Exhibit 10.1
COMMUNITY BANK, N.A.
LINE OF CREDIT AGREEMENT
March 19, 2008
Mr. Michael German, President
Corning Natural Gas Corp.
330 West William Street
Corning, NY 14830
Dear Mr. German:
This letter sets forth the governing terms of our agreement between Community
Bank, N.A. (the “Bank”) and Corning Natural Gas Corp. (the “Borrower”)
concerning a revolving line of credit (the “Revolving Line”) in the aggregate
maximum amount outstanding at any one time of $7,000,000.00, subject to the
terms of this letter. This Revolving Line was committed by the provisions of a
commitment letter from the Bank to the Borrower dated March 11, 2008 (the
“Commitment Letter”), the contents of which are herein incorporated by
reference.
General Terms of Revolving Line
     Proceeds of the Revolving Line shall be used for Borrower’s working capital
purposes needs. So long as no Event of Default exists under this Agreement or
under the terms of any other agreement or loan document between the Borrower or
any Guarantor hereunder and the Bank, the Borrower may borrow, repay, and
reborrow under the Revolving Line from time to time so long as the aggregate
principal amount outstanding at any one time does not exceed $7,000,000.00 and
the Bank has not demanded payment in full.
     The Borrower shall execute a Demand Grid Note (the “Revolving Line Note”)
evidencing obligations related to the Revolving Line in a form acceptable to the
Bank.
     All outstanding amounts under the Revolving Line shall bear interest until
paid in full. The rate of interest payable hereunder shall be a fluctuating rate
per annum (the “Stated Rate”) equal to the 30-day Libor Rate plus 1.35%, with
changes to occur automatically with changes in the 30-day Libor Rate from time
to time in effect. Each change in the Stated Rate shall take effect
simultaneously with the corresponding change in such Libor Rate. The “30-day
Libor Rate “ shall mean the 30-day Libor Rate as published by the Wall Street
Journal from time to time during the period that any portion of the principal
hereunder remains unpaid. Interest shall be calculated based on actual days
elapsed divided by a year of 360 days. Changes in the rate of interest
applicable to the Revolving Line Note shall become effective automatically and
without notice at the time of changes in the 30-day Libor Rate. The Bank, shall,
however, provide the Borrower with notice of changes which have occurred in the
rate applicable to the Revolving Line during the preceding billing period in its
regular billing statements.
     Unless sooner demanded, payments of all accrued interest under the
Revolving Line are due and payable on the first day of each month. All remaining
outstanding principal and accrued interest under the Revolving Line shall be due
and payable in full on the earlier of (i) February

 

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28, 2009, or (ii) the date of a demand by the Bank, or (iii) the date of an
Event of Default (collectively, the “Expiration Date”) unless the Revolving Line
is extended by the Bank in its sole discretion. The Revolving Line will
terminate on, and the Bank shall have no further obligation to make credit
available after, the Expiration Date.
     Any amount due not fully paid within ten (10) days after the date due shall
be subject to a late payment charge of the greater of $25.00 or five percent
(5%) of the total payment due.
Fees and Expenses
     The Borrower shall pay any fees, expenses and disbursements, including
reasonable legal fees, of the Bank related to the Revolving Line and the
transactions contemplated by this letter. Such payments shall be due from time
to time upon the Bank giving the Borrower notice of the amount of such expenses.
     At the request of the Bank, the Borrower shall promptly pay any expenses,
reasonable attorney’s fees, costs, or disbursements in connection with
collection of any of the obligations related to the Revolving Line or
enforcement of any of the Bank’s rights hereunder or under any note, guaranty,
or other agreement related hereto. This obligation shall survive the payment of
the Revolving Line Note. The Bank may apply any payments of any nature received
by it first to the payment of obligations under this paragraph, notwithstanding
any conflicting provision contained in this letter or any other agreement with
the Borrower.
     Upon the occurrence of an Event of Default and acceleration by the Bank of
the Revolving Line Note such that it becomes immediately due and payable in
full, the rate of interest on each of the obligations related thereto shall be
increased to a rate at all times equal to two percent (2%) above the rate of
interest which would be in effect absent such Event of Default, such increased
rate to remain in effect through and including payment in full of all of the
Obligations, or written waiver of such Event of Default by the Bank.
Collateral and Guarantees
     The Revolving Line obligation shall be secured by the following:

  •   Those financial assets of the Borrower now held by the Bank pursuant to a
“Collateral Assignment” dated November 28, 2005;     •   A security interest in
accounts receivable, inventory and equipment arising under a Security Agreement
between the Borrower and the Bank dated August 4, 2005 and spread to cover the
credit line facility hereby renewed, accomplished by “Collateral Security
Spreader Agreement” dated November 28, 2005; and

     No Guaranty of the Revolving Line obligation is required to be furnished by
the Borrower.

 

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Affirmative Covenants
     So long as this agreement remains in effect or there exists any
indebtedness owing to the Bank by the Borrower hereunder, it is agreed that the
Borrower shall:
     A. Keep proper books of account in a manner satisfactory to Bank. The Bank
acknowledges that the accounting system, procedures, and forms in use as of the
date hereof are satisfactory;
     B. Permit, at Borrower’s expense, inspections and audits by Bank or by its
agents of all books, records and papers in the custody or control of the
Borrower or of others relating to the financial business condition of the
Borrower, including the making of copies thereof and abstracts therefrom, and
inspection and appraisal of any of their assets, with reasonable notice and
during regular business hours;
     C. Deliver to the Bank the following financial information: (i) annual
financial statement of the Borrower audited by a Certified Public Accountant in
accordance with standards established by the American Institute of Certified
Public Accountants within 90 days after the end of its fiscal year; (ii) within
30 days following the close of each month, a monthly financial statement
prepared by the Borrower; and (iii) at all times when the outstanding principal
balance owing on the Revolving Line exceeds $4,000,000.00, a monthly report on
or before the 15th day of the month which reports the Borrower’s natural gas
inventory volumes and the cost and market values thereof.
     D. Promptly pay all taxes, assessments and other governmental charges due
from the Borrower, provided, however, that nothing herein contained shall be
interpreted to require the payment of any such tax so long as its validity is
being contested in good faith.
     E. Promptly inform the Bank of the commencement of any material action,
suit, proceeding or investigation against the Borrower, or the making of any
counterclaim against it in any action, suit or proceeding, and of all liens
against any property of either. An action, suit, proceeding, investigation, or
lien shall be deemed material when in the aggregate the face amount of all such
pending claims, reduced by the amounts (excluding deductibles and retained limit
self-insurances) of indemnity insurance coverages acknowledged by the insurers
as applicable thereto, exceeds $100,000.00.
     F. Borrower is to maintain a net worth of $7,000,000 as determined by
reference to the audited financial statements of the Borrower commencing with
those for the fiscal year ending September 30, 2008.
     G. Borrower is to maintain a leverage ratio of less than four to one as
determined by reference to the audited financial statements of the Borrower
commencing with those for the fiscal year ending September 30, 2008.
Negative Covenants
     So long as this agreement remains in effect or there exists any
indebtedness owing to the Bank by the Borrower hereunder, it is agreed that the
Borrower shall not:
     A. without the prior written consent of the Bank having first been
obtained, create, incur,

 

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assume or suffer to exist any security interest, mortgage, pledge, lien or other
encumbrance upon any of your accounts receivable and inventory, whether now
owned or hereafter acquired, except in our favor and except liens of taxes not
in default or being contested in good faith; provided, however, that if any
proceeding before the United States Tax Court, Borrower is adjudged liable for
unpaid taxes and wish to appeal from such adjudication, it shall promptly take
appropriate steps to stay assessment of any lien of such taxes.
     B. sell, convey, lease or transfer any of its assets other than in the
ordinary course of business, or merge or consolidate with or into any other
company or corporation;
     C. make or incur any liability to make any distributions until and while
its actual regulated capital structure has an equity to debt ratio of less than
30% equity to 70% debt, or make any distributions which would reduce the equity
percentage below 30%.
Events of Default
     All of obligations of the Bank hereunder to the Borrower may be immediately
terminated and the entire unpaid balance of all indebtedness hereunder owing to
the Bank may be declared to be immediately due and payable at the sole election
of the Bank upon the happening of any one of the following specific events of
default:
     A. Nonpayment of any principal of or interest on any indebtedness created
hereunder within fifteen (15) days after its due date, or default by the
Borrower in the performance of any of other material terms or conditions of this
agreement or of any other agreement of the Borrower with the Bank, which default
remains uncured fifteen (15) days after written notice thereof has been
furnished by the Bank to the Borrower;
     B. The adjudication of the Borrower as a bankrupt, or the making by the
Borrower of any general assignment for the benefit of creditors, or the
institution by it of any type of insolvency proceeding or of any proceeding for
the liquidation or the winding-up of its affairs, or the appointment of a
receiver or trustee for the Borrower of its assets, or the approval as properly
filed of a petition for the reorganization of it under the Bankruptcy Act of
otherwise, or its filing of any petition for an arrangement under Chapter XI of
the Bankruptcy Act or under any similar statute;
     C. If any certificate, statement, representation, warranty or audit
furnished by the Borrower or on its behalf in connection with this arrangement
(including those contained herein) or as an inducement to the Bank to enter into
this agreement shall prove to have been false in any material respect at the
time as of which the facts therein set forth were certified or stated, or to
have omitted any substantial contingent or unliquidated liability or claim
against the Borrower, or if on the date of the execution of this agreement,
there shall have been any materially adverse change in any of the facts
disclosed by any such certificate, statement, representation, warranty or audit,
which change shall not have been disclosed by the Borrower to the Bank at or
prior to the time of such execution;
     D. Nonpayment by the Borrower of any other indebtedness to the Bank within
fifteen (15) days after the date when due; and
     E. There occurs any substantial change in the ownership of the Borrower, by
merger with another entity or otherwise, or operating control of the business of
the Borrower, without the prior written consent of the Lender having first been
obtained.

 

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Miscellaneous Terms
     The Bank shall have a right of set-off, in the full amount of all of
Borrower’s obligations to the Bank, against any deposits, assets held by, or
other amounts owed by the Bank to or held by the Bank for, the Borrower as well
as a lien on any and all property of the Borrower which is or may be in the
Bank’s possession.
     No delay or omission by the Bank in exercising any right or remedy
hereunder or with respect to any indebtedness created hereunder shall operate as
a waiver thereof or of any of other right or remedy, and no single or partial
exercise thereof shall preclude any other or further exercise thereof of any
other right or remedy.
     The parties hereto expressly waive all rights to trial by jury on any cause
of action directly or indirectly involving the terms or conditions of this
Agreement, the Revolving Line Note, or any matters whatsoever arising out of or
in connection with this Agreement, the Revolving Line Note, or any document
executed or delivered in connection with this Agreement or the Revolving Line
Note. The foregoing waiver shall survive the termination or expiration of this
Agreement.
     This Agreement and the documents referred to herein embody the entire
agreement and understanding among the parties and supersede all prior agreements
and understandings relating to the subject matter hereof. This Agreement shall
not be changed or amended without the written agreement of all parties hereto.
     All the terms and provisions of this Agreement shall inure to the benefit
of and be binding upon and be enforceable by the parties and their successors
and assigns and shall inure to the benefit of and be enforceable by any holder
of notes executed hereunder. No assignment of the rights of the Borrower under
this Agreement may be made without the prior written consent of the Bank.
     This letter and the notes and agreements related hereto, together with all
of the rights and obligations of the parties hereto, shall be construed,
governed and enforced in accordance with the laws of the State of New York. It
represents the joint agreement of the parties following negotiation resulting in
the issuance of the Commitment Letter, and accordingly shall not be strictly
construed against any particular party.
     Please sign the enclosed duplicate original of this letter to evidence your
agreement to the terms contained herein. We appreciate the opportunity to do
business with you.
[signatures on next page]

 

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COMMUNITY BANK, N.A.
   
 
   
/s/ Thomas F. Beers
 
by: Thomas F. Beers, Vice President
   
 
   
CORNING NATURAL GAS CORP.
   
 
   
/s/ Michael German
 
by: Michael German, President