-----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, NZqDeL+PqZN1ZT5oLBHEb2iC63qIQIAlxldwrxNJApCH0OSb9v2RTSLAKp2bfh9B yM3RAVJHxwIMuONoaoIMzQ== 0000950116-01-000252.txt : 20010223 0000950116-01-000252.hdr.sgml : 20010223 ACCESSION NUMBER: 0000950116-01-000252 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RESOURCE AMERICA INC CENTRAL INDEX KEY: 0000083402 STANDARD INDUSTRIAL CLASSIFICATION: INVESTMENT ADVICE [6282] IRS NUMBER: 720654145 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-04408 FILM NUMBER: 1544965 BUSINESS ADDRESS: STREET 1: 1521 LOCUST ST STREET 2: 4TH FL CITY: PHILADELPHIA STATE: PA ZIP: 19102 BUSINESS PHONE: 2155465005 MAIL ADDRESS: STREET 1: 1521 LOCUST ST CITY: PHILADELPHIA STATE: PA ZIP: 19102 FORMER COMPANY: FORMER CONFORMED NAME: RESOURCE EXPLORATION INC DATE OF NAME CHANGE: 19890214 FORMER COMPANY: FORMER CONFORMED NAME: SMTR CORP DATE OF NAME CHANGE: 19700522 10-Q 1 0001.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to __________ Commission file number: 0-4408 RESOURCE AMERICA, INC. ---------------------- (Exact name of registrant as specified in its charter) Delaware 72-0654145 -------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1521 Locust Street Suite 400 Philadelphia, PA 19102 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (215) 546-5005 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 [ ] APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 17,454,902 Shares February 9, 2001 RESOURCE AMERICA, INC. AND SUBSIDIARIES INDEX TO QUARTERLY REPORT ON FORM 10-Q PAGE ---- PART I FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets - December 31, 2000 (Unaudited) and September 30, 2000............................................. 3 Consolidated Statements of Income (Unaudited) Three Months Ended December 31, 2000 and 1999......................................... 4 Consolidated Statements of Comprehensive Income (Unaudited) Three Months Ended December 31, 2000 and 1999............................ 5 Consolidated Statement of Changes in Stockholders' Equity (Unaudited) Three Months Ended December 31, 2000................... 6 Consolidated Statements of Cash Flows (Unaudited) Three Months Ended December 31, 2000 and 1999................................... 7 Notes to Consolidated Financial Statements (Unaudited) December 31, 2000............................................... 8-14 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................... 15-20 Item 3. Quantitative and Qualitative Disclosures about Market Risk.......... 21 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K.................................... 22 SIGNATURES................................................................... 23 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS RESOURCE AMERICA, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
December 31, September 30, 2000 2000 ---------------- --------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents............................................................ $ 61,929 $ 117,107 Accounts and notes receivable........................................................ 8,502 9,481 Prepaid expenses..................................................................... 851 2,531 ----------- ----------- Total current assets............................................................. 71,282 129,119 Investments in real estate loans (less allowance for possible losses of $2,079 and $2,013) 185,066 183,927 Investments in real estate ventures..................................................... 17,579 17,723 Investment in RAIT Investment Trust..................................................... 10,299 10,533 Property and equipment: Oil and gas properties and equipment (successful efforts)............................ 88,642 86,028 Gas gathering and transmission facilities............................................ 19,003 18,775 Other................................................................................ 7,084 7,037 ----------- ----------- 114,729 111,840 Less - accumulated depreciation, depletion and amortization............................. (28,894) (26,977) ----------- ----------- Net property and equipment........................................................... 85,835 84,863 Net assets of discontinued operations................................................... - 779 Other assets (less accumulated amortization of $9,317 and $8,641)....................... 74,892 76,195 ----------- ----------- Total assets..................................................................... $ 444,953 $ 503,139 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt.................................................... $ 7,050 $ 7,250 Accounts payable..................................................................... 3,935 5,625 Accrued interest..................................................................... 4,524 1,966 Accrued liabilities.................................................................. 27,163 26,768 Estimated income taxes............................................................... 1,388 7,470 ----------- ----------- Total current liabilities........................................................ 44,060 49,079 Long-term debt: Senior............................................................................... 75,391 80,391 Non-recourse......................................................................... 42,167 42,040 Other................................................................................ 10,305 5,251 ----------- ----------- 127,863 127,682 Deferred revenue and other liabilities.................................................. 9,389 7,676 Deferred income taxes................................................................... 19,994 19,567 Minority interest....................................................................... 18,144 17,920 Commitments and contingencies........................................................... - - Stockholders' equity: Preferred stock, $1.00 par value: 1,000,000 authorized shares ...................... - - Common stock, $.01 par value: 49,000,000 authorized shares........................... 248 246 Additional paid-in capital........................................................... 221,603 221,361 Less treasury stock, at cost......................................................... (73,764) (15,778) Less loan receivable from Employee Stock Ownership Plan ("ESOP")..................... (1,385) (1,393) Accumulated other comprehensive loss................................................. (1,653) (974) Retained earnings.................................................................... 80,454 77,753 ----------- ----------- Total stockholders' equity....................................................... 225,503 281,215 ----------- ----------- Total liabilities and stockholders' equity....................................... $ 444,953 $ 503,139 =========== ===========
See accompanying notes to consolidated financial statements 3 RESOURCE AMERICA, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (in thousands, except per share data)
Three Months Ended December 31, ------------------------------ 2000 1999 ----------- ----------- REVENUES Energy.................................................................................... $ 21,465 $ 15,760 Real estate finance....................................................................... 3,837 6,651 Interest and other........................................................................ 1,902 2,558 ----------- ----------- 27,204 24,969 COSTS AND EXPENSES Energy.................................................................................... 12,004 11,292 Real estate finance....................................................................... 390 734 General and administrative................................................................ 1,202 1,850 Depreciation, depletion and amortization.................................................. 2,634 2,554 Interest.................................................................................. 4,027 4,755 Provision for possible losses............................................................. 506 150 Minority interest in Atlas Pipeline Partners, L.P......................................... 1,019 - Equity in loss of unconsolidated affiliate................................................ 520 - ----------- ----------- 22,302 21,335 ----------- ----------- Income from continuing operations before income taxes and extraordinary item................. 4,902 3,634 Provision for income taxes................................................................ 1,750 1,159 ----------- ----------- Income from continuing operations before extraordinary item............................... 3,152 2,475 Discontinued operations: Income from operations of subsidiary................................................... - 610 Loss on disposal of subsidiary......................................................... - (48) ----------- ----------- 3,152 3,037 Extraordinary item, net of taxes of $78 and $63........................................... 158 122 ----------- ----------- Net income................................................................................ $ 3,310 $ 3,159 =========== =========== Net income per common share - basic: From continuing operations............................................................. $ .16 $ .11 Discontinued operations................................................................ - .02 Extraordinary item..................................................................... .01 .01 ----------- ----------- Net income per common share - basic....................................................... $ .17 $ .14 =========== =========== Weighted average common shares outstanding................................................ 19,439 23,318 =========== =========== Net income per common share - diluted: From continuing operations............................................................. $ .16 $ .10 Discontinued operations................................................................ - .02 Extraordinary item..................................................................... .01 .01 ----------- ----------- Net income per common share - diluted..................................................... $ .17 $ .13 =========== =========== Weighted average common shares............................................................ 19,821 23,742 =========== ===========
See accompanying notes to consolidated financial statements 4 RESOURCE AMERICA, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (in thousands)
Three Months Ended December 31, ------------------------------ 2000 1999 ----------- ----------- Net income................................................................................ $ 3,310 $ 3,159 Other comprehensive loss: Unrealized loss on investment, net of taxes of $80 and $89............................. (154) (172) Unrealized loss on natural gas futures contracts, net of taxes of $44.................. (79) - ----------- ----------- (233) (172) ----------- ----------- Comprehensive income...................................................................... $ 3,077 $ 2,987 =========== ===========
See accompanying notes to consolidated financial statements 5 RESOURCE AMERICA, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY THREE MONTHS ENDED DECEMBER 31, 2000 (Unaudited) (in thousands, except share data)
Common stock Additional Treasury Stock ESOP --------------------------- Paid-In ----------------------------- Stockholders' Shares Amount Capital Shares Amount Receivable -------------------------------------------------------------------------------------- Balance, October 1, 2000.................. 24,621,962 $ 246 $ 221,361 (1,029,982) $ (15,778) $ (1,393) Cumulative effect adjustment for adoption of SFAS 133 (Note 6)...................... Treasury shares issued.................... (110) 8,760 184 Issuance of common stock.................. 131,520 2 352 Purchase of treasury shares............... (6,418,547) (58,170) Other comprehensive loss.................. Cash dividends ($.033 per share).......... Repayment of ESOP Loan.................... 8 Net income................................ ------------------------------------------------------------------------------- Balance, December 31, 2000................ 24,753,482 $ 248 $ 221,603 (7,439,769) $ (73,764) $ (1,385) ========== ========= ========= =========== =========== ==========
[RESTUBBED TABLE]
Accumulated Other Totals Comprehensive Retained Stockholders' Income (Loss) Earnings Equity --------------------------------------------- Balance, October 1, 2000.................. $ (974) $ 77,753 $ 281,215 Cumulative effect adjustment for adoption of SFAS 133 (Note 6)...................... (446) (446) Treasury shares issued.................... 74 Issuance of common stock.................. 354 Purchase of treasury shares............... (58,170) Other comprehensive loss.................. (233) (233) Cash dividends ($.033 per share).......... (609) (609) Repayment of ESOP Loan.................... 8 Net income................................ 3,310 3,310 ------------------------------------------ Balance, December 31, 2000................ $ (1,653) $ 80,454 $ 225,503 ============= ========== ===========
See accompanying notes to consolidated financial statements 6 RESOURCE AMERICA, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Three Months Ended December 31, ------------------------------ 2000 1999 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income................................................................................ $ 3,310 $ 3,159 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization............................................... 2,634 2,554 Amortization of discount on senior notes and deferred finance costs.................... 222 281 Provision for possible losses.......................................................... 506 150 Minority interest in Atlas Pipeline Partners, L.P...................................... 1,019 - Equity in loss of unconsolidated subsidiary............................................ 520 - Non-cash compensation.................................................................. 95 78 Income from operations of discontinued subsidiary...................................... - (562) Deferred income taxes.................................................................. 427 (599) Accretion of discount.................................................................. (1,669) (1,734) Collection of interest................................................................. 628 3,286 Extraordinary gain on debt extinguishment.............................................. (158) (122) Loss (gain) on asset dispositions...................................................... 1 (976) Property impairments and abandonments.................................................. 6 381 Change in operating assets and liabilities: Decrease (increase) in accounts receivable and other assets............................ 1,392 (6,349) Increase in accounts payable and other liabilities..................................... 1,588 11,386 ----------- ----------- Net cash provided by operating activities of continuing operations........................ 10,521 10,933 CASH FLOWS FROM INVESTING ACTIVITIES: Net change in net assets of discontinued subsidiary....................................... - (13,930) Capital expenditures...................................................................... (1,919) (2,057) Principal payments on notes receivable.................................................... 1,811 68,841 Proceeds from sale of assets.............................................................. 6 44 Increase in other assets.................................................................. (45) (1,899) Investments in real estate loans and ventures............................................. (608) (1,389) (Decrease) increase in other liabilities.................................................. (14) 107 ----------- ----------- Net cash (used in) provided by investing activities of continuing operations.............. (769) 49,717 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings................................................................................ 13,977 31,925 Principal payments on borrowings.......................................................... (20,471) (97,724) Dividends paid............................................................................ (609) (778) Repayment of ESOP loan.................................................................... 8 8 Treasury shares purchased................................................................. (58,170) - Changes in other assets................................................................... 3 - Proceeds from issuance of stock........................................................... 332 - ----------- ----------- Net cash used in financing activities of continuing operations............................ (64,930) (66,569) ----------- ----------- Net cash provided by discontinued operations.............................................. - 1,002 ----------- ----------- Decrease in cash and cash equivalents..................................................... (55,178) (4,917) Cash and cash equivalents at beginning of period.......................................... 117,107 32,504 ----------- ----------- Cash and cash equivalents at end of period................................................ $ 61,929 $ 27,587 =========== ===========
See accompanying notes to consolidated financial statements 7 RESOURCE AMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2000 (Unaudited) NOTE 1 - MANAGEMENT'S OPINION REGARDING INTERIM FINANCIAL STATEMENTS In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for a fair statement of the results of operations for the interim period included herein have been made. Certain reclassifications have been made to the consolidated financial statements for the first quarter ended December 31, 1999 to conform with the first quarter ended December 31, 2000. In addition, certain reclassifications have been made to the consolidated financial statements for the first quarter ended December 31, 1999 to reflect discontinued operations. The accounting policies followed by the Company are set forth in Note 2 to the Company's consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2000. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Other Assets Included in other assets are intangible assets that consist primarily of contracts acquired through acquisitions recorded at fair value on their acquisition dates, the excess of the acquisition cost over the fair value of the net assets of a business acquired (goodwill), investments, lease receivables and deferred financing costs. The contracts acquired are being amortized on a declining balance method, except for a syndication network which is being amortized on a straight-line basis, over their respective estimated lives, ranging from five to 30 years; goodwill is being amortized on a straight-line basis over periods ranging from 15 to 30 years; deferred financing costs are being amortized over the terms of the related loans (two to seven years); and others costs are being amortized over varying periods of up to five years. Other assets consist of the following (in thousands):
December 31, September 30, 2000 2000 ------------ ------------- (Unaudited) Contracts acquired (including syndication network).................................... $ 17,022 $ 17,378 Goodwill.............................................................................. 28,161 28,484 Deferred financing costs.............................................................. 2,282 2,533 Investments........................................................................... 7,605 8,581 Note and escrow received upon disposal of subsidiary (net of allowance for possible losses of $8,827 and $8,944)........................ 14,692 16,080 Other (net of allowance for possible losses of $677).................................. 5,130 3,139 ----------- ----------- $ 74,892 $ 76,195 =========== ===========
Fair Value of Financial Instruments The following methods and assumptions were used by the Company in estimating the fair value of each class of financial instruments for which it is practicable to estimate fair value. For cash and cash equivalents, receivables and payables, the carrying amounts approximate fair value because of the short maturity of these instruments. 8 RESOURCE AMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) December 31, 2000 (Unaudited) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued) For investments in real estate loans, because each loan is a unique transaction involving a discrete property it is impractical to determine their fair values. However, the Company believes the carrying amounts of the loans are reasonable estimates of their fair value considering the nature of the loans and the estimated yield relative to the risks involved. The following table provides information about other financial instruments as of December 31, 2000:
Carrying Estimated Amount Fair Value ------ ---------- (in thousands) Energy debt.......................................................................... $ 23,292 $ 23,292 Real estate finance debt............................................................. 25,675 25,675 Senior debt.......................................................................... 75,391 71,621 Other debt........................................................................... 10,555 10,555 ----------- ----------- $ 134,913 $ 131,143 =========== ===========
Earnings Per Share The following table presents a reconciliation of the components used in the computation of net income per common share-basic and net income per common share-diluted for the three months ended December 31, 2000 and 1999: The computations of basic and diluted earnings per share for each period were as follows:
Three Months Ended December 31, ----------------------------- 2000 1999 ----------- ----------- (in thousands) Income from continuing operations before extraordinary item........................... $ 3,152 $ 2,475 Income from discontinued operations................................................... - 562 Extraordinary gain on early extinguishment of debt.................................... 158 122 ----------- ----------- Net income............................................................................ $ 3,310 $ 3,159 =========== =========== Basic average shares of common stock outstanding...................................... 19,439 23,318 Dilutive effect of stock option and award plans....................................... 382 424 ----------- ----------- Dilutive average shares of common stockholders........................................ 19,821 23,742 =========== ===========
9 RESOURCE AMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) December 31, 2000 (Unaudited) NOTE 3 - CASH FLOW STATEMENTS The Company considers temporary investments with a maturity at the date of acquisition of 90 days or less to be cash equivalents. Supplemental disclosure of cash flow information: Three Months Ended December 31, ---------------------------- 2000 1999 ----------- ----------- (in thousands) Cash paid during the period for: Interest....................................... $ 1,247 $ 2,638 Income taxes................................... 7,000 482 NOTE 4 - INVESTMENTS IN REAL ESTATE LOANS The Company primarily focuses its real estate activities on managing its existing real estate loan portfolio. These real estate loans generally were acquired at discounts from both their face value and the appraised value of the properties underlying the loans. The Company records as income the accretion of a portion of the difference between its cost basis in a real estate loan and the sum of projected cash flows therefrom. Cash received by the Company for payment on each real estate loan is allocated between principal and interest. This accretion of discount amounted to $1.7 million during the three months ended December 31, 2000 and 1999. As the Company sells senior lien interests or receives funds from refinancings in such loans, a portion of the cash received is employed to reduce the cumulative accretion of discount included in the carrying value of the Company's investments in real estate loans. At December 31, 2000, the Company held real estate loans having an aggregate face value of $692.4 million, which were being carried at an aggregate cost of $185.1 million, including cumulative accretion. The following is a summary of the changes in the carrying value of the Company's investments in real estate loans for the periods indicated.
Three Months Ended December 31, ----------------------------- 2000 1999 ----------- ----------- (in thousands) Balance, beginning of period.......................................................... $ 183,927 $ 250,231 Additions to existing loans........................................................... 608 1,389 Provision for possible losses......................................................... (150) (150) Accretion of discount (net of collection of interest)................................. 1,669 1,734 Collections of principal.............................................................. (988) (59,440) Cost of loans sold.................................................................... - (11,209) ----------- ----------- Balance, end of period................................................................ $ 185,066 $ 182,555 =========== ===========
10 RESOURCE AMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) December 31, 2000 (Unaudited) NOTE 4 - INVESTMENTS IN REAL ESTATE LOANS - (Continued) The following is a summary of activity in the Company's allowance for possible losses related to real estate loans for the three months ended December 31, 2000 and 1999: Three Months Ended December 31, ----------------------------- 2000 1999 ----------- ----------- (in thousands) Balance, beginning of period..................... $ 2,013 $ 1,405 Provision for possible losses.................... 150 150 Write-down....................................... (84) - ---------- ----------- Balance, end of period........................... $ 2,079 $ 1,555 ========== =========== NOTE 5 - DEBT Total debt consists of the following: December 31, September 30, 2000 2000 ------------ ------------- (in thousands) Senior debt..................................... $ 75,391 $ 80,391 Non recourse debt: Energy: Revolving and term bank loans.............. 23,292 23,165 Real estate finance: Revolving credit facilities................ 18,000 18,000 Other...................................... 875 875 ---------- ----------- Total non recourse debt................ 42,167 42,040 Other debt...................................... 17,355 12,501 ---------- ----------- 134,913 134,932 Less current maturities......................... 7,050 7,250 ---------- ----------- $ 127,863 $ 127,682 ========== =========== 11 RESOURCE AMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) December 31, 2000 (Unaudited) NOTE 6 - DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES The Company, through its energy subsidiaries, enters into natural gas futures and option contracts to hedge its exposure to changes in natural gas prices. At any point in time, such contracts may include regulated New York Mercantile Exchange ("NYMEX") futures and options contracts and non-regulated over-the-counter futures contracts with qualified counterparties. NYMEX contracts are generally settled with offsetting positions, but may be settled by delivery of natural gas. Effective October 1, 2000, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" (as amended by SFAS 138). This statement establishes accounting and reporting standards for derivative instruments and hedging activities. The statement requires that all derivative financial instruments be recognized in the financial statements as either assets or liabilities measured at fair value. Changes in the fair value of derivative financial instruments are recognized in income or other comprehensive income, depending on their classification. On the date a contract is entered into, the Company designates the derivative as a cash flow hedge or a fair value hedge. As these contracts qualify and have been classified as effective cash flow hedges under SFAS 133, the change in fair value on the contracts is recorded in other comprehensive income and subsequently recognized in income in the month the gas being hedged is sold. As of October 1, 2000, an unrecognized loss of $446,000 (net of taxes of $248,000) related to contracts for future gas sales was recorded in stockholders' equity as a cumulative effect adjustment for adoption of SFAS 133. At December 31, 2000, the Company had 48 open natural gas futures contracts related to natural gas sales covering 129,600 dekatherms ("Dth") (net to the Company) maturing through August 2001. The unrealized loss on these contracts was approximately $430,000 and has been recorded as a liability in the December 31, 2000 balance sheet. As of December 31, 2000, an unrecognized loss of $525,000 (net of taxes of $292,000) related to contracts for future gas sales is recorded in stockholders' equity as a component of other comprehensive income. 12 RESOURCE AMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) December 31, 2000 (Unaudited) NOTE 7 - DISCONTINUED OPERATIONS In August 2000 the Company sold its small ticket equipment leasing business, Fidelity Leasing, Inc. ("FLI"). Accordingly, FLI is reported as a discontinued operation for the quarter ended December 31, 1999. Summarized operating results of the discontinued FLI operation are as follows:
Three Months Ended December 31, ----------------------------- 2000 1999 ----------- ----------- (in thousands) Net revenues................................................. $ - $ 14,044 =========== =========== Income from operations before income tax provision........... $ - $ 1,043 Provision for income taxes................................... - (433) ----------- ----------- Income from discontinued operations.......................... $ - $ 610 =========== ===========
In November 2000, the Company disposed of Fidelity Mortgage Funding, Inc. ("FMF"), its residential mortgage lending business. Accordingly, FMF is reported as a discontinued operation for the quarter ended December 31, 1999. Summarized operating results of the discontinued FMF operation are as follows:
Three Months Ended December 31, ----------------------------- 2000 1999 ----------- ----------- (in thousands) Net revenues................................................. $ - $ 199 =========== =========== Loss on disposal before income tax benefit................... - (70) Income tax benefit........................................... - 22 ----------- ----------- Loss on disposal of discontinued operations.................. $ - $ (48) =========== ===========
13 RESOURCE AMERICA, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) December 31, 2000 (Unaudited) NOTE 8 - OPERATING SEGMENT INFORMATION The Company operates in two principal industry segments - energy and real estate finance. Segment data for the three months ended December 31, 2000 and 1999 are as follows: Three Months Ended December 31, ----------------------------- 2000 1999 ----------- ----------- (in thousands) Revenues: Energy.................................. $ 21,465 $ 15,760 Real estate finance..................... 3,837 6,651 Corporate............................... 1,902 2,558 ----------- ----------- $ 27,204 $ 24,969 =========== =========== Operating profit (loss): Energy.................................. $ 4,732 $ 1,517 Real estate finance..................... 1,627 5,164 Corporate............................... (1,457) (3,047) ----------- ----------- $ 4,902 $ 3,634 =========== =========== Identifiable assets: Energy.................................. $ 146,557 $ 147,775 Real estate finance..................... 203,320 202,335 Corporate............................... 95,076 153,029 ----------- ----------- $ 444,953 $ 503,139 =========== =========== Operating profit (loss) represents total revenues less costs attributable thereto, including interest expense, provision for possible losses, and, with respect to energy and real estate finance, general and administrative expenses, and less depreciation, depletion and amortization. 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Unaudited) WHEN USED IN THIS FORM 10-Q, THE WORDS "BELIEVES," "ANTICIPATES," "EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD LOOKING STATEMENTS. SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES MORE PARTICULARLY DESCRIBED IN ITEM 1, UNDER THE CAPTION "RISK FACTORS", IN OUR ANNUAL REPORT ON FORM 10-K FOR FISCAL 2000. THESE RISKS AND UNCERTAINTIES COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. WE UNDERTAKE NO OBLIGATION TO PUBLICLY RELEASE THE RESULTS OF ANY REVISIONS TO FORWARD LOOKING STATEMENTS WHICH WE MAY MAKE TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE OF THIS FORM 10-Q OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS. Overview of First Quarter of Fiscal 2001 Our operating results and financial condition for the first quarter of fiscal 2001 reflect the further expansion of our energy operations, continuing a trend which began with the acquisition of Atlas Group (now Atlas America) at the end of fiscal 1998 and continued with the acquisition of Viking Resources at the end of fiscal 1999. The expansion of our energy operations is shown in the following tables: Revenues as a Percent of Total Revenues(1) Three Months Ended December 31, ----------------------------------- 2000 1999 ---------------- --------------- Energy .................................... 79% 63% Real estate finance........................ 14% 27% Assets as a Percent of Total Assets(2) December 31, September 30, 2000 2000 ---------------- --------------- Energy(3).................................. 33% 30% Real estate finance........................ 46% 40% - ------------------ (1) The balance (7% and 10% for the three months ended December 31, 2000 and 1999, respectively) is attributable to revenues derived from corporate assets not allocated to a specific industry segment, including cash and the common shares held in RAIT Investment Trust. (2) The balance (21% and 30% at December 31, 2000 and September 30, 2000, respectively) is attributable to corporate assets not attributable to a specific industry segment, as referred to in (1) above. (3) Energy assets expressed as a percent of total assets, excluding cash, were 38% and 39% at December 31, 2000 and September 30, 2000, respectively. 15 Results of Operations: Energy The following tables set forth information relating to revenues recognized and costs and expenses incurred, daily production volumes, average sales prices and production cost per equivalent unit in the Company's energy operations during the periods indicated: Three Months Ended December 31, ----------------------------- 2000 1999 ----------- ----------- (in thousands) Revenues: Production.................................... $ 8,888 $ 5,461 Well drilling................................. 9,313 7,154 Well services................................. 2,176 2,085 Transportation................................ 1,088 1,060 ----------- ------------ $ 21,465 $ 15,760 =========== ============ Costs and expenses: Exploration and production.................... $ 1,997 $ 2,219 Well drilling................................. 7,241 5,971 Well services................................. 897 1,330 Transportation................................ 436 231 Non-direct.................................... 1,433 1,541 ----------- ------------ $ 12,004 $ 11,292 =========== ============ Three Months Ended December 31, --------------------------- 2000 1999 ----------- --------- Revenues (in thousands): Gas(1)........................................ $ 7,471 $ 4,415 Oil........................................... $ 1,414 $ 1,025 Production volumes: Gas (thousands of cubic feet (mcf)/day)(1).... 17,211 16,646 Oil (barrels (bbls)/day)...................... 502 541 Average sales price: Gas (per mcf)................................. $ 4.72 $ 2.88 Oil (per bbl)................................. $ 30.61 $ 20.58 Production costs: (per mcf equivalent unit)..................... $ .87 $ .93 - ------------- (1) Excludes sales of residual gas and sales to landowners. Our natural gas revenues were $7.5 million in the quarter ended December 31, 2000, an increase of $3.1 million (69%) from $4.4 million in the first quarter of fiscal 1999 due to a 64% increase in the average sales price of natural gas and a 3% increase in production volumes. Our oil revenues were $1.4 million in the first quarter of fiscal 2001, an increase of $389,000 (38%) from $1.0 million in the first quarter of fiscal 2000, due to a 49% increase in the average sales price of oil partially offset by a 7% decrease in production volumes. Gas volumes were favorably impacted by the additional volumes associated with wells drilled for partnerships sponsored by Atlas America. 16 Our well drilling revenues and expenses in the first quarter ended December 31, 2000 represent the billings and costs associated with the substantial completion of 50 net wells for partnerships sponsored by Atlas America as compared to 36 net wells, an increase of 14 wells as compared to the first quarter of fiscal 2000. The gross profit from drilling operations was $2.1 million (22%) in the first quarter of fiscal 2001 as compared to $1.2 million (17%) in the first quarter of fiscal 2000. The increase in gross profit arose from the increase in the number of net wells drilled and the reversal in the period of certain costs that were over-accrued in a prior period in connection with a completed drilling program. Our production costs, excluding exploration costs of $384,000, decreased $93,000 (5%) to $1.6 million in the first quarter ended December 31, 2000, as compared to $1.7 million in the first quarter ended December 31, 1999. This decrease is the result of a reduction in repairs and maintenance on existing wells owned by us. Our well services revenues and related costs increased as a result of an increase in the number of wells we operate. The increase in the number of wells resulted from the new partnership wells drilled during fiscal 2000, as discussed above. Our transportation expenses were $436,000 in the first quarter ended December 31, 2000, an increase of $205,000 (89%) from $231,000 in the first quarter of fiscal 2000. This increase is the result of higher repair and compressor expenses incurred by our majority-owned subsidiary, Atlas Pipeline Partners, L.P. Our non-direct expenses were $1.4 million in the quarter ended December 31, 2000, a decrease of $108,000 (7%) from $1.5 million in the quarter ended December 31, 1999. The decrease was due to the reallocation of certain costs to energy functions (production, drilling, well services and well operations) rather than to general and administrative costs in the quarter ended December 31, 2000. Amortization of oil and gas property costs as a percentage of oil and gas revenues was 17% in the quarter ended December 31, 2000 compared to 27% in the quarter ended December 31, 1999. The percentage reduction was directly attributable to changes in the Company's oil and gas reserve quantities, product prices and fluctuations in the depletable cost basis of oil and gas. 17 Results of Operations: Real Estate Finance The following table sets forth certain information relating to the revenue recognized and costs and expenses incurred in our real estate finance operations during the periods indicated:
Three Months Ended December 31, ----------------------------- 2000 1999 ----------- ----------- (in thousands) Revenues: Interest........................................................................... $ 2,175 $ 3,797 Accreted discount.................................................................. 1,669 1,734 Gains on sales of loans and loan payments in excess of carrying value of loans............................................. - 1,057 Net rental and fee income.......................................................... (7) 63 ----------- ----------- $ 3,837 $ 6,651 =========== =========== Costs and expenses.................................................................... $ 390 $ 734 =========== ===========
Revenues from our real estate finance operations decreased $2.8 million (42%), from $6.6 million in the quarter ended December 31, 1999 to $3.8 million in the quarter ended December 31, 2000. We attribute the decrease primarily to the following: o A decrease of $1.7 million (31%) in interest income resulting from: - The repayment by a borrower in October 1999 of approximately $58.8 million of one loan which decreased interest income by $1.3 million in the quarter ended December 31, 2000 as compared to the quarter ended December 31, 1999. - The sale of two loans, one in December 1999 and one in June 2000, which decreased interest income by $575,000 in the current fiscal period. - The completion of accretion on eight loans which decreased interest income by $318,000 in the current fiscal period. These decreases were partially offset by an increase in accretion on one loan of $444,000 in the current fiscal period. o A decrease of $70,000 (111%) in net rental and fee income to a loss of $7,000 for the current fiscal period from income of $63,000 in the first quarter of fiscal 1999. The decrease primarily resulted from an increase in the current fiscal period of $92,000 in non-cash charges associated with one real estate venture. o A decrease of $1.1 million (100%) in gains on sales of loans and loan payments in excess of carrying value of loans. In the quarter ended December 31, 1999, we sold a loan to RAIT Investment Trust and two additional loans received final payments in excess of their carrying value. No such sales or repayments occurred in the current fiscal period. Gains on sale of loans and senior lien interests in loans (if any) and the amount of fees received (if any) vary from transaction to transaction and there may be significant variations in the Company's gain on sale and fee income from period to period. Costs and expenses of our real estate finance operations were $390,000 in the first quarter ended December 31, 2000, a decrease of $344,000 (47%) from $734,000 in the first quarter ended December 31, 1999. The decrease was primarily a result of a reduction in staff resulting from our determination in fiscal 2000 to concentrate our real estate finance activities on managing our existing loan portfolio. 18 Results of Operations: Other Revenues, Costs and Expenses Our interest and other income was $1.9 million for the quarter ended December 31, 2000, a decrease of $656,000 (26%) from $2.6 million for the quarter ended December 31, 1999. The decrease in the first quarter of fiscal 2001 primarily resulted from $1.7 million in interest recorded in the quarter ended December 31, 1999 on advances we made to our equipment leasing subsidiary. No such interest income was recorded in the quarter ended December 31, 2000 since the subsidiary was sold on August 1, 2000 and the advances were repaid. The decrease in such interest income was partially offset by interest of $1.1 million we earned from the termporary investment of cash received from the sale of the subsidiary. Our general and administrative expenses decreased $648,000 (35%) to $1.2 million in the quarter ended December 31, 2000, as compared to $1.9 million in the quarter ended December 31, 1999. This decrease primarily resulted from a reduction in pension expense, reduced salary and benefits associated with the termination of our former president and reallocation of certain payroll costs to energy and real estate operations from general and administrative expense. Our interest expense was $4.0 million in the first quarter ended December 31, 2000, a decrease of $728,000 (15%) from $4.8 million in the quarter ended December 31, 1999. This decrease primarily resulted from our purchase of $24.5 million of our 12% senior subordinated notes which reduced interest expense by $573,000. In addition, we repaid a real estate loan facility in October 1999 which reduced interest expense by $182,000. The minority interest in Atlas Pipeline represents 47% of the net earnings of Atlas Pipeline. The minority interest arose as a result of the sale in February 2000 of our natural gas gathering operations to Atlas Pipeline and Atlas Pipeline's subsequent initial public offering. We retained a 53% interest in Atlas Pipeline after the offering. Because we own more than 50% of Atlas Pipeline, it is included in our consolidated financial statements and the ownership by the public is shown as a minority interest. Our equity in the loss of an unconsolidated affiliate represents our 50% interest in the net loss of Optiron Corporation, an energy technology company we formed in fiscal 2000. Our provision for possible losses increased $356,000 (237%) to $506,000 in the quarter ended December 31, 2000 as compared to $150,000 in the quarter ended December 31, 1999. This increase resulted from an allowance for possible losses against receivables associated with the Chapter 11 bankruptcy filing in January 2001 of an energy customer. Our effective tax rate increased to 36% in the quarter ended December 31, 2000 as compared to 32% in the quarter ended December 31, 1999 as a result of the expiration of the tax credit period of four of our real estate investments in the quarter ended December 31, 2000. 19 Liquidity and Capital Resources Following the sale of our equipment leasing operations, our major sources of liquidity have been the proceeds of that sale, funds generated by operations, funds raised from investor partnerships relating to our energy operations and borrowings under our existing energy and real estate finance credit facilities. We have employed these funds principally in the expansion of our energy operations and repurchase of our senior notes and common stock. The following table sets forth our sources and uses of cash for the three months ended December 31, 2000 and 1999 as follows:
Three Months Ended December 31, ----------------------------- 2000 1999 ----------- ----------- (in thousands) Provided by operations................................................................ $ 10,521 10,933 (Used in) provided by investing activities............................................ (769) 49,717 Used in financing activities.......................................................... (64,930) (66,569) Provided by discontinued operations................................................... - 1,002 ----------- ----------- $ (55,178) $ (4,917) =========== ===========
We had $61.9 million in cash and cash equivalents on hand at December 31, 2000, as compared to $117.1 million at September 30, 2000. Our ratio of earnings to fixed charges was 2.5 to 1.0 in the quarter ended December 31, 2000 as compared to 1.8 to 1.0 in the quarter ended December 31, 1999. Our cash provided by operating activities in the first quarter of fiscal 2001 decreased $412,000 (4%) as compared to the first quarter of fiscal 2000. Our cash used by investing activities increased $50.5 million (102%) in the first quarter of fiscal 2001 as compared to the same period of fiscal year 2000 primarily as a result of the following: o In our real estate finance operations, principal payments on notes decreased $67.0 million due to a decrease in borrower refinancings. The decrease was primarily due to a $58.8 million refinancing of one loan in the first quarter of fiscal 2000 as compared to the first quarter of fiscal 2001 where there was no similar refinancing. o The decrease in principal payments was partially offset by a decrease of $13.9 million in changes to net assets of our discontinued operations principally as a result of the disposal of our equipment leasing operation during fiscal 2000. o We invested $1.9 million in the capital stock of an affiliate in the quarter ended December 31, 1999. There was no similar investment in the quarter ended December 31, 2000. Our cash flows used in financing activities for the quarter ended December 31, 2000 decreased $1.6 million as compared to fiscal 2000. Cash used to purchase treasury stock increased $58.2 million as a result of our repurchases of common stock, including principally our "Dutch Auction" issuer tender offer completed in October 2000. This was offset by a decrease of $59.3 million in the amounts we repaid under various loans and credit facilities. 20 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK General. During the three months ended December 31, 2000, our loans receivable did not undergo material change other than changes resulting from normally recurring debt service payments received. Our loans payable generally did not undergo material change other than changes resulting from normally recurring debt service payments. We entered into a $10.0 million term loan facility secured by certain mortgage loans, as discussed in "Real Estate Finance", below. Energy. During the three months ended December 31, 2000, the amount outstanding under a revolving loan attributable to our energy operations increased to $23.3 million at December 31, 2000 from $23.2 million at September 30, 2000. The weighted average interest rate for this facility decreased from 8.54% at September 30, 2000 to 8.51% at December 31, 2000, due to a decrease in lending rates. Real Estate Finance. The following information is based on the Company's loans that are not interest rate sensitive. During the three months ended December 31, 2000, our outstanding loans receivable (to our interest) increased $3.2 million (1.1%) to $299.7 million in the aggregate and the carried cost of our loans increased $2.3 million (1.5%) to $149.9 million in the aggregate. The principal balance of related senior lien interests decreased $1.4 million (.5%) to $290.5 million in the aggregate. These increases were principally attributable to normal operating activity. The interest rate payable with respect to the senior lien interest underlying one loan in our portfolio that may be deemed to be interest rate sensitive remained unchanged due to the Company's purchase of an interest rate swap which locked in the interest pay rate at 8.8%. Although the stated interest rate on the loan continues to fluctuate over LIBOR, the Company pays only the 8.8% locked-in rate. If the effective rate for a particular pay period is greater than the locked-in rate, the Company receives the benefit of this difference. The interest rate on our real estate revolving lines of credit, which was prime rate (as defined) plus .75% for the outstanding $6.8 million line at Hudson United Bank, and prime rate (as defined) for the $18.0 million and $5.0 million lines of credit at Sovereign Bank, did not change during the period ended December 31, 2000 because there was no change in the defined prime rate. This rate was the "prime rate" as reported in The Wall Street Journal (9.50% at December 31, 2000). During the three months ended December 31, 2000, the Company entered into a $10.0 million term loan agreement. The loan bears interest at a rate equal to LIBOR plus 350 basis points adjusted annually and matures October 31, 2006. At December 31, 2000, $5.1 million of the loan had been drawn. 21 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: Exhibit No. Description 10.1 Loan Agreement between Atlas Pipeline Partners, L.P., PNC Bank, National Association, First Union National Bank and the banks party thereto. 10.2 Term Loan Agreement between Resource Properties, Inc. and Miller & Schroeder Investments Corporation (b) Reports on Form 8-K None 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. RESOURCE AMERICA, INC. (Registrant) Date: February 14, 2001 By: /s/ Steven J. Kessler ----------------- -------------------------- STEVEN J. KESSLER Senior Vice President and Chief Financial Officer Date: February 14, 2001 By: /s/ Nancy J. McGurk ----------------- -------------------------- NANCY J. McGURK Vice President-Finance and Chief Accounting Officer 23 EXHIBIT INDEX Exhibit No. Description 10.1 Loan Agreement between Atlas Pipeline Partners, L.P., PNC Bank, National Association, First Union National Bank and the banks party thereto. 10.2 Term Loan Agreement between Resource Properties, Inc. and Miller & Schroeder Investments Corporation EX-10.1 2 0002.txt EXHIBIT 10.1 LOAN AGREEMENT Dated as of October 26, 2000 By and Among ATLAS PIPELINE PARTNERS, L.P., as the Borrower, PNC BANK, NATIONAL ASSOCIATION, as the Issuing Bank, PNC BANK, NATIONAL ASSOCIATION, as the Agent, FIRST UNION NATIONAL BANK, as the Syndication Agent, and THE BANKS PARTY HERETO LOAN AGREEMENT -------------- TABLE OF CONTENTS -----------------
Page ---- SECTION 1. DEFINITIONS ................................................................................. 1 1.1 Definitions; Construction.......................................................................1 SECTION 2. LOANS .......................................................................................13 2.1 Revolving Credit Loans.........................................................................13 2.2 Commitment Fee; Closing Fee....................................................................15 2.3 Limitations on Loans...........................................................................15 2.4 Mandatory Prepayments..........................................................................15 2.5 Interest Rate Options, Interest Payments and Certain Related Payments Pertaining to the Loans..15 2.6 Capital Adequacy Requirements..................................................................21 2.7 Time, Place and Manner of Payments.............................................................21 2.8 Loan Account...................................................................................21 2.9 Letter of Credit Subfacility...................................................................21 SECTION 3. REPRESENTATIONS AND WARRANTIES ..............................................................26 3.1 Existence and Authority........................................................................26 3.2 Capitalization and Subsidiaries................................................................26 3.3 Rights, Titles and Interests...................................................................27 3.4 Financial Statements...........................................................................27 3.5 Litigation.....................................................................................28 3.6 Validity; Binding Effect; Enforceability; No Conflicts.........................................28 3.7 Permits........................................................................................28 3.8 Operation of the Pipeline......................................................................29 3.9 Public Utility Holding Company.................................................................29 3.10 ERISA..........................................................................................29 3.11 Regulation U, T and X..........................................................................29 3.12 Compliance with Law............................................................................29 3.13 Taxes..........................................................................................29 3.14 Relationship of Borrower and the Subsidiaries..................................................29 3.15 Environmental Matters..........................................................................30 3.16 Investment Company Act.........................................................................30 3.17 Disclosure.....................................................................................30 3.18 Updates to Schedules...........................................................................30 3.19 Solvency.......................................................................................30 3.20 Material Contracts.............................................................................30 SECTION 4. SECURITY ....................................................................................31 4.1 Security Documents.............................................................................31 4.2 Set-Off........................................................................................32 4.3 Additional Security - Generally................................................................32 4.4 Certain Additional Security....................................................................33 4.5 Operating Accounts.............................................................................33 4.6 Guaranties.....................................................................................33 4.7 Subordination of Indebtedness and Liens........................................................33
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SECTION 5. AFFIRMATIVE COVENANTS .......................................................................33 5.1 First Lien Undertakings........................................................................33 5.2 Protection of Rights, Titles and Interests.....................................................34 5.3 Operation and Maintenance......................................................................34 5.4 Permits........................................................................................34 5.5 Compliance with Law............................................................................34 5.6 Material Contracts.............................................................................34 5.7 Existence and Ownership........................................................................35 5.8 Reports, Certifications and Other Information..................................................35 5.9 Records and Access.............................................................................36 5.10 Payment of Taxes and Mechanics' Claims.........................................................36 5.11 Insurance......................................................................................37 5.12 Expenses, Fees and Disbursements...............................................................37 5.13 Assigned Payments..............................................................................37 5.14 Notification...................................................................................38 5.15 Leverage Ratio.................................................................................38 5.16 Interest Coverage Ratio........................................................................38 5.17 Minimum Tangible Net Worth.....................................................................39 5.18 Additional Documents...........................................................................39 5.19 Environmental Matters..........................................................................39 SECTION 6. NEGATIVE COVENANTS ..........................................................................41 6.1 Alienation.....................................................................................41 6.2 Encumbrances...................................................................................41 6.3 Guaranty.......................................................................................41 6.4 Debt...........................................................................................42 6.5 Loans; Investments.............................................................................42 6.6 Business Activities............................................................................42 6.7 Consolidation or Merger; Change of Control.....................................................42 6.8 Acquisitions...................................................................................43 6.9 Reserved.......................................................................................43 6.10 Reserved.......................................................................................43 6.11 Leases.........................................................................................43 6.12 Negative Pledges...............................................................................43 6.13 Changes in Organizational Documents............................................................43 6.14 MLP Letter of Credit...........................................................................43 6.15 Senior Management..............................................................................44 SECTION 7. BORROWING REQUIREMENTS ......................................................................44 7.1 Conditions to Borrowing........................................................................44 SECTION 8. DISBURSEMENT ................................................................................45 8.1 Procedure......................................................................................45 8.2 Use of Proceeds................................................................................46 8.3 Charging Account...............................................................................46
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SECTION 9. DEFAULTS ....................................................................................46 SECTION 10. REMEDIES ...................................................................................49 SECTION 11. MISCELLANEOUS ..............................................................................49 11.1 Waiver and Modification........................................................................49 11.2 Notices........................................................................................50 11.3 Certain Taxes..................................................................................52 11.4 Right to Cure..................................................................................52 11.5 Venue and Jurisdiction; Waiver of Jury Trial...................................................52 11.6 Applicable Law.................................................................................52 11.7 Severability...................................................................................52 11.8 Successors and Assigns.........................................................................53 11.9 Nature and Survival of Representations.........................................................54 11.10 Number and Gender..............................................................................54 11.11 Tax Withholding................................................................................54 11.12 Headings.......................................................................................55 11.13 Confidentiality................................................................................55 SECTION 12. AGREEMENT AMONG BANKS ......................................................................56 12.1 Appointment and Grant of Authority.............................................................56 12.2 Reliance by Agent on Banks for Funding.........................................................56 12.3 Non-Reliance on Agent..........................................................................56 12.4 Responsibility of Agent and Other Matters......................................................57 12.5 Action on Instructions.........................................................................57 12.6 Required Banks.................................................................................57 12.7 Action Upon Occurrence of an Event of Default..................................................58 12.8 Indemnification................................................................................58 12.9 Agent's Rights as a Bank.......................................................................58 12.10 Payment to Banks...............................................................................58 12.11 Pro Rata Sharing...............................................................................58 12.12 Successor Agent................................................................................59 12.13 Amendments and Waivers.........................................................................59 12.14 Agent's Fees...................................................................................60 12.15 Funding by Branch, Subsidiary or Affiliate.....................................................60
iii LIST OF EXHIBITS ---------------- EXHIBIT A -- Form of Revolving Credit Note EXHIBIT B -- Form of Request for/Confirmation of Loan EXHIBIT C -- Guaranty Agreement EXHIBIT D -- Mortgage EXHIBIT E -- Security Agreement EXHIBIT F -- Pledge Agreement EXHIBIT G -- Pledge Agreement (Atlas Operating) EXHIBIT H -- Pledge Agreement (General Partner) EXHIBIT I -- Collateral Assignment of Contract Rights EXHIBIT J -- Compliance Certificate EXHIBIT K -- Assignment and Assumption Agreement EXHIBIT L -- Intercreditor and Collateral Agency Agreement LIST OF SCHEDULES ----------------- SCHEDULE 3.2 -- Ownership/Subsidiaries SCHEDULE 3.5 -- Litigation SCHEDULE 6.2 -- Existing Liens iv LOAN AGREEMENT This Loan Agreement dated as of this 26th day of October, 2000 (as more fully defined below, the "Agreement"), and made and entered into by and among ATLAS PIPELINE PARTNERS, L.P., a Delaware limited partnership (the "Borrower"), the financial institutions listed on the signature pages hereto (together with each other financial institution which hereafter becomes a party hereunder in accordance with Section 11.8 below, collectively, the "Banks", and each individually, a "Bank"), PNC BANK, NATIONAL ASSOCIATION as the issuer of the Letters of Credit (in such capacity, the "Issuing Bank") and PNC BANK, NATIONAL ASSOCIATION, in its capacity as agent for the Banks (in such capacity, the "Agent") and FIRST UNION NATIONAL BANK, in its capacity as Syndication Agent. WITNESSETH: WHEREAS, the Borrower desires to obtain a commitment from each of the Banks pursuant to which Loans, in a maximum aggregate principal amount at any one time outstanding not to exceed $10,000,000, will be made to the Borrower from time to time prior to the Termination Date; and WHEREAS, the Borrower also desires to provide for the issuance, for the account of the Borrower, of Letters of Credit with an aggregate stated amount not to exceed a sublimit of $3,000,000; and WHEREAS, the Banks are willing, on the terms and subject to the conditions hereinafter set forth, to extend such commitment and make such Loans to the Borrower. NOW, THEREFORE, in consideration of the mutual covenants contained herein, and with the intent to be legally bound hereby, the parties hereto hereby agree as follows: SECTION 1. DEFINITIONS 1.1 Definitions; Construction. (a) Certain Definitions. For purposes of this Agreement, the following terms shall have the following meanings: "Accounts" shall have the meaning ascribed to it in Section 8.1. "Adjusted Base Rate" shall have the meaning ascribed to it in Section 2.5(b)(i). "Adjusted Euro-Rate" shall have the meaning ascribed to it in Section 2.5(b)(ii). "Agent" shall mean PNC Bank, National Association, and its successors and assigns. "Agreement" means this Loan Agreement dated as of October 26, 2000, by and among the Borrower, the Banks a party hereto, from time to time, PNC Bank, National Association, as Issuing Bank and as agent for the Banks, and First Union National Bank, as Syndication Agent, together with all extensions, renewals, amendments, substitutions and replacements hereof and all exhibits, schedules and annexes thereto. "Aggregate Outstandings" shall have the meaning ascribed to it in Subsection 2.2(a). "Applicable Margin" shall mean for Loans bearing interest at the Euro-Rate Option, Loans bearing interest at the Base Rate Option, and the Commitment Fee payable pursuant to Subsection 2.2(a) at any time, the rate per annum based on the Borrower's Leverage Ratio as set forth under the relevant column heading below: Euro-Rate Base Rate Commitment Leverage Ratio Option Option Fee - -------------- --------- --------- ---------- Less than or equal to 1.5 1.50% 0.00% .375% Greater than 1.5 but less than or equal to 2.5 1.75% 0.25% .500% Greater than 2.5 2.00% 0.50% .500% The Applicable Margin and Commitment Fee for any date shall be determined by reference to the Leverage Ratio as of the last day of the fiscal quarter most recently ended as of such date and for the four (4) fiscal quarters ended on such last day (except as set forth below), and any change (x) shall become effective upon the delivery to the Agent of a certificate of the Borrower (which certificate may be delivered prior to delivery of the relevant financial statements or may be incorporated in the certificate delivered pursuant to Section 5.8) with respect to the financial statements to be delivered pursuant to Section 5.8 for the most recently ended fiscal quarter (a) setting forth in reasonable detail the calculation of the Leverage Ratio at the end of such fiscal quarter and (b) stating that the signer has reviewed the terms of this Agreement and other Loan Documents and has made, or caused to be made under his or her supervision, a review in reasonable detail of the transactions and condition of the Borrower and the Restricted Subsidiaries during the subject accounting period, and that the signer does not have knowledge of the existence as at the date of such officer's certificate of any default under Section 9 hereof, and (y) shall apply (i) in the case of Loans bearing interest at the Base Rate Option, to such Loans outstanding on such delivery date or made on and after such delivery date and (ii) in the case of Loans bearing interest at the Euro-Rate Option, to such Loans made on and after such delivery date. It is understood that the foregoing certificate shall be permitted to be delivered prior to, but in no event later than, the time of the actual delivery of the financial statements required to be delivered pursuant to Section 5.8. Notwithstanding the foregoing, at any time prior to which the first certificate is required to be delivered under Section 5.8 (or prior to the time a certificate as described in this definition is first delivered to the Agent) the Leverage Ratio shall be deemed, solely for the purposes of this definition, to be greater than 1.5 but less than or equal to 2.5 until such time as the Borrower shall deliver such certificate, and at any time during which the Borrower has failed to deliver the certificate required under Section 5.8 with respect to a fiscal quarter following the date the delivery thereof is due, the Leverage Ratio shall be deemed, solely for the purposes of this definition, to be greater than 2.5 until such time as 2 Borrower shall deliver such certificate. Furthermore, notwithstanding the foregoing, (i) for the fiscal period ending September 30, 2000, the denominator used in the calculation of the Leverage Ratio shall be the EBITDA of the Borrower for the two (2) fiscal quarters ended on such date multiplied by two (2), and (ii) for the fiscal period ending December 31, 2000, the denominator used in the calculation of the Leverage Ratio shall be the EBITDA of the Borrower for the three (3) fiscal quarters ended on such date multiplied by four-thirds (4/3). "Assignment and Assumption Agreement" shall mean an Assignment and Assumption Agreement in the form of Exhibit "K" hereto. "Atlas" shall mean Atlas America, Inc., a Delaware corporation, and successor in interest to Atlas America, Inc., a Pennsylvania corporation. "Atlas Operating" shall mean Atlas Pipeline Operating Partnership, L.P., a Delaware limited partnership. "Authority" shall have the meaning ascribed to it in Section 5.19. "Bank" shall have the meaning ascribed to it in the preamble to this Agreement, and shall be deemed to include within its meaning the Issuing Bank for the purposes of obtaining the benefit of any security, indemnification or reimbursement provision contained herein or in any other Loan Document in favor of the Banks. "Base Rate" means a rate per annum equal to the higher of (i) the Prime Rate and (ii) the sum of (x) the Federal Funds Rate plus (y) fifty (50) basis points (1/2 of 1%). The Base Rate shall be adjusted automatically from time to time upon each change in the Prime Rate or the Federal Funds Rate, as applicable. "Base Rate Option" means the interest rate option described in item (i) of Subsection 2.5(b). "Base Rate Portion" means a Loan or a portion thereof which bears, or is to bear, interest at the Adjusted Base Rate. "Borrower" shall have the meaning ascribed to it in the preamble of this Agreement. "Business Day" means a day on which the Agent's principal office is open for the conduct of normal commercial banking business. "Change in Control" shall mean (i) any person or group of persons (within the meaning of Subsections 13(d) or 14(a) of the Securities Exchange Act of 1934, as amended) shall have acquired subsequent to the date hereof beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act) 25% or more of the voting common units of the Borrower; (ii) within a period of twelve (12) consecutive calendar months, individuals who were managing board members of the General Partner on the first day of such period shall cease to constitute a majority of the managing board members of the General Partner or (iii) the occurrence of any of the following: 3 (a) the sale, transfer, lease, conveyance or other disposition (other than by way of a permitted merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Borrower and its Restricted Subsidiaries taken as a whole to any "person" (as such term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended); (b) the adoption of a plan relating to the liquidation or dissolution of the Borrower or the General Partner unless, in the case of the General Partner, the General Partner is replaced by an affiliate of Atlas acceptable to the Banks in their reasonable discretion, such acceptance not to be unreasonably withheld; (c) such time as the General Partner ceases to own, directly or indirectly, all of the general partner interests of the Borrower or of Atlas Operating, or the General Partner ceases to serve as the only general partner of the Borrower or Atlas Operating unless, in the case of the General Partner, the General Partner is replaced by an affiliate of Atlas acceptable to the Banks in their reasonable discretion, such acceptance not to be unreasonably withheld; or (d) all of the rights to payment associated with the general partner interests of the Borrower and Atlas Operating are not pledged to the Agent for the benefit of the Banks; or (e) such time as Atlas and/or one or more of its directly or indirectly wholly-owned subsidiaries ceases to own 100% of the membership units of the General Partner. "Closing Fee" shall have the meaning ascribed to it in Subsection 2.2(b). "Collateral Assignment" shall mean any Collateral Assignment of Contract Rights in the form of Exhibit "I" hereto, together with all extensions, renewals, amendments, supplements, substitutions and replacements thereof and thereto. "Commitment Fee" shall have the meaning ascribed to it in Subsection 2.2(a). "Commitment Fee Rate" shall have the meaning ascribed to it in Subsection 2.2(a). "Commitment Percentage" shall have the meaning ascribed to it in Subsection 2.1(a). "Distribution Agreement" shall mean that certain Distribution Support Agreement by and among the Borrower, the General Partner, Atlas, REI and Viking dated as of February 2, 2000, as such agreement may be amended, extended, renewed or replaced from time to time. "Dollar(s)" or "$" means the legal tender of the United States of America. 4 "Draw" shall mean a payment of funds by the Issuing Bank or the Banks pursuant to a request by the beneficiary of any Letter of Credit for funds in accordance with the terms of such Letter of Credit. "Drawing Date" shall have the meaning ascribed to it in Subsection 2.9(b). "EBITDA" shall have the meaning ascribed to it in Section 5.15. "ERISA" shall have the meaning ascribed to it in Section 3.10. "Euro-Rate" means, with respect to Portions of the Loans to which the Euro-Rate Option applies for any Euro-Rate Interest Period, the interest rate per annum determined by the Agent by dividing (the resulting quotient rounded upwards, if necessary, to the nearest 1/100th of 1% per annum) (i) the rate of interest determined by the Agent in accordance with its usual procedures (which determination shall be conclusive, absent manifest error) to be the average of the London interbank offered rates for U.S. Dollars quoted by the British Bankers' Association as set forth on Dow Jones Markets Service (formerly known as Telerate) display page 3750 (or appropriate successor or, if British Bankers' Association or its successor ceases to provide such quotes, a comparable replacement determined by the Agent), two (2) Business Days prior to the first day of such Euro-Rate Interest Period for an amount comparable to such Loan and having a borrowing date and a maturity comparable to such Euro-Rate Interest Period by (ii) a number equal to 1.00 minus the Euro-Rate Reserve Percentage. The Euro-Rate may also be expressed by the following formula: Average of London interbank offered rates on Dow Jones Markets Service display page 3750 Euro-Rate = as quoted by BBA or appropriate successor -------------------------------------------- 1.00 - Euro-Rate Reserve Percentage The Euro-Rate shall be adjusted automatically with respect to any Euro-Rate Portion outstanding on the effective date of any change in the Euro-Rate Reserve Percentage, as of such effective date. "Euro-Rate Interest Period(s)" means any individual period of one (1), two (2), three (3) or six (6) months selected by the Borrower commencing on the borrowing, conversion date or renewal date of a Euro-Rate Portion to which such period shall apply. "Euro-Rate Option" means the interest rate option described in item (ii) of Subsection 2.5(b). "Euro-Rate Portion(s)" means a Loan or portion thereof which bears, or is to bear, interest at the Adjusted Euro-Rate. "Euro-Rate Reserve Percentage" means the maximum effective percentage (expressed as a decimal, rounded upward to the nearest 1/100 of 1%), as determined in good faith by the Agent (which determination shall be conclusive), which is in effect on such day as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the reserve requirements (including, without limitation, 5 supplemental, marginal and emergency reserve requirements) with respect to eurocurrency funding (currently referred to as "Eurocurrency liabilities"). "Federal Funds Rate" shall mean, for any day, (i) the interest rate (rounded upward, if necessary, to the nearest 1/100 of 1%) determined by the Agent (such determination shall be conclusive absent manifest error) to be equal to the weighted average of rates on federal funds transactions among members of the Federal Reserve System arranged by Federal funds brokers at or about 9:00 am (Pittsburgh, Pennsylvania time) on such day; provided, however, that if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate for such transactions on the immediately preceding Business Day or (ii) if no such rate shall be quoted by Federal funds brokers at such time, such other rate as determined by the Agent in accordance with its usual procedures (such determination shall be conclusive absent manifest error). "Fee" shall mean any fee payable by the Borrower to the Agent, the Banks or the Issuing Bank hereunder, or under any of the other Loan Documents, including without limitation the Closing Fee, the Commitment Fee, and the Letter of Credit Fee. "Financing Statements" shall mean any Uniform Commercial Code financing statements executed and delivered in connection with any Security Document. "GAAP" shall mean generally accepted accounting principles in the United States of America in effect from time to time. "Gas and oil" or "oil and gas" shall mean gas, oil, casinghead gas, drip gasoline, natural gasoline and all other liquid and gaseous hydrocarbons. "General Partner" shall mean Atlas Pipeline Partners GP, LLC, a Delaware limited liability company. "Governmental Person" means the government of the United States or the government of any state or locality therein, any political subdivision or any governmental, quasi-governmental, judicial, public or statutory instrumentality, authority, body or entity, or other regulatory bureau, authority, body or entity of the United States or any state or locality therein, including the Federal Deposit Insurance Company, the Comptroller of the Currency or the Board of Governors of the Federal Reserve System, any central bank or any comparable authority. "Governmental Rule" means any law, statute, rule, regulation, ordinance, order, judgment, guideline or decision of any Governmental Person. "Guarantor" shall mean the General Partner and each Restricted Subsidiary of the Borrower in existence on the date hereof and each person which becomes a Restricted Subsidiary of the Borrower on and after the date hereof. "Guaranty Agreement" shall mean any Guaranty Agreement in the form of Exhibit "C" hereto, together with all extensions, renewals, amendments, supplements, substitutions and replacements thereof and thereto. 6 "Hazardous Substances" shall have the meaning ascribed to it in Section 3.17. "Hedge Agreements" shall mean all interest rate swaps, caps or collar agreements or similar arrangements dealing with interest rates or currency exchange rates or the exchange of nominal interest obligations, either generally or under specific contingencies. "Incurrence Limitation" shall mean, on any date of determination, the product of (x) 3.00 multiplied by (y) the EBITDA of the Borrower for the four (4) most recently completed fiscal quarters for which financial statements have been delivered pursuant to Section 5.8. Notwithstanding the foregoing, (x) from the date hereof to the date on which the certificate of the Borrower is delivered pursuant to Section 5.8 for the Borrower's fiscal quarter ending September 30, 2000 (or, if earlier, the date on which the Borrower delivers a certificate pursuant to clause (x) of the definition of "Applicable Margin" for the fiscal quarter ending September 30, 2000), the Incurrence Limitation shall be the product of (i) 3.00 multiplied by (ii) the EBITDA of the Borrower for the two (2) fiscal quarters ended September 30, 2000 multiplied by (iii) two, and (y) from the date on which the certificate referred to in clause (x) above is delivered to the date on which the certificate of the Borrower is delivered pursuant to Section 5.8 for the Borrower's fiscal quarter ending December 31, 2000 (or, if earlier, the date on which the Borrower delivers a certificate pursuant to clause (x) of the definition of "Applicable Margin" for the fiscal quarter ending December 31, 2000), the Incurrence Limitation shall be the product of (i) 3.00 multiplied by (ii) the EBITDA of the Borrower for the three (3) fiscal quarters ended December 31, 2000 multiplied by (iii) four-thirds. "Indebtedness" shall mean, collectively, (i) all unpaid principal of, and accrued and unpaid interest on, the Loans, (ii) all accrued and unpaid Fees, (iii) any other amounts due hereunder or under any of the other Loan Documents, including any and all reimbursements, indemnities, Fees, costs, expenses, prepayment premiums, break-funding costs and other obligations of the Borrower to the Agent, the Banks, or the Issuing Bank, or any indemnified party hereunder and thereunder, and (iv) all reasonable out-of-pocket costs and expenses incurred by the Agent and the Banks, to the extent permitted herein, in connection with this Agreement and the other Loan Documents, including but not limited to the reasonable fees and expenses of the Agent's counsel, which the Borrower is responsible to pay pursuant to the terms of this Agreement and the other Loan Documents. "Intercreditor Agreement" shall mean the Intercreditor and Collateral Agency Agreement in the form of Exhibit "L" hereto, together with all extensions, renewals, amendments, supplements, substitutions, and replacements thereof and thereto. "Issuing Bank" shall mean PNC Bank, National Association, in its capacity as the issuer of Letters of Credit hereunder. "Letter(s) of Credit" means any standby letter(s) of credit as to which the account party, the Issuing Bank and the beneficiary contemplate that the beneficiary will receive a direct payment from the account party and that the beneficiary shall draw upon the Letter of Credit only if the account party fails to honor its obligation to the beneficiary, including, but not limited to, standby letters of credit issued by the Issuing Bank in accordance with Section 2.9 hereof. 7 "Letter of Credit Borrowing" shall mean an extension of credit resulting from a drawing under any Letter of Credit which shall not have been reimbursed on the date when made and shall not have been converted into a Loan under Section 2.9. "Letter of Credit Fee" shall mean that fee described in Subsection 2.9(i) hereof. "Leverage Ratio" shall have the meaning ascribed to such term in Section 5.15 below. "Lien" shall mean any encumbrance, mortgage, lien, charge, pledge, security interest, priority payment, conditional sales agreement right, or other title retention agreement right including but not limited to any right under a capitalized lease, in, upon or against any asset of the affected Person. "Limited Partnership Agreement" shall mean that certain First Amended and Restated Agreement of Limited Partnership of Atlas Pipeline Partners, L.P. dated as of February 2, 2000, as such agreement may be amended, extended, revised or replaced from time to time. "Loan" and "Loans" shall have the meanings ascribed to each in Subsection 2.1(a). "Loan Account" shall have the meaning ascribed to it in Section 2.8. "Loan Documents" shall mean any of this Agreement, the Notes, each application for Letter of Credit, the Guaranty Agreements, the Security Documents, any Hedge Agreements entered into between the Borrower and any Bank (or any affiliate of any Bank) and all other agreements, documents and instruments executed and delivered from time to time to govern, evidence or secure the Indebtedness or any of the foregoing documents and instruments, and the statements, reports, certificates and other documents required by, or related to, any of the foregoing, together with all extensions, renewals, amendments, substitutions and replacements to and of any of the foregoing. "Loan Party" shall mean the Borrower and each Guarantor. "Master Natural Gas Agreement" shall mean that certain Master Natural Gas Gathering Agreement dated as of February 2, 2000, by and among Atlas, REI and Viking and certain of their subsidiaries, the Borrower and Atlas Operating relating to the transportation of gas and oil produced by Atlas, REI and Viking and certain of their subsidiaries, as such agreement may be amended, extended, renewed or replaced from time to time. "Material Contract" shall mean any of the Master Natural Gas Agreement, the Distribution Agreement, or the Omnibus Agreement. "MLP Letter of Credit" shall mean that certain standby letter of credit issued by PNC Bank, National Association for the account of the General Partner and for the benefit of the Borrower in an initial stated amount of $7,560,000, and having an expiration date of June 1, 2003, together with all extensions, renewals and amendments thereto and thereof. 8 "Mortgage" shall mean the open-end mortgage and security agreement in the form of Exhibit "D" hereto, together with all extensions, renewals, amendments, supplements, substitutions and replacements thereto and thereof. "Note" and "Notes" shall have the meanings ascribed to each in Subsection 2.1(a). "Omnibus Agreement" shall mean that certain Omnibus Agreement by and among the Borrower, Atlas, REI, Viking and Atlas Operating dated as of February 2, 2000, as such agreement may be amended, extended, renewed or replaced from time to time. "Option(s)" means any one or more of the Base Rate Option or the Euro-Rate Option. "Participation Advance" shall mean, with respect to any Bank, such Bank's payment in respect of its participation in a Letter of Credit Borrowing according to its Ratable Share pursuant to Section 2.9. "PBGC" shall have the meaning ascribed to it in Section 3.10. "Permitted Acquisition" shall have the meaning ascribed to it in Section 6.8. "Permitted Liens" shall mean with respect to any asset: (a) Liens securing the Indebtedness in favor of the Banks; (b) Minor defects in title which do not secure the payment of money and otherwise have no material adverse effect on the value or operation of pipeline properties, and so long as, with respect to any of the minor defects in title, the same are minor defects which are customary and usual in the natural gas gathering and transmission industry and which are customarily accepted by a reasonably prudent pipeline operator dealing with its properties; (c) All rights to consent by, required notices to, filings with, or other actions by, Governmental Persons in connection with the sale or conveyance of oil and gas leases or interests therein if the Borrower (or its Subsidiaries, if applicable) is entitled to such consent, the same are customarily obtained subsequent to the sale or conveyance, and the appropriate Person is proceeding diligently to obtain the consent, notice or filing; (d) Liens, claims, security interests or other encumbrances on the Property described in the Borrower's Prospectus dated January 26, 2000; (e) All matters set forth in the documents conveying the Property to the Restricted Subsidiaries; and (f) Any Lien existing on the date of this Agreement and described on Schedule 6.2 hereto, provided that the principal amount secured thereby is not hereafter increased. 9 "Permitted Merger" shall have the meaning ascribed to it in Section 6.7. "Person" shall mean any individual, partnership, corporation, trust, joint venture, unincorporated organization, association, limited liability company, entity or Governmental Person. "Pipeline" shall mean the natural gas gathering systems and related facilities owned and operated as private use gathering systems by the Borrower and its Restricted Subsidiaries. "Plan" shall have the meaning ascribed to it in Section 3.10. "Pledge Agreement" shall mean any Pledge Agreement in the form of either Exhibit "F", Exhibit "G" or "Exhibit H" hereto, together with all extensions, renewals, amendments, supplements, substitutions, and replacements thereof and thereto. "Pledge Agreement (General Partner)" shall mean the Pledge Agreement (General Partner) in the form of Exhibit "H" hereto, together with all extensions, renewals, amendments, supplements, substitutions, and replacements thereof and thereto. "Portion(s)" means any Base Rate Portion or Euro-Rate Portion, as the case may be or both taken collectively. "Prime Rate" means the interest rate per annum announced from time to time by the Agent as its prime rate, which rate may not be the lowest rate of interest then being charged by the Agent. "Property" shall mean collectively, the real and personal property (tangible and intangible) in which the Borrower or any Restricted Subsidiary has granted to or will in the future grant to or for the benefit of the Agent (for the benefit of the Banks) a security interest and lien to secure the payment of the Indebtedness. "Quarterly Reports" shall have the meaning ascribed to it in Section 5.8. "Ratable Share" shall have the meaning ascribed to it in Subsection 2.1(a). "REI" shall mean Resource Energy, Inc., a Delaware corporation. "Reimbursement Obligation" shall have the meaning ascribed to it in Subsection 2.9(b). "Required Banks" shall have the meaning ascribed to it in Section 12.6. "Restricted Subsidiary" shall mean (i) each Subsidiary of the Borrower designated on Schedule 3.2 as a Restricted Subsidiary and (ii) each other Subsidiary of the Borrower designated as a Restricted Subsidiary by the Borrower from time to time. "Revolving Credit" shall have the meaning ascribed to it in Subsection 2.1(a). 10 "Revolving Credit Period" shall have the meaning ascribed to it in Subsection 2.1(a). "Security Agreement" shall mean any Security Agreement in the form of Exhibit "E" hereto, together with all extensions, renewals, amendments, supplements, substitutions and replacements thereof and thereto. "Security Documents" shall mean any or all of the Mortgages, the Security Agreements, the Pledge Agreements, the Financing Statements and all additional documents and instruments entered into from time to time for the purpose of securing the Indebtedness and any and all ancillary documents and instruments related to any of the foregoing. "Solvent" shall mean, with respect to any Person on a particular date, that on such date (i) the fair value of the property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person, (ii) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (iii) such Person is able to realize upon its assets and pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (iv) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature, and (v) such Person is not engaged in business or transactions, and is not about to engage in a business or a transaction, for which such Person's property would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which such Person is engaged. In computing the amount of contingent liabilities at any time, it is intended that such liabilities will be computed at the amount which, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "Stated Amount" shall mean the amount available to the beneficiaries of the Letters of Credit for one or more drawings thereunder as such amount is reduced and reinstated from time to time in accordance with the provisions of the Letters of Credit. "Subsidiary" shall mean either any corporation or limited liability company more than 25% of the outstanding voting securities of which shall at the time be owned or controlled, directly or indirectly, by the Borrower or one or more Subsidiaries of the Borrower, or by the Borrower and one or more Subsidiaries. "Tangible Net Worth" shall mean with respect to the Borrower, at a particular date, (i) the aggregate amount of all assets of the Borrower on a consolidated basis as may be properly classified as such in accordance with GAAP consistently applied excluding such assets as are properly classified as intangible assets under GAAP, less (ii) the aggregate amount of all liabilities of the Borrower on a consolidated basis. "Termination Date" shall mean October 25, 2003, or, if such day is not a Business Day, the Business Day next preceding such date. 11 "Total Indebtedness" shall have the meaning ascribed to it in Section 5.15. "UCC" shall mean the Uniform Commercial Code as adopted and in effect from time to time in the Commonwealth of Pennsylvania, except when the provisions of the UCC as adopted in another jurisdiction are applicable due to the location of any collateral in such other jurisdiction. "Unrestricted Subsidiary" shall mean each Subsidiary of the Borrower which is not a Restricted Subsidiary. "Viking" shall mean Viking Resources Corporation, a Pennsylvania corporation. "Wells" shall mean the oil and gas wells owned or operated by Atlas, REI, Viking or any of their respective subsidiaries which are now or hereafter connected to the Pipeline and subject to the Master Natural Gas Agreement. (b) Construction. (i) Unless the context of this Agreement otherwise clearly requires, references to the plural include the singular, the singular the plural and the part the whole, "or" has the inclusive meaning represented by the phrase "and/or," and "including" has the meaning represented by the phrase "including without limitation." References in this Agreement to "determination" of or by the Agent or the Banks shall be deemed to include reasonable good faith estimates by the Agent or the Banks (in the case of quantitative determinations) and reasonable and good faith beliefs by the Agent or the Banks (in the case of qualitative determinations). Whenever the Agent or the Banks are granted the right herein to act in its or their sole discretion or to grant or withhold consent such right shall be exercised reasonably and in good faith. The words "hereof," "herein," "hereunder" and similar terms in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. The article, section and other headings contained in this Agreement are for reference purposes only and shall not control or affect the construction of this Agreement or the interpretation thereof in any respect. Article, Section, schedule and exhibit references are to this Agreement unless otherwise specified. Except as otherwise specified in this Agreement, all references in this Agreement (i) to any Person, other than the Borrower, shall be deemed to include such Person's successors and assigns, and (ii) to any Governmental Rule, agreement or contract specifically defined or referred to in Agreement shall be deemed references to such Governmental Rule, agreement or contract as the same may be amended, supplemented, modified, extended, waived, consolidated, replaced or renewed from time to time, but only to the extent permitted by, and effected in accordance with, the terms thereof. (ii) For purposes of this Agreement, all terms used in Article 9 of the UCC and not specifically defined in this Agreement shall herein have the meanings assigned to such terms in the UCC as from time to time in effect in the Commonwealth of Pennsylvania. (iii) References to "writing" include printing, typing, lithography and other means of reproducing words in a tangible visible form. References to "written" include "printed," "typed," "lithographed" and other adjectives relating to words reproduced in a tangible visible form consistent with the preceding sentence and also include electronic images and images stored on computer disks, magnetic tape and like media. 12 (c) Accounting Principles. Except as otherwise provided in this Agreement, all computations and determinations as to accounting or financial matters and all financial statements to be delivered pursuant to this Agreement shall be made and prepared in accordance with GAAP (including principles of consolidation where appropriate), and all accounting or financial terms shall have the meanings ascribed to such terms by GAAP. SECTION 2. LOANS. 2.1 Revolving Credit Loans. (a) Credit. Subject to the terms and conditions hereof (including but not limited to the conditions contained in Section 8.1 hereof), and relying on the representations and warranties herein contained, the Banks agree to, and shall be obligated to, lend to the Borrower, from time to time and upon request of the Borrower as provided in Section 8.1, during the period (the "Revolving Credit Period") commencing on the date hereof and ending on the Termination Date, an amount or amounts (the "Revolving Credit") not exceeding in the aggregate at any one time outstanding Ten Million Dollars ($10,000,000), subject to the limitation set forth in Section 2.3 below. Each Bank agrees, for itself only, and subject to the terms and conditions of this Agreement, to make loans under the Revolving Credit to the Borrower from time to time not to exceed an aggregate principal amount at any one time outstanding equal to the amount of its Commitment Percentage of the Revolving Credit, subject to the limitation set forth in Section 2.3 below. For the purposes of this Agreement, the term "Commitment Percentage(s)" shall mean, with respect to each Bank, its percentage commitment of the Revolving Credit which shall be the percentage initially set forth opposite its name on the signature page hereto signed by such Bank, and thereafter as shown on the most recent Assignment and Assumption Agreement. The term "Ratable Share" shall mean the proportion that a Bank's Commitment Percentage of the Revolving Credit bears to the total Revolving Credit. The obligation of the Borrower to repay the aggregate unpaid principal amount of the advances to the Borrower under the Revolving Credit (each such advance under the Revolving Credit, a "Loan", and collectively the "Loans") by each Bank, together with interest thereon, shall be evidenced by one or more Revolving Credit Notes executed in favor of each Bank in the maximum amount of that Bank's Commitment Percentage of the Revolving Credit and substantially in the form of Exhibit "A" attached hereto and made a part hereof with appropriate insertions (each, a "Note", and collectively, the "Notes"). Notwithstanding the aggregate principal amount of the Notes as stated on the faces thereof in the amount of Ten Million ($10,000,000) Dollars, the actual principal amount due from the Borrower to each Bank on account of such Bank's Note, as of any date of computation, shall be the sum of all advances then and theretofore made on account thereof by such Bank less all payments of principal actually received by such Bank in collected funds during the same period all as shown on such Bank's Loan Account established pursuant to Section 2.8 hereof. Subject to the limitation set forth in Section 2.3 below, during the Revolving Credit Period, the Borrower may borrow, repay and reborrow funds under the Revolving Credit, provided, however, that at no time shall the aggregate unpaid principal balance outstanding under the Notes exceed Ten Million ($10,000,000) Dollars less the sum of (x) the aggregate Stated Amounts of outstanding Letters of Credit and (y) the aggregate amount of unreimbursed Draws under the Letters of Credit. The amount of any borrowing and 13 reborrowing under the Revolving Credit at the Base Rate Option shall be in the minimum aggregate principal amount of One Hundred Thousand ($100,000) Dollars or an integral multiple thereof. The amount of any borrowing or reborrowing under the Revolving Credit of the Euro-Rate Option shall be subject to the limitations set forth in Subsection 2.5(c) below. The Borrower may from time to time repay the Loans outstanding upon compliance with the terms of this Subsection 2.1(a) and Subsection 2.5(e) hereof. The Borrower shall not be permitted to repay any Euro-Rate Portion of the Loans other than at the end of the relevant Euro-Rate Interest Period, unless such payment is accompanied by the prepayment premium provided for in Subsection 2.5(e). Except as set forth in the preceding sentence and so long as each repayment is in a minimum amount of One Hundred Thousand ($100,000) Dollars or the outstanding principal balances of, and unpaid and accrued interest on, the Notes, whichever is less, the Borrower, upon proper notice as provided in Subsection 2.5(e), may repay, without premium or penalty, (i) any Base Rate Portion of the Loans at any time, and (ii) any Euro-Rate Portion of the Loans at the end of the Euro-Rate Interest Period therefor. (b) Interest. The principal balance outstanding under each Note shall bear interest, on the actual unpaid principal amount thereof from time to time outstanding, from the date thereof until payment in full, at the rates of interest set forth in Section 2.5. The Borrower shall pay accrued interest on the unpaid principal balance of each Note in arrears (i) with respect to each Base Rate Portion, at the Adjusted Base Rate (A) on the last day (or, if such day is not a Business Day, the next succeeding Business Day) of each March, June, September and December during the Revolving Credit Period commencing December 31, 2000, (B) at maturity, whether by acceleration or otherwise, of such Note, and (C) after maturity, on demand until paid in full, and (ii) with respect to each Euro-Rate Portion, at the Adjusted Euro-Rate (A) on the last day of each Euro-Rate Interest Period (provided, however, if the Euro-Rate Interest Period chosen for a Euro-Rate Portion exceeds three (3) months, interest on that Euro-Rate Portion shall be due and payable every three (3) months during such Euro-Rate Interest Period and on the last day of such Euro-Rate Interest Period), (B) at maturity, whether by acceleration or otherwise, of such Note, and (C) after maturity, on demand until paid in full. (c) Repayment. All Indebtedness, including the entire principal balance outstanding under the Notes, and all unpaid and accrued interest thereon on the Termination Date, shall be due and payable on such date. (d) Voluntary Reductions. To the extent that the Borrower has availability under the Revolving Credit, as it may be reduced pursuant to Subsection 2.1(a), the Borrower may, by written notice to the Agent at least ten (10) Business Days prior to the date on which such reduction is to become effective, notify the Agent that the Borrower desires to reduce permanently all or a portion of the Revolving Credit available hereunder [provided, however, such reduction shall be in the amount of One Million ($1,000,000) Dollars or an integral multiple thereof] and thereafter the Banks shall have no obligation whatsoever to advance any funds (or to issue any Letters of Credit) hereunder to the Borrower for the portion of the Revolving Credit that has been terminated. The Commitment Fee for any such terminated portion of the Revolving Credit shall not be payable for any period of time after such termination becomes effective. 14 2.2 Commitment Fee; Closing Fee. (a) Commitment Fee. During and for the Revolving Credit Period, the Borrower shall pay to the Agent for the ratable account of each Bank a commitment fee (the "Commitment Fee") computed on the actual number of days elapsed on the basis of a 360 day year and at the applicable Commitment Fee Rate per annum on the average daily difference between (i) the lesser of (x) the maximum amount of the Revolving Credit [as it may be reduced pursuant to Subsection 2.1(d)] and (y) the then current Incurrence Limitation and (ii) the sum of (w) the aggregate principal balances outstanding under the Notes plus (x) the aggregate Stated Amount of Letters of Credit outstanding plus (y) the aggregate amount of unreimbursed Draws under the Letters of Credit (the "Aggregate Outstandings"). The Commitment Fee shall be due and payable quarter-annually beginning on the last day (or, if such day is not a Business Day, the next succeeding Business Day) of December, 2000 and on the last day (or, if such day is not a Business Day, the next succeeding Business Day) of each December, March, June and September thereafter and on the Termination Date. For the purposes of this section, the term "Commitment Fee Rate" shall mean a rate per annum equal to the then Applicable Margin for the Commitment Fee as set forth under the column heading "Commitment Fee." (b) Closing Fee. Upon the execution hereof, the Borrower shall pay to the Agent, for the benefit of the Banks, a fee (the "Closing Fee") of $25,000, which Closing Fee is to be allocated among the Banks pro rata in accordance with each Bank's Commitment Percentage. 2.3 Limitations on Loans. No requested Loan shall be made if the sum of the Aggregate Outstandings (after giving effect to such requested Loan) would exceed the lesser of (a) the maximum amount of the Revolving Credit [as it may be reduced pursuant to Subsection 2.1(d)] or (b) the Incurrence Limitation then in effect. 2.4 Mandatory Prepayments. If on any date (including any date on which a certificate of the Borrower is delivered pursuant to Section 5.8) the sum of the Aggregate Outstandings exceeds the lesser of (i) the maximum amount of the Revolving Credit [as it may be reduced pursuant to Subsection 2.1(d)] or (ii) the then applicable Incurrence Limitation, then, without notice or demand, the Borrower shall, no later than fifteen (15) days following such date, prepay the Loans in an amount equal to such excess. The Borrower may, subject to the terms and conditions of this Agreement (including without limitation the limitation set forth in Section 2.3 above), reborrow the amount of any prepayment made hereunder. Any mandatory prepayment made pursuant to this Section 2.4 shall be applied first to the Base Rate Portion of the Loans then outstanding, and then to any Euro-Rate Portion of the Loans as the Borrower may direct. Each such prepayment shall be accompanied by accrued interest to the date of prepayment on the amount prepaid, plus any prepayment premium provided for in Subsection 2.5(e). 2.5 Interest Rate Options, Interest Payments and Certain Related Payments Pertaining to the Loans. (a) Interest. Each of the Notes shall bear interest, on the actual unpaid principal amount thereof from time to time outstanding, from the date thereof until payment in full, at the rates of interest set forth in this Section 2.5. The Borrower may call the Agent to receive an indication of the rates then in effect, but it is acknowledged that any such projection shall not be binding on the Banks nor affect the rate of interest which thereafter is actually in 15 effect when the election is made. The Borrower shall pay accrued interest on the unpaid principal balance of each Note in arrears as set forth in Subsection 2.1(b). If at any time the designated rate applicable to the Loans made by any Bank exceeds such Bank's highest lawful rate, the rate of interest on the such Loans shall be limited to such Bank's highest lawful rate. (b) Interest Rate Options. The unpaid principal amount of the Loans then outstanding shall bear interest, for each day until due, at one or more rates selected, at any time or from time to time, by the Borrower from among the Options set forth below subject to the provisions of Subsections 2.5(c) and 2.5(d) below; it being understood that, subject to the provisions of this Agreement, the Borrower may select different Options, subject to the provisions of Subsections 2.5(c) and 2.5(d) below, to apply simultaneously to different Portions of the Loans, and may select different Euro-Rate Interest Periods to apply simultaneously to different Portions of the Euro-Rate Portions of the Loans. (i) Base Rate Option: A fluctuating rate per annum (computed upon the basis of a year of 365/366 days, and the actual number of days elapsed) equal to the sum of (I) the Base Rate, plus (II) the Applicable Margin (the "Adjusted Base Rate"), with respect to the Loans outstanding. The foregoing rate shall be adjusted automatically from time to time upon each change in the Base Rate and each change in the Applicable Margin. (ii) Euro-Rate Option: A rate per annum (computed upon the basis of a year of 360 days and the actual number of days elapsed) equal to the sum of (I) the Euro-Rate, plus (II) the Applicable Margin (the "Adjusted Euro-Rate"), with respect to the Loans outstanding. The foregoing rate shall be adjusted automatically, with respect to any Portion, from time to time upon each change in the Applicable Margin. (c) Euro-Rate Interest Periods; Limitations on Elections. At any time when the Borrower shall select, convert to or renew the Euro-Rate Option to apply to all or any Portion of the outstanding Loans, it shall fix one or more periods during which such Option shall apply, such periods to be one (1), two (2), three (3), or six (6) months, in each case commencing on the borrowing, conversion or renewal date. All of the foregoing, however, is subject to the following: (i) any Euro-Rate Interest Period which would otherwise end on a day which is not a Business Day shall be extended to the next Business Day unless such Business Day falls in the succeeding calendar month in which case such Euro-Rate Interest Period shall end on the next preceding Business Day; (ii) any Euro-Rate Interest Period which begins on the last day of a calendar month or on a day for which there is no numerically corresponding day in the subsequent calendar month during which such Euro-Rate Interest Period is to end shall end on the last Business Day of such subsequent month; and (iii) in the case of the renewal of a Euro-Rate Portion at the end of a Euro-Rate Interest Period, the first day of the new Euro-Rate Interest Period shall be the last day of the preceding Euro-Rate Interest Period, without duplication in payment of interest for such day. Elections by the Borrower of the Euro-Rate Option shall be subject to the following further limitations: 16 (i) The Euro-Rate Portion for each Euro-Rate Interest Period shall be in an aggregate principal amount of $500,000 or more; provided, however, that each incremental unit in excess of $500,000 shall be $250,000 or an integral multiple thereof; (ii) No Euro-Rate Interest Period may be elected with regard to amounts outstanding under the Note which Euro-Rate Interest Period would end after the Termination Date; (iii) Upon the occurrence of any automatic default set forth in Section 9 hereof, or upon the declaration of any optional default pursuant to Section 9 hereof, the ability of the Borrower to elect the Euro-Rate Option shall cease; and (iv) At no time may there be more than six (6) Euro-Rate Interest Periods in effect. (d) Election, Conversion or Renewal of Euro-Rate and Base Rate Interest Rate Options. Elections of or conversions to the Base Rate Option shall continue in effect until converted as hereinafter provided. Elections of, conversions to or renewals of the Euro-Rate Option shall expire as to each Euro-Rate Portion at the expiration of the applicable Euro-Rate Interest Period. At any time with respect to the Base Rate Portion or at the expiration of the applicable Euro-Rate Interest Period with respect to any Euro-Rate Portion, the Borrower, subject to Subsection 2.5(c), may cause all or any part of the principal amount of such Portion to be converted to and/or (in the case of a Euro-Rate Portion) to be renewed under the Euro-Rate Option by notice to the Agent as hereinafter provided. Such notice (i) shall be oral or in writing and if oral immediately confirmed in writing to the Agent, (ii) shall be irrevocable, (iii) shall be given not later than 11:00 A.M., Pittsburgh, Pennsylvania time not less than three (3) Business Days prior to the proposed effective date for conversion to or renewal of, either in whole or in part, the Euro-Rate Option and (iv) shall set forth: (A) the effective date, which shall be a Business Day; (B) the new Euro-Rate Interest Period(s) selected; and (C) with respect to each such Euro-Rate Interest Period, the aggregate principal amount of the corresponding Euro-Rate Portion. At the expiration of each Euro-Rate Interest Period, any part (including the whole) of the principal amount of the corresponding Euro-Rate Portion, as to which no notice of conversion or renewal has been received as provided above, shall automatically be converted to the Base Rate Option. The Agent shall promptly notify the Borrower and the Banks of any such automatic conversion. (e) Repayments and Prepayments. The Borrower, upon (i) one (1) Business Day's oral or written notice to the Agent, in the case of Loans bearing interest at the Adjusted Base Rate or (ii) three (3) Business Days' oral or written notice to the Agent, in the case of Loans bearing interest at the Adjusted Euro-Rate, followed immediately thereafter by the Borrower's written confirmation to the Agent of any oral notice, may repay, or prepay, as the 17 case may be, the outstanding amount of the Loans in whole or in part with accrued interest, fees and other amounts then due and payable on the amount repaid or prepaid, as the case may be, to the date of such repayment or prepayment, as the case may be, all as set forth below. The Borrower may repay, or prepay, as the case may be, a Portion of the Loans bearing interest at the Adjusted Base Rate without premium or penalty. If the Borrower shall repay, or prepay, as the case may be, a Portion of the Loans bearing interest at the Adjusted Euro-Rate prior to the end of the Euro-Rate Interest Period relating to such Euro-Rate, the Borrower shall pay (in addition to principal and interest) such additional amounts as may be necessary to compensate each Bank for any loss and any direct or indirect costs, including the cost of reemployment of funds so prepaid at rates lower than the cost to such Bank of such funds. Such losses and costs shall be specified in writing (setting forth the manner of calculation) to the Borrower by such Bank and, absent manifest error in computation, shall be binding and conclusive on the Borrower. (f) Yield Protection. If any Governmental Rule or the interpretation or application thereof by any court or by any Governmental Person charged with the administration thereof: (i) subjects any Bank to any tax, levy, impost, charge, fee, deduction or withholding of any kind hereunder (other than a tax imposed or based upon the income of such Bank) or changes the basis of taxation of any Bank with respect to the payments by the Borrower of principal or interest due hereunder (other than any change which affects, and to the extent that it affects, the taxation of the total net income of such Bank); or (ii) imposes, modifies or deems applicable any reserve, special deposit or similar requirements against assets held by any Bank; or (iii) imposes upon any Bank any other condition with respect to this Agreement, such Bank shall notify the Agent in writing as soon as practicable after such Bank becomes aware thereof; and if the result of any of the foregoing is to increase the cost to such Bank, reduce the income receivable by such Bank or impose any expense upon such Bank, with regard to all or any portion of the Loans bearing interest at the Adjusted Euro-Rate, by an amount determined by such Bank in good faith and which such Bank in good faith deems material, such Bank shall notify, from time to time, the Agent and the Borrower of the amount determined by such Bank (which determination, absent manifest error in computation, shall be conclusive) to be necessary to compensate it (on an after-tax basis) for such increase in cost, reduction in income or additional expense, setting forth the calculations and the reasons therefor. The Borrower shall pay such amount to such Bank, as additional consideration hereunder, within ten (10) days of the Borrower's receipt of such notice. 18 (g) Euro-Rate Unascertainable. (i) If on any date on which a Euro-Rate would otherwise be determined, the Agent shall have determined (which determination shall be final and conclusive) that: (a) adequate and reasonable means do not exist for ascertaining such Euro-Rate, or (b) a contingency has occurred which materially and adversely affects the London interbank market relating to the Euro-Rate, or (ii) if at any time any Bank shall have determined (which determination shall be final and conclusive) that: (a) the making, maintenance or funding of the Portion of the Loans to which a Euro-Rate Option applies has been made impracticable or unlawful by compliance by such Bank in good faith with any Governmental Rule or any interpretation or application thereof by any Governmental Person or with any request or directive of any such Governmental Person (whether or not having the force of law), or (b) such Euro-Rate Option will not adequately and fairly reflect the cost to such Bank of the establishment or maintenance of the Portions of the Loans to which a Euro-Rate Option applies or (c) after making all reasonable efforts that deposits of the relevant amount in Dollars for the relevant Euro-Rate Interest Period for the Loans to which a Euro-Rate Option applies, respectively, are not available to such Bank at the effective cost of funding a proposed Euro-Rate Interest Period, in the London interbank market, then, in the case of any event specified in part (a) above, the Agent shall promptly so notify the Borrower and the other Banks thereof; and in the case of any event specified in part (b) above, the affected Bank shall promptly so notify the Agent thereof, and the Agent shall send a copy of such notice to the Borrower and the other Banks. Upon such date as shall be specified in such notice (which shall not be earlier than the date such notice is given) the obligation of the Banks to allow the Borrower to select, convert to or renew a Euro-Rate Option shall be suspended until the Agent or such Bank (as the case may be) shall have later notified the Borrower of the Bank's determination (which determination shall be final and conclusive) that the circumstances giving rise to such previous determination no longer exist. If at any time the Agent or any Bank makes a determination under parts (a) or (b) of this Subsection 2.5(g) and the Borrower has previously notified the Agent of the Borrower's selection of, conversion to or renewal of a Euro-Rate Option and such Option has not yet gone into effect, such notification shall be deemed to provide for selection of, conversion to or renewal of the Base Rate Option otherwise available with respect to the Portion of the Loans. On the date of the occurrence of any event described in item (i) of part (b), the Loans bearing interest at the Adjusted Euro-Rate then outstanding shall be automatically converted to the Base Rate Option and the Borrower shall pay to the Banks the accrued and unpaid interest on the Loans to (but not including) the date of such conversion. 19 The Borrower shall pay each Bank any additional amounts determined by such Bank in good faith to be reasonably necessary to compensate such Bank for any costs incurred by such Bank as a result of any conversion pursuant to item (i) of part (b) above on a day other than the last day of the relevant Euro-Rate Interest Period, including, but not limited to, any interest or fees payable by such Bank to lenders of funds obtained by it to loan or maintain the lending of the Loans so converted. The affected Bank shall furnish to the Borrower a certificate as to the amount necessary to compensate such Bank for such costs (which certificate shall set forth the calculation in reasonable detail, and, absent manifest error in computation, shall be conclusive), and the Borrower shall pay such amount to such Bank, as additional consideration hereunder, within ten (10) days of the Borrower's receipt of such certificate. (h) Indemnity. The Borrower shall indemnify the Agent and each Bank against all liabilities, losses or expenses (including loss of margin, any loss or expense incurred in liquidating or employing deposits from third parties and any loss or expense incurred in connection with funds acquired by a Bank to fund or maintain Loans subject to the Euro-Rate Option) which any Bank sustains or incurs as a consequence of any (a) payment, prepayment, conversion or renewal of the Loans to which the Euro-Rate Option applies on a day other than the last day of the corresponding Euro-Rate Interest Period (whether or not such payment or prepayment is mandatory, voluntary or automatic and whether or not such payment or prepayment is then due), (b) attempt by the Borrower to revoke (expressly, by later inconsistent notices or otherwise) in whole or part any notice relating to the making, maintenance, renewal or conversion of the Loans or any voluntary prepayments of the Loans, or (c) default by the Borrower in the payment of any principal of, or interest on, the Loans when due (whether by acceleration or otherwise). If any Bank sustains or incurs any such loss or expense it shall from time to time notify the Borrower and the Agent of the amount determined in good faith by such Bank (which determination shall be final and conclusive and may include such assumptions, allocations of costs and expenses and averaging or attribution methods as such Bank shall deem reasonable) to be necessary to indemnify such Bank for such loss or expense. Such notice shall set forth in reasonable detail the basis for such determination. Such amount shall be due and payable by the Borrower to such Bank ten (10) Business Days after such notice is given. In no event shall the indemnity payment provided for in this Subsection 2.5(h) require any payment to any Bank for a specific liability, loss or expense incurred by such Bank by the Borrower which duplicates the reimbursement of such Bank for any loss suffered by such Bank upon a voluntary prepayment of the Loans for which the Borrower has paid the prepayment premium required by Subsection 2.5(e) hereof. (i) Interest After Default; Maturity. Upon the occurrence of and during the continuance of a default under Section 9 hereof, and after the principal amount of all or any part of the Loans shall have become due and payable, whether by acceleration or otherwise, the 20 Loans shall bear interest at a rate per annum which shall be two hundred (200) basis points (2%) per annum above the rate otherwise in effect under the Base Rate Option, such interest rate to change automatically from time to time, effective as of the effective date of each change in the Base Rate. 2.6 Capital Adequacy Requirements. If any law or guideline or interpretation or application thereof by any official body charged with the interpretation or administration thereof or compliance with any request or directive of any official body (whether or not having the force of law), now existing or hereafter adopted or imposed, modifies or deems applicable any capital adequacy, reserve requirements, special deposit or similar requirements against assets (funded or contingent) of, or credits extended by or commitments to extend credit by, any Bank and the result thereof is to have the effect of reducing the rate of return on such Bank's capital as a consequence of its obligations hereunder to make and continue the Loans or to issue or participate in any Letter of Credit to a level below that which such Bank could have achieved but for such adoption, imposition or modification, taking into consideration such Bank's policies with respect to capital adequacy or reserve requirements or special deposit or similar requirements, by an amount which such Bank deems to be material, such Bank shall notify the Borrower of such events. After such Bank notifies the Borrower of such events, such Bank shall promptly deliver to the Borrower a statement of the amount necessary to compensate such Bank for the reduction in the rate of return on its capital attributable to such Bank's obligations hereunder to make and continue the Loans or to issue or participate in any Letter of Credit. Such Bank shall determine the capital compensation amount in good faith, using reasonable attribution and averaging methods. Such Bank shall from time to time notify the Borrower of the amount so determined and such amount shall be due and payable by the Borrower to such Bank thirty (30) days after such notice is given; provided, however, that if the Borrower pay the Loans in full (including principal and interest), cancel any outstanding Letters of Credit, and terminate the Revolving Credit and the commitment hereunder to issue Letters of Credit, within such thirty (30) day period, the Borrower shall not be liable to such Bank to pay such amount determined pursuant to this Section 2.6. All amounts determined in accordance with this Section 2.6 shall be effective from the date on which such Bank first gave notice to the Borrower of a reduction in such Bank's rate of return. 2.7 Time, Place and Manner of Payments. All payments and prepayments to be made by the Borrower hereunder or under any Note in respect of any principal, interest, or fee shall be made to the Agent for the ratable accounts of the Banks at the principal office of Agent in Pittsburgh, Pennsylvania. Such payments shall be made in immediately available funds no later than 12:00 noon (Pittsburgh, Pennsylvania time) on the date such payment is due. 2.8 Loan Account. Each Bank shall open and maintain on its books a loan account (each, a "Loan Account") in the name of the Borrower, with respect to advances made, payments and prepayments of principal, and the computations and payments of interest and all other amounts due and sums paid to such Bank hereunder or under its Note. Such Loan Account, absent manifest error, shall be conclusive and binding on the Borrower as to the amount at any time due to such Bank from the Borrower. 2.9 Letter of Credit Subfacility. (a) Terms of Letter of Credit. The Issuing Bank shall issue, subject to the terms and conditions hereof (including but not limited to the conditions contained in Section 8.1 21 hereof) and at the request of the Borrower, Letters of Credit for the account of the Borrower or a Restricted Subsidiary of the Borrower, all as more fully set forth in this Section 2.9. (i) No Letter of Credit shall be issued hereunder which has an expiry date later than the earlier of (i) one (1) year after the date of issuance thereof, or (ii) five (5) Business Days prior to the Termination Date; provided, however, that any Letter of Credit with a one (1) year maturity may provide for the renewal thereof for an additional one (1) year period, which shall in no event extend beyond five (5) Business Days prior to the Termination Date. (ii) Each Letter of Credit, whether now outstanding or hereafter issued by the Issuing Bank upon written request received by the Issuing Bank not less than five (5) Business Days prior to the proposed date of issuance pursuant to this Section 2.9, has been or shall be issued in accordance with the Issuing Bank's then current practices relating to the issuance by the Issuing Bank of Letters of Credit, including but not limited to the execution and delivery by the Borrower of an application for and/or confirmation of standby letter of credit and the payment by the Borrower of the customary processing fees. Each issuance or renewal of a Letter of Credit hereunder shall be conditioned on (and be deemed to be a representation and warranty by the Borrower as to) the following: that, at the time of such issuance or renewal, the representations and warranties contained in this Agreement are true and correct and no default set forth in Section 9 hereof shall have occurred and be continuing and no event which, with the giving of notice or lapse of time or both would become such a default, shall have occurred or shall have failed to occur and be continuing. (iii) In no event shall the aggregate undrawn face amount of the Letters of Credit plus any unreimbursed Draws exceed, at any one time, Three Million ($3,000,000) Dollars. The Stated Amount of each Letter of Credit, while the same is issued and outstanding, and any unreimbursed Draws under the Letters of Credit, shall reduce the maximum amount otherwise available for Loans under the Revolving Credit as set forth in Subsection 2.1(a) hereof. No Letters of Credit may be issued hereunder to the extent that such issuance would cause the Aggregate Outstandings to exceed the lesser of (a) the maximum amount of the Revolving Credit then in effect or (b) the then current Incurrence Limitation. (b) Disbursements, Reimbursement. (i) Immediately upon the issuance of each Letter of Credit, each Bank shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the Issuing Bank a participation in such Letter of Credit and each Draw thereunder in an amount equal to such Bank's Ratable Share of the maximum amount available to be drawn under such Letter of Credit and the amount of such Draw, respectively. (ii) In the event of any request for a Draw under a Letter of Credit by the beneficiary or transferee thereof, the Issuing Bank will promptly notify the Borrower and the Agent and the Borrower shall reimburse (such obligation to reimburse the Issuing Bank shall sometimes be referred to as a "Reimbursement Obligation") the Issuing Bank prior to 12:00 noon, Pittsburgh time on each date that an amount is paid by the Issuing Bank under any Letter of Credit (each such date, a "Drawing Date") in an amount equal to the amount so paid by the Issuing Bank. In the event the Borrower fails to reimburse the Issuing Bank for the full amount of any drawing under any Letter of Credit by 12:00 noon, Pittsburgh time, on the Drawing Date, the Issuing Bank will promptly notify the Agent and each Bank thereof, and the Borrower shall be deemed to have requested that Loans be made by the Banks under the Base Rate Option to 22 be disbursed on the Drawing Date under such Letter of Credit, subject to the conditions set forth in Section 8 below, other than any notice requirements. Any notice given by the Issuing Bank pursuant to this paragraph may be oral if immediately confirmed in writing; provided that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice. (iii) Each Bank shall upon any notice pursuant to paragraph (ii) above make available to the Agent for the account of the Issuing Bank an amount in immediately available funds equal to its Ratable Share of the amount of the drawing, whereupon the participating Banks shall (subject to paragraph (iv) below) each be deemed to have made a Loan under the Base Rate Option to the Borrower in that amount. If any Bank so notified fails to make available to the Agent for the account of the Issuing Bank the amount of such Bank's Ratable Share of such amount by no later than 2:00 p.m., Pittsburgh time on the Drawing Date, then interest shall accrue on such Bank's obligation to make such payment, from the Drawing Date to the date on which such Bank makes such payment, (i) at a rate per annum equal to the Federal Funds Rate in effect during the first three days following the Drawing Date and (iii) at a rate per annum equal to the rate applicable to Loans under the Base Rate Option on and after the fourth day following the Drawing Date. The Issuing Bank will promptly give notice of the occurrence of the Drawing Date, but failure of the Issuing Bank to give any such notice on the Drawing Date or in sufficient time to enable any Bank to effect such payment on such date shall not relieve such Bank from its obligation under this paragraph. (iv) With respect to any unreimbursed Draw that is not converted into a Loan under the Base Rate Option to the Borrower in whole or in part as contemplated by paragraph (ii) above, the Borrower shall be deemed to have incurred from the Issuing Bank a Letter of Credit Borrowing in the amount of such Draw. Such Letter of Credit Borrowing shall be due and payable on demand (together with interest) and shall bear interest at the rate per annum applicable to the Loans under the Base Rate Option. Each Bank's payment to the Issuing Bank pursuant to paragraph (iii) above, shall be deemed to be a payment in respect of its participation in such Letter of Credit Borrowing and shall constitute a Participation Advance from such Bank in satisfaction of its participation obligation under this Section 2.9. (c) Repayment of Participation Advances. (i) Upon (and only upon) receipt by the Issuing Bank for its account of immediately available funds from the Borrower (x) in reimbursement of any payment made by the Issuing Bank under the Letter of Credit with respect to which any Bank has made a Participation Advance to the Issuing Bank, or (y) in payment of interest on such a payment made by the Issuing Bank under such a Letter of Credit, the Issuing Bank will pay to each Bank, in the same funds as those received by the Issuing Bank, the amount of such Bank's Ratable Share of such funds, except the Issuing Bank shall retain the amount of the Ratable Share of such funds of any Bank that did not make a Participation Advance in respect of such payment by Issuing Bank. (ii) If the Issuing Bank is required at any time to return to the Borrower, or to a trustee, receiver, liquidator, custodian, or any official in any insolvency or similar proceeding, any portion of the payments made by the Borrower to the Issuing Bank pursuant to paragraph (i) immediately above in reimbursement of a payment made under the Letter of Credit or interest or fee thereon, each Bank shall, on demand of the Issuing Bank, forthwith return to the Issuing Bank the amount of its Ratable Share of any amounts so returned 23 by the Issuing Bank plus interest thereon from the date such demand is made to the date such amounts are returned by such Bank to the Issuing Bank, at a rate per annum equal to the Federal Funds Rate in effect from time to time. (d) Documentation. The Borrower agrees to be bound by the terms of the Issuing Bank's application and agreement for letters of credit and the Issuing Bank's written regulations and customary practices relating to letters of credit, though such interpretation may be different from the Borrower's own. In the event of a conflict between such application or agreement and this Agreement, this Agreement shall govern. It is understood and agreed that, except in the case of gross negligence or willful misconduct, the Issuing Bank shall not be liable for any error, negligence and/or mistakes, whether of omission or commission, in following the Borrower's instructions or those contained in the Letters of Credit or any modifications, amendments or supplements thereto. (e) Determinations to Honor Drawing Requests. In determining whether to honor any request for drawing under any Letter of Credit by the beneficiary thereof, the Issuing Bank shall be responsible only to determine that the documents and certificates required to be delivered under such Letter of Credit have been delivered and that they comply on their face with the requirements of such Letter of Credit. (f) Nature of Participation and Reimbursement Obligations. Each Bank's obligation in accordance with this Agreement to make the Loans or Participation Advances, as contemplated by Subsection 2.9(b), as a result of a drawing under a Letter of Credit, and the obligations of the Borrower to reimburse the Issuing Bank upon a draw under a Letter of Credit, shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Section 2.9 under all circumstances, including the following circumstances: (i) any set-off, counterclaim, recoupment, defense or other right which such Bank may have against the Issuing Bank, the Borrower or any other Person for any reason whatsoever; (ii) the failure of the Borrower or any other Person to comply, in connection with a Letter of Credit Borrowing, with the conditions set forth in Section 8.1 or as otherwise set forth in this Agreement for the making of a Loan, it being acknowledged that such conditions are not required for the making of a Letter of Credit Borrowing and the obligation of the Banks to make Participation Advances under Subsection 2.9(b); (iii) any lack of validity or enforceability of any Letter of Credit; (iv) the existence of any claim, set-off, defense or other right which the Borrower or any Bank may have at any time against a beneficiary or any transferee of any Letter of Credit (or any Persons for whom any such transferee may be acting), the Agent, the Issuing Bank or any Bank or any other Person or, whether in connection with this Agreement, the transactions contemplated herein or any unrelated transaction (including any underlying 24 transaction between the Borrower or any Subsidiary and the beneficiary for which any Letter of Credit was procured); (v) any draft, demand, certificate or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect even if the Issuing Bank has been notified thereof; (vi) payment by the Issuing Bank under any Letter of Credit against presentation of a demand, draft or certificate or other document which does not comply with the terms of such Letter of Credit, provided that such payment shall not have constituted gross negligence or willful misconduct of the Issuing Bank; (vii) any adverse change in the business, operations, properties, assets, condition (financial or otherwise) or prospects of the Borrower or any Subsidiary; (viii) any breach of this Agreement or any other Loan Document by any party thereto; (ix) the occurrence or continuance of an insolvency or similar proceeding with respect to the Borrower; (x) the fact that a default or event of default under Section 9 hereof shall have occurred and be continuing; (xi) the fact that the Termination Date shall have passed or this Agreement or the commitments hereunder shall have been terminated; and (xii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, not resulting from gross negligence or willful misconduct of the Issuing Bank. (g) Liability for Acts and Omissions. As between the Borrower and the Issuing Bank, the Borrower assumes all risks of the acts and omissions of, or misuse of the Letters of Credit by, the respective beneficiaries of such Letters of Credit. In furtherance and not in limitation of the foregoing, the Issuing Bank shall not be responsible for: (i) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for an issuance of any such Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged (even if the Issuing Bank shall have been notified thereof); (ii) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any such Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) the failure of the beneficiary of any such Letter of Credit, or any other party to which such Letter of Credit may be transferred, to comply fully with any conditions required in order to draw upon such Letter of Credit or any other claim of the Borrower against any beneficiary of such Letter of Credit, or any such transferee, or any dispute between or among the Borrower and any beneficiary of any Letter of Credit or any such transferee; (iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, 25 telegraph, telex or otherwise, whether or not they be in cipher; (v) errors in interpretation of technical terms; (vi) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any such Letter of Credit or of the proceeds thereof; (vii) the misapplication by the beneficiary of any such Letter of Credit of the proceeds of any drawing under such Letter of Credit; or (viii) any consequences arising from causes beyond the control of the Issuing Bank, including any action of any Governmental Person, and none of the above shall affect or impair, or prevent the vesting of, any of the Issuing Bank's rights or powers hereunder. Nothing in the preceding sentence shall relieve the Issuing Bank from liability for the Issuing Bank's gross negligence or willful misconduct in connection with actions or omissions described in such clauses (i) through (viii) of such sentence. In furtherance and extension and not in limitation of the specific provisions set forth above, any action taken or omitted by the Issuing Bank under or in connection with the Letters of Credit issued by it or any documents and certificates delivered thereunder, if taken or omitted in good faith, shall not put the Issuing Bank under any resulting liability to the Borrower or any Bank. (h) Reimbursement for Charges and Fees. The Borrower agrees to pay or cause to be paid to the Issuing Bank on demand, all normal and customary transaction charges that the Issuing Bank may charge (i) for drawings under the Letters of Credit, (ii) for transfers of each respective Letter of Credit in accordance with its terms and (iii) for amendments of the Letters of Credit, payable without any requirement of notice or demand by the Issuing Bank on the day of such drawing, transfer or amendment. (i) Letter of Credit Fees. The Borrower shall pay to the Agent for the ratable account of the Banks quarterly in arrears, on the last day of each September, December, March and June, a commission (the "Letter of Credit Fee") equal to the Applicable Margin for Loan bearing interest at the Euro-Rate Option on the average daily aggregate Stated Amount of Letters of Credit outstanding during the three month period ending on such date; provided, however, that upon the occurrence of and during the continuance of an event of default under Section 9 hereof, the foregoing fee shall automatically be increased by two hundred (200) basis points (2%) per annum above the rate otherwise in effect. SECTION 3. REPRESENTATIONS AND WARRANTIES. To induce the Banks to enter into this Agreement and to make and continue the loans and to issue and renew the Letters of Credit, each as herein provided for, the Borrower hereby represents and warrants to the Banks that: 3.1 Existence and Authority. Each Loan Party is a corporation, limited partnership or limited liability company duly organized, validly existing and in good standing under the laws of the state of its formation, and is duly qualified to do business, and is in good standing as a foreign corporation, limited partnership or limited liability company in all jurisdictions wherein its ownership of property or the nature of its business requires such qualification and in which the failure to be so qualified would materially adversely affect its business or financial condition and has the right, power and authority to own, and hold under lease, its properties and to carry on its business as now being conducted. 3.2 Capitalization and Subsidiaries. (a) The issued and outstanding securities of the Borrower consist of One Million Five Hundred Thousand (1,500,000) common 26 units of limited partnership interest and One Million Six Hundred Forty-One Thousand Twenty-Six (1,641,026) subordinated units of limited partnership interest all of which have been validly issued and are fully paid and nonassessable. (b) All issued and outstanding membership units of the General Partner have been validly issued and are fully paid and nonassessable and are owned by and issued to the persons shown on Schedule 3.2 attached hereto and made a part hereof. (c) Except for the Subsidiaries and other investments in other Persons set forth on Schedule 3.2, neither the Borrower nor any Subsidiary of the Borrower owns directly or indirectly any capital stock of any other Person. The Borrower, and each Subsidiary of the Borrower, has good and marketable title to all the securities of the Subsidiaries issued to it, free and clear of all liens and encumbrances, and all such securities have been duly and validly issued and are fully paid and nonassessable. The authorized securities of the Subsidiaries and the ownership thereof are as shown on Schedule 3.2 attached hereto and made a part hereof. 3.3 Rights, Titles and Interests. The Borrower and the Subsidiaries have, and will have, good and marketable rights, titles and interests in and to all of their properties including all the Property free and clear of all Liens, except for Permitted Liens and any other Liens permitted under Section 6.2 below. The Borrower warrants that, at its expense it will, and will cause the Subsidiaries to, defend generally their properties including the Property, and the rights, titles and interests of the Banks therein and thereto, against the claims and demands of all persons, corporations and any other entities whatsoever. No defaults have occurred under any of the documents or instruments pursuant to which, or establishing that, the Borrower and the Subsidiaries acquired interests in their properties including the Property which have not been cured or waived and such documents and instruments are in full force and effect and they have not been modified or amended. The Atlas Pipeline Database dated February 2000 and prepared by Andrews & Kurth, L.L.P. and delivered to the Agent, together with the list delivered to the Agent of additional Pipeline assets acquired by the Borrower or its Restricted Subsidiaries since February 2, 2000, describe substantially all of the Pipeline assets presently owned by the Borrower or its Restricted Subsidiaries. 3.4 Financial Statements. The financial statements described below in this Section 3.4, together with the notes and reports thereto (copies of which have been furnished to the Agent), are complete and correct, have been prepared in accordance with generally accepted accounting principles, practices and procedures consistently applied and present fairly the financial positions of the Borrower and the Subsidiaries as at the dates set forth below and the results of their operations for the periods set forth below, subject only to ordinary and usual year end audit adjustments: The balance sheets as of March 31, 2000 and June 30, 2000 and the related statements of income, changes in stockholder's equity and changes in financial position for the two (2) month and five (5) month periods, respectively, ended on such dates, prepared by the chief financial officer of the Borrower. Except as reflected or referred to in the above described financial statements, neither the Borrower nor any of the Subsidiaries has any contingent or disputed liabilities or unrealized or anticipated losses or commitments which in the aggregate are material. Since the last date shown above for the balance sheets of the Borrower, there has been no change in the condition, business or prospects, financial or otherwise, of the Borrower 27 or its Subsidiaries as shown on the balance sheet as of such date and no change in the aggregate value of the property owned by the Borrower and its Subsidiaries, including the Property, except changes in the ordinary course of business. 3.5 Litigation. Except as set forth on Schedule 3.5 attached hereto, there is no material litigation or proceeding of any kind whatsoever pending, nor to the knowledge of Borrower threatened, nor any judgment, order, writ, injunction, decree or award outstanding, nor any material contingent obligations, which could adversely affect the Borrower or the Subsidiaries or the operation of any of their businesses, or their properties including the Property, nor does the Borrower know or have reasonable grounds to know of any basis for any such action or any governmental investigation or any claim relating to the Borrower or the Subsidiaries or the operation of any of their businesses, or their properties including the Property. Except as set forth on Schedule 3.5 attached hereto, the Borrower and the Subsidiaries have each complied with all material provisions of all agreements to which they are parties or by which they are bound and are not in default under any of them or in the payment of any of their obligations. 3.6 Validity; Binding Effect; Enforceability; No Conflicts. The execution and delivery of the Loan Documents to be executed and/or delivered by any Loan Party, the borrowings under the Loan Documents, the performance by each Loan Party of its obligations under the Loan Documents and the assignment of, and the grant of the liens on and security interests in, the Loan Parties' various rights, titles and interests, to the Agent (for the benefit of the Banks) by the Loan Documents, do not, and will not, contravene any provision of law, or of the articles or certificate of incorporation, partnership agreement, operating agreement, by-laws or other organizational, formation or governing document of any Loan Party, or of any agreement, instrument or other document or of any judicial, arbitration or local, state or federal governmental requirement or restriction to which any Loan Party is a party or by which it is bound, or result in the creation or imposition of any lien or other encumbrance on any of the property of any Loan Party including the Property except the liens and security interests granted by the Loan Documents; and any and all consents or approvals of any kind whatsoever, including approvals and consents of any local, state or federal governmental unit, commission, authority, agency or other body, required to be obtained in connection therewith have been obtained and are in full force and effect. This Agreement constitutes, and the other Loan Documents when duly executed will constitute, legal, valid and binding obligations of any Loan Party enforceable in accordance with their respective terms. Each Loan Party is duly authorized to execute and deliver this Agreement and the other Loan Documents to which it is a party; all action necessary and proper to authorize the execution and delivery of the Loan Documents has occurred; and each Loan Party is, and will continue to be, duly authorized, and has, and shall continue to have, the right, power and authority, to execute and deliver the Loan Documents and to make the assignment and grant the liens and security interests pursuant to the Loan Documents as well as to borrow under the Loan Documents to which it is a party and to perform all of the other terms and conditions of the Loan Documents. 3.7 Permits. The Borrower has obtained, or caused to be obtained, all permissions, licenses, easements, rights-of-way, leasehold and fee interests and all local, state and federal governmental approvals, authorizations, consents and permits as well as all other rights, titles and interests necessary to the ownership, development and operation of the properties of the Borrower and the Subsidiaries (including the Property) and the conduct of their businesses (except such of those which, if not obtained, would not, individually or in the 28 aggregate, have a material adverse effect on the Borrower or the Restricted Subsidiaries), all of which are in full force and effect. 3.8 Operation of the Pipeline. The statements relating to the transportation of gas through the Pipeline for the period from January 28, 2000 through June 30, 2000 heretofore furnished by the Borrower to the Agent are accurate; since June 30, 2000 there has been no damage, destruction or loss to the Pipeline; the Pipeline is currently in operation and the monthly transportation of gas through the Pipeline has not materially diminished. 3.9 Public Utility Holding Company. Neither the Borrower, nor any Subsidiary of the Borrower, is a holding company or a subsidiary of a holding company or a public utility company as such terms are defined in the Public Utility Holding Company Act of 1935. 3.10 ERISA. Neither the Borrower nor any Subsidiary has received notice that the Pension Benefit Guaranty Corporation ("PBGC") has made a determination that, with respect to any Plan (as hereinafter defined) of the Borrower, or any Subsidiary or other affiliate of the Borrower, an event or condition has occurred which constitutes grounds under the Employee Retirement Income Security Act of 1974, as amended ("ERISA") for the termination of, or for the appointment of a trustee to administer, any such Plan. As used herein, "Plan" shall be defined as any employee benefit plan or other plan maintained for employees of the Borrower, or any Subsidiary of the Borrower, covered by ERISA. 3.11 Regulation U, T and X. Neither the Borrower nor any Subsidiary is engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U, T or X of the Board of Governors of the Federal Reserve System), and no part of the proceeds of any advance under the Loan Documents will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock. 3.12 Compliance with Law. Each Loan Party has complied with, and is in compliance with, all applicable local, state and federal laws, rules and regulations relating to all of its activities including, but not limited to, the operation of the Pipeline and the offer and sale of securities. 3.13 Taxes. All tax returns and reports of the Borrower and the Subsidiaries required by law to be filed have been duly filed, and all taxes, assessments, fees and other governmental charges upon the Borrower and the Subsidiaries or upon any of the property of the Borrower and the Subsidiaries including the Property and upon any of the other assets, income or franchises of the Borrower and the Subsidiaries which are due and payable have been paid, except taxes, assessments, fees and other governmental charges being contested in good faith as set forth in Section 5.10 hereof unless required to be paid as set forth in such Section and subject to the reserve requirements set forth in Section 5.10 hereof. 3.14 Relationship of the Borrower and the Subsidiaries. The Borrower and the Subsidiaries are engaged in related businesses operated as part of one consolidated business entity, and the Borrower and each Subsidiary is directly and indirectly dependent upon each other for and in connection with their business activities and their financial resources; and the Borrower and each Subsidiary has determined, reasonably and in good faith, that it will receive substantial direct and indirect economic and financial benefits from the borrowings made under 29 this Agreement, and such borrowings are in its best interests, having regard to all relevant facts and circumstances. 3.15 Environmental Matters. To the best of the Borrower's knowledge, (i) the Property is and has been in compliance, in all material respects, with all applicable local, state and federal environmental laws, rules and regulations, (ii) there have been no releases in violation of any environmental law, rule or regulation of any chemical, material, substance or waste which is a threat to the public health, safety or welfare or the environment or the health of living organisms, or any hazardous, toxic, contaminating or polluting substance as defined by any environmental law, rule or regulation (individually and collectively "Hazardous Substances") and (iii) there is no basis for the imposition of environmental liability against the Property or for the imposition of any environmental liability against any former, present or future owner or operator of the Property. 3.16 Investment Company Act. Neither the Borrower nor any Subsidiary is an "investment company" registered or required to be registered under the Investment Company Act of 1940, as amended from time to time, or a company under the "control" of an "investment company," as those terms are defined in such Act, and shall not become such an "investment company" or under such "control." 3.17 Disclosure. No representation or warranty made by the Borrower in this Agreement, or in any financial statement, report, certificate or any other document furnished in connection herewith or therewith contains any untrue statement of fact or omits to state any fact necessary to make the statements herein or therein not misleading. There is no fact known to the Borrower or which reasonably should be known to the Borrower which the Borrower has not disclosed to Agent in writing with respect to the transactions contemplated by this Agreement which could reasonably be expected to have a material adverse effect on the Borrower or any Subsidiary. 3.18 Updates to Schedules. Should any of the information or disclosures provided on any of the schedules attached hereto or to any other Loan Document become outdated or incorrect in any material respect, the affected Loan Party shall promptly provide the Agent in writing with such revisions or updates to such schedules as may be necessary or appropriate to update or correct same; provided, however, that no schedule shall be deemed to have been amended, modified or superseded by any such correction or update, nor shall any breach of warranty or representation resulting from the inaccuracy or incompleteness of any such schedule be deemed to have been cured thereby, unless and until the Required Banks, in their sole and absolute discretion, shall have accepted in writing such revisions or updates to such schedule. 3.19 Solvency. On the date hereof, and as of the date of each advance of a Loan and issuance or renewal of any Letter of Credit, as the case may be, and after giving effect to such advance or the issuance or renewal of a Letter of Credit, and after giving effect to the consummation of the transactions contemplated by this Agreement, the Borrower is, and will be, Solvent. 3.20 Material Contracts. Each Material Contract is in full force and effect and there are no defaults thereunder, no event has occurred or is occurring which after notice or lapse of time or both will result in such a default, and no party to any Material Contract has terminated or attempted to terminate such Material Contract. 30 SECTION 4. SECURITY. To secure the payment of principal of, and interest on, the Notes, all reimbursement and other obligations relating to the Letters of Credit, and all fees, costs, expenses and other charges to be paid or reimbursed by the Loan Parties under the Loan Documents and all other Indebtedness and other obligations of the Loan Parties to the Agent and the Banks under the Loan Documents and the performance of the terms of the Loan Documents and all other instruments and documents executed by any Loan Party in favor of, or for the benefit of, the Agent and the Banks with respect thereto: 4.1 Security Documents. The Borrower hereby agrees to execute and deliver, or cause to be executed and delivered, to the Agent, on behalf of the Banks, the following: A. One or more mortgages and security agreements (and/or amendments thereto) substantially in the form of Exhibit "D" attached hereto and made a part hereof, as one or more may be amended, modified or supplemented from time to time, which shall assign to Agent, and grant to Agent, on behalf of the Banks, a lien on and security interest in, all the property of the Borrower and the Restricted Subsidiaries described in the Mortgages, including without limitation the Pipeline. B. One or more security agreements substantially in the form of Exhibit "E" attached hereto and made a part hereof, as one or more may be amended, modified or supplemented from time to time, which shall assign to Agent, and grant to Agent, on behalf of the Banks, a security interest in, all the property of the Borrower and the Restricted Subsidiaries described in the Security Agreements, including all rights, titles and interests of the Borrower and the Restricted Subsidiaries in and to their accounts, general intangibles, equipment, inventory and the proceeds and produce thereof. C. One or more pledge agreements substantially in the form of Exhibit "F" attached hereto and made a part hereof, as one or more may be amended, modified or supplemented from time to time, which assign to Agent, and grant to Agent, on behalf of the Banks, a lien on and security interest in, all the property of the Borrower described in such Pledge Agreement including all of the Borrower's rights, titles and interest in and to the limited partnership interest and common units Atlas Operating, together with undated stock powers executed in blank. D. One or more pledge agreements substantially in the form of Exhibit "G" attached hereto and made a part hereof, as one or more may be amended, modified or supplemented from time to time, which assign to Agent, and grant to Agent, on behalf of the Banks, a lien on and security interest in, all the property of Atlas Operating described in such Pledge Agreement including all of Atlas Operating's rights, titles and interest in and to the membership units of Atlas Pipeline New York, LLC, Atlas Pipeline Ohio, LLC and Atlas Pipeline Pennsylvania, LLC, together with undated stock powers executed in blank. E. One or more pledge agreements substantially in the form of Exhibit "H" attached hereto and made a part hereto, as one or more may be amended, modified or supplemented from time to time, which shall assign to Agent, and grant to PNC Bank, National Association, as collateral agent for the Agent, on behalf of the Banks, a lien on and security 31 interest in, all of the property of the General Partner described in such Pledge Agreement including all right, title and interest of the General Partner in and to (i) the limited partner interest and common units (subordinated or otherwise) of the Borrower and (ii) all rights to payment or distributions of the General Partner from the Borrower and Atlas Operating, together with undated stock powers executed in blank. F. One or more collateral assignments of contract rights substantially in the form of Exhibit "I" attached hereto and made a part hereto, as one or more may be amended, modified or supplemented from time to time, which shall collaterally assign to Agent, and grant to Agent on behalf of the Banks, a security interest in and to all right, title, interest of the Borrower and Atlas Operating pursuant to the Material Contracts, together with the written consent of the other parties to such contracts to such collateral assignment. G. All Financing Statements and all amendments and modifications thereof and all supplements thereto and all notification and control agreements required by Agent in connection with the liens and security interests granted pursuant to the Mortgage, the Security Agreements, the Pledge Agreements and the Collateral Assignments. H. An intercreditor and collateral agency agreement substantially in the form of Exhibit "L" attached hereto and made a part hereof, which shall provide for a shared lien on and security interest in the collateral described in the Pledge Agreement (General Partner). 4.2 Set-Off. The Borrower hereby gives to each Bank a lien on, and security interest in, any and all property, credits, securities, monies and claims of the Borrower which may at any time be delivered to, or be in the possession of, or owed to the Borrower by, the Bank in any capacity whatsoever including the balances of any and all accounts maintained by the Borrower with such Bank. The Borrower authorizes each Bank in case of a default under Section 9 hereof, at such Bank's option, at any time and from time to time, to apply to the payment of the Indebtedness any such property, credits, securities, monies and claims. In the event that in the exercise of the rights set forth in this Section 4.2, any Bank applies to the payment of the Indebtedness any property, credits, securities, monies or claims which belong to a person, corporation or entity other than the Borrower, such Bank shall promptly deliver such property, credits, securities, monies or claims (or at the option of such Bank, an amount of cash equivalent to the value thereof at the time such Bank makes such application) to the persons, corporations or other entities entitled thereto, or at the option of such Bank to the Borrower, upon being furnished with evidence satisfactory to such Bank of such property, credits, securities, monies or claims and the identity of the persons, corporations or other entities entitled thereto. 4.3 Additional Security - Generally. In the event that the Borrower or any Restricted Subsidiary is to provide additional security for the payment of the Indebtedness and the performance of the Loan Documents, such additional security shall be of such kind, in such form and have such value as Agent shall in its sole discretion require and shall be otherwise acceptable to Agent. The Borrower shall execute and deliver, or cause to be executed and delivered to Agent, on behalf of the Banks, such new or amended Security Documents relating to such additional collateral, as well as such other instruments, papers and other documents, and take such further action in connection therewith, as the Agent shall in its sole discretion require (including but not limited to providing reports and opinions relating to matters concerning title to such additional security and concerning the priority of the lien(s) and security 32 interest(s) granted by such new or amended mortgage and/or security agreement and/or pledge agreement). 4.4 Certain Additional Security. The Borrower hereby agrees to deliver, or cause to be delivered, to the Agent, in connection with (i) the acquisition or construction of any new Pipeline properties or interests with an aggregate purchase price or construction cost of greater than $50,000 or (ii) any Permitted Acquisition, such new or amended Security Documents necessary to grant to the Agent for the benefit of the Banks a first priority perfected lien on and security interest in substantially all of the interests of the Borrower and the Restricted Subsidiaries in the pipeline assets and related contract rights and other property so acquired, or in the equity interest in the Person so acquired, as applicable, and further agrees to take, or cause to be taken, such other action as required by Section 4.3 in accordance therewith. 4.5 Operating Accounts. The Borrower agrees to maintain, or cause to be maintained, all of the principal operating accounts of the Borrower and each Restricted Subsidiary at the Agent, and agrees to deposit, or cause to be deposited, in such accounts substantially all of its and their respective funds. 4.6 Guaranties. The Borrower hereby agrees to cause to be delivered to the Agent for the benefit of the Banks, one or more Guaranty Agreements executed by the General Partner and by each Restricted Subsidiary of the Borrower, each substantially in the form of Exhibit "C" attached hereto and made a part hereof, whereby the Guarantors shall guarantee, and be surety for, the prompt and punctual payment of the Indebtedness and the prompt and punctual performance of the other obligations of the Borrower under the Loan Documents. The Borrower shall cause each Subsidiary which becomes a Restricted Subsidiary after the date hereof (whether pursuant to a Permitted Acquisition or otherwise) to execute and deliver to the Agent, for the benefit of the Banks, a Guaranty Agreement. Such execution and delivery shall occur at the time that such Subsidiary becomes a Restricted Subsidiary. 4.7 Subordination of Indebtedness and Liens. Any intercompany loans or advances of the Borrower now or hereafter owed to the Borrower by any other Loan Party are hereby subordinated to the Indebtedness of such other Loan Party to the Banks, and any document or instrument evidencing such loans or advances shall contain a legend giving notice of such subordination. Any intercompany loans or advances of any other Loan Party due to the Borrower, if an event of default hereunder shall have occurred and the Agent so requests, shall be collected, enforced and received by the Borrower as trustee for the Banks and be paid over to the Agent for the account of the Banks on account of the Indebtedness but without affecting in any manner the liability of the Borrower under the other provisions of this Agreement or any other Loan Document. Any Lien, claim, right or other encumbrance on any property of any Loan Party in favor of the Borrower is hereby subordinated in all respects to the Liens granted to the Agent for the benefit of the Banks. SECTION 5. AFFIRMATIVE COVENANTS. For so long as any Indebtedness remains unpaid, unless the Agent (with the approval of the Required Banks) otherwise consents in writing, the Borrower hereby agrees that: 5.1 First Lien Undertakings. The Borrower shall obtain and deliver, or cause to be obtained and delivered, to the Agent and the Banks such legal opinions, title reports, 33 representations, letters, acknowledgments, attornment agreements, releases, disclaimers, subordinations of prior liens and security interests, non-disturbance agreements, certificates of non-interference with easements, rights-of-way or coal operations and such other documents as may be requested by the Agent and the Banks from time to time, and shall take, or cause to be taken, all steps, to satisfy all requirements of the Agent and the Banks that the Borrower and the Subsidiaries have, and will have, good and marketable rights, titles and interests in and to all of their properties (including the Property), and that the liens and security interests described in Section 4 hereof are valid and perfected first liens and security interests, free and clear of all liens and encumbrances except Permitted Liens. 5.2 Protection of Rights, Titles and Interests. The Borrower will take, or cause to be taken, all steps necessary and proper (i) to protect and enforce its and the Subsidiaries' rights, titles and interests in and to all their respective properties (including the Property) and in connection with their respective businesses and (ii) to comply with all duties, terms and conditions undertaken or assumed by the Borrower and the Subsidiaries in connection with their properties (including the Property) and their businesses. 5.3 Operation and Maintenance. The Borrower will continuously operate, or cause to be operated, its and the Subsidiaries' properties (including the Property) in a good and workmanlike manner and in accordance with industry practices for businesses of similar size and circumstances. The Borrower shall maintain, or cause to be maintained, all of its and the Subsidiaries' properties (including the Property) in good condition in accordance with industry practices for business of similar size and circumstances and, shall make, or cause to be made, all necessary renewals, repairs, replacements, additions, betterments and improvements thereto. 5.4 Permits. The Borrower will obtain and keep in full force and effect, or shall cause to be obtained and kept in full force and effect, all permissions, licenses, easements, rights-of-way, leasehold and fee interests and all local, state and federal governmental approvals, authorizations, consents and permits as well as all other rights, titles and interests necessary to the ownership and operation of its and the Subsidiaries' properties (including the Property) and to the conduct of their businesses, except such of those which, if not obtained or maintained, would not, individually or in the aggregate, have a material adverse effect on the Borrower or its Subsidiaries. 5.5 Compliance with Law. The Borrower will comply with, or cause to be complied with, all applicable local, state and federal laws, rules and regulations relating to all of its and the Subsidiaries' activities including, but not limited to, the operation of its and the Subsidiaries' properties (including the Property) and the offer and sale of securities. 5.6 Material Contracts. (i) The Borrower will perform and observe, or cause to be performed and observed, all of the covenants and conditions required to be performed by it (or any Subsidiary) under each Material Contract, will do all things necessary to preserve unimpaired its rights thereunder, and will not enter into any agreement modifying or amending any Material Contract or releasing any third party from any obligations imposed upon it thereby. (ii) In no event shall the Borrower do or permit to be done, or omit to do or permit the omission of, any act or thing, the doing of, or omission to do, which would 34 constitute grounds for the termination of any Material Contract, or would entitle any third party to terminate any Material Contract. (iii) The Borrower will promptly notify the Agent in writing of any default by the Borrower or any Subsidiary in the performance or observance of any of the terms, covenants, or conditions on the part of the Borrower or any Subsidiary to be performed or observed under any Material Contract. The Borrower also will (a) promptly notify the Agent in writing of the receipt by the Borrower of any notice (other than notices customarily sent on a regular periodic basis) from any third party claiming any default by the Borrower or any Subsidiary in the performance or observance of any of the terms, covenants, or conditions on the part of the Borrower to be performed or observed under any Material Contract; (b) promptly notify the Agent in writing of the receipt by the Borrower of any notice from any third party to the Borrower of the termination of any Material Contract pursuant to the provisions of such Material Contract; and (c) promptly cause a copy of each such notice received by the Borrower from any third party to be delivered to the Agent. (iv) The Borrower will not, without the prior written consent of the Required Banks, terminate, modify or surrender or suffer or permit any termination, modification or surrender of any Material Contract during the initial term thereof or any valid extension thereto. 5.7 Existence and Ownership. The Borrower shall do, or cause to be done, all things necessary to preserve and keep in full force and effect its and the Subsidiaries' existences as limited partnerships, corporations or limited liability companies, their good standing under the laws of the states of their organization and their qualification to do business, and their good standing as foreign corporations, in all jurisdictions wherein their ownership of property or the nature of their businesses requires such qualification. Each of the Borrower and Atlas Operating shall continue to be the legal and beneficial owner of at least the percentages of the issued and outstanding securities of the Subsidiaries which it owns currently plus all additional percentages of such securities which it may acquire hereafter. 5.8 Reports, Certifications and Other Information. Upon request of Agent and the Banks, the Borrower shall deliver, or cause to be delivered, to Agent and the Banks, within sixty (60) days after the end of each fiscal quarter (and if a default as set forth in Section 9 hereof shall have occurred and be continuing, within thirty (30) days after the end of each calendar month), a report of operating, management and administration fees paid by the Borrower or any Subsidiary during such quarter or month, together with statements setting forth the quantity of gas and oil transported through the Pipeline during such quarter or month, the price paid or to be paid for the transportation and compression of gas, and such other information as the Agent and the Banks may reasonably request. Within fifty-five (55) days after the end of each fiscal quarter of each fiscal year of the Borrower and the Subsidiaries, the Borrower shall furnish to Agent and each Bank such unaudited financial statements of the Borrower and the Subsidiaries ("Quarterly Reports") as Agent and the Banks shall request (consisting of at least a balance sheet as of the close of such quarter and a profit and loss statement and a statement of cash flow for such quarter and for the period from the beginning of the fiscal year to the close of such quarter), which statements shall be in such detail as Agent shall require, shall show the Borrower's and the Subsidiaries' financial conditions at the close of such fiscal quarter and the results of their operations for the period then ended (in each case prepared on a consolidated basis) and shall 35 be prepared by the chief financial officer of the Borrower in accordance with GAAP consistently applied and certified by such officer, subject only to ordinary and usual year end audit adjustments. Within one hundred (100) days after the end of each fiscal year of the Borrower and the Subsidiaries, the Borrower shall furnish to Agent and the Banks a copy of the annual audited financial statements of the Borrower and the Subsidiaries prepared on a consolidated basis in conformity with GAAP consistently applied by certified public accountants satisfactory to Agent and the Banks and certified without qualification as to scope. The Borrower shall deliver to the Agent and the Banks, together with each delivery of financial statements required by this Section 5.8, a certificate substantially in the form of Exhibit "J" hereto, appropriately completed, (A) stating that the signer has reviewed the terms of this Agreement and of the other Loan Documents and has made, or caused to be made under his supervision, a review of the transactions and condition of the Borrower and the Subsidiaries during the accounting period covered by such financial statements and that such review has not disclosed the existence during such accounting period, and that the signer does not have knowledge of the existence, as at the date of such certificate, of any condition or event which constitutes a default under Section 9 hereunder with respect to the covenants set forth in Sections 5.15, 5.16 and 5.17 hereof, or which, after notice or lapse of time or both, would constitute a default with respect to the covenants set forth in Sections 5.15, 5.16 and 5.17 hereof, or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action the Borrower has taken or are taking or propose to take with respect thereto, (B) demonstrating in reasonable detail compliance, as at the end of such accounting period, with the restrictions contained in Sections 5.15, 5.16 and 5.17 hereof and (C) setting forth in reasonable detail the amount of any management fees or similar advances made during the applicable accounting period. The Borrower shall give to the Agent and the Banks prompt notice in writing of the occurrence or existence of any default under Section 9 hereof, or of any event which, with the giving of notice or lapse of time or both would become such a default. At any time and from time to time, the Borrower will submit, or cause to be submitted, to the Agent and the Banks promptly, in such form as Agent and the Banks shall require, such other information relating to the financial affairs of the Borrower and the Subsidiaries, to the properties of the Borrower and the Subsidiaries including the Property, to the businesses of the Borrower and the Subsidiaries or otherwise as Agent and the Banks shall reasonably request. 5.9 Records and Access. The Borrower shall keep, or cause to be kept, full and complete books and records in which correct and accurate entries will be made of all of its and the Subsidiaries business transactions and their properties including the Property and at any time and from time to time shall give, or cause to be given, to the Agent or the Banks or their representatives full access during normal business hours to examine and copy all of the Borrower's and the Subsidiaries' properties including the Property and their books, contracts and records. 5.10 Payment of Taxes and Mechanics' Claims. The Borrower will pay, or cause to be paid, all taxes, assessments, license fees and other governmental charges and all claims of mechanics and materialmen to which it or any of the Subsidiaries or any of their 36 properties including the Property shall be subject, and all other charges on or relating to any of their properties including the Property, before such charges and claims become delinquent, except that no such charge or claim need be paid for so long as its validity or amount shall be contested in good faith by appropriate proceedings duly prosecuted and the Borrower and the Subsidiaries shall have set up in their books such reserves with respect thereto as shall be dictated by sound accounting practices; provided, however, that all such charges and claims shall be paid, subject to refund proceedings, if failure to pay would adversely affect the rights or titles of the Borrower or any of the Subsidiaries to any of their properties including the Property. 5.11 Insurance. The Borrower will keep, or cause to be kept, with financially sound and reputable insurers, such insurance with respect to its and the Subsidiaries' businesses and properties including the Property, in such amounts and insuring against such risks, casualties and contingencies of such types (including but not limited to insurance for loss or damage by fire and other hazards and insurance for liability for damage to persons and property in connection with their properties including the Property and the activities conducted thereon or relating thereto) as is customary for persons, corporations and other entities of established reputations engaged in the same or similar businesses as the Borrower and the Subsidiaries and similarly situated, naming Agent (for the benefit of the Banks) as mortgagee or lender loss payee or additional insured as its interests may appear, and will keep, or cause to be kept, such insurance as required by any applicable workmen's compensation laws, and will furnish, or cause to be furnished, certificates of all such insurance to Agent upon the execution hereof and within one hundred twenty (120) days after the end of each of its fiscal years. All policies shall provide that they may not be altered or cancelled except on thirty (30) days' prior written notice to Agent. 5.12 Expenses, Fees and Disbursements. The Borrower shall pay, or cause to be paid, all reasonable expenses, fees and disbursements incurred in connection with the recordation, filing, continuation, satisfaction and termination of the Mortgage, the Financing Statements and any other Loan Documents and any other instruments or documents relating thereto and the reasonable fees, expenses and disbursements of Agent's counsel in connection with this Agreement and the other Loan Documents, and any other instruments or documents relating thereto, their preparation, administration and enforcement as well as the reasonable fees, expenses and disbursements of the Agent and its counsel, and others (including but not limited to geologists and engineers) engaged by Agent to provide information and advice in connection with this Agreement and the other Loan Documents and any other instruments or documents relating thereto, their preparation, administration and enforcement. Upon and after the occurrence of any default under Section 9 hereof, the Borrower shall also pay, or cause to be paid, all reasonable fees, expenses and disbursements of the Banks and their counsel and others (including but not limited to, geologists and engineers) engaged by the Banks in connection with the enforcement, amendment, waiver or restructuring of this Agreement and the other Loan Documents. 5.13 Assigned Payments. In connection with any amounts due to any Loan Party which are assigned to Agent (for the benefit of the Banks) pursuant to the Mortgage, the Security Agreement and/or any other Loan Document, upon notice to the payor thereof by Agent, such payments shall be made directly by the payor thereof to Agent. Agent is, and/or its duly authorized agents are, hereby authorized by the Borrower to endorse for and on the Borrower's behalf and deposit all drafts and checks payable to the Borrower, and such authority shall continue while any Indebtedness is outstanding. In the event that any such assigned amounts paid to Agent consist of amounts belonging in whole or in part to any person, 37 corporation or entity other than a Loan Party, the Agent shall promptly deliver such amounts or parts thereof to such persons, corporations or entities, or at the option of Agent to the Borrower, upon being furnished with evidence satisfactory to the Agent of such amounts or parts thereof and the identity of such persons, corporations or other entities. 5.14 Notification. Within ten (10) days after the Borrower or any Subsidiary receives notice of any litigation or any judicial or administrative proceeding pending or threatened against it which might result in the Borrower or any Subsidiary being liable for the payment or performance of obligations in excess of Fifty Thousand ($50,000) Dollars with respect to any single such litigation or proceeding, or in excess of Three Hundred Thousand ($300,000) Dollars in the aggregate with respect to all such litigations or proceedings, the Borrower shall notify the Agent and the Banks, or cause the Agent and the Banks to be notified, in writing of such litigation or proceeding. 5.15 Leverage Ratio. The Total Indebtedness of the Borrower divided by the EBITDA of the Borrower (calculated for the four (4) most recently completed fiscal quarters, except as set forth below) (the "Leverage Ratio") shall at all times be less than or equal to 3.00 to 1.00. For the purposes of this Section 5.15 and of Section 5.16, (i) the term "Total Indebtedness" shall mean total indebtedness of the Borrower on a consolidated basis, including all indebtedness for money borrowed or credit advanced, purchase price obligations, obligations evidenced by bonds, notes or similar indentures, capitalized lease obligations, guaranties, obligations with respect to letters of credit, net obligations under any commodity, interest or currency swap, future, option or other similar agreement (except where such swap, future, option or other similar agreement is matched by an offsetting unencumbered asset owned by the Borrower or any Subsidiary), and any liability in the nature of any of the foregoing in its capacity as a general partner, and (ii) the term "EBITDA" shall mean the sum of the Borrower's net income plus interest expense plus income tax expense plus depreciation plus amortization plus other noncash charges to income minus noncash credits to income (determined in accordance with GAAP on a consolidated basis). Furthermore, notwithstanding the foregoing, (i) for the fiscal period ending September 30, 2000, the denominator used in the calculation of the Leverage Ratio shall be the EBITDA of the Borrower for the two (2) fiscal quarters ended on such date multiplied by two (2), and (ii) for the fiscal period ending December 31, 2000, the denominator used in the calculation of the Leverage Ratio shall be the EBITDA of the Borrower for the three (3) fiscal quarters ended on such date multiplied by four-thirds (4/3). 5.16 Interest Coverage Ratio. The EBITDA of the Borrower (calculated for the four most recently completed fiscal quarters, except as set forth below) divided by the interest expense of the Borrower (calculated for the four most recently completed fiscal quarters, except as set forth below), shall at all times be greater than 3.50 to 1.00. Notwithstanding the foregoing, (i) for the fiscal period ending September 30, 2000, (a) the numerator used in the calculation of this ratio shall be the EBITDA of the Borrower for the two (2) fiscal quarters ended on such date multiplied by two (2) and (b) the denominator used in the calculation of this ratio shall be the interest expense of the Borrower for the two (2) fiscal quarters ended on such date multiplied by two (2), and (ii) for the fiscal period ending December 31, 2000, (a) the numerator used in the calculation of this ratio shall be the EBITDA 38 of the Borrower for the three (3) fiscal quarters ended on such date multiplied by four-thirds (4/3) and (b) the denominator used in the calculation of this ratio shall be the interest expense of the Borrower for the three (3) fiscal quarters ended on such date multiplied by four-thirds (4/3). 5.17 Minimum Tangible Net Worth. The Tangible Net Worth of the Borrower shall at all times exceed $14,000,000. 5.18 Additional Documents. From time to time, at the Agent's and the Required Banks' request, whether before or after any borrowings hereunder, the Borrower at its sole expense will execute and deliver, or cause to be executed and delivered, to Agent such instruments, papers and other documents and take, or cause to be taken, such further action as Agent and the Required Banks reasonably may require in connection with the transactions contemplated hereby including the enforcement of the Loan Documents. 5.19 Environmental Matters. (a) The Borrower will ensure that the Property remains in compliance, in all material respects, with all local, state and federal environmental laws, rules and regulations, and will not place or permit to be placed on the Property any Hazardous Substances, except as not prohibited by applicable environmental laws, rules or regulations, or in such quantities as to not constitute a hazard to the environment or subject the Borrower or any Subsidiary to prosecution or liability in connection therewith. (b) The Borrower will employ, or cause to be employed, in connection with the use of the Property, appropriate technology as the Borrower determines reasonably necessary to maintain compliance with any applicable environmental law, rule or regulation and dispose, or cause to be disposed, of any and all Hazardous Substances generated at the Property only at facilities and with carriers that maintain valid permits under applicable environmental laws, rules and regulations. (c) In the event the Borrower or any Subsidiary obtains, gives or receives notice of any release or threat of release of a reportable quantity of any Hazardous Substances at the Property or receives any notice of violation, request for information or notification that it is potentially responsible for investigation or cleanup of environmental conditions at the Property, or any demand letter, complaint, order, citation or other written notice with regard to any Hazardous Substances or violation of any environmental law, rule or regulation, affecting the Property from any person or entity, including any state agency responsible in whole or in part for environmental matters in the state in which the Property is located or the United States Environmental Protection Agency (any such person or entity is hereinafter referred to as the "Authority") which might result in the Borrower or any Subsidiary being liable for the payment or performance of obligations in excess of Ten Thousand ($10,000) Dollars with respect to any such event or in excess of One Hundred Thousand ($100,000) Dollars in the aggregate with respect to all such events, then the Borrower shall, within five (5) days, give written notice of same to the Agent detailing non-privileged and non-confidential facts and circumstances of which the Borrower is aware in connection therewith. Such information is to be provided to allow Agent to protect its security interest in the Property and is not intended to create any obligation upon the Agent or the Banks with respect thereto. (d) The Borrower shall promptly forward to the Agent and the Banks copies of any request for information, notification of potential liability, demand letter for information, notification of potential liability, demand letter relating to potential responsibility with respect to 39 the investigation or cleanup of Hazardous Substances at the Property and shall continue to forward to the Agent and the Banks copies of correspondence between the Borrower or any Subsidiary and the Authority regarding such claims until the claims are settled. The Borrower shall promptly forward to the Agent and the Banks copies of all documents and reports concerning Hazardous Substances at the Property that the Borrower or any Subsidiary is required to file under any environmental law, rule or regulation. Such information is to be provided to allow the Agent and the Banks to protect its security interest in the Property and is not intended to create any obligation upon the Agent or the Banks with respect thereto. (e) If the Borrower or any Subsidiary shall fail to comply, or cause to be complied, with any of the requirements of any environmental law, rule or regulation, the Agent may, at its election, but without the obligation to do so, for the sole purpose of protecting its security interest in the Property, enter onto the Property (or authorize third parties to enter onto the Property) and take such actions as the Agent (or such third parties as directed by the Agent) deems reasonably necessary or advisable, after consultation with the Borrower, to comply with the requirements of such environmental laws, rules and regulations including but not limited to cleaning up, removing, mitigating or otherwise dealing with any release of Hazardous Substances. All reasonable costs and expenses incurred by the Agent (or such third parties) in the exercise of any such rights, including any sums paid in connection with any judicial or administrative investigation or proceedings, fines and penalties, together with interest thereon from the date expended at the highest lawful rate then payable under the Notes then outstanding, shall be paid upon demand by the Borrower. (f) Promptly upon the written request of the Agent from time to time, which written request may be made by the Agent only in the event of notice to the Agent of discovery or occurrence of a release of Hazardous Substances at the Property, the Borrower shall provide, or cause to be provided and addressed, to Agent for the benefit of the Banks, at the Borrower's expense, with an environmental site assessment or environmental audit report prepared by an environmental engineering firm acceptable to the Agent in its reasonable opinion, to assess with a reasonable degree of certainty the existence of a release of Hazardous Substances and the potential costs in connection with the abatement, cleanup and removal of any Hazardous Substances found on, under, or within the Property. Any report or investigation of such release of Hazardous Substances proposed and acceptable to an appropriate Authority that is charged to oversee the cleanup of such release of Hazardous Substances shall be acceptable to the Agent. If such estimates, individually or in the aggregate, exceed One Hundred Thousand ($100,000) Dollars, the Agent shall have the right to require the Borrower to post a bond, letter of credit or other security reasonably satisfactory to the Agent to secure payment of these costs and expenses. (g) The Borrower shall defend and indemnify the Agent and each Bank, their respective directors, officers and employees and each legal entity, if any, who controls the Agent or any Bank (the "Indemnified Parties") and hold each Indemnified Party harmless from and against all loss, liability, damage and expense, claims, costs, fines and penalties, including reasonable attorney's fees, suffered or incurred by any Indemnified Party, whether as a mortgagee in possession, or as successor-in-interest to the Borrower or any Subsidiary, or otherwise, under or on account of any environmental law, rule or regulation, including the assertion of any lien thereunder, with respect to any release of Hazardous Substances, the presence of any Hazardous Substances affecting the Property, whether or not the same originates or emanates from the Property or any contiguous real estate, including any loss of value of the Property as a result of the foregoing so long as no such loss, liability, damage and 40 expense is attributable to any release of Hazardous Substances resulting from actions on the part of such Indemnified Party. The Borrower's obligations under this Section 5.19 shall arise upon the discovery of the presence of any Hazardous Substances at the Property, whether or not any Authority has taken or threatened any action in connection with the presence of any Hazardous Substances. The Borrower's obligations and the indemnification hereunder shall survive the payment in full of the indebtedness secured hereby and the satisfaction in full of the other obligations secured hereby. SECTION 6. NEGATIVE COVENANTS. For so long as any Indebtedness remains unpaid, the Borrower hereby agrees that it will not, without the prior written consent of the Agent (with the approval of the Required Banks): 6.1 Alienation. Sell, lease, transfer or otherwise dispose of or alienate any of its property including the Property, or permit the sale, lease, transfer or other disposition or alienation of any of the property of any Subsidiary or any Partnership, except (i) the sale, lease, transfer or other disposition or alienation for fair consideration in the ordinary course of business of its and the Subsidiaries' properties other than the Property, (ii) the sale, lease, transfer or other disposition or alienation for fair consideration other than in the ordinary course of business of its and the Subsidiaries' properties other than the Property having a fair market value not to exceed One Hundred Thousand ($100,000) Dollars in the aggregate in any twelve (12) month period, (iii) the sale, lease, transfer or other disposition or alienation for fair consideration of the Property having a fair market value not to exceed Fifty Thousand ($50,000) Dollars in the aggregate in any twelve month period, and (iv) the abandonment of any section of the Pipeline as the Wells connected to that section cease to produce in economic quantities; provided, that no Property may be sold, leased, transferred or otherwise disposed of or alienated pursuant to clauses (i) through (iii) above after the occurrence and during the continuance of any default under Section 9 below. 6.2 Encumbrances. Permit, create, assume or incur any mortgage, pledge, charge, security interest, lien or encumbrance of any kind upon any of its or any Subsidiary's properties (whether now owned or hereafter acquired) including the Property, or commit any act or make any election which will require it or any of the Subsidiaries to reassign any of their properties including the Property, except encumbrances (i) created and granted in this Agreement or any other Loan Document or otherwise created or granted in favor of the Agent for the benefit of the Banks, (ii) relating to current taxes, assessments, license fees and other governmental charges and claims of mechanics and materialmen not delinquent, or if delinquent being contested in good faith as set forth in Section 5.10 hereof unless required to be paid as set forth in such Section and subject to the reserve requirements set forth in such Section, (iii) imposed in the normal course of business of the Borrower and the Subsidiaries in connection with obtaining surety bonds, (iv) imposed in the normal course of business of the Borrower and the Subsidiaries on properties of the Borrower and the Subsidiaries hereafter acquired by them (other than Pipeline), provided that such liens and encumbrances are imposed in connection with the financing of the acquisition of such properties and are imposed only on the properties acquired on a nonrecourse basis and (v) the Permitted Liens. 6.3 Guaranty. Become or be, or permit any Subsidiary to become or be, a guarantor or endorser of, or surety for, or responsible in any manner whatsoever with respect to, the payment or performance of any indebtedness, obligation or undertaking of any other 41 person, corporation or other entity, (i) except in favor of the Banks in connection with the payment and/or performance of any such indebtedness, obligation or undertaking, (ii) except by the endorsement of negotiable instruments for deposit or collection in the ordinary course of business, and (iii) except the obligations of the Borrower or any Subsidiary arising in the ordinary course of business in such party's capacity as a general partner of any partnership; provided that the obligations guaranteed pursuant to Subsection 6.3(iii) shall not exceed Twenty-Five Thousand ($25,000) Dollars at any one time. 6.4 Debt. Create, assume, incur or permit to exist, any indebtedness or obligation for the payment or repayment of money, whether borrowed by, or advanced to or for the benefit of, the Borrower or any Subsidiary, or otherwise, except (i) the borrowings under the Loan Documents and any other indebtedness or obligation of the Borrower or any Subsidiary to the Banks thereunder, (ii) indebtedness with respect to the intercompany advances described in Subsection 6.5(v) hereof or pursuant to the Distribution Agreement, (iii) indebtedness secured by liens permitted pursuant to Section 6.2, (iv) loans or advances from Atlas for operating expenses in the ordinary course of business, and (v) other indebtedness, other than in favor of the Banks, not exceeding Twenty-Five Thousand ($25,000) Dollars in the aggregate at any one time outstanding. 6.5 Loans; Investments. Make, or permit any Subsidiary to make, any loan or advance to any person, corporation or other entity, or purchase or otherwise acquire, or permit any such Subsidiary to purchase or otherwise acquire, any capital stock, assets, obligations or other securities of, make any capital contribution to, or otherwise invest in, or acquire any interest in, any person, corporation or other entity, except: (i) direct obligations of the United States of America or any agency thereof with maturities of one year or less from the date of acquisition; (ii) commercial paper of a domestic issuer rated at least "A-1" by Standard & Poor's Corporation or "P-1" by Moody's Investors Service, Inc.; (iii) certificates of deposit with maturities of one year or less from the date of acquisition issued by any Bank or any commercial bank operating within the United States of America having capital and surplus in excess of $500,000,000; (iv) for stock, obligations or securities received in settlement of debts (created in the ordinary course of business) owing to the Borrower or any such Subsidiary; (v) loans from the Borrower or Restricted Subsidiary to another Borrower or Restricted Subsidiary, so long as the Banks shall have been granted a first perfected lien in such indebtedness, (vi) the stock and other equity interests held by the Borrower on the date hereof as described in Section 3.2 hereof, (vii) pursuant to a Permitted Acquisition, (viii) loans permitted by Section 6.4, and (ix) other loans not exceeding Twenty-Five Thousand ($25,000) in the aggregate at any one time outstanding. 6.6 Business Activities. Engage in, or permit any Subsidiary to engage in, any business other than the transportation of energy and services and activities related thereto. 6.7 Consolidation or Merger, Change in Control. (a) Consolidate with or merge into, or permit any Subsidiary to consolidate with or merge into, any Person or permit any Person to consolidate with or merge into the Borrower or any Subsidiary, except for the merger of the Borrower and any Subsidiary or any Subsidiary with any other Subsidiary provided that, if the Borrower is a party to any such merger, the Borrower is the surviving entity of such merger, and if any Restricted Subsidiary is a party to any such merger with an Unrestricted Subsidiary, the Restricted Subsidiary is the surviving entity of such merger (each, a "Permitted Merger"). 42 (b) Permit any Change in Control. 6.8 Acquisitions. Except as otherwise permitted or required in this Agreement, purchase or otherwise acquire, or permit any Subsidiary to purchase or acquire, any obligations or stock of, or any other interest in, or all or substantially all of the assets of, any Person whatsoever, other than (i) pursuant to a Permitted Merger or (ii) other non-hostile acquisitions of equity securities of, or assets constituting a business unit of, any Person, provided that (a) immediately prior to and after giving effect to any such acquisition, no default under Section 9 hereof shall have occurred or be continuing or will result therefrom, (b) such acquisition is consummated in accordance with applicable law, (c) if such acquisition is of equity securities of a Person, such Person becomes a Restricted Subsidiary, (d) such Person is principally engaged in the same business as the Borrower, (e) the Borrower shall be in pro forma compliance with the covenants set forth in Sections 5.15, 5.16 and 5.17 after giving effect to such acquisition, (f) such acquired Person or assets shall not be subject to any material liabilities except as permitted by this Agreement, and (g) a first priority perfected lien and security interest shall be granted to the Agent for the benefit of the Banks in such acquired Person or assets in accordance with Section 4.4 above. A transaction meeting the requirements of clause (ii) above shall be referred to herein as a "Permitted Acquisition". 6.9 Reserved. 6.10 Reserved. 6.11 Leases. Become, or permit any Subsidiary to become, lessee under any lease of any real or personal property, except interests under gas and oil leases or rights of way acquired in the ordinary courses of their businesses solely with respect to the rights to maintain flow or gathering or sales lines across the real estate subject thereto, and except such other leases entered into in the ordinary courses of their businesses so long as the aggregate payments to be made by the Borrower and the Subsidiaries in connection with such other leases in any fiscal year of the Borrower do not exceed One Million ($1,000,000) Dollars. 6.12 Negative Pledges. Directly or indirectly enter into or assume, or permit any Subsidiary to enter into or assume, any agreement (other than this Agreement) prohibiting the creation or assumption of any lien or encumbrance upon any of the Borrower's or Subsidiaries' properties (including, without limitation, the Property), whether now owned or hereafter created or acquired, or otherwise prohibiting or restricting any transaction contemplated hereby. 6.13 Changes in Organizational Documents. Permit or suffer to exist any amendment or modification in any respect of its Limited Partnership Agreement or any other Loan Party's certificate of incorporation (including any provisions or resolutions relating to capital stock), by-laws, certificate of limited partnership, partnership agreement, certificate of formation, limited liability company agreement or other organizational documents without providing at least thirty (30) calendar days' prior written notice to the Agent and the Banks and, in the event such change would be adverse to the Banks as determined by the Agent in its sole discretion, obtaining the prior written consent of the Banks. 6.14 MLP Letter of Credit. Permit the MLP Letter of Credit to be terminated or cancelled, or amended or modified in any way, at any time that the Borrower continues to be required to make the Minimum Quarterly Distributions (as such term is defined in the Limited 43 Partnership Agreement), or to permit the amount available to be drawn under the MLP Letter of Credit to be less than the aggregate amount of the then remaining Minimum Quarterly Distribution amounts, in each case without the prior written consent of the Banks. 6.15 Senior Management. Cause or permit any change in both the President and the Chief Operating Officer of the General Partner without the prior written consent of the Banks, which will not be unreasonably withheld. SECTION 7. BORROWING REQUIREMENTS. 7.1 Conditions to Borrowing. Unless otherwise agreed to by the Agent and the Banks and subject to the performance by the Loan Parties of their other obligations under the Loan Documents, the Banks shall have no obligation to advance any funds to the Borrower or to issue or renew any Letter of Credit until all legal matters incident to the transactions contemplated by the Loan Documents are resolved in a manner satisfactory to Agent and the Banks and until the Borrower shall have provided Agent with the following: A. This Agreement, the Notes, Mortgage, Guaranty Agreements, Security Agreements, Pledge Agreement, Financing Statements and other Loan Documents duly executed by the appropriate Loan Parties and all in form and substance satisfactory to Agent and the Banks. B. Evidence satisfactory to Agent and the Banks authorizing the execution and delivery by each Loan Party of this Agreement, the Notes, the Mortgage, the Guaranty Agreements, the Security Agreement, the Pledge Agreement, the Financing Statements and the other Loan Documents. C. Opinions of counsel for the Loan Parties, addressed to Agent and the Banks, satisfactory to Agent's counsel, relating to such matters as the Agent may reasonably require. D. Certificates executed by the Borrower stating that no defaults have occurred which are unremedied or unwaived under any agreement, lease, assignment or other document or instrument by or through which the Borrower or Subsidiary has any rights, titles or interests in connection with the Property. E. Evidence satisfactory to Agent and the Banks that there has been recorded in the appropriate offices documents and instruments establishing that the Borrower and the Subsidiary have good and marketable rights, titles and interests in and to the Property and delivery to the Banks of copies of all the documents and instruments pursuant to which, or establishing that, the Borrower and the Subsidiaries have acquired such rights, titles and interests. F. Evidence satisfactory to Agent and the Banks of the recordation and filing of the Mortgage, the Financing Statements and any other Loan Document as soon as possible after the date hereof, but in any event no later than ten (10) days after the date hereof. G. Delivery to the Agent of all original certificates of stock or membership units of all Restricted Subsidiaries of the Borrower, together with duly executed undated stock powers in blank. 44 H. Delivery to the Agent of all original executed intercompany notes, if any, to be pledged in accordance with Subsection 6.5(v) hereof. I. A current certificate of good standing of each Loan Party and a certificate of incumbency for each, together with certified resolutions of each Loan Party's board of directors (or equivalent body) authorizing the execution of the Loan Documents to which it is a party, and the performance by such Loan Party pursuant thereto, and certified copies of each Loan Party's articles or certificate of incorporation, partnership agreement, operating agreement, by-laws, or other formation, organizational or governing documents, together with all amendments thereto. J. Payment of the Fees provided for herein to be paid upon the execution hereof. K. Lien searches covering the Borrower, the Restricted Subsidiaries and the Property and satisfactory to Agent and the Banks. L. Evidence satisfactory to the Agent that the Borrower shall have established certain accounts with the Agent as set forth in Section 4.5 hereof. M. Evidence of the Borrower's insurance satisfactory to the Agent and the Banks and which in all other respects comply with the requirements of Section 5.11 hereof. N. A closing certificate executed by the Borrower and certifying the accuracy of the representations and warranties made to the Banks in the Loan Documents, compliance with all agreements and covenants set forth therein and that there exists no default under Section 9 hereof. O. Copies of each Material Contract, together with any amendments thereof, certified by the Borrower to be true, correct and complete. P. The Intercreditor Agreement duly executed by each party thereto. Q. Such other documents and instruments, and evidence of the performance by the Borrower of such other obligations, as the Banks may reasonably request. SECTION 8. DISBURSEMENT. 8.1 Procedure. Except as otherwise provided herein, the Borrower may request a borrowing or reborrowing hereunder by delivering to the Agent, not later than 11:00 A.M. (Pittsburgh, Pennsylvania time) (i) on the proposed borrowing or reborrowing date with respect to Loans to which the Base Rate Option applies and (ii) three (3) Business Days prior to the proposed borrowing or reborrowing date with respect to Loans to which the Euro-Rate Option applies, a written notice in the form of Exhibit "B" hereto requesting, and specifying the date (if other than the date of such request), the amount of the applicable interest rate Option (and, in the case of a borrowing or reborrowing for which the Euro-Rate Option shall apply, the applicable Euro-Rate Interest Period), and the manner of, each borrowing and reborrowing hereunder. Each request for a borrowing or reborrowing to which the Euro-Rate Option shall 45 apply shall be irrevocable and shall be further subject to the provisions of Subsections 2.5(c) and 2.5(d) hereof. Subject to Section 12.2 hereof, the Agent shall promptly notify the Banks of each request for a borrowing or reborrowing on the same day on which the Agent receives such a request, and each Bank shall make its Commitment Percentage of the requested borrowing or reborrowing available to the Borrower, in immediately available funds at the principal office of the Agent, prior to 2:00 P.M. (Pittsburgh, Pennsylvania time) on the date specified by the Borrower in their request, and upon availability of such funds Agent shall, as directed by the Borrower, credit one or more of the accounts of deposit (the "Accounts") maintained by the Borrower at the Agent in the amount to be borrowed or reborrowed. Each borrowing or reborrowing by the Borrower or issuance or renewal of any Letter of Credit hereunder issuance or renewal shall be conditioned on the following: that at the time of such borrowing, reborrowing issuance or renewal the representations and warranties contained in this Agreement are true and correct and no default set forth in Section 9 hereof shall have occurred and be continuing and no event which, with giving of notice or lapse of time or both would become such a default, shall have occurred or shall have failed to occur and be continuing; and each such borrowing, reborrowing, issuance or renewal shall be deemed to be a representation and warranty by the Borrower that the foregoing conditions exist, and upon the request of Agent, the Borrower shall execute and deliver to the Agent a certificate as to the existence of the foregoing conditions. 8.2 Use of Proceeds. The Borrower represents, warrants and agrees that all funds lent or advanced pursuant to this Agreement or any other Loan Document have been, and shall be, used only for the following purposes: (i) financing natural gas compression, gathering, transportation and associated activities and facilities by the Borrower or Restricted Subsidiaries, (ii) to finance any Permitted Acquisition, and (iii) for the purpose of funding other general corporate activities of the Borrower and the Restricted Subsidiaries. No proceeds of the Loans shall be (x) advanced to any Unrestricted Subsidiary or (y) used to make any dividend or other distribution to the general or limited partners of the Borrower. 8.3 Charging Account. The Borrower agrees that each Bank and the Agent may charge and is hereby authorized to charge any demand deposit account of the Borrower maintained with the Agent or the Banks (including without limitation the Accounts) for payment of principal of, or interest on, the Notes when due and payable, reimbursement of Draws under the Letters of Credit and all other charges set forth in the Loan Documents when due and payable including but not limited to the Closing Fee, the Commitment Fee, any Letter of Credit Fee and the charges set forth in Sections 5.12 and 11.3 hereof, but such authorization shall not constitute a waiver of the Borrower's right to dispute any such amounts. SECTION 9. DEFAULTS. If one or more of the following events occur: A. The Borrower or any Subsidiary or the General Partner makes an assignment for the benefit of its creditors, becomes insolvent or admits in writing its inability to pay its debts as they become due; or the Borrower or any Subsidiary or the General Partner files a voluntary petition in bankruptcy or files a petition or answer seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation; or the Borrower or any Subsidiary or the General Partner files an answer admitting or not contesting the material allegations of any petition filed in any action commenced against the Borrower or any Subsidiary or the General 46 Partner in bankruptcy or seeking the relief described above in this Subsection 9.A, or any such action shall not have been dismissed within sixty (60) days after it is commenced; or the Borrower or the General Partner or any Subsidiary, or any of its partners, officers, directors or shareholders, takes any action looking to the dissolution or liquidation of the Borrower or the General Partner or such Subsidiary; or the Borrower or any Subsidiary or the General Partner applies for, consents to, or acquiesces in the appointment of a trustee, receiver or liquidator for itself or for any of its property or in the absence of such application, consent or acquiescence such a trustee, receiver or liquidator is appointed and is not discharged within thirty (30) days after being appointed; or B. Any garnishment proceeding by attachment, levy or otherwise is instituted against any deposit balance maintained, or any property deposited, with any Bank by the Borrower, the General Partner or any Subsidiary in an aggregate amount greater than Fifty Thousand ($50,000) Dollars: then this Agreement and the other Loan Documents shall immediately and automatically be in default, any obligation of the Banks or the Agent under the Loan Documents or otherwise to make any further advances to or for the benefit of the Borrower shall immediately and automatically terminate and the principal of, and interest on, the Notes and all other indebtedness of the Borrower and the Subsidiaries to the Banks including, but not limited to all other Indebtedness, shall immediately be due and payable without necessity of demand, presentment, protest, notice of dishonor, notice of default or any other notice whatsoever, all of which are hereby expressly waived by the Borrower. If one or more of the following events occur: C. Default by the Borrower (i) in the payment of interest on the Notes, in the payment of any obligation with respect to any Letter of Credit, or in the payment of any Fee or in the payment of items of expense or other charges to be paid by the Borrower pursuant to the Loan Documents, including but not limited to the times set forth in Section 5.12 or 11.3 hereof, when due and payable, and continuance thereof for ten (10) days thereafter, or (ii) in any payment of any principal of the Loans made hereunder or of any reimbursement obligation with respect to any Letter of Credit when due and payable. D. One or more courts shall render a final judgment or judgments against the Borrower or any Subsidiary or the General Partner in an aggregate amount greater than Two Hundred Fifty Thousand ($250,000) Dollars in excess of any insurance protecting against the liability on which such judgment or judgments are based and such judgment or judgments shall not be satisfactorily stayed, discharged, vacated or set aside within sixty (60) days after the entry thereof, or, except as set forth in Subsection 9.B hereof, one or more properties of the Borrower or any Subsidiary or the General Partner shall be liened or attached under a claim or claims in an aggregate amount greater than Two Hundred Fifty Thousand ($250,000) Dollars in excess of any insurance protecting against the liability on which such lien or attachment is based and such lien or attachment shall not be released or provided for to the satisfaction of the Agent within thirty (30) days after the property is liened or attached; E. The Borrower or any Subsidiary or the General Partner shall fail to take, or cause to be taken, corrective measures reasonably satisfactory to Agent within thirty (30) days after notice to the Borrower or such Subsidiary with respect to any litigation or any judicial or administrative proceedings pending or threatened against the Borrower or such Subsidiary or 47 the General Partner or the Property, the outcome of which, in the reasonable judgment of the Agent, would materially and adversely affect the financial condition of the Borrower or such Subsidiary or the General Partner or the Property; F. The PBGC shall make a determination that there has occurred an event or condition which constitutes grounds under ERISA for the termination of, or for the appointment of a trustee to administer, any Plan; G. Default in the performance or observance of any negative covenant contained in Section 6 hereof, or, the default in the performance or observance of any other agreement, covenant or obligation of any Loan Party set forth in this Agreement or any other Loan Document, which default does not constitute a specific default set forth in this Section 9, and continuance thereof for thirty (30) days; H. Default in the performance or observance of any agreement, covenant or obligation of the Borrower or any Subsidiary or the General Partner in any agreement between any Bank and the Borrower and/or such Subsidiary and/or the General Partner in addition to any Loan Document, or the existence of any misrepresentation in connection therewith or related thereto, and continuance thereof for more than the permitted period of grace, if any; I. Except as set forth in Subsections 9.C, 9.G and 9.H hereof, default in the payment or performance of any obligation for borrowed money for which the Borrower or any Subsidiary or the General Partner is liable (directly, by assumption, as guarantor, or otherwise) or in the payment or performance of any obligation secured by any mortgage, pledge, charge, security interest or other encumbrance with respect to any property of the Borrower or any Subsidiary or the General Partner; J. Any representation or warranty made by any Loan Party herein or in any other Loan Document is untrue in any material respect or any certificate, schedule, statement, report, notice or writing furnished or made to Agent or any Bank in connection with the transactions contemplated by the Loan Documents is untrue in any material respect on the date as of which the facts set forth therein are stated or certified; K. Any Loan Party shall terminate its existence, dissolve, liquidate substantially all of its assets, cease to exist or permanently cease operations except as specifically permitted herein; L. Any Change in Control; M. Any termination or cancellation (for any reason), or purported termination or cancellation, of any Material Contract prior to its scheduled termination, or any default occurs under any Material Contract which gives any party thereto the right to terminate such Material Contract, or any such Material Contract is amended or modified in any material respect (in the reasonable opinion of the Required Banks) or terminated without the prior written consent of the Banks; N. Any of Atlas, REI or Viking becomes insolvent, becomes the subject to any action in bankruptcy, dissolves or terminates its existence other than pursuant to a Permitted Merger; 48 O. The General Partner withdraws or is removed as the general partner of either the Borrower or Atlas Operating, without the prior written consent of the Banks (which shall not be unreasonably withheld); or P. Any termination or cancellation (for any reason), or purported termination or cancellation, of the Intercreditor Agreement prior to its scheduled termination, or any default occurs under the Intercreditor Agreement which gives any party thereto the right to terminate Intercreditor Agreement, or the Intercreditor Agreement is amended, modified or terminated without the prior written consent of the Banks. then the Agent, upon the instruction or with the approval of the Required Banks, at their option, may immediately declare this Agreement and/or the other Loan Documents in default, may terminate any obligations of the Agent or the Banks or the Issuing Bank under the Loan Documents or otherwise to make any further advances to or for the benefit of the Borrower or issue or renew any Letter of Credit and/or may declare the principal of, and interest on, the Notes and/or all other indebtedness of the Borrower and the Subsidiaries to the Agent, the Banks and the Issuing Bank including but not limited to all other Indebtedness immediately due and payable, whereupon all such indebtedness including but not limited to the Indebtedness shall immediately become due and payable without necessity of demand, presentment, protest, notice of dishonor, notice of default or any other notice whatsoever, all of which are hereby expressly waived by the Borrower. SECTION 10. REMEDIES. The Agent (on behalf of the Banks) shall be entitled at the election of the Required Banks, in their sole discretion, to exercise each and every remedy accorded it by law and/or specifically set forth in the Loan Documents, which remedies are specifically incorporated herein by reference. Such remedies may be asserted concurrently, cumulatively, successively or independently from time to time so long as any part of the Indebtedness remains unpaid. No delay on the part of the Agent, the Banks and the Issuing Bank or failure by the Agents, the Banks and the Issuing Bank to exercise any power, right or remedy under this Agreement or any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any power, right, or remedy or any abandonment or discontinuance of steps to enforce such right, power or remedy preclude other or further exercises thereof, or the exercise of any other power, right or remedy. In addition to the remedies set forth above, upon the occurrence of any default set forth above, (i) the Issuing Bank shall have the right to require the Borrower to establish with the Issuing Bank and fund a cash collateral account to cash collateralize the Stated Amount of each outstanding Letter of Credit, and (ii) the Agent, the Banks and the Issuing Bank shall have all of the rights and remedies granted to them under this Agreement and the other Loan Documents and all other rights and remedies granted by law to creditors. SECTION 11. MISCELLANEOUS. 11.1 Waiver and Modification. No waiver by Agent or the Banks of any default shall operate as a waiver of any other default or of the same default on a future occasion. No failure to exercise, and no delay in exercising, on the part of Agent or the Banks, any power, remedy or right shall operate as a waiver thereof, nor shall any single or partial exercise of any power, remedy or right preclude other or further exercise thereof or the exercise of any other 49 power, remedy or right. This Agreement and the other Loan Documents contain the entire agreement of the parties with respect to their subject matter and the terms, conditions and covenants of this Agreement and the other Loan Documents may only be modified or waived by a written document executed by the Borrower and the Agent. 11.2 Notices. Any notice, request, demand, direction or other communication (for purposes of this Section 11.2 only, a "Notice") to be given to or made upon any party hereto under any provision of this Agreement or any other Loan Document shall be given or made by telephone or in writing (which includes by means of electronic transmission (i.e., "e-mail") or facsimile transmission or by setting forth such Notice on a site on the World Wide Web (a "Website Posting") if Notice of such Website Posting (including the information necessary to access such site) has previously been delivered to the applicable parties hereto by another means set forth in this Section 11.2) in accordance with this Section 11.2. Any such Notice must be delivered to the applicable parties hereto at the addresses and numbers set forth below or in accordance with any subsequent unrevoked Notice from any such party that is given in accordance with this Section 11.2. Any Notice shall be effective: (i) In the case of hand-delivery, when delivered; (ii) If given by mail, four days after such Notice is deposited with the United States Postal Service, certified or registered mail postage prepaid, return receipt requested; (iii) In the case of a telephonic Notice, when a party is contacted by telephone, if delivery of such telephonic Notice is confirmed no later than the next Business Day by hand delivery, a facsimile or electronic transmission, a Website Posting or an overnight courier delivery of a confirmatory Notice (received before the close of business on such next Business Day); (iv) In the case of a facsimile transmission, when sent to the applicable party's facsimile machines telephone number, if the party sending such Notice receives confirmation of the delivery thereof from its own facsimile machine; (v) In the case of electronic transmission, when actually received; (vi) In the case of a Website Posting, upon delivery of a Notice of such posting (including the information necessary to access such site) by another means set forth in this Section 11.2; and (vii) If given by any other means (including by overnight courier), when actually received. Any Bank giving a Notice to the Borrower shall concurrently send a copy thereof to the Agent, and the Agent shall promptly notify the other Banks of its receipt of such Notice. 50 (a) To the Borrower: c/o Atlas America, Inc. 311 Rouser Road Coraopolis, Pennsylvania 15108 Attention: Tony C. Banks President William R. Seiler Vice President and Controller Telephone: (412) 262-2830 Facsimile: (412) 262-3927 with a copy to: Atlas Pipeline Partners GP, LLC 1521 Locust Street Philadelphia, Pennsylvania 19102 Attention: Michael L. Staines with a copy to: Ledgewood Law Firm Ledgewood Law Firm Building 1521 Locust Street Philadelphia, Pennsylvania 19101-3723 Attention: Lisa A. Ernst, Esquire Telephone: (215) 731-9450 Facsimile: (215) 735-2513 (b) To the Agent or the Issuing Bank: PNC Bank, National Association Agency Services One PNC Plaza - 22nd Floor 249 Fifth Avenue Pittsburgh, Pennsylvania 15222-2707 Attention: Lisa M. Pierce Telephone: (412) 762-6442 Facsimile: (412) 762-8672 with a copy to: PNC Bank, National Association One PNC Plaza 249 Fifth Avenue Pittsburgh, Pennsylvania 15222 51 Attention: Energy, Metals & Mining Telephone: (412) 762-2431 Facsimile: (412) 762-2571 (c) To the Banks: All notices to Banks shall be sent to the notice address of each Bank as set forth on such Bank's signature page to this Agreement or to its Assignment and Assumption Agreement. 11.3 Certain Taxes. The Borrower agrees to pay, and save Agent and the Banks harmless from, all liability for any federal or state documentary stamp or other tax liability, together with any interest or penalty, which is payable or determined to be payable with respect to the execution or delivery of this Agreement or any other Loan Document, which obligation of the Borrower shall survive the termination of this Agreement. 11.4 Right to Cure. In the event that the Borrower shall fail for any reason to pay any fee, cost, expense or other charge to be paid or reimbursed by the Borrower, Agent shall have the right but not the duty to make such payment and if Agent makes such payment the amount thereof shall be added to the balance of the Indebtedness secured by the Loan Documents, shall be payable on demand and shall bear interest at the highest lawful rate of interest then payable under the Notes then outstanding until paid. 11.5 VENUE AND JURISDICTION; WAIVER OF JURY TRIAL. THE PARTIES HERETO AGREE THAT ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT SHALL BE COMMENCED IN THE COURT OF COMMON PLEAS OF ALLEGHENY COUNTY, PENNSYLVANIA AND EACH PARTY AGREES THAT A SUMMONS AND COMPLAINT COMMENCING AN ACTION OR PROCEEDING IN SUCH COURT SHALL BE PROPERLY SERVED AND SHALL CONFER PERSONAL JURISDICTION IF SERVED PERSONALLY OR BY CERTIFIED MAIL TO IT AT ITS ADDRESS DESIGNATED PURSUANT HERETO, OR AS OTHERWISE PROVIDED UNDER THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA. THE PARTIES HERETO WAIVE ANY CLAIM THAT PITTSBURGH, PENNSYLVANIA IS AN INCONVENIENT FORUM AND ANY CLAIM THAT ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT IN THE AFOREMENTIONED COURT LACKS PROPER VENUE AND/OR JURISDICTION. THE BORROWER, THE AGENT AND THE BANKS HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE COLLATERAL PROVIDED IN CONNECTION HEREWITH TO THE FULL EXTENT PERMITTED BY LAW. 11.6 APPLICABLE LAW. THIS AGREEMENT SHALL BE A CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA. 11.7 Severability. In the event that any term or provision of this Agreement or any other Loan Document is lawfully held or declared to be invalid, illegal or unenforceable, it 52 shall be deemed deleted to the extent necessary under the applicable law and the validity of the other terms and provisions shall not be affected thereby. 11.8 Successors and Assigns. (a) This Agreement and the other Loan Documents shall be binding upon the Borrower, the Agent and the Banks and their respective successors and assigns, and shall inure to the benefit of the Borrower, the Agent and the Banks and the successors and assigns of the Agent and the Banks (except that the Borrower shall have no right to assign, voluntarily or by operation of law, any of their rights hereunder or under any other Loan Document without Agent's prior written consent with the consent with the Banks, and provided further that nothing herein is intended by any party hereto to confer any rights upon any third party as a beneficiary hereof). (b) Subject to the remaining provisions of this Section 11.8, any Bank (the "Transferor Bank") may at any time, in the ordinary course of its commercial lending business, in accordance with applicable law, sell to one or more financial institutions (each, a "Purchasing Bank") (which Purchasing Bank may be an affiliate of the Transferor Bank), a portion of its rights and obligations under this Agreement and the Notes then held by it, pursuant to an Assignment and Assumption Agreement substantially in the form of Exhibit "K" and satisfactory to the Agent, executed by the Transferor Bank, such Purchasing Bank, the Agent and the Borrower; provided, however, that prior to the occurrence of any default under Section 9 hereof, the Borrower and the Agent must each give its prior consent to any such assignment (other than an assignment made by a Bank to an affiliate of such Bank), which consent shall not be unreasonably withheld, and subsequent to any such default only the consent of the Agent shall be required, which consent shall not be unreasonably withheld. Upon the execution, delivery, acceptance and recording of any such Assignment and Assumption Agreement, from and after the "Transfer Effective Date," as defined and determined pursuant to such Assignment and Assumption Agreement, and the payment by Purchasing Bank to Agent of an assignment service fee of $3,000, (i) the Purchasing Bank thereunder shall be a party hereto as a Bank and, to the extent provided in such Assignment and Assumption Agreement, shall have the rights and obligations of a Bank hereunder with a Commitment Percentage as set forth therein, and (ii) the Transferor Bank thereunder shall, to the extent provided in such Assignment and Assumption Agreement, be released from its obligations under this Agreement as a Bank. Such Assignment and Assumption Agreement shall be deemed to amend this Agreement to the extent, and only to the extent, necessary to reflect the addition of such Purchasing Bank as a Bank and the resulting adjustment of Commitment Percentage and Ratable Share arising from the purchase by such Purchasing Bank of all or a portion of the rights and obligations of such Transferor Bank under this Agreement and the Notes. On or prior to the Transfer Effective Date, the Borrower shall execute and deliver to the Agent, in exchange for the surrendered Notes held by the Transferor Bank, new Notes to the order of such Purchasing Bank in an amount equal to the Commitment Percentage of the Revolving Credit and the Loans assumed by it and purchased by it pursuant to such Assignment and Assumption Agreement, and new Notes to the order of the Transferor Bank in an amount equal to the Commitment Percentage of the Revolving Credit and the Loans retained by it hereunder. (c) The Agent shall maintain at its address referred to in Section 11.2 a copy of each Assignment and Assumption Agreement delivered to it and a register (the "Register") for the recordation of the names and addresses of the Banks and the amount of the Loans owing to each Bank from time to time. The entries in the Register shall be conclusive, in the 53 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 Loans recorded therein for all purposes of this Agreement. The Register shall be available at the office of the Agent for inspection by the Borrower or any Bank at any reasonable time and from time to time upon reasonable prior notice. (d) Notwithstanding any other provision in this Agreement, any Bank may at any time pledge or grant a security interest in all or any portion of its rights under this Agreement, its Notes and the other Loan Documents to any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury Regulation 31 CFR Section 203.14 without notice to or consent of the Borrower or the Agent. No such pledge or grant of a security interest shall release the transferor Bank of its obligations hereunder or under any other Loan Document. 11.9 Nature and Survival of Representations. All statements contained in any certificate or other document or instrument of any kind whatsoever delivered by or on behalf of the Borrower pursuant hereto or any other Loan Document, or in connection with the transactions contemplated hereby or thereby, shall be deemed representations and warranties made by the Borrower in this Agreement or other Loan Document, or pursuant hereto or thereto, and, together with all representations and warranties contained herein or in any other Loan Document, shall survive the execution and delivery thereof and of this Agreement and any other Loan Document, the making of any loans under the Loan Documents, and the making of any investigation made at any time by or on behalf of Agent and/or the Banks. 11.10 Number and Gender. Whenever required by the context of this Agreement or any other Loan Document the singular shall include the plural, and vice-versa; and the neuter gender shall include the masculine and feminine genders, and vice-versa. 11.11 Tax Withholding. At least five (5) business days prior to the first date on which interest or fees are payable hereunder for the account of any Bank, each such Bank that is not incorporated under the laws of the United States of America or a state thereof agrees that it will deliver to the Agent and the Borrower two (2) duly completed copies of either (i) United States Internal Revenue Service Form W-9, 1001 or 4224 or such other applicable form prescribed by the Internal Revenue Service of the United States, certifying in each case that such Bank is entitled to receive payments under this Agreement or the Notes without deduction or withholding of United States federal income taxes, or is subject to such tax at a reduced rate under an applicable tax treaty or (ii) Form W-8 or such other applicable form prescribed by the Internal Revenue Service of the United States or a certificate of such Bank indicating that no such exemption or reduced rate of taxation is allowable with respect to such payments. Each Bank which delivers a Form W-8, W-9, 4224 or 1001 further undertakes to deliver to the Agent and the Borrower two (2) additional copies of such form (or any successor form) on or before that form expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent form so delivered by it, and such amendments thereto or extensions or renewals thereof as may be reasonably requested by the Borrower or the Agent, either certifying that such Bank is entitled to receive payments under this Agreement or its Note without deduction or withholding of any United States federal income taxes or is subject to such tax at a reduced rate under an applicable tax treaty or stating that no such exemption or reduced rate is allowable. The Agent shall be entitled to withhold United States federal income taxes at the full withholding rate unless each such Bank establishes an exemption or at the applicable reduced rate established pursuant to the above provisions. 54 11.12 Headings. The headings of the Sections of this Agreement are inserted for convenience only and shall not be deemed to constitute a part hereof. 11.13 Confidentiality. (a) General. The Agent and the Banks each agree to keep confidential all information obtained from the Borrower or its Subsidiaries which is nonpublic and confidential or proprietary in nature (including any information the Borrower specifically designate as confidential), except as provided below, and to use such information only in connection with their respective capacities under this Agreement and for the purposes contemplated hereby. The Agent and the Banks shall be permitted to disclose such information (i) to outside legal counsel, accountants and other professional advisors who need to know such information in connection with the administration and enforcement of this Agreement, subject to agreement of such Persons to maintain the confidentiality, (ii) to assignees and participants as contemplated by Section 11.8, (iii) to the extent requested by any bank regulatory authority or, with notice to the Borrower, as otherwise required by applicable Governmental Rule or by any subpoena or similar legal process, or in connection with any investigation or proceeding arising out of the transactions contemplated by this Agreement, (iv) if it becomes publicly available other than as a result of a breach of this Agreement or becomes available from a source not known to be subject to confidentiality restrictions, or (v) if the Borrower shall have consented to such disclosure. (b) Sharing Information With Affiliates of the Banks. The Borrower acknowledges that from time to time financial advisory, investment banking and other services may be offered or provided to the Borrower or its Subsidiaries (in connection with this Agreement or otherwise) by any Bank or by one or more subsidiaries or affiliates of such Bank and the Borrower hereby authorizes each Bank to share any information delivered to such Bank by the Borrower and its Subsidiaries pursuant to this Agreement, or in connection with the decision of such Bank to enter into this Agreement, to any such subsidiary or affiliate of such Bank, it being understood that any such subsidiary or affiliate of any Bank receiving such information shall be bound by the provisions of Section 11.13 as if it were a Bank hereunder. Such authorization shall survive the repayment of the Loans and other Indebtedness and the termination of any commitment to lend or to issue Letters of Credit hereunder. 55 SECTION 12. AGREEMENT AMONG BANKS 12.1 Appointment and Grant of Authority. The Banks hereby appoint PNC Bank, National Association, and PNC Bank, National Association hereby agrees to act as, Agent under this Agreement, the other Loan Documents, and Agent under the Security Documents for the benefit of the Banks. The Agent shall have and may exercise such powers under this Agreement as are specifically delegated to it by the terms hereof or of the other Loan Documents, together with such other powers as are incidental thereto. Without limiting the foregoing, the Agent, on behalf of the Banks, is authorized to execute all of the Loan Documents (other than this Agreement) and to accept all of the Loan Documents and all other agreements, documents or instruments reasonably required to carry out the intent of the parties to this Agreement. Without limiting the foregoing, the Agent, on behalf of the Banks as secured parties, is authorized to execute and/or accept the Mortgage, any Financing Statements, any other Loan Documents and all other agreements, documents or instruments reasonably required to carry out the intent of the parties to this Agreement. 12.2 Reliance by Agent on Banks for Funding. Unless the Agent shall have received notice from a Bank prior to a funding date that such Bank will not make available to the Agent such Bank's portion of net disbursements of Loans, the Agent may assume that such Bank has made such portion available to the Agent in accordance with Section 8.1 above and the Agent may, in reliance upon such assumption, make Loans to the Borrower. If and to the extent that such Bank has not made such portion available to the Agent on or prior to any funding date, such Bank and the Borrower severally agree to repay to the Agent immediately upon demand, in immediately available funds, such unpaid amount, together with interest thereon at the Federal Funds Rate for each day from the applicable funding date until such amount is repaid to the Agent. If such Bank shall repay to the Agent such corresponding amount, such amount shall constitute a Loan made by such Bank for purposes of this Agreement. The failure by any Bank to pay its portion of a Loan made by the Agent shall not relieve any other Bank of its obligation to pay its portion of net disbursements of Loans, but no Bank shall be responsible for the failure of any other Bank to make its net share of Loans to be made by such other Bank on such funding date. 12.3 Non-Reliance on Agent. Each Bank agrees that it has, independently and without reliance on the Agent, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Borrower and decision to enter into this Agreement and that it will, independently and without reliance upon the Agent, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement. Except as otherwise provided herein, the Agent shall have no duty to keep the Banks informed as to the performance or observance by the Borrower of this Agreement or any other document referred to or provided for herein or to inspect the properties or books of the Borrower. The Agent, in the absence of gross negligence or willful misconduct, shall not be liable to any Bank for its failure to relay or furnish to the Bank any information. The preceding provisions of this Section 12.3 to the contrary notwithstanding, the Agent shall notify each of the Banks as soon as practicable after it receives notice of the occurrence of any default hereunder or under any other Loan Document. 56 12.4 Responsibility of Agent and Other Matters. (a) Ministerial Nature of Duties. As between the Banks and itself, the Agent shall not have any duties or responsibilities except those expressly set forth in this Agreement or in the other Loan Documents, and those duties and responsibilities shall be subject to the limitations and qualifications set forth in this Section 12. The duties of the Agent shall be ministerial and administrative in nature. (b) Limitation of Liability. As between the Banks and itself, neither the Agent nor any of its respective directors, officers, employees or agents shall be liable, except for gross negligence or willful misconduct, for any action taken or omitted (whether or not such action taken or omitted is within or without the Agent's responsibilities and duties expressly set forth in this Agreement) under or in connection with this Agreement or any other instrument or document in connection herewith. Without limiting the foregoing, neither the Agent nor any of its directors, officers or employees, shall be responsible for, or have any duty to examine (i) the genuineness, execution, validity, effectiveness, enforceability, value or sufficiency of (A) this Agreement or any of the other Loan Documents or (B) any other document or instrument furnished pursuant to or in connection with this Agreement, (ii) the collectability of any amounts owed by the Borrower to the Banks, (iii) the truthfulness of any recitals or statements or representations or warranties made to the Agent or the Banks in connection with this Agreement, (iv) any failure of any party to this Agreement to receive any communication sent, including any telegram, telex, teletype, telecopy, bank wire, cable, radiogram or telephone message or any writing, application, notice, report, statement, certificate, resolution, request, order, consent letter or other instrument or paper or communication entrusted to the mails or to a delivery service, or (v) the assets or liabilities or financial condition or results of operations or business or creditworthiness of the Borrower. (c) Reliance. The Agent shall be entitled to act, and shall be fully protected in acting upon, any telegram, telex, teletype, telecopy, bank wire, cable or radiogram or any writing, application, notice, report, statement, certificate, resolution, request, order, consent, letter or other instrument or paper or communication believed by the Agent in good faith to be genuine and correct and to have been signed or sent or made by a proper person. The Agent may consult counsel and shall be entitled to act, and shall be fully protected in any action taken in good faith, in accordance with advice given by counsel. The Agent may employ agents and attorneys-in-fact and shall not be liable for the default or misconduct of any such agents or attorneys-in-fact selected by the Agent with reasonable care. The Agent shall not be bound to ascertain or inquire as to the performance or observance of any of the terms, provisions or conditions of this Agreement or any of the other Loan Documents on the part of the Borrower or any other party thereto. 12.5 Action on Instructions. The Agent shall be entitled to act or refrain from acting, and shall be fully protected in acting or refraining from acting, under this Agreement, the other Loan Documents or any other instrument or document in connection herewith or therewith, in accordance with the instructions of the Required Banks (as such term is defined in Section 12.6 below) or, in the case of the matters set forth in items (i) through (viii) of Section 12.13, from all of the Banks. 12.6 Required Banks. For the purposes of this Agreement, the term "Required Banks" shall mean Banks with aggregate Commitment Percentages equal to at least 66-2/3% of all Commitment Percentages. 57 12.7 Action Upon Occurrence of an Event of Default. If an event of default set forth in Section 9 hereof has occurred, the Banks shall immediately consult with one another in an attempt to agree upon a mutually acceptable course of conduct. Failing agreement upon a course of conduct and if the Required Banks wish to declare an event of default and/or exercise their rights hereunder, the Agent will exercise the rights of the Banks hereunder as directed by the Required Banks. 12.8 Indemnification. To the extent the Borrower does not reimburse and save harmless the Agent according to the terms hereof for and from all costs, expenses and disbursements in connection herewith, such costs, expenses and disbursements, shall be borne by the Banks ratably in accordance with their respective Commitment Percentages. Each Bank hereby agrees on such basis (i) to reimburse the Agent for such Bank's pro rata share of all such reasonable costs, expenses and disbursements on request and (ii) to the extent of each such Bank's pro rata share, to indemnify and save harmless the Agent against and from any and all losses, obligations, penalties, actions, judgments and suits and other costs, expenses and disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against the Agent, other than as a consequence of gross negligence or willful misconduct on the part of the Agent, arising out of or in connection with this Agreement, the other Loan Documents or any other agreement, instrument or document in connection herewith or therewith, or any request of the Required Banks, including without limitation the reasonable costs, expenses and disbursements in connection with defending itself against any claim or liability related to the exercise or performance of any of its powers or duties under this Agreement, the other Loan Documents, or any of the other agreements, instruments or documents delivered in connection herewith or the taking of any action under or in connection with any of the foregoing. 12.9 Agent's Rights as a Bank. With respect to the commitments of the Agent as a Bank hereunder, and any loans of the Agent to the Borrower under this Agreement, the other Loan Documents and any other agreements, instruments and documents delivered pursuant hereto, the Agent shall have the same rights and powers, duties and obligations under this Agreement, the other Loan Documents or other agreement, instrument or document as any Bank and may exercise such rights and powers and shall perform such duties and fulfill such obligations as though it were not the Agent. The Agent may accept deposits from, lend money to, and generally engage, and continue to engage, in any kind of business with the Borrower as if it were not the Agent. 12.10 Payment to Banks. Promptly after receipt from the Borrower of any principal repayment of any Loan, any interest due thereunder, and any other interest or fees or other amounts due under any of the Loan Documents, the Agent shall distribute to each Bank in immediately available funds that Bank's Commitment Percentage of the funds so received, provided that in the event payments are received by 11:00 a.m., Pittsburgh time, by the Agent with respect to the Loans and such payments are not distributed to the Banks on the same day received by the Agent, the Agent shall pay the Banks the Federal Funds Rate with respect to the amount of such payments for each day held by the Agent and not distributed to the Banks. 12.11 Pro Rata Sharing. All interest and principal payments on the Notes, the Closing Fee, all Commitment Fees and all Letter of Credit Fees are to be divided pro rata among the Banks in accordance with their respective Ratable Share. Any sums obtained from any Loan Party by any Bank by reason of the exercise of its rights of setoff or banker's lien shall 58 be shared pro rata among the Banks. Nothing in this Section 12.11 shall be deemed to require the sharing among the Banks of collections specifically relating to any other indebtedness of any Loan Party to any Bank. 12.12 Successor Agent. The Agent may resign as Agent upon ninety (90) days' notice to the Banks and the Borrower. If such notice shall be given, the Banks shall appoint a successor agent for the Banks, during such ninety (90) day period, which successor agent shall, if no default under Section 9 has occurred and is continuing, be consented to by the Borrower (which consent shall not be unreasonably withheld), to serve as agent hereunder and under the several documents. Following the occurrence and continuance of any default under Section 9, Borrower's consent shall not be required for appointment of a successor Agent. If at the end of such ninety (90) day period the Banks have not appointed such a successor, the Agent shall procure a successor reasonably satisfactory to the Banks and the Borrower, to serve as agent for the Banks hereunder and under the several documents. Any such successor agent shall succeed to the rights, powers and duties of the Agent. Upon the appointment of such successor agent or upon the expiration of such ninety (90) day period (or any longer period to which the Agent has agreed), the former Agent's rights, powers and duties as Agent shall be terminated, without any other or further act or deed on the part of such former Agent or any of the parties to this Agreement. After any retiring Agent's resignation hereunder as Agent, the provisions of this Section 12.12 shall inure to the benefit of such retiring Agent as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. 12.13 Amendments and Waivers. The Required Banks, or the Agent with the consent in writing of the Required Banks, and the Borrower may, subject to the provisions of this Section 12.13, from time to time enter into written supplemental agreements to this Agreement and the other Loan Documents for the purpose of adding or deleting any provisions or otherwise changing, varying or waiving in any manner the rights of the Banks, the Agent or the obligor thereunder or the conditions, provisions or terms thereof or waiving any event of default thereunder or consenting to an action of the Borrower, but only to the extent specified in such written agreements; provided, however, that no such supplemental agreement shall, without the consent of all the Banks: (i) waive any event of default by any Loan Party in any payment of principal and/or interest due hereunder and under any of the Notes or any Reimbursement Obligation or other amount due with respect to the Letters of Credit; (ii) reduce the amount or extend the scheduled date of maturity of any Note or of any installment thereof, or reduce the stated rate of interest or any Fee payable hereunder or extend the scheduled date of any payment thereof or increase the amount or extend the expiration date of any Bank's commitment to lend hereunder, in each case without the consent of the Bank affected thereby; (iii) amend the provisions of Section 12.6 or the percentage specified in the definition of "Required Banks"; 59 (iv) release any guarantor of the Indebtedness, any of the Property from the Mortgage, any Security Agreement, any Pledge Agreement and/or any Financing Statement or any other collateral described in any Security Document, except as permitted in Section 6.1 above; (v) increase the maximum principal amount of the Revolving Credit; (vi) permit any Loan Party to assign its rights or duties hereunder or under any of the other Loan Documents; or (vii) amend or waive the provisions of this Section 12.13; Any such supplemental agreement shall apply equally to each of the Banks and shall be binding upon the Borrower, the Banks, the Agent and all future holders of the Notes. In the case of any waiver, the Borrower, the Banks and the Agent shall be restored to their former positions and rights, and any event of default hereunder or under the other Loan Documents waived shall be deemed to be cured and not continuing, but no such waiver shall extend to any subsequent or other event of default hereunder or under the other Loan Documents, or impair any right consequent thereon. 12.14 Agent's Fees. The Borrower shall pay to the Agent certain fees under the terms of a letter between the Borrower and Agent, as amended from time to time. 12.15 Funding by Branch, Subsidiary or Affiliate. (a) Notional Funding. Each Bank shall have the right from time to time, without notice to the Borrower, to deem any branch, subsidiary or affiliate (which for the purposes of this Section 12.15 shall mean any corporation or association which is directly or indirectly controlled by or is under direct or indirect common control with any corporation or association which directly or indirectly controls such Bank) of such Bank to have made, maintained or funded any Loan to which the Euro-Rate Option applies at any time, provided that immediately following (on the assumption that a payment were then due from the Borrower to such other office), and as a result of such change, the Borrower would not be under any greater financial obligation pursuant to Subsection 2.5(h) than they would have been in the absence of such change. Notional funding offices may be selected by each Bank without regard to such Bank's actual methods of making, maintaining or funding the Loans or any sources of funding actually used by or available to such Bank. (b) Actual Funding. Each Bank shall have the right from time to time to make or maintain any Loan by arranging for a branch, subsidiary or affiliate of such Bank to make or maintain such Loan subject to the last sentence of this Subsection 12.15(b). If any Bank causes a branch, subsidiary or affiliate to make or maintain any part of the Loans hereunder, all terms and conditions of this Agreement shall, except where the context clearly requires otherwise, be applicable to such part of the Loans to the same extent as if such Loans were made or maintained by such Bank, but in no event shall any Bank's use of such a branch, subsidiary or affiliate to make or maintain any part of the Loans hereunder cause such Bank or such branch, subsidiary or affiliate to incur any cost or expenses payable by the Borrower hereunder or require the Borrower to pay any other compensation to any Bank (including any expenses incurred or payable pursuant to Subsection 2.5(h)) which would otherwise not be incurred. 60 [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 61 IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby, have caused this Loan Agreement to be executed by their respective officers as of the date first written above. ATTEST: ATLAS PIPELINE PARTNERS, L.P., a Delaware limited partnership By: ATLAS PIPELINE PARTNERS GP, LLC, a Delaware limited liability company, its general partner By:_________________________(SEAL) By:__________________________(SEAL) Name:______________________ Name:________________________ Title:_______________________ Title:_________________________ PNC BANK, NATIONAL ASSOCIATION, in its capacity as the Agent and as the Issuing Bank hereunder By:__________________________________ Name:________________________________ Title:_______________________________ [SIGNATURES CONTINUED ON FOLLOWING PAGE] 62 IN WITNESS WHEREOF, intending to be legally bound hereby, the undersigned Bank has caused this Agreement by and among ATLAS PIPELINE PARTNERS, L.P., the Banks party hereto, the Issuing Bank, PNC BANK, NATIONAL ASSOCIATION, as the Agent to be executed by its duly authorized officers as of the date first above written. Initial Commitment: $5,000,000 PNC BANK, NATIONAL ASSOCIATION Commitment Percentage: 50% By:________________________________ Name:______________________________ Title:_____________________________ Addresses for notice purposes: PNC Bank, National Association Agency Services One PNC Plaza - 22nd Floor 249 Fifth Avenue Pittsburgh, Pennsylvania 15222-2707 Attention: Lisa M. Pierce Telephone: (412) 762-9245 Telecopier: (412) 762-8672 PNC Bank, National Association Energy, Metals & Mining One PNC Plaza - Third Floor 249 Fifth Avenue Pittsburgh, Pennsylvania 15222 Attention: Robert J. Tiskus Assistant Vice President Telephone: (412) 762-9245 Telecopier: (412) 762-2571 Address for Euro-Rate Loan Funding if different from above: N/A ____________________________________________ Telephone:__________________________________ Telecopier:_________________________________ Telex:______________________________________ [SIGNATURES CONTINUED ON FOLLOWING PAGE] 63 IN WITNESS WHEREOF, intending to be legally bound hereby, the undersigned Bank has caused this Agreement by and among ATLAS PIPELINE PARTNERS, L.P., the Banks party hereto, the Issuing Bank, PNC BANK, NATIONAL ASSOCIATION, as the Agent to be executed by its duly authorized officers as of the date first above written. Initial Commitment: $5,000,000 FIRST UNION NATIONAL BANK Commitment Percentage: 50% By:__________________________________ Name:________________________________ Title:_______________________________ Addresses for notice purposes: First Union National Bank 1001 Fannin Street, Suite 2255 Houston, Texas 77002 Attention: Russell Clingman Telephone: (713) 346-2716 Telecopier: (713) 650-6354 Address for Euro-Rate Loan Funding if different from above: N/A ____________________________________________ Telephone:__________________________________ Telecopier:_________________________________ Telex:______________________________________ 64 EXHIBIT A Form of Revolving Credit Note EXHIBIT B Form of Request for/Confirmation of Loan EXHIBIT C Guaranty Agreement EXHIBIT D Mortgage EXHIBIT E Security Agreement EXHIBIT F Pledge Agreement EXHIBIT G Pledge Agreement (Atlas Operating) EXHIBIT H Pledge Agreement (General Partner) EXHIBIT I Collateral Assignment of Contract Rights EXHIBIT J Compliance Certificate EXHIBIT K Assignment and Assumption Agreement EXHIBIT L Intercreditor and Collateral Agency Agreement SCHEDULE 3.2 Ownership/Subsidiaries (Issued and Outstanding Membership Units of the General Partner)
Holder Percentage of Ownership - ------ ----------------------- AIC, Inc. 33.40% member interest of Atlas Pipeline Partners GP, LLC Viking Resources Corp. 23.56% member interest of Atlas Pipeline Partners GP, LLC Resource Energy, Inc. 20.24% member interest of Atlas Pipeline Partners GP, LLC Atlas Energy Group, Inc. 10.21% member interest of Atlas Pipeline Partners GP, LLC REI - NY, Inc. 6.63% member interest of Atlas Pipeline Partners GP, LLC Atlas Resources, Inc. 5.96% member interest of Atlas Pipeline Partners GP, LLC
(Ownership of Authorized Securities of the Subsidiaries) Atlas Pipeline Partners, L.P. owns a 98.9899% limited partner interest in Atlas Pipeline Operating Partnership, L.P. Atlas Pipeline Partners GP, LLC owns a 1.0101% general partner interest in Atlas Pipeline Operating Partnership, L.P. Atlas Pipeline Operating Partnership, L.P. owns a 100% member interest in Atlas Pipeline Ohio, LLC. Atlas Pipeline Operating Partnership, L.P. owns a 100% member interest in Atlas Pipeline Pennsylvania, LLC. Atlas Pipeline Operating Partnership, L.P. owns a 100% member interest in Atlas Pipeline New York, LLC. SCHEDULE 3.5 Litigation None. SCHEDULE 6.2 Existing Liens None. EX-10.2 3 0003.txt EXHIBIT 10.2 TERM LOAN AGREEMENT By and Between RESOURCE PROPERTIES, INC. and MILLER & SCHROEDER INVESTMENTS CORPORATION Dated: November 15, 2000 TERM LOAN AGREEMENT ------------------- THIS TERM LOAN AGREEMENT, dated as of the 15th day of November, 2000, is made by and between RESOURCE PROPERTIES, INC., a Delaware corporation ("Borrower") and MILLER & SCHROEDER INVESTMENTS CORPORATION, a Minnesota corporation ("Lender"). Recitals -------- Borrower has requested that Lender make available to Borrower a Term Loan in an amount not to exceed $10,000,000, which Lender is willing to do on the terms set forth herein. NOW, THEREFORE, in consideration of the foregoing, and the mutual covenants set forth herein, the parties agree as follows: ARTICLE I DEFINITIONS Section 1.1 Definitions. In addition to the Terms defined elsewhere in this Agreement, the following Terms shall have the meanings set forth below: "Affiliate" as to any Person, means each other Person that directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Person in question. "Agreement" means this Term Loan Agreement, as it may be amended, modified, and supplemented, restated or replaced from time to time. "Business Day" means any day (other than a Saturday, Sunday or legal holiday in the State of Minnesota) on which commercial banks in Minnesota are authorized by law to be open. "Capitalized Lease" means any lease which is or should be capitalized on the books of the lessee in accordance with GAAP. "Cash Flow from Collateral" shall mean, with respect to each property constituting Real Estate, all revenues received by Borrower under the terms of the Collateral Documents related to such Real Estate net of operating expenses and senior debt service related to such Real Estate. "Collateral" has the meaning collectively given to such term in the Security Agreements, the Pledge Agreement and the RCMI Pledge Agreement. "Collateral Document Assignments" means those certain Assignments of Notes, Mortgages and Other Loan Documents of even date herewith executed by certain Collateral Subsidiaries and delivered to Lender, as the same may be amended, modified, supplemented, restated or replaced from time to time. "Collateral Document Default" has the meaning collectively given to such term in the Security Agreements. "Collateral Documents" shall have the meaning collectively given to such term in the Security Agreements. "Collateral Subsidiary" means each Subsidiary of Guarantor or Borrower which has executed or shall execute a security agreement and other documents in favor of the Lender to secure the Obligations, as set forth on Schedule 1.1(a). "Corporation" means a corporation, partnership, trust, unincorporated organization, association or joint stock company. "Default" means the occurrence of any event which, with the giving of notice or passage of time or both, would constitute an Event of Default. "Default Rate" means an annual rate of interest which is equal to the Term Interest Rate plus four percent (4%). "Deferred Compensation Plan" means any plan described in Section 3(3) of ERISA or any other plan or arrangement under which Borrower may become obligated to pay deferred, bonus, incentive, or other compensation or health, life, medical, dental, or other welfare benefits, excluding only any fully insured major medical, hospital, or dental program for which Borrower has no obligation other than the payment of premiums. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and all rules or regulations issued in connection therewith. "Event of Default" means any one of the events specified in Section 6.1. "GAAP" means generally accepted accounting principles in the United States of America, in effect from time to time, consistently applied and maintained. As used in this Agreement, or any certificate, report or other document made or delivered pursuant to this Agreement, accounting terms not defined elsewhere in this Agreement shall have the meanings given to them under GAAP. "Guarantor" means Resource America, Inc., a Delaware corporation. "Guaranty" means that certain Guaranty and Agreement of even date herewith executed by the Guarantor and delivered to Lender, as the same may be amended, modified, supplemented, restated or replaced from time to time. "LIBOR" shall mean the rate of interest per annum (rounded upward if necessary to the nearest 1/100th of 1%) for deposits in dollars for three-months appearing on the relevant display page of the Reuters screen displaying London Interbank Offered Rates of major banks for such deposits, at or about 11a.m. (London time) as established from time to time. "Lien" means any security interest, mortgage, pledge, lien, hypothecation, judgment lien or similar legal process, charge, encumbrance, title retention agreement or analogous instrument or device (including, without limitation, the interest of the lessors under Capitalized Leases and the interest of a vendor under any conditional sale or other title retention agreement). 2 "Loan Documents" means this Agreement, the Term Note, the Pledge Agreement, the RCMI Pledge Agreement, the assignments and allonges referred to in Section 3.1(k) and (l) hereof, the Security Agreements, the Guaranty, the Subsidiary Guarantys, the Collateral Document Assignment, and all other documents executed or delivered by Borrower, Guarantor or any Collateral Subsidiary pursuant to, or in connection with, this Agreement, as they may be amended, supplemented or restated from time to time. "Loan Year" means a twelve-month period, commencing on the date of this Agreement, with each subsequent Loan Year commencing on the annual anniversary date of the date of this Agreement. "Material Collateral Subsidiary" means a Collateral Subsidiary or more than one Collateral Subsidiary with respect to which the Secured Amount is greater than or equal to $1,000,000 in the aggregate. "Maturity Date" means the earlier of (a) October 31, 2006, or (b) date the payment of the Obligations is accelerated pursuant to Section 6.2(a). "Multiemployer Plan" means a plan described in Section 3(37) or 4001(a)(3) of ERISA or Section 414 of the Internal Revenue Code of 1986, as amended from time to time, which cover employees of Borrower. "Net Insurance/Condemnation Proceeds" means any cash payments or proceeds received by Borrower, Guarantor or any of the Collateral Subsidiaries pursuant to the terms of the Collateral Documents and the Senior Loan Documents (i) under business interruption insurance or casualty insurance policy in respect of a covered loss of any Real Estate or (ii) as a result of the taking of any Real Estate by any Person pursuant to the power of eminent domain, condemnation or otherwise or pursuant to a sale of any Real Estate to a purchaser with such power under threat of such a taking, in each case net of any actual and reasonable documented costs incurred by Borrower or any of the Collateral Subsidiaries in connection with the adjustment, settlement or collection of any claims of Borrower or such Collateral Subsidiary in respect thereof. "Net Refinance Proceeds" shall mean any cash or proceeds received by Borrower, Guarantor or any Collateral Subsidiary pursuant to the refinancing of Collateral, in each case net of any actual and reasonable documented costs incurred by Borrower or such Collateral Subsidiary in respect thereof. "Net Sale Proceeds" shall mean any cash or proceeds received by Borrower, Guarantor or any Collateral Subsidiary in accordance with the Collateral Documents and the Senior Loan Documents, pursuant to the sale of any Real Estate or Collateral or any interest in any Real Estate or Collateral including a foreclosure sale of Real Estate, in each case net of any actual and reasonable documented costs incurred by Borrower or such Collateral Subsidiary in respect thereof. "Net Worth" with respect to any Person means, as of the date of determination, the total of all assets appearing on the balance sheet of such Person, prepared in accordance with GAAP, minus all liabilities. 3 "Obligations" means the obligation of Borrower: (a) to pay the principal of and interest on the Term Note in accordance with its terms, and to satisfy all of Borrower's other obligations to Lender hereunder, including any extensions, modifications, renewals, and substitutions hereof; (b) to repay to Lender all amounts advanced by Lender hereunder or otherwise on behalf of Borrower, including, but without limitation, advances for principal or interest payments to prior secured parties, mortgagees or lienors, or for taxes, levies, insurance, rent, repairs to or maintenance or storage of any of the Collateral; and (c) subject to Section 2.5(c), to pay all of Lender's expenses and costs, together with the reasonable fees and expenses of its counsel in connection with the preparation and negotiation of this Agreement and other Loan Documents, and any amendments thereto and the documents required hereunder or thereunder, or any proceedings brought or threatened to enforce payment of any of the Obligations described in clauses (a) or (b) above. "Obligor" means each maker, mortgagor, guarantor, or other obligor under or with respect to any Collateral Document. "Permitted Liens" means those Liens permitted by Section 5.2. "Person" means an individual, a corporation, or a government, or any agency or subdivision thereof, or any other entity. "Pledge Agreement" means that certain Pledge Agreement of even date herewith executed by the Borrower and delivered to Lender, as the same may be amended, modified, supplemented, restated or replaced from time to time. "RCMI" means Resource Commercial Mortgages, Inc., a Delaware corporation. "RCMI Pledge Agreement" means that certain RCMI Pledge Agreement of even date herewith executed by RCMI and delivered to Lender, as the same may be amended, modified, supplemented, restated or replaced from time to time. "Real Estate" means those parcels of real property which relate to the loans and/or participations evidenced by the Collateral Documents, together with the improvements thereon. "Recourse Indebtedness" means: (a) recourse obligations secured by any mortgage, pledge, security interest, lien, charge or other encumbrance existing on property owned or acquired subject thereto; (b) any recourse obligation on account of deposits or advances; (c) any recourse obligation for the deferred purchase price of any property or services, (d) any recourse obligation as lessee under any Capitalized Lease; (e) all guaranties, endorsements and other contingent obligations respecting Recourse Indebtedness of others; and (f) undertakings or agreements to reimburse or indemnify issuers of letters of credit. For all purposes of this Agreement (i) the Recourse Indebtedness of any Person shall include the Recourse Indebtedness of any partnership in which such Person is a general partner, and (ii) the Recourse Indebtedness of any Person shall include the Recourse Indebtedness of any joint venture in which such Person is a joint venturer. "Secured Amount" with respect to each Collateral Subsidiary shall be the amount set forth on Schedule 1.1(b) with respect to that Collateral Subsidiary. 4 "Security Agreement" means any one or more security agreements executed by any Collateral Subsidiary, Guarantor or Borrower, or any or all of them in combination, in favor of Lender as any of the same may be amended, modified, supplemented, restated or replaced from time to time. "Senior Loan Documents" means any other document binding any Obligor or any Collateral Subsidiary which limits in any way Borrower's or the applicable Collateral Subsidiary's rights under the Collateral Documents. "Subsidiary" means any Person of which or in which Borrower, any of its other Subsidiaries, or Borrower and any of its other Subsidiaries together, own directly or indirectly 50% or more of: (a) the combined voting power of all classes of stock having general voting power under ordinary circumstances to elect a majority of the board of directors of such Person, if it is a corporation, (b) the capital interest or profit interest of such Person, if it is a partnership, joint venture or similar entity, or (c) the beneficial interest of such Person, if it is a trust, association or other unincorporated organization. "Subsidiary Guaranty" means any one or more guarantys executed by an Collateral Subsidiary in favor of Lender as any of the same may be amended, modified, supplemented, restated or replaced from time to time. "Term Interest Rate" shall mean a rate per annum equal to LIBOR plus three and one-half percent (3 1/2%), established initially on the date hereof and adjusted annually on the anniversary date of this Agreement based on the LIBOR rate then in effect. The Lender may lend to its customers at rates that are at, above, or below the Term Interest Rate. "Term Loan" means the loan granted to Borrower by Lender pursuant to Section 2.1 hereof. "Term Note" means that certain Term Note in the form of Exhibit A dated as of the date hereof executed by Borrower and made payable to the order of the Lender in the original principal amount of $10,000,000, as the same may be amended, modified, supplemented, restated or replaced from time to time. Section 1.2 Other Definitional Terms. The words "hereof," "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. References to Sections, Exhibits, Schedules and like references are to this Agreement unless otherwise expressly provided. ARTICLE II TERM LOAN FACILITY Section 2.1 Term Loan. Subject to and upon the terms and conditions hereof, in reliance upon the representations and warranties of Borrower herein, and upon request by Borrower, Lender agrees to make a Term Loan to Borrower in the amount of up to $10,000,000. Upon written request from Borrower, Lender agrees, in Lender's sole discretion, to, from time to time, advance the Term Loan in such installments as Borrower shall request and Lender shall agree to make, provided Borrower is not in default hereunder at the time of making the request, and provided further that Borrower satisfies all requirements of Lender in connection with such advances. 5 Section 2.2 Term Note. The obligation of the Borrower to repay the Term Loan made pursuant to Section 2.1 shall be evidenced by the Term Note of the Borrower in favor of the Lender, in the form of Exhibit A hereto, in the original principal amount of $10,000,000 dated as of the date of this Agreement. Section 2.3 Principal and Interest Payments on the Term Note. Interest calculated on the outstanding principal balance at the Term Interest Rate shall be payable monthly in arrears commencing November 30, 2000 and continuing on the last day of each month thereafter through October 31, 2001. The principal balance on the Term Note and interest accruing on the Term Note shall be paid in equal monthly installments of principal and interest in an amount sufficient to amortize the then principal balance at the then Term Interest Rate by the Maturity Date, such payments commencing November 30, 2001 and continuing on the last day of each month thereafter through October 31, 2006. Such payments will not be reamortized in the event of prepayment of any portion of the Term Loan, whether such prepayment is optional or mandatory. On the Maturity Date the entire remaining unpaid principal balance plus interest and fees accrued shall be due and payable. Section 2.4 Interest on the Term Loan. (a) The unpaid principal amount of the Term Loan shall bear interest at the Term Interest Rate. (b) From and after the Maturity Date, as well as upon and after the occurrence of an Event of Default, the outstanding principal balance and all other Obligations of the Borrower shall automatically bear interest at the Default Rate with no notice required to Borrower. Any judgment or judgments in the Lender's favor against the Borrower shall bear interest at the Default Rate until satisfied in full. (c) Interest shall be computed on the basis of a 360 day year consisting of twelve (12) thirty (30) day months. Section 2.5 Fees. (a) Origination fee. Borrower shall pay to Lender an origination fee, to be paid prior to any advance under Section 2.1 in accordance with the following: (i) No origination fee shall be due until a total of $5,000,000 is advanced hereunder, at which point an origination fee of $50,000 (1% of $5,000,000) shall be due and payable by Borrower to Lender. (ii) For additional advances after the first $5,000,000 has been advanced, but below $6,000,000 in aggregate, an origination fee equal to 1% of the amount advanced shall be paid by Borrower to Lender at the time of each additional advance. 6 (iii) When a total of $6,000,000 has been advanced, Borrower shall pay to Lender an origination fee equal to $180,000 (3% of $6,000,000) minus the total of all origination fees paid to Lender by Borrower prior to that date. (iv) Borrower shall pay to Lender an origination fee equal to 3% of the amount advanced at the time of the advance for each additional advance in excess of $6,000,000 up to the maximum amount of the Term Loan of $10,000,000. (b) Late charge. In the event that Borrower fails to pay any principal, interest or other fees or expenses payable hereunder for a period of at least ten (10) days after the same shall become due, in addition to paying such sums, Borrower shall pay to Lender a late charge equal to four percent (4%), of such past due payment as compensation for the expenses incident to such past due payment. (c) Certain fees, costs, expenses and expenditures. Borrower agrees to pay on demand all costs and expenses of Lender, including without limitation: (i) all out of pocket costs and expenses in connection with the preparation, review, negotiation, execution, delivery, collection, enforcement, and administration of the Loan Documents, and the other documents to be delivered in connection therewith, or any amendments, extensions and increases to any of the foregoing (including, without limitation, attorney's fees and expenses, and the cost of examining Collateral, and UCC filing fees and county recording charges and service charges in connection with the foregoing), and the cost of periodic lien searches and tax clearance certificates, as Lender deems advisable, provided however, that Borrower shall not be required to reimburse Lender for reasonable attorneys' fees incurred in connection with the preparation, negotiation and execution of the Loan Documents (as they exist on the date hereof) to the extent that such fees exceed $125,000. Lender acknowledges receipt of $85,000 to be applied to this fee. The $125,000 cap on legal fees shall apply in the aggregate to the initial Term Loan of $10,000,000 as well as to a future additional Term Loan of up to an additional $10,000,000. Borrower and Lender agree that no further attorneys' fees shall be due to Lender under this section in connection with the initial preparation and negotiation of the Loan Documents until a total of $6,800,000 of advances have been made on the Term Loan. Thereafter, in connection with each advance exceeding $6,800,000, Borrower shall pay to Lender attorneys' fees in an amount equal to the product of multiplying $125,000 times the percentage obtained by dividing the amount of the additional advance by $10,000,000. For example, when Lender advances a total of $8,000,000 under the Term Loan, Borrower shall pay to Lender additional attorneys' fees of $15,000 ($125,000 x $1.2 million / $10 million). (ii) all losses, costs and expenses in connection with the enforcement, protection and preservation of the Lender's rights or remedies under the Loan Documents, or any other agreement relating to any Obligations, or in connection with legal advice relating to the rights or responsibilities of Lender (including without limitation court costs, reasonable attorney's fees and expenses of accountants and appraisers), and any consent or waiver fees as may be required by Lender; 7 (iii) any and all stamp and other taxes payable or determined to be payable in connection with the execution and delivery of the Loan Documents; (iv) in the event Borrower or any Collateral Subsidiary shall fail (i) to pay taxes, insurance, assessments, costs or expenses which it is required to pay hereunder, (ii) to keep the Collateral free from security interests or lien (except as expressly permitted herein), or (iii) otherwise breaches any obligations under the Loan Documents, Lender in its discretion, may make expenditures for such purposes and the amount so expended (including reasonable attorney's fees and expenses, filing fees and other charges) shall be payable by Borrower on demand and shall constitute part of the Obligations; and (v) with respect to any amount required to be paid by Borrower under this Section 2.5(c), in the event Borrower fails to pay such amount on demand, Borrower shall also pay to Lender interest thereon at the Default Rate. Borrower's obligations under this Section 2.5(c) shall survive termination of this Agreement. Section 2.6 Payment Method. Payments and prepayments of principal of, and interest on, the Term Note and all fees, expenses and other obligations under the Loan Documents shall be made, without set-off or counterclaim, in immediately available funds by way of wire transfer, not later than 2:00 p.m., Minneapolis time, on the dates due at the main office of the Lender in Minneapolis, Minnesota. Funds received on any day after such time shall be deemed to have been received on the next Business Day. Whenever any payment to be made hereunder or on the Term Note shall be stated to be due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of any interest or fees. If Lender does not receive payment as set forth above, Borrower irrevocably authorizes Lender to debit all payments required to be made by Borrower hereunder or otherwise under the Term Note, from the Collateral Account. Debiting of any amount due from the Collateral Account will not act as a waiver or cure of the Event of Default created by Lender's failure to receive payment as required by this Section. Section 2.7 Application of Payments. Prior to the occurrence of an Event of Default, any and all payments on account of the Term Note will be applied first, to any amounts, other than principal and interest on the Term Note, due to Lender pursuant to any Loan Document; second, to accrued interest due under the Term Note; and third, to outstanding principal under the Term Note. Following the occurrence of an Event of Default, any and all payments on account of the Term Note will be applied in such order as Lender in its sole discretion elects. If any part of any payment or payments received by the Lender with respect to the Obligations is subsequently invalidated, declared to be fraudulent or preferential, set aside or are required to be repaid to a trustee, receiver, or any other person under any bankruptcy act, state or federal law, common law or equitable cause, then to the extent of such payment or payments, the Obligations or part thereof intended to be satisfied shall be revived and continued in full force and effect as if said payment or payments had not been made. Section 2.8 Limitation of Interest to Maximum Lawful Rate. In no event will the rate of interest payable hereunder exceed the maximum rate of interest permitted to be charged by applicable law (including the choice of law rules), and any interest paid in excess of the permitted rate will be refunded to Borrower. Such refund will be made by application of the excess amount of 8 interest paid against any Obligations and will be applied in such order as Lender may determine. If the excess amount of interest paid exceeds the Obligations outstanding, the portion exceeding the Obligations outstanding will be refunded in cash by Lender. Any such crediting or refunding will not cure or waive any default by Borrower not attributable to such excess interest. Borrower agrees, however, that in determining whether or not any interest payable hereunder exceeds the highest rate permitted by law, any non-principal payment, including, without limitation, prepayment fees and late charges, will be deemed to the extent permitted by law to be an expense, fee or premium rather than interest. Section 2.9 Optional Prepayments. The Borrower may, upon at least five (5) Business Days' prior notice to the Lender, prepay the principal balance of the Term Loan voluntarily in whole or in part at any time. Any partial prepayments shall be made in increments of at least $500,000. Section 2.10 Mandatory Prepayments and Mandatory Reduction of Term Loan. The Term Loan shall be prepaid and the principal amount outstanding of the Term Loan shall be reduced in the amounts and under the circumstances set forth below, and all such prepayments and/or reductions shall be applied as set forth in Section 2.7. (a) Prepayments from Sale of Collateral. No later than the third Business Day following the date of receipt by Borrower, Guarantor or any Collateral Subsidiary of any Net Sale Proceeds and subject to the terms of the Collateral Documents and the Senior Loan Documents, the Borrower shall prepay the Term Loan in an amount equal to the greater of (a) the Secured Amount with respect to such Collateral or Collateral Subsidiary, or (b) the amount set forth below: Percentage of Loan Year(s) Net Sale Proceeds ------------ ----------------- 1-4 50% 5-6 100% provided however, that if an Event of Default has occurred and is continuing, or such sale is a foreclosure sale, the Borrower shall prepay the Term Loan in an amount equal to 100% of the Net Sale Proceeds. (b) Prepayment from Net Insurance/Condemnation Proceeds. No later than the third Business Day following the date of receipt by Borrower, Guarantor or any Collateral Subsidiary of any Net Insurance/Condemnation Proceeds, Borrower shall prepay the Term Loan in an amount equal to the greater of (a) the Secured Amount with respect to such Collateral or Collateral Subsidiary, or (b) the amount set forth below: 9 Percentage of Net Loan Year(s) Insurance/Condemnation Proceeds ------------ ------------------------------- 1-4 50% 5-6 100% provided, however, that if an Event of Default has occurred and is continuing, the Borrower shall prepay the Term Loan in an amount equal to 100% of the Net Insurance/Condemnation Proceeds. Provided, further, that no such prepayment shall be required to the extent that the terms of any Collateral Document or Senior Loan Document or other agreement existing on the date hereof require such Net Insurance/ Condemnation Proceeds to be used to replace, rebuild or repair the Real Estate so damaged, destroyed or taken. (c) Prepayments from Refinancing. No later than the third Business Day following the date of receipt by Borrower, Guarantor or any Collateral Subsidiary of any Net Refinance Proceeds and subject to the terms of the Collateral Documents and the Senior Loan Documents, the Borrower shall prepay the Term Loan in an amount equal to the greater of (a) the Secured Amount with respect to such Collateral or Collateral Subsidiary, or (b) the amount set forth below: Percentage of Loan Year(s) Net Refinance Proceeds ------------ ---------------------- 1-4 50% 5-6 100% provided however, that if an Event of Default has occurred and is continuing, or such sale is a foreclosure sale, the Borrower shall prepay the Term Loan in an amount equal to 100% of the Net Refinance Proceeds. (d) Calculation of Net Sale or Net Insurance/Condemnation Proceeds. Concurrently with any prepayment of the Term Note pursuant to subsections (a), (b) or (c) of this Section, Borrower shall deliver to Lender an officer's certificate demonstrating the calculation of the amount of the applicable Net Sale Proceeds, Net Insurance/Condemnation Proceeds, or Net Refinance Proceeds, as the case may be, that give rise to such mandatory prepayment. In the event that Borrower shall subsequently determine that the actual Net Sale Proceeds, Net Insurance/Condemnation Proceeds, or Net Refinance Proceeds, as the case may be, was greater than the amount set forth in such officer's certificate, Borrower shall promptly make an additional prepayment of the Term Loan in an amount equal to the amount of such excess if required by subsection (a), (b) or (c), and Borrower shall concurrently therewith deliver to Lender a revised officer's certificate. 10 (e) Prepayment from Prepayment Proceeds. No later than the third Business Day following the date of receipt by Borrower or any Collateral Subsidiary of any proceeds arising from prepayment of any obligations under the Collateral Documents, and subject to the terms of the Senior Loan Documents, the Borrower shall prepay the Term Note in an amount equal to the greater of (a) the Secured Amount with respect to such Collateral or Collateral Subsidiary, or (b) the amount set forth below: Percentage of Loan Year(s) Prepayment Proceeds ------------ ------------------- 1-4 50% 5-6 100% provided, however, that if an Event of Default has occurred and is continuing, the Borrower shall prepay the Term Loan in an amount equal to 100% of the Prepayment Proceeds. Section 2.10A Temporary Prepayment Modifications Until Term Loan is Fully Funded. Notwithstanding anything in Section 2.10 to the contrary, until such time as Lender has fully disbursed the $10,000,000 maximum amount of the Term Loan to Borrower, subsection (a) of Sections 2.10(a), 2.10(b), 2.10(c) and 2.10(e) above is hereby modified to read as follows: "(a) the amount obtained when multiplying the Secured Amount with respect to such Collateral or Collateral Subsidiary by the percentage obtained when dividing the total amount advanced under the Term Loan by $10,000,000" Upon disbursement of the full $10,000,000 maximum amount of the Term Loan to Borrower, this Section 2.10A shall be of no further force or effect. Section 2.11 Increased Costs. In the event that any present or future law, rule, regulation, treaty or official directive or the interpretation or application thereof by any central bank, monetary authority or governmental authority, or the compliance with any guideline or request of any central bank, monetary authority or governmental authority (whether or not having the force of law): (a) subjects Lender to any tax with respect to any amounts payable under this Agreement or the other Loan Documents by Borrower or otherwise with respect to the transactions contemplated under this Agreement or the other Loan Documents (except for taxes on the overall net income and/or revenues of Lender imposed by the United States of America, the State of Minnesota, or any political subdivision of either of them); or (b) imposes, modifies or deems applicable any deposit insurance, reserve, special deposit, capital maintenance, capital adequacy, or similar requirement against assets held by, or deposits in or for the account of, or loans or advances or commitment to make loans or advances by, the Lender; or 11 (c) imposes upon Lender any other condition with respect to advances or extensions of credit or the commitment to make advances or extensions of credit under this Agreement, and the result of any of the foregoing is to increase the costs of Lender, reduce the income receivable by or return on equity of Lender or impose any expense upon Lender with respect to any advances or extensions of credit or any commitment to make advances or extensions of credit under this Agreement, Lender shall notify Borrower in writing. Borrower agrees to pay Lender the amount of such increase in cost, reduction in income, reduced return on equity or capital, or additional expense within ten (10) days after presentation by Lender of a statement concerning such increase in cost, reduction in income, reduced return on equity or capital, or additional expense. Such statement shall set forth a brief explanation of the amount and Lender's calculation of the amount (in determining such amount the Lender may use any reasonable averaging and attribution methods), which statement shall be conclusively deemed correct absent manifest error. If the amount set forth in such statement is not paid within ten (10) days after such presentation of such statement, interest will be payable on the unpaid amount at the Default Rate from the due date until paid, both before and after judgment. Section 2.12 Lender's Loan Account Records. Lender will open and maintain on its books a loan account with respect to the advance of the proceeds of the Term Loan, repayments, prepayments, the computation and payment of interest and fees and the computation and final payment of all other amounts due and sums paid to Lender under this Agreement. Except in the case of manifest error, such account will be conclusive and binding on the Borrower as to the amount at any time due to Lender from Borrower under this Agreement or the Term Note. Section 2.13 Use of Proceeds. The proceeds of the Term Note will be used as follows: (1) for general corporate working capital purposes of the Borrower or Guarantor, and (2) payments to Guarantor to enable Guarantor to (a) to make open-market purchases of common stock of Guarantor from Persons who are not Affiliates of Guarantor, or (b) for the repurchase of senior notes of Guarantor from Persons who are not Affiliates of Guarantor. ARTICLE III CONDITIONS PRECEDENT The obligation of Lender to make the Term Loan under this Agreement is subject to the performance by Borrower of all of its agreements to be performed hereunder and to the following further conditions: Section 3.1 Documents. Lender shall have received, or waived receipt of, the following, each in form and substance satisfactory to Lender: (a) this Agreement, duly executed by Borrower; (b) the Term Note, duly executed by Borrower; (c) UCC-1 Financing Statements executed by Borrower and each Collateral Subsidiary to be filed in such offices as may be required by Lender; 12 (d) Insurance certificates evidencing hazard, liability, and such other insurance as Lender may require with respect to Borrower and each Collateral Subsidiary, each naming the Collateral Subsidiary as additional insured or mortgagee, as the case may be; (e) A Secretary's Certificate certifying (1) a copy of the Articles of Incorporation and Bylaws of Borrower with all amendments thereto, (2) a copy of the corporate resolutions of Borrower authorizing the execution, delivery and performance of the Loan Documents, and (3) the names, titles, and signatures of the officers of Borrower authorized to execute the Loan Documents and to request advances hereunder. (f) Good Standing Certificate with respect to Borrower from the state of Delaware, dated not more than 20 days prior to the date hereof; (g) Security Agreements in form and substance acceptable to Lender duly executed by each Collateral Subsidiary; (h) Subsidiary Guarantys in form and substance acceptable to Lender duly executed by each Collateral Subsidiary; (i) All original promissory notes constituting Collateral Documents; (j) An assignment (or other appropriate transfer document) in recordable form, with respect to each Collateral Document as Lender may require; (k) Such note allonges with respect to the Collateral Documents as Lender may require; (l) A Secretary's Certificate certifying (1) a copy of the Articles of Incorporation, Bylaws or other applicable organization and governing documents of each Collateral Subsidiary with all amendments thereto, (2) a copy of the corporate resolutions of each Collateral Subsidiary authorizing the execution, delivery and performance of the Loan Documents, and (3) the names, titles, and signatures of the officers of each Collateral Subsidiary authorized to execute the Loan Documents. (m) A good standing certificate with respect to each Collateral Subsidiary from the state of each Collateral Subsidiary's state of organization dated not more than 20 days prior to the date hereof; (n) Certificates of Authority to do business with respect to each Collateral Subsidiary from each state in which the character of the properties owned, leased or operated by it or the business conducted by it makes such qualification necessary. (o) The Guaranty duly executed by the Guarantor. (p) The Pledge Agreement duly executed by Borrower. (q) The RCMI Pledge Agreement duly executed by RCMI. 13 (r) A Secretary's Certificate certifying (1) a copy of the Articles of Incorporation, Bylaws or other applicable organization and governing documents of Guarantor with all amendments thereto, (2) a copy of the corporate resolutions of Guarantor authorizing the execution, delivery and performance of the Loan Documents, and (3) the names, titles, and signatures of the officers of Guarantor authorized to execute the Loan Documents. (s) A Good Standing Certificate with respect to Guarantor from the state of Delaware, dated not more than 20 days prior to the date hereof; (t) Certificates of Authority to do business with respect to Guarantor from each state in which the character of the properties owned, leased or operated by it or the business conducted by it makes such qualification necessary. (u) A favorable opinion of independent counsel for Borrower, Guarantor and the Collateral Subsidiaries addressed to Lender, in form and substance acceptable to Lender and its counsel; (v) Record searches satisfactory to Lender (including UCC searches and judgments, suits, tax and other lien searches) on Borrower, Guarantor and each Collateral Subsidiary confirming that Lender has a first priority security interest in the Collateral; (w) Date down endorsements, title commitments, owners and encumbrances reports or such other title evidence as to the Real Estate as Lender may require; (x) A Borrower's Certificate executed by a knowledgeable officer of Borrower personally attesting that each of the representations and warranties in the Loan Documents is true and correct and that there has been no material adverse change with respect to Borrower, Guarantor or any Collateral Subsidiary since June 30, 2000. (y) Such consents as may be required by the Collateral Documents or the Senior Loan Documents, including, without limitation, the consent of Sovereign Bank; (z) A release of collateral and consent from Hudson Bank in form and substance satisfactory to Lender. (aa) Such additional documents as Lender may reasonably request to carry out the purpose and intent of this Agreement. Section 3.2 Representations and Warranties. All representations and warranties of Borrower set forth in the Loan Documents shall be true. Section 3.3 No Default. Before and after giving effect to the Term Loan, no Default or Event of Default shall have occurred and be continuing. Section 3.4 Origination Fee. Borrower shall have paid to Lender the origination fee referred to in Section 2.5(a) hereof. Section 3.5 Fees. Borrower shall have paid to Lender all of Lender's costs with respect to investigating, auditing, documenting and closing the transaction contemplated by this Agreement including, without limitation, Lender's reasonable attorneys' fees, subject to the limitation set forth in Section 2.5(c)(i). 14 ARTICLE IV REPRESENTATIONS AND WARRANTIES Borrower represents and warrants as follows: Section 4.1 Organization, Standing, Etc. Borrower is a corporation duly incorporated and validly existing and in good standing under the laws of the state of Delaware, and has all requisite corporate power and authority to carry on its businesses as now conducted, to enter into the Loan Documents and to perform its Obligations under the Loan Documents. Borrower is duly qualified and in good standing as a foreign corporation in each jurisdiction in which the character of the properties owned, leased or operated by it or the business conducted by it makes such qualification necessary. Borrower's correct legal name and federal taxpayer identification number are set forth on Schedule 4.12. Section 4.2 Authorization and Validity. The execution, delivery and performance by Borrower of the Loan Documents have been duly authorized by all necessary corporate action by Borrower, and the Loan Documents constitute the legal, valid and binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms, subject to limitations as to enforceability which might result from bankruptcy, insolvency, moratorium and other similar laws affecting creditors' rights generally and subject to limitations on the availability of equitable remedies. Section 4.3 Licenses. Borrower has all licenses, registrations, approvals and other authority as may be necessary to enable it to own and operate its business and perform all services and business which it has agreed to perform in any state, municipality or other jurisdiction. Section 4.4 Ownership Interests. The ownership of all stock, debentures, options, warrants, bonds and other securities (debt and equity) of Borrower and all pledges, proxies, voting trusts, powers of attorney and other agreements affecting the ownership or voting rights of said interests is as set forth on Schedule 4.4 attached hereto. Section 4.5 Subsidiaries. Except as set forth on Schedule 4.5 attached hereto, Borrower does not own any shares of stock or other equity interests in any Person, directly or indirectly (by any Subsidiary or otherwise). Section 4.6 Financial Statements. (a) Borrower has furnished to Lender the audited consolidated financial statements of Borrower, certified without qualification by independent public accountants as of September 30, 1999 and all management and comment letters from such accountants in connection therewith, and Borrower's internally prepared interim financial statements as of June 30, 2000. Such financial statements (together with the related notes and comments), are correct and complete, fairly present the financial condition and the assets and liabilities of Borrower at such date, and have been prepared in accordance with GAAP. With respect to the interim statements, such statements are subject to year-end adjustment and any accompanying footnotes. 15 (b) Guarantor has furnished to Lender its Annual Report of Form 10-K for the Guarantor's fiscal year ended September 30, 1999 and its Quarterly Reports on Form 10-Q for the periods ended December 31, 1999, March 31, 2000, and June 30, 2000 ("SEC Reports"). As of their respective filing dates (except as thereafter amended), all SEC Reports that Guarantor has filed with the Securities and Exchange Commission have complied in all material respects with the applicable requirements of the Securities Act of 1933, as amended, and Securities Exchange Act of 1934, as amended. None of the SEC Reports has contained any untrue statement of a material fact or omitted to state any material fact required to be made therein or which was necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except to the extent corrected by a subsequent report filed by Guarantor and provided to Lender prior to the date hereof. (c) Borrower has furnished to Lender financial statements with respect to each property constituting Real Estate, showing the Cash Flow from Collateral for each month from January 1, 1999 through June 30, 2000, or such more recent date for which Borrower shall have data. Such financial statements of Borrower (together with the related notes and comments) are correct and complete and do not omit any material fact which is necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (d) Schedule 4.6 sets forth, with respect to each property constituting Real Estate, (1) the Collateral, (2) the Collateral Subsidiary, and (3) the amount outstanding on October 1, 2000 with regard to each item of such Collateral. Section 4.7 No Material Adverse Change in Financial Condition. There has been no material adverse change in the financial condition of Borrower since June 30, 2000, except as set forth and explicitly disclosed to Lender in financial statements received since that time. Section 4.8 Pending Litigation or Proceedings. Except as set forth on Schedule 4.8 attached hereto or in the financial statements delivered pursuant to Section 4.6, there are no judgments outstanding or actions, suits or proceedings pending or threatened against or affecting Borrower or any Collateral Subsidiary, at law or in equity or before or by any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign which, if adversely determined, could have a material adverse effect on Borrower or any Collateral Subsidiary. Section 4.9 No Conflict; No Default. The execution, delivery and performance by Borrower of the Loan Documents will not (a) violate any provision of any law, statute, rule or regulation or any order, writ, judgment, injunction, decree, determination or award of any court, governmental agency or arbitrator presently in effect having applicability to Borrower, (b) violate or contravene any provisions of the Articles of Incorporation or Bylaws of Borrower, or (c) result in a breach of or constitute a default under any indenture, loan or credit agreement or any other agreement, lease or instrument to which Borrower is a party or by which it or any of its properties may be bound or result in the creation of any Lien on any asset of Borrower, other than Liens in favor of Lender. Borrower is not in default under or in violation of 16 any such law, statute, rule or regulation, order, writ, judgment, injunction, decree, determination or award or any such indenture, loan or credit agreement or other agreement, lease or instrument in any case in which the consequences of such default or violation would be material. Section 4.10 Governmental Consents. Except for the filing of financing statements required by the Loan Documents, no order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by, any governmental or public body or authority is required on the part of Borrower to authorize, or is required in connection with the execution, delivery and performance of, or the legality, validity, binding effect or enforceability of, the Loan Documents. Section 4.11 Taxes. Borrower has filed all federal, state and local tax returns required to be filed and has paid or made provision for the payment of all taxes due and payable pursuant to such returns and pursuant to any assessments made against it or any of its property and all other taxes, fees and other charges imposed on it or any of its property by any governmental authority (other than taxes, fees or charges the amount or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which reserves in accordance with GAAP have been provided on the books of Borrower). No tax Liens have been filed and no material claims are being asserted with respect to any such taxes, fees or charges. The charges, accruals and reserves on the books of Borrower in respect of taxes and other governmental charges are adequate. Section 4.12 Names and Locations. During the past five (5) years, Borrower has not been known by any names (including tradenames) other than those set forth in Schedule 4.12 attached hereto and has not been located at any addresses other than those set forth on Schedule 4.12 attached hereto. Borrower's books and records pertaining to the Collateral will at all times be located at the address of its chief executive office set forth on Schedule 4.12; or such other location determined by Borrower after prior notice to Lender and delivery to Lender of any items requested by Lender to maintain perfection and priority of Lender's security interests and access to Borrower' books and records. Section 4.13 Current Compliance. Borrower is in compliance with all of the statutes and governmental regulations applicable to it. Section 4.14 Deferred Compensation Plans. Borrower has never been a participant in or in any way provided or maintained, any Deferred Compensation Plan for the benefit of Borrower's employees, and has never contributed to a Multiemployer Plan. Section 4.15 Contingent Liabilities. Except as disclosed in the financial statements described in Section 4.6, Borrower does not have any contingent payments or liabilities which are material to Borrower. Section 4.16 Ownership of Property: Liens. Borrower and the Collateral Subsidiaries, as applicable, have good and marketable title to the Collateral. None of Collateral is subject to a Lien, except for Permitted Liens. Section 4.17 Securities Act. Borrower has not, directly or through any agent, offered the Term Note or any part thereof or any similar security for sale to, or solicited offers to buy the same from, or otherwise approached or negotiated in respect thereof with, anyone other than Lender so as to bring the issue or sale of the Term Note or any part thereof within the provisions of Section 5 of the Securities Act 1933, as amended. 17 Section 4.18 Disclosure. Neither this Agreement, nor the schedules attached to this Agreement, nor the financial statements referred to in this Agreement, nor any certificate, statement, report, or other document furnished or to be furnished by Borrower to Lender in connection with this Agreement, nor any other Loan Document, contain any untrue statement of a material fact, or omit to state any material fact necessary in order to make the statements contained in any of the foregoing not misleading. Borrower has disclosed to Lender in writing every fact that materially and adversely affects the business or financial condition of Borrower or any of the Collateral Subsidiaries or their ability to perform their obligations under this Agreement, the Term Note, or any other of the Loan Documents. Section 4.19 Margin Stock. Borrower is not engaged in, nor does it have as one of its substantial activities the business of extending or obtaining credit for the purpose of purchasing or carrying "margin stock" (as that term is defined in Regulation U, G, T, or X of the Board of Governors of the Federal Reserve System) and no proceeds of any advance of the Term Note will be used for such purpose or for the purpose of purchasing or carrying any shares of margin stock. Section 4.20 Environmental, Health and Safety Laws. There does not exist any violation by Borrower or any Collateral Subsidiary of any applicable federal, state or local law, rule or regulation or order of any government, governmental department, board, agency or other instrumentality relating to environmental, pollution, health or safety matters which will or threatens to impose a material liability on Borrower or which would require a material expenditure by Borrower or such Collateral Subsidiary to cure. Neither Borrower nor any Collateral Subsidiary has received any notice to the effect that any part of its operations or properties is not in material compliance with any such law, rule, regulation or order or notice that it or its property is the subject of any governmental investigation evaluating whether any remedial action is needed to respond to any release of any toxic or hazardous waste or substance into the environment, the consequences of which non-compliance or remedial action could be material. Section 4.21 Investment Company Act. Except as permitted under Rule 3(a)-2 promulgated under the Investment Company Act of 1940, Borrower is not an "investment company" or a company "controlled" by an investment company within the meaning of the Investment Company Act of 1940, as amended. Section 4.22 Public Utility Holding Company Act. Borrower is not a "holding company" or a "subsidiary company" of a holding company or an "affiliate" of a holding company or of a subsidiary company of a holding company within the meaning of the Public Utility Holding Company Act of 1935, as amended. Section 4.23 Collateral Subsidiary Indebtedness. No Collateral Subsidiary has incurred Recourse Indebtedness or Liens other than Recourse Indebtedness or Liens in favor of Lender. Section 4.24 Survival of Representations. All of the representations and warranties set forth in the immediately preceding subsections shall survive until all the Obligations shall have been satisfied in full. 18 ARTICLE V COVENANTS So long as the Term Note remains unpaid or Borrower has any obligation with respect to any Loan Document, unless Lender otherwise consents in writing: Section 5.1 Reporting Requirements. Borrower shall maintain books of record and account in which full, correct and current entries in accordance with GAAP will be made of all of its dealings, business and affairs, and Borrower will deliver to Lender, or cause Guarantor to deliver to Lender, the following: (a) As soon as available and in any event within one hundred twenty (120) days after the end of each fiscal year of Borrower, the audited consolidated (i) income and retained earnings statements of Borrower for such fiscal year, (ii) balance sheet of Borrower as at the end of such fiscal year; (iii) statement of cash flow of Borrower for such fiscal year, all setting forth in comparative form the corresponding figures as at the end of the previous fiscal year, all in reasonable detail, including all supporting schedules and comments, and (iv) a certificate of the chief financial officer of Borrower (A) stating that Borrower has observed, performed and complied with each and every undertaking contained herein, (B) setting forth the information and computations (in sufficient detail) required in order to establish whether Borrower and Guarantor have complied with the financial covenants set forth in Sections 5.16, 5.17 and 5.18 of this Agreement, and (C) certifying that as of the date of such certification, there does not exist any Event of Default or any Default. The foregoing statements and balance sheets shall be prepared in accordance with GAAP and shall be audited by independent certified public accountants acceptable to Lender, with respect to which such accountants shall deliver their unqualified opinion. Lender acknowledges that the accounting firm Grant Thornton is currently acceptable; (b) As soon as available and in any event within sixty (60) days after the end of each fiscal quarter and each calendar year, rent rolls and operating statements for each property constituting a portion of the Real Estate; (c) As soon as available and in any event within sixty (60) days after the close of each fiscal quarter of Borrower the consolidated (i) income and retained earnings statements of Borrower for such quarter, (ii) balance sheet of Borrower as of the end of such quarter, and (iii) statement of cash flow of Borrower for such quarter, each setting forth in comparative form the corresponding figures as at the end of the corresponding quarter of the previous fiscal year (if applicable) all in reasonable detail, subject to year end adjustments and certified by the chief financial officer of Borrower to be accurate and to have been prepared in accordance with GAAP; (d) as soon as available and in any event within thirty (30) days after each month end, a servicing report for each property constituting a portion of the Real Estate showing revenues, operating expenses, net operating income and Cash Flow from Collateral for such property; 19 (e) notice of any action or proceeding brought against Borrower or any of its Collateral Subsidiaries wherein such action or proceeding would, if determined adversely to Borrower or such Collateral Subsidiary, result in liability of Borrower or such Collateral Subsidiary in excess of $100,000 for any one action, or $200,000 in the aggregate; (f) notice of the occurrence of any Default or Event of Default; (g) notice of the failure of Borrower, Guarantor or any Collateral Subsidiary to observe any of its undertakings under the Loan Documents; (h) notice of any material adverse change in the assets, business, operations or financial condition of Borrower, Guarantor or any Collateral Subsidiary; and (i) With reasonable promptness, all such other data and information with respect of the condition, operation and affairs of Borrower as Lender may reasonably request from time to time. Section 5.2 Liens. Borrower shall not, and Borrower shall cause each Collateral Subsidiary to not, create, incur, assume or suffer to exist any Lien with respect to the Collateral, except Liens in favor of Lender and except: (a) Liens existing on the date hereof and disclosed on Schedule 5.2; (b) Deposits or pledges to secure payment of workers' compensation, unemployment insurance, old age pensions or other social security obligations, in the ordinary course of business of Borrower or any Collateral Subsidiary; (c) Liens for taxes, fees, assessments and governmental charges not delinquent or to the extent that payments therefor shall not at the time be required to be made in accordance with the provisions of Section 5.4; (d) Liens of carriers, warehousemen, mechanics and materialmen, and other like Liens arising in the ordinary course of business, for sums not due or to the extent that payment therefor shall not at the time be required to be made in accordance with the provisions of Section 5.4. Section 5.3 Disposition of Assets. Borrower shall not sell, lease, transfer or otherwise dispose, or allow the sale, lease, transfer or disposition of any of the Collateral or the property or assets of any Collateral Subsidiary, unless Lender receives prepayments in connection therewith in accordance with Section 2.10 hereof. Section 5.4 Taxes; Claims for Labor and Materials. Borrower will pay or cause to be paid when due, all taxes, assessments, governmental charges or levies imposed upon it or its income, profits, payroll or any property belonging to it, including without limitation, all withholding taxes, and all claims for labor, materials and supplies which, if unpaid, might become a lien or charge upon any of its properties or assets; provided however, that Borrower shall not be required to pay any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings. 20 Section 5.5 Existence; Approvals; Qualification; Business Operations; Compliance with Laws. Borrower (a) will obtain, preserve and keep in full force and effect its separate corporate existence and all rights, licenses, registrations and franchises necessary to the proper conduct of its business or affairs; (b) will qualify and remain qualified as a foreign corporation in each jurisdiction in which the character or location of the properties owned by it or the business transacted by it requires such qualification; (c) will continue to operate its business as presently operated; and (d) will comply with the requirements of all applicable laws and all rules, regulations (including environmental regulations) and orders of regulatory agencies and authorities having jurisdiction over it. Section 5.6 Insurance. Borrower will cause the Collateral Subsidiaries to carry, or require the owners of the Real Estate to carry, adequate insurance against all such liability and hazards as are usually carried by entities engaged in the same or a similar business similarly situated, and shall cause each Collateral Subsidiary to be named as loss payee (with a lender's loss payable endorsement, with respect to all personal property, mortgagee with respect to all Real Estate and additional insured with respect to all liability insurance). Borrower shall give thirty (30) days' notice to Lender prior to cancellation or material modification of such insurance coverage. Borrower shall cause to be delivered to Lender evidence of insurance, and at least thirty (30) business days prior to the expiration of any such insurance, evidence of insurance evidencing the renewal of such insurance and payment of the premiums therefor. Section 5.7 Inspections; Examinations. Borrower hereby irrevocably authorizes and directs all accountants and auditors employed by Borrower at any time to exhibit and deliver to Lender copies of any and all of Borrower's financial statements or other accounting records of any sort in the accountant's or auditor's possession (Lender acknowledges that such accountants or auditors may deny any request for accounting work papers) and copies of all reports submitted to Borrower by such accountants or auditors, including, but not limited to, management letters and audit reports, and to disclose to Lender any information they may have concerning Borrower's financial status and business operations. Borrower further authorizes all federal, state and municipal authorities to furnish to Lender copies of reports or examinations relating to Borrower, whether made by Borrower or otherwise. Such Persons as Lender may designate may visit and inspect any of the properties of Borrower, examine (either by Lender's employees or by independent accountants) any of the Collateral or other assets of Borrower, including the books of account of Borrower, and discuss the affairs, finances and accounts of Borrower with its officers and with its independent accountants, at reasonable times and with reasonable notice. Section 5.8 Default Under Other Indebtedness. Borrower shall not permit any of its material Recourse Indebtedness to be in default. If any Recourse Indebtedness of Borrower is declared or becomes due and payable before its expressed maturity by reason of default or otherwise or to the knowledge of Borrower, the holder of any such Recourse Indebtedness shall have the right (or upon the giving of notice or the passage of time, or both, shall have the right) to declare such Recourse Indebtedness to be due and payable, Borrower will immediately give Lender written notice of such declaration, acceleration or right of declaration. Section 5.9 Deferred Compensation Plans. Borrower shall not become a participant in, or in any way provide or maintain any Deferred Compensation Plan for the benefit of any of Borrower's employees, or shall contribute to any Multiemployer Plan, without giving Lender prior written notice of such action and executing such related amendments to this Agreement as Lender may request. 21 Section 5.10 Collateral Subsidiary Indebtedness. Borrower shall not allow any Collateral Subsidiary to create, incur, assume or suffer to exist Recourse Indebtedness or Liens other than Recourse Indebtedness or Liens in favor of Lender. Section 5.11 Merger. Borrower shall not merge, consolidate or enter into any analogous reorganization or transaction with any Person; provided however that Borrower may cause any Subsidiary that is not a Collateral Subsidiary to merge into it, with the Borrower as the surviving corporation. Section 5.12 Name or Address Change. Borrower shall not change its name or address except upon ninety (90) days prior written notice to Lender and delivery to Lender of any items requested by Lender to maintain perfection and priority of Lender's security interests and access to Borrower's books and records. Section 5.13 Material Adverse Contracts. Borrower shall not become or be a party to any contract or agreement which has a materially adverse impact on Borrower's ability to perform under this Agreement or any other agreement with Lender to which Borrower is a party. Section 5.14 Restricted Payments. If an Event of Default has occurred and is continuing, Borrower shall not: (a) purchase or redeem or otherwise acquire for value any shares of Borrower's stock, declare or pay any dividends thereon, make any distribution on, or payment on account of the purchase, redemption, defeasance or other acquisition or retirement for value of, any shares of Borrower's stock or set aside any funds for any such purpose; or (b) directly or indirectly make any payment on, or redeem, repurchase, defease, or make any sinking fund payment on account of, or any other provision for, or otherwise pay, acquire or retire for value, any Recourse Indebtedness of Borrower that is subordinated in right of payment to the Term Loan (whether pursuant to its terms or by operation of law), except for regularly-scheduled payments of interest and principal (which shall not include payments contingently required upon occurrence of a change of control or other event) that are not otherwise prohibited hereunder or under the document or agreement stating the terms of such subordination. Section 5.15 Collateral Account; Payments. If an Event of Default has occurred and is continuing, and upon notice from Lender: (a) Borrower shall deposit, or cause to be deposited, all Cash Flow from Collateral and the proceeds of any Collateral into a collateral account to be established by Lender and controlled by Lender. Until so deposited, all such Cash Flow from Collateral and proceeds shall be held in trust by Borrower for and as the property of Lender and shall not be commingled with any other funds or property of Borrower. (b) All right, title and interest in and to the cash amounts on deposit from time to time in such collateral account shall vest in Lender, shall constitute part of the Collateral hereunder and shall not constitute payment of the Obligations until applied thereto as hereinafter provided. 22 (c) If an Event of Default shall have occurred and Lender shall have given notice to Borrower, then (i) Borrower shall and Lender may instruct all Collateral Subsidiaries to deposit all Cash Flow from Collateral and the proceeds of any Collateral directly to such collateral account, and Borrower shall cause the Collateral Subsidiaries to do so, and (ii) Borrower shall not be entitled to receive any distribution from such collateral account. Section 5.16 Recourse Indebtedness Ratio. Guarantor shall at all times maintain a ratio of Recourse Indebtedness to Net Worth, determined on a consolidated basis, of not more than 2.00 to 1.00. Section 5.17 Net Worth. Guarantor shall at all times maintain a Net Worth, determined on a consolidated basis, of not less than $100,000,000. Section 5.18 Cash Flow from Collateral to Obligations Ratio. The ratio of Cash Flow from Collateral (measured on the basis of the trailing four (4) fiscal quarters) to the amount of principal outstanding under the Term Note at the time the ratio test is applied shall not at any time be less than 0.31 to 1.00. ARTICLE VI DEFAULT AND REMEDIES Section 6.1 Events of Default. The occurrence of any one or more of the following events shall constitute an Event or Events of Default hereunder: (a) The failure of Borrower to pay any amount of principal or interest on the Term Note within three (3) Business Days of when due, or any fee or other sums payable hereunder, or the failure to pay or perform any other Obligations on the date on which such payment or performance is due, whether on demand, at the stated maturity or due date thereof, or by reason of any requirement for the prepayment thereof, by acceleration or otherwise; (b) The failure of Borrower, any Collateral Subsidiary or Guarantor to duly perform or observe any obligation, covenant or agreement on its part contained herein or in any other Loan Document not otherwise specifically constituting an Event of Default under this Section 6.1 and such failure continues unremedied for a period of ten (10) days after notice from Lender to Borrower of the existence of such failure, provided that, in the event such failure is incapable of remedy or consists of a default of any of the covenants in Sections 5.16, 5.17 or 5.18 herein, or was willfully caused or permitted by Borrower, Borrower shall not be entitled to any notice or grace period hereunder; (c) The failure of Borrower, Guarantor or any Material Collateral Subsidiary to pay any Recourse Indebtedness for borrowed money due to any third Person or the existence of any other event of default under any loan, security agreement, mortgage or other agreement pertaining thereto binding Borrower, Guarantor or any Material Collateral Subsidiary after the expiration of any notice and/or grace periods permitted in such document; 23 (d) The failure of Borrower, any Collateral Subsidiary or Guarantor to pay or perform any other obligation to Lender under any other agreement or note or otherwise arising, whether or not related to this Agreement, after the expiration of any notice and/or grace periods, if any, permitted in such documents; (e) A proceeding under any bankruptcy, reorganization, arrangement of debt, insolvency, readjustment of debt or receivership law is filed by or (unless dismissed within 90 days) against Borrower, any Collateral Subsidiary or Guarantor; or Borrower, any Collateral Subsidiary or Guarantor makes an assignment for the benefit of creditors or Borrower takes any action to authorize any of the foregoing; (f) The suspension of the operation of Borrower's, any Material Collateral Subsidiary's or Guarantor's present business, or Borrower, any Material Collateral Subsidiary or Guarantor becoming unable to meet its debts as they mature, or the admission in writing by Borrower, any Material Collateral Subsidiary or Guarantor to such effect or Borrower, any Material Collateral Subsidiary or Guarantor calling any meeting of all or any material portion of its creditors for the purpose of debt restructure; (g) All or any part of the Collateral or the assets of Borrower, Guarantor or any Material Collateral Subsidiary are attached, seized, subjected to a writ or distress warrant, or levied upon, or come within the possession or control of any receiver, trustee, custodian or assignee for the benefit of creditors; (h) The entry of a final judgment for the payment of money against Borrower, any Material Collateral Subsidiary or Guarantor which, within sixty (60) days after such entry, shall not have been discharged or execution thereof stayed pending appeal or shall not have been discharged within five (5) days after the expiration of any such stay; (i) Any representation or warranty of Borrower, any Collateral Subsidiary or Guarantor in any of the Loan Documents is discovered to be untrue in any material respect or any statement, certificate or data furnished by Borrower pursuant hereto is discovered to be untrue in any material respect as of the date as of which the facts set forth therein are stated or certified; (j) Borrower, any Collateral Subsidiary or Guarantor voluntarily or involuntarily dissolves or is dissolved, terminates or is terminated; (k) Borrower, any Material Collateral Subsidiary or Guarantor is enjoined, restrained, or in any way prevented by the order of an court or any administrative or regulatory agency, the effect of which order restricts Borrower, any Material Collateral Subsidiary or Guarantor from conducting all or any material part of its business; (l) A breach by Borrower, any Material Collateral Subsidiary or Guarantor occurs under any material agreement, document or instrument, whether heretofore, now or hereafter existing between Borrower, any Material Collateral Subsidiary or Guarantor and any other Person; (m) A material and adverse change occurs in Borrower's, any Material Collateral Subsidiary's or Guarantor's operations, management or financial condition or in the value of the Collateral; 24 (n) The loss, suspension, revocation or failure to renew any license or permit now held or hereafter acquired by Borrower, any Material Collateral Subsidiary or Guarantor, which loss, suspension, revocation or failure to renew might have a material adverse effect on the business profits, assets or financial condition of Borrower, such Material Collateral Subsidiary or Guarantor; (o) The occurrence of a Collateral Document Default; provided, however, that such event shall not be an Event of Default if (i) Borrower gives Lender written notice of such matter within five (5) business days after Borrower's notice thereof, (ii) Borrower uses all commercially reasonable efforts to collect the debt related to such Collateral Documents, and (iii) the ratio of Cash Flow from Collateral (measured on the basis of the trailing four (4) fiscal quarters) to the amount of principal outstanding under the Term Note at the time of the Collateral Document Default is greater than or equal to 0.35 to 1.00. (p) Default by any party under any Security Agreement or any other document executed by any Collateral Subsidiary in connection herewith; (q) Default by the Guarantor under the Guaranty or any other documents executed by Guarantor in connection herewith or the Guarantor purports to revoke the Guaranty; or (r) Default by a Collateral Subsidiary under any Subsidiary Guaranty or a Collateral Subsidiary purports to revoke its Guaranty. Notwithstanding the foregoing, an Event or Events of Default shall not occur hereunder if (i) the Event or Events of Default relate solely to a default by a Material Collateral Subsidiary under any of the foregoing provisions, and (ii) the ratio of Cash Flow From Collateral (measured on the basis of the trailing four (4) fiscal quarters) to the amount of principal outstanding under the Term Note at the time of the default is greater than or equal to 0.35 to 1.00. If an Event of Default as described in Section 6.1(o) occurs, Borrower shall have the right to cure such Default by prepaying the Term Loan by an amount necessary for compliance with Section 5.18, such payment to be made within ten (10) days of the Event of Default. Section 6.2 Remedies. At the option of the Lender, upon the occurrence of an Event of Default, or at any time thereafter: (a) The entire unpaid principal of the Term Note, all other Obligations, or any part thereof, all interest accrued thereon, all fees due hereunder and all other obligations of Borrower to Lender hereunder or under any other agreement, note or otherwise arising will become immediately due and payable without any further demand or notice; (b) Lender may enter the premises occupied by Borrower and take possession of the Collateral and any records relating thereto; and/or (c) Lender may exercise each and every right and remedy granted to it under the Loan Documents, under the Uniform Commercial Code and under any other applicable law or at equity. 25 If an Event of Default occurs under Sections 6.1(f), (g) or (j), all Obligations shall become immediately due and payable. Section 6.3 Set-Off. Without limiting the rights of Lender under applicable law, Lender has and may exercise a right of set-off, a lien against and a security interest in all property of Borrower now or at any time in Lender's possession in any capacity whatsoever, including, but not limited to, any balance of any deposit, trust or agency account, or any other account with Lender, as security for the Obligations. At any time and from time to time following the occurrence of a Default or an Event of Default, Lender may without notice or demand, set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by Lender to or for the credit of Borrower against any or all of the Obligations. Section 6.4 Remedies Cumulative. The rights, remedies, powers and privileges provided for herein shall not be deemed exclusive, but shall be cumulative and shall be in addition to all other rights, remedies, powers and privileges in Lender's favor at law or in equity. ARTICLE VII MISCELLANEOUS Section 7.1 Communications and Notices. All notices, requests and other communications made or given in connection with the Loan Documents shall be in writing and, unless receipt is stated herein to be required, shall be deemed to have been validly given if sent by first-class mail, or by telecopy with the original forwarded by first-class mail, in all cases, with charges prepaid, addressed as follows, until some other address (or individual or division or department for attention) shall have been designated by notice given by one party to the other: To Borrower: Resource Properties, Inc. 1521 Locust Street Philadelphia, PA 19102 Attention: Freddie M. Kotek Facsimile Number: 215-546-5388 With a copy to: Ledgewood Law Firm 1521 Locust Street Philadelphia, PA 19102-3723 Attention: Lisa A. Ernst, Esq. Facsimile Number: 215-735-2513 To Lender: Miller & Schroeder Investments Corporation 150 South Fifth Street, Suite 300 Minneapolis, MN 55402 Attention: Ted Glasrud Facsimile Number: 612-376-1564 26 With a copy to: Leonard, Street and Deinard Professional Association 150 South Fifth Street, Suite 2300 Minneapolis, MN 55402 Attention: Alan W. Van Dellen or Andrew P. Lee Telephone Number: 612-335-1949 or 612-335-1881 Facsimile Number: 612-335-1657 Section 7.2 Waivers. In connection with any proceedings under the Loan Documents, including without limitation any action by Lender in replevin, foreclosure or other court process or in connection with any other action related to the Loan Documents or the transactions contemplated hereunder, Borrower waives: (a) all errors, defects and imperfections in such proceedings; (b) all benefits under any present or future laws exempting any property, real or personal, or any part of any proceeds thereof from attachment, levy or sale under execution, or providing for any stay of execution to be issued on any judgment recovered under any of the Loan Documents or in any replevin or foreclosure proceeding, or otherwise providing for any valuation, appraisal or exemption; (c) presentment for payment, demand, notice, of demand, notice of nonpayment, protest and notice of protest of any of the Loan Documents, including the Term Note; (d) any requirement for bonds, security or sureties required by statute, court rule or otherwise; and (e) all rights to claim or recover attorney's fees and costs in the event that Borrower is successful in any action to remove, suspend or enforce a judgment entered by confession. Section 7.3 Waiver and Amendment. No failure on the part of Lender to exercise and no delay in exercising any power or right hereunder or under any other Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any power or right preclude any other or further exercise thereof or the exercise of any other power or right. The remedies herein and in any other instrument, document or agreement delivered or to be delivered to Lender hereunder or in connection herewith are cumulative and not exclusive of any remedies provided by law. No notice to or demand on Borrower not required hereunder or under the Term Note shall in any event entitle Borrower to any other or further notice or demand in similar or other circumstances or constitute a waiver of the right of Lender or the holder of the Term Note to any other or further action in any circumstances without notice or demand. No amendment, modification or waiver of any provision of this Agreement or consent to any departure by Borrower therefrom shall be effective unless the same shall be in writing and signed by Lender, and then such amendment, modifications, waiver or consent shall be effective only in the specific instances and for the specific purpose for which given. Section 7.4 Consents. Whenever the Lender's consent or approval is required or permitted, such consent or approval shall be at the sole and absolute discretion of Lender. 27 Section 7.5 Expenses and Indemnities. Borrower agrees to pay, and save Lender harmless from all liability for, any stamp or other taxes which may be payable with respect to the execution or delivery of the Loan Documents. Borrower agrees to indemnify and hold Lender harmless from any loss or expense which may arise or be created by the acceptance of instructions for making the Term Loan or disbursing the proceeds thereof. The obligations of Borrower under this Section 7.5 shall survive payment in full of the Obligations. Section 7.6 Brokers. The transaction contemplated hereunder was brought about and entered into by Lender and Borrower acting as principals and without any brokers, agents or finders . Borrower represents to Lender that Borrower has not committed Lender to the payment of any brokerage fee or commission in connection with this transaction. If any such claim is made against Lender by any broker, finder or agent or any other Person, Borrower agrees to indemnify, defend and hold Lender harmless against any such claim, at Borrower's own cost and expense, including Lender's attorneys' fees. Borrower further agrees that until any such claim or demand is adjudicated in Lender's favor, the amount claimed and/or demanded shall be deemed part of the Obligations secured by the Collateral. Section 7.7 No Joint Venture. Nothing contained herein is intended to permit or authorize Borrower to make any contract on behalf of Lender, nor shall this Agreement be construed as creating a partnership, joint venture or making Lender an investor in Borrower. Section 7.8 Survival. All covenants, agreements, representations and warranties made by Borrower in the Loan Documents or made by or on its behalf in connection with the transactions contemplated here shall be true at all times this Agreement is in effect and shall survive the execution and delivery of the Loan Documents, any investigation at any time made by Lender or on its behalf and the making by Lender of the loan or advances to Borrower; provided however that if a representation is made regarding facts as of a certain date, such representation need not be updated unless the Loan Documents require such update. All statements contained in any certificate, statement or other document delivered by or on behalf of Borrower pursuant hereto or in connection with the transactions contemplated hereunder shall be deemed representations and warranties by Borrower. Section 7.9 No Assignment by Borrower. Borrower may not assign any of its rights or obligations hereunder without the prior written consent of Lender. Section 7.10 Assignment or Sale by Lender. Lender may sell, assign or participate all or a portion of its interest in the Loan Documents and in connection therewith may make available to any prospective purchaser, assignee or participant any information relative to Borrower in its possession. Section 7.11 Binding Effect. This Agreement and all rights and powers granted hereby will bind and inure to the benefit of the parties hereto and their respective permitted successors and assigns. Section 7.12 No Third Party Beneficiaries. The rights and benefits of this Agreement and the Loan Documents shall not inure to the benefit of any third party other than permitted successors and assigns. 28 Section 7.13 Severability. The provisions of this Agreement and all other Loan Documents are deemed to be severable, and the invalidity or unenforceability of any provision shall not affect or impair the remaining provisions which shall continue in full force and effect. Section 7.14 Entire Agreement. The Loan Documents shall be construed as integrated and complementary of each other, and as augmenting and not restricting Lender's rights, powers, remedies and security. The Loan Documents contain the entire understanding of the parties thereto with respect to the matters contained therein and supercede all prior agreements and understandings between the parties with respect to the subject matter thereof and do not require parol or extrinsic evidence to reflect the intent of the parties. In the event of any inconsistency between the terms of this Agreement and the terms of the other Loan Documents, the terms of this Agreement shall prevail. Section 7.15 Holidays. If the day provided herein for the payment of any amount or the taking of any action falls on a Saturday, Sunday or public holiday at the place for payment or action, then the due date for such payment or action will be the next succeeding Business Day. Section 7.16 Time is of the Essence. Time is of the essence in Borrower's performance of their obligations under the Loan Documents. Section 7.17 Exhibits and Schedules. All exhibits and schedules attached hereto are hereby made a part of this Agreement. Section 7.18 Headings. The headings of the Articles, Sections, paragraphs and clauses of this Agreement are inserted for convenience only and shall not be deemed to constitute a part of this Agreement. Section 7.19 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the party hereto may execute this Agreement by signing any such counterpart. Section 7.20 Choice of Law; Jurisdiction. This Agreement has been made, executed and delivered in the State of Minnesota and will be construed in accordance with and governed by the laws of such state. Borrower hereby consents to the exclusive jurisdiction of any state or federal court located within the State of Minnesota, and irrevocably agrees that, subject to the Lender's election, all actions or proceedings relating to the Loan Documents or the transactions contemplated hereunder shall be litigated in such courts, and Borrower waives any objection which it may have based on lack of personal jurisdiction, improper venue or forum non conveniens to the conduct of any proceeding in any such court and waives personal service of any and all process upon it, and consents that all such service of process may be made by mail or messenger directed to it at the address set forth in Section 7.1. Borrower hereby irrevocably appoints any of its officers as its agent for the purpose of accepting service of any process within the Commonwealth of Pennsylvania. Nothing contained in this Section 7.20 shall affect the right of Lender to serve legal process in any other manner permitted by law or affect the right of Lender to bring any action or proceeding against Borrower or its property in the courts of any other jurisdiction. 29 Section 7.21 Waiver of Right to Trial by Jury. BORROWER AND LENDER WAIVE ANY RIGHT TO TRIAL BY JURY ON ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (a) ARISING UNDER ANY OF THE LOAN DOCUMENTS OR (b) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF BORROWER OR LENDER WITH RESPECT TO ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE. BORROWER AND LENDER AGREE AND CONSENT THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF BORROWER AND LENDER TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. BORROWER ACKNOWLEDGES THAT IT HAS HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL REGARDING THIS SECTION, THAT IT FULLY UNDERSTANDS ITS TERMS, CONTENT AND EFFECT, AND THAT IT VOLUNTARILY AND KNOWINGLY AGREES TO THE TERMS OF THIS SECTION. [Remainder of Page Intentionally Blank] 30 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. RESOURCE PROPERTIES, INC. MILLER & SCHROEDER INVESTMENTS CORPORATION By:_____________________________________ By:_______________________________ Its:____________________________________ Its:______________________________ 31 EXHIBITS -------- Exhibit A Form of Term Note SCHEDULES --------- Schedule 1.1(a) Collateral Subsidiaries Schedule 1.1(b) Secured Amounts Schedule 4.4 Ownership of Borrower Schedule 4.5 Stock Owned by Borrower Schedule 4.6 Collateral Descriptions Schedule 4.8 Litigation Schedule 4.12 Names (including tradenames) and Addresses of Borrower, identifying chief executive office, Federal Tax ID No. Schedule 5.2 Permitted Liens EXHIBIT A TO TERM LOAN AGREEMENT ------------------- TERM NOTE $10,000,000 Minneapolis, Minnesota November 15, 2000 FOR VALUE RECEIVED, Resource Properties, Inc. (the "Borrower") promises to pay to the order of Miller & Schroeder Investments Corporation, a Minnesota corporation (the "Lender") at its office in Minneapolis, Minnesota or at such other place as may be designated from time to time by the holder hereof, in lawful money of the United States of America, the principal sum of Ten Million and 00/100 Dollars ($10,000,000), or such lesser amount as may be advanced by Lender hereunder, together with interest on the unpaid principal balance hereof from the date hereof until this Note is fully paid, at an annual rate of interest as set forth in that certain Term Loan Agreement of even date herewith by and between Borrower and Lender as the same may be amended, supplemented or restate from time to time (the "Term Loan Agreement"). The principal balance of this Note and interest accruing on this Note shall be paid, and payments hereunder shall be applied, as set forth in the Term Loan Agreement. This Note is secured by the Security Agreements, Collateral Document Assignment, Subsidiary Guarantys and Guaranty referred to in the Term Loan Agreement and is issued pursuant to and is subject to the Term Loan Agreement which, among other things, provides for acceleration of the maturity hereof upon the occurrence of an Event of Default, as such term is defined in the Term Loan Agreement. The Borrower agrees to pay all reasonable costs of collection, including reasonable attorney's fees, in the event this Note is not paid when due. This Note is being delivered in, and shall be governed by, the laws of the State of Minnesota. Presentment or other demand for payment, notice of dishonor and protest are expressly waived. RESOURCE PROPERTIES, INC. By:_______________________________ Its:___________________________ SCHEDULE 1.1(a) TO TERM LOAN AGREEMENT COLLATERAL SUBSIDIARIES Evening Star Building: Clemens Place: Resource Properties XLIX, Inc. Resource Properties XLI, Inc. a Delaware corporation a Delaware corporation Pensacola Place: 1301 Connecticut Avenue: Resource Properties 52, Inc. RAI Financial, Inc. a Delaware corporation a Delaware corporation Northridge K-Mart: Lofts at Red Hill: Resource Properties XVIII, Inc. Resource Properties XXXVIII, Inc. a Delaware corporation a Delaware corporation Pasadena Place: Winthrop Square I: Resource Properties XIV, Inc. Resource Properties XXXI, Inc. a Delaware corporation a Delaware corporation Ledgewood Law Firm Building: Resource Properties XXXV, Inc. a Delaware corporation Woodcrest: Resource Properties XX, Inc. a Delaware corporation Mill Spring Apartments: Resource Properties XXIII, Inc. a Delaware corporation 1845 Walnut Street: Resource Commercial Mortgages, Inc. a Delaware corporation SCHEDULE 1.1(b) TO TERM LOAN AGREEMENT SECURED AMOUNTS --------------- - -------------------------------------------------------------------------------- Collateral Subsidiary Secured Amount(1) - --------------------- ----------------- - -------------------------------------------------------------------------------- Evening Star Building: Resource Properties XLIX, Inc. $3,100,000 - -------------------------------------------------------------------------------- Pensacola Place: Resource Properties 52, Inc. $1,300,000 - -------------------------------------------------------------------------------- Northridge K-Mart: Resource Properties XVIII, Inc. $200,000 - -------------------------------------------------------------------------------- Pasadena Place: Resource Properties XIV, Inc. $100,000 - -------------------------------------------------------------------------------- Ledgewood Law Firm Building: Resource Properties XXXV, Inc. $200,000 - -------------------------------------------------------------------------------- Woodcrest: Resource Properties XX, Inc. $600,000 - -------------------------------------------------------------------------------- Mill Spring Apartments: Resource Properties XXIII, Inc. $200,000 - -------------------------------------------------------------------------------- 1845 Walnut Street: Resource Commercial Mortgages, Inc. $1,800,000 - -------------------------------------------------------------------------------- Clemens Place: Resource Properties XLI, Inc. $1,200,000 - -------------------------------------------------------------------------------- 1301 Connecticut Avenue: RAI Financial, Inc. $800,000 - -------------------------------------------------------------------------------- Lofts at Red Hill: Resource Properties XXXVIII, Inc. $100,000 - -------------------------------------------------------------------------------- Winthrop Square I: Resource Properties XXXI, Inc. $400,000 - -------------------------------------------------------------------------------- - ------------- (1) Before making additional advances as contemplated by Section 2.1, Lender reserves the right to adjust the Secured Amounts. -----END PRIVACY-ENHANCED MESSAGE-----