Document:

Exhibit 10.9

CENTERPOINT PROPERTIES TRUST

2000 OMNIBUS EMPLOYEE RETENTION AND
INCENTIVE PLAN

 

SHARE OPTION AGREEMENT

 

THIS SHARE OPTION AGREEMENT (the “Agreement”) is dated
as of March 7, 2003 between CenterPoint Properties Trust, a Maryland real
estate investment trust (the “Company”), and Michael M. Mullen (the
“Optionee”).

 

This Agreement is made pursuant to, and is governed
by, the CenterPoint Properties Trust 2000
Omnibus Employee Retention and Incentive Plan (the “2000
Plan”).  Capitalized terms not otherwise
defined herein shall have the meanings set forth in the 2000 Plan.  The purpose of this Agreement is to
establish a written agreement evidencing an option granted in accordance with
the terms of the 2000 Plan.  In this
Agreement, “shares” means the Company’s Common Shares or other securities
resulting from an adjustment under Sections 1.5 and 6.2 of the 2000 Plan.

 

The parties agree as follows:

 

1.                                      Grant of Option.  The Company hereby grants to the Optionee
an option (the “Option”) to purchase 31,881 shares under the terms and
conditions hereof.

 

2.                                      Term.  The Option becomes exercisable
and terminates in accordance with the schedule set forth in Section 5 hereof;
provided, however, that in the event employment of the Optionee with the
Company or a Subsidiary terminates for any reason, the Option shall terminate
in accordance with the provisions of Section 2.6 of the 2000 Plan.

 

3.                                      Price.     The price of each share
purchased by exercise of the Option is $ 56.30.

 

4.                                      Partial Exercise.  The Option, to the extent exercisable
under this agreement and the 2000 Plan, may be exercised in whole or in part
provided that the Option may not be exercised for less than 100 shares in any
single transaction unless such exercise pertains to the entire number of shares
then covered by the Option.

 

5.                                      Exercise Period.

                                                

	
  Except as otherwise
  provided in the 2000 Plan or in this Agreement, 

  the Option shall become exercisable as follows: Time Period

  	
   

  	
  Exercisable

  
	
  Prior to the first anniversary of the date of this
  Agreement

  	
   

  	
  None

  
	
  After the first anniversary of the date of this
  Agreement

  	
   

  	
  One Fifth

  
	
  After the second anniversary of the date of this
  Agreement

  	
   

  	
  Two Fifths

  
	
  After the third anniversary of the date of this
  Agreement

  	
   

  	
  Three Fifths

  
	
  After the fourth anniversary of the date of this
  Agreement

  	
   

  	
  Four fifths

  
	
  After the fifth anniversary of the date of this
  Agreement

  	
   

  	
  All

  

 

(b)                                 If it has not previously terminated
pursuant to the terms of the 2000 Plan or this Agreement, the Option shall
terminate at the close of business on the day before the tenth anniversary of
the date of this Agreement.

 

1

 

 

6.                                      Method of Exercise.  The Option
shall be exercised by written notice by Optionee to the Company specifying the
number of shares that such person elects to purchase, accompanied by full
payment, in cash or current funds, for such shares.

 

7.                                      ISO Treatment.  It is
intended that the Option shall qualify as an “incentive share option” as
described in Section 422 of the Internal Revenue Code of 1986, as amended
within the limitations outlined in Section 2.5 of the 2000 Plan.

 

8.                                      Rights of the Shareholder. 
No person,
estate, or other entity will have the rights of a stockholder with respect to
shares subject to the Options until a certificate or certificates for these
shares have been delivered to the person exercising the option.

 

9.                                      Rights of the Company.  This
Agreement does not affect the Company’s right to take any corporate action,
including other changes in its right to recapitalize, reorganize or
consolidate, issue bonds, notes or stock, including preferred stock or options
therefore, to dissolve or liquidate, or to sell or transfer any part of its
assets or business.

 

10.                               Taxes.  The Company may pay or
withhold the amount of any tax attributable to any shares deliverable under
this Agreement, and the Company may defer making delivery until it is
indemnified to its satisfaction for that tax.

 

11.                               Compliance with Laws. 
Options
are exercisable, and shares can be delivered under this Agreement, only in
compliance with all applicable federal and state laws and regulations,
including without limitation state and federal securities laws, and the rules
of all stock exchanges on which the Common Shares are listed at any time.  Options may not be exercised and shares may
not be issued under this Agreement until the Company has obtained the consent
or approval of every regulatory body, federal or state, having jurisdiction
over such matters as the Committee deems advisable.  Each person or estate that acquired the right to exercise an
Option by bequest or inheritance may be required by the Committee to furnish
reasonable evidence of ownership of the Option as a condition to the exercise
of the Option.  In addition, the
Committee may require such consents and releases of taxing authorities as the
Committee deems advisable.

 

12.                               Share Legends.  Any
certificate issued to evidence shares issued under the Option shall bear such
legends and statements as the committee deems advisable to assure compliance with
all federal and state laws and regulations.

 

13.                               No Right of Employment. 
Nothing in
this Agreement shall confer any right on an employee to continue in the employ
of the Company or shall interfere in any way with the right of the Company to
terminate such employee’s employment at any time.

 

14.                               Amendment of Option.  The Company
may alter, amend, or terminate the Option only with the Optionee’s consent,
except for adjustments expressly provided by this Agreement.

 

15.                               Miscellaneous.  This
Agreement is subject to and controlled by the 2000 Plan.  Any inconsistency between this Agreement and
said 2000 Plan shall be controlled by the 2000 Plan.  This Agreement is the final, complete, and exclusive expression
of the understanding between the parties and supersedes any prior or
contemporaneous agreement or representation, oral or written, between
them.  Modification of this Agreement or
waiver of a condition herein must be written and signed by the party to be
bound.  In the event that any paragraph
or provision of this Agreement shall be held to be illegal or unenforceable,
such paragraph or provision shall be severed from the Agreement and the entire
Agreement shall not fail on account thereof, but shall otherwise remain in full
force and effect.

 

2

 

 

16.                               Notices.  All notices
and other communications required or permitted under this Agreement shall be
written, and shall be either delivered personally or sent by registered or
certified first-class mail, postage prepaid and return receipt requested, or by
telex or telecopier, addressed as follows: 
if to the Company, to the Company’s principal office, and if to the
Optionee or his successor, to the address last furnished by such person to the
Company.  Each such notice and
communication delivered personally shall be deemed to have been given when
delivered.  Each such notice and
communication given by mail shall be deemed to have been given when it is
deposited in the United States mail in the manner specified herein, and each
such notice and communication given by telex or telecopier shall be deemed to
have been given when it is so transmitted and the appropriate answer back is
received.  A party may change its
address for the purpose hereof by giving notice in accordance with the
provisions of this Section 16.

 

                                                IN WITNESS WHEREOF, each of the Optionee
and the Company have executed this Agreement as of the date first written
above.

 

 

 

CENTERPOINT PROPERTIES TRUST

 

 

	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Rockford O. Kottka

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Its:

  	
  Executive Vice President
  and Treasurer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  GRANTEE

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Michael M. Mullen

  

 

 

 

3Ex.
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

 

 

 

 

 

 

 

 

 

 

 

TABLE OF
CONTENTS

 

	
  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

 

	
   

  	
  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

 

	
   

  	
  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

 

FIRST
AMENDED AND RESTATED

CREDIT
AGREEMENT

 

 

THIS FIRST AMENDED AND RESTATED CREDIT AGREEMENT is entered into as of
March 31, 2003, between Gateway Pipeline Company, a Texas corporation
(“Pipeline”) and Gateway Processing Company, a Texas corporation (“Processing”,
Pipeline and Processing collectively “Borrowers”), Gateway Energy
Corporation, 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 Million
Five Hundred Thousand Dollars ($1,500,000.00) term credit facility to finance
the construction and mobilization of a pipeline gathering system near
Madisonville, Texas by Borrowers (“Credit Agreement”), (b) Loan Modification Agreement dated as of
August 31, 2002 and recorded in Volume 1883, page 1812 of the Official Public
Records of Ellis County, Texas, and in Volume 632, page 173 of the Official
Public Records of Madison County, Texas, to modify the Maturity Date, Payment
Date and other terms of the Credit Agreement, (c) letter agreement dated
December 12, 2002 to amplify the procedures for administering draw requests,
(d) Second Loan Modification Agreement dated as of February 20, 2003, from
Borrowers to A. Stephen Kennedy, as Trustee, and the Lender to further modify
the Payment Date and other terms of the Credit Agreement, and (e) Third Loan
Modification Agreement dated as of March 31, 2003, from Borrowers to A. Stephen
Kennedy, as Trustee, and the Lender to further modify the Payment Date and
other terms of the Credit Agreement   (
collectively, the “Existing Credit Agreement”); and

 

2.             Borrowers have requested that
Lender amend and restate the Existing Credit Agreement upon and subject to the
conditions and covenants stated herein.

 

For
a sufficient consideration including, without limitation, the mutual covenants
contained herein, Borrowers and Lender agree as follows:

 

SECTION 1.  DEFINITIONS.

 

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

 

Affiliate of any Person
means any other Person who directly or indirectly controls, or is controlled
by, 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, of
power to direct or cause the direction of management or policies (whether
through ownership of voting securities, by contract, or otherwise).  Any Person who beneficially owns, directly
or indirectly, 10% or more (in number of votes) of the securities having ordinary
voting power for the election of directors (or individuals performing similar
functions of a Person) and any Person who is an officer or director of a Person
shall be conclusively deemed to control such Person.

 

 

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

 

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

 

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

 

Capital
Lease Obligations means, as to any Person, the obligations of such
Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) real and/or personal Property, which obligations
are required to be classified and accounted for as a capital lease on a balance
sheet of such Person under GAAP.  For
purposes of the Agreement, the amount of Capital Lease Obligations shall be the
capitalized amount thereof, determined in accordance with GAAP.

 

Capital
Stock means any and all shares, interests, participations, rights or other
equivalents (however designated) of corporate stock.

 

Change
of Control means any of the following events:  (a) any “person” or “group” of persons who
are not currently stockholders or beneficial holders shall have acquired
“beneficial ownership” of more than 25% of the outstanding common stock of the
Borrowers  (within the meaning of
Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended, and
the applicable rules and regulations thereunder), or (b) during any period of
12 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 the
Capital Stock of each of Pipeline and Processing, subject to the Security
Documents delivered to the Lender contemporaneously herewith.

 

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

 

Code means the
Internal Revenue Code of 1986, as amended, and all regulations promulgated and
rulings issued thereunder.

 

Collateral is defined in Section
3.1.

 

Current
Assets means, at any particular time, all amounts which, in conformity with
GAAP, would be included as current assets on a consolidated balance sheet of
Borrowers and Guarantor.

 

Current
Liabilities means, at any particular time, all amounts which, in
conformity with GAAP, would be included as current liabilities on a
consolidated balance sheet of Borrowers and Guarantor.

 

Current
Financials means (a) the audited Financial Statements showing the
consolidated financial condition and results of operations of Borrowers and
Guarantors on a consolidating accounting basis for the year ended on
December 31, 2001, and (b) the unaudited interim Financial Statements
of Borrowers and Guarantor on a consolidating accounting basis dated as of
September 30, 2002.

 

2

 

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

 

Debtor
Relief Laws means the Bankruptcy Code of the United States of
America and all other applicable liquidation, conservatorship, bankruptcy,
moratorium, rearrangement, receivership, insolvency, reorganization, fraudulent
transfer or conveyance, suspension of payments or similar Laws from time to
time in effect affecting the Rights of creditors generally.

 

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

 

Default is defined in Section 7.

 

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

 

Environmental
Laws means any and all federal, state, and local laws, regulations, and
requirements regulating, pertaining to, or imposing liability or standards of
conduct 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., the
Resource 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 Water
Act, 33 U.S.C. § 1251 et seq., and the Toxic Substances Control Act, 15
U.S.C. § 2601 et seq., as 

 

3

 

such
laws, regulations, and requirements may be amended or supplemented from time to
time.

 

Environmental
Liabilities means, as to any Person, all liabilities, obligations,
responsibilities, Remedial Actions, losses, damages, punitive damages,
consequential damages, treble damages, costs, and expenses, (including, without
limitation, all reasonable fees, disbursements and expenses of counsel, expert
and 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 or
threatened Release of a Hazardous Substance into the environment.

 

ERISA means the
Employee Retirement Income Security Act of 1974, as amended, and the
regulations promulgated and rulings issued thereunder.

 

ERISA
Affiliate means any company or trade or business (whether or not
incorporated) which is a member of a group of which the Borrowers and Guarantor
are a member and which is under common control with the Borrowers and Guarantor
within the meaning of Section 414(b) or (c) of the Code.

 

Exhibit means an exhibit
attached hereto unless otherwise specified.

 

Existing
Credit Agreement means the documents described in Recital 1.

 

Financial
Report Certificate means a certificate substantially in the form of Exhibit
D and containing such other certifications and information as Lender may
reasonably request concerning compliance with the Loan Documents.

 

Financial
Statements means balance sheets, profit and loss statements,
statement of retained earnings and statements of cash flow prepared in
comparative form to the corresponding period of the preceding reporting period.

 

GAAP means generally
accepted accounting principles of the Securities and Exchange Commission, and
to the extent not inconsistent therewith the Accounting Principles Board of the
American Institute of Certified Public Accountants and the Financial Accounting
Standards Board, which are applicable as of the date of the Current Financials.

 

Governmental
Authority means any nation or government, any state or political
subdivision thereof and any entity exercising executive, legislative, judicial,
regulatory, or administrative functions of or pertaining to government.

 

Guarantee by any Person
means any obligation, contingent or otherwise, of such Person directly or
indirectly guaranteeing any Debt or other obligation of any other Person and,
without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person (a) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Debt or other
obligation (whether arising by virtue of partnership arrangements, by agreement
to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise) or 

 

4

 

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

 

Guarantor means Gateway
Energy Corporation, and its permitted successors and assigns.

 

                Guaranty means the
continuing guaranty agreement in favor of the Lender in form and substance
acceptable to the Lender, and any amendment, extension, modification, renewal
or supplement thereof, delivered or to be delivered by the Guarantor hereunder.

 

Hazardous
Substance means any hazardous or toxic waste (or any substance
which is listed as such under any Environmental Law).

 

Highest
Lawful Rate means the maximum rate or amount of interest which
Lender is allowed by Law to contract for, charge, take, reserve or receive.

 

Indemnified
Liabilities is defined in Section 6.15.

 

Indemnified
Parties is defined in Section 6.15.

 

Laws mean all
applicable statutes, laws, ordinances, rules, regulations, orders, writs,
injunctions, or decrees of any Tribunal, and any judicial interpretation
thereof.

 

Lender
Liens 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 of
Lender.

 

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

 

Lien means any lien,
mortgage, security interest, pledge, charge, title retention agreement or
encumbrance of any kind, and any other Right of or arrangement with any
creditor to have his claim satisfied out of any property or assets, or the
proceeds 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 any
Tribunal including, but not limited to, claims or demands by any Person for
actual or claimed breaches of any express or implied conditions or covenants
contained or referred to in any agreement, contract or lease included in the
Collateral.

 

Loan means the amount
loaned by Lender to Borrowers under the Loan Documents.

 

Loan
Documents means (a) the Agreement and any certificates delivered
pursuant to the Agreement, (b) any and all notes (including, without
limitation, the Note), the Security Documents and other agreements in favor of
Lender that have been, are now being or hereafter are delivered pursuant to the
Agreement, and (c) all future renewals, extensions or restatements of, or
amendments or supplements to, any of the foregoing.

 

Madisonville
Contracts means the gas purchase, treatment and transportation
contracts related to the Madisonville gathering system more particularly
described on 

 

5

 

Schedule
3.1, for (i) Processing to purchase sour gas at the wellhead from Redwood
Energy Production L.P.’s Ruby Magness Well No. 1 in the Madisonville Rodessa
Field, (ii) Processing to deliver that gas to the separator installed by
Hanover Compression Limited Partnership (“Hanover”) for the Ruby Magness Well
No. 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’s
treatment plant and (iv) Pipeline to transport the processed gas approximately
seven miles on a pipeline to be constructed by Pipeline for Processing’s
account to a delivery point on TXU Lone Star’s transmission line for marketing.

 

Madisonville
Mortgage means the First Amended and Restated Deed of Trust, Mortgage, Assignment of
Production, Security Agreement and Financing Statement executed
contemporaneously herewith by Borrowers,
as Mortgagor and Debtor, to A. Stephen Kennedy, as Trustee for the benefit of
Lender , as Beneficiary, Mortgagee and Secured Party, and any amendment, extension, modification,
renewal or supplement thereof, which (a) covers the Madisonville
Gathering System and (b) partially amends, extends and restates (but does not
discharge, novate or release)  the Deed of Trust, Mortgage,
Assignment of Production, Security Agreement and Financing Statement dated as
of August 31, 2002, and recorded in Volume
632, page 186 of the Official Public Records of Madison County, Texas, which was previously amended by (i) Second Loan
Modification Agreement dated as of February 28, 2003, recording deferred, each
of which was delivered by Borrowers, as
mortgagor and debtor, to A. Stephen Kennedy, as Trustee for the benefit of
Lender, as holder and secured party, covering the Madisonville Gathering
System.

 

Madisonville
Gathering System means the contracts, easements, equipment, facilities,
fixtures, real property and any and all other Property of any nature whatsoever
more particularly described in the Madisonville Mortgage, as amended and
restated from time to time in connection with the Agreement, whether (i) now
owned or hereafter acquired by Pipeline or Processing, (ii) real, personal or
mixed or (iii) situated on the easements or real property described in the
applicable the Deeds of Trust, or used by Pipeline or Processing in connection
with the Madisonville Contracts.

 

Material
Adverse Effect means any set of circumstances or events which would
reasonably be expected to (a) have any adverse effect upon the validity or
enforceability of any Loan Document, (b) be material and adverse to the
Collateral as a whole, or the financial condition of Borrowers or Guarantor as
represented in the Current Financials, or (c) cause a Default.

 

Maturity
Date is December 31, 2005.

 

Minimum
Net Operating Margin means the remainder of (a) the gross proceeds received
by each Borrower from (i) the distribution, gathering, marketing, processing,
sale or transportation of petroleum, natural gas and all other hydrocarbons
produced therefrom or in association therewith (including, without limitation,
all commodities, products, by-products and residual products of commercial
value derived, manufactured or produced from the foregoing) pursuant to the
Waxahachie Contracts and the Madisonville Contracts and (ii) the operation and
ownership of the Pipeline Systems, minus (b) the sum of (i) the purchase price
paid by each Borrower for the petroleum and natural gas sold pursuant to the
Waxahachie Contracts and the Madisonville Contracts and (ii) the reasonable and
necessary expenses incurred in maintaining and operating (aa) the Waxahachie
Distribution System by Pipeline in connection with sale of petroleum and
natural gas 

 

6

 

pursuant
to the Waxahachie Contracts and (bb) the Madisonville Gathering System in
connection with the processing and sale of petroleum and natural gas pursuant
to the Madisonville Contracts. Each Borrower shall exclude general and
administrative expenses from the calculation of Minimum Net Operating Margin.

 

Multiemployer
Plan 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, Guarantor
or 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.

 

Multiple
Employer Plan means any employee benefit plan within the meaning of
Section 3(3) of ERISA, other than a Multiemployer Plan, which is subject
to Title IV of ERISA and to which the Borrowers, Guarantor or any ERISA
Affiliate and an employer other than an the Borrower, Guarantor or any ERISA
Affiliate contribute or have an obligation to contribute.

 

Note means (a) the
Promissory 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, 2002
made by Borrowers and payable to the order of Lender in the original principal amount of One Million Five Hundred Thousand
and NO/100ths Dollars pursuant to the Credit Agreement and (ii) Promissory
Note dated August 31, 2002 made by Borrowers and payable to the order of Lender
in the original principal amount of One Million Five Hundred Thousand and
No/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 present
and future obligations, indebtedness, and liabilities of Borrowers and
Guarantor to Lender arising pursuant to any of (a) the Existing Loan Documents,
whether direct, indirect, related, unrelated, fixed, contingent, liquidated, or
unliquidated, including, without limitation, the obligation of Borrowers and
the Guarantor to repay the Loan, interest on the Loan, and all fees,
indemnities, costs, and expenses (including attorneys’ fees) provided for in
the Existing Loan Documents which are attributable to the Loan and (b) the loan
documents now or hereafter executed and delivered by Borrowers and Guarantor in
connection with the Supplemental Loan, whether direct, indirect, related,
unrelated, fixed, contingent, liquidated, or unliquidated, including, without
limitation, the obligation of Borrowers and the Guarantor to repay the
Supplemental Loan, interest on the Supplemental Loan, and all fees,
indemnities, costs, and expenses (including attorneys’ fees) provided for in
the Supplemental Loan Documents which are attributable to the Supplemental
Loan.

 

Payment
Date means the last day of each calendar month during the term of the
Agreement, beginning April 30, 2003 and continuing on the last day of each
consecutive calendar month thereafter until the Maturity Date.

 

PBGC means the Pension
Benefit Guaranty Corporation or any successor thereof, established pursuant to
ERISA.

 

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

 

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

 

7

 

which
s, Guarantors or any ERISA Affiliate makes, is making or is obligated to make
contributions, excluding any Multiemployer Plan.

 

Permitted
Liens means (a) the Lender Liens, (b)  Liens listed on Schedule 6.24 hereto,
which Borrowers have disclosed to Lender, (c) Liens for Taxes, Liens of
mechanics and materialmen, and other liens incurred in the ordinary course of
business of the Pipeline Systems that do not exceed  $100,000.00  in
the aggregate, (d) Liens securing the payment and performance of leases for
equipment used by Borrowers in the ordinary course of business of the Pipeline
Systems that do not cover or encumber any of Borrowers’ respective Property
except the equipment leased thereunder, (e) 
pledges or deposits made to secure payment of worker’s compensation, or
to 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 of
bids or contracts, not in excess of 10% of the aggregate amount due thereunder,
to construct the Madisonville Gathering System in connection with the
Madisonville Contracts, or (ii) the Borrowers to obtain certificates of
responsibility or statutory bonds, in the ordinary course of business of the
Pipeline Systems, (g) encumbrances consisting of zoning restrictions, easements
or other restrictions on the use of Property, none of which materially impair
the use of such Property by Borrowers, in the operation of their respective
businesses, and none of which is violated by existing or proposed structures or
land use, and (h) claims and Liens for Taxes due and payable, claims and Liens
upon, and defects of title to, real or personal property, including any
attachment of personal or real property or other legal process prior to
adjudication of a dispute on the merits, claims and Liens of carriers,
landlords, mechanics, materialmen, warehousemen or other like Liens, and
adverse judgments on appeal, so long as the validity or amount thereof is being
contested in good faith and by appropriate and lawful proceedings diligently
conducted, reserves or other appropriate provision (if any) required by GAAP
have been made, levy and execution thereon have been (and continue to be)
stayed (provided that any of the foregoing which burden any Collateral must be
subordinate to all Lender Liens), and they do not materially detract from the
value of the Property of the Person in question, or materially impair the use
thereof in the operation of its business, individually or in the aggregate.

 

Person means any
individual, sole proprietorship, unincorporated organization, corporation,
association, partnership, joint venture, trust, institution, Tribunal or other
entity.

 

Pipeline
Systems mean (i) the Madisonville Gathering System and (ii) the Waxahachie
Distribution System.

 

Plan means any
employee benefit plan as defined in Section 3(3) of ERISA established or
maintained by the Borrowers, Guarantor or any ERISA Affiliate and which is
covered by Title IV of ERISA.

 

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

 

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

 

8

 

Property means property of
all kinds, real, personal or mixed, tangible or intangible (including, without
limitation, all rights relating thereto), whether owned or acquired on or after
the date of the Agreement.

 

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

 

Regulatory
Change means, with respect to Lender, any change after the date of the
Agreement in United States federal, state, or foreign laws or regulations
(including Regulation D) or the adoption or making after such date of any
interpretations, directives, or requests applying to a class of banks including
Lender of or under any United States federal or state, or any foreign, laws or
regulations (whether or not having the force of law) by any court or
governmental or monetary authority charged with the interpretation or
administration thereof.

 

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

 

Remedial
Action means all actions required to (a) cleanup, remove, treat, or otherwise
address Hazardous Substances in the environment, (b) prevent the Release or
threat of Release or minimize the further Release of Hazardous Substances so
that they do not migrate or endanger or threaten to endanger public health or
welfare or the environment, or (c) perform pre-remedial studies and
investigations and post-remedial monitoring and care for incidents involving
actual or threatened Releases of Hazardous Substances or actual or potential
violations of Environmental Laws.

 

Reportable
Event is as defined in Section 4043 of ERISA.

 

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

 

Schedule means a schedule
attached hereto unless specified otherwise.

 

Section means a section
or subsection of the Agreement unless specified otherwise.

 

Security
Agreements means (i) the First Amended and Restated Security
Agreement delivered contemporaneously herewith by Guarantor, as Debtor, to the
Lender, as secured party, and any amendment, extension, modification, renewal
or supplement thereof, which (a) covers all of the fully paid and
non-assessable Capital Stock of each of the Borrowers that has been issued and
is outstanding and (b) partially
amends, extends and restates (but does not discharge, novate or release) the
Security Agreement dated February 21, 2002, delivered by Guarantor to Lender,
which was previously amended by (1) Loan Modification Agreement dated as of
August 31, 2002 and recorded in Volume 1883, page 1812 of the Official Public
Records of Ellis County, Texas, and 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, recording deferred, each of the
foregoing being delivered by Guarantor to A. Stephen Kennedy, as Trustee, and
the Lender, as Beneficiary, Mortgagee and Secured Party, covering the
Waxahachie Distribution System, and (ii)
First Amended and Restated Security Agreement delivered contemporaneously
herewith by the Borrowers, as Debtors, to the Lender, as secured party, and any
amendment, extension, modification, renewal or supplement thereof, which
(a)  covers all of the Madisonville
Contracts and the other collateral described therein and (b) partially
amends, extends and restates (but does not discharge, novate or release) the
Security Agreement dated February 21, 2002, delivered by Borrowers to Lender,
which was previously 

 

9

 

amended by (1) Loan
Modification 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, recording
deferred, 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.

 

Security
Documents means, collectively, the Deeds of Trust, the
Guaranties, each of the Security Agreements, and all related financing
statements and any other agreement, in form and substance satisfactory to
Lender, executed and delivered by any Person in connection with or pursuant to
the Agreement for the purpose of creating a first priority Lien on any of its
Property.

 

Subsidiary with respect to
any Person means (a) a corporation a majority of whose voting stock is at any
time, directly or indirectly, owned by that Person, by one or more Subsidiaries
of 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, a
Subsidiary of that Person, or that Person and one or more Subsidiaries of that
Person, 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 the
election of the majority of the directors or other governing body of that
Person.

 

Supplemental
Loan means the loans made by Lender to Borrower pursuant to the Supplemental
Loan Documents.

 

Supplemental
Loan Documents means the documents now or hereafter executed in
connection with the Supplemental Loan including, without limitation (a)
promissory note of even date herewith made by Borrowers and payable to the
order of Lender in the original principal amount of Nine Hundred Thousand and
NO/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 of
even date herewith delivered by or on behalf of Borrowers or Guarantor to or
for the benefit of Lender in connection the promissory note for the
Supplemental Loan, and (c) any amendment, extension, modification, renewal or
supplement thereof.

 

Tangible
Net Worth means, at any particular time, all amounts which, in
conformity with GAAP, would be included as stockholders’ equity on a balance
sheet of Borrowers or Guarantor, provided, however, there shall
be (i) added thereto the Debt of that Person, calculated in accordance with
GAAP consistently applied, heretofore (or hereafter) incurred, that by the
express terms of the instrument creating or evidencing that Debt (or a
subordination agreement in form and substance acceptable to the Lender) is
validly and effectively made subordinate and subject in the right of payment
and 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 either
Borrower appears as an asset on Borrowers’ or Guarantor’s balance sheet, (b)
goodwill, including any amounts, however designated, that represent the excess
of the purchase price paid for assets or stock over the value assigned thereto,
(c) patents, trademarks, trade names, and copyrights, and (d) all other assets
which are properly classified as intangible assets under GAAP.

 

10

 

Taxes means all taxes,
assessments, fees, levies, imposts, duties, deductions, withholdings or other
charges of any nature whatsoever from time to time or at any time imposed by
any 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 Uniform
Commercial Code as in effect in the applicable jurisdiction.

 

Waxahachie
Contracts means the gas purchase, sale, transportation and other
contracts more particularly described on Schedule 3.1, and any and all
additions, amendments, extension, modification, renewal or supplement thereof,
pursuant to which Pipeline buys, sells and transports natural gas with respect
to the Waxahachie Distribution System on the terms and conditions specified in
each contract.

 

Waxahachie
Distribution System means the contracts, easements, equipment, facilities,
fixtures, real property and any and all other Property of any nature whatsoever
more particularly described in the Waxahachie Mortgage, as amended and restated
from time to time in connection with the Agreement, whether (i) now owned or
hereafter acquired by Pipeline, (ii) real, personal or mixed or (iii) situated
on the easements or real property described in the Deed of Trust, or used by
Pipeline in connection with the Waxahachie Contracts.

 

Waxahachie
Mortgage means the First Amended and Restated Deed of Trust, Mortgage, Assignment of
Production, Security Agreement and Financing Statement executed
contemporaneously herewith by Pipeline, as Mortgagor and Debtor, and delivered
to A. Stephen Kennedy, as Trustee, and the Lender, as Beneficiary, Mortgagee
and Secured Party, and any amendment,
extension, modification, renewal or supplement thereof, which (a) covers
the Waxahachie Distribution System and (b) partially amends, extends and
restates (but does not discharge, novate or release) the Deed of Trust, Mortgage,
Assignment of Production, Security Agreement and Financing Statement dated
February 21, 2002, and recorded in Volume 1634, page 1646 of the Official
Public Records of Ellis County, Texas, which was previously amended by (i) Loan
Modification 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, recording
deferred, each of the foregoing being delivered by Pipeline, as Mortgagor and
Debtor, to A. Stephen Kennedy, as Trustee, and the Lender, as Beneficiary,
Mortgagee and Secured Party, covering the Waxahachie Distribution System.

 

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

 

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

 

11

 

representation,
warranty or covenant. The words “hereof,” “herein,” and “hereunder” and words
of similar import referring to the Agreement refer to the Agreement as a whole
and not to any particular provision of the Agreement. The word “include” and
its variants mean “include, but not limited to” and illustrative examples shall
not be construed to limit (expressly or by implication) the matters they
illustrate. The captions of articles, sections and clauses are provided for
convenience only, and not as an aid to the construction of any of the Loan
Documents.  Unless otherwise specified,
all Article and Section references pertain to the Agreement.  Terms used herein that are defined in the
UCC, unless otherwise defined herein, shall have the meanings specified in the
UCC. The Borrowers, Guarantor and the Bank have participated jointly in the
drafting of the Loan Documents. If an ambiguity, question of intent or question
of interpretation arises, the Loan Documents shall be construed as if drafted
jointly by the parties, and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of all or any
part of the Loan Documents.

 

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

 

SECTION 2.  THE TERM LOAN.

 

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

 

(a)
Each advance shall be made in accordance with Subparagraphs (b) and (c) below
following Lender’s receipt of Borrowers’ advance request notice, and all
materials specified therein, which shall (i) be irrevocable and binding on
Borrowers, (ii) designate whether the Borrowers will use the advance to pay
current construction and mobilization costs attributable to the completion of
the Madisonville Gathering System represented by invoices attached to the
notice of advance and (iii) state the amount of each requested advance, and the
date the Lender is requested to make each advance.

 

(b) For each advance
request, the Borrowers will: (1) deliver, or cause all vendors that provide or
supply labor, materials or services to or for the account of the Borrowers in
connection with the construction and mobilization of the Madisonville Gathering
System to deliver, copies of all bills, invoices and statements to Borrowers
and Lender that will be paid from the applicable advance; (2) promptly review
each bill, invoice and statement upon receipt to confirm that (a) the vendor
actually provided or supplied the labor, materials and services described
therein, (b) the labor, materials and services conform, in all respects, to the
applicable plans, specifications and requirements for the Madisonville
Gathering System, and (c) the vendor 

 

12

 

is owed the full amount
set forth in the applicable bill, invoice and statement; and (3) deliver an
advance request notice, substantially in the form attached as Exhibit B
hereto, to the Lender requesting the Lender to (a) make an advance pursuant to Section
2.1 of this Agreement and (b) pay directly to the applicable vendor all (or
a specific part) of the applicable invoice on or before the applicable due
date.

 

(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 the
Borrowers wish to receive an advance for Madisonville Gathering System for
completion and mobilization costs Each advance shall be subject to the
satisfaction of the applicable conditions precedent in Section 4.

 

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

 

2.2           Payments.  The
Borrowers shall repay the principal and accrued but unpaid interest of the Loan
advanced under the Agreement in thirty (30) monthly installments of Fifty Four
Thousand Eight Hundred Eighteen and 54/100ths Dollars ($54,818.54), beginning
on July 31, 2003 and continuing on each Payment Date thereafter until the
Maturity Date, with all remaining principal, and accrued but unpaid interest,
being due and payable in full on the Maturity Date; provided that the Lender
and the Borrowers shall adjust the amount of each installment of principal and
interest to provide for level amortization over a thirty month period if the
Lender advances less than the full principal amount of the Loan on or  before July 31, 2003. Each payment on the
Obligations must be paid at Lender’s office, 5 Post Oak Park Place Office
Building, 4400 Post Oak Parkway, Houston, Texas 77027, in funds which are or
will be available for immediate use by Lender by 2:00 p.m. (Houston time) on
the day due.  If any action is required
or any payment is to be made on a day which is not a Business Day, then that
action or payment may be delayed until the next succeeding Business Day.  Any extension of time shall be included in
the computation of payments of interest and fees.  All payments by the Borrowers of principal of and interest on the
Loan, and of all fees and other amounts payable under any Loan Document, shall
be payable without deduction for or on account of any present or future Taxes
or other charges (excluding any franchise taxes or income taxes imposed on or
measured by the overall net income, assets, net worth or shareholders’ capital
of Lender) levied or imposed by the United States of America (or by any
political subdivision or taxing authority thereof or therein) through
withholding or deduction with respect to any such payments.  If any Taxes or other charges are so levied
or imposed, the Borrowers will make additional payments in such amounts so that
every net payment of principal of and interest on the Obligations, and of all
other amounts payable by it under any Loan Document, after withholding or
deduction for or on account of any such present or future Taxes or other
charges, 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 the
Agreement shall bear interest prior to the earlier of the Maturity Date, or
Default, at a 

 

13

 

fixed
rate of seven and one-quarter per cent (7.25%) per annum. The Borrowers shall
pay accrued but unpaid interest on the principal advanced hereunder as follows:
(a) the Borrowers shall pay interest only as it accrues on the Note beginning
on 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 as
it accrues in accordance with Section 2.2 beginning on July 31, 2003 and
continuing until the Maturity Date.

 

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

 

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

 

2.6           Voluntary Prepayments.  Borrowers may, upon one Business Day’s
notice, prepay the outstanding principal of the Loan prior to the Maturity
Date, in whole or in part; provided, however if the entire
principal balance of the Loan is repaid on or before (a) December 31, 2003, the
Borrowers shall pay a prepayment fee equal to the lesser of (i) one and
one-half per cent (1.5%) of the aggregate principal of the Loan advanced
hereunder through June 30, 2003 or (ii) Twenty Two Thousand Five Hundred
Dollars ($22,500.00) or (b) December 31, 2004, the Borrowers shall pay a
prepayment fee equal to the lesser of (i) one per cent (1%) of the aggregate  principal of the Loan advanced
hereunder  through June 30, 2003, or
(ii) Fifteen Thousand Dollars ($15,000.00). Borrowers shall pay the fee within
ten (10) Business Days following the date that a prepayment fee becomes due.
The Borrowers and Guarantor stipulate that any prepayment fee which may accrue
pursuant to Clause 2.6 (a) is compensation to Lender for services
performed separate and apart from the lending of money or the provision of
credit pursuant to the Loan Documents. The Lender will waive any prepayment fee
that may otherwise become due under the Agreement if the Loan is repaid
pursuant to a new credit facility hereafter established by Lender for the
benefit of the Borrowers; provided that nothing contained in any of the Loan
Documents is intended or shall be construed as a commitment or obligation for
Lender to establish a new credit facility for the Borrowers.   A notice of prepayment shall constitute a
binding obligation of Borrowers to make a prepayment on the date stated
therein.  Prepayments of principal of
the Loan shall be applied to principal installments in inverse order of
maturity, and may not be re-borrowed.

 

2.7           Order of Application.

 

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

 

(b)           At any time during which a Default
has occurred and is continuing, any payment or prepayment (including proceeds
from the exercise of any Rights under the Loan Documents) shall be applied in
the following order: (i) to expenses for which Lender is entitled to
reimbursement in accordance with Section 6.6 but for which Lender has
not then been reimbursed, (ii) to accrued interest on the Obligations, (iii) to
the principal of 

 

14

 

the
Loan, or (iv) any combination of the foregoing in each case in the manner
Lender deems appropriate.

 

SECTION 3.  SECURITY.

 

3.1           Security. 
The full and complete payment and performance of the Obligations shall
be secured by first priority, perfected Lender Liens in, and assignment of, all
of the issued and outstanding Capital Stock of each of the Borrowers, the
Waxahachie Contracts, the Madisonville Contracts, the Pipeline Systems and all
Property 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 and
without affecting Borrowers’ obligations under the Loan Documents or the
Supplemental Loan Documents, from time to time (a) take from any Person and
hold collateral (other than the Collateral) for the payment and performance of
all or any part of the Obligations and exchange, enforce or release such
collateral or any part thereof, and (b) accept and hold any endorsement or
guaranty of payment of all or any part of the Obligations and release any
endorser or guarantor, or any Person who has given any other security for the
payment of all or any part of the Obligations, or any other Person in any way
obligated to pay all or any part of the Obligations.

 

3.3           Security Documents.  Borrowers and Guarantor shall promptly
execute and cause to be executed such further documents, schedules and
instruments, including without limitation, security agreements, UCC financing
statements, as Lender, in its sole discretion, reasonably deems necessary or
proper to create, evidence, maintain, continue and perfect its Liens on the
Collateral.

 

3.4           Setoff.  If
a Default shall have occurred and be continuing, Lender is hereby authorized at
any time and from time to time, without notice to Borrowers or Guarantor (any
such notice being hereby expressly waived by Borrowers and Guarantor), to set
off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by Lender to or for the credit or the account of Borrowers or Guarantor against
any and all of the obligations of Borrowers or Guarantor now or hereafter
existing under the Agreement or any other Loan Document, irrespective of
whether or not Lender shall have made any demand under the Agreement or such
other Loan Document and although such obligations may be unmatured.  Lender agrees promptly to notify Borrowers
and Guarantor after any such setoff and application, provided that the failure
to give such notice shall not affect the validity of such setoff and
application.  The Rights of Lender
hereunder are in addition to other Rights (including, without limitation, other
rights of setoff) which Lender may have.

 

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

 

15

 

making
payment thereof.  In no case shall
Lender’s failure to collect any of the Proceeds constitute an estoppel, waiver,
remission or release of any of its Rights under the Security Documents, nor
shall any release of any Proceeds by Lender to Borrowers constitute an
estoppel, waiver, remission, or release of any other Proceeds or of any Rights
of Lender to collect other Proceeds thereafter.

 

SECTION 4.  CONDITIONS PRECEDENT.

 

4.1           Initial Advance.  The obligation of Lender to make the initial advance under the
Agreement is subject to the condition precedent that Lender shall have received
and approved on or before the date of the Advance all of the following, each
dated (unless otherwise indicated) the date hereof, in form and substance
satisfactory to Lender:

 

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

 

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

 

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

 

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

 

(e)           Governmental Certificates.  Certificates of the appropriate government
officials of the States of Delaware and Texas, as applicable to their
respective incorporation and qualification to conduct business of Borrowers and
Guarantor, 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 Borrowers
and the Guarantor, as applicable, and filed of record in the appropriate public
records as may be required to perfect a first priority Lien in the Collateral
in Lender;

 

16

 

(h)           Guaranty. The Guaranty
executed by the Guarantor;

 

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

 

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

 

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

 

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

 

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

 

(n)           Material Contracts.  A true and correct copy of every contract
pertaining to the Collateral which either (i) affects the marketability, use or
value, of the Collateral in any material respect or (ii) creates or evidences a
material obligation or material liability on the part of Borrowers which has
not been taken into account in the most recent Financial Statements provided to
Lender (collectively, “Material Contracts”);

 

(o)           Lien Searches.  The results of Uniform Commercial Code and
other Lien searches showing all financing statements and other Lien instruments
filed against the Borrowers or the Guarantor or any of the Financial Statements
in such public offices as may be identified by Lender, such searches to be as
of 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 Pipeline
with respect to the status of title to the Pipeline Systems that are requested
by Lender.

 

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

 

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

 

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

 

17

 

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

 

(d)           AFEs and invoices. The Lender
shall 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 and
mobilization of the Madisonville Gathering System, which will be paid by
Borrowers from proceeds of any advance; and

 

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

 

Each
notice of advance by the Borrowers hereunder shall constitute a representation
and warranty by the Borrowers and Guarantors that (i) the conditions precedent
set forth in Sections 4.2(a), (b) and (c) have been
satisfied (both as of the date of such notice and as of the date of such
borrowing, unless the Borrowers or Guarantor otherwise notify Lender prior to
the date of such borrowing) and (ii) the proceeds of the advance shall only be
used 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 material
to the transactions contemplated herein, and time is of the essence in respect
of each thereof.

 

4.4           Waiver of Conditions.  Lender may, at its election, make any
advance without all conditions being satisfied, but this shall not be deemed to
be an estoppel, waiver, remission or release of the requirement that any
conditions 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 organized
and validly existing under the Laws of the State of Texas. Guarantor is a
corporation duly organized and validly existing under the Laws of the State of
Delaware, and qualified to conduct business in the State of Texas. Each
possesses all requisite authority, power, licenses, permits and franchises to
conduct its business as presently conducted, to own its Properties and assets,
and to execute, deliver and comply with the terms of each Loan Document to
which it is a party, except where the failure to so possess could not, individually
or collectively, have a Material Adverse Effect.

 

5.2           Binding Obligations.  The negotiation, preparation, execution and
delivery of the Agreement and the other Loan Documents have been duly
authorized and approved by all necessary corporate action and constitute the
legal, valid and binding obligations of the Borrowers and the Guarantor,
enforceable against Borrowers and the Guarantor in accordance with their
respective terms, except as the enforceability thereof may be limited by
applicable Debtor Relief Laws, which may delay the enforcement of certain
remedies, or by general principles of equity (regardless whether considered in
a proceeding in equity or at Law).

 

18

 

5.3           Compliance with Laws and Documents.  Borrowers and Guarantor are not, nor will
the execution, delivery and the performance of and compliance with the terms of
the Agreement and the other Loan Documents by the Borrowers or Guarantor cause
any of them to be, in violation of (i) any Laws, other than such violations
which 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 the
terms of the Agreement and the other Loan Documents by Borrowers and Guarantor
are consistent with, and will not conflict with, result in any breach of,
constitute a default  under, or result
in the creation or imposition of (or the obligation to create or impose) any
Lien (except pursuant hereto) upon any of the property, assets or revenues of
Borrowers or Guarantor pursuant to the terms of any agreement, contract, deed
of trust, indebtedness, instrument, mortgage, or Law to which Borrowers or
Guarantor are a party or by which Borrowers or Guarantor, or any of their
property, assets or revenue are bound or to which they are subject, excluding
any conflicts, breaches or defaults which individually or collectively could
not 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 Adverse
Effect, nor are there any outstanding or unpaid judgments against Borrowers
or  Guarantor which could have a
Material 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 validation
of, or filing, recording or registration with (except as heretofore have been
obtained or made), or exemption by, any Person or Tribunal is required to
authorize, or is required in connection with, the execution, delivery,
performance, legality, validity, binding effect or enforceability of the
Agreement or any other Loan Document.

 

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

 

5.7           Solvency. Each of Borrowers and Guarantor have
sufficient capital to carry on all business and transactions in which they are
now respectively engaged or are about to engage, are now solvent and will
continue to be solvent after the execution of the Agreement and each other Loan
Document and will be able to pay their respective Debts as they mature.  The capital of each of the Borrowers and the
Guarantor is not unreasonably small to carry out their respective businesses as
now conducted and as proposed to be conducted, considering their respective
capital needs, projected capital requirements and capital availability
thereof.  Borrowers and Guarantor do not
intend to incur Debts beyond their respective ability to pay such Debts as they
mature (taking into account the timing and amounts of cash to be received by it
and the amounts to be payable on or in respect of its Debts).

 

5.8           Debt.  Borrowers
and Guarantor are not directly or indirectly obligated (including, without
limitation, as a guarantor) on any borrowed money other than Debt permitted
under Section 6.24 hereof.

 

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

 

19

 

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 of
Lender, as such quoted terms are defined in section 215.2 of
Regulation 0 of the Board of Governors of the Federal Reserve System, as
amended.

 

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

 

5.12         Taxes.  All
Tax returns and reports of the Borrowers and Guarantor required to be filed
have been filed (or extensions granted), and all Taxes imposed upon Borrowers
or Guarantor which are due and payable have been paid, other than Taxes being
contested in good faith for which the criteria for Permitted Liens have been
satisfied.

 

5.13         Government Regulation.  Borrowers and Guarantor are not (nor is any
transaction contemplated hereunder) subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, the Investment
Company Act of 1940, the Interstate Commerce Act (as any of the preceding acts have
been amended), any regulations promulgated by the Office of Foreign Assets
Control as codified in Chapter V of 31 C.F.R. Pipeline is a “utility” as
defined in Chapter 35 of the Texas Business and Commerce Code, as amended;
however Processing and Guarantor  are
not “utilities”.

 

5.14         Employee Benefit Plans. (a) No
Pension Plan of Borrowers or Guarantor has incurred an accumulated funding
deficiency in an amount sufficient to be reasonably likely to have a Material
Adverse Effect, (b) Borrowers and Guarantor have not incurred any liability to
the PBGC in connection with any such Pension Plan which would reasonably be
expected to have a Material Adverse Effect, (c) Borrowers and Guarantor have
not withdrawn in whole or in part from participation in a Multiemployer Plan,
and (d) no Prohibited Transaction or Reportable Event has occurred with respect
to a Pension Plan which would be reasonably likely to have a Material Adverse
Effect.

 

5.15         Purpose of the Term Loan Advances.

 

(a)           The proceeds of the Loan will only be
used by Borrowers: (a)  to construct and
mobilize the Madisonville Gathering System; or (b) for working capital purposes
approved by Lender pursuant to Section 2.1.

 

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

 

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

 

20

 

5.16         Properties;
Liens.

 

(a)           Borrowers have good and marketable
title to all of their respective Properties including, without limitation, the
Collateral (except for Properties that have been disposed of in the ordinary
course of business, or as permitted under the Agreement, without having a
Material Adverse Effect on either Borrowers’ Tangible Net Worth, or ability to
repay the Obligations as provided herein, respectively).

 

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

 

5.17         Environmental Laws: Hazardous Materials.

 

(a)           Ownership of Borrowers’ Property does
not violate any applicable Law of any Governmental Authority or Tribunal or any
restrictive covenant (recorded or otherwise), including without limitation all
applicable flood disaster laws, water disposal permits, and Environmental Laws
where 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 been
filed and served on Borrowers,  no
penalty has been assessed against Borrowers and, to the knowledge of Borrowers,
no investigation or review is pending or threatened by any Tribunal or other
Person with respect to (i) any alleged violation of any Environmental Law in
connection with the Borrowers’ Property, or (ii) any alleged failure to have
any permit, certificate, license, approval, registration or authorization
required in connection with the Borrowers’ Property, or (iii) any generation,
treatment, storage, recycling, transportation or disposal or Release (other
than in compliance with Environmental Laws or permits issued thereunder) of any
Hazardous Substance in connection with the Borrowers’ Property where, in each
case, any such event has a Material Adverse Effect.

 

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

 

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

 

21

 

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

 

(f)            There are no Liens on any of the
Borrowers’ Property arising under any Environmental Laws and, to their
knowledge, no actions by any Tribunal have been taken or are in process which
could subject any of the Borrowers’ Property to such Liens, or which would
require any of them to place any notice or restriction relating to the presence
of any Hazardous Substance in any deed to any of the Borrowers’ Property where
such Liens, notices or restrictions have a Material Adverse Effect.

 

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

 

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

 

                5.18         Insurance.  Borrowers and Guarantor maintain insurance
which complies with Section 6.13.

 

5.19         Operation of Business.  Borrowers and Guarantor possess all
licenses, permits, franchises, patents, copyrights, trademarks, and trade
names, or Rights thereto, reasonably necessary to conduct their businesses
substantially as now conducted and as presently proposed to be conducted except
where 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 in
violation of any valid Rights of others which violation may cause a Material
Adverse Effect with respect to any of the foregoing.

 

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

 

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

 

22

 

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

 

SECTION 6.  COVENANTS.

 

So
long as (i) Lender is committed to make advances under the Agreement and (ii)
any portion of the Obligations are outstanding, unless Borrowers receive a
prior 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 represented
herein.

 

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

 

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

 

(a)           As soon as available, but no later
than 150 days after the last day of each fiscal year of Guarantor, Financial
Statements showing the consolidated financial condition and results of
operations 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 such
Financial Statements were prepared in accordance with GAAP and present fairly
the financial condition and results of operations of Guarantor and its
Subsidiaries, and (ii) a Financial Report Certificate with respect to such
Financial Statements.

 

(b)           As soon as available, but no later
than 75 days after the last day of each fiscal quarter of Borrowers and
Guarantor (i) Financial Statements showing the financial condition and results
of operations of Borrowers and Guarantor as of, and for the period from the
beginning of the current fiscal year to, such last day, and a Financial Report
Certificate with respect to such Financial Statements, and (ii) a report from
each of the Borrowers summarizing the results of their respective Pipeline
Systems, in form and substance acceptable to the Lender.

 

(c)           Concurrently with the delivery of
each of the Financial Statements referred to in subparagraphs (a) and (b) of
this Section 6.3, a certificate of the chief financial officer of
Borrowers and Guarantor (i) stating that to the best of such officer’s
knowledge, no Default has occurred and is continuing, or if a Default has
occurred 

 

23

 

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

 

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

 

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

 

(f)            A summary, or when requested by
Lender, copies, of all material proceedings, hearings or other actions
conducted before any Tribunal in respect of the Collateral and the operations
of Borrowers or Guarantor in respect thereto which relate to any facts or
circumstances that individually or in the aggregate may have a Material Adverse
Effect on any of the Borrowers or Guarantor.

 

(g)           As soon as possible and in any event
within five (5) Business Days after Borrowers or Guarantor know or should know
that any Reportable Event or Prohibited Transaction has occurred with respect
to any Plan or that the PBGC, Borrowers or Guarantor have instituted or will
institute proceedings under Title IV of ERISA to terminate any Plan, in
each case, which would reasonably be expected to have a Material Adverse
Effect, a certificate of the chief financial officer of Borrowers or Guarantor
setting forth the details as to such Reportable Event or Prohibited Transaction
or Plan termination and the action that Borrowers or Guarantor propose to take
with respect thereto.

 

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

 

(i)            Promptly upon request therefor by
Lender, such information (not otherwise required to be furnished under the Loan
Documents) respecting the business affairs, assets, and liabilities of
Borrowers or Guarantor and such opinions, certifications, and documents, in
addition to those mentioned herein, as Lender may reasonably request.

 

6.4           Inspection. Borrowers and Guarantor shall
allow Lender to inspect any of their respective assets and to discuss any of
their affairs, conditions and finances with their directors, officers or
employees (including Persons working for or on behalf of either of the
Borrowers or Guarantor on a contract basis) from time to time during reasonable
business hours, and Borrowers and Guarantor shall permit Lender and its
authorized 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 to
Lender copies of any reports of examination of Borrowers and Guarantor which
have been made by such authorities; and (b) Lender, following a Default or
Potential Default, to contact and discuss any of the Borrowers’ or 

 

24

 

Guarantor’s affairs,
conditions or finances. The Rights granted to Lender in this Section are in
addition 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 Taxes
applicable to each of them or their Property, except Taxes for which the
criteria for Permitted Liens have been satisfied, and Borrowers and Guarantor
will not, directly or indirectly, use any portion of the Loan proceeds of any
advance to pay the wages of employees unless a timely payment to or deposit
with the United States of America of all amounts of Tax required to be deducted
and withheld with respect to such wages is also made.

 

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

 

6.7           Maintenance of Existence, Assets and
Business.  Borrowers and Guarantor
shall at all times: (a) maintain their existence and authority to transact
business and good standing in all jurisdictions where the failure to so
maintain might have a Material Adverse Effect; (b) maintain all licenses,
permits and franchises necessary for their business where the failure to so maintain
might have a Material Adverse Effect; (c) keep all of their assets which are
useful in and necessary to its business in good working order and condition and
make all necessary repairs thereto and replacements thereof so that the value
and operating efficiency thereof shall at all times be maintained and
preserved; and (d) operate their Property in a prudent manner consistent with
normal industry practices.

 

6.8           Maintenance of Priority of Lender Liens.  Borrowers and Guarantor shall perform such
acts and duly authorize, execute, acknowledge, deliver, file and record such
additional assignments, security agreements, deeds of trust, mortgages,
financing statements and other agreements, documents, instruments and
certificates as Lender may reasonably deem necessary or appropriate in order to
perfect and maintain the Liens under the Security Documents in favor of Lender
and 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 any
Lien upon any of their presently unencumbered assets or properties, other than
Permitted Liens.

 

25

 

 

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 of
inventory (including oil and gas processed, sold and transported in connection
with their Pipeline Systems) in the ordinary course of business; or

 

(ii)           Dispositions of
Property 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 or
transportation of oil and gas therefrom, other than:

 

(i)            division orders and
transfer orders or other agreements entered into in the ordinary course of
business 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 or
contracts entered into in the ordinary course of business which do not,
individually or in the aggregate, materially affect their Pipeline Systems.

 

The
Borrowers may retain the proceeds from any Disposition so long as Borrowers or
Guarantor are not (or immediately after the Disposition will not be) in Default
hereunder.

 

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

 

6.11         Compliance with Laws and Documents.  Borrowers and Guarantor will not, directly
or indirectly, violate the provisions of any Laws or their organizational
documents and will not amend, modify or terminate any of their organizational
documents where such violation, amendment, modification or termination,
individually or in the aggregate, could cause a Material Adverse Effect.  Borrowers and Guarantor will comply in all
material respects with all material agreements, contracts and instruments
binding 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 fiscal
years or methods of accounting (other than immaterial changes in methods).

 

6.13         Insurance; Payment of Premiums.

 

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

 

(b)           All such policies of insurance shall
be in a form, with such deductibles, and with insurers recognized as
financially sound and reputable by prudent business Persons in the same
businesses as Borrowers and acceptable to Lender.  Upon 

 

26

 

request
of Lender, prior to the initial Loan advance, Borrowers shall deliver to Lender
a certificate of insurance for each policy of insurance required by this Section
6.13 and evidence of payment of all premiums therefor.  Such policies of insurance and the
certificates evidencing the same shall contain an endorsement, in form and
substance acceptable to Lender, showing Lender as an additional loss
payee.  Such endorsement or an
independent instrument furnished to Lender shall provide that the insurance
companies will give Lender at least 30 days prior written notice before any such
insurance shall be altered or canceled and that no act or default of Borrowers
or any other Person shall affect the Rights of Lender to recover under such
insurance in case of loss or damage.  If
no Default has occurred and is continuing, Borrowers may use the insurance
proceeds to repair or replace damaged or destroyed Property covered by the
applicable insurance policy.

 

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

 

6.14         Environmental Laws.  Borrowers shall conduct their business so as
to comply with all applicable Environmental Laws and shall promptly take
corrective action to remedy any non-compliance with any Environmental Law,
except where failure to so comply or take such action could not reasonably be
expected 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 compliance
with Environmental Laws, which system shall include annual reviews of such
compliance by employees or agents who are familiar with the requirements of the
Environmental Laws.

 

6.15         GENERAL INDEMNIFICATION.  BORROWERS SHALL INDEMNIFY, PROTECT AND HOLD
LENDER AND ITS PARENTS, SUBSIDIARIES, DIRECTORS, OFFICERS, EMPLOYEES, REPRESENTATIVES,
AGENTS, SUCCESSORS, ASSIGNS AND ATTORNEYS (COLLECTIVELY, THE “INDEMNIFIED
PARTIES”) 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’ FEES
AND LEGAL EXPENSES WHETHER OR NOT SUIT IS BROUGHT) AND DISBURSEMENTS OF ANY
KIND OR NATURE WHATSOEVER WHICH MAY AT ANY TIME BE IMPOSED ON, INCURRED BY, OR
ASSERTED AGAINST THE INDEMNIFIED PARTIES, IN ANY WAY RELATING TO OR ARISING OUT
OF THE LOAN DOCUMENTS THAT RELATE TO BORROWERS 
OR GUARANTOR OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN THAT RELATE
TO BORROWERS OR GUARANTOR (COLLECTIVELY, THE “INDEMNIFIED LIABILITIES”);
PROVIDED, HOWEVER, THAT ALTHOUGH EACH INDEMNIFIED PARTY
SHALL HAVE THE RIGHT TO BE INDEMNIFIED FOR ITS OWN ORDINARY NEGLIGENCE, NO
INDEMNIFIED PARTY SHALL HAVE THE RIGHT TO BE INDEMNIFIED HEREUNDER FOR ITS OWN
FRAUD, GROSS 

 

27

 

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

 

6.16         ENVIRONMENTAL INDEMNIFICATION.  BORROWERS SHALL INDEMNIFY, PROTECT AND HOLD
EACH 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 REASONABLE
ATTORNEYS’ FEES AND LEGAL EXPENSES WHETHER OR NOT SUIT IS BROUGHT) AND
DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY AT ANY TIME BE IMPOSED
ON, INCURRED BY, OR ASSERTED AGAINST SUCH INDEMNIFIED PARTIES, WITH RESPECT TO
OR AS A DIRECT OR INDIRECT RESULT OF THE VIOLATION BY BORROWERS OR GUARANTOR OF
ANY ENVIRONMENTAL LAW; OR WITH RESPECT TO OR AS A DIRECT OR INDIRECT RESULT OF
BORROWERS OR GUARANTORS’ USE, GENERATION, MANUFACTURE, PRODUCTION, STORAGE,
RELEASE, THREATENED RELEASE, DISCHARGE, DISPOSAL OR PRESENCE IN CONNECTION WITH
THE PROPERTIES OF A HAZARDOUS SUBSTANCE INCLUDING, WITHOUT LIMITATION, (A) ALL
DAMAGES OF ANY SUCH USE, GENERATION, MANUFACTURE, PRODUCTION, STORAGE, RELEASE,
THREATENED RELEASE, DISCHARGE, DISPOSAL OR PRESENCE, OR (B) THE COSTS OF ANY
REASONABLY REQUIRED OR NECESSARY ENVIRONMENTAL INVESTIGATION, MONITORING,
REPAIR, CLEANUP OR DETOXIFICATION AND THE PREPARATION AND IMPLEMENTATION OF ANY
CLOSURE, REMEDIAL OR OTHER PLANS.  THE
PROVISIONS OF AND UNDERTAKINGS AND INDEMNIFICATION SET FORTH IN THIS SECTION 6.16
SHALL SURVIVE (X) THE SATISFACTION AND PAYMENT OF THE OBLIGATIONS AND
TERMINATION OF THE AGREEMENT, AND (Y) THE RELEASE OF ANY LENDER LIENS OR THE
EXTINGUISHMENT OF SUCH LIENS BY FORECLOSURE OR ACTION IN LIEU THEREOF.

 

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

 

6.18         Notice of Litigation.  Promptly after the commencement thereof,
Borrowers  and Guarantor shall provide
notice to Lender of all actions, suits, and proceedings before any Governmental
Authority or Tribunal affecting Borrowers or Guarantor which, if determined
adversely to any of Borrowers or Guarantor, could have a Material Adverse
Effect.

 

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

 

28

 

or
contribute capital to, invest in or purchase or commit to purchase any Capital
Stock or other securities or evidences of indebtedness of, or interests in, any
other Person, other  than (a) investments in obligations of the
United States of America and agencies thereof and obligations guaranteed by the
United States of America maturing within one year from the date of acquisition,
(b) certificates of deposit issued by Lender or a commercial institution
organized under the Laws of the United States of America or any state thereof
and 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 goods
furnished or services rendered in the ordinary course of business, and are
payable in accordance with customary trade terms, (d) stock, obligations, or
securities received in the settlement of debts (created in the ordinary course
of business and in compliance with the Agreement) owing to Borrowers or
Guarantor, and (e) contracts to purchase and sell oil and gas in connection
with the Pipeline Systems, pipeline interconnect and operating agreements,  processing agreements, service contracts,
transportation agreements or other similar or customary arrangements, in each
case made or entered into with any other Person in the ordinary course of their
oil and gas pipeline business as a means of gathering, marketing, processing or
transporting oil and gas, provided  that none of the foregoing
shall 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 exchange
of property or the rendering of service) with any of their Affiliates, other
than transactions in the ordinary course of Borrowers’ business and upon
fair and reasonable terms no less favorable than Borrowers could obtain or
could become entitled to in an arm’s-length transaction with a Person which was
not an Affiliate.

 

6.21         Material Contracts.  Borrowers will not enter into or be a party
to any agreement for the purchase of materials, supplies, or other tangible
personal property if such agreement requires Borrowers to pay for such items
regardless of their actual or tendered delivery.  Borrowers will not materially amend, alter the terms and
conditions of or cancel any of their Material Contracts, except for amendments
and alterations which (a) are made by a Borrower on an arms-length basis in the
ordinary course of the Borrowers’ respective businesses, (b) for a price and
terms that are no less favorable to the Borrower than the price and terms
incorporated into the Material Contract as presently existing  and (c) individually or in the aggregate do
not 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 other
than the business in which they are presently engaged.

 

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

 

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

 

29

 

	
   

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

 

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

 

6.27         Default on Debt.  Borrowers and Guarantor will not (a) default in the due and
punctual payment of the principal of or the interest on any Debt individually
or in the aggregate exceeding $100,000.00 or (b) become directly or indirectly
obligated (including, without limitation, as a guarantor) on any borrowed money
other than Debt permitted under Section 6.24 hereof. Notwithstanding the
foregoing, Borrowers and Guarantor may dispute, in good faith, their respective
obligations to pay or perform any Debt due (or claimed to be due) by Borrowers
or Guarantor to any Third Person if the Borrowers or Guarantor, as applicable
(a) establish and maintain adequate reserves in accordance with GAAP with
respect thereto if  it should be
determined 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 required
under the relevant documents (or in the absence of required dispute resolution
procedures, as may be commercially reasonable) for the orderly resolution of
the dispute.

 

6.28         Distributions. Borrowers shall not, directly
or indirectly, declare, make or pay any dividend or distribution with respect
to, or retire, redeem, purchase, or otherwise acquire for value, any equity
securities or other forms of ownership interests issued by Borrowers.

 

30

 

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

 

6.30         Tangible Net Worth. 
Borrowers will at all times maintain positive Tangible Net Worth of not
less than eighty per cent (80%) of their respective Tangible Net Worth on the
Closing Date calculated at the end of each of Borrowers’ fiscal quarters
thereafter.

 

6.31         Minimum Net Operating Margin. The Borrowers shall
maintain a combined Minimum Net Operating Margin (trailing two consecutive
calendar 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.

 

The
term “Default” means the occurrence of any one or more of the following
events (including the passage of time, if any, specified therefor) (provided
that if any such event occurs and Lender subsequently agrees in writing
that it will not exercise any Rights hereunder as a result thereof, the
occurrence of such event shall no longer be deemed a “Default” hereunder
insofar as the state of facts giving rise to such event is concerned, but the
same shall not operate as or be deemed to be a waiver with respect to any
identical or similar state of facts in existence or occurring theretofore or
thereafter):

 

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

 

7.2           Certain Covenants.  The failure or refusal of Borrowers or
Guarantor to punctually and properly perform, observe and comply with any
covenant, agreement or condition contained in: (a) Section 6.1, 6.3,
6.7, 6.9, 6.13(a), and 6.24 through 6.28 of
the Agreement (provided  that, 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) the
parallel provisions of the Supplemental Loan Documents.

 

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

 

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

 

31

 

debts
generally as they become due, (c) voluntarily seek the benefits of any Debtor
Relief 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 Tribunal
pursuant to any Debtor Relief Law or (b) have a petition filed against it
seeking the benefit or benefits provided for by any Debtor Relief Law, and such
order, judgment, decree or petition is not discharged within 60 days after the
entry or filing thereof.

 

7.6           Attachment. 
The failure to have discharged within a period of 30 days after the
commencement thereof any attachment, sequestration or similar proceeding
against 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 in
excess of $50,000 against them or their assets at least ten days prior to the
date 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 due
and punctual payment of the principal of or the interest on any indebtedness
other than the Obligations and such failure results in the acceleration of such
indebtedness by the holder thereof.

 

7.9           Divestment Proceedings.  A petition or complaint is filed before or
by any Tribunal, including, but not limited to, the Federal Trade Commission or
the United States Justice Department, seeking to cause Borrowers or Guarantor
to 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 days
after its filing.

 

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

 

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

 

7.12         Validity and Enforceability of Loan
Documents. Any of the Borrowers or Guarantor contest the
validity or enforceability of any Loan Document or deny in writing that they
have any liability or obligations under any Loan Document to which they are a
party; or any Loan Document shall be declared to be null and void, cease to be
in full force and effect or cease establish and maintain any Lien granted
pursuant thereto as a perfected, first priority Lien (except for Permitted
Liens and releases of Liens made by Lender pursuant to any of the Loan
Documents) 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 or
representatives shall engage in any conduct which it knew constituted, or
should have known  constituted, a
Prohibited Transaction which could reasonably be expected to 

 

32

 

result
in a material liability to Borrowers, Guarantor or any ERISA Affiliate, (b) any
material “accumulated funding deficiency” (as defined in Section 302 of
ERISA or Section 412 of the Code), whether or not waived, shall exist with
respect to any PBGC Plan or Multiple Employer Plan, if such accumulated funding
deficiency would give rise to a material liability of Borrowers, Guarantor or
any ERISA Affiliate, (c) Borrowers, Guarantor or any ERISA Affiliate shall
apply for or be granted a funding waiver under Section 302 of ERISA or Section
412 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 Multiple
Employer Plan, which reportable event is likely to result in the termination of
such PBGC Plan or Multiple Employer Plan for purposes of Title IV of ERISA and
to give rise to a material liability of Borrowers, Guarantor or any ERISA
Affiliate, (e) proceedings shall commence to have a trustee appointed, or a
trustee shall be appointed, to terminate or administer a PBGC Plan or Multiple
Employer Plan which proceeding is likely to result in the termination of such
PBGC Plan or Multiple Employer Plan and to give rise to a material liability of
Borrowers, Guarantor or any ERISA Affiliate with respect to such termination,
(f) a notice of intent to terminate a PBGC Plan or Multiple Employer Plan under
Section 4041(c) is filed with the PBGC if such termination would give rise to a
material liability of Borrowers, Guarantor or any ERISA Affiliate, (g) any
Multiemployer Plan is in reorganization or is insolvent and the circumstances
are such that there could reasonably be a material liability incurred by or
imposed upon Borrowers, Guarantor or any ERISA Affiliate, (h) there is a
complete or partial withdrawal from a Multiemployer Plan under circumstances that
could reasonably subject Borrowers, Guarantor or any ERISA Affiliate to
material liability, (i) any Lien arising under Section 4068 of ERISA or Section
412(n) of the Code shall attach to the assets or Property of Borrowers,
Guarantor or any ERISA Affiliate which could reasonably be expected to result
in a Material Adverse Effect, (j) Borrowers, Guarantor or any ERISA
Affiliate shall permit, through action or failure to act, any Pension Plan to
fail to meet the requirements of Section 401(a) or 403(a) of the Code and
such failure gives rise to a material liability of Borrowers, Guarantor or any
ERISA Affiliate, or (k) any event or condition described in (a) through (j))
above (determined without regard to whether the event or condition taken alone
would or could result in a material liability) shall occur or exist with
respect to a PBGC Plan, Multiple Employer Plan or Multiemployer Plan which
individually or in combination with one or more of any events described in (a)
through (j) above (determined without regard to whether the event or
condition taken alone would or could result in a material liability), if any,
would likely subject Borrowers, Guarantor or any ERISA Affiliate to any
material 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 or
causes 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 or
circumstance that is, or with the passage of time is reasonably expected to
cause a Material Adverse Effect in the assets, liabilities, financial
condition, contractual obligations or business affairs of Borrowers or
Guarantor.

 

SECTION 8.  RIGHTS AND
REMEDIES.

 

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) declare
the entire unpaid balance of the Obligations, or any part thereof, immediately
due and payable, 

 

33

 

whereupon
it shall be due and payable (and notice of such declaration shall promptly be
given thereafter by it to Borrowers); (ii) terminate its commitment to lend
hereunder, (iii) reduce any claim to judgment; (iv) exercise the Rights of
offset or banker’s Lien against the interest of Borrowers or Guarantor in and
to every account and other Property of Borrowers or Guarantor which are in its
possession to the extent of the full amount of the Obligations; (v) foreclose
any or all Lender Liens or otherwise realize upon any and all of the Rights it
may have in and to the Collateral, or any part thereof, and (vi) exercise
any and all other legal or equitable Rights afforded by the Loan Documents, the
Supplemental Loan Documents, the Laws of the State of Texas or any other
jurisdiction as it shall deem appropriate, or otherwise, including, but not
limited to, the Right to bring suit or other proceedings before any Tribunal
either for specific performance of any covenant or condition contained in any
of the Loan Documents or in aid of the exercise of any Right granted to it in
any 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 notice
of protest and nonpayment, and agree that their liability with respect to the
Obligations, or any part thereof, shall not be affected by any renewal or
extension in the time of payment of the Obligations, by any indulgence or by
any release or change in any security for the payment of the Obligations.

 

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

 

8.4           Delegation of Duties and Rights.  Lender may perform any of its duties or
exercise 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 provisions
contained in the Agreement shall, or shall be deemed to, give Lender the Right
to exercise control over the assets (including, without limitation, real
Property), affairs or management of Borrowers or Guarantor, the power of Lender
being 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 of
partial payment on the Obligations shall not be deemed to be a waiver of any
Default then existing.  No waiver by
Lender of any Default shall be deemed to be a waiver of any other then-existing
or subsequent Default.  No delay or
omission by Lender in exercising any Right under the Loan Documents shall
impair such Right or be construed as a waiver thereof or any acquiescence
therein, nor shall any single or partial exercise of any 

 

34

 

such
Right preclude other or further exercise thereof, or the exercise of any other
Right under the Loan Documents or otherwise.

 

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

 

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

 

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

 

8.10         Certain Proceedings.  Borrowers and Guarantor will promptly
execute and deliver or cause the execution and delivery of all applications,
certificates, instruments, registration statements and all other documents and
papers Lender may request in connection with the obtaining of any consent,
approval, registration, qualification, permit, license or authorization of any
other Tribunal or other Person necessary or appropriate for the effective
exercise of any Rights under the Loan Documents.  Without limiting the generality of the foregoing,  Borrowers and Guarantor agree that in the
event Lender shall exercise its Rights, pursuant to the Loan Documents relating
to Borrowers or Guarantor, to sell, transfer or otherwise dispose of, or vote,
consent, operate or take any other action in connection with any of the
Collateral, Borrowers and Guarantor shall execute and deliver all applications,
certificates, assignments and other documents Lender may request to facilitate
such actions and shall otherwise promptly, fully, and diligently cooperate with
Lender and any other necessary Persons in making any application for the prior
consent or approval of any Tribunal or any other Person to the exercise by
Lender of any of such Rights relating to all or any of the Collateral.  Furthermore, because Borrowers and Guarantor
agree that Lender’s Rights at Law for failure of Borrowers and Guarantor to
comply with the provisions of this Section 8.10 would be inadequate
and that such failure would not be adequately compensable in damages, Borrowers
and Guarantor agree that the covenants of this Section 8.10 may be
specifically enforced.

 

SECTION 9.  MISCELLANEOUS.

 

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

 

35

 

methods
of accounting used prior to such change, as well as with the new method or
methods of accounting and, for the purpose of determining whether a Default has
occurred, Lender shall look solely to that portion of such Financial Statements
that complies with the former methods of accounting, or (b) prepared in
compliance with such new method or methods of accounting but accompanied by
such information, in form and detail satisfactory to Lender, that will allow
Lender to readily determine the effect of such changes in accounting methods on
such Financial Statements, and, for the purpose of determining whether a
Default has occurred, Lender shall look solely to such Financial Statements as
adjusted to reflect compliance with such former method or methods of
accounting.

 

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 and
provisions contained and as contemplated herein prior to, at the time of, or
after the execution and delivery thereof.

 

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

 

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

 

9.5           Exceptions to Covenants.  Borrowers and Guarantor shall take no action
nor fail to take any action which is permitted as an exception to any of the
covenants contained in any of the Loan Documents relating to Borrowers and
Guarantor if such action or omission would result in the breach of any other
covenant contained in any of the Loan Documents.

 

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

 

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

 

36

 

9.8           Maximum Interest Rate.
It is the intention of the Parties to strictly comply with applicable usury
Laws, if any; accordingly, it is agreed that notwithstanding any provisions to
the contrary in any Loan Document, in no event shall any Loan Document permit
or require the payment, taking, reserving, receiving collection or charging of
interest 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 by
Lender or any other Person to Borrowers or Guarantor) or if all or a part of
the principal or interest thereof is accelerated, prepaid or repaid, so that
under any of such circumstances (or any other circumstances) the amount of interest
contracted for, charged, taken, reserved or received under any Loan Document on
the amount of principal actually outstanding from time to time thereunder shall
exceed the Highest Lawful Rate, then in any such event (a) the provisions of
this Section 9.8 shall govern and control, (b) no Person now or
hereafter liable for the payment of the Obligation shall be obligated to pay
the amount of such interest to the extent that it is in excess of the Highest
Lawful Rate, (c) any such excess which is or has been collected or received
notwithstanding 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, refunded
to the Person paying the excess, and (d) the provisions of the applicable Loan
Documents, and any communication to Borrowers or Guarantor, shall immediately
be deemed reformed and the excess interest reduced, without the necessity of
executing any other document, to the Highest Lawful Rate under the applicable
usury Laws as now or hereafter construed by the courts having jurisdiction
thereof. Without limiting the foregoing, all calculations of the rate of
interest contracted for, charged, collected, taken, reserved or received in
connection with the  Loan Documents
which are made for the purpose of determining whether that rate exceeds the
Highest Lawful Rate shall be made to the extent permitted by applicable Laws by
amortizing, prorating, allocating and spreading during the period of the full
term of the Loan, including all prior and subsequent renewals and extensions,
all interest at any time contracted for, charged, taken collected, reserved or
received. The terms of this paragraph shall be deemed to be incorporated in
every Loan Document and communication relating thereto.

 

To the extent the
interest rate Laws of the State of Texas are applicable to the Loan Documents
for purposes of determining the “Highest Lawful Rate,” the applicable interest
rate ceiling is the weekly ceiling (formerly the indicated rate ceiling)
determined in accordance with Texas Revised Civil Statutes, Title 79, Article
5069-1D.003 (also codified at Texas Finance Code, Section 303.301, and formerly
Texas Revised Civil Statutes, Article 5069-1.01), as amended. To the extent the
Loan 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 Texas
Revised Civil Statutes, Article 5069-1.01 (f)), as amended, the Lender retains
the 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 regulates
certain revolving loan accounts and revolving tri-party accounts,  shall not govern or in any manner apply to
the Loan Documents or the Obligation.

 

9.9           Invalid Provisions.  If any provision in any Loan Document is
held to be illegal, invalid or unenforceable, such provision shall be fully
severable; the appropriate Loan Document shall be construed and enforced as if
such provision had never comprised a part thereof, and the remaining provisions
thereof shall remain in full force and effect and shall not be affected by such
provision or by its severance therefrom. 
Furthermore, in lieu of such provision there shall be added
automatically as a part of such Loan Document a provision as similar thereto as
may be possible and be legal, valid and enforceable.

 

37

 

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

 

9.11         Amendments, Etc.  No amendment or waiver of any provision of any Loan Document nor
consent to any departure therefrom by Borrowers or Guarantor shall be effective
unless the same shall be in writing and signed by Lender, and then, such
amendment, waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.

 

9.12         Waivers.  No
course of dealing nor any failure or delay by Lender or any of its respective
officers, directors, employees, agents, representatives, or attorneys with
respect to exercising any Right of Lender hereunder shall operate as a waiver
thereof.  A waiver must be in writing
and signed by Lender to be effective, and such waiver will be effective only in
the specific instance and for the specific purpose for which it is given.

 

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

 

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

 

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

 

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

 

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

 

38

 

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

 

9.18 ARBITRATION.
THE BORROWERS, GUARANTOR AND LENDER AGREE THAT ALL DISPUTES, CLAIMS AND
CONTROVERSIES BETWEEN THEM, OR ANY OF THEIR RESPECTIVE SUCCESSORS AND ASSIGNS,
WHETHER INDIVIDUAL, JOINT OR CLASS IN NATURE, ARISING FROM THIS AGREEMENT OR
ANY OF THE OTHER LOAN DOCUMENTS (INCLUDING CONTRACT AND TORT DISPUTES) SHALL BE
ARBITRATED PURSUANT TO THE RULES OF THE AMERICAN ARBITRATION ASSOCIATION UPON
THE REQUEST OF ANY PARTY. NO ACT TO TAKE OR DISPOSE OF ANY COLLATERAL SECURING
THE OBLIGATIONS SHALL CONSTITUTE A WAIVER OF THIS ARBITRATION PROVISION OR BE
PROHIBITED BY THIS ARBITRATION PROVISION. THE FOREGOING INCLUDES OBTAINING
INJUNCTIVE RELIEF OR A TEMPORARY RESTRAINING ORDER; INVOKING A POWER OF SALE
UNDER ANY OF THE SECURITY DOCUMENTS; OBTAINING A WRIT OF ATTACHMENT OR THE
IMPOSITION OF A RECEIVER; OR EXERCISING ANY RIGHTS RELATING TO PERSONAL
PROPERTY, INCLUDING TAKING OR DISPOSING OF SUCH PROPERTY WITH OR WITHOUT JUDICIAL
PROCESS PURSUANT TO ARTICLE 9 OF THE UCC. ANY DISPUTES, CLAIMS AND
CONTROVERSIES CONCERNING THE LAWFULNESS OR REASONABLENESS OF ANY ACT OR
EXERCISE OF ANY RIGHTS OR ANY RIGHT RELATING TO THE COLLATERAL SECURING THE
OBLIGATIONS (INCLUDING, WITHOUT LIMITATION, ANY CLAIM TO RESCIND, REFORM OR
OTHERWISE MODIFY ANY AGREEMENT RELATING TO THE COLLATERAL SECURING THE
OBLIGATIONS) SHALL ALSO BE ARBITRATED; PROVIDED THAT NO ARBITRATOR SHALL HAVE
THE RIGHT OR POWER TO ENJOIN OR RESTRAIN ANY ACT OF ANY PARTY.  JUDGMENT UPON ANY AWARD RENDERED BY ANY
ARBITRATOR MAY BE ENTERED IN ANY COURT HAVING JURISDICTION; PROVIDED THAT
NOTHING CONTAINED HEREIN SHALL BE DEEMED TO BE A WAIVER BY LENDER OF THE
PROTECTIONS 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 ANY
OTHER PROTECTION PROVIDED TO THE LENDER BY THE LAWS OF THE STATE OF TEXAS OR
THE UNITED STATES. THE STATUTE OF LIMITATIONS, OR ESTOPPEL, LACHES, WAIVER OR
SIMILAR DOCTRINES THAT WOULD OTHERWISE BE APPLICABLE IN AN ACTION BROUGHT BY A
PARTY SHALL BE APPLICABLE IN ANY ARBITRATION PROCEEDING AND THE COMMENCEMENT OF
ANY ARBITRATION PROCEEDING SHALL BE DEEMED THE COMMENCEMENT OF AN ACTION FOR
THESE PURPOSES. THE FEDERAL ARBITRATION ACT SHALL APPLY TO THE CONSTRUCTION,
INTERPRETATION AND ENFORCEMENT OF THIS ARBITRATION PROVISION. IF THE FEDERAL
ARBITRATION ACT IS INAPPLICABLE TO ANY SUCH DISPUTE, CLAIM OR CONTROVERSY FOR
ANY REASON, THE ARBITRATION SHALL BE CONDUCTED PURSUANT TO THE TEXAS GENERAL
ARBITRATION ACT, THIS ARBITRATION PROVISION AND THE COMMERCIAL ARBITRATION
RULES OF THE AMERICAN ARBITRATION ASSOCIATION.

 

39

 

9.19 JURISDICTION
AND VENUE. SUBJECT TO THE PROVISIONS OF SECTION 9.18, ALL
ACTIONS OR PROCEEDINGS WITH RESPECT TO, ARISING DIRECTLY OR INDIRECTLY IN
CONNECTION WITH, OUT OF RELATED TO OR FROM THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS MAY BE LITIGATED, AT THE SOLE DISCRETION AND ELECTION OF THE
LENDER, IN THE COURTS HAVING SITUS IN HOUSTON, HARRIS COUNTY, TEXAS. IN THAT
REGARD, THE BORROWERS AND GUARANTOR HEREBY SUBMIT TO THE JURISDICTION OF ANY
LOCAL, STATE OR FEDERAL COURT LOCATED IN HOUSTON, HARRIS COUNTY, TEXAS, AND
HEREBY WAIVES ANY RIGHTS IT MAY HAVE TO TRANSFER OR CHANGE THE JURISDICTION OR
VENUE OF ANY LITIGATION BROUGHT AGAINST IT BY THE LENDER IN ACCORDANCEWITH THIS
SECTION.

 

EXECUTED
as 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

  	
   

  

 

40

 

	
   

  	
   

  
	
  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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