<PAGE>
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, 1998
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 6500, MIDLAND, TEXAS 79705-5510
----------------------------------------- ----------
(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.
+--+ +--+
|xx| | |
YES +--+ NO +--+
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF AUGUST 6, 1998.....8,907,834
- -------------------------------------------------------------------------------
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<PAGE>
CLAYTON WILLIAMS ENERGY, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
ITEM 1. FINANCIAL STATEMENTS Page
----
<S> <C>
Consolidated Balance Sheets as of June 30, 1998
and December 31, 1997.............................................. 3
Consolidated Statements of Operations for the three months and
six months ended June 30, 1998 and 1997............................ 4
Consolidated Statements of Cash Flows for the six months
ended June 30, 1998 and 1997....................................... 5
Notes to Consolidated Financial Statements........................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................................. 9
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.....................................15
</TABLE>
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- -------------------------------------------------------------------------------
2
<PAGE>
CLAYTON WILLIAMS ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
JUNE 30, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents....................................... $ 1,611 $ 2,150
Accounts receivable:
Trade, net................................................. 1,911 4,197
Affiliates................................................. 159 173
Oil and gas sales.......................................... 5,803 9,126
Inventory....................................................... 1,698 2,530
Other........................................................... 399 1,243
--------- ---------
11,581 19,419
--------- ---------
PROPERTY AND EQUIPMENT
Oil and gas properties, successful efforts method............... 429,998 412,352
Natural gas gathering and processing systems.................... 7,903 7,869
Other........................................................... 10,513 10,411
--------- ---------
448,414 430,632
Less accumulated depreciation, depletion and amortization....... (333,276) (315,559)
--------- ---------
Property and equipment, net................................ 115,138 115,073
--------- ---------
OTHER ASSETS......................................................... 59 70
--------- ---------
$ 126,778 $ 134,562
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable:
Trade...................................................... $ 14,337 $ 16,480
Affiliates................................................. 93 603
Oil and gas sales.......................................... 5,411 7,679
Current maturities of long-term debt............................ - 42
Accrued liabilities and other................................... 834 984
--------- ---------
20,675 25,788
--------- ---------
LONG-TERM DEBT....................................................... 38,100 35,700
--------- ---------
STOCKHOLDERS' EQUITY
Preferred stock, par value $.10 per share; authorized -
3,000,000 shares; issued and outstanding - none................ - -
Common stock, par value $.10 per share; authorized - 15,000,000
shares; issued - 8,899,720 shares in 1998 and 8,980,539
shares in 1997................................................. 890 898
Additional paid-in capital...................................... 69,507 70,856
Retained earnings (deficit)..................................... (2,394) 2,840
--------- ---------
68,003 74,594
Less treasury stock, at cost (95,000 shares in 1997)............ - (1,520)
--------- ---------
68,003 73,074
--------- ---------
$ 126,778 $ 134,562
--------- ---------
--------- ---------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
3
<PAGE>
CLAYTON WILLIAMS ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE)
<TABLE>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
REVENUES
Oil and gas sales............................... $13,736 $16,256 $30,565 $32,820
Natural gas services............................ 1,112 837 2,048 2,167
------- ------- ------- -------
Total revenues............................. 14,848 17,093 32,613 34,987
------- ------- ------- -------
COSTS AND EXPENSES
Lease operations................................ 3,664 3,789 7,652 7,930
Exploration:
Abandonments and impairments............... 5,063 536 5,476 722
Seismic and other.......................... 816 1,913 2,049 3,531
Natural gas services............................ 951 634 1,709 1,779
Depreciation, depletion and amortization........ 8,952 7,606 17,826 13,950
General and administrative...................... 1,095 1,058 2,172 1,961
------- ------- ------- -------
Total costs and expenses................... 20,541 15,536 36,884 29,873
------- ------- ------- -------
Operating income (loss).................... (5,693) 1,557 (4,271) 5,114
------- ------- ------- -------
OTHER INCOME (EXPENSE)
Interest expense................................ (508) (439) (985) (791)
Other........................................... 5 69 22 95
------- ------- ------- -------
Total other income (expense)............... (503) (370) (963) (696)
------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES.................... (6,196) 1,187 (5,234) 4,418
INCOME TAX EXPENSE................................... - - - -
------- ------- ------- -------
NET INCOME (LOSS).................................... $(6,196) $ 1,187 $(5,234) $ 4,418
------- ------- ------- -------
------- ------- ------- -------
Net income (loss) per common share:
Basic........................................... $ (.70) $ .13 $ (.59) $ .50
------- ------- ------- -------
------- ------- ------- -------
Diluted......................................... $ (.70) $ .13 $ (.59) $ .49
------- ------- ------- -------
------- ------- ------- -------
Weighted average common shares outstanding:
Basic........................................... 8,896 8,878 8,892 8,892
------- ------- ------- -------
------- ------- ------- -------
Diluted......................................... 8,896 9,078 8,892 9,095
------- ------- ------- -------
------- ------- ------- -------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
4
<PAGE>
CLAYTON WILLIAMS ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
SIX MONTHS ENDED
JUNE 30,
-------------------------------
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)................................................. $ (5,234) $ 4,418
Adjustments to reconcile net income (loss) to cash provided by
operating activities:
Depreciation, depletion and amortization..................... 17,826 13,950
Exploration costs............................................ 5,476 722
Other........................................................ 150 194
Changes in operating working capital:
Accounts receivable.......................................... 5,623 2,284
Accounts payable............................................. (1,190) (2,337)
Other........................................................ 937 115
-------- --------
Net cash provided by operating activities............. 23,588 19,346
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment............................... (26,550) (23,964)
Proceeds from sales of property and equipment..................... 23 39
-------- --------
Net cash used in investing activities................. (26,527) (23,925)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt...................................... 2,400 4,800
Repurchase of common stock for treasury........................... - (1,115)
Proceeds from sale of common stock................................ - 29
-------- --------
Net cash provided by financing activities............. 2,400 3,714
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS.............................. (539) (865)
CASH AND CASH EQUIVALENTS
Beginning of period............................................... 2,150 2,479
-------- --------
End of period..................................................... $ 1,611 $ 1,614
-------- --------
-------- --------
SUPPLEMENTAL DISCLOSURES
Cash paid for interest, net of amounts capitalized................ $ 993 $ 776
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
5
<PAGE>
CLAYTON WILLIAMS ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(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 oil and gas exploration, development
and production activities in south and east Texas, southeastern New Mexico
and the Texas Gulf Coast. The Company has also initiated exploration
activities in Louisiana and Mississippi.
In the opinion of management, the Company's unaudited consolidated
financial statements as of June 30, 1998 and for the interim periods ended
June 30, 1998 and 1997 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, 1998.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management of the Company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
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 1997 Form 10-K.
2. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
JUNE 30, DECEMBER 31,
1998 1997
---- ----
(IN THOUSANDS)
<S> <C> <C>
Secured Bank Credit Facility (matures July 31, 2001)....... $38,100 $35,700
Other...................................................... - 42
------- -------
38,100 35,742
Less current maturities.................................... - 42
------- -------
$38,100 $35,700
------- -------
------- -------
</TABLE>
6
<PAGE>
The Company's secured bank credit facility (the "Credit Facility")
provides for a revolving loan facility in an amount not to exceed the lesser
of the borrowing base, as established by the banks, or that portion of the
borrowing base determined by the Company to be the elected borrowing limit.
In July 1998, the banks established a borrowing base of $50 million, leaving
$11.9 million available on the Credit Facility at June 30, 1998. The
borrowing base is scheduled to be redetermined in November 1998 and at least
semi-annually thereafter; however, either the Company or the banks may
request a borrowing base redetermination 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. Substantially all of
the Company's oil and gas properties are pledged to secure advances under the
secured bank credit facility.
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 loan 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 3/8% 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% to 1.75% per annum. At June 30, 1998, the
Company's indebtedness under the Credit Facility consisted of $37 million of
Eurodollar Loans at a rate of 7.4% and $1.1 million of Base Rate Loans at a
rate of 8.9%.
In addition, the Company pays the banks a commitment fee equal to 1/4%
per annum on the unused portion of the revolving loan commitment. Interest
on the revolving loan and commitment fees are payable quarterly, and all
outstanding principal and interest will be due July 31, 2001.
The loan agreement requires the Company to maintain financial ratios
covering working capital, cash flow and net tangible assets. The Company was
in compliance with all covenants at June 30, 1998.
3. CANCELLATION OF TREASURY STOCK
In June 1998, the Company cancelled 95,000 shares of its common stock held
as treasury stock. The cost of the cancelled shares, which totalled $1,520,000,
was reclassified as a reduction in common stock and additional paid-in capital.
4. EARNINGS PER SHARE
In December 1997, the Company adopted Statement of Financial Accounting
Standards No. 128 "Earnings Per Share" ("SFAS 128"), which changes the method
of computing and disclosing earnings per share for periods ending after
December 15, 1997. In accordance with SFAS 128, basic earnings per common
share was computed by dividing net income (loss) by the weighted average
number of shares of common stock outstanding during the period. Diluted
earnings per common share was computed by including the dilutive effect, if
any, of outstanding employee stock options utilizing the treasury stock
method. All prior periods have been restated to give effect to the adoption
of SFAS 128, the impact of which was immaterial. For all periods presented,
the differences between basic shares and diluted shares were attributable to
the dilutive effect of employee stock options.
7
<PAGE>
5. STOCK COMPENSATION PLANS
In May 1995, the Company's Board of Directors adopted the Executive
Incentive Stock Compensation Plan, permitting the Company to pay all or part of
selected executives' salaries in shares of common stock in lieu of cash. The
Company reserved 500,000 shares of common stock for issuance under this plan.
During the six months ended June 30, 1998, the Company issued Mr. Williams
11,842 shares of common stock in lieu of cash compensation aggregating $137,819.
Subsequent to June 30, 1998, the Company issued Mr. Williams an additional
5,354 shares in lieu of cash compensation aggregating $46,801. The amounts of
such compensation are included in general and administrative expense in the
accompanying consolidated financial statements.
6. 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, 1998 are gains totaling
$4,989,000 (comprised of gains of $5,092,000, partially offset by losses of
$103,000). The Company did not hedge any of its oil and gas production during
the 1997 period.
In addition, the Company has entered into swap arrangements for 692,000
barrels of oil production for the period from July 1998 through December 1998 at
an average price of $19.51 and has hedged 1,940,000 MMBtu of gas production for
the period from July 1998 through December 1998 at an average price of $2.46.
7. INCOME TAXES
No provisions for income tax expense were required during the periods
presented since the Company has net operating loss carryforwards available to
offset any taxable income generated during such periods. Due to the uncertainty
of realizing the related future benefits from these tax loss carryforwards,
valuation allowances were recorded at June 30, 1998 and 1997 to the extent net
deferred tax assets exceed net deferred tax liabilities.
8. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130 "Reporting Comprehensive Income"
("SFAS 130"). SFAS 130 establishes standards for reporting and displaying of
comprehensive income and its components (revenue, expenses, gains and losses)
in a full set of general-purpose financial statements. During the three
months and six months ended June 30, 1998 and 1997, the Company reported no
differences between comprehensive income and net income.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and
reporting standards for derivative instruments and hedging activities. It
requires that derivatives be recognized as assets or liabilities and measured at
their fair value. SFAS 133 will be adopted in 2000 and is not expected to have
a material effect on the Company's financial condition or operations.
8
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain statements in this Form 10-Q constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
All statements, other than statements of historical facts, included in this Form
10-Q that address activities, events or developments that Clayton Williams
Energy, Inc. and its subsidiaries (the "Company") expects, projects, believes or
anticipates will or may occur in the future, including such matters as oil and
gas reserves, future drilling and operations, future production of oil and gas,
future net cash flows, future capital expenditures and other such matters, are
forward-looking statements. Such forward-looking statements involve known and
unknown risks, uncertainties, and other factors which may cause the actual
results, performance, or achievements of the Company to be materially different
from any future results, performance, or achievements expressed or implied by
such forward-looking statements. Such factors include, among others, the
following: the volatility of oil and gas prices, the Company's drilling
results, the Company's ability to replace short-lived reserves, the availability
of capital resources, the reliance upon estimates of proved reserves, operating
hazards and uninsured risks, competition, government regulation, the ability of
the Company to implement its business strategy, and other factors referenced in
this Form 10-Q.
The following discussion is intended to assist in understanding the
Company's historical consolidated financial position at June 30, 1998 and
results of operations and cash flows for the periods ended June 30, 1998 and
1997. This discussion should be read in conjunction with the Company's Form
10-K for the year ended December 31, 1997 and the consolidated financial
statements and notes thereto included in this Form 10-Q.
OVERVIEW
Prior to 1998, the Company and its predecessors concentrated their drilling
activities 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 its oil and gas reserve base, production
levels and cash flow from operations, the Company has been required to maintain
or increase its level of drilling activity and achieve comparable or improved
results from such activities. Except for its participation in wells proposed by
other operators and wells which must be drilled in order to preserve its
drilling rights, the Company has indefinitely suspended Trend drilling
activities until oil prices improve and stabilize.
Beginning in 1997, the Company initiated several exploratory projects
designed to reduce its dependence on Trend drilling for future production and
reserve growth. These new areas include other formations in the vicinity of its
core properties in east central Texas, as well as south Texas, Louisiana and
Mississippi. During 1998, the Company is devoting a substantial portion of its
capital expenditures to these new areas and is actively seeking and evaluating
opportunities to acquire proven properties. See "LIQUIDITY AND CAPITAL
RESOURCES -- CAPITAL EXPENDITURES."
The Company follows the successful efforts method of accounting for its oil
and gas properties, whereby costs of productive wells, developmental dry holes
and productive leases are capitalized and amortized using the unit-of-production
method based on estimated proved reserves. Costs of unproved properties are
initially capitalized. Those properties with significant acquisition costs are
periodically assessed, and any impairment in value is charged to expense. The
amount of impairment recognized on unproved properties which are not
individually significant is determined by amortizing the costs of such
properties within appropriate groups based on the Company's historical
experience, acquisition dates and average lease terms. Exploration costs,
including geological and geophysical expenses and delay rentals, are charged to
expense as incurred. Exploratory drilling costs, including the cost of
stratigraphic test wells, are initially capitalized but charged to expense if
and when the well is determined to be unsuccessful.
9
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain operating information of the Company
for the periods presented:
<TABLE>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ -----------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
OIL AND GAS PRODUCTION DATA:
Oil (MBbls).......................... 703 705 1,496 1,282
Gas (MMcf)........................... 1,168 1,282 2,421 2,497
MBOE (1)............................. 898 919 1,900 1,698
AVERAGE OIL AND GAS SALES PRICES (2):
Oil ($/Bbl).......................... $16.42 $19.14 $16.73 $20.56
Gas ($/Mcf).......................... $ 2.17 $ 2.20 $ 2.40 $ 2.55
OIL AND GAS COSTS ($/BOE PRODUCED):
Lease operating expenses............. $ 4.08 $ 4.12 $ 4.03 $ 4.67
Oil and gas depletion................ $ 9.69 $ 8.05 $ 9.12 $ 7.97
NET WELLS DRILLED (3):
Exploratory Wells.................... - 3.0 2.5 5.3
Developmental Wells.................. .5 5.7 4.4 14.9
</TABLE>
- -----------
(1) Gas is converted to barrel of oil equivalents (BOE) at the ratio of six Mcf
of gas to one Bbl of oil.
(2) Includes effects of hedging transactions.
(3) Excludes well being drilled or completed at June 30, 1998.
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO JUNE 30, 1997
REVENUES
Oil and gas sales decreased 16% from $16.3 million in 1997 to $13.7 million
in 1998 due primarily to a 14% decline in the Company's average oil price (after
giving effect to a $3.62 per barrel gain on hedging transactions). Excluding
hedging transactions, the average price per barrel of oil declined 33% from
$19.14 in 1997 to $12.80 in 1998. Although oil production for the current
quarter was substantially equal to that of the 1997 quarter, several factors
related to the current depressed levels of oil prices had a negative impact on
production. Except for its participation in wells proposed by other operators
and wells which must be drilled in order to preserve its drilling rights, the
Company has indefinitely suspended Trend drilling activities until oil prices
improve and stabilize. In addition, the Company has voluntarily reduced the
rate of production on certain of its oil properties in the Trend in an effort to
retain the curtailed production for future sale at more favorable prices. This
curtailment strategy resulted in a decrease of 48,000 net barrels of oil
production during the second quarter of 1998. Depending upon the level and
volatility of oil prices, the Company may continue to curtail oil production,
which could result in a decrease of up to 125,000 net barrels of oil per quarter
during the remainder of 1998. Both the suspension of Trend drilling and the
curtailment of production for an extended period of time may adversely affect
the Company's reported production volumes and revenues during the remainder of
1998.
Revenues from natural gas services increased 31% from $837,000 in 1997 to
$1.1 million in 1998 due primarily to an increase in contract volumes.
COSTS AND EXPENSES
Lease operations expenses decreased 3% from $3.8 million in 1997 to $3.7
million in 1998 due primarily to lower production taxes resulting from a
significant decline in oil prices. Oil and gas production
10
<PAGE>
on a BOE basis decreased 2% during the current quarter, causing a 1% decrease
in lease operations expenses on a BOE basis from $4.12 per BOE in 1997 to
$4.08 per BOE in 1998.
Exploration costs increased 146% from $2.4 million in 1997 to $5.9
million in 1998 due primarily to the charge-off of two exploratory dry holes
during the current quarter, which was offset in part by lower seismic costs.
During the remainder of 1998, the Company expects to conduct exploratory
drilling on several of the prospects generated by seismic surveys which were
initiated in 1997. See "LIQUIDITY AND CAPITAL RESOURCES -- CAPITAL
EXPENDITURES." Because the Company follows the successful efforts method of
accounting, the Company's results of operations may be adversely affected
during any accounting period in which seismic costs, exploratory dry hole
costs, and unproved property impairments are expensed.
DD&A expense increased 18% from $7.6 million in 1997 to $9.0 million in
1998 due primarily to a 20% increase 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 increase in the Company's average depletion
rate was primarily attributable to the effects of lower oil and gas prices on
estimated quantities of proved reserves.
Costs of natural gas services increased 50% from $634,000 in 1997 to
$951,000 in 1998 due primarily to an increase in contract volumes.
INTEREST EXPENSE AND OTHER
Interest expense increased 16% from $439,000 in 1997 to $508,000 in 1998
due primarily to higher average levels of indebtedness on the Credit
Facility, offset in part by an increase in capitalized interest and lower
average interest rates. The average daily principal balance outstanding on
such facility during the second quarter of 1998 was $36.2 million compared to
$21.6 million in 1997. The effective annual interest rate on bank debt,
including bank fees, during the 1998 quarter was 8.1% compared to 9.0% in
1997. Capitalized interest was $178,000 higher during the 1998 quarter due
to a significant increase in unproved acreage since June 30, 1997.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO JUNE 30, 1997
REVENUES
Oil and gas sales decreased 7% from $32.8 million in 1997 to $30.6
million in 1998. The benefits derived from a 17% increase in oil production
were more than offset by lower product prices. The Company's average oil
price during the current period declined 19% (after giving effect to a $3.16
per barrel gain on hedging activities). Excluding hedging transactions, the
Company's average price per barrel of oil declined 34% from $20.56 in 1997 to
$13.57 in 1998. Although oil production for the current period increased 17%
as compared to the 1997 period, several factors related to the current
depressed levels of oil prices had a negative impact on production. Except
for its participation in wells proposed by other operators and wells which
must be drilled in order to preserve its drilling rights, the Company has
indefinitely suspended Trend drilling activities until oil prices improve and
stabilize. In addition, the Company has voluntarily reduced the rate of
production on certain of its oil properties in the Trend in an effort to
retain the curtailed production for future sale at more favorable prices.
This curtailment strategy resulted in a decrease of 48,000 net barrels of oil
production during the second quarter of 1998. Depending upon the level and
volatility of oil prices, the Company may continue to curtail oil production,
which could result in a decrease of up to 125,000 net barrels of oil per
quarter during the remainder of 1998. Both the suspension of Trend drilling
and the curtailment of production for an extended period of time may
adversely affect the Company's reported production volumes and revenues
during the remainder of 1998.
11
<PAGE>
COSTS AND EXPENSES
Lease operations expenses decreased 3% from $7.9 million in 1997 to $7.7
million in 1998 due primarily to lower production taxes resulting from a
significant decline in oil prices. Oil and gas production on a BOE basis
decreased 12% during the current period, causing a 14% decrease in lease
operations expenses on a BOE basis from $4.67 per BOE in 1997 to $4.03 per BOE
in 1998.
Exploration costs increased 74% from $4.3 million in 1997 to $7.5 million
in 1998 due primarily to the charge-off of two exploratory dry holes during the
current quarter, which was offset in part by lower seismic costs. During the
remainder of 1998, the Company expects to conduct exploratory drilling on
several of the prospects generated by seismic surveys which were initiated in
1997. See "LIQUIDITY AND CAPITAL RESOURCES -- CAPITAL EXPENDITURES." Because
the Company follows the successful efforts method of accounting, the Company's
results of operations may be adversely affected during any accounting period in
which seismic costs, exploratory dry hole costs, and unproved property
impairments are expensed.
DD&A expense increased 27% from $14.0 million in 1997 to $17.8 million in
1998 due primarily to a 12% increase in oil and gas production on a BOE basis,
combined with a 14% increase 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 increase in the Company's average depletion rate was
primarily attributable to the effects of lower oil and gas prices on estimated
quantities of proved reserves.
INTEREST EXPENSE AND OTHER
Interest expense increased 25% from $791,000 in 1997 to $985,000 in 1998
due primarily to higher average levels of indebtedness on the Credit Facility,
offset in part by an increase in capitalized interest and lower average interest
rates. The average daily principal balance outstanding on such facility during
the first six months of 1998 was $35.5 million compared to $19.2 million in
1997. The effective annual interest rate on bank debt, including bank fees,
during the 1998 period was 8.2% compared to 9.0% in 1997. Capitalized interest
was $407,000 higher during the 1998 period due to a significant increase in
unproved acreage since June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
The Company's primary financial resource is its oil and gas reserves. In
accordance with the terms of the Credit Facility, the banks establish a
borrowing base, as derived from the estimated value of the Company's oil and gas
properties, 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 such estimated value and thereby on the
Company's borrowing availability under the Credit Facility. 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 1998, and the expected capital resources needed to finance such
plans.
CAPITAL EXPENDITURES
The Company has generally suspended its Trend drilling activities, except
for its participation in wells proposed by other operators and wells which must
be drilled in order to preserve the Company's drilling rights, until oil prices
improve and stabilize. During the first six months of 1998, the Company spent
$9.0
12
<PAGE>
million on Trend drilling and leasing activities compared to $20.6 million
during the first six months of 1997.
In 1998, the Company is devoting a substantial portion of its capital
expenditures to its emerging exploration program. In May 1998, the Company
began drilling a 16,000 foot exploratory gas well to test one of the reef
anomalies identified through a 3-D seismic survey completed in 1997 in
connection with its Cotton Valley Pinnacle Reef play. In addition, the
Company plans to complete the interpretation of the 3-D seismic survey and
extend and renew existing leases during 1998. During the first six months of
1998, the Company incurred $3.1 million on drilling, leasing and seismic
activities on the Cotton Valley Pinnacle Reef play, and plans to incur a
total of approximately $9.5 million on this project during 1998.
The Company is also completing an exploratory gas well in Walker County,
Texas with two horizontal laterals combining to penetrate over 11,000 feet of
the Glen Rose formation. During the first six months of 1998, the Company
incurred $4.7 million on leasing and drilling activities in this area and
plans to incur a total of approximately $11 million in 1998. Presently, the
Company has approximately 100,000 net acres under lease or option on this
prospect.
The Company has conducted three separate 3-D seismic surveys in south
Texas, one in 1997 and two in 1998. The Company is completing an exploratory
gas well in Duval County, Texas which was drilled to test one of eight Wilcox
prospects generated by one 3-D seismic survey covering approximately 12,000
net acres. In addition, the Company plans to drill three additional
exploratory wells in 1998 on other gas prospects generated by these surveys.
During the first six months of 1998, the Company incurred $2.1 million on
leasing, seismic and drilling activities on these south Texas prospects and
plans to incur a total of approximately $7 million on these prospects in 1998.
In addition, the Company incurred $5.4 million during the first six
months of 1998 on other exploration projects, primarily in east Texas,
Louisiana and Mississippi, and plans to incur a total of approximately $8.5
million on such projects during 1998.
Substantially all of the activity planned for the remainder of 1998 is
discretionary. This allows the Company to make adjustments to its level of
capital and exploratory 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
expenditures accordingly.
The Company does not have any specified amounts of capital expenditures
designated for acquisitions of proven properties in 1998. However, the
Company plans to actively seek and evaluate acquisition opportunities and
will commit only to those acquisitions which the Company can adequately
finance through internal and external sources.
CAPITAL RESOURCES
CREDIT FACILITY
The Credit Facility provides for a revolving loan facility in an amount
not to exceed the lesser of the borrowing base, as established by the banks,
or that portion of the borrowing base determined by the Company to be the
elected borrowing limit. In July 1998, the banks established a borrowing
base of $50 million, leaving $11.9 million available on the credit facility
at June 30, 1998. The borrowing base is scheduled for redetermination in
November 1998, and at least semi-annually thereafter. The Company intends to
use such borrowing capacity, together with internally generated funds, to
finance its 1998 planned capital and exploratory expenditures.
WORKING CAPITAL AND CASH FLOW
During the first six months of 1998, the Company generated cash flow from
operating activities of $23.6 million, borrowed $2.4 million on the Credit
Facility, and spent $26.5 million on capital expenditures.
13
<PAGE>
The Company's working capital deficit increased from $6.4 million at
December 31, 1997 to $9.1 million at June 30, 1998. The Company applies most
of its available cash toward the repayment of the Credit Facility. Since all
outstanding indebtedness on the Credit Facility is classified as a noncurrent
liability, the timing of receipts and disbursements can cause reported
working capital to fluctuate as it did from December 31, 1997 to June 30,
1998. However, working capital will increase as funds are advanced on the
Credit Facility to finance the Company's capital expenditure program.
The Company believes that the funds available under the Credit Facility
and cash provided by operations will be adequate to fund the Company's
operations and projected capital and exploratory expenditures during 1998.
However, because future cash flows and the availability of borrowings are
subject to a number of variables, such as the level of production from
existing wells, the Company's success in locating and producing new reserves,
prevailing prices of oil and gas, and the uncertainty with respect to the
amount of funds which may ultimately be required to finance the Company's
exploration program, there can be no assurance that the Company's capital
resources will be sufficient to sustain the Company's exploratory and
development activities. If such capital resources are insufficient, the
Company may be required to cease or delay such activities.
HEDGING TRANSACTIONS
From time to time, the Company has utilized hedging transactions with
respect to a portion of its oil and gas production to achieve a more
predictable cash flow, as well as to reduce its exposure to price
fluctuations. While the use of these hedging arrangements limits the downside
risk of price declines, such use may also limit any benefits which may be
derived from price increases.
The Company uses various financial instruments, such as swaps and
collars, whereby monthly settlements are based on differences between the
prices specified in the instruments and the settlement prices of certain
futures contracts quoted on the NYMEX or certain other indices. Generally,
when the applicable settlement price is less than the price specified in the
contract, the Company receives a settlement from the counterparty based on
the difference. Similarly, when the applicable settlement price is higher
than the specified price, the Company pays the counterparty based on the
difference. The instruments utilized by the Company differ from futures
contracts in that there is not a contractual obligation which requires or
allows for the future physical delivery of the hedged products.
The Company has entered into swap arrangements for 692,000 barrels of
oil production for the period from July 1998 through December 1998 at an
average price of $19.51, and has hedged 1,940,000 MMBtu of gas production for
the period from July 1998 through December 1998 at an average price of $2.46.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
<TABLE>
EXHIBIT
NUMBER DESCRIPTION
------ --------------------------------------------------
<S> <C>
10.1 Sixth Restated Loan Agreement dated as of July 16,
1998, among Clayton Williams Energy, Inc.,
Warrior Gas Co., CWEI Acquisitions, Inc.,
Bank One, Texas, N.A. and Banque Paribas.
27 Financial Data Schedule
</TABLE>
REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended June 30,
1998.
15
<PAGE>
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 10, 1998 By: /s/ L. Paul Latham
----------------------------------
L. Paul Latham
Executive Vice President and Chief
Operating Officer
Date: August 10, 1998 By: /s/ Mel G. Riggs
----------------------------------
Mel G. Riggs
Senior Vice President and Chief
Financial Officer
<PAGE>
INDEX TO EXHIBITS
<TABLE>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ --------------------------------------------------------
<S> <C>
10.1 Sixth Restated Loan Agreement dated as of July 16, 1998,
among Clayton Williams Energy, Inc., Warrior Gas Co.,
CWEI Acquisitions, Inc., Bank One, Texas, N.A. and
Banque Paribas.
27 Financial Data Schedules
</TABLE>
<PAGE>
SIXTH RESTATED LOAN AGREEMENT
AMONG
CLAYTON WILLIAMS ENERGY, INC.,
WARRIOR GAS CO.,
CWEI ACQUISITIONS, INC.,
BANK ONE, TEXAS, N.A.
AND BANQUE PARIBAS
JULY ____, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Commitments of the Banks.. . . . . . . . . . . . . . . . . . . . . . 9
(a) Terms of Revolving Commitment . . . . . . . . . . . . . . . . . 9
(b) Letters of Credit . . . . . . . . . . . . . . . . . . . . . . .10
(c) Procedure for Advances on the Revolving Loan. . . . . . . . . .11
(d) Procedure for Obtaining Letters of Credit.. . . . . . . . . . .12
(e) Several Obligations.. . . . . . . . . . . . . . . . . . . . . .12
3. Notes Evidencing Loans.. . . . . . . . . . . . . . . . . . . . . . .12
(a) Form of Revolving Notes . . . . . . . . . . . . . . . . . . . .12
(b) Interest Rates . . . . . . . . . . . . . . . . . . . . . . . .13
(c) Payment of Interest . . . . . . . . . . . . . . . . . . . . . .13
(d) Payment of Principal . . . . . . . . . . . . . . . . . . . . .13
(e) Issuance of Additional Notes . . . . . . . . . . . . . . . . .13
4. Interest Rates.. . . . . . . . . . . . . . . . . . . . . . . . . . .13
(a) Options . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
(b) Interest Rate Determination . . . . . . . . . . . . . . . . . .14
(c) Conversion Option . . . . . . . . . . . . . . . . . . . . . . .14
(d) Recoupment. . . . . . . . . . . . . . . . . . . . . . . . . . .15
5. Special Provisions Relating to Eurodollar Loans. . . . . . . . . . .15
(a) Unavailability of Funds or Inadequacy of Pricing. . . . . . . .15
(b) Reserve Requirements. . . . . . . . . . . . . . . . . . . . . .15
(c) Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
(d) Change in Laws. . . . . . . . . . . . . . . . . . . . . . . . .16
(e) Option to Fund. . . . . . . . . . . . . . . . . . . . . . . . .16
(f) Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . .17
6. Collateral Security. . . . . . . . . . . . . . . . . . . . . . . . .17
7. Borrowing Base.. . . . . . . . . . . . . . . . . . . . . . . . . . .18
(a) Initial Borrowing Base. . . . . . . . . . . . . . . . . . . . .18
(b) Subsequent Determinations of Borrowing Base.. . . . . . . . . .18
(c) Voluntary Decreases in Borrowing Base.. . . . . . . . . . . . .19
(d) Monthly Commitment Reduction. . . . . . . . . . . . . . . . . .19
i
<PAGE>
8. Fees.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
(a) Unused Portion Fee. . . . . . . . . . . . . . . . . . . . . . .19
(b) Borrowing Base Increase Fee.. . . . . . . . . . . . . . . . . .19
(c) Letter of Credit Fee. . . . . . . . . . . . . . . . . . . . . .19
(d) Agency Fee. . . . . . . . . . . . . . . . . . . . . . . . . . .19
9. Prepayments. . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
(a) Voluntary Prepayments.. . . . . . . . . . . . . . . . . . . . .20
(b) Mandatory Prepayment. . . . . . . . . . . . . . . . . . . . . .20
10. Representations and Warranties. . . . . . . . . . . . . . . . . . .20
(a) Creation and Existence. . . . . . . . . . . . . . . . . . . . .21
(b) Power and Authorization.. . . . . . . . . . . . . . . . . . . .21
(c) Binding Obligations.. . . . . . . . . . . . . . . . . . . . . .21
(d) No Legal Bar or Resultant Lien. . . . . . . . . . . . . . . . .21
(e) No Consent. . . . . . . . . . . . . . . . . . . . . . . . . . .21
(f) Financial Condition.. . . . . . . . . . . . . . . . . . . . . .21
(g) Liabilities.. . . . . . . . . . . . . . . . . . . . . . . . . .22
(h) Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . .22
(i) Taxes; Governmental Charges.. . . . . . . . . . . . . . . . . .22
(j) Titles, Etc.. . . . . . . . . . . . . . . . . . . . . . . . . .22
(k) Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . .22
(l) Casualties; Taking of Properties. . . . . . . . . . . . . . . .22
(m) Use of Proceeds; Margin Stock.. . . . . . . . . . . . . . . . .23
(n) Location of Business and Offices. . . . . . . . . . . . . . . .23
(o) Compliance with the Law.. . . . . . . . . . . . . . . . . . . .23
(p) No Material Misstatements.. . . . . . . . . . . . . . . . . . .23
(q) ERISA.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
(r) Public Utility Holding Company Act. . . . . . . . . . . . . . .24
(s) Environmental Matters.. . . . . . . . . . . . . . . . . . . . .24
(t) Guarantor.. . . . . . . . . . . . . . . . . . . . . . . . . . .24
(u) Year 2000 Compliance. . . . . . . . . . . . . . . . . . . . . .24
11. Conditions of Lending. . . . . . . . . . . . . . . . . . . . . . . .25
12. Affirmative Covenants. . . . . . . . . . . . . . . . . . . . . . . .27
(a) Financial Statements and Reports. . . . . . . . . . . . . . . .27
(b) Certificates of Compliance. . . . . . . . . . . . . . . . . . .28
(c) Taxes and Other Liens.. . . . . . . . . . . . . . . . . . . . .28
(d) Compliance with Laws. . . . . . . . . . . . . . . . . . . . . .29
(e) Further Assurances. . . . . . . . . . . . . . . . . . . . . . .29
(f) Performance of Obligations. . . . . . . . . . . . . . . . . . .29
(g) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . .29
ii
<PAGE>
(h) Accounts and Records. . . . . . . . . . . . . . . . . . . . . .30
(i) Right of Inspection.. . . . . . . . . . . . . . . . . . . . . .30
(j) Notice of Certain Events. . . . . . . . . . . . . . . . . . . .30
(k) ERISA Information and Compliance. . . . . . . . . . . . . . . .30
(l) Environmental Reports and Notices.. . . . . . . . . . . . . . .31
(m) Maintenance.. . . . . . . . . . . . . . . . . . . . . . . . . .31
(n) Title Matters.. . . . . . . . . . . . . . . . . . . . . . . . .31
(o) Curative Matters. . . . . . . . . . . . . . . . . . . . . . . .31
(p) Additional Collateral.. . . . . . . . . . . . . . . . . . . . .32
(q) Year 2000 Compatibility . . . . . . . . . . . . . . . . . . . .32
13. Negative Covenants.. . . . . . . . . . . . . . . . . . . . . . . . .32
(a) Liens.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
(b) Debts, Guaranties and Other Obligations.. . . . . . . . . . . .33
(c) Current Ratio . . . . . . . . . . . . . . . . . . . . . . . . .34
(d) Ratio of Cash Flow to Debt Service. . . . . . . . . . . . . . .34
(e) Limitation on Sale of Collateral. . . . . . . . . . . . . . . .34
(f) Mergers and Consolidations. . . . . . . . . . . . . . . . . . .34
(g) Use of Proceeds.. . . . . . . . . . . . . . . . . . . . . . . .34
(h) Loans or Advances.. . . . . . . . . . . . . . . . . . . . . . .35
(i) Hedging Transactions. . . . . . . . . . . . . . . . . . . . . .35
(j) Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . .35
(k) Investments . . . . . . . . . . . . . . . . . . . . . . . . . .35
(l) Change of Control . . . . . . . . . . . . . . . . . . . . . . .36
(m) Minimum Tangible Net Worth. . . . . . . . . . . . . . . . . . .36
14. Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . .36
15. Exercise of Rights. . . . . . . . . . . . . . . . . . . . . . . . .38
16. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
17. The Agent and the Banks. . . . . . . . . . . . . . . . . . . . . . .39
(a) Appointment and Authorization.. . . . . . . . . . . . . . . . .39
(b) Note Holders. . . . . . . . . . . . . . . . . . . . . . . . . .39
(c) Consultation with Counsel.. . . . . . . . . . . . . . . . . . .39
(d) Documents.. . . . . . . . . . . . . . . . . . . . . . . . . . .39
(e) Resignation or Removal of Agent . . . . . . . . . . . . . . . .40
(f) Responsibility of Agent . . . . . . . . . . . . . . . . . . . .40
(g) Independent Investigation . . . . . . . . . . . . . . . . . . .42
(h) Indemnification . . . . . . . . . . . . . . . . . . . . . . . .42
(i) Benefit of Section 17 . . . . . . . . . . . . . . . . . . . . .42
(j) Pro Rata Treatment. . . . . . . . . . . . . . . . . . . . . . .42
iii
<PAGE>
(k) Interests of Banks. . . . . . . . . . . . . . . . . . . . . . .43
(l) Failure By Any Bank to Provide Funds to Agent . . . . . . . . .43
18. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
19. Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
20. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . .45
21. Invalid Provisions.. . . . . . . . . . . . . . . . . . . . . . . . .45
22. Maximum Interest Rate. . . . . . . . . . . . . . . . . . . . . . . .45
23. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
24. Multiple Counterparts. . . . . . . . . . . . . . . . . . . . . . . .46
25. Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
26. Survival.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
27. Parties Bound. . . . . . . . . . . . . . . . . . . . . . . . . . . .46
28. Assignments and Participations . . . . . . . . . . . . . . . . . . .46
29. Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . .48
30. Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . .48
31. Written Consent. . . . . . . . . . . . . . . . . . . . . . . . . . .49
</TABLE>
iv
<PAGE>
SIXTH RESTATED LOAN AGREEMENT
THIS SIXTH RESTATED LOAN AGREEMENT (hereinafter referred to as the
"Agreement") executed as of the ____ day of July, 1998, 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") and BANQUE PARIBAS, a French
banking corporation ("Paribas"), (Bank One and Paribas 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 July 18, 1996, Borrower, Bank One, Paribas and The First
National Bank of Chicago ("FNB") entered into a Fifth Restated Loan Agreement
(the "Loan Agreement"), pursuant to the terms of which the Banks agreed to
provide a $100,000,000 reducing revolving loan facility to Borrower;
WHEREAS, as of December 31, 1996, Borrower, Bank One, Paribas and FNB
entered into a First Amendment to Fifth Restated Loan Agreement to make
certain changes to the Loan Agreement (the "First Amendment");
WHEREAS, Bank One has acquired all of the interests of FNB in the Loan
Agreement and the rights and obligations arising thereunder;
WHEREAS, Borrower, Bank One and Paribas have agreed to renew, extend,
amend and restate the Fifth Restated Loan Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
1. DEFINITIONS. When used herein the terms "Agent", "Agreement",
"Bank One", "Banks", "Borrower", "Guarantor" and "Paribas" 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) 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.
<PAGE>
(c) BORROWING BASE DEFICIENCY - The term "Borrowing Base Deficiency"
is used herein as defined in Section 9(b) hereof.
(d) BORROWING DATE - The date elected by the Borrower pursuant to (i)
Section 2(c) hereof for an Advance on the Revolving Loan or (ii) Section
4(c) hereof for a change in interest rate placement on the Revolving Loan.
(e) BUSINESS DAY - The normal banking hours during any day (other
than Saturdays or Sundays) that banks are legally open for business in
Dallas, Texas.
(f) 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 fiscal
quarter being measured.
(g) COLLATERAL - The term "Collateral" is used herein as defined in
Section 6 hereof.
(h) 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:
<TABLE>
<S> <C>
BANK ONE, TEXAS, N.A. 75%
BANQUE PARIBAS 25%
</TABLE>
(i) 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.
(j) 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.
(k) 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), plus (ii) the average
Revolving Commitment during such quarter divided by sixteen, 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).
(l) EFFECTIVE DATE - The date of this Agreement.
(m) ELECTED BORROWING LIMIT - The term "Elected Borrowing Limit" is
used herein as defined in Section 7(c) hereof.
2
<PAGE>
(n) ENGINEERED VALUE - The term "Engineered Value" is used herein as
defined in Section 12(p) hereof.
(o) 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.
(p) 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.
(q) 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.
(r) ERISA - The Employee Retirement Income Security Act of 1974, as
amended.
(s) EURODOLLAR BUSINESS DAY - A Business Day on which dealings in
U.S. Dollar deposits are carried on in the London interbank market.
(t) 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
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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.
(u) 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.
(v) EURODOLLAR MARGIN - The fluctuating Eurodollar Margin in effect
from day to day shall be:
(i) one and three-quarters (1.75%) 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 one-half percent (1.50%) 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-quarter percent (1.25%) 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 percent (1%), whenever the Total Outstandings are
25% or less of the Elected Borrowing Limit in effect at the time
in question.
(w) 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.
(x) EVENT OF DEFAULT - The term "Event of Default" is used herein as
defined in Section 14 hereof.
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(y) FINANCIAL STATEMENTS - The Williams Consolidated Entities'
consolidated balance sheets, income statements and statements of cash flow
prepared in accordance with GAAP.
(z) GAAP - Generally accepted accounting principles, consistently
applied.
(aa) 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 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.
(bb) 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.
(cc) INTEREST PAYMENT DATE - The earlier of (i) the last day of each
Interest Period or (ii) the last day of each calendar quarter.
(dd) INTEREST PERIOD - Any Prime Rate Interest Period, or Eurodollar
Interest Period.
(ee) LETTERS OF CREDIT - The term "Letters of Credit" is used herein
as defined in Section 2(c) hereof.
(ff) LIEN - Any mortgage, deed of trust, pledge, security interest,
assignment, encumbrance or lien (statutory or otherwise) of every kind and
character.
(gg) LOAN DOCUMENTS - This Agreement, the Note, the Security
Instruments and all other documents executed in connection with the
transaction described in this Agreement.
(hh) MAJORITY BANKS - Banks holding at least 100% ownership of the
Revolving Commitment which shall include the Agent.
(ii) 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
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of Borrower and Guarantor or from the facts represented or warranted in
this Agreement or any other Security Instrument.
(jj) MATURITY DATE - July 31, 2001.
(kk) 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 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.
(ll) MONTHLY COMMITMENT REDUCTION - The term "Monthly Commitment
Reduction" is used herein as defined in Section 7(d) hereof.
(mm) 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.
(nn) NET INCOME - The Williams Consolidated Entities' Net Income
determined in accordance with GAAP.
(oo) NOTES - The Revolving Notes.
(pp) NOTICE OF BORROWING - The term "Notice of Borrowing" is used
herein as defined in Section 2(d) hereof.
(qq) 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.
(rr) 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
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other easements and rights of way on, over or in respect of Borrower's
or Guarantor's assets or properties; (iv) materialmen's, mechanic's,
repairman's, employee's, contractor's, sub-contractor's, operator's and
other Liens incidental to the construction, maintenance, development or
operation of Borrower's or Guarantor's assets or properties to the
extent not delinquent (or which, if delinquent, are being contested in
good faith by appropriate proceedings and for which Borrower or
Guarantor has set aside on its books adequate reserves in accordance
with GAAP); (v) all contracts, agreements and instruments, and all
defects and irregularities and other matters affecting Borrower's or
Guarantor's assets and properties which were in existence at the time
Borrower's or Guarantor's assets and properties were originally acquired
by Borrower or Guarantor and all routine operational agreements entered
into in the ordinary course of business, which contracts, agreements,
instruments, defects, irregularities and other matters and routine
operational agreements are not such as to, individually or in the
aggregate, interfere materially with the operation, value or use of
Borrower's or Guarantor's assets and properties, considered in the
aggregate; (vi) liens in connection with workmen's compensation,
unemployment insurance or other social security, old age pension or
public liability obligations; (vii) legal or equitable encumbrances
deemed to exist by reason of the existence of any litigation or other
legal proceeding or arising out of a judgment or award with respect to
which an appeal is being prosecuted in good faith; (viii) rights
reserved to or vested in any municipality, governmental, statutory or
other public authority to control or regulate Borrower's or Guarantor's
assets and properties in any manner, and all applicable laws, rules and
orders from any governmental authority; (ix) landlords liens; (x) liens
created by or pursuant to this Agreement or the Security Instruments;
(xi) liens existing at the date of this Agreement which have been
disclosed to Banks in Borrower's or Guarantor's Financial Statements or
identified on 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.
(ss) 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.
(tt) 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.
(uu) PRIME RATE - The fluctuating rate of interest per annum
established from time to time by Bank One as its Prime 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
Prime Rate shall become effective without prior notice to Borrower
automatically as of the opening of business on the date of such change in
the Prime Rate.
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(vv) PRIME RATE INTEREST PERIOD - With respect to any Advance on the
Revolving Loan which is a Prime Rate Loan, the period ending on the last
Business Day of each month; provided, however, that (A) if any Prime 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 Prime Rate Interest Period would otherwise end after the
Maturity Date such Interest Period shall end on the Maturity Date.
(ww) PRIME RATE LOANS - Any loan during any period which bears
interest at the Prime Rate or which would bear interest at the Prime Rate
if the Maximum Rate ceiling was not in effect at that particular time.
(xx) PRIME RATE MARGIN - The fluctuating Prime Rate Margin in effect
from day to day shall be:
(i) three-eighths of one percent (3/8%) per annum whenever
the Total Outstandings are greater than 75% of the Elected
Borrowing Limit in effect at the time in question;
(ii) one-fourth of one percent (1/4%) per annum whenever the
Total Outstandings are greater than 50%, but less than or equal to
75%, of the Elected Borrowing Limit in effect at the time in question;
(iii) one-eighth of one percent (1/8%) per annum whenever the
Total Outstandings are greater than 25%, but less than or equal to
50%, of the Elected Borrowing Limit in effect at the time in question;
(iv) zero, whenever the Total Outstandings are 25% or less of
the Elected Borrowing Limit in effect at the time in question.
(yy) RELEASE PRICE - The term "Release Price" is used herein as
defined in Section 13(e) hereof.
(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.
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(bbb) REVOLVING NOTES - The $75,000,000 Renewal Revolving Note,
dated the Effective Date, payable to Bank One and the $25,000,000 Renewal
Revolving Note, dated the Effective Date, payable to Paribas.
(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 Venezuela, Inc., Clayton Williams Trading
Company, Clayton Williams Midland, Inc. 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) 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.
(fff) 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.
(ggg) UNUSED PORTION FEE - The term "Unused Portion Fee" is used
herein as defined in Section 8(a) hereof.
(hhh) VENDOR FINANCINGS - Non-recourse vendor financings by CWE or
its Subsidiaries for services, equipment or materials on other than
customary trade payable terms.
(iii) 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
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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 Prime 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 Prime Rate Loans
are outstanding. Each Advance made as a Prime Rate Loan shall be an
aggregate amount of at least $100,000 or a whole number multiple thereof.
Each Advance made as a Eurodollar Loan shall be in an aggregate amount of
at least $250,000, or in integral multiples thereof. No more than two (2)
Eurodollar tranches may be outstanding at any time.
(b) LETTERS OF CREDIT. On the terms and conditions hereinafter
set forth, Agent shall from time to time during the period beginning on
the Effective Date and ending on the Maturity Date upon request of
Borrower issue Letters of Credit for the account of Borrower (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
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shall be unconditionally obligated to the Agent to pay and discharge
when due, its Commitment Percentage of the Agent's liability under such
Letter of Credit. Upon delivery by such Bank of funds to pay and
discharge such liability, such Bank shall be treated as having purchased
a participating interest in an amount equal to the amount of such funds
delivered to the Agent by such Bank in the obligation of Borrower to
reimburse Agent, as the issuer of such Letter of Credit, for any amounts
payable, paid, or incurred by Agent, as the issuer of such Letter of
Credit, with respect to such Letter of Credit. Each such payment by
such Bank shall be considered an Advance under its Note and shall bear
interest at the rates specified in Section 4 hereof. The Borrower
hereby conditionally agrees to pay and reimburse the Agent for its own
account and for the account of each Bank providing funds for the
purchase of a participation in such Letter of Credit for the amount of
each demand for payment under any Letter of Credit that is in
substantial compliance with the provisions of any such Letter of Credit
at or prior to the date on which payment is made by the Agent to the
beneficiary thereunder, without presentment, demand, protest or other
formalities of any kind. Upon receipt from any beneficiary of any
Letter of Credit of any demand for payment under such Letter of Credit,
the Agent shall promptly notify the Borrower of the demand and the date
upon which such payment is to be made by the Agent to such beneficiary
in respect of such demand. Forthwith upon receipt of such notice from
the Agent, Borrower shall advise Agent whether or not it intends to
borrow hereunder to finance its obligations to reimburse the Agent, and
if so, submit a Notice of Borrowing as provided in Section 2(c) hereof.
(c) PROCEDURE FOR ADVANCES ON THE REVOLVING LOAN. Whenever
Borrower desires an Advance on the Revolving Loan, they shall give Agent
telegraphic, telex, facsimile or telephonic notice ("Notice of
Borrowing") of such requested Advance, which in the case of telephonic
notice, shall be promptly confirmed in writing. Each Notice of
Borrowing shall be in the form of Exhibit "A" attached hereto and shall
be received by Agent not later than 11:00 a.m. Dallas, Texas time, (i)
one Business Day prior to the Borrowing Date in the case of Prime 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 Prime 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 Prime 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
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such Bank believes in good faith to have been given by a duly authorized
officer or other person authorized to borrow on behalf of Borrower or
for otherwise acting in good faith under this Section 2(c). Upon
funding of Advances by Banks in accordance with this Agreement pursuant
to any such notice, Borrower shall have effected Advances hereunder.
(d) PROCEDURE FOR OBTAINING LETTERS OF CREDIT. The amount and date
of issuance, renewal, extension or reissuance of a Letter of Credit
pursuant to the Banks' commitment above in Section 2(b) shall be designated
by Borrower's written request delivered to Agent at least three (3)
Business Days prior to the date of such issuance, renewal, extension or
reissuance. Concurrently with or promptly following the delivery of the
request for a Letter of Credit, Borrower shall execute and deliver to the
Agent an application and agreement with respect to the Letters of Credit on
the customary forms of the Agent pertaining to such Letters of Credit. The
Agent shall not be obligated to issue, renew, extend or reissue such
Letters of Credit if (A) the amount thereon when added to the amount of the
outstanding Letters of Credit exceed Ten Million Dollars ($10,000,000.00)
or (B) the amount thereof when added to the amount of all outstanding
Letters of Credit and all amounts outstanding under the Notes would exceed
the Revolving Commitment. Borrower agrees to pay the Agent for the benefit
of the Banks commissions for issuing the Letters of Credit (calculated
separately for each Letter of Credit) at the rate of the greater of (i)
1-1/2% per annum on the maximum face amount of the Letter of Credit or (ii)
$400.00. Such commission shall be payable prior to the issuance of the
Letter of Credit and thereafter on each anniversary date of such issuance
while such Letter of Credit is outstanding.
(e) SEVERAL OBLIGATIONS. The obligations of the Banks under the
Revolving Commitment are several and not joint. The failure of any Bank to
make an Advance required to be made by it shall not relieve any other Bank
of its obligation to make its Advance, and no Bank shall be responsible for
the failure of any other Bank to make the Advance to be made by such other
Bank. No Bank shall ever be required to lend hereunder any amount in
excess of its legal lending limit.
3 NOTES EVIDENCING LOANS. The loans described above in Section 2 shall
be evidenced by promissory notes of Borrower as follows:
(a) FORM OF REVOLVING NOTES - The Revolving Loan shall be
evidenced by two Revolving Notes in the total amount of $100,000,000,
one in the amount of $75,000,000 payable to Bank One and one in the
amount of $25,000,000 payable to Paribas. Copies of the Revolving Notes
are attached hereto as Exhibits "B" and "B-1". 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
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Notes may be higher, the Revolving Notes shall be enforceable, with
respect to Borrower's obligation to pay the principal amount thereof,
only to the extent of the unpaid principal amount of the Revolving Loan.
(b) INTEREST RATES - The unpaid principal balance of the Revolving
Notes shall bear interest from time to time at a rate of interest
determined from time to time depending on the option or options selected
by Borrower pursuant to Section 4(a) hereof.
(c) PAYMENT OF INTEREST - Interest on the Notes shall be payable as
specified in Section 4 hereof.
(d) PAYMENT OF PRINCIPAL - The entire unpaid principal balance of the
Revolving Notes shall be due and payable on the Maturity Date.
(e) ISSUANCE OF ADDITIONAL NOTES - At the Effective Date there shall
be outstanding two Revolving Notes, one in the face amount of $75,000,000,
payable to the order of Bank One and one in the face amount of $25,000,000,
payable to the order of Paribas. 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) PRIME RATE LOANS. On Prime Rate Loans the Borrower
agrees to pay interest on the Notes calculated on the basis
of the actual days elapsed in a year consisting of 365 or,
if appropriate, 366 days with respect to the unpaid
principal amount of each Prime 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 Prime
Rate plus the Prime Rate Margin. Subject to the provisions
of this Agreement as to prepayment, the principal of the
Notes representing Prime Rate Loans shall be payable as
specified in Section 3(d) hereof, the interest in respect of
each Prime Rate Loan shall be payable on
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each Interest Payment Date. Past due principal and, to the
extent permitted by law, past due interest in respect to each
Prime Rate Loan, shall bear interest, payable on demand, at a
rate per annum equal to the Maximum Rate.
(ii) EURODOLLAR LOANS. On Eurodollar Loans the Borrower
agrees to pay interest calculated on the basis of a year
consisting of 360 days with respect to the unpaid principal
amount of each Eurodollar Loan from the date the proceeds
thereof are made available to Borrower until maturity
(whether by acceleration or otherwise), at a varying rate
per annum equal to the lesser of (i) the Maximum Rate, or
(ii) 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 Prime 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 Prime 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 Prime 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
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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 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 Prime 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
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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 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 Prime 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 such Eurodollar Loan and any amounts
owing hereunder and
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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, and
shall herewith and hereafter grant and assign to Agent, for the ratable
benefit of the Banks, a first and prior security interest and lien on the Oil
and Gas Properties, the stock of certain of the Subsidiaries, and the other
collateral. Guarantor has heretofore executed and delivered its guaranty
agreement guaranteeing the prompt payment and performance of Borrower's
obligations hereunder and under the Notes. As security for the performance of
its guaranty agreement, Guarantor has heretofore granted to Agent, for the
ratable benefit of the Banks, and shall herewith and hereafter grant and
assign to Agent, for the ratable benefit of Banks, a first and prior lien on
its Oil and Gas Properties. Guarantor shall execute this Agreement to
confirm its consent to (i) the execution of the Agreement by Borrower, and
(ii) the amendments contained therein. 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 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
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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 $50,000,000.00.
(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, 1998, the
same to be effective as of each November 1 and May 1, commencing
November 1, 1998, 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
amount of prepayment required to be made pursuant to Section 13(e)
hereof. If a non-scheduled Borrowing Base redetermination is made, such
non-scheduled redetermined Borrowing Base shall become effective
immediately upon Agent giving notice thereof to the Borrower. Provided,
however, that no Bank shall ever have an obligation to designate a
Borrowing Base in an amount such that such Bank's Commitment Percentage
thereof is in excess of its legal or internal lending limits.
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(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, 1998, the Monthly
Commitment Reduction shall be $0 per month until redetermined pursuant to
Section 7(b) hereof.
8 FEES.
(a) UNUSED PORTION FEE. In consideration of the Revolving
Commitment, Borrower shall pay to Agent, for the ratable benefit of Banks,
an Unused Portion Fee (hereinafter referred to as the "Unused Portion Fee")
equivalent to one-quarter of one percent (1/4%) 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, 1998. All amounts due under Section
8(a) of the Fifth Restated Loan Agreement as of the Effective Date as
Unused Portion Fees shall be paid to Agent on the Effective Date. The
final fee payment shall be due on the Maturity Date for any period then
ending for which the Unused Portion Fee shall not have been theretofore
paid. In the event the Revolving Commitment terminates on any date prior
to the end of any such quarterly period, Borrower shall pay to Banks, on
the date of such termination, the prorated portion of the total Unused
Portion Fee due for such of the period in which such termination occurs.
(b) BORROWING BASE INCREASE FEE. Borrower agrees to pay to Agent,
for the ratable benefit of Banks, a Borrowing Base Increase Fee
(hereinafter referred to as the "Borrowing Base Increase Fee") equal
to one-half of one percent (.50%) of the amount of any increase in the
Elected Borrowing Limit from the amount of the Elected Borrowing Limit
as of the preceding determination date, said fee to payable upon notice
to Borrower of such increase.
(c) LETTER OF CREDIT FEE. Borrower agrees to pay to Agent, for the
benefit of the issuing Banks, commissions for issuing Letters of Credit in
the amounts and at the rates set forth hereinabove in Section 2(d).
(d) AGENCY FEE. Borrower agrees to pay to Agent an Agency Fee for
its services as Agent hereunder in an amount negotiated between Borrower
and Agent.
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9 PREPAYMENTS.
(a) VOLUNTARY PREPAYMENTS. Borrower may at any time and from time
to time, without penalty or premium, make voluntary prepayments in whole
or in part on the Notes. Each such prepayment shall be made on at least
one (1) Business Day's notice to Agent and shall be in an amount of
$100,000 or any larger multiple thereof plus accrued interest thereon to
the date of prepayment.
(b) MANDATORY PREPAYMENT. In the event the Total Outstandings ever
exceed the Borrowing Base as determined by the Banks pursuant to Section 7
hereof (a "Borrowing Base Deficiency"), Borrower shall, within thirty (30)
days after notification from Agent either (A) by instruments satisfactory
in form and substance to Banks, provide the Banks with additional
collateral with value and quality satisfactory to Banks in their sole
discretion in order to increase the Borrowing Base by an amount at least
equal to such excess, or (B) prepay, without premium or penalty, the
principal amount of the Notes in an amount at least equal to such excess,
or (C) prepay, without premium or penalty, the amount of such excess in
five (5) equal monthly installments due and payable on the last Business
Day of each of the next five (5) consecutive months, or (D) elect to
convert the entire principal amount of the Notes to a term obligation with
monthly installments of principal and interest due and payable on the last
Business Day of each month from the date of such conversion to the Maturity
Date, each such installment payment to be in the amount of accrued interest
plus an amount of principal equal to the greater of (i) 1/36th of the
outstanding balance on the date of conversion or (ii) an amount determined
by dividing the principal amount outstanding on the date of the conversion
by the estimated economic half-life of the Oil and Gas Properties expressed
in terms of months, as determined by the Agent in its sole and absolute
discretion reasonably exercised. Notwithstanding any of the foregoing, all
unpaid principal and interest shall be due and payable on the Maturity
Date. Provided, however, that in the event the Borrower elects option (C)
above, the Borrowing Base Deficiency must be cured at the end of the
installment period specified above or the entire outstanding principal
balance due on the Notes shall immediately convert to a term loan payable
in accordance with the payment provisions set forth in subsection (D)
above. Provided, further, however, that during the five (5) month
prepayment period specified in subsection (C) above, Borrower may elect at
any time to convert to a term loan pursuant to subsection (D) above.
The determination of whether Borrower has cured any such 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:
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(a) CREATION AND EXISTENCE. Borrower and Guarantor are corporations
duly organized and validly existing in good standing under the laws of
their state of incorporation and are duly qualified as a foreign
corporation in all jurisdictions wherein failure to qualify may result in a
Material Adverse Effect. Borrower and Guarantor have all the power and
authority to own their properties and assets and to transact the business
in which they are engaged.
(b) POWER AND AUTHORIZATION. Borrower and Guarantor have the power
and requisite authority, and has taken all action necessary, to execute,
deliver and perform the Loan Documents.
(c) BINDING OBLIGATIONS. This Agreement does, and the Notes and
other Security Instruments upon their creation, issuance, execution and
delivery will, constitute valid and binding obligations of Borrower and
Guarantor, enforceable in accordance with their respective terms (except
that enforcement may be subject to any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws generally affecting the
enforcement of creditors' rights and subject to availability of equitable
remedies).
(d) NO LEGAL BAR OR RESULTANT LIEN. The Notes and the Security
Instruments, including this Agreement, do not and will not conflict with or
violate any provisions of the articles of incorporation or bylaws of
Borrower or Guarantor or, except as disclosed to Banks prior to the
Effective Date hereof, any contract, agreement, law, regulation, order,
injunction, judgment, decree or writ to which Borrower or Guarantor is
subject, or result in the creation or imposition of any lien or other
encumbrance upon any assets or properties of Borrower or Guarantor, other
than those contemplated by this Agreement which conflict, violation,
creation or imposition is reasonably expected to have a Material Adverse
Effect.
(e) NO CONSENT. The execution, delivery and performance by Borrower
or Guarantor of the Notes and the Security Instruments, including this
Agreement, does not require the consent or approval of any other person or
entity, including without limitation any regulatory authority or
governmental body of the United States or any state thereof or any
political subdivision of the United States or any state thereof.
(f) FINANCIAL CONDITION. The Financial Statements of the Williams
Consolidated Entities which have been delivered to Banks are complete and
correct in all material respects and fairly present in all material
respects the financial condition and 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.
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(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 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
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property or cancellation of contracts, permits or concessions by any
domestic or foreign government or any agency thereof, riot, activities
of armed forces or acts of God or of any public enemy that would
reasonably be expected to have a Material Adverse Effect.
(m) USE OF PROCEEDS; MARGIN STOCK. The proceeds of the loans
hereunder will be used by Borrower for working capital, acquisition,
letters of credit and general corporate purposes. Borrower is not engaged
in the business of extending credit for the purpose of purchasing or
carrying any "margin stock" as defined in Regulation U of the Board of
Governors of the Federal Reserve System (12 C.F.R. Part 221), or for the
purpose of reducing or retiring any indebtedness which was originally
incurred to purchase or carry a margin stock or for any other purpose which
might constitute this transaction a "purpose credit" within the meaning of
said Regulation U. Borrower is not engaged principally, or as one of its
important activities, in the business of extending credit for the purpose
of purchasing or carrying margin stock.
Neither Borrower nor any person or entity acting on behalf of Borrower
has taken or will take any action which might cause the loans hereunder or
any of the Security Instruments, including this Agreement, to violate
Regulation U or any other regulation of the Board of Governors of the
Federal Reserve System or to violate the Securities Exchange Act of 1934 or
any rule or regulation thereunder, in each case as now in effect or as the
same may hereafter be in effect.
(n) LOCATION OF BUSINESS AND OFFICES. The principal place of
business and chief executive offices of Borrower is located at the address
stated in Section 16 hereof.
(o) COMPLIANCE WITH THE LAW. To the best of Borrower's and
Guarantor's knowledge, they:
(i) are not in violation of any law, judgment, decree, order,
ordinance, or governmental rule or regulation to which Borrower
or Guarantor, or any of their assets or properties are subject;
or
(ii) have not failed to obtain any license, permit, franchise
or other governmental authorization necessary to the ownership of
any of its assets or properties or the conduct of their business;
which violation or failure is reasonably expected to have a Material
Adverse Effect.
(p) NO MATERIAL MISSTATEMENTS. No information, exhibit or report
furnished by Borrower or Guarantor to the Banks in connection with the
negotiation of this Agreement contained any material misstatement of fact
or omitted to state a material fact necessary to make the statement
contained therein not misleading.
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(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 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.
(u) YEAR 2000 COMPLIANCE. Borrower represents and warrants to Banks
that:
(i) All devices, systems, machinery, information technology,
computer software and hardware, and other date sensitive technology
(jointly and severally the "Systems") necessary for Borrower to
carry on its business as presently conducted and as contemplated
to be conducted in the future are Year 2000 Compliant or will be
Year 2000 Compliant within a period of time calculated to result
in no material
disruption of any of Borrower's business operations. For purposes
of these provisions, "Year 2000 Compliant" means that such Systems
are designed to be used prior to, during and after the Gregorian
calendar year 2000 A.D. and will operate during each such time
period without error relating to date data, specifically including
any error relating to, or the product of, date data which represents
or references different centuries or more than one century.
(ii) Borrower has: (A) undertaken an inventory, review, and
assessment of all areas within its business and operations that could
be adversely affected by the failure of Borrower to be Year 2000
Compliant on a timely basis; (B) developed a
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plan and time line for becoming Year 2000 Compliant on a timely
basis; (C) to date, implemented that plan in accordance with that
timetable in all material respects.
(iii) Borrower has either made, or will make, written inquiry
of each of its material purchasers of its oil and gas, and has
obtained, or will obtain, in writing confirmations from all such
persons, as to whether such persons have initiated programs to
become Year 2000 Compliant and on the basis of such confirmations.
Borrower reasonably believes that all such persons will be or
become so compliant. For purposes hereof, "material purchasers
of oil and gas" refers to those purchasers of oil and gas from
Borrower whose business failure would, with reasonable probability,
result in a material adverse change in the business, properties,
condition (financial or otherwise), or prospects of Borrower. For
purposes of this paragraph, Bank, as a lender of funds under the
terms of this Agreement, confirms to Borrower that Bank has
initiated its own corporate-wide Year 2000 program with respect to its
lending activities.
(iv) The fair market value of all Collateral pledged to Bank
to secure the Revolving Loan and the Notes and all of Borrower's
obligation hereunder is not and shall not be less than currently
anticipated or subject to deterioration in value because of the
failure of such Collateral to be Year 2000 Compliant.
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;
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(v) NO MATERIAL ADVERSE CHANGE. No material adverse change
in the consolidated 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.
(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.
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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 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, L.L.P. 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, 1998 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, 1999 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;
(iv) MONTHLY OPERATING AND PRODUCTION REPORTS. Borrower
shall furnish Banks, within forty-five (45) days following the
close of each month,
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oil and gas production reports (inclusive of prices received
thereon), drilling and completion reports for the Williams
Consolidated Entities;
(v) BUDGETS AND PROJECTIONS. On each June 1 and December 1
Borrower shall furnish to Banks a budget and Cash Flow forecast
for the Williams Consolidated Entities prepared on a twelve (12)
month rolling forward basis with respect to their operations;
(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; and
(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 become a lien or other encumbrance upon any
or all of the
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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 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
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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.
(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
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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 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
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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
in the most current engineering report required pursuant to
Section 12(a)(iii) hereof.
(q YEAR 2000 COMPATIBILITY. Borrower covenants and agrees with
Banks that it will:
(i) Furnish such additional information, statements and other
reports with respect to Borrower's activities, course of action and
progress towards becoming Year 2000 Compliant as Banks may reasonably
request from time to time;
(ii) In the event of any change in circumstances that causes or
will likely cause any of Borrower's representations and warranties
with respect to its being or becoming Year 2000 Compliant to no
longer be true (hereinafter, referred to as a "Change in
Circumstances") then Borrower shall promptly, and in any event
within ten (10) days of receipt of information regarding a Change
in Circumstances, provide Bank with written notice (the "Notice")
that describes in reasonable detail the Change in Circumstances and
how such Change in Circumstances caused or will likely cause
Borrower's representations and warranties with respect to being or
becoming Year 2000 Compliant no longer to be true. Borrower shall,
within ten (10) days of a request, also provide Banks with any
additional information Banks reasonably request of Borrower in
connection with the Notice and/or a Change in Circumstances;
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
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date hereof and for so long as any indebtedness or obligation of Borrower
under the Loan Documents is outstanding or any part of the Revolving Commitment
is in existence.
(a LIENS. Neither Borrower nor Guarantor will create, incur, assume
or permit to exist any lien, security interest or other encumbrance on any
of its assets or properties except Permitted Liens.
(b DEBTS, GUARANTIES AND OTHER OBLIGATIONS. Neither Borrower nor
any of its Subsidiaries (including Guarantor) will incur, create, assume or
in any manner become or be liable in respect of any indebtedness, issue any
preferred or other quasi-equity stock which requires the payment of a
dividend thereon or the mandatory redemption thereof, or guarantee or
otherwise in any manner become or be liable in respect of any indebtedness,
liabilities or other obligations of any other person or entity, whether by
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; or
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(viii) intercompany indebtedness among Borrower and
Guarantor.
(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.
(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, 1998, 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 prepay against
the Notes or Guarantor's obligation under its guaranty agreement, as the
case may be, 100% of the Release Price. The term "Release Price" as used
herein shall mean a price determined by Majority Banks in their discretion
based upon the loan collateral value which such Banks in their discretion
(using such methodology, assumptions and discount rates as such Banks
customarily use in assigning collateral value to oil and gas properties)
assigned to such Oil and Gas Properties at the time in question. Any such
prepayment of principal on the Notes required by this Section 13(e) shall
not be in lieu of, but shall be in addition to, any Monthly Commitment
Reduction or any mandatory prepayment of principal required to be made
pursuant to Section 9(b) hereof. Any such prepayment shall be applied pro
rata to the principal due on the Revolving Notes until such Revolving Notes
are paid in full, principal, interest and other amounts. 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.
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(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.
(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 $3,000,000
in the aggregate (excluding commissions) and (ii) cash dividends paid on
the stock of Borrower which shall not exceed, in any fiscal year, an amount
equal to 50% of Borrower's net income for such fiscal year determined in
accordance with GAAP, provided that immediately before and after giving
effect thereto no (x) default or Event of Default or (y) Borrowing Base
Deficiency, shall exist.
(k INVESTMENTS. Neither Borrower nor Guarantor shall make any
investments in any person or entity, except that the foregoing restriction
shall not apply to:
(i) investments and direct obligations of the United States
of America or any agency thereof;
(ii) investments in certificates of deposit issued by the Agent
or certificates of deposit with maturities of less than one year
issued by other commercial banks in the United States having
capital and surplus in excess of $500,000,000 and have a rating of
(A) 50 or above by Sheshunoff and (B) "B" or above by Keef-Bruett;
(iii) investments such as insured money market funds,
Eurodollar investment accounts and other similar accounts with
the Agent or such investments with maturities of less than ninety
(90) days at other commercial banks in the United States having
capital and surplus in excess of $500,000,000 and having a rating
of (A) 50 or above by Sheshunoff and (B) "B" or above by Keef-
Bruett;
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(iv) investments in the Subsidiaries (other than Guarantor)
existing on the Effective Date;
(v) Borrower's investments in Guarantor; and
(vi) the repurchase of Borrower's stock as permitted by
Section 13(j) hereof.
(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
$55,000,000 plus an amount equal to 50% of the Williams Consolidated
Entities' Net Income (without reduction for losses) for each calendar
quarter ending after April 1, 1998 on a cumulative basis.
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;
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(c Default shall be made in the due observance or performance of any
of the covenants or agreements of Borrower or Guarantor contained in the
Security Instruments, including this Agreement, and such default shall
continue for more than ten (10) days after notice from Agent; PROVIDED,
HOWEVER, that a default under Section 13(l) of this Agreement shall not
become an Event of Default under this Section 14 unless Borrower fails to
pay the outstanding balance on the Notes within the 120 day period
specified therein; or
(d Default shall be made in respect of any obligation for borrowed
money owed by Borrower or Guarantor in excess of $1,000,000, other than the
Notes, (directly, by assumption, as guarantor or otherwise), or any
obligations in excess of $1,000,000 secured by any mortgage, pledge or
other security interest, lien, charge or encumbrance with respect thereto,
on any asset or property of Borrower or Guarantor or in respect of any
agreement relating to any such obligations, and such default shall continue
beyond the applicable grace period, if any; or
(e Borrower or Guarantor shall commence a voluntary case or other
proceedings seeking liquidation, reorganization or other relief with
respect to either of them or their debts under any bankruptcy, insolvency
or other similar law now or hereafter in effect or seeking an appointment
of a trustee, receiver, liquidator, custodian or other similar official of
it or any substantial part of their property, or shall consent to any such
relief or to the appointment of or taking possession by any such official
in an involuntary case or other proceeding commenced against either of
them, or shall make a general assignment for the benefit of creditors, or
shall fail generally to pay their debts as they become due, or shall take
any corporate action authorizing the foregoing; or
(f An involuntary case or other proceeding, shall be commenced
against Borrower or Guarantor seeking liquidation, reorganization or
other relief with respect to either of them or their debts under any
bankruptcy, insolvency or similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of either of them or any substantial part of
their property, and such involuntary case or other proceeding shall
remain undismissed and unstayed for a period of thirty (30) days; or an
order for relief shall be entered against Borrower or Guarantor under
the federal bankruptcy laws as now or hereinafter in effect; or
(g A final judgment or order for the payment of money in excess of
$1,000,000.00 (or judgments or orders aggregating in excess of
$1,000,000.00) shall be rendered against Borrower or Guarantor and such
judgments or orders shall continue unsatisfied and unstayed for a period of
thirty (30) days; or
(h In the event the aggregate principal amount outstanding under the
Notes shall at any time exceed the Borrowing Base established for the
Notes, Borrower shall fail to provide such additional Collateral or prepay
the principal of such Notes in compliance with the provisions of Section
9(b) hereof.
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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 constitute a waiver of the right to
take other action in the same, similar or other circumstances without such
notice or demand.
16. NOTICES. Any notices or other communications required or permitted
to be given by this Agreement or any of the other Loan Documents and
instruments referred to herein must be given in writing and must be delivered
or mailed by prepaid certified or registered mail or by facsimile to the
party to whom such notice or communication is directed at the address of such
party as follows: (a) BORROWER AND GUARANTOR: c/o Clayton Williams Energy,
Inc., Six Desta Drive,
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Suite 6500, Midland, Texas 79705, Attention: Paul Latham, Executive Vice
President, Facsimile No. (915) 688-3247; (b) AGENT: BANK ONE, TEXAS, N.A.,
1717 Main Street, Dallas, Texas 75201, Attention: Wm. Mark Cranmer, Vice
President, Facsimile No. (214) 290-2332; and (c) PARIBAS: Banque Paribas,
1200 Smith Street, Suite 3100, Houston, Texas 77002, Attention: Brian Malone,
Vice President, Facsimile No. (713) 659-6915. Any such notice or other
communication shall be deemed to have been given (whether actually received
or not) on the day it is delivered as aforesaid or, if mailed, on the fifth
day after it is mailed as aforesaid. Any party may change its address for
purposes of this Agreement by giving notice of such change to the other
parties pursuant to this Section 16. Upon receipt by Agent of any such
notice, Agent shall promptly provide copies of such notice or notices to the
Banks.
17. THE AGENT AND THE BANKS.
(a APPOINTMENT AND AUTHORIZATION. Each Bank hereby irrevocably
appoints and authorizes Agent to take such action on its behalf and to
exercise such powers under the Loan Documents as are delegated to Agent by
the terms thereof, together with such powers as are reasonably incidental
thereto. With respect to its commitments hereunder and the Notes issued to
it, Bank One and any successor Agent shall have the same rights under the
Loan Documents as any other Bank and may exercise the same as though it
were not the Agent; and the term "Bank" or "Banks" shall, unless otherwise
expressly indicated, include Bank One and any successor Agent in its
capacity as a Bank. Bank One and any successor Agent and its affiliates
may accept deposits from, lend money to, act as trustee under indentures of
and generally engage in any kind of business with Borrower, and any person
which may do business with Borrower, all as if Bank One and any successor
Agent were not Agent hereunder and without any duty to account therefor to
the Banks. Each Bank shall disclose to all other Banks all indebtedness
and liabilities, direct and contingent, of Borrower to Banks from time to
time.
(b NOTE HOLDERS. Agent may treat the payee of any Note as the
holder thereof until written notice of transfer has been filed with it,
signed by such payee and in form satisfactory to Agent.
(c CONSULTATION WITH COUNSEL. Banks agree that Agent may consult
with legal counsel selected by it and shall not be liable for any action
taken or suffered in good faith by it in accordance with the advice of such
counsel.
(d DOCUMENTS. Agent shall not be under a duty to examine or pass
upon the validity, effectiveness, enforceability, genuineness or value of
any of the Collateral or any of the Loan Documents or any other instrument
or document furnished pursuant thereto or in connection therewith, and
Agent shall be entitled to assume that the same are valid, effective,
enforceable and genuine and what they purport to be.
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(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.
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
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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 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.
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(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.
(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.
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(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 commencing on the date
such amount was made available to Borrower and ending on (but
excluding) the date Agent recovers such amount at the Prime 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
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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 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
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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 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
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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 shall be bound hereby until a
counterpart of this Agreement has been executed by all parties hereto.
25. CONFLICT. In the event any term or provision hereof is
inconsistent with or conflicts with any provision of the Security
Instruments, the terms or provisions contained in this Agreement shall be
controlling.
26. SURVIVAL. All covenants, agreements, undertakings, representations
and warranties made in the Security Instrument, including this Agreement, the
Notes or other documents and instruments referred to herein shall survive all
closings hereunder and shall not be affected by any investigation made by any
party.
27. PARTIES BOUND. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors, assigns,
heirs, legal representatives and estates, provided, however, that Borrower
may not, without the prior written consent of the Banks, assign any rights,
powers, duties or obligations hereunder.
28. ASSIGNMENTS AND PARTICIPATIONS.
(a) Each Bank shall have the right to sell, assign or transfer all or
any part of its Note or Notes, its Revolving Commitment and its rights and
obligations hereunder to one or more Affiliates, Banks, financial
institutions, pension plans, insurance companies, investment funds, or
similar Persons who are Eligible Assignees or to a Federal Reserve Bank;
PROVIDED, that in connection with each sale, assignment or transfer (other
than to an Affiliate, a Bank or a Federal Reserve Bank), but each such
sale, assignment, or transfer
46
<PAGE>
(other than to an Affiliate, a Bank or a Federal Reserve Bank), shall
require the consent of both the Borrower and Agent, which consent, in
either case, will not be unreasonably withheld, and the assignee,
transferee or recipient shall have, to the extent of such sale,
assignment, or transfer, the same rights, benefits and obligations as it
would if it were such Bank and a holder of such Note, Revolving
Commitment and rights and obligations, including, without limitation,
the right to vote on decisions requiring consent or approval of all
Banks or Majority Banks and the obligation to fund its Revolving
Commitment; provided, further, that (1) each such sale, assignment, or
transfer (other than to an Affiliate, a Bank or a Federal Reserve Bank)
shall be in an aggregate principal amount not less than $5,000,000, (2)
each remaining Bank shall at all times maintain Revolving Commitment
then outstanding in an aggregate principal amount at least equal to
$5,000,000; (3) each such sale, assignment or transfer shall be of a Pro
Rata portion of such Bank=s Revolving Commitment, (4) no Bank may offer
to sell its Note or Notes, Revolving Commitment, rights and obligations
or interests therein in violation of any securities laws; and (5) no
such assignments (other than to a Federal Reserve Bank) shall become
effective until the assigning Bank and its assignee delivers to Agent
and Borrowers an Assignment and Acceptance and the Note or Notes subject
to such assignment and other documents evidencing any such assignment.
An assignment fee in the amount of $5,000 for each such assignment
(other than to an Affiliate, a Bank or the Federal Reserve Bank) will be
payable to Agent by assignor or assignee. Within five (5) Business Days
after its receipt of copies of the Assignment and Acceptance and the
other documents relating thereto and the Note or Notes, the Borrowers
shall execute and deliver to Agent (for delivery to the relevant
assignee) a new Note or Notes evidencing such assignee's assigned
Revolving Commitment and if the assignor Bank has retained a portion of
its Revolving Commitment, a replacement Note in the principal amount of
the Revolving Commitment retained by the assignor (except as provided in
the last sentence of this paragraph (a) such Note or Notes to be in
exchange for, but not in payment of, the Note or Notes held by such
Bank). On and after the effective date of an assignment hereunder, the
assignee shall for all purposes be a Bank, party to this Agreement and
any other Loan Document executed by the Banks and shall have all the
rights and obligations of a Bank under the Loan Documents, to the same
extent as if it were an original party thereto, and no further consent
or action by Borrowers, Banks or the Agent shall be required to release
the transferor Bank with respect to its Revolving Commitment assigned to
such assignee and the transferor Bank shall henceforth be so released.
(b) Each Bank shall have the right to grant participations in all or
any part of such Bank's Notes and Revolving Commitment hereunder to one or
more pension plans, investment funds, insurance companies, financial
institutions or other Persons, provided, that:
(i) each Bank granting a participation shall retain the
right to vote hereunder, and no participant shall be entitled to
vote hereunder on decisions requiring consent or approval of Bank
or Majority Banks (except as set forth in (iii) below);
47
<PAGE>
(ii) in the event any Bank grants a participation hereunder,
such Bank's obligations under the Loan Documents shall remain
unchanged, such Bank shall remain solely responsible to the other
parties hereto for the performance of such obligations, such Bank
shall remain the holder of any such Note or Notes for all
purposes under the Loan Documents, and Agent, each Bank and
Borrowers shall be entitled to deal with the Bank granting a
participation in the same manner as if no participation had been
granted; and
(iii) no participant shall ever have any right by reason
of its participation to exercise any of the rights of Banks
hereunder, except that any Bank may agree with any participant
that such Bank will not, without the consent of such participant
(which consent may not be unreasonably withheld) consent to any
amendment or waiver requiring approval of all Banks.
(c) It is understood and agreed that any Bank may provide to
assignees and participants and prospective assignees and participants
financial information and reports and data concerning Borrowers' properties
and operations which was provided to such Bank pursuant to this Agreement.
(d) Upon the reasonable request of either Agent or Borrowers, each
Bank will identify those to whom it has assigned or participated any part
of its Notes and Commitment, and provide the amounts so assigned or
participated.
29. WAIVER OF JURY TRIAL. THE BORROWER, THE AGENT AND THE BANKS (BY THEIR
ACCEPTANCE HEREOF) HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND
UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY
DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) BETWEEN OR AMONG THE
BORROWER, THE AGENT AND THE BANKS, ARISING OUT OF OR IN ANY WAY RELATED TO THIS
DOCUMENT, ANY OTHER
RELATED DOCUMENT, OR ANY RELATIONSHIP BETWEEN THE AGENT, THE BANKS AND THE
BORROWER. THIS PROVISION IS A MATERIAL INDUCEMENT TO THE AGENT AND THE BANKS
TO PROVIDE THE FINANCING DESCRIBED HEREIN.
30. 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.
48
<PAGE>
31. WRITTEN CONSENT. The Guarantor is executing this Sixth Restated
Loan Agreement in its capacity as Guarantor for the purpose of acknowledging
the existence of the Sixth 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.
<TABLE>
<S> <C>
BORROWER:
CLAYTON WILLIAMS ENERGY, INC.
By:
----------------------------------------
L. Paul Latham, Executive Vice President
WARRIOR GAS CO.
By:
----------------------------------------
L. Paul Latham, Vice President
GUARANTOR:
CWEI ACQUISITIONS, INC.
By:
----------------------------------------
L. Paul Latham, Vice President
BANKS:
BANK ONE, TEXAS, N.A.,
a national banking association
By:
----------------------------------------
Wm. Mark Cranmer, Vice President
49
<PAGE>
BANQUE PARIBAS,
a French banking corporation
By:
----------------------------------------
Barton D. Schouest, Group Vice President
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
AGENT:
BANK ONE, TEXAS, N.A.,
a national banking association
By:
----------------------------------------
Wm. Mark Cranmer, Vice President
</TABLE>
50
<PAGE>
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 Sixth Restated Loan Agreement, dated
July ___, 1998, (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. and Banque Paribas ("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: [Prime 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>
EXECUTED AND DELIVERED this _______ day of ___________________, 19___.
[Borrower]
------------------------------------
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
-2-
<PAGE>
EXHIBIT "B"
RENEWAL REVOLVING NOTE
$75,000,000.00 Dallas, Texas July ___, 1998
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
SEVENTY-FIVE MILLION AND 00/100 DOLLARS ($75,000,000.00), 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
Sixth Restated Loan Agreement, dated as of even date herewith, entered into
among Borrowers, Payee, Banque Paribas 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 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.
<PAGE>
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>
IN WITNESS WHEREOF, Borrowers have executed this Note as of the date and
year first herein written.
<TABLE>
<S> <C>
BORROWERS:
CLAYTON WILLIAMS ENERGY, INC.
By:
----------------------------------------
L. Paul Latham, Executive Vice President
WARRIOR GAS CO.
By:
----------------------------------------
L. Paul Latham, Vice President
</TABLE>
-3-
<PAGE>
EXHIBIT "C"
FINANCIAL CONDITION
-1-
<PAGE>
EXHIBIT "D"
LIABILITIES
-2-
<PAGE>
EXHIBIT "E"
LITIGATION
-3-
<PAGE>
EXHIBIT "F"
ENVIRONMENTAL MATTERS
-4-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE
QUARTER ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,611
<SECURITIES> 0
<RECEIVABLES> 7,873
<ALLOWANCES> 0
<INVENTORY> 1,698
<CURRENT-ASSETS> 11,581
<PP&E> 448,414
<DEPRECIATION> 333,276
<TOTAL-ASSETS> 126,778
<CURRENT-LIABILITIES> 20,675
<BONDS> 38,100
0
0
<COMMON> 890
<OTHER-SE> 67,113
<TOTAL-LIABILITY-AND-EQUITY> 126,778
<SALES> 30,565
<TOTAL-REVENUES> 32,613
<CGS> 7,652
<TOTAL-COSTS> 36,884
<OTHER-EXPENSES> (22)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 985
<INCOME-PRETAX> (5,234)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,234)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,234)
<EPS-PRIMARY> (.59)
<EPS-DILUTED> (.59)
</TABLE>
