-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UKwTQtjpTLiC4QD580w6mCxC9/Er+Jh5ug2ngl7VcyHUIjiaC4cPi+n4QfSLsBpi oBa3ouVWnroWa5j3qBjQOg== 0000899243-98-001595.txt : 19980817 0000899243-98-001595.hdr.sgml : 19980817 ACCESSION NUMBER: 0000899243-98-001595 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: PLAINS RESOURCES INC CENTRAL INDEX KEY: 0000350426 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-PETROLEUM & PETROLEUM PRODUCTS (NO BULK STATIONS) [5172] IRS NUMBER: 132898764 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-50572 FILM NUMBER: 98689005 BUSINESS ADDRESS: STREET 1: 500 DALLAS STREET 2: SUITE 700 CITY: HOUSTON STATE: TX ZIP: 77002 BUSINESS PHONE: 7136541414 MAIL ADDRESS: STREET 1: 1600 SMITH STREET STREET 2: SUITE 1500 CITY: HOUSTON STATE: TX ZIP: 77002 10-Q 1 FORM 10-Q FOR QUARTER ENDED ON JUNE 30, 1998 UNITED STATES 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, 1998 [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission file number: 0-9808 PLAINS RESOURCES INC. (Exact name of registrant as specified in its charter) DELAWARE 13-2898764 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 500 DALLAS STREET HOUSTON, TEXAS 77002 (Address of principal executive offices) (Zip Code) (713) 654-1414 (Registrant's telephone number, including area code) 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 filing requirements for the past 90 days. YES X NO ___ ___ 16,851,879 shares of common stock $.10 par value, issued and outstanding at July 31, 1998. Page 1 of 23 PLAINS RESOURCES INC. AND SUBSIDIARIES TABLE OF CONTENTS - -------------------------------------------------------------------------------- PAGE PART I. FINANCIAL INFORMATION CONSOLIDATED FINANCIAL STATEMENTS: Consolidated Balance Sheets: June 30, 1998 and December 31, 1997.................................. 3 Consolidated Statements of Income: For the three and six months ended June 30, 1998 and 1997............ 4 Consolidated Statements of Cash Flows: For the six months ended June 30, 1998 and 1997...................... 5 Notes to Consolidated Financial Statements............................. 6 MANAGEMENT'S DISCUSSION AND ANALYSIS...................................... 10 PART II. OTHER INFORMATION............................................... 21 Page 2 of 23
PLAINS RESOURCES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) - ------------------------------------------------------------------------------------------------------- JUNE 30, DECEMBER 31, 1998 1997 --------------- --------------- (UNAUDITED) ASSETS CURRENT ASSETS Cash and cash equivalents $ 31,584 $ 3,714 Accounts receivable 89,840 99,597 Inventory 32,132 22,802 Prepaids and other 470 667 --------------- --------------- Total current assets 154,026 126,780 --------------- --------------- PROPERTY AND EQUIPMENT Oil and natural gas properties full cost method: Subject to amortization 539,222 498,038 Not subject to amortization 54,715 52,024 Midstream assets, primarily crude oil terminal and storage facility 35,691 35,451 Other property and equipment 8,764 8,074 --------------- --------------- 638,392 593,587 Less allowance for depreciation, depletion and amortization (193,328) (180,279) --------------- --------------- 445,064 413,308 --------------- --------------- OTHER ASSETS 16,728 16,731 --------------- --------------- $ 615,818 $ 556,819 =============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and other current liabilities $ 101,844 $ 102,663 Interest payable 7,090 6,601 Royalties payable 4,475 5,016 Notes payable and other current obligations 18,411 18,511 --------------- --------------- Total current liabilities 131,820 132,791 BANK DEBT 136,000 80,000 SUBORDINATED DEBT 202,546 202,661 OTHER LONG-TERM DEBT 3,067 3,067 OTHER LONG-TERM LIABLITIES 4,937 5,107 --------------- --------------- 478,370 423,626 --------------- --------------- STOCKHOLDERS' EQUITY Series D Cumulative Convertible Preferred Stock, $1.00 par value, 46,600 shares authorized, issued and outstanding, net of discount of $2,001,000 and $2,629,000 at June 30, 1998, and December 31, 1997, respectively 21,299 20,671 Common stock, $.10 par value, 50,000,000 shares authorized; issued and outstanding, 16,845,326 at June 30, 1998, and 16,703,074 shares at December 31, 1997 1,685 1,670 Additional paid-in capital 124,278 122,887 Accumulated deficit (9,814) (12,035) --------------- --------------- 137,448 133,193 --------------- --------------- $ 615,818 $ 556,819 =============== =============== See notes to consolidated financial statements.
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PLAINS RESOURCES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) - ------------------------------------------------------------------------------------------------------------------------ THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------------------- ---------------------------------- 1998 1997 1998 1997 ------------ ------------ ------------- ------------ REVENUE Oil and natural gas sales $ 25,547 $ 26,285 51,711 $ 52,564 Marketing, transportation and storage 163,479 162,219 330,683 343,014 Interest and other income 415 88 619 146 ------------ ------------ ------------- ------------ 189,441 188,592 383,013 395,724 ------------ ------------ ------------- ------------ EXPENSES Production expenses 12,835 10,771 25,673 20,965 Purchases, transportation and storage 158,283 159,155 321,483 337,484 General and administrative 2,437 2,120 4,813 4,215 Depreciation, depletion and amortization 6,838 5,944 13,593 11,264 Interest expense 6,757 5,181 12,866 9,891 ------------ ------------ ------------- ------------ 187,150 183,171 378,428 383,819 ------------ ------------ ------------- ------------ Income before income taxes 2,291 5,421 4,585 11,905 Income tax expense: Current 19 96 22 210 Deferred 854 2,073 1,714 4,552 ------------ ------------ ------------- ------------ NET INCOME $ 1,418 $ 3,252 $ 2,849 $ 7,143 ============ ============ ============= ============ Less: cumulative preferred stock dividends 316 -- 628 -- ------------ ------------ ------------- ------------ NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 1,102 $ 3,252 $ 2,221 $ 7,143 ============ ============ ============= ============ Earnings per share: Basic $ .07 $ 0.20 $ .13 $ 0.43 ============ ============ ============= ============ Diluted $ .06 $ 0.18 $ .12 $ 0.40 ============ ============ ============= ============ See notes to consolidated financial statements.
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PLAINS RESOURCES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS) - --------------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED JUNE 30, ---------------------------------------------- 1998 1997 ------------------- ------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 2,849 $ 7,143 Items not affecting cash flows from operating activities: Depreciation, depletion and amortization 13,593 11,264 Deferred income taxes 1,714 4,552 Other noncash items 131 173 Change in assets and liabilities resulting from operating activities: Accounts receivable 9,524 24,292 Inventory (9,330) (35,020) Prepaids and other 197 (432) Accounts payable and other current liabilities (7,016) (9,606) Interest payable 499 1,029 Royalties payable (354) (16) --------------- --------------- Net cash provided by operating activities 11,807 3,379 --------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES Payment for acquisition, exploration and development costs (39,405) (50,554) Payment for additions to other property and assets (951) (3,817) --------------- --------------- Net cash used in investing activities (40,356) (54,371) --------------- --------------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term debt 119,560 105,600 Proceeds from short-term debt 17,900 16,490 Principal payments of long-term debt (63,560) (69,100) Principal payments of short-term debt (18,000) -- Other 519 42 --------------- --------------- Net cash provided by financing activities 56,419 53,032 --------------- --------------- Net increase in cash and cash equivalents 27,870 2,040 Cash and cash equivalents, beginning of period 3,714 2,517 --------------- --------------- Cash and cash equivalents, end of period $ 31,584 $ 4,557 =============== =============== See notes to consolidated financial statements.
Page 5 of 23 PLAINS RESOURCES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1998 (UNAUDITED) Note 1 -- Accounting Policies The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to interim financial reporting as prescribed by the Securities and Exchange Commission ("SEC"). For further information, refer to the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997, filed with the SEC. All material adjustments consisting only of normal recurring adjustments which, in the opinion of management, were necessary for a fair statement of the results for the interim periods, have been reflected. Certain reclassifications have been made to the prior year statements to conform with the current year presentation. The Company evaluates the capitalized costs of its oil and natural gas properties on an ongoing basis and has utilized the most recently available information to estimate its reserves at June 30, 1998, in order to determine the realizability of such capitalized costs. Future events, including drilling activities, product prices and operating costs, may affect future estimates of such reserves (See Note 5). NOTE 2 -- ACQUISITION On July 30, 1998, Plains All American Inc. ("PAAI"), a wholly owned unrestricted subsidiary of the Company, as defined in the indentures for the Company's $200 million 10.25% Senior Subordinated Notes (the "Indentures"), acquired all of the outstanding capital stock of the All American Pipeline Company, Celeron Gathering Corporation and Celeron Trading & Transportation Company (collectively the "Celeron Companies") from Wingfoot Ventures Seven Inc., a wholly-owned subsidiary of The Goodyear Tire & Rubber Company ("Goodyear") for approximately $400 million, including transaction costs. The principal assets of the entities acquired include the All American Pipeline System, a 1,233-mile crude oil pipeline extending from California to Texas, and a 45-mile crude oil gathering system in the San Joaquin Valley of California, as well as other assets related to such operations. Financing for the acquisition was provided through (i) PAAI's $325 million, limited recourse bank facility with ING (U.S.) Capital Corporation, BankBoston, N.A. and other lenders (the "PAAI Credit Facility") (See Note 4) and (ii) an approximate $110 million capital contribution to PAAI by the Company. Approximately $25 million of the capital contribution was made in the first quarter of 1998 and the remaining $85 million was provided by a privately placed issuance of the Company's Series E Cumulative Convertible Preferred Stock (the "Series E Preferred Stock") (See Note 3). NOTE 3 -- PREFERRED STOCK On July 30, 1998, the Company sold in a private placement 170,000 shares of its Series E Preferred Stock for $85 million. Each share of the Series E Preferred Stock has a stated value of $500 per share and bears a dividend of 9.5% per annum. Dividends are payable semi-annually in either cash or additional shares of Series E Stock at the Company's option and are cumulative from the date of issue. Each share of Series E Preferred Stock is convertible into 27.78 shares of Common Stock (an initial effective conversion price of $18.00 per share) and in certain circumstances may be converted at the Page 6 of 23 Company's option into Common Stock if the average trading price for any thirty- day trading period is equal to or greater than $21.60 per share. The Series E Preferred Stock is redeemable at the option of the Company after March 31, 1999, at 110% of stated value and at declining amounts thereafter. If not previously redeemed or converted, the Series E Preferred Stock is required to be redeemed in 2012. Proceeds from the Series E Preferred Stock were used to fund a portion of the Company's capital contribution to PAAI to acquire all of the outstanding capital stock of the Celeron Companies (See Note 2). NOTE 4 -- DEBT Plains All American Inc. Credit Facility On July 30, 1998, PAAI borrowed $300 million under the PAAI Credit Facility. Such proceeds were used to acquire all of the outstanding capital stock of the Celeron Companies from Goodyear and to provide initial working capital (See Note 2). The PAAI Credit Facility is guaranteed by the Celeron Companies and is secured by the assets of PAAI and the Celeron Companies, including all pipelines, gathering lines, available accounts receivable, inventory (including associated linefill) and the capital stock of the Celeron Companies. The PAAI Credit Facility consists of (i) a $100 million reducing, revolving line of credit with a $30 million sub-limit for letters of credit ("Tranche A") and (ii) a $225 million non-amortizing term loan ("Tranche B"). PAAI incurs a commitment fee of .5% per annum on the unused portion of Tranche A. The commitment for Tranche A reduces in twenty-four equal quarterly amounts commencing September 30, 1998, with final maturity on June 30, 2004. Tranche B of the PAAI Credit Facility is repayable at maturity on June 30, 2005. Prepayment of principal on Tranche B is subject to a penalty of 1% on amounts prepaid prior to December 31, 1998, and .5% thereafter through June 30, 1999. The PAAI Credit Facility bears interest at PAAI's option at Base Rate (as defined therein) or LIBOR plus 1.75% and 3.00% for Tranche A and Tranche B, respectively. The interest rate margin on Tranche B may decrease in certain situations based on attainment of certain debt ratios or ratings received from rating agencies. Such interest rate margin will reduce by 25 basis points on September 30, 1998, based on the current debt rating of the PAAI Credit Facility. PAAI has entered into 10 year interest rate swaps with three of the lending banks to fix the LIBOR portion of the interest rate for $200 million of Tranche B at 5.96%. The PAAI Credit Facility contains covenants, which among other things, require PAAI to maintain certain financial ratios and minimum net worth. In addition, the PAAI Credit Facility contains restrictions on additional debt or liens, hedging contracts, asset sales other than those in the ordinary course of business, dividends and other distributions, investments, and capital expenditures above a specified amount. Plains Marketing & Transportation Inc. Revolving Credit Facility As a result of the PAAI acquisition and the projected increased activity, Plains Marketing & Transportation Inc. ("PMTI"), increased its letter of credit and inventory credit facility from $90 million to $175 million. On July 30, 1998, PMTI, a wholly owned subsidiary of the Company, established a $175 million secured revolving credit facility with BankBoston, N.A., ING (U.S.) Capital Corporation and other lenders (the "PMTI Credit Facility"). The purpose of the PMTI Credit Facility is to provide standby letters of credit to support the purchase of crude oil for resale and borrowings to finance crude oil inventory which has been hedged against future price risk. The PMTI Credit Facility is guaranteed by the Company and by Plains Terminal & Transfer Corporation and PLX Crude Lines Inc., both wholly-owned subsidiaries of the Company. The PMTI Credit Facility is secured by all of Page 7 of 23 the assets of PMTI, primarily accounts receivable and crude oil inventory. Aggregate availability under the PMTI Credit Facility for direct borrowings and letters of credit is limited to a borrowing base which is determined monthly based on certain current assets and current liabilities of PMTI, primarily crude oil inventory and accounts receivable and accounts payable related to the purchase and sale of crude oil. PMTI has established a $40 million sublimit (the "Sublimit") within the PMTI Credit Facility for borrowings to finance crude oil purchased in connection with operations at the Company's crude oil terminal and storage facilities. Under the terms of the Sublimit, all purchases of crude oil inventory financed are required to be hedged against future price risk on terms acceptable to the lenders. Letters of credit under the PMTI Credit Facility are generally issued for up to seventy day periods and bear fees of 1.1% per annum on the undrawn face amount of each outstanding letter of credit. Borrowings incur interest at the borrower's option of either (i) the Base Rate, as defined, or (ii) LIBOR plus 1.5%. PMTI incurs a commitment fee of .25% per annum on the unused portion of the PMTI Credit Facility. The PMTI Credit Facility has a final maturity date of July 30, 2001. The PMTI Credit Facility contains covenants, which among other things, require PMTI to maintain certain financial ratios and minimum levels of working capital and net worth. In addition, the PMTI Credit Facility contains restrictions on additional indebtedness, acquisitions, mergers, sale of assets, affiliate transactions, derivative contracts and capital expenditures. Plains Resources Inc. Revolving Credit Facility In May 1998, the Company's Revolving Credit Facility (the "Revolving Credit Facility") and borrowing base thereunder were increased to $225 million from $165 million. The Revolving Credit Facility, as amended, converts to a term loan on July 1, 2000, with a final maturity of July 1, 2005, and bears interest at the option of the Company at LIBOR plus 1.375% or Base Rate (as defined therein). The Revolving Credit Facility is guaranteed by all of the Company's principal subsidiaries and is secured by the oil and gas properties of the Company and its subsidiaries and the stock of all subsidiaries excluding PAAI and the Celeron Companies. At June 30, 1998, the Company had $136 million in borrowings and a $1 million standby letter of credit outstanding under the Revolving Credit Facility. NOTE 5 -- CHANGING OIL AND NATURAL GAS PRICES Decreases in the prices of oil and natural gas have had, and could have in the future, an adverse effect on the carrying value of the Company's proved reserves and the Company's revenues, profitability and cash flow. Almost all of the Company's reserve base (approximately 94% of year-end 1997 reserve volumes) is comprised of long-life oil properties that are sensitive to crude oil price volatility. The crude oil price received by the Company at December 31, 1997, upon which proved reserve volumes, the estimated present value (discounted at 10%) of future net revenue from the Company's proved oil and natural gas reserves (the "Present Value of Proved Reserves") and the Present Value of Proved Reserves reduced by future discounted income taxes (the "Standardized Measure") as of such date were based, was $18.34 per barrel. During 1998, the benchmark NYMEX crude oil price has fluctuated significantly, closing as high as $17.82 per barrel and as low as $11.56 per barrel. Under full cost accounting rules as prescribed by the SEC, unamortized costs of proved oil and natural gas properties are subject to a ceiling, which limits such costs to the Standardized Measure. At December 31, 1997, the Standardized Measure of the Company's proved reserves was greater than the book carrying cost of the Company's oil and gas properties by approximately $85 million. At June 30, 1998, based on the NYMEX price and average wellhead realizations received by the Company, the book carrying cost of the Company's Page 8 of 23 proved oil and gas properties exceeded the Standardized Measure by approximately $13 million. However, prices increased subsequent to the end of the quarter, and the Company was not required to writedown its book carrying cost by such amount. NOTE 6 -- EARNINGS PER SHARE The following is a reconciliation of the numerators and the denominators of the basic and diluted earnings per share ("EPS") computations for income from continuing operations for the three and six months ended June 30, 1998 and 1997, respectively, as required by Statement of Financial Accounting Standards No. 128 ("FAS 128"), Earnings Per Share. Prior period EPS data has been restated in accordance with the provisions of FAS 128.
For the Quarter ended June 30, ----------------------------------------------------------------------------- 1998 1997 -------------------------------------- ------------------------------------- Income SHARES PER INCOME SHARES PER (NUMERATOR) (DENOMINATOR) SHARE (NUMERATOR) (DENOMINATOR) SHARE AMOUNT AMOUNT -------------- ------------- ------ ----------- ------------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) Net income $ 1,418 $ 3,252 Less: preferred stock dividends (316) -- --------- --------- Income available to common stockholders 1,102 16,820 $ 0.07 3,252 16,551 $ 0.20 ======= ======= Effect of dilutive securities: Employee stock options -- 1,151 -- 906 Warrants -- 579 -- 468 --------- ------ --------- ------ Income available to common stockholders assuming dilution $ 1,102 18,550 $ 0.06 $ 3,252 17,925 $ 0.18 ========= ====== ======= ========= ====== =======
FOR THE SIX MONTHS ENDED JUNE 30, ------------------------------------------------------------------------------ 1998 1997 -------------------------------------- -------------------------------------- Income SHARES PER INCOME SHARES PER (NUMERATOR) (DENOMINATOR) SHARE (NUMERATOR) (DENOMINATOR) SHARE AMOUNT AMOUNT -------------- ------------- ------ ----------- ------------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) Net income $ 2,849 $ 7,143 Less: preferred stock dividends (628) -- --------- -------- Income available to common stockholders 2,221 16,772 $ 0.13 7,143 16,543 $ 0.43 ====== ======= Effect of dilutive securities: Employee stock options -- 1,090 -- 954 Warrants -- 549 -- 481 --------- ------ -------- ------ Income available to common stockholders assuming dilution $ 2,221 18,411 $ 0.12 $ 7,143 17,978 $ 0.40 ========= ====== ====== ======== ====== =======
Certain options and warrants to purchase shares of Common Stock were not included in the computations of diluted EPS because the exercise prices were greater than the average market price of the Common Stock during the periods of the EPS calculations, resulting in antidilution. In addition, the Company's Series D Preferred Stock, which was issued during 1997, is convertible into 932,000 shares of Common Stock but was not included in the computation of diluted EPS because the effect was antidilutive. Page 9 of 23 MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS THREE MONTH PERIODS ENDED JUNE 30, 1998 AND 1997 The Company reported continued improvement in the fundamental performance drivers in both its operating segments during the second quarter of 1998. Oil and gas production in the upstream segment increased 13% and gross margin from midstream activities increased 70% over the similar results from last year's second quarter. Despite record operating results in both segments, financial results were adversely affected by a 26% decline in the average benchmark oil price between the two periods. The NYMEX benchmark oil price averaged $14.69 per barrel in the second quarter of 1998, compared to the $19.94 per barrel average for the second quarter of 1997. For the quarter ended June 30, 1998, the Company reported net income of $1.4 million, or $.07 per share ($.06 per share assuming dilution). These results compare with net income in the prior year period of $3.3 million or $.20 per share ($.18 per share assuming dilution) on substantially higher oil prices. Earnings before interest, taxes, depreciation and amortization ("EBITDA") for the second quarter of 1998 totaled $16.0 million, a 3% decline from the $16.5 million reported for the prior year period. Cash flow from operations (net income plus noncash expenses) was $9.2 million for the second quarter of 1998 as compared to $11.4 million in last year's second quarter. Upstream Results The following table sets forth certain upstream operating information of the Company for the periods presented: THREE MONTHS ENDED JUNE 30, ------------------------------------ 1998 1997 ---------------- --------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) (UNAUDITED) AVERAGE DAILY PRODUCTION VOLUMES Barrels of oil equivalent ("BOE") California (90% oil) 13.8 10.8 S. Florida (100% oil) 5.3 5.6 Illinois Basin (100% oil) 3.6 3.4 Sold Properties -- 0.2 ----------- -------- Total (94% oil) 22.7 20.0 =========== ======== UNIT ECONOMICS Average sales price per BOE $ 12.38 $ 14.44 Production expenses per BOE 6.22 5.92 ----------- -------- Gross margin per BOE 6.16 8.52 Upstream G&A expense per BOE 0.67 0.69 ----------- -------- Gross profit per BOE $ 5.49 $ 7.83 =========== ======== Page 10 of 23 Oil and natural gas production for the second quarter of 1998 increased approximately 13% to an average of 22,700 BOE per day as compared to the second quarter 1997 average of 20,000 BOE per day. The increase in production volumes is primarily attributable to the Company's ongoing exploitation activities on its three core properties and to the acquisition of the California Arroyo Grande Field during the fourth quarter of 1997. Excluding the impact of this acquisition, total production was up approximately 6% from the prior year quarter. Net daily production in California increased approximately 28% to 13,800 BOE in the second quarter of 1998 compared to 10,800 BOE in the same quarter of 1997. Excluding production from the Arroyo Grande Field, total California production was up approximately 15% over the comparative prior year quarter. Net daily production in the Illinois Basin averaged approximately 3,600 barrels per day during the second quarter of 1998, an increase of approximately 3% as compared to the 1997 second quarter average of 3,400 barrels per day. Net daily production in South Florida averaged approximately 5,300 barrels per day during the second quarter of 1998, a 5% decrease from the 1997 comparative period, but an increase of 8% over the 1998 first quarter production. The decrease is attributable to normal decline on high volume wells that were drilled in 1996. The second quarter 1997 South Florida production was the highest quarterly production since the Company acquired the fields in 1993. Due to the high volume of production that is generated by a few wells in South Florida, abrupt or abnormal declines or downtime due to mechanical, marketing, or other conditions on any of the properties in this area could have a significant impact on production. Oil and natural gas revenues were $25.5 million for the second quarter of 1998, a decrease of 3% from the 1997 second quarter amount due to decreased product prices which offset increased production volumes. The Company's average product price, which represents a combination of fixed and floating price sales arrangements and incorporates location and quality discounts from the benchmark NYMEX price was $12.38 per BOE, a decrease of approximately 14% as compared to 1997's second quarter average realized price of $14.44 per BOE. The NYMEX benchmark West Texas Intermediate ("WTI") crude oil price averaged $14.69 per barrel during the 1998 second quarter, 26% or $5.25 per barrel below the $19.94 per barrel average for the second quarter of 1997. The Company maintained hedges on approximately 57% and 75% of its crude oil production in the second quarter of 1998 and 1997, respectively, with the current year's hedge price averaging a NYMEX WTI price of approximately $19.80 per barrel, approximately $.55 per barrel higher than last year's average hedge price. Hedging transactions had the effect of increasing the Company's average price per BOE by $2.75 in the second quarter of 1998 and decreasing such price by approximately $.60 per BOE in the 1997 second quarter. The Company's realized product price was also negatively affected by higher location and quality differentials from the NYMEX benchmark price due to the weakening of heavy light spreads and the impact of the lower quality Arroyo Grande crude. The Company's weighted average differential for all areas was approximately $5.23 per barrel for the 1998 second quarter, compared to approximately $4.43 per barrel during last year's second quarter. Unit gross margin in the upstream segment was $6.16 per BOE, a 28% decrease as compared to $8.52 per BOE reported for the second quarter of 1997 on substantially higher oil prices. Upstream unit gross profit, which deducts all pre-interest cash costs, was $5.49 per BOE, 30% lower than the 1997 amount of $7.83 per BOE. Unit production expenses increased by 5% to $6.22 per BOE for the second quarter of 1998, from $5.92 for the prior year quarter. Total production expenses increased to $12.8 million from $10.8 million for the second quarter of 1997 primarily due to increased production volumes related to the Company's acquisition and exploitation activities. Page 11 of 23 Unit general and administrative ("G&A") expense in the upstream segment declined 3% to $.67 per BOE from $.69 per BOE primarily due to increased production levels. Depreciation, depletion and amortization ("DD&A") per BOE was $3.00 for the second quarter of 1998 compared to $2.85 per BOE in the 1997 comparative quarter. Such increase is primarily attributable to the impact of lower commodity prices on proved reserve volumes. Total DD&A expense increased to $6.8 million from $5.9 million due to increased production volumes and the higher DD&A rate. Midstream Results The following table sets forth certain midstream operating information of the Company for the periods presented: THREE MONTHS ENDED JUNE 30, ---------------------------- 1998 1997 ----------- ----------- (IN THOUSANDS) (UNAUDITED) OPERATING RESULTS Gross Margin $5,196 $3,064 G&A expense 1,055 869 ------ ------ Gross profit $4,141 $2,195 ====== ====== AVERAGE DAILY VOLUMES Crude oil barrels marketed 83 71 Crude oil terminal throughput barrels 72 80 The Company's midstream segment reported gross margin (marketing, transportation and storage revenues less purchases, transportation and storage expenses) of $5.2 million for the second quarter of 1998, reflecting an approximate 70% increase over the $3.1 million reported for the 1997 quarter. Gross profit (gross margin less midstream G&A expenses) increased 89% to $4.1 million versus $2.2 million in the second quarter of 1997. Net of interest expense associated with contango inventory transactions, midstream gross margin and gross profit for the current year quarter were $5.0 million and $4.0 million, respectively, representing increases of approximately 67% and 85% over the 1997 respective amounts. The increases in gross margin and gross profit are due to increased marketing activities, strong marketing margins in areas where the Company conducts a large part of its marketing activities which offset weaker marketing margins in other areas and to profits from contango crude oil inventory transactions. Gross margin net of related interest expense from contango crude oil inventory transactions was $1.5 million and $.7 million for the three months ended June 30, 1998 and 1997, respectively. Gross revenues were $163.5 million and $162.2 million for the respective periods reflecting the increased barrels marketed offset by lower oil prices. Midstream G&A expenses increased from $.9 million to $1.1 million in the current year quarter primarily as a result of additional personnel added to further expand marketing activities. Average crude oil volumes marketed increased approximately 17% to 83,000 barrels per day from 71,000 barrels per day averaged during the 1997 quarter. Because the crude oil market was in contango during the second quarter of 1998, the Company utilized its storage and terminal facility in Cushing, Oklahoma (the "Cushing Terminal") to take advantage of available market arbitrages. Accordingly, average volumes terminalled through the Cushing Terminal decreased about 8,000 barrels per day to 72,000 barrels in the 1998 second quarter from 80,000 barrels per day in the 1997 comparative period. General Total G&A expense increased approximately 15% to $2.4 million for the second quarter of 1998. The increase is a result of higher G&A expenses in the midstream segment primarily due to expansion of the Company's marketing activities and to increased expenses in the upstream segment primarily Page 12 of 23 related to the Company's 1997 acquisitions. Unit upstream G&A expense declined 3% to $.67 per BOE in the second quarter of 1998 due to increased production volumes. Interest expense for the second quarter of 1998 increased to $6.8 million from $5.2 million for the comparative prior year period primarily due to higher outstanding debt levels. The current year quarter includes approximately $.4 million of interest associated with amounts borrowed to fund the Company's capital contribution to Plains All American Inc. ("PAAI"). See "Capital Resources, Liquidity and Financial Condition". Capitalized interest was $.9 million and $.8 million for the three months ended June 30, 1998 and 1997, respectively. The Company's total tax provision for the quarter ended June 30, 1998, was approximately $.9 million, as compared to the second quarter 1997 tax provision of approximately $2.2 million. Such decrease is due to the decrease in income before taxes between the two periods and a slight decrease in the Company's effective tax rate. In both periods, substantially all of the Company's income tax provision was deferred. SIX MONTH PERIODS ENDED JUNE 30, 1998 AND 1997 The Company reported continued improvement in the fundamental performance drivers in both its operating segments during the first half of 1998. Oil and gas production in the upstream segment increased 16% and gross margin from midstream activities increased 66% over the similar results from last year's first half. Despite record operating results in both segments, financial results were adversely affected by a 28% decline in the average benchmark oil price between the two periods. The NYMEX benchmark oil price averaged $15.33 per barrel in the first six months of 1998, compared to the $21.38 per barrel average for the 1997 period. For the six months ended June 30, 1998, the Company reported net income of $2.8 million, or $.13 per share ($.12 per share assuming dilution). This compares with net income in the prior year period of $7.1 million or $.43 per share ($.40 per share assuming dilution) on substantially higher oil prices. For the first half of 1998, cash flow from operations decreased 21% to $18.3 million and EBITDA decreased 5% to $31.3 million. Net cash provided by operating activities, as reported in the consolidated statements of cash flows, increased to $11.8 million for the six months ended June 30, 1998, as compared to $3.4 million for the 1997 comparative period. Such increase is primarily due to an increase in inventory levels in the prior year period. Page 13 of 23 Upstream Results The following table sets forth certain upstream operating information of the Company for the periods presented: SIX MONTHS ENDED JUNE 30, ------------------------------------ 1998 1997 ---------------- --------------- (IN THOUSANDS, EXCEPT PER UNIT DATA) (UNAUDITED) AVERAGE DAILY PRODUCTION VOLUMES Barrels of oil equivalent California (90% oil) 13.7 10.5 S. Florida (100% oil) 5.1 5.4 Illinois Basin (100% oil) 3.7 3.4 Sold Properties -- 0.1 -------- -------- Total (94% oil) 22.5 19.4 ======== ======== UNIT ECONOMICS Average sales price per BOE $ 12.70 $ 14.96 Production expenses per BOE 6.31 5.97 -------- -------- Gross margin per BOE 6.39 8.99 Upstream G&A expense per BOE 0.68 0.71 -------- -------- Gross profit per BOE $ 5.71 $ 8.28 ======== ======== Oil and natural gas production for the first six months of 1998 averaged approximately 22,500 BOE per day, a 16% increase over the 19,400 BOE per day averaged during the first half of 1997. Total production for the first six months of 1998 increased to 4.1 million BOE versus the 3.5 million BOE produced in the 1997 comparative period. The increase in production volumes is primarily attributable to the Company's ongoing exploitation activities on its three core properties and to the acquisition of two California producing properties during 1997. The Montebello and the Arroyo Grande Fields were acquired during the first quarter and fourth quarter of 1997, respectively. Excluding the impact of these acquisitions, total production was up approximately 6% from the prior year period. Net daily production in California increased approximately 30% to 13,700 BOE in the first half of 1998, compared to 10,500 BOE in the 1997 comparative period. Excluding production from the two 1997 acquisitions, total California production was 11,000 BOE per day which represents a 14% increase over the comparative prior year period, likewise excluding production from the acquired properties. Net daily production in the Illinois Basin averaged approximately 3,700 barrels per day during the first half of 1998 or 7% over the 1997 period. Net daily production from the Company's South Florida properties decreased approximately 6% to average 5,100 barrels of oil per day in the first half of 1998 as compared to 5,400 barrels per day in last year's comparative period. This decrease is attributable to normal decline on high volume wells that were drilled in 1996. Due to the high volume of production that is generated by a few wells in South Florida, abrupt or abnormal declines or downtime due to mechanical, marketing, or other conditions on any of the properties in this area could have a significant impact on production. Oil and natural gas revenues were $51.7 million for the first six months of 1998, a decrease of 2% from the 1997 comparative period due to decreased product prices which offset increased production volumes. The Company's average product price, which represents a combination of fixed and floating price sales arrangements and incorporates location and quality discounts from the benchmark NYMEX price was $12.70 per BOE, a decrease of approximately 15% as compared to 1997's first half average of $14.96 per BOE. During the current year, the NYMEX benchmark price averaged $15.33 per Page 14 of 23 barrel, down 28% as compared to an average of $21.38 in the correlative period of 1997. Approximately 58% of the Company's oil production was hedged during the first half of 1998 at an average NYMEX price of $19.80 per barrel. Hedging transactions had the effect of increasing the average price per BOE by $2.43 in the first half of 1998 and decreasing such price by approximately $2.03 per BOE in the 1997 period. The Company's realized product price was also negatively affected by higher location and quality differentials from the NYMEX benchmark price due to the weakening of heavy light spreads and the impact of the lower quality Arroyo Grande crude. The Company's weighted average differential for all areas was approximately $5.17 per barrel for the first half of 1998, compared to approximately $4.10 per barrel during last year's comparative period. Unit gross margin in the upstream segment was $6.39 per BOE, a 29% decrease as compared to $8.99 per BOE reported for the second half of 1997 on substantially higher oil prices. Upstream unit gross profit, which deducts all pre-interest cash costs, was $5.71 per BOE, 31% lower than the 1997 amount of $8.28 per BOE. Unit production expenses increased $.34 per BOE from $5.97 per BOE last year, largely as a result of the addition late in 1997 of properties with higher operating costs and the first quarter effects of El Nino. Total production expenses increased to $25.7 million from $21.0 million for the first half of 1997 primarily due to increased production volumes related to the Company's acquisition and exploitation activities. Unit G&A expense in the upstream segment declined 4% to $.68 per BOE from $.71 per BOE primarily due to increased production levels. DD&A per BOE was $3.00 for the first half of 1998 compared to $2.80 per BOE in the 1997 comparative period. Such increase is primarily attributable to the impact of lower commodity prices on proved reserve volumes. Total DD&A expense increased to $13.6 million from $11.3 million due to increased production volumes and the higher DD&A rate. Midstream Results The following table sets forth certain midstream operating information of the Company for the periods presented: SIX MONTHS ENDED JUNE 30, ---------------------------- 1998 1997 ----------- ----------- (IN THOUSANDS) (UNAUDITED) OPERATING RESULTS Gross Margin $ 9,200 $ 5,530 G&A expense 2,041 1,706 ----------- ----------- Gross profit $ 7,159 $ 3,824 =========== =========== AVERAGE DAILY VOLUMES Crude oil barrels marketed 82 67 Crude oil terminal throughput barrels 64 75 The Company's midstream segment reported gross margin (marketing, transportation and storage revenues less purchases, transportation and storage expenses) of $9.2 million for the first half of 1998, reflecting an approximate 66% increase over the $5.5 million reported for the 1997 period. Gross profit (gross margin less midstream G&A expenses) increased 87% to $7.2 million versus $3.8 million in the second half of 1997. Net of interest expense associated with contango inventory transactions, midstream gross margin and gross profit for the current year period were $8.9 million and $6.8 million respectively, representing increases of approximately 62% and 81% over the 1997 respective amounts. Page 15 of 23 Gross margin net of related interest expense from contango crude oil inventory transactions was $1.8 million and $.7 million for the six months ended June 30, 1998 and 1997, respectively. Gross revenues decreased to $330.7 million from $343.0 million for the prior year period reflecting the increased barrels marketed offset by lower crude oil prices between the two periods. Midstream G&A expenses increased from $1.7 million to $2.0 million in the current year period primarily as a result of additional personnel added to further expand marketing activities. Average crude oil volumes marketed increased approximately 22% to 82,000 barrels per day from 67,000 barrels per day averaged during the 1997 period. Because the crude oil market was in contango during the first half of 1998, the Company utilized its Cushing Terminal to take advantage of available market arbitrages. Accordingly, average volumes terminalled through the Cushing Terminal decreased about 11,000 barrels per day to 64,000 barrels in the 1998 first half from 75,000 barrels per day in the 1997 comparative period. General Total G&A expense increased approximately 14% to $4.8 million for the first half of 1998. The increase is a result of higher G&A expenses in the midstream segment primarily due to expansion of the Company's marketing activities and to increased expenses in the upstream segment primarily related to the Company's 1997 acquisitions. Unit upstream G&A expense declined 4% to $.68 per BOE in the first half of 1998 due to increased production volumes. Interest expense for the first half of 1998, increased to $12.9 million from $9.9 million for the comparative prior year period primarily due to higher outstanding debt levels. The current year period includes approximately $.5 million of interest associated with amounts borrowed to fund the Company's capital contribution to PAAI. See "Capital Resources, Liquidity and Financial Condition". Capitalized interest was $1.8 million and $1.5 million for the six months ended June 30, 1998 and 1997, respectively. The Company's total tax provision for the six months ended June 30, 1998, was approximately $1.7 million, as compared to comparative period's 1997 tax provision of approximately $4.8 million. Such decrease is due to the decrease in income before taxes between the two periods and a slight decrease in the Company's effective tax rate. In both periods, substantially all of the Company's income tax provision was deferred. In July 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 131 ("FAS 131"), Disclosures About Segments of an Enterprise and Related Information, effective for fiscal years beginning after December 15, 1997. FAS 131 introduces a new model for segment reporting and requires disclosures for each segment that are similar to those required under current standards with the addition of quarterly disclosure requirements and a finer partitioning of geographic disclosures. Reportable segments are based on products and services, geography, legal structure, management structure or any manner in which management disaggregates a company. This statement replaces the notion of industry and geographic segments in current FASB standards. Management is currently evaluating the impact of this statement on the Company's disclosures. In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ("FAS 133"). FAS 133 is effective for all fiscal years beginning after June 15, 1999 (January 1, 2000 for the Company). FAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. For fair-value hedge transactions in which the Company is hedging changes in an asset's, liability's, or firm Page 16 of 23 commitment's fair value, changes in the fair value of the derivative instrument will generally be offset in the income statement by changes in the hedged item's fair value. For cash-flow hedge transactions, in which the Company is hedging the variability of cash flows related to a variable-rate asset, liability, or a forecasted transaction, changes in the fair value of the derivative instrument will be reported in other comprehensive income. The gains and losses on the derivative instrument that are reported in other comprehensive income will be reclassified as earnings in the periods in which earnings are impacted by the variability of the cash flows of the hedged item. The Company has not yet determined the impact that the adoption of FAS 133 will have on its earnings or statement of financial position. The Company has initiated a comprehensive review of its computer systems to identify the systems that could be affected by the "Year 2000" issue. The Company expects to incur internal staff costs as well as some consulting and other expenses necessary to prepare the systems for the year 2000. The Company does not expect the amounts required to be expensed over the next 18 months to have a material effect on its results of operations. The Company expects all Year 2000 issues to be resolved in a timely manner during 1998 and 1999. There can be no assurance that the systems of other companies on which the Company relies will be converted in a timely manner or that any such failure to convert by another company would not have an adverse effect on the Company. In order to minimize this impact, the Company is in contact with its vendors and customers to work toward their compliance. CAPITAL RESOURCES, LIQUIDITY AND FINANCIAL CONDITION On July 30, 1998, Plains All American Inc. ("PAAI"), a wholly owned unrestricted subsidiary of the Company, as defined in the indentures for the Company's $200 million 10.25% Senior Subordinated Notes (the "Indentures"), acquired all of the outstanding capital stock of the All American Pipeline Company, Celeron Gathering Corporation and Celeron Trading & Transportation Company (collectively the "Celeron Companies") from Wingfoot Ventures Seven, Inc., a wholly-owned subsidiary of The Goodyear Tire & Rubber Company ("Goodyear") for approximately $400 million, including transaction costs. The principal assets of the entities acquired include the All American Pipeline System, a 1,233-mile crude oil pipeline extending from California to Texas, and a 45-mile crude oil gathering system in the San Joaquin Valley of California, as well as other assets related to such operations. Financing for the acquisition was provided through (i) PAAI's $325 million, limited recourse bank facility with ING (U.S.) Capital Corporation, BankBoston, N.A. and other lenders (the "PAAI Credit Facility") and (ii) an approximate $110 million capital contribution to PAAI by the Company. Approximately $25 million of the capital contribution was made in the first quarter of 1998 and the remaining $85 million was provided by a privately placed issuance of the Company's Series E Cumulative Convertible Preferred Stock (the "Series E Preferred Stock"). On July 30, 1998, the Company sold in a private placement 170,000 shares of its Series E Preferred Stock for $85 million. Each share of the Series E Preferred Stock has a stated value of $500 per share and bears a dividend of 9.5% per annum. Dividends are payable semi-annually in either cash or additional shares of Series E Stock at the Company's option and are cumulative from the date of issue. Each share of Series E Preferred Stock is convertible into 27.78 shares of Common Stock (an initial effective conversion price of $18.00 per share) and in certain circumstances may be converted at the Company's option into Common Stock if the average trading price for any thirty-day trading period is equal to or greater than $21.60 per share. The Series E Preferred Stock is redeemable at the option of the Company after March 31, 1999, at 110% of stated value and at declining amounts thereafter. If not previously redeemed or converted, the Series E Preferred Stock is required to be redeemed in 2012. Page 17 of 23 Proceeds from the Series E Preferred Stock were used to fund a portion of the Company's capital contribution to PAAI to acquire all of the outstanding capital stock of the Celeron Companies. On July 30, 1998, PAAI borrowed $300 million under the PAAI Credit Facility. Such proceeds were used to acquire all of the outstanding capital stock of the Celeron Companies from Goodyear and to provide initial working capital. The PAAI Credit Facility is guaranteed by the Celeron Companies and is secured by the assets of PAAI and the Celeron Companies, including all pipelines, gathering lines, available accounts receivable, inventory (including associated linefill) and the capital stock of the Celeron Companies. The PAAI Credit Facility consists of (i) a $100 million reducing, revolving line of credit with a $30 million sub-limit for letters of credit ("Tranche A") and (ii) a $225 million non-amortizing term loan ("Tranche B"). PAAI incurs a commitment fee of .5% per annum on the unused portion of Tranche A. The commitment for Tranche A reduces in twenty-four equal quarterly amounts commencing September 30, 1998, with final maturity on June 30, 2004. Tranche B of the PAAI Credit Facility is repayable at maturity on June 30, 2005. Prepayment of principal on Tranche B is subject to a penalty of 1% on amounts prepaid prior to December 31, 1998, and .5% thereafter through June 30, 1999. The PAAI Credit Facility bears interest at PAAI's option at Base Rate (as defined therein) or LIBOR plus 1.75% and 3.00% for Tranche A and Tranche B, respectively. The interest rate margin on Tranche B may decrease in certain situations based on attainment of certain debt ratios or ratings received from rating agencies. Such interest rate margin will reduce by 25 basis points on September 30, 1998, based on the current debt rating of the PAAI Credit Facility. PAAI has entered into 10 year interest rate swaps with three of the lending banks to fix the LIBOR portion of the interest rate for $200 million of Tranche B at 5.96%. The PAAI Credit Facility contains covenants, which among other things, requires PAAI to maintain certain financial ratios and minimum net worth. In addition, the PAAI Credit Facility contains restrictions on additional debt or liens, hedging contracts, asset sales other than those in the ordinary course of business, dividends and other distributions, investments and capital expenditures above a specified amount. As a result of the PAAI acquisition and the projected increased activity, Plains Marketing & Transportation Inc. ("PMTI"), increased its letter of credit and inventory credit facility from $90 million to $175 million. On July 30, 1998, PMTI, a wholly owned subsidiary of the Company, established a $175 million secured revolving credit facility with BankBoston, N.A., ING (U.S.) Capital Corporation and other lenders (the "PMTI Credit Facility"). The purpose of the PMTI Credit Facility is to provide standby letters of credit to support the purchase of crude oil for resale and borrowings to finance crude oil inventory which has been hedged against future price risk. The PMTI Credit Facility is guaranteed by the Company and by Plains Terminal & Transfer Corporation and PLX Crude Lines Inc., both wholly-owned subsidiaries of the Company. The PMTI Credit Facility is secured by all of the assets of PMTI, primarily accounts receivable and crude oil inventory. Aggregate availability under the PMTI Credit Facility for direct borrowings and letters of credit is limited to a borrowing base which is determined monthly based on certain current assets and current liabilities of PMTI, primarily crude oil inventory and accounts receivable and accounts payable related to the purchase and sale of crude oil. PMTI has established a $40 million sublimit (the "Sublimit") within the PMTI Credit Facility for borrowings to finance crude oil purchased in connection with operations at the Company's crude oil terminal and storage facilities. Under the terms of the Sublimit, all purchases of crude oil inventory financed are required to be hedged against future price risk on terms acceptable to the lenders. Page 18 of 23 Letters of credit under the PMTI Credit Facility are generally issued for up to seventy day periods and bear fees of 1.1% per annum on the undrawn face amount of each outstanding letter of credit. Borrowings incur interest at the borrower's option of either (i) the Base Rate, as defined, or (ii) LIBOR plus 1.5%. PMTI incurs a commitment fee of .25% per annum on the unused portion of the PMTI Credit Facility. The PMTI Credit Facility has a final maturity date of July 30, 2001. The PMTI Credit Facility contains covenants, which among other things, require PMTI to maintain certain financial ratios and minimum levels of working capital and net worth. In addition, the PMTI Credit Facility contains restrictions on additional indebtedness, acquisitions, mergers, sale of assets, affiliate transactions, derivative contracts, and capital expenditures. In May 1998, the Company's Revolving Credit Facility and borrowing base thereunder were increased to $225 million from $165 million. The Revolving Credit Facility, as amended, converts to a term loan on July 1, 2000, with a final maturity of July 1, 2005, and bears interest at the option of the Company at LIBOR plus 1.375% or Base Rate (as defined therein). The Revolving Credit Facility is guaranteed by all of the Company's principal subsidiaries and is secured by the oil and gas properties of the Company and its subsidiaries and the stock of all subsidiaries excluding PAAI and the Celeron Companies. At June 30, 1998, the Company had $136 million in borrowings and a $1 million standby letter of credit outstanding under the Revolving Credit Facility. At June 30, 1998, the Company had working capital of approximately $22.2 million including the amount contributed to PAAI which at June 30, 1998, was invested in short-term investments. Excluding such contribution, the Company had a working capital deficit of approximately $6.8 million compared to a working capital deficit of $6.0 million at December 31, 1997. The Company has historically operated with a working capital deficit due primarily to ongoing capital expenditures that have been financed through cash flow, the Revolving Credit Facility, and the sale of subordinated notes, common stock and preferred stock. The Company intends to make aggregate capital expenditures of approximately $103 million in 1998, primarily on the development and exploitation if its California, South Florida and Illinois Basin properties. Through June 30, 1998, the Company's capital expenditures were approximately $45 million. Approximately $20 million of planned spending is designed to set up or optimize the Company's 1999 capital plan, and could be deferred without significantly affecting 1998's forecasted production growth. In addition to the $103 million of 1998 planned capital expenditures, the Company plans to construct an additional one million barrels of tankage at the Cushing Terminal. Construction of the expansion project is expected to begin during the second half of 1998 and is expected to be completed in mid-1999 at a total cost of approximately $10 million. INVESTING AND FINANCING ACTIVITIES Net cash flows used in investing activities were $40.4 million and $54.4 million for the six months ended June 30, 1998 and 1997, respectively. Investing activities include payments for acquisition, exploration and development costs of $39.4 million and $50.6 million for these same periods, respectively. Included in the 1997 amount is approximately $25 million related to the acquisition of the Montebello field. Net cash provided by financing activities amounted to $56.4 million and $53.0 million for the six months ended June 30, 1998 and 1997, respectively. Approximately $16 million and $25 million borrowed under the Revolving Credit Facility to fund the capital contribution to PAAI and the acquisition of the Montebello field, respectively, is included in proceeds from long-term debt in 1998 and 1997, respectively. Included in both years are net proceeds from borrowings under the Revolving Page 19 of 23 Credit Facility as a result of acquisition, exploration, exploitation and development activities. Financing activities during the first half of 1998 include approximately $17.9 million in short-term borrowings and approximately $18.0 million of repayments related to contango crude oil inventory transactions at the Cushing Terminal. CHANGING OIL AND NATURAL GAS PRICES The Company is affected by changes in crude oil prices, which have historically been volatile. Although the Company has routinely hedged a substantial portion of its crude oil production and intends to continue this practice, prolonged low crude oil prices or future crude oil price declines would have a negative impact on the Company's overall results, and therefore its liquidity. Furthermore, low crude oil prices could affect the Company's ability to raise capital on terms favorable to the Company. In order to manage its exposure to commodity price risk, the Company has routinely hedged a portion of its crude oil production. For 1998, the Company has entered into various hedging arrangements on approximately 12,250 barrels of oil per day, or approximately 57% of 1998 second quarter crude oil production at a NYMEX WTI price of approximately $19.80 per barrel. In addition, the Company also has fixed price arrangements on 9,000 barrels per day in 1999 at a NYMEX WTI price of $18.25 per barrel, or approximately 42% of second quarter 1998 crude oil production levels. The foregoing NYMEX WTI prices are before quality and location differentials. Management intends to continue to maintain hedging arrangements for a significant portion of its production. Such contracts may expose the Company to the risk of financial loss in certain circumstances. Additionally, decreases in the prices of oil and natural gas have had, and could have in the future, an adverse effect on the carrying value of the Company's proved reserves and the Company's revenues, profitability and cash flow. Almost all of the Company's reserve base (approximately 94% of year-end 1997 reserve volumes) is comprised of long-life oil properties that are sensitive to crude oil price volatility. The crude oil price received by the Company at December 31, 1997, upon which proved reserve volumes, the estimated present value (discounted at 10%) of future net revenue from the Company's proved oil and natural gas reserves (the "Present Value of Proved Reserves") and the Present Value of Proved Reserves reduced by future discounted income taxes (the "Standardized Measure") as of such date were based, was $18.34 per barrel. During 1998, the benchmark NYMEX crude oil price has fluctuated significantly, closing as high as $17.82 per barrel and as low as $11.56 per barrel. Under full cost accounting rules as prescribed by the SEC, unamortized costs of proved oil and natural gas properties are subject to a ceiling, which limits such costs to the Standardized Measure. At December 31, 1997, the Standardized Measure of the Company's proved reserves was greater than the book carrying cost of the Company's oil and gas properties by approximately $85 million. At June 30, 1998, based on the NYMEX price and average wellhead realizations received by the Company, the book carrying cost of the Company's proved oil and gas properties exceeded the Standardized Measure by approximately $13 million. However, prices increased subsequent to the end of the quarter, and the Company was not required to writedown its book carrying cost by such amount. FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS All statements, other than statements of historical facts, included in this report which address activities, events or developments that the Company expects or anticipates will or may occur in the future are forward-looking statements. Such forward-looking statements are subject to risks and uncertainties including, among other things, market conditions, drilling and operating hazards, uncertainties inherent in estimating oil and gas reserves and other factors discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. Page 20 of 23 PART II. OTHER INFORMATION Item 1 - Legal Proceedings None Item 2 - Material Modification of Rights of Registrant's Securities None Item 3 - Defaults on Senior Securities None Item 4 - Submission of Matters to a Vote of Security Holders The 1998 Annual Meeting of Stockholders (the "Meeting") of the Company was held on May 21, 1998. At the Meeting, holders of common stock, $.10 par value, of the Company ("Common Stock"), elected eight members of the Company's Board of Directors. No other matters were voted on at the Meeting. Out of the 16,745,022 shares of Common Stock entitled to vote at the Meeting, there were 14,225,734 shares of Common Stock represented at the Meeting either by proxies solicited in accordance with Schedule 14A or by security holders voting in person. The tabulation of votes for each director nominee is as follows: NOMINEES FOR ELECTION TO THE COMPANY'S BOARD OF DIRECTORS - ------------------------------------- VOTES "FOR" WITHHELD Greg Armstrong 12,800,685 7,983 Jerry L. Dees 12,801,120 7,548 Tom H. Delimitros 12,801,120 7,548 William H. Hitchcock 12,800,730 7,938 Dan M. Krausse 12,801,160 7,508 John H. Lollar 12,801,120 7,548 Robert V. Sinnott 12,801,120 7,548 J. Taft Symonds 12,801,160 7,508 Item 5 - Other Information None Page 21 of 23 Item 6 Exhibits and Reports on Form 8-K A. Exhibits 10(x) -- Credit Agreement dated as of July 30, 1998, among Plains Marketing & Transportation Inc. and BankBoston, N.A., and ING (U.S.) Capital Corporation, et.al. 10(y) -- Fourth Amended and Restated Credit Agreement dated May 22, 1998, among the Company and ING (U.S.) Capital Corporation, et.al. 27. -- Financial Data Schedule B. Report on Form 8-K A Form 8-K with respect to the Company's purchase by Plains All American Inc. (a wholly owned subsidiary of the Company) of all the outstanding capital stock of the All American Pipeline Company, Celeron Gathering Corporation and Celeron Trading & Transportation Company from a subsidiary of the Goodyear Tire & Rubber Company was filed on August 11, 1998. Such form 8-K is hereby incorporated by reference. Page 22 of 23 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 and thereunto duly authorized. PLAINS RESOURCES INC. Date: August 14, 1998 By: /s/ Cynthia A. Feeback ------------------------------- Cynthia A. Feeback, Controller, Assistant Treasurer and Principal Accounting Officer (Principal Accounting Officer) Page 23 of 23 EX-10.X 2 CREDIT AGREEMENT DATED JULY 30, 1998 Execution ======================================================================= CREDIT AGREEMENT ____________________________________ PLAINS MARKETING & TRANSPORTATION INC. and BANKBOSTON, N.A., as Administrative Agent, BANCBOSTON SECURITIES INC., as Syndication Agent, ING (U.S.) CAPITAL CORPORATION, as Documentation Agent, and CERTAIN FINANCIAL INSTITUTIONS, as Lenders _______________________________________________________ $175,000,000 July 30, 1998 ======================================================================= TABLE OF CONTENTS
Page CREDIT AGREEMENT 1 ARTICLE I - Definitions and References 1 Section 1.1. Defined Terms 1 Section 1.2. Exhibits and Schedules; Additional Definitions 20 Section 1.3. Amendment of Defined Instruments 20 Section 1.4. References and Titles 21 Section 1.5. Calculations and Determinations 21 ARTICLE II - The Loans 21 Section 2.1. Commitments to Lend; Notes 21 Section 2.2. Requests for New Loans 22 Section 2.3. Continuations and Conversions of Existing Loans 23 Section 2.4. Use of Proceeds 24 Section 2.5. Optional Prepayments of Loans 24 Section 2.6. Mandatory Prepayments 24 Section 2.7. Letters of Credit 25 Section 2.8. Requesting Letters of Credit 25 Section 2.9. Reimbursement and Participations 26 Section 2.10. No Duty to Inquire 27 Section 2.11. LC Collateral 28 Section 2.12. Interest Rates and Fees; Reduction in Commitment 29 Section 2.13. Borrowing Base Reporting 30 ARTICLE III - Payments to Lenders 30 Section 3.1. General Procedures 30 Section 3.2. Capital Reimbursement 31 Section 3.3. Increased Cost of Eurodollar Loans or Letters of Credit 31 Section 3.4. Notice; Change of Applicable Lending Office 32 Section 3.5. Availability 33 Section 3.6. Funding Losses 33 Section 3.7. Reimbursable Taxes 33 ARTICLE IV - Conditions Precedent to Credit 35 Section 4.1. Documents to be Delivered 35 Section 4.2. Additional Conditions to Initial Credit 37 Section 4.3. Additional Conditions Precedent 37 Section 4.4. Financial Conditions 38 ARTICLE V - Representations and Warranties 39 Section 5.1. No Default 39 Section 5.2. Organization and Good Standing 39 Section 5.3. Authorization 39
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Section 5.4. No Conflicts or Consents 40 Section 5.5. Enforceable Obligations 40 Section 5.6. Initial Financial Statements 40 Section 5.7. Other Obligations and Restrictions. 40 Section 5.8. Full Disclosure 40 Section 5.9. Litigation 41 Section 5.10. Labor Disputes and Acts of God 41 Section 5.11. ERISA Plans and Liabilities 41 Section 5.12. Compliance with Laws 41 Section 5.13. Environmental Laws 42 Section 5.14. Names and Places of Business 43 Section 5.15. Borrower's Subsidiaries 43 Section 5.16. Title to Properties; Licenses 44 Section 5.17. Government Regulation 44 Section 5.18. Insider 44 Section 5.19. Solvency 44 Section 5.20. Credit Arrangements 44 Section 5.21. Year 2000 44 ARTICLE VI - Affirmative Covenants of Borrower 45 Section 6.1. Payment and Performance 45 Section 6.2. Books, Financial Statements and Reports 45 Section 6.3. Other Information and Inspections 48 Section 6.4. Notice of Material Events and Change of Address 48 Section 6.5. Maintenance of Properties 49 Section 6.6. Maintenance of Existence and Qualifications 49 Section 6.7. Payment of Trade Liabilities, Taxes, etc. 50 Section 6.8. Insurance 50 Section 6.9. Performance on Borrower's Behalf 50 Section 6.10. Interest 50 Section 6.11. Compliance with Agreements and Law 50 Section 6.12. Environmental Matters; Environmental Reviews 51 Section 6.13. Evidence of Compliance 51 Section 6.14. Agreement to Deliver Security Documents 51 Section 6.15. Perfection and Protection of Security Interests and Liens 52 Section 6.16. Bank Accounts; Offset. 52 Section 6.17. Guaranties of Borrower's Subsidiaries 52 ARTICLE VII - Negative Covenants of Borrower 53 Section 7.1. Indebtedness 53 Section 7.2. Limitation on Liens 54 Section 7.3. Limitation on Mergers, Issuances of Securities 55 Section 7.4. Limitation on Sales of Property 56 Section 7.5. Limitation on Investments and New Businesses 56 Section 7.6. Limitation on Credit Extensions 56 Section 7.7. Transactions with Affiliates 56
ii
Section 7.8. Limitations on Capital Expenditures 56 Section 7.9. Open Inventory Position 57 Section 7.10. Fixed Charges Coverage Ratio 57 Section 7.11. Solvency 57 Section 7.12. Prohibited Contracts 57 Section 7.13. No Limitation of Certain Payment 57 ARTICLE VIII - Events of Default and Remedies 57 Section 8.1. Events of Default 57 Section 8.2. Remedies 60 ARTICLE IX - Administrative Agent 60 Section 9.1. Appointment and Authority 60 Section 9.2. Exculpation, Administrative Agent's Reliance, Etc. 61 Section 9.3. Credit Decisions 61 Section 9.4. Indemnification 62 Section 9.5. Rights as Lender 62 Section 9.6. Sharing of Set-Offs and Other Payments 63 Section 9.7. Investments 63 Section 9.8. Benefit of Article IX 63 Section 9.9. Resignation 64 Section 9.10. Other Agents 64 ARTICLE X - Miscellaneous 64 Section 10.1. Waivers and Amendments; Acknowledgments 64 Section 10.2. Survival of Agreements; Cumulative Nature 66 Section 10.3. Notices 66 Section 10.4. Payment of Expenses; Indemnity 67 Section 10.5. Joint and Several Liability; Parties in Interest; Assignments 68 Section 10.6. Confidentiality 71 Section 10.7. Governing Law; Submission to Process 71 Section 10.8. Limitation on Interest 72 Section 10.9. Termination; Limited Survival 72 Section 10.10 Severability 72 Section 10.11. Counterparts 72 Section 10.12. Waiver of Jury Trial, Punitive Damages, etc. 73
iii Schedules and Exhibits: - ---------------------- Schedule 1 - Lender Schedule Schedule 2 - Disclosure Schedule Schedule 3 - Security Schedule Schedule 4 - Insurance Schedule Schedule 5 - Outstanding Letters of Credit Schedule 6 - Borrowing Base Procedures Exhibit A - Promissory Note Exhibit B - Borrowing Notice Exhibit C - Continuation/Conversion Notice Exhibit D-1 - and D-2 - Forms of Letter of Credit Exhibit E - Letter of Credit Application and Agreement Exhibit F - Certificate Accompanying Financial Statements Exhibit G-1 - Opinion of In-house Counsel for Restricted Persons Exhibit G-2 - Opinion of Counsel for Restricted Persons Exhibit H - Borrowing Base Report Exhibit I - Environmental Compliance Certificate Exhibit J - Assignment and Acceptance Agreement Exhibit K - Officers Certificate Exhibit L - Service and Exchange Agreement Exhibit M - Agreement for the Allocation of Taxes Exhibit N - Netting Agreement iv CREDIT AGREEMENT ----------------- THIS CREDIT AGREEMENT is made as of July 30, 1998, by and among PLAINS MARKETING & TRANSPORTATION INC., a Delaware corporation ("Borrower"), BANKBOSTON, N.A., as administrative agent (in such capacity, "Administrative Agent"), BANCBOSTON SECURITIES INC., as syndication agent (in such capacity, "Syndication Agent"), ING (U.S.) CAPITAL CORPORATION, as documentation agent (in such capacity, "Documentation Agent") and the Lenders referred to below. In consideration of the mutual covenants and agreements contained herein the parties hereto agree as follows: ARTICLE I - Definitions and References Section 1.1. Defined Terms. As used in this Agreement, each of the following terms has the meaning given to such term in this Section 1.1 or in the sections and subsections referred to below: "Acceptable Issuer" means any national or state bank or trust company which is organized under the laws of the United States of America or any state thereof or any branch licensed to operate under the laws of the United States of America or any state thereof, which is a branch of a bank organized under any country which is a member of the Organization for Economic Cooperation and Development, in each case which has capital, surplus and undivided profits of at least $500,000,000 and whose commercial paper is rated at least P-1 by Moody's or A-1 by S&P. "Account" shall have the meaning given that term in the UCC. "Account Debtor" means any Person who is or who may become obligated under, with respect to, or on account of, an Account. "Acquisition Documents" means the Stock Purchase Agreement dated as of March 15, 1998 among Resources, PAAI and Wingfoot Ventures Seven Inc., and all other agreements or instruments delivered in connection therewith to consummate the acquisition contemplated thereby. "Adjusted Eurodollar Rate" means, for any Eurodollar Loan for any Interest Period therefor, the per annum rate equal to the sum of (a) one and one-half percent (1.5%) per annum plus (b) the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by Administrative Agent to be equal to the quotient obtained by dividing (i) the Eurodollar Rate for such Eurodollar Loan for such Interest Period by (ii) 1 minus the Reserve Requirement for such Eurodollar Loan for such Interest Period. The Adjusted Eurodollar Rate for any Eurodollar Loan shall change whenever the Reserve Requirement changes. "Affiliate" means, as to any Person, each other Person that directly or indirectly (through one or more intermediaries or otherwise) controls, is controlled by, or is under common control with, such Person. A Person shall be deemed to be "controlled by" any other Person if such other Person possesses, directly or indirectly, power (a) to vote 5% or more of the securities (on a fully diluted basis) having ordinary voting power for the election of directors or managing general partners; or (b) to direct or cause the direction of the management and policies of such Person whether by contract or otherwise. "Affiliate Agreements" has the meaning given to such term in Section 4.2. "Affiliate Net Payable" means the remainder (if positive) of (a) all Affiliate Payables due from Borrower or one of its Subsidiaries to an Affiliate minus (b) all Affiliate Receivables due to such Person from such Affiliate. "Affiliate Payables" means all accounts payable and other liabilities owed by Borrower or any of its Subsidiaries to Resources or any of its Subsidiaries, other than Borrower or its Subsidiaries. "Affiliate Receivables" means an Account or other liability (i) owed to Borrower or any of its Subsidiaries from Resources to the extent such Accounts or other liabilities in the aggregate exceed $1,000,000 at the time of determination, or (ii) owed to Borrower or any of its Subsidiaries from any of Resources' Subsidiaries, other than Borrower or its Subsidiaries. "Administrative Agent" means BankBoston N.A., as Administrative Agent hereunder, and its successors in such capacity. "Agreement" means this Credit Agreement. "Applicable Lending Office" means, with respect to each Lender, such Lender's Domestic Lending Office in the case of Base Rate Loans and such Lender's Eurodollar Lending Office in the case of Eurodollar Loans. "Approved Eligible Receivables" means each Eligible Receivable (other than Eligible Exchange Balances) (a) from a Person whose Debt Rating is either at least Baa2 by Moody's or at least BBB by S&P; (b) fully and unconditionally guaranteed as to payment by a Person whose Debt Rating is either at least Baa2 by Moody's or at least BBB by S&P; (c) from any other Person Currently Approved by Majority Lenders; or (d) fully covered by a letter of credit from an Acceptable Issuer. "Base Rate" means the higher of (a) the annual rate of interest announced from time to time by Administrative Agent at its "base rate" at its head office in Boston, Massachusetts, or (b) the Federal Funds Rate plus one-half percent (0.5%) per annum; provided that such rate may not be the lowest rate at which funds are made available to customers of Administrative Agent at such time. Each change in the Base Rate shall become effective without prior notice to Borrower automatically as of the opening of business on the date of such change in the Base Rate. "Base Rate Loan" means a Loan which does not bear interest at the Adjusted Eurodollar Rate. 2 "Borrower" means Plains Marketing & Transportation, Inc., a Delaware corporation. "Borrowing" means a borrowing of new Loans of a single Type pursuant to Section 2.2 or a Continuation or Conversion of all or a portion of an existing Loan (whether alone or as a combination with a new Loan) into a single Type (and, in the case of Eurodollar Loans, with the same Interest Period) pursuant to Section 2.3. "Borrowing Base" means the remainder of (a) minus (b) below as of the date of determination: (a) the sum of the following as of the date of determination : (i) 100% of the Resources Letter of Credit Availability; plus (ii) 100% of Eligible Cash Equivalents; plus (iii) 90% of Approved Eligible Receivables; plus (iv) the lesser of (A) 85% of Other Eligible Receivables or (B) 1/3 of the sum of the amounts of clauses (a)(ii) plus (a)(iii) [(i.e., (a)(ii) plus (a)(iii) must be 75% of (a)(ii) plus (a)(iii) plus (a)(iv)]; plus (v) 85% of Eligible Margin Deposits; plus (vi) the lesser of (A) 95% of Hedged Eligible Inventory plus 100% of Other Eligible Inventory Value or (B) $40,000,000; plus (vii) 80% of Eligible Exchange Balances, plus (viii) 100% of all Paid but Unexpired Letters of Credit MINUS (b) the following as of the date of determination: (i) 100% of First Purchase Crude Payables; plus (ii) 100% of Other Priority Claims, plus (iii) The Estimate Adjustment Amount as provided in Section 2.13. "Borrowing Notice" means a written or telephonic request, or a written confirmation, made by Borrower which meets the requirements of Section 2.2. "Business Day" means a day, other than a Saturday or Sunday, on which commercial banks are open for business with the public in Boston, Massachusetts. Any Business Day in any way relating to Eurodollar Loans (such as the day on which an Interest Period begins or ends) 3 must also be a day on which, in the judgment of Administrative Agent, significant transactions in dollars are carried out in the London interbank eurocurrency market. "Capital Lease" means a lease with respect to which the lessee is required concurrently to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP. "Capital Lease Obligation" means, with respect to any Person and a Capital Lease, the amount of the obligation of such Person as the lessee under such Capital Lease which would, in accordance with GAAP, appear as a liability on a balance sheet of such Person. "Cash Equivalents" means Investments in: (a) marketable obligations, maturing within 12 months after acquisition thereof, issued or unconditionally guaranteed by the United States of America or an instrumentality or agency thereof and entitled to the full faith and credit of the United States of America; (b) demand deposits and time deposits (including certificates of deposit) maturing within 12 months from the date of deposit thereof, (i) with any office of any Lender or (ii) with a domestic office of any national or state bank or trust company which is organized under the Laws of the United States of America or any state therein, which has capital, surplus and undivided profits of at least $500,000,000, and whose long-term certificates of deposit are rated at least Aa2 by Moody's or AA by S&P; (c) repurchase obligations with a term of not more than seven days for underlying securities of the types described in subsection (a) above entered into with (i) any Lender or (ii) any other commercial bank meeting the specifications of subsection (b) above; (d) open market commercial paper, maturing within 270 days after acquisition thereof, which are rated at least P-1 by Moody's or A-1 by S&P; and (e) money market or other mutual funds substantially all of whose assets comprise securities of the types described in subsections (a) through (d) above. "Change of Control" means the occurrence of any of the following events: (i) an event or series of events by which any Person or other entity or group of Persons or other entities acting in concert as a partnership or other group (a "Group of Persons") shall, as a result of a tender or exchange offer, open market purchases, privately negotiated purchases, merger, consolidation or otherwise, have become the beneficial owner (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of 40% or more of the combined voting power of the then outstanding voting stock of Resources, (ii) during any period of two consecutive years (A) the members of the board of directors of Resources (the "Board") as of January 1, 1998, (B) any director elected thereafter in any annual meeting of the stockholders of Resources upon the recommendation of the Board, and (C) any other member of the Board who will be recommended or elected to succeed those Persons described in subclauses (A) and (B) of this clause (ii) by a majority of such Persons who are then members of the Board, cease for any reason to constitute 4 collectively a majority of the Board then in office, (iii) the direct or indirect sale, lease, exchange or other transfer of all or substantially all of the assets of Resources to any Person or Group of Persons, or (iv) any Person other than Resources or a wholly owned Subsidiary of Resources shall own or acquire legal or beneficial ownership of any equity securities of Borrower, PTTC or any other Guarantor (other than Resources) or any securities which are convertible into equity securities of Borrower, PTTC or any other Guarantor (other than Resources). "Code" means the Internal Revenue Code of 1986, as amended from time to time, together with all rules and regulations promulgated with respect thereto. "Collateral" means all property of any kind which is subject to a Lien in favor of Lenders (or in favor of Administrative Agent for the benefit of Lenders) or which, under the terms of any Security Document, is purported to be subject to such a Lien, in each case granted or created to secure all or part of the Obligations. "Commitment Period" means the period from and including the date hereof until July 31, 2001 (or, if earlier, the day on which (i) the obligation of Lenders to make Loans hereunder and the obligations of LC Issuer to issue Letters of Credit hereunder have terminated, (ii) the obligation of LC Issuer to issue Letters of Credit hereunder has terminated, or (iii) the Notes first become due and payable in full, whichever shall first occur). "Consolidated" refers to the consolidation of any Person, in accordance with GAAP, with its properly consolidated subsidiaries. References herein to a Person's Consolidated financial statements, financial position, financial condition, liabilities, etc. refer to the consolidated financial statements, financial position, financial condition, liabilities, etc. of such Person and its properly consolidated subsidiaries. "Consolidated EBITDA" means, for any four-Fiscal Quarter period, the sum of (1) the Consolidated Net Income of Borrower and its Subsidiaries during such period, plus (2) all Fixed Charges which were deducted in determining such Consolidated Net Income for such period, plus (3) all income taxes (including any franchise taxes to the extent based upon net income) which were deducted in determining such Consolidated Net Income, plus (4) all depreciation, amortization (including amortization of good will and debt issue costs) and other non-cash charges (including any provision for the reduction in the carrying value of assets recorded in accordance with GAAP) which were deducted in determining such Consolidated Net Income, minus (5) all non-cash items of income which were included in determining such Consolidated Net Income except to the extent of cash received in respect of such item in a prior period. "Consolidated Net Income" means, for any period, Borrower's and its Subsidiaries' gross revenues for such period, including any cash dividends or distributions actually received from any other Person during such period, minus Borrower's and its Subsidiaries' expenses and other proper charges against income (including taxes on income to the extent imposed), determined on a Consolidated basis after eliminating earnings or losses attributable to outstanding minority interests and excluding the net earnings of any Person other than a Subsidiary in which Borrower or any of its Subsidiaries has an ownership interest. Consolidated Net Income shall not include any gain or loss from the sale of assets or any extraordinary gains or losses. 5 "Consolidated Net Worth" means the remainder of all Consolidated assets, as determined in accordance with GAAP, of Borrower and its Subsidiaries (excluding all Affiliate Receivables) minus the sum of (a) Borrower's Consolidated Total Liabilities and (b) all outstanding Minority Interests. The effect of any increase or decrease in net worth in any period as a result of (i) any unrealized gains or losses from a mark to market of any Hedging Contracts not reflected in the determination of net income but reflected in the determination of comprehensive income and (ii) any Excluded Income Tax Accrual shall be excluded in determining Consolidated Net Worth. "Minority Interests" means the book value of any shares of stock of any of Borrower's Subsidiaries which shares are owned by Persons other than Borrower or one of its wholly owned Subsidiaries. "Excluded Income Tax Accrual" means accrued liabilities in respect of federal or state income taxes (including state franchise taxes to the extent based on net income) so long as such tax liabilities are deferred and not then paid or payable as a result of combined income tax filings with Resources or otherwise. "Consolidated Total Liabilities" means the sum of the following (without duplication): (a) all Consolidated liabilities of Borrower and its Subsidiaries determined in accordance with GAAP (including but not limited to any outstanding deferred tax liabilities and excluding all Affiliate Payables), plus (b) LC Obligations (other than in respect of undrawn Letters of Credit issued to support existing or future accounts payable which are or will be included in such Consolidated liabilities), plus (c) all Affiliate Net Payables. "Consolidated Working Capital Ratio" means the ratio of (a) consolidated current assets of Borrower and its Subsidiaries (excluding Affiliate Receivables) to (b) the sum of the following (without duplication): (i) Consolidated current liabilities of Borrower and its Subsidiaries (excluding Affiliate Payables), plus (ii) Loans, plus (iii) LC Obligations (other than in respect of undrawn Letters of Credit issued to support existing or future accounts payable which are or will be included in such Consolidated current liabilities), plus (iv) all Affiliate Net Payables. "Continuation/Conversion Notice" means a written or telephonic request, or a written confirmation, made by Borrower which meets the requirements of Section 2.3. "Continue", "Continuation", and "Continued" shall refer to the continuation pursuant to Section 2.3 hereof of a Eurodollar Loan as a Eurodollar Loan from one Interest Period to the next Interest Period. "Currently Approved by Majority Lenders" means such Person (including a limit on the maximum credit exposure to any such Person), storage location, pipeline, form of Letter of Credit or other matter as the case may be, as reflected in the most recent written notice given by Administrative Agent to Borrower as being approved by Majority Lenders. Each such written notice will supersede and revoke each prior notice. "Convert", "Conversion", and "Converted" shall refer to a conversion pursuant to Section 2.3 or Article III of one Type of Loan into another Type of Loan. "Debt Rating" means with respect to a Person, the rating then in effect by a Rating Agency for the long term senior unsecured non-credit enhanced debt of such Person. 6 "Default" means any Event of Default and any default, event or condition which would, with the giving of any requisite notices and the passage of any requisite periods of time, constitute an Event of Default. "Default Rate" means, at the time in question, (i) two percent (2%) per annum plus the Adjusted Eurodollar Rate then in effect for any Eurodollar Loan (up to the end of the applicable Interest Period) or (ii) two percent (2%) per annum plus the Base Rate for each Base Rate Loan; provided, however, the Default Rate shall never exceed the Highest Lawful Rate "Default Rate Period" means (i) any period during which an Event of Default, other than pursuant to Section 8.1 (a) or (b), is continuing, provided that such period shall not begin until notice of the commencement of the Default Rate has been given to Borrower by Administrative Agent upon the instruction by Majority Lenders and (ii) any period during which any Event of Default pursuant to Section 8.1 (a) or (b) is continuing unless Borrower has been notified otherwise by Administrative Agent upon the instruction by Majority Lenders. "Disclosure Schedule" means Schedule 2 hereto. "Domestic Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Domestic Lending Office" in the Lender Schedule hereto, or such other office as such Lender may from time to time specify to Borrower and Administrative Agent; with respect to LC Issuer, the office, branch, or agency through which it issues Letters of Credit; and, with respect to Administrative Agent, the office, branch, or agency through which it administers this Agreement. "Eligible Cash Equivalents" means Cash Equivalents in which Borrower has lawful and absolute title, which are free from any express or implied at law Lien, trust or other beneficial interest, in which Administrative Agent holds a fully perfected first-priority security interest prior to the rights of, and enforceable as such against, any other Persons pursuant to an account agreement satisfactory to Administrative Agent and which remain under the sole dominion and control of Administrative Agent. "Eligible Exchange Balances" means each Approved Eligible Receivable (including for this purpose only either the right to receive crude oil in kind or to receive money) arising from the trading, lending, borrowing or exchange of crude oil, net of any netted obligations or other offsets or counterclaims determined in accordance with prices set forth in the applicable exchange contracts, based on current value at the Market Price, in which Borrower has lawful and absolute title, which is not subject to any Lien in favor of any Person (other than Permitted Inventory Liens), and which is subject to a fully perfected first-priority security interest (subject only to Permitted Inventory Liens) in favor of Administrative Agent pursuant to the Loan Documents prior to the rights of, and enforceable as such against, any other Persons minus without duplication the amount of any Permitted Inventory Lien on any crude oil receivable in kind. "Eligible Inventory" means inventories of crude oil in which Borrower has lawful and absolute title, which are not subject to any Lien in favor of any Person (other than Permitted Inventory Liens), which are subject to a fully perfected first priority security interest (subject only 7 to Permitted Inventory Liens) in favor of Administrative Agent pursuant to the Loan Documents prior to the rights of, and enforceable as such against, any other Person, which are otherwise satisfactory to Majority Lenders in their reasonable business judgment and which are located in storage locations (including pipelines) which are either (a) owned by a wholly owned Subsidiary of Resources or (b) Currently Approved by Majority Lenders minus without duplication the amount of any Permitted Inventory Lien on any such inventory. "Eligible Margin Deposit" means net equity value of investments by Borrower in margin deposit accounts with commodities brokers on nationally recognized exchanges subject to a perfected security interest in favor of Administrative Agent and a three-party agreement among Borrower, Administrative Agent and the depository institution, in form and substance satisfactory to Administrative Agent. "Eligible Receivables" means, at the time of any determination thereof (and without duplication), each Account and, with respect to each determination made on or after the 20th day of each calendar month and prior to the first day of the next calendar month, each amount which will be, in the good faith estimate reasonably determined by Borrower, an Account of the Borrower with respect to sales and deliveries of crude oil during the remainder of such calendar month or deliveries of crude oil during the next calendar month under firm written purchase and sale agreements, in either event as to which the following requirements have been fulfilled (or as to future Accounts, will be fulfilled as of the date of such sales and deliveries of crude oil), to the reasonable satisfaction of Administrative Agent: (i) Borrower has lawful and absolute title to such Account; (ii) such Account is a valid, legally enforceable obligation of an Account Debtor payable in United States dollars, arising from the sale and delivery of crude oil to such Person in the United States of America in the ordinary course of business of Borrower, to the extent of the volumes of crude oil delivered to such Person prior to the date of determination; (iii) there has been excluded from such Account (A) any portion that is subject to any dispute, rejection, loss, non-conformance , counterclaim or other claim or defense on the part of any Account Debtor or to any claim on the part of any Account Debtor denying liability under such Account, and (B) the amount of any account payable or other liability owed by Borrower to the Account Debtor on such Account, whether or not a specific netting agreement may exist, excluding, however, any portion of any such account payable or other liability which is at the time in question covered by a Letter of Credit; (iv) Borrower has the full and unqualified right to assign and grant a security interest in such Account to Administrative Agent as security for the Obligation; (v) such Account (A) is evidenced by an invoice rendered to the Account Debtor, or (B) represents the uninvoiced amount in respect to actual deliveries of crude oil not earlier than 45 days prior to the date of determination and is governed by a purchase 8 and sale agreement, exchange agreement or other written agreement, and in either event such Account is not evidenced by any promissory note or other instrument; (vi) such Account is not subject to any Lien in favor of any Person and is subject to a fully perfected first priority security interest in favor of Administrative Agent pursuant to the Loan Documents, prior to the rights of, and enforceable as such against, any other Person except for a Lien in respect of First Purchase Crude Payables; (vii) such Account is due not more than 30 days following the last day of the calendar month in which the crude oil delivery occurred and is not more than 30 days past due (except that Accounts of a single Account Debtor in excess of $500,000 which are not Approved Eligible Receivables shall be excluded from Eligible Receivables if not paid within three Business Days after the due date); (viii) such Account is not payable by an Account Debtor with more than twenty percent (20%) of its Accounts to Borrower that are outstanding more than 60 days from the invoice date; (ix) the Account Debtor in respect of such Account (A) is located, is conducting significant business or has significant assets in the United States of America or is a Person Currently Approved by Majority Lenders, (B) is not an Affiliate of Borrower, and (C) is not the subject of any event of the type described in Section 8.1(i); (x) the Account Debtor in respect of such Account is not a governmental authority, domestic or foreign; and (xi) such Account is not the obligation of an Account Debtor that Administrative Agent or Majority Lenders determine in good faith that there is a legitimate concern over the timing or collection of such receivable. "Eligible Transferee" means a Person which either (a) is a Lender, or (b) is consented to as an Eligible Transferee by Administrative Agent and, so long as no Default or Event of Default is continuing, by Borrower, which consents in each case will not be unreasonably withheld (provided that no Person organized outside the United States may be an Eligible Transferee if Borrower would be required to pay withholding taxes on interest or principal owed to such Person). "Environmental Laws" means any and all Laws relating to the environment or to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment including ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, together with all rules and regulations promulgated with respect thereto. 9 "ERISA Affiliate" means Borrower and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control that, together with Borrower, are treated as a single employer under Section 414 of the Code. "ERISA Plan" means any employee pension benefit plan subject to Title IV of ERISA maintained by any ERISA Affiliate with respect to which any Restricted Person has a fixed or contingent liability. "Eurodollar Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Eurodollar Lending Office" on the Lender Schedule hereto (or, if no such office is specified, its Domestic Lending Office), or such other office of such Lender as such Lender may from time to time specify to Borrower and Administrative Agent. "Eurodollar Loan" means a Loan that bears interest at a rate based upon the Adjusted Eurodollar Rate. "Eurodollar Rate" means, for any Eurodollar Loan within a Borrowing and with respect to the related Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period. If for any reason such rate is not available, the term "Eurodollar Rate" shall mean, for any Eurodollar Loan within a Borrowing and with respect to the related Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; provided, however, if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates (rounded upwards, if necessary, to the nearest 1/100 of 1%). "Event of Default" has the meaning given to such term in Section 8.1. "Existing Credit Documents" means that certain Uncommitted, Secured Demand Transactional Line of Credit Facility Agreement dated August 23, 1995, as heretofore amended, among Borrower and BankBoston, N.A., together with the promissory notes and other documents delivered by Borrower thereunder. "Facility Usage" means, at the time in question, the aggregate amount of outstanding Loans and LC Obligations at such time. "Federal Funds Rate" means, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100th of one percent) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that (i) if the day for which such rate is to be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate on such 10 transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (ii) if such rate is not so published for any day, the Federal Funds Rate for such day shall be the average rate quoted to Administrative Agent on such day on such transactions as determined by Administrative Agent. "Financial Condition" means each of the conditions set forth in Section 4.4. "First Purchase Crude Payables" means the unpaid amount of any payable obligation related to the purchase of crude oil by Borrower which Administrative Agent determines will be secured by a statutory Lien, including but not limited to the statutory Liens created under the laws of Texas, New Mexico and Wyoming, to the extent such payable obligation is not at the time in question covered by a Letter of Credit. "Fiscal Quarter" means a three-month period ending on March 31, June 30, September 30 or December 31 of any year. "Fiscal Year" means a twelve-month period ending on December 31 of any year. "Fixed Charges" means, with respect to any period, the sum (without duplication) of the following (in each case, eliminating all offsetting debits and credits between Borrower and its Subsidiaries and all other items required to be eliminated in the course of the preparation of consolidated financial statements of Borrower and its Subsidiaries in accordance with GAAP): (a) all interest and fees in respect of Indebtedness of Borrower or any of its Subsidiaries (including imputed interest on Capital Lease Obligations) deducted in determining Consolidated Net Income for such period, together with all interest capitalized or deferred during such period and not deducted in determining Consolidated Net Income for such period, plus (b) net payments under Hedging Contracts relating to interest rates, plus (c) all debt discount amortized or required to be amortized in the determination of Consolidated Net Income for such period, plus (d) all fees, expenses and charges in respect of letters of credit issued for the account of Borrower or any of its Subsidiaries deducted in determining Consolidated Net Income for such period. "GAAP" means those generally accepted accounting principles and practices which are recognized as such by the Financial Accounting Standards Board (or any generally recognized successor) and which, in the case of Borrower and its Consolidated Subsidiaries, are applied for all periods after the date hereof in a manner consistent with the manner in which such principles and practices were applied to the audited Initial Financial Statements. If any change in any accounting principle or practice is required by the Financial Accounting Standards Board (or any such successor) in order for such principle or practice to continue as a generally accepted accounting principle or practice, all reports and financial statements required hereunder with respect to Borrower or with respect to Borrower and its Consolidated Subsidiaries may be prepared in accordance with such change, but all calculations and determinations to be made hereunder may be made in accordance with such change only after notice of such change is given to Administrative Agent, and Majority Lenders agree to such change insofar as it affects the accounting of Borrower or of Borrower and its Consolidated Subsidiaries. 11 "Guarantor" means any Person who has guaranteed some or all of the Obligations pursuant to a guaranty listed on the Security Schedule or any other Person who has guaranteed some or all of the Obligations and who has been accepted by Administrative Agent as a Guarantor or any Subsidiary of Borrower which now or hereafter executes and delivers a guaranty to Administrative Agent pursuant to Section 6.17. "Hazardous Materials" means any substances regulated under any Environmental Law, whether as pollutants, contaminants, or chemicals, or as industrial, toxic or hazardous substances or wastes, or otherwise. "Hedged Eligible Inventory" means Eligible Inventory, which has been (a) hedged on the New York Mercantile Exchange arranged through brokers approved by Administrative Agent and with whom a three party agreement among Borrower, Administrative Agent and such broker has been entered in form and substance satisfactory to Administrative Agent or (b) otherwise hedged in a manner satisfactory to Majority Lenders. The value of Hedged Eligible Inventory shall be the volume of the inventory times the prices fixed in such hedge, minus all storage, transportation and other applicable costs. "Hedging Contract" means (a) any agreement providing for options, swaps, floors, caps, collars, forward sales or forward purchases involving interest rates, commodities or commodity prices, equities, currencies, bonds, or indexes based on any of the foregoing, (b) any option, futures or forward contract traded on an exchange, and (c) any other derivative agreement or other similar agreement or arrangement. "Highest Lawful Rate" means, with respect to each Lender Party to whom Obligations are owed, the maximum nonusurious rate of interest that such Lender Party is permitted under applicable Law to contract for, take, charge, or receive with respect to such Obligations. All determinations herein of the Highest Lawful Rate, or of any interest rate determined by reference to the Highest Lawful Rate, shall be made separately for each Lender Party as appropriate to assure that the Loan Documents are not construed to obligate any Person to pay interest to any Lender Party at a rate in excess of the Highest Lawful Rate applicable to such Lender Party. "Indebtedness" of any Person means its Liabilities (without duplication) in any of the following categories: (a) Liabilities for borrowed money, (b) Liabilities constituting an obligation to pay the deferred purchase price of property or services, (c) Liabilities evidenced by a bond, debenture, note or similar instrument, (d) Liabilities (other than reserves for taxes and reserves for contingent obligations) which (i) would under GAAP be shown on such Person's balance sheet as a liability and (ii) are payable more than one year from the date of creation or incurrence thereof, 12 (e) Liabilities arising under Hedging Contracts (on a net basis to the extent netting is provided for in the applicable Hedging Contract), (f) Liabilities arising under operating leases constituting principal under Capital Leases, (g) Liabilities arising under conditional sales or other title retention agreements, (h) Liabilities owing under direct or indirect guaranties of Liabilities of any other Person or otherwise constituting obligations to purchase or acquire or to otherwise protect or insure a creditor against loss in respect of Liabilities of any other Person (such as obligations under working capital maintenance agreements, agreements to keep-well, or agreements to purchase Liabilities, assets, goods, securities or services), but excluding endorsements in the ordinary course of business of negotiable instruments in the course of collection, (i) Liabilities consisting of an obligation to purchase or redeem securities or other property, if such Liabilities arises out of or in connection with the sale or issuance of the same or similar securities or property (for example, repurchase agreements, mandatorily redeemable preferred stock and sale/leaseback agreements), (j) Liabilities with respect to letters of credit or applications or reimbursement agreements therefor, (k) Liabilities with respect to banker's acceptances, or (l) Liabilities with respect to obligations to deliver goods or services in consideration of advance payments therefor; provided, however, that the "Indebtedness" of any Person shall not include Liabilities that were incurred in the ordinary course of business by such Person on ordinary trade terms to vendors, suppliers or other Persons providing goods and services for use by such Person in the ordinary course of its business, unless and until such Liabilities are outstanding more than 120 days after the date the respective goods are delivered or the respective services are rendered, other than Liabilities contested in good faith by appropriate proceedings, if required, and for which adequate reserves are maintained on the books of such Person in accordance with GAAP. "Initial Financial Statements" means (i) the audited annual Consolidated financial statements of Resources dated as of December 31, 1997, (ii) the unaudited quarterly Consolidated financial statements of Resources dated as of March 31, 1998, (iii) the audited annual Financial Statements of Borrower dated as of December 31, 1997 and (iv) the unaudited monthly financial statements of Borrower dated as of May 31, 1998. "Insurance Schedule" means Schedule 4 attached hereto. "Interest Payment Date" means (a) with respect to each Base Rate Loan, the last day of each March, June, September and December, and (b) with respect to each Eurodollar Loan, the last day of the Interest Period that is applicable thereto. 13 "Interest Period" means, with respect to each particular Eurodollar Loan in a Borrowing, the period specified in the Borrowing Notice or Continuation/Conversion Notice applicable thereto, beginning on and including the date specified in such Borrowing Notice or Continuation/Conversion Notice (which must be a Business Day), and ending one, two or three months thereafter, as Borrower may elect in such notice; provided that: (a) any Interest Period which would otherwise end on a day which is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day; (b) any Interest Period which begins on the last Business Day in a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day in a calendar month; and (c) notwithstanding the foregoing, any Interest Period which would otherwise end after the last day of the Commitment Period shall end on the last day of the Commitment Period (or, if the last day of the Commitment Period is not a Business Day, on the next preceding Business Day). "Investment" means any investment made, directly or indirectly in any Person, whether by acquisition of shares of capital stock, indebtedness or other obligations or securities or by loan, advance, capital contribution or otherwise and whether made in cash, by the transfer of property or by any other means. "Law" means any statute, law, regulation, ordinance, rule, treaty, judgment, order, decree, permit, concession, franchise, license, agreement or other governmental restriction of the United States or any state or political subdivision thereof or of any foreign country or any department, province or other political subdivision thereof. "LC Application" means any application for a Letter of Credit hereafter made by Borrower to LC Issuer. "LC Collateral" has the meaning given to such term in Section 2.11(a). "LC Issuer" means BankBoston, N.A. in its capacity as the issuer of Letters of Credit hereunder, and its successors in such capacity. Administrative Agent may, with the consent of Borrower and the Lender in question, appoint any Lender hereunder as an LC Issuer in place of or in addition to BankBoston, N.A. "LC Obligations" means, at the time in question, the sum of all Matured LC Obligations plus the maximum amounts which LC Issuer might then or thereafter be called upon to advance under all Letters of Credit then outstanding. "Lender Parties" means Administrative Agent, Syndication Agent, Documentation Agent, LC Issuer, and all Lenders. "Lender Schedule" means Schedule 1 hereto. "Lenders" means each signatory hereto (other than Borrower and any Restricted Person that is a party hereto), including BankBoston, N.A. and ING (U.S.) Capital Corporation in their 14 capacities as Lenders hereunder rather than as Administrative Agent, LC Issuer, Documentation Agent, and the successors of each such party as holder of a Note. "Letter of Credit" means any letter of credit issued by LC Issuer hereunder at the application of Borrower. "Liabilities" means, as to any Person, all indebtedness, liabilities and obligations of such Person, whether matured or unmatured, liquidated or unliquidated, primary or secondary, direct or indirect, absolute, fixed or contingent. "Lien" means, with respect to any property or assets, any right or interest therein of a creditor to secure Liabilities owed to it or any other arrangement with such creditor which provides for the payment of such Liabilities out of such property or assets or which allows such creditor to have such Liabilities satisfied out of such property or assets prior to the general creditors of any owner thereof, including any lien, mortgage, security interest, pledge, deposit, production payment, rights of a vendor under any title retention or conditional sale agreement or lease substantially equivalent thereto, tax lien, mechanic's or materialman's lien, or any other charge or encumbrance for security purposes, whether arising by Law or agreement or otherwise, but excluding any right of offset which arises without agreement in the ordinary course of business. "Lien" also means any filed financing statement, any registration of a pledge (such as with an issuer of uncertificated securities), or any other arrangement or action which would serve to perfect a Lien described in the preceding sentence, regardless of whether such financing statement is filed, such registration is made, or such arrangement or action is undertaken before or after such Lien exists. "Loans" has the meaning given to such term in Section 2.1. "Loan Documents" means this Agreement, the Notes, the Security Documents, the Letters of Credit, the LC Applications, and all other agreements, certificates, documents, instruments and writings at any time delivered in connection herewith or therewith (exclusive of term sheets and commitment letters). "Majority Lenders" means Lenders whose aggregate Percentage Shares equal or exceed sixty-six and two-thirds percent (66 2/3%). "Market Price" means on each day a spot price for the inventory of crude oil being valued, determined by published prices and methodology approved by Administrative Agent from time to time, based on an index gravity and grade of crude oil at a delivery point reflecting as nearly as practical the actual gravity, grade, and location of the crude oil being valued, adjusted to reflect any differences in gravity and grade between the index crude oil and the actual inventory and to reflect transportation costs or other appropriate location price differential from the actual location to the index location. "Material Adverse Change" means a material and adverse change, from the state of affairs presented in the Initial Financial Statements or as represented or warranted in any Loan Document, to (a) Borrower's Consolidated financial condition, (b) Borrower's Consolidated 15 operations, properties or prospects, considered as a whole, (c) Borrower's ability to timely pay the Obligations, or (d) the enforceability of the material terms of any Loan Document. "Material Market Open Position Loss" means a cumulative amount of net losses resulting from open inventory positions of Borrower on a mark to market basis during any period of 12 consecutive months in excess of $5,000,000. "Matured LC Obligations" means all amounts paid by LC Issuer on drafts or demands for payment drawn or made under or purported to be under any Letter of Credit and all other amounts due and owing to LC Issuer under any LC Application for any Letter of Credit, to the extent the same have not been repaid to LC Issuer (with the proceeds of Loans or otherwise). "Maximum Drawing Amount" means at the time in question the sum of the maximum amounts which LC Issuer might then or thereafter be called upon to advance under all Letters of Credit then outstanding. "Maximum Facility Amount" means the amount of $175,000,000, as such amount may be reduced by Borrower from time to time as provided in Section 2.12. "Moody's" means Moody's Investor Service, Inc., or its successor. "Note" has the meaning given to such term in Section 2.1. "Obligations" means all Liabilities from time to time owing by any Guarantor or any Restricted Person to any Lender Party under or pursuant to any of the Loan Documents, including all LC Obligations. "Obligation" means any part of the Obligations. "Other Eligible Inventory Value" means the following amount of Eligible Inventory, other than Hedged Eligible Inventory: (a) if the WTI Price is less than or equal to $30 per barrel, 80% of the product of the volume of such crude oil times the Market Price, or (b) if the WTI Price is greater than $30 per barrel the greater of (i) 70% of the product of the volume of such crude oil times the Market Price or (ii) 80% of the product of the volume of such crude oil times $30 per barrel; minus, in each case, all storage, transportation and other applicable costs. As used herein "WTI Price" means on each day the Platt's Average Spot Price for West Texas intermediate crude oil (Cushing, Oklahoma). "Other Eligible Receivable" means any Eligible Receivable which is not an Approved Eligible Receivable nor an Eligible Exchange Balance. The portions of the aggregate of the Other Eligible Receivables owed by any obligor and its Affiliates exceeding 20% of the aggregate amount of all Other Eligible Receivables shall not be included without the prior written approval of the Majority Lenders. "Other Priority Claims" means any account payable, obligation or liability which Administrative Agent has determined has or will have a Lien upon or claim against any Cash Equivalent, account or inventory of Borrower senior or equal in priority to the security interests in favor of Administrative Agent for the benefit of Lenders, in each case to the extent such Cash 16 Equivalent, account or inventory of Borrower is otherwise included in the determination of the Borrowing Base and the included portion thereof has not already been reduced by such Lien or claim. "PAAI" means Plains All American Inc., a Delaware corporation. "PAAI Company" means PAAI and any Subsidiary of PAAI. "Paid but Unexpired Letters of Credit" means, on any day, the maximum drawing amount of Letters of Credit on such day where no underlying obligation exists on such day, or if the amount of the Letter of Credit exceeds the underlying obligation on such day, the amount of such excess. As used herein, "underlying obligation" includes without limitation, all existing and future obligations to the beneficiary of such Letter of Credit in respect of crude oil purchased or received on or prior to such day or in respect of crude oil Borrower is then obligated to purchase or receive or has then nominated to purchase or receive. "Percentage Share" means, with respect to any Lender (a) when used in Sections 2.1, 2.2 or 2.12, in any Borrowing Notice or when no Loans are outstanding hereunder, the percentage set forth opposite such Lender's name on the Lender Schedule hereto, and (b) when used otherwise, the percentage obtained by dividing (i) the sum of the unpaid principal balance of such Lender's Loans at the time in question plus the Matured LC Obligations which such Lender has funded pursuant to Section 2.9(c) plus the portion of the Maximum Drawing Amount which such Lender might be obligated to fund under Section 2.9(c), by (ii) the sum of the aggregate unpaid principal balance of all Loans at such time plus the aggregate amount of LC Obligations outstanding at such time. "Permitted Debt Limit" means on any day the sum of (a) the Indebtedness with respect to the Loans and Letters of Credit which on such day can be incurred as "Permitted Marketing Obligations", "Permitted Contango Transactions Obligations" or "Permitted Refinancing Indebtedness" as defined in the Resources Indentures plus (b) any Indebtedness which is permitted to be incurred on such day under clause (ix) of the definition of "Permitted Indebtedness" as defined in the Resources Indentures plus (c) any Indebtedness which is permitted to be incurred under the first clause of Section 4.09 of the Resources Indentures. "Permitted Inventory Liens" means any Lien, and the amount of any Liability secured thereby, on crude oil inventory which would be a Permitted Lien under Section 7.2(d). "Permitted Investments" means (a) Cash Equivalents, (b) Investments by Borrower in any of its wholly owned Subsidiaries which is a Guarantor, (c) any Investment by a Subsidiary of Borrower in Borrower or in any wholly owned Subsidiary of Borrower which is a Guarantor, and (d) advances to Resources or any of its Subsidiaries (other than a PAAI Company). "Permitted Lien" has the meaning given to such term in Section 7.2. 17 "Person" means an individual, corporation, partnership, limited liability company, association, joint stock company, trust or trustee thereof, estate or executor thereof, unincorporated organization or joint venture, Tribunal, or any other legally recognizable entity. "Plains Terminal" means either the storage terminal in Cushing, Oklahoma owned by PTTC or the storage terminal owned by Plains Ingleside, Inc. "PTTC" means Plains Terminal & Transfer Corporation, a Delaware corporation. "Qualified Inventory Purchases" means (i) purchases of crude oil for physical storage at a Plains Terminal or in transit in pipelines Currently Approved by Majority Lenders which constitutes Hedged Eligible Inventory and (ii) purchases of crude oil designated as working inventory at a Plains Terminal and line fill in pipelines Currently Approved by Majority Lenders. "Refinancing Loans" means Loans to repay or extend an outstanding Loan. "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect. "Reserve Requirement" means, at any time, the maximum rate at which reserves (including any marginal, special, supplemental, or emergency reserves) are required to be maintained under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) by member banks of the Federal Reserve System against "Eurocurrency liabilities" (as such term is used in Regulation D). Without limiting the effect of the foregoing, the Reserve Requirement shall reflect any other reserves required to be maintained by such member banks with respect to (a) any category of liabilities which includes deposits by reference to which the Adjusted Eurodollar Rate is to be determined, or (b) any category of extensions of credit or other assets which include Eurodollar Loans. "Resources" means Plains Resources Inc., a Delaware corporation. "Resources Credit Agreement" means that certain Fourth Amended and Restated Credit Agreement dated as of May 22, 1998 by and among Resources, ING (U.S.) Capital Corporation, as agent, and the lenders party thereto, as such credit agreement may be amended, modified or restated from time to time, and each other credit agreement to which Resources is a party replacing such credit agreement in whole or in part. "Resources Default Threshold" means $2,500,000 in the aggregate; provided however, that if Indebtedness is outstanding or there are commitments in effect under the Resources Credit Agreement and the Resources Credit Agreement permits Resources to be in default in the payment of any principal or interest with respect to any Indebtedness in an aggregate amount greater than $2,500,000 without causing a default or event of default under the Resources Credit Agreement, the Resources Default Threshold shall be such greater amount, but in no event will the Resources Default Threshold exceed $5,000,000. 18 "Resources Indentures" means those certain Indentures dated March 15, 1996 and July 21, 1997, each such Indenture being among Resources, the Subsidiary Guarantors named therein and Texas Commerce Bank (now known as Chase Bank of Texas, National Association), Trustee. "Resources Letter of Credit Availability" means the unfunded amount available on an unconditional basis under a letter of credit in such form, with such expiry date and by such issuer as shall be satisfactory to Majority Lenders, naming as the beneficiary Administrative Agent, under which Resources is the account party. "Restricted Person" means any of Borrower, each Subsidiary of Borrower and each Guarantor (other than Resources). "S&P" means Standard & Poor's Ratings Group (a division of McGraw Hill, Inc.) or its successor. "Security Documents" means the instruments listed in the Security Schedule and all other security agreements, deeds of trust, mortgages, chattel mortgages, pledges, guaranties, financing statements, continuation statements, extension agreements and other agreements or instruments now, heretofore, or hereafter delivered by any Guarantor or Restricted Person to Administrative Agent in connection with this Agreement or any transaction contemplated hereby to secure or guarantee the payment of any part of the Obligations or the performance of any Guarantor's or Restricted Person's other duties and obligations under the Loan Documents. "Security Schedule" means Schedule 3 hereto. "Subsidiary" means, with respect to any Person, any corporation, association, partnership, limited liability company, joint venture, or other business or corporate entity, enterprise or organization which is directly or indirectly (through one or more intermediaries) controlled or owned more than fifty percent by such Person. "Surety Letter of Credit" means a Letter of Credit issued to support, or in lieu of an obligation to deliver, a surety bond or similar obligation. "Termination Event" means (a) the occurrence with respect to any ERISA Plan of (i) a reportable event described in Sections 4043(c)(5) or (6) of ERISA or (ii) any other reportable event described in Section 4043(c) of ERISA other than a reportable event not subject to the provision for 30-day notice to the Pension Benefit Guaranty Corporation pursuant to a waiver by such corporation under Section 4043(a) of ERISA, or (b) the withdrawal of any ERISA Affiliate from an ERISA Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, or (c) the filing of a notice of intent to terminate any ERISA Plan or the treatment of any ERISA Plan amendment as a termination under Section 4041 of ERISA, or (d) the institution of proceedings to terminate any ERISA Plan by the Pension Benefit Guaranty Corporation under Section 4042 of ERISA, or (e) any other event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any ERISA Plan. 19 "Tribunal" means any government, any arbitration panel, any court or any governmental department, commission, board, bureau, agency or instrumentality of the United States of America or any state, province, commonwealth, nation, territory, possession, county, parish, town, township, village or municipality, whether now or hereafter constituted or existing. "Type" means, with respect to any Loans, the characterization of such Loans as either Base Rate Loans or Eurodollar Loans. "UCC" means the Uniform Commercial Code as in effect in the State of New York. Section 1.2. Exhibits and Schedules; Additional Definitions. All Exhibits and Schedules attached to this Agreement are a part hereof for all purposes. Reference is hereby made to the Security Schedule for the meaning of certain terms defined therein and used but not defined herein, which definitions are incorporated herein by reference. Section 1.3. Amendment of Defined Instruments. Unless the context otherwise requires or unless otherwise provided herein the terms defined in this Agreement which refer to a particular agreement, instrument or document also refer to and include all renewals, extensions, modifications, amendments and restatements of such agreement, instrument or document, provided that nothing contained in this section shall be construed to authorize any such renewal, extension, modification, amendment or restatement. Section 1.4. References and Titles. All references in this Agreement to Exhibits, Schedules, articles, sections, subsections and other subdivisions refer to the Exhibits, Schedules, articles, sections, subsections and other subdivisions of this Agreement unless expressly provided otherwise. Titles appearing at the beginning of any subdivisions are for convenience only and do not constitute any part of such subdivisions and shall be disregarded in construing the language contained in such subdivisions. The words "this Agreement," "this instrument," "herein," "hereof," "hereby," "hereunder" and words of similar import refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited. The phrases "this section" and "this subsection" and similar phrases refer only to the sections or subsections hereof in which such phrases occur. The word "or" is not exclusive, and the word "including" (in its various forms) means "including without limitation." Pronouns in masculine, feminine and neuter genders shall be construed to include any other gender, and words in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires. Section 1.5. Calculations and Determinations. All calculations under the Loan Documents of interest chargeable with respect to Eurodollar Loans and of fees shall be made on the basis of actual days elapsed (including the first day but excluding the last) and a year of 360 days. All other calculations of interest made under the Loan Documents shall be made on the basis of actual days elapsed (including the first day but excluding the last) and a year of 365 or 366 days, as appropriate. Each determination by a Lender Party of amounts to be paid under Article III or any other matters which are to be determined hereunder by a Lender Party (such as any Eurodollar Rate, Adjusted Eurodollar Rate, Business Day, Interest Period, or Reserve Requirement) shall, in the absence of manifest error, be conclusive and binding. Unless otherwise expressly provided herein or unless Majority Lenders otherwise consent all financial statements 20 and reports furnished to any Lender Party hereunder shall be prepared and all financial computations and determinations pursuant hereto shall be made in accordance with GAAP. ARTICLE II - The Loans and Letters of Credit Section 2.1. Commitments to Lend; Notes. Subject to the terms and conditions hereof, each Lender agrees to make loans to Borrower (herein called such Lender's "Loans") upon Borrower's request from time to time during the Commitment Period, provided that (a) subject to Sections 3.3, 3.4 and 3.6, all Lenders are requested to make Loans of the same Type in accordance with their respective Percentage Shares and as part of the same Borrowing, (b) after giving effect to such loans, the aggregate principal amount of outstanding Loans will not exceed $40,000,000, (c) after giving effect to such Loans, the Facility Usage does not exceed the lesser of (i) the Maximum Facility Amount and (ii) the Borrowing Base determined as of the date on which the requested Loans are to be made and (d) such Loans can be incurred pursuant to the Permitted Debt Limit at the time the requested Loans are to be made. The aggregate amount of all Loans in any Borrowing must be equal to $2,000,000 or any higher integral multiple of $250,000. Borrower may have no more than five Borrowings of Eurodollar Loans outstanding at any time. The obligation of Borrower to repay to each Lender the aggregate amount of all Loans made by such Lender, together with interest accruing in connection therewith, shall be evidenced by a single promissory note (herein called such Lender's "Note") made by Borrower payable to the order of such Lender in the form of Exhibit A with appropriate insertions. The amount of principal owing on any Lender's Note at any given time shall be the aggregate amount of all Loans theretofore made by such Lender minus all payments of principal theretofore received by such Lender on such Note. Interest on each Note shall accrue and be due and payable as provided herein and therein. Each Note shall be due and payable as provided herein and therein, and shall be due and payable in full on the last day of the Commitment Period. Subject to the terms and conditions of this Agreement, Borrower may borrow, repay, and reborrow hereunder. Section 2.2. Requests for New Loans. Borrower must give to Administrative Agent written notice (or telephonic notice promptly confirmed in writing) of any requested Borrowing of Loans to be made by Lenders. Each such notice constitutes a "Borrowing Notice" hereunder and must: (a) specify (i) the aggregate amount of any such Borrowing of Base Rate Loans and the date on which such Base Rate Loans are to be advanced, or (ii) the aggregate amount of any such Borrowing of Eurodollar Loans, the date on which such Eurodollar Loans are to be advanced (which shall be the first day of the Interest Period which is to apply thereto), and the length of the applicable Interest Period; and (b) be received by Administrative Agent not later than 11:00 a.m., Boston, Massachusetts time, on (i) the day on which any such Base Rate Loans are to be made, or (ii) the third Business Day preceding the day on which any such Eurodollar Loans are to be made. Each such written request or confirmation must be made in the form and substance of the "Borrowing Notice" attached hereto as Exhibit B, duly completed. Each such telephonic request 21 shall be deemed a representation, warranty, acknowledgment and agreement by Borrower as to the matters which are required to be set out in such written confirmation. Upon receipt of any such Borrowing Notice, Administrative Agent shall give each Lender prompt notice of the terms thereof. If all conditions precedent to such new Loans have been met, each Lender will on the date requested promptly remit to Administrative Agent at Administrative Agent's office in Boston, Massachusetts the amount of such Lender's Loan in immediately available funds, and upon receipt of such funds, unless to its actual knowledge any conditions precedent to such Loans have been neither met nor waived as provided herein, Administrative Agent shall promptly make such Loans available to Borrower. Unless Administrative Agent shall have received prompt notice from a Lender that such Lender will not make available to Administrative Agent such Lender's new Loan, Administrative Agent may in its discretion assume that such Lender has made such Loan available to Administrative Agent in accordance with this section and Administrative Agent may if it chooses, in reliance upon such assumption, make such Loan available to Borrower. If and to the extent such Lender shall not so make its new Loan available to Administrative Agent, such Lender and Borrower severally agree to pay or repay to Administrative Agent within three days after demand the amount of such Loan together with interest thereon, for each day from the date such amount was made available to Borrower until the date such amount is paid or repaid to Administrative Agent, with interest at (i) the Federal Funds Rate, if such Lender is making such payment and (ii) the interest rate applicable at the time to the other new Loans made on such date, if Borrower is making such repayment. If neither such Lender nor Borrower pays or repays to Administrative Agent such amount within such three- day period, Administrative Agent shall be entitled to recover from Borrower, on demand, in lieu of interest provided for in the preceding sentence, interest thereon at the Default Rate, calculated from the date such amount was made available to Borrower. The failure of any Lender to make any new Loan to be made by it hereunder shall not relieve any other Lender of its obligation hereunder, if any, to make its new Loan, but no Lender shall be responsible for the failure of any other Lender to make any new Loan to be made by such other Lender. Section 2.3. Continuations and Conversions of Existing Loans. Borrower may make the following elections with respect to Loans already outstanding: to Convert, in whole or in part, Base Rate Loans to Eurodollar Loans, to Convert, in whole or in part, Eurodollar Loans to Base Rate Loans on the last day of the Interest Period applicable thereto, and to Continue, in whole or in part, Eurodollar Loans beyond the expiration of such Interest Period by designating a new Interest Period to take effect at the time of such expiration. In making such elections, Borrower may combine existing Loans made pursuant to separate Borrowings into one new Borrowing or divide existing Loans made pursuant to one Borrowing into separate new Borrowings, provided that Borrower may have no more than five Borrowings of Eurodollar Loans outstanding at any time. To make any such election, Borrower must give to Administrative Agent written notice (or telephonic notice promptly confirmed in writing) of any such Conversion or Continuation of existing Loans, with a separate notice given for each new Borrowing. Each such notice constitutes a "Continuation/Conversion Notice" hereunder and must: (a) specify the existing Loans which are to be Continued or Converted; (b) specify (i) the aggregate amount of any Borrowing of Base Rate Loans into which such existing Loans are to be Continued or Converted and the date on which such 22 Continuation or Conversion is to occur, or (ii) the aggregate amount of any Borrowing of Eurodollar Loans into which such existing Loans are to be Continued or Converted, the date on which such Continuation or Conversion is to occur (which shall be the first day of the Interest Period which is to apply to such Eurodollar Loans), and the length of the applicable Interest Period; and (c) be received by Administrative Agent not later than 11:00 a.m., Boston, Massachusetts time, on (i) the day on which any such Conversion to Base Rate Loans is to occur, or (ii) the third Business Day preceding the day on which any such Continuation or Conversion to Eurodollar Loans is to occur. Each such written request or confirmation must be made in the form and substance of the "Continuation/Conversion Notice" attached hereto as Exhibit C, duly completed. Each such telephonic request shall be deemed a representation, warranty, acknowledgment and agreement by Borrower as to the matters which are required to be set out in such written confirmation. Upon receipt of any such Continuation/Conversion Notice, Administrative Agent shall give each Lender prompt notice of the terms thereof. Each Continuation/Conversion Notice shall be irrevocable and binding on Borrower. During the continuance of any Default, Borrower may not make any election to Convert existing Loans into Eurodollar Loans or Continue existing Loans as Eurodollar Loans beyond the expiration of their respective and corresponding Interest Period then in effect. If (due to the existence of a Default or for any other reason) Borrower fails to timely and properly give any Continuation/Conversion Notice with respect to a Borrowing of existing Eurodollar Loans at least three days prior to the end of the Interest Period applicable thereto, such Eurodollar Loans, to the extent not prepaid at the end of such Interest Period, shall automatically be Converted into Base Rate Loans at the end of such Interest Period. No new funds shall be repaid by Borrower or advanced by any Lender in connection with any Continuation or Conversion of existing Loans pursuant to this section, and no such Continuation or Conversion shall be deemed to be a new advance of funds for any purpose; such Continuations and Conversions merely constitute a change in the interest rate applicable to already outstanding Loans. Section 2.4. Use of Proceeds. Borrower shall use the proceeds of all Loans to make Qualified Inventory Purchases and to refinance Matured LC Obligations. In no event shall any Loan or any Letter of Credit be used directly or indirectly by any Person for personal, family, household or agricultural purposes or for the purpose, whether immediate, incidental or ultimate, of purchasing, acquiring or carrying any "margin stock" (as such term is defined in Regulation U promulgated by the Board of Governors of the Federal Reserve System) or to extend credit to others directly or indirectly for the purpose of purchasing or carrying any such margin stock. Borrower represents and warrants that Borrower is not engaged principally, or as one of Borrower's important activities, in the business of extending credit to others for the purpose of purchasing or carrying such margin stock. Section 2.5. Optional Prepayments of Loans. Borrower may, upon five Business Days' notice to Administrative Agent (and Administrative Agent will promptly give notice to the other Lenders) each Lender, from time to time and without premium or penalty prepay the Loans, in whole or in part, so long as the aggregate amounts of all partial prepayments of principal on the 23 Loans equals $2,000,000 or any higher integral multiple of $250,000. Each prepayment of principal under this section shall be accompanied by all interest then accrued and unpaid on the principal so prepaid. Any principal or interest prepaid pursuant to this section shall be in addition to, and not in lieu of, all payments otherwise required to be paid under the Loan Documents at the time of such prepayment. Section 2.6. Mandatory Prepayments. If at any time the Facility Usage exceeds the Borrowing Base (whether due to a reduction in the Borrowing Base in accordance with this Agreement, or otherwise), Borrower shall immediately upon demand prepay the principal of the Loans in an amount at least equal to such excess. Each prepayment of principal under this section shall be accompanied by all interest then accrued and unpaid on the principal so prepaid. Any principal or interest prepaid pursuant to this section shall be in addition to, and not in lieu of, all payments otherwise required to be paid under the Loan Documents at the time of such prepayment. Section 2.7. Letters of Credit. Subject to the terms and conditions hereof, Borrower may during the Commitment Period request LC Issuer to issue, amend, or extend the expiration date of, one or more Letters of Credit, provided that: (a) after taking such Letter of Credit into account (i) the Facility Usage does not exceed the lesser of (A) the Maximum Facility Amount at such time or (B) the Borrowing Base at such time and (ii) such Letter of Credit can be incurred by Borrower pursuant to the Permitted Debt Limit at such time; (b) the expiration date of such Letter of Credit is prior to the earlier of (i) 70 days (or 100 days, if the beneficiary thereof is Exxon Company U.S.A.) after the date of issuance of such Letter of Credit (or 180 days after the date of issuance in the case of a Surety Letter of Credit) or (ii) 30 days prior to the end of the Commitment Period; (c) the issuance of such Letter of Credit will be in compliance with all applicable governmental restrictions, policies, and guidelines and will not subject LC Issuer to any cost which is not reimbursable under Article III; (d) either (i) such Letter of Credit is related to the purchase or exchange by Borrower of crude oil and is in the Form of Exhibit D-1 or D-2 hereto or such other form and terms as shall be acceptable to LC Issuer in its sole and absolute discretion and Currently Approved by Majority Lenders, or (ii) such Letter of Credit is a Surety Letter of Credit and after taking such Letter of Credit into account the aggregate amount of LC Obligations in respect to all Surety Letters of Credit does not exceed $1,000,000; and (e) all other conditions in this Agreement to the issuance of such Letter of Credit have been satisfied. LC Issuer will honor any such request if the foregoing conditions (a) through (e) (in the following Section 2.8 called the "LC Conditions") have been met as of the date of issuance of such Letter of Credit. The letters of credit outstanding as of the date hereof issued by BankBoston, N.A. under 24 the Existing Credit Documents as set forth on Schedule 5 attached hereto shall be deemed to be Letters of Credit issued hereunder as of the date hereof; Borrower hereby represents and warrants that the LC Conditions have been met as of the date hereof with respect to each such Letter of Credit. Section 2.8. Requesting Letters of Credit. Borrower must make written application for any Letter of Credit at least two Business Days before the date on which Borrower desires for LC Issuer to issue such Letter of Credit. By making any such written application, unless otherwise expressly stated therein, Borrower shall be deemed to have represented and warranted that the LC Conditions described in Section 2.7 will be met as of the date of issuance of such Letter of Credit. Each such written application for a Letter of Credit must be made in writing in the form and substance of Exhibit E, the terms and provisions of which are hereby incorporated herein by reference (or in such other form as may mutually be agreed upon by LC Issuer and Borrower). If all LC Conditions for a Letter of Credit have been met as described in Section 2.7 on any Business Day before 11:00 a.m, Boston, Massachusetts time, LC Issuer will issue such Letter of Credit on the same Business Day at LC Issuer's office in Boston, Massachusetts. If the LC Conditions are met as described in Section 2.7 on any Business Day on or after 11:00 a.m, Boston, Massachusetts time, LC Issuer will issue such Letter of Credit on the next succeeding Business Day at LC Issuer's office in Boston, Massachusetts. If any provisions of any LC Application conflict with any provisions of this Agreement, the provisions of this Agreement shall govern and control. Section 2.9. Reimbursement and Participations. (a) Reimbursement by Borrower. Each Matured LC Obligation shall constitute a loan by LC Issuer to Borrower. Borrower promises to pay to LC Issuer, or to LC Issuer's order, on demand, the full amount of each Matured LC Obligation, together with interest thereon (i) at the Base Rate to and including the second Business Day after the Matured LC Obligation is incurred and (ii) at the Default Rate on each day thereafter. (b) Letter of Credit Advances. If the beneficiary of any Letter of Credit makes a draft or other demand for payment thereunder then Borrower may, during the interval between the making thereof and the honoring thereof by LC Issuer, request Lenders to make Loans to Borrower in the amount of such draft or demand, which Loans shall be made concurrently with LC Issuer's payment of such draft or demand and shall be immediately used by LC Issuer to repay the amount of the resulting Matured LC Obligation. Such a request by Borrower shall be made in compliance with all of the provisions hereof, provided that for the purposes of the first sentence of Section 2.1, the amount of such Loans shall be considered, but the amount of the Matured LC Obligation to be concurrently paid by such Loans shall not be considered. (c) Participation by Lenders. LC Issuer irrevocably agrees to grant and hereby grants to each Lender, and -- to induce LC Issuer to issue Letters of Credit hereunder -- each Lender irrevocably agrees to accept and purchase and hereby accepts and purchases from LC Issuer, on the terms and conditions hereinafter stated and for such Lender's own account and risk an undivided interest equal to such Lender's Percentage Share of LC Issuer's obligations and rights under each Letter of Credit issued hereunder and the amount of each Matured LC Obligation paid 25 by LC Issuer thereunder. Each Lender unconditionally and irrevocably agrees with LC Issuer that, if a Matured LC Obligation is paid under any Letter of Credit for which LC Issuer is not reimbursed in full by Borrower in accordance with the terms of this Agreement and the related LC Application (including any reimbursement by means of concurrent Loans or by the application of LC Collateral), such Lender shall (in all circumstances and without set-off or counterclaim) pay to LC Issuer on demand, in immediately available funds at LC Issuer's address for notices hereunder, such Lender's Percentage Share of such Matured LC Obligation (or any portion thereof which has not been reimbursed by Borrower). Each Lender's obligation to pay LC Issuer pursuant to the terms of this subsection is irrevocable and unconditional. If any amount required to be paid by any Lender to LC Issuer pursuant to this subsection is paid by such Lender to LC Issuer within three Business Days after the date such payment is due, LC Issuer shall in addition to such amount be entitled to recover from such Lender, on demand, interest thereon calculated from such due date at the Federal Funds Rate. If any amount required to be paid by any Lender to LC Issuer pursuant to this subsection is not paid by such Lender to LC Issuer within three Business Days after the date such payment is due, LC Issuer shall in addition to such amount be entitled to recover from such Lender, on demand, interest thereon calculated from such due date at the Base Rate. (d) Distributions to Participants. Whenever LC Issuer has in accordance with this section received from any Lender payment of such Lender's Percentage Share of any Matured LC Obligation, if LC Issuer thereafter receives any payment of such Matured LC Obligation or any payment of interest thereon (whether directly from Borrower or by application of LC Collateral or otherwise, and excluding only interest for any period prior to LC Issuer's demand that such Lender make such payment of its Percentage Share), LC Issuer will distribute to such Lender its Percentage Share of the amounts so received by LC Issuer; provided, however, that if any such payment received by LC Issuer must thereafter be returned by LC Issuer, such Lender shall return to LC Issuer the portion thereof which LC Issuer has previously distributed to it. (e) Calculations. A written advice setting forth in reasonable detail the amounts owing under this section, submitted by LC Issuer to Borrower or any Lender from time to time, shall be conclusive, absent manifest error, as to the amounts thereof. Section 2.10. No Duty to Inquire. (a) Drafts and Demands. LC Issuer is authorized and instructed to accept and pay drafts and demands for payment under any Letter of Credit without requiring, and without responsibility for, any determination as to the existence of any event giving rise to said draft, either at the time of acceptance or payment or thereafter. LC Issuer is under no duty to determine the proper identity of anyone presenting such a draft or making such a demand (whether by tested telex or otherwise) as the officer, representative or agent of any beneficiary under any Letter of Credit, and payment by LC Issuer to any such beneficiary when requested by any such purported officer, representative or agent is hereby authorized and approved. Borrower releases each Lender Party from, and agrees to hold each Lender Party harmless and indemnified against, any liability or claim in connection with or arising out of the subject matter of this section, WHICH INDEMNITY SHALL APPLY WHETHER OR NOT ANY SUCH LIABILITY OR CLAIM IS IN ANY 26 WAY OR TO ANY EXTENT CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY ANY LENDER PARTY, provided only that no Lender Party shall be entitled to indemnification for that portion, if any, of any liability or claim which is proximately caused by its own individual gross negligence or willful misconduct, as determined in a final judgment. (b) Extension of Maturity. If the maturity of any Letter of Credit is extended by its terms or by Law or governmental action, if any extension of the maturity or time for presentation of drafts or any other modification of the terms of any Letter of Credit is made at the request of any Restricted Person, or if the amount of any Letter of Credit is increased at the request of any Restricted Person, this Agreement shall be binding upon all Restricted Persons with respect to such Letter of Credit as so extended, increased or otherwise modified, with respect to drafts and property covered thereby, and with respect to any action taken by LC Issuer, LC Issuer's correspondents, or any Lender Party in accordance with such extension, increase or other modification. (c) Transferees of Letters of Credit. If any Letter of Credit provides that it is transferable, LC Issuer shall have no duty to determine the proper identity of anyone appearing as transferee of such Letter of Credit, nor shall LC Issuer be charged with responsibility of any nature or character for the validity or correctness of any transfer or successive transfers, and payment by LC Issuer to any purported transferee or transferees as determined by LC Issuer is hereby authorized and approved, and Borrower releases each Lender Party from, and agrees to hold each Lender Party harmless and indemnified against, any liability or claim in connection with or arising out of the foregoing, WHICH INDEMNITY SHALL APPLY WHETHER OR NOT ANY SUCH LIABILITY OR CLAIM IS IN ANY WAY OR TO ANY EXTENT CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY ANY LENDER PARTY, provided only that no Lender Party shall be entitled to indemnification for that portion, if any, of any liability or claim which is proximately caused by its own individual gross negligence or willful misconduct, as determined in a final judgment. Section 2.11. LC Collateral. (a) LC Obligations in Excess of Borrowing Base. If, after the making of all mandatory prepayments required under Section 2.6, the outstanding LC Obligations will exceed the Borrowing Base, then in addition to prepayment of the entire principal balance of the Loans Borrower will immediately pay to LC Issuer an amount equal to such excess. LC Issuer will hold such amount as collateral security for the remaining LC Obligations (all such amounts held as collateral security for LC Obligations being herein collectively called "LC Collateral") and the other Obligations, and such collateral may be applied from time to time to pay Matured LC Obligations. Neither this subsection nor the following subsection shall, however, limit or impair any rights which LC Issuer may have under any other document or agreement relating to any Letter of Credit, LC Collateral or LC Obligation, including any LC Application, or any rights which any Lender Party may have to otherwise apply any payments by Borrower and any LC Collateral under Section 3.1. 27 (b) Acceleration of LC Obligations. If the Obligations or any part thereof become immediately due and payable pursuant to Section 8.1 then, unless all Lenders otherwise specifically elect to the contrary (which election may thereafter be retracted by all Lenders at any time), all LC Obligations shall become immediately due and payable without regard to whether or not actual drawings or payments on the Letters of Credit have occurred, and Borrower shall be obligated to pay to LC Issuer immediately an amount equal to the aggregate LC Obligations which are then outstanding. (c) Investment of LC Collateral. Pending application thereof, all LC Collateral shall be invested by LC Issuer in such Cash Equivalents as LC Issuer may choose in its sole discretion. All interest on (and other proceeds of) such Investments shall be reinvested or applied to Matured LC Obligations or other Obligations which are due and payable. When all Obligations have been satisfied in full, including all LC Obligations, all Letters of Credit have expired or been terminated, and all of Borrower's reimbursement obligations in connection therewith have been satisfied in full, LC Issuer shall release any remaining LC Collateral. Borrower hereby assigns and grants to LC Issuer a continuing security interest in all LC Collateral paid by it to LC Issuer, all Investments purchased with such LC Collateral, and all proceeds thereof to secure its Matured LC Obligations and its Obligations under this Agreement, each Note, and the other Loan Documents, and Borrower agrees that such LC Collateral, Investments and proceeds shall be subject to all of the terms and conditions of the Security Documents. Borrower further agrees that LC Issuer shall have all of the rights and remedies of a secured party under the UCC with respect to such security interest and that an Event of Default under this Agreement shall constitute a default for purposes of such security interest. (d) Payment of LC Collateral. When Borrower is required to provide LC Collateral for any reason and fails to do so on the day when required, LC Issuer or Administrative Agent may provide such LC Collateral (whether by application of proceeds of other Collateral, by transfers from other accounts maintained with LC Issuer, or otherwise) using any available funds of Borrower or any other Person also liable to make such payments, and LC Issuer or Administrative Agent will give notice thereof to Borrower promptly after such application or transfer. Any such amounts which are required to be provided as LC Collateral and which are not provided on the date required shall, for purposes of each Security Document, be considered past due Obligations owing hereunder, and LC Issuer is hereby authorized to exercise its respective rights under each Security Document to obtain such amounts. Section 2.12. Interest Rates and Fees; Reduction in Commitment. (a) Interest Rates. Unless the Default Rate shall apply, (i) each Base Rate Loan shall bear interest on each day outstanding at the Base Rate in effect on such day and (ii) each Eurodollar Loan shall bear interest on each day during the related Interest Period at the related Adjusted Eurodollar Rate in effect on such day. During a Default Rate Period, all Loans shall bear interest on each day outstanding at the Default Rate. If an Event of Default based upon Section 8.1(a), Section 8.1(b) or, with respect to Borrower, based upon Section 8.1(i)(i), (i)(ii) or (i)(iii) exists and the Loans are not bearing interest at the Default Rate, the past due principal and past due interest shall bear interest on each day outstanding at the Default Rate. The interest rate shall 28 change whenever the applicable Base Rate, the Adjusted Eurodollar Rate or the Eurodollar Rate Margin changes. In no event shall the interest rate on any Loan exceed the Highest Lawful Rate. (b) Commitment Fees. In consideration of each Lender's commitment to make Loans, Borrower will pay to Administrative Agent for the account of each Lender a commitment fee determined on a daily basis by applying a rate of one-fourth of one percent (.25%) per annum to such Lender's Percentage Share of the unused portion of the Maximum Facility Amount on each day during the Commitment Period, determined for each such day by deducting from the amount of the Maximum Facility Amount at the end of such day the Facility Usage. This commitment fee shall be due and payable in arrears on the last day of each Fiscal Quarter and at the end of the Commitment Period. Borrower shall have the right from time to time to permanently reduce the Maximum Facility Amount, provided that (i) notice of such reduction is given not less than 2 business Days prior to such reduction, (ii) the resulting Maximum Facility Amount is not less than the Facility Usage, and (iii) each partial reduction shall be in an amount at least equal to $500,000 and in multiples of $100,000 in excess thereof. (c) Letter of Credit Fees. In consideration of LC Issuer's issuance of any Letter of Credit, Borrower agrees to pay (i) to Administrative Agent, for the account of all Lenders in accordance with their respective Percentage Shares, a letter of credit fee at a rate equal to one percent (1%) per annum, and (ii) to such LC Issuer for its own account, a letter of credit fronting fee at a rate equal to one-tenth of one percent (.10%) per annum. Each such fee will be calculated on the face amount of each Letter of Credit outstanding on each day at the above applicable rates and will be payable monthly in arrears on the last day of each month. In addition, Borrower will pay to LC Issuer a minimum administrative issuance fee of $100 for each Letter of Credit and such other fees and charges customarily charged by the LC Issuer in respect of any amendment or negotiation of any Letter of Credit in accordance with the LC Issuer's published schedule of such charges as of the date of such amendment or negotiation. (d) Administrative Agent's Fees. In addition to all other amounts due to Administrative Agent under the Loan Documents, Borrower will pay fees to Administrative Agent as described in a letter agreement of even date herewith between Administrative Agent and Borrower. Section 2.13. Borrowing Base Reporting. The Borrowing Base Reports are subject to the procedures set forth on Schedule 6. ARTICLE III - Payments to Lenders Section 3.1. General Procedures. Borrower will make each payment which it owes under the Loan Documents to Administrative Agent for the account of the Lender Party to whom such payment is owed in lawful money of the United States of America, without set-off, deduction or counterclaim, and in immediately available funds. Each such payment must be received by Administrative Agent not later than noon, Boston, Massachusetts time, on the date such payment becomes due and payable. Any payment received by Administrative Agent after such time will be deemed to have been made on the next following Business Day. Should any such payment become due and payable on a day other than a Business Day, the maturity of such payment shall 29 be extended to the next succeeding Business Day, and, in the case of a payment of principal or past due interest, interest shall accrue and be payable thereon for the period of such extension as provided in the Loan Document under which such payment is due. Each payment under a Loan Document shall be due and payable at the place provided therein and, if no specific place of payment is provided, shall be due and payable at the place of payment of Administrative Agent's Note. When Administrative Agent collects or receives money on account of the Obligations, Administrative Agent shall distribute all money so collected or received, and each Lender Party shall apply all such money so distributed, as follows: (a) first, for the payment of all Obligations which are then due (and if such money is insufficient to pay all such Obligations, first to any reimbursements due Administrative Agent under Section 6.9 or 10.4 and then to the partial payment of all other Obligations then due in proportion to the amounts thereof, or as Lender Parties shall otherwise agree); (b) then for the prepayment of amounts owing under the Loan Documents (other than principal on the Notes) if so specified by Borrower; (c) then for the prepayment of principal on the Notes, together with accrued and unpaid interest on the principal so prepaid; and (d) last, for the payment or prepayment of any other Obligations. All payments applied to principal or interest on any Note shall be applied first to any interest then due and payable, then to principal then due and payable, and last to any prepayment of principal and interest in compliance with Sections 2.5 and 2.6. All distributions of amounts described in any of subsections (b), (c) or (d) above shall be made by Administrative Agent pro rata to each Lender Party then owed Obligations described in such subsection in proportion to all amounts owed to all Lender Parties which are described in such subsection; provided that if any Lender then owes payments to LC Issuer for the purchase of a participation under Section 2.9(c) or to Administrative Agent under Section 9.4, any amounts otherwise distributable under this section to such Lender shall be deemed to belong to LC Issuer or Administrative Agent, respectively, to the extent of such unpaid payments, and Administrative Agent shall apply such amounts to make such unpaid payments rather than distribute such amounts to such Lender. Section 3.2. Capital Reimbursement. If either (a) the introduction or implementation of or the compliance with or any change in or in the interpretation of any Law, or (b) the introduction or implementation of or the compliance with any request, directive or guideline from any central bank or other governmental authority (whether or not having the force of Law) affects or would affect the amount of capital required or expected to be maintained by any Lender Party or any corporation controlling any Lender Party, then, within five Business Days after demand by such Lender Party, Borrower will pay to Administrative Agent for the benefit of such Lender Party, from time to time as specified by such Lender Party, such additional amount or amounts which such Lender Party shall determine to be appropriate to compensate such Lender Party or any corporation controlling such Lender Party in light of such circumstances, to the extent that such Lender Party reasonably determines that the amount of any such capital would be increased or the rate of return on any such capital would be reduced by or in whole or in part based on the 30 existence of the face amount of such Lender Party's Loans, Letters of Credit, participations in Letters of Credit or commitments under this Agreement. Section 3.3. Increased Cost of Eurodollar Loans or Letters of Credit. If any applicable Law (whether now in effect or hereinafter enacted or promulgated, including Regulation D) or any interpretation or administration thereof by any governmental authority charged with the interpretation or administration thereof (whether or not having the force of Law): (a) shall change the basis of taxation of payments to any Lender Party of any principal, interest, or other amounts attributable to any Eurodollar Loan or Letter of Credit or otherwise due under this Agreement in respect of any Eurodollar Loan or Letter of Credit (other than taxes imposed on, or measured by, the overall net income of such Lender Party or any Applicable Lending Office of such Lender Party by any jurisdiction in which such Lender Party or any such Applicable Lending Office is located); or (b) shall change, impose, modify, apply or deem applicable any reserve, special deposit or similar requirements in respect of any Eurodollar Loan or any Letter of Credit (excluding those for which such Lender Party is fully compensated pursuant to adjustments made in the definition of Eurodollar Rate) or against assets of, deposits with or for the account of, or credit extended by, such Lender Party; or (c) shall impose on any Lender Party or the interbank eurocurrency deposit market any other condition affecting any Eurodollar Loan or Letter of Credit, the result of which is to increase the cost to any Lender Party of funding or maintaining any Eurodollar Loan or of issuing any Letter of Credit or to reduce the amount of any sum receivable by any Lender Party in respect of any Eurodollar Loan or Letter of Credit by an amount deemed by such Lender Party to be material, then such Lender Party shall promptly notify Administrative Agent and Borrower in writing of the happening of such event and of the amount required to compensate such Lender Party for such event (on an after-tax basis, taking into account any taxes on such compensation), whereupon (i) Borrower shall, within five Business Days after demand therefor by such Lender Party, pay such amount to Administrative Agent for the account of such Lender Party and (ii) Borrower may elect, by giving to Administrative Agent and such Lender Party not less than three Business Days' notice, to Convert all (but not less than all) of any such Eurodollar Loans into Base Rate Loans. Section 3.4. Notice; Change of Applicable Lending Office. A Lender Party shall notify Borrower of any event occurring after the date of this Agreement that will entitle such Lender Party to compensation under Section 3.2, 3.3 or 3.5 hereof above as promptly as practicable, but in any event within 90 days, after such Lender Party obtains actual knowledge thereof; provided, that (i) if such Lender Party fails to give such notice within 90 days after it obtains actual knowledge of such an event, such Lender Party shall, with respect to compensation payable pursuant to Section 3.2, 3.3 or 3.5 in respect of any costs resulting from such event, only be entitled to payment under Section 3.2, 3.3 or 3.5 hereof for costs incurred from and after the date 90 days prior to the date that such Lender Party does give such notice and (ii) such Lender Party will designate a different Applicable Lending Office for the Loans affected by such event if such 31 designation will avoid the need for, or reduce the amount of, such compensation and will not, in the sole opinion of such Lender Party, be disadvantageous to such Lender Party, except that such Lender Party shall have no obligation to designate an Applicable Lending Office located in the United States of America. Each Lender Party will furnish to Borrower a certificate setting forth the basis and amount of each request by such Lender Party for compensation under Section 3.2, 3.3 or 3.5 hereof. Section 3.5. Availability. If (a) any change in applicable Laws, or in the interpretation or administration thereof of or in any jurisdiction whatsoever, domestic or foreign, shall make it unlawful or impracticable for any Lender Party to fund or maintain Eurodollar Loans or to issue or participate in Letters of Credit, or shall materially restrict the authority of any Lender Party to purchase or take offshore deposits of dollars (i.e., "eurodollars"), or (b) any Lender Party determines that matching deposits appropriate to fund or maintain any Eurodollar Loan are not available to it, or (c) any Lender Party determines that the formula for calculating the Eurodollar Rate does not fairly reflect the cost to such Lender Party of making or maintaining loans based on such rate, then, upon notice by such Lender Party to Borrower and Administrative Agent, Borrower's right to elect Eurodollar Loans from such Lender Party (or, if applicable, to obtain Letters of Credit) shall be suspended to the extent and for the duration of such illegality, impracticability or restriction and all Eurodollar Loans of such Lender Party which are then outstanding or are then the subject of any Borrowing Notice and which cannot lawfully or practicably be maintained or funded shall immediately become or remain, or shall be funded as, Base Rate Loans of such Lender Party. Borrower agrees to indemnify each Lender Party and hold it harmless against all costs, expenses, claims, penalties, liabilities and damages which may result from any such change in Law, interpretation or administration. Such indemnification shall be on an after-tax basis, taking into account any taxes imposed on the amounts paid as indemnity. Section 3.6. Funding Losses. In addition to its other obligations hereunder, Borrower will indemnify each Lender Party against, and reimburse each Lender Party on demand for, any loss or expense incurred or sustained by such Lender Party (including any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by a Lender Party to fund or maintain Eurodollar Loans), as a result of (a) any payment or prepayment (whether or not authorized or required hereunder) of all or a portion of a Eurodollar Loan on a day other than the day on which the applicable Interest Period ends, (b) any payment or prepayment, whether or not required hereunder, of a Loan made after the delivery, but before the effective date, of a Continuation/Conversion Notice, if such payment or prepayment prevents such Continuation/Conversion Notice from becoming fully effective, (c) the failure of any Loan to be made or of any Continuation/Conversion Notice to become effective due to any condition precedent not being satisfied or due to any other action or inaction of any Restricted Person, or (d) any Conversion (whether or not authorized or required hereunder) of all or any portion of any Eurodollar Loan into a Base Rate Loan or into a different Eurodollar Loan on a day other than the day on which the applicable Interest Period ends. Such indemnification shall be on an after-tax basis, taking into account any taxes imposed on the amounts paid as indemnity. Section 3.7. Reimbursable Taxes. Borrower covenants and agrees that: 32 (a) Borrower will indemnify each Lender Party against and reimburse each Lender Party for all present and future income, stamp and other taxes, levies, costs and charges whatsoever imposed, assessed, levied or collected on or in respect of this Agreement or any Eurodollar Loans or Letters of Credit (whether or not legally or correctly imposed, assessed, levied or collected), excluding, however, any taxes imposed on or measured by the overall net income of Administrative Agent or such Lender Party or any Applicable Lending Office of such Lender Party by any jurisdiction in which such Lender Party or any such Applicable Lending Office is located (all such non-excluded taxes, levies, costs and charges being collectively called "Reimbursable Taxes" in this section). Such indemnification shall be on an after-tax basis, taking into account any taxes imposed on the amounts paid as indemnity. (b) All payments on account of the principal of, and interest on, each Lender Party's Loans and Note, and all other amounts payable by Borrower to any Lender Party hereunder, shall be made in full without set- off or counterclaim and shall be made free and clear of and without deductions or withholdings of any nature by reason of any Reimbursable Taxes, all of which will be for the account of Borrower. In the event of Borrower being compelled by Law to make any such deduction or withholding from any payment to any Lender Party, Borrower shall pay on the due date of such payment, by way of additional interest, such additional amounts as are needed to cause the amount receivable by such Lender Party after such deduction or withholding to equal the amount which would have been receivable in the absence of such deduction or withholding. If Borrower should make any deduction or withholding as aforesaid, Borrower shall within 60 days thereafter forward to such Lender Party an official receipt or other official document evidencing payment of such deduction or withholding. (c) If Borrower is ever required to pay any Reimbursable Tax with respect to any Eurodollar Loan, Borrower may elect, by giving to Administrative Agent and such Lender Party not less than three Business Days' notice, to Convert all (but not less than all) of any such Eurodollar Loan into a Base Rate Loan, but such election shall not diminish Borrower's obligation to pay all Reimbursable Taxes. (d) Notwithstanding the foregoing provisions of this section, Borrower shall be entitled, to the extent it is required to do so by Law, to deduct or withhold (and not to make any indemnification or reimbursement for) income or other similar taxes imposed by the United States of America (other than any portion thereof attributable to a change in federal income tax Laws effected after the date hereof) from interest, fees or other amounts payable hereunder for the account of any Lender Party, other than a Lender Party (i) who is a U.S. person for Federal income tax purposes or (ii) who has the Prescribed Forms on file with Administrative Agent (with copies provided to Borrower) for the applicable year to the extent deduction or withholding of such taxes is not required as a result of the filing of such Prescribed Forms, provided that if Borrower shall so deduct or withhold any such taxes, it shall provide a statement to Administrative Agent and such Lender Party, setting forth the amount of such taxes so deducted or withheld, the applicable rate and any other information or documentation which such Lender Party may reasonably request for assisting such Lender Party to obtain any allowable credits or 33 deductions for the taxes so deducted or withheld in the jurisdiction or jurisdictions in which such Lender Party is subject to tax. As used in this section, "Prescribed Forms" means such duly executed forms or statements, and in such number of copies, which may, from time to time, be prescribed by Law and which, pursuant to applicable provisions of (x) an income tax treaty between the United States and the country of residence of the Lender Party providing the forms or statements, (y) the Internal Revenue Code of 1986, as amended from time to time, or (z) any applicable rules or regulations thereunder, permit Borrower to make payments hereunder for the account of such Lender Party free of such deduction or withholding of income or similar taxes. Section 3.8 Replacement of Lenders. If any Lender Party seeks reimbursement for increased costs under Sections 3.2 through 3.7, then within ninety days thereafter -- provided no Event of Default then exists -- Borrower shall have the right (unless such Lender Party withdraws its request for additional compensation) to replace such Lender Party by requiring such Lender Party to assign its Loans and Notes and its commitments hereunder to an Eligible Transferee reasonably acceptable to Administrative Agent and to Borrower, provided that: (i) all Obligations of Borrower owing to such Lender Party being replaced (including such increased costs, but excluding principal and accrued interest on the Notes being assigned) shall be paid in full to such Lender Party concurrently with such assignment, and (ii) the replacement Eligible Transferee shall purchase the Note being assigned by paying to such Lender Party a price equal to the principal amount thereof plus accrued and unpaid interest and accrued and unpaid commitment fees thereon. In connection with any such assignment Borrower, Administrative Agent, such Lender Party and the replacement Eligible Transferee shall otherwise comply with Section 10.5. Notwithstanding the foregoing rights of Borrower under this section, however, Borrower may not replace any Lender Party which seeks reimbursement for increased costs under Section 3.2 through 3.7 unless Borrower is at the same time replacing all Lender Parties which are then seeking such compensation. ARTICLE IV - Conditions Precedent to Credit Section 4.1. Documents to be Delivered. No Lender has any obligation to make its first Loan, and LC Issuer has no obligation to issue the first Letter of Credit unless Administrative Agent shall have received all of the following, at Administrative Agent's office in Boston, Massachusetts, duly executed and delivered and in form, substance and date satisfactory to Administrative Agent: (a) This Agreement and any other documents that Lenders are to execute in connection herewith. (b) Each Note. (c) Each Security Document listed in the Security Schedule. (d) Certain certificates of Borrower including: 34 (i) An "Omnibus Certificate" of the secretary and of the president of Borrower, which shall contain the names and signatures of the officers of Borrower authorized to execute Loan Documents and which shall certify to the truth, correctness and completeness of the following exhibits attached thereto: (1) a copy of resolutions duly adopted by the Board of Directors of Borrower and in full force and effect at the time this Agreement is entered into, authorizing the execution of this Agreement and the other Loan Documents delivered or to be delivered in connection herewith and the consummation of the transactions contemplated herein and therein, (2) a copy of the charter documents of Borrower and all amendments thereto, certified by the appropriate official of Borrower's state of organization, and (3) a copy of any bylaws of Borrower; and (ii) A certificate of the president and of the chief financial officer of Borrower, of even date with such Loan or such Letter of Credit, regarding satisfaction of the conditions set out in subsections (a) and (b) of Section 4.2 and subsections (a), (b), (c) and (d) of Section 4.3 in the form of hereto. (e) A certificate (or certificates) of the due formation, valid existence and good standing of Borrower in its state of organization, issued by the appropriate authorities of such jurisdiction, and certificates of Borrower's good standing and due qualification to do business, issued by appropriate officials in any states in which Borrower owns property subject to Security Documents. (f) Documents similar to those specified in subsections (d)(i) and (e) of this section with respect to each Guarantor and the execution by it of its guaranty of Borrower's Obligations. (g) A favorable opinion of Michael Patterson, Esq., General Counsel for Restricted Persons, substantially in the form set forth in Exhibit G-1, and Fulbright & Jaworski L.L.P., special Texas and New York counsel to Restricted Persons, substantially in the form set forth in Exhibit G-2. (h) The Initial Financial Statements. (i) Certificates or binders evidencing Restricted Persons' insurance in effect on the date hereof. (j) A certificate signed by the chief executive officer of Borrower in form and detail acceptable to Administrative Agent confirming the insurance that is in effect as of the date hereof and certifying that such insurance is customary for the businesses conducted by Restricted Persons and is in compliance with the requirements of this Agreement. (k) Payment of all commitment, facility, agency and other fees required to be paid to any Lender pursuant to any Loan Documents or any commitment agreement heretofore entered into. 35 (l) Documents (i) confirming the payment in full of all Indebtedness under the Existing Credit Documents and the transfer to this Agreement of any outstanding letters of credit under the Existing Credit Documents, (ii) releasing and terminating all Liens on any Restricted Person's property securing such Indebtedness (or assigning such Liens to Administrative Agent for the benefit of Lenders, and (iii) terminating the credit facility under the Existing Credit Documents. Section 4.2. Additional Conditions to Initial Credit. No Lender has any obligation to make its first Loan, and LC Issuer has no obligation to issue the first Letter of Credit unless the following conditions precedent have been satisfied: (a) PAAI shall have consummated all of the transactions contemplated under the Acquisition Documents, in compliance with the terms and conditions thereof, in form and substance satisfactory to Administrative Agent. (b) All conditions precedent to the initial Loans under the Credit Agreement of even date herewith among PAAI, ING (U.S.) Capital Corporation, as administrative agent, and the Lenders Parties named therein have been satisfied. (c) Borrower shall have delivered to Administrative Agent (i) a Consolidated balance sheet for Borrower and its Subsidiaries and (ii) a proforma Consolidated balance sheet for Borrower and its Subsidiaries reflecting any transactions with PAAI and its Subsidiaries to be entered into on or about the time of the closing of the transactions under the Acquisition Documents, in each case as of a date not more than 60 days prior to such first Loan and first Letter of Credit, certified by the chief financial officer of Borrower, reflecting compliance with each event specified in Section 4.4 and Section 7.8 through 7.13, inclusive. (d) The Borrowing Base as of the date of such first Loan and first Letter of Credit shall be at least $5,000,000 more than the initial Facility Usage on such date after giving effects to the Loans and Letters of Credit requested for such date, and Borrower shall have delivered to the Administrative Agent a Borrowing Base Report in reasonable detail demonstrating compliance with this requirement. (e) The Administrative Agent shall have conducted a commercial finance exam of the Company, the results of which shall be reasonably satisfactory to Lenders. (f) Borrower shall have entered into (i) the Service and Exchange Agreement with Celeron Gathering Corporation in the form of Exhibit L, (ii) the Agreement for the Allocation of Taxes in the form of Exhibit M and (iii) the Netting Agreement with Resources and Borrower's other Affiliates in the form of Exhibit N (collectively the "Affiliate Agreements"). Section 4.3. Additional Conditions Precedent. No Lender has any obligation to make any Loan (including its first), and LC Issuer has no obligation to issue any Letter of Credit (including its first), unless the following conditions precedent have been satisfied: 36 (a) All representations and warranties made by any Restricted Person in any Loan Document shall be true on and as of the date of such Loan or the date of issuance of such Letter of Credit as if such representations and warranties had been made as of the date of such Loan or the date of issuance of such Letter of Credit except to the extent that such representation or warranty was made as of a specific date or updated, modified or supplemented as of a subsequent date with the consent of Majority Lenders. (b) No Default shall exist at the date of such Loan or the date of issuance of such Letter of Credit. (c) Each Financial Condition shall be true on the date of such Loan or the date of issuance of such Letter of Credit. (d) No Material Adverse Change shall have occurred to, and no event or circumstance shall have occurred that could cause a Material Adverse Change to, Borrower's Consolidated financial condition or businesses since the date of the Initial Financial Statements. (e) Each Restricted Person shall have performed and complied with all agreements and conditions required in the Loan Documents to be performed or complied with by it on or prior to the date of such Loan or the date of issuance of such Letter of Credit. (f) The making of such Loan or the issuance of such Letter of Credit shall not be prohibited by any Law and shall not subject any Lender or any LC Issuer to any penalty or other onerous condition under or pursuant to any such Law. (g) Administrative Agent shall have received all documents and instruments which Administrative Agent has then requested, in addition to those described in Section 4.1 (including opinions of legal counsel for Restricted Persons and Administrative Agent; corporate documents and records; documents evidencing governmental authorizations, consents, approvals, licenses and exemptions; and certificates of public officials and of officers and representatives of Borrower and other Persons), as to (i) the accuracy and validity of or compliance with all representations, warranties and covenants made by any Restricted Person in this Agreement and the other Loan Documents, (ii) the satisfaction of all conditions contained herein or therein, and (ii) all other matters pertaining hereto and thereto. All such additional documents and instruments shall be satisfactory to Administrative Agent in form, substance and date. Section 4.4. Financial Conditions. Each of the following events constitutes a "Financial Condition" under this Agreement: (a) Net Worth. The sum of (i) Consolidated Net Worth plus (ii) the Resources Letter of Credit Availability will not be less than the sum of (A) $13,000,000 plus (B) fifty percent (50%) of the Consolidated Net Income (if positive) for each Fiscal Quarter from and after March 31, 1998 to and including Fiscal Quarter ending on, or most recently ended prior to, such day. 37 (b) Working Capital Leverage Ratio. The ratio of (i) the sum of Borrower's Consolidated current liabilities (excluding Affiliate Payables) plus LC Obligations (other than in respect of undrawn Letters of Credit issued to support existing or future accounts payable which are or will be included in such Consolidated current liabilities) plus Affiliate Net Payables to (ii) the sum of the Resources Letter of Credit Availability plus the remainder of (A) Borrower's Consolidated current assets (excluding Affiliate Receivables) minus (B) Borrower's Consolidated current liabilities (excluding Affiliate Payables but including Affiliate Net Payables) will not be greater than 9.0 to 1.0. (c) Leverage Ratio. The ratio of (i) Consolidated Total Liabilities to (ii) the sum of Consolidated Net Worth plus the Resources Letter of Credit Availability will not be greater than 7.0 to 1.0. (d) Positive Working Capital. The Consolidated Working Capital Ratio will not be less than 1.0 to 1.0. ARTICLE V - Representations and Warranties To confirm each Lender's understanding concerning Restricted Persons and Restricted Persons' businesses, properties and obligations and to induce each Lender to enter into this Agreement and to extend credit hereunder, Borrower represents and warrants to each Lender that: Section 5.1. No Default. No Restricted Person is in default in the performance of any of the covenants and agreements contained in any Loan Document. No event has occurred and is continuing which constitutes a Default. Section 5.2. Organization and Good Standing. Each Restricted Person is duly organized, validly existing and in good standing under the Laws of its jurisdiction of organization, having all powers required to carry on its business and enter into and carry out the transactions contemplated hereby. Each Restricted Person is duly qualified, in good standing, and authorized to do business in all other jurisdictions within the United States wherein the character of the properties owned or held by it or the nature of the business transacted by it makes such qualification necessary except where the failure to so qualify would not cause a Material Adverse Change. Each Restricted Person has taken all actions and procedures customarily taken in order to enter, for the purpose of conducting business or owning property, each jurisdiction outside the United States wherein the character of the properties owned or held by it or the nature of the business transacted by it makes such actions and procedures necessary except where the failure to so qualify would not cause a Material Adverse Change. Section 5.3. Authorization. Each Restricted Person has duly taken all action necessary to authorize the execution and delivery by it of the Loan Documents to which it is a party and to authorize the consummation of the transactions contemplated thereby and the performance of its obligations thereunder. Borrower is duly authorized to borrow funds hereunder. 38 Section 5.4. No Conflicts or Consents. The execution and delivery by the various Restricted Persons of the Loan Documents to which each is a party, the performance by each of its obligations under such Loan Documents, and the consummation of the transactions contemplated by the various Loan Documents, do not and will not (i) conflict with any provision of (1) any Law, (2) the organizational documents of any Restricted Person or any of its Affiliates, or (3) any agreement, judgment, license, order or permit applicable to or binding upon any Restricted Person or any of its Affiliates, (ii result in the acceleration of any Indebtedness owed by any Restricted Person, or any of its Affiliates, or (ii result in or require the creation of any Lien upon any assets or properties of any Restricted Person or any of its Affiliates except as expressly contemplated in the Loan Documents. Except as expressly contemplated in the Loan Documents no consent, approval, authorization or order of, and no notice to or filing with, any Tribunal or third party is required in connection with the execution, delivery or performance by any Restricted Person of any Loan Document or to consummate any transactions contemplated by the Loan Documents. Section 5.5. Enforceable Obligations. This Agreement is, and the other Loan Documents when duly executed and delivered will be, legal, valid and binding obligations of each Restricted Person which is a party hereto or thereto, enforceable in accordance with their terms except as such enforcement may be limited by bankruptcy, insolvency or similar Laws of general application relating to the enforcement of creditors' rights. Section 5.6. Initial Financial Statements. Borrower has heretofore delivered to each Lender true, correct and complete copies of the Initial Financial Statements. The Initial Financial Statements fairly present Resources' Consolidated and Borrower's Consolidated financial positions, respectively, at the respective dates thereof and the Consolidated results of Resources' and Borrower's operations and Consolidated cash flows, respectively, for the respective periods thereof. Since the date of the annual Initial Financial Statements no Material Adverse Change has occurred, except as reflected in the quarterly Initial Financial Statements or in the Disclosure Schedule. All Initial Financial Statements were prepared in accordance with GAAP. Section 5.7. Other Obligations and Restrictions. No Restricted Person has any outstanding Liabilities of any kind (including contingent obligations, tax assessments, and unusual forward or long-term commitments) which are, in the aggregate, material to Borrower or material with respect to Borrower's Consolidated financial condition and not shown in the Initial Financial Statements or disclosed in the Disclosure Schedule. Except as shown in the Initial Financial Statements or disclosed in the Disclosure Schedule, no Restricted Person is subject to or restricted by any franchise, contract, deed, charter restriction, or other instrument or restriction which could cause a Material Adverse Change. Section 5.8. Full Disclosure. No certificate, statement or other information delivered herewith or heretofore by any Restricted Person to any Lender in connection with the negotiation of this Agreement or in connection with any transaction contemplated hereby contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading as of the date made or deemed made. All written information furnished after the date hereof by or on behalf of any Restricted Person to Administrative Agent or any Lender Party in 39 connection with this Agreement and the other Loan Documents and the transactions contemplated hereby and thereby will be true, complete and accurate in every material respect or based on reasonable estimates on the date as of which such information is stated or certified. There is no fact known to any Restricted Person that has not been disclosed to each Lender in writing which could cause a Material Adverse Change. Section 5.9. Litigation. Except as disclosed in the Initial Financial Statements or in the Disclosure Schedule: (i) there are no actions, suits or legal, equitable, arbitrative or administrative proceedings pending, or to the knowledge of any Restricted Person threatened, against any Restricted Person before any Tribunal which could cause a Material Adverse Change, and (ii) there are no outstanding judgments, injunctions, writs, rulings or orders by any such Tribunal against any Restricted Person or any Restricted Person's stockholders, partners, directors or officers which could cause a Material Adverse Change. Section 5.10. Labor Disputes and Acts of God. Except as disclosed in the Disclosure Schedule, neither the business nor the properties of any Restricted Person has been affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy or other casualty (whether or not covered by insurance), which could cause a Material Adverse Change. Section 5.11. ERISA Plans and Liabilities. All currently existing ERISA Plans are listed in the Disclosure Schedule. Except as disclosed in the Initial Financial Statements or in the Disclosure Schedule, no Termination Event has occurred with respect to any ERISA Plan and all ERISA Affiliates are in compliance with ERISA in all material respects. No ERISA Affiliate is required to contribute to, or has any other absolute or contingent liability in respect of, any "multiemployer plan" as defined in Section 4001 of ERISA. Except as set forth in the Disclosure Schedule: (i) no "accumulated funding deficiency" (as defined in Section 412(a) of the Code exists with respect to any ERISA Plan, whether or not waived by the Secretary of the Treasury or his delegate, and (ii) the current value of each ERISA Plan's benefits does not exceed the current value of such ERISA Plan's assets available for the payment of such benefits by more than $500,000. Section 5.12. Compliance with Laws. Except as set forth in the Disclosure Schedule, each Restricted Person is conducting its businesses in compliance with all applicable Laws, including Environmental Laws, and has all permits, licenses and authorizations required in connection with the conduct of its businesses, except to the extent failure to have any such permit, license or authorization could not cause a Material Adverse Change. Each Restricted Person is in compliance with the terms and conditions of all such permits, licenses and authorizations, and is also in compliance with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in any Law, including applicable Environmental Law, or in any regulation, code, plan, order, decree, judgment, injunction, notice or demand letter issued, entered, promulgated or approved thereunder, except to the extent failure to comply could not cause a Material Adverse Change. Section 5.13. Environmental Laws. As used in this section: "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 40 "CERCLIS" means the Comprehensive Environmental Response, Compensation and Liability Information System List of the Environmental Protection Agency, and "Release" has the meaning given such term in 42 U.S.C. (S) 9601(22). Without limiting the provisions of Section 5.12 and except as set forth in the Disclosure Schedule: (a) No notice, notification, demand, request for information, citation, summons or order has been issued, no complaint has been filed, no penalty has been assessed, and no investigation or review is pending or threatened by any Tribunal or any other Person with respect to (i) any alleged generation, treatment, storage, recycling, transportation, disposal, or Release of any Hazardous Materials in any material amount, either by any Restricted Person or on any property owned by any Restricted Person, (ii) any material remedial action which might be needed to respond to any such alleged generation, treatment, storage, recycling, transportation, disposal, or Release, or (iii) any alleged failure in any material respect by any Restricted Person to have any permit, license or authorization required in connection with the conduct of its business or with respect to any such generation, treatment, storage, recycling, transportation, disposal, or Release. (b) No Restricted Person otherwise has any known material contingent liability in connection with any alleged generation, treatment, storage, recycling, transportation, disposal, or Release of any Hazardous Materials. (c) No Restricted Person has handled any Hazardous Materials, other than as a generator, on any properties now or previously owned or leased by any Restricted Person to an extent that such handling has caused, or could cause, a Material Adverse Change. (d) Except to the extent that the following in the aggregate has not caused and could not cause a Material Adverse Change: (i) no PCBs are or have been present at any properties now or previously owned or leased by any Restricted Person; (ii) no asbestos is or has been present at any properties now or previously owned or leased by any Restricted Person; (iii) there are no underground storage tanks for Hazardous Materials, active or abandoned, at any properties now or previously owned or leased by any Restricted Person; and (iv) no Hazardous Materials have been Released at, on or under any properties now or previously owned or leased by any Restricted Person. (e) No Restricted Person has transported or arranged for the transportation of any Hazardous Material to any location which is listed on the National Priorities List under CERCLA, listed for possible inclusion on the National Priorities List by the Environmental Protection Agency in CERCLIS, or listed on any similar state list or which is the subject of federal, state or local enforcement actions or other investigations which may lead to claims against any Restricted 41 Person for clean-up costs, remedial work, damages to natural resources or for personal injury claims, including, but not limited to, claims under CERCLA. (f) No Hazardous Material generated by any Restricted Person has been recycled, treated, stored, disposed of or released by any Restricted Person at any location other than those listed in Disclosure Schedule. (g) No oral or written notification of a Release of a Hazardous Material has been filed by or on behalf of any Restricted Person (and to the best knowledge of Borrower, no such notification has been filed with respect to any Restricted Person by any other Person), and no property now or previously owned or leased by any Restricted Person is listed or proposed for listing on the National Priority list promulgated pursuant to CERCLA, in CERCLIS, or on any similar state list of sites requiring investigation or clean-up. (h) There are no Liens arising under or pursuant to any Environmental Laws on any of the real properties or properties owned or leased by any Restricted Person, and no government actions of which Borrower is aware have been taken or are in process which could subject any of such properties to such Liens; nor would any Restricted Person be required to place any notice or restriction relating to the presence of Hazardous Materials at any properties owned by it in any deed to such properties. (i) There have been no environmental investigations, studies, audits, tests, reviews or other analyses conducted by or which are in the possession of any Restricted Person in relation to any properties or facility now or previously owned or leased by any Restricted Person which have not been made available to Administrative Agent. Section 5.14. Names and Places of Business. No Restricted Person has, during the preceding five years, had, been known by, or used any other trade or fictitious name, except as disclosed in the Disclosure Schedule. Except as otherwise indicated in the Disclosure Schedule, the chief executive office and principal place of business of each Restricted Person are (and for the preceding five years have been) located at the address of Borrower set out in Section 10.3. Except as indicated in the Disclosure Schedule, no Restricted Person has any other office or place of business. Section 5.15. Borrower's Subsidiaries. Borrower does not presently have any Subsidiary or own any stock in any other corporation or association except those listed in the Disclosure Schedule. Neither Borrower nor any Restricted Person is a member of any general or limited partnership, joint venture or association of any type whatsoever except those listed in the Disclosure Schedule. Borrower owns, directly or indirectly, the equity interest in each of its Subsidiaries which is indicated in the Disclosure Schedule. Section 5.16. Title to Properties; Licenses. Each Restricted Person has good and defensible title to all of its material properties and assets, free and clear of all Liens other than Permitted Liens and of all impediments to the use of such properties and assets in such Restricted Person's business. Each Restricted Person possesses all licenses, permits, franchises, patents, copyrights, trademarks and trade names, and other intellectual property (or otherwise possesses 42 the right to use such intellectual property without violation of the rights of any other Person) which are necessary to carry out its business as presently conducted and as presently proposed to be conducted hereafter, and no Restricted Person is in violation in any material respect of the terms under which it possesses such intellectual property or the right to use such intellectual property. Section 5.17. Government Regulation. Neither Borrower nor any other Restricted Person owing Obligations is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Investment Company Act of 1940 (as any of the preceding acts have been amended) or any other Law which regulates the incurring by such Person of Indebtedness, including Laws relating to common contract carriers or the sale of electricity, gas, steam, water or other public utility services. Section 5.18. Insider. No Restricted Person, nor any Person having "control" (as that term is defined in 12 U.S.C. (S) 375b(9) or in regulations promulgated pursuant thereto) of any Restricted Person, is a "director" or an "executive officer" or "principal shareholder" (as those terms are defined in 12 U.S.C. (S) 375b(8) or (9) or in regulations promulgated pursuant thereto) of any Lender, of a bank holding company of which any Lender is a Subsidiary or of any Subsidiary of a bank holding company of which any Lender is a Subsidiary. Section 5.19. Solvency. Upon giving effect to the issuance of the Notes, the execution of the Loan Documents by Borrower and each Guarantor and the consummation of the transactions contemplated hereby, Borrower and each Guarantor will be solvent (as such term is used in applicable bankruptcy, liquidation, receivership, insolvency or similar Laws). Section 5.20. Credit Arrangements. The Disclosure Schedule contains a complete and correct list, as of the date of this Agreement, of each credit agreement, loan agreement, indenture, purchase agreement, guaranty or other arrangement providing for or otherwise relating to any Indebtedness or any extension of credit (or commitment for any extension of credit) to, or guaranty by, any Restricted Person, or to which any Restricted Person is subject, other than the Loan Documents, and the aggregate principal or face amount outstanding or which may become outstanding under each such arrangement is correctly described in the Disclosure Schedule. No Restricted Person is subject to any restriction under any credit agreement, loan agreement, indenture, purchase agreement, guaranty or other arrangement providing for or otherwise relating to any Indebtedness or any extension of credit (or commitment for any extension of credit) to, or guaranty by, any Affiliate other than the Resources Indenture. Section 5.21. Year 2000. (a) Borrower and Resources have (i) begun analyzing the operations of Restricted Persons and their Subsidiaries and Affiliates that could be adversely affected by failure to be become Year 2000 compliant (that is, that computer applications, imbedded microchips and other systems will be able to perform date-sensitive functions prior to and after December 31, 1999) and (ii) developed a plan for becoming Year 2000 compliant in a timely manner, the implementation of which is on schedule in all material respects. Borrower and Resources reasonably believe that Restricted Persons and their Affiliates will become Year 2000 compliant 43 for their operations on a timely basis except to the extent that a failure to do so could not reasonably be expected to cause a Material Adverse Change. (b) Borrower and Resources reasonably believe any suppliers and vendors that are material to the operations of Borrower or its Subsidiaries and Affiliates will be Year 2000 compliant for their own computer applications except to the extent that a failure to do so could not reasonably be expected to cause a Material Adverse Change. ARTICLE VI - Affirmative Covenants of Borrower To conform with the terms and conditions under which each Lender is willing to have credit outstanding to Borrower, and to induce each Lender to enter into this Agreement and extend credit hereunder, Borrower covenants and agrees that until the full and final payment of the Obligations and the termination of this Agreement, unless Majority Lenders, or all Lenders as required under Section 10.1, have previously agreed otherwise: Section 6.1. Payment and Performance. Each Restricted Person will pay all amounts due under the Loan Documents, to which it is party, in accordance with the terms thereof and will observe, perform and comply with every covenant, term and condition expressed in the Loan Documents to which it is a party. Section 6.2. Books, Financial Statements and Reports. Each Restricted Person will at all times maintain full and accurate books of account and records. Borrower will maintain and will cause its Subsidiaries to maintain a standard system of accounting, will maintain its Fiscal Year, and will furnish the following statements and reports to each Lender at Borrower's expense: (a) As soon as available, and in any event within one hundred twenty (120) days after the end of each Fiscal Year (i) complete Consolidated financial statements of Borrower together with all notes thereto, prepared in reasonable detail in accordance with GAAP, together with an unqualified opinion, based on an audit using generally accepted auditing standards, by PriceWaterhouse Coopers, or other independent certified public accountants selected by Borrower and acceptable to Majority Lenders, stating that such Consolidated financial statements have been so prepared and (ii) supporting unaudited consolidating balance sheets and statements of income of Borrower. These financial statements shall contain a Consolidated and consolidating balance sheet as of the end of such Fiscal Year and Consolidated and consolidating statements of earnings for such Fiscal Year, each setting forth in comparative form the corresponding figures for the preceding Fiscal Year. In addition, within one hundred twenty (120) days after the end of each Fiscal Year Borrower will furnish a certificate signed by such accountants (i) stating that they have read this Agreement, (ii) containing calculations showing compliance (or non-compliance) at the end of such Fiscal Year with the Financial Conditions and requirements of Sections 7.8 through 7.11, inclusive, and (iii) further stating that in making their examination and reporting on the Consolidated financial statements described above they obtained no knowledge of any Default existing at the end of such Fiscal Year, 44 or, if they did so conclude that a Default existed, specifying its nature and period of existence. (b) As soon as available, and in any event within thirty-five (35) days after the end of each month, other than the last month of a Fiscal Year (i) Borrower's Consolidated balance sheet as of the end of such month and Consolidated statements of Borrower's earnings and cash flows for such month and for the period from the beginning of the then current Fiscal Year to the end of such month, and (ii) unaudited supporting consolidating balance sheets and statements of income of Borrower, all in reasonable detail and prepared in accordance with GAAP (but without footnotes), subject to changes resulting from normal year-end adjustments, and as soon as available, and in any event within thirty-five (35) days after the end of the last month of each Fiscal Year, Borrower's unaudited Consolidated balance sheet as of the end of such month and income statement for such month and for the period from the beginning of the current Fiscal Year to the end of such month. In addition Borrower will, together with each such set of financial statements and each set of financial statements furnished under subsection (a) of this section, furnish a certificate in the form of Exhibit F signed by the chief financial officer or the principal accounting officer of Borrower stating that such financial statements are accurate and complete in all material respects (subject to normal year-end adjustments), stating that he has reviewed the Loan Documents, containing calculations showing compliance (or non-compliance) at the end of such month with the Financial Conditions and requirements of Sections 7.8 through 7.11, inclusive and stating that no Default exists at the end of such month or at the time of such certificate or specifying the nature and period of existence of any such Default. (c) As soon as available, and in any event within ninety (90) days after the end of each Fiscal Year, complete Consolidated financial statements of Resources together with all notes thereto, prepared in reasonable detail in accordance with GAAP, together with an unqualified opinion, based on an audit using generally accepted auditing standards, by Price Waterhouse, or other independent certified public accountants selected by Resources and acceptable to Majority Lenders, stating that such Consolidated financial statements have been so prepared. These financial statements shall contain a Consolidated balance sheet as of the end of such Fiscal Year and Consolidated statements of earnings, of cash flows, and of changes in owners' equity for such Fiscal Year, each setting forth in comparative form the corresponding figures for the preceding Fiscal Year. (d) As soon as available, and in any event within forty-five (45) days after the end of each of the first three Fiscal Quarters of each Fiscal Year Resources' Consolidated balance sheet as of the end of such Fiscal Quarter and Consolidated statements of Resources' earnings and cash flows for such Fiscal Quarter and for the period from the beginning of the then current Fiscal Year to the end of such Fiscal Quarter, all in reasonable detail and prepared in accordance with GAAP, subject to changes resulting from normal year-end adjustments. (e) Promptly upon their becoming available, copies of all financial statements, reports, notices and proxy statements sent by Resources to its stockholders and all 45 registration statements, periodic reports and other statements and schedules filed by Resources with any securities exchange, the Securities and Exchange Commission or any similar governmental authority. (f) As soon as available, and in any event within ninety (90) days after the end of each Fiscal Year, a business and financial plan for Borrower in form reasonably satisfactory to Administrative Agent, prepared by a senior financial officer thereof, setting forth for the first year thereof, quarterly financial projections and budgets for Borrower, and thereafter yearly financial projections and budgets during the Commitment Period. (g) On the twenty-sixth (26th) day of each calendar month, a Borrowing Base Report in the form of Exhibit H duly completed by an authorized officer of Borrower and conforming with the requirements of Section 2.13. (h) On the twenty-sixth (26th) day of each calendar month, a Borrowing Base Report in the form of Exhibit H duly completed by an authorized officer of Borrower and including a statement reconciliating such report with the Borrowing Base Report delivered on the 26th day of the preceding calendar month. (i) As soon as available, and in any event within thirty-five (35) days after the end of each calendar month, a report setting forth for such month aggregate volumes and margins for all marketing activities of Borrower and its Subsidiaries. (j) As soon as available, and in any event within thirty (30) days after the end of each Fiscal Year, Borrower at its own cost and expense shall deliver to Administrative Agent an environmental compliance certificate signed by the president or chief executive officer of Borrower in the form attached hereto as Exhibit I. Further, if requested by Administrative Agent, Borrower shall permit and cooperate with an environmental and safety review made in connection with the operations of Borrower's properties one time during each Fiscal Year beginning with the Fiscal Year 1999, by Pilko & Associates, Inc. or other consultants selected by Administrative Agent which review shall, if requested by Administrative Agent, be arranged and supervised by environmental legal counsel for Administrative Agent, all at Borrower's cost and expense. The consultant shall render a verbal or written report, as specified by Administrative Agent, based upon such review at Borrower's cost and expense and a copy thereof will be provided to Borrower. (k) Concurrently with the annual renewal of Borrower's insurance policies, Borrower shall at its own cost and expense, if requested by Administrative Agent in writing, cause a certificate or report to be issued by Administrative Agent's professional insurance consultants or other insurance consultants satisfactory to Administrative Agent certifying that Borrower's insurance for the next succeeding year after such renewal (or for such longer period for which such insurance is in effect) complies with the provisions of this Agreement and the Security Documents. Section 6.3. Other Information and Inspections. In each case subject to the last sentence of this Section 6.3, each Restricted Person will furnish to each Lender any information which 46 Administrative Agent or any Lender may from time to time request concerning any covenant, provision or condition of the Loan Documents or any matter in connection with Restricted Persons' businesses and operations. In each case subject to the last sentence of this Section 6.3, each Restricted Person will permit representatives appointed by Administrative Agent (including independent accountants, auditors, agents, attorneys, appraisers and any other Persons) to visit and inspect during normal business hours any of such Restricted Person's property, including its books of account, other books and records, and any facilities or other business assets, and to make extra copies therefrom and photocopies and photographs thereof, and to write down and record any information such representatives obtain, and each Restricted Person shall permit Administrative Agent or its representatives to investigate and verify the accuracy of the information furnished to Administrative Agent or any Lender in connection with the Loan Documents and to discuss all such matters with its officers, employees and, upon prior notice to Borrower, its representatives. Each of the foregoing inspections shall be made subject to compliance with applicable safety standards and the same conditions applicable to any Restricted Person in respect of property of that Restricted Person on the premises of Persons other than a Restricted Person or an Affiliate of a Restricted Person, and all information, books and records furnished or requested to be furnished, or of which copies, photocopies or photographs are made or requested to be made, all information to be investigated or verified and all discussions conducted with any officer, employee or representative of any Restricted Person shall be subject to any applicable attorney-client privilege exceptions which the Restricted Person determines is reasonably necessary and compliance with conditions to disclosures under non-disclosure agreements between any Restricted Person and Persons other than a Restricted Person or an Affiliate of a Restricted Person and the express undertaking of each Person acting at the direction of or on behalf of any Lender Party to be bound by the confidentiality provisions of Section 10.6 of this Agreement. Section 6.4. Notice of Material Events and Change of Address. Borrower will notify each Lender Party, not later than five (5) Business Days after any executive officer of Borrower has knowledge thereof, stating that such notice is being given pursuant to this Agreement, of: (a) the occurrence of any Material Adverse Change, (b) the occurrence of any Default, (c) the acceleration of the maturity of any Indebtedness owed by any Restricted Person or of any default by any Restricted Person under any indenture, mortgage, agreement, contract or other instrument to which any of them is a party or by which any of them or any of their properties is bound, if such acceleration or default could cause a Material Adverse Change, (d) the occurrence of any Termination Event, (e) the failure to comply on any day with any Financial Condition, (f) any claim of $1,000,000 or more, any notice of potential liability under any Environmental Laws which might be reasonably likely to exceed such amount, or any 47 other material adverse claim asserted against any Restricted Person or with respect to any Restricted Person's properties taken as a whole, and (g) the filing of any suit or proceeding against any Restricted Person in which an adverse decision could cause a Material Adverse Change. Upon the occurrence of any of the foregoing, Restricted Persons will take all necessary or appropriate steps to remedy promptly any such Material Adverse Change, Default, acceleration, default, Termination Event or failure to comply with any Financial Condition, to protect against any such adverse claim, to defend any such suit or proceeding, and to resolve all controversies on account of any of the foregoing. Borrower will also notify Administrative Agent and Administrative Agent's counsel in writing at least twenty Business Days prior to the date that any Restricted Person changes its name or the location of its chief executive office or principal place of business or the place where it keeps its books and records concerning the Collateral, furnishing with such notice any necessary financing statement amendments or requesting Administrative Agent and its counsel to prepare the same. Borrower will promptly notify Administrative Agent in the event Borrower determines that any computer application which is material to the operations of Borrower, its Subsidiaries, its Affiliates or any of its material vendors or suppliers will not be fully Year 2000 compliant on a timely basis, except to the extent that such failure could not reasonably be expected to cause a Material Adverse Change. Section 6.5. Maintenance of Properties. Each Restricted Person will maintain, preserve, protect, and keep all Collateral and all other property used or useful in the conduct of its business in good condition (ordinary wear and tear excepted) and in compliance with all applicable Laws, and will from time to time make all repairs, renewals and replacements needed to enable the business and operations carried on in connection therewith to be promptly and advantageously conducted at all times. Section 6.6. Maintenance of Existence and Qualifications. Each Restricted Person will maintain and preserve its existence and its rights and franchises in full force and effect and will qualify to do business in all states or jurisdictions where required by applicable Law, except where the failure so to qualify will not cause a Material Adverse Change. Section 6.7. Payment of Trade Liabilities, Taxes, etc. Each Restricted Person will (a) timely file all required tax returns including any extensions; (b) timely pay all taxes, assessments, and other governmental charges or levies imposed upon it or upon its income, profits or property; (c) within one hundred twenty (120) days after the date such goods are delivered or such services are rendered, pay all Liabilities owed by it on ordinary trade terms to vendors, suppliers and other Persons providing goods and services used by it in the ordinary course of its business; (d) pay and discharge when due all other Liabilities now or hereafter owed by it; and (e) maintain appropriate accruals and reserves for all of the foregoing in accordance with GAAP. Each Restricted Person may, however, delay paying or discharging any of the foregoing so long as it is in good faith contesting the validity thereof by appropriate proceedings, if necessary, and has set aside on its books adequate reserves therefor which are required by GAAP. 48 Section 6.8. Insurance. Each Restricted Person shall at all times maintain insurance for its property in accordance with the Insurance Schedule which insurance shall be by financially sound and reputable insurers. Borrower will maintain any additional insurance coverage as described in the respective Security Documents. Upon demand by Administrative Agent any insurance policies covering Collateral shall be endorsed (a) to provide for payment of losses to Administrative Agent as its interests may appear, (b) to provide that such policies may not be canceled or reduced or affected in any material manner for any reason without fifteen days prior notice to Administrative Agent, and (c) to provide for any other matters specified in any applicable Security Document or which Administrative Agent may reasonably require. Each Restricted Person shall at all times maintain insurance against its liability for injury to persons or property in accordance with the Insurance Schedule, which insurance shall be by financially sound and reputable insurers. Without limiting the foregoing, each Restricted Person shall at all time maintain liability insurance in accordance with the Insurance Schedule. Section 6.9. Performance on Borrower's Behalf. If any Restricted Person fails to pay any taxes, insurance premiums, expenses, attorneys' fees or other amounts it is required to pay under any Loan Document, Administrative Agent may pay the same after notice of such payment by Administrative Agent is given to Borrower. Borrower shall immediately reimburse Administrative Agent for any such payments and each amount paid by Administrative Agent shall constitute an Obligation owed hereunder which is due and payable on the date such amount is paid by Administrative Agent. Section 6.10. Interest. Borrower hereby promises to each Lender to pay interest at the Default Rate on all Obligations (including Obligations to pay fees or to reimburse or indemnify any Lender) which Borrower has in this Agreement promised to pay to such Lender and which are not paid when due. Such interest shall accrue from the date such Obligations become due until they are paid. Section 6.11. Compliance with Agreements and Law. Each Restricted Person will perform all material obligations it is required to perform under the terms of each indenture, mortgage, deed of trust, security agreement, lease, and franchise, and each material agreement, contract or other instrument or obligation to which it is a party or by which it or any of its properties is bound. Each Restricted Person will conduct its business and affairs in compliance with all Laws applicable thereto. Section 6.12. Environmental Matters; Environmental Reviews. (a) Each Restricted Person will comply in all material respects with all Environmental Laws now or hereafter applicable to such Restricted Person as well as all contractual obligations and agreements with respect to environmental remediation or other environmental matters and shall obtain, at or prior to the time required by applicable Environmental Laws, all environmental, health and safety permits, licenses and other authorizations necessary for its operations and will maintain such authorizations in full force and effect. (b) Borrower will promptly furnish to Administrative Agent all written notices of violation, orders, claims, citations, complaints, penalty assessments, suits or other proceedings 49 received by Borrower, or of which it has notice, pending or threatened against Borrower, the potential liability of which exceeds $1,000,000 or would cause a Material Adverse Change if resolved adversely against Borrower, by any governmental authority with respect to any alleged violation of or non- compliance with any Environmental Laws or any permits, licenses or authorizations in connection with its ownership or use of its properties or the operation of its business. (c) Borrower will promptly furnish to Administrative Agent all requests for information, notices of claim, demand letters, and other notifications, received by Borrower in connection with its ownership or use of its properties or the conduct of its business, relating to potential responsibility with respect to any investigation or clean-up of Hazardous Material at any location, the potential liability of which exceeds $1,000,000 or would cause a Material Adverse Change if resolved adversely against Borrower. Section 6.13. Evidence of Compliance. Subject to the last sentence of Section 6.3, each Restricted Person will furnish to each Lender at such Restricted Person's or Borrower's expense all evidence which Administrative Agent from time to time reasonably requests in writing as to the accuracy and validity of or compliance with all representations, warranties and covenants made by any Restricted Person in the Loan Documents, the satisfaction of all conditions contained therein, and all other matters pertaining thereto. Section 6.14. Agreement to Deliver Security Documents. Borrower agrees to deliver and to cause each other Restricted Person to deliver, to further secure the Obligations whenever requested by Administrative Agent in its sole and absolute discretion, deeds of trust, mortgages, chattel mortgages, security agreements, financing statements and other Security Documents in form and substance satisfactory to Administrative Agent for the purpose of granting, confirming, and perfecting first and prior liens or security interests in any real or personal property now owned or hereafter acquired by any Restricted Person. Section 6.15. Perfection and Protection of Security Interests and Liens. Borrower will from time to time deliver, and will cause each other Restricted Person from time to time to deliver, to Administrative Agent any financing statements, continuation statements, extension agreements and other documents, properly completed and executed (and acknowledged when required) by Restricted Persons in form and substance satisfactory to Administrative Agent, which Administrative Agent requests for the purpose of perfecting, confirming, or protecting any Liens or other rights in Collateral securing any Obligations. Section 6.16. Bank Accounts; Offset. To secure the repayment of the Obligations Borrower hereby grants to each Lender a security interest, a lien, and a right of offset, each of which shall be in addition to all other interests, liens, and rights of any Lender at common Law, under the Loan Documents, or otherwise, and each of which shall be upon and against (a) any and all moneys, securities or other property (and the proceeds therefrom) of Borrower now or hereafter held or received by or in transit to any Lender from or for the account of Borrower, whether for safekeeping, custody, pledge, transmission, collection or otherwise, (b) any and all deposits (general or special, time or demand, provisional or final) of Borrower with any Lender, and (c) any other credits and claims of Borrower at any time existing against any Lender, 50 including claims under certificates of deposit. At any time and from time to time during the continuance of any Event of Default, each Lender is hereby authorized to foreclose upon, or to offset against the Obligations then due and payable (in either case without notice to Borrower), any and all items hereinabove referred to. The remedies of foreclosure and offset are separate and cumulative, and either may be exercised independently of the other without regard to procedures or restrictions applicable to the other. Section 6.17. Guaranties of Borrower's Subsidiaries. Each Subsidiary of Borrower now existing or created, acquired or coming into existence after the date hereof shall, promptly upon request by Administrative Agent, execute and deliver to Administrative Agent an absolute and unconditional guaranty of the timely repayment of the Obligations and the due and punctual performance of the obligations of Borrower hereunder, which guaranty shall be satisfactory to Administrative Agent in form and substance. Each Subsidiary of Borrower existing on the date hereof shall duly execute and deliver such a guaranty prior to the making of any Loan hereunder. Borrower will cause each of its Subsidiaries to deliver to Administrative Agent, simultaneously with its delivery of such a guaranty, written evidence satisfactory to Administrative Agent and its counsel that such Subsidiary has taken all corporate or partnership action necessary to duly approve and authorize its execution, delivery and performance of such guaranty and any other documents which it is required to execute. Section 6.18. Compliance with Agreements. Each Restricted Person shall observe, perform or comply with any agreement with any Person or any term or condition of any instrument, if such agreement or instrument is materially significant to Borrower or to Borrower and its Subsidiaries on a Consolidated basis or materially significant to any Guarantor, and such failure is not remedied within the applicable period of grace (if any) provided in such agreement or instrument. ARTICLE VII - Negative Covenants of Borrower To conform with the terms and conditions under which each Lender is willing to have credit outstanding to Borrower, and to induce each Lender to enter into this Agreement and make the Loans, Borrower covenants and agrees that until the full and final payment of the Obligations and the termination of this Agreement, unless Majority Lenders, or all Lenders as required under Section 10.1, have previously agreed otherwise: Section 7.1. Indebtedness. No Restricted Person will in any manner owe or be liable for Indebtedness except: (a) the Obligations. (b) unsecured Indebtedness owed by a Restricted Person to (i) another Restricted Person or (ii) Resources, in either case arising in the ordinary course of business. (c) Indebtedness arising under Hedging Contracts provided that: (i) all such contracts are entered into with the purpose and effect of fixing prices on crude oil (A) purchased or under 51 contract for purchase by a Restricted Person for which such Restricted Person does not have a contract to sell at a fixed price or (B) sold by a Restricted Person for which such Restricted Person does not have a contract to purchase at a fixed price, in each case entered into the ordinary course of its marketing businesses; and (ii no such contract has a term of more than 12 months from the date of its making (or most recent renewal). (d) Guaranties of the Indebtedness under the Resources Credit Agreement. (e) Guaranties of Indebtedness under the Resources Indentures. (f) Liabilities with respect to obligations to deliver crude oil or to render terminaling or storage services in consideration for advance payments to a Restricted Person provided such delivery or rendering, as applicable, is to be made within 60 days after such payment. (g) Operating leases, provided that the annual rentals and other obligations thereunder in the aggregate do not exceed $500,000. (h) Indebtedness existing on the date of this Agreement and listed on the Disclosure Schedule. (i) Indebtedness incurred by PTTC (i) to pay or refinance the cost of acquisition, expansion and/or construction incurred after the date of this Agreement (or prior to the date of this Agreement and listed on the Disclosure Schedule) of new facilities to be owned and operated by PTTC, which facilities are completed or placed in operation (whichever is later) after the date of this Agreement, provided that the principal amount of such Indebtedness does not exceed the aggregate amount of such costs, and (ii) for renewals, extensions and refinancing of such Indebtedness, provided that each such renewal, extension or refinancing is not in excess of such principal amount. (j) other Indebtedness not to exceed the aggregate principal amount of $1,000,000 at any one time. Section 7.2. Limitation on Liens. No Restricted Person will create, assume or permit to exist (i) any Lien upon any Collateral except (A) Permitted Inventory Liens, (B) Liens created pursuant to the Security Documents, (C) statutory Liens in respect of First Purchase Crude Payables, (D) Liens of the type described in clause (e) below in connection with any Eligible Margin Deposit to secure Hedging Contracts permitted under Section 7.1 with the broker that is the holder of such Eligible Margin Deposit, and (E) any other Liens expressly permitted to encumber such Collateral under any Security Document covering such Collateral or (ii) any Lien upon any of the properties or assets other than Collateral (except as provided in the preceding clause (i)) which it now owns or hereafter acquires except the following (Liens, to the extent permitted by this Section, herein called "Permitted Liens"): (a) Liens existing on the date of this Agreement and listed in the Disclosure Schedule; 52 (b) Liens imposed by any governmental authority for taxes, assessments or charges not yet due or the validity of which is being contested in good faith and by appropriate proceedings, if necessary, for which adequate reserves are maintained on the books of any Restricted Person in accordance with GAAP; (c) pledges or deposits under worker's compensation, unemployment insurance or other social security legislation; (d) carriers', warehousemen's, mechanics', materialmen's, repairmen's, landlord's, or other like Liens (including, without limitation, Liens on property in the possession of storage facilities, pipelines or barges) arising in the ordinary course of business for amounts which are not more than 60 days past due or the validity of which is being contested in good faith and by appropriate proceedings, if necessary, and for which adequate reserves are maintained on the books of any Restricted Person in accordance with GAAP; (e) Liens under or with respect to accounts with brokers or counterparties with respect to Hedging Contracts consisting of cash, commodities or futures contracts, options, securities, instruments, and other like assets securing only Hedging Contracts permitted under Section 7.1; (f) deposits of cash or securities to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (g) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business and encumbrances consisting of zoning restrictions, easements, licenses, restrictions on the use of real property or minor imperfections in title thereto which, in the aggregate, are not material in amount, and which do not in any case materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of any Restricted Person; (h) Liens in respect of operating leases as permitted under Section 7.1(g) hereof; (i) rights reserved to or vested in any governmental authority by the terms of any right, power, franchise, grant, license or permit, or by any provision of law, to revoke or terminate any such right, power, franchise, grant, license or permit or to condemn or acquire by eminent domain or similar process; (j) rights reserved to or vested by Law in any governmental authority to in any manner, control or regulate in any manner any of the properties of any Restricted Person or the use thereof or the rights and interests of any Restricted Person therein, in any manner under any and all Laws; (k) rights reserved to the grantors of any properties of any Restricted Person, and the restrictions, conditions, restrictive covenants and limitations, in respect thereto, pursuant to the terms, conditions and provisions of any rights-of-way agreements, contracts or other agreements therewith; and 53 (l) Inchoate Liens in respect of pending litigation or with respect to a judgment which has not resulted in an Event of Default under Section 8.1. (m) Liens securing Indebtedness of PTTC incurred under Section 7.1(i), provided that such Liens attach only to the new facilities so acquired and/or constructed with such Indebtedness and any easements or licences necessary for the use thereof. Section 7.3. Limitation on Mergers, Issuances of Securities. Except as expressly provided in this section, no Restricted Person will (a) enter into any transaction of merger or consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), (b) acquire any business or property from, or capital stock of, or be a party to any acquisition of, any Person except for purchases of inventory and other property to be sold or used in the ordinary course of business and Investments permitted under Section 7.5 hereof or (c) sell, transfer, lease, exchange, alienate or otherwise dispose of, in one transaction or a series of transactions, any part of its business or property, whether now owned or hereafter acquired, except for sales or transfers not prohibited by under Section 7.4 hereof. Any Subsidiary of Borrower may, however, be merged into or consolidated with (i) another Subsidiary of Borrower, so long as a Guarantor is the surviving business entity, or (ii) Borrower, so long as Borrower is the surviving business entity. Borrower will not issue any securities other than shares of its common or preferred stock and any options or warrants giving the holders thereof only the right to acquire such shares. No Subsidiary of Borrower will issue any additional shares of its capital stock or other securities or any options, warrants or other rights to acquire such additional shares or other securities except to Borrower or to wholly-owned Subsidiary of Borrower. No Subsidiary of Borrower which is a partnership will allow any diminution of Borrower's interest (direct or indirect) therein. Section 7.4. Limitation on Sales of Property. No Restricted Person will sell, transfer, lease, exchange, alienate or dispose of any Collateral or any of its material assets or properties or any material interest therein except (a) equipment which is (i) worthless, (ii) obsolete, (iii) replaced by equipment acquired or leased by such Restricted Person of equal suitability and value, or (iv) otherwise no longer used or useful in the ordinary course of business of such Restricted Person and (b) inventory which is sold or facilities which are leased in the ordinary course of business on ordinary trade terms. No Restricted Person will sell, transfer or otherwise dispose of capital stock of or interest in any of the Restricted Persons except as permitted by Section 7.3. No Restricted Person will discount, sell, pledge or assign any notes payable to it, accounts receivable or future income. Section 7.5. Limitation on Investments and New Businesses. No Restricted Person will (a) make any expenditure or commitment or incur any obligation or enter into or engage in any transaction except in the ordinary course of business, (b) engage directly or indirectly in any business or conduct any operations except in connection with or incidental to its present businesses and operations, (c) make any acquisitions of or capital contributions to or other Investments in any Person, other than Permitted Investments, or (d) make any significant acquisitions or Investments in any properties other than crude oil in the ordinary course of its business and other property to be used in the ordinary course of its business. 54 Section 7.6. Limitation on Credit Extensions. Except for Permitted Investments, no Restricted Person will extend credit, make advances or make loans other than normal and prudent extensions of credit to customers buying goods and services in the ordinary course of business, which extensions shall not be for longer periods than those extended by similar businesses operated in a normal and prudent manner. Section 7.7. Transactions with Affiliates. No Restricted Person will engage in any material transaction with any of its Affiliates except: (a) transactions among Borrower and its wholly owned Subsidiaries, (b) transactions governed by the Affiliate Agreements, (c) transactions entered into in the ordinary course of business of such Restricted Person on terms which are no less favorable to such Restricted Person than those which would have been obtainable at the time in arm's-length transactions with Persons other than such Affiliates ("market terms"), (d) transactions consisting of crude oil marketing services by Borrower with respect to crude oil produced from wells operated by Resources or any of its Subsidiaries either (i) on market terms or (ii) on terms which are less favorable to Borrower than market terms but which are not burdensome to Borrower and do not and will not result in a loss to Borrower, and (e) transactions between Borrower and PTTC which are less favorable to PTTC than market terms. Section 7.8. Limitations on Capital Expenditures. Borrower shall not make any capital expenditures other than (i) capital expenditures not to exceed the aggregate amount of $3,000,000 in any Fiscal Year for tangible assets of a business, division or line from one or more Persons other than an Affiliate, and (ii) capital expenditures not to exceed the aggregate amount of $2,000,000 in any Fiscal Year for any purposes other than in the foregoing clause (i). Section 7.9. Open Inventory Position. Borrower shall not at any time have an open inventory position greater than 600,000 barrels. Section 7.10. Fixed Charges Coverage Ratio. At the end of any Fiscal Quarter, the ratio of (i) Consolidated EBITDA for the four consecutive Fiscal Quarters ending with such Fiscal Quarter to (ii) Fixed Charges for such period will not be less than 1.05 to 1.0. Section 7.11. Solvency. On each day, Consolidated Net Worth will not be less than zero. Section 7.12. Prohibited Contracts. Except as expressly provided for in the Loan Documents, no Restricted Person will, directly or indirectly, enter into, create, or otherwise allow to exist any contract or other consensual restriction on the ability of any Subsidiary of Borrower to: (a) pay dividends or make other distributions to Borrower, (b) redeem equity interests held in it by Borrower, (c) repay loans and other indebtedness owing by it to Borrower, or (d) transfer any of its assets to Borrower. No Restricted Person will enter into any "take-or-pay" contract or other contract or arrangement for the purchase of goods or services which obligates it to pay for such goods or service regardless of whether they are delivered or furnished to it. No Restricted Persons will amend, modify or release any of the Affiliate Agreements. No Restricted Person will amend or permit any amendment to any contract or lease which releases, qualifies, limits, makes contingent or otherwise detrimentally affects the rights and benefits of Administrative Agent or any Lender under or acquired pursuant to any Security Documents. No ERISA Affiliate will 55 incur any obligation to contribute to any "multiemployer plan" as defined in Section 4001 of ERISA that is subject to Title IV of ERISA. Section 7.13. No Limitation of Certain Payment. Nothing contained in this Agreement or any other Loan Document shall restrict, directly or indirectly, the ability of any Restricted Person to pay dividends or make other distributions on its capital stock or make payments on any Indebtedness owed to, make loans or advances to, or transfer property to Resources or any of its Subsidiaries, or to receive or retain any such dividends, distributions or payments, loans or advances, or transfers of property, and the provisions of this covenant shall supersede all other provisions of this Agreement which may be in conflict with it, including without limitation, the final sentence of Section 10.2. ARTICLE VIII - Events of Default and Remedies Section 8.1. Events of Default. Each of the following events constitutes an Event of Default under this Agreement: (a) Any Restricted Person or Resources fails to pay the principal component of any Loan or any reimbursement obligation with respect to any Letter of Credit when due and payable, whether at a date for the payment of a fixed installment or as a contingent or other payment becomes due and payable or as a result of acceleration or otherwise; (b) Any Restricted Person or Resources fails to pay any Obligation (other than the Obligations in subsection (a) above) when due and payable, whether at a date for the payment of a fixed installment or as a contingent or other payment becomes due and payable or as a result of acceleration or otherwise, within three Business Days after the same becomes due; (c) Any event defined as a "default" or "event of default" in any Loan Document occurs, and the same is not remedied within the applicable period of grace (if any) provided in such Loan Document; (d) Any Restricted Person fails to duly observe, perform or comply with any covenant, agreement or provision of Section 6.4 or Article VII; (e) Any Restricted Person or Resources fails (other than as referred to in subsections (a), (b), (c) or (d) above) to duly observe, perform or comply with any covenant, agreement, condition or provision of any Loan Document to which it is a party, and such failure remains unremedied for a period of thirty (30) days after notice of such failure is given by Administrative Agent to Borrower; (f) Any representation or warranty previously, presently or hereafter made in writing by or on behalf of any Restricted Person or Resources in connection with any Loan Document shall prove to have been false or incorrect in any material respect on any date on or as of which made, or any Loan Document at any time ceases to be valid, binding and enforceable as warranted in Section 5.5 for any reason other than its release or subordination by Administrative Agent; 56 (g) Any Restricted Person or Resources shall default in the payment when due of any principal of or interest on any of its other Indebtedness in excess of the Resources Default Threshold in the case of Resources or $1,000,000 in the aggregate in the case of any Restricted Person (other than Indebtedness the validity of which is being contested in good faith by appropriate proceedings and for which adequate reserves with respect thereto are maintained on the books of Resources or such Restricted Person in accordance with GAAP), or any event specified in any note, agreement, indenture or other document evidencing or relating to any such Indebtedness shall occur if the effect of such event is to cause, or (with the giving of any notice or the lapse of time or both) to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, such Indebtedness to become due, or to be prepaid in full (whether by redemption, purchase, offer to purchase or otherwise), prior to its stated maturity; (h) Either (i) any "accumulated funding deficiency" (as defined in Section 412(a) of the Code) in excess of $500,000 exists with respect to any ERISA Plan, whether or not waived by the Secretary of the Treasury or his delegate, or (ii any Termination Event occurs with respect to any ERISA Plan and the then current value of such ERISA Plan's benefit liabilities exceeds the then current value of such ERISA Plan's assets available for the payment of such benefit liabilities by more than $500,000 (or in the case of a Termination Event involving the withdrawal of a substantial employer, the withdrawing employer's proportionate share of such excess exceeds such amount); (i) Any PAAI Company, any Restricted Person, or Resources: (i) has entered against it of a judgment, decree or order for relief by a Tribunal of competent jurisdiction in an involuntary proceeding commenced under any applicable bankruptcy, insolvency or other similar Law of any jurisdiction now or hereafter in effect, including the federal Bankruptcy Code, as from time to time amended, or has any such proceeding commenced against it, in each case, which remains undismissed for a period of sixty days; or (ii) commences a voluntary case under any applicable bankruptcy, insolvency or similar Law now or hereafter in effect, including the federal Bankruptcy Code, as from time to time amended; or applies for or consents to the entry of an order for relief in an involuntary case under any such Law; or makes a general assignment for the benefit of creditors; or is generally unable to pay (or admits in writing its inability to so pay) its debts as such debts become due; or takes corporate or other action to authorize any of the foregoing; or (iii) has entered against it the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of all or a substantial part of its assets in a proceeding brought against or initiated by it, and such appointment or taking possession is neither made ineffective nor discharged within sixty days after the making thereof, or such appointment or taking possession is at any time consented to, requested by, or acquiesced to by it; or 57 (iv) has entered against it the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of any part of the Collateral of a value in excess of $1,000,000 in a proceeding brought against or initiated by it, and such appointment or taking possession is neither made ineffective nor discharged within sixty days after the making thereof, or such appointment or taking possession is at any time consented to, requested by, or acquiesced to by it; or (v) has entered against it a final judgment for the payment of money in excess of $1,000,000 (in each case not covered by insurance satisfactory to Administrative Agent in its discretion), unless the same is stayed or discharged within thirty days after the date of entry thereof or an appeal or appropriate proceeding for review thereof is taken within such period and a stay of execution pending such appeal is obtained; or (vi) suffers a writ or warrant of attachment or any similar process to be issued by any Tribunal against all or any substantial part of its assets or any part of the Collateral of a value in excess of $1,000,000, and such writ or warrant of attachment or any similar process is not stayed or released within thirty days after the entry or levy thereof or after any stay is vacated or set aside; (j) Any Change in Control occurs; or (k) Any Material Open Market Position Loss occurs. Upon the occurrence of an Event of Default described in subsection (i)(i), (i)(ii) or (i)(iii) of this section with respect to Borrower, all of the Obligations shall thereupon be immediately due and payable, without demand, presentment, notice of demand or of dishonor and nonpayment, protest, notice of protest, notice of intention to accelerate, declaration or notice of acceleration, or any other notice or declaration of any kind, all of which are hereby expressly waived by Borrower and each Restricted Person who at any time ratifies or approves this Agreement. Upon any such acceleration, any obligation of any Lender to make any further Loans and any obligation of LC Issuer to issue Letters of Credit hereunder shall be permanently terminated. During the continuance of any other Event of Default, Administrative Agent at any time and from time to time may (and upon written instructions from Majority Lenders, Administrative Agent shall), without notice to Borrower or any other Restricted Person, do either or both of the following: (1) terminate any obligation of Lenders to make Loans hereunder and any obligation of LC Issuer to issue Letters of Credit hereunder, and (2) declare any or all of the Obligations immediately due and payable, and all such Obligations shall thereupon be immediately due and payable, without demand, presentment, notice of demand or of dishonor and nonpayment, protest, notice of protest, notice of intention to accelerate, declaration or notice of acceleration, or any other notice or declaration of any kind, all of which are hereby expressly waived by Borrower and each Restricted Person who at any time ratifies or approves this Agreement. Section 8.2. Remedies. If any Default shall occur and be continuing, each Lender Party may protect and enforce its rights under the Loan Documents by any appropriate proceedings, including proceedings for specific performance of any covenant or agreement contained in any Loan Document, and each Lender Party may enforce the payment of any Obligations due it or 58 enforce any other legal or equitable right which it may have. All rights, remedies and powers conferred upon Lender Parties under the Loan Documents shall be deemed cumulative and not exclusive of any other rights, remedies or powers available under the Loan Documents or at Law or in equity. ARTICLE IX - Administrative Agent Section 9.1. Appointment and Authority. Each Lender Party hereby irrevocably authorizes Administrative Agent, and Administrative Agent hereby undertakes, to receive payments of principal, interest and other amounts due hereunder as specified herein and to take all other actions and to exercise such powers under the Loan Documents as are specifically delegated to Administrative Agent by the terms hereof or thereof, together with all other powers reasonably incidental thereto. The relationship of Administrative Agent to the other Lender Parties is only that of one commercial lender acting as administrative agent for others, and nothing in the Loan Documents shall be construed to constitute Administrative Agent a trustee or other fiduciary for any Lender Party or any holder of any participation in a Note nor to impose on Administrative Agent duties and obligations other than those expressly provided for in the Loan Documents. With respect to any matters not expressly provided for in the Loan Documents and any matters which the Loan Documents place within the discretion of Administrative Agent, Administrative Agent shall not be required to exercise any discretion or take any action, and it may request instructions from Lenders with respect to any such matter, in which case it shall be required to act or to refrain from acting (and shall be fully protected and free from liability to all Lender Parties in so acting or refraining from acting) upon the instructions of Majority Lenders (including itself), provided, however, that Administrative Agent shall not be required to take any action which exposes it to a risk of personal liability that it considers unreasonable or which is contrary to the Loan Documents or to applicable Law. Upon receipt by Administrative Agent from Borrower of any communication calling for action on the part of Lenders or upon notice from Borrower or any Lender to Administrative Agent of any Default or Event of Default, Administrative Agent shall promptly notify each other Lender thereof. Section 9.2. Exculpation, Administrative Agent's Reliance, Etc. Neither Administrative Agent nor any of its directors, officers, agents, attorneys, or employees shall be liable for any action taken or omitted to be taken by any of them under or in connection with the Loan Documents, INCLUDING THEIR NEGLIGENCE OF ANY KIND, except that each shall be liable for its own gross negligence or willful misconduct. Without limiting the generality of the foregoing, Administrative Agent (a) may treat the payee of any Note as the holder thereof until Administrative Agent receives written notice of the assignment or transfer thereof in accordance with this Agreement, signed by such payee and in form satisfactory to Administrative Agent; (b) may consult with legal counsel (including counsel for Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (c) makes no warranty or representation to any other Lender Party and shall not be responsible to any other Lender Party for any statements, warranties or representations made in or in connection with the Loan Documents; (d) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of the Loan Documents 59 on the part of any Restricted Person or to inspect the property (including the books and records) of any Restricted Person; (e) shall not be responsible to any other Lender Party for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of any Loan Document or any instrument or document furnished in connection therewith; (f) may rely upon the representations and warranties of each Restricted Person or Lender Party in exercising its powers hereunder; and (g) shall incur no liability under or in respect of the Loan Documents by acting upon any notice, consent, certificate or other instrument or writing (including any facsimile, telegram, cable or telex) believed by it to be genuine and signed or sent by the proper Person or Persons. Section 9.3. Credit Decisions. Each Lender Party acknowledges that it has, independently and without reliance upon any other Lender Party, made its own analysis of Borrower and the transactions contemplated hereby and its own independent decision to enter into this Agreement and the other Loan Documents. Each Lender Party also acknowledges that it will, independently and without reliance upon any other Lender Party and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents. Section 9.4. Indemnification. EACH LENDER AGREES TO INDEMNIFY ADMINISTRATIVE AGENT (TO THE EXTENT NOT REIMBURSED BY BORROWER WITHIN TEN (10) DAYS AFTER DEMAND) FROM AND AGAINST SUCH LENDER'S PERCENTAGE SHARE OF ANY AND ALL LIABILITIES, OBLIGATIONS, CLAIMS, LOSSES, DAMAGES, PENALTIES, FINES, ACTIONS, JUDGMENTS, SUITS, SETTLEMENTS, COSTS, EXPENSES OR DISBURSEMENTS (INCLUDING REASONABLE FEES OF ATTORNEYS, ACCOUNTANTS, EXPERTS AND ADVISORS) OF ANY KIND OR NATURE WHATSOEVER (IN THIS SECTION COLLECTIVELY CALLED "LIABILITIES AND COSTS") WHICH TO ANY EXTENT (IN WHOLE OR IN PART) MAY BE IMPOSED ON, INCURRED BY, OR ASSERTED AGAINST ADMINISTRATIVE AGENT GROWING OUT OF, RESULTING FROM OR IN ANY OTHER WAY ASSOCIATED WITH ANY OF THE COLLATERAL, THE LOAN DOCUMENTS AND THE TRANSACTIONS AND EVENTS (INCLUDING THE ENFORCEMENT THEREOF) AT ANY TIME ASSOCIATED THEREWITH OR CONTEMPLATED THEREIN (WHETHER ARISING IN CONTRACT OR IN TORT OR OTHERWISE AND INCLUDING ANY VIOLATION OR NONCOMPLIANCE WITH ANY ENVIRONMENTAL LAWS BY ANY PERSON OR ANY LIABILITIES OR DUTIES OF ANY PERSON WITH RESPECT TO HAZARDOUS MATERIALS FOUND IN OR RELEASED INTO THE ENVIRONMENT). THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY OR CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY ADMINISTRATIVE AGENT, provided only that no Lender shall be obligated under this section to indemnify Administrative Agent for that portion, if any, of any liabilities and costs which is proximately caused by Administrative Agent's own individual gross negligence or willful misconduct, as determined in a final judgment. Cumulative of the foregoing, each Lender agrees to reimburse Administrative 60 Agent promptly upon demand for such Lender's Percentage Share of any costs and expenses to be paid to Administrative Agent by Borrower under Section 10.4(a) to the extent that Administrative Agent is not timely reimbursed for such expenses by Borrower as provided in such section. As used in this section the term "Administrative Agent" shall refer not only to the Person designated as such in Section 1.1 but also to each director, officer, agent, attorney, employee, representative and Affiliate of such Person. Section 9.5. Rights as Lender. In its capacity as a Lender, Administrative Agent shall have the same rights and obligations as any Lender and may exercise such rights as though it were not Administrative Agent. Administrative Agent may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with any Restricted Person or their Affiliates, all as if it were not Administrative Agent hereunder and without any duty to account therefor to any other Lender. Section 9.6. Sharing of Set-Offs and Other Payments. Each Lender Party agrees that if it shall, whether through the exercise of rights under Security Documents or rights of banker's lien, set off, or counterclaim against Borrower or otherwise, obtain payment of a portion of the aggregate Obligations owed to it which, taking into account all distributions made by Administrative Agent under Section 3.1, causes such Lender Party to have received more than it would have received had such payment been received by Administrative Agent and distributed pursuant to Section 3.1, then (a) it shall be deemed to have simultaneously purchased and shall be obligated to purchase interests in the Obligations as necessary to cause all Lender Parties to share all payments as provided for in Section 3.1, and (b) such other adjustments shall be made from time to time as shall be equitable to ensure that Administrative Agent and all Lender Parties share all payments of Obligations as provided in Section 3.1; provided, however, that nothing herein contained shall in any way affect the right of any Lender Party to obtain payment (whether by exercise of rights of banker's lien, set-off or counterclaim or otherwise) of indebtedness other than the Obligations. Borrower expressly consents to the foregoing arrangements and agrees that any holder of any such interest or other participation in the Obligations, whether or not acquired pursuant to the foregoing arrangements, may to the fullest extent permitted by Law and, subject to the provisions of Section 6.16, exercise any and all rights of banker's lien, set-off, or counterclaim as fully as if such holder were a holder of the Obligations in the amount of such interest or other participation. If all or any part of any funds transferred pursuant to this section is thereafter recovered from the seller under this section which received the same, the purchase provided for in this section shall be deemed to have been rescinded to the extent of such recovery, together with interest, if any, if interest is required pursuant to the order of a Tribunal to be paid on account of the possession of such funds prior to such recovery. Section 9.7. Investments. Whenever Administrative Agent in good faith determines that it is uncertain about how to distribute to Lender Parties any funds which it has received, or whenever Administrative Agent in good faith determines that there is any dispute among Lender Parties about how such funds should be distributed, Administrative Agent may choose to defer distribution of the funds which are the subject of such uncertainty or dispute. If Administrative Agent in good faith believes that the uncertainty or dispute will not be promptly resolved, or if Administrative Agent is otherwise required to invest funds pending distribution to Lender Parties, Administrative Agent shall invest such funds pending distribution; all interest on any such 61 Investment shall be distributed upon the distribution of such Investment and in the same proportion and to the same Persons as such Investment. All moneys received by Administrative Agent for distribution to Lender Parties (other than to the Person who is Administrative Agent in its separate capacity as a Lender Party) shall be held by Administrative Agent pending such distribution solely as Administrative Agent for such Lender Parties, and Administrative Agent shall have no equitable title to any portion thereof. Section 9.8. Benefit of Article IX. The provisions of this Article are intended solely for the benefit of Lender Parties, and no Restricted Person shall be entitled to rely on any such provision or assert any such provision in a claim or defense against any Lender (other than in relation to the reference to Section 6.16 contained in Section 9.6 or the right to reasonably approve a successor Administrative Agent under Section 9.9). Lender Parties may waive or amend such provisions as they desire without any notice to or consent of Borrower or any other Restricted Person. Section 9.9. Resignation. Administrative Agent may resign at any time by giving written notice thereof to Lenders and Borrower. Each such notice shall set forth the date of such resignation. Upon any such resignation Majority Lenders shall have the right to appoint a successor Administrative Agent, subject to the approval of Borrower, which approval will not be unreasonably withheld. A successor must be appointed for any retiring Administrative Agent, and such Administrative Agent's resignation shall become effective when such successor accepts such appointment. If, within thirty days after the date of the retiring Administrative Agent's resignation, no successor Administrative Agent has been appointed and has accepted such appointment, then the retiring Administrative Agent may appoint a successor Administrative Agent, which shall be a commercial bank organized or licensed to conduct a banking or trust business under the Laws of the United States of America or of any state thereof. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement and the other Loan Documents. After any retiring Administrative Agent's resignation hereunder the provisions of this Article IX shall continue to inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under the Loan Documents. Section 9.10. Other Agents. Neither the Syndication Agent nor the Documentation Agent, in such capacities, shall have any duties or responsibilities or incur any liabilities under this Agreement or the other Loan Documents. ARTICLE X - Miscellaneous Section 10.1. Waivers and Amendments; Acknowledgments. (a) Waivers and Amendments. No failure or delay (whether by course of conduct or otherwise) by any Lender in exercising any right, power or remedy which such Lender Party may have under any of the Loan Documents shall operate as a waiver thereof or of any other right, power or remedy, nor shall any single or partial exercise by any Lender Party of any such right, 62 power or remedy preclude any other or further exercise thereof or of any other right, power or remedy. No waiver of any provision of any Loan Document and no consent to any departure therefrom shall ever be effective unless it is in writing and signed as provided below in this section, and then such waiver or consent shall be effective only in the specific instances and for the purposes for which given and to the extent specified in such writing. No notice to or demand on any Restricted Person shall in any case of itself entitle any Restricted Person to any other or further notice or demand in similar or other circumstances. This Agreement and the other Loan Documents set forth the entire understanding between the parties hereto with respect to the transactions contemplated herein and therein and supersede all prior discussions and understandings with respect to the subject matter hereof and thereof, and no waiver, consent, release, modification or amendment of or supplement to this Agreement or the other Loan Documents shall be valid or effective against any party hereto unless the same is in writing and signed by (i) if such party is Borrower, by Borrower, (ii) if such party is Administrative Agent or LC Issuer, by such party, and (ii) if such party is a Lender, by such Lender or by Administrative Agent on behalf of Lenders with the written consent of Majority Lenders (which consent has already been given as to the termination of the Loan Documents as provided in Section 10.9). Notwithstanding the foregoing or anything to the contrary herein, Administrative Agent shall not, without the prior consent of each individual Lender, execute and deliver on behalf of such Lender any waiver or amendment which would: (1) waive any of the conditions specified in Article IV (provided that Administrative Agent may in its discretion withdraw any request it has made under Section 4.3(g)), (2) increase the Maximum Facility Amount of such Lender or subject such Lender to any additional obligations, (3) reduce any fees payable to such Lender hereunder, or the principal of, or interest on, such Lender's Note, (4) change any date fixed for any payment of any such fees, principal or interest, (5) amend the definition herein of "Borrowing Base" or any of the terms used in that definition, (6) amend the definition herein of "Majority Lenders" or otherwise change the aggregate amount of Percentage Shares which is required for Administrative Agent, Lenders or any of them to take any particular action under the Loan Documents, (7) release Borrower from its obligation to pay such Lender's Note or any Guarantor from its guaranty of such payment, or (8) release any Collateral, except such releases relating to sales of property permitted under Section 7.4. (b) Acknowledgments and Admissions. Borrower hereby represents, warrants, acknowledges and admits that (i) it has been advised by counsel in the negotiation, execution and delivery of the Loan Documents to which it is a party, (ii) it has made an independent decision to enter into this Agreement and the other Loan Documents to which it is a party, without reliance on any representation, warranty, covenant or undertaking by Administrative Agent or any other Lender Party, whether written, oral or implicit, other than as expressly set out in this Agreement or in another Loan Document delivered on or after the date hereof, (ii) there are no representations, warranties, covenants, undertakings or agreements by any Lender Party as to the Loan Documents except as expressly set out in this Agreement or in another Loan Document delivered on or after the date hereof, (iv) no Lender Party has any fiduciary obligation toward Borrower with respect to any Loan Document or the transactions contemplated thereby, (v) the relationship pursuant to the Loan Documents between Borrower and the other Restricted Persons, on one hand, and each Lender Party, on the other hand, is and shall be solely that of debtor and creditor, respectively, (vi) no partnership or joint venture exists with respect to the Loan Documents between any Restricted Person and any Lender Party, (vii) Administrative Agent 63 is not Borrower's Administrative Agent, but Administrative Agent for Lenders, (viii) should an Event of Default or Default occur or exist, each Lender Party will determine in its sole discretion and for its own reasons what remedies and actions it will or will not exercise or take at that time, (ix) without limiting any of the foregoing, Borrower is not relying upon any representation or covenant by any Lender Party, or any representative thereof, and no such representation or covenant has been made, that any Lender Party will, at the time of an Event of Default or Default, or at any other time, waive, negotiate, discuss, or take or refrain from taking any action permitted under the Loan Documents with respect to any such Event of Default or Default or any other provision of the Loan Documents, and (x) all Lender Parties have relied upon the truthfulness of the acknowledgments in this section in deciding to execute and deliver this Agreement and to become obligated hereunder. (c) Representation by Lenders. Each Lender hereby represents that it will acquire its Note for its own account in the ordinary course of its commercial lending business; however, the disposition of such Lender's property shall at all times be and remain within its control and, in particular and without limitation, such Lender may sell or otherwise transfer its Note, any participation interest or other interest in its Note, or any of its other rights and obligations under the Loan Documents subject to compliance with Sections 10.5(b) through (f), inclusive, and applicable law. (d) Joint Acknowledgment. THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. Section 10.2. Survival of Agreements; Cumulative Nature. All of Restricted Persons' various representations, warranties, covenants and agreements in the Loan Documents shall survive the execution and delivery of this Agreement and the other Loan Documents and the performance hereof and thereof, including the making or granting of the Loans and the delivery of the Notes and the other Loan Documents, and shall further survive until all of the Obligations are paid in full to each Lender Party and all of Lender Parties' obligations to Borrower are terminated. All statements and agreements contained in any certificate or other instrument delivered by any Restricted Person to any Lender Party under any Loan Document shall be deemed representations and warranties by Borrower or agreements and covenants of Borrower under this Agreement. The representations, warranties, indemnities, and covenants made by Restricted Persons in the Loan Documents, and the rights, powers, and privileges granted to Lender Parties in the Loan Documents, are cumulative, and, except for expressly specified waivers and consents, no Loan Document shall be construed in the context of another to diminish, nullify, or otherwise reduce the benefit to any Lender Party of any such representation, warranty, indemnity, covenant, right, power or privilege. In particular and without limitation, no exception set out in this Agreement to any representation, warranty, indemnity, or covenant herein contained shall apply to any similar representation, warranty, indemnity, or covenant contained in any other Loan Document, and each such similar representation, warranty, indemnity, or covenant 64 shall be subject only to those exceptions which are expressly made applicable to it by the terms of the various Loan Documents. Section 10.3. Notices. All notices, requests, consents, demands and other communications required or permitted under any Loan Document shall be in writing, unless otherwise specifically provided in such Loan Document (provided that Administrative Agent may give telephonic notices to the other Lender Parties), and shall be deemed sufficiently given or furnished if delivered by personal delivery, by facsimile or other electronic transmission, by delivery service with proof of delivery, or by registered or certified United States mail, postage prepaid, to Borrower and Restricted Persons at the address of Borrower specified on the signature pages hereto and to each Lender Party at its address specified on the signature pages hereto (unless changed by similar notice in writing given by the particular Person whose address is to be changed). Any such notice or communication shall be deemed to have been given (a) in the case of personal delivery or delivery service, as of the date of first attempted delivery during normal business hours at the address provided herein, (b) in the case of facsimile or other electronic transmission, upon receipt, or (c) in the case of registered or certified United States mail, three days after deposit in the mail; provided, however, that no Borrowing Notice or Continuation/Conversion Notice shall become effective until actually received by Administrative Agent. Section 10.4. Payment of Expenses; Indemnity. (a) Payment of Expenses. Whether or not the transactions contemplated by this Agreement are consummated, Borrower will promptly (and in any event, within 30 days after any invoice or other statement or notice) pay: (i) all transfer, stamp, mortgage, documentary or other similar taxes, assessments or charges levied by any governmental or revenue authority in respect of this Agreement or any of the other Loan Documents or any other document referred to herein or therein, (ii all reasonable costs and expenses incurred by or on behalf of Administrative Agent (including attorneys' fees, consultants' fees and engineering fees, travel costs and miscellaneous expenses) in connection with (1) the negotiation, preparation, execution and delivery of the Loan Documents, and any and all consents, waivers or other documents or instruments relating thereto, (2) the filing, recording, refiling and re-recording of any Loan Documents and any other documents or instruments or further assurances required to be filed or recorded or refiled or re-recorded by the terms of any Loan Document, (3) the borrowings hereunder and other action reasonably required in the course of administration hereof, (4) monitoring or confirming (or preparation or negotiation of any document related to) Borrower's compliance with any covenants or conditions contained in this Agreement or in any Loan Document, and (ii all reasonable costs and expenses incurred by or on behalf of any Lender Party (including attorneys' fees, consultants' fees and accounting fees) in connection with the defense or enforcement of any of the Loan Documents (including this section) or the defense of any Lender Party's exercise of its rights thereunder. In addition to the foregoing, until all Obligations have been paid in full, Borrower will also pay or reimburse Administrative Agent for all reasonable out-of-pocket costs and expenses of Administrative Agent or its agents or employees in connection with the continuing administration of the Loans and the related due diligence of Administrative Agent, including travel and miscellaneous expenses and fees and expenses of Administrative Agent's 65 outside counsel, reserve engineers and consultants engaged in connection with the Loan Documents. (b) Indemnity. Borrower agrees to indemnify each Lender Party, upon demand, from and against any and all liabilities, obligations, claims, losses, damages, penalties, fines, actions, judgments, suits, settlements, costs, expenses or disbursements (including reasonable fees of attorneys, accountants, experts and advisors) of any kind or nature whatsoever (in this section collectively called "liabilities and costs") which to any extent (in whole or in part) may be imposed on, incurred by, or asserted against such Lender Party growing out of, resulting from or in any other way associated with any of the Collateral, the Loan Documents and the transactions and events (including the enforcement or defense thereof) at any time associated therewith or contemplated therein whether arising in contract or in tort or otherwise and including any violation or noncompliance with any Environmental Laws by any Lender Party or any other Person or any liabilities or duties of any Lender Party or any other Person with respect to Hazardous Materials found in or released into the environment). THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY OR CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY ANY LENDER PARTY, provided only that no Lender Party shall be entitled under this section to receive indemnification for that portion, if any, of any liabilities and costs which is proximately caused by its own individual gross negligence or willful misconduct, as determined in a final judgment. If any Person (including Borrower or any of its Affiliates) ever alleges such gross negligence or willful misconduct by any Lender Party, the indemnification provided for in this section shall nonetheless be paid upon demand, subject to later adjustment or reimbursement, until such time as a court of competent jurisdiction enters a final judgment as to the extent and effect of the alleged gross negligence or willful misconduct. As used in this section the term "Lender Party" shall refer not only to each Person designated as such in Section 1.1 but also to each director, officer, agent, attorney, employee, representative and Affiliate of such Persons. Section 10.5. Joint and Several Liability; Parties in Interest; Assignments. (a) All Obligations which are incurred by two or more Restricted Persons shall be their joint and several obligations and liabilities. All grants, covenants and agreements contained in the Loan Documents shall bind and inure to the benefit of the parties thereto and their respective successors and permitted assigns; provided, however, that no Restricted Person may assign or transfer any of its rights or delegate any of its duties or obligations under any Loan Document without the prior consent of all Lenders. Neither Borrower nor any Affiliates of Borrower shall directly or indirectly purchase or otherwise retire any Obligations owed to any Lender nor will any Lender accept any offer to do so, unless each Lender shall have received substantially the same offer with respect to the same Percentage Share of the Obligations owed to it. If Borrower or any Affiliate of Borrower at any time purchases some but less than all of the Obligations owed to all 66 Lender Parties, such purchaser shall not be entitled to any rights of any Lender under the Loan Documents unless and until Borrower or its Affiliates have purchased all of the Obligations. (b) No Lender shall sell any participation interest in its commitment hereunder or any of its rights under its Loans or under the Loan Documents to any Person unless the agreement between such Lender and such participant at all times provides: (i) that such participation exists only as a result of the agreement between such participant and such Lender and that such transfer does not give such participant any right to vote as a Lender or any other direct claims or rights against any Person other than such Lender, (ii) that such participant is not entitled to payment from any Restricted Person under Sections 3.2 through 3.6 of amounts in excess of those payable to such Lender under such sections (determined without regard to the sale of such participation), and (iii) unless such participant is an Affiliate of such Lender, that such participant shall not be entitled to require such Lender to take any action under any Loan Document or to obtain the consent of such participant prior to taking any action under any Loan Document, except for actions which would require the consent of all Lenders under subsection (a) of Section 10.1. No Lender selling such a participation shall, as between the other parties hereto and such Lender, be relieved of any of its obligations hereunder as a result of the sale of such participation. Each Lender which sells any such participation to any Person (other than an Affiliate of such Lender) shall give prompt notice thereof to Administrative Agent and Borrower. (c) Except for sales of participations under the immediately preceding subsection, no Lender shall make any assignment or transfer of any kind of its commitments or any of its rights under its Loans or under the Loan Documents, except for assignments to an Eligible Transferee, or, subject to the provisions of subsection (g) below, to an Affiliate and then only if such assignment is made in accordance with the following requirements: (i) Each such assignment shall apply to all Obligations owing to the assignor Lender hereunder and to the unused portion of the assignor Lender's commitments, so that after such assignment is made the assignor Lender shall have a fixed (and not a varying) Percentage Share in its Loans and Note and be committed to make that Percentage Share of all future Loans, the assignee shall have a fixed Percentage Share in such Loans and Note and be committed to make that Percentage Share of all future Loans, and the Percentage Share of the Maximum Loan Amount of both the assignor and assignee shall equal or exceed $5,000,000. (ii) The parties to each such assignment shall execute and deliver to Administrative Agent, for its acceptance and recording in the "Register" (as defined below in this section), an Assignment and Acceptance in the form of Exhibit J, appropriately completed, together with the Note subject to such assignment and a processing fee payable by such assignor Lender (and not at Borrower's expense) to Administrative Agent of $3,500. Upon such execution, delivery, and payment and upon the satisfaction of the conditions set out in such Assignment and Acceptance, then (i) Borrower shall issue new Notes to such assignor and assignee upon return of the old Notes to Borrower, and (ii) as of the "Settlement Date" specified in such Assignment and Acceptance the assignee thereunder shall be a party hereto and a Lender hereunder and Administrative Agent shall thereupon deliver to Borrower and each Lender a schedule showing the revised 67 Percentage Shares of such assignor Lender and such assignee Lender and the Percentage Shares of all other Lenders. (iii) Each assignee Lender which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for Federal income tax purposes, shall (to the extent it has not already done so) provide Administrative Agent and Borrower with the "Prescribed Forms" referred to in Section 3.6(d). (d) Nothing contained in this section shall prevent or prohibit any Lender from assigning or pledging all or any portion of its Loans and Note to any Federal Reserve Bank as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any Operating Circular issued by such Federal Reserve Bank; provided that (i) no such assignment or pledge shall relieve such Lender from its obligations hereunder and (ii) all related costs, fees and expenses incurred by such Lender in connection with such assignment and the reassignment back to it, free of any interests of such Federal Reserve Banks, shall be for the sole account of such Lender. (e) By executing and delivering an Assignment and Acceptance, each assignee Lender thereunder will be confirming to and agreeing with Borrower, Administrative Agent and each other Lender Party that such assignee understands and agrees to the terms hereof, including Article IX hereof. (f) Administrative Agent shall maintain a copy of each Assignment and Acceptance and a register for the recordation of the names and addresses of Lenders and the Percentage Shares of, and principal amount of the Loans owing to, each Lender from time to time (in this section called the "Register"). The entries in the Register shall be conclusive, in the absence of manifest error, and Borrower and each Lender Party may treat each Person whose name is recorded in the Register as a Lender Party hereunder for all purposes. The Register shall be available for inspection by Borrower or any Lender Party at any reasonable time and from time to time upon reasonable prior notice. (g) Any Lender may assign or transfer its commitment or its rights under its Loans or under the Loan Documents to (i) any Affiliate that is wholly-owned direct or indirect subsidiary of such Lender or of any Person that wholly owns, directly or indirectly, such Lender, or (ii) if such Lender is a fund that invests in bank loans, any other fund that invests in bank loans and is advised or managed by (A) the same investment advisor as any Lender or (B) any Affiliate of such investment advisor that is a wholly-owned direct or indirect subsidiary of any Person that wholly owns, directly or indirectly, such investment advisor, subject to the following additional conditions: (x) any right of such Lender assignor and such assignee to vote as a Lender, or any other direct claims or rights against any other Persons, shall be uniformly exercised or pursued in the manner that such Lender assignor would have so exercised such vote, claim or right if it had not made such assignment or transfer. 68 (y) such assignee shall not be entitled to payment from any Restricted Person under Sections 3.2 through 3.7 of amounts in excess of those payable to such Lender assignor under such sections (determined without regard to such assignment or transfer); and (z) if such Lender assignor assigns or transfers to such assignee any of such Lender's commitment, such assignee may become primarily liable for such commitment, but such assignment or transfer shall not relieve or release such Lender from such commitment. Section 10.6. Confidentiality. Each Lender Party agrees (on behalf of itself and each of its Affiliates, and each of its and their directors, officers, agents, attorneys, employees, and representatives) that it (and each of them) will take all reasonable steps to keep confidential any non-public information supplied to it by or at the direction of any Restricted Person so identified when delivered, provided, however, that this restriction shall not apply to information which (a) has at the time in question entered the public domain, (b) is required to be disclosed by Law (whether valid or invalid) of any Tribunal, (c) is disclosed to any Lender Party's Affiliates, auditors, attorneys, or agents, (d) is furnished to any other Lender Party or to any purchaser or prospective purchaser of participations or other interests in any Loan or Loan Document (provided each such purchaser or prospective purchaser first agrees to hold such information in confidence on the terms provided in this section), or (d) is disclosed in the course of enforcing its rights and remedies during the existence of an Event of Default. Section 10.7. Governing Law; Submission to Process. EXCEPT TO THE EXTENT THAT THE LAW OF ANOTHER JURISDICTION IS EXPRESSLY ELECTED IN A LOAN DOCUMENT, THE LOAN DOCUMENTS SHALL BE DEEMED CONTRACTS AND INSTRUMENTS MADE UNDER THE LAWS OF THE STATE OF NEW YORK AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK AND THE LAWS OF THE UNITED STATES OF AMERICA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. BORROWER HEREBY AGREES THAT ANY LEGAL ACTION OR PROCEEDING AGAINST BORROWER WITH RESPECT TO THIS AGREEMENT, THE NOTES OR ANY OF THE LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK AS LENDER PARTIES MAY ELECT, AND, BY EXECUTION AND DELIVERY HEREOF, BORROWER ACCEPTS AND CONSENTS FOR ITSELF AND IN RESPECT TO ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. BORROWER AGREES THAT SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK SHALL APPLY TO THE LOAN DOCUMENTS AND WAIVES ANY RIGHT TO STAY OR TO DISMISS ANY ACTION OR PROCEEDING BROUGHT BEFORE SAID COURTS ON THE BASIS OF FORUM NON CONVENIENS. IN FURTHERANCE OF THE FOREGOING, BORROWER HEREBY IRREVOCABLY DESIGNATES AND APPOINTS CORPORATION SERVICE COMPANY, 80 STATE STREET, ALBANY, NEW YORK 12207, AS AGENT OF BORROWER TO RECEIVE SERVICE OF ALL PROCESS BROUGHT AGAINST BORROWER WITH RESPECT TO ANY SUCH PROCEEDING IN ANY SUCH COURT IN NEW YORK, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY BORROWER TO BE EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT. COPIES OF ANY SUCH PROCESS SO SERVED SHALL ALSO, IF PERMITTED BY LAW, BE SENT BY REGISTERED MAIL TO BORROWER AT ITS ADDRESS SET FORTH BELOW, BUT THE FAILURE OF BORROWER TO RECEIVE SUCH COPIES SHALL NOT AFFECT IN ANY WAY THE SERVICE OF SUCH 69 PROCESS AS AFORESAID. BORROWER SHALL FURNISH TO LENDER PARTIES A CONSENT OF CORPORATION SERVICE COMPANY AGREEING TO ACT HEREUNDER PRIOR TO THE EFFECTIVE DATE OF THIS AGREEMENT. NOTHING HEREIN SHALL AFFECT THE RIGHT OF LENDER PARTIES TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF LENDER PARTIES TO BRING PROCEEDINGS AGAINST BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. IF FOR ANY REASON CORPORATION SERVICE COMPANY SHALL RESIGN OR OTHERWISE CEASE TO ACT AS BORROWER'S AGENT, BORROWER HEREBY IRREVOCABLY AGREES TO (A) IMMEDIATELY DESIGNATE AND APPOINT A NEW AGENT ACCEPTABLE TO ADMINISTRATIVE AGENT TO SERVE IN SUCH CAPACITY AND, IN SUCH EVENT, SUCH NEW AGENT SHALL BE DEEMED TO BE SUBSTITUTED FOR CORPORATION SERVICE COMPANY FOR ALL PURPOSES HEREOF AND (B) PROMPTLY DELIVER TO AGENT THE WRITTEN CONSENT (IN FORM AND SUBSTANCE SATISFACTORY TO ADMINISTRATIVE AGENT) OF SUCH NEW AGENT AGREEING TO SERVE IN SUCH CAPACITY. Section 10.8. Limitation on Interest. Lender Parties, Restricted Persons and the other parties to the Loan Documents intend to contract in strict compliance with applicable usury Law from time to time in effect. In furtherance thereof such persons stipulate and agree that none of the terms and provisions contained in the Loan Documents shall ever be construed to provide for interest in excess of the maximum amount of interest permitted to be charged by applicable Law from time to time in effect. Neither any Restricted Person nor any present or future guarantors, endorsers, or other Persons hereafter becoming liable for payment of any Obligation shall ever be liable for unearned interest thereon or shall ever be required to pay interest thereon in excess of the maximum amount that may be lawfully charged under applicable Law from time to time in effect, and the provisions of this section shall control over all other provisions of the Loan Documents which may be in conflict or apparent conflict herewith. Section 10.9. Termination; Limited Survival. In its sole and absolute discretion Borrower may at any time that no Obligations are owing or outstanding elect in a written notice delivered to Administrative Agent to terminate this Agreement. Upon receipt by Administrative Agent of such a notice, if no Obligations are then owing or outstanding this Agreement and all other Loan Documents shall thereupon be terminated and the parties thereto released from all prospective obligations thereunder. Notwithstanding the foregoing or anything herein to the contrary, any waivers or admissions made by any Restricted Person in any Loan Document, any Obligations under Sections 3.2 through 3.6, and any obligations which any Person may have to indemnify or compensate any Lender Party shall survive any termination of this Agreement or any other Loan Document. At the request and expense of Borrower, Administrative Agent shall prepare and execute all necessary instruments to reflect and effect such termination of the Loan Documents. Administrative Agent is hereby authorized to execute all such instruments on behalf of all Lenders, without the joinder of or further action by any Lender. Section 10.10. Severability. If any term or provision of any Loan Document shall be determined to be illegal or unenforceable all other terms and provisions of the Loan Documents shall nevertheless remain effective and shall be enforced to the fullest extent permitted by applicable Law. 70 Section 10.11. Counterparts. This Agreement may be separately executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to constitute one and the same Agreement. Section 10.12. Waiver of Jury Trial, Punitive Damages, etc. TO THE EXTENT PERMITTED BY LAW, LENDER PARTIES AND BORROWER HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF SUCH PERSONS OR BORROWER. THIS PROVISION IS A MATERIAL INDUCEMENT FOR LENDER PARTIES' ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. BORROWER AND EACH LENDER PARTY HEREBY FURTHER (A) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY "SPECIAL DAMAGES," AS DEFINED BELOW, (B) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (C) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION. AS USED IN THIS SECTION, "SPECIAL DAMAGES" INCLUDES ALL SPECIAL, CONSEQUENTIAL, EXEMPLARY, OR PUNITIVE DAMAGES (REGARDLESS OF HOW NAMED), BUT DOES NOT INCLUDE ANY PAYMENTS OR FUNDS WHICH ANY PARTY HERETO HAS EXPRESSLY PROMISED TO PAY OR DELIVER TO ANY OTHER PARTY HERETO. 71 IN WITNESS WHEREOF, this Agreement is executed as of the date first written above. PLAINS MARKETING & TRANSPORTATION INC., Borrower By: /s/ Phil Kramer ----------------------------- Name: Phil Kramer Title: Vice President Address: 500 Dallas Street Suite 700 Houston, Texas 77002 Attention: Phil Kramer Telephone: (713) 654-1414 Fax: (713) 654-1523 S-1 BANKBOSTON, N.A., Administrative Agent, LC Issuer and Lender By: /s/ Terrence Ronan --------------------- Name: Terrence Ronan Title: Vice President Address: 100 Federal Street Boston, Massachusetts 02110 Attention: Terrence Ronan Mail Code: 01-08-04 Telephone: (617) 434-5472 Fax: (617) 434-3652 BANCBOSTON SECURITIES INC., Syndication Agent By: /s/ John R. Barlow --------------------- Name: John R. Barlow Title: Vice President Address: 100 Federal Street Boston, Massachusetts 02110 Attention: Mike Hannon Mail Code: 01-09-03 Telephone: (617) 434-1649 Fax: (617) 434-0382 S-2 ING (U.S.) CAPITAL CORPORATION, Documentation Agent and Lender By: /s/ Christopher R. Wagner ---------------------------- Christopher R. Wagner Senior Vice President Address: 135 East 57th Street New York, New York 10022 Attention: Christopher Wagner Telephone: (212) 409-1717 Fax: (212) 832-3616 S-3 BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: /s/ Irene C. Rummel ---------------------- Name: Irene C. Rummel Title: Vice President Address: 333 Clay St., Suite 4550 Houston, Texas 77002 Attention: Irene Rummel Telephone: (713) 651-4921 Fax: (713) 651-4801 S-4 BANK OF SCOTLAND By: /s/ Annie Chin Tat ---------------------- Name: Annie Chin Tat Title: Senior Vice President Address: 565 Fifth Avenue New York, New York 10017 Attention: Annie Chin Tat Telephone: (212) 450-0871 Fax: (212) 557-9460 With Copy to: 1200 Smith Street Houston, Texas 77002 Attention: Richard C. Butler Telephone: (713) 651-1870 Fax: (713) 651-9714 S-5 DEN NORSKE BANK ASA By: /s/ Byron L. Cooley ---------------------- Name: Byron L. Cooley Title: Senior Vice President By: /s/ William V. Moyer ----------------------- Name: William V. Moyer Title: First Vice President Address: Three Allen Center 333 Clay Street, Suite 4890 Houston, Texas 77002 Attention: Byron L. Cooley Telephone: (713) 844-9258 Fax: (713) 757-1167 S-6 COMERICA BANK - TEXAS By:/s/ James Kimble ------------------- Name: James Kimble Title: Vice President Address: 910 Louisiana, Suite 410 Houston, Texas 77002 Attention: Jim Kimble Telephone: (713) 220-5614 Fax: (713) 220-5650 S-7 NATIONSBANK, N.A. By: /s/ James R. Allred ---------------------- Name: James R. Allred Title: Senior Vice President Address: 901 Main Street, 14th Floor Dallas, Texas 75202 Attention: James Allred Telephone: (713) 247-6327 Fax: (713) 247-6432 S-8 THE SANWA BANK LIMITED By: /s/ C. Lawrence Murphy ------------------------- C. Lawrence Murphy Senior Vice President Address: 55 East 52nd Street New York, New York 10055 Attention: Kentaro Yamagishi Telephone: (212) 339-6207 Fax: (212) 754-2360 S-9 SOCIETE GENERALE, SOUTHWEST AGENCY By: /s/ Thierry Namuroy ---------------------- Name: Thierry Namuroy Title: Vice President Address: 4800 Trammell Crow Center 2001 Ross Avenue Dallas, Texas 75201 Attention: Thierry Namuroy Telephone: (713) 759-6316 Fax: (713) 650-0824 S-10 THE FUJI BANK, LIMITED By: /s/ Teiji Teramoto --------------------- Name: Teiji Teramoto Title: Vice President & Manager Address: 1221 McKinney, Suite 4100 Houston, Texas 77010 Attention: Mark Polasek Telephone: (713) 650-7863 Fax: (713) 759-0717 S-11 BHF-BANK AKTIENGSELLSCHAFT By: /s/ JOHN COUSSA ----------------------------------- Name: John Coussa Title: Vice President By: /s/ HUUB KOTS ------------------------------------ Name: Huub Kots Title: Assistant Vice President Address: 590 Madison Avenue New York, New York 10022 Attention: Robert Novak Telephone: (212) 756-5976 Fax: (212) 756-5536 S-12 HIBERNIA NATIONAL BANK By: /s/ Tammy Angelety ------------------------------- Name: Tammy Angelety Title: Assistant Vice President Address: 313 Carondelet Street New Orleans, Louisiana 70130 Attention: Tammy Angelety Telephone: (504) 533-2045 Fax: (504) 533-5434 S-13 MEESPIERSON CAPITAL CORP. By: /s/ Darrell W. Holley ------------------------------ Name: Darrell W. Holley Title: Senior Vice President By: /s/ Deirdre M. Sanborn ------------------------------- Name: Deirdre M. Sanborn Title: Assistant Vice President Address: Three Stamford Plaza 301 Tresser Blvd. Stamford, Connecticut 06901-3239 Attention: Darrell W. Holley Telephone: (214) 953-9307 Fax: (214) 154-5981 S-14 U.S. BANK NATIONAL ASSOCIATION By: /s/ Monte E. Deckerd ----------------------------- Name: Monte E. Deckerd Title: Vice President Address: 918 17th Street Denver, Colorado 80202 Attention: Monte E. Deckerd Telephone: (303) 585-4212 Fax: (303) 585-4362 S-15 WELLS FARGO BANK (TEXAS) NATIONAL ASSOCIATION By: /s/ Ann M. Rhoads ---------------------------- Ann M. Rhoads Vice President Address: 1000 Louisiana, 3rd Floor Houston, Texas 77002 Attention: Ann Rhoads Telephone: (713) 250-4035 Fax: (713) 850-7912 S-16 EX-10.Y 3 FOURTH AMENDED AND RESTATED CREDIT AGREEMENT EXECUTION COPY - -------------------------------------------------------------------------------- FOURTH AMENDED AND RESTATED CREDIT AGREEMENT -------------------------------------------- PLAINS RESOURCES INC. and ING (U.S.) CAPITAL CORPORATION, as Agent and CERTAIN INSTITUTIONS as Lenders -------------------------------------------- $225,000,000 May 22, 1998 - -------------------------------------------------------------------------------- TABLE OF CONTENTS FOURTH AMENDED AND RESTATED CREDIT AGREEMENT Page Section 1. Definitions and Accounting Matters...................... 1 1.01 Certain Defined Terms................................... 1 1.02 Oil and Gas Terms....................................... 15 1.03 Accounting Terms and Determinations..................... 16 1.04 Types of Loans.......................................... 16 Section 2. The Commitment.......................................... 16 2.01 Loans................................................... 16 2.02 Borrowings.............................................. 17 2.03 Changes of Commitment................................... 17 2.04 Commitment and Agency Fees.............................. 18 2.05 Lending Offices......................................... 18 2.06 Notes................................................... 18 2.07 Prepayments and Conversions or Continuations of Loans... 19 2.08 Borrowing Base.......................................... 19 2.09 Letters of Credit....................................... 21 2.10 Requesting Letters of Credit............................ 22 2.11 Reimbursement and Participations........................ 22 2.12 Letter of Credit Fees................................... 24 2.13 No Duty to Inquire...................................... 24 2.14 LC Collateral........................................... 25 Section 3. Payments of Principal and Interest...................... 26 3.01 Repayment of Term Loans................................. 26 3.02 Interest................................................ 26 Section 4. Payments; Computations; Etc............................. 27 4.01 Payments................................................ 27 4.02 Computations............................................ 28 4.03 Minimum Amounts......................................... 28 4.04 Certain Notices......................................... 29 4.05 Set-off................................................. 29 Section 5. Yield Protection, Etc................................... 30 5.01 Additional Costs........................................ 30 5.02 Limitation on Types of Loans............................ 32 5.03 Illegality.............................................. 32 5.04 Treatment of Affected Loans............................. 32 5.05 Compensation............................................ 33 i Section 6. Conditions Precedent.................................... 34 6.01 Initial Loan............................................ 34 6.02 Initial and Subsequent Loans............................ 35 Section 7. Representations and Warranties.......................... 36 7.01 Corporate Existence..................................... 36 7.02 Financial Condition..................................... 36 7.03 Litigation.............................................. 37 7.04 No Breach............................................... 37 7.05 Due Execution........................................... 37 7.06 Approvals............................................... 37 7.07 Use of Loans............................................ 37 7.08 ERISA................................................... 37 7.09 Taxes................................................... 38 7.10 Investment Company Act.................................. 38 7.11 Public Utility Holding Company Act...................... 38 7.12 Titles to Oil and Gas Properties........................ 38 7.13 Foreign Assets Control Regulations, Etc................. 39 7.14 Gas Imbalances.......................................... 39 7.15 Rate Filings............................................ 39 7.16 Qualification to Hold Federal Oil and Gas Leases........ 40 7.17 Drilling and Operations................................. 40 7.18 Payments by Purchasers of Production.................... 40 7.19 Credit Agreements....................................... 40 7.20 Hazardous Materials..................................... 41 7.21 Subsidiaries and Partnerships........................... 43 7.22 True and Complete Disclosure............................ 43 7.23 No Election to be Treated as a Utility.................. 44 Section 8. Covenants of the Company................................ 44 8.01 Financial Statements.................................... 44 8.02 Litigation.............................................. 47 8.03 Corporate Existence, Etc................................ 47 8.04 Engineering Reports..................................... 47 8.05 Acquisition of Oil and Gas Properties................... 48 8.06 Insurance............................................... 50 8.07 Prohibition of Fundamental Changes...................... 51 8.08 Limitation on Liens..................................... 52 8.09 Indebtedness............................................ 53 8.10 Investments............................................. 54 8.11 Dividend Payments....................................... 55 8.12 Tangible Net Worth...................................... 56 8.13 Current Ratio........................................... 56 8.14 Subordinated Indebtedness............................... 56 8.15 Lines of Business....................................... 57 8.16 Transactions with Affiliates............................ 57 ii 8.17 Use of Proceeds......................................... 57 8.18 Certain Obligations Respecting Subsidiaries............. 57 8.19 Additional Subsidiary Guarantors........................ 58 8.20 Environmental Matters; Environmental Reviews............ 58 8.21 Environmental Indemnification........................... 59 8.22 Environmental Certification............................. 59 8.23 Modifications of Certain Documents...................... 59 8.24 Gas Imbalances.......................................... 59 8.25 Sale of Oil and Gas Properties.......................... 60 8.26 Partnership Units; New Partnerships..................... 60 8.27 Amendments of Partnership Agreements.................... 60 8.28 Notice to Purchasers of Production...................... 61 8.29 Restrictions on PMTI.................................... 61 8.30 Lien Releases........................................... 61 8.31 Additional Security..................................... 61 8.32 Post Closing Curative................................... 62 8.33 Hedging Contracts....................................... 62 8.34 Transactions with PMCT.................................. 63 8.35 Unrestricted Subsidiaries............................... 63 Section 9. Events of Default....................................... 64 Section 10. Agent................................................... 67 10.01 Appointment and Authority............................... 67 10.02 Exculpation, Agent's Reliance, Etc...................... 67 10.03 Bank Parties' Credit Decisions.......................... 68 10.04 Indemnification......................................... 68 10.05 Rights as Lender........................................ 68 10.06 Sharing of Set-Offs and Other Payments.................. 69 10.07 Investments............................................. 69 10.08 Benefit of Section 10................................... 69 10.09 Resignation............................................. 69 Section 11. Miscellaneous........................................... 70 11.01 Waiver.................................................. 70 11.02 Notices................................................. 70 11.03 Expenses, Etc........................................... 70 11.04 Amendments, Etc......................................... 72 11.05 Successors and Assigns.................................. 72 11.06 Assignments and Participation........................... 73 11.07 Survival................................................ 74 11.08 Captions................................................ 74 11.09 Counterparts............................................ 74 11.10 Governing Law; Submission to Jurisdiction............... 75 11.11 Waiver of Jury Trial, Punitive Damages, Etc............. 75 11.12 Rate of Interest........................................ 76 iii 11.13 Release of Liens........................................ 77 11.14 Confidentiality......................................... 77 SCHEDULES AND EXHIBITS Schedule 6.01(g) - Security Documents Schedule 7.01 - Licenses, Franchises, Etc. Schedule 7.02 - Contingent Liabilities Schedule 7.03 - Litigation Schedule 7.12 - Unmortgaged Oil and Gas Properties Schedule 7.19 - Credit Agreements Schedule 7.21 - Subsidiaries, Partnerships and Investments Schedule 8.01(c) - Immaterial Partnerships Schedule 8.08 - Existing Liens Schedule 8.09 - Indebtedness Exhibit A - Promissory Note Exhibit B-1 - Amended and Restated Guaranty of Subsidiary Guarantors other than Stocker Resources, L.P., Calumet Florida, Inc. and Plains Illinois Inc. Exhibit B-2 - Amended and Restated Guaranty of Stocker Resources, L.P., Calumet Florida, Inc. and Plains Illinois Inc. Exhibit C - Opinion of Michael R. Patterson, Esq., General Counsel to Obligors Exhibit D - Opinion of Fulbright & Jaworski L.L.P., special Texas and New York counsel to Obligors Exhibit E - Environmental Compliance Certificate Exhibit F - Agreement to Be Bound and Assignment and Acceptance Exhibit G - Standby Letter of Credit Application and Agreement iv FOURTH AMENDED AND RESTATED CREDIT AGREEMENT THIS FOURTH AMENDED AND RESTATED CREDIT AGREEMENT (this "Agreement") dated as of May 22, 1998, by and among PLAINS RESOURCES INC., a corporation duly organized and validly existing under the laws of the state of Delaware (the "Company"), ING (U.S.) CAPITAL CORPORATION, a Delaware corporation, as agent for the Lenders ("Agent"), and the Lenders named herein, amending and restating the Original Agreement referred to herein. W I T N E S S E T H WHEREAS, the Company, Agent and certain of the Lenders entered into that certain Third Amended and Restated Credit Agreement dated as of April 11, 1996, as amended (the "Original Agreement"), providing for extensions of credit by such certain Lenders to the Company up to the amount of $165,000,000; and WHEREAS, the Company has requested that Agent and Lenders amend and restate the Original Agreement to (i) renew and extend the aggregate unpaid principal balance of the loans under the Original Agreement, as evidenced by the Notes (herein defined), and (ii) provide for the extension of additional credit to the Company, such balance and such additional credit to be in an aggregate principal amount of up to but not exceeding $225,000,000, and Agent and Lenders are prepared to amend and restate the Original Agreement and renew, extend and increase such credit upon the terms and conditions hereof; and WHEREAS, to induce Lenders to renew and extend such credit, certain subsidiaries of the Company will execute and deliver guaranties guaranteeing the Obligations (herein defined) of the Company to Lenders, and the Company and certain of its subsidiaries will execute mortgages and security agreements granting, confirming, amending and/or ratifying security interests and liens on substantially all of their respective properties as collateral security for the obligations of the Obligors (as defined herein) to Bank Parties (or in favor of Agent for the benefit of Bank Parties) hereunder, each of the Obligors expecting to derive benefit, direct or indirect, from the credit so extended to the Company, both in its separate capacity and as a member of the integrated group. Accordingly, the parties hereto agree as follows: Section 1. Definitions and Accounting Matters. 1.01 Certain Defined Terms. As used herein, the following terms shall have the following meanings (all terms defined in this Section 1.01 or in other provisions of this Agreement in the singular to have the same meanings when used in the plural and vice versa): "Affiliate" shall mean any Person which directly or indirectly controls, or is under common control with, or is controlled by, the Company and, if such Person is an individual, any member of the immediate family (including parents, spouse and children) of such individual and any trust whose principal beneficiary is such individual or one or more members of such immediate family and any Person who is controlled by any such member or trust. As used in this definition, 1 "control" (including, with its correlative meanings, "controlled by" and "under common control with") shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise), provided that, in any event, any Person which owns directly or indirectly 5% or more of the securities having ordinary voting power for the election of directors or other governing body of a corporation or 5% or more of the partnership or other ownership interests of any other Person (other than as a limited partner of such other Person) will be deemed to control such corporation or other Person. "Agent" shall have the meaning assigned to such term in the first paragraph of this Agreement as agent hereunder, and its successors in such capacity. "Applicable Lending Office" shall mean the Principal Office or, with respect to any Type of Loan, such other office of each Lender (or of an affiliate of such Lender) as such Lender may from time to time specify to the Company as the office by which the Loans of such Type are to be made and maintained, and with respect to LC Issuer, the office, branch, or agency through which it issues Letters of Credit. "Applicable Margin" shall mean (i) with respect to Base Rate Loans zero percent (0%) per annum and (ii) with respect to Eurodollar Loans, one and three- eighths percent (1.375%) per annum. "Bankruptcy Code" shall mean the Federal Bankruptcy Code, as amended from time to time. "Bank Parties" means Agent, LC Issuer, and all Lenders. "Base Rate" shall mean, for any day, the higher of (a) the Federal Funds Rate for such day plus one-half percent (0.5%) per annum and (b) the Prime Rate for such day. Each change in any interest rate provided for herein based upon the Base Rate resulting from a change in the Base Rate shall take effect at the time of such change in the Base Rate. "Base Rate Loans" shall mean Loans which bear interest at rates based upon the Base Rate. "Basic Documents" shall mean, collectively, this Agreement, the Notes, the Letters of Credit, the LC Applications, the Security Documents and each Hedging Agreement. "Borrowing Base" shall mean, at any time, an amount equal to the amount determined in accordance with Section 2.08 hereof. "Business Day" shall mean any day on which commercial banks are not authorized or required to close in New York City or Houston, Texas and, if such day relates to a borrowing of, a payment or prepayment of principal of or interest on, or a Conversion of or into, or an Interest Period for, Eurodollar Loan or a notice by the Company with respect to any such borrowing, 2 payment, prepayment, Conversion or Interest Period, which is also a day on which dealings in Dollar deposits are carried out in the London interbank market. "CERCLA" has the meaning given it in Section 7.20(d). "CERCLIS" has the meaning given it in Section 7.20(d). "Chief Financial Officer" shall mean the senior executive officer of the Company who is primarily responsible for the financial affairs of the Company. "Closing Date" shall mean the date upon which the conditions precedent to the initial Loan hereunder set forth in Section 6 hereof have been satisfied and the initial extension of credit hereunder made. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Commitment" shall mean the obligation of Lenders to make Loans in an aggregate amount at any one time outstanding up to but not exceeding $225,000,000, as the same may be reduced at any time or from time to time pursuant to Sections 2.03(a), (b) or (c). "Company" shall have the meaning assigned to such term in the first paragraph of this Agreement. "Company Reserve Reports" shall have the meaning assigned to such term in Section 8.04(b) hereof. "Consolidated Subsidiary" shall mean, for any Person, each Subsidiary of such Person (whether now existing or hereafter created or acquired) the financial statements of which shall be (or should have been) consolidated with the financial statements of such Person in accordance with GAAP. "Continue", "Continuation" and "Continued" shall refer to the continuation pursuant to Section 2.07(a) hereof of a Eurodollar Loan from one Interest Period to the next Interest Period. "Convert", "Conversion" and "Converted" shall refer to a conversion pursuant to Section 2.07(a) hereof of Base Rate Loans into Eurodollar Loans or of Eurodollar Loans into Base Rate Loans, which may be accompanied by the transfer by a Lender (at its sole discretion) of a Loan from one Applicable Lending Office to another. "Default" shall mean an Event of Default or an event which with notice or lapse of time or both would become an Event of Default. "Dividend Payment" shall mean dividends (in cash, Property or obligations) on, or other payments or distributions on account of, or the setting apart of money for a sinking or other analogous fund for, or the purchase, redemption, retirement or other acquisition of, any shares of any class of stock of the Company, but excluding (i) dividends payable solely in shares of common 3 or preferred stock of the Company, and (ii) dividends from a Subsidiary of the Company to the Company. "Dollars" and "$" shall mean lawful money of the United States of America. "Engineering Report" shall mean any Independent Reserve Report or Company Reserve Report. "Environmental Affiliate" shall mean, as to any Person (the "successor"), any other Person whose liability (contingent or otherwise) for an Environmental Claim the successor may have retained, assumed or otherwise become or remained liable for suits or other procedures (contingently or otherwise), whether by contract, operation of law or otherwise; provided that each Subsidiary of the successor, and each former Subsidiary or division of the successor transferred to another Person, shall in any event be an "Environmental Affiliate" of the successor; provided, further, that whenever reference is made to liabilities or properties of an Environmental Affiliate, such reference shall exclude the liabilities of the Environmental Affiliate which the successor did not retain, assume or otherwise become or remain liable for and the properties of the Environmental Affiliate which were not acquired in any manner by the successor for and with respect to which the successor did not retain or assume or otherwise become liable for any liability on any Environmental Claims. "Environmental Claim" shall mean, with respect to any Person, any notice, claim, demand, order, citation, complaint, penalty assessment or other communication (whether written or oral) by any other Person alleging or asserting such Person's liability for investigatory costs, cleanup costs, governmental response costs, damages to natural resources or other Property, personal injuries, fines or penalties arising out of, based on or resulting from (a) the presence, or Release into the environment, of any Hazardous Material at any location, whether or not owned by such Person, or (b) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law. "Environmental Laws" shall mean any and all applicable Federal, state, local and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions relating to the environment or to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals or industrial, toxic or hazardous substances or wastes into the environment, including, without limitation, ambient air, surface water, groundwater or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals or industrial, toxic or hazardous substances or wastes. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. "ERISA Affiliate" shall mean any corporation or trade or business which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as 4 the Company or is under common control (within the meaning of Section 414(c) of the Code) with the Company. "Eurodollar Loans" shall mean Loans the interest rates on which are determined on the basis of rates based upon the Eurodollar Rate. "Eurodollar Rate" shall mean, for any Eurodollar Loan for any Interest Period therefor, a rate per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) reported, on the date two Business Days prior to the first day of such Interest Period, on Telerate Access Service Page 3750 (British Bankers Association Settlement Rate) as the London Interbank Offered Rate for dollar deposits having a term comparable to such Interest Period and in an amount of $1,000,000 or more (or, if such Page shall cease to be publicly available or if the information contained on such Page, in Agent's sole judgment, shall cease to accurately reflect such London Interbank Offered Rate, such rate as reported by any publicly available source of similar market data selected by Agent that, in Agent's sole judgment, accurately reflects such London Interbank Offered Rate). "Events of Default" shall have the meaning assigned to such term in Section 10 hereof. "Facility Usage" means, at the time in question, the aggregate amount of outstanding Loans and existing LC Obligations at such time. "Federal Funds Rate" shall mean, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if the day for which such rate is to be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if such rate is not so published for any day, the Federal Funds Rate for such day shall be such rate as reported by any publicly available source of similar market data selected by Agent that, in Agent's sole judgment, accurately reflects such rate on overnight Federal funds transactions. "Financial Statements" shall have the meaning assigned to such term in Section 7.02 hereof. "GAAP" shall mean generally accepted accounting principles applied on a basis consistent with those which, in accordance with Section 1.03(a) hereof, are to be used in making the calculations for purposes of determining compliance with the terms of this Agreement. "Guaranty" shall mean a guaranty, an endorsement, a contingent agreement to purchase or to furnish funds for the payment or maintenance of, or otherwise to be or become contingently liable under or with respect to, the Indebtedness, other obligations, net worth, working capital or earnings of any Person, or a guaranty of the payment of dividends or other distributions upon the stock or equity interests of any Person, or an agreement to purchase, sell or lease (as lessee or 5 lessor) Property, products, materials, supplies or services primarily for the purpose of enabling a debtor to make payment of his or its obligations or an agreement to assure a creditor against loss, including, without limitation, causing a bank or other financial institution to issue a letter of credit or other similar instrument for the benefit of another Person, but excluding endorsements for collection or deposit in the ordinary course of business. The terms "Guaranty" and "Guaranteed" used as a verb shall have a correlative meaning. "Hazardous Materials" shall have the meaning assigned to such term in Section 7.20(b) hereof. "Hedging Agreement" shall mean (i) any currency rate swap, rate cap, rate floor, rate collar, exchange transaction, forward rate agreement, or other exchange or rate protection agreements or any option with respect to any such transaction now existing or hereafter entered into between any Obligor and Agent, any Lender or an Affiliate thereof, or (ii) any swap agreement, cap, floor, collar, exchange transaction, forward agreement, or other exchange or protection agreements relating to crude oil, natural gas or other hydrocarbons, or any option with respect to any such transaction now existing or hereafter entered into between any Obligor and Agent, any Lender or an Affiliate thereof. "Hydrocarbon Interests" shall mean all rights, titles, interests and estates in and to oil and gas leases, oil, gas and mineral leases, or other liquid or gaseous hydrocarbon leases, mineral fee interests, overriding royalty and royalty interests, net profits interests and production payment interests, including any remainder or reversionary interest of whatever nature, and the lands covered or affected thereby. "Hydrocarbons" shall mean oil, gas, casinghead gas, drip gasoline, natural gasoline, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and all constituents, elements or compounds thereof and products refined therefrom. "Indebtedness" shall mean, for any Person (without duplication): (a) indebtedness created, issued or incurred by such Person for borrowed money (whether by loan or the issuance and sale of debt securities or the sale of Property to another Person subject to an understanding or agreement, contingent or otherwise, to repurchase such Property from such Person); (b) obligations of such Person to pay the deferred purchase or acquisition price of Property or services, other than trade accounts payable (other than for borrowed money) arising, and accrued expenses incurred, in the ordinary course of business so long as such trade accounts payable or accrued expenses are payable within 120 days of the date the respective goods are delivered or the respective services are rendered; (c) indebtedness of others secured by a Lien on the Property of such Person, whether or not the respective indebtedness so secured has been assumed by such Person; (d) obligations of such Person in respect of letters of credit or similar instruments issued or accepted by banks and other financial institutions for account of such Person; (e) indebtedness of others Guaranteed by such Person; (f) past due obligations of such Person (including, without limitation, any joint interest billings) that are more than 60 days past due in respect of leases, operating agreements, gas balancing agreements, farm-out agreements, capital lease obligations, purchase and sale agreements and other agreements and instruments pertaining to the Properties mortgaged to Bank Parties (or Agent for the benefit of Bank Parties) pursuant to the Security 6 Documents; (g) production payments in connection with Oil and Gas Properties of such Person; (h) uncovered or unhedged obligations of such Person arising under futures contracts, forward contracts, or other commodity agreements; (i) obligations of such Person in respect of an interest rate swap, cap or collar agreement or similar arrangement providing for the transfer or mitigation of interest risks generally or under specific contingencies; (j) indebtedness of such Person arising under leases serving as a source of financing or otherwise capitalized in accordance with GAAP (but excluding customary oil, gas and mineral leases); and (k) obligations of such Person arising under conditional sales or other title retention agreements. "Independent Reserve Reports" shall have the meaning assigned to such term in Section 8.04(a) hereof. "ING Capital" means ING (U.S.) Capital Corporation, a Delaware corporation, and its successors and assigns. "Initial Reserve Reports" shall mean the Independent Reserve Reports dated (i) February 23, 1998 by Ryder Scott Company, (ii) February 25, 1998 by H.J. Gruy and Associates, Inc., and (iii) February 25, 1998 by Netherland, Sewell & Associates, Inc., each as of December 31, 1997, and the Independent Reserve Report dated February 12, 1998 by System Technology Associates, Inc., as of January 1, 1998. "Interest Period" shall mean, with respect to any Eurodollar Loan, each period commencing on the date such Eurodollar Loan is made or Converted from a Base Rate Loan or the last day of the next preceding Interest Period for such Loan and ending on the numerically corresponding day in the third calendar month thereafter, as the Company may select as provided in Section 4.04 hereof, except that each Interest Period which commences on the last Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month. Notwithstanding the foregoing: (i) no Interest Period may commence before and end after any Quarterly Date unless, after giving effect thereto, the aggregate principal amount of the Loans having Interest Periods which end after such Quarterly Date shall be equal to or less than the aggregate principal amount of the Loans scheduled to be outstanding after giving effect to the payments of principal required to be made on such Quarterly Date; (ii) each Interest Period which would otherwise end on a day which is not a Business Day shall end on the next succeeding Business Day (or, if such next succeeding Business Day falls in the next succeeding calendar month, on the next preceding Business Day); and (iii) notwithstanding clause (i) above, no Interest Period shall have a duration of less than one month and, if the Interest Period for any Eurodollar Loan would otherwise be a shorter period, such Loan shall not be available hereunder. "Investment" shall mean, for any Person: (a) the acquisition (whether for cash, Property, services or securities or otherwise) of capital stock, bonds, notes, debentures, partnership or other ownership interests or other securities of any other Person or any agreement to make any such acquisition (including, without limitation, any "short sale" or any sale of any securities at a time when such securities are not owned by the Person entering into such short sale); (b) the making of any deposit with, or advance, loan or other extension of credit to, any other Person (including, without limitation, the purchase of Property from another person subject to an understanding or 7 agreement, contingent or otherwise, to resell such property to such Person, but excluding any such advance, loan or extension of credit having a term not exceeding 90 days representing the purchase price of inventory or supplies sold in the ordinary course of business); or (c) the entering into of any Guaranty of, or other contingent obligation with respect to, Indebtedness or other liability of any other Person and (without duplication) any amount committed to be advanced, lent or extended to such Person. "LC Application" means any application for a Letter of Credit hereunder made by the Company to LC Issuer. "LC Collateral" has the meaning given it in Section 2.14(a). "LC Issuer" means ING Capital in its capacity as the issuer of Letters of Credit hereunder, and its successors in such capacity. Agent may, with the consent of the Company and the Lender in question, appoint any Lender hereunder as the LC Issuer in place of or in addition to ING Capital. "LC Obligations" means, at the time in question, the sum of all Matured LC Obligations plus the Maximum Drawing Amount. "Lenders" means each signatory hereto (other than the Company), including ING (U.S.) Capital Corporation in its capacity as a Lender hereunder rather than as Agent or LC Issuer, and the successors of each as holder of a Note. "Letter of Credit" means any letter of credit issued by LC Issuer hereunder at the application of the Company. "Lien" shall mean, with respect to any Property, any mortgage, lien, pledge, charge (including, without limitation, production payments and the like burdening such Properties), security interest, preferential right to purchase, right of first refusal, call on production or other burden or encumbrance of any kind in respect of such Property. For purposes of this Agreement, the Company or any of its Subsidiaries or any Partnership shall be deemed to own subject to a Lien any Property which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such Property. "Loans" shall mean the loans provided for by Section 2.01 hereof and shall include Revolving Credit Loans and Term Loans. "Majority Lenders" shall mean Lenders having Percentage Shares equal to or greater than fifty-one percent (51%). "Margin Stock" shall mean margin stock within the meaning of Regulations U and X. "Material Adverse Effect" shall mean a material adverse effect on any of the following, either individually or in the aggregate with all other events and circumstances then existing which 8 would be a Default if such events or circumstances were to have a Material Adverse Effect: (a) the consolidated financial condition, business, operations or prospects taken as a whole of the Company and its Consolidated Subsidiaries, (b) the ability of the Company to perform its obligations under any of the Basic Documents or (c) the aggregate value of the security provided to Bank Parties (or Agent for the benefit of Bank Parties) under the Security Documents. "Material Subsidiary" shall mean, at any time, a Subsidiary of the Company which as of such time meets the definition of a "significant subsidiary" contained as of the date hereof in Regulation S-X of the Securities and Exchange Commission. "Matured LC Obligations" means all amounts paid by LC Issuer on drafts or demands for payment drawn or made under or purported to be under any Letter of Credit and all other amounts due and owing to LC Issuer under any LC Application for any Letter of Credit, to the extent the same have not been repaid to LC Issuer (with the proceeds of Revolving Credit Loans or otherwise). "Maximum Drawing Amount" means at the time in question the sum of the maximum amounts which LC Issuer might be called upon to advance under all Letters of Credit then outstanding. "Maximum Rate" shall mean, with respect to each Bank Party, the maximum nonusurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the Notes or on other Obligations under laws from time to time applicable to such Bank Party. "Multiemployer Plan" shall mean a multiemployer plan defined as such in Section 3(37) of ERISA to which contributions have been made by the Company or any ERISA Affiliate and which is covered by Title IV of ERISA. "Notes" shall mean the notes provided for by Section 2.06 hereof. "Note" shall mean any of the Notes. "Obligations" shall mean, as at any date of determination thereof, all obligations of the Obligors, now existing or hereafter arising, owing to any Bank Party under this Agreement, the Notes or any other Basic Document, whether for principal, interest, fees, expenses or otherwise, including all LC Obligations. "Obligors" shall mean the Company and each of the Subsidiary Guarantors. "Oil and Gas Properties" shall mean the Hydrocarbon Interests; the Properties now or hereafter pooled or unitized with Hydrocarbon Interests; all presently existing or future unitization agreements, pooling agreements and declarations of pooled units and the units created thereby (including, without limitation, all units created under orders, regulations and rules of any governmental body or agency having jurisdiction) which may affect all or any portion of the Hydrocarbon Interests; all operating agreements, contracts and other agreements which relate to any of the Hydrocarbon Interests or the production, sale, purchase, exchange, transporting, 9 treating or processing of Hydrocarbons from or attributable to such Hydrocarbon Interests; all Hydrocarbons in and under and which may be produced from or attributable to the Hydrocarbon Interests, the lands covered thereby and all oil in tanks and all rents, issues, profits, proceeds, products, revenues and other incomes from or attributable to the Hydrocarbon Interests; all tenements, hereditaments, appurtenances and Properties in anywise appertaining, belonging, affixed or incidental to the Hydrocarbon Interests, Properties, rights, titles, interests and estates described or referred to above, including any and all Property, real or personal, now owned or hereinafter acquired and situated upon, used, held for use or useful in connection with the operating, working or development of any of such Hydrocarbon Interests or Property (excluding drilling rigs, automotive equipment or other personal property primarily located or used elsewhere but which may be on such premises for the purpose of drilling a well or for other similar temporary uses) and including any and all oil wells, gas wells, injection wells or other wells, buildings, structures, improvements, fuel separators, liquid extraction plants, plant compressors, pumps, pumping units, field gathering systems, tanks and tank batteries, fixtures, valves, fittings, machinery and parts, engines, boilers, meters, apparatus, equipment, appliances, tools, implements, cables, wires, towers, casing, tubing and rods, surface leases, rights-of-way, easements and servitudes together with all additions, substitutions, replacements, accessions and attachments to any and all of the foregoing. "Original Agreement" shall have the meaning assigned to such term in the second paragraph of this Agreement. "PAAI" shall mean Plains All American Inc., a Delaware corporation and a Wholly-Owned Subsidiary of the Company. "Partnerships" shall mean the partnerships in which the Company or any of its Subsidiaries owns a general partnership interest (including, without limitation, those listed in Schedule 7.21 hereof) other than (i) any partnership regarded as such solely for Federal income tax purposes if such partnership has made or is deemed to have made an election to be excluded from Subchapter K, Chapter 1, Subtitle A of the Code as permitted by Section 761 of the Code and the regulations thereunder and (ii) any partnership of which all of the partnership interests are owned, directly or indirectly, by the Company and/or any of its Subsidiaries. "PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "Percentage Share" shall mean, with respect to any Lender (a) when used in Section 2.01 or when no Loans are outstanding hereunder, the percentage set forth opposite such Lender's name on the Lender Schedule attached to this Agreement, as from time to time amended or supplemented, or with respect to a Person who shall become a Lender after the date of this Agreement, the percentage of the Commitment and Loans assigned to and assumed by such Lender, as set forth in the assignment made pursuant to Section 11.06(b), and (b) when used otherwise, the percentage equal to (i) the sum of (A) the unpaid principal balance of such Lender's Loans at the time in question, plus (B) Matured LC Obligations which such Lender has funded pursuant to Section 2.11(c), plus (C) the portion of the Maximum Drawing Amount which such Lender might be obligated to fund under Section 2.11(c), divided by (ii) the sum of (I) the 10 aggregate unpaid principal balance of all Loans at such time plus (II) the aggregate amount of LC Obligations outstanding at such time. "Permitted Investments" shall mean, for any Person: (a) direct obligations of the United States of America, or of any agency thereof, or obligations guaranteed as to principal and interest by the United States of America, or of any agency thereof, in either case maturing not more than 90 days from the date of acquisition thereof by such Person; (b) certificates of deposit issued by any bank or trust company organized under the laws of the United States of America or any state thereof and having capital, surplus and undivided profits of at least $500,000,000, maturing not more than 90 days from the date of acquisition thereof by such Person; and (c) commercial paper rated A-1 or better or P-1 by Standard & Poor's Corporation or Moody's Investors Services, Inc., respectively, maturing not more than 90 days from the date of acquisition thereof by such Person. "Person" shall mean any individual, corporation, company, voluntary association, partnership, joint venture, trust, unincorporated organization or government (or any agency, instrumentality or political subdivision thereof). "Plan" shall mean an employee benefit or other plan established or maintained by the Company or any ERISA Affiliate and which is covered by Title IV of ERISA, other than a Multiemployer Plan. "PMCT" shall mean PMCT Inc., a Delaware corporation, a Wholly-Owned Subsidiary of the Company. "PMTI" shall mean Plains Marketing & Transportation, Inc., a Delaware corporation and a Wholly-Owned Subsidiary of the Company. "PMTI Credit Facility" shall mean: (i) initially, the uncommitted secured demand transactional line of credit facility, in an amount not to exceed $90,000,000, dated August 23, 1995, as heretofore amended, among BankBoston, N.A. (f/k/a The First National Bank of Boston), individually and as agent, ING Capital, the other lenders named therein and PMTI, and (ii) any secured credit facility refinancing the facility described in clause (i) above, in an amount not to exceed $175,000,000, among PMTI, BankBoston, N.A., as agent, and the co- agents and lenders named therein, constituting "Permitted Marketing Obligations", "Permitted Operating Obligations", or "Permitted Contango Market Transaction Obligations", as such terms are defined in the Senior Subordinated Indenture, in each case together with the security documents and other documents and agreements executed in connection with such facilities. "Post-Default Rate" shall mean, in respect of any principal of any Loan or any other amount under this Agreement, the Notes or any other Basic Document that is not paid when due (whether at stated maturity, by acceleration, by mandatory prepayment or otherwise), a rate per annum during the period from and including the due date to but excluding the date on which such amount is paid in full equal to 3% above the Base Rate as in effect from time to time plus the Applicable Margin (provided that, if the amount so in default is principal of a Eurodollar Loan and the due date thereof is a day other than the last day of an Interest Period therefor, the "Post-Default Rate" for such principal shall be, for the period from and including such due date to but 11 excluding the last day of such Interest Period, 3% above the interest rate for such Loan as provided in Section 3.02(b) hereof and, thereafter, the rate provided for above in this definition). In no event shall the Post-Default Rate exceed the Maximum Rate. "Prime Rate" shall mean the arithmetic average of the rates of interest publicly announced by The Chase Manhattan Bank (National Association), Citibank, N.A. and Morgan Guaranty Trust Company of New York (or their respective successors) as their respective prime commercial lending rates (or, as to any such bank that does not announce such a rate, such bank's "base" or other rate determined by Agent to be the equivalent rate announced by such bank), except that, if any such bank shall, for any period, cease to announce publicly its prime commercial lending (or equivalent) rate, Agent shall, during such period, determine the "Prime Rate" based upon the arithmetic average of the prime commercial lending (or equivalent) rates announced publicly by the other such banks. "Principal Office" shall mean the principal office of each Lender, as set forth on the signature pages hereto. "Property" shall mean any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible. "Quarterly Dates" shall mean the first Business Day of July, October, January and April in each year, the first of which shall be July 1, 1998. "Regulations D, U and X" shall mean, respectively, Regulations D, U and X of the Board of Governors of the Federal Reserve System (or any successor), as the same may be amended or supplemented from time to time. "Regulatory Change" shall mean any change after the date of this Agreement in United States Federal, state or foreign law or regulations (including, without limitation, Regulation D) or the adoption or making after such date of any interpretation, directive or request applying to a class of banks (including any Bank Party who is such a bank) of or under any United States Federal, state or foreign law or regulations (whether or not having the force of law and whether or not failure to comply therewith would be unlawful) by any court or governmental or monetary authority charged with the interpretation or administration thereof. "Release" shall have the meaning assigned to such term in Section 7.20(b) hereof. "Reserve Requirement" shall mean, for any Interest Period for any Eurodollar Loan, the average maximum rate at which reserves (including any marginal, supplemental or emergency reserves) are required to be maintained during such Interest Period under Regulation D by member banks of the Federal Reserve System in New York City with deposits exceeding one billion Dollars against "Eurocurrency liabilities" (as such term is used in Regulation D). Without limiting the effect of the foregoing, the Reserve Requirement shall include any other reserves required to be maintained by such member banks by reason of any Regulatory Change against (i) any category of liabilities which includes deposits by reference to which the Eurodollar Rate is to 12 be determined or (ii) any category of extensions of credit or other assets which includes Eurodollar Loans. "Revolving Credit Loan" shall have the meaning assigned to such term in Section 2.01(a) hereof. "Revolving Credit Termination Date" shall mean the earlier of (a) July 1, 2000 and (b) the date on which the Commitment is reduced to zero or terminated pursuant to Section 2.03 hereof. "Security Documents" shall mean, collectively, each Security Document listed on Schedule 6.01(g) attached hereto and all Uniform Commercial Code financing statements required by this Agreement or any Security Document to be filed with respect to the security interests in personal Property and fixtures created pursuant to any Security Document and all other security agreements, deeds of trust, mortgages, chattel mortgages, pledges, guaranties, financing statements, continuation statements, extension agreements and other agreements or instruments now, heretofore, or hereafter delivered by the Company and any of its Subsidiaries to, any Bank Party in connection with this Agreement or any transaction contemplated hereby to secure or guarantee the payment of any part of the Obligations or the performance of any other duties and obligations under the Basic Documents. "Senior Subordinated Indenture" shall mean (i) that certain Indenture dated as of March 15, 1996 among the Company, Subsidiary Guarantors and Chase Bank of Texas, National Association (f/k/a Texas Commerce Bank National Association), as Trustee, and (ii) that certain Indenture dated as of July 21, 1997 among the Company, Subsidiary Guarantors and Chase Bank of Texas, National Association (f/k/a Texas Commerce Bank National Association), as Trustee, in each case as amended or modified from time to time in compliance with Section 8.23. "Senior Subordinated Notes" shall mean (i) the 10 1/4% senior subordinated notes due 2006 in the aggregate principal amount of $150,000,000 issued by the Company pursuant to the Senior Subordinated Indenture dated as of March 15, 1996 and (ii) the 10 1/4% senior subordinated notes due 2006 in the aggregate principal amount of $50,000,000 issued by the Company pursuant to the Senior Subordinated Indenture dated as of July 21, 1997. "Society of Petroleum Engineers" shall mean the Society of Petroleum Engineers of the American Institute of Petroleum or any successor organization or, if there is no successor organization, a similar organization designated by Agent. "Subordinated Indebtedness" shall mean, collectively, (i) Indebtedness of the Company and its Subsidiaries listed in Schedule 8.09 hereto which is identified as subordinated indebtedness on such Schedule 8.09, (ii) Indebtedness of the Company evidenced by the Senior Subordinated Notes and the Indebtedness of its Subsidiaries from time to time evidenced by the guaranties of such Senior Subordinated Notes, and (iii) other Indebtedness for which the Company is directly and primarily liable, in respect of which none of its Subsidiaries is contingently or otherwise obligated and which is subordinated to the obligations of the Company to pay principal of and interest on the Loans and the Notes hereunder on terms satisfactory to 13 Majority Lenders, which contain other terms (including interest rate, amortization and financial covenants) satisfactory to Majority Lenders and where the aggregate Indebtedness of the Company and the Company's ability to pay its Indebtedness when due, after giving effect to such Subordinated Indebtedness, is satisfactory to Majority Lenders. "Subsidiary" shall mean, for any Person, any corporation or other entity of which at least a majority of the securities or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or other persons performing similar functions of such corporation or other entity (irrespective of whether or not at the time securities or other ownership interests of any other class or classes of such corporation or other entity shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person; provided that the term "Subsidiary" shall not include any of the Partnerships other than any Partnership of which all of the partnership interests are owned, directly or indirectly, by the Company and/or any of its Subsidiaries. "Wholly-Owned Subsidiary" shall mean any such corporation or other entity of which all of such securities or other ownership interests (other than, in the case of a corporation, directors' qualifying shares) are so owned or controlled. Notwithstanding the foregoing, pursuant to Section 8.35 no Unrestricted Subsidiary shall be deemed a "Subsidiary" of the Company for purposes of this Agreement and each other Basic Document. "Subsidiary Guaranty" shall mean a Guaranty guaranteeing some or all of the Obligations executed by one or more Subsidiary Guarantors or any Subsidiary of the Company which now or hereafter executes and delivers a Guaranty in favor of Bank Parties (or Agent for the benefit of Bank Parties), as the same shall be amended, modified and supplemented and in effect from time to time. "Subsidiary Guaranties" shall mean, collectively, all Subsidiary Guaranties. "Subsidiary Guarantor" shall mean each of the following Subsidiaries of the Company: Stocker Resources, L.P., Calumet Florida, Inc., Plains Illinois Inc., PMTI, Plains Resources International Inc., Plains Terminal & Transfer Corporation, PLX Crude Lines Inc., Stocker Resources, Inc. and PLX Ingleside Inc. "Supermajority Lenders" shall mean Lenders having Percentage Shares equal to or greater than sixty-six and two-thirds percent (66 2/3%). "Tangible Net Worth" shall mean, as at any date, the sum for the Company and its Consolidated Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), of the following: (a) the amount of capital stock, plus (b) the amount of surplus and retained earnings (or in the case of a surplus or retained earnings deficit, minus the amount of such deficit), minus (c) the sum of the following: cost of treasury shares and the book value of all assets which should be classified as intangibles (without duplication of deductions in respect of items already deducted in arriving at surplus and retained earnings) but in any 14 event including goodwill, research and development costs, trademarks, trade names, copyrights, patents and franchises, unamortized debt discount and expense, all reserves and any write-up in the book value of assets resulting from a revaluation thereof subsequent to December 31, 1997. "Term Loan" shall have the meaning assigned to such term in Section 2.01(b) hereof. "Type" shall have the meaning assigned that term in Section 1.04 hereof. "Unrestricted Subsidiary" shall mean PAAI and each of its Subsidiaries, whether now existing or hereafter formed or acquired. 1.02 Oil and Gas Terms. As used herein, the terms "reserves," "proved reserves," "proved developed reserves," "proved developed producing reserves," "proved developed nonproducing reserves" and "proved undeveloped reserves" shall have the meanings given such terms from time to time by the Society of Petroleum Engineers. 1.03 Accounting Terms and Determinations. (a) Except as otherwise expressly provided herein, all accounting terms used herein shall be interpreted, all determinations and calculations with respect to accounting matters hereunder shall be made, and all financial statements and certificates and reports as to financial matters required to be delivered to Bank Parties hereunder shall be prepared, in accordance with generally accepted accounting principles as in effect from time to time applied on a basis consistent with that used in the preparation of the latest financial statements furnished to Bank Parties hereunder (which, prior to the first financial statements delivered under Sections 8.01(a), (b) and (c) hereof, shall mean the financial statements referred to in Section 7.02 hereof). (b) To enable the ready and consistent determination of compliance with the covenants set forth in Sections 8.12 and 8.13 hereof, the Company will not change the last day of its fiscal year from December 31, or the last days of the first three fiscal quarters in each of its fiscal years from March 31, June 30 and September 30, respectively. 1.04 Types of Loans. Loans hereunder are distinguished by "Type". The "Type" of a Loan refers to whether such Loan is a Base Rate Loan or a Eurodollar Loan, each of which constitutes a Type. Section 2. The Commitment. 2.01 Loans. (a) Each Lender agrees, on the terms of this Agreement, to make revolving credit loans to the Company in Dollars during the period from and including the Closing Date to but excluding the Revolving Credit Termination Date (each, such Lender's "Revolving Credit Loans") in an aggregate principal amount at any one time outstanding up to but not exceeding the amount of such Lender's Percentage Share of the Commitment as in effect from time to time, provided that at no time shall the Facility Usage be in excess of the Borrowing Base as then in effect. Subject to the terms of this Agreement, during such period the Company may borrow, repay and reborrow by means of Base Rate Loans and Eurodollar Loans and may Convert 15 Revolving Credit Loans of one Type into Revolving Credit Loans of another Type (as provided in Section 2.07(a) hereof) or Continue Revolving Credit Loans of one Type as Revolving Credit Loans of the same Type; provided that no more than six separate Interest Periods in respect of Eurodollar Loans may be outstanding at any one time. (b) Each Lender agrees, on the terms of this Agreement, to make a term loan to the Company by converting the Revolving Credit Loans pursuant to Section 3.01(a) hereof, in Dollars on the Revolving Credit Termination Date (such Lender's "Term Loan") in an amount up to but not exceeding the aggregate unpaid principal amount of such Lender's Revolving Credit Loans outstanding at the opening of business on the Revolving Credit Termination Date, provided that the Facility Usage shall not exceed the Borrowing Base as then in effect. Thereafter, the Company may Convert Term Loans of one Type into Term Loans of another Type (as provided in Section 2.07(a) hereof) or Continue Term Loans of one Type as Term Loans of the same Type; provided that no more than six separate Interest periods in respect of Eurodollar Loans may be outstanding at any one time. 2.02 Borrowings. The Company shall give Agent notice of each borrowing hereunder as provided in Section 4.04 hereof, after which Agent shall give each Lender prompt written notice thereof. On the date specified for each borrowing hereunder, each Lender shall, subject to the terms and conditions of this Agreement, promptly remit to Agent at Agent's Principal Office the amount of such Lender's Percentage Share of such borrowing in immediately available funds, and upon receipt of such funds, subject to the terms and conditions of this Agreement, Agent shall promptly make available the amount of such borrowing to the Company by depositing the same, in immediately available funds, in an account of the Company designated by the Company. Unless Agent shall have received prompt notice from a Lender that such Lender will not make available to Agent such Lender's Percentage Share of a requested borrowing, Agent may in its discretion assume that such Lender has made its Percentage Share of such requested borrowing available to Agent in accordance with this section and Agent may if it chooses, in reliance upon such assumption, make such borrowing available to the Company and shall use its best efforts to notify the Company of such action, provided, however, that any failure by Agent to notify the Company of such action shall not in any way or manner diminish, nullify or reduce the Company's and such Lender's obligations in the following sentence. If and to the extent such Lender shall not so make its Percentage Share of such requested borrowing available to Agent, such Lender and the Company severally agree to pay or repay to Agent within three days after demand the amount of such Lender's Percentage Share of such requested borrowing together with interest thereon, for each day from the date such amount is made available to the Company until the date such amount is paid or repaid to Agent, such interest to be paid (i) by such Lender at the Federal Funds Rate plus $200 per day, and (ii) by the Company at the interest rate applicable at the time to the remainder of the requested borrowing made on such date. The failure of any Lender to make its Percentage Share of any requested borrowing available to Agent hereunder shall not relieve any other Lender of its obligation hereunder, if any, to make its Percentage Share of such requested borrowing available to Agent, but no Lender shall be responsible for any other Lender's failure to make its Percentage Share of any requested borrowing available to Agent. 2.03 Changes of Commitment. (a) The Company shall make any mandatory prepayments required by Section 2.07(b) hereof resulting from such Commitment reduction on the date of such 16 Commitment reduction. The reduction in the Commitment under this Section 2.03(a) shall be in addition to any reduction in the Commitment pursuant to Section 2.03(b) below. (b) The Company shall have the right at any time or from time to time (i) so long as no Loans are outstanding, to terminate the Commitment and (ii) to reduce the unused amount of the Commitment; provided that (x) the Company shall give notice of each such termination or reduction as provided in Section 4.04 hereof, and (y) each partial reduction shall be in an amount at least equal to $500,000 and in multiples of $100,000 in excess thereof. (c) The Commitment shall be automatically reduced to zero at the close of business on the Revolving Credit Termination Date. (d) The Commitment once terminated or reduced may not be reinstated. 2.04 Commitment and Agency Fees. (a) The Company shall pay to Agent for the account of each Lender a commitment fee on the lesser of the daily average unused amount of such Lender's Percentage Share of the Commitment and the daily average unused amount of the Borrowing Base, for the period from and including the date hereof to but not including the earlier of the date the Commitment is terminated and the Revolving Credit Termination Date, at a rate per annum equal to three-eighths of one percent (0.375%). Accrued commitment fees (including commitment fees accruing under the Original Agreement during the period from April 1, 1998 through and including the date hereof) shall be payable on each Quarterly Date and on the earlier of the date the Commitment is terminated or the Revolving Credit Termination Date. (b) The Company shall pay to Agent for its own account an agency fee pursuant to a letter agreement of even date herewith between Agent and the Company. 2.05 Lending Offices. The Loans of each Type shall be made and maintained at each Lender's Applicable Lending Office for Loans of such Type. 2.06 Notes. (a) Each Lender's Loans shall be evidenced by a single promissory note (such Lender's "Note" and collectively, the "Notes") of the Company substantially in the form of Exhibit "A" hereto, dated the Closing Date, payable to such Lender at the Principal Office of Agent, in a principal amount equal to the amount of such Lender's Percentage Share of the Commitment as originally in effect and otherwise duly completed, such Notes to be given in renewal, extension and increase of, but not in extinguishment or novation of, those certain Promissory Notes dated March 7, 1997 in the original aggregate principal amount of $165,000,000 issued by the Company under the Original Agreement. (b) The date, amount, Type, interest rate, and duration of Interest Period (if applicable) of each Loan made by each Lender to the Company, and each payment made on account of the principal thereof, shall be recorded by Agent on its books and by such Lender on its books and, prior to any transfer of such Lender's Note, endorsed by such Lender on the schedule attached to such Lender's Note or any Continuation thereof; provided that the failure of such Lender to make any such recordation or endorsement shall not affect the obligations of the Company to make a payment when due of any amount owing under such Lender's Note. 17 (c) No Lender shall be entitled to have its Note subdivided, by exchange for promissory notes of lesser denominations or otherwise, except in connection with a permitted assignment of all or any portion of its Percentage Share of the Commitment, its Loans and its Note pursuant to Section 11.06(b) hereof. 2.07 Prepayments and Conversions or Continuations of Loans. (a) Optional. Subject to Section 4.03 hereof, the Company shall have the right to prepay Loans, or to Convert Loans of one Type into Loans of another Type or Continue Loans of one Type as Loans of the same Type, at any time or from time to time; provided that: (i) the Company shall give Agent and each Lender notice of each such prepayment, Conversion or Continuation as provided in Section 4.04 hereof and (ii) a Eurodollar Loan may be prepaid or converted only on the last day of an Interest Period for such Loan. Notwithstanding the foregoing, and without limiting the rights and remedies of Bank Parties under Section 10 hereof, in the event that any Event of Default shall have occurred and be continuing, Majority Lenders may suspend the right of the Company to Convert any Loan into a Eurodollar Loan, or to Continue any Loan as a Eurodollar Loan, in which event all Loans shall be Converted (on the last day(s) of the respective Interest Periods therefor) or Continued, as the case may be, as Base Rate Loans. (b) Mandatory. The Company shall from time to time prepay the Loans in such amounts as shall be necessary so that at all times (i) the Facility Usage shall be less than or equal to the Borrowing Base then in effect (unless the Company shall have provided additional collateral acceptable to Majority Lenders in their sole discretion) (or, if the Revolving Credit Loans have been paid in full, deliver LC Collateral to LC Issuer as required under Section 2.14(a)). and (ii) the Facility Usage shall be less than or equal to the Commitment then in effect. (c) Inverse Order. After the Revolving Credit Termination Date, all optional and mandatory prepayments made on the Term Loans pursuant to Sections 2.07(a) and (b) above shall be applied to the scheduled installments of the Term Loans in inverse order of their maturity. 2.08 Borrowing Base. (a) During the period commencing on the Closing Date and ending on the date the first redetermination of the Borrowing Base becomes effective, the Borrowing Base shall be $225,000,000. (b) Supermajority Lenders shall endeavor on each May 1 and October 1, commencing on October 1, 1998, and may at any time upon the occurrence of any event or change which in the reasonable judgment of such Supermajority Lenders would have a Material Adverse Effect or a material adverse change in the value or nature of the Oil and Gas Properties included in the Borrowing Base from the most recent redetermination pursuant to this Section 2.08 or upon the incurrence of additional Subordinated Indebtedness, of not less than $10,000,000, redetermine the amount of the Borrowing Base in accordance with this Section 2.08. The Company may from time to time request in writing a redetermination of the Borrowing Base (a "Special Redetermination") on a date other than May 1 or October 1, by delivering to each Lender additional Company Reserve Reports and other relevant information (including, without limitation, as to any additional Indebtedness of the Obligors) that any Lender may request and as otherwise provided in Section 8.04 hereof. 18 (c) Upon receipt of each Engineering Report required by Section 8.04 hereof or as furnished pursuant to Section 2.08(b) hereof and such other financial statements, reports, data and supplemental information as may from time to time be reasonably requested by any Lender, together with a certificate from a senior officer of the Company that (i) to the best of his knowledge, the information upon which such Engineering Report is based is true and complete in all material respects, (ii) identifies the properties covered by such Engineering Report that have not been previously included in any prior Engineering Reports, (iii) no Properties mortgaged to Bank Parties (or Agent for the benefit of Bank Parties) pursuant to the Security Documents have been sold since the date of the last Borrowing Base determination except as set forth on an exhibit to the certificate, listing all Properties mortgaged to Lenders (or Agent for the benefit of Bank Parties) pursuant to the Security Documents sold in such detail as reasonably required by Agent, (iv) except as set forth on an exhibit to the certificate, the Company owns good and defensible title to the Oil and Gas Properties included in such Engineering Report free of all Liens except as permitted by Section 8.08 hereof, (v) Bank Parties (or Agent for the benefit of Bank Parties) have valid first and prior liens pursuant to the Security Documents on not less than 80% of the value of all Oil and Gas Properties included in such Engineering Report, and (vi) except as set forth on an exhibit to the certificate, on a net basis there are no gas imbalances, take-or-pay or other prepayments with respect to such Oil and Gas Properties which would require the Company to deliver Hydrocarbons produced from such Oil and Gas Properties at some future time, without then or thereafter receiving full payment therefor, which would (1) exceed $100,000 for any individual well, (2) exceed $250,000 in the aggregate or (3) with respect to any individual material well, exceed the proved developed producing reserves attributable to such well. Based upon such information and such other information as any Lender, in its sole reasonable discretion, deems appropriate, Supermajority Lenders shall endeavor to determine a new Borrowing Base in accordance with the principles described below. (d) Determination of the Borrowing Base shall be made by Supermajority Lenders, in good faith, in the exercise of their respective sole discretion, and in accordance with their respective customary practices and standards in effect from time to time for oil and gas loans to borrowers similar to the Company. In determining the Borrowing Base, Supermajority Lenders shall adjust the reserve volumes and economics as required by such respective practices and standards of such Lenders. Supermajority Lenders shall evaluate the proved developed producing reserves and proved developed nonproducing reserves; provided that Supermajority Lenders may, in their respective sole discretion, take into account in determining the Borrowing Base proved undeveloped reserves. Notwithstanding anything to the contrary contained herein, Supermajority Lenders may, in their respective sole discretion, exclude from the Borrowing Base any Oil and Gas Properties as to which Lenders (i) have not received (x) title opinions that are reasonably acceptable to Agent issued by attorneys competent in the examination of land titles in the states in which such Oil and Gas Properties are located or (y) other verification of title acceptable to Agent in its sole discretion and (ii) do not (or Agent for the benefit of Bank Parties does not) have a valid first priority perfected Lien pursuant to the Security Documents. Prices used may be the prices actually being received by the Company or the prices set by Supermajority Lenders from time to time and utilized generally in evaluating their respective other oil and gas loans. The pricing, escalation rate and discount factor may be changed from time to time by Supermajority Lenders in accordance with their respective current oil and gas lending criteria. Supermajority Lenders' evaluation may consider, but shall not be limited to the following: (i) the Properties 19 included in the Engineering Reports which are Properties mortgaged to Bank Parties (or Agent for the benefit of Bank Parties) pursuant to the Security Documents, (ii) the degree of title assurance and Lien priority concerning the Properties mortgaged to Bank Parties (or Agent for the benefit of Bank Parties) pursuant to the Security Documents, (iii) the production history of the reserves of the Company, its Subsidiaries and the Partnerships, (iv) take-or-pay, gas balancing, operating and other agreements affecting the reserves of the Company, its Subsidiaries and the Partnerships, (v) nature of ownership of the reserves, (vi) the existence of other collateral, (vii) the financial condition of the Company, its Subsidiaries and the Partnerships, (viii) the existence of all Liens affecting the Properties of the Company, its Subsidiaries and the Partnerships, and (ix) the total Indebtedness of the Company, its Subsidiaries and the Partnerships and the debt service thereon. (e) Each redetermination of the Borrowing Base shall be effective and applicable for all purposes of this Agreement until the effective date of the next redetermination. Agent shall promptly notify the Company in writing of each redetermination of the Borrowing Base made by Supermajority Lenders. Until such notification, the Borrowing Base established for the immediately preceding period shall remain in effect, and thereafter the new Borrowing Base as set forth in such notification shall be in effect. 2.09 Letters of Credit. Subject to the terms and conditions hereof, the Company may during the Revolving Credit Commitment Period request LC Issuer to issue one or more Letters of Credit, provided that, after taking such Letter of Credit into account: (a) the Facility Usage does not exceed the Borrowing Base at such time; and (b) the aggregate amount of LC Obligations at such time does not exceed fifteen percent (15%) of the Borrowing Base at such time; and (c) the expiration date of such Letter of Credit is prior to the end of the Revolving Credit Commitment Period; and (d) such Letter of Credit is to be used for general business purposes of the Company or its Subsidiaries; (e) such Letter of Credit is not directly or indirectly used to assure payment of or otherwise support any Indebtedness of any Person other than Indebtedness of any Obligor; (f) the issuance of such Letter of Credit will be in compliance with all applicable governmental restrictions, policies, and guidelines and will not subject LC Issuer to any cost which is not reimbursable hereunder; (g) the form and terms of such Letter of Credit are acceptable to LC Issuer in its sole and reasonable discretion; and (h) all other conditions in this Agreement to the issuance of such Letter of Credit have been satisfied. 20 LC Issuer will honor any such request if the foregoing conditions (a) through (h) (in the following Section 2.10 called the "LC Conditions") have been met as of the date of issuance of such Letter of Credit. The Company and Bank Parties hereby acknowledge and agree that (i) any letters of credit issued under the Original Agreement and outstanding as of the Closing Date, including without limitation that certain Letter of Credit No. 672917 dated August 23, 1995, issued by LC Issuer for the benefit of BankBoston, N.A. (f/k/a The First National Bank of Boston), as agent, for the account of the Company, in the face amount of $1,000,000, shall be deemed to have been issued hereunder and, together with any related applications and agreements executed in connection therewith, are Basic Documents, and (ii) the reimbursement obligations of the Company relating thereto constitute LC Obligations hereunder, secured by the Security Documents, including without limitation the Subsidiary Guaranties. 2.10 Requesting Letters of Credit. The Company must make written application for any Letter of Credit at least three Business Days before the date on which the Company desires for LC Issuer to issue such Letter of Credit. By making any such written application the Company shall be deemed to have represented and warranted that the LC Conditions described in Section 2.09 will be met as of the date of issuance of such Letter of Credit. Each such written application for a Letter of Credit must be made in writing in the form and substance of Exhibit G, the terms and provisions of which are hereby incorporated herein by reference (or in such other form as may mutually be agreed upon by LC Issuer and the Company). Two Business Days after the LC Conditions for a Letter of Credit have been met as described in Section 2.09 (or if LC Issuer otherwise desires to issue such Letter of Credit), LC Issuer will issue such Letter of Credit at LC Issuer's office in New York, New York. If any provisions of any LC Application conflict with any provisions of this Agreement, the provisions of this Agreement shall govern and control. 2.11 Reimbursement and Participations. (a) Reimbursement by the Company. Each Matured LC Obligation shall constitute a loan by LC Issuer to the Company. The Company promises to pay to LC Issuer, or to LC Issuer's order, on demand, the full amount of each Matured LC Obligation, unless funded under Section 2.11(b) hereof, together with interest thereon at the Post-Default Rate. (b) Revolving Credit Loans Upon Letter of Credit Drawings. If the beneficiary of any Letter of Credit makes a draft or other demand for payment thereunder, then the Company shall be deemed to have requested Lenders to make Revolving Credit Loans to the Company on the date such draft or demand is to be paid in the amount of such draft or demand. If all conditions precedent to such Revolving Credit Loans shall be satisfied as of the date on which such Revolving Credit Loans are to be made, Lenders shall make such Revolving Credit Loans pursuant to Section 2.01(a) concurrently with LC Issuer's payment of such draft or demand, and such Revolving Credit Loans shall be immediately used by LC Issuer to repay the amount of the resulting Matured LC Obligation. For the purposes of the first sentence of Section 2.01(a) the amount of such Revolving Credit Loans shall be considered but the amount of the Matured LC Obligation to be concurrently paid by such Revolving Credit Loans shall not be considered. (c) Participation by Lenders. LC Issuer irrevocably agrees to grant and hereby grants to each Lender, and -- to induce LC Issuer to issue Letters of Credit hereunder -- each Lender 21 irrevocably agrees to accept and purchase and hereby accepts and purchases from LC Issuer, on the terms and conditions hereinafter stated and for such Lender's own account and risk an undivided interest equal to such Lender's Percentage Share of LC Issuer's obligations and rights under each Letter of Credit issued hereunder and the amount of each Matured LC Obligation paid by LC Issuer thereunder. Each Lender unconditionally and irrevocably agrees with LC Issuer that, if a Matured LC Obligation is paid under any Letter of Credit for which LC Issuer is not reimbursed in full by the Company in accordance with the terms of this Agreement and the related LC Application (including any reimbursement by means of concurrent Revolving Credit Loans or by the application of LC Collateral), such Lender shall (in all circumstances and without set-off or counterclaim) pay to LC Issuer on demand, in immediately available funds at LC Issuer's address for notices hereunder, such Lender's Percentage Share of such Matured LC Obligation (or any portion thereof which has not been reimbursed by the Company). Each Lender's obligation to pay LC Issuer pursuant to the terms of this subsection is irrevocable and unconditional. If any amount required to be paid by any Lender to LC Issuer pursuant to this subsection is paid by such Lender to LC Issuer within three Business Days after the date such payment is due, LC Issuer shall in addition to such amount be entitled to recover from such Lender, on demand, interest thereon calculated from such due date at the Federal Funds Rate. If any amount required to be paid by any Lender to LC Issuer pursuant to this subsection is not paid by such Lender to LC Issuer within three Business Days after the date such payment is due, LC Issuer shall in addition to such amount be entitled to recover from such Lender, on demand, interest thereon calculated from such due date at the Post-Default Rate. (d) Distributions to Participants. Whenever LC Issuer has in accordance with this section received from any Lender payment of such Lender's Percentage Share of any Matured LC Obligation, if LC Issuer thereafter receives any payment of such Matured LC Obligation or any payment of interest thereon (whether directly from the Company or by application of LC Collateral or otherwise, and excluding only interest for any period prior to LC Issuer's demand that such Lender make such payment of its Percentage Share), LC Issuer will distribute to such Lender its Percentage Share of the amounts so received by LC Issuer; provided, however, that if any such payment received by LC Issuer must thereafter be returned by LC Issuer, such Lender shall return to LC Issuer the portion thereof which LC Issuer has previously distributed to it. (e) Calculations. A written advice setting forth in reasonable detail the amounts owing under this section, submitted by LC Issuer to the Company or any Lender from time to time, shall be conclusive, absent demonstrable error, as to the amounts thereof. 2.12 Letter of Credit Fees. In consideration of LC Issuer's issuance of any Letter of Credit, the Company agrees to pay to Agent, for the account of all Lenders in accordance with their respective Percentage Shares, a letter of credit issuance fee at a rate equal to one and one-quarter percent (1.25%) per annum, and to Agent, for its own account, a letter of credit fronting fee at a rate equal to one-eighth percent (0.125%) per annum; provided that the aggregate amount of such fees shall not be less than $500 as to any Letter of Credit. Each such fee will be calculated based on the term and face amount of such Letter of Credit and the above applicable rate and will be payable on each Quarterly Date in arrears. In addition, The Company will pay to LC Issuer a minimum administrative issuance fee of $100 for each Letter of Credit and an administrative drawing fee of $300 upon any drawing under a Letter of Credit. 22 2.13 No Duty to Inquire. (a) Drafts and Demands. LC Issuer is authorized and instructed to accept and pay drafts and demands for payment under any Letter of Credit without requiring, and without responsibility for, any determination as to the existence of any event giving rise to said draft, either at the time of acceptance of payment or thereafter. LC Issuer is under no duty to determine the proper identity of anyone presenting such a draft or making such a demand (whether by tested telex or otherwise) as the officer, representative or agent of any beneficiary under any Letter of Credit, and payment by LC Issuer to any such beneficiary when requested by any such purported officer, representative or agent is hereby authorized and approved. The Company agrees to hold LC Issuer and each other Bank Party harmless and indemnified against any liability or claim in connection with or arising out of the subject matter of this section, WHICH INDEMNITY SHALL APPLY WHETHER OR NOT ANY SUCH LIABILITY OR CLAIM IS IN ANY WAY OR TO ANY EXTENT CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY ANY BANK PARTY, provided only that no Bank Party shall be entitled to indemnification for that portion, if any, of any liability or claim which is proximately caused by its own individual gross negligence or willful misconduct. (b) Extension of Maturity. If the maturity of any Letter of Credit is extended by its terms or by any law or regulation or any interpretation, directive or request (whether or not having the force of law) of any court or governmental or monetary authority or other governmental action having jurisdiction over LC Issuer, if any extension of the maturity or time for presentation of drafts or any other modification of the terms of any Letter of Credit is made at the request of the Company or any Subsidiary, or if the amount of any Letter of Credit is increased at the request of the Company or any Subsidiary, this Agreement shall be binding upon Obligors with respect to such Letter of Credit as so extended, increased or otherwise modified, with respect to drafts and property covered thereby, and with respect to any action taken by LC Issuer, LC Issuer's correspondents, or any Bank Party in accordance with such extension, increase or other modification. (c) Transferees of Letters of Credit. If any Letter of Credit provides that it is transferable, LC Issuer shall have no duty to determine the proper identity of anyone appearing as transferee of such Letter of Credit, nor shall LC Issuer be charged with responsibility of any nature or character for the validity or correctness of any transfer or successive transfers, and payment by LC Issuer to any purported transferee or transferees as determined by LC Issuer is hereby authorized and approved, and the Company further agrees to hold LC Issuer and each other Bank Party harmless and indemnified against any liability or claim in connection with or arising out of the foregoing, WHICH INDEMNITY SHALL APPLY WHETHER OR NOT ANY SUCH LIABILITY OR CLAIM IS IN ANY WAY OR TO ANY EXTENT CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY ANY BANK PARTY, provided only that no Bank Party shall be entitled to indemnification for that portion, if any, of any liability or claim which is proximately caused by its own individual gross negligence or willful misconduct. 23 2.14 LC Collateral. (a) LC Obligations in Excess of Borrowing Base. If, after the making of all mandatory prepayments required under Section 2.07(b), the outstanding LC Obligations will exceed the Borrowing Base, then in addition to prepayment of the entire principal balance of the Revolving Credit Loans, the Company will immediately pay to LC Issuer an amount equal to such excess. LC Issuer will hold such amount as security for the remaining LC Obligations (all such amounts held as security for LC Obligations being herein collectively called "LC Collateral") until such LC Obligations become Matured LC Obligations, at which time such LC Collateral may be applied to such Matured LC Obligations. So long as no Default has occurred and is continuing, if such LC Obligations shall expire or otherwise terminate without a drawing or other demand for payment, or if the Borrowing Base shall increase such that the Borrowing Base exceeds the Facility Usage, LC Collateral in an amount equal to such expired or terminated and undrawn LC Obligation shall be returned to the Company. Neither this subsection nor the following subsection shall, however, limit or impair any rights which LC Issuer may have under any other document or agreement relating to any Letter of Credit or LC Obligation, including any LC Application, or any rights which any Bank Party may have to otherwise apply any payments by the Company and any LC Collateral under Section 4.01. (b) Acceleration of LC Obligations. If the Obligations or any part thereof become immediately due and payable pursuant to Section 9, then all LC Obligations shall become immediately due and payable without regard to whether or not actual drawings or payments on the Letters of Credit have occurred, and the Company shall be obligated to pay to LC Issuer immediately an amount equal to the aggregate LC Obligations which are then outstanding. All amounts so paid shall first be applied to Matured LC Obligations and then held by LC Issuer as LC Collateral until such LC Obligations become Matured LC Obligations, at which time such LC Collateral shall be applied to such Matured LC Obligations. (c) Investment of LC Collateral. Pending application thereof, all LC Collateral shall be invested by LC Issuer in such investments as LC Issuer may choose in its sole discretion. All interest on such investments shall be reinvested or applied to Matured LC Obligations. When all Obligations have been satisfied in full, including all LC Obligations, all Letters of Credit have expired or been terminated, and all of the Company's reimbursement obligations in connection therewith have been satisfied in full, LC Issuer shall release any remaining LC Collateral. The Company hereby assigns and grants to LC Issuer a continuing security interest in all LC Collateral paid by it to LC Issuer, all investments purchased with such LC Collateral, and all proceeds thereof to secure its Matured LC Obligations and its Obligations under this Agreement, the Notes, and the other Basic Documents, and the Company agrees that such LC Collateral and investments shall be subject to all of the terms and conditions of the Security Documents. The Company further agrees that LC Issuer shall have all of the rights and remedies of a secured party under the Uniform Commercial Code as adopted in the State of New York with respect to such security interest and that an Event of Default under this Agreement shall constitute a default for purposes of such security interest. (d) Payment of LC Collateral. When the Company is required to provide LC Collateral for any reason and fails to do so on the day when required, LC Issuer may without notice to the 24 Company or any other Obligor provide such LC Collateral (whether by application of proceeds of other Collateral, by transfers from other accounts maintained with LC Issuer, or otherwise) using any available funds of the Company or any other Person also liable to make such payments. Any such amounts which are required to be provided as LC Collateral and which are not provided on the date required shall, for purposes of each Security Document, be considered past due Obligations owing hereunder, and LC Issuer is hereby authorized to exercise its respective rights under each Security Document to obtain such amounts. Section 3. Payments of Principal and Interest. 3.01 Repayment of Term Loans. (a) Subject to the terms of this Agreement, the aggregate outstanding principal of the Revolving Credit Loans shall convert to Term Loans on the Revolving Credit Termination Date. (b) The Company will repay the principal of the Term Loans in twenty installments payable on each Quarterly Date beginning October 1, 2000, with the final installment being due and payable on or before July 1, 2005. Each such installment shall be equal to one-twentieth of the original principal amount of the Term Loans as of the Revolving Credit Termination Date. In any event all unpaid principal and interest shall be due and payable in full on the final maturity of July 1, 2005. As set forth in Section 2.07(c), all optional and mandatory prepayments made on the Term Loans shall be applied to the scheduled installments in inverse order of their maturity. 3.02 Interest. The Company hereby promises to pay to Agent for the account of each Lender interest on the unpaid principal amount of each Lender's Loans for the period from and including the date of such Lender's Loans to but excluding the date such Lender's Loans shall be paid in full, at the following rates per annum: (a) during such periods as such Lender's Loan is a Base Rate Loan, the Base Rate (as in effect from time to time) plus the Applicable Margin; and (b) during such periods as such Lender's Loan is a Eurodollar Loan, for each Interest Period relating thereto, the Eurodollar Rate for such Loan for such Interest Period plus the Applicable Margin. Notwithstanding the foregoing, the Company hereby promises to pay to each Bank Party (without duplication) interest at the applicable Post-Default Rate on any principal of any Loan and on any other amount payable by the Company hereunder or under any Note which shall not be paid in full when due (whether at stated maturity, by acceleration, by mandatory prepayment or otherwise), for the period from and including the due date thereof to but excluding the date the same is paid in full. Accrued interest on each Loan shall be payable (i) in the case of a Base Rate Loan, quarterly on the Quarterly Dates, (ii) in the case of a Eurodollar Loan, on the last day of each Interest Period therefor (and if such Interest Period is longer than three months, at three month intervals following the first day of such Interest Period) and (iii) in the case of any Eurodollar Loan, upon the payment or prepayment thereof or the Conversion of such Loan to a Loan of another Type (but only on the principal amount so paid, prepaid or Converted), except that interest payable at the Post-Default Rate shall be payable from time to time on demand. Promptly 25 after the determination of any interest rate provided for herein or any change therein, Agent shall give notice thereof to the Company. Notwithstanding anything to the contrary herein, in no event shall the interest on any principal of any Loan or on any other amount payable by the Company hereunder or under the Notes exceed the Maximum Rate. Section 4. Payments; Computations; Etc. 4.01 Payments. (a) Except to the extent otherwise provided herein, all payments of principal, interest and other amounts to be made by the Company under this Agreement and the Notes, and, except to the extent otherwise provided therein, all payments to be made by the Company under any other Basic Document, shall be made in Dollars, in immediately available funds, without deduction, set-off or counterclaim, to Agent, for the account of the Bank Party to whom such payment is owed, as set forth on the signature pages hereto (or such other account as directed by Agent through notice pursuant to Section 11.02 hereof), not later than 1:00 p.m. New York time on the date on which such payment shall become due (each such payment made after such time on such due date to be deemed to have been made on the next succeeding Business Day). (b) Any Bank Party may (but shall not be obligated to) debit the amount of any such payment which is not made by such time to any ordinary deposit account of the Company with such Bank Party (with notice to Agent and the Company). (c) The Company shall, at the time of making each payment under this Agreement or the Notes, specify to Agent the Loans or other amounts payable by the Company hereunder to which such payment is to be applied. When Agent collects or receives money on account of the Obligations, Agent shall distribute all money so collected or received, and Bank Parties shall apply all such money they receive from Agent, as follows: (i) first, for the payment of all Obligations which are then due (and if such money is insufficient to pay all such Obligations, first to any reimbursements due Agent under Sections 8.06(d) or 11.03 and then to the partial payment of all other Obligations then due in proportion to the amounts thereof, or as Bank Parties shall otherwise agree); (ii) then for the prepayment of amounts owing under the Basic Documents (other than principal on the Notes) if so specified by the Company; (iii) then for the prepayment of principal on the Notes, together with accrued and unpaid interest on the principal so prepaid; and (iv) last, for the payment or prepayment of any other Obligations. All payments applied to principal or interest on any Note shall be applied first to any interest then due and payable, then to principal then due and payable, and last to any prepayment of principal and interest in compliance with Sections 2.07(c) and 3.01 hereof. All distributions of amounts described in any of clauses (ii), (iii) or (iv) above shall be made by Agent pro rata to each Bank Party that is owed Obligations under such clause, in proportion to all amounts owed to Agent and 26 all Bank Parties that are owed Obligations under such clause; provided that if any Lender then owes payments to LC Issuer for the purchase of a participation under Section 2.11(c) hereof, any amounts otherwise distributable under this section to such Lender shall be deemed to belong to LC Issuer, to the extent of such unpaid payments, and Agent shall apply such amounts to make such unpaid payments rather than distribute such amounts to such Lender. (d) If the due date of any payment under this Agreement or the Notes would otherwise fall on a day which is not a Business Day such date shall be extended to the next succeeding Business Day and interest shall be payable for any principal so extended for the period of such extension. 4.02 Computations. Interest on Base Rate Loans and Eurodollar Loans and all fees shall be computed on the basis of a year of 360 days and actual days elapsed (including the first day but excluding the last day) occurring in the period for which payable. 4.03 Minimum Amounts. Each borrowing, Conversion and prepayment of principal of Loans shall be in an amount at least equal to $100,000 and in multiples of $100,000 in excess thereof (borrowings, Conversions or prepayments of or into Loans of different Types or, in the case of Eurodollar Loans, having different Interest Periods at the same time hereunder to be deemed separate borrowings, Conversions and prepayments for purposes of the foregoing, one for each Type or Interest Period). Anything in this Agreement to the contrary notwithstanding, the aggregate principal amount of Eurodollar Loans having the same Interest Period shall be in an amount at least equal to $100,000 and in multiples of $100,000 in excess thereof and, if any Eurodollar Loans would otherwise be in a lesser principal amount for any period, such Loans shall be Base Rate Loans during such period. 4.04 Certain Notices. Notices by the Company to Bank Parties of terminations or reductions of the Commitment, of borrowings, Conversions, Continuations and optional prepayments of Loans, and of Types of Loans and of the duration of Interest Periods shall be irrevocable and shall be effective only if received by each Bank Party not later than 11:00 a.m. New York time on at least the number of Business Days prior to the date of the relevant termination, reduction, borrowing, Conversion, Continuation or prepayment or the first day of such Interest Period specified below: Number of Business Notice Days Prior ------ ------------------ Termination or reduction of the Commitment 2 Borrowing or prepayment of, or Conversions into, Base Rate Loans 1 Borrowing or prepayment of, Conversions into, Continuations as, or duration of Interest Period for, Eurodollar Loans 3 27 Each such notice of termination or reduction shall specify the amount of the Commitment to be terminated or reduced. Each such notice of borrowing, Conversion, Continuation or optional prepayment shall specify the Loans to be borrowed, Converted, Continued or prepaid and the amount (subject to Section 4.03 hereof) and Type of each Loan to be borrowed, Converted, Continued or prepaid and the date of borrowing, Conversion, Continuation or optional prepayment (which shall be a Business Day). Each such notice of the duration of an Interest Period shall specify the Loans to which such Interest Period is to relate. In the event that the Company fails to select the Type of Loan, or the duration of any Interest Period, for any Eurodollar Loan within the time period and otherwise as provided in this Section 4.04, such Loan (if outstanding as a Eurodollar Loan) will be automatically Converted into a Base Rate Loan on the last day of the then current Interest Period for such Loan or (if outstanding as a Base Rate Loan) will remain as, or (if not then outstanding) will be made as, a Base Rate Loan. 4.05 Set-off. The Company agrees that, in addition to (and without limitation of) any right of set-off, banker's lien or counterclaim any Bank Party may otherwise have, any Bank Party shall be entitled, at its option, to offset balances held by it for account of the Company at any of its offices, in Dollars or in any other currency, against any principal of or interest on any of the Loans or any other amount payable to such Bank Party hereunder, that is not paid when due (regardless of whether such balances are then due to the Company), in which case it shall promptly notify Agent and the Company thereof, provided that such Bank Party's failure to give such notice shall not affect the validity thereof. Section 5. Yield Protection, Etc. 5.01 Additional Costs. (a) The Company shall pay to each Bank Party from time to time such amounts as such Bank Party may determine to be necessary to compensate it for any costs of such Bank Party which such Bank Party determines are attributable to its making or maintaining of any Eurodollar Loans or its obligation to make any Eurodollar Loans hereunder, or any reduction in any amount receivable by such Bank Party hereunder in respect of any of such Loans or such obligation, or the issuance of or participation in Letters of Credit (such increases in costs and reductions in amounts receivable being herein called "Additional Costs"), resulting from any Regulatory Change which: (i) changes the basis of taxation of any amounts payable to such Bank Party under this agreement or its Note in respect of any of such Loans or Letters of Credit (other than taxes imposed on or measured by the overall net income of such Bank Party or of its Applicable Lending Office for any of such loans by the jurisdiction in which such Applicable Lending Office or the Principal Office is located); or (ii) imposes or modifies any reserve, special deposit or similar requirements (other than the Reserve Requirement utilized in the determination of the Eurodollar Rate for such Loan) relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, such Bank Party (including any of such Loans or any deposits referred to in the definition of "Eurodollar Rate" in Section 1.01 hereof), or the issuance of or participation in Letters of Credit, or any commitment of such Bank Party (including the Commitment of such Bank Party hereunder); or 28 (iii) imposes any other condition affecting this Agreement or the Notes (or any of such extensions of credit or liabilities), or the issuance of or participation in Letters of Credit, or the Commitment. If any Bank Party requests compensation from the Company under this Section 5.01(a) with respect to Eurodollar Loans, the Company may, by notice to such Bank Party, suspend the obligation of such Bank Party to make or Continue Eurodollar Loans, or to Convert Base Rate Loans into Eurodollar Loans, until the Regulatory Change giving rise to such request ceases to be in effect. (b) Without limiting the effect of the provisions of Section 5.01(a) above, in the event that, by reason of any Regulatory Change, any Bank Party either (i) incurs Additional Costs based on or measured by the excess above a specified level of the amount of a category of deposits or other liabilities of such Bank Party which includes deposits by reference to which the interest rate on Eurodollar Loans is determined as provided in this Agreement or a category of extensions of credit or other assets of such Bank Party which includes Eurodollar Loans or (ii) becomes subject to restrictions on the amount of such a category of liabilities or assets which it may hold, then, if such Bank Party so elects by notice to the Company, the obligation of such Bank Party to make or Continue, or to Convert Base Rate Loans into, Eurodollar Loans hereunder shall be suspended until such Regulatory Change ceases to be in effect. (c) Without limiting the effect of the foregoing provisions of this Section 5.01 (but without duplication), the Company shall pay to any Bank Party from time to time on request such amounts as such Bank Party may determine to be necessary to compensate such Bank Party (or, without duplication, the bank holding company of which such Bank Party is a subsidiary) for any costs of such Bank Party which it determines are attributable to the maintenance by such Bank Party (or any Applicable Lending Office or such bank holding company), pursuant to any law or regulation or any interpretation, directive or request (whether or not having the force of law) of any court or governmental or monetary authority (i) following any Regulatory Change or (ii) implementing, after the Closing Date, any risk-based capital guideline or requirement (whether or not having the force of law and whether or not the failure to comply therewith would be unlawful) heretofore or hereafter issued by any government or governmental or supervisory authority implementing at the national level the Basle Accord (including, without limitation, the Final Risk-Based Capital Guidelines of the Board of Governors of the Federal Reserve System (12 CFR Part 208, Appendix A; 12 CFR Part 225, Appendix A) and the Final Risk- Based Capital Guidelines of the Office of the Comptroller of the Currency (12 CFR Part 3, Appendix A)), of capital in respect of the Commitment, Loans, or issuance of or participations in Letters of Credit and commitments and loans and letters of credit of similar type (such compensation to include, without limitation, an amount equal to any reduction of the rate of return on assets or equity of such Bank Party (or any Applicable Lending Office or such bank holding company) to a level below that which such Bank Party (or any Applicable Lending Office or such bank holding company) could have achieved but for such law, regulation, interpretation, directive or request). For purposes of this Section 5.01(c), "Basle Accord" shall mean the proposals for risk-based capital framework described by the Basle Committee on Lending Regulations and Supervisory Practices in its paper entitled "International Convergence of Capital Measurement and Capital Standards" dated July 1988, as amended, modified and supplemented and in effect from time to time or any replacement thereof. 29 (d) A Bank Party shall notify the Company of any event occurring after the date of this Agreement that will entitle such Bank Party to compensation under Sections 5.01(a) or (c) above as promptly as practicable, but in any event within 90 days, after such Bank Party obtains actual knowledge thereof; provided, that (i) if such Bank Party fails to give such notice within 90 days after it obtains actual knowledge of such an event, such Bank Party shall, with respect to compensation payable pursuant to this Section 5.01 in respect of any costs resulting from such event, only be entitled to payment under this Section 5.01 for costs incurred from and after the date 90 days prior to the date that such Bank Party does give such notice and (ii) such Bank Party will designate a different Applicable Lending Office for the Loans affected by such event if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the sole opinion of such Bank Party, be disadvantageous to such Bank Party, except that such Bank Party shall have no obligation to designate an Applicable Lending Office located in the United States of America. Each Bank Party will furnish to the Company a certificate setting forth the basis and amount of each request by such Bank Party for compensation under Sections 5.01(a) or (c) above. Determinations and allocations by a Bank Party for purposes of this Section 5.01 of the effect of any Regulatory Change pursuant to Sections 5.01(a) or (b) above, or of the effect of capital maintained pursuant to Section 5.01(c) above, on its costs or rate of return of maintaining Loans or its obligation to make Loans, or on amounts receivable by it in respect of Loans, or issue Letters of Credit or its obligation to participate in Letters of Credit, and of the amounts required to compensate such Bank Party under this Section 5.01, shall, absent manifest error, be conclusive, provided that such determinations and allocations are made on a reasonable basis. 5.02 Limitation on Types of Loans. Anything herein to the contrary notwithstanding, if, on or prior to the determination of any Eurodollar Rate for any Interest Period, any Bank Party determines (which determination shall, absent manifest error, be conclusive) that: (a) quotations of interest rates for the relevant deposits referred to in the definition of "Eurodollar Rate" in Section 1.01 hereof are not being provided in the relevant amounts or for the relevant maturities for purposes of determining rates of interest for Eurodollar Loans as provided herein; or (b) the relevant rates of interest referred to in the definition of "Eurodollar Rate" in Section 1.01 hereof upon the basis of which the rate of interest for Eurodollar Loans for such Interest Period is to be determined are not likely adequately to cover the cost to such Bank Party of making or maintaining Eurodollar Loans for such Interest Period; then such Bank Party shall give the Company prompt notice thereof, and so long as such condition remains in effect, such Bank Party shall be under no obligation to make additional Eurodollar Loans, to Continue Eurodollar Loans or to Convert Base Rate Loans into Eurodollar Loans and the Company shall, on the last day(s) of the then current Interest Period(s) for the outstanding Eurodollar Loans, either prepay such Loans or Convert such Loans into Base Rate Loans in accordance with Section 2.07 hereof. 5.03 Illegality. Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Bank Party or its Applicable Lending Office to honor its obligation to 30 make or maintain Eurodollar Loans hereunder, or to issue or participate in Letters of Credit, then such Bank Party shall promptly notify the Company thereof and such Bank Party's obligation to make or Continue, or to Convert Loans of any other Type into, Eurodollar Loans, or its obligation to issue or participate in Letters of Credit, shall be suspended until such time as such Bank Party may again make and maintain Eurodollar Loans, or issue or participate in Letters of Credit, and the Company shall, upon the request of such Bank Party, prepay any of such Loans then outstanding hereunder together with accrued interest thereon, or purchase such Bank Party's participation in any of such outstanding Letters of Credit. 5.04 Treatment of Affected Loans. If the obligation of any Bank Party to make Eurodollar Loans or participate in Letters of Credit shall be suspended pursuant to Section 5.01 or 5.03 hereof (Loans of such type being herein called "Affected Loans" and such type being herein called the "Affected Type"), all Loans which would otherwise be made by such Bank Party as Loans of the Affected Type shall be made instead as Base Rate Loans, and all participations in Letters of Credit that would otherwise be purchased by such Bank Party shall be instead purchased by the Company, and, if an event referred to in Sections 5.01(b) or 5.03 hereof has occurred and such Bank Party so requests by notice to the Company, all Affected Loans of such Bank Party then outstanding shall be automatically converted into Base Rate Loans on the date specified by such Bank Party in such notice, and all such Bank Party's participations in any outstanding Letters of Credit shall be purchased by the Company (which date for Affected Loans, subject to the event referred to in Section 5.01(b) hereof, shall be the last day of the then current Interest Period for outstanding Eurodollar Loans or, if such Bank Party waives any requirements for the payment of Additional Costs in respect of an earlier date, such earlier date as is specified in such notice) and, to the extent that Affected Loans are so made (or converted), all payments of principal which would otherwise be applied to such Bank Party's Affected Loans shall be applied instead to such Loans. 5.05 Compensation. The Company shall pay to any Bank Party, upon the request of such Bank Party, such amount or amounts as shall be sufficient (in the reasonable opinion of such Bank Party) to compensate it for any loss, cost or expense of such Bank Party which such Bank Party determines is attributable to: (a) any payment, prepayment or Conversion of a Eurodollar Loan for any reason (including, without limitation, the acceleration of the Loans pursuant to Section 10 hereof) on a date other than the last day of the Interest Period for such Loan; or (b) any failure by the Company for any reason (including, without limitation, the failure of any of the conditions precedent specified in Section 7 hereof to be satisfied) to borrow a Eurodollar Loan on the date for such borrowing specified in the relevant notice of borrowing given pursuant to Section 2.02 hereof. Without limiting the effect of the preceding sentence, such compensation shall include an amount equal to the excess, if any, of (i) the amount of interest which otherwise would have accrued on the principal amount so paid prepaid or Converted or not borrowed for the period from the date of such payment, prepayment, Conversion or failure to borrow to the last day of the then current Interest Period for such 31 Loan (or, in the case of a failure to borrow, the Interest Period for such Loan which would have commenced on the date specified for such borrowing) at the applicable rate of interest for such Loan provided for herein over (ii) the amount of interest which otherwise would have accrued on such principal amount at a rate per annum equal to the interest component of the amount such Bank Party would have bid in the London interbank market for Dollar deposits of leading banks in amounts comparable to such principal amount and with maturities comparable to such period (as reasonably determined by such Bank Party). Section 6. Conditions Precedent. 6.01 Initial Loan. The obligation of each Lender to make the initial Loan hereunder, and of LC Issuer to issued its first Letter of Credit hereunder, is subject to the receipt by each Lender of the following documents, each of which shall be satisfactory to each Lender in form and substance: (a) Corporate Documents. The following documents, each certified as indicated below: (i) a copy of the charter, as amended, of the Company certified by the Secretary of State of Delaware, a copy of the charter, as amended, of each Subsidiary Guarantor of the Company certified by the Chief Financial Officer or the Secretary of the Company, a certificate dated as of a recent date as to the good standing of and charter documents filed by such Obligor from the Secretary of State of its jurisdiction of incorporation, and certificates dated as of a recent date issued by appropriate officials in each state in which such Obligor owns property subject to any Security Document as to such Obligor's good standing and due qualification to do business; (ii) a certificate of the Secretary or an Assistant Secretary of each Obligor, dated the Closing Date and certifying (A) that attached thereto is a true and complete copy of the by-laws of such Person as in effect on the date of such certificate, (B) that attached thereto is a true and complete copy of resolutions duly adopted by the board of directors of such Person authorizing the execution, delivery and performance of such of the Basic Documents to which such Person is or is intended to be a party and the extensions of credit hereunder, and that such resolutions have not been modified, rescinded or amended and are in full force and effect, (C) that the charter of such Person has not been amended since the date of the certification thereto furnished pursuant to Section 6.01(a)(i) above, and (D) as to the incumbency and specimen signature of each officer of such Person executing such of the Basic Documents to which such Person is intended to be a party and each other document to be delivered by such Person from time to time in connection therewith (and Bank Parties may conclusively rely on such certificate until it receives notice in writing from such Person); (iii) a certificate of another officer of each Obligor as to the incumbency and specimen signature of the Secretary or Assistant Secretary, as the case may be, of such Obligor, and a corresponding certificate of another officer of such Obligor as to its signing officers. 32 (b) Officer's Certificate. A certificate of the President or Chief Financial Officer to the effect set forth in the first sentence of Section 6.02 hereof. (c) Opinion of General Counsel to the Obligors. An opinion of Michael R. Patterson, general counsel to the Obligors, substantially in the form of Exhibit "C" hereto. (d) Opinions of Special Counsel to the Obligors. An opinion of Fulbright & Jaworski L.L.P., special Texas and New York counsel to the Obligors, substantially in the form of Exhibit "D" hereto. (e) Opinions of Special Counsel to Agent. An opinion of Thompson & Knight, special Texas counsel to Agent, in form and substance satisfactory to Agent. (f) Notes. Each Lender's Note, duly completed and executed. (g) Security Documents. Each Security Document listed on Schedule 6.01(g) attached hereto, duly executed and delivered by each party thereto. (h) Insurance. Certificates of insurance evidencing the existence of all insurance required to be maintained by the Company pursuant to Section 8.06 hereof, such certificates to be in such form and contain such information as is specified in said Section 8.06. In addition, the Company shall have delivered a certificate of a senior officer of the Company setting forth the insurance obtained by it in accordance with the requirements of said Section 8.06 and stating that such insurance is in full force and effect and that all premiums then due and payable thereon have been paid. (i) Environmental Compliance Certificate. A certificate of the President or Chief Financial Officer of the Company substantially in the form attached hereto as Exhibit "E". (j) Subsidiary Guaranty. A Subsidiary Guaranty by each of the Subsidiaries other than PMCT, substantially in the form attached hereto as Exhibit B-1 (as to each Subsidiary Guarantor other than Stocker Resources, L.P., Calumet Florida, Inc. and Plains Illinois Inc.) and Exhibit B-2 (as to Stocker Resources, L.P., Calumet Florida, Inc. and Plains Illinois Inc.). (k) Other Documents. Such other documents as Agent may reasonably request. 6.02 Initial and Subsequent Loans. The obligation of each Lender to make any Loan to the Company upon the occasion of each borrowing hereunder (including the initial borrowing), and the obligation of LC Issuer to issue any Letter of Credit hereunder (including its first Letter of Credit), is subject to the further conditions precedent that, both immediately prior to the making of such Loan and also after giving effect thereto: (i) no Default shall have occurred and be continuing; (ii) the representations and warranties made by the Company in Section 8 hereof, and by each Obligor in each of the other Basic Documents to which such Obligor is a party, shall be true and complete on and as of the date of the making of such Loan, or the date of issuance of such Letter of Credit, with the same force and effect as if made on and as of such date except to the extent that such representation or warranty was made as of a specific date or updated, 33 modified or supplemented as of a subsequent date with the consent of Majority Lenders; (iii) the Facility Usage shall not exceed the Borrowing Base or the Commitment; and (iv) no Material Adverse Effect shall have occurred and be continuing since the date of the immediately preceding Loan made, or the date of issuance of the immediately preceding Letter of Credit issued, hereunder (and in the case of the initial Loan or the first Letter of Credit, since the date of the Financial Statements delivered to Bank Parties as described in Section 7.02 hereof). Each notice of borrowing or LC Application by the Company hereunder shall constitute a certification by the Company to the effect set forth in the preceding sentence (both as of the date of such notice and, unless the Company otherwise notifies Bank Parties prior to the date of such borrowing or the date of issuance of such Letter of Credit, as of the date of such borrowing or the date of issuance of such Letter of Credit). Section 7. Representations and Warranties. The Company represents and warrants to each Bank Party that: 7.01 Corporate Existence. Each of the Company, its Subsidiaries and each of the Partnerships: (a) is a corporation, partnership or other entity duly organized and validly existing under the laws of the jurisdiction of its organization; (b) has all requisite corporate or other power, and has all material governmental licenses, franchises, authorizations, consents and approvals necessary to own its assets and carry on its business as now being or as proposed to be conducted, except as disclosed in Schedule 7.01 hereto; and (c) is qualified to do business in all jurisdictions in which the nature of the business conducted by it makes such qualification necessary and where failure so to qualify would have a Material Adverse Effect. 7.02 Financial Condition. The Company has delivered to Each Bank Party copies of the consolidated balance sheet of the Company and its Consolidated Subsidiaries as of December 31, 1997, and the related consolidated statements of operations, shareholders' equity and cash flows of the Company and its Consolidated Subsidiaries for the fiscal year ended on said date, with reports thereon by Price Waterhouse, independent public accountants, and the consolidated balance sheet of the Company and its Consolidated Subsidiaries as of March 31, 1998, and the related consolidated statements of operations, shareholders' equity and cash flows of the Company and its Consolidated Subsidiaries for the fiscal quarter ended on such date. Such financial statements are called the "Financial Statements". The Financial Statements (including in each case, without limitation, the related schedules and notes) are complete and correct and fairly present the consolidated position of the Company and its Consolidated Subsidiaries as of the respective dates of said balance sheets and the consolidated results of their operations for the respective periods covered by said statements of operations, shareholders' equity and cash flows, and have been prepared in accordance with GAAP consistently applied by the Company and its Consolidated Subsidiaries throughout the periods involved. Except as set forth in Schedule 7.02 34 hereto, neither the Company nor any of its Subsidiaries had on December 31, 1997 any material contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments not referred to or reflected or provided for in said balance sheet as at said date. Since December 31, 1997, there has been no material adverse change in the consolidated financial condition, operations, business or prospects taken as a whole of the Company and its Consolidated Subsidiaries. Except as set forth in Schedule 7.02 hereto, the Partnerships do not have any material assets except as reflected in the Initial Reserve Reports heretofore delivered to each Bank Party, or liabilities. 7.03 Litigation. Except as set forth in Schedule 7.03 hereto, there are no legal or arbitral proceedings, or any proceedings by or before any governmental or regulatory authority or agency, now pending or (to the best knowledge of the Company) threatened against the Company, any of its Subsidiaries or any of the Partnerships which, if adversely determined, could have a Material Adverse Effect. 7.04 No Breach. None of the execution and delivery of this Agreement, the Notes and the other Basic Documents, the consummation of the transactions herein and therein contemplated and compliance with the terms and provisions hereof and thereof will conflict with or result in a breach of, or require any consent under, the charter or by-laws of any Obligor, or any applicable law or regulation, or any order, writ, injunction or decree of any court or governmental authority or agency, or any material agreement or instrument to which the Company, any of its Subsidiaries or any of the Partnerships is a party or by which any of them is bound or to which any of them is subject, or constitute a default under any such agreement or instrument, or (except for the Liens created pursuant to the Security Documents) result in the creation or imposition of any Lien upon any Property of the Company or any of its Subsidiaries or any of the Partnerships pursuant to the terms of any such agreement or instrument. 7.05 Due Execution. Each Obligor has all necessary corporate power and authority to execute, deliver and perform its obligations under each of the Basic Documents to which it is or is intended to be a party; the execution, delivery and performance by each Obligor of each of the Basic Documents to which it is or is intended to be a party have been duly authorized by all necessary corporate action on its part; and this Agreement has been duly and validly executed and delivered by each Obligor and constitutes, and each of the other Basic Documents to which such Obligor is or is intended to be a party when executed and delivered by such Obligor (in the case of any Note, for value) will constitute, its legal, valid and binding obligation, enforceable against it in accordance with its terms except as such enforceability may be limited by bankruptcy or other similar laws of general applicability affecting the enforcement of creditor's rights and general principals of equity. 7.06 Approvals. No authorizations, approvals or consents of, and no filings or registrations with, any governmental or regulatory authority or agency are necessary for the execution, delivery or performance by any Obligor of the Basic Documents to which such Obligor is a party or for the validity or enforceability thereof, except for filings and recordings in respect of the Liens created pursuant to the Security Documents. 7.07 Use of Loans. Neither the Company nor any of its Subsidiaries or any of the Partnerships is engaged principally, or as one of its important activities, in the business of extending credit for the purpose, whether immediate, incidental or ultimate, of buying or carrying Margin Stock and no part of the proceeds of any extension of credit hereunder will be used to buy or carry any Margin Stock. 35 7.08 ERISA. The Company and the ERISA Affiliates have fulfilled their respective obligations under the minimum funding standards of ERISA and the Code with respect to each Plan and are in compliance in all material respects with the presently applicable provisions of ERISA and the Code, and have not incurred any liability to the PBGC or any Plan or Multiemployer Plan (other than to make contributions in the ordinary course of business). 7.09 Taxes. Except as disclosed to Bank Parties as set forth in Schedule 7.09, the United States Federal income tax returns of the Company, its subsidiaries and the Partnerships have never been examined. The Company, its subsidiaries and the partnerships have filed all United States Federal income tax returns and all other material tax returns which are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Company, any of its Subsidiaries and any of the Partnerships. The charges, accruals and reserves on the books of the Company, its Subsidiaries and the Partnerships in respect of taxes and other governmental charges are, in the opinion of the Company, adequate. If the Company is a member of an affiliated group of corporations filing consolidated returns for United States Federal Income tax purposes, it is the "common parent" of such group. There are no applicable taxes, fees or other governmental charges payable in connection with the execution and delivery of this Agreement, the Notes or any of the other Basic Documents, except for fees and taxes payable in connection with the filing or recording of the Security Documents. 7.10 Investment Company Act. Neither the Company nor any of its Subsidiaries or any of the Partnerships is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. 7.11 Public Utility Holding Company Act. Neither the Company nor any of its Subsidiaries or any of the Partnerships is a "holding company", or an "affiliate" of a "holding company" or a "subsidiary company" of a "holding company", within the meaning of the Public Utility Holding Company Act of 1935, as amended. 7.12 Titles to Oil and Gas Properties. The Oil and Gas Properties listed in the Initial Reserve Reports are true, complete and correct lists of all Oil and Gas Properties owned, as of the date hereof, by the Company, its Subsidiaries and the Partnerships, other than (i) such Oil and Gas Properties that individually have a value (determined in accordance with the guidelines established by the Securities and Exchange Commission) of less than $25,000 and, in the aggregate, have a value (so determined) of less than $2,000,000 and (ii) Oil and Gas Properties without any proven reserves. The Properties mortgaged to Bank Parties (or Agent for the benefit of Bank Parties) by the Company and its Subsidiaries pursuant to the Security Documents consist, in part, of all Oil and Gas Properties of the Company and its Subsidiaries, other than the Oil and Gas Properties referred to in clauses (i) and (ii) above of this Section 7.12 and as otherwise set forth on Schedule 7.12 hereto. Each of the Company, its Subsidiaries and the Partnerships has, as of the Closing Date, good and defensible title to the Oil and Gas Properties listed in the Initial Reserve Reports and to all of its other properties, free and clear of all Liens except Liens permitted by Section 8.08 hereof and except as disclosed in title opinions and other title verification materials delivered in connection with the Original Agreement. The Company, its Subsidiaries and the Partnerships own the working interest and the net revenue interests in production attributable to the wells and units reflected in the Initial Reserve Reports and the ownership of such Properties does not 36 obligate the Company, any of its Subsidiaries or any Partnership to bear the costs and expenses relating to the maintenance, development and operations of any such Property in an amount in excess of the working interest of such Property set forth in the Initial Reserve Reports (except in connection with the assumption of a joint interest owner's share of costs under the nonconsent provisions of standard operating agreements). Further, upon delivery of each Engineering Report pursuant to Section 8.04 hereof, the statements made in the preceding sentence shall be true with respect to such Engineering Report. All information contained in the Initial Reserve Reports is true and correct in all material respects as of the date thereof and as of the Closing Date. The Company has delivered to each Bank Party all available copies of the most recent title opinions that the Company has commissioned with respect to the Properties mortgaged to Bank Parties (or Agent for the benefit of Bank Parties) pursuant to the Security Documents. 7.13 Foreign Assets Control Regulations, Etc. Neither the Company nor any of its Subsidiaries or any of the Partnerships is a "national" of any foreign country designated in the Foreign Assets Control Regulations, the Company hereunder nor its use of the proceeds thereof will violate the Foreign Assets Control Regulations, the Cuban Assets Control Regulations, the Iranian Assets Control Regulations, the Nicaraguan Trade Control Regulations, the South African Transactions Regulations, the Libyan Sanctions Regulations, the Iranian Transactions Regulations or the Panamanian Transaction Regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or the Comprehensive Anti-Apartheid Act of 1986 (P.L. 99-440) or Executive Orders 12722 and 12724 (55 Fed. Reg. 31803 and 55 Fed. Reg 33089) Blocking Iraqi Government Property and Prohibiting Transactions with Iraq and Executive Orders 12723 and 12725 (55 Fed. Reg. 31805 and 55 Fed. Reg. 33091) Blocking Kuwaiti Government Property and Prohibiting Transactions with Kuwait. None of the proceeds of the Loans or Letters of Credit under this Agreement will be used, directly or indirectly, for the purpose of engaging in any transaction which violates any of said Regulations or which violates the Regulations of the United States Treasury Department (31 C.F.R., Subtitle B, Chapter V, as amended), or any regulation or ruling issued thereunder. 7.14 Gas Imbalances. As of and after the date hereof, except as disclosed in the certificate delivered by the Company pursuant to Section 2.08(c) hereof, there are no net gas imbalances, take-or-pay or other prepayment credit obligations with respect to any Obligor's Oil and Gas Properties which would require such Obligor to deliver Hydrocarbons produced from such Oil and Gas Properties at some future time, without then or thereafter receiving full payment therefor, in amounts (i) exceeding $500,000 for any individual well, (ii) exceeding $2,000,000 in the aggregate for all Obligors or (iii) with respect to any individual material well, exceeding the proved developed producing reserves attributable to such well. 7.15 Rate Filings. Neither the Company nor any of its Subsidiaries or any Partnership has violated any provisions of the Natural Gas Act or the Natural Gas Policy Act of 1978 or any other Federal or state law or any of the regulations thereunder (including those of the respective conservation commissions and land offices of the various jurisdictions having authority over the Property mortgaged to Bank Parties (or Agent for the benefit of Bank Parties) pursuant to the Security Documents) with respect to the Property mortgaged to Bank Parties (or Agent for the benefit of Bank Parties) pursuant to the Security Documents which would have a Material Adverse Effect. The Company, each of its Subsidiaries and each Partnership has made all 37 necessary material rate filings, certificate applications, well category filings, interim collection filings and notices, and any other filings or certifications, and has received all necessary material regulatory authorizations (including, without limitation, necessary authorizations, if any, with respect to any processing arrangements conducted by it or others respecting the Properties mortgaged to Bank Parties (or Agent for the benefit of Bank Parties) pursuant to the Security Documents or production therefrom) required under the laws and regulations with respect to all of the Properties mortgaged to Bank Parties (or Agent for the benefit of Bank Parties) pursuant to the Security Documents or production therefrom. No material rate filing, certificate application, well category filing, interim collection filing or notice, or other filing and certification contains any untrue statement of any material fact or omits any statement of material fact necessary for said filing. 7.16 Qualification to Hold Federal Oil and Gas Leases. Each of the Company, its Subsidiaries and the Partnerships that own onshore oil and gas leases is duly qualified to own and hold United States on shore oil and gas leases and has obtained approval by the United States Bureau of Land Management of its ownership thereof, and, to the extent it is the operator of such leases, of its role as operator thereof. The Company does not own any United States offshore oil and gas leases. 7.17 Drilling and Operations. Since owned by the Company and to the best of its knowledge prior thereto, the oil and gas wells comprising the producing Properties mortgaged to Bank Parties (or Agent for the benefit of Bank Parties) pursuant to the Security Documents have been drilled and operated in all material respects in accordance with the material terms of relevant leases and agreements and applicable Federal, state, and local laws and regulations and are bottomed on and producing from the drilling and spacing units or blocks therefor and no failure to comply therewith could have a Material Adverse Effect. 7.18 Payments by Purchasers of Production. All material amounts of proceeds from the sale by the Company or any of its Subsidiaries of any interest in oil and gas production from the Properties mortgaged to Bank Parties (or Agent for the benefit of Bank Parties) pursuant to the Security Documents are currently being paid in full to the Company or such Subsidiary or have been paid to the Company or such Subsidiary or its respective predecessors in interest by the purchaser thereof on a timely basis and at prices and terms comparable to market prices and terms generally available at the time such prices and terms were negotiated for oil and gas production from producing areas situated near the Properties mortgaged to Bank Parties (or Agent for the benefit of Bank Parties) pursuant to the Security Documents and none of such proceeds are currently being held in suspense by such purchaser or any other party except for routine delays in the ordinary course of business. 7.19 Credit Agreements. Schedule 7.19 hereto is a complete and correct list, as of the date of this Agreement, of each credit agreement, loan agreement, indenture, purchase agreement, guaranty or other arrangement providing for or otherwise relating to any Indebtedness or any extension of credit (or commitment for any extension of credit) to, or guaranty by, the Company or any of its Subsidiaries or any Partnership the aggregate principal or face amount of which equals or exceeds (or may equal or exceed) $1,000,000 and the aggregate principal or face 38 amount outstanding or which may become outstanding under each such arrangement is correctly described in said Schedule 7.19 . 7.20 Hazardous Materials. (a) The Company, each of its Subsidiaries and each Partnership have obtained all permits, licenses and other authorizations which are required under all applicable Environmental Laws, except to the extent failure to have any such permit, license or authorization would not have a Material Adverse Effect. The Company, each of its Subsidiaries and each Partnership are in compliance with the terms and conditions of all such permits, licenses and authorizations, and are also in compliance with all applicable Environmental Laws, except to the extent failure to comply would not have a Material Adverse Effect. No action to revoke any permit, license or other authorization is pending or, to the best knowledge of the Company, threatened. (b) No notice, notification, demand, request for information, citation, summons or order has been issued, no complaint has been filed, no penalty has been assessed and no investigation or review is pending or, to the best knowledge of the Company, threatened by any governmental or other entity with respect to any alleged failure by the Company, its Subsidiaries, any Partnership or any Environmental Affiliate to have any permit, license or authorization required in connection with the conduct of the business of the Company, its Subsidiaries, any Partnership or any Environmental Affiliate or with respect to any generation, treatment, storage, recycling, transportation, release or disposal, or any release as defined in 42 U.S.C. (S) 9601(22) ("Release"), of any substance regulated under Environmental Laws ("Hazardous Materials") generated by the Company, its Subsidiaries, any Partnership or any Environmental Affiliate. (c) Neither the Company, its Subsidiaries, any Partnership or any Environmental Affiliate has handled any Hazardous Materials, other than as a generator, on any properties now or previously owned or leased by the Company, its Subsidiaries, any Partnership or Environmental Affiliate to an extent that it has, or may reasonably be expected to have, a Material Adverse Effect; and (i) no PCB contamination is present at any Properties now (or, to the best of the Company's knowledge, previously) owned or leased by the Company, its Subsidiaries, any Partnership or any Environmental Affiliate; (ii) no asbestos is present at any Properties now (or, to the best of the Company's knowledge, previously) owned or leased by the Company, its Subsidiaries, any Partnership or any Environmental Affiliate; (iii) there are no underground storage tanks for Hazardous Materials, active or abandoned, at any Properties now (or, to the best of the Company's knowledge, previously) owned or leased by the Company, its Subsidiaries, any Partnership or any Environmental Affiliate; and (iv) no Hazardous Materials have been Released at, on or under any Properties now (or, to the best of the Company's knowledge, previously) owned or leased by the 39 Company, its Subsidiaries, any Partnership or any Environmental Affiliate to an extent that it has, or may reasonably be expected to have, a Material Adverse Effect. (d) Neither (i) to the knowledge of the Company nor (ii) to an extent that has or may be reasonably be expected to have a Material Adverse Effect, whether or not known by the Company, has the Company, its Subsidiaries, any Partnership or any Environmental Affiliate transported or arranged for the transportation of, any Hazardous Material to any location which is listed on the National Priorities List under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), listed for possible inclusion on the National Priorities List by the Environmental Protection Agency in the Comprehensive Environmental Response, Compensation and Liability Information System List ("CERCLIS") or on any similar state list or which is the subject of federal, state or local enforcement actions or other investigations which may lead to claims against the Company, its Subsidiaries, any Partnership or any Environmental Affiliate for clean-up costs, remedial work, damages to natural resources or for personal injury claims, including, but not limited to, claims under CERCLA. (e) No Hazardous Material generated by the Company, its Subsidiaries, any Partnership or any Environmental Affiliate has been recycled, treated, stored, disposed of or released by the Company, its Subsidiaries, any Partnership or any Environmental Affiliate at any location, to the extent that it has or may reasonably be expected to have, a Material Adverse Effect. (f) No written notification of a Release, to the extent that it has or may reasonably be expected to have, a Material Adverse Effect, of a Hazardous Material has been filed by or on behalf of the Company, its Subsidiaries, any Partnership or any Environmental Affiliate and no Properties now or previously owned or leased by the Company, its Subsidiaries, any Partnership or any Environmental Affiliate is listed or listed for possible inclusion on the National Priority list promulgated pursuant to CERCLA, on CERCLIS or on any similar state list of sites requiring investigation or clean-up. (g) No Liens have arisen under or pursuant to any Environmental Laws on any of the real Properties or Properties owned or leased by the Company, its Subsidiaries, any Partnership or any Environmental Affiliate, and no government actions have been taken or are in process which could subject any of such Properties to such Liens, and neither the Company, its Subsidiaries, any Partnership or any Environmental Affiliate would be required to place any notice or restriction relating to the presence of Hazardous Materials at any Properties owned by it in any deed to such properties. (h) There have been no environmental investigations, studies, audits, tests, reviews or other analyses conducted by or which are in the possession of the Company, its Subsidiaries, any Partnership or any Environmental Affiliate in relation to any Properties or facility now or previously owned or leased by the Company, its Subsidiaries, any Partnership or any Environmental Affiliate which have not been made available to each Bank Party or their agents, employees or contractors. The Company has not received notice of any Environmental Claim that has not been provided to each Bank Party. 40 (i) Each of the representations and warranties made in Sections 7.20(a), (b), (c), (d), (e), (f), (g) and (h) herein are made subject to those matters disclosed in a letter from the Company to Bank Parties delivered on the date hereof and signed by the Company and Agent for identification with this Agreement. 7.21 Subsidiaries and Partnerships. Set forth in Schedule 7.21 hereto is a complete and correct list, as of the date of this Agreement, of all Subsidiaries of the Company and all partnerships (other than any partnership regarded as such solely for Federal income tax purposes if such partnership has made or is deemed to have made an election to be excluded from Subchapter K, Chapter 1, Subtitle A of the Code as permitted by Section 761 of the Code and the regulations thereunder) of which the Company or any of its Subsidiaries is a general or limited partner (and the jurisdiction of incorporation or organization of each such Subsidiary or partnership) and of all Investments held by the Company or any of its Subsidiaries in any joint venture or other Person. Except as disclosed in Schedule 7.21 hereto the Company owns, free and clear of Liens, all outstanding shares of such Subsidiaries and interests in such partnerships (and each such Subsidiary owns, free and clear of Liens, all outstanding shares of its Subsidiaries) and all such shares are validly issued, fully paid and nonassessable and the Company (or the respective Subsidiary) also owns, free and clear of Liens, all such Investments. 7.22 True and Complete Disclosure. No information, report, financial statement, exhibit, schedule or disclosure letter furnished to Agent or any Bank Party in writing by or on behalf of the Company, any of its Subsidiaries or any Partnership in connection with the negotiation, preparation or delivery of this Agreement, the Notes, and the other Basic Documents or included therein or delivered pursuant thereto contains any untrue statement of material fact or omits or omitted to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. All written information furnished after the date hereof by or on behalf of the Company, its Subsidiaries and any Partnership to Agent or any Bank Party in connection with this Agreement and the other Basic Documents and the transactions contemplated hereby and thereby will be true, complete and accurate in every material respect or based on reasonable estimates on the date as of which such information is stated or certified. There is no fact known to the Company, any of its Subsidiaries or any Partnership that could have a Material Adverse Effect that has not been disclosed herein, in the other Basic Documents or in a report, financial statement, exhibit, schedule, disclosure letter or other writing furnished to each Bank Party for use in connection with the transactions contemplated hereby. 7.23 No Election to be Treated as a Utility. No Obligor has made an election to be treated as a utility (as defined in Section 35.01(a)(2) of the Texas Business and Commerce Code). Section 8. Covenants of the Company. The Company covenants and agrees with each Bank Party that, so long as the Commitment or any Loan is outstanding and until payment in full of all amounts payable by the Company hereunder: 8.01 Financial Statements. The Company will deliver to each Bank Party. 41 (a) as soon as available and in any event within 45 days after the end of each of the first three quarterly fiscal periods of each fiscal year of the Company, (i) consolidated statements of income, retained earnings and cash flow of the Company and its Consolidated Subsidiaries for the period from the beginning of the respective fiscal year to the end of such period, and the related consolidated balance sheets as at the end of such period, setting forth in each case in comparative form the corresponding consolidated figures for the corresponding period in the preceding fiscal year that is presently required to be disclosed, and in the form presently required, in Form 10-Q promulgated by the Securities and Exchange Commission, all in reasonable detail, accompanied by a certificate of the Chief Financial Officer, which certificate shall state that said financial statements fairly present the consolidated financial condition and results of operations of the Company and its Consolidated Subsidiaries, in accordance with GAAP, consistently applied, as at the end of, and for, such period (subject to normal year-end audit adjustments) and (ii) supporting consolidating statements of income, retained earnings and cash flow of the Company and its Consolidated Subsidiaries for the period from the beginning of the respective fiscal year to the end of such period and the related consolidating balance sheets as at the end of such period for each unaudited financial report described in clause (i) above of this Section 8.01(a), and accompanied by a certificate of the Chief Financial Officer, which certificate shall state that said consolidating financial statements are true and complete and have been prepared in accordance with prudent accounting practice; (b) as soon as available and in any event within 90 days after the end of each fiscal year of the Company, (i) consolidated statements of income, retained earnings and cash flow of the Company and its Consolidated Subsidiaries for such year and the related consolidated balance sheet as at the end of such year, setting forth in each case in comparative form the corresponding consolidated figures for the preceding fiscal year, and accompanied, by an opinion thereon of Price Waterhouse or other independent public accountants of recognized national standing acceptable to Majority Lenders, which opinion shall state that said consolidated financial statements fairly present the consolidated financial condition and results of operations of the Company and its Consolidated Subsidiaries as at the end of, and for, such fiscal year in accordance with GAAP, and a certificate of such accountants stating that, in making the examination necessary for their opinion, they obtained no knowledge, except as specifically stated, of any Default, or if such Default then exists, specifying the nature and period of existence thereof and (ii) supporting consolidating statements of income, retained earnings and cash flow of the Company and its Consolidated Subsidiaries for such year and the related consolidating balance sheets as at the end of such year for each annual audit report described in clause (i) above of this Section 8.01(b), and accompanied by a certificate of the Chief Financial Officer, which certificate shall state that said consolidating financial statements are true and complete and have been prepared in accordance with prudent accounting practice; (c) as soon as available and in any event within 90 days after the end of a fiscal year of each Partnership other than those Partnerships identified on Schedule 8.01(c) hereto, the respective statements of operations, partners' equity and cash flows of each such Partnership for such year and the related balance sheets as at the end of such year, setting forth in each case in comparative form the corresponding figures for the preceding fiscal year, and accompanied by an opinion of independent public accountants of recognized national standing, which opinion shall state that said financial statements fairly present the financial condition and results of operations 42 of such Partnership as at the end of, and for, such fiscal year in accordance with GAAP, and a certificate of such accountants stating that, in making the examination necessary for their opinion, they obtained no knowledge, except as specifically stated, of any Default, or if such Default then exists, specifying the nature and period of existence thereof; (d) promptly upon their becoming available, copies of all registration statements and regular periodic reports (including, without limitation, reports filed on Form 8-K pursuant to the Securities Exchange Act of 1934), if any, which any Obligor shall have filed with the Securities and Exchange Commission (or any governmental agency substituted therefor) or any national securities exchange; (e) promptly upon the mailing thereof to the shareholders of the Company generally, copies of all financial statements, reports and proxy statements so mailed; (f) upon the release thereof, copies of any press releases or ether public announcements of any Obligor; (g) as soon as is available, and in any event within 90 days after the end of each fiscal year of the Company (commencing with current fiscal year), a five year financial plan for the Company (in form reasonably satisfactory to Agent), prepared by a senior financial officer thereof (the "Five Year Plan"), setting forth for the first year thereof, month by month financial projections for the Company, and thereafter setting forth yearly financial projections for the Company; (h) as soon as possible, and in any event within ten days after the Company knows or has reason to believe that any of the events or conditions specified below with respect to any Plan or Multiemployer Plan have occurred or exist, a statement signed by the Chief Financial Officer setting forth details respecting such event or condition and the action, if any, which the Company or its ERISA Affiliate proposes to take with respect thereto (and a copy of any report or notice required to be filed with or given to PBGC by the Company or an ERISA Affiliate with respect to such event or condition): (i) any reportable event, as defined in Section 4043(b) of ERISA and the regulations issued thereunder, with respect to a Plan, as to which PBGC has not by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days of the occurrence of such event (provided that a failure to meet the minimum funding standard of Section 412 of the Code or Section 302 of ERISA shall be a reportable event regardless of the issuance of any waivers in accordance with Section 412(d) of the Code); (ii) the filing under Section 4041 of ERISA of a notice of intent to terminate any Plan or the termination of any Plan; (iii) the institution by PBGC of proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by 43 the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by PBGC with respect to such Multiemployer Plan; (iv) the complete or partial withdrawal by the Company or any ERISA Affiliate under Section 4201 or 4204 of ERISA from a Multiemployer Plan, or the receipt by the Company or any ERISA Affiliate of notice from a Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA or that it intends to terminate or has terminated under Section 4041A of ERISA; and (v) the institution of a proceeding by a fiduciary of any Multiemployer Plan against the Company or any ERISA Affiliate to enforce Section 515 of ERISA, which proceeding is not dismissed within 30 days; (i) promptly after the Company knows or has reason to believe that any Default has occurred, a notice of such Default describing the same in reasonable detail and, together with such notice or as soon thereafter as possible, a description of the action that the Company has taken and proposes to take with respect thereto; and (j) from time to time such other information regarding the financial condition, operations, business or prospects of the Company or any of its Subsidiaries (including, without limitation, any Plan or Multiemployer Plan and any reports or other information required to be filed under ERISA) as Agent may reasonably request. The Company will furnish to each Bank Party, at the time it furnishes each set of financial statements pursuant to Sections 8.01(a), (b) or (c) above, a certificate of the Chief Financial Officer (i) to the effect that (to the best of his knowledge after due inquiry) no Default has occurred and is continuing (or, if any Default has occurred and is continuing, describing the same in reasonable detail and describing the action that the Company has taken and proposes to take with respect thereto) and (ii) setting forth in reasonable detail the computations necessary to determine whether the Company is in compliance with Sections 8.12 and 8.13 hereof as of the end of the respective quarterly fiscal period or fiscal year. 8.02 Litigation. The Company will promptly give to each Bank Party notice of all legal or arbitral proceedings, and of all proceedings by or before any governmental or regulatory authority or agency, and any material development in respect of such legal or other proceedings, affecting the Company, any of its Subsidiaries or any Partnership, except proceedings which, if adversely determined, could not have a Material Adverse Effect. 8.03 Corporate Existence, Etc. The Company will, and will cause each of its Subsidiaries and each Partnership to: (a) preserve and maintain its legal existence and all of its material rights, privileges and franchises (provided that nothing in this Section 8.03 shall prohibit any transaction expressly permitted under Section 8.07 hereof); (b) comply with the requirements of all applicable laws, rules, regulations and orders of governmental or regulatory authorities if failure to comply with such requirements could have a Material Adverse Effect; (c) pay and discharge all taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of its Property prior to the date on which penalties attach thereto, except for any such tax, 44 assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained; (d) maintain all of its material Properties used or useful in its business in good working order and condition, ordinary wear and tear excepted, or as permitted by Section 8.07(b)(iv) hereof; and (e) permit representatives of Agent, during normal business hours, to examine, copy and make extracts from the books and records of the Company, its Subsidiaries and each Partnership, to inspect their Properties, and to discuss their business and affairs with their officers, all to the extent reasonably requested by Agent. 8.04 Engineering Reports. (a) As soon as available and in any event on or before March 15 of each year, the Company will furnish to each Bank Party reports (the "Independent Reserve Reports") in form and substance reasonably satisfactory to Agent in its sole discretion, prepared by independent petroleum consultants acceptable to Agent, which independent Reserve Reports shall evaluate as of January 1 of such year the Oil and Gas Properties of the Company, its Subsidiaries and the Partnerships and shall, together with any other information reasonably requested by Agent, set forth for each property the separate categories of proved developed producing reserves, proved developed nonproducing reserves and proved undeveloped reserves attributable to such Property together with a projection of the rate of production and future net income with respect thereto as of such date, based upon (i) the pricing assumptions consistent with Securities and Exchange Commission reporting requirements at the time and (ii) the pricing assumptions acceptable to Agent (together with any volume adjustments necessary as a result of such pricing assumptions). (b) As soon as available and in any event on or before September 1 of each year, the Company will furnish to each Bank Party reports (the "Company Reserve Reports"), in form and substance reasonably satisfactory to Agent, which may be prepared by or under the supervision of a petroleum engineer who is an employee of the Company and certified by a senior officer of the Company as to its truth and completeness, which shall evaluate the Oil and Gas Properties of the Company, its Subsidiaries and the Partnerships and which shall, together with any other information reasonably requested by Agent, set forth for each such Property the separate categories of proved developed producing reserves, proved developed nonproducing reserves and proved undeveloped reserves attributable to such Property as of the immediately preceding July 1, together with a projection of the rate of production and net future income with respect thereto as of such date, based upon the pricing assumptions reasonably acceptable to Agent (together with any volume adjustments necessary as a result of such pricing assumptions). (c) With the delivery of each report required in Sections 8.04(a) or (b) above, the Company shall provide to each Bank Party a statement reflecting any material changes in the net revenue interest of each well or lease as reflected in the Security Documents after giving effect to all encumbrances listed therein from the net revenue interests as reflected in such report, and, if requested by Agent, the nature of such changes. (d) Concurrently with the delivery of each report required in Sections 8.04(a) or (b) above, the Company shall provide to each Bank Party a report in form reasonably satisfactory to Agent in its sole discretion prepared and certified by the Chief Financial Officer, which report shall, together with any other information requested by Agent, set forth in reasonable detail the 45 volume, estimated amount and nature of any and all gas imbalances with respect to the Oil and Gas properties of the Company, its Subsidiaries and any Partnership as of the date of each Engineering Report delivered hereunder. 8.05 Acquisition of Oil and Gas Properties. (a) If, subsequent to the date hereof, the Company or any of its Subsidiaries develops, acquires or receives any interest or interests in Oil and Gas Properties with proved reserves having a net present value of $1,000,000 or more (determined in accordance with the guidelines established by the Securities and Exchange Commission), and which interest is not already subject to the Lien of the Security Documents and therefore not part of the Property mortgaged to Bank Parties (or Agent for the benefit of Bank Parties) pursuant to the Security Documents, then not later than the earlier of (i) the first July 1 or January 1 to occur after such development, acquisition or receipt or (ii) 90 days after such development, acquisition or receipt, the Company or such Subsidiary will grant to Bank Parties (or Agent for the benefit of Bank Parties) as security for the Obligations a first priority Lien (subject only to Liens permitted by Section 8.08 hereof) on such Oil and Gas Properties, which Lien will be created and perfected by and in accordance with the provisions of the Security Documents, all in form and substance reasonably satisfactory to Agent in its sole discretion and in sufficient executed (and acknowledged where necessary or appropriate) counterparts for recording purposes. (b) Concurrently with the granting of the Lien or other action referred to in Section 8.05(a) hereof, and concurrently with the development, acquisition subsequent to the date hereof or receipt by the Company, its Subsidiaries or Partnerships of any interest or interests in Oil and Gas Properties with proved reserves having a net present value of $5,000,000 in the aggregate (or, if less, upon the request of Agent) or more (determined in accordance with the guidelines established by the Securities and Exchange Commission), the Company will provide to each Bank Party title information (which may include current title opinions) in form and substance satisfactory to Agent in its sole reasonable discretion with respect to such Oil and Gas Properties. The title information or opinions will state or reflect to the satisfaction of Agent, at a minimum (i) that the applicable Security Documents have been filed in all records with respect to such Oil and Gas Properties which are Properties mortgaged to Bank Parties (or Agent for the benefit of Bank Parties) pursuant to the Security Documents and that all releases, waivers and consents have been obtained which are necessary for Bank Parties (or Agent for the benefit of Bank Parties) to perfect a first priority Lien (subject only to Liens permitted by Section 8.08 hereof) on the subject Oil and Gas Properties which are Properties mortgaged to Bank Parties (or Agent for the benefit of Bank Parties) pursuant to the Security Documents, (ii) that the Company, its Subsidiary or the Partnership, as the case may be, owns good and defensible record title to such Oil and Gas Properties free and clear of all Liens except for those permitted under Section 8.08 hereof, (iii) the Company's, the Subsidiary's or the Partnership's, as the case may be, record interest in such Oil and Gas Properties, after giving effect to such permitted Liens, and (iv) that the descriptions set forth in the Security Documents of such Oil and Gas Properties are complete, accurate and legally sufficient descriptions for purposes of creating the Liens purported to be created by such Security Documents. (c) The Company shall give written notice to each Bank Party at least 20 days prior to (i) the acquisition, subsequent to the date hereof, by the Company, any of its Subsidiaries or any 46 partnership of any interest or interests in Oil and Gas properties with proved reserves having a net present value of $1,000,000 or more (determined in accordance with the guidelines established by the Securities and Exchange Commission) and (ii) the commencement, subsequent to the date hereof, of initial drilling operations with respect to any Oil and Gas Property now owned or hereafter acquired by the Company, any of its Subsidiaries or any Partnership. Such notice shall set forth a description, in reasonable detail, of such Oil and Gas Property, the proposed activities in respect thereof and any known environmental conditions or risks, or potential sources of future liabilities, relating to such Oil and Gas Property. In addition, the Company shall, at or prior to giving each Bank Party such notice, deliver to each Bank Party copies of any and all environmental surveys or assessments available to the Company which relate to such Oil and Gas Property. Upon the request of Agent at any time, the Company shall cause to be conducted a Phase I Environmental Review (as defined below) in respect of such Oil and Gas Property as soon as practicable after such request. The Company shall cause such Phase I Environmental Review to be completed, and the results thereof delivered to each Bank Party, prior to the time the Company is required to subject such Oil and Gas Property to the Lien of the Security Documents pursuant to Section 8.05(a) hereof. As used herein, the term "Phase I Environmental Review" shall mean, with respect to any such Oil and Gas Property, an environmental survey and assessment prepared by an independent environmental consultant of recognized national standing (the "Environmental Consultant") selected by the Company, expert in the identification and analysis of environmental risks, such survey and assessment to (i) estimate current liabilities and assess potential sources of future liabilities relating to the Property under any Environmental Law and (ii) be based upon (w) a physical on- site inspection by the Environmental Consultant of such Property, (x) interviews by the Environmental Consultant of individuals who have direct managerial responsibility for operations in respect of such Property, (y) a review by the Environmental Consultant of records relating to current and historical operations conducted in respect of such Property and (z) as deemed appropriate by the Environmental Consultant, interviews by the Environmental Consultant of Federal, state and local governmental authorities, or other individuals familiar with such Property who may have knowledge of current and historical operations conducted in respect of such Property. The Company will promptly furnish to each Bank Party all Phase I Environmental Reviews of Oil and Gas Properties prepared pursuant to this Section 8.05(c). (d) Promptly after the filing of any Security Document in any state, upon the reasonable request of Agent, the Company will provide to Bank Parties an opinion addressed to Bank Parties in form and substance reasonably satisfactory to Agent in its sole discretion from counsel acceptable to Agent, stating that such Security Document is valid, binding and enforceable against the Company or its Subsidiary, as the case may be, in accordance with its terms and addressing such priority questions as Agent may request. (e) Upon the development or acquisition of Oil and Gas properties as contemplated by, and the compliance with the provisions of, this Section 8.05, Lenders shall include such Oil and Gas Properties in the next redetermination of the Borrowing Base in accordance with and subject to the terms and conditions of Section 2.08 hereof. 8.06 Insurance. 47 (a) The Company will, and will cause each of its Subsidiaries and each Partnership to, keep insured by financially sound and reputable insurers all Property of a character usually insured by Persons engaged in the same or similar business similarly situated against loss or damage of the kinds and in the amounts customarily insured against by such Persons and carry such other insurance as is usually carried by such Persons including, without limitation, well control, redrill and pollution insurance. The Company and each Subsidiary Guarantor will maintain the additional insurance coverage as described in the respective Security Documents. (b) The Company, each Subsidiary and each Partnership shall at all times maintain insurance against its liability for injury to persons or property of the kinds and in the amounts usually carried by Persons engaged in the same or similar business similarly situated, which insurance shall be by financially sound and reputable insurers. (c) From time to time at Agent's request, the Company will furnish each Bank Party with certificates of all such policies of insurance setting forth the coverage, the limits of liability, the names of the carriers, the policy numbers, and the expiration dates. All such policies shall contain a provision that such policies will not be canceled or materially amended, which term shall include any reduction in the scope of limits of coverage, without at least 30 days prior written notice to Agent. (d) In the event the Company fails to provide, maintain, keep in force or deliver and furnish to each Bank Party the certificates of insurance required by this Section 8.06, Agent may procure such insurance or single interest insurance for risks covering Bank Parties' interest, and the Company will pay, or if paid by Agent, will reimburse to Agent all premiums thereon promptly upon demand by Agent, together with interest on the amount reimbursed to Agent at Post-Default Rate. Agent shall have the right to retain from time to time, at the expense of the Company, an insurance consultant to review the adequacy of the insurance coverage maintained by the Company, its Subsidiaries and each Partnership and to confirm compliance with this Section 8.06. 8.07 Prohibition of Fundamental Changes. (a) The Company will not, and will not permit any of its Subsidiaries or any Partnership to, (i) enter into any transaction of merger or consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), (ii) acquire any business or Property from, or capital stock of, or be a party to any acquisition of, any Person except for purchases of inventory and other Property to be sold or used in the ordinary course of business and Investments permitted under Section 8.10 hereof or (iii) sell, lease, transfer or otherwise dispose of, in one transaction or a series of transactions, any part of its business or Property, whether now owned or hereafter acquired (including, without limitation, receivables and leasehold interests), having an aggregate fair market value in excess of $5,000,000. (b) Notwithstanding the provisions of Section 8.07(a) hereof: (i) any Subsidiary of the Company may be merged or consolidated with or into: (x) the Company if the Company shall be the continuing or surviving corporation or (y) any other such Subsidiary; provided that if any such transaction shall be between a Subsidiary and a Wholly-Owned Subsidiary, the Wholly-Owned Subsidiary shall be the continuing or 48 surviving corporation and provided, further, that if any such transaction shall be between a Subsidiary Guarantor and a Subsidiary not a Subsidiary Guarantor, and such Subsidiary Guarantor is not the continuing or surviving corporation, then the continuing or surviving corporation shall have assumed all of the obligations of such Subsidiary Guarantor hereunder; (ii) any such Subsidiary may sell, lease, transfer or otherwise dispose of any or all of its Property (upon voluntary liquidation or otherwise) to the Company or a Wholly-Owned Subsidiary of the Company provided that if any such sale is by a Subsidiary Guarantor to a Subsidiary of the Company not a Subsidiary Guarantor, then such Subsidiary shall have assumed all of the obligations of such Subsidiary Guarantor under its Subsidiary Guaranty; (iii) the Company or any Subsidiary of the Company may merge or consolidate with any other Person if (x) in the case of a merger or consolidation of the Company, the Company is the surviving corporation and, in any other case, the surviving corporation is a Wholly-Owned Subsidiary of the Company and (y) after giving effect thereto no Default would exist hereunder; and (iv) the Company or any such Subsidiary may sell (x) obsolete or wornout Property, tools or equipment no longer used or useful in its business so long as the amount thereof sold in any single fiscal year by the Company and its Subsidiaries shall not have a fair market value in excess of $5,000,000 and (y) any inventory or, subject to Section 8.25 hereof, other Property in the ordinary course of business and on ordinary business terms. 8.08 Limitation on Liens. The Company will not, and will not permit any of its Subsidiaries or any Partnership to, create, incur, assume or suffer to exist any Lien upon any of its properties, whether now owned or hereafter acquired, except: (a) Liens created pursuant to the Security Documents and Liens existing on the date hereof and listed in Schedule 8.08 hereto: (b) Liens imposed by any governmental authority for taxes, assessments or charges not yet due or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of the Company, any of its Subsidiaries or any Partnership, as the case may be, in accordance with GAAP; (c) carriers', warehousemen's, mechanics', materialmen's, repairmen's, landlord's, or other like Liens arising in the ordinary course of business for amounts which are not overdue for a period of more than 60 days or which are being contested in good faith and by appropriate proceedings and for which adequate accruals and reserves are maintained on the books of the Company or such Subsidiary or partnership; (d) pledges or deposits under worker's compensation, unemployment insurance and other social security legislation; 49 (e) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (f) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business and encumbrances consisting of zoning restrictions, easements, licenses, restrictions on the use of real Property or minor imperfections in title thereto which, in the aggregate, are not material in amount, and which do not in any case materially detract from the value of the Property subject thereto or interfere with the ordinary conduct of the business of the Company, or any of its Subsidiaries or any Partnership; (g) Liens (other than Liens under ERISA or Environmental Laws) on Property of any corporation that becomes a Subsidiary of the Company after the date of this Agreement, provided that such Liens are in existence at the time such corporation becomes a Subsidiary of the Company and were not created in anticipation thereof; (h) Liens (other than Liens under ERISA or Environmental Laws) upon real and/or tangible personal Property acquired after the date hereof (by purchase, construction or otherwise) by the Company, its Subsidiaries or any Partnership, each of which Liens either (i) existed on such Property before the time of its acquisition and was not created in anticipation thereof, or (ii) was created solely for the purpose of securing Indebtedness representing, or incurred to finance, refinance or refund, the cost (including the cost of construction) of such Property; provided that no such Lien shall extend to or cover any Property of the Company or such Subsidiary or Partnership other than the Property so acquired and improvements thereon; and provided, further, that the principal amount of Indebtedness secured by any such Lien shall at no time exceed 100% of the fair market value of such Property at the time it was acquired (by purchase, construction or otherwise); (i) with respect to any Property from which Hydrocarbons may be severed or extracted in commercially feasible quantities, Liens with respect to obligations that are not yet due and payable under or for farm-out, farm-in, joint operating, area of mutual interest agreements and/or similar arrangements which Liens the Company determines in good faith to be necessary for the economic development of such Property and are customary and usual for the area in which such Property is located; (j) Liens by PMTI and the other obligors under the PMTI Facility in favor of the agent or lenders under the PMTI Facility upon any of their Properties, securing the PMTI Facility; (k) Liens by the Company in favor of the agent or lenders under the PMTI Facility upon all securities or other property belonging to the Company now or hereafter held by such agent or lenders and in all deposits (general or special, time or demand, provisional or final) and other sums credited by or due from such agent or lenders to the Company or subject to withdrawal by the Company, securing the guaranty by the Company of the Indebtedness under the PMTI Facility; provided, any such Liens shall be subordinated to any Liens by the Company in favor of Bank Parties (or Agent for the benefit of Bank Parties) in such securities or other 50 property belonging to the Company securing the Obligations, on terms and conditions satisfactory to Agent; and (l) any extension, renewal or replacement of the foregoing, provided, however, that the Liens permitted hereunder shall not be spread to cover any additional Indebtedness or Property (other than a substitution of like Property). 8.09 Indebtedness. The Company will not, and will not permit any of its Subsidiaries or any Partnership to, create, incur or suffer to exist any Indebtedness except: (a) the Obligations; (b) Indebtedness outstanding on the date hereof and listed in Schedule 8.09 hereto (excluding, however, following the making of the initial Loan hereunder, the Indebtedness to be repaid with the proceeds of such Loan, as indicated on said Schedule 8.09); (c) Subordinated Indebtedness; (d) Indebtedness of Subsidiaries of the Company or Partnerships to the Company or to Wholly-Owned Subsidiaries of the Company or Partnerships in which the Company owns all the limited partnership interests; (e) (i) Indebtedness of PMTI and the other obligors under the PMTI Facility, and the guaranty by the Company of such Indebtedness (together with reimbursement obligations of the Company in connection with any Letter of Credit issued in connection therewith), (ii) other Indebtedness of PMTI and its Wholly- Owned Subsidiaries arising in the ordinary course of their businesses under crude oil purchase or sale agreements, crude oil future, forward or similar contracts, or letters of credit supporting such obligations, and (iii) the unsecured guaranty by the Company of indebtedness of PMTI and its Wholly-Owned Subsidiaries arising in the ordinary course of their businesses under crude oil purchase or sale agreements, crude oil future, forward or similar contracts, or letters of credit supporting such obligations; provided, the aggregate outstanding amount of such Indebtedness shall not at any time exceed (A) $250,000,000 minus (B) the outstanding Indebtedness under the PMTI Facility. (f) obligations constituting Indebtedness by reason of clauses (e) and (f) of the definition of Indebtedness contained in this Agreement (i) not exceeding an aggregate principal amount of $3,000,000 at any one time or (ii) permitted pursuant to Section 8.09(e); and (g) other Indebtedness of the Company and its Subsidiaries (including without limitation Indebtedness secured by Liens permitted by Section 8.08(h) hereof) not exceeding an aggregate principal amount of $5,000,000 at any one time outstanding. 8.10 Investments. The Company will not, and will not permit any of its Subsidiaries or any Partnership to, make or permit to remain outstanding any Investments except: (a) operating deposit accounts with banks; 51 (b) Permitted Investments; (c) loans, advances and other extensions of credit made after the date hereof by the Company and its Subsidiaries to Subsidiaries of the Company in the ordinary course of business, provided that (i) the aggregate amount of such loans, advances and other extensions of credit by the Company to any one of its Subsidiaries shall not exceed $5,000,000 at any one time outstanding and (ii) the aggregate amount of such loans, advances and other extensions of credit by the Company to its Subsidiaries taken as a whole shall not exceed $5,000,000 at any one time outstanding; in addition to the foregoing (1) the Company may make loans, advances or other extensions of credit or capital contributions of up to $5,000,000 in the aggregate to PMTI and/or its Subsidiaries in connection with acquisitions and other capital investments, (2) the Company may make additional loans, advances or other extensions of credit of up to $15,000,000 in the aggregate to PMTI and/or its Subsidiaries, the proceeds of which are used to finance purchases and physical storage of crude oil that is fully hedged on the NYMEX and located in the Cushing, Oklahoma storage facility or which is in transit in specified pipelines approved by Majority Lenders and listed on Schedule 8.10(c) hereto, and (3) so long as no Default shall have occurred and be continuing or would exist after giving effect thereto, the Company may make Investments without limitation in Stocker Resources, Inc., Stocker Resources, L.P., Calumet Florida Inc. and Plains Illinois Inc. (d) Investments outstanding (or, as to Investments to PMTI and/or its Subsidiaries in connection with the cost of the construction of the Cushing, Oklahoma storage facility, contemplated) on the date hereof and identified in Schedule 7.21 hereto; (e) capital contributions to Unrestricted Subsidiaries from time to time in an aggregate amount not to exceed $55,000,000; (f) in addition to any capital contributions permitted in subsection (e) above, the following Investments in Unrestricted Subsidiaries: (i) capital contributions of up to $85,000,000 of the proceeds of any preferred or common stock of the Company issued after January 1, 1998; and (ii) any Investment represented by, or required to comply with the obligations undertaken under, the Stock Purchase Agreement described in Section 8.35(c); (g) additional Investments not otherwise permitted by this Section 8.10 up to but not exceeding $1,000,000 in the aggregate; and (h) advances in the ordinary course of business of operating funds on behalf of co-owners of Oil and Gas Properties of the Company, its Subsidiaries or the Partnerships pursuant to joint operating agreements. 8.11 Dividend Payments. The Company will not, and will not permit any of its Subsidiaries to, declare or make any Dividend Payment at any time; provided, however, the Company may make: (a) regularly scheduled Dividend Payments in cash in respect of the Company's Series D Cumulative Convertible Preferred Stock, par value $500 per share (i) the aggregate amount of 52 all such Dividend Payments not to exceed (A) 6% ($30 per share) in any one fiscal year, or (B) in the event the purchaser thereof shall desire to sell such stock in a secondary offering, and the investment bankers representing such purchaser shall issue a written opinion to the Company that the gross proceeds of such secondary offering shall not exceed $23,300,000, such percentage as is necessary to enable such Purchaser to receive $23,300,000 of gross proceeds from such secondary offering, but in no event exceeding 7.5% ($37.50 per share)) in any one fiscal year, and (ii) the aggregate stated value of such outstanding Convertible Preferred Stock at issuance not to exceed $23,300,000; and (b) regularly scheduled Dividend Payments in cash in respect of the Company's proposed issuance of Series E Cumulative Convertible Preferred Stock, stated value $500 per share, the aggregate amount of all such Dividend Payments not to exceed $8,075,000 during the term of this Agreement. 8.12 Tangible Net Worth. The Company will not permit Tangible Net Worth at any time to be less than the sum of (a) $85,000,000 plus (b) fifty percent (50%) of the net proceeds received by the Company from any capital stock issued by the Company on or after December 31, 1997 other than capital stock issued by the Company (y) as a dividend on any of its capital stock or (z) in exchange or conversion of any of its preferred stock to other capital stock plus (c) fifty percent (50%) of the Company's cumulative Consolidated net income (if positive) for each fiscal quarter from and after December 31, 1997 to and including the date of determination thereof, computed on a cumulative basis for such period. For purposes of this Section 8.12, Tangible Net Worth will not be reduced by the amount of any accrued dividends on preferred stock that (i) are not yet due, (ii) are payable in additional shares of preferred stock, and (iii) will in fact be paid by the Company in additional shares of preferred stock. 8.13 Current Ratio. The Company will not at any time permit current assets of the Company and its Consolidated Subsidiaries to be less than 50% of current liabilities. For purposes hereof, the terms "current assets" and "current liabilities" shall have the respective meanings assigned to them by GAAP, and, in addition, all LC Obligations shall be included as current liabilities, regardless of whether or not contingent (but without duplication). 8.14 Subordinated Indebtedness. (a) Except as provided in this Section 8.14, neither the Company, nor any of its Subsidiaries nor any Partnership shall purchase, redeem, retire or otherwise acquire for value, or set apart any money for a sinking, defeasance or other analogous fund for, the purchase, redemption, retirement or other acquisition of, or make any voluntary payment or prepayment of the principal of or interest on, or any other amount owing in respect of, any Subordinated Indebtedness, except for regularly scheduled payments of principal and interest in respect thereof required pursuant to the instruments evidencing such Subordinated Indebtedness. (b) The Company may offer to purchase and redeem Senior Subordinated Notes in the amount and under the circumstances described in Section 4.12(iii)(c) of the Senior Subordinated Indenture dated as of March 15, 1996 and Section 4.12(iv) of the Senior Subordinated Indenture dated as of July 21, 1997, provided that: (i) the Company shall have given each Bank Party written notice of its intent to so purchase and redeem (collectively "redeem") the Senior 53 Subordinated Notes at least 25 days prior to the date (the "Net Proceeds Payment Date") that it will become obligated to so redeem such Senior Subordinated Notes pursuant to such Section 4.12(iii)(c) or Section 4.12(iv), as appropriate, such notice to specify the Net Proceeds Payment Date and, based upon the proceeds available for such redemption, the maximum amount of Senior Subordinated Notes that may be so redeemed, (ii) the Company shall have provided to each Bank Party such information as Agent shall have reasonably requested with regard to such redemption, (iii) no Default or Event of Default shall have occurred and be continuing at the time of any such redemption, and (iv) if elected by Majority Lenders, by written notice to the Company during the 25 day period after such notice is given, a new Borrowing Base shall have been determined by Supermajority Lenders in the manner specified by Section 2.08 hereof and the Facility Usage shall not exceed the Borrowing Base as so redetermined. (c) The Company may offer to purchase and redeem Senior Subordinated Notes in an amount of up to $60,000,000 under the circumstances described in Paragraph 5 thereof, provided that: (i) the Company shall have given each Bank Party written notice of its intent to so purchase or redeem (collectively "redeem") such Senior Subordinated Notes at least 25 days prior to the date (the "Net Proceeds of a Public Offering Redemption Date") that it will become obligated to so redeem such Senior Subordinated Notes pursuant to Paragraph 5 thereof, such notice to specify the Net Proceeds of a Public Offering Redemption Date and, based upon the proceeds available for such redemption, the maximum amount of Senior Subordinated Notes that may be so redeemed, (ii) the Company shall have provided to each Bank Party such information as Agent shall have reasonably requested with regard to such redemption, (iii) no Default or Event of Default shall have occurred and be continuing at the time of any such redemption, and (iv) if elected by Majority Lenders, by written notice to the Company during the 25 day period after such notice is given, a new Borrowing Base shall have been determined by Supermajority Lenders in the manner specified by Section 2.08 hereof and the Facility Usage shall not exceed the Borrowing Base as so redetermined. 8.15 Lines of Business. Neither the Company nor any of its Subsidiaries nor any Partnership shall engage to any substantial extent in any line or lines of business activity other than the lines of business conducted by the Company, its Subsidiaries and each Partnership on the date of this Agreement. 8.16 Transactions with Affiliates. The Company will not, and will not permit any of its Subsidiaries to, enter into any material transaction with any Affiliate or any director, officer, employee or shareholder of the Company, except upon fair and reasonable terms. 8.17 Use of Proceeds. The Company will use the proceeds of the Loans hereunder solely (i) to refinance, extend, renew and/or rearrange the outstanding principal balance under the Original Agreement, (ii) to refinance Matured LC Obligations, (iii) to acquire additional Oil and Gas Properties and (iv) to finance the ongoing working capital requirements and other general corporate purposes of the Company and its Subsidiaries, and will use all Letters of Credit for its general business purposes (all in compliance with all applicable legal and regulatory requirements including, without limitation, Regulations U and X of the Board of Governors of the Federal Reserve System and the Securities Act of 1933 and the Securities Exchange Act of 1934, and the rules and regulations thereunder); provided that no Lender shall have any responsibility as to the 54 use of any of such proceeds or Letters of Credit. In addition, the Company may use up to $55,000,000 of the proceeds of the Loans hereunder to make or refinance capital contributions to Unrestricted Subsidiaries as permitted in Section 8.10(e). 8.18 Certain Obligations Respecting Subsidiaries. The Company will, and will cause each of its Subsidiaries to, take such action from time to time as shall be necessary to ensure that the Company and each of its Subsidiaries at all times owns (subject only to the Lien of the Security Documents) at least the same percentage of the issued and outstanding shares of each class of stock of each of its Subsidiaries as is owned on the date of this Agreement. Without limiting the generality of the foregoing, none of the Company nor any of its Subsidiaries shall sell, transfer or otherwise dispose of any shares of stock in any Subsidiary owned by them, nor permit any Subsidiary to issue any shares of stock of any class whatsoever to any Person (other than to the Company or another of its Subsidiaries). In the event that any such additional shares of stock shall be issued by any Subsidiary, the Company agrees forthwith that it shall cause such Obligor to deliver to Agent pursuant to any Security Document the certificates evidencing such shares of stock, accompanied by undated stock powers executed in blank and shall take such other action as Agent shall request to perfect the security interest created therein pursuant to any Security Document. 8.19 Additional Subsidiary Guarantors. The Company will take such action, as shall be necessary to ensure that all Subsidiaries of the Company (other than PMCT) are Subsidiary Guarantors and, thereby, Obligors hereunder; provided, however, that Majority Lenders may, in their sole discretion, consent to the release of PMTI and/or any of its Wholly-owned Subsidiaries as a Subsidiary Guarantor if such Person is not obligated on a Guaranty of the Indebtedness of the Company or any Subsidiary or Partnership (other than PMTI or its Wholly- owned Subsidiaries). Without limiting the generality of the foregoing and subject to the limitations on Investments in Section 8.10 hereof, in the event that the Company or any of its Subsidiaries shall form any new Subsidiary after the date hereof, the Company or the respective Subsidiary will cause such new Subsidiary to become a "Subsidiary Guarantor" (and, thereby, an Obligor) hereunder pursuant to a written instrument in form and substance satisfactory to Agent, and to deliver such proof of corporate action, incumbency of officers, opinions of counsel and other documents as is consistent with those delivered by each Obligor pursuant to Section 6.01 hereof on the Closing Date or as Agent shall have requested. 8.20 Environmental Matters; Environmental Reviews. (a) The Company will comply, and will cause each of its Subsidiaries and the Partnerships to comply in all material respects with all Environmental Laws now or hereafter applicable to the Company, each of its Subsidiaries, or the Partnerships and shall obtain, at or prior to the time required by applicable Environmental Laws, all environmental, health and safety permits, licenses and other authorizations necessary for its operations and maintain such authorizations in full force and effect. (b) The Company will promptly furnish to each Bank Party all written notices of any Environmental Claim received by the Company, any of 55 its Subsidiaries, Environmental Affiliates, or any Partnership, or of which it has notice, pending or threatened against the Company, any of its Subsidiaries, any Environmental Affiliates, or any Partnership which could result in fines or liabilities in excess of $1,000,000. (c) The Company will promptly furnish to each Bank Party all requests for information, notices of claim, demand letters, and other notifications, received by the Company, any of its Subsidiaries, Environmental Affiliates, or any Partnership, that in connection with its ownership or use of the Properties or the conduct of its business, it may be potentially responsible with respect to any investigation or clean-up of Hazardous Material at any location which could result in fines or liabilities in excess of $1,000,000. (d) The Company shall carry out with reasonable diligence the remediation of the Hazardous Materials on the Properties of the Company and its Subsidiaries as disclosed in the Environmental Compliance Certificate described in Section 6.01(i) hereof. 8.21 Environmental Indemnification. The Company will defend, indemnify and hold harmless each Bank Party, its employees, agents, officers and directors, from and against all claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature, known or unknown, contingent or otherwise, including, without limitation, reasonable attorney and consultant fees, investigation and laboratory fees, court costs and litigation expenses incurred by any of them arising out of, or in any way relating to (a) any violation or noncompliance with any Environmental Laws by the Company or any of its Subsidiaries, or the Partnerships or (b) any Release of a Hazardous Material into the environment, except to the extent that any of the foregoing arise out of the gross negligence or willful misconduct of the party seeking indemnification therefor. 8.22 Environmental Certification. As soon as available, and in any event within thirty (30) days after the end of each fiscal year, the Company shall deliver to each Bank Party a certificate signed by the president or chief executive officer of the Company in the form attached hereto as Exhibit "E", setting forth certain matters regarding the environmental practices and policies of the Company, its Subsidiaries and the Partnerships. Further, upon request by Agent, and no more often than one time during each fiscal year, the Company and its Subsidiaries shall permit and cooperate with an environmental and safety review made in connection with the operations of the Company's and Subsidiaries' Oil and Gas Properties by consultants selected by Agent which review shall, if requested by Agent, be arranged and supervised by environmental legal counsel for Agent, all at the Company's cost and expense; provided such costs and expense shall be reasonable in relation to the services rendered; provided, further, that the Company shall be responsible, for any fiscal year, for only 50% of such costs and expenses of such consultant and legal counsel that exceed in the aggregate $25,000 for such fiscal year. The consultant shall render a verbal or written report, as specified by Agent, based upon such review at the Company's cost and expense, as so limited. 8.23 Modifications of Certain Documents. The Company will not, and will not permit any of its Subsidiaries to, (i) consent to any termination, modification, supplement or waiver of any of the provisions of its charter or by-laws (or equivalent document) in any manner which could have a Material Adverse Effect and (ii) amend or modify any indenture or other agreement providing for or otherwise relating to any Subordinated Indebtedness if such amendment or 56 modification will affect or impair the subordination provisions of such indenture or agreement or modify the Persons obligated thereon or the interest rate, amortization, repurchase or redemption provisions or financial covenants of such indenture or agreement. 8.24 Gas Imbalances. The Company will not, and will not permit any of its Subsidiaries or any Partnership to, have any gas imbalances, take-or-pay or other prepayments with respect to any Obligor's Oil and Gas Properties which would require any Obligor to deliver Hydrocarbons produced from any Oil and Gas Property at some future time without then or thereafter receiving full payment therefor, which would (i) exceed $1,000,000 for any individual well, (ii) exceed $2,000,000 in the aggregate for all Obligors or (iii) with respect to any individual material well, exceed the proved developed producing reserves attributable to such well. 8.25 Sale of Oil and Gas Properties. The Company will not, and will not permit any of its Subsidiaries or any Partnership to, sell, assign, transfer or convey any interest in any of the Oil and Gas Properties except for (unless otherwise prohibited in the Security Documents): (a) Hydrocarbons sold in the ordinary course of business as and when produced; (b) routine farm-outs of non-proven acreage; (c) sales of Oil and Gas Properties provided that the aggregate value (determined in accordance with the guidelines of the Securities and Exchange Commission) of the sales of all such Oil and Gas Properties permitted under this Section 8.25(c) since the date of the last redetermination of the Borrowing Base shall not exceed $2,000,000; or (d) in addition to sales permitted by Section 8.25(c) above, sales of Oil and Gas Properties included in the Borrowing Base, provided simultaneously with each such sale the Borrowing Base is reduced by amounts agreed to at the time by Majority Lenders and the Facility Usage shall not exceed the Borrowing Base as so reduced after giving effect to the net proceeds received in respect of such sale that are applied to prepay the Obligations. In connection with any sale permitted by this Section 8.25, Bank Parties shall grant appropriate releases from the Security Documents subject to retention of the Lien on any retained, reversionary or back-in interest. 8.26 Partnership Units; New Partnerships. The Company will not, and will not permit any of its Subsidiaries or any Partnership to, (i) sell, assign or transfer any units or other interests in any Partnership, other than to the Company, any Wholly-Owned Subsidiary or any Partnership in which the Company owns all the partnership interests subject in all respects to the Lien of the applicable Security Documents and upon prior notice to each Bank Party, (ii) make distributions of assets or Properties of any Partnership to any Person other than to the Company or its Subsidiaries and the other partners of such Partnership as a portion of pro rata distributions to the partners of such Partnership generally, (iii) create any new general or limited partnership in which the Company or any of its Subsidiaries or any Partnership shall have a general partnership interest other than in the ordinary course of business and upon prior notice to each Bank Party, or (iv) consent to or permit any additional units, interests or rights to distributions in any Partnership to 57 be created, issued or sold by any Partnership, other than such additional units, interests or rights to distributions which are issued to and held by the Company. 8.27 Amendments of Partnership Agreements. The Company will not amend, modify or terminate (or consent to amend, modify or terminate), or permit any of its Subsidiaries to amend, modify, or terminate (or consent to amend, modify or terminate), any partnership agreement in any manner which could have a Material Adverse Effect. 8.28 Notice to Purchasers of Production. The Company will, and shall cause each other Obligor to, upon the occurrence and during the continuance of an Event of Default and upon request of Agent, join with Agent in notifying the purchaser or purchasers of oil and gas production of the existence of the Security Documents, such notification to be in writing and accompanied (if necessary) by certified copies of the Security Documents. 8.29 Restrictions on PMTI. Neither PMTI nor any Subsidiary thereof will (a) own any Oil and Gas Properties or (b) engage in any business other than (i) the marketing and transportation of Hydrocarbons, (ii) the ownership and operation of Hydrocarbon storage facilities, and (iii) the ownership and operation of Hydrocarbon processing facilities which are utilized at least in part in connection with the processing of Hydrocarbons owned by the Company, any Subsidiary or Partnership. 8.30 Lien Releases. Within 30 days after the Closing Date, the Company shall obtain, or cause to be obtained, written releases in form and substance satisfactory to Agent of all Liens shown in Schedule 8.08 hereto which secure obligations that the Company has indicated on said Schedule 8.08 have been paid or satisfied in full as of the Closing Date. In addition, the Company shall obtain, or cause to be obtained, written releases in form and substance satisfactory to Agent of all other Liens shown on Schedule 8.08 hereto within 30 days after the obligations secured by such Liens have been paid or satisfied in full. 8.31 Additional Security. Notwithstanding anything in this Agreement or any other Basic Document to the contrary, and subject to the provisions of 8.05(e) hereof, at Agent's request from time to time, and at the Company's sole cost and expense, the Company shall execute and deliver, or cause to be executed and delivered, to each Bank Party such mortgages, security interests, UCC financing statements and such other instruments and documents and do, or cause to be done, all such other acts that Agent deems reasonably necessary for Bank Parties (or Agent for the benefit of Bank Parties) to obtain and perfect a Lien under the Security Documents in any Oil and Gas Properties of the Company or any of its Subsidiaries not constituting Properties mortgaged to Bank Parties (or Agent for the benefit of Bank Parties) pursuant to the Security Documents at the time of such request which the Company or such Subsidiary may mortgage to Bank Parties (or Agent for the benefit of Bank Parties) without breaching any existing covenant in favor of, or agreement with, any third party. Further, the Company will from time to time deliver to each Bank Party any financing statements, continuation statements, modification agreements, extension agreements and other documents, properly completed and executed (and acknowledged when required by Agent) by the Obligors in form and substance reasonably satisfactory to Agent, which Agent requests for the purpose of continuing or extending the perfection and priority, or for confirming and protecting, the Liens and other rights securing the Obligations. Each Bank 58 Party hereby acknowledges and agrees that at the request of the Company the Security Documents limit the indebtedness secured by properties located in the State of Florida to the amount of $125,000,000. 8.32 Post Closing Curative. If any title opinion furnished to Bank Parties as contemplated herein or other title information received by Bank Parties discloses a title defect requiring or recommending curative action which Agent deems material in its sole but reasonable discretion, the Company shall, upon Agent's written request, use its reasonable best efforts to cure such defect, satisfy such requirement or take such recommended action within a reasonable time but in any event within sixty days following the date of such request by Agent. 8.33 Hedging Contracts. Neither the Company nor any Subsidiary or Partnership will be a party to or in any manner be liable on any forward, future, swap or hedging contract, except: (a) (i) contracts by PMTI (1) for which neither the Company nor any subsidiary other than PMTI is liable or (2) that are guaranteed by the Company as permitted under Section 8.09(e); (b) contracts entered into with the purpose and effect of fixing prices on oil or gas expected to be produced by the Company, any Subsidiary or Partnership, provided that at all times: (i) no such contract (other than a physical delivery contract) fixes a price for a term of more than three (3) years; (ii) the aggregate monthly production covered by all such contracts (determined, in the case of contracts that are not settled on a monthly basis, by a monthly proration acceptable to Agent) for any single month does not in the aggregate exceed eighty-five percent (85%) of the aggregate Projected Oil and Gas Production of the Company, its Subsidiaries and Partnerships anticipated to be sold in the ordinary course of their businesses for such month, (iii) no such contract (unless the counterparty is a Bank Party or an Affiliate thereof) requires the Company, any Subsidiary or Partnership to put up money, assets, letters of credit or other security against the event of its nonperformance prior to actual default by such Person in performing its obligations thereunder, and (iv) each such contract is with a counterparty or has a guarantor of the obligation of the counterparty who (unless such counterparty is a Bank Party or Affiliate thereof) at the time the contract is made has long-term obligations rated BBB- or Baa3 or better, respectively, by Standard & Poor's Corporation or Moody's Investors Services, Inc. (or a successor credit rating agency). As used in this subsection, the term "Projected Oil and Gas Production" means the projected production of oil or gas (measured by volume unit or BTU equivalent, not sales price) for the term of the contracts or a particular month, as applicable, from properties and interests owned by the Company, its Subsidiaries and Partnerships which are located in or offshore of the United States and which have attributable to them proved oil or gas reserves, as such production is projected in the most recent reports delivered pursuant to Section 8.04, after deducting projected production from any properties or interests sold or under contract for sale that had been included in such reports and after adding projected production from any properties or interests that had not been reflected in such reports but that are reflected in a separate or supplemental reports meeting the requirements of such Section 8.04 hereof and otherwise are satisfactory to Agent; or 59 (c) contracts entered into by the Company with the purpose and effect of fixing interest rates on a principal amount of indebtedness of the Company that is accruing interest at a variable rate, provided that (i) the aggregate notional amount of such contracts never exceeds seventy-five percent (75%) of the anticipated outstanding principal balance of the indebtedness to be hedged by such contracts or an average of such principal balances calculated using a generally accepted method of matching interest swap contracts to declining principal balances, (ii) the floating rate index of each such contract generally matches the index used to determine the floating rates of interest on the corresponding indebtedness to be hedged by such contract, and (iii) each such contract is with a counterparty or has a guarantor of the obligation of the counterparty who (unless such counterparty is a Bank Party or Affiliate thereof) at the time the contract is made has long-term obligations rated BBB- or Baa3 or better, respectively, by Standard & Poor's Corporation or Moody's Investors Services, Inc. (or a successor credit rating agency). 8.34 Transactions with PMCT. The Company shall not, and shall not permit any Subsidiary to (i) Guarantee any Indebtedness or other obligation of PMCT or any Subsidiary of PMCT, (ii) grant or permit any Lien on any Property of the Company or any Subsidiary of the Company to secure any Indebtedness or other obligation of PMCT or any Subsidiary of PMCT, (iii) make any Investment in or transfer any Property to PMCT or any Subsidiary of PMCT, (iv) assume or grant an indemnity with respect to PMCT or any Subsidiary of PMCT, (v) provide any other form of credit support to PMCT or any Subsidiary of PMCT, or (vi) enter into any transaction with PMCT or any Subsidiary of PMCT. 8.35 Unrestricted Subsidiaries. Each Unrestricted Subsidiary shall be subject to the following: (a) Subject to subsection (d) below, no Unrestricted Subsidiary shall be deemed to be a "Subsidiary" of the Company for purposes of this Agreement or any other Basic Document, and no Unrestricted Subsidiary shall be subject to or included within the scope of any provision herein or in any other Basic Document, including without limitation any representation, warranty, covenant or Event of Default herein or in any other Basic Document, except as set forth in this Section 8.35. (b) Except as permitted under Section 8.10(e) and (f) or Section 8.35 (c), neither the Company nor any of its Subsidiaries shall Guarantee any Indebtedness or other obligation of, grant any Lien on any of its Property to secure any Indebtedness or other obligation of, make any Investment in, assume or grant an indemnity with respect to, or provide any other form of credit support to, any Unrestricted Subsidiary, and neither the Company nor any of its Subsidiaries shall enter into (i) any management contract or agreement with any Unrestricted Subsidiary, except upon the prior written consent of Majority Lenders, not to be unreasonably withheld, or (ii) any other contract or agreement with any Unrestricted Subsidiary, except in the course of ordinary business on terms no less favorable to the Company or such Subsidiary, as applicable, than could be obtained in a comparable arm's length transaction from an unaffiliated party. (c) Notwithstanding anything to the contrary contained in this Agreement, the Company and PAAI may observe and perform their respective obligations under, and 60 consummate the stock purchases set forth in that certain Stock Purchase Agreement dated as of March 15, 1998 among the Company, PAAI and Wingfoot Ventures Seven Inc., as may be amended or modified as may be agreed to by the Company and PAAI, provided that (i) such observance or performance does not constitute or result in a default or violation of any Indenture or other agreement governing Indebtedness of the Company or its Subsidiaries, and (ii) such additions or modifications shall not modify or increase any direct or indirect liability of the Company or any of its Subsidiaries which arises or may arise thereunder, unless such additions or modifications have been consented to by Majority Lenders. (d) In the event Unrestricted Subsidiaries shall fail to consummate the transactions contemplated by such Stock Purchase Agreement prior to September 30, 1998, then on and after October 1, 1998 each Unrestricted Subsidiary shall be deemed to be a "Subsidiary" of the Company for purposes of this Agreement and shall be subject to the terms and conditions hereof. Section 9. Events of Default. If one or more of the following events (herein called "Events of Default") shall occur and be continuing: (a) the Company or any Subsidiary Guarantor shall default in the payment when due of (i) any principal of any Loan or (ii) any interest on any Loan and (iii) any fee or any other amount payable by it hereunder, under any Note or under any other Basic Document (other than principal or interest) and such default with respect to a payment of interest shall continue unremedied for one day or with respect to any fee or other amount (other than principal or interest) shall continue unremedied for five days; or (b) the Company or any Subsidiary Guarantor or any Partnership shall default in the payment when due of any principal of or interest on any of its other Indebtedness in excess of $2,500,000 in the aggregate, or any event specified in any note, agreement, indenture or other document evidencing or relating to any such Indebtedness shall occur if the effect of such event is to cause, or (with the giving of any notice or the lapse of time or both) to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, such Indebtedness to become due, or to be prepaid in full (whether by redemption, purchase, offer to purchase or otherwise), prior to its stated maturity; or (c) any representation, warranty or certification made or deemed made in any Basic Document (or in any modification or supplement thereto) by any Obligor, or any certificate furnished to any Bank Party pursuant to the provisions thereof, shall have been false or misleading in any material respect as of the time made or furnished; or (d) the Company shall default in the performance of any of its obligations under Sections 8.05, 8.07, 8.08, 8.09, 8.10, 8.11, 8.12, 8.13, 8.14, 8.17, 8.20, 8.21, 8.22 or 8.30 hereof or any Obligor shall default in the performance of any of its obligations under any material provision of any Security Document; or any Obligor shall default in the performance of any of its other obligations in this Agreement or any other Basic Document and such default shall continue unremedied for a period of ten days after the occurrence thereof; or 61 (e) the Company or any Subsidiary Guarantor shall admit in writing its inability to, or be generally unable to, pay its debts as such debts become due; or (f) the Company or any Material Subsidiary shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its Property, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under the Bankruptcy Code (as now or hereafter in effect), (iv) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or readjustment of debts, (v) fail to controvert in a timely and appropriate manner, or acquiesce in writing to, any Petition filed against it in an involuntary case under the Bankruptcy Code, or (vi) take any corporate action for the purpose of effecting any of the foregoing; or (g) a proceeding or case shall be commenced, without the application or consent of the Company or any Material Subsidiary, in any court of competent jurisdiction, seeking (i) its liquidation, reorganization, dissolution or winding-up, or the composition or readjustment of its debts, (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of the Company or such Subsidiary or of all or any substantial part of its assets, or (iii) similar relief in respect of the Company or such Subsidiary under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of 60 or more days; or an order for relief against the Company or such Subsidiary shall be entered in an involuntary case under the Bankruptcy Code; or (h) a final judgment or judgments for the payment of money in excess of $1,000,000 in the aggregate (exclusive of judgment amounts fully covered by insurance where the insurer has admitted liability in respect of such judgment) or in excess of $1,000,000 in the aggregate (regardless of insurance coverage) shall be rendered by one or more courts, administrative tribunals or other bodies having jurisdiction against the Company and/or any Subsidiary Guarantor or any Partnership and the same shall not be discharged (or provision shall not be made for such discharge), or a stay of execution thereof shall not be procured, within 30 days from the date of entry thereof and the Company or the relevant Subsidiary or Partnership shall not, within said period of 30 days, or such longer period during which execution of the same shall have been stayed, appeal therefrom and cause the execution thereof to be stayed during such appeal; or (i) an event or condition specified in Section 8.01(h) hereof shall occur or exist with respect to any Plan or Multiemployer Plan and, as a result of such event or condition, together with all other such events or conditions, the Company or any ERISA Affiliate shall incur or in the opinion of Agent shall be reasonably likely to incur a liability to a Plan, a Multiemployer Plan or PBGC (or any combination of the foregoing) which would constitute, in the determination of Agent, a Material Adverse Effect; or (j) either (i) an event or series of events by which any Person or other entity or group of Persons or other entities acting in concert as a partnership or other group (a "Group of Persons") shall, as a result of a tender or exchange offer, open market purchases, privately 62 negotiated purchases, merger, consolidation or otherwise, have become the beneficial owner (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of 40% or more of the combined voting power of the then outstanding voting stock of the Company, (ii) during any period of two consecutive years (A) the members of the board of directors of the Company (the "Board") as of January 1, 1998, (B) any director elected thereafter in any annual meeting of the stockholders of the Company upon the recommendation of the Board, and (C) any other member of the Board who will be recommended or elected to succeed those Persons described in subclauses (A) and (B) of this clause (ii) by a majority of such Persons who are then members of the Board, cease for any reason to constitute collectively a majority of the Board then in office, or (iii) the direct or indirect sale, lease, exchange or other transfer of all or substantially all of the assets of the Company to any Person or Group of Persons; or (k) except for expiration in accordance with its terms, any of the Security Documents shall be terminated or shall cease to be in full force and effect, for whatever reason except for releases granted pursuant to the terms of this Agreement. THEREUPON: (1) in the case of an Event of Default other than one referred to in Sections 9(f) or (g) above with respect to any Obligor, Agent may (and upon written notification from Majority Lenders, Agent shall), by notice to the Company, terminate the Commitment and/or declare the principal amount then outstanding of, and the accrued interest on, the Loans and all other amounts payable by the Obligors hereunder and under the Notes (including, without limitation, any amounts payable under Section 5.05 hereof) to be forthwith due and payable, whereupon such amounts shall be immediately due and payable without presentment, demand, protest, notice of intent to accelerate, notice of acceleration or other formalities of any kind, all of which are hereby expressly waived by the Company and each other Obligor; and (2) in the case of the occurrence of an Event of Default referred to in Sections 9(f) or (g) above with respect to any Obligor, the Commitment shall automatically be terminated and the principal amount then outstanding of, and the accrued interest on, the Loans and all other amounts payable by the Obligors hereunder and under the Notes (including, without limitation, any amounts payable under Section 5.05 hereof) shall automatically become immediately due and payable without presentment, demand, protest, notice of intent to accelerate, notice of acceleration or other formalities of any kind, all of which are hereby expressly waived by each Obligor. If any Event of Default shall occur and be continuing, each Lender may protect and enforce its rights under the Basic Documents by any appropriate proceedings, including proceedings for specific performance of any covenant or agreement contained in any Basic Document, and each Bank Party may enforce the payment of any Obligations due it or enforce any other legal or equitable right which it may have. All rights, remedies and powers conferred upon Bank Parties under the Basic Documents shall be deemed cumulative and not exclusive of any other rights, remedies or powers available under the Basic Documents or at law or in equity. Section 10. Agent. 10.01 Appointment and Authority. Each Bank Party hereby irrevocably authorizes Agent, and Agent hereby undertakes, to receive payments of principal, interest and other amounts due hereunder as specified herein and to take all other actions and to exercise such powers under the Basic Documents as are specifically delegated to Agent by the terms hereof or thereof, 63 together with all other powers reasonably incidental thereto. The relationship of Agent to Bank Parties is only that of one company acting as administrative agent for others, and nothing in the Basic Documents shall be construed to constitute Agent a trustee or other fiduciary for any holder of any of the Notes or of any participation therein nor to impose on Agent duties and obligations other than those expressly provided for in the Basic Documents. With respect to any matters not expressly provided for in the Basic Documents and any matters which the Basic Documents place within the discretion of Agent, Agent shall not be required to exercise any discretion or take any action, and it may request instructions from Bank Parties with respect to any such matter, in which case it shall be required to act or to refrain from acting (and shall be fully protected and free from liability to all Bank Parties in so acting or refraining from acting) upon the instructions of Majority Lenders (including itself), provided, however, that Agent shall not be required to take any action which exposes it to a risk of personal liability that it considers unreasonable or which is contrary to the Basic Documents or to applicable law. Upon receipt by Agent from the Company of any communication calling for action on the part of Bank Parties or upon notice from any Bank Party to Agent of any Default or Event of Default, Agent shall promptly notify each bank Party thereof. 10.02 Exculpation, Agent's Reliance, Etc. NEITHER AGENT NOR ANY OF ITS DIRECTORS, OFFICERS, AGENTS, ATTORNEYS, OR EMPLOYEES SHALL BE LIABLE FOR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY ANY OF THEM UNDER OR IN CONNECTION WITH THE BASIC DOCUMENTS, INCLUDING THEIR NEGLIGENCE OF ANY KIND, EXCEPT THAT EACH SHALL BE LIABLE FOR ITS OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. Without limiting the generality of the foregoing, Agent (a) may treat the payee of any Note as the holder thereof until Agent receives written notice of the assignment or transfer thereof in accordance with this Agreement, signed by such payee and in form satisfactory to Agent; (b) may consult with legal counsel (including counsel for the Company), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (c) makes no warranty or representation to any Bank Party and shall not be responsible to any Bank Party for any statements, warranties or representations made in or in connection with the Basic Documents; (d) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of the Basic Documents on the part of any Obligor or to inspect the property (including the books and records) of any Obligor; (e) shall not be responsible to any Bank Party for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of any Basic Document or any instrument or document furnished in connection therewith; (f) may rely upon the representations and warranties of the Obligors and Bank Parties in exercising its powers hereunder; and (g) shall incur no liability under or in respect of the Basic Documents by acting upon any notice, consent, certificate or other instrument or writing (including any telecopy, telegram, cable or telex) believed by it to be genuine and signed or sent by the proper Person or Persons. 10.03 Bank Parties' Credit Decisions. Each Bank Party acknowledges that it has, independently and without reliance upon Agent or any other Bank Party, made its own analysis of the Company and the transactions contemplated hereby and its own independent decision to enter into this Agreement and the other Basic Documents. Each Bank Party also acknowledges that it will, independently and without reliance upon Agent or any other Bank Party and based on such 64 documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Basic Documents. 10.04 Indemnification. Each Bank Party agrees to indemnify Agent (to the extent not reimbursed by the Company within ten (10) days after demand) from and against such Lender's Percentage Share of any and all liabilities, obligations, claims, losses, damages, penalties, fines, actions, judgments, suits, settlements, costs, expenses or disbursements (including reasonable fees of attorneys, accountants, experts, and advisors) of any kind or nature whatsoever (in this section collectively called "liabilities and costs") which to any extent (in whole or in part) may be imposed on, incurred by, or asserted against Agent growing out of, resulting from or in any other way associated with any of the Basic Documents and the transactions and events (including the enforcement thereof) at any time associated therewith or contemplated therein (including any violation or noncompliance with any Environmental Laws by any Person or any liabilities or duties of any Person with respect to Hazardous Materials found in or released into the environment). The foregoing indemnification shall apply whether or not such liabilities and costs are in any way or to any extent caused, in whole or in part, by any negligent act or omission of any kind by Agent, provided only that no Bank Party shall be obligated under this section to indemnify Agent for that portion, if any, of any liabilities and costs which is proximately caused by Agent's own individual gross negligence or willful misconduct, as determined in a final judgment. Cumulative of the foregoing, each Bank Party agrees to reimburse Agent promptly upon demand for such Lender's Percentage Share of any costs and expenses to be paid to Agent by the Company under Section 11.03 to the extent that Agent is not timely reimbursed for such expenses by the Company as provided in such section. As used in this Section 10.04, the term "Agent" shall refer not only to the Person designated as such in Section 1.01 but also to each director, officer, agent attorney, employee, representative and Affiliate of such Person. 10.05 Rights as Lender. In its capacity as a Lender, Agent shall have the same rights and obligations as any Lender and may exercise such rights as though it were not Agent. Agent may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with any of the Obligors or their Affiliates, all as if it were not Agent hereunder and without any duty to account therefor to any other Lender. 10.06 Sharing of Set-Offs and Other Payments. Each Bank Party agrees that if it shall, whether through the exercise of rights under Security Documents or rights of banker's lien, set off, or counterclaim against the Company or otherwise, obtain payment of a portion of the aggregate Obligations owed to it which, taking into account all distributions made by Agent under Section 4.01, causes such Bank Party to have received more than it would have received had such payment been received by Agent and distributed pursuant to Section 4.01, then (a) it shall be deemed to have simultaneously purchased and shall be obligated to purchase interests in the Obligations as necessary to cause all Bank Parties to share all payments as provided for in Section 4.01, and (b) such other adjustments shall be made from time to time as shall be equitable to ensure that Bank Parties share all payments of Obligations as provided in Section 4.01; provided, however, that nothing herein contained shall in any way affect the right of any Bank Party to obtain payment (whether by exercise of rights of banker's lien, set-off or counterclaim or otherwise) of indebtedness other than the Obligations. The Company expressly consents to the foregoing arrangements and agrees that any holder of any such interest or other participation in 65 the Obligations, whether or not acquired pursuant to the foregoing arrangements, may to the fullest extent permitted by law exercise any and all rights of banker's lien, set-off, or counterclaim as fully as if such holder were a holder of the Obligations in the amount of such interest or other participation. If all or any part of any funds transferred pursuant to this section is thereafter recovered from the seller under this section which received the same, the purchase provided for in this section shall be deemed to have been rescinded to the extent of such recovery, together with interest, if any, if interest is required pursuant to court order to be paid on account of the possession of such funds prior to such recovery. 10.07 Investments. Whenever Agent in good faith determines that it is uncertain about how to distribute to Bank Parties any funds which it has received, or whenever Agent in good faith determines that there is any dispute among Bank Parties about how such funds should be distributed, Agent may choose to defer distribution of the funds which are the subject of such uncertainty or dispute. If Agent in good faith believes that the uncertainty or dispute will not be promptly resolved, or if Agent is otherwise required to invest funds pending distribution to Bank Parties, Agent shall invest such funds pending distribution; all interest on any such investment shall be distributed upon the distribution of such investment and in the same proportion and to the same Persons as such investment. All moneys received by Agent for distribution to Bank Parties (other than to the Person who is Agent in its separate capacity as a Lender) shall be held by Agent pending such distribution solely as Agent for such Bank Parties, and Agent shall have no equitable title to any portion thereof. 10.08 Benefit of Section 10. The provisions of this Section 10 (other than the following Section 10.09) are intended solely for the benefit of Bank Parties, and no Obligor shall be entitled to rely on any such provision or assert any such provision in a claim or defense against any Bank Party. Bank Parties may waive or amend such provisions as they desire without any notice to or consent of the Company. 10.09 Resignation. Agent may resign at any time by giving written notice thereof to Bank Parties and the Company. Each such notice shall set forth the date of such resignation. Upon any such resignation Majority Lenders shall have the right to appoint a successor Agent. A successor must be appointed for any retiring Agent, and such Agent's resignation shall become effective when such successor accepts such appointment. If, within thirty days after the date of the retiring Agent's resignation, no successor Agent has been appointed and has accepted such appointment, then the retiring Agent may appoint a successor Agent, which shall be a commercial bank organized or licensed to conduct a banking or trust business under the laws of the United States of America or of any state thereof. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, the retiring Agent shall be discharged from its duties and obligations under this Agreement and the other Basic Documents. After any retiring Agent's resignation hereunder the provisions of this Section 10 shall continue to inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under the Basic Documents. Section 11. Miscellaneous. 11.01 Waiver. No failure on the part of any Bank Party to exercise and no delay in exercising, and no course of dealing with respect to, any right, power or privilege under this 66 Agreement or the Notes shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Agreement or the Notes preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. 11.02 Notices. All notices and other communications provided for herein and under the Security Documents (including, without limitation, any modifications of, or waivers or consents under, this Agreement) shall be given or made in writing (including, without limitation, by telex or telecopy) delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof (below the name of the Company, in the case of any Subsidiary Guarantor); or, as to any party, at such other address as shall be designated by such party in a notice to each other party. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telex or telecopier and confirmed by telephone call or personally delivered or, in the case of a mailed notice, upon receipt, in each case given or addressed as aforesaid. All notices and communications provided for under any Basic Document which is required to be delivered to Agent or LC Issuer shall be deemed given to Agent or LC Issuer if it is delivered to a Bank Party who is then also Agent or LC Issuer, and vice versa. 11.03 Expenses, Etc. Whether or not the transactions contemplated by this Agreement are consummated, the Company will promptly (and in any event, within 30 days after any invoice or other statement or notice) pay (a) all reasonable costs and expenses incurred by or on behalf of Agent (including attorneys' fees, consultants fees and engineering fees) in connection with (i) the negotiation, preparation, execution and delivery of the Basic Documents and any other documents requested by the Company or required to preclude the Company from being in Default, any and all consents, waivers or other documents or instruments relating thereto, (ii) the filing, recording, refiling and re- recording of any Basic Documents and any other documents or instruments or further assurances required to be filed or recorded or refiled or re-recorded by the terms of any Basic Document, (iii) any amendment, modification or waiver of any of the terms of this Agreement or any of the other Basic Documents requested by the Company or required to preclude the Company from being in default, (iv) the borrowings hereunder and other action reasonably required in the course of administration hereof, (v) monitoring or confirming (or preparation or negotiation of any document related to) the Company's compliance with any covenants or conditions contained in this Agreement or in any Basic Document, and (vi) the enforcement of this Section 11.03; and (b) all transfer, stamp, mortgage, documentary or other similar taxes, assessments or charges levied by any governmental or revenue authority in respect of this Agreement or any of the other Basic Documents or any other document referred to herein or therein. In addition to the foregoing, without duplication, until all Obligations to Bank Parties have been paid in full, the Company will also pay or reimburse Agent for all reasonable out-of-pocket costs and expenses of Agent or its agents or employees in connection with the continuing administration of the Loans and Letters of Credit and the related due diligence of Agent, including, without limitation, travel and miscellaneous expenses and fees and expenses of Agent's outside counsel, reserve engineers and consultants engaged in connection with the Basic Documents. 67 The Company hereby agrees to indemnify and hold harmless each Bank Party and its directors, officers, employees and agents for, and hold each of them harmless against, any and all losses, liabilities, claims, damages or expenses incurred by any of them arising out of or by reason of any investigation or litigation or other proceedings (including any threatened investigation or litigation or other proceedings) relating to the extensions of credit hereunder or any actual or proposed use by the Company or any of its Subsidiaries of the proceeds of any of the extensions of credit hereunder, including, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation or litigation or other proceedings (but excluding any such losses, liabilities, claims, damages or expenses incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified). In addition, the Company hereby agrees to indemnify and hold harmless each Bank Party and any trustee under any Security Document for and against, and the Company shall promptly (and in any event, within thirty days after any invoice or other statement or notice) pay, all expenditures, including reasonable attorneys' fees and expenses, incurred or expended in connection with (i) the breach by any Obligor of any covenant, agreement or condition contained herein or in any Security Document, (ii) the exercise by any Bank Party or any trustee under any Security Document of any of their rights and remedies under the Basic Documents, and (iii) the protection of the Collateral and/or the liens and security interests of any Bank Party or any trustee therein. Each Bank Party and any trustee under any Security Document shall have the right to compromise and adjust any such claims, actions and judgments, and in addition to the rights to be indemnified as herein provided, all amounts paid by such Bank Party or such trustee in compromise, satisfaction or discharge of any such claim, action or judgment, and all court costs, attorneys' fees and other expenses of every character expended by such Bank Party or such trustee pursuant to the provisions hereof shall be a demand obligation (which obligation the Company hereby expressly promises to pay) owing by the Company to such Person. The "Release Date" as used in this Section shall mean the earlier of the following two dates: (i) the date on which the Obligations have been paid and performed in full and each Security Document has been released of record, or (ii) the date on which the liens of all Security Documents are foreclosed or a deed in lieu of such foreclosure is fully effective and recorded. WITHOUT LIMITATION, IT IS THE INTENTION OF THE COMPANY AND EACH BANK PARTY THAT THE FOREGOING INDEMNITIES SHALL APPLY TO EACH INDEMNIFIED PARTY WITH RESPECT TO CLAIMS, DEMANDS, LIABILITIES, LOSSES, DAMAGES, CAUSES OF ACTION, JUDGMENTS, PENALTIES, COSTS AND EXPENSES (INCLUDING WITHOUT LIMITATION REASONABLE ATTORNEYS' FEES) WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF THE NEGLIGENCE OF SUCH (AND/OR ANY OTHER) INDEMNIFIED PARTY. However, such indemnities shall not apply to any particular indemnified party (but shall apply to the other indemnified parties) to the extent the subject of the indemnification is caused by or arises out of the gross negligence or willful misconduct of such particular indemnified party. The foregoing indemnities shall not terminate upon the Release Date or upon the release, foreclosure or other termination of the Security Documents but will survive the Release Date, foreclosure of the Collateral or conveyance in lieu of foreclosure, and the repayment of the Obligations and the discharge and release of the Security Documents and the other documents evidencing and/or securing the Obligations. Any amount to be paid hereunder by the Company to any Bank Party or any trustee 68 under any Security Document shall be a demand obligation owing by the Company to such Person. 11.04 Amendments, Etc. No provision of this Agreement may be amended or modified or waived except by an instrument in writing signed by (a) if such party is the Company, by the Company, (b) if such party is Agent or LC Issuer, by such party, and (c) if such party is a Lender, by Majority Lenders, except as to determinations of a new Borrowing Base, as set forth in Section 2.08, and increases in the aggregate Commitment of all Lenders, which shall require Supermajority Lenders; provided, notwithstanding the foregoing or anything to the contrary herein, no such amendment, modification or waiver shall be valid or effective against any Lender (unless signed by such Lender) which would: (i) increase the Commitment of such Lender or subject such Lender to any additional obligations, (ii) reduce any fees hereunder, or the principal of, or interest on, such Lender's Note, (iii) postpone any date fixed for any payment of any such fees, principal or interest, (iv) amend the definition herein of "Majority Lenders" or "Supermajority Lenders" or otherwise change the aggregate amount of Percentage Shares which is required for Agent, Lenders or any of them to take any particular action under the Loan Documents, or (v) release the Company from its obligation to pay such Lender's Note or any Guarantor from its guaranty of such payment; provided, further, in clarification of the foregoing, Supermajority Lenders may increase the aggregate Commitment of all Lenders (pursuant to an increase in such Supermajority Lenders' individual Commitments), provided that no individual Lender's Commitment may be increased in connection with any such increase in the aggregate Commitment of all Lenders without such individual Lender's consent as set forth in clause (i) above. 11.05 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. 11.06 Assignments and Participation. (a) The Company may not assign its rights or obligations hereunder or under any Note without the prior consent of each Bank Party. The Company shall not directly or indirectly purchase or otherwise retire any Obligations owed to any Bank Party nor will any Bank Party accept any offer to do so, unless each Lender shall have received substantially the same offer with respect to the same Percentage Share of the Obligations owed to it. If the Company at any time purchases or otherwise retires some but less than all of the Obligations owed to Bank Parties, such purchaser shall not be entitled to any rights of any Bank Party under the Basic Documents unless and until the Company has purchased all of the Obligations. (b) Any Lender may assign any of its Loans, its Note, and its Percentage Share of the Commitment; provided that, (i) such Lender gives written notice of such assignment to the Company; (ii) any such partial assignment shall be in an amount at least equal to $5,000,000; (iii) the assignee shall be a bank or other financial institution having a combined capital and surplus greater than $100,000,000; and (iv) each such assignment by any Lender of its Loans, its Note, or its Percentage Share of the Commitment shall be made in such manner so that the same portion of its Loans, its Note, and its Percentage Share of the Commitment is assigned to the respective assignee. Upon execution and delivery by the assignee to the Company of an Agreement to Be Bound, substantially in the form of Exhibit F attached hereto, pursuant to which such assignee 69 agrees to become a "Lender" hereunder having the Percentage Share of the Commitment and Loans specified in such instrument, the assignee shall have, to the extent of such assignment (unless otherwise provided in such assignment), the obligations, rights and benefits of a Lender hereunder holding the Percentage Share of the Commitment and Loans (or portions thereof) assigned to it (in addition to the Percentage Share of the Commitment and Loans, if any, theretofore held by such assignee) and such Lender shall, to the extent of such assignment, be released from its Percentage Share of the Commitment (or portion thereof) so assigned. Within five (5) Business Days after its receipt of notice that the Agent has received copies of any assignment and the other documents relating thereto, the Company shall execute and deliver to Agent (for delivery to the relevant assignee) a new Note, evidencing such assignee's assigned Loans and, if the assignor Lender has retained a portion of its Loans, a replacement Note in the principal amount of the Loans retained by the assignor Lender (such Notes to be in exchange for, but not in payment of, the Note held by such Lender). (c) Any Lender may sell or agree to sell to one or more other Persons a participation in all or any part of any Loans, or in the Commitment, in which event each purchaser of a participation (a "Participant") shall be entitled to the rights and benefits of the provisions of Section 8.01(j) hereof with respect to its participation in such Loans and Commitment as if (and the Company shall be directly obligated to such Participant under such provisions as if) such Participant were a "Lender" for purposes of said Section, but shall not have any other rights or benefits under this Agreement, the Notes or any other Basic Document (the Participant's rights against such Lender in respect of such participation to be those set forth in the agreements executed by such Lender in favor of the Participant). All amounts payable by the Company to such Lender under Section 5 hereof in respect of Loans, and the Commitment, shall be determined as if such Lender had not sold or agreed to sell any participation in such Loans and Commitment, and as if such Lender were funding each of such Loan and Commitment in the same way that it is funding the portion of such Loan and Commitment in which no participations have been sold. In no event shall any Lender agree with the Participant to take or refrain from taking any action hereunder or under any other Basic Document except that any Lender may agree with the Participant that it will not, without the consent of the Participant, agree to (i) increase or extend the term, or extend the time or waive any requirement for the reduction or termination, of the Commitment, (ii) extend the date fixed for the payment of principal of or interest on the related Loan or Loans or any portion of any fee hereunder payable to the Participant, (iii) reduce the amount of any such payment of principal, (iv) reduce the rate at which interest is payable thereon, or any fee hereunder payable to the Participant, to a level below the rate at which the Participant is entitled to receive such interest or fee, or (v) alter the rights or obligations of the Company to prepay the related Loans. (d) Anything in this Section 11.06 to the contrary notwithstanding, any Lender may assign and pledge all or any portion of its Loans and its Note to any Federal Reserve Bank as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any Operating Circular issued by such Federal Reserve Bank, and such Loans and Note shall be fully transferrable as provided therein. No such assignment shall release any Lender from its obligations hereunder. 70 (e) Any Bank Party may furnish any information concerning the Company or any of its Subsidiaries in the possession of such Bank Party from time to time to assignees and participants (including prospective assignees and participants). 11.07 Survival. The obligations of the Company under Sections 5.01, 5.05, 8.21 and 11.03 hereof shall survive the repayment of the Loans and the termination of the Commitment. In addition, each representation and warranty made, or deemed to made by a notice of any extension of credit, herein or pursuant hereto shall survive the making of such representation and warranty, and no Bank Party shall be deemed to have waived, by reason of making any extension of credit hereunder, any Default which may arise by reason of such representation or warranty proving to have been false or misleading, notwithstanding that such Bank Party may have had notice or knowledge or reason to believe that such representation or warranty was false or misleading at the time such extension of credit was made. 11.08 Captions. The table of contents and captions and section headings appearing herein are included solely for convenience of reference and are not intended to affect the interpretation of any provision of this Agreement. 11.09 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. 11.10 Governing Law; Submission to Jurisdiction. (a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. (b) THE COMPANY HEREBY SUBMITS, AND SHALL CAUSE EACH SUBSIDIARY GUARANTOR TO SUBMIT, TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW YORK CITY FOR THE PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. THE COMPANY IRREVOCABLY WAIVES, AND SHALL CAUSE EACH SUBSIDIARY GUARANTOR TO IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT BEEN BROUGHT IN AN INCONVENIENT FORUM. (c) The Company hereby irrevocably designates, and shall cause each Subsidiary Guarantor to irrevocably designate, Prentice-Hall Corporation System, Inc., located at 15 Columbus Circle, New York, New York 10023-7773, (212) 373-7500, as its 71 designee, appointee and agent to receive, for and on its behalf, service of process in such respective jurisdictions in any legal action or proceeding with respect to this Agreement, the Notes or the other Security Documents. It is understood that a copy of such process served on such agent will be promptly forwarded by overnight courier to the Company or the Subsidiary Guarantor at its address for notices pursuant to Section 11.02, but the failure of the Company or the Subsidiary Guarantor to receive such copy shall not affect in any way the service of such process. The Company further irrevocably consents, and shall cause each Subsidiary Guarantor to irrevocably consent, to the service of process of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to it at its said address, such service to become effective 30 days after such mailing. (d) Nothing herein shall affect the right of the Company, any Bank Party or any holder of a Note to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against the Company or any Bank Party in any other jurisdiction. 11.11 Waiver of Jury Trial, Punitive Damages, Etc. THE COMPANY AND EACH BANK PARTY HEREBY IRREVOCABLY WAIVES, AND THE COMPANY SHALL CAUSE EACH SUBSIDIARY GUARANTOR TO IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH BANK PARTY AND THE COMPANY HEREBY FURTHER (I) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (II) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (III) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE OTHER BASIC DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION, AND THE COMPANY SHALL CAUSE EACH SUBSIDIARY GUARANTOR TO MAKE SUCH WAIVER, CERTIFICATION, AND ACKNOWLEDGMENT. 11.12 Rate of Interest. It is the intention of the parties hereto that each Bank Party shall conform strictly to usury laws applicable to it. Accordingly, if the transactions contemplated hereby would be usurious as to any Bank Party under laws applicable to it (including the laws of the United States of America and the State of New York or any other jurisdiction whose laws may be mandatorily applicable to such Bank Party notwithstanding the other provisions of this Agreement), then, in that event, notwithstanding anything to the contrary in any Note, this Agreement or in any other Security Document or agreement entered into in connection with or as 72 security for any Note, it is agreed as follows: (i) the aggregate of all consideration which constitutes interest under law applicable to such Bank Party that is contracted for, taken, reserved, charged or received by such Bank Party under any Note, this Agreement or under any of the other aforesaid Security Documents or agreements or otherwise in connection with any Note shall under no circumstances exceed the maximum amount allowed by such applicable law, and any excess shall be canceled automatically and if theretofore paid shall be credited by such Bank Party on the principal amount of the Obligations (or, to the extent that the principal amount of the Obligations shall have been or would thereby be paid in full, refunded by such Bank Party to the Company); and (ii) in the event that the maturity of any Note is accelerated by reason of an election of the holder thereof resulting from any Event of Default under this Agreement or otherwise, or in the event of any required or permitted prepayment, then such consideration that constitutes interest under law applicable to such Bank Party may never include more than the maximum amount allowed by such applicable law, and excess interest, if any, provided for in this Agreement or otherwise shall be canceled automatically by such Bank Party as of the date of such acceleration or prepayment and, if theretofore paid, shall be credited by such Bank Party on the principal amount of the Obligations (or, to the extent that the principal amount of the Obligations shall have been or would thereby be paid in full, refunded by such Bank Party to the Company). All sums paid or agreed to be paid to such Bank Party for the use, forbearance or detention of sums due hereunder shall, to the extent permitted by law applicable to such Bank Party, be amortized, prorated, allocated and spread in equal parts throughout the full term of the Loans evidenced by the Notes until payment in full so that the rate or amount of interest on account of any Loans hereunder does not exceed the maximum amount allowed by such applicable law. If at any time and from time to time (i) the amount of interest payable to any Bank Party on any date shall be computed at the Maximum Rate applicable to such Bank Party pursuant to this Section 11.12 and (ii) in respect of any subsequent interest computation period the amount of interest otherwise payable to such Bank Party would be less than the amount of interest payable to such Bank Party computed at the Maximum Rate applicable to such Bank Party, then the amount of interest payable to such Bank Party in respect of such subsequent interest computation period shall continue to be computed at the Maximum Rate applicable to such Bank Party until the total amount of interest payable to such Bank Party shall equal the total amount of interest which would have been payable to such Bank Party if the total amount of interest had been computed without giving effect to this Section. Without limiting the intent of the parties expressed under Sections 11.11 and 11.12 hereof, to the extent, if any, that Chapter 303 of the Texas Finance Code is relevant to any Bank Party for the purpose of determining the Maximum Rate, such Bank Party hereby elects to determine the applicable rate ceiling under such Article by the indicated weekly rate ceiling from time to time in effect and, in no event, shall Tex. Rev. Civ. Stat. Ann. Art. 5069, ch. 15 (which regulates certain revolving credit loan accounts and revolving tri-party accounts) apply to this Agreement or any Note. 11.13 Release of Liens. Notwithstanding anything to the contrary contained herein no Bank Party shall be required to release any Lien under the Security Documents in connection with any sale of Property by any of the Obligors if, at the time of such sale, a Default shall have occurred and be continuing or would result therefrom. 73 11.14 Confidentiality. Each Bank Party agrees (on behalf of itself and each of its affiliates, directors, officers, employees and representatives) to use reasonable precautions to keep confidential, in accordance with its customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices, any non-public information supplied to it by the Company pursuant to this Agreement which is identified by the Company as being confidential at the time the same is delivered to such Bank Party, provided that nothing herein shall limit the disclosure of any such information (i) to the extent required by statute, rule, regulation or judicial process, (ii) to counsel for any Bank Party, (iii) to bank examiners, auditors or accountants, (iv) in connection with any litigation to which any Bank Party is a party or (v) to any assignee or participant (or prospective assignee or participant) so long as such assignee or participant (or prospective assignee or participant) first enters into a confidentiality agreement with such Bank Party; and provided, further, that in no event shall any Bank Party be required to return any materials furnished by the Company. 74 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. PLAINS RESOURCES INC. By: /s/ Phillip D. Kramer ------------------------------------------------- Phillip D. Kramer Senior Vice President and Chief Financial Officer Address for Notices: ------------------- 500 Dallas Street, Suite 700 Houston, Texas 77002 Telecopier No.: (713) 654-1523 Telephone No.: (713) 654-1414 Attention: Phillip D. Kramer 75 ING (U.S.) CAPITAL CORPORATION, as Agent, a Lender and as LC Issuer By: /s/ Christopher R. Wagner -------------------------------------------- Christopher R. Wagner, Vice President Principal Office for all Loans: ------------------------------ ING (U.S.) Capital Corporation 135 East 57th Street New York, New York 10022-2101 Address for Notices: ------------------- ING (U.S.) Capital Corporation 135 East 57th Street New York, New York 10022-2101 Telex No.: TRT 177792 RCA Intl 238686 ITT Intl 428379 Telecopy No.: (212) 832-3616 Telephone No.: (212) 446-1717 Attention: Christopher R. Wagner, Vice President PAYMENT INFORMATION: Morgan Guaranty Trust Company of New York for the account of ING (U.S.) Capital Corporation Account No. 3123152, ABA No. 021000238 Reference: ING (U.S.) Capital Corporation for Natural Resources Department/Plains 76 BANKBOSTON, N.A., Lender By: /s/ Terrence Ronan ------------------------------------ Name: Terrence Ronan Title: Vice President Principal Office for all Loans: ------------------------------ BankBoston, N.A. 100 Federal Street Boston, Massachusetts 02110 Address for Notices: ------------------- BankBoston, N.A. 100 Federal Street Boston, Massachusetts 02110 Telephone: (617) 434-5472 Telecopy: (617) 434-3652 Attention: Terrence Ronan PAYMENT INFORMATION: BankBoston, N.A. ABA #011000390 Attn: Commercial Loan Services - Debra Williams Ref: Plains Resources 77 DEN NORSKE BANK ASA, Lender By: /s/ Byron L. Cooley --------------------------------------- Name: Byron L. Cooley Title: Senior Vice President By: /s/ William V. Moyer --------------------------------------- Name: William V. Moyer Title: First Vice President Principal Office for all Loans: ------------------------------ Den norske Bank ASA 333 Clay Street, Suite 4890 Houston, Texas 77002 Address for Notices: ------------------- Den norske Bank ASA 333 Clay Street, Suite 4890 Houston, Texas 77002 Telephone: (713) 844-9258 Telecopy: (713) 757-1167 Attention: Byron L. Cooley, First Vice President PAYMENT INFORMATION: Unibank New York ABA #026005694 ACC# 27260999 Ref: Plains Resources 78 WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION, Lender By: /s/ Ann Rhoads --------------------------------------- Name: Ann Rhoads Title: Vice President Principal Office for all Loans: ------------------------------ Wells Fargo Bank (Texas), National Association 1000 Louisiana, Mail Station 156 Houston, Texas 77002 Address for Notices: ------------------- Wells Fargo Bank (Texas), National Association 1000 Louisiana, Mail Station 156 Houston, Texas 77002 Telephone: (713) 250-4035 Telecopy: (713) 250-7912 Attention: Ann M. Rhoads, Vice President PAYMENT INFORMATION: Wells Fargo Bank (Texas), National Association ABA #1130-01064 Ref: Plains Resources 79 CHASE BANK OF TEXAS, N.A, Lender By: /s/ Russell A. Johnson --------------------------------------- Name: Russell A. Johnson Title: Vice President Principal Office for all Loans: ------------------------------ Chase Bank of Texas, N.A. 600 Travis, 20th Floor Houston, Texas 77002-8086 Address for Notices: ------------------- Chase Bank of Texas, N.A. 600 Travis, 20th Floor Houston, Texas 77002-8086 Telephone: (713) 216-5617 Telecopy: (713) 216-4295 Attention: Russell A. Johnson PAYMENT INFORMATION: ABA #113-000-609 ACC# GL #13681-7800 Commercial Loan Clearing Account Ref: Plains Resources 80 COMERICA BANK-TEXAS, Lender By: /s/ Daniel G. Steele --------------------------------------- Name: Daniel G. Steele Title: Senior Vice President Principal Office for all Loans: ------------------------------ Comerica Bank-Texas 910 Louisiana, 4th Floor Houston, Texas 77002 Address for Notices: ------------------- Comerica Bank-Texas 910 Louisiana, 4th Floor Houston, Texas 77002 Telephone: (713) 722-6540 Telecopy: (713) 722-6550 Attention: Daniel G. Steele PAYMENT INFORMATION: ABA #111-000-753 Account No. __________ Reference: Plains Resources Inc. 81 MEESPIERSON CAPITAL CORP., Lender By: /s/ Darrell W. Holley /s/ Karel Louman --------------------------------------------------- Name: Darrell W. Holley Karel Louman Title: Senior Vice President Managing Director Principal Office for all Loans: ------------------------------ MeesPierson Capital Corp. 300 Crescent Court, Suite 1750 Dallas, Texas 75201 Address for Notices: ------------------- MeesPierson Capital Corp. 300 Crescent Court, Suite 1750 Dallas, Texas 75201 Telephone: (214) 754-0009 Telecopy: (214) 754-5981 Attention: Darrell W. Holley, Senior Vice President PAYMENT INFORMATION: Chase Manhattan Bank ABA No. 021 000 021 Account name: MeesPierson New York Agency Account No. 001-1-624418 Ref: Plains Resources - Account #___________ 82 BANK OF SCOTLAND, Lender By: /s/ Annie Chi Tat --------------------------------------- Name: Annie Chin Tat Title: Vice President Principal Office for all Loans: ------------------------------ Bank of Scotland 565 Fifth Avenue New York, New York 10017 Address for Notices: ------------------- Bank of Scotland 1200 Smith Street, Suite 1750 Houston, Texas 77002-4312 Telephone: (713) 651-1870 Telecopy: (713) 651-9714 Attention: Richard Butler PAYMENT INFORMATION: Citibank N.A., New York ABA No. 021 000 089 Account Name: Bank of Scotland, NY Account No. 36046633 Ref: Plains Resources Attention: Loan Admin. 83 U.S. BANK NATIONAL ASSOCIATION, Lender By: /s/ Monte E. Deckerd --------------------------------------- Name: Monte E. Deckerd Title: Vice President Principal Office for all Loans: ------------------------------ U.S. Bank 918 Seventeenth Street, Suite 300 Denver, Colorado 80202 Address for Notices: ------------------- U.S. Bank 918 Seventeenth Street, Suite 300 Denver, Colorado 80202 Telephone: (303) 585-4212 Telecopy: (303) 585-4362 Attention: Monte Deckerd PAYMENT INFORMATION: ABA #102000021 Account No. 28888532160600 Ref: Plains Resources 84 HIBERNIA NATIONAL BANK, Lender By: /s/ S. John Castellano --------------------------------------- Name: S. John Castellano Title: Vice President Principal Office for all Loans: ------------------------------ Hibernia National Bank 313 Carondelet Street, Suite 1300 New Orleans, Louisiana 70130 Address for Notices: ------------------- Hibernia National Bank 313 Carondelet Street, Suite 1300 New Orleans, Louisiana 70130 Telephone: (504) 533-2045 Telecopy: (504) 533-5434 Attention: Tammy Angelety PAYMENT INFORMATION: ABA #___________ Account No. ___________ Ref: Plains Resources 85 LENDER SCHEDULE Lender Commitment Percentage Share - ------ ---------- ---------------- ING (U.S.) Capital Corporation $28,000,000 12.444444% BankBoston, N.A. $25,000,000 11.111111% Den Norske Bank ASA $25,000,000 11.111111% Wells Fargo Bank (Texas), $25,000,000 11.111111% National Association Chase Bank of Texas, N.A. $25,000,000 11.111111% Comerica Bank-Texas $20,000,000 8.888889% MeesPierson Capital Corp. $20,000,000 8.888889% Bank of Scotland $20,000,000 8.888889% U.S. Bank National Association $20,000,000 8.888889% Hibernia National Bank $17,000,000 7.555556% ============ ========== TOTAL $225,000,000 100.000000% EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PLAINS RESOURCES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1998, AND CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1998. 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 31,584 0 89,840 0 32,132 154,026 638,392 193,328 615,818 131,820 341,613 0 21,299 1,685 114,464 615,818 382,394 383,013 347,156 360,749 0 0 12,866 4,585 1,736 2,849 0 0 0 2,849 .13 .12
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