Contract
Exhibit 10.1
THIS SUBORDINATED PROMISSORY NOTE IS SUBJECT TO THE TERMS OF THAT CERTAIN SUBORDINATION AGREEMENT
AMONG PROPANE DIRECT ENTERPRISES, LLC, UNITED FUEL & ENERGY CORPORATION, AND CITIBANK, N.A., DATED
ON THE DATE HEREOF, AS IT MAY BE MODIFIED, AMENDED, OR RESTATED (THE “SUBORDINATION AGREEMENT”).
THIS CHATTEL PAPER IS SUBJECT TO A SECURITY INTEREST IN FAVOR OF THE CIT GROUP/BUSINESS CREDIT,
INC., AS AGENT FOR ITSELF AND OTHER LENDERS. FURTHER ENCUMBRANCE OR ASSIGNMENT OF THIS CHATTEL
PAPER VIOLATES THE RIGHTS OF THE CIT GROUP/BUSINESS CREDIT, INC. AND SUCH OTHER LENDERS.
| $1,514,420.87 | Midland, Texas | December 31, 2008 |
FOR VALUE RECEIVED, the undersigned, PROPANE DIRECT ENTERPRISES, LLC, a Texas limited
liability company, whose address is 000 X. Xxx Xxxxxx, Xxxxx 000, Xxxxxxx, Xxxxx 00000 (“Borrower”)
hereby promises to pay to the order of UNITED FUEL & ENERGY CORPORATION, a Texas corporation
(“Lender”) the principal sum of ONE MILLION FIVE HUNDRED FOURTEEN THOUSAND FOUR HUNDRED TWENTY AND
87/100 DOLLARS ($1,514,420.87), with interest on the unpaid principal balance thereof from date
hereof until maturity at the rate hereinafter provided, both principal and interest payable as
hereinafter provided in lawful money of the United States of America at Lender’s offices at 0000 X.
Xxxxxxx Xxx., Xxxxx 000, Xxxxxx, Xxxxxxxxxx, 00000, or at such other place as from time to time may
be designated by the holder of this Note.
The unpaid principal of this Note from time to time outstanding shall bear interest prior to
maturity at a per annum rate equal to (i) the London Interbank Offered Rate (defined below), plus
(ii) three percent (3.0%). “London Interbank Offered Rate” means the rate per annum, determined by
Lender in accordance with its customary procedures utilizing such electronic or other quotation
sources as it considers appropriate, at which U.S. dollar deposits are offered in the London
interbank market at or about 11:00 a.m. (London time) two (2) Business Days prior to the
commencement of the applicable Interest Period (the “Index”). The Index is not necessarily the
lowest rate charged by Lender on its loans. If the Index becomes unavailable during the term of
this loan, Lender may designate a substitute index after notifying Borrower. The interest rate
change will not occur more often than each Interest Period. “Interest Period” means (i) initially,
the period commencing on the last day of the Initial Interest Period (defined below), and ending
one (1) month thereafter, and (ii) thereafter each one (1) month period commencing on the last day
of the next preceding Interest Period. “Initial Interest Period” means the period commencing on
the date of this Note and ending on February 1, 2009. The interest rate on this Note during the
Initial Interest Period shall be based on an a Interest Period of one (1) month although the actual
number of days constituting the Initial Interest Period may be more or less. Borrower understands
that Lender may make loans based on other rates as well. All calculations of interest chargeable
under this Note shall be made on the basis of actual days elapsed (including the first day but
excluding the last) and a year of 360 days, unless such calculations would result in a rate in
excess of the Highest Lawful Rate, in which case interest shall be calculated on the basis of
actual days elapsed and a year of 365 or 366 days, as appropriate. NOTICE: Under no circumstances
will the interest rate on this Note be more than the Highest Lawful Rate.
Interest only on the outstanding principal balance of this Note shall be due and payable
monthly on the 1st day of each month commencing February 1, 2009 and continuing through
April 1, 2009. Commencing on May 1, 2009, and continuing on the 1st day of each month
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thereafter prior to maturity, the principal of this Note shall be due and payable in monthly
installments of $17,437.50 each for the payments due May 1 through October 1 of each year until
scheduled maturity, and $35,403.42 each for the payments due November 1 through April 1 until
scheduled maturity, and interest on the unpaid principal balance of this Note shall be payable as
it accrues on the same dates as and in addition to the installments of principal. On January 31,
2014, the then unpaid principal balance of this Note and all accrued and unpaid interest on this
Note shall be finally due and payable in full, without presentment, demand, protest or any other
notice of any kind, all of which are hereby expressly waived. All payments on this Note shall be
applied first to accrued interest and then to principal.
This Note is not a revolving line of credit, and the total amount of all advances hereunder
shall not exceed $1,514,420.87.
All past due principal and/or interest or installments thereof shall bear interest from
maturity at the Highest Lawful Rate. For so long as any Event of Default exists under this Note or
under any of the other Loan Documents (hereinafter defined), regardless of whether or not there has
been an acceleration of the indebtedness evidenced by this Note, and at all times after the
maturity of the indebtedness evidenced by this Note (whether by acceleration or otherwise), and in
addition to all other rights and remedies of Lender hereunder, interest shall accrue on the
outstanding principal balance hereof at the Highest Lawful Rate, and such accrued interest shall be
immediately due and payable. “Highest Lawful Rate” means the maximum interest rate permitted under
applicable law.
Subject to the terms of the Loan Documents, upon the failure to pay any installment of the
principal of or interest on this Note as above promised or upon the occurrence of an Event of
Default specified in this Note or any other Loan Document, the holder of this Note or any part
thereof shall have the option of declaring the principal balance hereof and the interest accrued
hereon to be immediately due and payable. The term “Loan Documents” shall mean this Note and any
other instrument or agreement executed in connection with this Note, including but not limited to,
(i) each Personal Guaranty executed by Xxx Xxxxx, Xxxxx Xxxxx, and Xxx Xxxxx of even date herewith,
and (ii) Limited Guaranty executed by Xxxxxxx Xxxxxxxxxx of even date herewith.
Subject to the terms and conditions of the Subordination Agreement, Borrower shall have the
right to prepay, without penalty, at any time and from time to time prior to maturity, all or any
part of the unpaid principal balance of this Note and/or all or any part of the unpaid interest
accrued to the date of such prepayment, provided that any such principal thus paid is accompanied
by accrued interest on such principal. All prepayments of principal shall be applied in the
inverse order of maturity.
1. Initial Advance. The obligation of Lender to make the initial advance hereunder
shall be subject to satisfaction of each of the following conditions precedent:
(a) There shall have been executed, where appropriate, and delivered by Borrower and any
guarantors (and/or any other requisite party thereto) executed Loan Documents and such other
documents or instruments as Lender may reasonably require.
(b) No Material Adverse Change shall have occurred in the financial condition, assets or
business prospects of Borrower or any guarantor.
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2. Representations and Warranties. In order to induce Lender to enter into this Note,
Borrower represents and warrants to Lender as of the date hereof, which representations and
warranties shall survive the delivery of the Notes, as follows:
(a) Existence and Authority. Borrower is a limited liability company duly organized,
legally existing and in good standing under the laws of the State of Texas. Borrower is duly
qualified in all other jurisdictions wherein its operations, transaction of business or ownership
of property makes such qualification necessary.
(b) Powers. Borrower is duly authorized and empowered to execute and deliver this
Note, the other Loan Documents and all other instruments referred to or mentioned herein to which
it is a party, and all action (limited liability company or otherwise) on Borrower’s part requisite
for the due creation, issuance and delivery of the Notes and the due execution and delivery of this
Note and the other Loan Document to which it is a party has been duly and effectively taken. This
Note is, and the other Loan Documents when duly executed and delivered will be, legal, valid and
binding obligations of Borrower, to the extent it is a party thereto, enforceable in accordance
with their terms (subject to any applicable bankruptcy, insolvency or other laws generally
affecting the enforcement of creditors’ rights). The Loan Documents do not violate any provisions
of Borrower’s certificate of formation, company agreement or other governing documents, or of any
contract or other agreement, law or regulation to which Borrower is subject, and the same do not
require the consent or approval of any other person or entity, including without limitation, any
regulatory authority or governmental body of the United States, of any state or of any political
subdivision of the United States or of any State.
(c) Financial Statements. The pro forma and projected financial statements of
Borrower which have been delivered to Lender, are complete and correct, and fairly present the pro
forma and projected financial condition and results of operations of Borrower, as of the dates and
for the periods stated.
(d) Liabilities. As of the date hereof, Borrower has no material liabilities, direct
or contingent, other than those set forth in the pro forma financial statements referenced in
Section (c) immediately preceding above. Borrower knows of no fact, circumstance, act, condition
or development that will or could cause a Material Adverse Change. “Material Adverse Change” is
defined as a material adverse effect on, as applicable (i) the validity, performance, or
enforceability of any Loan Document, (ii) the financial condition or business operations of
Borrower, or (iii) the ability of Borrower to fulfill its obligations under the terms and
conditions of the Loan Documents.
(e) Litigation. Borrower is not involved in, or is not aware of the threat of, any
litigation, nor are there any outstanding or unpaid judgments against Borrower.
(f) Taxes. All tax returns required to be filed by Borrower in all jurisdictions have
been filed, and all taxes, assessments, fees and other governmental charges upon Borrower or upon
any of its property, income or franchises, which are due and payable, have been paid, or adequate
reserves determined in conformity with United States generally accepted accounting principles as
promulgated by the Financial Accounting Standards Board (“GAAP”) have been provided for payment
thereof.
(g) Purpose of Loan. The proceeds of any advances (i) are not and will not be used
directly or indirectly for the purpose of purchasing or carrying, or for the purpose of extending
credit to others for the purpose of purchasing or carrying, any “margin stock” as that term is
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defined in Regulation U of the Board of Governors of the Federal Reserve System, as amended;
and (ii) will be otherwise used for lawful purposes.
(h) ERISA. All employee benefits plans maintained by Borrower are in compliance with
all funding and other requirements of the Employee Retirement Income Security Act of 1974, as
amended (“ERISA”), and none have been terminated or have accrued any funding deficiency for which
Borrower would be liable under said statute.
(i) Permits and Franchises, Etc. Borrower has all rights, licenses, permits,
franchises, patents, trademarks, trademark rights and copyrights that are required in order for it
to conduct its business as now conducted without known conflict with the rights of others.
Borrower is not aware of any fact or condition that might cause any of such rights not to be
renewed in due course.
(j) Subsidiaries. Borrower has no subsidiaries and does not own any stock in any
other corporation or association. Borrower is not a member of any general or limited partnership,
joint venture or association of any type whatsoever.
(k) Hazardous Wastes and Substances. Borrower and its properties are in compliance in
all material respects with applicable state and federal environmental laws and regulations and
Borrower is not aware of, and has not received any notice of, any violation of any applicable state
or federal environmental law or regulation and there has not heretofore been filed any complaint,
nor commenced any administrative procedure, against Borrower, or any of its predecessors, alleging
a violation of any environmental law or regulation. Except in compliance with relevant
environmental laws, Borrower has not installed, used, generated, stored or disposed of any
hazardous waste, toxic substance, asbestos or related material (“Hazardous Materials”) on its
properties. For the purposes of this Note, Hazardous Materials shall include, but shall not be
limited to, substances defined as “hazardous substances” or “toxic substances” in the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended, 42 U.S.C. §9061, et
seq., Hazardous Materials Xxxxxxxxxxxxxx Xxx, 00 X.X.X. §0000, et seq., and the Resource
Conservation and Xxxxxxxx Xxx, 00 X.X.X. §0000, et seq., or as “hazardous substances,” “hazardous
waste” or “pollutant or contaminant” in any other applicable federal, state or local environmental
law or regulation.
(l) Compliance with Laws. Borrower is in compliance in all material respects with all
laws and orders of all governmental authorities that are applicable to it or its business,
operations or properties.
(m) General. There are no significant material facts or conditions relating to the
Loan Documents, or the financial condition or business of Borrower that could, collectively or
individually, cause a Material Adverse Change and that have not been related, in writing, to Lender
as an attachment to this Note; and all writings heretofore or hereafter exhibited or delivered to
Lender by or on behalf of Borrower are and will be genuine and in all respects what they purport
and appear to be.
(n) Public Utility Holding Company Act. Neither Borrower nor any subsidiary is a
“holding company”, or “subsidiary company” of a “holding company”, or an “affiliate” of a “holding
company” or of a “subsidiary company” of a “holding company”, or a “public utility” within the
meaning of the Public Utility Holding Company Act of 1935, as amended.
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3. Affirmative Covenants. As an inducement to Lender to enter into this Note,
Borrower covenants and agrees that, from the date hereof and until termination of this Note and
payment in full of the obligation, unless otherwise agreed to by Lender in writing:
(a) Financial Statements and Other Information. Borrower and each guarantor will
promptly furnish or cause to be furnished to Lender copies of (i) such information regarding their
business and affairs and financial condition as Lender may reasonably request, and (ii) without
request, the following:
(i) as soon as available and in any event within ninety (90) days after the end of
each fiscal year of Borrower, an audited balance sheet of Borrower as of the close of such
fiscal year and the related audited statements of income, cash flows, contingent
obligations and owners’ equity of Borrower for such year, prepared in accordance with GAAP;
(ii) as soon as available and in any event within fifteen (15) days after the end of
each calendar month, a balance sheet of Borrower as of the end of such month and the
related statements of income (including information relating to the amount of
commodity-based inventory sold), cash flows, contingent obligations and owners’ equity of
Borrower for such month;
(iii) as soon as available and in any event within five (5) days after the
1st and 15th of each calendar month, a schedule of accounts
receivable listing all accounts receivable of Borrower as of the 1st and
15th of such month setting forth (i) the name of each account debtor, together
with a schedule of the date each account is, or is expected to be, due and receivable or,
as may be required by Lender, detail by invoice number, amount, invoice date and terms, and
(ii) an aging of all accounts setting forth accounts 30 days past due or less, accounts
over 30 days past due less than 61 days past due, accounts over 60 days past due but less
than 91 days past due, accounts over 90 days past due but less than 121 days past due, and
accounts over 120 days past due;
(iv) as soon as available and in any event within thirty (30) days after the filing of
same, copies of all federal and state tax returns filed by Borrower;
(v) immediately upon becoming aware of the existence of, or any material change in the
status of, any litigation which could create a Material Adverse Change if determined
adversely against Borrower or any guarantor, a written communication to Lender of such
matter;
(vi) immediately upon becoming aware of an Event of Default or the existence of any
condition or event that constitutes, or with notice or lapse of time, or both, would
constitute an Event of Default, a verbal notification to Lender specifying the nature and
period of existence thereof and what action Borrower or any guarantors are taking or
propose to take with respect thereto and, immediately thereafter, a written confirmation to
Lender of such matters;
(vii) immediately upon becoming aware that any person has given notice or taken any
other action with respect to a claimed default under any material indenture, mortgage, deed
of trust, promissory note, loan agreement, note agreement or joint venture agreement or any
other material agreement or undertaking to which Borrower, any guarantor or any subsidiary
of Borrower is a party, a verbal notification to Lender
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specifying the notice given or action taken by such person and the nature of the
claimed default and what action Borrower or any guarantors are taking or propose to take
with respect thereto and, immediately thereafter, a written communication to Lender of such
matters; and
(viii) immediately upon becoming aware of the commencement of any material action or
material proceeding against Borrower, a guarantor, any subsidiary of Borrower or any of
their respective properties by any governmental agency, including, without limitation, the
Internal Revenue Service, the Environmental Protection Agency, the U.S. Department of
Energy or the Federal Energy Regulatory Commission, a written communication to Lender of
such matter. All financial statements, schedules and other financial information delivered
by Borrower hereunder shall be prepared in conformity with GAAP and all such items
delivered hereunder shall be certified as true and correct by the President or Chief
Financial Officer of Borrower, by signature and date thereon.
(b) Taxes and Other Liens. Borrower will pay and discharge or cause to be paid and
discharged all taxes, assessments and governmental charges or levies imposed upon either of them or
upon their respective income and profits or upon any of their respective property, real, personal
or mixed, or upon any part thereof, before the same shall become in default, as well as all lawful
claims for labor, materials and supplies or otherwise, which, if not paid, might become a lien upon
such properties or any part thereof; provided that Borrower shall not be required to pay and
discharge or cause to be paid or discharged any such tax, assessment, charge, levy or claim
contested by it in good faith by appropriate proceedings if it shall have set up adequate reserves
therefor in conformity with GAAP; and provided, further, that the immediately preceding proviso
shall not apply to any lien imposed by the U. S. Government for failure to pay income, payroll,
FICA or similar taxes, and payment with respect to any such tax, assessment, charge, levy or claim
shall be made before any property of Borrower shall be seized and sold in satisfaction thereof.
(c) Discharge of Contractual Obligations. Borrower will, in all material respects, do
and perform every act and discharge all of the obligations provided to be performed and discharged
under the Loan Documents, and any and all of the instruments or documents referred to or mentioned
herein at the time or times and in the manner required.
(d) Legal Status. Borrower will do or cause to be done all things necessary to
preserve, renew and keep in full force and effect its existence, rights, licenses, patents,
trademarks, trademark rights, copyrights, permits and franchises and comply in all material
respects with all laws and regulations applicable to it, and, further, comply with all applicable
laws and regulations, whether now in effect or hereafter enacted or promulgated by any governmental
authority having jurisdiction over any of its assets or properties, noncompliance with which could
cause a Material Adverse Change.
(e) Indemnification. Borrower agrees to indemnify and defend Lender, its officers,
directors, shareholders, employees, and affiliates (collectively “Indemnitee”), from and against
any and all liabilities, obligations, claims, losses, damages, penalties, actions, judgments,
suits, remedial actions, costs, expenses or disbursements (collectively, “Claims”) of any kind or
nature whatsoever that may be imposed on, incurred by, or asserted against Indemnitee growing out
of or resulting from (i) the Loan Documents and the transactions and events at any time associated
therewith (including, without limitation, the enforcement of the Loan Documents and the defense of
Indemnitee’s actions and inactions in connection with the loans hereunder), except to the limited
extent such Claims are proximately caused by Indemnitee’s willful misconduct; or (ii)
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Borrower’s intellectual property. Indemnitee shall have the right to defend any such Claims,
employing its attorneys therefore. While Borrower shall also be entitled to employ its own
attorneys and to participate in the defense of any such Claims, Indemnitee shall, if not furnished
with reasonable indemnity, have the right to compromise and adjust all such Claims against
Indemnitee. The covenants and conditions of this section shall at all times be construed to be
personal covenants in favor of Indemnitee and such covenants and conditions shall remain in full
force and effect notwithstanding the payment in full of the obligation and the release, either
partially or wholly, of the lien in favor of Borrower or any foreclosure thereunder. All such
Claims as may be paid by Indemnitee shall bear interest at the Highest Lawful Rate per annum until
paid by Borrower or any guarantors and shall be part of the obligation. THE PARTIES HERETO INTEND
FOR THE PROVISIONS OF THIS PARAGRAPH TO APPLY TO AND PROTECT EACH INDEMNIFIED PARTY FROM THE
CONSEQUENCES OF STRICT LIABILITY IMPOSED OR THREATENED TO BE IMPOSED ON ANY INDEMNIFIED PARTY AS
WELL AS FROM THE CONSEQUENCES OF ITS OWN NEGLIGENCE (EXCLUDING GROSS NEGLIGENCE), WHETHER OR NOT
THAT NEGLIGENCE IS THE SOLE, CONTRIBUTING OR CONCURRING CAUSE OF ANY CLAIMS INDEMNIFIED AGAINST IN
THIS PARAGRAPH.
(f) Curing of Defects. Borrower will promptly cure any material defects in the
execution and delivery of any of the Loan Documents, and in any other instrument or document
referred to or mentioned herein. Borrower will immediately execute and deliver to Lender, upon
request, all such other and further instruments as may be reasonably required or desired by Lender
from time to time in compliance with or accomplishment of the covenants and agreements of Borrower
made in the Loan Documents, provided such inspection and copying is done at Lender’s expense and
does not disrupt Borrower’s normal business operations.
(g) Inspection and Appraisal. (i) Borrower will grant Lender access to all of its
books and records, and allow inspection and copying of same by Lender or its designated
representatives at any time during normal business hours or such other time as Lender may
reasonably request, and (ii) at Lender’s request, Borrower will furnish to Lender an appraisal or
updated appraisal of all or a portion of the collateral as specified by Lender, prepared by an
appraiser acceptable to Lender, in each case at Borrower’s expense.
(h) Notices. Borrower will give prompt written notice to Lender of any proceedings
instituted against it by or in any federal or state court or before any commission or other
regulatory body, federal, state or local, which, if adversely determined, could cause a Material
Adverse Change.
(i) Compliance. Borrower will observe and comply with:
(i) all laws, statutes, codes, acts, ordinances, rules, regulations, directions and
requirements of all federal, state, county, municipal and other governments, departments,
commissions, boards, courts, authorities, officials and officers, domestic and foreign,
where the failure to observe or comply could cause a Material Adverse Change; and
(ii) all orders, judgments, decrees, injunctions, certificates, franchises, permits,
licenses and authorizations of all federal, state, county, municipal and other governments,
departments, commissions, boards, courts, authorities, officials and officers, domestic and
foreign, where the failure to observe or comply could cause a Material Adverse Change.
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(j) Compliance with Environmental Laws. Borrower is and will remain in compliance in
all material respects with all state and federal environmental laws and regulations and Borrower
will not place or permit to be placed any Hazardous Materials on any of its properties in violation
of applicable state and federal environmental laws. In the event Borrower should discover any
Hazardous Materials on any of its properties which could result in a breach of the foregoing
covenant, it shall notify Lender within three (3) days after such discovery. Borrower shall
dispose of all material amounts of Hazardous Materials generated by it only at facilities and/or
with carriers that maintain valid governmental permits under the Resource Conservation and Xxxxxxxx
Xxx, 00 X.X.X. §0000. In the event of any notice or filing of any complaint or commencement of any
administrative hearing or procedure against Borrower alleging a violation of any environmental law
or regulation, Borrower shall give notice to Lender within five (5) days after Borrower has
received notice of such notice or filing.
4. Negative Covenants. As an inducement to Lender to enter into this Note, Borrower
hereby covenants and agrees that, from the date hereof and until termination of this Note and
payment in full of the obligation, unless otherwise agreed to by Lender in writing:
(a) Liens. Borrower will not create, assume or suffer to exist any lien upon any of
its properties or assets now owned or hereafter acquired or acquire or agree to acquire any
property under any conditional sale agreement or other title retention agreement, excluding,
however, from the operation of this section:
(i) liens in favor of Citibank, N.A., a national banking association as evidenced by
one or more security documents executed from time to time;
(ii) deposits or pledges to secure payments of workmen’s compensation, unemployment
insurance, old age pensions or other social security;
(iii) deposits or pledges to secure performance of bids, tenders, contracts (other
than contracts for the payment of money), leases, public or statutory obligations, surety
or appeal bonds, or other deposits or pledges for purposes of like general nature in the
ordinary course of business;
(iv) Liens for taxes, assessments or other governmental charges or levies that are not
delinquent or that are in good faith being contested or litigated, if such reserve as shall
be required by GAAP shall have been made therefor, provided, that this exception shall not
allow any lien imposed by the U.S. Government for failure to pay income, payroll, FICA or
similar taxes;
(v) mechanics’, carriers’, workmen’s, repairman’s or other like liens arising in the
ordinary course of business securing obligations less than forty-five (45) days from the
date of invoice, and on which no suit to foreclose has been filed, or which are in good
faith being contested or litigated, if such reserve as shall be required by GAAP shall have
been made therefor;
(v) Liens created by or resulting from any litigation or legal proceeding that is
currently being contested in good faith by appropriate proceedings, if such reserve as
shall be required by GAAP shall have been made therefor;
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(vi) Liens, charges and encumbrances incidental to the conduct of its business or the
ownership of its properties or assets, which were not incurred in connection with the
borrowing of money or the obtaining of advances or credit and that do not materially
detract from the value of such property or assets or materially impair the use thereof in
the operation of its business;
(vii) landlords’ liens for rental not yet due and payable;
(viii) Liens securing the Promissory Note (Deed of Trust Note) (the “Deed of Trust
Note”) by and between Borrower and Lender of even date herewith.
(b) Indebtedness. Borrower will not create, assume, incur or have outstanding, or in
any manner become or be liable directly or indirectly (whether by way of guaranty or otherwise) in
respect of, any indebtedness for borrowed money or the purchase price of any property (including
direct, indirect and capitalized leases), excluding, however, from the operation of this section:
(i) the Multiple Advance Term Note and Revolver Note (collectively, the “Citibank
Notes”), both by and between Borrower and Citibank, N.A. of even date herewith, and any
other indebtedness of Borrower to Citibank, N.A. or its affiliates;
(ii) accounts payable for services furnished and for the purchase price of materials
and supplies acquired in the ordinary course of their business, not more than forty-five
(45) days from the date of invoice; and
(ii) this Note and Deed of Trust Note.
(c) ERISA Compliance. Borrower will not at any time permit any plan subject to ERISA
maintained by it to (i) engage in any “prohibited transaction” as such term is defined in Section
4975 of the Internal Revenue Code of 1986, as amended; (ii) incur any “accumulated funding
deficiency” as such term is defined in Section 302 of ERISA; or (iii) terminate any such plan in a
manner which could result in the imposition of a lien on its property pursuant to Section 4068 of
ERISA.
(d) Investments. Borrower will not make or commit to make, any advance, loan,
extension of credit or capital contribution to, or purchase any stock, bonds, notes, debentures or
other securities of, or make any other investment in any person, or accept any item in satisfaction
of indebtedness (all of the aforesaid transactions being herein called “Investments”), except:
(i) Investments in accounts, contract rights and chattel paper (as defined in the
Uniform Commercial Code), and notes receivable, arising or acquired in the ordinary course
of business; and
(ii) Investments with maturities of not more than 180 days in direct obligations of
the United States of America, or obligations, the principal and interest of which are
unconditionally guaranteed by the United States of America.
(e) Mergers, Consolidations. Borrower will not (i) amend or otherwise modify its
organizational documents, (ii) change its structure in any manner that could cause a Material
Adverse Change; (iii) form any new subsidiary; (iv) consolidate with or merge into, or acquire
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any party or permit any party to consolidate with or merge into, or acquire it; or (v)
dissolve or liquidate.
(f) Dividends and Distributions. Borrower will not declare, pay or make any loans,
advances, dividends or distributions of any kind to its members, or make any other distribution on
account of any ownership interest in it, except that Borrower may: (1) pay salaries in the ordinary
course of business to Xxxxx Xxx Xxxxx and Xxxxx Xxxxxxx Xxxxx in an amount not to exceed $400,000
annually, (2) make cash distributions to its members in an amount not to exceed each such member’s
federal income tax liability resulting from allocation of net income of Borrower to such member;
provided that no such distribution to any member of Borrower shall exceed 38% of the income so
allocated to such member; and (3) pay cash dividends to holders of preferred units of Borrower in
accordance with the Borrower’s company agreement provided to Lender at Closing, so long as an Event
of Default has not occurred and is not continuing on the date of such payment and such payment will
not result in an Event of Default. Borrower will not purchase, acquire or redeem or retire any
ownership interest in Borrower.
(g) Transactions with Affiliates. Borrower will not, directly or indirectly, enter
into any transaction (including, but not limited to, the sale or exchange of property or the
rendering of services) with any of its affiliates, other than in the ordinary course of business
and upon fair and reasonable terms no less favorable than Borrower could obtain or could become
entitled to in an arm’s length transaction with a person that was not an affiliate.
(h) Accounting Method and Fiscal Year. Borrower will not make any change in its
present accounting method or change its present fiscal year.
(i) Nature of Business. Borrower will not make any substantial change in the nature
of its businesses as now conducted.
(j) Membership Interests of Borrower. The membership interests of Borrower shall not
be transferred or assigned to a Person other than any guarantor or Borrower, and Borrower shall not
issue any new membership interests or other securities of Borrower.
(l) Line of Business. Borrower will not engage in any line of business other than
that in which it is presently engaged.
(m) Debt Service Coverage Ratio. Borrower will not permit the ratio of its EBITDA to
Debt Service to be less than 1.25 to 1.00. This ratio shall be calculated at the end of each
fiscal quarter using the results (i) of the fiscal quarter ending Xxxxx 00, 0000, (xx) of the two
(2) preceding fiscal quarters ending June 30, 2009, (iii) of the three (3) preceding fiscal
quarters ending September 30, 2009, and (iv) of the four (4) preceding fiscal quarters ending with
the fiscal quarter for which the measurement is being made beginning with the fiscal quarter ending
December 31, 2009. “EBITDA” means for any period, Borrower’s earnings during such period from
continuing operations, before provision for interest expense, income taxes, depreciation,
depletion, amortization, deferred employee compensation expense, gains and losses on asset sales
and other non-cash charges. “Debt Service” means for any period, the aggregate amount of (i)
required principal payments under the Citibank Notes, this Note, the Deed of Trust Note or any
other indebtedness for borrowed money during such period; and (ii) the required interest payments
under the Citibank Notes, this Note, the Deed of Trust Note or any other indebtedness for borrowed
money during such period.
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(n) Debt to EBITDA Ratio. Borrower will not permit the ratio of its Total Debt to
EBITDA to be in excess of (a) 2.50 to 1.00 prior to March 31, 2010, and (b) 2.00 to 1.00 from and
after March 31, 2010. “Total Debt” means all indebtedness owing by Borrower to Lender or any other
Person. This ratio shall be calculated at the end of each fiscal quarter using the results (i) of
the two (2) preceding fiscal quarters ending June 30, 2009, (ii) of the three (3) preceding fiscal
quarters ending September 30, 2009, and (iii) of the four (4) preceding fiscal quarters ending with
the fiscal quarter for which the measurement is being made beginning with the fiscal quarter ending
December 31, 2009.
(o) Net Worth. At all times, Borrower’s Net Worth shall not be less than
$4,000,000.00 plus fifty percent (50%) of Borrower’s net income (determined in accordance with GAAP). “Net Worth” means Borrower’s aggregate member paid-in capital and retained earnings, both
as determined in accordance with GAAP, plus all unpaid principal on the this Note.
5. Events of Default. The occurrence of any of the following shall constitute an
“Event of Default” under this Note:
(a) Failure to Pay. The Borrower shall fail to pay when due (i) any principal payment
required under the terms of this Note or (ii) any interest or other payment required under the
terms of this Note;
(b) Breach of Agreements. The Borrower shall breach, in any material respect, its
obligations under (i) this Note or any document or instrument evidencing or securing the repayment
of this Note, including, without limitation, the Deed of Trust, (ii) any other Loan Document; or
(iii) that certain Asset Purchase Agreement of even date herewith by and between Borrower and
Lender;
(c) Default under Other Indebtedness. Any default or event of default shall occur
under the terms applicable to any indebtedness for borrowed money of the Borrower (other than under
this Note), including but not limited to, a default or event of default under the Deed of Trust
Note or the Citibank Notes, or under the terms applicable to any other monetary obligation of the
Borrower (except any obligation which at the time is being contested in good faith by appropriate
proceedings and with respect to which the Borrower shall have set aside on its books adequate
reserves);
(d) Voluntary Bankruptcy or Insolvency Proceedings. The Borrower shall (i) apply for
or consent to the appointment of a receiver, trustee, liquidator or custodian of itself or of all
or a substantial part of its property, (ii) be unable, or admit in writing its inability, to pay
its debts generally as they mature, (iii) make a general assignment for the benefit of its or any
of its creditors, (iv) be dissolved or liquidated, (v) become insolvent (as such term may be
defined or interpreted under any applicable statute), (vi) commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts
under any bankruptcy, insolvency or other similar law now or hereafter in effect or consent to any
such relief or to the appointment of or taking possession of its property by any official in an
involuntary case or other proceeding commenced against it, or (vii) take any action for the purpose
of effecting any of the foregoing; or
(e) Involuntary Bankruptcy or Insolvency Proceedings. A proceeding for the
appointment of a receiver, trustee, liquidator or custodian of the Borrower or of all or a
substantial part of the Borrower’s property, or an involuntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to the Borrower or the Borrower’s debts
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under any bankruptcy, insolvency or other similar law now or hereafter in effect shall be
commenced and an order for relief entered or such proceeding shall not be dismissed or discharged
within thirty (30) days of commencement.
It is the intent of the payee of this Note and Borrower in the execution of this Note and all
other instruments now or hereafter securing or related to this Note to contract in strict
compliance with applicable usury law. In furtherance thereof, the said payee and Borrower
stipulate and agree that none of the terms and provisions contained in this Note, or in any other
instrument executed in connection herewith, shall ever be construed to create a contract to pay for
the use, forbearance or detention of money, at a rate in excess of the Highest Lawful Rate; that
neither Borrower nor any guarantors, endorsers or other parties now or hereafter becoming liable
for payment of this Note shall ever be obligated or required to pay interest on this Note at a rate
in excess of the Highest Lawful Rate; and that the provisions of this paragraph shall control over
all other provisions of this Note and any other instruments now or hereafter executed in connection
herewith which may be in apparent conflict herewith. The holder of this Note expressly disavows
any intention to charge or collect excessive unearned interest or finance charges in the event the
maturity of this Note is accelerated. If the maturity of this Note shall be accelerated for any
reason or if the principal of this Note is paid prior to the end of the term of this Note, and as a
result thereof the interest received for the actual period of existence of the loan evidenced by
this Note exceeds the Highest Lawful Rate, the holder of this Note shall, at its option, either
refund to Borrower the amount of such excess or credit the amount of such excess against the
principal balance of this Note then outstanding and thereby shall render inapplicable any and all
penalties of any kind provided by applicable law as a result of such excess interest. In the event
that the said payee or any other holder of this Note shall contract for, charge or receive any
amount or amounts and/or any other thing of value which are determined to constitute interest which
would increase the effective interest rate on this Note to a rate in excess of the Highest Lawful
Rate, an amount equal to interest in excess of the Highest Lawful Rate shall, upon such
determination, at the option of the holder of this Note, be either immediately returned to Borrower
or credited against the principal balance of this Note then outstanding, in which event any and all
penalties of any kind under applicable law as a result of such excess interest shall be
inapplicable. By execution of this Note Borrower acknowledges that it believes the loan evidenced
by this Note to be non-usurious and agrees that if, at any time, Borrower should have reason to
believe that such loan is in fact usurious, it will give the holder of this Note notice of such
condition and Borrower agrees that said holder shall have ninety (90) days in which to make
appropriate refund or other adjustment in order to correct such condition if in fact such exists.
The term “applicable law” as used in this Note shall mean the laws of the State of Texas or the
laws of the United States, whichever laws allow the greater rate of interest, as such laws now
exist or may be changed or amended or come into effect in the future.
Should the indebtedness represented by this Note or any part thereof be collected at law or in
equity or through any bankruptcy, receivership, probate or other court proceedings or if this Note
is placed in the hands of attorneys for collection after default, Borrower and all endorsers,
guarantors and sureties of this Note jointly and severally agree to pay to the holder of this Note
in addition to the principal and interest due and payable hereon all the costs and expenses of said
holder in enforcing this Note including, without limitation, reasonable attorneys’ fees and legal
expenses.
Borrower and all endorsers, guarantors and sureties of this Note and all other persons liable
or to become liable on this Note severally waive presentment for payment, demand, notice of demand
and of dishonor and nonpayment of this Note, notice of acceleration, notice of intention to
accelerate the maturity of this Note, protest and notice of protest, diligence in
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collecting, and the bringing of suit against any other party, and agree to all renewals,
extensions, modifications, partial payments, releases or substitutions of security, in whole or in
part, with or without notice, before or after maturity.
6. Waiver of Jury; Binding Arbitration. Any claim or controversy (“Claim”) between
the parties, whether arising in contract or tort or by statute including, but not limited to,
Claims resulting from or relating to this Note or any Loan Document shall, upon the request of
either party, be resolved by binding arbitration in accordance with the Federal Arbitration Act
(Title 9, US Code). Arbitration proceedings will be conducted in accordance with the applicable
rules for the arbitration of disputes of the American Arbitration Association or any successor
thereof. The arbitration shall be conducted in any U.S. state where real or tangible personal
property collateral for the credit is located or if there is no such collateral, in Texas. The
arbitration hearing shall commence within 90 days of the demand for arbitration and close within 90
days of commencement, and any award, which may include legal fees, shall be issued (with a brief
written statement of the reasons therefor) within 30 days of the close of hearing. Any dispute
concerning whether a claim is arbitrable or barred by the statute of limitations shall be
determined by the arbitrator. This arbitration provision is not intended to limit the right of any
party to exercise self-help remedies, to seek and obtain interim or provisional relief of any kind
or to initiate judicial or non-judicial foreclosure against any real or personal property
collateral. BY AGREEING TO BINDING ARBITRATION, THE PARTIES IRREVOCABLY AND VOLUNTARILY WAIVE ANY
RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM. FURTHERMORE, IF FOR ANY REASON A
CLAIM IS NOT ARBITRATED, THE PARTIES IRREVOCABLY AND VOLUNTARILY AGREE TO WAIVE ANY RIGHT TO A
TRIAL BY JURY IN RESPECT OF SUCH CLAIM.
THIS NOTE AND THE RIGHTS AND DUTIES OF THE PARTIES HEREUNDER SHALL BE GOVERNED FOR ALL
PURPOSES BY THE LAW OF THE STATE OF TEXAS AND THE LAW OF THE UNITED STATES APPLICABLE TO
TRANSACTIONS WITHIN SUCH STATE.
THIS WRITTEN NOTE AND THE OTHER LOAN DOCUMENTS REPRESENT 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.
7. Counterparts. This Note may be executed in counterparts, which shall collectively
constitute one original document.
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| EXECUTED as of the date first above written. | ||||||||
| LENDER: | BORROWER: | |||||||
| UNITED FUEL & ENERGY CORPORATION,
a Texas corporation |
PROPANE DIRECT ENTERPRISES, LLC | |||||||
By:
|
/s/ Xxxxxxx X. Xxxxxxx
|
By: | /s/ Xxxxx Xxxxx
|
|||||
| Printed Name: Xxxxxxx X. Xxxxxxx | Printed Name: Xxxxx Xxxxx | |||||||
| Title: EVP, CFO & Secretary | Title: President | |||||||
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