-----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, UZS2sSNScQKyvSR0MBcsUFeaHZC7SSo1sNS4yv46vvfLHu5gG/jVxBl64W/fYRSf Dq6RWjtXERh2xS9DFiJ6xQ== 0000077159-00-000036.txt : 20000331 0000077159-00-000036.hdr.sgml : 20000331 ACCESSION NUMBER: 0000077159-00-000036 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PENN VIRGINIA CORP CENTRAL INDEX KEY: 0000077159 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 231184320 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13283 FILM NUMBER: 585019 BUSINESS ADDRESS: STREET 1: 100 MATSONFORD ROAD SUITE 200 STREET 2: ONE RADNOR CORPORATE CENTER CITY: RADNOR STATE: PA ZIP: 19087 BUSINESS PHONE: 6106878900 MAIL ADDRESS: STREET 1: 800 BELLEVUE 200 S BROAD ST CITY: PHILADELPHIA STATE: PA ZIP: 19102 FORMER COMPANY: FORMER CONFORMED NAME: VIRGINIA COAL & IRON CO DATE OF NAME CHANGE: 19670501 10-K 1 110864.23 12.99 10-K AMENDED AND RESTATED CREDIT AGREEMENT - Page 178 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1999 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-753 PENN VIRGINIA CORPORATION One Radnor Corporate Center, Suite 200 100 Matsonford Road Radnor, PA 19087 Registrant's telephone number, including area code: (610) 687-8900 Incorporated in I.R.S Employer Identification Number VIRGINIA 23-1184320 Securities registered pursuant to section 12(b) of the Act: None Securities Registered pursuant to Section 12(g) of the Act: Title of Each Class Name of Exchange on which registered Common Stock, $6.25 Par Value New York Stock Exchange 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 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. The aggregate market value of the voting stock held by non- affiliates of the Corporation at February 28, 2000 was $133,026,881, based on the closing price of $16.375 per share. As of that date, 8,123,779 shares of common stock were issued and outstanding. The number of shareholders of record of the registrant was 851 as of February 28, 2000. DOCUMENTS INCORPORATED BY REFERENCE: Part Into Which Incorporated (1) Proxy Statement for Stockholder Meeting Part III on May 2, 2000 Penn Virginia Corporation and Subsidiaries Part I 1.Business 2.Properties 3.Legal Proceedings 4.Submission of Matters to a Vote of Security Holders Part II 5.Market for Registrant's Common Equity and Related Stockholder Matters 6.Selected Financial Data 7.Management's Discussion and Analysis of Financial Condition and Results of Operations 8.Financial Statements and Supplementary Data 9.Changes In and Disagreements with Accountants on Accounting and Financial Disclosure Part III 10. Directors and Executive Officers of the Registrant 11. Executive Compensation 12. Security Ownership of Certain Beneficial Owners and Management 13. Certain Relationships and Related Transactions Part IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K Part 1 ITEM 1 - BUSINESS General Penn Virginia Corporation ("Penn Virginia" or the "Company") is a Virginia corporation founded in 1882. The Company is engaged in the exploration, development and production of oil and natural gas and the collection of royalties and overriding royalty interests on various oil and gas properties; the leasing of coal mineral rights and the collection of related royalties. Penn Virginia explores for, develops and produces crude oil, condensate and natural gas in the eastern and southern portions of the United States. The Company had proved reserves of 359,000 barrels of oil and condensate and 185.2 billion cubic feet of natural gas at December 31, 1999. The Company owned mineral rights to 488 million tons of mineable and merchantable coal reserves located in central Appalachia at December 31, 1999. Its coal reserves include both surface and underground mineable seams. The reserves are generally high quality, low-sulfur bituminous coal and are leased to various operators. Financial Information The Company operates in two primary business segments: (1) oil and gas and (2) coal royalty and land management. Financial information concerning the Company's business segments can be found in Note 15 (Segment Information) of the Notes to the Consolidated Financial Statements of Penn Virginia Corporation which is included in this report. Oil and Gas Overview Penn Virginia's oil and gas properties are located in the eastern and southern portions of the United States. At December 31, 1999, the Company had 187.4 Bcfe of proved reserves (185.2 Bcf of natural gas) including 173.1 Bcfe of working interests and 14.3 Bcfe of royalty interests. Oil and Gas Production During 1999, 32,000 barrels of oil and condensate and 8,679 MMcf of natural gas, net to the Company's interest, were produced compared with 30,000 barrels and 8,056 MMcf in 1998. Prices received by the Company were $14.47 and $11.17 per barrel and $2.46 and $2.54 per Mcf for oil and gas in 1999 and 1998, respectively. Exploration and Development The Company drilled 50.8 net wells in 1999 of which 40.1 were development and 10.7 were exploratory. A total of 3.5 net wells were non-productive. The successful wells drilled in 1999 contained 14,162 MMcfe of proved developed producing reserves. In December 1999, the Company purchased a 20 percent interest in a Texas onshore gulf coast exploration project for an initial cost of $2.4 million. The project covers 35,000 acres and evidences Penn Virginia's strategy to expand and diversify its oil and gas operations outside of the eastern United States through strategic acquisitions, drilling and exploration. Transportation Penn Virginia transports its natural gas to market on various gathering, transmission and pipeline systems owned primarily by third parties. The Company's natural gas is gathered principally by Consolidated Natural Gas "CNG" and Columbia Natural Resources "CNR". These two primary providers gathered 38 percent and 37 percent of the Company's natural gas for 1999 and 1998, respectively. Interruptible gathering rates have increased over the years as pipelines have implemented the mandatory unbundling of gathering services (Federal Energy Regulatory Commission Order 636) from other transportation services. CNG's interruptible gathering rates remain unchanged at 19.4 cents per MMbtu for 2000. CNR's interruptible gathering rates increased from 27 cents to 32 cents per MMbtu, effective February 2000. The majority of Penn Virginia's natural gas production is transported to market primarily on two major transmission systems. Columbia Gas Transmission and CNG Transmission transport 57 percent and 30 percent, respectively, of the Company's natural gas production. Production could be adversely affected by shutdowns of the pipelines for maintenance or replacement as pipeline flexibility is limited. Additionally, the Company acquired certain oil and gas properties in Mississippi for $13.7 million, which included a gathering line that transports 10 percent of the Company's current production. Marketing Penn Virginia generally sells its natural gas using the spot market, commodity derivative contracts and short-term fixed price physical contracts. From time to time, the Company enters into commodity derivative contracts or fixed price physical contracts to mitigate the risk associated with the volatility of natural gas prices. In April 1997, Penn Virginia executed a contract for a participating forward swap for 5,000 MMbtu's per day with a floor price of $2.10 per MMbtu and a re-entry price of $2.48 per MMbtu for the period of May 1997 through October 1999. In September 1998, the Company completed a second participating forward swap for an additional 5,000 MMbtu's per day with a floor price of $2.10 per MMbtu and a re-entry price of $2.35 per MMbtu for the period of November 1997 through October 1999. Currently, Penn Virginia is not utilizing any commodity derivative contracts; however, the Company may use contracts in the future to reduce the risk of price fluctuations. For additional information, see "Item 7. - Management's Discussion and Analysis of Financial Condition and Results of Operations - Oil and Gas." Coal Royalty and Land Management Operations Overview Penn Virginia owned 163,000 acres of coal and timber bearing land in central Appalachia at December 31, 1999. The Company earns coal royalty revenue, based on long-term lease agreements with several coal mining operators which generally require royalty payments to Penn Virginia based on a minimum annual payment, a minimum dollar royalty per ton and/or a percentage of the coal's selling price. The Company does not operate coal mines. The Company's timber assets consist of various hardwoods, primarily red oak, white oak, yellow poplar and black cherry. The Company owns 199 million board feet of standing saw timber. Coal Production Several operators mined 8.6 million tons of coal from Penn Virginia's properties in 1999 and paid an average royalty of $2.05 per ton, compared with 5.3 million tons mined in 1998 at an average royalty of $2.03 per ton. At December 31, 1999, the Company's mineable and merchantable coal reserves in central Appalachia were estimated at 488 million tons. At December 31, 1999, the Company's central Appalachia properties had operators actively mining a total of 31 separate lease locations. Timber Production The Company sold 9.0 MMbf board feet in 1999 for an average price of $175 per Mbf, compared with 8.0 MMbf board feet at an average price of $185 per Mbf in 1998. Timber is harvested in advance of lessee mining to prevent loss of the resource. Timber is sold in competitive bid sales involving individual parcels and also on a contract basis, whereby Penn Virginia pays independent contractors to harvest timber while the Company directly markets the product. Investments The Company holds equity investments, primarily in Norfolk Southern Corporation. The Company's 3,307,200 shares of Norfolk Southern Corporation generated dividends of $2.6 million in 1999, 1998 and 1997. The fair value of the Company's equity portfolio at December 31, 1999 was $67.8 million compared with $104.8 million at December 31, 1998. See Note 4 (Investments and Other Income) of the Notes to the Consolidated Financial Statements for additional information. Risks Associated with Business Activities General Government Regulations Each of Penn Virginia's businesses is subject to extensive rules and regulations promulgated by various federal, state and local government agencies. Failure to comply with such rules and regulations can result in substantial penalties. The regulatory burden increases the Company's cost of doing business and affects its profitability. Although the Company believes it is in material compliance with all rules, regulations and laws, there can be no assurance that new interpretations of existing rules, regulations and laws will not adversely affect the Company's business and operations. Competition The energy industry is highly competitive. Many of the Company's competitors are large, well-established companies with substantially larger operating staffs, greater capital resources and established long-term strategic positions. Oil and Gas Prices Penn Virginia's revenues, profitability and future rate of growth are highly dependent on the prevailing prices for oil and gas, which are affected by numerous factors that are generally beyond the Company's control. Crude oil prices are generally determined by global supply and demand. Natural gas prices are influenced by national and regional supply and demand. A substantial or extended decline in the prices of oil or gas could have a material adverse effect on the Company's revenues, profitability and cash flow and could, under certain circumstances, result in an impairment of the Company's oil and gas properties. Exploratory Drilling Both development and exploratory drilling involve risks. However, exploratory drilling involves greater risks of dry holes or failure to find commercial quantities of hydrocarbons than does development drilling. The Company anticipates the number of exploratory prospects drilled in the short and long-term may increase, compared with historical amounts. Consequently, it is likely that the Company will experience increased levels of exploration expense in 2000 and beyond. Transportation Penn Virginia's natural gas production is transported to market primarily on two major transmission systems. Columbia Gas Transmission and CNG Transmission transport 57 percent and 30 percent, respectively, of the Company's natural gas production. Production can be adversely affected by shutdowns of the pipelines for maintenance or replacement, as pipeline flexibility is limited. Coal Royalty and Land Management Operating Risks Penn Virginia's coal royalty stream is impacted by several factors, which the Company generally cannot control. The number of tons mined annually is determined by an operator's mining efficiency, labor availability, geologic conditions, financial stability, ability to market coal and ability to arrange reliable transportation to the end-user. Coal emissions are regulated by various federal and state agencies which affect the quality of coal that can be burned within compliance guidelines. Investments The value of the Company's investment portfolio is subject to market price fluctuations. Employees Penn Virginia had 64 employees at December 31, 1999. The Company considers its relations with its employees to be good. Executive Officers of the Company Below is a list of executive officers of the Company including their ages and positions held. Each officer is elected annually by the Board of Directors and serves at the pleasure of the Board of Directors. Office NAME Age Office Held Since A. James Dearlove 52 President and Chief 1996 Executive Officer Steven W. Tholen 49 Vice President and 1995 Chief Financial Officer Keith D. Horton 46 Vice President, 1996 Eastern Operations James O. Idiaquez 52 Vice President, 1998 Corporate Development Nancy M. Snyder 47 Corporate Secretary and 1997 General Counsel Ann N. Horton 41 Principal Accounting 1995 Officer and Controller
A. James Dearlove - Mr. Dearlove is the President and Chief Executive Officer. He has served in various capacities with the Company since 1977 including Vice President since 1986, Senior Vice President since 1992 and President since 1994. Mr. Dearlove was elected to the Company's Board of Directors effective February 6, 1996. He was appointed Chief Executive Officer in May 1996. He also serves as director of the Powell River Project and the National Council of Coal Lessors. Steven W. Tholen - Mr. Tholen is a Vice President and the Chief Financial Officer. He joined the Company in 1995. Previously, he served in various capacities at Cabot Oil and Gas Corporation, most recently as Treasurer. Keith D. Horton - Mr. Horton was elected Vice President, Eastern Operations in February 1999 and has served as an executive officer for the Company since 1996. He also serves as President of the Company's oil and gas, and coal and land management subsidiaries. He has served in various capacities with the Company since 1981. Mr. Horton serves as Chairman of the Central Appalachian Section of the Society of Mining Engineers. He also serves as a director of the Virginia Mining Association, Powell River Project and the Virginia Coal Council. James O. Idiaquez - Mr. Idiaquez has served as Vice President, Corporate Development for the Company since October 1998. From 1978 to 1998, Mr. Idiaquez served in various management capacities, including corporate planning and acquisitions and divestitures, with Burlington Resources, Inc. and The Louisiana Land & Exploration Company. Nancy M. Snyder - Ms. Snyder has served as Corporate Secretary and General Counsel since joining the Company in 1997. Previously, Ms. Snyder was in private and firm practices in the areas of general corporate and securities law. Ann N. Horton - Mrs. Horton has served as Principal Accounting Officer and Controller of the Company since 1995. She has served in various capacities with the Company and its subsidiaries since 1981. The following terms have the meanings indicated below when used in this report. Bbl - means a standard barrel of 42 U.S. gallons liquid volume Bcf - means one billion cubic feet Bcfe - means one billion cubic feet equivalent with one barrel of oil or condensate converted to six thousand cubic feet of natural gas based on the estimated relative energy content Gross - acre or well means an acre or well in which a working interest is owned Mbbl - means one thousand barrels Mbf - means one thousand board feet Mcf - means one thousand cubic feet MMbf - means one million board feet MMbtu - means one million British thermal units MMcf - means one million cubic feet Net - acres or wells is determined by multiplying the gross acres or wells by the working interest in those gross acres or wells Proved Reserves- means those estimated quantities of crude oil, condensate and natural gas that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known oil and gas reservoirs under existing economic and operating conditions ITEM 2 - PROPERTIES Facilities Penn Virginia Corporation is headquartered in Radnor, Pennsylvania with additional offices in Duffield, Virginia; Charleston, West Virginia; and Houston, Texas. The Company believes its leased properties are adequate for current needs. Title to Properties Penn Virginia believes it has satisfactory title to all of its properties in accordance with standards generally accepted in the oil and gas and coal royalty and land management industries. As is customary in the oil and gas industry, the Company makes only a cursory review of title to farmout acreage and to undeveloped oil and gas leases upon execution of any contracts. Prior to the commencement of drilling operations, a thorough title examination is conducted and curative work is performed with respect to significant defects. To the extent title opinions or other investigations reflect defects, Penn Virginia cures such title defects. If the Company was unable to remedy or cure any title defect of a nature such that it would not be prudent to commence drilling operations on a property, the Company could suffer a loss of its investment in the property. Penn Virginia has obtained title opinions on substantially all of its producing properties and believes that it has satisfactory title to such properties in accordance with standards generally accepted in the oil and gas industry. Prior to completing an acquisition of producing oil and gas leases, the Company obtains title opinions on all material leases. Penn Virginia's oil and gas properties are subject to customary royalty interests, liens for current taxes and other burdens that the Company believes do not materially interfere with the use or affect the value of such properties. Of the 163,000 acres of coal and timber bearing land, Penn Virginia owns 70 percent in fee and 30 percent in mineral. Additionally, the Company leases over 25,000 acres of coal and timber bearing land from third parties. Oil and Gas Production and Pricing The following table sets forth production, sales prices and production costs with respect to the Company's properties for the years ended December 31, 1999, 1998 and 1997. 1999 1998 1997 Production Oil and condensate (Mbbls) 32 30 38 Natural gas (MMcf) 8,679 8,056 7,755 Average sales price Oil and condensate ($/Bbl) $14.47 $11.17 $17.39 Natural gas ($/Mcf) 2.46 2.54 2.81 Production cost Operating cost per Mcfe $0.46 $0.46 $0.42 Production taxes per Mcfe 0.25 0.28 0.26 Total production cost per Mcfe $0.71 $0.74 $0.68 Hedging Summary Natural gas prices ($/Mcf): Actual price received $2.50 $2.61 $2.87 for production Effect of hedging activities (.04) (.07) (.06) Average price $2.46 $2.54 $2.81
Proved Reserves Penn Virginia had proved reserves of 359,000 barrels of crude oil and condensate and 185.2 Bcf of natural gas at December 31, 1999. The present value of the estimated future cash flows discounted at 10 percent (Pre-tax SEC PV10 Value) at December 31, 1999 was $136 million. At December 31, 1999, the Company had 240 gross (139 net) proved undeveloped drilling locations. Natural Pre-tax Oil and Natural Gas SEC PV10 Condensate Gas Equivalents Value (Mbbls) (Bcf) (Bcfe) ($MM) 1999 Developed 326 138 140 $116 Undeveloped 33 47 47 20 Total 359 185 187 $136 1998 Developed 313 118 120 $ 73 Undeveloped 28 46 46 8 Total 341 164 166 $ 81 1997 Developed 364 110 112 $110 Undeveloped 60 61 61 31 Total 424 171 173 $141
The standardized measure of discounted future net cash flows, which represents the present value of future net revenues after income taxes discounted at ten percent, was $119 million, $76 million and $119 million at December 31, 1999, 1998 and 1997, respectively. The weighted average prices used to determine proved reserves at December 31, 1999, 1998 and 1997 were ($/Bbl) $21.78, $9.70 and $15.50, respectively, for oil and condensate and ($/Mcf) $2.69, $2.14 and $3.11, respectively, for natural gas. For information on the changes in standardized measure of discounted future net cash flows, see "Note 17. Supplementary Information on Oil and Gas Producing Activities (Unaudited)" in "Item 8. - Financial Statements and Supplementary Data." In accordance with the Securities and Exchange Commission's guidelines, the engineers' estimates of future net revenues from the Company's properties and the pre-tax SEC PV10 value thereof are made using oil and natural gas sales prices in effect at the dates of such estimates. The prices are held constant throughout the life of the properties except where such guidelines permit alternate treatment, including the use of fixed and determinable contractual price escalations. Net proved oil and gas reserves for the three years ended December 31, 1999 were estimated by Wright and Company, Inc. Prices for natural gas and, to a lesser extent, oil are subject to substantial seasonal fluctuations and prices for each are subject to substantial fluctuations as a result of numerous other factors. See "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations." Proved reserves are the estimated quantities of natural gas and condensate that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are proved reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting future rates of production and timing of development expenditures, including many factors beyond the control of the Company. Reserve engineering is a subjective process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact manner, and the accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgement. The quantities of oil and natural gas that are ultimately recovered, production and operating costs, the amount of timing of future development expenditures and future oil and natural gas sales prices may all differ from those assumed in these estimates. Therefore, the pre- tax SEC PV10 value amounts shown above should not be construed as the current market value of the estimated oil and natural gas reserves attributable to the Company's properties. The information set forth in the foregoing tables includes revisions of certain volumetric reserve estimates attributable to proved properties included in the preceding year's estimates. Such revisions are the result of additional information from subsequent completions and production history from the properties involved or the result of a decrease (or increase) in the projected economic life of such properties resulting from changes in production prices. Acreage The following table sets forth the Company's developed and undeveloped acreage at December 31, 1999. The Company's acreage is located in the eastern and southern portions of the United States. Gross Acreage Net Acreage (in thousands) Developed 312 162 Undeveloped 129 50 Total 441 212
Wells Drilled The following table sets forth the gross and net number of exploratory and development wells drilled during the last three years. The number of wells drilled means the number of wells spud at any time during the respective year. Net wells equal the number of gross wells multiplied by Penn Virginia's working interest in each of the gross wells. Productive wells represent either wells which were producing or which were capable of commercial production. 1999 1998 1997 Development Gross Net Gross Net Gross Net Productive 61 38.1 56 37.0 53 42.0 Non-productive 2 2.0 3 3.0 1 1.0 63 40.1 59 40.0 54 43.0 Exploratory Productive 16 9.2 15 8.1 31 16.0 Non-productive 3 1.5 3 1.5 5 3.0 19 10.7 18 9.6 36 19.0 Total 82 50.8 77 49.6 90 62.0
The four gross (2.0 net) wells under evaluation at the end of 1998 were non-productive. Productive Wells The number of productive oil and gas wells in which Penn Virginia had an interest at December 31, 1999 is set forth below. Productive wells are producing wells or wells capable of commercial production. Operated Wells Non-Operated Wells Total Gross Net Gross Net Gross Net Oil 10 10 6 2 16 12 Gas 780 656 400 61 1,180 717 Total 790 666 406 63 1,196 729
Coal Royalty and Land Management Penn Virginia's coal reserves and timber assets at December 31, 1999 covered 163,000 acres, including fee acreage, in central Appalachia. The coal reserves are in various surface and underground seams. Penn Virginia's mineable and merchantable coal reserves are estimated at 488 million tons as of December 31, 1999. Mineable and merchantable coal reserves means coal that is economically mineable using existing equipment and methods under federal and state laws now in effect. Reserve estimates are adjusted annually for production, unmineable areas, acquisitions and sales of coal in place. The majority of the Company's reserves are high in energy content, low in sulfur and suitable for either the steam or metallurgical markets. The amount of coal a lessee can profitably mine at any given time is subject to several factors and may be substantially different from "mineable and merchantable reserves." Included among the factors that influence profitability are the existing market price, coal quality and operating costs. The Company's timber assets consist of various hardwoods, primarily red oak, white oak, yellow poplar and black cherry. At December 31, 1999, the Company owned 199 million board feet of standing saw timber. Coal Reserves The following table sets forth the coal reserves that are owned by the Company. The reserves are estimated internally by the Company's engineers. 1999 1998 1997 (in million tons) Beginning of year 384.7 379.8 357.6 Production (8.6) (5.3) (5.4) Additions, deletions, revisions 112.3 10.2 27.6 End of year 488.4 384.7 379.8
ITEM 3 - LEGAL PROCEEDINGS The Company is involved in various legal proceedings arising in the ordinary course of business. While the ultimate results of these cannot be predicted with certainty, Company management believes these claims will not have a material effect on the Company's financial position, liquidity or operations. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of 1999. PART II ITEM 5 - MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Common Stock Market Prices And Dividends High and low closing stock prices and dividends for the last two years were: 1999 1998 Cash Cash Sales Price Dividends Sales Price Dividends High Low Paid High Low Paid Quarter Ended: March 31 $20-3/4 $16-11/16 $0.225 $29-1/4 $26-7/8 $0.225 June 30 $21-11/16 $17-5/16 $0.225 $30 $25-7/8 $0.225 September 30 $23-1/16 $20-1/2 $0.225 $26-11/32 $21-1/8 $0.225 December 31 $21 $16-1/8 $0.225 $23-1/2 $18-3/8 $0.225
The Company's common stock is traded on the New York Stock Exchange under the symbol PVA. ITEM 6 - SELECTED FINANCIAL DATA Five Year Selected Financial Data Year Ended December 31, 1999 1998 1997(a) 1996(a) 1995(a) (in thousands except per share data) Revenues (b) $47,135 $38,144 $41,132 $34,102 $38,890 Operating income 20,715 10,266 18,719 13,212 5,855 Net income $14,504 $ 9,591 $16,018 $13,040 $10,084 Per common share: Net income, basic $ 1.73 $ 1.15 $ 1.93 $ 1.51 $ 1.18 Net income, diluted 1.71 1.13 1.88 1.50 1.18 Dividends paid $ 0.90 $ 0.90 $ 0.90 $ 0.90 $ 0.90 Weighted average 8,406 8,310 8,302 8,694 8,538 shares outstanding Total assets $274,011 $256,931 $247,230 $229,514 $206,001 Long-term debt $78,475 $37,967 $31,903 $21,233 $12,700 Stockholders' equity $154,343 $170,259 $163,704 $160,211 $147,357
(a) All weighted average share and per share data have been restated to reflect the two-for-one split of the Company's common stock in August 1997. (b) Certain reclassifications between revenues and operating expenses have been made to conform to the current year presentation. SUMMARIZED QUARTERLY FINANCIAL DATA Quarterly financial data for 1999 and 1998 were as follows: 1999 1998 Quarters Ended Quarters Ended (in thousands, except per share data) Mar.31 June 30 Sept.30 Dec.31 Mar.31 June 30 Sept.30 Dec.31(b) Revenues (c) $9,509 $10,437 $12,306 $14,883 $9,050 $9,941 $9,779 $9,374 Operating 3,835 4,042 5,430 7,408 3,760 4,266 4,335 (2,095) Income (loss) Net income $2,915 $3,165 $3,945 $4,479 $3,152 $3,666 $3,442 $(669) (loss) Net income per share, basic (a) $0.35 $0.38 $0.47 $0.53 $0.38 $0.44 $0.41 $(0.08) Net income per share, diluted (a) $0.35 $0.37 $0.46 $0.53 $0.37 $0.43 $0.41 $(0.08) Weighted average shares outstanding 8,371 8,410 8,423 8,423 8,278 8,291 8,308 8,354
(a) The sum of the quarters may not equal the total of the respective year's net income per share due to changes in the weighted average shares outstanding throughout the year. (b) Operating income for fourth quarter of 1998 included a noncash charge relating to impairments of certain oil and gas properties of $4.6 million ($3.7 million after tax) primarily due to a decline in commodity prices and a restructuring charge of $0.6 million ($0.4 million after tax). (c) Certain reclassifications between revenues and operating expenses have been made to conform to the current year presentation. ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations The following review of operations and financial condition of Penn Virginia Corporation and subsidiaries should be read in conjunction with the Consolidated Financial Statements and Notes thereto. Overview Penn Virginia's net income for 1999 was $14.5 million with operating income of $20.7 million. The comparable 1998 results were net income of $9.6 million and operating income of $10.3 million. Revenues for 1999 were $47.1 million, a 24 percent increase over 1998 and net income was $14.5 million, or $1.71 per share (diluted), a 51 percent increase over the 1998 level of $9.6 million, or $1.13 per share (diluted). The 1999 increases were a direct result of increased production of natural gas and higher levels of coal royalties. The Company's 1998 financial performance was adversely impacted by a noncash charge relating to impairments of certain oil and gas properties of $4.6 million ($3.7 million after tax) primarily due to a decline in commodity prices and a restructuring charge of $0.6 million ($0.4 million after tax). During 1999, Penn Virginia successfully expanded its oil and gas operations into Mississippi and the Texas onshore gulf coast and began an ambitious exploration program. As a result of a strategic coal acquisition, the Company's coal reserves grew by 27 percent to 488 million tons. Management believes its natural gas operations will be expanded over the next several years through a combination of exploitation, exploration and acquisition of new properties. In July 1999, Penn Virginia acquired certain oil and gas properties in Mississippi for $13.7 million. The acquisition, which is 99 percent natural gas, added 23.3 Bcfe in proved reserves and provides numerous future drilling locations, which is the primary focus of the Company's 2000 drilling program. The majority of the low-risk developmental drilling locations are in the Selma Chalk formation at a depth of 6,900 feet. In December 1999, the Company purchased a 20 percent working interest in a Texas onshore gulf coast exploration project for $2.4 million. The project is in its initial phases and is comprised of a portfolio of drilling prospects with varying risk/reward characteristics. Historically, Penn Virginia has focused most of its operations in the eastern United States and particularly in Appalachia. However, the Company believes continued growth opportunities, especially in oil and natural gas, will be enhanced by a presence outside the Appalachian Basin. In the fourth quarter of 1998, the Company opened a regional office in Houston, Texas for the purpose of establishing a meaningful, non-Appalachian presence in oil and natural gas. The Company continued its aggressive drilling program in 1999 by drilling 82 gross (50.8 net) wells. In 1999, Penn Virginia produced a record 8,871 MMcfe of oil and natural gas, which was an eight percent increase over 1998. Penn Virginia participates in the coal industry exclusively through its royalty position. The Company leases the rights to mine its coal reserves to various operators who pay a minimum annual payment, a minimum dollar royalty per ton and/or a percentage of the sales price. Since the Company does not mine the coal, the coal royalty and land management segment tends to have relatively high margins. Coal royalty and land management segment revenues increased $7.1 million, or 49 percent, to $21.5 million in 1999. The increase was attributable to enhanced production from lessees due to the completion of the unit train loadout facility, start-up operations from some lessees and acquisitions. In April 1999, Penn Virginia completed a $5.2 million state-of- the-art coal loadout facility in Virginia. The facility accomodates 100 rail car unit trains which can be loaded in approximately four hours, thus generating substantial savings for the Company's lessees. The loadout is primarily utilized by the Company's lessees and provides them a competitive advantage by reducing delivery costs to their principal customers. Additionally, the loadout facility has accelerated the cash flow received by the Company, primarily due to increased production from lessees. In September 1999, Penn Virginia completed a $30 million acquisition which included over 90 million tons of high quality coal reserves, as well as oil and gas leases, timber assets, a short line railroad and a coal loading dock on the Kanawha River. The acquisition covers over 24,000 acres and complements the existing asset base of the Company's Coal River Properties. The Company continues to diversify its coal customer base by adding additional lessees and by searching for additional coal reserve acquisition opportunities. At December 31, 1999, the Company owned 3,307,200 shares of Norfolk Southern stock, which decreased in priced from $31.6875 per share at December 31, 1998 to $20.50 per share, reducing the value of the investment by $37.0 million, or $24.1 million after tax. See Note 4 (Investments and Dividend Income). Results of Operations Consolidated Net Income Penn Virginia's 1999 net income was $14.5 million, compared with $9.6 million in 1998 and $16.0 million in 1997. Revenues for 1999 were $47.1 million, a 24 percent increase over 1998 and net income was $14.5 million, or $1.71 per share (diluted), a 51 percent increase over the 1998 level of $9.6 million, or $1.13 per share (diluted). The 1999 increases were a direct result of increased production of natural gas and higher levels of coal royalties. Net income for 1998 included a noncash charge relating to impairments of certain oil and gas properties of $4.6 million ($3.7 million after tax) primarily due to a decline in commodity prices and a restructuring charge of $0.6 million ($0.4 million after tax). Income before income taxes includes a gain of approximately $2.0 million on the sale of non-strategic oil and gas properties in November 1997. Selected Financial Data 1999 1998 1997 (in millions, except share data) Revenues $47.1 $38.1 $41.1 Operating costs and expenses 26.4 27.9 22.4 Operating income 20.7 10.3 18.7 Net income 14.5 9.6 16.0 Earnings per share, basic 1.73 1.15 1.93 Earnings per share, diluted 1.71 1.13 1.88
Oil and Gas Segment The oil and gas segment explores for, develops and produces crude oil and natural gas in the eastern and southern portions of the United States. The Company also owns mineral rights to oil and gas reserves. Selected Financial and Operating Data 1999 1998 1997 (in thousands, except as noted) Revenues Oil and condensate $ 463 $ 335 $ 661 Natural gas sales 21,384 20,482 21,849 Gain on the sale of property - 2 1,889 Other 1,095 289 469 Total Revenues 22,942 21,108 24,868 Expenses Lease operating expenses 4,090 3,761 3,356 Exploration expenses 1,699 488 1,439 Taxes other than income 2,165 2,343 2,069 General and administrative 2,148 3,153 2,675 Operating Expenses 10,102 9,745 9,539 Depreciation, depletion and amortization 6,951 6,460 5,920 Loss on the sale of properties - 6 4 Impairment of properties - 4,641 - Total Expenses 17,053 20,852 15,463 Operating Income $5,889 $ 256 $9,405 Production Oil and condensate (MBbls) 32 30 38 Natural gas (MMcf) 8,679 8,056 7,755 Prices Oil and condensate ($/Bbl) $14.47 $11.17 $17.39 Natural gas ($/Mcf) 2.46 2.54 2.81 Hedging Summary Natural gas prices ($/Mcf): Actual price received for production $ 2.50 $ 2.61 $2.87 Effect of hedging activities (.04) (.07) (.06) Average price $2.46 $ 2.54 $ 2.81
The oil and gas segment had operating income of $5.9 million in 1999 compared with $0.3 million in 1998 and $9.4 million in 1997. Revenues. Oil and gas revenues increased $1.9 million, or nine percent, from 1998 to 1999 primarily due to a $0.8 million increase in natural gas sales and a $0.8 million increase in other income. Natural gas production increased eight percent, offset by a three percent decrease in average price per Mcf. The production increase is a result of an acquisition in Mississippi and the Company's 1999 drilling program. Other operating income increased $0.8 million due to $0.4 million received for the final settlement of a 1995 contract dispute and $0.2 million for reimbursement of lost production caused by third party pipeline damages. Revenues for the oil and gas segment decreased $3.8 million, or 15 percent, from 1997 to 1998. The change resulted from a 10 percent decrease in average natural gas prices recognized by the Company, offset by a three percent increase in production. Additionally, a $2.0 million gain on the sale of oil and gas properties was included in 1997 revenues. The Company, from time to time, hedges the price received for market-sensitive production through the use of swaps with purchased options. Gains and losses from hedging activities are included in natural gas revenues when the hedged production occurs. The Company recognized a loss of $0.4 million in 1999 and $0.5 million in 1998 and 1997 on hedging activities. Operating expenses. Production costs, consisting of lease operating expense and taxes other than income, increased from $6.1 million in 1998 to $6.3 million in 1999. On a Mcfe basis, production costs decreased from $0.74 per Mcfe in 1998 to $0.71 per Mcfe in 1999. The decrease on a Mcfe basis resulted from less tax being paid due to the relocation of the offices of the oil and gas segment. Exploration expenses increased from $0.5 million in 1998 to $1.7 million in 1999. The increase is attributable to charges relating to seven gross (3.5 net) nonproductive, exploratory wells and preliminary field costs incurred in 1999. Additionally, the Company's exploration program included $0.3 million in seismic expenditures. General and administrative expenses decreased from $3.2 million in 1998 to $2.1 million in 1999. The decrease primarily relates to the Company's 1998 plan to reduce administrative and operational overhead costs in its oil and gas subsidiary. In connection with the plan, the Company recorded a pre-tax charge to general and administrative expense totaling $0.6 million in 1998 related to severance costs for six employees and a lease cancellation penalty. The Company completed its restructuring plan in August 1999. There were no adjustments to the liability recorded in 1998 that resulted in an adjustment to net income in 1999. The oil and gas segment's operating expenses increased $0.2 million, or two percent, in 1998. In the fourth quarter of 1998, the Company's management approved the aforementioned $0.6 million plan to reduce administrative and operational overhead costs in its oil and gas subsidiary. Lease operating expenses increased $0.4 million as a result of increased production and additional operating expenses associated with the Company's new coalbed methane wells. These 1998 increases were offset by a $0.9 million decline in exploration expenses due to a reduction in dry hole costs. Depreciation, depletion and amortization. Oil and gas depreciation, depletion and amortization increased to $7.0 million in 1999 but remained relatively constant on a unit basis at $0.79 per Mcfe in 1999, compared with $6.4 million, or $0.78 per Mcfe, in 1998. Oil and gas depreciation, depletion and amortization increased $0.5 million to $6.4 million in 1998, compared with $5.9 million in 1997. The change was attributable to the decrease in natural gas pricing used in the 1998 year-end reserve reports, which caused negative reserve revisions and, consequently, a higher depletion rate using the units-of-production method. Impairment of oil and gas properties. In accordance with SFAS No. 121, the Company reviews its oil and gas properties for impairment whenever events and circumstances indicate a decline in the recoverability of their carrying value. In the fourth quarter of 1998, the Company estimated the expected future cash flows of its oil and gas properties and compared such future cash flows to the carrying amount of the oil and gas properties to determine if the carrying amount was recoverable. For those oil and gas properties which the carrying amount exceeded the estimated undiscounted future cash flows, an impairment was determined to exist; thus, the Company adjusted the carrying amount of the respective oil and gas properties to their fair value as determined by discounting their estimated future cash flows. The factors used to determine fair value included, but were not limited to, estimates of proved reserves, future commodity pricing, future production estimates, anticipated capital expenditures and a discount rate commensurate with the Company's internal rate of return on its oil and gas properties. As a result, the Company recognized a noncash pre-tax charge of $4.6 million ($3.7 million after tax) related to its oil and gas properties in the fourth quarter of 1998. Coal Royalty and Land Management Segment The coal and land segment includes Penn Virginia's mineral rights to coal reserves, its timber assets and its land assets. Selected Financial and Operating Data 1999 1998 1997 (in thousands, except as noted) Revenues Coal royalties $17,624 $10,705 $11,355 Timber 1,667 1,600 1,488 Gain on the sale of property 280 70 94 Other 1,976 2,014 682 Total Revenues 21,547 14,389 13,619 Expenses Operating costs 221 96 74 Exploration expenses 268 549 314 Taxes other than income 506 352 259 General and administrative 2,623 2,184 1,764 Operating Expenses 3,618 3,181 2,411 Depreciation, depletion and amortization 1,269 589 516 Total Expenses 4,887 3,770 2,927 Operating Income $16,660 $10,619 $10,692 Production Royalty coal tons produced by lessees (thousands) 8,603 5,278 5,422 Timber sales (Mbf) 9,020 7,981 7,933 Prices Royalty per ton $2.05 $2.03 $2.09 Timber sales price per Mbf $ 175 $ 185 $ 172
Revenues. Coal royalty and land management segment revenues were $21.5 million in 1999, $14.4 million in 1998 and $13.7 million in 1997, representing a 49 percent increase from 1998 to 1999 and five percent increase from 1997 to 1998. The $7.1 million increase in 1999 was attributable to enhanced production from existing lessees due to the completion of the unit train loadout, start-up operations for some lessees and acquisitions. The $0.7 million increase from 1997 to 1998 primarily resulted from a $0.8 million receipt for the sale of coal reserves as a result of a power line relocation that was recognized in other operating income. The Company, from time to time, receives reimbursement for circumstances that inhibit mining reserves in a certain location. Operating expenses. The coal royalty and land management segment's operating expenses increased $0.4 million, or 13 percent, to $3.6 million, compared with $3.2 million in 1998. General and administrative expenses increased $0.4 million in 1999 due to legal fees incurred by the Company to pursue the potential recovery of coal reserves and the addition of three additional employees in the Charleston, West Virginia office relating to the Company's September 1999 acquisition. Exploration expenses decreased $0.3 million to $0.2 million in 1999 primarily due to increased 1998 costs incurred to maintain a mine on a terminated lease. The coal royalty and land management segment's operating expenses increased 28 percent in 1998 to $3.2 million, compared with $2.5 million in 1997. The $0.7 million increase from 1997 to 1998 primarily resulted from a $0.4 million increase in general and administrative due to personnel additions related to the opening of an office in Charleston, West Virginia during the last half of 1997. Furthermore, a slight increase in legal costs were incurred during 1998 to protect the Company's interests relating to a lease termination by a lessee and a lessee bankruptcy. Corporate and Other Dividends. Dividend income of $2.6 million in 1999 remained constant, compared with $2.6 million in 1998 and 1997. Penn Virginia's holdings primarily consist of 3,307,200 shares of Norfolk Southern Corporation. Proved Reserves Oil and Gas. In 1999, Penn Virginia added 14.2 Bcfe of proved developed oil and gas reserves from its 82 gross (50.8 net) well drilling program, replacing 122 percent of 1999 production. The Company acquired 23.4 Bcfe of proved oil and gas reserves (12.8 Bcfe of proved developed reserves) during 1999 for $14.1 million. The acquisition cost was $0.60 per proved Mcfe. Penn Virginia's total proved reserves at year-end 1999 increased 21.5 Bcfe, or 13 percent, to 187.4 Bcfe primarily due to acquisitions. Proved developed reserves increased 20.2 Bcfe, or 17 percent, to 140.2 Bcfe. Proved undeveloped reserves increased 1.2 Bcfe to 47.1 Bcfe. Proved undeveloped reserves of 9.3 Bcfe were drilled and converted to proved developed reserves during 1999. At year-end 1999, proved developed reserves comprised 75 percent of the Company's total proved reserves, compared with 72 percent at year-end 1998. The Company has 139 net proved undeveloped drilling locations at year-end 1999, compared with 141 locations at year-end 1998. Coal Royalty and Land Management. Penn Virginia's mineable and merchantable coal reserves were 488 million tons at year end 1999, compared with 385 million tons at year-end 1998. The Company purchased over 90 million tons of coal reserves during 1999. Mineable and merchantable coal reserves means coal that is economically mineable using existing equipment and methods under federal and state laws now in effect. Market Risk Marketable Equity Securities. At December 31, 1999, the Company's marketable equity securities, consisting primarily of Norfolk Southern Corporation common stock, were recorded at their fair value of $67.8 million, including net unrealized gains of $65.0 million. The closing stock price for Norfolk Southern Corporation was $20.50 and $31.69 per share at December 31, 1999 and 1998, respectively. At February 28, 2000, the closing price for Norfolk Southern Corporation was $13.94. The fair value of the Company's marketable equity securities is significantly affected by market price fluctuations. See Note 4 of the Notes to Consolidated Financial Statements. Interest Rate Risk. The carrying value of Penn Virginia's debt approximates fair value. At December 31, 1999, the Company had $78.5 million of long-term debt, primarily represented by an unsecured revolving credit facility (the "Revolver") totaling $77.7 million. The Revolver matures in June 2003 and is governed by a borrowing base calculation that is redetermined semi- annually. The Company has the option to elect interest at (i) Libor plus a Eurodollar margin ranging from 100 to 150 basis points, based on the percentage of the borrowing base outstanding or (ii) the greater of the prime rate or federal funds rate plus 50 basis points. As a result, the Company's 2000 interest costs will fluctuate based on short-term interest rates relating to the Revolver. Hedging Activities. Penn Virginia's price risk program permits the utilization of fixed-price contracts and financial instruments (such as futures, forward and option contracts and swaps) to mitigate the price risks associated with fluctuations in natural gas prices as they relate to the Company's anticipated production. These contracts and/or financial instruments are designated as hedges and accounted for on the accrual basis with gains and losses being recognized based on the type of contract and exposure being hedged. Realized gains and losses on natural gas financial instruments designated as hedges of anticipated transactions are treated as deferred charges or credits, as applicable, on the balance sheet until recognized. Net gains and losses on such financial instruments, including accrued gains or losses upon maturity or termination of the contract, are recognized in operating income concurrently with the hedged transaction. In April 1997, Penn Virginia executed a contract for a participating forward swap for 5,000 MMbtu's per day with a floor price of $2.10 per MMbtu and a re-entry price of $2.48 per MMbtu for the period of May 1997 through October 1999. In September 1997, the Company completed a second participating forward swap for an additional 5,000 MMbtu's per day with a floor price of $2.10 per MMbtu and a re-entry price of $2.35 per MMbtu for the period of November 1997 through October 1999. The Company hedged 34 percent of its 1999 production and recognized an opportunity cost of $0.4 million, which offset oil and gas revenues. To date, the Company has not hedged crude oil prices. At December 31, 1999, no contracts were in place; however, Penn Virginia constantly reviews market conditions and may alter its hedged positions at any time. Capital Resources and Liquidity Cash flows from Operating Activities Funding for the Company's activities has historically been provided by operating cash flows and bank borrowings. Net cash provided from operating activities was $25.1 million in 1999, compared with $19.2 million in 1998 and $19.7 million in 1997. The Company's consolidated cash balance increased to $0.7 million in 1999 from $0.2 million in 1998. Cash flows from Investing Activities The Company used $58.7 million in investing activities in 1999, compared with $18.3 million in 1998 and $15.8 million in 1997. Capital expenditures, including acquisitions and noncash items, totaled $60.7 million, compared with $23.6 million in 1998 and $23.2 million in 1997. The following table sets forth capital expenditures, including acquisitions and noncash items, made by the Company during the periods indicated. Year ended December 31, 1999 1998 1997 Oil and gas (in thousands) Acquisitions $16,620 $3,557 $ 163 Development 9,189 8,527 10,446 Exploration 2,587 1,534 3,061 Support equipment and facilities 209 171 114 Coal royalty and land management Lease acquisitions 30,094 6,260 9,203 Support equipment and facilities 1,861 3,532 199 Other 91 42 6 Total capital expenditures $60,651 $23,623 $23,192
In July 1999, Penn Virginia acquired certain oil and gas properties in Mississippi for $13.7 million. The acquisition, which is 99 percent natural gas, added 23.3 Bcfe of proved reserves and provides numerous future drilling locations, which is the primary focus of the Company's 2000 drilling program. In December 1999, the Company purchased a 20 percent interest in a Texas onshore gulf coast exploration project for $2.4 million. The project is in its initial phases and is comprised of a portfolio of drilling prospects with varying risk/reward characteristics. The Company drilled 38.1 net successful development wells, 9.2 net successful exploratory wells and 3.5 net non-productive wells in 1999 compared with 37.0 net successful development wells, 8.1 net successful exploratory wells and 4.5 net non-productive wells in 1998. The 2.0 net wells under evaluation at the end of 1998 were non-productive. In September 1999, the Company completed an acquisition which included over 90 million tons of high quality coal reserves as well as oil and gas leases, timber assets, a short line railroad and a coal loading dock on the Kanawha River in West Virginia. The $30 million acquisition complements the Company's existing Coal River Properties located on the inland river system in West Virginia. Capital expenditures for 2000, before lease and proved property acquisitions, are expected to be $22 to $24 million including $21 to $23 million for the oil and gas segment and $1 million for the coal royalty and land management segment. The Company plans to drill approximately 50 to 60 net development wells and 10 to 20 exploratory wells. Management continually reviews the Company's drilling expenditures and may increase, decrease or reallocate amounts based on industry conditions. Penn Virginia is actively seeking oil and gas acquisitions, as well as coal reserve acquisitions, both in the eastern United States, and in other areas of the U.S. The Company opened an office in Houston, Texas during the fourth quarter of 1998 with the primary purpose of acquiring oil and gas properties. The Company's acquisition efforts in both the oil and gas segment and coal royalty and land management segment are reflected in the 1999 financial results. In 1999, the Company received payments on long-term notes receivable of $1.7 million and $0.3 million from the sale of property and equipment. Management believes its cash flow from operations, portfolio of investments and sources of debt financing are sufficient to fund its 2000 planned capital expenditure program. Cash flows from Financing Activities Net cash provided (used) by financing activities was $34.1 million in 1999, compared with $(1.5) million in 1998 and $(5.0) million in 1997. Penn Virginia has a $120 million unsecured revolving credit facility (the "Revolver") with a final maturity of June 2003. The Revolver contains financial covenants requiring the Company to maintain certain levels of net worth, debt-to-capitalization and dividend limitation restrictions, among other requirements. The outstanding balance on the Revolver was $77.7 million and $37.1 million at December 31, 1999 and 1998, respectively. Management believes its portfolio of investments and sources of funding are sufficient to meet short and long-term liquidity needs not funded by cash flows from operations. Other Issues Year 2000. Historically, most computer systems, including microprocessors embedded into field equipment and other machinery, utilized software that recognized a calendar year by its last two digits. At January 1, 2000, it was anticipated that these systems would require modification to recognize a calendar year by four digits. The Year 2000 issue has caused no disruption to the Company's mission-critical facilities or operations, and resulted in no material costs. Penn Virginia will remain vigilant for Year 2000 related problems that may yet occur. The Company anticipates that the Year 2000 problem will not create material disruptions to its facilities or operations, and will not create material costs. Accounting for Derivative Instruments and Hedging Activities. In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to changes in the fair value of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency-denominated forecasted transaction. In June 1999, FASB issued SFAS No. 137 which deferred the effective date of SFAS No. 133 for all fiscal quarters of all fiscal years beginning after June 15, 2000. Given its low levels of derivative activity, the Company does not expect adoption to have a significant impact on the Company's financial position, results of operations or liquidity. Environmental Matters Penn Virginia's operating segments are subject to various environmental hazards. Several federal, state and local laws, regulations and rules govern the environmental aspects of the Company's business. Noncompliance with these laws, regulations and rules can result in substantial penalties or other liabilities. The Company does not believe its environmental risks are materially different from those of comparable companies or that cost of compliance will have a material adverse effect on profitability, capital expenditures, cash flows or competitive position. There is no assurance that changes in or additions to laws, regulations or rules regarding the protection of the environment will not have such an impact. The Company believes it is materially in compliance with environmental laws, regulations and rules. In conjunction with the leasing of property to coal operators, all environmental and reclamation liabilities are the responsibility of the lessees. However, if the lessee is not financially capable of fulfilling those obligations, there is a possibility the appropriate authorities would attempt to assign those liabilities to the landowner. The Company would vigorously contest such an assignment. Forward-Looking Statements Statements included in this report which are not historical facts (including any statements concerning plans and objectives of management for future operations or economic performance, or assumptions related thereto) are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. In addition, Penn Virginia and its representatives may from time to time make other oral or written statements which are also forward-looking statements. Such forward-looking statements include, among other things, statements regarding development activities, capital expenditures, acquisitions and dispositions, drilling and exploration programs, expected commencement dates of coal mining or oil and gas production, projected quantities of future oil and gas production by Penn Virginia, projected quantities of future coal production by the Company's lessees producing coal from reserves leased from Penn Virginia, costs and expenditures as well as projected demand or supply for coal and oil and gas, which will affect sales levels, prices and royalties realized by Penn Virginia. These forward-looking statements are made based upon management's current plans, expectations, estimates, assumptions and beliefs concerning future events impacting Penn Virginia and therefore involve a number of risks and uncertainties. Penn Virginia cautions that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements. Important factors that could cause the actual results of operations or financial condition of Penn Virginia to differ include, but are not necessarily limited to: the cost of finding and successfully developing oil and gas reserves; the cost of finding new coal reserves; the ability to acquire new oil and gas and coal reserves on satisfactory terms; the price for which such reserves can be sold; the volatility of commodity prices for oil and gas and coal; the risks associated with having or not having price risk management programs; Penn Virginia's ability to lease new and existing coal reserves; the ability of Penn Virginia's lessees to produce sufficient quantities of coal on an economic basis from Penn Virginia's reserves; the ability of lessees to obtain favorable contracts for coal produced from Penn Virginia reserves; Penn Virginia's ability to obtain adequate pipeline transportation capacity for its oil and gas production; competition among producers in the coal and oil and gas industries generally and in the Appalachian Basin in particular; the extent to which the amount and quality of actual production differs from estimated mineable and merchantable coal reserves and proved oil and gas reserves; unanticipated geological problems; availability of required materials and equipment; the occurrence of unusual weather or operating conditions including force majeure or events; the failure of equipment or processes to operate in accordance with specifications or expectations; delays in anticipated start- up dates; environmental risks affecting the drilling and producing of oil and gas wells or the mining of coal reserves; the timing of receipt of necessary governmental permits; labor relations and costs; accidents; changes in governmental regulation or enforcement practices, especially with respect to environmental, health and safety matters, including with respect to emissions levels applicable to coal-burning power generators; risks and uncertainties relating to general domestic and international economic (including inflation and interest rates) and political conditions; the experience and financial condition of lessees of coal reserves, joint venture partners and purchasers of reserves in transactions financed by Penn Virginia, including their ability to satisfy their royalty, environmental, reclamation and other obligations to Penn Virginia and others; changes in financial market conditions; changes in the market prices or value of the marketable securities owned by Penn Virginia, including the price of Norfolk Southern common stock and other risk factors detailed in Penn Virginia's Securities and Exchange commission filings. Many of such factors are beyond Penn Virginia's ability to control or predict. Readers are cautioned not to put undue reliance on forward-looking statements. While Penn Virginia periodically reassesses material trends and uncertainties affecting Penn Virginia's results of operations and financial condition in connection with the preparation of Management's Discussion and Analysis of Results of Operations and Financial Condition and certain other sections contained in Penn Virginia's quarterly, annual or other reports filed with the Securities and Exchange Commission, Penn Virginia does not intend to review or update any particular forward-looking statement, whether as a result of new information, future events or otherwise. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PENN VIRGINIA CORPORATION March 22, 2000 By: /s/ Steven W. Tholen (Steven W. Tholen, Vice President and Chief Financial Officer) March 22, 2000 By: /s/ Ann N. Horton (Ann N. Horton, Controller and Principal Accounting Officer) Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. /s/ Robert Garrett Chairman of the Board March 22, 2000 (Robert Garrett) and Director /s/ Richard A. Bachmann Director March 22, 2000 (Richard A. Bachmann) /s/ Lennox K. Black Director March 22, 2000 (Lennox K. Black) /s/ John D. Cadigan Director March 22, 2000 (John D. Cadigan) /s/ A. James Dearlove Director and March 22, 2000 (A. James Dearlove) Chief Executive Officer /s/ Peter B. Lilly Director March 22, 2000 (Peter B. Lilly) /s/ Marsha R. Perelman Director March 22, 2000 (Marsha R. Perelman) /s/ Joe T. Rye Director March 22, 2000 (Joe T. Rye) /s/ John A. H. Shober Director March 22, 2000 (John A. H. Shober) ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Penn Virginia Corporation and Subsidiaries Index to Financial Section Management's Report on Financial Information 29 Reports of Independent Public Accountants 30 Financial Statements and Supplementary Data 31 Management's Report on Financial Information Management of Penn Virginia Corporation is responsible for the preparation and integrity of the financial information included in this annual report. The financial statements have been prepared in accordance with generally accepted accounting principles, which involve the use of estimates and judgments where appropriate. The corporation has a system of internal accounting controls designed to provide reasonable assurance that assets are safeguarded against loss or unauthorized use and to produce the records necessary for the preparation of financial information. The system of internal control is supported by the selection and training of qualified personnel, the delegation of management authority and responsibility, and dissemination of policies and procedures. There are limits inherent in all systems of internal control based on the recognition that the costs of such systems should be related to the benefits to be derived. We believe the corporation's systems provide this appropriate balance. The corporation's independent public accountants, Arthur Andersen LLP, have developed an understanding of our accounting and financial controls and have conducted such tests as they consider necessary to support their opinion on the financial statements. Their report contains an independent, informed judgment as to the corporation's reported results of operations and financial position. The Board of Directors pursues its oversight role for the financial statements through the Audit Committee, which consists solely of outside directors. The Audit Committee meets regularly with management, the internal auditor and Arthur Andersen LLP, jointly and separately, to review management's process of implementation and maintenance of internal controls, and auditing and financial reporting matters. The independent and internal auditors have unrestricted access to the Audit Committee. A. James Dearlove Steven W. Tholen President and Vice President and Chief Executive Officer Chief Financial Officer REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders of Penn Virginia Corporation: We have audited the accompanying consolidated balance sheets of Penn Virginia Corporation (a Virginia corporation) and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Penn Virginia Corporation and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Houston, Texas February 16, 2000 PENN VIRGINIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, 1999 1998 1997 (in thousands, except share data) Revenues Oil and condensate $ 463 $ 335 $ 661 Natural gas 21,384 20,482 21,827 Coal royalties 17,624 10,705 11,364 Timber 1,667 1,600 1,493 Dividends 2,646 2,646 2,646 Gain on the sale of property 280 72 1,983 Other 3,071 2,304 1,158 47,135 38,144 41,132 Expenses Operating expenses 4,311 3,857 3,431 Exploration expenss 2,146 1,189 1,753 Taxes other than income 2,795 2,788 2,431 General and administrative 8,775 8,234 8,240 Loss on the sale of property - 7 9 Impairment of oil and gas properties - 4,641 - Depreciation, depletion and amortization 8,393 7,162 6,549 26,420 27,878 22,413 Operating Income 20,715 10,266 18,719 Other (income) expense: Interest expense 3,298 2,017 2,317 Interest income (1,354) (3,421) (3,534) Gain on sale of securities - (14) (50) Other (63) (269) (301) Income from operations before income taxes 18,834 11,953 20,287 Income tax expense 4,330 2,362 4,269 Net Income $ 14,504 $9,591 $16,018 Net income per share, basic $1.73 $1.15 $1.93 Net income per share, diluted $1.71 $1.13 $1.88 Weighted average shares outstanding, basic 8,406 8,310 8,302 Weighted average shares outstanding, diluted 8,480 8,463 8,500 The accompanying notes are an integral part of these consolidated financial statements.
PENN VIRGINIA CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1999 1998 (in thousands, except share data) Assets Current assets Cash and cash equivalents $ 657 $ 225 Accounts receivable 6,880 5,682 Current portion of long-term notes receivable 816 364 Current deferred income taxes 155 577 Other 813 680 Total current assets 9,321 7,528 Investments (Note 4) 67,816 104,819 Long-term notes receivable (Note 5) 3,518 3,079 Property and Equipment Oil and gas properties, wells and equipment, using the successful efforts method of accounting 185,048 157,558 Other property and equipment 82,772 52,455 Less: Accumulated depreciation, depletion and amortization 76,553 68,745 Net property and equipment (Note 6) 191,267 141,268 Other assets 2,089 237 Total assets $ 274,011 $256,931 Liabilities and Shareholders' Equity Current liabilities Current maturities of long-term debt (Note 7) $ 34 $ 31 Accounts payable 1,570 1,397 Accrued expenses 5,470 5,039 Taxes on income - 576 Total current liabilities 7,074 7,043 Other liabilities (Note 11) 5,854 2,875 Deferred income taxes 28,265 38,787 Long-term debt (Note 7) 78,475 37,967 Total liabilities 119,668 86,672 Commitments and contingencies (Note 16) Shareholders' equity Preferred stock of $100 par value - Authorized 100,000 shares; none issued - - Common stock of $6.25 par value - 16,000,000 shares authorized; 8,921,866 shares issued 55,762 55,762 Other paid-in-capital 8,096 8,441 Retained earnings 60,860 53,924 Accumulated other comprehensive income 42,017 65,985 166,735 184,112 Less:498,238 shares in 1999 and 555,050 in 1998 of common stock held in treasury, at cost 11,142 12,403 Unearned compensation - ESOP 1,250 1,450 Total shareholders' equity 154,343 170,259 Total liabilities and shareholders' equity $274,011 $ 256,931 The accompanying notes are an integral part of these consolidated financial statements.
PENN VIRGINIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands, except share data) Accumulated Other Other Shares Common Paid-in Retained Comprehensive Outstanding Stock Capital Earnings Income Balance at 12/31/96 4,341,240 $ 27,817 $ 36,138 $43,240 $60,441 Two-for-one common stock split 4,341,240 27,817 (27,817) - - Dividends paid ($0.90 per share) - - - (7,445) - Exercise of stock options 12,464 - 9 - - Purchase of treasury stock (420,618) - - - - Allocation of ESOP shares - - 101 - - Net income - - - 16,018 - Other comprehensive income, net of tax - - - - 3,059 Balance at 12/31/97 8,274,326 55,634 8,431 51,813 63,500 Dividends paid ($0.90 per share) - - - (7,480) - Stock issued as compensation 5,357 - 26 - - Exercise of stock options 87,133 128 (114) - - Allocation of ESOP shares - - 98 - - Net income - - - 9,591 - Other comprehensive income, net of tax - - - - 2,485 Balance at 12/31/98 8,366,816 55,762 8,441 53,924 65,985 Dividends paid ($0.90 per share) - - - (7,568) - Stock issued as compensation 7,878 - (13) - - Exercise of stock options 48,934 - (365) - - Allocation of ESOP shares - - 33 - - Net income - - - 14,504 - Other comprehensive loss, net of tax - - - - (23,968) Balance at 12/31/99 8,423,628 $ 55,762 $8,096 $ 60,860 $ 42,017 Penn Virginia Corporation and Subsidiaries Consolidated Statements of Shareholders' Equity (in thousands,except share data) continued below.
Unearned Total Treasury Compensation Stockholders' Comprehensive Stock ESOP Equity Income (Loss) Balance at 12/31/96 $(5,575) $(1,850) $160,211 Two-for-one common stock split - - - Dividends paid ($0.90 per share) - - (7,445) Exercise of stock options 279 - 288 Purchase of treasury stock (8,728) - (8,728) Allocation of ESOP shares - 200 301 Net Income - - 16,018 $16,018 Other comprehensive income, net of tax - - 3,059 3,059 Balance at 12/31/97 (14,024) (1,650) 163,704 19,077 Dividends paid ($0.90 per share) - - (7,480) Stock issued as compensation 120 - 146 Exercise of stock options 1,501 - 1,515 Allocation of ESOP shares - 200 298 Net Income - - 9,591 $9,591 Other comprehensive income, net of tax - - 2,485 2,485 Balance at 12/31/98 (12,403) (1,450) 170,259 12,076 Dividends paid ($0.90 per share) - - (7,568) Stock issued as compensation 176 - 163 Exercise of stock options 1,085 - 720 Allocation of ESOP shares - 200 233 Net Income - - 14,504 $14,504 Other comprehensive loss, net of tax - - (23,968) (23,968) Balance at 12/31/99 $(11,142) $(1,250) $154,343 $(9,464) The accompanying notes are an integral part of these consolidated financial statements.
PENN VIRGINIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended December 31, 1999 1998 1997 (in thousands) Cash flows from operating activities: Net income $14,504 $9,591 $16,018 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation, depletion and amortization 8,393 7,162 6,549 Impairment of oil and gas properties - 4,641 - Gain on the sale of securities - (14) (50) Gain on the sale of property and equipment (280) (65) (1,983) Deferred income taxes 2,805 923 2,169 Dry hole expense 1,115 58 949 Interest income (1,306) (3,336) (2,833) Other 22 597 175 25,253 19,557 20,994 Changes in operating assets and liabilities: Accounts receivable (1,198) 1,721 (2,548) Other current assets (133) (136) (116) Accounts payable and accrued expenses 604 (1,277) 358 Deferred income - (279) - Taxes on income (576) 432 136 Other assets and liabilities and investments 1,105 (781) 881 Net cash flows provided by operating activities 25,055 19,237 19,705 Cash flows from investing activities: Proceeds from the sale of securities - 17 - Proceeds from the sale of property and equipment 299 79 3,957 Payments received on long-term notes receivable 1,670 2,253 3,456 Producing properties acquired (13,921) (3,351) (82) Lease acquisitions (32,793) (3,512) (9,284) Capital expenditures (13,937)(13,806) (13,826) Net cash flows used in investing activities (58,682)(18,320) (15,779) Cash flows from financing activities: Dividends paid (7,568) (7,480) (7,445) Proceeds from long-term borrowings 44,500 9,100 19,513 Repayment of long-term borrowings (3,990) (5,100) (8,917) Purchases of treasury stock - - (8,728) Issuance of stock 1,117 1,957 589 Net cash flows provided by (used in) financing activities 34,059 (1,523) (4,988) Net decrease in cash and cash equivalents 432 (606) (1,062) Cash and cash equivalents - beginning of year 225 831 1,893 Cash and cash equivalents - end of year $ 657 $ 225 $ 831 Supplemental disclosures: Cash paid during the year for: Interest $2,980 $2,065 $2,243 Income taxes $2,100 $1,100 $ 930 Noncash investing activities: Note receivable for sale of property and equipment $1,255 $ - $ - Note receivable exchanged for: Other property and equipment $ - $2,954 $ - Deferred revenue $ - $1,296 $ - The accompanying notes are an integral part of these consolidated financial statements.
PENN VIRGINIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Nature of Operations Penn Virginia Corporation ("Penn Virginia" or the "Company") explores for, develops and produces crude oil, condensate and natural gas in the eastern and southern portions of the United States. The Company owns land and mineral rights to mineable and merchantable coal reserves and timber located in central Appalachia. The coal reserves are leased to various operators who mine and market the coal. Penn Virginia collects royalties based on the lessee's production and sale of reserves. Timber is sold in competitive bid sales involving individual parcels and also on a contract basis, where Penn Virginia pays independent contractors to harvest timber while the Company directly markets the product. 2. Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of Penn Virginia Corporation and all wholly-owned subsidiaries. The Company owns and operates its undivided oil and gas properties and manages its coal reserves through its wholly-owned subsidiaries. The Company accounts for its ownership interest in oil and gas properties using the proportionate consolidation method, whereby the Company's share of assets, liabilities, revenues and expenses is included in the appropriate classification in the financial statements. Intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, all adjustments have been reflected that are necessary for a fair presentation of the consolidated financial statements. Certain amounts have been reclassified to conform to the current year's presentation. New Accounting Standards In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. It requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to changes in the fair value of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign currency denominated forecasted transaction. In June 1999, the FASB issued SFAS No. 137 which deferred the effective date of SFAS No. 133 for all fiscal quarters of all fiscal years beginning after June 15, 2000. Given its low levels of derivative activity, the Company does not expect adoption to have a significant impact on the Company's financial position, results of operations or liquidity. Use of Estimates Preparation of the accompanying consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Investments Investments consist of equity securities. The Company classifies its equity securities as available-for-sale. Available-for-sale securities are recorded at fair value based upon market quotations. Unrealized holding gains and losses, net of the related tax effect, on available-for-sale securities are excluded from earnings and are reported as a separate component of stockholders' equity until realized. A decline in the market value of any available-for-sale security below cost that is deemed other than temporary, is charged to earnings in the period it occurs resulting in the establishment of a new cost basis for the security. Dividend income is recognized when earned. Realized gains and losses for securities classified as available-for-sale are included in earnings and are derived using the specific identification method for determining the cost of securities sold. Notes Receivable Notes receivable are recorded at cost, adjusted for amortization of discounts or accretion of premium. Discounts and premiums are amortized over the life of the notes receivable using the effective interest rate method. Oil and Gas Properties The Company uses the successful efforts method of accounting for its oil and gas operations. Under this method of accounting, costs to acquire mineral interests in oil and gas properties, to drill and equip development wells including development dry holes, and to drill and equip exploratory wells that find proved reserves are capitalized. Capitalized costs of producing oil and gas fields are amortized using the unit-of-production method based on estimates of proved oil and gas reserves on a field-by-field basis. Oil and gas reserve quantities represent estimates only and there are numerous uncertainties inherent in the estimation process. Actual future production may be materially different from amounts estimated and such differences could materially affect future amortization of proved properties. Estimated costs (net of salvage value) of plugging and abandoning oil and gas wells are reported as additional depreciation and depletion expense using the units-of-production method. The costs of unproved leaseholds are capitalized pending the results of exploration efforts. Unproved leasehold costs are assessed periodically, on a property-by-property basis, and a loss is recognized to the extent, if any, the cost of the property has been impaired. As unproved leaseholds are determined to be productive, the related costs are transferred to proved leaseholds. Exploratory costs including exploratory dry holes, annual delay rental and geological and geophysical costs are charged to expense when incurred. Other Property and Equipment Other property and equipment is carried at cost and includes expenditures for additions and improvements, which substantially increase the productive lives of existing assets. Maintenance and repair costs are expensed as incurred. Depreciation of property and equipment is generally computed using the straight-line method over their estimated useful lives, varying from 3 years to 20 years. Coal in place is depleted at a rate based upon the cost of the mineral properties and estimated mineable and merchantable tonnage therein. When an asset is retired or sold, its cost and related accumulated depreciation are removed from the accounts. The difference between undepreciated cost and proceeds from disposition is recorded as gain or loss. Impairment of Long-Lived Assets In accordance with SFAS No.121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of", the Company reviews its long-lived assets to be held and used, including proved oil and gas properties accounted for using the successful efforts method of accounting, whenever events or circumstances indicate that the carrying value of those assets may not be recoverable. SFAS No.121 requires an impairment loss be recognized when the carrying amount of an asset exceeds the sum of the undiscounted estimated future cash flows. In this circumstance, the Company recognizes an impairment loss equal to the difference between the carrying value and the fair value of the asset. Fair value is estimated to be the present value of expected future net cash flows from proved reserves, utilizing a risk-adjusted rate of return. Concentration of Credit Risk Substantially all of the Company's accounts receivable at December 31, 1999 result from oil and gas sales and joint interest billings to third party companies in the oil and gas industry. This concentration of customers and joint interest owners may impact the Company's overall credit risk, either positively or negatively, in that these entities may be similarly affected by changes in economic or other conditions. In determining whether or not to require collateral from a customer or joint interest owner, the Company analyzes the entity's net worth, cash flows, earnings and credit ratings. Receivables are generally not collateralized. Historical credit losses incurred by the Company on receivables have not been significant. Fair Value of Financial Instruments The Company's financial instruments consist of cash and cash equivalents, marketable securities, natural gas swaps, accounts receivable, notes receivables, accounts payable and long-term debt. The carrying values of cash, marketable securities, accounts receivables and payables, and long-term debt approximate fair value. See Note 5 for a discussion of notes receivable. The Company, from time to time, enters into derivative financial instruments to mitigate its exposure to natural gas price volatility. The derivative financial instruments, which are placed with a major financial institution the Company believes is a minimum credit risk, take the form of swaps with purchased options. These derivative financial instruments are designated as hedges and realized gains and losses from the Company's price risk management activities are recognized in natural gas revenues when the associated production occurs. The fair value of open derivative financial instruments is determined by comparing the New York Mercantile Exchange forward prices at year-end with the appropriate location differential adjustment to the contractual prices designated in the derivative financial instruments. The Company had no outstanding derivative financial instruments at December 31, 1999. The fair value of the Company's open derivative contracts at December 31, 1998 was $0.1 million. Oil and Gas Revenues Natural gas revenues generally are recorded using the entitlement method in which the Company recognizes its ownership interest in natural gas production as revenue. If the Company's sales exceed its ownership share of production, the differences are recorded as deferred revenue. Natural gas pipeline balancing receivables are recorded when the Company's ownership share of production exceeds sales. At December 31, 1999 and 1998, the Company's receivables included $1.3 million and $0.9 million of natural gas pipeline imbalances, respectively. Royalties Coal royalty income is recognized on the basis of tons sold by the Company's lessees and the corresponding revenue from those sales. All coal leases are based on an annual minimum payment due or a percentage of the gross sales price. Income Tax The Company accounts for income taxes in accordance with the provisions of SFAS No. 109, "Accounting for Income Taxes." This statement requires a company to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in a company's financial statements or tax returns. Using this method, deferred tax liabilities and assets are determined based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates. 3. Acquisitions In September 1999, the Company successfully completed the purchase of fee mineral and lease rights for coal reserves and related assets in West Virginia. The $30 million acquisition was funded by borrowings from the Company's revolving credit facility (the "Revolver") and accounted for at fair value. The operations have been included in the Company's statement of income as of the closing date. The following unaudited proforma results of operations have been prepared as though the aforementioned acquisition had been completed on January 1, 1998. The unaudited proforma results of operations consist of the following as of December 31, 1999 (in thousands, except share data): 1999 1998 Revenues $ 51,528 $44,079 Net income $ 15,005 $10,013 Net income per share, diluted $ 1.77 $ 1.18
In July 1999, Penn Virginia acquired certain oil and gas properties in Mississippi for $13.7 million. The acquisition was funded by borrowings from the Company's Revolver and was accounted for at fair value. The operations are included in the Company's statement of income as of the closing date. 4. Investments and Dividend Income The cost, gross unrealized holding gains and fair value of available-for-sale securities were as follows (in thousands): Gross Unrealized Holding Fair At December 31, 1999 Cost Gains Value Available-for-sale Norfolk Southern Corporation $2,839 $64,959 $67,798 Other - 18 18 $2,839 $64,977 $67,816 At December 31, 1998 Available-for-sale Norfolk Southern Corporation $2,839 $101,958 $104,797 Other - 22 22 $2,839 $101,980 $104,819
The Company owned 3,307,200 shares of Norfolk Southern Corporation stock at December 31, 1999. Dividend income from the Company's investment in Norfolk Southern Corporation was $2.6 million for the three years ended December 31, 1999, 1998 and 1997. The closing stock price for Norfolk Southern Corporation was $20.50 and $31.6875 per share at December 31, 1999 and 1998, respectively. 5. Notes Receivable The Company has two notes receivable collateralized by property and equipment. During 1999, the Company received a $1.3 million note receivable for a portion of the proceeds relating to a property and equipment sale. Maturities of notes receivable are as follows (in thousands): December 31, 1999 1998 Current $ 816 $ 364 Due after one year through five years 2,876 1,853 Thereafter 642 1,226 $4,334 $3,443
The fair value of the Company's notes receivable at December 31, 1999 and 1998 was $6.9 million and $5.3 million, respectively. 6. Property and Equipment Property and equipment includes (in thousands): December 31, 1999 1998 Oil and gas properties $185,048 $157,558 Other property and equipment: Land 1,813 694 Timber 188 188 Coal properties 73,081 45,176 Other equipment 7,690 6,397 267,820 210,013 Less: Accumulated depreciation, depletion and amortization (76,553) (68,745) Net property and equipment $191,267 $141,268
In accordance with SFAS No. 121, the Company reviews its proved oil and gas properties and other long-lived assets for impairment whenever events and circumstances indicate a decline in the recoverability of their carrying value. In the fourth quarter of 1998, the Company estimated the expected future cash flows of its oil and gas properties and compared such future cash flows to the carrying amount of the oil and gas properties to determine if the carrying amount was recoverable. For certain oil and gas properties, the carrying amount exceeded the estimated undiscounted future cash flows; thus, the Company adjusted the carrying amount of the respective oil and gas properties to their fair value as determined by discounting their estimated future cash flows. The factors used to determine fair value included, but were not limited to, estimates of proved reserves, future commodity pricing, future production estimates, anticipated capital expenditures and a discount rate commensurate with the Company's internal rate of return on its oil and gas properties. As a result, the Company recognized a noncash pre-tax charge of $4.6 million ($3.7 million after tax) related to its oil and gas properties in the fourth quarter of 1998. There were no impairments of oil and gas properties in 1999 or 1997. 7. Long-Term Debt Long-term debt consists of the following (in thousands): December 31, 1999 1998 Revolving credit, variable rate of 7.5% at December 31, 1999, due in 2003 $77,650 $37,100 Other 859 898 78,509 37,998 Less: current maturities (34) (31) Total long-term debt $78,475 $37,967
Revolving Credit Facility In August 1999, the Company amended and restated its agreement with a group of major U.S. banks for a $120 million unsecured revolving credit facility (the "Revolver") with a final maturity of June 2003. The Revolver is governed by a borrowing base calculation and will be redetermined semi-annually. The Company has the option to elect interest at (i) Libor plus a Eurodollar margin ranging from 100 to 150 basis points, based on the percentage of the borrowing base outstanding or (ii) the greater of the prime rate or federal funds rate plus 50 basis points. The Revolver allows for issuance of letters of credit which are limited to no more than $10 million. The financial covenants require the Company to maintain levels of net worth, debt-to- capitalization and dividend limitation restrictions. The Company is currently in compliance with all of its covenants. Line of Credit The Company has a $5 million line of credit with a financial institution due in December 2000, renewable annually. The Company has an option to elect either a fixed rate LIBOR loan, floating rate LIBOR loan or base rate loan. The aggregate maturities applicable to outstanding debt at December 31, 1999 are as follows (in thousands): 2000 $ 34 2001 37 2002 40 2003 77,693 2004 46 Thereafter 658 8. Accrued Expenses Accrued expenses are summarized as follows (in thousands): December 31, 1999 1998 Pension $ 140 $ 453 Compensation 715 594 Accrued oil and gas royalties 752 392 Taxes other than income 878 873 Post-retirement health care 203 841 Interest 324 - Accrued restructuring charges - 552 Accrued drilling costs 1,086 348 Other 1,372 986 $5,470 $5,039
In 1998, the Company's management approved a plan to reduce administrative and operational overhead costs. In connection with such a plan, the Company recorded a pre-tax charge to general and administrative expense totaling $0.6 million related to severance costs for six employees and a lease cancellation fee. The plan to reduce administrative and operational overhead costs was completed in August 1999. There were no adjustments to the liability recorded in 1998 that resulted in an adjustment to net income for 1999. 9. Income Taxes The provision for income taxes from continuing operations is comprised of the following (in thousands): Year ended December 31, 1999 1998 1997 Current income taxes Federal $1,525 $1,341 $1,677 State - 98 423 Total current 1,525 1,439 2,100 Deferred income taxes Federal 2,426 901 2,438 State 379 22 (269) Total deferred 2,805 923 2,169 Total income tax expense $ 4,330 $ 2,362 $ 4,269
The difference between the reported income tax expense and income tax expense computed by applying the statutory tax rate to income from operations before income taxes is as follows (in thousands): Year ended December 31, 1999 1998 1997 Computed at statutory tax rate $6,592 $4,150 $7,100 State income taxes, net of federal income tax effect 246 78 100 Dividends received deduction (648) (648) (648) Non-conventional fuel source credit (1,471) (1,525) (1,510) Percentage depletion (414) (350) (416) Other, net 25 657 (357) Total income tax expense $ 4,330 $2,362 $ 4,269
The tax effects of temporary differences that give rise to significant portions of the net deferred tax liability consist of the following (in thousands): December 31, 1999 1998 Deferred tax assets: Other long-term liabilities $1,936 $ 954 Alternative minimum tax credits 7,329 6,560 State tax loss carryforwards 938 881 Other 565 1,514 Total deferred tax assets 10,768 9,909 Deferred tax liabilities: Notes receivable (1,169) (1,143) Investments (22,745) (35,693) Oil and gas properties (12,012) (10,611) Other property and equipment (1,823) - Other (1,129) (672) Total deferred tax liabilities (38,878) (48,119) Net deferred tax liability $ (28,110) $(38,210) Deferred tax assets-current $ 155 $ 577 Deferred tax liabilities-noncurrent (28,265) (38,787) $ (28,110)$ (38,210)
As of December 31, 1999, the Company had available for federal income tax purposes, alternative minimum tax credits of approximately $7.3 million which can be carried forward indefinitely as a credit against the regular tax liability. The Company has various state tax loss carryforwards of $10.7 million which, if unused, will expire from 2014 to 2019. 10.Pension Plans and Other Post-retirement Benefits The Company and its wholly-owned subsidiaries provided a noncontributory, defined benefit pension plan, which was frozen in 1996, and early retirement programs (the "Plans") for eligible employees. Benefits were based on the employee's average annual compensation and years of service. The Company sponsors a defined benefit post-retirement plan that covers employees hired prior to January 1, 1991 who retire from active service. The plan provides medical benefits for the retirees and dependents and life insurance for the retirees. The medical coverage is noncontributory for retirees who retired prior to January 1, 1991 and may be contributory for retirees who retire after December 31, 1990. A reconciliation of the changes in the benefit obligations and fair value of assets for the two years ended December 31, 1999 and 1998 and a statement of the funded status at December 31, 1999 and 1998 is as follows (in thousands): Pension Post-retirement 1999 1998 1999 1998 Reconciliation of benefit obligation: Obligation - beginning of year $ 11,701 $11,474 3,112 $3,665 Service cost - - 14 15 Interest cost 748 792 206 213 Benefits paid (1,083) (1,143) (366) (297) Actuarial (gain) loss (754) 578 (129) (484) Other - - 99 - Obligation - end of year 10,612 11,701 2,936 3,112 Reconciliation of fair value of plan assets: Fair value - beginning of year 10,468 9,653 1,698 1,615 Actual return on plan assets 982 1,604 221 387 Employer contributions 271 442 26 - Participant contributions - - 8 3 Benefit payments (1,083) (1,143) (366) (298) Administrative expenses (44) (88) (9) (9) Fair value - end of year 10,594 10,468 1,578 1,698 Funded status: Funded status - end of year (18) (1,233) (1,358) (1,414) Unrecognized transition obligation 26 30 - - Unrecognized prior service cost 55 60 92 - Unrecognized (gain) loss (1,189) (351) (249) 53 Net amount recognized $ (1,126)$(1,494) $ (1,515)$ (1,361)
The following table provides the amounts recognized in the statements of financial position at December 31, 1999 and 1998 (in thousands): Pension Post-retirement 1999 1998 1999 1998 Accrued benefit liability $(1,542) $(2,050) $(1,515) $(1,361) Other long-term assets 81 91 - - Accumulated other comprehensive income 335 465 - - Obligation - end of year $ (1,126) $(1,494) $(1,515) $(1,361)
The following table provides the components of net periodic benefit cost for the plans for the two years ended December 31, 1999 and 1998 (in thousands): Pension Post-retirement 1999 1998 1999 1998 Service cost $ 80 $ 80 $ 14 $ 15 Interest cost 749 792 206 213 Expected return on plan assets (949) (869) (47) (43) Amortization of prior service cost 6 6 7 - Amortization of transitional obligation 4 4 - - Recognized actuarial loss 13 6 - - Net periodic benefit cost $ (97)$ 19 $ 180 $ 185
The assumptions used in the measurement of the Company's benefit obligation were as follows: Pension Post-retirement 1999 1998 1999 1998 Discount rate 7.50% 6.75% 7.50% 6.75 % Expected return on plan assets 9.50 9.50 3.00 3.00
Since the benefits accrued under the defined benefit plan were frozen in 1996, it is not necessary to assume a rate of compensation increase. For measurement purposes, an 8.0 percent annual rate increase in the per capita cost of covered health care benefits was assumed for 1999. The rate is assumed to decrease gradually to 5.5 percent for 2004 and remain at that level thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for post-retirement benefits. A one percent change in assumed health care cost trend rates would have the following effects for 1999 (in thousands): One percent One percent increase decrease Effect on total of service and interest cost components $ 9 $(8) Effect on post-retirement benefit obligation 128 (116)
11. Other Liabilities Other liabilities are summarized in the following table (in thousands): December 31, 1999 1998 Post-retirement health care $1,312 $ 520 Deferred income 2,793 842 Pension 1,402 1,409 Other 347 104 $ 5,854 $2,875
12. Earnings Per Share The following is a reconciliation of the numerators and denominators used in the calculation of basic and diluted earnings per share ("EPS") for income from continuing operations for the three years ended December 31, 1999. 1999 1998 Income Shares PerShare Income Shares PerShare (Numerator)(Denominator)Amount (Numerator)(Denominator) Amount (in thousands, except per share amounts) Basic EPS: Income from continuing operations $14,504 8,406 $1.73 $9,591 8,310 $1.15 Dilutive Securities: Stock options - 74 - 153 Diluted EPS: Income from continuing operations $14,504 8,480 $1.71 $ 9,591 8,463 $1.13
1997 Income Shares Per Share (Numerator) (Denominator) Amount (in thousands, except per share amounts) Basic EPS: Income from continuing operations $16,018 8,302 $1.93 Dilutive Securities: Stock Options - 198 Diluted EPS: Income from continuing operations $16,018 8,500 $1.88
Antidilutive stock options are precluded from the computation of diluted EPS; however, such options could potentially dilute basic EPS in the future. 13.Stock Option and Stock Ownership Plans Stock Option Plans The Company has several stock option plans (collectively known as the "Plans") which allow incentive and nonqualified stock options to be granted to key employees and officers of the Company and nonqualified stock options to be granted to directors of the Company. Options granted under the Plans may be exercised at any time after one year and prior to ten years following the grant, subject to special rules that apply in the event of death, retirement and/or termination of an optionee. The exercise price of all options granted under the Plans is at the fair market value of the Company's stock on the date of the grant. The following table summarizes information with respect to the common stock options awarded under the Plans and grants described above. 1999 1998 1997 Shares Shares Shares Under Weighted Avg. Under Weighted Avg. Under Weighted Avg. Options Exercise Price OptionsExercise Price Options Exercise Price Outstanding, Beginning of year 1,002,800 $18.65 1,036,500 $18.19 397,950 $33.63 Effect of Stock Split - $ - - $ - 397,950 $16.82 Granted-Options 91,800 $ 20.27 80,600 $25.06 281,600 $ 22.10 Exercised- Options 49,000 $16.44 96,901 $18.53 34,000 $ 16.25 Cancelled 31,100 $23.84 17,399 $21.56 7,000 $28.50 Outstanding, End of year 1,014,500 $18.74 1,002,800 $18.65 1,036,500 $ 18.19 Weighted average of fair value of options granted during the year $ 6.02 $8.50 $ 7.50
The following table summarizes certain information regarding stock options outstanding at December 31, 1999: Options Outstanding Options Exercisable Weighted Avg. Weighted Number Weighted Range of Number Remaining Avg. Exercisable Avg. Exercise Outstanding Contractual Exercise at Exercise Price at 12/31/99 Life Price 12/31/99 Price $15 to $19 621,600 6.2 $ 16.52 609,800 $16.46 $20 to $24 339,800 7.4 $ 21.55 259,800 $21.92 $25 to $30 53,100 7.9 $ 26.82 53,100 $26.82
The Company applies the intrinsic value method for reporting compensation expense pursuant to Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" to its stock-based compensation plans. Had compensation expense for the Company's stock-based compensation plans been determined in accordance with the fair value method pursuant to SFAS No. 123 "Accounting for Stock-Based Compensation", the Company's proforma net income and earnings per share would have been as follows: 1999 1998 1997 Net Income (in thousands) $14,111 $9,022 $14,208 Earnings per share, basic $ 1.68 $ 1.09 $ 1.71 Earnings per share, diluted $ 1.66 $ 1.07 $ 1.67
The fair value of the options granted during 1999 is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: a) dividend yield of 4.4 percent to 4.6 percent b) expected volatility of 38.6 percent, c) risk- free interest rate of 4.8 percent to 4.9 percent and d) expected life of eight years. The fair value of the options granted during 1998 is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: a) dividend yield of 3.4 percent to 4.2 percent b) expected volatility of 37.7 percent to 38.8 percent, c) risk-free interest rate of 4.7 percent to 5.7 percent and d) expected life of eight years. The fair value of the options granted during 1997 is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: a) dividend yield of 3.6 percent to 4.1 percent b) expected volatility of 36.8 percent, c) risk- free interest rate of 6.2 percent to 6.7 percent and d) expected life of 10 years. The effects of applying SFAS No. 123 in this proforma disclosure are not indicative of future amounts. Employees' Stock Ownership Plan In 1996, the Board of Directors extended the Employees' Stock Ownership Plan ("ESOP"). All employees with one year of service are participants. The ESOP is designed to enable employees of the Company to accumulate stock ownership. While there are no employee contributions, participants receive an allocation of stock which has been contributed by the Company. Compensation costs are reported when such shares are released to employees. The ESOP borrowed $2.0 million from the Company in 1996 and used the proceeds to purchase treasury stock. Under the terms of the ESOP, the Company will make annual contributions over a 10-year period. At December 31, 1999, the unearned portion of the ESOP ($1.3 million) was recorded as a contra-equity account entitled "Unearned Compensation-ESOP." Shareholder Rights Plan In February 1998, the Board of Directors adopted a Shareholder Rights Plan designed to prevent an acquirer from gaining control of the Company without offering a fair price to all shareholders. Each Right entitles the holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, $100 par value, at a price of $100 subject to adjustment. The Rights are not exercisable or transferable apart from the common stock until ten days after a person or affiliated group has acquired fifteen percent or more, or makes a tender offer for fifteen percent or more, of the Company's common stock. Each Right will entitle the holder, under certain circumstances (such as a merger, acquisition of fifteen percent or more of common stock of the Company by the acquiring person or sale of fifty percent or more of the Company's assets or earning power), to acquire at half the value, either common stock of the Company, a combination of cash, other property, or common stock or other securities of the Company, or common stock of the acquiring person. Any such event would also result in any Rights owned beneficially by the acquiring person or its affiliates becoming null and void. The Rights expire in February 2008 and are redeemable at any time until ten days following the time an acquiring person acquires fifteen percent or more of the Company's common stock at $0.001 per Right. 14. Accumulated Other Comprehensive Income Comprehensive income represents certain changes in equity during the reporting period, including net income and other comprehensive income, which includes, but is not limited to, unrealized gains from marketable securities and futures contracts, foreign currency translation adjustments and minimum pension liability adjustments. Reclassification adjustments represent gains or losses from investments realized in net income for each respective year. For the three years ended December 31, 1999, the components of accumulated other comprehensive income are as follows (in thousands): Accumulated Net unrealized Minimum other holding gain - pension comprehensive investments liability income Balance at December 31, 1996 $61,215 $ (774) $60,441 Unrealized holding gain, net of tax of $1,370 2,546 - 2,546 Reclassification adjustment, net of tax of $17 (33) - (33) Pension plan adjustment, net of tax of $294 - 546 546 Balance at December 31, 1997 63,728 (228) 63,500 Unrealized holding gain, net of tax of $1,383 2,568 - 2,568 Reclassification adjustment, net of tax of $5 (9) - (9) Pension plan adjustment, net of tax of $40 - (74) (74) Balance at December 31, 1998 66,287 (302) 65,985 Unrealized holding loss, net of tax of $12,951 (24,052) - (24,052) Pension plan adjustment, net of tax of $46 - 84 84 Balance at December 31, 1999 $ 42,235 $ (218) $ 42,017
15. Segment Information Penn Virginia's operations are classified into two operating segments: Oil and Gas - crude oil and natural gas exploration, development and production. Coal Royalty and Land Management - the leasing of mineral rights and subsequent collection of royalties and the development and harvesting of timber. Coal Royalty and Land Corporate Oil and Gas Management and Other Consolidated (in thousands) December 31, 1999 Revenues $22,942 $21,547 $2,646 $47,135 Operating income(loss) 5,889 16,660 (1,834) 20,715 Identifiable assets 120,954 83,975 69,082 274,011 Depreciation, depletion and amortization 6,951 1,269 173 8,393 Capital expenditures 28,605 31,955 91 60,651
Coal Royalty and Land Corporate Oil and Gas Management and Other Consolidated (in thousands) December 31, 1998 Revenues $21,108 $14,389 $2,647 $38,144 Operating income (loss) 256 10,619 (609) 10,266 Identifiable assets 102,698 63,424 90,809 256,931 Depreciation, depletion and amortization 6,460 589 113 7,162 Capital expenditures 13,789 9,792 42 23,623
Coal Royalty and Land Corporate Oil and Gas Management and Other Consolidated (in thousands) December 31, 1997 Revenues $24,868 $13,619 $2,645 $41,132 Operating income (loss) 9,405 10,692 (1,378) 18,719 Identifiable assets 99,073 46,950 101,207 247,230 Depreciation, depletion and amortization 5,920 516 113 6,549 Capital expenditures 13,784 9,402 6 23,192
Operating income is total revenue less operating expenses. Operating income does not include certain other income items, gain (loss) on sale of securities, unallocated general corporate expenses, interest expense and income taxes. Identifiable assets are those assets used in the Company's operations in each segment. Corporate assets are principally cash and marketable securities. For the year ended December 31, 1999, two customers of the oil and gas segment accounted for $9.6 million, or 20 percent, and $6.9 million, or 13 percent, respectively of the Company's consolidated net revenues. For the year ended December 31, 1998, one customer of the oil and gas segment accounted for $4.8 million, or 13 percent, of the Company's consolidated revenues. 16. Commitments and Contingencies Rental Commitments Minimum rental commitments under all non-cancelable operating leases, primarily real estate, in effect at December 31, 1999 were as follows (in thousands): Year ending December 31, 2000 $ 401 2001 159 2002 117 2003 82 2004 73 Total minimum payments $ 832 Legal The Company is involved, from time to time, in various legal proceedings arising in the ordinary course of business. While the ultimate results of these proceedings cannot be predicted with certainty, Company management believes these claims will not have a material effect on the Company's financial position, liquidity or operations. 17. Supplementary Information on Oil and Gas Producing Activities (Unaudited) The following supplementary information regarding the oil and gas producing activities of Penn Virginia is presented in accordance with the requirements of the Securities and Exchange Commission (SEC) and the SFAS No. 69 "Disclosures about Oil and Gas Producing Activities". The amounts shown include Penn Virginia's net working and royalty interests in all of its oil and gas operations. Capitalized Costs Relating to Oil and Gas Producing Activities Year Ended December 31, 1999 1998 1997 (in thousands) Proved properties $41,084 $35,842 $32,491 Unproved properties 3,959 1,408 1,202 Wells, equipment and facilities 137,176 117,688 112,339 Support equipment 2,829 2,620 2,455 185,048 157,558 148,487 Accumulated depreciation and depletion (69,495) (62,545) (56,099) Net capitalized costs $ 115,553 $ 95,013 $ 92,388
Costs Incurred in Certain Oil and Gas Activities Year Ended December 31, 1999 1998 1997 (in thousands) Proved property acquisition costs $14,069 $3,351 $73 Unproved property acquisition costs 2,551 206 90 Exploration costs 3,171 2,022 3,346 Development costs and other 9,398 8,698 10,560 Total costs incurred $ 29,189 $ 14,277 $14,069
Results of Operations for Oil and Gas Producing Activities The following schedule includes results solely from the production and sale of oil and gas and a noncash charge for property impairments. It excludes general and administrative expenses and gains or losses on property dispositions. The income tax expense is calculated by applying the statutory tax rates to the revenues after deducting costs, which include depletion allowances and giving effect to oil and gas related permanent differences and tax credits. Year Ended December 31, 1999 1998 1997 (in thousands) Revenues $21,847 $20,817 $22,488 Production costs 5,092 4,746 5,425 Exploration costs 1,699 488 1,439 Depreciation and depletion 6,951 6,460 5,920 Impairment of oil and gas properties - 4,641 - 8,105 4,482 9,704 Income tax expense 1,864 1,062 2,807 Results of operations $ 6,241 $ 3,420 $6,897 Oil and Gas Reserves
The following schedule presents the estimated oil and gas reserves owned by Penn Virginia. This information includes Penn Virginia's royalty and net working interest share of the reserves in oil and gas properties. Net proved oil and gas reserves for the three years ended December 31, 1999 were estimated by Wright and Company, Inc. All reserves are located in the United States. There are many uncertainties inherent in estimating proved reserve quantities, and projecting future production rates and the timing of future development expenditures. In addition, reserve estimates of new discoveries are more imprecise than those of properties with a production history. Accordingly, these estimates are subject to change as additional information becomes available. Proved oil and gas reserves are the estimated quantities of crude oil, condensate and natural gas that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions at the end of the respective years. Proved developed oil and gas reserves are those reserves expected to be recovered through existing equipment and operating methods. Net quantities of proved reserves and proved developed reserves during the periods indicated are set forth in the tables below: Oil and Natural Proved Developed and Condensate Gas Undeveloped Reserves: (MBbls) (MMcf) December 31, 1996 454 175,448 Revisions of previous estimates 10 (10,538) Extensions, discoveries and other additions 3 17,848 Production (38) (7,755) Purchase of reserves - 304 Sale of reserves in place (5) (3,745) December 31, 1997 424 171,562 Revisions of previous estimates (53) (11,978) Extensions, discoveries and other additions - 7,885 Production (30) (8,056) Purchase of reserves - 4,495 Sale of reserves in place - (35) December 31, 1998 341 163,873 Revisions of previous estimates 31 2,106 Extensions, discoveries and other additions - 4,661 Production (32) (8,679) Purchase of reserves 19 23,237 December 31, 1999 359 185,198 Proved Developed Reserves: December 31, 1997 364 110,259 December 31, 1998 313 118,146 December 31, 1999 326 138,283
The following table sets forth the standardized measure of the discounted future net cash flows attributable to the Company's proved oil and gas reserves. Future cash inflows were computed by applying year-end prices of oil and gas to the estimated future production of proved oil and gas reserves. Natural gas prices were escalated only where existing contracts contained fixed and determinable escalation clauses. Contractually provided natural gas prices in excess of estimated market clearing prices were used in computing the future cash inflows only if the Company expects to continue to receive higher prices under legally enforceable contract terms. Future prices actually received may materially differ from the estimates in the standardized measure. Future production and development costs represent the estimated future expenditures (based on current costs) to be incurred in developing and producing the proved reserves, assuming continuation of existing economic conditions. Future income tax expenses were computed by applying statutory income tax rates to the difference between pre-tax net cash flows relating to the Company's proved oil and gas reserves and the tax basis of proved oil and gas properties. In addition, the effects of statutory depletion in excess of tax basis, available net operating loss carryforwards and alternative minimum tax credits were used in computing future income tax expense. The resulting annual net cash inflows were then discounted using a 10 percent annual rate. December 31, 1999 1998 1997 (in thousands) Future cash inflows $ 505,685 $354,567 $539,781 Future production costs 151,220 123,007 144,129 Future development costs 30,431 26,128 36,537 324,034 205,432 359,115 Future income tax expense 58,068 28,031 70,033 Future net cash flows 265,966 177,401 289,082 10% annual discount for estimated timing of cash flows 146,703 101,737 169,987 Standardized measure of discounted future net cash flows $ 119,263 $ 75,664 $ 119,095
Changes in Standardized Measure of Discounted Future Net Cash Flows Year Ended December 31, 1999 1998 1997 (in thousands) Sales of oil and gas, net of production costs $(16,755) $(16,071) $(17,063) Net changes in prices and production costs 32,111 (57,646) (35,686) Extensions, discoveries and other additions 4,090 4,906 14,318 Development costs incurred during the period 5,330 5,289 3,070 Revisions of previous quantity estimates 1,709 (6,735) (9,036) Purchase of minerals-in-place 20,438 2,896 270 Sale of minerals-in-place - (26) (4,990) Accretion of discount 8,116 14,059 17,548 Net change in income taxes (11,526) 12,006 701 Other changes 86 (2,109) (3,328) Net increase (decrease) 43,599 (43,431) (34,196) Beginning of year 75,664 119,095 153,291 End of year $ 119,263 $ 75,664 $119,095
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEMS 10, 11, 12 AND 13 - DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY, EXECUTIVE OFFICERS OF THE COMPANY, EXECUTIVE COMPENSATION, SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Except for information concerning executive officers of the Company included as an unnumbered item in Part 1, in accordance with General Instruction G(3), reference is hereby made to the Company's definitive proxy statement to be filed within 120 days after the end of the fiscal year covered by this report. PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements 1. Financial Statements - The financial statements filed herewith are listed in the Index to Financial Statements on page 28 of this report. 2. All schedules are omitted because they are not required, inapplicable or the information is included in the consolidated financial statements or the notes thereto. 3. Exhibits (3.1) Articles of Incorporation of the Company. (3.2) Articles of Amendment of Articles of Incorporation of the Company. (3.3) Amended bylaws of the Company. (4) Rights Agreement dated as of February 11, 1998 between Penn Virginia Corporation and American Stock Transfer & Trust Company, as Agent (incorporated by reference to Exhibit 1.1 to the Company's Registration Statement on Form 8-A filed with Securities and Exchange Commission on February 20, 1998. (Commission File No. 0- 753)). (10.1) Amended and restated Credit Agreement dated July 30, 1999 among Penn Virginia Corporation and Chase Bank of Texas National Association, as Agent and First Union National Bank, First National Bank of Chicago and PNC Bank National Association. (10.2) Penn Virginia Corporation and Affiliated Companies Employees' Stock Ownership Plan, as amended (incorporated by reference to Exhibit 19 to the Company's Annual Report on Form 10-K for the year ended December 31, 1986 (Commission File No. 0-753)). (10.3) Penn Virginia Corporation and Affiliated Companies' Employees' Retirement/Savings Plan (incorporated by reference to Exhibit 18(b) to the Company's Registration Statement on Form S-8 filed with the Securities and Exchange Commission on May 13, 1991 (Registration No. 33-40430)). (10.4) The Company has adopted a policy concerning severance benefits for certain senior officers of the Company. The description of such policy is incorporated herein by reference to the description of such policy contained in the Company's definitive Proxy Statement dated March 27, 2000. (10.5) Penn Virginia Corporation 1994 Stock Option Plan, as amended. (10.6) Penn Virginia Corporation 1995 Directors' Stock Option Plan, as amended. (10.7) Penn Virginia Corporation 1999 Employee Stock Incentive Plan. (21) Subsidiaries of the Company. (23.1) Consent of Arthur Andersen LLP. (27) Financial Data Schedule. (Exhibit 27 is submitted as an exhibit only in the electronic format of this Annual Report on Form 10-K submitted to the Securities and Exchange Commission.) (b) Reports on Form 8-K On October 8, 1999, Penn Virginia Corporation filed one report on Form 8-K. The report involved an acquisition on September 24, 1999 and was filed under "Item 5. Other Events." EX-3.1 2 EXHIBIT 3.1 ARTICLE 1. The name of the corporation is Penn Virginia Corporation. ARTICLE 2. The purposes for which the corporation is organized are to do any one or more of the following: (a) buy, sell, own, lease, process, refine and otherwise deal in and with coal, oil, gas, timber and minerals and in the lands, leases and other property related to any of them; (b) buy, sell, make, process and otherwise deal in and with property of any kind and description, for its own account or for the account of others; and render services of every kind and description; and (c) engage in any other business or activity not prohibited by law or required to be stated in the Articles of Incorporation. ARTICLE 3. The number of directors, not less than three, shall be fixed by the bylaws, and in the absence of a bylaw fixing the number, the number shall be 11. ARTICLE 4. Stockholders shall not have pre-emptive or other rights to subscribe for, purchase or receive any proportionate share of the unissued stock of the corporation. ARTICLE 5. The corporation shall have perpetual existence. ARTICLE 6. The aggregate number of shares which the corporation has authority to issue is 16,100,000 shares, divided into two classes consisting of 100,000 shares of Preferred Stock of the par value of $100 per share (herinafter called "Preferred Stock") and 16,100,000 shares of Common Stock of the par value of $6.25 per share (hereinafter called "Common Stock"). The following is a description of each class of shares, and a statement of the preferences, qualifications, limitations, restrictions and the special or relative rights granted to or imposed upon them (except those which the board of directors is authorized to fix as hereinafter provided): A. PREFERRED STOCK (a)Issue in Series. The shares of Preferred Stock from time to time may be divided into and issued herein and in the resolution of the board of directors providing for the issue. All shares of any one series of Preferred Stock shall be identical, and all series of Preferred Stock shall rank equally and be identical except as permitted hereunder. (b)Creation of Series. The board of directors of the corporation shall have the authority by resolution to divide the Preferred Stock into one or more series, and to fix and determine with respect to each series (i) the rate of dividend, the time of payment and the dates from which dividends shall be cumulative, and the extent of participation rights, if any; (ii) any right to vote with holders of the shares of any other series or class and any right to vote as a class, either generally or as a condition to specified corporate action; (iii) the price at and the terms and conditions on which shares may be redeemed; (iv) the amounts payable upon shares in the event of voluntary or involuntary liquidation; (v) sinking fund provisions for the redemption or purchase of shares; and (vi) the terms and conditions on which shares may be converted, if the shares of any series are issued with the privilege of conversion. 1. COMMON STOCK (c)Dividends. Holders of Common Stock shall be entitled to receive such dividends as may be declared by the board of directors, except that the corporation will not declare, pay or set apart for any dividend on shares of Common Stock (other than dividends payable in Common Stock), or directly or indirectly make any distribution on, redeem, purchase or otherwise acquire any such shares, if at the time of such action the corporation is in default with respect to any dividend payable on or any sinking or purchase fund requirement relating to shares of Preferred Stock. (d)Distribution of Assets. In the event of the voluntary or involuntary liquidation of the corporation, holders of Common Stock shall be entitled to receive pro rata all of the remaining assets of the corporation available for distribution to its stockholders after all amounts to which the holders of Preferred Stock are entitled have been paid or set aside in cash for payment. ARTICLE 7. CERTAIN SIGNIFICANT TRANSACTIONS. Section 1.Higher Vote for Certain Significant Transactions. A.Higher Vote for Certain Significant Transactions. In addition to any affirmative vote required by law or these Articles of Incorporation, except as otherwise expressly provided in Section 2 of the Article 7: (i)any merger or consolidation of the corporation or any Subsidiary (as hereinafter defined) with (a) any Related Person (as hereinafter defined), or (b) any other corporation (whether or not itself a Related Person) which is, or after such merger or consolidation would be, an Affiliate (as hereinafter defined) of a Related Person; or (ii)any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions)to or with any Related Person or any Affiliate of any Related Person of any assets of the corporation or any Subsidiary having an aggregate Fair Market Value (as hereinafter defined) of $1,000,000 or more; or (iii)the issuance or transfer by the corporation or any Subsidiary (in one transaction or a series of transactions) of any securities of the corporation or any Related Person or any Affiliate of any Related Person in exchange for cash, securities or other property ( or a combination thereof) having an aggregate Fair Market Value of $1,000,000 or more; or (iv)the purchase by the corporation or any Subsidiary (in one transaction or a series of transactions within a two-year period) of any outstanding shares of capital stock of the corporation which entitle the holder thereof to vote generally in the election of directors (the "Voting Stock") in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value of $1,000,000 or more; or (v)the adoption of any plan or proposal for the liquidation (partial or complete) or dissolution of the corporation proposed by or on behalf of a Related Person or any Affiliate of any Related Person; or (vi)any reclassification of securities (including any reverse stock split), or recapitalization of the corporation, or any merger or consolidation of the corporation with any of its Subsidiaries or any other transactions (whether or not with or into or otherwise involving a Related Person) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the corporation or any Subsidiary which is directly or indirectly owned by any Related Person or any Affiliate of any Related Person; shall require the affirmative vote of the holders of at least 90% of the voting power of the then outstanding shares of Voting Stock, voting together as a single class. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise. B. Definition of "Significant Transaction." The term "Significant Transaction" as used in this Article 7 shall mean any transaction which is referred to in any one or more of clauses (i) through (vi) of paragraph A of this Section 1. Section 2. When Higher Vote is Not Required. The provisions of Section 1 of this Article 7 shall not be applicable to any particular Significant Transaction, and such Significant Transaction shall require only such affirmative vote as is required by law, the Bylaws of the corporation, and any other provision of these Articles of Incorporation, if all of the conditions specified in either of the following paragraphs A and B are met: A.Approval by Continuing Directors. The Significant Transaction shall have been approved by a majority of the Continuing Directors (as hereinafter defined) the in office. B.Price and Procedure Requirements. All of the following conditions shall have been met: (i)The aggregate amount of the cash and the Fair Market Value as of the date of the consummation of the Significant Transaction of consideration other than cash to be received per share by holders of the Company's Common Stock in such Significant Transaction shall be at least equal to the highest of the following: (a)(if applicable)the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees)paid by the Related Person for any shares of Common Stock acquired by it (a)within the two-year period immediately prior to the first public announcement of the proposal of the Significant Transaction (the "Announcement Date") or (b)in the transaction in which it became a Related Person, whichever is higher; (b)the Fair Market Value per share of Common Stock on the Announcement Date or on the date on which the Related Person became a Related Person (such latter date is referred to in this Article 7 as the "Determination Date"), whichever is higher; (c)the earnings per share of Common Stock for the four full consecutive fiscal quarters immediately preceding the Announcement Date as to which financial results have been published by the corporation, multiplied by the then highest price/earnings multiple (if any) of such Related Person or any of its Affiliates as customarily computed and reported in the financial community; (d)(if applicable)the price per share equal to the Fair Market Value per share of Common Stock determined pursuant to paragraph (B)(I)(b) of this Section 2, multiplied by a fraction the numerator of which is the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees)paid by the Related Person for any shares of Common Stock acquired by it within the two-year period immediately prior to the Announcement Date and the denominator of which is the Fair Market Value per share of Common Stock on the first day in such two-year period upon which the Related Person acquired any shares of Common Stock; and (e)the highest Fair Market Value per share of Common Stock in the one-year period immediately prior to the Announcement Date. (ii)The consideration to be received by the holders of Common Stock in such Significant Transaction shall be either cash or the same type of consideration used by the Related Person in acquiring the largest portion of its holdings of Common Stock prior to the Announcement Date. (iii)After such Related Person has become a Related Person, and prior to the consummation of such Significant Transaction: (a) there shall have been (1) no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock), except as approved by a majority of the Continuing Directors, and (2) and increase in such annual rate of dividends as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or other similar corporate transactions which has the effect of reducing the number of outstanding shares of Common Stock, unless the failure to so increase the annual rate is approved by a majority of the Continuing Directors; and (b) such Related Person shall not have become the beneficial owner of any additional shares of Voting Stock except as part of the transaction which results in such Related Person becoming a Related Person. (iv)After such Related Person has become a Related Person, such Related Person shall not have received the benefit, directly or indirectly (except proportionately as a shareholder of the corporation), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation, whether in anticipation of or in connection with such Significant Transaction or otherwise. (v)A proxy or information statement describing the proposed Significant Transaction and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to public shareholders of the corporation at least 30 days prior to the consummation of such Significant Transaction (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions). SECTION 3. Certain Definitions. For the purposes of this Article 7: A. A "person" shall mean any individual, firm, corporation or other entity. B. "Related Person" shall mean any person (other than the corporation or any Subsidiary) who or which: (i)is the beneficial owner, directly or indirectly, of more than 10% of the voting power of outstanding Voting Stock; or (ii)is an Affiliate of the corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of 10% or more of the voting power of the then outstanding Voting Stock; (iii)is an assignee of or has otherwise succeeded to any shares of Voting Stock which were at any time within the two-year period prior to the date in question beneficially owned by any Related Person, if such assignment shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. If two or more persons shall at any time be "Related Persons," each Related Person whose involvement in a transaction causes it to be a Significant Transaction shall be treated as: (i)"the Related Person" for purposes of the application of the price and procedure requirements of paragraph B of section 2 of this Article 7 to such Significant Transaction, and (ii) as "the Related Person in question" for purposes of determining whether a person is a Continuing Director with respect to such Significant Transaction. C.A person shall be a "beneficial owner" of any Voting Stock: (i)which such person or any of its Affiliates or Associates (as hereinafter defined) beneficially owns, directly or indirectly, or (ii)which such person or any of its Affiliates or Associates has (a) the right to acquire (whether such a right is exercisable immediately or only after the passage of time),pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (b) the right to vote pursuant to any agreement, arrangement or understanding; or (iii)which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Voting Stock. D.For the purposes of determining whether a person is a Related Person pursuant to paragraph B of the section 3, the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned by such person through application of paragraph C of this Section 3 but shall not include any other shares of Voting Stock which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. E."Affiliate" or "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on March 21, 1984. F."Subsidiary" means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the corporation; provided, however, that for the purposes of the definition of Related Person set forth in paragraph B of this Section 3, the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the corporation. G."Continuing Director" means (i) any person who was a member of the Board of Directors of the Company (the "Board") as of May 1, 1984, or (ii) any member of the Board who is not affiliated with the Related Person in question and was a member of the Board prior to the time that the Related Person in question became a Related Person, or (iii) a successor of a Continuing Director who is unaffiliated with the Related Person in question and is recommended to succeed a Continuing Director by a majority of Continuing Directors then on the Board. H."Fair Market Value" means: (i) in the case of stock, the highest closing sale price during the 30-day period immediately preceding the date in question of a share of such stock on the Composite Tape for New York Stock Exchange-Listed Stocks, or if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, or if such stock is not listed on such Exchange, on the principal United States securities exchange registered undeer the Securities Exchange Act of 1934 on which such stock is listed, or, if such stock is not listed on any such property on the date in question as determined by the Board in good faith exchange, the highest closing bid quotation with respect to a share of such stock during the 30-day preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotations System or any similar system then in use, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by the Board in good faith; and (ii) in the case of property other than cash or stock, the fair market value of such property on that date in question as determined by the Board in good faith. I.In the event any significant Transaction involves a merger in which the corporation is the surviving corporation, the phrase "consideration other than cash to be received" as used in paragraph B(i) of Section 2 of this Article shall include the shares of any other class of outstanding Voting Stock retained by the holders of such shares. SECTION 4.Miscellaneous. A.The Continuing Directors of the corporation shall have the power and duty to determine for the purposes of this Article 7, on the basis of information known to them after reasonable inquiry, (i)whether a person is a Related Person, (ii)the number of shares of Voting Stock beneficially owned by any person, (iii)whether a person is an Affiliate or Associate of another (iv)whether the assets which are the subject of any Significant Transaction have, or the consideration to be received or paid by the corporation or any Subsidiary for the issuance, transferor purchase of any securities in any Significant Transaction has, an aggregate Fair Market Value of $1,000,000 or more, and (v)any other matter relating to the applicability or effect of this Article 7. B.Nothing contained in this Article 7 shall be construed to relieve any Related Person from any fiduciary obligation imposed by law. C.In the event any section, paragraph (or portion thereof) of this Article 7 shall be found to be invalid, prohibited or unenforceable for any reason, the remaining provisions of this Article 7 shall be deemed to remain in full force and effect, and shall be construed as if such invalid, prohibited or unenforceable provision had been stricken herefrom or otherwise rendered inapplicable, it being the intent of the corporation and its shareholders that each such remaining provision (or portion thereof) of this Article 7 remain, to the fullest extent permitted by law, applicable and enforceable as to all shareholders, including Related Persons, notwithstanding any such finding. ARTICLE 8. Any provision in these Articles of Incorporation or in the Bylaws of the corporation to the contrary notwithstanding, no provision of Articles 7 or 8 of these Articles shall be altered, amended, supplemented or repealed by the shareholders of the corporation, and no provision of the Bylaws or of these Articles of Incorporation inconsistent with any such provisions shall be adopted by the shareholders of the corporation, except by the affirmative vote of the holders of at least 90% of the outstanding shares of capital stock of the corporation entitled to vote generally in the election of directors, considered for this purpose as one class, provided that an amendment the effect of which is solely to add additional minimum price or procedural requirements to those already enumerated in paragraph B of Section 2 of Article 7 may be adopted in the manner otherwise prescribed by statute to the other provisions of these Articles of Incorporation. EX-3.2 3 EXHIBIT 3.2 ARTICLES OF AMENDMENT OF THE ARTICLES OF INCORPORATION OF PENN VIRGINIA CORPORATION Under Section 13.1-639 of the Virginia Stock Corporation Act FIRST: The name of the Corporation is Penn Virginia Corporation SECOND: The amendment adopted is to add a new Paragraph to the end of Article Six to read as follows: (e) Establishment of Series. There is hereby established a series of the Company's authorized Preferred Stock, to be designated as the "Series A Junior Participating Preferred Stock, par value $100 per share." The designation and number, and relative rights, preferences and limitations of the Series A Junior Participating Preferred Stock, insofar as not already fixed by any other provision of these Articles of Incorporation, shall be as follows: Section 1. Designation and Number of Shares. The shares of such series shall be designated as "Series A Junior Participating Preferred Stock," and the number of shares initially constituting such series shall be 15,000. Section 2. Dividends and Distributions. (a) Subject to the prior and superior rights of the holders of any shares of any series of preferred stock of the Company ranking prior and superior to the shares of Series A Junior Participating Preferred Stock, the holders of shares of Series A Junior Participating Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of January, April, July and October in each year or such other quarterly payment date as shall be specified by the Board of Directors (each such date being referred to herein as a "Quarterly Dividend Payment Date'), commencing o the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of the Series A Junior Participating Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (I) $0.01 or (ii) subject to the provision for adjustment hereinafter set forth, 1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock, $6.25 par value (the "Common Stock"), of the Company since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of the Series A Junior Participating Preferred Stock. In the event the Company shall at any time after February 11, 1998 (the "Rights Declaration Date") (I) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding shares of Common Stock, or (iii) combine the outstanding shares of Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Series A Junior Participating Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (b) The Company shall declare a dividend or distribution on Series A Junior Participating Preferred Stock as provided in paragraph (a) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided, however, that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $0.01 per share on the Series A Junior Participating Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (c)Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Junior Participating Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Junior Participating Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Junior Participating Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Junior Participating Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Junior Participating Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 30 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series A Junior Participating Preferred Stock shall have the following voting rights: (a) Subject to the provision for adjustment hereinafter set forth, each share of Series A Junior Participating Preferred Stock shall entitle the holder there to 1,000 votes on al matters submitted to a vote of the shareholders of the Company. In the event the Company shall at any time after the Rights Declaration Date (I) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the number of votes per share to which holders of shares of Series A Junior Participating Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock outstanding immediately prior to such event. (b) Except as otherwise provided herein or by law, the holders of shares of Series A Junior Participating Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of shareholders of the Company. (c) (i) If at any time dividends on any Series A Junior Participating Preferred Stock shall be in arrears in an amount equal to six (6) quarter dividends thereon, the occurrence of such contingency shall mark the beginning of a period (herein called a "default period") which shall extend until such time when all accrued and unpaid dividends for all previous quarterly dividend periods and for the current quarterly dividend period on all shares of Series A Junior Participating Preferred Stock then outstanding shall have been declared and paid or set apart for payment. During each default period, all holders of shares of Series A Junior Participating Preferred Stock with dividends in arrears in an amount equal to six (6) quarterly dividends thereon, voting as a class together with holders of any other shares of preferred stock of the Company upon which like voting rights have been conferred and are then exercisable, irrespective of series, shall have the right to elect two (2) Directors. (ii) During any default period, such voting right of the holders of shares of Series A Junior Participating Preferred Stock may be exercised initially at a special meeting called pursuant to subparagraph (iii) of this Section 3(c) or at any annual meeting of shareholders, and thereafter at annual meetings of shareholders, provided that such voting right shall not be exercised unless the holders of ten percent (10%) in number of shares of preferred stock having the voting rights set forth above that are outstanding shall be present in person or by proxy. The absence of a quorum of the holders of Common Stock shall not affect the exercise by the holders of such preferred stock of such voting right. At any meting at which the holders of such preferred stock shall exercise such voting right initially during an existing default period, they shall have the right, voting as a class, to elect Directors to fill such vacancies, if any, in the Board of Directors as may then exist up to two (2) Directors or if such right is exercised at an annual meeting, to elect two (2) Directors. If the number which may be so elected at any special meeting does not amount to the required number, the holders of such preferred stock shall have the right to make such increase in the number of Directors as shall be necessary to permit the election by them of the required number. After the holders of such preferred stock shall have exercised their right to elect Directors in any default period and during the continuance of such period, the number of Directors shall not be increased or decreased except by vote of the holders of such preferred stock as herein provided or pursuant to the rights of any equity securities ranking senior to or pari passu with the Series A Junior Participating Preferred Stock. (iii) Unless the holders of such preferred stock shall, during an existing default period, have previously exercised their right to elect Directors, the Board of Directors may order, or any shareholder or shareholders owning in the aggregate not less than ten percent (10%) of the total number of shares of such preferred stock outstanding, irrespective of series, may request the calling of a special meeting of the holders of such preferred stock, which meeting shall thereupon be called by the President, a Vice President or the Secretary of the Company. Notice of such meeting and of any annual meeting at which holders of Preferred Stock are entitled to vote pursuant to this Paragraph (c)(iii) shall be given to each holder of record of such preferred stock by mailing a copy of such notice to him at his last address as the same appears on the books of the Company. Such meeting shall be called for a time not earlier than 20 days and not later than 60 days after such order or request or in default of the calling of such meeting within 60 days after such order or request, such meeting may be called on similar notice by any shareholder or shareholders owning in the aggregate not less than ten percent (10%) of the total number of shares of such preferred stock outstanding. Notwithstanding the provisions of this Paragraph (c)(iii), no such special meeting shall be called during the period within 60 days immediately preceding the date fixed for the next annual meting of the shareholders. (iv) In any default period, the holders of Common Stock, and other classes of stock of the Company, if applicable, shall continue to be entitled to elect the whole number of Directors until the holders of such preferred stock shall have exercised their right to elect two (2) Directors voting as a class, after the exercise of which right (x) the Directors so elected by the holders of such preferred stock shall continue in office until their successors shall have been elected by such holders or until the expiration of the default period, and (y) any vacancy in the Board of Directors may (except as provided in Paragraph (c)(ii) of this Section 3) be filled by vote of a majority of the remaining Directors theretofore elected by the holders of the class of stock which elected the Director whose office shall have become vacant. References in this Paragraph (c) to Directors elected by the holders of a particular class of stock shall include Directors elected by such Directors to fill vacancies as provided in clause (y) of the foregoing sentence. (v) Immediately upon the expiration of a default period, (x) the right of the holders of such preferred stock as a class to elect Directors shall cease, (y) the term of any Directors elected by the holders of such preferred stock as a class shall terminate, and (z) the number of Directors shall be such number as may be provided for in the Certificate or by-laws irrespective of any increase made pursuant to the provisions of Paragraph (c)(ii) of this Section 3 (such number being subject, however, to change thereafter in any manner provided by law or in the Certificate or by-laws). Any vacancies in the Board of Directors effected by the provisions of clauses (y) and (z) in the preceding sentence may be filled by a majority of the remaining Directors. (d) Except as set forth herein, holders of shares of Series A Junior Participating Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. Section 4. Certain Restrictions. (a) Whenever quarter dividends or other dividends or distributions payable on the Series A Junior Participating Preferred Stock as provided in Section 2 herein are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Junior Participating Preferred Stock outstanding shall have been paid in full, the Company shall not (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Participating Preferred Stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior Participating Preferred Stock, except dividends paid ratably on the Series A Junior Participating Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Junior Participating Preferred Stock; or (iv) purchase or otherwise acquire for consideration any shares of Series A Junior Participating Preferred Stock, or any shares of stock ranking on a parity with the Series A Junior Participating Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (b) The Company shall not permit any subsidiary of the Company to purchase or otherwise acquire for consideration any shares of stock of the Company unless the Company could, under Section 4(a) herein, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any Series A Junior Participating Preferred Stock purchased or otherwise acquired by the Company in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued preferred stock of the Company and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors. Section 6. Liquidation, Dissolution or Winding Up. (a) Upon any liquidation (voluntary or otherwise), dissolution or winding up of the Company, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Participating Preferred stock unless, prior thereto, the holders of shares of Series A Junior Participating Preferred Stock shall have received an amount equal to $1,000 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment (the "Series A Liquidation Preference"). Following the payment of the full amount of the Series A Liquidation Preference, no additional distributions shall be made to the holders of shares of Series A Junior Participating Preferred Stock unless, prior thereto, the holders of shares of Common Stock shall have received an amount per share (the "Common Adjustment") equal to the quotient obtained by dividing (I) the Series A Liquidation Preference by (ii) 1,000 (as appropriately adjusted as set forth in subparagraph (c) below to reflect such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock) (such number in clause (ii), the "Adjustment Number"). Following the payment of the full amount of the Series A Liquidation Preference and the Common Adjustment in respect of all outstanding shares of Series A Junior Participating Preferred Stock and Common Stock, respectively, holders of shares of Series A Junior Participating Preferred Stock and holders of shares of Common Stock shall receive their ratable and proportionate share of the remaining assets to be distributed in the ratio of the Adjustment Number to 1 with respect to such Preferred Stock and Common Stock, on a per share basis, respectively. (b) In the event, however, that there are not sufficient assets available to permit payment in full of the Series A Liquidation Preference and the liquidation preferences of all other series of preferred stock, if any, which rank on a parity with the Series A Junior Participating Preferred Stock, then such remaining assets shall be distributed ratably to the holders of such parity shares in proportion to their respective liquidation preferences. IN the event, however, that there are not sufficient assets available to permit payment in full of the common Adjustment, then such remaining assets shall be distributed ratably to the holders of shares of Common Stock. (c) In the event Company shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such adjustment Number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock outstanding immediately prior to such event. Section 7. Consolidation, Merger, etc. In case the Company shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series A Junior Participating Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 1,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. IN the event the Company shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding shares of Common Stock, or (iii) combine the outstanding shares of Common Stock into a smaller number of shares, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Junior Participating Preferred Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock outstanding immediately prior to such event. Section 8. No Redemption. The shares of Series A Junior Participating Preferred Stock shall not be redeemable. Section 9. Ranking. The Series A Junior Participating Preferred Stock shall rank junior to all other series of the Company's Preferred Stock as to the payment of dividends and the distribution of assets, except that the Series A Junior Participating Preferred Stock shall rank on a parity with the Series A Junior Participating Preferred Stock of the Company as to dividends and the distribution of assets. Section 10. Amendment. The Certificate, including, without limitation, this resolution, shall not hereafter be amended, either directly or indirectly, or through merger or consolidation with another corporation, in any manner that would materially alter or change the powers, preferences or special rights of the Series A Junior Participating Preferred Stock so as to affect them adversely without the affirmative vote of the holders of a majority or more of the outstanding shares of Series A Junior Participating Preferred Stock, voting separately as a class. Section 11. Fractional Shares. Series A Junior Participating Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of shares of Series A Junior Participating Preferred Stock. THIRD: This amendment of the Articles of Incorporation was duly adopted by the Board of Directors of the Corporation on February 11, 1998, without shareholder action, which shareholder action was not required. IN WITNESS WHEREOF, the undersigned has executed these Articles of Amendment as of this 11th day of February, 1998. PENN VIRGINIA CORPORATION By_________________________ /s/ Steven W. Tholen Vice President and Chief Financial Officer EX-3.3 4 EXHIBIT 3.3 ARTICLE 1 SHAREHOLDERS Section 1. Meetings. A. Annual Meeting. Unless otherwise fixed by the board of directors the annual meeting of shareholders for the election of directors and for other business shall be held on the first Tuesday of May in each year or, if that day is a legal holiday, on the first subsequent business day. B. Special Meetings. Special meetings of the shareholders may be called at any time by the chief executive officer, or a majority of the board of directors. C. Place. Meetings of the shareholders shall be held at such place in Philadelphia, Pennsylvania or elsewhere, as may be fixed by the board of directors in the notice of meeting. D. Adjournments. A Public Announcement of an adjournment of an annual or special meeting shall not commence a new time period for the giving of shareholder notices provided herein. For purposes of these Bylaws, "Public Announcement" includes without limitation (i) a press release reported by the Dow Jones News, Associated Press or a comparable national news service, or (ii) a document filed with the Securities and Exchange Commission. E. Organization. The Chairman of the Board of Directors, or, in the absence of the Chairman of the Board of Directors, such other officer or board member as the Board of Directors may designate, shall preside at each meeting of shareholders and may adjourn the meeting from time to time. The Secretary or an Assistant Secretary shall act as secretary of the meeting and keep a record of the proceedings thereof. The Board of Directors of the Company shall be entitled to make such rules or regulations for the conduct of meetings of shareholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures, and to do all such acts as, in the judgement of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including without limitation, establishing an agenda or order of business for the meeting, establishing rules and procedures for maintaining order at the meeting and the safety of those present, limiting the participation in such meeting to shareholders of record of the Company and their duly authorized and constituted proxies, and such other persons as the chairman shall permit, restricting entry to the meeting after the time fixed for the commencement thereof, limiting the time allotted to questions or comments by participants, and regulating the opening and closing of the polls for balloting on matters which are to be voted on by ballot. Unless, and to the extent, determined by the Board of Directors or the chairman of the meeting, meetings of shareholders shall not be required to be held in accordance with the rules of parliamentary procedure. Section 2. Notice. Written notice of the time and place of all meetings of shareholders and of the purpose of each special meeting of shareholders shall be given to each shareholder entitled to vote thereat at least ten days before the date of the meeting, unless a greater period of notice is required by law in a particular case. Section 3. Voting. A. Voting Rights. Except as otherwise provided herein, or in the Articles of Incorporation, or by law, every shareholder shall have the right at every shareholders' meeting to one vote for every share standing in his name on the books of the Company which is entitled to vote at such meeting. Every shareholder may vote either in person or by proxy. B. Election of Directors. At each annual meeting the shareholders shall elect at least seven but not more than ten directors who shall constitute the entire Board. C. Nomination of Directors. Nominations for the election of directors may be made by the Board of Directors or by any shareholder (a "Nominator") entitled to vote in the election of directors. Such nominations, other than those made by the Board of Directors, shall be made in writing pursuant to timely notice delivered to or mailed and received by the Secretary of the Company as set forth in this Section 3C. To be timely in connection with an annual meeting of shareholders, a Nominator's notice, setting forth the name and address of the person to be nominated, shall be delivered to or mailed and received at the principal executive offices of the Company not less than 90 days nor more than 180 days prior to the earlier of the date of the meeting or the corresponding date on which the immediately preceding year's annual meeting of shareholders was held; provided, however, that with respect to the annual meeting of shareholders to be held in 1998, notice by the shareholder to be timely must be delivered not later than the tenth day following the day on which Public Announcement of the date of such meeting is first made by the Company. To be timely in connection with any election of a director at a special meeting of the shareholders, a Nominator's notice, setting forth the name and address of the person to be nominated, shall be delivered to or mailed and received at the principal executive offices of the Company not later than the close of business on the tenth day following the day on which notice of the date of the meeting was mailed or Public Announcement of such meeting was made, whichever first occurs. At such time, the Nominator shall also submit written evidence, reasonably satisfactory to the Secretary of the Company, that the Nominator is a shareholder of the Company and shall identify in writing (i) the name and address of the Nominator, (ii) the number of shares of each class of capital stock of the Company of which the Nominator is the beneficial owner, (iii) the name and address of each of the persons, if any, with whom the Nominator is acting in concert and (iv) the number of shares of capital stock of which each such person with whom the Nominator is acting in concert is the beneficial owner pursuant to which the nomination or nominations are to be made. At such time, the Nominator shall also submit in writing (i) the information with respect to each such proposed nominee that would be required to be provided in a proxy statement prepared in accordance with Regulation 14A under the Securities Exchange Act of 1934, as amended, and (ii) a notarized affidavit executed by each such proposed nominee to the effect that, if elected as a member of the Board of Directors, he will serve and that he is eligible for election as a member of the Board of Directors. Within 30 days (or such shorter time period that may exist prior to the date of the meeting) after the Nominator has submitted the aforesaid items to the Secretary of the Company, the Secretary of the Company shall determine whether the evidence of the Nominator's status as a shareholder submitted by the Nominator is reasonably satisfactory and shall notify the Nominator in writing of such determination. If the Secretary of the Company finds that such evidence is not reasonably satisfactory, or if the Nominator fails to submit the requisite information in the form or within the time indicated, such nomination shall be ineffective for the election at the meeting at which such person is proposed to be nominated. The presiding person at each meeting of shareholders shall, if the facts warrant, determine and declare at the meeting that a nomination was not made in accordance with the procedures prescribed by these Bylaws, and if he should so determine and so declare, the nomination shall be disregarded. The requirements of this Section 3C shall be in addition to any other requirements imposed by these Bylaws, by the Company's Articles of Incorporation or by law and in no event shall the periods specified herein be in derogation of other time periods required by law. Section 4. Quorum. The presence, in person or by proxy, of the holders of a majority of the outstanding shares of stock of the Company entitled to vote at a meeting shall constitute a quorum. If a quorum is not present, no business shall be transacted except to adjourn to a future time. Section 5. Shareholder Proposals. No proposal by a shareholder may be voted upon at a meeting of shareholders unless the proposing shareholder shall have delivered or mailed in a timely manner (as set forth herein) and in writing to the Secretary of the Company (A) notice of such proposal, (B) the text of the proposed alteration, amendment or repeal, if such proposal relates to a proposed change to the Company's Articles of Incorporation or Bylaws, (C) evidence reasonably satisfactory to the Secretary of the Company of such shareholder's status as such and of the number of shares of each class of capital stock of the Company of which such shareholder is the beneficial owner, (D) a list of the names and addresses of other beneficial owners of shares of the capital stock of the Company, if any, with whom such shareholder is acting in concert, and the number of shares of each class of capital stock of the Company beneficially owned by each such beneficial owner and (E) an opinion of counsel, which counsel and the form and substance of which opinion shall be reasonably satisfactory to the Board of Directors of the Company, to the effect that the Articles of Incorporation or Bylaws resulting from the adoption of such proposal would not be in conflict with the laws of the Commonwealth of Virginia if such proposal relates to a proposed change to the Company's Articles of Incorporation or Bylaws. To be timely in connection with an annual meeting of shareholders, a shareholder's notice and other aforesaid items shall be delivered to or mailed and received at the principal executive offices of the Company not less than 90 nor more than 180 days prior to the earlier of the date of the meeting or the corresponding date on which the immediately preceding year's annual meeting of shareholders was held; provided, however, that with respect to the annual meeting of shareholders to be held in 1998, notice by the shareholder to be timely must be delivered not later than the tenth day following the day on which Public Announcement of the date of such meeting is first made by the Company. To be timely in connection with the voting on any such proposal at a special meeting of the shareholders, a shareholder's notice and other aforesaid items shall be delivered to or mailed and received at the principal executive offices of the Company not later than the close of business on the tenth day following the day on which such notice of date of the meeting was mailed or Public Announcement was made whichever first occurs. Within 30 days (or such shorter period that may exist prior to the date of the meeting) after such shareholder shall have submitted the aforesaid items to the Secretary of the Company, the Secretary shall determine whether the items to be ruled upon by the Secretary are reasonably satisfactory and shall notify such shareholder in writing of such determination. If such shareholder fails to submit a required item in the form or within the time indicated, or if the Secretary determines that the items to be ruled upon by the Secretary are not reasonably satisfactory, then such proposal by such shareholder may not be voted upon by the shareholders of the Company at such meeting of shareholders. The presiding person at each meeting of shareholders shall, if the facts warrant, determine and declare at the meeting that a proposal was not made in accordance with the procedures prescribed by these Bylaws, and if he should so determine and so declare the proposal shall be disregarded. The requirements of this Section 5 shall be in addition to any other requirements imposed by these Bylaws, by the Company's Articles of Incorporation or by law and in no event shall the periods specified herein be in derogation of other time periods required by law. ARTICLE 2 DIRECTORS Section 1. Term of Office. Each director elected at an annual meeting of the shareholders shall hold office until the next annual meeting, unless properly removed or disqualified, and until such further time as his successor is elected and has qualified. Section 2. Powers. The business of the Company shall be managed by the board of directors which shall have all powers conferred by law and these bylaws. The board of directors shall elect, remove or suspend officers, determine their duties and compensations, and require security in such amounts as it may deem proper. Section 3. Meetings. A. Regular Meetings. Regular meetings shall be held at such times as the board shall designate by resolution. Notice of regular meetings need not be given. B. Special Meetings. Special meetings of the board may be called at any time by the chief executive officer and shall be called by him upon the written request of one-third of the directors. Written notice of the time, place and the general nature of the business to be transacted at each special meeting shall be given to each director at least three days before such meeting. C. Place. Meetings of the board of directors shall be held at such place as the board may designate or as may be designated in the notice calling the meeting. Section 4. Quorum. A majority of the number of directors in office immediately before the meeting begins shall constitute a quorum for the transaction of business at any meeting and, except as provided in Article VII, the acts of a majority of the directors present at any meeting at which a quorum is present shall be the acts of the board of directors. Section 5. Vacancies. Vacancies in the board of directors shall be filled by vote of a majority of the remaining members of the board though less than a quorum. Such election shall be for the balance of the unexpired term or until a successor is duly elected by the shareholders and has qualified. ARTICLE 3 BOARD COMMITTEES Section 1. Executive Committee. The board of directors by resolution of a majority of the number of directors then in office may designate three or more directors to constitute an executive committee, which, to the extent provided in such resolution, shall have and may exercise all the authority of the board of directors except to approve an amendment of the Company's articles of incorporation or a plan of merger or consolidation. If an executive committee is so designated it will elect one of its members to be its chairman. Section 2. Compensation and Benefits Committee. The board of directors by resolution of a majority of the number of directors then in office may designate three or more outside directors to constitute a compensation and benefits committee, which shall have such power and authority as may be provided in such resolution. Section 3. Other Committees. The board of directors by resolution of a majority of the number of directors then in office may create or disband other committees, as deemed to be proper. ARTICLE 4 OFFICERS Section 1. Election. At its first meeting after each annual meeting of the shareholders, the board of directors shall elect a president, treasurer and secretary, and such other officers as it deems advisable. Any two or more offices may be held by the same person except the offices of president and secretary. Section 2. Chairman and President. A. Chairman. The chairman shall preside at all meetings of the board and of the shareholders. If so designated by the board of directors, the chairman shall be the chief executive officer. B. President. The president shall be either the chief executive officer or the chief operating officer of the Company, as designated by the board of directors. The president shall have such duties as the board of directors and the chairman of the Company shall prescribe. Section 3. Other Officers. The duties of the other officers shall be those usually related to their offices, except as otherwise prescribed by resolution of the board of directors. Section 4. General. In the absence of the chairman and president, the person who has served longest as vice president or any other officer designated by the board shall exercise the powers and perform the duties of the chief executive officer or chief operating officer or both. The chief executive officer or any officer or employee authorized by him may appoint, remove or suspend agents or employees of the Company and may determine their duties and compensation. ARTICLE 5 INDEMNIFICATION Section 1. Right to Indemnification. Subject to Section 3, the Company shall indemnify any person who was or is a party or threatened to be a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, and whether formal or informal, and whether or not by or in the right of the corporation, by reason of the fact that he is or was a director or officer of the Company, or, while a director or officer of the Company, is or was serving at the request of the Company as a director, officer, partner, trustee, administrator, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, for expenses (including attorney's fees), judgments, fines, penalties, including any excise tax assessed with respect to an employee benefit plan, and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding, to the fullest extent and manner permitted by the Virginia Corporation Law as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader indemnification rights than permitted prior to such amendment). Section 2. Advance of Expenses. Subject to Section 3, expenses incurred by a director or officer of the Company in defending a civil or criminal action, suit or proceeding shall be paid by the Company in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Company. Section 3. Procedure for Determining Permissibility. The procedure for determining the permissibility of indemnification pursuant to Article 5 (including the advance of expenses), shall be that set forth in Section 13.1-701.B of the Virginia Corporation Law, provided that, if there has been a change in control of the Company between the time of the action or failure to act giving rise to the claim for indemnification and such claim, then at the option of the person seeking indemnification, the permissibility of indemnification shall be determined by special legal counsel selected jointly by the Company and the person seeking indemnification. The reasonable expenses of any director or officer in prosecuting a successful claim for indemnification, and the fees and expenses of any special legal counsel engaged to determine permissibility of indemnification, shall be borne by the Company. Section 4. Contractual Obligation; Inuring of Benefit. The obligations of the Company to indemnify a person under this Article V, including the obligation to advance expenses, shall be considered contractual obligations of the Company to such person, subject only to the determination of permissibility as set forth in the preceding Section, and no modification or repeal of any provision of this Article V shall affect, to the detriment of such person, the obligations of the Company in connection with a claim based on any act or failure to act occurring before such modification or repeal. The obligations of the Company to indemnify a person under this Article V, including the obligation to advance expenses, shall inure to the benefit of the heirs, executors and administrators of such person. Section 5. Insurance and Other Indemnification. The board of directors of the Company shall have the power but shall not be obliged to (a) purchase and maintain, at the Company expense, insurance on behalf of the Company and its director, officers, employees and agents against liabilities asserted against any of them, including the Company's obligations to indemnify and advance expenses, to the extent that power to do so is not prohibited by applicable law, and (b) give other indemnification to the extent not prohibited by applicable law. ARTICLE 6 CERTIFICATES OF STOCK Section 1. Share Certificates. Every shareholder of record shall be entitled to a share certificate representing the shares held by him. Every share certificate shall bear the corporate seal and the signature of the president or a vice president and the secretary or an assistant secretary or treasurer of the Company. Section 2. Transfers. Shares of stock of the Company shall be transferable on the books of the Company only by the registered holder or by duly authorized attorney. A transfer shall be made only upon surrender of the share certificate. Any restrictions which are deemed to be imposed on the transfer of the Company's securities by the Shareholder Rights Agreement dated as of February 11, 1998 between the Company and American Stock Transfer & Trust Company, as it may be amended from time to time, or by any successor or replacement rights plan or agreement, are hereby authorized. ARTICLE 7 AMENDMENTS These bylaws may be changed at any regular or special meeting of the board of directors by the vote of a majority of the number of directors in office immediately before the meeting or at any annual or special meeting of shareholders by the vote of the shareholders entitled to vote as required by law. Notice of any such meeting of shareholders shall set forth the proposed change or a summary thereof. EX-10.1 5 EXHIBIT 10.1 AMENDED AND RESTATED CREDIT AGREEMENT AMENDED AND RESTATED CREDIT AGREEMENT dated as of July 30, 1999, among PENN VIRGINIA CORPORATION, a Virginia corporation (the "Borrower"), the Banks (as hereinafter defined), FIRST UNION NATIONAL BANK (f/k/a First Union National Bank of North Carolina), a national banking association ("First Union") acting in its capacity as syndication Agent for the Banks (in such capacity, the "Syndication Agent"), THE FIRST NATIONAL BANK OF CHICAGO, a national banking association ("First National") acting in its capacity as documentation agent for the Banks (in such capacity, the "Documentation Agent"), CHASE BANK OF TEXAS, NATIONAL ASSOCIATION (f/k/a Texas Commerce Bank National Association), a national banking association ("Chase") acting in its capacity as agent for the Banks (in such capacity, the "Agent"), and PNC BANK, NATIONAL ASSOCIATION, a national banking association ("PNC"). PRELIMINARY STATEMENTS WHEREAS, this Agreement is an amendment and restatement of that certain Credit Agreement (the "Initial Credit Agreement") dated as of August 2, 1996 among the Borrower, the Banks party thereto, and Agent; WHEREAS, Borrower and its Subsidiaries (as herein defined) have requested that the Banks increase for the Borrower, the amount of the revolving credit facility set forth in the Initial Credit Agreement, on the terms and subject to the conditions stated herein, the proceeds of which will be used (i) to provide working capital to the Borrower and its Subsidiaries for exploration and production, (ii) to finance capital expenditures and acquisitions of the Borrower and its Subsidiaries and (iii) to provide letters of credit for the account of the Borrower and its Subsidiaries; WHEREAS, Borrower owns, either directly or indirectly, one hundred percent (100%) of the issued and outstanding capital stock of each of Concord Land Company, a Delaware corporation ("Concord"), Lexington Land Company, a Delaware corporation ("Lexington"), Penn Virginia Holding Corp., a Delaware corporation ("PVHC"), Penn Virginia Equities Corporation, a Delaware corporation ("Equities"), Penn Virginia Oil & Gas Corporation, a Virginia corporation ("PVOG"), Penn Virginia Coal Company, a Virginia corporation ("PVCC"), and Savannah Land Company, a Delaware corporation ("Savannah"); WHEREAS, the Banks are willing, upon and subject to the terms and conditions stated herein, to make such revolving credit facility available to the Borrower and its Subsidiaries. NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.1. Certain Defined Terms. As used in this Credit Agreement, the following terms shall have the following meanings: "ABR Borrowing" shall mean a Borrowing comprised of ABR Loans. "ABR Loan" shall mean any Revolving Credit Loan bearing interest at a rate determined by reference to the Alternate Base Rate in accordance with the provisions of Article II. "Accommodation Obligation," as applied to the Borrower or any of its Subsidiaries, shall mean any Contractual Obligation, contingent or otherwise, of the Borrower or such Subsidiary of the Borrower with respect to any Indebtedness or other obligation or liability of another, including, without limitation, any such Indebtedness, obligation or liability directly or indirectly guarantied, endorsed (other than endorsements of negotiable instruments for collection or deposit in the ordinary course of business), co-made or discounted or sold with recourse by the Borrower or such Subsidiary of the Borrower, or in respect of which the Borrower or such Subsidiary of the Borrower is otherwise directly or indirectly liable, including Contractual Obligations (contingent or otherwise) arising through any agreement to purchase, repurchase, or otherwise acquire such Indebtedness, obligation or liability or any security therefor, or to provide funds for the payment or discharge thereof (whether in the form of loans, advances, stock purchases, capital contributions or otherwise), or to maintain solvency, assets, level of income, or other financial condition, or any "keep well," "take-or-pay," "throughput" or other similar arrangement or to make payment other than for value received. "Advance Payment Contract" shall mean any contract whereby the Borrower or any of its Subsidiaries either (a) receives or becomes entitled to receive (either directly or indirectly) any payment (an "Advance Payment") to be applied toward payment of the purchase price of Hydrocarbons produced or to be produced from Oil and Gas Interests owned by the Borrower or any of its Subsidiaries and which Advance Payment is paid or to be paid in advance of actual delivery of such production to or for the account of the purchaser regardless of such production, or (b) grants an option or right of refusal to the purchaser to take delivery of such production in lieu of payment, and, in either of the foregoing instances, the Advance Payment is, or is to be, applied as payment in full for such production when sold and delivered or is, or is to be, applied as payment for a portion only of the purchase price thereof or of a percentage or share of such production; provided that inclusion of the standard provisions in any gas sales or purchase contract or any similar contract shall not, in and of itself, constitute such contract as an Advance Payment Contract for the purposes hereof. "Affiliate" shall mean, when used with respect to any Person, each other Person that directly or indirectly controls or is controlled by or is under common control with such Person. As used in this definition, "control" means the 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) and shall include, without limitation, any Person who beneficially owns more than fifty percent (50%) of the equity of the other Person and, as to any general or limited partnership, any general partner thereof. "Agent" shall have the meaning assigned to that term in the introduction to this Credit Agreement and shall include any successor agent appointed in accordance with Section 9.6 of this Credit Agreement. "Alternate Base Rate" shall mean, for any day, a rate per annum (rounded upwards, if necessary, to the next 1?100 of 1%) equal to the greatest of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1?2 of 1%. For purposes hereof: "Prime Rate" shall mean, as of a particular date, the prime rate of interest per annum most recently announced by the Agent, automatically fluctuating upward or downward with and at the time specified in each such announcement without notice to the Borrower or any other Person; each change in the Prime Rate shall be effective on the date such change is announced; which Prime Rate may not necessarily represent the Agent's lowest or best rate actually charged to a customer; "Federal Funds Effective Rate" shall mean, for any day, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published by the Federal Reserve Bank of New York for such day on the next succeeding Business Day or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Agent from three federal funds brokers of recognized standing selected by it. If for any reason the Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Federal Funds Effective Rate for any reason, including, without limitation, the inability or failure of the Agent to obtain sufficient quotations in accordance with the terms hereof, the Alternate Base Rate shall be determined without regard to clause (b) of the first sentence of this definition, as appropriate, until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "Applicable Eurodollar Margin" shall mean, with respect to each Eurodollar Borrowing: (a) on each day on which the Utilized Percentage of Borrowing Base is less than fifty percent (50%), one percent (1.00%) per annum; (b) on each day on which the Utilized Percentage of Borrowing Base is equal to or greater than fifty percent (50%) but less than seventy-five percent (75%), one and one-quarter percent (1.25%) per annum; (c) on each day of which the Utilized Percentage of Borrowing Base is equal to or greater than seventy-five percent (75%), one and one-half percent (1.50%) per annum. "Approved Petroleum Engineer" shall mean Wright & Company, Inc. or such other reputable firm(s) of independent petroleum engineers as shall be approved by the Majority Banks. "Available Borrowing Base" shall mean the Total Borrowing Base minus the Existing Debt. "Available Commitment" shall mean at any time, an amount equal to the Available Borrowing Base in effect at that time, or, if the Borrower has notified the Agent of its Designated Borrowing Base pursuant to the provisions of Section 3.3, the Available Designated Borrowing Base in effect at that time. "Available Designated Borrowing Base" shall mean the Designated Borrowing Base minus Existing Debt. "Bank" shall mean each of the financial institutions whose name appears on the signature pages to this Credit Agreement and the Persons which from time to time become a party hereto in accordance with Section 10.9. "Bankruptcy Code" shall mean the Bankruptcy Reform Act of 1978 as codified under 11 U.S.C. 101, et seq. "Benefit Plan" shall mean any employee benefit plan subject to Title IV of ERISA maintained by the Borrower or any ERISA Affiliate with respect to which the Borrower or such ERISA Affiliate has a fixed or contingent liability. "Board" shall mean the Board of Governors of the Federal Reserve System of the United States. "Borrower" shall mean Penn Virginia Corporation, a Virginia corporation. "Borrowing" shall mean a borrowing comprised of simultaneous Revolving Credit Loans of the same Type made to the Borrower on the same date by the Banks, (or resulting from conversions or continuations on a given date pursuant to Section 2.4), and, in the case of Eurodollar Loans, having the same Eurodollar Interest Period, distributed ratably among the Banks in the manner described in Article II. A Borrowing is an "ABR Borrowing" if the Revolving Credit Loans comprising such Borrowing are ABR Loans, and a "Eurodollar Borrowing" if the Revolving Credit Loans comprising such Borrowing are Eurodollar Loans. "Borrowing Base Assets" shall mean, collectively, the (i) Oil and Gas Interests, (ii) Coal Interests, (iii) dividends with respect to the Norfolk Common Stock and (iv) any other property owned by the Borrower or Restricted Subsidiary (x) which the Borrower has requested that the Banks consider in their determination of the Total Borrowing Base and (y) which the Banks, in their sole discretion, have considered for purposes of determining the Total Borrowing Base (as evidenced by a notice to such effect delivered by the Agent to the Borrower). "Borrowing Base Deficiency" shall mean, as of any date, the amount, if any, by which the Utilized Credit on such date exceeds the Available Commitment in effect on such date. "Borrowing Base Asset Reports" shall mean the reports required to be delivered to the Banks pursuant to Section 3.1 which shall include the Reserve Report, the Coal Reserve Report and a report setting forth the aggregate amount of all outstanding Consolidated Debt. "Borrowing Base Notice" shall mean a written notice sent to the Borrower by the Agent pursuant to Section 3.2 notifying the Borrower of the Total Borrowing Base and the Available Borrowing Base. "Borrowing Base Period" shall mean (a) initially, the period from the Effective Date through November 30, 1999; and (b) thereafter, each six month period beginning on June 1 or December 1 of each year. "Borrowing Date" shall mean, with respect to each Borrowing, the Business Day upon which the proceeds of such Borrowing are made available to the Borrower by the Banks. "Borrowing Request" shall mean, with respect to each Borrowing, a request made pursuant to Section 2.2 which request shall be in the form of Exhibit A. "Business Day" shall mean any day (other than a day which is a Saturday, Sunday or legal holiday in the State of Texas on which banks are open for business in Houston, Texas; provided, however, that, when used in connection with a Eurodollar Loan or Eurodollar Borrowing, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the interbank eurodollar market. "Capital Lease" shall mean, when used with respect to any Person, any lease in respect of which the obligations of such Person constitute Capitalized Lease Obligations. "Capitalized Lease Obligations" shall mean, when used with respect to any Person, without duplication, all obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations shall have been or should be, in accordance with GAAP, capitalized on the books of such Person. "Cash Equivalents" shall mean, when used in connection with the Borrower or any Subsidiary of the Borrower, such Borrower's or such Subsidiary's Investments in: (a) Government Securities due within one year from the date of acquisition thereof; (b) Readily marketable direct obligations of any State of the United States or any political subdivision of any such State given on the date of such investment a credit rating of at least A2 by Moody's Investors Service, Inc. or A by S&P, in each case due within one year from the date of acquisition thereof; (c) Certificates of deposit issued by, money market deposit accounts with, eurodollar deposits through, bankers' acceptances of, and repurchase and reverse repurchase agreements covering Government Securities executed by a Bank or any other bank doing business in and incorporated under the laws of the United States or any state thereof whose deposits are insured through the FDIC, or any successor thereto, and having (either itself or its holding company) on the date of such Investment combined capital, surplus and undivided profits of at least $400,000,000, or any offshore branch of such bank, in each case maturing within one year from the date of acquisition thereof; (d) Certificates of deposit issued by, money market deposit accounts with, eurodollar deposits through, bankers' acceptances of, and repurchase and reverse repurchase agreements covering Government Securities executed by First American Bank, N.A. having an aggregate market value at any one time not in excess of $3,000,000, in each case maturing within one year from the date of acquisition thereof; (e) Commercial paper of a Bank or such Bank's holding company or of any other bank or bank holding company given on the date of such Investment a credit rating of at least P- 1 by Moody's Investors Service, Inc. and A-1 by S&P, or of corporations doing business in and incorporated under the laws of the United States or any state thereof given on the date of such Investment a credit rating of at least P-1 by Moody's Investors Service, Inc. and A-1 by S&P, in each case, maturing within one year from the date of acquisition thereof; and (f) "Money-market mutual funds" investing at least 95% of the mutual fund assets in instruments of the types described in subparagraphs (a) through (e) above. "Chase" shall mean Chase Bank of Texas, National Association, a national banking association. "Closing Date" shall mean July 30, 1999. "Coal Interests" shall mean any and all rights, estates, titles and interests in the Coal Leases, all royalty interests, net profits interests, carried interests and any and all other interests in coal, whether any of the same be real or personal, now owned or hereafter acquired by the Borrower or its Subsidiaries, directly or indirectly, and all properties, rights and interests covered thereby, whether arising by contract, by order, or by operation of laws, which now or hereafter include all or any part of the foregoing. "Coal Leases" shall mean those coal mining leases described on Schedule 5.6 hereto. "Coal Reserve Report" shall mean a report in form and substance satisfactory to each Bank, which Coal Reserve Report shall be dated as of the next preceding December 31, and shall (i) review the material coal reserves attributable to the Coal Leases of the Borrower and its Subsidiaries (and showing any material additions to or deletions from the Coal Interests covered by the previous Coal Reserve Report and made by the Borrower and its Subsidiaries since the date of the previous Coal Reserve Report), (ii) set forth the quality of the coal reserves attributable to the Coal Interests covered in said Coal Reserve Report, (iii) contain a reasonably detailed five (5) year forecast of the rate of production and net income with respect to the coal reserves covered by said Coal Reserve Report as of the date of such Coal Reserve Report, (iv) set forth the current material terms of all Coal Leases with respect to the Coal Interests described in said Coal Reserve Report, (v) contain a status report on all material permits relevant to the Coal Interests described in said Coal Reserve Report, and (vi) set forth the capital expenditure plans of PVCC. Each Coal Reserve Report shall be prepared by personnel of the Borrower and its Subsidiaries, which Coal Reserve Report shall provide the current status of the information set forth in the immediately preceding Coal Reserve Report. "Code" shall mean Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated thereunder. "Commitment" shall mean, when used with reference to any Bank at the time any determination thereof is to be made, the commitment of such Bank to extend credit to the Borrower by means of Revolving Credit Loans, which subject to Sections 2.9 and 8.2, shall be an amount equal to the amount set forth opposite the name of such Bank under the heading "Amount of Commitment" on Schedule 1.1 to this Credit Agreement. "Commitment Fee Rate" shall have the meaning specified in Section 2.5(a) hereof. "Commitment Percentage" shall mean, with respect to each Bank, the percentage determined by dividing its Commitment by the Total Commitment. "Commitment Transfer Supplement" shall mean a Commitment Transfer Supplement entered into by a Bank and an Eligible Assignee, and accepted by the Agent, substantially in the form of Exhibit B attached hereto. "Communications" shall have the meaning specified in Section 10.2. "Concord" shall mean Concord Land Company, a Delaware corporation and a wholly-owned Subsidiary of Borrower. "Consolidated" shall refer to the consolidation of any Person, in accordance with GAAP, with its properly Consolidated Affiliates. Reference 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 Affiliates; provided, however, that such consolidation of Unrestricted Subsidiaries shall be excluded from the financial calculations contained in Section 7.15. "Consolidated Assets" shall mean, when used with respect to the Borrower and its Restricted Subsidiaries, all items which should be classified as assets on the Consolidated financial statements of the Borrower delivered to the Agent pursuant to Section 6.1, all as determined in conformity with GAAP. "Consolidated Capitalization" shall mean, when used with respect to the Borrower and its Restricted Subsidiaries, an amount equal to the sum of (i) Consolidated Equity plus (ii) Consolidated Funded Debt. "Consolidated Cash Flow" shall mean, with respect to the Borrower and its Restricted Subsidiaries for a particular period, without duplication, the sum of (i) Consolidated Net Income of such Person during such fiscal period plus (ii) the Borrower's Consolidated depreciation, depletion, amortization and other non- cash items reducing Consolidated Net Income during such period, all determined in accordance with GAAP. "Consolidated Debt Service" shall mean, with respect to the Borrower and its Restricted Subsidiaries for a particular period, the sum of (i) the Consolidated Interest Expense, including all fees paid with respect to letters of credit, of the Borrower and its Restricted Subsidiaries paid during such period by the Borrower and its Restricted Subsidiaries plus (ii) the total scheduled principal payments on Consolidated Funded Debt owing by the Borrower and its Restricted Subsidiaries on a Consolidated basis, paid during such period, all as determined in accordance with GAAP. "Consolidated EBITDA" shall mean, for a particular period, an amount equal to (a) all amounts which, in accordance with generally accepted accounting principles consistently applied, would be included as Consolidated income from continuing operations of the Borrower and its Restricted Subsidiaries on a Consolidated basis before income taxes and extraordinary items, if any, for such period, plus (b) the aggregate amount which, in accordance with generally accepted accounting principles consistently applied, was deducted in determining the Consolidated operating income from continuing operations under clause (a) in respect of interest expense, depreciation, depletion, amortization and other non- cash items reducing said Consolidated operating income of the Borrower and its Restricted Subsidiaries determined on a Consolidated basis for such period. "Consolidated Equity" shall mean, with respect to the Borrower and its Restricted Subsidiaries, at anytime, the Consolidated Assets of the Borrower less the Consolidated Liabilities of the Borrower. "Consolidated Funded Debt" shall mean, without duplication and with respect to the Borrower and its Restricted Subsidiaries, at anytime, Debt in any of the following categories: (a) Debt of such Person for borrowed money or for the deferred purchase price of property or services; (b) Debt of such Person which is evidenced by a note, bond, debenture or similar instrument, but excluding bonds or deposits posted in favor of the United States of America or any state securing reclamation obligations, obligations to plug abandoned wells or seal abandoned mines or obligations to clean up and restore the land on which such wells or mines are located; (c) all obligations of such Person under Capitalized Lease Obligations; (d) all obligations of such Person in respect of letters of credit and acceptances issued or created for the account of such Person, except letters of credit in favor of the United States of America or any state securing reclamation obligations, obligations to plug abandoned wells or seal abandoned mines or obligations to clean up and restore the land on which such wells or mines are located; (e) all liabilities secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof; (f) all obligations to pay production payments and to make capital contributions under joint venture or other similar agreements; and (g) all Accommodation Obligations of such Person with respect to Consolidated Funded Debt described in subclauses (a) through (f) above. "Consolidated Interest Expense" shall mean, with respect to the Borrower and its Restricted Subsidiaries, for any fiscal period, the aggregate of all costs, fees and expenses paid by the Borrower and its Restricted Subsidiaries in such fiscal period for Consolidated Funded Debt, which are classified as interest expense on the Consolidated financial statements of the Borrower and its Restricted Subsidiaries, all as determined in conformity with GAAP. "Consolidated Liabilities" shall mean, when used with respect to the Borrower and its Restricted Subsidiaries, all items which should be classified as liabilities on the Consolidated financial statements of the Borrower delivered to the Agent pursuant to Section 6.1, all as determined in conformity with GAAP. "Consolidated Net Income" shall mean, for any period, the net earnings (or loss) after taxes of the Borrower and its Restricted Subsidiaries on a Consolidated basis for such period determined in conformity with GAAP. "Consolidated Tangible Net Worth" shall mean, with respect to the Borrower and its Restricted Subsidiaries, at any time, the Consolidated Equity of the Borrower, at such time, less the Borrower's Consolidated Intangible Assets with a value of greater than $1,000,000 at such time. For purposes of this definition, "Intangible Assets" shall mean the amount (to the extent reflected in determining Consolidated Equity) of all unamortized debt discount and expense, unamortized deferred charges, goodwill, patents, trademarks, service marks, trade names, copyrights and organization expenses. "Contractual Obligation" as applied to any Person, shall mean any provision of any stock or other securities issued by that Person or any indenture, mortgage, deed of trust, contract, undertaking, document, instrument or other agreement or instrument to which that Person is a party or by which it or any of its properties is bound, or to which it or any of its properties is subject (including, without limitation, any restrictive covenant affecting such Person or any of its properties). "Credit Agreement" shall mean this Amended and Restated Credit Agreement dated as of July 30, 1999, among the Borrower, the Agent and the each of the Banks, as said agreement may be amended, modified, supplemented, and/or extended from time to time. "Debt" shall mean, 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, and whether or not required to be considered pursuant to GAAP. Debt includes, without limiting the foregoing, (a) indebtedness of such Person for borrowed money or for the deferred purchase price of property or services or which is evidenced by a note, bond, debenture or similar instrument, (including Environmental Liabilities or liabilities to the PBGC), (b) all obligations of such Person under Capitalized Lease Obligations, (c) all obligations of such Person in respect of letters of credit and acceptances issued or created for the account of such Person, (d) all liabilities secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof, (e) all Accommodation Obligations of such Person, (f) all obligations to pay production payments and to make capital contributions under joint venture or other similar agreements, (g) all net payments or amounts owing by such Person in respect of Hedge Transactions, interest rate protection agreements, foreign currency exchange agreements, commodity swap agreements or other interest, exchange rate or commodity hedging arrangements, and (h) liabilities in respect of Unfunded Vested Liabilities. The Debt of a Person shall include the Debt of any partnership or joint venture in which such Person is a general or venture partner. The Debt of a Person shall not include (i) trade payables and expense accruals incurred or assumed in the ordinary course of such Person's business, provided such payables have not remained unpaid for a period of ninety (90) days after the same became due unless such Person is diligently contesting same in good faith or (ii) bonds, letters of credit or deposits posted in favor of the United States of America or any state securing reclamation obligations, obligations to plug abandoned wells or seal abandoned mines or obligations to clean up and restore the land on which such wells or mines are located. "Debtor Relief Laws" shall mean the Bankruptcy Code and all other applicable dissolution, liquidation, conservatorship, bankruptcy, moratorium, readjustment of debt, compromise, rearrangement, receivership, insolvency, reorganization, or similar debtor relief laws from time to time in effect affecting the rights of creditors generally. "Default" shall mean any Event of Default and the occurrence of any event or condition which would with the giving of any requisite Default Notice and/or the passage of time or both constitute an Event of Default. "Default Rate" shall mean the interest rate described in Section 2.8. "Designated Borrowing Base" shall have the meaning assigned to that term in Section 3.3. "Determination Date" shall mean (a) each December 1 and June 1, and (b) with respect to any Special Determination, the first day of the first month which is not less than twenty (20) Domestic Business Days following the date of a request for a Special Determination. "Distribution" shall mean any dividend payable in cash or property with respect to any shares of capital stock of the Borrower or any Subsidiary of the Borrower (other than dividends payable in shares of the same class of common, preferred or other capital stock as the shares upon which the dividend is being paid), any other distribution made with respect to any shares of capital stock of the Borrower or any Subsidiary of the Borrower, or any purchase, redemption or retirement of, or other payment with respect to, or sinking or other analogous fund for the purchase, redemption, defeasance, retirement or other acquisition of, any shares of capital stock of the Borrower or and Subsidiary of the Borrower. "Documentation Agent" shall have the meaning assigned to that term in the introduction to this Credit Agreement. "Dollars" and the symbol "$" shall mean the lawful currency of the United States. "Effective Date" shall mean the date on which all of the conditions precedent to the making of the Revolving Credit Loans set forth in Section 4.1 are first satisfied or waived by the Banks and the initial Revolving Credit Loans are made. "Eligible Assignee" shall mean any of (i) a Bank or any Affiliate of a Bank; (ii) a commercial bank organized under the laws of the United States, or any state thereof having total assets in excess of $1,000,000,000; (iii) a commercial bank organized under the laws of any other country which is a member of the OECD, or a political subdivision of any such country having total assets in excess of $1,000,000,000, provided that such bank is acting through its main office or a branch or agency located in the country in which it is organized or another country which is also a member of the OECD having total assets in excess of $1,000,000,000; (iv) the central bank of any country which is a member of the OECD or (v) a finance company, insurance company or other financial institution or fund having total assets in excess of $1,000,000,000, provided that a holder, either directly or indirectly, of capital stock or of any right to acquire capital stock of the Borrower or any Affiliate of the Borrower shall not be an Eligible Assignee. "Environmental Laws" shall mean any applicable federal, state, or local statute, law, rule, regulation, ordinance, code, permit, consent, approval, license, written policy or rule of common law now or hereafter in effect and in each case as amended, and any judicial or administrative interpretation thereof, including any judicial or administrative order, injunction, consent decree or judgment, or other authorization or requirement whenever promulgated, issued or modified, including the requirement to register underground storage tanks, well plugging and abandonment requirements, and oil and gas waste disposal requirements relating to: (i) emissions, discharges, spills, migration, movement, releases or threatened releases of pollutants, contaminants, Hazardous Materials, or hazardous or toxic materials or wastes into or onto soil, land, ambient air, surface water, ground water, watercourses, publicly owned treatment works, drains, sewer systems, wetlands or septic systems; (ii) the use, treatment, storage, disposal, handling, manufacturing, transportation, or shipment of Hazardous Materials or hazardous and?or toxic wastes, material, products or by- products containing Hazardous Materials (or of equipment or apparatus containing Hazardous Materials); or (iii) otherwise relating to pollution or the protection of human health or the environment, including, without limitation, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. 9601 et seq., as amended, the Resource Conservation and Recovery Act, 42 U.S.C. 6901 et seq., as amended, the Hazardous Materials Transportation Act, 49 U.S.C. 1801 et seq., as amended, the Clean Water Act, 33 U.S.C. 1251 et seq., as amended, the Toxic Substances Control Act, 15 U.S.C. 2601 et seq., as amended,; the Clean Air Act, 42 U.S.C. 7401 et seq., as amended, the federal Water Pollution Control Act, 33 U.S.C. 1251 et seq., as amended, the Safe Drinking Water Act, 42 U.S.C. 300f et seq., as amended, the Atomic Energy Act, 42 U.S.C. 2011 et seq., as amended, the Natural Gas Pipeline Safety Act of 1968, 49 U.S.C. 1671 et seq., as amended, the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. 136 et seq., as amended, and the Occupational Safety and Health Act, 29 U.S.C. 651 et seq., as amended, and all comparable statutes of the States of Kentucky, Pennsylvania, Tennessee, Virginia and West Virginia, and all comparable local governmental regulations in such states, and other environmental, conservation or protection laws in effect in any jurisdiction where any real Property of the Borrower or any Subsidiary of the Borrower is located. "Environmental Liabilities" shall mean with respect to any Person, any and all liabilities, responsibilities, losses, sums paid in settlement of claims, obligations, charges, actions (formal or informal), claims (including, without limitation, claims for personal injury or for real or personal property damage), liens, administrative proceedings, damages (including, without limitation, loss or damage resulting from the occurrence of an Event of Default), punitive damages, consequential damages, treble damages, penalties, fines, monetary sanctions, interest, court costs, response and remediation costs, stabilization costs, encapsulation costs, treatment, storage, or disposal costs, groundwater monitoring or environmental sampling costs, other causes of action and any other costs and expenses (including, without limitation, reasonable attorneys', experts', and consultants' fees, costs of investigation and feasibility studies and disbursements in connection with any investigative, administrative or judicial proceeding) , whether direct or indirect, known or unknown, absolute or contingent, past, present or future arising under, pursuant to or in connection with any Environmental Law, or any other binding obligation of such Person requiring abatement of pollution or protection of human health and the environment. "Environmental Lien" shall mean a Lien in favor of any Governmental Authority for (i) any liability under Environmental Laws or (ii) damages arising from, or costs incurred by such Governmental Authority in response to, a Release or threatened Release of a Hazardous Substance into the environment. "Equities" shall mean Penn Virginia Equities Corporation, a Delaware corporation and a wholly owned Subsidiary of the Borrower. "ERISA" shall mean the United States Employee Retirement Income Security Act of 1974, as amended from time to time, together with all rules and regulations promulgated with respect thereto. "ERISA Affiliate" shall mean any (i) corporation which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as the Borrower, (ii) partnership or other trade or business (whether or not incorporated) under common control (within the meaning of Section 414(c) of the Code) with the Borrower, (iii) member of the same affiliated service group (within the meaning of Section 414(m) of the Code) as the Borrower or (iv) other Person required to be aggregated with the Borrower or an ERISA Affiliate thereof, as defined above, pursuant to Section 414(o) of the Code. "Eurocurrency Liabilities" shall have the meaning assigned to that term in Regulation D. "Eurodollar Borrowing" shall mean a Borrowing comprised of Eurodollar Loans. "Eurodollar Interest Period" shall mean, with respect to each Eurodollar Borrowing, a period of one, two, three or six months, as specified in the Borrowing Request submitted pursuant to Section 2.2 with respect thereto, beginning on and including the date specified in such Borrowing Request (which must be a Business Day) and ending on the date which corresponds numerically to such beginning date one, two, three or six months thereafter (or if such month has no numerically corresponding date, on the last Business Day of such month); provided that each Eurodollar Interest Period which would otherwise end on a day which is not a Business Day shall end on the next succeeding Business Day unless such next succeeding Business Day is the first Business Day of a calendar month, in which case such Eurodollar Interest Period shall end on the Business Day next preceding such numerically corresponding day. No Eurodollar Interest Period may be elected which would end after the Maturity Date. "Eurodollar Loan" shall mean any Revolving Credit Loan bearing interest at a rate determined by reference to the Eurodollar Rate in accordance with the provisions of Article II. "Eurodollar Rate" shall mean, with respect to each Eurodollar Loan comprising part of a Eurodollar Borrowing and with respect to the related Eurodollar Interest Period, the rate of interest per annum (rounded upward to the nearest 1/16 of one percent) determined pursuant to the following formula: Eurodollar (Unadjusted) Eurodollar Rate = 1.00 - Eurodollar Reserve Percentage "Eurodollar Reserve Percentage" of any Bank with respect to any Eurodollar Interest Period for any Eurodollar Loan of such Bank shall mean, the reserve percentage (expressed as a decimal) equal to the maximum aggregate reserve requirements (including all basic, emergency, supplemental, marginal and other reserves and taking into account any transitional adjustments or other scheduled changes in reserve requirements) specified under regulations issued from time to time by the Board of Governors of the Federal Reserve System and then applicable to assets or liabilities consisting of and including Eurocurrency Liabilities having a term approximately equal or comparable to such Eurodollar Interest Period. "Eurodollar (Unadjusted)" shall mean, with respect to each day during each Eurodollar Interest Period pertaining to each Eurodollar Loan comprising a Eurodollar Borrowing, the rate per annum equal to the rate at which Chase is offered Dollar deposits at or about 11:00 A.M., Houston, Texas time, two Business Days prior to the beginning of such Eurodollar Interest Period in the interbank eurodollar market where the eurodollar and foreign currency and exchange operations in respect of its Eurodollar Loans are then being conducted for delivery on the first day of such Eurodollar Interest Period for the number of days comprised therein and in an amount comparable to the amount of the Eurodollar Borrowing to be outstanding during such Eurodollar Interest Period. "Event of Default" shall have the meaning specified in Section 8.1. "Existing Debt" shall mean, at the time of determination, the aggregate principal then outstanding on Consolidated Funded Debt described in Schedule 7.1. "Existing Litigation" shall mean all actions, suits, proceedings, governmental investigations or arbitration disclosed in Schedule 5.10 hereto. "Existing Plans" shall have the meaning specified in Section 7.9. "FDIC" shall mean the Federal Deposit Insurance Corporation (or any successor). "Federal Funds Effective Rate" shall have the meaning specified in the definition of the term "Alternate Base Rate". "Fiscal Quarter" shall mean a three-month period ending on the last day of December, March, June or September of any year. "Fiscal Year" shall mean a twelve-month period ending on December 31 of any year. "GAAP" shall mean generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession, which are consistent with those applied in the preparation of the financial statements of the Borrower referred to in Section 5.9(a). "Gas Balancing Agreement" shall mean any agreement or arrangement whereby any Person having an interest in any Hydrocarbons to be produced from the Oil and Gas Interests of the Borrower and its Subsidiaries has a right to take more than its proportionate share of production therefrom. "Government Securities" shall mean readily marketable direct full faith and credit obligations of the United States or obligations unconditionally guaranteed by the full faith and credit of the United States (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States). "Governmental Approval" shall mean any authorization, consent, approval, license, lease, ruling, permit, certification, exemption, filing for, or registration by or with any Governmental Authority required by the Borrower or any Subsidiary of the Borrower in connection with (i) the execution, delivery and performance of the Loan Documents by any of such Persons and the borrowing of any funds under this Credit Agreement, (ii) the validity or enforceability of the Loan Documents and the exercise by the Agent or any Bank of its rights and remedies thereunder, and/or (iii) the acquisition, maintenance, ownership and operation of the Borrowing Base Assets. "Governmental Authority" shall mean any nation or government, any federal, state, province, city, town, municipality, county, local or other political subdivision thereof or thereto and any department, commission, board, bureau, instrumentality, agency or other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Hazardous Substances" shall mean (1) hazardous materials, hazardous wastes, and hazardous substances including, but not limited to, those substances, materials and wastes listed in the United States Department of Transportation Hazardous Materials Table, 49 C.F.R.. 172.101, as amended, or listed by the federal Environmental Protection Agency as hazardous substances under or pursuant to 40 C.F.R. Part 302, as amended, or substances, materials, contaminants or wastes which are or become regulated under any Environmental Law, including without limitation, those substances, materials, contaminants or wastes as defined in the following statutes and their implementing regulations: the Hazardous Materials Transportation Act, 49 U.S.C. 1801 et seq., as amended, the Resource Conservation and Recovery Act, 42 U.S.C. 6901 et seq., as amended, the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601 et seq., as amended; the Toxic Substances Control Act, 15 U.S.C. 2601 et seq., as amended; the Clean Air Act, 42 U.S.C. 7401 et seq., as amended, the federal Water Pollution Control Act, 33 U.S.C. 1251 et seq., as amended, the Occupational Safety and Health Act, 2 U.S.C. 651 et seq., as amended, the Safe Drinking Water Act, 42 U.S.C. 300f et seq., as amended and the Natural Gas Pipeline Safety Act of 1968, 49 U.S.C. 1671 et seq., as amended; (2) all substances, materials, contaminants or wastes listed in all comparable statutes of the States of Kentucky, Pennsylvania, Tennessee, Virginia and West Virginia and in comparable local Requirements of Law in such states; (3) acid gas, sour water streams or sour water vapor streams containing hydrogen sulfide or other forms of sulfur, sodium hydrosulfide and ammonia; (4) Hydrocarbons; (5) natural gas, synthetic gas, and any mixtures thereof; (6) asbestos and?or any material which contains 1% or more, by weight, of any hydrated mineral silicate, including but not limited to chrysotile, amosite, crocidolite, tremolite, anthophylite and?or actinolite, whether friable or non- friable; (7) PCB's, or PCB containing materials or fluids; (8) radon; (9) naturally occurring radioactive material, radioactive substances or waste; (10) salt water and other oil and gas wastes and (11) any other hazardous or noxious substance, material, pollutant, emission, or solid, liquid or gaseous waste. "Hedge Transaction" shall mean a transaction pursuant to which the Borrower or any of its Subsidiaries fix the price to be received by them for future production of Hydrocarbons, including price swap agreements under which the Borrower or its Subsidiaries agree to pay a price for a specified amount of Hydrocarbons determined by reference to a recognized market on a specified future date and the contracting party agrees to pay the Borrower or its Subsidiaries a fixed price for the same or similar amount of Hydrocarbons. "Highest Lawful Rate" shall mean, as of a particular date and as to any Bank, the maximum nonusurious interest rate that may under applicable law then be contracted for, charged or received by such Bank in connection with its Revolving Credit Loans. "Hostile Acquisition" shall mean any transaction in which the Borrower or its Subsidiaries, directly or indirectly, purchases or offers to purchase or acquire, in any transaction or series of transactions, an aggregate of 5% or more of the equity securities or controlling interest of any Person, for any type of consideration, without the prior written consent of such Person or such Person's Board of Directors or controlling body. "Hydrocarbons" shall mean oil, gas, casinghead gas, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and all products separated, settled and dehydrated therefrom and all products refined therefrom, including, without limitation, kerosene, liquified petroleum gas, refined lubricating oils, diesel fuel, drip gasoline, natural gasoline, helium, sulfur and all other minerals. "Immaterial Oil and Gas Interests" shall have the meaning assigned to that term in Section 5.6 hereof. "Initial Borrowing Base Asset Reports" shall mean (i) the Reserve Report covering the Oil and Gas Interests of the Borrower and its Subsidiaries prepared as of December 31, 1998, by the Approved Petroleum Engineer, and (ii) the Coal Reserve Report covering the Coal Interests of the Borrower and its Subsidiaries prepared as of December 31, 1998, by the personnel of the Borrower and its Subsidiaries, complete and correct copies of which have been furnished by the Borrower to the Banks. "Initial Credit Agreement" shall mean the Credit Agreement dated as of August 2, 1996, among the Borrower, the Agent and the each of the Banks thereto, as said agreement may be amended, modified, supplemented, and/or extended from time to time. "Initial Financial Statements" shall mean (i) the audited annual Consolidated financial statements of the Borrower and its Consolidated Subsidiaries dated as of December 31, 1998 and (ii) the quarterly Consolidated financial statement of the Borrower and its Subsidiaries dated as of March 31, 1999, copies of which Initial Financial Statements have heretofore been delivered by the Borrower to the Banks. "Interest Payment Date" shall mean any date interest is due pursuant to the provisions of Section 2.7(b) hereof. "Investment" shall mean, as applied to the Borrower or a Subsidiary of the Borrower, any direct or indirect purchase or other acquisition by the Borrower or such Subsidiary of stock, partnership interest or other equity interest, or of a beneficial interest therein, of any other Person, and any direct or indirect loan, advance (other than deposits with financial institutions available for withdrawal on demand, prepaid expenses, advances to employees and similar items made or incurred in the ordinary course of business), or capital contribution by the Borrower or such Subsidiary to any other Person, including all Debt and accounts owed by that other Person which are not current assets or did not arise from sales of goods or services to the Borrower or such Subsidiary in the ordinary course of business. The amount of any Investment shall be determined in conformity with GAAP. "IRS" shall mean the Internal Revenue Service or any successor agency. "Issuing Bank" shall mean Chase. "Lending Office" shall mean, with respect to each Bank, the branch or branches (or Affiliate or Affiliates) from which such Bank's Eurodollar Loans or ABR Loans, as the case may be, are made or maintained and for the account of which payments of principal of, and interest on, such Bank's Eurodollar Loans or ABR Loans are made. "Letter of Credit" shall mean a Standby Letter of Credit requested to be issued under the Letter of Credit Commitment. "Letter of Credit Application" shall mean the application to the Issuing Bank by the Borrower for the issuance of a Standby Letter of Credit in substantially the form of Exhibit C hereto. "Letter of Credit Commitment" shall mean with respect to each Bank, the lesser of (a) such Bank's Commitment Percentage of $10,000,000 and (b) such Bank's Commitment. "Letter of Credit Exposure" of any Bank shall mean such Bank's aggregate participation in the unfunded portion of Letters of Credit outstanding at any time. "Lexington" shall mean Lexington Land Company, a Delaware corporation and a wholly-owned Subsidiary of PVCC. "Lien" shall mean, with respect to any asset, (a) any mortgage, deed of trust, production payment, deposit, lien, charge, pledge, security interest, claim or encumbrance of any kind (whether voluntary or involuntary, affirmative or negative, and whether imposed or created by operation of law or otherwise) upon such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities but excluding any right of offset which arises without agreement in the ordinary course of business. "Loan Documents" shall mean this Credit Agreement, each of the Notes, the Subsidiary Guaranty, the Letters of Credit, the Letter of Credit Applications and reimbursement agreements executed in connection therewith, each Compliance Certificate, each Notice of Conversion or Continuance, each Borrowing Request, all Reserve Reports, all Borrowing Base Asset Reports, all legal opinions and when executed and delivered by the parties thereto, all other agreements, certificates, instruments and documents executed in connection with the Credit Agreement, as the same may be amended, modified, supplemented or extended from time to time. "Loan(s)" shall mean all Revolving Credit Loans. "Majority Banks" shall mean those Banks holding more than 66-2?3% of the Utilized Credit, or, if no Utilized Credit is outstanding, at least 66-2?3% of the Total Commitment. "Margin Stock" shall have the meaning given to such term under Regulation U. "Material Adverse Effect" shall mean (a) a material adverse effect on the business, assets, operations or condition (financial or otherwise) of the Borrower and its Subsidiaries taken as a whole, (b) material impairment of the ability of the Borrower or any of its Subsidiaries to perform timely any of its respective Obligations under any Loan Document to which it is or will be a party, or (c) material impairment of the rights of or benefits available to the Banks under any Loan Document. "Material Contract" shall mean any contract, agreement or instrument to which the Borrower or any of its Restricted Subsidiaries is a party (i) which calls for payments to or from the Borrower or any Subsidiary of the Borrower of an amount in excess of $2,000,000 during any twelve month period or (ii) pursuant to which the Borrower or any Subsidiary of the Borrower acquires any right to an interest in real or personal property or a right to obtain services if the Borrower or such Subsidiary's inability to obtain any such right could reasonably be expected to result in a Material Adverse Effect. "Material Restricted Subsidiaries" shall mean those certain Restricted Subsidiaries with Borrowing Base Assets greater than $2,000,000. "Maturity Date" shall mean June 30, 2003, or the earlier date of termination in whole of the Commitments or as extended pursuant to the provisions contained in Section 2.21 hereof. "Multiemployer Plan" shall mean a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is making or accruing an obligation to make contributions, or has within any of the preceding five (5) plan years made or accrued an obligation to make contributions. "Norfolk Common Stock" shall mean the common stock of the Norfolk Southern Corporation, par value of $1.00. "Notes" shall mean the promissory notes of the Borrower dated the Effective Date payable to the order of each Bank, substantially in the form of Exhibit D. "Notice of Conversion or Continuation" shall mean a Notice of Conversion or Continuation in the form of Exhibit E signed by a Responsible Officer of the Borrower. "Obligations" shall mean all obligations, liabilities and indebtedness of every nature of the Borrower and its Subsidiaries from time to time owing to any Bank under any Loan Document to which the Borrower or such Subsidiary is a party, including, without limitation, (a) the due and punctual payment of (x) the principal of and interest on the Revolving Credit Loans, Letters of Credit and reimbursement obligations under Letter of Credit Applications, when and as due, whether at maturity, by acceleration, upon one or more dates set for prepayment or otherwise, including, to the extent permitted by applicable law, interest that accrues after the commencement of any proceeding by or against the Borrower or any of its Subsidiaries under the Bankruptcy Code and all other applicable Debtor Relief Laws and (y) all other monetary obligations of the Borrower and its Subsidiaries to any Bank under this Credit Agreement and each of the other Loan Documents to which the Borrower or such Subsidiary is a party, including any and all fees, costs, expenses and indemnities and (b) the due and punctual performance of all other obligations of the Borrower and its Subsidiaries under this Credit Agreement and each other Loan Document to which the Borrower or such Subsidiary is a party. "Obligation" means any part of the Obligations. "Oil and Gas Interests" shall mean any and all rights, estates, titles and interests in any oil and gas wells, oil, gas, sulfur and other mineral leaseholds and fee interests, all overriding royalty interests, mineral interests, royalty interests, net profits interests, oil payments, production payments, carried interests and any and all other interests in Hydrocarbons, whether any of the same be real or personal, now owned or hereafter acquired by the Borrower or its Subsidiaries, directly or indirectly together with rights, titles and interests created by or arising under the terms of any unitization, communitization, and pooling agreements or arrangements, and all properties, rights and interests covered thereby, whether arising by contract, by order, or by operation of laws, which now or hereafter include all or any part of the foregoing. "Opinion of the Borrower's Counsel" shall mean the favorable written legal opinion of Nancy Snyder, legal counsel to the Borrower and its Subsidiaries, dated as of the Closing Date, and in form and substance satisfactory to the Agent. "Participants" shall have the meaning assigned to that term in Section 10.9 hereof. "PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity succeeding to all or any of its functions under ERISA. "Permitted Liens" shall mean with respect to the Borrower or any Subsidiary of the Borrower: (a) Liens (if any) securing the Notes in favor of the Banks; (b) Inchoate Liens incident to construction or maintenance of real property or with respect to the conduct of the Borrower's business with respect to the Coal Interests and the Oil and Gas Interests, or Liens incident to construction or maintenance of real property, now or hereafter filed of record for which adequate reserves with respect thereto are maintained on its books in accordance with GAAP and which are being diligently contested in good faith by appropriate proceedings and have not proceeded to judgment, provided that, by reason of nonpayment of the obligations secured by such Liens, no such real property is subject to a material risk of loss or forfeiture prior to judgment; (c) Liens for taxes and assessments on real property which are not yet past due, or Liens for taxes and assessments on real property for which adequate reserves with respect thereto are maintained on its books in accordance with GAAP and which taxes and assessments are being diligently contested in good faith by appropriate proceedings and have not proceeded to judgment, provided that, by reason of nonpayment of the obligations secured by such Liens, no such real property is subject to a material risk of loss or forfeiture prior to judgment; (d) Imperfections and irregularities in title to any property which in the aggregate do not materially impair the marketability or use of such property for the purposes for which it is or may reasonably be expected to be held; (e) Easements, exceptions, reservations, or other agreements for the purpose of pipelines, conduits, cables, wire communication lines, power lines and substations, streets, trails, walkways, drainage, irrigation, water, and sewerage purposes, dikes, canals, ditches, the removal of oil, gas, coal, or other minerals, and other like purposes affecting real property which in the aggregate do not materially burden or impair the marketability or use of such real property for the purposes for which it is or may reasonably be expected to be held; (f) Non-consensual Liens imposed by Law, including carrier's, mechanics', landlord's, warehousemen's or other similar Liens, other than those described in clauses (b) or (c) above, arising in the ordinary course of business with respect to obligations which are not delinquent or are being diligently contested in good faith by appropriate proceedings, provided that, if delinquent, adequate reserves with respect thereto are maintained on its books in accordance with GAAP and, by reason of nonpayment, no property is subject to a material risk of loss or forfeiture prior to judgment; (g) Liens consisting of pledges or deposits made in the ordinary course of business in compliance with workers' compensation, unemployment insurance and other social security laws or regulations; (h) Liens consisting of deposits of property to secure the performance of bids, trade contracts (other than for Debt), leases (other than Capitalized Lease Obligations), statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (i) Lease burdens payable to third parties which are either (i) deducted in the calculation of discounted present value of the Oil and Gas Interests covered in the Reserve Reports including, without limitation, any royalty, overriding royalty, net profit interests, production payment, carried interest or reversionary working interest which has been disclosed to the Agent in writing, or (ii) which burden properties which are not included in the Reserve Reports or the Coal Reserve Reports; (j) Liens arising under operating, pooling or unitization agreements of a scope and nature customary in the oil and gas industry; (k) Liens arising under, in connection with or related to farm-out, farm-in, joint operating or area of mutual interest agreements or other similar or customary arrangements, agreements or interests, incurred in the ordinary course of business and to the extent such Liens are limited in recourse to (x) the properties subject to such interests or agreements, (y) the Hydrocarbons produced from such properties and (z) the proceeds of such Hydrocarbons; (l) Purchase money Liens upon or in any property acquired by the Borrower or any of its Subsidiaries in the ordinary course of business to secure the deferred portion of the purchase price of such property or any indebtedness incurred to finance the acquisition of such property provided, however, that (i) no such Lien shall be extended to cover property other than the property being acquired (ii) the Debt secured thereby is permitted pursuant to Section 7.1(h); (m) All other non-consensual Liens arising in the ordinary course of the Borrower's or such Subsidiaries' business or incidental to the ownership of their properties; provided that no Permitted Lien referred to above shall (i) secure any Debt except for Debt permitted pursuant to subparagraphs (a), (e) or (h) of Section 7.1 hereof or (ii) in the aggregate materially detract from the marketability of the material Borrowing Base Assets or materially impair the use thereof in the operation of the business of the Borrower or such Subsidiary. "Person" shall mean an individual, partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture or other entity, or a foreign state or political subdivision thereof or any agency of such state or subdivision. "Prime Rate" shall have the meaning specified in the definition of the term "Alternate Base Rate." "Proved Developed Behind Pipe Hydrocarbon Reserves" shall mean Proved Hydrocarbon Reserves which are recoverable from zones behind casing in existing wells, which will require additional completion work or a future recompletion prior to the start of production. "Proved Developed Non-Producing Hydrocarbon Reserves" shall mean the summation of Proved Developed Behind Pipe Hydrocarbon Reserves and Proved Developed Shut-in Hydrocarbon Reserves. "Proved Developed Producing Hydrocarbon Reserves" shall mean those Proved Hydrocarbon Reserves which are recoverable from completion intervals currently open and producing to market. Improved recovery reserves are considered to be producing only after an improved recovery project has been installed and is in operation. "Proved Developed Shut-in Hydrocarbon Reserves" shall mean Proved Hydrocarbon Reserves that are recoverable from completion intervals open as of the date of estimation, but which are not producing as of such date. "Proved Hydrocarbon Reserves" shall mean those recoverable Hydrocarbons which have been proved to a high degree of certainty by reason of existing production, adequate testing, or in certain cases by adequate core data and other engineering and geologic information on zones which are present in existing wells or in known reservoirs. Reserves that can be produced economically through the application of established improved recovery techniques are included in the proved classification when (a) successful testing by a pilot project or the operation of any installed program in that reservoir or one in the immediate area with similar rock and fluid properties provides support for the engineering analysis on which the project or program was based, and (b) it is reasonably certain the project will proceed. Reserves to be recovered by improved recovery techniques that have yet to be established through repeated economically successful applications are included in the proved category only after successful testing by a pilot project or after the operation of an installed program in the reservoir provides support for the engineering analysis on which the project or program was based. Improved recovery includes all methods for supplement natural reservoir including (1) pressure maintenance, (2) cycling and (3) secondary recovery in its original sense. Improved recovery also includes the enhanced recovery methods of thermal, chemical flooding, and the use of miscible and immiscible displacement fluids. "Proved Reserves" shall mean the meaning assigned to that term in the definition of "Reserve Report". "Proved Undeveloped Hydrocarbon Reserves" shall mean Proved Hydrocarbon Reserves that are recoverable (i) by new wells on undrilled acreage, (ii) by replacement wells on previously drilled and producing acreage or (iii) from existing wells where a relatively large expenditure is required for recompletion and from acreage where the application of an improved recovery technique is planned and the costs required to place the project in operation are relatively large. Proved Undeveloped Hydrocarbon Reserves on undrilled acreage shall be limited to those drilling units offsetting productive units that are reasonably certain of production when drilled. Proved Hydrocarbon Reserves for other undrilled units are Proved Undeveloped Hydrocarbon Reserves only where it can be demonstrated with certainty that there is continuity of production from the existing productive formation. "PVCC" shall mean Penn Virginia Coal Company, a Virginia corporation and a wholly owned Subsidiary of the Borrower. "PVHC" shall mean Penn Virginia Holding Corp., a Delaware corporation and a wholly-owned Subsidiary of Borrower. "PVOG" shall mean Penn Virginia Oil & Gas Corporation, a Virginia corporation and a wholly owned Subsidiary of the Borrower. "Register" shall have the meaning specified in Section 10.9(f) hereof. "Regulation D" shall mean Regulation D of the Board (respecting reserve requirements), as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof. "Regulation U" shall mean Regulation U of the Board (respecting margin credit extended by banks), as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof. "Regulation X" shall mean Regulation X of the Board (respecting borrowers who obtain margin credit), as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof. "Release" shall mean any release, spill, emission, leak, injection, deposit, disposal, discharge, dispersal, leaching or migration of any Hazardous Substance into the environment or into or out of any real property of the Borrower or any Subsidiary of the Borrower, including the movement of Hazardous Substances through or in the air, soil, surface water, groundwater and?or land in violation of Environmental Laws. "Remedial Action" shall mean actions required by a Governmental Agency to (i) clean up, remove, treat or in any other way address Hazardous Substances in the environment, (ii) prevent the Release or threat of Release or minimize the further Release of Hazardous Substances so they do not migrate or endanger or threaten to endanger public health or welfare or the environment or (iii) perform pre-remedial studies and investigations and post-remedial monitoring and care. "Reportable Event" shall mean any of the events described in Section 4043 or Section 4068(f) of ERISA for which the thirty (30) day notice requirement of 29 C.F.R. 2615.3 has not been waived. "Requirements of Law" shall mean any federal, state or local law, rule or regulation, permit or other binding determination of any Governmental Authority applicable to the Borrower or any of its Subsidiaries or any of their respective properties or assets. "Reserve Report" shall mean a report in form and substance satisfactory to each Bank, which Reserve Report shall be dated as of the next preceding December 31 or June 30, as the case may be, and shall review at least 80% of the Proved Reserves attributable to the Oil and Gas Interests of the Borrower and its Subsidiaries (and showing any material additions to or deletions from the Oil and Gas Interests covered by the previous Reserve Report made by the Borrower and its Subsidiaries since the date of the previous Reserve Report), shall set forth the Proved Developed Producing Hydrocarbon Reserves, Proved Developed Behind Pipe Hydrocarbon Reserves, Proved Developed Shut-In Hydrocarbon Reserves and Proved Undeveloped Hydrocarbon Reserves (the "Proved Reserves") attributable to the Oil and Gas Interests and a projection of the rate of production and net income with respect to the Proved Reserves as of the date of such Reserve Report, all in accordance with the guidelines published by the Securities and Exchange Commission. Each Reserve Report to be submitted prior to March 31 in each such year shall be prepared by the Approved Petroleum Engineer. The Majority Banks shall have the right to approve of the composition of the Oil and Gas Interests covered in the Reserve Report to be prepared by the Approved Petroleum Engineer. Each Reserve Report to be submitted prior to October 1 in each year may be limited to information prepared by personnel of the Borrower or its Subsidiaries, which Reserve Report shall provide the current status of the information set forth in the immediately preceding Reserve Report. "Responsible Officer" shall mean, as to any Person, its Chairman, Vice-Chairman, President, Executive Vice President(s), Senior Vice President(s) or Vice President duly authorized to act on behalf of such Person. "Restricted Subsidiary " shall mean each Subsidiary of the Borrower that, at the particular time in question, (i) owns directly or indirectly any material assets or any interest in any other Restricted Subsidiary and (ii) has been designated as a Restricted Subsidiary by the Borrower or has not been designated as an Unrestricted Subsidiary by the Borrower either (i) on Schedule 5.16 hereto or (b) in accordance with the terms and provisions of this Credit Agreement. The Unrestricted Subsidiaries on the Effective Date are listed on Schedule 5.16 hereto. A Restricted Subsidiary shall remain such (even if it no longer owns directly or indirectly any interest in any of the material assets or any interest in any other Restricted Subsidiary) until designated as an Unrestricted Subsidiary in accordance with the terms and provisions of this Agreement. "Revolving Credit Loan(s)" shall have the meaning provided in Section 2.1(a). "S&P" shall mean Standard & Poor's Corporation. "Savannah" shall mean Savannah Land Company, a Delaware corporation and a wholly-owned Subsidiary of PVCC. "Special Determination" means any determination of the Borrowing Base pursuant to Section 3.4. "Standby Letter of Credit" shall mean a Letter of Credit which represents an obligation to the beneficiary on the part of the Issuing Bank (a) to repay money borrowed by or advanced to or for the account of the Borrower or any of its Subsidiaries or (b) to make payment on account of any indebtedness undertaken by the Borrower or any of its Subsidiaries or (c) to make payment on account of any default by the Borrower or any of its Subsidiaries in the performance of an obligation. "Subordinated Intercompany Notes" shall mean, collectively, (i) that certain subordinate advancing promissory note dated February 11, 1998 issued by Borrower payable to the order of Savannah in the original principal sum of $75,000,000,(ii) that certain subordinate advancing promissory note dated February 11, 1998 issued by PVCC payable to the order of Savannah in the original principal sum of $75,000,000, (iii) that certain subordinate promissory note dated as of December 31, 1998 issued by PVCC payable to the order of PVHC in the original principal sum of $40,918,000, and (iv) that certain subordinate promissory note dated as of December 31, 1998 issued by PVOG payable to the order of PVHC in the original principal sum of $42,156,000. "Subsidiary" shall mean as of any date of determination and with respect to any Person, any corporation, partnership, joint venture or other entity whether now existing or hereafter organized or acquired of which the securities, partnership units or other ownership interests having ordinary voting power, in the absence of contingencies, to elect a majority of the board of directors or other persons performing similar functions (including that of a general or venture partner) are at the time directly or indirectly owned by such Person and?or one or more Subsidiaries of such Person. "Subsidiary Guarantors"shall mean Concord, Equities, Lexington, PVCC, PVOG, PVHC, and Savannah and any such other Person who has been accepted by the Banks to guarantee and has guaranteed some or all of the Obligations, including all Material Restricted Subsidiaries of the Borrower which now or hereafter execute and deliver an Instrument of Joinder of the Subsidiary Guaranty in the form of Exhibit C to the Subsidiary Guaranty pursuant to the provisions of Section 6.11. "Subsidiary Guaranty" shall mean the guaranty of the Obligations executed by each Subsidiary of the Borrower in favor of the Agent for the benefit of the Banks to secure the Obligations substantially in the form of Exhibit F, either as originally executed or as the same may from time to time be supplemented, modified, amended, renewed, extended or supplanted. "Swing Loans" shall have the meaning assigned to such term in Section 7.1(g). "Syndication Agent" shall have the meaning assigned to that term in the introduction to this Credit Agreement. "Termination Event" shall mean (i) a Reportable Event with respect to any Benefit Plan (other than a "reportable event" that is not subject to the provision for 30 days notice to the PBGC); (ii) the withdrawal of the Borrower from a Benefit Plan during a plan year in which the Borrower was a "substantial employer" as defined in Section 4001(a)(2) of ERISA; (iii) the imposition of an obligation on the Borrower under Section 4041 of ERISA to provide affected parties written notice of intent to terminate a Benefit Plan in a distress termination described in Section 4041(c) of ERISA; (iv) the institution by the PBGC of proceedings to terminate a Benefit Plan; (v) any other event or condition which would constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Benefit Plan; or (vi) the occurrence of an event described in Section 4068(f) of ERISA with respect to a Benefit Plan. "Total Borrowing Base" shall mean, at the particular time in question, the amount determined by the Agent and the Majority Banks in accordance with the provisions of Article III. "Total Commitment"shall mean $120,000,000 as the same may be reduced from time to time pursuant to Section 2.9. "Type," when used in respect to any Revolving Credit Loan or Borrowing, refers to the Rate by reference to which interest on such Revolving Credit Loan or on the Revolving Credit Loans comprising such Borrowing is determined. For purposes hereof, "Rate" shall include the Eurodollar Rate and the Alternate Base Rate. "Unavailable Commitment" shall have the meaning specified in Section 2.5(d) hereof. "Unavailable Fee Rate" shall have the meaning specified in Section 2.5(d) hereof. "Unfunded Vested Liabilities" shall mean, with respect to any Benefit Plan at any time, the amount (if any) by which (i) the present value of all vested nonforfeitable benefits under such Benefit Plan exceeds (ii) the fair market value of all Benefit Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Benefit Plan, but only to the extent that such excess represents a potential liability of an ERISA Affiliate to the PBGC or such Benefit Plan under Title IV of ERISA. "United States" and "U.S." each shall mean United States of America. "Unrestricted Subsidiary" shall mean each Subsidiary of the Borrower which is (i) designated as an Unrestricted Subsidiary on Schedule 5.16 hereto or (ii) designated as an Unrestricted Subsidiary by the Borrower at any time after the Effective Date; provided, however, that a Subsidiary may not be designated as an Unrestricted Subsidiary by Borrower if (i) at the time of such designation there exists a Borrowing Base Deficiency or a Default or Event of Default or (ii) such designation would trigger either a Borrowing Base Deficiency or a Default or an Event of Default. An Unrestricted Subsidiary shall remain such until designated as a Restricted Subsidiary in accordance with the terms and provisions of this Agreement. "Unused Availability" shall mean at any time, an amount equal to the Available Commitment in effect at that time, minus the Utilized Credit. "Utilized Credit" shall mean, at any time, without duplication, the sum of (i) the aggregate principal amount then outstanding on Revolving Credit Loans, plus (ii) the aggregate principal amount then outstanding on Swing Loans, plus (iii) the aggregate Letter of Credit Exposure, plus (iv) the aggregate amount of payment theretofore made by the Issuing Bank in respect to Letters of Credit and not theretofore reimbursed by the Borrower to the Issuing Bank or deemed a Revolving Credit Loan pursuant to Section 2.3(d). "Utilized Percentage of Borrowing Base" shall mean on any date an amount equal to (i) the Utilized Credit on such day minus the aggregate principal amount then outstanding on Swing Loans divided by (ii) the Available Borrowing Base on such day. "Withholding Taxes" shall have the meaning provided in Section 2.17(a). SECTION 1.2. Accounting Terms. All terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided, however, that, for purposes of determining compliance with any covenant set forth in Article VII, such terms shall be construed in accordance with GAAP as in effect on the date of this Credit Agreement, applied on a basis consistent with the application used in the audited financial statements referred to in Section 5.9(a). SECTION 1.3. Interpretation. (a) In this Credit Agreement, unless a clear contrary intention appears: (i) the singular number includes the plural number and vice versa; (ii) reference to any gender includes each other gender; (iii) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Credit Agreement as a whole and not to any particular Article, Section or other subdivision; (iv) reference to any Person includes such Person's successors and assigns but, if applicable, only if such successors and assigns are permitted by this Credit Agreement, and reference to a Person in a particular capacity excludes such Person in any other capacity or individually, provided that nothing in this clause (iv) is intended to authorize any assignment not otherwise permitted by this Credit Agreement; (v) reference to any agreement, document or instrument means such agreement, document or instrument as amended, supplemented or modified and in effect from time to time in accordance with the terms thereof and, if applicable, the terms hereof, and reference to any Note includes any Note issued pursuant hereto in extension or renewal thereof and in substitution or replacement therefor; (vi) unless the context indicates otherwise, reference to any Article, Section, Schedule or Exhibit means such Article or Section hereof or such Schedule or Exhibit hereto; (vii) the words "including" (and with correlative meaning "include") means including, without limiting the generality of any description preceding such term; (viii) with respect to the determination of any period of time, the word "from" means "from and including" and the word "to" means "to but excluding;" and (ix) reference to any law means such as amended, modified, codified or reenacted, in whole or in part, and in effect from time to time. (b) The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction of this Credit Agreement. (c) No provision of this Credit Agreement shall be interpreted or construed against any Person solely because that Person or its legal representative drafted such provision. ARTICLE II REVOLVING CREDIT LOANS SECTION 2.1. Revolving Credit Loans. (a) Subject to the terms and conditions and relying upon the representations and warranties set forth herein and in the other Loan Documents, each Bank agrees, severally and not jointly, to make its Commitment Percentage of loans to the Borrower (collectively, the "Revolving Credit Loans"), at any time and from time to time on and after the Effective Date and up to, but excluding, the Maturity Date, provided, a Bank's Commitment Percentage of the aggregate amount of the Utilized Credit at any one time shall not exceed such Bank's Commitment and provided, further, that the aggregate amount of the Utilized Credit shall at no time exceed the lesser of the (i) Total Commitment and (ii) Available Commitment. Except as otherwise provided in this Credit Agreement, the Revolving Credit Loans shall mature and be due and payable in full on the Maturity Date. Subject to the terms and provisions hereof, the Borrower may borrow, repay and reborrow hereunder. Each Borrowing shall be made in accordance with the procedures set forth in Section 2.2 and shall be in an aggregate principal amount (x) in the case of an ABR Borrowing, $500,000 or a whole multiple of $100,000 in excess thereof (or, if then Unused Availability is less than $500,000, such lesser amount) and (y) in the case of a Eurodollar Borrowing, $1,000,000 or a whole multiple of $500,000 in excess thereof. The Revolving Credit Loans may from time to time be (i) Eurodollar Loans, (ii) ABR Loans, or (iii) a combination thereof, as determined by the Borrower and notified to the Agent in accordance with Sections 2.2 and 2.4. b) Subject to the terms and conditions and relying upon the representations and warranties herein set forth, the Issuing Bank agrees to issue Letters of Credit upon the request of the Borrower for the account of the Borrower or any Subsidiary of the Borrower at any time and from time to time on and after the Effective Date and up to, but excluding, the earlier of the Maturity Date and the termination of the Letter of Credit Commitments in accordance with the terms hereof. Each Bank (other than the Issuing Bank) severally agrees, on the terms and conditions hereinafter set forth, to purchase participations in the Letters of Credit issued by the Issuing Bank pursuant to Section 2.3 in an aggregate amount not to exceed such Bank's Letter of Credit Commitment. Notwithstanding the foregoing, the aggregate undrawn face amount of all Letters of Credit at any time outstanding shall not exceed the aggregate Letter of Credit Commitments of all the Banks, and no Letter of Credit will be issued if immediately after such issuance the Utilized Credit would exceed the Available Commitment then in effect. On each day during the period commencing with the issuance by the Issuing Bank of any Letter of Credit and until such Letter of Credit shall have expired or been terminated, and, irrespective of whether such Letter of Credit has expired or terminated, if same has been drawn upon and the amount so drawn has not been reimbursed to the Issuing Bank, the Commitment of each Bank shall be deemed to be utilized for all purposes hereof in an amount equal to such Bank's Commitment Percentage of the undrawn face amount of such Letter of Credit, plus the aggregate amount of all unreimbursed drawings. SECTION 2.2. Borrowing Procedure for Revolving Credits. (a) In order to effect a Borrowing(s), the Borrower shall submit a Borrowing Request in writing or by telecopy (or telephone notice promptly confirmed in writing or by telecopy) to the Agent, (i) in the case of a Eurodollar Borrowing, not later than 11:00 a.m., Houston, Texas time, three (3) Business Days before the Borrowing Date specified in the Borrowing Request for such proposed Eurodollar Borrowing(s) and (ii) in the case of an ABR Borrowing, not later than 12:00 noon, Houston, Texas time, on the Borrowing Date specified in the Borrowing Request for such proposed ABR Borrowing. Such Borrowing Request shall be irrevocable and shall in each case refer to this Credit Agreement and specify (w) whether the Borrowing(s) then being requested are to be Eurodollar Borrowing(s), or ABR Borrowing(s), or a combination thereof, (x) the Borrowing Date of such Borrowing(s) (which shall be a Business Day), (y) the aggregate principal amount of such Borrowing(s) and (z) in the case of Eurodollar Borrowings, the Eurodollar Interest Periods with respect thereto. If no Eurodollar Interest Period with respect to any Eurodollar Borrowing(s) is specified in any such Borrowing Request, then the Borrower shall be deemed to have selected a Eurodollar Interest Period of one (1) month's duration. The Agent shall promptly advise the Banks of any Borrowing Request given pursuant to this Section 2.2 and of each Bank's Commitment Percentage of the requested Borrowing(s) by telecopy (or telephone notice promptly confirmed in writing or by telecopy). (b) Each Bank may at its option make any Eurodollar Loan by causing any Lending Office of such Bank to make such Eurodollar Loan; provided, however, that any exercise of such option shall not affect the obligation of the Borrower to repay such Eurodollar Loan in accordance with the terms of this Credit Agreement and the applicable Notes. (c) No later than 1:00 p.m., Houston, Texas time, on the Borrowing Date specified in each Borrowing Request, each Bank will make available to the Agent its Commitment Percentage of the Revolving Credits comprising the Borrowing(s) requested to be made on such date, in Dollars and immediately available funds. Upon fulfillment of the applicable conditions set forth in Article IV, the Agent will make the proceeds of each Borrowing so requested available to the Borrower by crediting the amounts so received to a general deposit account maintained by the Borrower with Chase Bank of Texas, National Association, on the Borrowing Date or, if a Borrowing shall not occur on such Borrowing Date because any condition precedent herein specified shall not have been met, the Agent will return the amounts so received to the respective Banks as soon as practicable. All Borrowings shall be made by the Banks pro rata in accordance with such Bank's Commitment Percentage of the Revolving Credits comprising such Borrowing. Unless the Agent shall have received notice from a Bank prior to the date of any proposed Borrowing Date that such Bank will not make available to the Agent such Bank's Commitment Percentage of such Borrowing, the Agent may assume that such Bank has made its Commitment Percentage available to the Agent on such Borrowing Date in accordance with this paragraph (c) and the Agent, in reliance upon such assumption, may, (but under no circumstances shall the Agent be obligated to) make available to the Borrower on such Borrowing Date a corresponding amount. If and to the extent that such Bank shall not have made its Commitment Percentage of such Borrowing available to the Agent, such Bank and the Borrower severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Agent at (i) in the case of the Borrower, the interest rate applicable to the Revolving Credits comprising such Borrowing and (ii) in the case of such Bank, the Federal Funds Effective Rate. If such Bank shall repay to the Agent such corresponding amount, such amount shall constitute such Bank's Commitment Percentage of such Borrowing for purposes of this Credit Agreement. (d) No Eurodollar Borrowing may be made if, after giving effect to such Eurodollar Borrowing, there would be more than six (6) Eurodollar Borrowings outstanding at such time. SECTION 2.3. Issuing the Letters of Credit. (a) In order to effect the issuance of a Letter of Credit, the Borrower shall submit a Borrowing Request and a Letter of Credit Application in writing by telecopy to the Agent (who shall promptly notify the Issuing Bank) not later than 12:00 noon, Houston, Texas time, two (2) Business Days before the date of issuance of such Letter of Credit. Each such Borrowing Request and Letter of Credit Application shall be signed by the Borrower, specify the Business Day on which such Letter of Credit is to be issued, and specify the availability for Letters of Credit under the Letter of Credit Commitment and the Available Commitment as of the date of issuance of such Letter of Credit and the expiry date thereof which shall not be later than the earlier of (i) twelve (12) months from the date of issuance of such Letter of Credit and (ii) the Maturity Date; provided, however, that the Borrower may request evergreen Letters of Credit that automatically renew on their expiry date for an additional one year period so long as the final expiry date thereof is on or before the Maturity Date. (b) Upon satisfaction of the applicable terms and conditions set forth in Article IV, the Issuing Bank shall issue such Letter of Credit to the specified beneficiary not later than the close of business, Houston, Texas time, on the date so specified. The Agent shall provide the Borrower and each Bank with a copy of each Letter of Credit so issued. Each such Letter of Credit shall (i) provide for the payment of drafts, presented for honor thereunder by the beneficiary in accordance with the terms thereon, at sight when accompanied by the documents described therein and (ii) be subject to the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500, (and any subsequent revisions thereof approved by a Congress of the International Chamber of Commerce) (the "UCP") and shall, as to matters not governed by the UCP, be governed by, and construed and interpreted in accordance with, the laws of the State of Texas. (c) Upon the issuance date of each Letter of Credit, the Issuing Bank shall be deemed, without further action by any party hereto, to have sold to each other Bank, and each other Bank shall be deemed, without further action by any party hereto, to have purchased from the Issuing Bank, a participation, to the extent of such Bank's Commitment Percentage, in such Letter of Credit, the obligations thereunder and in the reimbursement obligations of the Borrower due in respect of drawings made under such Letter of Credit. If requested by the Issuing Bank, the other Banks will execute any other documents reasonably requested by the Issuing Bank to evidence the purchase of such participation. (d) Upon the presentment of any draft for honor under any Letter of Credit by the beneficiary thereof which the Issuing Bank determines is in compliance with the conditions for payment thereunder, the Issuing Bank shall promptly notify the Borrower, the Agent and each Bank of the intended date of honor of such draft and the Borrower hereby promises and agrees, at the Borrower's option, to either (i) pay to the Agent for the account of the Issuing Bank, by 1:00 p.m., Houston, Texas time, on the date payment is due as specified in such notice, the full amount of such draft in immediately available funds or (ii) request a Revolving Credit Loan pursuant to the provisions of Sections 2.1 and 2.2 of this Credit Agreement in the full amount of such draft, which request shall specify that the Borrowing Date is to be the date payment is due under the Letter of Credit as specified in the Issuing Bank's notice. If the Borrower fails timely to make such payment because a Revolving Credit Loan cannot be made pursuant to Section 2.1(a) and Article IV, each Bank shall, notwithstanding any other provision of this Credit Agreement (including the occurrence and continuance of a Default or an Event of Default), make available to the Agent for the benefit of the Issuing Bank an amount equal to its Commitment Percentage of the presented draft on the day the Issuing Bank is required to honor such draft. If such amount is not in fact made available to the Agent by such Bank on such date, such Bank shall pay to the Agent for the account of the Issuing Bank, on demand made by the Issuing Bank, in addition to such amount, an amount equal to the product of (i) the average daily Federal Funds Effective Rate per annum during the period referred to in clause (iii) of this sentence times (ii) the amount of such Bank's Commitment Percentage of the presented draft times (iii) the number of days that elapse from the day the Issuing Bank honors such draft to the date on which the amount equal to such Bank's Commitment Percentage of the presented draft becomes immediately available to the Issuing Bank divided (iv) by 360. Upon receipt by the Agent from the Banks of the full amount of such draft, notwithstanding any other provision of this Credit Agreement (including the occurrence and continuance of a Default or an Event of Default) the full amount of such draft shall automatically and without any action by the Borrower, be deemed to have been an ABR Borrowing as of the date of payment of such draft. Nothing in this paragraph (d) or elsewhere in this Credit Agreement shall diminish the Borrower's obligation under this Credit Agreement to provide the funds for the payment of, or on demand to reimburse the Issuing Bank for payment of, any draft presented to, and duly honored by, the Issuing Bank under any Letter of Credit, and the automatic funding of a Revolving Credit Loan as in this paragraph provided shall not constitute a cure or waiver of the Event of Default for failure, timely to provide such funds as in this paragraph agreed. (e) In order to induce the issuance of Letters of Credit by the Issuing Bank and the purchase of participations therein by the other Banks, the Borrower agrees with the Agent, the Issuing Bank and the other Banks that neither the Agent nor any Bank (including the Issuing Bank) shall be responsible or liable (except as provided in the following sentence) for, and the Borrower's unconditional obligation to reimburse the Issuing Bank through the Agent for amounts paid by the Issuing Bank, as provided in Section 2.3(d), on account of drafts so honored under the Revolving Credit Letters of Credit shall not be affected by, any circumstance, act or omission whatsoever (whether or not known to the Agent or any Bank (including the Issuing Bank) other than a circumstance, act or omission resulting from the gross negligence or willful misconduct of the Agent or any Bank). The Borrower agrees that any action taken or omitted to be taken by the Agent or any Bank (including the Issuing Bank) under or in connection with any Letter of Credit or any related draft, document or property shall be binding on the Borrower and shall not put the Agent or any Bank (including the Issuing Bank) under any resulting liability to the Borrower, unless such action or omission is the result of the gross negligence or willful misconduct of the Agent or any such Bank. The Borrower hereby waives presentment for payment (except the presentment required by the terms of any Letter of Credit) and notice of dishonor, protest and notice of protest with respect to drafts honored under the Letters of Credit. The Issuing Bank agrees promptly to notify the Borrower whenever a draft is presented under any Letter of Credit, but failure to so notify the Borrower shall not in any way affect the Borrower's obligations hereunder. Subject to Section 2.19 and 2.22, if while any Letter of Credit is outstanding, any law, executive order or regulation is enforced, adopted or interpreted by any public body, governmental agency or court of competent jurisdiction so as to affect any of the Borrower's obligations or the compensation to any Bank in respect of the Letters of Credit or the cost to such Bank of establishing and?or maintaining the Letters of Credit (or any participation therein), such Bank shall promptly notify the Borrower thereof in writing in accordance with Section 2.13(c) or 2.17, as the case may be, and within ten (10) Business Days after receipt by the Borrower of such Bank's request (through the Agent) for reimbursement or indemnification or within thirty (30) days after receipt of a notice in respect of Withholding Taxes under Section 2.17 hereof, accompanied by a certificate from such Bank setting forth the basis for such reimbursement or indemnification and the calculation thereof in accordance with Section 2.14(c) or 2.17, as the case may be, the Borrower shall reimburse or indemnify such Bank, as the case may be, with respect thereto so that such Bank shall be in the same position as if there had been no such enforcement, adoption or interpretation, unless the Borrower notifies the Agent of its good faith contest to, and dispute of, the requested amount and such Bank's basis therefor and?or calculation thereof. The foregoing agreement of the Borrower to reimburse or indemnify the Banks shall apply in (but shall not be limited to) the following situations: an imposition of or change in reserve, capital maintenance or other similar requirements or in excise or similar taxes or monetary restraints, except a change in franchise taxes imposed on such Bank or in tax on the net income of such Bank. (f)In the event that any provision of a Letter of Credit Application is inconsistent with, or in conflict of, any provision of this Credit Agreement, including provisions for the rate of interest applicable to drawings thereunder or rights of setoff or any representations, warranties, covenants or any events of default set forth therein, the provisions of this Credit Agreement shall govern. SECTION 2.4. Conversions or Continuation of Borrowings. (a)Subject to the other provisions of this Credit Agreement, the Borrower may elect from time to time to convert (i) all or any part of Eurodollar Loans which comprise part of the same Eurodollar Borrowing to a Borrowing comprised of ABR Loans and (ii) all or any part of ABR Loans which comprise part of the same Borrowing to a Borrowing comprised of Eurodollar Loans, provided, however, in each case that any such conversion of Revolving Credit Loans comprising a Eurodollar Borrowing shall, subject to the second following sentence, only be made on the last day of a Eurodollar Interest Period with respect thereto. All or any part of a Borrowing may be converted as provided herein, provided that no Borrowing may be converted into a Eurodollar Borrowing when any Default or Event of Default has occurred and is continuing. (b)Any Eurodollar Borrowing may be continued as such effective upon the expiration of the Eurodollar Interest Period with respect thereto; provided, that no Eurodollar Borrowing may be continued as such when any Default or Event of Default has occurred and is continuing, but shall be automatically converted to an ABR Borrowing on the last day of then current Eurodollar Interest Period with respect thereto. (c) In order to elect to convert or continue a Borrowing, or any portion thereof, under this Section 2.4, the Borrower shall deliver an irrevocable Notice of Conversion or Continuation to the Agent not later than 1:00 p.m., Houston, Texas time, (i) at least three (3) Business Days in advance of the proposed conversion or continuation date in the case of a conversion to, or continuation of, a Eurodollar Borrowing and (ii) at least one (1) Business Day in advance of the proposed conversion date in the case of a conversion to an ABR Borrowing. Each such Notice of Conversion or Continuation shall be by telecopy (confirmed thereafter by a delivery of the original of such Notice of Conversion or Continuation by United States mail or a reputable courier) and shall specify (v) the date of the requested conversion or continuation (which shall be a Business Day), (w) the amount and the Borrowing to be converted or continued, (y) whether a conversion or continuation is requested, and, if a conversion, into what Type of Borrowing and (z) in the case of a conversion to, or a continuation of, a Eurodollar Borrowing, the requested Eurodollar Interest Period. Promptly after receipt of a Notice of Conversion or Continuation under this Section 2.4, the Agent shall provide each Bank with a copy thereof. (d) No Borrowing, or any portion thereof, may be converted into an Eurodollar Borrowing if, after giving effect to such conversion, there would be more than six (6) Eurodollar Borrowings outstanding at such time. (e)If the Borrower shall fail to deliver a timely Notice of Conversion or Continuation with respect to any Eurodollar Borrowing, the Borrower shall be deemed to have elected to convert such Eurodollar Borrowing to an ABR Borrowing on the last day of the Eurodollar Interest Period with respect to such Eurodollar Borrowing. (f)For purposes of this Section 2.4, Borrowings having different Eurodollar Interest Periods, regardless of whether they commence on the same date or are of the same Type shall be considered Borrowings of different Types. SECTION 2.5. Fees. (a)In consideration of each Bank's commitment to make Revolving Credit Loans, the Borrower will pay to Agent for the account of each Bank a commitment fee determined on a daily basis by applying the applicable Commitment Fee Rate to such Bank's Commitment Percentage of the difference between (i) the Available Commitment and (ii) the aggregate outstanding principal amount of all Revolving Credit Loans, on each day from the Effective Date to but excluding the Maturity Date. This commitment fee shall be due and payable in arrears on the first day of the next succeeding Fiscal Quarter, on the date of each reduction in the Total Commitment and at Maturity (by acceleration or otherwise). The applicable "Commitment Fee Rate" shall be based on the Utilized Percentage of Borrowing Base in effect on each such day and calculated pursuant to the following table: Utilized Percentage of Applicable Commitment Borrowing Base Fee Rate Less than fifty percent three-tenths of one (50%) percent (0.30%) per annum Equal to or greater than three-tenths of one fifty percent (50%) but percent (0.30%) per less than seventy-five annum percent (75%) Equal to or greater than three-eighths of one seventy-five percent (75%) percent (0.375%) per annum (b)In consideration of each Bank's commitment to participate in Letters of Credit, the Borrower will pay to Agent for the account of each Bank a letter of credit fee equal to the greater of (i) $500.00 and (ii) a fee determined by applying the applicable Letter of Credit Fee Rate to the face amount of each Letter of Credit from the date of issuance thereof to the date on which such Letter of Credit expires. All such Letter of Credit fees shall be payable in full in advance of the issuance of such Letter of Credit. The Agent shall pay to each Bank its Commitment Percentage of such Letter of Credit fee. The applicable "Letter of Credit Fee Rate" shall be based on the Utilized Percentage of Borrowing Base in effect on each such day and calculated pursuant to the following table: Utilized Percentage of Applicable Letter of Borrowing Base Credit Fee Rate Less than fifty percent one percent (1.00%) per (50%) annum Equal to or greater than one and one-quarter fifty percent (50%), but percent (1.25%) per less than seventy-five annum percent (75%) one and one-half percent Equal to or greater than (1.50%) per annum seventy-five percent (75%) (c)the Borrower agrees to pay to the Issuing Bank as a fronting fee for the issuance of each Letter of Credit, an amount equal to one-eighth of one percent (.125%) per annum of the face amount of each Letter of Credit from the date of issuance thereof to the date on which such Letter of Credit expires or is terminated. (d)the Borrower shall pay to Agent for the ratable account of each Bank an unavailable commitment fee determined on a daily basis by applying the applicable Unavailable Fee Rate to such Bank's Commitment Percentage of the Unavailable Commitment on each day from the Effective Date to but excluding the Maturity Date. The term "Unavailable Commitment" shall mean an amount equal to the positive difference, if any, between the Total Commitment and the Available Commitment then in effect. This unavailable commitment fee shall be due and payable in arrears on the first day of the next succeeding Fiscal Quarter, on the date of each reduction in the Total Commitment and at Maturity (by acceleration or otherwise). The applicable "Unavailable Fee Rate" shall be based on the Utilized Percentage of Borrowing Base in effect on each such day and calculated pursuant to the following table: Utilized Percentage of Applicable Unavailable Borrowing Base Fee Rate Less than fifty percent three-twentieths of one (50%) percent (0.15%) per annum Equal to or greater than three-twentieths of one fifty percent (50%) but percent (0.15%) per less than seventy-five annum percent (75%) three-sixteenths of one Equal to or greater than percent (0.1875%) seventy-five percent (75%) (e)the Borrower shall pay when due to the Agent and each of the Banks such other fees as shall have been separately agreed by the Agent and the Borrower in writing. (f)All computations of fees hereunder shall be calculated on the basis of a year of 360 days and the actual number of days elapsed. SECTION 2.6. Notes. (a)The Revolving Credit Loans made by each Bank shall be evidenced by a single Note duly executed and delivered by the Borrower, dated the Closing Date, with the blanks appropriately completed, payable to the order of such Bank in a principal amount equal to such Bank's Commitment as set forth in Schedule 1.1. (b)Each Bank is hereby authorized by the Borrower, at its option, to endorse on the schedule attached to its Note (or on a continuation of such schedule attached to its Note and made a part thereof) or in its internal records relating to its Note an appropriate notation evidencing the date and amount of each Revolving Credit Loan evidenced thereby, the date and amount of each payment of principal or interest in respect thereof and such other information provided for on such schedule. The aggregate unpaid principal amount so recorded shall be presumptive evidence of the principal amount owing by the Borrower to such Bank and unpaid under its Note. The failure of any Bank to make such a notation or any error therein shall not in any manner affect the obligation of the Borrower to repay the Revolving Credit Loans made by such Bank in accordance with the terms of its Note and this Credit Agreement. SECTION 2.7. Interest on Revolving Credit Loans and Payment Dates. (a)Subject to the provisions of Section 2.8, the Revolving Credit Loans shall bear interest as follows: (i)The Revolving Credit Loans comprising each Eurodollar Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a rate per annum equal to the lesser of (i) the Highest Lawful Rate and (ii) the Eurodollar Rate for the Eurodollar Interest Period in effect for such Borrowing plus the Applicable Eurodollar Margin with respect to such Eurodollar Loans. (ii) The Revolving Credit Loans comprising any ABR Borrowing shall bear interest at a rate per annum equal to the lesser of (i) the Highest Lawful Rate and (ii) the Alternate Base Rate (if the Alternate Base Rate is based on the Prime Rate, computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be; if the Alternate Base Rate is based on the Federal Funds Effective Rate, computed on the basis of the actual number of days elapsed over a year of 360 days). (b) Interest on each Revolving Credit Loan shall be payable by the Borrower (i) in respect of each Revolving Credit Loan comprising part of an ABR Borrowing, quarterly in arrears on the last Business Day of each calendar quarter, (ii) in respect of each Revolving Credit Loan comprising part of a Eurodollar Borrowing, on the last day of the Eurodollar Interest Period applicable to such Eurodollar Borrowing, and, in the case of a Eurodollar Interest Period for Eurodollar Borrowings of six (6) months, on the date occurring three (3) months from the first day of such Interest Period and on the last day of such Eurodollar Interest Period, (iii) in respect of each Revolving Credit Loan accruing interest at the Default Rate, on demand and (iv) in respect of all Revolving Credit Loans, on any prepayment or conversion (on the amount prepaid or converted), at maturity (whether by acceleration or otherwise) and, after maturity, on demand. (c)Interest in respect of the unpaid principal amount of each Revolving Credit Loan shall accrue from (and including) the date of the making of such Revolving Credit Loan to (but not including) the date on which such Revolving Credit Loan shall be paid in full. (d)The Agent shall, upon determining a Eurodollar Rate for any Eurodollar Interest Period with respect to a Eurodollar Borrowing, promptly notify the Borrower and the Banks thereof. SECTION 2.8. Interest on Overdue Amounts. If the Borrower shall fail to pay the principal of or interest on any Revolving Credit Loan or any other amount when due hereunder, the Borrower shall on demand from time to time pay interest, to the extent permitted by law, on such defaulted amount from the date of such Event of Default up to (but not including) the date of actual payment (after as well as before judgment) at a rate per annum (the "Default Rate") equal to the lesser of (i) the Highest Lawful Rate and (ii) (x) in the case of ABR Borrowings, the Alternate Base Rate plus two percent (2%) per annum or (y) in the case of Eurodollar Borrowings, the Eurodollar Rate for the Eurodollar Interest Period in effect for such Borrowing plus the Applicable Eurodollar Margin with respect to such Eurodollar Loans plus two percent (2%) per annum, in either case, computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be. SECTION 2.9. Voluntary Termination and Reduction of the Total Commitment. (a) Subject to Section 2.11. The Borrower may permanently terminate, or from time to time in part permanently reduce, the Total Commitment upon at least five (5) Business Days' prior irrevocable written or telecopy notice (or telephone notice promptly confirmed in writing) to the Agent (which notice the Agent shall promptly transmit to each of the Banks). Such notice shall specify the date and the amount of the termination or reduction of the Total Commitment. Each partial reduction of the Total Commitment shall be in a minimum aggregate principal amount of $5,000,000 and in integral multiples of $1,000,000 (or a lesser amount equal to the excess of the Total Commitment over the sum of the Utilized Credit). (b) Simultaneously with any termination or reduction of the Total Commitment pursuant to this Section 2.9, the Borrower shall pay to the Agent for the account of each Bank the commitment fees on the amount of the Available Commitment and/or the Unavailable Commitment so terminated or reduced, accrued through the date of such termination or reduction. After a reduction of the Total Commitment hereunder, the commitment fees with respect of the "Unavailable Commitment" shall thereafter be calculated on the Total Commitment as so reduced. SECTION 2.10. Voluntary Prepayment of Revolving Credit Loans. (a) the Borrower shall have the right at any time and from time to time to prepay the Revolving Credit Loans, in whole or in part, (i) in the case of Eurodollar Loans upon at least three (3) Business Days' prior written or telecopy notice (or telephone notice promptly confirmed in writing) to the Agent, provided, however, that in the event the Borrower prepays Eurodollar Borrowing in whole or in part on a day which is not the last day of the Eurodollar Interest Period applicable thereto, the provisions of Section 2.15 shall apply or (ii) in the case of an ABR Loan, upon at least one (1) Business Day's prior written or telecopy notice or telephone notice promptly confirmed in writing) to the Agent; provided, however, that each such partial prepayment shall be in a minimum principal amount of $1,000,000 and in integral multiples of $1,000,000 (or a lesser amount equal to the sum of the aggregate principal amount of all Revolving Credit Loans outstanding). (b) Each notice of prepayment under subsection (a) above shall (i) specify the prepayment date, the principal amount of such prepayment, which Revolving Credit Loans are to be prepaid, and in the case of Revolving Credit Loans comprising Eurodollar Borrowings, the specific Borrowing(s) pursuant to which such Revolving Credit Loans were made and the Eurodollar Interest Period applicable thereto, (ii) be irrevocable and (iii) commit the Borrower to prepay such Revolving Credit Loan(s) by the amount stated therein on the date stated therein. All prepayments under this Section 2.10 shall be subject to Section 2.15 (as to prepayments of Eurodollar Loans), but otherwise without premium or penalty. All prepayments under this Section 2.10 shall be accompanied by accrued interest on the principal amount being prepaid to the date of payment. SECTION 2.11. Mandatory Payments on Revolving Credit Loans. (a) If at any time there shall occur a Borrowing Base Deficiency, the Borrower shall, at its election, either (1) prepay (no later than sixty (60) calendar days after the applicable Determination Date) the principal of the Revolving Credit Loans on a pro rata basis in an aggregate amount equal to such Borrowing Base Deficiency (together with accrued interest on the principal amount of the Revolving Credit Loans so prepaid to the date of prepayment), (2) if such condition arises, in part or in whole, by reason of a Designated Borrowing Base being in effect, increase the Designated Borrowing Base by an amount equal to the lesser of (i) such excess or (ii) the difference between the Available Borrowing Base and the Designated Borrowing Base or (3) any combination of (1) and (2) or any other solution acceptable to the Majority Banks. The Borrower shall give prompt written notice to the Agent of each election made by it pursuant to this Section 2.11(a). If the Borrower shall fail to give notice to the Agent as aforesaid, the Borrower shall be deemed to have elected to prepay the Revolving Credit Loans in accordance with clause (1) of the first sentence of Section 2.11(a). (b)On the date of any reduction of the Total Commitment pursuant to Section 2.9, the Borrower shall pay or prepay Revolving Credit Loans in an amount equal to the Borrowing Base Deficiency, if any, created by such reduction. (c) With respect to each payment of principal required to be made pursuant to this Section 2.11, the Borrower may designate, by written notice to the Agent on or before the date of such payment, the Types of Revolving Credit Loans which are to be paid and, in the case of Eurodollar Loans, the specific Eurodollar Borrowing(s) pursuant to which made and the Eurodollar Interest Periods applicable thereto, provided that (i) payments of Eurodollar Loans may only be made on the last day of an Eurodollar Interest Period applicable thereto unless all ABR Loans have been paid in full; and (ii) if any payment of Eurodollar Loans made pursuant to a single Eurodollar Borrowing shall reduce the outstanding Revolving Credit Loans made pursuant to such Eurodollar Borrowing to an amount less than $1,000,000, such Eurodollar Borrowing shall immediately be converted into ABR Loans. In the absence of a designation by the Borrower as described in the preceding sentence, the Agent shall apply the amount of such payment first to the payment of all outstanding ABR Loans and second to the payment of the outstanding Eurodollar Loans. (d)The unpaid principal amount of all Revolving Credit Loans shall be due and payable in full on the Maturity Date. SECTION 2.12. Alternate Rate of Interest. In the event, and on each occasion, that on the day three (3) Business Days prior to the commencement of any Eurodollar Interest Period for a Eurodollar Borrowing, the Agent shall have reasonably determined (which determination shall be final and binding upon the Borrower) that (i) Dollar deposits in the principal amounts of the relevant Eurodollar Loans comprising such Eurodollar Borrowing are not generally available in the interbank eurodollar market, or (ii) by reason of any changes arising after the date of this Credit Agreement affecting the interbank eurodollar market, adequate and fair means do not exist for ascertaining such Eurodollar Rate on the basis provided for in the definition of the Eurodollar Rate, or (iii) by reason of any other circumstance affecting a Bank or the interbank eurodollar market or the position of such Bank in such market, the Eurodollar Rate will not adequately and fairly reflect the cost to any Bank of making or maintaining its Eurodollar Loan during such Eurodollar Interest Period and such unreflected cost is not paid by the Borrower pursuant to Section 2.13(a)the Agent shall, as soon as practicable thereafter, give written notice of such determination to the Borrower and the Banks. In the event of any such determination, any request by the Borrower for a Eurodollar Borrowing pursuant to Sections 2.2 or 2.4 shall, until the circumstances giving rise to such notice no longer exist, be deemed to be a request for a Borrowing comprised of ABR Loans. SECTION 2.13. Change in Circumstances. (a) Notwithstanding any other provision herein but subject to Section 2.19, if after the Effective Date the introduction of any applicable law or regulation or any change in applicable law or regulation or in the interpretation or administration thereof by any Governmental Authority charged with the interpretation or administration thereof, or compliance by the Banks with any applicable guideline or request from any central bank or Governmental Authority (whether or not having the force of law) (i) shall change the basis of taxation of payments to any Bank of the principal of or interest on any Revolving Credit Loan made by such Bank or of any other fees or amounts payable hereunder (other than changes in the rate of tax imposed on the overall net income of, including penalties and interest in respect thereof, or franchise taxes based on the net income of, such Bank or its Lending Office), (ii) shall impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Bank or (iii) shall impose on any Bank or the interbank eurodollar market any other condition affecting this Credit Agreement or any Eurodollar Loan made by such Bank, and the result of any of the foregoing shall be to increase the cost to such Bank of making or maintaining any Eurodollar Loan or to reduce the amount of any sum received or receivable by such Bank hereunder (whether of principal, interest or otherwise) in respect thereof by an amount deemed in good faith by such Bank to be material (provided that the foregoing shall not apply to increases resulting from general increases in interest rates or general increases in such Bank's administrative expenses or overhead), then the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such additional costs incurred or reductions suffered in accordance with paragraph (c) below. Notwithstanding the foregoing, in no event shall any Bank be permitted to receive any compensation hereunder constituting interest in excess of the Highest Lawful Rate. (b) If any Bank shall have determined that the applicability of any law, rule, regulation or guideline adopted pursuant to or arising out of any changes after the date hereof to the July 1988 report of the Basle Committee on Banking Regulations and Supervisory Practices entitled "International Convergence of Capital Measurement and Capital Standards" or the adoption or effectiveness after the date hereof of any law, rule, regulation or guideline regarding capital adequacy, or any change in any of the foregoing, or any change in the interpretation or administration in any of the foregoing by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by such Bank (or its Lending Office) or such Bank's holding company with any request or directive regarding capital adequacy (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Bank's capital or on the capital of such Bank's holding company, as a consequence of its obligations under this Credit Agreement to a level below that which such Bank or such Bank's holding company could have achieved but for such adoption, change or compliance (taking into consideration such Bank's policies and the policies of such Bank's holding company with respect to capital adequacy) by an amount deemed in good faith by such Bank to be material, then such Bank shall promptly notify the Borrower in writing of the occurrence of any such event, such notice to state in reasonable detail the reasons therefor and the additional amount required to compensate such Bank for the reduction in its rate of return and the Borrower and such Bank or (as the case may be) the Agent shall thereafter attempt to negotiate in good faith, within thirty (30) days of the day on which the Borrower receives such notice, an adjustment payable hereunder that will adequately compensate such Bank or the Agent in light of these circumstances. If the Borrower and such Bank or the Agent are unable to agree to such adjustment within thirty (30) days of the date on which the Borrower receives such notice, then the Borrower shall pay, subject to Section 2.19, to such Bank or the Agent, as the case may be, an amount that will, in such Bank's or the Agent's reasonable determination, provide adequate compensation to such Bank or such Bank's holding company (or the Agent or the Agent's holding company, as the case may be) for any such reduction in accordance with paragraph (c) below. Notwithstanding the foregoing, in no event shall any Bank be permitted to receive any compensation hereunder constituting interest in excess of the Highest Lawful Rate. (c) Any Bank requesting compensation pursuant to Section 2.13(a) or (b) hereof shall deliver to the Borrower a certificate of such Bank setting forth such amount or amounts as shall be necessary to compensate such Bank or its holding company as specified in paragraphs (a) or (b) above, as the case may be, such certificates to state, in reasonable detail, the reasons therefor, and such certificate shall be, in the absence of manifest error, prima facie evidence that such amount(s) are due and owing. In preparing such certificate, such Bank may employ such assumptions and allocations of costs and expenses as it shall in good faith deem reasonable and may be determined by any reasonable averaging and attribution method. The Borrower shall pay to such Bank the amount shown as due on any such certificate within thirty (30) Business Days after the Borrower's receipt of the same. Any decision by a Bank not to require payment of any interest, cost or other amount payable under this Section 2.13 or to calculate any amount payable by a particular method, on one occasion, shall in no way limit or be deemed a waiver of such Bank's right to require full payment of any interest, cost or other amount payable hereunder, or to calculate any amount payable by another method, on any other or subsequent occasion. SECTION 2.14. Change in Legality. (a) Notwithstanding any other provision herein contained to the contrary, if (x) any change in any law or regulation or in the interpretation thereof by any Governmental Authority charged with the administration or interpretation thereof shall make it unlawful for any Bank or its Lending Office to make or maintain its Commitment Percentage of any Eurodollar Borrowing or to give effect to its obligations as contemplated hereby with respect to its Commitment Percentage of any Eurodollar Borrowing or (y) at any time the Majority Banks reasonably determine the making or continuance of any Bank's Revolving Credit Loans comprising a portion of any Eurodollar Borrowing has become impracticable as a result of a contingency occurring after the date hereof which adversely affects the interbank eurodollar market or the position of such Bank in such market, as the case may be, then, and in any such event, such Bank shall, promptly after making such determination, give written or telecopy notice (or by telephone promptly confirmed in writing) to the Borrower and the Agent of such determination (which notice the Agent shall promptly transmit to each of the other Banks); provided, however, that before giving any such notice, such Bank shall use reasonable good faith efforts to designate a different Lending Office to make or maintain its Eurodollar Loans if such designation will avoid the need to suspend such Bank's obligations to make or maintain Eurodollar Loans and will not be otherwise disadvantageous to such Bank. Thereafter each such affected Bank may (i) declare that such affected Bank will no longer make Eurodollar Loans (subject to paragraph (b) below) whereupon any request by the Borrower for a Eurodollar Borrowing shall, as to such Bank only, be deemed a request for an ABR Loan; and (ii) require that all outstanding Eurodollar Loans made by such affected Bank(s) be converted into ABR Loans at the end of the applicable Eurodollar Interest Period or such earlier time as may be required by applicable Requirements of Law, in each case by giving the Agent written or telecopy notice (or by telephone promptly confirmed in writing) thereof (which notice, in the case of subclause (ii) above shall specify which affected Eurodollar Loans are to be converted); provided, however, that all Banks whose Eurodollar Loans are affected by the circumstances described above shall be treated in the same manner. (b) In the event any Bank shall exercise its rights under (a) above, all payments of principal which would otherwise have been applied to repay the Eurodollar Loans that would have been made, converted or continued by such Bank or the converted Eurodollar Loans of such Bank shall instead be applied to repay the ABR Loans made by the Bank in lieu of, or resulting from the conversion of, such affected Eurodollar Loans. SECTION 2.15. Funding Losses. Without duplication of other provisions contained herein, the Borrower shall indemnify each Bank against any loss or reasonable expense which such Bank may sustain or incur as a consequence of (i) any failure by the Borrower to fulfill on the Borrowing Date for any Borrowing hereunder the applicable conditions set forth in Article IV, (ii) any failure by the Borrower to borrow hereunder after a Borrowing Request pursuant to this Article II has been given, (iii) any failure by the Borrower to convert or continue a Borrowing hereunder after a Notice of Conversion or Continuation pursuant to this Article II has been given, (iv) any payment, prepayment, continuance or conversion of a Eurodollar Borrowing required or permitted by any other provision of this Credit Agreement including, without limitation, payments made due to the acceleration of the maturity of the Notes pursuant to Section 8.1, or otherwise made on a date other than the last day of the applicable Eurodollar Interest Period, (v) any default in the payment or prepayment of the principal amount of any Eurodollar Borrowing or any part thereof or interest accrued thereon, as and when due and payable (at the due date thereof, by notice of prepayment or otherwise) including, but not limited to, any loss or reasonable expense sustained or incurred or to be sustained or incurred in liquidating or employing deposits from third parties acquired to effect or maintain such Bank's Commitment Percentage of any Eurodollar Borrowing or any part thereof as a Eurodollar Borrowing. Such loss or reasonable expense shall include, without limitation, an amount equal to the excess, if any, as reasonably determined by such Bank of (i) its cost of obtaining the funds for its Commitment Percentage of the Eurodollar Borrowing being paid, prepaid or converted or not borrowed (based on the Eurodollar Rate applicable thereto) for the period from the date of such payment, prepayment, continuance or conversion or failure to borrow to the last day of the Eurodollar Interest Period for such Eurodollar Loan (or, in the case of a failure to borrow, the Eurodollar Interest Period for the Eurodollar Loan which would have commenced on the date of such failure to borrow) over (ii) the amount of interest (as reasonably determined by such Bank) that would be realized by such Bank in reemploying the funds so paid, prepaid, continued or converted or not borrowed for such period or Eurodollar Interest Period, as the case may be, provided that such Bank will use its reasonable efforts to reemploy funds in investments of similar quality. A certificate of such Bank signed by an officer setting forth in reasonable detail any amount or amounts which such Bank is entitled to receive pursuant to this Section 2.15 shall be delivered to the Borrower. The Borrower shall pay to such Bank the amount shown as due on any certificate within thirty (30) Business Days after its receipt of the same. Notwithstanding the foregoing, in no event shall any Bank be permitted to receive any compensation hereunder constituting interest in excess of the Highest Lawful Rate. Without prejudice to the survival of any other obligations of the Borrower hereunder, the obligations of the Borrower under this Section 2.15 shall survive the date of termination of this Credit Agreement and the payment in full of the Obligations. SECTION 2.16. Method of Payments Pro Rata Treatment. (a) the Borrower shall make each payment hereunder and under the Notes delivered hereunder not later than 1:00 p.m., Houston, Texas time, on the day when due in lawful money of the United States (in freely transferable Dollars) to the Agent for the account of the Banks entitled thereto at the Agent's address referred to in Section 10.2 in immediately available funds and any funds received by the Agent after such time shall, for all purposes hereof (including the following sentence), be deemed to have been paid on the next succeeding Business Day. Except as otherwise specifically provided herein, the Agent shall thereafter cause to be distributed on the date of receipt thereof to each Bank in like funds its Commitment Percentage (or, if the Revolving Credit Loan of such Bank with respect to which such payment is being made is not of the same Type as the Revolving Credit Loans of the other Banks with respect to which such payment is being made, such Bank's appropriate share) of the payments so received for the account of such Bank's Lending Office for the Revolving Credit Loan in respect of which such payment is made. (b) Except as otherwise provided herein, (i) each Borrowing comprised of Revolving Credit Loans hereunder shall be obtained from the Banks, each payment of fees shall be paid for the account of the Banks and each partial reduction of the Total Commitment under Section 2.9 shall be applied to the Commitments of the Banks, in each case simultaneously and pro rata in accordance with each Bank's Commitment Percentage, (ii) each conversion of a Borrowing comprised of Revolving Credit Loans of a particular type shall be made pro rata among the Banks according to their respective Commitment Percentage of such Borrowing and (iii) each payment and prepayment of principal of or interest on any Revolving Credit Loans will be made to the Agent for the account of each of the Banks simultaneously and pro rata in accordance with their respective Commitment Percentage of unpaid principal amounts of such Revolving Credit Loans made by the Banks. (c) Whenever any payment hereunder or under the Notes (including principal of or interest on any Revolving Credit Loan or any fees or other amounts), shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest, fee or other amount, as the case may be; provided, however, if such extension would cause payment of interest on or principal of a Eurodollar Loan to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. SECTION 2.17. Taxes. (a) All payments of principal, interest, expenses, reimbursements, compensation, commitment, arrangement or administration fees and any other amount from time to time due hereunder, under the Notes or any other Loan Document made by the Borrower shall be made free and clear of and without deduction for any present or future tax, levy, impost or any other charge, if any, of any nature whatsoever now or hereafter imposed by any Governmental Authority, excluding, however, in the case of the Agent and each Bank, any such taxes, levies, costs or charges imposed on or measured by the gross receipts, capital or overall net income of the Agent or such Bank or such Bank's Lending Office by any jurisdiction in which the Agent or such Bank or such Bank's Lending Office is located (all such non-excluded taxes, levies, costs, imposts, deductions, charges or withholdings being herein called "Withholding Taxes"). If any Withholding Taxes are required to be withheld from any amounts payable to the Agent or any Bank hereunder or under the Notes, and if such withholding does not result from the breach by such Bank of its agreement set forth in subsection (b) below or would not be required if such Bank's representation and warranty set forth in subsection (c) below were true, then, to the extent that any such Withholding Taxes are a liability of, or credited to, the account of the Borrower, the Borrower shall pay to the Agent or such Bank, on the date of each such payment, such additional amounts as may be necessary in order that the net amounts received by the Bank after such deduction or withholding shall equal the amounts which would have been received if such deduction or withholding were not required; provided, however, that all amounts payable under this Section 2.17 which constitute interest under applicable law shall not exceed an amount which would result in the payment of interest at a rate in excess of the Highest Lawful Rate. Whenever any Withholding Taxes are withheld by the Borrower as aforesaid, as promptly as possible thereafter, the Borrower shall send to the Agent for its own account or for the account of such Bank, as the case may be, a certified copy of an original official receipt received by the Borrower showing payment thereof. If the Borrower fails to pay any Withholding Taxes so withheld by it when due to the appropriate taxing authority or fails to remit to the Agent the required receipts or other required documentary evidence, the Borrower shall indemnify the Agent and the Banks for any incremental taxes, interest or penalties that may become payable by the Agent or any Bank as a result of any such failure. The agreements in this Section 2.17 shall survive the termination of this Credit Agreement and the payment of the Notes and all other Obligations. (b) Each Bank that is not incorporated under the laws of the United States of America or a state thereof (including each Eligible Assignee that becomes a party to this Credit Agreement pursuant to Section 10.9) that is entitled to receive payments under this Credit Agreement and the Notes without deduction or withholding of any United States federal income taxes or is entitled to an exemption from backup withholding tax agrees that, prior to the first date on which any payment is due to it hereunder, it will deliver to the Borrower and the Agent, as the case may be, (i) two (2) duly completed copies of United States IRS Forms 1001 or 4224 or successor applicable form, as the case may be, certifying in each case that such Bank is entitled to receive payments under this Credit Agreement and the Notes payable to it, without deduction or withholding of any United States federal income taxes, and (ii) an IRS Forms W-8 or W-9 or successor applicable form, as the case may be, to establish an exemption from United States backup withholding tax. Each Bank which delivers to the Borrower and the Agent IRS Forms and/or applicable certification pursuant to the preceding sentence further undertakes to deliver to the Borrower and the Agent two (2) additional duly completed copies of the said IRS Forms or applicable certification, or successor applicable forms, or other manner of certification, as the case may be, on or before the date that any such form expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Borrower, and such extensions or renewals thereof as may reasonably be requested by the Borrower, establishing that such Bank is entitled to receive payments under this Credit Agreement without deduction or withholding of any United States federal income taxes, unless in any such case a Requirement of Law (including, without limitation, any change in any Requirement of Law) has occurred prior to the date on which any such delivery would otherwise be required which renders all such forms inapplicable or which would prevent such Bank from duly completing and delivering any such form with respect to it and such Bank advises the Borrower that it is not capable of receiving payments without any deduction or withholding of United States federal income tax, and in the case of a Forms W-8 or W-9, establishing an exemption from United States backup withholding tax. (c) Each Bank (including each Eligible Assignee that becomes a party to this Credit Agreement pursuant to Section 10.9) represents and warrants to the Borrower that each Lending Office of such Bank hereunder will be entitled to receive payments of principal of, and interest on, the Revolving Credit Loans made by such Bank from such Lending Office without withholding or deduction for or on account of any United States federal income taxes. SECTION 2.18. Sharing of Payments and Setoffs. Each Bank agrees that if it shall, through the exercise of a right of banker's lien, setoff or counterclaim against the Borrower (pursuant to Section 8.3 or otherwise), including, but not limited to, a secured claim under Section 506 of Title 11 of the United States Code or other security or interest arising from, or in lieu of, such secured claim, received by such Bank under any applicable bankruptcy, insolvency or other similar law or otherwise, or by similar means, obtain payment (voluntary or involuntary) in respect of any Revolving Credit Loan or Revolving Credit Loans (other than pursuant to Sections 2.13, 2.15 or 2.17) as a result of which the unpaid principal portion of its Revolving Credit Loans shall be proportionately less than the unpaid principal portion of the Revolving Credit Loans of any other Bank, it shall simultaneously purchase from such other Banks at face value a participation in the Revolving Credit Loans of such other Banks, so that the aggregate unpaid principal amount of Revolving Credit Loans and participations in Revolving Credit Loans held by each Bank shall be in the same proportion to the aggregate unpaid principal amount of all Revolving Credit Loans then outstanding as the principal amount of its Revolving Credit Loans prior to such exercise of banker's lien, setoff, counterclaim or other event was to the principal amount of all Revolving Credit Loans outstanding prior to such exercise of banker's lien, setoff, counterclaim or other event; provided, however, that if any such purchase or purchases or adjustments shall be made pursuant to this Section 2.18 and the payment giving rise thereto shall thereafter be recovered, such purchase or purchases or adjustments shall be rescinded to the extent of such recovery and the purchase price or prices or adjustment restored without interest. The Borrower expressly consents to the foregoing arrangements and agrees that any Bank holding a participation in a Note deemed to have been so purchased may exercise any and all rights of banker's lien, setoff or counterclaim with respect to any and all moneys owing by the Borrower to such Bank as fully as if such Bank had made a Revolving Credit Loan directly to such the Borrower in the amount of such participation. SECTION 2.19. Limitation on Reimbursement; Mitigation. (a) Notwithstanding the provisions of Section 2.13 if any Bank fails to give notice to the Borrower of any event that would obligate the Borrower to pay any amount owing pursuant to Section 2.13 within 180 days after such Bank obtains knowledge of such event, and subsequently gives notice to the Borrower of such event, the Borrower shall pay only such amounts for costs incurred for the one hundred eighty-day period immediately prior to such notice. (b) Any Bank claiming any additional amounts payable pursuant to Sections 2.13 or 2.17 or any Bank subject to Sections 2.12 or 2.14 shall use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to change the jurisdiction of its lending office for the Revolving Credit Loans, if the making of such a change would avoid the need for, or reduce the amount of, any such additional amounts which may thereafter accrue under Sections 2.13 or 2.17 or would avoid the unavailability of Eurodollar Loans under Sections 2.12 or 2.14 and would not, in any such case, in the judgment of such Bank, be otherwise disadvantageous. SECTION 2.20. Use of Proceeds. (a) The proceeds of the Revolving Credit Loans and Letters of Credit may be used (i) to provide working capital to the Borrower and its Subsidiaries, (ii) to finance capital expenditures and acquisitions (other than acquisitions of Margin Stock) of the Borrower and its Subsidiaries and (iii) to provide for letters of credit for the account of the Borrower and its Subsidiaries. The proceeds of all Swing Loans shall be used solely for cash management purposes of the Borrower. (b)No portion of the proceeds of any Revolving Credit Loan made under, or any Letter of Credit issued pursuant to, this Credit Agreement shall be used by the Borrower to purchase or carry Margin Stock, or in any manner that might cause the borrowing or the application of such proceeds to violate Regulation U, Regulation T, or Regulation X or any other regulation of the Board or to violate the Securities Exchange Act of 1934, in each case as in effect on the date or dates of such borrowing and such use of proceeds. (c)No portion of the proceeds of any Revolving Credit Loan under this Credit Agreement shall be used by the Borrower, directly or indirectly, for a Hostile Acquisition. SECTION 2.21. Mandatory Termination of Total Commitment; Extension of Maturity Date. (a) The Total Commitment shall terminate on the Maturity Date, and any Revolving Credit Loans then outstanding (together with accrued and unpaid interest thereon) shall be due and payable on such date. (b) At any time after March 1 but on or before May 1 of each calendar year, commencing with the calendar year 2000, the Borrower may request that the Banks extend the Maturity Date for successive periods of one year. The Banks in their sole discretion may agree to extend or decline to extend the Maturity Date; however, if the Banks have not responded to such request in writing by June 1 of the year of the Borrower's request such request shall be deemed to have been denied. In the event the Banks agree to such request, the Borrower, the Agent and the Banks shall execute a written amendment and extension agreement in form reasonably acceptable to the Agent and the Banks evidencing such extension and the agreed upon terms and conditions of such extension together with such other documents as the Agent and the Banks shall reasonably request. SECTION 2.22. Replacement of Banks. If any Bank (an "Affected Bank") shall have (i) failed to fund any Revolving Credit Loan that such Bank is obligated to fund hereunder and such failure has not been cured, (ii) requested compensation from the Borrower under Sections 2.13 or 2.17 to recover costs or taxes incurred by such Bank which are not being incurred generally by the other Banks, (iii) given notice pursuant to Sections 2.12 or 2.14 that such Bank has suspended the Borrower's right to elect Eurodollar Loans from such Bank for reasons not generally applicable to the other Banks or (iv) failed to approve the recommended Total Borrowing Base and Available Borrowing Base of the Majority Banks, then, in any such case and in addition to any other rights or remedies available to the Borrower, the Borrower may give written notice to such Affected Bank of the occurrence of an event set forth in subsections (i), (ii), (iii) or (iv) of this Section 2.22, and during the sixty (60) day period following such notice, the Borrower may make written demand on such Affected Bank (with a copy to Agent and each other Bank), for such Affected Bank to assign to one or more financial institutions (a "Replacement Bank"), all of such Affected Bank's rights and obligations under this Agreement and the other Loan Documents (including such Affected Bank's Commitment and all Revolving Credit Loans owing to such Affected Bank), provided, such assignment shall be consummated in accordance with and shall be subject to the terms of Section 10.9). Pursuant to Section 10.9, upon any such assignment, such Affected Bank shall cease to be a party hereto, provided, however, such Affected Bank shall continue to be entitled to the benefits of Sections 2.13, 2.15, 2.17 and 8.4 accruing with respect to such Affected Bank prior to such assignment, as well as any fees accrued for its account and not yet paid. If an Eligible Assignee cannot be obtained within the sixty (60) day period following said notice to the Affected Bank, to assume the Commitment of such Affected Bank, and provided that no Default or Event of Default shall have occurred and be continuing, then the Borrower may prepay immediately all Revolving Credit Loans of such Affected Bank and terminate such Affected Bank's entire Commitment hereunder provided, however, that in the event the Borrower makes any prepayment pursuant to this sentence, then on the date of such prepayment, the Total Commitment of the Banks shall be permanently reduced by the amount of such Affected Bank's Commitments and the Commitment Percentage of each other Bank shall be redetermined based upon the amount each such other Bank's Commitment is of the Total Commitment as so reduced. ARTICLE III BORROWING BASE SECTION 3.1. Borrowing Base Asset Reports. As soon as available and in any event by March 31 and October 1 of each year commencing October, 1999, the Borrower shall deliver to each of the Banks the Borrowing Base Asset Reports prepared as of the immediately preceding December 31 and June 30 respectively. SECTION 3.2. Determination of Total Borrowing Base. Based in part on the Borrowing Base Asset Reports delivered pursuant to Section 3.1 the Banks shall determine the Total Borrowing Base and the Available Borrowing Base to be in effect on the next succeeding Determination Date. Such determination shall be made in good faith by the Banks in their sole discretion in accordance with their respective customary practices and standards for loans of this nature, which may vary from Bank to Bank. In connection with the determination of the Total Borrowing Base and upon the receipt of each Borrowing Base Asset Report, the Agent shall submit to the Banks in writing on or before May 1 or November 1, as the case may be, the Agent's recommendation as to the Total Borrowing Base and the Available Borrowing Base which the Agent has determined should be available to the Borrower pursuant to the Total Commitment as of the next succeeding June 1 or December 1, as the case may be (each such date being a "Determination Date"). Each Bank shall submit to the Agent in writing on or before May 15 or November 15, as the case may be, such Bank's approval or disapproval of the Agent's recommended Total Borrowing Base and any such disapproval shall state the maximum Total Borrowing Base acceptable to such Bank. If the Agent has not received such notice from a Bank on or before the close of business on May 15 or November 15, as the case may be, such Bank shall be deemed to have approved the Agent's recommended Total Borrowing Base. In the event the Majority Banks approve the Agent's recommended Total Borrowing Base, the Total Borrowing Base approved by the Majority Banks shall become effective on the next succeeding Determination Date and shall remain in effect until the next Determination. In the event the Majority Banks do not approve the Agent's recommended Total Borrowing Base, the Banks shall consult with each other in order to agree on the Total Borrowing Base to be effective on such Determination Date. In the event the Majority Banks are unable to agree on the Total Borrowing Base to be effective on the next succeeding Determination Date prior to May 25 or November 25, as the case may be, the Total Borrowing Base which becomes effective on the next Determination Date shall be the weighted average of the Total Borrowing Bases, requested by the Banks in the notices referred to in the fourth sentence of this Section 3.2 and shall remain in effect until the next Determination. The Agent shall notify the Borrower of the Total Borrowing Base to become effective on each Determination Date by providing the Borrower a Borrowing Base Notice no later than 2:00 p.m., Houston, Texas time three days prior to such Determination Date. Without limiting the right of the Banks to determine in good faith the Total Borrowing Base in their sole discretion, the Borrower acknowledges and agrees that subject to the Banks' consistent application of their respective standards for similar loans, the Banks (i) may make such assumptions regarding appropriate existing and projected pricing for Hydrocarbons and coal as they deem appropriate in their sole discretion, (ii) may make such assumptions regarding and/or modifying projected rates and/or quantities of future production of (y) Hydrocarbons from Oil and Gas Interests and (z) coal from Coal Interests owned by the Borrower and the Subsidiary Guarantors as they deem appropriate in their sole good faith discretion, (iii) may consider the projected cash requirements of the Borrower and its Subsidiaries, including, without limitation, obligations under Consolidated Debt, and other debt service and lease obligations of the Borrower and its Subsidiaries, general and administrative expenses and distributions in respect of equity, (iv) are not required to consider any asset other than Borrowing Base Assets, (v) will give no consideration to any asset owned by an entity other than the Borrower or a Subsidiary Guarantor and (vi) may make such other assumptions, considerations and exclusions as each Bank deems appropriate in the exercise of its good faith sole discretion, it being recognized that the ultimate determination to be reached is more predicted upon the aggregate amount of credit available hereunder which, at the time of the determination, each Bank determines should be available as reasonably expected to be repayable by the Borrower, considering all then existing and projected other items which are expected to be payable or repayable, without undue risk of failure to timely repay. Notwithstanding anything contained herein to the contrary, the borrowing base value given by the Banks to the Norfolk Common Stock (together with the borrowing base value given by the Banks to all other Margin Stock, if any,) shall never exceed twenty-five percent (25%) of the Total Borrowing Base. SECTION 3.3. The Designated Borrowing Base. The Borrower may designate a borrowing base amount for each Borrowing Base Period, which borrowing base amount shall be equal to or less than the Available Borrowing Base set forth in the most recent Borrowing Base Notice delivered to the Borrower (the "Designated Borrowing Base"), provided, however, that the Designated Borrowing Base can never be less than $75,000,000 (i.e., if the Available Borrowing Base is less than $75,000,000, then the Borrower shall not be permitted to designate a Designated Borrowing Base). The initial Designated Borrowing Base for the first Borrowing Base Period is $110,000,000. The Borrower shall elect to have a Designated Borrowing Base take effect for any Borrowing Base Period by giving notice to the Agent within five Business Days after its receipt of a Borrowing Base Notice for a Borrowing Base Period; provided that if the Borrower has elected a Designated Borrowing Base for a Borrowing Base Period, the Borrower may, at any time prior to the end of such Borrowing Base Period, by giving five Business Days' prior written notice to the Agent, elect to increase the Designated Borrowing Base for that Borrowing Base Period to an amount not greater than the amount of the Available Borrowing Base originally included by the Agent in the Borrowing Base Notice for such Borrowing Base Period; provided further that if the Borrower so elects to increase the Designated Borrowing Base, then all commitment fees payable pursuant to Section 2.5 below with respect to the Borrowing Base Period in which such increase took place shall be calculated as if the increased Designated Borrowing Base had been in effect for the entire Borrowing Base Period. SECTION 3.4. Special Determination of Total Borrowing Base. In addition to the redeterminations of the Total Borrowing Base pursuant to Section 3.2, (i) within five (5) days following receipt of notice (given pursuant to Section 6.1(l)) of a planned asset sale, transfer or disposal of Borrowing Base Assets other than those sales permitted under Section 7.8, or (ii) the Borrower elects not to cure defects in title at the request of the Majority Banks pursuant to Section 6.14, the Majority Banks may request an additional redetermination of the Total Borrowing Base and the Available Borrowing Base in connection with such sale or defects in title. In the event the Majority Banks request such a Special Determination, the Agent shall promptly deliver notice of such request to the Borrower and the Borrower shall, within ten (10) days of such request, deliver to the Banks the Borrowing Base Asset Reports prepared as of the last day of the calendar month preceding the date of such request. Upon receipt of such Borrowing Base Asset Reports the Banks shall redetermine the Total Borrowing Base and the Available Borrowing Base in accordance with the procedure set forth in Section 3.2 which Total Borrowing Base and Available Borrowing Base shall become effective on the Determination Date applicable to such Special Determination and shall remain in effect until the next Determination. SECTION 3.5. Initial Total Borrowing Base; Initial Available Borrowing Base. During the period from the Effective Date to September 1, 1999, the Total Borrowing Base shall be $110,000,000 and the Available Borrowing Base shall be $110,000,000. ARTICLE IV CONDITIONS PRECEDENT SECTION 4.1. Conditions Precedent to the Revolving Credit Loans. The obligation of each Bank to make its initial Revolving Credit Loan or for the Issuing Bank to issue its initial Letter of Credit is subject to the satisfaction of the following conditions precedent: (a)The Agent shall have received, duly authorized, executed and delivered by each Person that is a party thereto, in form and substance satisfactory to the Banks, each of the following: (i) each of the following Loan Documents (together with all exhibits thereto) dated on or as of the Effective Date: (aa) this Credit Agreement; (bb) each of the Notes; and (cc) the Subsidiary Guaranty; (ii) a certificate of the Secretary or Assistant Secretary of the Borrower, dated the Effective Date, certifying as to (aa) the adoption and continuing effect of resolutions of the board of directors of the Borrower authorizing the transactions contemplated hereby and by the other Loan Documents; (bb) the Articles of Incorporation of the Borrower, (cc) the Bylaws of the Borrower and all amendments thereto, and (dd) the incumbency of all officers of the Borrower who will execute or have executed any document or instrument required to be delivered hereunder, containing the signature of same; (iii) a certificate of the Secretary or Assistant Secretary of each Subsidiary Guarantor, dated the Effective Date and certifying as to (aa) the adoption and continuing effect of resolutions of the board of directors of such Subsidiary Guarantor authorizing the transactions contemplated hereby and by the other Loan Documents; (bb) the Articles (or Certificate, as the case may be) of Incorporation of such Subsidiary Guarantor and all amendments thereto, (cc) the Bylaws of the such Subsidiary Guarantor and all amendments thereto, and (dd) the incumbency of all officers of such Subsidiary Guarantor who will execute or have executed any document or instrument required to be delivered hereunder, containing the signature of same; (iv) with respect to the Borrower, a certificate of existence and good standing from the Secretary of State of the State of Virginia dated no more than 5 days prior to the Effective Date; (v) with respect to PVHC, a certificate of existence and good standing from the Secretary of State of the State of Delaware dated no more than 5 days prior to the Effective Date. (vi) with respect to PVOG, a certificate of existence and good standing from the Secretary of State of Virginia dated no more than 5 days prior to the Effective Date and certificates of authorization to do business and good standing in the States of West Virginia, Kentucky, Tennessee, Illinois and Indiana. (vii) with respect to PVCC, a certificate of existence and good standing from the Secretary of State of Virginia dated no more than 5 days prior to the Effective Date and certificates of authorization to do business and good standing in the States of West Virginia and Kentucky; (viii) with respect to Equities, a certificate of existence and good standing from the Secretary of State of Delaware dated no more than 5 days prior to the Effective Date; (ix) the Opinion of the Borrower's Counsel; (x)(aa) the Initial Borrowing Base Asset Reports and (bb) such other information regarding the Borrowing Base Assets as the Agent or any Bank may reasonably request; (xii) (aa) the Initial Financial Statements and (bb) such other financial information, regarding the Borrower or any of its Subsidiaries as the Agent or any Bank may reasonably request. All of such financial statements and financial information shall be satisfactory to the Banks; (xiii) for its account and for the account of each Bank, as applicable, all fees and expenses due and payable hereunder on or before the Effective Date and invoiced to the Borrower in writing prior to the Effective Date; (xiv) a Federal Reserve Form U-1, as the case may be, with respect to the Commitment of each Bank; and (xv) such other certificates, opinions, documents and instruments relating to the transactions contemplated hereby as may have been reasonably requested by the Agent or any Bank. (b) (i) the representation and warranties of the Borrower contained in Article V hereof and, in all material respects, in each of the other Loan Documents to which the Borrower is a party shall be true and correct in all material respects on the Effective Date both before and after giving effect to the making of the initial Revolving Credit Loans; (ii) the representations and warranties of each Subsidiary contained in any Loan Document to which such Subsidiary is a party are true and correct in all material respects on the Effective Date both before and after giving effect to the initial Revolving Credit Loans; (iii) no Default or Event of Default shall have occurred and be continuing on the Effective Date either before or after giving effect to the making of the initial Revolving Credit Loans, (iv) no material litigation (other than Existing Litigation) is pending or, to the best knowledge of the Borrower after due inquiry, threatened against the Borrower or any Subsidiary of the Borrower and no material adverse development has occurred in any Existing Litigation, and (v) no events or state of affairs which could reasonably be expected to result in a Material Adverse Effect shall have occurred since December 31, 1998; (c) A search, made no more than 30 days prior to the Effective Date, of the Uniform Commercial Code filing offices in each relevant jurisdiction shall have revealed no filings or recordings with respect to the Borrowing Base Assets (except Permitted Liens) in favor of any Person. The Agent shall have received a copy of the search reports received as a result of such search and fully executed releases effectuating the termination of any and all Liens (other than Permitted Liens) pertaining to any of the Borrowing Base Assets; (d) Such other conditions precedent which the Agent may reasonably have requested or required. SECTION 4.2. Additional Conditions Precedent. No Bank has any obligation to make any Revolving Credit Loan (including its initial Revolving Credit Loan) and the Issuing Bank has no obligation to issue any Letter of Credit (including the initial Letter of Credit) unless the following conditions precedent have been satisfied: (a) The Agent shall have received, in form and substance satisfactory to the Agent, a certificate of the Borrower and of each Subsidiary signed by a Responsible Officer of the Borrower and of each Subsidiary, dated as of the Borrowing Date, certifying that (aa) the representations and warranties of the Borrower and each Subsidiary contained in Article V hereof and, in all material respects, in each of the other Loan Documents to which the Borrower or such Subsidiary is a party, are true and correct in all material respects (both before and after giving effect to the making of such Revolving Credit Loan or the issuing of such Letter of Credit) on and as of the Borrowing Date as if made on and as of such date (or, if stated to have been made solely as of an earlier date, were true and correct as of such earlier date); (bb) no event or state of affairs which could reasonably be expected to result in a Material Adverse Effect has occurred since the fiscal year end of the Fiscal Year for which audited financial statements conforming to the requirements of Section 6.1(b) have been delivered to the Banks pursuant to Section 6.1(b); (cc) no Default or Event of Default then exists either before or after giving effect to the making of such Revolving Credit Loan or the issuing of such Letter of Credit; and (dd) no new material litigation (other than Existing Litigation) is pending or, to the best knowledge of the Borrower after due inquiry, threatened against the Borrower or any Subsidiary and no material adverse development has occurred in any Existing Litigation. (b) the Borrower shall have complied with the provisions of Section 2.2 and/or 2.3, as applicable; (c) The Maturity Date shall not have occurred; (d) The sum of (i) the amount of the requested Borrowing and/or the face amount of the requested Letter of Credit plus (ii) the Utilized Credit shall not exceed the Available Commitment then in effect. (e) The making of such Revolving Credit Loans or the issuance of such Letters of Credit shall not result in the Borrower's, any of its Subsidiary's or any Bank's being in noncompliance with or in violation of Regulation U, and shall not be prohibited by any Requirements of Law. SECTION 4.3. General. All of the agreements, instruments, reports, opinions and other documents and papers referred to in this Article IV (except for the Notes and the Letters of Credit), unless otherwise expressly specified, shall be delivered to the Agent in sufficient counterparts for each of the Banks. As soon as practicable after receipt of such documents the Agent shall deliver such documents to each of the Banks. ARTICLE V REPRESENTATIONS AND WARRANTIES In order to induce the Agent and each Bank to enter into this Credit Agreement and to make the Revolving Credit Loans, the Borrower represents and warrants as to itself and each of its Subsidiaries, to the Agent and each Bank that the following statements are true, correct and complete. SECTION 5.1. Organization; Corporate Powers. Each of the Borrower and each of its Subsidiaries (a) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, (b) is duly qualified to do business as a foreign corporation and is in good standing in each other jurisdiction in which such qualification and good standing are necessary in order for it to conduct its business and own its properties as conducted and owned (except only for jurisdictions in which the failure to be so qualified or in good standing would not, individually or in the aggregate, result in (i) the loss of any privileges in such jurisdiction which are material to the Borrower or such Subsidiary or their respective businesses, or (ii) a material liability to the Borrower or such Subsidiary, and (c) has all requisite power and authority to own its property and assets and to carry on its business as now conducted and as proposed to be conducted. SECTION 5.2. Authority. Each of the Borrower and each of its Subsidiaries has the corporate power and authority and legal right to execute, deliver and perform each of the Loan Documents executed by, or to be executed by, the Borrower or such Subsidiary and each other agreement or instrument contemplated thereby to which it is or will be a party and, with respect to the Borrower, to borrow hereunder. The execution, delivery and performance of each of the Loan Documents to which the Borrower or any of its Subsidiaries is or will be a party and the consummation of the transactions contemplated thereby, and, with respect to the Borrower, the borrowing of funds under this Credit Agreement, have been duly approved by the board of directors of each such Person and no other corporate proceedings on the part of such Person are necessary to consummate such transactions. This Credit Agreement constitutes, and each of the other Loan Documents to which the Borrower or any of its Subsidiaries is a party when executed and delivered by such Person, will constitute the legal, valid and binding obligation of such Person, enforceable against such Person in accordance with its terms, except as enforceability thereof may be limited by bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or other similar laws relating to creditors' rights generally and by general principles of equity which may limit the right to obtain equitable remedies (regardless of whether such enforceability is considered in a proceeding in equity or at law). SECTION 5.3. Use of Proceeds. The Borrower's uses of the proceeds of the Revolving Credit Loans shall be as set forth in Section 2.20. SECTION 5.4. No Conflict. The execution, delivery and performance by the Borrower and each Subsidiary of the Borrower of the Loan Documents to which the Borrower or such Subsidiary of the Borrower is a party, the compliance by the Borrower or such Subsidiary of the Borrower with the terms and provisions thereof and the consummation of each of the transactions contemplated thereby, do not and will not (i) require any consent or approval of the stockholders of the Borrower or any of its Subsidiaries, or any authorization, consent or approval by any Governmental Authority or (ii) by the lapse of time, the giving of notice or otherwise, (a) constitute a violation of any Requirement of Law binding on the Borrower or such Subsidiary of the Borrower or a breach of any provision contained in the articles or certificate of incorporation or bylaws of the Borrower or such Subsidiary of the Borrower, (b) constitute a breach of any material provision contained in any Material Contract to which the Borrower or such Subsidiary of the Borrower is a party or by which the Borrower or such Subsidiary of the Borrower is bound, or (c) result in or require the creation or imposition of any Lien whatsoever upon any of the properties or assets of the Borrower or such Subsidiary of the Borrower (other than Permitted Liens). SECTION 5.5. Gas Balancing Agreements and Advance Payment Contracts. As of the Effective Date, (a) the net gas imbalance to the Borrower and PVOG (considered in the aggregate) under all Gas Balancing Agreements to which the Borrower or PVOG is a party or by which any Oil and Gas Interests owned by the Borrower or any of its Subsidiaries is bound, is not in excess of $500,000, and (b) the aggregate amount of all Advanced Payments received by the Borrower or PVOG under Advance Payment Contracts which have not been satisfied by delivery of production does not exceed $500,000. SECTION 5.6. Borrowing Base Assets. (a) The Borrower and/or PVOG have good and defensible title to all Oil and Gas Interests described in the Initial Borrowing Base Asset Report other than Immaterial Oil and Gas Interests, free and clear of all Liens except Permitted Liens. With the exception of Immaterial Oil and Gas Interests, all such Oil and Gas Interests are valid, subsisting, and in full force and effect, and all rentals, royalties, and other amounts due and payable in respect thereof have been duly paid. Except with respect to Immaterial Oil and Gas Interests, but without regard to any consent or non-consent provisions of any joint operating agreement covering any of the Proved Reserves of the Borrower and PVOG, the Borrower's (and PVOG's) share of (a) the costs for each of the Proved Reserves described in Initial Borrowing Base Asset Report is not greater than the decimal fraction set forth in the Initial Borrowing Base Asset Reports, before and after payout, as the case may be, and described therein by the respective designations "working interests", "WI", "gross working interest", "GWI", or similar terms, and (b) production from, allocated to, or attributed to each such Proved Reserves is not less than the decimal fraction set forth in the Initial Borrowing Base Asset Reports, before and after payout, as the case may be, and described therein by the designations net revenue interest, NRI, or similar terms. Except with respect to Immaterial Oil and Gas Interests, each well drilled in respect of each Proved Developed Producing Hydrocarbon Reserves described in the Initial Borrowing Base Asset Reports (y) is capable of, and is presently, producing Hydrocarbons in commercial quantities, and the Borrower or PVOG is currently receiving payments for its share of production, with no material funds in respect of any thereof being presently held in suspense, other than any such funds being held in suspense pending delivery of appropriate division orders, and (z) has been drilled, bottomed, completed, and operated in compliance with all applicable Requirements of Law and no such well which is currently producing Hydrocarbons is subject to any penalty in production by reason of such well having produced in excess of its allowable production. For purposes of this Section 5.6(a), "Immaterial Mineral Interests" means Oil and Gas Interests which, in the aggregate, do not represent more than two percent (2%) of the discounted present value of all Oil and Gas Interests as set forth in the Initial Reserve Report. (b)The Borrower and/or PVCC have good and defensible title to all material coal assets described in that certain reserve report dated December 30, 1998 and issued to the Agent as of March 31, 1999 (the "Coal Interests"), free and clear of all Liens except Permitted Liens. All such Coal Interests are valid, subsisting, and in full force and effect, and all rentals, royalties, and other amounts due and payable in respect thereof have been duly paid. (c) As of the Effective Date, Equities has good and marketable title to 3,307,200 shares of Norfolk Common Stock (the "Norfolk Securities"), free and clear of all Liens, options, warrants, puts, calls, or other rights of the issuer or third persons. SECTION 5.7. Ownership of Properties Generally. With respect to all other properties and assets of the Borrower and its Subsidiaries not covered by Section 5.6 above, the Borrower and each of its Subsidiaries have good and defensible fee simple or leasehold title to all material properties and assets purported to be owned by them, including, without limitation, all assets reflected in the balance sheets referred to in Section 5.9 (a) and all assets which are used by the Borrower and its Subsidiaries in the operation of their respective businesses, and none of such properties or assets is subject to any Lien other than Permitted Liens. Neither the Borrower nor any Subsidiary of the Borrower owns any real property or leasehold interests in any real property located on tribal lands. SECTION 5.8. No Defaults. (a)Neither the Borrower nor any Subsidiary of the Borrower is a party to any Contractual Obligation that has resulted or is reasonably likely to result in a Material Adverse Effect. (b)(i) No Default or Event of Default exists and (ii) neither the Borrower nor any Subsidiary of the Borrower is in default with respect to any Material Contract. SECTION 5.9. Financial Position; No Material Adverse Change. (a)The Borrower has heretofore furnished to the Agent and the Banks its Consolidated balance sheet, and the related Consolidated statements of income, cash flows and shareholders' equity of the Borrower and its Subsidiaries (x) as of and for the Fiscal Year ended December 31, 1998, audited by and accompanied by the unqualified opinion of Arthur Andersen, independent certified public accountants, and (y) as of and for the Fiscal Quarter ended March 31, 1999, certified by a Responsible Officer of the Borrower. Such financial statements present fairly the financial condition and results of operations of the Borrower and its Subsidiaries as of such dates and for such periods. Such financial statements were prepared in accordance with GAAP applied on a consistent basis. (b)Neither the Borrower nor any Subsidiary of the Borrower has any material contingent liabilities, material liabilities for taxes, unusual and material forward or long-term commitments or material unrealized or anticipated losses from any unfavorable commitments, except as referred to or reflected or provided for in the Consolidated balance sheets of the Borrower or as otherwise disclosed to the Banks in writing. (c)the Borrower has disclosed to the Banks in writing any and all facts which, in the reasonable good faith judgment of the Borrower, could reasonably be expected to result in a Material Adverse Effect. SECTION 5.10. Litigation; Adverse Effects. (a) There are no actions, suits, proceedings, governmental investigations or arbitrations, at law or in equity, before or by any Governmental Authority, pending or, to the best knowledge of the Borrower, probable of assertion against the Borrower or any Subsidiary of the Borrower or any property of the Borrower or any Subsidiary of the Borrower, which if adversely determined, is likely to result in a material judgment or liability not fully covered by insurance and/or could reasonably be expected to result in a Material Adverse Effect. (b)None of the business, properties, or operations of the Borrower or any Subsidiary of the Borrower are materially and adversely 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). SECTION 5.11. ERISA. A summary of all currently existing Benefit Plans are listed on Schedule 5.11 hereto. The Borrower and each of its Subsidiaries is in compliance in all material respects with the applicable provisions of ERISA and the regulations and published interpretations thereunder. No Reportable Event has occurred as to which the Borrower or any Subsidiary of the Borrower was required to file a report with the PBGC, and the present value of all benefit liabilities and benefit assets under each Benefit Plan (based on those assumptions used to fund such Benefit Plan) is as set forth in the Initial Financial Statements delivered to the Banks. Neither the Borrower nor any Subsidiary of the Borrower has any ERISA Affiliates (other than the Borrower and its Subsidiaries) or Multiemployer Plans. SECTION 5.12. Payment of Taxes. The Borrower has filed, and has caused each of its Subsidiaries to file, all federal, state and local tax returns and other reports required by Requirements of Law to have been filed by the Borrower or such Subsidiary of the Borrower and has paid (prior to delinquency) all taxes and other similar charges and assessments that are due and payable including extensions, except taxes, charges and assessments which are being diligently contested in good faith by appropriate proceedings and any Lien arising thereunder constitutes a Permitted Lien. No Responsible Officer of the Borrower or any Subsidiary of the Borrower has knowledge of any proposed tax assessment against the Borrower or any Subsidiary of the Borrower that is reasonably likely to result in a Material Adverse Effect. SECTION 5.13. Environmental Matters. Except as could not reasonably be expected to result in material liability to the Borrower or any Subsidiary of the Borrower: (a)The Borrower and each of its Subsidiaries is in compliance with all applicable Environmental Laws; (b)Each of the Borrower and each of its Subsidiaries has obtained all consents and permits required under all applicable Environmental Laws to operate its business as presently conducted or as proposed to be conducted, if and at the time required by applicable Environmental Laws, and all such consents and permits are in full force and effect and the Borrower and its Subsidiaries is in compliance with all terms and conditions of such approvals; (c) Neither the Borrower nor any Subsidiary of the Borrower nor any of the property or operations, either past or present, of the Borrower or any Subsidiary of the Borrower is subject to any order from or agreement with any Governmental Authority or private party respecting (i) failure to comply with any Environmental Law or any Remedial Action or (ii) any Environmental Liabilities arising from the Release or threatened Release of a Hazardous Substance into the environment except those orders and agreements with which the Borrower or such Subsidiary of the Borrower is in compliance with; (d)None of the operations of the Borrower or any Subsidiary of the Borrower is subject to any judicial or administrative proceeding alleging a violation of, or liability under, any Environmental Law; (e)To the best knowledge and belief of the Borrower, none of the operations of the Borrower or any Subsidiary of the Borrower is the subject of any investigation by any Governmental Authority evaluating whether any Remedial Action is needed to respond to a Release or threatened Release of a Hazardous Substance into the environment; (f)Neither the Borrower nor any Subsidiary of the Borrower has filed any notice under any Environmental Law indicating past or present treatment, storage or disposal of a Hazardous Substance under 40 CFR Part 261 or any state or local equivalent; (g)Neither the Borrower nor any Subsidiary of the Borrower has filed any notice under any applicable Environmental Law reporting a Release of a Hazardous Substance (other than minor or de minimis emissions) into the environment; (h)There is not now, nor, to the best knowledge and belief of the Borrower has there ever been, on or in any property of the Borrower or of any Subsidiary of the Borrower: (i)any generation, treatment, recycling, storage or disposal of any Hazardous Substance under 40 CFR Part 261 or any state or local equivalent, (ii) any underground storage tanks or surface impoundments, (iii) any friable asbestos-containing material, or (iv) any polychlorinated biphenyls (PCBs) used in hydraulic oils, electrical transformers or other equipment, except in compliance with all applicable Environmental Laws; (i) Except for those commitments and agreements entered into by the Borrower or any Subsidiary of the Borrower in the ordinary course of business in compliance with all material requirements of applicable Environmental Laws, there have been no written commitments or agreements involving the Borrower or any Subsidiary of the Borrower from or with any Governmental Authority or any private entity (including, without limitation, the owner of the property or any portion thereof) relating to the generation, storage, treatment, presence, Release, or threatened Release of any Hazardous Substance on or into any of the properties of the Borrower or any Subsidiary of the Borrower or the environment (including off-site disposal of toxic wastes or Hazardous Substances) or any Remedial Action with respect thereto; (j)Neither the Borrower nor any Subsidiary of the Borrower has received any pending or unresolved written notice or claim to the effect that it is or may be liable to any Person as a result of the Release or threatened Release of a Hazardous Substance into the environment; (k)Neither the Borrower nor any Subsidiary of the Borrower has any known liability in connection with any material Release or material threatened Release of any Hazardous Substances into the environment; and (l)To the best knowledge and belief of the Borrower, no Environmental Lien has attached to any properties of the Borrower or any Subsidiary of the Borrower. SECTION 5.14. Governmental Regulation. Neither the Borrower nor any Subsidiary of the Borrower is subject to regulation under the Interstate Commerce Act, the Investment Company Act of 1940, the Public Utility Holding Company Act of 1935, the Federal Power Act or any other Requirements of Law such that its ability to incur indebtedness is limited or its ability to consummate the transactions contemplated by this Credit Agreement and the other Loan Documents or any document executed in connection therewith is impaired. SECTION 5.15. Disclosure. All information contained in any financial statements, Reserve Reports, Coal Reserve Reports, Borrowing Base Asset Reports, certificates, exhibits, schedules, operating statements and any other written statements and written information (excluding estimates and forecasts) furnished by or on behalf of the Borrower or any Subsidiary of the Borrower to the Banks and the Agent, (taken as a whole) in connection with any transaction contemplated hereby or by any other Loan Document on or prior to the date this representation is made or deemed made, was, and will be, true and correct in all material respects and does not, and will not, contain any material misstatement of fact or omit to state a material fact necessary in order to make the statements contained therein, in light of the circumstances under which they were made, not misleading. SECTION 5.16. Subsidiaries. As of the Effective Date, Schedule 5.16 contains a complete and accurate (a) list of all Subsidiaries of the Borrower, (b) description of the issued and outstanding capital stock of each Subsidiary of the Borrower and (c) the record owners of such capital stock. Except as set forth on Schedule 5.16, neither of the Borrower nor any Subsidiary of the Borrower is a partner or joint venturer in any partnership or joint venture or a member of any unincorporated association. SECTION 5.17. Solvency. Neither the Borrower nor any Subsidiary of the Borrower (i) is "insolvent" (within the meaning of Section 101(32) of the Bankruptcy Code, Section 2 of the Uniform Fraudulent Conveyance Act or Section 2 of the Uniform Fraudulent Transfer Act) or will become insolvent as a result of the incurrence of any obligation under any Loan Document to which it is a party; (ii) has unreasonably small capital (after giving effect to the transactions contemplated in any Loan Document to which it is a party) for the conduct of its existing and contemplated business and (iii) is able to perform its contingent obligations and other commitments as they mature in the normal course of business. SECTION 5.18. Business. The Borrower and its Restricted Subsidiaries have not conducted and are not conducting any business other than business relating to the exploration, development, financing, acquisition, ownership, operation, maintenance, storage, transporting and marketing of the Oil and Gas Interests, the Coal Interests and timber interests, land management, and related activities as currently conducted. SECTION 5.19. Material Contracts. Schedule 5.19 lists all Material Contracts to which the Borrower or any of its Subsidiaries is a party or by which it or its properties is bound (including, without limitation, all amendments, supplements, waivers and other agreements amending, supplementing or otherwise modifying or clarifying such agreements) but excluding (a) the Loan Documents, (b) leases and operating agreements related to the Borrowing Base Assets and (c) agreements and plans relating to employee benefits. The Borrower and each of its Subsidiaries have complied in all material respects with all obligations required to be performed by them under all Material Contracts, except to the extent a failure to comply could not reasonably be expected to result in a Material Adverse Effect. The Borrower is not aware of any default by any other party to any Material Contract. SECTION 5.20. Licenses, Permits, Etc. The Borrower and each of its Subsidiaries possess such valid franchises, certificates of convenience and necessity, operating rights, licenses, permits, consents, authorizations, exemptions and orders of Governmental Authorities, as are necessary to carry on their respective businesses as now conducted and as proposed to be conducted, except to the extent a failure to obtain any such item could not reasonably be expected to result in a Material Adverse Effect. SECTION 5.21. Fiscal Year. The Borrower's Fiscal Year is January 1 through December 31. SECTION 5.22. Year 2000. Any reprogramming required to permit the proper functioning, in and following the year 2000, of (a) the Borrower's and its Subsidiaries' computer systems and (b) equipment containing embedded microchips (including systems and equipment supplied by others or with which Borrower's or its Subsidiaries' systems interface) and the testing of all such systems and equipment, as so reprogrammed, will be completed by September 30, 1999. The cost to the Borrower and it Subsidiaries of such reprogramming and testing and of the reasonably foreseeable consequences of year 2000 to the Borrower and its Subsidiaries (including, without limitation, reprogramming errors and the failure of others' systems or equipment) will not result in a Default or a Material Adverse Effect. ARTICLE VI AFFIRMATIVE COVENANTS So long as this Credit Agreement shall remain in effect or the principal of or interest on any Revolving Credit Loan, or any Letter of Credit, or any reimbursement obligation with respect to any Letter of Credit, or any commitment or other fee, expense, compensation or any other amount payable under any Loan Document shall remain unpaid or outstanding or the Banks shall have any Commitments hereunder, unless the Majority Banks shall otherwise consent in writing, the Borrower covenants and agrees that: SECTION 6.1. Information. The Borrower shall deliver, or cause to be delivered, to the Banks at the Borrower's sole expense: (a)As soon as practicable, and in any event within fifty (50) days after the end of each Fiscal Quarter in each Fiscal Year of the Borrower (but within ninety- five (95) days after the end of the last Fiscal Quarter in each Fiscal Year or one hundred five (105) days after the end of the last Fiscal Quarter in such Fiscal Year upon the Borrower's timely filing of a Form 12b-25 with respect to the Borrower's Form 10-K for that Fiscal Year), the unaudited Consolidated balance sheet of the Borrower and its Subsidiaries as at the end of such quarterly period and year to date period then ended, and the related unaudited Consolidated statements of income, cash flows and shareholders' equity for such quarterly period and for the portion of the Fiscal Year ended with the last day of such quarterly period, and in each case setting forth comparative figures for the related periods in the prior Fiscal Year, all in reasonable detail prepared in a manner satisfactory to the Agent and the Banks, and certified by a Responsible Officer of the Borrower responsible for the administration of the finances and accounting practices of the Borrower that such financial statements fairly present the Consolidated financial condition and results of operations of, respectively, the Borrower and its Subsidiaries in accordance with GAAP for the Fiscal Quarter and year to date period then ended, subject to changes resulting from normal year-end audit adjustments. (b)Within ninety-five (95) days after the close of each Fiscal Year of the Borrower (or one hundred five (105) days after the close of each such Fiscal Year upon the Borrower's timely filing of a Form 12b-25 with respect to the Borrower's Form 10-K for that Fiscal Year), the audited Consolidated balance sheet of the Borrower as of the end of such Fiscal Year and the related audited Consolidated statements of income, cash flows and shareholders' equity of the Borrower for such Fiscal Year, setting forth the comparative figures for the preceding Fiscal Year all audited by KPMG Peat Marwick or other independent certified public accountants of recognized national standing reasonably satisfactory to the Majority Banks and accompanied by (x) an unqualified opinion of such accountants to the effect that such Consolidated financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of the Borrower and its Subsidiaries, on a Consolidated basis, in accordance with GAAP, and (y) a certificate of such accountants certifying that in the course of its regular audit of the financial statements of the Borrower, which audit was conducted in accordance with generally accepted auditing standards, such accounting firm has obtained no knowledge of any Default or Event of Default, or if in the opinion of such accounting firm a Default or Event of Default has occurred and is continuing, a statement as to the nature thereof. (c) Together with the delivery of statements referred to in paragraphs (a) and (b) above, a Compliance Certificate, in form and substance satisfactory to the Agent, signed by a Responsible Officer of the Borrower responsible for the administration of the finances and accounting practices of the Borrower, stating that the signer has reviewed the terms of this Credit Agreement and the other Loan Documents and that in the course of the performance of his duties, he would normally have knowledge of any condition or event which would constitute an Event of Default or Default and stating whether or not he has knowledge of any such condition or event and, if so, specifying each such condition or event of which he has knowledge and the nature thereof and any corrective action taken or proposed to be taken with respect thereto. Such Compliance Certificate shall set forth the calculations required to establish compliance with the financial covenants set forth in Section 7.15 for the fiscal period covered by such financial statements. (d)Promptly and in any event within three (3) Business Days after any Responsible Officer of the Borrower obtains knowledge thereof, notice of (i) the institution of or threat in writing of, any material action, suit, proceeding, governmental investigation or arbitration against or affecting the Borrower or any Subsidiary of the Borrower not previously disclosed in writing to the Banks or any material adverse development in any action, suit, proceeding, governmental investigation or arbitration already disclosed to the Banks or (ii) the occurrence of any event which constitutes a Default or Event of Default, such notice to specify the nature and period of existence of such Default or Event of Default, and what action the Borrower and/or such Subsidiary has taken, are taking or propose to take with respect thereto. (e)promptly upon the mailing thereof to the stockholders of the Borrower generally, copies of all financial statements, reports and proxy statements so mailed; (f)promptly upon the filing thereof, copies of all final registration statements, post effective amendments thereto and annual, quarterly or special reports which the Borrower shall have filed with the Securities and Exchange Commission; provided, that the Borrower must deliver, or cause to be delivered, any annual reports which the Borrower shall have filed with the Securities and Exchange Commission, within one hundred (100) days after the end of each Fiscal Year of the Borrower (or one hundred five (105) days after the end of such Fiscal Year upon the Borrower's timely filing of a Form 12b-25 with respect to the Borrower's Form 10-K for that Fiscal Year), and any quarterly reports which the Borrower shall have filed with the Securities and Exchange Commission, within fifty (50) days after the end of each of the first three (3) quarters of each Fiscal Year of the Borrower; (g)promptly upon request therefor by the Agent, such title opinions and other information in either the Borrower's possession, control or direction regarding title to the Borrowing Base Assets as are appropriate to determine the status of title with respect thereto; (h) promptly upon receipt of same, any notice or other information received by the Borrower or any Subsidiary of the Borrower indicating any potential, actual or alleged (i) non-compliance with or violation of the requirements of any Environmental Law which could result in liability to the Borrower or any Subsidiary for fines, clean up or any other remediation obligations or any other liability in excess of $1,000,000 in the aggregate; (ii) release or threatened release of any toxic or hazardous waste, substance, or constituent, or other substance into the environment which release would impose on the Borrower or any Subsidiary of the Borrower a duty to report to a governmental authority or to pay cleanup costs or to take remedial action under any Environmental Law which could result in liability to the Borrower or any Subsidiary of the Borrower for fines, clean up and other remediation obligations or any other liability in excess of $1,000,000 in the aggregate; or (iii) the existence of any Environmental Lien arising under any Environmental Law securing any obligation of the Borrower or any Subsidiary of the Borrower to pay fines, clean up or other remediation costs or any other liability in excess of $1,000,000 in the aggregate. Without limiting the foregoing, the Borrower shall provide to Agent, promptly upon request, copies of all environmental consultants or engineers reports received by the Borrower or any Subsidiary of the Borrower which involves the investigation, remediation or response action with respect to any circumstance or condition which would require delivery of a notice or other information to the Banks pursuant to this Section 6.1(h); (i)In the event any notification is provided by the Borrower to any Bank or the Agent pursuant to Section 6.1(h) hereof or the Agent or any Bank otherwise learns of any event or condition under which any such notice would be required, then, upon request of the Majority Banks, the Borrower shall, within ninety (90) days of such request, cause to be furnished to each Bank a report by an environmental consulting firm acceptable to Agent and the Majority Banks, stating that a review of such event, condition or circumstance has been undertaken (the scope of which shall be reasonably acceptable to Agent and the Majority Banks) and detailing the findings, conclusions, and recommendations of such consultant. The Borrower shall bear all expenses and costs associated with such review and updates thereof, as well as all remediation or curative action which (y) the Borrower and/or any Subsidiary of the Borrower is required by contract or law to make or (ii) is recommended by any such environmental consultant and undertaken by the Borrower; (j)Promptly (but in all events within three (3) Domestic Business Days) after any Responsible Officer becomes aware of the occurrence of any Default), a certificate of a Responsible Officer setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (k)Promptly (but in all events within three (3) Domestic Business Days) after any Responsible Officer becomes aware of same), notice of any material adverse change in the business, financial condition, operations or prospects of the Borrower, any Subsidiary Guarantor or of the Borrower and its Subsidiaries taken as a whole; (l)Promptly (but in all events within three (3) Domestic Business Days) after any Responsible Officer becomes aware of same), notice of the intended sale, transfer, encumbrance or other disposition of any Borrowing Base Asset other than a sale, transfer, encumbrance or other disposition permitted pursuant to Section 7.8; and (m) From time to time such additional information regarding the financial position or business of the Borrower and its Subsidiaries as the Agent, at the request of any Bank, may reasonably request. SECTION 6.2. Business of the Borrower. The primary business of the Borrower and its Subsidiaries on a Consolidated basis is and will continue to be the acquisition, exploration for, development, production, transportation, processing and marketing of Hydrocarbons, coal and accompanying elements. SECTION 6.3. Corporate Existence. The Borrower shall, and shall cause each of its Subsidiaries to, maintain its (i) existence and good standing in the jurisdiction of its organization or incorporation and (ii) qualification and good standing in all jurisdictions in which such qualification and good standing are necessary in order for the Borrower or such Subsidiary to conduct its business and own its property as conducted and owned in such jurisdiction except where the failure to be so qualified or in good standing would not, individually or in the aggregate, result in a Material Adverse Effect. SECTION 6.4. Right of Inspection. The Borrower will permit, and will cause each Subsidiary of the Borrower to permit, any officer, employee or agent of the Agent or any of the Banks to visit and inspect any of the assets of the Borrower and its Subsidiaries, examine the Borrower's and its Subsidiaries' books of record and accounts, take copies and extracts therefrom, and discuss the affairs, finances and accounts of the Borrower and its Subsidiaries with the Borrower's and its Subsidiaries' officers, accountants and auditors, all at such reasonable times and as often as the Agent or any of the Banks may reasonably desire, all at the expense of the Borrower. SECTION 6.5. Maintenance of Insurance. The Borrower will maintain or cause to be maintained, and will cause each Subsidiary of the Borrower to maintain or cause to be maintained (and will use all reasonable good faith efforts to cause all operators of Borrowing Base Assets to maintain or cause to be maintained) at all times, insurance covering such risks as are customarily carried by businesses similarly situated. SECTION 6.6. Payment of Taxes and Claims. The Borrower will pay, and will cause each of its Subsidiaries to pay, (a) all taxes imposed upon it or any of its assets or with respect to any of its franchises, business, income or profits before any material penalty or interest accrues thereon and (b) all material claims (including, without limitation, claims for labor, services, materials and supplies) for sums which have become due and payable and which by law have or might become a Lien (other than a Permitted Lien) on any of its assets; provided, however, no payment of taxes or claims shall be required if (i) the amount, applicability or validity thereof is currently being contested in good faith by appropriate action promptly initiated and diligently conducted in accordance with good business practices and no material part of the property or assets of the Borrower or any of its Subsidiaries are subject to levy or execution, (ii) the Borrower as and to the extent required in accordance with GAAP, shall have set aside on its books reserves (segregated to the extent required by GAAP) deemed by it to be adequate with respect thereto, and (iii) to the extent the amount of the contested taxes or claims are in excess of $1,000,000 (in the aggregate), the Borrower has notified the Agent of such circumstances, in detail satisfactory to the Agent. SECTION 6.7. Compliance with Laws and Documents. The Borrower will comply, and will cause each of its Subsidiaries to comply, with all Requirements of Law, their respective certificates (or articles) of incorporation, bylaws and similar charter documents and all Material Contracts to which the Borrower or any of its Subsidiaries is a party, if a violation, alone or when combined with all other such violations, could reasonably be expected to result in a Material Adverse Effect. SECTION 6.8. Operation of Properties and Equipment. (a) the Borrower will maintain and operate, and will cause each of its Subsidiaries to maintain and operate, their respective material properties, including without limitation all of the Borrowing Base Assets, in a good and workmanlike manner, and, (i) with respect to the Oil and Gas Interests, observe and comply with all of the terms and provisions, express or implied, of all oil and gas leases relating to such Oil and Gas Interests so long as such Oil and Gas Interests are capable of producing Hydrocarbons and accompanying elements in paying quantities, and (ii) with respect to the Coal Interests, observe and comply with all of the terms and provisions, express or implied, of all Coal Leases relating to such Coal Interests so long as such Coal Leases are capable of producing coal and accompanying elements in commercial quantities. (b) The Borrower will comply, and will cause each of its Subsidiaries to comply, in all material respects with all Material Contracts. (c) The Borrower will maintain, preserve and keep, and will cause each of its Subsidiaries to maintain, preserve and keep, at all times, all material equipment used with respect to their respective businesses in proper repair, working order and condition, and make all necessary or appropriate repairs, renewals, replacements, additions and improvements thereto so that the efficiency of such operating equipment shall at all times be properly preserved and maintained; provided that no item of operating equipment need be so repaired, renewed, replaced, added to or improved, if the Borrower shall in good faith determine that such action is not necessary or desirable for the continued efficient and profitable operation of the business of the Borrower and its Subsidiaries. SECTION 6.9. Environmental Law Compliance and Indemnity. The Borrower will comply, and will cause each of its Subsidiaries to comply, in all material respects with all Environmental Laws binding on the Borrower or such Subsidiary, including, without limitation, (a) all licensing, permitting, notification and similar requirements of Environmental Laws, and (b) all provisions of all Environmental Laws regarding storage, discharge, release, transportation, treatment and disposal of Hazardous Substances. The Borrower will promptly pay and discharge when due, and will cause each of its Subsidiaries to promptly pay and discharge when due, all debts, claims, liabilities and obligations with respect to any clean-up or remediation measures necessary to comply with Environmental Laws binding on the Borrower or any Subsidiary of the Borrower. The Borrower hereby agrees to indemnify, defend and hold harmless each of the Banks, the Agent and their respective agents, affiliates, officers, directors, and employees from and against any and all claims, losses, demands, actions, causes of action, and liabilities whatsoever (including without limitation reasonable attorney's fees and expenses, and costs and expenses reasonably incurred in investigating, preparing or defending against any litigation or claim, action, suit, proceeding or demand of any kind or character) arising out of or resulting from the contamination by any Hazardous Substance or environmental pollutant in violation of, or noncompliance with, any federal, state or local Environmental Laws, including without limitation violation of the Comprehensive Environmental Response, Compensation and Liability Act, as amended from time to time, or of the Resource Conservation and Recovery Act, as amended from time to time, except to the extent that such claim, loss, demand, action, cause of action, or liability was caused by the gross negligence or willful misconduct of the indemnified party requesting indemnification pursuant to this Section 6.9. SECTION 6.10. ERISA Reporting Requirements. The Borrower shall furnish or cause to be furnished to Agent: (a)Promptly and in any event (i) within fifteen (15) days after the Borrower or any ERISA Affiliate knows or has reason to know that any ERISA Event described in clause (a) of the definition of ERISA Event or any event described in section 4063(a) of ERISA with respect to any Benefit Plan of the Borrower or any ERISA Affiliate has occurred, and (ii) within ten (10) days after the Borrower or any ERISA Affiliate knows or has reason to know that any other ERISA Event with respect to any Benefit Plan of the Borrower or any ERISA Affiliate has occurred or a request for minimum funding waiver under section 412 of the Code with respect to any Benefit Plan of the Borrower or any ERISA Affiliate has been made, a written notice describing such event and describing what action is being taken or is proposed to be taken with respect thereto, together with a copy of any notice of event that is given to the PBGC; (b)Promptly and in any event within two (2) Business Days after receipt thereof by the Borrower or any ERISA Affiliate from the PBGC, copies of each notice received by the Borrower or any ERISA Affiliate of the PBGC's intention to terminate any Plan or to have a trustee appointed to administer any Benefit Plan; (c)Promptly and in any event within fifteen (15) days after the receipt by the Borrower of a request therefor by a Bank, copies of any annual and other report (including Schedule B thereto) with respect to a Benefit Plan filed by the Borrower or any ERISA Affiliate with the United States Department of Labor, the IRS or the PBGC; (d)Promptly, and in any event within ten (10) Business Days after receipt thereof, a copy of any correspondence the Borrower or any ERISA Affiliate receives from the Plan Sponsor (as defined by section 4001(a)(10) of ERISA) of any Benefit Plan asserting withdrawal liability pursuant to section 4219 or 4202 of ERISA upon the Borrower or any ERISA Affiliate, and a statement from a Responsible Officer of the Borrower or such ERISA Affiliate setting forth details as to the events giving rise to such withdrawal liability and the action which the Borrower or such ERISA Affiliate is taking or proposes to take with respect thereto; (e) Notification within three (3) Business Days after the Borrower or any ERISA Affiliate knows or has reason to know that the Borrower or any such ERISA Affiliate has or intends to file a notice of intent to terminate any Benefit Plan under a distress termination within the meaning of section 4041(c) of ERISA and a copy of such notice; and (f)Promptly after receipt of written notice of commencement thereof, notice of all (i) claims made by participants or beneficiaries with respect to any Benefit Plan and (ii) actions, suits and proceedings before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, affecting the Borrower or any ERISA Affiliate with respect to any Benefit Plan, except those which, in the aggregate, if adversely determined could not result in a Material Adverse Effect. SECTION 6.11. Subsidiary Guaranty. The Borrower will cause each of its Material Restricted Subsidiaries hereafter formed or acquired to execute and deliver a joinder of the Subsidiary Guaranty promptly following such formation or acquisition. SECTION 6.12. Permits, Licenses. The Borrower shall, and shall cause each Subsidiary to, maintain all material assets, consents, licenses, patents, copyrights, trademarks, service marks, trade names, permits and other approvals and authorizations necessary to conduct its business, including, without limitation all consents, permits, licensees and agreements material to the Borrowing Base Assets. SECTION 6.13. Additional Documents. The Borrower will cure promptly, and will cause each of its Subsidiaries to cure promptly, any defects in the creation and issuance of each Note, and the execution and delivery of this Credit Agreement and the other Loan Documents and, at the Borrower's expense, the Borrower shall promptly and duly execute and deliver, and cause each Subsidiary of the Borrower to promptly execute and deliver, to each Bank, upon reasonable request, all such other and further documents, agreements and instruments in compliance with or accomplishment of the covenants and agreements of each the Borrower and each Subsidiary of the Borrower in this Credit Agreement and the other Loan Documents as may be reasonably necessary or appropriate in connection therewith. SECTION 6.14. Title Assurances. The Borrower shall furnish or cause to be furnished to the Agent such information in its possession or reasonably available to it with respect to title to the Borrowing Base Assets as the Majority Banks may reasonably request and shall cooperate with the Agent and its counsel in analyzing such title. Where appropriate in the opinion of the Majority Banks and at the request of the Majority Banks, the Borrower shall correct material defects in such title, or, if the Borrower elects not to correct such defects in title, the Banks shall be entitled to an immediate redetermination of the Total Borrowing Base pursuant to Section 3.4. ARTICLE VII NEGATIVE COVENANTS So long as this Credit Agreement shall remain in effect or the principal of or interest on any Revolving Credit Loan, or any Letter of Credit, or any reimbursement obligation with respect to any Letter of Credit, or any commitment or other fee, expense, compensation or any other amount payable under any Loan Document shall remain unpaid or outstanding or the Banks shall have any Commitments hereunder, unless the Majority Banks shall otherwise consent in writing, the Borrower covenants and agrees that: SECTION 7.1. Debt. The Borrower shall not, and shall not permit any of its Restricted Subsidiaries to, create, incur, assume or otherwise become or remain liable with respect to, any Debt, except for: (a) Debt arising hereunder and under the other Loan Documents; (b) Unsecured Debt outstanding on the Effective Date and described in Schedule 7.1, in each case in a principal amount at any one time outstanding not to exceed the amount set forth on Schedule 7.1 hereof; (c) Endorsements of negotiable instruments for collection in the ordinary course of business; (d) Current liabilities (exclusive of Debt) for accounts payable and expense accruals incurred or assumed in the ordinary course of business, provided such accounts payable have not remained unpaid for a period of ninety (90) days after the same became due unless currently being contested in good faith or by appropriate proceedings; (e) Liabilities for taxes, assessments, governmental charges or levies not yet due and payable; (f) Liabilities incurred under Hedge Transactions permitted pursuant to Section 7.14 hereof; (g) Unsecured Debt incurred by the Borrower pursuant to a line(s) of credit entered into by the Borrower after the Effective Date with any Bank or any other financial institution, provided, however, that (i) the terms, covenants and conditions of said line(s) of credit may be no more burdensome or onerous on the Borrower and its Subsidiaries than the terms, conditions and covenants contained in this Credit Agreement, (ii) at the time said Debt is incurred, the aggregate principal amount of all advances, including the proposed advance (the "Swing Loans") made to the Borrower by any Bank or any such other financial institution pursuant to such line(s) of credit does not exceed at any one time outstanding $5,000,000.00, (iii) after giving pro forma effect to any proposed Swing Loan, the aggregate amount of the Utilized Credit does not exceed the Available Commitment, and (iv) the proceeds of all Swing Loans are used by the Borrower solely for cash management purposes. Swing Loans shall not be considered a utilization of the Total Commitment or the Commitment of such Bank hereunder for purposes of calculating the commitment fee due pursuant to the provisions of Section 2.5(a), but shall be included in the determination of the Utilized Credit; provided, however, that if an advance made pursuant to the Swing Loans affects either the Applicable Eurodollar Margin or the Unavailable Fee Rate, Borrower shall provide Bank with written notice of such effect prior to each advance of funds made pursuant to the Swing Loans; (h)Purchase money Debt in respect of property acquired by the Borrower and its Subsidiaries (other than the Restricted Subsidiaries) in the ordinary course of business provided, however, that the aggregate amount of all Debt incurred by the Borrower and its Subsidiaries pursuant to this Section 7.1(h) and Section 7.1(i) shall not exceed $5,000,000 at any one time outstanding; (i)Additional unsecured Debt not permitted by subclauses (a) through (h), provided, however, that the aggregate amount of all Debt incurred by the Borrower and its Subsidiaries (other than the Restricted Subsidiaries) pursuant to this Section 7.1(i) and Section 7.1(h) shall not exceed $5,000,000 at any one time outstanding; (j)Unfunded Vested Liabilities with respect to any Existing Plan, provided, however, that (x) such Existing Plan at all times meets all applicable funding requirements contained in Section 412 of the Code and (y) Borrower is at all times in compliance with Section 7.15(b); and (k) Unsecured subordinated Debt outstanding under the Subordinated Intercompany Notes and any other intercompany Debt among Borrower and any of the Restricted Subsidiaries which have executed a Subsidiary Guaranty. It is understood and agreed that Borrower shall not permit any of its Restricted Subsidiaries to create, incur, assume or otherwise become or remain liable with respect to, any Indebtedness or Accommodation Obligations, except for that incurred under subparagraphs (a), (c), (d), and (e) above. SECTION 7.2. Restrictions on Distributions. The Borrower will not directly or indirectly declare or pay or incur any liability to pay, and the Borrower will not permit any of its Restricted Subsidiaries to directly or indirectly declare or pay, or incur any liability to pay any Distributions, except that: (a)The Borrower may pay Distributions to its shareholders from funds legally available for such purpose, provided, however, that if the Utilized Percentage of the Borrowing Base exceeds seventy-five percent (75%), the Borrower will not, directly or indirectly, declare or make, or incur any liability to make, Distributions to its shareholders in any Fiscal Quarter in excess of an amount equal to (x) fifty-five percent (55%) of Consolidated EBITDA for the previous four (4) Fiscal Quarters for which financial statements have been delivered to the Banks pursuant to Section 6.1 less (y) the aggregate amount of quarterly Distributions made to its shareholders during such four (4) fiscal quarter period. (b) It shall be a condition to each Distribution permitted by the provisions of Section 7.2(a) that at the time such Distribution is made: (i) no payment of principal, interest, fees or other amount required hereunder or under the Loan Documents has become due and has not been paid, (ii) no Default or Event of Default (other than as described in clause (i) of this proviso) has occurred, is continuing and has not been waived by the Majority Banks (or if required under Section 10.1, all of the Banks) has occurred or would occur as a result of the making of such Distribution, (iii) no Borrowing Base Deficiency exists or is reasonably expected to exist as of the next Determination Date, and (iv) after giving effect to the proposed Distribution the Borrower is in compliance with covenants contained in Section 7.15 as of (and as if the most recently ended Fiscal Quarter of the Borrower had ended on) the date such Distribution is made. Notwithstanding the foregoing, (i) any Subsidiary Guarantor may make Distributions to the Borrower or any other Subsidiary Guarantor, (ii) any Subsidiary of the Borrower may make Distributions to the Borrower, (iii) Powell River Rail Corporation may make Distributions to the Borrower and its other shareholders so long as the Borrower owns 80% or more of the capital stock or equity interests of Powell River Rail Corporation, and (iv) Borrower may make Distributions, loans or Investments in an amount not to exceed $10,000,000 in the aggregate to any Unrestricted Subsidiaries or Restricted Subsidiaries that have not executed a Subsidiary Guaranty pursuant to this Credit Agreement. The Borrower will not enter into or become subject to, and the Borrower will not permit any of its Subsidiaries to enter into, or become subject to, any agreement or order of any Governmental Authority which prohibits or restricts in any way the right of any of the Borrower's Subsidiaries to make Distributions to the Borrower. SECTION 7.3. Negative Pledge. The Borrower will not create, incur, assume or suffer to exist, and the Borrower will not permit any Restricted Subsidiary of the Borrower to create, incur, assume or suffer to exist, any Lien on any asset of the Borrower or any of its Restricted Subsidiaries other than Permitted Liens. The Borrower will not enter into or become subject to, and the Borrower will not permit any Restricted Subsidiary of the Borrower to enter into or become subject to, any agreement (other than this Credit Agreement) that prohibits or otherwise restricts the right of the Borrower or any of its Restricted Subsidiaries to create, incur, assume or suffer to exist any Lien in favor of Agent for the benefit of the Banks on any of the Borrower's or any of its Restricted Subsidiaries' assets. SECTION 7.4. Consolidation, Mergers and Acquisitions; Fundamental Changes. The Borrower shall not, and shall not permit any of its Subsidiaries to, merge or consolidate with or acquire substantially all of the outstanding capital stock or assets of any other Person or liquidate, wind up or dissolve (or suffer any liquidation or dissolution), or convey, lease, sell, transfer or otherwise dispose of, in one transaction or series of transactions, all or any substantial part of its business, property or assets, whether now or hereafter acquired, except for transactions in the nature of a consolidation and/or merger (i) involving the Borrower in which the Borrower is the surviving entity, or (ii) involving a Subsidiary Guarantor in which the surviving entity is a wholly owned Restricted Subsidiary of the Borrower and has duly executed and delivered a joinder to the Subsidiary Guaranty pursuant to Section 6.11, or (iii) involving any other wholly owned Subsidiary of the Borrower in which such wholly owned Subsidiary is the surviving entity, subject in each case to the condition that immediately after such merger or consolidation and after giving effect and pro forma effect thereto for the immediately preceding twelve-month period, no Event of Default or Default shall have occurred, exist or be continuing. The Borrower shall not, and shall not permit any of its Subsidiaries to, purchase, redeem, retire or otherwise acquire for value any of its capital stock now or hereafter outstanding. SECTION 7.5. Investments. The Borrower shall not, and shall not permit any of its Restricted Subsidiaries to, make, directly or indirectly, any Investments, except: (a) Investments existing on the date hereof and disclosed on Schedule 7.5; (b) Investments consisting of Cash Equivalents; (c) Accounts receivable from customers in the ordinary course of business; (d) Investments by the Borrower in wholly owned Subsidiaries provided such Subsidiaries have executed and delivered a Subsidiary Guaranty in favor of the Agent; (e) Margin deposits in connection with any Hedge Transaction permitted pursuant to Section 7.14; (f) Acquisitions permitted under Section 7.4 hereof; (g) Investments in connection with or related to farm-out, farm-in, joint operating, joint venture or area of mutual interest agreements, gathering systems, pipelines or other similar or customary arrangements entered into in the ordinary course of business; (h)investments by the Borrower, directly or indirectly, in Powell River Rail Corporation, provided, however, that all Investments made by the Borrower in Powell River Rail Corporation pursuant to this Section 7.5(h) shall not exceed $5,000,000 in the aggregate; or (j) An Investment in capital stock (other than Margin Stock) issued by a United States corporation (other than Westmoreland Coal Company, Westmoreland Resources, Inc. and Powell River Rail Corporation) in the same line of business(es) as the Borrower and its Subsidiaries provided such Investment is not a Hostile Acquisition and subject in each case to the condition that immediately after such Investment and after giving effect and pro forma effect thereto for the next succeeding twelve-month period, no Event of Default or Default shall have occurred, exist or be continuing. SECTION 7.6. Transactions with Affiliates. The Borrower shall not, and shall not permit any of its Subsidiaries to, enter into, or be a party to any transaction with any affiliated Person, except for (i) the transactions provided for in the Loan Documents, or (ii) transactions entered into pursuant to the reasonable requirements of such Person's business and upon such fair and reasonable terms as could reasonably be obtained in a arm's length transaction with an unaffiliated Person in accordance with prevailing industry customs and practices. SECTION 7.7. Agreements. The Borrower shall not, and shall not permit any of its Subsidiaries to, enter into any contract, agreement or transaction which at the time such contract, agreement or transaction was entered into materially and adversely affects (i) the business, property, assets, operations, condition (financial or otherwise) of the Borrower or any Subsidiary of the Borrower, (ii) the ability of the Borrower or any Subsidiary of the Borrower to perform timely its obligations under this Credit Agreement and the other Loan Documents to which it is a party or (iii) a Subsidiary's ability to perform timely its material covenants and obligations under any Subsidiary Guaranty to which it is a party. SECTION 7.8. Sales of Assets. The Borrower shall not, and shall not permit any of its Subsidiaries to, sell, assign, transfer, lease, convey or otherwise dispose of any of its assets or properties, whether now owned or hereafter acquired, or any income or profits therefrom, or enter into any agreement to do so, except: (a) sales of inventory in the ordinary course of its business; (b) sales or dispositions of worn out or obsolete tools or equipment no longer used or useful in the business of the Borrower or such Subsidiary of the Borrower; (c) sales of Oil and Gas Interests and/or Coal Interests used in the determination of the Borrowing Base for fair market value on an arm's length basis in an aggregate amount for both Oil and Gas Interests and Coal Interests for the Borrower and its Subsidiaries not to exceed $10,000,000 during any Fiscal Year, provided, however, that at the time of such sale no Event of Default has occurred and is continuing and no Borrowing Base Deficiency then exists; (d) sales of the Norfolk Common Stock for fair market value on an arm's length basis in an aggregate amount not to exceed $50,000,000 during any Fiscal Year; (e) sales of the common stock of Westmoreland Coal Company; or (f) sales of assets not used in the determination of the Borrowing Base, which sales shall not exceed $30,000,000 in the aggregate. SECTION 7.9. ERISA. (a) With the exception of the Benefit Plans described on Schedule 5.11 (the "Existing Plans"), neither the Borrower nor any Subsidiary of the Borrower shall create, adopt or become bound by any Benefit Plan. The Borrower shall not, and shall not permit any of its Subsidiaries to, engage in a "prohibited transaction", as defined in Section 406 of ERISA or Section 4975 of the Code, with respect to any Existing Plan or knowingly consent to any other "interested party" or any "disqualified person", as such terms are defined in Section 3(14) of ERISA and Section 4975(e)(2) of the Code, respectively, engaging in any "prohibited transaction", with respect to any Existing Plan, or permit any Existing Plan maintained by the Borrower or such Subsidiary of the Borrower to incur any "accumulated funding deficiency", as defined in Section 302 of ERISA or Section 412 of the Code, unless such incurrence shall have been waived in advance by the IRS; or terminate any Existing Plan in a manner which could result in the imposition of a Lien on any property of the Borrower or such Subsidiary of the Borrower pursuant to Section 4068 of ERISA; or breach any fiduciary responsibility imposed under Title I of ERISA with respect to any Existing Plan; engage in any transaction which would result in the incurrence of a liability under Section 4069 of ERISA; or fail to make contributions to any Existing Plan which results in the imposition of a Lien on any property of the Borrower or such Subsidiary of the Borrower pursuant to Section 302(f) of ERISA or Section 412(n) of the Code, if the occurrence of any of the foregoing events would result in liability to the Borrower or any of its Subsidiaries of $2,000,000 or more. The Borrower shall not, and shall not permit any of its Subsidiaries to, materially increase the benefits provided under any Existing Plan. The Borrower shall not, and shall not permit any of its Subsidiaries to (nor will any trade or business, whether or not incorporated, that is a member of a group of which the Borrower or such Subsidiary of the Borrower is a member and which is treated as a single employer under Section 414 of the Code) sponsor, maintain or contribute to any Multiemployer Plan(s). The Borrower shall not, and shall not permit any of its Subsidiaries to, become a member of any other group which is treated as a single employer under Section 414 of the Code. SECTION 7.10. Sales and Leasebacks. The Borrower shall not, and shall not permit any of its Subsidiaries to, become liable, directly or by way of Accommodation Obligation, with respect to any lease or any property (whether real or personal or mixed) whether now owned or hereafter acquired, (i) which the Borrower or such Subsidiary of the Borrower has sold or transferred or is to sell or transfer to any other Person or (ii) which the Borrower or such Subsidiary of the Borrower intends to use for substantially the same purposes as any other property which has been or is to be sold or transferred by the Borrower or such Subsidiary of the Borrower to any other Person in connection with such lease. SECTION 7.11. Margin Regulation. The Borrower shall not use or permit any other Person to use any portion of the proceeds of any credit extended under this Credit Agreement in any manner which might cause the extension of credit or the application of such proceeds to violate the Securities Act of 1933 or Securities Exchange Act of 1934 (each as amended to the date hereof and from time to time hereafter, and any successor statute) or to violate Regulation U, or Regulation X, or any other regulation of the Federal Reserve Board, in each case as in effect on the date or dates of such extension of credit and such use of proceeds. SECTION 7.12. Amendment to Organizational Documents. The Borrower will not enter into or permit, and the Borrower will not permit any of its Subsidiaries to enter into or permit, any modification or amendment of its certificate or articles of incorporation, bylaws or other charter documents other than amendments, modifications and waivers which are not, individually or in the aggregate, material. The Borrower will not enter into or permit, and the Borrower will not permit PVCC, Savannah or PVHC to enter into or permit, any modification or amendment of the Subordinated Intercompany Notes without the express written consent of the Banks. SECTION 7.13. Fiscal Year; Fiscal Quarter. The Borrower shall not, and shall not permit any of its Subsidiaries to, change its Fiscal Year or any of its Fiscal Quarters. SECTION 7.14. Hedge Transactions. The Borrower will not enter into, and the Borrower will not permit any of its Restricted Subsidiaries to enter into, any Hedge Transactions which would cause the amount of Hydrocarbons which are the subject of Hedge Transactions in existence at such time to exceed one hundred percent (100%) of the Borrower's and its Restricted Subsidiaries' anticipated production from Proved Developed Producing Hydrocarbon Reserves during the term of such existing Hedge Transactions and no such Hedge Transactions requires the Borrower or any Restricted Subsidiary of the Borrower to put up money, assets, letters of credit or other security against the event of its nonperformance prior to actual default by the Borrower or such Subsidiary in performing its obligations thereunder. SECTION 7.15. Financial Covenants. From and after the Effective Date, the Borrower on a Consolidated basis shall not: (a)Permit its Consolidated Tangible Net Worth at any time to be less than the sum of (i) $135,000,000 plus, if positive (ii) forty percent (40%) of Consolidated Net Income for the period from the Effective Date plus, if any, (iii) seventy-five percent (75%) of the net proceeds from the sale of equity securities of the Borrower and its Restricted Subsidiaries for the period from the Effective Date, on a Consolidated basis; (b)Permit its Consolidated Funded Debt to exceed sixty percent (60%) of its Consolidated Capitalization at any time; or (c)Permit its ratio of Consolidated Cash Flow to Consolidated Debt Service at the end of any Fiscal Quarter to be less than 3.5 to 1.0, to be calculated at the end of each Fiscal Quarter, for the four-Fiscal Quarter period ending with such Fiscal Quarter. SECTION 7.16. Subsidiary Guarantors as Subsidiaries of Borrower. At all times, Borrower shall directly or indirectly through a wholly-owned Subsidiary retain full, absolute and unencumbered title to all of the issued and outstanding securities of each of the Subsidiary Guarantors. ARTICLE VIII EVENTS OF DEFAULT SECTION 8.1. Events of Default. If any of the following events, acts, occurrences or conditions (each an "Event of Default") shall occur and be continuing: (a) The Borrower shall fail to pay when due any payment of any principal of the Revolving Credit Loans; or (b) The Borrower shall fail to pay when due the payment of any accrued interest on the Revolving Credit Loans and such failure shall continue for two (2) Business Days; or (ii) the Borrower shall fail to pay when due the payment of any fee, expense, compensation, reimbursement or other amount when due under this Credit Agreement, the Notes or any other Loan Document or other agreement or document contemplated by or delivered pursuant to or in connection with this Credit Agreement or such Loan Document or any material document executed in connection therewith and, in any event, such failure shall continue for five (5) Business Days after the earlier of (y) notice thereof from the Agent or any Bank to the Borrower and (z) discovery thereof by the Borrower; or (c) The Borrower or any Subsidiary of the Borrower shall fail to perform or observe any term, covenant or agreement contained in Sections 6.1(c), 6.1(d)(ii), 6.11 or Article VII of this Credit Agreement; or (d) The Borrower or any Subsidiary of the Borrower shall fail to perform any term, covenant or agreement contained in this Credit Agreement other than those referenced in subsections (a), (b) or (c) of this Section 8.1 or in any other Loan Document to which it is a party and, in the case of any such failure that is capable of being remedied, such failure shall not have been remedied within thirty (30) days after the earlier of (i) notice thereof from the Agent to the Borrower and (ii) discovery thereof by a Responsible Officer of the Borrower or such Subsidiary of the Borrower; or (e) Any Subsidiary shall fail to perform any term, covenant or agreement contained in the Subsidiary Guaranty other than those referenced in subsections (a), and (b) of this Section 8.1, and, in the case of any such failure that is capable of being remedied, such failure shall not have been remedied within thirty (30) days after the earlier of (i) notice thereof from the Agent to such Subsidiary and (ii) discovery thereof by a Responsible Officer of such Subsidiary; or (f) Any Termination Event occurs which would subject the Borrower or any Subsidiary of the Borrower, to a liability in excess of $2,000,000, or the plan administrator of any Benefit Plan applies under Section 412(d) of the Code for a waiver of the minimum funding standards of Section 412(a) of the Code which would subject the Borrower or any Subsidiary of the Borrower, to a liability in excess of $2,000,000; or (g) Any representation or warranty made or incorporated by the Borrower or any Subsidiary of the Borrower in any Loan Document to which such Person is a party or in any certificate, agreement or instrument delivered in connection with, any Loan Document shall prove to have been incorrect or misleading in any material respect when made or deemed made; or (h) The Borrower or any Subsidiary of the Borrower, shall (i) fail to pay any Debt having a principal amount in excess of $2,000,000 (other than the amounts referred to in subsections (a) and (b) of this Section 8.1) owing by such Person, or any interest or premium thereon, when due (or, if permitted by the terms of the relevant document, within any applicable grace period), whether such Debt shall become due by scheduled maturity, by required prepayment, by acceleration, by demand or otherwise unless effectively waived or consented to in accordance with the documents evidencing such Debt or (ii) fail to observe or perform any material term, covenant or condition on its respective part to be performed under any agreement or instrument evidencing, securing or relating to any such Debt, when required to be performed, and such failure shall continue after the applicable grace period, if any, specified in such agreement or instrument if the effect of any failure is to cause, or to permit the holder or holders of such Debt or a trustee on its or their behalf (with or without the giving of notice, the lapse of time, or both), to cause such Debt to become due prior to its stated maturity; or (i) Any Loan Document shall, at any time after its execution and delivery and for any reason, cease to be in full force and effect or shall be declared to be null and void, or the validity or enforceability thereof shall be contested by any Person party thereto (other than the Agent or any Bank) or any such Person party thereto (other than the Agent or any Bank) shall deny that it has any or further liability or obligation thereunder, or the Obligations shall be subordinated for any reason; or (j) The Borrower or any Subsidiary of the Borrower shall be adjudicated insolvent, or shall generally not pay, or admit in writing its inability to pay, its debts as they mature, or make a general assignment for the benefit of creditors, or any proceeding shall be instituted by any such Person seeking to adjudicate it insolvent, seeking liquidation, dissolution, winding-up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any Debtor Relief Law, or seeking the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property, or any such Person shall take any corporate action in furtherance of any of the actions set forth above in this Section 8.1(j); or (k) Any proceeding of the type referred to in Section 8.1(j) is filed, or any such proceeding is commenced against the Borrower or any Subsidiary of the Borrower, or any such Person by any act indicates its approval thereof, consent thereto or acquiescence therein, or an order for relief is entered in an involuntary case under the bankruptcy law of the United States, or an order, judgment or decree is entered appointing a trustee, receiver, custodian, liquidator or similar official or adjudicating any such Person insolvent, or approving the petition in any such proceedings, and such order, judgment or decree remains in effect for sixty (60) days; or (l) A final judgment or order for the payment of money in excess of $2,000,000 and not covered by insurance shall be rendered against the Borrower or any Subsidiary of the Borrower 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 thirty (30) days from the date of entry thereof, or the Borrower or any Subsidiary of the Borrower shall not, within said period of thirty (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 (m) (i) Any Environmental Liability shall have been asserted under any applicable Environmental Law against the Borrower or any Subsidiary of the Borrower or (ii) any Release of any Hazardous Substance shall have occurred, and such event could form the basis of an Environmental Liability against the Borrower or any Subsidiary of the Borrower; which in either case could reasonably be expected to result in liability to the Borrower or any Subsidiary of Borrower in excess of $2,000,000; THEN, (x) upon the occurrence of any Event of Default described in Section 8.1(j) or Section 8.1(k) with respect to the Borrower or any Subsidiary of the Borrower (i) all of the Commitments shall automatically terminate, and the Borrower shall deposit with the Agent cash equal to the aggregate face amount of all outstanding Letters of Credit issued hereunder and (ii) the entire unpaid amount of all Obligations shall automatically become immediately due and payable, without presentment for payment, demand, protest, notice of intent to accelerate, notice of acceleration or further notice of any kind, all of which are hereby expressly waived by the Borrower and each of its Subsidiaries and the obligation of each Bank to make any Revolving Credit Loan hereunder shall thereupon terminate and (y) upon the occurrence of any other Event of Default, the Agent shall at the request, or may with the consent, of the Majority Banks, (i) by written notice to the Borrower declare all of the Commitments to be terminated, whereupon all of the Commitments and the obligations of each Bank to make any Revolving Credit Loan hereunder shall forthwith terminate, and the Borrower shall deposit with the Agent cash equal to the aggregate face amount of all outstanding Letters of Credit issued hereunder and (ii) by written notice to the Borrower declare the entire unpaid amount of all Obligations to be forthwith due and payable, whereupon all Obligations shall become and be forthwith due and payable, without presentment for payment, demand, protest, notice of intent to accelerate, notice of acceleration or further notice of any kind, all of which are hereby expressly waived by the Borrower and each Subsidiary of the Borrower. The Borrower hereby grants to the Agent for the ratable benefit of the Banks a security interest in, and Lien on, any Dollars delivered to the Agent pursuant to this Section 8.1, as security for the Obligations. SECTION 8.2. Remedies. If any Default or Event of Default shall occur and be continuing, the obligations of the Banks to make Revolving Credit Loans, and of the Issuing Bank(s) to issue Letters of Credit, under this Credit Agreement shall terminate immediately. If any Event of Default shall occur, the Agent for the ratable benefit of the Banks, may (and upon the request of the Majority Banks shall) protect and enforce the Banks' rights and remedies under the Loan Documents by any appropriate proceedings, including proceedings for specific performance of any covenant or agreement contained in any Loan Document, and the Banks may enforce the payment of any Obligations due or enforce any other legal or equitable right. All rights and remedies and powers conferred upon the Agent and/or the Banks 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. SECTION 8.3. Right of Setoff. In addition to any rights now or hereafter granted under applicable law or otherwise, and not by way of limitation of any such rights, upon the occurrence and during the continuance of any Event of Default, each Bank is hereby authorized at any time or from time to time, to the fullest extent permitted by law and without presentment, demand, protest or other notice of any kind to the Borrower or to any other Person, any such notice being hereby expressly waived, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held, and other Debt at any time owing, by such Bank (including, without limitation, by Affiliates, branches or agencies of such Bank wherever located) to or for the credit or the account of the Borrower against any of and all the Obligations, including, without limitation, all interests in Obligations purchased by such Bank pursuant to Section 2.18, and all other claims of any nature or description arising out of or in connection with this Credit Agreement or any other Loan Document, irrespective of whether or not such Bank shall have made any demand under this Credit Agreement or the Notes or other Loan Documents and although such Obligations, liabilities or claims, or any of them, shall be contingent or unmatured. Such Bank agrees promptly to notify the Borrower after any such setoff and application made by such Bank, but the failure to give such notice shall not affect the validity of such setoff and application. The rights of the Banks under this Section 8.3 are in addition to other rights and remedies (including, without limitation, other rights of setoff) which the Banks may have. Notwithstanding any other provisions of this Credit Agreement, the provisions of this Section 8.3 (except for the provisions of this sentence) will not apply to any amounts held by the Borrower or any Subsidiary of the Borrower for the benefit of working interest owners and/or royalty owners for the purpose of paying ad valorem taxes, development costs and/or operating costs or for the purpose of making distributions to the revenue interest owners of revenues from various Oil and Gas Interests. SECTION 8.4. Indemnity. The Borrower shall indemnify the Agent and each Bank and each Affiliate thereof and their respective directors, officers, employees, shareholders and agents (each an "Indemnitee") from, and hold each of them harmless against, any and all losses, liabilities, claims, damages, expenses, penalties, actions, judgments, suits, costs or disbursements of any kind or nature whatsoever that are asserted against an Indemnitee by any Person if such losses, liabilities, claims, damages, expenses, penalties, actions, judgments, suits, costs or disbursements arise out of or result from (i) any use by the Borrower of the proceeds of any extension of credit by the Banks hereunder or (ii) any investigation, litigation or other proceeding (including any threatened investigation or proceeding) relating to the foregoing or arising out of or based upon any Loan Document or any of the transactions contemplated by any Loan Document, and the Borrower shall reimburse such Indemnitee, within ten (10) Business Days after receipt of a composite statement of account for any reasonable expenses (including reasonable legal fees) incurred in connection with any such investigation or proceeding; but excluding any such losses, liabilities, claims, damages, expenses, penalties, actions, judgments, suits, costs or disbursements which are proximately caused by such Indemnitee. Without prejudice to the survival of any other Obligations of the Borrower hereunder and the other Loan Documents, the Obligations of the Borrower under this Section 8.4 shall survive the termination of this Credit Agreement, the payment in full of the Obligations and/or assignment of the Notes. ARTICLE IX THE AGENT SECTION 9.1. Authorization and Action. The general administration of the Loan Documents and any other documents contemplated by this Credit Agreement shall be by the Agent or its designees. Each of the Banks authorizes the Agent to take such actions on its behalf and to exercise such powers and to perform such duties as are expressly delegated to the Agent by the terms of this Credit Agreement and the other Loan Documents, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Credit Agreement, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Bank, and no implied covenants, functions, responsibilities, duties, obligations or liabilities on the part of the Agent shall be read into this Credit Agreement or otherwise exist against the Agent. (b)The provisions of this Article IX are solely for the benefit of the Agent and the Banks, and neither the Borrower nor any Subsidiary of the Borrower shall have any rights as a third party beneficiary or otherwise under, or be bound by, the provisions of this Article IX. (c)In performing its functions and duties hereunder and under the other Loan Documents, the Agent shall act solely as the agent of the Banks and the Agent does not assume nor shall it be deemed to have assumed any obligation or relationship of trust or agency with or for the Borrower, any Subsidiary of the Borrower or any of their respective successors and assigns. SECTION 9.2. Agent's Reliance; Exculpatory Provisions, Etc. (a) Neither the Agent nor any of its directors, officers, agents or employees shall be liable to any Bank for any action taken or omitted to be taken by it or them under or in connection with this Credit Agreement or the other Loan Documents (i) with the consent or at the request of the Majority Banks or if required under Section 10.1, all of the Banks or (ii) in the absence of its or their own gross negligence or willful misconduct (it being the express intention of the parties that the Agent and its directors, officers, agents and employees shall have no liability for actions and omissions under this Section 9.2 resulting from their sole ordinary or contributory negligence). Without limitation of the generality of the foregoing, the Agent: (i) may treat the payee of each Note as the holder thereof until the Agent receives a Commitment Transfer Supplement from such payee in accordance with the terms of Section 10.9; (ii) may consult with legal counsel (including counsel to the 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; (iii) makes no warranty or representation to any Bank and shall not be responsible to any Bank for any statements, warranties or representations made in or in connection with this Credit Agreement or the other Loan Documents; (iv) except as otherwise expressly provided herein, 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 this Credit Agreement or the other Loan Documents or to inspect the property (including the books and records) of the Borrower or its Subsidiaries; (v) shall not be responsible to any Bank for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Credit Agreement or the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto; (vi) shall incur no liability under or in respect of this Credit Agreement or the other Loan Documents by acting upon any notice, consent, certificate or other instrument or writing (which may be by telegram, telecopier, cable or telex) reasonably believed by it to be genuine and signed or sent by the proper party or parties, (vii) shall incur no liability to any Bank or the Issuing Bank as a result of any act or failure to act in respect of a Letter of Credit that would not form the basis for liability against the Agent acting either as the Agent or the Issuing Bank with respect to such Letter of Credit, in an action between the Agent, in either such capacity, and either the customer arranging for such Letter of Credit, the beneficiary thereof or the holder of the draft drawn thereunder and (viii) the provisions of this Section 9.2 shall survive the termination of this Credit Agreement and?or the payment or assignment of any of the Obligations. The Agent shall be fully justified in failing or refusing to take any action under this Credit Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Majority Banks (or if required under Section 10.1, all of the Banks) as it deems appropriate or it shall first be indemnified to its satisfaction by the Banks against any and all liability and expense (other than that resulting from its own gross negligence or willful misconduct) which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Credit Agreement and the other Loan Documents in accordance with a request of the Majority Banks or all of the Banks, as the case may be, and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Banks and all future holders of the Notes. (b)Neither the Agent nor any of its directors, officers, employees, or agents shall have any responsibility to any Person on account of the failure or delay in performance or breach by any of the Banks or the Borrower or any Subsidiary of the Borrower or any of their respective Obligations under this Credit Agreement, the Notes, the Loan Documents or any related agreement or document or in connection herewith or therewith. SECTION 9.3. The Agent in its Individual Capacity and Affiliates. With respect to its Commitment, any of the Revolving Credit Loans made by it and/or the Notes issued to it as a Bank, Chase shall have the same rights and powers under this Credit Agreement or the other Loan Documents as any other Bank and may exercise the same as though it were not the Agent. The terms "Bank" or "Banks" shall, unless otherwise expressly indicated, include the Agent in its individual capacity. Chase and its Affiliates may accept deposits from, lend money, act as trustee under indentures of, and generally engage in any kind of business with, the Borrower, its Subsidiaries and/or any Person who may do business with or own securities of the Borrower or any Subsidiary of the Borrower, all as if it were not the Agent and without any duty to account therefor to the other Banks. SECTION 9.4. Bank Credit Decision. Each Bank acknowledges and agrees that it has, independently and without reliance upon the Agent or any other Bank and based on the financial statements and other information referred to in Section 5.9 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Credit Agreement. Each Bank also acknowledges and agrees that it will, independently and without reliance upon the Agent or any other Bank 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 this Credit Agreement and the other Loan Documents. SECTION 9.5. Indemnification and Reimbursement. The Agent shall not be required to take any action hereunder or to prosecute or defend any suit in respect of this Credit Agreement or the other Loan Documents unless indemnified to the Agent's satisfaction by the Banks against loss, cost, liability and expense. If any indemnity furnished to the Agent shall become impaired, it may call for additional indemnity and cease to do the acts indemnified against until such additional indemnity is given. In addition, the Banks agree to indemnify the Agent (to the extent not reimbursed by the Borrower), ratably according to the respective principal amounts of the Notes then held by each of them (or if no Notes are at the time outstanding, ratably according to either (i) the respective amounts of their Commitments, or if no Commitments are outstanding, (ii) the respective amounts of the Commitments immediately prior to the time the Commitments ceased to be outstanding), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of this Credit Agreement or any action taken or omitted by the Agent under this Credit Agreement or the other Loan Documents (including, without limitation, any action taken or omitted under Article II of this Credit Agreement); provided, that no Bank shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or willful misconduct. Each Bank agrees, however, that it expressly intends, under this Section 9.5, to indemnify the Agent ratably as aforesaid for all such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses and disbursements arising out of or resulting from the Agent's ordinary or contributory negligence. Without limitation of the foregoing, each Bank agrees to reimburse the Agent promptly upon demand for its ratable share of any out-of-pocket expenses (including reasonable counsel fees) incurred by the Agent in connection with the preparation, execution, administration, or enforcement of, or legal advice in respect of rights or responsibilities under, this Credit Agreement and the other Loan Documents to the extent that the Agent is not reimbursed for such expenses by the Borrower. The provisions of this Section 9.5 shall survive the termination of Credit Agreement and?or the payment or assignment of any of the Obligations. SECTION 9.6. Successor Agent. The Agent may resign at any time by giving written notice thereof to the Banks and the Borrower and may be removed as Agent at any time for cause by the Majority Banks. Upon any such resignation or removal, the Majority Banks shall have the right to appoint from among the Banks a successor Agent (with the consent of the Borrower which shall not be unreasonably withheld or delayed, provided that if an Event of Default shall have occurred and be continuing the consent of the Borrower need not be obtained). If no successor Agent shall have been so appointed by the Majority Banks, and shall have accepted such appointment, within 30 calendar days after the retiring Agent's giving of notice of resignation or the Majority Banks' removal of the retiring Agent, then the retiring Agent may, on behalf of the Banks and with the concurrence of the Borrower, appoint a successor Agent, which shall be an Eligible Assignee. Upon the acceptance of any appointment as Agent hereunder and under the other Loan Documents by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under this Credit Agreement and the other Loan Documents. After any retiring Agent's resignation or removal as Agent hereunder and under the other Loan Documents, the provisions of this Article IX shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Credit Agreement and the other Loan Documents. SECTION 9.7. Notice of Default. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Agent shall have received notice from a Bank or the Borrower referring to this Credit Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default." If the Agent receives such a notice, the Agent shall promptly give notice thereof to the Banks; provided, however, if such notice is received from a Bank, the Agent also shall give notice thereof to the Borrower. The Agent shall be entitled to take action or refrain from taking action with respect to such Default or Event of Default as provided in Section 9.1 and Section 9.2. SECTION 9.8. Delegation of Duties. The Agent may execute any of its duties under this Credit Agreement or the other Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in- fact selected by it with reasonable care. ARTICLE X MISCELLANEOUS SECTION 10.1. Amendments and Waivers. Neither this Credit Agreement or any other Loan Document to which the Borrower or any Subsidiary is a party nor any terms hereof or thereof may be amended, supplemented, waived or otherwise modified except in accordance with the provisions of this subsection. Any provision of this Credit Agreement or any other Loan Document may be amended, supplemented, waived, or otherwise modified if and only if such amendment, supplement, waiver or other modification (x) is in writing, (y) is signed by the Majority Banks (if the Banks are a party thereto) or by the Agent with the consent of the Majority Banks (if the Agent is a party thereto and the Banks are not) and (z) is signed by each other party thereto except that in the case of a waiver, the party whose performance is being waived need not be a signatory; provided no such amendment, supplement, waiver or other modification shall do any of the following unless signed by all of the Banks (if the Banks are a party thereto) and by the Agent with the consent of all of the Banks (if the Agent is a party thereto and the Banks are not): (i) extend the Maturity Date, the date of payment of any principal, interest or fees, or the date of payment of any required principal prepayment; (ii) reduce the amount of any principal, interest or fees, the rate of interest paid with respect to any unpaid principal, interest or fees, or the amount of any fee payable to the Banks hereunder; (iii) change the amount of any Commitment of any Bank; (iv) amend, modify, or waive any of the conditions set forth in Article IV (other than any condition which refers therein to the Majority Banks); (v) amend, modify or waive any provision which calls for the consent of, the approval of, or direction from all of the Banks; (vi) amend, modify or waive any provision contained in Article III. (vii) amend, modify or waive any provision of this Section 10.1 or the definition of Majority Banks; (viii) release any Subsidiary Guarantor from its obligations under the Subsidiary Guaranty; or (ix) consent to or permit the assignment or transfer by the Borrower or any Subsidiary of the Borrower of any of its rights and obligations under this Credit Agreement or any other Loan Document to which it is a party (other than as a result of a permitted merger or consolidation pursuant to Section 7.4 which refers therein to the Majority Banks); and provided, further, without the prior written consent of the Agent, no such amendment, supplement, waiver or modification shall amend, supplement, waive or otherwise modify any provision of Article IX or any other provision of any Loan Document if the effect thereof is to affect the rights or duties of the Agent; and provided, further, that no amendment, waiver or consent shall, unless in writing and signed by the Issuing Bank in addition to the Banks required above to take such action, affect the rights and duties of the Issuing Bank with respect to the Letters of Credit and the Letter of Credit Applications, if any, outstanding under this Credit Agreement. Any such amendment, supplement, modification or waiver shall apply to each of the Banks equally and shall be binding upon the Banks, the Agent, all future holders of the Notes and Obligations, and all parties to the Loan Document so amended, supplemented, waived or otherwise modified. SECTION 10.2. Notices, Etc. Notices, consents, requests, approvals, demands and other communications (collectively "Communications") provided for herein shall be in writing (including telecopy, telegraphic, telex or cable communications) and mailed, telecopied, telegraphed, telexed, cabled or delivered: If to the Borrower or any of its Subsidiaries, to it at: Penn Virginia Corporation 100 Matsonford Road, Suite 200 Radnor, Pennsylvania 19087 Telephone Number: (610) 687-8900 Telecopy Number: (610) 687-3688 Attention: Steven W. Tholen Vice President and Chief Financial Officer If to the Agent, to it at: Chase Bank of Texas, National Association 600 Travis, CTH-20-86 Houston, Texas 77002 Telephone Number: (713) 216-4147 Telecopy Number: (713) 216-4117 Attention: Bob Mertensotto Vice President If such notice to the Agent relates to fundings or payments, with a copy to: Muniram Appana Agency Services Chase Bank of Texas, N.A. One Chase Manhattan Plaza, 8th Floor New York, New York 10081 Telephone Number: (212) 552-7943 Telecopy Number: (212) 552-7490 If to any Bank, as specified on Schedule 1.1 hereto or in the appropriate Commitment Transfer Supplement pursuant to Section 10.9. All Communications, except as otherwise expressly provided in the Loan Documents, must be in writing and must be mailed, telecopied or delivered, to the appropriate party at the address set forth herein or other applicable Loan Document or, as to any party to any Loan Document, at any other address as may be designated by it in a written notice sent to all other parties to such Loan Document in accordance with this Section 10.2 and (b) any notice, request, demand, direction, or other communication given by telecopier must be confirmed within 48 hours by letter mailed or delivered to the appropriate party at its respective address. Except as otherwise expressly provided in any Loan Document, any notice, request, demand, direction, or other communication required or permitted by any Loan Document given in compliance with this Section 10.2 shall be effective when received or delivered. SECTION 10.3. No Waiver; Remedies Cumulative. No failure on the part of the Agent or any Bank or any holder of a Note to exercise, and no delay in exercising, any right, power or privilege hereunder or under any other Loan Document and no course of dealing between the Borrower, its Subsidiaries, or any of them and the Agent or any Bank or any holder of any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power or privilege, or any abandonment or discontinuance of any steps to enforce such right, power or privilege, preclude any other or further exercise thereof or the exercise of any other right, power or privilege. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 10.4. Costs, Expenses and Taxes. (a) The Borrower agrees to pay within ten (10) Business Days after presentation of a composite statement of account, all reasonable costs and expenses of the Agent in connection with: (i) the negotiation, preparation, distribution, execution and delivery of this Credit Agreement, the Notes and the other Loan Documents and the documents and instruments referred to therein, (ii) the syndication, management and agenting of the Revolving Credit Loans, (iii) the Agent's review and due diligence (including, without limitation, the review of the material Oil and Gas Interests and Coal Interests, and (iv) the negotiation, preparation, distribution, execution and delivery of any amendment, supplement, modification, waiver or consent relating to any of the Loan Documents to which the Borrower or any Subsidiary of the Borrower is a party (including, without limitation, as to each of the foregoing, the reasonable fees and disbursements of legal counsel). (b) The Borrower shall pay all reasonable out-of- pocket costs and expenses of the Agent and each Bank in connection with (i) the preservation of their rights under, and enforcement of, the Loan Documents to which the Borrower or any Subsidiary of the Borrower is a party and the documents and instruments referred to therein and (ii) any workout, restructuring or rescheduling of the Obligations or any proceeding under any Debtor Relief Law with respect to the Borrower or any Subsidiary of the Borrower (including, without limitation, in each case, the reasonable fees and disbursements of counsel for the Agent and the Banks and allocated costs of internal counsel). (c) The Borrower shall pay, and hold the Agent and each of the Banks harmless from and against, any and all present and future stamp, excise, and other similar taxes and fees with respect to the foregoing matters and hold the Agent and each Bank harmless from and against any and all liabilities with respect to or resulting from any delay or omission (other than to the extent attributable to the Agent or such Bank) to pay such taxes. (d) Without prejudice to the survival of any other obligations of the Borrower hereunder, under the other Loan Documents, the obligations of the Borrower under this Section 10.4 shall survive the termination of this Credit Agreement and the payment in full of the Obligations for a period of fifteen (15) months. SECTION 10.5. Governing Law. This Credit Agreement, the Notes and, unless otherwise specified therein, all other Loan Documents and all other documents executed in connection herewith or therewith, shall be deemed to be contracts and agreements executed by the Borrower, the Agent and the Banks under the laws of the State of Texas and of the United States and for all purposes shall be construed in accordance with, and governed by, the laws of said State and of the United States. Without limitation of the foregoing, nothing in this Credit Agreement, the Notes or any other Loan Document shall be deemed to constitute a waiver of any rights which any Bank may have under applicable federal legislation relating to the amount of interest which such Bank may contract for, take, receive or charge in respect of any Revolving Credit Loans, including any right to take, receive, reserve and charge interest at the rate allowed by the law of the state where such Bank is located. The Agent, the Banks and the Borrower further agree that insofar as the provisions of Article 1.04, Subtitle 1, Title 79, of the Revised Civil Statutes of Texas, 1925, as amended, are applicable to the determination of the Highest Lawful Rate with respect to the Notes, the indicated rate ceiling computed from time to time pursuant to Section (a) of such Article shall apply to the Notes; provided, however, that to the extent permitted by such Article, the Agent may from time to time by notice from the Agent to the Borrower revise the election of such interest rate ceiling as such ceiling affects then current or future balances of the Revolving Credit Loans outstanding under the Notes. The provisions of Chapter 15 of Subtitle 3 of the said Title 79 do not apply to this Credit Agreement or the Notes issued hereunder. SECTION 10.6. Interest. Each provision in this Credit Agreement and each other Loan Document is expressly limited so that in no event whatsoever shall the amount paid, or otherwise agreed to be paid, to the Agent or any Bank for the use, forbearance or detention of the money to be loaned under this Credit Agreement or any Loan Document or otherwise (including any sums paid as required by any covenant or obligation contained herein or in any other Loan Document which is for the use, forbearance or detention of such money), exceed that amount of money which would cause the effective rate of interest to exceed the Highest Lawful Rate, and all amounts owed under this Credit Agreement and each other Loan Document shall be held to be subject to reduction to the effect that such amounts so paid or agreed to be paid which are for the use, forbearance or detention of money under this Credit Agreement or such Loan Document shall in no event exceed that amount of money which would cause the effective rate of interest to exceed the Highest Lawful Rate. Anything in this Credit Agreement, any Note or any other Loan Document to the contrary notwithstanding, with respect to each Note the Borrower shall never be required to pay unearned interest on such Note or ever be required to pay interest on such Note at a rate in excess of the Highest Lawful Rate, and if the effective rate of interest which would otherwise be payable with respect to such Note would exceed the Highest Lawful Rate, or if the holder of such Note shall receive any unearned interest or shall receive monies that are deemed to constitute interest which would increase the effective rate of interest payable by the Borrower with respect to such Note to a rate in excess of the Highest Lawful Rate, then (i) the amount of interest which would otherwise be payable by the Borrower with respect to such Note shall be reduced to the amount allowed under applicable law and (ii) any unearned interest paid by the Borrower or any interest paid by the Borrower in excess of the Highest Lawful Rate shall be in the first instance credited on the principal of such Notes with the excess thereof, if any, refunded to the Borrower. It is further agreed that, without limitation of the foregoing, all calculations of the rate of interest contracted for, charged or received by any Bank under the Notes held by it, or under this Credit Agreement or the other Loan Documents, are made for the purpose of determining whether such rate exceeds the Highest Lawful Rate applicable to such Bank (such Highest Lawful Rate being the Bank's "Maximum Permissible Rate"), shall be made, to the extent permitted by usury laws applicable to such Bank (now or hereafter enacted), by (a) characterizing any non-principal payment as an expense, fee or premium rather than as interest and (b) amortizing, prorating and spreading in equal parts during the period of the full stated term of the Revolving Credit Loans evidenced by said Notes all interest at any time contracted for, charged or received by such Bank in connection therewith. SECTION 10.7. Survival of Representations and Warranties. All representations, warranties and covenants contained or incorporated herein or made in writing by the Borrower or any Subsidiary of the Borrower in connection herewith shall survive the execution and delivery of this Credit Agreement, the Notes and the other Loan Documents. SECTION 10.8. Binding Effect. This Credit Agreement shall become effective when it shall have been executed by the Borrower, the Agent and each of the Banks and shall be binding upon and inure to the benefit of the Borrower and the Banks and their respective successors and assigns, whether so expressed or not, provided, that the undertaking of the Banks to make Revolving Credit Loans to the Borrower shall not inure to the benefit of any successor or assignee of the Borrower. SECTION 10.9. Successors and Assigns; Participation; Eligible Assignees. (a)This Credit Agreement shall be binding upon and inure to the benefit of the Borrower, the Banks, the Agent, all future holders of the Notes and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights or obligations under this Credit Agreement without the prior written consent of each Bank. (b) Any Bank may, in the ordinary course of its commercial banking business and in accordance with applicable law at any time sell to one or more banks or other entities ("Participants") participating interests in any Revolving Credit Loan owing to such Bank, any Note held by such Bank, any Letter of Credit Exposure held by it, any Commitment of such Bank, including such Bank's Commitment Percentage of the Letter of Credit Commitment, or any other interest of such Bank hereunder and under the other Loan Documents. In the event of any such sale by a Bank of participating interests to a Participant, such Bank's obligations under this Credit Agreement to the other parties to this Credit Agreement shall remain unchanged, such Bank shall remain solely responsible for the performance thereof, such Bank shall remain the holder of any such Note for all purposes under this Credit Agreement and the other Loan Documents, and the Borrower and the Agent shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Credit Agreement and the other Loan Documents. The Borrower agrees that if amounts outstanding under this Credit Agreement and the Notes are due or unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of setoff in respect of its parti cipating interest in amounts owing under this Credit Agreement and any Note to the same extent as if the amount of its participating interest were owing directly to it as a Bank under this Credit Agreement or any Note, provided that such Participant shall only be entitled to such right of setoff if it shall have agreed in the agreement pursuant to which it shall have acquired its participating interest to share with the Banks the proceeds thereof as provided in Section 8.3. The Borrower also agrees that each Participant shall be entitled to the benefits of Sections 2.13, 2.15, 2.17 and 10.4 with respect to its participation in the Commitments and the Utilized Credit outstanding from time to time, provided, that no Participant shall be entitled to receive any greater amount pursuant to such sections than the transferor Bank would have been entitled to receive in respect of the amount of the participation transferred by such transferor Bank to such Participant had no such transfer occurred. (c) Any Bank may, in the ordinary course of its commercial banking business and in accordance with applicable law at any time sell to any Bank or any Affiliate thereof and, so long as no Event of Default has occurred and is continuing, with the consent of the Borrower and the Agent (which in each case shall not be unreasonably withheld) and if an Event of Default has occurred and is continuing, without the consent of the Borrower, to one or more Eligible Assignees, all or any part of its rights and obligations under this Credit Agreement, its Commitment, including, without limitation, its Commitment Percentage of the Letter of Credit Commitment, the Revolving Credit Loans owning to it, the Note(s) held by it, the Letter of Credit Exposure held by it (in respect of any such Bank, the "Credit Exposure"), pursuant to a Commitment Transfer Supplement, substantially in the form of Exhibit B, provided, however, that (i) the parties to such Commitment Transfer Supplement shall have executed and delivered to the Agent for its acceptance and recording in the Register, a Commitment Transfer Supplement, together with the Note(s) subject to such assignment, (ii) each such assignment shall be of a constant, and not a varying, percentage of the transferor Bank's Credit Exposure, i.e., any such assignment shall include a constant percentage of, inter alia the rights and obligations of such transferor Bank with respect to its Commitment, including, without limitation, its Commitment Percentage of the Letter of Credit Commitment, the Revolving Credit Loans owning to it, the Note(s) held by it, and the Letter of Credit Exposure held by it, (iii) the amount of each such assignment (determined as of the date Commitment Transfer Supplement with respect to such assignment is delivered to the Agent) shall be in a minimum principal amount of $5,000,000 and (iv) if the transferor Bank has retained any Commitment hereunder, such transferor Bank's remaining Commitment shall be at least $5,000,000 after giving effect to such assignment. Upon such execution, delivery, acceptance and recording, from and after the Transfer Effective Date determined pursuant to such Commitment Transfer Supplement, (x) the Eligible Assignee thereunder shall be a party hereto and, to the extent provided in such Commitment Transfer Supplement, have the rights and obligations of a Bank hereunder with a Commitment as set forth therein, and (y) the transferor Bank thereunder shall, to the extent provided in such Commitment Transfer Supplement, be released from its obligations under this Credit Agreement (and, in the case of a Commitment Transfer Supplement covering all or the remaining portion of a transferor Bank's rights and obligations under this Credit Agreement, such transferor Bank shall cease to be a party hereto. Such Commitment Transfer Supplement shall be deemed to amend this Credit Agreement to the extent, and only to the extent, necessary to reflect the addition of such Eligible Assignee and the resulting adjustment of Commitment Percentages arising from the purchase by such Eligible Assignee of all or a portion of the rights and obligations of such transferor Bank under this Credit Agreement and the Notes. On or prior to the Transfer Effective Date determined pursuant to such Commitment Transfer Supplement, the Borrower, at its expense, shall execute and deliver to the Agent in exchange for the surrendered Note a new Note to the order of such Eligible Assignee in an amount equal to the Commitment and Revolving Credit Loans assumed by it pursuant to such Commitment Transfer Supplement and, if the transferor Bank has retained a Commitment and Revolving Credit Loans hereunder, a new Note to the order of the transferor Bank in an amount equal to the Commitment and Revolving Credit Loans retained by it hereunder. Such new Notes shall be in the form of the Notes replaced thereby. (d)The Agent shall maintain at its address referred to in Section 10.2 a copy of each Commitment Transfer Supplement delivered to it and a register (the "Register") for the recordation of the names and addresses of the Banks and the Commitment of, the principal amount of the Revolving Credit Loans owing to, and the Letter of Credit Exposure of, each Bank from time to time. The entities in the Register shall be conclusive, in the absence of manifest error, and the Borrower, the Agent and the Banks may treat each Person whose name is recorded in the Register as the owner of the Revolving Credit Loan and/or the Letter of Credit Exposure recorded therein for all purposes of this Credit Agreement. The Register shall be available for inspection by the Borrower and the Bank at any reasonable time and from time to time upon reasonable prior notice. (e)Upon its receipt of a Commitment Transfer Supplement executed by a transferor Bank and an Eligible Assignee (and, in the case of an Eligible Assignee that is not then a Bank or an affiliate thereof, by the Borrower and the Agent) together with payment to the Agent of a registration and processing fee of $2,500, the Agent shall (i) promptly accept such Commitment Transfer Supplement and (ii) on the Transfer Effective Date determined pursuant thereto, record the information contained therein in the Register and give notice of such acceptance and recordation to the Banks and the Borrower. (f)The Borrower hereby authorizes each Bank to disclose to any Participant or Eligible Assignee and any prospective Eligible Assignee any and all financial information in such Bank's possession concerning the Borrower and its Affiliates which has been delivered to such Bank by or on behalf of the Borrower pursuant to this Credit Agreement or which has been delivered to such Bank by or on behalf of the Borrower in connection with such Bank's credit evaluation of the Borrower and its Affiliates prior to becoming a party to this Credit Agreement, provided that, prior to any such disclosure, each such Eligible Assignee or Participant or proposed Eligible Assignee or Participant shall agree in writing to be bound by the confidentiality provisions contained in Section 10.11; (g) If, pursuant to this section, any interest in this Credit Agreement or any Note is transferred to any Eligible Assignee which is organized under the laws of any jurisdiction other than the United States or any state thereof, the transferor Bank shall cause such Eligible Assignee, concurrently with the effectiveness of such transfer, (i) to represent to the transferor Bank (for the benefit of the transferor Bank, the Agent and the Borrower) that under applicable law and treaties no taxes will be required to be withheld by the Agent, the Borrower or the transferor Bank with respect to any payments to be made to such Eligible Assignee in respect of the Revolving Credit Loans, (ii) to furnish to the transferor Bank (and, in the case of any Eligible Assignee registered in the Register, the Agent and the Borrower) either U.S. Internal Revenue Service Form 4224 or U.S. Internal Revenue Service Form 1001 (wherein such Eligible Assignee claims entitlement to complete exemption from U.S. federal withholding tax on all interest payments hereunder) and (iii) to agree (for the benefit of the transferor Bank, the Agent and the Borrower) to provide the transferor Bank (and, in the case of any Eligible Assignee registered in the Register, the Agent and the Borrower) a new Form 4224 or Form 1001 upon the expiration or obsolescence of any previously delivered form and comparable statements in accordance with applicable U.S. laws and regulations and amendments duly executed and completed by such Eligible Assignee, and to comply in all material respects from time to time with all applicable U.S. laws and regulations with regard to such withholding tax exemption; and (h)Nothing herein shall prohibit any Bank from (i) pledging or assigning any Note to any Federal Reserve Bank in accordance with applicable law or (ii) selling or assigning its Notes and its rights under the Credit Agreement and the other Loan Documents to any Person after the occurrence and during the continuance of an Event of Default. SECTION 10.10. Separability. Should any clause, sentence, paragraph or section of this Credit Agreement or any other Loan Document be judicially declared to be invalid, unenforceable or void, such decision will not have the effect of invalidating or voiding the remainder of this Credit Agreement or such other Loan Document, as the case may be, and the parties hereto agree that the part or parts of this Credit Agreement or such Loan Document so held to be invalid, unenforceable or void will be deemed to have been stricken here from or therefrom and the remainder will have the same force and effectiveness as if such part or parts had never been included herein or therein. SECTION 10.11. Confidentiality. Each Bank and the Agent acknowledge that any information furnished to it directly by the Borrower is and shall be confidential unless designated otherwise by the Borrower (however, such Bank or the Agent may disclose or furnish any or all of such information to its employees, officers, board members, auditors, counsel and agents after informing them of the confidential nature of such information), and each Bank and the Agent agrees that (i) it will maintain, and direct its employees, officers, board members, auditors, counsel and agents to maintain, the confidentiality of such information, (ii) it will not disclose, and will direct its employees, officers, board members, auditors, counsel and agents not to disclose, in any event such information to any third party (except as herein set forth) and (iii) it will not use, and will direct its employees, officers, board members, auditors, counsel or agents not to use such information for any purposes other than as contemplated by this Credit Agreement; provided, however, that such Bank or the Agent or its employees, officers, board members, auditors, counsel or agents may disclose any such information that is (i) in the public domain or that becomes part of the public domain after the execution hereof, as a result of filing or recording with any Governmental Authority or for any other reason other than as a result of any action of a Bank or the Agent or their respective employees, officers, board members, auditors, counsel, agents or Affiliates, (ii) in the possession of such Bank or the Agent as a result of disclosure by a third party, except to the extent that the Person making such disclosure is aware that such third party is bound by a confidentiality obligation to the Borrower, (iii) required in such Bank's or the Agent's good faith judgment to be disclosed in order to comply with any applicable Requirement of Law, in order to comply with legal process, or in order to comply with the request of any Governmental Authority having authority or purported authority to regulate the Agent or such Bank, provided, such Bank or the Agent will give notice to the Borrower of any such requirement, (iv) permitted to be disclosed to an Eligible Assignee or prospective Eligible Assignee pursuant to Section 10.9(i) or (v) disclosed in connection with any suit or other proceeding brought by the Agent or such Bank against the Borrower or any Subsidiary of the Borrower or by the Borrower or any Subsidiary of the Borrower against the Agent or such Bank. Each Bank and the Agent agrees that if it is required by any applicable Requirement of Law to disclose any confidential information, such Bank or the Agent will, as soon as practicable notify the Borrower of the applicable Requirement of Law and the date on which a response to the same is due from it, provided that this sentence shall not apply to any disclosure the Agent or any Bank is required by applicable Requirements of Law to make to any Governmental Authority having authority to regulate the Agent or such Bank. SECTION 10.12. Marshalling; Recapture. Neither the Agent nor any Bank shall be under any obligation to marshal any assets in favor of the Borrower or any other Person or against or in payment of any or all of the Obligations. To the extent any Bank receives any payment by or on behalf of the Borrower, which payment or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to the Borrower or its estate, trustee, receiver, custodian or any other party under any Debtor Relief Law, state or federal law, common law or equitable cause, then to the extent of such payment or repayment, the obligation or part thereof which has been paid, reduced or satisfied by the amount so repaid shall be reinstated by the amount so repaid and shall be included within the liabilities of the Borrower to such Bank as of the date such initial payment, reduction or satisfaction occurred. SECTION 10.13. Representation by the Banks. Each of the Banks represents that it is the present intention of such Bank to acquire its Notes for its own account or for the account of its Affiliates and not with a view to the distribution or sale thereof, subject, nevertheless to the necessity that such Bank remain in control at all times of the disposition of property held by it for its own account; it being understood that the foregoing representations shall not affect the characterization of the Revolving Credit Loans as commercial lending transactions. SECTION 10.14. No Third Party Beneficiaries. The agreement of each Bank to make its Revolving Credit Loans on the terms and conditions set forth in this Credit Agreement, is solely for the benefit of the Borrower, and no other Person (including any obligor, contractor, subcontractor, supplier or materialman furnishing supplies, goods or services to or for the benefit of the Borrower) shall have any rights hereunder, as against the Agent or any Bank, under any other Loan Document, or with respect to the Revolving Credit Loans or the proceeds thereof. SECTION 10.15. Execution in Counterparts. This Credit Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. SECTION 10.16. Jurisdiction; Consent to Service of Process. (a) Each party to this Credit Agreement hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any Texas State court or Federal court of the United States of America sitting in Harris County, Texas, in any action or proceeding arising out of or relating to this Credit Agreement or the Loan Documents, or for recognition or enforcement of any order or judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such Texas State court, or to the extent permitted by law, in such Federal court in Harris County, Texas. Each party to this Credit Agreement irrevocably consents to the service of process out of any Texas State court or Federal court of the United States of America sitting in Harris County, Texas in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to such party at its address referred to in Section 10.2. Each Party to this Credit Agreement agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Credit Agreement shall affect any right that the Agent or any Bank may otherwise have to bring any action or proceeding relating to this Credit Agreement or the Loan Documents against the Borrower or any Subsidiary of the Borrower or its respective properties in the courts of any other jurisdiction. (b)Each party to this Credit Agreement hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Credit Agreement or the Loan Documents in any Texas State or Federal court sitting in Harris County, Texas. Each Party to this Credit Agreement hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. SECTION 10.17. Credit Agreement Governs Conflicts. To the fullest extent possible, the terms and provisions of the Loan Documents shall be read together with the terms and provisions of this Credit Agreement so that the terms and provisions thereof do not conflict with the terms and provisions of this Credit Agreement; provided, however, notwithstanding the foregoing, in the event that any of the terms of provisions of the Loan Documents conflict with any terms or provisions of this Credit Agreement, the terms or provisions of this Credit Agreement shall govern and control for all purposes, provided that the inclusion of additional terms and provisions, supplemental rights or remedies in favor of the Agent in any Loan Document shall not be deemed to be a conflict with this Credit Agreement. SECTION 10.18. Jury Trial. EACH PARTY TO ANY LOAN DOCUMENT, IN EACH CASE FOR ITSELF, ITS SUCCESSORS AND ASSIGNS, IRREVOCABLY WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW, ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY LOAN DOCUMENT. The scope of the foregoing waiver is intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including, without limitation, contract claims, tort claims, breach of duty claims, and all other common law and statutory claims. Borrower acknowledges that these waivers are a material inducement to Agent's and each Bank's agreement to enter into a business relationship, that Agent and each Bank has already relied on this waiver in entering into this Credit Agreement, and that Agent and each Bank will continue to rely on this waiver in related future dealings. Borrower further warrants and represents that it has reviewed this waiver with its legal counsel, and that it knowingly and voluntarily agrees to this waiver following consultation with legal counsel. THE WAIVER IN THIS SECTION 10.18 IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, SUPPLEMENTS, OR REPLACEMENTS TO OR OF THIS OR ANY OTHER LOAN DOCUMENT. In the event of litigation, this Credit Agreement may be filed as a written consent to a trial by the court. SECTION 10.19. FINAL AGREEMENT OF THE PARTIES. THIS CREDIT AGREEMENT (INCLUDING THE EXHIBITS HERETO), THE NOTES AND THE OTHER LOAN DOCUMENTS TO WHICH THE BORROWER OR ANY OF ITS SUBSIDIARIES IS A PARTY CONSTITUTE A "LOAN AGREEMENT" AS DEFINED IN SECTION 26.02(A) OF THE TEXAS BUSINESS AND COMMERCE CODE, AND 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 ORAL AGREEMENTS BETWEEN THE PARTIES. IN WITNESS WHEREOF, the parties hereto have caused this Credit Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. BORROWER: PENN VIRGINIA CORPORATION By: _________________________ /s/Steven W. Tholen, Vice President and Chief Financial Officer AGENT: CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, (formerly known as Texas Commerce Bank National Association) as Agent By:_________________________________ Name:________________________________ Title:_______________________________ BANKS: CHASE BANK OF TEXAS, NATIONAL ASSOCIATION, (formerly known as Texas Commerce Bank National Association) By:_________________________________ Name:_______________________________ Title:______________________________ FIRST UNION NATIONAL BANK (formerly known as First Union National Bank of North Carolina), as a Bank and as Syndication Agent By:__________________________________ Name:________________________________ Title:_______________________________ THE FIRST NATIONAL BANK OF CHICAGO, as a Bank and as Documentation Agent By:__________________________________ Name:________________________________ Title:_______________________________ PNC BANK, NATIONAL ASSOCIATION By:__________________________________ Name:________________________________ Title:_______________________________ TABLE OF CONTENTS ARTICLE I DEFINITIONS AND ACCOUNTING TERMS 1 SECTION 1.1. Certain Defined Terms 1 SECTION 1.2. Accounting Terms. 24 SECTION 1.3. Interpretation. 24 ARTICLE II REVOLVING CREDIT LOANS 25 SECTION 2.1. Revolving Credit Loans 25 SECTION 2.2. Borrowing Procedure for Revolving Credits 26 SECTION 2.3. Issuing the Letters of Credit. 27 SECTION 2.4. Conversions or Continuation of Borrowings 29 SECTION 2.5. Fees 30 SECTION 2.6. Notes 32 SECTION 2.7. Interest on Revolving Credit Loans and Payment Dates 32 SECTION 2.8. Interest on Overdue Amounts 33 SECTION 2.9. Voluntary Termination and Reduction of the Total Commitment 33 SECTION 2.10. Voluntary Prepayment of Revolving Credit Loans 34 SECTION 2.11. Mandatory Payments on Revolving Credit Loans34 SECTION 2.12. Alternate Rate of Interest 35 SECTION 2.13. Change in Circumstances 35 SECTION 2.14. Change in Legality 37 SECTION 2.15. Funding Losses 38 SECTION 2.16. Method of Payments Pro Rata Treatment 39 SECTION 2.17. Taxes 40 SECTION 2.18. Sharing of Payments and Setoffs 41 SECTION 2.19. Limitation on Reimbursement; Mitigation 42 SECTION 2.20. Use of Proceeds 42 SECTION 2.21. Mandatory Termination of Total Commitment; Extension of Maturity Date 42 SECTION 2.22. Replacement of Banks 43 ARTICLE III BORROWING BASE 44 SECTION 3.1. Borrowing Base Asset Reports 44 SECTION 3.2. Determination of Total Borrowing Base. 44 SECTION 3.3. The Designated Borrowing Base. 45 SECTION 3.4. Special Determination of Total Borrowing Base. 45 SECTION 3.5. Initial Total Borrowing Base; Initial Available Borrowing Base. 46 ARTICLE IV CONDITIONS PRECEDENT 46 SECTION 4.1. Conditions Precedent to the Revolving Credit Loans 46 SECTION 4.2. Additional Conditions Precedent 48 SECTION 4.3. General 49 ARTICLE V REPRESENTATIONS AND WARRANTIES 49 SECTION 5.1. Organization; Corporate Powers 49 SECTION 5.2. Authority 50 SECTION 5.3. Use of Proceeds 50 SECTION 5.4. No Conflict 50 SECTION 5.5. Gas Balancing Agreements and Advance Payment Contracts 51 SECTION 5.6. Borrowing Base Assets 51 SECTION 5.7. Ownership of Properties Generally 52 SECTION 5.8. No Defaults 52 SECTION 5.9. Financial Position; No Material Adverse Change 52 SECTION 5.10. Litigation; Adverse Effects 52 SECTION 5.11. ERISA 53 SECTION 5.12. Payment of Taxes 53 SECTION 5.13. Environmental Matters 53 SECTION 5.14. Governmental Regulation 55 SECTION 5.15. Disclosure 55 SECTION 5.16. Subsidiaries 55 SECTION 5.17. Solvency 55 SECTION 5.18. Business 56 SECTION 5.19. Material Contracts 56 SECTION 5.20. Licenses, Permits, Etc 56 SECTION 5.21. Fiscal Year 56 SECTION 5.22. Year 2000 56 ARTICLE VI AFFIRMATIVE COVENANTS 57 SECTION 6.1. Information 57 SECTION 6.2. Business of the Borrower 60 SECTION 6.3. Corporate Existence 60 SECTION 6.4. Right of Inspection 60 SECTION 6.5. Maintenance of Insurance 60 SECTION 6.6. Payment of Taxes and Claims 60 SECTION 6.7. Compliance with Laws and Documents 61 SECTION 6.8. Operation of Properties and Equipment 61 SECTION 6.9. Environmental Law Compliance and Indemnity 61 SECTION 6.10. ERISA Reporting Requirements 62 SECTION 6.11. Subsidiary Guaranty 63 SECTION 6.12. Permits, Licenses. 63 SECTION 6.13. Additional Documents 63 SECTION 6.14. Title Assurances 63 ARTICLE VII NEGATIVE COVENANTS 63 SECTION 7.1. 64 SECTION 7.2. Restrictions on Distributions 65 SECTION 7.3. Negative Pledge 66 SECTION 7.4. Consolidation, Mergers and Acquisitions; Fundamental Changes 66 SECTION 7.5. Investments 67 SECTION 7.6. Transactions with Affiliates 67 SECTION 7.7. Agreements 67 SECTION 7.8. Sales of Assets 68 SECTION 7.9. ERISA 68 SECTION 7.10. Sales and Leasebacks 69 SECTION 7.11. Margin Regulation 69 SECTION 7.12. Amendment to Organizational Documents 69 SECTION 7.13. Fiscal Year; Fiscal Quarter 69 SECTION 7.14. Hedge Transactions 69 SECTION 7.15. Financial Covenants 70 ARTICLE VIII EVENTS OF DEFAULT 70 SECTION 8.1. Events of Default 70 SECTION 8.2. Remedies 73 SECTION 8.3. Right of Setoff 73 SECTION 8.4. Indemnity 74 ARTICLE IX THE AGENT 74 SECTION 9.1. Authorization and Action 74 SECTION 9.2. Agent's Reliance; Exculpatory Provisions, Etc75 SECTION 9.3. The Agent in its Individual Capacity and Affiliates 76 SECTION 9.4. Bank Credit Decision 76 SECTION 9.5. Indemnification and Reimbursement 76 SECTION 9.6. Successor Agent 77 SECTION 9.7. Notice of Default 78 SECTION 9.8. Delegation of Duties 78 ARTICLE X MISCELLANEOUS 78 SECTION 10.1. Amendments and Waivers 78 SECTION 10.2. Notices, Etc 79 SECTION 10.3. No Waiver; Remedies Cumulative 80 SECTION 10.4. Costs, Expenses and Taxes 81 SECTION 10.5. Governing Law 81 SECTION 10.6. Interest 82 SECTION 10.7. Survival of Representations and Warranties 83 SECTION 10.8. Binding Effect 83 SECTION 10.9. Successors and Assigns; Participation; Eligible Assignees 83 SECTION 10.10. Separability 86 SECTION 10.11. Confidentiality 86 SECTION 10.12. Marshalling; Recapture 87 SECTION 10.13. Representation by the Banks 87 SECTION 10.14. No Third Party Beneficiaries 87 SECTION 10.15. Execution in Counterparts 87 SECTION 10.16. Jurisdiction; Consent to Service of Process87 SECTION 10.17. Credit Agreement Governs Conflicts 88 SECTION 10.18. Jury Trial 88 SECTION 10.19. FINAL AGREEMENT OF THE PARTIES 89 SCHEDULES Schedule 1.1 - Name and Address of the Banks and Commitment Amounts Schedule 5.11 - Summary of Existing Benefit Plans Schedule 5.16 - Subsidiaries Schedule 7.1 - Description of Existing Debt as of the Effective Date Schedule 7.5 - Description of Existing Investments EXHIBITS Exhibit A - Form of Borrowing Request Exhibit B - Form of Commitment Transfer Supplement Exhibit C - Form of Letter of Credit Application Exhibit D - Form of Note Exhibit E - Form of Notice of Conversion or Continuation Exhibit F - Form of Subsidiary Guaranty EX-21 6 EXHIBIT 21 PENN VIRGINIA CORPORATION SUBSIDIARIES OF REGISTRANT NAME PERCENTAGES STATE Penn Virginia Holding Corp. 100% Delaware Penn Virginia Coal Company 100% Virginia Penn Virginia Equities Corporation 100% Delaware Penn Virginia Oil & Gas Corporation 100% Virginia Penn Virginia Energy Co. 100% Virginia Concord Land Company 100% Delaware Kanawha Rail Corp. 100% Virginia Paragon Coal Corporation 100% Virginia Savannah Land Company 100% Delaware
EX-23.1 7 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated February 16, 2000, included in the Annual Report of Penn Virginia Corporation on Form 10-K for the year ended December 31, 1999, into Penn Virginia Corporation's previously filed Registration Statements Nos. 33-40430, 33-59647, 33-59651 and 33-96463 on Form S-8. ARTHUR ANDERSEN LLP Houston, Texas March 29, 2000 EX-27 8
5 1000 YEAR DEC-31-1999 DEC-31-1999 657 0 6,880 0 0 9,321 267,820 76,553 274,011 7,074 0 0 0 55,762 98,581 274,011 41,138 47,135 4,311 4,311 22,109 0 3,298 18,834 4,330 14,504 0 0 0 14,504 1.73 1.71
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