**Ex.4(b)(2)**

 

 

**FIRST AMENDED AND RESTATED**

**CREDIT AGREEMENT**

** **

**BETWEEN**

** **

** **

**GATEWAY PIPELINE COMPANY AND**

**GATEWAY PROCESSING COMPANY,**

**as Borrowers,**

** **

** **

**GATEWAY ENERGY CORPORATION,**

**as Guarantor,**

** **

** **

** **

** **

**and**

** **

** **

**SOUTHWEST BANK OF TEXAS, N.A.,**

**as Lender**

** **

** **

** **

** **

**March 31, 2003**

 

 

 

 

 

 

 

 

 

 

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**TABLE OFCONTENTS**

 
| SECTION 1   DEFINITIONS                    |                                          |
|-------------------------------------------------|-----------------------------------------------|
|                                            | 1.1 Definitions                               |   |
|                                            | 1.2 Other Definitional  Provisions            |   |
|                                            | 1.3 Accounting Terms  and Determinations      |   |
|                                            |                                          |   |
| SECTION  2  THE TERM                       |                                          |
|                                            | 2.1 Advances                                  |   |
|                                            | 2.2 Payments                                  |   |
|                                            | 2.3  Interest Rate and Payments               |   |
|                                            | 2.4 Default Rate                              |   |
|                                            | 2.5  Interest Calculations                    |   |
|                                            | 2.6  Voluntary Prepayments                    |   |
|                                            | 2.7 Order of  Application                     |   |
|                                            |                                          |   |
| SECTION  3  SECURITY                       |                                          |
|                                            | 3.1 Security                                  |   |
|                                            | 3.2 Additional Security  and Guaranties       |   |
|                                            | 3.3 Security  Documents                       |   |
|                                            | 3.4 Setoff                                    |   |
|                                            |                                          |   |
| SECTION  4  CONDITIONS PRECEDENT           |                                          |
|                                            | 4.1 Initial  Advance                          |   |
|                                            | 4.2 The Loan  Advances                        |   |
|                                            | 4.3  Materiality of Conditions                |   |
|                                            | 4.4 Waiver  of Conditions                     |   |
|                                            |                                          |   |
| SECTION  5  WARRANTIES AND REPRESENTATIONS |                                          |
|                                            | 5.1  Existence and Authority                  |   |
|                                            | 5.2 Binding  Obligations                      |   |
|                                            | 5.3  Compliance with Laws and Documents       |   |
|                                            | 5.4 Litigation                                |   |
|                                            | 5.5 No Consents                               |   |
|                                            | 5.6 Location                                  |   |
|                                            | 5.7 Solvency                                  |   |
|                                            | 5.8 Debt                                      |   |
|                                            | 5.9 Fiscal Year                               |   |
|                                            | 5.10  Relationship with Lender                |   |
|                                            | 5.11  Financial Statements                    |   |
|                                            | 5.12 Taxes                                    |   |
|                                            | 5.13  Government Regulation                   |   |
|                                            | 5.14 Employee  Benefit Plans                  |   |
|                                            | 5.15 Purpose of the Term  Loan Advances       |   |
|                                            | 5.16  Properties; Liens                       |   |
|                                            | 5.17 Environmental Laws:  Hazardous Materials |   |
|                                            | 5.18 Insurance                                |   |
|                                            | 5.19  Operation of Business                   |   |
|                                            | 5.20 Margin  Securities                       |   |
|                                            | 5.21 Disclosure                               |   |
|                                            | 5.22 Agreements                               |   |
|                                            |                                          |   |
| SECTION  6  COVENANTS                      |                                          |
|                                            | 6.1 Use of Proceeds                           |   |
|                                            | 6.2 Books and  Records                        |   |
|                                            | 6.3 Items to  be Furnished                    |   |
|                                            | 6.4 Inspection                                |   |
|                                            | 6.5 Taxes                                     |   |
|                                            | 6.6 Expenses                                  |   |

 

i

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|                                 | 6.7  Maintenance of Existence, Assets and Business  |   |
|--------------------------------------|-----------------------------------------------------|--------|
|                                 | 6.8  Maintenance of Priority of Lender Liens        |   |
|                                 | 6.9  Dispositions of Properties                     |   |
|                                 | 6.10 Sales                                          |   |
|                                 | 6.11  Compliance with Laws and Documents            |   |
|                                 | 6.12  Fiscal Year and Accounting Methods            |   |
|                                 | 6.13  Insurance; Payment of Premiums                |   |
|                                 | 6.14 Environmental Laws                             |   |
|                                 | 6.15 GENERAL  INDEMNIFICATION                       |   |
|                                 | 8.16  ENVIRONMENTAL INDEMNIFICATION                 |   |
|                                 | 6.17 Employee  Benefit Plans                        |   |
|                                 | 6.18 Notice  of Litigation                          |   |
|                                 | 6.19 Loans, Advances  and Investments               |   |
|                                 | 6.20 Transactions with Affiliates                   |   |
|                                 | 6.21 Material  Contracts                            |   |
|                                 | 6.22 New Business                                   |   |
|                                 | 6.23 Addresses                                      |   |
|                                 | 6.24 Restrictions on  Debt                          |   |
|                                 | 6.25  Issuance of Capital Stock                     |   |
|                                 | 6.26  Mergers and Dissolutions                      |   |
|                                 | 6.27 Default on  Debt                               |   |
|                                 | 6.28 Distributions                                  |   |
|                                 | 6.29 Current Ratio                                  |   |
|                                 | 6.30 Net Worth                                      |   |
|                                 | 6.31  Interest Coverage Ratio                       |   |
|                                 | 6.32 Limitation on  Liens                           |   |
|                                 |                                                |   |
| SECTION  7  DEFAULT             |                                                |
|                                 | 7.1 Payment  of Obligations                         |   |
|                                 | 7.2 Certain  Covenants                              |   |
|                                 | 7.3 Other Covenants                                 |   |
|                                 | 7.4  Voluntary Debtor Relief                        |   |
|                                 | 7.5  Involuntary Proceedings                        |   |
|                                 | 7.6 Attachment                                      |   |
|                                 | 7.7 Payment  of Judgments                           |   |
|                                 | 7.8 Default  Under Other Debt                       |   |
|                                 | 7.9  Divestment Proceedings                         |   |
|                                 | 7.10 Concealment or  Removal of Collateral          |   |
|                                 | 7.11  Misrepresentation                             |   |
|                                 | 7.12 Validity  and Enforceability of Loan Documents |   |
|                                 | 7.13 ERISA                                          |   |
|                                 | 7.14 Change of  Control                             |   |
|                                 | 7.15 Material  Adverse Change                       |   |
|                                 |                                                |   |
| SECTION  8  RIGHTS AND REMEDIES |                                                |
|                                 | 8.1 Remedies Upon  Default                          |   |
|                                 | 8.2 Waivers                                         |   |
|                                 | 8.3  Performance by Lender                          |   |
|                                 | 8.4  Delegation of Duties and Rights                |   |
|                                 | 8.5 Lender  Not in Control                          |   |
|                                 | 8.6 Waivers by Lender                               |   |
|                                 | 8.7 Cumulative  Rights                              |   |
|                                 | 8.8  Application of Proceeds                        |   |
|                                 | 8.9  Diminution in Value of Collateral              |   |
|                                 | 8.10 Certain  Proceedings                           |   |
|                                 |                                                |   |
| SECTION  9  MISCELLANEOUS       |                                                |
|                                 | 9.1 Changes in GAAP                                 |   |
|                                 | 9.2 Exhibits                                        |   |
|                                 | 9.3 Communications                                  |   |
|                                 | 9.4 Form and  Number of Documents                   |   |

 

ii

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|   | 9.5  Exceptions to Covenants                                                      |   |
|--------|-----------------------------------------------------------------------------------|--------|
|   | 9.6 Survival                                                                      |   |
|   | 9.7 GOVERNING LAW                                                                 |   |
|   | 9.8 Maximum  Interest Rate                                                        |   |
|   | 9.9 Invalid Provisions                                                            |   |
|   | 9.10 Entirety                                                                     |   |
|   | 9.11 Amendments, Etc                                                              |   |
|   | 9.12 Waivers                                                                      |   |
|   | 9.13  Governmental Regulation                                                     |   |
|   | 9.14 Multiple  Counterparts                                                       |   |
|   | 9.15 Discharge Only Upon  Payment In Full; Reinstatement In Certain Circumstances |   |
|   | 9.16  Waiver by Borrower                                                          |   |
|   | 9.17 Successors  and Assigns; Participations; Novation                            |   |
|   | 9.18 ARBITRATION                                                                  |   |
|   | 9.19  Jurisdiction and Venue                                                      |   |

 

 

SCHEDULES AND EXHIBITS

 
| Schedules      |                          |
|----------------|-------------------------------|
|           |                          |
| Schedule  3.1  | Waxahachie  Contracts and     |
|           | Madisonville  Contracts       |
| Schedule  6.24 | Existing  Debt                |
|           |                          |
| Exhibits       |                          |
|           |                          |
| Exhibit  A     | Term  Note                    |
| Exhibit  B     | Advance  Request Notice       |
| Exhibit  C     | Compliance  Certificate       |
| Exhibit  D     | Financial  Report Certificate |

 

 

 

iii

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## **FIRSTAMENDED AND RESTATED**

### **CREDITAGREEMENT**

 

 

THIS FIRST AMENDED AND RESTATED CREDIT AGREEMENT is entered into as ofMarch 31, 2003, between Gateway Pipeline Company, a Texas corporation(“Pipeline”) and Gateway Processing Company, a Texas corporation (“Processing”,Pipeline and Processing collectively “Borrowers”), Gateway EnergyCorporation, a Delaware corporation (“Guarantor”), and Southwest Bank of Texas,N.A., a national banking association (“Lender”).

 

WITNESSETH:

 

1.             Borrowers and Lender entered into(a) Credit Agreement dated as of February 21, 2002 establishing a One MillionFive Hundred Thousand Dollars ($1,500,000.00) term credit facility to financethe construction and mobilization of a pipeline gathering system nearMadisonville, Texas by Borrowers (“Credit Agreement”), (b) Loan Modification Agreement dated as ofAugust 31, 2002 and recorded in Volume 1883, page 1812 of the Official PublicRecords of Ellis County, Texas, and in Volume 632, page 173 of the OfficialPublic Records of Madison County, Texas, to modify the Maturity Date, PaymentDate and other terms of the Credit Agreement, (c) letter agreement datedDecember 12, 2002 to amplify the procedures for administering draw requests,(d) Second Loan Modification Agreement dated as of February 20, 2003, fromBorrowers to A. Stephen Kennedy, as Trustee, and the Lender to further modifythe Payment Date and other terms of the Credit Agreement, and (e) Third LoanModification Agreement dated as of March 31, 2003, from Borrowers to A. StephenKennedy, as Trustee, and the Lender to further modify the Payment Date andother terms of the Credit Agreement   (collectively, the “Existing Credit Agreement”); and

 

2.             Borrowers have requested thatLender amend and restate the Existing Credit Agreement upon and subject to theconditions and covenants stated herein.

 

Fora sufficient consideration including, without limitation, the mutual covenantscontained herein, Borrowers and Lender agree as follows:

 

SECTION 1.  DEFINITIONS.

 

1.1           Definitions. As used in the Agreement, the following terms have the followingmeanings:

 

Affiliate of any Personmeans any other Person who directly or indirectly controls, or is controlledby, or is under common control with, such Person.  For purposes of this definition only, “control,” “controlled by,”and “under common control with” mean possession, directly or indirectly, ofpower to direct or cause the direction of management or policies (whetherthrough ownership of voting securities, by contract, or otherwise).  Any Person who beneficially owns, directlyor indirectly, 10% or more (in number of votes) of the securities having ordinaryvoting power for the election of directors (or individuals performing similarfunctions of a Person) and any Person who is an officer or director of a Personshall be conclusively deemed to control such Person.

 

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Agreement means theExisting Credit Agreement, as amended and restated by this First Amended andRestated Credit Agreement, including the Schedules and Exhibits hereto, as thesame may be amended, restated or supplemented from time to time.

 

Borrowers mean Pipeline,Processing and their permitted successors and assigns, respectively.

 

BusinessDay means any day (other than Saturdays and Sundays) on which commercialbanks are not authorized or required to close in Houston, Texas.

 

CapitalLease Obligations means, as to any Person, the obligations of suchPerson to pay rent or other amounts under a lease of (or other agreementconveying the right to use) real and/or personal Property, which obligationsare required to be classified and accounted for as a capital lease on a balancesheet of such Person under GAAP.  Forpurposes of the Agreement, the amount of Capital Lease Obligations shall be thecapitalized amount thereof, determined in accordance with GAAP.

 

CapitalStock means any and all shares, interests, participations, rights or otherequivalents (however designated) of corporate stock.

 

Changeof Control means any of the following events:  (a) any “person” or “group” of persons whoare not currently stockholders or beneficial holders shall have acquired“beneficial ownership” of more than 25% of the outstanding common stock of theBorrowers  (within the meaning ofSection 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended, andthe applicable rules and regulations thereunder), or (b) during any period of12 consecutive months, commencing before or after the date of the Agreement,Guarantor shall cease for any reason to own one hundred per cent (100%) of theCapital Stock of each of Pipeline and Processing, subject to the SecurityDocuments delivered to the Lender contemporaneously herewith.

 

ClosingDate means the date on which all of the conditions precedent in Section 4have been satisfied.

 

Code means theInternal Revenue Code of 1986, as amended, and all regulations promulgated andrulings issued thereunder.

 

Collateral is defined in Section3.1.

 

CurrentAssets means, at any particular time, all amounts which, in conformity withGAAP, would be included as current assets on a consolidated balance sheet ofBorrowers and Guarantor.

 

CurrentLiabilities means, at any particular time, all amounts which, inconformity with GAAP, would be included as current liabilities on aconsolidated balance sheet of Borrowers and Guarantor.

 

CurrentFinancials means (a) the audited Financial Statements showing theconsolidated financial condition and results of operations of Borrowers andGuarantors on a consolidating accounting basis for the year ended onDecember 31, 2001, and (b) the unaudited interim Financial Statementsof Borrowers and Guarantor on a consolidating accounting basis dated as ofSeptember 30, 2002.

 

2

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Debt means as to anyPerson at any time (without duplication): (a) all obligations of that Personfor borrowed money, (b) all obligations of that Person evidenced by bonds,notes, debentures, or other similar instruments, (c) all obligations of thatPerson to pay the deferred purchase price of Property or services, except tradeaccounts payable of that Person arising in the ordinary course of business thatare not past due by more than ninety (90) days, (d) all Capital LeaseObligations of that Person, (e) all Debt or other obligations of othersGuaranteed by that Person, (f) all obligations secured by a Lien existing onProperty owned by that Person, whether or not the obligations secured therebyhave been assumed by that Person or are non-recourse to the credit of thatPerson, (g) all reimbursement obligations of that Person (whether contingent orotherwise) in respect of letters of credit, bankers’ acceptances, surety orother bonds and similar instruments, (h) all obligations of that Person toredeem or retire shares of Capital Stock of that Person, (i) all obligationsand liabilities of that Person in connection with Financial Hedges andHydrocarbon Hedges, and (j) all liabilities of that Person in respect of unfundedvested benefits under any Plan; provided, however, that the Debtof any Person shall not include any liability that (i) was incurred by thatPerson on ordinary (or better than ordinary) trade terms to vendors, suppliers,or other Persons providing goods and services for use by that Person in theordinary course of its business or (ii) may be beyond the stated term if thatPerson disputes the liability in good faith and maintains adequate reservestherefor in accordance with GAAP.

 

DebtorRelief Laws means the Bankruptcy Code of the United States ofAmerica and all other applicable liquidation, conservatorship, bankruptcy,moratorium, rearrangement, receivership, insolvency, reorganization, fraudulenttransfer or conveyance, suspension of payments or similar Laws from time totime in effect affecting the Rights of creditors generally.

 

Deedof Trust means each deed of trust, mortgage, assignment,security agreement and financing statement in form and substance acceptable tothe Lender, and any amendment, extension, modification, renewal or supplementthereof, delivered or to be delivered pursuant to the Agreement by (a) Pipelinecovering the Waxahachie Contracts and the Waxahachie Distribution System, andamending and restating (but not novating) the Waxahachie Mortgage and (b)Pipeline and Processing covering the Madisonville Contracts and theMadisonville Gathering System, and amending and restating (but not novating)the Madisonville Mortgage.

 

Default is defined in Section 7.

 

DefaultRate means a per annum rate of interest equal from day to day to the lesserof (a) ten and one — quarter per cent (10.25%) or (b) the Highest Lawful Rate.

 

EnvironmentalLaws means any and all federal, state, and local laws, regulations, andrequirements regulating, pertaining to, or imposing liability or standards ofconduct concerning any Hazardous Substance or environmental protection,including, without limitation, the Comprehensive Environmental Response,Compensation and Liability Act of 1980, 42 U.S.C. § 9601 et seq., theResource Conservation and Recovery Act of 1976, 42 U.S.C. § 6901 et seq.,the Superfund Amendment and Reauthorization Act of 1986, 42 U.S.C. §11001-11050, the Clean Air Act, 42 U.S.C. 7401 et seq., the Clean WaterAct, 33 U.S.C. § 1251 et seq., and the Toxic Substances Control Act, 15U.S.C. § 2601 et seq., as 

 

3

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suchlaws, regulations, and requirements may be amended or supplemented from time totime.

 

EnvironmentalLiabilities means, as to any Person, all liabilities, obligations,responsibilities, Remedial Actions, losses, damages, punitive damages,consequential damages, treble damages, costs, and expenses, (including, withoutlimitation, all reasonable fees, disbursements and expenses of counsel, expertand consulting fees and costs of investigation and feasibility studies), fines,penalties, sanctions, and interest incurred as a result of any claim or demand,by any Person, whether based in contract, tort, express or implied warranty,strict liability, criminal or civil statute, including any Environmental Law,permit, order or agreement with any Governmental Authority or other Person,arising from environmental, health or safety conditions or the Release orthreatened Release of a Hazardous Substance into the environment.

 

ERISA means theEmployee Retirement Income Security Act of 1974, as amended, and theregulations promulgated and rulings issued thereunder.

 

ERISAAffiliate means any company or trade or business (whether or notincorporated) which is a member of a group of which the Borrowers and Guarantorare a member and which is under common control with the Borrowers and Guarantorwithin the meaning of Section 414(b) or (c) of the Code.

 

Exhibit means an exhibitattached hereto unless otherwise specified.

 

ExistingCredit Agreement means the documents described in Recital 1.

 

FinancialReport Certificate means a certificate substantially in the form of ExhibitD and containing such other certifications and information as Lender mayreasonably request concerning compliance with the Loan Documents.

 

FinancialStatements means balance sheets, profit and loss statements,statement of retained earnings and statements of cash flow prepared incomparative form to the corresponding period of the preceding reporting period.

 

GAAP means generallyaccepted accounting principles of the Securities and Exchange Commission, andto the extent not inconsistent therewith the Accounting Principles Board of theAmerican Institute of Certified Public Accountants and the Financial AccountingStandards Board, which are applicable as of the date of the Current Financials.

 

GovernmentalAuthority means any nation or government, any state or politicalsubdivision thereof and any entity exercising executive, legislative, judicial,regulatory, or administrative functions of or pertaining to government.

 

Guarantee by any Personmeans any obligation, contingent or otherwise, of such Person directly orindirectly guaranteeing any Debt or other obligation of any other Person and,without limiting the generality of the foregoing, any obligation, direct orindirect, contingent or otherwise, of such Person (a) to purchase or pay (oradvance or supply funds for the purchase or payment of) such Debt or otherobligation (whether arising by virtue of partnership arrangements, by agreementto keep-well, to purchase assets, goods, securities or services, totake-or-pay, or to maintain financial statement conditions or otherwise) or 

 

4

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(b)entered into for the purpose of assuring in any other manner the obligee ofsuch Debt or other obligation of the payment thereof or to protect the obligeeagainst loss in respect thereof (in whole or in part), provided that theterm Guarantee shall not include obligations under endorsements for collectionor deposit in the ordinary course of business. The term “Guarantee” used as a verb has a corresponding meaning.

 

Guarantor means GatewayEnergy Corporation, and its permitted successors and assigns.

 

                Guaranty means thecontinuing guaranty agreement in favor of the Lender in form and substanceacceptable to the Lender, and any amendment, extension, modification, renewalor supplement thereof, delivered or to be delivered by the Guarantor hereunder.

 

HazardousSubstance means any hazardous or toxic waste (or any substancewhich is listed as such under any Environmental Law).

 

HighestLawful Rate means the maximum rate or amount of interest whichLender is allowed by Law to contract for, charge, take, reserve or receive.

 

IndemnifiedLiabilities is defined in Section 6.15.

 

IndemnifiedParties is defined in Section 6.15.

 

Laws mean allapplicable statutes, laws, ordinances, rules, regulations, orders, writs,injunctions, or decrees of any Tribunal, and any judicial interpretationthereof.

 

LenderLiens means Liens in favor of Lender securing all or any of the Obligations,including but not limited to Rights in any Collateral created in favor ofLender.

 

Lender means SouthwestBank of Texas, N.A. and its successors and assigns.

 

Lien means any lien,mortgage, security interest, pledge, charge, title retention agreement orencumbrance of any kind, and any other Right of or arrangement with anycreditor to have his claim satisfied out of any property or assets, or theproceeds therefrom, prior to the general creditors of the owner thereof.

 

Litigation means any claim,demand or action conducted or expressly threatened in writing by or before anyTribunal including, but not limited to, claims or demands by any Person foractual or claimed breaches of any express or implied conditions or covenantscontained or referred to in any agreement, contract or lease included in theCollateral.

 

Loan means the amountloaned by Lender to Borrowers under the Loan Documents.

 

LoanDocuments means (a) the Agreement and any certificates deliveredpursuant to the Agreement, (b) any and all notes (including, withoutlimitation, the Note), the Security Documents and other agreements in favor ofLender that have been, are now being or hereafter are delivered pursuant to theAgreement, and (c) all future renewals, extensions or restatements of, oramendments or supplements to, any of the foregoing.

 

MadisonvilleContracts means the gas purchase, treatment and transportationcontracts related to the Madisonville gathering system more particularlydescribed on 

 

5

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Schedule3.1, for (i) Processing to purchase sour gas at the wellhead from RedwoodEnergy Production L.P.’s Ruby Magness Well No. 1 in the Madisonville RodessaField, (ii) Processing to deliver that gas to the separator installed byHanover Compression Limited Partnership (“Hanover”) for the Ruby Magness WellNo. 1 for removal of CO2 and H2S at a treatment plant to be fabricated, installed,operated and owned at a location in the Madisonville Rodessa field by Hanover,(iii) Pipeline to accept the processed gas at the tailgate of Hanover’streatment plant and (iv) Pipeline to transport the processed gas approximatelyseven miles on a pipeline to be constructed by Pipeline for Processing’saccount to a delivery point on TXU Lone Star’s transmission line for marketing.

 

MadisonvilleMortgage means the First Amended and Restated Deed of Trust, Mortgage, Assignment ofProduction, Security Agreement and Financing Statement executedcontemporaneously herewith by Borrowers,as Mortgagor and Debtor, to A. Stephen Kennedy, as Trustee for the benefit ofLender , as Beneficiary, Mortgagee and Secured Party, and any amendment, extension, modification,renewal or supplement thereof, which (a) covers the MadisonvilleGathering System and (b) partially amends, extends and restates (but does notdischarge, novate or release)  the Deed of Trust, Mortgage,Assignment of Production, Security Agreement and Financing Statement dated asof August 31, 2002, and recorded in Volume632, page 186 of the Official Public Records of Madison County, Texas, which was previously amended by (i) Second LoanModification Agreement dated as of February 28, 2003, recording deferred, eachof which was delivered by Borrowers, asmortgagor and debtor, to A. Stephen Kennedy, as Trustee for the benefit ofLender, as holder and secured party, covering the Madisonville GatheringSystem.

 

MadisonvilleGathering System means the contracts, easements, equipment, facilities,fixtures, real property and any and all other Property of any nature whatsoevermore particularly described in the Madisonville Mortgage, as amended andrestated from time to time in connection with the Agreement, whether (i) nowowned or hereafter acquired by Pipeline or Processing, (ii) real, personal ormixed or (iii) situated on the easements or real property described in theapplicable the Deeds of Trust, or used by Pipeline or Processing in connectionwith the Madisonville Contracts.

 

MaterialAdverse Effect means any set of circumstances or events which wouldreasonably be expected to (a) have any adverse effect upon the validity orenforceability of any Loan Document, (b) be material and adverse to theCollateral as a whole, or the financial condition of Borrowers or Guarantor asrepresented in the Current Financials, or (c) cause a Default.

 

MaturityDate is December 31, 2005.

 

MinimumNet Operating Margin means the remainder of (a) the gross proceeds receivedby each Borrower from (i) the distribution, gathering, marketing, processing,sale or transportation of petroleum, natural gas and all other hydrocarbonsproduced therefrom or in association therewith (including, without limitation,all commodities, products, by-products and residual products of commercialvalue derived, manufactured or produced from the foregoing) pursuant to theWaxahachie Contracts and the Madisonville Contracts and (ii) the operation andownership of the Pipeline Systems, minus (b) the sum of (i) the purchase pricepaid by each Borrower for the petroleum and natural gas sold pursuant to theWaxahachie Contracts and the Madisonville Contracts and (ii) the reasonable andnecessary expenses incurred in maintaining and operating (aa) the WaxahachieDistribution System by Pipeline in connection with sale of petroleum andnatural gas 

 

6

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pursuantto the Waxahachie Contracts and (bb) the Madisonville Gathering System inconnection with the processing and sale of petroleum and natural gas pursuantto the Madisonville Contracts. Each Borrower shall exclude general andadministrative expenses from the calculation of Minimum Net Operating Margin.

 

MultiemployerPlan means a multiemployer plan as defined in Sections 3(37) or 4001(a)(3)of ERISA or Section 414(f) of the Code to which the Borrowers, Guarantoror any ERISA Affiliate is making, or has made, or is accruing, or has accrued,an obligation to make contributions within the past three (3) calendar years.

 

MultipleEmployer Plan means any employee benefit plan within the meaning ofSection 3(3) of ERISA, other than a Multiemployer Plan, which is subjectto Title IV of ERISA and to which the Borrowers, Guarantor or any ERISAAffiliate and an employer other than an the Borrower, Guarantor or any ERISAAffiliate contribute or have an obligation to contribute.

 

Note means (a) thePromissory note executed and delivered by Borrowers pursuant to Section 2.1,which amends,rearranges, restates, renews and extends (but does not novate)  (i) Promissory Note dated February 21, 2002made by Borrowers and payable to the order of Lender in the original principal amount of One Million Five Hundred Thousandand NO/100ths Dollars pursuant to the Credit Agreement and (ii) PromissoryNote dated August 31, 2002 made by Borrowers and payable to the order of Lenderin the original principal amount of One Million Five Hundred Thousand andNo/100 ($ 1,500,000.00) pursuant to the Existing Credit Agreement  and (b) any amendment, rearrangement,restatement, renewal and extension of the Note.

 

Obligations means all presentand future obligations, indebtedness, and liabilities of Borrowers andGuarantor to Lender arising pursuant to any of (a) the Existing Loan Documents,whether direct, indirect, related, unrelated, fixed, contingent, liquidated, orunliquidated, including, without limitation, the obligation of Borrowers andthe Guarantor to repay the Loan, interest on the Loan, and all fees,indemnities, costs, and expenses (including attorneys’ fees) provided for inthe Existing Loan Documents which are attributable to the Loan and (b) the loandocuments now or hereafter executed and delivered by Borrowers and Guarantor inconnection with the Supplemental Loan, whether direct, indirect, related,unrelated, fixed, contingent, liquidated, or unliquidated, including, withoutlimitation, the obligation of Borrowers and the Guarantor to repay theSupplemental Loan, interest on the Supplemental Loan, and all fees,indemnities, costs, and expenses (including attorneys’ fees) provided for inthe Supplemental Loan Documents which are attributable to the SupplementalLoan.

 

PaymentDate means the last day of each calendar month during the term of theAgreement, beginning April 30, 2003 and continuing on the last day of eachconsecutive calendar month thereafter until the Maturity Date.

 

PBGC means the PensionBenefit Guaranty Corporation or any successor thereof, established pursuant toERISA.

 

PBGCPlan means any Pension Plan subject to Title IV of ERISA.

 

PensionPlan means an employee pension benefit plan as defined in Section 3(2)of ERISA which Borrowers, Guarantor or any ERISA Affiliate sponsors ormaintains, or to 

 

7

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whichs, Guarantors or any ERISA Affiliate makes, is making or is obligated to makecontributions, excluding any Multiemployer Plan.

 

PermittedLiens means (a) the Lender Liens, (b)****Liens listed on Schedule 6.24 hereto,which Borrowers have disclosed to Lender, (c) Liens for Taxes, Liens ofmechanics and materialmen, and other liens incurred in the ordinary course ofbusiness of the Pipeline Systems that do not exceed ** **$100,000.00****inthe aggregate, (d) Liens securing the payment and performance of leases forequipment used by Borrowers in the ordinary course of business of the PipelineSystems that do not cover or encumber any of Borrowers’ respective Propertyexcept the equipment leased thereunder, (e) pledges or deposits made to secure payment of worker’s compensation, orto participate in any fund in connection with worker’s compensation,unemployment insurance, pensions or other social security programs, (f)good-faith pledges or deposits made by (i) Processing to secure performance ofbids or contracts, not in excess of 10% of the aggregate amount due thereunder,to construct the Madisonville Gathering System in connection with theMadisonville Contracts, or (ii) the Borrowers to obtain certificates ofresponsibility or statutory bonds, in the ordinary course of business of thePipeline Systems, (g) encumbrances consisting of zoning restrictions, easementsor other restrictions on the use of Property, none of which materially impairthe use of such Property by Borrowers, in the operation of their respectivebusinesses, and none of which is violated by existing or proposed structures orland use, and (h) claims and Liens for Taxes due and payable, claims and Liensupon, and defects of title to, real or personal property, including anyattachment of personal or real property or other legal process prior toadjudication of a dispute on the merits, claims and Liens of carriers,landlords, mechanics, materialmen, warehousemen or other like Liens, andadverse judgments on appeal, so long as the validity or amount thereof is beingcontested in good faith and by appropriate and lawful proceedings diligentlyconducted, reserves or other appropriate provision (if any) required by GAAPhave been made, levy and execution thereon have been (and continue to be)stayed (provided that any of the foregoing which burden any Collateral must besubordinate to all Lender Liens), and they do not materially detract from thevalue of the Property of the Person in question, or materially impair the usethereof in the operation of its business, individually or in the aggregate.

 

Person means anyindividual, sole proprietorship, unincorporated organization, corporation,association, partnership, joint venture, trust, institution, Tribunal or otherentity.

 

PipelineSystems mean (i) the Madisonville Gathering System and (ii) the WaxahachieDistribution System.

 

Plan means anyemployee benefit plan as defined in Section 3(3) of ERISA established ormaintained by the Borrowers, Guarantor or any ERISA Affiliate and which iscovered by Title IV of ERISA.

 

PotentialDefault means the occurrence of any event which, with notice or lapse of timeor both, would become a Default.

 

ProhibitedTransaction is as defined in Section 406 of ERISA or Section 4975of the Code.

 

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Property means property ofall kinds, real, personal or mixed, tangible or intangible (including, withoutlimitation, all rights relating thereto), whether owned or acquired on or afterthe date of the Agreement.

 

Regulation D meansRegulation D of the Board of Governors of the Federal Reserve System asthe same may be amended or supplemented from time to time.

 

RegulatoryChange means, with respect to Lender, any change after the date of theAgreement in United States federal, state, or foreign laws or regulations(including Regulation D) or the adoption or making after such date of anyinterpretations, directives, or requests applying to a class of banks includingLender of or under any United States federal or state, or any foreign, laws orregulations (whether or not having the force of law) by any court orgovernmental or monetary authority charged with the interpretation oradministration thereof.

 

Release is as defined in42 U.S.C. § 9601(22).

 

RemedialAction means all actions required to (a) cleanup, remove, treat, or otherwiseaddress Hazardous Substances in the environment, (b) prevent the Release orthreat of Release or minimize the further Release of Hazardous Substances sothat they do not migrate or endanger or threaten to endanger public health orwelfare or the environment, or (c) perform pre-remedial studies andinvestigations and post-remedial monitoring and care for incidents involvingactual or threatened Releases of Hazardous Substances or actual or potentialviolations of Environmental Laws.

 

ReportableEvent is as defined in Section 4043 of ERISA.

 

Rights means rights,remedies, powers, privileges and benefits.

 

Schedule means a scheduleattached hereto unless specified otherwise.

 

Section means a sectionor subsection of the Agreement unless specified otherwise.

 

SecurityAgreements means (i) the First Amended and Restated SecurityAgreement delivered contemporaneously herewith by Guarantor, as Debtor, to theLender, as secured party, and any amendment, extension, modification, renewalor supplement thereof, which (a) covers all of the fully paid andnon-assessable Capital Stock of each of the Borrowers that has been issued andis outstanding and (b) partiallyamends, extends and restates (but does not discharge, novate or release) theSecurity Agreement dated February 21, 2002, delivered by Guarantor to Lender,which was previously amended by (1) Loan Modification Agreement dated as ofAugust 31, 2002 and recorded in Volume 1883, page 1812 of the Official PublicRecords of Ellis County, Texas, and in Volume 632, page 173 of the OfficialPublic Records of Madison County, Texas, and (ii) Second Loan ModificationAgreement dated as of February 28, 2003, recording deferred, each of theforegoing being delivered by Guarantor to A. Stephen Kennedy, as Trustee, andthe Lender, as Beneficiary, Mortgagee and Secured Party, covering theWaxahachie Distribution System, and (ii)First Amended and Restated Security Agreement delivered contemporaneouslyherewith by the Borrowers, as Debtors, to the Lender, as secured party, and anyamendment, extension, modification, renewal or supplement thereof, which(a)  covers all of the MadisonvilleContracts and the other collateral described therein and (b) partiallyamends, extends and restates (but does not discharge, novate or release) theSecurity Agreement dated February 21, 2002, delivered by Borrowers to Lender,which was previously 

 

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amended by (1) LoanModification Agreement dated as of August 31, 2002, and recorded in Volume 632,page 173 of the Official Public Records of Madison County, Texas, and (ii)Second Loan Modification Agreement dated as of February 28, 2003, recordingdeferred, each of the foregoing being delivered by Borrowers to A. Stephen Kennedy,as Trustee, and the Lender, as Beneficiary, Mortgagee and Secured Party,covering the Madisonville Contracts and the other collateral described therein.

 

SecurityDocuments means, collectively, the Deeds of Trust, theGuaranties, each of the Security Agreements, and all related financingstatements and any other agreement, in form and substance satisfactory toLender, executed and delivered by any Person in connection with or pursuant tothe Agreement for the purpose of creating a first priority Lien on any of itsProperty.

 

Subsidiary with respect toany Person means (a) a corporation a majority of whose voting stock is at anytime, directly or indirectly, owned by that Person, by one or more Subsidiariesof that Person, or by that Person and one or more Subsidiaries of that Person,or (b) any other Person (other than a corporation) in which that Person, aSubsidiary of that Person, or that Person and one or more Subsidiaries of thatPerson, directly or indirectly, at the date of determination thereof, has (i)at least a majority ownership interest or (ii) the power to elect or direct theelection of the majority of the directors or other governing body of thatPerson.

 

SupplementalLoan means the loans made by Lender to Borrower pursuant to the SupplementalLoan Documents.

 

SupplementalLoan Documents means the documents now or hereafter executed inconnection with the Supplemental Loan including, without limitation (a)promissory note of even date herewith made by Borrowers and payable to theorder of Lender in the original principal amount of Nine Hundred Thousand andNO/100ths Dollars ($900,000.00) and a final maturity date of April 30, 2006,(b) the credit agreement, the security documents and other loan documents ofeven date herewith delivered by or on behalf of Borrowers or Guarantor to orfor the benefit of Lender in connection the promissory note for theSupplemental Loan, and (c) any amendment, extension, modification, renewal orsupplement thereof.

 

TangibleNet Worth means, at any particular time, all amounts which, inconformity with GAAP, would be included as stockholders’ equity on a balancesheet of Borrowers or Guarantor, provided, however, there shallbe (i) added thereto the Debt of that Person, calculated in accordance withGAAP consistently applied, heretofore (or hereafter) incurred, that by theexpress terms of the instrument creating or evidencing that Debt (or asubordination agreement in form and substance acceptable to the Lender) isvalidly and effectively made subordinate and subject in the right of paymentand performance to the prior payment of the Obligations to the Lender and (ii)excluded therefrom (a) any amount at which shares of Capital Stock of eitherBorrower appears as an asset on Borrowers’ or Guarantor’s balance sheet, (b)goodwill, including any amounts, however designated, that represent the excessof the purchase price paid for assets or stock over the value assigned thereto,(c) patents, trademarks, trade names, and copyrights, and (d) all other assetswhich are properly classified as intangible assets under GAAP.

 

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Taxes means all taxes,assessments, fees, levies, imposts, duties, deductions, withholdings or othercharges of any nature whatsoever from time to time or at any time imposed byany Law or Tribunal.

 

Tribunal means any (a)local, state or federal judicial, executive or legislative instrumentality, and(b) private arbitration board or panel.

 

UCC means the UniformCommercial Code as in effect in the applicable jurisdiction.

 

WaxahachieContracts means the gas purchase, sale, transportation and othercontracts more particularly described on Schedule 3.1, and any and alladditions, amendments, extension, modification, renewal or supplement thereof,pursuant to which Pipeline buys, sells and transports natural gas with respectto the Waxahachie Distribution System on the terms and conditions specified ineach contract.

 

WaxahachieDistribution System means the contracts, easements, equipment, facilities,fixtures, real property and any and all other Property of any nature whatsoevermore particularly described in the Waxahachie Mortgage, as amended and restatedfrom time to time in connection with the Agreement, whether (i) now owned orhereafter acquired by Pipeline, (ii) real, personal or mixed or (iii) situatedon the easements or real property described in the Deed of Trust, or used byPipeline in connection with the Waxahachie Contracts.

 

WaxahachieMortgage means the First Amended and Restated Deed of Trust, Mortgage, Assignment ofProduction, Security Agreement and Financing Statement executedcontemporaneously herewith by Pipeline, as Mortgagor and Debtor, and deliveredto A. Stephen Kennedy, as Trustee, and the Lender, as Beneficiary, Mortgageeand Secured Party, and any amendment,extension, modification, renewal or supplement thereof, which (a) coversthe Waxahachie Distribution System and (b) partially amends, extends andrestates (but does not discharge, novate or release) the Deed of Trust, Mortgage,Assignment of Production, Security Agreement and Financing Statement datedFebruary 21, 2002, and recorded in Volume 1634, page 1646 of the OfficialPublic Records of Ellis County, Texas, which was previously amended by (i) LoanModification Agreement dated as of August 31, 2002 and recorded in Volume 1883,page 1812 of the Official Public Records of Ellis County, Texas, and (ii)Second Loan Modification Agreement dated as of February 28, 2003, recordingdeferred, each of the foregoing being delivered by Pipeline, as Mortgagor andDebtor, to A. Stephen Kennedy, as Trustee, and the Lender, as Beneficiary,Mortgagee and Secured Party, covering the Waxahachie Distribution System.

 

WelfarePlan means an employee welfare benefit plan as defined in Section 3(l) ofERISA which Borrowers, Guarantor or any ERISA Affiliate sponsors or maintains,excluding any Multiemployer Plan.

 

1.2           Other Definitional Provisions.  All definitions contained in the Agreementare equally applicable to the singular and plural forms of the terms defined.Each gender shall be deemed to include the other genders, and the singularshall be deemed to include the plural (and vice versa), as the contextrequires. Each representation, warranty and covenant herein shall haveindependent significance; and if two representations, warranties or covenantsin the Loan Documents relate to the same subject matter (regardless of therelative levels of specificity), the maintenance of one representation,warranty or covenant shall not cure, diminish or mitigate the breach of another

 

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representation,warranty or covenant. The words “hereof,” “herein,” and “hereunder” and wordsof similar import referring to the Agreement refer to the Agreement as a wholeand not to any particular provision of the Agreement. The word “include” andits variants mean “include, but not limited to” and illustrative examples shallnot be construed to limit (expressly or by implication) the matters theyillustrate. The captions of articles, sections and clauses are provided forconvenience only, and not as an aid to the construction of any of the LoanDocuments.  Unless otherwise specified,all Article and Section references pertain to the Agreement.  Terms used herein that are defined in theUCC, unless otherwise defined herein, shall have the meanings specified in theUCC. The Borrowers, Guarantor and the Bank have participated jointly in thedrafting of the Loan Documents. If an ambiguity, question of intent or questionof interpretation arises, the Loan Documents shall be construed as if draftedjointly by the parties, and no presumption or burden of proof shall arisefavoring or disfavoring any Party by virtue of the authorship of all or anypart of the Loan Documents.

 

1.3           Accounting Terms and Determinations.  Except as otherwise expressly providedherein, all accounting terms used herein shall be interpreted, and allfinancial statements and certificates and reports as to financial mattersrequired to be delivered to Lender hereunder after the Closing Date shall beprepared, in accordance with GAAP, on a basis consistent with those used in thepreparation of the financial statements referred to in Section 5.11hereof.  All calculations made for thepurposes of determining compliance with the provisions of the Agreement shallbe made by application of GAAP, on a basis consistent with those used in thepreparation of the financial statements referred to in Section 5.11hereof.

 

SECTION 2.  THE TERM LOAN.

 

2.1           Advances. Subject to and in reliance upon the terms, conditions, representationsand warranties in the Loan Documents, Lender hereby agrees to make toBorrowers, prior to June 30, 2003, in one or more advances, a Loan up to theaggregate principal amount of One Million Five Hundred Thousand Dollars($1,500,000.00).  The Loan shall beevidenced by a promissory note executed by the Borrowers and payable to theorder of Lender substantially in the form of Exhibit A, dated theClosing Date and maturing on the Maturity Date (the “Note”).

 

(a)Each advance shall be made in accordance with Subparagraphs (b) and (c) belowfollowing Lender’s receipt of Borrowers’ advance request notice, and allmaterials specified therein, which shall (i) be irrevocable and binding onBorrowers, (ii) designate whether the Borrowers will use the advance to paycurrent construction and mobilization costs attributable to the completion ofthe Madisonville Gathering System represented by invoices attached to thenotice of advance and (iii) state the amount of each requested advance, and thedate the Lender is requested to make each advance.

 

(b) For each advancerequest, the Borrowers will: (1) deliver, or cause all vendors that provide orsupply labor, materials or services to or for the account of the Borrowers inconnection with the construction and mobilization of the Madisonville GatheringSystem to deliver, copies of all bills, invoices and statements to Borrowersand Lender that will be paid from the applicable advance; (2) promptly revieweach bill, invoice and statement upon receipt to confirm that (a) the vendoractually provided or supplied the labor, materials and services describedtherein, (b) the labor, materials and services conform, in all respects, to theapplicable plans, specifications and requirements for the MadisonvilleGathering System, and (c) the vendor 

 

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is owed the full amountset forth in the applicable bill, invoice and statement; and (3) deliver anadvance request notice, substantially in the form attached as Exhibit Bhereto, to the Lender requesting the Lender to (a) make an advance pursuant to Section2.1 of this Agreement and (b) pay directly to the applicable vendor all (ora specific part) of the applicable invoice on or before the applicable duedate.

 

(c)The Lender must receive Borrowers’ notices of advance no later than 2:00 p.m.(Houston, Texas time) one (1) Business Day preceding the Business Day theBorrowers wish to receive an advance for Madisonville Gathering System forcompletion and mobilization costs Each advance shall be subject to thesatisfaction of the applicable conditions precedent in Section 4.

 

 Lender shall (unless to its actual knowledgeany of the conditions precedent therefor have not been satisfied by Borrowersor waived by Lender) make each requested advance, as applicable, available toBorrowers by wire transfer or deposit as directed by Borrowers in the notice ofadvance. Each advance shall be reflected by a notation made by Lender in itsbusiness records. The aggregate amount of the advances reflected by thenotations made in Lender’s business records shall be, in the absence ofmanifest error, conclusive evidence of the principal amount owed by Borrowersunder the Note, which the Borrowers shall repay pursuant to Section 2.2.

 

2.2           Payments.  TheBorrowers shall repay the principal and accrued but unpaid interest of the Loanadvanced under the Agreement in thirty (30) monthly installments of Fifty FourThousand Eight Hundred Eighteen and 54/100ths Dollars ($54,818.54), beginningon July 31, 2003 and continuing on each Payment Date thereafter until theMaturity Date, with all remaining principal, and accrued but unpaid interest,being due and payable in full on the Maturity Date; provided that the Lenderand the Borrowers shall adjust the amount of each installment of principal andinterest to provide for level amortization over a thirty month period if theLender advances less than the full principal amount of the Loan on or  before July 31, 2003. Each payment on theObligations must be paid at Lender’s office, 5 Post Oak Park Place OfficeBuilding, 4400 Post Oak Parkway, Houston, Texas 77027, in funds which are orwill be available for immediate use by Lender by 2:00 p.m. (Houston time) onthe day due.  If any action is requiredor any payment is to be made on a day which is not a Business Day, then thataction or payment may be delayed until the next succeeding Business Day.  Any extension of time shall be included inthe computation of payments of interest and fees.  All payments by the Borrowers of principal of and interest on theLoan, and of all fees and other amounts payable under any Loan Document, shallbe payable without deduction for or on account of any present or future Taxesor other charges (excluding any franchise taxes or income taxes imposed on ormeasured by the overall net income, assets, net worth or shareholders’ capitalof Lender) levied or imposed by the United States of America (or by anypolitical subdivision or taxing authority thereof or therein) throughwithholding or deduction with respect to any such payments.  If any Taxes or other charges are so leviedor imposed, the Borrowers will make additional payments in such amounts so thatevery net payment of principal of and interest on the Obligations, and of allother amounts payable by it under any Loan Document, after withholding ordeduction for or on account of any such present or future Taxes or othercharges, will not be less than the amount provided for herein or therein.

 

2.3           Interest Rate and Payments.  The principal of the Loan advanced under theAgreement shall bear interest prior to the earlier of the Maturity Date, orDefault, at a 

 

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fixedrate of seven and one-quarter per cent (7.25%) per annum. The Borrowers shallpay accrued but unpaid interest on the principal advanced hereunder as follows:(a) the Borrowers shall pay interest only as it accrues on the Note beginningon April 30, 2003 and continuing on each Payment Date thereafter until June 30,2003; and (b) the Borrowers shall pay installments of principal and interest asit accrues in accordance with Section 2.2 beginning on July 31, 2003 andcontinuing until the Maturity Date.

 

2.4           Default Rate.  At the option of Lender and to the extent permitted by Law, allpast-due (a) principal of the Loan and accrued interest thereon and(b) any other amount payable by Borrowers under any of the Loan Documentsshall bear interest from the date due (stated or by acceleration) at theDefault Rate until paid, regardless of whether such payment is made before orafter entry of a judgment.

 

2.5           Interest Calculations.  All payments of interest shall be calculatedon the basis of actual number of days (including the first day but excludingthe last day) elapsed but computed as if each calendar year consisted of 365 or366 days, as the case may be.

 

2.6           Voluntary Prepayments.  Borrowers may, upon one Business Day’snotice, prepay the outstanding principal of the Loan prior to the MaturityDate, in whole or in part; provided, however if the entireprincipal balance of the Loan is repaid on or before (a) December 31, 2003, theBorrowers shall pay a prepayment fee equal to the lesser of (i) one andone-half per cent (1.5%) of the aggregate principal of the Loan advancedhereunder through June 30, 2003 or (ii) Twenty Two Thousand Five HundredDollars ($22,500.00) or (b) December 31, 2004, the Borrowers shall pay aprepayment fee equal to the lesser of (i) one per cent (1%) of the aggregate  principal of the Loan advancedhereunder  through June 30, 2003, or(ii) Fifteen Thousand Dollars ($15,000.00). Borrowers shall pay the fee withinten (10) Business Days following the date that a prepayment fee becomes due.The Borrowers and Guarantor stipulate that any prepayment fee which may accruepursuant to Clause 2.6 (a) is compensation to Lender for servicesperformed separate and apart from the lending of money or the provision ofcredit pursuant to the Loan Documents. The Lender will waive any prepayment feethat may otherwise become due under the Agreement if the Loan is repaidpursuant to a new credit facility hereafter established by Lender for thebenefit of the Borrowers; provided that nothing contained in any of the LoanDocuments is intended or shall be construed as a commitment or obligation forLender to establish a new credit facility for the Borrowers.   A notice of prepayment shall constitute abinding obligation of Borrowers to make a prepayment on the date statedtherein.  Prepayments of principal ofthe Loan shall be applied to principal installments in inverse order ofmaturity, and may not be re-borrowed.

 

2.7           Order of Application.

 

(a)           So long as no Default has occurredand is continuing, payments of the Obligations shall be applied in full untilexhausted first to accrued interest, and second to principal ofthe Obligations as directed by Borrowers.

 

(b)           At any time during which a Defaulthas occurred and is continuing, any payment or prepayment (including proceedsfrom the exercise of any Rights under the Loan Documents) shall be applied inthe following order: (i) to expenses for which Lender is entitled toreimbursement in accordance with Section 6.6 but for which Lender hasnot then been reimbursed, (ii) to accrued interest on the Obligations, (iii) tothe principal of 

 

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theLoan, or (iv) any combination of the foregoing in each case in the mannerLender deems appropriate.

 

SECTION 3.  SECURITY.

 

3.1           Security. The full and complete payment and performance of the Obligations shallbe secured by first priority, perfected Lender Liens in, and assignment of, allof the issued and outstanding Capital Stock of each of the Borrowers, theWaxahachie Contracts, the Madisonville Contracts, the Pipeline Systems and allProperty appurtenant thereto as described in the Security Documents(collectively, and together with proceeds and products thereof, the “Collateral”),each such Lender Lien and assignment to be evidenced by a Security Document.

 

3.2           Additional Security and Guaranties.  Lender may, without notice or demand andwithout affecting Borrowers’ obligations under the Loan Documents or theSupplemental Loan Documents, from time to time (a) take from any Person andhold collateral (other than the Collateral) for the payment and performance ofall or any part of the Obligations and exchange, enforce or release suchcollateral or any part thereof, and (b) accept and hold any endorsement orguaranty of payment of all or any part of the Obligations and release anyendorser or guarantor, or any Person who has given any other security for thepayment of all or any part of the Obligations, or any other Person in any wayobligated to pay all or any part of the Obligations.

 

3.3           Security Documents.  Borrowers and Guarantor shall promptlyexecute and cause to be executed such further documents, schedules andinstruments, including without limitation, security agreements, UCC financingstatements, as Lender, in its sole discretion, reasonably deems necessary orproper to create, evidence, maintain, continue and perfect its Liens on theCollateral.

 

3.4           Setoff.  Ifa Default shall have occurred and be continuing, Lender is hereby authorized atany time and from time to time, without notice to Borrowers or Guarantor (anysuch notice being hereby expressly waived by Borrowers and Guarantor), to setoff 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 owingby Lender to or for the credit or the account of Borrowers or Guarantor againstany and all of the obligations of Borrowers or Guarantor now or hereafterexisting under the Agreement or any other Loan Document, irrespective ofwhether or not Lender shall have made any demand under the Agreement or suchother Loan Document and although such obligations may be unmatured.  Lender agrees promptly to notify Borrowersand Guarantor after any such setoff and application, provided that the failureto give such notice shall not affect the validity of such setoff andapplication.  The Rights of Lenderhereunder are in addition to other Rights (including, without limitation, otherrights of setoff) which Lender may have.

 

3.5           Proceeds. Notwithstanding that, by the terms of thevarious Security Documents, Borrowers are and will be assigning to Lender allof the “Proceeds” (as defined therein) accruing to the Collateral coveredthereby, so long as no Default has occurred, Borrowers may continue to receiveall of the Proceeds, subject, however, to the Liens created under the SecurityDocuments, which Liens are hereby affirmed and ratified.  Upon the occurrence of a Default, Lender mayexercise all rights and remedies granted under the Security Documents,including the right to obtain possession of all of the Proceeds then held byBorrowers or to receive all other Proceeds directly from the Persons 

 

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makingpayment thereof.  In no case shallLender’s failure to collect any of the Proceeds constitute an estoppel, waiver,remission or release of any of its Rights under the Security Documents, norshall any release of any Proceeds by Lender to Borrowers constitute anestoppel, waiver, remission, or release of any other Proceeds or of any Rightsof Lender to collect other Proceeds thereafter.

 

SECTION 4.  CONDITIONS PRECEDENT.

 

4.1           Initial Advance.  The obligation of Lender to make the initial advance under theAgreement is subject to the condition precedent that Lender shall have receivedand approved on or before the date of the Advance all of the following, eachdated (unless otherwise indicated) the date hereof, in form and substancesatisfactory to Lender:

 

(a)           Resolutions.  Resolutions of the Board of Directors ofeach of the Borrowers and the Guarantor (certified by their respectiveSecretary or Assistant Secretary) which respectively authorize the execution,delivery and performance by the Borrowers and the Guarantor of the LoanDocuments to which each is a party;

 

(b)           Incumbency Certificates.  Certificates of incumbency of each of theBorrowers and the Guarantor (certified by their respective Secretary orAssistant Secretary) certifying (i) the name of each officer of the Borrowersor the Guarantor that is authorized to sign the Agreement and each of the otherLoan Documents to which each is a party (including the certificatescontemplated herein) together with specimen signatures of each such officer and(ii) who will, until replaced by other officers duly authorized for thatpurpose, act as the representative of the Borrowers or the Guarantor for thepurposes of signing documents and giving notices and other communications inconnection with the Loan Documents and the transactions contemplated thereby;

 

(c)           Articles of Incorporation.  True and complete copies of the articles ofincorporation of each of the Borrowers filed with the Secretary of State ofTexas, and certificates of incorporation filed with the Secretary of State ofDelaware and qualification to conduct business filed with the Secretary ofState of Texas of the Guarantor, each certified by the Secretary of theapplicable Person as of the Closing Date or by an authorized public officerwithin thirty (30) days of the Closing date;

 

(d)           Bylaws.  The bylaws of each of the Borrowers and theGuarantor certified by their respective Secretary or Assistant Secretary to becomplete and in effect on the Closing Date;

 

(e)           Governmental Certificates.  Certificates of the appropriate governmentofficials of the States of Delaware and Texas, as applicable to theirrespective incorporation and qualification to conduct business of Borrowers andGuarantor, as to the existence and good standing of each dated within thirty(30) days prior to the Closing Date;

 

(f)            Note.  The Note executed by Borrowers;

 

(g)           Security Documents.  The Security Documents executed by Borrowersand the Guarantor, as applicable, and filed of record in the appropriate publicrecords as may be required to perfect a first priority Lien in the Collateralin Lender;

 

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(h)           Guaranty. The Guarantyexecuted by the Guarantor;

 

(i)            Facility Fee. Lender shallhave received a non-refundable fee of One Thousand Eight Hundred Seventy — Fiveand no/100ths Dollars ($1,875.00) for services rendered, and to be rendered, byLender separate and apart from the lending of money or the provision of creditpursuant to the Loan Documents;

 

(j)            Fees and Expenses.  Lender shall have received all fees andexpenses (including, without limitation, reasonable fees and expenses ofcounsel for Lender) payable by the Borrowers on the Closing Date pursuant tothe Agreement;

 

(i)            Compliance Certificate.  A “Compliance Certificate” of the  president, secretary or chief financialofficer of each of the Borrowers and the Guarantor in substantially the formset out in Exhibit C  hereto inwhich such officer certifies to the satisfaction of the conditions set out insubsections (a), (b) and (c) of Section 4.2 hereof;

 

(j)            Gas Contracts.  A true and correct copy of each of and theWaxahachie Contracts and the Madisonville Contracts;

 

(m)          Insurance. True and correctcopies of certificates or binders of insurance, noting the Lender as loss payeeor additional insured, evidencing Borrower’s compliance with Section 6.13of the Agreement;

 

(n)           Material Contracts.  A true and correct copy of every contractpertaining to the Collateral which either (i) affects the marketability, use orvalue, of the Collateral in any material respect or (ii) creates or evidences amaterial obligation or material liability on the part of Borrowers which hasnot been taken into account in the most recent Financial Statements provided toLender (collectively, “Material Contracts”);

 

(o)           Lien Searches.  The results of Uniform Commercial Code andother Lien searches showing all financing statements and other Lien instrumentsfiled against the Borrowers or the Guarantor or any of the Financial Statementsin such public offices as may be identified by Lender, such searches to be asof a date no more than thirty (30) days prior to the Closing Date; and

 

(p)           Title Information.  Copies of all title opinions, policies,reports or other information in the possession or under the control of Pipelinewith respect to the status of title to the Pipeline Systems that are requestedby Lender.

 

4.2           The Loan Advances.  The obligation of Lender to make Loanadvances (including the initial advance) is subject to the following additionalconditions precedent:

 

(a)           No Default.  No Default shall have occurred and becontinuing, or would result from the advance;

 

(b)           Representations and Warranties.  All of the representations and warranties ofthe Borrowers and Guarantor contained in Section 5 hereof and inthe other Loan Documents shall be true and correct in all material respects onand as of the date of the advance with the same force and effect as if suchrepresentations and warranties had been made on and as of such date;

 

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(c)           No Legal Violation.  The making of the advance will not violateany law, rule or regulation or any order of any Governmental Authorityapplicable to Borrowers or Guarantor;

 

(d)           AFEs and invoices. The Lendershall have received a true and correct copy of all authorities for expenditure,business plans or other material that relate to working capital expenditures,and invoices directly or indirectly related to the construction andmobilization of the Madisonville Gathering System, which will be paid byBorrowers from proceeds of any advance; and

 

(e)           Additional Documentation. TheBorrower shall furnish copies of such additional  acceptance certificates, approvals, inspection reports,  lien waivers, opinions, or other documentsas Lender or its legal counsel, may reasonably request.

 

Eachnotice of advance by the Borrowers hereunder shall constitute a representationand warranty by the Borrowers and Guarantors that (i) the conditions precedentset forth in Sections 4.2(a), (b) and (c) have beensatisfied (both as of the date of such notice and as of the date of suchborrowing, unless the Borrowers or Guarantor otherwise notify Lender prior tothe date of such borrowing) and (ii) the proceeds of the advance shall only beused for the purposes stated in the notice of advance and, if applicable,approved by Lender.

 

4.3           Materiality of Conditions.  Each condition precedent herein is materialto the transactions contemplated herein, and time is of the essence in respectof each thereof.

 

4.4           Waiver of Conditions.  Lender may, at its election, make anyadvance without all conditions being satisfied, but this shall not be deemed tobe an estoppel, waiver, remission or release of the requirement that anyconditions precedent be satisfied as a prerequisite for any subsequent advance,unless Lender specifically waives each such item in writing.

 

SECTION 5.  WARRANTIES AND REPRESENTATIONS.

 

Borrowers and Guarantor represent and warrant to Lender as follows:

 

5.1           Existence and Authority.  Borrowers are corporations duly organizedand validly existing under the Laws of the State of Texas. Guarantor is acorporation duly organized and validly existing under the Laws of the State ofDelaware, and qualified to conduct business in the State of Texas. Eachpossesses all requisite authority, power, licenses, permits and franchises toconduct its business as presently conducted, to own its Properties and assets,and to execute, deliver and comply with the terms of each Loan Document towhich it is a party, except where the failure to so possess could not, individuallyor collectively, have a Material Adverse Effect.

 

5.2           Binding Obligations.  The negotiation, preparation, execution anddelivery of the Agreement and the other Loan Documents have been dulyauthorized and approved by all necessary corporate action and constitute thelegal, valid and binding obligations of the Borrowers and the Guarantor,enforceable against Borrowers and the Guarantor in accordance with theirrespective terms, except as the enforceability thereof may be limited byapplicable Debtor Relief Laws, which may delay the enforcement of certainremedies, or by general principles of equity (regardless whether considered ina proceeding in equity or at Law).

 

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5.3           Compliance with Laws and Documents.  Borrowers and Guarantor are not, nor willthe execution, delivery and the performance of and compliance with the terms ofthe Agreement and the other Loan Documents by the Borrowers or Guarantor causeany of them to be, in violation of (i) any Laws, other than such violationswhich could not, individually or collectively, cause a Material Adverse Effect,or (ii) their organizational documents. The execution, delivery, and the performance of and compliance with theterms of the Agreement and the other Loan Documents by Borrowers and Guarantorare consistent with, and will not conflict with, result in any breach of,constitute a default  under, or resultin the creation or imposition of (or the obligation to create or impose) anyLien (except pursuant hereto) upon any of the property, assets or revenues ofBorrowers or Guarantor pursuant to the terms of any agreement, contract, deedof trust, indebtedness, instrument, mortgage, or Law to which Borrowers orGuarantor are a party or by which Borrowers or Guarantor, or any of theirproperty, assets or revenue are bound or to which they are subject, excludingany conflicts, breaches or defaults which individually or collectively couldnot have a Material Adverse Effect.

 

5.4           Litigation. Borrowers and Guarantor are not involved in, nor aware of the threat of,any Litigation which could reasonably be expected to have a Material AdverseEffect, nor are there any outstanding or unpaid judgments against Borrowersor  Guarantor which could have aMaterial Adverse Effect.

 

5.5           No Consents. Except as may be contemplated by the Loan Documents, no order, consent,approval, license, permit, waiver, exemption, authorization of or validationof, or filing, recording or registration with (except as heretofore have beenobtained or made), or exemption by, any Person or Tribunal is required toauthorize, or is required in connection with, the execution, delivery,performance, legality, validity, binding effect or enforceability of theAgreement or any other Loan Document.

 

5.6           Location.  Thechief executive offices of each of the Borrowers and Guarantor are located atthe addresses shown on the signature page(s) hereto.  Each of the Borrowers and Guarantor is entitled to receivenotices hereunder at its chief executive office, notwithstanding that it maymaintain other places of business.

 

5.7           Solvency. Each of Borrowers and Guarantor havesufficient capital to carry on all business and transactions in which they arenow respectively engaged or are about to engage, are now solvent and willcontinue to be solvent after the execution of the Agreement and each other LoanDocument and will be able to pay their respective Debts as they mature.  The capital of each of the Borrowers and theGuarantor is not unreasonably small to carry out their respective businesses asnow conducted and as proposed to be conducted, considering their respectivecapital needs, projected capital requirements and capital availabilitythereof.  Borrowers and Guarantor do notintend to incur Debts beyond their respective ability to pay such Debts as theymature (taking into account the timing and amounts of cash to be received by itand the amounts to be payable on or in respect of its Debts).

 

5.8           Debt.  Borrowersand Guarantor are not directly or indirectly obligated (including, withoutlimitation, as a guarantor) on any borrowed money other than Debt permittedunder Section 6.24 hereof.

 

5.9           Fiscal Year. Each of the Borrowers’ and Guarantor’s fiscal years ends onDecember 31.

 

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5.10         Relationship with Lender.  No Person who may be deemed to have“control” of the Borrowers or the Guarantor is an “executive officer,”“director,” or “principal shareholder” of Lender or any correspondent ofLender, as such quoted terms are defined in section 215.2 ofRegulation 0 of the Board of Governors of the Federal Reserve System, asamended.

 

5.11         Financial Statements.  Each of Borrowers’ and Guarantor’s CurrentFinancials were prepared on an accrual accounting basis and present fairlyBorrowers’ and  Guarantor’s consolidatedfinancial condition, and the results of their respective operations, as of (andfor the portions of the fiscal year ending on) the dates thereof.  All material liabilities (direct orindirect, fixed or contingent) of Borrowers and Guarantor as of the dates ofthe Current Financials are reflected therein or in the notes thereto.

 

5.12         Taxes.  AllTax returns and reports of the Borrowers and Guarantor required to be filedhave been filed (or extensions granted), and all Taxes imposed upon Borrowersor Guarantor which are due and payable have been paid, other than Taxes beingcontested in good faith for which the criteria for Permitted Liens have beensatisfied.

 

5.13         Government Regulation.  Borrowers and Guarantor are not (nor is anytransaction contemplated hereunder) subject to regulation under the PublicUtility Holding Company Act of 1935, the Federal Power Act, the InvestmentCompany Act of 1940, the Interstate Commerce Act (as any of the preceding acts havebeen amended), any regulations promulgated by the Office of Foreign AssetsControl as codified in Chapter V of 31 C.F.R. Pipeline is a “utility” asdefined in Chapter 35 of the Texas Business and Commerce Code, as amended;however Processing and Guarantor  arenot “utilities”.

 

5.14         Employee Benefit Plans. (a) NoPension Plan of Borrowers or Guarantor has incurred an accumulated fundingdeficiency in an amount sufficient to be reasonably likely to have a MaterialAdverse Effect, (b) Borrowers and Guarantor have not incurred any liability tothe PBGC in connection with any such Pension Plan which would reasonably beexpected to have a Material Adverse Effect, (c) Borrowers and Guarantor havenot withdrawn in whole or in part from participation in a Multiemployer Plan,and (d) no Prohibited Transaction or Reportable Event has occurred with respectto a Pension Plan which would be reasonably likely to have a Material AdverseEffect.

 

5.15         Purpose of the Term Loan Advances.

 

(a)           The proceeds of the Loan will only beused by Borrowers: (a)  to construct andmobilize the Madisonville Gathering System; or (b) for working capital purposesapproved by Lender pursuant to Section 2.1.

 

(b)           Advances may not be used directly orindirectly for the payment of dividends on Borrower’s Capital Stock.

 

(c)           Advances may not and will not be useddirectly or indirectly for the purpose of purchasing or carrying, or for thepurpose of extending credit to others for the purpose of purchasing orcarrying, any “margin stock” as that term is defined in Regulations T, U and Xof the Board of Governors of the Federal Reserve System, as amended, or torepay any indebtedness which was created for the purpose of purchasing orcarrying margin stock.

 

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5.16         Properties;Liens.

 

(a)           Borrowers have good and marketabletitle to all of their respective Properties including, without limitation, theCollateral (except for Properties that have been disposed of in the ordinarycourse of business, or as permitted under the Agreement, without having aMaterial Adverse Effect on either Borrowers’ Tangible Net Worth, or ability torepay the Obligations as provided herein, respectively).

 

(b)           Other than Permitted Liens, no liensencumber (i) Borrowers’ Property including, without limitation, the Collateralor (ii) the Capital Stock of each Borrower that has been issued to theGuarantor and is outstanding.

 

5.17         Environmental Laws: Hazardous Materials.

 

(a)           Ownership of Borrowers’ Property doesnot violate any applicable Law of any Governmental Authority or Tribunal or anyrestrictive covenant (recorded or otherwise), including without limitation allapplicable flood disaster laws, water disposal permits, and Environmental Lawswhere such violation would have a Material Adverse Effect.

 

(b)           No notice, notification, demand,citation, summons or order has been issued to Borrowers, no complaint has beenfiled and served on Borrowers,  nopenalty has been assessed against Borrowers and, to the knowledge of Borrowers,no investigation or review is pending or threatened by any Tribunal or otherPerson with respect to (i) any alleged violation of any Environmental Law inconnection with the Borrowers’ Property, or (ii) any alleged failure to haveany permit, certificate, license, approval, registration or authorizationrequired in connection with the Borrowers’ Property, or (iii) any generation,treatment, storage, recycling, transportation or disposal or Release (otherthan in compliance with Environmental Laws or permits issued thereunder) of anyHazardous Substance in connection with the Borrowers’ Property where, in eachcase, any such event has a Material Adverse Effect.

 

(c)           Except in compliance withEnvironmental Laws and permits issued thereunder, or where it could not have aMaterial Adverse Effect, (i) Borrowers, and to their knowledge other Persons,have not Released any Hazardous Substance on, under or in connection with theBorrowers’ Property and none of their Property have been used (whether by Borrowers or any other Person) as adump site for any Hazardous Substance; (ii) no polychlorinated biphenyls, ureaor formaldehyde is present in connection with the Borrowers’ Property; (iii) noasbestos is present in connection with the Borrowers’  Property; (iv) there are no underground storage tanks, active orabandoned, which have been used to store or have contained any HazardousSubstance in connection with the Borrowers’ Property; and (v) no HazardousSubstance has been reported as present in connection with the Borrower’sProperty in a threshold planning quantity, where such a quantity has beenestablished by Law.

 

(d)           Borrowers have not transported orarranged for the transportation (directly or indirectly) of any HazardousSubstance to any location which is listed or proposed for listing under anyEnvironmental Law as a Hazardous Substance site which may lead to claimsagainst Borrowers for clean-up costs, remedial work, damages to naturalresources or personal injury, in each case having a Material Adverse Effect.

 

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(e)           No oral or written notification of aRelease of a Hazardous Substance has been filed by or on behalf of Borrowersand none of the Borrowers’ Property is listed or proposed for listing on any nationalpriority list promulgated pursuant to any Environmental Law.

 

(f)            There are no Liens on any of theBorrowers’ Property arising under any Environmental Laws and, to theirknowledge, no actions by any Tribunal have been taken or are in process whichcould subject any of the Borrowers’ Property to such Liens, or which wouldrequire any of them to place any notice or restriction relating to the presenceof any Hazardous Substance in any deed to any of the Borrowers’ Property wheresuch Liens, notices or restrictions have a Material Adverse Effect.

 

(g)           Borrowers and Guarantor has madeavailable to Lender all material reports of environmental investigations,studies, audits, tests, reviews or other analyses conducted by or which are intheir possession relating to the Borrowers’ Property.

 

(h)           Except as previously disclosed toLender in writing, there have been no agreements (or communications related toagreements) with any Tribunal or any private entity, including, but not limitedto, any prior owners of the Borrowers’ Property relating to liability arisingfrom, or the violation of, any Environmental Law relating to their Property orthe transportation of any Hazardous Substance to or from their Property, exceptfor agreements and communications made in the ordinary course of business inconnection with permits, required reports, requirements of any EnvironmentalLaw or inspections of Tribunals having jurisdiction over the Borrowers’Property.

 

                5.18         Insurance.  Borrowers and Guarantor maintain insurancewhich complies with Section 6.13.

 

5.19         Operation of Business.  Borrowers and Guarantor possess alllicenses, permits, franchises, patents, copyrights, trademarks, and tradenames, or Rights thereto, reasonably necessary to conduct their businessessubstantially as now conducted and as presently proposed to be conducted exceptwhere the failure to so possess would not individually or in the aggregate,result in a Material Adverse Effect, and the Borrowers and Guarantor are not inviolation of any valid Rights of others which violation may cause a MaterialAdverse Effect with respect to any of the foregoing.

 

5.20         Margin Securities.  The Borrowers and Guarantor are not engagedprincipally, or as one of their important activities, in the business ofextending credit for the purpose of purchasing or carrying margin stock (withinthe meaning of Regulations  T, U, or Xof the Board of Governors of the Federal Reserve System).

 

5.21         Disclosure. No statement, information, report, representation, or warranty made bythe Borrowers or Guarantor in the Agreement or in any other Loan Document orfurnished to Lender in connection with the Agreement or any transactioncontemplated hereby contains any untrue statement of a material fact or omitsto state any material fact necessary to make the statements herein or thereinnot misleading.  There is no fact,event, or condition known to the Borrowers or Guarantor which has had aMaterial Adverse Effect, or which could reasonably be expected to have aMaterial Adverse Effect, that has not been disclosed in writing to Lender.

 

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5.22         Agreements. The Borrowers and Guarantor are not a party to any indenture, loan, orcredit agreement, or to any lease or other agreement or instrument, or subjectto any charter or corporate restriction that could reasonably be expected tohave a Material Adverse Effect.  TheBorrowers and Guarantor are not in default in any material respect in theperformance, observance, or fulfillment of any of the obligations, covenants,or conditions contained in any agreement or instrument material to its businessto which they are a party.

 

SECTION 6.  COVENANTS.

 

Solong as (i) Lender is committed to make advances under the Agreement and (ii)any portion of the Obligations are outstanding, unless Borrowers receive aprior written notice from Lender that it does not object to a deviation,Borrowers and Guarantor covenant and agree as follows:

 

6.1           Use of Proceeds.  Borrowers shall use the proceeds of the Loan only as representedherein.

 

6.2           Books and Records.  Borrowers and Guarantor shall keep, inaccordance with GAAP, proper and complete accounting books, records andaccounts, and in respect of the Borrowers’ Property, Borrowers shall maintainproper and complete contract, division order, land, title and such other books,files and records as are usually and customarily maintained by a reasonable andprudent operator of oil and gas pipelines and, in each instance, will permitLender to inspect the same and make and take away copies thereof at reasonabletimes during normal business hours.

 

6.3           Items to be Furnished.  Borrowers and Guarantor shall cause thefollowing to be furnished to Lender:

 

(a)           As soon as available, but no laterthan 150 days after the last day of each fiscal year of Guarantor, FinancialStatements showing the consolidated financial condition and results ofoperations of Guarantor and its Subsidiaries as of, and for the year ended on,such last day, accompanied by (i) the opinion, without material qualification,by a firm of independent certified public accountants acceptable to Lender,based on an audit using generally accepted auditing standards, that suchFinancial Statements were prepared in accordance with GAAP and present fairlythe financial condition and results of operations of Guarantor and itsSubsidiaries, and (ii) a Financial Report Certificate with respect to suchFinancial Statements.

 

(b)           As soon as available, but no laterthan 75 days after the last day of each fiscal quarter of Borrowers andGuarantor (i) Financial Statements showing the financial condition and resultsof operations of Borrowers and Guarantor as of, and for the period from thebeginning of the current fiscal year to, such last day, and a Financial ReportCertificate with respect to such Financial Statements, and (ii) a report fromeach of the Borrowers summarizing the results of their respective PipelineSystems, in form and substance acceptable to the Lender.

 

(c)           Concurrently with the delivery ofeach of the Financial Statements referred to in subparagraphs (a) and (b) ofthis Section 6.3, a certificate of the chief financial officer ofBorrowers and Guarantor (i) stating that to the best of such officer’sknowledge, no Default has occurred and is continuing, or if a Default hasoccurred 

 

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andis continuing, a statement as to the nature thereof and the action that isproposed to be taken with respect thereto and (ii) showing in reasonable detailthe calculations demonstrating compliance with Sections 6.29, 6.30and 6.31.

 

(d)           Promptly after the issuance thereof,true copies of any order issued by any Tribunal in any Litigation to whichBorrowers or Guarantor are a party, and any press release or other statement made available generally by or onbehalf of Borrowers or Guarantor to the public, which relate to any facts orcircumstances that individually or in the aggregate may have a Material AdverseEffect on any of the Borrowers or Guarantor.

 

(e)           Notice promptly after Borrowers orGuarantor know or should know of any change in any fact or circumstancerepresented or warranted in any Loan Document which individually or in theaggregate may have a Material Adverse Effect on any of the Borrowers orGuarantor, or a Default or Potential Default, written notice of the nature thereof and the action Borrowers orGuarantor has taken, is taking, or proposes to take with respect thereto.

 

(f)            A summary, or when requested byLender, copies, of all material proceedings, hearings or other actionsconducted before any Tribunal in respect of the Collateral and the operationsof Borrowers or Guarantor in respect thereto which relate to any facts orcircumstances that individually or in the aggregate may have a Material AdverseEffect on any of the Borrowers or Guarantor.

 

(g)           As soon as possible and in any eventwithin five (5) Business Days after Borrowers or Guarantor know or should knowthat any Reportable Event or Prohibited Transaction has occurred with respectto any Plan or that the PBGC, Borrowers or Guarantor have instituted or willinstitute proceedings under Title IV of ERISA to terminate any Plan, ineach case, which would reasonably be expected to have a Material AdverseEffect, a certificate of the chief financial officer of Borrowers or Guarantorsetting forth the details as to such Reportable Event or Prohibited Transactionor Plan termination and the action that Borrowers or Guarantor propose to takewith respect thereto.

 

(h)           As soon as possible and in any eventwithin five (5) days after the occurrence thereof, written notice of any matterthat could reasonably be expected to have a Material Adverse Effect.

 

(i)            Promptly upon request therefor byLender, such information (not otherwise required to be furnished under the LoanDocuments) respecting the business affairs, assets, and liabilities ofBorrowers or Guarantor and such opinions, certifications, and documents, inaddition to those mentioned herein, as Lender may reasonably request.

 

6.4           Inspection. Borrowers and Guarantor shallallow Lender to inspect any of their respective assets and to discuss any oftheir affairs, conditions and finances with their directors, officers oremployees (including Persons working for or on behalf of either of theBorrowers or Guarantor on a contract basis) from time to time during reasonablebusiness hours, and Borrowers and Guarantor shall permit Lender and itsauthorized agents, if any, access for the purposes of inspecting the same. Borrowers and Guarantor hereby authorize(a) all duly constituted federal, state and municipal authorities to furnish toLender copies of any reports of examination of Borrowers and Guarantor whichhave been made by such authorities; and (b) Lender, following a Default orPotential Default, to contact and discuss any of the Borrowers’ or 

 

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Guarantor’s affairs,conditions or finances. The Rights granted to Lender in this Section are inaddition to, and not in limitation of, the Rights granted in Section 2.1.

 

6.5           Taxes. Borrowers and Guarantor shall promptly pay when due any and all Taxesapplicable to each of them or their Property, except Taxes for which thecriteria for Permitted Liens have been satisfied, and Borrowers and Guarantorwill not, directly or indirectly, use any portion of the Loan proceeds of anyadvance to pay the wages of employees unless a timely payment to or depositwith the United States of America of all amounts of Tax required to be deductedand withheld with respect to such wages is also made.

 

6.6           Expenses. Borrowers and Guarantor shall pay within 10 days after request (a) allreasonable costs, fees and expenses paid or incurred by Lender (including, butnot limited to, any additional filing or recording fees and the reasonable feesand expenses of counsel to Lender) in connection with the negotiation,preparation and execution of the Loan Documents relating to Borrowers orGuarantor, and in connection with any amendment, waiver or consent requested byBorrowers or Guarantor with respect thereto, and (b) all reasonable costs, feesand expenses paid or incurred by Lender after the occurrence of any Default inconnection with the enforcement of the Obligations, as the case may be, or theexercise of any Rights (including, but not limited to, reasonable attorneys’fees and court costs) against it, all of which shall be a part of theObligations, as the case may be.

 

6.7           Maintenance of Existence, Assets andBusiness.  Borrowers and Guarantorshall at all times: (a) maintain their existence and authority to transactbusiness and good standing in all jurisdictions where the failure to somaintain might have a Material Adverse Effect; (b) maintain all licenses,permits and franchises necessary for their business where the failure to so maintainmight have a Material Adverse Effect; (c) keep all of their assets which areuseful in and necessary to its business in good working order and condition andmake all necessary repairs thereto and replacements thereof so that the valueand operating efficiency thereof shall at all times be maintained andpreserved; and (d) operate their Property in a prudent manner consistent withnormal industry practices.

 

6.8           Maintenance of Priority of Lender Liens.  Borrowers and Guarantor shall perform suchacts and duly authorize, execute, acknowledge, deliver, file and record suchadditional assignments, security agreements, deeds of trust, mortgages,financing statements and other agreements, documents, instruments andcertificates as Lender may reasonably deem necessary or appropriate in order toperfect and maintain the Liens under the Security Documents in favor of Lenderand preserve and protect the Rights of Lender under the Loan Documents.  Borrowers shall not, directly or indirectly,create, incur, or suffer or permit to be created or incurred or to exist anyLien upon any of their presently unencumbered assets or properties, other thanPermitted Liens.

 

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6.9           Dispositions of Properties.

 

(a)           Without the consent of Lender,Borrowers will not sell, lease, assign, transfer, or otherwise dispose of(collectively, a “Disposition”) any of the Borrowers   Property except:

 

(i)            Dispositions ofinventory (including oil and gas processed, sold and transported in connectionwith their Pipeline Systems) in the ordinary course of business; or

 

(ii)           Dispositions ofProperty no longer used or useful in the conduct of its business.

 

(b)           Except as permitted by Section 6.10,Borrowers will not enter into any contract or agreement affecting Borrowers’title to or operation of the Borrowers’ Property or the processing, sale ortransportation of oil and gas therefrom, other than:

 

(i)            division orders andtransfer orders or other agreements entered into in the ordinary course ofbusiness which are cancelable upon 30 days notice without penalty or liability,

 

(ii)           gas processing,purchase, sales or transportation contracts with a term less than six (6)months entered into in the ordinary course of business, and

 

(iii)          agreements orcontracts entered into in the ordinary course of business which do not,individually or in the aggregate, materially affect their Pipeline Systems.

 

TheBorrowers may retain the proceeds from any Disposition so long as Borrowers orGuarantor are not (or immediately after the Disposition will not be) in Defaulthereunder.

 

6.10         Sales. Borrowers will only sell oil and gas processed, purchased, sold andtransported through Borrowers’  PipelineSystems for a commercially reasonable price.

 

6.11         Compliance with Laws and Documents.  Borrowers and Guarantor will not, directlyor indirectly, violate the provisions of any Laws or their organizationaldocuments and will not amend, modify or terminate any of their organizationaldocuments where such violation, amendment, modification or termination,individually or in the aggregate, could cause a Material Adverse Effect.  Borrowers and Guarantor will comply in allmaterial respects with all material agreements, contracts and instrumentsbinding upon them or affecting their business, or their Property.

 

6.12         Fiscal Year and Accounting Methods.  After the Closing Date, Borrowers  and Guarantor will not change their fiscalyears or methods of accounting (other than immaterial changes in methods).

 

6.13         Insurance; Payment of Premiums.

 

(a)           Borrowers shall, at their sole costand expense, keep and maintain in respect of the Borrowers’ Property suchinsurance as is generally kept and maintained by reasonable and prudentoperators of oil and gas pipelines, including, but not limited to, worker’scompensation insurance, property insurance and general liability insurance.

 

(b)           All such policies of insurance shallbe in a form, with such deductibles, and with insurers recognized asfinancially sound and reputable by prudent business Persons in the samebusinesses as Borrowers and acceptable to Lender.  Upon 

 

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requestof Lender, prior to the initial Loan advance, Borrowers shall deliver to Lendera certificate of insurance for each policy of insurance required by this Section6.13 and evidence of payment of all premiums therefor.  Such policies of insurance and thecertificates evidencing the same shall contain an endorsement, in form andsubstance acceptable to Lender, showing Lender as an additional losspayee.  Such endorsement or anindependent instrument furnished to Lender shall provide that the insurancecompanies will give Lender at least 30 days prior written notice before any suchinsurance shall be altered or canceled and that no act or default of Borrowersor any other Person shall affect the Rights of Lender to recover under suchinsurance in case of loss or damage.  Ifno Default has occurred and is continuing, Borrowers may use the insuranceproceeds to repair or replace damaged or destroyed Property covered by theapplicable insurance policy.

 

(c)The Borrowers shall: (1) obtain certificates of insurance confirming that eachvendor has worker’s compensation, general liability and other insurancecoverage as may be reasonable or necessary in connection with the labor,materials and services to be provided or supplied to the Madisonville GatheringSystem; (2) periodically provide Lender currentlists of all vendors, their respective wire transfer instructions and othermaterials as the Lender may reasonably request; (3) protect the MadisonvilleGathering System from any and all claims, demands, causes of action and Liensthat may accrue to, or be asserted by, any of the vendors (or any of thevendors’ agents, employees or independent contractors); and (4) utilize alladvances made under the Agreement on and after the effective date hereof forthe sole purpose of constructing and mobilizing the Madisonville GatheringSystem.

 

6.14         Environmental Laws.  Borrowers shall conduct their business so asto comply with all applicable Environmental Laws and shall promptly takecorrective action to remedy any non-compliance with any Environmental Law,except where failure to so comply or take such action could not reasonably beexpected to cause a Material Adverse Effect. Borrowers shall establish and maintain at their expense a system which,in their reasonable business judgment, will assure its continued compliancewith Environmental Laws, which system shall include annual reviews of suchcompliance by employees or agents who are familiar with the requirements of theEnvironmental Laws.

 

6.15         GENERAL INDEMNIFICATION.  BORROWERS SHALL INDEMNIFY, PROTECT AND HOLDLENDER AND ITS PARENTS, SUBSIDIARIES, DIRECTORS, OFFICERS, EMPLOYEES, REPRESENTATIVES,AGENTS, SUCCESSORS, ASSIGNS AND ATTORNEYS (COLLECTIVELY, THE “INDEMNIFIEDPARTIES”) HARMLESS FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS,LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, CLAIMS, PROCEEDINGS,COSTS, EXPENSES (INCLUDING, WITHOUT LIMITATION, ALL REASONABLE ATTORNEYS’ FEESAND LEGAL EXPENSES WHETHER OR NOT SUIT IS BROUGHT) AND DISBURSEMENTS OF ANYKIND OR NATURE WHATSOEVER WHICH MAY AT ANY TIME BE IMPOSED ON, INCURRED BY, ORASSERTED AGAINST THE INDEMNIFIED PARTIES, IN ANY WAY RELATING TO OR ARISING OUTOF THE LOAN DOCUMENTS THAT RELATE TO BORROWERS OR GUARANTOR OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN THAT RELATETO BORROWERS OR GUARANTOR (COLLECTIVELY, THE “INDEMNIFIED LIABILITIES”);PROVIDED, HOWEVER, THAT ALTHOUGH EACH INDEMNIFIED PARTYSHALL HAVE THE RIGHT TO BE INDEMNIFIED FOR ITS OWN ORDINARY NEGLIGENCE, NOINDEMNIFIED PARTY SHALL HAVE THE RIGHT TO BE INDEMNIFIED HEREUNDER FOR ITS OWNFRAUD, GROSS 

 

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NEGLIGENCEOR WILLFUL MISCONDUCT.  THE PROVISIONSOF AND UNDERTAKINGS AND INDEMNIFICATION SET FORTH IN THIS SECTION 6.15SHALL SURVIVE (A) THE SATISFACTION AND PAYMENT OF THE OBLIGATION ANDTERMINATION OF THE AGREEMENT, AND (B) THE RELEASE OF ANY LENDER LIENS OR THEEXTINGUISHMENT OF SUCH LIENS BY FORECLOSURE OR ACTION IN LIEU THEREOF.

 

6.16         ENVIRONMENTAL INDEMNIFICATION.  BORROWERS SHALL INDEMNIFY, PROTECT AND HOLDEACH INDEMNIFIED PARTY HARMLESS FROM AND AGAINST ANY AND ALL LIABILITIES,OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, CLAIMS,PROCEEDINGS, COSTS, EXPENSES (INCLUDING, WITHOUT LIMITATION, ALL REASONABLEATTORNEYS’ FEES AND LEGAL EXPENSES WHETHER OR NOT SUIT IS BROUGHT) ANDDISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY AT ANY TIME BE IMPOSEDON, INCURRED BY, OR ASSERTED AGAINST SUCH INDEMNIFIED PARTIES, WITH RESPECT TOOR AS A DIRECT OR INDIRECT RESULT OF THE VIOLATION BY BORROWERS OR GUARANTOR OFANY ENVIRONMENTAL LAW; OR WITH RESPECT TO OR AS A DIRECT OR INDIRECT RESULT OFBORROWERS OR GUARANTORS’ USE, GENERATION, MANUFACTURE, PRODUCTION, STORAGE,RELEASE, THREATENED RELEASE, DISCHARGE, DISPOSAL OR PRESENCE IN CONNECTION WITHTHE PROPERTIES OF A HAZARDOUS SUBSTANCE INCLUDING, WITHOUT LIMITATION, (A) ALLDAMAGES OF ANY SUCH USE, GENERATION, MANUFACTURE, PRODUCTION, STORAGE, RELEASE,THREATENED RELEASE, DISCHARGE, DISPOSAL OR PRESENCE, OR (B) THE COSTS OF ANYREASONABLY REQUIRED OR NECESSARY ENVIRONMENTAL INVESTIGATION, MONITORING,REPAIR, CLEANUP OR DETOXIFICATION AND THE PREPARATION AND IMPLEMENTATION OF ANYCLOSURE, REMEDIAL OR OTHER PLANS.  THEPROVISIONS OF AND UNDERTAKINGS AND INDEMNIFICATION SET FORTH IN THIS SECTION 6.16SHALL SURVIVE (X) THE SATISFACTION AND PAYMENT OF THE OBLIGATIONS ANDTERMINATION OF THE AGREEMENT, AND (Y) THE RELEASE OF ANY LENDER LIENS OR THEEXTINGUISHMENT OF SUCH LIENS BY FORECLOSURE OR ACTION IN LIEU THEREOF.

 

6.17         Employee Benefit Plans.  Borrowers and Guarantor will not, directlyor indirectly, (a) engage in any Prohibited Transaction which would reasonablybe expected to have a Material Adverse Effect, (b) permit any Pension Planestablished or maintained by Borrowers or Guarantor to ever be subject toinvoluntary termination proceedings, or (c) fully or partially withdraw from anyMultiemployer Plan, if such withdrawal would reasonably be expected to have aMaterial Adverse Effect.  Borrowers andGuarantor shall make all required contributions to any Plan subject to Section412 of the Code, if failure to do so would reasonably be expected to have aMaterial Adverse Effect.

 

6.18         Notice of Litigation.  Promptly after the commencement thereof,Borrowers  and Guarantor shall providenotice to Lender of all actions, suits, and proceedings before any GovernmentalAuthority or Tribunal affecting Borrowers or Guarantor which, if determinedadversely to any of Borrowers or Guarantor, could have a Material AdverseEffect.

 

6.19         Loans,Advances and Investments.  Borrowers and Guarantor will not, directly or indirectly, loan,advance or otherwise extend credit to, 

 

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orcontribute capital to, invest in or purchase or commit to purchase any CapitalStock or other securities or evidences of indebtedness of, or interests in, anyother Person, otherthan (a) investments in obligations of theUnited States of America and agencies thereof and obligations guaranteed by theUnited States of America maturing within one year from the date of acquisition,(b) certificates of deposit issued by Lender or a commercial institutionorganized under the Laws of the United States of America or any state thereofand having a combined capital, surplus, and undivided profits of not less than$100,000,000 (as shown in its most recently published statement of condition),(c) current trade and customer accounts receivable which are for goodsfurnished or services rendered in the ordinary course of business, and arepayable in accordance with customary trade terms, (d) stock, obligations, orsecurities received in the settlement of debts (created in the ordinary courseof business and in compliance with the Agreement) owing to Borrowers orGuarantor, and (e) contracts to purchase and sell oil and gas in connectionwith the Pipeline Systems, pipeline interconnect and operating agreements,  processing agreements, service contracts,transportation agreements or other similar or customary arrangements, in eachcase made or entered into with any other Person in the ordinary course of theiroil and gas pipeline business as a means of gathering, marketing, processing ortransporting oil and gas, providedthat none of the foregoingshall impair, reduce, dilute, or adversely affect any of the Borrowers’Property.

 

6.20         Transactions with Affiliates.  Borrowers will not, directly or indirectly,enter into any transaction (including, but not limited to, the sale or exchangeof property or the rendering of service) with any of their Affiliates, otherthan transactions in the ordinary course of Borrowers’ business and uponfair and reasonable terms no less favorable than Borrowers could obtain orcould become entitled to in an arm’s-length transaction with a Person which wasnot an Affiliate.

 

6.21         Material Contracts.  Borrowers will not enter into or be a partyto any agreement for the purchase of materials, supplies, or other tangiblepersonal property if such agreement requires Borrowers to pay for such itemsregardless of their actual or tendered delivery.  Borrowers will not materially amend, alter the terms andconditions of or cancel any of their Material Contracts, except for amendmentsand alterations which (a) are made by a Borrower on an arms-length basis in theordinary course of the Borrowers’ respective businesses, (b) for a price andterms that are no less favorable to the Borrower than the price and termsincorporated into the Material Contract as presently existing  and (c) individually or in the aggregate donot have a Material Adverse Effect on any of the Borrowers or Guarantor.

 

6.22         New Business. Borrowers will not, directly or indirectly, engage in any business otherthan the business in which they are presently engaged.

 

6.23         Addresses. Borrowers and Guarantor will not change their names or relocate theirchief executive offices or places where their books and records related totheir assets are kept to a county, parish or state other than as indicated onthe signature page(s) hereto, unless Lender is provided 30 days prior writtennotice of such proposed change in name or location (such notice of change inlocation to include, without limitation, the name of the county or parish andstate of such location).

 

6.24         Restrictions on Debt.  Borrowers and Guarantor will not incur,create, assume, or permit to exist any Debt, except:

 

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|                                                                                                                                                                                                                                                     | (a)    | the  Obligations;                                                                    |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                     |   |                                                                                 |
|                                                                                                                                                                                                                                                     | (b)    | existing  Debt described on Schedule 6.24 hereto;                               |
|                                                                                                                                                                                                                                                     |   |                                                                                 |
|                                                                                                                                                                                                                                                     | (c)    | Debt  secured by Permitted Liens; and                                                |
|                                                                                                                                                                                                                                                     |   |                                                                                 |
|                                                                                                                                                                                                                                                     | (d)    | Extensions,  renewals and refinancings of Debt described in clauses (b) and (c) |
| above,  without any increase in the outstanding principal amount thereof, provided  that the other terms and conditions of such extension, renewal or refinancing  are not materially more onerous than the existing terms and conditions of  such Debt. |

 

6.25         Issuance of Capital Stock. Borrowersand Guarantor will not, directly or indirectly, issue, sell, assign orotherwise dispose of (i) any shares of any class of their Capital Stock,(ii) any securities exchangeable for or convertible into or carrying anyrights to acquire any shares of any class of their Capital Stock,(iii) any options, warrants or any other rights to acquire any shares ofany class of their Capital Stock, except for Guarantor’s currently existingstock based compensation plans, being (a) the 1998 Stock Option Plan dated May28, 1998, authorizing Guarantor to issue options to purchase up to 600,000shares of Guarantor’s common stock to Guarantor’s directors, officers,employees and certain other third parties and (b) the 1998 Outside DirectorsStock Option Plan dated May 28, 1998, authorizing Guarantor to issue options topurchase up to 100,000 shares of Guarantor’s common stock to Guarantor’soutside directors, in an aggregate amount that does not exceed two (2%) ofGuarantor’s stock currently outstanding as of the date of this agreement in anycalendar year, (iv) any subordinated debt, or (v) any senior unsecured debt.

 

6.26         Mergers and Dissolutions.  Borrowers and Guarantor will not, directlyor indirectly, merge or consolidate with any other Person (unless Borrowers orGuarantor are the surviving corporation) or liquidate, wind up, or dissolve (orsuffer any liquidation or dissolution).

 

6.27         Default on Debt.  Borrowers and Guarantor will not (a) default in the due andpunctual payment of the principal of or the interest on any Debt individuallyor in the aggregate exceeding $100,000.00 or (b) become directly or indirectlyobligated (including, without limitation, as a guarantor) on any borrowed moneyother than Debt permitted under Section 6.24 hereof. Notwithstanding theforegoing, Borrowers and Guarantor may dispute, in good faith, their respectiveobligations to pay or perform any Debt due (or claimed to be due) by Borrowersor Guarantor to any Third Person if the Borrowers or Guarantor, as applicable(a) establish and maintain adequate reserves in accordance with GAAP withrespect thereto if  it should bedetermined that the Borrowers or Guarantor are obligated to pay or perform  all or any part of the Debt in dispute, and(b) implement and diligently prosecute procedures and proceedings as requiredunder the relevant documents (or in the absence of required dispute resolutionprocedures, as may be commercially reasonable) for the orderly resolution ofthe dispute.

 

6.28         Distributions. Borrowers shall not, directlyor indirectly, declare, make or pay any dividend or distribution with respectto, or retire, redeem, purchase, or otherwise acquire for value, any equitysecurities or other forms of ownership interests issued by Borrowers.

 

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6.29         Current Ratio  Borrowers will at all times maintain a positive ratio of CurrentAssets to Current Liabilities of not less than 1.0 to 1.0; provided thatinstallments of principal and interest on the Loan shall be excluded from CurrentLiabilities as they mature.

 

6.30         Tangible Net Worth. Borrowers will at all times maintain positive Tangible Net Worth of notless than eighty per cent (80%) of their respective Tangible Net Worth on theClosing Date calculated at the end of each of Borrowers’ fiscal quartersthereafter.

 

6.31         Minimum Net Operating Margin. The Borrowers shallmaintain a combined Minimum Net Operating Margin (trailing two consecutivecalendar quarters) of not less than Four Hundred Thousand Dollars($400,000.00).

 

6.32         Limitation on Liens. Borrowers will not incur, create,assume, or permit to exist any Lien upon any of their Property or revenues,whether now owned or hereafter acquired, except Permitted Liens.

 

 

SECTION 7.  DEFAULT.

 

Theterm “Default” means the occurrence of any one or more of the followingevents (including the passage of time, if any, specified therefor) (providedthat if any such event occurs and Lender subsequently agrees in writingthat it will not exercise any Rights hereunder as a result thereof, theoccurrence of such event shall no longer be deemed a “Default” hereunderinsofar as the state of facts giving rise to such event is concerned, but thesame shall not operate as or be deemed to be a waiver with respect to anyidentical or similar state of facts in existence or occurring theretofore orthereafter):

 

7.1           Payment of Obligations.  The failure or refusal of Borrowers orGuarantor to pay when due: (a) any principal of, or accrued unpaid interest on,the Note; (b) any principal of, or accrued unpaid interest on, SupplementalLoan or (c) to pay any other Obligations in accordance with the terms of theLoan Documents, or the Supplemental Loan Documents, as may be applicable andsuch failure to pay any other Obligations shall continue for three (3) BusinessDays after Borrowers or Guarantor have notice thereof.

 

7.2           Certain Covenants.  The failure or refusal of Borrowers orGuarantor to punctually and properly perform, observe and comply with anycovenant, agreement or condition contained in: (a) Section 6.1, 6.3,6.7, 6.9, 6.13(a), and 6.24 through 6.28 ofthe Agreement (providedthat, in the case of Section 6.13(a),such failure or refusal continues for a period in each case of seven (7)Business Days after Borrowers or Guarantor have notice thereof); or (b) theparallel provisions of the Supplemental Loan Documents.

 

7.3           Other Covenants.  The failure or refusal of Borrowers or Guarantor to punctuallyand properly perform, observe and comply with any covenant, agreement orcondition (other than covenants to pay the Obligations and the covenants listedin Section 7.2) contained in any of: (a) the Loan Documents, andsuch failure or refusal continues for a period of thirty (30) days afterBorrowers or Guarantor have notice thereof; or (b) the parallel provisions ofthe Supplemental Loan Documents.

 

7.4           Voluntary Debtor Relief.  Borrowers or Guarantor shall (a) execute anassignment for the benefit of creditors, (b) admit in writing their inabilityto pay their 

 

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debtsgenerally as they become due, (c) voluntarily seek the benefits of any DebtorRelief Law, or (d) take any action to authorize any of the foregoing.

 

7.5           Involuntary Proceedings.  Borrowers or Guarantor shall involuntarily(a) have an order, judgment or decree entered against it by any Tribunalpursuant to any Debtor Relief Law or (b) have a petition filed against itseeking the benefit or benefits provided for by any Debtor Relief Law, and suchorder, judgment, decree or petition is not discharged within 60 days after theentry or filing thereof.

 

7.6           Attachment. The failure to have discharged within a period of 30 days after thecommencement thereof any attachment, sequestration or similar proceedingagainst any of Borrowers’ Property with a value, individually or collectively,in excess of $50,000.

 

7.7           Payment of Judgments.  Borrowers fail to pay any money judgment inexcess of $50,000 against them or their assets at least ten days prior to thedate on which any of Borrowers’ Property may be sold to satisfy such judgment.

 

7.8           Default Under Other Debt.  Borrowers or Guarantor default in the dueand punctual payment of the principal of or the interest on any indebtednessother than the Obligations and such failure results in the acceleration of suchindebtedness by the holder thereof**.**

 

7.9           Divestment Proceedings.  A petition or complaint is filed before orby any Tribunal, including, but not limited to, the Federal Trade Commission orthe United States Justice Department, seeking to cause Borrowers or Guarantorto divest a significant portion of its assets pursuant to any antitrust,restraint of trade, unfair competition, industry regulation or similar Laws,and such petition or complaint is not dismissed or discharged within 60 daysafter its filing.

 

7.10         Concealment or Removal of Collateral.  Borrowers conceal or remove, or permit to beconcealed or removed, any part of their real or personal Property with theintent to hinder, delay or defraud one or more of its creditors.

 

7.11         Misrepresentation.  The discovery by Lender that any materialstatement, representation or warranty in the Loan Documents or in any writingever delivered pursuant to the Loan Documents is false, misleading or erroneousin any material respect when made or deemed to be repeated.

 

7.12         Validity and Enforceability of LoanDocuments. Any of the Borrowers or Guarantor contest thevalidity or enforceability of any Loan Document or deny in writing that theyhave any liability or obligations under any Loan Document to which they are aparty; or any Loan Document shall be declared to be null and void, cease to bein full force and effect or cease establish and maintain any Lien grantedpursuant thereto as a perfected, first priority Lien (except for PermittedLiens and releases of Liens made by Lender pursuant to any of the LoanDocuments) at any time after its execution and delivery and for any reason.

 

7.13         ERISA.  (a)Borrowers, Guarantor, any ERISA Affiliate or any of their agents orrepresentatives shall engage in any conduct which it knew constituted, orshould have known  constituted, aProhibited Transaction which could reasonably be expected to 

 

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resultin a material liability to Borrowers, Guarantor or any ERISA Affiliate, (b) anymaterial “accumulated funding deficiency” (as defined in Section 302 ofERISA or Section 412 of the Code), whether or not waived, shall exist withrespect to any PBGC Plan or Multiple Employer Plan, if such accumulated fundingdeficiency would give rise to a material liability of Borrowers, Guarantor orany ERISA Affiliate, (c) Borrowers, Guarantor or any ERISA Affiliate shallapply for or be granted a funding waiver under Section 302 of ERISA or Section412 of the Code, which waiver or request for waiver is for a material amount,(d) a Reportable Event shall occur with respect to any PBGC Plan or MultipleEmployer Plan, which reportable event is likely to result in the termination ofsuch PBGC Plan or Multiple Employer Plan for purposes of Title IV of ERISA andto give rise to a material liability of Borrowers, Guarantor or any ERISAAffiliate, (e) proceedings shall commence to have a trustee appointed, or atrustee shall be appointed, to terminate or administer a PBGC Plan or MultipleEmployer Plan which proceeding is likely to result in the termination of suchPBGC Plan or Multiple Employer Plan and to give rise to a material liability ofBorrowers, Guarantor or any ERISA Affiliate with respect to such termination,(f) a notice of intent to terminate a PBGC Plan or Multiple Employer Plan underSection 4041(c) is filed with the PBGC if such termination would give rise to amaterial liability of Borrowers, Guarantor or any ERISA Affiliate, (g) anyMultiemployer Plan is in reorganization or is insolvent and the circumstancesare such that there could reasonably be a material liability incurred by orimposed upon Borrowers, Guarantor or any ERISA Affiliate, (h) there is acomplete or partial withdrawal from a Multiemployer Plan under circumstances thatcould reasonably subject Borrowers, Guarantor or any ERISA Affiliate tomaterial liability, (i) any Lien arising under Section 4068 of ERISA or Section412(n) of the Code shall attach to the assets or Property of Borrowers,Guarantor or any ERISA Affiliate which could reasonably be expected to resultin a Material Adverse Effect, (j) Borrowers, Guarantor or any ERISAAffiliate shall permit, through action or failure to act, any Pension Plan tofail to meet the requirements of Section 401(a) or 403(a) of the Code andsuch failure gives rise to a material liability of Borrowers, Guarantor or anyERISA Affiliate, or (k) any event or condition described in (a) through (j))above (determined without regard to whether the event or condition taken alonewould or could result in a material liability) shall occur or exist withrespect to a PBGC Plan, Multiple Employer Plan or Multiemployer Plan whichindividually or in combination with one or more of any events described in (a)through (j) above (determined without regard to whether the event orcondition taken alone would or could result in a material liability), if any,would likely subject Borrowers, Guarantor or any ERISA Affiliate to anymaterial excise tax, Penalty, addition to tax or other liability.  For purposes of this Section 7.13,an obligation or liability shall be considered material if it results in orcauses a Material Adverse Effect.

 

7.14         Change of Control.  The occurrence of a Change of Control.

 

7.15         Material Adverse Change.  The occurrence of any act, event orcircumstance that is, or with the passage of time is reasonably expected tocause a Material Adverse Effect in the assets, liabilities, financialcondition, contractual obligations or business affairs of Borrowers orGuarantor.

 

SECTION 8.  RIGHTS ANDREMEDIES.

 

8.1           Remedies Upon Default.  Should any Default occur and be continuing,Lender may, at its election, do any one or more of the following: (i) declarethe entire unpaid balance of the Obligations, or any part thereof, immediatelydue and payable, 

 

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whereuponit shall be due and payable (and notice of such declaration shall promptly begiven thereafter by it to Borrowers); (ii) terminate its commitment to lendhereunder, (iii) reduce any claim to judgment; (iv) exercise the Rights ofoffset or banker’s Lien against the interest of Borrowers or Guarantor in andto every account and other Property of Borrowers or Guarantor which are in itspossession to the extent of the full amount of the Obligations; (v) forecloseany or all Lender Liens or otherwise realize upon any and all of the Rights itmay have in and to the Collateral, or any part thereof, and (vi) exerciseany and all other legal or equitable Rights afforded by the Loan Documents, theSupplemental Loan Documents, the Laws of the State of Texas or any otherjurisdiction as it shall deem appropriate, or otherwise, including, but notlimited to, the Right to bring suit or other proceedings before any Tribunaleither for specific performance of any covenant or condition contained in anyof the Loan Documents or in aid of the exercise of any Right granted to it inany of the Loan Documents.

 

8.2           Waivers. Borrowers and Guarantor hereby waive presentment and demand for payment,protest, notice of intention to accelerate, notice of acceleration and noticeof protest and nonpayment, and agree that their liability with respect to theObligations, or any part thereof, shall not be affected by any renewal orextension in the time of payment of the Obligations, by any indulgence or byany release or change in any security for the payment of the Obligations.

 

8.3           Performance by Lender.  If any covenant, duty or agreement ofBorrowers or Guarantor is not performed in accordance with the terms of theLoan Documents or the Supplemental Loan Documents as applicable, Lender may, atits option perform or attempt to perform, such covenant, duty or agreement onbehalf of Borrowers or Guarantor.  Insuch event, any reasonable amount incurred by or on behalf of Lender prior toDefault, or thereafter any and all amounts incurred by or on behalf of Lenderin such performance or attempted performance shall be payable by Borrowers orGuarantor on written demand, shall become part of the Obligations, and shall bearinterest at the Default Rate from the date of notice to Borrowers or Guarantorof such expenditure until paid. Notwithstanding the foregoing, it is expressly understood that Lenderdoes not assume and shall never have, except by its express written consent,any liability or responsibility for the performance of any covenant, duty oragreement of Borrowers or Guarantor.

 

8.4           Delegation of Duties and Rights.  Lender may perform any of its duties orexercise any of its Rights under the Loan Documents by or through its officers,directors, employees, attorneys, agents or other representatives.

 

8.5           Lender Not in Control.  None of the covenants or other provisionscontained in the Agreement shall, or shall be deemed to, give Lender the Rightto exercise control over the assets (including, without limitation, realProperty), affairs or management of Borrowers or Guarantor, the power of Lenderbeing limited to the Right to exercise the Rights provided in this Section 8.

 

8.6           Waivers by Lender.  The acceptance by Lender at any time and from time to time ofpartial payment on the Obligations shall not be deemed to be a waiver of anyDefault then existing.  No waiver byLender of any Default shall be deemed to be a waiver of any other then-existingor subsequent Default.  No delay oromission by Lender in exercising any Right under the Loan Documents shallimpair such Right or be construed as a waiver thereof or any acquiescencetherein, nor shall any single or partial exercise of any 

 

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suchRight preclude other or further exercise thereof, or the exercise of any otherRight under the Loan Documents or otherwise.

 

8.7           Cumulative Rights.  All Rights available to Lender under theLoan Documents are cumulative of and in addition to all other Rights granted toLender under or in connection with the Construction Loan Documents, at law orin equity, whether or not the Obligations are due and payable and whether ornot Lender has instituted any suit for collection, foreclosure, or other actionin connection with the Loan Documents or the Construction Loan Documents.

 

8.8           Application of Proceeds.  Any and all proceeds ever received by Lenderfrom the exercise of any Rights pertaining to the Obligations shall be appliedby Lender to the Obligations in the order and manner set forth in Section 2.7;providedthat Borrowers and Guarantor shall remain liable toLender for the deficiency, if any.

 

8.9           Diminution in Value of Collateral.  Lender shall have no liability orresponsibility whatsoever for any diminution in or loss of value of anyCollateral.

 

8.10         Certain Proceedings.  Borrowers and Guarantor will promptlyexecute and deliver or cause the execution and delivery of all applications,certificates, instruments, registration statements and all other documents andpapers Lender may request in connection with the obtaining of any consent,approval, registration, qualification, permit, license or authorization of anyother Tribunal or other Person necessary or appropriate for the effectiveexercise of any Rights under the Loan Documents.  Without limiting the generality of the foregoing,  Borrowers and Guarantor agree that in theevent Lender shall exercise its Rights, pursuant to the Loan Documents relatingto Borrowers or Guarantor, to sell, transfer or otherwise dispose of, or vote,consent, operate or take any other action in connection with any of theCollateral, Borrowers and Guarantor shall execute and deliver all applications,certificates, assignments and other documents Lender may request to facilitatesuch actions and shall otherwise promptly, fully, and diligently cooperate withLender and any other necessary Persons in making any application for the priorconsent or approval of any Tribunal or any other Person to the exercise byLender of any of such Rights relating to all or any of the Collateral.  Furthermore, because Borrowers and Guarantoragree that Lender’s Rights at Law for failure of Borrowers and Guarantor tocomply with the provisions of this Section 8.10 would be inadequateand that such failure would not be adequately compensable in damages, Borrowersand Guarantor agree that the covenants of this Section 8.10 may bespecifically enforced.

 

SECTION 9.  MISCELLANEOUS.

 

9.1           Changes in GAAP.  All accounting and financial terms used in any of the LoanDocuments and the compliance with each covenant contained in the Loan Documentswhich relates to financial matters shall be determined in accordance with GAAP,except to the extent that a deviation therefrom is expressly stated in suchLoan Documents.  Should a change in GAAPrequire a change in any method of accounting or should any voluntary change inthe accounting methods be permitted pursuant to Section 6.12, thensuch change shall not result in a Default if, at the time of such change, suchDefault had not occurred and was not then continuing, based upon the formermethods of accounting used by or on behalf of Borrowers and Guarantor; providedthat, after any such change in accounting methods, the Financial Statementsrequired to be delivered shall either be (a) prepared in comparative form, incompliance with the former 

 

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methodsof accounting used prior to such change, as well as with the new method ormethods of accounting and, for the purpose of determining whether a Default hasoccurred, Lender shall look solely to that portion of such Financial Statementsthat complies with the former methods of accounting, or (b) prepared incompliance with such new method or methods of accounting but accompanied bysuch information, in form and detail satisfactory to Lender, that will allowLender to readily determine the effect of such changes in accounting methods onsuch Financial Statements, and, for the purpose of determining whether aDefault has occurred, Lender shall look solely to such Financial Statements asadjusted to reflect compliance with such former method or methods ofaccounting.

 

9.2           Exhibits. If any Exhibit, which is to be executed and delivered, contains blanks,the Exhibit shall be completed correctly and in accordance with the terms andprovisions contained and as contemplated herein prior to, at the time of, orafter the execution and delivery thereof.

 

9.3           Communications.  Unless specifically otherwise provided, whenever any LoanDocument requires or permits any consent, approval, notice, request or demandfrom one party to another, such communication must be in writing (which may beby telex or telecopy) to be effective and shall be deemed to have been given onthe day actually delivered or, if mailed, on the third Business Day after it isenclosed in an envelope, addressed to the party to be notified at the addressstated opposite its signature below (unless changed by notice pursuant hereto),properly stamped, sealed and deposited in the appropriate official postalservice.

 

9.4           Form and Number of Documents.  Each agreement, document, instrument orother writing to be furnished under any provision of the Agreement must be inform and substance and in such number of counterparts as may be satisfactory toLender and its counsel.

 

9.5           Exceptions to Covenants.  Borrowers and Guarantor shall take no actionnor fail to take any action which is permitted as an exception to any of thecovenants contained in any of the Loan Documents relating to Borrowers andGuarantor if such action or omission would result in the breach of any othercovenant contained in any of the Loan Documents.

 

9.6           Survival. All covenants, agreements, undertakings, representations and warrantiesmade in any of the Loan Documents shall survive all closings under the LoanDocuments and, except as otherwise indicated. shall not be affected by anyinvestigation made by any party.

 

9.7           GOVERNING LAW.  THE AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITHTHE LAWS OF THE STATE OF TEXAS; PROVIDED THAT LENDER SHALL RETAIN ALL RIGHTSARISING UNDER FEDERAL LAW. THE LAWS (OTHER THAN CONFLICT-OF-LAWS PROVISIONSTHEREOF) OF THE STATE OF TEXAS AND OF THE UNITED STATES OF AMERICA SHALL GOVERNTHE RIGHTS AND DUTIES OF THE PARTIES HERETO AND THE VALIDITY, CONSTRUCTION,ENFORCEMENT AND INTERPRETATION OF THE LOAN DOCUMENTS, EXCEPT TO THE EXTENTOTHERWISE SPECIFIED IN ANY OF THE LOAN DOCUMENTS.

 

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9.8           Maximum Interest Rate.It is the intention of the Parties to strictly comply with applicable usuryLaws, if any; accordingly, it is agreed that notwithstanding any provisions tothe contrary in any Loan Document, in no event shall any Loan Document permitor require the payment, taking, reserving, receiving collection or charging ofinterest in excess of the Highest Lawful Rate. If any such excess of interest is called for, contracted for, charged,taken, reserved or received under any Loan Document (or in any communication byLender or any other Person to Borrowers or Guarantor) or if all or a part ofthe principal or interest thereof is accelerated, prepaid or repaid, so thatunder any of such circumstances (or any other circumstances) the amount of interestcontracted for, charged, taken, reserved or received under any Loan Document onthe amount of principal actually outstanding from time to time thereunder shallexceed the Highest Lawful Rate, then in any such event (a) the provisions ofthis Section 9.8 shall govern and control, (b) no Person now orhereafter liable for the payment of the Obligation shall be obligated to paythe amount of such interest to the extent that it is in excess of the HighestLawful Rate, (c) any such excess which is or has been collected or receivednotwithstanding this paragraph shall be credited against the then unpaid principal balance of the Obligation or,if the Obligation has been or would be repaid in full by that credit, refundedto the Person paying the excess, and (d) the provisions of the applicable LoanDocuments, and any communication to Borrowers or Guarantor, shall immediatelybe deemed reformed and the excess interest reduced, without the necessity ofexecuting any other document, to the Highest Lawful Rate under the applicableusury Laws as now or hereafter construed by the courts having jurisdictionthereof. Without limiting the foregoing, all calculations of the rate ofinterest contracted for, charged, collected, taken, reserved or received inconnection with the  Loan Documentswhich are made for the purpose of determining whether that rate exceeds theHighest Lawful Rate shall be made to the extent permitted by applicable Laws byamortizing, prorating, allocating and spreading during the period of the fullterm of the Loan, including all prior and subsequent renewals and extensions,all interest at any time contracted for, charged, taken collected, reserved orreceived. The terms of this paragraph shall be deemed to be incorporated inevery Loan Document and communication relating thereto.

 

To the extent theinterest rate Laws of the State of Texas are applicable to the Loan Documentsfor purposes of determining the “Highest Lawful Rate,” the applicable interestrate ceiling is the weekly ceiling (formerly the indicated rate ceiling)determined in accordance with Texas Revised Civil Statutes, Title 79, Article5069-1D.003 (also codified at Texas Finance Code, Section 303.301, and formerlyTexas Revised Civil Statutes, Article 5069-1.01), as amended. To the extent theLoan Documents are an open end account as defined in  Texas Revised Civil Statutes, Title 79, Article 5069-1B.002(14)(also codified at Texas Finance Code, Section 301.001(3), and formerly TexasRevised Civil Statutes, Article 5069-1.01 (f)), as amended, the Lender retainsthe right to modify the interest rate in accordance with applicable Law.Borrowers, Guarantor and Lender agree that Texas Finance Code, Chapter 346(formerly Texas Revised Civil Statutes, Title 79, Chapter 150, which regulatescertain revolving loan accounts and revolving tri-party accounts,  shall not govern or in any manner apply tothe Loan Documents or the Obligation.

 

9.9           Invalid Provisions.  If any provision in any Loan Document isheld to be illegal, invalid or unenforceable, such provision shall be fullyseverable; the appropriate Loan Document shall be construed and enforced as ifsuch provision had never comprised a part thereof, and the remaining provisionsthereof shall remain in full force and effect and shall not be affected by suchprovision or by its severance therefrom. Furthermore, in lieu of such provision there shall be addedautomatically as a part of such Loan Document a provision as similar thereto asmay be possible and be legal, valid and enforceable.

 

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9.10         Entirety. THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES ANDMAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENTORAL AGREEMENTS BY THE PARTIES.  THEREARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.  The Loan Documents embody the entire written agreement betweenthe parties, supersede all prior written agreements and understandings, if any,relating to the subject matter hereof (except for documents, agreements, andinstruments delivered or to be delivered in accordance with the express termshereof) and may be supplemented only by documents delivered or to be deliveredin accordance with the express terms hereof. Any conflict or ambiguity between the terms and provisions herein andterms and provisions in any other Loan Document shall be controlled by theterms and provisions herein.

 

9.11         Amendments, Etc.  No amendment or waiver of any provision of any Loan Document norconsent to any departure therefrom by Borrowers or Guarantor shall be effectiveunless the same shall be in writing and signed by Lender, and then, suchamendment, waiver or consent shall be effective only in the specific instanceand for the specific purpose for which given.

 

9.12         Waivers.  Nocourse of dealing nor any failure or delay by Lender or any of its respectiveofficers, directors, employees, agents, representatives, or attorneys withrespect to exercising any Right of Lender hereunder shall operate as a waiverthereof.  A waiver must be in writingand signed by Lender to be effective, and such waiver will be effective only inthe specific instance and for the specific purpose for which it is given.

 

9.13         Governmental Regulation.  Anything contained in the Agreement to thecontrary notwithstanding, Lender shall not be obligated to extend credit toBorrowers in violation of any Law.

 

9.14         Multiple Counterparts.  The Agreement has been executed in a numberof identical counterparts, each of which shall be deemed an original for allpurposes and all of which constitute, collectively, one Agreement; but, inmaking proof of the Agreement, it shall not be necessary to produce or accountfor more than one such counterpart.

 

9.15         Discharge Only Upon Payment InFull; Reinstatement In Certain Circumstances.  The obligations of Borrowers and Guarantor hereunder shall remainin full force and effect until the Obligations shall have been paid andperformed in full.  If at any time anypayment on or in respect of the Obligations is rescinded or must be otherwiserestored or returned upon the insolvency, bankruptcy or reorganization of aBorrower, Guarantor or otherwise, the obligations of a Borrower or Guarantorhereunder with respect to such payment shall be reinstated as though suchpayment has been due but not made at such time.

 

9.16         Waiver by Borrowers and Guarantor.  Borrowers and Guarantor irrevocably waiveacceptance hereof, and any other notice not provided for herein, as well as anyrequirement that any time any action be taken by any Person against Borrowers,Guarantor or any Collateral relating to such Borrowers’ or Guarantor’sobligations hereunder.

 

9.17         Successors and Assigns.  The Agreement shall be binding upon, andinure to the benefit of the parties hereto and their respective successors andassigns, except that Borrowers may not, directly or indirectly, assign or 

 

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transfer,or attempt to assign or transfer, any of their Rights, duties or obligationsunder any Loan Documents without the express written consent of Lender, andLender may not transfer, pledge, assign or otherwise encumber its commitmentsor loans, except that Lender may, in the ordinary course of its commercialbanking business and in accordance with applicable Law, at any time sell to oneor more Persons participating interests in the Obligations.

** **

**9.18 ARBITRATION.THE BORROWERS, GUARANTOR AND LENDER AGREE THAT ALL DISPUTES, CLAIMS ANDCONTROVERSIES BETWEEN THEM, OR ANY OF THEIR RESPECTIVE SUCCESSORS AND ASSIGNS,WHETHER INDIVIDUAL, JOINT OR CLASS IN NATURE, ARISING FROM THIS AGREEMENT ORANY OF THE OTHER LOAN DOCUMENTS (INCLUDING CONTRACT AND TORT DISPUTES) SHALL BEARBITRATED PURSUANT TO THE RULES OF THE AMERICAN ARBITRATION ASSOCIATION UPONTHE REQUEST OF ANY PARTY. NO ACT TO TAKE OR DISPOSE OF ANY COLLATERAL SECURINGTHE OBLIGATIONS SHALL CONSTITUTE A WAIVER OF THIS ARBITRATION PROVISION OR BEPROHIBITED BY THIS ARBITRATION PROVISION. THE FOREGOING INCLUDES OBTAININGINJUNCTIVE RELIEF OR A TEMPORARY RESTRAINING ORDER; INVOKING A POWER OF SALEUNDER ANY OF THE SECURITY DOCUMENTS; OBTAINING A WRIT OF ATTACHMENT OR THEIMPOSITION OF A RECEIVER; OR EXERCISING ANY RIGHTS RELATING TO PERSONALPROPERTY, INCLUDING TAKING OR DISPOSING OF SUCH PROPERTY WITH OR WITHOUT JUDICIALPROCESS PURSUANT TO ARTICLE 9 OF THE UCC. ANY DISPUTES, CLAIMS ANDCONTROVERSIES CONCERNING THE LAWFULNESS OR REASONABLENESS OF ANY ACT OREXERCISE OF ANY RIGHTS OR ANY RIGHT RELATING TO THE COLLATERAL SECURING THEOBLIGATIONS (INCLUDING, WITHOUT LIMITATION, ANY CLAIM TO RESCIND, REFORM OROTHERWISE MODIFY ANY AGREEMENT RELATING TO THE COLLATERAL SECURING THEOBLIGATIONS) SHALL ALSO BE ARBITRATED; PROVIDED THAT NO ARBITRATOR SHALL HAVETHE RIGHT OR POWER TO ENJOIN OR RESTRAIN ANY ACT OF ANY PARTY.  JUDGMENT UPON ANY AWARD RENDERED BY ANYARBITRATOR MAY BE ENTERED IN ANY COURT HAVING JURISDICTION; PROVIDED THATNOTHING CONTAINED HEREIN SHALL BE DEEMED TO BE A WAIVER BY LENDER OF THEPROTECTIONS AFFORDED TO THE LENDER UNDER 12 USC § 91, TEX. FIN. CODE § 59.007,OR THE LAWS OF ANY OTHER STATE (TO THE EXTENT APPLICABLE TO THE LENDER) OR ANYOTHER PROTECTION PROVIDED TO THE LENDER BY THE LAWS OF THE STATE OF TEXAS ORTHE UNITED STATES. THE STATUTE OF LIMITATIONS, OR ESTOPPEL, LACHES, WAIVER ORSIMILAR DOCTRINES THAT WOULD OTHERWISE BE APPLICABLE IN AN ACTION BROUGHT BY APARTY SHALL BE APPLICABLE IN ANY ARBITRATION PROCEEDING AND THE COMMENCEMENT OFANY ARBITRATION PROCEEDING SHALL BE DEEMED THE COMMENCEMENT OF AN ACTION FORTHESE PURPOSES. THE FEDERAL ARBITRATION ACT SHALL APPLY TO THE CONSTRUCTION,INTERPRETATION AND ENFORCEMENT OF THIS ARBITRATION PROVISION. IF THE FEDERALARBITRATION ACT IS INAPPLICABLE TO ANY SUCH DISPUTE, CLAIM OR CONTROVERSY FORANY REASON, THE ARBITRATION SHALL BE CONDUCTED PURSUANT TO THE TEXAS GENERALARBITRATION ACT, THIS ARBITRATION PROVISION AND THE COMMERCIAL ARBITRATIONRULES OF THE AMERICAN ARBITRATION ASSOCIATION.**

 

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**9.19 JURISDICTIONAND VENUE. SUBJECT TO THE PROVISIONS OF SECTION 9.18, ALLACTIONS OR PROCEEDINGS WITH RESPECT TO, ARISING DIRECTLY OR INDIRECTLY INCONNECTION WITH, OUT OF RELATED TO OR FROM THIS AGREEMENT OR ANY OF THE OTHERLOAN DOCUMENTS MAY BE LITIGATED, AT THE SOLE DISCRETION AND ELECTION OF THELENDER, IN THE COURTS HAVING SITUS IN HOUSTON, HARRIS COUNTY, TEXAS. IN THATREGARD, THE BORROWERS AND GUARANTOR HEREBY SUBMIT TO THE JURISDICTION OF ANYLOCAL, STATE OR FEDERAL COURT LOCATED IN HOUSTON, HARRIS COUNTY, TEXAS, ANDHEREBY WAIVES ANY RIGHTS IT MAY HAVE TO TRANSFER OR CHANGE THE JURISDICTION ORVENUE OF ANY LITIGATION BROUGHT AGAINST IT BY THE LENDER IN ACCORDANCEWITH THISSECTION.**

 

EXECUTEDas of the day and year first mentioned.

 
|                           | BORROWER:                  |
|--------------------------------|----------------------------|
| Address:                       | GATEWAY PIPELINE COMPANY   |
|                           |                       |
| One  Allen Center              | By:                        |   |
| 500 Dallas  Street, Suite 2615 |                       | Michael T. Fadden, President |
| Houston,  Texas 77002          |                       |
| Phone:  (713) 336-0844    |                       |
| Fax:  (713) 336-0855      |                       |
|                           |                       |
| Address:                       | GATEWAY PROCESSING COMPANY |
|                           |                       |
| One  Allen Center              | By:                        |   |
| 500 Dallas  Street, Suite 2615 |                       | Michael T. Fadden, President |
| Houston,  Texas 77002          |                       |
| Phone:  (713) 336-0844    |                       |
| Fax:  (713) 336-0855      |                       |
| Address:                       | GATEWAY ENERGY CORPORATION |
|                           |                       |
| One  Allen Center              | By:                        |   |
| 500 Dallas Street, Suite 2615  |                       | Michael T. Fadden, President |
| Houston,  Texas 77002          |                       |
| Phone:  (713) 336-0844    |                       |
| Fax:  (713) 336-0855      |                       |

 

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|                             |                          |
|----------------------------------|-------------------------------|
| Address:                         | SOUTHWEST BANK OF TEXAS, N.A. |
|                             |                          |
| 5  Post Oak Park Office Building |                          |
| 4400  Post Oak Parkway           | By:                           |   |
| Houston,  Texas 77027            | Name:                         | Ken Batson |
| Mail:                            | Title:                        | Assistant Vice President — Energy Lending |
| P.  O. Box 27459                 |                          |
| Houston,  Texas 77227-7459       |                          |
| Phone:  (713) 232-1247      |                          |
| Fax:  (713) 232-5925        |                          |

 

 

 

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