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FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "Amendment"),
dated as of June 18, 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 and related Schedule to Loan and Security
Agreement, each dated as of May 8, 1996 (collectively, 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 provide additional financing
to fund the acquisition of certain assets to be acquired from San Xxxxxxxx
Corporation, a Texas corporation ("San Xxxxxxxx"), to fund the acquisition of a
mud pump, to extend the term of the credit facilities, to modify certain
covenants and to adjust the interest rates applicable to the credit facilities.
C. FINOVA is willing to further amend the Loan Agreement 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. FINOVA's address for all purposes of the Loan Agreement is
changed to: 000 Xxxxx Xxxxxx Xxxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxxx 00000-0000.
2. The term "Term Loan" is hereby amended to be read as a
collective term to include both Term Loan A and Term Loan B as defined in the
Schedule as amended by this Amendment, and "Term Loan" shall be read to include
both Term Loan A and Term Loan B unless the context otherwise requires a more
limited reading to mean, individually, either Term Loan A or Term Loan B.
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3. The second to the last sentence of Section 1.1 of the Loan
Agreement is hereby amended 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 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 both the remaining outstanding
principal amount of Term Loan A as of June 18, 1997, and the
original principal amount of Term Loan B."
4. Section 4.1 of the Loan Agreement is hereby amended to read as
follows:
"4.1 Security Interest in the Collateral. To secure the
payment and performance of the Obligations when due, Borrower
hereby grants to FINOVA a security interest in all of
Borrower's now owned or hereafter acquired or arising
Inventory, Equipment, Receivables, and General Intangibles,
including, without limitation, all of Borrower's deposit
accounts, money, any and all property now or at any time
hereafter in FINOVA's possession (including claims and credit
balances), investment property, proceeds of letters of credit,
and all proceeds (including proceeds of any insurance
policies, proceeds of proceeds and claims against third
parties), all products and all books and records related to
any of the foregoing (all of the foregoing, together with all
other property in which FINOVA may be granted a lien or
security interest, is referred to herein, collectively, as the
"Collateral")."
5. The following definitions are added to Section 18.1 of the
Loan Agreement:
"'San Xxxxxxxx' means San Xxxxxxxx Corporation, a Texas
corporation."
"'San Xxxxxxxx Assets' has the meaning set forth in the
Schedule."
6. The definition of Initial Total Facility Amount as set forth
in the Schedule is amended to read as follows:
"INITIAL TOTAL FACILITY AMOUNT (SECTION 1.1), for the period
from the Closing Date through June 17, 1997:
$1,750,000"
7. The following definition of Subsequent Total Facility Amount
is added to the Schedule following the definition of Initial Total Facility
Amount:
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"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 $1,550,000."
8. The definition of Term Loan as set forth in the Schedule is
amended to read as follows:
"B. TERM LOAN (collectively, Term Loan A and Term Loan B,
or either Term Loan A or Term Loan B, in each case as the
context requires):
(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.
(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 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."
9. The first sentence of the paragraph entitled "Interest" under
the INTEREST AND FEES Section of the Schedule is hereby amended to read as
follows:
"Borrower shall pay FINOVA interest on the daily outstanding
balance of Borrower's Receivable Loans account at a per annum
rate of two and three-quarters (2.75) percentage points in
excess of the rate of interest announced publicly by
Citibank, N.A., from time to time as its "base rate" (or any
successor thereto), which may not be such institution's lowest
rate (the "Base Rate") for the period from the Closing Date
through June 17, 1997, and thereafter at a per annum rate of
two and one-quarter (2.25) percentage points in excess of the
Base Rate."
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10. The item "Permitted Incumbrances" under the BORROWER
INFORMATION Section of the Schedule is hereby amended to read as follows:
"Permitted Encumbrances (Section 18.1):
(1) See Exhibit 18.1 attached hereto and
incorporated herein by this reference.
(2) Subordinated Debt in the original principal
amount of $300,000 advanced by San Xxxxxxxx to Borrower to
fund the balance of the purchase price of the assets to be
acquired by Borrower from San Xxxxxxxx Corporation (the "San
Xxxxxxxx Assets") not funded through Term Loan B, which
indebtedness: (a) shall be subordinate to the Obligations
pursuant to, and repayable in accordance with, the terms and
conditions of an Intercreditor and Subordination Agreement
between San Xxxxxxxx and FINOVA, and acknowledged to by the
Borrower, the terms and conditions of which shall be
acceptable to FINOVA in its sole discretion, and (b) may be
secured by Borrower's grant of a second security interest in
the San Xxxxxxxx Assets subordinate to the prior security
interest of FINOVA in the San Xxxxxxxx Asserts, pursuant to a
security agreement between San Xxxxxxxx and Borrower the terms
and conditions of which shall be acceptable to FINOVA in its
sole discretion."
11. The Total Debt Service Coverage financial covenant set forth
under the FINANCIAL COVENANTS Section of the Schedule is amended to read as
follows:
"Total Debt Service Coverage.
Borrower shall maintain Total Debt Service Coverage
of not less than 1.0 to 1.0."
12. The Capital Expenditures covenant set forth under the NEGATIVE
COVENANTS Section of the Schedule is amended 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
(beginning with the March 31, 1997 fiscal year) would
exceed Seven Hundred Twenty Thousand Dollars
($720,000). However, for the purposes of calculating
the amount of such Capital Expenditures, the San
Xxxxxxxx Assets and the mud pump purchased by
Borrower for $284,212.50 shall be excluded."
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13. The Compensation covenant set forth under the NEGATIVE
COVENANTS Section of the Schedule is amended to read as follows:
"Compensation.
Borrower shall not pay total compensation, including
salaries, withdrawals, fees, bonuses, commissions,
drawing accounts and other payments, whether directly
or indirectly, in money or otherwise, during any
fiscal year to all of Borrower's executives, officers
and directors (or any relative thereof) in an amount
in excess of $350,000, in the case of Borrower's 1998
fiscal year, or in excess of one hundred twenty
percent (120%) of the total compensation paid by
Borrower to such individuals during its immediately
preceding fiscal year, in the case of each subsequent
fiscal year of Borrower."
14. The TERM Section of the Schedule is hereby amended to read as
follows:
"The initial term of this Agreement shall be from May 8, 1996
through June 1, 1999 (the "Initial Term") and shall be
automatically renewed for successive periods of one (1) year
each (each, a "Renewal Term"), unless earlier terminated as
provided in Section 16 or 17 above or elsewhere in this
Agreement."
15. The TERMINATION FEE Section of the Schedule is hereby amended
to read as follows:
"The Termination Fee provided in Section 16.4 shall be an
amount equal to the following percentage of the average daily
outstanding balance of the Receivable Loans for the 180-day
period (or lesser period if applicable) preceding the date of
termination:
(i) three percent (3.0%), if such early
termination occurs on or prior to June 1, 1998;
(ii) one percent (1.0%), if such early termination
occurs after June 1, 1998."
16. 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 "Effective 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 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) Consent. FINOVA has received counterparts of the
Consent appended hereto (the "Consent") executed by Mr. Wm. Xxxxx
Xxxxx.
(e) Intercreditor Agreement. FINOVA and San Xxxxxxxx
shall have entered into an Intercreditor and Subordination Agreement
with respect to the Subordinated Debt owed by Borrower to San Xxxxxxxx,
and acknowledged by Borrower, the terms and conditions of which shall
be acceptable to FINOVA in its sole discretion.
(f) Review of Subordinated Debt Documents. All
agreements, instruments and documents pertaining to the Subordinated
Debt owed by Borrower to San Xxxxxxxx shall have been delivered by
Borrower to FINOVA and FINOVA shall have reviewed and found acceptable,
in its sole discretion, such agreements, instruments and documents.
(g) Other Required Documentation. All other documents and
legal matters in connection with the transactions contemplated by this
Agreement shall have been delivered or executed or recorded and shall
be in form and substance satisfactory to FINOVA.
(h) Payment of Modification Fee. FINOVA shall have
received from Borrower a Modification Fee of $5,500 for the processing
and approval of this Amendment.
17. 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 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 Borrower 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 Borrower and no other corporate proceedings on the
part of Borrower 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 Borrower hereto or thereto, enforceable against
Borrower in accordance with its terms, and is in full force and effect.
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(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.
18. 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.
19. 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 or the Consent by
telefacsimile shall be effective as delivery of a manually executed counterpart
of this Amendment or such Consent.
20. 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.
21. 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
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hereby deemed modified or amended accordingly to reflect the terms and
conditions of the Loan Agreement as modified or amended hereby.
22. 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.
23. 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 and no right of offset,
defense, counterclaim or objection in favor of Borrower as against FINOVA with
respect to the Obligations.
IN WITNESS WHEREOF, the parties have entered into this Amendment as of
the date first above written.
BORROWER: FINOVA:
SOUTH TEXAS DRILLING & FINOVA CAPITAL CORPORATION
EXPLORATION, INC.
BY /s/ WM. XXXXX XXXXX BY /s/ XXXXXX XXXXXXX
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TITLE President & CEO TITLE Vice President
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CONSENT
Dated as of June 18, 1997
The undersigned hereby consents and agrees to the foregoing Amendment and
hereby confirms and agrees that his Confirmation and Support Agreement dated as
of May 8, 1996 in favor of FINOVA (the "Support Agreement") is, and shall
continue to be in, in full force and effect and is hereby ratified and
confirmed in all respects except that, upon the effectiveness of, and on and
after the date of said Amendment, each reference in the Support Agreement to
the Loan Agreement, "thereunder", "thereof" or words of like import referring
to the Loan Agreement, shall mean and be a reference to the Loan Agreement as
amended or modified by the said Amendment.
/s/ WM. XXXXX XXXXX
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WM. XXXXX XXXXX
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