<PAGE>
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-11994
CORNERSTONE NATURAL GAS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-1952257
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
8080 N. CENTRAL EXPRESSWAY 75206
SUITE 1200 (Zip Code)
DALLAS, TEXAS
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (214) 691-5536
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILINGS REQUIREMENTS FOR THE PAST 90 DAYS. YES /X/ NO / /
INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS FILED ALL DOCUMENTS
AND REPORTS REQUIRED TO BE FILED BY SECTION 12, 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A
PLAN CONFIRMED BY A COURT. YES /X/ NO / /
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
SHARES OUTSTANDING AT
CLASS OF COMMON STOCK AUGUST 1, 1995
--------------------- ----------------------
$.10 PAR VALUE 12,515,959
==============================================================================
<PAGE>
CORNERSTONE NATURAL GAS, INC.
INDEX TO QUARTERLY REPORT FORM 10-Q
PART I. Financial Information
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C> <C>
ITEM 1. Financial Statements
Consolidated Statements of Operations for the three months and six months ended
June 30, 1995, and 1994.............................................................. 3
Consolidated Balance Sheets as of June 30, 1995, and December 31, 1994............... 4
Consolidated Statements of Cash Flows for the six months ended
June 30, 1995, and 1994............................................................... 5
Notes to Consolidated Financial Statements............................................ 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................................... 7-9
PART II. Other Information
ITEM 1. Legal Proceedings...................................................................... 10
ITEM 6. Exhibits and Reports on Form 8-K....................................................... 10
</TABLE>
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CORNERSTONE NATURAL GAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTH PERIOD SIX MONTH PERIOD
ENDED JUNE 30, ENDED JUNE 30,
------------------------ -------------------------
1995 1994 1995 1994
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues................................ $33,425,000 $27,233,000 $59,070,000 $59,299,000
Expenses:
Cost of sales.......................... 28,983,000 23,574,000 51,133,000 51,122,000
Operating expenses..................... 1,459,000 1,606,000 2,736,000 3,783,000
Depreciation and amortization.......... 818,000 685,000 1,595,000 1,343,000
General and administrative............. 1,341,000 1,408,000 2,629,000 2,676,000
----------- ----------- ----------- ------------
32,601,000 27,273,000 58,093,000 58,924,000
----------- ----------- ----------- ------------
Operating earnings (loss)................ 824,000 (40,000) 977,000 375,000
----------- ----------- ----------- ------------
Other income (expense):
Interest income........................ 27,000 14,000 54,000 19,000
Interest expense....................... (531,000) (351,000) (974,000) (671,000)
Equity in net losses of
unconsolidated subsidiaries........... (2,000) (6,000) (3,000) (22,000)
Other.................................. 1,000 (4,000) 20,000 -
Gain on sale of assets, net............ - 87,000 - 87,000
----------- ----------- ----------- ------------
(505,000) (260,000) (903,000) (587,000)
----------- ----------- ----------- ------------
Earnings (loss) before income taxes...... 319,000 (300,000) 74,000 (212,000)
Provision for current income taxes....... - - - 4,000
----------- ----------- ----------- ------------
Net earnings (loss)...................... $ 319,000 $ (300,000) $ 74,000 $ (216,000)
=========== ============ =========== =============
Earnings (loss) per common and
common equivalent share................ $ .02 $ (.03) $ .01 $ (.02)
=========== ============ =========== =============
Weighted average common and
common equivalent shares outstanding... 14,649,000 12,516,000 14,585,000 12,516,000
=========== ============ =========== =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-3-
<PAGE>
CORNERSTONE NATURAL GAS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $ 1,190,000 $ 655,000
Accounts receivable........................... 12,715,000 12,424,000
Inventory..................................... 35,000 93,000
Other current assets.......................... 542,000 286,000
------------- ------------
Total current assets......................... 14,482,000 13,458,000
Assets held for disposition.................... 1,000,000 1,000,000
Property, plant and equipment, at cost......... 63,897,000 54,632,000
Less: accumulated depreciation................ (35,016,000) (33,543,000)
------------- ------------
Net property, plant and equipment............. 28,881,000 21,089,000
Goodwill, net.................................. 3,618,000 3,676,000
Other assets................................... 1,095,000 1,080,000
------------- ------------
$ 49,076,000 $ 40,303,000
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt........ $ 819,000 $ 4,857,000
Accounts payable.............................. 17,776,000 14,993,000
Accrued interest payable...................... 55,000 52,000
Income tax payable............................ 158,000 162,000
------------- ------------
Total current liabilities.................... 18,808,000 20,064,000
Long-term debt................................. 17,383,000 6,898,000
Other liabilities.............................. 943,000 1,472,000
Stockholders' equity:
Common stock, $.10 par value; 25,000,000 shares
authorized; 12,515,959 shares issued and
outstanding.................................. 1,252,000 1,252,000
Additional paid-in capital.................... 51,298,000 51,298,000
Accumulated deficit........................... (40,608,000) (40,681,000)
------------- ------------
Total stockholders' equity................... 11,942,000 11,869,000
------------- ------------
$ 49,076,000 $ 40,303,000
============= =============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
-4-
<PAGE>
CORNERSTONE NATURAL GAS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTH PERIOD
ENDED JUNE 30,
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss)........................................... $ 74,000 $ (216,000)
Non-cash items included in earnings (loss):
Depreciation and amortization............................... 1,595,000 1,343,000
Equity in net losses of unconsolidated
subsidiaries............................................... 3,000 22,000
Gain on sale of assets, net................................. - (87,000)
Other....................................................... (19,000) 16,000
------------ -----------
Working capital provided by operations before
reorganization items.......................................... 1,653,000 1,078,000
Changes in operating assets or liabilities which provided
(used) cash during the period:
(Increase) decrease in accounts receivable.................... (290,000) 7,346,000
Decrease in inventory......................................... 57,000 1,412,000
(Increase) decrease in other current assets................... (256,000) 192,000
Increase (decrease) in accounts payable....................... 2,806,000 (9,597,000)
Increase in accrued interest payable.......................... 4,000 2,000
Decrease in other current liabilities......................... (4,000) (242,000)
Increase (decrease) in other liabilities...................... (404,000) 340,000
------------ -----------
Cash provided by operations before reorganization items......... 3,566,000 531,000
Cash used by reorganization items - professional fees.......... (150,000) (780,000)
------------ -----------
Cash provided (used) by operating activities.................... 3,416,000 (249,000)
Cash flows from investing activities:
Proceeds from sale of assets................................. - 1,060,000
Additions to property, plant and equipment................... (9,329,000) (2,700,000)
Increase in investment in
unconsolidated subsidiaries................................. - (55,000)
------------ -----------
Cash used by investing activities.............................. (9,329,000) (1,695,000)
Cash flows from financing activities:
Borrowings of revolving debt................................. - 1,775,000
Additional borrowings........................................ 7,200,000 -
Reduction of long-term debt.................................. (752,000) (1,031,000)
------------ -----------
Cash provided by financing activities.......................... 6,448,000 744,000
------------ -----------
Increase (decrease) in cash and cash equivalents................ 535,000 (1,200,000)
Cash and cash equivalents:
Beginning of period.......................................... 655,000 2,476,000
------------ -----------
End of period................................................ $1,190,000 $1,276,000
============= ============
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest..................................................... $ 993,000 $ 617,000
Income taxes................................................. $ 4,000 $ -
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
-5-
<PAGE>
CORNERSTONE NATURAL GAS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have
been prepared in accordance with Rule 10-01 of Regulation S-X,
"Interim Financial Statements", and accordingly do not include all
information and footnotes required under generally accepted
accounting principles for complete financial statements. The
financial statements have been prepared in conformity with the
accounting principles and practices as disclosed in the Company's
Annual Report on Form 10-K for the year ended December 31, 1994.
In the opinion of management, these interim financial statements
contain all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the Company's
financial position as of June 30, 1995, the results of its
operations for the six months ended June 30, 1995, and the
Company's cash flows for the six months ended June 30, 1995.
Results of operations for the periods presented herein are not
necessarily indicative of the results that may be expected for the
year ending December 31, 1995.
NOTE 2 - LONG-TERM DEBT
On May 24, 1995, the Company entered into a new loan agreement with a bank
group led by Bank of Oklahoma, National Association. The loan agreement
provides for up to $20 million in convertible loans and a revolving $10
million working capital facility. On July 20, 1995, the amount available in
convertible loans was increased to $14.5 million. The convertible loans do
not require principal amortization and the Company can borrow and repay
principal without penalty through December 31, 1996. Any outstanding
principal at that time will be repaid based on a five-year straight-line
amortization with a balloon payment due June 30, 1999. The Company's
intention is to renew this facility every 12 months as supported by its
borrowing base as defined in the agreement. At June 30, 1995, the Company
had borrowed $11.3 million in convertible loans. The revolving facility has
an initial two-year term. At June 30, 1995, the Company had borrowed $3.1
million under the revolving credit facility and the financial institution had
issued, for the Company's benefit, $2.4 million in standby letters of credit
for natural gas purchases.
-6-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
On May 24, 1995, the Company entered into a new loan agreement with
a bank group led by Bank of Oklahoma, National Association. The
loan agreement provides for up to $20 million in convertible loans
and a revolving $10 million working capital facility. On July 20,
1995, the amount available in convertible loans was increased to
$14.5 million. The convertible loans do not require principal
amortization and the Company can borrow and repay principal without
penalty through December 31, 1996. Any outstanding principal at
that time will be repaid based on a five-year straight-line
amortization with a balloon payment due June 30, 1999. The
Company's intention is to renew this facility every 12 months as
supported by its borrowing base as defined in the agreement. At
June 30, 1995, the Company had borrowed $11.3 million in
convertible loans. The revolving facility has an initial two-year
term. At June 30, 1995, the Company had borrowed $3.1 million under
the revolving credit facility and the financial institution had
issued, for the Company's benefit, $2.4 million in standby letters
of credit for natural gas purchases.
Working capital provided by operations was $1.7 million for the
first six months of 1995 compared to $1.1 million in the same
period in the prior year. The increase is primarily the result of
increased earnings from the Company's natural gas processing
operations. The Company had a working capital deficit of $4.3
million at June 30, 1995. The Company intends to issue equity
securities, increase its long-term debt, or sell an interest in
certain assets in order to reduce the working capital deficit. The
Company expects that cash provided from operations combined with
amounts available under its revolving credit facility will be more
than sufficient to meet its cash requirements for the next year.
The Company made capital expenditures of $9.3 million in the first
half of 1995. These expenditures were primarily for the
acquisition of the Willow Springs System, the purchase of the stock
of Energy Transfer Corporation and the Energy Transfer I and II
limited partnerships, and the expansion of the Company's Calhoun
plant and gathering system. The Company is currently reactivating
its Iola plant which has been idle since 1988. The Company has
entered into an agreement to gather and process natural gas in
Grimes County, Texas with initial natural gas volume expected to be
20 million cubic feet per day ("MMCFD"). The Company will acquire
its 50% partner's interest and refurbish the plant at an estimated
cost of $3.1 million. This plant is expected to be operational
late in the third quarter of 1995.
Cash provided by financing activities was $6.4 million in the first
six months of 1995. The Company borrowed $7.2 million and utilized
cash generated from operations for the aforementioned capital
expenditures. The Company has also made principal repayments of
$752,000.
-7-
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1995 COMPARED TO
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1994
GENERAL. The Company recorded net earnings of $319,000 ($.02 per
share) and $74,000 ($.01 per share) for the three months and six
months ended June 30, 1995, respectively, compared to a net loss of
$300,000 ($.03 per share) and $216,000 ($.02 per share) for the
same periods in the prior year. The 1994 results include earnings
from the Company's discontinued refining operations. Without the
refining operations, the net loss would have been $320,000 and $1.3
million for the three months and six months ended June 30, 1994,
respectively.
The Company's earnings before interest, income taxes and
depreciation ("EBITD") (excluding refining) increased to $1.5
million from $525,000 in the second quarter and increased to $2.5
million from $539,000 (without refining) year-to-date.
The following table reflects financial information by segment:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
(IN THOUSANDS EXCEPT VOLUMES) 1995 1994 1994 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Natural Gas Processing Operations
Revenues 7,081 5,517 12,826 8,903
Gross margin 2,823 1,849 5,059 3,153
EBITD 1,775 610 2,955 673
Natural gas inlet volumes (MMCFD) 100 89 88 88
Natural Gas Pipeline Operations
Revenues 26,344 17,160 46,244 34,178
Gross margin 1,469 1,322 2,728 2,444
EBITD 746 835 1,421 1,514
Natural gas sales volumes (MMCFD) 211 129 185 114
Refining
Revenues - 4,556 - 16,218
Gross margin (1) 150 488 150 2,580
EBITD 97 120 97 1,179
Corporate
Revenues - - - -
Gross margin - - - -
EBITD (976) (920) (1,901) (1,648)
<FN>
__________
(1) reflects adjustment of accrual recorded in second quarter of 1995
</TABLE>
NATURAL GAS PROCESSING OPERATIONS. The Company's EBITD from
natural gas processing operations increased $1.2 million (191%) and
$2.3 million (339%) for the three months and six months,
respectively, compared to the same periods in the prior year. This
was primarily the result of the installation of cryogenic natural
gas processing plants at the Company's North Louisiana facilities.
Although the plants were operational on March 31, 1994, the Company
experienced increased operating expenses related to the plant
startup in the second quarter of 1994. The Company also completed
the expansion of its Calhoun plant and gathering system late in the
first quarter of 1995. As a result, the Company's total processed
volume in North Louisiana increased to 76 MMCFD in the second
quarter of 1995 compared to 59 MMCFD in the second quarter of 1994.
Management expects the volume to continue increasing in 1995 as a
result of the expanded Calhoun capacity and ongoing new drilling
activity near the Company's gathering systems. The cryogenic
natural gas processing facilities and the expansion of the Calhoun
plant have allowed the Company to increase the volumes processed
and to increase the percentage of natural gas liquids recovered.
At the same time the fuel costs and operating expenses have been
decreased. All these factors have contributed to the increased
earnings of the Company.
-8-
<PAGE>
NATURAL GAS PIPELINE OPERATIONS. The Company's EBITD from natural
gas pipeline operations decreased $89,000 (11%) and $93,000 (6%).
This was primarily the result of decreased earnings on the
Company's Mountain Creek system and decreased earnings from off-
system sales. This was partially offset by the acquisition of two
pipeline systems in 1995. In addition, the EBITD in the first
quarter of 1994 included a refund from a major interstate pipeline
for transportation rates charged in excess of the final approved
rate.
The earnings decrease on the Mountain Creek system is the result of
decreased natural gas volumes and a change in the fee structure.
Under the new fee structure the Company will generate greater
revenues in the second half of 1995. EBITD from off-system sales
decreased primarily from lower natural gas prices and a greater
volatility of the spot market.
Effective January 1, 1995, the Company acquired the Willow Springs
system in Gregg and Harrison Counties in East Texas. Effective
April 2, 1995, the Company acquired the stock of Energy Transfer
Corporation and the Energy Transfer I and II limited partnerships
which owned the Oletha system in Limestone County in East Texas.
The increase in natural gas throughput is primarily the result of
the acquisition of these two systems.
-9-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in certain legal actions and claims arising
in the ordinary course of business. It is the opinion of
Management (based on advice of legal counsel) that such litigation
and claims will be resolved without material adverse effect on the
Company's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of the Company was held on May
15, 1995, for the purpose of electing ten directors and ratifying
the selection of independent auditors. The record date for the
determination of stockholders entitled to notice of and to vote at
the meeting was March 20, 1995. Proxies for the meeting were
solicited pursuant to section 14(a) of the Securities and Exchange
Act of 1934. There was no solicitation in opposition to
management's solicitations.
VOTING ON DIRECTORS:
All of management's nominees for directors as listed in the proxy
statement were elected as indicated below:
<TABLE>
<CAPTION>
DIRECTOR SHARES VOTED FOR SHARES WITHHELD TOTAL SHARES
-------- ---------------- --------------- ------------
<S> <C> <C> <C>
Richard D. Brannon 11,150,934 254,350 11,405,284
James W. Bryant 11,150,934 254,350 11,405,284
Ted Collins, Jr. 11,150,934 254,350 11,405,284
Ben H. Cook 11,150,813 254,471 11,405,284
Ray C. Davis 11,150,934 254,350 11,405,284
David S. Hunt 11,149,413 255,871 11,405,284
C. Robert Sledge 11,146,234 259,050 11,405,284
Kelcy L. Warren 11,146,234 259,050 11,405,284
Scott G. Heape 11,150,934 254,350 11,405,284
William J. Murray 11,141,703 263,581 11,405,284
</TABLE>
RATIFICATION OF INDEPENDENT AUDITORS
The proposal to ratify the selection by the Board of Directors of
the firm of Arthur Andersen LLP as independent auditors of the
Company for the fiscal year ending December 31, 1995, was approved
by the following vote:
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES TOTAL
FOR AGAINST ABSTAINING SHARES
------------ ------------ ---------- ----------
<S> <C> <C> <C>
11,334,891 32,194 38,199 11,405,284
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.1 Loan Agreement dated as of May 24, 1995, between
Cornerstone Natural Gas, Inc., et al as "Borrowers"
and Bank of Oklahoma, National Association as "Bank."
27.1 Financial Data Schedule.
(b) REPORTS ON FORM 8-K
(1) "Item 5. Other Events" was reported in a Current
Report on Form 8-K filed June 20, 1995. The purchase
of Energy Transfer was the subject matter of the
filing.
-10-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized.
CORNERSTONE NATURAL GAS, INC.
(Registrant)
Date: August 4, 1995 By: /s/Robert L. Cavnar
----------------- -----------------------------
Robert L. Cavnar
Senior Vice President and Chief
Financial Officer
(Principal Financial Officer)
Date: August 4, 1995 By: /s/Richard W. Piacenti
----------------- -----------------------------
Richard W. Piacenti
Vice President and Controller
(Principal Accounting Officer)
-11-
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DOCUMENT
- ----------- --------
10.1 Third Amendment to Revolving Credit and Term Loan
Agreement between Cornerstone Natural Gas, Inc., et al
and Bank of Oklahoma, National Association dated
March 31, 1995.
27.1 Financial Data Schedule.
-12-
<PAGE>
EXHIBIT 10.1
LOAN AGREEMENT
THIS LOAN AGREEMENT, dated as of May 24, 1995 ("Agreement"), is entered into
among CORNERSTONE NATURAL GAS, INC. (formerly Endevco, Inc.), a Delaware
corporation ("Cornerstone"), ENDEVCO PRODUCING COMPANY, a Delaware corporation
("EPRC"), CORNERSTONE GAS GATHERING COMPANY (formerly Cornerstone Pipeline
Company), a Delaware corporation ("CGGC"), DUBACH GAS COMPANY, a Texas
corporation ("Dubach"), CORNERSTONE GAS PROCESSING, INC. (formerly Endevco
Natural Gas Company), a Delaware corporation ("CGP"), CORNERSTONE GAS RESOURCES,
INC. (formerly Endevco Oil and Gas Company), a Delaware corporation ("CGR"),
CORNERSTONE PIPELINE COMPANY (formerly Endevco Pipeline Company), a Delaware
corporation ("CPC"), and, PENTEX PIPELINE COMPANY, a Texas corporation ("PPC")
(collectively the "Borrowers") and BANK OF OKLAHOMA, NATIONAL ASSOCIATION, a
national banking association (the "Bank").
W I T N E S S E T H:
A. WHEREAS, the Borrowers have applied to the Bank for a facility
revolver/term loan in the aggregate original principal amount of $12,000,000
(the "Convertible Loans") to be evidenced by Borrowers' joint and several
Convertible Note hereinafter described and defined, (i) $8,149,994.00 of the
proceeds of which will be utilized to consolidate Borrowers' outstanding Term
Loans as defined and described in the Existing Credit Agreement and (ii) the
remainder of which will be utilized to fund Cornerstone's acquisition of all of
the limited partnership interests in ETI, the partnership entities that owns the
Oletha gas gathering system in Limestone County, Texas (the "Oletha System") and
the payment of certain capital expenditures; and
B. WHEREAS, the Borrowers have also applied to the Bank for a $10,000,000
revolving line of credit to be evidenced by Borrowers' joint and several
Revolving Credit Note hereinafter described and defined, a portion of which
proceeds will be used to consolidate and extend Borrowers' outstanding Revolving
Credit Loans under the Existing Credit Agreement and the aggregate unfunded face
amount of Borrowers' outstanding Letters of Credit issued by the Bank pursuant
to the Existing Credit Agreement; and
C. WHEREAS, the Bank is willing to extend the Convertible Loans and the
Revolving Credit Commitment to the Borrowers, subject to the terms, conditions,
uses and provisions hereinafter set forth, all of which are material to the Bank
and without which the Bank would not be willing to extend any of such loan
commitments described above.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and other good and valuable consideration, receipt of which is
acknowledged by the parties hereto, the parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
When used herein, the following terms shall have the following meanings:
1.1 "AFFILIATE" shall mean any Person which, directly or indirectly,
controls, or is controlled by, or is under common control with, another Person
and any partner, officer or employee of any such Persons. For purposes of this
definition, "control" shall mean the power, directly or indirectly, to direct or
in effect cause the direction of the management and policies of such Person
whether by contract or otherwise.
<PAGE>
1.2 "APPLICABLE PRIME RATE" shall mean the annual rate of interest
announced by Chase Manhattan Bank, National Association, New York, New York
("Chase") from time to time as its prime or base rate, which rate shall be the
rate used by Chase as a base or standard for pricing purposes and which shall
not necessarily be its "best" or lowest rate. Should Chase cease to announce a
prime or base rate or should it be merged, consolidated, liquidated or dissolved
in such a manner that it loses its separate corporate identity, then the
Applicable Prime Rate shall be the Prime Rate published by the WALL STREET
JOURNAL in its "Money Rates" column, or a similar rate if such rate ceases to be
published. Any changes in the Applicable Prime Rate shall be effective as of
the date of the change.
1.3 "BUSINESS DAY" shall mean a day other than a Saturday, Sunday or a day
upon which banks in the State of Oklahoma are closed to business generally.
1.4 "CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, together with all regu-
lations and rulings promulgated with respect thereto.
1.5 "CLOSING DATE" shall mean the effective date of this Agreement.
1.6 "COLLATERAL" shall have the meaning assigned to that term in Article V
of this Agreement.
1.7 "COMMITMENTS" shall mean the Revolving Credit Commitment and the
Convertible Commitment.
1.8 "CONVERTIBLE LOANS" shall mean the convertible loans made to the Bor-
rowers which are described in Section 3.1 hereof.
1.9 "CONVERTIBLE NOTE" shall mean the Borrowers' joint and several
$20,000,000 promissory note in the form of EXHIBIT "B" annexed to this
Agreement, to be delivered to the Bank pursuant to Section 3.2 hereof, together
with each and every replacement, extension, renewal, modification, substitution
and change in form thereof which may be from time to time and for any term or
terms effected
1.10 "CORNERSTONE MORTGAGE" shall have the meaning assigned to that term in
Article IV of this Agreement.
1.11 "CORNERSTONE PLEDGE" shall have the meaning assigned to that term in
Article IV of this Agreement.
1.12 "CGP DEED OF TRUST" shall have the meaning assigned to that term in
Article IV of this Agreement.
1.13 "CPC ASSIGNMENT" shall have the meaning assigned to that term in
Article IV of this Agreement.
1.14 "CPC DEED OF TRUST" shall have the meaning assigned to that term in
Article IV of this Agreement.
1.15 "CPC MORTGAGE" shall have the meaning assigned to that term in Article
IV of this Agreement.
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1.16 "CPC PLEDGE" shall have the meaning assigned to that term in Article
IV of this Agreement.
1.17 "CURRENT ASSETS" shall mean the amount of the current assets
determined in accordance with GAAP on a consolidated basis.
1.18 "CURRENT LIABILITIES" shall mean the amount of current liabilities
determined in accordance with GAAP on a consolidated basis.
1.19 "CURRENT RATIO" shall mean the ratio of Current Assets to Current
Liabilities.
1.20 "DEBT SERVICE" shall mean, for the applicable time period being
tested, for the Borrowers on a consolidated basis, an amount equal to the sum of
(i) the scheduled payments of principal and interest on the Convertible Note,
including, if applicable, mandatory prepayments required thereon, (ii) the
scheduled payments of principal and interest on the Preferred Shareholders'
Notes, and (iii) interest paid on the Revolving Credit Note, including, if
applicable, mandatory prepayments required thereon, for such period.
1.21 "DEFAULT RATE" shall mean the Applicable Prime Rate plus eight
percentage points (8%), but in no event in excess of the rate permitted by
applicable law.
1.22 "DUBACH MORTGAGE" shall have the meaning assigned to that term in
Article IV of this Agreement.
1.23 "EBITDA" shall mean, for the Borrowers on a consolidated basis, an
amount determined in accordance with GAAP for the immediately preceding six (6)
calendar months (as of the close of the second and last fiscal quarters of each
fiscal year), which is equal to (A) the sum of (i) net income, (ii) depreciation
and amortization, (iii) deferred taxes, and (iv) interest expense (but only to
the extent such items, if any, have been deducted in the calculations of clause
(i) hereof above), less (B) CPC's pro rata share of the scheduled payments of
principal and interest on the existing indebtedness (approximately $3,600,000)
of Mountain Creek Partnership (as hereinafter defined) to General Electric
Capital Corp.
1.24 "ELIGIBLE ACCOUNTS" shall mean an Account (as defined in Article 9 of
the applicable Uniform Commercial Code) which meets the following standards
until the same is collected in full:
(a) The Account is owned by and payable to one the Borrowers and
represents a sum of money (exclusive of interest, late charges or carrying
charges) unconditionally due and owing not more than ninety (90) days from
the invoice date from an account debtor ("Account Debtor") thereof for
services rendered or goods sold or leased by such Borrower to such Account
Debtor in the ordinary course of business and which services or goods have
been accepted by the Account Debtor, whether invoiced or not, and such sum
of money does not remain unpaid for a period in excess of ninety (90) days
beyond the invoice date from such Borrower; it being the express intention
of the parties hereto that if five percent (5%) or more of any Account or
Accounts with any Account Debtor shall be unpaid for a period in excess of
such ninety (90) days, all such Accounts with such Account Debtor shall be
ineligible for inclusion in the Borrowing Base and none thereof shall
constitute an Eligible Account so long as such delinquency shall exist;
(b) The Account is not a contra account and is not otherwise subject
to any dispute, set-off, recoupment, counterclaim or other claim which
would reduce the
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amount to be paid by the Account Debtor to any Borrower, and the Account Debtor
has not received or requested permission to pay the same in installments at
dates later than were originally due and payable; it being further understood
that contract retainages will not constitute Eligible Accounts;
(c) The Account Debtor is a Person (including a partnership of which
all partners are residents of the continental United States of America)
domiciled in, a resident of or duly organized under the laws of one of the
states of the United States of America or the District of Columbia (except,
at Bank's option Account Debtors residing in Canada which constitute
reliable credit);
(d) The Account Debtor has not ceased business, made an assignment
for the benefit of creditors or attempted to make a composition with its
creditors and no trustee, receiver, liquidator, conservator, custodian or
like officer has been appointed to take custody, possession or control of
the Account Debtor or any substantial portion of the assets in general of
such Account Debtor. The Account Debtor has not become or been adjudged to
be insolvent, requested or consented to the appointment of any receiver,
trustee, custodian, liquidator or like officer or become subject to the
control or supervision of any court or other governmental body or officer
for the purpose of liquidating its assets, winding up its affairs or for
the purpose of any financial reorganization, rehabilitation or other relief
under any law or statute now or hereafter in force affording relief to
debtors from their obligations or affecting the rights of creditors
generally;
(e) If (i) the aggregate accounts of any one Uninsured Account Debtor
constitute more than ten percent (10%) of the total accounts of the
Borrowers at any one time, the amount of all such accounts in excess of ten
percent (10%) shall be deemed ineligible for Borrowing Base purposes or
(ii) the aggregate accounts of any one Insured Account Debtor constitute
more than twenty-five percent (25%) of the total Insured Eligible Accounts
of the Borrowers at any one time, the amount of all such Insured Eligible
Accounts in excess of twenty five percent (25%) shall be deemed ineligible
for Borrowing Base purposes; provided however, that upon prior application
by such Borrower to the Bank setting forth in writing the extent of and
reasons for the excess of concentration limits, the Bank in its sole
discretion may in writing allow certain Uninsured Eligible Accounts in
excess of the ten percent (10%) concentration limit for Uninsured Eligible
Accounts to be included in Eligible Accounts;
(f) The Borrowers have in their possession and under their control or
have furnished to the Bank invoices and other written business records and
memoranda sufficient to document and verify the Borrowers' Accounts and the
amount thereof and to enforce collection thereof;
(g) The Account Debtor has neither attempted to request any allowance
in adjustment with respect to such services, nor made partial payment on a
specific invoice or amount due under an applicable contract which is being
disputed;
(h) The Account is not evidenced by any promissory note, trade
acceptance, negotiable instrument or judgment and does not constitute
Chattel Paper (as defined in Article 9 of the applicable Uniform Commercial
Code);
(i) All claims required to be filed in any public office or with any
public officer in connection with the Account have been duly filed with and
accepted by the appropriate public office or officer;
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(j) The Account Debtor is neither a Borrower, a parent, subsidiary
nor a corporate affiliate of a Borrower, nor a corporation, partnership or
other entity controlled directly of indirectly by a Borrower;
(k) The Account Debtor is not a director, officer or an employee of
any Borrower, nor a member of the family of any director, officer or
employee of any Borrower, nor any proprietorship or partnership owned in
whole or in part by any such director, officer or employee of any Borrower,
or by any member of the family of any such person;
(l) The Account is not subject to the federal statutes requiring
notice of the assignment of claims against the United States of America,
unless (i) such Borrower shall have given the Bank advance notice of the
officer, office and filing address for notice, and telephone number for
such office, (ii) such Borrower shall have executed all documents which
shall have been requested by the Bank in connection with the notice of
assignment of such claims, (iii) the Bank shall have filed such notice in
the appropriate manner and shall have received confirmation thereof to its
satisfaction, and (iv) the Bank shall have received an opinion of Bor-
rowers' counsel, acceptable to the Bank and its counsel, to the effect that
all requisite action has been taken to properly perfect the Bank's security
interest in such Account and to properly provide notice of such assignment
of claims;
(m) The Account Debtor is not a governmental entity or a foreign
(i.e., residing or incorporated in or organized under a jurisdiction
outside the United States) Person (except, at Bank's option, for foreign
Account Debtors which such Borrower has reasonably demonstrated to
constitute reliable credits based on the prior experience of such Borrower
or others, or the Account Debtor has caused to be issued to such Borrower
an irrevocable letter of credit for the full amount of such account) and is
not a parent, subsidiary or affiliate of a Borrower;
(n) The Account is exclusive of any commissions or fees earned by
sales representatives or others and any freight charges;
(o) The Bank has not notified the Borrowers that the Account or the
Account Debtor is unsatisfactory, based upon reasonable credit standards;
and
(p) The Bank has a first and prior security interest in the Account
and its proceeds.
The above specifications with respect to the term "Eligible Accounts" are
special specifications adopted for the purpose of determining the Revolving
Credit Borrowing Base and the designation of such specifications shall not be
interpreted to limit in any respect any security interest granted to the Bank.
1.25 "ELIGIBLE LIQUID INVENTORY" shall mean Borrowers' natural gas liquids
owned, held and/or stored by Borrowers from time to time.
1.26 "ENVIRONMENTAL LAWS" shall mean Laws, including without limitation
federal, state or local Laws, ordinances, rules, regulations, interpretations
and orders of courts or administrative agencies or authorities relating to
pollution or protection of the environment (including, without limitation,
ambient air, surface water, groundwater, land surface and subsurface strata),
including without limitation CERCLA, SARA, RCRA, HSWA, OPA, HMTA, TSCA and other
Laws relating to (i) Polluting Substances or (ii) the manufacture,
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processing, distribution, use, treatment, handling, storage, disposal or
transportation of Polluting Substances.
1.27 "EQUIPMENT" shall mean all loops, laterals, pipe, fittings,
connections, valves, mains, meters, compressors, dehydrators, scrubbers,
controls, tubing, rods, gauges, regulators, coolers, starters, motors, engines,
tanks, housings, leaders, orifices, separators and other personal property used
or useful in processing, transporting, storing, treating and/or delivering
natural gas and products derived from natural gas and all replacements or
substitutions thereof or therefor.
1.28 "ERISA" shall mean the Federal Employee Retirement Income Security Act
of 1974, as amended, together with all regulations and rulings promulgated with
respect thereto.
1.29 "EVENT OF DEFAULT" shall mean any of the events specified in Section
8.1 of this Agreement, and "DEFAULT" shall mean any event, which together with
any lapse of time or giving of any notice, or both, would constitute an Event of
Default.
1.30 "EXISTING CREDIT AGREEMENT" shall mean that certain Revolving
Agreement dated as of November 2, 1993, as amended by that certain First
Amendment thereto dated as of September 30, 1994, as further amended by that
certain Second Amendment thereto dated as of January 4, 1995, and as further
amended by that certain Third Amendment thereto dated as of March 31, 1995 among
Borrowers (including certain predecessors thereof) and the Bank.
1.31 "GAAP" shall mean generally accepted accounting principles applied on
a consistent basis in all material respects to those applied in the preceding
period, unless the Borrowers' outside accountants determine that there should be
a different application based upon relevant accepted Financial Accounting
Standards. Unless otherwise indicated herein, all accounting terms will be
defined according to GAAP.
1.32 "HEREBY", "HEREIN", "HEREOF", "HEREUNDER" and similar such terms shall
mean and refer to this Agreement as a whole and not merely to the specific
section, paragraph or clause in which the respective word appears.
1.33 "HMTA" shall mean the Hazardous Materials Transportation Act, as
amended, together with all regulations and rulings promulgated with respect
thereto.
1.34 "HSWA" shall mean the Hazardous and Solid Waste Amendments of 1984, as
amended, together with all regulations and rulings promulgated with respect
thereto.
1.35 "HYDROCARBONS" shall mean oil, casinghead gas, natural gas and all
other liquid and gaseous hydrocarbons.
1.36 "INDEBTEDNESS" shall mean and include any and all: (i) indebtedness,
obligations and liabilities of the Borrowers to the Bank incurred or which may
be incurred or purportedly incurred hereafter pursuant to the terms of this
Agreement or any of the other Loan Documents, and any replacements, amendments,
extensions, renewals, substitutions, amendments and increases in amount thereof,
including such amounts as may be evidenced by the Notes and all lawful interest,
late charges, loan closing fees, service fees, origination/facility fees,
commitment fees, fees in lieu of balances, letter of credit fees and other
charges, and all reasonable costs and expenses incurred in connection with the
preparation, filing and recording of the Loan Documents, including reasonable
attorneys fees and legal expenses; (ii) all reasonable costs and expenses paid
or incurred by the Bank, including reasonable attorneys fees, in enforcing or
attempting to enforce collection of any Indebtedness and in enforcing or
realizing upon or
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attempting to enforce or realize upon any collateral or security for any
Indebtedness, including interest on all sums so expended by the Bank accruing
from the date upon which such expenditures are made until paid, at an annual
rate equal to the Default Rate; and (iii) all sums expended by the Bank in
curing any Event of Default or Default of the Borrowers under the terms of this
Agreement, the other Loan Documents or any other writing evidencing or securing
the payment of the Notes together with interest on all sums so expended by the
Bank accruing from the date upon which such expenditures are made until paid, at
an annual rate equal to the Default Rate.
1.37 "INSURED ELIGIBLE ACCOUNTS" shall mean the insured amount of Accounts,
otherwise eligible in accordance with the terms and provisions of Section 1.15
hereof, that are insured by American Credit Indemnity Insurance Company
("ACIIC") in accordance with and subject to the limitations of the ACIIC policy
and scheduled limitations per approved account debtors. "UNINSURED ELIGIBLE
ACCOUNTS shall mean all Accounts, otherwise eligible in accordance with the
terms and provisions of Section 1.15 hereof, other than and excluding Insured
Eligible Accounts; provided, however, all Uninsured Eligible Accounts, to the
extent they evidence gas trade receivables of any of the Borrowers, in excess of
$250,000 shall be backed by standby letters of credit in favor of the applicable
Borrower, as beneficiary, and satisfactory in form and content to the Bank,
except and only if the Bank waives such standby letter of credit requirement in
writing following the Bank's review and approval of such account debtor's
credit.
1.38 "INVENTORY" shall mean and include all of Borrowers' Hydrocarbons,
products derived from Hydrocarbons and other goods intended for sale or lease,
advertising materials and all supplies of every kind or nature which are used or
may be used in processing, treating, refining, fractionation, selling, shipping,
advertising or furnishing of goods (including Hydrocarbons or products derived
from Hydrocarbons), whether now owned or hereafter acquired and wherever
located.
1.39 "LAWS" shall mean all statutes, laws, ordinances, regulations, orders,
writs, injunctions, or decrees of the United States, any state or commonwealth,
any municipality, any foreign country, any territory or possession, or any
Tribunal.
1.40 "LETTERS OF CREDIT" shall mean any and all letters of credit issued by
the Bank pursuant to the request of any of the Borrowers in accordance with the
provisions of Section 2.2 hereof which at any time remain outstanding and
subject to draw by the beneficiary, whether in whole or in part.
1.41 "LIEN" shall mean any mortgage, pledge, security interest, assignment,
encumbrance, lien or charge of any kind (including any agreement to give any of
the foregoing, any conditional sale or other title retention agreement, any
lease in the nature thereof, and the filing of or agreement to give any
financing statement or other similar form of public notice under the Laws of any
jurisdiction).
1.42 "LOAN DOCUMENTS" shall mean this Agreement, the Notes, the Security
Instruments, including without limitation, the Cornerstone Mortgage, the Dubach
Mortgage, the CGP Deed of Trust, the CPC Deed of Trust, the CPC Mortgage, the
CPC Assignment, the PPC Deed of Trust, the CGGC Deed of Trust, the Cornerstone
Pledge, the CPC Pledge, the Dubach Pledge, the Security Agreement, the ACIIC
Assignment and all other documents, instruments and certificates executed and
delivered to the Bank by the Borrowers pursuant to the terms of this Agreement
and/or the Existing Credit Agreement.
1.43 "LOANS" shall mean all advances made and Letter of Credit draws funded
hereunder pursuant to either of the Commitments, including all sums evidenced by
the Notes.
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1.44 "MORTGAGED PROPERTY" shall mean the property covered by the
Cornerstone Mortgage, the Dubach Mortgage, the CGP Deed of Trust, the CPC Deed
of Trust, the CPC Mortgage and the PPC Deed of Trust defined in Article IV of
this Agreement.
1.45 "NOTES" shall mean the Revolving Credit Note and the Convertible Note.
1.46 "OPA" shall mean the Oil Pollution Act of 1990, as amended, together
with all regulations and rulings promulgated with respect thereto.
1.47 "PERSON" shall mean and include an individual, a partnership, a joint
venture, a corporation, a limited liability company, a trust, an unincorporated
organization, and a government or any department, agency or political
subdivision thereof.
1.48 "POLLUTING SUBSTANCES" shall mean all pollutants, contaminants,
chemicals or industrial, toxic or hazardous substances or wastes and shall
include, without limitation, any flammable explosives, radioactive materials,
oil, hazardous materials, hazardous or solid wastes, hazardous or toxic
substances or related materials defined in CERCLA/SARA, RCRA/HSWA and in the
HMTA; provided, in the event either CERCLA/SARA, RCRA/HSWA or HMTA is amended so
as to broaden the meaning of any term defined thereby, such broader meaning
shall apply subsequent to the effective date of such amendment and, provided
further, to the extent that the Laws of any State or other Tribunal establish a
meaning for "hazardous substance, "hazardous waste," "hazardous material,"
"solid waste" or "toxic substance" which is broader than that specified in
CERCLA/SARA, RCRA/HSWA, or HMTA, such broader meaning shall apply.
1.49 "PPC DEED OF TRUST" shall have the meaning assigned to that term in
Article IV of this Agreement.
1.50 "PREFERRED SHAREHOLDERS' NOTES" shall mean those certain promissory
notes in the aggregate principal amount of $2,500,000 made by Cornerstone to the
order of each of the Preferred Shareholders under and pursuant to that certain
Debtors' First Amended Joint Plan of Reorganization filed in Case No. 93-40805A
in the United States Bankruptcy Court for the Eastern District of Texas, Sherman
Division.
1.51 "RCRA" shall mean the Resource Conservation and Recovery Act of 1976,
as amended, together with all regulations and rulings promulgated with respect
thereto.
1.52 "REVOLVING CREDIT BORROWING BASE" shall have the meaning assigned to
that term in Section 2.4 of this Agreement.
1.53 "REVOLVING CREDIT COMMITMENT" shall mean the agreement of the Bank to
make Revolving Credit Loans under Article II of this Agreement, and pursuant to
the terms and conditions hereof, from the Closing Date until April 30, 1997, or
such later date as the Bank may extend the commitment by an extension in
writing, unless earlier terminated pursuant to the terms hereof.
1.54 "REVOLVING CREDIT LOANS" shall mean the advances to the Borrowers
described in Section 2.1 of this Agreement, including the sum of unfunded,
outstanding Letters of Credit issued pursuant thereto.
1.55 "REVOLVING CREDIT NOTE" shall mean the Borrowers' joint and several
$10,000,000 revolving credit note in the form of EXHIBIT "A" annexed to this
Agreement, to be delivered to the order of the Bank pursuant to Section 2.2
hereof, together with any and all
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extensions, renewals, modifications, substitutions and changes in form thereof
which may be from time to time and for any term or terms effected.
1.56 "SARA" shall mean the Superfund Amendments and Reauthorization Act of
1987, as amended, together with all regulations and rulings promulgated with
respect thereto.
1.57 "SECURITY AGREEMENT" shall have the meaning assigned to that term in
Article V of this Agreement.
1.58 "Security Instruments" shall mean the Cornerstone Mortgage, the Dubach
Mortgage, the CGP Deed of Trust, the CPC Deed of Trust, the CPC Mortgage, the
CPC Assignment, the PPC Deed of Trust, the Cornerstone Pledge, the CPC Pledge,
the CPC Assignment, the Third Amended and Restated Security Agreement and
Assignment and all other financing statements, assignments, security agreements,
pledges, negative pledges, lien entry forms, documents or writings and any and
all amendments and supplements thereto, granting, conveying, assigning, trans-
ferring or in any manner providing the Bank with a security interest in any
property as security for the repayment of all or any part of the Indebtedness.
1.59 "TAXES" shall mean all taxes, assessments, fees, or other charges or
levies from time to time or at any time imposed by any Laws or by any Tribunal.
1.60 "TOTAL LIABILITIES" shall mean the amount of all liabilities
determined in accordance with GAAP on a consolidated basis.
1.61 "TRIBUNAL" shall mean any municipal, state, commonwealth, Federal,
foreign, territorial or other sovereign, governmental entity, governmental
department, court, commission, board, bureau, agency or instrumentality.
1.62 "TSCA" shall mean the Toxic Substances Control Act, as amended,
together with all regulations and rulings promulgated with respect thereto.
ARTICLE II
REVOLVING CREDIT LOANS
2.1 REVOLVING CREDIT LOANS. The Bank agrees, upon the terms and subject
to the conditions hereinafter set forth, to make loans ("Revolving Credit
Loans") to the Borrowers from the Closing Date until April 30, 1997, or until
such later date as the Bank shall have extended its Revolving Credit Commitment
in writing unless the Revolving Credit Commitment shall be sooner terminated
pursuant to the provisions of this Agreement, in such amounts as may from time
to time be requested by the Borrowers so long as the aggregate unpaid principal
amount of all Revolving Credit Loans advanced, outstanding and unpaid at any
time under the Revolving Credit Note as cash advances thereon (excluding the
unfunded portions of outstanding Letters of Credit issued pursuant to Section
2.8 hereof) do not exceed the LESSER of (i) $6,000,000 through September 30,
1995 and $4,000,000 from and after October 1, 1995 or (ii) the remainder of the
Revolving Credit Borrowing Base (as defined in Section 2.4 hereof) less the
aggregate sum of outstanding Letters of Credit issued pursuant to Section 2.8
hereof and further provided that in no event shall the Revolving Credit Loans
(including unfunded portions of outstanding Letters of Credit) exceed the LESSER
of (x) the Revolving Credit Borrowing Base or (y) $10,000,000.
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2.2 REVOLVING CREDIT NOTE. On the Closing Date, the Borrowers shall
execute and deliver to the order of the Bank the Borrowers' joint and several
revolving credit note in the maximum principal amount of $10,000,000, the form
of which is annexed hereto as EXHIBIT "A" and hereby made a part hereof
(hereinafter referred to as "Revolving Credit Note"). The Revolving Credit Note
shall be dated as of the Closing Date, and shall bear interest payable monthly
on the last day of every month commencing May 31, 1995, on unpaid balances of
principal from time to time outstanding and on any past due interest at a
variable annual rate equal from day to day to the Applicable Prime Rate plus two
percentage points (2%), but in no event at a rate which is greater than
permitted by applicable law. After maturity (whether by acceleration or
otherwise) the Revolving Credit Note shall bear interest at the Default Rate,
payable on demand. Interest shall be calculated on the basis of a year of 360
days but assessed for the actual number of days elapsed.
2.3 REVOLVING CREDIT ADVANCES, PAYMENTS AND VOLUNTARY PREPAYMENT. Each
Revolving Credit Loan requested by the Borrowers from the Bank shall (i) be
requested in writing by Cornerstone, for itself and as agent for each of the
other Borrowers pursuant to a Loan Advance Request, the form of which is annexed
hereto as EXHIBIT "C", no later than 12:00 noon (applicable current time in
Tulsa, Oklahoma) on the date upon which the advance is to be made; (ii) be in
the amount of $10,000 or an integral multiple thereof (unless the amount then
available to borrow is less than $10,000, in which event an advance may be made
in the amount available); (iii) not cause the aggregate outstanding and unpaid
principal amount of the Revolving Credit Note to exceed the Revolving Credit
Borrowing Base; and (iv) be advanced by the Bank on the applicable date,
provided the request is timely made in accordance with Section 2.3(i) hereof and
all other conditions of funding are met. Borrowers hereby appoint Cornerstone,
as the Borrowers' duly authorized agent for all purposes hereunder in connection
with Revolving Credit Loans and applications for the issuance of letters of
credit pursuant to this Article II, including (without limitation) the execution
and delivery to the Bank for and on behalf of all of the Borrowers Loan Advance
Requests and letters of credit applications. All advances made by the Bank
shall, for mutual convenience, be deposited to Borrowers' joint general deposit
account No. 207898772 with the Bank (the "General Account"), and the Bank shall
have no responsibility to monitor the distribution of such advances in any other
respect.
The Borrowers may from time to time make prepayments of principal without
premium or penalty. The Borrowers may reborrow subject to the limitations and
conditions for Revolving Credit Loans contained herein. All advances made by
the Bank on the Revolving Credit Note and all payments or prepayments of
principal and interest thereon made by the Borrowers shall be recorded by the
Bank in its records, and the aggregate unpaid principal amount so recorded shall
be conclusive evidence of the principal amount owing and unpaid on the Revolving
Credit Note. The failure to so record shall not, however, limit or otherwise
affect the obligations of the Borrowers hereunder or under the Revolving Credit
Note to repay the principal amount of each Revolving Credit Loan together with
all interest accrued thereon. If additional lines or blanks shall be needed for
the purpose of recording advances or payments on the schedule, one or more
additional schedules may be annexed to the Revolving Credit Note and shall
become a part thereof. All payments and prepayments shall be made in lawful
money of the United States of America. Any payments or prepayments on the
Revolving Credit Note received by the Bank after 12:00 noon (applicable current
time in Tulsa, Oklahoma) shall be deemed to have been made on the next
succeeding Business Day. All outstanding principal of and accrued interest on
the Revolving Credit Note not previously paid hereunder shall be due and payable
at maturity on April 30, 1997, unless such maturity shall be extended by the
Bank in writing or accelerated pursuant to the terms hereof.
2.4 REVOLVING CREDIT BORROWING BASE. The Borrowers will not request, nor
will they accept, the proceeds of any revolving Credit Loans or advance under
the Revolving Credit
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Note at any time when the amount thereof, together with the unpaid principal
amount of the Revolving Credit Note and outstanding but unfunded letters of
credit, exceeds the Revolving Credit Borrowing Base. As used in this Agreement,
the term "Revolving Credit Borrowing Base" shall mean an amount equal to the
lesser of (i) $10,000,000, and (ii) the sum of (x) eighty percent (80%) of
Borrowers' Uninsured Eligible Accounts as of the last Business Day of the
immediately preceding calendar month plus (y) ninety five percent (95%) of
Borrowers' Insured Eligible Accounts as of the last Business Day of the
immediately preceding calendar month plus (z) fifty percent (50%) of Borrowers'
Eligible Liquid Inventory (such amount of (z) being limited in all respects to a
sum not greater than thirty percent (30%) of the aggregate Revolving Credit
Borrowing Base).
2.5 VARIANCE FROM REVOLVING CREDIT BORROWING BASE. Any Revolving Credit
Loan shall be conclusively presumed to have been made to the Borrowers by the
Bank under the terms and provisions hereof and shall be secured by all of the
Collateral and security described or referred to herein or in the Security
Instruments, whether or not such loan conforms in all respects to the terms and
provisions hereof. If the Bank should (for the convenience of the Borrowers or
for any other reason) make loans or advances which would cause the unpaid
principal amount of the Revolving Credit Note to exceed the amount of the
applicable Revolving Credit Borrowing Base, no such variance, change or
departure shall prevent any such loan or loans from being secured by the
Collateral and security created or intended to be created herein or in the
Security Instruments. The Revolving Credit Borrowing Base shall not in any
manner limit the extent or scope of the Collateral and security granted for the
repayment of the Revolving Credit Note (or any other Indebtedness) or limit the
amount of indebtedness under the Revolving Credit Note (or any other
Indebtedness) to be secured.
2.6 REVOLVING CREDIT MANDATORY PREPAYMENTS AND DEPOSITS. The Borrowers
shall make mandatory prepayments from time to time on the Revolving Credit Note
in an amount equal to the amount by which the unpaid principal balance
outstanding under the Revolving Credit Note exceeds the Revolving Credit
Borrowing Base. Each such mandatory prepayment shall be paid prior to the
earlier of (a) one Business Day after any of the Borrowers shall have knowledge
that the unpaid principal amount of the Revolving Credit Note exceeds the
Revolving Credit Borrowing Base, or (b) one Business Day after the Bank shall
have made demand that the Borrowers make such a mandatory prepayment.
In the event the sum of (i) the aggregate unfunded amount of issued and
outstanding letters of credit (the initial face amount thereof as reduced by the
aggregate draws thereagainst) plus (ii) outstanding Revolving Credit Loan cash
advances exceeds the Revolving Credit Borrowing Base at any time, the Borrowers
shall make mandatory prepayments from the Lockboxes (as described in Section 4.2
hereof) in amounts necessary to eliminate the outstanding balance of Revolving
Credit Loan cash advances and Borrowers shall make deposits to the cash
collateral account No. 103804121 at the Bank in an amount equal to 110% of the
amount, if any, by which the aggregate unfunded amount of issued and outstanding
letters of credit exceeds the Revolving Credit Borrowing Base. Thereafter, the
Revolving Credit Borrowing Base shall be calculated weekly as of each Thursday
until such time as the Revolving Credit Borrowing Base exceeds the sum of the
aggregate current unfunded face amount of the then issued and outstanding
letters of credit plus outstanding Revolving Credit Loan cash advances, if any,
for a period of four consecutive weeks, following which time the Bank shall
transfer the amount of the aforesaid mandatory deposit to the General Account.
2.7 COMMITMENT FEES. From the Closing Date until the Revolving Credit
Commitment is terminated, the Borrowers shall pay to the Bank, as a commitment
fee for its Revolving Credit Commitment, an amount equal to one-half of one
percentage point (0.5%) per annum of the amount by which $10,000,000 exceeds the
outstanding unpaid principal balance
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of the Revolving Credit Note from time to time computed daily on the basis of a
calendar year of 360 days but assessed for the actual number of days elapsed
during each accrual period. Such fee shall be payable quarterly as the same
accrues on the fifteenth (15th) day after the end of each quarter-annual period
ending March 31, June 30, September 30 and December 31, commencing July 15,
1995, and at the maturity of the Revolving Credit Note, whether by acceleration
or otherwise. Not sooner than three (3) days following the mailing by regular
mail of notice of an intended debit, the amount of Commitment Fees payable for
each such quarter shall be paid by debit to the General Account of Borrowers at
the Bank (as more particularly described in Section 2.3 hereof) in such amount.
For the purposes of this Section 2.7 and Section 2.8 below, Borrowers hereby
appoint the Bank their attorney-in-fact for the execution and performance of
such debits, and hereby absolve the Bank of any loss or negligence arising by
virtue of its exercise of such power, except for gross negligence or willful
misconduct. Said power shall be deemed a power coupled with an interest and
shall be irrevocable.
2.8 LETTERS OF CREDIT. Upon the Borrowers' application from time to time
by use of the Bank's standard form Letter of Credit Application Agreement and
subject to the terms and provisions therein and herein set forth, the Bank
agrees to issue standby letters of credit on behalf of the Borrowers under the
Revolving Credit Commitment to fund Borrowers' short-term working capital
requirements and to support natural gas purchases and marketing by Borrowers,
provided that (i) any letters of credit be issued on behalf of or on the account
of Borrowers with an expiry date later than April 30, 1997, will, at the Bank's
sole option, be fully secured and collateralized by cash or cash equivalent
acceptable to the Bank in its sole discretion and held thereby from and after
maturity on April 30, 1997, until expiration or cancellation of such letter(s)
of credit or payment of all draws thereon on demand of the Bank, (ii) no letter
of credit will be issued on behalf of or for the account of the Borrowers if at
the time of issuance the outstanding amount of all unpaid Revolving Credit Loans
(including the aggregate outstanding and unfunded amount of unexpired letters of
credit then existing) under the Revolving Credit Commitment as evidenced by the
Revolving Credit Note plus the maximum amount of such Letter of Credit then
being requested would exceed the Revolving Credit Borrowing Base and (iii) each
Letter of Credit issued on a Borrower's behalf in support of natural gas
purchases thereby shall contain language acceptable to the Bank pertaining to
automatic cancellation/reduction, as applicable, contemporaneous with payment
via wire transfer to the gas seller. If any letter of credit is drawn upon at
any time, each amount drawn, whether a full or partial draw thereon, shall be
paid by wire transfer and reflected by the Bank as an advance on the Revolving
Credit Note effective as of the date of the Bank's honoring the sight draft and
such letter of credit shall be cancelled immediately upon such wire transfer.
In consideration of the Bank's agreement to issue letters of credit hereunder,
the Borrowers agree to pay to the Bank letter of credit fees equal to two
percent (2%) per annum on the face amount of each letter of credit plus normal
processing fees, which such fees shall be due and payable to the Bank at the
time of issuance of each applicable letter of credit and shall be paid by debit
in such amount to the General Account, not sooner than three (3) days following
the mailing by regular mail of notice of such intended debit. All letters of
credit issued by the Bank pursuant to this Agreement shall specify the volume,
source and delivery period pertaining to the transaction.
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ARTICLE III
CONVERTIBLE LOANS
3.1 CONVERTIBLE LOANS. The Bank agrees, upon the terms and subject to the
conditions hereinafter set forth, to make revolver loans from time to time, the
unpaid principal balance of which is convertible to a thirty (30) month term
loan on December 31, 1996 (the "Convertible Loans") on or after the Closing Date
to the Borrowers in an amount equal to the LESSER of the maximum unpaid
principal amount of $12,000,000 or the Convertible Borrowing Base as defined in
Section 3.5 hereof, subject to reduction as hereinafter provided. Each
Convertible Loan requested by the Borrowers from the Bank from the Closing Date
until December 31, 1996, shall (i) be requested in writing by Cornerstone, for
itself and as agent for each of the other Borrowers pursuant to a Convertible
Loan Advance Request, the form of which is annexed hereto as EXHIBIT "C-1", no
later than 12:00 noon (applicable current time in Tulsa, Oklahoma) on the date
upon which the advance is to be made; (ii) be in the amount of $10,000 or an
integral multiple thereof (unless the amount then available to borrow is less
than $10,000, in which event an advance may be made in the amount available);
(iii) not cause the aggregate outstanding and unpaid principal amount of the
Convertible Note to exceed the Convertible Borrowing Base; and (iv) be advanced
by the Bank on the applicable date, provided the request is timely made in
accordance with Section 3.1(i) hereof and all other conditions of funding are
met. Borrowers hereby appoint Cornerstone, as the Borrowers' duly authorized
agent for all purposes hereunder in connection with Convertible Loans pursuant
to this Article III, including (without limitation) the execution and delivery
to the Bank for and on behalf of all of the Borrowers' Convertible Loan Advance
Requests. All advances made by the Bank shall, for mutual convenience, be
deposited to Borrowers' joint general deposit account No. 207898772 with the
Bank (the "General Account"), and the Bank shall have no responsibility to
monitor the distribution of such advances in any other respect. The Borrowers
may reborrow subject to the limitations and conditions for Convertible Loans
contained herein. All advances made by the Bank on the Convertible Note and all
payments or prepayments of principal and interest thereon made by the Borrowers
shall be recorded by the Bank in its records, and the aggregate unpaid principal
amount so recorded shall be conclusive evidence of the principal amount owing
and unpaid on the Convertible Note. The failure to so record shall not, how-
ever, limit or otherwise affect the obligations of the Borrowers hereunder or
under the Convertible Note to repay the principal amount of each Convertible
Loan together with all interest accrued thereon. If additional lines or blanks
shall be needed for the purpose of recording advances or payments on the
schedule, one or more additional schedules may be annexed to the Convertible
Note and shall become a part thereof.
3.2 CONVERTIBLE NOTE. On the Closing Date the Borrowers shall execute and
deliver to the order of the Bank the Borrowers' joint and several note in the
principal amount of $20,000,000, the form of which is annexed hereto as EXHIBIT
"B" and hereby made a part hereof (hereinafter referred to as the "Convertible
Note"). The Convertible Note shall be dated as of the Closing Date, shall
provide for monthly interest payments due on the last day of every month
commencing June 30, 1995. The unpaid and outstanding principal balance of the
Convertible Note shall be converted on December 31, 1996 to a term loan payable
in twenty-nine (29) consecutive monthly principal payments each equal to one-
sixtieth (1/60th) of the LESSER of the convertible amount or the Convertible
Borrowing Base as redetermined as of December 31, 1996 (the "Redetermined
Borrowing Base") payable on the last day of each calendar month commencing
January 31, 1997, with the remaining principal payable at final maturity on June
30, 1999. The Convertible Note shall bear interest, payable monthly on the last
day of every month commencing May 31, 1995, and at final maturity on June 30,
1999, on unpaid balances of principal from time to time outstanding and on any
past due interest at a variable annual rate equal from day to day to the
Applicable Prime Rate plus two percentage points (2%), but in no
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event at a rate greater than permitted by applicable law. All payments received
shall be applied first to accrued interest and then to the outstanding principal
amount owing on the Convertible Note. The Borrowers may from time to time make
prepayments of principal without premium or penalty, provided that on or after
January 1, 1997, interest on the amount prepaid, accrued to the prepayment date,
shall be paid on such prepayment date. The Borrowers may not reborrow any
amounts paid or prepaid on the Convertible Note on or after January 1, 1997.
All payments and prepayments shall be made in lawful money of the United States
of America. Any payments or prepayments on the Convertible Note received by the
Bank after 12:00 noon (applicable current time in Tulsa, Oklahoma) shall be
deemed to have been made on the next succeeding Business Day. All outstanding
principal of and unpaid accrued interest on the Convertible Note not previously
paid hereunder shall be due and payable at final maturity on June 30, 1999,
unless such final maturity shall be extended by the Bank in writing or acceler-
ated pursuant to the terms hereof. After maturity (whether by acceleration or
otherwise) the Convertible Note shall bear interest at the Default Rate, payable
on demand. Interest shall be calculated on the basis of a year of 360 days but
assessed for the actual number of days elapsed in each accrual period.
Notwithstanding the original face amount of the Convertible Note, in no event
shall the principal amount advanced thereon exceed $12,000,000 without the
express prior written consent of the Bank and its Participant.
3.3 PROCEEDS OF CONVERTIBLE LOANS. Proceeds of the Convertible Loans
shall be used only for the purposes of (i) payoff of existing Term Loans of
Borrowers to the Bank outstanding pursuant to the Existing Credit Agreement,
(ii) funding $3,400,000 for CPC's acquisition of 100% of the limited
partnership interests in ETI, the record owners of the Oletha System and (iii)
funding Borrowers' capital expenditure needs and general corporate purposes
disclosed in advance in reasonable written detail to Bank.
3.4 ENGINEERING FEE. Borrowers shall pay the Bank the Convertible Loans'
engineering fee in the sum of $35,000, all of which shall be paid prior to or
contemporaneously with the Closing Date.
3.5 CONVERTIBLE BORROWING BASE. The principal amount outstanding on the
Convertible Note shall not exceed the Convertible Borrowing Base. The
"Convertible Borrowing Base" shall mean the aggregate loan value attributable by
the Bank and its participant to (a) the Dubach gas plant/gathering system, (b)
the Willow Springs and North Lansing gathering systems and, (c) to the extent
actually purchased by Cornerstone in strict accordance herewith, Cornerstone's
100% limited partnership interests in Energy Transfer I, Ltd., a Texas limited
partnership and Energy Transfer II, Ltd., a Texas limited partnership
(collectively "ETI"), the present fee owner of the Oletha System (collectively
the "Systems") (provided that Cornerstone acquires such 100% limited partnership
interest in ETI no later than June 30, 1995 on terms more particularly described
on SCHEDULE I annexed hereto). Until Cornerstone closes its acquisition of the
100% limited partnership interest in ETI by June 30, 1995, the Convertible
Borrowing Base shall remain fixed in the reduced maximum amount of $8,500,000.
The Convertible Borrowing Base shall be increased to $12,000,000 contemporaneous
with CPC's limited partnership interest acquisition in ETI in accordance
herewith and satisfaction of the condition subsequent in Section 5.3 hereof.
The Convertible Borrowing Base shall be redetermined by the Bank and its
Participant on December 31, 1995, June 30, 1996 and December 31, 1996, based
upon the Bank's then existing policies for lending on collateral similar or
comparable to the Systems and the Bank's comprehensive review of Borrowers' then
current general financial condition. In no event shall the Convertible
Borrowing Base be increased above $12,000,000 (or $8,500,000 if the Oletha
System limited partnership interest acquisition is not timely consummated
pursuant to the terms hereof) notwithstanding increases in the aggregate value
of the Systems unless both the Bank and the Participant expressly agree in
writing.
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3.6 COMMITMENT FEES. From the Closing Date until the Convertible
Commitment is terminated, the Borrowers shall pay to the Bank, as a commitment
fee for its Convertible Commitment, an amount equal to one-half of one
percentage point (0.5%) per annum of the amount by which the Convertible
Borrowing Base (in no event in excess of $12,000,000) exceeds the outstanding
unpaid principal balance of the Convertible Note from time to time computed
daily on the basis of a calendar year of 360 days but assessed for the actual
number of days elapsed during each accrual period. Such fee shall be payable
quarterly as the same accrues on the fifteenth (15th) day after the end of each
quarter-annual period ending March 31, June 30, September 30 and December 31,
commencing July 15, 1995, and at the maturity of the Convertible Note, whether
by acceleration or otherwise. Not sooner than three (3) days following the
mailing by regular mail of notice of an intended debit, the amount of Commitment
Fees payable for each such quarter shall be paid by debit to the General Account
of Borrowers at the Bank (as more particularly described in Section 2.3 hereof)
in such amount. For the purposes of this Section 3.6, Borrowers hereby appoint
the Bank their attorney-in-fact for the execution and performance of such
debits, and hereby absolve the Bank of any loss or negligence arising by virtue
of its exercise of such power, except for gross negligence or willful
misconduct. Said power shall be deemed a power coupled with an interest and
shall be irrevocable.
3.7 PROCEEDS OF SALE OF COLLATERAL. In the event any interest in any of
the Collateral is sold on or after January 1, 1997, seventy-five percent (75%)
of the sales price of such Collateral shall be applied initially to the
outstanding principal balance of the Convertible Note; PROVIDED, HOWEVER, no
such sale shall occur without the prior written consent of the Bank. In the
event of any sales consummated prior to January 1, 1997, the Convertible
Borrowing Base shall be adjusted by the Bank and the outstanding balance of the
Convertible Note in excess thereof, if any, shall be paid to the Bank as a
mandatory principal prepayment thereon within ten (10) day of Cornerstone's
receipt of prepayment notice from the Bank. Unless otherwise directed by the
Bank, all such amounts shall be applied to principal installments due under the
Convertible Note in inverse order of their respective maturity.
3.8 MANDATORY PRINCIPAL PREPAYMENTS. If the outstanding principal balance
of the Convertible Note exceeds the Convertible Borrowing Base, as redetermined
on December 31, 1995, June 30, 1996 or December 31, 1996, by the Bank and its
Participant, the excess principal balance thereof shall be paid to the Bank in
the form of six (6) equal mandatory principal prepayments due on the regularly
scheduled installment due dates for the Convertible Note commencing with the
initial regularly scheduled monthly installment due after such redetermination
of the Convertible Borrowing Base.
ARTICLE IV
SECURITY
4.1 COLLATERAL. The repayment of the Indebtedness shall be secured by the
following (the collateral described herein and in the Security Instruments being
collectively referred to as the "Collateral"):
(a) A continuing security interest pertaining thereto of first
priority in, and/or assignment, as security, of:
(i) all Equipment of the Borrowers and any one of them now owned
or hereafter acquired, including all such Equipment used or useful in
Borrowers' natural gas processing, treating and fractionating plants
and refining
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and refinery plants and gathering and pipeline systems, as more
particularly described on SCHEDULE 2 attached to the Security
Agreement and at all other locations wherever they may be whether now
owned or hereafter acquired, including without limitation, all loops,
laterals, pipe, fittings, connections, mains, meters, dehydrators,
scrubbers, controls, tubing, rods, gauges, regulators, coolers,
starters, motors, engines, tanks, housing, leaders, orifices, skid-
mounted equipment, exchangers, regenerators, reboilers, refrigeration
equipment, compressors, separators, filters, meters, pumps, valves and
generators and all other natural gas or gas products or by-products,
and all spare parts, replacements or substitutions thereof and
replacements therefor, and all processing, treating, fractionating,
refining, gas gathering, transporting, storing, delivering and/or
marketing equipment and all other items or types of equipment more
particularly described on SCHEDULE 3 attached to the Security Agree-
ment (itemized per Borrowers), including any and all machinery, tools,
blueprints, plans, furniture, furnishings, fixtures and other Goods of
the Borrowers, whether now owned or hereafter acquired and all spare
parts, replacements or substitutions thereof and replacements therefor
(provided, that as to the Excelsior Pipeline in Henderson County,
Texas, owned by CPC the security interest of the Bank shall be junior
to the security interest securing the indebtedness evidenced by the
Preferred Shareholders' Notes);
(ii) all Equipment and Inventory of the Borrowers and any one of
them, wherever located and whether now owned or hereafter acquired,
including without limitation, all vehicles and other types of rolling
stock and all materials, parts and supplies of every kind and
description, of the Borrowers, including without limitation, all such
Equipment and Inventory situated at the locations described on
SCHEDULE 3 attached to the Security Agreement and at all other
locations wherever they may be;
(iii) all Accounts and Contracts of Borrowers and any one of
them, including without limitation, all accounts receivable, reim-
bursements, notes receivable, leases, lease receivables, executory
contract rights, contract rights, purchase orders, sale orders,
chattel paper, documents and instruments arising out of the sale,
processing, treating, refining, fractionation, marketing or trans-
porting of Hydrocarbons or other goods or services rendered or
pertaining thereto and any and all agreements for the sale of goods or
products or furnishing of services by any of the Borrowers, including
without limitation, all leases, lease fleet agreements, natural gas
processing contracts and sales and purchase contracts or agreements
owned or held by Borrowers or any one of them;
(iv) all General Intangibles, Chattel Paper and Instruments of
the Borrowers and any one of them, whether now owned or hereafter
acquired, including without limitation:
(a) all leases, sales contracts, purchase orders and
employee agreements;
(b) all processes, formulae, scientific and/or technical
information, trade secrets, customer lists, computer programs,
plans, reports, samples, prototypes, know-how (to the fullest
extent possible), all items in application, development or other
pending status and all similar items
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which are used in connection with the Borrowers' conduct of their
business; and
(c) all of Borrowers' rights, titles, interests, and
benefits under all partnerships and joint venture agreements
between any one or more of the Borrowers and any other Person
(except CPC's interest in and to Mountain Creek Joint Venture, a
Texas general partnership, pursuant to that certain General
Partnership Agreement between Endevco Pipeline Company, now known
as CPC, and WesNat Pipeline Company dated March 7, 1989, as
amended (the "Mountain Creek Partnership") concerning which the
Bank has a second security interest pursuant to the CPC Pledge)
including (without limitation) all right, title and interest of
CGP in that certain Joint Venture with Embee Company known as
Tembec Company arising out of and pursuant to that certain Joint
Venture Agreement between Embee Company and CGP, successor by
merger to Pentex Petroleum, Inc., dated as of August 1, 1984, as
amended from time to time and under all leases of real and
personal property (whether as lessor or lessee); provided,
however, that the Bank hereby assumes no liabilities, obligations
or responsibilities in connection therewith;
(v) all fixtures, furniture, furnishings and office equipment
of the Borrowers and any one of them, now owned or hereafter acquired,
wherever situated or located, and all additions, accessions, and
substitutions thereto and therefor, and all accessories, parts and
equipment now or hereafter affixed or used in connection with the real
property situated in Lincoln, Claiborne, Jackson, Union and Ouachita
Parishes, Louisiana (insofar as Dubach Gas Company is concerned), in
Bossier and Ouachita Parishes, Louisiana (insofar as Cornerstone
Natural Gas, Inc. is concerned), in Brazoria, Duval, DeWitt and Sutton
Counties, Texas and in Rankin County, Mississippi (insofar as Corner-
stone Gas Processing, Inc. is concerned), in Brazoria, Jefferson,
Rusk, Angelina, Cherokee, Henderson, Gregg, Jasper, Matagorda,
Nacogdoches and Shelby Counties, Texas, and East Baton Rouge,
Louisiana (insofar as Cornerstone Pipeline Company is concerned), and
in Gregg, Harrison, Panola and Rusk Counties, Texas (insofar as
Cornerstone Gas Gathering Company is concerned) and described on
SCHEDULE 4 attached to the Security Agreement, and all Goods and other
fixtures, furniture and Equipment of any one or more of the Borrowers,
including such as may be acquired with the proceeds thereof;
(vi) all cash, money, partnership or other claims, certificates
of deposit, instruments, time deposits and demand deposits of the
Borrowers and any one of them, at any time in the possession or
control of the Bank, including all lockbox accounts, collection
accounts, special accounts and/or collateral deposit accounts, and any
and all accounts, rights to payment, general intangibles and monies
due and/or to become due now or in the future by way of distribution,
including distributive shares of profits, income, distributions,
surplus and cash proceeds, including distributive shares of properties
and assets upon dissolution or otherwise;
(vii) all ledgers, journals, books, records, vouchers,
shipping tickets, receipts, sales memoranda, contracts, partnership
agreements, joint venture agreements (except Mountain Creek
Partnership concerning which the Bank has a second security interest
pursuant to the CPC Pledge), correspondence and
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other writings, data or papers evidencing or relating to the items or
types of collateral described above in subsections (i) through (vi),
inclusive; and
(viii) all products and proceeds of and all replacements,
additions, substitutions, accessories, appurtenances, and parts for,
the items or types of collateral described above in subsections (i)
through (vii), inclusive, whether now owned or hereafter acquired
including, without limitation insurance proceeds.
The foregoing security interests shall be granted, restated, confirmed and
continued to and in favor of the Bank, as Secured Party, pursuant to the
terms of that certain Third Amended and Restated Security Agreement and
Assignment from the Borrowers, as Debtors (the "Security Agreement").
(b) A first and prior mortgage lien, security interest and assignment
in and to all of the Mortgaged Property, described in:
(i) that Mortgage, Collateral Assignment and Security Agreement
Securing Future Advances from Cornerstone to the Bank, dated as of
November 2, 1993, as amended by Amendment of Mortgage, Collateral
Assignment, Security Agreement from Cornerstone to the Bank, dated as
of September 30, 1994 (the "Cornerstone Mortgage");
(ii) that Mortgage, Collateral Assignment and Security Agreement
Securing Future Advances from Dubach to the Bank, dated as of November
2, 1993, as amended by Amendment of Mortgage, Collateral Assignment,
Security Agreement from Dubach to the Bank, dated as of September 30,
1994; subject, however, to the Act of Partial Release of Mortgage,
Collateral Assignment and Security Agreement Securing Future Advances
by the Bank dated as of May 20, 1994 and the Act of Partial Release of
Mortgage, Collateral Assignment and Security Agreement Securing Future
Advances by the Bank dated as of March 29, 1995 (the "Dubach
Mortgage");
(iii) that Deed of Trust, Security Agreement, Financing
Statement and Assignment (with Power of Sale) from CGP to the Trustee
therein designated for and on behalf of the Bank, dated as of November
2, 1993, as amended by First Amended Deed of Trust, Security
Agreement, Financing Statement and Assignment, dated as of September
30, 1994, Second Amended Deed of Trust, Security Agreement, Financing
Statement and Assignment,Dated as of January 4, 1995, Third Amended
Deed of Trust Security Agreement, Financing Statement and Assignment,
dated as of March 31, 1995, and as further amended by Fourth Amended
Deed of Trust, Security Agreement, Financing Statement and Assignment
dated as of even date herewith (the "CGP Deed of Trust");
(iv) that Deed of Trust, Security Agreement, Financing Statement
and Assignment (with Power of Sale) from CPC to the Trustee therein
designated for and on behalf of the Bank, dated as of November 2,
1993, as amended by First Amended Deed of Trust, Security Agreement,
Financing Statement and Assignment, dated as of September 30, 1994,
Second Amended Deed of Trust, Security Agreement, Financing Statement
and Assignment,Dated as of January 4, 1995, Third Amended Deed of
Trust Security Agreement, Financing Statement and Assignment, dated as
of March 31, 1995, and as
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further amended by Fourth Amended Deed of Trust, Security Agreement,
Financing Statement and Assignment dated as of even date herewith (the
"CPC Deed of Trust");
(v) that Mortgage, Collateral Assignment and Security Agreement
Securing Future Advances from CPC to the Bank dated as of November 2,
1993, as amended by Amendment of Mortgage, Collateral Assignment,
Security Agreement from CPC to the Bank, dated as of September 30,
1994 (the "CPC Mortgage"); and
(vi) that Deed of Trust, Security Agreement, Financing Statement
and Assignment (with Power of Sale) from Endevco Taft Company to the
Trustee therein designated for and on behalf of the Bank, dated as of
November 2, 1993, as amended by First Amended Deed of Trust, Security
Agreement, Financing Statement and Assignment, dated as of August 1,
1994, from CGGC, successor in interest to Endevco Taft Company, Second
Amended Deed of Trust, Security Agreement, Financing Statement and
Assignment, dated as of January 30, 1994, Third Amended and
Supplemental Deed of Trust, Security Agreement, Financing Statement
and Assignment dated as of January 4, 1995, Fourth Amended Deed of
Trust, Security Agreement, Financing Statement and Assignment dated as
of March 31, 1995, and Fifth Amended Deed of Trust, Security
Agreement, Financing Statement and Assignment, dated as of even date
herewith (the "CGGC Deed of Trust); and
(vi) that Deed of Trust, Security Agreement, Financing Statement
and Assignment (with Power of Sale) from PPC to the Trustee therein
designated for and on behalf of the Bank, dated as of November 2,
1993, as amended by First Amended Deed of Trust, Security Agreement,
Financing Statement and Assignment, dated as of January 4, 1995,
Second Amended Deed of Trust, Security Agreement, Financing Statement
and Assignment, dated as of March 31, 1995, and Third Amended Deed of
Trust, Security Agreement, Financing Statement and Assignment, dated
as of even date herewith (the "PPC Deed of Trust").
(c) A pledge and assignment, first and prior to all other security
interests except only the security interest securing payment of the
indebtedness evidenced by the Preferred Shareholders' Notes, in and to all
right, title and interest of CPC in and to Mountain Creek Partnership, as
described in that Assignment, Pledge and Security Agreement from CPC to the
Bank, dated as November 2, 1993, as amended by the First Amended
Assignment, Pledge and Security Agreement dated as of January 4, 1995, the
Second Amended Assignment, Pledge and Security Agreement dated as of March
31, 1995, and the Third Amended Assignment, Pledge and Security Agreement
dated as of even date herewith (the "CPC Pledge");
(d) A pledge and assignment, first and prior to all other security
interests except only the pledge securing payment of the indebtedness
evidenced by the Preferred Shareholders' Notes, in and to all issued and
outstanding capital stock of Cornerstone in EPRC, CGGC, Dubach, CGP, CGR,
CPC and PPC pursuant to that Pledge Agreement from Cornerstone to the Bank,
dated as of November 2, 1993, as amended by the First Amendment to Pledge
Agreement dated as of September 30, 1994, the Second Amendment to Pledge
Agreement dated as of January 4, 1995, the Third Amendment to Pledge
Agreement dated as of March 31, 1995, and the Fourth Amendment to Pledge
Agreement dated as of even date herewith (the "Cornerstone Pledge");
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(e) A pledge, assignment and security agreement, first and prior to
all other security interests, in and to all right, title and interest of
Dubach in and to (i) Arcadia Refining & Marketing Company, L.P., a Texas
limited partnership ("Arcadia") and (ii) that certain promissory note from
Arcadia payable to the order of Dubach in the original principal amount of
$900,000, as described in that Assignment, Security Agreement and Pledge of
Partnership Interest, Promissory Note and Security and Certificate of
Deposit dated as of May 24, 1994, as amended by the First Amendment to
Assignment, Security Agreement and Pledge of Partnership Interest,
Promissory Note and Security dated as of even date herewith (the "Dubach
Pledge");
(f) An assignment, first and prior to all other security interests,
in and to the ninety-eight percent (98%) limited partnership interest
acquired by CPC in ETI pursuant to that Fourth Amended and Restated
Assignment, Pledge and Security Agreement from CPC to the Bank dated as of
even date with the closing of the acquisition of the ETI limited
partnership interests in the Oletha System pursuant to Section 5.3 hereof
(the "CPC Restated Assignment"); and
(g) An assignment of all proceeds now or hereafter due under the
ACIIC policy in favor of any one or more of the Borrowers in connection
with claims pertaining to Insured Eligible Accounts (the "ACIIC
Assignment").
The foregoing security interests shall be granted, restated, confirmed and
continued to and in favor of the Bank, as Secured Party, pursuant to the terms
of the Security Agreement and the Cornerstone Mortgage, the Dubach Mortgage, the
CGP Deed of Trust, the CPC Deed of Trust, the CPC Mortgage, the CGGC Deed of
Trust, the PPC Deed of Trust, the CPC Assignment, the Cornerstone Pledge, ACIIC
Assignment, the CPC Restated Assignment, the CPC Pledge and the Dubach Pledge;
and the Borrowers shall execute such financing statements, letters in lieu of
production forms, assignments, notices and other documents and instruments as
shall be necessary or appropriate to perfect the security interests thus
created.
The Borrowers hereby acknowledge that all of the Collateral is granted to
the Bank as security for the repayment of all of the Indebtedness. If one or
more Notes are paid in full or satisfied, but any portion of the Indebtedness
remains unsatisfied, the Bank may retain its security interest in all of the
Collateral until the remaining Indebtedness is paid in full, even if the value
of the Collateral far exceeds the amount of Indebtedness outstanding. The liens
and priorities thereof as granted in the various Security Instruments more
particularly described and defined in the Existing Credit Agreement shall
continue in full force and effect without interruption as security and
collateral for all Indebtedness, including such Indebtedness evidenced by the
Notes.
4.2 LOCKBOXES. Borrowers shall establish and maintain such lockboxes in
Bank as Bank shall request pursuant to agreements in form and substance
satisfactory to Bank which shall provide, in part, that: (i) Borrowers shall
deposit all checks and other instruments with respect to their accounts
receivables, sales of sales of Collateral in the form received by them in one or
more of such lockboxes, (ii) unless otherwise directed by Bank, Borrowers shall
direct their account debtors, customers and purchasers of production to make all
payments in respect to their accounts receivable directly to such lockbox at
Bank as the Bank shall direct, (iii) Bank shall deposit all items received by it
(except deposits required to be made to this account pursuant to Section 2.6 of
this Agreement) to the General Account provided no Default shall have occurred
and be continuing, and (iv) if an Event of Default shall have occurred and be
continuing, all such payments may be applied to the Indebtedness, at such times
and in such order as Bank may elect.
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ARTICLE V
CONDITIONS PRECEDENT AND SUBSEQUENT TO LOANS
5.1 CONDITIONS PRECEDENT TO INITIAL REVOLVING CREDIT LOAN AND CONVERTIBLE
LOAN. The obligation of the Bank to make the initial Revolving Credit Loan and
the Convertible Loan is subject to the satisfaction of all of the following
conditions on or prior to the Closing Date (in addition to the other terms and
conditions set forth herein):
(a) NO DEFAULT. There shall exist no Event of Default or Default on
the Closing Date.
(b) REPRESENTATIONS AND WARRANTIES. The representations, warranties
and covenants set forth in Article VII shall be true and correct on and as
of the Closing Date, with the same effect as though made on and as of the
Closing Date.
(c) BORROWERS' CERTIFICATES. Each of the Borrowers shall have
delivered to the Bank a Certificate, dated as of the Closing Date, and
signed by the President or Vice President and the Secretary or an Assistant
Secretary of each of the respective Borrowers certifying (i) to the matters
covered by the conditions specified in subsections (a) and (b) of this
Section 5.1, (ii) that the Borrowers have performed and complied with all
agreements and conditions required to be performed or complied with by them
prior to or on the Closing Date, (iii) to the name and signature of each
officer of each of the Borrowers authorized to execute and deliver the Loan
Documents and any other documents, certificates or writings and to borrow
under this Agreement, and (iv) to such other matters in connection with
this Agreement which the Bank shall determine to be advisable. The Bank
may conclusively rely on such Certificate until it receives notice in
writing to the contrary.
(d) PROCEEDINGS. On or before the Closing Date, all corporate
proceedings of the Borrowers shall be taken in connection with the
transactions contemplated by the Loan Documents and shall be satisfactory
in form and substance to the Bank and its counsel; and the Bank shall have
received certified copies, in form and substance satisfactory to the Bank
and its counsel, of the Articles or Certificates of Incorporation and By-
Laws of each of the Borrowers and the resolutions of the Board of Directors
of each of the Borrowers, as adopted, authorizing the execution and
delivery of the Loan Documents, the borrowings under this Agreement, and
the granting of the security interests in the Collateral pursuant to the
Security Instruments, to secure the payment of the Indebtedness.
(e) NOTES. The Borrowers shall have delivered the Notes to the order
of the Bank, in each case appropriately executed.
(f) SECURITY INSTRUMENTS. The Borrowers shall have delivered to the
Bank the Security Instruments, appropriately executed by all parties,
attested, sealed, witnessed and acknowledged to the satisfaction of the
Bank and dated as of the Closing Date, together with such financing
statements, lien entry forms and other documents as shall be necessary and
appropriate to perfect the Bank's security interests in the Collateral
covered by said Security Instruments, including, without limitation, the
following:
(1) CORNERSTONE MORTGAGE. Cornerstone shall have executed and
delivered the Cornerstone Mortgage to the Bank in recordable form.
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(2) DUBACH MORTGAGE/DUBACH PLEDGE. Dubach shall have executed
and delivered the Dubach Mortgage and the Dubach Pledge to the Bank in
recordable form.
(3) CGP DEED OF TRUST. CGP shall have executed and delivered
the CGP Deed of Trust to the Bank in recordable form.
(4) CPC DEED OF TRUST. CPC shall have executed and delivered
the CPC Deed of Trust to the Bank in recordable form.
(5) CPC MORTGAGE. CPC shall have executed and delivered the CPC
Mortgage to the Bank in recordable form.
(6) CPC ASSIGNMENT. CPC shall have executed and delivered the
CPC Assignment to the Bank in recordable form.
(7) CGGC DEED OF TRUST. CGGC shall have executed and delivered
the CGGC Deed of Trust to the Bank in recordable form.
(8) PPC DEED OF TRUST. PPC shall have executed and delivered
the PPC Deed of Trust to the Bank in recordable form.
(9) CORNERSTONE PLEDGE/CORNERSTONE ASSIGNMENT. Cornerstone
shall have executed and delivered the Cornerstone Pledge and the
Cornerstone Assignment to the Bank.
(10) CPC PLEDGE. CPC shall have executed and delivered the CPC
Pledge to the Bank.
(11) SECURITY AGREEMENT. Borrowers shall have executed and
delivered the Security Agreement to the Bank.
(12) ACIIC ASSIGNMENT. Borrowers shall have executed and
delivered the ACIIC Assignment to the Bank.
(13) ETI GUARANTY. ETI shall each have executed and delivered to
the Bank an absolute and unconditional Guaranty of the Indebtedness in
form and content acceptable to the Bank and its counsel.
(14) NEGATIVE PLEDGE. The sole shareholder of Energy Transfer
Corporation, a Texas corporation ("ETC"), the sole general partner of
ETI, shall execute and deliver to the Bank its negative pledge of any
of its capital stock in form and content acceptable to the Bank and
its counsel.
(15) CPC RESTATED ASSIGNMENT. CPC shall have executed and
delivered the CPC Restated Assignment to the Bank.
(g) TITLE. Borrowers shall have provided the Bank with evidence
satisfactory to the Bank and its legal counsel that Borrowers have valid,
marketable and/or indefeasible title to the Mortgaged Property, including
(without limitation) title reports and/or title opinions regarding the
Mortgaged Property and true and complete duly executed assignments (in
recordable form) from the prior record owner(s) thereof pertaining to all
of the Mortgaged Property evidencing transfer of lawful title thereto
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to the applicable Borrowers, as well as such title reports, consents, waivers or
other matters of due diligence pertaining to the Oletha System and Cornerstone's
acquisition of all of the limited partner ownership interests in ETI as may be
deemed necessary by the Bank and its legal counsel.
(h) OPINION OF BORROWERS' COUNSEL. The Bank shall have received from
Borrowers' counsel, Schlanger, Mills, Mayer & Grossberg, a favorable
written closing opinion, satisfactory in form and substance to the Bank and
its counsel.
(i) MORTGAGE RELEASES/OTHER INFORMATION. The Bank shall have
received a written payoff statement from any other mortgagee or trustee of
record concerning any of the Mortgaged Property together with applicable
mortgage releases, deed of trust releases and/or UCC terminations of record
of all such existing mortgage, deed of trust and security interest liens
pertaining to the Mortgaged Property.
(j) FEES. The Borrowers shall have paid to the Bank the $35,000
engineering fee required by Section 3.4 above.
(k) OTHER INFORMATION AND CLOSING DOCUMENTS. The Bank shall have
received such other consents, information, documents, agreements and
assurances as shall be reasonably requested by the Bank, including, without
limitation, appropriate consents to the Notes and Commitments evidenced
hereby from The Travelers Indemnity Company, collateral agent for senior
pledgees.
Provided, however, delivery of the Security Instruments described in paragraphs
(f)(12), (f)(13) and (f)(14) above shall constitute conditions precedent to the
increase in the Convertible Borrowing Base from $8,500,000 to $12,000,000 and
funding the Oletha System acquisition contemplated by Section 5.3 hereof below.
5.2 CONDITIONS PRECEDENT TO ALL LOANS. The Bank shall not be obligated to
make any additional Loan advance(s) after the initial Loan advances (i) if at
such time any Event of Default shall have occurred or any Default shall have
occurred and be continuing; (ii) if any of the representations, warranties and
covenants contained in Article VII of this Agreement shall be false or untrue in
any material respect on the date of such loan, as if made on such date; or (iii)
unless the applicable Borrowing Base will support the additional Revolving
Credit Loan being requested. Each request by the Borrowers for an additional
Revolving Credit Loan shall constitute a representation by the Borrowers that
there is not at the time of such request an Event of Default or a Default, and
that all representations, warranties and covenants in Article VII of this
Agreement are true and correct on and as of the date of each such request.
5.3 CONDITIONS SUBSEQUENT TO CONVERTIBLE LOAN. The obligation of the Bank
to fund $3,500,000 of the Convertible Loan (all amounts in excess of $8,500,000)
is expressly subject (in addition to the other terms and conditions set forth in
this Article V) to the Bank having received, on or before June 30, 1995,
satisfactory and comprehensive evidence that Cornerstone has acquired
concurrently therewith (i) one-hundred percent (100%) of the limited partnership
interests in ETI and validly pledged and assigned to the Bank a first and prior
assignment of and security interest therein pursuant to the CPC Restated
Assignment together with the execution and filing of all applicable UCC-1
financing statements pertaining thereto as deemed necessary by the Bank's
counsel and (ii) delivery to CPC of such written waivers/consents to such
acquisition of ETI by holders of not less than fifty-five percent (55%)
aggregate partnership interest of the former owners of the Oletha System who
conveyed the same to ETI. Failure of the Borrowers to fully and timely satisfy
the foregoing conditions subsequent
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on or before June 30, 1995, shall constitute an automatic, immediate and
irrevocable cap of the Convertible Loan Borrowing Base at the maximum of
$8,500,000.
ARTICLE VI
COVENANTS
The Borrowers covenant and agree with the Bank that from the date hereof
and so long as this Agreement is in effect (by extension, amendment or
otherwise) and until payment in full of all Indebtedness and the performance of
all other obligations of the Borrowers under this Agreement, unless the Bank
shall otherwise consent in writing, which consent will not be unreasonably
withheld:
6.1 PAYMENT OF TAXES AND CLAIMS. The Borrowers will pay and discharge or
cause to be paid and discharged all Taxes imposed upon the income or profits of
the Borrowers or upon the property, real, personal or mixed, or upon any part
thereof, belonging to the Borrowers before the same shall be in default, and all
lawful claims for labor, rentals, materials and supplies which, if unpaid, might
become a Lien upon its property or any part thereof; PROVIDED HOWEVER, that the
Borrowers shall not be required to pay and discharge or cause to be paid or
discharged any such Tax, assessment or claim so long as the validity thereof
shall be contested in good faith by appropriate proceedings, and adequate book
reserves shall be established with respect thereto, and the Borrowers shall pay
such Tax, charge or claim before any property subject thereto shall become
subject to execution.
6.2 MAINTENANCE OF CORPORATE EXISTENCE. Each of the Borrowers will do or
cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence, rights and franchises and will continue to
conduct and operate its business substantially as being conducted and operated
presently. Each of the Borrowers will become and remain qualified to conduct
business in each jurisdiction where the nature of the business or ownership of
property by such Borrowers may require such qualification.
6.3 PRESERVATION OF PROPERTY. Each of the Borrowers will at all times
maintain, preserve and protect all franchises and trade names and keep all the
remainder of its properties which are used or useful in the conduct of its
respective businesses whether owned in fee or otherwise, or leased, in good
repair and operating condition; from time to time make, or cause to be made, all
needful and proper repairs, renewals, replacements, betterments and improvements
thereto so that the business carried on in connection therewith may be properly
and advantageously conducted at all times; and comply with all material leases
to which it is a party or under which it occupies property so as to prevent any
material loss or forfeiture thereunder.
6.4 INSURANCE. Each of the Borrowers will keep or cause to be kept
adequately insured by financially sound and reputable insurers its plant,
equipment, compressor units (whether owned or leased), motor vehicles, and all
other property of a character usually insured by businesses engaged in the same
or similar businesses. Upon demand by the Bank any insurance policies covering
the Collateral shall be endorsed to provide for payment of losses to the Bank as
its interest may appear, to provide that such policies may not be canceled,
reduced or affected in any manner for any reason without thirty days prior
notice to the Bank, and to provide for any other matters which the Bank may
reasonable require; and such insurance shall be against fire, casualty and any
other hazards normally insured against and shall be in the amount of the full
value (less a reasonable deductible not to exceed amounts customary in the
industry for similarly situated businesses and properties) of the property
insured. The Borrowers
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shall at all times maintain adequate insurance against damage to persons or
property, which insurance shall be by financially sound and reputable insurers
and shall, without limitation, provide the following coverages: comprehensive
general liability (including, without limitation, coverage, where applicable,
damage caused by explosion, broad form property damage coverage, broad form
coverage for contractually independent contractors), worker's compensation, and
automobile liability.
6.5 COMPLIANCE WITH APPLICABLE LAWS. Each of the Borrowers will comply
with the requirements of all applicable Laws and orders of any Tribunal and
obtain any licenses, permits, franchises or other governmental authorizations
necessary to the ownership of its properties or to the conduct of its business.
6.6 FINANCIAL STATEMENTS AND REPORTS.
(a) QUARTERLY OPERATING STATEMENTS. The Borrowers shall maintain a
standard system of accounting and shall furnish to the Bank as soon as
practicable after the end of the first three quarters of each fiscal year,
commencing with the quarter ending June 30, 1995, and in any event within
forty-five (45) days after the end of each said quarter, consolidated and
consolidating operating statements for Cornerstone which shall be certified
by the President or the chief financial officer of Cornerstone to have been
prepared in accordance with GAAP (except for detailed footnotes and year
end adjustments that do not result in materially adverse variations from
the quarterly statements) consistently applied and to fairly present the
financial condition of Borrowers for such period (on a consolidated and
consolidating basis), and shall include at least a balance sheet as at the
end of such period, and statements of income and cash flows, all in
reasonable detail.
(b) ANNUAL FINANCIAL STATEMENTS. As soon as practicable after the
end of each fiscal year of Cornerstone and in any event within 120 days
thereafter, the Borrowers shall furnish to the Bank the following financial
statements (on a consolidated and consolidating basis), together with a
report thereon on and an unqualified opinion, prepared in accordance with
GAAP of reputable independent certified public accountants of recognized
standing selected by Borrowers and acceptable to the Bank:
(i) A balance sheet of Cornerstone at the end of such year
prepared on a consolidated and consolidating basis,
(ii) A statement of income of Cornerstone for such year prepared
on a consolidated and consolidating basis, and
(iii) A statement of cash flows of Cornerstone for such year
prepared on a consolidated and consolidating basis,
setting forth in each case in comparative form the figures for the previous
fiscal year, if applicable, all in reasonable detail. The report of the
independent certified public accountants shall contain a certification that
in the course of the audit necessary for the certification of such finan-
cial statements, they have obtained no knowledge of any Event of Default or
Default as defined herein, or, if any Event of Default or Default existed
or exists, specifying the nature and period of existence thereof; provided,
however, that such accountants shall not be liable to the Bank by reason of
their failure to obtain knowledge of any such Event of Default or Default
which would not be disclosed in the course of an audit conducted in
accordance with generally accepted auditing standards.
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<PAGE>
(c) QUARTERLY CERTIFICATES. As soon as available and in any event
within forty-five (45) days after the end of each of the first three
calendar quarters of each year, concurrently with the furnishing of the
applicable quarterly statements pursuant to subsection 6.6(a), there
shall be furnished to Bank a certificate signed by the presidents or the
chief financial officers of Borrowers stating that: (a) the financial
statements were prepared (subject to year end audit adjustments and a
lack of detailed footnotes) in conformity with GAAP, consistently
applied; (b) a review of the activities of Borrowers for the period
covered by the financial statements has been made under his supervision
with a view to determining whether Borrowers have kept, observed,
performed and fulfilled all of their obligations under this Agreement, the
other Loan Documents and every other document or instrument referred to
herein; and (c) no Event of Default or an event which with the passage
of time or notice, or both, could become an Event of Default has occurred,
and is continuing, or a statement describing the nature, period of
existence and status of any such event(s) if existing. Such certificates
shall fully demonstrate the method of all calculations therein contained
insofar as compliance with financial covenants hereof are concerned but
shall not be qualified or limited because of restricted or limited
examination of any material portion of Borrowers' records by the party
preparing such quarterly statements.
(d) ANNUAL/SPECIAL COVENANT CERTIFICATES. Concurrently with the
furnishing of the financial statements pursuant to 6.6(b), there shall be
furnished to Bank a separate certificate signed by the presidents or the
chief financial officers of Borrowers stating that: (a) the financial
statements were prepared in conformity with GAAP on a basis consistently
applied, and (b) no Event of Default or an event which with the passage of
time or notice, or both, could become an Event of Default has occurred, and
is continuing, and status of any such event(s) if existing. Such certifi-
cate shall not be qualified or limited because of restricted or limited
examination of any material portion of Borrowers' records by the party
preparing such annual statements. All certificates of Borrowers submitted
pursuant to this Agreement in connection with compliance with certain
financial or other covenants herein contained, including, without limita-
tion, Sections 6.18 and 6.19 hereof, shall fully demonstrate the method of
calculations therein contained.
(e) SPECIAL AUDITING REPORTS. Promptly upon receipt thereof, the
Borrowers shall deliver to the Bank a copy of each report submitted to the
Borrowers, by independent accountants in connection with any annual,
interim or special audit made by them of the books and records of the
Borrowers, including, without limitation, any comment letter submitted by
such accountants to management in connection with their audit.
(f) BUDGETS AND PROJECTIONS. Promptly upon completion thereof, the
Borrowers shall deliver to the Bank a copy of each operating budget and
projection of financial performance prepared for the Borrowers.
(g) PERIODIC REPORTS. Promptly upon their becoming available, copies
of all financial statements, reports, notices or proxy statements sent by
the Borrowers to their stockholders and all registration statements,
periodic reports and other statements and schedules filed by the Borrowers
with any securities exchange, the Securities and Exchange Commission or any
similar state or federal governmental authority.
6.7 ENVIRONMENTAL COVENANTS. Borrowers will immediately notify the Bank
of and provide the Bank with copies of any notifications of discharges or
releases or threatened releases or discharges of a Polluting Substance on, upon,
into or from the Collateral which are given or
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required to be given by or on behalf any of the Borrowers to any federal, state
or local Tribunal if any of the foregoing may materially and adversely affect
any of the Borrowers or any part of the Collateral, and such copies of
notifications shall be delivered to the Bank at the same time as they are
delivered to the Tribunal. Borrowers further agree promptly to undertake and
diligently pursue to completion any appropriate and legally required or
authorized remedial containment and cleanup action in the event of any release
or discharge or threatened release or discharge of a Polluting Substance on,
upon, into or from the Collateral. At all times while owning and operating the
Collateral, the Borrowers will maintain and retain complete and accurate records
of all releases, discharges or other disposal of Polluting Substances on, onto,
into or from the Collateral, including, without limitation, records of the
quantity and type of any Polluting Substances disposed of on or off the
Collateral.
6.8 ENVIRONMENTAL INDEMNITIES. Borrowers hereby agree to indemnify,
defend and hold harmless the Bank and each of its officers, directors,
employees, agents, consultants, attorneys, contractors and each of its
affiliates, successors or assigns, or transferees from and against, and
reimburse said Persons in full with respect to, any and all loss, liability,
damage, fines, penalties, costs and expenses, of every kind and character,
including reasonable attorneys' fees and court costs, known or unknown, fixed or
contingent, occasioned by or associated with any claims, demands, causes of
action, suits and/or enforcement actions, including any administrative or
judicial proceedings, and any remedial, removal or response actions ever
asserted, threatened, instituted or requested by any Persons, including any
Tribunal, arising out of or related to: (a) the breach of any representation or
warranty of Borrowers contained in Section 7.16 set forth herein; (b) the
failure of Borrower to perform any of its covenants contained in Section 6.7
hereunder; (c) the ownership, construction, occupancy, operation, use of the
Collateral prior to the earlier of the date on which (i) the Indebtedness and
obligations secured hereby have been paid and performed in full and the Security
Instruments have been released, or (ii) the Collateral has been sold by Bank
following Bank's ownership of the Collateral by way of foreclosure of the Liens
granted pursuant hereto, deed in lieu of such foreclosure or otherwise (the
"Release Date"); provided, however, this indemnity shall not apply with respect
to matters caused by or arising solely from the Bank's activities during any
period of time the Bank acquires ownership of the Collateral.
The indemnities contained in this Section 6.8 apply, without limitation, to
any violation on or before the Release Date of any Environmental Law and any
liability or obligation relating to the environmental conditions on, under or
about the Mortgaged Property or the Collateral on or prior to the Release Date
(including, without limitation: (a) the presence on, upon or in the Collateral
or release, discharge or threatened release on, upon or from the Collateral of
any Polluting Substances generated, used, stored, treated, disposed of or
otherwise released prior to the Release Date, and (b) any and all damage to real
or personal property or natural resources and/or harm or injury including
wrongful death, to persons alleged to have resulted from such release of any
Polluting Substances regardless of whether the act, omission, event or
circumstances constituted a violation of any Environmental Law at the time of
its existence or occurrence). The term "release" shall have the meaning
specified in CERCLA/SARA and the terms "stored," "treated" and "disposed" shall
have the meanings specified in RCRA/HSWA; provided, however, any broader
meanings of such terms provided by applicable laws of the state in which the
property is situated shall apply.
The provisions of this Section 6.8 shall be in addition to any other
obligations and liabilities Borrower may have to the Bank at common law and
shall survive the Release Date and shall continue thereafter in full force and
effect.
The Bank agrees that in the event that such claim, suit or enforcement
action is asserted or threatened in writing or instituted against it or any of
its officers, employers, agents or
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contractors or any such remedial, removal or response action is requested of it
or any of its officers, employees, agents or contractors for which the Bank may
desire indemnity or defense hereunder, the Bank shall give written notification
thereof to the Borrowers.
Notwithstanding anything to the contrary stated herein, the indemnities
created by this Section 6.8 shall only apply to losses, liabilities, damages,
fines, penalties, costs and expenses actually incurred by the Bank as a result
of claims, demands, actions, suits or proceedings brought by Persons who are not
the beneficiaries of any such indemnity. The Bank shall act as the exclusive
agent for all indemnified Persons under this Section 6.8. With respect to any
claims or demands made by such indemnified Persons, the Bank shall notify the
Borrowers within thirty (30) days after the Bank's receipt of a writing advising
the Bank of such claim or demand. Such notice shall identify (i) when such
claim or demand was first made, (ii) the identity of the Person making it, (iii)
the indemnified Person and (iv) the substance of such claim or demand. Failure
by the Bank to so notify the Borrowers within said thirty (30) day period shall
reduce the amount of the Borrowers' obligations and liabilities under this
Section 6.8 by an amount equal to any damages or losses suffered by the
Borrowers resulting from any prejudice caused the Borrowers by such delay in
notification from the Bank. Upon receipt of such notice, the Borrowers shall
have the exclusive right and obligation to contest, defend, negotiate or settle
any such claim or demand through counsel of their own selection (but reasonably
satisfactory to the Bank) and solely at Borrowers' own cost, risk and expense;
provided, that the Bank, at its own cost and expense shall have the right to
participate in any such contest, defense, negotiations or settlement. The
settlement of any claim or demand hereunder by the Borrowers may be made only
upon the prior approval of the Bank of the terms of the settlement, which
approval shall not be unreasonably withheld.
6.9 NOTICE OF DEFAULT. As soon as any Borrower knows of the happening of
any condition or event which constitutes an Event of Default or Default or any
default or event of default under any other loan, mortgage, financing or
security agreement, the Borrowers will give the Bank a written notice thereof
specifying the nature and period of existence thereof and what actions, if any,
the Borrowers are taking and propose to take with respect thereto.
6.10 NOTICE OF LITIGATION. Immediately upon becoming aware of the
existence of any action, suit or proceeding at law or in equity before any
Tribunal, an adverse outcome in which would (i) materially impair the ability of
any of the Borrowers to carry on its business substantially as now conducted,
(ii) materially and adversely affect the condition (financial or otherwise) of
any of the Borrowers, or (iii) result in monetary damages in excess of $100,000,
the Borrowers will give the Bank a written notice specifying the nature thereof
and what actions, if any, the Borrowers are taking and propose to take with
respect thereto.
6.11 NOTICE OF CLAIMED DEFAULT. Immediately upon becoming aware that the
holder of any note or any evidence of indebtedness or other security of any of
the Borrowers has given notice or taken any action with respect to a claimed
default or event of default thereunder, if the amount of the note or
indebtedness exceeds $50,000 the Borrowers will give the Bank a written notice
specifying the notice given or action taken by such holder and the nature of the
claimed default or event of default thereunder and what actions, if any, the
Borrowers are taking and propose to take with respect thereto.
6.12 CHANGE OF MANAGEMENT. Within five (5) days after any change in
management of the Borrowers or any officers of any of the Borrowers holding an
office of President, Chairman or chief financial officer, the Borrowers shall
give written notice thereof to the Bank, together with a description of the
reasons for the change. The replacement for any such officer shall be subject
to consent of the Bank, which shall not be unreasonably withheld.
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6.13 REQUESTED INFORMATION. With reasonable promptness, the Borrowers will
give the Bank such other data and information relating to the Borrowers as from
time to time may be reasonably requested by the Bank.
6.14 FIELD AUDITS. The Bank shall be permitted to conduct, at its own
expense, field audits of the Borrowers' accounts and books and records relating
thereto from time to time at the Bank's sole option, but not more than twice in
each calendar year. Each field audit shall be conducted by agents of the Bank,
whether employees of the Bank or third-party agents selected by the Bank. The
Borrowers shall fully cooperate with the Bank and its agents in connection with
such field audits.
6.15 INSPECTION. The Borrowers will keep complete and accurate books and
records with respect to the Collateral and their other properties, businesses
and operations and will permit employees and representatives of the Bank to
audit, inspect and examine the same and to make copies thereof and extracts
therefrom during normal business hours. All such records shall be at all times
kept and maintained at the offices of the Borrowers in Dallas, Texas. Upon any
Default or Event of Default, the Borrowers will surrender all of such records
relating to the Collateral to the Bank upon receipt of any request therefor from
the Bank.
6.16 MAINTENANCE OF EMPLOYEE BENEFIT PLANS. The Borrowers will maintain
each employee benefit plan as to which they may have any liability or
responsibility in compliance with ERISA and all other Laws applicable thereto.
6.17 DISPOSITION/NEGATIVE PLEDGE RE ENCUMBRANCE OF COLLATERAL AND OTHER
ASSETS. Borrowers will not sell or encumber any of the Collateral and Borrowers
will not sell, lease, transfer, scrap or otherwise dispose of or mortgage,
pledge, grant a security interest in or otherwise encumber any of Borrowers'
other properties or assets, whether for replacement or not, unless such sale or
disposition shall be in the ordinary course of business and for a full and fair
consideration, without obtaining the Bank's prior consent. In no event shall
Borrowers cause or permit the voluntary or involuntary pledge, mortgage or other
encumbrance, attachment or levy of or against any of the properties or assets of
whatsoever nature or type to any Person (financial institution or otherwise).
6.18 CURRENT RATIO. The Borrowers will not permit Cornerstone's
consolidated Current Ratio to be less than the following minimums at any time
during the fiscal years hereinafter specified:
Fiscal Year Ending Minimum Current Ratio
------------------ ---------------------
Fiscal Year 1995 (ending 12/31/95) .65 to 1
Fiscal Year 1996 (ending 12/31/96) .75 to 1
Fiscal Years 1997 and thereafter .70 to 1
6.19 CAPITAL EXPENDITURES. The Borrowers agree not to make any capital
expenditure for the acquisition, construction, expansion or improvements of
capital assets (whether owned or leased or otherwise) that, for all Borrowers,
exceed $1,500,000 per capital project or commit for any such capital expenditure
which, if made in the applicable period for delivery and payment, would result
in expenditures in excess of the $1,500,000 limitation per capital project
herein set forth; further provided, that during the following fiscal years
aggregate annual capital expenditures shall not exceed the following maximum
amounts:
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Maximum Per Fiscal Year
-----------------------
Fiscal Year 1995 $3,000,000 (excluding the acquisitions
of the Oletha System, and the
Willow Springs and North
Lansing Systems)
Fiscal Year 1996 $5,000,000
Fiscal Years 1997 and thereafter $2,500,000
6.20 LIMITATION ON OTHER INDEBTEDNESS. The Borrowers will not create,
incur, assume, become or be liable in any manner in respect of, or suffer to
exist, any indebtedness whether evidenced by a note, bond, debenture, agreement,
letter of credit or similar or other obligation, or accept any deposits or
advances of any kind, except (i) trade payables and current indebtedness (other
than for borrowed money) incurred in, and deposits and advances accepted in, the
ordinary course of business; (ii) indebtedness not to exceed $200,000 per
calendar year incurred for the acquisition of assets secured by purchase money
security interests; (iii) usual and customary insurance premiums financed in the
normal course of business; (iv) indebtedness evidenced by the Preferred
Shareholders' Notes; and (v) the Indebtedness.
6.21 LIMITATION ON LIENS. The Borrowers will not create or suffer to exist
any Lien upon any of their assets, whether real or personal property, except (i)
purchase money security interests securing indebtedness incurred for the
acquisition of assets, (ii) liens securing the indebtedness evidenced by the
Preferred Shareholders' Notes, as described on EXHIBIT "D" attached hereto,
(iii) liens for current taxes not yet due and payable, (iv) mechanics',
materialmen's, workmen's, repairmen's, operators', warehousemen's, carriers' and
similar liens incident to current construction or operations or arising in the
ordinary course of business for charges which are not delinquent, and (v) such
encumbrances and imperfections of title, if any, as are not substantial in
character, amount or extent and do not materially interfere with the present or
proposed use of any of such properties, and (vi) Liens in favor of the Bank
securing the Indebtedness.
6.22 CONTINGENT LIABILITIES; ADVANCES. Except for the items described on
EXHIBIT "E" attached hereto, the Borrowers will not either directly or
indirectly, (i) guarantee, become surety for, discount, endorse, agree
(contingently or otherwise) to purchase, repurchase or otherwise acquire or
supply or advance funds in respect of, or otherwise become or be contingently
liable upon the indebtedness, obligation or liability of any Person, (ii)
guarantee the payment of any dividends or other distributions upon the stock of
any corporation, (iii) discount or sell with recourse or for less than the face
value thereof, any of its notes receivable, accounts receivable or chattel
paper; (iv) loan, agree to loan, or advance money to any Person; or (v) enter
into any agreement for the purchase or other acquisition of any goods, products,
materials or supplies, or for the making of any shipments or for the payment of
services, if in any such case payment therefor is to be made regardless of the
non-delivery of such goods, products, materials or supplies or the non-
furnishing of the transportation of services; provided, however that the
foregoing shall not be applicable to endorsement of negotiable instruments
presented to or deposited with a bank for collection or deposit in the ordinary
course of business.
6.23 MERGER, CONSOLIDATION, ACQUISITION. None of the Borrowers will merge
or consolidate with or into any other Person; or permit any other Person to
consolidate with or merge into any of the Borrowers; or acquire all or
substantially all of the assets or properties or capital stock of any other
Person; or adopt or effect any plan of reorganization, recapitalization,
liquidation or dissolution; or acquire any properties or assets, other than in
the ordinary course of business; provided, however, Borrowers may enter into
letters of intent pertaining to
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merger, consolidation or acquisition subject to obtaining the Bank's written
consent thereto prior to consummation of the transactions contemplated by such
letter(s) of intent.
6.24 DIVIDENDS. The Borrowers will not declare, pay or become obligated to
declare or pay any dividend on any class of their capital stock now or hereafter
outstanding, make any distribution of cash or property to holders of any shares
of such stock, or redeem, retire, purchase or otherwise acquire, directly or
indirectly, any shares of any class of their capital stock now or hereafter
outstanding; provided, however, that Borrowers other than Cornerstone may
declare and pay cash dividends to another Borrower.
6.25 CHANGE OF FISCAL YEAR. None of the Borrowers will change its fiscal
year from its present fiscal year.
6.26 CHANGE OF BUSINESS. None of the Borrowers will engage in any business
activity substantially different from or unrelated to present business
activities and operations.
6.27 FIRM FIXED PRICE GAS CONTRACTS. None of the Borrowers will enter into
or permit to exist any contract for the purchase or sale of natural gas on a
"firm" fixed price basis.
6.28 GAS RECEIVABLES. The Borrowers shall not sell gas or products derived
from gas to any Person for a purchase price in excess of $250,000 in the
aggregate unless payment therefor (i) is in cash or by cashier's check and is
made contemporaneously with the sale, (ii) is backed by a standby letter of
credit issued in an amount equal to the total purchase price by a financial
institution acceptable to the Bank, or (iii) is insured by ACIIC.
6.29 EBITDA/DEBT SERVICE RATIO. Borrowers will not permit the ratio of its
EBITDA to Debt Service to be less than 1.3 to 1 for each six (6) month period
ending June 30 and December 31 of each year, commencing for the six (6) month
period ending June 30, 1997, as tested semiannually and the detailed
calculations and analysis thereof delivered to Bank within 45 days of the close
of each such six (6) month period.
6.30 ARTICLES OF INCORPORATION; BY-LAWS AND ASSUMED NAMES. The Borrowers
will not amend, alter, modify or restate their Articles or Certificates of
Incorporation or By-Laws in any way which would (i) change the corporate name or
adopt a trade name for any of the Borrowers; or (ii) in any manner adversely
affect the Borrowers' obligations or covenants to the Bank hereunder.
6.31 TRANSACTIONS WITH AFFILIATES. The Borrowers will not enter into any
transaction, including (without limitation) the purchase, sale or exchange of
property or the rendering or furnishing of any service with any Affiliate of any
of the Borrowers, except transactions in the ordinary course of the business of
Borrowers and upon fair and reasonable terms no less favorable than Borrowers
would obtain in a transaction for the same purpose with a Person that is not an
Affiliate of any of the Borrowers.
6.32 OTHER AGREEMENTS. The Borrowers will not enter into or permit to
exist any agreement (i) for the purchase or sale of financial derivative
products that are speculative in nature and purpose and not tied to a physical
purchase/sale transaction (i.e., true hedging is permitted), (ii) which would
cause an Event of Default or a Default hereunder; or (iii) which contains any
provision which would be violated or breached by the performance of Borrowers'
obligations hereunder or under any of the other Loan Documents.
6.33 PAYMENT OF INDEBTEDNESS. The Borrowers hereby agree to pay, when due
and owing, all Indebtedness, whether or not evidenced by the Notes.
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ARTICLE VII
REPRESENTATIONS AND WARRANTIES
To induce the Bank to enter into this Agreement and to make the Revolving
Credit Loans and the Convertible Loan to the Borrowers under the provisions
hereof, and in consideration thereof, the Borrowers represent, warrant and
covenant as follows:
7.1 ORGANIZATION AND QUALIFICATION. Each of the Borrowers is duly
organized, validly existing, and in good standing under the Laws of its
respective jurisdiction of incorporation, and is duly licensed and in good
standing as a foreign corporation in each jurisdiction in which the nature of
the business transacted or the property owned is such as to require licensing or
qualification as such.
7.2 LITIGATION. Except for the action described on EXHIBIT "F" attached
hereto, there is no action, suit, investigation or proceeding threatened or
pending before any Tribunal against or affecting any of the Borrowers or any
properties or rights of any of the Borrowers which, if adversely determined,
would result in a liability of greater than $100,000 or would otherwise result
in any material adverse change in the business or condition, financial or other-
wise, of any of the Borrowers. None of the Borrowers is in default with respect
to any judgment, order, writ, injunction, decree, rule or regulation of any
Tribunal.
7.3 FINANCIAL STATEMENTS. The Borrowers' most recent unaudited financial
statements which have been furnished to the Bank have been prepared in
conformity with GAAP, together with the contingent liabilities described on
EXHIBIT "E" attached hereto, show all material liabilities, direct and
contingent (except Cornerstone's guaranties of other Borrowers' gas purchase and
sales contract obligations), and fairly present the financial condition of the
Borrowers as of the date of such statements and the results of their operations
for the period then ended, and since the date of such statements there has been
no material adverse change in the business, financial condition or operations of
the Borrowers.
7.4 CONFLICTING AGREEMENTS AND OTHER MATTERS. None of the Borrowers is in
default in the performance of any obligation, covenant, or condition in any
agreement to which it is a party or by which it is bound. None of the Borrowers
is a party to any contract or agreement or subject to any charter or other
corporate restriction which materially and adversely affects its business,
property or assets, or financial condition. None of the Borrowers is a party to
or otherwise subject to any contract or agreement which restricts or otherwise
affects the right or ability of the Borrowers to execute the Loan Documents or
the performance of any of their respective terms. Neither the execution nor
delivery of any of the Loan Documents, nor fulfillment of nor compliance with
their respective terms and provisions will conflict with, or result in a breach
of the terms, conditions or provisions of, or constitute a default under, or
result in any violation of, or result in the creation of any Lien (except those
created by the Loan Documents) upon any of the properties or assets of the
Borrowers pursuant to, or require any consent, approval or other action by or
any notice to or filing with any Tribunal (other than routine filings after the
Closing Date with the Securities and Exchange Commission, any securities
exchange and/or state blue sky authorities) pursuant to, the charter or By-Laws
of any of the Borrowers, any award of any arbitrator, or any agreement,
instrument or Law to which any of the Borrowers is subject.
7.5 CORPORATE AUTHORIZATION. The Boards of Directors of the Borrowers
have duly authorized the execution and delivery of each of the Loan Documents
and the performance of
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their respective terms. No other consent of any other Person, except for the
Bank, is required as a prerequisite to the validity and enforceability of the
Loan Documents.
7.6 PURPOSES. None of the Borrowers is engaged principally, or as one of
its important activities, in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of Regulation U of the
Board of Governors of the Federal Reserve System) and no part of the proceeds of
any borrowing hereunder will be used to purchase or carry any margin stock or to
extend credit to others for the purpose of purchasing or carrying any margin
stock. If requested by the Bank, the Borrowers will furnish to the Bank a
statement in conformity with the requirements of Federal Reserve Form U-1,
referred to in Regulation U, to the foregoing effect. None of the Borrowers or
any agent acting on its behalf has taken or will take any action which might
cause this Agreement, or the Notes to violate any regulation of the Board of
Governors of the Federal Reserve System (including Regulations G, T, U and X) or
to violate any securities laws, state or federal, in each case as in effect now
or as the same may hereafter be in effect.
7.7 COMPLIANCE WITH APPLICABLE LAWS. Except as disclosed on EXHIBIT "G",
the Borrowers are in compliance with all Laws, ordinances, rules, regulations
and other legal requirements applicable to them and the business conducted by
them, the violation of which could or would have a material adverse effect on
their business or condition, financial or otherwise. Neither the ownership of
any capital stock of any of the Borrowers, nor any continued role of any Person
in the management or other affairs of any of the Borrowers (i) will result or
could result in the Borrowers' noncompliance with any Laws, ordinances, rules,
regulations and other legal requirements applicable to the Borrowers, or (ii)
could or would have a material adverse effect on the business or condition,
financial or otherwise, of the Borrowers.
7.8 POSSESSION OF FRANCHISES, LICENSES. Each of the Borrowers possesses
all franchises, certificates, licenses, permits and other authorizations from
governmental political subdivisions or regulatory authorities, free from
burdensome restrictions, that are necessary in any material respect for the
ownership, maintenance and operation of their respective properties and assets,
and none of the Borrowers is in violation of any thereof in any material
respect.
7.9 LEASES, EASEMENTS AND RIGHTS OF WAY. The Borrowers enjoy peaceful and
undisturbed possession of all leases, easements and rights of way necessary in
any material respect for the operation of their respective properties and
assets, none of which contains any unusual or burdensome provisions which might
materially affect or impair the operation of such properties and assets. All
such leases, easements and rights of way are valid and subsisting and are in
full force and effect.
7.10 TAXES. The Borrowers have filed all Federal, state and other income
tax returns which are required to be filed and have paid all Taxes, as shown on
said returns, and all Taxes due or payable without returns and all assessments
received to the extent that such Taxes or assessments have become due, except
for such tax liabilities listed on EXHIBIT "H" attached hereto. All Tax
liabilities of each of the Borrowers are adequately provided for on the books of
the Borrowers, including interest and penalties. No income tax liability of a
material nature has been asserted by taxing authorities for Taxes in excess of
those already paid.
7.11 DISCLOSURE. Neither this Agreement nor any other Loan Document or
writing furnished to the Bank by or on behalf of the Borrowers in connection
herewith contains any untrue statement of a material fact nor do such Loan
Documents and writings, taken as a whole, omit to state a material fact
necessary in order to make the statements contained herein and therein not
misleading. There is no fact known to the Borrowers and not reflected in the
financial statements or exhibits hereto provided to the Bank which materially
adversely affects
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or in the future may materially adversely affect the business, property, or
assets, or financial condition of any of the Borrowers which has not been set
forth in this Agreement, in the Loan Documents or in other documents furnished
to the Bank by or on behalf of the Borrowers prior to the date hereof in
connection with the transactions contemplated hereby.
7.12 INVESTMENT COMPANY ACT REPRESENTATION. None of the Borrowers is an
"investment company" or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended.
7.13 ERISA. Since the effective date of Title IV of ERISA, no Reportable
Event has occurred with respect to any Plan. For the purposes of this section
the term "Reportable Event" shall mean an event described in Section 4043(b) of
ERISA. For the purposes hereof the term "Plan" shall mean any plan subject to
Title IV of ERISA and maintained for employees of the Borrowers, or of any
member of a controlled group of corporations, as the term "controlled group of
corporations" is defined in Section 1563 of the Internal Revenue Code of 1986,
as amended (the "Code"), of which any of the Borrowers is a part. Each Plan
established or maintained by any of the Borrowers is in material compliance with
the applicable provisions of ERISA, and the Borrowers have filed all reports
required by ERISA and the Code to be filed with respect to each Plan. The
Borrowers have met all requirements with respect to funding Plans imposed by
ERISA or the Code. Since the effective date of Title IV of ERISA there have not
been any nor are there now existing any events or conditions that would permit
any Plan to be terminated under circumstances which would cause the lien pro-
vided under Section 4068 of ERISA to attach to the assets of the Borrowers. The
value of each Plan's benefits guaranteed under Title IV of ERISA on the date
hereof does not exceed the value of such Plan's assets allocable to such
benefits on the date hereof.
7.14 FISCAL YEAR. The fiscal years of the respective Borrowers end as of
December 31 of each year.
7.15 TITLE TO PROPERTIES; AUTHORITY. Borrowers have full power, authority
and legal right to own and operate the properties which they now own and
operate, and to carry on the lines of business in which it is now engaged, and
have good and marketable and/or indefeasible title to the Mortgaged Property in
corporate capacity subject to no Lien of any kind except Liens permitted by this
Agreement and except such encumbrances, imperfections and failures (including,
without limitation, abandonment by operation of law or contract) of title, if
any, as are not substantial in character, amount or extent and do not materially
interfere with the present or proposed use of any such portion of the Mortgaged
Property. Borrowers have full power, authority and legal right to execute and
deliver and to perform and observe the provisions of this Agreement and the
other Loan Documents. Borrowers further represent to the Bank that any and all
after acquired interest in any one or more of the Mortgaged Property being
concurrently or subsequently assigned of record to Borrowers is and shall be
deemed encumbered in all respects by the Cornerstone Mortgage, the Dubach
Mortgage, the ENGC Deed of Trust, the EPIC Deed of Trust, the EPIC Mortgage, the
CGGC Deed of Trust and the PPC Deed of Trust.
7.16 ENVIRONMENTAL REPRESENTATIONS. To the best of Borrowers' knowledge
and belief, upon reasonable and good faith inquiry exercised with due diligence:
(a) Except for those items described on EXHIBIT "G" attached hereto,
none of the Borrowers is subject to any liability or obligation relating to
(i) the environmental conditions on, under or about the Collateral,
including, without limitation, the soil and ground water conditions at the
location of any of the Borrowers' properties, or (ii) the use, management,
handling, transport, treatment, generation, storage, disposal, release or
discharge of any Polluting Substance;
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(b) None of the Borrowers has obtained and none of the Borrowers is
required to obtain or make application for any permits, licenses or similar
authorizations to construct, occupy, operate or use any buildings,
improvements, facilities, fixtures and equipment forming a part of the
Collateral by reason of any Environmental Laws;
(c) Each Borrower has taken all steps necessary to determine and has
determined that no Polluting Substances have been disposed of or otherwise
released on, onto, into, or from the Collateral (the term "release" shall
have the meanings specified in CERCLA/SARA, and the term "disposal" or
"disposed" shall have the meanings specified in RCRA/HSWA; provided, in the
event either CERCLA/SARA or RCRA/HSWA is amended so as to broaden the
meaning of any term defined thereby, such broader meaning shall apply
subsequent to the effective date of such amendment and provided further, to
the extent that the laws of any State or Tribunal establish a meaning for
"release," "disposal" or "disposed" which is broader than that specified in
CERCLA/SARA, RCRA/HSWA or other Environmental Laws, such broader meaning
shall apply);
(d) There are no PCB's or asbestos-containing materials, whether in
the nature of thermal insulation products such as pipe boiler or breech
coverings, wraps or blankets or sprayed-on or trowelled-on products in, on
or upon the Collateral; and
(e) There is no urea formaldehyde foam insulation ("UFFI") in, on or
upon the Collateral.
7.17 OIL AND GAS CONTRACTS. All contracts, agreements and leases related
to any of the processing, treating, refining or fractionation plants and all
contracts, agreements, instruments and leases to which the Borrowers are a
party, are valid and effective in accordance with their respective terms, and
all agreements pertaining to the Mortgaged Property in the nature of oil and/or
gas purchase agreements, and oil and/or gas sale agreements are in full force
and effect and are valid and legally binding obligations of the parties thereto
and all payments due thereunder have been made, except for those suspended for
reasonable cause in the ordinary course of business; and, there is not under any
such contract, agreement or lease any existing default by any party thereto or
any event which, with notice or lapse of time, or both, would constitute such
default, other than minor defaults which, in the aggregate, would result in
losses or damages of more than $100,000 to Borrowers.
7.18 NATURAL GAS POLICY ACT AND NATURAL GAS ACT COMPLIANCE. To the best of
Borrowers' knowledge, all material filings and approvals under the Natural Gas
Policy Act of 1978, as amended, and the Natural Gas Act, as amended, or with the
Federal Energy Regulatory Commission (the "FERC") or required under any rules or
regulations adopted by the FERC which are necessary for the operation of
Borrowers' business or the Collateral in the manner in which they are presently
being operated have been made and the terms of the agreements and contractual
rights included in the Borrowers' business or the Collateral do not conflict
with or contravene any such Law, rule or regulation.
7.19 TAKE OR PAY OBLIGATIONS, PREPAYMENTS, BTU ADJUSTMENTS AND BALANCING
PROBLEMS. To the best of the Borrowers' knowledge, after diligent inquiry,
there is no take or pay obligation under any gas purchase agreement comprising a
portion of the Collateral which is not matched by a commensurate and
corresponding pay or take obligation binding upon the purchaser under a
corresponding gas sales agreement such that with respect to the ownership and
operation of the business operations of Borrowers or the Collateral, any such
obligation in favor of any seller under any gas purchase agreement to which the
Borrowers are a "buyer" is matched
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by a corresponding obligation on the part of "purchasers" under corresponding
gas sales agreements pursuant to which the Borrowers are the "seller". Neither
any of the Borrowers nor the Collateral is subject to requirements to make BTU
adjustments or effect gas balancing in favor of third parties which would result
in Borrowers being required to (i) deliver gas at a price below that established
in applicable gas sales agreements or on behalf of and for the benefit of third
parties in exchange or to otherwise compensate for prior above market or above
contract purchases of gas from Borrowers or their predecessor in interest, or
(ii) balance in kind by allowing other owners in the Collateral to make up the
past imbalances in gas sales, or (iii) balance in cash by paying other owners of
the collateral for the past gas imbalances except for the matters described on
EXHIBIT "I" hereto which have been disclosed to the Bank.
7.20 GAS PURCHASE OBLIGATIONS IN EXCESS OF GAS SALES RIGHTS. The ownership
and operation of the business operations of Borrowers or the Collateral have not
resulted or will not result in the existence of minimum purchase obligations
under any gas purchase agreement (relating to the volume of gas to be taken
thereunder or the price to be paid with respect thereto for the duration of any
such gas purchase agreement) which are not matched by corresponding and
commensurate rights to sell all such gas under applicable gas sales agreements
at prices in excess of the amount to be paid therefor under gas purchase
agreements (without regard to costs associated with transporting any such gas
and risks of volume "shrinkage" occurring in the transportation process).
ARTICLE VIII
EVENTS OF DEFAULT
8.1 EVENTS OF DEFAULT. The occurrence of any one or more of the fol-
lowing events shall constitute an Event of Default hereunder (whether such
occurrence shall be voluntary or involuntary or come about or be effected by
operation of Law or otherwise):
(a) The Borrowers shall fail to make any payment or prepayment of
principal or interest upon any of the Notes, or fail to pay any other
Indebtedness after the same shall become due and payable (whether by exten-
sion, renewal, acceleration or otherwise); or
(b) Any representation or warranty of the Borrowers made herein or in
any writing furnished in connection with or pursuant to any of the Loan
Documents shall have been false or misleading in any material respect on
the date when made and continues to have a material adverse effect on one
or more of the Borrowers or their respective financial capacity or business
operations; or
(c) The Borrowers shall fail to duly observe, perform or comply with
any covenant, agreement or term (other than payment provisions which are
governed by Section 8.1(a) hereof) contained in this Agreement (including
all of the conditions subsequent set forth in Section 5.3 hereof) or any
of the Loan Documents and such default or breach shall have not been cured
or remedied within the earlier of thirty (30) days after any of the
Borrowers shall know (or should have known) of its occurrence or twenty
(20) days following receipt of notice thereof from the Bank; or
(d) Any one or more of the Borrowers shall default in the payment of
principal or of interest on any other obligation for money borrowed or re-
ceived as an advance (or any obligation under any conditional sale or other
title retention agreement, or any obligation issued or assumed as full or
partial payment for property whether or
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not secured by purchase money Lien, or any obligation under notes payable
or drafts accepted representing extensions of credit) which in aggregate
exceeds $50,000 beyond any grace period provided with respect thereto, or
shall default in the performance of any other agreement, term or condition
contained in any agreement under which such obligation is created (or if
any other default under any such agreement shall occur and be continuing
beyond any period of grace provided with respect thereto) if the effect of
such default is to cause the holder or holders of such obligation (or a
trustee on behalf of such holder or holders) to accelerate the due date of
such obligation prior to its scheduled date of maturity; or
(e) Any of the following: (i) any of the Borrowers shall become
insolvent or unable to pay its debts as they mature, make an assignment for
the benefit of creditors or admit in writing its inability to pay its debts
generally as they become due or fail generally to pay its debts as they
mature; or (ii) an order, judgment or decree is entered adjudicating any of
the Borrowers bankrupt or insolvent which is not dismissed within sixty
(60) days of the date of its entry; or (iii) any of the Borrowers shall
petition or apply to any Tribunal for the appointment of a trustee,
receiver, custodian or liquidator of any of the Borrowers or of any sub-
stantial part of the assets of any of the Borrowers, or shall commence any
proceedings relating to any of the Borrowers under any bankruptcy, reorga-
nization, compromise, arrangement, insolvency, readjustment of debts,
dissolution, or liquidation Law of any jurisdiction, whether now or here-
after in effect; or (iv) any such petition or application shall be filed,
or any such proceedings shall be commenced, of a type described in subsec-
tion (iii) above, against any of the Borrowers and any of the Borrowers by
any act shall indicate its approval thereof, consent thereto or
acquiescence therein, or an order, judgment or decree shall be entered
appointing any such trustee, receiver, custodian or liquidator, or
approving the petition in any such proceedings, and such order, judgment or
decree shall remain unstayed and in effect, if being vigorously contested,
for more than sixty (60) days; or (v) any order, judgment or decree shall
be entered in any proceedings against any of the Borrowers decreeing the
dissolution of any of the Borrowers and such order, judgment or decree
shall remain unstayed and in effect for more than thirty (30) days; or (vi)
any final order, judgment or decree shall be entered in any proceedings
against any of the Borrowers decreeing a split-up of any of the Borrowers
which requires the divestiture of a substantial part of the assets of any
of the Borrowers, and such order, judgment or decree shall remain unstayed
and in effect for more than sixty (60) days; or (vii) any of the Borrowers
shall fail to make timely payment or deposit of any amount of tax required
to be withheld by any of the Borrowers and paid to or deposited to or to
the credit of the United States of America pursuant to the provisions of
the Internal Revenue Code of 1986, as amended, in respect of any and all
wages and salaries paid to employees of the Borrowers; or
(f) Any final judgment on the merits for the payment of money in an
amount in excess of $100,000 shall be outstanding against any of the Bor-
rowers, and such judgment shall remain unstayed and in effect and unpaid
for more than thirty (30) days; or
(g) Any Reportable Event described in Section 7.13 hereof which the
Bank determines in good faith might constitute grounds for the termination
of a Plan therein described or for the appointment by the appropriate
United States District Court of a trustee to administer any such Plan shall
have occurred and be continuing thirty (30) days after written notice to
such effect shall have been given to any of the Borrowers by the Bank, or
any such Plan shall be terminated, or a trustee shall be appointed by a
United States District Court to administer any such Plan or the Pension
Benefit
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Guaranty Corporation shall institute proceedings to terminate any such Plan
or to appoint a trustee to administer any such Plan; or
(h) The Borrowers shall fail to timely satisfy any one or more of the
conditions subsequent of Section 5.3 hereof; or
(i) Any default or event of default occurs and is continuing beyond
any cure period with respect thereto under any of the other Loan Documents.
8.2 REMEDIES. Upon the occurrence of any Event of Default referred to in
Section 8.1(e) the Commitments shall immediately terminate and the Notes and all
other Indebtedness shall be immediately due and payable, without further notice
of any kind. Upon the occurrence of any other Event of Default, and without
prejudice to any right or remedy of the Bank under this Agreement or the Loan
Documents or under applicable Law of under any other instrument or document
delivered in connection herewith, the Bank may (i) declare the Commitments
terminated or (ii) declare the Commitments terminated and declare the Notes and
the other Indebtedness, or any part thereof, to be forthwith due and payable,
whereupon the Notes and the other Indebtedness, or such portion as is designated
by the Bank shall forthwith become due and payable, without presentment, demand,
notice or protest of any kind, all of which are hereby expressly waived by the
Borrowers. No delay or omission on the part of the Bank in exercising any power
or right hereunder or under the Notes, the Loan Documents or under applicable
law shall impair such right or power or be construed to be a waiver of any
default or any acquiescence therein, nor shall any single or partial exercise by
the Bank of any such power or right preclude other or further exercise thereof
or the exercise of any other such power or right by the Bank. In the event that
all or part of the Indebtedness becomes or is declared to be forthwith due and
payable as herein provided, the Bank shall have the right to set off the amount
of all the Indebtedness of the Borrowers owing to the Bank against, and shall
have, and is hereby granted by the Borrowers, a lien upon and security interest
in, all property of each of the Borrowers in the Bank's possession at or sub-
sequent to such default, regardless of the capacity in which the Bank possesses
such property, including but not limited to any balance or share of any deposit,
collection or agency account. After Default all proceeds received by the Bank
may be applied to the Indebtedness in such order of application and such propor-
tions as the Bank, in its discretion, shall choose. At any time after the
occurrence of any Event of Default, the Bank may, at its option, cause an audit
of any and/or all of the books, records and documents of the Borrowers to be
made by auditors satisfactory to the Bank at the expense of the Borrowers. The
Bank also shall have, and may exercise, each and every right and remedy granted
to it for default under the terms of the Security Instruments and the other Loan
Documents.
ARTICLE IX
MISCELLANEOUS
9.1 NOTICES. Unless otherwise provided herein, all notices, requests,
consents and demands shall be in writing and shall be either hand-delivered (by
courier or otherwise) or mailed by certified mail, postage prepaid, to the
respective addresses specified below, or, as to any party, to such other address
as may be designated by it in written notice to the other parties:
- 38 -
<PAGE>
If to the Borrowers, to:
Cornerstone Natural Gas, Inc.
8080 North Central Expressway
Suite 1200, Lock Box 47
Dallas, Texas 75206
Attn: Ray C. Davis Chairman and CEO
If to the Bank, to:
Bank of Oklahoma, National Association
P. O. Box 2300
Bank of Oklahoma Tower
One Williams Center
Tulsa, Oklahoma 74192
Attn: Energy Department - 8th Floor
Cornerstone is hereby designated and appointed and shall serve as agent for all
of the Borrowers insofar as notices hereunder are concerned and notice to
Cornerstone shall be deemed notice to each of the Borrowers with the same force
and effect as if each such Borrower were individually notified in accordance
herewith. All notices, requests, consents and demands hereunder will be
effective when hand-delivered to the applicable notice address set forth above
or when mailed by certified mail, postage prepaid, addressed as aforesaid.
9.2 PLACE OF PAYMENT. All sums payable hereunder shall be paid in
immediately available funds to the Bank, at its principal banking offices at
Bank of Oklahoma Tower, One Williams Center in Tulsa, Oklahoma, or at such other
place as the Bank shall notify the Borrowers in writing. If any interest,
principal or other payment falls due on a date other than a Business Day, then
(unless otherwise provided herein) such due date shall be extended to the next
succeeding Business Day, and such extension of time will in such case be
included in computing interest, if any, in connection with such payment.
9.3 SURVIVAL OF AGREEMENTS. All covenants, agreements, representations
and warranties made herein shall survive the execution and the delivery of Loan
Documents. All statements contained in any certificate or other instrument
delivered by the Borrowers hereunder shall be deemed to constitute
representations and warranties by the Borrowers.
9.4 PARTIES IN INTEREST. All covenants, agreements and obligations
contained in this Agreement shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto, except that the
Borrowers may not assign their rights or obligations hereunder without the prior
written consent of the Bank.
9.5 GOVERNING LAW AND JURISDICTION. This Agreement and the Notes shall be
deemed to have been made or incurred under the Laws of the State of Oklahoma and
shall be construed and enforced in accordance with and governed by the Laws of
Oklahoma.
9.6 SUBMISSION TO JURISDICTION. THE BORROWERS HEREBY CONSENT TO THE
JURISDICTION OF ANY OF THE LOCAL, STATE, AND FEDERAL COURTS LOCATED WITHIN TULSA
COUNTY, OKLAHOMA AND WAIVE ANY OBJECTION WHICH BORROWERS MAY HAVE BASED ON
IMPROPER VENUE OR FORUM NON CONVENIENS TO THE CONDUCT OF ANY PROCEEDING IN ANY
SUCH COURT AND WAIVE PERSONAL SERVICE OF ANY AND ALL PROCESS UPON ANY OF THEM,
AND CONSENT THAT ALL SUCH SERVICE OF PROCESS BE
- 39 -
<PAGE>
MADE BY MAIL OR MESSENGER DIRECTED TO ANY OF THEM AT THE ADDRESS SET FORTH IN
SUBSECTION 9.1 HEREOF AND THAT SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED
UPON THE EARLIER OF ACTUAL RECEIPT OR THREE (3) BUSINESS DAYS AFTER MAILED OR
DELIVERED BY MESSENGER.
9.7 MAXIMUM INTEREST RATE. Regardless of any provision herein, the Bank
shall never be entitled to receive, collect or apply, as interest on the
Indebtedness any amount in excess of the maximum rate of interest permitted to
be charged by the Bank by applicable Law, and, in the event the Bank shall ever
receive, collect or apply, as interest, any such excess, such amount which would
be excessive interest shall be applied to other Indebtedness and then to the
reduction of principal; and, if all other Indebtedness and principal are paid in
full, then any remaining excess shall forthwith be paid to the Borrowers.
9.8 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise, and no delay
in exercising, on the part of the Bank, any right, power or privilege hereunder
or under any other Loan Document or applicable Law shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
of the Bank. The rights and remedies herein provided are cumulative and not
exclusive of any other rights or remedies provided by any other instrument or by
law. No amendment, modification or waiver of any provision of this Agreement or
any other Loan Document shall be effective unless the same shall be in writing
and signed by the Bank. No notice to or demand on the Borrowers in any case
shall entitle the Borrowers to any other or further notice or demand in similar
or other circumstances.
9.9 COSTS. The Borrowers agree to pay to the Bank on demand all
reasonable costs, fees and expenses (including without limitation reasonable
attorneys fees and legal expenses) incurred or accrued by the Bank in connection
with the negotiation, preparation, execution, delivery, filing, recording and
administration of this Agreement, the Security Instruments and the other Loan
Documents, or any amendment, waiver, consent or modification thereto or thereof,
or any enforcement thereof. The Borrowers further agree that all such fees and
expenses shall be paid regardless of whether or not the transactions provided
for in this Agreement are eventually closed and regardless of whether or not any
or all sums evidenced by the Notes are advanced to the Borrowers by the Bank.
9.10 PARTICIPATION. The Borrowers recognize and acknowledge that the Bank
is selling participating interests in the Notes to BANK IV Oklahoma, N.A. (the
"Participant"). Upon receipt of notice of the address of such Participant, the
Borrowers shall thereafter supply such Participant with the same information and
reports communicated to the Bank, whether written or oral. The Borrowers hereby
acknowledge that Participant shall be deemed a holder of the applicable Notes to
the extent of its participation, and the Borrowers hereby waive their right, if
any, to offset amounts owing to the Borrowers from the Bank against
Participant's portion of the applicable Notes.
9.11 WAIVER OF JURY. BORROWERS FULLY, VOLUNTARILY AND EXPRESSLY WAIVE ANY
RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY
RIGHTS UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR
AGREEMENT DELIVERED (OR WHICH MAY IN THE FUTURE BE DELIVERED) IN CONNECTION
HEREWITH OR ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN CONNECTION WITH
THIS AGREEMENT, THE NOTES OR THE SECURITY INSTRUMENTS. BORROWERS AGREE THAT ANY
SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
- 40 -
<PAGE>
9.12 FULL AGREEMENT. This Agreement and the other Loan Documents contain
the full agreement of the parties and supersede all negotiations and agreements
prior to the date hereof.
9.13 HEADINGS. The article and section headings of this Agreement are for
convenience of reference only and shall not constitute a part of the text hereof
nor alter or otherwise affect the meaning hereof.
9.14 SEVERABILITY. The unenforceability or invalidity as determined by a
Tribunal of competent jurisdiction, of any provision or provisions of this
Agreement shall not render unenforceable or invalid any other provision or
provisions hereof.
9.15 EXCEPTIONS TO COVENANTS. The Borrowers shall not be deemed to be
permitted to take any action or fail to take any action which is permitted as an
exception to any of the covenants contained herein or which is within the
permissible limits of any of the covenants contained herein if such action or
omission would result in the breach of any other covenant contained herein.
9.16 CONFLICT WITH SECURITY INSTRUMENTS. To the extent the terms and
provisions of any of the Security Instruments are in conflict with the terms and
provisions hereof, this Agreement shall be deemed controlling.
9.17 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
"Borrowers"
CORNERSTONE NATURAL GAS, INC.
By
---------------------------------------
Robert L. Cavnar, Senior Vice President
ENDEVCO PRODUCING COMPANY
By
----------------------------------------
Robert L. Cavnar, Senior Vice President
CORNERSTONE GAS GATHERING COMPANY,
formerly known as Cornerstone
Pipeline Company
By
----------------------------------------
Robert L. Cavnar, Senior Vice President
- 41 -
<PAGE>
DUBACH GAS COMPANY
By
----------------------------------------
Robert L. Cavnar, Senior Vice President
CORNERSTONE GAS PROCESSING, INC.,
formerly known as Endevco Natural Gas
Company
By
----------------------------------------
Robert L. Cavnar, Senior Vice President
CORNERSTONE GAS RESOURCES, INC.,
formerly known as Endevco Oil & Gas
Company
By
----------------------------------------
Robert L. Cavnar, Senior Vice President
CORNERSTONE PIPELINE COMPANY,
formerly known as Endevco Pipeline Company
By
----------------------------------------
Robert L. Cavnar, Senior Vice President
PENTEX PIPELINE COMPANY
By
----------------------------------------
Robert L. Cavnar, Senior Vice President
"Bank"
BANK OF OKLAHOMA, NATIONAL
ASSOCIATION
By
----------------------------------------
Jack D. Brannon, Vice President
- 42 -
<PAGE>
EXHIBIT "D"
LIENS
Contractor's Lien filed October 10, 1994, by Great Lakes Construction Co.,
against Gulsby Engineering, Inc., Cornerstone Natural Gas, Inc., and Dubach Gas
Co., recorded at Mortgage Book 511, Page 197 of records of Lincoln Parish,
Louisiana.
<PAGE>
EXHIBIT "E"
CONTINGENT LIABILITIES
1. Guaranty by Cornerstone of the Indebtedness of Mountain Creed Partnership
owed to General Electric Capital Corp.
2. Guaranty by Cornerstone of certain Indebtedness of North American Gaming
and Entertaining Corporation, successor to Western Natural Gas Company owed
to Bank IV Oklahoma, N.A.
3. Tax claim as disclosed on Exhibit H.
4. Remediation claims with respect to the refineries owned by Dubach.
5. GUARANTY AGREEMENTS
12-28-94 Amwest Surety Insurance Company
Guaranty agreements by Cornerstone Natural Gas, Inc., guaranteeing
payment of gas purchased by Cornerstone Gas Resources, Inc.
4-27-94 Mitchell Energy & Development Corp.
5-9-94 Koch Industries, Inc.
6-24-94 Columbia Gas Transmission Company
12-5-94 Florida Gas Transmission Company
12-5-94 Transco Energy Marketing Company
12-27-94 Transcontinental Gas Pipe Line
Corporation
6. OTHER
- Commodity Swap Agreements with New York Branch of Banque Paribas and
Cornerstone Natural Gas, Inc.
- Paribas Futures, Inc., Customer Agreement with Cornerstone Natural
Gas, Inc., for futures transactions, dated March 15, 1995.
<PAGE>
EXHIBIT "F"
LITIGATION
1. DIVERSE GP III, ET AL VS. CORNERSTONE NATURAL GAS, INC., ET AL. Case No.
95A-151, in 173rd Judicial District Court of Henderson County, Texas.
2. ED SCHALES D/B/A SCHALES & SON CONSTRUCTION CO. VS. DUBACH GAS CO. Case No.
CV94-1323 in the United States District Court for the Western District of
Louisiana.
<PAGE>
EXHIBIT "G"
ENVIRONMENTAL ASSESSMENTS
1. Environmental Assessment of Endevco, Inc. Facilities located in Texas,
prepared by Espey, Huston & Associates, Inc., dated April, 1993, E H & A
Job No. 14539, Document No. 93004.
2. Environmental Assessment of Endevco, Inc. Facilities located in Mississippi
as it pertains to the Brandon Gas Treating plant prepared by Espey, Huston
& Associates, Inc., dated April, 1993, E H & A Job No. 14539, Document No.
930083.
3. Environmental Assessment of Endevco, Inc. Facilities located in
Pennsylvania, prepared by Espey, Huston & Associates, Inc., dated April,
1993, E H & A Job No. 14539, Document No. 930085.
4. Environmental Assessment of Endevco, Inc. Facilities located in Louisiana,
prepared by Espey, Huston & Associates, Inc., dated April, 1993, E H & A
Job No. 14539, Document No. 930082.
5. Environmental Assessment of Cornerstone Gas Gathering Company Willow
Springs Facilities located in Longview, Texas, prepared by C&E Engineering,
Inc. dated January 1, 1995, G&E File 40-2830.
<PAGE>
EXHIBIT "H"
Louisiana Sales and Use Tax assessed against Dubach Gas Company by the State of
Louisiana in the approximate amount of $292,883 (including interest of $102,519)
for years 1989-1991.
<PAGE>
SCHEDULE I
OLETHA SYSTEM PURCHASE
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 1,190,000
<SECURITIES> 0
<RECEIVABLES> 12,715,000
<ALLOWANCES> 0
<INVENTORY> 35,000
<CURRENT-ASSETS> 14,482,000
<PP&E> 63,897,000
<DEPRECIATION> (35,016,000)
<TOTAL-ASSETS> 49,076,000
<CURRENT-LIABILITIES> 18,808,000
<BONDS> 0
<COMMON> 1,252,000
0
0
<OTHER-SE> 10,690,000
<TOTAL-LIABILITY-AND-EQUITY> 49,076,000
<SALES> 59,070,000
<TOTAL-REVENUES> 59,144,000
<CGS> 55,464,000
<TOTAL-COSTS> 58,093,000
<OTHER-EXPENSES> 3,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 974,000
<INCOME-PRETAX> 74,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 74,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74,000
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
