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SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT (this
"Amendment"), dated as of October 21, 1997, is entered into between FINOVA
CAPITAL CORPORATION, a Delaware corporation, ("FINOVA"), with a place of
business at 000 Xxxxx Xxxxxx Xxxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxxx 00000-0000,
and SOUTH TEXAS DRILLING & EXPLORATION, INC., a Texas corporation ("Borrower"),
with its chief executive office located at 0000 Xxxxxxxx, Xxxxxxxx X, Xxx
Xxxxxxx, Xxxxx 00000.
RECITAL
A. Borrower and FINOVA have previously entered into that certain
Loan and Security Agreement dated as of May 8, 1996, as amended by that certain
First Amendment to Loan and Security Agreement dated as of June 18, 1997, (the
"Loan Agreement"), pursuant to which FINOVA has made certain loans and
financial accommodations available to Borrower. Terms used herein without
definition shall have the meanings ascribed to them in the Loan Agreement.
B. Borrower has requested FINOVA to amend the Loan Agreement to
(i) increase the Subsequent Total Facility Amount, (ii) provide for a new term
loan in the original principal amount of Six Hundred Thousand Dollars
($600,000) to finance the acquisition of a Skytop Xxxxxxxx N-46 drilling rig,
(iii) provide for a new credit facility to finance certain Capital Expenditures
of Borrower, and (iv) increase the amount of Capital Expenditures Borrower may
incur in any fiscal year. Borrower has further requested that FINOVA waive
compliance by Borrower with the negative covenant pertaining to Capital
Expenditures.
C. FINOVA is willing to further amend the Loan Agreement and make
such waiver under the terms and conditions set forth in this Amendment.
Borrower is entering into this Amendment with the understanding and agreement
that, except as specifically provided herein, none of FINOVA's rights or
remedies as set forth in the Loan Agreement is being waived or modified by the
terms of this Amendment.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. Amendment to "Loans" Provisions.
(a) The second to the last sentence of Section 1.1 of the
Loan Agreement, entitled "Loan Facilities", is hereby amended in its
entirety to read as follows:
"The maximum aggregate amount of Loans available to Borrower
from time to time hereunder shall be reduced dollar for
dollar, for the period from the Closing Date through June 17,
1997, from the Initial Total Facility Amount upon
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amortization of the original principal amount of Term Loan A;
and for the period after June 18, 1997, from the Subsequent
Total Facility Amount upon amortization of the remaining
outstanding principal amount of Term Loan A as of June 18,
1997, the original principal amount of Term Loan B, the
original principal amount of Term Loan C and the aggregate
amount borrowed under the Capital Expenditure Facility."
(b) The definition set forth in the Schedule to the Loan
Agreement under the heading "Subsequent Total Facility Amount (Section
1.1)" is hereby amended in its entirety as follows:
"SUBSEQUENT TOTAL FACILITY AMOUNT (SECTION 1.1), for the
period following June 17, 1997:
The outstanding principal balance of Term Loan A as of June
18, 1997 plus Two Million Seven Hundred Fifty Thousand Dollars
($2,750,000)."
(c) Paragraph B of the Section in the Schedule to the
Loan Agreement entitled "Loans (Section 1.2)" is hereby amended in its
entirety as follows:
"B. TERM LOAN:
(1) TERM LOAN A: A term loan in the original
principal amount of One Million Two Hundred Fifty Thousand
Dollars ($1,250,000) (the "Term Loan A"), which shall be
evidenced by and payable in accordance with the terms of the
Term Loan A Amended and Restated Secured Promissory Note (the
"Term Loan A Note").
(2) TERM LOAN B: A term loan in the original
principal amount of One Million Fifty Thousand Dollars
($1,050,000) (the "Term Loan B"), which shall be evidenced and
payable in accordance with the terms of the Term Loan B
Secured Promissory Note (the "Term Loan B Note"), the
principal amount thereof advanced by FINOVA to fund Borrower's
purchase of: (i) certain assets of San Xxxxxxxx at a cost to
Borrower of $1,500,000, $800,000 of the purchase price funded
by Term Loan B, $100,000 from the Borrower's cash-on-hand,
$300,000 in assigned value of the common stock of the Borrower
issued to San Xxxxxxxx, and the balance of $300,000 funded
through Subordinated Debt obtained by the Borrower from San
Xxxxxxxx, and (ii) a mud pump at a cost to Borrower of
$284,212.50, $250,000 of which shall be funded by Term Loan
B."
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(3) TERM LOAN C: A term loan in the original
principal amount of Six Hundred Thousand Dollars ($600,000)
(the "Term Loan C"), which shall be evidenced by and payable
in accordance with the terms of the Term Loan C Secured
Promissory Note (the "Term Loan C Note")."
2. Amendment to Negative Covenant Provisions. The covenant set
forth in the Schedule to the Loan Agreement under the heading "Capital
Expenditures" in the Section entitled "Negative Covenants (Section 14)" is
hereby amended in its entirety to read as follows:
"Capital Expenditures: Borrower shall not make or incur any Capital
Expenditure of any kind if, after giving
effect thereto, the aggregate amount of all
such Capital Expenditures by Borrower in any
fiscal year would exceed One Million Five
Hundred Thousand Dollars ($1,500,000).
However, for the purposes of calculating the
amount of such Capital Expenditures, (a) the
San Xxxxxxxx Assets, (b) the mud pump
purchased by Borrower for $284,212.50, (c)
the Skytop Xxxxxxxx N-46 drilling rig and
associated equipment purchased from Xxxxxxx
Drilling Corp. on or about October 21, 1997
and (d) the Capital Expenditures purchased
with funds from the Capital Expenditure Loan
Facility shall be excluded."
3. Amendment to the Definitions in the Loan Agreement.
(a) The definition of "Term Loan" set forth in Section 18
of the Loan Agreement is hereby amended in its entirety as follows:
"Term Loan" means collectively, Term Loan A, Term Loan B and
Term Loan C, or individually, Term Loan A, Term Loan B or Term
Loan C, in each case as the context requires."
(b) The definition of "Term Loan Note" set forth in
Section 18 of the Loan Agreement is hereby amended in its entirety as
follows:
"Term Loan Note" means collectively, Term Loan Note A, Term
Loan Note B and Term Loan Note C, or individually, Term Loan
Note A, Term Loan Note B and Term Loan Note C, in each case as
the context requires."
4. Capital Expenditure Loan Facility. FINOVA shall provide
non-revolving loans to Borrower, each of which shall be in a principal amount
of not less than Twenty Five Thousand Dollars ($25,000) and all of which shall
not exceed Six Hundred Thousand Dollars ($600,000) at any time, to facilitate
Borrower's acquisition of new Equipment for uses directly related to Borrower's
business operations as conducted as of the date of this Amendment. Each loan
under this facility (individually, a "Capital Expenditure Loan" and
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collectively, the "Capital Expenditure Loans") shall be evidenced by and
repayable in accordance with the terms of a Secured Capital Expenditure Loan
Note, the form of which is attached hereto as Exhibit A, executed by Borrower
to the order of FINOVA, (individually, a "Capital Expenditure Loan Note" and
collectively, the "Capital Expenditure Loan Notes"). Obligations owing under
the Capital Expenditure Loan Notes shall constitute Obligations and shall be
secured by all of the Collateral.
Provided that no Event of Default has occurred and is continuing,
FINOVA will make Capital Expenditure Loans to Borrower upon Borrower's
presentment to FINOVA, in form and substance reasonably acceptable to FINOVA,
of invoices, delivery and installation receipts, and other evidence required by
FINOVA to document the acquisition, delivery, installation and use by Borrower
in its business of the specific items of Equipment to be acquired and financed
hereunder. Upon approval by FINOVA, FINOVA will loan Borrower up to eighty
percent (80%) of the cost of the Equipment as reflected in the invoice
therefor; provided, however, the Capital Expenditure Loans shall be limited to
the cost of the purchased Equipment itself, and shall not include any ancillary
costs or expenses associated with the acquisition of such Equipment, such as,
but not limited to, sales tax, freight, duty and other transportation charges,
installation and delivery charges, brokerage commissions, maintenance costs,
and similar costs and expenses.
5. Waiver by FINOVA of Compliance with Capital Expenditure
Covenant. Borrower hereby acknowledges that, it is not in compliance with the
negative covenant relating to Capital Expenditures set forth in Section 14 of
the Loan Agreement and that such non-compliance constitutes an Event of Default
under the Loan Agreement. FINOVA hereby waives compliance by Borrower with such
Capital Expenditures covenant before October 21, 1997, and shall not exercise
its rights and remedies under the Loan Agreement or applicable law in respect
of such Event of Default; provided, however, that FINOVA shall be free to
exercise all of its rights and remedies under the Loan Agreement in the event
of Borrower's violation or breach after October 21, 1997, of such Capital
Expenditures covenant. The foregoing waiver is not a continuing waiver, and
FINOVA does not by this waiver amend the terms and provisions of the Loan
Agreement. Upon the occurrence of any Event of Default after the date hereof,
or in the event that FINOVA learns of any Event of Default which occurred prior
to the date hereof (other than a breach of the Capital Expenditures covenant
before October 21, 1997), FINOVA shall be free to exercise any and all of its
various rights and remedies under the Loan Agreement.
6. Effectiveness of this Amendment. FINOVA must have received
the following items, in form and content acceptable to FINOVA, before this
Amendment is effective and before FINOVA is required to extend any credit to
Borrower as provided for by this Amendment. The date on which all of the
following conditions have been satisfied is the "Closing Date".
(a) Amendment. This Amendment fully executed in a
sufficient number of counterparts for distribution to FINOVA and
Borrower.
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(b) Authorizations. Evidence that the execution,
delivery and performance by Borrower and each guarantor or
subordinating creditor of this Amendment and any instrument or
agreement required under this Amendment have been duly authorized.
(c) Representations and Warranties. The representations
and warranties set forth in the Loan Agreement must be true and
correct.
(d) Other Required Documentation. All other documents and
legal matters in connection with the transactions contemplated by this
Amendment shall have been delivered or executed or recorded and shall
be in form and substance satisfactory to FINOVA.
(e) Payment of Modification Fee. FINOVA shall have
received from Borrower a modification fee of Twelve Thousand Dollars
($12,000) for the processing and approval of this Amendment.
7. Representations and Warranties. The Borrower represents and
warrants as follows:
(a) Authority. The Borrower has the requisite corporate
power and authority to execute and deliver this Amendment, as
applicable, and to perform its obligations hereunder and under the Loan
Documents (as amended or modified hereby) to which it is a party. The
execution, delivery and performance by the Borrower of this Amendment,
and the performance by each Loan Party of each Loan Document (as
amended or modified hereby) to which it is a party have been duly
approved by all necessary corporate action of such Loan Party and no
other corporate proceedings on the part of such Loan Party are
necessary to consummate such transactions.
(b) Enforceability. This Amendment has been duly
executed and delivered by the Borrower. This Amendment and each Loan
Document (as amended or modified hereby) is the legal, valid and
binding obligation of each Loan Party hereto or thereto, enforceable
against such Loan Party in accordance with its terms, and is in full
force and effect.
(c) Representations and Warranties. The representations
and warranties contained in each Loan Document (other than any such
representations or warranties that, by their terms, are specifically
made as of a date other than the date hereof) are correct on and as of
the date hereof as though made on and as of the date hereof.
(d) No Default. No event has occurred and is continuing
that constitutes an Event of Default except as referenced in paragraph
5 hereof.
8. Choice of Law. The validity of this Amendment, its
construction, interpretation and enforcement, the rights of the parties
hereunder, shall be determined under, governed by, and construed in accordance
with the internal laws of the State of Arizona governing contracts only to be
performed in that State.
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9. Counterparts. This Amendment may be executed in any number of
counterparts and by different parties and separate counterparts, each of which
when so executed and delivered, shall be deemed an original, and all of which,
when taken together, shall constitute one and the same instrument. Delivery of
an executed counterpart of a signature page to this Amendment by telefacsimile
shall be effective as delivery of a manually executed counterpart of this
Amendment.
10. Due Execution. The execution, delivery and performance of
this Amendment are within the power of Borrower, have been duly authorized by
all necessary corporate action, have received all necessary governmental
approval, if any, and do not contravene any law or any contractual restrictions
binding on Borrower.
11. Reference to and Effect on the Loan Documents.
(a) Upon and after the effectiveness of this Amendment,
each reference in the Loan Agreement to "this Agreement", "hereunder",
"hereof" or words of like import referring to the Loan Agreement, and
each reference in the other Loan Documents to "the Loan Agreement",
"thereof" or words of like import referring to the Loan Agreement,
shall mean and be a reference to the Loan Agreement as modified and
amended hereby.
(b) Except as specifically amended above, the Loan
Agreement and all other Loan Documents, are and shall continue to be in
full force and effect and are hereby in all respects ratified and
confirmed and shall constitute the legal, valid, binding and
enforceable obligations of Borrower to FINOVA.
(c) The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a
waiver of any right, power or remedy of FINOVA under any of the Loan
Documents, nor constitute a waiver of any provision of any of the Loan
Documents.
(d) To the extent that any terms and conditions in any of
the Loan Documents shall contradict or be in conflict with any terms or
conditions of the Loan Agreement, after giving effect to this
Amendment, such terms and conditions are hereby deemed modified or
amended accordingly to reflect the terms and conditions of the Loan
Agreement as modified or amended hereby.
12. Ratification. Borrower hereby restates, ratifies and
reaffirms each and every term and condition set forth in the Loan Agreement, as
amended hereby, and the Loan Documents effective as of the date hereof.
13. Estoppel. To induce FINOVA to enter into this Amendment and
to continue to make advances to Borrower under the Loan Agreement, Borrower
hereby acknowledges and agrees that, after giving effect to this Amendment, as
of the date hereof, there exists no Event of Default except as referenced in
paragraph 5 hereof and no right of offset, defense, counterclaim or objection
in favor of Borrower as against FINOVA with respect to the Obligations.
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IN WITNESS WHEREOF, the parties have entered into this Amendment as of
the date first above written.
"BORROWER"
SOUTH TEXAS DRILLING & EXPLORATION, INC.
a Texas corporation
By: /s/ Wm. Xxxxx Xxxxx
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Title: President and CEO
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"FINOVA"
FINOVA CAPITAL CORPORATION,
a Delaware corporation
By: /s/ XXXXXXX XXXX
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Title: Vice President
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