Document:

[ * ] = Certain confidential information contained

in this document, marked by brackets, has been omitted and filed separately

with the Securities and Exchange Commission pursuant to Rule 24b-2 of the

Securities Exchange Act of 1934, as amended.

Exhibit 10.39

AMENDMENT #1 TO THE

“PROCESS DEVELOPMENT AND

MANUFACTURING AGREEMENT”

BETWEEN

ONYX PHARMACEUTICALS, INC., and XOMA

(US) LLC

This Amendment #1

to the Process Development and Manufacturing Agreement (the “Amendment”) is

made and entered into on April 15, 2002 by and between ONYX Pharmaceuticals,

Inc., a Delaware Corporation having its principal place of business at 3031

Research Drive, Richmond, California 94806 (“ONYX”), and XOMA (US) LLC, a

Delaware limited liability company (“XOMA”) with offices at 2910 Seventh

Street, Berkeley, California 94710. 

ONYX and XOMA are sometimes referred to herein individually as a “Party”

and collectively as “Parties.”

RECITALS

                Whereas ONYX and XOMA entered into a Process

Development and Manufacturing Agreement, dated January 29, 2001, to engage XOMA

to scale up and improve the process for the manufacture of ONYX-015, and to

manufacture and supply ONYX-015 in bulk form for clinical trials and for the

commercial launch of the ONYX-015 product, such that the Development Phase was

to occur at a [ * ] liter scale and the commercial

Manufacturing Phase was to occur at a [

* ] liter scale;

                Whereas the Parties desire to amend the Agreement as

follows:

1.             Section

2.5(a) of the Agreement is deleted in its entirety, and the following

substituted in its place:

2.5          

Specifications; Changes to Specifications and Work Plan.

(a)           As of the Effective Date, ONYX and Pfizer have agreed

upon the current Specifications for Drug Substance, which are attached hereto

as Exhibit A.  ONYX may change the

Specifications from time to time, after consulting with XOMA in advance as to

such changes, and such revised Specifications shall replace the previous

Specifications and shall be deemed to be part of this Agreement as Exhibit

A.  A copy of the current Specifications

for Drug Substance is attached to this Amendment as Exhibit A.  In particular, after XOMA has produced [ * ] releasable Batches of Drug Substance

at

 

1

 

the [ * ]

Development Scale, the Project Team shall determine if any changes to the

Specifications are desirable or required. In particular, the Parties expect

that ONYX will change the Specifications as a result of process changes made

during the Development Phase under Section 4 and the data obtained from

registration Batches manufactured pursuant to Section 4.2, and that such

modified Specifications will be consistent with FDA expectations for purity,

potency, and other product characteristics. 

ONYX and XOMA expect that the modified Specifications will be comparable

to Specifications existing as of the Effective Date, particularly as regards

purity and potency, except as these Specifications may require revision per the

request of any Regulatory Authority (e.g., FDA, EMEA).

2.             Section

4.2(a) of the Agreement is deleted in its entirety, and the following

substituted in its place:

4.2           Scale-up

of Manufacture.

(a)           Establishment of Commercial Scale. 

Subject to sections 4.2(c) and 4.3, in accordance with the Work Plan and

as quickly as reasonably practicable, XOMA will scale up the manufacturing

scale for Drug Substance to Commercial Scale, including, without limitation,

performing process development work to improve the manufacturing process for

Drug Substance that is transferred to XOMA pursuant to Section 4.1, increasing

of the Drug Substance Yield, and addressing FDA expectations for quality (i.e.,

purity and potency).  The goal of such

efforts will be the production of the first Batch at Commercial Scale of Drug

Substance that meets Specifications and that results in an overall Drug Substance

Yield of at least [ * ] (which Yield

level will not be deemed pursuant to this Section 4.2(a) to be a

Specification).  This minimum Yield

percentage of [ * ] is an estimate

based on production at the [ * ] fermentation bioreactor scale, and it is

subject to confirmation and mutually agreed good faith adjustment by the

Parties based upon initial manufacturing runs at Development Scale.

3.             Section

4.3 of the Agreement is deleted in its entirety, and the following substituted

in its place:

4.3           Production at Development Scale. 

Prior to the establishment of Commercial Scale per section 4.2(a), as

quickly as reasonably practicable, but no later than [ * ], XOMA will

initiate [ * ] cGMP Batches of

Drug Substance at the   [ * ]

liter Development Scale in calendar [

* ], and ONYX will receive all of

each such Batch for purposes of (i) satisfying ONYX and Pfizer’s projected

needs for a working stock of active ONYX-015 virus and for ONYX-015 supplies

for critical clinical trials, (ii) generating experimental data to support

proposed process changes, (iii) supporting the preparation and filing of

appropriate documentation (e.g. a Drug master file or any new or amended INDs

for ONYX-015 that ONYX or an ONYX Partner may file), and/or (iv)

 

2

 

supporting any BLA that

ONYX or Pfizer may file for ONYX-015. 

The Parties will consult as to ONYX’s additional needs for Development

Scale Batches, based on its needs for the purposes set forth in this Section 4.3,

and XOMA will consider in good faith any requests by ONYX for such additional

production of Drug Substance at Development Scale, with any production to be

included in the Work Plan only upon the Parties’ mutual agreement.  If XOMA produces any additional Development

Scale Batch pursuant to this Section 4.3, then: (i) the Parties will agree upon

an extension of the timeframes in Section 11.3(a) pursuant to which ONYX may

terminate this Agreement without penalty; and/or (ii) the Parties will agree

upon an extension of the period during which XOMA will manufacture the

guaranteed minimum number of Batches so as to permit XOMA to recapture its

economic benefits as contemplated in this Agreement.

In addition, as soon as practical but not later than [ * ], XOMA shall produce [ * ]

cell suspension-adapted HEK 293 cell banks (to include [ * ]) in full compliance with cGMP and produced in Xoma’s cGMP cell banking

facility. Each bank must contain at least      

[

* ]

vials (net of vials removed for QC testing and retains), and must meet Onyx

specifications for suspension-adapted HEK 293 master or working cell banks

(“Cell Bank Specifications”), as appropriate.  

Additionally, Xoma shall use reasonable efforts to produce [ * ] additional cell suspension-adapted HEK 293 cell banks, also to include

[

* ],

in full compliance with cGMP and produced in Xoma’s cGMP cell banking facility.

Each bank must also contain at least  [ * ]

vials (net of vials removed for QC testing and retains), and must meet Onyx

specifications, as appropriate.  Copies of the current cell bank specifications are attached to this

Amendment as Exhibits B and C.

4.             Section

5.4 of the Agreement is deleted in its entirety, and the following substituted

in its place:

5.4           Commercial Supply Forecast. 

On or before [ * ] Onyx

will provide XOMA with a non-binding written [

* ] year forecast by calendar quarter of Onyx’s or any Onyx

Partner’s anticipated orders for Drug Substance, based upon demand for clinical

trials and commercial sales and upon reasonably anticipated dates for issuance

of Regulatory Approvals for the ONYX-015 product and launch dates

therefor.  This forecast shall be for

facility planning purposes only and shall not constitute an order.  Onyx will update this forecast on a calendar

quarterly basis.

5.             Section

6.2 of the Agreement is deleted in its entirety, and the following substituted

in its place:

6.2           Space Fee. 

Beginning with the calendar quarter commencing [ * ] and until production of the first

registration Batch at Commercial Scale pursuant to Section 4.2(a), ONYX shall

pay XOMA a dedicated space fee for the Suite of [ * ] per calendar quarter, payable on a calendar quarterly

basis in advance by wire transfer of immediately

 

3

 

available funds to an

account designated by XOMA.  After the

calendar quarter in which such first registration Batch is supplied to ONYX, no

further dedicated space fee shall be payable. 

Adjustment for the first two quarters of 2002 will be wired to XOMA

promptly after signing this Amendment.

6.             Section

6.5 of the Agreement is deleted in its entirety, and the following substituted

in its place:

6.5                   Milestone Payments. Within thirty (30) days of the

achievement of each milestone set forth in this Section 6.5, ONYX will pay to

XOMA the applicable milestone payment by wire transfer of immediately available

funds to an account designated by XOMA.

                        (a)  Commercial

Scale

Other than

milestones for additional Yield improvements pursuant to Section 6.5(a)(ii), no

Commercial Scale milestone payment will be payable more than once.

 (i) Initial Commercial Scale

Batch Meeting Specifications and with Adequate Yield. 

Upon production of the initial Batch at the [ * ]L Commercial

Scale in compliance with Specifications and cGMP with the required minimum

Yield pursuant to Section 4.2(a), as adjusted, ONYX will pay to XOMA a

milestone payment of [ * ].

(ii)  Yield Improvements. 

For each increase of [ * ]

percentage points in manufacturing Yield in excess of [ * ] Yield (as such Yield level may be

adjusted pursuant to Section 4.2(a)), as calculated at the completion of the

first [ * ] Batches of Drug

Substance at [ * ]L Commercial Scale that comply with the

warranties in Section 8.1(a) pursuant to Sections 4.2(a) and (b),

ONYX will pay to XOMA a milestone payment of [

* ].  Increases in Yield must

be evidenced by the average Yield of the [ *

] Batches of Drug Substance (or, if the Yield for one Batch differs

by at least [ * ] percentage

points from the average Yield of the other [

* ] Batches, the average Yield of

such [ * ] Batches and the next Batch at Commercial

Scale that complies with the warranties in Section 8.1(a)) at or in excess

of [ * ] Yield (as so adjusted).

For purposes of example:

If [ * ] consecutive Batches result in Yields of [ * ], respectively, XOMA will have earned

an aggregate milestone payment of [

* ] as there has been a

demonstrated Yield improvement of [

* ] percentage points, which is

equal to [ * ] increments of [ * ]

percentage points so that XOMA would receive [

* ] milestone payments of    [

* ].

If [ * ] consecutive Batches result in Yields of [ * ] respectively, and a [ * ]

Batch results in a Yield of [ * ]

the [ * ] Batch would be disregarded, and XOMA will have earned an

 

4

 

aggregate milestone payment of [ * ]

based upon the other [ * ] Batches, as there has been a demonstrated

Yield improvement of [ * ] percentage points, which is equal to [ * ] increments of [ * ] percentage

points so that XOMA would receive [

* ] milestone payments of [ * ]

Milestone payments for

Yield improvements under this Section 6.5(b) shall be payable only once for

each [ * ] percentage points of

Yield improvement.

(b)                                 [ * ]

Liter Development Scale

(i) Number of

Batches and Production of Drug Substance

ONYX shall pay

XOMA a milestone payment of [ * ]

upon initiation of the  [ * ] run at [ * ] liter

Development Scale provided all [ *

] runs are initiated during the

calendar year [ * ] and further

provided that at least [ * ] liter runs yield releasable Batches of

Drug Substance.  In addition, during the

calendar year [ * ] ONYX shall pay

XOMA [ * ] for each releasable

Batch of Drug Substance produced after the first [ * ] releasable

Batches have been produced.

(ii)                                  Yield Improvements

ONYX shall pay XOMA a

milestone payment of [ * ] for

every incremental [ * ] point

improvement in Drug Substance Yield evidenced by the average Yield of      [

* ] consecutive releasable Batches

of Drug Substance, starting from the current baseline Yield of [ * ]. 

A given batch may be used only once for the purpose of determining an

incremental Yield improvement under this Amendment.  The average Yield used to demonstrate attainment of each Yield

improvement milestone will be used as the new baseline Yield for determining

the next incremental Yield improvement milestone.

For purposes of example:

With regard to the

initial milestone payment, if [ * ] consecutive releasable Batches result in

Yields of [ * ] respectively, XOMA

will have earned an aggregate milestone payment of [ * ] as there

has been an average demonstrated Yield improvement over the [ * ]

Batches of [ * ] percentage

points, which is equal to      [ * ] increments

of [ * ] percentage points above the initial baseline Yield of [ * ],

so that XOMA would receive [ * ] milestone payments of [ * ].

In the above example, the

average Yield for the [ * ] Batches of [ * ] would become the new baseline Yield for the next

incremental Yield improvement milestone payment.  If the following [ *

] consecutive releasable Batches

result in Yields of [ * ]

respectively, XOMA will have earned an additional milestone payment of [ * ] as there has been a demonstrated

Yield improvement over the [ * ] Batches of [ * ] percentage points, which is equal to [ * ]

increments of [ * ] percentage points above the new baseline

Yield of [ * ]

 

5

 

(c)           Regulatory Approval for Facility. 

Upon licensure by the FDA of ONYX-015 for manufacture of Drug Substance

by XOMA at the Facility, ONYX will pay to XOMA a milestone payment of [ * ]

7.             Section

11.3(a) of the Agreement is deleted in its entirety, and the following

substituted in its place:

(a)           Delay in Performance by XOMA. 

If ONYX has not materially breached its obligations to assist XOMA or

enable XOMA’s performance under this Agreement, then ONYX may terminate this

Agreement without penalty or further obligation to XOMA (except as otherwise

stated in this Section 11.3) upon at least ninety (90) days prior written

notice if:

(i)            XOMA has not initiated manufacture of Drug Substance

(defined as thawing a vial of cells in preparation for manufacturing a Batch of

Drug Substance) in the Suite by [ * ]

(ii)           XOMA has not manufactured and supplied to ONYX or its

designee a Batch of Drug Substance meeting the then current Specifications at

the [ * ]L Development Scale by [

* ], provided that ONYX has not

significantly delayed the timelines for the Project due to ONYX’s decisions

based on changed needs for ONYX-015 for clinical trials or on implementation of

process changes;

(iii)         XOMA has not manufactured and supplied to ONYX or its

designee a Batch of Drug Substance at [

* ]L Commercial Scale meeting the

then-current Specifications by [ *

], provided that ONYX has not

significantly delayed the timelines for the Project due to ONYX’s decisions

based on changed needs for ONYX-015 for clinical trials on implementation of

process changes; or

(iv)          After the Attainment of Commercial Scale, XOMA fails

to successfully manufacture the number of Batches of Drug Substance ordered by

ONYX in compliance with its guaranteed minimum annual number of Batches in any

applicable twelve (12) month period under Section 5.2.

If ONYX’s actions, inactions

(e.g. ONYX’s failure to provide raw materials, etc., pursuant to Section

2.1(b)) or decisions cause a delay in achievement of the target dates in this

Section 11.3(a), ONYX and XOMA will in good faith agree upon an extension of

the target dates.  If ONYX terminates

this Agreement pursuant to this Section 11.3(a), ONYX will reimburse XOMA for

all appropriate costs under this Agreement incurred by XOMA to the date of

notice of termination by ONYX for services performed, for commitments that

cannot be canceled, and for resources that cannot be reallocated, and for all

other costs that XOMA incurs in transferring the technology to ONYX or a Third

Party at ONYX’s request pursuant to Section 7.1(b).  XOMA will use diligent,

 

6

 

commercially reasonable

efforts to minimize any costs or obligations that cannot be canceled and to

reallocate any resources that were dedicated to the Project.

8.             Counterparts. 

This Amendment may be executed in counterparts with the same force and

effect as if each of the signatories had executed the same instrument.

IN WITNESS WHEREOF, the

parties hereto have caused this Amendment to be executed by their duly

authorized officers as of the date first set forth above.

	

  XOMA (US) LLC

  	

  ONYX PHARMACEUTICALS, INC.

  
	

   

  	

   

  	

   

  	

   

  
	

  By:

  	

  /s/  Clarence

  L. Dellio

  	

  By:

  	

  /s/  Hollings

  C. Renton

  
	

   

  	

   

  	

   

  	

   

  
	

  Name:

  	

  Clarence L. Dellio

  	

  Name:

  	

  Hollings C. Renton

  
	

   

  	

   

  	

   

  	

   

  
	

  Title:

  	

  Senior Vice President, Operations

  	

  Title:

  	

  Chief Executive Office

  

 

 

[ * ] =

Certain confidential information contained in this document, marked by

brackets, has been omitted and filed separately with the Securities and

Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of

1934, as amended

 

7

 

Appendix A

 

[ * ]

 

 

[ * ] = Certain confidential information contained in this

document, marked by brackets, has been omitted and filed separately with the

Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities

Exchange Act of 1934, as amended.

 

8

 

Appendix b

 

[ * ]

 

[ * ] =

Certain confidential information contained in this document, marked by

brackets, has been omitted and filed separately with the Securities and

Exchange Commission pursuant to Rule 24b-2 of the Securities Exchange Act of

1934, as amended.

 

9

 

Appendix c

 

[ * ]

 

[ * ] = Certain confidential information contained in this

document, marked by brackets, has been omitted and filed separately with the

Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities

Exchange Act of 1934, as amended.

 

 

10EXHIBIT 10.1

 

NINTH RESTATED LOAN AGREEMENT

 

AMONG

 

CLAYTON WILLIAMS ENERGY, INC.,

WARRIOR GAS CO.,

AS BORROWERS

CWEI ACQUISITIONS, INC. AND

ROMERE PASS ACQUISITION CORP.,

AS GUARANTORS

BANK ONE, NA

UNION BANK OF CALIFORNIA, N.A.

AND BANK OF SCOTLAND

AS BANKS

AND

BANK ONE, NA, AS ADMINISTRATIVE AGENT

AND

BANC ONE CAPITAL MARKETS, INC.

AS LEAD ARRANGER AND BOOKRUNNER

 

JULY 18, 2002

 

 

TABLE OF CONTENTS

 

	

  1.

  	

  Definitions

  
	

  2.

  	

  Commitments of the Banks

  
	

   

  	

  (a)

  	

  Terms of Revolving Commitment

  
	

   

  	

  (b)

  	

  Letters

  of Credit

  
	

   

  	

  (c)

  	

  Procedure for Advances on the Revolving

  Loan

  
	

   

  	

  (d)

  	

  Procedure for Obtaining Letters of Credit

  
	

   

  	

  (e)

  	

  Several Obligations

  
	

  3.

  	

  Notes Evidencing Loans

  
	

   

  	

  (a)

  	

  Form of Revolving Notes

  
	

   

  	

  (b)

  	

  Interest Rates

  
	

   

  	

  (c)

  	

  Payment of Interest

  
	

   

  	

  (d)

  	

  Payment of Principal

  
	

   

  	

  (e)

  	

  Issuance of Additional Notes

  
	

   

  	

  (f)

  	

  Payment to Banks

  
	

   

  	

  (g)

  	

  Sharing of Payments

  
	

   

  	

  (h)

  	

  Non-Receipt of Funds by Agent

  
	

  4.

  	

  Interest

  Rates

  
	

   

  	

  (a)

  	

  Options

  
	

   

  	

  (b)

  	

  Interest Rate Determination

  
	

   

  	

  (c)

  	

  Conversion Option

  
	

   

  	

  (d)

  	

  Recoupment

  
	

  5.

  	

  Special Provisions Relating to Eurodollar

  Loans

  
	

   

  	

  (a)

  	

  Unavailability of Funds or Inadequacy of

  Pricing

  
	

   

  	

  (b)

  	

  Change in Laws

  
	

   

  	

  (c)

  	

  Increased Cost or Reduced Return

  
	

   

  	

  (d)

  	

  Discretion of Bank as to Manner of Funding

  
	

   

  	

  (e)

  	

  Breakage

  Fees

  
	

  6.

  	

  Collateral Security

  
	

  7.

  	

  Borrowing Base

  
	

   

  	

  (a)

  	

  Initial Borrowing Base

  
	

   

  	

  (b)

  	

  Subsequent Determinations of Borrowing Base

  
	

   

  	

  (c)

  	

  Voluntary Decreases in Borrowing Base

  
	

   

  	

  (d)

  	

  Monthly Commitment Reduction

  
	

  8.

  	

  Fees

  
	

   

  	

  (a)

  	

  Unused Portion Fee

  
	

   

  	

  (b)

  	

  Borrowing Base Increase Fee

  
	

   

  	

  (c)

  	

  Letter of Credit Fee

  
	

   

  	

  (d)

  	

  Agency

  Fee

  
	

  9.

  	

  Prepayments

  
	

   

  	

  (a)

  	

  Voluntary Prepayments

  
	

   

  	

  (b)

  	

  Mandatory Prepayment

  

 

i

 

	

  10.

  	

  Representations and Warranties

  
	

   

  	

  (a)

  	

  Creation and Existence

  
	

   

  	

  (b)

  	

  Power and Authorization

  
	

   

  	

  (c)

  	

  Binding Obligations

  
	

   

  	

  (d)

  	

  No Legal Bar or Resultant Lien

  
	

   

  	

  (e)

  	

  No

  Consent

  
	

   

  	

  (f)

  	

  Financial Condition

  
	

   

  	

  (g)

  	

  Liabilities

  
	

   

  	

  (h)

  	

  Litigation

  
	

   

  	

  (i)

  	

  Taxes; Governmental Charges

  
	

   

  	

  (j)

  	

  Titles,

  Etc

  
	

   

  	

  (k)

  	

  Defaults

  
	

   

  	

  (l)

  	

  Casualties; Taking of Properties

  
	

   

  	

  (m)

  	

  Use of Proceeds; Margin Stock

  
	

   

  	

  (n)

  	

  Location of Business and Offices

  
	

   

  	

  (o)

  	

  Compliance with the Law

  
	

   

  	

  (p)

  	

  No Material Misstatements

  
	

   

  	

  (q)

  	

  ERISA

  
	

   

  	

  (r)

  	

  Public Utility Holding Company Act

  
	

   

  	

  (s)

  	

  Environmental Matters

  
	

   

  	

  (t)

  	

  Guarantor

  
	

  11.

  	

  Conditions of Lending.

  
	

  12.

  	

  Affirmative Covenants

  
	

   

  	

  (a)

  	

  Financial Statements and Reports

  
	

   

  	

  (b)

  	

  Certificates of Compliance

  
	

   

  	

  (c)

  	

  Taxes and Other Liens

  
	

   

  	

  (d)

  	

  Compliance with Laws

  
	

   

  	

  (e)

  	

  Further Assurances

  
	

   

  	

  (f)

  	

  Performance of Obligations

  
	

   

  	

  (g)

  	

  Insurance

  
	

   

  	

  (h)

  	

  Accounts and Records

  
	

   

  	

  (i)

  	

  Right of Inspection

  
	

   

  	

  (j)

  	

  Notice of Certain Events

  
	

   

  	

  (k)

  	

  ERISA Information and Compliance

  
	

   

  	

  (l)

  	

  Environmental Reports and Notices

  
	

   

  	

  (m)

  	

  Maintenance

  
	

   

  	

  (n)

  	

  Title

  Matters

  
	

   

  	

  (o)

  	

  Curative Matters

  
	

   

  	

  (p)

  	

  Additional Collateral

  
	

  13.

  	

  Negative Covenants

  
	

   

  	

  (a)

  	

  Liens

  
	

   

  	

  (b)

  	

  Debts, Guaranties and Other Obligations

  
	

   

  	

  (c)

  	

  Current

  Ratio

  
	

   

  	

  (d)

  	

  Ratio of Debt to EBITDAX

  

 

ii

 

	

   

  	

  (e)

  	

  Limitation on Sale of Collateral

  
	

   

  	

  (f)

  	

  Mergers and Consolidations

  
	

   

  	

  (g)

  	

  Use of Proceeds

  
	

   

  	

  (h)

  	

  Loans or Advances

  
	

   

  	

  (i)

  	

  Rate Management Transactions

  
	

   

  	

  (j)

  	

  Dividends

  
	

   

  	

  (k)

  	

  Investments

  
	

   

  	

  (l)

  	

  Change of Control

  
	

  14.

  	

  Events of Default

  
	

  15.

  	

  Exercise of Rights

  
	

  16.

  	

  Notices

  
	

  17.

  	

  The Agent and the Banks.

  
	

   

  	

  (a)

  	

  Appointment and Authorization

  
	

   

  	

  (b)

  	

  Note

  Holders

  
	

   

  	

  (c)

  	

  Consultation with Counsel

  
	

   

  	

  (d)

  	

  Documents

  
	

   

  	

  (e)

  	

  Resignation or Removal of Agent

  
	

   

  	

  (f)

  	

  Responsibility of Agent

  
	

   

  	

  (g)

  	

  Independent Investigation

  
	

   

  	

  (h)

  	

  Indemnification

  
	

   

  	

  (i)

  	

  Benefit of Section 17

  
	

   

  	

  (j)

  	

  Pro Rata Treatment

  
	

   

  	

  (k)

  	

  Assumption as to Payments

  
	

   

  	

  (l)

  	

  Other Financings

  
	

   

  	

  (m)

  	

  Interests of Banks

  
	

   

  	

  (n)

  	

  Investments

  
	

  18.

  	

  Expenses

  
	

  19.

  	

  Indemnity

  
	

  20.

  	

  Governing

  Law

  
	

  21.

  	

  Invalid Provisions

  
	

  22.

  	

  Maximum Interest Rate

  
	

  23.

  	

  Amendments

  
	

  24.

  	

  Multiple Counterparts

  
	

  25.

  	

  Conflict

  
	

  26.

  	

  Survival

  
	

  27.

  	

  Parties

  Bound

  
	

  28.

  	

  Assignments and Participations.

  
	

  29.

  	

  Waiver of Jury Trial

  
	

  30.

  	

  Choice of Forum: Consent to Service of

  Process and Jurisdiction

  
	

  31.

  	

  Other Agreements

  
	

  32.

  	

  Written Consent

  
	

  33.

  	

  Financial Terms

  

 

iii

 

	

  Exhibits:

  	

   

  	

   

  
	

   

  	

   

  	

   

  
	

  Exhibit A

  	

  -

  	

  Notice of

  Borrowing

  
	

  Exhibit B

  	

  -

  	

  Renewal

  Revolving Note

  
	

  Exhibit C

  	

  -

  	

  Financial

  Condition

  
	

  Exhibit D

  	

  -

  	

  Liabilities

  
	

  Exhibit E

  	

  -

  	

  Litigation

  
	

  Exhibit F

  	

  -

  	

  Environmental

  Matters

  

 

iv

 

NINTH RESTATED LOAN AGREEMENT

 

THIS NINTH RESTATED LOAN AGREEMENT

(hereinafter referred to as the “Agreement”) executed as of the 18th day of

July, 2002, by and among CLAYTON WILLIAMS ENERGY, INC, a Delaware corporation

(“CWE”), WARRIOR GAS CO., a Texas corporation (“Warrior”) (CWE and Warrior

being hereinafter sometimes collectively referred to as “Borrower”), CWEI

ACQUISITIONS, INC., a Delaware corporation (“CWEI”), ROMERE PASS ACQUISITION

CORP., a Delaware corporation (“Romere”) (CWEI and Romere are hereinafter

collectively referred to as the “Guarantor”), BANK ONE, NA (successor by merger

to Bank One, Texas, N.A.) (“Bank One”), UNION BANK OF CALIFORNIA, N.A., a

national banking association (“Union”) and BANK OF SCOTLAND (“BOS”) (Bank One,

Union and BOS each in their capacity as a lender hereunder together with each

and every future holder of any note issued pursuant to this Agreement are

hereinafter collectively referred to as “Banks” and individually as “Bank”) and

Bank One as “Agent”.

 

W I T N E S S E T H:

 

WHEREAS, as of

June 25, 2001, Borrower, the Banks and the Agent entered into a Eighth

Restated Loan Agreement (the “Loan Agreement”), pursuant to the terms of which

the Banks agreed to provide a $200,000,000 reducing revolving loan facility to

Borrower;

 

WHEREAS, on

December 31, 2001, the Borrower, the Banks and the Agent entered into a

Letter Amendment to the Loan Agreement to make certain amendments to the Loan

Agreement;

 

WHEREAS, as of

May 1, 2002, the Borrower, the Banks and the Agent entered into a First

Amendment to Eighth Restated Loan Agreement; and

 

WHEREAS, the

Borrower, the Banks and the Agent have agreed to renew, extend, amend and

restate the Eighth Restated Loan Agreement.

 

NOW, THEREFORE, in

consideration of the mutual covenants and agreements herein contained, the

parties hereto agree as follows:

 

1.             Definitions.  When

used herein the terms “Agent”, “Agreement”, “Bank One”, “Bank of Scotland”,

“Banks”, “Borrower”, “Guarantor” and “Union” shall have the meanings indicated

above.  When used herein the following

terms shall have the following meanings:

 

Advance or Advances means a loan or loans

hereunder.

 

Assignment and Acceptance means a document

substantially in the form of Exhibit ”D” hereto.

 

Base Rate means, as of any date, the sum of

the Prime Rate plus the Base Rate Margin.

 

 

Base Rate Loans means any loan during any

period which bears interest at the Base Rate or which would bear interest at

the Base Rate if the Maximum Rate ceiling was not in effect at that particular

time.

 

Base Rate Margin means the fluctuating Base

Rate Margin in effect from day to day shall be:

 

(i)            one-half of one

percent (1/2%) per annum whenever the Total Outstandings are greater than 90%

of the Elected Borrowing Limit in effect at the time in question;

 

(ii)           three-eighths of

one percent (3/8%) per annum whenever the Total Outstandings are greater than

75% but less than or equal to 90% of the Elected Borrowing Limit in effect at

the time in question;

 

(iii)          one-fourth of one

percent (1/4%) per annum whenever the Total Outstandings are greater than 50%,

but less than or equal to 75%, of the Elected Borrowing Limit in effect at the

time in question;

 

(iv)          one-eighth of one

percent (1/8%) per annum whenever the Total Outstandings are greater than 25%,

but less than or equal to 50%, of the Elected Borrowing Limit in effect at the

time in question;

 

(v)           zero, whenever the

Total Outstandings are 25% or less of the Elected Borrowing Limit in effect at

the time in question.

 

Borrowing Base means the value, determined by

the Banks in accordance with their customary standards, assigned by the Banks

from time to time to the Collateral less the aggregate amount of any

outstanding CWE guarantees of Vendor Financings.

 

Borrowing Base Deficiency means the term

“Borrowing Base Deficiency” is used herein as defined in Section 9(b) hereof.

 

Borrowing Date means the date elected by the

Borrower pursuant to (i) Section 2(c) hereof for an Advance on the Revolving

Loan or (ii) Section 4(c) hereof for a change in interest rate placement on the

Revolving Loan.

 

Business Day shall mean (i) with respect to

any borrowing, payment or note selection of Eurodollar Loans, a day (other than

Saturdays or Sundays) on which banks are legally open for business in Dallas,

Texas and on which dealings in United States dollars are carried on in the

London interbank market, and (ii) for all other purposes a day (other than

Saturdays and Sundays) on which banks are legally open for business in Dallas, Texas.

 

Collateral is used herein as defined in

Section 6 hereof.

 

-2-

 

Commitment Percentage means the percentage of

the Revolving Commitment that each Bank is severally obligated to fund

hereunder, which, as of the date of this Agreement is:

 

	

  Bank One, NA

  	

   

  	

  36.363637

  	

  %

  
	

  Union Bank of California, N.A.

  	

   

  	

  36.363636

  	

  %

  
	

  Bank of Scotland

  	

   

  	

  27.272727

  	

  %

  

 

Current Assets means the sum of the Williams

Consolidated Entities’ current assets, determined in accordance with GAAP, plus

any unused portion of the Elected Borrowing Limit, less (i) any current

assets attributable to Vendor Financing transactions and (ii) any amount

required to be included in Current Assets as a result of the application of

FASB Statement 133.

 

Current Liabilities means the total of the

Williams Consolidated Entities’ current liabilities, determined in accordance

with GAAP, excluding therefrom (i) trade and revenue payables arising from

Vendor Financings, (ii) current maturities outstanding under the Notes, and

(iii) any amount required to be included in Current Liabilities as the

result of the application of FASB Statement 133.

 

Debt means all amounts outstanding on the

Revolving Commitment.

 

Defaulting Bank is used herein as defined in

Section 3(f) hereof.

 

EBITDAX means the Williams Consolidated

Entities’ Net Income (excluding from such Net Income any non–cash gains

or losses as a result of the application of FASB Statement 133, non–cash

stock base compensation and income attributable to Vendor Financing) plus the

sum of (i) income tax expense (excluding income tax expense related to the

sale or disposition of assets, the gains or losses from which are excluded in

the determination of the Williams Consolidated Entities’ Net Income), (ii) interest

expense, (iii) depreciation, depletion and amortization expense, and

(iv) exploration expenses for the most recent fiscal quarter annualized.

 

Effective Date means the date of this

Agreement.

 

Elected Borrowing Limit is used herein as

defined in Section 7(c) hereof.

 

Eligible Assignee means any of (i) a Bank

or any Affiliate of a Bank; (ii) a commercial bank organized under the

laws of the United States, or any state thereof, and having a combined capital

and surplus of at least $100,000,000; (iii) a commercial bank organized

under the laws of any other country which is a member of the Organization for

Economic Cooperation and Development, or a political subdivision of any such

country, and having a combined capital and surplus of at least $100,000,000.00,

provided that such bank is acting through a branch or agency located in the

United States; (iv) a Person that is primarily engaged in the business of

commercial lending and that (A) is a subsidiary of a Bank, (B) a subsidiary of

a Person of which a Bank is a subsidiary, or (C)

 

-3-

 

a Person of

which a Bank is a subsidiary; (v) any other entity (other than a natural

person) which is an “accredited investor” (as defined in Regulation D

under the Securities Act) which extends credit or buys loans as one of its

businesses, including, but not limited to, insurance companies, mutual funds,

investments funds and lease financing companies; and (vi) with respect to

any Bank that is a fund that invests in loans, any other fund that invests in

loans and is managed by the same investment advisor of such Bank or by an

Affiliate of such investment advisor (and treating all such funds so managed as

a single Eligible Assignee); provided, however, that no Affiliate of Borrowers

shall be an Eligible Assignee.

 

Engineered Value is used herein as defined in

Section 12(p) hereof.

 

Environmental Laws means the Comprehensive

Environmental Response, Compensation and Liability Act of 1980, as amended by

the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C.A. §9601, et

seq., the Resource Conservation and Recovery Act, as amended by the

Hazardous Solid Waste Amendment of 1984, 42 U.S.C.A. §6901, et  seq.,

the Clean Water Act, 33 U.S.C.A. §1251, et seq., the Clean Air Act, 42 U.S.C.A.

§1251, et  seq., the Toxic Substances Control Act, 15 U.S.C.A.

§2601, et  seq., The Oil Pollution Act of 1990, 33 U.S.G. §2701, et

seq., and all other laws, statutes, codes, acts, ordinances, orders,

judgments, decrees, injunctions, rules, regulations, orders, permits and

restrictions of any federal, state, county, municipal and other governments,

departments, commissions, boards, agencies, courts, authorities, officials and

officers, domestic or foreign, relating to oil pollution, air pollution, water

pollution, noise control and/or the handling, discharge, disposal or recovery

of on-site or off-site asbestos, radioactive materials, spilled or leaked

petroleum products, distillates or fractions and industrial solid waste or

“hazardous substances” as defined by 42 U.S.C. §9601, et  seq., as

amended, as each of the foregoing may be amended from time to time.

 

Environmental Liability means any claim,

demand, obligation, cause of action, accusation, allegation, order, violation,

damage, injury, judgment, penalty or fine, cost of enforcement, cost of

remedial action or any other costs or expense whatsoever, including reasonable

attorneys’ fees and disbursements, resulting from the violation or alleged

violation of any Environmental Law or the imposition of any Environmental Lien

(as hereinafter defined) which would individually or in the aggregate have a

Material Adverse Effect.

 

Environmental Lien means a Lien in favor of

any court, governmental agency or instrumentality or any other person (i) for

any Environmental Law or (ii) for damages arising from or cost incurred by such

court or governmental agency or instrumentality or other person in response to

a release or threatened release of hazardous or toxic waste, substance or

constituent into the environment.

 

ERISA means the Employee Retirement Income

Security Act of 1974, as amended.

 

-4-

 

Eurodollar Base Rate means with respect to

each Interest Period, the rate of interest per annum at which deposits in immediately

available and freely transferable funds in U.S. Dollars are offered to the

Agent (at approximately 10:00 a.m., Dallas, Texas time three Business Days

prior to the first day of each Interest Period) in the London interbank market

for delivery on the first day of such Interest Period in an amount equal to or

comparable to the principal amount of the Eurodollar Loan to which such

Interest Period relates.  Each

determination of the Eurodollar Base Rate by the Agent shall, in the absence of

error, be conclusive and binding.

 

Eurodollar Loan means any loan during any

period which bears interest at the Eurodollar Rate, or which would bear

interest at such rate if the Maximum Rate ceiling was not in effect at a

particular time.

 

Eurodollar Margin means the fluctuating

Eurodollar Margin in effect from day to day shall be:

 

(i)            two and one-quarter

percent (2.25%) per annum whenever the Total Outstandings are greater than 90%

of the Elected Borrowing Limit in effect at the time in question;

 

(ii)           two percent (2.0%)

per annum whenever the Total Outstandings are greater than 75% but less than or

equal to 90% of the Elected Borrowing Limit in effect at the time in question;

 

(iii)          one and

three-quarters percent (1.75%) per annum whenever the Total Outstandings are greater

than 50%, but less than or equal to 75%, of the Elected Borrowing Limit in

effect at the time in question;

 

(iv)          one and one-half

percent (1.50%)per annum whenever the Total Outstandings are greater than 25%,

but less than or equal to 50%, of the Elected Borrowing Limit in effect at the

time in question;

 

(iv)          one and one-quarter

percent (1.25%), whenever the Total Outstandings are 25% or less of the Elected

Borrowing Limit in effect at the time in question.

 

Eurodollar Rate

means, with respect to a Eurodollar Loan for the relevant Interest Period, the

sum of (i) the quotient of (A) the Eurodollar Base Rate applicable to

such Interest Period, divided by (B) one minus the Reserve Requirement

(expressed as a decimal) applicable to such Interest Period, plus the

(ii) Eurodollar Margin.  The

Eurodollar Rate shall be rounded to the next higher multiple of 1/100th of one

percent if the rate is not such a multiple.

 

Event of Default is used herein as defined in

Section 14 hereof.

 

-5-

 

Financial Statements means the Williams

Consolidated Entities’ consolidated balance sheets, income statements and

statements of cash flow prepared in accordance with GAAP.

 

GAAP means generally accepted accounting

principles, consistently applied.

 

Good and Defensible Title means title held by

the Borrower and Guarantor that is free from defects as would cause a

reasonable doubt in the mind of a reasonable and prudent purchaser in the area

where the Collateral is situated and cause him if he were purchasing such

Collateral to refuse to accept such Collateral at its full agreed value.  The title of Borrower and Guarantor may be

subject to drilling obligations in leases, farmout agreements, operating

agreements, covenants, restrictions, rights, easements, liens, encumbrances and

minor irregularities in title which collectively do not interfere with the

occupation, use and enjoyment of such Collateral in the normal course of

business as presently conducted or contemplated to be conducted by Borrower and

Guarantor or materially impair the value thereof for such business.

 

Interest Payment Date means the earlier of (i)

the last day of each Interest Period or (ii) the last day of each calendar

quarter.

 

Interest Period means with respect to any

Eurodollar Loan (i) initially, the period commencing on the date such

Eurodollar Loan is made and ending one (1), two (2), three (3), four (4) or six

(6) months thereafter as selected by the Borrower pursuant to Section 4(a)(ii)

and (ii) thereafter, each period commencing on the day following the last day

of the next preceding Interest Period applicable to such Eurodollar Loan and

ending one (1), two (2), three (3), four (4) or six (6) months thereafter, as

selected by the Borrower pursuant to Section 4(a)(ii); provided, however, that

(i) if any Interest Period would otherwise expire on a day which is not a

Business Day, such Interest Period shall expire on the next succeeding Business

Day unless the result of such extension would be to extend such Interest Period

into the next calendar month, in which case such Interest Period shall end on

the immediately preceding Business Day, (ii) if any Interest Period begins on

the last Business Day of a calendar month (or on a day for which there is no

numerically corresponding day in the calendar month at the end of such Interest

Period) such Interest Period shall end on the last Business Day of a calendar

month, and (iii) any Interest Period which would otherwise expire after the

Maturity Date shall end on such Maturity Date.

 

Letters of Credit is used herein as defined in

Section 2(c) hereof.

 

Lien means any mortgage, deed of trust,

pledge, security interest, assignment, encumbrance or lien (statutory or

otherwise) of every kind and character.

 

Loan Documents means this Agreement, the Note,

the Security Instruments and all other documents executed in connection with

the transaction described in this Agreement.

 

-6-

 

Majority Banks means banks holding at least

66-2/3% ownership of the Revolving Commitment.

 

Material Adverse Effect means any Material

Adverse Effect on the assets or properties, liabilities, financial condition,

business, operations, affairs or circumstances of Borrower and Guarantor, taken

as a whole, from those reflected in the Financial Statements of Borrower and

Guarantor or from the facts represented or warranted in this Agreement or any

other Security Instrument.

 

Maturity Date means December 31, 2004.

 

Maximum Rate means at the particular time in question,

the maximum rate of interest which, under applicable law, may then be

charged.  If such maximum rate of

interest changes after the date hereof, the Maximum Rate shall be increased or

decreased, as the case may be, without notice to Borrower from time to time as

of the effective date of each such change in the Maximum Rate.  If applicable law ceases to provide for such

a maximum rate of interest, the Maximum Rate shall be equal to eighteen percent

(18%) per annum.

 

Monthly Commitment Reduction is used herein as

defined in Section 7(d) hereof.

 

Negative Pledge Property means all producing

oil and gas properties and interests, from time to time, of Borrower or

Guarantor which are not mortgaged or pledged to the Banks.

 

Net Income means the Williams Consolidated

Entities’ Net Income determined in accordance with GAAP.

 

Notes means the Revolving Notes.

 

Notice of Borrowing is used herein as defined

in Section 2(d) hereof.

 

Oil and Gas Properties means all oil, gas and

mineral properties and interests, and related personal properties, in which

Borrower or Guarantor has granted and hereinafter grants (to the satisfaction

of Agent) to Banks a first and prior lien and security interest.

 

Payor is used herein as defined in

Section 3(h) hereof.

 

Permitted Liens means (i) royalties,

overriding royalties, reversionary interests, production payments and similar

burdens granted by Borrower or Guarantor with respect to the Oil and Gas

Properties if the net cumulative effect of such burdens does not operate to

deprive Borrower or Guarantor of any material right in respect of its assets or

properties (except for rights customarily granted with respect to such

interests); (ii) statutory liens, including liens for taxes or other

assessments that are not yet delinquent (or that, if delinquent, are being

contested in good faith by appropriate proceedings and for which Borrower or

Guarantor has set aside on its books adequate reserves in

 

-7-

 

accordance

with GAAP); (iii) easements, rights of way, servitudes, permits, surface leases

and other rights in respect to surface operations, pipelines, grazing, logging,

canals, ditches, reservoirs or the like, conditions, covenants and other

restrictions, and easements of streets, alleys, highways, pipelines, telephone

lines, power lines, railways and other easements and rights of way on, over or

in respect of Borrower’s or Guarantor’s assets or properties; (iv)

materialmen’s, mechanic’s, repairman’s, employee’s, contractor’s, sub-contractor’s,

operator’s and other Liens incidental to the construction, maintenance,

development or operation of Borrower’s or Guarantor’s assets or properties to

the extent not delinquent (or which, if delinquent, are being contested in good

faith by appropriate proceedings and for which Borrower or Guarantor has set

aside on its books adequate reserves in accordance with GAAP); (v) all

contracts, agreements and instruments, and all defects and irregularities and

other matters affecting Borrower’s or Guarantor’s assets and properties which

were in existence at the time Borrower’s or Guarantor’s assets and properties

were originally acquired by Borrower or Guarantor and all routine operational

agreements entered into in the ordinary course of business, which contracts,

agreements, instruments, defects, irregularities and other matters and routine

operational agreements are not such as to, individually or in the aggregate,

interfere materially with the operation, value or use of Borrower’s or

Guarantor’s assets and properties, considered in the aggregate; (vi) liens in

connection with workmen’s compensation, unemployment insurance or other social

security, old age pension or public liability obligations; (vii) legal or

equitable encumbrances deemed to exist by reason of the existence of any

litigation or other legal proceeding or arising out of a judgment or award with

respect to which an appeal is being prosecuted in good faith; (viii) rights

reserved to or vested in any municipality, governmental, statutory or other public

authority to control or regulate Borrower’s or Guarantor’s assets and

properties in any manner, and all applicable laws, rules and orders from any

governmental authority; (ix) landlords liens; (x) liens created by or pursuant

to this Agreement or the Security Instruments; (xi) liens existing at the date

of this Agreement which have been disclosed to Banks in Borrower’s or

Guarantor’s Financial Statements or identified on Schedule “1” hereto; and

(xii) liens arising from indebtedness incurred by Borrower or Guarantor, which

indebtedness is described in Section 13(b). 

Provided, however, that the definition of the term “Permitted Liens”

does not include liens of any kind or character which are prior by perfection

to the liens on the Collateral held by the Banks, or which may, by operation of

law, become prior to such liens held by the Banks.

 

Person means an individual, a corporation, a

partnership, an association, a trust or any other entity or organization,

including a government or political subdivision or an agency or instrumentality

thereof.

 

Plan means any plan subject to Title IV of

ERISA and maintained by Borrower, or any such plan to which Borrower is

required to contribute on behalf of its respective employees.

 

Pre–Approved Contract as used herein

shall mean any contracts or agreements entered into in connection with any Rate

Management Transaction designed to hedge, provide a price floor for, or swap

crude oil or natural gas in volumes not exceeding

 

-8-

 

(i) 100%

of the Borrower’s anticipated production from proved, developed producing

reserves of crude oil, and/or (ii) 100% of the Borrower’s anticipated

production from proved, developed producing reserves of natural gas, during the

period from the immediately preceding settlement date (or the commencement of

the term of such hedge transactions if there is no prior settlement date) to

such settlement date, (ii) with a maturity of twenty–four (24)

months or less, (iii) with “strike prices” per barrel or Mmbtu greater

than Agent’s forecasted price in the most recent engineering evaluation of

Borrower’s Oil and Gas Properties, adjusted for the difference between the

forecasted price and the Borrower’s actual product price as reasonably

determined by the Agent, and (iv) with counterparties to the hedging

agreement which are otherwise reasonably approved by Agent.

 

Prime Rate means the corporate base rate of

interest announced from time to time by Agent or its parent (which is not

necessarily the lowest rate charged to any customer), changing when and as said

Prime Rate changes.

 

Rate Management Transaction means any

transaction (including an agreement with respect thereto) now existing or

hereafter entered into by Borrower or any of its Subsidiaries which is a rate

swap, basis swap, forward rate transaction, commodity swap, commodity option,

equity or equity index swap, equity or equity index option, bond option,

interest rate option, forward exchange transaction, cap transaction, floor

transaction, collar transaction, forward transaction, currency swap

transaction, cross–currency rate swap transaction, currency option or any

other similar transaction (including any option with respect to any of these

transactions) or any combination thereof, whether linked to one or more

interest rates, foreign currencies, commodity prices, equity prices or other

financial measures.

 

Regulation D shall mean Regulation D of

the Board of Governors of the Federal Reserve System as from time to time in

effect and any successor thereto and other regulation or official

interpretation of said Board of Governors relating to reserve requirements

applicable to member banks of the Federal Reserve System.

 

Reimbursement Obligations means, at any time,

the obligations of the Borrower in respect of all Letters of Credit then

outstanding to reimburse amounts paid by any Bank in respect of any drawing or

drawings under a Letter of Credit.

 

Release Price is used herein as defined in

Section 13(e) hereof.

 

Required Payment is used herein as defined in

Section 3(h) hereof.

 

Reserve Requirement means, with respect to any

Interest Period, the maximum aggregate reserve requirement (including all

basic, supplemental, marginal and other reserves) which is imposed under

Regulation D on Eurocurrency liabilities.

 

Revolving Commitment means, subject to the

provisions of Section 2(a) hereof, as to all Banks, the lesser of (i)

$200,000,000.00 or (ii) the Elected Borrowing Limit, and

 

-9-

 

as to each

Bank its obligation to make a Revolving Loan in the amount of the lesser of (i)

its Commitment Percentage times $200,000,000, or (ii) its Commitment Percentage

times the Elected Borrowing Limit.

 

Revolving Loan means a loan or loans made

under the Revolving Commitment pursuant to Section 2(a) hereof.

 

Revolving Notes means the Revolving Notes, in

substantially in the form of Exhibit ”B” issued or to be issued hereunder

to each Bank, respectively, to evidence the indebtedness to such Bank arising

by reason of the Advances on the Revolving Loan, together with all

modifications, renewals and extensions thereof or any part thereof.

 

Security Instruments means the term Security

Instruments is used collectively herein to mean this Agreement, all Deeds of

Trust, Mortgages, Security Agreements and Assignments of Production and

Financing Statements, and other collateral documents covering certain of

Borrower’s and Guarantor’s oil, gas and mineral properties and interest, and

related personal property, and all amendments and supplements thereof, all

pledge agreements covering stock and notes, and other collateral documents

covering other collateral, all such documents to be in form and substance

satisfactory to Agent.

 

Subsidiaries means Warrior, Clajon Industrial

Gas, Inc., Guarantor, Clayton Williams Venezuela, Inc., Clayton Williams

Trading Company, Clayton Williams Pipeline Corporation, Romere Pass Acquisition

Corp. and any other corporation or entity of which voting securities or other

ownership interests having ordinary voting power to elect a majority of the

board of directors or other persons performing similar functions are at any

time owned directly or indirectly by Borrower.

 

Total Outstandings means as of any date, the

total principal balance outstanding on the Notes plus the total face value of

all outstanding Letters of Credit.

 

Unscheduled Redeterminations means a

redetermination of Borrowing Base made at any time other than the date set for

the regular semi–annual redetermination of the Borrowing Base which are

made at the request of either Borrowers or Majority Banks.

 

Unused Portion Fee Rate shall be:

 

(i)            three-eighths of

one percent (3/8%) per annum whenever the Total Outstandings are greater than

90% of the Elected Borrowing Limit in effect at the time in question; or

 

(ii)           one-fourth of one

percent (1/4%) per annum whenever the Total Outstandings are equal to or less

than 90% of the Elected Borrowing Limit in effect at the time in question.

 

-10-

 

Vendor Financings means non-recourse vendor

financings by CWE or its Subsidiaries for services, equipment or materials on

other than customary trade payable terms.

 

Williams Consolidated Entities means CWE and

its Subsidiaries which are consolidated with it under GAAP.

 

2.             Commitments of the Banks.

 

(a)           Terms of Revolving Commitment.  On the terms and conditions hereinafter set

forth, each Bank agrees severally to make Advances to Borrower from time to

time during the period beginning on the Effective Date and ending on the

Maturity Date in such amounts as Borrower may request up to an amount not to

exceed, in the aggregate principal amount outstanding at any time, the

Revolving Commitment.  Provided,

however, that notwithstanding anything to the contrary contained herein, but

subject to the right of Borrower under Section 9(b) hereof, the Total

Outstandings, as of any date, shall never exceed the lesser of

(i) $200,000,000.00, or (ii) the Borrowing Base.  The obligation of each Bank to make Advances under the Revolving

Commitment shall be limited to such Bank’s Commitment Percentage of such

Advance.  Notwithstanding any other

provision of this Agreement, no Advance shall be required to be made hereunder

if any Event of Default (as hereinafter defined) has occurred and is continuing

or if any event or condition has occurred that may, with notice, be an Event of

Default.  Borrower shall have the option

pursuant to Section 4 hereof to determine whether Advances hereunder shall be

made as Base Rate Loans or Eurodollar Loans. 

Each Advance made as a Prime Rate Loan shall be an aggregate amount of

at least $100,000 or a whole number multiple thereof.  Each Advance made as a Eurodollar Loan shall be in an aggregate

amount of at least $250,000, or in integral multiples thereof. No more than two

(2) Eurodollar tranches may be outstanding at any time.

 

(b)           Letters of Credit.  On the terms and conditions hereinafter set forth, Agent shall

from time to time during the period beginning on the Effective Date and ending

on the Maturity Date upon request of Borrower issue Letters of Credit for the

account of Borrower or either Guarantor (the “Letters of Credit”) in such face

amounts as Borrower may request, but not to exceed in the aggregate face amount

at any time outstanding the sum of Ten Million Dollars ($10,000,000.00).  The face amount of all Letters of Credit

issued and outstanding hereunder (whether for the benefit of the Borrower or a

Guarantor) shall be considered as Advances on the Revolving Commitment for

Borrowing Base purposes and all payments made by Agent (or by another issuing

Bank) on such Letters of Credit shall be considered as Advances under the

Revolving Notes.  The obligations of the

Agent or any other issuing Bank on such Letters of Credit shall be secured by

all of the Collateral.  Each Letter of

Credit issued for the account of Borrower hereunder shall (i) be in favor of

such beneficiaries as specifically requested by Borrower, (ii) have an

expiration date not exceeding the earlier of (A) two (2) years from the date of

their issuance, or (B) the Maturity Date, and (iii) contain such other terms

and provisions as may be required by Agent or the issuing Bank.  In the event that at the Maturity Date there

are outstanding Letters of Credit with expiration dates beyond the

 

-11-

 

Maturity Date,

Borrower and Banks agree that all Collateral pledged to secure the Notes and

the other obligations of Borrower hereunder and under the other documents

executed in connection herewith shall continue to secure the obligations of

Borrower to Agent or other issuing Bank on such outstanding Letters of Credit

until such time as either (a) all such Letters of Credit have expired by their

terms or (b) the Agent or other issuing Bank has received indemnification from

a party satisfactory to the Agent or the other issuing Bank, as the case may

be, as to Borrower’s obligations under any such outstanding Letters of

Credit.  Each Bank (other than the

Agent) agrees that, upon issuance of any Letter of Credit hereunder, it shall

automatically acquire a participation in the Agent’s liability under such

Letter of Credit in an amount equal to such Bank’s Commitment Percentage of

such liability, and each Bank (other than the Agent) thereby shall absolutely, unconditionally

and irrevocably assume, as primary obligor and not as surety, and shall be

unconditionally obligated to the Agent to pay and discharge when due, its

Commitment Percentage of the Agent’s liability under such Letter of Credit.  Upon delivery by such Bank of funds to pay

and discharge such liability, such Bank shall be treated as having purchased a

participating interest in an amount equal to the amount of such funds delivered

to the Agent by such Bank in the obligation of Borrower to reimburse Agent, as

the issuer of such Letter of Credit, for any amounts payable, paid, or incurred

by Agent, as the issuer of such Letter of Credit, with respect to such Letter

of Credit.  Each such payment by such

Bank shall be considered an Advance under its Note and shall bear interest at

the rates specified in Section 4 hereof. 

The Borrower hereby conditionally agrees to pay and reimburse the Agent

for its own account and for the account of each Bank providing funds for the

purchase of a participation in such Letter of Credit for the amount of each

demand for payment under any Letter of Credit that is in substantial compliance

with the provisions of any such Letter of Credit at or prior to the date on

which payment is made by the Agent to the beneficiary thereunder, without

presentment, demand, protest or other formalities of any kind.  Upon receipt from any beneficiary of any

Letter of Credit of any demand for payment under such Letter of Credit, the

Agent shall promptly notify the Borrower of the demand and the date upon which

such payment is to be made by the Agent to such beneficiary in respect of such

demand.  Forthwith upon receipt of such

notice from the Agent, Borrower shall advise Agent whether or not it intends to

borrow hereunder to finance its obligations to reimburse the Agent, and if so,

submit a Notice of Borrowing as provided in Section 2(c) hereof.

 

(c)           Procedure for Advances on the

Revolving Loan.  Whenever

Borrower desires an Advance on the Revolving Loan, they shall give Agent

telegraphic, telex, facsimile or telephonic notice (“Notice of Borrowing”) of

such requested Advance, which in the case of telephonic notice, shall be

promptly confirmed in writing.  Each

Notice of Borrowing shall be in the form of Exhibit “A” attached hereto and

shall be received by Agent not later than 11:00 a.m. Dallas, Texas time, (i)

one Business Day prior to the Borrowing Date in the case of Base Rate Loans;

and (ii) three (3) Business Days prior to any proposed Borrowing Date in the

case of Eurodollar Loans.  Each Notice

of Borrowing shall specify (i) the Borrowing Date (which shall be a Business

Day), (ii) the principal amount to be borrowed, (iii) the portion of the

borrowing constituting Base Rate Loans and/or Eurodollar Loans, (iv) if any

portion of the proposed borrowing is to

 

-12-

 

constitute

Eurodollar Loans, the initial Interest Period selected by Borrower pursuant to

Section 4 hereof to be applicable thereto, and (v) the date upon which

disbursement is required.  Upon receipt

of such notice, Agent shall advise each Bank thereof.  Not later than 1:00 p.m., Dallas, Texas time, on the date upon

which the Advance is to be made, each Bank shall provide Agent at its office at

1717 Main Street, Dallas, Texas 75201, in immediately available funds, its pro

rata share of the requested Advance. 

Not later than 2:00 p.m., Dallas, Texas time, on the date for which the

Advance was requested, Agent shall make available to Borrower at the same

office, in like funds, the aggregate amount of such requested Advance.  Neither Agent nor any Bank shall incur any

liability to Borrower in acting upon any notice referred to above which Agent

or such Bank believes in good faith to have been given by a duly authorized

officer or other person authorized to borrow on behalf of Borrower or for

otherwise acting in good faith under this Section 2(c).  Upon funding of Advances by Banks in

accordance with this Agreement pursuant to any such notice, Borrower shall have

effected Advances hereunder.

 

(d)           Procedure for Obtaining Letters of

Credit.  The amount and date of

issuance, renewal, extension or reissuance of a Letter of Credit pursuant to

the Banks’ commitment above in Section 2(b) shall be designated by Borrower’s

written request delivered to Agent at least three (3) Business Days prior to

the date of such issuance, renewal, extension or reissuance.  Concurrently with or promptly following the

delivery of the request for a Letter of Credit, Borrower shall execute and

deliver to the Agent an application and agreement with respect to the Letters

of Credit on the customary forms of the Agent pertaining to such Letters of

Credit.  The Agent shall not be

obligated to issue, renew, extend or reissue such Letters of Credit if (A) the

amount thereon when added to the amount of the outstanding Letters of Credit

exceed Ten Million Dollars ($10,000,000.00) or (B) the amount thereof when

added to the amount of all outstanding Letters of Credit and all amounts

outstanding under the Notes would exceed the Revolving Commitment.  Borrower agrees to pay the Agent for the

benefit of the Banks commissions for issuing the Letters of Credit (calculated

separately for each Letter of Credit) at the rate of the greater of (i) 1-1/2% per

annum on the maximum face amount of the Letter of Credit or (ii) $400.00.  Such commission shall be payable prior to

the issuance of the Letter of Credit and thereafter on each anniversary date of

such issuance while such Letter of Credit is outstanding.

 

(e)           Several Obligations.  The obligations of the Banks under the

Revolving Commitment are several and not joint.  The failure of any Bank to make an Advance required to be made by

it shall not relieve any other Bank of its obligation to make its Advance, and

no Bank shall be responsible for the failure of any other Bank to make the

Advance to be made by such other Bank. 

No Bank shall ever be required to lend hereunder any amount in excess of

its legal lending limit.

 

3.             Notes Evidencing Loans.  The loans

described above in Section 2 shall be evidenced by promissory notes of Borrower

as follows:

 

(a)           Form of Revolving Notes.  The Revolving Loan shall be evidenced by

three Revolving Notes in the aggregate face amount of $200,000,000 and shall be

in the

 

-13-

 

form of the

Note attached hereto as Exhibit ”B” with appropriate insertions.  Notwithstanding the principal amount of the

Revolving Notes, as stated on the face thereof, the actual principal amount due

from Borrower to Banks on account of the Revolving Notes, as of any date of

computation, shall be the sum of Advances then and theretofore made on account

thereof, less all principal payments actually received by Banks in collected

funds with respect thereto.  Interest in

respect thereof shall be payable only for the period during which the Revolving

Loan evidenced thereby is outstanding and, although the stated amount of the

Revolving Notes may be higher, the Revolving Notes shall be enforceable, with

respect to Borrower’s obligation to pay the principal amount thereof, only to

the extent of the unpaid principal amount of the Revolving Loan.

 

(b)           Interest Rates.  The unpaid principal balance of the

Revolving Notes shall bear interest from time to time at a rate of interest

determined from time to time depending on the option or options selected by

Borrower pursuant to Section 4(a) hereof.

 

(c)           Payment of Interest.  Interest on the Notes shall be payable as

specified in Section 4 hereof.

 

(d)           Payment of Principal.  The entire unpaid principal balance of the

Revolving Notes shall be due and payable on the Maturity Date.

 

(e)           Issuance of Additional Notes.  At the Effective Date there shall be

outstanding three Revolving Notes, one in the face amount of $72,727,274.00

payable to order of Bank One, one in the face amount of $72,727,272.00 payable

to the order of Union and one in the face amount of $54,545,454.00 payable to

the order of BOS.  From time to time

during the period from the Effective Date to the Maturity Date, additional

Notes may be issued to the Banks and other Banks as such other Banks become

parties to this Agreement.  The face

amount of each such new Revolving Note shall be in an amount equal to the

Commitment Percentage of such Bank times $200,000,000.  The aggregate face amount of all such

Revolving Notes issued and outstanding as of any date shall never exceed

$200,000,000.  Upon request from Agent,

the Borrowers shall execute and deliver to Agent any such new or additional

Notes.  From time to time as new Notes

are issued the Agent shall require that each Bank exchange their Notes for

newly issued Notes to better reflect the extent of each Bank’s commitment

hereunder.

 

(f)            Payment to Banks.  Each Bank’s Pro Rata Part of payment or

prepayment of the Loans shall be directed by wire transfer to such Bank by the

Agent at the address provided to the Agent for such Bank for payments no later

than 2:00 p.m., Dallas, Texas, time on the Business Day such payments or

prepayments are deemed hereunder to have been received by Agent; provided,

however, in the event that any Bank shall have failed to make an Advance as

contemplated under Section 2 hereof (a “Defaulting Bank”) and the Agent or

another Bank or Banks shall have made such Advance, payment received by Agent

for the account of such Defaulting Bank or Banks shall not be distributed to

such Defaulting Bank or Banks until such Advance or Advances shall have been

repaid in full to the Bank or Banks who funded such Advance or Advances.  Any payment or prepayment received by Agent

at any time after 12:00 noon, Dallas, Texas, time on a

 

-14-

 

Business Day

shall be deemed to have been received on the next Business Day.  Interest shall cease to accrue on any

principal as of the end of the day preceding the Business Day on which any such

payment or prepayment is deemed hereunder to have been received by Agent.  If Agent fails to transfer any principal

amount to any Bank as provided above, then Agent shall promptly direct such

principal amount by wire transfer to such Bank.

 

(g)           Sharing of Payments.  If any Bank shall obtain any payment

(whether voluntary, involuntary, or otherwise) on account of the Loans,

(including, without limitation, any set-off) which is in excess of its Pro Rata

Part of payments on either of the Loans, as the case may be, obtained by all

Banks, such Bank shall purchase from the other Banks such participation as

shall be necessary to cause such purchasing Bank to share the excess payment

pro rata with each of them; provided that, if all or any portion of such excess

payment is thereafter recovered from such purchasing Bank, the purchase shall

be rescinded and the purchase price restored to the extent of the

recovery.  The Borrower agrees that any

Bank so purchasing a participation from another Bank pursuant to this Section

may, to the fullest extent permitted by law, exercise all of its rights of

payment (including the right of offset) with respect to such participation as

fully as if such Bank were the direct creditor of the Borrower in the amount of

such participation.

 

(h)           Non–Receipt of Funds by

Agent. 

Unless the Agent shall have been notified by a Bank or the Borrower (the

“Payor”) prior to the date on which such Bank is to make payment to the Agent

of the proceeds of a Loan to be made by it hereunder or the Borrower is to make

a payment to the Agent for the account of one or more of the Banks, as the case

may be (such payment being herein called the “Required Payment”), which notice

shall be effective upon receipt, that the Payor does not intend to make the

Required Payment to the Agent, the Agent may assume that the Required Payment

has been made and may, in reliance upon such assumption (but shall not be

required to), make the amount thereof available to the intended recipient on such

date and, if the Payor has not in fact made the Required Payment to the Agent,

the recipient of such payment shall, on demand, pay to the Agent the amount

made available to it together with interest thereon in respect of the period

commencing on the date such amount was made available by the Agent until the

date the Agent recovers such amount at the rate applicable to such portion of

the applicable Loan.

 

4.             Interest Rates.

 

(a)           Options.

 

(i)            Base Rate Loans.  On all Base Rate Loans, the Borrower agrees

to pay interest on the Notes calculated on the basis of the actual days elapsed

in a year consisting of 365 or, if appropriate, 366 days with respect to the

unpaid principal amount of each Base Rate Loan from the date the proceeds

thereof are made available to Borrower until maturity (whether by acceleration

or otherwise), at a varying rate per annum equal to the lesser of (i) the

Maximum Rate (defined herein), or (ii) the Base Rate.  Subject to the provisions of this Agreement as to prepayment, the

 

-15-

 

principal of

the Notes representing Base Rate Loans shall be payable as specified in Section

3(d) hereof, the interest in respect of each Base Rate Loan shall be payable on

each Interest Payment Date.  Past due

principal and, to the extent permitted by law, past due interest in respect to

each Base Rate Loan, shall bear interest, payable on demand, at a rate per

annum equal to the Maximum Rate.

 

(ii)           Eurodollar Loans.  On all Eurodollar Loans, the Borrower agrees

to pay interest calculated on the basis of a year consisting of 360 days with

respect to the unpaid principal amount of each Eurodollar Loan from the date

the proceeds thereof are made available to Borrower until maturity (whether by

acceleration or otherwise), at a varying rate per annum equal to the lesser of

(i) the Maximum Rate, or (ii) the Eurodollar Rate.  Interest with respect to each Eurodollar Loan shall be payable on

each Interest Payment Date.  Upon three

(3) Business Days’ written notice prior to the making by the Banks of any

Eurodollar Loan (in the case of the initial Interest Period therefor) or the

expiration date of each succeeding Interest Period (in the case of subsequent

Interest Periods therefor), Borrower shall have the option, subject to

compliance by Borrower with all of the provisions of this Agreement, as long as

no Event of Default exists, to specify whether the Interest Period commencing

on any such date shall be a one (1), two (2), three (3), four (4) or six (6)

month period.  If Agent shall not have

received timely notice of a designation of such Interest Period as herein

provided, Borrower shall be deemed to have elected to convert all maturing

Eurodollar Loans to Base Rate Loans.

 

(b)           Interest Rate Determination.  The Agent shall determine each interest rate

applicable to the Revolving Loan hereunder. 

The Agent shall give prompt notice to the Borrower of each rate of

interest so determined and its determination thereof shall be conclusive absent

error.

 

(c)           Conversion Option.  Borrower may elect from time to time (i) to

convert all of any part of its Eurodollar Loans to Base Rate Loans by giving

Agent irrevocable notice of such election in writing prior to 10:00 a.m.

(Dallas, Texas time) on the conversion date and such conversion shall be made

on the requested conversion date, provided that any such conversion of

Eurodollar Loan shall only be made on the last day of the Eurodollar Interest

Period with respect thereof, (ii) to convert all or any part of its Base Rate

Loans to Eurodollar Loans by giving the Agent irrevocable written notice of

such election three (3) Business Days prior to the proposed conversion and such

conversion shall be made on the requested conversion date or, if such requested

conversion date is not a Business Day on the next succeeding Business Day.  Any such conversion shall not be deemed to

be a prepayment of any of the loans for purposes of this Agreement on either of

the Notes.

 

-16-

 

(d)           Recoupment.  If at any time the applicable rate of

interest selected pursuant to Sections 4(a)(i) or 4(a)(ii) above shall exceed

the Maximum Rate, thereby causing the interest on the Notes to be limited to

the Maximum Rate, then any subsequent reduction in the interest rate so

selected or subsequently selected shall not reduce the rate of interest on the

Notes below the Maximum Rate until the total amount of interest accrued on the

Notes equals the amount of interest which would have accrued on the Notes if

the rate or rates selected pursuant to Sections 4(a)(i) or 4(a)(ii), as

the case may be, had at all times been in effect.

 

5.             Special

Provisions Relating to Eurodollar Loans.

 

(a)           Unavailability of Funds or

Inadequacy of Pricing.  In the event that, in connection with any proposed Eurodollar

Loan, the Agent reasonably determines, which determination shall, absent

manifest error, be final, conclusive and binding upon all parties, due to

changes in circumstances since the date hereof, adequate and fair means do not

exist for determining the Eurodollar Rate or such rate will not accurately

reflect the costs to the Banks of funding Eurodollar Loan for such Interest

Period, the Agent shall give notice of such determination to the Borrower and

the Banks, whereupon, until the Agent notifies the Borrower and the Banks that

the circumstances giving rise to such suspension no longer exist, the

obligations of the Banks to make, continue or convert Loan into Eurodollar Loan

shall be suspended, and all loans to Borrower shall be Base Rate Loan during

the period of suspension.

 

(b)           Change in Laws.  If at any time any new law or any change in

existing laws or in the interpretation of any new or existing laws shall make

it unlawful for any Bank to make or continue to maintain or fund Eurodollar

Loans hereunder, then such Bank shall promptly notify Borrower in writing and

such Bank’s obligation to make, continue or convert Loans into Eurodollar Loans

under this Agreement shall be suspended until it is no longer unlawful for such

Bank to make or maintain Eurodollar Loans. 

Upon receipt of such notice, Borrower shall either repay the outstanding

Eurodollar Loans owed to such Bank, without penalty, on the last day of the

current Interest Periods (or, if any Bank may not lawfully continue to maintain

and fund such Eurodollar Loans, immediately), or Borrower may convert such

Eurodollar Loans at such appropriate time to Base Rate Loan.

 

(c)           Increased Cost or Reduced Return.

 

(i)            If,

after the date hereof, the adoption of any applicable law, rule, or regulation,

or any change in any applicable law, rule, or regulation, or any change in the

interpretation or administration thereof by any governmental authority, central

bank, or comparable agency charged with the interpretation or administration

thereof, or compliance by any Bank with any request or directive (whether or

not having the force of law) of any such governmental authority, central bank,

or comparable agency:

 

-17-

 

(A)          shall subject such Bank to any tax,

duty, or other charge with respect to any Eurodollar Loan, its Notes, or its

obligation to make Eurodollar Loan, or change the basis of taxation of any

amounts payable to such Bank under this Agreement or its Notes in respect of

any Eurodollar Loan (other than franchise taxes and taxes imposed on the

overall net income of such Bank);

(B)           shall impose, modify, or deem

applicable any reserve, special deposit, assessment, or similar requirement

(other than reserve requirements, if any, taken into account in the

determination of the Eurodollar Rate) relating to any extensions of credit or

other assets of, or any deposits with or other liabilities or commitments of,

such Bank, including the Commitment of such Bank hereunder; or

(C)           shall impose on such Bank or on the

London interbank market any other condition affecting this Agreement or its

Notes or any of such extensions of credit or liabilities or commitments;

and the result of any of the

foregoing is to increase the cost to such Bank of making, converting into,

continuing, or maintaining any Eurodollar Loan or to reduce any sum received or

receivable by such Bank under this Agreement or its Notes with respect to any

Eurodollar Loan, then  Borrower shall

pay to such Bank on demand such amount or amounts as will reasonably compensate

such Bank for such increased cost or reduction.  If any Bank requests compensation by Borrower under this

Section 5(c), Borrower may, by notice to such Bank (with a copy to Agent),

suspend the obligation of such Bank to make or continue Eurodollar Loans, or to

convert all or part of the Eurodollar Loans owing to such Bank to Base Rate

Loans, until the event or condition giving rise to such request ceases to be in

effect (in which case the provisions of Section 5(c) shall be applicable);

provided that such suspension shall not affect the right of such Bank to

receive the compensation so requested.

(ii)           If,

after the date hereof, any Bank shall have determined that the adoption of any

applicable law, rule, or regulation regarding capital adequacy or any change

therein or in the interpretation or administration thereof by any governmental

authority, central bank, or comparable agency charged with the interpretation

or administration thereof, or any request or directive regarding capital

adequacy (whether or not having the force of law) of any such governmental

authority, central bank, or comparable agency, has or would have the effect of

reducing the rate of return on the capital of such Bank or any corporation

controlling

 

-18-

 

such Bank as a consequence of such Bank’s obligations hereunder to a

level below that which such Bank or such corporation could have achieved but

for such adoption, change, request, or directive (taking into consideration its

policies with respect to capital adequacy), then from time to time upon demand

Borrower shall pay to such Bank such additional amount or amounts as will

reasonably compensate such Bank for such reduction.

 

(iii)          Each

Bank shall promptly notify Borrower and Agent of any event of which it has

knowledge, occurring after the date hereof, which will entitle such Bank to

compensation pursuant to this Section 5(c) and will designate a separate

lending office, if applicable, if such designation will avoid the need for, or

reduce the amount of, such compensation and will not, in the judgment of such

Bank, be otherwise disadvantageous to it. 

Any Bank claiming compensation under this Section 5(c) shall furnish

to Borrower and Agent a statement setting forth the additional amount or

amounts to be paid to it hereunder which shall be conclusive in the absence of

manifest error.  In determining such

amount, such Bank may use any reasonable averaging and attribution methods.

 

(iv)          Any

Bank giving notice to the Borrower through the Agent pursuant to Section 5(c)

shall give to the Borrower a statement signed by an officer of such Bank

setting forth in reasonable detail the basis for, and the calculation of such

additional cost, reduced payments or capital requirements, as the case may be,

and the additional amounts required to compensate such Bank therefor.

 

(v)           Within

five (5) Business Days after receipt by the Borrower of any notice referred to

in Section 5(c), the Borrower shall pay to the Agent for the account of the

Bank issuing such notice such additional amounts as are required to compensate

such Bank for the increased cost, reduced payments or increased capital

requirements identified therein, as the case may be.

 

(d)           Discretion of Bank as to Manner of

Funding. 

Notwithstanding any provisions of this Agreement to the contrary, each

Bank shall be entitled to fund and maintain its funding of all or any part of

its Loan in any manner it sees fit, it being understood, however, that for the

purposes of this Agreement all determinations hereunder shall be made as if

each  Bank had actually funded and

maintained each Eurodollar Loan through the purchase of deposits having a

maturity corresponding to the last day of the Interest Period applicable to

such Eurodollar Loan and bearing an interest rate to the applicable interest

rate for such Eurodollar Period.

 

(e)           Breakage Fees.  Without duplication under any other

provision hereof, if any Bank incurs any loss, cost or expense including,

without limitation, any loss of profit or loss, cost, expense or premium

reasonably incurred by reason of the liquidation or

 

-19-

 

re-employment of deposits or other funds acquired by such Bank to fund

or maintain any Eurodollar Loan or the relending or reinvesting of such

deposits or amounts paid or prepaid to the Banks as a result of any of the

following events other than any such occurrence as a result in the change of

circumstances described in Sections 5(a) and (b):

 

(i)            any payment, prepayment or

conversion of a Eurodollar Loan on a date other than the last day of its

Interest Period (whether by acceleration, prepayment or otherwise);

(ii)           any failure to make a principal

payment of a Eurodollar Loan on the due date thereof; or

(iii)          any failure by the Borrower to borrow,

continue, prepay or convert to a Eurodollar Loan on the dates specified in a

notice given pursuant to Section 2(c) or 4(c) hereof;

then the

Borrower shall pay to such Bank such amount as will reimburse such Bank for

such loss, cost or expense.  If any Bank

makes such a claim for compensation, it shall furnish to Borrower and Agent a

statement setting forth the amount of such loss, cost or expense in reasonable

detail (including an explanation of the basis for and the computation of such

loss, cost or expense) and the amounts shown on such statement shall be

conclusive and binding absent manifest error.

 

6.             Collateral Security.  To secure the

performance by Borrower of its obligations hereunder, and under the Notes and

Security Instruments, whether now or hereafter incurred, matured or unmatured,

direct or contingent, joint or several, or joint and several, including

extensions, modification and renewals thereof, and substitutions therefore,

Borrower has heretofore granted and assigned to the Agent, for the ratable

benefit of the Banks, and shall herewith and hereafter grant and assign to

Agent, for the ratable benefit of the Banks, a first and prior security

interest and lien on the Oil and Gas Properties, the stock of certain of the

Subsidiaries, and the other collateral. 

Guarantor has heretofore executed and delivered its guaranty agreement

guaranteeing the prompt payment and performance of Borrower’s obligations

hereunder and under the Notes.  As

security for the performance of its guaranty agreement, Guarantor has

heretofore granted to Agent, for the ratable benefit of the Banks, and shall

herewith and hereafter grant and assign to Agent, for the ratable benefit of

Banks, a first and prior lien on its Oil and Gas Properties.  Guarantor shall execute this Agreement to

confirm its consent to (i) the execution of the Agreement by Borrower, and

(ii) the amendments contained therein. 

Obligations arising from Rate Management Transactions between Borrower,

any Guarantor or one or more of the Banks or any Affiliate of any of the Banks

providing for the hedging, forward swap or sale of crude oil or natural gas or

interest rate protection shall be secured by the Collateral (as hereinafter

defined) on a pari passu basis with the indebtedness and obligations of the

Borrower and the Guarantor under the Loan Documents.  All Oil and Gas Properties, oil and gas related equipment,

inventory and receivables, stock, notes and other collateral in which Borrower

or Guarantor has heretofore or hereafter grants to the Agent, for the ratable

benefit of the Banks, a first and prior lien (to the satisfaction of the Banks)

in accordance

 

-20-

 

with this

Section 6, as such properties and interests are from time to time constituted,

are hereinafter collectively called the “Collateral.”

 

The granting

and assigning of such security interests and liens by Borrower shall be

pursuant to Security Instruments in form and substance satisfactory to the

Agent.  Borrower and Guarantor shall

furnish to the Agent the mortgage and title opinions and other documents

satisfactory to Agent with respect to the title and lien status of its

interests in such of the Oil and Gas Properties covered by the Security

Instruments as required in Section 12(n) and (o) hereof.  Borrower and Guarantor will cause to be

executed and delivered to the Agent, for the ratable benefit of the Banks, in

the future, additional Security Instruments if the Agent deems such are

necessary to insure perfection or maintenance of their security interests and

liens in the Collateral or any part thereof.

 

7.             Borrowing Base.

 

(a)           Initial Borrowing Base.  During the period from the date hereof to

the next determination date, the Borrowing Base shall be $110,000,000.00.

 

(b)           Subsequent Determinations of

Borrowing Base. 

Subsequent determinations of the Borrowing Base shall be made by Banks

at least semi-annually and the Banks may make a redetermination at any time and

shall make a redetermination if and when requested by Borrower.  In connection with each such determination

of the Borrowing Base, the Banks shall also determine the Monthly Commitment

Reduction.  Such Borrowing Base and

Monthly Commitment Reduction determinations shall be made on or before each

November 20 and May 20, commencing November 20, 2002, the same to be

effective as of each November 1 and May 1, commencing November 1,

2002, and at such other dates as determined at the discretion of Majority

Banks.  Borrower may likewise request

more frequent Borrowing Base redeterminations and Banks shall make the same if

and when requested.  In making such

determinations, Banks may utilize such reports and appraisals as Borrower may

furnish to Banks through Agent under other provisions hereof with respect to

the Collateral, including the information required pursuant to Section

12(a)(iii), (iv), (v) and (vi), together with such other data as Banks may deem

appropriate under the then circumstance, including, without limitation, cash

flow and projections of cash flow, provided that nothing herein shall be

construed to require that Banks or Agent shall or should obtain and pay for any

reports, appraisals or other data from third parties in connection

therewith.  The procedure for

determining the Borrowing Base and the Monthly Commitment Reduction at each

redetermination shall be that the Agent shall determine the Borrowing Base and

Monthly Commitment Reduction and submit the same to the Banks.  Increases in the Borrowing Base shall

require the approval of all Banks, but all other changes in the Borrowing Base

and Monthly Commitment Reduction shall require approval of Majority Banks.  Such determinations shall be made by Banks

in accordance with their respective customary practices and standards for loans

in similar amounts to borrowers similarly situated, at the times and under the

circumstances then prevailing which are considered by each Bank in its

discretion, subject only to the requirement that such determination shall be

reasonable and made in good faith.  If

at any time any of the Collateral is sold, the Borrowing Base

 

 

-21-

 

then in effect

shall automatically be reduced by a sum equal to the amount of prepayment

required to be made pursuant to Section 13(e) hereof.  If a non-scheduled Borrowing Base

redetermination is made, such non-scheduled redetermined Borrowing Base shall

become effective immediately upon Agent giving notice thereof to the Borrower.  Provided, however, that no Bank shall ever

have an obligation to designate a Borrowing Base in an amount such that such

Bank’s Commitment Percentage thereof is in excess of its legal or internal

lending limits.

 

(c)           Voluntary Decreases in Borrowing

Base. 

Within ten (10) Business Days after notification to Borrower of a

Borrowing Base redetermination pursuant to the provisions of this Section 7,

Borrower may notify Agent as to what portion of the Borrowing Base they desire

access (the “Elected Borrowing Limit”). 

Thereafter, Borrower may obtain Revolving Loans which do not exceed the

lesser of (i) $200,000,000, or (ii) the Elected Borrowing Limit until the next

Borrowing Base redetermination, subject to the provisions of Section 9(b)

hereof.  If no such notification is

received by Agent, the Elected Borrowing Limit shall be the lesser of

$200,000,000 or the Borrowing Base as so determined.

 

(d)           Monthly Commitment Reduction.  The Borrowing Base shall be reduced as of

the last day of each month after the Effective Date by an amount determined by

the Banks pursuant to Section 7(b) hereof (the “Monthly Commitment

Reduction”).  Beginning August 1,

2002, the Monthly Commitment Reduction shall be $0 per month until redetermined

pursuant to Section 7(b) hereof.

 

8.             Fees.

 

(a)           Unused

Portion Fee.  In

consideration of the Revolving Commitment, Borrower shall pay to Agent, for the

ratable benefit of Banks, an Unused Portion Fee (hereinafter referred to as the

“Unused Portion Fee”) equivalent to the Unused Portion Fee Rate times the

differential between the average Elected Borrowing Limit and the Total

Outstandings for the preceding three months. 

The Unused Portion Fee shall be payable in arrears on the last Business

Day of each January, April, July and October, commencing on July 31,

2002.  All amounts due under Section

8(a) of the Eighth Restated Loan Agreement as of the Effective Date as Unused

Portion Fees shall be paid to Agent on the Effective Date.  The final fee payment shall be due on the

Maturity Date for any period then ending for which the Unused Portion Fee shall

not have been theretofore paid.  In the

event the Revolving Commitment terminates on any date prior to the end of any

such quarterly period, Borrower shall pay to Banks, on the date of such

termination, the prorated portion of the total Unused Portion Fee due for such

of the period in which such termination occurs.

 

(b)           Borrowing Base Increase Fee.  Borrower agrees to pay to Agent, for the

ratable benefit of Banks, a Borrowing Base Increase Fee (hereinafter referred

to as the “Borrowing Base Increase Fee”) equal to one-half of one percent

(.50%) of the amount of any increase in the Elected Borrowing Limit from the

amount of the Elected Borrowing Limit as of the preceding determination date

but only to the extent that any such newly determined

 

-22-

 

Elected Borrowing Limit is

in excess of $110,000,000.  Said fee to

payable upon notice to Borrower of such increase.

 

(c)           Letter of Credit Fee. 

Borrower agrees to pay to Agent, for the benefit of the issuing Banks,

commissions for issuing Letters of Credit in the amounts and at the rates set

forth hereinabove in Section 2(d).

 

(d)           Agency Fee.  Borrower agrees to pay to Agent an Agency

Fee for its services as Agent hereunder in an amount previously negotiated

between Borrower and Agent.

 

9.             Prepayments.

 

(a)           Voluntary Prepayments.  Borrower may at any time and from time to

time, without penalty or premium, make voluntary prepayments in whole or in

part on the Notes.  Each such prepayment

shall be made on at least one (1) Business Day’s notice to Agent and shall be

in an amount of $100,000 or any larger multiple thereof plus accrued interest

thereon to the date of prepayment.

 

(b)           Mandatory Prepayment.  In the event the Total Outstandings ever

exceed the Borrowing Base as determined by the Banks pursuant to Section 7

hereof (a “Borrowing Base Deficiency”), Borrower shall, within thirty (30) days

after notification from Agent either (A) by instruments satisfactory in form

and substance to Banks, provide the Banks with additional collateral with value

and quality satisfactory to Banks in their sole discretion in order to increase

the Borrowing Base by an amount at least equal to such excess, or (B) prepay,

without premium or penalty, the principal amount of the Notes in an amount at

least equal to such excess, or (C) prepay, without premium or penalty, the

amount of such excess in five (5) equal monthly installments due and payable on

the last Business Day of each of the next five (5) consecutive months, or (D)

elect to convert the entire principal amount of the Notes to a term obligation

with monthly installments of principal and interest due and payable on the last

Business Day of each month from the date of such conversion to the Maturity

Date, each such installment payment to be in the amount of accrued interest

plus an amount of principal equal to the greater of (i) 1/36th of the

outstanding balance on the date of conversion or (ii) an amount determined by

dividing the principal amount outstanding on the date of the conversion by the

estimated economic half-life of the Oil and Gas Properties expressed in terms

of months, as determined by the Agent in its sole and absolute discretion

reasonably exercised.  Notwithstanding

any of the foregoing, all unpaid principal and interest shall be due and

payable on the Maturity Date.  Provided,

however, that in the event the Borrower elects option (C) above, the Borrowing

Base Deficiency must be cured at the end of the installment period specified

above or the entire outstanding principal balance due on the Notes shall

immediately convert to a term loan payable in accordance with the payment

provisions set forth in subsection (D) above. 

Provided, further, however, that during the five (5) month prepayment

period specified in subsection (C) above, Borrower may elect at any time to

convert to a term loan pursuant to subsection (D) above.  The determination of whether Borrower has

cured any such

 

-23-

 

Borrowing Base

Deficiency at the end of the installment period specified in (C) above, shall

be made by the Banks in their sole and absolute discretion based upon an

unscheduled Borrowing Base redetermination made pursuant to Section 7(b) of

this Agreement.

 

10.           Representations

and Warranties.  In order to induce the Banks to

enter into this Agreement, Borrower hereby represents and warrants to the Banks

(which representations and warranties will survive the delivery of the Notes)

that:

 

(a)           Creation and Existence.  Borrower and Guarantor are corporations duly

organized and validly existing in good standing under the laws of their state

of incorporation and are duly qualified as a foreign corporation in all

jurisdictions wherein failure to qualify may result in a Material Adverse

Effect.  Borrower and Guarantor have all

the power and authority to own their properties and assets and to transact the

business in which they are engaged.

 

(b)           Power and Authorization.  Borrower and Guarantor have the power and

requisite authority, and has taken all action necessary, to execute, deliver

and perform the Loan Documents.

 

(c)           Binding Obligations.  This Agreement does, and the Notes and other

Security Instruments upon their creation, issuance, execution and delivery

will, constitute valid and binding obligations of Borrower and Guarantor,

enforceable in accordance with their respective terms (except that enforcement

may be subject to any applicable bankruptcy, insolvency, reorganization,

moratorium or similar laws generally affecting the enforcement of creditors’

rights and subject to availability of equitable remedies).

 

(d)           No Legal Bar or Resultant Lien.  The Notes and the Security Instruments,

including this Agreement, do not and will not conflict with or violate any

provisions of the articles of incorporation or bylaws of Borrower or Guarantor

or, except as disclosed to Banks prior to the Effective Date hereof, any

contract, agreement, law, regulation, order, injunction, judgment, decree or

writ to which Borrower or Guarantor is subject, or result in the creation or

imposition of any lien or other encumbrance upon any assets or properties of

Borrower or Guarantor, other than those contemplated by this Agreement which

conflict, violation, creation or imposition is reasonably expected to have a

Material Adverse Effect.

 

(e)           No Consent.  The execution, delivery and performance by

Borrower or Guarantor of the Notes and the Security Instruments, including this

Agreement, does not require the consent or approval of any other person or

entity, including without limitation any regulatory authority or governmental

body of the United States or any state thereof or any political subdivision of

the United States or any state thereof.

 

(f)            Financial Condition.  The Financial Statements of the Williams

Consolidated Entities which have been delivered to Banks are complete and

correct in all material respects and fairly present in all material respects

the financial condition and

 

-24-

 

results of the

operations of the Williams Consolidated Entities as of the date or dates and

for the period or periods stated.  No

change has since occurred in the condition, financial or otherwise, of the

Williams Consolidated Entities which is reasonably expected to have a Material

Adverse Effect, except as disclosed to the Banks in Schedule “1” attached

hereto.  The Financial Statements which

have been delivered to Banks have been prepared substantially in accordance

with GAAP.

 

(g)           Liabilities.  Neither Borrower nor Guarantor has any material

(individually or in the aggregate) liability, direct or contingent, except as

disclosed to the Banks in the Financial Statements or in Schedule “2”

attached hereto.  No unusual or unduly

burdensome restrictions, restraint, or hazard exists by contract, law or

governmental regulation or otherwise relative to the business, assets or

properties of Borrower or Guarantor which is reasonably expected to have a

Material Adverse Effect.

 

(h)           Litigation.  Except as described in the Financial

Statements or as otherwise disclosed to the Banks in Schedule “3” attached

hereto, there is no litigation, legal or administrative proceeding,

investigation or other action of any nature pending or, to the knowledge of the

officers of Borrower, threatened against or affecting Borrower or Guarantor

which involves the possibility of any judgment or liability not fully covered

by insurance, and which is reasonably expected to have a Material Adverse

Effect.

 

(i)            Taxes; Governmental Charges.  Borrower and Guarantor have filed all tax

returns and reports required to be filed and have paid all taxes, assessments,

fees and other governmental charges levied upon them or their respective

assets, properties or income which are due and payable, including interest and

penalties, or have provided adequate reserves, if required, in accordance with

GAAP for the payment thereof, except such as are being contested in good faith

by appropriate proceedings and for which adequate reserves for the payment

thereof as required by GAAP have been provided.

 

(j)            Titles, Etc.  Borrower and Guarantor have Good and

Defensible title to all of the Collateral pledged or mortgaged by them except

for defects which are not reasonably expected to have a Material Adverse

Effect, free and clear of all liens or other encumbrances, except Permitted

Liens; and Borrower and Guarantor, to the best of their knowledge after the

exercise of such due diligence as a reasonable person would have done under the

same or similar circumstances, have Good and Defensible Title to their other

assets and properties (except for (i) undeveloped oil and gas properties, and

(ii) defects which are not reasonably expected to have a Material Adverse

Effect), free and clear of all liens or other encumbrances, except Permitted

Liens.

 

(k)           Defaults.  Neither Borrower nor Guarantor is in default

and no event or circumstance has occurred which, but for the passage of time or

the giving of notice, or both, would constitute a default under any loan or

credit agreement, indenture, mortgage, deed of trust, security agreement or

other agreement or instrument to which Borrower or Guarantor is a party in any

respect that would be reasonably expected to have a Material Adverse

Effect.  No Event of Default hereunder has

occurred and is continuing.

 

-25-

 

(l)            Casualties; Taking of Properties.  Since the dates of the latest Financial

Statements delivered to Banks, neither the business nor the assets or

properties of Borrower or Guarantor have been affected as a result of any fire,

explosion, earthquake, flood, drought, windstorm, accident, strike or other

labor disturbance, embargo, requisition or taking of property or cancellation

of contracts, permits or concessions by any domestic or foreign government or

any agency thereof, riot, activities of armed forces or acts of God or of any

public enemy that would reasonably be expected to have a Material Adverse

Effect.

 

(m)          Use of Proceeds; Margin Stock.  The proceeds of the loans hereunder will be

used by Borrower for working capital, acquisition, letters of credit and

general corporate purposes.  Borrower is

not engaged in the business of extending credit for the purpose of purchasing

or carrying any “margin stock” as defined in Regulation U of the Board of

Governors of the Federal Reserve System (12 C.F.R. Part 221), or for the

purpose of reducing or retiring any indebtedness which was originally incurred

to purchase or carry a margin stock or for any other purpose which might

constitute this transaction a “purpose credit” within the meaning of said

Regulation U.  Borrower is not

engaged principally, or as one of its important activities, in the business of

extending credit for the purpose of purchasing or carrying margin stock.

 

Neither Borrower nor any person or entity acting on behalf of Borrower

has taken or will take any action which might cause the loans hereunder or any

of the Security Instruments, including this Agreement, to violate Regulation U

or any other regulation of the Board of Governors of the Federal Reserve System

or to violate the Securities Exchange Act of 1934 or any rule or regulation

thereunder, in each case as now in effect or as the same may hereafter be in

effect.

 

(n)           Location of Business and Offices.  The principal place of business and chief

executive offices of Borrower is located at the address stated in Section 16

hereof.

 

(o)           Compliance with the Law.  To the best of Borrower’s and Guarantor’s

knowledge, they:

 

(i)            are not in

violation of any law, judgment, decree, order, ordinance, or governmental rule

or regulation to which Borrower or Guarantor, or any of their assets or

properties are subject; or

 

(ii)           have not failed to

obtain any license, permit, franchise or other governmental authorization

necessary to the ownership of any of its assets or properties or the conduct of

their business;

 

which

violation or failure is reasonably expected to have a Material Adverse Effect.

 

(p)           No Material Misstatements.  No information, exhibit or report furnished

by Borrower or Guarantor to the Banks in connection with the negotiation of

this

 

-26-

 

Agreement

contained any material misstatement of fact or omitted to state a material fact

necessary to make the statement contained therein not misleading.

 

(q)           ERISA.  Borrower is in compliance in all material

respects with the applicable provisions of ERISA, and no “reportable event”, as

such term is defined in Section 4043 of ERISA, has occurred with respect to any

Plan of Borrower.

 

(r)            Public Utility Holding Company

Act. 

Borrower is not a “holding company”, or “subsidiary company” of a

“holding company”, or an “affiliate” of a “holding company” or of a “subsidiary

company” of a “holding company”, or a “public utility” within the meaning of

the Public Utility Holding Company Act of 1935, as amended.

 

(s)           Environmental Matters.  Except as disclosed on Schedule ”4”,

neither Borrower nor Guarantor (i) has received notice or otherwise learned of

any Environmental Liability which would individually or in the aggregate have a

Material Adverse Effect arising in connection with (A) any non-compliance with

or violation of the requirements of any Environmental Law or (B) the release or

threatened release of any toxic or hazardous waste into the environment, (ii)

to the knowledge of Borrower and Guarantor, have threatened or actual liability

in connection with the release or threatened release of any toxic or hazardous

waste into the environment which would individually or in the aggregate have a

Material Adverse Effect or (iii) have received notice or otherwise learned of

any federal or state investigation evaluating whether any remedial action is

needed to respond to a release or threatened release of any toxic or hazardous

waste into the environment for which Borrower or Guarantor is or may be liable.

 

(t)            Guarantor.  CWE owns one hundred percent (100%) of the

issued and outstanding equity securities of Guarantor.

 

11.           Conditions of Lending.

 

(a)           The effectiveness of

this Agreement and the obligation of the Banks to make the initial Advance

under the Revolving Commitment shall be subject to the following conditions

precedent:

 

(i)            Execution and

Delivery.  Borrower shall have

executed and delivered to the Agent this Agreement, the Notes, the Security

Instruments and other required documents, and Guarantor shall have executed and

delivered to the Agent its guaranty agreement, all in form and substance

satisfactory to the Banks;

 

(ii)           Corporate

Resolutions and Incumbency.  The

Agent shall have received appropriate (i) corporate resolutions for each

Borrower and  Guarantor, and (ii)

incumbency certificates for each Borrower and Guarantor;

 

-27-

 

(iii)          SEC Filings.  The Banks shall have received copies of all

documents filed by Borrower with the Securities and Exchange Commission prior

to the Effective Date;

 

(iv)          Closing of Romere

Pass Acquisition.  The Agent shall

have received satisfactory evidence that the transaction described in the

Purchase and Sale Agreement dated June 28, 2002, among JPC, LLC, MABB, LTD

and TCAL, LLC, all as sellers, and CWE has closed and that the oil and gas

properties being conveyed pursuant thereto have been assigned to Romere Pass

Acquisition Corp., said transaction to have been completed to the satisfaction

of the Agent;

 

(v)           No Event of

Default.  No Event of Default shall

have occurred and be continuing;

 

(vi)          No Material

Adverse Change.  No material adverse

change in the consolidated financial condition of the Borrower shall have

occurred;

 

(vii)         Other Documents.  The Banks shall have received such other

instruments and documents incidental and appropriate to the transaction

provided for herein as the Banks or its counsel may reasonably request, and all

such documents shall be in form and substance satisfactory to the Banks; and

 

(viii)        Legal Matters

Satisfactory.  All legal matters

incident to the consummation of the transactions contemplated hereby shall be

satisfactory to special counsel for the Banks retained at the expense of

Borrower.

 

(a)           The obligation of

the Banks to make any Advance (including the initial Advance) or issue any

Letter of Credit on the Revolving Commitment shall be subject to the following

additional conditions precedent that, at the date of making each such Advance

and after giving effect thereto:

 

(ix)           Representation

and Warranties.  With respect to any

Advance, the representations and warranties of Borrower and Guarantor under

this Agreement (excluding, however, the representations and warranties set

forth in Sections 10(h) and 10(s) as to any matter which has theretofore been

disclosed in writing by Borrower to the Banks, but as to which Borrower and

Guarantor represent and warrant as of the date of the requested Advance or

issuance of Letter of Credit that the matters so disclosed are not reasonably

expected to have a Material Adverse Effect) are true and correct in all

material respects as of such date, as if then made (except to the extent that

such representations and warranties related solely to an earlier date);

 

-28-

 

(x)            No Event of

Default.  No Event of Default shall

have occurred and be continuing nor shall any event have occurred or failed to

occur which, with the passage of time or service of notice, or both, would constitute

an Event of Default;

 

(xi)           Other Documents.  The Banks shall have received such other

instruments and documents incidental and appropriate to the transaction

provided for herein as the Banks or its counsel may reasonably request, and all

such documents shall be in form and substance satisfactory to the Banks; and

 

(xii)          Legal Matters

Satisfactory.  All legal matters

incident to the consummation of the transactions contemplated hereby shall be

satisfactory to special counsel for the Banks retained at the expense of

Borrower.

 

12.           Affirmative

Covenants.  A deviation from the provisions of this

Section 12 shall not constitute an Event of Default under this Agreement if

such deviation is consented to in writing by Majority Banks.  Without the prior written consent of

Majority Banks, Borrower and Guarantor (to the extent applicable thereto) will

at all times comply with the covenants contained in this Section 12 from the

date hereof and for so long as any indebtedness or obligation of Borrower under

the Loan Documents is outstanding or any part of the Revolving Commitment is in

existence.

 

(a)           Financial Statements and Reports.  Borrower shall promptly furnish to the Banks

from time to time upon request such information regarding the business and

affairs and financial condition of Borrower, as the Banks may reasonably

request, and will furnish to the Banks:

 

(i)            Annual Financial

Statements - as soon as available, and in any event within one hundred and

twenty (120) days after the close of each fiscal year of the Williams

Consolidated Entities, the annual audited Financial Statements of the Williams

Consolidated Entities prepared by an independent accounting firm satisfactory

to Majority Banks;

 

(ii)           Quarterly

Financial Statements - as soon as available, and in any event sixty (60)

days after the end of each calendar quarter (except the last calendar quarter)

of each year, the quarterly unaudited Financial Statements of the Williams

Consolidated Entities;

 

(iii)          Reserve Reports

on Oil and Gas Properties - no later than November 1 of each year beginning

November 1, 2002 and at such other times as Banks shall request, an internally

generated engineering report covering reserve and income projections for all

Oil and Gas Properties (including those owned by Guarantor), which reports

shall have an

 

-29-

 

effective date

of September 30 of each year.  Borrower

shall also furnish Banks on or before May 1 of each year beginning May 1, 2003

reserve reports and income projections for all Oil and Gas Properties, which

reserve reports shall have an effective date of January 1 of each year and

shall be prepared by Williamson Petroleum Consultants, Inc. (or other reservoir

engineering firm satisfactory to Majority Banks), which January 1 effective

date report shall be accompanied by internally generated information sufficient

to allow such January 1 report and the information contained therein to be

rolled forward to an effective date of March 31.  All such engineering reports, shall be in a form acceptable to

Agent and shall utilize oil and gas prices, escalation factors and discount

rates currently then being used by Agent in its general petroleum lending

business;

 

(iv)          Monthly Operating

and Production Reports.  Borrower

shall furnish Banks, within forty-five (45) days following the close of each

month, oil and gas production reports (inclusive of prices received thereon),

drilling and completion reports for the Williams Consolidated Entities;

 

(v)           Budgets and

Projections.  On each June 1 and

December 1 Borrower shall furnish to Banks a budget and cash flow forecast

for the Williams Consolidated Entities prepared on a twelve (12) month rolling

forward basis with respect to their operations in a form satisfactory to Agent;

 

(vi)          Hedging Report.  Borrower shall furnish Banks at the same

time it furnishes the reserve reports required above in Section 12(a)(iii)

and in Section 6 hereof, with a report of Rate Management Transactions

then in effect, said information to be provided on a monthly and an aggregate

basis for all such forward sales;

 

(vii)         Additional

Information.  Promptly upon request

of the Banks from time to time any additional financial information or other

information that the Banks may reasonably request.

 

All such

reports referred to in Subsection 12(a) above shall be in such detail as the

Banks may reasonably request.

 

(b)           Certificates of Compliance.  Concurrently with the furnishing of the

annual Financial Statements pursuant to Subsection 12(a)(i) hereof and each of

the quarterly Financial Statements pursuant to Subsection 12(a)(ii) hereof,

Borrower will furnish or cause to be furnished to the Banks a certificate in

the form of Exhibit “C” hereto, signed by a person duly authorized to

execute such a certificate on behalf of Borrower (i) to the extent requested

from time to time by the Banks, specifically affirming compliance of Borrower

in all material respects with any of its representations

 

-30-

 

or obligations

under the Security Instruments; (ii) setting forth the computation, in

reasonable detail as of the end of each period covered by such certificate, of

compliance with Section 13(c), 13(d) and 13(m) containing or accompanied by

such financial or other details, information and material as the Banks may

reasonably request to evidence such compliance; and (iii) certifying to the

beneficial ownership of at least 20% of Borrower’s stock by Clayton W. Williams

Jr., and his affiliates (specifying such affiliates by name and providing the

number of shares owned by each).

 

(c)           Taxes and Other Liens.  Borrower and Guarantor will pay and

discharge promptly all taxes, assessments and governmental charges or levies

imposed upon Borrower or Guarantor or upon the income or any assets or property

of Borrower or Guarantor or any Subsidiary as well as all claims of any kind

(including claims for labor, materials, supplies and rent) which, if unpaid,

might become a lien or other encumbrance upon any or all of the assets or

property of Borrower or Guarantor; provided, however, that neither Borrower nor

Guarantor shall be required to pay any such tax, assessment, charge, levy or

claim if the amount, applicability or validity thereof shall currently be

contested in good faith by appropriate proceedings diligently conducted and if

Borrower or Guarantor shall have set up adequate reserves therefor, if

required, under GAAP.

 

(d)           Compliance with Laws.  Borrower and Guarantor will observe and

comply with all applicable laws, statutes, codes, acts, ordinances, orders,

judgments, decrees, injunctions, rules, regulations, orders and restrictions

relating to environmental standards or controls or to energy regulations of all

federal, state, county, municipal and other governments, departments, commissions,

boards, agencies, courts, authorities, officials and officers, domestic or

foreign, where the violation or failure to observe would be reasonably expected

to have a Material Adverse Effect.

 

(e)           Further Assurances.  Borrower will cure promptly any defects in

the creation and issuance of the Notes and the execution and delivery of the

Notes and the Security Instruments, including this Agreement.  Borrower and Guarantor at their sole expense

will promptly execute and deliver to Banks upon request all such other and

further documents, agreements and instruments in compliance with or

accomplishment of the covenants and agreements in this Agreement, or to correct

any omissions in the Notes or more fully to state the obligations set out

herein.

 

(f)            Performance of Obligations.  Borrower agrees to pay the Notes and other

obligations incurred by it hereunder according to the reading, tenor and effect

thereof and hereof; and Borrower and Guarantor will do and perform every act

and discharge all of the obligations provided to be performed and discharged by

Borrower or Guarantor under the Security Instruments, including this Agreement,

at the time or times and in the manner specified.

 

(g)           Insurance.  Borrower and Guarantor now maintain and will

continue to maintain insurance with financially sound and reputable insurers

with respect to its assets against such liabilities, fires, casualties, risks

and contingencies and in such types and amounts as is customary in the case of

persons engaged in the same or similar businesses

 

-31-

 

and similarly

situated.  Upon request of the Agent,

Borrower will furnish or cause to be furnished to the Agent from time to time a

summary of the respective insurance coverage of Borrower and Guarantor in form

and substance satisfactory to the Agent, and, if requested, will furnish the

Agent copies of the applicable policies. 

Upon demand by Agent any insurance policies covering any such property

shall be endorsed (i) to provide that such policies may not be cancelled,

reduced or affected in any manner for any reason without fifteen (15) days

prior notice to Agent, (ii) to provide for insurance against fire, casualty and

other hazards normally insured against, in amounts customary in the industry

for similarly situated business and properties, and (iii) to provide for such

other matters as the Banks may reasonably require.  Borrower and Guarantor shall at all times maintain insurance in

amounts customary in the industry for similarly situated business and

properties with respect to the Collateral against their liability for injury to

persons or property, which insurance shall be by financially sound and

reputable insurers and shall without limitation provide the following

coverages:  comprehensive general

liability (including coverage for damage to underground resources and

equipment, damage caused by blowouts or cratering, damage caused by explosion,

damage to underground minerals or resources caused by saline substances, broad

form property damage coverage, broad form coverage for contractually assumed

liabilities and broad form coverage for acts of independent contractors),

worker’s compensation and automobile liability.  Borrower and Guarantor shall at all times maintain insurance with

respect to the Collateral which shall insure Borrower and Guarantor against

seepage and pollution expense if deemed economical in the reasonable discretion

of Borrower and Guarantor. 

Additionally, Borrower shall at all times maintain adequate insurance

with respect to all of their other assets and wells in accordance with prudent

business practices.

 

(h)           Accounts and Records.  Borrower and Guarantor will keep books,

records and accounts in which full, true and correct entries will be made of

all dealings or transactions in relation to their business and activities.

 

(i)            Right of Inspection.  Borrower and Guarantor will permit any

officer, employee or agent of the Banks to examine Borrower’s or Guarantor’s

books, records and accounts, and take copies and extracts therefrom, all at

such reasonable times and as often as the Banks may reasonably request.  Banks will use their best efforts to keep

all such information confidential and will not without prior written consent

disclose or reveal the information or any part thereof to any person other than

the Banks’ officers, employees, legal counsel, regulatory authorities or

advisors to whom it is necessary to reveal such information for the purpose of

effectuating the agreements and undertakings specified herein.

 

(j)            Notice of Certain Events.  Borrower and Guarantor shall promptly notify

the Banks if Borrower or Guarantor learns of the occurrence of (i) any event

which constitutes, or with the passage of time would constitute, an Event of

Default, together with a detailed statement by Borrower of the steps being

taken to cure the Event of Default; or (ii) any legal, judicial or regulatory

proceedings affecting Borrower, or any of the assets or properties of Borrower

which, if adversely determined, could reasonably be expected to have a Material

Adverse Effect; or (iii) any dispute between Borrower or 

 

-32-

 

Guarantor and

any governmental or regulatory body or any other person or entity which, if

adversely determined, might reasonably be expected to cause a Material Adverse

Effect; or (iv) any other matter which in its reasonable opinion could be

expected to have a Material Adverse Effect.

 

(k)           ERISA Information and Compliance.  Borrower will promptly furnish to the Banks

immediately upon becoming aware of the occurrence of any “reportable event”, as

such term is defined in Section 4043 of ERISA, or of any “prohibited

transaction”, as such term is defined in Section 4975 of the Internal Revenue

Code of 1954, as amended, in connection with any Plan or any trust created

thereunder, a written notice specifying the nature thereof, what action

Borrower is taking or proposes to take with respect thereto, and, when known,

any action taken by the Internal Revenue Service with respect thereto.

 

(l)            Environmental Reports and Notices.  Borrower and Guarantor will deliver to the

Banks (i) promptly upon its becoming available, one copy of each report sent by

Borrower or Guarantor to any court, governmental agency or instrumentality

pursuant to any Environmental Law (excluding, however, reports filed with the

Texas Railroad Commission or any similar state or federal agency in the

ordinary course of conducting Borrower’s business where the report does not

disclose, or is not in response to allegations of, violation by Borrower of an

Environmental Law), (ii) notice, in writing, promptly upon Borrower’s or

Guarantor’s learning that either of them have received notice or otherwise

learned of any claim, demand, action, event, condition, report or investigation

indicating any potential or actual liability arising in connection with (x) the

non-compliance with or violation of the requirements of any Environmental Law

which reasonably could be expected to have a Material Adverse Effect; (y) the

release or threatened release of any toxic or hazardous waste into the

environment which reasonably could be expected to have a Material Adverse

Effect or which release Borrower or Guarantor would have a duty to report to

any court or government agency or instrumentality, or (z) the existence of any

Environmental Lien on any properties or assets of Borrower or Guarantor, and

Borrower or Guarantor shall immediately deliver a copy of any such notice to

Banks.

 

(m)          Maintenance.  Borrower and Guarantor will, to the best of

their ability, act prudently and in accordance with customary applicable

industry standards in managing and operating their assets, properties,

businesses and investments, and Borrower will use their best efforts to keep in

good working order and condition, ordinary wear and tear excepted, all of

Borrower’s and Guarantor’s assets and properties, including, but not limited

to, the Collateral, except where the failure to do so would not reasonably be

expected to cause a Material Adverse Effect.

 

(n)           Title Matters.  Within one hundred twenty (120) days after

the date of this Agreement, Borrower or Guarantor will provide such title

opinions on the Oil and Gas Properties, if any, being pledged to Agent for the

ratable benefit of the Banks pursuant to Security Instruments executed as of

the date of this Agreement as are requested by Agent.  As to any Oil and Gas Properties hereafter pledged to Agent for

the ratable benefit of

 

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Banks,

Borrower or Guarantor will promptly (but in no event more than one hundred

twenty (120) days following such pledges), furnish Agent with title opinions

reasonably satisfactory to Agent, showing Good and Defensible Title of Borrower

or Guarantor to such Oil and Gas Properties subject only to Permitted Liens.

 

(o)           Curative Matters.  Within ninety (90) days after receipt by

Borrower or Guarantor from Agent or its counsel of written notice of title

defects the Agent reasonably requires to be cured, Borrower or Guarantor will

either (i) provide such curative information, in form and substance

satisfactory to Banks, or (ii) substitute oil and gas properties of value and

quality satisfactory to the Banks for all Oil and Gas Properties for which such

title curative was requested but upon which Borrower or Guarantor elected not

to provide such title curative information, and, within sixty (60) days of such

substitution, provide title opinions satisfactory to the Banks covering the Oil

and Gas Properties so substituted.

 

(p)           Additional Collateral.  Borrower agrees to regularly monitor

engineering data covering all producing oil and gas properties and interests

acquired by Borrower or Guarantor on or after the date hereof and to pledge or

cause to be pledged such of the same to Agent for the ratable benefit of the

Banks in substantially the form of the Security Instruments, as applicable, to

the extent that the Banks shall at all times during the existence of the

Revolving Commitment be secured by perfected liens and security interests

covering (i) not less than ninety percent (90%) of the engineered value of all

producing oil and gas properties of Borrower and Guarantor in the aggregate;

and (ii) each and all such properties which have an engineered value of

$100,000 or more.  For the purposes of this

Section 12(p), “Engineered Value” shall mean future net revenue discounted at

eight percent (8%) per annum utilizing the set of pricing parameters used in

the most current engineering report required pursuant to

Section 12(a)(iii) hereof.

 

13.           Negative Covenants.  A deviation from the provisions of this

Section 13 shall not constitute an Event of Default under this Agreement if

such deviation is consented to in writing by Majority  Banks.  Without the prior

written consent of Majority Banks, Borrower and Guarantor (to the extent

applicable thereto) will at all times comply with the covenants contained in

this Section 13 from the date hereof and for so long as any indebtedness or

obligation of Borrower under the Loan Documents is outstanding or any part of

the Revolving Commitment is in existence.

 

(a)           Liens.  Neither Borrower nor Guarantor will create,

incur, assume or permit to exist any lien, security interest or other

encumbrance on any of its assets or properties except Permitted Liens.

 

(b)           Debts, Guaranties and Other

Obligations. 

Neither Borrower nor any of its Subsidiaries (including Guarantor) will

incur, create, assume or in any manner become or be liable in respect of any

indebtedness, issue any preferred or other quasi-equity stock which requires

the payment of a dividend thereon or the mandatory redemption thereof, or

guarantee or otherwise in any manner become or be liable in respect of any

indebtedness, liabilities or other obligations of any other person or entity,

whether by

 

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agreement to

purchase the indebtedness of any other person or entity or agreement for the

furnishing of funds to any other person or entity through the purchase or lease

of goods, supplies or services (or by way of stock purchase, capital

contribution, advance or loan) for the purpose of paying or discharging the

indebtedness of any other person or entity, or otherwise, except that the

foregoing restrictions shall not apply to:

 

(i)            the Notes, or other

indebtedness or guarantees of Borrower disclosed in Exhibit “D” hereto;

 

(ii)           taxes, assessments

or other government charges which are not yet due or are being contested in

good faith by appropriate action promptly initiated and diligently conducted,

if such reserve as shall be required by GAAP shall have been made therefor;

 

(iii)          indebtedness

incurred in the ordinary course of business, including, but not limited to,

drilling, completing, leasing and reworking oil and gas wells;

 

(iv)          Rate Management

Transactions;

 

(v)           indebtedness owed by

Non-Borrower Subsidiaries to Borrower which is permitted hereunder;

 

(vi)          Vendor Financing and

guaranties of CWE of Vendor Financings of its Subsidiaries which do not to

exceed $10,000,000 in the aggregate at any one time outstanding;

 

(vii)         intercompany

indebtedness among Borrower and Guarantor;

 

(viii)        guaranty by CWE of

up to $1,000,000 of obligations of ClayDesta Building, L.P. owed to First

American Bank; or

 

(ix)           guarantees by CWE

of loans made by third parties to CWE employees, which loans may be extended

for the sole purpose of allowing CWE employees to exercise options to purchase

CWE common stock and/or to pay federal income tax liabilities relating from

such exercise; provided, however, that such guarantees may not exceed $1,000,000

in the aggregate outstanding at any one time.

 

(c)           Current Ratio.  The Borrower will not allow the Williams

Consolidated Entities’ ratio of Current Assets to Current Liabilities to ever

be less than 1.0 to 1.0, measured as of the end of each calendar quarter.

 

-35-

 

(d)           Ratio of Debt to EBITDAX.  The Borrower will not allow the Williams

Consolidated Entities’ ratio of Debt to EBITDAX to ever be more than 2.75 to

1.0 as of the end of any calendar quarter.

 

(e)           Limitation on Sale of Collateral.  Neither Borrower nor Guarantor will sell,

assign or discount any of the Collateral or Negative Pledge Property other than

(i) sales of oil and gas production in the ordinary course of business, (ii)

sales or other disposition of obsolete equipment which are no longer needed for

the ordinary business of Borrower or Guarantor or which are being replaced by

equipment of at least comparable value and utility, and (iii) sales or

other dispositions not exceeding $1,000,000 in the aggregate between Borrowing

Base redeterminations.  If and as any of

such Collateral or Negative Pledge Properties and interests are sold, conveyed

or assigned during the term of the Revolving Commitment, Borrower or Guarantor

will prepay against the Notes or Guarantor’s obligation under its guaranty

agreement, as the case may be, 100% of the Release Price, provided, however,

that no such payments shall be required from Borrower or Guarantor until the

aggregate proceeds received between any Borrowing Base redetermination exceeds

$1,000,000.  Provided, however,

notwithstanding the foregoing, if an Event of Default has occurred and is

continuing all such amounts received by Borrower and/or Guarantor from such

sale during the continuance of an Event of Default shall be paid to the Agent

for the ratable benefit of the Banks. 

The term “Release Price” as used herein shall mean  the loan value of the Collateral or the

Negative Pledge Property being sold as determined by the Agent.  Any such prepayment of principal on the

Notes required by this Section 13(e) shall not be in lieu of, but shall be

in addition to, any Monthly Commitment Reduction or any mandatory prepayment of

principal required to be made pursuant to Section 9(b) hereof.  Any such prepayment shall be applied pro

rata to the principal due on the Revolving Notes until such Revolving Notes are

paid in full, principal, interest and other amounts.

 

(f)            Mergers and Consolidations.  Neither Borrower nor Guarantor will merge or

consolidate with any other Person (except that Borrower or Guarantor may merge

with any other Person if Borrower or Guarantor is the surviving entity in a non–hostile

merger or consolidation and if, after giving effect thereto, no default or

Event of Default shall have occurred and be continuing).

 

(g)           Use of Proceeds.  Borrower shall not use any of the proceeds

of the loans to be made hereunder for the purpose of purchasing or carrying

margin stock as defined in Regulation U of the Board of Governors of the

Federal Reserve System.

 

(h)           Loans or Advances.  Neither Borrower nor any Subsidiary shall

make or permit to remain outstanding any loans or advances other than:

 

(i)            normal and

customary advances to employees, which shall not exceed $250,000 in the

aggregate at any point in time;

 

(ii)           intercompany loans

and advances among Borrower and Guarantor; or

 

-36-

 

(iii)          loans and advances

by CWE to Subsidiaries provided that such loans and advances shall be treated

as investments for the purposes of Section 13(k)(iv) or (v) hereof.

 

(i)            Rate Management Transactions.  The Williams Consolidated Entities shall not

enter into any Rate Management Transactions except for (i) Pre-Approved

Contracts, or (ii) other Rate Management Transactions consented to in

writing by Agent.  Once the Williams

Consolidated Entities enters into a Rate Management Transaction, the terms of

such Rate Management Transaction may not be amended or modified, nor may such

Rate Management Transaction be cancelled, without the Borrower having given the

Agent written notice of such amendment, modification or cancellation on the

date such action takes place. 

Thereafter the Lenders shall have the right, but not the obligation, to

perform an Unscheduled Redetermination of the Borrowing Base if they desire to

do so.

 

(j)            Dividends.  Borrower will not declare or pay any cash

dividend, purchase, redeem or otherwise acquire for value any of its stock now

or hereafter outstanding, return any capital to stock owners, or make any distribution

of its assets to its stockholders as such, except (i) repurchase or redemption

of its stock in an amount not to exceed $3,000,000 in the aggregate (excluding

commissions) and (ii) cash dividends paid on the stock of Borrower which shall

not exceed, in any fiscal year, an amount equal to 50% of Borrower’s net income

for such fiscal year determined in accordance with GAAP, provided that

immediately before and after giving effect thereto no (x) default or Event of

Default or (y) Borrowing Base Deficiency, shall exist.

 

(k)           Investments.  Neither Borrower nor Guarantor shall make

any investments in any person or entity, except that the foregoing restriction

shall not apply to:

 

(i)            investments and

direct obligations of the United States of America or any agency thereof;

 

(ii)           investments in

certificates of deposit issued by the Agent or certificates of deposit with

maturities of less than one year issued by other commercial banks in the United

States having capital and surplus in excess of $500,000,000 and have a rating

of (A) 50 or above by Sheshunoff and (B) “B” or above by Keef-Bruett;

 

(iii)          investments such as

insured money market funds, Eurodollar investment accounts and other similar

accounts with the Agent or such investments with maturities of less than ninety

(90) days at other commercial banks in the United States having capital and

surplus in excess of $500,000,000 and having a rating of (A) 50 or above by

Sheshunoff and (B) “B” or above by Keef-Bruett;

 

(iv)          investments in the

Subsidiaries (other than Guarantor) existing on the Effective Date;

 

-37-

 

(v)           Borrower’s

investments in Guarantor;

 

(vi)          the repurchase of

Borrower’s stock as permitted by Section 13(j) hereof; and

 

(vii)         other investments

not exceeding $1,000,000 in the aggregate after the Effective Date.

 

(l)            Change of Control.  Borrower will not permit Clayton W.

Williams, Jr. and his affiliates, in the aggregate, to ever own, of record or

beneficially, less than 20% of the outstanding voting securities of CWE.  Failure to comply with this covenant shall

(i) immediately relieve the Banks of any further commitment to advance funds

under the Revolving Commitment, and (ii) result in the entire amount of

principal and interest due on the Notes to be accelerated so that the entire

balance thereof shall be due and payable on or before one hundred twenty (120)

days after the date the Agent first receives notice that such a change of

control has occurred.

 

14.           Events of Default.  Any one or more of

the following events shall be considered an “Event of Default” as that term is

used herein:

 

(a)           Borrower shall fail

to pay when due or declared due the principal of or interest on the Notes or

any fee or any other indebtedness of Borrower incurred pursuant to this

Agreement or any other Security Instrument (but Borrower shall have a grace

period of three (3) days following an applicable due date during which to

correct a delinquency in payment); or

 

(b)           Any representation

or warranty made by Borrower or Guarantor under this Agreement, or in any

certificate or statement furnished or made to any Bank pursuant hereto, or in

connection herewith, or in connection with any document furnished hereunder,

shall prove to be untrue in any material respect as of the date on which such

representation or warranty is made (or deemed made), or any representation,

statement (including financial statements), certificate, report or other data

furnished or to be furnished or made by Borrower or Guarantor under any

Security Instrument, including this Agreement, proves to have been untrue in

any material respect, as of the date as of which the facts therein set forth

were stated or certified, and such default shall continue for more than ten

(10) days after notice from Agent;

 

(c)           Default shall be

made in the due observance or performance of any of the covenants or agreements

of Borrower or Guarantor contained in the Security Instruments, including this

Agreement, and such default shall continue for more than ten (10) days after

notice from Agent; provided, however, that a default under

Section 13(l) of this Agreement shall not become an Event of Default under this

Section 14 unless Borrower fails to pay the outstanding balance on the Notes

within the 120 day period specified therein; or

 

-38-

 

(d)           Default shall be

made in respect of any obligation for borrowed money owed by Borrower or

Guarantor in excess of $1,000,000, other than the Notes, (directly, by

assumption, as guarantor or otherwise), or any obligations in excess of

$1,000,000 secured by any mortgage, pledge or other security interest, lien,

charge or encumbrance with respect thereto, on any asset or property of

Borrower or Guarantor or in respect of any agreement relating to any such

obligations, and such default shall continue beyond the applicable grace

period, if any; or

 

(e)           Borrower or

Guarantor shall commence a voluntary case or other proceedings seeking

liquidation, reorganization or other relief with respect to either of them or

their debts under any bankruptcy, insolvency or other similar law now or

hereafter in effect or seeking an appointment of a trustee, receiver,

liquidator, custodian or other similar official of it or any substantial part

of their property, or shall consent to any such relief or to the appointment of

or taking possession by any such official in an involuntary case or other

proceeding commenced against either of them, or shall make a general assignment

for the benefit of creditors, or shall fail generally to pay their debts as

they become due, or shall take any corporate action authorizing the foregoing;

or

 

(f)            An involuntary case

or other proceeding, shall be commenced against Borrower or Guarantor seeking

liquidation, reorganization or other relief with respect to either of them or

their debts under any bankruptcy, insolvency or similar law now or hereafter in

effect or seeking the appointment of a trustee, receiver, liquidator, custodian

or other similar official of either of them or any substantial part of their

property, and such involuntary case or other proceeding shall remain

undismissed and unstayed for a period of thirty (30) days; or an order for

relief shall be entered against Borrower or Guarantor under the federal

bankruptcy laws as now or hereinafter in effect; or

 

(g)           A final judgment or

order for the payment of money in excess of $1,000,000.00 (or judgments or

orders aggregating in excess of $1,000,000.00) shall be rendered against

Borrower or Guarantor and such judgments or orders shall continue unsatisfied

and unstayed for a period of thirty (30) days; or

 

(h)           In the event the

aggregate principal amount outstanding under the Notes shall at any time exceed

the Borrowing Base established for the Notes, Borrower shall fail to provide

such additional Collateral or prepay the principal of such Notes in compliance

with the provisions of Section 9(b) hereof.

 

Upon

occurrence of any Event of Default specified in Subsections 14(e) and (f)

hereof, the Revolving Commitment shall terminate and the entire principal

amount due under the Notes and all interest then accrued thereon, and any other

liabilities of Borrower hereunder, shall become immediately due and payable all

without notice and without presentment, demand, protest, notice of protest or

dishonor or any other notice of default of any kind, all of which are hereby

expressly waived by Borrower.  In any

other Event of Default, the Majority Banks may by notice from Agent to

Borrower, terminate the Revolving Commitment and declare the principal of, and

all interest then accrued on, the Notes and any other liabilities hereunder to

be forthwith due and payable, whereupon the same shall forthwith become due and

payable without

 

-39-

 

presentment, demand, protest or

other notice of any kind, all of which Borrower hereby expressly waives,

anything contained herein or in the Notes to the contrary notwithstanding.  Nothing contained in this Section 14 shall

be construed to limit or amend in any way the Events of Default enumerated in

the Notes, or any other document executed in connection with the transaction

contemplated herein.

 

Upon the

occurrence and during the continuance of any Event of Default, the Banks are

hereby authorized at any time and from time to time, without notice to Borrower

(any such notice being expressly waived by Borrower), to set-off and apply any

and all deposits (general or special, time or demand, provisional or final) at

any time held and other indebtedness at any time owing by the Banks to or for

the credit or the account of Borrower against any and all of the indebtedness

of Borrower under the Notes and the Security Instruments, including this

Agreement, irrespective of whether or not the Banks shall have made any demand under

the Security Instrument, including this Agreement or the Notes.  Any amount set-off by either of the Banks

shall be applied against the indebtedness owed the Banks by Borrower pursuant

to the provisions of Section 16 of this Agreement.  The Banks agree promptly to notify Borrower after any such

set-off and application, provided that the failure to give such notice shall

not affect the validity of such set-off and application.  The rights of the Banks under this Section

14 are in addition to other rights and remedies (including, without limitation,

other rights of set-off) which the Banks may have.

 

15.           Exercise of Rights.  No failure to

exercise, and no delay in exercising, on the part of the Banks, any right

hereunder shall operate as a waiver thereof, nor shall any single or partial

exercise thereof preclude any other or further exercise thereof or the exercise

of any other right.  The rights of the

Banks hereunder shall be in addition to all other rights provided by law.  No modification or waiver of any provision

of the Security Instruments, including this Agreement, or the Notes nor consent

to departure therefrom, shall be effective unless in writing, and no such

consent or waiver shall extend beyond the particular case and purpose involved.  No notice or demand given in any case shall

constitute a waiver of the right to take other action in the same, similar or

other circumstances without such notice or demand.

 

16.           Notices.  Any notices or

other communications required or permitted to be given by this Agreement or any

of the other Loan Documents and instruments referred to herein must be given in

writing and must be delivered or mailed by prepaid certified or registered mail

or by facsimile to the party to whom such notice or communication is directed

at the address of such party as follows: 

(a) BORROWER AND GUARANTOR:  c/o

Clayton Williams Energy, Inc., Six Desta Drive, Suite 6500, Midland, Texas

79705, Attention:  Paul Latham,

Executive Vice President, Facsimile No. (915) 688-3247; (b) AGENT:  BANK ONE, NA, 1717 Main Street, Dallas,

Texas 75201, Attention:  Wm. Mark Cranmer, Director, Capital Markets,

Facsimile No. (214) 290–2332; and 

(c) UNION: Union Bank of California, N.A., 500 N. Akard Street,

Suite 4200, Dallas, Texas 75201, Attention: John A. Clark, Vice President,

Facsimile No. (214) 920-4209; (d) BOS: Bank of Scotland, 1021 Main

Street, Suite 1370, Houston, Texas 77002, Attention: Richard Butler, Vice

President, Facsimile No. (713) 651-9714. 

Any such notice or other communication shall be deemed to have been

given (whether actually received or not) on the day it is delivered as

aforesaid or, if mailed, on the fifth day after it is mailed as aforesaid. Any

party may change its address for purposes of this Agreement by giving notice of

such

 

-40-

 

change to the

other parties pursuant to this Section 16. 

Upon receipt by Agent of any such notice, Agent shall promptly provide

copies of such notice or notices to the Banks.

 

17.           The Agent and the Banks.

 

(a)           Appointment and Authorization.  Each Bank hereby irrevocably appoints and

authorizes Agent to take such action on its behalf and to exercise such powers

under the Loan Documents as are delegated to Agent by the terms thereof,

together with such powers as are reasonably incidental thereto.  With respect to its commitments hereunder

and the Notes issued to it, Bank One and any successor Agent shall have the

same rights under the Loan Documents as any other Bank and may exercise the

same as though it were not the Agent; and the term “Bank” or “Banks” shall,

unless otherwise expressly indicated, include Bank One and any successor Agent

in its capacity as a Bank.  Bank One and

any successor Agent and its affiliates may accept deposits from, lend money to,

act as trustee under indentures of and generally engage in any kind of business

with Borrower, and any person which may do business with Borrower, all as if

Bank One and any successor Agent were not Agent hereunder and without any duty

to account therefor to the Banks.  Each

Bank shall disclose to all other Banks all indebtedness and liabilities, direct

and contingent, of Borrower to Banks from time to time.

 

(b)           Note Holders.  Agent may treat the payee of any Note as the

holder thereof until written notice of transfer has been filed with it, signed

by such payee and in form satisfactory to Agent.

 

(c)           Consultation with Counsel.  Banks agree that Agent may consult with

legal counsel selected by it and shall not be liable for any action taken or

suffered in good faith by it in accordance with the advice of such counsel.

 

(d)           Documents.  Agent shall not be under a duty to examine

or pass upon the validity, effectiveness, enforceability, genuineness or value

of any of the Collateral or any of the Loan Documents or any other instrument

or document furnished pursuant thereto or in connection therewith, and Agent

shall be entitled to assume that the same are valid, effective, enforceable and

genuine and what they purport to be.

 

(e)           Resignation or Removal of Agent.  Subject to the appointment and acceptance of

a successor Agent as provided below, Agent may resign at any time by giving

written notice thereof to Banks and Borrower, and Agent may be removed at any

time with or without cause by Majority Banks. 

If no successor Agent has been so appointed by all Banks (and approved

by Borrower) and has accepted such appointment within 30 days after the

retiring Agent’s giving of notice of resignation or removal of the retiring

Agent, then the retiring Agent may, on behalf of Banks, appoint a successor

Agent, which appointment shall require the approval of Borrower only if a party

other than one of the other Banks is so appointed.  Upon the acceptance of any appointment as Agent hereunder by a

successor Agent, such successor Agent shall thereupon succeed to and become

vested with all the rights and duties of the retiring Agent, and the retiring

Agent shall be discharged from its duties and obligations hereunder.  After any retiring

 

-41-

 

Agent’s

resignation or removal hereunder as Agent, (i) the provisions of this Section

17 shall continue in effect for its benefit in respect to any actions take or

omitted to be taken by it while it was acting as Agent, and (ii) any Collateral

held in possession of the retiring Agent shall be delivered to the successor

Agent.

 

(f)            Responsibility of Agent.  It is expressly understood and agreed that

the obligations of Agent under the Loan Documents are only those expressly set

forth in the Loan Documents and that Agent shall be entitled to assume that no

default or Event of Default has occurred and is continuing, unless Agent has

actual knowledge of such fact or has received notice from a Bank that such Bank

considers that a default or an Event of Default has occurred and is continuing

and specifying the nature thereof. 

Neither Agent nor any of its directors, officers or employees shall be

liable for any action taken or omitted to be taken by it under or in connection

with the Loan Documents, except for its or their own gross negligence or

willful misconduct.  Agent shall incur

no liability under or in respect of any of the Loan Documents by acting upon

any notice, consent, certificate, warranty or other paper or instrument

believed by it to be genuine or authentic or to be signed by the proper party

or parties, or with respect to anything which it may do or refrain from doing

in the reasonable exercise of its judgment, or which may seem to it to be

necessary or desirable.

 

Agent shall not be responsible to Banks for any recitals, statements,

representations or warranties contained in any of the Loan Documents, or in any

certificate or other document referred to or provided for in, or received by

any Bank under, the Loan Documents, or for the value, validity, effectiveness,

genuineness, enforceability or sufficiency of any of the Collateral or any of

the Loan Documents or for any failure by Borrower to perform any of their

obligations hereunder or thereunder. 

Agent may employ agents and attorneys-in-fact and shall not be

answerable, except as to money or securities received by it or its authorized

agents, for the negligence or misconduct of any such agents or

attorneys-in-fact selected by it with reasonable care.

 

The relationship between Agent and each Bank is only that of agent and

principal and has no fiduciary aspects. 

Nothing in the Loan Documents or elsewhere shall be construed to impose

on Agent any duties or responsibilities other than those for which express

provision is therein made.  In performing

its duties and functions hereunder, Agent does not assume and shall not be

deemed to have assumed, and hereby expressly disclaims, any obligation or

responsibility toward or any relationship of agency or trust with or for

Borrower or any of their shareholders or other creditors.  As to any matters not expressly provided for

by the Loan Documents (including, without limitation, enforcement or collection

of the Notes), Agent shall not be required to exercise any discretion or take

any action, but shall be required to act or to refrain from acting (and shall

be fully protected in so acting or refraining from acting) upon the

instructions of all Banks and such instructions shall be binding upon all Banks

and all holders of Notes; provided, however, that Agent shall not be required

to take any action which is contrary to the Loan Documents or applicable law.

 

-42-

 

Agent shall have the right to exercise or refrain from exercising,

without notice or liability to the Banks, any and all rights afforded to Agent

by the Loan Documents or which Agent may have as a matter of law; provided,

however, that Agent shall not (i) except as provided herein and in

Section 7(b) hereof, without the consent of Majority Banks designate the

amount of the Borrowing Base or the Monthly Commitment Reduction or (ii) take

any other action with regard to amending the Loan Documents, waiving any

default under the Loan Documents or taking any other action with respect to the

Loan Documents.  Provided further,

however, that no amendment, waiver, or other action shall be effected pursuant

to the preceding clause (ii) without the consent of all Banks which: (i)

would increase the Borrowing Base or decrease the Monthly Commitment Reduction,

(ii) would reduce any fees hereunder, or the principal of, or the interest on,

any Bank’s Note or Notes, (iii) would postpone any date fixed for any payment

of any fees hereunder, or any principal or interest of any Bank’s Note or

Notes, (iv) would increase the aggregate Commitment or any Bank’s individual

Commitment hereunder or would materially alter Agent’s obligations to any Bank

hereunder, (v) would release Borrower from its obligation to pay any Bank’s

Note or Notes, (vi) would change the definition of Majority Banks,

(vii) would amend, modify or change any provision of this Agreement

requiring the consent of all the Banks, (viii) would waive any of the

conditions precedent to the Effective Date or the making of any Loan or

issuance of any Letter of Credit or (ix) would extend the Maturity Date or

(x) would amend this sentence or the previous sentence.  Agent shall have the right and authority

without necessity of notice or liability to the Banks to release

(i) Collateral in amounts of up to $1,000,000 in the aggregate between

Borrowing Base redeterminations and (ii) in addition to amounts released

pursuant to (i) above, additional Collateral if 100% of the net proceeds from

the sale of such Collateral, after payment of superior lien indebtedness and

taxes relating thereto, is paid to Agent for the ratable benefit of the Banks

as a prepayment of the Notes; provided, however, that Agent’s right to release

Collateral hereunder shall be limited to releases of Collateral the net sale

proceeds of which shall not exceed, in the aggregate, on an annual basis,

$5,000,000.00.  For purposes of this

paragraph, a Bank shall be deemed to have consented to any such action by the

Agent upon the passage of ten (10) Business Days after written notice thereof

is given to such Bank in accordance with Section 16 hereof, unless such Bank

shall have previously given Agent notice, complying with the provision of

Section 16 hereof, to the contrary. 

Agent shall have no liability to Banks for failure or delay in

exercising any right or power possessed by Agent pursuant to the Loan Documents

or otherwise unless such failure or delay is caused by the gross negligence of

the Agent.

 

(g)           Independent Investigation.  Each Bank severally represents and warrants

to Agent that it has made its own independent investigation and assessment of

the financial condition and affairs of Borrower in connection with the making

and continuation of its participation hereunder and has not relied exclusively

on any information provided to such Bank by Agent in connection herewith, and

each Bank represents, warrants and undertakes to Agent that it shall continue

to make its own independent appraisal of the credit worthiness of Borrower

while the Notes is outstanding or its commitments hereunder are in force.  Agent shall not be required to keep itself

informed as to the performance or observance by Borrower of this Agreement or

any

 

-43-

 

other document

referred to or provided for herein or to inspect the properties or books of

Borrower.  Other than as provided in

this Agreement, Agent shall have no duty, responsibility or liability to

provide any Bank with any credit or other information concerning the affairs,

financial condition or business of Borrower which may come into the possession

of Agent.

 

(h)           Indemnification.  Banks agree to indemnify Agent (to the

extent not reimbursed by Borrower), ratably according to their Commitment

Percentage, from and against any and all liabilities, obligations, losses,

damages, penalties, actions, judgments, suits, costs, expenses or disbursements

of any kind or nature whatsoever which may be imposed on, incurred by or

asserted against Agent in any way relating to or arising out of the Loan

Documents or any action taken or omitted by Agent under the Loan Documents,

provided that no Bank shall be liable for any portion of such liabilities,

obligations, losses, damages, penalties, actions, judgments, suits, costs,

expenses or disbursements resulting from Agent’s gross negligence or willful

misconduct.  The parties intend the provisions of this paragraph to apply to and

protect the Bank from the consequences of its own negligence, whether or not

such negligence is the sole, contributing or concurring cause of any such loss,

cost, liability, damage or expense indemnified against in this paragraph.

 

(i)            Benefit of Section 17.  The agreements contained in this Section 17

are solely for the benefit of Agent and the Banks and are not for the benefit

of, or to be relied upon by, Borrower, any affiliate of Borrower or any other

person.

 

(j)            Pro Rata Treatment.  Subject to the provisions of this Agreement,

each payment (including each prepayment) by Borrower and collections by Banks

(including offsets) on account of the principal of and interest on the Notes

and fees payable by Borrower shall be made pro rata to Banks according to the

then ownership interest of each Bank in loans to Borrower under this

Agreement.  Upon receipt of a request

for disbursement by Borrower under the Revolving Commitment, Agent shall notify

Banks of such request or draft and the requested disbursement date or payment

date, whereupon each Bank shall fund to Agent its pro rata share of the loan

requested by Borrower at such time and in such manner as to reasonably permit

the disbursement by Agent to Borrower on the disbursement date requested.

 

(k)           Assumption as to Payments.  Except as specifically provided herein,

unless Agent shall have received notice from the Borrower prior to the date on

which any payment is due to Banks hereunder that the Borrower will not make

such payment in full, Agent may, but shall not be required to, assume that the

Borrower has made such payment in full to Agent on such date and Agent may, in

reliance upon such assumption, cause to be distributed to each Bank on such due

date an amount equal to the amount then due such Bank.  If and to the extent the Borrower shall not

have so made such payment in full to Agent, each Bank shall repay to Agent

forthwith on demand such amount distributed to such Bank together with interest

thereon, for each day from the date such amount is distributed to such Bank

until the date such Bank repays such amount to Agent, at the interest rate

applicable to such portion of the Loan.

 

-44-

 

(l)            Other Financings.  Without limiting the rights to which any

Bank otherwise is or may become entitled, such Bank shall have no interest, by

virtue of this Agreement or the Loan Documents, in (a) any present or

future loans from, letters of credit issued by, or leasing or other financial

transactions by, any other Bank to, on behalf of, or with the Borrower

(collectively referred to herein as “Other Financings”) other than the

obligations hereunder; (b) any present or future guarantees by or for the

account of the Borrower which are not contemplated by the Loan Documents;

(c) any present or future property taken as security for any such Other

Financings; or (d) any property now or hereafter in the possession or

control of any other Bank which may be or become security for the obligations

of the Borrower arising under any loan document by reason of the general

description of indebtedness secured or property contained in any other

agreements, documents or instruments relating to any such Other Financings.

 

(m)          Interests of Banks.  Nothing in this Agreement shall be construed

to create a partnership or joint venture between Banks for any purpose.  Agent, Banks and the Borrower recognize that

the respective obligations of Banks under the Commitments shall be several and

not joint and that neither Agent nor any of Banks shall be responsible or

liable to perform any of the obligations of the other under this

Agreement.  Each Bank is deemed to be

the owner of an undivided interest in and to all rights, titles, benefits and

interests belonging and accruing to Agent under the Security Instruments,

including, without limitation, liens and security interests in any collateral,

fees and payments of principal and interest by the Borrower under the Commitments

on a Pro Rata basis.  Each Bank shall

perform all duties and obligations of Banks under this Agreement in the same

proportion as its ownership interest in the Loans outstanding at the date of

determination thereof.

 

(n)           Investments.  Whenever Agent in good faith determines that

it is uncertain about how to distribute to Banks any funds which it has

received, or whenever Agent in good faith determines that there is any dispute

among the Banks about how such funds should be distributed, Agent may choose to

defer distribution of the funds which are the subject of such uncertainty or

dispute.  If Agent in good faith

believes that the uncertainty or dispute will not be promptly resolved, or if

Agent is otherwise required to invest funds pending distribution to the Banks,

Agent may invest such funds pending distribution.  All interest on any such investment shall be distributed upon the

distribution of such investment and in the same proportions and to the same

Persons as such investment.  All monies

received by Agent for distribution to the Banks (other than to the Person who

is Agent in its separate capacity as a Bank) shall be held by the Agent pending

such distribution solely as Agent for such Banks, and Agent shall have no

equitable title to any portion thereof.

 

18.           Expenses.  The Borrower shall

pay (i) all reasonable and necessary out-of-pocket expenses of the Agent,

including reasonable fees and disbursements of special counsel for the Agent,

in connection with the preparation of this Agreement, any waiver or consent

hereunder or any amendment hereof or any default or Event of Default or alleged

default or Event of Default hereunder, (ii) all reasonable and necessary

out-of-pocket expenses of the Agent, including

 

-45-

 

reasonable

fees and disbursements of special counsel for the Agent in connection with the

preparation of any participation agreement for a participant or participants

requested by the Borrower or any amendment thereof and (iii) if a default or an

Event of Default occurs, all reasonable and necessary out-of-pocket expenses

incurred by the Banks, including fees and disbursements of counsel, in

connection with such default and Event of Default and collection and other

enforcement proceedings resulting therefrom. 

THE BORROWER HEREBY

ACKNOWLEDGES THAT GARDERE WYNNE SEWELL LLP IS SPECIAL COUNSEL TO BANK ONE, AS

AGENT AND AS A BANK, UNDER THIS AGREEMENT AND THAT IT IS NOT COUNSEL TO, NOR

DOES IT REPRESENT THE BORROWER IN CONNECTION WITH THE TRANSACTIONS DESCRIBED IN

THIS AGREEMENT.  The Borrower

is relying on separate counsel in the transaction described herein.  The Borrower shall indemnify the Banks

against any transfer taxes, document taxes, assessments or charges made by any

governmental authority by reason of the execution, delivery and filing of the

Loan Documents.  The obligations of this

Section 18 shall survive any termination of this Agreement, the expiration

of the Loans and the payment of all indebtedness of the Borrower to the Banks

hereunder and under the Notes.

 

19.           Indemnity.  Each Borrower

hereby agrees to indemnify the Agent, the Arranger, each Bank, their respective

Affiliates, and each of their directors, officers, and employees (the

“Indemnified Parties”) against all losses, claims, damages, penalties,

judgments, liabilities and expenses (including, without limitation, all

expenses of litigation or preparation therefor any of any Indemnified Party,

the Agent, the Arranger, any Bank or any Affiliate is a party thereto) which

any of them may pay or incur arising out of or relating to this Agreement, the

other Loan Documents, the transactions contemplated hereby or the direct or

indirect application or proposed application of the proceeds of any loan

hereunder even if any of the foregoing arises out of the ordinary negligence of

the party seeking indemnification except to the extent that they are determined

in a final non–appealable judgment by a court of competent jurisdiction

to have resulted from the gross negligence or willful misconduct of the party

seeking indemnification.  The indemnity

set forth herein shall be in addition to any other obligations or liabilities

of either Borrower to any Indemnified Party, the Agent, the Arranger and each of

the Banks hereunder or at common law or otherwise, and shall survive any

termination of this Agreement, the expiration of the Loans and the payment of

all indebtedness of the Borrower to the Banks hereunder and under the

Notes.  THE PARTIES

INTEND FOR THE PROVISIONS OF THIS SECTION TO APPLY TO AND PROTECT EACH

INDEMNIFIED PARTY FROM THE CONSEQUENCES OF ANY LIABILITY INCLUDING STRICT

LIABILITY IMPOSED OR THREATENED TO BE IMPOSED ON AGENT AS WELL AS FROM THE

CONSEQUENCES OF ITS OWN NEGLIGENCE, WHETHER OR NOT THAT NEGLIGENCE IS THE SOLE,

CONTRIBUTING, OR CONCURRING CAUSE OF ANY CLAIM.

 

20.           Governing Law.  THIS AGREEMENT IS

BEING EXECUTED AND DELIVERED, AND IS INTENDED TO BE PERFORMED, IN DALLAS,

TEXAS, AND THE SUBSTANTIVE LAWS OF TEXAS SHALL GOVERN THE VALIDITY,

CONSTRUCTION, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT AND ALL OTHER

DOCUMENTS AND INSTRUMENTS REFERRED TO HEREIN, UNLESS OTHERWISE

 

-46-

 

SPECIFIED

THEREIN OR UNLESS THE LAWS OF ANOTHER STATE REQUIRE THE APPLICATION OF THE LAWS

OF SUCH STATE.

 

21.           Invalid Provisions.  If any provision

of this Agreement is held to be illegal, invalid, or unenforceable under

present or future laws effective during the term of this Agreement, such

provisions shall be fully severable and this Agreement shall be construed and

enforced as if such illegal, invalid or unenforceable provision had never

comprised a part of this Agreement, and the remaining provisions of the

Agreement shall remain in full force and effect and shall not be affected by

the illegal, invalid or unenforceable provision or by its severance from this

Agreement.

 

22.           Maximum Interest Rate.  Regardless of any

provisions contained in this Agreement or in any other documents and

instruments referred to herein, the Banks shall never be deemed to have

contracted for or be entitled to receive, collect or apply as interest on the

Notes any amount in excess of the Maximum Rate and in the event the Banks ever

receive, collect or apply as interest any such excess, or if an acceleration of

the maturity of the Notes or if any prepayment by Borrower results in Borrower

having paid any interest in excess of the Maximum Rate, such amount which would

be excessive interest shall be applied to the reduction of the unpaid principal

balance of the Notes for which such excess was received, collected or applied,

and, if the principal balance of such Notes is paid in full, any remaining

excess shall forthwith be paid to Borrower. 

All sums paid or agreed to be paid to the Banks for the use, forbearance

or detention of the indebtedness evidenced by the Notes and/or this Agreement

shall, to the extent permitted by applicable law, be amortized, prorated,

allocated and spread throughout the full term of such indebtedness until

payment in full so that the rate or amount of interest on account of such

indebtedness does not exceed the Maximum Rate. In determining whether or not

the interest paid or payable under any specific contingency exceeds the Maximum

Rate, Borrower and the Banks shall, to the maximum extent permitted under

applicable law, (i) characterize any non-principal payment as an expense, fee

or premium, rather than as interest; and (ii) exclude voluntary prepayments and

the effect thereof; and (iii) compare the total amount of interest contracted

for, charged or received with the total amount of interest which could be

contracted for, charged or received throughout the entire contemplated term of

the Notes at the Maximum Rate.

 

For purposes

of Section 303 of the Texas Finance Code, to the extent applicable to any Bank

or Agent, Borrowers agree that the Maximum Rate (as defined herein) shall be

the “weekly ceiling” as defined in said Chapter, provided that such Lender or

Agent, as applicable, may also rely, to the extent permitted by applicable laws

of the State of Texas and the United States of America, on alternative maximum

rates of interest under the Texas Finance Code or other laws applicable to such

Bank or Agent from time to time if greater.

 

23.           Amendments.  This Agreement may

be amended only by an instrument in writing executed by an authorized officer

of the party against whom such amendment is sought to be enforced.  No modification or waiver of any provision

of the Loan Documents, including this Agreement, or the Notes, nor consent to

departure therefrom, shall be effective unless in writing signed by Borrower

and Majority Banks (or by Agent on behalf of Majority Banks).  No such consent or waiver shall extend

beyond the particular case and purpose involved.  No notice

 

-47-

 

or demand

given at any case shall constitute a waiver of the right to take other action

in the same, similar or other circumstances without such notice or demand.

 

24.           Multiple

Counterparts.  This Agreement may be executed in a number of

identical separate counterparts, each of which for all purposes is to be deemed

an original, but all of which shall constitute, collectively, one

agreement.  No party to this Agreement

shall be bound hereby until a counterpart of this Agreement has been executed

by all parties hereto.

 

25.           Conflict.  In the event any

term or provision hereof is inconsistent with or conflicts with any provision

of the Security Instruments, the terms or provisions contained in this

Agreement shall be controlling.

 

26.           Survival.  All covenants,

agreements, undertakings, representations and warranties made in the Security

Instrument, including this Agreement, the Notes or other documents and

instruments referred to herein shall survive all closings hereunder and shall

not be affected by any investigation made by any party.

 

27.           Parties Bound.  This Agreement

shall be binding upon and inure to the benefit of the parties hereto and their

respective successors, assigns, heirs, legal representatives and estates,

provided, however, that Borrower may not, without the prior written consent of

the Banks, assign any rights, powers, duties or obligations hereunder.

 

28.           Assignments and Participations.

 

(a)           Each Bank shall have

the right to sell, assign or transfer all or any part of its Note or Notes, its

Revolving Commitment and its rights and obligations hereunder to one or more

Affiliates, Banks, financial institutions, pension plans, insurance companies,

investment funds, or similar Persons who are Eligible Assignees or to a Federal

Reserve Bank; provided, that in connection with each sale, assignment or

transfer (other than to an Affiliate, a Bank or a Federal Reserve Bank), but

each such sale, assignment, or transfer (other than to an Affiliate, a Bank or

a Federal Reserve Bank), shall require the consent of both the Borrower and

Agent, which consent, in either case, will not be unreasonably withheld;

provided, however, that if an Event of Default has occurred and is continuing,

the consent of the Borrower shall not be required.  Any such assignee, transferee or recipient shall have, to the

extent of such sale, assignment, or transfer, the same rights, benefits and

obligations as it would if it were such Bank and a holder of such Note,

Revolving Commitment and rights and obligations, including, without limitation,

the right to vote on decisions requiring consent or approval of all Banks or

Majority Banks and the obligation to fund its Revolving Commitment; provided,

further, that (1) each such sale, assignment, or transfer (other than to an

Affiliate, a Bank or a Federal Reserve Bank) shall be in an aggregate principal

amount not less than $5,000,000, (2) each remaining Bank shall at all times

maintain Revolving Commitment then outstanding in an aggregate principal amount

at least equal to $5,000,000; (3) each such sale, assignment or transfer shall

be of a Pro Rata portion of such Bank’s Revolving Commitment, (4) no Bank

may offer to sell its Note or Notes, Revolving Commitment, rights and

obligations or interests therein in violation of any securities laws; and (5)

no such assignments (other

 

-48-

 

than to a

Federal Reserve Bank) shall become effective until the assigning Bank and its

assignee delivers to Agent and Borrowers an Assignment and Acceptance and the

Note or Notes subject to such assignment and other documents evidencing any

such assignment.  An assignment fee in

the amount of $5,000 for each such assignment (other than to an Affiliate, a Bank

or the Federal Reserve Bank) will be payable to Agent by assignor or

assignee.  Within five (5) Business Days

after its receipt of copies of the Assignment and Acceptance and the other

documents relating thereto and the Note or Notes, the Borrowers shall execute

and deliver to Agent (for delivery to the relevant assignee) a new Note or

Notes evidencing such assignee’s assigned Revolving Commitment and if the

assignor Bank has retained a portion of its Revolving Commitment, a replacement

Note in the principal amount of the Revolving Commitment retained by the

assignor (except as provided in the last sentence of this paragraph (a) such

Note or Notes to be in exchange for, but not in payment of, the Note or Notes

held by such Bank).  On and after the

effective date of an assignment hereunder, the assignee shall for all purposes

be a Bank, party to this Agreement and any other Loan Document executed by the

Banks and shall have all the rights and obligations of a Bank under the Loan

Documents, to the same extent as if it were an original party thereto, and no

further consent or action by Borrowers, Banks or the Agent shall be required to

release the transferor Bank with respect to its Revolving Commitment assigned

to such assignee and the transferor Bank shall henceforth be so released.

 

(b)           Each Bank shall have

the right to grant participations in all or any part of such Bank’s Notes and

Revolving Commitment hereunder to one or more pension plans, investment funds,

insurance companies, financial institutions or other Persons, provided, that:

(i)            each Bank granting

a participation shall retain the right to vote hereunder, and no participant

shall be entitled to vote hereunder on decisions requiring consent or approval

of Bank or Majority Banks (except as set forth in (iii) below);

(ii)           in the event any Bank

grants a participation hereunder, such Bank’s obligations under the Loan

Documents shall remain unchanged, such Bank shall remain solely responsible to

the other parties hereto for the performance of such obligations, such Bank

shall remain the holder of any such Note or Notes for all purposes under the

Loan Documents, and Agent, each Bank and Borrowers shall be entitled to deal

with the Bank granting a participation in the same manner as if no

participation had been granted; and

(iii)          no participant shall

ever have any right by reason of its participation to exercise any of the

rights of Banks hereunder, except that any Bank may agree with any participant

that such Bank will not, without the consent of such participant (which consent

may not be unreasonably withheld) consent to any amendment or waiver requiring

approval of all Banks.

 

-49-

 

(c)           It is understood and

agreed that any Bank may provide to assignees and participants and prospective

assignees and participants financial information and reports and data

concerning Borrowers’ properties and operations which was provided to such Bank

pursuant to this Agreement.

 

(d)           Upon the reasonable

request of either Agent or Borrowers, each Bank will identify those to whom it

has assigned or participated any part of its Notes and Commitment, and provide

the amounts so assigned or participated.

 

29.           Waiver of Jury Trial.  THE BORROWER, THE

AGENT AND THE BANKS (BY THEIR ACCEPTANCE HEREOF) HEREBY VOLUNTARILY, KNOWINGLY,

IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN

RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) BETWEEN

OR AMONG THE BORROWER, THE AGENT AND THE BANKS, ARISING OUT OF OR IN ANY WAY

RELATED TO THIS DOCUMENT, ANY OTHER RELATED DOCUMENT, OR ANY RELATIONSHIP

BETWEEN THE AGENT, THE BANKS AND THE BORROWER. 

THIS PROVISION IS A MATERIAL INDUCEMENT TO THE AGENT AND THE BANKS TO

PROVIDE THE FINANCING DESCRIBED HEREIN.

 

30.           Choice of

Forum: Consent to Service of Process and Jurisdiction.  THE OBLIGATIONS OF BORROWER UNDER THE LOAN

DOCUMENTS ARE PERFORMABLE IN DALLAS COUNTY, TEXAS.  ANY SUIT, ACTION OR PROCEEDING AGAINST THE BORROWER WITH RESPECT

TO THE LOAN DOCUMENTS OR ANY JUDGMENT ENTERED BY ANY COURT IN RESPECT THEREOF,

MAY BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS, COUNTY OF DALLAS, OR IN THE

UNITED STATES COURTS LOCATED IN DALLAS COUNTY, TEXAS AND THE BORROWER HEREBY

SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF SUCH COURTS FOR THE PURPOSE OF ANY

SUCH SUIT, ACTION OR PROCEEDING.  THE

BORROWER  HEREBY IRREVOCABLY CONSENTS TO

SERVICE OF PROCESS IN ANY SUIT, ACTION OR PROCEEDING IN SAID COURT BY THE

MAILING THEREOF BY AGENT BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO

THE BORROWER, AT THE ADDRESS FOR NOTICES AS PROVIDED IN SECTION 17.  THE BORROWER HEREBY IRREVOCABLY WAIVES ANY

OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY

SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENT

BROUGHT IN THE COURTS LOCATED IN THE STATE OF TEXAS, COUNTY OF DALLAS, AND

HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR

PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

 

31.           Other Agreements.  THIS WRITTEN LOAN

AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE

CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT

 

-50-

 

ORAL

AGREEMENTS OF THE PARTIES.  THERE ARE NO

UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

 

32.           Written Consent.   The Guarantor is

executing this Ninth Restated Loan Agreement in its capacity as Guarantor for

the purpose of acknowledging the existence of the Ninth Restated Loan

Agreement, consenting to the execution thereof by the Borrower and reaffirming

its guaranty of the obligations of Borrower to Banks.

 

33.           Financial Terms.  All accounting terms used in this Agreement

which are not specifically defined herein shall be construed in accordance with

GAAP.

 

IN WITNESS WHEREOF, the parties hereto have

caused this Agreement to be duly executed as of the day and year first above

written.

 

	

   

  	

  BORROWER:

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

   

  	

  CLAYTON WILLIAMS ENERGY, INC.

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

   

  	

  By:

  	

   

  	

  /s/MEL G.

  RIGGS

  	

   

  	

   

  
	

   

  	

   

  	

  Mel G.

  Riggs, Senior Vice President-Finance

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

   

  	

  WARRIOR GAS CO.

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

   

  	

  By:

  	

   

  	

  /s/MEL G.

  RIGGS

  	

   

  	

   

  
	

   

  	

   

  	

  Mel G.

  Riggs, Senior Vice President-Finance

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

   

  	

  GUARANTOR:

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

   

  	

  CWEI ACQUISITIONS, INC.

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

   

  	

  By:

  	

   

  	

  /s/MEL G.

  RIGGS

  	

   

  	

   

  
	

   

  	

   

  	

  Mel G.

  Riggs, Senior Vice President-Finance

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

   

  	

  ROMERE PASS ACQUISITION CORP.

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

   

  	

  By:

  	

   

  	

  /s/MEL G.

  RIGGS

  	

   

  	

   

  
	

   

  	

  Name:

  	

   

  	

  Mel G. Riggs

  	

   

  	

   

  
	

   

  	

  Title:

  	

   

  	

  Vice

  President

  	

   

  	

   

  
														

 

-51-

 

	

   

  	

  BANKS:

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

   

  	

  BANK ONE, NA

  	

   

  
	

   

  	

  a national

  banking association,

  	

   

  
	

   

  	

  as a Bank

  and as Agent

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

   

  	

  By:

  	

   

  	

  /s/MATT A.

  BAKER

  	

   

  	

   

  
	

   

  	

  Name:

  	

   

  	

  Matt A.

  Baker

  	

   

  	

   

  
	

   

  	

  Title:

  	

   

  	

  Associate

  Director, Capital Markets

  	

   

  	

   

  
													

 

-52-

 

	

   

  	

  UNION BANK OF CALIFORNIA, N.A.

  	

   

  
	

   

  	

  a national

  banking association

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

   

  	

  By:

  	

   

  	

  /s/JOHN A.

  CLARK

  	

   

  	

   

  
	

   

  	

  Name:

  	

   

  	

  John A.

  Clark

  	

   

  	

   

  
	

   

  	

  Title:

  	

   

  	

  Vice

  President

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  
	

   

  	

  By:

  	

   

  	

  /s/ALI AHMED

  	

   

  	

   

  
	

   

  	

  Name:

  	

   

  	

  Ali Ahmed

  	

   

  	

   

  
	

   

  	

  Title:

  	

   

  	

  Vice

  President

  	

   

  	

   

  
																		

 

-53-

 

	

   

  	

  BANK OF SCOTLAND

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

   

  	

   

  	

   

  	

   

  
	

   

  	

  By:

  	

   

  	

  /s/JOSEPH

  FRATUS

  	

   

  	

   

  
	

   

  	

  Name:

  	

   

  	

  Joseph

  Fratus

  	

   

  	

   

  
	

   

  	

  Title:

  	

   

  	

  First Vice

  President

  	

   

  	

   

  
													

 

-54-

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00042-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00042-of-00352.parquet"}]]