Document:

Ex. 4(b)(3)

 

 

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
  Revolving LoanAdvances

  	
   

  
	
   

  	
  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
  4.1

  	
  Letter
  of Credit Form

  
	
  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

 

CREDIT
AGREEMENT

 

 

THIS 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.             Contemporaneously herewith,
Borrowers and Lender entered into First Amended and Restated Credit Agreement,
and the certificates and documents executed pursuant thereto or in connection
therewith, to (a) partially amend, extend and restate (but  not discharge, novate or release) the  Credit Agreement (“2002 Credit Agreement”)
dated as of February 21, 2002 establishing a One Million Five Hundred Thousand
Dollars ($1,500,000.00) term credit facility, 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 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 2002 Credit Agreement, (ii) letter
agreement dated December 12, 2002 to amplify the procedures for administering
draw requests pursuant to the 2002 Credit Agreement, (iii) 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 2002 Credit Agreement 
and (iv) Third Loan Modification Agreement dated as of March 31, 2003,
recording deferred, from Mortgagor to A. Stephen Kennedy, as Trustee, and the
Bank ( collectively, the “Existing Credit
Agreement”) and (b) finance the construction and mobilization of the  Madisonville Gathering System (defined below
and in the Existing Credit Agreement) by Borrowers; and

 

2.             Borrowers have requested that
Lender establish a new credit facility to provide supplemental financing for
the completion and mobilization of the Madisonville Gathering System, and
Lender has agreed to do so, 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 this Agreement, the following terms have the following
meanings:

 

ADAC means Allen
Drilling Acquisition Company, a Nebraska corporation duly qualified to conduct
business and in good standing in the State of Texas.

 

ADAC
Agreement means the Agreement dated March 6, 2003, and any
amendment, extension, modification, renewal or supplement thereto, delivered by
Borrowers, Guarantor and ADAC with respect to the Madisonville Gathering
System.

 

 

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 this 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 this 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 this 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.

 

2

 

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.

 

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 of the First Amended and Restated Deeds Of
Trust, Mortgages, Assignments, Security Agreements And Financing Statements 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 Existing 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.

 

3

 

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 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.

 

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

 

Existing
Loan Documents means the documents now or hereafter executed in
connection with the Existing 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 One Million Five Hundred Thousand and
NO/100ths Dollars ($1,500,000.00), (b) the First Amended and Restated Credit
Agreement of even date herewith, together with the security documents and other
loan documents described therein or delivered pursuant thereto, by or on behalf
of Borrowers or Guarantor to or for the benefit of Lender in connection the
promissory note for the Existing Loan, and (c) any amendment, extension,
modification, renewal or supplement thereof.

 

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.

 

4

 

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 (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.

 

5

 

Letters of Credit means, collectively, one or more
irrevocable standby letters of credit in favor of Lender, issued by one or more
banks approved by Lender in its sole and absolute discretion, pursuant to which
Lender shall be unconditionally authorized to draw an aggregate amount of up to
Nine Hundred Thousand and no/100ths Dollars ($900,000) on or before May 30,
2006 after the occurrence of a Default, together with any renewal or
replacement of any thereof including, without limitation, letters of credit
delivered by ADAC on behalf of the Borrowers to Lender pursuant to Section
4.1 by (i) Gold Bank of Leawood, Kansas, pursuant to which Lender shall be
unconditionally authorized to draw Five Hundred Thousand and no/100ths Dollars
($500,000.00) and (ii) Bank Julius Baer & Co. Ltd., New York Branch,
pursuant to which Lender shall be unconditionally authorized to draw Four
Hundred Thousand and no/100ths Dollars ($400,000.00).

 

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) this Agreement and any certificates
delivered pursuant to this 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
this 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 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 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, from Gateway Pipeline Company, as mortgagor and debtor, to A. Stephen
Kennedy, as Trustee for the benefit of Southwest Bank of Texas, N.A., 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

 

6

 

more
particularly described in the Madisonville Mortgage, as amended and restated
from time to time in connection with this 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 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 April
30, 2006.

 

                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
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 the
Promissory note executed and delivered by Borrowers pursuant to Section 2.1, and 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 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 Loan Documents which are attributable to the Loan and (b) the loan
documents now or hereafter executed and delivered by Borrowers and 

 

7

 

Guarantor
in connection with the Existing Loan, whether direct, indirect, related,
unrelated, fixed, contingent, liquidated, or unliquidated, including, without
limitation, the obligation of Borrowers and the Guarantor to repay the Existing
Loan, interest on the Existing Loan, and all fees, indemnities, costs, and
expenses (including attorneys’ fees) provided for in the Existing Loan
Documents.

 

Payment
Date means the last day of each calendar month during the term of this
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 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.

 

8

 

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.

 

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 this 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 this
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 this Agreement unless specified otherwise.

 

9

 

Security
Agreements means (i) the security agreement in form and substance
acceptable to the Lender, and any amendment, extension, modification, renewal
or supplement thereof, delivered or to be delivered by ADAC hereunder covering
all of the Letters of Credit now or hereafter delivered by ADAC on behalf of
Borrowers pursuant to the ADAC Agreement to Lender, (ii) 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 covers all of the fully paid
and non-assessable Capital Stock of each of the Borrowers that has been issued
and is outstanding and (iii) 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 covers all of 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
this Agreement for the purpose of creating a first priority Lien on any of its
Property.

 

Subordination
Agreement means an agreement in form and substance acceptable to
Lender, and any amendment, extension, modification, renewal or supplement
thereof, delivered or to be delivered by ADAC expressly subordinating all Liens
and Rights that the Borrowers or Guarantor may now or hereafter grant ADAC in
the Pipeline Systems, Madisonville Contracts, Waxahachie Contracts or other
Property pursuant to the ADAC Agreement.

 

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.

 

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 this 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 covers 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 this 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
representation, warranty or covenant. The words “hereof,” “herein,” and
“hereunder” and words of similar import referring to this Agreement refer to
this Agreement as a whole and not to any particular provision of this
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 this Agreement.  Terms used herein
that are defined in the UCC, unless 

 

11

 

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 this 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 REVOLVING 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 the Maturity Date, in one or more advances, a Loan
up to the aggregate principal amount of Nine Hundred Thousand Dollars
($900,000.00).  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 as of
March 31, 2003 and maturing on the Maturity Date (the “Note”).

 

(a) Borrowers may borrow,
pay, prepay in whole or in part and reborrow hereunder until Maturity Date,  so long as not more than 
an amount of principal equal to Nine
Hundred Thousand Dollars ($900,000.00), in the aggregate, is outstanding
at any one time. The Borrowers and Lender acknowledge that (i) this is a
revolving credit loan, (ii) the Lender may limit or reduce the amount of any
advance requested by the Borrowers under the Note or this Agreement, from time
to time, so that the maximum amount of principal outstanding under the Note or
any of the other Loan Documents does not exceed the face amount of the Note,
(iii) the Borrowers shall prepay the amount of principal outstanding under the
Note or any of the other Loan Documents, from time to time, that may exceed the
face amount of the Note within five (5) days of receipt of written notice from
Lender or as otherwise provided in Section 2.6 (b), and (iv) there may
be times when no indebtedness is owing under the Note or the other Loan
Documents due to prepay­ments made by the Borrowers thereon, but the Note and
the other Loan Documents shall remain valid and shall be in full force and
effect (notwithstanding such occurrences), as to any and all subsequent loans
or advances.

 

(b)
Each advance shall be made in accordance with Subparagraphs (c) and (d) 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
(aa) current construction and mobilization costs attributable to the completion
of the Madisonville Gathering System represented by invoices attached to the
notice of advance or (bb) in whole or in part, a subordinated debt principal
and interest payment of approximately Two Hundred Fifty Thousand and No/100ths
Dollars ($250,000.00), and (iii) state the amount of each requested advance,
and the date the Lender is requested to make each advance.

 

12

 

(c) 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 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

 

(d)
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 amount then outstanding,
and all accrued but unpaid interest, on the Loans advanced under this Agreement
in full on the Maturity Date; provided that, the Borrower (a) shall make
mandatory prepayments of principal as provided in Section 2.1 (a) and
(b) may make voluntary prepayments of principal from time to time as provided
in Section 2.6. 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 

 

13

 

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
this Agreement shall bear interest prior to the earlier of the Maturity Date,
or Default, at a 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 beginning on April 30, 2003 and continuing on each Payment
Date thereafter 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 all or any part of the outstanding
principal of the Loan from time to time prior to the Maturity Date, in whole or
in part. 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 be
re-borrowed as provided in this Agreement.

 

                                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 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 (a) the Letters of Credit,
(b) the Guaranty, and (c) 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.

 

14

 

3.2           Additional Security and Guaranties.  Lender may, without notice or demand and without affecting
Borrowers’ obligations under the 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, (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, and (c) accept and hold
any extension, renewal or replacement of the Letters of Credit as may be
necessary to maintain a Letter of Credit as part of the Collateral as provided
herein.

 

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 this Agreement or any
other Loan Document, irrespective of whether or not Lender shall have made any
demand under this 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 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 this
Agreement is subject to the condition precedent that Lender shall have received
and 

 

15

 

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 this 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;

 

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

 

(i)            Letters of Credit. The
Letters of Credit each in the form attached as Schedule 4.1.

 

(j)            Subordination Agreement. The
Subordination Agreement executed by ADAC;

 

(k)           Facility Fee. Lender shall
have received a non-refundable fee of Ten Thousand and no/100ths Dollars
($10,000.00) for services rendered, 

 

16

 

and
to be rendered, by Lender separate and apart from the lending of money or the
provision of credit pursuant to the Loan Documents;

 

(l)            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
this Agreement;

 

(m)          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;

 

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

 

(o)           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 this Agreement;

 

(p)           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”);

 

(q)           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

 

(r)            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;

 

(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;

 

17

 

(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;

 

(e)           Audits
and inspections. Without limiting the generality of the other rights set
forth herein, the Lender (at its sole election) shall be entitled to (1) audit
the bills, invoices and statements, and obtain copies of any applicable
contracts, delivery tickets, work orders and other materials that may not have
previously been delivered to it pursuant to Section 2.1 or this Section,
related to the construction of the Madisonville Gathering System as Lender may
reasonably request, (2) enter the easements, facilities and other Property
incorporated in, or used in connection with, the Madisonville Gathering System,
(3) inspect the labor, materials and services described in any bill, invoice or
statement, and labor, materials and services incorporated in the Madisonville
Gathering System, prior to making any advance, (4) receive copies of completion
certificates, as-built drawings, plans and specifications and other materials
generated or received by the Borrowers with respect to the construction and
mobilization of the Madisonville Gathering System, and (5) require any and all
vendors to deliver documents reasonably satisfactory to the Lender
acknowledging receipt of payment and releasing and waiving any and all liens
and other rights with respect to the labor, materials and services that are
covered by the payment.

 

(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 

 

18

 

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 this
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).

 

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
this 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 this 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 this
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 this 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 

 

19

 

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.

 

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.

 

20

 

5.15         Purpose of the Revolving 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.

 

5.16         Properties;
Liens.

 

(a)           Borrowers have good and marketable
title to all of their respective Properties including, without limitation, the
Pipeline Systems/the Collateral (except for Properties that have been disposed
of in the ordinary course of business, or as permitted under this 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 Pipeline
Systems/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 

 

21

 

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.

 

(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.

 

22

 

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 this
Agreement or in any other Loan Document or furnished to Lender in connection
with this 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.

 

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 this 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 

 

23

 

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 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.

 

24

 

(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 Guarantor’s affairs, conditions or finances. The rights granted
to Lender in this Section are in addition to, and not in limitation of, those
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 

 

25

 

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.

 

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.

 

26

 

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 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; and (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).

 

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, 

 

27

 

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 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 THIS 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 THIS 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 

 

28

 

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, 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 this 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.

 

29

 

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:

 

	
   

  	
  (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. 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 

 

30

 

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.

 

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.

6.33         Letters
of Credit.  The final maturity of each Letter of Credit shall fall on the thirtieth
(30) day following the Maturity Date. The Borrowers shall cause the Letters of
Credit to remain in full force and effect, without interruption, from the
Closing Date to a date that is not less than thirty (30) days after the Maturity
Date. If, for any reason, any Letter of Credit has a shorter expiry date, the
Borrowers shall cause that Letter of Credit to be reissued, renewed or extended
for subsequent periods of at least a one-year duration by the issuing bank or
another bank approved by Lender in its sole and absolute discretion. If the
Borrowers request the Lender to extend the Maturity Date hereunder (or extend
the maturity date of the Existing Loan, as specified in the Existing Loan
Documents ), and the Lender agrees to do so in its sole discretion, the
Borrowers shall similarly cause the Letters of Credit to be reissued, renewed
or extended for subsequent periods, by the issuing bank or another bank, all as
may be approved by Lender in its sole and absolute discretion. Borrowers’
failure to obtain the reissuance, renewal or extension of any Letter of Credit
as provided above at least sixty (60) days prior to the maturity date of the
applicable Letter of Credit shall entitle the Lender to fully draw the entire
face amount of that Letter of Credit. 
The Lender shall also be entitled to draw upon each  Letter of Credit at any time (a) the Lender
decides the funds are needed by Borrowers to pay any amounts due hereunder,
under any other Loan Document or any Existing Loan Document or (b) an Event of
Default has occurred. If ADAC ceases to be the sole account
party with respect to any Letter of Credit then (1) Borrowers shall give notice
thereof to Lender within ten (10) Business Days after the date any other party
becomes an account party with respect to that Letter of Credit and (2) no later
than 

 

31

 

thirty (30) days
thereafter, Borrowers shall cause any other account party with respect to a
Letter of Credit to execute and deliver a Security Agreement and Subordination
Agreement in substance equivalent to the Security Agreement and Subordination
Agreement executed and delivered by ADAC.

 

 

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, Existing Loan or (c) to pay any other
Obligations in accordance with the terms of the Loan Documents, or the Existing
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), 6.24 through 6.28, and 6.33 of this
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 Existing 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 Existing 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 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.

 

32

 

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 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 

 

33

 

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,
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, (vii) present
the Letters of Credit for payment, and (vii) exercise any and all other
legal or equitable Rights afforded by the Loan Documents, the Existing Loan
Documents, the Laws of the State of 

 

34

 

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
Existing 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 this
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 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.

 

35

 

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 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 

 

36

 

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 this 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.  THIS 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.

 

 

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, 

 

37

 

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.

 

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 

 

38

 

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 this Agreement to the
contrary notwithstanding, Lender shall not be obligated to extend credit to
Borrowers in violation of any Law.

 

9.14         Multiple Counterparts.  This 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
this 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.  This 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 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, 

 

39

 

OR ANY OF THEIR RESPECTIVE SUCCESSORS
AND ASSIGNS, WHETHER INDIVIDUAL, JOINT OR LLASS 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, 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.

 

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 

 

40

 

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

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  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

  	
   

  
				

 

 

41Exhibit 10.1

 

SECOND LOAN MODIFICATION AGREEMENT

 

This Second Loan Modification
Agreement (this “Loan Modification Agreement’) effective February 27, 2003, is
entered into as of April 30, 2003, by and between SILICON VALLEY BANK, a California-chartered bank, with its
principal place of business at 3003 Tasman Drive, Santa Clara, California 95054
and with a loan production office located at One Newton Executive Park, Suite
200, 2221 Washington Street, Newton, Massachusetts 02462, doing business under
the name “Silicon Valley East” (“Bank”) and (i) IBASIS, INC., a Delaware corporation with its chief executive
office located at 20 Second Avenue, Burlington, Massachusetts 01803 and (ii) IBASIS GLOBAL, INC., Delaware corporation
with its chief executive office located at 20 Second Avenue, Burlington,
Massachusetts 01803 (jointly and severally, individually and collectively,
“Borrower”).

 

1.             DESCRIPTION OF EXISTING INDEBTEDNESS AND OBLIGATIONS.
Among other indebtedness and obligations which may be owing by Borrower to
Bank, Borrower is indebted to Bank pursuant to a loan arrangement dated as of
December 30, 2002, evidenced by, among other documents,  a certain Loan and Security Agreement
dated as of December 30, 2002 between Borrower and Bank, as amended by a
certain First Loan Modification Agreement dated as of January 30, 2003  (as amended, the “Loan Agreement”).  Capitalized terms used but not otherwise
defined herein shall have the same meaning as in the Loan Agreement.

 

2.             DESCRIPTION OF COLLATERAL.  Repayment of the Obligations is secured by
the Collateral as described in the Loan Agreement and certain Intellectual
Property Security Agreements each dated December 30, 2002 (together with any
other collateral security granted to Bank, the “Security Documents”).

 

Hereinafter, the Security Documents, together
with all other documents evidencing or securing the Obligations shall be
referred to as the “Existing Loan Documents”.

 

3.             DESCRIPTION OF CHANGE IN TERMS.

 

Modification
to Loan Agreement. The
Loan Agreement shall be amended by deleting Section 5(a) of the Schedule
thereto and inserting in lieu thereof the following:

 

“a.                                 Minimum Tangible Net Worth:

 

Borrower shall maintain a
Tangible Net Worth of not less than:

 

(A)                              from the date of this Agreement through March
31, 2003 - $33,800,000.00

(B)                                from April 1, 2003 through June 30, 2003 -
$27,100,000.00

(C)                                from July 1, 2003 through September 30, 2003 -
$22,900,000.00

(D)                               from October 1, 2003 through December 31, 2003
- $20,100,000.00

(E)                                 from January 1, 2004 through August 31, 2004 -
$19,800,000.00

(F)                                 from September 1, 2004  through November 30, 2004 - $22,300,000.00

(G)                                from December 1, 2004 and thereafter -
$26,300,000.00”

 

4.                                       FEES.  Borrower shall reimburse Bank
for all reasonable legal fees and expenses incurred in connection with this
amendment to the Existing Loan Documents.

 

5.             CONSISTENT CHANGES.  The Existing Loan Documents are hereby amended wherever necessary
to reflect the changes described above.

 

6.             RATIFICATION OF LOAN DOCUMENTS.  Borrower hereby ratifies, confirms, and
reaffirms all terms and conditions of all security or other collateral granted
to the Bank, and confirms that the indebtedness secured thereby includes,
without limitation, the Obligations.

 

7.             NO DEFENSES OF BORROWER.  Borrower agrees that, as of this date, it
has no defenses against the

 

 

obligations to pay any amounts under the
Obligations.

 

8.             CONTINUING VALIDITY.  Borrower understands and agrees that in modifying the existing
Obligations, Bank is relying upon Borrower’s representations, warranties, and
agreements, as set forth in the Existing Loan Documents. Except as expressly
modified pursuant to this Loan Modification Agreement, the terms of the
Existing Loan Documents remain unchanged and in full force and effect.  Bank’s agreement to modifications to the
existing Obligations pursuant to this 
Loan Modification Agreement in no way shall obligate Bank to make any
future modifications to the Obligations. Nothing in this Loan Modification
Agreement shall constitute a satisfaction of the Obligations.  It is the intention of Bank and Borrower to
retain as liable parties all makers of Existing Loan Documents, unless the
party is expressly released by Bank in writing.  No maker will be released by virtue of this Loan Modification
Agreement.

 

9.             COUNTERSIGNATURE.  This Loan Modification Agreement shall
become effective only when it shall have been executed by Borrower and Bank.

 

[The remainder of this page is intentionally left blank]

 

 

This Loan Modification
Agreement is executed as a sealed instrument under the laws of the Commonwealth
of Massachusetts.

 

	
  BORROWER:

  
	
   

  
	
  IBASIS,
  INC.

  
	
   

  
	
   

  
	
  By:

  	
  /s/ OFER GNEEZY

  	
   

  
	
  Name:  Ofer Gneezy

  
	
  Title:    Chief Executive Officer

  
	
   

  
	
  IBASIS
  GLOBAL, INC.

  
	
   

  
	
   

  
	
  By:

  	
  /s/ RICHARD TENNANT

  	
   

  
	
  Name:  Richard Tennant

  
	
  Title:    Chief Financial Officer

  
	
   

  
	
  BANK:

  
	
   

  
	
  SILICON
  VALLEY BANK, d/b/a

  
	
  SILICON
  VALLEY EAST

  
	
   

  
	
   

  
	
  By:

  	
  /s/ NANCY E. FUNKHOUSER

  	
   

  
	
  Name:  Nancy E. Funkhouser

  
	
  Title:    Vice President

  
					

 

The
undersigned  ratifies, confirms and
reaffirms, all and singular, the terms and conditions of a certain
Unconditional Guaranty dated December 30, 2002 
(the “Guaranty”) and a certain Security Agreement dated December 30,
2002 (the “Security Agreement”) and acknowledges, confirms and agrees that the
Guaranty and the Security Agreement shall remain in full force and effect and
shall in no way be limited by the execution of this Loan Modification
Agreement, or any other documents, instruments and/or agreements executed
and/or delivered in connection herewith.

 

	
   

  	
  IBASIS
  SECURITIES CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ OFER GNEEZY

  
	
   

  	
   

  
	
   

  	
  Name:

  	
  Ofer Gneezy

  
	
   

  	
   

  
	
   

  	
  Title

  	
  Chief
  Executive Officer

  
					

 

766582.2

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00052-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00052-of-00352.parquet"}]]