Document:

Collateral Trust and Intercreditor Agreement

 EXHIBIT 10.1(a) 
  
 EXECUTION COPY 
  
 COLLATERAL TRUST AND INTERCREDITOR AGREEMENT 

 
 AMONG 
  
 SOUTHWEST ROYALTIES, INC.   
 AND ITS SUBSIDIARIES,  
 AS DEBTORS, 
  
 UNION BANK OF CALIFORNIA, N.A.  
 AS AGENT FOR THE SENIOR LENDERS 
 UNDER THE CREDIT AGREEMENT, 

 
 The Senior Lenders  
 from Time to
Time Parties to the Credit Agreement, 
  
 WILMINGTON TRUST COMPANY,  
 AS INDENTURE TRUSTEE 
 UNDER THE INDENTURE, 
  

The Subordinated Noteholders, 
  
 AND

  
 UNION BANK OF CALIFORNIA, N.A.,  
 AS COLLATERAL TRUSTEE 
  
 Dated as of April 19, 2002 

  
 COLLATERAL TRUST AND INTERCREDITOR AGREEMENT 
  
 THIS COLLATERAL TRUST AND INTERCREDITOR AGREEMENT, dated as of April 19, 2002 (this “Agreement”), is made and
entered into by and among SOUTHWEST ROYALTIES, INC., a Delaware corporation (the “Company”), BLUE HEEL COMPANY, a Delaware Corporation (“Blue Heel”, together with the Company and all of the Company’s now
existing and future Subsidiaries, the “Debtors”), WILMINGTON TRUST COMPANY, as Trustee (the “Indenture Trustee”) for itself and the holders from time to time of those certain notes issued by the Company pursuant to
the Indenture (as defined below) (the “Subordinated Noteholders”), UNION BANK OF CALIFORNIA, N.A. as Agent (the “Senior Loan Agent”) for itself and the lenders signatory to the Credit Agreement from time to
time (as defined below) (the “Senior Lenders”), and UNION BANK OF CALIFORNIA, N.A., as Collateral Trustee hereunder (the “Collateral Trustee”). 
  
 W I T N E S S E T H: 
  
 WHEREAS, the
Debtors, the Senior Loan Agent and the Senior Lenders are parties to that certain Credit Agreement, dated as of even date herewith, pursuant to which the Senior Lenders have made various credit facilities available to the Company in an aggregate
maximum amount of up to $80,000,000; 
  
 WHEREAS, the Debtors and the Indenture Trustee are parties to that certain
Indenture, dated as of an even date herewith, pursuant to which the Company issued $60,000,000 of senior secured notes due 2004 to the Subordinated Noteholders; 
  
 WHEREAS, in order to secure repayment of the obligations of the Company to the Senior Lenders under the Credit Agreement and to the Subordinated Noteholders under the Indenture, the Debtors have
granted to the Collateral Trustee, as collateral trustee for the benefit of both the Senior Lenders and the Subordinated Noteholders, liens on and security interests in substantially all of the Debtors’ assets pursuant to various Security
Documents (as defined below); and 
  
 WHEREAS, the parties hereto now wish to set forth various agreements regarding,
among other things, their relative rights in and obligations with respect to the Collateral (as defined below). 
  
 NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and incorporating the foregoing recitals herein, the parties hereto agree as follows. 
  
 ARTICLE 1. 
  
 DEFINITIONS 
  
 1.1  Certain Defined Terms.    As used in
this Agreement, the following terms shall have the following meanings (such definitions to be equally applicable to the singular and plural forms thereof): 

  
 Bankruptcy Code:    shall mean Title
11 of the United States Code, as amended from time to time. 
  
 Class of Master
Debt:    shall mean any related class of Master Debt under any Master Debt Agreement. All loans and other obligations outstanding under any syndicated bank credit agreement shall constitute one Class of Master Debt.

  
 Collateral:    shall mean all property of any kind or description in
which the Collateral Trustee has, or purports to have, a Lien or other interest under any Security Document including, without limitation, the Collateral Account Collateral and all Proceeds of Collateral, but excluding any property set forth on
Schedule 2. 
  
 Collateral Account:    shall have the meaning
specified in Section 4.4(a). 
  
 Collateral Account Collateral:    shall
have the meaning specified in Section 4.4(a). 
  
 Collateral
Trustee:    shall mean Union Bank of California, N.A., in its capacity as Collateral Trustee and any successor appointed pursuant to Section 5.5 or Section 8.9 of this Agreement. 
  
 Company:    shall mean Southwest Royalties, Inc., a Delaware corporation, its successors and
assigns. 
  
 Credit Agreement:    shall mean that certain Credit Agreement
dated as of April 19, 2002, among the Company, the Senior Loan Agent and the Senior Lenders governing the creation, repayment and all other aspects of the Senior Debt. 
  
 Debtors:    shall have the meaning set forth in the introductory paragraph of this Agreement. 
  
 Distribution Date:    shall mean each date for the distribution of amounts on deposit in the
Collateral Account. 
  
 Event of Default:    shall mean any default or
event of default, however denominated, under any Master Debt Agreement which is continuing after the expiration of any and all grace or notice and cure periods provided for under the applicable Master Debt Agreement with respect to any such default
or event of default. 
  
 Indenture means that certain Indenture dated as of April 19, 2002, as
the same may from time to time be amended, between the Company and the Indenture Trustee and pursuant to which the Subordinated Notes were issued. 
  
 Indenture Trustee:    shall mean Wilmington Trust Company, in its capacity as trustee under the Indenture, and any successor
trustee under the Indenture. 
 

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 Initial Closing Date:    shall mean
the earliest date on which an initial extension of credit is provided for under the Credit Agreement or the Indenture becomes effective. 
  
 Lien:    shall mean any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), or preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any capital lease having substantially the same economic effect as any of the foregoing, and the filing of any
financing statement under the UCC or comparable law of any jurisdiction in respect of any of the foregoing). 
  
 Master Debt:    shall mean as of any date, the principal amount of indebtedness under the Master Debt Agreements, whether outstanding or available pursuant to the terms of such Master Debt Agreement
(whether or not conditions precedent thereto are then not met or about to be met), all accrued but unpaid interest thereon, all premium, if any, due in connection therewith, all fees due in connection therewith, all reimbursement obligations
thereunder, all cash collateralization obligations thereunder, all hedging obligations thereunder, and all other unpaid obligations and liabilities thereunder, excluding, however, any amounts owing under any Master Debt Agreement to which any
restriction contained in this Agreement on the increase of such indebtedness would apply. Amounts available under any Master Debt Agreement includes amounts available to be drawn on Letters of Credit permitted to be issued under the terms of the
relevant Master Debt Agreement if the conditions precedent thereof specified in such agreement are met (even if they are not then met or about to be met). 
  
 Master Debt Agreements:    shall mean the Credit Agreement and the Indenture. 
  
 Master Debt Outstanding:    shall mean, at any time, the outstanding amount of Master Debt and,
with respect to letters of credit, the outstanding face amount of such letters of credit outstanding. 
  
 Noteholders:    shall mean the Senior Lenders and the Subordinated Noteholders, and their respective assignees. 
  
 Note Interest shall have the meaning specified in Section 6.2 hereof. 
  
 Notice of Event of Default:    shall mean a written certification delivered in accordance with Section 4.2(b) hereof certifying
that an Event of Default has occurred and is continuing. 
  
 Permitted
Investment:    shall mean investments in (a) direct obligations of the United States, or any Person for which investments are guaranteed by the full faith and credit of the United States, maturing in twelve months or less
from the date of acquisition thereof, including repurchase agreements entered into with banks or trust companies described in 
 

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 clause (c) below having a term of less than one year and fully collateralized by
such obligations; (b) commercial paper and bankers’ acceptances maturing in twelve months or less from the date of issuance and which, at the time of acquisition, are rated A-2 or better by Standard & Poor’s Corporation and P-2 or
better by Moody’s Investors Services, Inc; (c) time deposits or certificates of deposit maturing within one year from the date such investment is made and issued by a bank or trust company or any branch of any Noteholder, which bank, trust
company or branch is organized under the laws of the United States or any state thereof, having capital, surplus, and undivided profits aggregating at least $250,000,000 and whose long-term certificates of deposit are, at the time of acquisition
thereof, rated A-2 by Standard & Poor’s Corporation or P-2 by Moody’s Investors Services, Inc.; and (d) investments in money market funds which invest solely in the types of investments described in paragraphs (a) through (c) above.

  
 Person:    shall mean a corporation, business trust, joint stock
company, trust, joint venture, association, partnership, limited liability company, organization, business, individual, government or political subdivision thereof, governmental agency, or other entity of whatever nature. 
  
 Potential Default:    shall mean any event which with notice or lapse of time, or both, would
become an Event of Default. 
  
 Proceeds:    shall mean all
“proceeds” as such term is defined in Section 9-102 of the UCC and all present and future proceeds of any Collateral, whether arising from the collection, sale, lease, exchange, assignment, licensing, or other disposition of the
Collateral, the proceeds of any casualty or condemnation of the Collateral (including proceeds of property insurance and condemnation awards), all claims of the Company or any of its Subsidiaries against third parties for impairment, loss, damage,
or impairment of the value of the Collateral, and all rights of the Company or any of its Subsidiaries under any insurance, indemnity, warranty, or guaranty of or for any of the foregoing, whether such proceeds are represented as money, deposit
accounts, accounts, general intangibles, securities, instruments, documents, chattel paper, inventory, equipment, fixtures, goods, or otherwise, and all proceeds of such proceeds. 
  
 Release Notice:    shall mean a written notice, signed by a Responsible Officer of the Company, which requests the release of
Liens held by the Collateral Trustee in the specific items of Collateral specified in such notice, and which certifies to the Collateral Trustee that such Collateral is properly permitted to be disposed of in a transaction contemplated and permitted
under each Master Debt Agreement. 
  
 Required Majority:    shall mean,
with respect to any determination in question, any Class or Classes of Master Debt which have the Required Percentage of each such Class of Master Debt agreeing upon such determination and which Class or Classes of Master Debt hold more than 50% of
the aggregate amount of Master Debt Outstanding. 
 

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 Required Percentage:    shall mean,
with respect to any Class of Master Debt and with respect to any determination in question, the percentage or number of the holder or holders of such Class of Master Debt required to make such determination under the terms of the Master Debt
Agreement under which such Class of Master Debt was issued (but if no such percentage or number is specified under the terms of such Master Debt Agreement, then the holder or holders of more than 50% of the Master Debt Outstanding with respect to
such Class of Master Debt). 
  
 Required Plurality:    shall mean, with
respect to any determination in question, (a) the Senior Debt provided that the Required Percentage of such Senior Debt agrees upon such determination or (b) the Subordinated Debt provided that the Required Percentage of such Subordinated Debt
agrees upon such determination. 
  
 Responsible Officer:    shall mean,
with respect to any Debtor, the chief executive officer, president, executive vice president, chief financial officer, treasurer, or secretary of the applicable Debtor. 
  
 Secured Obligations:    shall mean (a) all Master Debt and (b) all amounts payable by the Debtors to the Collateral Trustee under
the Security Documents. 
  
 Security Documents:    shall mean this
Agreement and all deeds of trust, mortgages, security agreements, pledge agreements, financing statements, pledges, documents, and other instruments listed on Schedule 1 attached hereto, and all future deeds of trust, mortgages, security
agreements, pledge agreements, financing statements, pledges, documents, and other instruments made by any Debtor in favor of the Collateral Trustee granting interests in and to the Trust Estate. 
  

Senior Debt:    shall mean the Master Debt payable pursuant to the Credit Agreement, 
  
 Senior Lenders:    shall have the meaning set forth in the introductory paragraph of this
Agreement. 
  
 Senior Loan Agent:    shall mean Union Bank of California,
N.A. in its capacity as Agent under the Credit Agreement, and any successor Agent under the Credit Agreement. 
  
 Stated Maturity Date:    shall mean the maturity of the Subordinated Debt as provided for in the Indenture. as in effect on the Initial Closing Date 
  

Subordinated Debt:    shall mean the Master Debt evidenced by the Subordinated Notes or otherwise payable under the
Indenture. 
  
 Subordinated Notes:    shall mean those certain notes
issued by the Company pursuant to the Indenture. 
 

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 Subordinated Noteholders:    shall
mean those Persons who, at the relevant time, are the holders of the Subordinated Notes. 
  
 Subordination Event shall mean the occurrence of an Event of Default under the Credit Agreement or the non-payment of any Note Interest (notwithstanding the existence of any cure period stated in the Indenture for such
non-payment), notification of which event has been delivered in accordance with Section 6.2 hereof. 
  
 Subsidiary:    shall mean, with respect to any specified Person, any other Person of which, at the time of determination, such specified Person, directly and/or indirectly through one or more other Persons,
owns more than 50% of the voting interests. Unless otherwise qualified, all references to a “Subsidiary” or to “Subsidiaries” in this Agreement shall refer to a Subsidiary or Subsidiaries of the Company. 
  
 Trust Estate:    shall mean all right, title, and interest of the Debtors in the Collateral
granted to the Collateral Trustee by the Security Documents and all rights of the Collateral Trustee thereunder. 
  
 UCC:    shall mean the Uniform Commercial Code as adopted from time to time in the State of Texas. 
  
 Withdrawal Notice:    shall have the meaning specified in Section 4.2(b) hereof. 
  
 ARTICLE 2. 
  
 COLLATERAL TRUST 
  
 2.1  Creation of Collateral Trust.    In order to provide for the perfection and maintenance of all
Liens granted under and the enforcement of the various rights and remedies set forth in the Security Documents, and to set forth the relative rights of the Noteholders with regard to the Collateral as set forth herein, the Noteholders hereby appoint
Union Bank of California, N.A., as the Collateral Trustee under this Agreement and the other Security Documents, and the Collateral Trustee hereby accepts its appointment subject to the terms and conditions of this Agreement and the Security
Documents. Each Debtor hereby reaffirms and confirms the grant of the Trust Estate in favor of the Collateral Trustee in accordance with the terms of the Security Documents and for the ratable benefit of the Noteholders as set forth herein.

  
 2.2  Possession and Use of Collateral.    So long as no Event of Default
exists, each Debtor shall have the right to remain in possession and retain control of the Collateral (other than the Collateral Account Collateral and any Collateral for which applicable law requires that Liens on such Collateral be perfected by
control or possession) in accordance with the terms of the Security Documents. 
  
 2.3  Addition of
Collateral to the Trust Estate.    At any time, any Debtor and the Collateral Trustee may enter into one or more Security Documents, in form reasonably satisfactory to the Collateral Trustee to: (a) supplement or add to the
covenants of such Debtor for the benefit of 
 

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 all Noteholders or to surrender any right or power conferred upon the Debtors; (b) unless prohibited by any agreement to which such Debtor is
party, mortgage or pledge to the Collateral Trustee, or grant a security interest in favor of the Collateral Trustee in, any property or assets as additional security for the Secured Obligations; or (c) cure any ambiguity, correct or supplement any
provision herein or in any Security Document which may be defective or inconsistent with any other provision herein or therein, or make any other provision with respect to matters or questions arising hereunder which shall not be inconsistent with
any provision hereof. The Collateral Trustee, the Senior Loan Agent, the Indenture Trustee and the Noteholders agree that the forms of Security Documents outstanding on the date of the execution of this Agreement are satisfactory to such parties.
The Company will deliver or cause to be delivered to the Collateral Trustee, promptly upon the execution and delivery thereof, executed counterparts of all Security Documents and all amendments and supplements thereto. The Collateral Trustee shall
keep all Security Documents held by it at the principal corporate office of the Collateral Trustee and shall permit any Noteholder or the representative thereof to inspect the same upon reasonable request. 
  
 2.4  Releases of Collateral.    In connection with the proposed sale, assignment, transfer, or other
disposition of any Collateral by any Debtor (an “Asset Sale”), the Company, on behalf of such selling Debtor, shall deliver a Release Notice to the Collateral Trustee, the Senior Loan Agent and the Indenture Trustee. If, within ten
(10) days after the delivery of such Release Notice, the Collateral Trustee shall not have received a written objection from either the Senior Loan Agent or the Indenture Trustee stating that the selling Debtor is not entitled under the terms of the
Credit Agreement or the Indenture, as the case may be, to obtain the release of the Collateral specified in the Release Notice, then the Collateral Trustee shall provide for the release of the Liens with respect to such Collateral to the extent
required by the Company in the Release Notice, provided, however, that the effective delivery of any releases provided under this Section 2.4 shall be expressly conditioned upon the consummation of the Asset Sale to which the Release
Notice relates. If, however, the Collateral Trustee receives a written objection within the aforementioned 10 day period, the Liens will not be released and the Collateral Trustee will not take any actions requested of it by the Company until such
certificate shall be withdrawn in writing by the Senior Loan Agent or the Indenture Trustee, as the case may be, or until three (3) business days after the Collateral Trustee shall have received an order of a court of competent jurisdiction
directing it to release the Liens of the Collateral Trustee with respect to such Collateral and no stay exists with respect to such direction or order. Upon consummation of the Asset Sale for which a release of Liens was granted hereunder, all
Proceeds, including any non-cash Proceeds, received by or owing to any Debtor from the sale of such released Collateral shall be immediately turned over to the Collateral Trustee, together with any necessary endorsements or instruments of assignment
or transfer, for deposit in the Collateral Account and shall be distributed in accordance with the provisions of Section 4.4 hereof. 
  
 2.5  Obligations Absolute. 
  
 (a)  The Security Documents may
not be revoked by any Debtor. Each Debtor agrees that such Debtor’s obligations and the obligations of such Debtor’s Subsidiaries under the 
 

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 Security Documents shall not be released, diminished, or impaired by, and waives any rights which such Debtor might otherwise have which relate
to: 
  
 (i)  Any lack of validity or enforceability of the Secured Obligations, any
Security Document, or any other agreement or instrument relating thereto; any increase, reduction, extension, or rearrangement of the Secured Obligations; any amendment, supplement, or other modification of the Security Documents; any waiver or
consent granted under the Security Documents; or any sale, assignment, delegation, or other transfer of the Secured Obligations or the Security Documents; 
  
 (ii)  Any grant of any security or support for the Secured Obligations or any impairment of any security or support for the Secured Obligations,
including any full or partial release, exchange, subordination, or waste of any collateral for the Secured Obligations or any full or partial release of any Debtor or any other Person liable for the payment or performance of the Secured Obligations;
any change in the organization or structure of any Debtor or any other Person liable for the payment or performance of the Secured Obligations; or the insolvency, bankruptcy, liquidation, or dissolution of any Debtor or any other Person liable for
the payment or performance of the Secured Obligations; 
  
 (iii)  The manner of applying
payments on the Secured Obligations or the proceeds of any security or support for the Secured Obligations against the Secured Obligations; 
  
 (iv)  The failure to give notice of the occurrence of any of the events or actions referred to in this Section 2.5, notice of any Potential Default or Event of Default, notice of intent to
demand, notice of demand, notice of presentment for payment, notice of nonpayment, notice of intent to protest, notice of protest, notice of grace, notice of dishonor, notice of intent to accelerate, notice of acceleration, notice of bringing of
action to enforce the payment or performance of the Secured Obligations, notice of any sale or foreclosure of any collateral for the Secured Obligations, notice of any transfer of the Secured Obligations, notice of the financial condition of or
other circumstances regarding the Company, any Debtor, or any other Person liable for the Secured Obligations, or any other notice of any kind relating to the Secured Obligations; or 
  
 (v)  Any other action taken or omitted which affects the Secured Obligations or the Collateral, whether or not such action or omission
prejudices any Debtor or increases the likelihood that any Debtor will be required to pay or support payment of the Secured Obligations pursuant to the terms hereof. 
  
 (b)  The Security Documents shall continue to be effective or be reinstated if any payment on the Secured Obligations must be refunded for any reason including
any bankruptcy proceeding. In the event that the Collateral Trustee must refund any payment received against the Secured Obligations, any prior release from the terms of this Agreement or 
 

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 the other Security Documents given to any Debtor by the Collateral Trustee shall be without effect, and all such Security Documents shall be
reinstated in full force and effect. 
  
 ARTICLE 3. 
  
 MASTER DEBT 
  
 3.1  Master
Debt; Modification of Master Debt. 
  
 (a)  No additions to Master Debt subject to this Agreement shall
be made without the written agreement of all parties hereto, except that nothing contained herein shall (i) prevent the incurring or repayment of indebtedness pursuant to the terms of any Master Debt Agreement, as such terms exist on the Initial
Closing Date, or (ii) prevent the Senior Lenders from amending the Credit Agreement to increase the total commitments or the maximum principal amount of the debt permitted to be outstanding thereunder from time to time without the consent of any
party hereto provided, however, that (x) the Senior Lenders hereby agree that any and all increases in the amount of total commitments or loans available under the Credit Agreement (after giving effect to such amendment) over the amount of the total
commitments or loans which would otherwise be available at that time under the Credit Agreement (as the same is in effect on the Initial Closing Date) (the “Increased Senior Debt Amount”), and any payment with respect to any Increased
Senior Debt Amount, shall be fully subordinated to the Subordinated Debt to the same extent and in the same manner as the Subordinated Debt is subordinated to the Senior Debt as of the Initial Closing Date pursuant to the provisions of Article 6
hereof, except that the provisions of Sections 6.1, 6.2 and 6.3 regarding the payment or non-payment of Note Interest (or any other similar payments on the Increased Senior Debt Amount) shall not apply to the subordination of any Increased Senior
Debt Amount, and (y) the Senior Loan Agent shall promptly notify the Indenture Trustee of the existence of any such Increased Senior Debt Amount. 
  
 (b)  The Company, the Indenture Trustee and the Subordinated Noteholders agree not to renew, extend, modify or amend the Indenture or any of the instruments or documents relating to the
Subordinated Debt without the prior written consent of the Senior Loan Agent, which consent shall not be unreasonably withheld. 
  
 (c)  The Company, the Senior Loan Agent and the Senior Lenders may, without the prior written consent of any of the other parties hereto, amend, alter, vary, supplement or revise any of the terms or provisions of, or add
any new or additional terms or provisions to, the Credit Agreement and related agreements, instruments and documents, except that, without the written consent of the Required Percentage of the Subordinated Noteholders, no amendment may be made, and
no further secured loan or other secured credit shall be provided to any Debtor (except as permitted by clause (ii) of Section 3.1 (a) above) which would (i) increase the maximum principal amount of the debt permitted to be outstanding from time to
time under the Credit Agreement (except by increases arising from advances made for the purpose of preserving Collateral), or (ii) increase the maximum principal amount of debt permitted to be outstanding from time to time under the Credit Agreement
by amending or modifying the Borrowing Base formula, the manner in which the Borrowing Base (as defined in 
 

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 the Credit Agreement) is determined, or the definition of Borrowing Base or any other terms relevant to the definition, (iii) increase the Prime
Rate Margin (as defined in the Credit Agreement) or the LIBOR Margin (as defined in the Credit Agreement), or alter the calculation of any variable rate of interest provided for in the Credit Agreement which would have the effect of increasing such
rate (except for increases provided for in the Credit Agreement as of the date of this Agreement), (iv) shorten the maturity date of any of the facilities under the Credit Agreement, or (v) decrease the term of the revolving debt, or increase the
frequency or amount of mandatory repayments due, pursuant to the Credit Agreement (except nothing contained in this Section 3.1 shall restrict the rights of the Senior Lenders under the Credit Agreement to determine the Borrowing Base and any
Monthly Commitment Reduction as set forth in the Credit Agreement as of the Initial Closing Date) irrespective of whether any such determination of the Borrowing Base or the Monthly Commitment Reduction would result in a mandatory repayment being
due pursuant to the terms of the Credit Agreement). 
  
 ARTICLE 4. 
  
 ACTIONS REGARDING COLLATERAL 
  
 4.1  Preservation and Maintenance of Collateral.    The Collateral Trustee may from time to time take action for the protection and enforcement of its rights under the Security Documents
on behalf of the Noteholders, but the Collateral Trustee shall not be obligated to take any action under the Security Documents except that (a) the Collateral Trustee shall file appropriate Uniform Commercial Code financing and continuation
statements and perform such duties as are specifically set forth herein including, without limitation, the taking of action during an Event of Default as set forth in Section 4.2 below to the extent required thereby, and (b) the Collateral Trustee
shall take such action as may be reasonably requested from time to time in writing pursuant to this Agreement as long as the requested action is permitted by the Security Documents and/or applicable law. The Collateral Trustee shall exercise the
same care and diligence in holding the Collateral that the Collateral Trustee would devote to the custody of collateral of the same nature held solely for its account. 
  
 4.2  Enforcement Action under the Security Documents. 
  
 (a)  The Collateral Trustee shall be deemed not to have knowledge of the existence of any condition or event which constitutes an Event of Default, unless notified in writing by the Indenture
Trustee or any Noteholder. The Collateral Trustee shall not be under any obligation, as a result of knowledge of an Event of Default, to take any action under the provisions of any Security Document unless so directed by the Senior Loan Agent, the
Indenture Trustee or the Noteholders in accordance with this Agreement. 
  
 (b)  If at any time an Event of
Default exists, the Senior Loan Agent, the Indenture Trustee or the Required Percentage of any Class of Master Debt shall be entitled to give the Collateral Trustee and the Company a Notice of Event of Default hereunder. The failure to give any
Notice of Event of Default hereunder shall in no way affect the validity of any similar notice of default or Event of Default provided to the Company or to the Debtors under the applicable Master Debt Agreement, nor shall the failure of the Company
to receive any 
 

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 Notice of Event of Default hereunder affect the validity of any request to the Collateral Trustee or the ability of the Collateral Trustee to
exercise the rights and remedies provided in the Security Documents upon receipt of such notice. The Collateral Trustee shall provide all parties to this Agreement with a copy of any Notice of Event of Default within four (4) business days from its
receipt of any such notice. 
  
 (c)  The Senior Loan Agent, the Indenture Trustee or the Required
Percentage of any Class of Master Debt may withdraw any Notice of Event of Default it previously delivered pursuant to Section 4.2(b) above by delivering a written notice of withdrawal (a “Withdrawal Notice”) to the Collateral
Trustee and the Debtors and the other parties thereto, and such Withdrawal Notice shall be effective (subject to the provisions of Section 4.2(e)) if delivered (i) before the Collateral Trustee takes any action to exercise any remedy with respect to
the Collateral, or (ii) at any time after the Collateral Trustee takes any action to exercise any remedy with respect to the Collateral, if (x) the Collateral Trustee reasonably determines that the exercise of any remedy or remedies with respect to
the Collateral can be reversed, terminated, or withdrawn without prejudice to the Collateral Trustee or any Noteholder, and (y) the Debtors have reimbursed, or have made acceptable arrangements to reimburse, the Collateral Trustee, the Indenture
Trustee and the Noteholders with respect to all costs and expenses incurred by the Collateral Trustee, the Indenture Trustee and the Noteholders in connection with the enforcement actions and the reversing or termination thereof. The Collateral
Trustee shall provide all parties to this Agreement with a copy of any Withdrawal Notice within four (4) business days from its receipt of any such notice. 
  
 (d)  Prior to the Stated Maturity Date, if a Notice of Event of Default shall have been received by the Collateral Trustee and shall not have been withdrawn in accordance with the provisions
of paragraph (c) above, the Collateral Trustee shall exercise such rights and remedies of the Collateral Trustee under the Security Documents, institute and maintain such suits and proceedings, and take such other actions in connection therewith as
the Senior Loan Agent may direct from time to time in writing, in each case as permitted under the Security Documents during the existence of an Event of Default. Upon the effectiveness of any Withdrawal Notice pursuant to the terms and provisions
of paragraph (c) above, the Collateral Trustee shall discontinue and terminate any enforcement action taken by the Collateral Trustee with respect to such Notice of Event of Default. 
  
 (e)  At any time after the Stated Maturity Date of the Subordinated Debt as provided for in the Indenture, if a Notice of Event of Default shall have been
received by the Collateral Trustee and shall not have been withdrawn in accordance with the provisions of paragraph (c) above, the Collateral Trustee shall exercise such rights and remedies of the Collateral Trustee under the Security Documents,
institute and maintain such suits and proceedings, and take such other actions in connection therewith as the Senior Loan Agent, the Indenture Trustee or any Required Plurality may direct from time to time in writing, in each case as permitted under
the Security Documents during the existence of an Event of Default. Upon the effectiveness of any Withdrawal Notice pursuant to the terms and provisions of paragraph (c) above, the Collateral Trustee shall discontinue and terminate any enforcement
action taken by 
 

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 the Collateral Trustee with respect to the Notice of Event of Default, provided, however, that any such Withdrawal Notice shall
not become effective if, within ten (10) days after receipt by the Collateral Trustee of the Withdrawal Notice, any party entitled to deliver a separate Notice of Event of Default hereunder objects to the discontinuance or termination of such
enforcement action. 
  
 (f)  In the event that the Collateral Trustee shall receive conflicting
instructions from the Senior Loan Agent, the Indenture Trustee, any Required Plurality, and/or from different Required Pluralities, regarding the specific action to be taken or not to be taken under the Security Documents, or the manner or timing of
the exercise of any rights or remedies thereunder, the Collateral Trustee shall follow the instructions received in writing from the Senior Loan Agent, provided, however, that after the Stated Maturity Date of the Subordinated Debt the
Senior Loan Agent shall direct and the Collateral Trustee shall diligently pursue (in each case, to the extent reasonably requested by the Indenture Trustee or any Required Plurality) the good faith exercise of rights and remedies under the Security
Documents or applicable law with respect to the Collateral, including, without limitation and if requested by the Indenture Trustee or any Required Plurality, the commencement of actions to foreclose the Collateral Trustee’s Liens on or to take
possession of all or any material portion of the Collateral, the commencement of any judicial proceedings or actions against or with respect to all or any material portion of the Collateral, or the taking of any action to vacate any stay on
enforcement of the Collateral Trustee’s Liens on all or a material portion of the Collateral. 
  
 (g)  Any sale or disposition of Collateral by the Collateral Trustee pursuant to any power or in accordance with any rights or remedies set forth in the Security Documents shall be in an arm’s length transaction and in
a commercially reasonable manner. 
  
 (h)  The Collateral Trustee shall not be obligated to follow any
written directions received pursuant to this Agreement if the Collateral Trustee determines in good faith that such written directions are in conflict with any provisions of applicable law or any Security Document. 
  
 4.3  General Provisions Regarding Remedies. 
  
 (a)  No remedy conferred upon or reserved to the Collateral Trustee herein or in the Security Documents is intended to be exclusive of any other remedy or
remedies, but every such remedy shall be cumulative and shall be in addition to every other remedy conferred herein or in any of the Security Documents or now or hereafter existing at law or in equity or by statute. All of the powers, remedies, and
rights of the Collateral Trustee as set forth in this Agreement may be exercised by the Collateral Trustee in respect of any Security Document as though set forth at length therein, and all the powers, remedies, and rights of the Collateral Trustee
as set forth in any Security Document may be exercised from time to time as herein and therein provided. No delay or omission by the Collateral Trustee in the exercise of any right, remedy, or power accruing upon any Event of Default shall impair
any such right, remedy or power or shall be construed to be a waiver of any such Event of Default or an acquiescence 
 

 12 

 therein; and every right, power, and remedy given by any Security Document may be exercised from time to time and as often as may be deemed
expedient by the Collateral Trustee. 
  
 (b)  In case the Collateral Trustee shall have proceeded to
enforce any right, remedy, or power under any Security Document and the proceeding for the enforcement thereof shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Collateral Trustee, then and in
every such case the Debtors, the Collateral Trustee, the Indenture Trustee and the Noteholders shall, subject to any effect of or determination in such proceeding, severally and respectively be restored to their former positions and rights under
such Security Document with respect to the Trust Estate and in all other respects, and thereafter all rights, remedies, and power of the Collateral Trustee shall continue as though no such proceeding had been taken. 
  
 (c)  All rights of action and rights to assert claims upon or under the Security Documents may be enforced by the Collateral
Trustee without the possession of any Master Debt Agreement or other instruments which manifest the Master Debt or the production thereof in any trial or other proceeding relative thereto, and any such suit or proceedings instituted by the
Collateral Trustee shall be brought in its name as Collateral Trustee for the benefit of the Noteholders and any recovery of and from any judgment shall be held as part of the Trust Estate. Each Debtor hereby waives notice of intent to demand,
demand, presentment for payment, notice of nonpayment, protest, notice of protest, grace, notice of dishonor, notice of intent to accelerate, notice of acceleration, and all other notices in connection with the enforcement of the Master Debt, the
Security Documents, and the Collateral. To the full extent each Debtor may do so, such Debtor shall not insist upon, plead, claim, or take advantage of any law providing for any appraisement, valuation, stay, extension, or redemption, and each such
Debtor hereby waives and releases the same, and all rights to a marshaling of the assets of such Debtor and the Collateral, or to a sale in inverse order of alienation in the event of foreclosure of the Liens and security interests granted pursuant
to the Security Documents. Each Debtor agrees not to assert any right under any law pertaining to the marshaling of assets, sale in inverse order of alienation, the administration of estates of decedents, or other matters whatsoever to defeat,
reduce, or affect the right of the Collateral Trustee or Noteholders under the terms of the Security Documents or applicable law. 
  
 (d)  Each Debtor hereby irrevocably constitutes and appoints the Collateral Trustee and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full power and authority to
act on behalf of such Debtor, in the name of such Debtor or in its own name, upon the occurrence and during the continuance of any Event of Default, to take any and all appropriate action, execute any and all documents and instruments, or institute
any proceedings which the Collateral Trustee, the Senior Loan Agent, the Indenture Trustee and/or the Noteholders deem reasonably necessary or desirable to carry out purposes and terms of any of the Security Documents. This power of attorney is a
power coupled with an interest and shall be irrevocable. Each Debtor hereby ratifies all acts of such attorney-in-fact consistent with the foregoing. Any such attorney-in-fact shall not be liable for any acts or omissions, INCLUDING NEGLIGENT
ACTS AND OMISSIONS OF SUCH 
 

 13 

 ATTORNEY-IN-FACT, unless they constitute the gross negligence or willful misconduct of such attorney-in-fact, but in no event shall the
attorney-in-fact be liable for special, indirect or consequential losses or damages of any kind whatsoever (including but not limited to lost profits). 
  
 (e)  Notwithstanding any other provision of any Security Document, and except as expressly set forth in this Agreement, neither the rights of the Senior Loan Agent, Indenture Trustee or the
Noteholders to receive payment on the Master Debt held by such holders, to institute suit for the enforcement of such payment, to assert their respective positions as a creditor or to receive any distribution in any proceeding under or related to
the Bankruptcy Code, or to otherwise exercise any right they may have in connection with such Master Debt (other than the right to enforce any Lien on the Collateral under the Security Documents, which shall in all circumstances be exercisable only
in accordance with this Agreement as long as this Agreement remains in effect), nor the obligation of each Debtor to pay the Master Debt owing by such Debtor, shall be impaired or affected without the consent of the Senior Loan Agent, the Indenture
Trustee or such Noteholders, as the case may be. 
  
 4.4  Application of Monies by Collateral
Trustee. 
  
 (a)  On the date hereof there shall be established and, at all times thereafter until the
Trust Estate has been terminated, there shall be maintained by the Collateral Trustee an account (the “Collateral Account”) which shall be maintained with the Collateral Trustee at one of its offices in the city in which its
principal place of business is located. To secure the prompt and complete payment, when due, and the observance and performance of all terms, covenants, and agreements relating to all Secured Obligations, each Debtor hereby assigns and pledges to
the Collateral Trustee for the benefit of the Noteholders and grants to the Collateral Trustee for the benefit of the Noteholders a security interest in all of the right, title, and interest of such Debtor in and to the following property, whether
presently existing or hereafter arising or acquired (the “Collateral Account Collateral”): the Collateral Account, all cash deposited therein, all certificates and instruments, if any, from time to time representing the Collateral
Account; all investments from time to time made pursuant to paragraph (b) below; all notes, certificates of deposit, and other instruments from time to time hereafter delivered to or otherwise possessed by the Collateral Trustee in substitution for,
or in addition to, any or all of the then existing Collateral Account Collateral; all interest, dividends, cash, instruments, and other property from time to time received, receivable, or otherwise distributed in respect of or in exchange for any or
all of the then existing Collateral Account Collateral; and to the extent not covered above, all Proceeds of the foregoing (whether the same are acquired before or after the commencement of a case under the Bankruptcy Code). All right, title, and
interest in and to the Collateral Account shall vest in the Collateral Trustee, and funds on deposit in the Collateral Account and other Collateral Account Collateral shall constitute part of the Trust Estate. The Collateral Account Collateral and
Collateral Account shall be subject to the exclusive dominion and control of the Collateral Trustee and shall be held for the benefit of the Noteholders as their respective interests appear. 
 

 14 

  
 (b)  All money and other Proceeds received by the Collateral Trustee in
respect of any Collateral, including Proceeds derived from Asset Sales, insurance proceeds and condemnation proceeds, amounts received as a result of set off by the Collateral Trustee, collections of accounts, instruments, chattel paper, and other
receivables, and Proceeds from any foreclosure proceedings, shall be deposited in or credited to the Collateral Account. Any Proceeds deemed not appropriate at the time of receipt for deposit or credit to the Collateral Account shall be held by the
Collateral Trustee for the benefit of the Noteholders until such time as cash proceeds are realized therefrom or the Collateral Trustee deems such Proceeds appropriate for deposit or credit to the Collateral Account. All funds in the Collateral
Account shall be invested, reinvested, and liquidated (at the risk and expense of the Debtors) in accordance with instructions given to the Collateral Trustee by (i) the Company, prior to a Notice of Event of Default having been received by the
Collateral Trustee, or (ii) the Senior Loan Agent or the Indenture Trustee subsequent to a Notice of Event of Default having been received by the Collateral Trustee, provided that if the Collateral Trustee receives conflicting instructions
from the Senior Loan Agent and the Indenture Trustee, the Collateral Trustee shall comply with the instructions of the Senior Loan Agent for so long as any Senior Debt remains outstanding, and provided further that, in all circumstances, all
investments shall be Permitted Investments. The Collateral Trustee shall not be liable for any loss resulting from any Permitted Investment or the sale or redemption thereof in accordance with the preceding sentence. If and when cash is required for
disbursement in accordance with this Agreement, the Collateral Trustee is authorized, to the extent necessary, to cause Permitted Investments to be sold or otherwise liquidated in such manner as the Collateral Trustee shall deem appropriate.

  
 (c)  Prior to any Notice of Event of Default having been received by the Collateral Trustee, all
amounts in the Collateral Account shall be held by the Collateral Trustee for the benefit of the Noteholders until the Company requests the release thereof. Any such request by the Company shall be made in writing, delivered to the Collateral
Trustee, the Senior Loan Agent and the Indenture Trustee, and shall be accompanied by a certificate of a Responsible Officer of the Company specifying (i) the use for the funds released and stating that the funds shall be used for the specified
purpose, (ii) that the release is permitted under the terms of all Master Debt Agreements, (iii) that no Potential Default or Event of Default then exists, and (iv) that the release, if granted, would not reasonably be expected to cause or result in
the occurrence of an Event of Default. If the Collateral Trustee does not receive an objection from the Senior Loan Agent or the Indenture Trustee within ten (10) days after such request is delivered stating that the release would violate the terms
of a Master Debt Agreement or result in an Event of Default, then the Collateral Trustee shall release the funds or other items of Collateral as requested by the Company. If, however, an objection is received by the Collateral Trustee, then the
Collateral Trustee shall retain the funds or other property in the Collateral Account until such time as (i) the objection is withdrawn, (ii) distributions are made under paragraph (d) below, or (iii) the Collateral Trustee shall have received an
order of a court of competent jurisdiction directing it to release the funds or property. 
  
 (d)  After
any Notice of Event of Default having been received by the Collateral Trustee and such notice not having been withdrawn, all moneys and property held or 
 

 15 

 received by the Collateral Trustee in the Collateral Account shall be held in the Collateral Account for the benefit of the Noteholders and,
upon request of the Senior Loan Agent prior to the Stated Maturity Date, and thereafter upon the request of the Senior Loan Agent, the Indenture Trustee or any Required Plurality and to the extent available for distribution, shall be distributed
from time to time by the Collateral Trustee in the following order of priority: 
  
 First:    to the Collateral Trustee in an amount equal to all amounts due and unpaid to it as of such Distribution Date pursuant to Section 5.3 and Section 5.4 and all other amounts due and unpaid it under
the terms of the Security Documents as of such Distribution Date, including all reasonable costs and expenses (including reasonable attorneys fees) incurred in connection with any sale, disposition, or other attempt to realize upon all or any part
of the Collateral (and to the extent any such amounts have been previously paid on behalf of the Debtors under Section 5.3, Section 5.4 or otherwise by other Persons to reimburse such Persons); 
  

Second:    to the holders of the Senior Debt in an amount equal to the outstanding unpaid principal indebtedness under the
Master Debt Agreements pertaining to the Senior Debt, all accrued but unpaid interest thereon, all accrued but unpaid premium, if any, due in connection therewith, all accrued but unpaid fees due in connection therewith, all accrued but unpaid
reimbursement obligations thereunder, all accrued but unpaid cash collateralization obligations thereunder, all accrued but unpaid hedging obligations thereunder, and all other accrued but unpaid obligations and liabilities thereunder, including
costs and expenses, in each case to the extent such amounts are Secured Obligations and whether or not due and payable; provided, however, that with respect to all cash collateralization obligations covering contingent obligations under letters of
credit, (1) rather than distributing the amounts allocable to such obligations to the holders thereof, such amounts shall be reserved in the Collateral Account (such reserve being an “L/C Reserve”) and set aside for the purpose of
covering reimbursement obligations for such letters of credit as they arise in connection with draws under such letters of credit, (2) upon any draws under such letters of credit that are not reimbursed when due, and at the request of the Required
Percentage of the holders of such obligations, the Collateral Trustee shall distribute the ratable share of the L/C Reserve allocable to such reimbursement obligations to the holders of Senior Debt, and (3) as such obligations expire or become
covered by cash collateral, the Collateral Trustee shall release and deposit the ratable share of the L/C Reserve allocable to such obligations which have expired into the Collateral Account for general distribution in accordance with this
Agreement; 
  
 Third:    after payment in full of the Senior Debt, to the
Indenture Trustee for the benefit of Subordinated Noteholders in an amount equal to the outstanding unpaid principal indebtedness under the Indenture, all accrued but unpaid interest thereon, all accrued but unpaid premium, if any, due in connection
therewith, all accrued but unpaid reimbursement obligations thereunder, all accrued but unpaid cash collateralization obligations thereunder, all accrued but unpaid hedging obligations thereunder, and all 
 

 16 

  
 other accrued but unpaid obligations and liabilities thereunder, including costs
and expenses, in each case to the extent such amounts are Secured Obligations and whether or not due and payable; and 
  
 Finally: any surplus then remaining shall be paid to the Company or its successors or assigns. 
  
 The term
“unpaid” as used in this paragraph (d) refers: (1) in the absence of a bankruptcy proceeding with respect to any Debtor, to all amounts of Secured Obligations outstanding as of a Distribution Date, whether or not then due and
payable, and (2) during the pendency of a bankruptcy proceeding with respect to any Debtor, to all amounts with respect to such Debtor allowed by the bankruptcy court in respect of Secured Obligations as a basis for distribution (including estimated
amounts, if any, allowed in respect of contingent claims), in each case, to the extent that prior distributions have not been made in respect thereof. 
  
 (e)  Notwithstanding anything herein to the contrary, the Collateral Trustee shall, at all times, have the right to apply funds and property held in the Collateral Account to the payment of
amounts due and unpaid to it pursuant to Section 5.3. The Collateral Trustee shall provide the Company, the Senior Loan Agent and the Indenture Trustee with prompt notice of any such application of moneys or property prior to the application
thereof. Further, notwithstanding anything to the contrary contained herein, the Collateral Trustee, shall, at all times, have the right to distribute Proceeds from an Asset Sale, net of the reasonable costs and expenses incurred by the Collateral
Trustee in connection with such disposition (including reasonable attorneys’ fees), to the Noteholders in the same manner and to the same extent as provided in Paragraph (d) above. 
  
 (f)  In making amounts available for distribution hereunder, the Collateral Trustee may liquidate investments prior to maturity in order to make a distribution.
All such distributions shall be made in cash in United States Dollars. 
  
 ARTICLE 5.    

  
 THE COLLATERAL TRUSTEE 
  
 5.1  Acceptance of Trust Estate; Duties and Limitations.    The Collateral Trustee hereby accepts the trusts of this Agreement on behalf of and for the benefit of
all Noteholders, but only upon the terms herein set forth herein, including the following: 
  
 (a)  Notwithstanding any provision in any other Security Document which may require the Company to maintain the perfection of all Liens on the Collateral, the Collateral Trustee shall use its best efforts to ensure that all
Liens are properly recorded, continued and/or perfected at all times during which any of the Master Debt is outstanding, except the Collateral Trustee shall not be responsible for errors made by or in any proper recording office. Except as otherwise
provided herein or in the Security Documents, the Collateral Trustee makes no representation and has no responsibility as to the validity of the Security Documents, the 
 

 17 

  
 sufficiency or value of the Collateral, the title to the Collateral, or
verification of the sufficiency or continuation of any insurance in respect thereof; 
  
 (b)  the Collateral Trustee may rely and shall be protected in acting upon any resolution, certificate, opinion, consent, or other document reasonably believed by it to be genuine and to have been executed or presented by
the proper party or parties and, without limiting the foregoing, (i) in making any payment or in taking any other action hereunder in respect of any Master Debt, the Collateral Trustee may rely upon a certificate signed by the Indenture Trustee or
the Senior Loan Agent, as appropriate, with respect to the ownership of each such Class of Master Debt and the amounts due thereunder, and (ii) whenever in the administration of its duties hereunder, the Collateral Trustee deems it reasonably
necessary for a matter to be proved or established prior to taking any action hereunder, the Collateral Trustee may request a certification from such party or parties regarding such matter as it deems appropriate in its reasonable discretion and
upon which the Collateral Trustee shall be protected in relying; and 
  
 (c)  the
Collateral Trustee shall be under no liability with respect to any action or omission taken in accordance with this Agreement or for any other action or omission of the Collateral Trustee, INCLUDING NEGLIGENT ACTIONS OR OMISSIONS OF THE
COLLATERAL TRUSTEE (except that nothing contained herein shall relieve the Collateral Trustee from liability for its own gross negligence or willful misconduct), and in no event shall the Collateral Trustee be liable for special, indirect, or
consequential losses or damages of any kind whatsoever (including but not limited to lost profits). 
  
 5.2  Limitation of Scope of Duties.    Beyond its duties set forth in this Agreement and the other Security Documents as to the perfection of Liens against, and the custody and preservation of
Collateral, which are for the benefit of the Noteholders, and the accounting to the Company, the Indenture Trustee and the Noteholders for moneys received by it hereunder and thereunder, the Collateral Trustee shall not have any duty to any Debtor,
the Indenture Trustee or the Noteholders with respect to any Collateral in its possession or control or in the possession or control of its agent or nominee, any income thereon, or the preservation of rights against prior parties or any other rights
pertaining thereto. 
  
 5.3  Expenses.    Each Debtor and each Noteholder agrees
to pay on demand of the Collateral Trustee (a) all reasonable out-of-pocket costs and expenses of the Collateral Trustee in connection with the preparation, execution, delivery, administration, modification, and amendment of the Security Documents,
including the reasonable fees and expenses of outside counsel for the Collateral Trustee, and (b) all out-of-pocket costs and expenses of the Collateral Trustee in connection with the preservation or enforcement of rights under the Security
Documents, whether through negotiations, legal proceedings, or otherwise, including fees and expenses of counsel for the Collateral Trustee. Each Noteholder shall be liable for the foregoing only to the extent (i) that such expenses are not paid by
the Debtors, (ii) that such expenses are not paid or recoverable out of the Collateral, (iii) that such expenses relate to actions of the Collateral Trustee acting as Collateral Trustee, and (iv) of such Noteholder’s ratable share of such
expenses based upon the Master Debt 
 

 18 

  
 Outstanding. The provisions of this paragraph shall survive the repayment of the Secured Obligations and
any purported termination of the Security Documents which does not expressly refer to this paragraph. 
  
 5.4    Indemnification. 
  
 (a)  Each Debtor and each
Noteholder, on behalf of themselves and all Persons claiming by, through, or under any of them, agrees to protect, defend, indemnify, and hold harmless the Collateral Trustee, and its shareholders, directors, officers, employees, agents,
representatives and affiliates and the shareholders, directors, officers, employees, agents, and representatives of those affiliates (collectively, the “Indemnified Parties”), from and against all demands, claims, actions, suits,
damages, judgments, fines, penalties, liabilities, and out-of-pocket costs and expenses, including reasonable costs of attorneys and related costs of experts such as accountants (collectively, the “Indemnified Liabilities”),
actually incurred by any Indemnified Party which are related to any litigation or proceeding relating to the Security Documents or the transactions contemplated thereunder or hereunder in connection with the Collateral Agent acting in its capacity
as Collateral Agent, INCLUDING ANY INDEMNIFIED LIABILITIES CAUSED BY ANY INDEMNIFIED PARTY’S OWN NEGLIGENCE AND ANY INDEMNIFIED LIABILITIES IMPOSED UPON THE INDEMNIFIED PARTY, OR ANY OF THEM, UNDER ANY THEORY OF STRICT LIABILITY, but not
Indemnified Liabilities which are a result of any Indemnified Party’s gross negligence or willful misconduct. Each Noteholder shall be liable for the foregoing only to the extent (i) that any such Indemnified Liability is not paid by the
Debtors, (ii) that such expenses are not paid or recoverable out of the Collateral, (iii) that such Indemnified Liability relates to the actions of the Collateral Trustee acting as Collateral Trustee, and (iv) of such Noteholder’s ratable share
of such Indemnified Liability based upon the Master Debt Outstanding. The provisions of this paragraph shall survive the repayment of the Secured Obligations, the resignation or removal of the Collateral Trustee and any purported termination of the
Security Documents. In no event however shall Indemnified Liabilities include, special or consequential losses as damages of any kind whatsoever (including, but not limited to lost profits). 
  
 5.5  Resignation, Removal, and Replacement of Collateral Trustee. 
  
 (a)  The Collateral Trustee or any successor Collateral Trustee may resign at any time by giving at least thirty (30) days’ prior written notice of resignation to the Company and each
Noteholder, such resignation to be effective on the later of (a) the date specified in such notice or (b) the date on which a replacement trustee agrees to act as Collateral Trustee hereunder and under the Security Documents. If appropriate
instruments of assignment to and acceptance by a successor Collateral Trustee shall not have been executed and delivered within thirty (30) days after the giving of such notice of resignation, the resigning Collateral Trustee may petition any court
of competent jurisdiction for the appointment of a successor Collateral Trustee. 
 

 19 

  
 (b)  If a successor Collateral Trustee has agreed to accept appointment
as successor Collateral Trustee, the Required Majority may at any time remove the Collateral Trustee, for or without cause, by an instrument or instruments in writing delivered to the Collateral Trustee and the Company. In the event the office of
Collateral Trustee shall become vacant for any reason, the Required Majority may appoint a successor Collateral Trustee to fill such vacancy if a successor Collateral Trustee has agreed to accept such position. 
  
 (c)  Upon the appointment of any successor Collateral Trustee, such successor Collateral Trustee shall execute, acknowledge, and
deliver to the Company and to the retiring Collateral Trustee an instrument accepting such appointment, and the retiring Collateral Trustee, at the expense of the Company, shall duly assign, transfer, and deliver to such successor Collateral Trustee
all rights, instruments and moneys or other Collateral (including any funds or Collateral Account Collateral then held in the Collateral Account) then held by the retiring Collateral Trustee as Collateral Trustee hereunder and under the Security
Documents, and shall execute and deliver such other proper instruments in such form as may be reasonably requested by such successor Collateral Trustee to evidence such assignment, transfer, and delivery. Upon the execution, acknowledgment and
delivery of all such instruments, the successor Collateral Trustee shall immediately, and without the need for any further action, succeed to all of the rights and obligations of the retiring Collateral Trustee under this Agreement and the Security
Documents as if originally named therein. 
  
 5.6  Eligibility of Collateral
Trustee.    The Collateral Trustee shall at all times be either a Senior Lender or the Indenture Trustee, provided such a Person is willing and able to accept such trust upon reasonable and customary terms. In all other cases
the Collateral Trustee shall be a financial institution with assets in excess of $250,000,000. If, at any time, the Collateral Trustee shall cease to be eligible in accordance with the provisions of this Section 5.6, the Collateral Trustee shall
immediately resign in the manner and with the effect specified in Section 5.5. 
  
 5.7  Appointment of
Separate or Co-Collateral Trustee.    The Collateral Trustee may and, upon the request of any Required Plurality, shall by an instrument in writing delivered to the Company and to each Noteholder, appoint a bank or
trust company or an individual to act as separate trustee or co-trustee with respect to the Master Debt in a jurisdiction where the Collateral Trustee is disqualified from acting. Such separate trustee or co-trustee shall exercise only such rights
and shall have only such duties as shall be specified in the instrument of appointment. The Debtors will pay the reasonable compensation and expenses of any such separate trustee or co-trustee and indemnify such person as if such Person was the
Collateral Trustee hereunder. 
  
 5.8  Non-Reliance on Collateral Trustee or Other
Noteholders.    Each Noteholder agrees that it has, independently and without reliance on the Collateral Trustee or any other Noteholder, and based upon such documents and information as it has deemed appropriate, made its
own credit analysis of the Debtors and the Collateral, including, without limitation, the status of the title of such Collateral, and its own independent decision to enter into this Agreement and the Master Debt Agreement to which it is a party or
under which it is legally bound. Each Noteholder agrees that it will independently and without reliance upon the Collateral Trustee or any other Noteholder, and 
 

 20 

 based upon such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or
not taking any action under this Agreement and/or the Security Documents. Except as expressly set forth herein or in the Security Documents, the Collateral Trustee acting solely as Collateral Trustee, shall not be required to keep itself or the
Noteholders informed as to the performance of the Debtors under this Agreement, any Master Debt Agreement or any other document, instrument or agreement, referred to or provided for herein or therein, or to inspect the properties or books of the
Debtors. Except as expressly provided for herein, the Collateral Trustee shall not have any duty, responsibility or liability to provide any Noteholder with any credit or other information concerning the affairs, financial condition or business of
the Debtors which may come into the possession of the Collateral Trustee, provided, however, that the Collateral Trustee shall send to each Noteholder, promptly upon receipt thereof, duplicates or copies of all notices, requests, and
other instruments received by the Collateral Trustee under or pursuant to this Agreement. 
  
 ARTICLE 6. 

 
 SUBORDINATION 
  
 6.1  Subordination of Amounts Due to Subordinated Noteholders.    The payment of the Subordinated Debt is expressly subordinated to the prior payment in full of the Senior Debt to the
extent and in the manner set forth in this Agreement. Except as provided in Section 6.2 of this Agreement, the Debtors, the Indenture Trustee and the Subordinated Noteholders hereby postpone and subordinate the payment of the Subordinated Debt to
the payment of all Senior Debt. The Debtors, the Indenture Trustee and the Subordinated Noteholders agree that until the Senior Debt is paid in full, except as provided in Section 6.2 of this Agreement, the Subordinated Noteholders will not demand,
take or receive from the Debtors, in cash or property or by set-off or in any other manner (including the bringing of a lawsuit or the filing of a petition in bankruptcy or other insolvency proceeding), payment of or on account of, and the Debtors
will not pay, in whole or in any part any of the Subordinated Debt. 
  
 6.2  Payment of Note
Interest.    The provisions of Section 6.1 hereof notwithstanding, prior to the payment in full of the Senior Debt, the Debtors may pay and the Subordinated Noteholders may receive scheduled payments of interest (the
“Note Interest”) which are or become due and payable on the Subordinated Debt in accordance with the terms of the Indenture as in effect on the initial Closing Date, unless and until a Subordination Event has occurred and is continuing or
would occur as a result of such payment, and written notice of such Subordination Event has been delivered to the Debtors, the Senior Lenders, the Indenture Trustee, as appropriate. Upon occurrence of an Event of Default which is continuing under
the Credit Agreement, the Senior Loan Agent may notify the Debtors and the Indenture Trustee of such Event of Default in writing specifying (i) in reasonable detail the particular nature of the Event of Default and the date and time of its
occurrence, if known or applicable, and (ii) that such Event of Default shall constitute a Subordination Event under this Agreement. Upon the failure of the Company to make any payment of Note Interest when due in accordance with the terms of the
Indenture, the Indenture Trustee may notify the Debtors, the Senior Loan Agent and the Subordinated Noteholders of such Event of Default in writing (i) specifying the date and time of its occurrence, and (ii) that such Event of Default shall
constitute a Subordination Event under this Agreement. Effective immediately upon 
 

 21 

 delivery of such notice to the Indenture Trustee or the Debtors, all payments and receipt of Note Interest to or by the Subordinated Noteholders
shall immediately cease and may thereafter resume only as provided for in Section 6.3 hereof. 
  
 6.3  Blocking Provisions.    Once a Subordination Event has occurred and notice thereof has been given as required in Section 6.2 above, a period during which no Note Interest may be paid (the
“Blocking Period”) shall begin and shall continue until the earlier to occur of: (a) one hundred eighty (180) days after the date notice of such Subordination Event was delivered, (b) the date on which the Subordination Event is cured,
waived or for which a forbearance agreement satisfactory to the Senior Loan Agent is put in place, (c) the date on which the Senior Debt is paid in full, or (d) the filing of a petition under the Bankruptcy Code commencing a bankruptcy case by or
against the Company. Upon the expiration or termination of any Blocking Period, the Debtors shall pay to the Subordinated Noteholders all interest which has accrued (including any interest which has accrued at the Default Rate provided for in the
Indenture), has become due or is past due and remains unpaid and, thereafter, shall pay Note Interest when the same becomes due and payable as provided for in the Indenture. Following the expiration or termination of any Blocking Period, additional
Blocking Periods may be commenced in accordance with this Section 6.3, provided, that in no event shall there be Blocking Periods in effect for more than one hundred eighty (180) days in any period of three hundred sixty (360)
consecutive days. 
  
 6.4  Acceleration of Subordinated Debt.    The
Subordinated Debt may not be accelerated for any reason unless and until (a) the Senior Debt is paid in full or (b) any Debtor files a bankruptcy petition (or an involuntary petition is filed against it and not dismissed in sixty (60) days, (c) the
Senior Debt has been accelerated (provided such acceleration has not been withdrawn), or (d) the Subordinated Debt has matured and the principal thereof is due and payable in accordance with the terms of the Indenture as in effect on the Initial
Closing Date. 
  
 6.5  Insolvency Proceedings. 
  

(a)  Each of the Senior Loan Agent and the Indenture Trustee agrees to file, in accordance with applicable law, all filings and claims required to preserve
the Master Debt under the Indenture and the Credit Agreement in any formal insolvency proceeding, whether under the Bankruptcy Code or state law, within the time periods required by such applicable law to preserve those debts, claims and rights and
each of the Senior Loan Agent, the Subordinated Noteholders and the Indenture Trustee hereby irrevocably authorizes, empowers and appoints the other to (i) execute, verify, deliver and file proofs of claim upon the failure of such other party to do
so with respect to the relevant Class of Master Debt (and in any event, prior to 3 days prior to the expiration of the time to file such proof of claim) provided, however, that neither the Senior Loan Agent nor the Indenture Trustee
shall have the obligation to execute, verify, deliver, and/or file any such proof of claim. 
  
 (b)  The Indenture Trustee and the Subordinated Noteholders agree that, unless and until the Senior Debt shall have been paid in full, the Indenture Trustee and the Subordinated Noteholders, as the case may be, shall
hold any and all moneys, dividends, or other assets 
 

 22 

 received by it or any of the them in any such insolvency proceeding on account of the Subordinated Debt (a “Distribution”) in
trust for the Senior Lenders and pay over to the Senior Loan Agent, on behalf of the Senior Lenders (on demand made by the Senior Loan Agent), any such Distribution in the form received for application to the Senior Debt, except that (a) the
Subordinated Noteholders may receive (i) debt securities that are subordinated to the Senior Debt (or to any debt securities issued in exchange for the Senior Debt) at least to the same extent as set forth in this Agreement or (ii) equity interest
in the Debtors, and (b) to the extent that any part of the Subordinated Debt is or is deemed unsecured in an insolvency proceeding and any distribution to general unsecured creditors is made in such proceeding with the consent of the Senior Lenders
or from a carve out of the Collateral, the Indenture Trustee, on behalf of the Subordinated Noteholders, shall be entitled to receive and retain any such Distribution made to unsecured creditors which would otherwise be paid or payable over to the
Senior Lenders. 
  
 6.6  Rights of Subordinated Noteholders.    Except as
expressly provided herein, nothing contained in this Agreement is intended to, nor shall it, impair or reduce the obligation of the Debtors, which are absolute and unconditional, to pay the Subordinated Debt as and when the same shall become due and
payable or to comply with all of the terms and conditions of the Indenture. No Person, including the Debtors, any third party, a trustee in bankruptcy or representative of creditors, other than the Senior Lenders shall be entitled to any benefit
under this Agreement so as to claim any priority over the Subordinated Noteholders. 
  
 ARTICLE 7. 

 
 NOTEHOLDER AGREEMENTS 
  
 7.1  Miscellaneous Security Interests.    Each of the Indenture Trustee, the Senior Loan Agent and each Noteholder agrees that it is, and shall act as, the agent
and bailee for the other Noteholders (without effect on the priorities established hereunder and without any liability or responsibility) to the extent reasonably necessary to perfect any security interest in Collateral required to be perfected by
possession or control and which is at any time in the possession or under the control of any such Person. Each Noteholder represents and warrants to each other that, except as set forth on Schedule 2 hereto, as of the date hereof, there is no
asset, collateral or security granted to the Indenture Trustee or to any Noteholder in which the Collateral Trustee does not hold a valid, perfected and enforceable Lien (in each case, after giving effect to the transactions contemplated to occur on
the Initial Closing Date). 
  
 7.2  Coordination of Enforcement
Efforts.    Without providing any rights or benefits to the Debtors, the Senior Loan Agent, the Indenture Trustee and each Noteholder agree that, in the event enforcement proceedings are necessary at any time after the Stated
Maturity Date of the Subordinated Debt, such parties shall reasonably discuss the possibility of undertaking a coordinated enforcement process, including an effort, if advisable, to attempt to sell the Collateral assets of the Debtors for fair
market value as a going concern and to reasonably enter into arrangements between themselves so as to permit the ongoing operation of the business of the Debtors. Failure to enter into such discussions shall in no way affect the rights and/or
obligations of any party as set forth in this Agreement nor shall it entitle any party to specific performance pursuant to Section 7.4 hereof. 
 

 23 

  
 7.3  Information.    The Indenture Trustee
and the Senior Loan Agent agree to furnish to each other and to all Noteholders from time to time upon request, information and particulars as to the amounts owing by the Debtors under the Master Debt Agreements, and the Debtors hereby consent to
all such disclosures. The Senior Loan Agent and the Indenture Trustee shall provide to each other copies of any written waivers of any Events of Default granted by it to any Debtor and copies of all amendments to their respective Master Debt
Agreements. 
  
 7.4  Specific Performance.    Each of the parties to this
Agreement acknowledges that the Senior Lenders and the Subordinated Noteholders would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or are otherwise breached.
Accordingly, each of the parties to this Agreement agrees that the Senior Lenders and the Subordinated Noteholders, and the Senior Loan Agent and Indenture Trustee shall be entitled to an injunction or injunctions to prevent breaches of the
provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions of this Agreement in any action instituted in any court of competent jurisdiction, in addition to any other remedy to which they may be entitled at
law or in equity, without the need to demonstrate any actual damage to be suffered by the party seeking such relief and without posting any bond or other security. 
  
 ARTICLE 8. 
  
 MISCELLANEOUS 
  
 8.1  Interpretation and Survival of Provisions.    Article, Section, Schedule, and Exhibit references
are to this Agreement, unless otherwise specified. All references to instruments, documents, contracts, and agreements are references to such instruments, documents, contracts, and agreements as the same may be amended, supplemented, and otherwise
modified from time to time, unless otherwise specified. The word “including” shall mean “including but not limited to.” Whenever any Debtor has an obligation under this Agreement, the expense of complying with that obligation
shall be an expense of the Debtors unless otherwise specified. Whenever any determination, consent, or approval is to be made or given by the Collateral Trustee, such action shall be in the Collateral Trustee’s reasonable discretion unless
otherwise specified in this Agreement. If any provision in this Agreement is held to be illegal, invalid, not binding, or unenforceable, such provision shall be fully severable and this Agreement shall be construed and enforced as if such illegal,
invalid, not binding, or unenforceable provision had never comprised a part of this Agreement, and the remaining provisions shall remain in full force and effect. This Agreement has been reviewed and negotiated by sophisticated parties with access
to legal counsel and shall not be construed against the drafter. The representations, warranties, and covenants made in this Agreement shall remain operative and in full force and effect regardless of (a) any investigation made by or on behalf of
any Person, or (b) the issuance and acceptance of any Master Debt and payment therefor. Provisions which expressly state so shall remain operative and in full force and effect unless such provisions are expressly terminated in a writing referencing
those individual provisions, regardless of any purported general termination of this Agreement. 
  
 8.2  Binding Effect; Assignment.    This Agreement and the Security Documents shall be binding upon all parties hereto and thereto and their respective successors and permitted assigns.

 

 24 

 Except as expressly provided herein and in the Security Documents, such agreements shall not be construed so as to confer any right or benefit
upon any Person, including a trustee in bankruptcy or any other representatives of creditors generally, other than the parties to this Agreement, the Noteholders, and their respective successors and permitted assigns. The Debtors may not assign
their rights or delegate their duties under the Security Documents. The Collateral Trustee may assign its rights and delegate its duties under the Security Documents in accordance with the terms of this Agreement. 
  
 8.3  Modifications, Waivers and Consents.    This Agreement may be amended without the consent of any
Debtor. Unless otherwise set forth herein, all modifications, waivers, and consents under all other Security Documents shall be in writing and signed by the Debtors party thereto and the Collateral Trustee, acting upon the written direction of the
Required Percentage of each Class of Master Debt, but if such modification, waiver, or consent adversely affects the rights, duties, or immunities of the Collateral Trustee, then the Collateral Trustee shall take such action only in its own
discretion. Nothing herein is intended to impair the obligations of the Debtors to execute documents and agreements in accordance with the Master Debt Agreements. 
  
 8.4  Notices. 
  
 (a)  Any notice or other instrument required to be delivered to any Debtor under this Agreement or under the other Security Documents shall be simultaneously delivered by the sender to all other parties to this Agreement as
provided below. The Collateral Trustee shall, promptly after receipt thereof, deliver to each other party to this Agreement, other than the Debtors, copies of all other notices, requests, correspondence or instruments received by the Collateral
Trustee from any Person under or pursuant to this Agreement. 
  
 (b)  All notices, requests,
correspondence, and other instruments delivered to any party hereunder shall be in writing, and shall be delivered by registered or certified mail, return receipt requested, telex, telegram, telecopy, air courier guaranteeing overnight delivery, or
personal delivery, to such parties at the following addresses: 
  
 If to the Collateral Trustee: 

 
 Union Bank of California, N.A., as Collateral Trustee 
 455 South Figueroa Street 
 Los Angeles,
California 90071 
 Attention: John A. Clark, Vice President 
 Telecopier: (214) 922-4209 
 

 25 

  
 If to the Senior Loan Agent or the Senior Lenders: 
  
 Union Bank of California, N.A., as Senior Loan Agent 
 455 South Figueroa Street 
 Los Angeles, California 90071 
 Attention: John A. Clark, Vice President 
 Telecopier: (214) 922-4209 
  
 If to the Indenture Trustee or the Subordinated Noteholders:

  
 Wilmington Trust Company 
 1100 North Market Street 
 Wilmington, Delaware 19890 
 Attention: Corporate Trust Administration 
 Telecopier: (302) 636-4140 
  
 If to the Company or any Other Debtor: 
  
 Southwest Royalties, Inc. 
 407 N. Big Spring 
 Suite 300 
 Midland, Texas 79701 
 Attention: H.H. Wommack, III, President 
 Telecopier: (915) 688-0191 
  
 or to such other
addresses as such parties may designate to the others in writing. All such notices requests, correspondence, and other instruments shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; four (4) days after
being sent by certified mail, return receipt requested, if mailed; when answered back, if telexed; when receipt acknowledged, if telecopied; and on the next business day if timely delivered to an air courier guaranteeing overnight delivery. Any
notice required under this Agreement to be delivered to the Debtors shall be deemed duly delivered if delivered to the Company or another of such Debtors. 
  
 8.5  Further Assurances.    Each party to this Agreement shall execute, acknowledge, and deliver all such agreements, documents and instruments and take all such
further action as may be reasonably necessary in order to further effectuate the purposes and to carry out the terms of this Agreement and the Security Documents. 
  
 8.6  Governing Law.    The laws of the State of Texas will govern this Agreement without regard to principles of conflicts of laws.

  
 8.7  Execution in Counterparts.    This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts, each of which counterparts, 
 

 26 

 when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and
the same Agreement. 
  
 8.8  Conflict.    In the event any term or provision
hereof is inconsistent with or conflicts with any provision of the Security Documents, the terms and provisions contained in this Agreement shall be controlling. 
  
 8.9  Termination. 
  
 (a)  This Agreement
and the obligations of the parties hereunder shall terminate, and be of no further force and effect, when all amounts owed under the Master Debt Agreements have been fully and finally paid. 
  
 (b)  Except as otherwise set forth in this paragraph (b), the rights and obligations of the Senior Lenders and the Senior Loan Agent shall terminate and be of no
further force and effect when all of the Senior Debt has been fully and finally paid. If, upon the repayment in full of the Senior Debt, the Senior Loan Agent or any Senior Lender shall then be acting as the Collateral Trustee under this Agreement,
then the Senior Loan Agent or such Senior Lender, as the case may be, shall duly assign, transfer, and deliver unto the Indenture Trustee all of the rights, instruments and moneys or other Collateral (including any funds or Collateral Account
Collateral then held in the Collateral Account) then held by the Senior Loan Agent or such Senior Lender as Collateral Trustee hereunder and under the Security Documents, and shall execute and deliver such proper instruments in such form as may
reasonably be requested by the Indenture Trustee to evidence such assignment, transfer, and delivery. Upon the Indenture Trustee’s acceptance of the assignment, transfer, and delivery as aforesaid (i) the Indenture Trustee shall immediately and
without the need for any further action succeed to all of the rights and obligations of the Collateral Trustee under the Security Documents as if originally named as such therein, (ii) the Senior Loan Agent and all Senior Lenders shall be fully and
finally released in writing from any and all obligations under this Agreement, and (iii) this Agreement and the obligations of the remaining parties hereunder shall terminate, and be of no further force and effect. 
  
 (c)  Notwithstanding anything to the contrary contained in this Section 8.9, upon the termination of this Agreement (i) the
indemnification provisions of Section 5.4 hereof shall survive the termination of this Agreement, and (ii) unless and until all obligations owed under all Master Debt Agreements have been fully and finally paid, the Security Documents (other than
this Agreement) and all of the obligations of the Debtors thereunder shall remain in full force and effect. 
  
 8.10  Subsidiaries.    Each Debtor hereby covenants and agrees that it will not permit any of its existing or future Subsidiaries to take or fail to take any action that a Debtor is either
required or prohibited, as the case may be, from taking under the provisions of this Agreement. 
 

 27 

  
 8.11  JURY
WAIVER.    THE PARTIES HERETO HEREBY WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDINGS ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY. 
  
 [Signatures on the Following Pages] 
 

 28 

  
 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered by their proper and duly authorized officers and attorneys-in-fact as of the day and year first above written. 
  
 
	 SENIOR LENDERS:
  
 UNION BANK OF CALIFORNIA, N.A.
   as Senior Loan Agent and as Senior Lender
 
	 
	 By:
 	 	 /s/    RANDALL OSTERBERG
        
 

	  	 	 Randall Osterberg
 Senior Vice
President
 

 
  
 
	 
	 By:
 	 	 /s/    JOHN A.
CLARK        
 

	  	 	 John A. Clark
 Vice
President
 

 
  
 
	 BANK OF SCOTLAND
 
	 
	 By:
 	 	 /s/    JOSEPH
FRATUS        
 

	  	 	 Joseph Fratus
 Vice
President
 

 
  
 
	 FBR ASSET INVESTMENT CORPORATION
 
	 
	 By:
 	 	 /s/    RICHARD J.
HENDRIX        
 

	  	 	 Richard J. Hendrix
 President
& Chief Operating Officer
 

 
  
 [Signatures Continued on the Following Page] 
 

 29 

  
 
	 WILMINGTON TRUST COMPANY,
   as Indenture Trustee
 
	 
	 By:
 	 	 /s/    JAMES A. HANLEY
        
 

	  	 	 James A. Hanley
 Financial
Services Officer 
 

 
  
 
	 WILMINGTON TRUST COMPANY,
   as attorney in fact for those persons and entities
   identified as
Subordinated Noteholders on the
   schedule attached hereto as Schedule 3
 
	 
	 By:
 	 	 /s/    JAMES A. HANLEY
        
 

	  	 	 James A. Hanley
 Financial
Services Officer 
 

 
  
 
	 COLLATERAL TRUSTEE:
  
 UNION BANK OF CALIFORNIA, N.A.
 
	 
	 By:
 	 	 /s/    RANDALL OSTERBERG
        
 

	  	 	 Randall Osterberg
 Senior Vice
President
 

 
  
 
	 
	 By:
 	 	 /s/    JOHN A.
CLARK        
 

	  	 	 John A. Clark
 Vice
President
 

 
  
 [Signatures Continued on the Following Page] 
 

 30 

  
 
	 DEBTORS:
 
	 
	 SOUTHWEST ROYALTIES, INC.
 
	 
	 By:
 	 	 /S/    H. H. WOMMACK,
III        
 

	  	 	 H. H. Wommack, III
 President
 

 
  
  
 
	 BLUE HEEL COMPANY
 
	 
	 By:
 	 	 /S/    H. H. WOMMACK,
III        
 

	  	 	 H. H. Wommack, III
 President
 

 

 
 31 

 Schedule 1 
 to Collateral Trust
Agreement 
  
 SECURITY DOCUMENTS 
  
 DOCUMENT NAME 
  
 SECURITY AGREEMENT 
  
 COLLATERAL ASSIGNMENT OF PARTNERSHIP INTERESTS 
  
 ALABAMA AMENDED AND RESTATED MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF PRODUCTION AND FINANCING STATEMENT 
  
 Escambia County, Alabama 
 Lamar County, Alabama 
 Mobile County, Alabama 
 Mortgage Tax

  
 KANSAS AMENDED AND RESTATED MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF PRODUCTION AND FINANCING STATEMENT 

 
 Barton County, Kansas 
 Ellis County, Kansas 
 Rooks County, Kansas 
 Seward County, Kansas 
 Mortgage Tax 
  

LOUISIANA AMENDED AND RESTATED MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF PRODUCTION AND FINANCING STATEMENT 
  
 Ascension Parish, Louisiana 
 Cameron
Parish, Louisiana 
 Iberville Parish, Louisiana 
  
 MONTANA AMENDED AND RESTATED MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF PRODUCTION AND FINANCING STATEMENT 

 DOCUMENT NAME 
  
 Richland County, Montana 
 Roosevelt County, Montana 
  
 NEW MEXICO AMENDED AND RESTATED MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF PRODUCTION AND FINANCING STATEMENT 
  
 Eddy County, New Mexico 
 Lea County, New Mexico 
 Roosevelt County, New Mexico 
 Bureau of Land Management 
 State of New Mexico Commissioner of Public Lands 

 
 NORTH DAKOTA AMENDED AND RESTATED MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF PRODUCTION AND FINANCING STATEMENT 
  
 Bottineau County, North Dakota 
 Burke County, North Dakota 
  
 OKLAHOMA AMENDED AND RESTATED MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF
PRODUCTION AND FINANCING STATEMENT 
  
 Beckham County, Oklahoma 
 Carter County, Oklahoma 
 Garvin County,
Oklahoma 
 Woodward County, Oklahoma 
  
 TEXAS AMENDED AND RESTATED DEED OF TRUST, SECURITY AGREEMENT, ASSIGNMENT OF PRODUCTION AND FINANCING STATEMENT 
  
 Borden County, Texas 
 Cherokee County, Texas 
 Cochran County, Texas 
 Crane County, Texas

 Crockett County, Texas 
 Dawson County, Texas 
 Duval County, Texas 
 Ector County, Texas 
 Fort Bend County, Texas 

 DOCUMENT NAME 
  
 Gaines County, Texas 
 Garza County, Texas 
 Hemphill County, Texas 
 Hidalgo County,
Texas 
 Hockley County, Texas 
 Howard County, Texas 
 Jim Wells County, Texas 
 Kleberg County, Texas 
 Martin County, Texas 
 Midland County, Texas 
 Mitchell County,
Texas 
 Nueces County, Texas 
 Ochiltree County, Texas 
 Pecos County, Texas 
 Reagan County, Texas 
 Reeves County, Texas 
 Scurry County, Texas 
 Throckmorton County,
Texas 
 Upton County, Texas 
 Ward County, Texas 
 Winkler County, Texas 
 Yoakum County, Texas 
 Texas General Land Office 
  
 WYOMING AMENDED AND RESTATED MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF PRODUCTION AND FINANCING STATEMENT 
  
 Sweetwater County, Wyoming 
  
 UCC-1 FINANCING STATEMENTS 
  
 UCC-1 Financing Statement

 UCC-1 Financing Statement 
  
 ALABAMA ASSIGNMENT OF NOTES AND LIENS 
  
 Escambia County, Alabama

 Lamar County, Alabama 
 Mobile County, Alabama 
  
 KANSAS ASSIGNMENT OF NOTES AND LIENS 

 DOCUMENT NAME 
  
 Barton County, Kansas 
 Ellis County, Kansas 
 Rooks County, Kansas 
 Seward County, Kansas

  
 LOUISIANA ASSIGNMENT OF NOTES AND LIENS 
  
 Ascension Parish, Louisiana 
 Cameron
Parish, Louisiana 
 Iberville, Louisiana 
  
 MONTANA ASSIGNMENT OF NOTES AND LIENS 
  
 Richland County, Montana

 Roosevelt County, Montana 
  
 NEW MEXICO ASSIGNMENT OF NOTES AND LIENS 
  
 Eddy County, New Mexico

 Lea County, New Mexico 
 Roosevelt County, New Mexico 
  
 NORTH DAKOTA ASSIGNMENT OF NOTES AND LIENS 
  
 Bottineau County, North Dakota 
 Burke County, North Dakota 
  
 OKLAHOMA ASSIGNMENT OF NOTES AND LIENS 
  
 Beckham County, Oklahoma 
 Carter County, Oklahoma 
 Garvin County, Oklahoma 
 Woodward County, Oklahoma 
  
 TEXAS ASSIGNMENT OF NOTES AND LIENS 

 
 Borden County, Texas 
 Cherokee County, Texas 
 Cochran County, Texas 
 Crane County, Texas 
 Crockett County, Texas 

 

 DOCUMENT NAME 
  
 Dawson County, Texas 
 Duval County, Texas 
 Ector County, Texas 
 Fort Bend County,
Texas 
 Gaines County, Texas 
 Garza County, Texas 
 Hemphill County, Texas 
 Hidalgo County, Texas 
 Hockley County, Texas 
 Howard County, Texas 
 Jim Wells County,
Texas 
 Kleberg County, Texas 
 Martin County, Texas 
 Midland County, Texas 
 Mitchell County, Texas 
 Nueces County, Texas 
 Ochiltree County, Texas 
 Pecos County,
Texas 
 Reagan County, Texas 
 Reeves County, Texas 
 Scurry County, Texas 
 Throckmorton County, Texas 
 Upton County, Texas 
 Ward County, Texas 
 Winkler County, Texas

 Yoakum County, Texas 
  
 WYOMING ASSIGNMENT OF NOTES AND LIENS 
  
 Sweetwater County, Wyoming.

 

 Schedule 2 
 to Collateral Trust
Agreement 
  
 Collateral Security not Subject to Liens 
 in favor of Collateral Trustee 
  
 1.  The Indenture
Trustee holds a pledge of the capital stock of Basic Energy Services, Inc., directly owned by Southwest Realty Holdings, Inc., an affiliate of the Debtors. 
  
 2.  The Indenture Trustee holds a pledge of the capital stock Midland Red Oak Realty, Inc., directly owned by MRO Holdings, Inc. and formerly owned by Southwest Realty Holdings, Inc., an
affiliate of the Debtors. 

 Schedule 3 
 to Collateral Trust
Agreement 
  
 List of Subordinated Noteholders 
  
 The Bank of New York 
 DTC Participant # 901

 One Wall Street, 6th Floor 
 New York, NY 10286 
 Attn:  Ray Cestaro 
   Jeff Lazarus 
  
 Bankers Trust Company

 DTC Participant # 903 
 648 Grassmere Park Road 
 Nashville, TN 37211 
 Attn:  Keith Dismuke 
  
 JP Morgan
Chase/CCSG 
 DTC Participant # 2123 
 811 Rusk St. 18-HCB-340 
 Houston, TX 77002 
 Attn:  Debbie Potts 
  
 Boston Safe
Deposit & Trust Co. 
 DTC Participant # 954 
 Mellon Bank Ctr 
 525 William Penn Place 
 Pittsburgh, PA 15259 
 Attn:  Anthony Scanga 
  
 Brown Brothers Harriman 
 DTC Participant # 10 
 525 Washington Blvd. 11th Fl. 
 Jersey City, NJ 07310 
 Attn:  Corporate Actions 
  
 Citibank NA 
 DTC Participant # 908 
 3800 Citibank Center 
 Tampa, FL 33610-912 
 Attn:  Karen Kelly 

  
 JP Morgan Chase 
 DTC Participant # 90 
 14201 Dallas Pkwy

 Dallas, TX 75254 
 Attn:
Corp Reorg Dept, 
 12th Fl. 
 Attn: Mark Warden 
  
 Wachovia Bank, NA- 
 PhilaMain DTC 
 Participant #2163

 123 S. Broad St. 
 Philadelphia, PA 19109 
 Attn: Reorg Dept. 
  
 Invester Bank & Trust 
 DTC Participant
# 2212 
 200 Clarendon St. 4th Fl 
 Boston, MA 02116 
 Attn: Corporate Actions 
  
 PNC Bank (Saxon & Co.) 
 DTC Participant
# 2616 
 8800 Tinicum Blvd. 
 Attn: Reorg MS F6-F266-02-2 
 Philadelphia, PA 19153 
  
 State Street Bank & 
 Trust/Locker &
Co. 
 DTC Participant # 997 
 1776 Heritage Drive 
 No. Quincy, MA 02171 
 Attn: Corp Action Unit 
  
 Northern Trust Co.

 DTC Participant # 2669 
 801 S. Canal 
 Chicago, IL 60607 
 Attn: Reorg C-IN; 
 Joe Kirincich 
  
 Bear Stearns Securities Corp. 
 DTC
Participant # 352 

	1
	 
	Metrotech Ctr. N. 
 

 Dept. C,
Cashiers Dept. 
 

 Brooklyn, NY 11201-3862 
 Attn: Keith Cullen 
  
 Prudential Financial

 DTC Participant # 30 
 One New York Plaza 
 New York, NY 10292 
 Attn: David Lai 
  
 UFJ Trust Company of NY

 DTC Participant # 2932 
 666 Fifth Ave. 33rd Fl. 
 New York, NY 10103 
 Attn: Edward Caplette 
 

  
 U.S. Bank NA 
 DTC Participant # 2803 
 1555 N. River
Center Dr. 
 Suite 210 
 Milwaukee, WI 5321 
 Attn:  Ian Martin 
  
 Swiss American Securities 
 DTC Participant
# 12 
 12 E. 49th Street 
 New York, NY 10017 
  
 Jefferies & Co., Inc. 
 DTC Participant # 19 
 Harborside Financial
Ctr. 
 705 Plaza 3 7th Fl. 
 Jersey City, NJ 07303 
  
 Mercantile Safe Deposit 
 & Trust/Nap & Co., a partnership 
 DTC Participant # 976 
 766 Old Hammonds Ferry Rd. 
 Proxy Unit #230-20 
 Linthecum, MD 21090 
  
 Sumitomo Trust & Banking 
 Co. (U.S.A.) 
 DTC Participant # 2779 
 527 Madison Ave. 
 New York, NY 10022Employment Agreement -Bill E. Coggin

 EXHIBIT 10.2 
 EMPLOYMENT
AGREEMENT 
  
 This EMPLOYMENT AGREEMENT is made as of October 1, 2002, by and between SOUTHWEST
ROYALTIES, INC., a Delaware corporation (the “Company”), and BILL E. COGGIN, a resident of Stanton, Texas (the “Executive”). 
  
 WHEREAS, the Company desires to employ the Executive to perform the duties of Chief Financial Officer and Executive Vice President of the Company, as applicable and as such duties may be designated by
the Board of Directors (the “Board”) from time to time; 
  
 WHEREAS, the Executive desires to be employed
by the Company to perform such duties upon the following terms and conditions; 
  
 NOW, THEREFORE, in consideration
of the mutual covenants herein, the parties agree as follows: 
  
 1.    Definitions.    For purposes of this Agreement, the following definitions apply: 
  
 (a)    “Cause” shall mean: 
  
 (i)    willful or gross misfeasance or nonfeasance of duty by the Executive that is intended to injure or has the effect of materially
injuring the reputation, business or business relationships of the Company or any of its subsidiaries or any of their respective officers, directors or employees; 
  
 (ii)    a material violation or breach by the Executive of any term of this Agreement; 
  
 (iii)    conviction of, or a guilty plea (including a plea of nolo contendere) by, the
Executive of any felony or any crime involving moral turpitude which reflects unfavorably upon the Company or any of its subsidiaries. 
  
 (b)    “Good Reason” shall mean any of the following, when occurring without Executive’s express written consent: 
  
 (i)    a substantial and material alteration in the nature or status of the Executive’s
responsibilities, duties or title; 
  
 (ii)    a failure by the Company to
continue in effect any employee benefit plan in which the Executive was participating, or the taking of any action by the Company that would adversely and materially affect the Executive’s participation in, or materially reduce the
Executive’s benefits under, any such employee benefit plan, unless such failure or such taking of any action as set forth in this subparagraph (ii) adversely affects the senior members of corporate management of the Company generally or the
Company provides to the Executive substantially similar benefits under a different benefit plan;
 

  
 (iii)    a material reduction in or
diminution in value of Fringe Benefits (as defined below) unless such reduction or diminution in value adversely affects the senior members of corporate management of the Company generally; 
  
 (iv)    any breach by the Company of any provision of this Agreement; 
  
 (v)    any failure by the Company to obtain the assumption and performance of this Agreement by any successor or assign of the Company;

  
 (vi)    the Board adopts by a majority vote a resolution declaring that a
merger, consolidation, reorganization, recapitalization or similar transaction, or a sale of substantially all of the assets of the Company, constitutes a change of control of the Company; or 
  

(vii)    a relocation of the Company’s principal offices to a site with a distance in excess of fifty (50) miles from the
Company’s current principal offices located at 407 North Big Spring, Midland, Texas (“Midland Office”), or a requirement by the Company that the Executive relocate to a site with a distance in excess of fifty (50) miles from the
Company’s Midland Office; except that the Executive will travel on Company business as reasonably required by his position and duties, as defined by the Board. 
  
 (c)    “Disability” shall mean the absence of the Executive from the Executive’s duties with the Company on a full-time
basis a total of 6 months in any 12-month period, during which time this Agreement is in effect, as a result of total and permanent incapacity due to mental or physical impairment. The determination of whether an incapacity is total and permanent
shall be made by a physician selected by the Company or its insurers and acceptable to the Executive or the Executive’s legal representative. In no event should any provision of this Agreement be construed as inconsistent with the Americans
with Disabilities Act or similar federal, state, or local law. Nothing in this Agreement relieves the Company from any obligations that it may have to comply with such laws. Furthermore, nothing in this Agreement changes the terms of any disability
insurance plan. 
  
 (d)    “Termination Date” shall mean: 

 
 (i)    the effective date of a notice of termination, issued pursuant to Section 16 below,
or any later date specified in the notice of termination, if the Executive’s employment is terminated by the Company for any reason other than death; 
  
 (ii)    the last day of the calendar month during which Executive’s death occurs if the Executive’s employment is terminated
by reason of his death; 
  
 (iii)    the date specified in the Executive’s
notice of intent in accordance with Section 8 below and issued pursuant to Section 16 below, if the Executive voluntarily terminates his employment for whatever reason. 
  
 2.    Compensation.    During the term of this Agreement, the Executive shall be compensated as follows: 

 
 2 

  
 (a)    The Company shall employ the Executive
as its Vice President and Chief Financial Officer (or as an executive officer with duties commensurate with those of that position, at a gross salary of $225,000 per annum (“Base Salary”) payable in accordance with the customary practices
of the Company, plus such salary increases and bonuses as are approved by the Board or any Compensation Committee of the Board. (References to “Board” in this Section 2 shall include the Board of Directors or any Compensation Committee of
the Board, whichever shall have taken action in the relevant circumstances.) 
  
 (b)    The Executive shall be eligible for an annual cash bonus based on criteria established by the Board, in addition to the Base Salary. The Board shall determine the criteria for any annual cash bonus for a
fiscal year prior to, or as soon as reasonably practical after, the beginning of such fiscal year. The Executive shall not be entitled to an annual cash bonus for any year in which he was not employed by the Company for the full fiscal year unless
this Agreement expressly provides otherwise. 
  
 (c)    The Executive shall
receive, subject to the applicable plan, contract, policy or agreement terms, fringe benefits that are made available to all executive level employees of the Company including, but not limited to, a vehicle allowance, a mobile or cell telephone, and
club dues (“Fringe Benefits”), and such other payments or allowances as the Board may make available to the Executive. Without prejudice to the Executive’s rights under this Agreement, the Company reserves the right: 

 
 (i)    to modify the terms of any Fringe Benefits plan, contract, policy or agreement in
which the Executive participates, and 
  
 (ii)    to make reasonable changes in
Fringe Benefits at the direction of the Board. 
  
 3.    Duties.    The Executive shall, during the term of his employment under this Agreement: 
  
 (a)    devote his full normal working time, energies and attention to the duties of his employment, as they may be established from time
to time by the Board, consistently with the position and office occupied by the Executive; 
  
 (b)    comply with all reasonable rules, regulations and administrative directions now or hereafter established by the Company; and 
  
 (c)    be reimbursed by the Company within a reasonable time for all reasonable and necessary business expenses incurred by him in the
performance of his duties under this Agreement; provided that the Executive shall render to the Company such accounts and vouchers covering expenditures as the Company reasonably requires and as are necessary for tax purposes, and shall follow
normal policies of the Company regarding expenses. 
  
 4.    Term.    This Agreement shall be effective as of October 1, 2002 and shall terminate on September 30, 2005, unless terminated earlier as provided under Sections 5, 6, 7, or 8
below; provided, however, that this Agreement shall be automatically renewed for successive one (1) year periods beginning after September 30, 2005 unless
 

 
 3 

 
the Executive or the Company notifies the other in writing within 90 days prior to the Termination Date of the Agreement of the party’s intent not to renew this Agreement, in which event
this Agreement shall terminate on September 30 of such year. 
  
 5.    Termination by the
Company Without Cause or by the Executive for Good Reason; Benefits.    If the Company terminates the Executive without Cause, and such termination is not due to Disability, or death, or if the Executive terminates his
employment for Good Reason in accordance with the terms of this Agreement, this Agreement shall terminate and the Executive shall be entitled to the following severance benefits: 
  
 (a)    continued Base Salary for thirty-six (36) months after the Termination Date at the rate in effect immediately prior to the
Termination Date, to be paid according to the customary practice of the Company, or if so elected by the Executive, paid in a lump sum within sixty (60) days after the Executive’s election; 
  

(b)    any bonus for which the Executive is eligible in the fiscal year during which the Termination Date occurs and for the
following year. The bonus for the following year shall be in such amount as would be payable to the Executive had he been employed for that full fiscal year, but in no event shall such bonus be less than the bonus paid in the fiscal year in which
the Termination Date occurred. Such bonus shall be paid in the same manner as elected by the Executive in (a) above; 
  
 (c)    to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits accrued by the Executive as of the Termination Date required
to be paid or provided or which the Executive is eligible to receive as Fringe Benefits under any benefit plan, contract, policy or agreement of the Company and its affiliated companies and shall continue to pay for and provide such Fringe Benefits
for thirty-six (36) months after the Termination Date; 
  
 (d)    if the
Executive receives any payments under this Agreement which are subject to an excise tax imposed under Section 4999 of the Internal Revenue Code of 1986, as amended, or any similar tax imposed under federal, state or local law (collectively,
“Excise Taxes”), the Company shall pay to the Executive, on or before the date upon which the Executive is required to pay such Excise Taxes: (i) an amount equal to all Excise Taxes then due and payable, and (ii) the amount necessary to
defray the Executive’s increased federal, state and local income tax liability arising from payment of the amount specified in subsections (a), (b) and (c) of this Section 5. For purposes of calculating the amount payable to the Executive under
this Subsection (d), the federal, state, and local income tax rates used shall be the highest marginal federal, state, and local rates applicable to ordinary income in the Executive’s state of residence, taking into account any federal income
tax deductions or credits available to the Executive for federal, state or local income taxes. The Company shall cause its independent auditors to calculate such amount and provide the Executive a copy of such calculation at least ten (10) days
prior to the date specified above for payment of such amount; and 
  
 (e)    all
premiums for continuation coverage under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) for so long as Executive is eligible for such coverage. To the extent that COBRA coverage expires before the end of the 36-month period
following the
 

 
 4 

 
Termination Date, the Company shall reimburse the Executive for premiums that he pays for comparable health insurance coverage over the remainder of the 36-month period; provided, however, that
the Company shall not be obligated to pay for such premiums if the Executive is eligible for coverage under Medicare or Medicaid or a group plan in which his spouse or other family member participates and the Executive is not required to pay an
additional premium for such group coverage; 
  
 (f)    all accrued compensation
and unreimbursed expenses through the Termination Date. Such amounts shall be paid to the Executive in a lump sum in cash within thirty (30) days after the Termination Date. 
  
 The Executive shall be free to accept other employment during the period in which he is receiving benefits under this Section, and the Company shall not offset any benefits to which Executive is
entitled under this Section 5 by any compensation or benefits Executive receives through other employment. 
  
 6.    Termination in Event of Death; Benefits.    If the Executive’s employment is terminated by reason of the Executive’s death, this Agreement shall terminate without further
obligation of the Company to the Executive’s legal representatives under this Agreement other than for payment of all accrued compensation, unreimbursed expenses and the timely payment or provision of Fringe Benefits through the Termination
Date, subject to the terms of the Fringe Benefits plan or policy. Such amounts shall be paid to the Executive’s estate or beneficiary, as applicable, in a lump sum in cash within thirty (30) days after the Termination Date. 

 
 7.    Termination in Event of Disability; Benefits.    If the Executive’s
employment is terminated by reason of the Executive’s Disability, this Agreement shall terminate without further obligations to the Executive, other than for payment of all compensation, unreimbursed expenses and the timely payment or provision
of Fringe Benefits accrued as of the Termination Date, subject to the terms of the Fringe Benefit plan, contract, policy or agreement. Such amounts shall be paid to the Executive in a lump sum in cash within thirty (30) days after the Termination
Date. 
  
 8.    Voluntary Termination by Executive and Termination for Cause;
Benefits.    The Executive may terminate his employment with the Company for whatever reason, including Good Reason, by giving notice of his intent in accordance with Section 16, below, and stating an effective date of
termination at least sixty (60) days after the date of such notice; provided, however, that the Company may accelerate such effective date without liability to the Executive. The Company may terminate the Executive’s employment with Cause in
accordance with the terms of this Agreement. Upon Voluntary Termination by the Executive or upon Termination for Cause by the Company, this Agreement shall terminate and the Company shall pay to the Executive all accrued compensation, unreimbursed
expenses and Fringe Benefits accrued through the Termination Date, subject to the terms of the Fringe Benefit plan, contract, policy or agreement. Such amounts shall be paid to the Executive in a lump sum in cash within thirty (30) days after the
Termination Date. 
  
 9.    Opportunity to Cure.    Before the
Executive may terminate this Agreement for “Good Reason” under Section 1(a)(i)-(iv), the Executive must provide written notice in
 

 
 5 

 
accordance with Section 16 of the reason for the intended termination and provide the Company with 30 days from the date of the notice to address the alleged reason for termination. Similarly,
before the Company may terminate this Agreement for “Cause” under Section 1(a), the Company must provide written notice in accordance with Section 16 of the reason for the intended termination and provide the Executive with 30 days from
the date of the notice to address the alleged reason for the termination. 
  
 10.    Confidentiality.    The Executive acknowledges that the Company has trade secrets and confidential information and that as an executive level officer he will have access to all
such trade secrets and confidential information. The Executive further acknowledges that the performance of duties for another company might conflict with the Executive’s duty not to use or divulge such trade secrets and confidential
information. The Executive agrees that at no time will he, directly or indirectly, or in any manner, misuse or divulge to any person any confidential information or trade secrets of the Company. 
  

The Executive agrees and acknowledges that a breach of the covenant contained in this Section will cause irreparable damage to the Company, and that it is and will be
impossible to estimate or determine the damage that will be suffered by the Company in the event of such breach by the Executive. Therefore, the Executive further agrees that in the event of any violation or threatened violation of such covenant,
the Company shall be entitled as a matter of course to injunctive relief, including, but not limited to, a preliminary or permanent injunction or a temporary restraining order of any court of competent jurisdiction restraining such violation or
threatened violation by the Executive. Such right to injunctive relief shall be cumulative and in addition to whatever other remedies the Company may have. 
  
 This Section 10 shall survive the termination of this Agreement. 
  
 11.    Integration.    This Agreement shall constitute the entire Agreement governing the employment of the Executive by the Company and supersedes any prior agreement between the
parties with respect to the subject matter contained herein. This Agreement shall be governed by the laws of Delaware, excluding laws on choice of law. Any litigation arising out of or relating to this Agreement shall only be brought and heard in
the federal or state courts located in Midland, Texas, and no transfer of venue outside such area shall be permitted. 
  
 12.    Unenforceability.    If any section, subsection, paragraph or subparagraph of this Agreement, or any part thereof, shall be unenforceable under any applicable law, notwithstanding
such unenforceability, the remainder of this Agreement shall remain in full force and effect. 
  
 13.    Assignment.    This Agreement is personal to the Executive and shall not be assignable by the Executive without the prior written consent of the Company. This Agreement shall
inure to the benefit of, and be enforceable by, the Executive’s legal representatives. This Agreement shall inure to the benefit of, and be binding upon, the Company and its successors and assigns. 

 
 6 

  
 14.    Attorneys’ Fees.    In
the event of any legal proceeding, including, but not limited to, arbitration, to enforce or interpret the provisions of this Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees and costs. 
  
 15.    Survival.    In addition to terms specifically identified in this Agreement as
surviving its termination, terms which by their common usage or meaning are to survive termination of the Agreement shall also survive. 
  
 16.    Notice.    All notices required or permitted under this Agreement shall be put in writing and sent to the Executive’s address of residence last provided to the
Company, and to the business address of the Company current at the time the notice is sent. Notices sent by first class U.S. mail shall be effective three (3) days after the postmark date. Notices sent by other means shall be effective upon actual
delivery to the above-described address. 
  
 17.    Withholdings.    The Company may withhold from any amounts payable under the Agreement, the amounts of any federal, state, local or foreign taxes, as shall be required under any
applicable law or regulation. 
  
 IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of the
date first above written. 
  
 
	 SOUTHWEST ROYALTIES, INC.
 
	 
	 By:
 	 	 /s/    H.H. WOMMACK, III        
 

	  	 	 H. H. Wommack, III, President
 
	 
	  	 	 /s/    BILL E.
COGGIN        
 

	  	 	 Bill E. Coggin
 

 

 
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