EXHIBIT 10.1
MERIDIAN BANK TEXAS
000 Xxxxxxxxx Xxxxxx, Xxx. 000
Xxxx Xxxxx, Xxxxx 00000
December 7, 2009
GATEWAY ENERGY CORPORATION
0000 Xxxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Re: Loan Agreement
Ladies and Gentlemen:
This letter sets forth the Loan Agreement (this "Loan Agreement") among
GATEWAY ENERGY Corporation ("Borrower"), a Delaware corporation; GATEWAY
PIPELINE COMPANY; GATEWAY OFFSHORE PIPELINE COMPANY; GATEWAY PROCESSING COMPANY;
and GATEWAY ENERGY MARKETING COMPANY (collectively "Guarantors"); and MERIDIAN
BANK ("Lender"), with respect to loans from Lender to Borrower and obligations
of Borrower and Guarantors to Lender.
1. Loan. (a) Subject to the terms and conditions set forth in this Loan
Agreement and the other agreements, instruments, and documents executed and
delivered in connection herewith (collectively the "Loan Documents"), Lender
agrees to make a revolving loan in the maximum amount of $6,000,000.00 to
Borrower (the "Revolving Loan") on the terms set forth in the Revolving
Promissory Note attached as Exhibit A (the "Revolving Note"), for the purposes
set forth below. The unpaid principal balance of the Revolving Note shall bear
interest from the date advanced until paid or until default or maturity at the
rates set forth in the Revolving Note; provided, however, that the interest rate
on the Revolving Note shall never fall below a floor rate of five and one-half
percent (5.5%) per annum. Subject to the terms and conditions hereof, Borrower
may borrow, repay, and reborrow on a revolving basis from time to time during
the period commencing on the date hereof and continuing through 11:00 a.m. (Fort
Worth, Texas time) on April 30, 2012 (the "Termination Date"), such amounts as
Borrower may request under the Revolving Loan; provided, however, the total
principal amount outstanding at any time shall not exceed the lesser of (i) the
aggregate sums permitted under the Borrowing Base (as defined below), which is
initially set at $3,000,000, subject to the MCR (as defined below), or (ii)
$6,000,000.00. All sums advanced under the Revolving Loan, together with all
accrued but unpaid interest thereon, shall be due and payable in full on the
Termination Date.
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DECEMBER 7, 2009
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(b) Advances on the Revolving Loan may be used only for the following
purposes: (i) refinancing or replacing indebtedness, or a commitment to furnish
credit, owing by Borrower to Western National Bank ("WNB"); (ii) the acquisition
and development of midstream oil and gas assets; (iii) general corporate and
working capital purposes; and (iv) issuance of Letters of Credit (as defined
below).
(c) At the request of Borrower, Lender may from time to time issue one
or more letters of credit for the account of Borrower or any affiliates (the
"Letters of Credit"). Borrower's availability on the Revolving Loan will be
reduced by the face amount of all unexpired Letters of Credit. Any fundings
under any Letters of Credit will be treated as an advance on the Revolving Loan
and will be secured by the Security Documents (as defined below). Unless Lender
elects otherwise, Lender shall not be obligated to issue a Letter of Credit if
the aggregate face amount of all outstanding Letters of Credit exceeds
$1,000,000. All Letters of Credit shall be for a term of up to one year (or
longer if necessary for regulatory requirements) but shall expire not later than
five days prior to the Termination Date, unless adequately secured by cash
collateral held by Lender. Borrower will sign and deliver Lender's customary
forms for the issuance of Letters of Credit. Borrower agrees to pay to Lender a
Letter of Credit fee due upon issuance and equal to the greater of (i) $150.00,
or (ii) one and one-half percent (1.5%) per annum, calculated on the aggregated
stated amount of each Letter of Credit for the stated duration thereof (computed
on the basis of actual days elapsed as if each year consisted of 360 days). Any
renewal or extension of a Letter of Credit will be treated as a new issuance for
the purpose of the Letter of Credit fees.
(d) Borrower agrees to pay to Lender the following fees that are
non-refundable and earned by Lender upon execution of this Loan Agreement unless
otherwise stated:
(i) Upon execution of this Loan Agreement, Borrower agrees to pay
Lender an Origination Fee in the amount of $25,000; $5,000 of which has been
previously paid to Lender.
(ii) Borrower agrees to pay to Lender an Unused Fee equal to
one-half of one percent (0.5%) per annum (computed on the basis of actual days
elapsed and as if each calendar year consisted of 360 days) of the average for
the period of calculation of an amount determined daily equal to the difference
between the Borrowing Base and the aggregate outstanding principal balance of
the Revolving Loan at such time. This Unused Fee is payable quarterly within ten
(10) days of Borrower 's receipt of an invoice from Lender, setting forth
evidence of the calculation of the Unused Fee for the preceding calendar
quarter.
(e) The Revolving Loan, all other loans now or hereafter made by
Lender to Borrower, and any renewals or extensions of or substitutions for those
loans, will be referred to collectively as the "Loans." The Revolving Note, all
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DECEMBER 7, 2009
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other promissory notes now or hereafter payable by Borrower to Lender, and any
renewals or extensions of or substitutions for those notes, will be referred to
collectively as the "Notes."
2. Collateral. (a) Payment of the Notes, all obligations with respect to
Letters of Credit, and all other fees and expenses due pursuant to this Loan
Agreement or the other Loan Documents (as defined below) will be secured by the
first liens and first security interests created or described in the following
(collectively the "Security Documents"): (i) the mortgages and deeds of trust
(collectively the "Deed of Trust") described in Schedule 1 attached, executed by
Gateway Pipeline Company and Gateway Offshore Pipeline Company originally in
favor of WNB, and assigned to Lender by Assignment of Note and Liens of even
date herewith and amended to secure the Notes and Loans; (ii) a Louisiana
Mortgage covering certain assets off-shore of the State of Louisiana; (iii) all
other documents, notices, and financing statements described in Schedule 1
attached, the same having been assigned to Lender by WNB; (iv) a Commercial
Security Agreement (collectively the "Security Agreement") of even date,
executed by Borrower and each Guarantor in favor of Lender, and covering all
personal property of Borrower and each Guarantor; (v) a Pledge and Security
Agreement of even date executed by Borrower in favor of Lender and covering
Borrower's stock in Guarantors; and (vi) any other security documents now or
hereafter executed in connection with the Loans. All pipelines and gathering
systems and all other real and personal property now or hereafter mortgaged to
Lender by Borrower or any of the Guarantors, including the property covered by
the Deed of Trust and the Security Agreement, will be referred to as the
"Properties." If requested by Lender, Borrower will execute in favor of Lender
mortgages, deeds of trust, security agreements, or amendments, in Proper Form
(as defined below), mortgaging any additional midstream oil and gas properties
and all additional interests in the Properties acquired by Borrower.
(b) Payment of the Notes and all other fees and expenses due pursuant
to this Loan Agreement or the other Loan Documents, also be guaranteed by each
of the Guarantors pursuant to Commercial Guaranties in Proper Form (collectively
the "Guaranties"). The Loans shall also be guaranteed by all existing and
hereafter acquired companies, subsidiaries, or partnerships of Borrower; and
Borrower agrees to cause all such companies, subsidiaries, and partnerships to
execute and deliver guaranties in Proper Form to Lender.
(c) Borrower shall, upon request of Lender, deliver to Lender title
opinions and/or other title information acceptable to Lender covering the
Properties, consisting of real estate owned by Borrower, along with such other
information regarding title as Lender shall reasonably request, all in Proper
Form, and, in the case of owned real estate, from attorneys or landmen
acceptable to Lender. Lender reserves the right to immediately exclude any
property from the Borrowing Base if Lender learns of any material title issue
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DECEMBER 7, 2009
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with respect to the property or if Lender's review of Borrower's title to the
property indicates that Borrower's title is unacceptable to Lender, in its sole
discretion.
(d) After an Event of Default (as defined below) that remains uncured
after the expiration of any notice and cure period required by this Loan
Agreement, or if there is an existing Borrowing Base deficiency that is not
addressed by Borrower in accordance with Section 3(b) below, Lender reserves the
right to require Borrower to set up a lockbox account to be managed by Lender
for purposes of collecting pipeline revenues and other accounts receivable and
payment rights (collectively, "Receivables") attributable to Borrower's interest
in the Properties. Borrower agrees that upon Lender's election to require the
lockbox after an Event of Default, Lender will receive Receivables for
application to the Revolving Note; and, in such event, Borrower shall be deemed
to have directed all account debtors and other obligors with respect to the
Receivables to remit all payments in respect thereof directly to Lender, if
Lender so elects. Any Receivables received in the lockbox account by Lender that
are attributable to another person's or entities' interest in the Properties
shall be released immediately to Borrower upon Borrower's request. All other
Receivables received in the lockbox account by Lender in excess of the current
scheduled monthly payment and any other fees or expenses owed to Lender will be
transferred to Borrower at the end of each month for its use consistent with the
provisions of this Loan Agreement, so long as there is no existing Event of
Default. If the Receivables received in the lockbox during any month are not
sufficient to make the scheduled monthly payment, Borrower will pay Lender the
deficiency within ten (10) days.
(e) Unless a security interest would be prohibited by law or would
render a nontaxable account taxable, Borrower and Guarantors grant to Lender a
contractual possessory security interests in, and hereby assign, pledge, and
transfer to Lender all Borrower's and Guarantor's rights in any deposits or
accounts now or hereafter maintained with Lender (whether checking, savings, or
any other account), excluding, however, accounts maintained by Borrower or any
Guarantors at Lender for the purpose of revenue distribution to third parties
entitled to those revenues and any other accounts held by Borrower or any
Guarantors for the benefit of a third party. Borrower authorizes Lender, to the
extent permitted by applicable law, to charge or setoff any sums owing on the
Loans against any and all such deposits and accounts; and Lender shall be
entitled to exercise the rights of offset and banker's lien against all such
accounts and other property or assets of Borrower or any Guarantors with or in
the possession of Lender to the extent of the full amount of the Loans.
3. Borrowing Base. (a) On or about December 1st of each year,
commencing December 1, 2010, and at any other time and from time to time while
this Loan Agreement is in force, Lender may determine or redetermine, in its
sole discretion, a Borrowing Base. At any time that Borrower pledges additional
collateral pursuant to a request by Lender under Section 2 above, Borrower may
request in writing a redetermination of the Borrowing Base and Lender will so
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DECEMBER 7, 2009
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redetermine the Borrowing Base and notify Borrower of the result of the
redetermination within ten (10) days. The term "Borrowing Base" refers to the
designated loan value (as calculated by Lender in its sole discretion) assigned
to the discounted present value of future net income accruing to the Properties
based upon Lender's in-house evaluation. Lender's determination of the Borrowing
Base will use such methodology, assumptions, and discount rates customarily used
by Lender with respect to credits of a similar size and nature in assigning
collateral value to the Properties and will be based upon such other credit
factors or financial information available to Lender at the time of each
determination, including, without limitation, current market conditions and
Borrower's and Guarantors' assets, liabilities, cash flow, liquidity, business,
properties, prospects, management, and ownership. Borrower acknowledges that
increases in the Borrowing Base are subject to appropriate credit approval by
Lender and may be subject to additional terms and conditions.
(b) The outstanding principal balance owing on the Revolving Note may
not exceed the Borrowing Base at any time, subject to the payout provisions
below in the event of a Borrowing Base decrease. A decrease in the Borrowing
Base will result in an immediate decrease in Lender's commitment under the
Revolving Loan. If the redetermined Borrowing Base is less than the sum of the
outstanding principal then owing on the Revolving Note, Lender will notify
Borrower of the amount of the Borrowing Base and the amount of the deficiency.
Within thirty (30) days after notice is sent by Lender, Borrower shall remedy
the deficiency by either: (i) making a lump sum payment on the Revolving Note to
reduce the principal outstanding to an amount equal to or less than the new
Borrowing Base; or (ii) mortgaging additional collateral, which must be
acceptable to Lender as to type, value, and title.
(c) At the time of any redetermination, Lender reserves the right to
establish an equal Monthly or Quarterly Commitment Reduction ("MCR") amount by
which the Borrowing Base shall be automatically reduced effective as of each
calendar month or quarter until the next Borrowing Base redetermination.
Lender's determination of the MCR will use such methodology, assumptions, and
discount rates customarily used by Lender with respect to credits of a similar
size and nature in determining commitment reductions and will be based upon such
other credit factors or financial information available to Lender at the time of
each determination, including, without limitation, the value and economic life
of the Properties, and Borrower's assets, liabilities, cash flow, liquidity,
business, properties, prospects, management, and ownership. The MCR will
initially be set at $0. If the outstanding principal balance owing on the
Revolving Note, shall exceed the Borrowing Base solely because of an MCR
reduction, Borrower shall promptly make a single lump sum payment in an amount
sufficient to eliminate such excess so that the outstanding principal balance
does not exceed the Borrowing Base. If the outstanding principal balance owing
on the Revolving Note shall exceed the Borrowing Base because of a Borrowing
Base redetermination (or a Borrowing Base redetermination combined with a
required MCR), Borrower shall have the right to cure set forth in subsection (b)
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above; provided, however, that if the MCR was applicable before the Borrowing
Base redetermination, then the MCR amount will be due in a lump sum and Lender
may continue the MCR at the same amount or change the MCR effective on the
redetermination date.
4. Conditions Precedent. (a) The obligation of Lender to make the initial
advance on the Revolving Loan is subject to Borrower's satisfaction, in Lender's
sole discretion, of the following conditions precedent:
(1) Lender's receipt and satisfactory review by Lender of the 2008
fiscal year-end and September 30, 2009 year-to-date financial statements of
Borrower, including a balance sheet, an income statement, and a cash flow
statement, prepared in conformity with generally accepted accounting principles,
consistently applied ("Accounting Principles").
(2) Borrower shall be in compliance in all material respects with
all existing obligations, there shall be no default at closing, and all
representations and warranties in connection with existing obligations must be
true in all material respects.
(3) the negotiation, execution, and delivery of Loan Documents in
Proper Form, including, but not limited to, the following:
(i) this Loan Agreement;
(ii) the Revolving Note;
(iii) the Assignment of Note and Liens;
(iv) the Security Documents;
(v) the Guaranties;
(vi) Borrowing Resolution; and
(vii) Guarantor Resolutions.
(4) satisfactory evidence that Lender holds perfected liens and
security interests in all collateral for the Loans, subject to no other liens or
security interests other than Permitted Liens (as defined below).
(5) there shall not have occurred any result, occurrence,
condition, change, fact, event, circumstance, or effect that, individually or in
the aggregate, has caused or would reasonably be expected to cause a material
adverse change on (i) the financial condition, business, assets, properties,
liabilities (actual and contingent), operations or results of operations of
Borrower and Guarantors as a whole, (ii) the ability of Borrower or any
Guarantors to own their assets and conduct business in the ordinary course as
presently owned and conducted, or (iii) the ability of Borrower or any
Guarantors to perform their obligations under or consummate the transactions
contemplated by the Loan Documents (collectively "Material Adverse Change").
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(6) there being no order or injunction or other pending or
threatened litigation in which there is a reasonable possibility, in Lender's
judgment, of a decision which could materially adversely affect the ability of
Borrower to perform under the Loan Documents.
(7) Lender shall have completed and approved a review of title
to, and the status of the environmental condition of, Borrower's properties,
including the Borrowing Base properties, and the results of such review shall be
acceptable to Lender in its sole discretion.
(8) Lender's receipt and review, with results satisfactory to
Lender and its counsel, of information regarding litigation, tax, accounting,
insurance, pension liabilities (actual or contingent), real estate leases,
material contracts, debt agreements, property ownership, and contingent
liabilities of Borrower.
(9) Lender's receipt of satisfactory evidence that Borrower has
no outstanding indebtedness other than the Revolving Loan, trade accounts
payable, taxes incurred in the ordinary course of business, and any other
indebtedness permitted pursuant to the terms of this Loan Agreement.
(10) Borrower's establishment of an operating account with
Lender.
(11) Lender's receipt of evidence that Borrower has received an
certificate of authority from the State of Texas and is authorized to do
business in the State of Texas.
(b) Lender will not be obligated to make the Loans or any subsequent
advance on the Loans, if, prior to the time that a loan or advance is made, (i)
there has been any Material Adverse Change, (ii) any representation or warranty
made by Borrower in this Loan Agreement or the other Loan Documents is untrue or
incorrect in any material respect as of the date of the advance or loan, (iii)
Lender has not received all Loan Documents appropriately executed by Borrower,
Guarantors, and all other proper parties, (iv) Lender has requested that
Borrower or Guarantors execute additional loan or security documents consistent
with the terms of this Agreement and those documents have not yet been properly
executed, delivered, and recorded, (v) Borrower is not in compliance with the
Borrowing Base and all reporting requirements, or (vi) an Event of Default (as
defined below) has occurred and is continuing.
5. Representations and Warranties. (a) Borrower hereby represents and
warrants to Lender as follows:
(1) The execution, delivery, and performance of this Loan
Agreement, the Notes, the Security Documents, and all of the other Loan
Documents by Borrower, or any subsidiary of Borrower, have been duly authorized
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by Borrower board of directors, and this Loan Agreement, the Notes, the Security
Documents, and all of the other Loan Documents constitute legal, valid, and
binding obligations of Borrower, enforceable in accordance with their respective
terms;
(2) The execution, delivery, and performance of this Loan
Agreement, the Notes, the Security Documents, and the other Loan Documents, and
the consummation of the transaction contemplated, do not require the consent,
approval, or authorization of any third party and do not and will not conflict
with, result in a violation of, or constitute a default under (i) any provision
of Borrower's Bylaws or any other agreement or instrument binding upon Borrower
or (ii) any law, governmental regulation, court decree, or order applicable to
Borrower;
(3) Each financial statement of Borrower, now or hereafter
supplied to Lender, was (or will be) prepared in accordance with Accounting
Principles, in Proper Form, and truly discloses and fairly presents in all
material respects Borrower's financial condition as of the date of each such
statement, and there has been no Material Adverse Change subsequent to the date
of the most recent financial statement supplied to Lender;
(4) There are no actions, suits, or proceedings pending or, to
Borrower's or Guarantors' knowledge, threatened against or affecting Borrower,
Guarantors, or the Properties, before any court or governmental department,
commission, or board, which, if determined adversely, would reasonably be
expected to cause a Material Adverse Change;
(5) Borrower has filed all federal, state, and local tax reports
and returns required by any law or regulation to be filed and has either duly
paid all taxes, duties, and charges indicated due on the basis of such returns
and reports, or made adequate provision for the payment thereof, and the
assessment of any material amount of additional taxes in excess of those paid
and reported is not reasonably expected;
(6) 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 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, unless the reporting requirements have been waived by the Pension
Benefit Guaranty Corporation; and Borrower has met its minimum funding
requirements under ERISA with respect to each Plan;
(7) Borrower has disclosed to Lender all agreements, or accurate
examples thereof, materially affecting Borrower's properties and its operations,
and Borrower covenants to provide such additional information as Lender may
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reasonably request from time to time regarding Borrower or its properties,
including without limitation, gas transportation agreements and advance payment
contracts;
(8) Borrower certifies that Schedule 2 sets forth, as of the date
of this Loan Agreement, a true and correct organizational chart and list of all
subsidiaries or other entities owned by Borrower indicating the ownership in
each; and
(9) As of the date of this Loan Agreement, Borrower has entered
into no existing ISDA Agreements or hedge transactions with any parties.
(b) Guarantors hereby represent and warrant as follows:
(1) The execution, delivery, and performance of this Loan
Agreement, the Guaranties, and all of the other Loan Documents have been duly
authorized by each Guarantor's board of directors; and this Loan Agreement, the
Guaranties, and all other Loan Documents constitute legal, valid, and binding
obligations of that entity, enforceable in accordance with their respective
terms;
(2) Each financial statement of Guarantors, now or hereafter
supplied to Lender, was (or will be) prepared in accordance with Accounting
Principles, in Proper Form, and truly discloses and fairly presents each
Guarantors' financial condition as of the date of each such statement, and there
has been no Material Adverse Change subsequent to the date of the most recent
financial statement supplied to Lender;
(3) There are no actions, suits, or proceedings pending or
threatened against or affecting Guarantors, before any court or governmental
department, commission, or board, which, if determined adversely, would
reasonable be expected to cause a Material Adverse Change; and
(4) Guarantors have filed all federal, state, and local tax
reports and returns required by any law or regulation to be filed and have
either duly paid all taxes, duties, and charges indicated due on the basis of
such returns and reports, or made adequate provision for the payment thereof,
and the assessment of any material amount of additional taxes in excess of those
paid and reported is not reasonably expected.
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6. Covenants. (a) Until the Loans and all other obligations and liabilities
of Borrower under this Loan Agreement, the Notes, the Security Documents, and
the other Loan Documents are fully paid and satisfied, Borrower shall, unless
Lender otherwise consents in writing:
(1) (i) Maintain its existence in good standing in the state of
its formation, maintain its authority to do business in Texas and all other
states in which it is required to qualify, and maintain full legal capacity to
perform all its obligations under this Loan Agreement and the Loan Documents,
(ii) continue to operate its business as presently conducted or as may be
reasonably related or incidental thereto, (iii) not permit a material change in
its ownership, control, or management, (iv) not permit its dissolution,
liquidation, or other termination of existence or forfeiture of right to do
business, (v) not form any subsidiary without notifying Lender in writing at
least ten (10) days in advance, (vi) not permit a merger or consolidation
(unless Borrower is the surviving entity), and (vii) not acquire all or
substantially all of the assets of any other entity without first notifying
Lender in writing at least ten (10) days in advance.
(2) Manage the Properties in an orderly and efficient manner
consistent with good business practices, and perform and comply in all material
respects with all statutes, rules, regulations, and ordinances imposed by any
governmental unit upon the Properties or Borrower and its operations including,
without limitation, compliance with all applicable laws relating to the
environment.
(3) Maintain insurance as customary in the industry or as
reasonably required by Lender, including but not limited to, casualty,
comprehensive property damage, and commercial general liability, and other
insurance, including worker's compensation (if necessary to comply with law),
naming Lender as an additional insured or a loss payee, and containing
provisions prohibiting their cancellation without prior written notice to
Lender, and provide Lender with evidence of the continual coverage of those
policies prior to the lapse of any policy, (it being understood, however, that
Borrower does not currently insure and need not hereafter insure its pipeline
assets against property damage or similar casualty).
(4) Not sell, assign, transfer, or otherwise dispose of all or
any interest in the Properties or any other collateral, except for (i) the
purchase and sale of hydrocarbons in the ordinary course of business (provided,
however, that Borrower may not enter into any contract for the purchase of
hydrocarbons without entering into a corresponding contract for the sale of the
entirety of the volumes to be purchased) or (ii) the sale or transfer of
equipment that is no longer necessary for the business of Borrower or that is
replaced by equipment of at least comparable value and use.
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(5) Promptly inform Lender of (i) any Material Adverse Change,
(ii) all litigation and claims which could reasonably be expected to materially
and adversely affect the financial condition of Borrower or the Properties,
(iii) all actual or contingent material liabilities of Borrower, (iv) any change
in name, identity, or structure of Borrower, and (v) any uninsured or partially
insured loss of any collateral through fire, theft, liability, or property
damage.
(6) Maintain Borrower's books and records in accordance with
Accounting Principles, and permit Lender to examine, audit, and make and take
away copies or reproductions of Borrower's books and records, reasonably
required by Lender, at all reasonable times; and permit such persons as Lender
may designate at reasonable times to visit and inspect the Properties and
examine all records with respect to the Properties; and pay for the reasonable
cost of such examinations, audits, and inspections required by Lender.
(7) Pay and discharge when due all indebtedness and obligations,
including without limitation, all assessments, taxes, governmental charges,
levies, and liens, of every kind and nature, imposed upon Borrower or the
Properties, prior to the date on which penalties would attach, and all lawful
claims that, if unpaid, might become a lien or charge upon the Properties,
income, or profits, and pay all trade payables and other current liabilities
incurred in the ordinary course of business within ninety (90) days of their due
date; provided, however, Borrower will not be required to pay and discharge any
such assessment, tax, charge, levy, lien, or claim so long as (i) the legality
of the same shall be contested in good faith by appropriate judicial,
administrative, or other legal proceedings, and (ii) Borrower has established
adequate reserves with respect to such contested assessment, tax, charge, levy,
lien, or claim in accordance with Accounting Principles.
(8) Not directly or indirectly create, incur, assume, or permit
to exist any indebtedness (including guaranties), secured or unsecured, absolute
or contingent, except for the following (the "Permitted Indebtedness"): (i) the
indebtedness to Lender, (ii) any trade payables, taxes, and current liabilities
incurred in the ordinary course of business, (iii) the existing indebtedness
disclosed in Schedule 3 attached, and (iv) purchase-money indebtedness
(including, without limitation, capital lease obligations) secured by
purchase-money liens permitted under clause (vi) of Section 6(a)(9) of this Loan
Agreement; and not make capital expenditures, other than capital expenditures
financed by proceeds of the Loans, in excess of $500,000 during any fiscal year
of Borrower.
(9) Not mortgage, assign, hypothecate, pledge, or encumber, and
not create, incur, or assume any lien or security interest on or in, the
Properties (or any interest in the Properties), including, without limitation,
any oil and gas properties included in the calculation of the Borrowing Base,
except the following (collectively the "Permitted Liens"): (i) those in favor of
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Lender, (ii) those existing and disclosed to Lender in writing (including,
without limitation, the cash collateral posted by the Borrower to WNB to secure
Borrower's reimbursement obligations with respect to the letters of credit
described in Schedule 3 attached hereto), (iii) liens for taxes not delinquent
or being contested in good faith, (iv) landlord's liens, vendors', carriers',
warehousemen's, repairmen's, mechanics', suppliers', workers', materialmen's,
construction, or other like liens with respect to obligations not overdue or
being contested in good faith, (v) liens resulting from deposits to secure the
payments of workers' compensation or social security, (vi) purchase money
security interests, capital leases, or construction liens that attach solely to
the asset acquired, leased, or constructed, that secure indebtedness in an
amount not exceeding the cost and the fair market value of the asset acquired or
constructed, and (vii) contractual liens that arise in the ordinary course of
business under or in connection with operating agreements, oil and gas leases,
farm-out agreements, contracts for the sale, transportation, or exchange of oil
and natural gas, unitization and pooling declarations and agreements, area of
mutual interest agreements, marketing agreements, processing agreements,
development agreements, gas balancing or deferred production agreements,
injection, repressuring, and recycling agreements, salt water or other disposal
agreements, seismic or other geophysical permits or agreements, and other
agreements which are usual and customary in the oil and gas business and are for
claims which are not delinquent or which are being contested in good faith.
(10) Not make any loans, advances, dividends, or other
distributions to any party, including without limitation, shareholders,
officers, directors, partners, joint venturers, members, managers, relatives, or
affiliates, or any profit sharing or retirement plan, except for (i) loans or
advances to employees of the Borrower for payment of expenses incurred in the
ordinary course of business, (ii) loans or advances by the Borrower to one or
more Guarantors, provided that no Event of Default exists at the time of such
loan or advance, (iii) loans or advances by the Borrower to entities (other than
Guarantors) owned in whole or in party by the Borrower or a Guarantor, provided
that no Event of Default exists at the time of such loan or advance and provided
that the aggregate outstanding amount of all loans and advances pursuant to this
clause (iii) does not exceed $100,000 at any time, (iv) payments to any profit
sharing or retirement plans of the Borrower in existence on the date of this
Loan Agreement, provided that the amount of such payments is consistent with the
Borrower's past payments, (v) distributions by the Borrower to its equity
holders payable solely in stock or other equity interests of the Borrower, and
(vi) such other loans, advances, dividends, distributions or amounts as Lender
shall hereafter approve in writing.
(11) Not purchase, acquire, redeem, or retire any stock or other
ownership interest in Borrower; and not permit any transaction or contract with
any affiliates or related parties (other than, so long as no Event of Default
exists, Guarantors), except at arms length and on market terms.
GATEWAY ENERGY CORPORATION
DECEMBER 7, 2009
Page 13 of 29
(12) Maintain its primary depository accounts and principal
banking relationship at Lender.
(13) INDEMNIFY LENDER AGAINST ALL LOSSES, LIABILITIES,
WITHHOLDING AND OTHER TAXES, CLAIMS, DAMAGES, OR EXPENSES RELATING TO THE LOANS,
THE LOAN DOCUMENTS, OR BORROWER'S USE OF THE LOAN PROCEEDS, INCLUDING BUT NOT
LIMITED TO ATTORNEYS AND OTHER PROFESSIONAL FEES AND SETTLEMENT COSTS, BUT
EXCLUDING, HOWEVER, THOSE CAUSED SOLELY BY OR RESULTING SOLELY FROM ANY GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT BY LENDER; AND THIS INDEMNITY SHALL SURVIVE THE
TERMINATION OF THIS LOAN AGREEMENT.
(14) Comply in all material respects with all applicable
provisions of ERISA, not violate any provision of any Plan, meet its minimum
funding requirements under ERISA with respect to each Plan, and notify Lender in
writing of 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.
(15) If Borrower now or hereafter acquires any wholly-owned
subsidiary or owns any issued and outstanding capital stock or partnership
interests of any companies or partnerships, Borrower shall sign and deliver to
Lender within fifteen (15) days a pledge agreement in Proper Form, creating a
first-priority security interest covering the issued and outstanding capital
stock or partnership interests of all existing and hereafter acquired companies,
subsidiaries, or partnerships of Borrower, and Borrower shall cause the
wholly-owned subsidiary to sign and deliver to Lender within fifteen (15) days a
guaranty in Proper Form, guaranteeing payment of the Loans and all other fees
and expenses due pursuant to this Loan Agreement or the other Loan Documents.
(16) Execute and deliver, or cause to be executed and delivered,
within ten (10) days of Lender's written request, any and all other agreements,
instruments, or documents which Lender may reasonably request in order to give
effect to the transactions contemplated under this Loan Agreement and the Loan
Documents, and to grant, perfect, and maintain liens and security interests on
or in the Properties and related collateral, and promptly cure any defects in
the execution and delivery of any Loan Documents.
(b) Until the Loans and all other obligations and liabilities of
Guarantors under this Loan Agreement, the Guaranties, and the other Loan
Documents are fully paid and satisfied, Guarantors agree and covenant that they
will, unless Lender otherwise consents in writing:
GATEWAY ENERGY CORPORATION
DECEMBER 7, 2009
Page 14 of 29
(1) Not sell, transfer, pledge, encumber, or otherwise dispose of
all or any interest in Borrower;
(2) Promptly inform Lender of (i) any Material Adverse Change,
(ii) all litigation and claims which could materially affect the financial
condition of any Guarantors, and (iii) all actual or contingent material
liabilities; and
(3) Execute and deliver, or cause to be executed and delivered,
any and all other agreements, instruments, or documents which Lender may
reasonably request in order to give effect to the transactions contemplated
under this Loan Agreement and the Loan Documents, and promptly cure any defects
in the execution and delivery of any Loan Documents.
7. Financial Covenants. Until the Loans and all other obligations and
liabilities of Borrower under this Loan Agreement, the Notes, the Security
Documents, and the other Loan Documents are fully paid and satisfied, Borrower
shall, unless Lender otherwise consents in writing, maintain the following
financial covenants:
(a) Maintain at the end of each fiscal quarter a Current Ratio greater
than or equal to 1.25 to 1.0. "Current Ratio" is defined as the ratio of (i)
current assets of Borrower and its subsidiaries on a consolidated basis, plus
until the Termination Date, amounts remaining to be advanced on the Revolving
Loan as limited under Subsection (a) of Section 1 of this Loan Agreement,
divided by (ii) current liabilities (excluding current maturities of long-term
debt) of Borrower and its subsidiaries on a consolidated basis.
(b) Maintain a Debt to Tangible Net Worth Ratio less than or equal to
0.5 to 1.0 as of the end of each fiscal quarter. "Debt to Tangible Net Worth
Ratio" is defined as the ratio of (i) the total amount outstanding on the Loans,
divided by (ii) the total value of Borrower's and its subsidiaries' assets, less
the value of Borrower's and its subsidiaries' intangible assets, less the total
amount of Borrower's and its consolidated subsidiaries liabilities.
(c) Maintain at the end of each fiscal quarter a Debt Service Coverage
Ratio greater than or equal to 1.5 to 1.0. "Debt Service Coverage Ratio" is
defined as the ratio of (i) EBITDA for Borrower and its subsidiaries on a
consolidated basis for the most recent quarter, divided by (ii) interest expense
on the Loans for the quarter, plus actual principal and interest payments on any
other indebtedness of Borrower and its subsidiaries for the most recent fiscal
quarter. "EBITDA" means, for any period, the pre-tax net income of the Borrower
and its consolidated subsidiaries for such period, plus (without duplication and
only to the extent deducted in determining such net income) interest expense of
the Borrower and its consolidated subsidiaries for such period, depreciation,
non-cash amortization, depletion, write down of assets and other non-cash
expenses of the Borrower and its consolidated subsidiaries for such period, plus
GATEWAY ENERGY CORPORATION
DECEMBER 7, 2009
Page 15 of 29
or minus, as the case may be, nonrecurring losses or gains resulting from the
sale of assets during such period (to the extent such losses or gains are
included in the determination of such net income).
Unless otherwise specified, all accounting and financial terms and covenants set
forth above are to be determined according to Accounting Principles,
consistently applied.
8. Reporting Requirements. Until the Loans and all other obligations and
liabilities of Borrower under this Loan Agreement, the Notes, the Security
Documents, and the other Loan Documents are fully paid and satisfied, Borrower
shall, unless Lender otherwise consents in writing, furnish to Lender in Proper
Form:
(1) As soon as available, and in any event within ninety (90)
days of the end of Borrower's fiscal year, annual financial statements for
Borrower, consisting of at least a balance sheet, an income statement, a
statement of cash flows, a statement of operations, and a statement of changes
in owners' equity, audited by an independent certified public accountant
acceptable to Lender and certified by an authorized officer of Borrower (i) as
being true and correct in all material aspects to the best of his knowledge,
(ii) as fairly reporting the financial condition of Borrower as of the close of
the fiscal year and the results of its operations for the year, and (iii) as
having been prepared in accordance with Accounting Principles;
(2) As soon as available, and in any event within sixty (60) days
of the end of each fiscal quarter, quarterly financial statements for Borrower,
consisting of at least a balance sheet, an income statement, a statement of cash
flows, a statement of operations, and a statement of changes in owners' equity,
for the quarter and for the period from the beginning of the fiscal year to the
close of the quarter, certified by an authorized officer of Borrower (i) as
being true and correct in all material aspects to the best of his knowledge,
(ii) as fairly reporting the financial condition of Borrower as of the close of
the fiscal quarter and the results of its operations for the quarter, and (iii)
as having been prepared in accordance with Accounting Principles;
(3) With the quarterly and annual financial statements required
above, a quarterly compliance certificate in the form of Exhibit B attached,
signed by an authorized officer of Borrower and certifying compliance with the
financial covenants and other matters in this Loan Agreement;
(4) On an annual basis, a throughput study of the Borrower's
pipeline assets and other Properties, as follows: Lender reserves the right to
require a third-party throughput study, however, in lieu of this, at least
GATEWAY ENERGY CORPORATION
DECEMBER 7, 2009
Page 16 of 29
annually, the Lender may conduct its own throughput study at a cost to the
Borrower not to exceed $3,000;
(5) Within thirty (30) days of filing, copies of Borrower's
federal, state, and local income tax filings or returns, with all schedules,
attachments, forms, and exhibits;
(6) Within forty-five (45) days of the end of each quarter,
quarterly volume reports for the Properties;
(7) Within three (3) days filing, Borrower shall provide to
Lender full and complete copies of all 10K and 10Q filings made by Borrower or
any of its subsidiaries;
(8) At any time upon request by Lender and within thirty (30)
days of any change thereafter, a list showing the name and address of each
purchaser of oil, gas, and associated hydrocarbons produced from or attributable
to the Properties;
(9) Within five (5) days after Borrower learns of any such
occurrence, a written report of any pending or threatened litigation which would
reasonably be expected to cause a Material Adverse Change or which asserts
damages or claims in an amount in excess of $100,000;
(10) As soon as possible and in any event within five (5) days
after the occurrence of any Event of Default, or any event which, with the
giving of notice or lapse of time or both, would constitute an Event of Default,
the written statement of Borrower setting forth the details of such Event of
Default and the action which Borrower proposes to take with respect thereto; and
(11) Within ten (10) days of Lender's written request, such other
information respecting the condition and the operations, financial or otherwise,
of Borrower and the Properties as Lender may from time to time reasonably
request.
(b) Until the Loans and all other obligations and liabilities of
Guarantors under this Loan Agreement, the Guaranties, and the other Loan
Documents are fully paid and satisfied, each of the Guarantors shall, within ten
(10) days of Lender's written request, furnish Lender information respecting the
condition and the operations, financial or otherwise, of each of the Guarantors
as Lender may from time to time reasonably request.
GATEWAY ENERGY CORPORATION
DECEMBER 7, 2009
Page 17 of 29
9. Events of Default. (a) The occurrence at any time of any of the
following events or the existence of any of the following conditions shall be
called an "Event of Default":
(1) Failure to make punctual payment when due of any sums owing
on any of the Notes or any of the other secured indebtedness (as described in
the Deed of Trust or the Security Agreement) or any other amounts owed by
Borrower to Lender; or
(2) Failure of any of the Obligated Parties (as defined below) to
properly perform any of the obligations, covenants, or agreements, contained in
this Loan Agreement or any of the other Loan Documents; or any representation or
warranty made by Borrower or Guarantors proves to have been false, misleading,
or erroneous in any material respect; or
(3) If Receivables attributable to Borrower's properties are
directed to any party other than the lockbox maintained by Lender following the
establishment of the lockbox under Section 2(d) of this Loan Agreement; or
(4) A failure by Borrower to resolve a Borrowing Base deficiency
in accordance with Section 3(b) of this Loan Agreement; or
(5) Levy, execution, attachment, sequestra-tion, or other writ
against any real or personal property, representing the security for the Loans
(it being understood that the incurrence of a Permitted Lien shall not
constitute an Event of Default under this clause (5)); or
(6) Any "Event of Default" under the Notes or any of the other
Loan Documents, the Events of Default defined in the Notes and Loan Documents
being cumulative to those contained in this Loan Agreement; or
(7) Except as expressly permitted by this Loan Agreement, the
transfer, whether voluntarily or by operation of law, of all or any portion of
the Properties without obtaining Lender's consent; or
(8) The failure of any of the Obligated Parties to pay any money
judgment in excess of $25,000.00, against that party before the expiration of
thirty (30) days after the judgment becomes final, or the failure of any of the
Obligated Parties to obtain dismissal within ninety (90) days of any involuntary
proceeding filed against that party under any Debtor Relief Laws (as defined
below); or
(9) Borrower's liquidation, termination of existence, merger or
consolidation with another (unless Borrower is the surviving entity), forfeiture
of right to do business (except as otherwise permitted under this Loan
GATEWAY ENERGY CORPORATION
DECEMBER 7, 2009
Page 18 of 29
Agreement), or appointment of a trustee or receiver for any part of its property
or the filing of an action seeking to appoint a trustee or receiver (except, in
the case of an involuntary filing, if such action is dismissed within 90 days,
unless prior thereto an order for relief is entered); or
(10) A filing by any of the Obligated Parties of a voluntary
petition in bankruptcy, or taking advantage of any Debtor Relief Laws; or an
answer admitting the material allegations of a petition filed against any of the
Obligated Parties, under any Debtor Relief Laws; or an admission by any of the
Obligated Parties in writing of an inability to pay its or their debts as they
become due; or the calling of any meeting of creditors of any of the Obli-gated
Parties under any Debtor Relief Laws, for the purpose of considering an
arrangement or composition; or
(11) Any of the Obligated Parties revokes or disputes the
validity of or liability under any of the Loan Documents, including any guaranty
or security document.
(b) The term "Obligated Parties" means Borrower, Guarantors, any other
party liable, in whole or in part, for the payment of any of the Notes, whether
as maker, endorser, guaran-tor, surety, or otherwise, and any party executing
any deed of trust, mortgage, security agreement, pledge agreement, assignment,
or other contract of any kind executed as securi-ty in connection with or
pertaining to the Notes or the Loans. The term "Debtor Relief Laws" means any
applicable liquidation, conservatorship, receivership, bankruptcy, morato-rium,
rearrangement, insolvency, reorganization, or similar laws affecting the rights
or remedies of creditors generally, as in effect from time to time.
10. Remedies. (a) Upon the occurrence and during the continuance of any one
or more of the foregoing Events of Default and the expiration of any notice,
cure, or grace period required by subsection (b) below, the entire unpaid
principal balances of the Notes, together with all accrued but unpaid interest
thereon, and all other indebtedness then owing by Borrower to Lender, shall, at
the option of Lender, become immediately due and payable without further
presentation, demand for payment, notice of intent to accelerate, notice of
acceleration or dishonor, protest or notice of protest of any kind, all of which
are expressly waived by Borrower. Any and all rights and remedies of Lender
pursuant to this Loan Agreement or any of the other Loan Documents may be
exercised by Lender, at its option, upon the occurrence and during the
continuance of an Event of Default and the expiration of any notice, cure, or
grace period required by subsection (b) below. All remedies of Lender may be
exercised singularly, concurrently, or consecutively, without waiver or
election.
(b) Upon any Event of Default described in Subsection 9 (a)(1) above
regarding payment of sums owing to Lender, Lender shall provide Borrower with an
invoice for the payment due and Borrower shall have five (5) days grace after
the due date in order to cure the default prior to acceleration of the Notes and
GATEWAY ENERGY CORPORATION
DECEMBER 7, 2009
Page 19 of 29
exercise of any remedies. Upon any other Event of Default described in
Subsection 9 (a) above, Lender shall provide Borrower with written notice of the
Event of Default and Borrower shall have twenty (20) days after notice in order
to cure the Event of Default prior to acceleration of the Notes and exercise of
any remedies; except Borrower shall have no cure period for any voluntary filing
by Borrower under any Debtor Relief Laws, for any voluntary transfer of any
portion of the Properties in violation of this Agreement, without obtaining
Lender's partial release, for any liquidation or termination of existence of
Borrower, or for any Event of Default that is not capable of cure during that
period, including, without limitation, breaches of any negative covenants that
are not capable of cure during that period, and provided that Lender is not
obligated to provide written notice of any Event of Default which Borrower
reports to Lender, but Borrower shall have the benefit of any applicable grace
or cure period required herein.
(c) All rights of Lender under the terms of this Loan Agreement shall
be cumulative of, and in addition to, the rights of Lender under any and all
other agreements between Borrower and Lender (including, but not limited to, the
other Loan Documents), and not in substitution or diminution of any rights now
or hereafter held by Lender under the terms of any other agreement.
11. Waiver and Amendment. Neither the failure nor any delay on the part of
Lender to exercise any right, power, or privilege herein or under any of the
other Loan Documents shall operate as a waiver thereof, nor shall any single or
partial exercise of such right, power, or privilege preclude any other or
further exercise thereof or the exercise of any other right, power, or
privilege. No waiver of any provision in this Loan Agreement or in any of the
other Loan Documents and no departure by Borrower therefrom shall be effective
unless the same shall be in writing and signed by Lender, and then shall be
effective only in the specific instance and for the purpose for which given and
to the extent specified in such writing. No modification or amendment to this
Loan Agreement or to any of the other Loan Documents shall be valid or effective
unless the same is signed by the party against whom it is sought to be enforced.
12. Savings Clause. Regardless of any provision contained in this Loan
Agreement, the Notes, or any of the Loan Documents, it is the express intent of
the parties that at no time shall Borrower or any of the Obligated Parties pay
interest in excess of the Maximum Rate (or any other interest amount which might
in any way be deemed usurious), and Lender will never be considered to have
contracted for or to be entitled to charge, receive, collect, or apply as
interest on any of the Notes, any amount in excess of the Maximum Rate (or any
other interest amount which might in any way be deemed usurious). In the event
that Lender ever receives, collects, or applies as interest any such excess, the
amount which would be excessive interest will be applied to the reduction of the
principal balances of the Notes, and, if the principal balances of the Notes are
paid in full, any remaining excess shall forthwith be paid to Borrower. In
GATEWAY ENERGY CORPORATION
DECEMBER 7, 2009
Page 20 of 29
determining whether the interest paid or payable exceeds the Maximum Rate (or
any other interest amount which might in any way be deemed usurious), Borrower
and Lender shall, to the maximum extent permitted under applicable law: (i)
characterize any non-principal payment (other than payments which are expressly
designated as interest payments hereunder) as an expense or fee rather than as
interest; (ii) exclude voluntary prepayments and the effect thereof; and (iii)
amortize, pro rate, or spread the total amount of interest throughout the entire
contemplated term of the Notes so that the interest rate is uniform throughout
the term. The term "Maximum Rate" means the maximum interest rate which may be
lawfully charged under applicable law.
13. Notices. Any notice or other communications provided for in this Loan
Agreement shall be in writing and shall be given to the party at the address
shown below:
Lender: MERIDIAN BANK TEXAS
Attention: Xxxx Van Son, Senior Vice President
000 Xxxxxxxxx Xxxxxx, Xxx. 000,
Xxxx Xxxxx, Xxxxx 00000
Fax Number (000) 000-0000
With a copy
to counsel
for Lender: Xxxx X. Xxxxxxx
XXXXXX, XXXXXX & XXXXX, P.C.
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxx Xxxxx, Xxxxx 00000-0000
Fax Number (000) 000-0000
Borrower and
Guarantors: GATEWAY ENERGY CORPORATION
Attention: Xxxxx Xxxxxxxxx, CFO
0000 Xxxxxxxxx Xxxxxx, Xxx. 0000
Xxxxxxx, Xxxxx 00000
Fax Number (000) 000-0000
GATEWAY ENERGY CORPORATION
DECEMBER 7, 2009
Page 21 of 29
With a copy
to counsel
for Borrower: Xxxxx Xxxxx
XXXXXXX XXXXXXXX XXXXXx, LLP
0000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx Xxxx, Xxxxxxxx 00000
Fax Number (000) 000-0000
Any such notice or other communication shall be deemed to have been given on the
day it is personally delivered or, if mailed, on the third day after it is
deposited in an official receptacle for the United States mail, or, if faxed, on
the date it is received by the party. Any party may change its address for the
purposes of this Loan Agreement by giving notice of such change in accordance
with this paragraph.
14. Miscellaneous. (a) This Loan Agreement shall be binding upon and inure
to the benefit of Lender, Borrower, and Guarantors, and their respective heirs,
personal representatives, successors, and assigns; provided, however, that
Borrower and Guarantors may not, without the prior written consent of Lender,
assign any rights, powers, duties, or obligations under this Loan Agreement or
any of the other Loan Documents.
(b) THIS LOAN AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE
UNITED STATES OF AMERICA AND SHALL BE PERFORMED IN TARRANT COUNTY, TEXAS.
BORROWER, GUARANTORS, AND LENDER IRREVOCABLY AGREE THAT VENUE FOR ANY ACTION OR
CLAIM RELATED TO THIS LOAN AGREEMENT, THE NOTES, THE LOANS, THE GUARANTIES, OR
THE PROPERTIES SHALL BE IN COURT IN TARRANT COUNTY, TEXAS.
(c) If any provision of this Loan Agreement or any other Loan
Documents is held to be illegal, invalid, or unenforceable under present or
future laws, such provision shall be fully severable and the remaining
provisions of this Loan Agreement or any of the other Loan Documents shall
remain in full force and effect and shall not be affected by the illegal,
invalid, or unenforceable provision or by its severance.
(d) All covenants, agreements, undertakings, representations, and
warranties made in this Loan Agreement and the other Loan Documents shall
survive any closing hereunder.
(e) All documents delivered by Borrower or Guarantors to Lender must
be in Proper Form. The term "Proper Form" means in form, substance, and detail
satisfactory to Lender in its sole discretion.; provided, however, that with
respect to Reporting Requirements under Section 8 "Proper Form" means in form,
substance, and detail satisfactory to Lender in its reasonable discretion.
(f) Without limiting the effect of any provision of any Loan Document
which provides for the payment of expenses and attorneys fees upon the
occurrence of certain events, Borrower shall pay all costs and expenses
(including, without limitation, the reasonable attorneys fees of Lender's
GATEWAY ENERGY CORPORATION
DECEMBER 7, 2009
Page 22 of 29
inside or independent legal counsel) in connection with (i) the preparation of
this Loan Agreement and the other Loan Documents, and any and all extensions,
renewals, amendments, supplements, extensions, or modifications thereof, (ii)
any action reasonably required in the course of administration of the Loans,
(iii) resolution of any disputes with Borrower or Guarantors related to the
Loans or this Loan Agreement, and (iv) any action in the enforcement of Lender'
s rights upon the occurrence of an Event of Default.
(g) If there is a conflict between the terms of this Loan Agreement
and the terms of any of the other Loan Documents, the terms of this Loan
Agreement will control.
(h) Lender shall have the right, with the consent of Borrower (unless
an Event of Default has occurred and is continuing, in which case no consent is
needed), which will not be unreasonably withheld, (i) to assign the Loans or
commitment and be released from liability thereunder, and (ii) to transfer or
sell participations in the Loans or commitment with the transferability of
voting rights limited to principal, rate, fees, and term.
(i) This Loan Agreement may be separately executed in any number of
counterparts, each of which will be an original, but all of which, taken
together, shall be deemed to constitute one agreement, and Lender is authorized
to attach the signature pages from the counterparts to copies for Lender and
Borrower. At Lender's option, this Loan Agreement and the Loan Documents may
also be executed by Borrower and Guarantors in remote locations with signature
pages faxed to Lender. Borrower and Guarantors agree that the faxed signatures
are binding upon Borrower and Guarantors, and Borrower and Guarantors further
agree to promptly deliver the original signatures for this Loan Agreement and
all Loan Documents by overnight mail or expedited delivery. It will be an Event
of Default if they fail to promptly deliver all required original signatures.
15. WNB Assigned Credit Agreement. This Loan Agreement replaces the Credit
Agreement, dated August 23, 2007, among Borrower, as borrower thereunder, and
Western National Bank, as Administrative Agent and a Lender thereunder, as
amended and as assigned by Western National Bank to Lender, provided that this
Loan Agreement shall not act as a novation or discharge of any indebtedness
outstanding under such Credit Agreement that has been assigned by Western
National Bank to Lender or act to discharge limit or otherwise impair any
security interests, mortgage liens, or other collateral that have been assigned
by Western National Bank to Lender, and all such assigned security interests,
mortgage liens, and other collateral shall remain in effect and continue to
secure the Loans and other obligations of the Borrower to the Lender under this
Loan Agreement and the other Loan Documents; and provided that nothing in this
Loan Agreement or the other Loan Documents shall act to impair or otherwise
adversely affect the creation, attachment, perfection, or priority of such
assigned security interests, mortgage liens, or other collateral.
GATEWAY ENERGY CORPORATION
DECEMBER 7, 2009
Page 23 of 29
16. Notice of Final Agreement. (a) In connection with the Loans, Borrower,
Guarantors, and Lender have executed and delivered this Loan Agreement and the
Loan Documents (collectively the "Written Loan Agreement").
(b) It is the intention of Borrower, Guarantors, and Lender that this
paragraph be incorporated by reference into each of the Loan Documents.
Borrower, Guarantors, and Lender each warrant and represent that their entire
agreement with respect to the Loans is contained within the Written Loan
Agreement, and that no agreements or promises have been made by, or exist by or
among, Borrower, Guarantors, and Lender that are not reflected in the Written
Loan Agreement.
(c) THE WRITTEN LOAN AGREEMENT 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 AGREEMENTS
BETWEEN THE PARTIES.
If the foregoing correctly sets forth our agreement, please so acknowledge
by signing and returning the additional copy of this Loan Agreement enclosed to
me.
Yours very truly,
MERIDIAN BANK TEXAS
By: /s/ Xxxx Van Son
--------------------------------
Xxxx Van Son,
Senior Vice President
Accepted and agreed to
this 7th day of December, 2009:
BORROWER:
GATEWAY ENERGY CORPORATION
GATEWAY ENERGY CORPORATION
DECEMBER 7, 2009
Page 24 of 29
By: /s/ Xxxxxx Xxxxxx
-------------------------------
Name: Xxxxxx Xxxxxx
Title: President and Chief Executive Officer
GATEWAY ENERGY CORPORATION
DECEMBER 7, 2009
Page 25 of 29
GUARANTORS:
GATEWAY PIPELINE COMPANY GATEWAY OFFSHORE PIPELINE COMPANY
By: /s/ Xxxxxx Xxxxxx By: /s/ Xxxxxx Xxxxxx
------------------------------- ------------------------------
Name: Xxxxxx Xxxxxx Name: Xxxxxx Xxxxxx
Title: President Title: President
GATEWAY PROCESSING COMPANY GATEWAY ENERGY MARKETING COMPANY
By: /s/ Xxxxxx Xxxxxx By: /s/ Xxxxxx Xxxxxx
------------------------------- ------------------------------
Name: Xxxxxx Xxxxxx Name: Xxxxxx Xxxxxx
Title: President Title: President
Exhibits and Schedules
----------------------
Exhibit A - Revolving Note
Exhibit B - Compliance Certificate
Schedule 1 - Deed of Trust
Schedule 2 - Organizational Chart
Schedule 3 - Existing Debts
EXHIBIT A
MERIDIAN BANK TEXAS
REVOLVING PROMISSORY NOTE
-------------------------
$6,000,000.00 Fort Worth, Texas December 7, 2009
Promise to Pay. For value received, GATEWAY ENERGY CORPORATION
("Borrower"), a Delaware corporation, promises to pay to the order of MERIDIAN
BANK TEXAS ("Lender"), at its offices in Tarrant County, Texas, at 000 Xxxxxxxxx
Xxxxxx, Xxxxx 000, Xxxx Xxxxx, Xxxxx 00000, the sum of Six Million Dollars
($6,000,000.00) ("Total Principal Amount"), or such amount less than the Total
Principal Amount which is outstanding from time to time, in legal and lawful
money of the United States of America, together with interest thereon from this
date until maturity at a fluctuating rate per annum equal to the lesser of (a)
the sum of the Prime Rate in effect from day to day, plus one and one-half
percent (1.50%); or (b) the Maximum Rate; provided, however, that the interest
rate payable on this Note shall never fall below a floor rate of five and
one-half percent (5.5%) per annum. "Prime Rate" shall mean at any time the rate
of interest per annum then most recently established by The Wall Street Journal
as the "prime rate" on corporate loans for large U.S. commercial banks, as
published in the Money Rates section of The Wall Street Journal, computed on the
basis of a year of 360 days and for the actual number of days elapsed (including
the first day but excluding the last day); and "Maximum Rate" shall mean at the
particular time in question the maximum rate of interest which, under applicable
law, may then be charged on this Note. Each change in the interest rate shall
become effective without notice to Borrower on the effec-tive date of each
change in the Maximum Rate or the Prime Rate, as the case may be. If at any time
the rate based on the Prime Rate, together with all charges made in connection
with the loan evidenced by this Note that may be treated as interest under
applicable law, shall exceed the Maximum Rate, thereby causing the interest on
the principal of the Note to be limited to the Maximum Rate, then
notwithstanding any subse-quent change in either the Prime Rate or the Maximum
Rate that would otherwise reduce the rate based on the Prime Rate to less than
the Maximum Rate, the rate of interest on the principal of the Note shall remain
equal to the Maximum Rate until the total amount of interest accrued on the
principal of the Note equals the amount of interest which would have accrued on
the principal of the Note if the rate based on the Prime Rate had at all times
been in effect.
Payment Terms. This Note is due and payable on the terms set out below:
(a) interest shall be due and payable monthly as it accrues, commencing on
the 7th day of January, 2010, and continuing on the last day of each successive
month thereafter during the term of this Note; and
(b) the principal of this Note shall be due and payable as required by the
Loan Agreement (as defined below) to meet any Borrowing Base deficiency or
Monthly Commitment Reductions (if and when required by Lender under the Loan
Agreement); and
(December 7, 2009)
(c) the outstanding principal balance of this Note, together with all
accrued but unpaid interest, shall be due and payable on the Maturity Date.
Unless its maturity is sooner accelerated as set forth herein, this Note will
mature on April 30, 2012 (the "Maturity Date"), at which time all unpaid sums
then owing will be payable in full, principal and interest.
This Note may be prepaid in whole or in part at any time without premium or
penalty.
Security. Payment hereof is secured by the following (collectively the
"Loan Documents"): (1) obligations under a Loan Agreement of even date, executed
by Borrower, Lender, and GATEWAY PIPELINE COMPANY; GATEWAY OFFSHORE PIPELINE
COMPANY; GATEWAY PROCESSING COMPANY; and GATEWAY ENERGY MARKETING COMPANY
(collectively "Guarantors"), as amended (the "Loan Agreement"); (2) the liens
and security interests created by or described in the Deed of Trust and the
Security Agreement (as defined in the Loan Agreement); (3) all the other
Security Documents (as defined in the Loan Agreement) and all other instruments
now or hereafter described in the Loan Agreement or related thereto; and (4) any
other agreement (now existing or made hereafter) relating to the loans between
Lender and Borrower.
Revolving Credit. Under the Loan Agreement, Borrower may request advances
and make payments hereunder from time to time, provided that it is understood
and agreed that the aggregate principal amount outstanding from time to time
hereunder shall not at any time exceed the Total Principal Amount or the
Borrowing Base as set forth in the Loan Agreement. In addition, under the terms
of the Loan Agreement, Lender may set monthly or quarterly commitment reductions
for the Borrowing Base, and the principal amount outstanding on this Note may
not exceed this reducing amount. The unpaid balance of this Note shall increase
and decrease with each new advance or payment hereunder, as the case may be.
This Note shall not be deemed terminated or canceled prior to the Maturity Date,
although the entire principal balance hereof may from time to time be paid in
full. Borrower may borrow, repay, and reborrow hereunder.
Payments. Unless otherwise agreed to in writing or otherwise required by
applicable law, payments will be applied first to unpaid accrued interest, then
to principal, and any remaining amount to any unpaid collection costs,
delinquency charges, and other charges; provided, however, upon delinquency or
other Event of Default, Lender reserves the right to apply payments among
principal, interest, delinquency charges, collection costs, and other charges,
in such order and manner as the holder of this Note may from time to time
determine in its sole discretion. All payments and prepayments of principal of
or interest on this Note shall be made in lawful money of the United States of
America in immediately available funds, at the address of Lender indicated
above, or such other place as the holder of this Note shall designate in writing
to Borrower. If any payment of principal of or interest on this Note shall
become due on a day which is not a Business Day (as defined below), such payment
shall be made on the next succeeding Business Day and any such extension of time
shall be included in computing interest in connection with such payment. As used
herein, the term "Business Day" shall mean any day other than a Saturday,
Sunday, or any other day on which national banking associations are authorized
to be closed. The books and records of Lender shall be prima facie evidence of
all outstanding principal of and accrued and unpaid interest on this Note.
Interest on Past Due Amounts and Default Interest. To the extent any
interest is not paid on or before the date it becomes due and payable, Lender
may, at its option, add such accrued but unpaid interest to the principal of
this Note. Notwithstanding anything herein to the contrary, (i) while any Event
(December 7, 2009) Revolving Promissory Note - Page 2 of 5
of Default (as defined below) is outstanding, (ii) upon notice from Lender of a
Borrowing Base deficiency under the Loan Agreement and thereafter so long as the
Borrowing Base deficiency exists, (iii) upon acceleration of the maturity hereof
following an uncured Event of Default, or (iv) at the Maturity Date, all
principal of this Note shall, at the option of Lender, bear interest at the
Maximum Rate until paid.
Late Charge. If Lender has not received the full amount of any scheduled
payment by the end of ten (10) calendar days after the date it is due, Borrower
will pay to Lender a late charge in the amount of five percent (5%) of the
delinquent amount. Borrower is liable for this late charge only once for each
delinquent payment.
Dishonored Check Charge. Borrower shall pay to Lender, on demand, a
processing fee in the amount of $28.00 for each check which is provided to
Lender by Borrower in payment of an obligation owing to Lender under any loan
document, but returned or dishonored for any reason.
Events of Default. The occurrence at any time of any of the following
events or the existence of any of the following conditions shall collectively be
called "Events of Default" or singly called an "Event of Default":
(a) Failure to make punctual payment when due of any sums owing on this
Note or any of the other Indebtedness (as defined in the Deed of Trust); or a
default under any other indebtedness of Borrower or Guarantors owing to the
Lender; or
(b) Failure of any of the Obligated Parties (as defined below) to properly
perform any of the obligations, covenants, or agreements contained in the Loan
Documents; or any material representation or warranty made by any of the
Obligated Parties is or proves to have been false, misleading, or erroneous; or
(c) Any "Event of Default" under the Loan Agreement or any of the Loan
Documents, the Events of Default defined in the Loan Agreement and the Loan
Documents being cumulative to those contained in this Note.
The term "Obligated Parties" used herein means Borrower, Guarantors, or either
of them, any other party liable, in whole or in part, for the payment of this
Note, whether as maker, endorser, guaran-tor, surety, or otherwise, and any
party executing any deed of trust, mortgage, security agreement, pledge
agreement, assignment, or other contract of any kind executed as securi-ty in
connection with or pertaining to this Note or loan.
Remedies. Upon an Event of Default, and Borrower's failure to timely cure
such default following any notice, cure, or grace period required by the Loan
Agreement, at the option of Lender the entire indebt-edness evidenced hereby, as
well as all other liabili-ties of Borrow-er to Lender, shall be matured without
further notice, and Lender may exercise any or all of the rights and remedies
available to it, includ-ing, without limitation, those under this Note, the Loan
Documents, and any other instru-ment or agreement relating hereto, or any one or
more of them. The failure of Lender to exercise its option to accelerate the
maturity of this Note shall not constitute a waiver of its right to exercise the
same at any other time. Any Event of Default under this Note shall constitute a
default under each of the Loan Documents, and any default under any of the Loan
Documents shall constitute an Event of Default under this Note.
(December 7, 2009) Revolving Promissory Note - Page 3 of 5
Waiver. Except such notice of default as is specifically required by the
Loan Agreement, Borrower and all other Obligated Parties sever-ally waive the
order of their liability, the marshaling of assets, demand, presentment for
payment, notice of xxxxxx-or, protest and notice of protest, notice of default,
notice of intent to accelerate maturity, and notice of the acceleration.
Borrower and all other Obligated Parties agree to all renewals and extensions of
this Note and partial payments and releases or substitutions of security, in
whole or in part, with or without notice, before or after maturity. In case of
any renewal or extension of this Note or any part of the indebt-edness evidenced
hereby, all liens and security interests securing payment hereof will continue
to secure payment of the renewal or extension note or notes.
Business Loan. Borrower represents to and covenants with Lender that: (1)
all loans evidenced by this Note are and shall be "business loans" as that term
is used in the Depository Institutions Deregulation and Monetary Control Act of
1980, as amended; and (2) the loans are for business, commercial, investment, or
other similar purposes and not for personal, family, household, or agricultural
use, as those terms are used in the Texas Finance Code. Borrower and Lender
further agree that Chapter 346 of the Texas Finance Code does not apply to this
Note, even if the Note evidences a revolving debt.
Collection Costs. If this Note is placed in the hands of attorneys for
collection, if suit is filed hereon, if this Note is collect-ed through
bankruptcy proceedings (including any proceeding, federal or state, for the
relief of debtors), or if Lender becomes a party either as plaintiff or
defendant in any legal proceeding in relation to the property securing payment
of this Note, Borrower agrees to pay addition-al-ly to Lender reasonable
attorneys fees and collection costs.
Savings Clause. Regardless of any provision contained in this Note, the
Loan Documents, or any instrument executed or delivered in connec-tion herewith,
it is the express intent of the parties that at no time shall any of the
Obligated Parties pay interest in excess of the Maximum Rate (or any other
interest amount which might in any way be deemed usurious), and Lender will
never be considered to have contracted for or to be entitled to charge, receive,
collect, or apply as interest on this Note, any amount in excess of the Maximum
Rate (or any other interest amount which might in any way be deemed usurious),
and, in the event that Lender ever receives, col-lects, or applies as interest
any such excess, the amount which would be excessive interest will be applied to
the reduction of the principal balance of this Note, and, if the principal
balance of this Note is paid in full, any remaining excess shall forthwith be
paid to Borrower. In determining whether the interest paid or payable exceeds
the Maximum Rate (or any other interest amount which might in any way be deemed
usurious), Borrower and Lender shall, to the maximum extent permitted under
applicable law: (1) characterize any non-principal payment (other than payments
which are expressly designated as interest payments hereunder) as an expense or
fee rather than as interest; (2) exclude voluntary prepayments and the effect
thereof; and (3) spread the total amount of interest throughout the entire
contemplated term of this Note so that the inter-est rate is uniform throughout
the term.
Miscellaneous. EXCEPT TO THE EXTENT THAT THE LAWS OF THE UNITED STATES MAY
APPLY, THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF TEXAS. THIS INSTRU-MENT IS MADE AND IS PERFORMABLE IN FORT
WORTH, TARRANT COUNTY, TEXAS, AND IN THE EVENT OF A DISPUTE INVOLVING THIS NOTE
OR ANY OTHER INSTRUMENT EXECUTED IN CONNECTION HEREWITH, BORROWER IRREVOCABLY
AGREES THAT VENUE FOR SUCH DISPUTES SHALL BE IN ANY COURT OF COMPETENT
JURIS-DICTION IN TARRANT COUNTY, TEXAS.
(December 7, 2009) Revolving Promissory Note - Page 4 of 5
Time is of the essence of this Note.
This Note may not be changed orally, but only by an agreement in writing
signed by the party against whom en-force-ment of any waiver, change,
modification, or discharge is sought.
This Note and all the covenants, promises, and agree-ments contained herein
are binding upon and inure to the benefit of Borrower and Lender and their
respective heirs, personal representatives, successors, and assigns.
Section headings or captions are for convenience only and are not to be
used in interpreting the provisions of this Note.
Renewal. This note is given in renewal and extension and not in
extinguishment of all amounts owing on the promissory note dated August 23,
2007, in the original principal amount of $20,000,000, made by Borrower and
payable to the order of Western National Bank.
Executed and delivered to Lender in Fort Worth, Texas, on the date stated
above.
GATEWAY ENERGY CORPORATION,
a Delaware corporation
By:________________________
Name: _____________________
Title: ______________________
This Note was prepared by:
XXXXXX, XXXXXX & XXXXX, P.C.
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxx Xxxxx, Xxxxx 00000-0000
(000) 000-0000
(December 7, 2009) Revolving Promissory Note - Page 5 of 5
EXHIBIT B
QUARTERLY COMPLIANCE CERTIFICATE
Pursuant to the Loan Agreement (the "Loan Agreement") dated December 7,
2009, between GATEWAY ENERGY CORPORATION, a Delaware corporation ("Borrower"),
and MERIDIAN BANK TEXAS ("Lender"), Borrower has reviewed its activities for the
fiscal quarter ending on ___________________, 200___, and hereby represents and
warrants to Lender that the information set forth below is true and correct as
of that date (capitalized terms below have the meanings assigned in the Loan
Agreement):
1. Financial Covenants. Required Actual
-------------------- -------- ------
(a) Current Ratio (minimum) 1.25 to 1.0 _____ to 1.0
to be tested quarterly
Current assets $__________
Current liabilities $__________
For the purpose of this calculation, "Current Ratio" is defined as the ratio of
(i) current assets of Borrower and its subsidiaries on a consolidated basis,
plus until the Termination Date, amounts remaining to be advanced on the
Revolving Loan as limited under Subsection (a) of Section 1 of this Loan
Agreement, divided by (ii) current liabilities (excluding current maturities of
long-term debt) of Borrower and its subsidiaries on a consolidated basis.
(b) Debt to Tangible Net Worth Ratio (maximum) 0.5 to 1.0 _____ to 1.0
to be tested quarterly
Amount outstanding on Loans $__________
Assets $__________
Intangible assets $__________
Liabilities $__________
For the purposes of this calculation, "Debt to Tangible Net Worth Ratio" is
defined as the ratio of (i) the total amount outstanding on the Loans, divided
by (ii) the total value of Borrower's and its subsidiaries' assets, less the
value of Borrower's and its subsidiaries' intangible assets, less the total
amount of Borrower's and its consolidated subsidiaries liabilities.
(c) Debt Service Coverage Ratio (minimum) 1.5 to 1.0 _____ to 1.0
to be tested quarterly
EBITDA $__________
Interest expense $__________
Actual principal and
interest payments $__________
(December 7, 2009)
For the purpose of this calculation, "Debt Service Coverage Ratio" is defined as
the ratio of (i) EBITDA for Borrower and its subsidiaries on a consolidated
basis for the most recent quarter, divided by (ii) interest expense on the Loans
for the quarter, plus actual principal and interest payments on any other
indebtedness of Borrower and its subsidiaries for the most recent fiscal
quarter. "EBITDA" means, for any period, the pre-tax net income of the Borrower
and its consolidated subsidiaries for such period, plus (without duplication and
only to the extent deducted in determining such net income) interest expense of
the Borrower and its consolidated subsidiaries for such period, depreciation,
non-cash amortization, depletion, write down of assets and other non-cash
expenses of the Borrower and its consolidated subsidiaries for such period, plus
or minus, as the case may be, nonrecurring losses or gains resulting from the
sale of assets during such period (to the extent such losses or gains are
included in the determination of such net income).
2. The undersigned officers hereby certify on behalf of Borrower that (a)
Borrower is in compliance with all covenants of the Loan Agreement, and (b) as
of the effective date of this compliance certificate and the date received by
Lender, no Event of Default or event that would, with the lapse of time or
giving of notice, or both, be an Event of Default, has occurred. The Revolving
Note and Loan Agreement are acknowledged, ratified, confirmed, and agreed by
Borrower to be valid, subsisting, and binding obligations. Borrower agrees that
there is no right to set off or defense to payment of the Revolving Note.
Dated ____________________, 20___.
GATEWAY ENERGY CORPORATION
By:_________________________
Name: ______________________
Title:_______________________
(December 7, 2009) Compliance Certificate - Page 2 of 2
