EXHIBIT 10.5
CREDIT AGREEMENT
THIS AGREEMENT is entered into as of February ____1, 2002, by and
between XXXXX-XXXXXXXX CORPORATION, a Delaware corporation ("Borrower"), and
XXXXX FARGO ENERGY CAPITAL, INC. ("Lender").
RECITALS
Borrower has requested that Lender extend credit to Borrower for the
purpose of financing, in part, the acquisition of all of the outstanding stock
of STRATA Directional Technology, Inc. ("Strata") and 81% of the outstanding
stock of Jens' Oil Field Service Inc. ("Jens," Jens and Strata are herein
sometimes collectively "Guarantors") and Lender has agreed to provide such
credit to Borrower on the terms and conditions contained herein.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Lender and Borrower hereby agree as follows:
ARTICLE I.
CREDIT TERMS
SECTION 1.01 TERM LOAN.
(a) Term Loan. Subject to the terms and conditions of this Agreement,
Lender hereby agrees to make a loan to Borrower in the principal amount of Three
Million Dollars ($3,000,000) ("Term Loan"), the proceeds of which shall be used
to finance a portion of the cost of acquiring all of the outstanding stock in
Strata and 81% of the outstanding stock of Jens. Borrower's obligation to repay
the Term Loan shall be evidenced by a promissory note substantially in the form
of Exhibit A attached hereto ("Term Note"), all terms of which are incorporated
herein by this reference.
(b) Repayment. Principal and interest on the Term Loan shall be repaid
in accordance with the provisions of the Term Note with a final maturity date of
January 31, 2005 ("Maturity Date").
SECTION 1.02 INTEREST/FEES.
(a) Interest. The outstanding principal balance of the Term Loan shall
bear interest at the rate of interest set forth in the Term Note.
(b) Commitment Fee. Borrower shall pay to Lender a non-refundable
commitment fee equal to $60,000, which fee shall be due and payable in full
contemporaneously herewith.
(c) Warrant. Borrower shall sell and issue to Lender a warrant to
purchase 700,000 shares of Borrower's common stock at $0.15 per share ("Warrant
B") and a warrant to purchase 335,000 shares of Borrower's common stock at $1.00
per share ("Warrant C") as more particularly set forth in that certain Warrant
Purchase Agreement and Shareholder's Agreement of even date herewith between
Borrower and Lender, attached hereto as Exhibit B.
SECTION 1.03 COLLECTION OF PAYMENTS. Borrower authorizes Lender to collect all
principal, interest, and fees due under each credit subject hereto by charging
Borrower's account with Xxxxx Fargo Bank Texas, National Association ("WF Bank")
designated by Borrower prior to March 1, 2002, for the full amount thereof.
Should there be insufficient funds in any such account to pay all such sums when
due, any overdraft created in such account shall constitute an Event of Default.
SECTION 1.04 COLLATERAL. As security for all indebtedness of Borrower to Lender
subject hereto and all of Borrower's obligations hereunder and all other Loan
Documents executed herewith, as same may be amended,
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modified or restated from time to time (collectively "Indebtedness"), Borrower
hereby grants to Lender security interests in all of Borrower's stock in
Guarantors subject to prior liens in favor of Xxxxx Fargo Credit, Inc., a
Minnesota corporation ("Senior Lender"), evidenced by and subject to the terms
of such security agreements, financing statements, and other documents described
on Schedule I hereto (the "Security Documents") as Lender shall require, all in
form and substance satisfactory to Lender. Borrower shall reimburse Lender
immediately upon demand for all reasonable costs and expenses incurred by Lender
in connection with any of the foregoing security, including without limitation,
filing and recording fees and costs of appraisals, audits, title insurance, and
attorneys' fees.
SECTION 1.05 SUBORDINATION OF DEBT. In connection with the Term Note, Borrower
is borrowing money from and incurring obligations to Senior Lender (the "Senior
Lender Indebtedness"), and from Xxxx X. Xxxxxxxxx, Xx. ("Seller") (the "Seller
Indebtedness"). The obligation of Borrower to repay the Term Note and other
Indebtedness hereunder and the priority of liens created under the Security
Agreements are subject to the terms of that certain Subordination Agreement,
dated as of February 1, 2002, by and between Senior Lender and Lender attached
as Exhibit C hereto (hereafter, the "Intercreditor Agreement") and that certain
Subordination Agreement, dated as of February 1, 2002, by and among Lender,
Seller and Senior Lender attached as Exhibit D hereto (hereafter, "Seller's
Subordination Agreement").
SECTION 1.06 GUARANTY. As further security for the Indebtedness, Borrower shall
cause Guarantors to execute and deliver to Lender an absolute and unconditional
guaranty of the timely payment of, and due and punctual performance of the
Indebtedness (each a "Guaranty"). Each Guaranty will be secured by a pledge of
each Guarantor of all of such Guarantor's assets evidenced by and subject to the
terms of such security agreements, financing statements, and other documents
described on Schedule 1 hereto in form and substance satisfactory to Lender.
Borrower will cause each Guarantor to deliver to Lender, simultaneously with its
delivery of such Guaranty, written evidence satisfactory to Lender that such
Guarantor has taken all corporate action necessary to duly approve and authorize
its execution, delivery and performance of such Guaranty and any other documents
which it is required to execute.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties to Lender,
which representations and warranties shall survive the execution of this
Agreement and shall continue in full force and effect until the full and final
payment, and satisfaction and discharge, of all obligations of Borrower to
Lender subject to this Agreement.
SECTION 2.01 LEGAL STATUS. Borrower is a corporation, duly organized and
existing and in good standing under the laws of the State of Delaware, and is
qualified or licensed to do business (and is in good standing as a foreign
corporation, if applicable) in Texas, and all other jurisdictions in which such
qualification or licensing is required or in which the failure to so qualify or
to be so licensed could have a material adverse effect on Borrower.
SECTION 2.02 AUTHORIZATION AND VALIDITY. This Agreement, the Term Note, the
Security Documents, the Warrant Purchase Agreement, the Shareholder's Agreement
and each promissory note, contract, instrument and other document required
hereby or at any time hereafter delivered to Lender in connection herewith
(collectively, the "Loan Documents") have been duly authorized, and upon their
execution and delivery in accordance with the provisions hereof will constitute
legal, valid and binding agreements and obligations of Borrower, enforceable in
accordance with their respective terms.
SECTION 2.03 NO VIOLATION. The execution, delivery and performance by Borrower
of each of the Loan Documents do not violate any provision of any law or
regulation, or contravene any provision of the Articles of Incorporation or
By-Laws of Borrower, or result in any breach of or default under any contract,
obligation, indenture or other instrument to which Borrower is a party or by
which Borrower may be bound.
SECTION 2.04 LITIGATION. There are no pending, or to the best of Borrower's
knowledge threatened, actions, claims, investigations, suits or proceedings by
or before any governmental authority, arbitrator, court or administrative agency
which could have a material adverse effect on the financial condition or
operation of Borrower other than those disclosed by Borrower to Lender in
writing prior to the date hereof.
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SECTION 2.05 CORRECTNESS OF FINANCIAL STATEMENT. The quarterly consolidated and
consolidating balance sheet dated September 31, 2001, prepared by Borrower's
chief financial officer (a) are complete and correct and present fairly the
financial condition of Borrower, (b) disclose all liabilities of Borrower that
are required to be reflected or reserved against under generally accepted
accounting principles, whether liquidated or unliquidated, fixed or contingent,
and (c) were prepared in accordance with generally accepted accounting
principles consistently applied. Since the date of such quarterly financial
statement there has been no material adverse change in the financial condition
of Borrower, nor has Borrower mortgaged, pledged, granted a security interest in
or otherwise encumbered any of its assets or properties except in favor of
Lender or Senior Lender or as otherwise permitted by Lender in writing.
SECTION 2.06 INCOME TAX RETURNS. Borrower has no knowledge of any pending
assessments or adjustments of its income tax payable with respect to any year.
SECTION 2.07 NO SUBORDINATION. There is no agreement, indenture, contract or
instrument to which Borrower is a party or by which Borrower may be bound that
requires the subordination in right of payment of any of Borrower's obligations
subject to this Agreement to any other obligation of Borrower except as provided
in Seller's Subordination Agreement and Intercreditor Agreement.
SECTION 2.08 PERMITS, FRANCHISES. Borrower possesses, and will hereafter
possess, all permits, consents, approvals, franchises and licenses required and
rights to all trademarks, trade names, patents, and fictitious names, if any,
necessary to enable it to conduct the business in which it is now engaged in
compliance with applicable law.
SECTION 2.09 ERISA. Borrower is in compliance in all material respects with all
applicable provisions of the Employee Retirement Income Security Act of 1974, as
amended or recodified from time to time ("ERISA"); Borrower has not violated any
provision of any defined employee pension benefit plan (as defined in ERISA)
maintained or contributed to by Borrower (each, a "Plan"); no Reportable Event
as defined in ERISA has occurred and is continuing with respect to any Plan
initiated by Borrower; Borrower has met its minimum funding requirements under
ERISA with respect to each Plan; and each Plan will be able to fulfill its
benefit obligations as they come due in accordance with the Plan documents and
under generally accepted accounting principles.
SECTION 2.10 OTHER OBLIGATIONS. Borrower is not in default on any obligation for
borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation.
SECTION 2.11 ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to Lender in
writing prior to the date hereof, Borrower is in compliance, which compliance
could not reasonably be expected to have a material adverse effect (as such term
is used in Section 3.01(d) hereof) with all applicable federal or state
environmental, hazardous waste, health and safety statutes, and any rules or
regulations adopted pursuant thereto, which govern or affect any of Borrower's
operations and/or properties, including without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Superfund
Amendments and Reauthorization Act of 1986, the Federal Resource Conservation
and Recovery Act of 1976, and the Federal Toxic Substances Control Act, as any
of the same may be amended, modified or supplemented from time to time. None of
the operations of Borrower is the subject of any federal or state investigation
evaluating whether any remedial action involving a material expenditure is
needed to respond to a release of any toxic or hazardous waste or substance into
the environment. Borrower has no material contingent liability in connection
with any release of any toxic or hazardous waste or substance into the
environment.
SECTION 2.12 REAL PROPERTY. The Borrower has no real property.
SECTION 2.13 NO CONSENT. The Borrower's execution, delivery and performance of
each of the Loan Documents, including this Agreement, to which the Borrower is a
party do not require the consent or approval of any other person or entity which
has not been obtained, including, without limitation, any regulatory authority
or governmental body of the United States of America or any state thereof or any
political subdivision of the United States of America or any state thereof.
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SECTION 2.14 QUALIFIED COMMERCIAL LOAN. This loan is a Qualified Commercial Loan
as defined in Chapter 306 of the Texas Finance Code. This loan is not secured by
real property and is not a loan for the purpose of financing a business licensed
by the Motor Vehicle Board of the Texas Department of Transportation under
Section 4.01(a), Texas Motor Vehicle Commission (Article 4413(36), Vernon's
Texas Civil Statutes). Borrower has been advised by Lender to seek advice of an
attorney and an accountant in connection with this Qualified Commercial Loan and
Borrower has had the opportunity to seek the advice of an attorney and
accountant of Borrower's choice in connection with this Qualified Commercial
Loan.
ARTICLE III.
CONDITIONS
SECTION 3.01 The obligation of Lender to extend any credit contemplated by this
Agreement is subject to the fulfillment to Lender's satisfaction of all of the
following conditions:
(a) APPROVAL OF LENDER COUNSEL. All legal matters incidental to the
extension of credit by Lender shall be satisfactory to Lender's counsel.
(b) DOCUMENTATION AND FEES. Lender shall have received, in form and
substance satisfactory to Lender, such documents as Lender may require
including, without limitation, each of the documents described on Schedule I
attached hereto and payment of all fees and expenses due hereunder.
(c) SIMULTANEOUS CLOSING. All conditions precedent for consummation of
Borrower's acquisition of Guarantors' common stock under the Stock Purchase
Agreement between Borrower and Energy Spectrum Partners, L.P. regarding Strata
and Stock Purchase Agreement between Borrower and Xxxx X. Xxxxxxxxx, Xx.
regarding Jens, and under the Senior Loan Documents shall be satisfied and all
such agreements shall close and fund contemporaneously herewith.
(d) FINANCIAL CONDITION. There shall have been no material adverse
change, as determined by Lender, in the financial condition or business of
Borrower or any guarantor hereunder, nor any material decline, as determined by
Lender, in the market value of any collateral required hereunder or a
substantial or material portion of the assets of Borrower or any such guarantor.
(e) INSURANCE. Borrower shall have delivered to Lender evidence of
insurance coverage on all Borrower's property, in form, substance, amounts,
covering risks and issued by companies satisfactory to Lender, and where
required by Lender, with loss payable endorsements in favor of Lender, including
without limitation, policies of fire and extended coverage insurance covering
all real property collateral required hereby, with replacement cost and
mortgagee loss payable endorsements, and such policies of insurance against
specific hazards affecting any such real property as may be required by
governmental regulation or Lender, and all containing provisions that such
policies cannot be cancelled without thirty (30) days' prior written notice to
Lender.
(f) OPINION OF BORROWER'S COUNSEL. An opinion of counsel for Borrower
and the Guarantors, addressed to Lender.
ARTICLE IV.
AFFIRMATIVE COVENANTS
Borrower covenants that so long as any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Lender under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower shall, unless Lender otherwise consents in
writing:
SECTION 4.01 PUNCTUAL PAYMENTS. Punctually pay all principal, interest, fees or
other liabilities due under any of the Loan Documents at the times and place and
in the manner specified therein, and immediately upon
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demand by Lender, the amount by which the outstanding principal balance of any
credit subject hereto at any time exceeds any limitation on borrowings
applicable thereto.
SECTION 4.02 ACCOUNTING RECORDS. Maintain adequate books and records in
accordance with generally accepted accounting principles consistently applied,
and permit any representative of Lender, at any reasonable time, to inspect,
audit and examine such books and records, to make copies of the same, and to
inspect the properties of Borrower.
SECTION 4.03 FINANCIAL STATEMENTS. Borrower will promptly furnish to Lender from
time to time upon request such information regarding the business and affairs
and financial condition of Borrower and its Subsidiaries (as used herein,
"Subsidiary" shall mean any corporation of which more than 50% of the issued and
outstanding securities having ordinary voting power for the election of
directors is owned or controlled, directly or indirectly, by Borrower and/or one
or more of its subsidiaries) as Lender may reasonably request, and will furnish
to Lender:
(a) Annual Reports - promptly after becoming available and in any event
within 90 days after the close of each fiscal year of Borrower, the audited
consolidated and consolidating balance sheets of Borrower and its Subsidiaries
as at the end of such year, the audited consolidated and consolidating
statements of profit and loss of Borrower and its Subsidiaries for such year and
the audited consolidated and consolidating statements of reconciliation of
capital accounts of the Borrower and its Subsidiaries for such year, setting
forth in each case for fiscal years ending after December 31, 2000, in
comparative form the corresponding figures for the preceding fiscal year,
accompanied by the related report of independent public accountants acceptable
to Lender which report shall be to the effect that such statements have been
prepared in accordance with generally accepted accounting principles
consistently followed throughout the period indicated except for such changes in
such principles with which the independent public accountants shall have
concurred, showing the calculations confirming Borrower's compliance with all
financial covenants; and
(b) Quarterly Reports -- promptly after becoming available and in any
event within 45 days after the end of each of the first three quarterly periods
in each fiscal year of Borrower, the consolidated and consolidating balance
sheets of Borrower and its Subsidiaries as at the end of such period, the
consolidated and consolidating statements of profit and loss of Borrower and its
Subsidiaries for such quarter and for the period from the beginning of the
fiscal year to the close of such quarter, and the consolidated and consolidating
statement of reconciliation of capital accounts of Borrower and its Subsidiaries
for such quarter and for the period from the beginning of the fiscal year to the
close of such quarter, setting forth in each case for fiscal years ending after
January 1, 2001, in comparative form the corresponding figures for the
corresponding period of the preceding fiscal year, certified by the principal
financial officer of Borrower to have been prepared in accordance with generally
accepted accounting principles consistently followed throughout the period
indicated except to the extent stated therein, subject to normal changes
resulting from year-end adjustment;
(c) Audit Reports -- promptly upon receipt thereof, one copy of each
other report submitted to Borrower or any Subsidiary by independent accountants
in connection with any annual, interim or special audit made by them of the
books of Borrower or any Subsidiary;
(d) contemporaneously with each annual and quarterly financial statement
of Borrower required hereby, a certificate of a senior financial officer of
Borrower that said financial statements are accurate, showing the calculations
confirming Borrower's compliance with all financial covenants and that there
exists no Event of Default nor any condition, act or event which with the giving
of notice or the passage of time or both would constitute an Event of Default;
(e) SEC and Other Reports -- promptly upon their becoming available, one
copy of each financial statement, report, notice or proxy statement sent by
Borrower to stockholders generally, and of each regular or periodic report and
any registration statement, prospectus or written communication (other than
transmittal letters) in respect thereof filed by Borrower with or received by
Borrower in connection therewith from, any securities exchange or the Securities
and Exchange Commission or any successor agency; and
(f) From time to time such other information as Lender may reasonably
request.
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SECTION 4.04 COMPLIANCE. Preserve and maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of its business; and comply with the provisions of all documents
pursuant to which Borrower is organized and/or which govern Borrower's continued
existence and with the requirements of all laws, rules, regulations and orders
of any governmental authority applicable to Borrower and/or its business.
SECTION 4.05 INSURANCE. Maintain and keep in force insurance of the types and in
amounts customarily carried in lines of business similar to that of Borrower,
including but not limited to fire, extended coverage, public liability, flood,
property damage and workers' compensation, with all such insurance carried with
companies and in amounts satisfactory to Lender, and deliver to Lender from time
to time at Lender's request Schedules setting forth all insurance then in
effect.
SECTION 4.06 FACILITIES. Keep all properties useful or necessary to Borrower's
business in good repair and condition, and from time to time make necessary
repairs, renewals and replacements thereto so that such properties shall be
fully and efficiently preserved and maintained.
SECTION 4.07 TAXES AND OTHER LIABILITIES. Pay and discharge when due any and all
indebtedness, obligations, assessments and taxes, both real or personal,
including without limitation federal and state income taxes and state and local
property taxes and assessments, except such (a) as Borrower may in good faith
contest or as to which a bona fide dispute may arise, and (b) for which Borrower
has made provision, to Lender's satisfaction, for eventual payment thereof in
the event Borrower is obligated to make such payment.
SECTION 4.08 LITIGATION. Promptly give notice in writing to Lender of all
litigation pending or threatened against Borrower with claims in excess of
$25,000.00 in the aggregate.
SECTION 4.09 FINANCIAL CONDITION. Maintain Borrower's financial condition as
follows using generally accepted accounting principles consistently applied and
used consistently with prior practices (except to the extent modified by the
definitions herein):
(a) Tangible Net Worth not at any time, less than eighty-five percent
(85%) of Tangible Net Worth as of the date hereof (plus seventy-five percent
(75%) of cumulative net income after the date hereof, excluding any fiscal
quarters in which net income is negative), plus one hundred percent (100%) of
equity offerings after the date hereof, with "Tangible Net Worth" defined herein
as the aggregate of total stockholders' equity plus any debt subordinated to the
Indebtedness hereunder less any intangible assets.
(b) Fixed Charge Coverage Ratio not less than 1.1 to 1.0 for the twelve
(12) month period ending on the last day of each fiscal quarter, beginning with
the fiscal quarter ending March 31, 2003, with "EBITDA" defined herein as net
income plus cash interest charges, plus cash taxes, plus depreciation,
amortization and non-cash charges on a trailing twelve (12) month basis with
"Fixed Charge Coverage Ratio" defined herein as (i) EBITDA plus applicable
operating lease payments less unfinanced capital expenditures divided by (ii)
the aggregate of total interest charges (excluding any applicable paid-in-kind
("PIK") charges), scheduled principal payments, operating lease payments, cash
dividends paid, and paid taxes for the same period.
(c) [Total Funded Debt to EBITDA Ratio not more than 2.0 to 1.0
commencing March 31, 2003, with "Total Funded Debt to EBITDA Ratio" defined as
Total Funded Debt divided by the twelve (12) trailing months EBITDA. "Total
Funded Debt" is defined herein as all interest-bearing obligations of Borrower,
whether secured or unsecured, senior or subordinated, excluding the Seller
Note.]
(d) Consolidated Minimum Debt Service Coverage Ratio determined for the
fiscal year to date, at not less than the amounts set forth on Schedule 4.09(d)
hereto.
SECTION 4.10 NOTICE TO LENDER. Promptly (but in no event more than five (5) days
after the occurrence of each such event or matter) give written notice to Lender
in reasonable detail of: (a) the occurrence of any Event of Default of which
Borrower is aware, or any condition, event or act which with the giving of
notice or the passage of time or both would constitute an Event of Default; (b)
any change in the name or the organizational structure of
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Borrower; (c) the occurrence and nature of any Reportable Event or Prohibited
Transaction, each as defined in ERISA, or any funding deficiency with respect to
any Plan; or (d) any termination or cancellation of any insurance policy which
Borrower is required to maintain, or any uninsured or partially uninsured loss
through liability or property damage, or through fire, theft or any other cause
affecting Borrower's property in excess of an aggregate of $250,000.00.
ARTICLE V.
NEGATIVE COVENANTS
Borrower further covenants that so long as Lender remains committed to
extend credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Lender under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower will not without Lender's prior written
consent:
SECTION 5.01 USE OF FUNDS. The proceeds of credit extended hereunder shall be
used to finance the acquisition of a portion of the common stock of Guarantors
and for no other purposes.
SECTION 5.02 OTHER INDEBTEDNESS. Create, incur, assume or permit to exist any
indebtedness or liabilities resulting from borrowings, loans or advances,
whether secured or unsecured, matured or unmatured, liquidated or unliquidated,
joint or several, except (a) the liabilities of Borrower to Lender, (b) any
other liabilities of Borrower existing as of, and described in Seller's
Subordination Agreement and the Intercreditor Agreement, and (c) liabilities of
Borrower, arising under the MCA Loan Documents. "MCA Loan Documents" are defined
as that certain Credit Agreement between Lender and Mountain Compressed Air,
Inc., a Texas corporation ("MCA"), a wholly owned subsidiary of OilQuip, Inc., a
wholly-owned subsidiary of Borrower, dated February 6, 2001, as amended, along
with all loan documents executed in connection therewith, as amended from time
to time.
SECTION 5.03 MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or
consolidate with any other entity; make any substantial change in the nature of
Borrower's business as conducted as of the date hereof; acquire all or
substantially all of the assets of any other entity; nor sell, lease, transfer
or otherwise dispose of all or a substantial or material portion of Borrower's
assets except in the ordinary course of its business.
SECTION 5.04 GUARANTIES. Guarantee or become liable in any way as surety,
endorser (other than as endorser of negotiable instruments for deposit or
collection in the ordinary course of business), accommodation endorser or
otherwise for, nor pledge or hypothecate any assets of Borrower as security for,
any liabilities or obligations of any other person or entity, except Borrower's
guaranty of obligations arising under the MCA Loan Documents, any of the
foregoing in favor of Lender or as described in Intercreditor Agreement.
SECTION 5.05 LOANS, ADVANCES, INVESTMENTS. Make any loans or advances to or
investments in any person or entity, except any of the foregoing existing as of,
and disclosed to Lender prior to, the date hereof.
SECTION 5.06 DIVIDENDS, DISTRIBUTIONS. Declare or pay any dividend or
distribution either in cash, stock or any other property on Borrower's stock now
or hereafter outstanding, nor redeem, retire, repurchase or otherwise acquire
any shares of any class of Borrower's stock now or hereafter outstanding except
as provided in the Warrant Purchase Agreement.
SECTION 5.07 PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to exist a
security interest in, or lien upon, all or any portion of Borrower's assets now
owned or hereafter acquired, except any of the foregoing in favor of Lender or
which is existing as of, and described under the Intercreditor Agreement as
described in the MCA Loan Documents.
SECTION 5.08 SALES AND LEASEBACKS. Enter into any arrangement, directly or
indirectly, with any person whereby Borrower shall sell or transfer any of its
property, whether now owned or hereafter acquired, and whereby Borrower shall
then or thereafter rent or lease as lessee such property or any part thereof or
other property which Borrower intends to use for substantially the same purpose
or purposes as the property is sold or transferred.
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SECTION 5.09 NATURE OF BUSINESS. Allow any material change to be made in the
character of Borrower's business as an oilfield service provider.
SECTION 5.10 TRANSACTIONS WITH AFFILIATES. Enter into any transaction, including
without limitation, any purchase, sale, lease or exchange of property or the
rendering of any service, with any affiliate of Borrower unless such
transactions are in the ordinary course of its business and are upon fair and
reasonable terms no less favorable to Borrower than Borrower would obtain in a
comparable arm's-length transaction with a person not an affiliate.
ARTICLE VI.
EVENTS OF DEFAULT
SECTION 6.01 EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an "Event of Default" under this Agreement:
(a) Borrower shall fail to pay when due any principal, interest, fees or
other amounts payable under any of the Loan Documents.
(b) Any financial statement or certificate furnished to Lender in
connection with, or any representation or warranty made by Borrower or any other
party under this Agreement or any other Loan Document shall prove to be
incorrect, false or misleading in any material respect when furnished or made.
(c) Any default in the performance of or compliance with any obligation,
agreement or other provision contained herein or in any other Loan Document
(other than those referred to in subsections 6.01(a) and (b) and notice required
under Section 4.10 above), and with respect to any such default which by its
nature can be cured, such default shall continue for a period of twenty (20)
days from its occurrence. Any default regarding failure to provide notice
required under Section 4.10 above, shall constitute an immediate Event of
Default.
(d) Any default in the payment or performance of any obligation, or any
defined event of default, under the terms of any contract or instrument (other
than any of the Loan Documents) pursuant to which Borrower or any Guarantor
hereunder has incurred any debt or other liability to any person or entity,
including Lender.
(e) The filing of a notice of judgment lien against Borrower or any
Guarantor hereunder; or the recording of any abstract of judgment against
Borrower or any Guarantor hereunder in any county in which Borrower or such
Guarantor has an interest in real property; or the service of a notice of levy
and/or of a writ of attachment or execution, or other like process, against the
assets of Borrower or any Guarantor hereunder; or the entry of a judgment
against Borrower or any Guarantor hereunder. Notwithstanding the foregoing,
there shall not be an Event of Default upon the filing of notices of judgment
lien, the recording of abstracts of judgment, or the entries of judgment against
Borrower or any Guarantor hereunder if the aggregate amount of all such
judgments is less than $50,000 and such judgments are released within sixty (60)
days of the filing, recording or entry of such judgment.
(f) Borrower or any Guarantor hereunder shall become insolvent, or shall
suffer or consent to or apply for the appointment of a receiver, trustee,
custodian or liquidator of itself or any of its property, or shall generally
fail to pay its debts as they become due, or shall make a general assignment for
the benefit of creditors; Borrower or any Guarantor hereunder shall file a
voluntary petition in bankruptcy, or seeking reorganization, in order to effect
a plan or other arrangement with creditors or any other relief under the
Bankruptcy Reform Act, Title 11 of the United States Code, as amended or
recodified from time to time ("Bankruptcy Code"), or under any state or federal
law granting relief to debtors, whether now or hereafter in effect; or any
involuntary petition or proceeding pursuant to the Bankruptcy Code or any other
applicable state or federal law relating to bankruptcy, reorganization or other
relief for debtors is filed or commenced against Borrower or any Guarantor
hereunder, or Borrower or any such Guarantor shall file an answer admitting the
jurisdiction of the court and the material allegations of any involuntary
petition; or Borrower or any such Guarantor shall be adjudicated a bankrupt, or
an order for relief shall be entered against Borrower or any such Guarantor by
any court of competent jurisdiction under the Bankruptcy Code or any other
applicable state or federal law relating to bankruptcy, reorganization or other
relief for debtors.
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(g) The dissolution or liquidation of Borrower or either Guarantor; or
Borrower or either Guarantor, or any of their directors or stockholders
respectively, shall take action seeking to effect the dissolution or liquidation
of Borrower or such Guarantor.
(h) Any change in ownership during the term of this Agreement of an
aggregate of twenty-five percent (25%) or more of the common stock of
stockholders' equity in Borrower.
(i) Any "Event of Default" as defined under the Senior Loan Documents,
the Seller's Note or the MCA Loan Documents or any amendments, modifications or
restatements thereof.
SECTION 6.02 REMEDIES. Upon (a) the occurrence of any Event of Default
under subsection 6.1(f) above, all Indebtedness including principal and accrued
and unpaid interest outstanding under each of the Loan Documents shall become
automatically due and payable and (b) upon the occurrence of any other Event of
Default, all Indebtedness including all principal and accrued and unpaid
interest outstanding under each of the Loan Documents, any term thereof to the
contrary notwithstanding, shall at Lender's option and without notice become
immediately due and payable; in each case without presentment, demand, or any
notices of any kind, including without limitation notice of nonperformance,
notice of protest, protest, notice of dishonor, notice of intention to
accelerate or notice of acceleration, all of which are hereby expressly waived
by each Borrower. Upon acceleration of the Indebtedness, Lender shall have all
rights, powers and remedies available under each of the Loan Documents, or
accorded by law, including without limitation the right to resort to any or all
security for any credit subject hereto and to exercise any or all of the rights
of a beneficiary or secured party pursuant to applicable law. All rights, powers
and remedies of Lender may be exercised at any time by Lender and from time to
time after the occurrence of an Event of Default, are cumulative and not
exclusive, and shall be in addition to any other rights, powers or remedies
provided by law or equity.
ARTICLE VII.
MISCELLANEOUS
SECTION 7.01 NO WAIVER. No delay, failure or discontinuance of Lender in
exercising any right, power or remedy under any of the Loan Documents shall
affect or operate as a waiver of such right, power or remedy; nor shall any
single or partial exercise of any such right, power or remedy preclude, waive or
otherwise affect any other or further exercise thereof or the exercise of any
other right, power or remedy. Any waiver, permit, consent or approval of any
kind by Lender of any breach of or default under any of the Loan Documents must
be in writing and shall be effective only to the extent set forth in such
writing.
SECTION 7.02 NOTICES. All notices, requests and demands which any party is
required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to each party at the following address:
BORROWER: XXXXX-XXXXXXXX CORPORATION
0000 Xxxxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
LENDER: XXXXX FARGO ENERGY CAPITAL, INC.
0000 Xxxxxxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit in
the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy,
upon receipt.
SECTION 7.03 COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to Lender
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees), expended or incurred by Lender in connection with (a) the
negotiation and preparation of this Agreement and the other Loan Documents,
Lender's continued administration hereof and thereof,
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and the preparation of any amendments and waivers hereto and thereto, (b) the
enforcement of Lender's rights and/or the collection of any amounts which become
due to Lender under any of the Loan Documents, (c) the prosecution or defense of
any action in any way related to any of the Loan Documents, including without
limitation, any action for declaratory relief, whether incurred at the trial or
appellate level, in an arbitration proceeding or otherwise, and including any of
the foregoing incurred in connection with any bankruptcy proceeding (including
without limitation, any adversary proceeding, contested matter or motion brought
by Lender or any other person) relating to any Borrower or any other person or
entity, (d) the performance, prior to the date hereof and after any Event of
Default, of an asset appraisal by an independent qualified appraiser approved by
Lender; and (e) up to two (2) collateral audits performed by Lender per fiscal
year with respect to the collateral or any other matters relating to the loans
provided for in this Agreement and/or Borrower's compliance with the terms and
provisions of this Agreement.
SECTION 7.04 SUCCESSORS, ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties; provided however, that
Borrower may not assign or transfer its interest hereunder without Lender's
prior written consent. Lender reserves the right to sell, assign, transfer,
negotiate or grant participations in all or any part of, or any interest in,
Lender's rights and benefits under each of the Loan Documents. In connection
therewith, Lender may disclose all documents and information which Lender now
has or may hereafter acquire relating to any credit subject hereto, Borrower or
its business, any guarantor hereunder or the business of such guarantor, or any
collateral required hereunder.
SECTION 7.05 AMENDMENT. This Agreement may be amended or modified only in
writing signed by each party hereto.
SECTION 7.06 NO THIRD PARTY BENEFICIARIES. This Agreement is made and entered
into for the sole protection and benefit of the parties hereto and their
respective permitted successors and assigns, and no other person or entity shall
be a third party beneficiary of, or have any direct or indirect cause of action
or claim in connection with, this Agreement or any other of the Loan Documents
to which it is not a party.
SECTION 7.07 TIME. Time is of the essence of each and every provision of this
Agreement and each other of the Loan Documents.
SECTION 7.08 SEVERABILITY OF PROVISIONS. If any provision of this Agreement
shall be prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or any remaining provisions of this
Agreement.
SECTION 7.09 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when executed and delivered shall be deemed to be an
original, and all of which when taken together shall constitute one and the same
Agreement.
SECTION 7.10 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas.
SECTION 7.11 SAVINGS CLAUSE. It is the intention of the parties to comply
strictly with applicable usury laws. Accordingly, notwithstanding any provision
to the contrary in the Loan Documents, in no event shall any Loan Documents
require the payment or permit the payment, taking, reserving, receiving,
collection or charging of any sums constituting interest under applicable laws
that exceed the maximum amount permitted by such laws, as the same may be
amended or modified from time to time (the "Maximum Rate"). If any such excess
interest is called for, contracted for, charged, taken, reserved or received in
connection with any Loan Documents, or in any communication by or any other
person to Borrower or any other person, or in the event that all or part of the
principal or interest hereof or thereof shall be prepaid or accelerated, so that
under any of such circumstances or under any other circumstance whatsoever the
amount of interest contracted for, charged, taken, reserved or received on the
amount of principal actually outstanding from time to time under the Loan
Documents shall exceed the Maximum Rate, then in such event it is agreed that:
(i) the provisions of this Paragraph shall govern and control; (ii) neither
Borrower nor any other person or entity now or hereafter liable for the payment
of any Loan Documents shall be obligated to pay the amount of such interest to
the extent it is in excess of the Maximum Rate; (iii) any such excess interest
which is or has been received by Lender, notwithstanding this paragraph, shall
be credited against the
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then unpaid principal balance hereof or thereof, or if any of the Loan Documents
has been or would be paid in full by such credit, refunded to Borrower; and (iv)
the provisions of each of the Loan Documents, and any other communication to
Borrower, shall immediately be deemed reformed and such excess interest reduced,
without the necessity of executing any other document, to the Maximum Rate. The
right to accelerate the maturity of the Loan Documents does not include the
right to accelerate, collect or charge unearned interest, but only such interest
that has otherwise accrued as of the date of acceleration. Without limiting the
foregoing, all calculations of the rate of interest contracted for, charged,
taken, reserved or received in connection with any of the Loan Documents which
are made for the purpose of determining whether such rate exceeds the Maximum
Rate shall be made to the extent permitted by applicable laws by amortizing,
prorating, allocating and spreading during the period of the full term of such
Loan Documents, including all prior and subsequent renewals and extensions
hereof or thereof, all interest at any time contracted for, charged, taken,
reserved or received by Lender. The terms of this Paragraph shall be deemed to
be incorporated into each of the other Loan Documents.
To the extent that either Chapter 303 or 306, or both, of the Texas
Finance Code apply in determining the Maximum Rate, Lender hereby elects to
determine the applicable rate ceiling by using the weekly ceiling from time to
time in effect, subject to Lender's right subsequently to change such method in
accordance with applicable law, as the same may be amended or modified from time
to time.
SECTION 7.12 RIGHT OF SETOFF; DEPOSIT ACCOUNTS. Upon and after the occurrence of
an Event of Default, (a) Borrower hereby authorizes Lender and WF Bank, acting
on Lender's behalf, at any time and from time to time, without notice, which is
hereby expressly waived by each Borrower, and whether or not Lender shall have
declared any credit subject hereto to be due and payable in accordance with the
terms hereof, to set off against, and to appropriate and apply to the payment
of, Borrower's obligations and liabilities under the Loan Documents (whether
matured or unmatured, fixed or contingent, liquidated or unliquidated), any and
all amounts owing by Lender to Borrower (whether payable in U.S. dollars or any
other currency, whether matured or unmatured, and in the case of deposits,
whether general or special (except trust and escrow accounts), time or demand
and however evidenced), and (b) pending any such action, to the extent
necessary, to hold such amounts as collateral to secure such obligations and
liabilities and to return as unpaid for insufficient funds any and all checks
and other items drawn against any deposits so held as Lender, in its sole
discretion, may elect. Borrower hereby grants to Lender a security interest in
all deposits and accounts maintained with Lender and with any other financial
institution to secure the payment of all obligations and liabilities of Borrower
to Lender under the Loan Documents subject only to prior liens and security
interests in favor of WF Bank.
SECTION 7.13 BUSINESS PURPOSE. Borrower represents and warrants that each credit
subject hereto is for a business, commercial, investment, agricultural or other
similar purpose and not primarily for a personal, family or household use.
SECTION 7.14 ARBITRATION.
(a) Arbitration. The parties hereto agree, upon demand by any party, to
submit to binding arbitration all claims, disputes and controversies between or
among them (and their respective employees, officers, directors, attorneys, and
other agents), whether in tort, contract or otherwise arising out of or relating
to in any way (i) the loan and related Loan Documents which are the subject of
this Agreement and its negotiation, execution, collateralization,
administration, repayment, modification, extension, substitution, formation,
inducement, enforcement, default or termination; or (ii) requests for additional
credit.
(b) Governing Rules. Any arbitration proceeding will (i) proceed in a
location in Texas selected by the American Arbitration Association ("AAA"); (ii)
be governed by the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the documents
between the parties; and (iii) be conducted by the AAA, or such other
administrator as the parties shall mutually agree upon, in accordance with the
AAA's commercial dispute resolution procedures, unless the claim or counterclaim
is at least $1,000,000.00 exclusive of claimed interest, arbitration fees and
costs in which case the arbitration shall be conducted in accordance with the
AAA's optional procedures for large, complex commercial disputes (the commercial
dispute resolution procedures or the optional procedures for large, complex
commercial disputes to be referred to, as applicable, as the "Rules"). If there
is any inconsistency between the terms hereof and the Rules, the terms and
procedures set forth herein shall control. Any party who fails or refuses to
submit to arbitration following
159
a demand by any other party shall bear all costs and expenses incurred by such
other party in compelling arbitration of any dispute. Nothing contained herein
shall be deemed to be a waiver by any party that is a Lender of the protections
afforded to it under 12 U.S.C. Section 91 or any similar applicable state law.
(c) No Waiver of Provisional Remedies, Self-Help and Foreclosure. The
arbitration requirement does not limit the right of any party to (i) foreclose
against real or personal property collateral; (ii) exercise self-help remedies
relating to collateral or proceeds of collateral such as setoff or repossession;
or (iii) obtain provisional or ancillary remedies such as replevin, injunctive
relief, attachment or the appointment of a receiver, before during or after the
pendency of any arbitration proceeding. This exclusion does not constitute a
waiver of the right or obligation of any party to submit any dispute to
arbitration or reference hereunder, including those arising from the exercise of
the actions detailed in Sections (i), (ii) and (iii) of this paragraph.
(d) Arbitrator Qualifications and Powers. Any arbitration proceeding in
which the amount in controversy is $5,000,000.00 or less will be decided by a
single arbitrator selected according to the Rules, and who shall not render an
award of greater than $5,000,000.00. Any dispute in which the amount in
controversy exceeds $5,000,000.00 shall be decided by majority vote of a panel
of three arbitrators; provided however, that all three arbitrators must actively
participate in all hearings and deliberations. The arbitrator will be a neutral
attorney licensed in the State of Texas with a minimum of ten years experience
in the substantive law applicable to the subject matter of the dispute to be
arbitrated. The arbitrator will determine whether or not an issue is
arbitratable and will give effect to the statutes of limitation in determining
any claim. In any arbitration proceeding the arbitrator will decide (by
documents only or with a hearing at the arbitrator's discretion) any pre-hearing
motions which are similar to motions to dismiss for failure to state a claim or
motions for summary adjudication. The arbitrator shall resolve all disputes in
accordance with the substantive law of Texas and may grant any remedy or relief
that a court of such state could order or grant within the scope hereof and such
ancillary relief as is necessary to make effective any award. The arbitrator
shall also have the power to award recovery of all costs and fees, to impose
sanctions and to take such other action as the arbitrator deems necessary to the
same extent a judge could pursuant to the Federal Rules of Civil Procedure, the
Texas Rules of Civil Procedure or other applicable law. Judgment upon the award
rendered by the arbitrator may be entered in any court having jurisdiction. The
institution and maintenance of an action for judicial relief or pursuit of a
provisional or ancillary remedy shall not constitute a waiver of the right of
any party, including the plaintiff, to submit the controversy or claim to
arbitration if any other party contests such action for judicial relief.
(e) Discovery. In any arbitration proceeding discovery will be permitted
in accordance with the Rules. All discovery shall be expressly limited to
matters directly relevant to the dispute being arbitrated and must be completed
no later than 20 days before the hearing date and within 180 days of the filing
of the dispute with the AAA. Any requests for an extension of the discovery
periods, or any discovery disputes, will be subject to final determination by
the arbitrator upon a showing that the request for discovery is essential for
the party's presentation and that no alternative means for obtaining information
is available.
(f) Class Proceedings and Consolidations. The resolution of any dispute
arising pursuant to the terms of this Agreement shall be determined by a
separate arbitration proceeding and such dispute shall not be consolidated with
other disputes or included in any class proceeding.
(g) Payment Of Arbitration Costs And Fees. The arbitrator shall award
all costs and expenses of the arbitration proceeding.
(h) Miscellaneous. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business or by applicable law or
regulation. If more than one agreement for arbitration by or between the parties
potentially applies to a dispute, the arbitration provision most directly
related to the Loan Documents or the subject matter of the dispute shall
control. This arbitration provision shall survive termination, amendment or
expiration of any of the Loan Documents or any relationship between the parties.
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SECTION 7.15 INDEMNIFICATION. Borrower agrees to indemnify Lender, each assignee
or participant hereunder, each of their Affiliates and each of their officers,
directors, employees, representatives, agents, attorneys, accountants and
experts ("Indemnified Parties") from, hold each of them harmless against and
promptly upon demand pay or reimburse each of them for, the Indemnity Matters
(hereafter defined) which may be incurred by or asserted against or involve any
of them (whether or not any of them is designated a party thereto) as a result
of, arising out of or in any way related to (i) any actual or proposed use by
Borrower of the proceeds of any of the Loans, (ii) the execution, delivery and
performance of the Loan Documents, (iii) the operations of the business of
Borrower, (iv) the failure of Borrower to comply with the terms of any Loan
Document or this Agreement, or with any applicable law, (v) any inaccuracy of
any representation or any breach of any warranty of Borrower set forth in any of
the Loan Documents, (vi) any assertion that any Indemnified Party was not
entitled to receive the proceeds received pursuant to the Loan Documents or
(vii) any other aspect of the Loan Documents, including, without limitation, the
reasonable fees and disbursements of counsel and all other expenses incurred in
connection with investigating, defending or preparing to defend any such action,
suit, proceeding (including any investigations, litigation or inquiries) or
claim and including all Indemnity Matters arising by reason of the ordinary
negligence of any Indemnified Party, but excluding all Indemnity Matters arising
solely by reason of claims between the Lender or any assignee or participant, or
any such party's shareholders against Lender or any assignee or participant or
by reason of the gross negligence or willful misconduct on the part of the
Indemnified Party. "Indemnity Matters" shall mean any and all actions, suits,
proceedings (including any investigations, litigation or inquiries), claims,
demands and causes of action made or threatened against a person and, in
connection therewith, all losses, liabilities, damages (including, without
limitation, consequential damages) or reasonable costs and expenses of any kind
or nature whatsoever incurred by such person whether caused by the sole or
concurrent negligence of such person seeking indemnification.
SECTION 7.16 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, BORROWER HEREBY IRREVOCABLY AND EXPRESSLY WAIVES ALL RIGHT TO A TRIAL BY
JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT,
TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE
LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY OR THE ACTIONS OF LENDER
IN THE NEGOTIATION, ADMINISTRATION OR ENFORCEMENT THEREOF.
NOTICE: THIS DOCUMENT AND ALL OTHER DOCUMENTS RELATING TO THE INDEBTEDNESS
CONSTITUTE A WRITTEN LOAN AGREEMENT WHICH REPRESENTS THE FINAL AGREEMENT BETWEEN
THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES RELATING TO THE INDEBTEDNESS.
[The remainder of this page intentionally blank. Signature page to follow.]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
XXXXX FARGO ENERGY CAPITAL, INC.
By:
_____________________________________
Xxxx Xxxxxxx
Senior Vice President
XXXXX-XXXXXXXX CORPORATION
By:
_____________________________________
Xxxxxxx X. Xxxxxxxxxxxx
Chairman and Chief Executive Off
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