to laws referenced in Section 9-201
thereof), (iv) “UCC” means the New York UCC, the Texas UCC or the
Delaware UCC, as applicable, (v) “Security Agreement Article 9 Collateral”
means that portion of the Collateral (as defined in the Security Agreement)
which is of a type in which a security interest can be created under Article 9
of the New York UCC, (vi) “Deed of Trust Article 9 Collateral”
means that portion of the Collateral (as defined in the Deed of Trust) in which
a security interest can be created under Chapter 9 of the Texas UCC, (vii) “Article 9
Collateral” means the Security Agreement Article 9 Collateral and the
Deed of Trust Article 9 Collateral, (viii) “Delaware Filing Office”
means the Office of the Secretary of State of the State of Delaware, and (ix) “Texas
Filing Office” means the Office of the Secretary of State of the State of
Texas.  Terms defined in the UCC have the
same meaning when used herein unless otherwise indicated by the context in
which such terms are so used.  For
convenience, all references to specific articles, parts, sections or
subsections of the UCC (without referring specifically to the New York UCC, the
Delaware UCC or the Texas UCC) are made by using the corresponding citations to
the New York UCC.


 


Based
upon the foregoing, and subject to the assumptions, qualifications, exceptions
and limitations set forth herein, it is our opinion that:


 


1.               Each Delaware
Company is validly existing and in good standing under the laws of the State of
Delaware.  Each Texas Subsidiary is
validly existing and in good standing under the laws of the State of Texas.


 


2.               Each Delaware
Company has the corporate or limited liability company (as applicable) power
and authority to execute and deliver each Opinion Document to which it is a
party and to perform its obligations thereunder.  The execution and delivery by each Delaware
Company of each Opinion Document to which it is a party and the performance by
such Delaware Company of its obligations thereunder have been duly authorized
by all requisite corporate or limited liability company action, as applicable,
on the part of such Delaware Company. 
With respect to each Delaware Company, each Opinion Document to which
such Delaware Company is a party has been duly executed and delivered by such
Delaware Company.


 


3.               Each Texas
Subsidiary has the corporate, limited liability company or limited partnership
(as applicable) power and authority to execute and deliver each Opinion
Document to which it is a party and to perform its obligations thereunder.  The execution and delivery by each Texas
Subsidiary of each Opinion Document to which it is a party and the performance
by such Texas Subsidiary of its obligations thereunder have been duly
authorized by all requisite corporate, limited liability company, or limited
partnership action, as applicable, on the part of such Texas Subsidiary.  With respect to each Texas Subsidiary, each
Opinion Document to which each Texas Subsidiary is a party has been duly
executed and delivered by such Texas Subsidiary.


 


4.               Each New York
Opinion Document constitutes the valid and binding obligation of each Opinion
Party that is a party thereto, enforceable against such Opinion Party in accordance
with its terms, under the laws of the State of New York.


 


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5.               The Deed of
Trust constitutes the valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, under the laws of the State
of Texas.


 


6.               The execution
and delivery by each Opinion Party of each Opinion Document to which it is a
party do not, and the performance by such Opinion Party of its obligations
thereunder will not: (a) violate such Opinion Party’s Organizational
Documents; or (b) result in any violation by such Opinion Party of any
Applicable Laws (as defined below).


 


“Applicable
Laws” means the Delaware General Corporation Law, the Delaware Limited
Liability Company Act, the Delaware UCC, and those laws of the States of Texas
and New York and the United States of America and the rules and
regulations adopted thereunder that, in our experience, are normally applicable
to transactions of the type contemplated by the Opinion Documents.  However, the term “Applicable Laws” does not
include, and we express no opinion with regard to (a) any state or federal
laws, rules or regulations relating to: (i) pollution or protection
of the environment; (ii) zoning, land use, building or construction; (iii) occupational,
safety and health or other similar matters; (iv) labor and employee rights
and benefits, including, without limitation, the Employee Retirement Income
Security Act of 1974, as amended; (v) the regulation of utilities,
including without limitation, the Federal Power Act, the Public Utility Holding
Company Act of 2005 and the Public Utility Regulatory Policies Act of 1978, as
amended; (vi) antitrust and trade regulation; (vii) tax; (viii) except
as specifically set forth in paragraphs 19 and 21, securities, including
without limitation, the Investment Company Act of 1940, as amended;
(ix) corrupt practices, including, without limitation, the Foreign Corrupt
Practices Act of 1977; (x) copyrights, patents and trademarks; and (xi) communication,
telecommunication or similar matters; and (b) any laws, rules or
regulations of any county, municipality or similar political subdivision or any
agency or instrumentality thereof.


 


7.               No Governmental
Approval (as defined below) that has not been obtained or taken and is not in
full force and effect, is required to be obtained or taken by any Opinion Party
to authorize, or is required in connection with, the execution and delivery by
such Opinion Party of any Opinion Document to which it is a party or the performance
by such Opinion Party of its obligations thereunder except: (a) the filing
of the Financing Statements in the filing offices set forth in paragraphs 10
and 11 below; (b) any filings or recordings required in connection with
the liens and security interests granted pursuant to the Deed of Trust as
described in paragraphs 13, 14, 16 and 17 below; and (c) Governmental
Approvals not required to consummate the transactions occurring on the date
hereof but required to be obtained or made after the date of this opinion
letter to enable such Opinion Party to comply with requirements of Applicable
Laws including those required to maintain existence and good standing of such
Opinion Party.


 


“Governmental
Approvals” means any consent, approval, license or authorization of, or
filing, recording or registration with, any Governmental Authority pursuant to
any Applicable Laws (as defined in paragraph 6 above).


 


8.               The provisions
of the Security Agreement are effective to create in favor of the
Administrative Agent to secure the Obligations (as defined in the Security
Agreement), a valid security interest in all of the right, title and interest
of each Opinion Party that is a party 


 


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to such Security Agreement, in and to the Security Agreement
Article 9 Collateral described in the Security Agreement.


 


9.               Under the laws
of the State of Texas, the provisions of the Deed of Trust are effective to
create in favor of the Administrative Agent to secure the secured indebtedness
(as defined in the Deed of Trust), a valid security interest in all of the
Company’s right, title and interest in and to the Deed of Trust Article 9
Collateral described in such Deed of Trust.


 


10.         To the extent
that the filing of a financing statement can be effective to perfect a security
interest in the Article 9 Collateral under the Delaware UCC, the security
interest granted by the Delaware Companies in favor of the Administrative Agent
in that portion of the Article 9 Collateral described in the Delaware
Financing Statements will be perfected upon the proper filing of the Delaware
Financing Statements in the Delaware Filing Office. For purposes of our opinion
set forth in this paragraph 10, we have based such opinion solely on our
review of the generally available compilations of Article 9 of the
Delaware UCC as in effect on the date hereof and we have not reviewed any other
laws of the State of Delaware or retained or relied on any opinion or advice of
Delaware counsel.


 


11.         To the extent
that the filing of a financing statement can be effective to perfect a security
interest in the Article 9 Collateral under the Texas UCC, the security
interest granted by the Texas Subsidiaries in favor of the Administrative Agent
in that portion of the Article 9 Collateral described in the Texas
Financing Statements will be perfected upon the proper filing of the Texas
Financing Statements in the Texas Filing Office.


 


12.         With respect to
that portion of the Security Agreement Article 9 Collateral consisting of
certificated securities (as such term is defined in Section 8-102 of the
New York UCC or Section 8.102 of the Texas UCC, as applicable, and herein
referred to as the “Certificated Securities”), upon the Administrative
Agent’s taking possession in the State of New York or the State of Texas of the
certificates evidencing such Certificated Securities that are in registered
form, issued or indorsed in the name of the Administrative Agent or in blank by
an effective indorsement or accompanied by undated stock powers with respect
thereto duly indorsed in blank by an effective indorsement, the security
interest of the Administrative Agent therein is perfected by “control” (within
the meaning of Section 8-106 of the New York UCC or 8.106 of the Texas
UCC, as applicable).


 


13.         Under the laws
of the State of Texas, the Deed of Trust is in proper form for recording in the
real property records (the “Real Property Records”) of each of the
counties in the State of Texas in which the Mortgaged Properties (as defined in
the Deed of Trust and herein referred to as the “Mortgaged Properties”)
described in the Deed of Trust and constituting real property under the laws of
the State of Texas (the “Mortgaged Real Property”), are located (such
counties being the “Applicable Counties”).


 


14.         Under the laws
of the State of Texas, the Deed of Trust is in appropriate form to be
effective, from the date of its proper recording in the Real Property Records
of each Applicable County, as (a) a financing statement filed as a fixture
filing with respect to Deed of Trust Article 9 Collateral constituting
goods that are or are to become fixtures (as defined in the Texas UCC) located
in the Applicable Counties and related to the Mortgaged Real Property described
in 


 


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such Deed of Trust (the “Texas Fixtures”), and (b) a
financing statement covering Deed of Trust Article 9 Collateral
constituting as-extracted collateral at the wellhead or minehead of which
as-extracted collateral is located in the Applicable Counties and which
as-extracted collateral is related to the Mortgaged Real Property (the “Texas
As-Extracted Real Property”); and upon such proper recordings, the security
interest in Texas Fixtures granted by such Deed of Trust will be perfected as a
fixture filing, and the security interest in the Texas As-Extracted Collateral
will be perfected.


 


15.         Under the laws
of the State of Texas, the provisions of the Deed of Trust are effective to
create in favor of the Trustee named therein, to secure the secured
indebtedness (as defined in such Deed of Trust), a valid lien on the right,
title and interest of the Company in the Mortgaged Real Property described in
such Deed of Trust.


 


16.         Under the laws
of the State of Texas, upon the proper filing of the Deed of Trust in the Real
Property Records of each Applicable County, the Deed of Trust will provide
constructive notice to third parties of the liens created thereby in favor of
the Trustee named therein in the Mortgaged Real Property described therein.


 


17.         Under the laws
of the State of Texas, with respect to each Deed of Trust, (a) the
recording of such Deed of Trust in the Real Property Records of each Applicable
County, is the only recording or filing necessary to give constructive notice
of the lien created by the Deed of Trust covering the Mortgaged Real Property
described therein, to subsequent purchasers and mortgagees of such Mortgaged
Real Property, and (b) no other recordings, filings, re-recordings or
refilings are necessary in order to maintain the validity or priority of the
lien created by such Deed of Trust on such Mortgaged Real Property described
therein.


 


18.         Under the laws
of the State of Texas, the Deed of Trust contains terms and provisions
necessary to enable the Trustee named therein (after a material default of a
material provision thereunder) to exercise its non-judicial power of sale
remedy upon the Mortgaged Real Property described therein.


 


19.         Assuming that
the Company will comply with the provisions of the Credit Agreement relating to
the use of proceeds, the execution and delivery of the Credit Agreement by the
Company and the making of the Loans thereunder and the application of the
proceeds thereof does not violate Regulation U or X of the Board of Governors
of the Federal Reserve System.


 


20.         In a properly
presented case before a court of competent jurisdiction in the State of Texas,
or a federal court sitting in Texas, in each case applying Texas conflicts of
law principles, such court would recognize and give effect to the choice of the
laws of the State of New York as the governing law of each of the New York
Opinion Documents.


 


21.         Each Opinion
Party is not an “investment company” within the meaning of the Investment
Company Act of 1940, as amended.


 


In
rendering the foregoing opinions, we have also assumed, with your permission,
and without independent investigation on our part, the following:


 


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A.                                   With respect to
our opinions set forth in paragraphs 8 through 14 above, we have assumed
that each Opinion Party has, or has the power to transfer, rights in the
properties in which it is purporting to grant a security interest sufficient
for attachment of such security interest within the meaning of Section 9-203
of the UCC.


 


B.                                     With respect to
our opinions set forth in paragraphs 8 through 14 above, we have assumed
that the Administrative Agent has acquired its interests in the Article 9
Collateral for value within the meaning of Section 9-203 of the NY UCC and
Section 9.203 of the Texas UCC.


 


C.                                     With respect to
our opinions set forth in paragraphs 8 through 14 above, we have assumed
the descriptions of Article 9 Collateral contained in, or attached as
schedules to, the Security Documents and the Financing Statements sufficiently
describe (for the purposes of the attachment and perfection of security
interests) the Article 9 Collateral intended to be covered thereby.


 


D.                                    With respect to
our opinions set forth in paragraphs 10 and 14 above, we have relied on
each Delaware Company’s Organizational Documents and the Delaware Good Standing
Certificates as the basis for determining (i) the correct legal name of
such Delaware Company, (ii) the correct organizational identification
number of such Delaware Company is as set forth in the Delaware Financing
Statements and the Deed of Trust and (iii) that such Delaware Company is
solely organized under the laws of the State of Delaware.  With respect to our opinions set forth in
paragraphs 11 and 14 above, we have relied on each Texas Subsidiary’s
Organizational Documents and the Texas Good Standing Certificates as the basis
for determining (i) the correct legal name of such Texas Subsidiary, (ii) that
the correct organizational identification number of such Texas Subsidiary is as
set forth in the Texas Financing Statements and the Deed of Trust and
(iii) that such Texas Subsidiary is solely organized under the laws of the
State of Texas.


 


E.                                      With respect to
our opinion set forth in paragraph 12 above, we have assumed that such
Certificated Securities will at all times be held by the Administrative Agent
in the State of New York or the State of Texas, as applicable.


 


The
opinions set forth above are subject to the following qualifications and
exceptions:


 


(a)                                  Notwithstanding
the choice of law provisions set forth in Section 5.21 of the Deed of
Trust, we have assumed for purposes of this opinion letter that the Deed of
Trust is governed by the laws of the State of Texas and have rendered the
opinions in this opinion letter related to the Deed of Trust on the basis that
the laws of the State of Texas govern such Deed of Trust.


 


(b)                                 The opinions in
paragraph 1 above to the extent they relate to the existence and good standing
of the Delaware Companies in the State of Delaware are based solely on the
Delaware Good Standing Certificates.  The
opinions in paragraph 1 above to the extent they relate to the existence and
good standing of the Texas Subsidiaries in the State of Texas are based solely
on the Texas Good Standing Certificates. The opinions in paragraph 2 above are
limited in all respects to the General Corporation Law of the State of Delaware
and the Delaware Limited Liability Company Act, as in effect in the State of
Delaware.  The opinions in paragraph 3
above are limited in all respects to the Texas Business Organizations
Code.  Our opinions contained herein to
the extent they relate to matters of Delaware law are based on our review of
the General Corporation Law of the State of Delaware and the Delaware Limited
Liability Company Act, as in effect in the State of Delaware.  We have not reviewed 


 


8

















 


any
other laws of the State of Delaware (other than the Delaware UCC), including,
without limitation, any interpretations of the General Corporation Law and the
Limited Liability Company Act, as in effect in the State of Delaware, or
retained or relied on any opinion or advice of Delaware counsel.


 


(c)                                  Our opinions
above are subject to and may be limited by bankruptcy, insolvency,
reorganization, fraudulent transfer, moratorium or other laws now or hereafter
in effect relating to or affecting enforcement of creditors’ rights generally
and by general principles of equity (including, without limitation, concepts of
materiality, reasonableness, good faith and fair dealing), regardless of
whether such enforcement is considered in a proceeding in equity or at law and
we express no opinion on the effect of the foregoing on the enforceability of
the Opinion Documents and the provisions thereof.


 


(d)                                 With respect to
our opinions set forth in paragraphs 4 and 5 above, we express no opinion with
respect to the validity, legally binding effect or enforceability of the
following provisions to the extent that they are contained in the Opinion
Documents:  (i) provisions
purporting to release, exculpate, hold harmless, or exempt any person or entity
from, or to require indemnification or contribution of or by any person or
entity for, liability for any matter to the extent that the same are
inconsistent with applicable law (including case law) or with public policy; (ii) provisions
purporting to waive, subordinate or not give effect to rights to notice,
demands, legal defenses or other rights or benefits that cannot be waived,
subordinated or rendered ineffective under applicable law; (iii) provisions
purporting to provide remedies inconsistent with the UCC to the extent
provisions of the UCC are mandatorily applicable; (iv) provisions
purporting to render void and of no effect any transfers of the Opinion Party’s
rights in any collateral in violation of the terms of the Opinion Documents;
(v) provisions relating to powers of attorney, severability or set-offs;
(vi) provisions stating that a guarantee will not be affected by a
modification of the obligation guaranteed in cases in which that modification
materially changes the nature or amount of such obligation;
(vii) provisions that limit the obligation of a guarantor, co-borrower or
co-obligor (or provide for any rights of contribution as against another
guarantor or, co-borrower or co-obligor or any other party) based upon the
potential unenforceability, invalidity, or voidability of a guarantee or joint
obligation under any applicable law, including, without limitation, any state
or federal fraudulent transfer or fraudulent conveyance laws; (viii) provisions
restricting access to courts or purporting to affect the jurisdiction or venue
of courts (other than the courts of the State of New York with respect to the
New York Opinion Documents, to the extent set forth in Section 5-1402 of
the New York General Obligation Law); (ix) provisions setting out methods
for service of process; (x) provisions purporting directly or indirectly
to exclude conflicts-of-law rules; (xi) provisions pursuant to which a
party agrees that a judgment rendered by a court or other tribunal in one
jurisdiction may be enforced in any other jurisdiction; (xii) provisions
providing that decisions by a party are conclusive or may be made in its sole
discretion; (xiii) provisions providing for liquidated damages or any “make
whole”, “yield maintenance” or “premium amount” to the extent that they may be
deemed a penalty; (xiv) provisions that require any Opinion Party to
indemnify any other party to such Opinion Document against loss in obtaining
the currency due under such Opinion Document from a court judgment in another
currency; (xv) provisions providing for voting of claims in bankruptcy; (xvi) provisions
granting to the Administrative Agent cash proceeds of rent, income, revenues,
issues or profits from the Mortgaged Properties unless the Administrative Agent
is in lawful possession of the Mortgaged Properties or has secured by final
order the appointment of receiver therefor or has taken such action judicially
deemed to be the equivalent thereof; (xvii) provisions purporting to
prohibit, restrict or condition the transfer or encumbrance of the Mortgaged
Properties to the extent same are unenforceable under the Texas UCC or
applicable Texas real property law, (xviii) provisions granting a person
proceeds of insurance, except on policies in full force 


 


9

















 


with
loss payee clauses payable to such person; (xix) provisions purporting to
make assignments of leases and/or rents an absolute or true assignment; (xx) provisions
attempting to bind third parties by unrecorded amendments to the obligations
secured by the Deed of Trust; (xxi) provisions relating to mortgagees in
possession; and (xxii) provisions providing for the revival or
reinstatement of liens previously released. 
Our opinions are based solely on our reading of the Opinion
Documents.  We note that enforceability
of the Opinion Documents may be affected by the parties course of dealing, or
by waivers, modifications or amendments (whether made in writing, orally, or by
course of conduct), and we express no opinion on the effect of the foregoing on
the enforceability of the Opinion Documents.


 


(e)                                  Insofar as our
opinion set forth in paragraph 4 above relates to the enforceability under New
York law of the provisions of the New York Opinion Documents choosing New York
law as the governing law thereof, such opinion is rendered solely in reliance
upon the Act of July 19, 1984, ch. 421, 1984 McKinney’s Sess. Law of N.Y.
1406 (codified at N.Y. Gen. Oblig. Law §§5-1401 (McKinney 1989)) (the “Act”)
and is subject to the qualifications that such enforceability (i) as
specified in the Act, does not apply to the extent provided to the contrary in
subsection two of Section 1-105 of the NY UCC, (ii) may be limited by
public policy considerations of any jurisdiction in which enforcement of such
provisions is sought, and (iii) is subject to any U.S. Constitutional
requirement under the Full Faith and Credit Clause or the Due Process Clause
thereof or the exercise of any applicable judicial discretion in favor of
another jurisdiction.


 


(f)                                    Certain of the
other remedial provisions with respect to the Article 9 Collateral or the
Mortgaged Properties contained in the Security Documents may be further limited
or rendered unenforceable by applicable law, but in our judgment the limitation
or unenforceability of such provisions does not, subject to the other
qualifications, exceptions and limitations set forth herein, substantially
interfere with the practical realization of the principal legal benefits with
respect to the Article 9 Collateral and Mortgaged Properties purported to
be provided by the Security Documents, except to the extent of any procedural
or other delays which may result therefrom (it being understood that we express
no opinion as to the adequacy of such provisions to the extent it is necessary
to seek execution or enforcement of rights or remedies under the laws of any
jurisdiction outside the State of New York (with respect to the Security
Agreement) or the State of Texas (with respect to the Deed of Trust)).


 


(g)                                 In the case of
property which becomes Article 9 Collateral or Mortgaged Properties after
the date hereof, our opinions in paragraphs 8 through 18 are subject to the
effect of Section 552 of the Federal Bankruptcy Code, which limits the
extent to which property acquired by a debtor after the commencement of a case
under the Federal Bankruptcy Code may be subject to a security interest arising
from a security agreement entered into by the debtor before the commencement of
such case.  Our opinions as to the
creation and validity of security interests and liens in Article 9
Collateral and Mortgaged Properties are also subject to the effect of
Section 547 of the Federal Bankruptcy Code pursuant to which a security
interest deemed transferred within the relevant period set forth in Section 547(b)(4) thereof
may be avoidable under certain circumstances.


 


(h)                                 We express no
opinion as to Article 9 Collateral that is subject to a state statute or a
statute, regulation or treaty of the United States referred to in Section 9-311(a) of
the UCC.


 


(i)                                     We express no
opinion as to Article 9 Collateral or Mortgaged Properties consisting of
commercial tort claims or cooperative interests.


 


10
















 


(j)            With respect to our opinions
in paragraphs 10 and 11 above, we express no opinion as to (i) the
perfection of a security interest in any items of collateral that are or are to
become as-extracted collateral or timber to be cut, and (ii) the
perfection as a fixture filing of any security interest in any items of
collateral that are or are to become fixtures.


 


(k)           Other than the filing of the
Financing Statements in the filing offices set forth in our opinions in
paragraphs 10 and 11 above, we express no opinion as to any other actions
(including any filings or registrations) that may be necessary under any
applicable law in connection with perfection of a security interest in
Article 9 Collateral or Mortgaged Properties consisting of patents, trademarks,
copyrights or other intellectual property rights.  We express no opinion as to the effect of any
federal law relating to copyrights, patents, trademarks, service marks or other
intellectual property on the opinions expressed herein.


 


(l)            With respect to our opinions
set forth in paragraphs 8 through 18, we express no opinion as to the priority
of any lien or security interest.


 


(m)          We express no opinion herein
regarding the enforceability of any provision in an Opinion Document that
purports to prohibit, restrict or condition the assignment of a party’s rights
or obligations under such Opinion Document to the extent that such restriction
on assignability is rendered ineffective by Sections 9-406 through 9-409 of the
UCC or other applicable law.


 


(n)           The attachment and
perfection of the Administrative Agent’s liens and security interests in
proceeds is limited to the extent set forth in Section 9-315 of the UCC.


 


(o)           With respect to Article 9
Collateral constituting after-acquired property, the security interests therein
granted to the Administrative Agent under the Security Documents will not
attach or be perfected until the Opinion Party granting such security interests
acquires rights in such Article 9 Collateral sufficient for attachment
under Section 9-203 of the UCC.


 


(p)           In rendering the opinions
above related to security interests in Article 9 Collateral, we call to
your attention that security interests may not attach or become enforceable or
be perfected as to Article 9 Collateral that is not assignable pursuant to
a rule of law, statute or regulation, or is not assignable by its terms,
or is assignable only with the consent of another person or entity, except to
the extent such restrictions are rendered ineffective under Section 9-406,
9-407, 9-408 or 9-409 of the New York UCC, Sections 9.406, 9.407, 9.408 or
9.409 of the Texas UCC, or other applicable law.  In addition in rendering such opinions, we
call to your attention that even though the Texas UCC and the New York UCC
render certain anti-assignment provisions ineffective for purposes of creation,
attachment or perfection of a security interest pursuant to Sections 9-406,
9-407, 9-408 or 9-409 of the New York UCC and Sections 9.406, 9.407, 9.408 or
9.409 of the Texas UCC, nonetheless, in certain cases, the grantee of such
security interest may be unable to enforce its rights in collateral against an
account debtor, the holder of a promissory note, or other person named in the
foregoing Sections, who did not consent to the transfer.


 


(q)           We express no opinion as to
any actions that may be required to be taken periodically under the UCC or
under any other applicable law in order for the effectiveness of the Financing
Statements or perfection of any lien or security interest to be maintained.


 


11

















 


(r)            Our opinion in
paragraph 20 is based on Chapter 271 of the Texas Business and Commerce
Code, which applies to transactions in which a party pays or receives, or is
obligated to pay or entitled to receive, consideration in excess of $1,000,000,
and is subject to the qualifications that such enforceability (i) as
specified in Chapter 271, does not apply to an issue that another Texas statute
(such as Section 1.301(b) of the Texas UCC), or a federal statute, provides
is governed by the law of a particular jurisdiction,  (ii) may be limited by public policy
considerations of any jurisdiction in which enforcement of such provisions is
sought, and (iii) is subject to any U.S. Constitutional requirement under
the Full Faith and Credit Clause or the Due Process Clause thereof or the
exercise of any applicable judicial discretion in favor of another
jurisdiction.  In rendering such opinion,
we have assumed that JPMorgan Chase Bank, N.A. has its chief executive office in
the State of New York.


 


(s)           Our opinion in paragraph 6(b) as
it relates to the New York Opinion Documents, with respect to Texas law, takes
into account and is based on and subject to our opinion in paragraph 20.


 


(t)            Except as set forth in our
opinions in paragraphs 8, 9 and 15 above, we express no opinion as to the
creation, attachment or validity of any lien or security interest.  Except as set forth in our opinions in
paragraphs 10  through 14  and
paragraphs 16 and 17, we express no opinion as to the perfection of any
security interest or lien.


 


(u)           We have made no examination
of, and express no opinion with respect to, the accuracy or sufficiency of the
description of any portion of the Mortgaged Properties.  To the contrary, we have assumed (i) the
accuracy and sufficiency of the descriptions of the Mortgaged Properties
intended to be covered thereby, and (ii) that each person purporting to
grant liens or security interests covering the Mortgaged Properties has good
title to the Mortgaged Properties and the power to grant the liens intended to
be granted therein.  We express no
opinion with respect to title to or the condition of the Mortgaged Properties.


 


(v)           We express no opinion with
respect to the legality, validity, binding nature or enforceability of any of
the provisions of the Deed of Trust purporting to cover any property which
becomes property of the Company after the date hereof, unless such property is
specifically identified in the Deed of Trust and the parties can be shown to
have anticipated, on the date of execution of the Deed of Trust, the
acquisition of such property.  In
addition, the Deed of Trust will not secure any portion of the obligations
described therein to the extent that such obligations were not reasonably
within the contemplation of the parties at the time they entered into the Deed
of Trust.


 


(w)          The obligations of the
Company under the Deed of Trust and the obligations of the Opinion Parties
under the Opinion Documents may be limited by the provisions of Sections 51.003
through 51.005 of the Texas Property Code (“TPC”) and Section 1371
of the N.Y. Real Prop. Acts. Laws (“RPALP”) relating to limitations on
deficiencies following any foreclosure.


 


In
this connection, Section 51.003 of the TPC provides that if the price at
which real property is sold at a foreclosure sale is less than the unpaid
balance of the indebtedness secured by the real property, resulting in a
deficiency, then any action brought to recover the deficiency must be brought
within two years of the foreclosure sale. 
Section 51.003 further provides that any person against whom
recovery of the deficiency is sought may request that the court in which the
deficiency action is pending determine the fair market value of the real
property as of the date of the foreclosure sale.  Such fair market value is to be determined by
the finder of fact after the introduction by the parties of competent evidence
of the value.  


 


12

















 


Section 51.003
further provides that if the court determines that the fair market value is
greater than the sale price of the real property at the foreclosure sale, then
the persons against whom recovery of the deficiency is sought are entitled to
an offset against the deficiency in the amount by which the fair market value
(less the amount of any claim, indebtedness, or obligation of any kind that is
secured by a lien or encumbrance on the real property that was not extinguished
by the foreclosure) exceeds the sale price used to compute the deficiency.


 


Section 51.004
of the TPC applies if (i) real property subject to a deed of trust or
other contract lien is sold at a foreclosure sale under a court judgment
foreclosing the lien and ordering the sale; and (ii) the price at which
the real property is sold is less than the unpaid balance of the indebtedness
secured by the real property, resulting in a deficiency.  If Section 51.004 applies, then any
person obligated on the indebtedness, including a guarantor, may bring an
action in the district court in the county in which the real property is
located for a determination of the fair market value of the real property as of
the date of the foreclosure sale.  The
suit must be brought not later than the 90th day after the date of the
foreclosure sale unless the suit is brought by a guarantor who did not receive
actual notice of the sale before the date of sale, in which case the suit must
be brought by the guarantor not later than the 90th day after the date the
guarantor received actual notice of the sale. 
Section 51.004 states that the fair market value shall be
determined by the finder of fact after the introduction by the parties of
competent evidence of the value.  If the
finder of fact determines that the fair market value is greater than the sale
price of the real property at the foreclosure sale, the persons obligated on
the indebtedness, including guarantors, are entitled to an offset against the
deficiency in the amount by which the fair market value (less the amount of any
claim, indebtedness, or obligation of any kind that is secured by a lien or
encumbrance on the real property that was not extinguished by the foreclosure)
exceeds the sale price.  Section 51.005
of the TPC provides a similar right to file an offset action to a guarantor
against whom a deficiency judgment has been rendered if a motion or suit to
determine the fair market value of the real property as of the date of the
foreclosure sale has not previously been filed under Section 51.003 or Section 51.004.


 


RPALP
Section 1371(2) provides that a suit for a deficiency following a
real property foreclosure sale must be brought within 90 days after the date of
the consummation of the foreclosure sale. 
RPALP Section 1371(3) provides that if the suit for a
deficiency is not brought within the 90 day period “the proceeds of the sale
regardless of amount shall be deemed to be in full satisfaction of the mortgage
debt and no right to recover any deficiency in any action or proceeding shall
exist.”  New York courts have interpreted
Section 1371(3) as precluding any suits for deficiency against that
borrower or any guarantor and foreclosure on any other collateral securing the
loan if the suit for deficiency has not been filed within the 90 day period.


 


The
New York Court of Appeals has held that a predecessor to RPAPL Section 1371(3) does
not apply if the real property that is the subject of the foreclosure sale is
not located in New York.  Provident
Savings Bank v. John Steinmetz, 270 N.Y. 129 (N.Y. 1936).  In Chase Manhattan Bank, N.A. v. Greenbriar
North Section II, 835 S.W.2d 720 (Tex. App.-Houston [1st Dist.] 1992, no
writ), one Texas Court of Appeals held that RPAPL Section 1371 applies to
non-New York property if the loan documents (other than the deed of trust)
provide that they are governed by New York law. 
Because the bank had failed to seek the deficiency judgment against the
borrower and guarantor within 90 days after the Texas non-judicial foreclosure
sale, the guarantor (the party in interest) was not liable for the
deficiency.  Although the court did not
mention the Provident Savings case, the court in Greenbriar North held that the
express choice of New York law to govern the loan documents, including the
guaranty agreement, 


 


13

















 


were
sufficient to make Section 1371(3) applicable.  Accordingly, because the Mortgaged Real
Properties are located in Texas and the New York Opinion Documents are governed
by New York law, at least a Texas court might hold that the limitations in
RPAPL Section 1371(3) apply to any suit for a deficiency following a
Texas foreclosure sale.


 


(x)            We bring to your attention
that Section 16.035 of the Texas Civil Practices and Remedies Code which
provides a four-year statute of limitations to enforce liens created by a deed
of trust; the four year statute begins to run on the maturity date of the
indebtedness secured thereby.  Therefore,
if the maturity of the indebtedness evidenced by the Opinion Documents is
extended, with respect to each Deed of Trust, an instrument referring to such
Deed of Trust and giving notice of such extension should be filed in the Real
Property Records.


 


(y)           With respect to any leases,
subleases, licenses, or occupancy rights described or referred to in any Deed
of Trust, we express no opinion as to authorization, execution, delivery,
validity, binding effect or enforceability thereof.


 


(z)            We express no opinion as to
the validity or enforceability of Section 5.21 of the Deed of Trust.


 


(aa)         With respect to our opinions
above related to the perfection of security interests in Article 9
Collateral (including, without limitation, Texas Fixtures and Texas
As-Extracted Collateral), we have assumed that no Opinion Party is a
transmitting utility as defined in Section 9-102 of the UCC.


 


We
express no opinion as to the laws of any jurisdiction other than Applicable
Laws.


 


This
opinion has been prepared in accordance with the customary practice of lawyers
who regularly give and lawyers who regularly advise recipients regarding
opinions of this kind.


 


This
opinion letter is rendered as of the date set forth above.  We expressly disclaim any obligation to
update this letter after such date.


 


This
opinion letter is given solely for your benefit in connection with the
transactions contemplated by the Opinion Documents and may not be furnished to,
or relied upon by, any other person or for any other purpose without our prior
written consent.  Notwithstanding the
foregoing, at your request, we hereby consent to reliance hereon by any future
assignee of the Lenders’ interests in the loans under the Agreement pursuant to
an assignment that is made and consented to in accordance with the express
provisions of Section 11.04(b) of the Credit Agreement, on the
condition and understanding that (a) this letter speaks only as of the
date hereof, (b) we have no responsibility or obligation to update this
letter, to consider its applicability or correctness to any person other than
its addressee(s), or to take into account changes in law, facts or any other
developments of which we may later become aware, and (c) any such reliance
by a future assignee must be actual and reasonable under the circumstances
existing at the time of assignment, including any changes in law, facts or any
other developments known to or reasonably knowable by the assignee at such
time.


 


	
   

  	
  Very
  truly yours,

  
	
   

  	
   

  
	
   

  	
  Vinson &
  Elkins LLP

  



 


14

















 


SCHEDULE 1


TO OPINION LETTER


 


Addressees


 


JPMorgan
Chase Bank, N.A., as Administrative Agent


 


Each
Lender party to the Credit Agreement on the date hereof


 


1

















 


SCHEDULE 2


TO OPINION LETTER


 


Part A
— Delaware Subsidiaries


 


Blue
Heel Company, a Delaware corporation


Clayton
Williams Pipeline Corporation, a Delaware corporation


CWEI
Acquisitions, Inc., a Delaware corporation


CWEI
Romere Pass Acquisition Corp., a Delaware corporation


Romere
Pass Acquisition L.L.C., a Delaware limited liability company


Southwest
Royalties, Inc., a Delaware corporation


Tex-Hal
Partners, Inc., Delaware corporation


 


Part B
— Texas Subsidiaries


 


Clajon
Industrial Gas, Inc., a Texas corporation


Desta
Drilling GP, LLC, a Texas limited liability company


Desta
Drilling, L.P., a Texas limited partnership


Warrior
Gas Co., a Texas corporation


West
Coast Energy Properties GP, LLC, a Texas limited liability company


 


1

















 


SCHEDULE 3


TO OPINION LETTER


 


Part A
- Organizational Documents


 


1.             Clayton Williams Energy, Inc.:


 


·                  Second Restated Certificate
of Incorporation of Clayton Williams Energy, Inc. dated as of October 1,
1996, as amended by the Certificate of Amendment to the Second Restated
Certificate of Incorporation of Clayton Williams Energy, Inc. dated as of October 3,
2000, as certified by a certificate of the Secretary of State of Delaware dated
November 17, 2010


·                  Corporate Bylaws of Clayton
Williams Energy, Inc. dated as of September 27, 1991


 


2.             Blue Heel Company:


 


·                  Certificate of Incorporation
of FYH Company dated as of December 30, 1997 as amended by the First
Amendment to the Certificate of Incorporation of FYH Company dated January 6,
1998 (renaming the company Blue Heel Company), as certified by a certificate of
the Secretary of State of Delaware dated November 16, 2010


·                  Corporate Bylaws of Blue
Heel Company, as certain provisions thereof have been waived pursuant to the
Action By Written Consent of the Requisite Groups of the Transaction Parties
adopted November 29, 2010, and the Consent and Agreement of Transaction
Parties dated as of November 29, 2010


 


3.             Clayton Williams Pipeline
Corporation:


 


·                  Certificate of Incorporation
of Clayton Williams Midland, Inc. dated February 12, 1996 as amended
by the Certificate of Amendment of the Certificate of Incorporation of Clayton
Williams Midland, Inc. dated March 3, 2000 (renaming the company
Clayton Williams Pipeline Corporation) , as certified by a certificate of the
Secretary of State of Delaware dated November 16, 2010


·                  First Amended and Restated
By-Laws of Clayton Williams Pipeline Corporation


 


4.             CWEI Acquisitions, Inc.:


 


·                  Certificate of Incorporation
of Texas Energy Company dated March 23, 1994 as amended by the Certificate
of Amendment of the Certificate of Incorporation of Texas Energy Company dated May 2,
1994 (renaming the company CWEI Acquisitions, Inc.), as certified by a
certificate of the Secretary of State of Delaware dated November 16, 2010


·                  Bylaws of CWEI Acquisitions, Inc.


 


5.             CWEI Romere Pass Acquisition
Corp.:


 


·                  Certificate of Incorporation
of CWEI Romere Pass Acquisition Corp. dated December 1, 2003, as certified
by a certificate of the Secretary of State of Delaware dated November 16,
2010


·                  Bylaws of CWEI Romere Pass
Acquisition Corp.


 


1

















 


6.             Romere Pass Acquisition
L.L.C.:


 


·                  Certificate of Formation of
Romere Pass Acquisition L.L.C. dated December 19, 2003, as certified by a
certificate of the Secretary of State of Delaware dated November 16, 2010


·                  Limited Liability Company
Agreement of Romere Pass Acquisition L.L.C. dated December 19, 2003, as
certain provisions thereof have been waived pursuant to the Action By Written
Consent of the Requisite Groups of the Transaction Parties adopted November 29,
2010, and the Consent and Agreement of Transaction Parties dated as of November 29,
2010


 


7.             Southwest Royalties, Inc.:


 


·                  Restated Certificate of
Incorporation of Southwest Royalties, Inc. dated November 21, 2003,
as certified by a certificate of the Secretary of State of Delaware dated November 17,
2010


·                  By-Laws of Southwest
Royalties, Inc. (as amended) dated August 12, 1996


 


8.             Tex-Hal Partners, Inc.:


 


·                  Certificate of Incorporation
of Tex-Hal Partners, Inc. dated November 16, 1994, as certified by a
certificate of the Secretary of State of Delaware dated November 16, 2010


·                  Bylaws of Tex-Hal Partners, Inc.,
as certain provisions thereof have been waived pursuant to the Action By
Written Consent of the Requisite Groups of the Transaction Parties adopted November 29,
2010, and the Consent and Agreement of Transaction Parties dated as of November 29,
2010


 


9.             Clajon Industrial Gas, Inc.:


 


·                  Certificate of Clayton
Williams Company dated July 21, 1980 as amended by the Articles of
Amendment of the Articles of Incorporation of Clayton Williams Company dated June 1,
1984, as certified by a certificate of the Secretary of State of Texas dated November 17,
2010


·                  Authorization of use of name
executed by Clayton Williams (authorizing the use of the name Clajon Industrial
Gas, Inc.) , as certified by a certificate of the Secretary of State of
Texas dated November 17, 2010


·                  By-Laws of Clayton Williams
Company


 


10.           Desta Drilling GP, LLC:


 


·                  Certificate of Formation of
Larclay GP, LLC dated April 19, 2006, as certified by a certificate of the
Secretary of State of Texas dated November 17, 2010


·                  Certificate of Amendment of
Larclay GP, LLC dated June 22, 2009 (renaming the company Desta Drilling
GP, LLC) , as certified by a certificate of the Secretary of State of Texas
dated November 16, 2010


·                  Limited Liability Company
Agreement of Larclay GP, LLC dated April 21, 2006, as certain provisions
thereof have been waived pursuant to the Action By Written Consent of the
Requisite Groups of the Transaction Parties adopted November 29, 2010, and
the Consent and Agreement of Transaction Parties dated as of November 29,
2010


 


11.           Desta Drilling, L.P.:


 


·                  Certificate of Formation of
Larclay, L.P. dated April 19, 2006, as certified by a certificate of the
Secretary of State of Texas dated November 17, 2010


·                  Certificate of Amendment of
Larclay, L.P. dated June 24, 2009 (renaming the company Desta Drilling,
L.P.) , as certified by a certificate of the Secretary of State of Texas dated November 16,
2010


 


2

















 


·                  First Amended and Restated
Agreement of Limited Partnership of Desta Drilling, L.P. dated June 22,
2009, as certain provisions thereof have been waived pursuant to the Action By
Written Consent of the Requisite Groups of the Transaction Parties adopted November 29,
2010, and the Consent and Agreement of Transaction Parties dated as of November 29,
2010


 


12.           Warrior Gas Co.:


 


·                  Articles of Incorporation of
Warrior Gas Co. dated October 12, 1992, as certified by a certificate of
the Secretary of State of Texas dated November 16, 2010


·                  Bylaws of Warrior Gas Co.
dated November 12, 1992 as amended


 


13.           West Coast Energy Properties
GP, LLC:


 


·                  Certificate of Formation of
West Coast Energy Properties GP, LLC. dated July 24, 2006, as certified by
a certificate of the Secretary of State of Texas dated November 16, 2010


·                  Limited Liability Company of
West Coast Energy Properties GP, LLC dated July 24, 2006, as certain
provisions thereof have been waived pursuant to the Action By Written Consent
of the Requisite Groups of the Transaction Parties adopted November 29,
2010, and the Consent and Agreement of Transaction Parties dated as of November 29,
2010


 


Part B
— Delaware Good Standing Certificates


 


1.                                       A certificate
dated November 16, 2010 issued by the Secretary of State of the State of
Delaware as to the existence and good standing of Clayton Williams Energy, Inc.


 


2.                                       A certificate
dated November 16, 2010 issued by the Secretary of State of the State of
Delaware as to the existence and good standing of CWEI Acquisitions, Inc.


 


3.                                       A certificate
dated November 16, 2010 issued by the Secretary of State of the State of
Delaware as to the existence and good standing of Clayton Williams Pipeline
Corporation


 


4.                                       A certificate
dated November 16, 2010 issued by the Secretary of State of the State of
Delaware as to the existence and good standing of Romere Pass Acquisition
L.L.C.


 


5.                                       A certificate
dated November 16, 2010 issued by the Secretary of State of the State of
Delaware as to the existence and good standing of CWEI Romere Pass Acquisition
Corp.


 


6.                                       A certificate
dated November 16, 2010 issued by the Secretary of State of the State of
Delaware as to the existence and good standing of Southwest Royalties, Inc.


 


7.                                       A certificate
dated November 16, 2010 issued by the Secretary of State of the State of
Delaware as to the existence and good standing of Blue Heel Company


 


3

















 


8.                                       A certificate
dated November 16, 2010 issued by the Secretary of State of the State of
Delaware as to the existence and good standing of Tex-Hal Partners, Inc.


 


Part C
— Texas Good Standing Certificates


 


1.                                       A certificate
dated November 17, 2010 issued by the Secretary of State of the State of
Texas as to the existence and good standing of Warrior Gas Co.


 


2.                                       A certificate
dated November 17, 2010 issued by the Secretary of State of the State of
Texas as to the existence and good standing of Clajon Industrial Gas, Inc.


 


3.                                       A certificate
dated November 17, 2010 issued by the Secretary of State of the State of
Texas as to the existence and good standing of West Coast Energy Properties GP,
LLC


 


4.                                       A certificate
dated November 17, 2010 issued by the Secretary of State of the State of
Texas as to the existence and good standing of Desta Drilling, L.P..


 


5.                                       A certificate
dated November 17, 2010 issued by the Secretary of State of the State of
Texas as to the existence and good standing of Desta Drilling GP, LLC


 


4

















 


SCHEDULE 4


TO OPINION LETTER


 


Financing Statements


 


The
following financing statements on form UCC-1, naming the Person listed below as
debtor and the Administrative Agent as secured party for the benefit of the
Lenders, to be filed in the office listed opposite the name of such debtor:


 


	
  Name of Debtor

  	
   

  	
  Applicable Filing Office

  
	
  Blue
  Heel Company

  	
   

  	
  Delaware Filing Office

  
	
  Clayton
  Williams Energy, Inc.

  	
   

  	
  Delaware Filing Office

  
	
  Clayton
  Williams Pipeline Corporation

  	
   

  	
  Delaware Filing Office

  
	
  CWEI
  Acquisitions, Inc.

  	
   

  	
  Delaware Filing Office

  
	
  CWEI
  Romere Pass Acquisition Corp.

  	
   

  	
  Delaware Filing Office

  
	
  Romere
  Pass Acquisition L.L.C.

  	
   

  	
  Delaware Filing Office

  
	
  Southwest
  Royalties, Inc.

  	
   

  	
  Delaware Filing Office

  
	
  Tex-Hal
  Partners, Inc.

  	
   

  	
  Delaware Filing Office

  
	
  Clajon
  Industrial Gas, Inc.

  	
   

  	
  Texas Filing Office

  
	
  Desta
  Drilling GP, LLC

  	
   

  	
  Texas Filing Office

  
	
  Desta
  Drilling, L.P.

  	
   

  	
  Texas Filing Office

  
	
  Warrior
  Gas Co.

  	
   

  	
  Texas Filing Office

  
	
  West
  Coast Energy Properties GP, LLC

  	
   

  	
  Texas Filing Office

  



 


1






 












 


EXHIBIT C


 


COUNTERPART AGREEMENT


 


This
COUNTERPART AGREEMENT, dated [                          ]
(this “Counterpart Agreement”) is delivered pursuant to that certain
Second Amended and Restated Credit Agreement, dated as of November 29,
2010 (as it may be amended, supplemented or otherwise modified, the “Credit
Agreement”; the terms defined therein and not otherwise defined herein
being used herein as therein defined), by and among Clayton Williams Energy, Inc.,
as Borrower, certain Subsidiaries of Borrower, as Guarantors, the Lenders party
thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent (the “Administrative
Agent”).


 


Section 1.  Pursuant to Section 6.13 of the Credit
Agreement, the undersigned hereby:


 


(a)           agrees that this Counterpart
Agreement may be attached to the Credit Agreement and that by the execution and
delivery hereof, the undersigned becomes a Guarantor under the Credit Agreement
and agrees to be bound by all of the terms thereof;


 


(b)          represents and warrants that
each of the representations and warranties set forth in the Credit Agreement
and each other Loan Document and applicable to the undersigned is true and
correct both before and after giving effect to this Counterpart Agreement,
except to the extent that any such representation and warranty relates solely
to any earlier date, in which case such representation and warranty is true and
correct as of such earlier date (if applicable to the undersigned);


 


(c)           certifies that no Default
has occurred or is continuing as of the date hereof, or will result from the
transactions contemplated hereby on the date hereof;


 


(d)          agrees to irrevocably and
unconditionally guaranty the due and punctual payment in full of all
Obligations when the same shall become due, whether at stated maturity, by
required prepayment, declaration, acceleration, demand or otherwise (including
amounts that would become due but for the operation of the automatic stay under
Section 362(a) of the Bankruptcy Code, 11 U.S.C. § 362(a))
and in accordance with Article VIII of the Credit Agreement; and


 


(e)           (i) agrees that this
counterpart may also be attached to the Security Agreement, (ii) agrees
that the undersigned will comply with all the terms and conditions of the
Security Agreement as if it were an original signatory thereto, (iii) grants
to the Administrative Agent a security interest in all of the undersigned’s
right, title and interest in and to all “Collateral” (as such term is defined
in the Security Agreement) of the undersigned, in each case whether now or hereafter
existing or in which the undersigned now has or hereafter acquires an interest
and wherever the same may be located and (iv) delivers to the
Administrative Agent supplements to all schedules attached to the Security
Agreement.  All such Collateral shall be
deemed to be part of the “Collateral” and hereafter subject to each of the
terms and conditions of the Security Agreement.


 


1

















 


Section 2.  The undersigned agrees from time to time,
upon request of the Administrative Agent, to take such additional actions and
to execute and deliver such additional documents and instruments as the
Administrative Agent may reasonably request to effect the transactions
contemplated by, and to carry out the intent of, this Counterpart
Agreement.  Neither this Counterpart
Agreement nor any term hereof may be changed, waived, discharged or terminated,
except by an instrument in writing signed by the party (including, if
applicable, any party required to evidence its consent to or acceptance of this
Counterpart Agreement) against whom enforcement of such change, waiver,
discharge or termination is sought.  Any
notice or other communication herein required or permitted to be given shall be
given pursuant to Section 11.01 of the Credit Agreement, and for all
purposes thereof, the notice address of the undersigned shall be the address as
set forth on the signature page hereof. 
In case any provision in or obligation under this Agreement shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.


 


THIS
AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
CONFLICT OF LAWS PRINCIPLES THEREOF.


 


2

















 


IN WITNESS WHEREOF, the undersigned has caused
this Counterpart Agreement to be duly executed and delivered by its duly
authorized officer as of the date above first written.


 


	
   

  	
  [NAME OF SUBSIDIARY]

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  



 


Address
for Notices:


 


 


Attention:


Telecopier


 


with
a copy to:


 


 


Attention:


Telecopier


 


ACKNOWLEDGED
AND ACCEPTED,


as
of the date above first written:


 


JPMORGAN CHASE BANK, N.A.,


as
Administrative Agent


 


	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  



 


3

















 


EXHIBIT D


 


FORM OF INTEREST ELECTION REQUEST


 


Reference
is made to the Second Amended and Restated Credit Agreement, dated as of  November 29, 2010 (as it may be amended,
supplemented or otherwise modified, the “Credit Agreement”; the terms
defined therein and not otherwise defined herein being used herein as therein
defined), by and among Clayton Williams Energy, Inc., as Borrower, certain
Subsidiaries of Borrower, as Guarantors, the Lenders party thereto, and
JPMorgan Chase Bank, N.A., as Administrative Agent.


 


Pursuant
to Section 2.08 of the Credit Agreement, the Borrower desires to convert
or to continue the following Loans, each such conversion and/or continuation to
be effective as of [mm/dd/yy]:


 


	
  $[      ,      ,      ]

  	
   

  	
  Eurodollar Loans to be continued with Interest Period of          month(s)

  
	
   

  	
   

  	
   

  
	
  $[      ,      ,      ]

  	
   

  	
  ABR
  Loans to be converted to Eurodollar Loans with Interest Period of
           month(s)

  
	
   

  	
   

  	
   

  
	
  $[      ,      ,      ]

  	
   

  	
  Eurodollar
  Loans to be converted to ABR Loans

  



 


The
Borrower hereby certifies that as of the date hereof, no Default has occurred
and is continuing or would result from the consummation of the conversion
and/or continuation contemplated hereby.


 


	
  Date:
  [mm/dd/yy]

  	
  CLAYTON
  WILLIAMS ENERGY, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  



 


1

















 


EXHIBIT E


 


NOTE


 


	
  New
  York, New York

  	
   

  	
        ,       

  



 


FOR VALUE RECEIVED, the undersigned CLAYTON WILLIAMS ENERGY, INC.,
a Delaware corporation (“Borrower”) hereby unconditionally promises to
pay to
                                          
(the “Lender”) the principal sum equal to its Commitment as set forth in
the Credit Agreement (as hereinafter defined), or, if greater or less, the
aggregate unpaid principal amount of the Loans advanced by Lender to Borrower
pursuant to the terms of the Credit Agreement, together with interest on the
unpaid principal balance thereof as set forth in the Credit Agreement, both
principal and interest payable as therein provided in lawful money of the
United States of America at the offices of Administrative Agent provided in Section 11.01
of the Credit Agreement, or at such other place, as from time to time may be
designated by Administrative Agent in accordance with the Credit Agreement.


 


The principal and all accrued interest on this Note shall be due and payable
in accordance with the terms and provisions of the Credit Agreement.


 


This Note is executed pursuant to that certain Second Amended and
Restated Credit Agreement dated as of November 29,  2010, between Borrower, certain
Subsidiaries of the Borrower, as Guarantors, the Administrative Agent and
Lenders (as amended, modified, supplemented or restated from time to time, the “Credit
Agreement”; the terms defined therein and not otherwise defined herein
being used herein as therein defined), is one of the promissory notes referred
to in Section 2.09(e) therein and is secured by the Security
Instruments.  Reference is made to the
Credit Agreement and the Loan Documents for a statement of prepayment rights
and obligations of Borrower, for a statement of the terms and conditions under
which the due date of this Note may be accelerated and for statements regarding
other matters affecting this Note (including without limitation the obligations
of the holder hereof to advance funds hereunder, principal and interest payment
due dates, voluntary and mandatory prepayments, exercise of rights and
remedies, payment of attorneys’ fees, court costs and other costs of collection
and certain waivers by Borrower and others now or hereafter obligated for
payment of any sums due hereunder).  Upon
the occurrence of an Event of Default, the Administrative Agent may declare
forthwith to be entirely and immediately due and payable the principal balance
hereof and the interest accrued hereon, and the Lender shall have all rights
and remedies of the Lender under the Credit Agreement and the other Loan
Documents.  This Note may be prepaid in
accordance with the terms and provisions of the Credit Agreement.


 


Regardless of any provision contained in this Note, the holder hereof
shall never be entitled to receive, collect or apply, as interest on this Note,
any amount in excess of the Maximum Rate, and, if the holder hereof ever
receives, collects, or applies as interest, any such amount which would be
excessive interest, it shall be deemed a partial prepayment of principal and
treated hereunder as such; and, if the indebtedness evidenced hereby is paid in
full, any remaining excess shall forthwith be paid to Borrower.  In determining whether or not the interest
paid or payable, under any specific contingency, exceeds the Maximum Rate,
Borrower and the holder hereof shall, to the maximum extent permitted under
applicable law (i) characterize any


 


1

















 


non-principal payment as an expense, fee or premium rather than as
interest, (ii) exclude voluntary prepayments and the effects thereof, and
(iii) spread the total amount of interest throughout the entire
contemplated term of the obligations evidenced by this Note and/or referred to
in the Credit Agreement so that the interest rate is uniform throughout the
entire term of this Note; provided that, if this Note is paid and
performed in full prior to the end of the full contemplated term thereof; and
if the interest received for the actual period of existence thereof exceeds the
Maximum Rate, the holder hereof shall refund to Borrower the amount of such
excess or credit the amount of such excess against the indebtedness evidenced
hereby, and, in such event, the holder hereof shall not be subject to any
penalties provided by any laws for contracting for, charging, taking, reserving
or receiving interest in excess of the Maximum Rate.


 


If any payment of principal or interest on this Note shall become due
on a day other than a Business Day, such payment shall be made on the next
succeeding Business Day and such extension of time shall in such case be
included in computing interest in connection with such payment.


 


If this Note is placed in the hands of an attorney for collection, or
if it is collected through any legal proceeding at law or in equity or in
bankruptcy, receivership or other court proceedings, Borrower agrees to pay all
costs of collection, including, but not limited to, court costs and reasonable
attorneys’ fees.


 


Borrower and each surety, endorser, guarantor and other party ever
liable for payment of any sums of money payable on this Note, jointly and
severally waive presentment and demand for payment, notice of intention to
accelerate the maturity, protest, notice of protest and nonpayment, as to this
Note and as to each and all installments hereof, and agree that their liability
under this Note shall not be affected by any renewal or extension in the time
of payment hereof, or in any indulgences, or by any release or change in any
security for the payment of this Note, and hereby consent to any and all such
renewals, extensions, indulgences, releases or changes.


 


This Note shall be governed by and construed in accordance with the
applicable laws of the United States of America and the laws of the State of
New York.


 


THIS NOTE, THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT
THE FINAL AGREEMENTS AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES.  THERE ARE NO UNWRITTEN ORAL
AGREEMENTS AMONG THE PARTIES.


 


2

















 


EXECUTED as of the date and year first above written.


 


 


	
   

  	
  BORROWER:

  
	
   

  	
   

  
	
   

  	
  CLAYTON WILLIAMS ENERGY, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  



 


3

















 


EXHIBIT F


 


FORM OF LENDER CERTIFICATE


 


                ,
200


 


To:                              JPMORGAN CHASE BANK, N.A.,

as Administrative Agent


 


The
Borrower, the Guarantors, the Administrative Agent and the Lenders have entered
into that certain Second Amended and Restated Credit Agreement dated as of November 29,
2010 (as the same has been and may further be amended, restated, supplemented
or otherwise modified from time to time, the “Credit Agreement”).  Unless otherwise defined herein, capitalized terms
used herein have the meaning specified in the Credit Agreement.


 


[Language
for Existing Lender]


 


[               Please be advised that the
undersigned has agreed (a) to increase its Maximum Credit Amount under the
Credit Agreement effective
                    ,
20     (the “Effective Date”) from
$                                
to $                        
and (b) that, from and after the Effective Date, it shall continue to be a
Lender in all respects under the Credit Agreement and the other Loan
Documents.]


 


[Language
for New Lender]


 


[               Please be advised that the
undersigned has agreed (a) to become a Lender under the Credit Agreement
effective
                    ,
20     (the “Effective Date”) with a Maximum Credit
Amount of
$                        
and (b) that, from and after the Effective Date, it shall be deemed to be
a Lender in all respects under the Credit Agreement and the other Loan
Documents and shall be bound thereby.]


 


	
   

  	
  Very
  truly yours,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  



 


1

















 


	
  Accepted
  and Agreed:

  	
   

  
	
   

  	
   

  
	
  JPMORGAN
  CHASE BANK, N.A.,

  	
   

  
	
  as
  Administrative Agent

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  
	
   

  	
   

  
	
  Accepted
  and Agreed:

  	
   

  
	
   

  	
   

  
	
  CLAYTON
  WILLIAMS ENERGY, INC.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  
	
  Title:

  	
   

  
				



 


2
















 


SCHEDULE
1.01


 


EXISTING LETTERS OF CREDIT


 


	
  Letter of Credit #

  	
   

  	
  Applicant

  	
   

  	
  Beneficiary

  	
   

  	
  Amount

  	
   

  	
  Type

  	
   

  	
  Letter of Credit

  Expiration Date

  	
   

  
	
  CPCS-634643

  	
   

  	
  Warrior Gas Co.

  	
   

  	
  Railroad Commission of Texas

  	
   

  	
  $

  	
  25,000

  	
   

  	
  Standard

  	
   

  	
  October 31, 2011

  	
   

  
													



 

















 


SCHEDULE
1.02


 


RELATED PARTNERSHIPS


 


	
  Partnership

  	
   

  	
   

  	
   

  	
  Organizational

  	
   

  	
  General

  	
   

  	
  Ownership

  	
   

  	
   

  	
   

  
	
  Number

  	
   

  	
  Legal Name

  	
   

  	
  Jurisdiction

  	
   

  	
  Partner(s)

  	
   

  	
  GP %

  	
   

  	
  LP %

  	
   

  	
  Total %

  	
   

  	
  Investment

  	
   

  
	
  207

  	
   

  	
  Southwest
  Royalties Inc. Income Fund V

  	
   

  	
  Tennessee

  	
   

  	
  SWR

  	
   

  	
  10.00

  	
  %

  	
  49.91

  	
  %

  	
  59.91

  	
  %

  	
  $

  	
  919,844

  	
   

  
	
  208

  	
   

  	
  Southwest
  Royalties Inc. Income Fund VI

  	
   

  	
  Tennessee

  	
   

  	
  SWR

  	
   

  	
  10.00

  	
  %

  	
  49.02

  	
  %

  	
  59.02

  	
  %

  	
  4,087,849

  	
   

  
	
  209

  	
   

  	
  Southwest
  Oil & Gas Income Fund VII-A, L.P.

  	
   

  	
  Delaware

  	
   

  	
  SWR

  	
   

  	
  10.00

  	
  %

  	
  41.77

  	
  %

  	
  51.77

  	
  %

  	
  1,098,824

  	
   

  
	
  210

  	
   

  	
  Southwest
  Royalties Institutional Income Fund VII-B, L.P.

  	
   

  	
  Delaware

  	
   

  	
  SWR

  	
   

  	
  10.00

  	
  %

  	
  39.06

  	
  %

  	
  49.06

  	
  %

  	
  1,322,044

  	
   

  
	
  211

  	
   

  	
  Southwest
  Royalties, Inc. Income/Drilling Program 1987-I, L.P.

  	
   

  	
  Delaware

  	
   

  	
  SWR & Blue Heel

  	
   

  	
  15.00

  	
  %

  	
  7.89

  	
  %

  	
  22.89

  	
  %

  	
  24,479

  	
   

  
	
  212

  	
   

  	
  Southwest
  Oil & Gas Income Fund VIII-A, L.P.

  	
   

  	
  Delaware

  	
   

  	
  SWR

  	
   

  	
  10.00

  	
  %

  	
  36.76

  	
  %

  	
  46.76

  	
  %

  	
  1,370,559

  	
   

  
	
  213

  	
   

  	
  Southwest
  Royalties Institutional Income Fund VIII-B, L.P.

  	
   

  	
  Delaware

  	
   

  	
  SWR

  	
   

  	
  10.00

  	
  %

  	
  38.51

  	
  %

  	
  48.51

  	
  %

  	
  1,523,527

  	
   

  
	
  214

  	
   

  	
  Southwest
  Combination Income/Drilling Program 1988, L.P.

  	
   

  	
  Delaware

  	
   

  	
  SWR & Blue Heel

  	
   

  	
  15.00

  	
  %

  	
  12.60

  	
  %

  	
  27.60

  	
  %

  	
  66,736

  	
   

  
	
  216

  	
   

  	
  Southwest
  Oil & Gas Income Fund IX-A, L.P.

  	
   

  	
  Delaware

  	
   

  	
  SWR & Blue Heel

  	
   

  	
  10.00

  	
  %

  	
  9.69

  	
  %

  	
  19.69

  	
  %

  	
  136,538

  	
   

  
	
  217

  	
   

  	
  Southwest
  Royalties Institutional Income Fund IX-B, L.P.

  	
   

  	
  Delaware

  	
   

  	
  SWR & Blue Heel

  	
   

  	
  10.00

  	
  %

  	
  13.25

  	
  %

  	
  23.25

  	
  %

  	
  172,822

  	
   

  
	
  218

  	
   

  	
  Southwest
  Oil & Gas Income Fund X-A, L.P.

  	
   

  	
  Delaware

  	
   

  	
  SWR & Blue Heel

  	
   

  	
  10.00

  	
  %

  	
  7.15

  	
  %

  	
  17.15

  	
  %

  	
  31,124

  	
   

  
	
  219

  	
   

  	
  Southwest
  Royalties Institutional Income Fund X-A, L.P.

  	
   

  	
  Delaware

  	
   

  	
  SWR & Blue Heel

  	
   

  	
  10.00

  	
  %

  	
  14.26

  	
  %

  	
  24.26

  	
  %

  	
  111,028

  	
   

  
	
  220

  	
   

  	
  Southwest
  Oil & Gas Income Fund X-B, L.P.

  	
   

  	
  Delaware

  	
   

  	
  SWR & Blue Heel

  	
   

  	
  10.00

  	
  %

  	
  7.31

  	
  %

  	
  17.31

  	
  %

  	
  76,196

  	
   

  
	
  221

  	
   

  	
  Southwest
  Royalties Institutional Income Fund X-B, L.P.

  	
   

  	
  Delaware

  	
   

  	
  SWR & Blue Heel

  	
   

  	
  10.00

  	
  %

  	
  16.35

  	
  %

  	
  26.35

  	
  %

  	
  274,032

  	
   

  
	
  222

  	
   

  	
  Southwest
  Oil & Gas Income Fund X-C, L.P.

  	
   

  	
  Delaware

  	
   

  	
  SWR & Blue Heel

  	
   

  	
  10.00

  	
  %

  	
  7.86

  	
  %

  	
  17.86

  	
  %

  	
  80,088

  	
   

  
	
  223

  	
   

  	
  Southwest
  Royalties Institutional Income Fund X-C, L.P.

  	
   

  	
  Delaware

  	
   

  	
  SWR & Blue Heel

  	
   

  	
  10.00

  	
  %

  	
  10.94

  	
  %

  	
  20.94

  	
  %

  	
  91,696

  	
   

  
																	



 






 


 













 


	
  Partnership

  	
   

  	
   

  	
   

  	
  Organizational

  	
   

  	
  General

  	
   

  	
  Ownership

  	
   

  	
   

  	
   

  
	
  Number

  	
   

  	
  Legal Name

  	
   

  	
  Jurisdiction

  	
   

  	
  Partner(s)

  	
   

  	
  GP %

  	
   

  	
  LP %

  	
   

  	
  Total %

  	
   

  	
  Investment

  	
   

  
	
  224

  	
   

  	
  Southwest
  Oil & Gas Income Fund XI-A, L.P.

  	
   

  	
  Delaware

  	
   

  	
  SWR & Blue Heel

  	
   

  	
  10.00

  	
  %

  	
  17.50

  	
  %

  	
  27.50

  	
  %

  	
  178,231

  	
   

  
	
  225

  	
   

  	
  Southwest
  Royalties Institutional Income Fund XI-A, L.P.

  	
   

  	
  Delaware

  	
   

  	
  SWR & Blue Heel

  	
   

  	
  10.00

  	
  %

  	
  20.19

  	
  %

  	
  30.19

  	
  %

  	
  192,732

  	
   

  
	
  226

  	
   

  	
  Southwest
  Developmental Drilling Fund 1990, L.P.

  	
   

  	
  Delaware

  	
   

  	
  SWR

  	
   

  	
  15.00

  	
  %

  	
  4.16

  	
  %

  	
  19.16

  	
  %

  	
  210,645

  	
   

  
	
  227

  	
   

  	
  Southwest
  Developmental Drilling Fund 91-A, L.P.

  	
   

  	
  Delaware

  	
   

  	
  SWR

  	
   

  	
  15.00

  	
  %

  	
  7.06

  	
  %

  	
  22.06

  	
  %

  	
  26,772

  	
   

  
	
  228

  	
   

  	
  Southwest
  Developmental Drilling Fund 92-A, L.P.

  	
   

  	
  Delaware

  	
   

  	
  SWR

  	
   

  	
  15.00

  	
  %

  	
  2.30

  	
  %

  	
  17.30

  	
  %

  	
  27,511

  	
   

  
	
  230

  	
   

  	
  Southwest
  Developmental Drilling Fund 1993, L.P.

  	
   

  	
  Delaware

  	
   

  	
  SWR

  	
   

  	
  15.00

  	
  %

  	
  8.43

  	
  %

  	
  23.43

  	
  %

  	
  164,574

  	
   

  
	
  231

  	
   

  	
  Southwest
  Royalties Institutional Income Fund XI-B, L.P.

  	
   

  	
  Delaware

  	
   

  	
  SWR & Blue Heel

  	
   

  	
  10.00

  	
  %

  	
  6.84

  	
  %

  	
  16.84

  	
  %

  	
  41,719

  	
   

  
	
  232

  	
   

  	
  Southwest
  Developmental Drilling Fund 1994, L.P.

  	
   

  	
  Delaware

  	
   

  	
  SWR

  	
   

  	
  11.00

  	
  %

  	
  8.48

  	
  %

  	
  19.48

  	
  %

  	
  86,648

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  12,316,218.00

  	
   

  
																	



 


In all cases where SWR & Blue Heel are joint General Partners,
Blue Heel owns a 1% General Partner interest in the partnership and SWR owns
the remaining percentage listed under the “GP%” column.


 






 












 


SCHEDULE
2.01


 


APPLICABLE PERCENTAGES AND
COMMITMENTS


 


	
  Lender

  	
   

  	
  Title

  	
   

  	
  Applicable

  Percentage

  	
   

  	
  Initial Commitment

  	
   

  	
  Maximum Credit

  Amount

  	
   

  
	
  JPMorgan
  Chase Bank, N.A.

  	
   

  	
  Administrative Agent

  	
   

  	
  12.8571429

  	
  %

  	
  $

  	
  45,000,000.00

  	
   

  	
  $

  	
  64,285,715.00

  	
   

  
	
  Bank
  of Scotland

  	
   

  	
  Syndication Agent

  	
   

  	
  11.4285715

  	
  %

  	
  $

  	
  40,000,000.00

  	
   

  	
  $

  	
  57,142,857.00

  	
   

  
	
  Union
  Bank, N.A.

  	
   

  	
  Co-Documentation Agent

  	
   

  	
  11.4285715

  	
  %

  	
  $

  	
  40,000,000.00

  	
   

  	
  $

  	
  57,142,857.00

  	
   

  
	
  BNP
  Paribas

  	
   

  	
  Co-Documentation Agent

  	
   

  	
  11.4285715

  	
  %

  	
  $

  	
  40,000,000.00

  	
   

  	
  $

  	
  57,142,857.00

  	
   

  
	
  Natixis

  	
   

  	
   

  	
   

  	
  7.1428571

  	
  %

  	
  $

  	
  25,000,000.00

  	
   

  	
  $

  	
  35,714,286.00

  	
   

  
	
  Compass
  Bank

  	
   

  	
   

  	
   

  	
  7.1428571

  	
  %

  	
  $

  	
  25,000,000.00

  	
   

  	
  $

  	
  35,714,286.00

  	
   

  
	
  The
  Frost National Bank

  	
   

  	
   

  	
   

  	
  7.1428571

  	
  %

  	
  $

  	
  25,000,000.00

  	
   

  	
  $

  	
  35,714,286.00

  	
   

  
	
  Bank
  of Texas, N.A.

  	
   

  	
   

  	
   

  	
  7.1428571

  	
  %

  	
  $

  	
  25,000,000.00

  	
   

  	
  $

  	
  35,714,286.00

  	
   

  
	
  KeyBank
  National Association

  	
   

  	
   

  	
   

  	
  7.1428571

  	
  %

  	
  $

  	
  25,000,000.00

  	
   

  	
  $

  	
  35,714,286.00

  	
   

  
	
  UBS
  Loan Finance LLC

  	
   

  	
   

  	
   

  	
  5.7142857

  	
  %

  	
  $

  	
  20,000,000.00

  	
   

  	
  $

  	
  28,571,428.00

  	
   

  
	
  The
  Royal Bank of Scotland plc

  	
   

  	
   

  	
   

  	
  5.7142857

  	
  %

  	
  $

  	
  20,000,000.00

  	
   

  	
  $

  	
  28,571,428.00

  	
   

  
	
  Societe
  Generale

  	
   

  	
   

  	
   

  	
  5.7142857

  	
  %

  	
  $

  	
  20,000,000.00

  	
   

  	
  $

  	
  28,571,428.00

  	
   

  
	
  TOTAL

  	
   

  	
   

  	
   

  	
  100.0000000

  	
  %

  	
  $

  	
  350,000,000.00

  	
   

  	
  $

  	
  500,000,000.00

  	
   

  



 

















 


SCHEDULE 4.06


 


DISCLOSED MATTERS


 


None.


 

















 


SCHEDULE 4.13


 


CAPITALIZATION


 


	
  Legal Name

  	
   

  	
  Jurisdiction

  of

  Organization

  	
   

  	
  Shares

  Outstanding

  	
   

  	
  Owner

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Material Restricted Subsidiaries (Guarantors):

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Warrior
  Gas Co.

  	
   

  	
  Texas

  	
   

  	
  2000

  	
   

  	
  Clayton
  Williams Energy, Inc.

  
	
  Clajon
  Industrial Gas, Inc.

  	
   

  	
  Texas

  	
   

  	
  1000

  	
   

  	
  Warrior
  Gas Co.

  
	
  CWEI
  Acquisitions, Inc.

  	
   

  	
  Delaware

  	
   

  	
  1000

  	
   

  	
  Clayton
  Williams Energy, Inc.

  
	
  Clayton
  Williams Pipeline Corporation

  	
   

  	
  Delaware

  	
   

  	
  1000

  	
   

  	
  Clayton
  Williams Energy, Inc.

  
	
  Romere
  Pass Acquisition L.L.C.

  	
   

  	
  Delaware

  	
   

  	
  N/A

  	
   

  	
  CWEI
  Romere Pass Acquisition Corp.

  
	
  CWEI
  Romere Pass Acquisition Corp.

  	
   

  	
  Delaware

  	
   

  	
  1000

  	
   

  	
  Clayton
  Williams Energy, Inc.

  
	
  West
  Coast Energy Properties GP, LLC

  	
   

  	
  Texas

  	
   

  	
  N/A

  	
   

  	
  Clayton
  Williams Energy, Inc.

  
	
  Southwest
  Royalties, Inc.

  	
   

  	
  Delaware

  	
   

  	
  1000

  	
   

  	
  Clayton
  Williams Energy, Inc.

  
	
  Blue
  Heel Company

  	
   

  	
  Delaware

  	
   

  	
  1000

  	
   

  	
  Southwest
  Royalties, Inc.

  
	
  Tex-Hal
  Partners, Inc.

  	
   

  	
  Delaware

  	
   

  	
  1000

  	
   

  	
  Southwest
  Royalties, Inc.

  
	
  Desta
  Drilling GP, LLC

  	
   

  	
  Texas

  	
   

  	
  N/A

  	
   

  	
  Clayton
  Williams Energy, Inc.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Desta
  Drilling, L.P.

  	
   

  	
  Texas

  	
   

  	
  N/A

  	
   

  	
  Desta
  Drilling GP, LLC – 1%

  Clayton Williams Energy, Inc. - 99%

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Non-Material Restricted
  Subsidiaries (Non-Guarantors):

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Clayton
  Williams Trading Co.

  	
   

  	
  Texas

  	
   

  	
  1000

  	
   

  	
  Clayton
  Williams Energy, Inc.

  
	
  Warrior
  Mississippi Corp.

  	
   

  	
  Delaware

  	
   

  	
  1000

  	
   

  	
  Clayton
  Williams Energy, Inc.

  
	
  CWEI
  Aviation, Inc.

  	
   

  	
  Texas

  	
   

  	
  1000

  	
   

  	
  Clayton
  Williams Energy, Inc.

  



 

















 


SCHEDULE 7.01


 


EXISTING INDEBTEDNESS


 




	
   

  	
   

  	
  Approximate

  	
   

  
	
  Description

  	
   

  	
  Amount

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Capital Lease Obligations (a)

  	
   

  	
  $

  	
  1,000,000

  	
   

  
					






 






(a) 
Consists of leases on vehicles used in the ordinary course of business.


 

















 


SCHEDULE 7.02


 


EXISTING LIENS


 


Liens securing capital lease obligations described on Schedule 7.01.


 

















 


SCHEDULE 7.06


 


EXISTING INVESTMENTS


 




	
  Description

  	
   

  	
  Investment

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  General and limited partnerships interests in
  Related Partnerships

  	
   

  	
  $

  	
  12,316,218

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Limited partnership interest (31.9%) in ClayDesta
  Buildings, LP

  	
   

  	
  $

  	
  1,635,100

  	
   

  






 

















 


SCHEDULE 7.09


 


TRANSACTIONS WITH AFFILIATES


 


None.


 

















 


SCHEDULE 7.10


 


EXISTING RESTRICTIONS


 


None.