Document:

sfy_ex41-11252009.htm

    
      
         

      

      
         

        
          

        

      

      
         

        
          EXECUTION
VERSION

        

      

    

    SWIFT
ENERGY COMPANY,

     

    as
Issuer

     

    SWIFT
ENERGY OPERATING, LLC,

     

    as
Subsidiary Guarantor

     

    and

     

    WELLS
FARGO BANK,

     

    NATIONAL
ASSOCIATION

     

    as
Trustee

     

    FIRST
SUPPLEMENTAL INDENTURE

     

    Dated
as of November 25, 2009

     

    To
Indenture Dated as of May 19, 2009

     

    

     

    

     

    Providing
for Issuance of

     

    87⁄8%
Senior Notes due 2020

     

    
      
         

      

      
         

        
          

        

      

      
         

        
          EXECUTION
VERSION

        

      

    

    TABLE
OF CONTENTS

     

    Page

    

      
        	
                SECTION
      1.

              	
                Creation
      of 8 7/8% Notes

              	
                2

              
	
                SECTION
      2.

              	
                Definitions

              	
                3

              
	
                SECTION
      3.

              	
                Amendments
      to Articles II and III of the Original Indenture

              	
                33

              
	
                SECTION
      4.

              	
                Amendments
      to Article IV of the Original Indenture

              	
                35

              
	
                SECTION
      5.

              	
                Amendments
      to Article V of the Original Indenture

              	
                50

              
	
                SECTION
      6.

              	
                Amendments
      to Article VI of the Original Indenture

              	
                50

              
	
                SECTION
      7.

              	
                Amendments
      to Articles VII and VIII of the Original Indenture

              	
                51

              
	
                SECTION
      8.

              	
                Amendments
      to Article IX of the Original Indenture

              	
                51

              
	
                SECTION
      9.

              	
                Amendments
      to Article X of the Original Indenture

              	
                53

              
	
                SECTION
      10.

              	
                Applicability
      of and Amendments to Article XI of the Original Indenture

              	
                54

              
	
                SECTION
      11.

              	
                Inapplicability
      of Article XII of the Original Indenture

              	
                55

              
	
                SECTION
      12.

              	
                Subsidiary
      Guaranties

              	
                56

              
	
                SECTION
      13.

              	
                Governing
      Law

              	
                59

              
	
                SECTION
      14.

              	
                Counterparts

              	
                59

              
	
                SECTION
      15.

              	
                Trustee
      Not Responsible for Recitals or Issuance of Notes

              	
                59

              
	
                SECTION
      16.

              	
                Supplemental
      Indenture Controls

              	
                59

              
	
                Exhibit
      A

              	
                Form
      of the 8 7/8% Notes

              	
                A-1

              
	
                Exhibit
      B

              	
                Form
      of Supplemental Indenture

              	
                B-1

              

      

      
        
           

        

        
           

          
            

          

        

        
           

        

      

     

    THIS
FIRST SUPPLEMENTAL INDENTURE, dated as of November 25, 2009 (this “First
Supplemental Indenture”), to the Indenture dated as of May 19, 2009 (the
“Original Indenture”) is among SWIFT ENERGY COMPANY, a Texas corporation, as
issuer (the “Company”), SWIFT ENERGY OPERATING, LLC, a Texas limited liability
company (“Opco”), as Subsidiary Guarantor, and WELLS FARGO BANK, NATIONAL
ASSOCIATION, as trustee (the “Trustee”).

     

    WHEREAS,
the Company and the Trustee have heretofore executed and delivered the Original
Indenture to provide for the issuance of its securities to be issued in one or
more registered series;

     

    WHEREAS,
Section 9.01 of the Original Indenture provides, among other things, that the
Company and the Trustee may without the consent of Holders enter into indentures
supplemental to the Original Indenture to, among other things, (a) add to,
change or eliminate any of the provisions of the Original Indenture in respect
of one or more series of Debt Securities; provided, however, that any such
addition, change or elimination not otherwise permitted under Section 9.01 shall
(i) neither (A) apply to any Debt Security of any series created prior to the
execution of such supplemental indenture and entitled to the benefit of such
provision nor (B) modify the rights of the Holder of any such previously issued
Debt Security with respect to such provision or (ii) shall become effective only
when there is no such Debt Security Outstanding, (b) add Guarantees with respect
to the Debt Securities and (c) establish the form or terms of Debt Securities of
any series as permitted by Sections 2.01 and 2.03;

     

    WHEREAS,
the Company desires to provide for the issuance of a new series of Debt
Securities to be designated as the “87⁄8% Senior Notes due 2020” (the “87⁄8%
Notes”), to be guaranteed by Opco, and to set forth the terms that will be
applicable thereto;

     

    WHEREAS,
all action on the part of the Company necessary to authorize the issuance of the
87⁄8% Notes under the Original Indenture and this First Supplemental Indenture
(the Original Indenture, as amended and supplemented by this First Supplemental
Indenture, being hereinafter called the “Indenture”) has been duly taken;
and

     

    WHEREAS,
all acts and things necessary to make the 87⁄8% Notes, when executed by the
Company and authenticated and delivered by the Trustee as provided in the
Original Indenture, the legal, valid and binding obligations of the Company, and
to constitute these presents a valid and binding supplemental indenture
according to its terms binding on the Company and Opco, have been done and
performed, and the execution of this First Supplemental Indenture and the
creation and issuance under the Indenture of the 87⁄8% Notes have in all respects
been duly authorized, and the Company in the exercise of the legal right and
power vested in it, executes this First Supplemental Indenture and proposes to
create, execute, issue and deliver the 87⁄8% Notes.

     

    NOW,
THEREFORE, THIS FIRST SUPPLEMENTAL INDENTURE WITNESSETH:

     

    That, in
order to establish the designation, form, terms and provisions of, and to
authorize the authentication and delivery of the 87⁄8% Notes and in consideration
of the acceptance of the

     

    
      
         

      

      
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    87⁄8% Notes
by the Holders thereof and of other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto hereby
agree as follows:

     

    SECTION
1.                      Creation of 87⁄8%
Notes.  Pursuant to Sections 2.01 and 2.03 of the Original
Indenture, there is hereby created a new series of Debt Securities designated as
the “87⁄8% Senior Notes due 2020”, limited in aggregate principal amount to
$225,000,000 (which are hereinafter defined as the “87⁄8% Notes” for purposes of
this First Supplemental Indenture).  The Trustee shall authenticate
87⁄8% Notes for original issue in the aggregate principal amount of $225,000,000
(the “Original 87⁄8% Notes”).  The Original 87⁄8% Notes shall be in the
form specified in Exhibit A to this First Supplemental Indenture, shall have the
terms set forth therein and shall be entitled to the benefits of the other
provisions of the Original Indenture as modified by this First Supplemental
Indenture and specified herein.

     

    The Place
of Payment with respect to the 87⁄8% Notes, in addition to the corporate trust
office of the Trustee in Dallas, Texas, shall be its corporate trust office in
New York, New York, which on the Issue Date is located at 45 Broadway, 14th
Floor, New York, New York 10006, the intention of the Company being that the 87⁄8%
Notes shall at all times be payable in New York, New York.

     

    With
respect to any 87⁄8% Notes issued after the Issue Date (except for 87⁄8% Notes
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, other 87⁄8% Notes pursuant to Section 2.07, 2.08, 2.09, 2.15,
3.03 or 9.04 of the Original Indenture) (the “Additional 87⁄8% Notes”), there
shall be established in or pursuant to a resolution of the Board of Directors of
the Company:

     

    (a)           that
such Additional 87⁄8% Notes shall be issued as part of the same or a different
series as the Original 87⁄8% Notes;

     

    (b)           the
aggregate principal amount of such Additional 87⁄8% Notes which may be
authenticated and delivered under the Indenture, which, subject to compliance
with Article IV of the Original Indenture, may be in an unlimited aggregate
principal amount or which may be in a limited principal amount (except for
Additional 87⁄8% Notes authenticated and delivered upon registration of transfer
of, or in exchange for, or in lieu of, other 87⁄8% Notes pursuant to Section 2.07,
2.08, 2.09, 2.15, 3.03 or 9.04 of the Original Indenture);

     

    (c)           the
issue price and issuance date of such Additional 87⁄8% Notes, including the date
from which interest on such Additional 87⁄8% Notes shall accrue;

     

    (d)           if
applicable, that such Additional 87⁄8% Notes shall be issuable in whole or in part
in the form of one or more Global Securities and, in such case, the respective
Depositaries for such Global Securities, the form of any legend or legends that
shall be borne by any such Global Security in addition to or in lieu of that set
forth in Section 2.15 or Exhibit A and any circumstances in addition to or in
lieu of those set forth in the Indenture in which any such Global Security may
be exchanged in whole or in part for 87⁄8% Notes registered, and any transfer of
such Global Security in whole or in part may be registered, in the name or names
of Persons other than the Depositary for such Global Security or a nominee
thereof; and

     

    
      
         

      

      
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    (e)           if
applicable, that such Additional 87⁄8% Notes shall not be registered under the
Securities Act, but shall be issued pursuant to an exemption from registration
under the Securities Act bearing additional appropriate legends and shall have
the benefit of registration rights.  Except as set forth above, such
Additional 87⁄8% Notes shall have the terms set forth in Exhibit A to this First
Supplemental Indenture and shall be entitled to the benefits of the other
provisions of the Original Indenture as modified by this First Supplemental
Indenture and as specified herein.

     

    SECTION
2.                      Definitions

     

    (a)           Capitalized
terms used herein and not otherwise defined shall have the respective meanings
assigned thereto in the Original Indenture.

     

    (b)           Section
1.01 of the Original Indenture is amended and supplemented by inserting or
restating, as the case may be, in their appropriate alphabetical position, the
following definitions:

     

    “Additional Assets”
means:

     

    (a)           any
Property (other than cash, Permitted Short-Term Investments or securities) used
in the Oil and Gas Business or any business ancillary thereto;

     

    (b)           Investments
in any other Person engaged in the Oil and Gas Business or any business
ancillary thereto (including the acquisition from third parties of Capital Stock
of such Person) as a result of which such other Person becomes a Restricted
Subsidiary in compliance with Section 4.19;

     

    (c)           the
acquisition from third parties of Capital Stock of a Restricted Subsidiary;
or

     

    (d)           Permitted
Business Investments.

     

    “Adjusted Consolidated Net Tangible
Assets” means (without duplication), as of the date of determination, the
remainder of:

     

    (a)           the
sum of:

     

    (1)           discounted
future net revenues from proved oil and gas reserves of the Company and its
Restricted Subsidiaries calculated in accordance with SEC guidelines before any
state, federal or foreign income taxes, as estimated by the Company and
confirmed by a nationally recognized firm of independent petroleum engineers in
a reserve report prepared as of the end of the Company’s most recently completed
fiscal year for which audited financial statements are available, as increased
by, as of the date of determination, the estimated discounted future net
revenues from:

     

    (A)           estimated
proved oil and gas reserves acquired since such year end, which reserves were
not reflected in such year end reserve report, and

     

    
      
         

      

      
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    (B)           estimated
oil and gas reserves attributable to upward revisions of estimates of proved oil
and gas reserves since such year end due to exploration, development or
exploitation activities, in each case calculated in accordance with SEC
guidelines (utilizing the prices utilized in such year end reserve
report),

     

    and
decreased by, as of the date of determination, the estimated discounted future
net revenues from:

     

    (C)           estimated
proved oil and gas reserves produced or disposed of since such year end,
and

     

    (D)           estimated
oil and gas reserves attributable to downward revisions of estimates of proved
oil and gas reserves since such year end due to changes in geological conditions
or other factors that would, in accordance with standard industry practice,
cause such revisions, in each case calculated in accordance with SEC guidelines
(utilizing the prices utilized in such year end reserve report),

     

    provided that, in the case of
each of the determinations made pursuant to clauses (A) through (D), such
increases and decreases shall be as estimated by the Company’s petroleum
engineers, unless there is a Material Change as a result of such acquisitions,
dispositions or revisions, in which event the discounted future net revenues
utilized for purposes of this clause (a)(1) shall be confirmed in writing by a
nationally recognized firm of independent petroleum engineers,

     

    (2)           the
capitalized costs that are attributable to oil and gas properties of the Company
and its Restricted Subsidiaries to which no proved oil and gas reserves are
attributable, based on the Company’s books and records as of a date no earlier
than the date of the Company’s latest annual or quarterly financial
statements,

     

    (3)           the
Net Working Capital on a date no earlier than the date of the Company’s latest
annual or quarterly financial statements, and

     

    (4)           the
greater of the net book value or the appraised value as estimated by independent
appraisers of other tangible assets (including, without duplication, Investments
in unconsolidated Restricted Subsidiaries) of the Company and its Restricted
Subsidiaries, as of a date no earlier than the date of the Company’s latest
audited financial statements.  For these purposes, net book value
shall be determined as of a date no earlier than the date of the Company’s
latest annual or quarterly financial statements, and on a date no earlier than
the date of the Company’s latest annual or quarterly financial
statements;

     

    (b)           minus
the sum of:

     

    (1)           minority
interests,

     

    
      
         

      

      
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    (2)           any
net gas balancing liabilities of the Company and its Restricted Subsidiaries
reflected in the Company’s latest audited financial statements,

     

    (3)           to
the extent included in (a)(1) above, the discounted future net revenues,
calculated in accordance with SEC guidelines (utilizing the prices utilized in
the Company’s year end reserve report), attributable to reserves that are
required to be delivered to third parties to fully satisfy the obligations of
the Company and its Restricted Subsidiaries with respect to Volumetric
Production Payments (determined, if applicable, using the schedules specified
with respect thereto), and

     

    (4)           the
discounted future net revenues, calculated in accordance with SEC guidelines,
attributable to reserves subject to Dollar-Denominated Production Payments that,
based on the estimates of production and price assumptions included in
determining the discounted future net revenues specified in (a)(1) above, would
be necessary to fully satisfy the payment obligations of the Company and its
Restricted Subsidiaries with respect to Dollar-Denominated Production Payments
(determined, if applicable, using the schedules specified with respect
thereto).

     

    If the
Company changes its method of accounting from the full cost method to the
successful efforts method or a similar method of accounting, “Adjusted
Consolidated Net Tangible Assets” will continue to be calculated as if the
Company were still using the full cost method of accounting.

     

    “Adjusted Treasury Rate”
means, with respect to any redemption date:

     

    (a)           (1)           the
yield, under the heading which represents the average for the immediately
preceding week, appearing in the most recently published statistical release
designated “H.15(519)” or any successor publication which is published weekly by
the Board of Governors of the Federal Reserve System and which establishes
yields on actively traded United States Treasury securities adjusted to constant
maturity under the caption “Treasury Constant Maturities,” for the maturity
corresponding to the Comparable Treasury Issue (if no maturity is within three
months before or after January 15, 2015, yields for the two published maturities
most closely corresponding to the Comparable Treasury Issue shall be determined
and the Adjusted Treasury Rate shall be interpolated or extrapolated from such
yields on a straight line basis, rounding to the nearest month) or

     

    (2)           if
such release (or any successor release) is not published during the week
preceding the calculation date or does not contain such yields, the rate per
year equal to the semi-annual equivalent yield to maturity of the Comparable
Treasury Issue (expressed as a percentage of its principal amount) equal to the
Comparable Treasury Price for such redemption date, in each case calculated on
the third Business Day immediately preceding the redemption date,
plus

     

    (b)           0.50%.

     

    “Affiliate” of any specified
Person means any other Person:

     

    
      
         

      

      
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    (a)           that
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person;
or

     

    (b)           that
beneficially owns or holds directly or indirectly 10% or more of any class of
the Voting Stock of such specified Person or of any Subsidiary of such specified
Person.

     

    For the
purposes of this definition, “control,” when used with respect to any specified
Person, means the power to direct the management and policies of such Person
directly or indirectly, whether through the ownership of Voting Stock, by
contract or otherwise; and the terms “controlling” and “controlled” have
meanings correlative to the foregoing.

     

    “Applicable Premium” means,
with respect to a Note at any redemption date, the greater of:

     

    (a)           1.0%
of the principal amount of such Note and

     

    (b)           the
excess of (1) the present value at such redemption date of (A) the redemption
price of such Note on January 15, 2015 (such redemption price being
described in the first paragraph and accompanying table of Section 3.06,
exclusive of any accrued interest) plus (B) all required remaining scheduled
interest payments due on such Note through January 15, 2015, computed using
a discount rate equal to the Adjusted Treasury Rate, over (2) the principal
amount of such Note on such redemption date.

     

    “Asset Sale” means, with
respect to any Person, any transfer, conveyance, sale, lease or other
disposition (collectively, “dispositions,” and including dispositions pursuant
to any consolidation or merger) by such Person or any of its Restricted
Subsidiaries in any single transaction or series of transactions
of:

     

    (a)           shares
of Capital Stock or other ownership interests of another Person (including
Capital Stock of Restricted Subsidiaries and Unrestricted Subsidiaries);
or

     

    (b)           any
other Property of such Person or any of its Restricted
Subsidiaries;

     

    provided, however, that the
term “Asset Sale” shall not include:

     

    (1)           the
disposition of Permitted Short-Term Investments, inventory, accounts receivable,
surplus or obsolete equipment or other Property (excluding the disposition of
oil and gas in place and other interests in real property unless made in
connection with a Permitted Business Investment) in the ordinary course of
business;

     

    (2)           the
abandonment, assignment, lease, sublease or farm-out of oil and gas properties,
or the forfeiture or other disposition of such properties pursuant to standard
form operating agreements, in each case in the ordinary course of business in a
manner that is customary in the Oil and Gas Business;

     

    (3)           the
disposition of Property received in settlement of debts owing to the Company or
any Restricted Subsidiary as a result of foreclosure, perfection or enforcement
of any Lien or debt, which debts were owing to the Company or any

     

    
      
         

      

      
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    Restricted
Subsidiary in the ordinary course of business of the Company or such Restricted
Subsidiary;

     

    (4)           any
disposition that constitutes a Restricted Payment made in compliance with
Section 4.12;

     

    (5)           when
used with respect to the Company, any disposition of all or substantially all of
the Property of the Company and its Restricted Subsidiaries taken as a whole
permitted pursuant to Article X;

     

    (6)           the
disposition of any Property by the Company or a Restricted Subsidiary to the
Company or a Wholly Owned Subsidiary;

     

    (7)           the
disposition of any Property with a Fair Market Value of less than $5.0 million;
or

     

    (8)           any
Production Payments and Reserve Sales, provided that any such Production
Payments and Reserve Sales, other than incentive compensation programs on terms
that are reasonably customary in the Oil and Gas Business for geologists,
geophysicists and other providers of technical services to the Company or a
Restricted Subsidiary, shall have been created, Incurred, issued, assumed or
Guaranteed in connection with the financing of, and within 60 days after the
acquisition of, the Property that is subject thereto.

     

    “Average Life” means, with
respect to any Indebtedness, at any date of determination, the quotient obtained
by dividing:

     

    (a)           the
sum of the products of:

     

    (1)           the
number of years (and any portion thereof) from the date of determination to the
date or dates of each successive scheduled principal payment (including any
sinking fund or mandatory redemption payment requirements) of such Indebtedness,
multiplied by

     

    (2)           the
amount of each such principal payment,

     

    (b)           by
the sum of all such principal payments.

     

    “Bank Credit Facilities”
means, with respect to any Person, one or more debt facilities or commercial
paper facilities with banks or other institutional lenders providing for
revolving credit loans, term loans, receivables or inventory financing
(including through the sale of receivables or inventory financing to such
lenders or to special purpose entities formed to borrow from such lenders
against such receivables or inventory) or trade or standby letters of credit, in
each case together with any extensions, revisions, refinancings or replacements
thereof by a lender or syndicate of lenders.

     

    “Capital Lease Obligation”
means any obligation that is required to be classified and accounted for as a
capital lease obligation in accordance with GAAP, and the amount of

     

    
      
         

      

      
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    Indebtedness
represented by such obligation shall be the capitalized amount of such
obligation determined in accordance with GAAP, and the Stated Maturity thereof
shall be the date of the last payment date of rent or any other amount due in
respect of such obligation.

     

    “Capital Stock” means, with
respect to any Person, any shares or other equivalents (however designated) of
any class of corporate stock or partnership interests or any other
participations, rights, warrants, options or other interests in the nature of an
equity interest in such Person, including Preferred Stock, but excluding any
debt security convertible or exchangeable into such equity
interest.

     

    “Change of Control” means the
occurrence of any of the following, if followed by a Rating Decline within 90
days thereof:

     

    (a)           any
“person” or “group” (within the meaning of Section 13(d)(3) and 14(d)(2) of the
Exchange Act or any successor provision to either of the foregoing, including
any group acting for the purpose of acquiring, holding or disposing of
securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act)
becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a Person will be deemed to have “beneficial ownership”
of all shares that any such Person has the right to acquire, whether such right
is exercisable immediately or only after the passage of time) of 40 percent or
more of the total voting power of all classes of the Voting Stock of the
Company;

     

    (b)           the
sale, lease, transfer or other disposition, directly or indirectly, of all or
substantially all the Property of the Company and the Restricted Subsidiaries
taken as a whole (other than a disposition of such Property as an entirety or
virtually as an entirety to any Wholly Owned Subsidiary) shall have
occurred;

     

    (c)           the
shareholders of the Company shall have approved any plan of liquidation or
dissolution of the Company;

     

    (d)           the
Company consolidates with or merges into another Person or any Person
consolidates with or merges into the Company in any such event pursuant to a
transaction in which the outstanding Voting Stock of the Company is reclassified
into or exchanged for cash, securities or other Property, other than any such
transaction where the outstanding Voting Stock of the Company is reclassified
into or exchanged for Voting Stock of the surviving Person and the holders of
the Voting Stock of the Company immediately prior to such transaction own,
directly or indirectly, not less than a majority of the Voting Stock of the
surviving Person immediately after such transaction in substantially the same
proportion as before the transaction; or

     

    (e)           during
any period of two consecutive years, individuals who at the beginning of such
period constituted the Company’s Board of Directors (together with any new
directors whose election or appointment by such Board of Directors or whose
nomination for election by the shareholders of the Company was approved by a
vote of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously approved by

     

    
      
         

      

      
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    such
vote) cease for any reason to constitute a majority of the Company’s Board of
Directors then in office.

     

    “Comparable Treasury Issue”
means the United States Treasury security selected by the Quotation Agent as
having a maturity comparable to the remaining term from the redemption date to
January 15, 2015, that would be utilized, at the time of selection and in
accordance with customary financial practice, in pricing new issues of corporate
debt securities of a maturity most nearly equal to January 15,
2015.

     

    “Comparable Treasury Price”
means, with respect to any redemption date, if clause (a)(2) of the Adjusted
Treasury Rate is applicable, the average of three, or such lesser number as is
obtained by the Trustee, Reference Treasury Dealer Quotations for such
redemption date.

     

    “Consolidated Interest Coverage
Ratio” means, as of the date of the transaction (the “Transaction Date”)
giving rise to the need to calculate the Consolidated Interest Coverage Ratio,
the ratio of:

     

    (a)           the
aggregate amount of EBITDA of the Company and its consolidated Restricted
Subsidiaries for the four full fiscal quarters immediately prior to the
Transaction Date for which financial statements are available; to

     

    (b)           the
aggregate Consolidated Interest Expense of the Company and its Restricted
Subsidiaries that is anticipated to accrue during a period consisting of the
fiscal quarter in which the Transaction Date occurs and the three fiscal
quarters immediately subsequent thereto (based upon the pro forma amount and
maturity of, and interest payments in respect of, Indebtedness of the Company
and its Restricted Subsidiaries expected by the Company to be outstanding on the
Transaction Date), assuming for the purposes of this measurement the
continuation of market interest rates prevailing on the Transaction Date and
base interest rates in respect of floating interest rate obligations equal to
the base interest rates on such obligations in effect as of the Transaction
Date; provided, that if the Company or any of its Restricted Subsidiaries is a
party to any Interest Rate Protection Agreement that would have the effect of
changing the interest rate on any Indebtedness of the Company or any of its
Restricted Subsidiaries for such four quarter period (or a portion thereof), the
resulting rate shall be used for such four quarter period or portion thereof;
provided further that any Consolidated Interest Expense with respect to
Indebtedness Incurred or retired by the Company or any of its Restricted
Subsidiaries during the fiscal quarter in which the Transaction Date occurs
shall be calculated as if such Indebtedness was so Incurred or retired on the
first day of the fiscal quarter in which the Transaction Date
occurs.

     

    In
addition, if at any time since the beginning of the four full fiscal quarter
period preceding the Transaction Date through and including the Transaction
Date:

     

    (a)           the
Company or any of its Restricted Subsidiaries shall have engaged in any Asset
Sale, EBITDA for such period shall be reduced by an amount equal to the EBITDA
(if positive), or increased by an amount equal to the EBITDA (if negative),
directly attributable to the Property that is the subject of such Asset Sale for
such period calculated on a pro forma basis

     

    
      
         

      

      
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    as if
such Asset Sale and any related retirement of Indebtedness had occurred on the
first day of such period; or

     

    (b)           (1)           the
Company or any of its Restricted Subsidiaries shall have acquired or made any
Investment in any material assets, or

     

    (2)           the
transaction giving rise to the need to calculate the Consolidated Interest
Coverage Ratio is such an Investment or acquisition.

     

    EBITDA
shall be calculated on a pro forma basis as if such Investments or asset
acquisitions had occurred on the first day of such four fiscal quarter
period.

     

    “Consolidated Interest
Expense” means, with respect to any Person for any period, without
duplication:

     

    (a)           the
sum of:

     

    (1)           the
aggregate amount of cash and noncash interest expense (including capitalized
interest) of such Person and its Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP in respect of
Indebtedness, including:

     

    (A)           any
amortization of debt discount,

     

    (B)           net
costs associated with Interest Rate Protection Agreements (including any
amortization of discounts),

     

    (C)           the
interest portion of any deferred payment obligation,

     

    (D)           all
accrued interest, and

     

    (E)           all
commissions, discounts, commitment fees, origination fees and other fees and
charges owed with respect to Bank Credit Facilities and other Indebtedness paid
, accrued or scheduled to be paid or accrued during such period,

     

    (2)           Disqualified
Stock Dividends of such Person (and of its Restricted Subsidiaries if paid to a
Person other than such Person or its Restricted Subsidiaries) and Preferred
Stock Dividends of such Person’s Restricted Subsidiaries if paid to a Person
other than such Person or its other Restricted Subsidiaries,

     

    (3)           the
portion of any obligation of such Person or its Restricted Subsidiaries in
respect of any Capital Lease Obligation allocable to interest expense in
accordance with GAAP,

     

    (4)           the
portion of any rental obligation of such Person or its Restricted Subsidiaries
in respect of any Sale and Leaseback Transaction that is
Indebtedness

     

    
      
         

      

      
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    allocable
to interest expense (determined as if such obligation were treated as a Capital
Lease Obligation), and

     

    (5)           to
the extent any Indebtedness of any other Person (other than Restricted
Subsidiaries) is Guaranteed by such Person or any of its Restricted
Subsidiaries, the aggregate amount of interest paid, accrued or scheduled to be
paid or accrued by such other Person during such period attributable to any such
Indebtedness;

     

    less

     

    (b)           to
the extent included in (a) above, amortization or write-off of deferred
financing costs (other than debt discounts) of such Person and its Restricted
Subsidiaries during such period;

     

    in the
case of both (a) and (b) above, after elimination of intercompany accounts among
such Person and its Restricted Subsidiaries and as determined in accordance with
GAAP.

     

    “Consolidated Net Income” of
any Person means, for any period, the aggregate net income (or net loss, as the
case may be) of such Person and its Restricted Subsidiaries for such period on a
consolidated basis, determined in accordance with GAAP; provided that there
shall be excluded therefrom, without duplication:

     

    (a)           items
classified as extraordinary gains or losses net of tax (less all fees and
expenses relating thereto);

     

    (b)           any
gain or loss net of taxes (less all fees and expenses relating thereto) realized
on the sale or other disposition of Property, including the Capital Stock of any
other Person (but in no event shall this clause (b) apply to any gains or losses
on the sale in the ordinary course of business of oil, gas or other hydrocarbons
produced or manufactured);

     

    (c)           the
net income of any Restricted Subsidiary of such specified Person to the extent
the transfer to that Person of that income is restricted by contract or
otherwise, except for any cash dividends or cash distributions actually paid by
such Restricted Subsidiary to such Person during such period;

     

    (d)           the
net income (or loss) of any other Person in which such specified Person or any
of its Restricted Subsidiaries has an interest (which interest does not cause
the net income of such other Person to be consolidated with the net income of
such specified Person in accordance with GAAP or is an interest in a
consolidated Unrestricted Subsidiary), except to the extent of the amount of
cash dividends or other cash distributions actually paid to such Person or its
consolidated Restricted Subsidiaries by such other Person during such
period;

     

    (e)           any
gain or loss, net of taxes, realized on the termination of any employee pension
benefit plan;

     

    (f)           any
adjustments of a deferred tax liability or asset pursuant to Statement of
Financial Accounting Standards No. 109 that result from changes in enacted tax
laws or rates;

     

    
      
         

      

      
        11

        
          

        

      

      
         

      

    

    (g)           the
cumulative effect of a change in accounting principles;

     

    (h)           any
write-downs of non-current assets, provided that any ceiling limitation
write-downs under SEC guidelines shall be treated as capitalized costs, as if
such write-downs had not occurred; and

     

    (i)           any
non-cash compensation expense realized upon issuance of stock under an employee
stock purchase plan or for grants of performance shares, stock options or stock
awards to officers, directors and employees of the Company or any of its
Restricted Subsidiaries.

     

    In
addition, notwithstanding the preceding, there shall be excluded from
Consolidated Net Income, for purposes of Section 4.12, any nonrecurring charges
relating to any premium or penalty paid or write off of deferred finance costs
or original issue discount in connection with redeeming or otherwise retiring
any Indebtedness prior to its Stated Maturity.

     

    “Default” means any event, act
or condition the occurrence of which is, or after notice or the passage of time
or both would be, an Event of Default.

     

    “Disqualified Stock” means,
with respect to any Person, any Capital Stock that by its terms (or by the terms
of any security into which it is convertible or for which it is exchangeable, in
either case at the option of the holder thereof) or otherwise:

     

    (a)           matures
or is mandatorily redeemable pursuant to a sinking fund obligation or
otherwise;

     

    (b)           is
or may become redeemable or repurchasable at the option of the holder thereof,
in whole or in part; or

     

    (c)           is
convertible or exchangeable at the option of the holder thereof for debt or any
other Disqualified Stock;

     

    in each
case on or prior to the first anniversary of the Stated Maturity of the 87⁄8%
Notes.

     

    “Disqualified Stock Dividends”
means all dividends with respect to Disqualified Stock of the Company held by
Persons other than a Wholly Owned Subsidiary.  The amount of any such
dividend shall be equal to the quotient of such dividend divided by the
difference between one and the maximum statutory federal income tax rate
(expressed as a decimal number between 1 and 0) then applicable to the
Company.

     

    “Dollar-Denominated Production
Payments” means production payment obligations recorded as liabilities in
accordance with GAAP, together with all undertakings and obligations in
connection therewith.

     

    “EBITDA” means with respect to
any Person for any period, the Consolidated Net Income of such Person for such
period:

     

    (a)           plus
the sum of, to the extent reflected in the consolidated income statement of such
Person and its Restricted Subsidiaries for such period from which

     

    
      
         

      

      
        12

        
          

        

      

      
         

      

    

    Consolidated
Net Income is determined and deducted in the determination of such Consolidated
Net Income, without duplication:

     

    (1)           income
tax expense (but excluding income tax expense relating to sales or other
dispositions of Property, including the Capital Stock of any other Person, the
gains from which are excluded in the determination of such Consolidated Net
Income),

     

    (2)           Consolidated
Interest Expense,

     

    (3)           depreciation
and depletion expense,

     

    (4)           amortization
expense,

     

    (5)           exploration
expense (if applicable to the Company after the Issue Date), and

     

    (6)           any
other noncash charges including unrealized foreign exchange losses (excluding,
however, any such other noncash charge that requires an accrual of or reserve
for cash charges for any future period);

     

    (b)           less
the sum of, to the extent reflected in the consolidated income statement of such
Person and its Restricted Subsidiaries for such period from which Consolidated
Net Income is determined and added in the determination of such Consolidated Net
Income, without duplication:

     

    (1)           income
tax recovery (excluding, however, income tax recovery relating to sales or other
dispositions of Property, including the Capital Stock of any other Person, the
losses from which are excluded in the determination of such Consolidated Net
Income), and

     

    (2)           unrealized
foreign exchange gains.

     

    “Equity Offering” means a bona
fide underwritten sale to the public of common stock of the Company pursuant to
an effective registration statement (other than a Form S-8 or any other form
relating to securities issuable under any employee benefit plan of the Company)
that is filed with the SEC following the Issue Date.

     

    “Exchanged Properties” means
Properties used or useful in the Oil and Gas Business received by the Company or
a Restricted Subsidiary in trade or as a portion of the total consideration for
other such Properties.

     

    “Exchange Rate Contract”
means, with respect to any Person, any currency swap agreements, forward
exchange rate agreements, foreign currency futures or options, exchange rate
collar agreements, exchange rate insurance and other agreements or arrangements,
or any combination thereof, entered into by such Person in the ordinary course
of its business for the purpose of limiting or managing exchange rate risks to
which such Person is subject.

     

    
      
         

      

      
        13

        
          

        

      

      
         

      

    

    “Exempt Foreign Subsidiary”
means any Restricted Subsidiary that is a foreign corporation if more than 50%
of the

     

    (a)           total
combined voting power of all Voting Stock of the Restricted Subsidiary,
or

     

    (b)           the
total value of all Capital Stock of the Restricted Subsidiary is owned or is
considered as owned by United States shareholders on any day during the taxable
year of the foreign corporation,

     

    and,
that, in any case, is so designated by the Company in an Officers’ Certificate
delivered to the Trustee, and which Restricted Subsidiary is not a guarantor of,
and has no Lien (other than a Lien with respect to less than two-thirds of the
Capital Stock of an Exempt Foreign Subsidiary) to secure the Bank Credit
Facilities or any other Indebtedness of the Company or any Restricted Subsidiary
other than an Exempt Foreign Subsidiary.  A United States shareholder,
as used in this definition, means any Person who owns or is considered as owning
10% or more of the total combined voting power of all Voting Stock of the
foreign corporation.  For purposes of this definition, ownership of a
Restricted Subsidiary, Voting Stock or Capital Stock is determined in accordance
with Section 958 of the Internal Revenue Code of 1986, as amended, and the
Treasury Regulations promulgated thereunder.  The Company may revoke
the designation of any Exempt Foreign Subsidiary by notice to the
Trustee.

     

    “Fair Market Value” means,
with respect to any Property to be transferred pursuant to any Asset Sale or
Sale and Leaseback Transaction or any noncash consideration or Property
transferred or received by any Person, the fair market value of such
consideration or other Property as determined by:

     

    (a)           any
officer of the Company if such fair market value is greater than $2.0 million
but less than $10.0 million; and

     

    (b)           the
Board of Directors of the Company as evidenced by a certified resolution
delivered to the Trustee if such fair market value is equal to or in excess of
$10.0 million.

     

    “GAAP” means United States
generally accepted accounting principles as in effect on the Issue Date, unless
stated otherwise.

     

    “Guarantee” by any Person
means any obligation, contingent or otherwise, of such Person guaranteeing or
having the economic effect of guaranteeing any Indebtedness of any other Person
(a “primary obligor”) in any manner, whether directly or indirectly, and
including any Lien on the assets of such Person securing obligations to pay
Indebtedness of the primary obligor, and any obligation of such
Person:

     

    (a)           to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Indebtedness or any security for the payment of such Indebtedness;

     

    (b)           to
purchase Property, securities or services for the purpose of assuring the holder
of such Indebtedness of the payment of such Indebtedness; or

     

    
      
         

      

      
        14

        
          

        

      

      
         

      

    

    (c)           to
maintain working capital, equity capital or other financial statement condition
or liquidity of the primary obligor so as to enable the primary obligor to pay
such Indebtedness (and “Guaranteed”, “Guaranteeing” and “Guarantor” shall have
meanings correlative to the foregoing);

     

    provided, however, that a
Guarantee by any Person shall not include:

     

    (a)           endorsements
by such Person for collection or deposit, in either case, in the ordinary course
of business; or

     

    (b)           a
contractual commitment by one Person to invest in another Person for so long as
such Investment is reasonably expected to constitute a Permitted Investment
under clause (b) of the definition of Permitted Investments.

     

    “Holder” means the Person in
whose name an 87⁄8% Note is registered on the Debt Security Register.

     

    “Incur” means, with respect to
any Indebtedness or other obligation of any Person, to create, issue, incur (by
conversion, exchange or otherwise), assume, Guarantee or become liable
(including by reason of a merger or consolidation) in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or obligation on the balance sheet of
such Person (and “Incurrence,” “Incurred,” “Incurrable” and “Incurring” shall
have meanings correlative to the foregoing); provided, however, that a change in
GAAP that results in an obligation of such Person that exists at such time, and
is not theretofore classified as Indebtedness, becoming Indebtedness shall not
be deemed an Incurrence of such Indebtedness; provided further, however,
that solely for purposes of determining compliance with Section 4.11
amortization of debt discount shall not be deemed to be the Incurrence of
Indebtedness, provided
that in the case of Indebtedness sold at a discount, the amount of such
Indebtedness shall at all times be the aggregate principal amount at Stated
Maturity.  For purposes of this definition, Indebtedness of the
Company or a Restricted Subsidiary held by a Wholly Owned Subsidiary shall be
deemed to be Incurred by the Company or such Restricted Subsidiary in the event
such Indebtedness is transferred to a Person other than the Company or a Wholly
Owned Subsidiary.

     

    “Indebtedness” means at any
time (without duplication), with respect to any Person, whether recourse is to
all or a portion of the assets of such Person, and whether or not
contingent:

     

    (a)           any
obligation of such Person for borrowed money;

     

    (b)           any
obligation of such Person evidenced by bonds, debentures, notes, Guarantees or
other similar instruments, including any such obligations Incurred in connection
with the acquisition of Property, assets or business;

     

    (c)           any
reimbursement obligation of such Person with respect to letters of credit,
bankers’ acceptances or similar facilities issued for the account of such
Person;

     

    
      
         

      

      
        15

        
          

        

      

      
         

      

    

    (d)           any
obligation of such Person issued or assumed as the deferred purchase price of
Property or services (other than Trade Accounts Payable);

     

    (e)           any
Capital Lease Obligation of such Person;

     

    (f)           the
maximum fixed redemption or repurchase price of Disqualified Stock of such
Person at the time of determination;

     

    (g)           any
Preferred Stock of any Restricted Subsidiary, provided that such Restricted
Subsidiary is not a Subsidiary Guarantor;

     

    (h)           any
payment obligation of such Person under Exchange Rate Contracts, Interest Rate
Protection Agreements, Oil and Gas Hedging Contracts or under any similar
agreements or instruments;

     

    (i)           any
obligation to pay rent or other payment amounts of such Person with respect to
any Sale and Leaseback Transaction to which such Person is a party;

     

    (j)           any
obligation of the type referred to in clauses (a) through (i) of this definition
of another Person and all dividends of another Person the payment of which, in
either case, such Person has Guaranteed or is responsible or liable, directly or
indirectly, as obligor, Guarantor or otherwise; and

     

    (k)           all
obligations of the type referred to in clauses (a) through (i) of this
definition of another Person secured by any Lien on any Property of such Person
(whether or not such obligation is assumed by such Person), the amount of such
obligation being deemed to be the lesser of the value of such Property or the
amount of the obligation so secured;

     

    provided, however, that
Indebtedness shall not include Production Payments and Reserve
Sales.  For purposes of this definition, the maximum fixed repurchase
price of any Disqualified Stock that does not have a fixed repurchase price
shall be calculated in accordance with the terms of such Disqualified Stock as
if such Disqualified Stock were repurchased on any date on which Indebtedness
shall be required to be determined pursuant to this Indenture; provided,
however, that if such Disqualified Stock is not then permitted to be
repurchased, the repurchase price shall be the book value of such Disqualified
Stock.  The amount of Indebtedness of any Person at any date shall be
the outstanding balance at such date of all unconditional obligations as
described above and the maximum liability at such date in respect of any
contingent obligations described above.

     

    “Interest Rate Protection
Agreement” means, with respect to any Person, any interest rate swap
agreement, forward rate agreement, interest rate cap or collar agreement or
other financial agreement or arrangement entered into by such Person in the
ordinary course of its business for the purpose of limiting or managing interest
rate risks to which such Person is subject.

     

    “Investment” means, with
respect to any Person:

     

    (a)           any
amount paid by such Person, directly or indirectly, to any other Person for
Capital Stock of, or as a capital contribution to, any other Person;
or

     

    
      
         

      

      
        16

        
          

        

      

      
         

      

    

    (b)           any
direct or indirect loan or advance to any other Person (other than accounts
receivable of such Person arising in the ordinary course of
business);

     

    provided, however, that
Investments shall not include:

     

    (1)           in
the case of clause (a) as used in the definition of “Restricted Payments” only,
any such amount paid through the issuance of Capital Stock of the Company (other
than Disqualified Stock); and

     

    (2)           in
the case of clause (a) or (b), extensions of trade credit on commercially
reasonable terms in accordance with normal trade practices and any increase in
the equity ownership in any Person resulting from retained earnings of such
Person.

     

    “Investment Grade Rating”
means a rating equal to or higher than Baa3 (or the equivalent) by Moody’s and
BBB- (or the equivalent) by S&P.

     

    “Issue Date” means the date on
which the Original 87⁄8% Notes first were issued under this
Indenture.

     

    “Lien” means, with respect to
any Property, any mortgage or deed of trust, pledge, hypothecation, assignment,
deposit arrangement, security interest, lien (statutory or other), charge,
easement, encumbrance, preference, priority or other security or similar
agreement or preferential arrangement of any kind or nature whatsoever on or
with respect to such Property (including any conditional sale or other title
retention agreement having substantially the same economic effect as any of the
foregoing).  For purposes of Section 4.10, a Capital Lease Obligation
shall be deemed to be secured by a Lien on the Property being
leased.

     

    “Liquid Securities” means
securities:

     

    (a)           of
an issuer that is not an Affiliate of the Company;

     

    (b)           that
are publicly traded on the New York Stock Exchange, the NYSE Amex Equities
(formerly known as the American Stock Exchange) or the Nasdaq National Market;
and

     

    (c)           as
to which the Company is not subject to any restrictions on sale or transfer
(including any volume restrictions under Rule 144 under the Securities Act or
any other restrictions imposed by the Securities Act) or as to which a
registration statement under the Securities Act covering the resale thereof is
in effect for as long as the securities are held;

     

    provided that securities
meeting the requirements or clauses (a), (b) and (c) above shall be treated as
Liquid Securities from the date of receipt thereof until and only until the
earlier of:

     

    (1)           the
date on which such securities are sold or exchanged for cash or Permitted
Short-Term Investments, and

     

    
      
         

      

      
        17

        
          

        

      

      
         

      

    

    (2)           240
days following the date of receipt of such securities.  If such
securities are not sold or exchanged for cash or Permitted Short-Term
Investments within 240 days of receipt thereof, for purposes of determining
whether the transaction pursuant to which the Company or the Restricted
Subsidiary received the securities was in compliance with Section 4.14 such
securities shall be deemed not to have been Liquid Securities at any
time.

     

    “Material Change” means an
increase or decrease (except to the extent resulting from changes in prices) of
more than 30% during a fiscal quarter in the estimated discounted future net
revenues from proved oil and gas reserves of the Company and its Restricted
Subsidiaries, calculated in accordance with clause (a)(1) of the definition of
Adjusted Consolidated Net Tangible Assets; provided, however, that the
following will be excluded from the calculation of Material Change:

     

    (a)           any
acquisitions during the quarter of oil and gas reserves with respect to which
the Company’s estimate of the discounted future net revenues from proved oil and
gas reserves has been confirmed by independent petroleum engineers;
and

     

    (b)           any
dispositions of Properties during such quarter that were disposed of in
compliance with Section 4.14.

     

    “Moody’s” means Moody’s
Investors Service, Inc. and its successors.

     

    “Net Available Cash” from an
Asset Sale means cash proceeds received therefrom, including:

     

    (a)           any
cash proceeds received by way of deferred payment of principal pursuant to a
note or installment receivable or otherwise, but only as and when received;
and

     

    (b)           the
Fair Market Value of Liquid Securities and Permitted Short-Term Investments, and
excluding:

     

    (1)           any
other consideration received in the form of assumption by the acquiring Person
of Indebtedness or other obligations relating to the Property that is the
subject of such Asset Sale, and

     

    (2)           except
to the extent converted within 240 days after such Asset Sale to cash, Liquid
Securities or Permitted Short-Term Investments, consideration constituting
Exchanged Properties or consideration other than as identified in the
immediately preceding clauses (a) and (b),

     

    in each
case net of:

     

    (a)           all
legal, title and recording expenses, commissions and other fees and expenses
Incurred, and all federal, state, foreign and local taxes required to be paid or
accrued as a liability under GAAP as a consequence of such Asset
Sale;

     

    
      
         

      

      
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    (b)           all
payments made on any Indebtedness (but specifically excluding Indebtedness of
the Company and its Restricted Subsidiaries assumed in connection with or in
anticipation of such Asset Sale) that is secured by any assets subject to such
Asset Sale, in accordance with the terms of any Lien upon such assets, or that
must by its terms, or in order to obtain a necessary consent to such Asset Sale
or by applicable law, be repaid out of the proceeds from such Asset Sale,
provided that such payments are made in a manner that results in the permanent
reduction in the balance of such Indebtedness and, if applicable, a permanent
reduction in any outstanding commitment for future Incurrences of Indebtedness
thereunder;

     

    (c)           all
distributions and other payments required to be made to minority interest
holders in Subsidiaries or joint ventures as a result of such Asset Sale;
and

     

    (d)           the
deduction of appropriate amounts to be provided by the seller as a reserve, in
accordance with GAAP, against any liabilities associated with the assets
disposed of in such Asset Sale and retained by the Company or any Restricted
Subsidiary after such Asset Sale;

     

    provided, however, that if
any consideration for an Asset Sale (which would otherwise constitute Net
Available Cash) is required to be held in escrow pending determination of
whether a purchase price adjustment will be made, such consideration (or any
portion thereof) shall become Net Available Cash only at such time as it is
released to such Person or its Restricted Subsidiaries from escrow.

     

    “Net Working Capital”
means:

     

    (a)           all
current assets of the Company and its Restricted Subsidiaries; less

     

    (b)           all
current liabilities of the Company and its Restricted Subsidiaries, except
current liabilities included in Indebtedness,

     

    in each
case as set forth in consolidated financial statements of the Company prepared
in accordance with GAAP.

     

    “Non-recourse Purchase Money
Indebtedness” means Indebtedness (other than Capital Lease Obligations)
of the Company or any Restricted Subsidiary Incurred in connection with the
acquisition by the Company or such Restricted Subsidiary in the ordinary course
of business of fixed assets used in the Oil and Gas Business (including office
buildings and other real property used by the Company or such Restricted
Subsidiary in conducting its operations) with respect to which:

     

    (a)           the
holders of such Indebtedness agree that they will look solely to the fixed
assets so acquired that secure such Indebtedness, and neither the Company nor
any Restricted Subsidiary:

     

    (1)           is
directly or indirectly liable for such Indebtedness, or

     

    
      
         

      

      
        19

        
          

        

      

      
         

      

    

    (2)           provides
credit support, including any undertaking, Guarantee, agreement or instrument
that would constitute Indebtedness (other than the grant of a Lien on such
acquired fixed assets); and

     

    (b)           no
default or event of default with respect to such Indebtedness would cause, or
permit (after notice or passage of time or otherwise), any holder of any other
Indebtedness of the Company or a Restricted Subsidiary to declare a default on
such other Indebtedness or cause the payment, repurchase, redemption, defeasance
or other acquisition or retirement for value thereof to be accelerated or
payable prior to any scheduled principal payment, scheduled sinking fund payment
or maturity.

     

    “Oil and Gas Business” means
the business of exploiting, exploring for, developing, acquiring, operating,
producing, processing, gathering, marketing, storing, selling, hedging,
treating, swapping, refining and transporting hydrocarbons and other related
energy businesses.

     

    “Oil and Gas Hedging Contract”
means, with respect to any Person, any agreement or arrangement, or any
combination thereof, relating to oil and gas or other hydrocarbon prices,
transportation or basis costs or differentials or other similar financial
factors, that is customary in the Oil and Gas Business and is entered into by
such Person in the ordinary course of its business for the purpose of limiting
or managing risks associated with fluctuations in such prices, costs,
differentials or similar factors.

     

    “Oil and Gas Liens”
means:

     

    (a)           Liens
on any specific Property or any interest therein, construction thereon or
improvement thereto to secure all or any part of the costs incurred for
surveying, exploration, drilling, extraction, development, operation,
production, construction, alteration, repair or improvement of, in, under or on
such Property and the plugging and abandonment of wells located thereon (it
being understood that, in the case of oil and gas producing properties, or any
interest therein, costs incurred for “development” shall include costs incurred
for all facilities relating to such properties or to projects, ventures or other
arrangements of which such properties form a part or which relate to such
properties or interests);

     

    (b)           Liens
on an oil or gas producing property to secure obligations incurred or guarantees
of obligations incurred in connection with or necessarily incidental to
commitments for the purchase or sale of, or the transportation or distribution
of, the products derived from such Property;

     

    (c)           Liens
arising under partnership agreements, oil and gas leases, overriding royalty
agreements, net profits agreements, production payment agreements, royalty trust
agreements, incentive compensation programs for geologists, geophysicists and
other providers of technical services to the Company or a Restricted Subsidiary,
master limited partnership agreements, farm-out agreements, farm-in agreements,
division orders, contracts for the sale, purchase, exchange, transportation,
gathering or processing of oil, gas or other hydrocarbons, unitizations and
pooling designations, declarations, orders and agreements, development
agreements, operating agreements, production sales contracts, area of mutual
interest agreements, gas balancing or deferred production agreements, injection,
repressuring and

     

    
      
         

      

      
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    recycling
agreements, salt water or other disposal agreements, seismic or geophysical
permits or agreements, and other agreements that are customary in the Oil and
Gas Business; provided, however, in all instances that such Liens are limited to
the assets that are the subject of the relevant agreement, program, order or
contract;

     

    (d)           Liens
arising in connection with Production Payments and Reserve Sales;
and

     

    (e)           Liens
on pipelines or pipeline facilities that arise by operation of law.

     

    “Permitted Business
Investments” means Investments and expenditures made in the ordinary
course of, and of a nature that is or shall have become customary in, the Oil
and Gas Business as a means of actively engaging therein through agreements,
transactions, interests or arrangements that permit one to share risks or costs,
comply with regulatory requirements regarding local ownership or satisfy other
objectives customarily achieved through the conduct of Oil and Gas Business
jointly with third parties, including:

     

    (a)           ownership
interests in oil and gas properties or gathering, transportation, processing,
storage or related systems; and

     

    (b)           Investments
and expenditures in the form of or pursuant to operating agreements, processing
agreements, farm-in agreements, farm-out agreements, development agreements,
area of mutual interest agreements, unitization agreements, pooling
arrangements, joint bidding agreements, service contracts, joint venture
agreements, partnership agreements (whether general or limited) and other
similar agreements (including for limited liability companies) with third
parties, excluding, however, Investments in corporations other than Restricted
Subsidiaries.

     

    “Permitted Hedging Agreements”
means:

     

    (a)           Exchange
Rate Contracts and Oil and Gas Hedging Contracts; and

     

    (b)           Interest
Rate Protection Agreements but only to the extent that the stated aggregate
notional amount thereunder does not exceed 100% of the aggregate principal
amount of the Indebtedness of the Company or a Restricted Subsidiary covered by
such Interest Rate Protection Agreements at the time such agreements were
entered into.

     

    “Permitted Indebtedness” means
any and all of the following:

     

    (a)           Indebtedness
arising under this Indenture with respect to the Original 87⁄8% Notes and any
Subsidiary Guaranties relating thereto;

     

    (b)           Indebtedness
under Bank Credit Facilities, provided that the aggregate principal amount of
all Indebtedness under Bank Credit Facilities, at any one time outstanding does
not exceed the greater of:

     

    (1)           $300.0
million and

     

    
      
         

      

      
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    (2)           an
amount equal to the sum of:

     

    (A)           $150.0
million, and

     

    (B)           25%
of Adjusted Consolidated Net Tangible Assets determined as of the date of
Incurrence of such Indebtedness,

     

    and, in
the case of either (1) or (2), plus all interest and fees and other obligations
thereunder and any Guarantee of such Indebtedness;

     

    (c)           Indebtedness
of the Company owing to and held by any Wholly Owned Subsidiary and Indebtedness
of a Restricted Subsidiary owing to and held by the Company or any Wholly Owned
Subsidiary; provided, however, that any subsequent issue or transfer of Capital
Stock or other event that results in any such Wholly Owned Subsidiary ceasing to
be a Wholly Owned Subsidiary or any subsequent transfer of any such Indebtedness
(except to the Company or a Wholly Owned Subsidiary) shall be deemed, in each
case, to constitute the Incurrence of such Indebtedness by the issuer
thereof;

     

    (d)           Indebtedness
in respect of bid, performance, reimbursement or surety obligations issued by or
for the account of the Company or any Restricted Subsidiary in the ordinary
course of business, including Guarantees and letters of credit functioning as or
supporting such bid, performance, reimbursement or surety obligations (in each
case other than for an obligation for money borrowed);

     

    (e)           Indebtedness
under Permitted Hedging Agreements;

     

    (f)           in-kind
obligations relating to oil or gas balancing positions arising in the ordinary
course of business;

     

    (g)           Indebtedness
outstanding on the Issue Date not otherwise permitted in clauses (a) through (f)
above;

     

    (h)           Non-recourse
Purchase Money Indebtedness;

     

    (i)           Indebtedness
not otherwise permitted to be Incurred pursuant to this definition (excluding
any Indebtedness Incurred pursuant to clause (a) of Section 4.11), provided that
the aggregate principal amount of all Indebtedness Incurred pursuant to this
clause (i), together with all Indebtedness Incurred pursuant to clause (j) of
this definition in respect of Indebtedness previously Incurred pursuant to this
clause (i), at any one time outstanding does not exceed the greater of (1) $50.0
million and (2) 2.0% of Adjusted Consolidated Net Tangible Assets determined as
of the date of Incurrence of such Indebtedness;

     

    (j)           Indebtedness
Incurred in exchange for, or the proceeds of which are used to
refinance:

     

    (1)           Indebtedness
referred to in clauses (a), (g), (h), (i) and (l) of this definition (including
Indebtedness previously Incurred pursuant to this clause (j)), and

     

    
      
         

      

      
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    (2)           Indebtedness
Incurred pursuant to clause (a) of Section 4.11,

     

    provided that, in the case of
each of the foregoing clauses (1) and (2), such Indebtedness is Permitted
Refinancing Indebtedness;

     

    (k)           Indebtedness
consisting of obligations in respect of purchase price adjustments, indemnities
or Guarantees of the same or similar matters in connection with the acquisition
or disposition of Property; and

     

    (l)           Acquired
Debt Incurred in connection with a transaction meeting either one of the
financial tests set forth in clause (d) of Section 10.01.

     

    “Permitted Investments” means
any and all of the following:

     

    (a)           Permitted
Short-Term Investments;

     

    (b)           Investments
in property, plant and equipment used in the ordinary course of business and
Permitted Business Investments;

     

    (c)           Investments
by any Restricted Subsidiary in the Company;

     

    (d)           Investments
by the Company or any Restricted Subsidiary in any Restricted
Subsidiary;

     

    (e)           Investments
by the Company or any Restricted Subsidiary:

     

    (1)           in
any Person that will, upon the making of such Investment, become a Restricted
Subsidiary, or

     

    (2)           if
as a result of such Investment such Person is merged or consolidated with or
into, or transfers or conveys all or substantially all its Property to, the
Company or a Restricted Subsidiary;

     

    (f)           Investments
in the form of securities received from Asset Sales, provided that such Asset
Sales are made in compliance with Section 4.14;

     

    (g)           Investments
in negotiable instruments held for collection; lease, utility and other similar
deposits; and stock, obligations or other securities received in settlement of
debts (including under any bankruptcy or other similar proceeding) owing to the
Company or any of its Restricted Subsidiaries as a result of foreclosure,
perfection or enforcement of any Liens or Indebtedness, in each of the foregoing
cases in the ordinary course of business of the Company or such Restricted
Subsidiary;

     

    (h)           relocation
allowances for, and advances and loans in compliance with the Sarbanes-Oxley Act
of 2002 to, officers, directors and employees of the Company or any of its
Restricted Subsidiaries made in the ordinary course of business, provided such
items do not exceed in the aggregate $2.0 million at any one time
outstanding;

     

    
      
         

      

      
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    (i)           Investments
intended to promote the Company’s strategic objectives in the Oil and Gas
Business in an amount not to exceed 6.0% of Adjusted Consolidated Net Tangible
Assets (determined as of the date of the making of any such Investment) at any
one time outstanding, which Investments shall be deemed to be no longer
outstanding only to the extent of dividends, repayments of loans or advances or
other transfers of Property or returns of capital received by the Company or any
Restricted Subsidiary from such Persons, provided that, for purposes of Section
4.12 the receiving of such amounts by the Company or its Restricted Subsidiaries
does not increase the amount of Restricted Payments that the Company and its
Restricted Subsidiaries may make pursuant to Section 4.12(c)(5)(A);

     

    (j)           Investments
made pursuant to Permitted Hedging Agreements of the Company and its Restricted
Subsidiaries; and

     

    (k)           Investments
pursuant to any agreement or obligation of the Company or any of its Restricted
Subsidiaries as in effect on the Issue Date (other than Investments described in
clauses (a) through (j) above), provided that Investments made pursuant to this
clause (k) shall be included in the calculation of Restricted
Payments.

     

    “Permitted Liens” means any
and all of the following:

     

    (a)           Liens
on any Property of the Company and any Subsidiary Guarantor securing
Indebtedness and other obligations under Bank Credit Facilities that are
permitted to be Incurred by clause (b) of the definition of Permitted
Indebtedness;

     

    (b)           Liens
existing as of the Issue Date;

     

    (c)           Liens
securing the 87⁄8% Notes, any Subsidiary Guaranties and other obligations arising
under this Indenture;

     

    (d)           any
Lien existing on any Property of a Person at the time such Person is merged or
consolidated with or into the Company or a Restricted Subsidiary or becomes a
Restricted Subsidiary (and not incurred in anticipation of or in connection with
such transaction), provided that such Liens are not extended to other Property
of the Company or the Restricted Subsidiaries;

     

    (e)           any
Lien existing on any Property at the time of the acquisition thereof (and not
incurred in anticipation of or in connection with such transaction), provided
that such Lien is not extended to other Property of the Company or the
Restricted Subsidiaries;

     

    (f)           any
Lien incurred in the ordinary course of business incidental to the conduct of
the business of the Company or the Restricted Subsidiaries or the ownership of
their Property, including:

     

    (1)           easements,
rights of way and similar encumbrances,

     

    (2)           rights
or title of lessors under leases (other than Capital Lease
Obligations),

     

    
      
         

      

      
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    (3)           rights
of collecting banks having rights of setoff, revocation, refund or chargeback
with respect to money or instruments of the Company or the Restricted
Subsidiaries on deposit with or in the possession of such banks,

     

    (4)           Liens
imposed by law, including Liens under workers’ compensation or similar
legislation and mechanics’, carriers’, warehousemen’s, materialmen’s, suppliers’
and vendors’ Liens,

     

    (5)           Liens
incurred to secure performance of obligations with respect to statutory or
regulatory requirements, performance or return-of-money bonds, surety bonds or
other obligations of a like nature and incurred in a manner consistent with
industry practice, and

     

    (6)           Oil
and Gas Liens,

     

    in each
case that are not incurred in connection with the borrowing of money, the
obtaining of advances or credit or the payment of the deferred purchase price of
Property (other than Trade Accounts Payable);

     

    (g)           Liens
for taxes, assessments and governmental charges not yet due or the validity of
which is being contested in good faith by appropriate proceedings, promptly
instituted and diligently conducted, and for which adequate reserves have been
established to the extent required by GAAP as in effect at such
time;

     

    (h)           Liens
incurred to secure appeal bonds and judgment and attachment Liens, in each case
in connection with litigation or legal proceedings that are being contested in
good faith by appropriate proceedings so long as reserves have been established
to the extent required by GAAP as in effect at such time and so long as such
Liens do not encumber assets by an aggregate amount (together with the amount of
any unstayed judgments against the Company or any Restricted Subsidiary but
excluding any such Liens to the extent securing insured or indemnified judgments
or orders) in excess of $20.0 million;

     

    (i)           Liens
securing Permitted Hedging Agreements of the Company and its Restricted
Subsidiaries;

     

    (j)           Liens
securing Capital Lease Obligations, provided that such Capital Lease Obligations
are permitted under Section 4.11 and the Liens attach only to the Property
acquired with the proceeds of such Capital Lease Obligations;

     

    (k)           Liens
securing Non-recourse Purchase Money Indebtedness granted in connection with the
acquisition by the Company or any Restricted Subsidiary in the ordinary course
of business of fixed assets used in the Oil and Gas Business (including office
buildings and other real property used by the Company or such Subsidiary
Guarantor in conducting its operations), provided that:

     

    (1)           such
Liens attach only to the fixed assets acquired with the proceeds of such
Non-recourse Purchase Money Indebtedness, and

     

    
      
         

      

      
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    (2)           such
Non-recourse Purchase Money Indebtedness is not in excess of the purchase price
of such fixed assets;

     

    (l)           Liens
resulting from the deposit of funds or evidences of Indebtedness in trust for
the purpose of decreasing or legally defeasing Indebtedness of the Company or
any of its Subsidiaries so long as such deposit of funds is permitted under
Section 4.12;

     

    (m)           Liens
resulting from a pledge of Capital Stock of a Person that is not a Restricted
Subsidiary to secure obligations of such Person and any refinancings
thereof;

     

    (n)           Liens
to secure any permitted extension, renewal, refinancing, refunding or exchange
(or successive extensions, renewals, refinancings, refundings or exchanges), in
whole or in part, of or for any Indebtedness secured by Liens referred to in
clauses (a), (b), (c), (d), (i) and (j) above; provided, however,
that:

     

    (1)           such
new Lien shall be limited to all or part of the same Property (including future
improvements thereon and accessions thereto) subject to the original Lien,
and

     

    (2)           the
Indebtedness secured by such Lien at such time is not increased to any amount
greater than the sum of:

     

    (A)           the
outstanding principal amount or, if greater, the committed amount of the
Indebtedness secured by such original Lien immediately prior to such extension,
renewal, refinancing, refunding or exchange, and

     

    (B)           an
amount necessary to pay any fees and expenses, including premiums, related to
such refinancing, refunding, extension, renewal or replacement;

     

    (o)           Liens
in favor of the Company or a Restricted Subsidiary; and

     

    (p)           Liens
not otherwise permitted by clauses (a) through (o) above incurred in the
ordinary course of business of the Company and its Restricted Subsidiaries and
encumbering Property having an aggregate Fair Market Value not in excess of the
greater of (1) $10.0 million and (2) 0.5% of Adjusted Consolidated Net Tangible
Assets as of the date of Incurrence of any such Lien.

     

    Notwithstanding
anything in this definition to the contrary, the term “Permitted Liens” does not
include Liens resulting from the creation, incurrence, issuance, assumption or
Guarantee of any Production Payments and Reserve Sales other than:

     

    (a)           any
such Liens existing as of the Issue Date;

     

    (b)           Production
Payments and Reserve Sales in connection with the acquisition of any Property
after the Issue Date, provided that any such Lien created in connection
therewith is created, incurred, issued, assumed or guaranteed in connection with
the financing of, and within 60 days after the acquisition of, such
Property;

     

    
      
         

      

      
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    (c)           Production
Payments and Reserve Sales, other than those described in clauses (a) and (b) of
this sentence, to the extent such Production Payments and Reserve Sales
constitute Asset Sales made pursuant to and in compliance with Section 4.14;
and

     

    (d)           incentive
compensation programs for geologists, geophysicists and other providers of
technical services to the Company or a Restricted Subsidiary;

     

    provided, however, that, in
the case of the immediately foregoing clauses (a), (b), (c) and (d), any Lien
created in connection with any such Production Payments and Reserve Sales shall
be limited to the Property that is the subject of such Product Payments and
Reserve Sales.

     

    “Permitted Refinancing
Indebtedness” means Indebtedness (“New Indebtedness”) Incurred in
exchange for, or proceeds of which are used to refinance, other Indebtedness
(“Old Indebtedness”); provided, however,
that:

     

    (a)           such
New Indebtedness is in an aggregate principal amount not in excess of the sum
of:

     

    (1)           the
aggregate principal amount then outstanding of the Old Indebtedness (or, if such
Old Indebtedness provides for an amount less than the principal amount thereof
to be due and payable upon a declaration of acceleration thereof, such lesser
amount as of the date of determination), and

     

    (2)           an
amount necessary to pay any fees and expenses, including premiums, related to
such exchange or refinancing;

     

    (b)           such
New Indebtedness has a Stated Maturity no earlier than the Stated Maturity of
the Old Indebtedness;

     

    (c)           such
New Indebtedness has an Average Life at the time such New Indebtedness is
Incurred that is equal to or greater than the Average Life of the Old
Indebtedness at such time;

     

    (d)           such
New Indebtedness is subordinated in right of payment to the 87⁄8% Notes (or, if
applicable, the Subsidiary Guaranties) to at least the same extent, if any, as
the Old Indebtedness; and

     

    (e)           if
such Old Indebtedness is Non-recourse Purchase Money Indebtedness or
Indebtedness that refinanced Non-recourse Purchase Money Indebtedness, such New
Indebtedness satisfies clauses (a) and (b) of the definition of “Non-recourse
Purchase Money Indebtedness.”

     

    “Permitted Short-Term
Investments” means:

     

    (a)           Investments
in U.S.  Government Obligations maturing within one year of the date
of acquisition thereof;

     

    
      
         

      

      
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    (b)           Investments
in demand accounts, time deposit accounts, certificates of deposit, bankers’
acceptances and money market deposits maturing within one year of the date of
acquisition thereof issued by a bank or trust company that is organized under
the laws of the United States of America or any State thereof or the District of
Columbia that is a member of the Federal Reserve System having capital, surplus
and undivided profits aggregating in excess of $500.0 million and whose
long-term Indebtedness is rated “A” (or higher) according to
Moody’s;

     

    (c)           Investments
in deposits available for withdrawal on demand with any commercial bank that is
organized under the laws of any country in which the Company or any Restricted
Subsidiary maintains an office or is engaged in the Oil and Gas Business,
provided that:

     

    (1)           all
such deposits have been made in such accounts in the ordinary course of
business, and

     

    (2)           such
deposits do not at any one time exceed $15.0 million in the
aggregate;

     

    (d)           repurchase
and reverse repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (a) entered into with a
bank meeting the qualifications described in clause (b);

     

    (e)           Investments
in commercial paper or notes, maturing not more than one year after the date of
acquisition, issued by a corporation (other than an Affiliate of the Company)
organized and in existence under the laws of the United States of America or any
State thereof or the District of Columbia with a short-term rating at the time
as of which any Investment therein is made of “P-1” (or higher) according to
Moody’s or “A-1” (or higher) according to S&P or a long-term rating at the
time as of which any Investment is made of “A3” (or higher) according to Moody’s
or “A-” (or higher) according to S&P;

     

    (f)           Investments
in any money market mutual fund having assets in excess of $250.0 million all of
which consist of other obligations of the types described in clauses (a), (b),
(d) and (e) hereof; and

     

    (g)           Investments
in asset-backed securities maturing within one year of the date of acquisition
thereof with a long-term rating at the time as of which any Investment therein
is made of “A3” (or higher) according to Moody’s or “A-” (or higher) according
to S&P.

     

    “Person” means any individual,
corporation, partnership, joint venture, limited liability company, unlimited
liability company, trust, estate, unincorporated organization or government or
any agency or political subdivision thereof.

     

    “Preferred Stock” of any
Person means Capital Stock of such Person of any class or classes (however
designated) that ranks prior, as to the payment of dividends or as to the
distribution of assets upon any voluntary or involuntary liquidation,
dissolution or winding up of such Person, to shares of Capital Stock of any
other class of such Person.

     

    
      
         

      

      
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    “Preferred Stock Dividends”
means all dividends with respect to Preferred Stock of Restricted Subsidiaries
held by Persons other than the Company or a Wholly Owned
Subsidiary.  The amount of any such dividend shall be equal to the
quotient of such dividend divided by the difference between one and the maximum
statutory federal income rate (expressed as a decimal number between 1 and 0)
then applicable to the issuer of such Preferred Stock.

     

    “Production Payments and Reserve
Sales” means the grant or transfer by the Company or a Restricted
Subsidiary to any Person of a royalty, overriding royalty, net profits interest,
production payment (whether volumetric or dollar denominated), partnership or
other interest in oil and gas properties, reserves or the right to receive all
or a portion of the production or the proceeds from the sale of production
attributable to such properties where the holder of such interest has recourse
solely to such production or proceeds of production, subject to the obligation
of the grantor or transferor to operate and maintain, or cause the subject
interests to be operated and maintained, in a reasonably prudent manner or other
customary standard or subject to the obligation of the grantor or transferor to
indemnify for environmental, title or other matters customary in the Oil and Gas
Business, including any such grants or transfers pursuant to incentive
compensation programs on terms that are reasonably customary in the Oil and Gas
Business for geologists, geophysicists and other providers of technical services
to the Company or a Restricted Subsidiary.

     

    “Property” means, with respect
to any Person, any interest of such Person in any kind of property or asset,
whether real, personal, or mixed, or tangible or intangible, including Capital
Stock and other securities issued by any other Person (but excluding Capital
Stock or other securities issued by such first mentioned Person).

     

    “Quotation Agent” means the
Reference Treasury Dealer selected by the Trustee after consultation with the
Company.

     

    “Rating Category”
means:

     

    (1)           with
respect to S&P, any of the following categories:  AAA, AA, A, BBB,
BB, B, CCC, CC, C and D (or equivalent successor categories); and

     

    (2)           with
respect to Moody’s, any of the following categories:  Aaa, Aa, A, Baa,
Ba, B, Caa, Ca, C and D (or equivalent successor categories).

     

    “Rating Decline” means a
decrease in the rating of the 87⁄8% Notes by either Moody’s or S&P by one or
more gradations (including gradations within Rating Categories as well as
between Rating Categories).  In determining whether the rating of the
87⁄8% Notes has decreased by one or more gradations, gradations within Rating
Categories, namely + or – for S&P, and 1, 2, and 3 for Moody’s, will be
taken into account; for example, in the case of S&P, a rating decline either
from BB+ to BB or BB– to B+ will constitute a decrease of one
gradation.

     

    “Reference Date” means April
1, 2004.

     

    “Reference Treasury Dealer”
means J.P.Morgan Securities Inc. and its successors and assigns and two other
nationally recognized investment banking firms selected by the Company, each of
which is a primary U.S. Government securities dealer.

     

    
      
         

      

      
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    “Reference Treasury Dealer
Quotations” means, with respect to each Reference Treasury Dealer and any
redemption date, the average, as determined by the Trustee, of the bid and asked
prices for the Comparable Treasury Issue, expressed in each case as a percentage
of its principal amount, quoted in writing to the Trustee by such Reference
Treasury Dealer at 5:00 p.m., New York City Time, on the third Business Day
immediately preceding such redemption date.

     

    “Restricted Payment”
means:

     

    (a)           a
dividend or other distribution declared or paid on the Capital Stock of the
Company or to the Company’s shareholders (other than dividends, distributions or
payments made solely in Capital Stock (other than Disqualified Stock of the
Company) of the Company or in options, warrants or other rights to purchase or
acquire Capital Stock (other than Disqualified Stock)), or declared and paid to
any Person other than the Company or any of its Restricted Subsidiaries (and, if
such Restricted Subsidiary is not a Wholly Owned Subsidiary, to the other
shareholders of such Restricted Subsidiary on a pro rata basis or on a basis
that results in the receipt by the Company or a Restricted Subsidiary of
dividends or distributions of greater value than it would receive on a pro rata
basis) on the Capital Stock of any Restricted Subsidiary;

     

    (b)           a
payment made by the Company or any of its Restricted Subsidiaries (other than to
the Company or any Restricted Subsidiary) to purchase, redeem, acquire or retire
any Capital Stock, or any options, warrants or other rights to acquire Capital
Stock, of the Company or of a Restricted Subsidiary;

     

    (c)           a
payment made by the Company or any of its Restricted Subsidiaries to redeem,
repurchase, legally defease or otherwise acquire or retire for value (including
pursuant to mandatory repurchase covenants), prior to any scheduled maturity,
scheduled sinking fund or scheduled mandatory redemption, any Subordinated
Indebtedness of the Company or a Guarantor, provided that this clause (c) shall
not include any such payment with respect to:

     

    (1)           any
such Subordinated Indebtedness to the extent of Excess Proceeds (as defined in
Section 4.14) remaining after compliance with Section 4.14 and to the extent
required by this Indenture or other agreement or instrument pursuant to which
such Subordinated Indebtedness was issued, or

     

    (2)           the
purchase, repurchase or other acquisition of any such subordinated Indebtedness
purchased in anticipation of satisfying a scheduled maturity, scheduled sinking
fund or scheduled mandatory redemption, in each case due within one year of the
date of acquisition; or

     

    (d)           an
Investment (other than a Permitted Investment) by the Company or a Restricted
Subsidiary in any Person.

     

    “Restricted Subsidiary” means
any Subsidiary of the Company that has not been designated an Unrestricted
Subsidiary pursuant Section 4.19.

     

    “87⁄8% Notes” means the 87⁄8%
Senior Notes due 2020 of the Company.

     

    
      
         

      

      
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    “S&P” means Standard &
Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., and its
successors.

     

    “Sale and Leaseback
Transaction” means, with respect to any Person, any direct or indirect
arrangement (excluding, however, any such arrangement between such Person and a
Wholly Owned Subsidiary of such Person or between one or more Wholly Owned
Subsidiaries of such Person) pursuant to which Property is sold or transferred
by such Person or a Restricted Subsidiary of such Person and is thereafter
leased back from the purchaser or transferee thereof by such Person or one of
its Restricted Subsidiaries.

     

    “SEC” means the Securities and
Exchange Commission.

     

    “Senior Indebtedness” when
used with respect to the Company means the obligations of the Company with
respect to Indebtedness of the Company, whether outstanding on the Issue Date or
thereafter Incurred, and any renewal, refunding, refinancing, replacement or
extension thereof, unless, in the case of any particular Indebtedness, the
instrument creating or evidencing the same or pursuant to which the same is
outstanding expressly provides that such Indebtedness shall be subordinate in
right of payment to the 87⁄8% Notes; provided, however, that Senior Indebtedness
of the Company shall not include:

     

    (a)           Indebtedness
of the Company to a Subsidiary of the Company;

     

    (b)           Indebtedness
Incurred in violation of this Indenture;

     

    (c)           amounts
payable or any other Indebtedness to employees of the Company or any Subsidiary
of the Company;

     

    (d)           any
Indebtedness of the Company that, when Incurred and without regard to any
election under Section 1111(b) of the United States Bankruptcy Code, was without
recourse to the Company;

     

    (e)           Subordinated
Indebtedness of the Company;

     

    (f)           obligations
with respect to any Capital Stock of the Company; and

     

    (g)           in-kind
obligations relating to net oil and gas balancing positions.

     

    “Senior Indebtedness” of any
Subsidiary Guarantor has a correlative meaning.

     

    “Senior Indebtedness Offer”
means an offer by us or a Subsidiary Guarantor to purchase all or a portion of
Senior Indebtedness to the extent required by the indenture or other agreement
or instrument pursuant to which such Senior Indebtedness was
issued.

     

    “Significant Subsidiary”
means, at any date of determination, any Restricted Subsidiary that would be a
“Significant Subsidiary” of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.

     

    
      
         

      

      
        31

        
          

        

      

      
         

      

    

    “Stated Maturity” when used
with respect to any security or any installment of principal thereof or interest
thereon, means the date specified in such security as the fixed date on which
the principal of such security or such installment of principal or interest is
due and payable, including pursuant to any mandatory redemption provision (but
excluding any provision providing for the repurchase of such security at the
option of the holder thereof upon the happening of any contingency unless such
contingency has occurred).

     

    “Subordinated Indebtedness”
means Indebtedness of the Company (or a Subsidiary Guarantor) that is
subordinated or junior in right of payment to the 87⁄8% Notes (or a Subsidiary
Guaranty, as appropriate) pursuant to a written agreement to that
effect.

     

    “Subsidiary” of a Person
means:

     

    (a)           another
Person that is a corporation a majority of whose Voting Stock is at the time,
directly or indirectly, owned or controlled by:

     

    (1)           the
first Person,

     

    (2)           the
first Person and one or more of its Subsidiaries, or

     

    (3)           one
or more of the first Person’s Subsidiaries; or

     

    (b)           another
Person that is not a corporation (x) at least 50% of the Capital Stock of which,
and (y) the power to elect or direct the election of a majority of the directors
or other governing body of which are controlled by Persons referred to in clause
(1), (2) or (3) above.

     

    “Subsidiary Guarantors” means,
unless released from their Subsidiary Guaranties as permitted by this Indenture,
(i) Swift Energy Operating, LLC, (ii) any Restricted Subsidiary that becomes a
guarantor of the 87⁄8% Notes in compliance with the provisions of this Indenture
and executes a supplemental indenture agreeing to be bound by the terms of this
Indenture, and (iii) their respective successors.

     

    “Subsidiary Guaranty” means an
unconditional senior guaranty of the 87⁄8% Notes given by any Restricted
Subsidiary pursuant to the terms of this Indenture.

     

    “Trade Accounts Payable” means
accounts payable or other obligations of the Company or any Restricted
Subsidiary to trade creditors created or assumed by the Company or such
Restricted Subsidiary in the ordinary course of business in connection with the
obtaining of goods or services.

     

    “Unrestricted Subsidiary”
means:

     

    (a)           each
Subsidiary of the Company that the Company has designated pursuant to Section
4.19 as an Unrestricted Subsidiary; and

     

    (b)           any
Subsidiary of an Unrestricted Subsidiary.

     

    
      
         

      

      
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    “U.S. Government Obligations”
means securities that are:

     

    (a)           direct
obligations of the United States of America for the timely payment of which its
full faith and credit is pledged; or

     

    (b)           obligations
of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America, the timely payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States of America

     

    that, in
either case, are not callable or redeemable at the option of the issuer thereof,
and shall also include a depository receipt issued by a bank (as defined in
Section 3(a)(2) of the Securities Act), as custodian, with respect to any such
U.S. Government Obligation or a specific payment of principal of or interest on
any such U.S. Government Obligation held by such custodian for the account of
the holder of such depository receipt; provided, however, that (except as
required by law) such custodian is not authorized to make any deduction from the
amount payable to the holder of such depository receipt from any amount received
by the custodian in respect of the U.S. Government Obligation or the specific
payment or principal of or interest on the U.S. Government Obligation evidenced
by such depository receipt.

     

    “Volumetric Production
Payments” means production payment obligations recorded as deferred
revenue in accordance with GAAP, together with all undertakings and obligations
in connection therewith.

     

    “Voting Stock” of any Person
means Capital Stock of such Person that ordinarily has voting power for the
election of directors (or persons performing similar functions) of such Person
whether at all times or only so long as no senior class of securities has such
voting power by reason of any contingency.

     

    “Wholly Owned Subsidiary”
means, at any time, a Restricted Subsidiary of the Company all the Voting Stock
of which (other than directors’ qualifying shares) is at such time owned,
directly or indirectly, by the Company and its other Wholly Owned
Subsidiaries.

     

    SECTION
3.                      Amendments to Articles II
and III of the Original Indenture

     

    (a)           The
fourth paragraph of Section 2.07(b) of the Original Indenture is hereby amended
to read as follows:

     

    “The
Company shall not be required (a) to issue, register the transfer of or exchange
any Debt Securities for a period beginning at the opening of business 15 days
before any selection of Debt Securities of that series of like tenor to be
redeemed and ending at the closing of business on the day of that selection or
(b) to register the transfer of or exchange any Debt Securities selected called
or being called for redemption.”

     

    (b)           The
second paragraph of Section 3.02 of the Original Indenture is amended by adding
the words “(or, if the redemption price is not then determinable, the manner in
which it will be determined)” immediately after the words “are to be redeemed”
in the second line thereof.

     

    
      
         

      

      
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    (c)           The
fourth paragraph of Section 3.02 of the Original Indenture is amended in its
entirety to read as follows:

     

    “At or
prior to 11:00 a.m., New York City time, on the redemption date for any Debt
Securities, the Company shall deposit with the Trustee or with a paying agent
(or, if the Company is acting as its own paying agent, segregate and hold in
trust) an amount of money in the Currency in which such Debt Securities are
denominated (except as provided pursuant to Section 2.03) sufficient to pay the
redemption price of and accrued interest on (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date) such Registered Securities or any portions thereof that
are to be redeemed on that date.”

     

    (d)           The
first sentence of the fifth paragraph of Section 3.02 of the Original Indenture
is amended in its entirety with respect to the 87⁄8% Notes to read as
follows:

     

    “If less
than all the 87⁄8% Notes are to be redeemed at any time, selection of 87⁄8% Notes
for redemption will be made by the Trustee in compliance with the requirements
of the principal national securities exchange, if any, on which the 87⁄8% Notes
are listed, or, if the 87⁄8% Notes are not so listed, on a pro rata
basis.”

     

    (e)           The
first paragraph of Section 3.03 of the Original Indenture is amended in its
entirety to read as follows:

     

    “If
notice of redemption has been given as provided in Section 3.02, the Debt
Securities or portions of Debt Securities of the series with respect to which
such notice has been given shall become due and payable on the date and at the
Place or Places of Payment stated in such notice at the applicable redemption
price, together with any interest accrued to the date fixed for redemption
(subject to the right of Holders of record on the relevant record date to
receive interest due on the related interest payment date that is on or prior to
the date of redemption), and on and after said date (unless the Company shall
default in the payment of such Debt Securities at the applicable redemption
price, together with any interest accrued to said date) the interest on the Debt
Securities or portions of Debt Securities of any series so called for redemption
shall cease to accrue and any original issue discount in the case of Original
Issue Discount Debt Securities shall cease to accrue.  On presentation
and surrender of such Debt Securities at the Place or Places of Payment in said
notice specified, the said Debt Securities or the specified portions thereof
shall be paid and redeemed by the Company at the applicable redemption price,
together with any interest accrued thereon to the date fixed for
redemption.”

     

    (f)           Article
III of the Original Indenture is amended with respect to the 87⁄8% Notes by adding
Section 3.06 and Section 3.07 as follows:

     

    “SECTION
3.06.  Optional
Redemption.  Except as set forth in this Section 3.06 or in the
final paragraph of Section 4.20, the 87⁄8% Notes will not be

     

    
      
         

      

      
        34

        
          

        

      

      
         

      

    

    redeemable
at the option of the Company prior to their Stated Maturity.  On or
after January 15, 2015, the Company may redeem all or any portion of the
87⁄8% Notes, upon no less than 30 nor more than 60 days’ prior notice, at the
redemption prices set forth below, plus accrued and unpaid interest, if any, to
the redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment
date).  The following prices are for 87⁄8% Notes redeemed during the
12-month period commencing on January 15 of the years set forth below, and
are expressed as percentages of principal amount:

     

    
      	
              
                Year

              

            	
              
                Redemption
      Price

              

            
	 
      	
              2015

            	
              104.438%

            
	 
      	
              2016

            	
              102.958%

            
	 
      	
              2017

            	
              101.479%

            
	 
      	
              2018
      and thereafter

            	
              100.000%

            

    

    

     

    The
Company may on any one or more occasions prior to January 15, 2015, redeem
up to 35% of the aggregate principal amount of the 87⁄8% Notes originally issued
with the net proceeds of one or more Equity Offerings at a redemption price of
108.875% of the principal amount thereof, plus accrued and unpaid interest, if
any, to the date of redemption, subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date, provided that at
least 65% of the aggregate principal amount of the 87⁄8% Notes originally issued
remains Outstanding after the occurrence of such redemption.  Any such
redemption shall occur not later than 90 days after the date of the closing of
any such Equity Offering upon not less than 30 nor more than 60 days’ prior
notice.  The redemption shall be made in accordance with procedures
set forth in this Indenture.

     

    At any
time prior to January 15, 2015, the Company will be entitled, at its
option, to redeem all or any portion of the 87⁄8% Notes at a redemption price
equal to 100% of the principal amount of the 87⁄8% Notes plus the Applicable
Premium as of, and accrued and unpaid interest to, the redemption date (subject
to the right of Holders on the relevant record date to receive interest due on
the relevant interest payment date).  Notice of such redemption must
be mailed by first-class mail to each Holder’s registered address, not less than
30 nor more than 60 days prior to the redemption date.”

     

    SECTION
3.07.  No
Mandatory Sinking Fund.  There will be no mandatory sinking
fund payments for the 87⁄8% Notes.

     

    SECTION
4.                      Amendments to Article IV of
the Original Indenture

     

    (a)           Sections
4.07, 4.08 and 4.09 of the Original Indenture shall not be applicable to the 87⁄8%
Notes.

     

    
      
         

      

      
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    (b)           Section
4.10 of the Original Indenture is amended in its entirety with respect to the
87⁄8% Notes to read as follows:

     

    “SECTION
4.10.  Limitation on
Liens.  The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, enter into, create, Incur,
assume or suffer to exist any Lien, other than Permitted Liens, on or with
respect to any Property of the Company or such Restricted Subsidiary, whether
owned on the Issue Date or acquired after the Issue Date, or any interest
therein or any income or profits therefrom, unless the 87⁄8% Notes or any
Subsidiary Guaranty of such Restricted Subsidiary are secured equally and
ratably with, or prior to, any and all other obligations secured by such
Lien.”

     

    (c)           Article
IV of the Original Indenture is amended with respect to the 87⁄8% Notes by adding
Sections 4.11 through 4.20, inclusive, as follows:

     

    “SECTION
4.11.  Limitation on
Indebtedness.  The Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, Incur any Indebtedness
unless, after giving pro forma effect to the Incurrence of such Indebtedness and
the receipt and application of the proceeds thereof, no Default or Event of
Default would occur as a consequence of, or be continuing following, such
Incurrence and application and either:

     

    (a)           after
giving pro forma effect to such Incurrence and application, the Consolidated
Interest Coverage Ratio would exceed 2.25 to 1.0; or

     

    (b)           such
Indebtedness is Permitted Indebtedness.

     

    For
purposes of determining compliance with this Section 4.11, in the event that an
item of proposed Indebtedness meets the criteria of more than one of the
categories of Permitted Indebtedness described in clauses (a) through (l) of the
definition of Permitted Indebtedness, or is entitled to be Incurred pursuant to
clause (a) of this Section 4.11, the Company will be permitted to classify such
item of Indebtedness on the date of its Incurrence, or later reclassify all or a
portion of such item of Indebtedness, in any manner that complies with this
Section 4.11.

     

    SECTION
4.12.  Limitation on Restricted
Payments.  The Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, make any Restricted Payment
if, at the time of and after giving effect to the proposed Restricted
Payment:

     

    (a)           any
Default or Event of Default would have occurred and be continuing;

     

    (b)           the
Company could not Incur at least $1.00 of additional Indebtedness pursuant to
clause (a) of Section 4.11; or

     

    
      
         

      

      
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    (c)           the
aggregate amount expended or declared for all Restricted Payments from the
Reference Date would exceed the sum of (without duplication):

     

    (1)           50%
of the aggregate Consolidated Net Income of the Company accrued during the
period (treated as one accounting period) commencing on the Reference Date and
ending on the last day of the fiscal quarter immediately preceding the date of
such proposed Restricted Payment (or, if such aggregate Consolidated Net Income
shall be a loss, minus 100% of such loss),

     

    (2)           the
aggregate net cash proceeds, or the Fair Market Value of Property other than
cash (provided that, in the case of Property that is Capital Stock, such Capital
Stock falls within the meaning of clause (b) of the definition of “Additional
Assets”), received by the Company from the issuance or sale (other than to a
Subsidiary of the Company or an employee stock ownership plan or trust
established by the Company or any such Subsidiary for the benefit of their
employees) by the Company of its Capital Stock (other than Disqualified Stock)
after the Reference Date, net of attorneys’ fees, accountants’ fees,
underwriters’ or placement agents’ fees, discounts or commissions and brokerage,
consultant and other fees actually Incurred in connection with such issuance or
sale and net of taxes paid or payable as a result thereof,

     

    (3)           the
aggregate net cash proceeds, or the Fair Market Value of Property other than
cash, received by the Company as capital contributions to the Company (other
than from a Subsidiary of the Company) on or after the Reference
Date,

     

    (4)           the
aggregate net cash proceeds received by the Company from the issuance or sale
(other than to any Subsidiary of the Company or an employee stock ownership plan
or trust established by the Company or any such Subsidiary for the benefit of
their employees) on or after the Reference Date of convertible Indebtedness that
has been converted into or exchanged for Capital Stock (other than Disqualified
Stock) of the Company, together with the aggregate cash received by the Company
at the time of such conversion or exchange or received by the Company from any
conversion or exchange of convertible Indebtedness issued or sold (other than to
any Subsidiary of the Company or an employee stock ownership plan or trust
established by the Company or any such Subsidiary for the benefit of their
employees) prior to the Reference Date, excluding:

     

    (A)           any
such Indebtedness issued or sold to the Company or a Subsidiary of the Company
or an employee stock ownership plan or trust established by the Company or any
such Subsidiary for the benefit of their employees, and

     

    
      
         

      

      
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    (B)           the
aggregate amount of any cash or other Property distributed by the Company or any
Restricted Subsidiary upon any such conversion or exchange,

     

    (5)           to
the extent not otherwise included in the Company’s Consolidated Net Income, an
amount equal to the net reduction in Investments made by the Company and its
Restricted Subsidiaries subsequent to the Reference Date in any Person resulting
from:

     

    (A)           payments
of interest on debt, dividends, repayments of loans or advances or other
transfers or distributions of Property, in each case to the Company or any
Restricted Subsidiary from any Person other than the Company or a Restricted
Subsidiary, and in an amount not to exceed the book value of such Investments
previously made in such Person that were treated as Restricted Payments,
or

     

    (B)           the
designation of any Unrestricted Subsidiary as a Restricted Subsidiary, and in an
amount not to exceed the lesser of:

     

    (i)           the
book value of all Investments previously made in such Unrestricted Subsidiary
that were treated as Restricted Payments, and

     

    (ii)           the
Fair Market Value of the Company’s and its Restricted Subsidiaries’ interest in
such Unrestricted Subsidiary, and

     

    (6)           $30.0
million.

     

    
      	
               
      

            	
              The
      limitations set forth in the preceding paragraph will not prevent the
      Company or any Restricted Subsidiary from making the following Restricted
      Payments so long as, at the time thereof, no Default or Event of Default
      shall have occurred and be
continuing:

            

    

     

    (a)           the
payment of any dividend on Capital Stock of the Company or any Restricted
Subsidiary within 60 days after the declaration thereof, if at such declaration
date such dividend could have been paid in compliance with the preceding
paragraph;

     

    (b)           the
repurchase, redemption or other acquisition or retirement for value of any
Capital Stock of the Company or any of its Subsidiaries pursuant to the terms of
agreements (including employment agreements) or plans (including employee stock
ownership plans but excluding other plans to purchase such Capital Stock in open
market transactions, together with, in the case of employee stock ownership
plans, loans to or Investments therein in an amount sufficient to fund such
repurchase, redemption or other acquisition or retirement by such
plan)

     

    
      
         

      

      
        38

        
          

        

      

      
         

      

    

    approved
by the Company’s Board of Directors, including any such repurchase, redemption,
acquisition or retirement of shares of such Capital Stock that is deemed to
occur upon the exercise of stock options or vesting of restricted stock grants
or similar rights if such shares represent all or a portion of the exercise
price or are netted out or surrendered in connection with satisfying Federal
income tax obligations; provided, however, that the aggregate amount of such
repurchase, redemptions, acquisitions and retirements (but disregarding any
transaction that does not result in the payment of cash by the Company or any
Restricted Subsidiary to or on behalf of another Person) shall not exceed the
sum of:

     

    (1)             $7.5
million in any twelve-month period, and

     

    (2)             the
aggregate net proceeds, if any, received by the Company during such twelve-month
period from any issuance of such Capital Stock pursuant to such agreements or
plans;

     

    (c)           the
purchase, redemption or other acquisition or retirement for value of any Capital
Stock of the Company or any Restricted Subsidiary, in exchange for, or out of
the aggregate net cash proceeds of, a substantially concurrent issuance and sale
(other than to a Subsidiary of the Company or an employee stock ownership plan
or trust established by the Company or any of its Subsidiaries, for the benefit
of their employees) of Capital Stock of the Company (other than Disqualified
Stock);

     

    (d)           the
purchase, redemption, legal defeasance, acquisition or retirement for value of
any Subordinated Indebtedness in exchange for, or out of the proceeds of the
substantially concurrent sale of, Capital Stock of the Company (other than
Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary
of the Company or an employee stock ownership plan or trust established by the
Company or any such Subsidiary for the benefit of their employees);

     

    (e)           the
making of any principal payment on or the repurchase, redemption, legal
defeasance or other acquisition or retirement for value of any Subordinated
Indebtedness in exchange for, or out of the net proceeds of a substantially
concurrent Incurrence (other than a sale to a Subsidiary of the Company) of (i)
any other Subordinated Indebtedness so long as such new Indebtedness is
Permitted Refinancing Indebtedness or (ii) with respect only to the Company’s
93⁄8% senior subordinated notes due 2012, Senior Indebtedness, so long as at the
time of and after giving effect to such Incurrence, the Company could Incur at
least $1.00 of Indebtedness pursuant to clause (a) of Section 4.11 of this
Indenture.

     

    (f)           loans,
in an aggregate principal amount at any one time outstanding of not more than
$2.0 million, made to officers, directors or employees of the Company or any
Restricted Subsidiary approved by the

     

    
      
         

      

      
        39

        
          

        

      

      
         

      

    

    Board of
Directors (or by a duly authorized officer) and in compliance with the
Sarbanes-Oxley Act of 2002, the net cash proceeds of which are used
solely:

     

    (1)           to
purchase common stock of the Company in connection with a restricted stock or
employee stock purchase plan, or to exercise stock options received pursuant to
an employee or director stock option plan or other incentive plan, in a
principal amount not to exceed the purchase price of such common stock or the
exercise price of such stock options, or

     

    (2)           to
refinance loans, together with accrued interest thereon, made pursuant to item
(1) of this clause (f).

     

    The
actions described in clauses (a) and (b) of this paragraph shall be included in
the calculation of the amount of Restricted Payments.  The actions
described in clauses (c), (d), (e) and (f) of this paragraph shall be excluded
in the calculation of the amount of Restricted Payments, provided that the net
cash proceeds from any issuance or sale of Capital Stock or Indebtedness of the
Company pursuant to such clause (c), (d) or (e) shall be excluded from any
calculations pursuant to clause (2), (3) or (4) under the immediately preceding
paragraph.

     

    SECTION
4.13.  [This Section is intentionally omitted.]

     

    SECTION
4.14.  Limitation on Asset
Sales.  The Company will not, and will not permit any
Restricted Subsidiary to, consummate any Asset Sale unless:

     

    (a)           the
Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the Fair Market
Value of the Property subject to such Asset Sale; and

     

    (b)           all
of the consideration paid to the Company or such Restricted Subsidiary in
connection with such Asset Sale is in the form of cash, Permitted Short-Term
Investments, Liquid Securities, Exchange Properties or the assumption by the
purchaser of liabilities of the Company (other than liabilities of the Company
that are by their terms subordinated to the 87⁄8% Notes) or liabilities of any
Subsidiary Guarantor that made such Asset Sale (other than liabilities of a
Subsidiary Guarantor that are by their terms subordinated to such Subsidiary
Guarantor’s Subsidiary Guaranty), in each case as a result of which the Company
and its remaining Restricted Subsidiaries are no longer liable for such
liabilities, such consideration being defined as “Permitted Consideration”;
provided, however, that the Company and its Restricted Subsidiaries shall be
permitted to receive Property other than Permitted Consideration, so long as the
aggregate Fair Market Value of all such Property other than Permitted
Consideration received from Asset Sales and held by the

     

    
      
         

      

      
        40

        
          

        

      

      
         

      

    

    Company
or any Restricted Subsidiary at any one time shall not exceed 10.0% of Adjusted
Consolidated Net Tangible Assets.

     

    The Net
Available Cash from Asset Sales by the Company or a Restricted Subsidiary may be
applied by the Company or such Restricted Subsidiary, to the extent the Company
or such Restricted Subsidiary elects (or is required by the terms of any Senior
Indebtedness of the Company or a Subsidiary Guarantor), to:

     

    (a)           prepay,
repay or purchase Senior Indebtedness of the Company or a Subsidiary Guarantor
(in each case excluding Indebtedness owed to the Company or an Affiliate of the
Company);

     

    (b)           to
reinvest in Additional Assets (including by means of an Investment in Additional
Assets by a Restricted Subsidiary with Net Available Cash received by the
Company or another Restricted Subsidiary);

     

    (c)           purchase
87⁄8% Notes or purchase both 87⁄8% Notes and one or more series or issues of other
Senior Indebtedness on a pro rata basis (excluding 87⁄8% Notes and Pari Passu
Indebtedness owed to the Company or any of its Affiliates) in accordance with
the next paragraph; or

     

    (d)           enter
into a bona fide binding contract with a Person other than an Affiliate of the
Company to apply the Net Available Cash pursuant to clause (b) above, provided
that such binding contract shall be treated as a permitted application of the
Net Available Cash from the date of such contract until the earlier
of

     

    (1)             the
date on which such reinvestment is consummated, and

     

    (2)             the
90th day following the expiration of the 365-day period referred to in the next
following sentence.

     

    Any Net
Available Cash from an Asset Sale not applied in accordance with the preceding
paragraph within 365 days from the date of such Asset Sale shall constitute
“Excess Proceeds.” When the aggregate amount of Excess Proceeds exceeds $25.0
million, the Company will be required to make an offer (a “Prepayment Offer”) to
purchase 87⁄8% Notes having an aggregate principal amount equal to the aggregate
amount of Excess Proceeds at a purchase price equal to 100% of the principal
amount of such 87⁄8% Notes plus accrued and unpaid interest, if any, to the
Purchase Date (as defined) in accordance with the procedures (including
proration in the event of oversubscription) set forth in this Indenture, but, if
the terms of any other Senior Indebtedness require that a Senior Indebtedness
Offer be made contemporaneously with the Prepayment Offer, then the Excess
Proceeds shall be prorated between the Prepayment Offer and such Senior
Indebtedness Offer in accordance with the aggregate Outstanding principal
amounts of the 87⁄8% Notes and such other Senior Indebtedness, and the
aggregate

     

    
      
         

      

      
        41

        
          

        

      

      
         

      

    

    principal
amount of 87⁄8% Notes for which the Prepayment Offer is made shall be reduced
accordingly.  If the aggregate principal amount of 87⁄8% Notes tendered
by Holders thereof exceeds the amount of available Excess Proceeds, then such
Excess Proceeds will be allocated pro rata according to the principal amount of
the 87⁄8% Notes tendered and the Trustee will select the 87⁄8% Notes to be purchased
in accordance with this Indenture.  To the extent that any portion of
the amount of Excess Proceeds remains after compliance with the second sentence
of this paragraph and provided that all Holders of 87⁄8% Notes have been given the
opportunity to tender their 87⁄8% Notes for purchase as described in the following
paragraph in accordance with this Indenture, the Company and its Restricted
Subsidiaries may use such remaining amount for purposes permitted by this
Indenture and the amount of Excess Proceeds will be reset to zero.

     

    Within 30
days after the 365th day following the date of an Asset Sale, the Company shall,
if it is obligated to make an offer to purchase the 87⁄8% Notes pursuant to the
preceding paragraph, send a written Prepayment Offer notice, by first-class
mail, to the Holders of the 87⁄8% Notes (the “Prepayment Offer Notice”),
accompanied by such information regarding the Company and its Subsidiaries as
the Company believes will enable such Holders of the 87⁄8% Notes to make an
informed decision with respect to the Prepayment Offer.  The
Prepayment Offer Notice will state, among other things:

     

    (a)           that
the Company is offering to purchase 87⁄8% Notes pursuant to the provisions of this
Indenture;

     

    (b)           that
any 87⁄8% Note (or any portion thereof) accepted for payment (and duly paid on the
Purchase Date) pursuant to the Prepayment Offer shall cease to accrue interest
on the Purchase Date;

     

    (c)           that
any 87⁄8% Notes (or portions thereof) not properly tendered will continue to
accrue interest;

     

    (d)           the
purchase price and purchase date, which shall be, subject to any contrary
requirements of applicable law, no less than 30 days nor more than 60 days after
the date the Prepayment Offer Notice is mailed (the “Purchase
Date”);

     

    (e)           the
aggregate principal amount of 87⁄8% Notes to be purchased;

     

    (f)           a
description of the procedure that Holders of 87⁄8% Notes must follow in order to
tender their 87⁄8% Notes for payment; and

     

    (g)           all
other instructions and materials necessary to enable Holders to tender 87⁄8% Notes
pursuant to the Prepayment Offer.

     

    The
Company will comply, to the extent applicable, with the requirements of Section
14(e) under the Exchange Act and any other securities laws or

     

    
      
         

      

      
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    regulations
thereunder to the extent such laws and regulations are applicable in connection
with the purchase of 87⁄8% Notes as described above.  To the extent that
the provisions of any securities laws or regulations conflict with the
provisions relating to the Prepayment Offer, the Company will comply with the
applicable securities laws and regulations and will not be deemed to have
breached its obligations described above by virtue thereof.

     

    SECTION
4.15.  Covenant
Termination.  If at any time (a) the rating assigned to the 87⁄8%
Notes by each of S&P and Moody’s is an Investment Grade Rating and (b) no
Default has occurred and is continuing, the Company and its Restricted
Subsidiaries will no longer be subject to the covenants set forth in Sections
4.11, 4.12, 4.14, 4.16, 4.17 and 4.18, and clause (d) of Section
10.01.  After these certain covenants have terminated pursuant to this
Section 4.15, the Company may not designate any Subsidiary of the Company as an
Unrestricted Subsidiary.

     

    SECTION
4.16.  Limitation on Transactions
with Affiliates.  The Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, conduct any business
or enter into any transaction or series of transactions (including the sale,
transfer, disposition, purchase, exchange or lease of Property, the making of
any Investment, the giving of any Guarantee or the rendering of any service)
with or for the benefit of any Affiliate of the Company (other than the Company
or a Wholly Owned Subsidiary), unless:

     

    (a)           such
transaction is set forth in writing;

     

    (b)           such
transaction or series of transactions is on terms no less favorable to the
Company or such Restricted Subsidiary than those that could be obtained in a
comparable arm’s-length transaction with a Person that is not an Affiliate of
the Company or such Restricted Subsidiary; and

     

    (c)           with
respect to a transaction or series of transactions involving aggregate payments
by or to the Company or such Restricted Subsidiary having a Fair Market Value
equal to or in excess of:

     

    (1)             $15.0
million but less than $25.0 million, the Board of Directors of the Company
(including a majority of the disinterested members of such Board of Directors)
approves such transaction or series of transactions and certifies that such
transaction or series of transactions complies with clause (b) of this
paragraph, as evidenced by a certified resolution delivered to the Trustee,
or

     

    (2)             $25.0
million,

     

    (A)           the
Company receives from an independent, nationally recognized investment banking
firm or appraisal firm, in either case specializing or having a specialty in
the

     

    
      
         

      

      
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    type and
subject matter of the transaction (or series of transactions) at issue, a
written opinion that such transaction (or series of transactions) is fair, from
a financial point of view, to the Company or such Restricted Subsidiary,
and

     

    (B)           such
Board of Directors (including a majority of the disinterested members of the
Board of Directors of the Company) approves such transaction or series of
transactions and certifies that such transaction or series of transactions
complies with clause (b) of this paragraph, as evidenced by a certified
resolution delivered to the Trustee.

     

    The
preceding limitations of this Section 4.16 do not apply to:

     

    (a)           the
payment of reasonable and customary regular fees to directors of the Company or
any of its Restricted Subsidiaries who are not employees of the Company or any
of its Restricted Subsidiaries;

     

    (b)           indemnities
of officers and directors of the Company or any Subsidiary consistent with such
Person’s charter, bylaws and applicable statutory provisions;

     

    (c)           any
issuance of securities, or other payments, awards or grants in cash, securities
or otherwise pursuant to, or the funding of, employment arrangements, stock
options and employee stock purchase and ownership plans approved by the Board of
Directors of the Company;

     

    (d)           loans
made in compliance with the Sarbanes-Oxley Act of 2002:

     

    (1)             to
officers, directors or employees of the Company or any Restricted Subsidiary
approved by the Board of Directors of the Company, the net proceeds of which are
used solely to purchase common stock of the Company in connection with a
restricted stock or employee stock purchase plan, or to exercise stock options
received pursuant to an employee or director stock option plan or other
incentive plan, in a principal amount not to exceed the purchase price of such
common stock or the exercise price of such stock options, or

     

    (2)             to
refinance loans, together with accrued interest thereon, made pursuant to this
clause (d);

     

    (e)           advances
and loans made in compliance with the Sarbanes-Oxley Act of 2002 to officers,
directors and employees of the Company or any Subsidiary in the ordinary course
of business (including, without

     

    
      
         

      

      
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    limitation,
non-cash loans for the purchase of joint interests in exploratory and
developmental oil and gas prospects or other similar ventures offered by the
Company), provided such loans and advances (excluding loans or advances made
pursuant to the preceding clause (d)) do not exceed $2.0 million at any one time
outstanding;

     

    (f)           any
Restricted Payment permitted to be paid pursuant to Section 4.12;

     

    (g)           any
transaction or series of transactions between the Company and one or more
Restricted Subsidiaries or between two or more Restricted Subsidiaries in the
ordinary course of business, provided that no more than 10% of the total voting
power of the Voting Stock of any such Restricted Subsidiary is owned by an
Affiliate of the Company (other than a Restricted Subsidiary); and

     

    (h)           any
transaction or series of transactions pursuant to any agreement or obligation of
the Company or any of its Restricted Subsidiaries in effect on the Issue
Date.

     

    SECTION
4.17.  Limitation on Restrictions
on Distributions from Restricted Subsidiaries.  The Company
will not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create or otherwise cause or permit to exist or become effective any
consensual encumbrance or restriction on the legal right of any Restricted
Subsidiary to:

     

    (a)           pay
dividends, in cash or otherwise, or make any other distributions on or in
respect of its Capital Stock, or pay any Indebtedness or other obligation owed,
to the Company or any other Restricted Subsidiary;

     

    (b)           make
loans or advances to the Company or any other Restricted Subsidiary;
or

     

    (c)           transfer
any of its Property to the Company or any other Restricted
Subsidiary.

     

    Such
limitation will not apply:

     

    (1)             with
respect to clauses (a), (b) and (c), to encumbrances and
restrictions:

     

    (A)           in
agreements and instruments (including any Bank Credit Facilities) as in effect
on the Issue Date,

     

    (B)           relating
to Indebtedness of a Restricted Subsidiary and existing at the time it became a
Restricted Subsidiary if such encumbrance or restriction was not

     

    
      
         

      

      
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    created
in anticipation of or in connection with the transactions pursuant to which such
Restricted Subsidiary became a Restricted Subsidiary, or

     

    (C)           that
result from the renewal, refinancing, extension or amendment of an agreement
that is the subject of clause (c)(1)(A) or (B) above or clause (c)(2)(A) or (B)
below, provided that such encumbrance or restriction is not materially less
favorable to the Holders of 87⁄8% Notes than those under or pursuant to the
agreement so renewed, refinanced, extended or amended, as determined in good
faith by the Board of Directors of the Company and,

     

    (2)             with
respect to clause (c) only, to:

     

    (A)           restrictions
pursuant to Liens permitted to be Incurred and secured without also securing the
87⁄8% Notes under Section 4.10 and that limit the right of the debtor to dispose
of the Property subject to such Lien,

     

    (B)           any
encumbrance or restriction applicable to Property at the time it is acquired by
the Company or a Restricted Subsidiary, so long as such encumbrance or
restriction relates solely to the Property so acquired and was not created in
anticipation of or in connection with such acquisition,

     

    (C)           customary
provisions restricting subletting or assignment of leases and customary
provisions in other agreements that restrict assignment of such agreements or
rights thereunder, and

     

    (D)           customary
restrictions contained in asset sale agreements limiting the transfer of such
assets pending the closing of such sale.

     

    SECTION
4.18.  Future Subsidiary
Guarantors.  The Company shall cause each Restricted Subsidiary
(except an Exempt Foreign Subsidiary) that:

     

    (a)           Incurs
Indebtedness or issues Preferred Stock following the Issue Date; or

     

    (b)           has
Indebtedness or Preferred Stock outstanding on the date on which such Restricted
Subsidiary becomes a Restricted Subsidiary,

     

    to
execute and deliver to the Trustee a supplemental indenture providing for a
Subsidiary Guaranty pursuant to Section 14.06 at the time such Restricted
Subsidiary Incurs such Indebtedness or becomes a Restricted
Subsidiary;

     

    
      
         

      

      
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    provided,
however, that such Restricted Subsidiary shall not be required to deliver a
supplemental indenture providing for a Subsidiary Guaranty if the aggregate
amount of such Indebtedness or Preferred Stock, together with all other
Indebtedness and Preferred Stock then outstanding among Restricted Subsidiaries
(including Exempt Foreign Subsidiaries) that are not Subsidiary Guarantors, is
less than $10.0 million.

     

    Any
Subsidiary Guarantor that no longer has any outstanding Indebtedness or
Preferred Stock or that again qualifies as an Exempt Foreign Subsidiary shall be
released from and relieved of its obligations under its Subsidiary Guaranty upon
execution and delivery of a supplemental indenture in form satisfactory to the
Trustee.

     

    SECTION
4.19.  Restricted and Unrestricted
Subsidiaries.  Unless defined or designated as an Unrestricted
Subsidiary, any Person that becomes a Subsidiary of the Company or any of its
Restricted Subsidiaries shall be classified as a Restricted Subsidiary subject
to the provisions of the next paragraph.  The Company may designate a
Subsidiary (including a newly formed or newly acquired Subsidiary) of the
Company or any of its Restricted Subsidiaries as an Unrestricted Subsidiary
if:

     

    (a)           such
Subsidiary does not at such time own any Capital Stock or Indebtedness of, or
own or hold any Lien on any Property of, the Company or any other Restricted
Subsidiary;

     

    (b)           such
Subsidiary does not at such time have any Indebtedness or other obligations
that, if in default, would result (with the passage of time or notice or
otherwise) in a default on any Indebtedness of the Company or any Restricted
Subsidiary; and

     

    (c)           (1)           such
designation is effective immediately upon such Subsidiary becoming a Subsidiary
of the Company or of a Restricted Subsidiary,

     

    (2)             the
Subsidiary to be so designated has total assets of $1,000 or less,
or

     

    (3)             if
such Subsidiary has assets greater than $1,000, then such redesignation as an
Unrestricted Subsidiary is deemed to constitute a Restricted Payment in an
amount equal to the Fair Market Value of the Company’s direct and indirect
ownership interest in such Subsidiary, and such Restricted Payment would be
permitted to be made at the time of such designation under Section
4.12.

     

    Except as
provided in the immediately preceding sentence, no Restricted Subsidiary may be
designated as an Unrestricted Subsidiary.  The designation of an
Unrestricted Subsidiary or removal of such designation shall be made by
the

     

    
      
         

      

      
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    Board of
Directors of the Company or a committee thereof pursuant to a certified
resolution delivered to the Trustee and shall be effective as of the date
specified in the applicable certified resolution, which shall not be prior to
the date such certified resolution is delivered to the Trustee.  Any
Subsidiary Guarantor that is designated an Unrestricted Subsidiary in accordance
with the terms of this Section 4.19 shall be released from and relieved of its
obligations under its Subsidiary Guaranty upon execution and delivery of a
supplemental indenture in form satisfactory to the Trustee.

     

    SECTION
4.20.  Change of
Control.  Upon the occurrence of a Change of Control, each
Holder of 87⁄8% Notes shall have the right to require the Company to repurchase
all or any part (equal to $2,000 in principal amount or an integral multiple of
$1,000 in excess thereof) of such Holder’s 87⁄8% Notes pursuant to the offer
described below (the “Change of Control Offer”) at a purchase price in cash (a
“Change of Control Payment”) equal to 101% of the principal amount of the 87⁄8%
Notes repurchased, plus accrued and unpaid interest, if any, to the date of
purchase, subject to the right of Holders of record on the relevant record date
to receive interest due on the relevant interest payment date.

     

    Within 30
days following any Change of Control, the Company shall:

     

    (a)           cause
a notice of the Change of Control Offer to be sent at least once to the Dow
Jones News Service or similar business news service in the United States;
and

     

    (b)           send,
by first-class mail, with a copy to the Trustee, to each Holder of 87⁄8% Notes, at
such Holder’s address appearing in the Debt Security Register, a notice stating,
among other things:

     

    (1)             that
a Change of Control has occurred and a Change of Control Offer is being made
pursuant to this Indenture and that all 87⁄8% Notes (or portions thereof) properly
tendered will be accepted for payment,

     

    (2)             the
Change of Control Payment and the purchase date, which shall be, subject to any
contrary requirements of applicable law, a business day no earlier than 30 days
nor later than 60 days from the date the Company mails such notice (the “Change
of Control Payment Date”),

     

    (3)             that
any 87⁄8% Note (or portion thereof) accepted for payment (and duly paid on the
Change of Control Payment Date) pursuant to the Change of Control Offer shall
cease to accrue interest on the Change of Control Payment Date,

     

    (4)             that
any 87⁄8% Note (or portions thereof) not properly tendered will continue to accrue
interest,

     

    
      
         

      

      
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    (5)             a
description of the transaction or transactions constituting the Change of
Control,

     

    (6)             the
procedures that the Holders of the 87⁄8% Notes must follow in order to tender
their 87⁄8% Notes (or portions thereof) for payment and the procedures that
Holders of 87⁄8% Notes must follow in order to withdraw an election to tender 87⁄8%
Notes (or portions thereof) for payment, and

     

    (7)             all
other instructions and materials necessary to enable Holders to tender 87⁄8% Notes
pursuant to the Change of Control Offer.

     

    The
Company will comply, to the extent applicable, with the requirements of Section
14(e) under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the purchase of 87⁄8% Notes pursuant to a Change of Control
Offer.  To the extent that the provisions of any securities laws or
regulations conflict with the provisions relating to the Change of Control
Offer, the Company will comply with the applicable securities laws and
regulations and will not be deemed to have breached its obligations under this
Section 4.20 by virtue of such compliance.

     

    The
Company will not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at the
times and otherwise in compliance with the requirements set forth in this
Section 4.20 applicable to a Change of Control Offer made by the Company and
purchases all 87⁄8% Notes validly tendered and not withdrawn under such Change of
Control Offer.

     

    The
provisions of this Section 4.20 related to the obligation of the Company to make
an offer to repurchase the Notes as a result of a Change of Control may be
waived or amended, at any time prior to the occurrence of such Change of
Control, with the consent (evidenced as provided in Section 8.01) of the Holders
of a majority in principal amount of the Notes.

     

    In the
event that Holders of not less than 90% of the aggregate principal amount of the
Outstanding 87⁄8% Notes accept a Change of Control Offer and the Company purchases
all of the 87⁄8% Notes held by such Holders, the Company will have the right, upon
not less than 30 nor more than 60 days’ prior notice, given not more than 30
days following the purchase pursuant to the Change of Control Offer referred to
above, to redeem all of the 87⁄8% Notes that remain Outstanding following such
purchase at a redemption price equal to the Change of Control Payment plus, to
the extent not included in the Change of Control Payment, accrued and unpaid
interest on the 87⁄8% Notes that remain Outstanding, to the date of redemption
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date).”

     

    
      
         

      

      
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    SECTION
5.                      Amendments to Article V of
the Original Indenture.  Section 5.03 of the Original Indenture
is amended in its entirety with respect to the 87⁄8% Notes to read as
follows:

     

    Notwithstanding
that the Company may not be subject to the reporting requirements of Sections 13
and 15(d) of the Exchange Act, the Company shall file with the SEC and provide
the Trustee and, upon their request, Holders with such annual reports and such
information, documents and other reports as are specified in Sections 13 and
15(d) of the Exchange Act and applicable to a United States corporation subject
to such Sections, such information, documents and reports to be so filed and
provided at the times specified for the filing of such information, documents
and reports under such Sections; provided, however, that the Company shall not
be so obligated to file such information, documents and reports with the SEC if
the SEC does not permit such filings.  To the extent such reports are
available to the public via the SEC’s EDGAR system, they will be deemed as being
provided to the Trustee on the date they become available.

     

    SECTION
6.                      Amendments to Article VI of
the Original Indenture

     

    (a)           Sections
6.01(a) and 6.01(b) of the Original Indenture are amended with respect to the
87⁄8% Notes by deleting in each the phrase “,whether or not such payment may have
been prohibited by Article XII, if applicable;”.

     

    (b)           Section
6.01(e) of the Original Indenture is amended with respect to the 87⁄8% Notes by
deleting the number “60” and substituting the number “30” in its
place.

     

    (c)           Section
6.01(f) of the Original Indenture is amended in its entirety with respect to the
87⁄8% Notes to read as follows: “(f) a default by the Company or any Restricted
Subsidiary under any Indebtedness for borrowed money in an aggregate amount
greater than $25.0 million (other than Non-recourse Purchase Money Indebtedness)
that results in acceleration of the maturity of such Indebtedness, or failure to
pay any such Indebtedness at maturity, if such Indebtedness is not discharged or
such acceleration is not rescinded or annulled within 30 days after written
notice as provided in this Indenture; or”.

     

    (d)           Sections
6.01(g) and 6.01(h) of the Original Indenture are amended with respect to the
87⁄8% Notes by deleting each reference to “Restricted Subsidiary” and “Restricted
Subsidiaries” therein and substituting “Significant Subsidiary” or “Significant
Subsidiaries”, respectively, in its place.

     

    (e)           Section
6.01 of the Original Indenture is amended with respect to the 87⁄8% Notes by
adding the following provisions after clause (i) of the first paragraph
thereof:

     

    “(j)           one
or more final judgments or orders by a court of competent jurisdiction are
entered against the Company or any Restricted Subsidiary in an uninsured or
unindemnified aggregate amount outstanding at any time in excess of $25.0
million and such judgments or orders are not discharged, waived, stayed,
satisfied or bonded for a period of 60 consecutive days; or

     

    
      
         

      

      
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    (k)           a
Subsidiary Guaranty ceases to be in full force and effect (other than in
accordance with the terms of this Indenture and such Subsidiary Guaranty) or a
Subsidiary Guarantor denies or disaffirms its obligations under its Subsidiary
Guaranty.”

     

    (f)           Section
6.01 of the Original Indenture is amended by adding the following sentence to
the end of the first paragraph thereof:  “Notwithstanding anything to
the contrary herein, if an Event of Default described under clause (g) or (h) of
this paragraph shall occur, the principal amount of all Debt Securities of any
series then Outstanding will automatically, and without any action by the
Trustee or any Holder, become immediately due and payable.”

     

    (g)           Article
VI of the Original Indenture is amended by adding Section 6.09 as
follows:

     

    “SECTION 6.09.  Waiver of Stay or Extension
Laws.  The Company (to the extent it may lawfully do so) shall
not at any time insist upon, or plead, or in any manner whatsoever claim or take
the benefit or advantage of, any stay or extension law wherever enacted, now or
at any time hereafter in force, that may affect the covenants or the performance
of this Indenture; and the Company (to the extent that it may lawfully do so)
hereby expressly waives all benefit or advantage of any such law, and shall not
hinder, delay or impede the execution of any power herein granted to the
Trustee, but shall suffer and permit the execution of every such power as though
no such law had been enacted.”

     

    SECTION
7.                      Amendments to Articles VII
and VIII of the Original Indenture

     

    (a)           Section
7.08 of the Original Indenture is amended by deleting the number “25%” in the
fourth paragraph thereof and substituting “10%” in its place.

     

    (b)           Section
8.01 of the Original Indenture is amended by deleting “or” in the penultimate
line of such Section and adding at the end thereof the following: “or (d) in the
case of Debt Securities evidenced by a Global Security, by any electronic
transmission or other message, whether or not in written format, that complies
with the Depositary’s applicable procedures.”

     

    SECTION
8.                      Amendments to Article IX of
the Original Indenture

     

    (a)           Section
9.01 of the Original Indenture is amended with respect to the 87⁄8% Notes by (i)
adding the words “in any material respect” to the end of the final clause of
paragraph (c) thereof, (ii) deleting the word “and” from the end of clause (j)
of the first paragraph thereof, (iii) substituting a “;” for the “.” at the end
of clause (k) of the first paragraph thereof and (iv) adding the following
provisions to the end of the first paragraph thereof:

     

    “(l)           to
provide for uncertificated 87⁄8% Notes in addition to or in place of certificated
87⁄8% Notes;

     

    (m)           to
make any change that does not adversely affect the rights of any Holder of 87⁄8%
Notes in any material respect;

     

    
      
         

      

      
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    (n)           to
add or remove any Subsidiary Guarantors pursuant to the procedures set forth
herein; and

     

    (o)           to
provide for the issuance pursuant to an exemption from registration under the
Securities Act of additional Debt Securities of a series after the original date
of issuance of such series; provided that such additional Debt Securities bear
appropriate legends and have the benefit of registration rights; provided,
further, that the supplemental indenture pursuant to which such series was
established provides for the issuance of additional Debt Securities of such
series pursuant to an exemption from registration under the Securities
Act.”

     

    (b)           Section
9.01 of the Original Indenture is further amended by adding the words “in the
Trustee’s opinion” immediately after the word “which” and immediately before the
words “affects the Trustee’s own rights” in the first sentence of the second
paragraph of Section 9.01.

     

    (c)           Section
9.02 of the Original Indenture is amended with respect to the 87⁄8% Notes by
(w) changing the word “extend” to “change” in clause (iii) of the
first paragraph thereof, (x) deleting the word “or” from the end of clause
(vii) of the first paragraph thereof, (y) deleting the “.” at the end of
clause (viii) of the first paragraph thereof and (z) by adding the
following provisions to the end of the first paragraph thereof:

     

    “; (ix) reduce the relative ranking of
any 87⁄8% Notes; (x) at any time after a Change of Control has occurred, change
the repurchase price or the time at which the Change of Control Offer relating
thereto must be made or at which the 87⁄8% Notes must be repurchased pursuant to
such Change of Control Offer or (xi) impair the right of any Holder to receive
payment of principal of and interest on such Holder’s Debt Securities on or
after the due dates therefor or to institute suit for the enforcement of any
payment on or with respect to such Holder’s Debt Securities or any Subsidiary
Guaranty.”

     

    (d)           Section
9.02 of the Original Indenture is further amended by adding the words “in the
Trustee’s opinion” immediately after the third occurrence of the word
“Indenture” and immediately before the words “adversely affects the Trustee’s
own rights” in the first sentence of the third paragraph of Section
9.02.

     

    (e)           Article
IX of the Original Indenture is amended by adding Section 9.05 as
follows:

     

    “SECTION 9.05.  Payment for
Consent.  Neither the Company nor any Affiliate of the Company
shall, directly or indirectly, pay or cause to be paid any consideration,
whether by way of interest, fee or otherwise, to any Holder of Debt Securities
of a series for or as an inducement to any consent, waiver or amendment of any
of the terms or provisions of this Indenture or the Debt Securities of such
series unless such consideration is offered to be paid to all Holders of such
series that so consent, waive or agree to amend in the time frame set forth in
solicitation documents relating to such consent, waiver or
agreement.”

     

    
      
         

      

      
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    (f)           The
first sentences of both Section 9.01 and 9.02 of the Original Indenture are
amended with respect to the 87⁄8% Notes by adding the words “any Subsidiary
Guarantors” immediately before the words “and the Trustee.”

     

    SECTION
9.                      Amendments to Article X of
the Original Indenture

     

    (a)           Section
10.01 of the Original Indenture is amended in its entirety with respect to the
87⁄8% Notes to read as follows:

     

    “SECTION
10.01.  Consolidations and Mergers
of the Company.  The Company shall not consolidate with or
merge with or into any Person, or sell, transfer, lease or otherwise dispose of,
in one transaction or series of transactions, all or substantially all of the
Property of the Company and the Restricted Subsidiaries taken as whole,
unless:

     

    (a)           the
resulting, surviving or transferee Person (the “Successor Company”) shall be a
Person organized or existing under the laws of the United States of America, any
State thereof or the District of Columbia and the Successor Company (if not the
Company) shall expressly assume, by a supplemental indenture, executed and
delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of the Company under the 87⁄8% Notes and this Indenture;

     

    (b)           in
the case of a disposition of all or substantially all the Property of the
Company and the Restricted Subsidiaries taken as a whole, such Property shall
have been so disposed of, as an entirety or virtually as an entirety to one
Person;

     

    (c)           immediately
after giving effect to such transaction (and treating, for purposes of this
clause (c) and clause (d) below, any Indebtedness that becomes or is anticipated
to become an obligation of the Successor Company or any Restricted Subsidiary as
a result of such transaction as having been Incurred by such Successor Company
or such Restricted Subsidiary at the time of such transaction), no Default or
Event of Default shall have occurred and be continuing;

     

    (d)           either:

     

    (1)           the
Successor Company will, on the date of such transaction after giving pro forma
effect thereto and any related financing transactions as if the same had
occurred at the beginning of the applicable four-quarter period, be permitted to
Incur at least $1.00 of additional Indebtedness pursuant to the Consolidated
Interest Coverage Ratio test set forth in clause (a) of Section 4.11;
or

     

    (2)           immediately
after giving effect to such transaction on a pro forma basis and any related
financing transactions as if the same had occurred at the beginning of the
applicable four-quarter period, the

     

    
      
         

      

      
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    Consolidated
Interest Coverage Ratio of the Successor Company will be equal to or greater
than the Consolidated Interest Coverage Ratio of the Company immediately before
such transaction; and

     

    (e)           the
Company shall have delivered to the Trustee an Officers’ Certificate and an
opinion of counsel, each stating that such consolidation, merger or disposition
and such supplemental indenture (if any) comply with this
Indenture;

     

    provided, however, that
clause (d) will not be applicable to (1) a Restricted Subsidiary consolidating
with, merging with or into or selling, transferring, leasing or otherwise
disposing of all or substantially all its Property to the Company or a
Subsidiary Guarantor that is a Wholly Owned Subsidiary or (2) the Company
merging with or into an Affiliate of the Company solely for the purpose and with
the sole effect of reincorporating the Company in another
jurisdiction.”

     

    (b)           Section
10.02 of the Original Indenture is amended by deleting the period at the end of
the first sentence of the first paragraph thereof and by substituting the
following in its place:

     

    “; provided, however, that in the case
of a lease of all or substantially all of the Company’s Property, the Company
shall not be released from any of the obligations or covenants under this
Indenture, including the obligation to pay the principal of and interest on the
Debt Securities.”

     

    SECTION
10.                                Applicability of and
Amendments to Article XI of the Original Indenture

     

    (a)           Article
XI of the Original Indenture shall be applicable to the 87⁄8% Notes.

     

    (b)           Section
11.02(b) of the Original Indenture is superseded with respect to the 87⁄8% Notes
by the following provisions:

     

    “(b)
Subject to Sections 11.02(c) and 11.03, the Company at any time may terminate
(i) all its obligations under the 87⁄8% Notes and this Indenture with respect to
the 87⁄8% Notes (“legal defeasance option”) or (ii) its obligations under Sections
4.10, 4.11, 4.12, 4.14, 4.15, 4.16, 4.17, 4.18, 4.19, 4.20 and 10.01(d), the
operation of Sections 6.01(d) (to the extent relating to Section 10.01(d)),
6.01(e) (to the extent relating to Sections 4.10, 4.11, 4.12, 4.14, 4.15, 4.16,
4.17, 4.18, 4.19 and 4.20), 6.01(f), 6.01(g) (to the extent relating to
Significant Subsidiaries), 6.01(h) (to the extent relating to Significant
Subsidiaries), 6.01(j) and 6.01(k) (“covenant defeasance
option”).  The Company may exercise its legal defeasance option
notwithstanding its prior exercise of its covenant defeasance
option.

     

    If the
Company exercises its legal defeasance option, payment of the 87⁄8% Notes may not
be accelerated because of an Event of Default.  If the Company
exercises its covenant defeasance option, payment of the 87⁄8% Notes may not be
accelerated because of an Event of Default specified in Sections 6.01(d) and
6.01(e) (with respect to the provisions of Articles IV and X referred to in
the

     

    
      
         

      

      
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    immediately
preceding paragraph), Section 6.01(f), Sections 6.01(g) and 6.01(h) (in
each case to the extent relating to Significant Subsidiaries), and
Sections 6.01(j) and 6.01(k).  If the Company exercises its legal
defeasance option or its covenant defeasance option, each Subsidiary Guarantor,
if any, shall be released from all its obligations under its Subsidiary
Guaranty.

     

    Upon
satisfaction of the conditions set forth herein and upon request of the Company,
the Trustee shall acknowledge in writing the discharge of those obligations that
the Company terminates.”

     

    (c)           Section
11.02(c) of the Original Indenture is amended in its entirety with respect to
the 87⁄8% Notes to read as follows:

     

    “(c)           Notwithstanding
clauses (a) and (b) above, the Company’s obligations in Sections 2.07, 2.09,
4.02, 4.04, 5.01, 7.06, 7.08, 7.10, 11.05, 11.06 and 11.07 shall survive until
the 87⁄8% Notes have been paid in full.  Thereafter, the Company’s
obligations in Sections 7.06, 11.05 and 11.06 shall survive.”

     

    (d)           Section
11.03(a) of the Original Indenture is amended in its entirety with respect to
the 87⁄8% Notes to read as follows:

     

    “(a) the
Company irrevocably deposits in trust with the Trustee for the benefit of the
Holders of the Debt Securities of such series, money or U.S. Government
Obligations, or a combination thereof, that, through the payment of principal,
premium, if any, and interest in respect thereof in accordance with their terms,
will provide money in an amount sufficient to pay the principal of and any
premium and interest on the Debt Securities of such series at the Stated
Maturity thereof or on earlier redemption in accordance with the terms of the
Indentures and the Debt Securities of such series;”

     

    (e)           Section
11.03(c) of the Original Indenture is amended by deleting each instance of the
number “91” and substituting “123” in its place.

     

    (f)           Section
11.03(g)(ii) of the Original Indenture is amended by deleting the words “date of
this Indenture” and substituting the words “Issue Date” in their
place.

     

    (g)           Section
11.07 of the Original Indenture is amended by deleting the “.” at the end
thereof and by substituting the following in its place:

     

    “;
provided, however, that, if the Company has made any payment of interest on or
principal of any Debt Securities because of the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Debt Securities to receive such payment from the money or
U.S.  Government Obligations held by the Trustee or paying
agent.”

     

    SECTION
11.                                Inapplicability of Article
XII of the Original Indenture

     

    
      
         

      

      
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    Article
XII of the Original Indenture shall not be applicable to the 87⁄8%
Notes.  The Notes shall be Senior Indebtedness of the Company, and the
Subsidiary Guaranties shall be Senior Indebtedness of each Subsidiary
Guarantor.

     

    SECTION
12.                                Subsidiary
Guaranties

     

    (a)           The
Original Indenture is amended with respect to the 87⁄8% Notes by deleting the
proviso to Section 2.03(20) and adding Article XIV as follows:

     

    “ARTICLE XIV

     

    Subsidiary Guaranties

     

    SECTION
14.01.  Subsidiary
Guaranties.  Each Subsidiary Guarantor hereby unconditionally
Guarantees, jointly and severally, to each Holder and to the Trustee and its
successors and assigns (a) the full and punctual payment of principal of and
interest on the 87⁄8% Notes when due, whether at Stated Maturity, by acceleration,
by redemption or otherwise, and all other monetary obligations of the Company
under this Indenture and the 87⁄8% Notes and (b) the full and punctual performance
within applicable grace periods of all other obligations of the Company under
this Indenture and the 87⁄8% Notes (all the foregoing being hereinafter
collectively called the “Obligations”).  Each Subsidiary Guarantor
further agrees that the Obligations may be extended or renewed, in whole or in
part, without notice or further assent from such Subsidiary Guarantor, and that
such Subsidiary Guarantor will remain bound under this Article XIV
notwithstanding any extension or renewal of any Obligation.

     

    Each
Subsidiary Guarantor waives presentation to, demand of, payment from and protest
to the Company of any of the Obligations and also waives notice of protest for
nonpayment.  Each Subsidiary Guarantor waives notice of any Default
under the 87⁄8% Notes or the Obligations.  The obligations of each
Subsidiary Guarantor hereunder shall not be affected by (a) the failure of any
Holder or the Trustee to assert any claim or demand or to enforce any right or
remedy against the Company or any other Person under this Indenture, the 87⁄8%
Notes or any other agreement or otherwise; (b) any extension or renewal of any
thereof; (c) any rescission, waiver, amendment or modification of any of the
terms or provisions of this Indenture, the 87⁄8% Notes or any other agreement; (d)
the release of any security held by any Holder or the Trustee for the
Obligations or any of them; (e) the failure of any Holder or the Trustee to
exercise any right or remedy against any other Guarantor of the Obligations; or
(f) any change in the ownership of such Subsidiary Guarantor.

     

    Each
Subsidiary Guarantor further agrees that its Subsidiary Guaranty constitutes a
Guarantee of payment, performance and compliance when due (and not a Guarantee
of collection) and waives any right to require that any resort be had by any
Holder or the Trustee to any security held for payment of the
Obligations.

     

    
      
         

      

      
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    Upon the
sale or other disposition of all of the Capital Stock of a Subsidiary Guarantor
(other than to the Company or an Affiliate thereof) in compliance with Section
4.14, such Subsidiary Guarantor shall be released from all obligations under its
Subsidiary Guaranty.  Except as expressly set forth in this Section
14.01 and Sections 4.18, 4.19 and 11.02, the obligations of each Subsidiary
Guarantor hereunder shall not be subject to any reduction, limitation,
impairment or termination for any reason, including any claim of waiver,
release, surrender, alteration or compromise, and shall not be subject to any
defense of setoff, counterclaim, recoupment or termination whatsoever or by
reason of the invalidity, illegality or unenforceability of the Guaranteed
Obligations or otherwise.  Without limiting the generality of the
foregoing, the obligations of each Subsidiary Guarantor herein shall not be
discharged or impaired or otherwise affected by the failure of any Holder or the
Trustee to assert any claim or demand or to enforce any remedy under this
Indenture, the 87⁄8% Notes or any other agreement, by any waiver or modification
of any thereof, by any Default, failure or delay, willful or otherwise, in the
performance of the obligations, or by any other act or thing or omission or
delay to do any other act or thing which may or might in any manner or to any
extent vary the risk of such Subsidiary Guarantor or would otherwise operate as
a discharge of such Subsidiary Guarantor as a matter of law or
equity.

     

    Each
Subsidiary Guarantor further agrees that its Subsidiary Guaranty shall continue
to be effective or be reinstated, as the case may be, if at any time payment, or
any part thereof, of principal of or interest on any Obligation is rescinded or
must otherwise be restored by any Holder or the Trustee upon the bankruptcy or
reorganization of the Company or otherwise.

     

    In
furtherance of the foregoing and not in limitation of any other right which any
Holder or the Trustee has at law or in equity against any Subsidiary Guarantor
by virtue hereof, upon the failure of the Company to pay the principal of or
interest on any Obligation when and as the same shall become due, whether at
Stated Maturity, by acceleration, by redemption or otherwise, or to perform or
comply with any other Obligation, each Subsidiary Guarantor hereby promises to
and will, upon receipt of written demand by the Trustee, forthwith pay, or cause
to be paid, in cash, to the Holders or the Trustee an amount equal to the sum of
(i) the unpaid amount of such Obligations, (ii) accrued and unpaid interest on
such Obligations (but only to the extent not prohibited by law) and (iii) all
other monetary Obligations of the Company to the Holders and the
Trustee.  Each Subsidiary Guarantor further agrees that, as between
it, on the one hand, and the Holders and the Trustee, on the other hand, (x) the
maturity of the Obligations Guaranteed hereby may be accelerated as provided in
Article VI for the purposes of such Subsidiary Guarantor’s Subsidiary Guaranty,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the Obligations Guaranteed hereby, and (y) in the
event of any declaration of acceleration of such Obligations as provided in
Article VI, such Obligations (whether or not due and payable) shall forthwith
become due and payable by such Subsidiary Guarantor for the purposes of this
Section.

     

    
      
         

      

      
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    Each
Subsidiary Guarantor also agrees to pay any and all costs and expenses
(including reasonable attorneys’ fees) incurred by the Trustee or any Holder in
enforcing any rights under this Section 14.01.

     

    SECTION
14.02.  Contribution.  Each
of the Company and any Subsidiary Guarantor (a “Contributing Party”) agrees
that, in the event a payment shall be made by any other Subsidiary Guarantor
under any Subsidiary Guaranty (the “Claiming Guarantor”), the Contributing Party
shall indemnify the Claiming Guarantor in an amount equal to the amount of such
payment multiplied by a fraction, the numerator of which shall be the net worth
of the Contributing Party on the date hereof and the denominator of which shall
be the aggregate net worth of the Company and all the Subsidiary Guarantors on
the date hereof (or, in the case of any Subsidiary Guarantor becoming a party
hereto pursuant to Section 9.01(n), the determination of indemnification amounts
shall be based upon net worth on the date of the supplemental indenture executed
and delivered by such Subsidiary Guarantor.)

     

    SECTION
14.03.  Successors and
Assigns.  This Article XIV shall be binding upon each
Subsidiary Guarantor and its successors and assigns and shall inure to the
benefit of the successors and assigns of the Trustee and the Holders and, in the
event of any transfer or assignment of rights by any Holder or the Trustee, the
rights and privileges conferred upon that party in this Indenture and in the 87⁄8%
Notes shall automatically extend to and be vested in such transferee or
assignee, all subject to the terms and conditions of this
Indenture.

     

    SECTION
14.04.  No
Waiver.  Neither a failure nor a delay on the part of either
the Trustee or the Holders in exercising any right, power or privilege under
this Article XIV shall operate as a waiver thereof, nor shall a single or
partial exercise thereof preclude any other or further exercise of any right,
power or privilege.  The rights, remedies and benefits of the Trustee
and the Holders herein expressly specified are cumulative and not exclusive of
any other rights, remedies or benefits which either may have under this Article
XIV at law, in equity, by statute or otherwise.

     

    SECTION
14.05.  Modification.  No
modification, amendment or waiver of any provision of this Article XIV, nor the
consent to any departure by any Subsidiary Guarantor therefrom, shall in any
event be effective unless the same shall be in writing and signed by the
Trustee, and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given.  No notice to or demand
on any Subsidiary Guarantor in any case shall entitle such Subsidiary Guarantor
to any other or further notice or demand in the same, similar or other
circumstances.

     

    SECTION
14.06.  Execution of Supplemental
Indenture for Future Subsidiary Guarantors.  Each Subsidiary
which is required to become a Subsidiary Guarantor pursuant to Section 4.18
shall promptly execute and deliver to the Trustee a supplemental indenture in
the form of Exhibit B hereto pursuant

     

    
      
         

      

      
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    to which
such Subsidiary shall become a Subsidiary Guarantor under this Article XIV and
shall Guarantee the Obligations.  Concurrently with the execution and
delivery of such supplemental indenture, the Company shall deliver to the
Trustee an Opinion of Counsel to the effect that such supplemental indenture has
been duly authorized, executed and delivered by such Subsidiary and that,
subject to the application of bankruptcy, insolvency, moratorium, fraudulent
conveyance or transfer and other similar laws relating to creditors’ rights
generally and to the principles of equity, whether considered in a proceeding at
law or in equity, the Subsidiary Guaranty of such Subsidiary Guarantor is a
legal, valid and binding obligation of such Subsidiary Guarantor, enforceable
against such Subsidiary Guarantor in accordance with its terms.”

     

    (b)           Opco
shall guarantee the 87⁄8% Notes in accordance with the provisions of Article XIV
of the Original Indenture.

     

    SECTION
13.                                Governing
Law.  This First Supplemental Indenture shall be governed by
and construed in accordance with the laws of the State of New
York.  The Trustee, the Company and each of the Subsidiary Guarantors
agree to submit to the non-exclusive jurisdiction of the competent courts of the
State of New York sitting in New York City in any action or proceeding arising
out of or relating to the Indenture or the 87⁄8% Notes.

     

    SECTION
14.                                Counterparts.  This
First Supplemental Indenture may be executed in any number of counterparts, each
of which shall be an original but such counterparts shall together constitute
but one and the same instrument.  This First Supplemental Indenture
may be executed by facsimile or other electronic transmission.

     

    SECTION
15.                                Trustee Not Responsible for
Recitals or Issuance of Notes.  The recitals contained herein
and in the 87⁄8% Notes, except the Trustee’s certificate of authentication, shall
be taken as the statements of the Company and Opco, and the Trustee assumes no
responsibility for their correctness.  The Trustee makes no
representations as to the validity or sufficiency of this First Supplemental
Indenture or of the 87⁄8% Notes.  The Trustee shall not be accountable
for the use or application by the Company of the 87⁄8% Notes or the proceeds
thereof.

     

    SECTION
16.                                Supplemental Indenture
Controls.  In the event there is any conflict or inconsistency
between the Original Indenture and this First Supplemental Indenture, the
provisions of this First Supplemental Indenture shall control.

     

    
      
         

      

      
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    IN
WITNESS WHEREOF, the parties hereto have caused this First Supplemental
Indenture to be duly executed as of the day and year first above
written.

     

    SWIFT
ENERGY COMPANY

     

    

     

    By: 
/s/ Bruce H.
Vincent                                                           

     

        Bruce H.
Vincent

        President and
Secretary

    

     

    By:   /s/
Alton D. Heckaman,
Jr.                                                             

     

        Alton D.
Heckaman, Jr.

        Executive
Vice President and Chief Financial Officer

    

    

    SWIFT
ENERGY OPERATING, LLC

     

    

     

    By: 
/s/ Bruce H.
Vincent                                                               

     

        Bruce H.
Vincent

        President and
Secretary

    

     

    By:  /s/
Alton  D. Heckaman,
Jr.                                                          

     

        Alton D.
Heckaman, Jr.

        Executive
Vice President and Chief Financial Officer

    

     

    

     

    WELLS FARGO BANK, NATIONAL
ASSOCIATION, as Trustee

     

    

     

    By:  /s/
John C.
Stohlmann                                                              

     

        John C.
Stohlmann   

        Vice
President

    
      
         

      

      
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    EXHIBIT
A

     

    Form
of the 87⁄8% Notes

     

    Unless this certificate is presented by
an authorized representative of The Depository Trust Company, a New York
corporation, (“DTC”), to the issuer or its agent for registration of transfer,
exchange or payment, and any certificate issued is registered in the name of
Cede & Co. or such other name as is requested by an authorized
representative of DTC (and any payment is made to Cede & Co. or to such
other entity as is requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest
herein.

     

    THIS SECURITY IS A GLOBAL SECURITY AS
REFERRED TO IN THE INDENTURE HEREINAFTER REFERENCED. UNLESS AND UNTIL IT IS
EXCHANGED IN WHOLE OR IN PART FOR THE INDIVIDUAL SECURITIES REPRESENTED HEREBY,
THIS GLOBAL SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY
TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE
DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH
NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR
DEPOSITARY.

     

    SWIFT
ENERGY COMPANY

     

    87⁄8% Senior Note due
2020

     

    REGISTERED CUSIP
No. 870738 AG 6

     

    No.
__                                                                                                                              $225,000,000.00

     

    Swift
Energy Company, a Texas corporation (the “Company,” which term includes any
successor under the Indenture hereinafter referred to), for value received,
promises to pay to Cede & Co., or its registered assigns, the principal sum
of two hundred twenty-five million United States Dollars ($225,000,000.00) on
January 15, 2020.

     

    Interest
Payment Dates:  January 15, and July 15, commencing January 15,
2010.

     

    Regular
Record Dates:  January 1 and July 1.

     

    Reference
is hereby made to the further provisions of this 87⁄8% Note set forth on the
reverse hereof, which further provisions shall for all purposes have the same
effect as if set forth at this place.

     

    
      
         

      

      
        A-1

        
          

        

      

      
         

      

    

    IN
WITNESS WHEREOF, the Company has caused this 87⁄8% Note to be signed manually or
by facsimile by its duly authorized officers.

     

    Date:

     

    SWIFT
ENERGY COMPANY

    

    

    By:           

    Name:

    Title:

    

    

    By:           

    Name:

    Title:

    

    

     

    Trustee’s
Certificate of Authentication

     

    This is
one of the Debt Securities of the series designated therein referred to in the
within-mentioned Indenture.

     

    WELLS
FARGO BANK, NATIONAL ASSOCIATION,

    as
Trustee

    

    By:           

    Authorized
Signatory

    
      
         

      

      
        A-2

        
          

        

      

      
         

      

    

    

     

    [REVERSE
OF 87⁄8% NOTES]

     

    SWIFT
ENERGY COMPANY

     

    87⁄8%
Senior Note due 2020

     

    1.      Indenture;
Limitations.

     

    The
Company issued the 87⁄8% Notes under an Indenture dated as of May 19, 2009 (the
“Original Indenture”), between the Company and Wells Fargo Bank, National
Association, as trustee (the “Trustee”), and a First Supplemental Indenture
dated as of November 25, 2009 (the “Supplemental Indenture”) (the Original
Indenture, as amended and supplemented by the Supplemental Indenture being
hereinafter referred to as the “Indenture”), among the Company, Swift Energy
Operating, LLC, as guarantor (the “Guarantor”) and the
Trustee.  Capitalized terms herein are used as defined in the
Indenture unless otherwise indicated. The terms of the 87⁄8% Notes include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act. The 87⁄8% Notes are subject to all such terms, and Holders
are referred to the Indenture and the Trust Indenture Act for a statement of all
such terms. To the extent permitted by applicable law, in the event of any
inconsistency between the terms of this 87⁄8% Note and the terms of the Indenture,
the terms of the Indenture shall control.

     

    The 87⁄8%
Notes are senior unsecured obligations of the Company and unconditionally
guaranteed by the Guarantor.  The aggregate principal amount of the
87⁄8% Notes which may be issued, executed, authenticated, delivered and
outstanding is unlimited (subject to Section 1 of the Supplemental
Indenture). The Company may, subject to Article IV of the Indenture, issue
Additional 87⁄8% Notes under the Indenture in either a limited or an unlimited
aggregate principal amount. This 87⁄8% Note is one of the Original 87⁄8% Notes
referred to in the Indenture issued in an aggregate principal amount of
$225,000,000. The Additional 87⁄8% Notes may be issued as part of the same or a
different series of Debt Securities as the Original 87⁄8% Notes. The 87⁄8% Notes
include the Original 87⁄8% Notes and any Additional 87⁄8% Notes that may be issued
under the Indenture as part of the same series.

     

    2.      Principal
and Interest.

     

    The
principal of this 87⁄8% Note will mature on January 15, 2020.

     

    The
Company promises to pay interest on the principal amount of this 87⁄8% Note on
each January 15 and July 15 (each an “Interest Payment Date”), as set
forth below, at the rate per annum shown above.

     

    Interest
will be payable semiannually (to the holders of record of the 87⁄8% Notes at the
close of business on the January 1 or July 1 immediately preceding the
Interest Payment Date) on each Interest Payment Date, commencing
January 15, 2010.

     

    Interest
on the 87⁄8% Notes will accrue from the most recent date to which interest has
been paid or, if no interest has been paid, from November 25, 2009,
provided that, if there is no

     

    
      
         

      

      
        A-3

        
          

        

      

      
         

      

    

    existing
Default in the payment of interest and this 87⁄8% Note is authenticated between a
Regular Record Date referred to on the face hereof and the next succeeding
Interest Payment Date, interest shall accrue from such Interest Payment Date.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.

     

    The
Company shall pay interest on overdue principal at the rate borne by the 87⁄8%
Notes plus 1% per annum, and it shall pay interest on overdue installments of
interest, to the extent lawful, at the rate borne by the 87⁄8% Notes.

     

    3.      Method
of Payment.

     

    The
Company will pay interest (except defaulted interest) on the principal amount of
the 87⁄8% Notes as provided above on each Interest Payment Date to the persons who
are Holders (as reflected in the Debt Security Register at the close of business
on the January 1 and July 1 immediately preceding the relevant
Interest Payment Date), in each case, even if the 87⁄8% Note is canceled on
registration of transfer, registration of exchange, redemption or repurchase
after such record date and on or before the Interest Payment Date, provided
that, with respect to the payment of principal, the Company will make payment to
the Holder that surrenders this 87⁄8% Note to a paying agent on or after the
maturity thereof.

     

    The
Company will pay principal, premium, if any, and as provided above, interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts. However, the Company, at its option, may
pay principal, premium, if any, and interest by its check payable in such money.
It may mail an interest check to a Holder’s registered address (as reflected in
the Debt Security Register). Payments in respect of 87⁄8% Notes represented by a
Global Security (including principal, premium and interest) will be made by wire
transfer of immediately available funds to the accounts specified by The
Depository Trust Company. If a payment date is a date other than a Business Day
at a place of payment, payment may be made at that place on the next succeeding
day that is a Business Day and no interest shall accrue for the intervening
period.

     

    4.      Paying
Agent and Registrar.

     

    Initially,
the Trustee will act as authenticating agent, paying agent and Registrar. The
Company may change any authenticating agent, paying agent or Registrar without
notice. The Company, any Subsidiary or any Affiliate of any of them may act as
paying agent, Registrar or co-Registrar.

     

    5.      Optional
Redemption.

     

    Except as
set forth below, the 87⁄8% Notes will not be redeemable at the option of the
Company prior to their Stated Maturity.  Starting on January 15,
2015, the Company may redeem all or any portion of the 87⁄8% Notes upon not less
than 30 nor more than 60 days’ prior notice, at the redemption prices set forth
below, plus accrued and unpaid interest, if any, to the redemption date (subject
to the right of Holders of record on the relevant record date to receive
interest due on the relevant Interest Payment Date). The following prices are
for 87⁄8% Notes redeemed during the 12-month period commencing on January 15
of the years set forth below, and are expressed as percentages of principal
amount:

     

    

      
        
           

        

        
          A-4

          
            

          

        

        
           

        

      

    

     

    
      	
              
                Year

              

            	
              
                Redemption
      Price

              

            
	
              2015

            	
              104.438%

            
	
              2016

            	
              102.958%

            
	
              2017

            	
              101.479%

            
	
              2018
      and thereafter

            	
              100.000%

            
	 
      	 
      

    

    

     

    The
Company may on any one or more occasions prior to January 15, 2013, redeem
up to 35% of the aggregate principal amount of the 87⁄8% Notes originally issued
with the net proceeds of one or more Equity Offerings at a redemption price of
108.875% of the principal amount thereof, plus accrued and unpaid interest, if
any, to the date of redemption (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant Interest Payment
Date), provided that at least 65% of the aggregate principal amount of the 87⁄8%
Notes originally issued remains Outstanding after the occurrence of such
redemption. Any such redemption shall occur not later than 90 days after the
date of the closing of any such Equity Offering upon not less than 30 or more
than 60 days’ prior notice. The redemption shall be made in accordance with
procedures set forth in the Indenture.

     

    At any
time prior to January 15, 2015, the Company will be entitled, at its
option, to redeem all or any portion of the 87⁄8% Notes at a redemption price
equal to 100% of the principal amount of the 87⁄8% Notes plus the Applicable
Premium as of, and accrued and unpaid interest to, the redemption date (subject
to the right of Holders on the relevant record date to receive interest due on
the relevant interest payment date).  Notice of such redemption must
be mailed by first-class mail to each Holder’s registered address, not less than
30 nor more than 60 days prior to the redemption date.

     

    In the
event that Holders of not less than 90% of the aggregate principal amount of the
Outstanding 87⁄8% Notes accept a Change of Control Offer and the Company purchases
all of the 87⁄8% Notes held by such Holders, the Company will have the right, upon
not less than 30 nor more than 60 days’ prior notice, given not more than 30
days following the purchase pursuant to the Change of Control Offer referred to
below, to redeem all of the 87⁄8% Notes that remain Outstanding following such
purchase at a redemption price equal to the Change of Control Payment plus, to
the extent not included in the Change of Control Payment, accrued and unpaid
interest on the 87⁄8% Notes that remain Outstanding, to the date of redemption
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date).

     

    If less
than all the 87⁄8% Notes are to be redeemed at any time, selection of 87⁄8% Notes
for redemption will be made by the Trustee in compliance with the requirements
of the principal national securities exchange, if any, on which the 87⁄8% Notes
are listed, or, if the 87⁄8% Notes are not so listed, on a pro rata
basis.

     

    6.      Sinking
Fund.

     

    The 87⁄8%
Notes are not subject to any sinking fund.

     

    
      
         

      

      
        A-5

        
          

        

      

      
         

      

    

    7.           Ranking.

     

    The 87⁄8% Notes are Senior Indebtedness
of the Company, and the Subsidiary Guaranty is Senior Indebtedness of the
Guarantor.

     

    8.      Repurchase
upon a Change of Control.

     

    Upon the occurrence of a Change of
Control, each Holder of 87⁄8% Notes shall have the right to require the Company to
repurchase all or any part (equal to $2,000 in principal amount or an integral
multiple of $1,000 in excess thereof) of such Holder’s 87⁄8% Notes pursuant to the
Change of Control Offer as provided in, and subject to the terms of, the
Indenture at a purchase price in cash equal to 101% of the principal amount of
the 87⁄8% Notes repurchased, plus accrued and unpaid interest, if any, to the date
of purchase (subject to the right of Holders of record on the relevant record
date to receive interest due on the relevant Interest Payment
Date).

     

    9.      Denominations;
Transfer; Exchange.

     

    The 87⁄8% Notes are in registered form
without coupons in minimum denominations of $2,000 of principal amount and
multiples of $1,000 in excess thereof. A Holder may register the transfer or
exchange of 87⁄8% Notes in accordance with the Indenture. The Registrar may
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and to pay any taxes and fees required by law or permitted by
the Indenture. The Registrar need not register the transfer or exchange of any
87⁄8% Notes selected or called for redemption (except in the case of a 87⁄8% Note
redeemed in part, the portion of the 87⁄8% Note not to be redeemed). Also, it need
not register the transfer or exchange of any 87⁄8% Notes for a period beginning at
the opening of business 15 days before any selection of 87⁄8% Notes to be redeemed
and ending at the close of business on the day of that selection.

     

    10.      Persons
Deemed Owners.

     

    A Holder shall be treated as the owner
of a 87⁄8% Note for all purposes.

     

    11.      Unclaimed
Money.

     

    If money for the payment of principal,
premium, if any, or interest remains unclaimed for two years, the Trustee and
the paying agent will pay the money back to the Company at its written request.
After that, Holders entitled to the money must look to the Company for payment,
unless an abandoned property law designates another Person, and all liability of
the Trustee and such paying agent with respect to such money shall
cease.

     

    12.      Discharge
Prior to Redemption or Maturity.

     

    Subject to certain conditions, if the
Company deposits with the Trustee money or U.S. Government Obligations
sufficient to pay the then outstanding principal of, premium, if any, and
accrued interest on the 87⁄8% Notes to redemption or maturity, as applicable, the
Company and the Subsidiary Guarantors, if any, may terminate some of or all of
their obligations under the Indenture and the 87⁄8% Notes, except in certain
circumstances for certain sections thereof.

     

    
      
         

      

      
        A-6

        
          

        

      

      
         

      

    

    13.           Amendment;
Supplement; Waiver.

     

    Subject to certain exceptions, the
Indenture or the 87⁄8% Notes may be amended or supplemented with the consent of
the Holders of at least a majority in principal amount of the 87⁄8% Notes then
Outstanding, and any existing Default or compliance with any provision may be
waived with the consent of the Holders of at least a majority in principal
amount of the 87⁄8% Notes then Outstanding. Without notice to or the consent of
any Holder, the parties thereto may amend or supplement the Indenture or the 87⁄8%
Notes to, among other things, cure any ambiguity, defect or inconsistency and
make any change that does not adversely affect the interests of any Holder in
any material respect.

     

    14.      Restrictive
Covenants.

     

    The Indenture imposes certain
limitations on the ability of the Company and its Restricted Subsidiaries, among
other things, to Incur additional Indebtedness, make Restricted Payments, use
the proceeds from Asset Sales, suffer to exist restrictions on the ability of
Restricted Subsidiaries to make certain payments to the Company, engage in
transactions with Affiliates, suffer to exist or incur Liens or merge,
consolidate or transfer substantially all of their assets. Certain restrictive
covenants will be terminated when the 87⁄8% Notes have an Investment Grade Rating
from both Moody’s and S&P and no Default has occurred and is
continuing.  Within four months after the end of each fiscal year, the
Company shall deliver to the Trustee an Officers’ Certificate stating whether or
not the signers know of any Default and specifying what action the Company is
taking or proposes to take with respect thereto.

     

    15.      Successor
Persons.

     

    Subject to certain exceptions, when a
successor Person assumes all the obligations of its predecessor under the 87⁄8%
Notes and the Indenture, the predecessor Person will be released from those
obligations.

     

    16.      Defaults
and Remedies.

     

    The following are summaries of Events
of Default under the Indenture with respect to the 87⁄8% Notes:

     

    (a)      failure
to pay any interest on the 87⁄8% Notes when due, continued for 30
days;

     

    (b)      failure
to pay principal of (or premium, if any, on) the 87⁄8% Notes when
due;

     

    (c)      failure
to comply with Article X of the Indenture;

     

    (d)      failure
to perform any other covenant of the Company in the Indenture, continued for 30
days after written notice to the Company from the Trustee or the Holders of at
least 25% in aggregate principal amount of the Outstanding 87⁄8%
Notes;

     

    (e)      a
default by the Company or any Restricted Subsidiary under any Indebtedness for
borrowed money in an aggregate amount greater than $25.0 million (other than
Non-recourse Purchase Money Indebtedness) that results in acceleration
of

     

    
      
         

      

      
        A-7

        
          

        

      

      
         

      

    

    the
maturity of such Indebtedness, or failure to pay any such Indebtedness at
maturity, if such Indebtedness is not discharged or such acceleration is not
rescinded or annulled within 30 days after written notice as provided in the
Indenture;

     

    (f)      one
or more final judgments or orders by a court of competent jurisdiction are
entered against the Company or any Restricted Subsidiary in an uninsured or
unindemnified aggregate amount outstanding at any time in excess of $25.0
million and such judgments or orders are not discharged, waived, stayed,
satisfied or bonded for a period of 60 consecutive days;

     

    (g)      certain
events of bankruptcy, insolvency or reorganization with respect to the Company
or any Significant Subsidiary; or

     

    (h)      a
Subsidiary Guaranty ceases to be in full force and effect (other than in
accordance with the terms of the Indenture and such Subsidiary Guaranty) or a
Subsidiary Guarantor denies or disaffirms its obligations under its Subsidiary
Guaranty.

     

    The
Indenture provides that if an Event of Default (other than an Event of Default
described in clause (g) above) with respect to the 87⁄8% Notes at the time
Outstanding shall occur and be continuing, either the Trustee or the Holders of
at least 25% in aggregate principal amount of the Outstanding 87⁄8% Notes by
notice as provided in the Indenture may declare the principal amount of the 87⁄8%
Notes to be due and payable immediately. If an Event of Default described in
clause (g) above with respect to the 87⁄8% Notes at the time Outstanding shall
occur, the principal amount of all the 87⁄8% Notes will automatically, and without
any action by the Trustee or any Holder, become immediately due and payable.
After any such acceleration, but before a judgment or decree based on
acceleration, the Holders of at least a majority in aggregate principal amount
of the Outstanding 87⁄8% Notes may, under certain circumstances, rescind and annul
such acceleration if all Events of Default, other than the nonpayment of
accelerated principal or interest, have been cured or waived as provided in the
Indenture.

     

    Subject
to the provisions of the Indenture relating to the duties of the Trustee in case
an Event of Default shall occur and be continuing, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request or direction of any of the Holders of the 87⁄8% Notes, unless such Holders
shall have offered to the Trustee reasonable indemnity. Subject to such
provisions for the indemnification of the Trustee, the Holders of at least a
majority in aggregate principal amount of the Outstanding 87⁄8% Notes will have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee or exercising any trust or power conferred
on the Trustee with respect to the 87⁄8% Notes.

     

    No Holder
of 87⁄8% Notes will have any right to institute any proceeding with respect to the
Indenture, or for the appointment of a receiver or a trustee, or for any other
remedy thereunder, unless:

     

    (a)           such
Holder has previously given to the Trustee written notice of a continuing Event
of Default with respect to the 87⁄8% Notes;

     

    
      
         

      

      
        A-8

        
          

        

      

      
         

      

    

    (b)           the
Holders of at least 25% in aggregate principal amount of the Outstanding 87⁄8%
Notes have made written request, and such Holder or Holders have offered
reasonable indemnity, to the Trustee to institute such proceeding as trustee;
and

     

    (c)           the
Trustee has failed to institute such proceeding and has not received from the
Holders of at least a majority in aggregate principal amount of the Outstanding
87⁄8% Notes a direction inconsistent with such request, within 60 days after such
notice, request and offer.

     

    However, such limitations do not apply
to a suit instituted by a Holder of 87⁄8% Notes for the enforcement of payment of
the principal of or any premium or interest on such 87⁄8% Notes on or after the
applicable due date specified in such 87⁄8% Notes.

     

    17.      Initial
Subsidiary Guarantor.

     

    The Guarantor has fully and
unconditionally guaranteed the 87⁄8% Notes as provided in Article XIV of the
Indenture.  Such Subsidiary Guaranty is subject to release in certain
circumstances set forth in the Indenture.

     

    18.      Trustee
Dealings with the Company or the Subsidiary Guarantors.

     

    The Trustee under the Indenture, in its
individual or any other capacity, may make loans to, accept deposits from and
perform services for the Subsidiary Guarantors, if any, or the Company or their
Affiliates and may otherwise deal with the Subsidiary Guarantors, if any, or the
Company or their Affiliates as if it were not the Trustee.

     

    19.      No
Recourse Against Others.

     

    No incorporator or any past, present or
future partner, shareholder, other equity holder, officer, director, employee or
controlling Person as such, of the Company or the Subsidiary Guarantors or of
any successor Person shall have any liability for any obligations of the Company
or the Subsidiary Guarantors under the 87⁄8% Notes or the Indenture or for any
claim based on, in respect of or by reason of, such obligations or their
creation. Each Holder by accepting a 87⁄8% Note expressly waives and releases all
such liability. The waiver and release are a condition of, and part of the
consideration for the issuance of the 87⁄8% Notes.

     

    20.      Authentication.

     

    This 87⁄8% Note shall not be valid until
the Trustee or authenticating agent signs the certificate of authentication on
the other side of this 87⁄8% Note.

     

    21.      Abbreviations.

     

    Customary abbreviations may be used in
the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN
ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian) and U/G/M/A (=
Uniform Gifts to Minors Act).

     

    
      
         

      

      
        A-9

        
          

        

      

      
         

      

    

    22.           Governing
Law.

     

    THIS 87⁄8% NOTE SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

     

    23.      CUSIP
Numbers.

     

    Pursuant to a recommendation
promulgated by the Committee on Uniform Security Identification Procedures, the
Company has caused CUSIP numbers to be printed on the 87⁄8% Notes and has directed
the Trustee to use CUSIP numbers in notices of redemption as a convenience to
Holders. No representation is made as to the accuracy of such numbers either as
printed on the 87⁄8% Notes or as contained in any notice of redemption and
reliance may be placed only on the other identification numbers placed
thereon.

     

    The Company will furnish to any Holder
upon written request and without charge a copy of the Indenture. Requests may be
made to Swift Energy Company, 16825 Northchase Drive, Suite 400, Houston, Texas
77060, Attention: Chief Financial Officer.

     

    
      
         

      

      
        A-10

        
          

        

      

      
         

      

    

    ASSIGNMENT
FORM

     

    

     

    To assign
this 87⁄8% Note, fill in the form below:

     

    I or we
assign and transfer this 87⁄8% Note
to                                                                                                                                          

     

    

    (Print or
type assignee’s name, address and zip code)

     

    

    (Insert
assignee’s soc. sec. or tax I.D. No.)

     

    and
irrevocably
appoint                                                                           
agent to transfer this 87⁄8% Note on the books of the Company. The agent may
substitute another to act for him.

     

    

     

    Date:                                           

     

    Your
Signature:                                                                                                                                          

    (Sign
exactly as your name appears on the other side of this 87⁄8% Note)

     

    Signature
Guarantee:

    (Signature
must be guaranteed by a financial institution that is a member of the Securities
Transfer Agent Medallion Program (“STAMP”), the Stock Exchange Medallion Program
(“SEMP”), the New York Stock Exchange, Inc. Medallion Signature Program (“MSP”)
or such other signature guarantee program as may be determined by the Registrar
in addition to, or in substitution for, STAMP, SEMP, or MSP, all in accordance
with the Securities Exchange Act of 1934, as amended.)

    
      
         

      

      
        A-11

        
          

        

      

      
         

      

    

    OPTION OF
HOLDER TO ELECT PURCHASE

     

    If you
wish to have this 87⁄8% Note purchased by the Company pursuant to
Section 4.14 (Asset Sale) or Section 4.20 (Change of Control) of the
Indenture, check the appropriate box:

     

    o           Section
4.14                                                      o           Section
4.20

     

    If you
wish to have a portion of this 87⁄8% Note purchased by the Company pursuant to
Section 4.14 or Section 4.20 of the Indenture, state the amount:

     

    $                      

     

    Date:                                           

     

    Your
Signature:                                                                                                                                          

    (Sign
exactly as your name appears on the other side of this 87⁄8% Note)

     

    Signature
Guarantee:

    (Signature
must be guaranteed by a financial institution that is a member of the Securities
Transfer Agent Medallion Program (“STAMP”), the Stock Exchange Medallion Program
(“SEMP”), the New York Stock Exchange, Inc. Medallion Signature Program (“MSP”)
or such other signature guarantee program as may be determined by the Registrar
in addition to, or in substitution for, STAMP, SEMP, or MSP, all in accordance
with the Securities Exchange Act of 1934, as amended.)

    
      
         

      

      
        A-12

        
          

        

      

      
         

      

    

                                                                                                                                              EXHIBIT
B

     

    

     

    FORM
OF SUPPLEMENTAL INDENTURE

     

    THIS SUPPLEMENTAL INDENTURE (this
“Supplemental Indenture”) dated as of _______________, ____, is among
[GUARANTOR] (the “New Subsidiary Guarantor”), a subsidiary of Swift Energy
Company (or its successor), a Texas corporation (the “Company”), the Company, on
behalf of itself and the Subsidiary Guarantors (the “Existing Subsidiary
Guarantors”) under the Indenture referred to below, and WELLS FARGO BANK,
NATIONAL ASSOCIATION, a national banking association, as trustee under the
Indenture referred to below (the “Trustee”).

     

    WITNESSETH

     

    WHEREAS
the Company and the Existing Subsidiary Guarantors are parties to an Indenture
dated as of May 19, 2009 (such Indenture, as amended or supplemented to date,
including by the First Supplemental Indenture dated as of November 25,
2009, among the Company, Swift Energy Operating, LLC and the Trustee, is
hereinafter called the “Indenture”), providing for the initial issuance of an
aggregate principal amount of up to $225,000,000 of 87⁄8% Senior Notes due 2020
(the “Securities”);

     

    WHEREAS
Section 4.18 of the Indenture provides that under certain circumstances the
Company is required to cause the New Subsidiary Guarantor to execute and deliver
to the Trustee a supplemental indenture pursuant to which the New Subsidiary
Guarantor shall unconditionally Guarantee all the Company’s obligations under
the Securities pursuant to a Subsidiary Guaranty on the terms and conditions set
forth herein; and

     

    WHEREAS
pursuant to Section 9.01 of the Indenture, the Trustee, the Company and the
Existing Subsidiary Guarantors are authorized to execute and deliver this
Supplemental Indenture;

     

    NOW,
THEREFORE, in consideration of the foregoing and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the New Subsidiary
Guarantor, the Company, the Existing Subsidiary Guarantors and the Trustee
mutually covenant and agree for the equal and ratable benefit of the holders of
the Securities as follows:

     

    1.           Agreement to Guarantee. The
New Subsidiary Guarantor hereby agrees, jointly and severally with all other
Subsidiary Guarantors, to unconditionally Guarantee the Company’s obligations
under the Securities on the terms and subject to the conditions set forth in
Article XIV of the Indenture and to be bound by all other applicable provisions
of the Indenture.

     

    2.           Ratification of Indenture;
Supplemental Indenture Part of Indenture. Except as expressly amended
hereby, the Indenture is in all respects ratified and confirmed and all the
terms, conditions and provisions thereof shall remain in full force and effect.
This Supplemental Indenture shall form a part of the Indenture for all purposes,
and every holder of Securities heretofore or hereafter authenticated and
delivered shall be bound hereby.

     

    
      
         

      

      
        B-1

        
          

        

      

      
         

      

    

    3.           Governing Law. THIS
SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK.

     

    4.           Trustee Makes No
Representation. The Trustee makes no representation as to the validity or
sufficiency of this Supplemental Indenture.

     

    5.           Counterparts. The parties may
sign any number of copies of this Supplemental Indenture. Each signed copy shall
be an original, but all of them together represent the same
agreement.

     

    6.           Effect of Headings. The
Section headings herein are for convenience only and shall not effect the
construction thereof.

     

    IN
WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly
executed as of the date first above written.

     

    

    
      	
               
      

            	
              [NEW
      SUBSIDIARY GUARANTOR],

            

    

    

    

    
      	
              By:

            	 	 

    

    
      	
               
      

            	
              Name:

            

    

    
      	
               
      

            	
              Title:

            

    

    

    

    
      	
               
      

            	
              SWIFT
      ENERGY COMPANY, on behalf of

            

    

    
      	
               
      

            	
              itself
      and the Existing Subsidiary
Guarantors,

            

    

    

    

    
      	
              By:

            	 	 

    

    
      	
               
      

            	
              Name:

            

    

    
      	
               
      

            	
              Title:

            

    

    

    

    
      	
               
      

            	
              WELLS
      FARGO BANK, NATIONAL ASSOCIATION,

            

    

    
      	
               
      

            	
              as
      Trustee

            

    

    

    

    
      	
              By:

            	 	 

    

    
      	
               
      

            	
              Authorized
      Signatory

            

    

    

     

    
      
         

      

      
        B-2exhibit10-1.htm

AGREEMENT FOR

 

PURCHASE OF WATER ASSETS

 

OF THE TOWN OF PORT DEPOSIT

 

AND FOR THE PROVISION OF POTABLE WATER SERVICES

 

THIS AGREEMENT (this “Agreement”) is entered into as of this 1st day of December, 2009 by and among Artesian Water Maryland, Inc. (“Artesian MD” or “Buyer”), a Delaware corporation, Artesian
Resources Corporation (“Guarantor”), a Delaware Corporation, and the Mayor and Town Council of Port Deposit, Maryland, a body corporate and politic organized under the laws of the State of Maryland, (“Port Deposit” or the “Town”).

WHEREAS, Guarantor is the parent corporation of Buyer;

 

WHEREAS, Artesian MD is a private water utility company that provides potable water and fire suppression services to areas and users in Maryland;

 

WHEREAS, Artesian MD desires to purchase from Port Deposit, and Port Deposit desires to sell, assign, transfer and convey to Artesian MD, all of Port Deposit’s assets used in providing potable water and water distribution and water meter services (the “Facilities”)
to the Town, its citizens, residents, property owners and businesses, free and clear of all Liens of Record (as hereinafter defined), on the terms and conditions herein set forth;

 

WHEREAS, Port Deposit’s willingness to convey its Water Assets to Artesian, MD is predicated, inter alia, upon Artesian MD’s commitment to provide ongoing potable water, and water delivery and water meter services
to the Town, its citizens, residents, property owners and businesses, now or later existing within the Town’s boundaries and in areas that may be later annexed by the Town; Artesian MD’s commitment to upgrade the Facilities to support future development in the Town; and upon Guarantor’s willingness to guarantee Buyer’s obligations under the Promissory Note(s) (as hereinafter defined).

 

NOW, THEREFORE, in consideration of the representations, warranties, covenants and agreements of the parties hereinafter set forth, as well as for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, Artesian MD and Port Deposit, intending
to be legally bound hereby, do hereby agree as follows:

 

 

ARTICLE I

DEFINITIONS

1.1           Definitions.   Except as otherwise expressly provided in this Agreement, the capitalized terms used in this Agreement
shall have the meanings specified below and shall be equally applicable to both the singular and plural forms.

 

“Applicable Law(s)” shall mean law of the State of Maryland (and Delaware laws applicable to Buyer and Guarantor) and Federal Law, excluding any law or ordinance of local government.

 

“Business Day” shall mean any weekday on which commercial banks in Baltimore, Maryland are open for business. Any action, notice or right which is to be exercised or lapses on or by a given date which is not a Business Day may be taken, given or exercised, and shall not
lapse, until the end of the next Business Day.

 

“Buyer’s Knowledge” means the actual knowledge, after due inquiry, of the officers, directors and representatives of Artesian MD, including without limitation, Dian Taylor, David Spacht, Joseph DiNunzio, Jack Schreppler, Bruce Kraeuter, James Buckland and John Thaeder.

 

 “Code” shall mean the Internal Revenue Code of 1986, as amended.

 

“Port Deposit’s Knowledge” means the actual knowledge, after due inquiry and exercising reasonable diligence of the Mayor and Town Council and Town Planner.

 

 “Governmental Authority” shall mean any governmental, regulatory or administrative body, agency, subdivision or authority, any court or judicial authority, or any public, private or industry regulatory authority, whether national, Federal, state, local, foreign or
otherwise.

 

“Indebtedness” means all (i) indebtedness for borrowed money, including purchase money indebtedness, bonds, debentures, capital or financing leases, equipment operating leases, non-trade payables and credit facilities, or obligations for or in respect of the deferred purchase
price of goods or services, (ii) obligations under any guaranty, letter of credit, performance credit or other Contract having the effect of assuring a creditor against loss, (iii) obligations under any interest rate, currency or other hedging Contract, and (iv) any prepayment penalties, premiums or fees under any of the foregoing items described under clause (i), (ii) or (iii).

 

“Liability” means any and all direct or indirect indebtedness, liability, assessment, claim, loss, damage, deficiency, obligation or responsibility, expense (including, without limitation, reasonable attorneys’ fees, court costs, accountants’ fees, environmental
consultants’ fees, laboratory costs and other professionals’ fees), Order, settlement payments, Taxes, fines and penalties, fixed or unfixed, choate or inchoate, liquidated or unliquidated, secured or unsecured, accrued, absolute, actual or potential, contingent or otherwise (including any liability under any guaranties or letters of credit, or with respect to insurance loss accruals).

“Lien of Record” means, with respect to any Purchased Asset, any lien (including mechanics, warehousemen, laborers and landlords liens), charge, restriction, claim, hypothecation, pledge, security interest, mortgage, preemptive right, right of first refusal, option, judgment,
title defect, right of way, easement, conditional sale, or other title retention agreement or other restriction or encumbrance of any kind in respect of or affecting such asset reflected in the public records of the Circuit Court for Cecil County, or the Maryland Department of Assessments and Taxation.

“Litigation” means any action, arbitration, mediation, audit, hearing, investigation, litigation or suit (whether civil, criminal, administrative, investigative or informal) commenced, brought, conducted or heard by or before or otherwise involving any Governmental Authority,
arbitrator or mediator.

 

“Material Adverse Change” means any event, change or effect that, when taken individually or together with all other events, changes and effects, is materially adverse to Port Deposit’s conduct of the operations of the Facilities, and the other Purchased Assets,
in each case, either individually or taken as a whole, condition (financial or otherwise), properties, prospects or results of operations or will prevent or materially delay consummation of the transactions contemplated under this Agreement or otherwise will prevent Port Deposit from performing its obligations under this Agreement

 

“Order” means any order, judgment, preliminary or permanent injunction, temporary restraining order, award, citation, decree, consent decree or writ.

 

“Person” means any natural person, corporation, limited liability company, partnership, proprietorship, other business organization, trust, union, association or Governmental Authority.

 

“Representative” as to a specified Person shall mean any officer, director, agent, employee, attorney, accountant, consultant or other representative of the Person specified.

 

“Service Area” means the boundaries of the Town of Port Deposit as now existing or later amended from time to time by Port Deposit, by annexation or otherwise designated within the growth area depicted in the Town’s 2009 Port Deposit Comprehensive Plan and, to the
extent required by law, as approved by Cecil County.

 

 “Tax” or “Taxes” means all taxes, charges, fees, imposts, levies or other assessments, including, without limitation, all net income, franchise, profits, minimum, alternative minimum, gross receipts,
capital, sales, use, ad valorem, value added, transfer, transfer gains, inventory, intangibles, capital stock, license, withholding, payroll, employment, social security, unemployment, excise, severance, stamp, occupation, real or personal property, abandoned property assessment, and estimated taxes, water, rent and sewer service charges, customs duties, fees, assessments and charges of any kind whatsoever, together with any interest and any penalties,
fines, additions to tax or additional amounts thereon, imposed by any taxing authority (federal, state, local or foreign) and shall include any transferee liability in respect of Taxes.

 

“Tax Return” means all returns, declarations, reports, estimates, information returns and statements required to be filed in respect of any Taxes.

ARTICLE II

SALE AND DELIVERY OF PURCHASED ASSETS

 

2.1           Sale and Delivery of Purchased Assets.   Subject to the terms
and conditions of this Agreement, at the Closing, Port Deposit shall sell, assign, transfer, convey and deliver to the Buyer, free and clear of all Liens of Record, all of Port Deposit’s right, title and interest in and to the following assets, rights, claims, properties and interests that Port Deposit owns or in which Port Deposit has any right, title or interest, other than the Excluded Assets, (collectively, the “Purchased Assets”):

(a)      Plant and Equipment. All of the plant and equipment and other tangible personal property, whether owned, leased or otherwise possessed by Port Deposit and located at any Facility or otherwise
used in the operation of any Facility or the Town’s Water Distribution, Treatment and Metering Systems (as defined in Section 2.1(e)), (the “Plant and Equipment”), including, without limitation, the plant, equipment and other tangible personal property specified on Schedule 2.1(a).

 

 (b) Real Property. All of Port Deposit’s right, title and interest in and to the real property related to the use and operation of each of the Facilities, including, without limitation, those real properties more fully described on Schedule
2.1(b) (the “Owned Real Property”), and an option to acquire, for use in conjunction with Cecil County Maryland, a parcel comprising approximately 0.329 acre and designated as Tax Parcel No. ###-##-#### (the “Booster Station Parcel”).  Buyer shall have an option exercisable within five (5) years after the date of the Closing to acquire title to the Booster Station Parcel for the nominal consideration of ten dollars
($10.00) subject to the laws and ordinances applicable to the conveyance of real property owned by the Town then in effect.  It is understood that the conveyance of the Booster Station Parcel is subject to prior approval by the Maryland Department of Natural Resources, the Maryland State Secretary of the Department of Budget and Fiscal Planning and the Maryland Office of Planning as the parcel is currently subject to project open space restrictions and it is further understood that the Town will offer
replacement open space acreage to the State of Maryland in seeking these approvals.  At Port Deposit’s election, the Town may reserve for itself and for Cecil County, Maryland an easement to use the Booster Station parcel for a wastewater pumping station provided that such use does not impair Buyer’s ability to construct and operate a Booster Pump Station sufficient to provide water service to developments at Bainbridge, Granite Cliffs and the former Tome School.

 

 (c) Leased Property and Easements. Port Deposit’s rights to access or use any real property or fixtures (including by lease, license or easement) directly or indirectly used in the operation of any Facility or the Town’s Water Distribution,
Treatment and Metering Systems (as defined in Section 2.1(e)), including, without limitation, those leases and easements identified on Schedule 2.1(c) (collectively, the “Easements”), subject to the retained right of the Town and its assigns to the ongoing use of said Easements for the collection,
distribution and provision of waste water services and for the provision of public services, as an easement in common.

 

 (d) Assumed Contracts and Certain Other Rights of Port Deposit. All right, title and interest of Port Deposit following the Closing in, to and under all instruments, documents, contracts, agreements, arrangements, commitments, bids, leases, licenses and
any other contract rights (whether written or oral) (collectively, “Contracts”) of Port Deposit existing on the Closing Date and used in connection with the operation of any Facility or its Water Distribution System and specified on Schedule 2.1(d) (the “Assumed Contracts”), excluding all grant
proceeds and user and connection fees for water service and/or connection to the Water Distribution, Treatment and Metering Systems accruing prior to the date of Closing; provided that the right to any connection fees for the developments known as Bainbridge, the former Tome School and Granite Cliffs billed and/or collected after the date of execution of this Agreement shall be transferred to Artesian and if collected prior to Closing by the Town, shall be remitted to Artesian at Closing and/or subtracted from
the cash payment provided in Section 2.4(b), at Buyer’s election.

 

(e) Water Distribution, Treatment and Water Metering Systems. As to each Facility, all of Port Deposit’s right, title and interest in and to the water distribution, treatment and water meter systems owned, leased or otherwise
possessed by Port Deposit or used in the operation of such Facility, as more fully described on Schedule 2.1(e) (the “Water Distribution, Treatment and Metering Systems”).

 

(f) Permits. All approvals, consents, licenses, permits, waivers or other authorizations issued, granted, given, applied for at the time of Closing or otherwise made available by or under the authority of any Governmental Authority
(other than Port Deposit) (collectively, “Permits”) for the ownership or operation of any Facility and its Water Distribution System, including, without limitation, those Permits specified on Schedule 2.1(f) to the extent such Permits are assignable.

 

(g) Customers and Suppliers. All rights of Port Deposit to serve the customers now or hereafter serviced within the Service Area (collectively, the “Customers”);
and all rights of Port Deposit to be served by or otherwise interact with all vendors and suppliers of Port Deposit with respect to the conduct of the operations of one or more of the Facilities or its Water Distribution System (collectively, the “Suppliers”), which Suppliers as of the date of this Agreement are identified on the attached Schedule 2.1(g).

2.2           Excluded Assets.   Notwithstanding anything to the contrary
contained in Section 2.1 or elsewhere in this Agreement, the assets identified on Schedule 2.2 shall not be part of the sale and purchase contemplated by this Agreement, are excluded from the Purchased Assets, and shall remain the property of Port Deposit immediately after the Closing (collectively, the “Excluded
Assets”).

 

2.3           Liabilities.

 

(a) Assumed Liabilities. At the Closing, the Buyer will assume Liability for and agree to pay, perform and discharge, in a timely manner and in accordance with the terms thereof, all of the following (collectively, the “Assumed
Liabilities”):

(i) all obligations and responsibilities to provide water service and distribution to the Service Area, and to operate and maintain in accordance with all Applicable Laws  and good practices the Purchased Assets arising from and after the Closing, including the obligation to undertake improvements and upgrades to the Facilities
and Purchased Assets to keep them in good repair and condition and to support future development in the Service Area including, without limitation, the developments known as Bainbridge, the former Tome School and Granite Cliffs;

(ii) all accounts payable and trade payables accruing from and after the Closing with respect to the provision of water service and distribution;

 

(iii) the Assumed Contracts with respect to all periods from and after Closing (but shall not assume any Liability arising from Port Deposit’s performance or non-performance under any Assumed Contract at any time prior to the Closing, whether asserted before or after such date);

 

(iv) all Liabilities with respect to any Taxes first accruing immediately after the Closing and which were incurred in connection with the Buyer’s ownership or operation of the Purchased Assets;

 

(v) all Liabilities arising out of the ownership and/or operation of the Purchased Assets subsequent to the Closing Date;

 

(vi) all sales and use, transfer-related taxes, stamp, real property recordation fees or taxes and all other fees and/or costs associated with the transfer of title of the Purchased Assets from Port Deposit to the Buyer; and

 

(vii) all Liabilities or demands (contingent or otherwise) arising out of any Environmental Laws (as defined in Section 4.8(b) hereof) relating to contamination events as a result of the ownership and/or operation of the Purchased Assets occurring from and after the Closing
Date.

 

 (b) Excluded Liabilities. Except for the Assumed Liabilities, the Buyer shall not assume, and shall not be deemed to have assumed by anything contained in this Agreement or otherwise, any Liability of Port Deposit whatsoever (the “Excluded
Liabilities”). Without limiting the generality of the foregoing, the Buyer shall not assume, and shall not be deemed by anything contained in this Agreement or otherwise to have assumed any of the following Excluded Liabilities:

(i) all Liabilities and obligations of Port Deposit under this Agreement;

(ii) all Liabilities arising out of the operation and ownership of the Purchased Assets prior to the Closing;

(iii) all Liabilities or demands for any Taxes in respect of the Purchased Assets that are due and payable for periods at or prior to the Closing;

(iv) all Liabilities or demands arising out of any Liability or demand (whether or not asserted) or threatened or pending Litigation relating to the Purchased Assets for any period ending at or prior to the Closing;

 

(v) all Liabilities or demands arising out of any work or Contract that were to be performed by Port Deposit at or prior to the Closing, including, without limitation, any warranty claims relating thereto;

(vi) all Liabilities or demands, including, without limitation, for any interest, penalties, late charges, prepayment charges or termination fees relating to any Indebtedness outstanding as of the Closing, or Taxes resulting from cancellation of such Indebtedness, and all Liabilities relating to any arbitrage rebate liability, audit, examination
or other enforcement action by the Internal Revenue Service or other Governmental Authority with respect to any Indebtedness of Port Deposit;

(vii) all Liabilities or demands for fees, costs or expenses incurred by Port Deposit in connection with the preparation and negotiation of this Agreement and the consummation of the transactions contemplated hereby (collectively, “Transaction Expenses”), including without
limitation, attorneys’, accountants’ and consultants’ fees, finder’s fees, costs and expenses, regardless of when incurred;

(viii) all Liabilities or demands (contingent or otherwise) arising out of any Environmental Laws relating to contamination events with respect to the Purchased Assets occurring at any time before the Closing Date; and

(ix) all other Liens of Record, Liabilities or demands of Port Deposit arising out of or relating to the ownership, use or operation of any Facility or its Water Distribution, Treatment and Metering Systems that are not Assumed Liabilities.

2.4           Deposit, Purchase Price, Guaranty of Buyers Obligations and Other Closing Payments.

(a) Deposit. Upon its execution and delivery of this Agreement to the Town, the Buyer shall remit a deposit of Twenty Five Thousand Dollars ($25,000) (the “Deposit”) (i) which shall be retained by the Town in the
event that Closing does not occur for any reason other than the Town’s inability to convey good title to the Purchased Assets free and clear of Liens of Record or Port Deposit’s election not to proceed to Closing under Section 7.11, and (ii) which, in the event of Closing, shall be applied to the Purchase Price (as hereafter defined).

 

 

(b)      Purchase Price for the Purchased Assets. In consideration of the sale, assignment, transfer, conveyance and delivery of the Purchased Assets by Port Deposit to the Buyer and in reliance
on the representations, warranties, covenants and agreements made by Port Deposit in this Agreement, at the Closing, the Buyer shall: (a) pay to Port Deposit Two Hundred Fifty Thousand Dollars, $250,000, less the Deposit and any moneys owed to  Artesian Utility Development, Inc. for operating the plant and equipment prior to Closing, (b) deliver a Promissory Note in the sum of Eight Hundred Thousand Dollars ($800,000) (the “Promissory Note”) payable in four equal installments of $200,000
on the first day of July following the Closing and annually thereafter on the first day of July, and (c) assume the Assumed Liabilities.

	
  
	
(i)  The Buyer shall execute and deliver to Port Deposit at Closing, a Confessed Judgment Promissory Note in form and substance satisfactory to Port Deposit and its counsel for the remaining portion of the Purchase Price, payable in four equal annual installments on the first day of July following the Closing and annually thereafter on the first day of July, with interest payable annually at the rate of
five percent (5%) per annum, compounded daily on the basis of 360 days per year.  The Promissory Note shall also include provision for acceleration, default interest, attorney’s fees, waiver  of jury trial and consent to service and exclusive jurisdiction in the Circuit Court for Cecil County, Maryland;

	
  
	
(ii)  the Promissory Note shall be secured by the Purchased Assets pursuant to a security agreement, deed of trust and financing statements (a.k.a. UCC Statements) delivered by the Buyer to the Town at Closing and in form and substance satisfactory to Port Deposit and its counsel, which shall include provisions for the waiver of jury trial and consent to service and exclusive jurisdiction in the Circuit
Court for Cecil County, Maryland.

	
  
	
(iii) the Promissory Note shall be guaranteed by Guarantor in form and substance satisfactory to the Town and its counsel which shall also contain provision for attorney’s fees, waiver of  jury trial and consent to service and exclusive jurisdiction in the Circuit Court for Cecil County, Maryland.

(c)      Payments. All payments to be made by the Buyer shall be paid to Port Deposit via wire transfer of immediately available funds in accordance with the wire transfer instructions delivered
to the Buyer by Port Deposit not less than three (3) Business Days prior to the date due.

(d) Prorations. The parties will make customary prorations in respect of any personal or real property Taxes, rent and power and other utility charges as of the Closing Date.

(e) Allocation of Purchase Price. The Buyer and Port Deposit agree to allocate the Purchase Price (and all other capitalizable costs) among the Purchased Assets for all purposes (including financial, accounting and Tax purposes)
in accordance with an allocation schedule to be agreed upon by the Buyer and Port Deposit prior to Closing. The Buyer and Port Deposit shall file all Tax Returns, reports and other documents, including an asset acquisition statement on Form 8594, required by any competent taxing authority in a timely manner consistent with the allocation set forth on such agreed schedule.  The allocation schedule shall recognize that the Purchase Price is paid in part in consideration of the Owned Real Property, the
Town’s relinquishment of its water appropriation permit and support for the reissuance of the current water appropriation to Buyer pursuant to Section 11.8 hereof, and costs incurred and expected to be incurred by Port Deposit in undertaking the transactions contemplated by this Agreement and in serving as the collector of future connection fees pursuant to Section 2.5 hereof.  The Allocation Schedule shall further recognize that Buyer is committed to undertake repairs or upgrades to the physical
plant and equipment at its own cost in order to comply with environmental laws and in order to provide service to existing and future customers in the Service Area, including without limitation service to the former Bainbridge Naval Site pursuant to Section 7.3 (b) hereof.

2.5      Connection Charges.  Port Deposit shall collect and remit to Artesian its tariffed connection
charges as approved by the Maryland Public Service Commission for new connections to the water system within the Service Area.  Connection charges shall be collected by the Town at issuance of a building permit and collected connection fees shall be remitted by the Town to Artesian by the 10th day of each month following which such collections occur.  The Town may impose, by ordinance or law, collect and retain
up to an additional $600 per connection for up to 4,545 new connections within the Service Area as an administrative charge for its services.  In the event the Buyer waives, in whole or in part, the payment of water connection fees for any subsequent user, the Town will nonetheless be entitled to collect $600 per each new wastewater connection for up to 4,545 new connections within the Service Area as an administrative fee.

ARTICLE III

CLOSING

 

3.1           Closing.  The closing of the transactions contemplated by this
Agreement (the “Closing”) shall take place at Port Deposit's administrative offices in Port Deposit, Maryland, commencing at 10:00 a.m. local time on the earlier of (i) five (5) Business Days after the satisfaction or waiver of all of the conditions to Closing of Port Deposit and the Buyer set forth in Article X and Article
XI, respectively, of this Agreement, or (ii) May 31, 2010; provided, however that if the condition to Closing set forth in Section 11.4 of this Agreement shall not have been satisfied on or prior to May 31, 2010, the date set forth in clause (ii) shall be such subsequent date that the Buyer and Port Deposit shall
mutually agree upon and that is not more than thirty (30) calendar days following the receipt of the approval of a franchise agreement from Cecil County for the operation of the Water Distribution System by Buyer and approval of the Maryland Public Service Commission (the “PSC”) of the transactions contemplated by this Agreement and the customer rates to be charged by the Buyer based on cost of service principles for those Customers served by
the Facilities and the satisfaction of all other conditions precedent set forth in Article XI hereof. The date of the Closing is herein referred to as the “Closing Date.”

3.2           Closing Deliveries.

(a) At the Closing (or on dates provided herein), Port Deposit shall deliver, or cause to be delivered, to the Buyer each of the following, each of which shall be in form and content reasonably acceptable to Buyer, Port Deposit, and their respective counsel:

(i) a General Assignment and Bill of Sale respecting the  Purchased Assets in AS IS condition (other than fee simple ownership of Owned Real Property) to the Buyer in substantially the form of Exhibit A attached hereto (the “Bill
of Sale”) duly executed by Port Deposit;

 

(ii) a Deed for the Owned Real Property in substantially the form of Exhibit B attached hereto (the “Deed”), duly executed by Port Deposit;

 

(iii) an Assignment and Assumption Agreement respecting the Assumed Contracts and, to the extent transferable, the Permits and Port Deposit's rights with respect to the Customers and Suppliers and the Easements in substantially the form of Exhibit C attached
hereto (the “Assignment and Assumption Agreement”), duly executed by Port Deposit, subject to the retained right of the Town and its assigns to the ongoing use of said Easements for the collection, distribution and provision of waste water services and for the provision of public services, as an easement in common;

 

 (iv) all original certificates of title, manufacturer’s statements of origin, bills of sale or other similar title documents for the non-real estate Purchased Assets that are in the possession of Port Deposit, duly endorsed for transfer, provided that if Port
Deposit shall be unable to deliver to the Buyer any original certificate of title, manufacturer’s statement of origin, bill of sale or other similar title document in respect of any Plant, Property and Equipment included in the Purchased Assets, Port Deposit will deliver a bill of sale or similar title document to the Buyer, in form and substance satisfactory to the Buyer in its sole discretion, with respect to each such item of Plant and Equipment or cooperate with the Buyer’s reasonable requests
to obtain any replacement certificate of title or similar title document;

(v) all Permits listed on Schedule 2.1(f), to the extent transferable;

(vi) all Required Consents (as defined below in Section 10.4) to be obtained or made by Port Deposit;

 

(vii) a correct and complete list of the Customers of Port Deposit as of the Closing Date;

 

(viii) the certificates and resolutions required by Sections 11.1 and 11.2;

 

(ix) a resolution evidencing the approval by the Mayor and Town Council of Port Deposit of the execution and delivery of this Agreement and the Transaction Documents and the consummation of the transactions contemplated hereby;

 

(x) duly executed payoff statements in respect of the Indebtedness of Port Deposit as of the Closing from all the lenders thereof and other parties holding a Lien of Record (or a Lien identified by Port Deposit or Buyer prior to Closing) in any of the Purchased Assets, all in form and substance reasonably acceptable to the Buyer (the “Payoff
Letters”) it being understood that the closing agent shall be responsible for remitting such portion of the funds received by the Town at Closing in discharge of any such Liens and that the Buyer shall be responsible for the filing of UCC-3 termination statements, lien releases or such other release and termination instruments following said payment(s) and shall provide copies thereof to the Town. Port Deposit shall provide all authorizations for such filings that are required under Applicable Law.

 

(xi) an Option Agreement for the Booster Station Parcel.

 

(xii) such other documents and instruments as may be reasonably necessary to effect the intent of this Agreement and consummate the transactions contemplated hereby.

(xiii) Except for the express representations and warranties set forth herein, the Town hereby specifically disclaims any warranty, guaranty or representation, oral or written, past, present or future, of, as to, or concerning the nature and condition of the Purchased Assets and title thereto, and the existence of any environmental condition
with respect thereto, or the compliance of such Purchased Assets with applicable laws, rules or regulations. Artesian MD acknowledges that it has had an opportunity to inspect the Purchased Assets and title thereto and that it is relying on its own investigation thereof.

(b) At the Closing, the Buyer shall deliver, or cause to be delivered, each of the following:

(i) the Bill of Sale duly executed by the Buyer;

 

(ii) the Assignment and Assumption Agreement duly executed by the Buyer;

(iii) a second Assignment and Assumption Agreement with respect to the Buyer’s assumption of the MWQFA Obligations (as hereinafter defined), if applicable under Section 7.11 hereof in form and substance satisfactory to Port Deposit and the MWQFA;

(iv) The Promissory Note

 

(v)  The Second Promissory Note, if applicable under Section 7.11 hereof;

 

(iv) The Guaranty of the Guarantor with respect to the Promissory Note and the Second Promissory Note, if applicable under Section 7.11 hereof;

 

 (v)  Such security or collateral agreements, deeds of trust, assignments, UCCs or other documents as necessary to convey and secure unto Port Deposit interest and rights in and to the collateral supporting the Buyer’s post-closing payment obligations.

 

(vi)The certificates required by Sections 10.1 and 10.2;

 

(vii) Certificates signed by the Secretary or Assistant Secretary of the Buyer and Guarantor certifying the truth and correctness of attached copies of the certificate of incorporation and bylaws, and that the board of directors of the Buyer and the Guarantor has approved the execution, delivery of this Agreement, the Transaction Documents
to which each is a party and the consummation of the transactions contemplated hereby; and

 

(viii)  Certificates, dated as of a date no earlier than three days prior to the Closing Date, duly issued by the applicable Governmental Authority in the State of Delaware, showing that each of the Buyer and the Guarantor is in good standing and authorized to do business in such jurisdiction.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF PORT DEPOSIT

 

Port Deposit makes the following representations and warranties to the Buyer. Each of the following representations and warranties, and each part thereof, shall be read and qualified as being true and correct as of the date hereof (whether or not any of the same specifically refer to such qualification). The continued truth and correctness
of the same, as of the Closing Date, shall be a condition precedent of the obligation of the Buyer to proceed with Closing on the Closing Date.

 

4.1           Authority and Validity.  The execution and delivery by Port Deposit,
the performance by Port Deposit under, and the consummation by Port Deposit of the transactions contemplated by, this Agreement has been, and each of the agreements, instruments and documents contemplated hereby (the “Transaction Documents”) to which Port Deposit is a party will be, duly and validly authorized by all required action by or on behalf of Port Deposit. This Agreement has been, and each of the Transaction Documents to which Port Deposit
is a party will be, duly and validly executed and delivered by Port Deposit, and constitutes the valid and legally binding obligation of Port Deposit, enforceable against Port Deposit in accordance with its respective terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar applicable laws now or hereafter in effect relating to the enforcement of creditors’ rights generally or by principles governing the availability of equitable remedies.

 

4.2           No Conflict; Required Consents.  Except for, and subject to receipt of, the Required Consents, listed on Schedule
4.2 neither the execution and delivery of this Agreement or any of the Transaction Documents, nor the carrying out of any of the transactions contemplated hereby, will (a) result in any violation of, or be in conflict with, Port Deposit's powers or authority under applicable laws, (b) result in any breach of or constitute a default (or with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation, or result in the
creation of any Lien of Record upon any of its properties or assets pursuant to any Permit or any Contract to which Port Deposit is a party or by which it or any of the Purchased Assets are bound or affected, or (c) result in any violation of, or be in conflict with, any Applicable Law or Permit applicable to Port Deposit or by which the Purchased Assets are bound or affected.

 

4.3           Intentionally Left Blank

 

4.4           Title to and Condition of Purchased Assets.

 

(a) To Port Deposit's Knowledge the Purchased Assets constitute all assets, properties and rights (in each case whether real or personal or tangible or intangible) necessary for Artesian MD to conduct the operations of the Facilities, the Water Distribution, Treatment and Metering Systems after the Closing as they are each presently being
conducted.

 

(b) To Port Deposit's Knowledge, Port Deposit has good, marketable, valid and legal title to, or a valid leasehold interest in, or a valid license to use, all of the Purchased Assets (in each case whether real or personal or tangible or intangible) used by Port Deposit in the operations of the Facilities and the Water Distribution, Treatment
and Metering Systems or located on any property owned, leased or used by Port Deposit, free and clear of all Liens of Record.  Port Deposit will use reasonable efforts to make diligent inquiry to identify and disclose all Liens not of record related to the Purchased Assets at least fifteen (15) days prior to Closing.

 

(c) All of the Plant and Equipment are in fair condition and repair, ordinary wear and tear excepted, and, to the best of Port Deposit’s Knowledge, have been maintained and repaired in a workmanlike manner in accordance with industry standards.

 

4.5           Real Property.

 

(a) To Port Deposit's Knowledge,

 

(i) Port Deposit does not own or otherwise hold in fee simple any real property used and useful in the conduct of the operations of any Facility or its Water Distribution, Treatment and Metering Systems  other than the Owned Real Property; and

 

(ii) Except as described on Schedule 4.5(a), Port Deposit owns in its sole capacity good, marketable, valid and legal fee simple title to the Owned Real Property, and easements by instruments or right of law through which the Facilities run or are situate,
subject to no Liens of Record other than (A) real property taxes that are not due and payable as of the Closing Date, (B) use and occupancy restrictions of public record that are generally applicable to properties in the immediate neighborhood or the subdivision in which such Owned Real Property is located and (C) a notice of lien filed by the Maryland Environmental Service on or about November 20, 2008 which Port Deposit deems to be flawed. As a condition precedent to Closing Port Deposit will be required to
obtain the release of this Notice of Lien or to obtain its judicial nullification.  Port Deposit will use reasonable efforts to make diligent inquiry to identify and disclose all Liens not of record related to the Owned Real Property at least fifteen (15) days prior to Closing.

 

(b) To Port Deposit's Knowledge,

 

(i) Port Deposit does not lease any real property or have a right to access or use any other real property (except by license or easement) used and useful in the conduct of the operations of any Facility, except as described on Schedule 2.1(c) (“Leased
Property”);

 

(ii) Port Deposit has a valid and enforceable leasehold interest or easement in each Leased Property and Easement, respectively, listed on Schedule 2.1(c), free and clear of all Liens of Record; and

 

(iii) none of the lease agreements for the Leased Property or Easements will terminate as a result of the execution and delivery of this Agreement or any of the Transaction Documents nor the consummation of the transactions contemplated hereby.

 

(c) To Port Deposit's Knowledge, the Owned Real Property, the Leased Property and Easements comprise all of the real property interests necessary for the Buyer to operate the Facilities and the Water Distribution, Treatment and Metering Systems after the Closing as they are each presently
being conducted by Port Deposit and they will each be conducted by Port Deposit on the Closing Date.

 

4.6           Contracts.  Port Deposit is not a party to any Contract necessary
to or otherwise used in the operation of the Facilities or the Water Distribution, Treatment and Metering Systems other than the Contracts set forth on Schedule 2.1(d). True and complete copies, or, in the case of oral Contracts, written summaries of all Assumed Contracts have been delivered to the Buyer. All Assumed Contracts are in full force and effect and constitute the valid, legal, binding and enforceable obligation of Port
Deposit, and, to Port Deposit’s Knowledge, the counterparties thereto in accordance with their terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar applicable laws now or hereafter in effect relating to the enforcement of creditors’ rights generally or by principles governing the availability of equitable remedies. No act or omission has occurred which, through the passage of time or the giving of notice, or both, would with respect to
any Contract set forth on Schedule 2.1(d): (a) constitute a material default under any such Contract or cause the acceleration of any obligations of Port Deposit thereunder, (b) result in the creation of any Lien of Record on any of the Purchased Assets, or (c) give rise to or result in the automatic termination thereof. Except as set forth on Schedule
4.6, Port Deposit has not been notified that any party to any Assumed Contract that it intends to cancel, terminate, not renew or not to exercise an option to renew under any Assumed Contract, whether in connection with the transactions contemplated hereby or otherwise and no such action has been threatened or contemplated.

 

4.7           Litigation.  To Port Deposit’s Knowledge there exist
no outstanding Orders of any Governmental Authority involving the Purchased Assets. Port Deposit has no Knowledge of the existence of any Litigation and there are no other actions, suits, or legal, administrative or arbitral proceedings or investigations (collectively, “Claims”) (whether or not the defense thereof or Liabilities in respect thereof are covered by insurance), pending or, to Port Deposit’s Knowledge, threatened against or
involving the Purchased Assets, and no material Claims have been instituted or, to Port Deposit’s Knowledge, threatened against or involving the Purchased Assets.

 

4.8           Environmental.

 

(a) To Port Deposit’s Knowledge none of the Owned Real Property or real property subject to any of the Easements (all, collectively, the “Real Property”) is or has been listed on the National Priorities List, the Comprehensive
Environmental Response, Compensation, Liability Information System (“CERCLIS”) or any similar state list, or is or has been the subject of any “Superfund” evaluation or investigation, or any other investigation or proceeding of any Governmental Authority or unaffiliated third party (each, a “Third Party”) or of Port Deposit evaluating whether any remedial action is
necessary to respond to any release of any Hazardous Substance, pollutant or contaminant on or in connection with such Real Property.

 

(b) To Port Deposit’s Knowledge, Port Deposit has received no notice, written or otherwise, which remains outstanding or unresolved, to the effect that the Facilities and the Water Distribution, Treatment and Metering Systems are not being operated in compliance in all material respects
with all Applicable Laws concerning the protection of the public health, public safety or the environment (“Environmental Laws”). To the Knowledge of Port Deposit, Port Deposit has received no notice, written or otherwise, which remains outstanding or unresolved, (i) (A) alleging that Port Deposit or any of its agents is liable under any Environmental Law, or (B) ordering Port Deposit or any of its agents to remedy or recommending that Port Deposit
or any of its agents remediate, any environmental damage to any Real Property or modify or upgrade its assets to comply with Environmental Laws, and (ii) to Port Deposit's Knowledge, no such claims or notices are threatened or pending.

 

(c) To Port Deposit’s Knowledge, there are no violations of Environmental Laws, which remain unremedied or unresolved, respecting the release or threatened release of any Hazardous Substance, pollutant or contaminant to any soil, groundwater, surface water, building component, wastewater,
air or other media on or from any Real Property during the ownership, occupation or use of such Real Property by Port Deposit or any of its agents.

 

(d) Except as set forth on Schedule 4.8(d), there are no and have not been any underground storage tanks, above-ground storage tanks, underground piping (except for water or sewer), asbestos-containing materials,
polychlorinated biphenyls or Hazardous Substances used, stored, treated or disposed of at any Real Property.

 

(e) Schedule 4.8(e) lists all environmental audits, assessments or reports and any other written information concerning Port Deposit’s actual or potential liability under any Environmental Law (collectively,
“Environmental Reports”) in the possession or control of Port Deposit or any of its agents, including, without limitation, all Phase I, II and III environmental assessment reports with respect to the Real Property in the possession or control of Port Deposit or any of its agents. A true and complete copy of each Environmental Report listed on Schedule 4.8(e) has
previously been delivered by Port Deposit to the Buyer.

 

4.9           Taxes; Rebates.

 

(a) Port Deposit has no unpaid liability for Taxes required to have been paid with respect to any taxable periods ending on or prior to the Closing Date.

 

(b) Port Deposit has no unpaid liability for any rebates or penalties in lieu of rebates pursuant to Section 148 of the Code and with respect to the Bonds, which evidences indebtedness (the "Bond Indebtedness") of Port Deposit to the
Maryland Water Quality Financing Administration with respect to capital improvements to the Purchased Assets (such Bond Indebtedness being evidenced by Port Deposit's note, loan agreement and other related agreements (the "Related Bond Documents")), other than the MWQFA Obligations referenced in Section 7.11 hereof.

 

(c) Port Deposit has filed or will cause to be timely filed all filings to be made with the Internal Revenue Service or any other Governmental Authority in respect of the Bonds required to have been filed prior to or with respect to any periods ending on or prior to the Closing Date.

 

(d) Port Deposit has not made or permitted to be made any use of the proceeds of the Bonds that has caused or would cause the Bonds to be “arbitrage bonds” within the meaning of Section 148 of the Code. Port Deposit has complied with the provisions of Section 148 that are applicable
to the Bonds.

 

(e) (i) No deficiency for any amount of rebates or penalties in lieu of rebates has been asserted or assessed by the Internal Revenue Service or any other Governmental Authority with respect to the Bonds; (ii) no notice of audit or possible assessment has been received by Port Deposit from
the Internal Revenue Service or any other Governmental Authority with respect to the Bonds, and (iii) Port Deposit has not agreed to any waiver or extension of the statute of limitations applicable to the imposition, assessment or collection of any rebate or penalties in lieu of rebate with respect to the Bonds.

 

4.10           Compliance with Applicable Laws; Permits.

 

(a) To Port Deposit's Knowledge, Port Deposit has received no notice, written or otherwise, which remains unremedied or unresolved, respecting any violation by Port Deposit or its agents of any Applicable Law applicable to the operations of one or more of the Facilities or the Water Distribution,
Treatment and Metering Systems as they are currently conducted or the other Purchased Assets as currently operated. Port Deposit has timely paid all applicable fees, including registration fees and maintenance fees, if any, required by any Governmental Authority to maintain the Permits in good standing.

 

(b) Schedule 2.1(f) lists all Permits that are used by Port Deposit in the ownership, maintenance or operation of the Purchased Assets, as presently owned, maintained or operated. A true and complete copy
of each Permit listed on Schedule 2.1(f) has previously been delivered by Port Deposit to the Buyer. To Port Deposit's Knowledge, all such Permits are in full force and effect, and Port Deposit has received no notice, written or otherwise, of default, suspension, revocation, or cancellation of any Permit from any Governmental Authority. To Port Deposit's Knowledge, the Permits listed in Schedule
2.1(f) are all of the Permits necessary for Port Deposit to conduct the operations of the Facilities, the Water Distribution, Treatment and Metering Systems and the other Purchased Assets as currently conducted.

 

4.11           Employees and Employee Benefits.

 

(a) There are no employees of Port Deposit whose primary responsibilities are in respect of the operations of one or more of the Facilities, the Water Distribution, Treatment and Metering Systems or the other Purchased Assets. To Port Deposit's Knowledge, Port Deposit is, in respect of the
operations of the Facilities, the Water Distribution, Treatment and Metering Systems or the other Purchased Assets, in compliance in all material respects with all Applicable Laws respecting employment and employment practices, terms and conditions of employment and wages and hours, and is not engaged in any unfair labor practice.

 

(b) To Port Deposit’s Knowledge, the consummation of the transactions contemplated by this Agreement will not entitle any employee to severance pay, unemployment compensation or any similar payment, or accelerate the time of payment or vesting, or increase the amount of any compensation
due to, or in respect of, any employee.

 

(c) As of the Closing Date and for a period of at least three (3) years prior thereto, Port Deposit has not been a party to any labor and collective bargaining agreements with any employees whose responsibilities are in respect to the operations of the Facilities, the Water Distribution,
Treatment and Metering Systems or the other Purchased Assets.

 

4.12           Undisclosed Liabilities.  Port Deposit has no material liabilities or obligations of any type (whether accrued, contingent,
unliquidated or otherwise and regardless of when asserted) arising out of or which could reasonably be expected to arise out of any acts or omissions relating to Port Deposit or the ownership or operations of the Facilities, the Water Distribution, Treatment and Metering Systems or the other Purchased Assets at or prior to the date hereof, or at or prior to the Closing Date, other than liabilities set forth on Schedule 4.12.

 

4.13           Service Area and Customers. Port Deposit has valid and enforceable rights
to use and access the Service Area as now existing and to use, access, operate and otherwise conduct the operation of the Purchased Assets located within the Service Area as now existing, including the right to access and maintain the Purchased Assets located within said Service Area. To Port Deposit's Knowledge, there is no pending Litigation by any Person involving Port Deposit’s ability to provide services or otherwise conduct the operations of the Facilities and the Water Distribution, Treatment and
Metering Systems or to access its properties or assets within, on or under the Service Area, including, without limitation, any Litigation by Port Deposit to annex or condemn all or any portion of the assets or properties of another Person within the Service Area.

 

4.14           Absence of Material Adverse Change.  Since July 1, 2009, there has been no Material Adverse Change or, to Port Deposit’s
Knowledge, any event or circumstance, or liability or obligation of any nature (whether accrued, contingent, absolute, determined, determinable or otherwise), that, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Change.

 

4.15           Customer and Supplier Relationships.  Schedule
2.1(g) lists all of the Suppliers of Port Deposit as of the date hereof, which Schedule 2.1(g) will be updated prior to the Closing to list all of the Suppliers as of the Closing Date. Except as set forth on Schedule 4.15, Port Deposit has not received any written notice from any Customer or Supplier regarding its intent to, or its attempt
or threat to, cancel its Contract or its other relationship with Port Deposit or to substantially reduce its purchases from Port Deposit or its sales to Port Deposit, as the case may be, whether as a result of the transactions contemplated by this Agreement or otherwise. To Port Deposit’s Knowledge, Port Deposit is not engaged in any disputes with any Customer or Supplier the outcome of which could result in a Material Adverse Change.

 

4.16           No Brokers.  Neither Port Deposit or any Person acting on behalf
of Port Deposit nor any Representative of Port Deposit has agreed to pay a commission, finder’s or investment banking fee, or similar payment in connection with this Agreement or any matter related hereto to any Person, nor has any such Person taken any action on which a claim for any such payment could be based, other than payments for which the Buyer will have no liability or obligation.

 

4.17           Disclosure.  All agreements, schedules, exhibits, certificates
or reports furnished or to be furnished to the Buyer by or on behalf of Port Deposit in connection with this Agreement or the transactions contemplated hereby are true, complete and accurate in all material respects. None of the representations and warranties set forth in this Agreement (as modified by the disclosure schedules thereto), the schedules and certificates furnished by Port Deposit to the Buyer pursuant hereto, taken as a whole, contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements contained herein or therein not misleading.

4.18           No Other Representations and Warranties.  Except for the representations
and warranties contained in this Article IV, Port Deposit makes no other representations or warranty with respect to Port Deposit, the Facilities, the Purchased Assets, the Bonds or the Related Bond Documents.

ARTICLE V

REPRESENTATIONS AND WARRANTIES

OF THE BUYER AND THE GUARANTOR

Each of the Buyer and the Guarantor make the following representations and warranties to Port Deposit. Each of the following representations and warranties, and each part thereof, shall be read and qualified as being made only to the Buyer's and the Guarantor’s Knowledge, as being true and correct as of the date hereof (whether or
not any of the same specifically refer to such qualification). The continued truth and correctness of the same, as of the Closing Date, shall be a condition precedent of the obligation of Port Deposit to proceed with Closing on the Closing Date.

 

5.1           Organization and Good Standing.  The Buyer and the Guarantor are each corporations duly organized, validly existing and
in good standing under the laws of the State of Delaware. The Buyer and the Guarantor both have full corporate power and authority to own its properties and carry on its business as it is now being conducted.

 

5.2           Authority and Validity.  The execution and delivery by the Buyer and the Guarantor, and the performance by the Buyer and
the Guarantor under, and the consummation by the Buyer and the Guarantor of the transactions contemplated by, this Agreement and the Transaction Documents to which the Buyer and/or the Guarantor is a party, have been duly and validly authorized by all required corporate action by or on behalf of the Buyer and the Guarantor  This Agreement has been, and all Transaction Documents to which the Buyer and the Guarantor are a party will be, duly and validly executed and delivered by the Buyer and the Guarantor
and constitute valid and binding obligations of the Buyer and the Guarantor, enforceable against the Buyer and/or the Guarantor in accordance with their respective terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar Applicable Laws now or hereafter in effect relating to the enforcement of creditors’ rights generally or by principles governing the availability of equitable remedies.

 

5.3           No Violation.  There is no legal action, proceeding or investigation pending or, to the knowledge of the Buyer or the Guarantor,
threatened against the Buyer or the Guarantor, nor is there any Judgment outstanding against the Buyer or the Guarantor or to or by which the Buyer or the Guarantor is subject or bound that materially adversely affects the ability of the Buyer or the Guarantor to consummate any of the transactions contemplated hereby.

 

5.4           Consents.  Except for and subject to the receipt of the Required
Consents, no consent, approval, permit, authorization of, declaration to or filing with any Governmental Authority or any other Person on the part of the Buyer or the Guarantor is required in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby.

 

5.5           No Brokers.  Neither the Buyer, the Guarantor nor any Person acting on behalf of the Buyer or the Guarantor has agreed
to pay a commission, finder’s fee, investment banking fee or similar payment in connection with this Agreement or any matter related hereto nor has the Buyer or the Guarantor taken any action on which a claim for any such payment could be based.

 

5.6           Disclosure.  None of the representations and warranties set forth
in this Agreement (as modified by the disclosure schedules thereto), the schedules and certificates furnished by the Buyer or the Guarantor to Port Deposit pursuant hereto, taken as a whole, contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained herein or therein not misleading.

 

5.7           No Other Representations and Warranties.  Except for the representations
and warranties contained in this Article V, the Buyer or the Guarantor makes no other representations or warranty with respect to the Buyer.

ARTICLE VI

PRE-CLOSING COVENANTS

During the period from the date of this Agreement through and including the Closing Date:

6.1           Conduct of Business Pending Closing.

           (a)           Artesian Utility Development, Inc.  shall continue to conduct the operations of the Facilities, the Water Transmission System and the other Purchased Assets according to its ordinary and usual
course of business and Port Deposit will preserve intact the Purchased Assets and agrees that except as set forth in Schedule 6.1, or as a result of ordinary wear and tear in the ordinary course of business, or as may be first consented to by Buyer in writing, during the period from the date of this Agreement through and including the
Closing Date, Port Deposit will not sell, lease, transfer, assign or convey any Purchased Assets, amend modify, cancel or terminate any Assumed Contract, will not amend any Tax Return and will otherwise maintain satisfactory relationships with respect to the Purchased Assets with other Governmental Authorities, Suppliers, agents, Customers, and others having relationships with Port Deposit in respect of the operations of the Facilities, the Water Distribution, Treatment and Metering Systems or the other Purchased
Assets.  In addition, Port Deposit shall promptly notify the Buyer in writing of any notice or other communication that it receives (written or oral) respecting any Litigation or Audit involving or affecting the Purchased Assets.  Without limiting the foregoing and except as set forth on Schedule 6.1 or as may be first consented to by Buyer in writing, Port Deposit shall not:

(a) enter into any Contract other than with Customers or Suppliers in the ordinary course of business substantially as conducted heretofore;

(b) cause any Material Adverse Change or perform or not perform any action the performance or non-performance of which would reasonably be expected to result in a Material Adverse Change;

(c) make any loan or advance to any Customer, Supplier or employee whose responsibilities involve the operation of the Purchased Assets, other than for services provided to Customers on credit or advances to employees under a Benefit Plan, in each case, in the ordinary course of business consistent with past practice;

(d) (i) incur any Indebtedness in respect of the Purchased Assets, except expenses and current liabilities incurred in connection with or for services rendered or goods supplied in the ordinary course of business or obligations or liabilities incurred by virtue of the execution of this Agreement, or (ii) create any Lien on any Purchased
Assets;

(e) cancel, waive or release any debt, right or claim in respect of the Purchased Assets or the ownership or operation thereof, except, in each case, in the ordinary course of business consistent with past practice;

(f) change the accounting principles, methods or practices (including, without limitation, any change in depreciation or amortization policies or rates) utilized by Port Deposit involving or affecting the Purchased Assets or the ownership or operation thereof;

(g) make any capital expenditure or commitment therefore for which the Buyer will be liable at or following the Closing;

(h) make, revoke or change any Tax election, or settle any matter relating to Taxes involving or affecting the Purchased Assets or the ownership or operation thereof or any matter relating to rebates or penalties in lieu of rebates involving or affecting the Bonds;

(i) take any action that if taken after the date of this Agreement would constitute a variance from or breach of the representations and warranties set forth in Article IV of this Agreement.

 

6.2           Supplements to Schedules.  Port Deposit, on the one hand, and
the Buyer, on the other, shall promptly give to the other notice with respect to any matter or change hereafter arising which, if existing or occurring on or before the date hereof, would have been required to be set forth or described in any of the Schedules hereto or which is necessary to correct or make the representations and warranties contained herein correct and complete as of the Closing Date and shall supplement or amend the Schedules hereto as appropriate with respect to such matters. If at any time
at or prior to the Closing Port Deposit discloses pursuant to this Section 6.2 any such change that constitutes a Material Adverse Change, or relates to any material and adverse events, facts or circumstances, then the Buyer shall have the right and option, exercisable at any time prior to Closing, to terminate this Agreement upon giving written notice to Port Deposit or, alternatively, to accept the disclosure in exchange for indemnification by Port Deposit
in respect thereof on terms mutually acceptable to Buyer and Port Deposit.

 

Section 6.3                      Access and Cooperation; Results of Due Diligence Investigation.

 

(a) Port Deposit shall provide the Buyer and its Representatives with all information that the Buyer may reasonably request in connection with this Agreement and the transactions contemplated hereby in auditable form. Upon reasonable prior notice, Port Deposit shall provide the Buyer and its Representatives with access during regular
business hours to the Purchased Assets and the Books and Records relating to the Purchased Assets, Customers and Suppliers of Port Deposit. Port Deposit and its Representatives will also cooperate with the Buyer and its Representatives, including the Buyer’s auditors and counsel, in the Buyer’s due diligence investigation of the Purchased Assets (including, without limitation, a title review or in obtaining title opinions satisfactory to the Buyer as to Port Deposit’s rights, title or interest
in and to the Owned Real Property, the Easements, the Leased Property and the Plant and Equipment) and any Liabilities in respect thereof and the Liabilities or obligations of Port Deposits or other Indebtedness of Port Deposit involving or affecting the Purchased Assets. In addition, Port Deposit and its Representatives will cooperate with the Buyer and its Representatives in the preparation of any documents or other materials required in connection with the transactions contemplated by this Agreement. Port
Deposit and the Buyer shall also use their respective reasonable efforts to satisfy all conditions to Closing and all other matters relating to the consummation of the transactions contemplated by this Agreement and the Transaction Documents. Port Deposit and the Buyer shall cooperate with each other in connection with any filings with any other Governmental Authority, including, without limitation, all filings with the PSC and Cecil County, and shall use their reasonable efforts to furnish to each other all
information required for any such filing to be made with any Governmental Authority in connection with the transactions contemplated by this Agreement.

 

(b) If in the course of the Buyer’s due diligence investigation, the Buyer discovers or identifies any Purchased Assets that are not in fair condition or repair (ordinary wear and tear excepted), defects of title, defects or impediments in the right to use, or Liens of Record or Liabilities other than the Liens or Liabilities disclosed
by Port Deposit in the Disclosure Schedules attached hereto with respect to, any of the Purchased Assets, or Indebtedness, prior to the Closing and promptly following discovery or identification thereof, the Buyer shall notify Port Deposit of such deficiencies in condition, defects of title, defects or impediments to use, Liens or Liabilities or Indebtedness discovered or otherwise identified by the Buyer in the course of its due diligence investigation. Promptly following receipt of such notice from the Buyer
and prior to the Closing, Port Deposit shall notify the Buyer as to whether it intends to elect to use its commercially reasonable efforts to repair, or remove or otherwise correct all defects of title or defects or impediments in the right to use, any of the Purchased Assets so discovered or identified by the Buyer or to satisfy and discharge or obtain and, if applicable, file with the appropriate Governmental Authority, duly executed release agreements, termination statements, lien releases or such other release
and termination instruments with respect to any and all such Liens or Liabilities or Indebtedness so discovered or identified by the Buyer. Port Deposit shall be under no obligation to make any such election, provided that, (i) Port Deposit shall be obligated to take action to satisfy and discharge any Indebtedness and to remove or release any Lien or Liability with respect to any of the proposed Purchased Assets to the extent that any such Indebtedness may be satisfied and discharged or such Lien or Liability
may be removed or released solely by the payment of money (in which case Port Deposit shall be obliged to take action to make such payment and to satisfy and discharge such Indebtedness or to remove or release such Lien or Liability, as the case may be, not later than the Closing Date), but otherwise subject to the terms, conditions and limitations set forth in Article XII if deficiencies in condition, defects of title, defects or impediments in the right to use or Liens or Liabilities have not been or will not
be via Closing respectively satisfied or released, in each case, as determined by the Buyer in its sole discretion, then the Buyer shall have the right and option, exercisable by written notice at any time at or prior to Closing, (w) to exclude one or more of such assets from the Purchased Assets (which assets the Buyer shall identify in writing to Port Deposit) and to reduce the Cash Purchase Price to be paid to Port Deposit by the amount of the net asset value ascribed to each such asset, (x) solely with respect
to such Purchased Assets for which the Buyer shall determine that Port Deposit shall not convey to the Buyer good, marketable, valid and legal title, and subject to the agreement of Port Deposit, to accept indemnification from Port Deposit in respect of all Liabilities of the Buyer arising out of or relating to such defects of title, notwithstanding any provisions to the contrary in Section 12.1 of this Agreement, or (y) to terminate this Agreement. If the Buyer elects to exclude any asset from the Purchased
Assets pursuant to clause (w) of the foregoing sentence, the Buyer hereby waives any right to indemnification or other remedies available to the Buyer under this Agreement with respect to any inaccuracies in or breaches of the representations and warranties contained in this Agreement with respect to each such asset that is excluded from the Purchased Assets.

 

6.4           Application for PSC And Other Approvals.  Not later than three (3) weeks after the execution of this Agreement by both
parties, the Buyer will prepare and submit all necessary applications to the PSC, the Susquehanna River Basin Commission, the Maryland Department of the Environment, Cecil County and any other entity or governmental authority whose authorization is needed for the approval of the transactions contemplated by this Agreement, the issuance of necessary permits and approvals, and/or the customer rates to be charged by the Buyer; said rates to based on cost of services principles for those Customers served by the Facilities
and the limitations set forth in this Agreement.

 

6.5           Exclusive Dealing.  In consideration of the Deposit, Port Deposit
shall deal exclusively with Buyer concerning sale of the Purchased Assets until Closing or termination of this Agreement.

 

6.6           Compliance with Bulk Transfer Act.  If the parties determine that
all or any part of the transactions contemplated in this Agreement constitute a bulk transfer subject to the provisions of Title 6 of the Commercial Law Article of the Annotated Code of Maryland then, on or before the fifteenth (15th) day prior to the anticipated date of the Closing, Port Deposit shall deliver to the Buyer a statement (the “Bulk Transfer Statement”) containing each and every item of information that is required to be included
in a notice to creditors under the provisions of Section 6-107 of the Commercial Law Article of the Annotated Code of Maryland. Port Deposit hereby jointly and severally represent, warrant and covenant that the information set forth in the Bulk Transfer Statement shall be accurate and complete at and as of the date delivered and at and as of the Closing. The Buyer shall then submit a notice to all creditors specified in the Bulk Transfer Statement and to the Comptroller of the State of Maryland at least ten (10)
days prior to Closing. If any creditor (or the Comptroller) asserts a claim in response thereto prior to Closing, Port Deposit shall, at Closing, pay and discharge all such claims to the applicable creditor.

6.7           Cooperation Obtaining Approvals from Governmental Authorities.  From
the date of this Agreement through the Closing Date, upon request by the Buyer, Port Deposit shall support in writing and otherwise reasonably cooperate with the Buyer to assist the Buyer in the obtaining of, any authorizations or other Permits, including a franchise, from any Governmental Authority sought by the Buyer in connection with this Agreement or the transactions contemplated hereby.

 

ARTICLE VII

POST-CLOSING COVENANTS

7.1           Payment of Taxes and Rebates; Audits.  From and after the Closing
through and including the date that is the seventh (7th) anniversary of the Closing Date, Port Deposit and the Buyer shall cooperate fully with each other and make available or cause to be made available to each other in a timely fashion such data relating to Taxes, prior Tax Returns, rebates or penalties in lieu of rebates with respect to the Bonds pursuant to Section 148 of the Code, filings with the Internal Revenue Service or other Governmental Authorities in respect of Taxes or the Bonds and other information
as may be reasonably requested for the preparation by the Buyer or Port Deposit of any Tax Returns or other filings with the Internal Revenue Service or other Governmental Authorities in respect of the Bonds (or rebates or penalties in lieu of rebates in respect thereof), elections, consents or certificates required to be prepared and filed by the Buyer or Port Deposit and any audit or other examination by the Internal Revenue Service or any Governmental Authority, or judicial or administrative examination, proceeding
or other enforcement action relating to liability for Taxes or in respect of the Bonds (or rebates or penalties in lieu of rebates in respect thereof) by the Internal Revenue Service or other Governmental Authority (each, an “Audit”). The Buyer and Port Deposit will each retain and provide to the other party all Books and Records and other information which may be relevant to any such Tax Return or filings with the Internal Revenue Service or
other Governmental Authorities in respect of the Bonds (or rebates or penalties in lieu of rebates in respect thereof), Audit or determination, and will each provide the other party with any final determination of any such Audit or determination that affects any amount required to be shown on any Tax Return of the other party for any period.  Without limiting the generality of the foregoing, each of the Buyer and Port Deposit shall retain copies of all Tax Returns or other filings with the Internal
Revenue Service, supporting work schedules and other records relating to tax or other reporting periods or portions thereof ending prior to or on the Closing Date.

7.2           Access to Books and Records.  From and after Closing, Port Deposit
will give the Buyer and its Affiliates such access to the Books and Records and other documents relating to the Purchased Assets in the possession of Port Deposit or its agents relating to the periods ending at or prior to the Closing and reasonable access during normal business hours to such individuals as were elected or appointed officials, officers, boards, commissions, commissioners, agents, employees or other service providers of Port Deposit during any periods ending at or prior to the Closing and who
are employees of Port Deposit or its agents as of the date of such request as the Buyer shall reasonably request as necessary for the preparation of the Tax filings of the Buyer or its Affiliates and to defend or prosecute any Litigation. Port Deposit and its agents shall maintain all such Books and Records and other documents for a period of at least seven (7) years or as otherwise required by Applicable Laws. From and after the Closing, the Buyer will give Port Deposit and its agents such access to any Books
and Records relating to the periods ending at or prior to the Closing within the possession or control of the Buyer or its Affiliates and reasonable access during normal business hours to such individuals as were employees of Port Deposit during any periods ending at or prior to the Closing and who are employees of the Buyer as of the date of such request as Port Deposit and its agents shall reasonably request as necessary for the preparation of reports of Port Deposit required by Applicable Laws or to prosecute
any Litigation. The Buyer shall maintain all such Books and Records for a period of at least seven (7) years or as otherwise required by Applicable Laws.

 

7.3           Buyer to Provide Ongoing Potable Water and Water Treatment, Distribution and Metering Services.  As
part of its Assumed Liabilities hereunder, the Buyer shall from the date of Closing forward, provide potable water and all necessary water treatment, distribution and metering services to the Town, its residents, citizens, property owners and businesses in the Service Area, as now existing or hereafter expanded by annexation or otherwise under the following conditions:

 

(a) The obligation to provide such services shall not be assignable to any third party, absent prior written consent by the Town, which shall not be unreasonably withheld.

 

(b) The Buyer shall undertake such repairs or upgrades to the Purchased assets and Water Distribution, Treatment and Metering Systems so as to comply with all Applicable Laws and to provide all necessary potable water and delivery to
service customers within the Service Area, as now existing or hereinafter expanded, including without limitation for the full development of the former Bainbridge Naval site concurrent with the provision of wastewater services to the site by Cecil County, subject to the approval of the PSC and MDE.

 

(c)  Buyer shall operate the Water System so as to furnish equipment, services, and facilities that are safe, adequate, just, reasonable, economical, and efficient, considering the conservation of natural resources and the quality
of the environment.

 

(d) Nothing herein shall be construed to suggest that the Improvements and upgrades undertaken by Buyer under this Agreement to the water system are intended for the benefit of any particular user or property owner within the Service
Area or to imply that capacity has been reserved or allocated by the Buyer for any particular user or property owner within the Service Area.

(e) Nothing herein shall be construed to suggest that Buyer is prohibited from using the Facilities to provide service to properties outside the Service Area provided that service to customers within the Service Area is not diminished.

7.4           Rate Structure.

(a) From the Closing Date until March 31, 2013 (the “Rate Stabilization Period”) and subject to the approval of the PSC, the Buyer shall be permitted to increase the rates for customers in existence on and after the Closing Date in the Service Area only on an annual basis
by the change in the Revised Consumer Price Index for all Urban Consumers, all items, U.S. City Average, as reported by the Bureau of Labor Statistics, Department of Labor (the “CPI”). The change in the CPI shall be determined by multiplying the existing customer rates by a fraction (a) the numerator of which is the difference between (i) the CPI for the last full calendar year, and (ii)
the CPI for the last full calendar year for the preceding year (the “Prior Year’s CPI”), and (b) the denominator of which is the Prior Year's CPI. Each change in CPI pursuant to this Section 7.3(a) shall be calculated as of January 1 of each calendar year within the Rate Stabilization Period and shall be determined by the Buyer within forty-five (45) days after the date on which the CPI for the last full calendar year is publicly released
by the Bureau of Labor Statistics, Department of Labor, which adjustment in rates shall be applied retroactively to January 1 of each such calendar year within the Rate Stabilization Period.

 

(b) During the Rate Stabilization Period, upon request by the Buyer, Port Deposit shall support in writing and otherwise reasonably cooperate with the Buyer to assist the Buyer in the obtaining of any authorizations or other Permits from the PSC sought by the Buyer in connection with the adjustment of customer rates for the Service Area.

 

(c) Nothing set forth in this Agreement shall prohibit the Buyer’s imposition of PSC-approved connection fees or charges on new customers in the Service Area who are served by any Facility beginning after the Closing Date.

 

7.5           Further Assurances.  At any time and from time to time after the
Closing, at the Buyer’s reasonable request and without further consideration (but at the Buyer’s cost of preparation and filing), the parties promptly shall execute and deliver such confirmatory instruments of sale, transfer, conveyance, assignment and confirmation, and take such other reasonable action, as may reasonably be required to transfer, convey and assign to the Buyer, and to confirm the Buyer’s right, title and interest in and to, all of the Purchased Assets, to put the Buyer in actual
possession and operating control thereof, to assist the Buyer in exercising all rights with respect thereto and to carry out the purposes and intent of this Agreement.

7.6           Identification and Use of Abandoned Water Mains.  Port Deposit shall cooperate with and provide its diligent assistance
to Artesian in seeking approval for the use of any existing but abandoned water mains on the former Bainbridge Naval Facility site.

7.7           Wastewater Assets.  If Cecil County is not providing wastewater service to Port Deposit through a connection to the County’s
Seneca Point wastewater plant as of December 31, 2013 and has effected the transfer of the wastewater assets to be acquired by Cecil County from Port Deposit back to Port Deposit, then Port Deposit shall transfer to Buyer’s affiliate, Artesian Wastewater Maryland, Inc., a Delaware Corporation (“Artesian WW”) for the nominal consideration of Ten Dollars ($10.00) all of the Town’s wastewater collection system, treatment plant and related facilities. Port Deposit’s obligation under
this Section 7.7 is contingent upon the Buyer and/or Guarantor not being in breach of their post Closing obligations, and upon Artesian WW providing evidence to the Town’s reasonable satisfaction that Artesian WW has the financial resources to construct a wastewater plant with the capacity of one million gallons per day, provided that Port Deposit shall donate or cause a developer or developers to donate land to Artesian WW sufficient to accommodate said plant.  Port Deposit shall cooperate with
Artesian WW in obtaining a franchise from Cecil County, approval of the exercise of said franchise by the PSC and all other necessary governmental approvals at no out-of-pocket expense to the Town.  Upon acquisition of the Wastewater Assets, Artesian WW shall:

(a) be subject to the same service standards, insurance, indemnification, breach and remedies provisions as are applicable to Buyer hereunder;.

(b) will assume responsibility to provide wastewater collection, treatment and disposal services to the Town, its residents, citizens, property owners and businesses in the Service Area, as now existing or hereafter expanded by annexation
or otherwise under the following conditions:

 

(i) The obligation to provide such wastewater services shall not be assignable to any third party, absent prior written consent by the Town, which shall not be unreasonably withheld.

 

(ii) Artesian WW shall undertake such repairs or upgrades to the acquired wastewater assets, distribution, treatment and metering systems so as to comply with all Applicable Laws and to provide all necessary wastewater service to customers
within the Service Area, as now existing or hereinafter expanded, including without limitation for the full development of the former Bainbridge Naval property, subject to the approval of the PSC and MDE.

 

(iii) Nothing herein shall be construed to suggest that the Improvements and upgrades undertaken by Buyer to the wastewater system under this Agreement are intended for the benefit of any particular user or property owner within the
Service Area or to imply that capacity has been reserved or allocated by the Buyer for any particular user or property owner within the Service Area.

 

(iv) The Town will undertake collection of wastewater connection fees in the same manner as provided herein for the collection of water connection fees and shall be entitled to $600 per each new wastewater connection up to 4,545 new
connections within the Service Area as an administrative charge for its services. In the event the Buyer waives, in whole or in part, the payment of wastewater connection fees for any subsequent user, the Town will nonetheless be entitled to collect $600 per each new wastewater connection for up to 4,545 new connections within the Service Area as an administrative fee.

7.8           Mutual Water and Wastewater Service.  Subject to the provisions
of Section 7.7 and from and after the Closing of upon the transfer of waster water assets thereunder, Buyer or one of its affiliates satisfactory to the Town will provide unmetered water service to Port Deposit’s wastewater treatment plant, at no charge, and Port Deposit will provide unmetered wastewater service to Buyer’s water treatment plant at no charge, for so long as Port Deposit shall continue to own and operate the wastewater treatment plant.

7.9 Right of First Refusal to Purchased Assets.  Should Buyer
ever wish to sell all or a part of the Purchased Assets or the wastewater assets transferred under Section 7.7 hereof, Port Deposit shall have a right of first refusal to purchase said assets on the same terms and conditions as proposed by a prospective purchaser in good faith negotiations at arms length.  Within thirty (30) days after Buyer gives notice to Port Deposit of a proposed sale, Port Deposit may elect to exercise its option of first refusal by giving notice of such election to Buyer and executing
a purchase and sale agreement, with the understanding that closing thereon shall not occur prior to one hundred twenty days (120) or later than one hundred eighty days (180) following said notice.

7.10 In addition to the above stated post closing obligations the Buyer shall provide the indemnification and insurance stated in the following Article.

7.11 Assumption of Loan Obligations.  This Agreement is conditioned upon the Buyer’s assumption at Closing of all of
Port Deposit’s obligations under the Drinking Water Loan Agreement (the “Loan Agreement”) between the Maryland Water Quality Financing Administration (“MWQFA”) and the Town of Port Deposit, and the underlying Promissory Note provided by Port Deposit to the MWQFA, in the initial principal amount of $296,000 (hereinafter the “MWQFA Obligations”). The parties understand that the Buyer’s assumption of the MWQFA Obligations is subject to approval of the MWQFA, pursuant
to Section 3.11 of the Loan Agreement. In the event, the MQWFA does not approve the Buyer’s assumption of the MWQFA Obligations, the Buyer and Port Deposit will jointly seek approval from the MWQFA, pursuant to Section 2.02(b) of the Loan Agreement to allow for the payment of the MFQFA Obligations by Port Deposit in accordance with the amortization schedule provided in the Loan Agreement and underlying Note. If the MWQFA allows for the payment of the MFQFA Obligations in accordance with the amortization
schedule provided in the Loan Agreement and underlying Note, then the Buyer shall provide to Port Deposit at Closing a second confessed judgment promissory note, in form and substance satisfactory to Port Deposit and its counsel, in an amount equal to all of Port Deposit’s remaining MWQFA obligations, which provides for annual installments to be paid by the Buyer to Port Deposit in amounts equal to the annual payments due from Port Deposit to the MWQF, said installments to be remitted by the Buyer to Port
Deposit not less than thirty (30) days prior to the date each annual installment is due from Port Deposit to the MWQFA (the “Second Promissory Note”). In the event the MWQFA neither agrees to the Buyer’s assumption of the MWQFA Obligations, nor to allow for the payment of the MFQFA Obligations by Port Deposit in accordance with the amortization schedule provided in the Loan Agreement and underlying Note, Port Deposit shall have no obligation to proceed to Closing under this Agreement. The Second
Promissory Note shall also be guaranteed by the Guarantor and shall contain the same acceleration, default interest, attorney’s fees, waiver of jury trial and consent to service and exclusive jurisdiction provisions as the Note referred to in Section 2.4(b) hereof. The Second Promissory Note shall be secured by the Purchased Assets pursuant to a security agreement, deed of trust and financing statements (a.k.a. UCC Statements) delivered by the Buyer to the Town at Closing and in form and substance satisfactory
to Port Deposit and its counsel.

ARTICLE VIII

INSURANCE.

 

Buyer shall maintain in full force and effect, at its own cost and expense, the following insurance coverages.

 

(a) Commercial General Liability Insurance insuring Buyer with respect to the construction, operation and maintenance of the Water System, and the conduct of the Water Service business in the Service Area in the minimum amounts of five
million dollars ($5,000,000), per occurrence; and in the aggregate. Such commercial general liability insurance must include coverage for all of the following:

 

(i) comprehensive form;

 

(ii) premises-operations;

 

(iii) explosion and collapse hazard;

 

(iv) underground hazard;

 

(v) products/completed operations hazard;

 

(vi) contractual liability;

 

(vii) broad form property damage;

 

(viii) independent contractors; and

 

(ix) personal injury.

 

(b) Automobile Liability Coverage, with a minimum limit of liability of two million dollars ($2,000,000), per occurrence, combined single limit for bodily injury and property damage coverage. Policy must include coverage for owned automobiles,
leased or hired automobiles and non-owned automobiles.

 

(c) Workers’ Compensation Coverage meeting statutory requirements of Applicable Laws of the State and Employers’ Liability Coverage with the following minimum limits: Bodily Injury by Accident - $100,000 each accident, Bodily
Injury by Disease - $500,000 policy limits and Bodily Injury Disease - $100,000 each employee.

 

(d) All insurance policies and certificates maintained pursuant to this Agreement shall provide the following unless the Town approves other language: “It is hereby
understood and agreed that this insurance coverage may not be materially changed or canceled by the insurance company nor the intention not to renew be stated by the insurance company until at least sixty (60) days after receipt by the Town of a written notice of such intention to cancel or not to renew.”

 

(e) Each of the required insurance policies shall be with insurers qualified to do business in the State, with an A- or better rating by Best’s Key Rating Guide, Property/Casualty Edition.

 

(f) Buyer shall provide the Town with an original certificate of insurance providing evidence of all coverage required of this Agreement upon execution of this Agreement, following a material change or any time Buyer obtains new insurance
policies.

 

(g) Not more frequently than once in every five (5) years the Town may review the amounts of any insurance policies under the Agreement and shall have the right to require reasonable adjustments to such insurance policies consistent with
the public interest. The Town shall provide Buyer written notice at least sixty (60) days in advance of any reasonable adjustments.

 

(h) All Commercial General and Automobile Liability Insurance policies shall by specific endorsement name the Town, their elected and appointed officials, officers, boards, commissions, commissioners, agents, and employees as additional
insureds. Such additional insured requirement shall be noted on the original certificate of insurance provided to the Town.

 

(i) Failure to comply with the insurance requirements set forth in this Section shall constitute a Breach.

ARTICLE IX

REMEDIES FOR BREACH

 

Section 9.1 Breach. Any breach of the post-closing obligations of the Buyer hereunder including without limitation the Buyer’s failure to indemnify or defend Port Deposit, to comply with Environmental
Laws, to make disclosure of books and records, to comply with insurance requirements and/or to: (a) provide all necessary potable water and water delivery and water metering services to the Town and the customers in the Service Area, now or hereafter existing; (b) maintain the transferred assets in good and working order; (c) undertake upgrades and improvements to the Purchased Assets as necessary to comply with Applicable Laws and to provide all necessary water and water delivery and water metering services
for the full development of the former Bainbridge Naval property concurrent with the provision of wastewater services to the site by Cecil County; and (d) the Buyer’s post-Closing payment obligations (hereinafter collectively or individually a “Breach); which Breach continues beyond the period for written notice and opportunity to cure as provided in this Article shall be deemed a Default, entitling the Town to exercise any or all of the remedies set forth herein and/or available at law or in equity.

 

9.2.  Determination of Breach. A preliminary determination of the existence of a Breach shall be made by the Mayor and Town Council.

 

(a) The Town shall provide written notice of its finding of Breach to the Buyer, stating with particularity the nature and extent of the findings of Breach, and thereafter, upon not less than thirty (30) days’ prior notice in the
event of a breach that does not threaten public health or safety, and upon not less two (2) days’ prior notice in the event of a breach that threatens public health or safety and, the Buyer shall be afforded the right to attend a public hearing before the Commissioners to hear and to be heard on matters relating to the existence, non-existence, and nature and extent of the Breach described in the notice.

 

(b) Upon conclusion of the public hearing, the Town Council shall make a final written determination with respect to the existence, non-existence, and nature and extent of the Breach.

 

(c) After making such finding and determination of the existence of a Breach, the Town shall provide Buyer written notice of such finding, and unless a matter of emergent public, health safety or welfare, shall afford Buyer not less than
one (1) full calendar month (or if such Breach cannot reasonably be cured within such period, such additional period of time that is sufficient to allow for such cure, which period of time shall not exceed six (6) full calendar months in the aggregate) to allow Buyer to cure such Breach, unless a longer period shall be permitted by the Town. In the event of a breach which is a matter of emergent public, health safety or welfare, the Buyer shall be required to undertake all feasible efforts remedy the breach as
promptly as possible and within not more than two (2) days following notice. If the Town finds that such Breach has been cured, then the previous finding of Breach shall be rescinded.

 

9.3     Remedies for Breach and Default.

 

If the Town finds on the basis of substantial evidence, as provided in Section 9.2 that such Breach has not been cured, then a Default shall be deemed to have occurred, entitling the Town to exercise any or all of the following remedies:

 

(a) To undertake services, repairs and/or upgrades at the Town’s cost; for which reimbursement shall be made by the Buyer within not more than fifteen (15) days;

 

(b) To require specific performance of the Buyer’s obligations and/or obtain injunctive relief, it being understood that irreparable damage would result if this Agreement is not specifically enforced.  Therefore, the rights
and obligations of the parties under the Agreement, including, without limitation, their respective rights and obligations to sell and purchase the Purchased Assets and comply with the covenants set forth in this Agreement, shall be enforceable by a decree of specific performance issued by any court of competent jurisdiction, and/or appropriate injunctive relief may be applied for and granted in connection therewith.  The Buyer hereto agrees that monetary damages would not be adequate compensation for
any loss incurred by reason of a breach by it of the post-closing provisions of this Agreement and hereby agrees to waive the defense that a remedy at law would be adequate in any action for specific performance or injunctive relief hereunder.  The Buyer hereto agrees to waive any rights to require the other party hereto to prove actual damages or post a bond or other security as a condition to the granting of any equitable relief;

 

(c) To have access to, utilize and withdraw water from Buyer’s Water Appropriation Permit in an amount sufficient for the Town to provide water service to the existing customers within the then existing Service Area, and to make
application for a permit to continue to utilize and withdraw water from the Susquehanna River, without any objection from the Buyer even if said application would cause the Buyer’s Water Appropriation Permit to be limited or curtailed;

 

(d) To obtain monetary judicial relief;

 

(e) Only if the Default is the result of a material Breach, to assess liquidated damages in the following manner:

 

i. For Breach of any applicable Environmental Law, One Thousand Dollars ($1,000) per day.

 

ii. For Breach of the Buyer’s obligations to indemnify and/or defend, One Thousand Dollars ($1,000) per day.

 

iii. For Breach in the obligation to comply with the requirements respecting improvements an/or upgrades to the Purchased Assets, One Thousand Dollars ($1,000) per day.

 

iv. For Breach in the obligation to comply with the water service supply requirements, One Thousand Dollars ($1,000) per day.

 

v. For Breach in the obligation to maintain the transferred assets in good and working order, One Thousand Dollars ($1,000) per day.

 

vi. For Breach in the obligation to comply with the insurance obligations, One Thousand Dollars ($1,000) per day.

 

vii. For any other Breach of this Agreement or Applicable Laws (if applicable) not itemized above, Five Hundred Dollars ($500) per day for each Breach, for each day the Breach is not remedied.

 

viii. Because Buyer’s Material Breach of certain provisions of this Agreement will result in injury to the Town, and because it will be difficult to estimate the extent of such injury in such circumstances, the parties agree to
the liquidated damages provided for in this Section, with such liquidated damages representing both parties’ best estimate of the damages resulting from the specified violations. Such damages shall not be a substitute for actual performance by Buyer of the obligations with respect to which a Breach and Default has occurred, but shall be in addition to Buyer’s obligation for actual performance of such obligations

 

ix. A separate daily liquidated damage charge shall be imposed with respect to each separate and distinct Breach; provided, however, Buyer shall not be charged with multiple violations for a single act or event which constitutes one
and the same Breach of separate provisions of this Agreement; in such case the charge shall be based on the highest applicable daily liquidated damage penalty.

 

x. In each case, the assessment of liquidated damages shall be imposed upon a finding of Default, but retroactive to the date of the Town’s notice of Breach with respect to which the Default has been determined.

 

xi. On an annual calendar year basis, Buyer shall be liable for liquidated damages up to One Hundred Thousand Dollars ($100,000); and Buyer’s aggregate liability for liquidated damages under this Agreement shall not exceed One
Million Dollars ($1,000,000.00).

 

(f) The rights and remedies reserved to the Town in this Agreement are cumulative and shall be in addition to all other rights and remedies which the Town may have with respect to the subject matter of this Agreement, whether reserved
in this Agreement or authorized by Applicable Laws.

 

ARTICLE X

 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PORT DEPOSIT

 

The obligations of Port Deposit with respect to actions to be taken on the Closing Date are subject to the satisfaction by the Buyer or waiver by Port Deposit on or prior to the Closing Date of each of the conditions set forth in this Article X.

 

10.1           Representations and Warranties.  All representations and warranties
of the Buyer contained in this Agreement shall be true and correct as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date; and a certificate to the foregoing effect dated the Closing Date and signed by an authorized officer of the Buyer shall have been delivered to Port Deposit.

 

10.2           Performance of Obligations.  Each and all of the agreements of
the Buyer to be performed on or before the Closing Date pursuant to the terms of this Agreement shall have been duly performed in all material respects, each of the documents, agreements, consents and other items to be delivered to Port Deposit pursuant to Section 3.2(b) shall have been delivered, and the Buyer shall have delivered to Port Deposit a certificate, dated as of the Closing Date, to such effect signed by an authorized officer of the Buyer.

10.3           No Litigation.  No Litigation before a court or any other Governmental
Authority shall have been instituted or threatened seeking to restrain or prohibit the transactions contemplated by this Agreement, and no Governmental Authority shall have taken any other action prohibiting Port Deposit from proceeding with the transactions hereunder.

10.4           Consents and Approvals.  All necessary consents of and filings required to be obtained or made with any Person or any
Governmental Authority relating to the consummation of the transactions contemplated herein (collectively, “Required Consents”) to be obtained or made by the Buyer shall have been obtained and made by the Buyer and the Buyer shall be ready to perform under such Required Consents.

ARTICLE XI

CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE BUYER

 

The obligations of the Buyer with respect to actions to be taken on the Closing Date are subject to the satisfaction by Port Deposit (as applicable) or waiver by the Buyer on or prior to the Closing Date of all of the conditions set forth in this Article XI.

 

11.1           Representations and Warranties.  All the representations and warranties of Port Deposit contained in this Agreement shall
be materially true and correct as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date; and a certificate to the foregoing effect, dated as of the Closing Date and signed by an authorized person on behalf of Port Deposit, shall have been delivered to the Buyer.

 

11.2           Performance of Obligations.  Each and all of the agreements of Port Deposit to be performed on or before the Closing Date
pursuant to the terms of this Agreement shall have been duly performed in all material respects, each of the documents, agreements, consents and other items to be delivered to Port Deposit pursuant to Section 3.2(a) shall have been delivered, and Port Deposit shall have delivered to the Buyer a resolution, dated as of the Closing Date to such effect, signed by an authorized person on behalf of Port Deposit.

 

11.3           No Litigation.  No Litigation before a court or any other Governmental
Authority shall have been instituted or threatened seeking to restrain or prohibit the transactions contemplated by this Agreement, and no Governmental Authority shall have taken any other action prohibiting the Buyer from proceeding with the transactions hereunder.

 

11.4           PSC/County Approval.  An order or other authorization of the PSC approving the transactions contemplated by this Agreement
and the customer rates to be charged by the Buyer based on cost of service principles for those Customers served by the Facilities and a franchise agreement with the County shall have been obtained by the Buyer and shall be in full force and effect as of the Closing, provided that the Buyer has utilized its best efforts to have obtained PSC approval and a county franchise.

 

11.5           Consents and Approvals.  All Required Consents to be obtained or made by Port Deposit shall have been obtained and made
and Port Deposit shall be ready to perform under such Required Consents, including those described on Schedule 4.2.

 

11.6           Satisfaction of Indebtedness; Release of Liens.  Port Deposit
shall have provided the Buyer with the Payoff Letters pursuant to Section 3.2(a)(x). and obtained release of the Maryland Environmental Services Lien referenced in Section 4.5(a)(ii).

 

11.7           Absence of Certain Changes.  No change that constitutes or results in a Material Adverse Change shall have occurred or
arisen.

 

11.8           Water Appropriation.  An order or other authorization of the Susquehanna River Basin Commission and of any other Governmental
Authority that may also be required approving the reissuance of the current water appropriation for take from the Susquehanna River from Port Deposit to Artesian shall have been obtained by the Buyer, with the full support of Port Deposit, and shall be in full force and effect as of the Closing.

 

11.9           Due Diligence.  The Buyer shall have notified Port Deposit in
writing that the Buyer has completed and is satisfied, as determined by the Buyer in its sole discretion, with its due diligence, investigation, review and analysis of the Facilities, the Water Distribution, Treatment and Metering Systems and Purchased Assets, including, without limitation, an investigation into the condition of the Purchased Assets and a review and analysis (including such title or other opinions as the Buyer may determine in its sole discretion) of Port Deposit’s title to or rights to
use the Purchased Assets, the Liabilities associated therewith, including without limitation, any Indebtedness involving or affecting the Purchased Assets, in each case, in its sole discretion satisfactory to the Buyer.

 

11.10           Water Rates.  Port Deposit shall have instituted an increase in water rates to $6.17 per thousand gallons, with a ten
thousand gallon minimum (for example, 15,000 gallons of quarterly water usage would result in a bill of $92.55).

 

11.11           Commitment for Provision of Wastewater Service.  Port Deposit shall
have executed an agreement with Cecil County, Maryland (County) for the County’s provision of wastewater services by its Seneca Point wastewater plant to Port Deposit by December 31, 2013.

ARTICLE XII

 INDEMNIFICATION

12.1           Obligations of Port Deposit.  Subject to the provisions below, Port Deposit shall, at its sole cost and expense, indemnify,
hold harmless, and defend the Buyer and its Affiliates and their respective owners, members, directors, managers, officers, employees, agents, representatives successors and assigns (each, a “Buyer Indemnified Person” and collectively, the “Buyer Indemnified Persons”) against any and all Liabilities, suits, causes of action and proceedings, whether for damages or otherwise, arising
out of or alleged to arise out of (a) any inaccuracy in, or breach or nonperformance of, any of the representations, warranties, covenants or agreements made by Port Deposit in or pursuant to this Agreement and the Closing Documents or (b) the Excluded Liabilities.

12.2           Obligations of the Buyer.  Subject to the provisions below, the Buyer shall, at its sole cost and expense, indemnify,
hold harmless, and defend Port Deposit and the elected and appointed officials, officers, boards, commissions, commissioners, agents, and employees (each, a “Town Indemnified Person” and collectively, the “Town Indemnified Persons”), against any and all Liabilities, suits, causes of action and proceedings, whether for damages or otherwise, arising out of or alleged to arise out
(a) any inaccuracy in, or breach or nonperformance of, any of the representations, warranties, covenants or agreements made by the Buyer in or pursuant to this Agreement, and the Closing Documents , or (b) the Assumed Liabilities.

12.3           Procedure.

(a) Each Buyer Indemnified Person and Town Indemnified Person shall be referred to collectively herein as an “Indemnified Person.” Any Indemnified Person seeking indemnification with respect to any actual or alleged Liability shall give notice to the Person from whom indemnification
is sought (each, an “Indemnifying Person”) on or before the date specified in Section 12.4, but within thirty (30) day of receipt of notice of a Liability for which an Indemnifying Person is obligated to indemnify an Indemnified Person. The Indemnified Person shall take action necessary to avoid entry of a default judgment if such action is needed before the Indemnified Person provides the Indemnifying Person notice; provided, however, that no
such action shall in any way prejudice or harm the Indemnifying Persons. In the event that the Indemnified Person does not timely notify the Indemnifying Person under this Section 12.3 of any Liability for which the Indemnifying Person is obligated to indemnify the Indemnified Person and such failure in any way prejudices or harms the Indemnifying Person (including, without limitation, any defense, right or remedy of the Indemnifying Person), then the Indemnifying Person shall be under no obligation to indemnify
the Indemnified Person to the extent of any such prejudice or harm to the Indemnifying Person.

(b) With respect to an Indemnifying Person’s indemnity obligations set forth in Section 12.1 or 12.2, as the case may be, the Indemnifying Person shall provide the defense of any Liability brought against the Indemnified Person by selecting counsel of the Indemnifying Person’s choice to defend the Liability, subject to the
consent of the Indemnified Person, which shall not be unreasonably withheld, conditioned or delayed. Nothing in this Agreement shall be deemed to prevent the Indemnified Person from cooperating with the Indemnifying Person and participating in the defense of any Liability by its own counsel at its own cost and expense, provided however, that after consultation with the Indemnified Person, the Indemnifying Person shall have the right to defend, settle or compromise any claim, suit, cause of action, or proceeding
arising hereunder, so long as the settlement includes a full release of the Indemnified Person, and the Indemnifying Person shall have the authority to decide the appropriateness and the amount of any such settlement. If the Indemnified Person does not consent to the terms of any such settlement or compromise, then the Indemnifying Person shall not settle the Liability but its obligation to indemnify the Indemnified Person shall in no event exceed the amount of such settlement. Notwithstanding the foregoing,
the Indemnifying Person shall be entitled to settle or compromise any Liability for which the Indemnifying Person is obligated to indemnify the Indemnified Person without the consent of the Indemnified Person, if such settlement or compromise requires only the payment of money damages and/or a full release of the Liability against the Indemnified Person. If the Indemnifying Person fails, after notice pursuant to Section 12.3(a), to undertake the Indemnified Person’s defense of any Liabilities encompassed
within this Article XII, then the Indemnifying Person’s indemnification shall include, but is not limited to, the Indemnified Person's reasonable attorneys' fees, including fees for outside counsel hired to defend the Indemnified Person, incurred in defending against any such claim, suit, cause of action, or proceeding, any interest charges arising from any claim, suit, cause of action, or proceeding arising under this Agreement or Applicable Laws, the Indemnified Person’s out-of-pocket expenses,
and the reasonable value of any services rendered by Port Deposit counsel, or Port Deposit staff or its employees, if Port Deposit is the Indemnified Person, or, if the Buyer is the Indemnified Person, the reasonable value of any in-house attorney, staff or employees of the Buyer.

(c) Neither the provisions of this Article XII nor any damages recovered by the Indemnified Person shall be construed to limit the liability of the Indemnifying Person or its contractors or subcontractors for damages under the Agreement or Applicable Laws or to excuse the faithful performance of obligations required by the Agreement, except
to the extent that any monetary damages suffered by the Indemnified Person have been satisfied by a financial recovery under this section or other provisions of the Agreement or Applicable Laws. The Indemnified Person shall not be entitled to recover any amount under this Agreement with respect to any Liability for which the Indemnifying Person is obligated to indemnify the Indemnified Person, if and to the extent that the Indemnified Person shall have actually recovered any amount with respect to such Liability.
The Indemnified Person shall use its reasonable efforts to claim and recover any damages suffered by it under any insurance policy or third party indemnity it may have, which amounts shall be deducted from any amount for which the Indemnifying Person is obligated to indemnify the Indemnified Person under this Agreement.

(d) Nothing in this Agreement shall be construed to waive Port Deposit’s governmental immunity.

(e) In the event of any action or proceeding brought against an Indemnified Person for which the Indemnified Person is entitled to indemnification under this Agreement, the Indemnifying Party shall not admit any liability in any such matter on behalf of the Indemnified Party, and the Indemnified Party shall not admit any liability for
any such Liability for which the Indemnified Party is indemnified under this Agreement without the prior written consent of the Indemnifying Party.

(f) Anything to the contrary in this Agreement notwithstanding, neither party shall be liable to the other party or to any insurance company (by way of subrogation or otherwise) insuring the other party for any loss or damage to any building, structure or other tangible property, when such loss is caused by any of the perils which are
or could be insured against under a standard policy of full replacement costs insurance for fire, theft and all risk coverage, or losses under workers’ compensation Applicable Laws and benefits, even though such loss or damage might have been occasioned by the negligence of such party, its agents or employees (this clause shall not apply, however, to any damage caused by intentionally wrongful actions or omissions).

12.4           Survival of Certain Provisions.

(a) Except as otherwise set forth in Section 12.4(b), (c) and (d), the representations and warranties of Port Deposit and the Buyer set forth in Articles II, IV V, VII, VIII, IX, XII and XIV shall survive the Closing and shall continue in full force and effect without limitation after the Closing until the expiration of the statute of
limitations applicable thereto has expired.

(b) Except as otherwise set forth in Section 12.4(a), (c) and (d), each of the post Closing covenants, agreements and obligations of the parties contained in this Agreement, including, without limitation, the indemnification and defense obligations of Port Deposit and the Buyer set forth herein will survive the Closing and will continue
in full force and effect in accordance with its terms, or, if not specific as to duration, until the expiration of the applicable statutes of limitations if no claim has been timely field with respect thereto.

(c) Each period of survival of the representations and warranties, covenants and agreements prescribed by Section 12.4(a) and (b) above is referred to as a “Survival Period.” Except as otherwise provided in this section, the liabilities of each party under its respective
representations and warranties, covenants and agreements will expire as of the expiration of the applicable Survival Period; provided, however, that such expiration will not include, extend or apply to any representation or warranty or covenant the breach of which has been asserted by a party in a written notice to the other party before such expiration.

(d) All indemnities provided for in the Agreement shall apply even in the event of joint and/or concurrent negligence, strict liability, or other fault of the party whose liability is indemnified.

ARTICLE XIII

TERMINATION

13.1           Termination.  This Agreement may be terminated at any time prior to the Closing upon the occurrence of any of the following:

	
(a)  
	
at any time, by mutual written consent of the Buyer and Port Deposit;

(b)           by either the Buyer or Port Deposit at any time (if such party itself is not then in material breach of any of its representations and warranties, covenants, agreements or other obligations contained in this Agreement), if the other party is in material breach or default
of any of its representations and warranties, covenants, agreements or other obligations herein, which breach or default remains uncured for a period of thirty (30) days after such other party’s receipt of written notice of such breach or default.

(c)           by the Buyer at any time pursuant to Section 6.2 or Section 6.3(b) of this Agreement;

(d)           by the Buyer at any time, if the Buyer determines in its sole discretion that the conditions to Closing set forth in Section 11.9 of the Agreement shall not be satisfied.

13.2           Consequences of Termination.  In the event that this Agreement shall be terminated pursuant to this Article XIII, (a)
each party will redeliver all documents, work papers and other material of any other party relating to the transactions contemplated hereby, whether so obtained before or after the execution hereof, to the party furnishing the same, and (b) all further obligations of the parties under this Agreement shall terminate without further liability of any party to any other party, except as to the Deposit and that (i) the provisions of this Section 13.2 and the provision contained in Article XIV shall survive such termination
and continue in full force and effect, and (ii) nothing herein shall relieve any party under Sections 12.1 or 12.2, as applicable, from liability for any fraudulent or willful breach of any representation, warranty, covenant, agreement or other provision of this Agreement prior to such termination.

 

ARTICLE XIV

GENERAL PROVISIONS

14.1           Actions of Parties.  In any action by the parties that is mandated or permitted under the terms of this Agreement, such
party shall act in a reasonable, expeditious, and timely manner; provided that nothing in this Section 14.1 nor any other provision of this Article XIV shall limit the right of Port Deposit to act, or to decline to act, in the unfettered exercise of its discretion when action or inaction by Port Deposit is permitted to be governed by such standard.

14.2           Preemption.  If Applicable Laws preempt a provision or limit the
enforceability of a provision of this Agreement, then the provision shall be read to be preempted to the extent, and for the time, but only to the extent and for the time, required by such Applicable Law. In that event, the parties shall negotiate in good faith to reconstitute this Agreement in a form that, to the maximum extent possible, is consistent with the parties’ original intent and preserves the benefits bargained for by each party. If such federal or state Applicable Law is subsequently repealed,
rescinded, amended or otherwise changed so that the provision of this Agreement that had been preempted is no longer preempted, then such provision shall return to full force and effect, and shall thereafter be binding on the parties hereto, without the requirement of further action on the part of Port Deposit.

14.3           Expenses.  Except as provided in Sections 12.1 and 12.2 or as otherwise specifically provided in this Agreement, the parties
shall bear their respective expenses incurred in connection with the preparation, execution and performance of this Agreement and the consummation of the transactions contemplated hereby, including, without limitation, all fees and expenses of their respective Representatives and all fees, expenses and costs for obtaining any Required Consent of such party.

14.4           Amendments and Waivers.  Any term of this Agreement may be amended, supplemented or modified only with the written consent
of parties and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the party against whom the waiver is sought to be enforced. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.

14.5           Binding Acceptance; Assignment.  This Agreement shall bind and benefit the parties hereto and their respective heirs,
beneficiaries, administrators, executors, receivers, trustees, successors and assigns; provided that, this Agreement and all rights and obligations hereunder may not be assigned or transferred without the prior written consent of the other parties hereto.

14.6           Third Party Beneficiaries.  The rights created by this Agreement are solely for the benefit of the parties hereto and
the respective successors or permitted assigns, and no other Person shall have or be construed to have any legal or equity right, remedy or claim under or in respect of or by virtue of this Agreement or any provision herein contained; provided, however, that the provisions of Sections 7.2, 7.3, 7.4,  7.6 and 7.7  and Article XII above are intended for the benefit and burden of
the parties specified therein, and their respective legal representatives, successors, heirs, executors and assigns.

14.7           Choice of Law; Venue.  This Agreement shall be governed by and
construed under, and the rights of the parties determined, in accordance with the Applicable Laws of the State of Maryland (without reference to the choice of law provisions of the State of Maryland) and applicable federal law. Each of the parties hereto irrevocably consents to the service of any process, pleading, notices or other papers by the mailing of copies thereof by registered, certified or first class mail, postage prepaid, to such party at such party’s address set forth herein, or by any other
method provided or permitted under the Applicable Laws of the State of Maryland. Each party hereby irrevocably submits to the jurisdiction in the Circuit Court for Cecil County, Maryland, over any action or proceeding arising out of or relating to this Agreement. Each party hereby irrevocably and unconditionally waives and agrees not to plead, to the fullest extent provided by Applicable Law, any objection it may have to venue and the defense of an inconvenient forum to the maintenance of such action or proceeding
in such courts.

	
14.8  
	
    Waiver of Jury Trial.

THE BUYER, GUARANTOR AND PORT DEPOSIT EACH HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS AGREEMENT OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH.
THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY THE BUYER AND PORT DEPOSIT, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. EACH OF PORT DEPOSIT, THE BUYER,AND THE GUARANTOR AS APPLICABLE, IS HEREBY AUTHORIZED TO FILE A COPY OF THIS SECTION IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY THE BUYER OR PORT DEPOSIT, AS APPLICABLE.

	
14.9.  
	
    Attorneys’ Fees.  INTENTIONALLY DELETED.

14.10   Notices.  Unless otherwise expressly stated in this Agreement, all notices, requests and other communications
under this Agreement shall be in writing and shall be delivered (i) in person, (ii) by registered or certified mail, return receipt requested, (iii) by recognized overnight delivery service providing positive tracking of items (for example, Federal Express), or (iv) by facsimile or other electronic transmission if a copy is sent simultaneously by a method described in clause (i), (ii) or (iii), addressed as hereinafter provided or at such other address of which Port Deposit or the Buyer shall have given notice
as provided in this Section 14.10. All such notices, requests and other communications shall be deemed to have been sufficiently given for all purposes hereof only upon receipt by the party to whom such notice is sent. Notices by the parties may be given on their behalf by their respective attorneys. Notices should be provided in accordance with this Section 14.10 at the following addresses:

If to the Buyer or Guarantor, to:                                                                           With
a copy to:

Artesian Water Maryland, Inc.

c/o Artesian Resources Corporation                                                                  
DLA Piper US LLP

664 Churchmans Road                                                                                         
 6225 Smith Ave

Newark, Delaware 19702                                                                                      
 Baltimore, Maryland 21209

Attn: David Spacht or Chief Financial Officer                                                   Attn:
Carville B. Collins, Esq.

Telephone: 302-453-6912                                                                                      Telephone:
410-580-4125

Telecopier 302-453-6980                                                                                      
Telecopier: 410-580-3001

Email: DSpacht@artesianwater.com                                                                   Email: carville.collins@dlapiper.com

 If to Port Deposit to:                                                                           With
a copy to:

The Mayor and                                                                                 
  Virginia W. Barnhart

Town Planner                                                                                      
Treanor Pope & Hughes, P.A.

64 South Main Street                                                                          29
W. Susquehanna Ave., Ste. 110

Port Deposit, Maryland 21904                                                           Towson,
MD  21204

14.11           Severability.  If one or more provisions of this Agreement shall be held invalid, illegal or unenforceable, such provision
shall, to the extent possible, be modified in such manner as to be valid, legal and enforceable but so as to most nearly retain the intent of the parties, and if such modification is not possible, such provision shall be severed from this Agreement. In either case, the balance of this Agreement shall be interpreted as if such provision were so modified or excluded, as the case may be, and shall be enforceable in accordance with its terms.

14.12           Entire Agreement.  This Agreement, together with the Disclosure
Schedules, Exhibits, certificates and Transaction Documents contemplated hereby, embodies the entire understanding and agreement of Port Deposit and the Buyer with respect to the subject matter of this Agreement and merges and supersedes all prior representations, agreements, and understandings, whether oral or written, between Port Deposit and the Buyer with respect to the subject matter hereof, including, without limitation, any and all written or oral statement or representations by any official, employee,
agent, attorney, consultant, or independent contractor of Port Deposit or the Buyer. Notwithstanding anything in this Agreement to the contrary, nothing in this Section 14.12 shall limit or affect, or be construed to limit or affect, the Franchise Agreement in any manner.

14.13           Recitals.  The Recitals of this Agreement forms a part of this
Agreement.

14.14           Construction.

(a) The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of authorship
of any provision of this Agreement. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

(b) The attached exhibits are incorporated in this Agreement by reference and expressly made a part of this Agreement.

(c) The captions and headings of articles and sections throughout this Agreement are intended solely to facilitate reading and reference to the sections and provisions of this Agreement. Such captions shall not affect the meaning or interpretation of this Agreement.

14.15           Counterparts.  This Agreement may be executed in two or more
counterparts, including by means of telefaxed signature pages, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

14.16           Time is of the Essence.  The parties hereto hereby agree that time is of the essence with respect to the performance
of each party’s respective obligations and commitments under this Agreement.

 

[ SIGNATURES APPEAR ON THE FOLLOWING PAGE. ]

  

  

  

 

	
ATTEST:
	  	
BUYER:

	  	  	  
	  	  	
ARTESIAN WATER MARYLAND, INC., a Delaware corporation

	  	  	  
	
 /s/ John J. Schreppler, II
	  	
By:
	
/s/ Joseph A. DiNunzio

	
Name: John J. Schreppler, II
	  	
Name: Joseph A. DiNunzio

	
Title: Assistant Secretary, Vice President & General Counsel
	  	
Title: Executive Vice President

	  	  	  
	  	  	
THE TOWN OF PORT DEPOSIT, by The Mayor and Town Council

	  	  	  
	  	  	
/s/ Kerry Ann Abrams

	  	  	
Kerry Ann Abrams, Mayor

	  	  	  
	  	  	
/s/ William Harrington

	  	  	
William Harrington, Deputy Mayor

	  	  	  
	  	  	
/s/ Al Bruno

	  	  	
Al Bruno, Council Member

	  	  	  
	  	  	
/s/ Robert Kuhs

	  	  	
Robert Kuhs, Council Member

	  	  	  
	  	  	
/s/ John Leeds

	  	  	
John Leeds, Council Member

	  	  	  
	  	  	
/s/ Judy Leonard

	  	  	
Judy Leonard, Council Member

	  	  	  
	  	  	
/s/ Kevin Morton

	  	  	
Kevin Morton, Council Member

	  	  	  
	
ATTEST:
	  	  
	  	  	  
	
/s/
	  	  
	
Secretary
	  	  

 

 

	
ATTEST:
	  	
GUARANTOR:

	  	  	  
	  	  	
ARTESIAN RESOURCES CORPORATION, a Delaware corporation

	  	  	  
	
/s/ John J. Schreppler, II
	  	
By:
	
/s/ Joseph A. DiNunzio

	
Name: John J. Schreppler, II
	  	
Name: Joseph A. DiNunzio

	
Title: Assistant Secretary, Vice President & General Counsel
	  	
Title: Executive Vice President

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