Document:

Exhibit 10.1

 

Execution Version

 

SIXTH
AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT

 

This Sixth
Amendment to Amended and Restated Credit Agreement (hereinafter referred to as
the “Amendment”) executed as of April 14, 2009 by and among Clayton
Williams Energy, Inc., a Delaware corporation (“CWEI”), Southwest
Royalties, Inc. (successor by merger to CWEI-SWR, Inc.), a Delaware
corporation (“SWR”, and together with CWEI and each of their respective
successors and permitted assigns, the “Borrowers” and each a “Borrower”),
Warrior Gas Co., a Texas corporation (“Warrior”), CWEI Acquisitions, Inc.
a Delaware corporation (“CWEI Acquisitions”), Romere Pass Acquisition
L.L.C., a Delaware limited liability company (“Romere”), CWEI Romere
Pass Acquisition Corp., a Delaware corporation (“Romere Corp”), Blue
Heel Company, a Delaware corporation (“Blue Heel”), and Tex-Hal Partners, Inc.,
a Delaware corporation (“Tex-Hal,” and together with Warrior, CWEI
Acquisitions, Romere, Romere Corp and Blue Heel and each of their successors
and permitted assigns, the “Guarantors” and each a “Guarantor”),
JPMorgan Chase Bank, N.A. (successor by merger to Bank One, N.A. (Illinois)), a
national banking association (“JPMorgan Chase”), each of the financial
institutions which is a party hereto (as evidenced by the signature pages to
this Amendment) or which may from time to time become a party to the Agreement
pursuant to the provisions of Section 14.3 thereof or any successor
or permitted assignee thereof (hereinafter collectively referred to as “Lenders”,
and individually, “Lender”), JPMorgan Chase, as Administrative Agent (in
its capacity as Administrative Agent and together with its successors in such
capacity, “Administrative Agent”). 
Capitalized terms used but not defined in this Amendment have the
meanings assigned to such terms in that certain Amended and Restated Credit
Agreement dated as of May 21, 2004, by and among Borrowers, Guarantors,
Administrative Agent and Lenders (as amended, supplemented or otherwise
modified from time to time, the “Agreement”).

 

WITNESSETH:

 

WHEREAS,  the Borrowers and the Guarantors have
requested, among other things, that the Lenders (or at least the required
percentage thereof) amend certain provisions of the Agreement related to CWEI’s
investment in Larclay; and

 

WHEREAS,
the Administrative Agent and the Lenders have agreed to do so on the terms and
conditions hereinafter set forth.

 

NOW,
THEREFORE, for and in consideration of the mutual
covenants and agreements herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged and
confessed, the Borrowers, the Guarantors, the Administrative Agent and the
Lenders, hereby agree as follows:

 

SECTION 1.                      Amendments to the Agreement. 
Subject to the satisfaction or waiver in writing of each condition
precedent set forth in Section 3 hereof, and in reliance on the
representations, warranties, covenants and agreements contained in this
Amendment, the Agreement shall be amended in the manner provided in this Section 1.

 

1.1                               Amended
Definitions.  Article I
of the Agreement shall be and it hereby is amended by amending and restating
the following definition to read in its entirety as follows:

 

1

 

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

 

“Subsidiary”
of a Person means (i) any corporation more than 50% of the outstanding
securities having ordinary voting power of which shall at the time be owned or
controlled, directly or indirectly, by such Person or by one or more of its
Subsidiaries or by such Person and one or more of its Subsidiaries, or (ii) any
partnership, limited liability company, association, joint venture or similar
business organization more than 50% of the ownership interests having ordinary
voting power of which shall at the time be so owned or controlled.  Unless otherwise expressly provided, all
references herein to a “Subsidiary” shall mean a Subsidiary of CWEI.  Notwithstanding the foregoing, so long as
Larclay does not own or operate, or control any Person that owns or operates,
any Borrowing Base Properties, the term “Subsidiary” shall not include Larclay.

 

1.2                               Deleted Definitions.  Article I of the Agreement shall
be and it hereby is amended by deleting the definitions of “Drilling Venture”, “Lariat” and “Rig Subsidiary”.

 

1.3                               Additional Definitions.   Article I of the Agreement shall be
and it hereby is amended by adding the following definition in the correct
alphabetical order:

 

“Larclay Drilling Contract” means that
certain Drilling Contract for Multiple Rigs dated as of April 21, 2006, by
and between CWEI and Larclay LP, as the same may from time to time be amended,
modified or supplemented to the extent permitted by Section 8.18.

 

“Larclay Operating Agreement” means
that certain Operating Agreement for Drilling Rigs dated as of April 20,
2006, by and between Larclay LP and Lariat Services, Inc., as the same may
from time to time be amended, modified or supplemented to the extent permitted
by Section 8.18.

 

“Sixth Amendment Effective Date” means April 14,
2009.

 

1.4                               Permitted
Liens.  The proviso at the end of the
definition of “Permitted Liens” shall be and it hereby is deleted in its
entirety.

 

1.5                               Material
Agreements.  The first sentence of Section 6.11
of the Agreement shall be and it hereby is amended in its entirety to read as
follows:

 

Except for
certain defaults under the Existing Credit Agreements previously disclosed to
the Administrative Agent and Lenders, neither CWEI nor any Subsidiary is in
default in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any agreement to which it is
a party, which default could reasonably be expected to have a Material Adverse
Effect.

 

1.6                               Aggregate
Investments in Larclay.  The
following shall be and it hereby is added to the Agreement as Section 6.22:

 

2

 

6.22        Investments in Larclay.  As of the Sixth Amendment Effective Date, the
aggregate amount of Investments made by CWEI and any other Credit Party in
Larclay is $12,600,000.

 

1.7                               Indebtedness.  Clause (xii) of Section 8.11
of the Agreement shall be and it hereby is amended in its entirety to read as
follows:

 

(xii)        Indebtedness of CWEI consisting of an
unsecured guarantee of Indebtedness for borrowed money of Larclay, in an
aggregate amount at any time outstanding not to exceed the lesser of (a) $15,795,000
and (b) the maximum committed amount of the obligations so guaranteed by
CWEI in accordance with the terms of such guarantee as in effect on the Sixth
Amendment Effective Date or as otherwise amended or modified to the extent
permitted under Section 8.18.

 

1.8                               Investments
and Acquisitions.  The
first paragraph of Section 8.15 of the Agreement shall be
and it hereby is amended in its
entirety to read as follows:

 

Investments
and Acquisitions. 
No Borrower will, nor will any Borrower permit any other Credit Party
to, make or suffer to exist any Investments (including without limitation,
loans and advances to, and other Investments in, Subsidiaries or Larclay), or
commitments therefor, or to create any Subsidiary or to become or remain a partner
in any partnership or joint venture, or to make any Acquisition, except:

 

1.9                               Intercompany
Indebtedness.  Clause (iv) of Section 8.15
of the Agreement shall be and it hereby is amended in its entirety to read as
follows:

 

(iv)         Investments by any Credit Party
consisting of intercompany Indebtedness permitted under Section 8.11(v) and
other Investments by any Credit Party in any other Credit Party other than
Capital Stock of any direct or indirect parent of such Credit Party.

 

1.10                        Investments in Larclay.  Clause (viii) of Section 8.15
of the Agreement shall be and it hereby is amended in its entirety to read as
follows:

 

(viii)       Investments by CWEI in Larclay made prior
to the Sixth Amendment Effective Date in an aggregate amount not exceeding
$12,600,000.

 

1.11                        Larclay
Acquisition.  The following shall be
and it hereby is added to Section 8.15 of the Agreement as clause
(xi):

 

(xi)         The Acquisition by CWEI, on or before April 15,
2009 of all of the outstanding ownership interests of Larclay not otherwise owned
by CWEI on the Sixth Amendment Effective Date, on the terms set forth in that
certain Assignment and Assumption Agreement executed on March 13, 2009 by
Lariat Services, Inc. and CWEI, for an amount not to exceed the
consideration specified therein and without the waiver or amendment of any
material provision thereof that is not otherwise consented to by the
Administrative Agent.

 

3

 

1.12                        Affiliates.  Section 8.17 of the Agreement
shall be and it hereby is amended in its entirety to read as follows:

 

8.17        Affiliates.  No Borrower will, nor will any Borrower
permit any other Credit Party to, enter into any transaction (including,
without limitation, the purchase or sale of any Property or service) with, or
make any payment or transfer to, any Affiliate except transactions not
otherwise prohibited under this Agreement or any other Loan Document made in
the ordinary course of business and pursuant to the reasonable requirements of
such Credit Party’s business and upon fair and reasonable terms no less
favorable to such Credit Party than such Credit Party would obtain in a
comparable arms-length transaction; provided that, with respect to any
transaction between any Credit Party and Larclay, except for the guarantee
permitted by Section 8.11(xii), the Larclay Operating Agreement and the
Larclay Drilling Contract, such transaction shall be subject to the prior
written consent of the Required Lenders.

 

1.13                        Amendments
to Material Documents.  Section 8.18
of the Agreement shall be and it hereby is amended in its entirety to read as
follows:

 

8.18        Amendments to Organizational and
Other Documents.  No Borrower will,
nor will any Borrower permit any other Credit Party or Larclay to, enter into
or permit any modification or amendment of, or waive any material right or
obligation of any Person under (a) its Organizational Documents other than
amendments, modifications and waivers which will not, individually or in the
aggregate, have a Material Adverse Effect; (b) any Senior Term Credit
Document or Senior Note Document if the effect of any such modification or
amendment is to (i) increase the maximum principal amount of the Senior
Term Indebtedness or Senior Notes or rate of interest on any of the Senior Term
Indebtedness or Senior Notes (other than as a result of the imposition of a
default rate of interest in accordance with the terms of the Senior Term Credit
Documents and the Senior Note Documents), (ii) change or add any event of
default or any covenant with respect to the Senior Term Indebtedness or the
Senior Note Documents if the effect of such change or addition is to cause any
one or more of the Senior Term Credit Documents or the Senior Note Documents to
be more restrictive on any Credit Party than such Senior Term Credit Documents
or such Senior Note Documents were prior to such change or addition, (iii) change
the dates upon which payments of principal or interest on the Senior Term
Indebtedness or the Senior Note Documents are due, (iv) change any
redemption or prepayment provisions of the Senior Term Indebtedness or the
Senior Note Documents, or (v) grant any Liens in any assets or properties
of any Credit Party, other than the Liens granted to secure the Senior Term
Indebtedness under the Loan Documents; (c) the Larclay Drilling Contract; (d) the
Larclay Operating Agreement; or (e) the agreement evidencing the guarantee
by CWEI of certain obligations of Larclay permitted by Section 8.11(xii).

 

1.14                        EBITDAX
Leverage Ratio.  Section 8.22.2
of the Agreement shall be and it hereby is amended in its entirety to read as
follows:

 

8.22.2  EBITDAX Leverage Ratio.  CWEI will not permit the ratio, determined as
of the end of each of its Fiscal Quarters, of (i) Consolidated Funded
Indebtedness of 

 

4

 

CWEI and
its Consolidated Subsidiaries to (ii) Consolidated EBITDAX of CWEI and its
Consolidated Subsidiaries for the then most-recently ended four Fiscal Quarters
to be greater than 3.0 to 1.0.

 

1.15                        Larclay.  Section 8.26 of the Agreement
shall be and it hereby is amended in its entirety to read as follows:

 

8.26.       Larclay.  CWEI shall cause Larclay to:

 

(a)          maintain its own separate books and
records and bank accounts, which are and will be, in each case, separate and
apart from those of any other Person;

 

(b)          be, and at all times hold itself out
to the public as, a legal entity separate and distinct from any other Person
(including any Affiliate thereof), maintain and utilize separate invoices and
checks bearing its own name and otherwise conduct its own business and own its
own assets and correct any known misunderstanding regarding its separate
identity;

 

(c)           maintain separate financial
statements showing its assets and liabilities separate and apart from those of
any other Person, not have its assets listed on the financial statements of
another and file its own tax returns;

 

(d)          refrain from dissolving or winding up
(in whole or in part);

 

(e)           refrain from commingling its funds or
other assets with those of any Affiliate or any other Person;

 

(f)            refrain from maintaining its assets
in such a manner that would make it costly or difficult to segregate, ascertain
or identify its individual assets from those of any Affiliate or any other
Person; and

 

(g)          observe all corporate formalities.

 

1.16                        Defaults
under Other Loan Documents.  Section 9.11
of the Agreement shall be and it hereby is amended in its entirety to read as
follows:

 

9.11        Other Loan Documents.  The occurrence of any “default” or “event of
default”, as defined in any Loan Document (other than this Agreement) or the
breach of any of the terms or provisions of any Loan Document (other than this
Agreement), which default, event of default or breach continues beyond any
period of grace therein provided and such default, event of default or breach
continues for a period of thirty (30) days after the earlier of (i) the
date any Authorized Officer of CWEI acquires knowledge of such failure, or (ii) written
notice of such failure has been given to CWEI by the Administrative Agent or any
Lender.

 

SECTION 2.                      Consent and Reaffirmation of Guarantors.  By their execution hereof, each Guarantor
hereby (i) acknowledges receipt of this Amendment, (ii) consents to
the Borrowers’ 

 

5

 

execution and delivery hereof; (iii) agrees to be
bound hereby; (iv) affirms that nothing contained therein shall modify in
any respect whatsoever its guaranty of the obligations of the Borrowers to
Lenders pursuant to the terms of its Guaranty in favor of Administrative Agent
and the Lenders and (v) reaffirms that its Guaranty is and shall continue
to remain in full force and effect.

 

SECTION 3.                      Conditions. 
The amendments to the Agreement contained in Section 1
of this Amendment shall be effective upon the satisfaction of each of the
conditions set forth in this Section 3.

 

3.1                               Execution and Delivery.  The Administrative Agent shall have received
from the Required Lenders, the Borrower and the Guarantors, counterparts (in
such number as may be requested by the Administrative Agent) of this Amendment
signed on behalf of such Persons.

 

3.2                               Representations and Warranties.  The representations and warranties of each
Borrower under the Agreement, as amended by this Amendment 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 relate solely to an earlier date).

 

3.3                               No Default.  No Default or Unmatured Default shall have
occurred and be continuing.

 

3.4                               Larclay
Drilling Contract, Larclay Operating Agreement, Assignment and Assumption
Agreement and Guarantee.  CWEI shall
have delivered to the Administrative Agent a true and correct copy of each of (i) the
Larclay Drilling Contract, (ii) the Larclay Operating Agreement, (iii) the
Assignment and Assumption Agreement executed on March 13, 2009 by Lariat
Services, Inc. and CWEI and (iv) the guarantee agreement evidencing
the guarantee by CWEI of certain Indebtedness of Larclay, together with a
certificate of an Authorized Officer of CWEI certifying that each is a true,
complete and correct copy, including all amendments thereto through the date
hereof.

 

3.5                               Other Documents.  The Administrative Agent shall have received
such other instruments and documents incidental and appropriate to the transaction
provided for herein as the Administrative Agent or its special counsel may
reasonably request, and all such documents shall be in form and substance
satisfactory to the Administrative Agent.

 

3.6                               Amendment
Fee.  Borrowers shall have paid to
Administrative Agent, for the account of each Lender for which the
Administrative Agent shall have received (by facsimile or otherwise) an
executed counterpart of this Amendment (or a release from escrow of an executed
counterpart of this Amendment previously delivered in escrow for this
Amendment) by 3:00 p.m. (Dallas, Texas time) on April 14, 2009 (or
such later date or time as the Administrative Agent and the Borrowers may
agree), an amendment fee in the amount separately agreed upon by Borrowers and
Administrative Agent.

 

SECTION 4.                      Representations and Warranties of Borrowers.  To induce the Lenders to enter into this
Amendment, the Borrowers hereby represent and warrant to the Lenders as
follows:

 

4.1                               Reaffirmation of Representations and
Warranties/Further Assurances. 
After giving effect to the amendments herein, each representation and
warranty of any Borrower or 

 

6

 

any Guarantor
contained in the Agreement or in any of the other Loan Documents is true and
correct in all material respects on the date hereof (except to the extent such
representations and warranties relate solely to an earlier date).

 

4.2                               Corporate Authority; No Conflicts.  The execution, delivery and performance by
each Borrower and each Guarantor (to the extent a party hereto or thereto) of
this Amendment and all documents, instruments and agreements contemplated
herein are within each such Borrower’s or such Guarantor’s corporate or other
organizational powers, have been duly authorized by necessary action, require
no action by or in respect of, or filing with, any court or agency of
government and do not violate or constitute a default under any provision of
any applicable law or other agreements binding upon any Borrower or any
Guarantor or result in the creation or imposition of any Lien upon any of the
assets of any Borrower or any Guarantor except for Permitted Liens and
otherwise as permitted in the Agreement.

 

4.3                               Enforceability.  This Amendment constitutes the valid and
binding obligation of each Borrower and each Guarantor enforceable in
accordance with its terms, except as (i) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting creditor’s rights
generally, and (ii) the availability of equitable remedies may be limited
by equitable principles of general application.

 

SECTION 5.                      Miscellaneous.

 

5.1                               Reaffirmation of Loan Documents and Liens.  Any and all of the terms and provisions of
the Agreement and the Loan Documents shall, except as amended and modified
hereby, remain in full force and effect. 
Each Borrower hereby agrees that the amendments and modifications herein
contained shall in no manner affect or impair the liabilities, duties and
obligations of such Borrower or any Guarantor under the Agreement and the other
Loan Documents or the Liens securing the payment and performance thereof.

 

5.2                               Parties in Interest.  All of the terms and provisions of this
Amendment shall bind and inure to the benefit of the parties hereto and their
respective successors and assigns.

 

5.3                               Legal Expenses.  The Borrowers hereby agree, jointly and
severally, to pay all reasonable fees and expenses of counsel to the
Administrative Agent incurred by the Administrative Agent in connection with
the preparation, negotiation and execution of this Amendment and all related
documents.

 

5.4                               Counterparts.  This Amendment may be executed in one or more
counterparts and by different parties hereto in separate counterparts each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and
attached to a single counterpart so that all signature pages are
physically attached to the same document. 
However, this Amendment shall bind no party until the Borrowers, the
Guarantors, the Lenders (or at least the requisite percentage thereof), and the
Administrative Agent have executed a counterpart.  Delivery of photocopies of the signature pages to
this Amendment by facsimile or electronic mail shall be effective as delivery
of manually executed counterparts of this Amendment.

 

7

 

5.5                               Complete Agreement.  THIS AMENDMENT, THE AGREEMENT, AND THE OTHER
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR ORAL AGREEMENTS OF THE
PARTIES.  THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.

 

5.6                               Headings.  The headings, captions and arrangements used
in this Amendment are, unless specified otherwise, for convenience only and
shall not be deemed to limit, amplify or modify the terms of this Amendment,
nor affect the meaning thereof.

 

[Signature Pages Follow]

 

8

 

IN WITNESS WHEREOF,
the parties have caused this Sixth Amendment to Amended and Restated Credit
Agreement to be duly executed as of the date first above written.

 

 

	
   

  	
  BORROWERS:

  
	
   

  	
   

  
	
   

  	
  CLAYTON
  WILLIAMS ENERGY, INC.

  
	
   

  	
  a Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Mel G. Riggs

  
	
   

  	
   

  	
  Mel G. Riggs, Senior Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SOUTHWEST
  ROYALTIES, INC.

  
	
   

  	
  a Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Mel G. Riggs

  
	
   

  	
   

  	
  Mel G. Riggs, Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  GUARANTORS:

  
	
   

  	
   

  	
   

  
	
   

  	
  WARRIOR
  GAS CO.

  
	
   

  	
  a Texas corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Mel G. Riggs

  
	
   

  	
   

  	
  Mel G. Riggs, Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CWEI
  ACQUISITIONS, INC.

  
	
   

  	
  a Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Mel G. Riggs

  
	
   

  	
   

  	
  Mel G. Riggs, Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ROMERE
  PASS ACQUISITION L.L.C.

  
	
   

  	
  a Delaware limited
  liability company

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Mel G. Riggs

  
	
   

  	
   

  	
  Mel G. Riggs, Vice
  President

  

 

 

	
   

  	
  CWEI
  ROMERE PASS ACQUISITION CORP.

  
	
   

  	
  a
  Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Mel G. Riggs

  
	
   

  	
   

  	
  Mel G. Riggs, Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  BLUE HEEL
  COMPANY

  
	
   

  	
  a Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Mel G. Riggs

  
	
   

  	
   

  	
  Mel G. Riggs, Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  TEX-HAL
  PARTNERS, INC.

  
	
   

  	
  a Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Mel G. Riggs

  
	
   

  	
   

  	
  Mel G. Riggs, Vice
  President

  

 

 

	
   

  	
  JPMORGAN CHASE BANK, N.A.,

  
	
   

  	
  (successor
  by merger to Bank One, N.A. (Illinois)), as Administrative Agent and a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Kimberly
  A. Coil

  
	
   

  	
  Name:

  	
  Kimberly A.
  Coil

  
	
   

  	
  Title:

  	
  Senior Vice
  President

  

 

 

	
   

  	
  BANK OF SCOTLAND

  
	
   

  	
  as Co-Agent
  and a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Julia R.
  Franklin

  
	
   

  	
  Name:

  	
  Julia R.
  Franklin

  
	
   

  	
  Title:

  	
  Assistant
  Vice President

  

 

 

	
   

  	
  UNION BANK OF CALIFORNIA, N.A.

  
	
   

  	
  as
  Syndication Agent and a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Timothy
  Brendel

  
	
   

  	
  Name:

  	
  Timothy
  Brendel

  
	
   

  	
  Title:

  	
  Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Randall
  Osterberg

  
	
   

  	
  Name:

  	
  Randall
  Osterberg

  
	
   

  	
  Title:

  	
  Senior Vice
  President

  

 

 

	
   

  	
  BNP PARIBAS

  
	
   

  	
  as Documentation Agent and
  a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Brian M. Malone

  
	
   

  	
  Name:

  	
  Brian M.
  Malone

  
	
   

  	
  Title:

  	
  Managing
  Director

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Courtney Kubesch

  
	
   

  	
  Name:

  	
  Courtney
  Kubesch

  
	
   

  	
  Title:

  	
  Vice
  President

  

 

 

	
   

  	
  FORTIS
  CAPITAL CORP.

  
	
   

  	
  as a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Scott
  Myatt

  
	
   

  	
  Name:

  	
  Scott Myatt

  
	
   

  	
  Title:

  	
  Director

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Darrell
  Holley

  
	
   

  	
  Name:

  	
  Darrell
  Holley

  
	
   

  	
  Title:

  	
  Managing
  Director

  

 

 

	
   

  	
  NATIXIS (formerly
  Natexis Banques Populaires)

  
	
   

  	
  as a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Donovan
  C. Broussard

  
	
   

  	
  Name:

  	
  Donovan C.
  Broussard

  
	
   

  	
  Title:

  	
  Managing
  Director

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Liana
  Tchernysheva

  
	
   

  	
  Name:

  	
  Liana
  Tchernysheva

  
	
   

  	
  Title:

  	
  Director

  

 

 

	
   

  	
  GUARANTY BANK

  
	
   

  	
  as a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Christopher S. Prada

  
	
   

  	
  Name:

  	
  Christopher
  S. Prada

  
	
   

  	
  Title:

  	
  Senior Vice
  President

  

 

 

	
   

  	
  FROST
  BANK

  
	
   

  	
  as a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Alek
  Zemkoski

  
	
   

  	
  Name:

  	
  Alek
  Zemkoski

  
	
   

  	
  Title:

  	
  Vice
  President

  

 

 

	
   

  	
  BANK OF TEXAS, N.A.

  
	
   

  	
  as a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ J.
  Michael Delbridge

  
	
   

  	
  Name:

  	
  J. Michael
  Delbridge

  
	
   

  	
  Title:

  	
  Senior Vice
  PresidentExhibit 10.2

 

 

 

 

TERM LOAN
AND

SECURITY AGREEMENT

 

dated as of April 21,
2006

 

among

 

LARCLAY, L.P.,

 

as Borrower,

 

THE LENDERS FROM TIME TO
TIME PARTY HERETO,

and

 

MERRILL LYNCH CAPITAL,

 

a division of Merrill
Lynch Business Financial Services Inc.,

as Administrative Agent for the Lenders

 

 

Table of Contents

 

	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  
	
  ARTICLE I.
  DEFINITIONS

  	
   

  	
  1

  
	
  Section 1.1

  	
   

  	
  Specific Terms

  	
   

  	
  1

  
	
  Section 1.2

  	
   

  	
  Other Terms

  	
   

  	
  12

  
	
  Section 1.3

  	
   

  	
  UCC Filing

  	
   

  	
  12

  
	
  Section 1.4

  	
   

  	
  Computations of Time; Other
  Definitional Provisions

  	
   

  	
  12

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE II. THE
  LOAN

  	
   

  	
  13

  
	
  Section 2.1

  	
   

  	
  Commitment

  	
   

  	
  13

  
	
  Section 2.2

  	
   

  	
  Note

  	
   

  	
  13

  
	
  Section 2.3

  	
   

  	
  Repayment of Principal

  	
   

  	
  13

  
	
  Section 2.4

  	
   

  	
  Interest

  	
   

  	
  14

  
	
  Section 2.5

  	
   

  	
  Payments

  	
   

  	
  15

  
	
  Section 2.6

  	
   

  	
  Conditions of Lender’s Initial
  Obligation

  	
   

  	
  17

  
	
  Section 2.7

  	
   

  	
  Conditions Precedent to Subsequent
  Loan Advances

  	
   

  	
  17

  
	
  Section 2.8

  	
   

  	
  Use of Loan Proceeds

  	
   

  	
  18

  
	
  Section 2.9

  	
   

  	
  Fees

  	
   

  	
  19

  
	
  Section 2.10

  	
   

  	
  Voluntary Prepayment

  	
   

  	
  19

  
	
  Section 2.11

  	
   

  	
  Sharing of Payments, Etc.

  	
   

  	
  19

  
	
  Section 2.12

  	
   

  	
  Status of Lenders

  	
   

  	
  20

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE III.
  GENERAL PROVISIONS

  	
   

  	
  21

  
	
  Section 3.1

  	
   

  	
  Representations and Warranties

  	
   

  	
  21

  
	
  Section 3.2

  	
   

  	
  Financial and Other Information

  	
   

  	
  24

  
	
  Section 3.3

  	
   

  	
  Other Covenants

  	
   

  	
  25

  
	
  Section 3.4

  	
   

  	
  Collateral

  	
   

  	
  29

  
	
  Section 3.5

  	
   

  	
  Events of Default

  	
   

  	
  35

  
	
  Section 3.6

  	
   

  	
  Remedies

  	
   

  	
  36

  
	
  Section 3.7

  	
   

  	
  Administrative Agent

  	
   

  	
  40

  
	
  Section 3.8

  	
   

  	
  Miscellaneous

  	
   

  	
  44

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Exhibits:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Schedule 1

  	
  -

  	
   

  	
  Lender Loan Commitments

  
	
   

  
	
  A

  	
  -

  	
   

  	
  Collateral

  
	
  B

  	
  -

  	
   

  	
  Certificate of
  Compliance

  
	
  C

  	
  -

  	
   

  	
  Promissory Note

  
	
  D – 1

  	
  -

  	
   

  	
  Limited Guaranty

  
	
  D – 2

  	
  -

  	
   

  	
  Unlimited Guaranty

  
										

 

i

 

	
  

  	
   

  	
  TERM
  LOAN AND SECURITY AGREEMENT

  

 

TERM LOAN AND
SECURITY AGREEMENT (the “Loan Agreement”) dated as of April 21, 2006, among LARCLAY, L.P., a limited partnership organized and existing under the laws of the State of Texas having its
principal office at Six Desta Drive, Suite 6500, Midland, Texas
79705 (together with its successors and permitted assigns, “Borrower”),
each of the lenders that is a signatory hereto or which becomes a signatory
hereto pursuant to Section 3.8(t) hereof (individually,
together with its successors and assigns, a “Lender” and collectively,
the “Lenders”), and MERRILL LYNCH CAPITAL,
a division of Merrill Lynch Business Financial Services Inc., a corporation
organized and existing under the laws of the State of Delaware having its
principal office at 222 North LaSalle Street, 16th Floor, Chicago, Illinois 60601, as agent for
the Lenders (the “Administrative Agent”).  Capitalized terms used herein and not
otherwise defined herein are used with the meanings ascribed thereto in the
Definitions Section of this Loan Agreement.

 

In consideration of $10, other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, and
the covenants and agreements herein contained, Borrower, Administrative Agent
and each Lender hereby agree as follows, intending to be legally bound:

 

ARTICLE I.  DEFINITIONS

 

Section 1.1             Specific
Terms.  In addition to terms defined
elsewhere in this Loan Agreement, when used herein the following terms shall
have the following meanings:

 

“Administrative Agent” has the meaning assigned
to it in the introductory paragraph hereof.

 

“Adverse Environmental Condition” means (i) the
existence or the continuation of the existence of an Environmental
Contamination (including, without limitation, a sudden or non-sudden accidental
or non-accidental Environmental Contamination), or exposure to any substance,
chemical, material, pollutant, Hazardous Substance, odor or audible noise or
other release or emission in, into or onto the environment (including without
limitation, the air, ground, water or any surface) at, in, by, from or related
to any Collateral, (ii) the environmental aspect of the transportation,
storage, treatment or disposal of materials in connection with the operation of
any Collateral, or (iii) the violation, or alleged violation, of any
Environmental Law, permits or licenses of, by or from any Governmental Agency
or court relating to environmental matters connected with any of the
Collateral.

 

“Affiliate” of any Person means any Person
directly or indirectly controlled by, controlling or under common control with
such first Person.  For the purposes of
this definition “control” of any Person includes (a) with respect to any
corporation or other Person having voting shares or the equivalent and elected
directors, managers, or Persons performing similar functions, the ownership or
power to vote, directly or indirectly shares or the equivalent representing
fifty percent (50%) or more of the power to vote in the election of directors,
managers or Persons performing similar functions (other than as a 

 

 

limited partner of such
other Person) and (b) the ability to direct the business and affairs of
any Person by acting as a general partner, manager or otherwise.

 

“Applicable Law” means all laws, judgments,
decrees, ordinances and regulations and any other governmental rules, orders
and determinations and all requirements having the force of law, now or
hereafter enacted, made or issued, whether or not presently contemplated,
including (without limitation) compliance with all requirements of zoning laws
and labor laws, compliance with which is required with respect to the
Collateral, whether or not such compliance shall require structural, unforeseen
or extraordinary changes to any of the Collateral or the operation, occupancy
or use thereof.

 

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

 

“Assignment and Acceptance”
means an agreement by which an assignment is made pursuant to Section 3.8(t) hereof,
in form and substance reasonably satisfactory to Administrative Agent.

 

“Assignment Fee” has the meaning given in Section 3.8
(t)(i).

 

“Bankruptcy Event” means any of the following: (i) a
proceeding under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, liquidation, winding up or receivership law or statute
shall be commenced, filed or consented to by any Credit Party; or (ii) any
such proceeding shall be filed against any Credit Party and shall not be
dismissed or withdrawn within sixty (60) days after filing; or (iii) any
Credit Party shall make a general assignment for the benefit of creditors; or (iv) any
Credit Party shall generally fail to pay or admit in writing its inability to
pay its debts as they become due; or (v) any Credit Party shall be
adjudicated a bankrupt or insolvent; or (vi) any Credit Party shall take
advantage of any other law or procedure for the relief of debtors or shall take
any action for the purpose of or with a view towards effecting any of the
foregoing; or (vii) a receiver, trustee, custodian, fiscal agent or
similar official for any Credit Party or for any substantial part of any of
their respective property or assets shall be sought by such Credit Party or
appointed.

 

“Base Location” means the physical location of
the Collateral when it is not under contract, mobilizing or de-mobilizing,
which Base Location is set forth on Exhibit A attached hereto.

 

“Borrower” has the meaning assigned to it in
the introductory paragraph hereof.

 

“Business Day” means any day other than a
Saturday, a Sunday, and any day on which banking institutions located in the
State of Illinois are authorized by law or other governmental action to close.

 

“Certificate of Compliance” means a duly
executed certificate, in substantially the same form as Exhibit B
attached hereto, of the General Partner of Borrower, certifying as to the
matters set forth in such certificate.

 

2

 

“Closing Date” means the date upon which all
conditions precedent to Lenders’ obligation to make the first advance under the
Loan shall have been met or waived to the satisfaction of all Lenders.

 

“Code” means the Internal
Revenue Code of 1986.

 

“Collateral,” wherever
located, means (i) the twelve (12) Rigs referred-to on Exhibit A
attached hereto, which Collateral includes replacements, accessories, additions, accessions,
attachments, appurtenances, modifications, upgrades, improvements and
substitutions to any of the foregoing; all records relating in any way to the
foregoing (including, without limitation, any computer software, whether on
tape, disk, card, strip, cartridge or any other form); and all products and
proceeds of any of the foregoing (including without limitation, insurance
payable by reason of loss or damage to the foregoing), (ii) all of
Borrower’s now owned as well as hereafter acquired parts, equipment and
inventory related to the Collateral that do not customarily bear serial
numbers; and all products and proceeds of any of the foregoing (including,
without limitation, insurance payable by reason of loss or damage to the
foregoing), and (iii) the Drilling Services Contract.  As of the date of this Loan Agreement,
Collateral includes the Operating Rigs described on Exhibit A-1,
parts Collateral includes the yard inventory described on Exhibit A-2,
and the Drilling Services Contract.

 

“Commitment Expiration Date”
means February 28, 2007 at 2:00 p.m.

 

“Credit Party” and “Credit Parties”
means, individually or collectively, Borrower and all Guarantors.

 

“CWEI” means Clayton Williams Energy, Inc.,
a Delaware corporation.

 

“Default” means either an “Event of Default”
as defined in Section 3.5
hereof, or an event which with the giving of notice, passage of time, or both,
would constitute such an Event of Default.

 

“Default Rate” means an annual interest rate
equal to the lesser of (i) five (5.00%) percentage points over the Interest
Rate or (ii) the highest interest rate permitted to be contracted for,
charged, reserved, taken or received by applicable law.

 

“Disqualified Capital Stock” means any Stock
that, by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or upon the happening of any event, matures or
is mandatorily redeemable for any consideration other than other Stock (which
would not constitute Disqualified Capital Stock), pursuant to a sinking fund
obligation or otherwise, or is convertible or exchangeable for Indebtedness or
redeemable for any consideration other than other Stock (which would not
constitute Disqualified Capital Stock) at the option of the holder thereof, in
whole or in part, on or prior to the date that is one year after the earlier of
(a) the Maturity Date and (b) the date on which there are no Loans or
other obligations hereunder outstanding and all of the commitments are
terminated.

 

“Dollars,” “$” or “USD” means lawful
currency of the United States of America.

 

3

 

“Drilling Services Contract”
means the Drilling Contract for Multiple Rigs, dated as of April 21, 2006,
between Borrower and CWEI, each related Drilling Contract (as defined in such
agreement) and the Operating Agreement for Drilling Rigs dated as of April 20,
2006 executed by and between Borrower and Lariat Services, Inc.

 

“Eligible Assignee” means (a) a commercial
bank organized under the laws of the United States, or any state thereof, and
having total assets in excess of $250,000,000, (b) 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 which has total assets in excess of
$250,000,000, provided that such bank is acting through a branch or agency
located in the United States, (c) a finance company, insurance company, or
other financial institution or fund that is engaged in making, purchasing, or
otherwise investing in commercial loans in the ordinary course of its business
and having (together with its Affiliates) total assets in excess of
$250,000,000, (d) a Lender, any Affiliate (other than individuals) or
Approved Fund of a Lender, and (e) during the continuation of a Default,
any other Person so long as the assigning Lender provides at least five (5) Business
Days prior written notice to Administrative Agent of such assignment; provided,
however, in order for any assignee to be a party to this Agreement, such
assignee must be exempt from withholding taxes.

 

“Environmental Claim” means any accusation, allegation, notice
of violation, claim, demand, abatement or other order on direction (conditional
or otherwise) by any governmental authority or any Person for personal injury
(including sickness, disease or death), tangible or intangible property damage,
damage to the environment or other adverse affects on the environment, or for
fines, penalties or restrictions, resulting from or based upon any Adverse
Environmental Condition.

 

“Environmental Contamination” means any actual
or threatened release, spill, emission, leaking, pumping, injection, presence,
deposit, abandonment, disposal, discharge, dispersal, leaching or migration
into the indoor or outdoor environment, or into or out of any of the
Collateral, including, without limitation, the movement of any Hazardous
Substance or other substance through or in the air, soil, surface water,
groundwater or property which is not in compliance with applicable
Environmental Laws.

 

“Environmental Law” means any present or future federal,
foreign, state or local law, ordinance, order, rule or regulation and all
judicial, administrative and regulatory decrees, judgments and orders,
pertaining to health, industrial hygiene, the use, disposal or transportation
of Hazardous Substances, Environmental Contamination, or pertaining to the
protection of the environment, including, but not limited to, the Comprehensive
Environmental Response, Compensation, and Liability Act (“CERCLA”) (42 U.S.C. § 9601 et  seq.),
the Hazardous Material Transportation Act (49 U.S.C. § 1801 et
seq.), the Federal Water Pollution Control Act (33 U.S.C. Section 1251
et  seq.), the Resource Conservation and Recovery Act
(42 U.S.C. § 6901 et  seq.), the Clean Air Act
(42 U.S.C. § 7401 et  seq.), the Toxic Substances
Control Act (15 U.S.C. § 2601 et  seq.), the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. § 1361 et
seq.), the Occupational Safety and Health Act (19 U.S.C. § 651
et  seq.), the Hazardous and Solid Waste Amendments
(42 U.S.C. § 2601 et  seq.), as these laws have been or
may be amended or 

 

4

 

supplemented, and any
successor thereto, and any analogous foreign, state or local statutes, and the
rules, regulations and orders promulgated pursuant thereto.

 

“Environmental Loss” means any loss, cost,
damage, liability, deficiency, fine, penalty or expense (including, without
limitation, reasonable attorneys’ fees, engineering and other professional or
expert fees), investigation, removal, cleanup and remedial costs (voluntarily
or involuntarily incurred) and damages to, loss of the use of or decrease in
value of the Collateral arising out of or related to any Adverse Environmental
Condition.

 

“ERISA” means the Employee Retirement Income
Security Act of 1974 (or any successor legislation thereto), as amended from
time to time, and any regulations promulgated thereunder.

 

“Event of Loss” means the occurrence whereby
any tangible Collateral having a value in excess of $250,000 or more is damaged
beyond repair, lost, totally destroyed or confiscated.

 

“Event of Loss Prepayment” has the meaning
given in Section 3.4(i).

 

“Excluded Taxes” means, with respect to the
Administrative Agent or any Lender, (a) income or franchise taxes imposed
on or measured by its net income (however denominated) by the jurisdiction (or
any political subdivision thereof) under the laws of which such recipient is
organized or in which its principal office is located or, in the case of any
Lender, in which its applicable lending office is located, (b) any branch
profits taxes imposed by the United States of America or any similar tax
imposed by any other jurisdiction in which the Borrower is located, (c) franchise
taxes imposed by the State of Texas or other Governmental Agency on either the
Administrative Agent or the Lenders as a result of doing business in the State
of Texas or other jurisdiction, and (d) in the case of a Foreign Lender,
any withholding tax that is imposed on amounts payable to such Foreign Lender
at the time such Foreign Lender becomes a party to this Agreement (or
designates a new lending office) or is attributable to such Foreign Lender’s
failure or inability to comply with Section 2.12.

 

“Facility Fee” means a fully-earned,
non-refundable facility fee of $375,000, of which $375,000 has already been
paid by Borrower to Administrative Agent.

 

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

 

“Funding Source” has the meaning given in Section 3.8
(t)(v).

 

“GAAP” means the generally accepted accounting
principles in effect in the United States of America from time to time.

 

“General Funding Conditions” means (A) each
of the following conditions to the first Loan advance by Lenders hereunder: (i) no
Default or Event of Default shall have occurred and be continuing or would
result from the making of any such loan or advance hereunder by Lenders; (ii) there
shall not have occurred and be continuing any Material 

 

5

 

Adverse Effect and
Administrative Agent shall continue to be satisfied with the financial
condition of Borrower; (iii) all representations and warranties of all of
the Credit Parties herein or in any of the Loan Documents shall then be true
and correct in all material respects (except those that relate to a specific
date and were true and correct on such date); (iv) Lenders shall have
received this Loan Agreement and all of the other Loan Documents duly executed,
and filed or recorded or in a form suitable for filing and recording where
applicable, all of which shall be in form and substance satisfactory to
Lenders; (v) the Facility Fee shall have been paid in full; (vi) Administrative
Agent shall have received evidence satisfactory
to it as to the ownership of the Collateral and the perfection and priority of
Administrative Agent’s Liens and security interests thereon, (vii) Administrative
Agent shall have received evidence satisfactory to it of the insurance required
hereby or by any of the Loan Documents; (viii) Administrative Agent shall
have received (1) resolutions of the Board of Directors or General
Partner, as applicable, of each Credit Party authorizing the Loan and the
execution, delivery and performance of the Loan Documents, (2) an
incumbency certificate of and each Credit Party, (3) governmental
certificates of good standing and existence of each Credit Party, (4) certified
articles of incorporation or other formation document and bylaws or other
operating agreement or regulations of each Credit Party and (5) an opinion
of Borrower’s counsel covering matters as are customary in loan transactions
and covering such additional matters as Administrative Agent may reasonably
request; and (ix) Administrative Agent shall have received such
other documents and information as Administrative Agent may reasonably request,
and (B) each of the following conditions to any subsequent Loan advance
made by Lenders hereunder:  (i) no
Default or Event of Default shall have occurred and be continuing or would
result from the making of any such loan or advance hereunder by Lender; (ii) there
shall not have occurred and be continuing any Material Adverse Effect; (iii) all
representations and warranties of Borrower herein or in any of the Loan
Documents shall then be true and correct in all material respects (except those
that relate to a specific date and were true and correct on such date); and (iv) Administrative
Agent shall have received evidence satisfactory to it as to the description and
ownership of any additional Rigs being financed with such advance and the
perfection and priority of Administrative Agent’s Liens and security interests
thereon.

 

“General Partner” means Larclay GP, LLC, a
Texas limited liability company.

 

“Governmental Agencies” means any government or
any state, department or other political subdivision thereof or governmental
body, agency, authority, department or commission having jurisdiction over
Borrower or its properties (including without limitation any court or tribunal)
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government and any corporation, partnership or
other entity directly or indirectly owned by the foregoing.

 

“Guaranteed Indebtedness” means, as to any
Person, any obligation of such Person guaranteeing any indebtedness, lease,
dividend, or other obligation (“primary obligations”) of any other Person (the “primary
obligor”) in any manner, including any obligation or arrangement of such
guaranteeing Person (whether or not contingent):  (i) to purchase or repurchase any such
primary obligation; (ii) to advance or supply funds (A) for the
purchase or payment of any such primary obligation or (B) to maintain
working capital or equity capital of the primary obligor or otherwise to
maintain the net 

 

6

 

worth or solvency or any
balance sheet condition of the primary obligor; (iii) to purchase
property, securities or services primarily for the purpose of assuring the
owner of any such primary obligation of the ability of the primary obligor to
make payment of such primary obligation; or (iv) to indemnify the owner of
such primary obligation against loss in respect thereof.

 

“Guarantor” means CWEI and each Subsidiary that
executes a Guaranty pursuant to Section 3.3(g).

 

“Guaranty” means, in the case of CWEI, the
Guaranty delivered by CWEI pursuant to Section 3.4(l) substantially
in the form of Exhibit D-1 hereto, and in the case of any
Subsidiary, a guaranty delivered by such Subsidiary pursuant to Section 3.3(g),
substantially in the form of Exhibit D-2.

 

“Hazardous Substances” means and includes
hazardous substances as defined in CERCLA; oil of any kind, petroleum products
and their by-products, including, but not limited to, sludge or residue;
asbestos containing materials; polychlorinated biphenyls; any and all other
hazardous or toxic substances; hazardous waste, as defined in CERCLA; medical
waste; infectious waste; those substances listed in the United States
Department of Transportation Table (49 C.F.R. § 172.101); explosives;
radioactive materials; and all other pollutants, contaminants and other
substances regulated or controlled by the Environmental Laws and any other
substance that requires special handling in its collection, storage, treatment
or disposal under the Environmental Laws.

 

“Indebtedness” of any Person means, without
duplication, (i) all indebtedness of such Person for borrowed money or for
the deferred purchase price of property or services (including reimbursement and
all other obligations with respect to surety bonds, letters of credit and
bankers’ acceptances, whether or not matured, but not including accounts
payable and accrued expenses, liabilities, or other obligations to pay the
deferred purchase price of property or services, from time to time incurred in
the ordinary course of business which are not greater than sixty (60) days past
the date of invoice or which are being contested in good faith by appropriate
action and for which adequate reserves have been maintained in accordance with
GAAP); (ii) all obligations evidenced by notes, bonds, debentures or
similar instruments; (iii) all indebtedness created or arising under any
conditional sale or other title retention agreements with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property); (iv) all capital lease obligations; (v) all
Guaranteed Indebtedness; and (vi) all Indebtedness referred to in
clauses (i), (ii), (iii), (iv) or (v) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien upon or in property (including accounts
and contract rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Indebtedness.

 

“Indemnified Taxes” means Taxes other than
Excluded Taxes.

 

“Interest Period” means each calendar month
occurring during the period commencing with the month of the Closing Date
through and including the calendar month of the Maturity Date; provided, however, that no Interest Period
shall commence 

 

7

 

or extend past the
Maturity Date and the Loan shall bear interest at the Default Rate after the
Maturity Date.

 

“Interest
Rate” means, with respect to the Loan for any Interest Period, a
rate per annum equal to the sum of the LIBOR Rate for such Interest Period plus
three hundred and twenty-five (325) basis points.

 

“LC Event” means that the Letter of Credit
shall not have been renewed or extended for at least an additional one year
period (and such renewal or extension received by Administrative Agent) no
later than 30 days prior to the then current expiry date thereof unless the
following documents have been delivered to Administrative Agent:  (i) the CWEI Guaranty, and (ii) a
Secretary’s Certificate certifying the signature and incumbency of the Person
signing the CWEI Guaranty and the authorizing resolutions therefor.

 

“Lender” and “Lenders” have the meanings
assigned to them in the introductory paragraph hereof.

 

“Letter of Credit” means that letter of credit
in the amount of $19,000,000, issued by a financial institution reasonably
acceptable to Administrative Agent for the account of CWEI and for the benefit
of Administrative Agent, for itself and each Lender party to this Loan
Agreement.

 

“LIBOR Rate”
means, with respect to the Loan for any Interest Period, an interest rate per
annum (rounded upward to the next higher whole multiple of one-sixteenth
percent if such rate is not such a multiple), equal to the rate per annum
(rounded upwards to the next higher whole multiple of one-sixteenth percent if
such rate is not such a multiple) as determined on the basis of the average of
the rates offered by a majority of the banks in the London interbank market for
deposits in U.S. Dollars for one (1) month, to the extent the rates as
published in the “Bloomberg
Professional Service, Screen BAAM”  on
the Business Day next preceding the first day of such Interest Period
(provided, however, that with respect to the first Interest Period of the Loan,
on the third Business Day next preceding the first day of such Interest
Period).

 

“Lien” means any interest in property securing
an obligation owed to, or a claim by, a Person other than the owner of the
property, whether such interest is based on the common law, statute or
contract, and whether such obligation or claim is fixed or contingent, and including
but not limited to the lien or security interest arising from a mortgage,
encumbrance, pledge, security agreement, conditional sale or trust receipt or a
lease, consignment or bailment for security purposes.

 

“Loan” means a term
installment loan in an amount not to exceed $75,000,000 made, or to be
made, pursuant to this Loan Agreement.

 

“Loan Agreement” has the meaning assigned to it
in the introductory paragraph hereof.

 

“Loan Documents” means this Loan Agreement, the
Note, the Guaranty, the Letter of Credit, any indenture, and all other security
and other instruments, assignments, consents, certificates, certifications and
agreements of any kind relating to any of the 

 

8

 

Obligations, whether
obtained, authorized, authenticated, executed, sent or received concurrently
with or subsequent to this Loan Agreement, or which evidence the creation,
guaranty or collateralization of any of the Obligations or the granting or
perfection of Liens or security interests upon any Collateral or any other
collateral for the Obligations, including any modifications, amendments or
restatements of the foregoing.

 

“Loan Purpose” means the purpose for which the
proceeds of the Loan will be used; to wit: 
(i) to finance improvements to, and refurbishment of, Rigs, (ii) to
acquire Rigs, and (iii) to repay loans or advances made by CWEI to
Borrower to the extent such loans or advances were made for a Loan Purpose.

 

“Location of Tangible Collateral” means, at any
time,  the physical location of the
Collateral when it is not at its Base Location.

 

“Majority Lenders” shall mean those Lenders
holding at least sixty six percent (66%) of the Loan.

 

“Material Adverse Effect” means any act, event,
condition or circumstance which materially and adversely changes or affects (a) the
business, operations, condition (financial or otherwise), performance or assets
of Borrower and its Subsidiaries or CWEI and its Subsidiaries, in each case
taken as a whole, (b) the ability of any Credit Party to perform its
obligations under any Loan Document to which it is a party or by which it is
bound or (c) the enforceability of any Loan Document.

 

“Maturity Date” means the date
that is the fifth anniversery of the Closing Date.

 

“Net OLV” means the appraised
orderly liquidation value of any particular item of Collateral, minus
the fair market value of tubulars, minus an amount equal to ten percent
(10%) of the appraised orderly liquidation value (being an estimate of the cost
of marshalling, storage, make-ready and sale expenses).

 

“Note” has the meaning given in Section 2.2.

 

“OFAC” has the meaning given in Section 3.8(r).

 

“Obligations” means all present and future
liabilities, indebtedness and obligations of Borrower to Administrative Agent
and Lenders under the Loan Documents, whether now existing or hereafter
arising, whether direct or indirect, absolute or contingent, due or to become
due, primary or secondary or joint or several, and, without limiting the
generality of the foregoing, shall include principal, accrued interest
(including without limitation interest accruing after the filing of any
petition in bankruptcy), all advances made by or on behalf of Administrative
Agent or Lenders under the Loan Agreement and other Loan Documents, collection
and other costs and expenses incurred by or on behalf of Administrative Agent
or Lenders, whether incurred before or after judgment, and all present and
future liabilities, indebtedness and obligations of Borrower under the Notes
issued pursuant hereto and this Loan Agreement.

 

“Operating Rig Collateral” means Operating Rigs
in the Collateral pool.

 

9

 

“Operating Rigs” means Rigs that are operating
or are fully capable of operation and meet customary industry standards for
Rigs under contract for drilling.

 

“Other Taxes” has the meaning
given in Section 2.5(a).

 

“Participant Register” has the
meaning given in Section 3.8(t)(v).

 

“Payment Date” means the first day of the calendar month
immediately succeeding the Closing Date and the first day of each successive
calendar month thereafter through and including the Maturity Date; provided
that if the first day of any calendar month is not a Business Day, then the
Payment Date for such calendar month shall be the next succeeding Business Day.

 

“Permitted Liens” means: 
(a) Liens for Taxes, assessments or other governmental charges or
levies which are not delinquent or which are being contested in good faith by
appropriate action and for which adequate reserves have been maintained in
accordance with GAAP; (b) Liens in connection with workers’ compensation,
unemployment insurance or other social security, old age pension or public
liability obligations which are not delinquent or which are being contested in
good faith by appropriate action and for which adequate reserves have been
maintained in accordance with GAAP; (c) statutory landlord’s liens,
operators’, vendors’, carriers’, warehousemen’s, repairmen’s, mechanics’,
suppliers’, workers’, materialmen’s, construction or other like Liens arising
by operation of law in the ordinary course of business or incident to drilling
operations, each of which is in respect of obligations that are not delinquent
or which are being contested in good faith by appropriate action and for which
adequate reserves have been maintained in accordance with GAAP, provided that
any such Lien referred to in this clause does not materially impair the use of
the property covered by such Lien for the purposes for which such property is
held by Borrower or materially impair the value of such property subject
thereto; (d) contractual Liens which arise in the ordinary course of
business under agreements which are usual and customary in the drilling or oil
and gas business and are for claims that are not delinquent or which are being
contested in good faith by appropriate action and for which adequate reserves
have been maintained in accordance with GAAP, provided that any such Lien
referred to in this clause does not materially impair the use of the property
covered by such Lien for the purposes for which such property is held by
Borrower or materially impair the value of such property subject thereto; (e) Liens
arising solely by virtue of any statutory or common law provision relating to
banker’s liens, rights of set-off or similar rights and remedies and burdening
only deposit accounts or other funds maintained with a creditor depository
institution, provided that no such deposit account is a dedicated cash
collateral account or is subject to restrictions against access by the
depositor in excess of those set forth by applicable regulations and no such
deposit account is intended by Borrower to provide collateral to the depository
institution; (f) easements, restrictions, servitudes, permits, conditions,
covenants, exceptions or reservations in any property which in the aggregate do
not materially impair the use of such property for the purposes of which such
property is held or materially impair the value of such property subject
thereto; (g) Liens on cash or securities pledged to secure performance of
tenders, surety and appeal bonds, government contracts, performance and return
of money bonds, bids, trade contracts, leases, statutory obligations,
regulatory obligations and other obligations of a like nature incurred in the
ordinary course of business; (h) judgment and attachment Liens not giving
rise to an 

 

10

 

Event of Default,
provided that any appropriate legal proceedings which may have been duly
initiated for the review of such judgment shall not have been finally
terminated or the period within which such proceeding may be initiated shall not
have expired and no action to enforce such Lien has been commenced; (i) Liens in favor of Administrative Agent or that
otherwise secure the Obligations; and (j) any other Liens expressly
permitted herein or in writing by Administrative Agent.

 

“Person” means any natural person and any
corporation, partnership (general, limited or otherwise), limited liability
company, trust, association, joint venture, governmental body or Governmental
Agency or other entity having legal status of any kind.

 

“Prepayment Premium” has the meaning given in Section 2.10(c).

 

“Prime Rate” means with respect to any Interest
Period, the rate publicly announced in New York, New York from time to time as
the prime rate of JPMorgan Chase Bank N.A. (or any successor thereof) (“JPMorgan”).  The Prime Rate shall be determined by
Administrative Agent at the close of business two (2) Business Days before
a Payment Date, and shall be effective to but not including the next applicable
Payment Date.  The Prime Rate is not
intended to be the lowest rate of interest charged by JPMorgan or the Lenders
in connection with extensions of credit to debtors.

 

“Register” has the meaning given in Section 3.8
(t)(iii).

 

“Registered Loans” has the meaning given in Section 3.8(t)(iii).

 

“Related Lender Assignment” means an assignment
of all or any portion of a Loan made by a Lender to an Affiliate of such Lender
or an Approved Fund of such Lender.

 

“Related Party Register” has the meaning given
in Section 3.8 (t)(iii).

 

“Responsible Officer” means, as to Borrower,
the Chief Executive Officer, the President, any financial officer or any Vice
President of General Partner.

 

“Restricted Payment” means (i) any
dividend or distribution (whether in cash, securities or other property) with
respect to any Stock in Borrower, or any payment (whether in cash, securities
or other property), including any sinking fund or similar deposit, on account
of the purchase, redemption, retirement, acquisition, cancellation or
termination of any such Stock in Borrower or any option, warrant or other right
to acquire Stock in Borrower; or (ii) any payment or distribution made in
respect of any subordinated Indebtedness of Borrower or its Subsidiaries by
Borrower or its Subsidiaries in violation of any subordination or other
agreement made in favor of Administrative Agent.

 

“Rig” means a drilling rig and its
substructure, engine, braking system, drill pipe, drill collar and related
equipment and parts (including spare parts related to such Rig); provided,
however, that the lack of, or inability to obtain drill pipe, does not mean
such rig or rigs are not operable or are excluded from the definition of
Operating Rig.

 

11

 

“Stock” means all certificated and
uncertificated shares, options, warrants, membership interests, general or
limited partnership interests, participation or other equivalents (regardless
of how designated) of or in a corporation, partnership, limited liability
company or equivalent entity whether voting or nonvoting, including common
stock, preferred stock, or any other “equity security” (as such term is defined
in Rule 3a11-1 of the General Rules and Regulations promulgated by
the Securities and Exchange Commission under the Securities Exchange Act of
1934).

 

“Subsidiary” means as to any particular parent
entity, any corporation, partnership, limited liability company or other entity
(whether now existing or hereafter organized or acquired) in which more than
fifty percent (50%) of the outstanding equity ownership interests having voting
rights as of any applicable date of determination, shall be owned directly, or
indirectly through one or more Subsidiaries, by such parent entity.

 

“Taxes” means
any present or future taxes, levies, duties, imposts, fees, deductions, withholdings
or other charges imposed by any Governmental Agency, including any interest,
additions to tax or penalties with respect thereto.

 

“Trigger Date” shall have the meaning given in Section 3.4(i).

 

“UCC” shall mean the Uniform Commercial Code of
Illinois as in effect in Illinois from time to time.

 

“USA Patriot Act” means the Uniting and
Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism Act of 2001 (Title III of Pub. L. 107-56, signed into law October 26,
2001).

 

Section 1.2             Other
Terms.  Except as otherwise defined
herein, all terms used in this Loan Agreement which are defined in the UCC
shall have the meanings set forth in the UCC and accounting terms not defined
herein shall have the meaning ascribed to them in GAAP.

 

Section 1.3             UCC
Filing.  Borrower hereby authorizes
Administrative Agent to file a record or records (as defined or otherwise
specified under the UCC), including, without limitation, financing statements,
in all jurisdictions and with all filing offices as Administrative Agent may
reasonably determine (other than any broad description such as “all assets” of
Borrower or words of similar effect) are necessary or advisable to perfect the
security interest granted to Administrative Agent herein. Such financing
statements may describe the Collateral in the same manner as described herein
or may contain an indication or description of collateral that describes such
property in any other manner as Administrative Agent may determine, in its sole
discretion, is necessary, advisable or prudent to ensure the perfection of the
security interest in the Collateral granted to Administrative Agent
herein.  Borrower agrees not to file any
corrective or termination statements or partial releases with respect to any
UCC statements filed by Administrative Agent pursuant to this Loan Agreement
without Administrative Agent’s prior written consent, which consent shall not
be unreasonably withheld, conditioned or delayed.

 

Section 1.4             Computations
of Time; Other Definitional Provisions. 
In this Loan Agreement and the other Loan Documents in the computation
of periods of time from a specified date to a later specified date, the word “from”
means “from and including” and the words “to” and “until” mean “to but
excluding.”  References in this Loan
Agreement to any contract or agreement shall be a reference to such contract or
agreement as the same may be amended, 

 

12

 

amended and
restated, supplemented, renewed, extended, or otherwise modified from time to
time in accordance with its terms.

 

ARTICLE II.  THE LOAN

 

Section 2.1             Commitment.  Subject to the terms and conditions hereof,
each Lender agrees, severally and not jointly, to make its percentage share of
the Loan, as set forth on Schedule 1 hereto, available to Borrower in
multiple advances, as requested by Borrower in accordance herewith, from the
Closing Date through the Commitment Expiration Date for the Loan Purpose or as
otherwise allowed by Section 2.8, and Borrower agrees to borrow all
amounts available from Lenders to satisfy the Loan Purpose or as otherwise
allowed by Section 2.8.

 

Section 2.2             Note.  The Loan will be evidenced by those certain promissory Notes executed of even date herewith
by Borrower, payable to the order of Administrative Agent for the benefit of
Lenders and issued pursuant to this Loan Agreement, substantially in the form
of Exhibit C attached hereto (the “Note”).  The Note is hereby incorporated as a part
hereof as if fully set forth herein.

 

Section 2.3             Repayment
of Principal.

 

(a)           Borrower shall pay
to Administrative Agent, for the account of each Lender, the outstanding
principal amount of the Loan, in monthly principal installments on each Payment
Date that occurs on and after April 1, 2007, as follows:

 

(i)            for each Payment
Date occurring during the period from and including April 1, 2007 through
and including March 1, 2008, an equal monthly principal installment equal
to 1/12 of 35% of the outstanding principal amount of the Loan on April 1,
2007;

 

(ii)           for each Payment
Date occurring during the period from and including April 1, 2008 through
and including March 1, 2010, an equal monthly principal installment equal
to 1/24 of 50% of the outstanding principal amount of the Loan on April 1,
2007; and

 

(iii)          for each Payment
Date occurring during the period from and including April 1, 2010 through
and including March 1, 2011, an equal monthly principal installment equal
to 1/12 of 15% of the outstanding principal amount of the Loan on April 1,
2007.

 

(b)           Additionally,
Borrower shall pay to Administrative Agent, for the account of each Lender, the
remaining principal balance of the Loan on the Maturity Date.

 

(c)           The Loan shall be
evidenced by and repayable in accordance with the terms hereof and of the Note.

 

(d)           If, on the
Commitment Expiration Date, the Net OLV of the Operating Rigs (including
Collateral related rig equipment, parts and tools) exceeds seventy-five percent
(75%) of the then outstanding principal balance of the Loan, Borrower shall
prepay the Loan to the extent of such excess on March 1, 2007.

 

13

 

(e)           Payments of
principal and interest shall be made by Automated Clearing House debit of
immediately available funds from the account designated by Borrower in the
Automated Clearing House debit authorization executed by Borrower in connection
with the Loan Agreement, or by wire transfer of immediately available funds to
LaSalle Bank, 135 South LaSalle Street, Chicago, Illinois 60603, ABA
071000505, Account name:  MLBFS Equipment
Finance, Account #5800393166, Attention: 
MLC Equipment Finance, reference Larclay, L.P., or such other address as
Administrative Agent shall have designated to Borrower in writing, and shall be
effective upon receipt.

 

Section 2.4             Interest.

 

(a)           Borrower shall pay
interest, in arrears, on the unpaid principal amount of the Loan from the
Closing Date until the principal amount of the Loan is paid in full, on each
Payment Date at a rate of interest per annum (computed on the basis of a
360-day year and actual days elapsed) equal to the Interest Rate; provided, however, that all interest
accrued on the Loan and unpaid on the Maturity Date shall be paid on the
Maturity Date.

 

(b)           If prior to the
commencement of any Interest Period for the Loan, Administrative Agent shall
determine that by reason of circumstances affecting the London interbank market
adequate and reasonable means do not exist for ascertaining the Interest Rate
based on the LIBOR Rate for such Interest Period or Administrative Agent is
advised by the Majority Lenders that the Interest Rate for such Interest Period
will not adequately and fairly reflect the cost to such Lenders of making or
maintaining their Loan for such Interest Period, then Administrative Agent
shall give notice thereof to Borrower and Lenders by telephone or telecopy as
promptly as practicable thereafter and, until Administrative Agent notifies
Borrower and Lenders that the circumstances giving rise to such notice no
longer exist, the Loan shall bear interest at the Prime Rate during such
Interest Period.

 

(c)           If any payment
required under this Loan Agreement or the Note is not paid within five (5) days
after such payment is due, then, unless waived pursuant to Section 3.8(s) hereof,
Borrower shall pay, at Administrative Agent’s request, a late charge (the “Late
Charge”) equal to five percent (5.00%) of the amount of such payment to
compensate Lenders for administrative expenses and other costs of delinquent
payments.  Each such Late Charge may be
assessed upon notice, shall be immediately due and payable and shall be in
addition to all other rights and remedies available to Administrative Agent and
Lenders.  If an Event of Default has
occurred and is continuing, or if any principal of or interest on the Loan or
any fee or other amount payable by Borrower hereunder is not paid when due,
whether at stated maturity, upon acceleration or otherwise, then the principal
amount of the Loan outstanding and any overdue amount (in the case of a failure
to pay amounts when due) may, at the election of Administrative Agent, bear
interest, after as well as before judgment, at a rate per annum equal to the
Default Rate; provided, however, that if the
sole Event of Default is failure to make a payment required under this Loan
Agreement and Borrower has paid a Late Charge in respect of such payment,
interest on account of such Event of Default will not be charged during the
month in which such Late Charge was paid unless another Event of Default occurs
during such month.

 

14

 

(d)           In no event shall
any interest rate provided for in this Loan Agreement or the Note exceed the
maximum rate permitted by the then Applicable Law.  It is the intention of the parties hereto to
strictly comply with applicable usury laws; accordingly, it is agreed that,
notwithstanding any provision to the contrary in this Loan Agreement, in the
Notes, or in the other Loan Documents, in no event shall this Loan Agreement,
the Notes, or the other Loan Documents be construed to charge, contract for or
require the payment or permit the collection of interest in excess of the
maximum amount permitted by Applicable Law. 
If any such excess interest is contracted for, charged or received under
this Loan Agreement, the Note or the other Loan Documents, or in the event that
all of the principal balance shall be prepaid, so that under any of such
circumstances the amount of interest contracted for, charged or received on the
principal balance shall exceed the maximum amount of interest permitted by
Applicable Law, then in such event (i) the provisions of this Section 2.4(d) shall
govern and control, (ii) neither Borrower, any Guarantor or any other
person or entity now or hereafter liable for the payment thereof shall be
obligated to pay the amount of such interest to the extent that it is in excess
of the maximum amount of interest permitted by Applicable Law, (iii) any
such excess which may have been collected shall be either applied as a credit
against the then unpaid principal balance or refunded to Borrower, at the
option of the Lenders, and (iv) the effective rate of interest shall be
automatically reduced to the maximum lawful contract rate allowed under
Applicable Law as now or hereafter construed by the courts having jurisdiction
thereof.  It is further agreed that
without limitation of the foregoing, all calculations of the rate of interest
contracted for, charged or received under this Loan Agreement, the Note and the
other Loan Documents which are made for the purpose of determining whether such
rate exceeds the maximum lawful contract rate, shall be made, to the extent
permitted by Applicable Law, by amortizing, prorating, allocating and spreading
in equal parts during the period of the full stated term of the indebtedness
evidenced hereby, all interest at any time contracted for, charged or received
from Borrower or otherwise by the Lenders in connection with such indebtedness;
provided, however, that if any
applicable state law is amended or the law of the United States of America
preempts any applicable state law, so that it becomes lawful for the Lenders to
receive a greater simple interest per annum rate than is presently allowed,
Borrower agrees that, on the effective date of such amendment or preemption as
the case may be, the lawful maximum hereunder shall be increased to the maximum
simple interest per annum rate allowed by the higher of the amended state law
or the law of the United States of America.

 

Section 2.5             Payments.

 

(a)           The payment
obligations of Borrower under the Note and all other amounts payable under this
Loan Agreement shall be paid to Administrative Agent at such address as
Administrative Agent may designate (not less than three (3) Business Days
prior to the due date therefor), not later than 2:00 p.m. Central Time on
the due date thereof, in lawful money of the United States.  All amounts received by Administrative Agent
hereunder or under the Note shall be disbursed ratably to the Lenders on the
first Business Day immediately following the date Administrative Agent receives
such amount and in accordance with the provisions of this Loan Agreement.  All payments under the Loan Documents shall
be made (i) without setoff, counterclaim or condition and (ii) free
and clear of, and without deduction for or on account of, any Indemnified
Taxes; provided that if the Borrower is required by Applicable Law to
make any 

 

15

 

deduction or
withholding on account of any Indemnified Taxes from any payment due under this
Loan Agreement, then:  (a) Borrower
shall notify Administrative Agent promptly as soon as it becomes aware of such
requirement and shall remit promptly the amount of such Taxes to the
appropriate taxation authority, and in any event prior to the date on which
penalties attach thereto; and (b) such payment shall be increased by such
amount as may be necessary to ensure that Administrative Agent receives a net
amount, after deduction of such Indemnified Taxes, equal to the full amount
which Administrative Agent would have received had such payment not been
subject to such deduction or withholding of Indemnified Taxes.  In addition, Borrower agrees to pay to the
relevant Governmental Agency in accordance with Applicable Law any present or
future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies that arise from any payment made hereunder or from
the execution, delivery or registration of, or otherwise with respect to, this
Loan Agreement or the Note (“Other Taxes”).  Borrower shall deliver to Administrative
Agent an official receipt (or, if an official receipt is not available, such
other evidence of payment as shall be reasonably satisfactory to Administrative
Agent or Lenders) in respect of any Other Taxes payable hereunder promptly
after payment of such Other Taxes. 
Borrower shall indemnify Administrative Agent and the Lenders in respect
of Indemnified Taxes or Other Taxes paid by Administrative Agent or any Lender
whether or not such Indemnified Taxes or Other Taxes were correctly or legally
asserted and shall supply copies of applicable tax receipts or other evidence
of payment reasonably satisfactory to Administrative Agent.  Such indemnification shall be paid within ten
(10) Business Days from the date on which Administrative Agent or Lender
makes written demand therefor specifying in reasonable detail the nature and
amount of such Indemnified Taxes or Other Taxes.

 

(b)           If any payment to be
made by Borrower shall become due on a day which is not a Business Day, such
payment shall be made on the next succeeding Business Day.

 

(c)           Each payment to be
made on a Payment Date and all prepayments, and other payments shall be applied
(i) except while an Event of Default exists, first to the payment of
accrued and unpaid interest on the Loan, then to the payment of fees and
expenses on the Loan, and then to the payment of principal due under the Note
(in inverse order of maturity except for regularly scheduled payments), and (ii) while
an Event of Default exists, to the Obligations in such order and manner as
Administrative Agent and the Lenders may elect.

 

(d)           Borrower shall
indemnify the Lenders and Administrative Agent on demand against all costs,
expenses, liabilities and losses (including funding losses) incurred as a
result of or in connection with (a) any postponement of the Closing Date
occurring because of one or more of the conditions precedent set forth in Article II
shall not have been satisfied or waived as a result of Borrower’s failure to
satisfy such condition and/or (b) any payment of principal of the Loan
made on a Business Day which is not a Payment Date.  The above indemnities are separate and
independent obligations of Borrower and apply irrespective of any indulgence
granted by the Lenders or Administrative Agent.

 

(e)           If Administrative
Agent or a Lender determines, in its sole discretion, that it has received a
refund of any Indemnified Taxes or Other Taxes as to which it has been
indemnified by the Borrower or with respect to which the Borrower has paid
additional 

 

16

 

amounts pursuant
to this Section 2.5, it shall pay over such refund to the Borrower
(but only to the extent of indemnity payments made, or additional amounts paid,
by the Borrower under this Section 2.5 with respect to the
Indemnified Taxes or Other Taxes giving rise to such refund), net of all
out-of-pocket expenses of Administrative Agent or such Lender and without
interest (other than any interest paid by the relevant Governmental Agency with
respect to such refund); provided, that the Borrower, upon the request of
Administrative Agent or such Lender, agrees to repay the amount paid over to
the Borrower to Administrative Agent or such Lender in the event Administrative
Agent or such Lender is required to repay such refund to such Governmental
Agency. This Section shall not be construed to require Administrative
Agent or any Lender to make available its tax returns (or any other information
relating to its taxes which it deems confidential) to the Borrower or any other
Person.

 

(f)            If the Borrower is
required to indemnify or pay any additional amount to Administrative Agent, any
Lender, or to any Governmental Agency for the account of any Lender, pursuant
to this Section 2.5, then the Borrower may, at its sole expense and
effort, upon notice to such Lender and Administrative Agent, require such
Lender to assign and delegate, without recourse, all of its interests, rights
and obligations under this Agreement to an Eligible Assignee that shall assume
such obligations (which assignee may be another Lender, if a Lender accepts
such assignment) provided that such assignment will result in a reduction in
such payments thereafter.

 

Section 2.6             Conditions
of Lender’s Initial Obligation.  The
Closing Date and Lenders’ obligation to make
advances under the Loan on and after the Closing Date pursuant to this Section 2.6
are subject to the prior fulfillment or waiver by Administrative Agent and each
Lender of each of the following conditions: 
(a) Administrative Agent shall have received a written request from
Borrower that an advance under the Loan be funded in accordance with the terms
hereof, together with a written direction from Borrower as to the method of
payment and payee(s) of the proceeds of such advance under the Loan, which request and direction shall have
been received by Administrative Agent not less than two (2) Business Days
prior to any requested funding date; (b) Administrative Agent shall have
received a copy of invoices, bills of sale, payoff letters or other applicable
evidence reasonably satisfactory to it that the proceeds of the Loan will satisfy or fulfill the Loan
Purpose; (c) the Commitment Expiration
Date shall not then have occurred; (d) delivery of the Letter of Credit to
Administrative Agent; (e) the aggregate principal amount of all advances
under the Loan pursuant to this Section 2.6 shall not exceed the
face amount of the Letter of Credit (i.e.
$19,000,000); and (f) each of the General Funding Conditions, as may be
applicable, shall then have been met or satisfied to the reasonable
satisfaction of Administrative Agent and each Lender.

 

Section 2.7                                      Conditions Precedent to Subsequent Loan
Advances.

 

(a)           First Three
Operating Rigs.  Lenders’ obligation
to make any Loan advance against the first three Operating Rigs or ancillary
support equipment pursuant to this Section 2.7(a) is in each
case subject to the prior fulfillment or waiver by Administrative Agent and
Majority Lenders of each of the following conditions:  (a) Administrative Agent shall have
received a written request from Borrower that an advance be funded in
accordance with the terms hereof, together with a written direction from
Borrower as to the method of payment and payee(s) of the proceeds of such
advance, which request and direction shall have been received by Administrative
Agent 

 

17

 

not less than
three (3) Business Days prior to any requested funding date and shall
identify the Rigs included in establishing the Net OLV of the Operating Rig
Collateral; (b) the Commitment Expiration
Date shall not then have occurred; (c) each of the General Funding
Conditions as may be applicable shall then have been met or satisfied to the
reasonable satisfaction of Administrative Agent; (d) with respect to
ancillary support equipment or Operating Rigs for which an advance is requested
(i) with respect to the first three Operating Rigs selected by Borrower,
the amount of the advance shall not exceed one hundred percent (100%) of the
Net OLV of such Operating Rig and with respect to ancillary support equipment,
the amount of such advance shall not exceed one hundred percent (100%) of the
Net OLV of ancillary support equipment purchased in the United States, (ii) such
Rig shall be an Operating Rig, and (iii) Administrative Agent shall have
received such appraisals or re-appraisals of the Collateral from valuation
sources reasonably acceptable to it as it may require and shall have received evidence reasonably satisfactory
to it that Borrower owns, or after giving effect to the application of the
proceeds of the requested advance, will own such Rig, free and clear of any
Liens other than the Permitted Liens; and (e) after giving effect
to the requested advance, the aggregate amount outstanding on the Loan shall
not exceed one hundred percent (100%) of the Net OLV of the Operating Rig
Collateral, plus one hundred percent (100%) of the Net OLV of ancillary support
equipment purchased in the United States, plus the face amount of the Letter of
Credit (i.e., $19,000,000).

 

(b)           Other Operating
Rigs.  Lenders’ obligation to make
any Loan advance after advances against the first three Operating Rigs is in
each case subject to the prior fulfillment or waiver by Administrative Agent
and Majority Lenders of each of the following conditions:  (a) Administrative Agent shall have
received a written request from Borrower that an advance be funded in
accordance with the terms hereof, together with a written direction from
Borrower as to the method of payment and payee(s) of the proceeds of such
advance, which request and direction shall have been received by Administrative
Agent not less than three (3) Business Days prior to any requested
funding date and shall identify the Rigs included in establishing the Net OLV
of the Operating Rig Collateral; (b) the Commitment
Expiration Date shall not then have occurred; (c) each of the
General Funding Conditions as may be applicable shall then have been met or
satisfied to the reasonable satisfaction of Administrative Agent; and (d) with
respect to each Operating Rig in respect of which an advance is requested (i) such
Rig shall not have been covered by any advance under Section 2.6 or
Section 2.7(a), (ii) the amount of the advance shall not
exceed seventy five percent (75%) of the Net OLV of such Operating Rig, (iii) such
Rig shall be an Operating Rig, and (iv) Administrative Agent shall have
received such appraisals or re-appraisals of the Collateral from valuation
sources reasonably acceptable to it as it may require and shall have received evidence reasonably satisfactory
to it that Borrower owns, or after giving effect to the application of the
proceeds of the requested advance, will own such Rig, free and clear of any
Liens other than the Permitted Liens.

 

Section 2.8             Use
of Loan Proceeds.  The proceeds of
the Loan shall be used by Borrower solely for a Loan Purpose, or, with the
prior written consent of Administrative Agent and Majority Lenders, which
consent shall not be unreasonably withheld, conditioned or delayed, for other
lawful business purposes of Borrower not prohibited hereby. Borrower agrees
that under no circumstances will the proceeds of the Loan be used: (a) for
personal, family or household purposes of any Person whatsoever, or (b) to
purchase, carry or trade in securities, or 

 

18

 

repay debt incurred to purchase, carry or trade in securities, or (c) to
pay any amount to Merrill Lynch and Co., Inc. or any of its subsidiaries,
other than Merrill Lynch Bank USA, Merrill Lynch Bank & Trust Co. or
any subsidiary of either of them (including Administrative Agent and Merrill
Lynch Credit Corporation).

 

Section 2.9             Fees.  In consideration of the agreement by Lenders
to extend the Loan to Borrower in accordance with and subject to the terms
hereof, Borrower has heretofore paid the Facility Fee to Administrative Agent
for the benefit of Lenders. Borrower acknowledges and agrees that the Facility
Fee has been fully earned by Lenders, and that it will not under any
circumstances be refundable.

 

Section 2.10           Voluntary
Prepayment.

 

(a)           On or after the date
that is two (2) years after the Closing Date, Borrower may prepay in full
or in part the outstanding principal amount of the Loan on any Payment Date
after giving at least three (3) Business Days prior notice of such
prepayment and payment to the Lender of accrued and unpaid interest thereon and
the Prepayment Premium referred to below, if any.  Any notice of prepayment hereunder shall be
irrevocable.

 

(b)           The Lenders shall
apply payments received pursuant to this Section 2.10 in accordance
with Section 2.5(c) above.

 

(c)           Prepayments made
under this Section 2.10 shall include a “Prepayment Premium”
as follows:

 

(i)            If made on or after
the second anniversary but on or prior to the third anniversary of the Closing
Date, one and one-half percent (1.5%) of the aggregate principal amount
prepaid; provided, that Borrower may make a one-time prepayment in an amount up
to $10,000,000 in principal without a Prepayment Premium on either or each of (A) the
second anniversary date of the Closing Date, or (B) the third anniversary
date of the Closing Date;

 

(ii)           If made after the
third anniversary of the Closing Date, but on or before the fourth anniversary
of the Closing Date, one percent (1%) of the aggregate principal amount
prepaid; and

 

(iii)          If made after the
fourth anniversary of the Closing Date, one-half of one percent (0.5%) of the
aggregate principal amount prepaid.

 

Section 2.11           Sharing
of Payments, Etc.  Borrower agrees
that, in addition to (and without limitation of) any right of set-off, bankers’
lien or counterclaim a Lender may otherwise have, each Lender shall be
entitled, at its option after an Event of Default has occurred and is
continuing to offset balances held by it for the account of Borrower at any of
its offices against any principal of or interest on any portion of the Loan
attributable to such Lender hereunder or any other obligation of Borrower
hereunder which is not paid (regardless of whether such balances are then due
to Borrower), in which case it shall promptly notify Borrower and
Administrative Agent thereof, provided
that such Lender’s failure to give such notice shall not affect the validity
thereof.  If a Lender shall obtain payment
of any principal of or interest on any portion of the Loan attributable to it
under this Loan Agreement or other obligation then due 

 

19

 

hereunder to such Lender, through the exercise of any right of set-off
or lien granted under Section 3.7(m) below, bankers’ lien,
counterclaim or similar right, or otherwise, it shall promptly purchase from
the other Lenders participations in the Loan attributable to it, or the other
obligations of Borrower hereunder of, the other Lenders in such amounts, and
make such other adjustments from time to time as shall be equitable to the end
that all the Lenders shall share the benefit of such payment (net of any
expenses which may be incurred by such Lender in obtaining or preserving such
benefit) pro rata in accordance with their
respective portions of the Loan.  To such
end, all the Lenders shall make appropriate adjustments among themselves (by
the resale of participations sold or otherwise) if such payment is rescinded or
must otherwise be restored.  Borrower
agrees, to the fullest extent it may effectively do so under applicable law,
that any Lender so purchasing a participation in the Loan may exercise all
rights of set-off, bankers’ lien, counterclaim or similar rights with respect
to such participation as fully as if such Lender were a direct holder of the
Loan or other obligations in the amount of such participation.  Nothing contained herein shall require any
Lender to exercise any such right or shall affect the right of any Lender to
exercise, and retain the benefits of exercising, any such right with respect to
any other indebtedness or obligations of Borrower to such Lender.

 

Section 2.12           Status
of Lenders.  (a) Any Foreign
Lender that is entitled to an exemption from or reduction of withholding tax
under the law of the jurisdiction in which Borrower is resident for tax
purposes, or any treaty to which such jurisdiction is a party, with respect to
payments hereunder or under any other Loan Document shall deliver to Borrower
(with a copy to Administrative Agent), at the time or times prescribed by
Applicable Law or reasonably requested by Borrower or Administrative Agent,
such properly completed and executed documentation prescribed by Applicable Law
as will permit such payments to be made without withholding or at a reduced
rate of withholding.  In addition, any
Lender, if requested by Borrower or Administrative Agent, shall deliver such
other documentation prescribed by Applicable Law or reasonably requested by
Borrower or Administrative Agent as will enable Borrower or Administrative
Agent to determine whether or not such Lender is subject to backup withholding
or information reporting requirements.

 

(b)           Without limiting the
generality of the foregoing clause (a), in the event that Borrower is
resident for tax purposes in the United States, any Foreign Lender shall
deliver to Borrower and Administrative Agent (in such number of copies as shall
be requested by the recipient) on or prior to the date on which such Foreign
Lender becomes a Lender under this Agreement (and from time to time thereafter
upon the request of Borrower or Administrative Agent, but only if such Foreign
Lender is legally entitled to do so), whichever of the following is applicable:

 

(i)            duly completed
copies of Internal Revenue Service Form W 8BEN claiming eligibility for
benefits of an income tax treaty to which the United States is a party,

 

(ii)           duly completed
copies of Internal Revenue Service Form W 8ECI,

 

(iii)          in the case of a
Foreign Lender claiming the benefits of the exemption for portfolio interest
under section 881(c) of the Code, (x) a certificate to the effect
that such Foreign Lender is not (A) a “bank” within the meaning of section
881(c)(3)(A) of the Code, (B) a “10 percent shareholder” of Borrower
within the meaning of section 881(c)(3)(B) of the Code, or (C) a “controlled

 

20

 

foreign
corporation” described in section 871(h) or 881(c)(3)(C) of the Code
and (y) duly completed copies of Internal Revenue Service Form W
8BEN, or

 

(iv)          any other form
prescribed by applicable law as a basis for claiming exemption from or a
reduction in United States Federal withholding tax duly completed together with
such supplementary documentation as may be prescribed by applicable law to
permit Borrower to determine the withholding or deduction required to be made.

 

ARTICLE III.  GENERAL PROVISIONS

 

Section 3.1             Representations
and Warranties.  Borrower represents
and warrants to Administrative Agent and each Lender that:

 

(a)           Organization and Existence.  Borrower is a
limited partnership, duly organized and validly existing in good standing under
the laws of its jurisdiction of organization, which is Texas; the
organizational number assigned to Borrower by such jurisdiction is 800643753; Borrower is qualified to do business and in good
standing in each other jurisdiction where the nature of its business or the
property owned by it make such qualification necessary except where the failure
to so qualify would not reasonably be expected to have a Material Adverse
Effect; and, where applicable, each Credit Party is duly organized, validly
existing and in good standing under the laws of the state of its formation and
is qualified to do business and in good standing in each other jurisdiction
where the nature of its business or the property owned by it make such
qualification necessary except where the failure to so qualify would not
reasonably be expected to have a Material Adverse Effect.

 

(b)           Execution,
Delivery and Performance.  Each
Credit Party has the requisite organizational power and authority to enter into
and perform its obligations under the Loan Documents to which it is a
party.  Borrower holds all necessary
permits, licenses, certificates of occupancy and other governmental
authorizations and approvals required in order to own or operate Borrower’s
business except where the failure to hold any of the foregoing would not
reasonably be expected to have a Material Adverse Effect or subject the
Collateral to a Lien, seizure or forfeiture. 
The execution, delivery and performance by Borrower of this Loan
Agreement and by each of the other Credit Parties of such of the other Loan
Documents to which it is a party:  (i) have
been duly authorized by all requisite organizational action, (ii) do not
and will not violate or conflict with any law, order or other governmental
requirement, (iii) do not and will not violate or conflict with any of the
agreements, instruments or documents which formed or govern any of the Credit
Parties, and (iv) do not and will not breach or violate any of the
provisions of, and will not result in a default by any of the Credit Parties
under, any other agreement, instrument or document to which it is a party or is
subject.

 

(c)           Notices and
Approvals.  Except as may have been
given or obtained, or will be made in connection with the perfection of
security interests granted by Borrower in the Collateral, no notice to or
consent or approval of any Governmental Agency or other third party whatsoever
(including, without limitation, any other creditor) is required in connection
with the execution, delivery or performance by any Credit Party of this Loan
Agreement, the Note and the other Loan Documents to which it is a party.

 

21

 

(d)                                 Enforceability.  The Loan Documents to which any Credit Party
is a party are the respective legal, valid and binding obligations of such
Credit Party, enforceable against it or them, as the case may be, in accordance
with their respective terms, except as enforceability may be limited by
bankruptcy and other similar laws affecting the rights of creditors generally
or by general principles of equity.

 

(e)                                  Collateral.  Except for Permitted Liens and priorities
afforded to any Permitted Lien: (i) Borrower has good and marketable title
to the Collateral, (ii) none of the Collateral is subject to any Lien,
encumbrance or security interest, and (iii) upon the filing of all Uniform
Commercial Code financing statements authenticated or otherwise authorized by Borrower
with respect to the Collateral in the appropriate jurisdiction(s) and/or
the completion of any other action required by applicable law to perfect its
Liens and security interests, Administrative Agent will have valid and
perfected first Liens and security interests upon all of the Collateral.  Without limiting the foregoing:

 

(A)                              Borrower
agrees that it will:  (i) not change
the state where it is organized; (ii) not change its name; and (iii) not
change its type of organization, in each case, without providing Administrative
Agent with thirty (30) days prior written notice.

 

(B)                                The
tangible Collateral is and will remain tangible personal property and is not
and shall not constitute real property fixtures.  The tangible Collateral is removable from and
is not essential to the premises at which the tangible Collateral is
located.  Except as noted on Exhibit A
attached hereto, the tangible Collateral is capable of satisfying its intended
business function and no additional property is required to be added to the
tangible Collateral in order to satisfy such business function.

 

(C)                                If
any of the Collateral is, at any time, in the possession of a bailee, Borrower
shall promptly notify Administrative Agent and shall assist Administrative
Agent in obtaining an acknowledgment from the bailee that is holding the
Collateral for the benefit of Administrative Agent and Lenders.

 

(D)                               All
of the tangible Collateral is and will be kept at the Base Location except when
under contract, mobilizing, or de-mobilizing.

 

(E)                                 None
of the Collateral will be removed from the continental United States.

 

(F)                                 Within
the past six years, Borrower has not changed its name, done business under any
other name, or merged or been the surviving entity of any merger, except as
disclosed in writing to Administrative Agent prior to the Closing Date.

 

(f)                                    Financial
Statements; Etc.  Except as expressly
set forth in Borrower’s financial statements, all financial statements of
Borrower and CWEI furnished to Administrative Agent have been prepared in
conformity with GAAP, consistently applied, and present fairly, in all material
respects, the financial condition of it as at such dates and the results of its
operations for the periods then ended (subject, in the case of interim
unaudited financial statements, to normal year-end adjustments and the
inclusion 

 

22

 

of footnotes); and
since the most recent date covered by such financial statements, there has been
no material adverse change in any such financial condition or operation.  All written
information that has been or will hereafter be made available to Administrative
Agent is, and will be, as of the dates on which such information was provided
or relates, correct in all material respects and does not, and will not, as of
the dates on which such information was or is to be provided or to which such
information relates, contain any untrue statements of a material fact or omit
to state a material fact necessary in order to make the statements contained
therein not misleading in light of the circumstances under which such
statements were or are made; provided that, with respect to projected financial
information, Borrower represents only that such information was prepared in
good faith based on assumptions believed to be reasonable at the time.

 

(g)                                 Litigation;
Compliance With All Laws.  No
litigation, arbitration, administrative or governmental proceedings are pending
or, to the knowledge of Borrower, threatened against any Credit Party, which
would, if adversely determined, materially and adversely affect (i) such
Credit Party’s interest in the Collateral or the Liens and security interests
of Administrative Agent hereunder or under any of the Loan Documents, or (ii) the
financial condition of such Credit Party or its continued operations.  Each Credit Party is in compliance in all
material respects with all laws, regulations, requirements and approvals
applicable to such Credit Party.

 

(h)                                 Tax Returns.  All federal, state and local tax returns,
reports and statements required to be filed by any Credit Party have been filed
with the appropriate Governmental Agencies and all taxes due and payable by any
Credit Party have been timely paid except (a) taxes that are being
contested in good faith by appropriate proceedings and for which such Credit
Party has set aside on its books adequate reserves in accordance with GAAP or (b) to
the extent that any such failure to file or pay will not materially and
adversely affect either the Liens and security interests of Administrative
Agent hereunder or under any of the Loan Documents, the financial condition of
any Credit Party, or its continued operations.

 

(i)                                     Relationship
with Merrill Lynch.  Neither Borrower
nor any shareholder or other Person that controls Borrower is (i) an
executive officer or director of Merrill Lynch & Co., Inc. or any
of its subsidiaries or Affiliates, or (ii) a holder of more than ten
percent (10%) of any class of voting securities of Merrill Lynch & Co., Inc.
or any of its subsidiaries or Affiliates. 
For purposes of this representation, “control” means the power to vote
twenty-five percent (25%) or more of any class of voting securities; the
ability to control the election of a majority of directors; or the power to
exercise a controlling influence over management policies.

 

(j)                                     No
Default.  No “Default” or “Event
of Default” (each as defined in this Loan Agreement or any of the other
Loan Documents) has occurred and is continuing.

 

(k)                                  No
Outside Broker.  Except for employees
of Administrative Agent, Merrill Lynch, Pierce, Fenner & Smith
Financial Consultant (“MLPF&S”) or one of their Affiliates or as
described in writing by Borrower to Administrative Agent, Borrower has not in
connection with the transactions contemplated hereby directly or indirectly
engaged or dealt with, and was not introduced or referred to Administrative
Agent or any Lender by, any broker or other loan arranger.

 

23

 

(l)                                     Material
Adverse Change.  Since December 31, 2005, there
has been no change which would reasonably be expected to have a Material
Adverse Effect.

 

(m)                               Environmental Matters.  In the ordinary
course of its business, the officers of Borrower consider the effect of
Environmental Laws on the business of Borrower, in the course of which they
identify and evaluate potential risks and liabilities accruing to Borrower due
to Environmental Laws.  On the basis of
this consideration, Borrower has concluded that Environmental Laws and
Environmental Claims would not reasonably be expected to have a Material
Adverse Effect on Borrower as of the Closing Date.  Neither Borrower nor any Subsidiary has
received any written notice of a material Environmental Claim or to the effect
that its operations are not in material compliance with any of the requirements
of applicable Environmental Laws or are the subject of any federal or state
investigation evaluating whether any remedial action is needed to respond to a
release of any toxic or hazardous waste or substance into the environment,
which non-compliance or remedial action would reasonably be expected to have a
Material Adverse Effect on Borrower.

 

(n)                                 Investment Company
Act. Borrower is not an “investment company” or a company “controlled” by
an “investment company”, within the meaning of the Investment Company Act of
1940, as amended.

 

Each of the foregoing representations and warranties
has been and will be relied upon as an inducement to Lenders to make Loan
advances.

 

Section 3.2                                      Financial and
Other Information.  Borrower shall
furnish or cause to be furnished to Administrative Agent during the term of
this Loan Agreement all of the following:

 

(a)                                  Annual Financial Statements.  Within one
hundred and twenty (120) days after the end of each fiscal year of Borrower, a
copy of its annual audited consolidated balance sheet and related statements of
operations, partners’ equity and cash flows as of the end of such fiscal year.

 

(b)                                 Certificates of
Compliance.  At the same times that
financial statements are due under Section 3.3(a), a Certificate of
Compliance, duly executed by the General Partner of Borrower, in the form of Exhibit B
attached hereto, or such other form as reasonably required by Administrative
Agent from time to time.

 

(c)                                  Quarterly Financial Statements.  Within sixty
(60) days after the end of each of the first three fiscal quarters of each
fiscal year of Borrower, a copy of its unaudited consolidated balance sheet and
related statements of operations, partners’ equity and cash flows as of the end
of such fiscal quarter.

 

(d)                                 Other
Information.  Such other information
as Administrative Agent may from time to time reasonably request relating to Borrower, any Credit Party or the Collateral.

 

(e)                                  General
Agreements With Respect to Financial Information.  Borrower agrees that except as otherwise
specified herein or otherwise agreed to in writing by Administrative Agent: (i) all
annual financial statements required to be furnished by Borrower to
Administrative Agent hereunder will be prepared by either the current 

 

24

 

independent
accountants for Borrower or other independent accountants of recognized
standing reasonably acceptable to Administrative Agent, and (ii) all other
financial information required to be furnished to Administrative Agent
hereunder will be certified as presenting fairly, in all material respects, the
financial condition and results of operations of Borrower, by the party who has
prepared such information, and, in the case of internally prepared information,
certified as presenting fairly, in all material respects, the financial
condition and results of operations of Borrower, by the chief financial officer
of the Person providing the information.

 

Section 3.3                                      Other
Covenants.  Borrower further agrees
during the term of this Loan Agreement that:

 

(a)                                  Financial
Records; Inspection; Collateral Audit. 
Each Credit Party will:  (i) maintain
at its principal place of business complete and accurate books and records, and
maintain all of its financial records in a manner consistent with the financial
statements heretofore furnished to Administrative Agent, or prepared on such
other basis as may be approved in writing by Administrative Agent; and (ii) permit
Administrative Agent or its duly authorized representatives, upon reasonable
notice and at reasonable times, to inspect Borrower’s and its Subsidiaries’
properties (both real and personal), operations, books and records.  Further, Borrower agrees that Administrative
Agent shall have the right to require a full or updated appraisal of all
Collateral, at Borrower’s expense, upon reasonable request, in the event that
the average utilization rate of the Rigs at such time in any fiscal quarter
falls below seventy-five percent (75%).

 

(b)                                 Taxes.  Each Credit Party will pay when due all of
its respective taxes, assessments and other governmental charges, howsoever
designated, and all other liabilities and obligations, except (a) where
the validity or amount thereof is being contested in good faith by appropriate
proceedings and adequate reserves have been set aside on its books in
accordance with GAAP or (b) to the extent that any such failure to file or
pay will not materially and adversely affect either the Liens and security interests of Administrative Agent hereunder or
under any of the Loan Documents, the financial condition of any Credit
Party or its continued operations.

 

(c)                                  Compliance
With Laws and Agreements.  No Credit
Party will violate (i) any law, regulation or other governmental
requirement, any judgment or order of any court or Governmental Agency; (ii) any
agreement, instrument or document which is material to its operations or to the
operation or use of any Collateral, in each case as contemplated by the Loan
Documents; or (iii) any agreement, instrument or document to which it is a
party or by which it is bound, in each case, if any such violation will
materially and adversely affect either the Liens
and security interests of Administrative Agent hereunder or under any of the
Loan Documents, the financial condition
of any Credit Party, or its continued operations.

 

(d)                                 No
Use of Administrative Agent or Lenders’ Name.  No Credit Party will directly or indirectly
publish, disclose or otherwise use in any advertising or promotional material,
or press release or interview, the name, logo or any trademark of
Administrative Agent, any Lender, MLPF&S, Merrill Lynch and Co., Inc.
or any of their Affiliates, except as required in any applicable securities
filing.  Any press release mentioning
this Loan facility must be (i) factual only as to the making of the Loan
and not have the 

 

25

 

appearance of an
endorsement, and (ii) expressly pre-approved by Administrative Agent’s
Equipment Finance Senior Transaction Attorney.

 

(e)                                  Notification
By Borrower.  Borrower shall provide
Administrative Agent with prompt written notification of: (i) any Default
or Event of Default; (ii) any material adverse change in the business,
financial condition or operations of any Credit Party; (iii) any
information which indicates that any financial statements of any Credit Party
fail in any material respect to present fairly, in all material respects, the
financial condition and results of operations purported to be presented in such
statements; (iv) any threatened or pending litigation involving any Credit
Party that if adversely adjudicated against a Credit Party would reasonably be
expected to result in a Material Adverse Effect; (v) any Event of Loss or
any attachment, Lien, judicial process, encumbrance or claim affecting or
involving any Collateral other than a Permitted Lien; and (vi) any change
in Borrower’s outside accountants.  Each
notification by Borrower pursuant hereto shall specify the event or information
causing such notification, and, to the extent applicable, shall specify the
steps being taken to rectify or remedy such event or information.

 

(f)                                    Entity
Organization.  Each Credit Party
which is an entity will (i) remain (A) validly existing and in good
standing in the state of its organization and (B) qualified to do business
and in good standing in each other state where the nature of its business or
the property owned by it make such qualification necessary except where the
failure to so qualify would not reasonably be expected to have a Material
Adverse Effect, and (ii) maintain such governmental permits, licenses and
authorizations as are required in connection with its business to prevent the
occurrence of a Material Adverse Effect; provided that the foregoing shall not
prohibit any action not prohibited by Section 3.3(f) or
prohibit CWEI from participating in any merger, consolidation, amalgamation or
transfer of assets.  Borrower shall give
Administrative Agent not less than thirty (30) days prior written notice of any
change in name (including any fictitious name) or chief executive office, place
of business, or as applicable, the jurisdiction of organization or principal
office.

 

(g)                                 Merger, Change in
Business; Etc.  Except upon the prior
written consent of Administrative Agent and Majority Lenders, which consent
will not be unreasonably delayed, conditioned or withheld, Borrower will not,
and will not permit any Subsidiary to, (i) form any Subsidiary, unless
promptly after the formation thereof, such Subsidiary executes and delivers to
Administrative Agent a Guaranty, (ii) consummate any merger or
consolidation with, or purchase or otherwise acquire all or substantially all
or a material part of the assets of, or any material stock, partnership, joint
venture or other equity interest in, any Person, except for any such action in
which Borrower shall be the surviving party, (iii) or sell, dispose of or
transfer any Collateral, (iv) sell, dispose of or transfer any assets
other than Collateral in excess of $100,000 in the aggregate in any one fiscal
year, except for sales in the ordinary course of business; (v) engage in
any material business substantially different from its business in effect as of
the date of application by Borrower for credit from Administrative Agent, or
cease operating any such material business; or (vi) cause or permit any
other Person to assume or succeed to any material business or operations of
Borrower or a Subsidiary.

 

(h)                                 Identification
of Collateral.  Borrower has informed
Administrative Agent that Borrower has assigned to each Rig constituting
Collateral a specific number, and as 

 

26

 

of the Closing
Date, such numbers are listed on the Exhibit A attached
hereto.  Borrower shall not change the
number assigned to each Rig constituting Collateral without providing
Administrative Agent with at least ten (10) Business Days prior written
notice thereof.

 

(i)                                     Annual
Rental Expense.  Borrower shall not
permit the aggregate amount of all operating rental expenses (excluding
expenses passed-through to operators under drilling contracts) in any fiscal
year to exceed $500,000.

 

(j)                                     Environmental
Compliance.  Except, in each case,
where the failure to so comply could not reasonably be expected to have a
Material Adverse Effect, Borrower will conduct its business operations, handle,
store, transmit, discharge, emit, release and dispose of Hazardous Substances,
and so long as any Obligations remains outstanding, will use the Collateral so
as to comply with all Environmental Laws in all material respects and will
avoid Environmental Contamination; and Borrower, so long as any Obligations
remains outstanding, will continue to have in full force and effect all
Federal, state and local licenses, permits, orders and approvals required to
operate the Collateral in compliance with all Environmental Laws in all
material respects.

 

(k)                                  Indebtedness.  Borrower shall not, and shall not permit any
Subsidiary to, create, incur, assume or permit to exist any Indebtedness,
except:

 

(i)                                     the Notes or other Obligations
arising under the Loan Documents or any guaranty of or suretyship arrangement
for the Notes or other Obligations arising under the Loan Documents;

 

(ii)                                  Indebtedness under capital
leases not to exceed $600,000;

 

(iii)                               Indebtedness associated with
bonds or surety obligations required by Governmental Agencies or third-parties
in connection with drilling operations in the ordinary course of business;

 

(iv)                              endorsements of negotiable
instruments for collection in the ordinary course of business;

 

(v)                                 intercompany Indebtedness
between Borrower and any Subsidiary of Borrower that is a Guarantor; provided
that any such Indebtedness owed by either the Borrower or a Subsidiary of
Borrower shall be subordinated to the Obligations on terms set forth in the
relevant Guaranty or subordination agreement, as applicable;

 

(vi)                              unsecured subordinated
Indebtedness (other than described in clause (v) above) on terms and
conditions satisfactory to the Administrative Agent;

 

(vii)                           Loans and advances made by CWEI
to Borrower prior to the Closing Date; provided that all such loans are
repaid at the time of the first advance on the Loan; and

 

(viii)                        other Indebtedness not to exceed
$1,000,000 in the aggregate at any one time outstanding.

 

27

 

For avoidance of doubt, the
parties confirm that ordinary course of business accounts payable and accrued
expenses of the type found in clause (i) of the definition of Indebtedness
are not Indebtedness.

 

(l)                                     Liens.  Except for Permitted Liens, Liens securing
the Obligations, and Liens on non-Collateral assets and the proceeds thereof
securing the Indebtedness referred to in Section 3.3(k) above,
Borrower shall not create or permit to exist any Liens on any property or assets
of Borrower or its Subsidiaries.

 

(m)                               Restricted
Payments.  Borrower shall not make or
permit any Restricted Payment.

 

(n)                                 Investments,
Loans and Advances.  Borrower will
not, and will not permit any Subsidiary to, make or permit to remain
outstanding any investment in, or loan or advance to, any Person (an “Investment”),
except that the foregoing restriction shall not apply to:.

 

(i)                                     Investments
reflected in the financial statements of the Borrower on the Closing Date or
are otherwise disclosed to the Lenders on the Closing Date;

 

(ii)                                  accounts
receivable arising in the ordinary course of business;

 

(iii)                               direct
obligations of the United States or any agency thereof, or obligations
guaranteed by the United States or any agency thereof, in each case maturing
within one year from the date of creation thereof;

 

(iv)                              commercial
paper maturing within one year from the date of creation thereof rated in the
highest grade by S&P or Moody’s;

 

(v)                                 deposits
maturing within one year from the date of creation thereof with, including
certificates of deposit issued by, any Lender or any office located in the
United States of any other bank or trust company which is organized under the
laws of the United States or any state thereof, has capital, surplus and
undivided profits aggregating at least $100,000,000 (as of the date of such
bank or trust company’s most recent financial reports) and has a short term
deposit rating of no lower than A2 or P2, as such rating is set forth from time
to time, by S&P or Moody’s, respectively;

 

(vi)                              deposits
in money market funds investing exclusively in Investments described in clauses
(iii), (iv) and (v) above;

 

(vii)                           Investments
made by Borrower in or to the Guarantors (other than CWEI) and made by any
Guarantor in or to Borrower or any other Guarantor;

 

(viii)                        Investments
in stock, obligations or securities received in settlement of debts arising
from Investments permitted under this Section 3.3(n) owing to
Borrower or any other Subsidiary as a result of a bankruptcy or other
insolvency proceeding of the obligor in respect of such debts or upon the
enforcement of any Lien in favor of Borrower or any of its Subsidiaries; and

 

28

 

(ix)                                other
Investments not to exceed $250,000 in the aggregate at any time.

 

(o)                                 Transactions
with Affiliates.  Borrower will not
conduct any transactions with any of its Affiliates except (i) on terms
that are fair and reasonable and no less favorable to Borrower than those that
could be obtained in a comparable transaction at the time of such transaction
in arm’s-length dealings with a Person who is not such an Affiliate and (ii) in
compliance with all Applicable Laws.

 

(p)                                 Negative
Pledge.  Borrower will not enter into
or suffer to exist any agreement prohibiting or conditioning a creation or
assumption of any Lien upon any of the Collateral (whether now owned or
hereafter acquired) except in favor of Administrative Agent.

 

(q)                                 Amendments
to Partnership Documents and Drilling Contracts.  Borrower will not (a) amend its limited
partnership agreement or certificate of limited partnership; and (b) amend
or modify, or permit the amendment or modification of the Drilling Services
Contract, in each case without the prior written consent of Administrative
Agent.

 

(r)                                    ERISA.
 Borrower will not incur liabilities
under Title IV of ERISA except to the extent that such liabilities would
not reasonably be expected to have a Material Adverse Effect.

 

Section 3.4                                      Collateral.

 

(a)                                  Pledge of Collateral.  To secure payment and performance
of the Obligations, Borrower hereby pledges, assigns, transfers and sets over
to Administrative Agent, for itself and each of the Lenders, and grants to
Administrative Agent first Liens and security interests in and upon all of the
Collateral, subject only to Permitted Liens.

 

(b)                                 Liens.  Except upon the prior written consent of
Administrative Agent, Borrower shall not create or permit to exist any Lien,
encumbrance or security interest upon or with respect to any Collateral now
owned or hereafter acquired other than Permitted Liens.

 

(c)                                  Performance of Obligations.  Borrower
shall perform all of its Obligations and all other material obligations owing
on account of or with respect to the Collateral; it being understood that
nothing herein, and no action or inaction by Administrative Agent, under this
Loan Agreement or otherwise, shall be deemed an assumption by Administrative
Agent of any of Borrower’s said obligations.

 

(d)                                 Sales and Collections.  Borrower
shall not sell, transfer or otherwise dispose of any Collateral, except that so
long as no Event of Default shall have occurred and be continuing, Borrower may
in the ordinary course of its business:  (i) sell
any inventory normally held by Borrower for sale (Borrower acknowledging that
the Rigs are not inventory held for sale), (ii) lease the Rigs and other
rig Collateral on an operating basis, (iii) use or consume any materials
and supplies normally held by Borrower for use or consumption, (iv) sell,
transfer or otherwise dispose of equipment or parts that are obsolete or no
longer necessary for the business of Borrower except to the extent (A) the

 

29

 

aggregate
value of all such sales, transfers and disposals does not exceed $100,000 or (B) such
equipment or parts are promptly replaced by equipment or parts of at least
comparable value and use, and (v) collect all of its accounts receivable
and compromise and settle its accounts receivable in the ordinary course of its
business.

 

(e)                                  Alterations and
Maintenance.  Except upon the prior written consent of Administrative Agent, Borrower
shall not make or permit any material alterations to any tangible Collateral
which would materially reduce or impair its market value or utility. Borrower
shall at all times (i) keep the tangible Collateral in good condition and
repair, ordinary wear and tear and obsolescence excepted, (ii) protect the
Collateral against loss, damage or destruction, (iii) maintain, service,
test and inspect the Collateral (A) substantially in accordance with
manufacturer’s recommendations, and so as to maintain in full force and effect
any maintenance warranties, (B) in material compliance with
Applicable Law and the requirements of insurance, (C) at a standard
consistent with industry practices, and (D) in all events not less than
Borrower’s standard practices for similar equipment owned, operated or leased
by Borrower and (iv) pay or cause to be
paid all obligations arising from the repair and maintenance of such
Collateral, as well as all obligations with respect to any Location of Tangible
Collateral (e.g., all obligations under any lease, mortgage or bailment
agreement), except for any such obligations being contested by Borrower in good
faith by appropriate proceedings to the extent there is not a risk of loss,
forfeiture or foreclosure of Collateral. 
Borrower shall permit any Person designated by Administrative
Agent, during normal business hours upon reasonable notice to visit, inspect
and survey the tangible Collateral, its condition, use and operation, and the
records maintained in connection therewith. 
None of Administrative Agent or any of its designees shall have any duty
to make any such inspection and shall not incur any liability or obligation by
reason of not making any such inspection. 
The failure of any such party to object to any condition or procedure
observed or observable in the course of an inspection hereunder shall not be
deemed to waive or modify any of the terms of this Loan Agreement with respect
to such condition or procedure.

 

(f)                                    Location.  On or before the Closing Date, Borrower shall
deliver to Administrative Agent information regarding the Base Location of each
Rig that comprises the Collateral.  In no
event shall Borrower cause or permit any Collateral to be removed from the
United States without the express prior written consent of Administrative
Agent.  Borrower shall maintain a sign on
each drilling rig constituting Collateral, which sign shall (i) indicate
that such drilling rig is the property of Borrower, and (ii) display the
number that has been assigned to such drilling rig by Borrower.  Borrower will keep its books and records at
its principal office address specified in the first paragraph of this Loan
Agreement.  Borrower will not change the
address where books and records are kept, its organizational number or its
taxpayer identification number without providing Administrative Agent with
thirty (30) days prior written notice.

 

(g)                                 Insurance.

 

(i)                                     Coverage.  Without limiting any of the other obligations
or liabilities of Borrower under the Loan Documents, Borrower shall, during the
term of this Loan Agreement, carry and maintain, with respect to Collateral
listed hereunder, at its own expense, at least the minimum insurance coverage
as stated 

 

30

 

below, with
insurers having a minimum A.M. Best rating of “A- VII”, and be in such
form, with terms, conditions, limits and deductibles as shall be reasonably
acceptable to Administrative Agent. 
Borrower shall also carry and maintain any other insurance that
Administrative Agent may reasonably require from time to time.

 

(A)                              All
risk or special form property insurance, insuring the Collateral against
physical loss or damage from perils including but not limited to fire and
extended coverage, windstorm, collapse, flood, and earth movement.  Coverage shall be written in the greater of
the then current Obligations or replacement cost value in an amount reasonably
acceptable to Administrative Agent.  Such
insurance policy shall contain an endorsement waiving any coinsurance
requirement and containing deductibles in amounts consistent with industry
standards, but in no event greater than $250,000.

 

(B)                                Commercial
general liability insurance including but not limited to pollution liability
(which may be provided under a separate policy), products/completed operations,
blanket contractual liability, environmental liability, premises/operations,
independent contractors, personal injury, fire legal liability, loss of use, and
employee benefits liability with each written on an occurrence basis (except
employee benefits liability, which will be written on a claims-made basis) and
with a limit of not less than $10,000,000 for bodily injury and property
damage.  Deductibles, if any, shall be
consistent with industry standards.  Such
insurance shall not contain an exclusion for punitive or exemplary damages
where insurable by law.

 

(C)                                Workers’
Compensation insurance in accordance with statutory provisions and employer’s
liability in an amount not less than $1,000,000.  Such coverage shall not contain any
occupational disease exclusions.  All
such insurance will be compulsory and not elective.  Any deductible contained under the policy
will be disclosed to Administrative Agent.

 

(D)                               Automobile
Liability and Automobile Physical Damage insurance (as appropriate) covering
all owned, rented, non-owned and hired vehicles written on an occurrence basis
with a combined single limit of not less than $1,000,000 for bodily injury and
property damage.  The liability
deductible, if any, shall not be greater than $5,000 per occurrence.

 

(E)                                 Excess
or Umbrella Liability insurance written on an occurrence basis in an amount not
less than $10,000,000 providing coverage on a follow-form basis in excess of
the insurance limits and terms required under Section 3.4(g)(i)(B).  Any differences in coverage terms under this
policy will be fully disclosed to Administrative Agent.

 

(F)                                 Other
insurance in such amounts as may from time to time be reasonably required by
Administrative Agent.

 

31

 

(ii)                                  Endorsements.  Borrower shall cause all insurance policies
carried and maintained in accordance with this Loan Agreement to be endorsed to
Administrative Agent, its successors and assigns as indicated below:

 

(A)                              As
a loss payee as its interest may appear with respect to the Collateral under
the all risk/special form with an endorsement to provide for payment of losses
to Administrative Agent.  (Unless an
Event of Default exists, Borrower may be a joint payee on insurance
checks.)  Any obligation imposed upon
Borrower, including but not limited to the obligation to pay premiums and/or
coverage deductibles, shall be the sole obligation of Borrower and not an
obligation of Administrative Agent.

 

(B)                                With
respect to property policies described in the subsection “Coverage” (i) the
interests of Administrative Agent shall not be invalidated by any action or
inaction of Borrower or any other Person, and shall insure Administrative Agent
regardless of any breach or violation by Borrower or any other Person, of any
warranties, declarations or conditions of such policies.

 

(C)                                Inasmuch
as such policies are written to cover more than one insured, all terms,
conditions, insuring agreements and endorsements, with the exception of the
limits of liability, shall operate in the same manner as if there were a
separate policy covering each insured.

 

(D)                               The
insurers providing the coverage required hereunder shall waive all rights of
subrogation against Administrative Agent, any right of setoff or counterclaim
and any other right to deduction, whether by attachment or otherwise.

 

(E)                                 Such
insurance shall be primary without right of contribution of any other insurance
carried by or on behalf of Administrative Agent with respect to its interests
as such in the Collateral.

 

(F)                                 If
such insurance is canceled for any reason whatsoever, including nonpayment of
premium, or any material changes are made in the coverage which adversely
affect the interests of Administrative Agent, such cancellation or change shall
not be effective as to Administrative Agent until thirty (30) days, except for
non-payment of premium which shall not be effective as to Administrative Agent
until ten (10) Business Days, in each case after receipt by Administrative
Agent of written notice sent by registered mail from such insurer.

 

(G)                                Upon
the occurrence and during the continuance of an Event of Default hereunder,
Borrower irrevocably, appoints Administrative Agent as Borrower’s true and
lawful attorney (and agent-in fact) for the purpose of making, settling and
adjusting claims under such policies, endorsing the name of Borrower on any
check, draft, instrument or other item of payment for the proceeds of such
policies and for making all determinations and decisions with respect to such
policies.

 

(H)                               Administrative
Agent shall be named as an additional insured with respect to the Commercial
General Liability and Excess or Umbrella Liability.  

 

32

 

Any obligation
imposed upon Borrower, including but not limited to the obligation to pay
premiums and/or coverage deductibles, shall be the sole obligation of Borrower
and not an obligation of Administrative Agent.

 

(iii)                               Certifications.  On the Closing Date with respect to the
Collateral hereunder as of such date, and at each policy renewal, but not less
than annually with respect to all Collateral, Borrower shall provide to
Administrative Agent an Acord 27 — Evidence of Property Insurance and loss
payable endorsements for such Property policy, and an Acord 25 Certificate of
Liability Insurance for General Liability, Workers’ Compensation, Automobile
Liability, Umbrella or Excess Liability policies.  All certificates shall identify the insurance
carriers, the type of insurance, the limits, deductibles, and terms thereof and
shall specifically list the special provisions delineated for such insurance
required by this Section.  Borrower shall
furnish to Administrative Agent a certificate signed by a duly authorized
representative of the insurer, showing the insurance then maintained by or on
behalf of Borrower pursuant to this Section and stating that such
insurance complies with the terms hereof, together with evidence of payment of
premiums.

 

(iv)                              Forced
Placement.  In the event that at any
time the insurance required by this Section shall be reduced or cease to
be maintained, then (without limiting the rights of Administrative Agent
hereunder in respect of the Default which arises as a result of such failure)
Administrative Agent may at its option, maintain the insurance required hereby
in such event.  Borrower shall reimburse
Administrative Agent upon demand for the cost thereof with interest thereon at
a rate per annum equal to the Default Rate, but in no event shall the rate of
interest exceed the maximum rate permitted by law.

 

(h)                                 Use.  Borrower agrees that the tangible Collateral
will be used by Borrower solely in the conduct of its business and in a manner
complying in all material respects with all Applicable Laws and any applicable
insurance policies.  All tangible
Collateral shall at all times remain personal property of Borrower regardless
of the degree of its annexation to any real property and shall not by reason of
any installation in, or affixation to, real or personal property become a part
thereof.  Borrower shall obtain and
deliver to Administrative Agent from any Person having an interest in property
where the tangible Collateral is to be stored for forty-five (45) days or
more (excluding, however, principal job sites and property on which Collateral
is located while being mobilized or demobilized), waivers of any Lien,
encumbrance or interest which such Person might have or hereafter obtain or
claim with respect to the tangible Collateral.

 

(i)                                     Event
of Loss.  Borrower shall at its
expense promptly repair all material repairable damage to any tangible
Collateral.  In the event that there is
an Event of Loss, then, on or before the first to occur (the “Trigger Date”)
of (i) ninety (90) days after the occurrence of such Event of Loss, or (ii) ten
(10) Business Days after the date on which either Borrower or
Administrative Agent shall receive any proceeds of insurance on account of such
Event of Loss (unless the “Event of Loss Prepayment” (as defined below) is
deferred as provided in the penultimate sentence of this Section 3.4(i)),
or any underwriter of insurance on such Collateral shall advise either Borrower
or Administrative Agent that it disclaims liability in respect of such Event of
Loss, Borrower shall, at Borrower’s option, either replace the Collateral
subject to such Event 

 

33

 

of Loss with
comparable Collateral free of all Liens other than Permitted Liens (in which
event Borrower shall be entitled to utilize the proceeds of insurance on
account of such Event of Loss for such purpose, and may retain any excess
proceeds of such insurance), or permanently prepay the Obligations by an amount
equal to the actual cash value of such Collateral as determined by either the
insurance company’s payment (plus any applicable deductible) or, in absence of
insurance company payment, as reasonably determined by Administrative Agent
(the “Event of Loss Prepayment”); it being further understood that any
such Event of Loss Prepayment shall cause an immediate permanent reduction in
the Loan in the amount of such prepayment and shall not reduce the amount of
any future reductions in the Loan that may be required hereunder.  Notwithstanding the foregoing and provided
that (i) no Event of Default has occurred or is continuing and (ii) the
insurance proceeds shall be deposited with Administrative Agent as cash
collateral for the Obligations, Borrower may defer any required Event of Loss
Prepayment for up to ninety (90) days in the case of Collateral other than
derricks and drill pipe and one hundred and fifty (150) days in the case of
derricks and drill pipe from the Trigger Date for the purpose of repairing
Collateral or locating and acquiring comparable replacement equipment that
shall constitute Collateral free of all Liens other than Permitted Liens if
Borrower is proceeding with diligence and in good faith to repair, replace, or
acquire comparable replacement equipment. 
Notwithstanding the foregoing, if at the time of occurrence of such
Event of Loss or any time thereafter prior to replacement or the Event of Loss
Prepayment, as aforesaid, an Event of Default shall have occurred and be
continuing hereunder, then Administrative Agent may at its sole option,
exercisable at any time while such Event of Default shall be continuing,
require Borrower to either replace such Collateral or prepay the Obligations,
as aforesaid.

 

(j)                                     Notice
of Certain Events.  Borrower shall
give Administrative Agent prompt notice of any attachment, Lien, judicial
process, encumbrance, or claim affecting or involving the Collateral other than
a Permitted Lien.

 

(k)                                  INDEMNIFICATION.  BORROWER SHALL INDEMNIFY, DEFEND AND SAVE
ADMINISTRATIVE AGENT AND EACH LENDER HARMLESS FROM AND AGAINST ANY AND ALL
CLAIMS, LIABILITIES, LOSSES, COSTS AND EXPENSES (INCLUDING, WITHOUT LIMITATION,
REASONABLE ATTORNEYS’ FEES AND EXPENSES) OF ANY NATURE WHATSOEVER WHICH MAY BE
ASSERTED AGAINST OR INCURRED BY ADMINISTRATIVE AGENT OR ANY LENDER ARISING OUT
OF OR IN ANY MANNER OCCASIONED BY (I) THE OWNERSHIP, COLLECTION,
POSSESSION, USE OR OPERATION OF ANY COLLATERAL, (II) ENVIRONMENTAL CLAIMS
OR ENVIRONMENTAL LOSS ATTRIBUTABLE TO A CREDIT PARTY OR (III) ANY FAILURE
BY BORROWER TO PERFORM ANY OF ITS OBLIGATIONS HEREUNDER OR UNDER THE OTHER
LOAN DOCUMENTS; EXCLUDING, HOWEVER, FROM SAID INDEMNITY ANY SUCH CLAIMS,
LIABILITIES, ETC. ARISING DIRECTLY OUT OF THE WILLFUL WRONGFUL ACT OR GROSS
NEGLIGENCE OF ADMINISTRATIVE AGENT OR A LENDER. 
THIS INDEMNITY SHALL SURVIVE THE EXPIRATION OR TERMINATION OF THIS LOAN
AGREEMENT AS TO ALL MATTERS ARISING OR ACCRUING PRIOR TO SUCH EXPIRATION OR
TERMINATION.

 

34

 

(l)                                     Letter
of Credit Matters.

 

(i)                                     Provided
no Event of Default has occurred and is then continuing, once the Net OLV of
the Operating Rigs equals one hundred percent (100%) of the outstanding
principal amount of the Loan, Administrative Agent will contemporaneously
release the Letter of Credit to Borrower upon receipt of the CWEI Guaranty and
a Secretary’s Certificate certifying the signature and incumbency of the Person
signing the CWEI Guaranty and the authorizing resolutions therefor.

 

(ii)                                  Notwithstanding
anything to the contrary contained herein, in the Letter of Credit, or in any
other Loan Document, Administrative Agent shall only have the right (which
right may be exercised without notice, opportunity to cure or other restraint)
to draw on the Letter of Credit (x) if an Event of Default has occurred
and is continuing to the extent necessary to pay amounts in respect of the
Obligations that are then due and payable hereunder, and (y) upon the
occurrence of a Bankruptcy Event or an LC Event, in which case amounts so drawn
shall be applied to prepay the Loan pursuant to Section 2.10(c).

 

Section 3.5                                      Events of Default.  The occurrence of any of
the following events shall constitute an “Event of Default” under this
Loan Agreement:

 

(a)                                  Failure
to Pay.  Borrower shall fail to pay
when due any principal, interest, fee or other amount under any Loan Document
when and as the same shall become due and payable and any such failure to pay
shall continue unremedied for five (5) Business Days.

 

(b)                                 Failure
to Perform.  Any Credit Party shall
default in the performance or observance of any covenant or agreement on its
part to be performed or observed under this Loan Agreement, the Note or any of
the other Loan Documents (not constituting an Event of Default under any other
clause of this Section), and such default shall continue unremedied for twenty
(20) Business Days after the earlier of (i) written notice thereof shall
have been given by Administrative Agent to Borrower, or (ii) a Responsible
Officer of Borrower has, or in the exercise of reasonable diligence should have
had, knowledge of such default.

 

(c)                                  Breach
of Warranty.  Any representation or
warranty made by any Credit Party contained in this Loan Agreement, the Note or
any of the other Loan Documents shall at any time prove to have been incorrect
in any material respect when made.

 

(d)                                 Default
Under Other Merrill Lynch Agreement. 
A default or event of default by any Credit Party shall occur under the
terms of any other agreement, instrument or document with Administrative Agent,
MLPF&S or any of their Affiliates, and any required notice shall have been
given and required passage of time shall have elapsed.

 

(e)                                  Bankruptcy
Event; LC Event.  Any Bankruptcy
Event or LC Event shall occur.

 

35

 

(f)                                    Default
Under Other Agreements.  Any event
shall occur which results in a default that is not waived or cured within any
applicable cure period by any Credit Party of any agreement (i) evidencing
any Indebtedness or other obligations of any Credit Party of $500,000 or more
in the aggregate if the effect of such default is to cause or permit the holder
of such Indebtedness to cause such Indebtedness to become due or be prepaid in
full prior to its stated maturity date; or (ii) involving any Credit
Party, the breach of which would have a Material Adverse Effect (other than any
of the foregoing described in the preceding clause (i) and (ii) the
validity of which is being contested in good faith by appropriate proceedings
for which adequate reserves have been established on the books of the
applicable Credit Party in accordance with GAAP).

 

(g)                                 Collateral Impairment or Lapse in Insurance Coverage.  The loss,
theft or destruction of any Collateral, the occurrence of any material
deterioration or impairment of any Collateral or any material decline or
depreciation in the value or market price thereof (whether actual or reasonably
anticipated), which causes any Collateral, in the sole reasonable opinion of
Administrative Agent, to become unsatisfactory as to value or character; or any
levy, attachment, seizure or confiscation of the Collateral which is not
released within ten (10) Business Days; or the failure to maintain
insurance in accordance with Section 3.4(g).

 

(h)                                 Contested
Obligation.  (i) Any of the Loan
Documents shall for any reason cease to be, or are asserted by any Credit Party
not to be a legal, valid and binding obligations of any Credit Party,
enforceable in accordance with their terms; or (ii) the validity,
perfection or priority of Administrative Agent’s first Lien and security
interest on any of the Collateral (subject to Permitted Liens) is contested by
any Credit Party or any Person; or (iii) any Credit Party shall or shall
attempt to repudiate, revoke, contest or dispute, in whole or in part such
Credit Party’s material obligations under any Loan Document.

 

(i)                                     Judgments.  One or more judgments for the payment of
money in an aggregate amount in excess of $500,000 (to the extent not covered
by insurance) shall be rendered against any Credit Party and the same shall
remain undischarged for a period of thirty (30) consecutive days during which
execution shall not be effectively stayed.

 

(j)                                     Change
in Control.  (i) General Partner
shall cease being the General Partner of Borrower, or (ii) CWEI and Lariat
Services, Inc. shall cease to own, directly or through Affiliates, ninety
nine percent (99%) of the Stock of Borrower; provided, however,
that Administrative Agent and Lenders agree that the dilutions of percentage
ownership resulting from the issuance of additional Stock for fair value shall
not cause a violation of this Section 3.5(j).

 

(k)                                  Dissolution.  The dissolution or the filing for dissolution
of any Credit Party.

 

Section 3.6                                      Remedies.

 

(a)                                  Remedies
Upon Default.  Upon the occurrence
and during the continuance of any Event of Default, Administrative Agent may at
its sole option do any one or more 

 

36

 

or all of the
following, at such time and in such order as Administrative Agent may in its
sole discretion choose:

 

(i)                                     Termination.  Administrative Agent may without notice
terminate its obligation to extend any credit to or for the benefit of Borrower
(it being understood, however, that upon the occurrence of any Bankruptcy Event
all such obligations shall automatically terminate without any action on the
part of Administrative Agent or Lenders).

 

(ii)                                  Acceleration.  Administrative Agent may declare the
principal of and interest and any premium on the Note, and all other
Obligations to be forthwith due and payable, whereupon all such amounts shall
be immediately due and payable, without presentment, demand for payment,
protest and notice of protest, notice of dishonor, notice of acceleration,
notice of intent to accelerate or other notice or formality of any kind, all of
which are hereby expressly waived; provided, however, that upon the occurrence
of any Bankruptcy Event all such principal, interest, premium and other
Obligations shall automatically become due and payable without any action on
the part of Administrative Agent.

 

(iii)                               Exercise Other Rights. 
Administrative Agent may exercise any or all of the remedies of a
secured party under Applicable Law and in equity, including, but not limited
to, the UCC, and any or all of its other rights and remedies under the Loan
Documents.

 

(iv)                              Possession.  Administrative Agent may require Borrower to
make the Collateral and the records pertaining to the Collateral available to
Administrative Agent at a place designated by Administrative Agent which is
reasonably convenient to Borrower, or may take possession of the Collateral and
the records pertaining to the Collateral without the use of any judicial
process and without any prior notice to Borrower to the extent permitted by
applicable law.  Administrative Agent’s
sole duty with respect to the custody, safe-keeping, and physical preservation
of any Collateral in its possession, under Section 9.207 of the UCC or
otherwise, shall be to deal with such Collateral in the same manner as
Administrative Agent deals with similar property for its own account.

 

(v)                                 Sale.  Administrative Agent may sell any or all of
the Collateral at public or private sale upon such terms and conditions as
Administrative Agent may reasonably deem proper, whether for cash, on credit,
or for future delivery, in bulk or in lots. Administrative Agent may purchase
any Collateral at any such sale free of Borrower’s right of redemption, if any,
which Borrower expressly waives to the extent not prohibited by Applicable
Law.  The net proceeds of any such public
or private sale and all other amounts actually collected or received by
Administrative Agent pursuant hereto, after deducting all costs and expenses
incurred at any time in the collection of the Obligations and in the
protection, collection and sale of the Collateral, will be applied to the
payment of the Obligations, with any remaining proceeds paid to Borrower or
whoever else may be entitled thereto, and with Borrower and each Guarantor
(subject, however, to appropriate limitations, if any, contained in each
respective Guaranty) remaining liable for any amount remaining unpaid after
such application.  Administrative 

 

37

 

Agent
has no obligation to repair, refurbish or otherwise prepare the Collateral for
sale, lease or other use or disposition as authorized herein.  If Administrative Agent sells any Collateral
upon credit, Borrower will receive credit against the Obligations only for cash
payments made by the purchaser to Administrative Agent.  If the purchaser fails to pay the purchase
price, then Administrative Agent may resell the Collateral, to the extent
permitted by Applicable Law.

 

(vi)                              Delivery of Cash, Checks, Etc. 
Administrative Agent may require Borrower to forthwith upon receipt,
transmit and deliver to Administrative Agent in the form received, all cash,
checks, drafts and other instruments for the payment of money (properly
endorsed, where required, so that such items may be collected by Administrative
Agent) which may be received by Borrower at any time in full or partial payment
of any Collateral, and require that Borrower not commingle any such items which
may be so received by Borrower with any other of its funds or property but
instead hold them separate and apart and in trust for Administrative Agent
until delivery is made to Administrative Agent.

 

(vii)                           Notification of Account Debtors.  Administrative Agent may notify any account
debtor of Borrower that its Account or Chattel Paper has been assigned to
Administrative Agent and direct such account debtor to make payment directly to
Administrative Agent of all amounts due or becoming due with respect to such
Account or Chattel Paper; and Administrative Agent may enforce payment and
collect, by legal proceedings or otherwise, such Account or Chattel Paper.

 

(viii)                        Control of Collateral. 
Administrative Agent may otherwise take control in any lawful manner of
any cash or non-cash items of payment or proceeds of Collateral and of any
rejected, returned, stopped in transit or repossessed goods included in the
Collateral and endorse Borrower’s name on any item of payment on or proceeds of
the Collateral.

 

(b)                                 Power of Attorney.  Effective upon the occurrence and
during the continuance of an Event of Default, Borrower hereby irrevocably
appoints Administrative Agent as its attorney-in-fact, with full power of
substitution, in its place and stead and in its name or in the name of
Administrative Agent, to from time to time in Administrative Agent’s sole
discretion take any action and to execute any instrument which Administrative
Agent may deem necessary or advisable to realize upon the Collateral, including,
but not limited to, to receive, endorse and collect all checks, drafts and
other instruments for the payment of money made payable to Borrower included in
the Collateral.  The powers of attorney
granted to Administrative Agent in this Loan Agreement are coupled with an
interest and are irrevocable until the Obligations have been indefeasibly paid
in full and fully satisfied and all obligations of Administrative Agent under
this Loan Agreement have been terminated.

 

(c)                                  Remedies are Severable and Cumulative.  All rights
and remedies of Administrative Agent herein are severable and cumulative and in
addition to all other rights and remedies available in the Note, the other Loan
Documents, at law or in equity, and any one or more of such rights and remedies
may be exercised simultaneously or successively.

 

38

 

(d)                                 No Marshalling.  Administrative Agent shall be
under no duty or obligation to (i) preserve, protect or marshall the
Collateral; (ii) preserve or protect the rights of any Credit Party or any
other Person claiming an interest in the Collateral; (iii) realize upon
the Collateral in any particular order or manner, (iv) seek repayment of
any Obligations from any particular source; (v) proceed or not proceed
against any Credit Party pursuant to any guaranty or security agreement or
against any Credit Party under the Loan Documents, with or without also
realizing on the Collateral; (vi) permit any substitution or exchange of
all or any part of the Collateral; or (vii) release any part of the
Collateral from the Loan Agreement or any of the other Loan Documents (except
to the extent such Collateral is permitted to be sold or otherwise disposed of
hereunder, in which case, each Lender hereby authorizes Administrative Agent,
and Administrative Agent hereby agrees, to release such Collateral), whether or
not such substitution or release would leave Administrative Agent adequately
secured.

 

(e)                                  Notices.  To the fullest extent permitted by applicable
law, Borrower hereby irrevocably waives and releases Administrative Agent of
and from any and all liabilities and penalties for failure of Administrative
Agent to comply with any statutory or other requirement imposed upon
Administrative Agent relating to notices of sale, holding of sale or reporting
of any sale, and Borrower waives all rights of redemption or reinstatement from
any such sale.  Any notices required
under applicable law shall be reasonably and properly given to Borrower if
given by any of the methods provided herein at least ten (10) days prior
to taking action.  Administrative Agent
shall have the right to postpone or adjourn any sale or other disposition of
Collateral at any time without giving notice of any such postponed or adjourned
date.  In the event Administrative Agent
seeks to take possession of any or all of the Collateral by court process,
Borrower further irrevocably waives to the fullest extent permitted by law any
bonds and any surety or security relating thereto required by any statute, court
rule or otherwise as an incident to such possession, and any demand for
possession prior to the commencement of any suit or action.

 

(f)                                    Application
of Funds.  After the exercise of
remedies provided for in Section 3.6 above (or after the Loans have
automatically become immediately due and payable), any amounts received on
account of the Obligations shall be applied by Administrative Agent in the
following order:

 

First, to payment of that portion of
the Obligations constituting fees, indemnities, expenses and other amounts
(including fees, charges and disbursements of counsel to Administrative Agent
and amounts payable under Article II) payable to Administrative Agent in
its capacity as such;

 

Second, to payment of that portion
of the Obligations constituting fees, indemnities and other amounts (other than
principal and interest) payable to the Lenders (including fees, charges and
disbursements of counsel to the respective Lenders and amounts payable under Article II),
ratably among them in proportion to the respective amounts described in this
clause Second payable to them;

 

Third, to payment of that portion of
the Obligations constituting accrued and unpaid interest on the Loans and other
Obligations, ratably among the 

 

39

 

Lenders in
proportion to the respective amounts described in this clause Third payable to
them;

 

Fourth, to payment of that portion
of the Obligations constituting unpaid principal of the Loans, ratably among
the Lenders in proportion to the respective amounts described in this clause
Fourth held by them; and

 

Last, the balance, if any, after all
of the Obligations have been indefeasibly paid in full, to Borrower or as
otherwise required by Applicable Law.

 

Section 3.7                                      Administrative
Agent.

 

(a)                                  Appointment
and Duties of Administrative Agent.

 

(i)                                     The
parties hereto agree that Merrill Lynch Capital, a division of Merrill Lynch
Business Financial Services Inc. shall act, subject to the terms and conditions
of this Section 3.7, as Administrative Agent and to the extent set
forth herein each Lender hereby irrevocably appoints, authorizes, empowers and
directs Administrative Agent to take such action on its behalf and to exercise
such powers as are specifically delegated to Administrative Agent herein or are
reasonably incidental thereto in connection with the administration of and the
enforcement of any rights or remedies with respect to this Loan Agreement, the
Note and the other Loan Documents.  It is
expressly understood and agreed that the obligations of Administrative Agent
under the Loan Documents are only those expressly set forth in this Loan
Agreement.  Administrative Agent shall
use reasonable diligence to examine the face of each document received by it
hereunder to determine whether such documents, on their face, appear to be what
they purport to be.  However,
Administrative Agent shall not under any duty to examine into and pass upon the
validity or genuineness of any documents received by it hereunder and
Administrative Agent shall be entitled to assume that any of the same which
appears regular on its face is genuine and valid and what it purports to be.

 

(ii)                                  Except
as otherwise set forth in the provisions of Section 3.8(s) of
this Loan Agreement, Administrative Agent shall act pursuant to the
instructions of the Majority Lenders in all matters relating to the Loan
Documents.

 

(b)                                 Discretion
and Liability of Administrative Agent. 
Subject to Sections 3.7(a)(ii) above and 3.7(c) and
3.7(e) below, Administrative Agent shall be entitled to use its
discretion with respect to exercising or refraining from exercising any rights
which may be vested in it under any of the Loan Documents or otherwise, or with
respect to taking or refraining from taking any action or actions which it may
be able to take under any of the Loan Documents.  Neither Administrative Agent nor any of its
directors, officers, employees, agents or representatives shall be liable for
any action taken or omitted by it hereunder or in connection herewith, except
for its own gross negligence or willful misconduct.  Administrative Agent shall incur no liability
under, or in respect of this Loan Agreement or the other Loan Documents by
acting upon a notice, certificate, warranty or other paper or instrument
reasonably 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 

 

40

 

or refrain from
doing in the reasonable exercise of its judgment, or which may seem to it to be
necessary or desirable in the premises.

 

(c)                                  Event
of Default.

 

(i)                                     Administrative
Agent shall be entitled to assume that no Default or event which would
constitute a Default after notice or lapse of time, or both, has occurred and
is continuing, unless Administrative Agent has actual knowledge of such facts
or has received notice from Borrower or a Guarantor or from a Lender in writing
that such Lender considers that a Default or event which would constitute a
Default after notice or lapse of time, or both, has occurred and is continuing
and which specifies the nature thereof.

 

(ii)                                  In
the event that Administrative Agent shall acquire actual knowledge of any
Default or event which would constitute a Default after notice or lapse of time,
or both, or shall have received notice from Borrower, a Guarantor or a Lender
as provided in Section 3.7(c)(i) above, Administrative Agent
shall promptly notify (either orally, confirmed in writing, or in writing) the
Lenders of such Default or event and shall take such action and assert such
rights as are contemplated under this Loan Agreement and in an emergency, or if
requested in writing by the Majority Lenders shall, take such action and assert
such rights as are contemplated under this Loan Agreement.  To the extent not otherwise paid by Borrower,
Administrative Agent shall be indemnified pro rata by the
Lenders against any liability or expenses (except for any liability or expenses
caused by Administrative Agent’s gross negligence or willful misconduct),
including, but not limited to, travel expenses and external counsel fees and
expenses, incurred in connection with taking such action as Administrative
Agent, and not as a Lender. 
Administrative Agent may refrain from acting in accordance with any instructions
from the Majority Lenders until it shall have been indemnified to its
satisfaction against any and all costs and expenses which it will or may expend
or incur in complying with such instructions.

 

(d)                                 Consultation.  When acting in connection with this Loan
Agreement, or the other Loan Documents, Administrative Agent may, with the
consent of the Majority Lenders, engage and pay for the advice and services of
any lawyers, accountants, surveyors, appraisers or other experts whose advice
or services may to it appear necessary, expedient or desirable and
Administrative Agent shall be entitled to fully rely upon any opinion or such
advice so obtained.

 

(e)                                  Communications
to and from Administrative Agent. 
When any notice, approval, consent, waiver or other communication or
action is required or may be delivered by the Lenders hereunder or the other
Loan Documents, action by Administrative Agent (upon the direction, approval or
consent of each Lender, all Lenders or the Majority Lenders, as applicable pursuant
to the requirements set forth in this Loan Agreement) shall be effective for
all purposes hereunder.  Borrower and the
Guarantors may rely on any communication from Administrative Agent hereunder or
the other Loan Documents, and need not inquire into the propriety of or
authorization for such communication. 
Upon receipt by Administrative Agent from Borrower, the

 

41

 

Guarantors or any
Lender of any communication it will, in turn, promptly forward such
communication to the Lenders; provided,
however, that Administrative Agent shall not be liable for any
costs, expenses or losses arising from any failure to so forward any such
communication unless caused by the gross negligence or willful misconduct of
Administrative Agent.

 

(f)                                    Limitations
of Agency.  Notwithstanding anything
in the Loan Documents, expressed or implied, it is agreed by the parties
hereto, that Administrative Agent will act under the Loan Documents as
Administrative Agent solely for the Lenders and only to the extent specifically
set forth herein, and will, under no circumstances, be considered to be an
agent or fiduciary of any nature whatsoever in respect to any other
person.  Administrative Agent, in its
individual capacity, may generally engage in any business with Borrower and the
Guarantors or any of their Affiliates as if it was not Administrative Agent.

 

(g)                                 No
Representations or Warranty.

 

(i)                                     No
Lender (including Administrative Agent) makes to any other Lender any
representation or any warranty, expressed or implied, or assumes any
responsibility with respect to the Loan or the execution, construction or
enforceability of the Loan Documents or any instrument or agreement executed by
Borrower, the Guarantors or any other Person in connection therewith.

 

(ii)                                  Administrative
Agent takes no responsibility for the accuracy or completeness of any
information concerning Borrower and the Guarantors distributed by
Administrative Agent in connection with the Loan nor for the truth of any
representation or warranty given or made herein, nor for the validity,
effectiveness, adequacy or enforceability of this Loan Agreement or any of the
other Loan Documents.

 

(h)                                 Lender
Credit Decision.  Each Lender
acknowledges that it has independent of and without reliance upon any other
Lender (including Administrative Agent) or any information provided by any
other Lender (including Administrative Agent) and based on the financial
statements of Borrower and the Guarantors and such other documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Loan Agreement. 
Each Lender also acknowledges that it will, independent of and without
reliance upon any other Lender (including Administrative Agent) and based on
such documents and information as it shall deem appropriate at that time,
continue to make its own credit decisions in taking or not taking action under
this Loan Agreement and any other documents relating thereto.

 

(i)                                     Indemnity.  Notwithstanding any of the provisions hereof,
to the extent Administrative Agent has not been so indemnified by Borrower, the
Lenders shall severally, pro rata in
respect of their respective commitments to make Loans, indemnify Administrative
Agent against any and all losses, costs, liabilities, damages or expenses,
including but not limited to, reasonable travel expenses and external counsel’s
reasonable fees and expenses, arising from, or in connection with, its
performance as Administrative Agent hereunder and not caused by its gross
negligence or willful misconduct.

 

42

 

(j)                                     Resignation.  Administrative Agent may resign as such at
any time upon at least thirty (30) days’ prior notice to Borrower and the
Lenders, provided that such resignation shall not take effect until a successor
agent has been appointed.  In the event
of a resignation by Administrative Agent, the Lenders (in consultation with
Borrower, provided no Default or Event of Default has occurred and is
continuing) shall promptly appoint a successor agent from among the Lenders.

 

(k)                                  Disbursements
and Distributions.  On the date of
each Loan advance, Administrative Agent shall disburse each Lender’s pro rata portion of the Loan to or at the direction of
Borrower pursuant to this Loan Agreement, to the extent received by
Administrative Agent from such Lender. 
Administrative Agent shall be responsible for promptly distributing, on
the Business Day immediately following the date received by Administrative
Agent, each Lender’s share of all net amounts received by Administrative Agent
under any of the Loan Documents pursuant to the Loan Agreement among
Administrative Agent and the Lenders dated the date hereof.  Each Lender shall be responsible for
designating by written notice to Administrative Agent the account to which such
distribution shall be deposited.

 

(l)                                     Limitation
of Suits.  All rights of action and
claims under this Loan Agreement and the other Loan Documents of the Lenders
shall be prosecuted and enforced only by Administrative Agent.  The Lenders agree that they shall not
independently institute any proceedings, judicial or otherwise, to enforce
their rights against Borrower under this Loan Agreement or the other Loan
Documents.  However, notwithstanding
anything contained in this Section 3.7(l), the Lenders shall always
retain their ability to retain independent counsel and to protect their rights
under this Loan Agreement and the other Loan Documents.

 

(m)                               Right
of Setoff.  Subject to the provisions
of Section 2.11 hereof, upon the occurrence and during the
continuation of any Event of Default, the Lenders each are hereby authorized at
any time and from time to time, without notice to Borrower (any such notice
being expressly waived by Borrower), to setoff and apply any and all deposits
(general or special, time or demand, provisional or final, whether or not such
setoff results in any loss of interest or other penalty, and including without
limitation all certificates of deposit) at any time held by the Lenders and all
of the indebtedness arising in connection with this Loan Agreement irrespective
of whether or not such Lender will have made any demand under this Loan Agreement,
the Note or any other Loan Document. 
Borrower also hereby grants to each of the Lenders a security interest
in and hereby transfers, assigns, sets over and conveys to each of the Lenders,
as security for payment of the Loan, all such deposits, funds or property of
Borrower or indebtedness of any Lender to Borrower.  Should the right of any Lender to realize
funds in any manner set forth hereinabove be challenged and any application of
such funds be reversed, whether by court order or otherwise, the Lenders shall
make restitution or refund to Borrower pro rata in
accordance with their respective portions of the Loan.  Each Lender agrees to promptly notify
Borrower and Administrative Agent after any such setoff and application,
provided that the failure to give such notice will not affect the validity of
such setoff and application.  The rights
of Administrative Agent and the Lenders under this Section 3.7(m) are
in addition to other rights and remedies (including without limitation other
rights of setoff) which Administrative Agent or the Lenders may have.  Nothing contained herein shall affect the
right of any Lender to exercise, and retain the 

 

43

 

benefits of
exercising, any such right with respect to any other indebtedness or obligation
of Borrower to such Lender.

 

Section 3.8                                      Miscellaneous.

 

(a)                                  Non-Waiver.  No failure or delay on the part of
Administrative Agent in exercising any right, power or remedy pursuant to this
Loan Agreement, the Note or any of the other Loan Documents shall operate as a
waiver thereof, and no single or partial exercise of any such right, power or
remedy shall preclude any other or further exercise thereof, or the exercise of
any other right, power or remedy.  Except
as otherwise expressly provided herein, no notice to or demand on Borrower
shall in any case entitle Borrower to any other or further notice or demand in
similar or other circumstances.

 

(b)                                 Disclosure.  Subject to Section 3.8(c),
Borrower hereby irrevocably authorizes Administrative Agent and each of its
Affiliates, to at any time (whether or not an Event of Default shall have
occurred) obtain from and disclose to each other any and all financial and
other information about Borrower. 
Borrower further irrevocably authorizes Administrative Agent to contact,
investigate, inquire and obtain references and other information on Borrower
from credit reporting services and agencies, former or current creditors, and
other Persons and sources (including, without limitation, any Affiliate of
Administrative Agent) and to provide to any references, credit reporting
services and agencies, creditors and other persons and sources (including,
without limitation, Affiliates of Administrative Agent) all financial, credit
and other information obtained by Administrative Agent relating to Borrower.

 

(c)                                  Confidentiality.  Each of Administrative Agent and the Lenders
agrees to maintain the confidentiality of the Information (as defined below),
except that Information may be disclosed (i) to its and its Affiliates’
directors, officers, employees and agents, including accountants, legal counsel
and other advisors (it being understood that the Persons to whom such
disclosure is made will be informed of the confidential nature of such
Information and instructed to keep such Information confidential), (ii) to
the extent requested by any regulatory authority, (iii) to the extent
required by applicable laws or regulations or by any subpoena or similar legal
process, (iv) to any other party to this Agreement or any other Loan
Document, (v) in connection with the exercise of any remedies hereunder or
under any other Loan Document or any suit, action or proceeding relating to
this Agreement or any other Loan Document or the enforcement of rights hereunder
or thereunder, (vi) subject to an agreement containing provisions
substantially the same as those of this section, to any assignee of or
participant in, or any prospective assignee of or participant in, any of its
rights or obligations under this Agreement, (vii) with the consent of
Borrower or (viii) to the extent such Information (A) becomes
publicly available other than as a result of a breach of this section or (B) becomes
available to Administrative Agent or any Lender on a nonconfidential basis from
a source other than any Credit Party. 
For the purposes of this section, “Information” means all
information received from any Credit Party relating to Borrower or any other
Credit Party and their businesses, other than any such information that is available
to Administrative Agent or any Lender on a nonconfidential basis prior to
disclosure by Borrower or any other Credit Party.

 

44

 

(d)                                 Communications.  Delivery of the Loan Agreement, instrument,
notice or other document may, at the discretion of Administrative Agent, be by
electronic transmission.  Except as
required by law or otherwise provided herein or in a writing executed by the
party to be bound, all notices demands, requests, accountings, listings,
statements, advices or other communications to be given under the Loan
Documents shall be in writing, and shall be served either personally, by
deposit with a reputable overnight courier with charges prepaid, or by deposit
in the United States mail by certified mail return receipt required.  Notices may be addressed to Borrower as set
forth at its address shown in the preamble hereto, or at such other address
designated in writing by Borrower or at any office to which billing and account
statements are sent; to Administrative Agent at its address shown in the
preamble hereto, or at such other address designated in writing by
Administrative Agent.  Any such
communication shall be deemed to have been given upon, in the case of personal
delivery the date of delivery, one Business Day after deposit with an overnight
courier, two (2) Business Days after deposit in the United States by
certified mail (return receipt required), or receipt of electronic transmission
(which shall be presumed to be three hours after the time of transmission
unless an error message is received by the sender), except that any notice of
change of address shall not be effective until actually received.

 

(e)                                  Costs
and Expenses.  Borrower agrees to pay
on demand all reasonable fees, costs and expenses in connection (i) with
the preparation, execution, delivery, administration, amendment and enforcement
of this Loan Agreement, the Note, the other Loan Documents and any other
documents to be delivered hereunder and thereunder (including, without
limitation, the appraisal and inspection reports required to be paid by it
hereunder) and any amendment, modification or supplement hereto or thereto,
including, without limitation, the reasonable fees and out-of-pocket expenses
of counsel for the Lenders and Administrative Agent, and any special counsel
associated with them, and with respect thereto and the filing of any document
or instrument in connection with any of the foregoing, (ii) with respect
to reasonable fees and out of pocket expenses of counsel for advising the
Lenders and Administrative Agent as to their rights and responsibilities under
this Loan Agreement and the transactions contemplated thereby after a Default
or Event of Default, or both, shall have occurred, and (iii) with any
filing or recording of any document or instrument.  Borrower has heretofore delivered to
Administrative Agent a deposit in the amount of $250,000.00, to be applied
against costs and expenses described in this Section.

 

(f)                                    Right
to Perform Obligations.  If Borrower
shall fail to do any act or thing which it has covenanted to do under this Loan
Agreement or any of the Loan Documents, or any representation or warranty on
the part of Borrower contained in this Loan Agreement or any of the Loan
Documents shall be breached, then Administrative Agent may, in its sole
discretion, after five (5) Business Days written notice is sent to
Borrower (or such lesser notice, including no notice, as is reasonable under
the circumstances), do the same or cause it to be done or remedy any such
breach, and may expend its funds for such purpose.  Any and all reasonable amounts so expended by
Administrative Agent shall be repayable to Administrative Agent by Borrower
upon demand, with interest at the Interest Rate during the period from and
including the date funds are so expended by Administrative Agent to the date of
repayment, and all such amounts shall be additional Obligations.  The payment or performance by Administrative
Agent of any of Borrower’s obligations hereunder shall not relieve Borrower of
said obligations or of the 

 

45

 

consequences of
having failed to pay or perform the same, and shall not waive or be deemed a
cure of any Default.

 

(g)                                 Further
Assurances.  Borrower agrees to do
such further acts and things and to execute and deliver to Administrative Agent
such additional Loan Agreements, instruments and documents as Administrative
Agent may reasonably require or deem advisable to establish, perfect and
maintain Administrative Agent’s security interests and Liens upon the
Collateral, including, but not limited to: (i) executing financing
statements or amendments thereto when and as reasonably requested by
Administrative Agent; and (ii) if in the reasonable judgment of Administrative
Agent it is required by local law, causing the owners and/or mortgagees of the
real property on which any Collateral may be located to execute and deliver to
Administrative Agent waivers or subordinations reasonably satisfactory to
Administrative Agent with respect to any rights in such Collateral.

 

(h)                                 Interpretation;
Construction.  (i) Captions and
section and paragraph headings in this Loan Agreement are inserted only as a
matter of convenience, and shall not affect the interpretation hereof; (ii) no
provision of this Loan Agreement shall be construed against a particular Person
or in favor of another Person merely because of which Person (or its
representative) drafted or supplied the wording for such provision; and (iii) where
the context requires: (A) use of the singular or plural incorporates the
other, and (B) pronouns and modifiers in the masculine, feminine or neuter
gender shall be deemed to refer to or include the other genders.

 

(i)                                     Governing
Law.  This Loan Agreement, the Note
and, unless otherwise expressly provided therein, each of the other Loan
Documents, shall be governed in all respects by the laws of the State of
Illinois, not including its conflict of law provisions.

 

(j)                                     Severability
of Provisions.  Whenever possible,
each provision of this Loan Agreement, the Note and the other Loan Documents
shall be interpreted in such manner as to be effective and valid under
applicable law.  Any provision of this
Loan Agreement, the Note or any of the other Loan Documents which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Loan Agreement, the Note and the
other Loan Documents or affecting the validity or enforceability of such
provision in any other jurisdiction.

 

(k)                                  Term.  This Loan Agreement shall become effective
when executed by Administrative Agent and when it shall have received
counterparts hereof, when taken together, bear the signatures of the other
parties hereto, and subject to the terms hereof, shall continue in effect so
long thereafter as there shall be any moneys owing hereunder or under the Note,
or there shall be any other Obligations outstanding. Borrower hereby waives
notice of acceptance of this Loan Agreement by Administrative Agent.

 

(l)                                     Exhibits.  The exhibits to this Loan Agreement are
hereby incorporated and made a part hereof and are an integral part of this
Loan Agreement.

 

(m)                               Counterparts;
Facsimiles.  This Loan Agreement may
be executed in one or more counterparts which, when taken together, constitute
one and the same Loan 

 

46

 

Agreement.  Signatures transmitted by facsimile or other
electronic means shall be effective as originals.

 

(n)                                 JURISDICTION; WAIVER.  BORROWER ACKNOWLEDGES THAT THIS LOAN
AGREEMENT IS BEING ACCEPTED BY ADMINISTRATIVE AGENT AND LENDERS IN PARTIAL
CONSIDERATION OF ADMINISTRATIVE AGENT’S AND LENDERS’ RIGHT AND OPTION, IN THEIR
SOLE DISCRETION, TO ENFORCE THE LOAN DOCUMENTS IN EITHER THE STATE OF ILLINOIS
OR IN ANY OTHER JURISDICTION WHERE CUSTOMER OR ANY COLLATERAL MAY BE
LOCATED.  BORROWER IRREVOCABLY SUBMITS
ITSELF TO JURISDICTION IN THE STATE OF ILLINOIS AND VENUE IN ANY STATE OR FEDERAL
COURT IN THE COUNTY OF COOK FOR SUCH PURPOSES, AND BORROWER WAIVES ANY AND ALL
RIGHTS TO CONTEST SAID JURISDICTION AND VENUE AND THE CONVENIENCE OF ANY SUCH
FORUM, AND ANY AND ALL RIGHTS TO REMOVE SUCH ACTION FROM STATE TO FEDERAL
COURT.  BORROWER FURTHER WAIVES ANY
RIGHTS TO COMMENCE ANY ACTION AGAINST LENDER IN ANY JURISDICTION EXCEPT IN THE
COUNTY OF COOK AND STATE OF ILLINOIS. 
BORROWER AGREES THAT ALL SUCH SERVICE OF PROCESS SHALL BE MADE BY MAIL
OR MESSENGER DIRECTED TO IT IN THE SAME MANNER AS PROVIDED FOR NOTICES TO
BORROWER IN THIS LOAN AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED TO BE
COMPLETED UPON THE EARLIER OF ACTUAL RECEIPT OR THREE (3) DAYS AFTER THE
SAME SHALL HAVE BEEN POSTED TO BORROWER OR BORROWER’S AGENT.  NOTHING CONTAINED HEREIN SHALL AFFECT THE
RIGHT OF ADMINISTRATIVE AGENT OR ANY LENDER TO SERVE LEGAL PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF ADMINISTRATIVE AGENT OR ANY
LENDER TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER OR ITS PROPERTY IN THE
COURTS OF ANY OTHER JURISDICTION.

 

(o)                                 JURY WAIVER.  ADMINISTRATIVE AGENT, LENDERS AND BORROWER
HEREBY EACH EXPRESSLY WAIVE ANY AND ALL RIGHTS TO A TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES AGAINST THE
OTHER PARTY WITH RESPECT TO ANY MATTER RELATING TO, ARISING OUT OF OR IN ANY
WAY CONNECTED WITH THE LOAN, THE OBLIGATIONS, THIS LOAN AGREEMENT, ANY OF THE
OTHER LOAN DOCUMENTS AND/OR ANY OF THE TRANSACTIONS WHICH ARE THE SUBJECT
MATTER OF THIS LOAN AGREEMENT.

 

(p)                                 Survival.  All representations, warranties, agreements
and covenants contained in the Loan Documents shall survive the signing and
delivery of the Loan Documents, and all of the waivers made and indemnification
obligations undertaken by Borrower shall survive the termination, discharge or
cancellation of the Loan Documents.

 

(q)                                 Borrower’s
Acknowledgments.  Borrower
acknowledges that Borrower (i) has had ample opportunity to consult with
counsel and such other parties as deemed 

 

47

 

advisable prior to
signing and delivering this Loan Agreement and the other Loan Documents; (ii) understands
the provisions of this Loan Agreement and the other Loan Documents, including
all waivers contained therein; and (iii) signs and delivers this Loan
Agreement and the other Loan Documents freely and voluntarily, without duress
or coercion.

 

(r)                                    Customer
Identification — USA Patriot Act Notice; OFAC and Bank Secrecy Act.  Administrative Agent hereby notifies Borrower
and each Credit Party that pursuant to the requirements of the USA Patriot Act,
and Administrative Agent’s policies and practices, Administrative Agent is
required to obtain, verify and record certain information and documentation
that identifies Borrower and each Credit Party, which information includes the
name and address of Borrower and each Credit Party and such other information
that will allow Administrative Agent to identify Borrower and each Credit Party
in accordance with the USA Patriot Act. 
In addition, Borrower shall (a) ensure that no Person who owns a
controlling interest in or otherwise controls Borrower or any Subsidiary of
Borrower is or shall be listed on the Specially Designated Nationals and
Blocked Person List or other similar lists maintained by the Office of Foreign
Assets Control (“OFAC”), the Department of the Treasury or included in
any Executive Orders, (b) not use or permit the use of the proceeds of the
Loan to violate any of the foreign asset control regulations of OFAC or any
enabling statute or Executive Order relating thereto, and (c) comply, and
cause its Subsidiaries to comply, with all Applicable Laws.

 

(s)                                  Amendment.

 

(i)                                     Neither
this Loan Agreement nor any other Loan Document, nor any provision hereof or
thereof, including without limitation this Section 3.8(s), may be
amended, modified, waived, discharged or terminated, or any consent related
thereto granted, orally, but only by an instrument in writing signed by
Borrower and Majority Lenders; provided, however, that no such amendment,
modification, waiver, discharge, termination or consent shall, without the
consent of each Lender (A) extend the Maturity Date, extend the time of
payment for or reduce the amount of any scheduled principal repayment, or
reduce the rate or extend the time of payment of interest on the Loan or Note
(except that Administrative Agent may, in its discretion, without the consent
of any of the Lenders, but upon notice to the Lenders, so long as no other
Default then exists hereunder, waive (I) the applicability of up to two (2) Late
Charges during the term of the Loan, so long as the payment to which such Late
Charge relates was paid within ten (10) days after such payment was due
and (II) the applicability of a Default Rate increase for up to thirty (30)
days if Borrower has paid a Late Charge with respect to the past-due payment
giving rise to such otherwise increased interest rate) or reduce the principal
amount thereof, (B) release any Rig or other material amount of Collateral
for the Loan (except as expressly provided in the Loan Documents), (C) amend,
modify or waive any provision of this Section 3.8(s), (D) change
the percentage specified in the definition of Majority Lenders, (E) consent
to the assignment or transfer by Borrower of any of its rights or obligations
under this Loan Agreement or the other Loan Documents, (F) amend, modify
or waive any provision in this Loan Agreement or in any other Loan Document to
the extent providing for payments or prepayments on the Note 

 

48

 

to be applied pro rata among the Lenders, or (G) release any
Guarantor from its Guaranty (except as set forth in its Guaranty); provided,
further, that no such amendment, modification, waiver, discharge, termination
or consent shall (I) increase the Loan commitment of any Lender over the
amount thereof then in effect without the consent of such Lender or (II) without
the consent of Administrative Agent, amend, modify or waive any provision
relating to the rights or obligations of Administrative Agent.

 

(ii)                                  This
Loan Agreement shall be binding upon and inure to the benefit of Borrower, the
Guarantors, Administrative Agent and the Lenders, and their respective
successors and assigns, except that Borrower and the Guarantors shall not have
the right to assign their rights hereunder or any interest herein without the
prior written consent of Administrative Agent and all the Lenders.

 

(t)                                    Assignments
and Participations.

 

(i)                                     Each
Lender shall have the right to assign all or any portion of its portion of the
Loan outstanding under this Loan Agreement or the Note to any Eligible
Assignee, so long as, at least five (5) Business Days prior to the
effectiveness of such assignment (except in the case of a Related Lender
Assignment, which shall be governed by the provisions of Section 3.8(t)(ii) below)
(A) an Assignment and Acceptance with respect to such assignment is
delivered to Administrative Agent and (B) the assigning Lender or the
assignee pays to Administrative Agent a transfer fee in an amount equal to
$3,500.00 (the “Assignment Fee”), at which time such Eligible Assignee
shall become entitled to the benefits, and subject to the requirements and
obligations, of this Loan Agreement and the other Loan Documents.

 

(ii)                                  A
Lender may effect a Related Lender Assignment without paying the Assignment Fee
and without delivering an Assignment and Acceptance to Administrative Agent or
to any other Person; provided, however, that (A) Borrower
and Administrative Agent may continue to deal solely and directly with such
assigning Lender until the date that is five (5) Business Days after an
Assignment and Acceptance has been delivered to Administrative Agent for
recordation in the Register, (B) the failure of such assigning Lender to
deliver an Assignment and Acceptance to Administrative Agent shall not affect
the legality, validity, or binding effect of such assignment as between such
assigning Lender and such assignee, and (C) an Assignment and Acceptance
between the assigning Lender and an Affiliate of such Lender or Approved Fund
of such Lender shall be effective as of the date specified in such Assignment
and Acceptance, once recorded on the Related Party Register (as defined
below).  Subject to the provisions of
this Section 3.8(t), Borrower agrees that each assignee party to a
Related Lender Assignment shall be entitled to the benefits, and subject to the
requirements and obligations, of this Loan Agreement and the other Loan
Documents to the same extent as if it had consummated such assignment and acceptance
by delivery of an Assignment and Acceptance to Administrative
Agent.

 

49

 

(iii)          Administrative
Agent shall, on behalf of and acting solely for this purpose as the
non-fiduciary agent of Borrower, maintain, or cause to be maintained at
Administrative Agent’s office where Borrower makes payments due hereunder, a
copy of each Assignment and Acceptance delivered to and accepted by it and a
register (the “Register”) for the recordation of the names and
addresses of the Lenders and the commitments of, and the principal amount of
the Loans (and stated interest thereon) (the “Registered Loans”).  In the case of any Related Lender Assignment,
the Lender making such Related Lender Assignment shall, on behalf of and acting
solely for this purpose as the non-fiduciary agent of Borrower, maintain a
comparable register (the “Related Party Register”).  The entries in the Register (or, in the case
of a Related Lender Assignment, the Related Party Register) shall be conclusive
and binding for all purposes, absent manifest error.  Borrower, Administrative Agent and the
Lenders shall treat each Person whose name is recorded in the Register (and any
Lender that makes a Related Lender Assignment shall treat each Person whose
name is recorded in the Related Party Register) as a Lender hereunder for all
purposes of this Loan Agreement, including, without limitation, the right to
receive payments of principal and interest hereunder.  The Register and the Related Party Register
shall be available for inspection by Borrower at any reasonable time and from
time to time upon reasonable prior notice. 
A Registered Loan may be assigned or sold in whole or in part only by
registration of such assignment or sale on the Register or the Related Party
Register.  Any assignment or sale of all
or part of such Registered Loan may be effected only by registration of such assignment
or sale on the Register or the Related Party Register.  Within thirty (30) days (five (5) Business
Days in the event of a Related Lender Assignment) after its receipt of a
completed Assignment and Acceptance executed by an assigning Lender and an
assignee, and the Assignment Fee if required by the provisions of this Section 3.8(t),
Administrative Agent or Lender, as the case may be, shall record the
information contained therein in the Register or the Related Party Register.

 

(iv)          Each Lender may sell
participations to one or more banks or other entities in or to all or a portion
of its rights and obligations under this Loan Agreement and the other Loan
Documents (including, without limitation, all or a portion of its commitments
to make Loans or the Loans made by it); provided, that (A) such Lender’s
obligations under this Loan Agreement (including without limitation, its
commitments to make Loans hereunder) and the other Loan Documents shall remain
unchanged; (B) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations, and Borrower,
Administrative Agent and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender’s rights and
obligations under this Loan Agreement and the other Loan Documents; and (C) a
participant shall not be entitled to require such Lender to take or omit to
take any action hereunder except that a participant that is an Affiliate or
Approved Fund of the participating Lender may require such Lender to obtain
such participant’s approval before such participating Lender approves any (I) action
directly effecting an extension of the maturity dates or decrease in the
principal amount of the Loans, (II) action directly effecting an extension
of the due dates or a decrease in the rate of interest payable on the Loans or
the fees payable under this Loan Agreement, or (III) actions directly
effecting a release of all or a substantial 

 

50

 

portion of the
collateral or any Credit Party (except as set forth in this Loan Agreement or
any other Loan Document).

 

(v)           In the event that
any Lender sells participations in a Registered Loan, such Lender shall, on
behalf of and acting solely for this purpose as a non-fiduciary agent of
Borrower, maintain a register on which it enters the name of all participants
in the Registered Loans held by it and the principal amount (and stated
interest thereon) of the portion of the Registered Loan which is the subject of
the participation (the “Participant Register”).  A Registered Loan may be participated in
whole or in part only by registration of such participation on the Participant
Register (and each registered note shall expressly so provide).  Any participation of such Registered Loan may
be effected only by the registration of such participation on the Participant
Register.  The Participant Register shall
be available for inspection by Borrower at any reasonable time and from time to
time upon reasonable prior notice. 
Further, any Lender shall have the right, without notice or the payment
of an Assignment Fee, to encumber or hypothecate its interest to any funding
source or participant (collectively, for purposes of this paragraph, a “Funding
Source”) as long as such Funding Source maintains a “blind” status and such
Lender continues to act in its capacity as a Lender hereunder notwithstanding
the Funding Source.

 

(vi)          Except to the extent
set forth in Section 3.8(t)(iv) above, neither any participant
of a Registered Loan nor any Funding Source shall be entitled to the benefits,
or subject to the requirements and obligations, of this Loan Agreement, and
Borrower and Administrative Agent may continue to deal solely and directly with
the participating, encumbering or hypothecating Lender.

 

(u)           INTEGRATION.  THIS LOAN AGREEMENT, TOGETHER WITH THE OTHER
LOAN DOCUMENTS, CONSTITUTES THE ENTIRE UNDERSTANDING AND REPRESENTS THE FULL
AND FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF,
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR WRITTEN AGREEMENTS OR
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS OF THE
PARTIES.  WITHOUT LIMITING THE FOREGOING,
BORROWER ACKNOWLEDGES THAT: (I) NO PROMISE OR COMMITMENT HAS BEEN MADE TO
IT BY ADMINISTRATIVE AGENT, ANY LENDER, MLPF&S OR ANY OF THEIR RESPECTIVE
EMPLOYEES, AGENTS OR REPRESENTATIVES TO MAKE ANY LOAN ON ANY TERMS OTHER THAN
AS EXPRESSLY SET FORTH HEREIN, OR TO MAKE ANY OTHER LOAN OR OTHERWISE EXTEND
ANY OTHER CREDIT TO BORROWER OR ANY OTHER PARTY; AND (II) EXCEPT AS
OTHERWISE EXPRESSLY PROVIDED HEREIN, THIS LOAN AGREEMENT SUPERSEDES AND
REPLACES ANY AND ALL PROPOSALS, LETTERS OF INTENT AND APPROVAL AND COMMITMENT
LETTERS FROM ADMINISTRATIVE AGENT OR ANY LENDER TO BORROWER, NONE OF WHICH
SHALL BE CONSIDERED A LOAN DOCUMENT.  NO
AMENDMENT OR MODIFICATION OF ANY OF THE LOAN DOCUMENTS TO WHICH BORROWER IS A
PARTY SHALL BE EFFECTIVE UNLESS IN A 

 

51

 

WRITING
SIGNED BY ADMINISTRATIVE AGENT, MAJORITY OR ALL LENDERS, AS THE CASE MAY REQUIRE,
AND BORROWER.

 

THE REMAINDER OF
THIS PAGE IS INTENTIONALLY LEFT BLANK.

 

52

 

This Loan Agreement and the other Loan Documents
are executed under seal and are intended to take effect as sealed instruments.

 

IN WITNESS WHEREOF, this Loan
Agreement has been executed as of the day and year first above written.

 

LARCLAY, L.P.,

 

By: 
Larclay GP, LLC, its general partner,

a Texas limited liability company

 

	
  By:

  	
  /s/ Michael L. Pollard

  	
   

  
	
   

  	
  Michael L. Pollard

  
	
   

  	
  Manager

  

 

 

Accepted at Chicago, Illinois:

MERRILL LYNCH CAPITAL,

a division of Merrill Lynch Business Financial Services Inc., as Administrative
Agent

 

	
  By:

  	
  /s/ Steve Coley

  	
   

  
	
   

  	
  Steve Coley

  
	
   

  	
  Vice President, Group Credit Manager

  

 

 

MERRILL LYNCH CAPITAL,

a division of Merrill Lynch Business Financial Services Inc., as a Lender

 

	
  By:

  	
  /s/ Steve Coley

  	
   

  
	
   

  	
  Steve Coley

  
	
   

  	
  Vice President, Group Credit Manager

  

 

 

Signature Page to
Term Loan and Security Agreement

 

 

Schedule 1

Lender Loan Commitments

 

 

	
  Name of Lender

  	
   

  	
  Loan Commitment

  	
   

  	
  Percentage Share of Loan

  Commitment

  	
   

  
	
  MERRILL LYNCH
  CAPITAL, a division of Merrill Lynch Business Financial Services Inc.

  	
   

  	
  $

  	
  75,000,000.00

  	
   

  	
  100

  	
  %

  
							

 

Schedule 1 to Term Loan
and Security Agreement

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