<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[XX] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from______to______
COMMISSION FILE NO. 0-20838
CLAYTON WILLIAMS ENERGY, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 75-2396863
--------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6 DESTA DRIVE, SUITE 3000, MIDLAND, TEXAS 79705
- ----------------------------------------- -----------------
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code: (915) 682-6324
Not applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [XX] NO [ ]
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF AUGUST 8, 1996......7,486,139
================================================================================
<PAGE> 2
CLAYTON WILLIAMS ENERGY, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements Page
- ------- -------------------- ------
<S> <C> <C>
Consolidated Balance Sheets as of June 30, 1996
and December 31, 1995 . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations for the three months
and six months ended June 30, 1996 and 1995 . . . . . . . . . 4
Consolidated Statements of Cash Flows for the six months
ended June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial
- ------- -------------------------------------------------
Condition and Results of Operations . . . . . . . . . . . . . 10
-----------------------------------
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . 15
- ------- ---------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 15
- ------- --------------------------------
</TABLE>
================================================================================
2
<PAGE> 3
CLAYTON WILLIAMS ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
--------------- --------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . $ 1,210 $ 1,303
Accounts receivable:
Trade, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,569 1,184
Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 738
Oil and gas sales . . . . . . . . . . . . . . . . . . . . . . . 7,919 6,615
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . 445 505
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 565 565
--------------- --------------
11,861 10,910
--------------- --------------
PROPERTY AND EQUIPMENT
Oil and gas properties, successful efforts method . . . . . . . . 338,230 325,268
Natural gas gathering and processing systems . . . . . . . . . . . 7,496 6,951
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,525 9,460
--------------- --------------
355,251 341,679
Less accumulated depreciation, depletion and amortization . . . . (272,512) (259,533)
--------------- --------------
Property and equipment, net . . . . . . . . . . . . . . . . . . 82,739 82,146
--------------- --------------
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 105
--------------- --------------
$ 94,672 $ 93,161
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable:
Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,142 $ 6,911
Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . 724 346
Oil and gas sales . . . . . . . . . . . . . . . . . . . . . . . 5,685 4,813
Current maturities of long-term debt . . . . . . . . . . . . . . . 115 11,509
Accrued liabilities and other . . . . . . . . . . . . . . . . . . 1,391 1,048
--------------- --------------
17,057 24,627
--------------- --------------
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,528 33,538
--------------- --------------
STOCKHOLDERS' EQUITY:
Common stock, par value $.10 per share; authorized - 10,000,000
shares; issued and outstanding - 7,477,473 shares in 1996 and
7,409,664 shares in 1995 . . . . . . . . . . . . . . . . . . . . 748 741
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . 53,153 52,912
Retained deficit . . . . . . . . . . . . . . . . . . . . . . . . . (14,814) (18,657)
--------------- --------------
39,087 34,996
--------------- --------------
$ 94,672 $ 93,161
=============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
CLAYTON WILLIAMS ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ---------------------------
1996 1995 1996 1995
------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
REVENUES
Oil and gas sales . . . . . . . . . . . . $ 15,149 $ 11,791 $ 27,517 $ 23,222
Natural gas services . . . . . . . . . . . 985 1,858 1,949 3,717
------------- ------------ ------------ ------------
Total revenues . . . . . . . . . . . . . 16,134 13,649 29,466 26,939
------------- ------------ ------------ ------------
COSTS AND EXPENSES
Lease operations . . . . . . . . . . . . . 3,563 3,490 7,161 6,986
Exploration . . . . . . . . . . . . . . . 25 239 279 432
Natural gas services . . . . . . . . . . . 814 1,294 1,571 2,450
Depreciation, depletion and amortization . 6,175 6,887 11,852 13,810
Impairment of property and equipment . . . 1,186 - 1,186 -
General and administrative . . . . . . . . 964 1,095 1,671 2,017
------------- ------------ ------------ ------------
Total costs and expenses . . . . . . . . 12,727 13,005 23,720 25,695
------------- ------------ ------------ ------------
Operating income . . . . . . . . . . . . 3,407 644 5,746 1,244
Interest expense . . . . . . . . . . . . . 961 1,533 1,943 2,991
Other income (expense) . . . . . . . . . . (7) 85 40 249
------------- ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES . . . . . . 2,439 (804) 3,843 (1,498)
INCOME TAX EXPENSE . . . . . . . . . . . . . - - - -
------------- ------------ ------------ ------------
NET INCOME (LOSS) . . . . . . . . . . . . . . $ 2,439 $ (804) $ 3,843 $ (1,498)
============= ============ ============ ============
Net income (loss) per common share . . . . . $ .32 $ (.14) $ .51 $ (.26)
============= ============ ============ ============
Weighted average common
shares outstanding . . . . . . . . . . . . 7,627 5,708 7,553 5,704
============= ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
CLAYTON WILLIAMS ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,843 $ (1,498)
Adjustments to reconcile net income (loss) to cash provided by
operating activities:
Depreciation, depletion and amortization . . . . . . . . . . . . 11,852 13,810
Impairment of property and equipment . . . . . . . . . . . . . . 1,186 -
Exploration costs . . . . . . . . . . . . . . . . . . . . . . . 266 396
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 214 117
Changes in operating working capital:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . (1,104) 657
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . 3,047 1,848
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192 (76)
------------ ------------
Net cash provided by operating activities . . . . . . . . . 19,496 15,254
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment . . . . . . . . . . . . . . . . (16,737) (11,553)
Proceeds from sale of property and equipment . . . . . . . . . . . . 3,530 201
------------ ------------
Net cash used in investing activities . . . . . . . . . . . (13,207) (11,352)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt . . . . . . . . . . . . . . . . . . . . - 1,600
Repayments of long-term debt . . . . . . . . . . . . . . . . . . . . (6,404) (5,806)
Proceeds from sale of common stock . . . . . . . . . . . . . . . . . 22 -
------------ ------------
Net cash used in financing activities . . . . . . . . . . . (6,382) (4,206)
------------ ------------
NET DECREASE IN CASH AND
CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . (93) (304)
CASH AND CASH EQUIVALENTS
Beginning of period . . . . . . . . . . . . . . . . . . . . . . . . 1,303 1,431
------------ ------------
End of period . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,210 $ 1,127
============ ============
SUPPLEMENTAL DISCLOSURES
Cash paid for interest, net of amounts capitalized . . . . . . . . . $ 1,800 $ 3,090
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
CLAYTON WILLIAMS ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
1. ORGANIZATION AND PRESENTATION
Clayton Williams Energy, Inc. (the "Company"), a Delaware corporation,
was incorporated in September 1991 for the purpose of consolidating and
continuing certain operations previously conducted by affiliates of Clayton W.
Williams, Jr. ("Mr. Williams"). Concurrent with the completion of the initial
public offering of the Company's common stock on May 26, 1993, these operations
were consolidated, and the Company succeeded to most of the oil and gas
properties, exploration and development operations and the natural gas
gathering and marketing operations of Mr. Williams and his affiliates. The
consolidated financial statements include the accounts of the Company and its
subsidiaries. All significant intercompany transactions and balances
associated with the consolidated operations have been eliminated.
The Company is primarily engaged in the exploration for and development
and production of oil and natural gas in South and East Texas, Southeastern New
Mexico and the Texas Gulf Coast.
In the opinion of management, the Company's unaudited consolidated
financial statements as of June 30, 1996 and for the interim periods ended June
30, 1996 and 1995 include all adjustments, consisting only of normal recurring
accruals, which are necessary for a fair presentation in accordance with
generally accepted accounting principles. These interim results are not
necessarily indicative of the results to be expected for the year ending
December 31, 1996.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted in this Form 10-Q pursuant to the
rules and regulations of the Securities and Exchange Commission ("SEC"). These
consolidated financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto included in the
Company's 1995 Form 10-K.
2. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
--------------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Secured Bank Credit Facility (matures July 31, 1999):
Revolving loan . . . . . . . . . . . . . . . . . . . . . . $ 15,400 $ 17,000
Term loan . . . . . . . . . . . . . . . . . . . . . . . . 23,075 27,825
Subordinated Debt Facility . . . . . . . . . . . . . . . . . . - -
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168 222
--------------- ---------------
38,643 45,047
Less current maturities . . . . . . . . . . . . . . . . . . . 115 11,509
--------------- ---------------
$ 38,528 $ 33,538
=============== ===============
</TABLE>
6
<PAGE> 7
CLAYTON WILLIAMS ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996
(UNAUDITED)
Secured Bank Credit Facility
As of June 30, 1996, the Company's secured bank credit facility provided
for a revolving loan facility and a term loan facility, the limits of which are
determined by a borrowing base established by the banks. Effective July 18,
1996, the Company and the banks amended and restated the prior loan agreement
to combine the prior facilities into one reducing revolver loan facility. The
initial borrowing base established by the new loan agreement was $52 million
and is subject to a monthly commitment reduction of $1 million beginning July
31, 1996. The amount of funds available under the amended borrowing base as of
June 30, 1996 was $13.5 million. The borrowing base and the monthly commitment
reduction are scheduled to be redetermined in November 1996 and at least
semi-annually thereafter; however, the Company or the banks may request such
redeterminations at any other time during the year. Any redetermination will
be made at the discretion of the banks. If, at any time, outstanding advances
plus letters of credit exceed the borrowing base, the Company will be required
to (i) pledge additional collateral, (ii) prepay the excess in not more than
five equal monthly installments or (iii) elect to convert the entire amount of
the facility to a term obligation based on amortization formulas set forth in
the loan agreement. The loan agreement requires the Company to pledge its oil
and gas properties to secure advances under the secured bank credit facility.
Based on the terms of the amended loan agreement, no portion of the
outstanding balances at June 30, 1996 is deemed to be a current liability since
the outstanding balances are less than the stated borrowing base, as adjusted
for the monthly commitment reductions scheduled to occur within the next year.
Therefore, current maturities of long-term bank debt, as set forth in the
accompanying consolidated balance sheet, reflect a reduction of $11.4 million
from the comparable balances at December 31, 1995.
All outstanding balances on the secured bank credit facility may be
designated, at the Company's option, as either "Base Rate Loans" or "Eurodollar
Loans" (as defined in the agreement), provided that not more than two
Eurodollar traunches may be outstanding at any time. Base Rate Loans will bear
interest at the fluctuating Base Rate plus a Base Rate Margin ranging from 0%
to 1/2% per annum, depending on levels of outstanding advances and letters of
credit. Eurodollar Loans will bear interest at the LIBOR rate for a fixed
period of time elected by the Company plus a Eurodollar Margin ranging from
1.25% to 2% per annum. At June 30, 1996, the Company's indebtedness under
these facilities consisted of $16.5 million of Base Rate Loans at a rate of
8.75% and $22 million of Eurodollar Loans at a rate of 8.2%.
In addition, the Company pays the banks a commitment fee equal to 1/2%
per annum on the unused portion of the revolving loan commitment. Interest and
fees are payable quarterly, and all outstanding principal and interest will be
due July 31, 1999.
Subordinated Debt Facility
In June 1995, the Company obtained a commitment from the Agent bank in
its secured bank credit facility to loan the Company up to $5.5 million under a
subordinated debt facility which provides for interest at a minimum rate of
14.25% per year, plus certain commitment fees, with interest payable monthly
and principal payable at maturity on July 31, 1998. The commitment originally
expired on December 31, 1995, but was extended to December 31, 1996. The
entire amount of the facility may be prepaid without penalty or premium at any
time prior to maturity, but only if the Company obtains the approval of the
lenders in the secured bank credit facility. The Company does not plan to
utilize this
7
<PAGE> 8
CLAYTON WILLIAMS ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996
(UNAUDITED)
subordinated debt facility unless the funds available on the secured bank
credit facility are inadequate to finance the Company's planned capital
expenditure program in 1996. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
3. FORWARD SALE TRANSACTIONS
The Company accounts for forward sale and put option arrangements as
hedging activities and, accordingly, gains and losses are included in oil and
gas revenues in the period the hedged production is sold. Included in oil and
gas revenues during the six months ended June 30, 1996 are net losses from
these activities totaling $947,000 (comprised of losses of $1,090,000,
partially offset by gains of $143,000). In addition, the Company has hedged
approximately 15% of its expected oil production from July 1996 through August
1996 utilizing certain financial swap arrangements as summarized below:
<TABLE>
<CAPTION>
Fixed Price per Bbl
Date Production Volumes -----------------------------------------------
Entered Months (Bbls) High Low Average
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
2/96 7/96 - 8/96 60,000 $ 17.90 $ 17.75 $ 17.86
</TABLE>
4. STOCK COMPENSATION PLANS
In May 1995, the Company's Board of Directors adopted two stock
compensation plans, one for selected officers and one for outside directors of
the Company. These plans permit the Company to pay all or part of selected
executives' salaries and all outside director's fees in Common Stock in lieu of
cash. During the six months ended June 30, 1996, the Company issued Mr.
Williams 49,965 shares of Common Stock in lieu of cash compensation aggregating
$195,755, and issued 8,484 shares to three outside directors in lieu of cash
compensation aggregating $30,000. Subsequent to June 30, 1996, the Company
issued Mr. Williams an additional 7,148 shares and issued an aggregate of 1,518
shares to three outside directors in lieu of cash compensation aggregating
$78,000.
5. NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is based on the weighted average
number of common and common equivalent shares, if dilutive, outstanding during
each period. Common stock equivalents were not included in the computation of
net loss per share in the 1995 periods since the effect was anti-dilutive.
6. SALE OF ASSETS
In January 1996, the Company sold its rights to the Buda and Georgetown
formations under approximately 28,000 net acres in Robertson County, Texas for
$3.5 million. Certain leases covered by the sale must be extended during 1996
and the Company estimates that it will be required to spend, in the aggregate,
approximately $550,000 in this effort. The Company also granted the purchaser
the option to acquire additional Buda and Georgetown rights under approximately
36,000 net acres in Burleson County, Texas. The net proceeds were used to
repay indebtedness on the secured bank credit facility, resulting in an
increase in funds then available for borrowing of $2.9 million. No gain or
loss was recognized on the sale.
8
<PAGE> 9
CLAYTON WILLIAMS ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1996
(UNAUDITED)
7. IMPAIRMENT OF PROPERTY AND EQUIPMENT
During the quarter ended June 30, 1996, the Company revised its estimates
of proved oil and gas reserves attributable to one undeveloped location in the
Texas Gulf Coast area. As a result, the Company recorded a provision for
impairment of property and equipment of $1.2 million in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for Impairment
of Long-Lived Assets."
8. INCOME TAXES
Although the Company recorded net income of $3.8 million for financial
reporting purposes during the six months ended June 30, 1996, no provision for
income tax expense is required since the Company has net operating loss
carryforwards of approximately $32 million available to offset any taxable
income generated by the Company during 1996. A valuation allowance against
these net operating loss carryforwards was recorded at December 31, 1995.
9
<PAGE> 10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
The Company's primary focus has historically been its horizontal drilling
program in the Cretaceous Trend (the "Trend") which extends from South Texas
through East Texas, Louisiana and other southern states and includes the Austin
Chalk, Buda and Georgetown formations. Oil and gas production in the Trend is
generally characterized by a high initial production rate, followed by a steep
rate of decline. In order to maintain or expand its oil and gas reserve base,
the Company must find and develop or acquire proven reserves sufficient to
replace those being depleted through current production.
The following table sets forth certain operating information of the
Company for the periods presented:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OIL AND GAS PRODUCTION DATA:
Oil (MBbls) . . . . . . . . . . . 598 474 1,080 954
Gas (MMcf) . . . . . . . . . . . . 1,354 1,808 2,816 3,640
MBOE (a) . . . . . . . . . . . . . 824 775 1,549 1,561
AVERAGE OIL AND GAS SALES PRICES:
Oil ($/Bbl) (b) . . . . . . . . . $ 19.38 $ 17.91 $ 19.08 $ 17.62
Gas ($/Mcf) . . . . . . . . . . . $ 2.53 $ 1.83 $ 2.41 $ 1.74
OIL AND GAS COSTS ($/BOE PRODUCED):
Lease operating expenses . . . . . $ 4.32 $ 4.50 $ 4.62 $ 4.48
Oil and gas depletion . . . . . . $ 7.25 $ 8.58 $ 7.40 $ 8.54
NET WELLS DRILLED:
Horizontal Wells . . . . . . . . . 6.0 3.0 13.2 15.5
Vertical Wells . . . . . . . . . . .1 - 1.1 -
</TABLE>
- ---------------
(a) Gas is converted to barrel of oil equivalents (BOE) at the ratio of six
Mcf of gas to one Bbl of oil.
(b) Includes losses on forward sale contracts of $1.49 per Bbl and $.41 per
Bbl during the three months ended June 30, 1996 and 1995, respectively,
and $.90 per Bbl and $.20 per Bbl during the six months ended June 30,
1996 and 1995, respectively.
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO JUNE 30, 1995
REVENUES
Oil and gas sales increased 28% from $11.8 million in 1995 to $15.1
million in 1996 due primarily to a 26% increase in oil production and an 8%
rise in oil prices, net of hedging losses (see "- Inflation and Changing
Prices"). Production from wells completed within the last year, which
accounted for more than 50% of 1996 oil production, exceeded the effects of
characteristically steep production declines from previously existing Trend
wells. Although gas prices increased 38%, the benefit from such increase was
substantially offset by a 25% decline in gas production. Revenues from natural
gas services decreased 47% to $985,000 due primarily to the sale of the
Company's two principal gas gathering and processing systems in August 1995.
10
<PAGE> 11
COSTS AND EXPENSES
Lease operations expenses increased 2% in 1996 as compared to 1995 while
production on a BOE basis increased 6%, resulting in a decline in lease
operations expenses on a BOE basis from $4.50 per BOE in 1995 to $4.32 per BOE
in 1996. Operating expenses of Trend wells are generally lower on a BOE basis
in the early stages of production since a large portion of the operating
expenses are fixed in nature and do not vary with production volumes. High
initial rates of production on several of the wells completed in 1996
contributed significantly to the decline in lease operations expenses per BOE.
DD&A expense decreased 10% from $6.9 million in 1995 to $6.2 million in
1996 due primarily to a 16% decline in the Company's average depletion rate per
BOE, offset in part by a 6% increase in BOE production. Under the successful
efforts method of accounting, costs of oil and gas properties are amortized on
a unit-of-production method based on estimated proved reserves. The lower
depletion rate is attributable to a combination of higher proved reserves from
newly completed wells and lower depletable costs resulting from the impairment
of certain producing properties in October 1995 pursuant to the adoption of
Statement of Financial Accounting Standards No. 121, "Accounting for Impairment
of Long-Lived Assets." As a result, the average depletion rate declined from
$8.58 per BOE in 1995 to $7.25 per BOE in 1996.
As discussed in Note 7 to the accompanying consolidated financial
statements, the Company recorded a provision for impairment of property and
equipment of $1.2 million during the 1996 quarter in accordance with Statement
of Financial Accounting Standards No. 121, "Accounting for Impairment of
Long-Lived Assets."
G&A expenses decreased 12% from $1.1 million in 1995 to $964,000 in 1996.
Beginning in March 1994, the Company reduced its overhead by implementing
certain cost reduction measures, including the closing of its San Antonio
office, the elimination or reduction of certain professional services, and the
control of personnel costs through staff and wage reductions and employee
benefit cost controls. The full impact of these measures was not realized
until the third quarter of 1995.
Costs of natural gas services decreased 37% to $814,000 due primarily to
the sale of the Company's two principal gas gathering and processing systems in
August 1995.
INTEREST EXPENSE AND OTHER
Interest expense decreased 36% from $1.5 million in 1995 to $961,000 in
1996 due primarily to lower average levels of indebtedness on the Company's
secured bank credit facility and, to a lesser extent, lower average interest
rates. The average daily principal balance outstanding on such facility during
the second quarter of 1996 was $40.2 million compared to $56.8 million in 1995.
The effective annual interest rate on bank debt during the 1996 quarter was
9.5% compared to 10.4% in 1995. Proceeds from the sales of assets in August
1995 and January 1996 and the sale of Common Stock through a shareholder rights
offering in September 1995, which aggregated approximately $15 million, were
used to reduce bank indebtedness.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO JUNE 30, 1995
REVENUES
Oil and gas sales increased 19% from $23.2 million in 1995 to $27.5
million in 1996 due primarily to a 13% increase in oil production and an 8%
rise in oil prices, net of hedging losses (see "- Inflation and Changing
Prices"). Production from wells completed within the last year, which
accounted for more than 40% of 1996 oil production, exceeded the effects of
characteristically steep production declines from
11
<PAGE> 12
previously existing Trend wells. Although gas prices increased 39%, the
benefit from such increase was substantially offset by a 23% decline in gas
production. Revenues from natural gas services decreased 48% to $1.9 million
due primarily to the sale of the Company's two principal gas gathering and
processing systems in August 1995.
COSTS AND EXPENSES
Lease operations expenses increased 3% in 1996 as compared to 1995 while
production on a BOE basis decreased 1%, resulting in an increase in lease
operations expenses on a BOE basis from $4.48 per BOE in 1995 to $4.62 per BOE
in 1996.
DD&A expense decreased 14% from $13.8 million in 1995 to $11.9 million in
1996 due primarily to a 13% decline in the Company's average depletion rate per
BOE. Under the successful efforts method of accounting, costs of oil and gas
properties are amortized on a unit-of-production method based on estimated
proved reserves. The lower depletion rate is attributable to a combination of
higher proved reserves from newly completed wells and lower depletable costs
resulting from the impairment of certain producing properties in October 1995
pursuant to the adoption of Statement of Financial Accounting Standards No.
121, "Accounting for Impairment of Long-Lived Assets." As a result, the
average depletion rate declined from $8.54 per BOE in 1995 to $7.40 per BOE in
1996.
As discussed in Note 7 to the accompanying consolidated financial
statements, the Company recorded a provision for impairment of property and
equipment of $1.2 million during the 1996 period in accordance with Statement
of Financial Accounting Standards No. 121, "Accounting for Impairment of
Long-Lived Assets."
G&A expenses decreased 15% from $2.0 million in 1995 to $1.7 million in
1996. Beginning in March 1994, the Company reduced its overhead by
implementing certain cost reduction measures, including the closing of its San
Antonio office, the elimination or reduction of certain professional services,
and the control of personnel costs through staff and wage reductions and
employee benefit cost controls. The full impact of these measures was not
realized until the third quarter of 1995.
Costs of natural gas services decreased 36% to $1.6 million due primarily
to the sale of the Company's two principal gas gathering and processing systems
in August 1995.
INTEREST EXPENSE AND OTHER
Interest expense decreased 37% from $3.0 million in 1995 to $1.9 million
in 1996 due primarily to lower average levels of indebtedness on the Company's
secured bank credit facility and, to a lesser extent, lower average interest
rates. The average daily principal balance outstanding on such facility during
the 1996 period was $40.5 million compared to $57.8 million in 1995. The
effective annual interest rate on bank debt during the 1996 period was 9.7%
compared to 10.3% in 1995. Proceeds from the sales of assets in August 1995
and January 1996 and the sale of Common Stock through a shareholder rights
offering in September 1995, which aggregated approximately $15 million, were
used to reduce bank indebtedness.
12
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
The Company's primary financial resource is its oil and gas reserves. In
accordance with the terms of the current bank credit facility, the banks
establish a borrowing base against which the Company may borrow funds as needed
to supplement its internally generated cash flow as a source of financing for
its capital expenditure program. Product prices, over which the Company has
very limited control, have a significant impact on the Company's ability to
maintain or expand the spread between the borrowing base and the level of
outstanding indebtedness. Within the confines of product pricing, the Company
must be able to find and develop or acquire oil and gas reserves in a cost
effective manner in order to generate sufficient financial resources through
internal means to complete the financing of its capital expenditure program.
The following discussion sets forth the Company's current plans for
capital expenditures in 1996 and the expected capital resources needed to
finance such plans.
CAPITAL EXPENDITURES
During 1996, the Company plans to focus its efforts on Trend drilling.
Presently, the Company plans to drill approximately 26 net wells in the updip
area of the Trend in 1996, 13 of which were completed during the first six
months. The Company is also actively acquiring additional acreage and
extending the terms of existing leases in this area. In addition, the Company
has acquired and interpreted certain 2-D seismic data to explore for potential
gas reserves in the formations below the Austin Chalk. Early geophysical
studies seem to indicate that some of the Company's acreage could be on trend
with recent Cotton Valley Lime Reef gas discoveries to the northwest of the
Company's acreage block. The Company will need 3-D seismic data in order to
fully evaluate its potential in this gas play, and is currently considering
various alternatives to obtaining and interpreting such data. The Company
cannot predict the ultimate level of capital expenditures associated with this
activity at this time and, accordingly, has not included any related cost
estimates in its capital expenditures budget.
At the present level of planned activity, the Company's capital
expenditures will be approximately $33 million in 1996, of which approximately
$17 million was incurred during the first six months of this year.
Substantially all of the remaining activity is discretionary. This allows the
Company to make adjustments to its level of capital expenditures based upon
such factors as the availability of capital resources, product prices and
drilling results. Thus, if the Company's ability or desire to conduct the
planned activities is diminished or enhanced by any of these factors, the
Company can modify its capital expenditures accordingly (see "- Capital
Resources").
The Company does not have any specified amounts of capital expenditures
designated for acquisitions of proven properties in 1996. However, the Company
plans to actively seek and evaluate acquisition opportunities during the year
and will commit only to those acquisitions which the Company can adequately
finance through internal or external sources.
CAPITAL RESOURCES
Secured Bank Credit Facility
As discussed in Note 2 to the accompanying consolidated financial
statements, the Company had $13.5 million of funds available to it under the
amended secured bank credit facility at June 30, 1996. The banks' loan
commitment reduces by $1 million each month, beginning July 31, 1996. The
borrowing base and the monthly commitment reduction are scheduled to be
redetermined in November 1996 and at
13
<PAGE> 14
least semi-annually thereafter; however, the Company or the banks may request
such redeterminations at any other time during the year. Any redetermination
will be made at the discretion of the banks.
Subordinated Debt Facility
In June 1995, the Company obtained a commitment from the Agent bank in
its secured bank credit facility to loan the Company up to $5.5 million under a
subordinated debt facility which provides for interest at a minimum rate of
14.25% per year, plus certain commitment fees, with interest payable monthly
and principal payable at maturity on July 31, 1998. The commitment originally
expired on December 31, 1995, but was extended to December 31, 1996. The
entire amount of the facility may be prepaid without penalty or premium at any
time prior to maturity, but only if the Company obtains the approval of the
lenders in the secured bank credit facility. The Company does not plan to
utilize this subordinated debt facility unless the funds available on the
secured bank credit facility are inadequate to finance the Company's planned
capital expenditure program in 1996. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
Working Capital and Cash Flow. During the six months ended June 30,
1996, the Company generated cash flow from operating activities of $19.5
million and received proceeds from the sale of assets of $3.5 million. During
the same period, the Company spent $16.7 million on capital expenditures and
repaid $4.7 million on the term loan facility. The residual cash flow of $1.6
million was primarily used to reduce the amount of indebtedness outstanding on
the revolving loan facility. At June 30, 1996, the Company had $13.5 million
of availability on the revolving loan facility, as amended.
The Company's working capital deficit decreased from $13.7 million at
December 31, 1995 to $5.2 million at June 30, 1996 due primarily to a reduction
in current portion of long-term debt. Based upon the initial borrowing base
and scheduled commitment reductions set forth in the amended loan agreement
(see Note 2 to the accompanying consolidated financial statements), no portion
of the outstanding balance on the Company's secured bank credit facility is
deemed to be a current liability at June 30, 1996.
Barring any substantial increase in planned drilling and leasing
activities or the incurrence of any significant costs associated with the
Cotton Valley Lime Reef gas play, the Company believes that the funds available
on the secured bank credit facility and cash provided by operations will be
adequate to fund the Company's operations and projected capital expenditures
during the remainder of 1996 and thereby avoid borrowing on the subordinated
debt facility. However, since the amount of the borrowing base is subject to
factors such as drilling results, product prices and discount rates and may be
redetermined by the banks at any time, it is possible that the Company will be
required to borrow some or all of the funds available on the subordinated debt
facility. In any event, there can be no assurance that all of these combined
sources of funds will be adequate to meet the Company's capital expenditure
program, in which case the Company may be required to cease or delay its
drilling activities.
INFLATION AND CHANGES IN PRICES
The Company's revenues and the value of its oil and gas properties have
been and will continue to be affected by changes in oil and gas prices. The
Company's ability to maintain adequate borrowing capacity and to obtain
additional capital on attractive terms is also substantially dependent on oil
and gas prices. Oil and gas prices are subject to significant seasonal and
other fluctuations that are beyond the Company's ability to control or predict.
In an attempt to manage this price risk, the Company has entered into certain
financial swap arrangements as described in Note 3 to the accompanying
consolidated financial statements.
Although certain of the Company's costs and expenses are affected by the
level of inflation, inflation did not have a significant effect on the
Company's results of operations during 1996.
14
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 1, 1996, an amendment to the Company's 1993 Stock Compensation
Plan was adopted by written consent of the holders of more than a majority of
shares of the Company's Common Stock entitled to vote on such matters.
On June 20, 1996, the Company mailed an information statement to
stockholders of record at the close of business on June 17, 1996. At such
date, the Company had 7,468,113 shares of Common Stock outstanding, each share
being entitled to one vote. The action taken required at least a majority of
the shares outstanding and entitled to vote on such matters, and such approval
was obtained by written consent of Clayton Williams Partnership, Ltd. and
CWPLCO, Inc. (collectively, the "Affiliated Holders"), which own, in the
aggregate, 3,772,009 shares of Common Stock, or 50.5% of the outstanding shares
of Common Stock.
The amendment increased the aggregate number of shares of Common Stock
authorized and reserved for issuance upon exercise of options granted under the
Plan from 298,200 shares to 898,200 shares. The options already granted under
the Plan cover substantially all of the shares originally authorized and
reserved for use under the Plan. In order to continue providing the incentive
to the officers, directors and employees of the Company for which the Plan was
created, additional authorized and reserved shares of Common Stock needed to be
made available under the Plan. The Board of Directors and Affiliated Holders
determined that it was in the best interest of the Company to increase the
aggregate number of shares of Common Stock available under the Plan so that
additional options can be granted to fulfill the purpose of attracting,
retaining and rewarding officers, directors and employees of the Company as
provided in the Plan.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------------ -----------------------------------------------------------
<S> <C>
10.1 Fifth Restated Loan Agreement dated as of July 18, 1996,
among Clayton Williams Energy, Inc., Warrior Gas Co., CWEI
Acquisitions, Inc., Bank One, Texas, N.A., Banque Paribas
and the First National Bank of Chicago.
21 Subsidiaries of the Registrant
27 Financial Data Schedule
</TABLE>
REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended June 30,
1996.
15
<PAGE> 16
CLAYTON WILLIAMS ENERGY, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
CLAYTON WILLIAMS ENERGY, INC.
Date: August 8, 1996 By: /s/ L. Paul Latham
-----------------------------------
L. Paul Latham
Executive Vice President and Chief
Operating Officer
Date: August 8, 1996 By: /s/ Mel G. Riggs
-----------------------------------
Mel G. Riggs
Senior Vice President and Chief
Financial Officer
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------ -----------------------------------------------------------
<S> <C>
10.1 Fifth Restated Loan Agreement dated as of July 18, 1996,
among Clayton Williams Energy, Inc., Warrior Gas Co., CWEI
Acquisitions, Inc., Bank One, Texas, N.A., Banque Paribas
and the First National Bank of Chicago.
21 Subsidiaries of the Registrant
27 Financial Data Schedule
</TABLE>
<PAGE> 1
FIFTH RESTATED LOAN AGREEMENT
AMONG
CLAYTON WILLIAMS ENERGY, INC.,
WARRIOR GAS CO.,
CWEI ACQUISITIONS, INC.,
BANK ONE, TEXAS, N.A.,
BANQUE PARIBAS
AND
THE FIRST NATIONAL BANK OF CHICAGO
JULY 18, 1996
<PAGE> 2
FIFTH RESTATED LOAN AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. Commitments of the Banks. . . . . . . . . . . . . . . . . . . . . . 11
(a) Terms of Revolving Commitment . . . . . . . . . . . . . . . . 11
(b) Refinancing of Term Commitment . . . . . . . . . . . . . . . . 11
(c) Letters of Credit . . . . . . . . . . . . . . . . . . . . . . 11
(d) Procedure for Advances on the Revolving Loan . . . . . . . . . 13
(e) Procedure for Obtaining Letters of Credit. . . . . . . . . . . 13
(f) Several Obligations. . . . . . . . . . . . . . . . . . . . . . 14
3. Notes Evidencing Loans. . . . . . . . . . . . . . . . . . . . . . . 14
(a) Form of Revolving Notes . . . . . . . . . . . . . . . . . . . 14
(b) Interest Rates . . . . . . . . . . . . . . . . . . . . . . . 14
(c) Payment of Interest . . . . . . . . . . . . . . . . . . . . . 15
(d) Payment of Principal . . . . . . . . . . . . . . . . . . . . 15
(e) Issuance of Additional Notes . . . . . . . . . . . . . . . . 15
4. Interest Rates. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(a) Options . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(b) Interest Rate Determination . . . . . . . . . . . . . . . . . 16
(c) Conversion Option . . . . . . . . . . . . . . . . . . . . . . 16
(d) Recoupment . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5. Special Provisions Relating to Eurodollar Loans . . . . . . . . . . 17
(a) Unavailability of Funds or Inadequacy of Pricing . . . . . . . 17
(b) Reserve Requirements . . . . . . . . . . . . . . . . . . . . . 17
(c) Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(d) Change in Laws . . . . . . . . . . . . . . . . . . . . . . . . 18
(e) Option to Fund . . . . . . . . . . . . . . . . . . . . . . . . 18
(f) Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6. Collateral Security. . . . . . . . . . . . . . . . . . . . . . . . 19
7. Borrowing Base. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
(a) Initial Borrowing Base. . . . . . . . . . . . . . . . . . . . 20
(b) Subsequent Determinations of Borrowing Base. . . . . . . . . . 20
(c) Voluntary Decreases in Borrowing Base. . . . . . . . . . . . . 21
(d) Monthly Commitment Reduction. . . . . . . . . . . . . . . . . 21
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
8. Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(a) Unused Portion Fee . . . . . . . . . . . . . . . . . . . . . . 21
(b) Borrowing Base Increase Fee. . . . . . . . . . . . . . . . . . 21
(c) Letter of Credit Fee . . . . . . . . . . . . . . . . . . . . . 22
(d) Agency Fee. . . . . . . . . . . . . . . . . . . . . . . . . . 22
9. Prepayments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(a) Voluntary Prepayments. . . . . . . . . . . . . . . . . . . . . 22
(b) Mandatory Prepayment. . . . . . . . . . . . . . . . . . . . . 22
10. Representations and Warranties. . . . . . . . . . . . . . . . . . 23
(a) Creation and Existence. . . . . . . . . . . . . . . . . . . . 23
(b) Power and Authorization. . . . . . . . . . . . . . . . . . . . 23
(c) Binding Obligations. . . . . . . . . . . . . . . . . . . . . . 23
(d) No Legal Bar or Resultant Lien. . . . . . . . . . . . . . . . 23
(e) No Consent. . . . . . . . . . . . . . . . . . . . . . . . . . 23
(f) Financial Condition. . . . . . . . . . . . . . . . . . . . . . 24
(g) Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 24
(h) Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . 24
(i) Taxes; Governmental Charges. . . . . . . . . . . . . . . . . . 24
(j) Titles, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . 24
(k) Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(l) Casualties; Taking of Properties. . . . . . . . . . . . . . . 25
(m) Use of Proceeds; Margin Stock. . . . . . . . . . . . . . . . . 25
(n) Location of Business and Offices. . . . . . . . . . . . . . . 26
(o) Compliance with the Law. . . . . . . . . . . . . . . . . . . . 26
(p) No Material Misstatements. . . . . . . . . . . . . . . . . . . 26
(q) ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(r) Public Utility Holding Company Act. . . . . . . . . . . . . . 26
(s) Environmental Matters. . . . . . . . . . . . . . . . . . . . . 26
(t) Guarantor. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
11. Conditions of Lending. . . . . . . . . . . . . . . . . . . . . . . 27
12. Affirmative Covenants. . . . . . . . . . . . . . . . . . . . . . . 28
(a) Financial Statements and Reports. . . . . . . . . . . . . . . 28
(b) Certificates of Compliance. . . . . . . . . . . . . . . . . . 30
(c) Taxes and Other Liens. . . . . . . . . . . . . . . . . . . . . 30
(d) Compliance with Laws. . . . . . . . . . . . . . . . . . . . . 31
(e) Further Assurances. . . . . . . . . . . . . . . . . . . . . . 31
(f) Performance of Obligations. . . . . . . . . . . . . . . . . . 31
(g) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(h) Accounts and Records. . . . . . . . . . . . . . . . . . . . . 32
(i) Right of Inspection. . . . . . . . . . . . . . . . . . . . . . 32
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
(j) Notice of Certain Events. . . . . . . . . . . . . . . . . . . 32
(k) ERISA Information and Compliance. . . . . . . . . . . . . . . 33
(l) Environmental Reports and Notices. . . . . . . . . . . . . . . 33
(m) Maintenance. . . . . . . . . . . . . . . . . . . . . . . . . . 33
(n) Title Matters. . . . . . . . . . . . . . . . . . . . . . . . . 33
(o) Curative Matters. . . . . . . . . . . . . . . . . . . . . . . 34
(p) Additional Collateral. . . . . . . . . . . . . . . . . . . . . 34
13. Negative Covenants. . . . . . . . . . . . . . . . . . . . . . . . . 34
(a) Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(b) Debts, Guaranties and Other Obligations. . . . . . . . . . . . 34
(c) Current Ratio . . . . . . . . . . . . . . . . . . . . . . . . 35
(d) Ratio of Cash Flow to Debt Service. . . . . . . . . . . . . . 36
(e) Limitation on Sale of Collateral. . . . . . . . . . . . . . . 36
(f) Mergers and Consolidations. . . . . . . . . . . . . . . . . . 36
(g) Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . 36
(h) Loans or Advances. . . . . . . . . . . . . . . . . . . . . . . 36
(i) Hedging Transactions. . . . . . . . . . . . . . . . . . . . . 37
(j) Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(k) Investments . . . . . . . . . . . . . . . . . . . . . . . . . 37
(l) Change of Control . . . . . . . . . . . . . . . . . . . . . . 38
(m) Minimum Tangible Net Worth. . . . . . . . . . . . . . . . . . 38
(n) Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . 38
14. Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . 38
15. Exercise of Rights. . . . . . . . . . . . . . . . . . . . . . . . 40
16. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
17. The Agent and the Banks . . . . . . . . . . . . . . . . . . . . . . 41
(a) Appointment and Authorization. . . . . . . . . . . . . . . . . 41
(b) Note Holders. . . . . . . . . . . . . . . . . . . . . . . . . 41
(c) Consultation with Counsel. . . . . . . . . . . . . . . . . . . 42
(d) Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(e) Resignation or Removal of Agent . . . . . . . . . . . . . . . 42
(f) Responsibility of Agent . . . . . . . . . . . . . . . . . . . 42
(g) Independent Investigation . . . . . . . . . . . . . . . . . . 44
(h) Indemnification . . . . . . . . . . . . . . . . . . . . . . . 44
(i) Benefit of Section 17 . . . . . . . . . . . . . . . . . . . . 45
(j) Pro Rata Treatment . . . . . . . . . . . . . . . . . . . . . . 45
(k) Interests of Banks . . . . . . . . . . . . . . . . . . . . . . 45
(l) Failure By Any Bank to Provide Funds to Agent . . . . . . . . 45
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
18. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
19. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
20. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
21. Invalid Provisions. . . . . . . . . . . . . . . . . . . . . . . . . 48
22. Maximum Interest Rate . . . . . . . . . . . . . . . . . . . . . . . 48
23. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
24. Multiple Counterparts. . . . . . . . . . . . . . . . . . . . . . . 48
25. Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
26. Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
27. Parties Bound . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
28. Assignment by Banks . . . . . . . . . . . . . . . . . . . . . . . . 49
29. Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 50
30. Written Consent . . . . . . . . . . . . . . . . . . . . . . . . . . 50
</TABLE>
iv
<PAGE> 6
FIFTH RESTATED LOAN AGREEMENT
THIS FIFTH RESTATED LOAN AGREEMENT (hereinafter referred to as the
"Agreement") executed as of the 18th day of July, 1996, by and among CLAYTON
WILLIAMS ENERGY, INC, a Delaware corporation ("CWE"), WARRIOR GAS CO., a Texas
corporation ("Warrior") (CWE and Warrior being hereinafter sometimes
collectively referred to as "Borrower"), CWEI ACQUISITIONS, INC., a Delaware
corporation (hereinafter referred to as "Guarantor"), BANK ONE, TEXAS, N.A., a
national banking association ("Bank One"), BANQUE PARIBAS, a French banking
corporation ("Paribas") and THE FIRST NATIONAL BANK OF CHICAGO, a national
banking association ("FNB"), (Bank One, Paribas and FNB each in their capacity
as a lender hereunder together with each and every future holder of any note
issued pursuant to this Agreement are hereinafter collectively referred to as
"Banks" and individually as "Bank") and Bank One as "Agent".
W I T N E S S E T H:
WHEREAS, as of May 26, 1993, Borrower, Bank One and Wells Fargo Bank,
National Association ("Wells Fargo") entered into a Loan Agreement (the
"Original Loan Agreement"), pursuant to the terms of which the Banks agreed to
provide a $50,000,000 revolving loan facility to Borrower;
WHEREAS, as of November 30, 1993, Borrower, Bank One and Wells Fargo
entered into a Second Restated Loan Agreement to make certain changes to the
Restated Loan Agreement (the "Second Restated Loan Agreement");
WHEREAS, as of June 6, 1994, Borrower, Bank One and Wells Fargo
entered into a Third Restated Loan Agreement to make certain changes to the
Second Restated Loan Agreement;
WHEREAS, as of August 9, 1994, Borrower, Bank One and Wells Fargo
entered into a First Amendment to Third Restated Loan Agreement to add Paribas
as an additional Bank and to make certain other amendments to the Third
Restated Loan Agreement;
WHEREAS, as of December 22, 1995, Borrower, Bank One, Wells Fargo and
Paribas entered into a Second Amendment to Third Restated Loan Agreement to
make certain changes to the Third Restated Loan Agreement;
WHEREAS, as of June 2, 1995, Borrower, Bank One, Paribas and NBD Bank
("NBD") entered into a Fourth Restated Loan Agreement to add NBD as an
additional Bank to replace Wells Fargo and to make certain other amendments to
the Third Restated Loan Agreement;
WHEREAS, as of December 31, 1995, Borrower, Bank One, Paribas and NBD
entered into a First Amendment to Fourth Restated Loan Agreement to make
certain changes therein;
<PAGE> 7
WHEREAS, as of March 11, 1996, Borrower, Bank One, Paribas and NBD
entered into a Second Amendment to Fourth Restated Loan Agreement to make
certain additional changes to the Fourth Restated Loan Agreement;
WHEREAS, FNB is the successor by assignment to the rights and
obligations herein of NBD;
WHEREAS, Borrower, Bank One, Paribas and FNB have agreed to renew,
extend and consolidate the term loans and revolving loans outstanding at the
Effective Date into a reducing revolver loan facility and to make certain
additional amendments to the Fourth Restated Loan Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
1. DEFINITIONS. When used herein the terms "Agent", "Agreement",
"Borrower", "Guarantor", "FNB", "Bank One", "NBD", "Paribas", "Wells Fargo" and
"Banks" shall have the meanings indicated above. When used herein the
following terms shall have the following meanings:
(a) Advance or Advances - A loan or loans hereunder.
(b) Base Rate - The fluctuating rate of interest per
annum established from time to time by Bank One as its Base Rate
(which rate of interest may not be the lowest, best or most favorable
rate of interest which Bank One may charge on loans to its customers).
Each change in the Base Rate shall become effective without prior
notice to Borrower automatically as of the opening of business on the
date of such change in the Base Rate.
(c) Base Rate Interest Period - With respect to any
Advance on the Revolving Loan which is a Base Rate Loan, the period
ending on the last Business Day of each month; provided, however, that
(A) if any Base Rate Interest Period would end on a day which is not a
Business Day, such Interest Period shall be extended to the next
succeeding Business Day, and (B) if any Base Rate Interest Period
would otherwise end after the Maturity Date such Interest Period shall
end on the Maturity Date.
(d) Base Rate Loans - Any loan during any period which
bears interest at the Base Rate or which would bear interest at the
Base Rate if the Maximum Rate ceiling was not in effect at that
particular time.
(e) Base Rate Margin - The fluctuating Base Rate Margin
in effect from day to day shall be:
2
<PAGE> 8
(i) one-half of one percent (1/2%) per annum
whenever the Total Outstandings are greater than 75% of the
Elected Borrowing Limit in effect at the time in question;
(ii) three-eighths of one percent (3/8%) per annum
whenever the Total Outstandings are greater than 50%, but less
than or equal to 75%, of the Elected Borrowing Limit in effect
at the time in question;
(iii) one-fourth of one percent (1/4%) per annum
whenever the Total Outstandings are greater than 25%, but less
than or equal to 50%, of the Elected Borrowing Limit in effect
at the time in question;
(iv) zero, whenever the Total Outstandings are 25%
or less of the Elected Borrowing Limit in effect at the time
in question.
(f) Borrowing Base - The value, determined by the Banks
in accordance with their customary standards, assigned by the Banks
from time to time to the Collateral less the aggregate amount of any
outstanding CWE guarantees of Vendor Financings.
(g) Borrowing Base Deficiency - The term "Borrowing Base
Deficiency" is used herein as defined in Section 9(b) hereof.
(h) Borrowing Date - The date elected by the Borrower
pursuant to (i) Section 2(d) hereof for an Advance on the Revolving
Loan or (ii) Section 4(c) hereof for a change in interest rate
placement on the Revolving Loan.
(i) Business Day - The normal banking hours during any
day (other than Saturdays or Sundays) that banks are legally open for
business in Dallas, Texas.
(j) Cash Flow - The Williams Consolidated Entities' cash
flow from operations before working capital changes, excluding cash
flow attributable to Vendor Financing, calculated in accordance with
GAAP for the four (4) previous consecutive fiscal quarters ending with
the fiscal quarter at which such determination is made.
(k) Collateral - The term "Collateral" is used herein as
defined in Section 6 hereof.
3
<PAGE> 9
(l) Commitment Percentage - The percentage of the
Revolving Commitment that each Bank is severally obligated to fund
hereunder, which, as of the date of this Agreement is:
BANK ONE, TEXAS, N.A. 50%
BANQUE PARIBAS 25%
THE FIRST NATIONAL BANK OF CHICAGO 25%
(m) Current Assets - The sum of the Williams Consolidated
Entities' current assets, determined in accordance with GAAP, plus any
unused portion of the Elected Borrowing Limit and less any current
assets attributable to Vendor Financing transactions.
(n) Current Liabilities - The total of the Williams
Consolidated Entities' current liabilities, determined in accordance
with GAAP, excluding therefrom (i) trade and revenue payables arising
from Vendor Financings, and (ii) current maturities outstanding under
the Notes and the Subordinated Notes.
(o) Debt Service - At the end of each fiscal quarter, the
sum of (i) the current portion of all notes payable as defined by GAAP
(excluding amounts outstanding on the Revolving Commitment and the
Subordinated Debt), plus (ii) the sum of the Monthly Commitment
Reductions for the applicable months during such fiscal quarter, plus
(iii) the sum of all amounts paid or payable by Borrower during such
fiscal quarter as a result of its election made pursuant to Section
9(b)(C).
(p) Effective Date - The date of this Agreement.
(q) Elected Borrowing Limit - The term "Elected Borrowing
Limit" is used herein as defined in Section 7(c) hereof.
(r) Engineered Value - The term "Engineered Value" is
used herein as defined in Section 12(p) hereof.
(s) Environmental Laws - The Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended by the
Super Fund Amendments and Reauthorization Act of 1986, 42 U.S.C.A.
Section 9601, et seq., the Resource Conservation and Recovery Act, as
amended by the Hazardous Solid Waste Amendment of 1984, 42 U.S.C.A.
Section 6901, et seq., the Clean Air Act, 42 U.S.C.A. Section 1251, et
seq., the Toxic Substances Control Act, 15 U.S.C.A. Section 2601, et
seq., and all other laws relating to air pollution, water pollution,
noise control and/or the handling, discharge, disposal or recovery of
on-site or off-site hazardous substances or materials, as each of the
foregoing may be amended from time to time.
4
<PAGE> 10
(t) Environmental Liability - Any claim, demand,
obligation, cause of action, accusation, allegation, order, violation,
damage, injury, judgment, penalty or fine, cost of enforcement, cost
of remedial action or any other costs or expense whatsoever, including
reasonable attorneys' fees and disbursements, resulting from the
violation or alleged violation of any Environmental Law or the
imposition of any Environmental Lien (as hereinafter defined) which
would individually or in the aggregate have a Material Adverse Effect.
(u) Environmental Lien - A Lien in favor of any court,
governmental agency or instrumentality or any other person (i) for any
liability under any Environmental Law or (ii) for damages arising from
or cost incurred by such court or governmental agency or
instrumentality or other person in response to a release or threatened
release of hazardous or toxic waste, substance or constituent into the
environment.
(v) ERISA - The Employee Retirement Income Security Act
of 1974, as amended.
(w) Eurodollar Business Day - A Business Day on which
dealings in U.S. Dollar deposits are carried on in the London
interbank market.
(x) Eurodollar Interest Period - With respect to any
Eurodollar Loan (i) initially, the period commencing on the date such
Eurodollar Loan is made and ending thirty (30), sixty (60), ninety
(90), one hundred twenty (120) or one hundred eighty (180) days
thereafter as selected by the Borrower pursuant to Section 4(a)(ii)
and (ii) thereafter, each period commencing on the day following the
last day of the next preceding Interest Period applicable to such
Eurodollar Loan and ending thirty (30), sixty (60), ninety (90), one
hundred twenty (120) or one hundred eighty (180) days thereafter, as
selected by the Borrower pursuant to Section 4(a)(ii); provided,
however, that (i) if any Eurodollar Interest Period would otherwise
expire on a day which is not a Eurodollar Business Day, such Interest
Period shall expire on the next succeeding Eurodollar Business Day
unless the result of such extension would be to extend such Interest
Period into the next calendar month, in which case such Interest
Period shall end on the immediately preceding Eurodollar Business Day,
(ii) if any Eurodollar Interest Period begins on the last Eurodollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) such Interest Period shall end on the last Eurodollar
Business Day of a calendar month, and (iii) any Eurodollar Interest
Period which would otherwise expire after the Maturity Date shall end
on such Maturity Date.
(y) Eurodollar Loan - Any loan during any period which
bears interest at the Eurodollar Rate, or which would bear interest at
such rate if the Maximum Rate ceiling was not in effect at a
particular time.
5
<PAGE> 11
(aa) Eurodollar Margin - The fluctuating Eurodollar Margin
in effect from day to day shall be:
(i) two percent (2.0%) per annum whenever the
Total Outstandings are greater than 75% of the Elected
Borrowing Limit in effect at the time in question;
(ii) one and three-quarters percent (1.75%) per
annum whenever the Total Outstandings are greater than 50%,
but less than or equal to 75%, of the Elected Borrowing Limit
in effect at the time in question;
(iii) one and one-half percent (1.50%) per annum
whenever the Total Outstandings are greater than 25%, but less
than or equal to 50%, of the Elected Borrowing Limit in effect
at the time in question;
(iv) one and one-quarter percent (1.25%), whenever
the Total Outstandings are 25% or less of the Elected
Borrowing Limit in effect at the time in question.
(bb) Eurodollar Rate - With respect to each Eurodollar
Interest Period, the rate of interest per annum at which deposits in
immediately available and freely transferable funds in U.S. Dollars
are offered to the Agent (at approximately 10:00 a.m., Dallas, Texas
time three Eurodollar Business Days prior to the first day of each
Eurodollar Interest Period) in the London interbank market for
delivery on the first day of such Eurodollar Interest Period in an
amount equal to or comparable to the principal amount of the
Eurodollar Loan to which such Eurodollar Interest Period relates.
Each determination of the Eurodollar Rate by the Agent shall, in the
absence of error, be conclusive and binding.
(cc) Event of Default - The term "Event of Default" is
used herein as defined in Section 14 hereof.
(dd) Financial Statements - The Williams Consolidated
Entities' consolidated balance sheets, income statements and
statements of cash flow prepared in accordance with GAAP.
(ee) GAAP - Generally accepted accounting principles,
consistently applied.
(ff) Good and Defensible Title - Title held by the
Borrower and Guarantor that is free from defects as would cause a
reasonable doubt in the mind of a reasonable and prudent purchaser in
the area where the Collateral is situated and cause him if he were
purchasing such Collateral to refuse to accept such Collateral
6
<PAGE> 12
at its full agreed value. The title of Borrower and Guarantor may be
subject to drilling obligations in leases, farmout agreements,
operating agreements, covenants, restrictions, rights, easements,
liens, encumbrances and minor irregularities in title which
collectively do not interfere with the occupation, use and enjoyment
of such Collateral in the normal course of business as presently
conducted or contemplated to be conducted by Borrower and Guarantor or
materially impair the value thereof for such business.
(gg) Hedging Transactions - Any contract, agreement or
transaction for the hedging or forward sale of crude oil and/or
natural gas including but not limited to transactions involving swaps,
caps, collars, floors and futures transactions.
(hh) Interest Payment Date - The earlier of (i) the last
day of each Interest Period or (ii) the last day of each calendar
quarter.
(ii) Interest Period - Any Base Rate Interest Period, or
Eurodollar Interest Period.
(jj) Letters of Credit - The term "Letters of Credit" is
used herein as defined in Section 2(c) hereof.
(kk) Lien - Any mortgage, deed of trust, pledge, security
interest, assignment, encumbrance or lien (statutory or otherwise) of
every kind and character.
(ll) Loan Documents - This Agreement, the Note, the
Security Instruments and all other documents executed in connection
with the transaction described in this Agreement.
(mm) Majority Banks - Banks holding at least 66-2/3%
ownership of the Revolving Commitment, which shall include the Agent.
(nn) Material Adverse Effect - Any Material Adverse Effect
on the assets or properties, liabilities, financial condition,
business, operations, affairs or circumstances of Borrower and
Guarantor, taken as a whole, from those reflected in the Financial
Statements of Borrower and Guarantor or from the facts represented or
warranted in this Agreement or any other Security Instrument.
(oo) Maturity Date - July 31, 1999.
(pp) Maximum Rate - At the particular time in question,
the maximum rate of interest which, under applicable law, may then be
charged. If such maximum rate of interest changes after the date
hereof, the Maximum Rate shall be increased or decreased, as the case
may be, without notice to Borrower from time to time as
7
<PAGE> 13
of the effective date of each such change in the Maximum Rate. If
applicable law ceases to provide for such a maximum rate of interest,
the Maximum Rate shall be equal to eighteen percent (18%) per annum.
(qq) Monthly Commitment Reduction - The term "Monthly
Commitment Reduction" is used herein as defined in Section 7(d)
hereof.
(rr) Negative Pledge Property - All producing oil and gas
properties and interests, from time to time, of Borrower or Guarantor
which are not mortgaged or pledged to the Banks.
(ss) Net Income - The Williams Consolidated Entities' Net
Income determined in accordance with GAAP.
(tt) Notes - The Revolving Notes.
(uu) Notice of Borrowing - The term "Notice of Borrowing"
is used herein as defined in Section 2(d) hereof.
(vv) Oil and Gas Properties - All oil, gas and mineral
properties and interests, and related personal properties, in which
Borrower or Guarantor has granted and hereinafter grants (to the
satisfaction of Agent) to Banks a first and prior lien and security
interest.
(ww) Permitted Liens - The term Permitted Lien shall mean
(i) royalties, overriding royalties, reversionary interests,
production payments and similar burdens granted by Borrower or
Guarantor with respect to the Oil and Gas Properties if the net
cumulative effect of such burdens does not operate to deprive Borrower
or Guarantor of any material right in respect of its assets or
properties (except for rights customarily granted with respect to such
interests); (ii) statutory liens, including liens for taxes or other
assessments that are not yet delinquent (or that, if delinquent, are
being contested in good faith by appropriate proceedings and for which
Borrower or Guarantor has set aside on its books adequate reserves in
accordance with GAAP); (iii) easements, rights of way, servitudes,
permits, surface leases and other rights in respect to surface
operations, pipelines, grazing, logging, canals, ditches, reservoirs
or the like, conditions, covenants and other restrictions, and
easements of streets, alleys, highways, pipelines, telephone lines,
power lines, railways and other easements and rights of way on, over
or in respect of Borrower's or Guarantor's assets or properties; (iv)
materialmen's, mechanic's, repairman's, employee's, contractor's,
sub-contractor's, operator's and other Liens incidental to the
construction, maintenance, development or operation of Borrower's or
Guarantor's assets or properties to the extent not delinquent (or
which, if delinquent, are being contested in good faith by appropriate
proceedings and for which Borrower or Guarantor has set aside on its
books adequate reserves in
8
<PAGE> 14
accordance with GAAP); (v) all contracts, agreements and instruments,
and all defects and irregularities and other matters affecting
Borrower's or Guarantor's assets and properties which were in
existence at the time Borrower's or Guarantor's assets and properties
were originally acquired by Borrower or Guarantor and all routine
operational agreements entered into in the ordinary course of
business, which contracts, agreements, instruments, defects,
irregularities and other matters and routine operational agreements
are not such as to, individually or in the aggregate, interfere
materially with the operation, value or use of Borrower's or
Guarantor's assets and properties, considered in the aggregate; (vi)
liens in connection with workmen's compensation, unemployment
insurance or other social security, old age pension or public
liability obligations; (vii) legal or equitable encumbrances deemed to
exist by reason of the existence of any litigation or other legal
proceeding or arising out of a judgment or award with respect to which
an appeal is being prosecuted in good faith; (viii) rights reserved to
or vested in any municipality, governmental, statutory or other public
authority to control or regulate Borrower's or Guarantor's assets and
properties in any manner, and all applicable laws, rules and orders
from any governmental authority; (ix) landlords liens; (x) liens
created by or pursuant to this Agreement or the Security Instruments;
(xi) liens existing at the date of this Agreement which have been
disclosed to Banks in Borrower's or Guarantor's Financial Statements
or identified on Exhibit "C" hereto; (xii) liens arising from
indebtedness incurred by Borrower or Guarantor, which indebtedness is
described in Section 13(b); and (xiii) Liens securing the Subordinated
Debt. Provided, however, that the definition of the term "Permitted
Liens" does not include liens of any kind or character which are prior
by perfection to the liens on the Collateral held by the Banks, or
which may, by operation of law, become prior to such liens held by the
Banks.
(xx) Person - An individual, a corporation, a partnership,
an association, a trust or any other entity or organization, including
a government or political subdivision or an agency or instrumentality
thereof.
(yy) Plan - Any plan subject to Title IV of ERISA and
maintained by Borrower, or any such plan to which Borrower is required
to contribute on behalf of its respective employees.
(zz) Revolving Commitment - Subject to the provisions of
Section 2(a) hereof, as to all Banks, the lesser of (i)
$100,000,000.00 or (ii) the Elected Borrowing Limit, and as to each
Bank its obligation to make a Revolving Loan in the amount of the
lesser of (i) its Commitment Percentage times $100,000,000, or (ii)
its Commitment Percentage times the Elected Borrowing Limit.
(aaa) Revolving Loan - Loan or loans made under the
Revolving Commitment pursuant to Section 2(a) hereof.
9
<PAGE> 15
(bbb) Revolving Notes - The $50,000,000 Renewal Revolving
Note, dated the Effective Date, payable to Bank One, the $25,000,000
Renewal Revolving Note, dated the Effective Date, payable to Paribas,
and the $25,000,000 Renewal Revolving Note, payable to FNB, dated the
Effective Date.
(ccc) Security Instruments - The term Security Instruments
is used collectively herein to mean this Agreement, all Deeds of
Trust, Mortgages, Security Agreements and Assignments of Production
and Financing Statements, and other collateral documents covering
certain of Borrower's and Guarantor's oil, gas and mineral properties
and interest, and related personal property, and all amendments and
supplements thereof, all pledge agreements covering stock and notes,
and other collateral documents covering other collateral, all such
documents to be in form and substance satisfactory to Agent.
(ddd) Subsidiaries - Warrior, Clajon Industrial Gas, Inc.,
Guarantor, Clayton Williams Argentina, Inc., Clayton Williams Trading
Company and any other corporation or entity of which voting securities
or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar
functions are at any time owned directly or indirectly by Borrower.
(eee) Subordination Agreement - That certain Subordination
Agreement dated as of June 2, 1995 and executed by CWE, Guarantor and
Bank One, as Subordinated Lender, and the Banks, as Senior Lenders.
(fff) Subordinated Debt - The $5,500,000 subordinated loan
made pursuant to the Subordinated Loan Agreement.
(ggg) Subordinated Loan Agreement - That certain
Subordinated Loan Agreement among CWE, Guarantor and Bank One, dated
as of June 1, 1995, pursuant to which the Subordinated Debt is to be
incurred.
(hhh) Subordinated Notes - The subordinated notes issued
pursuant to the Subordinated Loan Agreement.
(iii) Tangible Net Worth - An amount equal to the total
shareholder's equity shown on the consolidated balance sheet of the
Williams Consolidated Entities, less all intangible assets including,
but not limited to, good will, all as determined in accordance with
GAAP.
(jjj) Total Outstandings - As of any date, the total
principal balance outstanding on the Notes plus the total face value
of all outstanding Letters of Credit.
10
<PAGE> 16
(kkk) Unused Portion Fee - The term "Unused Portion Fee" is
used herein as defined in Section 8(a) hereof.
(lll) Vendor Financings - Non-recourse vendor financings by
CWE or its Subsidiaries for services, equipment or materials on other
than customary trade payable terms.
(mmm) Williams Consolidated Entities - CWE and its
Subsidiaries which are consolidated with it under GAAP.
2. COMMITMENTS OF THE BANKS.
(a) Terms of Revolving Commitment. On the terms and
conditions hereinafter set forth, each Bank agrees severally to make
Advances to Borrower from time to time during the period beginning on
the Effective Date and ending on the Maturity Date in such amounts as
Borrower may request up to an amount not to exceed, in the aggregate
principal amount outstanding at any time, the Revolving Commitment.
Provided, however, that notwithstanding anything to the contrary
contained herein, but subject to the right of Borrower under Section
9(b) hereof, the Total Outstandings, as of any date, shall never
exceed the lesser of (i) $100,000,000.00, or (ii) the Borrowing Base.
The obligation of each Bank to make Advances under the Revolving
Commitment shall be limited to such Bank's Commitment Percentage of
such Advance. Notwithstanding any other provision of this Agreement,
no Advance shall be required to be made hereunder if any Event of
Default (as hereinafter defined) has occurred and is continuing or if
any event or condition has occurred that may, with notice, be an Event
of Default. Borrower shall have the option pursuant to Section 4
hereof to determine whether Advances hereunder shall be made as Base
Rate Loans or Eurodollar Loans; provided, however, that Borrower shall
not have the option to elect a Eurodollar Loan at any time when less
than $5,000,000 in Base Rate Loans are outstanding. Each Advance made
as a Base Rate Loan shall be an aggregate amount of at least $100,000
or a whole number multiple thereof. Each Advance made as a Eurodollar
Loan shall be in an aggregate amount of at least $250,000, or in
integral multiples thereof. No more than two (2) Eurodollar traunches
may be outstanding at any time.
(b) Refinancing of Term Commitment. The term loans
previously made by the Banks to the Borrower pursuant to the
provisions of the Third and Fourth Restated Loan Agreements are, as of
the Effective Date, being renewed, extended and consolidated into the
Revolving Commitment and the Revolving Commitment is being increased
pursuant to the terms of this Fifth Restated Loan Agreement from
$75,000,000 to $100,000,000.
(c) Letters of Credit. On the terms and conditions
hereinafter set forth, Agent shall from time to time during the period
beginning on the Effective Date and
11
<PAGE> 17
ending on the Maturity Date upon request of Borrower issue Letters of
Credit for the account of Borrower (the "Letters of Credit") in such
face amounts as Borrower may request, but not to exceed in the
aggregate face amount at any time outstanding the sum of Ten Million
Dollars ($10,000,000.00). The face amount of all Letters of Credit
issued and outstanding hereunder shall be considered as Advances on
the Revolving Commitment for Borrowing Base purposes and all payments
made by Agent (or by another issuing Bank) on such Letters of Credit
shall be considered as Advances under the Revolving Notes. The
obligations of the Agent or any other issuing Bank on such Letters of
Credit shall be secured by all of the Collateral. Each Letter of
Credit issued for the account of Borrower hereunder shall (i) be in
favor of such beneficiaries as specifically requested by Borrower,
(ii) have an expiration date not exceeding the earlier of (A) two (2)
years from the date of their issuance, or (B) the Maturity Date, and
(iii) contain such other terms and provisions as may be required by
Agent or the issuing Bank. In the event that at the Maturity Date
there are outstanding Letters of Credit with expiration dates beyond
the Maturity Date, Borrower and Banks agree that all Collateral
pledged to secure the Notes and the other obligations of Borrower
hereunder and under the other documents executed in connection
herewith shall continue to secure the obligations of Borrower to Agent
or other issuing Bank on such outstanding Letters of Credit until such
time as either (a) all such Letters of Credit have expired by their
terms or (b) the Agent or other issuing Bank has received
indemnification from a party satisfactory to the Agent or the other
issuing Bank, as the case may be, as to Borrower's obligations under
any such outstanding Letters of Credit. Each Bank (other than the
Agent) agrees that, upon issuance of any Letter of Credit hereunder,
it shall automatically acquire a participation in the Agent's
liability under such Letter of Credit in an amount equal to such
Bank's Commitment Percentage of such liability, and each Bank (other
than the Agent) thereby shall absolutely, unconditionally and
irrevocably assume, as primary obligor and not as surety, and shall be
unconditionally obligated to the Agent to pay and discharge when due,
its Commitment Percentage of the Agent's liability under such Letter
of Credit. Upon delivery by such Bank of funds to pay and discharge
such liability, such Bank shall be treated as having purchased a
participating interest in an amount equal to the amount of such funds
delivered to the Agent by such Bank in the obligation of Borrower to
reimburse Agent, as the issuer of such Letter of Credit, for any
amounts payable, paid, or incurred by Agent, as the issuer of such
Letter of Credit, with respect to such Letter of Credit. Each such
payment by such Bank shall be considered an Advance under its Note and
shall bear interest at the rates specified in Section 4 hereof. The
Borrower hereby unconditionally agrees to pay and reimburse the Agent
for its own account and for the account of each Bank providing funds
for the purchase of a participation in such Letter of Credit for the
amount of each demand for payment under any Letter of Credit that is
in substantial compliance with the provisions of any such Letter of
Credit at or prior to the date on which payment is made by the Agent
to the beneficiary thereunder, without presentment, demand, protest or
other formalities of any kind. Upon receipt from
12
<PAGE> 18
any beneficiary of any Letter of Credit of any demand for payment
under such Letter of Credit, the Agent shall promptly notify the
Borrower of the demand and the date upon which such payment is to be
made by the Agent to such beneficiary in respect of such demand.
Forthwith upon receipt of such notice from the Agent, Borrower shall
advise Agent whether or not it intends to borrow hereunder to finance
its obligations to reimburse the Agent, and if so, submit a Notice of
Borrowing as provided in Section 2(d) hereof.
(d) Procedure for Advances on the Revolving Loan.
Whenever Borrower desires an Advance on the Revolving Loan, they shall
give Agent telegraphic, telex, facsimile or telephonic notice ("Notice
of Borrowing") of such requested Advance, which in the case of
telephonic notice, shall be promptly confirmed in writing. Each
Notice of Borrowing shall be in the form of Exhibit "A" attached
hereto and shall be received by Agent not later than 11:00 a.m.
Dallas, Texas time, (i) one Business Day prior to the Borrowing Date
in the case of Base Rate Loans; and (ii) three (3) Eurodollar Business
Days prior to any proposed Borrowing Date in the case of Eurodollar
Loans. Each Notice of Borrowing shall specify (i) the Borrowing Date
(which, if a Base Rate Loan shall be a Business Day, and if a
Eurodollar Loan, a Eurodollar Business Day), (ii) the principal amount
to be borrowed, (iii) the portion of the borrowing constituting Base
Rate Loans and/or Eurodollar Loans, (iv) if any portion of the
proposed borrowing is to constitute Eurodollar Loans, the initial
Interest Period selected by Borrower pursuant to Section 4 hereof to
be applicable thereto, and (v) the date upon which disbursement is
required. Upon receipt of such notice, Agent shall advise each Bank
thereof. Not later than 1:00 p.m., Dallas, Texas time, on the date
upon which the Advance is to be made, each Bank shall provide Agent at
its office at 1717 Main Street, Dallas, Texas 75201, in immediately
available funds, its pro rata share of the requested Advance. Not
later than 2:00 p.m., Dallas, Texas time, on the date for which the
Advance was requested, Agent shall make available to Borrower at the
same office, in like funds, the aggregate amount of such requested
Advance. Neither Agent nor any Bank shall incur any liability to
Borrower in acting upon any notice referred to above which Agent or
such Bank believes in good faith to have been given by a duly
authorized officer or other person authorized to borrow on behalf of
Borrower or for otherwise acting in good faith under this Section
2(d). Upon funding of Advances by Banks in accordance with this
Agreement pursuant to any such notice, Borrower shall have effected
Advances hereunder.
(e) Procedure for Obtaining Letters of Credit. The
amount and date of issuance, renewal, extension or reissuance of a
Letter of Credit pursuant to the Banks' commitment above in Section
2(c) shall be designated by Borrower's written request delivered to
Agent at least three (3) Business Days prior to the date of such
issuance, renewal, extension or reissuance. Concurrently with or
promptly following the delivery of the request for a Letter of Credit,
Borrower shall execute and deliver to the Agent an application and
agreement with respect to the Letters of Credit on
13
<PAGE> 19
the customary forms of the Agent pertaining to such Letters of Credit.
The Agent shall not be obligated to issue, renew, extend or reissue
such Letters of Credit if (A) the amount thereon when added to the
amount of the outstanding Letters of Credit exceed Ten Million Dollars
($10,000,000.00) or (B) the amount thereof when added to the amount of
all outstanding Letters of Credit and all amounts outstanding under
the Notes would exceed the Revolving Commitment. Borrower agrees to
pay the Agent for the benefit of the Banks commissions for issuing the
Letters of Credit (calculated separately for each Letter of Credit) at
the rate of the greater of (i) 1 1/2% per annum on the maximum face
amount of the Letter of Credit or (ii) $400.00. Such commission shall
be payable prior to the issuance of the Letter of Credit and
thereafter on each anniversary date of such issuance while such Letter
of Credit is outstanding.
(f) Several Obligations. The obligations of the Banks
under the Revolving Commitment are several and not joint. The failure
of any Bank to make an Advance required to be made by it shall not
relieve any other Bank of its obligation to make its Advance, and no
Bank shall be responsible for the failure of any other Bank to make
the Advance to be made by such other Bank. No Bank shall ever be
required to lend hereunder any amount in excess of its legal lending
limit.
3. NOTES EVIDENCING LOANS. The loans described above in Section
2 shall be evidenced by promissory notes of Borrower as follows:
(a) Form of Revolving Notes - The Revolving Loan shall be
evidenced by three Revolving Notes in the total amount of
$100,000,000, one in the amount of $50,000,000 payable to Bank One,
one in the amount of $25,000,000 payable to Paribas and one in the
amount of $25,000,000 payable to FNB. Copies of the Revolving Notes
are attached hereto as Exhibits "B", "B-1" and "B-2". Notwithstanding
the principal amount of the Revolving Notes, as stated on the face
thereof, the actual principal amount due from Borrower to Banks on
account of the Revolving Notes, as of any date of computation, shall
be the sum of Advances then and theretofore made on account thereof,
less all principal payments actually received by Banks in collected
funds with respect thereto. Interest in respect thereof shall be
payable only for the period during which the Revolving Loan evidenced
thereby is outstanding and, although the stated amount of the
Revolving Notes may be higher, the Revolving Notes shall be
enforceable, with respect to Borrower's obligation to pay the
principal amount thereof, only to the extent of the unpaid principal
amount of the Revolving Loan.
(b) Interest Rates - The unpaid principal balance of the
Revolving Notes shall bear interest from time to time at a rate of
interest determined from time to time depending on the option or
options selected by Borrower pursuant to Section 4(a) hereof.
14
<PAGE> 20
(c) Payment of Interest - Interest on the Notes shall be
payable as specified in Section 4 hereof.
(d) Payment of Principal - The entire unpaid principal
balance of the Revolving Notes shall be due and payable on the
Maturity Date.
(e) Issuance of Additional Notes - At the Effective Date
there shall be outstanding three Revolving Notes, one in the face
amount of $50,000,000, payable to the order of Bank One, one in the
face amount of $25,000,000, payable to the order of Paribas and one in
the face amount of $25,000,000 payable to the order of FNB. From time
to time during the period from the Effective Date to the Maturity
Date, additional Notes may be issued to the Banks and other Banks as
such other Banks become parties to this Agreement. The face amount of
each such new Revolving Note shall be in an amount equal to the
Commitment Percentage of such Bank times $100,000,000. The aggregate
face amount of all such Revolving Notes issued and outstanding as of
any date shall never exceed $100,000,000. Upon request from Agent,
the Borrowers shall execute and deliver to Agent any such new or
additional Notes. From time to time as new Notes are issued the Agent
shall require that each Bank exchange their Notes for newly issued
Notes to better reflect the extent of each Bank's commitment
hereunder.
4. INTEREST RATES.
(a) Options.
(i) Base Rate Loans. Borrower agrees to
pay interest on the Notes calculated on the basis of
the actual days elapsed in a year consisting of 365
or, if appropriate, 366 days with respect to the
unpaid principal amount of each Base Rate Loan from
the date the proceeds thereof are made available to
Borrower until maturity (whether by acceleration or
otherwise), at a varying rate per annum equal to the
lesser of (i) the Maximum Rate (defined herein), or
(ii) the sum of the Base Rate plus the Base Rate
Margin. Subject to the provisions of this Agreement
as to prepayment, the principal of the Notes
representing Base Rate Loans shall be payable as
specified in Section 3(d) hereof, the interest in
respect of each Base Rate Loan shall be payable on
each Interest Payment Date. Past due principal and,
to the extent permitted by law, past due interest in
respect to each Base Rate Loan, shall bear interest,
payable on demand, at a rate per annum equal to the
Maximum Rate.
(ii) Eurodollar Loans. Borrower agrees
to pay interest calculated on the basis of a year
consisting of 360 days
15
<PAGE> 21
with respect to the unpaid principal amount of each
Eurodollar Loan from the date the proceeds thereof
are made available to Borrower until maturity
(whether by acceleration or otherwise), at a varying
rate per annum equal to the lesser of (i) the Maximum
Rate, or (ii) sum of the Eurodollar Rate plus the
Eurodollar Margin. Interest with respect to each
Eurodollar Loan shall be payable on each Interest
Payment Date. Upon three (3) Eurodollar Business
Days' written notice prior to the making by the Banks
of any Eurodollar Loan (in the case of the initial
Interest Period therefor) or the expiration date of
each succeeding Interest Period (in the case of
subsequent Interest Periods therefor), Borrower shall
have the option, subject to compliance by Borrower
with all of the provisions of this Agreement, as long
as no Event of Default exists, to specify whether the
Interest Period commencing on any such date shall be
a 30, 60, 90, 120 or 180 day period. If Agent shall
not have received timely notice of a designation of
such Interest Period as herein provided, Borrower
shall be deemed to have elected to convert all
maturing Eurodollar Loans to Base Rate Loans.
(b) Interest Rate Determination. The Agent shall
determine each interest rate applicable to the Revolving Loan
hereunder. The Agent shall give prompt notice to the Borrower of each
rate of interest so determined and its determination thereof shall be
conclusive absent error.
(c) Conversion Option. Borrower may elect from time to
time (i) to convert all of any part of its Eurodollar Loans to Base
Rate Loans by giving Agent irrevocable notice of such election in
writing prior to 10:00 a.m. (Dallas, Texas time) on the conversion
date and such conversion shall be made on the requested conversion
date, provided that any such conversion of Eurodollar Loan shall only
be made on the last day of the Eurodollar Interest Period with respect
thereof, (ii) to convert all or any part of its Base Rate Loans to
Eurodollar Loans by giving the Agent irrevocable written notice of
such election three (3) Eurodollar Business Days prior to the proposed
conversion and such conversion shall be made on the requested
conversion date or, if such requested conversion date is not a
Eurodollar Business Day or a Business Day, as the case may be, on the
next succeeding Eurodollar Business Day or Business Day, as the case
may be. Any such conversion shall not be deemed to be a prepayment of
any of the loans for purposes of this Agreement on either of the
Notes.
(d) Recoupment. If at any time the applicable rate of
interest selected pursuant to Sections 4(a)(i) or 4(a)(ii) above shall
exceed the Maximum Rate, thereby causing the interest on the Notes to
be limited to the Maximum Rate, then
16
<PAGE> 22
any subsequent reduction in the interest rate so selected or
subsequently selected shall not reduce the rate of interest on the
Notes below the Maximum Rate until the total amount of interest
accrued on the Notes equals the amount of interest which would have
accrued on the Notes if the rate or rates selected pursuant to
Sections 4(a)(i) or 4(a)(ii), as the case may be, had at all times
been in effect.
5. SPECIAL PROVISIONS RELATING TO EURODOLLAR LOANS.
(a) Unavailability of Funds or Inadequacy of Pricing. In
the event that, in connection with any proposed Eurodollar Loan, Agent
(i) shall have determined that U.S. Dollar deposits of the relevant
amount and for the relevant Eurodollar Interest Period for Eurodollar
Loans are not available to Agent in the London interbank market; or
(ii) in good faith determines that the Eurodollar Interest Rate will
not adequately reflect the cost to the Banks of maintaining or funding
the Eurodollar Loans for such Interest Period, the obligations of the
Banks to make the Eurodollar Loans, as the case may be, shall be
suspended until such time as Agent in its sole discretion reasonably
exercised determines that the event resulting in such suspension has
ceased to exist. If Agent shall make such determination it shall
promptly notify Borrower in writing and Borrower shall either repay
the outstanding Eurodollar Loans, as the case may be, owed to Banks,
without penalty, on the last day of the current Interest Period or
convert the same to Base Rate Loans in the case of Eurodollar Loans on
the last day of the then current Interest Period for such Eurodollar
Loan.
(b) Reserve Requirements. In the event of any change in
any applicable law, treaty or regulation or in the interpretation or
administration thereof, or in the event any central bank or other
fiscal monetary or other authority having jurisdiction over the Banks
or the loans contemplated by this Agreement shall impose, modify or
deem applicable any reserve requirement of the Board of Governors of
the Federal Reserve System on any Eurodollar Loan or loans, or any
other reserve, special deposit, or some requirements against assets
to, deposits with or for the account of, or credit extended by, the
Banks or shall impose on the Banks or the London interbank market, as
the case may be, any other condition affecting this Agreement or the
Eurodollar Loans and the result of any of the foregoing is to increase
the cost to the Banks in making or maintaining its Eurodollar Loans or
to reduce any amount (or the effective return on any amount) received
by the Banks hereunder, then Borrower shall pay to the Banks upon
demand of the Banks as additional interest on the Revolving Notes
evidencing the Eurodollar Loans such additional amount or amounts as
will reimburse the Banks for such additional cost or such reduction.
The Banks shall give notice to Borrower upon becoming aware of any
such change or imposition which may result in any such increase or
reduction. A certificate of any Bank setting forth the basis for the
determination of such amount necessary to compensate Banks as
aforesaid shall be delivered to
17
<PAGE> 23
Borrower and shall be conclusive as to such determination and such
amount, absent error.
(c) Taxes. Both principal and interest on the Revolving
Notes evidencing the Eurodollar Loans are payable without withholding
or deduction for or on account of any taxes. If any taxes are levied
or imposed on or with respect to the Revolving Notes evidencing the
Eurodollar Loans or on any payment on the Revolving Notes evidencing
the Eurodollar Loans made to the Banks, then, and in any such event,
Borrower shall pay to the Banks upon demand of the Banks such
additional amounts as may be necessary so that every net payment of
principal and interest on the Revolving Notes evidencing the
Eurodollar Loans, after withholding or deduction for or on account of
any such taxes, will not be less than any amount provided for herein.
In addition, if at any time when the Eurodollar Loans are outstanding
any laws enacted or promulgated, or any court of law or governmental
agency interprets or administers any law, which, in any such case,
materially changes the basis of taxation of payments to the Banks of
principal of or interest on the Revolving Notes evidencing the
Eurodollar Loans by reason of subjecting such payments to double
taxation or otherwise (except through an increase in the rate of tax
on the overall net income of Banks) then Borrower will pay the amount
of loss to the extent that such loss is caused by such a change. The
Banks shall give notice to Borrower upon becoming aware of the amount
of any loss incurred by the Banks through enactment or promulgation of
any such law which materially changes the basis of taxation of
payments to the Banks. The Banks shall also give notice on becoming
aware of any such enactment or promulgation which may result in such
payments becoming subject to double taxation or otherwise. A
certificate of any Bank setting forth the basis for the determination
of such loss and the computation of such amounts shall be delivered to
Borrower and shall be conclusive of such determination and such
amount, absent error.
(d) Change in Laws. If at any time any new law or any
change in existing laws or in the interpretation of any new or
existing laws shall make it unlawful for the Banks to maintain or fund
its Eurodollar Loans hereunder, then the Banks shall promptly notify
Borrower in writing and Borrower shall either repay the outstanding
Eurodollar Loans owed to the Banks, without penalty, on the last day
of the current Interest Periods (or, if the Banks may not lawfully
continue to maintain and fund such Eurodollar Loans, immediately), or
Borrower may convert such Eurodollar Loans at such appropriate time to
Base Rate Loans.
(e) Option to Fund. The Banks shall have the option if
the Borrower elects a Eurodollar Loan, to purchase one or more
deposits in order to fund or maintain its funding of the principal
balance of the Revolving Notes to which such Eurodollar Loan is
applicable during the Interest Period in question; it being understood
that the provisions of this Agreement relating to such funding are
included only for the purpose of determining the rate of interest to
be paid under
18
<PAGE> 24
such Eurodollar Loan and any amounts owing hereunder and under the
Revolving Notes. The Banks shall be entitled to fund and maintain its
funding of all or any part of that portion of the principal balance of
the Revolving Notes in any manner it sees fit, but all such
determinations hereunder shall be made as if the Banks have actually
funded and maintained that portion of the principal balance of the
Revolving Notes to which a Eurodollar Loan is applicable during the
applicable Interest Period through the purchase of deposits in an
amount equal to the principal balance of the Revolving Notes to which
such Eurodollar Loan is applicable and having a maturity corresponding
to such Interest Period. The Banks may fund the outstanding principal
balance of the Revolving Notes which is to be subject to any
Eurodollar Loan from any branch or office of the Banks as the Banks
may designate from time to time.
(f) Indemnity. Borrower shall indemnify and hold
harmless the Banks against all reasonable and necessary out-of-pocket
costs and expenses (which costs and expenses are not intended to
include, without limitation, any loss sustained by the Banks in
connection with the borrowing or reemployment of funds with respect to
any Eurodollar Loan) which the Banks may sustain (i) as a result of
the making of any loan or loans as a Eurodollar Loan, or (ii) as a
consequence of any default by Borrower under this Agreement.
6. COLLATERAL SECURITY. To secure the performance by Borrower of
its obligations hereunder, and under the Notes and Security Instruments,
whether now or hereafter incurred, matured or unmatured, direct or contingent,
joint or several, or joint and several, including extensions, modification and
renewals thereof, and substitutions therefore, Borrower has heretofore granted
and assigned to the Agent, for the ratable benefit of the Banks, a first and
prior security interest and lien on the Oil and Gas Properties, the stock of
the Subsidiaries, and the other collateral. Guarantor has heretofore executed
and delivered its guaranty agreement guaranteeing the prompt payment and
performance of Borrower's obligations hereunder and under the Notes. As
security for the performance of its guaranty agreement, Guarantor has
heretofore granted to Agent, for the ratable benefit of Banks, a first and
prior lien on its Oil and Gas Properties. Guarantor shall execute this
Agreement to confirm its consent to (i) the execution of the Agreement by
Borrower, and (ii) the amendments contained therein. All Oil and Gas
Properties, oil and gas related equipment, inventory and receivables, stock,
notes and other collateral in which Borrower or Guarantor has heretofore or
hereafter grants to the Agent, for the ratable benefit of the Banks, a first
and prior lien (to the satisfaction of the Banks) in accordance with this
Section 6, as such properties and interests are from time to time constituted,
are hereinafter collectively called the "Collateral."
The granting and assigning of such security interests and liens by
Borrower shall be pursuant to Security Instruments in form and substance
satisfactory to the Agent. Borrower and Guarantor shall furnish to the Agent
the mortgage and title opinions and other documents satisfactory to Agent with
respect to the title and lien status of its
19
<PAGE> 25
interests in such of the Oil and Gas Properties covered by the Security
Instruments as required in Section 12(n) and (o) hereof. Borrower and
Guarantor will cause to be executed and delivered to the Agent, for the ratable
benefit of the Banks, in the future, additional Security Instruments if the
Agent deems such are necessary to insure perfection or maintenance of their
security interests and liens in the Collateral or any part thereof.
7. BORROWING BASE.
(a) Initial Borrowing Base. During the period from the
date hereof to the next determination date, the Borrowing Base shall
be $52,000,000.00.
(b) Subsequent Determinations of Borrowing Base.
Subsequent determinations of the Borrowing Base shall be made by Banks
at least semi-annually and the Banks may make a redetermination at any
time and shall make a redetermination if and when requested by
Borrower. In connection with each such determination of the Borrowing
Base, the Banks shall also determine the Monthly Commitment Reduction.
Such Borrowing Base and Monthly Commitment Reduction determinations
shall be made on or before each November 20 and May 20, commencing
November 20, 1996, the same to be effective as of each November 1 and
May 1, commencing November 1, 1996, and at such other dates as
determined at the discretion of Majority Banks. Borrower may likewise
request more frequent Borrowing Base redeterminations and Banks shall
make the same if and when requested. In making such determinations,
Banks may utilize such reports and appraisals as Borrower may furnish
to Banks through Agent under other provisions hereof with respect to
the Collateral, including the information required pursuant to Section
12(a)(iii), (iv), (v) and (vi), together with such other data as Banks
may deem appropriate under the then circumstance, including, without
limitation, cash flow and projections of cash flow, provided that
nothing herein shall be construed to require that Banks or Agent shall
or should obtain and pay for any reports, appraisals or other data
from third parties in connection therewith. Such determinations shall
be made by Banks in accordance with their respective customary
practices and standards for loans in similar amounts to borrowers
similarly situated, at the times and under the circumstances then
prevailing which are considered by each Bank in its discretion,
subject only to the requirement that such determination shall be
reasonable and made in good faith. If the Banks cannot otherwise
agree on the Borrowing Base or Monthly Commitment Reduction, each Bank
will submit in writing to the Agent its proposed Borrowing Base and
Monthly Commitment Reduction and the Borrowing Base and Monthly
Commitment Reduction shall be set on the basis of the lowest Borrowing
Base and highest Monthly Commitment Reduction proposed by any Bank.
If at any time any of the Collateral is sold, the Borrowing Base then
in effect shall automatically be reduced by a sum equal to the
proceeds, net of reasonable cost of said sale and any taxes relating
thereto, received on the sale of such Collateral. If a non-scheduled
Borrowing Base redetermination is made, such non-scheduled
redetermined
20
<PAGE> 26
Borrowing Base shall become effective immediately upon Agent giving
notice thereof to the Borrower. Provided, however, that no Bank shall
ever have an obligation to designate a Borrowing Base or Monthly
Commitment Reduction in an amount such that such Bank's Commitment
Percentage thereof is in excess of its legal or internal lending
limits.
(c) Voluntary Decreases in Borrowing Base. Within ten
(10) Business Days after notification to Borrower of a Borrowing Base
redetermination pursuant to the provisions of this Section 7, Borrower
may notify Agent as to what portion of the Borrowing Base they desire
access (the "Elected Borrowing Limit"). Thereafter, Borrower may
obtain Revolving Loans which do not exceed the lesser of (i)
$100,000,000, or (ii) the Elected Borrowing Limit until the next
Borrowing Base redetermination, subject to the provisions of Section
9(b) hereof. If no such notification is received by Agent, the
Elected Borrowing Limit shall be the lesser of $100,000,000 or the
Borrowing Base as so determined.
(d) Monthly Commitment Reduction. The Borrowing Base
shall be reduced as of the last day of each month after the Effective
Date by an amount determined by the Banks pursuant to Section 7(b)
hereof (the "Monthly Commitment Reduction"). Beginning July 31, 1996,
the Monthly Commitment Reduction shall be $1,000,000 per month until
redetermined pursuant to Section 7(b) hereof.
8. FEES.
(a) Unused Portion Fee. In consideration of the
Revolving Commitment, Borrower shall pay to Agent, for the ratable
benefit of Banks, an Unused Portion Fee (hereinafter referred to as
the "Unused Portion Fee") equivalent to one-half of one percent (1/2%)
per annum of the differential between the average Elected Borrowing
Limit and the Total Outstandings for the preceding three months. The
Unused Portion Fee shall be payable in arrears on the last Business
Day of each January, April, July and October, commencing on July 31,
1996. All amounts due under Section 8(b) of the Fourth Restated Loan
Agreement as of the Effective Date as Unused Portion Fees shall be
paid to Agent for the ratable benefit of the Banks on the Effective
Date. The final fee payment shall be due on the Maturity Date for any
period then ending for which the Unused Portion Fee shall not have
been theretofore paid. In the event the Revolving Commitment
terminates on any date prior to the end of any such quarterly period,
Borrower shall pay to Banks, on the date of such termination, the
prorated portion of the total Unused Portion Fee due for such of the
period in which such termination occurs.
(b) Borrowing Base Increase Fee. Borrower agrees to pay
to Agent, for the ratable benefit of Banks, a Borrowing Base Increase
Fee (hereinafter referred to as the "Borrowing Base Increase Fee")
equal to one-half of one percent (.50%) of
21
<PAGE> 27
the amount of any increase in the Elected Borrowing Limit from the
amount of the Elected Borrowing Limit as of the preceding
determination date, said fee to be payable upon notice to Borrower of
such increase.
(c) Letter of Credit Fee. Borrower agrees to pay to
Agent, for the benefit of the Banks, commissions for issuing Letters
of Credit in the amounts and at the rates set forth hereinabove in
Section 2(e).
(d) Agency Fee. Borrower agrees to pay to Agent an
Agency Fee for its services as Agent hereunder in an amount negotiated
between Borrower and Agent.
9. PREPAYMENTS.
(a) Voluntary Prepayments. Borrower may at any time and
from time to time, without penalty or premium, make voluntary
prepayments in whole or in part on the Notes. Each such prepayment
shall be made on at least one (1) Business Day's notice to Agent and
shall be in an amount of $100,000 or any larger multiple thereof plus
accrued interest thereon to the date of prepayment.
(b) Mandatory Prepayment. In the event the Total
Outstandings ever exceed the Borrowing Base as determined by the Banks
pursuant to Section 7 hereof (a "Borrowing Base Deficiency"), Borrower
shall, within thirty (30) days after notification from Agent either
(A) by instruments satisfactory in form and substance to Banks,
provide the Banks with additional collateral with value and quality
satisfactory to Banks in their sole discretion in order to increase
the Borrowing Base by an amount at least equal to such excess, or (B)
prepay, without premium or penalty, the principal amount of the Notes
in an amount at least equal to such excess, or (C) prepay, without
premium or penalty, the amount of such excess in five (5) equal
monthly installments due and payable on the last Business Day of each
of the next five (5) consecutive months, or (D) elect to convert the
entire principal amount of the Notes to a term obligation with monthly
installments of principal and interest due and payable on the last
Business Day of each month from the date of such conversion to the
Maturity Date, each such installment payment to be in the amount of
accrued interest plus an amount of principal equal to the greater of
(i) 1/36th of the outstanding balance on the date of conversion or
(ii) an amount determined by dividing the principal amount outstanding
on the date of the conversion by the estimated economic half-life of
the Oil and Gas Properties expressed in terms of months, as determined
by the Agent in its sole and absolute discretion reasonably exercised.
Notwithstanding any of the foregoing, all unpaid principal and
interest shall be due and payable on the Maturity Date. Provided,
however, that in the event the Borrower elects option (C) above, the
Borrowing Base Deficiency must be cured at the end of the installment
period specified above or the entire outstanding principal balance due
on the Notes shall immediately convert to a term loan payable in
accordance with the payment provisions set forth
22
<PAGE> 28
in subsection (D) above. Provided, further, however, that during the
five (5) month prepayment period specified in subsection (C) above,
Borrower may elect at any time to convert to a term loan pursuant to
subsection (D) above. The determination of whether Borrower has cured
any such Borrowing Base Deficiency at the end of the installment
period specified in (C) above, shall be made by the Banks in their
sole and absolute discretion based upon an unscheduled Borrowing Base
redetermination made pursuant to Section 7(b) of this Agreement.
10. REPRESENTATIONS AND WARRANTIES. In order to induce the Banks
to enter into this Agreement, Borrower hereby represents and warrants to the
Banks (which representations and warranties will survive the delivery of the
Notes) that:
(a) Creation and Existence. Borrower and Guarantor are
corporations duly organized and validly existing in good standing
under the laws of their state of incorporation and are duly qualified
as a foreign corporation in all jurisdictions wherein failure to
qualify may result in a Material Adverse Effect. Borrower and
Guarantor have all the power and authority to own their properties and
assets and to transact the business in which they are engaged.
(b) Power and Authorization. Borrower and Guarantor have
the power and requisite authority, and has taken all action necessary,
to execute, deliver and perform the Loan Documents.
(c) Binding Obligations. This Agreement does, and the
Notes and other Security Instruments upon their creation, issuance,
execution and delivery will, constitute valid and binding obligations
of Borrower and Guarantor, enforceable in accordance with their
respective terms (except that enforcement may be subject to any
applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws generally affecting the enforcement of creditors' rights
and subject to availability of equitable remedies).
(d) No Legal Bar or Resultant Lien. The Notes and the
Security Instruments, including this Agreement, do not and will not
conflict with or violate any provisions of the articles of
incorporation or bylaws of Borrower or Guarantor or, except as
disclosed to Banks prior to the Effective Date hereof, any contract,
agreement, law, regulation, order, injunction, judgment, decree or
writ to which Borrower or Guarantor is subject, or result in the
creation or imposition of any lien or other encumbrance upon any
assets or properties of Borrower or Guarantor, other than those
contemplated by this Agreement which conflict, violation, creation or
imposition is reasonably expected to have a Material Adverse Effect.
(e) No Consent. The execution, delivery and performance
by Borrower or Guarantor of the Notes and the Security Instruments,
including this Agreement, does not require the consent or approval of
any other person or entity, including
23
<PAGE> 29
without limitation any regulatory authority or governmental body of
the United States or any state thereof or any political subdivision of
the United States or any state thereof.
(f) Financial Condition. The Financial Statements of the
Williams Consolidated Entities which have been delivered to Banks are
complete and correct in all material respects and fairly present in
all material respects the financial condition and results of the
operations of the Williams Consolidated Entities as of the date or
dates and for the period or periods stated. No change has since
occurred in the condition, financial or otherwise, of the Williams
Consolidated Entities which is reasonably expected to have a Material
Adverse Effect, except as disclosed to the Banks in Exhibit "C"
attached hereto. The Financial Statements which have been delivered
to Banks have been prepared substantially in accordance with GAAP.
(g) Liabilities. Neither Borrower nor Guarantor has any
material (individually or in the aggregate) liability, direct or
contingent, except as disclosed to the Banks in the Financial
Statements or in Exhibit "D" attached hereto. No unusual or unduly
burdensome restrictions, restraint, or hazard exists by contract, law
or governmental regulation or otherwise relative to the business,
assets or properties of Borrower or Guarantor which is reasonably
expected to have a Material Adverse Effect.
(h) Litigation. Except as described in the Financial
Statements or as otherwise disclosed to the Banks in Exhibit "E"
attached hereto, there is no litigation, legal or administrative
proceeding, investigation or other action of any nature pending or, to
the knowledge of the officers of Borrower, threatened against or
affecting Borrower or Guarantor which involves the possibility of any
judgment or liability not fully covered by insurance, and which is
reasonably expected to have a Material Adverse Effect.
(i) Taxes; Governmental Charges. Borrower and Guarantor
have filed all tax returns and reports required to be filed and has
paid all taxes, assessments, fees and other governmental charges
levied upon it or its assets, properties or income which are due and
payable, including interest and penalties, or has provided adequate
reserves, if required, in accordance with GAAP for the payment
thereof, except such as are being contested in good faith by
appropriate proceedings and for which adequate reserves for the
payment thereof as required by GAAP have been provided.
(j) Titles, Etc. Borrower and Guarantor have Good and
Defensible title to all of the Collateral pledged or mortgaged by them
except for defects which are not reasonably expected to have a
Material Adverse Effect, free and clear of all liens or other
encumbrances, except Permitted Liens; and Borrower and Guarantor, to
the
24
<PAGE> 30
best of their knowledge after the exercise of such due diligence as a
reasonable person would have done under the same or similar
circumstances, have Good and Defensible Title to their other assets
and properties (except for (i) undeveloped oil and gas properties, and
(ii) defects which are not reasonably expected to have a Material
Adverse Effect), free and clear of all liens or other encumbrances,
except Permitted Liens.
(k) Defaults. Neither Borrower nor Guarantor is in
default and no event or circumstance has occurred which, but for the
passage of time or the giving of notice, or both, would constitute a
default under any loan or credit agreement, indenture, mortgage, deed
of trust, security agreement or other agreement or instrument to which
Borrower or Guarantor is a party in any respect that would be
reasonably expected to have a Material Adverse Effect. No Event of
Default hereunder has occurred and is continuing.
(l) Casualties; Taking of Properties. Since the dates of
the latest Financial Statements delivered to Banks, neither the
business nor the assets or properties of Borrower or Guarantor have
been affected as a result of any fire, explosion, earthquake, flood,
drought, windstorm, accident, strike or other labor disturbance,
embargo, requisition or taking of property or cancellation of
contracts, permits or concessions by any domestic or foreign
government or any agency thereof, riot, activities of armed forces or
acts of God or of any public enemy that would reasonably be expected
to have a Material Adverse Effect.
(m) Use of Proceeds; Margin Stock. The proceeds of the
loans hereunder will be used by Borrower for working capital,
acquisition, letters of credit and general corporate purposes.
Borrower is not engaged in the business of extending credit for the
purpose of purchasing or carrying any "margin stock" as defined in
Regulation U of the Board of Governors of the Federal Reserve System
(12 C.F.R. Part 221), or for the purpose of reducing or retiring any
indebtedness which was originally incurred to purchase or carry a
margin stock or for any other purpose which might constitute this
transaction a "purpose credit" within the meaning of said Regulation
U. Borrower is not engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of
purchasing or carrying margin stock.
Neither Borrower nor any person or entity acting on behalf of
Borrower has taken or will take any action which might cause the loans
hereunder or any of the Security Instruments, including this
Agreement, to violate Regulation U or any other regulation of the
Board of Governors of the Federal Reserve System or to violate the
Securities Exchange Act of 1934 or any rule or regulation thereunder,
in each case as now in effect or as the same may hereafter be in
effect.
25
<PAGE> 31
(n) Location of Business and Offices. The principal
place of business and chief executive offices of Borrower is located
at the address stated in Section 16 hereof.
(o) Compliance with the Law. To the best of Borrower's
and Guarantor's knowledge, they:
(i) are not in violation of any law, judgment,
decree, order, ordinance, or governmental rule or regulation
to which Borrower or Guarantor, or any of their assets or
properties are subject; or
(ii) have not failed to obtain any license,
permit, franchise or other governmental authorization
necessary to the ownership of any of its assets or properties
or the conduct of their business;
which violation or failure is reasonably expected to have a Material
Adverse Effect.
(p) No Material Misstatements. No information, exhibit
or report furnished by Borrower or Guarantor to the Banks in
connection with the negotiation of this Agreement contained any
material misstatement of fact or omitted to state a material fact
necessary to make the statement contained therein not misleading.
(q) ERISA. Borrower is in compliance in all material
respects with the applicable provisions of ERISA, and no "reportable
event", as such term is defined in Section 4043 of ERISA, has occurred
with respect to any Plan of Borrower.
(r) Public Utility Holding Company Act. Borrower is not
a "holding company", or "subsidiary company" of a "holding company",
or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company", or a "public utility" within the meaning of
the Public Utility Holding Company Act of 1935, as amended.
(s) Environmental Matters. Except as disclosed on
Exhibit "F", neither Borrower nor Guarantor (i) has received notice or
otherwise learned of any Environmental Liability which would
individually or in the aggregate have a Material Adverse Effect
arising in connection with (A) any non-compliance with or violation of
the requirements of any Environmental Law or (B) the release or
threatened release of any toxic or hazardous waste into the
environment, (ii) to the knowledge of Borrower and Guarantor, have
threatened or actual liability in connection with the release or
threatened release of any toxic or hazardous waste into the
environment which would individually or in the aggregate have a
Material Adverse Effect or (iii) have received notice or otherwise
learned of any federal or state investigation evaluating whether any
remedial action is needed to respond to
26
<PAGE> 32
a release or threatened release of any toxic or hazardous waste into
the environment for which Borrower or Guarantor is or may be liable.
(t) Guarantor. CWE owns one hundred percent (100%) of
the issued and outstanding equity securities of Guarantor.
11. CONDITIONS OF LENDING.
(a) The effectiveness of this Agreement and the
obligation of the Banks to make the initial Advance under the
Revolving Commitment shall be subject to the following conditions
precedent:
(i) Execution and Delivery. Borrower shall have
executed and delivered to the Agent this Agreement, the Notes,
the Security Instruments and other required documents, and
Guarantor shall have executed and delivered to the Agent its
guaranty agreement, all in form and substance satisfactory to
the Banks;
(ii) Corporate Resolutions and Incumbency. The
Agent shall have received appropriate (i) corporate
resolutions for each Borrower and Guarantor, and (ii)
incumbency certificates for each Borrower and Guarantor;
(iii) SEC Filings. The Banks shall have received
copies of all documents filed by Borrower with the Securities
and Exchange Commission prior to the Effective Date;
(iv) No Event of Default. No Event of Default
shall have occurred and be continuing;
(v) No Material Adverse Change. No material
adverse change in the financial condition of the Borrower
shall have occurred;
(vi) Other Documents. The Banks shall have
received such other instruments and documents incidental and
appropriate to the transaction provided for herein as the
Banks or its counsel may reasonably request, and all such
documents shall be in form and substance satisfactory to the
Banks; and
(vii) Legal Matters Satisfactory. All legal
matters incident to the consummation of the transactions
contemplated hereby shall be satisfactory to special counsel
for the Banks retained at the expense of Borrower.
27
<PAGE> 33
(b) The obligation of the Banks to make any Advance
(including the initial Advance) or issue any Letter of Credit on the
Revolving Commitment shall be subject to the following additional
conditions precedent that, at the date of making each such Advance and
after giving effect thereto:
(i) Representation and Warranties. With respect
to any Advance, the representations and warranties of Borrower
and Guarantor under this Agreement (excluding, however, the
representations and warranties set forth in Sections 10(h) and
10(s) as to any matter which has theretofore been disclosed in
writing by Borrower to the Banks, but as to which Borrower and
Guarantor represent and warrant as of the date of the
requested Advance or issuance of Letter of Credit that the
matters so disclosed are not reasonably expected to have a
Material Adverse Effect) are true and correct in all material
respects as of such date, as if then made (except to the
extent that such representations and warranties related solely
to an earlier date);
(ii) No Event of Default. No Event of Default
shall have occurred and be continuing nor shall any event have
occurred or failed to occur which, with the passage of time or
service of notice, or both, would constitute an Event of
Default;
(iii) Other Documents. The Banks shall have
received such other instruments and documents incidental and
appropriate to the transaction provided for herein as the
Banks or its counsel may reasonably request, and all such
documents shall be in form and substance satisfactory to the
Banks; and
(iv) Legal Matters Satisfactory. All legal
matters incident to the consummation of the transactions
contemplated hereby shall be satisfactory to special counsel
for the Banks retained at the expense of Borrower.
12. AFFIRMATIVE COVENANTS. A deviation from the provisions of
this Section 12 shall not constitute an Event of Default under this Agreement
if such deviation is consented to in writing by the Banks. Without the prior
written consent of the Banks, Borrower and Guarantor (to the extent applicable
thereto) will at all times comply with the covenants contained in this Section
12 from the date hereof and for so long as any indebtedness or obligation of
Borrower under the Loan Documents is outstanding or any part of the Revolving
Commitment is in existence.
(a) Financial Statements and Reports. Borrower shall
promptly furnish to the Banks from time to time upon request such
information regarding the
28
<PAGE> 34
business and affairs and financial condition of Borrower, as the Banks
may reasonably request, and will furnish to the Banks:
(i) Annual Financial Statements - as soon as
available, and in any event within one hundred and twenty
(120) days after the close of each fiscal year of the Williams
Consolidated Entities, the annual audited Financial Statements
of the Williams Consolidated Entities prepared Arthur Andersen
& Co. or by another independent accounting firm satisfactory
to Banks;
(ii) Quarterly Financial Statements - as soon as
available, and in any event sixty (60) days after the end of
each calendar quarter (except the last calendar quarter) of
each year, the quarterly unaudited Financial Statements of the
Williams Consolidated Entities;
(iii) Reserve Reports on Oil and Gas Properties -
no later than November 1 of each year beginning November 1,
1996 and at such other times as Banks shall request, an
internally generated engineering report covering reserve and
income projections for all Oil and Gas Properties (including
those owned by Guarantor), which reports shall have an
effective date of September 30 of each year. Borrower shall
also furnish Banks on or before May 1 of each year beginning
May 1, 1997 reserve reports and income projections for all Oil
and Gas Properties, which reserve reports shall have an
effective date of January 1 of each year and shall be prepared
by Williamson Petroleum Consultants, Inc. (or other reservoir
engineering firm satisfactory to Banks), which January 1
effective date report shall be accompanied by internally
generated information sufficient to allow such January 1
report and the information contained therein to be rolled
forward to an effective date of March 31. All such
engineering reports, shall be in a form acceptable to Banks
and shall utilize oil and gas prices, escalation factors and
discount rates currently then being used by Agent in its
general petroleum lending business and shall state the amount
of all outstanding sums due to operators of properties other
than the customary lease operating expenses.
(iv) Monthly Operating and Production Reports.
Borrower shall furnish Banks, within forty-five (45) days
following the close of each month, oil and gas production
reports (inclusive of prices received thereon), drilling and
completion reports for the Williams Consolidated Entities, and
accounts receivable and accounts payable aging reports,
together with a certificate on behalf of Borrower, executed by
a person duly authorized to execute such a certificate, that
no Event of Default has occurred under the provisions of this
29
<PAGE> 35
Agreement or any instrument pursuant hereto, or if an Event of
Default has occurred, specifying the nature and the status
thereof.
(v) Budgets and Projections. On each June 1 and
December 1 Borrower shall furnish to Banks a budget and Cash
Flow forecast for the Williams Consolidated Entities prepared
on a twelve (12) month rolling forward basis with respect to
their operations.
(vi) Monthly Hedging Report. Borrower shall
furnish Banks, within forty-five (45) days following the close
of each month, a report of Hedging Transactions, said
information to be provided for both the subject month and on
an aggregate basis for all such forward sales.
(vii) SEC Reports. As soon as available furnish
Banks with copies of all filings by the Williams Consolidated
Entities with the Securities and Exchange Commission.
(viii) Additional Information. Promptly upon
request of the Banks from time to time any additional
financial information or other information that the Banks may
reasonably request.
All such reports referred to in Subsection 12(a) above shall be in
such detail as the Banks may reasonably request.
(b) Certificates of Compliance. Concurrently with the
furnishing of the annual Financial Statements pursuant to Subsection
12(a)(i) hereof and each of the quarterly Financial Statements
pursuant to Subsection 12(a)(ii) hereof, Borrower will furnish or
cause to be furnished to the Banks a certificate signed by a person
duly authorized to execute such a certificate on behalf of Borrower
(i) to the extent requested from time to time by the Banks,
specifically affirming compliance of Borrower in all material respects
with any of its representations or obligations under the Security
Instruments; (ii) setting forth the computation, in reasonable detail
as of the end of each period covered by such certificate, of
compliance with Section 13(c), 13(d) and 13(m) containing or
accompanied by such financial or other details, information and
material as the Banks may reasonably request to evidence such
compliance; and (iii) certifying to the beneficial ownership of at
least 20% of Borrower's stock by Clayton W. Williams Jr., and his
affiliates (specifying such affiliates by name and providing the
number of shares owned by each).
(c) Taxes and Other Liens. Borrower and Guarantor will
pay and discharge promptly all taxes, assessments and governmental
charges or levies imposed upon Borrower or Guarantor or upon the
income or any assets or property of Borrower or Guarantor or any
Subsidiary as well as all claims of any kind (including claims for
labor, materials, supplies and rent) which, if unpaid, might
30
<PAGE> 36
become a lien or other encumbrance upon any or all of the assets or
property of Borrower or Guarantor; provided, however, that neither
Borrower nor Guarantor shall be required to pay any such tax,
assessment, charge, levy or claim if the amount, applicability or
validity thereof shall currently be contested in good faith by
appropriate proceedings diligently conducted and if Borrower or
Guarantor shall have set up adequate reserves therefor, if required,
under GAAP.
(d) Compliance with Laws. Borrower and Guarantor will
observe and comply with all applicable laws, statutes, codes, acts,
ordinances, orders, judgments, decrees, injunctions, rules,
regulations, orders and restrictions relating to environmental
standards or controls or to energy regulations of all federal, state,
county, municipal and other governments, departments, commissions,
boards, agencies, courts, authorities, officials and officers,
domestic or foreign, where the violation or failure to observe would
be reasonably expected to have a Material Adverse Effect.
(e) Further Assurances. Borrower will cure promptly any
defects in the creation and issuance of the Notes and the execution
and delivery of the Notes and the Security Instruments, including this
Agreement. Borrower and Guarantor at their sole expense will promptly
execute and deliver to Banks upon request all such other and further
documents, agreements and instruments in compliance with or
accomplishment of the covenants and agreements in this Agreement, or
to correct any omissions in the Notes or more fully to state the
obligations set out herein.
(f) Performance of Obligations. Borrower agrees to pay
the Notes and other obligations incurred by it hereunder according to
the reading, tenor and effect thereof and hereof; and Borrower and
Guarantor will do and perform every act and discharge all of the
obligations provided to be performed and discharged by Borrower or
Guarantor under the Security Instruments, including this Agreement, at
the time or times and in the manner specified.
(g) Insurance. Borrower and Guarantor now maintain and
will continue to maintain insurance with financially sound and
reputable insurers with respect to its assets against such
liabilities, fires, casualties, risks and contingencies and in such
types and amounts as is customary in the case of persons engaged in
the same or similar businesses and similarly situated. Upon request
of the Agent, Borrower will furnish or cause to be furnished to the
Agent from time to time a summary of the respective insurance coverage
of Borrower and Guarantor in form and substance satisfactory to the
Agent, and, if requested, will furnish the Agent copies of the
applicable policies. Upon demand by Agent any insurance policies
covering any such property shall be endorsed (i) to provide that such
policies may not be cancelled, reduced or affected in any manner for
any reason without fifteen (15) days prior notice to Agent, (ii) to
provide for insurance against fire, casualty and other hazards
normally insured against, in amounts customary in the industry for
31
<PAGE> 37
similarly situated business and properties, and (iii) to provide for
such other matters as the Banks may reasonably require. Borrower and
Guarantor shall at all times maintain insurance in amounts customary
in the industry for similarly situated business and properties with
respect to the Collateral against their liability for injury to
persons or property, which insurance shall be by financially sound and
reputable insurers and shall without limitation provide the following
coverages: comprehensive general liability (including coverage for
damage to underground resources and equipment, damage caused by
blowouts or cratering, damage caused by explosion, damage to
underground minerals or resources caused by saline substances, broad
form property damage coverage, broad form coverage for contractually
assumed liabilities and broad form coverage for acts of independent
contractors), worker's compensation and automobile liability.
Borrower and Guarantor shall at all times maintain insurance with
respect to the Collateral which shall insure Borrower and Guarantor
against seepage and pollution expense if deemed economical in the
reasonable discretion of Borrower and Guarantor. Additionally,
Borrower shall at all times maintain adequate insurance with respect
to all of their other assets and wells in accordance with prudent
business practices.
(h) Accounts and Records. Borrower and Guarantor will
keep books, records and accounts in which full, true and correct
entries will be made of all dealings or transactions in relation to
their business and activities.
(i) Right of Inspection. Borrower and Guarantor will
permit any officer, employee or agent of the Banks to examine
Borrower's or Guarantor's books, records and accounts, and take copies
and extracts therefrom, all at such reasonable times and as often as
the Banks may reasonably request. Banks will use their best efforts
to keep all such information confidential and will not without prior
written consent disclose or reveal the information or any part thereof
to any person other than the Banks' officers, employees, legal
counsel, regulatory authorities or advisors to whom it is necessary to
reveal such information for the purpose of effectuating the agreements
and undertakings specified herein.
(j) Notice of Certain Events. Borrower and Guarantor
shall promptly notify the Banks if Borrower or Guarantor learns of the
occurrence of (i) any event which constitutes, or with the passage of
time would constitute, an Event of Default, together with a detailed
statement by Borrower of the steps being taken to cure the Event of
Default; or (ii) any legal, judicial or regulatory proceedings
affecting Borrower, or any of the assets or properties of Borrower
which, if adversely determined, could reasonably be expected to have a
Material Adverse Effect; or (iii) any dispute between Borrower or
Guarantor and any governmental or regulatory body or any other person
or entity which, if adversely determined, might reasonably be expected
to cause a Material Adverse Effect; or (iv) any other matter which in
its reasonable opinion could be expected to have a Material Adverse
Effect.
32
<PAGE> 38
(k) ERISA Information and Compliance. Borrower will
promptly furnish to the Banks immediately upon becoming aware of the
occurrence of any "reportable event", as such term is defined in
Section 4043 of ERISA, or of any "prohibited transaction", as such
term is defined in Section 4975 of the Internal Revenue Code of 1954,
as amended, in connection with any Plan or any trust created
thereunder, a written notice specifying the nature thereof, what
action Borrower is taking or proposes to take with respect thereto,
and, when known, any action taken by the Internal Revenue Service with
respect thereto.
(l) Environmental Reports and Notices. Borrower and
Guarantor will deliver to the Banks (i) promptly upon its becoming
available, one copy of each report sent by Borrower or Guarantor to
any court, governmental agency or instrumentality pursuant to any
Environmental Law (excluding, however, reports filed with the Texas
Railroad Commission or any similar state or federal agency in the
ordinary course of conducting Borrower's business where the report
does not disclose, or is not in response to allegations of, violation
by Borrower of an Environmental Law), (ii) notice, in writing,
promptly upon Borrower's or Guarantor's learning that either of them
have received notice or otherwise learned of any claim, demand,
action, event, condition, report or investigation indicating any
potential or actual liability arising in connection with (x) the non-
compliance with or violation of the requirements of any Environmental
Law which reasonably could be expected to have a Material Adverse
Effect; (y) the release or threatened release of any toxic or
hazardous waste into the environment which reasonably could be
expected to have a Material Adverse Effect or which release Borrower
or Guarantor would have a duty to report to any court or government
agency or instrumentality, or (z) the existence of any Environmental
Lien on any properties or assets of Borrower or Guarantor, and
Borrower or Guarantor shall immediately deliver a copy of any such
notice to Banks.
(m) Maintenance. Borrower and Guarantor will, to the
best of their ability, act prudently and in accordance with customary
applicable industry standards in managing and operating their assets,
properties, businesses and investments, and Borrower will use their
best efforts to keep in good working order and condition, ordinary
wear and tear excepted, all of Borrower's and Guarantor's assets and
properties, including, but not limited to, the Collateral, except
where the failure to do so would not reasonably be expected to cause a
Material Adverse Effect.
(n) Title Matters. Within one hundred twenty (120) days
after the date of this Agreement, Borrower or Guarantor will provide
such title opinions on the Oil and Gas Properties, if any, being
pledged to Agent for the ratable benefit of the Banks pursuant to
Security Instruments executed as of the date of this Agreement as are
requested by Agent. As to any Oil and Gas Properties hereafter pledged
to Agent for the ratable benefit of Banks, Borrower or Guarantor will
promptly (but
33
<PAGE> 39
in no event more than one hundred twenty (120) days following such
pledges), furnish Agent with title opinions reasonably satisfactory to
Agent, showing Good and Defensible Title of Borrower or Guarantor to
such Oil and Gas Properties subject only to Permitted Liens.
(o) Curative Matters. Within ninety (90) days after
receipt by Borrower or Guarantor from Agent or its counsel of written
notice of title defects the Agent reasonably requires to be cured,
Borrower or Guarantor will either (i) provide such curative
information, in form and substance satisfactory to Banks, or (ii)
substitute oil and gas properties of value and quality satisfactory to
the Banks for all Oil and Gas Properties for which such title curative
was requested but upon which Borrower or Guarantor elected not to
provide such title curative information, and, within sixty (60) days
of such substitution, provide title opinions satisfactory to the Banks
covering the Oil and Gas Properties so substituted.
(p) Additional Collateral. Borrower agrees to regularly
monitor engineering data covering all producing oil and gas properties
and interests acquired by Borrower or Guarantor on or after the date
hereof and to pledge or cause to be pledged such of the same to Agent
for the ratable benefit of the Banks in substantially the form of the
Security Instruments, as applicable, to the extent that the Banks
shall at all times during the existence of the Revolving Commitment be
secured by perfected liens and security interests covering (i) not
less than ninety percent (90%) of the engineered value of all
producing oil and gas properties of Borrower and Guarantor in the
aggregate; and (ii) each and all such properties which have an
engineered value of $100,000 or more. For the purposes of this
Section 12(p), "Engineered Value" shall mean future net revenue
discounted at ten percent (10%) per annum utilizing the set of pricing
parameters used by the independent engineering firm in their then most
current engineering report required pursuant to Section 12(a)(iii)
hereof.
13. NEGATIVE COVENANTS. A deviation from the provisions of this
Section 13 shall not constitute an Event of Default under this Agreement if
such deviation is consented to in writing by the Banks. Without the prior
written consent of the Banks, Borrower and Guarantor (to the extent applicable
thereto) will at all times comply with the covenants contained in this Section
13 from the date hereof and for so long as any indebtedness or obligation of
Borrower under the Loan Documents is outstanding or any part of the Revolving
Commitment is in existence.
(a) Liens. Neither Borrower nor Guarantor will create,
incur, assume or permit to exist any lien, security interest or other
encumbrance on any of its assets or properties except Permitted Liens.
(b) Debts, Guaranties and Other Obligations. Neither
Borrower nor any of its Subsidiaries (including Guarantor) will incur,
create, assume or in any manner
34
<PAGE> 40
become or be liable in respect of any indebtedness, issue any
preferred or other quasi-equity stock which requires the payment of a
dividend thereon or the mandatory redemption thereof, or guarantee or
otherwise in any manner become or be liable in respect of any
indebtedness, liabilities or other obligations of any other person or
entity, whether by agreement to purchase the indebtedness of any other
person or entity or agreement for the furnishing of funds to any other
person or entity through the purchase or lease of goods, supplies or
services (or by way of stock purchase, capital contribution, advance
or loan) for the purpose of paying or discharging the indebtedness of
any other person or entity, or otherwise, except that the foregoing
restrictions shall not apply to:
(i) the Notes, or other indebtedness or
guarantees of Borrower disclosed in Exhibit "D" hereto;
(ii) taxes, assessments or other government
charges which are not yet due or are being contested in good
faith by appropriate action promptly initiated and diligently
conducted, if such reserve as shall be required by GAAP shall
have been made therefor;
(iii) indebtedness incurred in the ordinary course
of business, including, but not limited to, drilling,
completing, leasing and reworking oil and gas wells;
(iv) Hedging Transactions;
(v) indebtedness owed by Non-Borrower
Subsidiaries to Borrower which is permitted hereunder;
(vi) Vendor Financing not to exceed $10,000,000 in
the aggregate at any one time outstanding;
(vii) guarantees by CWE of Vendor Financings of its
Subsidiaries, which guarantees shall never exceed $10,000,000
in the aggregate at any one time outstanding;
(viii) intercompany indebtedness among Borrower and
Guarantor; or
(ix) the Subordinated Debt.
(c) Current Ratio. For each calendar quarter hereafter
during the remaining term of the Revolving Commitment, the Williams
Consolidated Entities' ratio of Current Assets to Current Liabilities
shall never be less than 1.0 to 1.0.
35
<PAGE> 41
(d) Ratio of Cash Flow to Debt Service. For each
calendar quarter hereafter during the remaining term of the Revolving
Commitment beginning with the calendar quarter ending September 30,
1996, the Williams Consolidated Entities' ratio of Cash Flow to Debt
Service shall never be less than 1.25 to 1.
(e) Limitation on Sale of Collateral. Neither Borrower
nor Guarantor will sell, assign or discount any of the Collateral or
Negative Pledge Property other than (i) sales of oil and gas
production in the ordinary course of business, and (ii) sales or other
disposition of obsolete equipment which are no longer needed for the
ordinary business of Borrower or Guarantor or which are being replaced
by equipment of at least comparable value and utility. If and as any
of such Collateral or Negative Pledge Properties and interests are
sold, conveyed or assigned during the term of the Revolving
Commitment, Borrower or Guarantor will, as to cash received, prepay
against the Notes or Guarantor's obligation under its guaranty
agreement, as the case may be, the net proceeds of such sale after
payment of any superior lien indebtedness and taxes relating thereto;
and, as to properties and interests received in trade, if any,
collaterally pledge the same to Agent for the ratable benefit of the
Banks; and, as to any notes or other evidence of indebtedness received
by Borrower or Guarantor from third parties as consideration for any
such sale, conveyance or assignment, collaterally pledge the same to
Agent for the ratable benefit of the Banks in substantially the form
of the Security Instruments. Any such prepayment shall be applied pro
rata to the principal due on the Revolving Notes until such Revolving
Notes are paid in full, principal, interest and other amounts.
Provided, however, that the Borrower and Guarantor may, without
consent of Banks and Agent and without prepaying the Notes, sell
Negative Pledge Properties where the sales proceeds from any such sale
do not exceed $500,000 on an annual basis.
(f) Mergers and Consolidations. Neither Borrower nor
Guarantor will merge or consolidate with any other entity or sell,
assign, transfer or otherwise dispose of (whether in one transaction
or in a series of transactions) all or substantially all of their
assets or properties to any person or entity.
(g) Use of Proceeds. Borrower shall not use any of the
proceeds of the loans to be made hereunder for the purpose of
purchasing or carrying margin stock as defined in Regulation U of the
Board of Governors of the Federal Reserve System.
(h) Loans or Advances. Neither Borrower nor any
Subsidiary shall make or permit to remain outstanding any loans or
advances other than (i) normal and customary advances to employees,
which shall not exceed $250,000 in the aggregate at any point in time,
(ii) intercompany loans and advances among Borrower and Guarantor, or
(iii) loans and advances by CWE to Subsidiaries provided that such
loans and advances shall be treated as investments for the purposes of
Section 13(k)(iv) or (v) hereof.
36
<PAGE> 42
(i) Hedging Transactions. The Williams Consolidated
Entities shall not enter into any Hedging Transactions (i) in amounts
which exceed, in the aggregate, 100% of the Williams Consolidated
Entities' estimated production from proved producing reserves existing
as of the date of the execution of such Hedging Transactions, or (ii)
the terms and provisions of which could require margin calls; or (iii)
which are secured by any of the Collateral or the Negative Pledge
Property.
(j) Dividends. Borrower will not declare or pay any cash
dividend, purchase, redeem or otherwise acquire for value any of its
stock now or hereafter outstanding, return any capital to stock
owners, or make any distribution of its assets to its stockholders as
such, except (i) repurchase or redemption of its stock in an amount
not to exceed $2,000,000 in the aggregate and (ii) cash dividends paid
on the stock of Borrower which shall not exceed, in any fiscal year,
an amount equal to 50% of Borrower's net income for such fiscal year
determined in accordance with GAAP, provided that immediately before
and after giving effect thereto no (x) default or Event of Default or
(y) Borrowing Base Deficiency, shall exist.
(k) Investments. Neither Borrower nor Guarantor shall
make any investments in any person or entity, except that the
foregoing restriction shall not apply to:
(i) investments and direct obligations of the
United States of America or any agency thereof;
(ii) investments in certificates of deposit issued
by the Agent or certificates of deposit with maturities of
less than one year issued by other commercial banks in the
United States having capital and surplus in excess of
$500,000,000 and have a rating of (A) 50 or above by
Sheshunoff and (B) "B" or above by Keef-Bruett;
(iii) investments such as insured money market
funds, Eurodollar investment accounts and other similar
accounts with the Agent or such investments with maturities of
less than ninety (90) days at other commercial banks in the
United States having capital and surplus in excess of
$500,000,000 and having a rating of (A) 50 or above by
Sheshunoff and (B) "B" or above by Keef-Bruett;
(iv) investments in the Subsidiaries (other than
Guarantor) existing on the Effective Date; and
(v) Borrower's investments in Guarantor.
37
<PAGE> 43
(l) Change of Control. Borrower will not permit Clayton
W. Williams, Jr. and his affiliates, in the aggregate, to ever own, of
record or beneficially, less than 20% of the outstanding voting
securities of CWE. Failure to comply with this covenant shall (i)
immediately relieve the Banks of any further commitment to advance
funds under the Revolving Commitment, and (ii) result in the entire
amount of principal and interest due on the Notes to be accelerated so
that the entire balance thereof shall be due and payable on or before
one hundred twenty (120) days after the date the Agent first receives
notice that such a change of control has occurred.
(m) Minimum Tangible Net Worth. For each calendar
quarter hereafter during the remaining term of the Revolving
Commitment, the Williams Consolidated Entities' Tangible Net Worth
shall never be less than $30,000,000 plus an amount equal to 50% of
the Williams Consolidated Entities' Net Income (without reduction for
losses) for each calendar quarter after December 31, 1995 on a
cumulative basis.
(n) Subordinated Debt. Borrower will not (i) amend or
enter into any agreement to amend or otherwise change the Subordinated
Loan Agreement, Subordination Agreement or any agreement executed in
connection therewith or (ii) fail to comply in any respect with the
provisions of the Subordination Agreement.
14. EVENTS OF DEFAULT. Any one or more of the following events
shall be considered an "Event of Default" as that term is used herein:
(a) Borrower shall fail to pay when due or declared due
the principal of or interest on the Notes or any fee or any other
indebtedness of Borrower incurred pursuant to this Agreement or any
other Security Instrument (but Borrower shall have a grace period of
three (3) days following an applicable due date during which to
correct a delinquency in payment); or
(b) Any representation or warranty made by Borrower or
Guarantor under this Agreement, or in any certificate or statement
furnished or made to any Bank pursuant hereto, or in connection
herewith, or in connection with any document furnished hereunder,
shall prove to be untrue in any material respect as of the date on
which such representation or warranty is made (or deemed made), or any
representation, statement (including financial statements),
certificate, report or other data furnished or to be furnished or made
by Borrower or Guarantor under any Security Instrument, including this
Agreement, proves to have been untrue in any material respect, as of
the date as of which the facts therein set forth were stated or
certified, and such default shall continue for more than ten (10) days
after notice from Agent;
(c) Default shall be made in the due observance or
performance of any of the covenants or agreements of Borrower or
Guarantor contained in the Security
38
<PAGE> 44
Instruments, including this Agreement, and such default shall continue
for more than ten (10) days after notice from Agent; provided,
however, that a default under Section 13(l) of this Agreement shall
not become an Event of Default under this Section 14 unless Borrower
fails to pay the outstanding balance on the Notes within the 120 day
period specified therein; or
(d) Default shall be made in respect of any obligation
for borrowed money owed by Borrower or Guarantor in excess of
$1,000,000, other than the Notes, (directly, by assumption, as
guarantor or otherwise), including without limitation, the
Subordinated Debt, or any obligations in excess of $1,000,000 secured
by any mortgage, pledge or other security interest, lien, charge or
encumbrance with respect thereto, on any asset or property of Borrower
or Guarantor or in respect of any agreement relating to any such
obligations, and such default shall continue beyond the applicable
grace period, if any; or
(e) Borrower or Guarantor shall commence a voluntary case
or other proceedings seeking liquidation, reorganization or other
relief with respect to either of them or their debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking an appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of
their property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against either of them,
or shall make a general assignment for the benefit of creditors, or
shall fail generally to pay their debts as they become due, or shall
take any corporate action authorizing the foregoing; or
(f) An involuntary case or other proceeding, shall be
commenced against Borrower or Guarantor seeking liquidation,
reorganization or other relief with respect to either of them or their
debts under any bankruptcy, insolvency or similar law now or hereafter
in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of either of them or
any substantial part of their property, and such involuntary case or
other proceeding shall remain undismissed and unstayed for a period of
thirty (30) days; or an order for relief shall be entered against
Borrower or Guarantor under the federal bankruptcy laws as now or
hereinafter in effect; or
(g) A final judgment or order for the payment of money in
excess of $1,000,000.00 (or judgments or orders aggregating in excess
of $1,000,000.00) shall be rendered against Borrower or Guarantor and
such judgments or orders shall continue unsatisfied and unstayed for a
period of thirty (30) days; or
(h) In the event the aggregate principal amount
outstanding under the Notes shall at any time exceed the Borrowing
Base established for the Notes,
39
<PAGE> 45
Borrower shall fail to provide such additional Collateral or prepay
the principal of such Notes in compliance with the provisions of
Section 9(b) hereof.
Upon occurrence of any Event of Default specified in Subsections 14(e)
and (f) hereof, the Revolving Commitment shall terminate and the entire
principal amount due under the Notes and all interest then accrued thereon, and
any other liabilities of Borrower hereunder, shall become immediately due and
payable all without notice and without presentment, demand, protest, notice of
protest or dishonor or any other notice of default of any kind, all of which
are hereby expressly waived by Borrower. In any other Event of Default, the
Majority Banks may by notice from Agent to Borrower, terminate the Revolving
Commitment and declare the principal of, and all interest then accrued on, the
Notes and any other liabilities hereunder to be forthwith due and payable,
whereupon the same shall forthwith become due and payable without presentment,
demand, protest or other notice of any kind, all of which Borrower hereby
expressly waives, anything contained herein or in the Notes to the contrary
notwithstanding. Nothing contained in this Section 14 shall be construed to
limit or amend in any way the Events of Default enumerated in the Notes, or any
other document executed in connection with the transaction contemplated herein.
Upon the occurrence and during the continuance of any Event of
Default, the Banks are hereby authorized at any time and from time to time,
without notice to Borrower (any such notice being expressly waived by
Borrower), to set-off and apply any and all deposits (general or special, time
or demand, provisional or final) at any time held and other indebtedness at any
time owing by the Banks to or for the credit or the account of Borrower against
any and all of the indebtedness of Borrower under the Notes and the Security
Instrument, including this Agreement, irrespective of whether or not the Banks
shall have made any demand under the Security Instrument, including this
Agreement or the Notes. Any amount set-off by either of the Banks shall be
applied against the indebtedness owed the Banks by Borrower pursuant to the
provisions of Section 16 of this Agreement. The Banks agree promptly to notify
Borrower after any such set-off and application, provided that the failure to
give such notice shall not affect the validity of such set-off and application.
The rights of the Banks under this Section 14 are in addition to other rights
and remedies (including, without limitation, other rights of set-off) which the
Banks may have.
15. EXERCISE OF RIGHTS. No failure to exercise, and no delay in
exercising, on the part of the Banks, any right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right. The
rights of the Banks hereunder shall be in addition to all other rights provided
by law. No modification or waiver of any provision of the Security
Instruments, including this Agreement, or the Notes nor consent to departure
therefrom, shall be effective unless in writing, and no such consent or waiver
shall extend beyond the particular case and purpose involved. No notice or
demand given in any case shall
40
<PAGE> 46
constitute a waiver of the right to take other action in the same, similar or
other circumstances without such notice or demand.
16. NOTICES. Any notices or other communications required or
permitted to be given by this Agreement or any of the other Loan Documents and
instruments referred to herein must be given in writing and must be personally
delivered or mailed by prepaid certified or registered mail to the party to
whom such notice or communication is directed at the address of such party as
follows: (a) BORROWER AND GUARANTOR: c/o Clayton Williams Energy, Inc., Six
Desta Drive, Suite 6500, Midland, Texas 79705, Attention: Paul Latham,
Executive Vice President; (b) AGENT: BANK ONE, TEXAS, N.A., 1717 Main Street,
Dallas, Texas 75201, Attention: Reed V. Thompson, Vice President; (c) PARIBAS:
Banque Paribas, 1200 Smith Street, Suite 3100, Houston, Texas 77002, Attention:
Brian Malone, Vice President; (d) FNB: First National Bank of Chicago, One
First National Plaza, Suite 0634, Chicago, Illinois 60670, Attention: John
Bierne. Any such notice or other communication shall be deemed to have been
given (whether actually received or not) on the day it is personally delivered
as aforesaid or, if mailed, on the fifth day after it is mailed as aforesaid.
Any party may change its address for purposes of this Agreement by giving
notice of such change to the other parties pursuant to this Section 16. Upon
receipt by Agent of any such notice, Agent shall promptly provide copies of
such notice or notices to the Banks.
17. THE AGENT AND THE BANKS.
(a) Appointment and Authorization. Each Bank hereby
irrevocably appoints and authorizes Agent to take such action on its
behalf and to exercise such powers under the Loan Documents as are
delegated to Agent by the terms thereof, together with such powers as
are reasonably incidental thereto. With respect to its commitments
hereunder and the Notes issued to it, Bank One and any successor Agent
shall have the same rights under the Loan Documents as any other Bank
and may exercise the same as though it were not the Agent; and the
term "Bank" or "Banks" shall, unless otherwise expressly indicated,
include Bank One and any successor Agent in its capacity as a Bank.
Bank One and any successor Agent and its affiliates may accept
deposits from, lend money to, act as trustee under indentures of and
generally engage in any kind of business with Borrower, and any person
which may do business with Borrower, all as if Bank One and any
successor Agent were not Agent hereunder and without any duty to
account therefor to the Banks. Each Bank shall disclose to all other
Banks all indebtedness and liabilities, direct and contingent, of
Borrower to Banks from time to time.
(b) Note Holders. Agent may treat the payee of any Note
as the holder thereof until written notice of transfer has been filed
with it, signed by such payee and in form satisfactory to Agent.
41
<PAGE> 47
(c) Consultation with Counsel. Banks agree that Agent
may consult with legal counsel selected by it and shall not be liable
for any action taken or suffered in good faith by it in accordance
with the advice of such counsel.
(d) Documents. Agent shall not be under a duty to
examine or pass upon the validity, effectiveness, enforceability,
genuineness or value of any of the Collateral or any of the Loan
Documents or any other instrument or document furnished pursuant
thereto or in connection therewith, and Agent shall be entitled to
assume that the same are valid, effective, enforceable and genuine and
what they purport to be.
(e) Resignation or Removal of Agent. Subject to the
appointment and acceptance of a successor Agent as provided below,
Agent may resign at any time by giving written notice thereof to Banks
and Borrower, and Agent may be removed at any time with or without
cause by Majority Banks. If no successor Agent has been so appointed
by all Banks (and approved by Borrower) and has accepted such
appointment within 30 days after the retiring Agent's giving of notice
of resignation or removal of the retiring Agent, then the retiring
Agent may, on behalf of Banks, appoint a successor Agent, which
appointment shall require the approval of Borrower only if a party
other than one of the other Banks is so appointed. Upon the
acceptance of any appointment as Agent hereunder by a successor Agent,
such successor Agent shall thereupon succeed to and become vested with
all the rights and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations hereunder.
After any retiring Agent's resignation or removal hereunder as Agent,
(i) the provisions of this Section 17 shall continue in effect for its
benefit in respect to any actions take or omitted to be taken by it
while it was acting as Agent, and (ii) any Collateral held in
possession of the retiring Agent shall be delivered to the successor
Agent.
(f) Responsibility of Agent. It is expressly understood
and agreed that the obligations of Agent under the Loan Documents are
only those expressly set forth in the Loan Documents and that Agent
shall be entitled to assume that no default or Event of Default has
occurred and is continuing, unless Agent has actual knowledge of such
fact or has received notice from a Bank that such Bank considers that
a default or an Event of Default has occurred and is continuing and
specifying the nature thereof. Neither Agent nor any of its
directors, officers or employees shall be liable for any action taken
or omitted to be taken by it under or in connection with the Loan
Documents, except for its or their own gross negligence or willful
misconduct. Agent shall incur no liability under or in respect of any
of the Loan Documents by acting upon any notice, consent, certificate,
warranty or other paper or instrument believed by it to be genuine or
authentic or to be signed by the proper party or parties, or with
respect to anything which it may do or refrain from doing in the
reasonable exercise of its judgment, or which may seem to it to be
necessary or desirable.
42
<PAGE> 48
Agent shall not be responsible to Banks for any recitals,
statements, representations or warranties contained in any of the Loan
Documents, or in any certificate or other document referred to or
provided for in, or received by any Bank under, the Loan Documents, or
for the value, validity, effectiveness, genuineness, enforceability or
sufficiency of any of the Collateral or any of the Loan Documents or
for any failure by Borrower to perform any of their obligations
hereunder or thereunder. Agent may employ agents and attorneys-
in-fact and shall not be answerable, except as to money or securities
received by it or its authorized agents, for the negligence or
misconduct of any such agents or attorneys-in-fact selected by it with
reasonable care.
The relationship between Agent and each Bank is only that of
agent and principal and has no fiduciary aspects. Nothing in the Loan
Documents or elsewhere shall be construed to impose on Agent any
duties or responsibilities other than those for which express
provision is therein made. In performing its duties and functions
hereunder, Agent does not assume and shall not be deemed to have
assumed, and hereby expressly disclaims, any obligation or
responsibility toward or any relationship of agency or trust with or
for Borrower or any of their shareholders or other creditors. As to
any matters not expressly provided for by the Loan Documents
(including, without limitation, enforcement or collection of the
Notes), Agent shall not be required to exercise any discretion or take
any action, but shall be required to act or to refrain from acting
(and shall be fully protected in so acting or refraining from acting)
upon the instructions of all Banks and such instructions shall be
binding upon all Banks and all holders of Notes; provided, however,
that Agent shall not be required to take any action which is contrary
to the Loan Documents or applicable law.
Agent shall have the right to exercise or refrain from
exercising, without notice or liability to the Banks, any and all
rights afforded to Agent by the Loan Documents or which Agent may have
as a matter of law; provided, however, that Agent shall not (A)
without the consent of all Banks (i) amend the Loan Documents to (x)
change the method of computing interest so as to decrease the interest
payable on the Notes, (y) increase or decrease the principal amount of
the Notes, (z) extend the Maturity Date; or (ii) waive any default
under the Loan Documents; or (iii) make a redetermination of the
Borrowing Base; or (iv) defer the date for payment of principal
interest or any fee; or (v) make any changes in the fees payable
hereunder (except the Agency fee which does not require the consent of
the Banks other than the Agent); or (vi) release any guaranty; or
(vii) make any change in the definition of Majority Banks; or (viii)
make any change in the number of Banks required to take any action
under this Agreement; or (ix) make any change in Sections 7(b) or
13(n) of this Agreement; or (x) make any change in the Subordination
Agreement; and (B) without the consent of Majority Banks (i) make any
other amendment to the Loan Documents; or (ii) accelerate the
outstanding balance due on the Notes. Agent shall have the right and
authority without
43
<PAGE> 49
necessity of notice or liability to the Banks to release Collateral,
if 100% of the net proceeds from the sale of such Collateral, after
payment of superior lien indebtedness and taxes relating thereto, is
paid to Agent for the ratable benefit of the Banks as a prepayment of
the Notes; provided, however, that Agent's right to release Collateral
hereunder shall be limited to releases of Collateral the net sale
proceeds of which shall not exceed, in the aggregate, on an annual
basis, $5,000,000.00. For purposes of this paragraph, a Bank shall be
deemed to have consented to any such action by the Agent upon the
passage of ten (10) Business Days after written notice thereof is
given to such Bank in accordance with Section 16 hereof, unless such
Bank shall have previously given Agent notice, complying with the
provision of Section 16 hereof, to the contrary. Agent shall have no
liability to Banks for failure or delay in exercising any right or
power possessed by Agent pursuant to the Loan Documents or otherwise
unless such failure or delay is caused by the gross negligence of the
Agent.
(g) Independent Investigation. Each Bank severally
represents and warrants to Agent that it has made its own independent
investigation and assessment of the financial condition and affairs of
Borrower in connection with the making and continuation of its
participation hereunder and has not relied exclusively on any
information provided to such Bank by Agent in connection herewith, and
each Bank represents, warrants and undertakes to Agent that it shall
continue to make its own independent appraisal of the credit
worthiness of Borrower while the Notes is outstanding or its
commitments hereunder are in force. Agent shall not be required to
keep itself informed as to the performance or observance by Borrower
of this Agreement or any other document referred to or provided for
herein or to inspect the properties or books of Borrower. Other than
as provided in this Agreement, Agent shall have no duty,
responsibility or liability to provide any Bank with any credit or
other information concerning the affairs, financial condition or
business of Borrower which may come into the possession of Agent.
(h) Indemnification. Banks agree to indemnify Agent (to
the extent not reimbursed by Borrower), ratably according to their
Commitment Percentage, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever
which may be imposed on, incurred by or asserted against Agent in any
way relating to or arising out of the Loan Documents or any action
taken or omitted by Agent under the Loan Documents, provided that no
Bank shall be liable for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses
or disbursements resulting from Agent's gross negligence or willful
misconduct. THE PARTIES INTEND THE PROVISIONS OF THIS PARAGRAPH TO
APPLY TO AND PROTECT THE BANK FROM THE CONSEQUENCES OF ITS OWN
NEGLIGENCE, WHETHER OR NOT SUCH NEGLIGENCE IS THE SOLE, CONTRIBUTING
OR CONCURRING CAUSE OF ANY SUCH LOSS, COST, LIABILITY, DAMAGE OR
EXPENSE INDEMNIFIED AGAINST IN THIS PARAGRAPH.
44
<PAGE> 50
(i) Benefit of Section 17. The agreements contained in
this Section 17 are solely for the benefit of Agent and the Banks and
are not for the benefit of, or to be relied upon by, Borrower, any
affiliate of Borrower or any other person.
(j) Pro Rata Treatment. Subject to the provisions of
this Agreement, each payment (including each prepayment) by Borrower
and collections by Banks (including offsets) on account of the
principal of and interest on the Notes and fees payable by Borrower
shall be made pro rata to Banks according to the then ownership
interest of each Bank in loans to Borrower under this Agreement. Upon
receipt of a request for disbursement by Borrower under the Revolving
Commitment, Agent shall notify Banks of such request or draft and the
requested disbursement date or payment date, whereupon each Bank shall
fund to Agent its pro rata share of the loan requested by Borrower at
such time and in such manner as to reasonably permit the disbursement
by Agent to Borrower on the disbursement date requested.
(k) Interests of Banks. Nothing in this Agreement shall
be construed to create a partnership or joint venture between Banks
for any purpose. Agent, Banks and Borrower each recognize that the
respective obligations of Banks under the Revolving Commitment shall
be several and not joint and that neither Agent nor any of Banks shall
be responsible or liable to perform any of the obligations of the
other under this Agreement. Each Bank is deemed to be the owner of an
undivided interest in and to all rights, titles, benefits and
interests belonging and accruing to Agent under this Agreement,
including, without limitation, the Notes, liens and security interests
in the Collateral, fees and payments of principal and interest by
Borrower under the Revolving Commitment in the proportion that each
Banks' Commitment Percentage bears to the total of all of such loan
commitments of all Banks taken in the aggregate. Each Bank shall
perform all duties and obligations of Banks under this Agreement in
the same proportion as its ownership interest.
(l) Failure By Any Bank to Provide Funds to Agent.
(i) Unless a Bank has determined that in
accordance with the provisions of this Agreement it is not
obligated to fund its share of a borrowing hereunder prior to
1:00 p.m., Dallas, Texas time, on the requested date of
disbursement, Agent may assume that each Bank has made its pro
rata share of the Borrowing available to Agent on such date
and Agent may, in reliance upon such assumption (but shall not
be required to) make available to Borrower a corresponding
amount. If Agent has made such amount available to Borrower
and if such corresponding amount is not in fact made available
to Agent by any such Bank, Agent shall be entitled on demand
to receive such amount from such Bank (or if such Bank fails
to pay such amount forthwith upon demand, to recover such
amount from Borrower) together with interest thereon in
respect of each day during the period
45
<PAGE> 51
commencing on the date such amount was made available to
Borrower and ending on (but excluding) the date Agent recovers
such amount at the Base Rate.
(ii) If any Bank shall fail or refuse to fund its
pro rata share of a requested disbursement for any reason
(hereinafter called the "Under-Funded Bank(s)") and other Bank
or Banks fund their own pro rata shares of such requested
disbursement (hereinafter called the "Fully-Funded Bank(s)")
so that Banks are out-of-balance to the extent of the unfunded
share of a requested advance (hereinafter called the
"Out-of-Balance"), if the refusal to fund by Under Funded
Banks was:
(1) in accordance with the provisions of
this Agreement, then in lieu of the pro rata
distribution of payments thereafter received and
collections thereafter made as specified in Section
17(j) hereof, Agent is authorized and directed by
Banks to thereafter make distributions of such
payments and collections on account of the principal
of and interest on the Notes and fees paid by
Borrower to Banks pro rata on the basis of principal
sums funded by each Bank under the Revolving
Commitment.
(2) not in accordance with the
provisions of this Agreement, then notwithstanding
the provisions of Section 17(j) hereof and in
addition to any other rights and remedies which the
Fully-Funded Bank(s) may have as against the
Under-Funded Bank(s), Agent shall as to subsequent
payments or recoveries (whether voluntary,
involuntary, by application of offset or otherwise)
on account of principal of or interest on the Notes,
distribute first to the Fully-Funded Bank(s) (pro
rata if more than one Fully-Funded Bank) until any
such Out-of-Balance is discharged, then pro rata
among all Banks in accordance with Section 17(j).
18. EXPENSES. Borrower shall pay (i) all reasonable and necessary
out-of-pocket expenses of the Agent, including fees and disbursements of
special counsel for the Agent, in connection with the preparation of this
Agreement, any waiver or consent hereunder or any amendment hereof or any
default or Event of Default or alleged default or Event of Default hereunder,
and (ii) if a default or an Event of Default occurs, all reasonable and
necessary out-of-pocket expenses incurred by the Banks, including fees and
disbursements of counsel, in connection with such default and Event of Default
and collection and other enforcement proceedings resulting therefrom. Borrower
shall indemnify the Banks against
46
<PAGE> 52
any transfer taxes, document taxes, assessments or charges made by any
governmental authority by reason of the execution and delivery of this
Agreement or the Notes.
19. INDEMNITY. The Borrowers agree to indemnify and hold harmless
the Banks and their respective officers, employees, agents, attorneys and
representatives (singularly, an "Indemnified Party", and collectively, the
"Indemnified Parties") from and against any loss, cost, liability, damage or
expense (including the reasonable fees and out-of-pocket expenses of counsel to
the Banks, including all local counsel hired by such counsel) ("Claim")
incurred by the Banks in investigating or preparing for, defending against, or
providing evidence, producing documents or taking any other action in respect
of any commenced or threatened litigation, administrative proceeding or
investigation under any federal securities law, federal or state environmental
law, or any other statute of any jurisdiction, or any regulation, or at common
law or otherwise, which is alleged to arise out of or is based upon any acts,
practices or omissions or alleged acts, practices or omissions of the Borrower
or their agents or arises in connection with the duties, obligations or
performance of the Indemnified Parties in negotiating, preparing, executing,
accepting, keeping, completing, countersigning, issuing, selling, delivering,
releasing, assigning, handling, certifying, processing or receiving or taking
any other action with respect to the Loan Documents and all documents, items
and materials contemplated thereby even if any of the foregoing arises out of
an Indemnified Party's ordinary negligence. The indemnity set forth herein
shall be in addition to any other obligations or liabilities of the Borrowers
to the Banks hereunder or at common law or otherwise, and shall survive any
termination of this Agreement, the expiration of the Loan and the payment of
all indebtedness of the Borrowers to the Banks hereunder and under the Notes,
provided that the Borrowers shall have no obligation under this Section 19 to
the Bank with respect to any of the foregoing arising out of the gross
negligence or willful misconduct of the Banks. If any Claim is asserted
against any Indemnified Party, the Indemnified Party shall endeavor to notify
the Borrowers of such Claim (but failure to do so shall not affect the
indemnification herein made except to the extent of the actual harm caused by
such failure). The Indemnified Party shall have the right to employ, at the
Borrowers' expense, counsel of the Indemnified Parties' choosing and to control
the defense of the Claim. The Borrowers may at their own expense also
participate in the defense of any Claim. Each Indemnified Party may employ
separate counsel in connection with any Claim to the extent such Indemnified
Party believes it reasonably prudent to protect such Indemnified Party.
THE PARTIES INTEND FOR THE PROVISIONS OF THIS SECTION 19 TO APPLY TO
AND PROTECT EACH INDEMNIFIED PARTY FROM THE CONSEQUENCES OF ITS OWN NEGLIGENCE,
WHETHER OR NOT THAT NEGLIGENCE IS THE SOLE, CONTRIBUTING, OR CONCURRING CAUSE
OF ANY CLAIM.
20. GOVERNING LAW. THIS AGREEMENT IS BEING EXECUTED AND
DELIVERED, AND IS INTENDED TO BE PERFORMED, IN DALLAS, TEXAS, AND THE
SUBSTANTIVE LAWS OF TEXAS SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT
AND
47
<PAGE> 53
INTERPRETATION OF THIS AGREEMENT AND ALL OTHER DOCUMENTS AND INSTRUMENTS
REFERRED TO HEREIN, UNLESS OTHERWISE SPECIFIED THEREIN OR UNLESS THE LAWS OF
ANOTHER STATE REQUIRE THE APPLICATION OF THE LAWS OF SUCH STATE.
21. INVALID PROVISIONS. If any provision of this Agreement is
held to be illegal, invalid, or unenforceable under present or future laws
effective during the term of this Agreement, such provisions shall be fully
severable and this Agreement shall be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part of this
Agreement, and the remaining provisions of the Agreement shall remain in full
force and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance from this Agreement.
22. MAXIMUM INTEREST RATE. Regardless of any provisions contained
in this Agreement or in any other documents and instruments referred to herein,
the Banks shall never be deemed to have contracted for or be entitled to
receive, collect or apply as interest on the Notes any amount in excess of the
Maximum Rate and in the event the Banks ever receive, collect or apply as
interest any such excess, or if an acceleration of the maturity of the Notes or
if any prepayment by Borrower results in Borrower having paid any interest in
excess of the Maximum Rate, such amount which would be excessive interest shall
be applied to the reduction of the unpaid principal balance of the Notes for
which such excess was received, collected or applied, and, if the principal
balance of such Notes is paid in full, any remaining excess shall forthwith be
paid to Borrower. All sums paid or agreed to be paid to the Banks for the use,
forbearance or detention of the indebtedness evidenced by the Notes and/or this
Agreement shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of such indebtedness
until payment in full so that the rate or amount of interest on account of such
indebtedness does not exceed the Maximum Rate. In determining whether or not
the interest paid or payable under any specific contingency exceeds the Maximum
Rate, Borrower and the Banks shall, to the maximum extent permitted under
applicable law, (i) characterize any non-principal payment as an expense, fee
or premium, rather than as interest; and (ii) exclude voluntary prepayments and
the effect thereof; and (iii) compare the total amount of interest contracted
for, charged or received with the total amount of interest which could be
contracted for, charged or received throughout the entire contemplated term of
the Notes at the Maximum Rate.
23. AMENDMENTS. This Agreement may be amended only by an
instrument in writing executed by an authorized officer of the party against
whom such amendment is sought to be enforced.
24. MULTIPLE COUNTERPARTS. This Agreement may be executed in a
number of identical separate counterparts, each of which for all purposes is to
be deemed an original, but all of which shall constitute, collectively, one
agreement. No party to this Agreement
48
<PAGE> 54
shall be bound hereby until a counterpart of this Agreement has been executed
by all parties hereto.
25. CONFLICT. In the event any term or provision hereof is
inconsistent with or conflicts with any provision of the Security Instruments,
the terms or provisions contained in this Agreement shall be controlling.
26. SURVIVAL. All covenants, agreements, undertakings,
representations and warranties made in the Security Instrument, including this
Agreement, the Notes or other documents and instruments referred to herein
shall survive all closings hereunder and shall not be affected by any
investigation made by any party.
27. PARTIES BOUND. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors, assigns,
heirs, legal representatives and estates, provided, however, that Borrower may
not, without the prior written consent of the Banks, assign any rights, powers,
duties or obligations hereunder.
28. ASSIGNMENT BY BANKS. Subject to the provisions of this
Section 28, no assignment or participation of all or any part of the Revolving
Commitment shall be made by Banks, or any of them, without the prior consent of
Banks and Borrower, unless such assignment or participation is made to a bank
or other entity wholly or substantially owned by the parent company of the
assignor. Under no circumstances shall Banks or Borrower unreasonably withhold
or unreasonably delay their consent to any proposed assignment or
participation. The restrictions of this Section 28 as to assignments or
participations shall not be applicable if: (i) the proposed assignment or
participation is required by law, or is necessary to prevent or to cure a
violation of law, or is required by law, or is necessary to prevent or to cure
a violation of law, or is required by any regulatory agency; (ii) the Revolving
Commitment is in default; (iii) the Revolving Commitment (or the assignor's
portion thereof) is transferred or assigned as part of a transaction in which
all or substantially all of the assets of the stock of the assignor are
transferred; or, (iv) any such assignment or participation is in conformance
with the assignor's internal policies and practices, consistently applied with
respect to loan limits to borrowers. In addition, Borrower and Agent, jointly,
may require any Bank to assign all or may request any Bank to assign any part
of its interest provided that all Banks other than the Bank being required to
assign must first approve of the assignee bank and further approve of any
proposed increase in any Bank's percentage ownership herein as a result of any
such proposed assignment; provided, however, that the Bank that is required to
assign all of its interest in accordance with this Section 28 shall be paid in
full all of the obligations ratably owed it under the Notes and this Agreement.
A permitted assignment hereunder shall become effective upon the assignor Bank
and the assignee Bank furnishing to Agent a supplemental signature page, duly
executed in a form satisfactory to Agent. From and after the effective date of
an assignment hereunder, the assignor Bank shall have no further right, title,
benefit and interest and shall have no duties and responsibilities hereunder to
the extent of the interest thus assigned; and, the assignee Bank shall have all
right, title, benefit and
49
<PAGE> 55
interest and shall assume all duties and responsibilities hereunder to the
extent of the interest acquired hereunder.
29. OTHER AGREEMENTS. THIS WRITTEN LOAN AGREEMENT REPRESENTS THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
30. WRITTEN CONSENT. The Guarantor is executing this Fifth
Restated Loan Agreement in its capacity as Guarantor for the purpose of
acknowledging the existence of the Fifth Restated Loan Agreement, consenting to
the execution thereof by the Borrower and reaffirming its guaranty of the
obligations of Borrower to Banks.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
BORROWER:
--------
CLAYTON WILLIAMS ENERGY, INC.
By: /s/ L. Paul Latham
------------------------------------
L. Paul Latham
Executive Vice President
WARRIOR GAS CO.
By: /s/ L. Paul Latham
------------------------------------
L. Paul Latham
Vice President
50
<PAGE> 56
GUARANTOR:
---------
CWEI ACQUISITIONS, INC.
By: /s/ L. Paul Latham
------------------------------------
L. Paul Latham
Vice President
BANKS:
-----
BANK ONE, TEXAS, N.A.,
a national banking association
By: /s/ Reed V. Thompson
------------------------------------
Reed V. Thompson
Vice President
THE FIRST NATIONAL BANK OF CHICAGO
a national banking association
By: /s/ Ronald L. Dierker
------------------------------------
Ronald L. Dierker,
Attorney-In-Fact
51
<PAGE> 57
BANQUE PARIBAS,
a French banking corporation
By: /s/ Barton D. Schouest
------------------------------------
Barton D. Schouest,
Group Vice President
By: /s/ Mark Green
------------------------------------
Name: Mark Green
----------------------------------
Title: Vice President
---------------------------------
AGENT:
BANK ONE, TEXAS, N.A.,
a national banking association
By: /s/ Reed V. Thompson
------------------------------------
Reed V. Thompson, Vice President
52
<PAGE> 58
EXHIBIT "A"
NOTICE OF BORROWING
The undersigned hereby certifies that he is the ____________________
of _________________, a ________________ corporation ("Borrower"), and that as
such he is authorized to executed this Notice of Borrowing on behalf of
Borrower. With reference to that certain Fifth Restated Loan Agreement, dated
July 18, 1996, (as same may be amended, modified, increased, supplemented
and/or restated from time to time, the "Agreement") entered into among
Borrower, Bank One, Texas, N.A., Banque Paribas and The First National Bank of
Chicago ("Banks"), and Bank One, Texas, N.A. as Agent ("Agent"), the
undersigned further certifies, represents and warrants on behalf of Borrower
that to his best knowledge and belief after reasonable and due investigation
and review, all of the following statements are true and correct (each
capitalized term used herein having the same meaning given to it in the
Agreement unless otherwise specified):
(a) Borrower requests that the Banks advance Borrower the
aggregate sum of $_____________________ by no later than
_______________________, 19___. Immediately following such Advance,
the aggregate outstanding balance of Advances shall equal
$_________________________________.
(b) Type of Advance: [Base Rate or Eurodollar Loan].
(c) Eurodollar Loan - Interest Period of _________ days.
(d) As of the date hereof, and as a result of the making
of the requested Advance, there does not and will not exist any Event
of Default.
(e) Borrower has performed and complied with all
agreements and conditions contained in the Loan Documents which are
required to be performed or complied with by Borrower before or on the
date hereof.
(f) The representations and warranties contained in the
Agreement and in the other Loan Documents (excluding, however, the
representations and warranties set forth in Sections 10(h) and 10(s)
as to any matter which has theretofore been disclosed in writing by
Borrowers to Banks, but as to which Borrower and Guarantor hereby
represent and warrant that as of the date hereof the matters so
disclosed are not reasonably expected to have a Material Adverse
Effect) are true and correct in all material respects as of the date
hereof and shall be true and correct upon the making of the Advance,
with the same force and effect as though made on and as of the date
hereof and thereof.
<PAGE> 59
EXECUTED AND DELIVERED this _______ day of ___________________, 19____.
[Borrower]
------------------------------------
By:
------------------------------------
Name:
------------------------------------
<PAGE> 60
EXHIBIT "B"
RENEWAL
REVOLVING NOTE
$50,000,000.00 Dallas, Texas July 18, 1996
FOR VALUE RECEIVED, the undersigned, Clayton Williams Energy, Inc., a
Delaware corporation and Warrior Gas Co., a Texas corporation (the "Borrowers")
hereby jointly and severally promise to pay to the order of BANK ONE, TEXAS,
N.A. (the "Payee"), at its offices at 1717 Main Street, Dallas, Texas 75201,
or at such other place as the holder hereof may direct, in lawful money of the
United States of America, the principal amount of FIFTY MILLION AND 00/100
DOLLARS ($50,000,000.00), or, if less than such amount, the aggregate unpaid
principal amount of all Advances made by Payee to Borrowers hereunder in
accordance with the terms of that certain Fifth Restated Loan Agreement, dated
as of even date herewith, entered into among Borrowers, Payee, Banque Paribas,
FNB and Payee as Agent (as same may be amended, modified, increased,
supplemented and/or restated from time to time, the "Agreement"), and Borrowers
further promise to pay interest to Payee at such office or other place, in like
money, from the date hereof on the unpaid principal amount hereof from time to
time outstanding at the rates stated in the Agreement. All terms defined in
the Agreement shall have the same meaning when used herein.
1. Payment Terms. The principal of, and all accrued interest upon,
this Note shall be due and payable in the amounts and at the times stated in
the Agreement as follows:
(a) Interest shall be due and payable as provided in the
Agreement;
(b) The entire unpaid principal amount of this Note shall
be due and payable on the Maturity Date.
2. Disbursement and Prepayment. Payee may disburse the principal of
this Note to Borrowers in one or more Advances from time to time in accordance
with the Agreement. Borrowers shall be entitled and in certain instances may
be required to prepay the principal of this Note from time to time in
accordance with the Agreement. Borrowers may borrow, repay and reborrow under
this Note in accordance with the terms of the Agreement. It is contemplated
that by reason of prepayments hereon there may be times when no indebtedness is
owing hereunder; but notwithstanding such occurrences, this Note shall remain
valid and shall be in full force and effect as to Advances made pursuant to the
Agreement subsequent to each such occurrence.
3. Benefits. This Note is the Note referred to in the Agreement,
and Agent and the holder(s) hereof are entitled to the benefits thereof and may
enforce the agreements contained therein and exercise the rights provided for
thereby or otherwise in respect
<PAGE> 61
thereof. Reference to the Agreement shall not affect or impair the absolute
unconditional obligation of Borrowers to pay the principal of, interest on and
any additional payment in connection with this Note when due.
4. Security. The payment of this Note is secured by Collateral more
particularly described in the Agreement.
5. Acceleration of Maturity. Upon the occurrence of an Event of
Default under the Agreement, Banks may (i) declare the principal of, and all
interest then accrued on, this Note, to be forthwith due and payable, whereupon
the same shall forthwith become due and payable without presentment, demand,
protest, or notice of any kind, all of which Borrowers hereby expressly waive,
and/or (ii) exercise of any other right provided in the Loan Documents, or at
law or in equity. Reference is hereby made to the Agreement for a statement of
the events upon which the maturity of this Note may be accelerated
automatically. Borrowers grant to each Bank the right to set off against this
Note, and the right of recoupment from, any and all deposit and other
liabilities of each Bank to Borrowers and all money or property in the
possession of any Bank held for or owed to Borrowers.
6. Waiver. Except as otherwise expressly provided herein or in the
other Loan Documents, Borrowers and all sureties, endorsers and guarantors of
this Note (i) waive demand, presentment for payment, notice of intention to
accelerate, notice of acceleration, protest, notice of protest, notice of
default and all other notices, filing of suit and diligence in collecting this
Note or enforcing any of the security herefor, (ii) agree to any substitution,
exchange or release of any such security or the release of any person or entity
primarily or secondarily liable herefor, (iii) agree that it will not be
necessary for Agent or any holder hereof, in order to enforce payment of this
Note by Agent or such holder, to first institute suit or exhaust its rights
against Borrowers or others liable herefor, or to enforce its rights against
any security herefor, and (iv) consent to any and all extensions for any
period, renewals or postponements of time of payment of this Note or any other
indulgences with respect hereto, without notice thereof to any of them.
7. Attorneys' Fees. If this Note is collected by legal proceedings
or in or through a bankruptcy court, or is placed in the hands of an attorney
for collection after maturity, no matter how maturity is brought about,
Borrowers agree to pay reasonable attorneys fees and all other collection costs
incurred by Agent and the holder(s) of this Note.
8. GOVERNING LAW AND VENUE. THIS NOTE SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS AND APPLICABLE
FEDERAL LAW AND SHALL BE PERFORMABLE IN DALLAS COUNTY, TEXAS, OR AT SUCH OTHER
PLACE AS MAY BE DESIGNATED IN WRITING BY THE HOLDER HEREOF.
9. Headings. The headings of the sections of this Note are inserted
for convenience only and shall not be deemed to constitute a part hereof.
<PAGE> 62
IN WITNESS WHEREOF, Borrowers have executed this Note as of the date
and year first herein written.
BORROWERS:
---------
CLAYTON WILLIAMS ENERGY, INC.
By:
-----------------------------------------
L. Paul Latham
Executive Vice President
WARRIOR GAS CO.
By:
-----------------------------------------
L. Paul Latham
Vice President
<PAGE> 63
EXHIBIT "B-1"
RENEWAL
REVOLVING NOTE
$25,000,000.00 Dallas, Texas July 18, 1996
FOR VALUE RECEIVED, the undersigned, Clayton Williams Energy, Inc., a
Delaware corporation and Warrior Gas Co., a Texas corporation (the "Borrowers")
hereby jointly and severally promise to pay to the order of BANQUE PARIBAS (the
"Payee"), at the office of BANK ONE, TEXAS, N.A. ("Agent"), 1717 Main Street,
Dallas, Texas 75201, or at such other place as the holder hereof may direct, in
lawful money of the United States of America, the principal amount of
TWENTY-FIVE MILLION AND 00/100 DOLLARS ($25,000,000.00), or, if less than such
amount, the aggregate unpaid principal amount of all Advances made by Payee to
Borrowers hereunder in accordance with the terms of that certain Fifth Restated
Loan Agreement, dated as of even date herewith, entered into among Borrowers,
Payee, Agent and FNB (as same may be amended, modified, increased, supplemented
and/or restated from time to time, the "Agreement"), and Borrowers further
promise to pay interest to Payee at such office or other place, in like money,
from the date hereof on the unpaid principal amount hereof from time to time
outstanding at the rates stated in the Agreement. All terms defined in the
Agreement shall have the same meaning when used herein.
1. Payment Terms. The principal of, and all accrued interest upon,
this Note shall be due and payable in the amounts and at the times stated in
the Agreement as follows:
(a) Interest shall be due and payable as provided in the
Agreement;
(b) The entire unpaid principal amount of this Note shall
be due and payable on the Maturity Date.
2. Disbursement and Prepayment. Payee may disburse the principal of
this Note to Borrowers in one or more Advances from time to time in accordance
with the Agreement. Borrowers shall be entitled and in certain instances may
be required to prepay the principal of this Note from time to time in
accordance with the Agreement. Borrowers may borrow, repay and reborrow under
this Note in accordance with the terms of the Agreement. It is contemplated
that by reason of prepayments hereon there may be times when no indebtedness is
owing hereunder; but notwithstanding such occurrences, this Note shall remain
valid and shall be in full force and effect as to Advances made pursuant to the
Agreement subsequent to each such occurrence.
3. Benefits. This Note is the Note referred to in the Agreement,
and Agent and the holder(s) hereof are entitled to the benefits thereof and may
enforce the agreements contained therein and exercise the rights provided for
thereby or otherwise in respect
<PAGE> 64
thereof. Reference to the Agreement shall not affect or impair the absolute
unconditional obligation of Borrowers to pay the principal of, interest on and
any additional payment in connection with this Note when due.
4. Security. The payment of this Note is secured by Collateral more
particularly described in the Agreement.
5. Acceleration of Maturity. Upon the occurrence of an Event of
Default under the Agreement, Banks may (i) declare the principal of, and all
interest then accrued on, this Note, to be forthwith due and payable, whereupon
the same shall forthwith become due and payable without presentment, demand,
protest, or notice of any kind, all of which Borrowers hereby expressly waive,
and/or (ii) exercise of any other right provided in the Loan Documents, or at
law or in equity. Reference is hereby made to the Agreement for a statement of
the events upon which the maturity of this Note may be accelerated
automatically. Borrowers grant to each Bank the right to set off against this
Note, and the right of recoupment from, any and all deposit and other
liabilities of each Bank to Borrowers and all money or property in the
possession of any Bank held for or owed to Borrowers.
6. Waiver. Except as otherwise expressly provided herein or in the
other Loan Documents, Borrowers and all sureties, endorsers and guarantors of
this Note (i) waive demand, presentment for payment, notice of intention to
accelerate, notice of acceleration, protest, notice of protest, notice of
default and all other notices, filing of suit and diligence in collecting this
Note or enforcing any of the security herefor, (ii) agree to any substitution,
exchange or release of any such security or the release of any person or entity
primarily or secondarily liable herefor, (iii) agree that it will not be
necessary for Agent or any holder hereof, in order to enforce payment of this
Note by Agent or such holder, to first institute suit or exhaust its rights
against Borrowers or others liable herefor, or to enforce its rights against
any security herefor, and (iv) consent to any and all extensions for any
period, renewals or postponements of time of payment of this Note or any other
indulgences with respect hereto, without notice thereof to any of them.
7. Attorneys' Fees. If this Note is collected by legal proceedings
or in or through a bankruptcy court, or is placed in the hands of an attorney
for collection after maturity, no matter how maturity is brought about,
Borrowers agree to pay reasonable attorneys fees and all other collection costs
incurred by Agent and the holder(s) of this Note.
8. GOVERNING LAW AND VENUE. THIS NOTE SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS AND APPLICABLE
FEDERAL LAW AND SHALL BE PERFORMABLE IN DALLAS COUNTY, TEXAS, OR AT SUCH OTHER
PLACE AS MAY BE DESIGNATED IN WRITING BY THE HOLDER HEREOF.
9. Headings. The headings of the sections of this Note are inserted
for convenience only and shall not be deemed to constitute a part hereof.
<PAGE> 65
IN WITNESS WHEREOF, Borrowers have executed this Note as of the date
and year first herein written.
BORROWERS:
---------
CLAYTON WILLIAMS ENERGY, INC.
By:
-----------------------------------------
L. Paul Latham
Executive Vice President
WARRIOR GAS CO.
By:
-----------------------------------------
L. Paul Latham
Vice President
<PAGE> 66
EXHIBIT "B-2"
RENEWAL
REVOLVING NOTE
$25,000,000.00 Dallas, Texas July 18, 1996
FOR VALUE RECEIVED, the undersigned, Clayton Williams Energy, Inc., a
Delaware corporation and Warrior Gas Co., a Texas corporation (the "Borrowers")
hereby jointly and severally promise to pay to the order of THE FIRST NATIONAL
BANK OF CHICAGO (the "Payee"), at the office of BANK ONE, TEXAS, N.A.
("Agent"), 1717 Main Street, Dallas, Texas 75201, or at such other place as the
holder hereof may direct, in lawful money of the United States of America, the
principal amount of TWENTY-FIVE MILLION AND 00/100 DOLLARS ($25,000,000.00),
or, if less than such amount, the aggregate unpaid principal amount of all
Advances made by Payee to Borrowers hereunder in accordance with the terms of
that certain Fifth Restated Loan Agreement, dated as of even date herewith,
entered into among Borrowers, Payee, Agent and Banque Paribas (as same may be
amended, modified, increased, supplemented and/or restated from time to time,
the "Agreement"), and Borrowers further promise to pay interest to Payee at
such office or other place, in like money, from the date hereof on the unpaid
principal amount hereof from time to time outstanding at the rates stated in
the Agreement. All terms defined in the Agreement shall have the same meaning
when used herein.
1. Payment Terms. The principal of, and all accrued interest upon,
this Note shall be due and payable in the amounts and at the times stated in
the Agreement as follows:
(a) Interest shall be due and payable as provided in the
Agreement;
(b) The entire unpaid principal amount of this Note shall
be due and payable on the Maturity Date.
2. Disbursement and Prepayment. Payee may disburse the principal of
this Note to Borrowers in one or more Advances from time to time in accordance
with the Agreement. Borrowers shall be entitled and in certain instances may
be required to prepay the principal of this Note from time to time in
accordance with the Agreement. Borrowers may borrow, repay and reborrow under
this Note in accordance with the terms of the Agreement. It is contemplated
that by reason of prepayments hereon there may be times when no indebtedness is
owing hereunder; but notwithstanding such occurrences, this Note shall remain
valid and shall be in full force and effect as to Advances made pursuant to the
Agreement subsequent to each such occurrence.
3. Benefits. This Note is the Note referred to in the Agreement,
and Agent and the holder(s) hereof are entitled to the benefits thereof and may
enforce the agreements contained therein and exercise the rights provided for
thereby or otherwise in respect
<PAGE> 67
thereof. Reference to the Agreement shall not affect or impair the absolute
unconditional obligation of Borrowers to pay the principal of, interest on and
any additional payment in connection with this Note when due.
4. Security. The payment of this Note is secured by Collateral more
particularly described in the Agreement.
5. Acceleration of Maturity. Upon the occurrence of an Event of
Default under the Agreement, Banks may (i) declare the principal of, and all
interest then accrued on, this Note, to be forthwith due and payable, whereupon
the same shall forthwith become due and payable without presentment, demand,
protest, or notice of any kind, all of which Borrowers hereby expressly waive,
and/or (ii) exercise of any other right provided in the Loan Documents, or at
law or in equity. Reference is hereby made to the Agreement for a statement of
the events upon which the maturity of this Note may be accelerated
automatically. Borrowers grant to each Bank the right to set off against this
Note, and the right of recoupment from, any and all deposit and other
liabilities of each Bank to Borrowers and all money or property in the
possession of any Bank held for or owed to Borrowers.
6. Waiver. Except as otherwise expressly provided herein or in the
other Loan Documents, Borrowers and all sureties, endorsers and guarantors of
this Note (i) waive demand, presentment for payment, notice of intention to
accelerate, notice of acceleration, protest, notice of protest, notice of
default and all other notices, filing of suit and diligence in collecting this
Note or enforcing any of the security herefor, (ii) agree to any substitution,
exchange or release of any such security or the release of any person or entity
primarily or secondarily liable herefor, (iii) agree that it will not be
necessary for Agent or any holder hereof, in order to enforce payment of this
Note by Agent or such holder, to first institute suit or exhaust its rights
against Borrowers or others liable herefor, or to enforce its rights against
any security herefor, and (iv) consent to any and all extensions for any
period, renewals or postponements of time of payment of this Note or any other
indulgences with respect hereto, without notice thereof to any of them.
7. Attorneys' Fees. If this Note is collected by legal proceedings
or in or through a bankruptcy court, or is placed in the hands of an attorney
for collection after maturity, no matter how maturity is brought about,
Borrowers agree to pay reasonable attorneys fees and all other collection costs
incurred by Agent and the holder(s) of this Note.
8. GOVERNING LAW AND VENUE. THIS NOTE SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS AND APPLICABLE
FEDERAL LAW AND SHALL BE PERFORMABLE IN DALLAS COUNTY, TEXAS, OR AT SUCH OTHER
PLACE AS MAY BE DESIGNATED IN WRITING BY THE HOLDER HEREOF.
9. Headings. The headings of the sections of this Note are inserted
for convenience only and shall not be deemed to constitute a part hereof.
<PAGE> 68
IN WITNESS WHEREOF, Borrowers have executed this Note as of the date
and year first herein written.
BORROWERS:
---------
CLAYTON WILLIAMS ENERGY, INC.
By:
-----------------------------------------
L. Paul Latham
Executive Vice President
WARRIOR GAS CO.
By:
-----------------------------------------
L. Paul Latham
Vice President
<PAGE> 69
EXHIBIT "C"
FINANCIAL CONDITION
NONE
<PAGE> 70
EXHIBIT "D"
LIABILITIES
NONE
<PAGE> 71
EXHIBIT "E"
LITIGATION
NONE
<PAGE> 72
EXHIBIT "F"
ENVIRONMENTAL MATTERS
NONE
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Clayton Williams Energy, Inc. has five wholly owned subsidiaries as follows:
o Warrior Gas Co., a Texas corporation, which has a wholly owned
subsidiary, Clajon Industrial Gas, Inc., a Texas corporation
o Clayton Williams Trading Company, a Texas corporation
o Clayton Williams Venezuela, Inc. (formerly Clayton Williams Argentina,
Inc.), a Delaware corporation
o CWEI Acquisitions, Inc. (formerly Texas Energy Company), a Delaware
corporation
o Clayton Williams Midland, Inc., a Delaware corporation
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FOR THE
QUARTER THEN ENDED.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,210
<SECURITIES> 0
<RECEIVABLES> 9,641
<ALLOWANCES> 0
<INVENTORY> 445
<CURRENT-ASSETS> 11,861
<PP&E> 355,251
<DEPRECIATION> 272,512
<TOTAL-ASSETS> 94,672
<CURRENT-LIABILITIES> 17,057
<BONDS> 38,528
<COMMON> 0
0
748
<OTHER-SE> 38,339
<TOTAL-LIABILITY-AND-EQUITY> 94,672
<SALES> 27,517
<TOTAL-REVENUES> 29,466
<CGS> 7,161
<TOTAL-COSTS> 23,720
<OTHER-EXPENSES> (40)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,943
<INCOME-PRETAX> 3,843
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,843
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,843
<EPS-PRIMARY> .51
<EPS-DILUTED> 0
</TABLE>
