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As filed with the Securities and Exchange Commission on November 7, 1997
Registration No. 333-____________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
TRIUMPH FUELS CORPORATION
(Exact name of registrant as specified in its charter)
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NEVADA 5172 APPLIED FOR
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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1493 Highway 6 & 50
Fruita, Colorado 81521
(970) 858-0300
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Paul J. Rath, Chief Financial Officer
Triumph Fuels Corporation
1493 Highway 6 & 50
Fruita, Colorado 81521
(970) 858-0300
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
With copies sent to:
Warren L. Troupe, Esq. Alan P. Baden, Esq.
Morrison & Foerster LLP Vinson & Elkins L.L.P.
370 17th Street, Suite 5200 2300 First City Tower
Denver, Colorado 80202 1001 Fannin
Houston, Texas 77002-6760
Approximate date of commencement of the proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [ ]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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Title of each class of securities to Proposed maximum Proposed maximum Amount of
be registered Amount to be offering price aggregate offering registration
Registered per unit(2) price(1)(2) fee
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Common Stock, $.001 par value 1,840,000(1) $11.00 $20,240,000 $6,134.00
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(1) Includes 240,000 shares to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration
fee pursuant to Rule 457.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED ________________, 1997
1,600,000 Shares
TRIUMPH FUELS CORPORATION
Common Stock
All of the shares of Common Stock offered hereby are being sold by
Triumph Fuels Corporation (the "Company"). Prior to the Offering, there has
been no public market for the Common Stock. It is currently estimated that the
initial public offering price will be between $9.00 and $11.00 per share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price.
The Company intends to qualify the Common Stock for quotation on the
Nasdaq National Market under the symbol "___."
FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS THAT SHOULD BE CONSIDERED
IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS"
COMMENCING ON PAGE 5 HEREOF.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
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Per Share . . . . . . . . . . . . . . . $ $ $
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Total (3) . . . . . . . . . . . . . . . $ $ $
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of
1933, as amended. Does not reflect additional compensation to
the Representative in the form of (i) a non-accountable expense
allowance of the lesser of 1% of the gross proceeds to the Company
and $150,000 and (ii) warrants to purchase an aggregate of 120,000
shares of Common Stock at 120% of the Price to Public for one year
beginning one year after the effective date of the Registration
Statement of which this Prospectus is a part. For additional
information with respect to the arrangements between the Company and
the Representative, see "Underwriting."
(2) Before deducting offering expenses payable by the Company, estimated
to be approximately $730,000.
(3) The Company has granted to the Underwriters a 30-day option to
purchase up to 240,000 additional shares of Common Stock solely to
cover over-allotments, if any, on the same terms and conditions as
the shares offered hereby. If such option is exercised in full, the
total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $_____, $_____ and $_____,
respectively. See "Underwriting."
--------------------
The shares of Common Stock are offered by the several Underwriters
named herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that delivery of
such shares will be made at the offices of Gaines, Berland Inc., New York, New
York on or about _____________, 1997.
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GAINES, BERLAND INC.
The date of this Prospectus is __________, 1997
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[Map to be inserted which will detail the geographic
locations of the Company's operations]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES
OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 4
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is
qualified in its entirety by, the more detailed information and financial
statements (including the notes thereto) appearing elsewhere in this Prospectus.
Unless otherwise indicated, the information in this Prospectus assumes that the
Underwriters' over-allotment option will not be exercised and gives effect to a
2.96-for-1 reverse stock split to be effected immediately prior to the
Offering. As used herein, unless the context otherwise requires, (i) the
"Company" means Triumph Fuels Corporation and its wholly-owned subsidiaries and
(ii) reference to a fiscal year of the Company shall mean the year in which the
Company's fiscal year ends (e.g., Fiscal 1997 ended February 28, 1997). Except
as indicated otherwise, information presented on a pro forma basis gives effect
to (i) the conversion of all of the Company's Series A Convertible Preferred
Stock (the "Series A Preferred") into 1,013,514 shares of Common Stock (ii) the
Colorado Stores, Moffitt and Winnco acquisitions (each as defined herein), and
(iii) the Offering and the application of the net proceeds therefrom.
THE COMPANY
The Company is engaged in the wholesale distribution and marketing of
refined petroleum products including gasoline, diesel fuel and lubricants.
Petroleum distributors transport refined petroleum products from the source of
manufacture to the end-user. The Company has an active customer base of over
2,000 accounts, including retail gasoline stations and commercial businesses in
the construction, manufacturing, mining and marine, road and rail transportation
industries. The Company's objective is to become a leading consolidator in the
independent wholesale distribution segment of the petroleum industry.
The independent petroleum distribution industry is highly fragmented
and regional in nature. According to Petroleum Marketers Association of America
("PMAA"), there are over 10,000 independent petroleum distributors in the United
States which distribute approximately 35% of all refined petroleum products sold
in the United States. Due to these industry characteristics, as well as the
absence of other significant industry consolidators, the owners of independent
petroleum businesses, a majority of which are relatively small owner-operators,
have limited alternatives to sell their operations. The Company believes these
factors create an opportunity for it to enter and consolidate additional market
areas.
CONSOLIDATION STRATEGY
The Company utilizes a "hub and spoke" consolidation strategy for
expansion within a regional market area. The Company targets regional areas
where it believes it can acquire a significant share of the petroleum
distribution market. Once an initial distribution operation is acquired (a
"hub"), the Company incorporates the acquired business' administration and
accounting functions into the Company's centralized corporate system allowing
local management to concentrate on sales and marketing. The Company then
attempts to increase its market position by acquiring additional businesses or
"spokes" in the regional area. This strategy allows the Company to take
advantage of administrative, volume purchasing and fleet utilization
synergies.
Since 1994, the Company has completed seven acquisitions, five of
which have been acquisitions of petroleum distributors. In addition, the
Company has three pending acquisitions of petroleum distributors that are
expected to be completed on or before consummation of the Offering. Upon
completion of these Pending Acquisitions (as defined), the Company will have
established hubs in Houston, Texas; Grand Junction and Denver, Colorado; Salt
Lake City, Utah; and Oklahoma City, Oklahoma and spokes in Canon City, Colorado
Springs, Gunnison, Montrose, and Pueblo, Colorado and Delta and Ogden, Utah.
The Company intends to use the proceeds from the Offering to accelerate its
consolidation strategy.
The Company has experienced significant growth in net sales and EBITDA
(as defined) as a result of its consolidation strategy and increased demand for
its services. On a pro forma basis, for the six months ended August 31, 1997,
the Company generated $140.1 million in net sales and $2.7 million in EBITDA
representing a 97.1% and 16.3% increase, respectively, from its historical
results for the six months ended August 31, 1996.
1
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PENDING ACQUISITIONS
The Company has letters of intent for three acquisitions (the
"Pending Acquisitions"), each of which will expand the Company's distribution
business in targeted market areas. These acquisitions are expected to close on
or before consummation of the Offering.
o Winnco, Inc. and W.W. Transports, Inc. The Company has signed
a letter of intent to acquire Winnco, Inc. and W.W.
Transports, Inc. (collectively "Winnco"), for a purchase price
of approximately $5.7 million. Winnco is an independent
petroleum distributor with operations in Oklahoma City,
Oklahoma. The Winnco acquisition will create a hub for the
Company in Oklahoma City.
o Salt Lake City Pending Acquisition. The Company signed a
letter of intent to acquire an independent petroleum
distributor with operations in Salt Lake City, Utah for a
purchase price of approximately $2.5 million. This acquisition
will create a spoke to the Company's existing hub in Salt
Lake City.
o Western Colorado Pending Acquisition. The Company signed a
letter of intent to acquire an independent petroleum
distributor and gasoline retail site owner based in western
Colorado for a purchase price of approximately $1.55 million.
Through this acquisition, the Company will create a spoke to
its existing hub in Grand Junction, Colorado, as well as add
one retail site.
Completion of the Pending Acquisitions is subject to further negotiations,
execution of definitive agreements, satisfactory due diligence, approval by the
Company's Board of Directors and the satisfaction of customary closing
conditions. There can be no assurance that any of the Pending Acquisitions will
be consummated.
OTHER OPERATIONS
The Company also operates a fractionator gas plant and two gasoline
blending facilities located in Colorado, and owns or operates 19 gasoline
retail sites located in Colorado and Utah. Petroleum supply operations and
gasoline retail sites represented approximately 18.2% and 10.5% of the
Company's pro forma net sales for the six months ended August 31, 1997,
respectively. The Company believes that its supply operations and retail sites
are complementary to its core distribution business.
The Company's principal executive offices are located at 1493 Highway
6 & 50, Fruita, Colorado 81521, and its telephone number is (970) 858-0300.
THE OFFERING
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Common Stock Offered by the Company . . . . . 1,600,000 shares
Common Stock to be Outstanding after
the Offering . . . . . . . . . . . . . . . . 3,289,189 shares (1)
Use of Proceeds . . . . . . . . . . . . . . . To complete the Pending Acquisitions, to repay
in full the Subordinated Debt (as defined
herein) and for general corporate purposes. See
"Use of Proceeds."
Proposed Nasdaq National Market Symbol. . . . "__________"
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(1) Excludes (i) 244,932 shares of Common Stock issuable upon the
exercise of outstanding stock options, (ii)
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119,595 shares of Common Stock issuable upon the exercise of certain
warrants and (iii) 120,000 shares of Common Stock issuable upon the
exercise of the Representative's Warrant. See "Management --Benefit
Plans", "Certain Transactions," and "Underwriting."
RISK FACTORS
See "Risk Factors" for a discussion of certain considerations relevant
to an investment in the Common Stock.
3
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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following summary of historical consolidated financial data at
August 31, 1997 and for each of the three years ended February 28, 1997 and for
the six months ended August 31, 1996 and 1997 have been derived from and should
be read in conjunction with the Company's Consolidated Financial Statements and
notes thereto included elsewhere in this Prospectus. The summary consolidated
financial data for the six months ended August 31, 1996 and 1997 are unaudited,
but have been prepared on the same basis as the audited Consolidated Financial
Statements and, in the opinion of management, contain all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the information set forth herein. Results for such interim
periods are not necessarily representative of the results for the full year.
The following summary pro forma combined financial data gives effect to the
acquisition of Moffitt Oil Company, Inc. ("Moffitt") and eight gasoline retail
stores from Diamond Shamrock Refining and Marketing, Inc., a subsidiary of
Ultramar Diamond Shamrock Corporation (the "Colorado Stores Acquisition")
completed during Fiscal 1998, the acquisition of Winnco to be completed on or
prior to the consummation of the Offering and the financings required to fund
such acquisitions. The pro forma combined statements of operations for Fiscal
1997 and for the six months ended August 31, 1997 assume all transactions were
completed as of March 1, 1996 and March 1, 1997, respectively. The summary pro
forma balance sheet data assumes that the Winnco transaction and the Offering
were completed as of August 31, 1997. The pro forma information below should
be read in conjunction with "Unaudited Pro Forma Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical financial statements of the Company, Moffitt, Winnco, and the
Colorado Stores including the notes thereto, included elsewhere in this
Prospectus.
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FISCAL YEAR ENDED SIX MONTHS ENDED AUGUST 31,
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PRO FORMA
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, PRO FORMA
1995 1996 1997 1997(2) 1996 1997 1997 (2)
-------- -------- -------- ------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
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STATEMENT OF OPERATIONS DATA:
Net sales . . . . . . . . . . . . $ 93,639 $102,126 $ 135,464 $ 267,312 $71,145 $ 103,708 $ 140,079
Cost of sales . . . . . . . . . . 86,604 93,144 123,821 244,247 64,440 93,442 127,738
-------- -------- ---------- --------- ------ --------- ----------
Gross profit . . . . . . . . . . . 7,035 8,982 11,643 23,065 6,705 10,266 12,341
Selling, general and administrative
expenses . . . . . . . . . . . 5,396 7,433 9,359 18,023 4,434 7,936 9,680
Depreciation and amortization . . . 457 694 871 3,785 444 1,448 1,916
-------- -------- ---------- --------- ------ --------- ----------
Operating income . . . . . . . . . 1,182 855 1,413 1,257 1,827 882 745
Other non-operating income (expense):
Interest expense, net . . . . . (99) (611) (874) (3,046) (421) (1,348) (1,472)
Gain (loss) on sale of assets . 21 (8) (2) -- 4 -- --
Other income (expense) . . . . . (55) 65 138 201 50 49 43
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Income (loss) before income taxes. 1,049 301 675 (1,588) 1,460 (417) (684)
Income tax (expense) benefit . . . (387) (44) (257) 1,039 (569) 154 250
-------- -------- ---------- --------- ------ --------- ----------
Net income (loss) . . . . . . . . . $ 662 $ 257 $ 418 $ (549) $ 891 $ (263) $ (434)
======== ======== ========== ========= ====== ========= ==========
Net income (loss) per share . . . . $ 0.22 $ (0.29) $ (0.14) $ (0.23)
========== ========= ======== =========
Weighted average shares
outstanding . . . . . . . . . . 1,903 1,903 1,903 1,903
OTHER FINANCIAL DATA:
EBITDA (1) . . . . . . . . . . . . $ 1,605 $ 1,606 $ 2,423 $ 5,243 $2,325 $ 2,379 $ 2,704
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AT AUGUST 31, 1997
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HISTORICAL PRO FORMA(2)
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(UNAUDITED)
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BALANCE SHEET DATA:
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,870) $ 2,615
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,755 74,453
Long-term debt, net of current maturities . . . . . . . . . . . . . . . 26,849 24,349
Shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . 4,519 18,519
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(1) EBITDA is earnings before income taxes, interest, depreciation and
amortization. EBITDA is a financial measure commonly used in the Company's
industry and should not be considered in isolation or as a substitute for
net income, cash flow provided from operating activities or other income or
cash flow data prepared in accordance with generally accepted accounting
principles or as a measure of a company's profitability or liquidity.
(2) Pro forma to reflect the conversion of all the outstanding shares of Series
A Preferred Stock into 1,013,514 shares of Common Stock, the Diamond
Shamrock, Moffitt and Winnco acquisitions and the receipt by the Company of
the estimated net proceeds from the issuance of 1.6 million shares of Common
Stock and the application of such proceeds. See "Capitalization" and "Use of
Proceeds."
4
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The discussion in this Prospectus contains forward-looking statements
that involve risks and uncertainties. The Company's actual results could differ
significantly from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business," as well as
those discussed elsewhere in this Prospectus. Statements contained in this
Prospectus that are not historical facts are forward-looking statements that
are subject to the safe harbor created by the Private Securities Litigation
Reform Act of 1995.
RISK FACTORS
In evaluating an investment in the Common Stock being offered hereby,
prospective investors should consider carefully, among other things, the
following risk factors.
RISKS RELATED TO THE COMPANY'S ACQUISITION STRATEGY
The Company intends to continue to grow primarily through the
acquisition of additional distributors of refined petroleum products. There can
be no assurance that the Company will be able to continue to identify, acquire,
profitably manage or successfully integrate acquired businesses into the
Company without substantial costs, delays or other operational or financial
problems. Increased competition for acquisition candidates may also develop, in
which event there may be fewer acquisition opportunities available to the
Company as well as higher acquisition prices. Acquisitions may also be dilutive
and there can be no assurance that the Company will be able to obtain financing
on terms acceptable to the Company, if at all. Acquisitions may initially also
have an adverse effect on the Company's business, results of operations and
financial condition while the operations of the acquired businesses are being
integrated into the Company's operations. Further, acquisitions involve a
number of special risks, including possible adverse effects on the Company's
net sales, diversion of management's attention, failure to retain key acquired
personnel, risks associated with unanticipated events or liabilities and
amortization of acquired intangible assets, and risks associated with acquiring
contaminated property. Some or all of these risks, if realized, could have a
material adverse effect on the Company's business, results of operations, and
financial condition, and expose the Company to orders, fines, penalties,
sanctions and cleanup expenses. In addition there can be no assurance that the
acquired companies or other businesses acquired in the future will achieve
anticipated net sales and earnings. See "Business--Consolidation Strategy."
The Company has entered into letters of intent for each of the Pending
Acquisitions. Completion of the Pending Acquisitions, however, is subject to
further negotiations, execution of definitive agreements, satisfactory due
diligence, approval by the Company's Board of Directors and satisfaction of
customary closing conditions. There can be no assurance that any of the Pending
Acquisitions will be consummated.
NEED FOR ADDITIONAL CAPITAL; LEVERAGE AND LIQUIDITY
The Company has experienced and expects to continue to experience
substantial working capital needs to fund its operations. As of August 31,
1997, the Company had a working capital deficit of $1.9 million. The largest
component of the Company's working capital requirements relates to the funding
of trade accounts receivable. The time period in which the Company must make
payments to its suppliers is generally shorter than the time period for the
receipt of payment from its customers. Although the Company believes that based
on its current operations it will be able to meet the interest and principal
obligations on its indebtedness and to fund its capital expenditures and other
operating expenses on an ongoing basis out of cash flow from operations and
available borrowings under its principal credit facility, together with the net
proceeds of the Offering, there can be no assurance that the Company's business
will continue to generate cash flow at levels sufficient to meet these
requirements. Further, in order to complete additional acquisitions, the
Company may require additional financing. No assurance can be given as to the
availability or terms of any such additional financing that may be required.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
5
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At August 31, 1997, after giving effect to the issuance of the Common
Stock offered hereby and the application of the net proceeds, the Company would
have had total indebtedness of approximately $24.3 million. The Company may
increase the level of its indebtedness in the future to fund its current
operations or to finance additional acquisitions. The degree to which the
Company will be leveraged could have important consequences, including the
following: (i) the possible impairment of the Company's ability to obtain
financing in the future for potential acquisitions, working capital, capital
expenditures or general corporate purposes; (ii) the necessity for a
substantial portion of the Company's cash flow from operations to be dedicated
to the payment of principal and interest on its indebtedness; (iii) the
potential for increased interest expense due to fluctuations in interest rates
and (iv) the potential for increased vulnerability of the Company to economic
downturns and possible limitation of its ability to withstand competitive
pressures. The Company's ability to meet its debt service obligations will be
dependent upon the Company's future performance, which will be subject to
general economic conditions and to financial, business and other factors
affecting the operations of the Company, many of which are beyond its control.
See "Capitalization," "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
ENVIRONMENTAL RISKS
The Company's operations, which include fractionating, blending,
distributing, transporting and selling refined petroleum products (the above
operations are referred to collectively as "Regulated Environmental
Activities") are subject to a variety of federal, state and local laws, rules
and regulations governing the storage, transportation, manufacture, use,
discharge, release and disposal of products and contaminants into the
environment or otherwise relating to the protection of the environment. The
Company's Regulated Environmental Activities, by their very nature, give rise
to the potential for substantial environmental risks, including:
Risk of Release of Petroleum and Related Products and Wastes. The
accidental or unintended release or discharge of petroleum and related products
and wastes, which result from normal activities at tank farms and service
stations and during the transportation or manufacture of such products and
wastes, or the release or discharge of such products or waste in excess of
permitted levels, may occur despite the operational controls and procedures
established by the Company. Releases or discharge of such petroleum and related
products and wastes could contaminate the environment, could expose the Company
to fines, other administrative, civil or criminal penalties, or injunctive
actions, and could result in the Company being required to institute extensive
cleanup and remediation activities. In addition, exposure of the Company's
employees, the public or property to certain petroleum and related products or
waste could result in damage to human health and safety or in nuisance,
trespass or property damage, and give rise to further Company liability. There
can be no assurance that any such liability would not have a material adverse
effect on the Company's business, results of operations or financial condition.
Risk of Violation of Environmental Regulations. The Company is subject
to numerous environmental laws, rules and regulations covering its Regulated
Environmental Activities. The Company's failure to comply with any applicable
environmental regulation, whether or not intentional, can give rise to fines,
penalties and sanctions, including criminal charges against employees and
management, and may under certain circumstances require the closure of non-
complying facilities or cessation of non-complying activities. Such fines,
penalties, sanctions or closures could have a material adverse effect on the
Company's financial condition and its ability to conduct operations.
Risk of Future Environmental Regulations. The environmental laws,
rules and regulations that cover the Company's Regulated Environmental
Activities have been modified frequently in the past and are subject to change
in the future. Stricter environmental regulations and controls or modified
environmental regulations and controls could impose additional costs on the
operation of the Company, or cause the manufacture, storage, transportation or
sale of some of the Company's products to become either unprofitable or
illegal.
Risk of Environmental Reimbursement Procedures. Certain of the
Company's expenditures related to Regulated Environmental Activities, such as
leaking petroleum storage tank remediation, give rise to a potential for
reimbursement of all or a portion of the amounts expended from applicable
governmental reimbursement programs.
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Such reimbursement programs are subject to changes in applicable statutes or
the interpretation of the law, which could alter the timing or availability of
reimbursement funds to the Company and its customers.
Risk Concerning Environmental Orders on Landmark Refinery. In
connection with the purchase by Fruita Marketing and Management, Inc. ("FMM"), a
company currently owned indirectly by Keith R. Holder, the Chief Executive
Officer and a director of the Company, of a certain 276 acre tract formerly
operated as a refinery, the Company guaranteed the payment and the performance
of certain environmental obligations of Landmark Petroleum, Inc. ("Landmark")
and its lender. In June 1996, the Colorado Department of Public Health and the
Environment ("CDPHE") issued a Compliance Order directing Landmark to remediate
all hazardous waste contamination at the refinery. No assurances can be given
as to whether FMM can meet its financial or performance obligations to Landmark
or its lender, and, therefore, the Company may have to perform or to pay such
obligations. The Company may have remediation liability if FMM does not fulfill
its obligations under the Compliance Order; however, the extent and amount of
such obligations cannot be determined with any certainty at this time. No
assurance can be given that if the Company is required to perform or pay such
obligations that it will be able to meet such obligations. The Company has not
reserved any amount for its obligations under this guaranty. See
"Business--Environmental Compliance" and "Certain Transactions--BSA
Investments, LLC."
LIMITED OPERATING HISTORY
The Company commenced operations in the petroleum distribution
industry in 1990 and has subsequently grown primarily through the acquisition
of petroleum distribution companies. Although certain of the distribution
businesses that have been acquired by the Company have been in operation for
many years, the Company has a limited operating history upon which prospective
investors may judge the Company's performance. Future net sales will depend
upon many factors, including fluctuations in the economy, the degree and nature
of competition, demand for the Company's services, the Company's ability to
integrate the operations of acquired businesses, to expand into new markets and
to maintain its margins.
RISKS RELATED TO CONSOLIDATION STRATEGY
Key elements of the Company's strategy are to improve the profitability
of its businesses and any businesses it may subsequently acquire and to continue
to expand the net sales of such businesses. Although the Company intends to seek
to improve the profitability of such businesses by various means, including
reducing administrative and other costs, there can be no assurance that the
Company will be able to do so. The Company's ability to increase the net sales
of such businesses will be affected by various factors, including demand for the
Company's services and products and the Company's ability to increase sales in
its new markets. Many of these factors are beyond the control of the Company,
and there can be no assurance that the Company's strategies will be successful
or that it will be able to generate cash flow adequate for its operations and to
support internal growth. See "Business -- Consolidation Strategy."
COMPETITION
The market for distribution of refined petroleum products is very
competitive, which results in narrow margins. Because the distribution industry
is highly fragmented, the Company has numerous competitors in each of its
markets, some of which may have significantly greater resources and name
recognition than the Company. The Company has very little control over its cost
of products and relies on its ability to provide value-added reliable services
to maintain its margins and competitive position. If the Company were to fail to
maintain the quality of its services, customers could choose alternative
distribution sources and the Company's margins could decrease, which would have
a material adverse effect on its business, results of operations and financial
condition. Furthermore, there can be no assurance that major oil companies will
not decide to distribute their own products in direct competition with the
Company or that large customers will not attempt to buy direct from the major
oil companies. See "Business--Petroleum Distribution Operations" and
- --Competition."
The Company also competes with other companies in petroleum products
supply, as well as gasoline retail site operations. Each of these businesses is
competitive and includes competitors with significantly greater resources
7
<PAGE> 11
and brand-name recognition than the Company, including major and large
independent oil companies and gasoline retail site operators. See "Business --
Petroleum Supply Operations", "--Gasoline Retail Operators" and
"--Competition."
LOSS OF DISTRIBUTION AGREEMENTS
The Company's petroleum distribution operations are dependent on
distribution agreements with major producers of petroleum products, including
Phillips, Texaco, Amoco, Shell, and Chevron. These agreements typically
have three to five year terms and the Company has historically been able to
renew these agreements. The loss of a significant number of these agreements,
particularly those with Texaco or Phillips, could have a material adverse effect
upon the Company's business, results of operations and financial condition. See
"Business -- Petroleum Distribution Operations."
FUEL PRICING; EFFECT ON PROFITABILITY
The wholesale prices of gasoline and diesel are subject to fluctuations
in response to changes in supply or other market conditions over which the
Company has no control. Because the Company sells fuel to its customers at fixed
amounts over its wholesale cost, the Company's gross profit as a percentage of
net sales will generally fluctuate as a result of the changes in wholesale
gasoline and diesel fuel prices. The Company does not engage in derivatives or
futures trading to hedge fuel price movements. See "Management's Discussion and
Analysis of Financial Conditions and Results of Operations -- Liquidity and
Capital Resources."
SEASONALITY
The Company experiences more demand for its products during the late
spring and summer months than during the fall and winter. Travel, recreation
and construction are higher in these months in the geographic areas in which
the Company operates, increasing the demand for the petroleum products produced
and distributed by the Company. Therefore, the Company's net sales are
typically higher in the first and second quarters of its fiscal year.
OPERATING RISKS; POTENTIAL ACCIDENTS
The Company owns and operates gasoline storage tanks, a fleet of 130
tank wagons and transports, and retail outlets for refined petroleum products.
The presence of flammable and combustible products at these facilities provides
the potential for fires and explosions that could destroy both property and
human life. These products, almost all liquids, also have the potential to cause
environmental damage if improperly released. The Company has general liability
coverage and a commercial umbrella liability policy with total coverage limits
of up to $25 million, as well as other insurance covering damage to its
properties. The Company believes its coverage is adequate for most foreseeable
problems and is comparable to the coverage carried by other companies in the
same business and of similar size. However, insurance is not available to the
Company against all operational risks, especially environmental risks, and the
occurrence of a significant event that is not fully insured could have a
material adverse effect on the Company's results of operations and financial
condition. See "Business -- Insurance" and "-- Environmental Compliance."
DEPENDENCE ON KEY PERSONNEL
The operations of the Company depend to a great extent on the
management efforts of its officers and other key personnel and on the ability
to attract new key personnel and retain existing key personnel in the future.
There can be no assurance that the Company will be successful in attracting and
retaining such personnel, or that it will not incur increased costs in order to
do so. The Company's failure to attract additional qualified employees or to
retain the services of key personnel could have a material adverse effect on
the business of the Company. See "Management."
8
<PAGE> 12
CONTROL BY PRINCIPAL STOCKHOLDERS
The Company's Articles of Incorporation generally require the
affirmative vote of the holders of a majority of the Common Stock, and in
certain circumstances 80% of the holders of the Common Stock, to take certain
actions. Immediately after the Offering, the Company's executive officers,
directors and affiliates will control approximately 37.0% of the outstanding
shares of Common Stock. As a result, such stockholders will have the ability to
determine the election of all of the Company's directors and control the
outcome of substantially all issues submitted to the stockholders. Such
concentration of ownership could have the effect of making it more difficult
for a third party to acquire, or of discouraging a third party from attempting
to acquire, control of the Company. See "Description of Capital Stock."
ANTITAKEOVER EFFECTS OF CERTAIN ARTICLES OF INCORPORATION AND BYLAW PROVISIONS
AND OF NEVADA LAW
Certain provisions of the Company's Articles of Incorporation may have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire, control of the Company.
The Company's Articles of Incorporation allow the Board of Directors to issue
and determine the rights, powers and preferences of Preferred Stock without any
vote or further action by the stockholders, and certain provisions of the
Company's Articles of Incorporation and Bylaws eliminate the right of
stockholders to act by written consent without a meeting, provide for a
classified Board of Directors and specify procedures for director nominations
by stockholders and submission of other proposals for consideration at
stockholder meetings. In addition, the Company's Articles of Incorporation
require the approval of 80% of the outstanding Common Stock to remove
directors, to amend certain provisions of the Articles of Incorporation and/or
Bylaws, and to approve certain change in control transactions.
Certain provisions of Nevada law could also delay or make more
difficult a merger, tender offer or proxy contest involving the Company,
including Sections 78.411 through 78.444 of the General Corporation Law of
Nevada, which prohibit a Nevada corporation from engaging in any business
combination with any interested stockholder for a period of three years unless
certain conditions are met. Nevada also has adopted a "control shares" statute
which limits the acquisition of a controlling interest in the Company. The
possible issuance of preferred stock, the procedures required for director
nominations and stockholder proposals and Nevada law could have the effect of
delaying, deferring or preventing a change in control of the Company, including
without limitation, discouraging a proxy contest or making more difficult the
acquisition of a substantial block of the Common Stock. These provisions could
also limit the price that investors might be willing to pay in the future for
shares of the Company's Common Stock. See "Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market
after the closing of the Offering could adversely effect the market price of
the Common Stock. Upon completion of the Offering, there will be 3,289,189
shares of Common Stock outstanding. Of these shares, the 1.6 million shares
sold in the Offering (1.84 million shares if the Underwriters' over-allotment
option is exercised in full) will be freely tradable without restriction or
further registration under the Securities Act unless purchased by "affiliates"
of the Company, as that term is defined in Rule 144 of the Securities Act. The
remaining shares will be "restricted securities" as that term is defined under
Rule 144 (the "Restricted Shares"). Of the Restricted Shares, an aggregate of
1.9 million shares of Common Stock (including 219,594 shares issuable upon
exercise of vested stock options), will be eligible for sale in the public
market subject to Rule 144 under the Securities Act after expiration of a
contractual lock-up with the Underwriters ending 180 days subsequent to the
completion of the Offering, unless earlier consented to, in whole or in part.
The Company intends to register on a Form S-8 registration statement
under the Securities Act, during the 180-day lock-up period, a total of 794,932
shares of Common Stock reserved for issuance under the Company's Stock Option
Plans, none of which may be sold for a period of 180 days subsequent to the
completion of the Offering. As of the date of this Prospectus, there were
outstanding options to purchase 244,932 shares of Common Stock, of which
219,594 were exercisable. Future sales of substantial amounts of Common Stock
in the public market following the Offering or the expectation of such sales
or the availability of shares for sale, could adversely effect the market price
of the Common Stock. See "Shares Eligible for Future Sale."
9
<PAGE> 13
NO PRIOR TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or, if one does develop, that it will be maintained. The initial public
offering price of the Common Stock will be determined through negotiations
between the Company and the Representative, and may not be indicative of future
market prices. See "Underwriting." There can be no assurance that the market
price of the Common Stock will not be highly volatile or that it will not
decline below the initial public offering price. Factors such as variations in
the Company's financial results, earnings, estimates by securities analysts,
fluctuations in the stock prices of the Company's competitors, any loss of key
management, adverse regulatory actions or decisions, announcements of
extraordinary events such as litigation or acquisitions or changes in pricing
policies by the Company or its competitors, as well as changes in the market
for fuel products and general economical, political and market conditions, may
have a significant effect on the market price for the Common Stock.
In addition, stock markets have experienced extreme price and volume
trading volatility in recent years. This volatility has had a substantial effect
on the market prices of companies for reasons frequently unrelated or
disproportionate to the operating performance of the specific companies. These
broad market fluctuations may adversely affect the market price of the Common
Stock.
DILUTION
The public offering price is substantially higher than the book value
per share of the Common Stock. Assuming a public offering price of $10.00 per
share, investors purchasing shares of Common Stock in the Offering, based upon
the net tangible book value per share of Common Stock as of August 31, 1997,
will incur immediate and substantial dilution in the amount of $8.73 per
share. See "Dilution."
ABSENCE OF DIVIDENDS
The Company anticipates that earnings will be retained for the
development of the Company's business and that no cash dividends will be
declared on the Common Stock in the foreseeable future. The Company's loan
agreements prohibit the payment of dividends on the Common Stock. See "Dividend
Policy" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
POSSIBLE ISSUANCE OF PREFERRED STOCK
In addition to the Common Stock, the Company's Articles of
Incorporation authorize the issuance of up to 5,000,000 shares of preferred
stock. Immediately following the conversion of all of the shares of the
Company's Series A Preferred Stock upon consummation of the Offering, no shares
of preferred stock of the Company will be outstanding, and the Company has no
current plans to issue any shares of preferred stock. However, because the
rights and preferences for any series of preferred stock may be set by the
Board of Directors in its sole discretion, those rights and preferences may be
superior to the rights of holders of the Common Stock and thus may adversely
affect the rights of holders of Common Stock. See "Description of Capital Stock
- -- Preferred Stock."
10
<PAGE> 14
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1.6 million
shares of Common Stock being offered hereby (at an assumed initial public
offering price of $10.00 per share) are estimated to be approximately $14.0
million ($16.4 million if the Underwriters' over-allotment option is exercised
in full), after deducting underwriting discounts and commissions and estimated
Offering expenses payable by the Company.
The Company expects to use such net proceeds as follows: (i)
approximately $7.0 million of the net proceeds to pay the cash portions of
the purchase price of the Pending Acquisitions; (ii) $4.5 million to repay in
full the Subordinated Debt (defined below); and (iii) the balance for working
capital and general corporate purposes. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources," "Business -- Recent and Pending Acquisitions" and "Certain
Transactions."
In February 1997, the Company executed a Demand Note (the
"Subordinated Debt") in favor of Morgan Guaranty Trust Company of New York in
the principal amount of $4.5 million with interest at the bank's prime lending
rate. The Subordinated Debt was used to pay a portion of the cash purchase
prices for the Moffitt and Diamond Shamrock acquisitions.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its
Common Stock and does not expect to do so in the foreseeable future. The
Company currently intends to retain any earnings to finance the expansion and
development of the business. Any future determination of the payment of
dividends will be made at the discretion of the Board of Directors of the
Company based upon conditions then existing, including the Company's earnings,
financial condition and capital requirements, as well as such economic and other
conditions as the Board of Directors may deem relevant. In addition, the
payment of cash dividends on the Common Stock is prohibited by the terms of the
Company's loan agreements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" for a description of the loan agreements.
11
<PAGE> 15
CAPITALIZATION
The following table sets forth (i) the historical capitalization of the
Company at August 31, 1997; and (ii) the pro forma capitalization of the
Company at August 31, 1997 giving effect to the conversion of the Series A
Preferred Stock, an assumed 2.96-for-1 reverse stock split, the acquisition of
Winnco, and the Offering and the application of the net proceeds there from.
This table should be read in conjunction with "Selected Consolidated Financial
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations," "Unaudited Pro Forma Combined Financial Data" and the
Consolidated Financial Statements of the Company and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT AUGUST 31, 1997
-----------------------------
HISTORICAL PRO FORMA
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, net of current maturities (1):
Credit facility . . . . . . . . . . . . . . . . . . . . . . . $ 12,805 $ 10,305
Term loans . . . . . . . . . . . . . . . . . . . . . . . . . . 13,390 13,390
Other long-term debt . . . . . . . . . . . . . . . . . . . . . 654 654
-------- --------
Total long-term debt . . . . . . . . . . . . . . . . . 26,849 24,349
Stockholders' equity:
Preferred Stock, $.001 par value; 5,000,000 shares
authorized; 20,000 shares of Series A Preferred issued
and outstanding and no shares issued and outstanding
pro forma . . . . . . . . . . . . . . . . . . . . . . . . 2,000 --
Common Stock, $.001 par value; 70,000,000 shares
authorized 675,675 shares issued and outstanding; and
3,289,189 shares issued and outstanding pro forma (2). . . 273 3
Additional paid-in capital. . . . . . . . . . . . . . . . . . -- 16,270
Retained earnings . . . . . . . . . . . . . . . . . . . . . . 2,246 2,246
------- --------
Total stockholders' equity . . . . . . . . . . . . . . . 4,519 18,519
-------- --------
Total capitalization . . . . . . . . . . . . . . . . . . $ 31,368 $ 42,868
======== ========
</TABLE>
- ----------------
(1) Does not include $1.0 million of subordinated debt to be issued and
the assumption of approximately $800,000 of debt in connection with
the Pending Acquisitions. See "Business -- Recent and Pending
Acquisitions."
(2) Excludes (i) 244,932 shares of Common Stock issuable upon exercise
of outstanding stock options. (ii) 119,595 shares of Common Stock
issuable upon the exercise of certain warrants, and (iii) 120,000
shares issuable upon the exercise of the Representative's Warrant.
See "Management -- Benefit Plans", "Certain Transactions" and
"Underwriting."
12
<PAGE> 16
DILUTION
Purchasers of Common Stock offered hereby will experience an immediate
and substantial dilution in the net tangible book value of the Common Stock
from the initial public offering price. The Company's net tangible book value
at August 31, 1997, after an assumed 2.96-for-1 reverse stock split, was
approximately $(9.8) million or $(5.82) per share. Net tangible book value per
share is equal to the total tangible assets of the Company minus total
liabilities divided by the number of shares of Common Stock outstanding (after
giving effect to the conversion of the Series A Preferred Stock into Common
Stock upon the consummation of the Offering). After giving effect to the sale
of the 1.6 million shares of Common Stock offered by the Company hereby (at an
assumed initial public offering price of $10.00 per share), and after deducting
underwriting discounts and commissions and estimated Offering expenses payable
by the Company, the net tangible book value of the Company would have been
approximately $4.2 million, or $1.27 per share. This represents an immediate
increase in net tangible book value of $7.09 per share to existing stockholders
and an immediate dilution in net tangible book value of $8.73 per share to new
investors. The following table sets forth such per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $10.00
Net tangible book value per share as of August 31, 1997
before the Offering........................................ $(5.82)
Increase in net tangible book value per share attributable to
new investors..................................... $ 7.09
Net tangible book value per share as of August 31, 1997
giving effect to the Offering............................................. $ 1.27
------
Dilution in net tangible book value per share to new investors...... $ 8.73
======
</TABLE>
The following table sets forth as of August 31, 1997, after an assumed
2.96 to 1 reverse stock split and assuming the conversion of the Series A
Preferred Stock, the number of shares of Common Stock purchased from the
Company, the total consideration paid to the Company and the average price per
share paid by existing stockholders and by new investors:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
--------------------------- ------------------------
Average Price
Number Percentage Amount Percentage Per Share
------ ---------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing
stockholders....... 1,689,189 51.4% $ 2,273,000 12.4% $ 1.35
New investors....... 1,600,000 48.6% $16,000,000 87.6% $10.00
--------- --------- ---------- ---------
3,289,189 100.00% $18,273,000 100.00%
========= ========= =========== =========
Total...............
</TABLE>
The foregoing tables assumes that the Underwriter's over-allotment
option will not be exercised. If the Underwriter's over-allotment is exercised
in full, the net tangible book value per share of Common Stock giving effect to
the Offering would be $1.86 per share, which would result in dilution to the
new investors of $8.14 per share. As of August 31, 1997, there were outstanding
options or warrants to purchase an aggregate of 364,527 shares of Common
Stock, and the Company had also reserved for issuance up to an additional
550,000 shares of Common Stock for issuance upon the exercise of options which
had not yet been granted under the 1997 Stock Incentive Plan. The Company will
also reserve 120,000 shares of Common Stock for issuance upon exercise of the
Representative's Warrant. To the extent options or warrants are exercised,
there will be further dilution to new investors.
13
<PAGE> 17
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following pro forma combined financial data give effect to the Moffit and
Colorado Stores Acquisitions completed during Fiscal 1998, the Winnco
Acquisition to be completed concurrent with the consummation of the Offering
and the financings required to fund such acquisitions, including the
consummation of the Offering, and an assumed 2.96-for-1 reverse stock split. The
pro forma combined balance sheet assumes that the Winnco acquisition was
completed at August 31, 1997. The pro forma combined statements of operations
assume all the transactions were completed as of March 1, 1996.
The pro forma combined balance sheet includes the balance sheet of the Company
at August 31, 1997, and the balance sheet of Winnco at June 30, 1997.
The pro forma combined statement of operations for the six months ended August
31, 1997 includes the results of the Company for the six months ended August 31,
1997, the results of Moffitt for the period from March 1, 1997 to April 11,
1997, and the results of Winnco for the six months ended June 30, 1997.
The pro forma combined statement of operations for the year ended February 28,
1997 includes the results of operations of the Company for the year ended
February 28, 1997, and the results of the Colorado Stores, Moffitt and Winnco
for the year ended December 31, 1996.
The pro forma combined financial data are based on available information and on
certain assumptions and adjustments described in the accompanying notes which
the Company believes are reasonable. The pro forma combined financial data are
provided for informational purposes only and do not purport to present the
results of operations of the Company had the transactions assumed therein
occurred on or as of the dates indicated, nor are they necessarily indicative of
the results of operations which may be achieved in the future. The unaudited pro
forma combined financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements of the Company, the Colorado Stores, Moffitt, and
Winnco, including the notes thereto, included elsewhere in this Prospectus.
14
<PAGE> 18
TRIUMPH FUELS CORPORATION
Pro Forma Combined Statement Of Operations
For the Six Months Ended August 31, 1997
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma Adjustments
--------------------- Pro Forma
Triumph Moffitt Winnco Moffitt Winnco Combined
---------- ------- -------- ------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net sales.......................................... $ 103,708 $ 9,052 $ 27,319 $ -- $ -- $ 140,079
Cost of sales...................................... 93,442 8,135 26,161 -- -- 127,738
---------- ------- -------- ------- ------ ----------
Gross profit....................................... 10,266 917 1,158 -- -- 12,341
Selling, general and administrative expenses....... 7,936 1,027 699 17(E) -- 9,679
Depreciation and amortization...................... 1,448 54 74 167(F) 173(I) 1,916
---------- ------- -------- ------- ------ ----------
Operating income (loss)............................ 882 (164) 385 (184) (173) 746
Interest expense................................... 1,390 48 -- 77(G) -- 1,515
Interest income.................................... (42) -- -- -- -- (42)
Other (income) expense............................. (49) 6 -- -- -- (43)
---------- ------- -------- ------- ------ ----------
Income (loss) from continuing operations
before income taxes........................ (417) (218) 385 (261) (173) (684)
Income tax expense (benefit)....................... (154) (79) 146 (98)(H) (65)(J) (250)
---------- ------- -------- ------- ------ ----------
Loss from continuing operations........... $ (263) $ (139) $ 239 $ (163) $ (108) $ (434)
========== ======= ======== ======= ====== ==========
Loss from continuing operations per share. $ (0.14) $ (0.23)
========== ==========
Weighted average shares outstanding................ 1,903 1,903
</TABLE>
See accompanying notes.
15
<PAGE> 19
TRIUMPH FUELS CORPORATION
Pro Forma Combined Statement Of Operations
For The Year Ended February 28, 1997
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma Adjustments
-----------------------------
Colorado Colorado Pro Forma
Triumph Stores Moffitt Winnco Stores Moffitt Winnco Combined
---------- -------- -------- -------- -------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net sales................................ $ 135,464 $ 17,579 $ 70,815 $50,938 $(7,484)(A) -- $ -- $267,312
Cost of sales............................ 123,821 16,327 62,959 48,624 (7,484)(A) -- -- 244,247
---------- -------- -------- ------- ------- -------- ----- --------
Gross profit............................. 11,643 1,252 7,856 2,314 -- -- -- 23,065
Selling, general and administrative
expenses............................ 9,359 -- 7,268 1,247 -- 150 (E) -- 18,023
Depreciation and amortization............ 871 -- 536 316 309 (B) 1,452 (F) 301 (I) 3,785
---------- -------- -------- ------- ------- -------- ------ --------
Operating profit (loss).................. 1,413 1,252 52 751 (309) (1,602) (301) 1,257
Interest expense......................... 901 -- 263 7 1,322 (C) 672 (G) -- 3,165
Interest income.......................... (27) -- (54) (38) -- -- -- (119)
Other (income) expense................... (136) -- (66) -- -- -- -- (201)
---------- -------- -------- ------- ------- -------- ------ --------
Income (loss) from continuing operations
before income taxes................. 675 1,252 (91) 782 (1,631) (2,274) (301) (1,588)
Income tax expense (benefit)............. 257 -- (18) 296 (610)(D) (851)(H) (113)(J) (1,039)
---------- -------- -------- -------- -------- -------- ------ ---------
Income (loss) from continuing operations. $ 418 $ 1,252 $ (73) $ 486 $(1,021) $ (1,423) $ (188) $ (549)
========== ======== ======== ======== ======= ======== ====== =========
Income (loss) from continuing operations
per share........................... $ 0.22 $ (0.29)
========== =========
Weighted average shares outstanding...... 1,903 1,903
</TABLE>
See accompanying notes.
16
<PAGE> 20
TRIUMPH FUELS CORPORATION
Pro Forma Combined Balance Sheet
August 31, 1997
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
ASSETS Triumph Winnco Adjustments Combined
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Current assets:
Cash................................................. $ 3 $ 1,679 $ 14,000 (A) $ 2,982
(5,700) (B)
(7,000) (C)
Accounts receivable, trade, net of allowance......... 17,237 2,110 -- 19,347
Other receivables.................................... 2,031 -- -- 2,031
Inventory............................................ 4,059 243 -- 4,302
Deferred tax asset................................... 101 10 -- 111
Income taxes receivable.............................. 154 25 -- 179
Other current assets................................. 1,238 13 -- 1,251
------------ ------------ ------------- -------------
Total current assets........................... 24,823 4,080 1,300 30,203
Property, plant and equipment, net...................... 16,283 186 -- 16,469
Purchased distribution agreements....................... 15,790 468 5,532 (B) 21,790
Noncompete agreements................................... 3,150 -- -- 3,150
Other assets............................................ 2,709 132 -- 2,841
------------ ------------ ------------- -------------
Total assets................................... $ 62,755 $ 4,866 $ 6,832 $ 74,453
============ ============ ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................... $ 6,552 $ -- $ (4,500) (C) $ 2,052
Accounts payable, trade.............................. 12,423 2,239 200 (B) 14,862
Accrued expenses..................................... 6,777 57 -- 6,834
Book overdrafts...................................... 940 -- -- 940
------------ ------------ ------------- ------------
Total current liabilities...................... 26,692 2,296 (4,300) 24,688
Long-term debt, net of current portion.................. 26,849 -- (2,500) (C) 24,349
Deferred income taxes................................... 4,695 -- 2,202 (B) 6,897
------------ ------------ ------------- -------------
Total liabilities............................. 58,236 2,296 (4,598) 55,934
Shareholders' equity:
Preferred stock, Series A convertible................ 2,000 -- (2,000) (D) --
Common stock......................................... 273 2 (272) (D) 3
Additional paid-in capital........................... -- 118 16,152 (D) 16,270
Retained earnings (accumulated deficit).............. 2,246 2,450 (2,450) (D) 2,246
------------ ------------ ------------- -------------
Total shareholders' equity..................... 4,519 2,570 11,430 18,519
------------ ------------ ------------- -------------
Total liabilities and
shareholders' equity.................. $ 62,755 $ 4,866 $ 6,832 $ 74,453
============ ============ ============= =============
</TABLE>
17
<PAGE> 21
TRIUMPH FUELS CORPORATION
Notes to Pro Forma Combined Financial Statements
(Unaudited)
PRO FORMA COMBINED STATEMENTS OF OPERATIONS:
COLORADO STORES:
A. To remove intercompany sales between the Company and the Colorado Stores.
B. To record additional amortization on step-up in basis of assets for
acquisition of the Colorado Stores.
C. To record interest expense at 8.75% per annum on debt used to acquire the
Colorado Stores.
D. To record tax effects of entries above.
MOFFITT:
E. To record consulting expense of $300,000 on agreement entered into at
acquisition date, net of salary reduction of $150,000.
F. To record additional amortization for step-up in basis of acquired assets.
G. To record interest expense at 9.6% on debt used to acquire Moffitt.
H. To record tax effects of entries above.
WINNCO:
I. To record additional amortization for step-up in basis of acquired assets.
J. To record tax effect of entry above.
PRO FORMA COMBINED BALANCE SHEET:
A. To record expected proceeds from the Offering based on an assumed
offering price of $10.00 per share.
B. To record use of $5.7 million of cash and estimated expenses of $200,000 to
acquire Winnco and the related step-up in basis of the assets acquired.
C. To reflect use of proceeds from the Offering to pay down $7.0 million of
existing debt. The balance of the cash is reserved for the Salt Lake City
Pending Acquisition and the Western Colorado Pending Acquisition.
D. To reflect estimated proceeds of the Offering, including conversion of the
Series A Preferred Stock, offset by elimination of Winnco's historical
equity.
18
<PAGE> 22
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected consolidated financial data at February 28,
1995, February 29, 1996, February 28, 1997 and at August 31, 1996 and 1997 and
for each of the three years ended February 28, 1997 and for the six months
ended August 31, 1996 and 1997 have been derived from and should be read in
conjunction with the Company's Consolidated Financial Statements and notes
thereto included elsewhere in this Prospectus. The selected consolidated
financial data at February 28, 1993 and 1994 and for each of the two years
ended February 28, 1994 have been derived from audited consolidated financial
statements of the Company not included in this Prospectus. The selected
consolidated financial data for the six months ended August 31, 1996 and 1997
are unaudited, but have been prepared on the same basis as the audited
Consolidated Financial Statements and, in the opinion of management, contain
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of the information set forth herein. Results for such
interim periods are not necessarily representative of the results for the full
year.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED AUGUST 31,
--------------------------------------------------------------- -------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1993 1994 1995 1996 1997 1996 1997
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales . . . . . . . . . . . . $ 57,792 $ 58,977 $ 93,639 $102,126 $135,464 $ 71,145 $103,708
Cost of sales . . . . . . . . . . 54,010 54,586 86,604 93,144 123,821 64,440 93,442
-------- -------- -------- -------- -------- -------- --------
Gross profit . . . . . . . . . . . 3,782 4,391 7,035 8,982 11,643 6,705 10,266
Selling, general and administrative
expenses . . . . . . . 2,551 3,314 5,396 7,433 9,359 4,434 7,936
Depreciation and amortization . . 177 192 457 694 871 444 1,448
-------- -------- -------- -------- -------- -------- --------
Operating income . . . . . . . . . 1,054 885 1,182 855 1,413 1,827 882
Other non-operating income (expense):
Interest expense, net . . . . . (225) (158) (99) (611) (874) (421) (1,348)
Gain (loss) on sale of assets . 394 117 21 (8) (2) 4 --
Other income (expense) . . . . . (332) (376) (55) 65 138 50 49
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes . 891 468 1,049 301 675 1,460 (417)
Income tax (expense) benefit. . . . (236) (161) (387) (44) (257) (569) 154
-------- -------- -------- -------- -------- -------- --------
Net income (loss) . . . . . . . . . $ 655 $ 307 $ 662 $ 257 $ 418 $ 891 $ (263)
======== ======== ======== ======== ======== ======== ========
Net income (loss) per share . . . . $ 0.22 $ (0.14)
======== ========
Weighted average shares outstanding 1,903 1,903
OTHER FINANCIAL DATA:
EBITDA (1) . . . . . . . . . . . . $ 1,293 $ 818 $ 1,605 $ 1,606 $ 2,423 $ 2,325 $ 2,379
</TABLE>
<TABLE>
<CAPTION>
August 31,
1997
----------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital . . . . . . . . . $ 2,241 $ 1,129 $ 746 $ 2,539 $ 2,361 $(1,870)
Total assets . . . . . . . . . . . 8,900 10,878 13,723 21,247 21,983 62,755
Long-term debt, net of current
maturities . . . . . . . . . . . 1,387 1,535 1,569 6,444 6,391 26,849
Shareholders' equity . . . . . . . 2,900 3,222 3,883 4,140 4,559 4,519
</TABLE>
- ---------------
(1) EBITDA is earnings before income taxes, interest, depreciation and
amortization. EBITDA is a financial measure commonly used in the
Company's industry and should not be considered in isolation or as a
substitute for net income, cash flow provided from operating activities
or other income or cash flow data prepared in accordance with generally
accepted accounting principles or as a measure of a company's
profitability or liquidity.
19
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is engaged in the wholesale distribution and marketing of
refined petroleum products including gasoline, diesel fuel and lubricants. The
Company is also a producer of gasoline and diesel fuels and owns or operates 19
gasoline retail sites in Colorado and Utah. The Company's growth since its
inception in 1990 has been primarily through the acquisition of businesses in
the petroleum distribution industry. Since 1994, the Company has completed
seven acquisitions, which has resulted in net sales increasing from
approximately $59.0 million for Fiscal 1994 to $135.5 million for Fiscal 1997
and $103.7 million for the six months ended August 31, 1997 compared to $71.1
million for the six months ended August 31, 1996. The acquisitions were made in
furtherance of the Company's strategy to grow by pursuing acquisition
opportunities in the highly fragmented petroleum distribution industry.
All acquisitions completed by the Company have been accounted for as
purchases and, accordingly, the historical Consolidated Financial Statements of
the Company include net sales of the acquired businesses from the date of
acquisition. The Company's historical consolidated net sales have been
significantly affected by the number, timing and size of the acquisitions.
For the six months ended August 31, 1997, 61.3% of the Company's net
sales came from petroleum distribution. The Company's supply and gasoline retail
site operations accounted for 24.6% and 14.1% of net sales, respectively, for
the same period. As the Company continues to pursue its consolidation strategy,
it expects the percentage of net sales from its petroleum distribution
operations to increase.
The petroleum distribution business is a "cost-plus" business in which
the Company usually charges a price that aggregates its cost of product on the
day of delivery, a rate to transport the product to the customer and a profit
on the transaction. Therefore, the Company is usually able to pass on to its
customer the cost of increases in the price it has to pay for product. Cost of
sales is comprised principally of the cost of product and transportation costs.
Gross profits from petroleum distribution operations vary according to customer
mix. For example, sales to branded gas stations typically generate higher gross
margins than to unbranded gas stations. Also, gross profits are generally
higher for sales to commercial customers than sales to retail customers. In
addition, gross profits can vary by geographical region. Accordingly, a change
in the petroleum distribution customer base or its geographic mix can affect
petroleum distribution gross profit without necessarily affecting net sales.
RESULTS OF OPERATIONS
Six Months Ended August 31, 1997 Compared With the Six Months Ended
August 31, 1996
Net sales for the six months ended August 31, 1997 increased 45.8% to
$103.7 million compared to $71.1 million for the six months ended August 31,
1996. This increase was primarily attributable to (i) the inclusion of
approximately $33.2 million of net sales from Moffitt, which was acquired in
April 1997, and (ii) the inclusion of approximately $8.6 million of net sales
from the eight gasoline retail sites its acquired in the Colorado Stores
Acquisition in March 1997. These increases were partially offset by (i) a
decrease of approximately $6.7 million in the Company's supply operations as a
result of lower rack prices during the current period, which resulted in lower
net sales, and the loss of a portion of business from a large customer account,
and (ii) a decrease of approximately $2.7 million in net sales from the
Company's petroleum distribution operations in western Colorado as a result of
the loss of two retail accounts.
Gross profit for the six months ended August 31, 1997 increased 53.1%
to $10.3 million compared to $6.7 million for the six months ended August 31,
1996. The increase was primarily the result of the of the Moffitt and Colorado
Stores Acquisitions. Gross profit as a percentage of net sales increased from
9.4%
20
<PAGE> 24
to 9.9% during the same period due to the inclusion of the gasoline retail site
operations acquired from Diamond Shamrock, which was offset by a $911,000
reduction in gross profit on the supply side due to lower rack prices in the
current period.
Selling, general and administrative expenses for the six months ended
August 31, 1997 increased 79.5%, to $7.9 million compared to $4.4 million for
the six months ended August 31, 1996. The increase was primarily due to the
increase in selling, general and administrative expenses attributable to the
Moffitt and Diamond Shamrock Acquisitions.
Depreciation and amortization expense for the six months ended August
31, 1997 increased 226.2% to $1.4 million compared to $444,000 for the six
months ended August 31, 1996, as a result of depreciation attributable to the
assets acquired in the Moffitt and Colorado Stores Acquisitions and increased
amortization of financing costs.
Interest expense for the six months ended August 31, 1997 increased
225.6% to $1.4 million compared to $430,000 for the six months ended August 31,
1996 as a result of higher average debt in the current period compared to the
prior period, primarily incurred in connection with the Moffitt and the Diamond
Shamrock Acquisitions.
As a result of the factors described above, net income for the six
months ended August 31, 1997 decreased by $1.2 million, as compared to the six
months ended August 31, 1996.
Fiscal Year Ended February 28, 1997 Compared With the Fiscal Year Ended
February 29, 1996
Net sales for Fiscal 1997 increased 32.6% to $135.5 million compared
to $102.1 million for Fiscal 1996. Approximately $11.0 million of the increase
was attributable to the inclusion of a full 12 months of net sales of
acquisitions of wholesale distributions and retail operations in Western
Colorado made in January 1996, which included approximately $8.0 million in
petroleum distribution sales and $3.0 million in sales from the operation of
four gasoline retail sites compared with only one month in Fiscal 1996. An
additional $10.0 million of the increase was a result of the operation of the
Company's blending facility in Denver, Colorado for a full 12 months of Fiscal
1997 compared to only six months in Fiscal 1996. The remainder of the increase
was attributable primarily to increases in net sales by the Company's
distribution operations in Pueblo, Colorado and Utah through the expansion of
their commercial business.
Gross profit for Fiscal 1997 increased 29.6% to $11.6 million compared
to $9.0 million for Fiscal 1996. The increase was primarily the result of
acquisitions made in January 1996. Gross profit as a percentage of net sales
decreased from 8.8% to 8.6% during the same period.
Selling, general and administrative expenses for Fiscal 1997 increased
25.9% to $9.4 million compared to $7.4 million in Fiscal 1996. The increase was
primarily attributable to costs related to a full year of operations at the
Company's blending operation in Denver, Colorado and an increase in its
petroleum distribution operations in western Colorado as a result of
acquisitions made in January 1996.
Depreciation and amortization expense for Fiscal 1997 increased 25.5%
to $871,000 compared to $694,000 for Fiscal 1996 as a result of depreciation
attributable to the assets acquired by the Company in January 1996.
Interest expense for Fiscal 1997 increased 45.3% to $901,000 compared
to $620,000 for Fiscal 1996 as a result of additional borrowings under the
Credit Facility (as defined) to fund acquisitions during the current
period.
As a result of the factors set forth above, net income increased in
Fiscal 1997 by $161,000, as compared to Fiscal 1996.
21
<PAGE> 25
Fiscal Year Ended February 29, 1996 Compared With the Fiscal Year Ended
February 28, 1995
Net sales for Fiscal 1996 increased 9.1% to $102.1 million compared to
$93.6 million for Fiscal 1995. The majority of the increase was attributable to
the inclusion of a full 12 months of net sales from the acquisition of
wholesale distribution and retail operations in Utah made in October 1994,
compared with only a partial period for Fiscal 1995.
Gross profit for Fiscal 1996 increased 27.7% to $9.0 million compared
to $7.0 million for Fiscal 1995. The increase was primarily the result of
acquisitions made in October 1994. Gross profit as a percentage of net sales
increased from 7.5% to 8.8% during the same period due primarily to the
acquisitions.
Selling, general and administrative expenses for Fiscal 1996 increased
37.8% to $7.4 million compared to $5.4 million in Fiscal 1995. The increase was
primarily attributable to the acquisition made in October 1994.
Depreciation and amortization expense for Fiscal 1996 increased 51.9%
to $694,000 compared to $457,000 for Fiscal 1995 as a result of depreciation
expense attributable to assets acquired in October 1994 and the commencement of
operations at its blending facility in Denver.
Interest expense for Fiscal 1996 increased 321.8% to $620,000 compared
to $147,000 for Fiscal 1995 as a result of increased borrowings under the
Credit Facility for acquisitions made in the current period.
As a result of the factors discussed above, net income in Fiscal 1996
decreased by $405,000 compared to Fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, most of the Company's cash flow has been used to
acquire wholesale distribution businesses. During the first six months of Fiscal
1998, the Company made cash payments for acquisitions totaling approximately
$22.0 million. These payments were funded out of the Credit Facility (defined
below), the Subordinated Note and the Term Loans (defined below) and other
borrowings that have been repaid.
Net cash provided from operating activities for the six months ended
August 31, 1997, decreased by $900,000 as compared to the same 1996 period
primarily as a result of the net loss in the current period.
In connection with the Colorado Stores Acquisition in March 1997, the
Company entered into a Term Loan and Security Agreement (the "Colorado Stores
Term Loan") for a term loan in the principal amount of $8.0 million. Interest is
payable at One Month LIBOR plus 3.25% and the loan is payable in 85 monthly
installments with a final balloon payment due in the 85th month. The acquisition
of Moffitt in April 1997 was financed through a Term Loan and Guaranty Agreement
from a financial institution (the "Moffitt Term Loan") for a term loan in the
principal amount of $7.0 million, payable in 60 monthly installments with
interest at 3.50% over the Five Year Treasury Rate. The Colorado Stores Term
Loan and the Moffitt Term Loan are sometimes collectively referred to herein as,
the "Term Loans."
As of August 31, 1997, the aggregate principal amount outstanding
under the Diamond Shamrock Term Loan was $7.9 million and the interest rate was
8.9%. As of August 31, 1997, the aggregate principle amount outstanding under
the Moffitt Term Loan was $6.8 million and the interest rate was 9.7%.
22
<PAGE> 26
The Company also has a revolving credit facility (the "Credit
Facility") which provides for loans of up to $18 million subject to availability
pursuant to a borrowing base requirement, including letters of credit. The
Credit Facility is collateralized by substantially all of the current assets of
the Company and matures on October 8, 1998. Loans under the Credit Facility bear
interest at the bank's prime lending rate plus 1.0% subject to a reduction of up
to 0.5% if certain financial ratios are met. As of August 31, 1997, the Company
had borrowings of $12.8 million under the Credit Facility. After giving effect
to the borrowing base limitations, $1.8 million was available for additional
borrowings at August 31, 1997. The interest rate under the Credit Facility was
9.8% as of August 31, 1997.
The Company's loan agreements contain affirmative and negative
covenants customary in commercial lending transactions, including restrictions
on the incurrence of additional debt, restrictions on the payment of dividends
and maintenance of specified financial ratios.
The Company has experienced and expects to continue to experience
substantial working capital needs to fund its operations. The largest component
of the Company's working capital requirements relates to the funding of trade
accounts receivable. The time period in which the Company must make payments to
its suppliers is generally shorter than the time period for the receipt of
payment from its customers. The Company operates a centralized credit
management function to ensure continuity and regularity of customer payment.
However, in the event customer payments are extended beyond their current
levels, the Company may be unable to meet its operating cash flow requirements
and may be required to obtain additional short term financing, which may not be
available on terms acceptable to the Company, if at all.
The Company currently anticipates that its capital expenditures will
be approximately $600,000 through February 28, 1999, including approximately
$100,000 for unreimbursed environmental remediation costs. The Company believes
that the combination of funds provided by operations, funds available under the
Credit Facility and the net proceeds from the Offering will be sufficient to
meet its current anticipated requirements for working capital, capital
expenditures including amounts to be spent on remediation requirements and debt
service for the next 12 months.
The Company will continue to pursue acquisitions of businesses in the
petroleum distribution industry and anticipates purchasing these businesses
using a combination of cash, debt and equity. Although management believes that
following the Offering, the Company will have sufficient cash resources to fund
acquisitions, a significant acquisition or the acceleration of its
consolidation program could require the Company to obtain additional debt
financing or to raise funds through the sale of new equity. There can be no
assurance that sufficient capital will be available to the Company from any of
the sources mentioned above at the time it is required to fund such acquisition
activity.
SEASONALITY
The Company experiences more demand for its products during the late
spring and summer months than during the fall and winter. Travel, recreation
and construction are higher in these months in the geographic areas in which
the Company operates, increasing the demand for the petroleum products produced
and distributed by the Company. Therefore, the Company's net sales are
typically higher in the first and second quarters of its fiscal year.
INFLATION
The Company does not believe that inflation has had or is expected to
have any significant adverse effect on the Company's financial condition or
results of operations for the periods indicated.
23
<PAGE> 27
PENDING ACCOUNTING PRONOUNCEMENTS
In June of 1997 the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income" ("SFAS No. 130"). The Statement establishes standards for
reporting and display of comprehensive income and its components in a full set
of financial statements. It would be effective for the Company for the fiscal
year ending February 28, 1999. The Company currently believes that
implementation of the Statement will have an immaterial impact.
Also in June of 1997, the FASB issued SFAS No. 131 "Disclosures About
Segments of an Enterprise and Related Information" ("SFAS No. 131"). Under the
Statement, the Company will be required to disclose financial information by
operating segment. Financial information will be required to be reported on the
basis that is used internally for evaluating segment performance and deciding
how to associate resources to segments. The Company will be required to adopt
the provisions of this Statement for the fiscal year ending February 28, 1999.
24
<PAGE> 28
BUSINESS
GENERAL
The Company is engaged in the wholesale distribution and marketing of
refined petroleum products including gasoline, diesel fuel and lubricants.
Petroleum distributors transport refined petroleum products from the source of
manufacture to the end-user. The Company has an active customer base of over
2,000 accounts, including retail gasoline stations and commercial business in
the construction, manufacturing, mining and marine, road and rail transportation
industries. The Company's objective is to become a leading consolidator in the
independent wholesale distribution segment of the petroleum industry.
The Company also operates a fractionator gas plant and two gasoline
blending facilities located in Colorado, and owns or operates 19 gasoline
retail sites located in Colorado and Utah. Petroleum supply operations and
gasoline retail stores represented approximately 18.2% and 10.5% of pro forma
net sales for the six months ended August 31, 1997, respectively. The Company
believes that its supply operations and retail sites are complementary to its
core distribution business.
THE PETROLEUM DISTRIBUTION INDUSTRY
The PMAA estimates that in 1996 the total volume of refined petroleum
products sold in the United States was approximately 767 million gallons per
day. Refined petroleum products are distributed by three types of
entities: pipeline companies that distribute directly to large end-users,
such as utilities and airports; major oil companies that often supply their own
retail outlets and are normally restricted to urban areas; and independently-
owned wholesale petroleum distributors.
According to PMAA there are over 10,000 independent petroleum
distributors in the United States that distribute approximately 35% of all
refined petroleum products sold in the United States. Due to these industry
characteristics, as well as the absence of other significant industry
consolidators, the owners of independent petroleum businesses, a majority of
which are relatively small owner-operators, have limited alternatives to sell
their operations. The Company believes these factors create an opportunity for
it to enter and consolidate additional market areas.
CONSOLIDATION STRATEGY
The Company utilizes a "hub and spoke" consolidation strategy for
expansion within a regional market area. The Company targets regional areas
where it believes it can acquire a significant share of the petroleum
distribution market. Once an initial distribution operation is acquired
(a "hub"), the Company incorporates the acquired business' administration and
accounting functions into the Company's centralized corporate system allowing
local management to concentrate on sales and marketing. The Company then
attempts to increase its market position by acquiring additional businesses or
"spokes" in the regional area.
As each spoke is added, the Company attempts to achieve operating
efficiencies and cost-savings by consolidating certain functions such as
accounting, purchasing and transport administration at the corporate level in
order to reduce overhead. Additionally, the Company is able to increase its
purchasing power and receive improved pricing and terms from its suppliers.
Also, as the Company continues to expand its presence in a regional market
area, it believes it will be able to more efficiently use its transportation
capabilities and further reduce its transportation costs.
Since 1994, the Company has completed seven acquisitions, five of
which have been acquisitions of petroleum distributors. In addition, the
Company has three pending acquisitions of petroleum distributors that are
expected to be completed on or before consummation of the Offering. Upon
completion of these Pending Acquisitions, the Company will have established hubs
in Houston, Texas; Grand Junction and Denver, Colorado; Salt Lake City, Utah;
and Oklahoma City, Oklahoma and spokes in Canon City, Colorado Springs,
Gunnison,
25
<PAGE> 29
Montrose, and Pueblo, Colorado and Delta and Ogden, Utah. The Company intends
to use the proceeds from the Offering to accelerate its consolidation strategy.
The Company has experienced significant growth in net sales and EBITDA
as a result of its consolidation strategy and increased demand for its
services. On a pro forma basis for the six months ended August 31, 1997, the
Company generated $140.1 million in net sales and $2.7 million in EBITDA
representing a 97.1% and 16.3% increase, respectively from its historical
results for the six months ended August 31, 1996.
The following table sets forth certain information concerning the
Company's acquisitions of petroleum distribution and retail gasoline operations
since January 1994:
<TABLE>
<CAPTION>
Date of Net Sales
Seller Location Acquisition (in millions)(1)
------ -------- ----------- ----------------
<S> <C> <C> <C>
GRAND JUNCTION REGIONAL MARKET:
Ricci investments* Grand Junction+ January 1996 $ 1.8
G.W. Arnold Distributing Grand Junction+ January 1996 $10.4
Colorado Stores* Grand Junction March 1997 $17.6
Western Colorado Pending
Acquisition Western Colorado Pending
DENVER REGIONAL MARKET:
Triton Fuel Group, Inc. Colorado Springs, January 1994 $28.7
Pueblo
Trinidad
Simpson Oil Company Canon City October 1994 $ 1.2
HOUSTON REGIONAL MARKET:
Moffitt Oil Company, Inc. Houston+ April 1997 $70.8
OKLAHOMA CITY REGIONAL MARKET:
Winnco, Inc. and W.W. Oklahoma City+ Pending $50.9
Transports, Inc.
SALT LAKE CITY REGIONAL MARKET:
Recovery Specialists, Inc. Salt Lake City+ October 1994 $27.1
Salt Lake City Pending Salt Lake City and
Acquisition surrounding areas Pending
</TABLE>
- ------------------
+ Regional market hub.
* Includes the acquisition of convenience stores to integrate supply and
retail operations to enhance the profitability of the Grand Junction gas
supply and blending operation.
(1) Represents net sales for Fiscal 1997, except for the Colorado Stores,
Moffitt and Winnco, which are net sales for the year ended December 31,
1996.
26
<PAGE> 30
RECENT AND PENDING ACQUISITIONS
During Fiscal 1998, the Company completed two acquisitions and
currently has three letters of intent for the Pending Acquisitions. The Pending
Acquisitions are expected to close on or before consummation of the Offering.
Completion of the Pending Acquisitions, however, is subject to further
negotiations, execution of definitive agreements, satisfactory due diligence,
approval by the Company's Board of Directors and the satisfaction of customary
closing conditions. There can be no assurance that any of the Pending
Acquisitions will be consummated.
o Diamond Shamrock Refining and Marketing, Inc. During March
1997, the Company completed the Diamond Shamrock Acquisition
for a total purchase price of approximately $10.0 million. The
Company acquired eight gasoline retail sites to enhance the
profitability of its Grand Junction, Colorado gas supply and
blending operations. See "Combined Statements of Sales, Costs
of Sales and Direct Operating Expenses of the Colorado Stores"
included elsewhere in this Prospectus.
o Moffitt Oil Company, Inc. During April 1997, the Company
completed the acquisition of Moffitt for a purchase price of
approximately $10.4 million. Moffitt is a gasoline, diesel and
lubricants independent wholesale distributor based in Houston,
Texas. Moffitt has a 25 year history of supplying retail,
commercial and marine fuel customers. The Company believes
Moffitt currently serves approximately 11% of the Houston
market and surrounding areas and serves as a hub for the
Company in these areas. See Financial Statements of Moffitt
included elsewhere in this Prospectus.
o Winnco, Inc. and W.W. Transports, Inc. The Company signed a
letter of intent to acquire Winnco for a purchase price of
approximately $5.7 million. Winnco is an independent
petroleum distributor with operations in Oklahoma City,
Oklahoma. The Winnco acquisition will create a hub for the
Company in Oklahoma City.
o Salt Lake City Pending Acquisition. The Company signed a
letter of intent to acquire an independent petroleum
distributor with operations in Salt lake City, Utah for a
purchase price of approximately $2.5 million. This acquisition
will create a spoke for the Company's existing hub in Salt
Lake City.
o Western Colorado Pending Acquisition. The Company signed a
letter of intent to acquire an independent petroleum
distributor and gasoline retail site owner based in western
Colorado for a purchase price of approximately $1.55 million.
Through this acquisition, the Company will create a spoke to
its existing hub in Grand Junction, Colorado, as well as add
one retail site.
PETROLEUM DISTRIBUTION OPERATIONS
Petroleum distribution involves the delivery of refined products to
retail and commercial end-users. The Company's petroleum distribution
operations, on a pro forma basis, represented approximately 71.3% of the
Company's net sales for the six months ended August 31, 1997.
27
<PAGE> 31
Order Fulfillment and Distribution
The Company's petroleum distribution process begins with the receipt of
the customer order. The Company then uses a dispatch system to send an available
truck to a terminal or refinery loading rack, including its own facilities,
where the fuel is loaded and then transported to the customer. These products
are sold to the Company at prices that are set daily by the suppliers. The
Company buys unbranded products from a number of suppliers, which allows it to
buy from the cheapest source, unlike buying branded products from a particular
supplier, where only one rack price will be posted in a particular market.
The Company utilizes a fleet of 130 transportation vehicles, including
both transports, which can carry approximately 9,000 gallons of fuel, and tank
wagons, which can carry up to 4,000 gallons of fuel, to deliver products to its
customers. The nature of the distribution business is such that low levels of
gasoline inventory is maintained as the trucks deliver the products directly to
the wholesale customer with no intermediate storage of fuel other than trucks
en route to a customer. This also serves to decrease commodity pricing risk.
The distribution process for bulk fuel products, from pickup to delivery to
customers, is typically completed in two days or less. The Company believes
customer service is a key competitive factor in the petroleum distribution
industry. As a result, the Company focuses on the specialized needs of its
customers and provides 24 hour service, as well as off-road site delivery based
on its customers' requirements.
The Company provides other fueling services including the direct
fueling of vehicles, ships or locomotives, and the distribution of fuel through
its automated cardlock facilities located in Colorado Springs, Grand Junction
and Pueblo, Colorado and Salt Lake City, Utah. The cardlock systems provide
24-hour-per-day access to fuel-dispensing facilities for commercial fleet
customers and customers with automated debit cards. The cardlock systems do not
require that a Company employee be present to process the fuel purchase. The
Company may increase the number of cardlock facilities that the Company owns or
operates. In addition, the Company also stores fuels and lubricants for
repackaging and delivery in smaller quantities at its bulk delivery plants in
Colorado Springs, Denver, Grand Junction and Montrose, Colorado; Houston, Texas
and Salt Lake City, Utah. In connection with the Winnco acquisition, the
Company intends to acquire storage facilities near Oklahoma City, Oklahoma. In
addition, the Company has several hundred portable tanks at customer locations.
Sales and Marketing
The Company distributes branded and unbranded refined petroleum
products to both commercial and retail customers. The distribution operation
services over 2,000 customers per month, of which approximately 85% are
commercial customers and the remainder are retail customers. For the six months
ended August 31, 1997, commercial and retail sales represented 37.3% and 58.3%,
respectively, of pro forma distribution net sales.
The sale of branded products involves the purchase of products from a
particular supplier, usually a major oil company, and the resale to a customer
who has a contractual obligation to sell or use that particular brand of
product. Unbranded products are supplied if there is no significance to the
customer as to which manufacturer's products are used. In order for a
wholesaler to distribute branded products, it must have an agreement with the
supplier. These semi- exclusive agreements, termed "branded marketer
agreements", normally require the wholesaler to purchase a minimum volume of
the supplier's products per annum. The agreements are usually of three years
duration and are generally renewed provided the minimum volume has been
purchased and the Company has marketing agreements for branded gasoline and
diesel with Texaco, Shell, Amoco and Phillips and agreements for branded
lubricants with Chevron, Amoco and Texaco.
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No agreement with any one supplier accounted for more than 10% of the
Company's purchases, other than Frontier which accounted for 13.2% and 7.2% of
purchases in Fiscal 1997 and the six months ended August 31, 1997, respectively.
Although these agreements are typically renewed if required minimums are
purchased, there can be no assurance that these agreements will not have to be
renegotiated or that they will be renewed.
The Company concentrates on sales to commercial customers, which
typically earn a higher gross profit margin than retail sales due primarily to a
higher service requirement which results in less price sensitivity. The Company
attempts to retain commercial customers by a variety of methods which may
involve the placement of portable tanks for the exclusive use of the Company at
a customer's business location. The Company is also a distributor of related
products such as industrial lubricants, oils and greases, coolants and filters,
primarily to its commercial customers. The Company's larger commercial customers
include Amtrak, Newmont Mining and Burlington Northern Railroad. Other than
Coastal and CRM (defined below), which are subsidiaries of a single entity,
which accounted for 20.2% and 13.2%, respectively, of the Company's net
sales for Fiscal 1997 or the six months ended August 31, 1997 no customer
accounted for more than 10% of the Company's net sales for such periods.
The loss of Coastal and CRM as a customer would have a material adverse effect
on the Company's blending operation in Denver, Colorado.
Many of the Company's retail customers operate retail gasoline service
stations under the corporate banners of the various major oil companies. The
branding arrangements require that a retail operator purchase fuel exclusively
from a branded distributor, such as the Company, who is authorized to sell these
branded products. The Company often enters into product sales agreements with
its customers that provide for exclusive supply rights for a fixed period,
typically seven to ten years. The Company also may invest in a customer's
location in exchange for a long-term distribution contract (e.g. the Company may
directly or indirectly finance the construction of a new canopy at a retail
unit). The Company sells branded products to over 220 retail sites, representing
44.5% of pro forma distribution net sales.
The Company also sells unbranded products to over 430 independent
retail sites. The Company often has no formal agreements with these customers.
For Fiscal 1997, unbranded retail sales represented 10.9% of pro forma
distribution revenue.
PETROLEUM SUPPLY OPERATIONS
Petroleum supply and gasoline blending were part of the Company's
initial operations and represent approximately 18.2% of the Company's pro forma
net sales for the six months ended August 31, 1997. The Company owns and
operates a 1,600 barrels per day fractionator gas plant in Grand Junction,
Colorado that separates natural gas liquids ("NGLs") into propane, butane and
natural gasoline. The natural gasoline is retained for the Company's own
blending and supply operations and substantially all of the other products are
sold to third parties.
The Company owns and operates gasoline blending operations in Grand
Junction and Denver, Colorado where gasoline is blended in conformance with all
industry regulations. Each of these facilities has a capacity to produce
approximately 60 million gallons of gasoline per year. The Company has
agreements to produce and supply gasoline to Texaco, Shell and Ultramar Diamond
Shamrock Corporation in Grand Junction and the Coastal Corporation in Denver.
During Fiscal 1996, the Company completed construction of its gasoline
blending facility near Denver, Colorado (the "Facility"). In connection with
the construction of the Facility, the Company entered into a Purchase Agreement
with Coastal Mart, Inc. ("Coastal"), whereby Coastal agreed to buy from the
Facility a guaranteed minimum of 24 million gallons per year of gasoline. The
Purchase Agreement may be terminated by Coastal upon ninety days written
notice. The Company and Coastal Refining and Marketing ("CRM") also entered a
Supply Agreement, whereby CRM agreed to sell and deliver the entire volume of
natural gasoline produced by CRM's affiliate in Wyoming. Coastal also has an
option to purchase 50% of the outstanding common stock of Westec Denver, Inc.,
a wholly-owned subsidiary of the Company, under certain circumstances. The
Company believes that Coastal will not exercise its option. If the option is
exercised, however, the Company believes it would not have a material adverse
effect on its operations, financial condition or cash flow. At the time the
Purchase Agreement and the Supply Agreement were executed, the Company believed
it could achieve a profitable gross margin from the timely delivery and the low
cost availability of certain blend stock. However, subsequent increases in
the cost of certain blend stocks and unreliable railroad deliveries have
resulted in the Company realizing losses from the Facility.
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The Company will continue to realize losses until such time as the cost of
blend stock decreases or the Purchase Agreement is renegotiated with Coastal.
GASOLINE RETAIL SITE OPERATIONS
The Company owns or operates 19 gasoline retail sites in Colorado and
Utah which represented 10.5% of pro forma net sales for the six months ended
August 31, 1997. The Company also sells gasoline on consignment to an additional
five gasoline retail sites. The sites sell branded Diamond Shamrock, Texaco,
Shell, Amoco and Phillips gasoline and are operated under the name SuperMart. In
order to integrate its supply and retail operations, the Company has acquired
retail sites primarily in markets which can be supplied from its supply
operations in Grand Junction. The Company will continue to acquire retail sites
in Grand Junction and the surrounding areas and in other markets gasoline where
it believes the operation of retail sites would have a strategic purpose.
COMPETITION
In the petroleum distribution industry, the Company faces competition
generally from other privately-held petroleum product wholesalers operating in
the same geographic region as the Company, some of which have financial and
personnel resources substantially in excess of those that are available to the
Company. The Company's distribution operations also compete with integrated oil
companies which in some cases own or control a majority of their own marketing
facilities. These major oil companies may offer their products to the Company's
competitors on more favorable terms than those available to the Company from
its suppliers. A significant number of companies, including integrated oil
companies and petroleum products distribution companies, distribute petroleum
products through a larger number of facilities than the Company. The Company
competes on the basis of service, availability of transportation, reliability
and to a lesser extent, price.
In the petroleum supply industry, the Company competes on the basis of
service and price. In all phases of its supply operations, the Company
encounters strong competition from a number of companies, including some very
large companies. Many of these larger competitors possess and employ financial
and personnel resources substantially in excess of those that are available to
the Company.
The gasoline retail industry is highly competitive, fragmented and
regionalized. It is characterized by a few large companies, some medium-sized
companies, and many small independent companies. The high degree of competition
in the gasoline retail store business has resulted in bankruptcies and
reorganizations of a number of companies in recent years. Key competitive
factors in gasoline retail operations include, among others, location, store
management, product selection, pricing, hours of operation, store safety,
cleanliness, and product promotions and marketing. Most competitors are
substantially larger and have greater resources than the Company. The Company's
largest competitors include Circle K and Giant Industries in Colorado and
numerous companies in Utah including Amoco, Chevron, Circle K, Maverick and
Flying J. The Company also competes with other gasoline retail sites, small
supermarkets, grocery stores, and major and independent gasoline distributors
who have converted units to gasoline retail sites.
EMPLOYEES
As of October 28, 1997, the Company had a total of 311 employees, 144
of whom were employed in petroleum distribution operations, including
transportation, and the balance in the gasoline supply and retail operations and
administration. None of the Company's employees is represented by any collective
bargaining organizations. The Company believes its relations with its employees
is good.
FACILITIES
The Company's corporate headquarters are located on 37 acres owned by
the Company located in Fruita, Colorado. The Company also leases the land on
which it operates its fractionator gas plant and its blending facilities in
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Colorado and its bulk delivery plants in Colorado, Texas and Utah and owns or
operates 19 gasoline retail sites in Colorado and Utah.
INSURANCE
The Company has a commercial liability policy and an umbrella policy,
as well as other policies covering damage to its properties with total coverage
limits of up to $25 million. These policies cover Company facilities, employees,
equipment, inventories and vehicles in all states of operation. While the
Company believes that its insurance coverage is adequate for most foreseeable
problems and is comparable with the coverage of other companies in the same
business and of similar size, its coverage does not protect the Company for
most liabilities related to damage of the environment as such
environmental-related coverage is generally unavailable or available at a
prohibitive cost.
ENVIRONMENTAL COMPLIANCE
The Company's Regulated Environmental Activities are subject to an
extensive variety of evolving United States federal, state and local laws,
rules and regulations governing the storage, transportation, manufacture, use,
discharge, release and disposal of product and contaminants into the
environment or otherwise relating to the protection of the environment. A
non-exclusive listing of the environmental laws which potentially impact the
Company's Regulated Environmental Activities is set out below.
Resource Conservation and Recovery Act of 1976, as Amended in 1984
("RCRA"). The United States Congress enacted RCRA in 1976 and amended it in
1984. RCRA established a comprehensive regulatory framework for the management
of hazardous wastes at active facilities. RCRA creates a "cradle-to-grave"
system for managing hazardous wastes. Those who generate, transport, treat,
store or dispose of hazardous waste above certain quantities are required to
undertake certain testing record keeping, performance and permitting
requirements. RCRA also provides for corrective action where hazardous waste
activities result in contamination. The 1984 amendments to RCRA (known as
"HSWA") increased the scope of RCRA to regulate small quantity hazardous waste
generators and waste oil handlers and recyclers, as well as require the
identification and regulation of underground storage tanks in which liquid
petroleum or hazardous substances are stored. HSWA and its implementing
regulations require the notification to designated state agencies of the
existence and condition of regulated underground storage tanks and impose
design, construction and installation requirements; leak detection,
presentation, reporting, and cleanup requirements; tank closure and detection,
presentation, reporting, and cleanup requirements; tank closure and removal
requirements, and fiscal responsibility requirements.
Comprehensive Environmental Response, Compensation and Liability Act
of 1980, As Amended ("CERCLA" or "Superfund"). CERCLA established the Superfund
program to cleanup inactive sites at which hazardous substances had been
released. Superfund has been interpreted to create strict, joint and several
liability for the costs of hazardous substance removal and remediation, other
necessary response costs and damages for injury to natural resources. Superfund
liability extends to generators of hazardous substances, as well as to (i) the
current owners and operators of a site at which hazardous substances were
disposed, (ii) any prior owner or operator of the site at the date of disposal,
and (iii) waste transporters who selected such facilities for treatment or
disposal of hazardous substances. CERCLA allows the EPA to investigate and
remediate contaminated sites and to recover the costs of such activities
(response costs), as well as damages to natural resources, from parties
specified as liable under the statute. CERCLA also authorizes private parties
who incur response costs to seek recovery from statutory liable parties. CERCLA
was amended by the Superfund Amendments and Reauthorization Act of 1986
("SARA"). SARA provides a separate funding mechanism for the cleanup of
underground storage tanks. CERCLA excludes petroleum, including crude oil or
any fraction thereof, with certain limitations from the definition of
"hazardous substances" for which liability for cleanup of a contaminated site
will attach. This exclusion also applies to those otherwise hazardous
substances which are inherent in petroleum, but not to those added to or mixed
with petroleum products.
The Clean Water Act of 1972, as Amended (the "Clean Water Act"). The
Clean Water Act requires states to set water quality standards for significant
bodies of water within their boundaries and to ensure attainment and/or
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maintenance of those standards. Many industrial and governmental facilities
must apply for and obtain discharge permits, monitor pollutant discharges and,
under certain conditions, reduce certain discharges. The Clean Water Act also
requires pre-treatment of certain discharges prior to release into a
publicly-owned treatment works.
Federal Oil Pollution Act of 1990 ("OPA"). The OPA amends the Clean
Water Act and expands the liability for the discharge of oil into navigable
waters. Liability is triggered by discharge or substantial threat of a
discharge of oil into navigable waters. OPA defines three classes of parties
subject to liability: (1) owners, operators and persons chartering vessels; (2)
lessees and permits of areas where off-shore facilities are located; and (3)
owners and operators of on-shore facilities.
The Clean Air Act of 1970, as Amended (the "Clean Air Act"). The Clean
Air Act requires the EPA to establish and ensure compliance with national
ambient air quality standards ("NAAQS") for certain air pollutants. As required
by the Clean Air Act, the EPA also has established regulations that limit
emissions of specified hazardous air pollutants and has established other
regulations that limit emissions from new industrial sources within certain
source categories. Many companies are subject to a wide variety of air
emissions permitting, record keeping, and emissions reduction requirements
under the Clean Air Act and analogous state laws.
The Toxic Substances Control Act of 1976 ("TSCA"). TSCA requires the
EPA to gather information on the risks of chemicals, and to monitor and
regulate the manufacture, distribution, processing, use and disposal of many
chemicals. Under TSCA, EPA imposes significant chemical data reporting and
record keeping requirements on companies that handle significant volumes of
regulated chemicals.
The Emergency Planning and Community Right-to-Know Act ("EPCRA").
EPCRA was passed as a part of SARA. EPCRA requires emergency planning
notification, emergency release notification, and reports with respect to the
storage and release of specified chemicals. Industry must provide information
to communities regarding the presence of extremely hazardous substances at
facilities within those communities.
The Occupational Safety and Health Administration Act ("OSHA"). OSHA
regulates exposure to toxic substances and other forms of workplace pollution.
The Department of Labor administers OSHA. OSHA specifies maximum levels of
toxic substance exposure and establishes safety requirements for employees of
regulated companies. OSHA also sets out a "right-to-know" rule which requires
that workers be informed of, and receive training relating to, the physical and
health hazards posed by hazardous materials in the workplace.
Other State, As Well As Local Government Regulation. Many states have
been authorized by the EPA to enforce regulations promulgated under various
federal statutes. In addition, there are numerous other state, as well as
local, authorities that regulate the environment, some of which impose more
stringent environmental standards than federal laws and regulations. The
penalties for violations of state laws vary, but typically include injunctive
relief, recovery of damages for injury to air, water or property, and fines for
non-compliance.
Regulatory Status and Potential Environmental Liability. The
operations and facilities of the Company are subject to numerous federal, state
and local environmental laws and regulations, including those described above,
as well as associated permitting and licensing requirements. The Company
regards compliance with applicable environmental regulations as a critical
component of its overall operation and devotes significant attention to
protecting the health and safety of its employees and to protecting the
Company's facilities from environmental problems. The Company believes that it
has obtained or applied for all permits and approvals required under existing
environmental laws and regulations to operate its current business. The Company
does not believe that any pending or threatened environmental litigation or
enforcement action(s) could materially and adversely affect the Company's
business. While the Company has implemented, where appropriate, operating
procedures at each of its facilities designed to assure compliance with
environmental laws and regulation, given the nature of its business, the
Company always is subject to environmental risks and the possibility remains
that the Company's ownership of its facilities and its operations and
activities could result in civil or criminal enforcement and public, as well as
private, action(s) against the Company, which may necessitate or generate
mandatory cleanup activities, revocation of required permits or licenses,
denial of application for future permits, or significant fines, penalties or
damages, any and all of which could have a material adverse effect on the
Company. Future changes in applicable environmental
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regulations could necessitate cessation or modification of current operations
or impose additional or different environmental requirements, any and all of
which would have a material adverse effect on the Company.
Landmark Refinery
The Company owns and operates offices and a petroleum storage
facility on a 37 acre tract of land in Fruita, Colorado ("Fruita Operations").
The Fruita Operations consist of an office building, maintenance building,
parking facilities, rail facilities, storage tanks and a loading rack. The
Fruita Operations were acquired by the Company from Landmark in 1994 and had
been part of a refinery known as the Western Slope Refinery that originally
occupied approximately 600 acres. During the operation of this refinery, there
were spills and discharges of hazardous substances and process wastes that may
have resulted in soil and groundwater contamination at the refinery. In
addition, some of the equipment at the refinery may contain asbestos and/or
PCBs. Historic refinery operations included a large concrete structure to
settle particulate matter from a liquid waste stream and a series of acid
sludge pits. In the late 1980's, the United States Environmental Protection
Agency ("EPA") evaluated the Western Slope Refinery for possible listing as a
Superfund Site on the National Priorities List. EPA has not designated the
refinery as a Superfund Site but included it in the agency's CERCLIS database
of sites for which remedial action may be required.
Landmark purchased approximately 316 acres of the 600 acre
tract in 1990. The 316 acres include the refinery and concrete settlement
structure but not the sludge pits. In 1994 Landmark sold the Fruita Operations
to Fruita RP Holdings, Inc., a wholly owned subsidiary of the Company. Fruita RP
Holdings has leased the 37 acre tract to another subsidiary of the Company.
Landmark also sold to certain subsidiaries of the Company certain tanks and
equipment from the 276 acres retained by Landmark. Fruita Marketing and
Management, Inc., then a wholly owned subsidiary of the Company, entered into a
marketing and management agreement with Landmark to act as the agent for
Landmark and its principal lender for the sale of other equipment remaining on
the 276 acre tract and to manage the remaining equipment. In May 1996, FMM was
sold to Recovery Specialists, Inc., a wholly-owned subsidiary of BSA
Investments, LLC, an entity solely owned and controlled by Keith Holder, in
exchange for forgiveness of certain debt owed by the Company.
In June 1996 the Colorado Department of Public Health and the
"CDPHE" issued a Compliance Order (the "Order") finding that Western Slope
Refinery had owned and operated a refinery and generated hazardous wastes at a
Fruita, Colorado facility ("Facility"), and that Landmark had purchased the
refinery operations. This Order directs Landmark to remediate all hazardous
waste contamination at the Facility. The Order does not assess fines and
penalties, but the failure of Landmark to comply with the Order could result in
civil penalties of up to $25,000 per day or administrative penalties of up to
$1,500 per day. This Order reserves to CDPHE the right to issue additional
orders as well as to assess civil and administrative penalties.
On July 1, 1996, FMM purchased the 276 acre tract that Landmark
had retained. As part of this transaction, FMM undertook to perform certain
environmental obligations, including implementing the Order and to indemnify
Landmark, and its lender for losses, if any, arising out of certain
environmental obligations. As a part of this transaction, the Company executed a
guaranty whereby it guaranteed to Landmark and its lender payment and the
performance of all these obligations by FMM.
FMM has been working with CDPHE to comply with the Order and is
now completing an approved Groundwater Characterization Plan to assess the need
for cleanup. FMM has not yet developed and the regulatory agencies have not
approved a final cleanup plan for the property. FMM has received estimates from
contractors for the costs for removing asbestos that range from a low of
$750,000 to a high of $3 million. FMM estimates the costs for remediating the
remaining conditions at the site range from a low of $150,000 to a high of $2
million. FMM also estimates that equipment remaining on the 276 acres could be
sold for up to $2 million if the asbestos can be removed. Remediation expenses
to date have been financed with the sale of equipment from the 276 acre tract.
The extent and amount of the Company's obligations under such guaranty cannot be
determined with any certainty at this time and therefore the Company has not
reserved any amount.
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Other Environmental Proceedings
Environmental laws frequently impose liability on property owners,
facility operators and certain other persons, such that in some situations the
Company could be liable for cleanup costs resulting from conduct or conditions
caused by previous property owners, operators, lessees or other persons not
associated with the Company. No assurance can be given that the Company will
not be liable for FMM's obligations with respect to the Facility and if liable,
no assurances can be given as to whether the Company will be able to meet such
financial obligations.
In addition to its Fruita Operations, the Company operates a
fractionator gas plant and petroleum blending facility in Grand Junction,
Colorado and a petroleum blending facility in Denver, Colorado. All three
facilities have permits issued by the Air Pollution Control Division of CDPHE
which limit the amount and nature of materials that may be emitted to the air,
the volume and nature of the materials that may be handled at the permitted
facilities, and the uses of equipment at the permitted facilities. In the past
year, CDPHE found violations at all three facilities ranging from the failure to
keep adequate records to the installation and operation of equipment without a
permit. The Company has negotiated a settlement of all CDPHE claims concerning
these violations. Under the terms of the settlement the Company will pay $35,677
in noncompliance penalties and has paid $14,120 in past due fees. In addition,
the Company will offset $102,963 in penalties by implementing a Supplemental
Environmental Project ("SEP") at the Fruita Terminal to construct a vapor
recovery system for the rail/truck loading process. This SEP is estimated to
cost $143,762.
The Company's business involves the handling and storage of petroleum
products and blending components which are characterized as hazardous
substances. As can reasonably be expected in such a business, these liquids are
occasionally spilled or leaked either by accident or when equipment, such as a
valve or storage tank, fails. The Company has historically had spills and or
leaks at its facilities and some of these incidents have required remediation
and resulted in incurrence of penalties and remediation costs. For example, the
Company leased portions of an asphalt roofing plant in Denver, Colorado and used
the plant as a petroleum blending facility. Xylene was released onto the
premises as a result of a spill at the facility and in remediating this spill
and in removing a tank, the Company allegedly accumulated waste in excess of
allowable time limits for storage of hazardous waste. In 1995, the CDPHE issued
a compliance order requiring remediation of the spilled material and wastes and
any concomitant contamination. The Company believes it has complied with the
CDPHE Order. The Company believes it has resolved the CDPHE's claims for
$112,200 in penalties with an agreement to pay $40,000, and to implement a SEP
estimated to cost an additional $40,000. An additional $10,000 in penalties will
be held in abeyance pending implementation of the SEP.
In addition, the Company has acquired and may in the future acquire
property that has been adversely affected by the operations of others. For
example, the Company acquired a gas station and convenience store at 2526
Broadway in Grand Junction, Colorado. A leaking underground storage tank at
this facility had released petroleum products into the ground and groundwater,
and the Company is implementing an approved Corrective Action Plan for this
facility. The Company estimates that the cost of implementing this plan will be
approximately $100,000.
LEGAL PROCEEDINGS
From time to time the Company is a party to what it believes is
routine litigation and proceedings that may be considered as part of the
ordinary course of its business. Except as described above, the Company is not
aware of any current or pending litigation or proceedings that could have a
material adverse effect on the Company's operations, financial condition or
cash flow.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following sets forth certain information with respect to the
directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Stephen W. Houghton (1)(2) . . . . . . . . . . . . . 58 Chairman of the Board
Keith R. Holder . . . . . . . . . . . . . . . . . . . 53 Vice-Chairman of the Board, Chief Executive
Officer and President
Paul J. Rath . . . . . . . . . . . . . . . . . . . . 40 Chief Financial Officer, Secretary and
Treasurer
Nigel Alexander (1)(2) . . . . . . . . . . . . . . . 36 Director
Patrick B. Collins (3) . . . . . . . . . . . . . . . 69 Director
S. Lee Crawley (3) . . . . . . . . . . . . . . . . . 53 Director
Marvin L. Dimond (3) . . . . . . . . . . . . . . . . 64 Director
David Horvitz (1) . . . . . . . . . . . . . . . . . . 45 Director
Douglas S. Luke (2) . . . . . . . . . . . . . . . . . 55 Director
</TABLE>
- ------------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
(3) To be elected following completion of the Offering
Stephen W. Houghton has been a director of the Company since September
1992. He has been the Chairman of the Board of Houghton & Company, Incorporated,
an investment banking firm, since 1977. In addition, he has been the President,
Chief Executive Officer and director of South American Gold and Copper Company
Limited since 1991. Mr. Houghton also serves as a director of CLX Energy, Inc.
He received his bachelors in Economics in 1962 from the Wharton School at the
University of Pennsylvania.
Keith R. Holder is the founder of the Company and has been its Chief
Executive Officer and President and a director since 1990. Mr. Holder has over
25 years experience in the oil and gas industry, principally in Africa, Europe
and North America. In 1981, he joined Charterhall, an oil and gas company in
the United Kingdom, and from May 1986 to March 1990 he was responsible for its
oil and gas activities worldwide. Prior to 1981, he was a geologist for Union
Corporation. He received his degree in Geology in 1969 from the University of
London.
Paul J. Rath has been the Chief Financial Officer, Secretary and
Treasurer of the Company since September 1993. From May 1991 to January 1993,
he served as the Chief Executive Officer of Adamion, a United Kingdom
engineering company, and from 1985 to 1989 he was finance director for Napier
Brown Holdings, Ltd., one of the largest distributors of sugar and bulk food
products in the United Kingdom. He received his degree in Economics and Finance
from Newcastle University in 1978 and is a United Kingdom chartered accountant.
Nigel Alexander has been a director of the Company since September
1992. Since May 1995, Mr. Alexander has been the Managing Director of Multi-Link
Communications, Inc., a voice messaging company, From April 1991 to September
1994, he was Chief Executive Officer of Snow Runner Inc., a ski equipment
company. Mr. Alexander is a member of the Chartered Institute of Bankers in the
United Kingdom.
Patrick B. Collins is a retired audit partner of Coopers & Lybrand,
L.L.P., where from 1965 to 1991 he serviced many large public companies,
including oil and gas producers and companies involved in
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pipelines and distribution. Since 1991 Mr. Collins has been an independent
business consultant specializing in financial and accounting matters. Mr.
Collins is a Certified Public Accountant and received his bachelors degree from
the University of Houston and attended graduate school at the University of
Texas. He is a director of HCC Insurance Holdings, Inc., and TransCoastal
Marine Services, Inc.
S. Lee Crawley was the President and Chief Executive Officer of Flint
Engineering & Construction Co., an engineering and construction company serving
the oil and gas industry from November 1992 to June 1997. He received a
Bachelor's degree from Pittsburgh State University in 1966 and an M.B.A. from
Northwestern University in 1977.
Marvin L. Dimond has been the President and CEO of Switzerland of
America, Inc., a company engaged in the recreation tourist business, since
1990. He was the President of Texaco Lubricants Company, North America, a
division of Texaco Refinery and Marketing Company from 1988 to 1990 and prior
to 1988 he served as General Manager of various Texaco companies. Mr. Dimond is
also a director of Process Dynamics, Inc., a start-up technology company,
specializing in petroleum processing.
David Horvitz has been a director of the Company since September 1992.
He has been a principal and Vice President of WLD Enterprises, Inc., a
management company, since 1990. He received his Bachelor's degree from Kenyon
College in 1974 and his law degree from the University of Florida in 1977.
Douglas S. Luke has been a director of the Company since September
1992. He has been the President and Chief Executive Officer of WLD Enterprises,
Inc. since February 1992. Mr. Luke is also a director of Westvaco Corporation,
Regency Realty Corporation and Orbital Sciences Corporation. He received a
Bachelor's degree from the University of Virginia in 1964 and went on to
receive his M.B.A. from the Darden School in 1966.
BOARD OF DIRECTORS
The Company has three classes of directors, which are elected for
staggered terms of three years. The initial terms of each class expire at the
annual meeting of stockholders in 1998 (Class I), 1999 (Class II) 2000 (Class
III), respectively. Messrs. Collins, Crawley and Dimond will be Class I
directors, Messrs. Alexander, Horvitz and Luke are Class II directors and
Messrs. Holder and Houghton are Class III directors. Each director holds office
until his successor is duly elected and qualified or until his resignation or
removal, if earlier.
The Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee is responsible for recommending to
the Board of Directors the engagement of the independent auditors of the
Company and reviewing with the independent auditors the scope and results of
the audits, the internal accounting controls of the Company, audit practices
and the professional services furnished by the independent auditors. The
members of the Audit Committee are Messrs. Alexander, Horvitz and Houghton.
The Compensation Committee will be responsible for reviewing and
approving all compensation arrangements for officers of the Company, and will
also be responsible for administering the Stock Option Plans. The members of
the Compensation Committee are Messrs. Alexander, Houghton and Luke.
The Nevada General Corporation Law provides that a Company may
indemnify its directors and officers as to certain liabilities. The Company's
Articles of Incorporation and Bylaws provide for the indemnification of its
directors and officers to the fullest extent permitted by law, and the Company
intends to enter into separate indemnification agreements with each of its
directors and officers to effectuate these provisions and to maintain directors
and officers liability insurance. The effect of such provisions is to
indemnify, to the fullest extent permitted by law, the directors and officers
of the Company against all costs, expenses and liabilities incurred by them in
connection with any action, suit or proceeding in which they are involved by
reason of their affiliation with the Company.
The Company does not currently pay any director's fees; however, upon
the completion of the Offering, the Company will pay each outside director: (i)
an annual $10,000 fee, payable one-half in stock and one-half in cash, (ii)
$1,000 for each board of directors meeting attended, and (iii) $500 for each
committee meeting attended, all such fees and compensation being
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<PAGE> 40
subject to a cap of $18,000 per year. In addition directors are reimbursed for
all travel expenses relating to the attendance of meetings of the Board of
Directors or any committee thereof.
The current members of the Board of Directors were elected pursuant to
the terms of a Shareholders Agreement dated September 17, 1992 among The
Harbour Settlement, Petroleum Holdings, Ltd. and the Company. Messrs. Holder
and Alexander were designated by The Harbour Settlement and Messrs. Horvitz,
Luke and Houghton were designated by Petroleum Holdings Ltd. The Shareholders'
Agreement will be terminated upon the consummation of the Offering.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning
compensation paid by the Company to the Chief Executive Officer ("CEO"). There
were no other executive officers whose total annual salary and bonus exceeded
$100,000 for the last fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------- ------------
FISCAL YEAR SECURITIES ALL OTHER
ENDED UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION FEBRUARY 28, SALARY($) BONUS($) OPTIONS (#) ($)
- --------------------------- ------------- --------- -------- ------------ -----
<S> <C> <C> <C> <C> <C>
Keith R. Holder, Chief
Executive Officer . . . . . . 1997 97,454 - - -
</TABLE>
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Mr. Holder dated
September 17, 1992, which provides for a base salary of $75,000 per year,
subject to increase by the Board of Directors (the "Base Salary"). Mr. Holder's
current Base Salary is $150,000 per year. Mr. Holder also has the right to
receive incentive compensation at the discretion of the Board of Directors. The
agreement remains in effect until terminated by either the Company or Mr.
Holder. If Mr. Holder's employment is terminated by the Company without cause
or terminated by Mr. Holder for good reason, he will continue to receive his
Base Salary in effect at the time of termination times two, plus a pro rata
portion of the bonus Mr. Holder would have earned in the year of termination.
Such amounts are payable over 12 months in accordance with the Company's normal
payroll procedures and a lump sum at the end of the 12 months for any remaining
unpaid amounts. If his employment is terminated by the Company for cause or is
terminated by Mr. Holder without good reason, Mr. Holder will not be entitled
to any compensation or benefits under his employment agreement. The employment
agreement also contains a covenant not to compete with the Company during the
term and two years thereafter.
BENEFIT PLANS
1997 STOCK INCENTIVE PLAN
The Company's 1997 Stock Incentive Plan (the "1997 Incentive Plan")
permits the Company to grant incentive stock options, non-statutory stock
options, restricted stock awards and other stock-based awards and the grant of
stock appreciation rights (collectively, "Awards"). Awards consisting of stock
options may not be granted at an exercise price which is less than 100% of the
fair market value of the Common Stock on the date of grant and may not be
granted for a term in excess of ten years. Subject to adjustment in the event of
stock splits and other similar events, awards may be made under the 1997
Incentive Plan for up to 550,000 shares of Common Stock.
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<PAGE> 41
Officers, employees, directors, consultants and advisors of the Company
and its subsidiaries will be eligible to receive Awards under the 1997 Incentive
Plan. The maximum number of shares with respect to which an Award may be granted
to any participant under the 1997 Incentive Plan may not exceed 150,000 shares
per calendar year.
The 1997 Incentive Plan is administered by the Compensation Committee
of the Board of Directors. The Committee has the authority to adopt, amend and
repeal the administrative rules, guidelines and practices relating to the 1997
Incentive Plan and to interpret the provisions of the 1997 Incentive Plan. The
Compensation Committee selects the recipients of Awards and determines (i) the
number of shares of Common Stock covered by options and the dates upon which
such options become exercisable; (ii) the exercise price of options (which may
not be less than 100% of fair market value on the date of grant); (iii) the
duration of options (which may not exceed ten years); and (iv) the number of
shares of Common Stock subject to any restricted stock or other stock-based
Awards and the terms and conditions of such Awards, including conditions for
repurchase, issue price and repurchase price. The Board of Directors is required
to make appropriate adjustments in connection with the 1997 Incentive Plan and
any outstanding Awards to reflect stock dividends, stock splits and certain
other events. In the event of a merger, liquidation or other Acquisition Event
(as defined in the 1997 Incentive Plan), the Board of Directors is authorized to
provide for outstanding Awards to be assumed or substituted for, to accelerate
the Awards to make them fully exercisable prior to consummation of the
Acquisition Event or to provide for a cash-out of the value of any outstanding
options. If any Award expires or is terminated, surrendered, canceled or
forfeited, the unused shares of Common Stock covered by such Award will again be
available for grant under the 1997 Incentive Plan.
OTHER STOCK OPTION PLANS
The Company has previously granted options to purchase shares of Common
Stock pursuant to its Stock Option Agreement effective May 1, 1993 (the "1993
Plan"). In connection with the adoption of the Company's 1997 Incentive Stock
Option Plan, the Company has terminated the 1993 Plan; however, all stock
options granted prior to the effectiveness of the 1997 Incentive Stock Option
Plan will remain outstanding in accordance with their terms and the 1993 Plan.
The 1997 Incentive Plan and the 1993 Plan are collectively referred to herein as
the "Plans."
As of August 31, 1997, options to purchase an aggregate of 152,027
shares of Common Stock, with a range of exercise prices from $2.43 per share to
$5.18 per share, were outstanding under the 1993 Plan.
EMPLOYEE STOCK PURCHASE PLAN
The Company has adopted 1997 Employee Stock Purchase Plan (the "1997
Purchase Plan") which is intended to allow eligible participating employees an
opportunity to purchase shares of Common Stock at a discount. A maximum of
150,000 shares of Common Stock will be available for issuance under the 1997
Purchase Plan. The 1997 Purchase Plan will be administered by the Compensation
Committee of the Board of Directors. All employees of the Company, except
employees who own five percent or more of the Company's stock, whose customary
employment is more than 20 hours per week, are eligible to participate in the
1997 Purchase Plan. To participate in the 1997 Purchase Plan, an employee must
authorize the Company to deduct an amount (up to ten percent of a participant's
regular pay) from his or her pay during six-month periods commencing on January
1 and July 1 of each year (each a "Payment Period") (except that the first
period will commence on the date of this Prospectus and will end on December 31,
1997). The maximum number of shares of Common Stock that an employee may
purchase in any Payment Period is determined by applying the formula stated in
the 1997 Purchase Plan. The exercise price for the option for each Payment
Period is 85% of the average market price of the Company's Common Stock on the
last business day of the Payment Period. If an employee is not a participant on
the last day of the Payment Period, such employee is not entitled to exercise
his or her option, and the amount of his or her accumulated payroll deductions
will be refunded. An employee's rights under the 1997 Purchase Plan terminate
upon his or her voluntary withdrawal from the plan at any time or upon
termination of employment.
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<PAGE> 42
401(K) PLAN
The Company has adopted a 401(k) Retirement Plan (the "401(k)
Plan"). Employees are eligible to participate after they have completed one
year of service and have attained the age of 21. Employees may contribute to
the 401(k) Plan up to 15% of their salary with pre-tax amounts thereof being
set by applicable law. The Company may make discretionary matching
contributions equal to a percentage of the amount of the salary reduction the
employee has elected. Under the 401(k) Plan the employee is 100% vested as to
any employee contribution at all times. Should the Company make any matching
contribution, they would vest to the employee at a rate of 20% per year of
service beginning at the end of the second year of service.
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<PAGE> 43
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of Common Stock as of October 1, 1997 by (i) each person
known by the Company to own beneficially 5% or more of the Common Stock, (ii)
the Company's directors and executive officers, and (iii) all directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE
BENEFICIALLY BEFORE PERCENTAGE AFTER
NAME AND ADDRESS OWNED (1) OFFERING OFFERING
---------------- ----------- ---------- ----------
<S> <C> <C> <C>
Stephen W. Houghton . . . . . . 60,473(2) 3.5% 1.8%
Keith R Holder . . . . . . . . 13,514(3) * *
Paul J. Rath . . . . . . . . . 69,679(4) 4.0% 2.1%
Nigel V. Alexander . . . . . . 6,334(5) * *
David Horvitz . . . . . . . . . 1,143,243(6) 64.4% 33.9%
Douglas S. Luke . . . . . . . . 47,635(7) 2.8% 1.4%
Sandleigh, Ltd. (8) . . . . . . 577,703 34.2% 17.6%
Petroleum Holdings, Ltd. (8) . 1,190,878(9) 67.0% 35.2%
Directors and executive 1,340,878(10) 66.1% 37.0%
officers (6 persons) . . . .
</TABLE>
- ------------------
* Less than 1%
(1) All shares are owned both of record and beneficially unless otherwise
specified by footnotes to this table. All amounts set forth above are
based solely upon information furnished by such individuals.
(2) Includes 50,676 shares of Common Stock issuable upon exercise of a
warrant and stock options owned by Mr. Houghton that are exercisable within
60 days.
(3) Consists of shares of Common Stock issuable upon exercise of warrants owned
by Mr. Holder that are exercisable within 60 days. The 577,703 shares of
Common Stock owned of record by Sandleigh, Ltd. are beneficially owned by
the Harbour Settlement, a trust of which Mr. Holder's children are among
the beneficiaries. Mr. Holder disclaims beneficial ownership of these
shares.
(4) Consists of shares of Common Stock issuable upon exercise of options owned
by Mr. Rath that are exercisable within 60 days.
(5) Consists of shares of Common Stock issuable upon exercise of options
owned by Mr. Alexander that are exercisable within 60 days.
(6) Mr. Horvitz may be deemed to share beneficial ownership of the 1,190,878
shares of Common Stock owned by Petroleum Holdings, Ltd., as a result of
Mr. Horvitz being the beneficiary of WLD Trust, which owns a 96% limited
partnership interest in Petroleum Holdings, Ltd.
(7) Mr. Luke may be deemed to share beneficial ownership of the 1,190,878
shares of Common Stock owned by Petroleum Holdings Ltd., as a result of Mr.
Luke owning a 4% limited partnership interest in Petroleum Holdings
Limited.
(8) The address of Sandleigh, Ltd. is 7-11 Britannia Place, Bath Street, St.
Helier, Jersey Channel Islands and the address of Petroleum Holdings, Ltd.
and David Horvitz is Las Olas Centre, 450 East Las Olas Boulevard, Suite
900, Fort Lauderdale, Florida 33301.
(9) Includes 89,189 shares of Common Stock issuable upon exercise of a warrant
owned by Petroleum Holdings, Ltd. that is exercisable within 60 days.
(10) Includes 339,189 shares of Common Stock issuable upon exercise of options
and warrants that are exercisable within 60 days.
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<PAGE> 44
CERTAIN TRANSACTIONS
The Company believes that the terms of each transaction described
below was as favorable to the Company as could have been negotiated with an
unaffiliated third party. The Board of Directors, however, has adopted a policy
requiring all future transactions with a director or officer or other affiliate
of the Company (or renewal of prior contracts) to be approved by the vote of a
majority of the disinterested directors of the Company.
BSA INVESTMENTS, LLC
The Company has had the following transactions with BSA Investments,
LLC ("BSA"), which is wholly-owned by Keith R. Holder, a shareholder, director
and the Chief Executive Officer of the Company, and certain of its
subsidiaries, which are described below.
Recovery Specialists, Inc. In May 1996, Recovery Specialists, Inc.
("RSI"), a wholly-owned subsidiary of BSA, purchased all of the issued and
outstanding common stock of Fruita Investments, Inc., Fruita Marketing &
Management, Inc. and Mesa Environmental, Inc., each wholly-owned subsidiaries of
the Company, in exchange for the forgiveness of intercompany debt owed by a
subsidiary of the Company to RSI in the amount of $187,150, $74,141 and $93,925,
respectively.
Landmark Refinery/Guaranty Agreement. Subsequent to the purchase of FMM
by RSI in July 1996, FMM purchased the Landmark Refinery. In connection with the
acquisition, the Company executed Guaranty Agreements in favor of Landmark and
the Chase Manhattan Bank ("Chase"), whereby it guaranteed certain obligations of
FMM under an Agreement of Purchase and Sale dated July 1, 1996 between FMM,
Landmark and Chase. See "Business--Environmental Compliance -- Landmark
Refinery."
Mesa Environmental. The Company pays Mesa Environmental $5,000 per
month as a retainer for environmental services. In addition, the Company pays
Mesa Environmental an hourly rate and out of pocket expenses for work performed
on behalf of the Company. During Fiscal 1997 the Company made payments to Mesa
Environmental totaling approximately $506,000.
Promissory Note. In October 1994, the Company acquired certain assets
from Triton Fuel Group, Inc. ("Triton") and issued a promissory note in the
principal amount of approximately $907,000 in favor of Triton. Triton,
including the promissory note, was subsequently purchased by RSI, which was
subsequently purchased by BSA in May 1996. Payments on the promissory note were
$20,000 per month and it was paid in full in October 1997.
Sublease/Lease. The Company subleases property in Salt Lake City, Utah
from Triton for a monthly rent of $28,500.
Rio Vista. In June 1997, BSA entered into an Asset Purchase Agreement
(the "Rio Vista Purchase Agreement") to purchase certain gasoline retail sites
(the "Rio Vista Stores") from certain individuals. On July 1, 1997, BSA entered
into an operating agreement with Rio Vista and certain other entities (the
"Operating Agreement"), whereby BSA would operate the convenience stores until
the closing of the Rio Vista Purchase Agreement. BSA assigned all of its rights,
title and interests under the Operating Agreement to the Company, pursuant to
which the Company has paid $8,500 per month to Rio Vista to operate certain
gasoline retail sites. The Operating Agreement entitled the Company to operate
the stores for its own account. The Operating Agreement terminated on September
30, 1997, but the Company has continued to operate the Rio Vista stores on a
month to month basis pursuant to its terms. At such time as BSA has purchased
all or a part of the Rio Vista stores, the Company will have the option but not
the obligation to purchase such stores, or any portion thereof, at no greater
than cost from BSA, for a period of 12 months from the purchase by BSA.
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<PAGE> 45
PETROLEUM HOLDINGS, LTD.
Petroleum Holding, Ltd., ("PHL") is a shareholder of the Company. The
limited partners of PHL are the WLD Trust, a testamentary trust of which David
Horvitz, a director of the Company, is a beneficiary, and Douglas Luke, a
director of the Company. PHL and its affiliates have several relationships with
the Company which are set forth below.
WLD Guaranty. In March 1997, in connection with the Diamond Shamrock
Acquisition, the WLD Trust executed a Guaranty (the "WLD Guaranty") in favor of
Morgan Guaranty Trust Company of New York ("Morgan Guaranty"), whereby it
guaranteed the obligations of the Company pursuant to the Subordinated Debt. In
connection with the WLD Guaranty, the Company entered into (i) an
indemnification agreement with the WLD Trust (the "Indemnification Agreement"),
whereby it agreed to indemnify the WLD Trust for any obligations incurred under
the WLD Guaranty, and (ii) an Assignment and Security Agreement (the
"Assignment and Security Agreement") to secure the obligations of the Company
under the Indemnification Agreement. In consideration for executing the WLD
Guaranty, the Company issued the WLD Trust a warrant to purchase 89,189 shares
of Common Stock. The warrant is exercisable at any time prior to March 12, 2007
and has an exercise price of $5.18 per share. In April 1997 in connection with
the acquisition of Moffitt, the Company amended and restated the Assignment and
Security Agreement and the Indemnification Agreement to reflect the
acquisition. The Morgan Guaranty, the Indemnification Agreement and the
Assignment and Security Agreement will terminate upon the repayment of the
Subordinated Debt which will occur upon the consummation of the Offering.
Management and Consulting Agreement. The Company and PHL are parties
to a Consulting and Management Agreement, pursuant to which $222,288 and
$172,000 were paid to PHL during the fiscal years ended February 28, 1997 and
February 29, 1996, respectively. The Consulting and Management Agreement will
be terminated upon the consummation of the Offering.
OTHER TRANSACTIONS
Keith R. Holder, a shareholder, director and the Chief Executive
Officer of the Company has guaranteed approximately $500,000 in trade payables
to one of the Company's suppliers, which guarantee expires December 31, 1997.
Mr. Holder has also guaranteed $300,000 of the Credit Facility, which expires
October 8, 1998. In consideration of these guarantees, in March 1997, the
Company issued Mr. Holder a Warrant to purchase 13,514 shares of Common Stock,
which is exercisable at any time prior to March 12, 2007 at an exercise price
of $5.18 per share.
Until October 13, 1997, Stephen W. Houghton, Chairman of the Board of
the Company, served as non-executive chairman of the Company and for such
services Houghton & Company was paid a consulting fee of $4,000 per month. In
total, Houghton & Company received $30,600 in consulting fees during Fiscal
1997. In addition, in March 1997, Mr. Houghton was issued a warrant to purchase
16,892 shares of Common Stock, which is exercisable at any time prior to March
12, 2007 at an exercise price of $5.18 per share. The consulting arrangement
with Houghton & Company was terminated upon Mr. Houghton's election as Chairman
of the Company on October 13, 1997.
42
<PAGE> 46
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 70,000,000 shares
of Common Stock, $.001 par value, and 5,000,000 shares of Preferred Stock,
$.001 par value. Prior to the Offering, there were 1,689,189 shares of Common
Stock outstanding which were held of record by three stockholders, and 20,000
shares of Preferred Stock outstanding. Upon consummation of the Offering,
3,289,189 shares of Common Stock and no shares of Preferred Stock will be
issued and outstanding. The following summary of the terms and provisions of
the Company's capital stock does not purport to be complete and is qualified in
its entirety by reference to the Company's Articles of Incorporation and
Bylaws, which have been filed as exhibits to the Company's Registration
Statement, of which this Prospectus is a part, and applicable law.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share on
all matters voted upon by stockholders, including the election of directors.
Subject to the rights of any then outstanding shares of Preferred
Stock, the holders of the Common Stock are entitled to such dividends as may be
declared in the discretion of the Board of Directors out of funds legally
available therefor. See "Dividend Policy." Holders of Common Stock are entitled
to share ratably in the net assets of the Company upon liquidation after
payment or provision for all liabilities and any preferential liquidation
rights of any Preferred Stock then outstanding. The holders of Common Stock
have no preemptive rights to purchase shares of stock of the Company. Shares of
Common Stock are not subject to any redemption provisions and are not
convertible into any other securities of the Company. All outstanding shares of
Common Stock are, and the shares of Common Stock to be sold by the Company in
the Offering when payment is received therefor will be, fully paid and
nonassessable.
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of
Directors as shares of one or more classes or series. Subject to the provisions
of the Company's Articles of Incorporation and limitations prescribed by law,
the Board of Directors is expressly authorized to adopt resolutions to issue
the shares, to fix the number of shares and to change the number of shares
constituting any series, and to provide for or change the voting powers,
designations, preferences and relative, participating, optional or other
special rights, qualifications, limitations or restrictions thereof, including
dividend rights (including whether dividends are cumulative), dividend rates,
terms of redemption (including sinking fund provisions), redemption prices,
conversion rights and liquidation preferences of the shares constituting any
class or series of the Preferred Stock, in each case without any further action
or vote by the stockholders. The Company has no current plans to issue any
shares of Preferred Stock of any class or series.
One of the effects of undesignated Preferred Stock may be to enable
the Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's
management. The issuance of shares of Preferred Stock pursuant to the Board of
Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by the Company may
rank prior to the Common Stock as to dividend rights, liquidation preference or
both; may have full or limited voting rights and may be convertible into shares
of Common Stock. Accordingly, the issuance of shares of Preferred Stock may
discourage bids for the Common Stock at a premium or may otherwise adversely
affect the market price of the Common Stock.
43
<PAGE> 47
CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF INCORPORATION, BYLAWS AND
NEVADA LAW
Classified Board of Directors. The Articles of Incorporation of the
Company provide for the Board of Directors to be divided into three classes of
directors, as nearly equal in number as is reasonably possible, serving
staggered terms so that directors' initial terms will expire either at the
1998, 1999 or 2000 annual meeting of the stockholders. Starting with the 1998
annual meeting of the stockholders, one class of directors will be elected each
year for a three- year term.
The Company believes that a classified board of directors will help to
assure the continuity and stability of the Board of Directors and the Company's
business strategies and policies as determined by the Board of Directors, since
a majority of the directors at any given time will have had prior experience as
directors of the Company. The Company believes that this, in turn, will permit
the Board of Directors to more effectively represent the interest of
stockholders. With a classified board of directors, at least two annual
meetings of stockholders, instead of one, will generally be required to effect
a change in the majority of the Board of Directors. As a result, a provision
relating to a classified Board of Directors may discourage proxy contests for
the election of directors or purchases of a substantial block of the Common
Stock because its provisions could operate to prevent obtaining control of the
Board of Directors in a relatively short period of time. The classification
provision could also have the effect of discouraging a third party from making
a tender offer or otherwise attempting to obtain control of the Company. Under
the Nevada General Corporation Law (the "NGCL"), any individual director or the
Board of Directors may be removed from office at any time by the stockholders
of the corporation only for cause.
Mergers and Other Business Combinations. The Company's Articles of
Incorporation provide that the Company may not dispose of all or substantially
all of the assets of the Company to, or merge or consolidate with any person,
entity or "group" (as defined in Rule 13d-5 under the Securities Act), which is
or has publicly disclosed a plan or intention to become the beneficial owner of
not less than 10% of the Common Stock (a "Related Person") without the approval
of the holders of 80% of the Common Stock. The 80% voting requirement is not
applicable if the proposed transaction is (i) approved by a vote of not less
than a majority of the directors of the Company who are neither affiliated nor
associated with the Related Person or (ii) in the case of a transaction where
the holders of Common Stock are entitled to receive cash, or the fair market
value of the property, securities or other consideration to be received per
share in the transaction is, at least equal in value to the higher of (a) the
highest price per share paid by the Related Person for a share of Common Stock
over the last two years or (b) the fair market value per share of Common Stock
on the date the transaction is first publicly announced.
Advance Notice Provisions for Stockholder Nominations of Directors and
Stockholder Proposals. The Bylaws of the Company establish an advance notice
procedure with regard to the nomination, other than by or at the direction of
the Board of Directors or a committee thereof, of candidates for election as
directors (the "Nomination Procedure") and with regard to other matters to be
brought by stockholders before an annual meeting of stockholders of the Company
(the "Business Procedure").
The Nomination Procedure requires that a stockholder give prior
written notice, in proper form, of a planned nomination for the Board of
Directors to the Secretary of the Company. The requirements as to the form and
timing of that notice are specified in the Bylaws of the Company. If the
Chairman of the Board of Directors determines that a person was not nominated
in accordance with the Nomination Procedure, such person will not be eligible
for election as a director.
Under the Business Procedure, a stockholder seeking to have any
business conducted at an annual meeting must give prior written notice, in
proper form, to the Secretary of the Company. The requirements as to the form
and timing of that notice are specified in the Bylaws. If the Chairman of the
Board of Directors determines that the other business was not properly brought
before such meeting in accordance with the Business Procedure, such business
will not be conducted at such meeting.
Although the Bylaws of the Company do not give the Board of Directors
any power to approve or disapprove stockholder nominations for the election of
directors or of any business desired by stockholders to be
44
<PAGE> 48
conducted at an annual meeting, the Bylaws of the Company (i) may have the
effect of precluding a nomination for the election of directors or precluding
the conduct of business at a particular annual meeting if the proper procedures
are not followed or (ii) may discourage or deter a third party from conducting
a solicitation of proxies to elect its own slate of directors or otherwise
attempting to obtain control of the Company, even if the conduct of such
solicitation or such attempt might be beneficial to the Company and its
stockholder.
Other Provisions
The affirmative vote of the holders of a majority of the voting power
of all then outstanding shares of the Company is required for most matters to
be considered by the stockholders. The Articles of Incorporation of the
Company, however, require the affirmative vote of the holders of 80% of the
voting power of all of the then outstanding shares of voting shares of the
Company entitled to vote to" (a) remove an individual director or the Board of
Directors from office for cause; (b) approve or authorize certain business
transactions with affiliates or related persons; (c) alter, amend or repeal
provisions of the Articles of Incorporation relating to the number and
classification of directors, the indemnification of directors and the matters
set forth in clauses (a) and (b) above; and (d) alter, amend or repeal
provisions of the Bylaws of the Company relating to special meetings of
shareholders, shareholder proposals at annual meetings, actions without
meetings, number, term and powers of directors, vacancies of the Board of
Directors, resignation and removal of directors, indemnification of officers,
directors, employees and agents, and amendment of the Bylaws. The affirmative
vote of at least 66 K% of the voting power of all of the then outstanding
shares of voting shares of the Company entitled to vote is required to alter,
amend or repeal any other provisions of the Bylaws.
NEVADA ANTI-TAKEOVER STATUTES
The Company is subject to the provisions of Sections 78.411 through
78.444 of the NGCL. In general, this statute prohibits a publicly-held Nevada
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person becomes and interested stockholder, unless the business
combination is approved in a prescribed manner. An "interested stockholder" is
a person who, directly or indirectly, owns (or within the prior three years did
own) 10% or more of the corporation's voting stock.
Nevada has also adopted a "control shares" statute which limits the
acquisition of a "controlling interest" in the corporation, as defined in the
statute. This statute is designed to prevent an "acquiring person" from gaining
voting control of the corporation without the approval of the corporation's
stockholders. It provides that an acquiring person obtains only such voting
rights in the control shares as are conferred by a resolution of the
stockholders. Nevada's control shares statute applies to any issuing
corporation which has 200 or more stockholders, at least 100 of whom are
stockholders of record and residents of Nevada. The Company did not meet this
requirement prior to this Offering.
LIMITATION ON DIRECTORS' LIABILITIES
The Company's Articles of Incorporation limit, to the maximum extent
permitted by Section 78.751 of the NGCL, the personal liability of directors
and officers for monetary damages for breach of their fiduciary duties as
directors and officers (other than liabilities arising from acts or omissions
which involve intentional misconduct, fraud or knowing violations of law or the
payment of distributions in violation of Nevada General Corporation Law). The
Articles of Incorporation provide further that the Company shall indemnify to
the fullest extent permitted by Nevada General Corporation Law any person made
a party to an action or proceeding by reason of the fact such person was a
director, officer, employee or agent of the Company. Subject to the Company's
Articles of Incorporation, the Bylaws provide that the Company shall indemnify
directors and officers for all costs reasonably incurred in connection with any
action, suit or proceeding in which such director or officer is made a party by
virtue of his being an officer or director of the Company except where such
director or officer is finally adjudged to have been derelict in the
performance of his duties as such director or officer. The Company has entered
into indemnification agreements with its officers and directors containing
provisions which may require the Company, among other things, to indemnify the
officers and directors against certain liabilities
45
<PAGE> 49
that may arise by reason of their status or service as directors or officers
(other than liabilities arising from willful misconduct of a culpable nature),
and to advance their expenses incurred as a result of any proceeding against
them as to which they could be indemnified.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American
Stock Transfer and Trust Company.
46
<PAGE> 50
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offering approximately 3,289,189 shares of
Common Stock will be outstanding. The 1.6 million shares of Common Stock sold
in the Offering will be registered under the Securities Act and will be freely
tradable without restriction or further registration under the Securities Act,
except for certain manner of sale, volume limitations and other restrictions
with respect to any shares purchased in the Offering by an affiliate of the
Company (a "Company Affiliate"), which will be subject to the resale
limitations of Rule 144 (not including the holding period requirement). Under
Rule 144 a person is an affiliate of an entity if such person directly or
indirectly controls or is controlled by or is under common control with such
entity and may include certain officers and directors principal shareholders
and certain other shareholders with special relationships. This Prospectus,
however, may not be used in connection with any resale of shares of Common
Stock acquired in the Offering by Company Affiliates.
In general, under Rule 144, as currently in effect, if a minimum of
one year has elapsed since the later of the date of acquisition of the
restricted securities from the issuer or from an affiliate of the issuer, a
person (or persons whose shares of Common Stock are aggregated), including
persons who may be deemed Company Affiliates, would be entitled to sell within
any three-month period a number of shares of Common Stock that does not exceed
the greater of (i) one percent of the then-outstanding shares of Common Stock
(i.e., approximately 32,892 shares immediately after consummation of the
Offering) or (ii) the average weekly trading volume during the four calendar
weeks preceding the date on which notice of the sale is filed with the
commission. Sales under Rule 144 are also subject to certain provisions as to
the manner of sale (which provision is proposed to be eliminated), notice
requirements and the availability of current public information about the
Company. In addition, under Rule 144(k), if a period of at least two years has
elapsed since the later of the date restricted securities were acquired from
the Company or the date they were acquired from a Company Affiliate, a
shareholder who is not a Company Affiliate at the time of sale and who has not
been a Company Affiliate for at least three months prior to the sale would be
entitled to sell shares of Common Stock in the public market immediately with
compliance with the foregoing requirements under Rule 144. Rule 144 does not
required the same person to have held the securities for the applicable
periods. The foregoing summary of Rule 144 is not intended to be a complete
description thereof.
The Company intends to file a registration statement on Form S-8 under
the Securities Act to register the shares of Common Stock reserved or to be
available for issuance pursuant to the 1997 Incentive Plan. Shares of Common
Stock issued pursuant to such plan generally will be available for sale in the
open market by holders who are not Company Affiliates and subject to the volume
and other limitations of Rule 144, by holders who are Company Affiliates.
The officers and directors of the Company have agreed that they will
not offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of, directly or
indirectly, any shares of Common Stock, any options for the sale of Common
Stock, or any securities convertible into or exercisable or exchangeable for
Common Stock for a period of 180 days after the date of this Prospectus,
without the prior written consent of the Representative. See "Underwriting."
Prior to the Offering, there has been no public market for the Common
Stock, and no prediction can be made of the effect, if any, that sales of
Common Stock or the availability of shares for sale will have on the market
price prevailing from time to time. Following the Offering, sales of
substantial amounts of Common Stock in the public market or otherwise, or the
perception that such sales could occur, could adversely effect the prevailing
market price for the Common Stock.
47
<PAGE> 51
UNDERWRITING
The underwriters named below (the "Underwriters"), for whom Gaines,
Berland Inc. is acting as representative (the "Representative"), have severally
agreed to purchase from the Company the respective number of shares of Common
Stock set forth opposite their names:
<TABLE>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Gaines, Berland Inc...................................
---------
Total 1,600,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
several Underwriters thereunder are subject to approval of certain legal
matters by counsel and to various other considerations. The nature of the
Underwriters' obligations is such that they are committed to purchase and pay
for all of the above shares of Common Stock if any are purchased.
The Underwriters, through the Representative, have advised the Company
that they propose to offer the Common Stock initially at the public offering
price set forth on the cover page of this Prospectus; that the Underwriters may
allow to selected dealers a concession of $____ per share; and that such
dealers may reallow a concession of $____ per share to other dealers. After the
initial public offering of the Common Stock, the offering price and other
selling terms may be changed by the Underwriters.
The Company has granted to the Underwriters a 30-day over-allotment
option to purchase up to 240,000 additional shares of Common Stock,
exercisable at the public offering price less the underwriting discount. If the
Underwriters exercise such over-allotment option, then each of the Underwriters
will have a firm commitment, subject to certain conditions, to purchase
approximately the same percentage thereof as the number of shares of Common
Stock to be purchased by it as shown in the table above bears to the 1.6
million shares of Common Stock offered by the Company hereby. The Underwriters
may exercise such option only to cover over-allotments made in connection with
the sale of shares of Common Stock offered hereby.
The Company and the officers and directors of the Company have agreed
that they will not sell or dispose of any shares of Common Stock of the Company
for a period of 180 days after the later of the date on which the Registration
Statement is declared effective by the Commission or the first date on which
the shares are bona fide offered to the public, without the prior written
consent of Gaines, Berland Inc.
In connection with the Offering made hereby, the Company has agreed to
sell to the Representative, for nominal consideration, the Representative's
Warrant to purchase from the Company up to 120,000 shares of Common Stock. The
Representative's Warrant is exercisable, in whole or in part, at an exercise
price equal to 120% of the price to public at any time during the one year
period commencing one year after the effective date of the Registration
Statement of which this Prospectus is a part. The Representative's Warrant
contains provisions providing for the adjustment of the exercise price and the
type and number of securities issuable upon exercise of the Representative's
Warrant should one or more of specified events occur. The Representative's
Warrant grants to the holders thereof demand and piggyback registration rights
for the securities issuable upon the exercise of the
48
<PAGE> 52
Representative's Warrant. The Representative's Warrant may not be sold,
transferred, assigned, pledged or hypothecated until one year after the
effective date of the Offering, except as provided in Rule 2710(c)(7)(A) of the
NASD Conduct Rules.
The Company has agreed to indemnify the Underwriters against certain
liabilities, losses and expenses, including liabilities under the Securities
Act of 1933, as amended, or to contribute to payments that the Underwriters may
be required to make in respect thereof. The Company has agreed to pay the
Representative a non-accountable expense allowance equal to the lesser of 1% of
the gross proceeds derived from the sale of the Common Stock offered by the
Company hereby or $150,000.
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price will be determined through
negotiations among the Company and the Representative. Among the factors to be
considered in determining the initial public offering price, in addition to
prevailing market conditions, will be certain financial information of the
Company, the history of, and the prospects for, the Company and the industry in
which it competes, an assessment of the Company's management, its past and
present operations, the prospects for, and timing of, future net sales of the
Company, the present state of the Company's development, and the above factors
in relation to market values and various valuation measures of other companies
engaged in activities similar to, the Company. The initial public offering
price set forth on the cover page of this Prospectus is subject to change as a
result of market conditions and other factors. There can be no assurance that
an active trading market will develop for the Common Stock or that the Common
Stock will trade in the public market subsequent to the Offering at or above
the initial public offering price.
In connection with the Offering, certain Underwriters and selling
group members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing its market price. The
Underwriters may also create a short position for the account of the
Underwriters by selling more Common Stock in connection with the Offering than
they are committed to purchase from the Company, and in such case may purchase
Common Stock in the open market following completion of the Offering to cover
all or a portion of such short position. The Underwriters may also cover all or
a portion of such short position, up to 240,000 shares of Common Stock, by
exercising the Underwriters' over-allotment option referred to above. In
addition, Gaines, Berland Inc., on behalf of the Underwriters, may impose
"penalty bids" under contractual arrangements with the Underwriters whereby it
may reclaim from an Underwriter (or dealer participating in the Offering) for
the account of the other Underwriters, the selling concession with respect to
the Common Stock that is distributed in the Offering but subsequently purchased
for the account of the Underwriters in the open market. Any of the transactions
described in this paragraph may result in the maintenance of the Common Stock
at a level above that which may otherwise prevail in the open market. None of
the transactions described in this paragraph are required, and, if they are
undertaken, they may be discontinued at any time.
49
<PAGE> 53
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon
for the Company by Morrison & Foerster LLP, Denver, Colorado. Certain legal
matters will be passed upon for the Underwriters by Vinson & Elkins L.L.P.,
Houston, Texas.
EXPERTS
The consolidated balance sheets of Triumph Fuels Corporation (formerly
Portfield Investments, Inc.) as of February 28, 1997 and February 29, 1996 and
the consolidated statements of income, shareholders' equity and cash flows for
each of the three years in the period ended February 28, 1997, included in this
Prospectus, have been included herein in reliance on the report of Coopers and
Lybrand L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing.
The balance sheets of Moffitt Oil Company, Inc. as of April 11, 1997
and December 31, 1996 and 1995 and the statements of operations, stockholder's
equity and cash flows for the period from January 1, 1997 to April 11, 1997 and
the years ended December 31, 1996 and 1995, included in this Prospectus, have
been included herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
The combined balance sheets of Winnco, Inc. and W.W. Transports, Inc.
as of June 30, 1997 and December 31, 1996 and 1995 and the combined statements
of income, shareholders' equity and cash flows for the six months ended June
30, 1997 and for each of the three years in the period ended December 31, 1996,
included in this Prospectus, have been included herein in reliance on the
report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
The combined statements of sales, cost of sales and direct operating
expenses of the Colorado Stores formerly owned by Ultramar Diamond Shamrock
Corporation for the period from January 1, 1997 to March 13, 1997, and for each
of the three years in the period ended December 31, 1996, included in this
Prospectus, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
herein in reliance upon the authority of said firm as experts in accounting and
auditing in giving said report.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration Statement on Form S-1 with respect to the Common
Stock being offered by this Prospectus. This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
shares of Common Stock offered hereby, reference is made to the Registration
Statement, including the exhibits and schedules thereto. Statements contained
in this Prospectus as to the contents of any contract or other document
referred to herein are not necessarily complete and, where such contract is an
exhibit to the Registration Statement, each such statement is qualified in all
respects by the provisions of such exhibit, to which such reference is hereby
made. Copies of the Registration Statement, including the exhibits and
schedules thereto, may be examined without charge at the Public Reference
Section of the Commission, 450 Fifth Street, N.W. Room 1024, Washington, D.C.
20549, and the Commission's Regional Offices located at 500 West Madison
Street, Suite 1400, Chicago, IL 60661, and 7 World Trade Center, 13th Floor,
New York, NY 10048 or on the Internet at http://www.sec.gov. Copies of all or a
portion of the Registration Statement can be obtained from the Public Reference
Section of the Commission upon payment of prescribed fees.
As a result of the Offering, the Company will become subject to the
informational and reporting requirements of the Securities Exchange Act of
1934, as amended, and in accordance therewith will file periodic reports, proxy
statements and other information with the Commission.
50
<PAGE> 54
The Company intends to furnish its stockholders with annual reports
containing audited financial statements examined by its independent public
accountants and quarterly reports containing unaudited financial statements for
the first three quarters of each fiscal year.
51
<PAGE> 55
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
TRIUMPH FUELS CORPORATION (FORMERLY PORTFIELD INVESTMENTS, INC.): PAGE
-----
<S> <C>
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Shareholders' Equity . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . F-7
COLORADO STORES:
Report of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . F-25
Combined Statements of Sales, Cost of Sales and Direct Operating
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-26
Notes to Statements of Sales, Cost of Sales and Direct Operating Expenses . . . . . . F-27
MOFFITT OIL COMPANY, INC.:
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . F-29
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-30
Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-32
Statements of Stockholder's Equity . . . . . . . . . . . . . . . . . . . . . . . . . F-33
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-34
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-35
WINNCO, INC. AND W.W. TRANSPORTS, INC.:
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . F-43
Combined Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-44
Combined Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-45
Combined Statements of Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . F-46
Combined Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . F-47
Notes to Combined Financial Statements . . . . . . . . . . . . . . . . . . . . . . . F-48
</TABLE>
F-1
<PAGE> 56
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Triumph Fuels Corporation:
We have audited the accompanying consolidated balance sheets of Triumph Fuels
Corporation (formerly Portfield Investments, Inc.) as of February 28, 1997 and
February 29, 1996, and the related consolidated statements of operations and
cash flows for the years ended February 28, 1997, February 29, 1996 and
February 28, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Triumph Fuels
Corporation (formerly Portfield Investments, Inc.) as of February 28, 1997 and
February 29, 1996, and the consolidated results of its operations and its cash
flows for the years ended February 28, 1997, February 29, 1996 and February 28,
1995, in conformity with generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
-----------------------------
COOPERS & LYBRAND L.L.P.
Denver, Colorado
May 12, 1997, except for Note 14, as to
which the date is November 3, 1997.
F-2
<PAGE> 57
TRIUMPH FUELS CORPORATION
(FORMERLY PORTFIELD INVESTMENTS, INC.)
CONSOLIDATED BALANCE SHEETS
as of August 31, 1997 (Unaudited) and February 28, 1997 and February 29, 1996
-------
<TABLE>
<CAPTION>
Pro Forma
Shareholders'
Equity
August 31,
1997 August 31, February 28, February 29,
(Note 13) 1997 1997 1996
---------------- ------------- ------------- --------------
ASSETS (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Current assets:
Cash $ 2,590 $ 207,376 $ --
Accounts receivable - trade, net of allowance 17,237,323 7,192,319 7,605,808
Other receivables 2,031,338 1,281,740 781,497
Inventories 4,058,516 3,260,969 3,371,485
Other current assets 1,237,548 512,557 389,242
Income taxes receivable 154,410 51,974 56,843
Deferred tax asset 101,260 88,340 16,438
----------- ----------- -----------
Total current assets 24,822,985 12,595,275 12,221,313
----------- ----------- -----------
Property, plant and equipment, net 16,282,948 7,874,571 7,970,973
Purchased distribution agreements, net 15,789,899 400,388 433,732
Noncompete agreements, net 3,150,225 -- --
Other assets 2,708,585 1,112,320 621,353
----------- ----------- -----------
$62,754,642 $21,982,554 $21,247,371
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 6,552,298 $ 418,832 $ 482,896
Accounts payable - trade 12,423,191 7,349,589 7,595,258
Accrued expenses 6,777,018 1,220,829 1,230,031
Book overdrafts 940,000 1,245,007 374,510
----------- ----------- -----------
Total current liabilities 26,692,507 10,234,257 9,682,695
----------- ----------- -----------
Long-term liabilities:
Long-term debt, net of current portion 26,849,122 6,391,129 6,443,524
Other liabilities -- 225,000 488,888
Deferred income taxes 4,694,466 573,646 491,824
----------- ----------- -----------
Total long-term liabilities 31,543,588 7,189,775 7,424,236
----------- ----------- -----------
Commitments and contingencies (Notes 7 and 9)
Shareholders' equity:
Preferred stock; Series A convertible, $100
par value; authorized, issued and outstanding
20,000 shares 2,000,000 2,000,000 2,000,000
Common stock, no par value; authorized
5,980,000 shares; issued and outstanding
2,000,000 shares (pro forma 5,000,000
shares at $.001 par value) $ 5,000 272,940 50,000 50,000
Additional paid-in capital 2,267,940 -- -- --
Retained earnings 2,262,423 2,245,607 2,508,522 2,090,440
----------- ----------- ----------- -----------
Total shareholders' equity $ 4,535,363 4,518,547 4,558,522 4,140,440
=========== ----------- ----------- -----------
$62,754,642 $21,982,554 $21,247,371
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
<PAGE> 58
TRIUMPH FUELS CORPORATION
(FORMERLY PORTFIELD INVESTMENTS, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
for the six months ended August 31, 1997 and 1996 (Unaudited) and
for the years ended February 28, 1997, February 29, 1996 and February 28, 1995
-------
<TABLE>
<CAPTION>
August 31,
----------------------------------- February 28, February 29, February 28,
1997 1996 1997 1996 1995
-------------- -------------- -------------- -------------- -------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales $ 103,707,838 $ 71,145,182 $ 135,464,475 $ 102,126,045 $ 93,638,967
Cost of sales 93,442,036 64,440,558 123,821,211 93,143,693 86,604,082
-------------- ------------ ------------- ------------- ------------
Gross profit 10,265,802 6,704,624 11,643,264 8,982,352 7,034,885
Selling, general and
administrative expenses 7,936,369 4,433,593 9,359,237 7,433,570 5,395,988
Depreciation and amortization 1,448,372 443,981 871,482 694,085 457,026
-------------- ------------ ------------- ------------- ------------
Operating income 881,061 1,827,050 1,412,545 854,697 1,181,871
-------------- ------------ ------------- ------------- ------------
Other nonoperating income (expense):
Interest expense (1,389,482) (429,570) (900,990) (619,723) (147,112)
Interest income 42,205 8,591 27,369 8,355 48,169
Gain (loss) on sale of assets -- 4,277 (2,094) (7,799) 21,438
Other 48,891 49,498 137,878 65,708 (55,116)
-------------- ------------ ------------- ------------- ------------
(1,298,386) (367,204) (737,837) (553,459) (132,621)
-------------- ------------ ------------- ------------- ------------
Income (loss) before
income taxes (417,325) 1,459,846 674,708 301,238 1,049,250
Income tax (expense) benefit 154,410 (569,339) (256,626) (44,297) (387,403)
-------------- ------------ ------------- ------------- ------------
Net income (loss) $ (262,915) $ 890,507 $ 418,082 $ 256,941 $ 661,847
============== ============ ============= ============= ============
Net income (loss) per share
adjusted to reflect conversion
of preferred stock (Note 13) $ (0.14) $ 0.22
============== =============
Weighted average
common shares outstanding 1,903,414 1,903,414
============== =============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE> 59
TRIUMPH FUELS CORPORATION
(FORMERLY PORTFIELD INVESTMENTS, INC.)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
for the six months ended August 31, 1997
(Unaudited) and for the years
ended February 28, 1997, February 29, 1996 and February 28, 1995
-------
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------------ --------------------------- Retained
Shares Amount Shares Amount Earnings
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
February 28, 1994 20,000 $ 2,000,000 2,000,000 $ 50,000 $ 1,171,652
Net income -- -- -- -- 661,847
------ ------------ ------------ ------------ ------------
February 28, 1995 20,000 2,000,000 2,000,000 50,000 1,833,499
Net income -- -- -- -- 256,941
------ ------------ ------------ ------------ ------------
February 29, 1996 20,000 2,000,000 2,000,000 50,000 2,090,440
Net income -- -- -- -- 418,082
------ ------------ ------------ ------------ ------------
February 28, 1997 20,000 2,000,000 2,000,000 50,000 2,508,522
Net loss (unaudited) -- -- -- -- (262,915)
------ ------------ ------------ ------------ ------------
August 31, 1997 (unaudited) 20,000 $ 2,000,000 2,000,000 $ 50,000 $ 2,245,607
====== ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE> 60
TRIUMPH FUELS CORPORATION
(FORMERLY PORTFIELD INVESTMENTS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the six months ended August 31, 1997 and
1996 (Unaudited) and for the years ended February 28,
1997, February 29, 1996 and February 28, 1995
-------
<TABLE>
<CAPTION>
August 31,
---------------------------- February 28, February 29, February 28,
1997 1996 1997 1996 1995
------------ ------------- ------------------------------ -------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (262,915) $ 890,507 $ 418,082 $ 256,941 $ 661,847
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 1,448,372 443,981 871,484 668,149 457,026
Loss (gain) on sale of assets -- (4,277) 2,094 7,799 10,304
Deferred income tax provision (179,966) (143,472) 9,920 143,472 114,303
Common stock issued for services 82,360 -- -- -- --
Changes in assets and liabilities (net of
effects of acquisitions):
(Increase) decrease in accounts receivable
trade, net (3,450,901) (2,050,299) 278,358 (1,940,012) 1,122,051
(Increase) in other receivables (402,771) (260,431) (500,243) (781,497) --
(Increase) decrease in inventories (295,809) (436,967) 110,516 (975,392) (516,784)
(Increase) decrease in other current assets (629,189) (586,303) (123,315) (231,111) 13,888
(Increase) decrease in income taxes receivable (102,436) 56,843 4,869 (56,843) --
(Increase) in other assets (889,428) (166,090) (503,966) (92,937) (197,322)
(Decrease) increase in other liabilities (225,000) (263,888) (263,888) 251,235 --
(Decrease) increase in accounts payable and
accrued expenses 3,702,975 2,242,907 (629,441) 1,628,194 (1,156,817)
------------ ------------- ------------ ------------ -------------
Net cash (used in) provided by operating activities (1,204,708) (277,489) (325,530) (1,122,002) 508,496
------------ ------------- ------------ ------------ -------------
Cash flows from investing activities:
Payments for acquisition of assets, net of cash
acquired (21,994,730) (145,057) (1,120,803) (4,136,464) (933,742)
Decrease in restricted certificates of deposit -- -- -- -- 550,000
Proceeds from sale of assets -- 4,273 196,916 679,069 7,883
Investment in common and preferred stock -- -- -- -- (187,150)
------------ ------------- ------------ ------------ -------------
Net cash used in investing activities (21,994,730) (140,784) (923,887) (3,457,395) (563,009)
------------ ------------- ------------ ------------ -------------
Cash flows from financing activities:
Net borrowings under revolving credit agreement 6,418,855 871,137 842,617 4,540,023 112,707
Proceeds from borrowings on long-term debt 17,487,441 -- -- -- --
Repayments on long-term debt (606,637) (69,959) (630,891) (335,136) (1,225,305)
Effect of cash overdraft (305,007) (374,510) 1,245,067 374,510 595,872
------------ ------------- ------------ ------------ -------------
Net cash provided by (used in) financing activities 22,994,652 426,668 1,456,793 4,579,397 (516,726)
------------ ------------- ------------ ------------ -------------
Net increase (decrease) in cash (204,786) 8,395 207,376 -- (571,239)
Cash and cash equivalents, beginning of period 207,376 -- -- -- 571,239
------------ ------------- ------------ ------------ -------------
Cash and cash equivalents, end of period $ 2,590 $ 8,395 $ 207,376 $ -- $ --
============ ============= ============ ============ =============
Supplemental disclosure of cash flow information:
Interest paid $ 817,509 $ 390,200 $ 147,112
============ ============ =============
Income taxes paid $ 233,000 $ 16,765 $ 322,400
============ ============ =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE> 61
TRIUMPH FUELS CORPORATION
(FORMERLY PORTFIELD INVESTMENTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
1. Summary of Significant Accounting Policies:
General:
Triumph Fuels Corporation, formerly Portfield Investments, Inc. (the
"Company"), through its wholly owned subsidiaries, Wescourt Group, Inc.
and Wescourt Distributing, Inc. (collectively "Wescourt"), is engaged in
the wholesale distribution and marketing of refined petroleum products,
including gasoline, diesel fuel and lubricants, to a wide variety of
customers including retail gasoline stations and commercial businesses
such as construction, manufacturing, mining and marine, road and rail
transportation companies located in Utah, Texas and Colorado. The
Company also owns and operates convenience stores located in Utah and
Colorado.
The accompanying consolidated financial statements include the accounts
of Triumph Fuels Corporation, Wescourt Group, Inc. and its subsidiaries
and Wescourt Distributing, Inc. All significant intercompany balances
and transactions have been eliminated in consolidation.
Cash and Cash Equivalents:
Cash and cash equivalents include all highly liquid investments with an
initial maturity of three months or less. At August 31, 1997, February
28, 1997 and February 29, 1996, the Company had book overdrafts of
$940,000, $1,245,067 and $374,510, respectively, which are classified as
liabilities.
Inventories:
Inventories, which are composed primarily of natural gas liquids,
petroleum products and convenience store merchandise held for resale,
are stated at the lower of average cost or market.
Property, Plant and Equipment:
Plant, machinery and equipment are stated at cost. The Company
depreciates plant, machinery and equipment over the estimated useful
lives of 5 to 15 years using the straight-line method. The cost of
normal maintenance and repairs is charged to expense as incurred, while
significant betterments are capitalized. When plant, machinery and
equipment are retired or otherwise disposed of, the net book value is
removed from the asset and related accumulated depreciation accounts.
Gains or losses on dispositions are recognized in the year of
disposition.
Purchased Distribution Agreements:
Purchased distribution agreements represent contracts for distribution
of fuels with oil companies acquired in the Company's acquisitions. The
agreements are amortized over their estimated useful lives of 15 years.
Accumulated amortization at August 31, 1997, February 28, 1997, and
February 29, 1996 was $453,526, $99,720, and $66,376, respectively.
F-7
<PAGE> 62
TRIUMPH FUELS CORPORATION
(FORMERLY PORTFIELD INVESTMENTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
1. Summary of Significant Accounting Policies, continued:
Noncompete Agreements:
In connection with various acquisitions, the Company has entered into
noncompete agreements. The agreements are amortized over their term of
five years. Accumulated amortization at August 31, 1997, February 28,
1997, and February 29, 1996 was $263,625, $-0-, and $-0-, respectively.
Income Taxes:
The Company files a consolidated tax return. Deferred tax assets and
liabilities are recorded based on the differences between the financial
statement and tax bases of assets and liabilities using tax rates which
will be in effect when these differences are expected to reverse. If
appropriate, deferred tax assets are reduced by a valuation allowance
which reflects expectations of the extent to which such assets will be
realized.
Net Income (Loss) Per Share:
Net income (loss) per share of common stock is calculated by dividing
net income (loss) by the weighted average shares of common stock and
common stock equivalents outstanding. Pursuant to the rules of the
Securities and Exchange Commission, common stock equivalents related to
common stock, preferred stock, stock options and warrants issued within
the last year have been included as if they were outstanding for all
periods presented.
Historical income (loss) per share is as follows (does not reflect the
assumed 2.96-for-1 reverse stock split described in Note 13):
<TABLE>
<CAPTION>
Six Months Ended Years Ended
---------------------------------- ------------------------------------------------
August 31, August 31, February 28, February 29, February 28,
1997 1996 1997 1996 1995
--------------- ---------------- -------------- ------------- --------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net income (loss) per share $ (0.07) $ 0.16 $ 0.08 $ 0.05 $ 0.12
=========== ============ ============= ============= =============
Weighted average
common shares
outstanding 5,744,920 5,399,733 5,399,733 5,476,941 5,334,400
=========== ============ ============= ============= =============
</TABLE>
F-8
<PAGE> 63
TRIUMPH FUELS CORPORATION
(FORMERLY PORTFIELD INVESTMENTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------
1. Summary of Significant Accounting Policies, continued:
Environmental Remediation Costs:
Environmental remediation costs are accrued when estimated future
expenditures are probable and reasonably estimable. The estimated future
expenditures are not discounted to present value. Recoveries of
remediation costs from other parties, if any, are reported as
receivables when their receipt is deemed probable.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
Unaudited Financial Information:
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting only of normal
recurring items) necessary to present fairly the consolidated financial
position of the Company as of August 31, 1997 and the consolidated
results of operations and cash flows for the six months ended August 31,
1996 and 1997. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant
to the SEC's rules and regulations. The results of operations for the
periods presented are not necessarily indicative of the results to be
expected for the full year. Information in these financial statements
subsequent to May 12, 1997 is unaudited.
2. Acquisitions:
On October 1, 1994, Wescourt acquired certain wholesale distribution assets
from Simpson Oil Company by issuing a promissory note for $115,721 and
forgiving receivables totaling $101,900.
On October 1, 1994, Wescourt acquired certain Utah-based wholesale
distribution and convenience store assets from Recovery Specialists, Inc.
for cash payments of $110,974, plus the assumption of liabilities totaling
$2,215,000 and the issuance of a $1,075,000 note payable.
On January 5, 1996, Wescourt acquired certain wholesale distribution and
convenience store assets from G. W. Arnold Distributing for cash payments
of $243,000 and the issuance of a $724,000 note payable.
On January 10, 1996, Wescourt acquired certain convenience store assets
from Ricci Investments for cash payments of $287,000 and the forgiveness of
$35,000 of receivables.
F-9
<PAGE> 64
TRIUMPH FUELS CORPORATION
(FORMERLY PORTFIELD INVESTMENTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
-------
2. Acquisitions, continued:
For financial accounting and reporting purposes, the acquisitions discussed
above were accounted for as purchases. The results of operations of these
asset purchases are included in the accompanying financial statements since
the dates of acquisition. The acquired assets, which consist of
receivables, inventories and property and assumed liabilities, have been
recorded at their fair values as of the acquisition dates.
3. Accounts Receivable - Trade:
At August 31, 1997, February 28, 1997 and February 29, 1996, accounts
receivable - trade consisted of the following:
<TABLE>
<CAPTION>
August 31, February 28, February 29,
1997 1997 1996
------------ ---------- -----------
(Unaudited)
<S> <C> <C> <C>
Trade receivables $ 17,678,759 $7,192,319 $ 7,620,863
Allowance for doubtful accounts (441,436) -- (15,055)
------------ ---------- -----------
$ 17,237,323 $7,192,319 $ 7,605,808
============ ========== ===========
</TABLE>
4. Property, Plant and Equipment:
At August 31, 1997, February 28, 1997 and February 29, 1996, property,
plant and equipment consisted of the following:
<TABLE>
<CAPTION>
August 31, February 28, February 29,
1997 1997 1996
------------ ------------ -----------
(Unaudited)
<S> <C> <C> <C>
Land $ 3,218,316 $ 568,316 $ 18,316
Building 1,416,684 186,684 21,684
Equipment 14,709,751 9,438,855 9,460,281
------------ ------------ -----------
19,344,751 10,193,855 9,500,281
Less accumulated depreciation (3,061,803) (2,319,284) (1,529,308)
------------ ------------ -----------
Net $ 16,282,948 $ 7,874,571 $ 7,970,973
============ ============ ===========
</TABLE>
F-10
<PAGE> 65
TRIUMPH FUELS CORPORATION
(FORMERLY PORTFIELD INVESTMENTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
-------
5. Long-term Debt:
At August 31, 1997, February 28, 1997 and February 29, 1996, long-term debt
consists of the following:
<TABLE>
<CAPTION>
August 31, February 28, February 29,
1997 1997 1996
------------- -------------- ------------
(Unaudited)
<S> <C> <C> <C>
Revolving credit agreement payable by Wescourt,
collateralized by substantially all of Wescourt's assets
and guaranteed by the Company, with interest at the
prime rate plus 1% per annum (9.8% at August 31, 1997).
The credit agreement provides for borrowings up to
$18,000,000, subject to collateral availability as
defined by the credit agreement. At August 31, 1997,
approximately $1,820,000 was available under the credit
agreement. Borrowings under the credit agreement are due
October 8, 1998. $ 12,804,599 $ 6,020,876 $ 5,180,922
Promissory note, payable by Wescourt to a related party,
payable in monthly installments ranging from $17,060 to
$21,560 including interest at 7%,
through February 2001. 33,793 217,570 882,022
Promissory note, payable by Wescourt for the purchase of
computer hardware, payable in monthly installments of
$4,500 including interest at 7%,
through June 1998. -- -- 72,929
Promissory note, payable by Wescourt to the former owners
of a subsidiary, payable in quarterly installments of
$10,700 including interest at 8%,
through October 1997. 8,656 28,900 67,061
Promissory note, payable by Wescourt to the former owner
of a subsidiary, payable in annual installments of
$180,872 plus accrued interest at 9%, through
January 1, 2000. 542,615 542,615 723,486
Promissory note, payable by the Company to a bank upon
demand, with interest at the bank's prime rate. 4,500,000 -- --
</TABLE>
F-11
<PAGE> 66
TRIUMPH FUELS CORPORATION
(FORMERLY PORTFIELD INVESTMENTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
-------
5. Long-term Debt, continued:
<TABLE>
<CAPTION>
August 31, February 28, February 29,
1997 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
Term loan, payable by the Company to a financing company,
in monthly installments of $116,383, with interest at the
five-year treasury rate plus 3.50%,
through April 14, 2004 $ 6,776,281 $ -- $ --
Term loan, payable by the Company to a financing company,
in monthly installments of $83,744, plus interest at the
one-month LIBOR rate plus 3.25%,
through March 12, 2002 7,916,256 -- --
Capital lease obligations 819,220 -- --
------------ ----------- -----------
33,401,420 6,809,961 6,926,420
Less current portion (6,552,298) (418,832) (482,896)
------------ ----------- -----------
$ 26,849,122 $ 6,391,129 $ 6,443,524
============ =========== ===========
</TABLE>
As of August 31, 1997, accumulated depreciation on assets under capital
lease was $26,292. The carrying value of all long-term debt approximates
fair value. Future maturities of long-term debt as of February 28, 1997 are
as follows:
<TABLE>
<CAPTION>
Year Ending February 28,:
- -------------------------
<S> <C>
1998 $ 418,832
1999 6,210,257
2000 180,872
-------------
$ 6,809,961
=============
</TABLE>
In March 1997, the Company executed a Demand Note (the "Subordinated Debt")
in favor of Morgan Guaranty Trust Company of New York in the principal
amount of $4.5 million with interest at the bank's prime rate. The
Subordinated Debt was used to pay a portion of the cash purchase price for
the assets acquired from Moffitt Oil and Diamond Shamrock.
F-12
<PAGE> 67
TRIUMPH FUELS CORPORATION
(FORMERLY PORTFIELD INVESTMENTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
-------
5. Long-term Debt, continued:
Certain of the debt agreements contain, among other covenants, the
maintenance of certain financial ratios, restrictions on incurring
additional non-trade indebtedness and restrictions on paying cash
dividends. As of February 28, 1997, the Company was in compliance with or
had obtained the appropriate waivers for all such covenants.
6. Income Taxes:
The provision for income taxes for the years ended February 28, 1997,
February 29, 1996 and February 28, 1995 consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
-------- --------- --------
<S> <C> <C> <C>
Current $239,302 $ (99,175) $345,181
Deferred 17,324 143,472 42,222
-------- --------- --------
$256,626 $ 44,297 $387,403
======== ========= ========
</TABLE>
The components of the net deferred tax liability as of February 28, 1997
and February 29, 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Environmental reserves $ -- $ 21,110
AMT credit carryforward 52,139 --
Loss on sale of assets 23,120 --
Inventories 21,110 --
Other 2,493 6,874
-------- --------
Total deferred tax asset 98,862 27,984
-------- --------
Deferred tax liabilities:
Property, plant and equipment 573,646 491,824
Other 10,522 11,546
-------- --------
Total deferred tax liability 584,168 503,370
-------- --------
Net deferred tax liability $485,306 $475,386
======== ========
</TABLE>
F-13
<PAGE> 68
TRIUMPH FUELS CORPORATION
(FORMERLY PORTFIELD INVESTMENTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
-------
6. Income Taxes, continued:
The net deferred tax liability as of February 28, 1997 and February 29,
1996 is reflected in the balance sheet as follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Current deferred tax asset $ (88,340) $ (16,438)
Long-term deferred tax liability 573,646 491,824
--------- ---------
$ 485,306 $ 475,386
========= =========
</TABLE>
The provision for income taxes differs from the amount that would be
provided by applying the statutory U.S. federal income tax rate to income
before taxes at February 28, 1997, February 29, 1996 and February 28, 1995
for the following reasons:
<TABLE>
<CAPTION>
1997 1996 1995
-------- --------- ---------
<S> <C> <C> <C>
Federal statutory tax provision $229,401 $ 102,421 $ 356,745
Increase in taxes resulting from:
State taxes (net of federal benefit) 22,732 10,974 37,738
Prior year differences -- (79,405) --
Other 4,493 10,307 (7,080)
-------- --------- ---------
Provision for income taxes $256,626 $ 44,297 $ 387,403
======== ========= =========
</TABLE>
7. Leases:
The Company has noncancelable operating leases, primarily for operating
facilities and equipment, that are in effect through 2001. At February 28,
1997, minimum rental payments due under operating leases are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1998 $ 327,500
1999 294,000
2000 284,000
2001 264,000
-------------
$ 1,169,500
=============
</TABLE>
Rent expense under operating leases totaled $498,567, $320,400 and $201,400
for the years ended February 28, 1997, February 29, 1996 and February 28,
1995, respectively.
F-14
<PAGE> 69
TRIUMPH FUELS CORPORATION
(FORMERLY PORTFIELD INVESTMENTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
-------
8. Concentration of Credit Risk:
Trade accounts receivable are due from commercial purchasers of gasoline
and liquefied petroleum products principally located in Colorado, Texas and
Utah. The receivables, which are typically not collateralized, are
generally due within ten days. Credit losses historically have not been
significant.
The Company's cash and cash equivalents are maintained primarily at a
single bank in Grand Junction, Colorado. To date, this concentration of
credit risk has had no effect on the results of operations of the Company.
Of the Company's total sales and accounts receivable for the year ended
February 28, 1997, 20% and 13%, respectively, are to two subsidiaries of a
single entity.
9. Commitments and Contingencies:
Environmental Liabilities:
The Company owns and operates offices and a petroleum storage facility
on a 37-acre tract of land in Fruita, Colorado ("Fruita Operations").
The Fruita Operations consist of an office building, maintenance
building, parking facilities, rail facilities, storage tanks and a
loading rack. The Fruita Operations were acquired by the Company from
Landmark Petroleum, Inc. ("Landmark") in 1994 and had been part of a
refinery known as the Western Slope Refinery that originally occupied
approximately 600 acres. During the operation of this refinery, there
were spills and discharges of hazardous substances and process wastes
that may have resulted in soil and groundwater contamination at the
refinery. In addition, some of the equipment at the refinery may contain
asbestos and/or PCBs. Historic refinery operations included a large
concrete structure to settle particulate matter from a liquid waste
stream and a series of acid sludge pits. In the late 1980's, the United
States Environmental Protection Agency ("EPA") evaluated the Western
Slope Refinery for possible listing as a Superfund Site on the National
Priorities List. EPA has not designated the refinery as a Superfund
Site, but included it in the agency's CERCLIS database of sites for
which remedial action may be required.
Landmark purchased approximately 316 acres of the 600 acre tract in
1990. The 316 acres include the refinery and concrete settlement
structure but not the sludge pits. In 1994, Landmark sold the Fruita
Operations to Fruita RP Holdings, Inc., a wholly owned subsidiary of the
Company. Fruita RP Holdings has leased the 37-acre tract to another
subsidiary of the Company. Landmark also sold to certain subsidiaries of
the Company certain tanks and equipment from the 276 acres retained by
Landmark. Fruita Marketing and Management, Inc. ("FMM"), then a wholly
owned subsidiary of the Company, entered into a marketing and management
agreement with Landmark to act as the agent for Landmark and its
principal lender for the sale of other equipment remaining on the 276
acre tract and to manage the remaining equipment. In May 1996, FMM was
sold to Recovery Specialists, Inc., a wholly-owned subsidiary of BSA
Investments, LLC, an entity solely owned and controlled by the Company's
Chief Executive Officer, in exchange for forgiveness of certain debt
owed by the Company.
F-15
<PAGE> 70
TRIUMPH FUELS CORPORATION
(FORMERLY PORTFIELD INVESTMENTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
-------
9. Commitments and Contingencies, continued:
Environmental Liabilities, continued:
In June 1996, the Colorado Department of Public Health and the
Environment ("CDPHE") issued a Compliance Order (the "Order") finding
that the Western Slope Refinery had owned and operated a refinery and
generated hazardous wastes at a Fruita, Colorado facility ("Facility"),
and that Landmark had purchased the refinery operations. This Order
directs Landmark to remediate all hazardous waste contamination at the
Facility. The Order does not assess fines and penalties, but the failure
of Landmark to comply with the Order could result in civil penalties of
up to $25,000 per day or administrative penalties of up to $1,500 per
day. This Order reserves to CDPHE the right to issue additional orders
as well as to assess civil and administrative penalties.
On July 1, 1996, FMM purchased the 276-acre tract that Landmark had
retained. As part of this transaction, FMM undertook to perform certain
environmental obligations implementing the order and to indemnify
Landmark, and its lender for losses, if any, arising out of certain
environmental obligations. As a part of this transaction, the Company
executed a guaranty whereby it guaranteed to Landmark and its lender
payment and the performance of all these obligations by FMM.
FMM has been working with CDPHE to comply with the Order and is now
completing an approved Groundwater Characterization Plan to assess the
need for clean-up. FMM has not yet developed and the regulatory agencies
have not approved a final clean-up plan for the property. FMM has
received estimates from contractors for the costs for removing asbestos
that range from a low of $750,000 to a high of $3 million. FMM estimates
the costs for remediating the remaining conditions at the site range
from a low of $150,000 to a high of $2 million. FMM also estimates that
equipment remaining on the 276 acres could be sold for up to $2 million
if the asbestos can be removed. Remediation expenses to date have been
financed with the sale of equipment from the 276-acre tract. The extent
and amount of the ultimate obligations under such guaranty cannot be
determined with any certainty at this time and therefor the Company has
not recorded any amounts for potential future liabilities.
Environmental laws frequently impose liability on property owners,
facility operators and certain other persons, such that in some
situations the Company could be liable for clean-up costs resulting from
conduct or conditions caused by previous property owners, operators,
lessees, or other persons not associated with the Company. No assurance
can be given that the Company will not be liable for FMM's obligations
with respect to the Facility and if liable, no assurances can be given
as to whether the Company will be able to meet such financial
obligations.
F-16
<PAGE> 71
TRIUMPH FUELS CORPORATION
(FORMERLY PORTFIELD INVESTMENTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
-------
9. Commitments and Contingencies, continued:
Environmental Liabilities, continued:
In addition to its Fruita Operations, the Company operates a
fractionator gas plant and petroleum blending facility in Grand
Junction, Colorado and a petroleum blending facility in Denver,
Colorado. All three facilities have permits issued by the Air Pollution
Control Division of CDPHE which limit the amount and nature of materials
that may be emitted to the air, the volume and nature of the materials
that may be handled at the permitted facilities, and the uses of
equipment at the permitted facilities. In the past year, CDPHE found
violations at all three facilities ranging from the failure to keep
adequate records to the installation and operation of equipment without
a permit. The Company has negotiated a settlement of all CDPHE claims
concerning these violations. Under the terms of the settlement, the
Company will pay $35,677 in noncompliance penalties and has paid $14,120
in past due fees. In addition, the Company will offset $102,963 in
penalties by implementing a Supplemental Environmental Project ("SEP")
at the Fruita Terminal to construct a vapor recovery system for the rail
truck loading process. This SEP is estimated to cost approximately
$144,000.
The Company's business involves the handling and storage of petroleum
products and blending components which are characterized as hazardous
substances. As can reasonably be expected in such a business, these
liquids are occasionally spilled or leaked either by accident or when
equipment, such as a valve or storage tank, fails. The Company has
historically had spills and or leaks at its facilities and some of these
incidents have required remediation and resulted in incurrence of
penalties and remediation costs. For example, the Company leased
portions of an asphalt plant in Denver, Colorado and used the plant as a
petroleum blending facility. Xylene was released onto the premises as a
result of a spill at the facility and in remediating this spill and in
removing a tank, the Company allegedly accumulated waste in excess of
allowable time limits for storage of hazardous waste. In 1995, the CDPHE
issued a compliance order requiring remediation of the spilled material
and wastes and any concomitant contamination. The Company believes it
has complied with the CDPHE Order. The Company has resolved the CDPHE's
claims for $112,200 in penalties with an agreement to pay $40,000, and
to implement a SEP estimated to cost an additional $40,000. An
additional $10,000 in penalties will be held in abeyance pending
implementation of the SEP.
In addition, the Company has acquired and may in the future acquire
property that has been adversely affected by the operations of others.
For example, the Company acquired a gas station and convenience store at
2526 Broadway in Grand Junction, Colorado. A leaking underground storage
tank at this facility had released petroleum products into the ground
and groundwater, and the Company is implementing an approved Corrective
Action Plan for this facility. The Company estimates that the cost of
implementing this plan will be approximately $100,000.
The Company has paid $305,000 to the present owner of a storage facility
at which it previously conducted business. An additional $115,800 is
included in accrued liabilities as of February 28, 1997. Based on the
opinion of an environmental engineering firm that, except for a $10,000
deductible, such amount will be reimbursed by the State of Colorado
Petroleum Storage Tank Fund, the Company has recorded a corresponding
receivable of $410,800 as of February 28, 1997.
F-17
<PAGE> 72
TRIUMPH FUELS CORPORATION
(FORMERLY PORTFIELD INVESTMENTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
-------
9. Commitments and Contingencies, continued:
Employment Agreement:
The Company has an employment agreement with its Chief Executive Officer
(CEO) dated September 17, 1992, which provides for a base salary of
$75,000 per year, subject to increase by the Board of Directors (the
"Base Salary"). The CEO's current Base Salary is $150,000 per year. The
CEO also has the right to receive incentive compensation at the
discretion of the Board of Directors. If the CEO's employment is
terminated by the Company without cause or terminated by the CEO for
good reason, he will continue to receive his Base Salary in effect at
the time of termination times two, plus a pro rata portion of the bonus
the CEO would have earned in the year of termination. Such amounts are
payable over 12 months in accordance with the Company's normal payroll
procedures and a lump sum at the end of the 12 months for any remaining
unpaid amounts. If his employment is terminated by the Company for cause
or is terminated by the CEO without good reason, the CEO will not be
entitled to any compensation or benefits under his employment agreement.
The employment agreement also contains a covenant not to compete with
the Company during the term and two years thereafter.
Other:
During fiscal 1996, the Company completed construction of its gasoline
blending facility near Denver, Colorado (the "Facility"). In connection
with the construction of the Facility, the Company entered into a
Purchase Agreement with Coastal Mart, Inc. ("Coastal"), whereby Coastal
agreed to buy from the Facility a guaranteed minimum of 24,000,000
gallons per year of gasoline at set prices. The Purchase Agreement may
be terminated by Coastal upon ninety days written notice. The Company
and Coastal Refining and Marketing ("CRM") also entered a Supply
Agreement, whereby CRM agreed to sell and deliver the entire volume of
natural gasoline produced by CRM's affiliate in Wyoming, for a specified
price. Coastal also has an option to purchase 50% of the outstanding
common stock of Westec Denver, Inc., a wholly owned subsidiary of the
Company, under certain circumstances.
10. Related Party Transactions:
BSA Investments, LLC:
The Company has entered into certain transactions with BSA Investments,
LLC ("BSA"), which is wholly-owned by the Chief Executive Officer of the
Company, and certain of its subsidiaries, which are described below.
Recovery Specialists, Inc. - In May 1996, Recovery Specialists, Inc.
("RSI"), a wholly owned subsidiary of BSA, purchased all of the issued
and outstanding common stock of Fruita Investments, Inc., Fruita
Marketing and & Management, Inc. ("FMM"), and Mesa Environmental, Inc.,
each wholly owned subsidiaries of the Company, in exchange for the
forgiveness of intercompany debt owed by a subsidiary of the Company to
RSI in the amounts of $187,150, $74,141 and $93,925, respectively.
F-18
<PAGE> 73
TRIUMPH FUELS CORPORATION
(FORMERLY PORTFIELD INVESTMENTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
-------
10. Related Party Transactions, continued:
BSA Investments, LLC, continued:
Landmark Refinery/Guaranty Agreement - Subsequent to the purchase of FMM
by RSI, in July 1996, FMM purchased the Landmark Refinery. In connection
with the acquisition, the Company executed Guaranty Agreements in favor
of Landmark and the Chase Manhattan Bank ("Chase"), whereby it
guaranteed certain obligations of FMM, under an Agreement of Purchase
and Sale dated July 1, 1996 between FMM, Landmark Petroleum, Inc. and
Chase.
Mesa Environmental - The Company pays Mesa Environmental $5,000 per
month for environmental services. In addition, the Company pays Mesa
Environmental an hourly rate and out-of-pocket expenses for work
performed on behalf of the Company. During the year ended February 28,
1997, the Company made payments to Mesa Environmental totaling
approximately $506,000.
Promissory Note - In October 1994, the Company acquired certain assets
from Triton Fuel Group, Inc. ("Triton") and issued a promissory note in
the principal amount of approximately $907,000 in favor of Triton.
Triton, including the promissory note, was subsequently purchased by
RSI, which was subsequently purchased by BSA in May 1996. Payments on
the promissory note were $20,000 per month and it was paid in full in
October 1997.
Sublease/Lease - The Company subleases property in Salt Lake City, Utah
from Triton for a monthly rent of approximately $28,500.
Rio Vista - In June 1997, BSA entered into an asset purchase agreement
(the "Rio Vista Purchase Agreement") to purchase retail convenience
stores (the "Rio Vista Stores") from certain individuals. On July 1,
1997, BSA entered into an operating agreement with Rio Vista and certain
other entities (the "Operating Agreement"), whereby BSA would operate
the convenience stores until the closing of the Rio Vista Purchase
Agreement. BSA assigned all of its rights, title and interests under the
Operating Agreement to the Company, pursuant to which the Company has
paid $8,500 per month to Rio Vista to operate certain gasoline retail
sites. The Operating Agreement entitled the Company to operate the
stores for its own account. The Operating Agreement terminated on
September 30, 1997, but the Company has continued to operate the Rio
Vista stores on a month-to-month basis pursuant to its terms. At such
time as BSA has purchased all or a part of the Rio Vista stores, the
Company will have the option but not the obligation to purchase such
stores, or any portion thereof, at no greater than cost from BSA, for a
period of 12 months from the purchase by BSA.
Petroleum Holdings, Ltd.:
Petroleum Holdings, Ltd. ("PHL") is a shareholder of the Company. The
limited partners of PHL are the WLD Trust, a testamentary trust of which
David Horvitz, a director of the Company, is a beneficiary, and Douglas
Luke, who is a director of the Company. PHL and its affiliates have
entered into certain transactions with the Company which are set forth
below.
F-19
<PAGE> 74
TRIUMPH FUELS CORPORATION
(FORMERLY PORTFIELD INVESTMENTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
-------
10. Related Party Transactions, continued:
Petroleum Holdings, Ltd., continued:
WLD Group - In March 1997, in connection with the acquisition of certain
convenience store assets from Ultramar Diamond Shamrock Corporation (see
Note 14), the WLD Trust executed a Guaranty (the "WLD Guaranty") in
favor of Morgan Guaranty Trust Company of New York ("Morgan Guaranty"),
whereby it guaranteed the obligations of the Company pursuant to the
Subordinated Debt. In connection with the WLD Guaranty, the Company
entered into (i) an indemnification agreement with the WLD Trust (the
"Indemnification Agreement"), whereby it agreed to indemnify the WLD
Trust for any obligations incurred under the WLD Guaranty, and (ii) an
Assignment and Security Agreement (the "Assignment and Security
Agreement") to collateralize the obligations of the Company under the
Indemnification Agreement. In consideration for executing the WLD
Guaranty, the Company issued the WLD Trust a warrant to purchase 264,000
shares of common stock (the "Warrant"). The Warrant is exercisable at
any time prior to March 12, 2007 and has an exercise price of $1.75 per
share, the fair market value at the date of grant. In April 1997, in
connection with the acquisition of Moffitt Oil Company (see Note 14),
the Company amended and restated the Assignment and Security Agreement
and the Indemnification Agreement to reflect the acquisition. The Morgan
Guaranty, the Indemnification Agreement and the Assignment and Security
Agreement will terminate upon the repayment of the Subordinated Debt.
Management and Consulting Agreement - The Company and PHL are parties to
a Consulting and Management Agreement, pursuant to which $222,288,
$172,000 and $195,000 were paid to PHL during the fiscal years ended
February 28, 1997, February 29, 1996 and February 28, 1995,
respectively, and $195,805 and $80,000 were paid to PHL during the six
months ended August 31, 1997 and 1996, respectively. The Consulting and
Management Agreement will be terminated upon the consummation of the
Offering (see Note 14).
Other Transactions:
Keith R. Holder, a shareholder, director and the Chief Executive Officer
of the Company has guaranteed approximately $500,000 in trade payables
to one of the Company's suppliers, which guarantee expires December 31,
1997. Mr. Holder has also guaranteed $300,000 of the Company's revolving
facility which expires October 8, 1998. In consideration of these
guarantees, in March 1997, the Company issued Mr. Holder a Warrant to
purchase 40,000 shares of Common Stock, which are exercisable at any
time prior to March 12, 2007 and have an exercise price of $1.75 per
share, the fair market value at the date of grant.
Until October 13, 1997, Stephen W. Houghton, Chairman of the Board of
the Company, served as a consultant to the Company and received a
monthly consulting fee of $4,000 for such services. In total, Mr.
Houghton received $30,600 in consulting fees during the year ended
February 28, 1997. In addition, in March 1997, Mr. Houghton was issued a
warrant to purchase 50,000 shares of common stock, which is exercisable
at any time prior to March 12, 2007 at an exercise price of $1.75 per
share. The consulting arrangement with Mr. Houghton was terminated upon
his election as Chairman of the Board of the Company on October 13,
1997.
F-20
<PAGE> 75
TRIUMPH FUELS CORPORATION
(FORMERLY PORTFIELD INVESTMENTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
-------
11. Shareholders' Equity:
Stock Option Plan:
The Company has a stock option plan (Plan) under which options may be
granted to employees, officers and directors of the Company to purchase
shares of the Company's common stock. Options vest over a period
determined by the Board of Directors and are exercisable for a period
not to exceed 10 years from the date of grant.
The Company has elected to continue to apply the current stock based
compensation methods pursuant to APB 25 and to furnish the additional
disclosures required by SFAS 123.
The pro forma compensation expense based on the fair value of the
options is estimated on the grant date using the Minimum Value Method
and the following assumptions:
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
Risk free rate of return 6.90% 6.43%
Dividend yield N/A N/A
Expected life 5 years 5 years
Expected volatility N/A N/A
</TABLE>
The resulting pro forma compensation expense was not significant in 1997
or 1996.
A summary of the status of the Company's stock option plans as of
February 28, 1997 and February 29, 1996, is presented below:
<TABLE>
<CAPTION>
1997 1996
--------------------------- --------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 710,000 $ 1.11 400,000 $ .82
Granted -- 310,000 $ 1.50
Forfeited 216,667 $ 1.50 --
---------- ----------
Outstanding at end of year 493,333 $ .95 710,000 $ 1.11
========== ==========
Options exercisable at end of year 345,999 $ .95 247,666 $ .93
========== ==========
Options available for future grant -- --
========== ==========
</TABLE>
For options outstanding at February 28, 1997, the range of exercise
prices is from $.82 to $1.50 and the weighted average contractual life
of the options is from six to eight years.
F-21
<PAGE> 76
TRIUMPH FUELS CORPORATION
(FORMERLY PORTFIELD INVESTMENTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
-------
11. Shareholders' Equity, continued:
Stock Option Plan, continued:
In October 1997, the Company adopted the 1997 Stock Incentive Plan (the
"1997 Incentive Plan"). The 1997 Incentive Plan permits the Company to
grant incentive stock options, non-statutory stock options, restricted
stock awards and other stock-based awards and the grant of stock
appreciation rights (collectively, "Awards"). Awards consisting of stock
options may not be granted at an exercise price which is less than 100%
of the fair market value of the Common Stock on the date of grant and
may not be granted for a term in excess of ten years. Subject to
adjustment in the event of stock splits and other similar events, awards
may be made under the 1997 Incentive Plan for up to 550,000 shares of
Common Stock.
Officers, employees, directors, consultants and advisors of the Company
and its subsidiaries will be eligible to receive Awards under the 1997
Incentive Plan. The maximum number of shares with respect to which an
Award may be granted to any participant under the 1997 Incentive Plan
may not exceed 50,000 shares per calendar year.
In March 1997, the Company granted options to an employee of Moffitt to
acquire 275,000 shares of common stock for $1.75 per share. The
options were granted at fair market value as determined by the Board of
Directors based on recent stock transactions.
Preferred Stock:
All 20,000 shares of the Company's Series A convertible preferred stock
is held by Petroleum Holdings Ltd. ("PHL"). PHL is entitled to 60% of
the voting rights under a Shareholder Agreement executed by PHL and the
Company. The preferred shares are non-cumulative and are convertible to
3,000,000 shares of common stock at any time at the holder's option.
12. New Accounting Pronouncements:
In June of 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, "Reporting Comprehensive Income." The statement establishes
standards for reporting and display of comprehensive income and its
components in a full set of financial statements. It would be effective for
the Company for the fiscal year ending February 28, 1999. The Company
currently believes that implementation of the statement will have an
immaterial impact.
Also in June of 1997, the FASB issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information." Under the provisions of
the statement, the Company will be required to disclose financial
information by operating segment. Generally, financial information will be
required to be reported on the basis that is used internally for evaluating
segment performance and deciding how to allocate resources to segments. The
Company will be required to adopt the provisions of this statement for the
fiscal year ending February 28, 1999.
F-22
<PAGE> 77
TRIUMPH FUELS CORPORATION
(FORMERLY PORTFIELD INVESTMENTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
-------
13. Pro Forma Shareholders' Equity and Adjusted Earnings Per Share (Unaudited):
The pro forma shareholders' equity gives retroactive effect to the
conversion of preferred stock, which is to occur automatically upon the
consummation of the Company's initial public offering of common stock, as
if such conversion had occurred as of August 31, 1997.
The pro forma earnings per share is calculated using the common stock and
common stock equivalents outstanding as of August 31, 1997, adjusted for
an assumed 2.96 to 1 reverse stock split, as if this had been the capital
structure throughout fiscal 1997 and for the six months ended August 31,
1997.
The pro forma information does not reflect net cash proceeds to be received
or shares to be issued at the closing of the initial public offering.
14. Subsequent Events:
In September 1997, the Company entered into a letter of intent with
investment bankers to provide services concerning a proposed public
offering (the "Offering") of the Company's securities.
On March 10, 1997, Wescourt acquired certain convenience store assets from
Ultramar Diamond Shamrock Corporation for $10.3 million which was financed
by a seven-year term loan of $8 million and $2.3 million of subordinated
debt. The acquisition was accounted for using the purchase method with the
purchase price allocated to the assets based on their relative fair values.
On April 11, 1997, Wescourt acquired substantially all of the assets of
Moffitt Oil Company, Inc. for $10.4 million which was financed primarily by
a five-year term loan of $7 million, $2 million of subordinated debt and
$1.4 million of cash. The acquisition was accounted for using the purchase
method with the purchase price allocated to the assets based on their
relative fair values.
The operating results of the acquisitions are included in the Company's
consolidated statements of operations from the date of acquisition. The
following pro forma financial information assumes the acquisitions occurred
at the beginning of the year. These results have been prepared for
comparative purposes only and do not purport to be indicative of what would
have occurred had the acquisitions been made at the beginning of the year,
or of the results which may occur in the future. The pro forma results
listed below are unaudited and reflect purchase price adjustments.
<TABLE>
<CAPTION>
In Thousands, Except for
Share Amounts
-------------------------
Six Months
Ended Year Ended
August 31, February 28,
1997 1997
---------- ------------
(Unaudited)
<S> <C> <C>
Net sales $ 140,079 $ 267,312
Net loss (434) (549)
Net loss per share (0.23) (0.10)
</TABLE>
In March 1997, the Company adopted a 401(k) Retirement Plan (the "401(k)
Plan"). Employees are eligible to participate after they have completed one
year of service and have attained the age of 21. Employees may contribute
to the 401(k) Plan up to 15% of their salary with pre-tax amounts thereof
being set by applicable law. The Company may make discretionary matching
contributions equal to a percentage of the amount of the salary reduction
the employee has elected. Under the 401(k) Plan the employee is 100% vested
as to any employee contribution at all times. Should the Company make any
matching contribution, they would vest to the employee at a rate of 20% per
year of service beginning at the end of the second year of service.
F-23
<PAGE> 78
TRIUMPH FUELS CORPORATION
(FORMERLY PORTFIELD INVESTMENTS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
-------
14. Subsequent Events, continued:
In August 1997, the Company entered into a letter of intent to acquire
substantially all of the assets of Winnco, Inc. and W.W. Transports, Inc.
for $5.7 million.
On November 3, 1997, Portfield Investments, Inc. ("Portfield") was merged
into a newly formed, wholly owned subsidiary, Triumph Fuels Corporation
("Triumph"). All common stock and preferred stock of Portfield were
exchanged on a one-for-one basis for shares of Triumph with the same rights
and privileges.
F-24
<PAGE> 79
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Wescourt Group, Inc.:
We have audited the accompanying combined statements of sales, cost of sales and
direct operating expenses of the Colorado Stores (see Note 1) formerly owned by
Diamond Shamrock Refining and Marketing Company, a wholly-owned subsidiary of
Ultramar Diamond Shamrock Corporation for the period from January 1, 1997, to
March 13, 1997, and for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of Wescourt Group,
Inc's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audits provide a reasonable basis for
our opinion.
The financial statements were prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission (for inclusion
in the Registration Statement on Form S-1 of Triumph Fuels Corporation) as
described in Note 1 and are not intended to be a complete presentation of the
Colorado Stores' results of operations.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the sales, cost of sales and direct operating expenses
of the Colorado Stores for the period from January 1, 1997, to March 13, 1997,
and for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
/S/ ARTHUR ANDERSEN LLP
-----------------------
ARTHUR ANDERSEN LLP
San Antonio, Texas
October 30, 1997
F-25
<PAGE> 80
COLORADO STORES
COMBINED STATEMENTS OF SALES, COST OF SALES
AND DIRECT OPERATING EXPENSES
(In Thousands)
<TABLE>
<CAPTION>
Period From
January 1, 1997, Year Ended December 31
to March 13, -------------------------------
1997 1996 1995 1994
------- -------- -------- -------
<S> <C> <C> <C> <C>
SALES $ 3,125 $ 17,579 $ 15,905 $15,718
COST OF SALES AND DIRECT OPERATING EXPENSES 2,957 16,327 14,814 14,561
------- -------- -------- -------
OPERATING PROFIT $ 168 $ 1,252 $ 1,091 $ 1,157
======= ======== ======== =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-26
<PAGE> 81
COLORADO STORES
NOTES TO COMBINED STATEMENTS OF SALES, COST OF SALES
AND DIRECT OPERATING EXPENSES
1. BASIS OF PRESENTATION:
On March 13, 1997, Wescourt Group, Inc. (Wescourt), a wholly-owned subsidiary
of Triumph Fuels Corporation (formerly Patfields Investments, Inc.) acquired
certain assets of eight convenience stores located in western Colorado (the
Colorado Stores) from Diamond Shamrock Refining and Marketing Company, a
wholly-owned subsidiary of Ultramar Diamond Shamrock Corporation (collectively,
the Company), including property, fixtures, equipment and inventory for cash
consideration of approximately $10 million, plus inventory cost, as defined in
the Asset Purchase and Branding Agreement dated October 29, 1996. The
accompanying combined statements of sales, cost of sales and direct operating
expenses for the period from January 1, 1997, to March 13, 1997, and for each
of the three years in the period ended December 31, 1996, do not include
certain selling, general and administrative expenses, interest income or
expenses or any provisions for income taxes because the assets acquired
represented a portion of the Company's business which was not accounted for as
a separately identifiable segment. The accompanying combined statements were
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission (for the inclusion in the Registration
Statement on Form S-1 of Triumph Fuels Corporation) and are not intended to be
a complete presentation of the Colorado Stores' results of operations.
2. SUMMARY OF BUSINESS AND SIGNIFICANT
ACCOUNTING POLICIES:
Business
The Colorado Stores operate as self-service gasoline stations and convenience
stores which sell transportation fuels and a broad range of convenience items
including food, beverages, merchandise and lottery tickets in Grand Junction,
Montrose, Delta, Glenwood Springs and Clifton, Colorado. The Colorado Stores
purchase fuel primarily from Wesfrac, Inc., which is a subsidiary of Wescourt
Group, Inc.
Fiscal Year
The Colorado Stores operate on a 52- to 53-week fiscal year. For purposes of
the combined statements of sales, cost of sales and direct operating expenses,
the year-end is stated as December 31. The year ended December 31, 1996,
consisted of 53 weeks. Each of the years ended December 31, 1995 and 1994,
consisted of 52 weeks. All references to years relate to fiscal years rather
than calendar years.
Sales
Sales are recognized in the period the products and merchandise are sold.
Cost of Sales and Direct Operating Expenses
Cost of sales and direct operating expenses are recognized as incurred,
typically upon delivery, and include, among other items, fuel costs,
merchandise costs, lottery ticket costs, payroll and benefits for store
employees, depreciation and amortization, rentals, utilities, property taxes,
repairs and maintenance, permits and supplies. Cost of sales and direct
operating expenses exclude, among other items, corporate allocations;
accounting and legal services; salaries and benefits for area, district and
division managers; insurance; interest income; interest expense and income
taxes.
F-27
<PAGE> 82
-2-
Excise Taxes
Federal excise, state motor fuel and other taxes collected on the sale of
products and remitted to governmental agencies are included in sales and cost
of sales. Such amounts totaled approximately $721,000, $4,110,000, $3,896,000
and $3,967,000 for the period from January 1, 1997, to March 13, 1997, and for
the years ended December 31, 1996, 1995 and 1994, respectively.
Inventories
Fuel inventories are valued at the lower of cost or market (net realizable
value). Cost is determined primarily on the last-in, first-out (LIFO) basis.
Convenience store items are valued at average cost, not in excess of market
value.
Property and Equipment
Property and equipment are recorded at cost. Expenditures for major renewals
and improvements are capitalized, while repairs and maintenance, which do not
extend the life of such assets, are charged to operations as incurred.
Depreciation and amortization expense was approximately $25,000, $86,000,
$48,000 and $41,000 for the period from January 1, 1997, to March 13, 1997, and
for the years ended December 31, 1996, 1995 and 1994, respectively.
Depreciation and amortization is provided on the straight-line method using
half-year convention over the estimated useful lives of the assets ranging from
3 to 30 years.
Leases
The Company leased the land and facilities of six of the Colorado Stores under
a lease arrangement which was terminated on February 20, 1997. The Company
also had various equipment leases. Rent expense was $56,000, $407,000,
$423,000 and $312,000 for the period from January 1, 1997, to March 13, 1997,
and for the years ended December 31, 1996, 1995 and 1994, respectively.
Use of Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
F-28
<PAGE> 83
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Moffitt Oil Company, Inc.:
We have audited the accompanying balance sheets of Moffitt Oil Company, Inc. as
of April 11, 1997, December 31, 1996 and 1995, and the related statements of
operations, stockholder's equity, and cash flows for the period from January 1,
1997 to April 11, 1997 and the years ended December 31, 1996 and 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Moffitt Oil Company, Inc. as of
April 11, 1997, December 31, 1996 and 1995, and the results of its operations
and its cash flows for the period from January 1, 1997 to April 11, 1997 and the
years ended December 31, 1996 and 1995 in conformity with generally accepted
accounting principles.
/S/ COOPERS & LYBRAND, L.L.P.
---------------------------
COOPERS & LYBRAND, L.L.P.
Houston, Texas
October 16, 1997
F-29
<PAGE> 84
MOFFITT OIL COMPANY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
APRIL 11, -------------------------------
ASSETS 1997 1996 1995
<S> <C> <C> <C>
Current assets:
Cash $ 24,689 $ 41,544 $ 345,731
Certificates of deposit 59,373 59,373 56,720
Accounts receivable:
Trade, less allowance for bad debts of $330,000 at April 11,
1997, $50,000 at December 31, 1996 and $125,000 at
December 31, 1995 6,594,103 5,955,769 5,250,547
Employees 11,893 13,641 40,233
Other 334,934 386,558 95,384
Inventories 501,738 485,829 522,275
Prepaid expenses 95,802 143,208 125,819
Notes receivable - related parties 495,000 189,235 -
Income taxes receivable 45,121 - -
Deferred income taxes 202,079 20,352 50,050
------------- -------------- -------------
Total current assets 8,364,732 7,295,509 6,486,759
------------- -------------- -------------
Property, plant and equipment:
Buildings and improvements 346,385 346,385 286,817
Consignment and branded station equipment 1,138,445 1,116,195 1,107,584
Tanks and bulk storage facilities 515,815 497,906 627,223
Transportation equipment 1,140,911 1,140,911 1,835,047
Office furniture, fixtures and equipment 116,648 115,687 175,371
------------- -------------- -------------
3,258,204 3,217,084 4,032,042
Less accumulated depreciation (1,798,394) (1,678,032) (1,954,500)
------------- -------------- -------------
Net property, plant and equipment 1,459,810 1,539,052 2,077,542
------------- -------------- -------------
Other assets:
Deposits and other assets 10,920 10,181 5,122
Certificate of deposit 35,000 35,000 35,000
Notes receivable - related parties - 625,841 544,960
Accounts receivable - employees 25,337 25,337 -
Ranch facility and livestock, net of accumulated depreciation of
$97,563 and $60,887 at December 31, 1996 and 1995
- 473,118 505,845
------------- -------------- -------------
Total other assets 71,257 1,169,477 1,090,927
------------- -------------- -------------
Total assets $ 9,895,799 $ 10,004,038 $ 9,655,228
============= ============== =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-30
<PAGE> 85
<TABLE>
<CAPTION>
MOFFITT OIL COMPANY, INC.
BALANCE SHEETS, CONTINUED
DECEMBER 31,
APRIL 11, -------------------------------
1997 1996 1995
LIABILITIES AND STOCKHOLDER'S EQUITY
<S> <C> <C> <C>
Current liabilities:
Accounts payable:
Trade $ 3,186,965 $ 3,103,745 $ 3,066,368
Other 906,213 152,370 154,410
Borrowings under line of credit 2,960,000 3,405,000 2,516,286
State excise taxes payable 1,449,260 919,813 1,185,378
Income taxes payable - 4,879 -
Accrued expenses 172,691 248,649 168,428
Current portion of long-term debt 187,959 245,761 232,062
-------------- --------------- --------------
Total current liabilities 8,863,088 8,080,217 7,322,932
-------------- --------------- --------------
Long-term liabilities:
Long-term debt, net of current portion 143,841 216,824 496,242
Deferred income taxes 129,774 136,004 191,651
-------------- --------------- --------------
Total long-term liabilities 273,615 352,828 687,893
-------------- --------------- --------------
Total liabilities 9,136,703 8,433,045 8,010,825
-------------- --------------- --------------
Commitments and contingencies
Stockholder's equity:
Common stock, $1 par value; 3,000 shares authorized, 1,000 shares
issued and outstanding 1,000 1,000 1,000
Additional paid-in capital 14,614 14,614 14,614
Retained earnings 743,482 1,555,379 1,628,789
-------------- --------------- --------------
Total stockholder's equity 759,096 1,570,993 1,644,403
-------------- --------------- --------------
Total liabilities and stockholder's equity $ 9,895,799 $ 10,004,038 $ 9,655,228
============== =============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-31
<PAGE> 86
<TABLE>
<CAPTION>
MOFFITT OIL COMPANY, INC.
STATEMENTS OF OPERATIONS
PERIOD FROM
JANUARY 1, 1997 YEAR ENDED DECEMBER 31,
TO APRIL 11, -----------------------------
1997 1996 1995
<S> <C> <C> <C>
Sales $ 21,552,192 $ 70,815,106 $ 82,607,809
Cost of sales 19,367,965 62,959,065 76,325,227
------------ ----------- -----------
Gross margin 2,184,227 7,856,041 6,282,582
------------ ----------- -----------
Selling, general and administrative expenses 2,365,576 7,804,227 6,066,147
Reduction of notes receivable from officers 209,409 -- --
------------ ----------- -----------
Operating income (loss) (390,758) 51,814 216,435
------------ ----------- -----------
Other income (expense):
Interest income 270 54,121 16,070
Interest expense (114,131) (263,370) (225,639)
Ranch facility and livestock costs (13,783) (39,149) (32,577)
Dividend income -- -- 7,043
Gain on sale of assets -- 104,713 29,657
------------ ----------- -----------
Total other income (expense) (127,644) (143,685) (205,446)
------------ ----------- -----------
Income (loss) before income tax provision
(benefit) (518,402) (91,871) 10,989
------------ ----------- -----------
Income tax provision (benefit) (187,957) (18,461) 5,161
------------ ----------- -----------
Net income (loss) $ (330,445) $ (73,410) $ 5,828
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-32
<PAGE> 87
<TABLE>
<CAPTION>
MOFFITT OIL COMPANY, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
<S> <C> <C> <C> <C>
Balance at December 31, 1994 $ 1,000 $ 14,614 $ 1,622,961 $ 1,638,575
Net income for the year ended
December 31, 1995 -- -- 5,828 5,828
------------ ------------ ------------ ------------
Balance at December 31, 1995 1,000 14,614 1,628,789 1,644,403
Net loss for the year ended
December 31, 1996 -- -- (73,410) (73,410)
------------ ------------ ------------ ------------
Balance at December 31, 1996 1,000 14,614 1,555,379 1,570,993
Distribution of ranch facility, livestock
and related note payable to bank to
stockholder -- -- (372,286) (372,286)
Reduction of note receivable from
stockholder -- -- (109,166) (109,166)
Net loss for the period from
January 1, 1997 to April 11, 1997 -- -- (330,445) (330,445)
------------ ------------ ------------ ------------
Balance at April 11, 1997 $ 1,000 $ 14,614 $ 743,482 $ 759,096
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-33
<PAGE> 88
<TABLE>
<CAPTION>
MOFFITT OIL COMPANY, INC.
STATEMENTS OF CASH FLOWS
PERIOD FROM
JANUARY 1, 1997 YEAR ENDED DECEMBER 31,
TO APRIL 11 ----------------------------
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (330,445) $ (73,410) $ 5,828
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation 129,011 535,646 591,805
Allowance for bad debts 280,000 (75,000) --
Reduction of notes receivable from officers 209,409 -- --
Gain on sale of assets -- (104,713) 29,657
Deferred income taxes (187,957) (25,949) 5,161
(Increase) decrease in:
Trade accounts receivable (918,334) (763,567) (1,649,886)
Other accounts receivable 53,372 (312,293) (51,979)
Inventories (15,909) 36,446 17,735
Prepaid expenses 47,406 (17,389) (106,446)
Income taxes receivable (45,121) -- --
Deposits and other assets (739) (5,059) 1,753
Increase (decrease) in:
Trade accounts payable 86,852 (102,261) (233,966)
Other accounts payable 753,843 (2,040) 148,025
State excise taxes payable 529,447 (265,565) (2,991,718)
Income taxes payable (4,879) 4,879 (13,484)
Accrued expenses (75,958) 80,221 (35,666)
----------- ----------- -----------
Net cash provided by (used in) operating activities 509,998 (1,090,054) (4,283,181)
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of assets -- 390,250 1,343
Capital expenditures (41,120) (108,830) (762,248)
Advances on notes receivable - related parties -- (252,921) (229,458)
Collections on notes receivable - related parties 1,501 25,086 23,486
Accounts receivable - employees -- (25,337) (147,408)
Increase (decrease) in certificates of deposit -- (2,653) 23,616
----------- ----------- -----------
Net cash provided by (used in) investing activities (39,619) 25,595 (1,090,669)
----------- ----------- -----------
Cash flows from financing activities:
Increase (decrease) in book overdrafts (3,632) 226,999 --
Net proceeds (payments) under line of credit agreement (445,000) 888,714 2,224,417
Repayments on long-term notes payable (38,602) (355,441) (320,466)
----------- ----------- -----------
Net cash provided by (used in) financing activities (487,234) 760,272 1,903,951
----------- ----------- -----------
Net decrease in cash (16,855) (304,187) (3,469,899)
Cash at beginning of period 41,544 345,731 3,815,630
----------- ----------- -----------
Cash at end of period $ 24,689 $ 41,544 $ 345,731
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 103,741 $ 271,555 $ 181,157
Income taxes 50,000 2,609 13,484
Notes payable incurred for purchase of new equipment -- 2,361 155,240
Disposal of fully depreciated equipment -- 289,297 257,103
Property acquired in repayment of a note receivable -- 52,250 --
Distribution of ranch facility, livestock and related note
payable to bank to stockholder 372,286 -- --
Reduction of note receivable from stockholder 109,166 -- --
</TABLE>
The accompanying notes are an integral part of the financial statements
F-34
<PAGE> 89
MOFFITT OIL COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS:
Moffitt Oil Company, Inc. (the "Company") was founded in 1965 to serve
as a supplier and transporter of petroleum products including various
fuels and lubricants. The Company delivers products primarily to
commercial and retail establishments located throughout the South East
Texas region from dispatching locations in Cypress, Texas.
Effective April 11, 1997, the Company's sole stockholder sold all
issued and outstanding common stock to Wesfrac, Inc. (the "Purchaser"),
a wholly owned subsidiary of Wescourt Group, Inc. ("Wescourt"). The
April 11, 1997 balance sheet has not been adjusted as a result of this
transaction.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with
a maturity of three months or less to be cash equivalents. Book
overdrafts, which amounted to $223,367 and $226,999 at April 11, 1997
and December 31, 1996, respectively, are classified as accounts
payable, trade in the accompanying balance sheets.
INVENTORIES
Inventories are stated at lower of cost or market. The first-in,
first-out method is used in determining cost.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures for major
renewals and improvements are capitalized, while repairs and
maintenance which do not extend the life of such assets are charged to
operations as incurred. The Company depreciates its property and
equipment using the straight-line method based on the estimated useful
lives of the assets, which range from five to thirty-one and 1/2 years.
In the case of disposals, the cost and related accumulated depreciation
are removed from the accounts and the net amount, less any proceeds
from disposal, is charged or credited to other income (expense).
INCOME TAXES
Deferred income taxes are recognized for differences between the bases
of assets and liabilities for financial statement and income tax
purposes. The deferred tax assets and liabilities represent the future
tax consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled.
F-35
<PAGE> 90
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and cash
equivalents and accounts receivable.
The Company maintains cash deposits with commercial banks located in
Houston, Texas. The collected cash deposits at the commercial banks may
from time-to-time, exceed the Federal Deposit Insurance Corporation
(FDIC) insured limit of $100,000. Management periodically assesses the
financial condition of the institutions and believes that any possible
credit risk is minimal.
The Company grants credit primarily to retail and commercial businesses
in the greater South East Texas area. The Company performs ongoing
credit evaluations of its customers' financial condition and generally
requires no collateral from its customers. Concentration of credit risk
regarding trade receivables is limited due to the large number of
customers comprising the Company's customer base and their dispersion
across different industries. The Company also insures certain of its
trade receivables from commercial businesses against risk of loss.
3. LINES OF CREDIT:
On July 23, 1996, the Company's revolving credit loan agreement was
amended to provide an increase to the working capital line from
$2,500,000 to $3,750,000 through April 20, 1997 and to remove the
$750,000 equipment purchase line. Under the agreement, the Company can
borrow up to $300,000 for customer improvements to retail
establishments under supplier contract agreements through September
1998. Advances bear interest at the prime rate (8.5% at April 11, 1997)
plus 1% with interest payable monthly. On April 14, 1997, the Company's
revolving credit loan agreement was paid in full.
During the period from January 1, 1997 to April 11, 1997, the Company's
short-term borrowings under the working capital line averaged
$2,412,000, with a weighted average interest rate of 9.50%. For the
years ended December 31, 1996 and 1995, the Company's short-term
borrowings under the working capital line averaged $2,961,000 and
$2,516,000 respectively with weighted average interest rates of 9.38%
and 9.58%, respectively.
F-36
<PAGE> 91
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. LINES OF CREDIT, CONTINUED:
The revolving credit loan agreement contains affirmative and negative
covenants which provide for, among other things, the maintenance of
certain working capital and financial ratios and restrictions relating
to incurring additional debt, capital expenditures, the payment of
dividends and the issuance of Company stock. The Company was in
violation of certain of these covenants as of April 11, 1997 and
December 31, 1996.
Borrowings under the agreement are collateralized by trade accounts
receivable, inventories, real estate, equipment, assignment of a life
insurance policy on the sole stockholder, and the personal guaranty of
the sole stockholder. Borrowings outstanding on the working capital
line totaled $2,960,000, $3,405,000 and $2,516,286 at April 11, 1997,
December 31, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
4. LONG-TERM DEBT:
Long-term debt consisted of the following:
APRIL 11, DECEMBER 31,
---------------------
1997 1996 1995
<S> <C> <C> <C>
Note payable to bank, payable in monthly installments of $1,468,
including interest at 8%, through July, 1997, collateralized
by land owned by the sole stockholder and specific transportation
equipment. $ 9,239 $ 13,419 $ 28,933
Notes payable to finance company, payable in total monthly installments of
$1,830, including interest at rates ranging from 8.55% to 10.99%, through
dates ranging from November, 1998 to October, 1999, collateralized
by specific vehicles 44,404 48,830 68,709
Note payable to finance company, payable in monthly installments of $902,
including interest at 11.55%, through October, 1998, collateralized
by communications equipment 13,431 16,710 21,112
Note payable to finance company, payable in monthly
installments of $4,908, including interest at 8.65%, through August,
1998, collateralized by specific vehicles. (This note was paid
in full during April 1997.) 74,161 77,254 286,476
Note payable to finance company, payable in monthly installments of
$2,829, including interest at 10.75%, with one final payment of
$31,923 in May, 1999, collateralized by specific vehicles.
(This note was paid in full during April 1997.) 84,774 90,872 115,461
Borrowings for customer improvements under revolving credit loan agreement,
payable in monthly principal installments of $2,361, plus interest
at prime rate plus 1%, through September, 1998, collateralized by
collateral identified under line of credit agreement. The outstanding
borrowings are classified as a current liability as of April 11,
1997 and December 1, 1996. 105,791 116,916 75,556
Note payable to bank, payable in quarterly principal installments of $6,400,
plus interest at 8.75%, through June, 1998, collateralized by
certificate of deposit and ranch facility land. -- 98,584 125,448
</TABLE>
F-37
<PAGE> 92
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. LONG-TERM DEBT, CONTINUED:
<TABLE>
<CAPTION>
APRIL 11, DECEMBER 31,
-----------------------
1997 1996 1995
<S> <C> <C> <C>
Note payable to bank, payable in monthly
installments of $2,183, including interest at 8.5%,
through May, 1996, collateralized by specific
vehicle and personal guaranty of sole stockholder
-- -- 6,609
---------- ---------- ----------
331,800 462,585 728,304
Current portion of long-term debt (187,959) (245,761) (232,062)
---------- ---------- ----------
Long-term debt $ 143,841 $ 216,824 $ 496,242
========== ========== ==========
Estimated annual maturities of long-term debt are as follows:
YEAR ENDING DECEMBER 31, AMOUNT
1997 $ 187,959
1998 93,115
1999 50,726
----------
$ 331,800
==========
</TABLE>
5. INCOME TAXES:
The provision for (benefit from) income taxes consists of the
following:
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1, 1997 YEAR ENDED
TO DECEMBER 31,
-------------------------
APRIL 11, 1997 1996 1995
Current:
<S> <C> <C> <C>
Federal $ -- $ 7,488 $ --
State -- -- --
---------- ---------- ----------
Total current -- 7,488 --
---------- ---------- ----------
Deferred:
Federal (179,051) (22,916) 5,161
State (8,906) (3,033) --
---------- ---------- ----------
Total deferred (187,957) (25,949) 5,161
---------- ---------- ----------
Total provision (benefit) $(187,957) $ (18,461) $ 5,161
========== ========== ==========
</TABLE>
F-38
<PAGE> 93
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. INCOME TAXES, CONTINUED:
The income tax provision (benefit) differs from the expense (benefit)
that would result from applying the statutory U.S. federal income tax
rate to income (loss) before income taxes for the following reasons:
<TABLE>
PERIOD FROM
JANUARY 1, 1997
TO YEAR ENDED DECEMBER 31,
-----------------------
APRIL 11, 1997 1996 1995
<S> <C> <C> <C>
Statutory federal income tax provision
(benefit) $(176,257) $ (31,236) $ 3,736
Increase (decrease) in tax resulting from:
Nondeductible expenses 3,852 15,899 --
State income taxes, net of federal income
tax effect (15,552) (3,124) --
Other -- -- 1,425
---------- ---------- ----------
Income tax provision (benefit) $(187,957) $ (18,461) $ 5,161
========== ========== ==========
The components of the net deferred tax asset (liability) are as follows:
DECEMBER 31,
-----------------------
APRIL 11 1996 1995
1997
Deferred tax liability:
Depreciable assets $(129,774) $(136,004) $(191,651)
Deferred tax asset:
Allowance for bad debts 122,102 20,352 50,050
Inventories 1,850 -- --
Net operating loss carryforwards 78,127 -- --
---------- ---------- ----------
Net deferred tax asset (liability) $ 72,305 $(115,652) $(141,601)
========== ========== ==========
</TABLE>
At April 11, 1997, the Company had net operating loss carryforwards of
$211,000 which will expire in 2012 if not utilized. Management expects
that it is more likely than not that its tax assets will be realized
prior to expiration.
During 1995, the Internal Revenue Service began an examination of the
Company's federal income tax return for 1993. The examination has not
been completed. Management does not anticipate any material adverse
effect, however it is not possible to reasonably estimate the outcome
of this examination, or its effect, if any, upon the Company's
financial position, results of operations or cash flows. Under the
terms of the purchase agreement with Wesfrac, the sole stockholder of
the Company has agreed to indemnify the Company for any liability
resulting from this examination.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
F-39
<PAGE> 94
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company has entered into noncancelable equipment and vehicle leases
which expire on various dates between 1998 and 2002. Rent expense for
all operating leases for the period from January 1, 1997 to April 11,
1997 and the years ended December 31, 1996 and 1995 totaled
approximately $116,000, $293,000 and $96,000, respectively. Estimated
future minimum lease payments under operating leases that have an
initial or remaining lease term in excess of one year as of April 11,
1997, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
<S> <C> <C>
1997 $ 304,087
1998 383,916
1999 356,642
2000 311,817
2001 153,126
</TABLE>
401(K) PLAN
The Company maintains a pension plan under section 401(k) of the
Internal Revenue Code that covers substantially all employees. Under
the plan, employees may elect to defer up to 15% of their salary,
subject to the Internal Revenue Code limits. The Company may make a
discretionary match as well as a discretionary contribution. The
Company made contributions of $15,492, $42,378 and $24,714 for the
period from January 1, 1997 to April 11, 1997 and the years ended
December 31, 1996 and 1995, respectively.
LITIGATION
The Company is a party to litigation which arises in the normal course
of business. Management regularly analyzes current information and, as
necessary, provides accruals for probable liabilities on the eventual
disposition of these matters. Management believes that the effect of
the disposition of these matters on the Company's results of
operations, financial position or cash flows, if any, will not be
material.
7. RELATED PARTY TRANSACTIONS:
ACCOUNTS RECEIVABLE, EMPLOYEES
A receivable from the General Manager of the Company in the amount of
$42,216, representing short-term advances, was written off as of
December 31, 1996.
F-40
<PAGE> 95
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. RELATED PARTY TRANSACTIONS, CONTINUED:
NOTES RECEIVABLE-RELATED PARTIES
Notes receivable-related parties at April 11, 1997, December 31, 1996
and 1995 include uncollateralized notes with outstanding balances of
$306,576 and $39,016, $493,866 and $62,636, and $332,142 and $48,324
respectively, due from two officers of the Company. In conjunction with
the sale of the Company, the notes were written down to $306,576 and
$39,016, respectively. These notes were paid in full on April 16, 1997.
Notes receivable-related parties, at April 11, 1997, December 31, 1996
and 1995 also includes an uncollateralized note with an outstanding
balance of $149,408, $258,574, and $164,494, respectively, due from the
Company's sole stockholder. The receivable represents advances for
payments of life insurance premiums for the benefit of the
stockholder's trust. In conjunction with the sale of the Company, this
note was written down to $149,408. The note was paid in full on April
16, 1997.
FACILITY LEASES
The Company leases office and warehouse facilities from an officer and
the sole stockholder on a month-to-month basis. Combined rental costs
incurred under these agreements totaled $14,600, $52,500, and $52,500
for the period from January 1, 1997 to April 11, 1997 and the years
ended December 31, 1996 and 1995, respectively.
SALES AND SERVICES PROVIDED TO RELATED PARTY
During 1996, the Company provided office space, personnel,
transportation equipment and administrative services to a company
wholly-owned by an officer of the Company. In addition, the Company
sold petroleum products to this related entity on a cost plus basis.
The Company was reimbursed for the cost of providing the office space,
personnel, transportation equipment and administrative services and
recorded the reimbursements as a reduction of selling, general and
administrative expenses. Sales and reimbursements for the period from
January 1, 1997 to April 11, 1997 and the year ended December 31, 1996
amounted to $822,534 and 0, and $905,323 and $168,053, respectively.
At April 11, 1997 and December 31, 1996, amounts due from this related
entity included in accounts receivable, trade and accounts receivable,
other totaled $453,470 and $0 and $444,328 and $82,029, respectively.
DISTRIBUTION OF RANCH FACILITY AND LIVESTOCK
In conjunction with the sale of the Company, effective April 11, 1997
the Company distributed its ranch facility and livestock, which has a
net book value of $464,469, and the related $92,183 note payable to
bank which was collateralized by the ranch facility land to its sole
stockholder.
F-41
<PAGE> 96
NOTES TO FINANCIAL STATEMENTS, CONTINUED
8. MAJOR CUSTOMERS AND SUPPLIERS:
The Company enters into contracts with independent retail
establishments to exclusively supply fuels under a major brand. The
contract terms range from four to seven years. For the period from
January 1, 1997 to April 11, 1997 and the years ended December 31, 1996
and 1995, approximately 13%, 15%, and 15%, respectively, of the
Company's sales were to retail establishments under these supply
contracts.
For the period from January 1, 1997 to April 11, 1997 and the years
ended December 31, 1996, the Company had purchases from five major
suppliers comprising approximately 79%, and 86%, respectively, of
total purchases. For the year ended December 31, 1995 the Company
had purchases from three major suppliers comprising approximately
56% of total purchases.
F-42
<PAGE> 97
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Winnco, Inc. and W.W. Transports, Inc.:
We have audited the accompanying combined balance sheets of Winnco, Inc. and
W.W. Transports, Inc. (together, the "Company") as of June 30, 1997 and December
31, 1996 and 1995, and the related combined statements of income, shareholders'
equity and cash flows for the six months ended June 30, 1997, and for each of
the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of the Company as of June
30, 1997 and December 31, 1996 and 1995, and the combined results of its
operations and its cash flows for the six months ended June 30, 1997, and for
each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
-----------------------------------
COOPERS & LYBRAND L.L.P.
Oklahoma City, Oklahoma
October 1, 1997
F-43
<PAGE> 98
WINNCO, INC. AND W.W. TRANSPORTS, INC.
COMBINED BALANCE SHEETS
As of June 30, 1997 and December 31, 1996 and 1995
-------
<TABLE>
<CAPTION>
December 31,
June 30, --------------------------
ASSETS 1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Current assets:
Cash $1,679,072 $1,540,371 $1,284,175
Accounts receivable - trade, net 2,110,495 1,661,925 1,471,878
Inventory 243,239 219,812 212,621
Other current assets 12,300 12,300 300
Income tax receivable 24,700 24,700 24,700
Deferred tax asset 10,500 930 930
---------- ---------- ----------
Total current assets 4,080,306 3,460,038 2,994,604
---------- ---------- ----------
Property, plant and equipment, net 185,982 219,961 299,251
Other assets, net 600,195 530,928 501,703
Deferred tax asset -- 19,300 19,300
---------- ---------- ----------
$4,866,483 $4,230,227 $3,814,858
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of note payable $ -- $ -- $ 70,000
Accounts payable - trade 2,239,274 1,842,903 1,210,527
Accrued expenses 56,843 34,913 30,960
Accrued fuel taxes payable -- -- 501,855
Accrued income taxes payable -- 20,899 96,306
---------- ---------- ----------
Total current liabilities 2,296,117 1,898,715 1,909,648
---------- ---------- ----------
Long-term liabilities:
Note payable to shareholder -- -- 60,000
---------- ---------- ----------
Total liabilities 2,296,117 1,898,715 1,969,648
---------- ---------- ----------
Shareholders' equity:
Common stock of Winnco, Inc., $1 par value; 1,000
shares authorized, issued and outstanding 1,000 1,000 1,000
Common stock of W.W. Transports, Inc., $1 par
value; 1,000 shares authorized, issued and
outstanding 1,000 1,000 1,000
Additional paid-in-capital 118,256 118,256 118,256
Retained earnings 2,450,110 2,211,256 1,724,954
---------- ---------- ----------
Total shareholders' equity 2,570,366 2,331,512 1,845,210
---------- ---------- ----------
$4,866,483 $4,230,227 $3,814,858
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined
financial statements.
F-44
<PAGE> 99
WINNCO, INC. AND W.W. TRANSPORTS, INC.
COMBINED STATEMENTS OF INCOME
For the Six Months Ended June 30, 1997 and
For the Years Ended December 31, 1996, 1995 and 1994
-------
<TABLE>
<CAPTION>
December 31,
June 30, --------------------------------------------------
1997 1996 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 27,318,782 $ 50,937,881 $ 42,705,324 $ 40,129,541
Cost of sales 26,161,220 48,624,096 40,449,823 38,147,139
------------ ------------ ------------ ------------
Gross profit 1,157,562 2,313,785 2,255,501 1,982,402
Operating expenses:
Selling, general and
administrative expenses 698,905 1,247,159 1,372,386 1,050,251
Depreciation and amortization 74,019 315,763 285,687 281,277
------------ ------------ ------------ ------------
Operating income 384,638 750,863 597,428 650,874
------------ ------------ ------------ ------------
Other nonoperating income (expense):
Interest expense -- (6,429) (6,758) (10,793)
Interest income -- 38,267 8,086 7,941
Gain on sale of assets -- -- 10,000 95,221
------------ ------------ ------------ ------------
Total -- 31,838 11,328 92,369
------------ ------------ ------------ ------------
Income before income taxes 384,638 782,701 608,756 743,243
Income tax expense (145,784) (296,399) (229,651) (283,056)
------------ ------------ ------------ ------------
Net income $ 238,854 $ 486,302 $ 379,105 $ 460,187
============ ============ ============ ============
Earnings per share $ 119.43 $ 243.15 $ 189.55 $ 230.09
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these combined
financial statements.
F-45
<PAGE> 100
WINNCO, INC. AND W.W. TRANSPORTS, INC.
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Six Months Ended June 30, 1997 and
For the Years Ended December 31, 1996, 1995 and 1994
-------
<TABLE>
<CAPTION>
Common Stock Additional
------------------ Paid in Retained
Shares Amount Capital Earnings
------ ------ -------- ----------
<S> <C> <C> <C> <C>
December 31, 1993 2,000 $2,000 $108,264 $ 885,662
Net income -- -- -- 460,187
Capital contributions -- -- 9,992 --
------ ------ -------- ----------
December 31, 1994 2,000 2,000 118,256 1,345,849
Net income -- -- -- 379,105
------ ------ -------- ----------
December 31, 1995 2,000 2,000 118,256 1,724,954
Net income -- -- -- 486,302
------ ------ -------- ----------
December 31, 1996 2,000 2,000 118,256 2,211,256
Net income -- -- -- 238,854
------ ------ -------- ----------
June 30, 1997 2,000 $2,000 $118,256 $2,450,110
====== ====== ======== ==========
</TABLE>
The accompanying notes are an integral part of these combined
financial statements.
F-46
<PAGE> 101
WINNCO, INC. AND W.W. TRANSPORTS, INC.
COMBINED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1997 and
For the Years Ended December 31, 1996, 1995 and 1994
-------
<TABLE>
<CAPTION>
June 30, December 31
--------------- ------------------------------------------------------
1997 1996 1995 1994
-------------- ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 238,854 $ 486,302 $ 379,105 $ 460,187
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 74,019 315,763 285,687 281,277
Gain on sale of assets -- -- (10,000) (95,221)
Provision for write down of assets -- -- 65,000 --
Deferred income tax provision 9,730 -- 12,790 7,350
Changes in assets and liabilities:
(Increase) in receivables, net (448,570) (190,047) (67,337) (323,931)
(Increase) decrease in inventories (23,427) (7,191) (41,677) (35,517)
(Increase) decrease in prepaid expenses
and other current assets -- (12,000) 255 (255)
Increase in accrued income tax
receivable -- -- (24,700) --
Increase in accounts payable and
accrued expenses 397,402 59,067 202,577 248,521
--------------- --------------- --------------- --------------
Net cash provided by operating
activities 248,008 651,894 801,700 542,411
--------------- --------------- --------------- --------------
Cash flows from investing activities:
Payments for property, plant and equipment (3,294) (89,860) (164,660) (209,921)
Proceeds from sale of assets -- -- 10,000 277,583
Payments for other assets (107,847) (174,004) (228,947) (81,694)
Issuance of note receivable -- (6,000) -- 9,400
Payments received on notes receivable 1,834 4,166 -- --
--------------- --------------- --------------- --------------
Net cash used in investing activities (109,307) (265,698) (383,607) (4,632)
--------------- --------------- --------------- --------------
Cash flows from financing activities:
Repayment of note payable -- (70,000) -- (45,658)
Repayment of note payable to shareholder -- (60,000) (5,000) (3,000)
Capital contributions -- -- -- 9,992
--------------- --------------- --------------- --------------
Net cash used by financing activities -- (130,000) (5,000) (38,666)
--------------- --------------- --------------- --------------
Net increase in cash 138,701 256,196 413,093 499,113
Cash and cash equivalents, beginning of
period 1,540,371 1,284,175 871,082 371,969
--------------- --------------- --------------- --------------
Cash and cash equivalents, end of period $ 1,679,072 $ 1,540,371 $ 1,284,175 $ 871,082
=============== =============== =============== ==============
Supplemental disclosure of noncash
investing and financing activities:
Purchase of assets with seller
financed debt $ -- $ -- $ 70,000 $ --
=============== =============== =============== ==============
Supplemental disclosure of cash flow
information:
Interest paid $ -- $ 9,202 $ 6,973 $ 10,904
=============== =============== =============== ==============
Income taxes paid $ 159,405 $ 371,806 $ 221,748 $ 234,442
=============== =============== =============== ==============
</TABLE>
The accompanying notes are an integral part of these combined
financial statements.
F-47
<PAGE> 102
WINNCO, INC. AND W.W. TRANSPORTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
-------
1. Summary of Significant Accounting Policies:
General:
Winnco, Inc. and W.W. Transports, Inc. (together, the "Company"), are
engaged in the distribution of petroleum products to commercial
purchasers of gasoline located in Oklahoma.
The accompanying combined financial statements include the accounts of
Winnco, Inc. and W.W. Transports, Inc., which are under common control.
All significant intercompany balances and transactions have been
eliminated in consolidation.
Cash and Cash Equivalents:
Cash and cash equivalents include all highly liquid investments with an
initial maturity of three months or less.
Inventories:
Inventories, which are composed primarily of natural gas liquids and
petroleum products, are stated at the lower of average cost or market.
Property, Plant and Equipment:
Plant, machinery and equipment are stated at cost, less accumulated
depreciation. The Company depreciates plant, machinery and equipment
using accelerated methods, over the estimated useful lives of 3 to 10
years. The cost of normal maintenance and repairs is charged to expense
as incurred, while significant betterments are capitalized. When plant,
machinery and equipment are retired or otherwise disposed of, the net
book value is removed from the asset and related accumulated
depreciation accounts. Gains or losses on dispositions are recognized
in the year of disposition.
Long-lived assets are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not
be fully recoverable.
Purchased Distribution Agreements:
Purchased distribution agreements represent contracts for distribution
of fuels with oil companies acquired in the Company's acquisitions.
The agreements are amortized over the life of the related contract.
Income Taxes:
Deferred tax assets and liabilities are recorded based on the
differences between the financial statement and tax bases of assets and
liabilities using tax rates which will be in effect when these
differences are expected to reverse. If appropriate, deferred tax assets
are reduced by a valuation allowance which reflects expectations of the
extent to which such assets will be realized.
F-48
<PAGE> 103
WINNCO, INC. AND W.W. TRANSPORTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
-------
1. Summary of Significant Accounting Policies, continued:
Revenue Recognition:
The Company recognizes revenue from product sales on the date of
delivery. For consigned inventory, revenue is recognized on the date of
sale.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period.
2. Acquisitions:
In February, 1995, the Company acquired certain intangible assets from an
oil company for cash payments of $90,000 and the issuance of a $70,000 note
payable. For accounting purposes, this acquisition was accounted for as a
purchase. The acquired assets, which consist of a customer list,
non-compete agreement and supplier branded marketer rights, have been
recorded at their fair values as of the acquisition dates and are being
amortized over 15 years using the straight-line method.
The Company continually reevaluates the carrying amount of the intangibles
as well as the amortization period to determine whether current events and
circumstances warrant adjustments to the carrying value and/or revised
estimates of useful lives. At this time, the Company believes that no
impairment of the intangibles has occurred and that no reduction of the
estimated useful lives is warranted.
3. Receivables:
At June 30, 1997 and December 31, 1996 and 1995, receivables consist of the
following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Trade receivables $ 2,138,495 $1,661,925 $1,471,878
Allowance for doubtful accounts (28,000) -- --
----------- ---------- ----------
$ 2,110,495 $1,661,925 $1,471,878
=========== ========== ==========
</TABLE>
F-49
<PAGE> 104
WINNCO, INC. AND W.W. TRANSPORTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
-------
4. Property, Plant and Equipment:
At June 30, 1997 and December 31, 1996 and 1995, property consists of the
following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Plant, machinery and equipment $ 1,310,545 $ 1,307,251 $ 1,351,017
Less: accumulated depreciation (1,124,563) (1,087,290) (1,051,766)
----------- ----------- -----------
$ 185,982 $ 219,961 $ 299,251
=========== =========== ===========
</TABLE>
5. Other Assets:
At June 30, 1997 and December 31, 1996 and 1995, other assets consist
of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Purchased distribution agreements $ 818,935 $ 711,088 $ 588,094
Other 181,685 183,519 181,059
----------- --------- ---------
1,000,620 894,607 769,153
Less: accumulated amortization (400,425) (363,679) (267,450)
----------- --------- ---------
$ 600,195 $ 530,928 $ 501,703
=========== ========= =========
</TABLE>
6. Long-term Debt:
Long-term debt at June 30, 1997 and December 31, 1996 and 1995, consists of
the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Promissory note, payable by the Company in one lump sum installment due
January, 1996, with interest at 6% and collateralized by a letter
of credit $ -- $ -- $ 70,000
Promissory note, payable by the Company
to a related party, with interest payable in
semi-annual installments at 9%, due July, 1997 -- -- 60,000
------------- -------- -----------
-- -- 130,000
Less current portion -- -- (70,000)
------------- -------- -----------
$ -- $ -- $ 60,000
============= ======== ===========
</TABLE>
F-50
<PAGE> 105
WINNCO, INC. AND W.W. TRANSPORTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
-------
7. Income Taxes:
The provision for income taxes for the six months ended June 30, 1997 and
the years ended December 31, 1996, 1995 and 1994 consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Current:
Federal $112,976 $249,437 $184,036 $232,752
State 23,078 46,962 32,825 42,954
-------- -------- -------- --------
136,054 296,399 216,861 275,706
Deferred provision 9,730 -- 12,790 7,350
-------- -------- -------- --------
$145,784 $296,399 $229,651 $283,056
======== ======== ======== ========
</TABLE>
The difference between the effective rate reflected in the provision for
income taxes and the amount which would be determined by applying the
statutory Federal tax rate to income before provision for income taxes is
primarily attributable to state income tax. A reconciliation of the
statutory rate to the effective rate follows:
<TABLE>
<CAPTION>
1997 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Statutory federal rate 34.00% 34.00% 34.00% 34.00%
State income taxes, net of
federal benef 4.00% 4.00% 4.00% 4.00%
Other (.10%) (.13%) (.28%) .08%
---- ----- ----- -----
37.90% 37.87% 37.72% 38.08%
===== ===== ===== =====
</TABLE>
F-51
<PAGE> 106
WINNCO, INC. AND W.W. TRANSPORTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
-------
7. Income Taxes, continued:
The components of the deferred tax asset recognized in accordance with SFAS
No. 109 and included in the accompanying combined balance sheets at June
30, 1997 and December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Deferred tax asset:
Allowance for doubtful accounts $10,700 $ -- $ --
Inventory capitalization 500 930 930
------- ------- -------
Total current deferred tax asset 11,200 930 930
------- ------- -------
Property, plant and equipment -- 19,300 19,300
------- ------- -------
Deferred tax liability:
Property, plant and equipment 700 -- --
------- ------- -------
$10,500 $20,230 $20,230
======= ======= =======
</TABLE>
8. Concentration of Credit Risk:
Trade accounts receivable are due from commercial purchasers of gasoline
and liquefied petroleum products principally located in Oklahoma. The
receivables, which are typically not collateralized, are generally due
within ten days. Credit losses historically have not been significant.
The Company's cash and cash equivalents are maintained primarily at a
single bank in Hydro, Oklahoma. As of June 30, 1997, the Company had
concentrations of cash in one bank totaling approximately $1,344,000, which
exposes the Company to concentrations of credit risk.
Of the Company's total sales for the six months ended June 30, 1997, and
for the years ended December 31, 1996, 1995 and 1994, 11%, 12%, 14% and
15%, respectively, were to a single customer. At June 30, 1997, the
accounts receivable for this customer constituted 5.5% of total trade
accounts receivable. Effective July 1, 1997, this customer began purchasing
goods directly from the Company's supplier.
F-52
<PAGE> 107
WINNCO, INC. AND W.W. TRANSPORTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
-------
9. Related Party Transactions:
During the six months ended June 30, 1997 and the years ended December 31,
1996, 1995 and 1994, the Company paid $6,000 per month for rent to a
related party.
10. Subsequent Events:
On August 4, 1997, the Company entered into a letter of intent to sell all
of the outstanding capital stock of the Company to an unaffiliated third
party.
F-53
<PAGE> 108
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR SOLICITATION OF ANY OFFER TO BUY BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER TO SELL OR SOLICITATION IS NOT AUTHORIZED, OR
IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary . . . . . . . . . . . . . . 1
Cautionary Statement Regarding Forward-Looking
Statements . . . . . . . . . . . . . . . . . . 5
Risk Factors . . . . . . . . . . . . . . . . . 5
Use of Proceeds . . . . . . . . . . . . . . . . 11
Dividend Policy . . . . . . . . . . . . . . . . 11
Capitalization . . . . . . . . . . . . . . . . 12
Dilution . . . . . . . . . . . . . . . . . . . 13
Unaudited Pro Forma Financial Data . . . . . . 14
Selected Consolidated Financial Data . . . . . 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . 20
Business . . . . . . . . . . . . . . . . . . . 25
Management . . . . . . . . . . . . . . . . . . 35
Principal Stockholders . . . . . . . . . . . . 40
Certain Transactions . . . . . . . . . . . . . 41
Description of Capital Stock . . . . . . . . . 43
Shares Eligible for Future Sale . . . . . . . . 47
Underwriting . . . . . . . . . . . . . . . . . 48
Legal Matters . . . . . . . . . . . . . . . . . 50
Experts . . . . . . . . . . . . . . . . . . . . 50
Additional Information . . . . . . . . . . . . 50
Index to Financial Statements . . . . . . . . . F-1
</TABLE>
UNTIL _____ (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING
TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNUSED
ALLOTMENTS OR SUBSCRIPTIONS.
================================================================================
================================================================================
TRIUMPH
FUELS CORPORATION
1,600,000 SHARES
COMMON STOCK
----------
PROSPECTUS
----------
GAINES, BERLAND INC.
, 1997
----------
================================================================================
<PAGE> 109
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses to be borne by the registrant,
other than underwriting discount, in connection with the issuance and
distribution of the Common Stock hereunder.
<TABLE>
<S> <C>
SEC registration fee . . . . . . $ 6,134.00
Nasd filing fee . . . . . . . . . 2,524.00
Nasdaq National Market Quotation
Fee . . . . . . . . . . . . . . . 21,346.00
Accounting fees and expenses . . 300,000.00
Legal fees and expenses . . . . . 250,000.00
Printing costs . . . . . . . . . 100,000.00
Blue sky fees and expenses . . . $ 3,000.00
Miscellaneous . . . . . . . . . . 47,996.00
-----------
Total . . . . . . . . . . . . . $731,000.00
===========
</TABLE>
The foregoing items, except for the SEC registration fee and the
NASD filing fees are estimated.
II-1
<PAGE> 110
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is a Nevada corporation, subject to the applicable
indemnification provisions of the Nevada General Corporation Law (the "NGCL").
The NGCL requires the Company to indemnify officers and directors for any
expenses incurred by any officer or director in connection with any actions or
proceedings, whether civil, criminal, administrative, or investigative, brought
against such officer or director because of his or her status as an officer or
director, to the extent that the director or officer has been successful on
the merits or otherwise in defense of the action or proceeding. The NGCL
permits a corporation to indemnify an officer or director, even in the absence
of an agreement to do so, for expenses incurred in connection with any actin or
proceeding if such officer or director acted in good faith and in a manner in
which he or she reasonably believed to be in or not opposed to the best
interests of the corporation and such indemnification is authorized by the
stockholders, by a quorum of disinterested directors, by independent legal
counsel in a written opinion authorized by a majority vote of a quorum of
directors consisting of disinterested directors or by independent legal counsel
in a written opinion if a quorum of disinterested directors cannot be obtained.
The NGCL prohibits indemnification of a director or officer if a final
adjudication establishes that the officer's or director's acts or omissions
involved intentional misconduct, fraud or a knowing violation of the law and
were material to the cause of action. Despite the foregoing limitations on
indemnification, the NGCL may permit an officer or director to apply to the
court for approval of indemnification even if the officer or director is
adjudged to have committed intentional misconduct, fraud or a knowing violation
of the law. The NGCL also provides that indemnification of directors is not
permitted for the unlawful payment of distributions, except for those directors
registering their dissent to the payment of the distribution.
The Company's Amended and Restated Articles of Incorporation, as amended,
and Bylaws eliminate personal liability of directors or officers for any
expenses, claims, damages or liability incurred by reason of their position in
the Company to the fullest extent allowed under the NGCL.
The Company has entered into indemnification agreements with each of its
officers and directors in which the Company agrees to indemnify and hold
harmless the officer or director to the fullest extent permitted by applicable
law against any and all reasonable attorneys' fees and all other reasonable
expense, cost, liability and loss (including a mandatory obligation by the
Company to advance reimbursement of legal fees and expenses) paid or reasonably
incurred by such officer or director or on his or her behalf in connection with
any threatened, pending or completed action, suit or proceeding, or any inquiry
or investigation not initiated by the officer or director that he or she
believes in good faith might lead to a proceeding, inquiry or investigation (a
"Proceeding"), because the officer or director is or was a director, officer,
employee or agent of the Company, or is or was serving at the request of the
Company as a director, officer, employee, trustee, agent or fiduciary of another
corporation, partnership, joint venture, employee benefit plan, trust or other
enterprise, or by reason of any action or inaction by the officer or director in
such capacity. However, the determination by : (i) the Company's Board of
Directors, by vote of the majority of disinterested directors; (ii) under
certain circumstances, independent legal counsel appointed by the Board of
Directors in a written opinion; (iii) stockholders of the company; or (iv) a
court of competent jurisdiction in a final, non-appealable adjudication, that
the officer or director acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the Company, and with
respect to any criminal Proceeding, the officer or director acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the Company, and with respect to any criminal Proceeding, the
officer or director had no reasonable cause to believe that his or her conduct
was unlawful.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following is a summary of transactions by the Registrant during the
last three years preceding the date hereof involving sales of the Registrant's
securities that were not registered under the Securities Act:
(1) On March 11, 1997 the Registrant issued warrants to purchase Common
Stock to the following investors, including certain officers and
directors of the Company:
II-2
<PAGE> 111
Keith R. Holder 13,514
Stephen W. Houghton 16,892
Petroleum Holdings, Ltd. 89,189
The warrants to purchase common stock are currently exercisable and have an
exercise price of $5.18 per share and expire in March 2007. The Company
believes that the issuance of such warrants was exempt from registration
under Section 4(2) of the Securities Act.
(2) From time to time during the three years preceding the date hereof,
the Registrant issued incentive stock options and nonqualified stock
options to officers, directors and employees of the Company pursuant
to its Stock Option Plans. Exemption from the registration provisions
of the Securities Act is claimed, with respect to such options, on
the basis that the grant of options did not involve a "sale" of
securities and, therefore, registration thereof was not required.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
EXHIBIT NO. DESCRIPTION
- ----------- -----------
1 Underwriting Agreement*
2 Letters of Intent*
3.1 Articles of Incorporation of Registrant
3.2 Bylaws of Registrant
4.1 Specimen Common Stock Certificate of Registrant*
5 Opinion of Morrison & Foerster LLP*
10.1 1997 Stock Incentive Plan
10.2 1997 Employee Stock Purchase Agreement
10.3 Stock Option Plan
10.4 Consulting Management Agreement dated September 1992
between the Registrant and WLD Enterprises, Inc. and First
Amendment thereto
10.5 Employment Agreement dated July 17, 1992 between
the Registrant and Keith R. Holder
10.6 Warrant to purchase 264,000 shares of Common
Stock issued to WLD Enterprises, Inc.
10.7 Warrant to purchase 40,000 shares of Common Stock
issued to Keith R. Holder
10.8 Warrant to purchase 50,000 shares of Common Stock
issued to Stephen W. Houghton
10.9 Loan and Security Agreement, dated October 6,
1995 between National Bank of Canada and the Registrant, with
amendments thereto
10.10 Term Loan and Guaranty Agreement dated April 11,
1997 between the Registrant and Heller Financial, Inc.
10.11 Term Note dated April 11, 1996 in the principal
amount of $7 million executed by the Registrant in favor of
Heller Financial, Inc.
II-3
<PAGE> 112
10.12 Term Loan and Guaranty Agreement dated March 12,
1997 between the Registrant and Heller Financial, Inc.
10.13 Term Note dated March 12, 1997 in the principal
amount of $8 million executed by the Registrant in favor of
Heller Financial, Inc.
10.14 Demand Note dated February 28, 1997 in the
principal amount of $4.5 million executed by the Registrant
in favor of Morgan Guaranty Trust Company of New York
10.15 Amended and Restated Indemnification Agreement
dated April 11, 1997 between the Registrant and The WLD Trust
10.16 WLD Assignment and Security Agreement dated March
12, 1997 between the Registrant and The WLD Trust
10.17 First Amended and Restated Intercreditor
Agreement dated April 11, 1997
10.18 Guaranty Agreements*
11 Statement regarding Computation of Per Share
Earnings*
21 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Morrison & Foerster LLP (included in
Exhibit 5)
23.4 Consent of Patrick B. Collins
23.5 Consent of Marvin L. Dimond
23.6 Consent of S. Lee Crawley
24 Power of Attorney (included on page S-1 of this
Registration Statement).
27 Financial Data Schedule
- -------------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes the following:
(1) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a
II-4
<PAGE> 113
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
(2) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(3) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE> 114
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Denver, State of
Colorado, on .
TRIUMPH FUELS CORPORATION
Dated: November 5, 1997 By /s/ Keith R. Holder
-----------------------------
Keith R. Holder, President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints and hereby authorizes Keith R. Holder and Paul
J. Rath, severally, such person's true and lawful attorneys-in-fact, with full
power of substitution or resubstitution, for such person and in such person's
name, place and stead, in any and all capacities, to sign on such person's
behalf, individually and in each capacity stated below, any and all amendments,
including post-effective amendments to this Registration Statement and to sign
any and all additional registration statements relating to the same offering of
securities as this Registration Statement that are filed pursuant to Rule
462(b) of the Securities Act of 1933, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as
such person might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities stated below on November 5, 1997.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<S> <C>
/s/ Keith R. Holder
- ----------------------------
Keith R. Holder Chief Executive Officer, President and Director
/s/ Paul J. Rath
- ----------------------------
Paul J. Rath Chief Financial Officer, Secretary and Treasurer
/s/ Stephen W. Houghton
- ----------------------------
Stephen W. Houghton Director
/s/ Douglas S. Luke
- ----------------------------
Douglas S. Luke Director
/s/ David Horvitz
- ----------------------------
David Horvitz Director
/s/ Nigel Alexander
- ----------------------------
Nigel Alexander Director
</TABLE>
<PAGE> 115
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
<S> <C> <C>
1 Underwriting Agreement*
2 Letters of Intent*
3.1 Articles of Incorporation of Registrant
3.2 Bylaws of Registrant
4.1 Specimen Common Stock Certificate of Registrant*
5 Opinion of Morrison & Foerster LLP*
10.1 1997 Stock Incentive Plan
10.2 1997 Employee Stock Purchase Agreement
10.3 Stock Option Plan
10.4 Consulting Management Agreement dated September 1992
between the Registrant and WLD Enterprises, Inc. and First
Amendment thereto
10.5 Employment Agreement dated July 17, 1992 between
the Registrant and Keith R. Holder
10.6 Warrant to purchase 264,000 shares of Common
Stock issued to WLD Enterprises, Inc.
10.7 Warrant to purchase 40,000 shares of Common Stock
issued to Keith R. Holder
10.8 Warrant to purchase 50,000 shares of Common Stock
issued to Stephen W. Houghton
10.9 Loan and Security Agreement, dated October 6,
1995 between National Bank of Canada and the Registrant, with
amendments thereto
10.10 Term Loan and Guaranty Agreement dated April 11,
1997 between the Registrant and Heller Financial, Inc.
10.11 Term Note dated April 11, 1996 in the principal
amount of $7 million executed by the Registrant in favor of
Heller Financial, Inc.
</TABLE>
<PAGE> 116
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
<S> <C> <C>
10.12 Term Loan and Guaranty Agreement dated March 12,
1997 between the Registrant and Heller Financial, Inc.
10.13 Term Note dated March 12, 1997 in the principal
amount of $8 million executed by the Registrant in favor of
Heller Financial, Inc.
10.14 Demand Note dated February 28, 1997 in the
principal amount of $4.5 million executed by the Registrant
in favor of Morgan Guaranty Trust Company of New York
10.15 Amended and Restated Indemnification Agreement
dated April 11, 1997 between the Registrant and The WLD Trust
10.16 WLD Assignment and Security Agreement dated March
12, 1997 between the Registrant and The WLD Trust
10.17 First Amended and Restated Intercreditor
Agreement dated April 11, 1997
10.18 Guaranty Agreements*
11 Statement regarding Computation of Per Share
Earnings*
21 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Morrison & Foerster LLP (included in
Exhibit 5)
23.4 Consent of Patrick B. Collins
23.5 Consent of Marvin L. Dimond
23.6 Consent of S. Lee Crawley
24 Power of Attorney (included on page S-1 of this
Registration Statement).
27 Financial Data Schedule
</TABLE>
- -------------
* To be filed by amendment.
<PAGE> 1
Exhibit 3.1
ARTICLES OF INCORPORATION
OF
TRIUMPH FUELS CORPORATION
I, the undersigned, for the purposes of incorporating and organizing a
corporation under the General Corporation Law of the State of Nevada, do
execute these Articles of Incorporation and do hereby certify as follows:
I.
The name of the corporation is Triumph Fuels Corporation.
II.
The address of the corporation's registered office in the State of
Nevada is One East First Street, in the City of Reno, County of Washoe. The
name of the registered agent at such address is The Corporation Trust Company
of Nevada.
III.
The nature of the business of the corporation and the objects or
purposes to be transacted, promoted or carried on by it are as follows: To
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Nevada.
IV.
A. The corporation is authorized to issue two classes of stock to
be designated, respectively, "Common Shares" and "Preferred Shares." The total
number of shares of all classes of stock that the corporation is authorized to
issue is seventy-five million (75,000,000) shares, consisting of seventy
million (70,000,000) shares of Common Shares with a par value of one-tenth of
one cent ($.001) per share and five million (5,000,000) shares of Preferred
Shares with a par value of one-tenth of one cent ($.001) per share.
B. Any of the shares of Preferred Shares may be issued from time
to time in one or more series. Subject to the limitations and restrictions in
this Article IV set forth, the Board of Directors or a Committee of the Board
of Directors, to the extent permitted by law and the bylaws of the corporation
or a resolution of the Board of Directors, by resolution or resolutions, is
hereby authorized, by filing a certificate of designation pursuant to the
Nevada General Corporation Law, to create or provide any such series, and to
fix the designations, preferences and relative, participating, optional or
other
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<PAGE> 2
special rights, and qualifications, limitations or restrictions thereof,
including, without limitation, the authority to fix or alter the dividend
rights, dividend rates, conversion rights, exchange rights, voting rights,
rights and terms of redemption (including sinking and purchase fund
provisions), the redemption price or prices, the dissolution preferences and
the rights in respect to any distribution of assets of any wholly unissued
series of Preferred Shares and the number of shares constituting any such
series, and the designation thereof, or any of them and to increase or decrease
the number of shares of any series so created, subsequent to the issue of that
series but not below the number of shares of such series then outstanding. In
case the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
There shall be no limitation or restriction on any variation between
any of the different series of Preferred Shares as to the designations,
preferences and relative, participating, optional or other special rights, and
the qualifications, limitations or restrictions thereof; and the several series
of Preferred Shares may, except as hereinafter in the Article IV otherwise
expressly provided, vary in any and all respects as fixed and determined by the
resolution or resolutions of the Board of Directors or by Committee of the
Board of Directors, providing for the issuance of the various series; provided,
however, that all shares of any one series of Preferred Shares shall have the
same designation, preferences and relative, participating, optional or other
special rights and qualifications, limitations and restrictions.
Except as otherwise required by law, or as otherwise fixed by
resolution or resolutions of the Board of Directors with respect to one or more
series of Preferred Shares, the entire voting power and all voting rights shall
be vested exclusively in the Common Shares, and each stockholder of the
corporation who at the time possesses voting power for any purpose shall be
entitled to one vote for each share of such stock standing in his name on the
books of the corporation.
V.
For the management of the business and for the conduct of the affairs
of the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any
class thereof, as the case may be, it is further provided that:
A.
(1) The management of the business and the conduct of the affairs
of the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall initially
consist of 1 member and the name and address is as follows:
2
<PAGE> 3
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
Keith R. Holder 1493 Highway 6 & 50
Fruita, Colorado 81521
</TABLE>
Thereafter, the number of directors shall be determined exclusively by one or
more resolutions adopted by the Board of Directors.
Subject to the rights of the holders of any series of Preferred Shares
to elect additional directors under specified circumstances, the directors
shall be divided into three classes designated as Class I, Class II and Class
III, respectively, as nearly equal in number as the then total number of
directors permit. Directors shall be assigned to each class in accordance with
a resolution or resolutions adopted by the Board of Directors. At the first
annual meeting of stockholders following the adoption and filing of this
Certificate of Incorporation, the term of office of the Class I directors shall
expire and Class I directors shall be elected for a full term of three years.
At the second annual meeting of stockholders following the adoption and filing
of this Certificate of Incorporation, the term of office of the Class II
directors shall expire and Class II directors shall be elected for a full term
of three years. At the third annual meeting of stockholders following the
adoption and filing of this Certificate of Incorporation, the term of office of
the Class III directors shall expire and Class III directors shall be elected
for a full term of three years. At each succeeding annual meeting of
stockholders, directors shall be elected for a full term of three years to
succeed the directors of the class whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each
director shall serve until his successor is duly elected and qualified or until
his death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
Subject to the rights of the holders of any series of Preferred
Shares, no director shall be removed without cause. Subject to any limitations
imposed by law, the Board of Directors or any individual director may be
removed from office at any time with cause by the affirmative vote of the
holders of eighty percent (80%) of the voting power of all of the then
outstanding shares of voting shares of the corporation, entitled to vote at an
election of directors (the "Voting Shares").
(2) Subject to the rights of the holders of any series of
Preferred Shares, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors,
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<PAGE> 4
and not by the stockholders. Any director elected in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.
B.
(1) Subject to Section 9.8 of the Bylaws, (i) the affirmative vote
of at least eighty percent (80%) of the voting power of all of the then
outstanding shares of the Voting Shares, shall be required to alter, amend or
repeal Sections 2.3, 2.9, 2.11, 3.1, 3.2, 3.3, 3.4, Article IX and Article XI
of the Bylaws or to adopt any provision inconsistent with the Bylaws, and (ii)
the affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of
the voting power of all of the then outstanding shares of the Voting Shares
shall be required to alter, amend or repeal any other Section of the Bylaws.
The Board of Directors shall also have the power to adopt, amend or repeal
Bylaws.
(2) The directors of the corporation need not be elected by
written ballot unless the Bylaws so provide.
(3) No action shall be taken by the stockholders of the
corporation except at an annual or special meeting of stockholders called in
accordance with the Bylaws.
(4) Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the corporation shall be given in the manner provided in
the Bylaws of the corporation.
VI.
A director of the corporation shall not be liable to the corporation
or its shareholders for monetary damages for breach of fiduciary duty as a
director, except to the extent such exemption from liability or limitation
thereof is not permitted under Nevada statutory or decisional law, as amended
or interpreted. Any amendment, modification or repeal of the foregoing
sentence shall not adversely affect any right or protection of a director of
the corporation hereunder in respect of any act or omission occurring prior to
the time of such amendment, modification or repeal. This Article VI does not
affect the availability of equitable remedies for breach of fiduciary duties.
VII.
A. In addition to any affirmative vote required by law or any
other provision of this Certificate of Incorporation, by any Preferred Shares
Designation or by the Bylaws of the corporation, the affirmative vote of the
holders of not less than eighty percent (80%) of the Voting Shares shall be
required for the approval or authorization of any Business Transaction with, or
proposed by or on behalf of, a Related Person, or any Business Transaction in
which a Related Person has an interest (except proportionately as
4
<PAGE> 5
a stockholder of the corporation), or any Business Transaction of the type
described in clause (f) of the definition of "Business Transaction"; provided,
however, that the eighty percent (80%) voting requirement shall not be
applicable if (i) Continuing Directors at the time constitute at least a
majority of the entire Board of Directors of the corporation and have expressly
approved the Business Transaction, either specifically or as a transaction
within an approved category of transactions, by at least a majority vote of
such Continuing Directors, or (ii) all of the following conditions are
satisfied.
(1) The Business Transaction is a merger or consolidation, or
liquidation or dissolution, or sale, lease, exchange, transfer or other
disposition of substantially all of the assets of the corporation, and (a) the
cash or fair market value (at the date of consummation of such Business
Transaction) of the property, securities or other consideration to be received
per share by holders of Common Shares of the corporation (other than such
Related Person) in connection with such Business Transaction is at least equal
in value to such Related Person's Highest Purchase Price and such per share
consideration is in cash or the same form as such Related Person has previously
paid to acquire the largest number of shares of Common Shares of the
corporation acquired by such Related Person prior to such Business Transaction;
and (b) the cash or fair market value (at the date of consummation of such
Business Transaction) of the property, securities or other consideration to be
received per share by holders of any class of Voting Shares other than Common
Stock in connection with such Business Transaction is at least equal in value
to the higher of such Related Person's Highest Purchase Price for such other
class of stock or the highest preferential amount per share to which the
holders of such class of Voting Shares are entitled in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
corporation.
(2) After such Related Person has become the Beneficial
Owner of not less than ten percent (10%) of the Voting Shares and prior to the
consummation of such Business Transaction, such Related Person shall not have
become the Beneficial Owner of any additional shares of Voting Shares, except
(i) as a part of the transaction which resulted in such Related Person becoming
a Related Person or (ii) as a result of a pro rata stock dividend or stock
split.
(3) Prior to the consummation of such Business
Transaction, such Related Person shall not have, directly or indirectly, (i)
received the benefit (except proportionately as a stockholder of the
corporation) of any loans, advances, guarantees, pledges or other financial
assistance or tax credits or other tax advantages provided by the corporation
or any of its subsidiaries, or (ii) caused any material change in the
corporation's business, capital structure, including, without limitation, the
issuance of shares of capital stock of the corporation to any third party, or
Common Shares dividend rate or policy (except as approved by a majority of the
Continuing Directors).
(4) A proxy or information statement describing the
proposed Business Transaction and complying with the requirements of the
Securities Exchange Act of 1934 and the rules and regulations thereunder (the
"Act") (or any subsequent
5
<PAGE> 6
provisions replacing such Act, rules or regulations) shall have been mailed to
all stockholders of the corporation at least 30 days prior to the consummation
of such Business Transaction (whether or not such proxy or information
statement is required to be mailed pursuant to such Act or subsequent
provisions). The proxy or information statement shall contain on the first page
thereof, in a prominent place, any statement as to the advisability (or
inadvisability) of the Business Transaction that the Continuing Directors, or
any of them, may choose to make and, if deemed advisable by a majority of the
Continuing Directors, the opinion of an investment banking firm selected by a
majority of the Continuing Directors as to the fairness (or not) of the terms
of the Business Transaction from a financial point of view to the holders of
the outstanding shares of Voting Shares other than the Related Person, such
investment banking firm to be paid a reasonable fee for its services by the
corporation.
B. For purposes of this Article VII:
(1) The term "Business Transaction" shall mean (a) any
merger or consolidation involving the corporation or a subsidiary of the
corporation, (b) whether in one transaction or a series of transactions, any
sale, lease, exchange, transfer or other disposition, including, without
limitation, a mortgage or any other security device, of all or any Substantial
Part of the assets either of the corporation or of a subsidiary of the
corporation, (c) whether in one transaction or a series of transactions, any
sale, lease, exchange, transfer, mortgage, pledge or other disposition of all
or any part of the assets of an entity to the corporation or a subsidiary of
the corporation if such assets would constitute a Substantial Part of the
assets of the corporation or such subsidiary immediately following consummation
of such transaction, (d) the issuance, sale, exchange, transfer or other
disposition by the corporation or a subsidiary of the corporation, of any
securities of the corporation or any subsidiary of the corporation, except
proportionately to the stockholders of the corporation or of such subsidiary,
(e) any recapitalization or reclassification of the securities of the
corporation (including, without limitation, any reverse stock split) or other
transaction that would have the effect of increasing the proportionate voting
power of a Related Person, (f) any liquidation, spin-off, split-up or
dissolution of the corporation, or any amendment to the corporation's Bylaws,
and (g) any agreement or other arrangement providing for any of the
transactions described in this definition of Business Transaction.
(2) The term "Related Person" shall mean and include (a)
any individual, corporation, partnership, group (within the meaning of Rule
13d-5 under the Act), association or other person or entity which, together
with its Affiliates and Associates, (i) is or has announced or publicly
disclosed a plan or intention to become the Beneficial Owner of not less than
ten percent (10%) of the Voting Shares or (ii) was the Beneficial Owner of not
less than ten percent (10%) of the Voting Shares (x) at the time (or within two
years prior to the time) the definitive agreement providing for the Business
Transaction (including any amendment thereof) was entered into, (y) at the time
(or within two years prior to the time) a resolution approving the Business
Transaction was adopted by the Board of Directors of the corporation or (z) as
of the record date of the
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<PAGE> 7
corporation (or within two years prior to such record date) for the
determination of stockholders entitled to notice of and to vote on, or consent
to, the Business Transaction, and (b) any Affiliate or Associate of any such
individual, corporation, partnership, group, association or other person or
entity; provided, however, and notwithstanding anything in the foregoing to the
contrary, the term "Related Person" shall not include the corporation, a wholly
owned subsidiary of the corporation, any employee stock ownership or other
employee benefit plan of the corporation or of any wholly-owned subsidiary of
the corporation, or any trustee of, or fiduciary with respect to, any such plan
when acting in such capacity; and provided further, however, that a "Related
Person" shall not include (x) any person who (A) owned shares in excess of the
10% limitation set forth herein as of, or acquired such shares pursuant to a
tender offer commenced prior to, October 1, 1997, or pursuant to an exchange
offer announced prior to the aforesaid date and commenced within 90 days
hereafter and either (I) continued to own shares in excess of such 10%
limitation or would have but for action by the corporation or (II) is an
affiliate or associate of the corporation and so continued (or so would have
continued but for action by the corporation) to be the owner of 10% or more of
the outstanding Voting Shares of the corporation at any time within the 3-year
period immediately prior to the date on which it is sought to be determined
whether such a person is an interested stockholder or (B) acquired said shares
from a person described in (A) above by gift, inheritance or in a transaction
in which no consideration was exchanged; or (y) any person whose ownership of
shares in excess of the 10% limitation set forth herein in the result of action
taken solely by the corporation provided that such person shall be an
interested stockholder if thereafter such person acquires additional shares of
Voting Shares of the corporation, except as a result of further corporation
action not caused, directly or indirectly, by such person.
(3) The term "Beneficial Owner" shall be defined by
reference to Rule 13d-3 under the Act; provided, however, that any individual,
corporation, partnership, group, association or other person or entity which
has the right to acquire or vote any Voting Shares at any time in the future,
whether such right is contingent or absolute, pursuant to any agreement,
arrangement or understanding or upon exercise of conversion rights, warrants or
options, or otherwise, shall be deemed the Beneficial Owner of such Voting
Shares for purposes of determining whether such Beneficial Owner is a Related
Person. For the purposes of determining whether a person is a Related Person
pursuant to the preceding paragraph (2), the number of shares of Voting Shares
deemed to be outstanding shall include shares deemed beneficially owned by such
person through application of this paragraph (3), but shall not include any
other shares of Voting Shares that may be issuable pursuant to any agreement,
arrangement or understanding, or upon exercise of conversion rights, warrants
or options, or otherwise.
(4) The term "Highest Purchase Price" shall mean the
higher of (i) highest amount of consideration paid by such Related Person for a
share of Common Shares of the corporation (including any brokerage commissions,
transfer taxes and soliciting dealers' fees) at any time on, or within two
years prior to, the date such Related Person, including its Affiliates and
Associates first became a Related Person and during
7
<PAGE> 8
any time while such Related Person was a Related Person or (ii) the fair market
value per share of Common Shares on the date the Business Transaction is first
publicly announced; provided, however, that the Highest Purchase Price shall be
determined after appropriate adjustment to reflect the occurrence of any
reclassification, recapitalization, stock split, reverse stock split or other
readjustment in the number of outstanding shares of Common Shares of the
corporation, or the payment of a stock dividend thereon.
(5) The term "Substantial Part" shall mean more than five
percent (5%) of the book value of the total assets of the entity in question,
as reflected on the most recent fiscal year-end consolidated balance sheet of
such entity existing at the time a resolution approving the Business
Transaction involving the assets constituting any such Substantial Part was
adopted by the Board of Directors of the corporation.
(6) In the event of a merger in which the corporation is
the surviving corporation, or in the event of a sale, lease, exchange, transfer
or other disposition of substantially all of the assets of the corporation, the
phrase "property, securities or other consideration to be received" shall
include, without limitation, common and other capital stock of the corporation
retained by its stockholders (other than such Related Person).
(7) The term "Voting Shares" shall at any time mean all
outstanding shares of capital stock of the corporation then entitled to vote
generally in the election of directors, considered for the purpose of this
Article VII as one class; provided, however, that if the corporation has shares
of Voting Shares entitled to more or less than one vote for any such share, for
purposes of determining the number of outstanding shares of Voting Shares, each
such share shall be deemed to be that number of shares of Voting Shares equal
to the number of votes entitled to be cast by the holder thereof in respect of
such shares and provided further that if any of the Preferred Shares authorized
by Article IV is issued and outstanding with the right to vote as a class, the
rights of the holders of said Preferred Shares shall not be affected by the
vote of the Voting Shares unless the holders of said Preferred Shares voting as
a class have also voted in favor of the Business Transaction by any requisite
majority and otherwise in accordance with the terms of said Preferred Shares.
(8) The term "Continuing Director" shall mean a director
who either was a member of the Board of Directors of the corporation prior to
the time the Related Person in question, including its Affiliates and
Associates, first became a Related Person or who subsequently became a director
of the corporation and whose election, or nomination for election by the
corporation's stockholders, was approved by a vote of at least a majority of
the Continuing Directors then on the Board; provided, however, that in no event
shall a director be considered a "Continuing Director" if such director is a
Related Person (or an agent or other representative of a Related Person and the
Business Transaction to be voted upon is with, or proposed by or on behalf of,
such Related Person or is one in which such Related Person otherwise has an
interest (except proportionately as a stockholder of the corporation).
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<PAGE> 9
(9) The term "Affiliate", used to indicate a relationship
to a specified person, shall mean a person that directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under common
control with, such specified person.
(10) The term "Associate", used to indicate a relationship
with a specified person, shall mean (a) any corporation, partnership or other
organization of which such specified person is an officer or partner or is,
directly or indirectly, the Beneficial Owner of ten percent (10%) or more of
any class of equity securities, (b) any trust or other estate in which such
specified person has a substantial beneficial interest or as to which such
specified person serves as trustee or in a similar fiduciary capacity, (c) any
relative or spouse of such specified person, or any relative of such spouse,
who has the same home as such specified person or who is a director or officer
of the corporation or any of its parents or subsidiaries and (d) any person who
is a director or officer of such specified person or any of its parents or
subsidiaries (other than the corporation or any wholly-owned subsidiary of the
corporation). For the purpose of this Article VII, if the Continuing Directors
constitute at least a majority of the entire Board of Directors of the
corporation, then a majority of such Continuing Directors shall have the power
to make a good faith determination (which determination shall be final), on the
basis of information known to them, of all questions arising under this Article
VII, including, without limitation, (a) the number of shares of Voting Shares
of which any person is the Beneficial Owner, (b) whether a person is an
Affiliate or Associate of another, (c) whether a person has an agreement,
arrangement or understanding with another as to the matters referred to in the
definition of Beneficial Owner herein, (d) whether the assets subject to any
Business Transaction constitute a Substantial Part, (e) whether any Business
Transaction is one in which a Related Person has an interest (except
proportionately as a stockholder of the corporation), (f) whether a Related
Person has, directly or indirectly, received the benefits of or caused any of
the changes referred to in the subparagraph (3) of Section A of this Article
VII, (g) whether the cash and/or the fair market value of the consideration
other than cash to be received per share by holders of Common Shares of the
corporation in connection with a Business Transaction described in the
subparagraph (1) of Section A of this Article VII is at least equal in value to
the Related Person's Highest Purchase Price, and (h) such other matters with
respect to which a determination is required under this Article VII.
C. The fact that any Business Transaction is one to which the
eighty percent (80%) voting requirement of this Article VII is not applicable
shall not be construed to impose any fiduciary duty, obligation or
responsibility on the Board of Directors, or any member thereof, to approve
such Business Transaction or recommend its adoption or approval to the
stockholders of the corporation, nor shall such compliance limit, prohibit or
otherwise restrict in any manner the Board of Directors, or any member thereof,
with respect to evaluations of or actions and responses taken with respect to
such Business Transaction.
9
<PAGE> 10
For the purposes of this Article VII, a Business Transaction or any
proposal to amend, repeal or adopt any provision of this Certificate of
Incorporation inconsistent with this Article VII (collectively, "Proposed
Action") is presumed to have been proposed by, or on behalf of, a Related
Person if (1) after the Related Person became such, the Proposed Action is
proposed following the election of any director of the corporation who with
respect to such Related Person, would not qualify to serve as a Continuing
Director or (2) such Related Person votes for or consents to the adoption of
any such Proposed Action, unless as to such Related Person a majority of the
Continuing Directors makes a good faith determination that such Proposed Action
is not proposed by or on behalf of such Related Person, based on information
known to them after reasonable inquiry.
Nothing contained in this Article VII shall be construed to relieve
any Related Person of any fiduciary obligation imposed by law.
D. Notwithstanding any other provisions of this Certificate of
Incorporation or the Bylaws of the corporation (and notwithstanding that a
lesser percentage may be specified by law, this Certificate of Incorporation or
the Bylaws of the corporation), the provisions of this Article VII may not be
repealed or amended in any respect, nor may any provision of the Certificate
of Incorporation or Bylaws be adopted inconsistent with this Article VII,
unless such action is approved by the affirmative vote of the holders of not
less than eight percent (80%) of the Voting Shares; provided, however, that
this paragraph shall not apply, and such eighty percent (80%) vote shall not be
required for, any amendment, repeal or adoption unanimously recommended by the
Board of Directors if all of such directors are persons who would be eligible
to serve as Continuing Directors.
VIII.
A, The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
B. Notwithstanding any other provision of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Shares required by law, this
Certificate of Incorporation or any Preferred Shares Designation, the
affirmative vote of the holders of at least eighty percent (80%) of all of the
then outstanding shares of the Voting Shares, voting together as a single
class, shall be required to alter, amend or repeal Articles V, VI, VII and VIII
of this Certificate of Incorporation.
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<PAGE> 11
IX.
The name and mailing address of the sole incorporator is as follows:
<TABLE>
<CAPTION>
Name Mailing Address
---- ---------------
<S> <C>
Warren L. Troupe c/o Morrison & Foerster LLP
5200 Republic Plaza
370 Seventeenth Street
Denver, Colorado 80202
</TABLE>
11
<PAGE> 12
I, the undersigned, being the sole incorporate hereinbefore named, for
the purpose of forming a corporation pursuant to the General Corporation Law of
the State of Nevada, do make this certificate, hereby declaring and certifying
that this my act and deed and the facts herein stated are true, and,
accordingly, have hereunto set my hands this ___ day of October, 1997.
-----------------------------------
Warren L. Troupe, Sole Incorporator
STATE OF COLORADO ]
] ss.
CITY AND COUNTY OF DENVER ]
I, the undersigned, a Notary Public, hereby certify that on the ___
day of October, 1997, personally appeared before me, Warren L. Troupe, who
being by me first duly sworn, declared that he is the person who signed the
foregoing document as sole incorporate, and that the statements therein
contained are true.
WITNESS my hand and official seal.
-----------------------------------
Deborah J. Shannon, Notary Public
My Commission Expires:
12
<PAGE> 13
CONSENT OF REGISTERED AGENT
I, _______________________, on behalf of The Corporation Trust
Company, hereby voluntarily consent to serve as registered agent for Triumph
Petroleum Corporation, a Nevada corporation, until removed or resignation is
submitted in accordance with the General Corporation Law of Nevada.
--------------------------
--------------------------
--------------------------
STATE OF NEVADA ]
] ss.
CITY OF ________________________ ]
COUNTY OF ______________________ ]
I, the undersigned, a Notary Public, hereby certify that on the ___
day of October, 1997, personally appeared before me _____________________, who
being by me first duly sworn, declared that he is the person who signed the
foregoing document as registered agent of Triumph Petroleum Corporation, and
that the statements therein contained are true.
WITNESS my hand and official seal.
-------------------------
Notary Public
My Commission Expires:
- --------------------
13
<PAGE> 1
Exhibits 3.2
BYLAWS
OF
TRIUMPH FUELS CORPORATION
A NEVADA CORPORATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Registered Office. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Other Offices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II SHAREHOLDERS' MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2.1 Place of Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2.2 Annual Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2.3 Special Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2.4 Notice of Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.5 Quorum and Voting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.6 Voting Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.7 Voting Procedures and Inspectors of Elections. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.8 List of Shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.9 Shareholder Proposals at Annual Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.10 Nominations of Persons for Election to the Board of Directors. . . . . . . . . . . . . . . . . . . . . 6
Section 2.11 Action Without Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE III DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.1 Number and Term of Office. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.2 Powers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.3 Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.4 Resignations and Removals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.5 Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.6 Quorum and Voting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3.7 Action Without Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.8 Fees and Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.9 Committees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.10 Honorary Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE IV OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.1 Officers Designated. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.2 Tenure and Duties of Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
i
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<TABLE>
<S> <C>
Section 4.3 Removal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE V EXECUTION OF CORPORATE INSTRUMENTS, AND VOTING OF SECURITIES OWNED BY THE CORPORATION . . . . . . . . . . 14
Section 5.1 Execution of Corporate Instruments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5.2 Voting of Securities Owned by Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE VI SHARES OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 6.1 Form and Execution of Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 6.2 Lost Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 6.3 Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 6.4 Fixing Record Dates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 6.5 Registered Shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE VII OTHER SECURITIES OF THE CORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE VIII CORPORATE SEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE IX INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS . . . . . . . . . . . . . . . . . . . . . . 17
Section 9.1 Right to Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 9.2 Authority to Advance Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 9.3 Right of Claimant to Bring Suit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 9.4 Provisions Nonexclusive. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 9.5 Authority to Insure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 9.6 Survival of Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 9.7 Settlement of Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 9.8 Effect of Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 9.9 Subrogation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 9.10 No Duplication of Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 9.11 Savings Clause. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 9.12 Certain Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE X NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE XI AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE XII LOANS TO OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
ii
<PAGE> 4
BYLAWS
OF
TRIUMPH FUELS CORPORATION
ARTICLE I
OFFICES
SECTION 1.1 REGISTERED OFFICE.
The registered office of the corporation in the State of Nevada shall
be in the City of Reno, County of Washoe.
SECTION 1.2 OTHER OFFICES.
The corporation shall also have and maintain an office or principal
place of business at 1493 Highway 6 & 50, Fruita, Colorado, and may also have
offices at such other places, both within and without the State of Nevada as
the Board of Directors may from time to time determine or the business of the
corporation may require.
ARTICLE II
SHAREHOLDERS' MEETINGS
SECTION 2.1 PLACE OF MEETINGS.
Meetings of the shareholders of the corporation shall be held at such
place, either within or without the State of Nevada, as may be designated from
time to time by the Board of Directors, or, if not so designated, then at the
office of the corporation required to be maintained pursuant to Section 1.2 of
Article I hereof.
SECTION 2.2 ANNUAL MEETINGS.
The annual meetings of the shareholders of the corporation, commencing
with the year 1998, for the purpose of election of directors and for such other
business as may lawfully come before it, shall be held on such date and at such
time as may be designated from time to time by the Board of Directors.
SECTION 2.3 SPECIAL MEETINGS.
Special Meetings of the shareholders of the corporation may be called,
for any purpose or purposes, by the Board of Directors pursuant to a resolution
adopted by a majority of the total number of authorized directors (whether or
not there exists any vacancies in previously
1
<PAGE> 5
authorized directorship at the time any such resolution is presented to the
Board of Directors for adoption) and shall be held at such place, on such date,
and at such time as the Board of Directors shall fix. No business may be
transacted at such special meeting otherwise than as specified in such notice.
SECTION 2.4 NOTICE OF MEETINGS.
(a) Except as otherwise provided by law or the Articles of
Incorporation, written notice of each meeting of shareholders, specifying the
place, date and hour and purpose or purposes of the meeting, shall be given not
less than ten nor more than sixty days before the date of the meeting to each
shareholder entitled to vote thereat, directed to his address as it appears
upon the books of the corporation.
(b) When a meeting is adjourned to another time or place, notice
need not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken unless the
adjournment is for more than thirty days, or unless after the adjournment a new
record date is fixed for the adjourned meeting, in which event a notice of the
adjourned meeting shall be given to each shareholder of record entitled to vote
at the meeting.
(c) Notice of the time, place and purpose of any meeting of
shareholders may be waived in writing, either before or after such meeting, and
to the extent permitted by law, will be waived by any shareholder by his
attendance thereat, in person or by proxy. Any shareholder so waiving notice
of such meeting shall be bound by the proceedings of any such meeting in all
respects as if due notice thereof had been given.
(d) Unless and until voted, every proxy shall be revocable at the
pleasure of the person who executed it or of his legal representatives or
assigns, except in those cases where an irrevocable proxy permitted by statute
has been given.
SECTION 2.5 QUORUM AND VOTING.
(a) At all meetings of shareholders, except where otherwise
provided by law, the Articles of Incorporation, or these Bylaws, the presence,
in person or by proxy duly authorized, of the holders of a majority of the
outstanding shares of stock entitled to vote shall constitute a quorum for the
transaction of business. Shares, the voting of which at said meeting have been
enjoined, or which for any reason cannot be lawfully voted at such meeting,
shall not be counted to determine a quorum at said meeting. In the absence of
a quorum, any meeting of shareholders may be adjourned, from time to time, by
vote of the holders of a majority of the shares represented thereat, but no
other business shall be transacted at such meeting. At such adjourned meeting
at which a quorum is present or represented any business may be transacted
which might have been transacted at the original meeting. The shareholders
present at a duly called or convened meeting, at which a quorum is present, may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough shareholders to leave less than a quorum.
2
<PAGE> 6
(b) Except as otherwise provided by law, the Articles of
Incorporation or these Bylaws, all action taken by the holders of a majority of
the voting power represented at any meeting at which a quorum is present shall
be valid and binding upon the corporation.
SECTION 2.6 VOTING RIGHTS.
(a) Except as otherwise provided by law, only persons in whose
names shares entitled to vote stand on the stock records of the corporation on
the record date for determining the shareholders entitled to vote at said
meeting shall be entitled to vote at such meeting. Shares standing in the
names of two or more persons shall be voted or represented in accordance with
the determination of the majority of such persons, or, if only one of such
persons is present in person or represented by proxy, such person shall have
the right to vote such shares and such shares shall be deemed to be represented
for the purpose of determining a quorum.
(b) Every person entitled to vote or execute consents shall have
the right to do so either in person or by an agent or agents authorized by a
written proxy executed by such person or his duly authorized agent, which proxy
shall be filed with the Secretary of the corporation at or before the meeting
at which it is to be used. Said proxy so appointed need not be a shareholder.
No proxy shall be voted on after three years from its date unless the proxy
provides for a longer period.
(c) Without limiting the manner in which a shareholder may
authorize another person or persons to act for him as proxy pursuant to
subsection (b) of this section, the following shall constitute a valid means by
which a shareholder may grant such authority:
(1) A shareholder may execute a writing authorizing
another person or persons to act for him as proxy. Execution may be
accomplished by the shareholder or his authorized officer, director, employee
or agent signing such writing or causing his or her signature to be affixed to
such writing by any reasonable means including, but not limited to, by
facsimile signature.
(2) A shareholder may authorize another person or persons
to act for him as proxy by transmitting or authorizing the transmission of a
telegram, cablegram, or other means of electronic transmission to the person
who will be the holder of the proxy or to a proxy solicitation firm, proxy
support service organization or like agent duly authorized by the person who
will be the holder of the proxy to receive such transmission, provided that any
such telegram, cablegram or other means of electronic transmission must either
set forth or be submitted with information from which it can be determined that
the telegram, cablegram or other electronic transmission was authorized by the
shareholder.
If it is determined that such telegrams, cablegrams or other electronic
transmissions are valid, the inspectors or, if there are no inspectors, such
other persons making that determination shall specify the information upon
which they relied.
(d) Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission created pursuant to subsection (c)
of this section may be substituted or
3
<PAGE> 7
used in lieu of the original writing or transmission for any and all purposes
for which the original writing or transmission could be used, provided that
such copy, facsimile telecommunication or other reproduction shall be a
complete reproduction of the entire original writing or transmission.
SECTION 2.7 VOTING PROCEDURES AND INSPECTORS OF ELECTIONS.
(a) The corporation shall, in advance of any meeting of
shareholders, appoint one or more inspectors to act at the meeting and make a
written report thereof. The corporation may designate one or more persons as
alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate is able to act at a meeting of shareholders, the person
presiding at the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector with
strict impartiality and according to the best of his ability.
(b) The inspectors shall (i) ascertain the number of shares
outstanding and the voting power of each, (ii) determine the shares represented
at a meeting and the validity of proxies and ballots, (iii) count all votes and
ballots, (iv) determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors, and
(v) certify their determination of the number of shares represented at the
meeting, and their count of all votes and ballots. The inspectors may appoint
or retain other persons or entities to assist the inspectors in the performance
of the duties of the inspectors.
(c) The date and time of the opening and the closing of the polls
for each matter upon which the shareholders will vote at a meeting shall be
announced at the meeting. No ballot, proxies or votes, nor any revocations
thereof or changes thereto, shall be accepted by the Inspectors after the
closing of the polls unless the District Court upon application by a
shareholder shall determine otherwise.
(d) In determining the validity and counting of proxies and
ballots, the inspectors shall be limited to an examination of the proxies, any
envelopes submitted with those proxies, any information provided in accordance
with Section 78.355 of the Nevada General Corporation Law, ballots and the
regular books and records of the corporation, except that the inspectors may
consider other reliable information for the limited purpose of reconciling
proxies and ballots submitted by or on behalf of banks, brokers, their nominees
or similar persons which represent more votes than the holder of a proxy is
authorized by the record owner to cast or more votes than the shareholder holds
of record. If the inspectors consider other reliable information for the
limited purpose permitted herein, the inspectors at the time they make their
certification pursuant to subsection (b)(v) of this section shall specify the
precise information considered by them including the person or persons from
whom they obtained the information, when the information was obtained, the
means by which the information was obtained and the basis for the inspectors'
belief that such information is accurate and reliable.
SECTION 2.8 LIST OF SHAREHOLDERS.
The officer who has charge of the stock ledger of the corporation
shall prepare and make, at least ten days before every meeting of shareholders,
a complete list of the shareholders entitled
4
<PAGE> 8
to vote at said meeting, arranged in alphabetical order, showing the address of
and the number of shares registered in the name of each shareholder. Such list
shall be open to the examination of any shareholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least ten days
prior to the meeting, either at a place within the city where the meeting is to
be held and which place shall be specified in the notice of the meeting, or, if
not specified, at the place where said meeting is to be held, and the list
shall be produced and kept at the time and place of meeting during the whole
time thereof, and may be inspected by any shareholder who is present.
SECTION 2.9 SHAREHOLDER PROPOSALS AT ANNUAL MEETINGS.
At an annual meeting of the shareholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (A) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (B) otherwise properly brought before the meeting by
or at the direction of the Board of Directors, or (C) otherwise properly
brought before the meeting by a shareholder. For business to be properly
brought before an annual meeting by a shareholder, the shareholder must have
given timely notice thereof in writing to the Secretary of the corporation. To
be timely, a shareholder's notice must be delivered to or mailed and received
at the principal executive offices of the corporation not later than the close
of business on the sixtieth (60th) day nor earlier than the close of business
on the ninetieth (90th) day prior to the first anniversary of the preceding
year's annual meeting; provided, however, that in the event that no annual
meeting was held in the previous year or the date of the annual meeting has
been changed by more than thirty (30) days from the date contemplated at the
time of the previous year's proxy statement, notice by the shareholder to be
timely must be so received not earlier than the close of business on the
ninetieth (90th) day prior to such annual meeting and not later than the close
of business on the later of the sixtieth (60th) day prior to such annual
meeting or, in the event public announcement of the date of such annual meeting
is first made by the corporation fewer than seventy (70) days prior to the date
of such annual meeting, the close of business on the tenth (10th) day following
the day on which public announcement of the date of such meeting is first made
by the corporation. A shareholder's notice to the Secretary shall set forth as
to each matter the shareholder proposes to bring before the annual meeting:
(i) a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting,
(ii) the name and address, as they appear on the corporation's books, of the
shareholder proposing such business, (iii) the class and number of shares of
the corporation which are beneficially owned by the shareholder, (iv) any
material interest of the shareholder in such business and (v) any other
information that is required to be provided by the shareholder pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the "1934
Act"), in his capacity as a proponent to a shareholder proposal.
Notwithstanding the foregoing, in order to include information with respect to
a shareholder proposal in the proxy statement and form of proxy for a
shareholder's meeting, shareholders must provide notice as required by the
regulations promulgated under the 1934 Act. Notwithstanding anything in these
Bylaws to the contrary, no business shall be conducted at any annual meeting
except in accordance with the procedures set forth in this paragraph (b). The
chairman of the annual meeting shall, if the facts warrant, determine and
declare at the meeting that business was not
5
<PAGE> 9
properly brought before the meeting and in accordance with the provisions of
this paragraph (b), and, if he should so determine, he shall so declare at the
meeting that any such business not properly brought before the meeting shall
not be transacted.
Notwithstanding anything in the Bylaws to the contrary, no business shall be
conducted at the annual meeting except in accordance with the procedures set
forth in this Section 2.9, provided, however, that nothing in this Section 2.9
shall be deemed to preclude discussion by any shareholder of any business
properly brought before the annual meeting in accordance with said procedure.
SECTION 2.10 NOMINATIONS OF PERSONS FOR ELECTION TO THE BOARD OF DIRECTORS.
In addition to any other applicable requirements, only persons who are
nominated in accordance with the following procedures shall be eligible for
election as directors. Nominations of persons for election to the Board of
Directors of the corporation may be made at a meeting of shareholders by or at
the direction of the Board of Directors, by any nominating committee or person
appointed by the Board of Directors or by any shareholder of the corporation
entitled to vote for the election of directors at the meeting who complies with
the notice procedures set forth in this Section 2.10. Such nominations, other
than those made by or at the direction of the Board of Directors, shall be made
pursuant to timely notice in writing to the Secretary of the corporation. To
be timely, a shareholder's notice shall be delivered to or mailed and received
at the principal executive offices of the corporation not less than 30 days nor
more than 60 days prior to the meeting; provided, however, that in the event
that less than 40 days' notice or prior public disclosure of the date of the
meeting is given or made to shareholders, notice by the shareholder to be
timely must be so received not later than the close of business on the 10th day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made. Such shareholder's notice shall set forth (a)
as to each person whom the shareholder proposes to nominate for election or
re-election as a director, (i) the name, age, business address and residence
address of the person, (ii) the principal occupation or employment of the
person, (iii) the class and number of shares of the corporation which are
beneficially owned by the person, (iv) a description of all arrangements or
understandings between the shareholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nominations are
to be made by the shareholder, and (v) any other information relating to the
person that is required to be disclosed in solicitations for proxies for
election of directors, or is otherwise required, in each case pursuant to Rule
14a under the Securities Exchange Act of 1934 (including without limitation
such person's written consent to being named in the proxy statement, if any, as
a nominee and to serving as a director if elected); and (b) as to the
shareholder giving the notice, (i) the name and record address of the
shareholder, (ii) the class and number of shares of the corporation which are
beneficially owned by the shareholder, (iii) the class and number of shares of
the corporation which are beneficially owned by the person, and (iv) a
description of all arrangements or understandings between the shareholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nominations are to be made by the shareholder. The
corporation may require any proposed nominee to furnish such other information
as may reasonably be required by the corporation to determine the eligibility
of such proposed nominee to serve as a director of the corporation. No person
shall be eligible for election as a director of the corporation unless
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nominated in accordance with the procedures set forth herein. These provisions
shall not apply to nomination of any persons entitled to be separately elected
by holders of preferred stock.
The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
SECTION 2.11 ACTION WITHOUT MEETING.
No action shall be taken by the shareholders of the corporation except
at an annual or special meeting of shareholders called in accordance with the
Bylaws.
ARTICLE III
DIRECTORS
SECTION 3.1 NUMBER AND TERM OF OFFICE.
The authorized number of directors of the corporation shall be fixed
in accordance with the Articles of Incorporation. Directors need not be
shareholders unless so required by the Articles of Incorporation or in this
Section 3.1. If for any cause, the directors shall not have been elected at an
annual meeting, they may be elected as soon thereafter as convenient at a
special meeting of the shareholders called for that purpose in the manner
provided in these Bylaws. Subject to the foregoing, the number of directors of
the corporation has been fixed at eight (8).
Subject to the rights of the holders of any series of Preferred Stock
to elect additional directors under specified circumstances, the directors
shall be divided into three classes designated as Class I, Class II and Class
III, respectively. Directors shall be assigned to each class in accordance with
a resolution or resolutions adopted by the Board of Directors. At the first
annual meeting of shareholders following the adoption and filing of the
Articles of Incorporation, the term of office of the Class I directors shall
expire and Class I directors shall be elected for a full term of three years.
At the second annual meeting of shareholders following the adoption and filing
of the Articles of Incorporation, the term of office of the Class II directors
shall expire and Class II directors shall be elected for a full term of three
years. At the third annual meeting of shareholders following the adoption and
filing of the Articles of Incorporation, the term of office of the Class III
directors shall expire and Class III directors shall be elected for a full term
of three years. At each succeeding annual meeting of shareholders, directors
shall be elected for a full term of three years to succeed the directors of the
class whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each
director shall serve until his successor is duly elected and qualified or until
his death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
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Any amendment, change or repeal of this Section 3.1, or any other
amendment to these Bylaws that will have the effect of permitting circumvention
of or modifying this Section 3.1, shall require the favorable vote, at a
shareholders' meeting, of the holders of at least 80% of the then-outstanding
shares of stock of the Corporation entitled to vote.
SECTION 3.2 POWERS.
The powers of the corporation shall be exercised, its business
conducted and its property controlled by or under the direction of the Board of
Directors.
SECTION 3.3 VACANCIES.
Vacancies and newly created directorships resulting from any increase
in the authorized number of directors may be filled by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director, and each director so elected shall hold office for the unexpired
portion of the term of the director whose place shall be vacant, and until his
successor shall have been duly elected and qualified. A vacancy in the Board
of Directors shall be deemed to exist under this section in the case of the
death, removal or resignation of any director, or if the shareholders fail at
any meeting of shareholders at which directors are to be elected (including any
meeting referred to in Section 3.4 below) to elect the number of directors then
constituting the whole Board.
SECTION 3.4 RESIGNATIONS AND REMOVALS.
(a) Any director may resign at any time by delivering his written
resignation to the Secretary, such resignation to specify whether it will be
effective at a particular time, upon receipt by the Secretary or at the
pleasure of the Board of Directors. If no such specification is made it shall
be deemed effective at the pleasure of the Board of Directors. When one or
more directors shall resign from the Board, effective at a future date, a
majority of the directors then in office, including those who have so resigned,
shall have power to fill such vacancy or vacancies, the vote thereon to take
effect when such resignation or resignations shall become effective, and each
director so chosen shall hold office for the unexpired portion of the term of
the director whose place shall be vacated and until his successor shall have
been duly elected and qualified.
(b) Subject to the right of the holders of any series or preferred
stock, no directors shall be removed without cause. Subject to any limitations
imposed by law, the Board of Directors or any individual director may be
removed from office at any time with cause by the affirmative vote of the
holders of eighty percent (80%) of the voting power of all the then outstanding
shares of voting stock of the corporation entitled to vote at an election of
directors.
(c) At a special meeting of shareholders called for the purpose in
the manner hereinabove provided, the Board of Directors, or any individual
director, may be removed from
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office, with or without cause, and a new director or directors elected by a
vote of shareholders holding a majority of the outstanding shares entitled to
vote at an election of directors.
SECTION 3.5 MEETINGS.
(a) The annual meeting of the Board of Directors shall be held
immediately after the annual shareholders' meeting and at the place where such
meeting is held or at the place announced by the Chairman at such meeting. No
notice of an annual meeting of the Board of Directors shall be necessary and
such meeting shall be held for the purpose of electing officers and transacting
such other business as may lawfully come before it.
(b) Except as hereinafter otherwise provided, regular meetings of
the Board of Directors shall be held in the office of the corporation required
to be maintained pursuant to Section 1.2 of Article I hereof. Regular meetings
of the Board of Directors may also be held at any place within or without the
State of Nevada which has been designated by resolutions of the Board of
Directors or the written consent of all directors.
(c) Special meetings of the Board of Directors may be held at any
time and place within or without the State of Nevada whenever called by the
Chairman of the Board or, if there is no Chairman of the Board, by the
President, or by any of the directors.
(d) Written notice of the time and place of all regular and
special meetings of the Board of Directors shall be delivered personally to
each director or sent by telegram or facsimile transmission at least 48 hours
before the start of the meeting, or sent by first class mail at least 120 hours
before the start of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat.
SECTION 3.6 QUORUM AND VOTING.
(a) A quorum of the Board of Directors shall consist of a majority
of the exact number of directors fixed from time to time in accordance with
Section 3.1 of Article III of these Bylaws, but not less than one; provided,
however, at any meeting whether a quorum be present or otherwise, a majority of
the directors present may adjourn from time to time until the time fixed for
the next regular meeting of the Board of Directors, without notice other than
by announcement at the meeting.
(b) At each meeting of the Board at which a quorum is present all
questions and business shall be determined by a vote of a majority of the
directors present, unless a different vote be required by law, the Articles of
Incorporation, or these Bylaws.
(c) Any member of the Board of Directors, or of any committee
thereof, may participate in a meeting by means of conference telephone or
similar communication equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting by such means
shall constitute presence in person at such meeting.
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(d) The transactions of any meeting of the Board of Directors, or
any committee thereof, however called or noticed, or wherever held, shall be as
valid as though had at a meeting duly held after regular call and notice, if a
quorum be present and if, either before or after the meeting, each of the
directors not present shall sign a written waiver of notice, or a consent to
holding such meeting, or an approval of the minutes thereof. All such waivers,
consents or approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
SECTION 3.7 ACTION WITHOUT MEETING.
Unless otherwise restricted by the Articles of Incorporation or these
Bylaws, any action required or permitted to be taken at any meeting of the
Board of Directors or of any committee thereof may be taken without a meeting,
if all members of the Board or of such committee, as the case may be, consent
thereto in writing, and such writing or writings are filed with the minutes of
proceedings of the Board or committee.
SECTION 3.8 FEES AND COMPENSATION.
Directors and members of committees may receive such compensation, if
any, for their services, and such reimbursement for expenses, as may be fixed
or determined by resolution of the Board of Directors.
SECTION 3.9 COMMITTEES.
(a) EXECUTIVE COMMITTEE: The Board of Directors may appoint an
Executive Committee of not less than one member, each of whom shall be a
director. The Executive Committee, to the extent permitted by law, shall have
and may exercise when the Board of Directors is not in session all powers of
the Board in the management of the business and affairs of the Corporation,
except such committee shall not have the power or authority to amend these
Bylaws or to approve or recommend to the shareholders any action which must be
submitted to shareholders for approval under the General Corporation Law.
(b) OTHER COMMITTEES: The Board of Directors may, by resolution
passed by a majority of the whole Board, from time to time appoint such other
committees as may be permitted by law. Such other committees appointed by the
Board of Directors shall have such powers and perform such duties as may be
prescribed by the resolution or resolutions creating such committee, but in no
event shall any such committee have the powers denied to the Executive
Committee in these Bylaws.
(c) TERM: The members of all committees of the Board of Directors
shall serve a term coexistent with that of the Board of Directors which shall
have appointed such committee. The Board, subject to the provisions of
subsections (a) or (b) of this Section 3.9, may at any time increase or
decrease the number of members of a committee or terminate the existence of a
committee; provided, that no committee shall consist of less than one member.
The membership of a committee member shall terminate on the date of his death
or voluntary resignation, but the Board may at any time for any reason remove
any individual committee member and the Board may fill any committee vacancy
created by death, resignation, removal or increase in the number
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of members of the committee. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee, and, in addition, in the
absence or disqualification of any member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member.
(d) MEETINGS: Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 3.9 shall be held at such times and places
as are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter; special meetings of
any such committee may be held at the principal office of the corporation
required to be maintained pursuant to Section 1.2 of Article I hereof; or at
any place which has been designated from time to time by resolution of such
committee or by written consent of all members thereof, and may be called by
any director who is a member of such committee, upon written notice to the
members of such committee of the time and place of such special meeting given
in the manner provided for the giving of written notice to members of the Board
of Directors of the time and place of special meetings of the Board of
Directors. Notice of any special meeting of any committee may be waived in
writing at any time after the meeting and will be waived by any director by
attendance thereat. A majority of the authorized number of members of any such
committee shall constitute a quorum for the transaction of business, and the
act of a majority of those present at any meeting at which a quorum is present
shall be the act of such committee.
SECTION 3.10 HONORARY DIRECTORS.
In addition to the directors of the corporation, there may be as many
honorary directors as the shareholders or the Board of Directors may elect.
Honorary directors shall be elected by the shareholders at any meeting of
shareholders or by the Board of Directors at any meeting of the directors.
Honorary directors shall have no liability after they become honorary directors
for the actions of the Board of Directors and shall not be required to attend
any meeting of the Board of Directors, but shall be notified of all meetings of
the Board of Directors in the same manner as the directors, and if in
attendance at such meetings, shall have all the rights and privileges of
directors (including the right to receive director's fees and expenses), except
the right to vote on all matters before such meetings and all other matters
which may be brought before the Board of Directors from time to time.
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ARTICLE IV
OFFICERS
SECTION 4.1 OFFICERS DESIGNATED.
The officers of the corporation shall include, if and when designated
by the Board of Directors, the Chairman of the Board of Directors, the Chief
Executive Officer, the President, the Secretary, the Treasurer, the Chief
Financial Officer and one or more Vice-Presidents, assistant secretaries,
assistant treasurers, and such other officers and agents with such powers and
duties as it or he shall deem necessary. The order of the seniority of the
Vice- Presidents shall be in the order of their nomination, unless otherwise
determined by the Board of Directors. The Board of Directors may assign such
additional titles to one or more of the officers as they shall deem
appropriate. Any one person may hold any number of offices of the corporation
at any one time unless specifically prohibited therefrom by law. The salaries
and other compensation of the officers of the corporation shall be fixed by or
in the manner designated by the Board of Directors.
SECTION 4.2 TENURE AND DUTIES OF OFFICERS.
(a) GENERAL: All officers shall hold office at the pleasure of
the Board of Directors and until their successors shall have been duly elected
and qualified, unless sooner removed. Any officer elected or appointed by the
Board of Directors may be removed at any time by the Board of Directors. If
the office of any officer becomes vacant for any reason, the vacancy may be
filled by the Board of Directors. Nothing in these Bylaws shall be construed
as creating any kind of contractual right to employment with the corporation.
(b) DUTIES OF THE CHAIRMAN OF THE BOARD OF DIRECTORS: The
Chairman of the Board of Directors (if there be such an officer appointed)
shall preside at all meetings of the shareholders and the Board of Directors
and shall perform such other duties and have such other powers as the Board of
Directors shall designate from time to time.
(c) DUTIES OF THE VICE CHAIRMAN OF THE BOARD OF DIRECTORS. The
Vice Chairman of the Board of Directors shall, in the absence or disability of
the Chairman of the Board of Directors, perform the duties and exercise the
powers of the Chairman of the Board of Directors. He shall preside at all
meetings of the shareholders and the Board of Directors in the absence of the
Chairman. He shall perform such other duties and have such other powers as the
Board of Directors shall prescribe.
(d) DUTIES OF THE CHIEF EXECUTIVE OFFICER. The Chief Executive
Officer shall have such powers and duties as may be prescribed by the Board of
Directors.
(e) DUTIES OF PRESIDENT: The President shall preside at all
meetings of the shareholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is
present. The President shall perform such other duties and have such other
powers as the Board of Directors shall designate from time to time.
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(f) DUTIES OF VICE-PRESIDENTS: The Vice-Presidents, in the order
of their seniority, may assume and perform the duties of the President in the
absence or disability of the President or whenever the office of the President
is vacant. The Vice-President shall perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time.
(g) DUTIES OF SECRETARY: The Secretary shall attend all meetings
of the shareholders and of the Board of Directors and any committee thereof,
and shall record all acts and proceedings thereof in the minute book of the
corporation. The Secretary shall give notice, in conformity with these Bylaws,
of all meetings of the shareholders, and of all meetings of the Board of
Directors and any Committee thereof requiring notice. The Secretary shall
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform such
other duties and have such other powers as the Board of Directors or the
President shall designate from time to time.
(h) DUTIES OF CHIEF FINANCIAL OFFICER: The Chief Financial
Officer shall keep or cause to be kept the books of account of the corporation
in a thorough and proper manner, and shall render statements of the financial
affairs of the corporation in such form and as often as required by the Board
of Directors or the President. The Chief Financial Officer, subject to the
order of the Board of Directors, shall have the custody of all funds and
securities of the corporation. The Chief Financial Officer shall perform all
other duties commonly incident to his office and shall perform such other
duties and have such other powers as the Board of Directors or the President
shall designate from time to time. The President may direct the Treasurer or
any Assistant Treasurer to assume and perform the duties of the Chief Financial
Officer in the absence or disability of the Chief Financial Officer, and the
Treasurer or each Assistant Treasurer shall perform such other duties and have
such other powers as the Board of Directors or the President shall designate
from time to time.
SECTION 4.3 REMOVAL.
Any officer may be removed from office at any time, either with or
without cause, by the affirmative vote of a majority of the directors in office
at the time, or by unanimous written consent of the directors in office at the
time, or by any committee or superior officers upon whom such power for removal
may have been conferred by the Board of Directors.
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ARTICLE V
EXECUTION OF CORPORATE INSTRUMENTS, AND
VOTING OF SECURITIES OWNED BY THE CORPORATION
SECTION 5.1 EXECUTION OF CORPORATE INSTRUMENTS.
(a) The Board of Directors may, in its discretion, determine the
method and designate the signatory officer or officers, or other person or
persons, to execute any corporate instrument or document, or to sign the
corporate name without limitation, except where otherwise provided by law, and
such execution or signature shall be binding upon the corporation.
(b) Unless otherwise specifically determined by the Board of
Directors or otherwise required by law, formal contracts of the corporation,
promissory notes, deeds of trust, mortgages and other evidences of indebtedness
of the corporation, and other corporate instruments or documents requiring the
corporate seal, and certificates of shares of stock owned by the corporation,
shall be executed, signed or endorsed by the Chairman of the Board (if there be
such an officer appointed) or by the President; such documents may also be
executed by any Vice-President and by the Secretary or Treasurer or any
Assistant Secretary or Assistant Treasurer. All other instruments and
documents requiring the corporate signature, but not requiring the corporate
seal, may be executed as aforesaid or in such other manner as may be directed
by the Board of Directors.
(c) All checks and drafts drawn on banks or other depositories on
funds to the credit of the corporation, or in special accounts of the
corporation, shall be signed by such person or persons as the Board of
Directors shall authorize so to do.
SECTION 5.2 VOTING OF SECURITIES OWNED BY CORPORATION.
All stock and other securities of other corporations owned or held by
the corporation for itself, or for other parties in any capacity, shall be
voted, and all proxies with respect thereto shall be executed, by the person
authorized so to do by resolution of the Board of Directors or, in the absence
of such authorization, by the Chairman of the Board (if there be such an
officer appointed), or by the President, or by any Vice-President.
ARTICLE VI
SHARES OF STOCK
SECTION 6.1 FORM AND EXECUTION OF CERTIFICATES.
Certificates for the shares of stock of the corporation shall be in
such form as is consistent with the Articles of Incorporation and applicable
law. Every holder of stock in the corporation shall be entitled to have a
certificate signed by, or in the name of the corporation by, the Chairman of
the Board (if there be such an officer appointed), or by the President or any
Vice-President and by the Treasurer or Assistant Treasurer or the Secretary or
Assistant Secretary,
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certifying the number of shares owned by him in the corporation. Any or all of
the signatures on the certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued with
the same effect as if he were such officer, transfer agent, or registrar at the
date of issue. If the corporation shall be authorized to issue more than one
class of stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 78.195 of the Nevada General Corporation Law, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge
to each shareholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights.
SECTION 6.2 LOST CERTIFICATES.
The Board of Directors may direct a new certificate or certificates to
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate of stock to be
lost or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost or destroyed
certificate or certificates, or his legal representative, to indemnify the
corporation in such manner as it shall require and/or to give the corporation a
surety bond in such form and amount as it may direct as indemnity against any
claim that may be made against the corporation with respect to the certificate
alleged to have been lost or destroyed.
SECTION 6.3 TRANSFERS.
Transfers of record of shares of stock of the corporation shall be
made only upon its books by the holders thereof, in person or by attorney duly
authorized, and upon the surrender of a certificate or certificates for a like
number of shares, properly endorsed.
SECTION 6.4 FIXING RECORD DATES.
(a) In order that the corporation may determine the shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record
date is adopted by the Board of Directors, and which record date shall not be
more than sixty days before the date of such meeting. If no record date is
fixed by the Board of Directors, the record date for determining shareholders
entitled to notice of or to vote at a meeting of shareholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding
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the date on which the meeting is held. A determination of shareholders of
record entitled notice of or to vote at a meeting of shareholders shall apply
to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
(b) In order that the corporation may determine the shareholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the
date upon which the resolution fixing the record date is adopted by the Board
of Directors, and which date shall not be more than ten days after the date
upon which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining shareholders entitled to consent to corporate
action in writing without a meeting, when no prior action by the Board of
Directors is required by the Nevada General Corporation Law, shall be the first
date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the corporation by delivery to its
registered office in Nevada, its principal place of business, or an officer or
agent of the corporation having custody of the book in which proceedings of
meetings of shareholders are recorded. Delivery made to a corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. If no record date has been fixed by the Board of Directors
and prior action by the Board of Directors is required by law, the record date
for determining shareholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
Board of Directors adopts the resolution taking such prior action.
(c) In order that the corporation may determine the shareholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the shareholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining
shareholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
SECTION 6.5 REGISTERED SHAREHOLDERS.
The corporation shall be entitled to recognize the exclusive right of
a person registered on its books as the owner of shares to receive dividends,
and to vote as such owner, and shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Nevada.
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ARTICLE VII
OTHER SECURITIES OF THE CORPORATION
All bonds, debentures and other corporate securities of the
corporation, other than stock certificates, may be signed by the Chairman of
the Board (if there be such an officer appointed), or the President or any
Vice-President or such other person as may be authorized by the Board of
Directors and the corporate seal impressed thereon or a facsimile of such seal
imprinted thereon and attested by the signature of the Secretary or an
Assistant Secretary, or the Treasurer or an Assistant Treasurer; provided,
however, that where any such bond, debenture or other corporate security shall
be authenticated by the manual signature of a trustee under an indenture
pursuant to which such bond, debenture or other corporate security shall be
issued, the signature of the persons signing and attesting the corporate seal
on such bond, debenture or other corporate security may be the imprinted
facsimile of the signatures of such persons. Interest coupons appertaining to
any such bond, debenture or other corporate security, authenticated by a
trustee as aforesaid, shall be signed by the Treasurer or an Assistant
Treasurer of the corporation, or such other person as may be authorized by the
Board of Directors, or bear imprinted thereon the facsimile signature of such
person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall
appear thereon or before the bond, debenture or other corporate security so
signed or attested shall have been delivered, such bond, debenture or other
corporate security nevertheless may be adopted by the corporation and issued
and delivered as though the person who signed the same or whose facsimile
signature shall have been used thereon had not ceased to be such officer of the
corporation.
ARTICLE VIII
CORPORATE SEAL
The corporate seal shall consist of the name of the corporation and
the state and date of its incorporation. Said seal may be used by causing it
or a facsimile thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE IX
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS
SECTION 9.1 RIGHT TO INDEMNIFICATION.
Each person who was or is a party or is threatened to be made a party
to or is involved (as a party, witness, or otherwise), in any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (hereinafter a "Proceeding"), by reason of the
fact that he, or a person of whom he is the legal representative, is or was a
director, officer, employee, or agent of the corporation or is or was serving
at the request of the corporation as a director, officer, employee, or agent of
another corporation or of a partnership,
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joint venture, trust, or other enterprise, including service with respect to
employee benefit plans, whether the basis of the Proceeding is alleged action
in an official capacity as a director, officer, employee, or agent or in any
other capacity while serving as a director, officer, employee, or agent
(hereafter an "Agent"), shall be indemnified and held harmless by the
corporation to the fullest extent authorized by the Nevada General Corporation
Law, as the same exists or may hereafter be amended or interpreted (but, in the
case of any such amendment or interpretation, only to the extent that such
amendment or interpretation permits the corporation to provide broader
indemnification rights than were permitted prior thereto) against all expenses,
liability, and loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties, and amounts paid or to be paid in settlement, and any
interest, assessments, or other charges imposed thereon, and any federal,
state, local, or foreign taxes imposed on any Agent as a result of the actual
or deemed receipt of any payments under this Article) reasonably incurred or
suffered by such person in connection with investigating, defending, being a
witness in, or participating in (including on appeal), or preparing for any of
the foregoing in, any Proceeding (hereinafter "Expenses"); provided, however,
that except as to actions to enforce indemnification rights pursuant to Section
9.3 of this Article, the corporation shall indemnify any Agent seeking
indemnification in connection with a Proceeding (or part thereof) initiated by
such person only if the Proceeding (or part thereof) was authorized by the
Board of Directors of the corporation. The right to indemnification conferred
in this Article shall be a contract right.
SECTION 9.2 AUTHORITY TO ADVANCE EXPENSES.
The right to indemnification provided in Section 9.1 of this Article
shall include the right to be paid, in advance of a Proceeding's final
disposition, Expenses incurred in defending that Proceeding; provided, however,
that if required by the Nevada General Corporation Law, as amended, the payment
of such expenses incurred by an officer or director acting in his capacity as
such (and not in any other capacity) in advance of the final disposition of the
Proceeding shall be made only upon delivery to the corporation of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the corporation as authorized under this Article or otherwise. Any obligation
to reimburse the corporation for Expense advances shall be unsecured and no
interest shall be charged thereon.
SECTION 9.3 RIGHT OF CLAIMANT TO BRING SUIT.
If a claim under Section 9.1 or 9.2 of this Article is not paid in
full by the corporation within thirty (30) days after a written claim has been
received by the corporation, the claimant may at any time thereafter bring suit
against the corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense (including attorneys' fees) of prosecuting such claim. It shall be
a defense to any such action (other than an action brought to enforce a claim
for expenses incurred in defending a Proceeding in advance of its final
disposition where the required undertaking has been tendered to the
corporation) that the claimant has not met the standards of conduct that make
it permissible under the Nevada General Corporation Law for the corporation to
indemnify the claimant for the amount claimed. The burden of proving such a
defense shall be on the
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corporation. Neither the failure of the corporation (including its Board of
Directors, independent legal counsel, or its shareholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper under the circumstances because he has met the
applicable standard of conduct set forth in the Nevada General Corporation Law,
nor an actual determination by the corporation (including its Board of
Directors, independent legal counsel, or its shareholders) that the claimant
had not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that claimant has not met the applicable
standard of conduct.
SECTION 9.4 PROVISIONS NONEXCLUSIVE.
The rights conferred on any person by this Article shall not be
exclusive of any other rights that such person may have or hereafter acquire
under any statute, provision of the Articles of Incorporation, agreement, vote
of shareholders or disinterested directors, or otherwise, both as to action in
an official capacity and as to action in another capacity while holding such
office. To the extent that any provision of the Certificate, agreement, or
vote of the shareholders or disinterested directors is inconsistent with these
bylaws, the provision, agreement, or vote shall take precedence.
SECTION 9.5 AUTHORITY TO INSURE.
The corporation may purchase and maintain insurance to protect itself
and any Agent against any Expense, whether or not the corporation would have
the power to indemnify the Agent against such Expense under applicable law or
the provisions of this Article.
SECTION 9.6 SURVIVAL OF RIGHTS.
The rights provided by this Article shall continue as to a person who
has ceased to be an Agent and shall inure to the benefit of the heirs,
executors, and administrators of such a person.
SECTION 9.7 SETTLEMENT OF CLAIMS.
The corporation shall not be liable to indemnify any Agent under this
Article (a) for any amounts paid in settlement of any action or claim effected
without the corporation's written consent, which consent shall not be
unreasonably withheld; or (b) for any judicial award if the corporation was not
given a reasonable and timely opportunity, at its expense, to participate in
the defense of such action.
SECTION 9.8 EFFECT OF AMENDMENT.
Any amendment, repeal, or modification of this Article shall not
adversely affect any right or protection of any Agent existing at the time of
such amendment, repeal, or modification.
SECTION 9.9 SUBROGATION.
In the event of payment under this Article, the corporation shall be
subrogated to the extent of such payment to all of the rights of recovery of
the Agent, who shall execute all papers
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required and shall do everything that may be necessary to secure such rights,
including the execution of such documents necessary to enable the corporation
effectively to bring suit to enforce such rights.
SECTION 9.10 NO DUPLICATION OF PAYMENTS.
The corporation shall not be liable under this Article to make any
payment in connection with any claim made against the Agent to the extent the
Agent has otherwise actually received payment (under any insurance policy,
agreement, vote, or otherwise) of the amounts otherwise indemnifiable
hereunder.
SECTION 9.11 SAVINGS CLAUSE.
If this Bylaw or any portion hereof shall be invalidated on any ground
by any court of competent jurisdiction, then the corporation shall nevertheless
indemnify each director and executive officer to the full extent not prohibited
by any applicable portion of this Bylaw that shall not have been invalidated,
or by any other applicable law.
SECTION 9.12 CERTAIN DEFINITIONS.
For the purposes of this Article IX, the following definitions shall
apply:
(1) The term "proceeding" shall be broadly construed and
shall include, without limitation, the investigation, preparation,
prosecution, defense, settlement, arbitration and appeal of, and the
giving of testimony in, any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or
investigative.
(2) The term "expenses" shall be broadly construed and
shall include, without limitation, court costs, attorneys' fees,
witness fees, fines, amounts paid in settlement or judgment and any
other costs and expenses of any nature or kind incurred in connection
with any proceeding.
(3) The term the "corporation" shall include, in addition
to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had
power and authority to indemnify its directors, officers, and
employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in
the same position under the provisions of this Bylaw with respect to
the resulting or surviving corporation as he would have with respect
to such constituent corporation if its separate existence had
continued.
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(4) References to a "director," "executive officer,"
"officer," "employee," or "agent" of the corporation shall include,
without limitation, situations where such person is serving at the
request of the corporation as, respectively, a director, executive
officer, officer, employee, trustee or agent of another corporation,
partnership, joint venture, trust or other enterprise.
(5) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall
include any service as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such
director, officer, employee, or agent with respect to an employee
benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in
the interest of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner "not opposed to
the best interests of the corporation" as referred to in this Bylaw.
ARTICLE X
NOTICES
Whenever, under any provisions of these Bylaws, notice is required to
be given to any shareholder, the same shall be given in writing, timely and
duly deposited in the United States Mail, postage prepaid, and addressed to his
last known post office address as shown by the stock record of the corporation
or its transfer agent. Any notice required to be given to any director may be
given by the method hereinabove stated, or by telegram or other means of
electronic transmission, except that such notice other than one which is
delivered personally, shall be sent to such address or (in the case of
facsimile telecommunication) facsimile telephone number as such director shall
have filed in writing with the Secretary of the corporation, or, in the absence
of such filing, to the last known post office address of such director. If no
address of a shareholder or director be known, such notice may be sent to the
office of the corporation required to be maintained pursuant to Section 1.2 of
Article I hereof. An affidavit of mailing, executed by a duly authorized and
competent employee of the corporation or its transfer agent appointed with
respect to the class of stock affected, specifying the name and address or the
names and addresses of the shareholder or shareholders, director or directors,
to whom any such notice or notices was or were given, and the time and method
of giving the same, shall be conclusive evidence of the statements therein
contained. All notices given by mail, as above provided, shall be deemed to
have been given as at the time of mailing and all notices given by telegram or
other means of electronic transmission shall be deemed to have been given as at
the sending time recorded by the telegraph company or other electronic
transmission equipment operator transmitting the same. It shall not be
necessary that the same method of giving be employed in respect of all
directors, but one permissible method may be employed in respect of any one or
more, and any other permissible method or methods may be employed in respect of
any other or others. The period or limitation of time within which any
shareholder may exercise any option or right, or enjoy any privilege or
benefit, or be required to act, or within which any
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director may exercise any power or right, or enjoy any privilege, pursuant to
any notice sent him in the manner above provided, shall not be affected or
extended in any manner by the failure of such a shareholder or such director to
receive such notice. Whenever any notice is required to be given under the
provisions of the statutes or of the Articles of Incorporation, or of these
Bylaws, a waiver thereof in writing signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto. Whenever notice is required to be given, under any
provision of law or of the Articles of Incorporation or Bylaws of the
corporation, to any person with whom communication is unlawful, the giving of
such notice to such person shall not be required and there shall be no duty to
apply to any governmental authority or agency for a license or permit to give
such notice to such person. Any action or meeting which shall be taken or held
without notice to any such person with whom communication is unlawful shall
have the same force and effect as if such notice had been duly given. In the
event that the action taken by the corporation is such as to require the filing
of a certificate under any provision of the Nevada General Corporation Law, the
certificate shall state, if such is the fact and if notice is required, that
notice was given to all persons entitled to receive notice except such persons
with whom communication is unlawful.
ARTICLE XI
AMENDMENTS
Subject to Section 9.8 of the Bylaws, (i) the affirmative vote of at
least eighty percent (80%) of the voting power of all of the then outstanding
shares of the Voting Stock, shall be required to alter, amend or repeal
Sections 2.3, 2.9, 2.11, 3.1, 3.2, 3.3, 3.4, Article IX and Article XI of the
Bylaws or to adopt any Bylaw provision inconsistent with such Sections of the
Bylaws, and (ii) the affirmative vote of at least sixty-six and two-thirds
percent (66-2/3%) of the voting power of all of the then outstanding shares of
the Voting Stock shall be required to alter, amend or repeal any other Section
of the Bylaws or to adopt any Bylaw provision inconsistent with any other such
Section of the Bylaws. The Board of Directors shall also have the power to
adopt, amend or repeal Bylaws.
ARTICLE XII
LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiaries, including any officer or employee who is a director of the
corporation or its subsidiaries, whenever, in the judgment of the Board of
Directors, such loan, guarantee or assistance may reasonably be expected to
benefit the corporation. The loan, guarantee or other assistance may be with
or without interest and may be unsecured, or secured in such manner as the
Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in these Bylaws shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation
at common law or under any statute.
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CERTIFICATE OF SECRETARY
The undersigned, Secretary of Triumph Fuels Corporation, a Nevada
corporation, hereby certifies that the foregoing is a full, true and correct
copy of the Bylaws of said corporation, with all amendments to date of this
Certificate.
WITNESS the signature of the undersigned this ____ day of October,
1997.
------------------------------------
Paul J. Rath, Secretary
<PAGE> 1
EXHIBIT 10.1
TRIUMPH FUELS CORPORATION
1997 STOCK INCENTIVE PLAN
1. Purposes of the Plan. The purposes of this Stock Incentive
Plan are to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to Employees,
Directors and Consultants and to promote the success of the Company's business.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Administrator" means the Board or any of the
Committees appointed to administer the Plan.
(b) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 promulgated under the Exchange
Act.
(c) "Applicable Laws" means the legal requirements
relating to the administration of stock incentive plans, if any, under
applicable provisions of federal securities laws, state corporate and
securities laws, the Code, the rules of any applicable stock exchange or
national market system, and the rules of any foreign jurisdiction applicable to
Awards granted to residents therein.
(d) "Award" means the grant of an Option, SAR, Dividend
Equivalent Right, Restricted Stock, Performance Unit, Performance Share, or
other right or benefit under the Plan.
(e) "Award Agreement" means the written agreement
evidencing the grant of an Award executed by the Company and the Grantee,
including any amendments thereto.
(f) "Board" means the Board of Directors of the Company.
(g) "Change in Control" means a change in ownership or
control of the Company effected through either of the following transactions:
(i) the direct or indirect acquisition by any
person or related group of persons (other than an acquisition from or by the
Company or by a Company-sponsored employee benefit plan or by a person that
directly or indirectly controls, is controlled by, or is under common control
with, the Company) of beneficial ownership (within the meaning of Rule 13d-3 of
the Exchange Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Company's outstanding securities pursuant to
a tender or exchange offer made directly to the Company's stockholders which a
majority of the Continuing Directors who are not Affiliates or Associates of
the offeror do not recommend such stockholders accept, or
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(ii) a change in the composition of the Board over a period of
thirty-six (36) months or less such that a majority of the Board members
(rounded up to the next whole number) ceases, by reason of one or more
contested elections for Board membership, to be comprised of individuals who
are Continuing Directors.
(h) "Code" means the Internal Revenue Code of 1986, as amended.
(i) "Committee" means any committee appointed by the Board to
administer the Plan.
(j) "Common Stock" means the common stock of the Company.
(k) "Company" means Triumph Fuels Corporation, a Nevada
corporation.
(l) "Consultant" means any person who is engaged by the
Company or any Related Entity to render consulting or advisory services as an
independent contractor and is compensated for such services.
(m) "Continuing Directors" means members of the Board who
either (i) have been Board members continuously for a period of at least
thirty-six (36) months or (ii) have been Board members for less than thirty-six
(36) months and were elected or nominated for election as Board members by at
least a majority of the Board members described in clause (i) who were still in
office at the time such election or nomination was approved by the Board.
(n) "Continuous Status as an Employee, Director or
Consultant" means that the provision of services to the Company or a Related
Entity in any capacity of Employee, Director or Consultant, is not interrupted
or terminated. Continuous Status as an Employee, Director or Consultant shall
not be considered interrupted in the case of (i) any approved leave of absence,
(ii) transfers between locations of the Company or among the Company, any
Related Entity, or any successor, in any capacity of Employee, Director or
Consultant, or (iii) any change in status as long as the individual remains in
the service of the Company or a Related Entity in any capacity of Employee,
Director or Consultant (except as otherwise provided in the Award Agreement).
An approved leave of absence shall include sick leave, military leave, or any
other authorized personal leave. For purposes of Incentive Stock Options, no
such leave may exceed ninety (90) days, unless reemployment upon expiration of
such leave is guaranteed by statute or contract.
(o) "Corporate Transaction" means any of the following
stockholder-approved transactions to which the Company is a party:
(i) a merger or consolidation in which the Company is
not the surviving entity, except for a transaction the principal purpose of
which is to change the state in which the Company is incorporated;
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(ii) the sale, transfer or other disposition of
all or substantially all of the assets of the Company (including the capital
stock of the Company's subsidiary corporations) in connection with the complete
liquidation or dissolution of the Company; or
(iii) any reverse merger in which the Company is
the surviving entity but in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Company's outstanding
securities are transferred to a person or persons different from those who held
such securities immediately prior to such merger.
(p) "Covered Employee" means an Employee who is a
"covered employee" under Section 162(m)(3) of the Code.
(q) "Director" means a member of the Board.
(r) "Dividend Equivalent Right" means a right entitling
the Grantee to compensation measured by dividends paid with respect to Common
Stock.
(s) "Employee" means any person, including an Officer or
Director, who is an employee of the Company or any Related Entity. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(t) "Exchange Act" means the Securities Exchange Act of
1934, as amended.
(u) "Fair Market Value" means, as of any date, the value
of Common Stock determined as follows:
(i) Where there exists a public market for the
Common Stock, the Fair Market Value shall be (A) the closing price for a Share
for the last market trading day prior to the time of the determination (or, if
no closing price was reported on that date, on the last trading date on which a
closing price was reported) on the stock exchange determined by the
Administrator to be the primary market for the Common Stock or the Nasdaq
National Market, whichever is applicable or (B) if the Common Stock is not
traded on any such exchange or national market system, the average of the
closing bid and asked prices of a Share on the Nasdaq Small Cap Market for the
day prior to the time of the determination (or, if no such prices were reported
on that date, on the last date on which such prices were reported), in each
case, as reported in The Wall Street Journal or such other source as the
Administrator deems reliable; or
(ii) In the absence of an established market of
the type described in (i), above, for the Common Stock, the Fair Market Value
thereof shall be determined by the Administrator in good faith.
(v) "Grantee" means an Employee, Director or Consultant
who receives an Award under the Plan.
(w) "Incentive Stock Option" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
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(x) "Non-Qualified Stock Option" means an Option not
intended to qualify as an Incentive Stock Option.
(y) "Officer" means a person who is an officer of the
Company within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(z) "Option" means a stock option granted pursuant to the
Plan.
(aa) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(bb) "Performance - Based Compensation" means compensation
qualifying as "performance-based compensation" under Section 162(m) of the
Code.
(cc) "Performance Shares" means Shares or an award
denominated in Shares which may be earned in whole or in part upon attainment
of performance criteria established by the Administrator.
(dd) "Performance Units" means an award which may be
earned in whole or in part upon attainment of performance criteria established
by the Administrator and which may be settled for cash, Shares or other
securities or a combination of cash, Shares or other securities as established
by the Administrator.
(ee) "Plan" means this 1997 Stock Incentive Plan.
(ff) "Related Entity" means any Parent, Subsidiary and any
business, corporation, partnership, limited liability company or other entity
in which the Company, a Parent or a Subsidiary holds an ownership interest,
directly or indirectly.
(gg) "Restricted Stock" means Shares issued under the Plan
to the Grantee for such consideration, if any, and subject to such restrictions
on transfer, rights of first refusal, repurchase provisions, forfeiture
provisions, and other terms and conditions as established by the Administrator.
(hh) "Rule 16b-3" means Rule 16b-3 promulgated under the
Exchange Act or any successor thereto.
(ii) "SAR" means a stock appreciation right entitling the
Grantee to Shares or cash compensation, as established by the Administrator,
measured by appreciation in the value of Common Stock.
(jj) "Share" means a share of the Common Stock.
(kk) "Subsidiary" means a "subsidiary corporation,"
whether now or hereafter existing, as defined in Section 424(f) of the Code.
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(ll) "Subsidiary Disposition" means the disposition by the
Company of its equity holdings in any subsidiary corporation effected by a
merger or consolidation involving that subsidiary corporation, the sale of all
or substantially all of the assets of that subsidiary corporation or the
Company's sale or distribution of substantially all of the outstanding capital
stock of such subsidiary corporation.
3. Stock Subject to the Plan.
(a) Subject to the provisions of Section 10, below, the
maximum aggregate number of Shares which may be issued pursuant to Awards
initially shall be 550,000 Shares, and commencing with the first business day
of each calendar year thereafter beginning with January 1, 1998, such maximum
aggregate number of Shares shall be increased by a number equal to twelve
percent (12%) of the number of Shares outstanding as of December 31 of the
immediately preceding calendar year. Notwithstanding the foregoing, subject to
the provisions of Section 10, below, the maximum aggregate number of Shares
available for grant of Incentive Stock Options shall be 550,000 Shares, and
such number shall not be subject to annual adjustment as described above. The
Shares to be issued pursuant to Awards may be authorized, but unissued, or
reacquired Common Stock.
(b) If an Award expires or becomes unexercisable without
having been exercised in full, or is surrendered pursuant to an Award exchange
program, or if any unissued Shares are retained by the Company upon exercise of
an Award in order to satisfy the exercise price for such Award or any
withholding taxes due with respect to such Award, such unissued or retained
Shares shall become available for future grant or sale under the Plan (unless
the Plan has terminated). Shares that actually have been issued under the Plan
pursuant to an Award shall not be returned to the Plan and shall not become
available for future distribution under the Plan, except that if unvested
Shares are forfeited, or repurchased by the Company at their original purchase
price, such Shares shall become available for future grant under the Plan.
4. Administration of the Plan.
(a) Plan Administrator.
(i) Administration with Respect to Directors and
Officers. With respect to grants of Awards to Directors or Employees who are
also Officers or Directors of the Company, the Plan shall be administered by
(A) the Board or (B) a Committee designated by the Board, which Committee shall
be constituted in such a manner as to satisfy the Applicable Laws and to permit
such grants and related transactions under the Plan to be exempt from Section
16(b) of the Exchange Act in accordance with Rule 16b-3. Once appointed, such
Committee shall continue to serve in its designated capacity until otherwise
directed by the Board.
(ii) Administration With Respect to Consultants
and Other Employees. With respect to grants of Awards to Employees or
Consultants who are neither Directors nor Officers of the Company, the Plan
shall be administered by (A) the Board or (B) a Committee designated by the
Board, which Committee shall be constituted in such a manner as to satisfy the
Applicable Laws. Once appointed, such Committee shall continue to serve in its
designated
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capacity until otherwise directed by the Board. The Board may authorize one or
more Officers to grant such Awards and may limit such authority as the Board
determines from time to time.
(iii) Administration With Respect to Covered
Employees. Notwithstanding the foregoing, grants of Awards to any Covered
Employee intended to qualify as Performance-Based Compensation shall be made
only by a Committee (or subcommittee of a Committee) which is comprised solely
of two or more Directors eligible to serve on a committee making Awards
qualifying as Performance-Based Compensation. In the case of such Awards
granted to Covered Employees, references to the "Administrator" or to a
"Committee" shall be deemed to be references to such Committee or subcommittee.
(iv) Administration Errors. In the event an Award
is granted in a manner inconsistent with the provisions of this subsection (a),
such Award shall be presumptively valid as of its grant date to the extent
permitted by the Applicable Laws.
(b) Powers of the Administrator. Subject to Applicable
Laws and the provisions of the Plan (including any other powers given to the
Administrator hereunder), and except as otherwise provided by the Board, the
Administrator shall have the authority, in its discretion:
(i) to select the Employees, Directors and
Consultants to whom Awards may be granted from time to time hereunder;
(ii) to determine whether and to what extent
Awards are granted hereunder;
(iii) to determine the number of Shares or the
amount of other consideration to be covered by each Award granted hereunder;
(iv) to approve forms of Award Agreement for use
under the Plan;
(v) to determine the terms and conditions of any
Award granted hereunder;
(vi) to amend the terms of any outstanding Award
granted under the Plan, including a reduction in the exercise price (or base
amount on which appreciation is measured) of any Award to reflect a reduction
in the Fair Market Value of the Common Stock since the grant date of the Award,
provided that any amendment that would adversely affect the Grantee's rights
under an outstanding Award shall not be made without the Grantee's written
consent;
(vii) to construe and interpret the terms of the
Plan and Awards granted pursuant to the Plan;
(viii) to establish additional terms, conditions,
rules or procedures to accommodate the rules or laws of applicable foreign
jurisdictions and to afford Grantees
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favorable treatment under such laws; provided, however, that no Award shall be
granted under any such additional terms, conditions, rules or procedures with
terms or conditions which are inconsistent with the provisions of the Plan; and
(ix) to take such other action, not inconsistent
with the terms of the Plan, as the Administrator deems appropriate.
(c) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be conclusive and
binding on all persons.
5. Eligibility. Awards other than Incentive Stock Options may be
granted to Employees, Directors and Consultants. Incentive Stock Options may
be granted only to Employees of the Company, a Parent or a Subsidiary. An
Employee, Director or Consultant who has been granted an Award may, if
otherwise eligible, be granted additional Awards. Awards may be granted to
such Employees, Directors or Consultants who are residing in foreign
jurisdictions as the Administrator may determine from time to time.
6. Terms and Conditions of Awards.
(a) Type of Awards. The Administrator is authorized
under the Plan to award any type of arrangement to an Employee, Director or
Consultant that is not inconsistent with the provisions of the Plan and that by
its terms involves or might involve the issuance of (i) Shares, (ii) an Option,
a SAR or similar right with an exercise or conversion privilege at a fixed or
variable price related to the Common Stock and/or the passage of time, the
occurrence of one or more events, or the satisfaction of performance criteria
or other conditions, or (iii) any other security with the value derived from
the value of the Common Stock or other securities issued by a Related Entity.
Such awards include, without limitation, Options, SARs, sales or bonuses of
Restricted Stock, Dividend Equivalent Rights, Performance Units or Performance
Shares, and an Award may consist of one such security or benefit, or two or
more of them in any combination or alternative.
(b) Designation of Award. Each Award shall be designated
in the Award Agreement. In the case of an Option, the Option shall be
designated as either an Incentive Stock Option or a Non-Qualified Stock Option.
However, notwithstanding such designation, to the extent that the aggregate
Fair Market Value of Shares subject to Options designated as Incentive Stock
Options which become exercisable for the first time by a Grantee during any
calendar year (under all plans of the Company or any Parent or Subsidiary)
exceeds $100,000, such excess Options, to the extent of the Shares covered
thereby in excess of the foregoing limitation, shall be treated as
Non-Qualified Stock Options. For this purpose, Incentive Stock Options shall
be taken into account in the order in which they were granted, and the Fair
Market Value of the Shares shall be determined as of the date the Option with
respect to such Shares is granted.
(c) Conditions of Award. Subject to the terms of the
Plan, the Administrator shall determine the provisions, terms, and conditions
of each Award including, but not limited to, the Award vesting schedule,
repurchase provisions, rights of first refusal, forfeiture provisions, form of
payment (cash, Shares, or other consideration) upon settlement of the Award,
payment
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contingencies, and satisfaction of any performance criteria. The performance
criteria established by the Administrator may be based on any one of, or
combination of, increase in share price, earnings per share, total stockholder
return, return on equity, return on assets, return on investment, net operating
income, cash flow, revenue, economic value added, personal management
objectives, or other measure of performance selected by the Administrator.
Partial achievement of the specified criteria may result in a payment or
vesting corresponding to the degree of achievement as specified in the Award
Agreement.
(d) Deferral of Award Payment. The Administrator may
establish one or more programs under the Plan to permit selected Grantees the
opportunity to elect to defer receipt of consideration upon exercise of an
Award, satisfaction of performance criteria, or other event that absent the
election would entitle the Grantee to payment or receipt of Shares or other
consideration under an Award. The Administrator may establish the election
procedures, the timing of such elections, the mechanisms for payments of, and
accrual of interest or other earnings, if any, on amounts, Shares or other
consideration so deferred, and such other terms, conditions, rules and
procedures that the Administrator deems advisable for the administration of any
such deferral program.
(e) Award Exchange Programs. The Administrator may
establish one or more programs under the Plan to permit selected Grantees to
exchange an Award under the Plan for one or more other types of Awards under
the Plan on such terms and conditions as determined by the Administrator from
time to time.
(f) Separate Programs. The Administrator may establish
one or more separate programs under the Plan for the purpose of issuing
particular forms of Awards to one or more classes of Grantees on such terms and
conditions as determined by the Administrator from time to time.
(g) Individual Option and SAR Limit. The maximum number
of Shares with respect to which Options and SARs may be granted to any Employee
in any fiscal year of the Company shall be 50,000 Shares. The foregoing
limitation shall be adjusted proportionately in connection with any change in
the Company's capitalization pursuant to Section 10, below. To the extent
required by Section 162(m) of the Code or the regulations thereunder, in
applying the foregoing limitation with respect to an Employee, if any Option or
SAR is canceled, the canceled Option or SAR shall continue to count against the
maximum number of Shares with respect to which Options and SARs may be granted
to the Employee. For this purpose, the repricing of an Option (or in the case
of a SAR, the base amount on which the stock appreciation is calculated is
reduced to reflect a reduction in the Fair Market Value of the Common Stock)
shall be treated as the cancellation of the existing Option or SAR and the
grant of a new Option or SAR.
(h) Early Exercise. The Award may, but need not, include
a provision whereby the Grantee may elect at any time while an Employee,
Director or Consultant to exercise any part or all of the Award prior to full
vesting of the Award. Any unvested Shares received pursuant to such exercise
may be subject to a repurchase right in favor of the Company or to any other
restriction the Administrator determines to be appropriate.
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(i) Term of Award. The term of each Award shall be the
term stated in the Award Agreement, provided, however, that the term of an
Incentive Stock Option shall be no more than ten (10) years from the date of
grant thereof. However, in the case of an Incentive Stock Option granted to a
Grantee who, at the time the Option is granted, owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the term of the Incentive Stock Option
shall be five (5) years from the date of grant thereof or such shorter term as
may be provided in the Award Agreement.
(j) Transferability of Awards. Incentive Stock Options
may not be sold, pledged, assigned, hypothecated, transferred, or disposed of
in any manner other than by will or by the laws of descent or distribution and
may be exercised, during the lifetime of the Grantee, only by the Grantee;
provided, however, that the Grantee may designate a beneficiary of the
Grantee's Incentive Stock Option in the event of the Grantee's death on a
beneficiary designation form provided by the Administrator. Other Awards shall
be transferable to the extent provided in the Award Agreement.
(k) Time of Granting Awards. The date of grant of an
Award shall for all purposes be the date on which the Administrator makes the
determination to grant such Award, or such other date as is determined by the
Administrator. Notice of the grant determination shall be given to each
Employee, Director or Consultant to whom an Award is so granted within a
reasonable time after the date of such grant.
7. Award Exercise or Purchase Price, Consideration, Taxes and
Reload Options.
(a) Exercise or Purchase Price. The exercise or purchase
price, if any, for an Award shall be as follows:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the
time of the grant of such Incentive Stock Option owns stock representing more
than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary, the per Share exercise price shall be not
less than one hundred ten percent (110%) of the Fair Market Value per Share on
the date of grant.
(B) granted to any Employee other than
an Employee described in the preceding paragraph, the per Share exercise price
shall be not less than one hundred percent (100%) of the Fair Market Value per
Share on the date of grant.
(ii) In the case of a Non-Qualified Stock Option,
the per Share exercise price shall be not less than eighty-five percent (85%)
of the Fair Market Value per Share on the date of grant unless otherwise
determined by the Administrator.
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(iii) In the case of Awards intended to qualify as
Performance-Based Compensation, the exercise or purchase price, if any, shall
be not less than one hundred percent (100%) of the Fair Market Value per Share
on the date of grant.
(iv) In the case of other Awards, such price as
is determined by the Administrator.
(b) Consideration. Subject to Applicable Laws, the
consideration to be paid for the Shares to be issued upon exercise or purchase
of an Award including the method of payment, shall be determined by the
Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant). In addition to any other types of
consideration the Administrator may determine, the Administrator is authorized
to accept as consideration for Shares issued under the Plan the following:
(i) cash;
(ii) check;
(iii) delivery of Grantee's promissory note with
such recourse, interest, security, and redemption provisions as the
Administrator determines as appropriate;
(iv) surrender of Shares or delivery of a properly
executed form of attestation of ownership of Shares as the Administrator may
require (including withholding of Shares otherwise deliverable upon exercise of
the Award) which have a Fair Market Value on the date of surrender or
attestation equal to the aggregate exercise price of the Shares as to which
said Award shall be exercised (but only to the extent that such exercise of the
Award would not result in an accounting compensation charge with respect to the
Shares used to pay the exercise price unless otherwise determined by the
Administrator);
(v) delivery of a properly executed exercise
notice together with such other documentation as the Administrator and the
broker, if applicable, shall require to effect an exercise of the Award and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price; or
(vi) any combination of the foregoing methods of
payment.
(c) Taxes. No Shares shall be delivered under the Plan
to any Grantee or other person until such Grantee or other person has made
arrangements acceptable to the Administrator for the satisfaction of any
foreign, federal, state, or local income and employment tax withholding
obligations, including, without limitation, obligations incident to the receipt
of Shares or the disqualifying disposition of Shares received on exercise of an
Incentive Stock Option. Upon exercise of an Award, the Company shall withhold
or collect from Grantee an amount sufficient to satisfy such tax obligations.
(d) Reload Options. In the event the exercise price or
tax withholding of an Option is satisfied by the Company or the Grantee's
employer withholding Shares otherwise
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deliverable to the Grantee, the Administrator may issue the Grantee an
additional Option, with terms identical to the Award Agreement under which the
Option was exercised, but at an exercise price as determined by the
Administrator in accordance with the Plan.
8. Exercise of Award.
(a) Procedure for Exercise; Rights as a Stockholder.
(i) Any Award granted hereunder shall be
exercisable at such times and under such conditions as determined by the
Administrator under the terms of the Plan and specified in the Award Agreement.
(ii) An Award shall be deemed to be exercised when
written notice of such exercise has been given to the Company in accordance
with the terms of the Award by the person entitled to exercise the Award and
full payment for the Shares with respect to which the Award is exercised has
been received by the Company. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to Shares subject to an Award, notwithstanding the exercise of an
Option or other Award. The Company shall issue (or cause to be issued) such
stock certificate promptly upon exercise of the Award. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in the Award Agreement
or Section 10, below.
(b) Exercise of Award Following Termination of
Employment, Director or Consulting Relationship.
(i) An Award may not be exercised after the
termination date of such Award set forth in the Award Agreement and may be
exercised following the termination of a Grantee's Continuous Status as an
Employee, Director or Consultant only to the extent provided in the Award
Agreement.
(ii) Where the Award Agreement permits a Grantee
to exercise an Award following the termination of the Grantee's Continuous
Status as an Employee, Director or Consultant for a specified period, the Award
shall terminate to the extent not exercised on the last day of the specified
period or the last day of the original term of the Award, whichever occurs
first.
(iii) Any Award designated as an Incentive Stock
Option to the extent not exercised within the time permitted by law for the
exercise of Incentive Stock Options following the termination of a Grantee's
Continuous Status as an Employee, Director or Consultant shall convert
automatically to a Non-Qualified Stock Option and thereafter shall be
exercisable as such to the extent exercisable by its terms for the period
specified in the Award Agreement.
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(c) Buyout Provisions. The Administrator may at any time
offer to buy out for a payment in cash or Shares, an Award previously granted,
based on such terms and conditions as the Administrator shall establish and
communicate to the Grantee at the time that such offer is made.
9. Conditions Upon Issuance of Shares.
(a) Shares shall not be issued pursuant to the exercise
of an Award unless the exercise of such Award and the issuance and delivery of
such Shares pursuant thereto shall comply with all Applicable Laws, and shall
be further subject to the approval of counsel for the Company with respect to
such compliance.
(b) As a condition to the exercise of an Award, the
Company may require the person exercising such Award to represent and warrant
at the time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a representation is
required by any Applicable Laws.
10. Adjustments Upon Changes in Capitalization. Subject to any
required action by the stockholders of the Company, the number of Shares
covered by each outstanding Award, and the number of Shares which have been
authorized for issuance under the Plan but as to which no Awards have yet been
granted or which have been returned to the Plan, as well as the price per share
of Common Stock covered by each such outstanding Award, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
similar event resulting in an increase or decrease in the number of issued
shares of Common Stock. Except as expressly provided herein, no issuance by
the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason hereof
shall be made with respect to, the number or price of Shares subject to an
Award.
11. Corporate Transactions/Changes in Control/Subsidiary
Dispositions. Except as may be provided in an Award Agreement:
(a) The Administrator shall have the authority,
exercisable either in advance of any actual or anticipated Corporate
Transaction, Change in Control or Subsidiary Disposition or at the time of an
actual Corporate Transaction, Change in Control or Subsidiary Disposition and
exercisable at the time of the grant of an Award under the Plan or any time
while an Award remains outstanding, to provide for the full automatic vesting
and exercisability of one or more outstanding unvested Awards under the Plan
and the release from restrictions on transfer and repurchase or forfeiture
rights of such Awards in connection with a Corporate Transaction, Change in
Control or Subsidiary Disposition, on such terms and conditions as the
Administrator may specify. The Administrator also shall have the authority to
condition any such Award vesting and exercisability or release from such
limitations upon the subsequent termination of the Continuous Status as an
Employee or Consultant of the Grantee within a specified period following the
effective date of the Change in Control or Subsidiary Disposition. The
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Administrator may provide that any Awards so vested or released from such
limitations in connection with a Change in Control or Subsidiary Disposition,
shall remain fully exercisable until the expiration or sooner termination of
the Award. Effective upon the consummation of a Corporate Transaction, all
outstanding Awards under the Plan shall terminate unless assumed by the
successor company or its Parent.
(b) The portion of any Incentive Stock Option accelerated
under this Section 11 in connection with a Corporate Transaction, Change in
Control or Subsidiary Disposition shall remain exercisable as an Incentive
Stock Option under the Code only to the extent the $100,000 dollar limitation
of Section 422(d) of the Code is not exceeded. To the extent such dollar
limitation is exceeded, the accelerated excess portion of such Option shall be
exercisable as a Non-Qualified Stock Option.
12. Term of Plan. The Plan shall become effective upon the
earlier to occur of its adoption by the Board or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten
(10) years unless sooner terminated.
13. Amendment, Suspension or Termination of the Plan.
(a) The Board may at any time amend, suspend or terminate
the Plan. To the extent necessary to comply with Applicable Laws, the Company
shall obtain stockholder approval of any Plan amendment in such a manner and to
such a degree as required.
(b) No Award may be granted during any suspension of the
Plan or after termination of the Plan.
(c) Any amendment, suspension or termination of the Plan
(including termination of the Plan under Section 12, above) shall not affect
Awards already granted, and such Awards shall remain in full force and effect
as if the Plan had not been amended, suspended or terminated, unless mutually
agreed otherwise between the Grantee and the Administrator, which agreement
must be in writing and signed by the Grantee and the Company.
14. Reservation of Shares.
(a) The Company, during the term of the Plan, will at all
times reserve and keep available such number of Shares as shall be sufficient
to satisfy the requirements of the Plan.
(b) The inability of the Company to obtain authority from
any regulatory body having jurisdiction, which authority is deemed by the
Company's counsel to be necessary to the lawful issuance and sale of any Shares
hereunder, shall relieve the Company of any liability in respect of the failure
to issue or sell such Shares as to which such requisite authority shall not
have been obtained.
15. No Effect on Terms of Employment/Consulting Relationship. The
Plan shall not confer upon any Grantee any right with respect to continuation
of employment or consulting relationship with the Company, nor shall it
interfere in any way with his or her right or the
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Company's right to terminate his or her employment or consulting relationship
at any time, with or without cause.
16. Stockholder Approval. The grant of Incentive Stock Options
under the Plan shall be subject to approval by the stockholders of the Company
within twelve (12) months before or after the date the Plan is adopted. Such
stockholder approval shall be obtained in the degree and manner required under
Applicable Laws. The Administrator may grant Incentive Stock Options under the
Plan prior to approval by the stockholders, but until such approval is
obtained, no such Incentive Stock Option shall be exercisable. In the event
that stockholder approval is not obtained within the twelve (12) month period
provided above, all Incentive Stock Options previously granted under the Plan
shall terminate.
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EXHIBIT 10.2
TRIUMPH FUELS CORPORATION
1997 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1997 Employee
Stock Purchase Plan of Triumph Fuels Corporation.
1. Purpose. The purpose of the Plan is to provide
employees of the Company and its Designated Subsidiaries with an opportunity to
purchase Common Stock of the Company through accumulated payroll deductions.
It is the intention of the Company to have the Plan qualify as an "Employee
Stock Purchase Plan" under Section 423 of the Code. The provisions of the
Plan, accordingly, shall be construed so as to extend and limit participation
in a manner consistent with the requirements of that section of the Code.
2. Definitions. As used herein, the following
definitions shall apply:
(a) "Accrual Period" means a period of approximately six
months, commencing on January 1 and July 1 of each year and terminating on the
next following June 30 or December 31, respectively; provided, however, that
the first Accrual Period shall commence on the Effective Date and shall end on
December 31, 1997.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as
amended.
(d) "Common Stock" means the common stock of the Company.
(e) "Company" means Triumph Fuels Corporation, a Nevada
corporation.
(f) "Compensation" means an Employee's base salary from
the Company or one or more Designated Parents or Subsidiaries, including such
amounts of base salary as are deferred by the Employee (i) under a qualified
cash or deferred arrangement described in Section 401(k) of the Code, or (ii)
to a plan qualified under Section 125 of the Code. Compensation does not
include overtime, bonuses, annual awards, other incentive payments,
reimbursements or other expense allowances, fringe benefits (cash or noncash),
moving expenses, deferred compensation, contributions (other than contributions
described in the first sentence) made on the Employee's behalf by the Company
or one or more Designated Parents or Subsidiaries under any employee benefit or
welfare plan now or hereafter established, and any other payments not
specifically referenced in the first sentence.
(g) "Corporate Transaction" means any of the following
stockholder-approved transactions to which the Company is a party:
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(1) a merger or consolidation in which the
Company is not the surviving entity, except for a transaction
the principal purpose of which is to change the state in which
the Company is incorporated;
(2) the sale, transfer or other disposition of
all or substantially all of the assets of the Company
(including the capital stock of the Company's subsidiary
corporations) in connection with complete liquidation or
dissolution of the Company; or
(3) any reverse merger in which the Company is
the surviving entity but in which securities possessing more
than fifty percent (50%) of the total combined voting power of
the Company's outstanding securities are transferred to a
person or persons different from those who held such
securities immediately prior to such merger.
(h) "Designated Subsidiaries" means the Subsidiaries
which have been designated by the Plan Administrator from time to time as
eligible to participate in the Plan.
(i) "Effective Date" means the effective date of the
Registration Statement relating to the Company's initial public offering of its
Common Stock. However, should any Designated Subsidiary become a participating
company in the Plan after such date, then such entity shall designate a
separate Effective Date with respect to its employee-participants.
(j) "Employee" means any individual, including an officer
or director, who is an employee of the Company or a Designated Parent or
Subsidiary for purposes of Section 423 of the Code. For purposes of the Plan,
the employment relationship shall be treated as continuing intact while the
individual is on sick leave or other leave of absence approved by the
individual's employer. Where the period of leave exceeds ninety (90) days and
the individual's right to reemployment is not guaranteed either by statute or
by contract, the employment relationship will be deemed to have terminated on
the ninety-first (91st) day of such leave, for purposes of determining
eligibility to participate in the Plan.
(k) "Enrollment Date" means the first day of each
Purchase Period.
(l) "Exchange Act" means the Securities Exchange Act of
1934, as amended.
(m) "Exercise Date" means the last day of each Accrual
Period.
(n) "Fair Market Value" means, as of any date, the value
of Common Stock determined as follows:
(1) Where there exists a public market for the
Common Stock, the Fair Market Value shall be (A) the closing
price for a share of Common Stock for the last market trading
day prior to the time of the determination (or, if no closing
price was reported on that date, on the last trading date on
which a closing price was reported) on the stock exchange
determined by the Plan Administrator to be
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the primary market for the Common Stock or the Nasdaq National
Market, whichever is applicable or (B) if the Common Stock is
not traded on any such exchange or national market system, the
average of the closing bid and asked prices of a share of
Common Stock on the Nasdaq Small Cap Market for the day prior
to the time of the determination (or, if no such prices were
reported on that date, on the last date on which such prices
were reported), in each case, as reported in The Wall Street
Journal or such other source as the Plan Administrator deems
reliable; or
(2) In the absence of an established market of
the type described in (1), above, for the Common Stock, and
subject to (3), below, the Fair Market Value thereof shall be
determined by the Plan Administrator in good faith; or
(3) On the Effective Date, the Fair Market Value
shall be the price at which the Board, or if applicable, the
Pricing Committee of the Board, and the underwriters agree to
offer the Common Stock to the public in the initial public
offering of the Common Stock, net of discounts and
underwriting commissions.
(o) "Participant" means an Employee of the Company or
Designated Parent or Subsidiary who is actively participating in the Plan.
(p) "Plan" means this Employee Stock Purchase Plan.
(q) "Plan Administrator" means either the Board or a
committee of the Board that is responsible for the administration of the Plan.
(r) "Purchase Period" means a purchase period established
pursuant to Section 4 hereof.
(s) "Purchase Price" shall mean an amount equal to 85%
of the Fair Market Value of a share of Common Stock on the Exercise Date.
(t) "Reserves" means the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(u) "Subsidiary" means a "subsidiary corporation,"
whether now or hereafter existing, as defined in Section 424(f) of the Code.
3. Eligibility.
(a) General. Any individual who is an Employee on a
given Enrollment Date shall be eligible to participate in the Plan for the
Purchase Period commencing with such Enrollment Date.
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(b) Limitations on Grant and Accrual. Any provisions of
the Plan to the contrary notwithstanding, no Employee shall be granted an
option under the Plan (i) if, immediately after the grant, such Employee
(taking into account stock owned by any other person whose stock would be
attributed to such Employee pursuant to Section 424(d) of the Code) would own
stock and/or hold outstanding options to purchase stock possessing five percent
(5%) or more of the total combined voting power or value of all classes of
stock of the Company or of any Parent or Subsidiary, or (ii) which permits
his/her rights to purchase stock under all employee stock purchase plans of the
Company and its Parents or Subsidiaries to accrue at a rate which exceeds
Twenty-Five Thousand Dollars ($25,000) worth of stock (determined at the Fair
Market Value of the shares at the time such option is granted) for each
calendar year in which such option is outstanding at any time. The
determination of the accrual of the right to purchase stock shall be made in
accordance with Section 423(b)(8) of the Code and the regulations thereunder.
(c) Other Limits on Eligibility. Notwithstanding
Subsection (a), above, the following Employees shall not be eligible to
participate in the Plan for any relevant Purchase Period: (i) Employees whose
customary employment is 20 or fewer hours or less per week; (ii) Employees
whose customary employment is for not more than 5 or fewer months in any
calendar year; (iii) Employees who have been employed for fewer than 24 or
fewer months; and (iv) Employees who are subject to rules or laws of a foreign
jurisdiction that prohibit or make impractical the participation of such
Employees in the Plan.
4. Purchase Periods.
(a) The Plan shall be implemented through overlapping or
consecutive Purchase Periods until such time as (i) the maximum number of
shares of Common Stock available for issuance under the Plan shall have been
purchased or (ii) the Plan shall have been sooner terminated in accordance with
Section 19 hereof. The maximum duration of a Purchase Period shall be
twenty-seven (27) months. Initially, the Plan shall be implemented through
overlapping Purchase Periods of twenty-four (24) months' duration commencing
each January 1 and July 1 following the Effective Date (except that the initial
Purchase Period shall commence on the Effective Date and shall end on December
31, 1997). The Plan Administrator shall have the authority to change the
length of any Purchase Period and the length of Accrual Periods within any such
Purchase Period subsequent to the initial Purchase Period by announcement at
least thirty (30) days prior to the commencement of the Purchase Period and to
determine whether subsequent Purchase Periods shall be consecutive or
overlapping.
(b) A Participant shall be granted a separate option for
each Purchase Period in which he/she participates. The option shall be granted
on the Enrollment Date and shall be automatically exercised on the last day of
the Purchase Period. However, with respect to any Purchase Period, the Plan
Administrator may specify shorter Accrual Periods within a Purchase Period,
such that the option granted on the Enrollment Date shall be automatically
exercised in successive installments on the last day of each Accrual Period
ending within the Purchase Period.
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(c) An Employee may participate in only one Purchase
Period at a time. Accordingly, except as provided in Section 4(d), an Employee
who wishes to join a new Purchase Period must withdraw from the current
Purchase Period in which he/she is participating and must also enroll in the
new Purchase Period prior to the Enrollment Date for that Purchase Period.
(d) If on the first day of any Accrual Period in a
Purchase Period in which a Participant is participating, the Fair Market Value
of the Common Stock is less than the Fair Market Value of the Common Stock on
the Enrollment Date of the Purchase Period (after taking into account any
adjustment during the Purchase Period pursuant to Section 18(a)), the Purchase
Period shall be terminated automatically and the Participant shall be enrolled
automatically in the new Purchase Period which has its first Accrual Period
commencing on that date, provided the Participant is eligible to participate in
the Plan on that date and has not elected to terminate participation in the
Plan.
(e) Except as specifically provided herein, the
acquisition of Common Stock through participation in the Plan for any Purchase
Period shall neither limit nor require the acquisition of Common Stock by a
Participant in any subsequent Purchase Period.
5. Participation.
(a) An eligible Employee may become a Participant in the
Plan by completing a subscription agreement authorizing payroll deductions in
the form of Exhibit A to this Plan and filing it with the designated payroll
office of the Company at least ten (10) business days prior to the Enrollment
Date for the Purchase Period in which such participation will commence, unless
a later time for filing the subscription agreement is set by the Plan
Administrator for all eligible Employees with respect to a given Purchase
Period.
(b) Payroll deductions for a Participant shall commence
with the first payroll period following the Enrollment Date and shall end on
the last complete payroll period during the Purchase Period, unless sooner
terminated by the Participant as provided in Section 10.
6. Payroll Deductions.
(a) At the time a Participant files his/her subscription
agreement, he/she shall elect to have payroll deductions made during the
Purchase Period in an amount not exceeding ten percent (10%) of the
Compensation which he/she receives during the Purchase Period.
(b) All payroll deductions made for a Participant shall
be credited to his/her account under the Plan and will be withheld in whole
percentages only. A Participant may not make any additional payments into such
account.
(c) A Participant may discontinue his/her participation
in the Plan as provided in Section 10, or may decrease the rate of his/her
payroll deductions during the Purchase Period by completing and filing with the
Company a new subscription agreement authorizing a decrease in the payroll
deduction rate. The decrease in rate shall be effective with the first full
payroll
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period commencing ten (10) business days after the Company's receipt of the new
subscription agreement unless the Company elects to process a given change in
participation more quickly. A Participant may increase the rate of his/her
payroll deductions for a future Purchase Period by filing with the Company a
new subscription agreement authorizing an increase in the payroll deduction
rate within ten (10) business days (unless the Company elects to process a
given change in participation more quickly) before the commencement of the
upcoming Purchase Period. A Participant's subscription agreement shall remain
in effect for successive Purchase Periods unless terminated as provided in
Section 10. The Plan Administrator shall be authorized to limit the number of
payroll deduction rate changes during any Purchase Period.
(d) Notwithstanding the foregoing, to the extent
necessary to comply with Section 423(b)(8) of the Code and Section 3(b) herein,
a Participant's payroll deductions may be decreased to 0% at such time during
any Accrual Period which is scheduled to end during the current calendar year
(the "Current Accrual Period") that the aggregate of all payroll deductions
which were previously used to purchase stock under the Plan in a prior Accrual
Period which ended during that calendar year plus all payroll deductions
accumulated with respect to the Current Accrual Period equal $21,250. Payroll
deductions shall recommence at the rate provided in such Participant's
subscription agreement at the beginning of the first Accrual Period which is
scheduled to end in the following calendar year, unless terminated by the
Participant as provided in Section 10.
7. Grant of Option. On the Enrollment Date, each
Participant in such Purchase Period shall be granted an option to purchase on
each Exercise Date of such Purchase Period (at the applicable Purchase Price)
up to a number of shares of the Common Stock determined by dividing such
Participant's payroll deductions accumulated prior to such Exercise Date and
retained in the Participant's account as of the Exercise Date by the applicable
Purchase Price; provided (i) that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 12 hereof, and (ii) the maximum
number of shares of Common Stock a Participant shall be permitted to purchase
in any Accrual Period shall be 1,000 shares, subject to adjustment as provided
in Section 18 hereof. Exercise of the option shall occur as provided in
Section 8, unless the Participant has withdrawn pursuant to Section 10, and the
option, to the extent not exercised, shall expire on the last day of the
Purchase Period.
8. Exercise of Option. Unless a Participant withdraws
from the Plan as provided in Section 10, below, his/her option for the purchase
of shares will be exercised automatically on each Exercise Date, and the
maximum number of full shares subject to the option shall be purchased for such
Participant at the applicable Purchase Price with the accumulated payroll
deductions in his/her account. No fractional shares will be purchased; any
payroll deductions accumulated in a Participant's account which are not
sufficient to purchase a full share shall be carried over to the next Accrual
Period or Purchase Period, whichever applies, or returned to the Participant,
if the Participant withdraws from the Plan. Any amount remaining in a
Participant's account following the purchase of shares on the Exercise Date
which exceeds the cost of one full share of Common Stock on the Exercise Date
shall be returned to the Participant and shall not be carried over to the next
Purchase Period. During a Participant's lifetime, a Participant's option to
purchase shares hereunder is exercisable only by him/her.
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9. Delivery. Upon receipt of a request from a
Participant after each Exercise Date on which a purchase of shares occurs, the
Company shall arrange the delivery to such Participant, as promptly as
practicable, of a certificate representing the shares purchased upon exercise
of his/her option.
10. Withdrawal; Termination of Employment.
(a) A Participant may withdraw all but not less than all the
payroll deductions credited to his/her account and not yet used to exercise
his/her option under the Plan at any time by giving written notice to the
Company in the form of Exhibit B to this Plan. All of the Participant's
payroll deductions credited to his/her account will be paid to such
Participant as promptly as practicable after receipt of notice of withdrawal,
such Participant's option for the Purchase Period will be automatically
terminated, and no further payroll deductions for the purchase of shares will
be made during the Purchase Period. If a Participant withdraws from a
Purchase Period, payroll deductions will not resume at the beginning of the
succeeding Purchase Period unless the Participant delivers to the Company a
new subscription agreement.
(b) Upon a Participant's ceasing to be an Employee for any reason
or upon termination of a Participant's employment relationship (as described
in Section 2(j)), the payroll deductions credited to such Participant's
account during the Purchase Period but not yet used to exercise the option
will be returned to such Participant or, in the case of his/her death, to the
person or persons entitled thereto under Section 14, and such Participant's
option will be automatically terminated.
11. Interest. No interest shall accrue on the payroll
deductions credited to a Participant's account under the Plan.
12. Stock.
(a) The maximum number of shares of Common Stock which
shall be made available for sale under the Plan shall be 150,000 shares,
subject to adjustment upon changes in capitalization of the Company as provided
in Section 18. If on a given Exercise Date the number of shares with respect
to which options are to be exercised exceeds the number of shares then
available under the Plan, the Plan Administrator shall make a pro rata
allocation of the shares remaining available for purchase in as uniform a
manner as shall be practicable and as it shall determine to be equitable.
(b) A Participant will have no interest or voting right
in shares covered by his/her option until such shares are actually purchased on
the Participant's behalf in accordance with the applicable provisions of the
Plan. No adjustment shall be made for dividends, distributions or other rights
for which the record date is prior to the date of such purchase.
(c) Shares to be delivered to a Participant under the
Plan will be registered in the name of the Participant or in the name of the
Participant and his/her spouse.
7
<PAGE> 8
13. Administration. The Plan shall be administered by
the Board or a committee of members of the Board appointed by the Board. The
Board or its committee shall have full and exclusive discretionary authority to
construe, interpret and apply the terms of the Plan, to determine eligibility
and to adjudicate all disputed claims filed under the Plan. Every finding,
decision and determination made by the Board or its committee shall, to the
full extent permitted by law, be final and binding upon all persons.
14. Designation of Beneficiary.
(a) Each Participant will file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
Participant's account under the Plan in the event of such Participant's death.
If a Participant is married and the designated beneficiary is not the spouse,
spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the
Participant (and his/her spouse, if any) at any time by written notice. In the
event of the death of a Participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such Participant's
death, the Company shall deliver such shares and/or cash to the executor or
administrator of the estate of the Participant, or if no such executor or
administrator has been appointed (to the knowledge of the Plan Administrator),
the Plan Administrator, in its discretion, may deliver such shares and/or cash
to the spouse or to any one or more dependents or relatives of the Participant,
or if no spouse, dependent or relative is known to the Plan Administrator, then
to such other person as the Plan Administrator may designate.
15. Transferability. Neither payroll deductions credited
to a Participant's account nor any rights with regard to the exercise of an
option or to receive shares under the Plan may be assigned, transferred,
pledged or otherwise disposed of in any way (other than by will, the laws of
descent and distribution or as provided in Section 14 hereof) by the
Participant. Any such attempt at assignment, transfer, pledge or other
disposition shall be without effect, except that the Plan Administrator may
treat such act as an election to withdraw funds from a Purchase Period in
accordance with Section 10.
16. Use of Funds. All payroll deductions received or
held by the Company under the Plan may be used by the Company for any corporate
purpose, and the Company shall not be obligated to segregate such payroll
deductions.
17. Reports. Individual accounts will be maintained for
each Participant in the Plan. Statements of account will be given to
Participants at least annually, which statements will set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
18. Adjustments Upon Changes in Capitalization; Corporate
Transactions.
(a) Adjustments Upon Changes in Capitalization. Subject
to any required action by the stockholders of the Company, the Reserves, as
well as the Purchase Price, shall be proportionately adjusted for any increase
or decrease in the number of issued shares of Common
8
<PAGE> 9
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other similar event
resulting in an increase or decrease in the number of issued shares of Common
Stock. Such adjustment shall be made by the Plan Administrator, whose
determination in that respect shall be final, binding and conclusive. Except
as expressly provided herein, no issue by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of shares of Common Stock subject to an option. The Plan
Administrator may, if it so determines in the exercise of its sole discretion,
make provision for adjusting the Reserves, as well as the price per share of
Common Stock covered by each outstanding option, in the event the Company
effects one or more reorganizations, recapitalizations, rights offerings or
other increases or reductions of shares of its outstanding Common Stock.
(b) Corporate Transactions. In the event of a proposed
Corporate Transaction, each option under the Plan shall be assumed or an
equivalent option shall be substituted by such successor corporation or a
parent or subsidiary of such successor corporation, unless the Plan
Administrator determines, in the exercise of its sole discretion and in lieu of
such assumption or substitution, to shorten the Purchase Period then in
progress by setting a new Exercise Date (the "New Exercise Date"). If the Plan
Administrator shortens the Purchase Period then in progress in lieu of
assumption or substitution in the event of a Corporate Transaction, the Plan
Administrator shall notify each Participant in writing, at least ten (10) days
prior to the New Exercise Date, that the Exercise Date for his/her option has
been changed to the New Exercise Date and that his/her option will be exercised
automatically on the New Exercise Date, unless prior to such date he/she has
withdrawn from the Purchase Period as provided in Section 10. For purposes of
this Subsection, an option granted under the Plan shall be deemed to be assumed
if, following the Corporate Transaction, the option confers the right to
purchase, for each share of Common Stock subject to the option immediately
prior to the Corporate Transaction, the consideration (whether stock, cash or
other securities or property) received in the Corporate Transaction by holders
of Common Stock for each share of Common Stock held on the effective date of
the Corporate Transaction (and if such holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding shares of Common Stock); provided, however, that if such
consideration received in the Corporate Transaction was not solely common stock
of the successor corporation or its Parent, the Plan Administrator may, with
the consent of the successor corporation and the Participant, provide for the
consideration to be received upon exercise of the option to be solely common
stock of the successor corporation or its Parent equal in fair market value to
the per share consideration received by holders of Common Stock in the
Corporate Transaction.
19. Amendment or Termination.
(a) The Plan Administrator may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 18, no such
termination can affect options previously granted, provided that a Purchase
Period may be terminated by the Plan Administrator on any Exercise Date if the
Plan Administrator determines that the termination of the Plan is in the best
interests of the Company and its stockholders. Except as provided in Section
18, no
9
<PAGE> 10
amendment may make any change in any option theretofore granted which adversely
affects the rights of any Participant. To the extent necessary to comply with
Section 423 of the Code (or any successor rule or provision or any other
applicable law or regulation), the Company shall obtain stockholder approval in
such a manner and to such a degree as required.
(b) Without stockholder consent and without regard to
whether any Participant rights may be considered to have been "adversely
affected," the Plan Administrator shall be entitled to change the Purchase
Periods, limit the frequency and/or number of changes in the amount withheld
during Purchase Periods, establish the exchange ratio applicable to amounts
withheld in a currency other than U.S. dollars, establish additional terms,
conditions, rules or procedures to accommodate the rules or laws of applicable
foreign jurisdictions, permit payroll withholding in excess of the amount
designated by a Participant in order to adjust for delays or mistakes in the
Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each Participant properly correspond with amounts withheld from the
Participant's Compensation, and establish such other limitations or procedures
as the Plan Administrator determines in its sole discretion advisable and which
are consistent with the Plan.
20. Notices. All notices or other communications by a
Participant to the Company under or in connection with the Plan shall be deemed
to have been duly given when received in the form specified by the Plan
Administrator at the location, or by the person, designated by the Plan
Administrator for the receipt thereof.
21. Conditions Upon Issuance of Shares. Shares shall not
be issued with respect to an option unless the exercise of such option and the
issuance and delivery of such shares pursuant thereto shall comply with all
applicable provisions of law, domestic or foreign, including, without
limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules
and regulations promulgated thereunder, and the requirements of any stock
exchange upon which the shares may then be listed, and shall be further subject
to the approval of counsel for the Company with respect to such compliance. As
a condition to the exercise of an option, the Company may require the
Participant to represent and warrant at the time of any such exercise that the
shares are being purchased only for investment and without any present
intention to sell or distribute such shares if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
applicable provisions of law. In addition, no options shall be exercised or
shares issued hereunder before the Plan shall have been approved by
stockholders of the Company as provided in Section 23.
22. Term of Plan. The Plan shall become effective upon
the earlier to occur of its adoption by the Board or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten
(10) years unless sooner terminated under Section 19.
23. Stockholder Approval. Continuance of the Plan shall
be subject to approval by the stockholders of the Company within twelve (12)
months before or after the date the Plan is adopted. If such stockholder
approval is obtained at a duly held stockholders'
10
<PAGE> 11
meeting, the Plan must be approved by a majority of the votes cast at such
stockholders' meeting at which a quorum representing a majority of all
outstanding voting stock of the Company is, either in person or by proxy,
present and voting on the Plan. If such stockholder approval is obtained by
written consent, it must be obtained by the written consent of the holders of a
majority of all outstanding voting stock of the Company. However, approval at
a meeting or by written consent may be obtained by a lesser degree of
stockholder approval if the Plan Administrator determines, in its discretion
after consultation with the Company's legal counsel, that such a lesser degree
of stockholder approval will comply with all applicable laws and will not
adversely affect the qualification of the Plan under Section 423 of the Code.
24. No Employment Rights. The Plan does not, directly or
indirectly, create any right for the benefit of any employee or class of
employees to purchase any shares under the Plan, or create in any employee or
class of employees any right with respect to continuation of employment by the
Company or a Designated Parent or Subsidiary, and it shall not be deemed to
interfere in any way with such employer's right to terminate, or otherwise
modify, an employee's employment at any time.
25. Effect of Plan. The provisions of the Plan shall, in
accordance with its terms, be binding upon, and inure to the benefit of, all
successors of each Participant, including, without limitation, such
Participant's estate and the executors, administrators or trustees thereof,
heirs and legatees, and any receiver, trustee in bankruptcy or representative
of creditors of such Participant.
26. Information to Participants The Company shall
provide to each Participant, during the period for which such Participant has
an option outstanding, copies of financial statements at least annually and all
annual reports and other information which is provided to all shareholders of
the Company.
27. Applicable Law. The laws of the State of Colorado
(excluding that body of law pertaining to its conflicts of law) will govern all
matters relating to this Plan except to the extent it is superseded by the laws
of the United States.
11
<PAGE> 12
EXHIBIT A
TRIUMPH FUELS CORPORATION
1997 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
Original Application
- -----
Enrollment Date:
-----------
Change in Payroll Deduction Rate
- ------
Change of Beneficiary(ies)
- ------
1. I,________________________, hereby elect to
participate in the Triumph Fuels Corporation 1997 Employee Stock Purchase Plan
(the "Employee Stock Purchase Plan") and subscribe to purchase shares of the
Company's Common Stock in accordance with this Subscription Agreement and the
Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each
paycheck in the amount of ______% of my Compensation on each payday (not to
exceed 10%) during the Purchase Period in accordance with the Employee Stock
Purchase Plan. (Please note that no fractional percentages are permitted.)
3. I understand that the payroll deductions shall be
accumulated for the purchase of shares of Common Stock at the applicable
Purchase Price determined in accordance with the Employee Stock Purchase Plan.
I understand that if I do not withdraw from a Purchase Period, any accumulated
payroll deductions will be used to automatically exercise my option.
4. I have received a copy of the complete "Triumph Fuels
Corporation 1997 Employee Stock Purchase Plan." I understand that my
participation in the Employee Stock Purchase Plan is in all respects subject to
the terms of the Plan. I understand that the grant of the option by the
Company under this Subscription Agreement is subject to obtaining stockholder
approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock
Purchase Plan should be issued in the name(s) of:
---------------------------------
---------------------------------
6. I understand that if I dispose of any shares received
by me pursuant to the Employee Stock Purchase Plan within two (2) years after
the Enrollment Date (the first day of the Purchase Period during which I
purchased such shares) or within one (1) year after the Exercise Date (the date
I purchased such shares), I will be treated for federal income tax purposes as
having received ordinary income at the time of such disposition in an amount
equal to the excess of the fair market value of the shares on the date such
shares were purchased for me over
A-1
<PAGE> 13
the price which I paid for the shares. I hereby agree to notify the Company in
writing within 30 days after the date of any such disposition and I will make
adequate provision for foreign, federal, state or other tax withholding
obligations, if any which arise upon the disposition of the Common Stock. The
Company may, but will not be obligated to, withhold from my compensation the
amount necessary to meet any applicable withholding obligation including any
withholding necessary to make available to the Company any tax deductions or
benefits attributable to sale or early disposition of Common Stock by me. If I
dispose of such shares at any time after the expiration of the 2-year and 1-
year holding periods described above, I understand that I will be treated for
federal income tax purposes as having received income only at the time of such
disposition, and that such income will be taxed as ordinary income only to the
extent of an amount equal to the lesser of (1) the excess of the fair market
value of the shares at the time of such disposition over the purchase price
which I paid for the shares, or (2) 15% of the fair market value of the shares
on the first day of the Purchase Period. The remainder of the gain, if any,
recognized on such disposition will be taxed as long-term capital gain. I also
understand that the foregoing income tax consequences are based on current
federal income tax law and that the Company is not responsible for advising me
of any changes in the applicable tax rules.
7. I hereby agree to be bound by the terms of the
Employee Stock Purchase Plan. The effectiveness of this Subscription Agreement
is dependent upon my eligibility to participate in the Employee Stock Purchase
Plan.
8. In the event of my death, I hereby designate the
following as my beneficiary(ies) to receive all payments and shares due me
under the Employee Stock Purchase Plan.
NAME: (Please print)
----------------------------------------------
(First) (Middle) (Last)
Relationship:
----------------------------------------------
Address:
----------------------------------------------
----------------------------------------------
----------------------------------------------
Employee's Social
Security Number:
----------------------------------------------
Employee's Home Address:
----------------------------------------------
----------------------------------------------
----------------------------------------------
A-2
<PAGE> 14
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE PURCHASE PERIODS UNLESS TERMINATED BY ME
Employee's Signature:
---------------------------------------------
Dated:
---------------------------------------------
Signature of spouse
if beneficiary is other
than spouse:
---------------------------------------------
Dated:
---------------------------------------------
A-3
<PAGE> 15
EXHIBIT B
TRIUMPH FUELS CORPORATION
1997 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
NOTICE OF WITHDRAWAL
The undersigned Participant in the Purchase Period of the
Triumph Fuels Corporation 1997 Employee Stock Purchase Plan which began on
_________________, 19___, hereby notifies the Company that he or she hereby
withdraws from the Purchase Period. He or she hereby directs the Company to
pay to the undersigned as promptly as practicable all the payroll deductions
credited to his/her account with respect to such Purchase Period. The
undersigned understands and agrees that his/her option for such Purchase Period
will be automatically terminated. The undersigned understands further that no
further payroll deductions will be made for the purchase of shares in the
current Purchase Period and the undersigned shall be eligible to participate in
succeeding Purchase Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address
of Participant:
---------------------------------------------
---------------------------------------------
---------------------------------------------
Signature:
---------------------------------------------
Date:
---------------------------------------------
B-1
<PAGE> 1
Exhibit 10.3
PORTFIELD INVESTMENTS, INC.
STOCK OPTION PLAN
1. Establishment, Purpose, and Definitions
(a) There is hereby adopted by Portfield Investments, Inc. (the
"Company") effective as of May 1, 1993, the Portfield
Investments, Inc. Stock Option Plan (the "Plan").
(b) The purpose of the Plan is to provide a means where by eligible
individuals (as defined in Section 4, below) can acquire common
stock of the Company (the "Stock"). The plan provides employees
(including officers and directors who are employees) of the
Company and of its Affiliates as opportunity to purchase shares
of Stock pursuant to options which may qualify as incentive stock
options (referred to as "incentive stock options") under Section
422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and employees, officers, directors, independent
contractors, and consultants of the Company and of its Affiliates
an opportunity to purchase shares of Stock pursuant to options
which are not described in Sections 422 or 423 of the Code
(referred to as "non-qualified stock options").
(c) The term "Affiliate" as used is the Plan means parent or
subsidiary corporations of the Company, as defined in Sections
424(3) and (f) of the Code (but substituting "the Company" for
"employer corporation"), including parents or subsidiaries of the
Company which become such after adoption of the Plan.
2. Administration of the Plan
(a) The Plan shall be administered by the Board of Directors of the
Company (the "Board"). The Board may delegate the responsibility
for administering the Plan to a committee, under such terms and
conditions as the Board shall determine (the "Committee"). If
the Company or any of its Affiliates becomes subject to Section
16 of the Securities Exchange Act of 1934, as amended, (i) the
Committee shall consist of two or more members of the Board or
such lesser number of members of the Board as permitted by Rule
16b-3 promulgated under the Securities Exchange Act of 1934, as
amended ("Rule 16b-3"), (ii) none of the members of the Committee
shall receive, while serving on the Committee, or during the one-
year period preceding appointment to the Committee, a grant or
award of equity securities under (A) the Plan or (B) any other
plan of the Company or its Affiliates under which the
participants are entitled to acquire Stock (including restricted
stock), stock options, stock bonuses, or related rights of the
Company or any of its Affiliates, other than pursuant to
transactions in any such other plan which do not disqualify a
director from being a disinterested person under Rule 16b-3, and
(iii) the limitations set for the in this provision shall
automatically incorporate any additional requirements that may in
the future be necessary for the Plan to comply with Rule 16b-3.
Members of the Committee shall serve at the
<PAGE> 2
pleasure of the Board. The Committee shall select one of its
members as chair of the Committee, and shall hold meetings at
such times and places as it may determine. A majority of the
Committee shall constitute a quorum and acts of the Committee at
which a quorum is present, or acts reduced to or approved in
writing by all the members of the Committee, shall be the valid
acts of the Committee. If the Board does not delegate
administration of the Plan to the Committee, then each reference
in this Plan to the "Committee" shall be construed to refer to
the Board
(b) The Committee shall determine which eligible individuals (as
defined in Section 4, below) shall be granted options under the
Plan, the timing of such grants, the terms thereof (including any
restrictions on the Stock), and the number of shares subject to
such options.
(c) The Committee may amend the terms of any outstanding option
granted under this Plan, but any amendment which would adversely
affect the optionee's rights under an outstanding option shall
not be made without the optionee's written consent. The
Committee may, with the optionee's written consent, cancel any
outstanding option or accept any outstanding option in exchange
for a new option.
(d) The Committee shall have the sole authority, in its absolute
discretion to adopt, amend, and rescind such rules and
regulations as, in its opinion, may be advisable in the
administration of the Plan, to construe and interpret the Plan,
the rules and the regulations, and the instruments evidencing
options or Stock granted under the Plan and to make all other
determinations, and interpretations of the Committee shall be
binding on all participants.
3. Stock Subject to the Plan
(a) An aggregate of not more than 450,000 shares of Stock shall be
available for the grant of options under the Plan. If an option
is surrendered (except surrender for shares of Stock) or for any
other reason ceases to be exercisable in whole or in part, the
shares which were subject to such option but as to which the
option had not been exercised shall continue to be available
under the Plan.
(b) If there is any change in the Stock subject to the Plan or
subject to any option granted under the Plan through merger,
consolidation, re-organization, recapitalization, re-
incorporation, stock split, stock dividend (in excess of two
percent), or other change in the corporate structure of the
Company, appropriate adjustments shall be made by the Committee
to preserve but not to increase the benefits to the individual,
including adjustments to the aggregate number and kind of shares
subject to the Plan and the number and kind of shares and the
price per share subject to outstanding options.
<PAGE> 3
4. Eligible Individuals
Individuals who shall be eligible to have granted to them the options
provided for by the Plan shall be such employees, officers, directors,
independent contractors, and consultants of the Company or an Affiliate
as the Committee, in its discretion, shall designate from time to time.
Except as may be required by Section 2(a), members of the Board and the
Committee shall be eligible to be granted options under this Plan.
Notwithstanding the foregoing, only employees of the Company or an
Affiliate (including officers and directors who are bona fide employees)
shall be eligible to receive incentive stock options.
5. The Option Price
The exercise price of each incentive option shall be not less than the
per share fair market value of the Stock subject to such option on the
date the option is granted. The exercise price of each non-qualified
stock option shall be as determined by the Committee, but shall not be
less than 85% of the fair market value of such stock on the date the
option is granted. Notwithstanding the foregoing, in the case of an
incentive stock option granted to a person possessing more than ten
percent of the combined voting power of the Company or an Affiliate, the
exercise price shall be not less than 110 percent of the fair market
value of the Stock on the date the option is granted. The exercise
price of an option shall be subject to adjustment to the extent provided
in Section 3(b), above.
6. Terms and Conditions of Options
(a)Each option granted pursuant to the Plan will be evidenced by a
written stock option agreement executed by the Company and the person to
whom such option is granted.
(b)The Committee shall determine the term of each option granted under
the Plan; provided, however, that the term of an incentive stock option
shall not be for more than ten years and that, in the case of an
incentive stock option granted to a person possessing more than ten
percent of the combined voting power of the Company or an Affiliate, the
term of each incentive stock option shall be no more than five years.
(c)In the case of incentive stock options, the aggregate fair market
value (determined as of the time such option is granted) of the Stock
with respect to which incentive stock options are exercisable for the
first time by an eligible employee in any calendar year (under this Plan
and any other plans of the Company or its Affiliates) shall not exceed
$100,000.
(d)The stock option agreement may contain such other terms, provisions,
and conditions consistent with this Plan as may be determined by the
Committee. If an option, or any part thereof is intended to qualify as
an incentive stock option, the
<PAGE> 4
stock option agreement shall contain those terms and conditions which
are necessary to so qualify it.
7. Use of Proceeds
Cash proceeds realized from the sale of Stock under the Plan or pursuant
to options granted under the Plan shall constitute general funds of the
Company.
8. Amendment, Suspension, or Termination of the Plan
(a) The Board may at any time amend, suspend, or terminate the Plan
as it deems advisable; provided that such amendment, suspension,
or termination complies with all applicable requirements of state
and federal law, including any applicable requirement that the
Plan or an amendment to the Plan be approved by the shareholders,
and provided further that, if the Company or any of its
Affiliates becomes subject to Section 16 of the Securities
Exchange Act of 1934, as amended, the Board shall in no event
(except as provided in Section 3(b), above) amend the Plan in the
following respects without the consent of the shareholders then
sufficient to approve the Plan in the first instance:
(i) To materially increase the number of shares which may be
issued under the Plan;
(ii) To materially increase the benefits accruing to
participants under the Plan; or
(iii) To materially modify the eligibility requirements for
participation in the Plan.
(b) No option may be granted under the Plan during any suspension or
after the termination of the Plan, and no amendment, suspension,
or termination of the Plan shall, without the affected
individual's consent, alter or impair any rights or obligations
under any option previously granted under the Plan. The Plan
shall terminate with respect to the grant of options on the tenth
anniversary of the date of adoption of the Plan, unless
previously terminated by the Board pursuant to this Section.
9. Assignability
Each option granted pursuant to this Plan shall, during optionee's
lifetime, be exercisable only by him and neither the option nor any
right hereunder shall be transferable by optionee by operation of law or
otherwise than by will or the laws of descent and distribution.
<PAGE> 5
10. Payment Upon Exercise of Options
(a) Payment of the purchase price upon exercise of any option granted
under this Plan shall be made in cash, a certified check, bank
draft, or express money order payable to the order of the Company
in lawful money of the United States; provided, however, that the
Committee in it sole discretion, may permit an optionee to pay
the option price in whole or in part (i) with shares of Stock
owned by the optionee; (ii) by delivery on a form prescribed by
the Committee of an irrevocable direction to a securities broker
approved by the Committee to sell shares and deliver all or a
portion of the proceeds to the Company in payment for the Stock;
(iii) by delivery of the optionee's promissory note with such
recourse, interest, security, and redemption provisions as the
Committee in its discretion determines appropriate; or (iv) in
any combination of the foregoing. Any Stock used to exercise
options shall be valued at its fair market value on the date of
the exercise of the option. In addition, the Committee, in its
sole discretion, may authorize the surrender by an optionee of
all or part of an unexercised option and authorize payment in
consideration thereof of an amount equal to the difference
between the aggregate fair market vale of the Stock subject to
such option and the aggregate option price of such stock. In the
Committee's discretion, such payment may be made in cash, shares
of Stock with a fair market value on the date of surrender equal
to the payment amount, or some combination thereof.
11. Withholding Taxes
(a) Upon the exercise of a stock option, the Company (or the
optionee's employer) may withhold from the optionee shares of
Stock sufficient to satisfy federal, state, and local income and
social security tax withholding obligations.
(b) In the event that such withholding is satisfied by the Company or
the optionee's employer retaining from the shares of Stock
otherwise to be issued to optionee shares of Stock having a value
equal to such withholding, the Committee may issue optionee an
additional option, with terms identical to the option agreement
under which the option was received, entitling optionee to
purchase additional Stock in an amount equal to the number of
shares so retained.
12. Restrictions on Transfer of Shares
The Stock acquired pursuant to the Plan shall be subject to such
restrictions and agreements regarding sale, assignment, encumbrances, or
other transfer as are in effect among the stockholders of the Company at
the time such Stock is acquired, as well as to such other restrictions
as the Committee shall deem appropriate.
<PAGE> 6
13. Transfer of Control
A "Transfer of Control" shall be deemed to have occurred in the event of
any of the following:
(a) the sale or exchange by the shareholders of the Company of all or
substantially all of the stock of the Company where the
shareholders of the Company before such sale or exchange do not
retain, directly or indirectly, at least a majority of the
beneficial interest in the voting stock of the acquiring company;
(b) a merger in which the shareholders of the Company before such
merger do not retain, directly or indirectly, at least a majority
of the beneficial interest in the voting stock of the resulting
company following the merger; or
(c) the sale or exchange of all or substantially all of the Company's
assets (other than a transfer to a subsidiary of the Company as
defined in section 424 (f) of the Code).
In the event of a Transfer of Control, any option shall be fully vested
and become exercisable coincident with the specified effective date of
the Transfer of Control. Any option that is neither exercised as of the
date of the Transfer of Control nor assumed by the surviving,
continuing, successor, or purchasing corporation, as the case may be,
shall terminate immediately following the date on which the Transfer of
Control occurs.
14. Shareholder Approval
This Plan shall become effective only with regard to the grant of
options upon its approval by a majority of the Company's stockholders
voting (in person or by proxy) at a stockholders' meeting held within
twelve months of the Board's adoption of the Plan. The Committee may
grant options under the Plan prior to the stockholders' meeting, but
until stockholder approval of the Plan is obtained no option shall be
exercisable.
<PAGE> 1
Exhibit 10.4
FINAL
CONSULTING MANAGEMENT AGREEMENT
THIS CONSULTING MANAGEMENT AGREEMENT (hereinafter referred to
as the "Agreement") made as of the 17th day of September, 1992, by and between
WLD ENTERPRISES, INC., a Florida corporation (hereinafter referred to as
"Manager") and WESCOURT GROUP, INC., a Delaware corporation (hereinafter
referred to as the "Company").
W I T N E S S E T H:
WHEREAS, the Company believes that it is in the best
interests of the Company to retain Manager to provide consulting services to
the Company and to advise on financial and operating matters on an ongoing
basis; and
WHEREAS, the Company and Manager desire to set forth the
terms and conditions pursuant to which Manager will be retained by the Company;
NOW, THEREFORE, in consideration of the mutual convenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. RETENTION; TERMS. The Company hereby offers to retain
Manager as a consultant and Manager hereby accepts such offer of retention as a
consultant, upon the terms and conditions hereinafter set forth, for a term
commencing on the date hereof and terminating five (5) years from such date;
provided, however, that Manager of the Company (by majority vote of the Board
of Directors of the Company) may terminate this Agreement at any time upon
ninety (90) days written notice. No other termination of this Agreement shall
be permitted, the parties specifically recognizing and agreeing that the only
circumstances in which this Agreement may be terminated prior to the end of its
five (5) year term are set forth in the immediately preceding sentence.
2. DUTIES AND AUTHORITY OF MANAGER.
(a) General Duties. Subject to the terms and conditions set
forth herein and
<PAGE> 2
the authority of the officers and directors of the Company to make decisions
for the Company, Manager shall, at the request of the Board of Directors of the
Company, provide consultation with respect to the operation and management of
the Company. The Company acknowledges and agrees that Manager shall have the
right to engage in other business activities; provided, however, that Manager
agrees not to engage in any other business activity which unreasonably and
substantially interferes with its ability to discharge its duties hereunder
during the term of this Agreement. Manager shall at all times during the term
of this Agreement use its best efforts to provide services hereunder so as to
maximize the profitability of the Company. Without limiting the generality of
the foregoing, Manager shall be available for consultation to the Company with
respect to the following matters:
(i) Employment of Personnel. Manager shall, at the
request of the Board of Directors of the Company, consult with
the Company in exercising due care in the selection and
supervision of Company personnel. Manager shall, at the request
of the Board of Directors of the Company, consult with the
Company in its negotiation of all necessary labor agreements
relating to employees employed by the Company. Additionally,
Manager shall, at the request of the Board of Directors of the
Company, consult with the Company with respect to the preparation
and filing of all necessary forms for disability insurance,
hospitalization and group life insurance, unemployment insurance,
withholding taxes and social security taxes and all other forms
required by any Federal, state, municipal or other governmental
authority or by any labor union agreement.
(ii) Agreements. Manager shall, at the request of the Board
of Directors of the Company, consult with the Company in the
negotiation and execution on behalf of and in the name of
the Company of such agreements as the Company deems necessary or
advisable for the furnishing of goods and services necessary for
the operation of the Company.
(iii) Collections and Disbursements; Operating Accounts.
Manager shall, at the request of the Board of Directors of the
Company, consult with the Company in the submission of bills to
the Company's customers,
<PAGE> 3
and shall consult in connection with the collection of all
revenues generated by or in connection with the Company.
(iv) Compliance with Law. Manager shall, at the request of
the Board of Directors of the Company, consult with the Company
in connection with any and all actions as may be necessary
to comply with any and all orders or requirements affecting the
Company of any Federal, state, county or municipal authority
having jurisdiction thereover.
(v) Records and Reports. Manager shall, at the request of
the Board of Directors of the Company, consult with the Company
regarding the maintenance of a comprehensive system of office
records, books and accounts which such records, books and
accounts shall be maintained at the principal offices of the
Company.
(vi) Legal Actions. Manager shall, at the request of the
Board of Directors of the Company, consult with the Company
regarding any and all legal actions or proceedings it deems
necessary or advisable to protect and maintain the Company as a
commercially profitable enterprise.
(vii) Insurance. Manager shall, at the request of the Board
of Directors of the Company, consult with the Company as to all
forms of insurance required by law or needed adequately to
protect the Company and its properties, whether owned or leased
by it, including, but not limited to public liability insurance,
environmental liability insurance, if available, fire and
extended coverage insurance and burglary and theft insurance.
Manager shall, at the request of the Board of Directors of the
Company, consult with the Company with respect to the prompt
investigation and filing of full timely written reports to the
insurance companies as to all accidents and claims for damages
to the ownership, operation and maintenance of the Company's
properties and business and shall, at the request of the Board
of Directors of the Company, consult with the Company with
respect to the preparation of any and all reports required by
any insurance company in connection therewith.
(viii) Taxes. Manager shall, at the request of the Board of
Directors of the Company, consult with the Company regarding the
payment of
<PAGE> 4
all taxes, personal and real, and assessments properly levied
with respect to the Company.
3. MANAGEMENT FEE.
(a) The Company shall pay to Manager as compensation for
services rendered hereunder, the amounts set forth below
which correspond to the relevant period:
------------------------------------------------------------------------
Period Annual Fee
------------------------------------------------------------------------
first 12 months after execution of this Agreement $120,000
------------------------------------------------------------------------
second 12 months after execution of this Agreement $140,000
------------------------------------------------------------------------
thereafter $160,000
------------------------------------------------------------------------
Such payments shall be made in monthly installments, in arrears, on the fifth
(5th) day of the first month following the execution of the Agreement.
(b) In addition to the management fee described above, and in
recognition of the fact that certain costs and expenses
paid or incurred by Manager will be paid or incurred in
the best interests of and on behalf of the Company, the
Company hereby agrees to reimburse Manager for all of the
costs and expenses paid or incurred by Manager on behalf
of the Company; provided such expenditures are reasonable
in amount and are directly related to the performance of
services hereunder. The calculation of the expense
reimbursement amount shall be made jointly by the Company
and Manager, or their designated representatives. Such
calculation shall be made at least as often as
quarter-annually (or more often if the parties so
decide), for the periods ending March 31, June 30,
September 30, and December 31.
(c) All payments required hereunder shall be made no later
than the fifth (5th) day following the close of the month
or quarter-annual period to which such payment relates;
however, the parties may mutually agree to make such
payments on any date prior to such fifth (5th) day.
4. REVENUES. All revenues generated by or with respect to the
Company shall accrue solely to the Company and shall be its property.
<PAGE> 5
5. RELATIONSHIP BETWEEN THE COMPANY AND MANAGER. This Agreement
is not intended to create nor shall it be construed as creating any
relationship between the Manager and the Company other than that of independent
contractor, nor shall either party hereof be liable for the debts of another.
6. ASSIGNMENT. The Company shall not, without the prior written
consent of Manager, assign any of the Company's rights or obligations under
this Agreement, whether by operation of law or otherwise. Manager may assign
its rights and obligations under this Agreement to any successor in interest in
its sole discretion. Regardless of any assignment of Manager's rights or
obligations hereunder, Manager shall remain responsible for all of the
obligations undertaken by it pursuant to this Agreement.
7. INDEMNIFICATION. The Company will indemnify Manager from all
suits for damages in connection with the management and operation of the
Company, other than suits for damages relating to willful misconduct, gross
negligence or fraud on the part of the Manager.
8. ACTIONS BY BOARD OF DIRECTORS OF COMPANY. Except for the
termination of this Agreement by a majority of the members of the Board of
Directors of the Company as set forth in Section 1 hereof, all actions of the
Board of Directors hereunder shall be effective only upon the vote of
four-fifths of all of the members of the Board of Directors.
9. REPRESENTATIONS AND WARRANTIES.
(a) Manager hereby represents and warrants to the Company
as follows:
(i) Manager is a corporation duly organized and
existing in good standing under the laws of the State of
Florida and is duly qualified to do business wherever necessary
to carry on its present business and operations;
(ii) this Agreement has been duly authorized by all
necessary corporate action on the part of Manager, does require
shareholder approval or the approval of, or the giving of
notice to, any Federal, state, local or foreign governmental
<PAGE> 6
authority and does not contravene any law or certificate or the
Articles of Incorporation or By-Laws of Manager, or any other
agreement, indenture or instrument to which Manager is a party
or by which Manager may be bound; and
(iii) this Agreement has been duly executed and
delivered by an authorized officer of the Company and constitutes
the legal, valid and binding obligations of the Company,
enforceable in accordance with its terms.
10. NOTICES. All notices or demands of any kind which either
party may be required or may desire to serve upon the other party under the
terms of this Agreement shall be in writing and shall be served upon such other
party (as an alternative to personal service upon such other party) by leaving
a copy of such notice or demand, addressed to such other party, at the address
set forth below, whereupon service shall be deemed complete, or by mailing a
copy thereof by registered or certified mail, postage prepaid and return
receipt requested, addressed as follows:
If to Company: Wescourt Group, Inc.
2401 River Road
Grand Junction, Colorado 81505
With a copy to: Otten, Johnson, Robinson, Neff & Ragonetti, P.C.
1600 Colorado National Building
950 Seventeenth Street
Denver, Colorado 80202
Attn: Blair L. Lockwood, Esq.
If to Manager: WLD Enterprises, Inc.
One East Broward Boulevard
Suite 1101
Fort Lauderdale, Florida 33301
With a copy to: Greenberg, Traurig, Hoffman, Lipoff, Rosen &
Quentel, P.A
1221 Brickell Avenue
Miami, Florida 33131
Attn: Marshall R. Pasternack, Esq.
Any party may change its address for service of notice by like notice to the
other party. In case of service by mail as aforesaid, the same shall be deemed
complete at the expiration of the second day after the date of the mailing.
<PAGE> 7
11. LITIGATION EXPENSES AND ATTORNEYS' FEES. In the event of
any action or proceeding between the parties to enforce the provisions of, or
otherwise arising out of this Agreement, the unsuccessful party in such
litigation shall pay to the successful party all costs and expenses incurred
therein by such successful party, including, without limitation, reasonable
attorneys' fees and costs, which costs, expenses and attorneys' fees shall be
included in and made a part of any judgment or award rendered in such action or
proceeding.
12. SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, all of the terms of this Agreement shall be binding upon and shall
inure to the benefit of and be enforceable by the respective successors and
permitted assigns of the parties.
13. PARAGRAPH HEADINGS. The headings of the several paragraphs
hereof are included only for convenience of reference and are not intended to
govern, modify or aid in the construction of any provision of this Agreement.
14. SEVERABILITY. If any provision of this Agreement, as
applied to any party or to any circumstance, shall be adjudged by a court of
competent jurisdiction to be void, invalid or unenforceable, the same shall in
no way affect any other provision of this Agreement, the application of any
such provision in any other circumstances, or the validity or enforceability of
this Agreement shall be construed as if such void, invalid or unenforceable
provision had been stricken from this Agreement as of its effective date.
15. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida.
16. VENUE. Manager and the Company agree that any action
brought by Manager may be brought in the federal and Florida state courts
serving the federal district and the Florida judicial circuit, respectively,
wherein Dade or Broward Counties, Florida are located and that any action
brought by the Company may be brought in the federal and Colorado state courts
serving the federal district and the Colorado judicial circuit, respectively,
wherein Mesa, Denver or Arapahoe Counties, Colorado are located.
17. ENTIRE AGREEMENT; MODIFICATIONS. This Agreement contains
the entire agreement of the parties with respect to the subject matter hereof,
and there are no warranties, representations or agreements between them with
respect thereto, except as contained herein. This Agreement may not be
modified, amended or supplemented except by a writing signed by the party
sought to be charged with such modification, amendment or supplement.
IN WITNESS WHEREOF, the parties have caused this Agreement
to be executed, to be effective as of the day and year first above written.
WESTCOURT GROUP, INC., a Delaware Corporation
By:
----------------------------------------
Keith Holder, President
WLD ENTERPRISES, INC., a Florida corporation
By:
----------------------------------------
Douglas S. Luke
President and Chief Executive Officer
<PAGE> 8
FIRST AMENDMENT TO
CONSULTING MANAGEMENT AGREEMENT
THIS FIRST AMENDMENT TO CONSULTING MANAGEMENT AGREEMENT ("Amendment")
is made as of March 12, 1997, by and between WLD Enterprises, Inc., a
corporation formed under the laws of the state of Florida ("WLD"), and Wescourt
Group, Inc., a corporation formed under the laws of the state of Delaware
("Wescourt"), to amend that certain Consulting Management Agreement dated
September 17, 1992 (the "Original Agreement"). Capitalized terms that are not
defined elsewhere in this Amendment shall have the meanings set forth in the
Original Agreement.
RECITALS
A. Petroleum Holdings, Ltd., a Florida limited partnership ("PHL"), is
the owner of one hundred percent (100%) of the issued and outstanding Series A
Convertible Preferred Stock of Portfield Investments, Inc., a corporation
formed under the laws of the state of Colorado ("Portfield"), which owns one
hundred percent (100%) of the issued and outstanding shares of common stock of
Petro-Mark Convenience Stores, Inc., a corporation formed under the laws of the
state of Colorado.
B. The WLD Trust, an Ohio testamentary trust and an affiliate of WLD
and PHL, has issued its unconditional guaranty of payment in favor of Morgan
Guaranty Trust Company of New York ("Morgan") in order to induce Morgan to
execute an unsecured $4,500,000 loan to Portfield of even date herewith (the
"Morgan Loan"), for the purpose of re-lending a portion of the proceeds of the
Morgan Loan to Petro-Mark and re-lending the balance of the proceeds of the
Morgan Loan to Wescourt.
C. As additional consideration for the WLD Trust guaranty of the
Morgan Loan and for the re-lending of the Morgan Loan proceeds to Wescourt and
Wescourt's wholly-owned subsidiary, Wescourt has agreed to modify the Original
Agreement as set forth in this Amendment.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements set forth in this Amendment, WLD and Wescourt agree as follows:
1.) Section 1 of the Original Agreement, Retention; Terms., is
hereby deleted in its entirety and the following inserted in lieu
thereof:
"1. Retention; Terms.The Company hereby offers to retain
Manager as a consultant and Manager hereby accepts such offer of
retention as a consultant, upon the terms and conditions hereinafter
set forth, for a term commencing on the date hereof and terminating on
that date, if any, on which the Securities and Exchange Commission
(the "SEC") has, under the Securities Act of 1933, as amended,
declared effective a registration statement covering shares of the
Company's common stock and shares of such common stock have been sold
pursuant to such registration statement or any subsequent registration
statement filed with the SEC and declared effective."
<PAGE> 9
2.) Section 3.(a) of the Original Agreement, Management Fee., is
hereby deleted in its entirety and the following inserted in lieu thereof:
"(a) The Company shall pay to Manager as compensation for
services rendered hereunder, the amounts set forth below which
correspond to the relevant period:
Period Annual Fee
------ ----------
first 12 months after execution of this Agreement $120,000
second 12 months after execution of this Agreement $140,000
thereafter until the termination of this Agreement $160,000
In addition to the annual fee set forth above, the Company shall pay
to Manager from March, 1997 through the retirement of the Morgan Loan
the amounts set forth below:
Monthly Fee
-----------F
during any month in which the principal amount of the
Morgan Loan outstanding is $3,000,000 or more $20,000
during any month in which the principal amount of the
Morgan Loan outstanding is greater than $2,000,000
but less than $3,000,000 $15,000
during any month in which the principal amount of the
Morgan Loan outstanding is greater than $1,000,000
but less than $2,000,000 $10,000
during any month in which the principal amount of the
Morgan Loan outstanding is less than $1,000,000 $ 5,000
Such payments shall be made in monthly installments, in arrears, on
the fifth (5th) day of each month with the first payment due and payable on the
fifth (5th) day of the first month following the execution of this Agreement.
3.) The parties reaffirm and restate to each other all of their
respective representations, warranties and covenants made in the Original
Agreement, and all of such representations, warranties and covenants remain
true and correct as of the date of this Amendment.
4.) The Original Agreement, as amended by this Amendment, contains the
entire agreement between the parties hereto with respect to the transactions
contemplated herein and supersedes all prior representations, agreements,
covenants and understandings, whether oral or written, related to the subject
matter of the Original Agreement.
2
<PAGE> 10
IN WITNESS WHEREOF, the parties executed and delivered this Amendment
as of the day and year specified at the beginning hereof.
Wescourt Group, Inc., WLD Enterprises, Inc.,
a Delaware corporation a Florida corporation
by: by:
-------------------------------- ----------------------------------
Keith Holder, President Ronald A. Adelhelm, Vice-President
3
<PAGE> 1
Exhibit 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into as of the 17th day of
September, 1992 (the "Effective Date"), by and between PORTFIELD INVESTMENTS,
INC., a Colorado corporation (the "Company"), and KEITH R. HOLDER
("Executive"), residing at 107 Country Club Park Drive, Grand Junction,
Colorado 81503.
BACKGROUND FACTS
A. Executive is currently serving as an executive
officer and director of the Company.
B. In order to obtain the continued services of
Executive, the Company and Executive each desire to enter into this Agreement
whereby Executive will be employed by the Company on the terms and conditions
set forth herein.
AGREEMENT
For and in consideration of the mutual benefits to be received
and other good and valuable consideration the receipt and sufficiency of which
is hereby acknowledged, it is agreed as follows:
1. Employment. The Company agrees to employ Executive and
Executive agrees to be employed by the Company for the compensation, duration
and subject to the terms and conditions hereinafter set forth, effective as of
the Effective Date.
2. Term. The term of employment hereunder hall be until such
date Executive's employment hereunder is terminated pursuant to Section 8
hereof.
3. Duties. During the entire term of this Agreement, Executive
shall render full-time services as President of the Company and Wescourt Group,
Inc. ("Wescourt") and in such other capacities as may be required from time to
time by the Board of Directors of the Company (the "Board"), including services
for any other affiliates or subsidiaries of the Company to the extent that it
is feasible for him to provide such services. For purposes of this Section 3,
all references to the Company shall include Wescourt and all other direct and
indirect subsidiaries of the Company. Executive shall have primary
responsibility for the Company's day-to-day operations and shall perform such
additional services as are requested of him by the Board. Executive shall have
specific responsibility for finance (including budgeting, planning, cash flow
management, expense approval, direct accounting functions), and overall
responsibility for operations and development of Company business.
Notwithstanding the generality of the foregoing, Executive understands that the
decisions made by Executive are subject to the discretion vested in the Board
of Directors of the Company under Colorado law. If Executive is elected or
appointed a director of the Company or a director or officer of any subsidiary
<PAGE> 2
or affiliate of the Company, Executive will serve in the capacity or capacities
without further compensation. Executive agrees to provide the services
contemplated by this Agreement without regard to whether any of the Company's
operations are conducted directly by the Company through unincorporated
divisions or through subsidiaries or affiliates of the Company. Executive shall
devote his attention and energies on a substantially full-time basis to the
business of the Company and to the discharge of his duties as President.
Subject to the provisions in Section 11(a) hereof, nothing herein shall
preclude Executive from pursuing other passive activities (such as investment
activities), which do not materially interfere with Executive's performance of
his duties hereunder.
4. Salary. As compensation for the services to be rendered by
Executive hereunder, the Company shall pay to Executive during the term hereof
the annual base salary of $75,000, as the same may from time to time be
increased by the Board of the Company (the "Base Salary"). The Base Salary
payable to Executive hereunder shall be paid in accordance with the Company's
normal payroll procedures.
5. Incentive Compensation. As further compensation for the
services of Executive hereunder, the Company may pay to Executive an annual
incentive compensation bonus as determined by the Board in its sole discretion.
6. Additional Benefits. Executive shall be entitled to receive
all other benefits of employment generally available to other executive
officers of the Company, which benefits are now in effect or hereafter
instituted during the term of this Agreement, including (but not limited to)
qualified employee benefit plans (including deferred compensation plans),
employee loan plans, group health, disability or life insurance benefits and
other perquisites. The company shall provide disability coverage in the amount
of $250,000, a key-man life insurance policy with benefits payable to Executive
in the amount of $250,000 and group health insurance coverage for Executive.
7. Reimbursement of Expenses. Executive shall be reimbursed by
the Company for all reasonable expenses incurred by him on behalf of the
Company in performance of his duties pursuant to this Agreement.
8. Termination by Executive or the Company. The Company or the
Executive shall be entitled to terminate Executive's employment hereunder as
follows:
(a) Executive. Executive shall have the right to terminate
his employment pursuant to this Agreement for Good Reason (as defined in
Section 8(e) below) or otherwise by delivering written notice to the Company
indicating a termination date not less than thirty (30) days after the date of
delivery of such writing.
(b) Death or Disability.
(i) Disability. Executive's employment hereunder
shall be terminated by the Company if Executive becomes physically or
mentally incapacitated and is therefore unable for a period of 120
consecutive days or six
2
<PAGE> 3
(6) months out of any 12 month period to perform his duties (such
incapacity is hereinafter referred to as "Disability"). Any question
as to the existence of the Disability of the Executive as to which
the Executive and the Company cannot agree shall be determined in
writing by a qualified independent physician mutually acceptable to
the Executive and the Company.
(ii) Death. This Agreement shall terminate upon the
death of Executive. Upon termination for death, Executive shall be
entitled to his Base Salary at the rate in effect at the time of
Executive's death through the end of the month in which his death
occurs plus $250,000 from the key-man life insurance policy
maintained by the Company of Executive's life.
(iii) Death or Disability Benefits. All other
benefits to which Executive may be entitled following Executive's
termination for death or disability shall be determined in accordance
with the plans, policies and practices of the Company. In addition,
upon the Executive's death or disability, Executive shall be entitled
to a pro rata portion of any Bonus (as calculated pursuant to Section
8(d)(i) below) determined as of the date of death or the beginning of
any period of disability.
(c) For Cause by the Company. Executive's employment
hereunder may be terminated by the Company for "Cause." For purposes of this
Agreement, "Cause" shall mean (i) Executive's willful failure to perform his
material duties hereunder (other than for Disability or as a result of
termination by Executive for Good Reason), (ii) Executive's dishonesty in the
performance of his duties hereunder or (iii) Executive's conviction of a felony
under the laws of the United States or any state thereof. If Executive is
terminated for Cause, or if Executive voluntarily terminates employment
hereunder other than for Good Reason, he shall be entitled to receive his Base
Salary through the date of termination. All other benefits, if any, payable to
Executive following such termination of Executive's employment shall be
determined in accordance with the plans, policies and practices of the Company.
(d) Termination Payments. If Executive's employment
hereunder is terminated by the Company without Cause or by Executive with Good
Reason, executive shall be entitled to receive the following benefits:
(i) an amount equal to the sum of his Base Salary in
effect at the time of such termination or, in the event of
termination by the Executive on account of an event described in
Section 8(e)(iv) below, the Base Salary as in effect immediately
prior to the reduction or reductions referred to therein (the "Salary
Amount") times two plus a pro rata portion of the bonus the Executive
would have earned in respect of the year of termination under any
Company incentive compensation plan in effect at the date of
termination or, in the event of a termination by Executive by reason
of an event described in Section 8(e)(vi) below, the plan in effect
prior to the elimination referred to therein, determined as if the
Executive had been employed by the Company for the full year and
without
3
<PAGE> 4
regard to any right reserved by the Company to decrease or eliminate
such bonus, based on the level of actual performance by Executive as
of the termination date as compared to the performance objectives
established for such year pursuant to the plan. (For example, if
Executive was entitled to at $100,000 bonus if the Company's net
profits for the year reached $1,000,000 and at the time of
Executive's termination, the Company's net profits were $100,000,
Executive would be entitled to 1/10th of the $100,000 bonus or
$10,000) (the "Bonus");
(ii) the Salary Amount shall be paid by the Company
to the Executive at the time of his regular payroll payments for a
period of one year following such termination and, at the end of such
one year period, the Company shall pay Executive a lump sum equal to
the Salary Amount plus the Bonus, if any;
(iii) for a 12-month period after such termination,
the Company shall cause Executive to be provided with life, accident,
medical, dental and prescription insurance benefits substantially
similar to, and on the same terms, if any, as, those benefits elected
and received by Executive under the Company's and Wescourt's benefit
programs in effect immediately prior to such termination; provided
that Executive shall be charged an amount equal to any monthly
payroll deduction charged for similar benefits to executives in
positions similar to that which Executive held before his
termination;
(iv) in addition to all other amounts payable to
Executive under this Section 8(d), Executive shall be entitled to
receive all benefits payable to Executive under any other plan,
policy or agreement, if any, relating to retirement or other benefits
in accordance with the terms of such plans, policies or agreements,
if any.
(e) Good Reason. For purposes of this Agreement, "Good Reason"
shall mean:
(i) a material reduction in Executive's
responsibilities, authorities or duties, all as contemplated by
Section 3 hereof; provided, however, that such reduction by reason of
a termination for Cause, death, Disability or with Executive's
written consent shall not constitute Good Reason;
(ii) Executive's job is eliminated without his
consent other than by reason of promotion or termination for Cause,
death or Disability;
(iii) the Company fails to pay Executive any amount
otherwise vested and due hereunder or under any plan or policy of the
Company or Wescourt;
(iv) a reduction in Executive's Base Salary,
equal to or greater than five percent (5%) of the Base Salary in
anyone year period except in the event of an across-the-board
reduction at the Company or the "business unit" in which Executive is
employed;
4
<PAGE> 5
(v) a reduction in Executive's benefit levels,
except in the event of an across-the-board reduction at the Company
or the "business unit" in which Executive is employed;
(vi) the elimination of an incentive compensation
plan in which Executive was a participant by the Company or Wescourt,
which plan by its terms provides for continuing participation by
Executive for more than a one-year period; or
(vii) the Executive's office is relocated outside of
a 50-mile radius of Grand Junction or Denver, Colorado without his
prior written consent.
Executive shall provide to the Company written notice of termination
in connection with an event described in clauses (i) through (vii) above. The
Company shall have ten (10) business days from the date of receipt of such
written notice to effect a cure of the event described therein, and upon cure
thereof by the Company, which in the case of clause (i) only must be to
Executive's reasonable satisfaction, such event shall no longer constitute Good
Reason for purposes of this Agreement.
9. Effect of Expiration or Termination. Termination of employment
of Executive hereunder for any reason shall end the obligation of Executive to
perform services hereunder, the obligation of the Company to employ Executive,
and the obligation of the Company to reimburse expenses hereunder except to the
extent accrued or incurred prior to the effective date of termination.
Executive shall not be subject to any liability for breach of this Agreement by
reason of his termination of his employment hereunder; provided such
termination is effected in accordance with the terms of this Agreement.
10. Indemnification. The Company shall indemnify, defend and hold
Executive harmless, to the full extent permitted by applicable law, from and
against any expense, loss, liability or damage incurred or suffered by him by
reason of any act performed or omitted to be performed by him (other than
Executive's gross negligence, willful misconduct or fraud) with respect to his
employment or service in any capacity to the Company or by reason of any
guarantee of any liability or obligation of the Company or any of its direct or
indirect subsidiaries by Executive (whether delivered prior to the date hereof
or hereafter), including attorneys' fees and costs incurred by him in
connection with any threatened, pending or completed action or proceeding
(whether civil, criminal, administrative or investigative) based on any such
act or omission, which attorneys' fees and costs shall be paid by the Company
as incurred by him, except to the extent prohibited by applicable law.
Executive shall be entitled to the protection of any insurance policies the
Company may elect to maintain generally for the benefit of its directors and
officers and to the extent the Company maintains such insurance policies,
Executive shall be covered by such policies, in accordance with their terms, to
the maximum extent of the coverage available for any Company officer or
director.
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<PAGE> 6
11. Non-Compete.
(a) Non-Compete Agreement. During the term of this Agreement
and for two years thereafter (the "Non-Compete Period"), Executive shall not
within the states of Colorado, Nebraska, Utah, New Mexico, Wyoming, Montana,
North Dakota, South Dakota and Idaho directly or indirectly (whether as
employee, director, owner, stockholder, consultant, partner (limited or
general) or otherwise) engage in any business engaged in or actively
contemplated by the Company, its subsidiaries or affiliates as of the date of
termination of employment hereunder (the "Businesses"), or have any interest,
directly or indirectly in any such Businesses; provided that Executive may own
directly or indirectly not more than 5% of the outstanding capital stock of any
publicly-traded corporation or business entity engaged in any of the
Businesses.
(b) Confidentiality. Executive acknowledges that the
information, observations and data obtained by him during the course of his
performance under this Agreement concerning the business or affairs of the
Company, its subsidiaries or affiliates are the property of the Company.
Therefore, Executive agrees that he shall not disclose to any person (other
than a person with a need to know such information) or use for his own account
any of such information, observations or data without the Board's written
consent, unless and to the extent that the aforementioned matters become
generally known to and available for use by the public other than as a result
of Executive's acts or omissions to act. Executive agrees to deliver to the
Company at the termination of his employment, or at any other time the Company
may request, all memoranda, notes, plans, records, reports and other documents
(and copies thereof) relating to the business of the Company, its subsidiaries
or affiliates which he may then possess or have under his control.
(c) Non-Solicitation. Executive hereby agrees that, during
the Non-Compete Period, he will not knowingly either directly or indirectly,
for himself or for any other person or entity, call on, solicit or take away,
or attempt to call on, solicit or take away an employee of the Company, its
subsidiaries or affiliates.
12. Assignment. This agreement shall not be assignable, in
whole or in part, by Executive. This Agreement may be assigned by the Company
in connection with a merger, consolidation, sale of all or substantially all of
the assets or similar transactions with respect to the Company. This Agreement
shall be binding upon and inure to the benefit of the permitted successors and
assigns of the parties hereto (whether by operation of law or otherwise).
13. Attorneys' Fees. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorneys' fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled.
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<PAGE> 7
14. Waiver. Either party's failure to enforce any provision of
this Agreement shall not in any way be construed as a waiver of any such
provision, or prevent such party thereafter from enforcing each and every
provision of this Agreement.
15. Notices. Any notice given with respect to this Agreement
shall be deemed given and received when personally delivered in writing or
forty-eight (48) hours after the same is deposited in the United States mail,
postage prepaid, registered or certified mail, addressed to a party at the
address set forth below, or at such other address as a party may from time to
time designate by five (5) days' written notice to the other:
If to the Company:
Portfield Investments Inc.
1625 Broadway, Suite 1970
Denver, Colorado 80202
Attention: Board of Directors
With copies to:
Petroleum Holdings, Ltd
Suite 1101
One East Broward Boulevard
Fort Lauderdale, Florida 33301
and
Marshall R. Pasternack, Esq.
Greenberg, Traurig, Hoffman,
Lippoff, Rosen & Quental, P.A.
1221 Brickell Avenue
Miami, Florida 33131
If to Executive:
Keith R. Holder
107 Country Club Park Drive
Grand Junction, Colorado 81503
With a copy to:
Blair L. Lockwood, Esq.
Otten, Johnson, Robinson,
Neff & Ragonetti, P.C.
950 Seventeenth Street, Suite 1600
Denver, Colorado 80202
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<PAGE> 8
16. Further Actions. At all times after the date hereof, each
party shall execute and deliver such other documents and take such other
actions as the other party may reasonably require to carry out the transactions
contemplated by this Agreement.
17. Applicable Law. This Agreement shall be construed and
interpreted in accordance with the laws of the State of Colorado.
18. Modification. This Agreement may not be amended or modified
except in writing executed by the parties hereto.
19. Entire Agreement. This Agreement constitutes the entire
understanding between the parities with respect to the subject matter thereof.
20. Partial Invalidity. If any provision of this Agreement is
held by a court of competent jurisdiction to be invalid, void or unenforceable,
the remaining provisions shall nevertheless continue in full force without
being impaired or invalidated in any way.
21. Captions. Captions to the Sections of this Agreement are
for the convenience of the parties, are not a part of this Agreement and shall
not be used for the interpretation of any provision of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement
effective as of the date first written above.
THE COMPANY:
PORTFIELD INVESTMENTS INC.,
a Colorado corporation
By:_____________________________
Title:__________________________
EXECUTIVE:
_______________________________
Keith R. Holder
<PAGE> 1
Exhibit 10.6
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,AS
AMENDED, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES
UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE 264,000 SHARES
OF COMMON STOCK
(SUBJECT TO ADJUSTMENT)
OF
PORTFIELD INVESTMENTS, INC.
VOID AFTER MARCH 12, 2007
This certifies that, for value received, Petroleum Holdings, Ltd., a
Florida limited partnership, or its registered assigns (the "Holder"), is
entitled, subject to the terms set forth below, to purchase from Portfield
Investments, Inc. (the "Company"), a corporation organized under the laws of
the State of Colorado, Two Hundred Sixty- four Thousand (264,000) shares of the
Common Stock of the Company, no par value, as constituted on the date hereof
(the "Warrant Issue Date"), upon surrender hereof, at the principal office of
the Company referred to below, with the notice of exercise form attached hereto
duly executed, and simultaneous payment therefor in lawful money of the United
States or otherwise as hereinafter provided, at the Exercise Price as set forth
in Section 2 below. The number, character and Exercise Price of such shares of
Common Stock are subject to adjustment as provided below. The term "Warrant"
as used herein shall include this Warrant, and any warrants delivered in
substitution or exchange therefor as provided herein.
1. Term of Warrant.
Subject to the terms and conditions set forth herein, this
Warrant shall be exercisable, in whole or in part, during the term commencing
on the Warrant Issue Date and ending at 5:00 p.m., Mountain Standard Time, on
March 12, 2007, and shall be void thereafter.
2. Exercise Price.
The Exercise Price at which this Warrant may be exercised
shall be $1.75 per share of Common Stock, as may be adjuste from time to time
pursuant to Section 11 hereof.
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<PAGE> 2
3. Exercise of Warrant.
3.1 Manner of Exercise.
The purchase rights represented by this Warrant are
exercisable by the Holder in whole or in part, but not for less than Five
Thousand (5,000) shares at any time, or from time to time, or such lesser
number of shares which may then constitute the maximum number purchasable under
this Warrant, with such number being subject to adjustment as provided in
Section 11 below), during the term hereof as described in Section 1 above, by
the surrender of this Warrant and the Notice of Exercise annexed hereto as
Exhibit A duly completed and executed on behalf of the Holder, at the office of
the Company, or such other office or agency of the Company as it may designate
by notice in writing to the Holder at the address of the Holder appearing on
the books of the Company, upon payment in cash or by check acceptable to the
Company equal to the purchase price of the shares to be purchased.
3.2 Issuance of Shares upon Exercise of Warrant.
This Warrant shall be deemed to have been exercised
immediately prior to the close of business on the date of its surrender for
exercise as provided above, and the person entitled to receive the shares of
Common Stock issuable upon such exercise shall be treated for all purposes as
the holder of record of such shares as of the close of business on such date.
As promptly as practicable on or after such date and in any event within ten
(10) days thereafter, the Company at its expense shall issue and deliver to the
person or persons entitled to receive the same a certificate or certificates
for the number of shares issuable upon such exercise. In the event that this
Warrant is exercised in part, the Company at its expense will execute and
deliver a new Warrant of like tenor exercisable for the number of shares for
which this Warrant may then be exercised.
4. No Fractional Shares or Scrip.
The Company shall not issue any fractional shares or scrip
representing fractional shares upon the exercise of this Warrant. In lieu of
any fractional share to which the Holder would otherwise be entitled, the
Company shall make a cash payment equal to the fair market value of one share
of common stock determined in accordance with Section 3 multiplied by such
fraction.
5. Replacement of Warrant.
On receipt of evidence reasonably satisfactory to the Company
of the loss, theft, destruction or mutilation of this Warrant and, in the case
of loss, theft or destruction, on delivery of an indemnity agreement reasonably
satisfactory in form and substance to the Company or, in the case of
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense shall execute and deliver, in lieu of this Warrant, a new warrant of
like tenor and amount.
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<PAGE> 3
6. Rights of Stockholders.
Subject to Sections 9 and 11 of this Warrant, the Holder shall
not be entitled to vote or receive dividends or be deemed the holder of Common
Stock or any other securities of the Company that may at any time be issuable
on the exercise hereof for any purpose, nor shall anything contained herein be
construed to confer upon the Holder, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors
or upon any matter submitted to stockholders at any meeting thereof, or to give
or withhold consent to any corporate action, whether upon any recapitalization,
issuance of stock, reclassification of stock, change of par value, or change of
stock to no par value, consolidation, merger, conveyance, or otherwise, or to
receive notice of meetings, or to receive dividends or otherwise until the
Warrant shall have been exercised as provided herein.
7. Transfer of Warrant.
7.1 Warrant Register.
The Company will maintain a register (the "Warrant
Register") containing the names and addresses of the Holder and its
transferees. Any Holder of this Warrant or any portion thereof may change his
address as shown on the Warrant Register by written notice to the Company
requesting such change. Any notice or written communication required or
permitted to be given to the Holder may be delivered or given by mail to such
Holder as shown on the Warrant Register and at the address shown on the Warrant
Register. Until this Warrant is transferred on the Warrant Register of the
Company, the Company may treat the Holder as shown on the Warrant Register as
the absolute owner of this Warrant for all purposes, notwithstanding any notice
to the contrary.
7.2 Agent.
The Company may, by written notice to the Holder,
appoint an agent for the purpose of maintaining the Warrant Register referred
to in Section 7.1 above, issuing the Common Stock or other securities then
issuable upon the exercise of this Warrant, exchanging this Warrant, replacing
this Warrant, or any or all of the foregoing. Thereafter, any such
registration, issuance, exchange, or replacement, as the case may be, shall be
made at the office of such agent.
7.3 No Transfer or Assignment Allowed.
The Holder may not transfer or assign the Warrant in
whole or in part without compliance with all applicable federal and state
securities laws by the transferor and the transferee, including the delivery of
investment representation letters and, if this Warrant is sold, pledged or
hypothecated in whole or in part, legal opinions reasonably satisfactory to the
Company, if such are requested by the Company. Subject to the provisions of
this Warrant with respect to compliance with the Securities Act of 1933, as
amended (the "Act"), title to this Warrant may be transferred by endorsement by
the Holder executing a form of assignment
3
<PAGE> 4
(the "Assignment Form") reasonably acceptable to the Company and delivery in
the same manner as a negotiable instrument transferable by endorsement and
delivery.
7.4 Issuance of New Warrant(s) to Transferee.
On surrender of this Warrant for exchange, properly
endorsed on the Assignment Form and subject to the provisions of this Warrant
with respect to compliance with the Act and with the limitations on assignments
and transfers and contained in this Section 7, the Company at its expense shall
issue to or on the order of the Holder a new warrant or warrants of like tenor,
in the name of the Holder or as the Holder may direct for the number of shares
of Common Stock issuable upon exercise hereof, upon Holder's payment of any
applicable transfer taxes.
7.5 Compliance with securities laws:
(a) Unregistered.
The Holder of this Warrant, by acceptance
hereof, acknowledges that this Warrant and the shares of Common Stock to be
issued upon exercise hereof, if the issuance or resale thereof is unregistered
under the Act, are being acquired solely for the Holder's own account and not
as a nominee for any other party, and for investment, and that the Holder will
not offer, sell or otherwise dispose of this Warrant or any shares of Common
Stock to be issued upon exercise hereof except under circumstances that will
not result in a violation of the Act or any applicable state securities laws.
Upon exercise of this Warrant, the Holder shall, if requested by the Company,
confirm in writing, in a form satisfactory to the Company, that Holder has such
investment intent as is required under the Act, if any.
(b) Legend.
This Warrant and all shares of Common Stock
issued upon exercise hereof that are not registered under the Act shall be
stamped or imprinted with a legend in substantially the following form in
addition to any legend required by state securities laws:
"THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH
SECURITIES AND ANY SECURITIES OR SHARES ISSUED HEREUNDER OR THEREUNDER MAY NOT
BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SAID ACT. COPIES OF THE AGREEMENT COVERING THE PURCHASE OF
THESE SECURITIES AND RESTRICTING THEIR TRANSFER OR SALE MAY BE OBTAINED AT NO
COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD HEREOF TO THE SECRETARY OF
THE COMPANY AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY."
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<PAGE> 5
8. Reservation of Stock.
The Company covenants that during the period this Warrant is
exercisable, the Company will reserve and keep available from its authorized
and unissued Common Stock a sufficient number of shares to provide for the
issuance of all Common Stock issuable upon the exercise of this Warrant and,
from time to time, will take all steps necessary to amend its Certificate of
Incorporation (the "Certificate") to provide sufficient reserves of shares of
Common Stock issuable upon exercise of this Warrant. The Company further
covenants that all shares that may be issued upon the exercise of rights
represented by this Warrant and payment of the Exercise Price, all as set forth
herein, will be duly and validly issued and fully paid and nonassessable, not
subject to preemptive rights, free from all taxes, liens and charges in respect
of the issue thereof, other than taxes in respect of any transfer occurring
contemporaneously or otherwise specified herein. The Company agrees that its
issuance of this Warrant shall constitute full authority to its officers who
are charged with the duty of executing stock certificates to execute and issue
the necessary certificates for shares of Common Stock upon the exercise of this
Warrant.
Before taking any action which would cause an adjustment
reducing the current Exercise Price below the then par value, if any, of the
shares of Common Stock issuable upon exercise of this Warrant, the Company
shall take any corporate action which may be necessary in order that the
Company may validly and legally issue fully paid and nonassessable shares of
such Common Stock at such adjusted Exercise Price.
Before taking any action which would result in an adjustment
in the number of shares of Common Stock for which this Warrant is exercisable
or in the current Exercise Price, the Company shall obtain all such
authorizations or exemptions thereof, or consents thereto, as may be necessary
from any public regulatory body or bodies having jurisdiction thereof.
9. Notices.
9.1 Issuance of Certificate Upon Adjustment.
Whenever the Exercise Price or number of shares
purchasable hereunder shall be adjusted pursuant to Section 11 hereof, the
Company shall issue a certificate signed by its Chief Financial Officer setting
forth, in reasonable detail, the event requiring the adjustment, the amount of
the adjustment, the method by which such adjustment was calculated, and the
Exercise Price and number of shares purchasable hereunder after giving effect
to such adjustment, and shall cause a copy of such certificate to be mailed, by
first-class mail, postage prepaid, to the Holder of this Warrant.
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<PAGE> 6
9.2 Other Notices.
In case:
(i) the Company shall take a record of
the holders of its Common Stock for the purpose of entitling them to receive
any dividend or other distribution, or any right to subscribe for or purchase
any shares of stock of any class or any other securities, or to receive any
other right, or
(ii) of any capital reorganization of
the Company, any reclassification of the capital stock of the Company, any
consolidation or merger of the Company with or into another corporation, or any
conveyance of all or substantially all of the assets of the Company to another
corporation, or
(iii) of any voluntary or involuntary
dissolution, liquidation or winding-up of the Company,
then, and in each such case, the Company will mail or cause to be mailed to the
Holder a notice specifying, as the case may be, (A) the date on which a record
is to be taken for the purpose of such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right, or
(B) the date on which such reorganization, reclassification, consolidation,
merger, conveyance, dissolution, liquidation or winding-up is to take place,
and the time, if any is to be fixed, as of which the holder of record of Common
Stock, or such stock or securities at the time receivable upon the exercise of
this Warrant, shall be entitled to exchange their shares or such other stock or
securities for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up. Such notice shall be mailed at least
fifteen (15) days prior to the date therein specified.
9.3 Deemed Receipt of Notices.
All such notices, advices and communications shall be
deemed to have been received (i) in the case of personal delivery, on the date
of such delivery, and (ii) in the case of mailing, on the third (3rd) business
day following the date of such mailing.
10. Amendments and Waivers.
Any term of this Warrant may be amended with the written
consent of the Company and the Holder. Any amendment effected in accordance
with this Section 10 shall be binding upon the Holder, each future holder of
all rights pursuant to this Warrant, and the Company. No waivers of, or
exceptions to, any term, condition or provision of this Warrant, in any one or
more instances, shall be deemed to be, or construed as, a further or continuing
waiver of any such term, condition or provision.
6
<PAGE> 7
11. Adjustments.
The Exercise Price and the number of shares of Common Stock
purchasable hereunder are subject to adjustment from time to time as follows:
11.1 Reorganizations, Consolidations, Mergers, Sales or
Transfers.
If at any time while this Warrant, or any portion
thereof, is outstanding and unexpired there shall be (i) a reorganization,
other than a combination, reclassification, exchange or subdivision of shares
otherwise provided for herein, (ii) a merger or consolidation of the Company
with or into another corporation in which the Company is not the surviving
entity, or a reverse triangular merger in which the Company is the surviving
entity but the shares of the Company's capital stock outstanding immediately
prior to the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash, or otherwise, (iii) an offering of
Common Stock or any other securities pro rata among the shareholders, or (iv) a
sale or transfer of the Company's properties and assets as, or substantially
as, an entirety to any other person, then, as a part of such reorganization,
merger, consolidation, sale or transfer, lawful provision shall be made so that
the Holder of this Warrant shall thereafter be entitled to receive upon
exercise of this Warrant, during the period specified herein and upon payment
of the Exercise Price then in effect, the number of shares of stock or other
securities or property of the successor corporation resulting from such
reorganization, merger, consolidation, sale or transfer that a Holder of the
shares deliverable upon exercise of this Warrant would have been entitled to
receive in such reorganization, consolidation, merger, sale or transfer if this
Warrant had been exercised immediately before such reorganization, merger,
consolidation, sale or transfer, all subject to further adjustment as provided
in this Section 11. The foregoing provisions of this Section 11.1 shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation that are
at the time receivable upon the exercise of this Warrant. If the per-share
consideration payable to the Holder hereof for shares in connection with any
such transaction is in a form other than cash or marketable securities, then
the value of such consideration shall be determined in good faith by the
independent members of the Company's Board of Directors. In all events,
appropriate adjustment, as determined in good faith by the independent members
of the Company's Board of Directors, shall be made in the application of the
provisions of this Warrant with respect to the rights and interests of the
Holder after the transaction, to the end that the provisions of this Warrant
shall be applicable after that event, as near as reasonably may be, in relation
to any shares or other property deliverable after that event upon exercise of
this Warrant.
The Company shall not effect any consolidation,
merger, sale or transfer of all or substantially all of its assets, unless
prior to the consummation thereof the successor corporation (if other than the
Company) resulting from such consolidation or merger, or the corporation into
or for the securities of which the previously outstanding stock of the Company
shall be changed in connection with such consolidation or merger, or the
corporation purchasing or otherwise acquiring such assets, as the case may be,
shall assume by written instrument executed and mailed or delivered to the
registered Holder at the last address of such Holder appearing on the books of
the Company, the obligation to deliver to such Holder, upon exercise of this
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<PAGE> 8
Warrants, such shares of stock, securities or property, including case, as, in
accordance with the foregoing provisions, such Holder may be entitled to
purchase.
11.2 Change in Shares.
If the Company, at any time while this Warrant, or
any portion thereof, remains outstanding and unexpired, by reclassification of
securities or otherwise, shall change any of the securities as to which
purchase rights under this Warrant exist into the same or a different number of
securities of any other class or classes, this Warrant shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable as the result of such change with respect to the securities that
were subject to the purchase rights under this Warrant immediately prior to
such reclassification or other change and the Exercise Price therefor shall be
appropriately adjusted, all subject to further adjustment as provided in this
Section 11.
11.3 Splits or Combinations of Shares.
If the Company at any time while this Warrant, or any
portion thereof, remains outstanding and unexpired, shall split, subdivide or
combine the securities as to which purchase rights under this Warrant exist,
into a different number of securities of the same class, the number of
securities for which this Warrant is exercisable shall be proportionately
increased and the Exercise Price for such securities shall be proportionately
decreased in the case of a split or subdivision or the number of securities for
which this Warrant is exercisable shall be proportionately deceased and the
Exercise Price shall be proportionately increased in the case of a combination.
11.4 Stock Dividends and Distributions.
If while this Warrant, or any portion thereof,
remains outstanding and unexpired, the holders of the securities as to which
purchase rights under this Warrant exist at the time shall have received, or,
on or after the record date fixed for the determination of eligible
Stockholders, shall have become entitled to receive, without payment therefor,
other or additional stock or other securities or property (other than cash) of
the Company by way of dividend, then and in each case, this Warrant shall
represent the right to acquire, in addition to the number of shares of the
security receivable upon exercise of this Warrant, and without payment of any
additional consideration therefor, the amount of such other or additional stock
or other securities or property (other than cash) of the Company that such
holder would hold on the date of such exercise had it been the holder of record
of the security receivable upon exercise of this Warrant on the date hereof and
had thereafter, during the period from the date hereof to and including the
date of such exercise, retained such shares and/or all other additional stock
available by it as aforesaid during such period, giving effect to all
adjustments called for during such period by the provisions of this Section 11.
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<PAGE> 9
11.5 New Certificate.
Upon the occurrence of each adjustment or
readjustment pursuant to this Section 11, the Company at its expense shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and furnish to each Holder of this Warrant a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Company shall, upon the written
request, at any time, of any such Holder, furnish or cause to be furnished to
such Holder a like certificate setting forth: (i) such adjustments and
readjustments; (ii) the Exercise Price at the time in effect; and (iii) the
number of shares and the amount, if any, of other property that at the time
would be received upon the exercise of the Warrant.
12. Limitation of Liability.
No provision hereof, in the absence of affirmative action by
the Holder to purchase shares of Common Stock, and no enumeration herein of the
rights or privileges of the Holder hereof, shall give rise to any liability of
such Holder for the purchase price of any Common Stock or as a stockholder of
the Company, whether such liability is asserted by the Company or by creditors
of the Company.
12.1 Miscellaneous.
Except as otherwise expressly provided herein, all
notices referred to in this Warrant will be in writing and will be delivered
personally or by registered or certified mail, return receipt requested,
postage prepaid and will be deemed to have been given when so personally
delivered or on the date of receipt appearing on the return receipt requested
or, if refused, on the date of refusal,
(i) To the Company:
Portfield Investments, Inc.
1493 Highway 6 & 50
Fruita, Colorado 81521
Attention: Keith Holder, President
(ii) To the Holder
Petroleum Holdings, Ltd.
Las Olas Centre
450 East Las Olas Boulevard, Suite 900
Fort Lauderdale, Florida 33301
Attention: Ronald A. Adelhelm
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<PAGE> 10
12.2 Other Matters.
The descriptive headings of the several parts and
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant. The corporate law of the State of Colorado
will govern all questions concerning the relative rights of the Company and
holders of its securities. All other questions concerning the construction,
validity and interpretation of this Warrant will be governed by the internal
law of the State of Colorado without regard to provisions of conflicts or
choice of law.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officers thereunto duly authorized.
Dated as of March 12, 1997
PORTFIELD INVESTMENTS, INC.,
a Colorado corporation
By:
---------------------------
Keith Holder, President
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<PAGE> 11
EXHIBIT A
FORM OF NOTICE OF EXERCISE
To: Portfield Investments, Inc.
(1) The undersigned hereby elects to purchase ____________ shares
of Common Stock of Portfield Investments, Inc., pursuant to
the terms of the attached Warrant.
(2) In exercising this Warrant, the undersigned hereby confirms
and acknowledges that:
(a) unless the shares have been registered under the
Securities Act of 1933, as amended, the shares of
Common Stock are being acquired solely for the
account of the undersigned, and not as a nominee for
any other party, and for investment; and
(b) the undersigned will not offer, sell or otherwise
dispose of any such shares of Common Stock except
under circumstances that will not result in a
violation of the Securities Act of 1933, as amended.
(3) Please issue a certificate or certificates representing said
shares of Common Stock in the name of the undersigned or in
such other name as is specified below:
--------------------------------------
(Name)
--------------------------------------
(Name)
(4) Please issue a new Warrant for the unexercised portion of the
attached Warrant in the name of the undersigned or in such
other name as is specified below:
--------------------------------------
(Name)
--------------------------------------
(Name)
11
<PAGE> 1
Exhibit 10.7
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES
UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE 40,000 SHARES
OF COMMON STOCK
(SUBJECT TO ADJUSTMENT)
OF
PORTFIELD INVESTMENTS, INC.
VOID AFTER MARCH 12, 2007
This certifies that, for value received, Keith R. Holder, or his
registered assigns (the "Holder"), is entitled, subject to the terms set forth
below, to purchase from Portfield Investments, Inc. (the "Company"), a
corporation organized under the laws of the State of Colorado, Forty Thousand
(40,000) shares of the Common Stock of the Company, no par value, as
constituted on the date hereof (the "Warrant Issue Date"), upon surrender
hereof, at the principal office of the Company referred to below, with the
notice of exercise form attached hereto duly executed, and simultaneous payment
therefor in lawful money of the United States or otherwise as hereinafter
provided, at the Exercise Price as set forth in Section 2 below. The number,
character and Exercise Price of such shares of Common Stock are subject to
adjustment as provided below. The term "Warrant" as used herein shall include
this Warrant, and any warrants delivered in substitution or exchange therefor
as provided herein.
1. Term of Warrant.
Subject to the terms and conditions set forth herein, this
Warrant shall be exercisable, in whole or in part, during the term commencing
on the Warrant Issue Date and ending at 5:00 p.m., Mountain Standard Time, on
March 12, 2007, and shall be void thereafter.
2. Exercise Price.
The Exercise Price at which this Warrant may be exercised shall
be $1.75 per share of Common Stock, as may be adjusted from time to time
pursuant to Section 11 hereof.
1
<PAGE> 2
3. Exercise of Warrant.
3.1 Manner of Exercise.
The purchase rights represented by this Warrant are
exercisable by the Holder in whole or in part, but not for less than Five
Thousand (5,000) shares at any time, or from time to time, or such lesser
number of shares which may then constitute the maximum number purchasable under
this Warrant, with such number being subject to adjustment as provided in
Section 11 below), during the term hereof as described in Section 1 above, by
the surrender of this Warrant and the Notice of Exercise annexed hereto as
Exhibit A duly completed and executed on behalf of the Holder, at the office of
the Company, or such other office or agency of the Company as it may designate
by notice in writing to the Holder at the address of the Holder appearing on
the books of the Company, upon payment in cash or by check acceptable to the
Company equal to the purchase price of the shares to be purchased.
3.2 Issuance of Shares upon Exercise of Warrant.
This Warrant shall be deemed to have been exercised
immediately prior to the close of business on the date of its surrender for
exercise as provided above, and the person entitled to receive the shares of
Common Stock issuable upon such exercise shall be treated for all purposes as
the holder of record of such shares as of the close of business on such date.
As promptly as practicable on or after such date and in any event within ten
(10) days thereafter, the Company at its expense shall issue and deliver to the
person or persons entitled to receive the same a certificate or certificates
for the number of shares issuable upon such exercise. In the event that this
Warrant is exercised in part, the Company at its expense will execute and
deliver a new Warrant of like tenor exercisable for the number of shares for
which this Warrant may then be exercised.
4. No Fractional Shares or Scrip.
The Company shall not issue any fractional shares or scrip
representing fractional shares upon the exercise of this Warrant. In lieu of
any fractional share to which the Holder would otherwise be entitled, the
Company shall make a cash payment equal to the fair market value of one share
of common stock determined in accordance with Section 3 multiplied by such
fraction.
5. Replacement of Warrant.
On receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction or mutilation of this Warrant and, in the case of
loss, theft or destruction, on delivery of an indemnity agreement reasonably
satisfactory in form and substance to the Company or, in the case of
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense shall execute and deliver, in lieu of this Warrant, a new warrant of
like tenor and amount.
2
<PAGE> 3
6. Rights of Stockholders.
Subject to Sections 9 and 11 of this Warrant, the Holder shall not
be entitled to vote or receive dividends or be deemed the holder of Common
Stock or any other securities of the Company that may at any time be issuable
on the exercise hereof for any purpose, nor shall anything contained herein be
construed to confer upon the Holder, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors
or upon any matter submitted to stockholders at any meeting thereof, or to give
or withhold consent to any corporate action, whether upon any recapitalization,
issuance of stock, reclassification of stock, change of par value, or change of
stock to no par value, consolidation, merger, conveyance, or otherwise, or to
receive notice of meetings, or to receive dividends or otherwise until the
Warrant shall have been exercised as provided herein.
7. Transfer of Warrant.
7.1 Warrant Register.
The Company will maintain a register (the "Warrant
Register") containing the names and addresses of the Holder and its
transferees. Any Holder of this Warrant or any portion thereof may change his
address as shown on the Warrant Register by written notice to the Company
requesting such change. Any notice or written communication required or
permitted to be given to the Holder may be delivered or given by mail to such
Holder as shown on the Warrant Register and at the address shown on the Warrant
Register. Until this Warrant is transferred on the Warrant Register of the
Company, the Company may treat the Holder as shown on the Warrant Register as
the absolute owner of this Warrant for all purposes, notwithstanding any notice
to the contrary.
7.2 Agent.
The Company may, by written notice to the Holder, appoint
an agent for the purpose of maintaining the Warrant Register referred to in
Section 7.1 above, issuing the Common Stock or other securities then issuable
upon the exercise of this Warrant, exchanging this Warrant, replacing this
Warrant, or any or all of the foregoing. Thereafter, any such registration,
issuance, exchange, or replacement, as the case may be, shall be made at the
office of such agent.
7.3 No Transfer or Assignment Allowed.
The Holder may not transfer or assign the Warrant in whole
or in part without compliance with all applicable federal and state securities
laws by the transferor and the transferee, including the delivery of investment
representation letters and, if this Warrant is sold, pledged or hypothecated in
whole or in part, legal opinions reasonably satisfactory to the Company, if
such are requested by the Company. Subject to the provisions of this Warrant
with respect to compliance with the Securities Act of 1933, as amended (the
"Act"), title to this Warrant may be transferred by endorsement by the Holder
executing a form of assignment (the "Assignment
3
<PAGE> 4
Form") reasonably acceptable to the Company and delivery in the same manner as
a negotiable instrument transferable by endorsement and delivery.
7.4 Issuance of New Warrant(s) to Transferee.
On surrender of this Warrant for exchange, properly
endorsed on the Assignment Form and subject to the provisions of this Warrant
with respect to compliance with the Act and with the limitations on assignments
and transfers and contained in this Section 7, the Company at its expense shall
issue to or on the order of the Holder a new warrant or warrants of like tenor,
in the name of the Holder or as the Holder may direct for the number of shares
of Common Stock issuable upon exercise hereof, upon Holder's payment of any
applicable transfer taxes.
7.5 Compliance with securities laws:
(a) Unregistered.
The Holder of this Warrant, by acceptance hereof,
acknowledges that this Warrant and the shares of Common Stock to be issued upon
exercise hereof, if the issuance or resale thereof is unregistered under the
Act, are being acquired solely for the Holder's own account and not as a
nominee for any other party, and for investment, and that the Holder will not
offer, sell or otherwise dispose of this Warrant or any shares of Common Stock
to be issued upon exercise hereof except under circumstances that will not
result in a violation of the Act or any applicable state securities laws. Upon
exercise of this Warrant, the Holder shall, if requested by the Company,
confirm in writing, in a form satisfactory to the Company, that Holder has such
investment intent as is required under the Act, if any.
(b) Legend.
This Warrant and all shares of Common Stock issued
upon exercise hereof that are not registered under the Act shall be stamped or
imprinted with a legend in substantially the following form in addition to any
legend required by state securities laws:
"THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH
SECURITIES AND ANY SECURITIES OR SHARES ISSUED HEREUNDER OR THEREUNDER MAY NOT
BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SAID ACT. COPIES OF THE AGREEMENT COVERING THE PURCHASE OF
THESE SECURITIES AND RESTRICTING THEIR TRANSFER OR SALE MAY BE OBTAINED AT NO
COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD HEREOF TO THE SECRETARY OF
THE COMPANY AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY."
4
<PAGE> 5
8. Reservation of Stock.
The Company covenants that during the period this Warrant is
exercisable, the Company will reserve and keep available from its authorized
and unissued Common Stock a sufficient number of shares to provide for the
issuance of all Common Stock issuable upon the exercise of this Warrant and,
from time to time, will take all steps necessary to amend its Certificate of
Incorporation (the "Certificate") to provide sufficient reserves of shares of
Common Stock issuable upon exercise of this Warrant. The Company further
covenants that all shares that may be issued upon the exercise of rights
represented by this Warrant and payment of the Exercise Price, all as set forth
herein, will be duly and validly issued and fully paid and nonassessable, not
subject to preemptive rights, free from all taxes, liens and charges in respect
of the issue thereof, other than taxes in respect of any transfer occurring
contemporaneously or otherwise specified herein. The Company agrees that its
issuance of this Warrant shall constitute full authority to its officers who
are charged with the duty of executing stock certificates to execute and issue
the necessary certificates for shares of Common Stock upon the exercise of this
Warrant.
Before taking any action which would cause an adjustment reducing
the current Exercise Price below the then par value, if any, of the shares of
Common Stock issuable upon exercise of this Warrant, the Company shall take any
corporate action which may be necessary in order that the Company may validly
and legally issue fully paid and nonassessable shares of such Common Stock at
such adjusted Exercise Price.
Before taking any action which would result in an adjustment in
the number of shares of Common Stock for which this Warrant is exercisable or
in the current Exercise Price, the Company shall obtain all such authorizations
or exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
9. Notices.
9.1 Issuance of Certificate Upon Adjustment.
Whenever the Exercise Price or number of shares
purchasable hereunder shall be adjusted pursuant to Section 11 hereof, the
Company shall issue a certificate signed by its Chief Financial Officer setting
forth, in reasonable detail, the event requiring the adjustment, the amount of
the adjustment, the method by which such adjustment was calculated, and the
Exercise Price and number of shares purchasable hereunder after giving effect
to such adjustment, and shall cause a copy of such certificate to be mailed, by
first-class mail, postage prepaid, to the Holder of this Warrant.
5
<PAGE> 6
9.2 Other Notices.
In case:
(i) the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them to receive any
dividend or other distribution, or any right to subscribe for or purchase any
shares of stock of any class or any other securities, or to receive any other
right, or
(ii) of any capital reorganization of the
Company, any reclassification of the capital stock of the Company, any
consolidation or merger of the Company with or into another corporation, or any
conveyance of all or substantially all of the assets of the Company to another
corporation, or
(iii) of any voluntary or involuntary dissolution,
liquidation or winding-up of the Company, then, and in each such case, the
Company will mail or cause to be mailed to the Holder a notice specifying, as
the case may be, (A) the date on which a record is to be taken for the purpose
of such dividend, distribution or right, and stating the amount and character
of such dividend, distribution or right, or (B) the date on which such
reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up is to take place, and the time, if any
is to be fixed, as of which the holder of record of Common Stock, or such stock
or securities at the time receivable upon the exercise of this Warrant, shall
be entitled to exchange their shares or such other stock or securities for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation
or winding-up. Such notice shall be mailed at least fifteen (15) days prior to
the date therein specified.
9.3 Deemed Receipt of Notices.
All such notices, advices and communications shall be
deemed to have been received (i) in the case of personal delivery, on the date
of such delivery, and (ii) in the case of mailing, on the third (3rd) business
day following the date of such mailing.
10. Amendments and Waivers.
Any term of this Warrant may be amended with the written consent
of the Company and the Holder. Any amendment effected in accordance with this
Section 10 shall be binding upon the Holder, each future holder of all rights
pursuant to this Warrant, and the Company. No waivers of, or exceptions to,
any term, condition or provision of this Warrant, in any one or more instances,
shall be deemed to be, or construed as, a further or continuing waiver of any
such term, condition or provision.
6
<PAGE> 7
11. Adjustments.
The Exercise Price and the number of shares of Common Stock
purchasable hereunder are subject to adjustment from time to time as follows:
11.1 Reorganizations, Consolidations, Mergers, Sales or
Transfers.
If at any time while this Warrant, or any portion thereof,
is outstanding and unexpired there shall be (i) a reorganization, other than a
combination, reclassification, exchange or subdivision of shares otherwise
provided for herein, (ii) a merger or consolidation of the Company with or into
another corporation in which the Company is not the surviving entity, or a
reverse triangular merger in which the Company is the surviving entity but the
shares of the Company's capital stock outstanding immediately prior to the
merger are converted by virtue of the merger into other property, whether in
the form of securities, cash, or otherwise, (iii) an offering of Common Stock
or any other securities pro rata among the shareholders, or (iv) a sale or
transfer of the Company's properties and assets as, or substantially as, an
entirety to any other person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that the
Holder of this Warrant shall thereafter be entitled to receive upon exercise of
this Warrant, during the period specified herein and upon payment of the
Exercise Price then in effect, the number of shares of stock or other
securities or property of the successor corporation resulting from such
reorganization, merger, consolidation, sale or transfer that a Holder of the
shares deliverable upon exercise of this Warrant would have been entitled to
receive in such reorganization, consolidation, merger, sale or transfer if this
Warrant had been exercised immediately before such reorganization, merger,
consolidation, sale or transfer, all subject to further adjustment as provided
in this Section 11. The foregoing provisions of this Section 11.1 shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation that are
at the time receivable upon the exercise of this Warrant. If the per-share
consideration payable to the Holder hereof for shares in connection with any
such transaction is in a form other than cash or marketable securities, then
the value of such consideration shall be determined in good faith by the
independent members of the Company's Board of Directors. In all events,
appropriate adjustment, as determined in good faith by the independent members
of the Company's Board of Directors, shall be made in the application of the
provisions of this Warrant with respect to the rights and interests of the
Holder after the transaction, to the end that the provisions of this Warrant
shall be applicable after that event, as near as reasonably may be, in relation
to any shares or other property deliverable after that event upon exercise of
this Warrant.
The Company shall not effect any consolidation, merger,
sale or transfer of all or substantially all of its assets, unless prior to the
consummation thereof the successor corporation (if other than the Company)
resulting from such consolidation or merger, or the corporation into or for the
securities of which the previously outstanding stock of the Company shall be
changed in connection with such consolidation or merger, or the corporation
purchasing or otherwise acquiring such assets, as the case may be, shall assume
by written instrument executed and mailed or delivered to the registered Holder
at the last address of such Holder appearing on the books of the Company, the
obligation to deliver to such Holder, upon exercise of this Warrant,
7
<PAGE> 8
such shares of stock, securities or property, including case, as, in accordance
with the foregoing provisions, such Holder may be entitled to purchase.
11.2 Change in Shares.
If the Company, at any time while this Warrant, or any
portion thereof, remains outstanding and unexpired, by reclassification of
securities or otherwise, shall change any of the securities as to which
purchase rights under this Warrant exist into the same or a different number of
securities of any other class or classes, this Warrant shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable as the result of such change with respect to the securities that
were subject to the purchase rights under this Warrant immediately prior to
such reclassification or other change and the Exercise Price therefor shall be
appropriately adjusted, all subject to further adjustment as provided in this
Section 11.
11.3 Splits or Combinations of Shares.
If the Company at any time while this Warrant, or any
portion thereof, remains outstanding and unexpired, shall split, subdivide or
combine the securities as to which purchase rights under this Warrant exist,
into a different number of securities of the same class, the number of
securities for which this Warrant is exercisable shall be proportionately
increased and the Exercise Price for such securities shall be proportionately
decreased in the case of a split or subdivision or the number of securities for
which this Warrant is exercisable shall be proportionately deceased and the
Exercise Price shall be proportionately increased in the case of a combination.
11.4 Stock Dividends and Distributions.
If while this Warrant, or any portion thereof, remains
outstanding and unexpired, the holders of the securities as to which purchase
rights under this Warrant exist at the time shall have received, or, on or
after the record date fixed for the determination of eligible Stockholders,
shall have become entitled to receive, without payment therefor, other or
additional stock or other securities or property (other than cash) of the
Company by way of dividend, then and in each case, this Warrant shall represent
the right to acquire, in addition to the number of shares of the security
receivable upon exercise of this Warrant, and without payment of any additional
consideration therefor, the amount of such other or additional stock or other
securities or property (other than cash) of the Company that such holder would
hold on the date of such exercise had it been the holder of record of the
security receivable upon exercise of this Warrant on the date hereof and had
thereafter, during the period from the date hereof to and including the date of
such exercise, retained such shares and/or all other additional stock available
by it as aforesaid during such period, giving effect to all adjustments called
for during such period by the provisions of this Section 11.
8
<PAGE> 9
11.5 New Certificate.
Upon the occurrence of each adjustment or readjustment
pursuant to this Section 11, the Company at its expense shall promptly compute
such adjustment or readjustment in accordance with the terms hereof and furnish
to each Holder of this Warrant a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Company shall, upon the written request, at any
time, of any such Holder, furnish or cause to be furnished to such Holder a
like certificate setting forth: (i) such adjustments and readjustments; (ii)
the Exercise Price at the time in effect; and (iii) the number of shares and
the amount, if any, of other property that at the time would be received upon
the exercise of the Warrant.
12. Limitation of Liability.
No provision hereof, in the absence of affirmative action by the
Holder to purchase shares of Common Stock, and no enumeration herein of the
rights or privileges of the Holder hereof, shall give rise to any liability of
such Holder for the purchase price of any Common Stock or as a stockholder of
the Company, whether such liability is asserted by the Company or by creditors
of the Company.
12.1 Miscellaneous.
Except as otherwise expressly provided herein, all notices
referred to in this Warrant will be in writing and will be delivered personally
or by registered or certified mail, return receipt requested, postage prepaid
and will be deemed to have been given when so personally delivered or on the
date of receipt appearing on the return receipt requested or, if refused, on
the date of refusal,
(i) To the Company:
Portfield Investments, Inc.
1493 Highway 6 & 50
Fruita, Colorado 81521
Attention: Keith Holder, President
(ii) To the Holder
Keith R. Holder
107 Country Club Park Drive
Grand Junction, CO 81503
12.2 Other Matters.
The descriptive headings of the several parts and
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant. The corporate law of the State of Colorado
will govern all questions concerning the relative rights of the Company
9
<PAGE> 10
and holders of its securities. All other questions concerning the
construction, validity and interpretation of this Warrant will be governed by
the internal law of the State of Colorado without regard to provisions of
conflicts or choice of law.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officers thereunto duly authorized.
Dated as of March 12, 1997
PORTFIELD INVESTMENTS, INC.,
a Colorado corporation
By:
------------------------------
Keith Holder, President
10
<PAGE> 11
EXHIBIT A
FORM OF NOTICE OF EXERCISE
To: Portfield Investments, Inc.
(1) The undersigned hereby elects to purchase _____________ shares of
Common Stock of Portfield Investments, Inc., pursuant to the
terms of the attached Warrant.
(2) In exercising this Warrant, the undersigned hereby confirms and
acknowledges that:
(a) unless the shares have been registered under the
Securities Act of 1933, as amended, the shares of Common
Stock are being acquired solely for the account of the
undersigned, and not as a nominee for any other party, and
for investment; and
(b) the undersigned will not offer, sell or otherwise dispose
of any such shares of Common Stock except under
circumstances that will not result in a violation of the
Securities Act of 1933, as amended.
(3) Please issue a certificate or certificates representing said
shares of Common Stock in the name of the undersigned or in such
other name as is specified below:
(4) Please issue a new Warrant for the unexercised portion of the
attached Warrant in the name of the undersigned or in such other
name as is specified below:
-----------------------------------
(Name)
-----------------------------------
(Name)
11
<PAGE> 1
Exhibit 10.8
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES
UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE 50,000 SHARES
OF COMMON STOCK
(SUBJECT TO ADJUSTMENT)
OF
PORTFIELD INVESTMENTS, INC.
VOID AFTER MARCH 12, 2007
This certifies that, for value received, Stephen W. Houghton, or his
registered assigns (the "Holder"), is entitled, subject to the terms set forth
below, to purchase from Portfield Investments, Inc. (the "Company"), a
corporation organized under the laws of the State of Colorado, Fifty Thousand
(50,000) shares of the Common Stock of the Company, no par value, as
constituted on the date hereof (the "Warrant Issue Date"), upon surrender
hereof, at the principal office of the Company referred to below, with the
notice of exercise form attached hereto duly executed, and simultaneous payment
therefor in lawful money of the United States or otherwise as hereinafter
provided, at the Exercise Price as set forth in Section 2 below. The number,
character and Exercise Price of such shares of Common Stock are subject to
adjustment as provided below. The term "Warrant" as used herein shall include
this Warrant, and any warrants delivered in substitution or exchange therefor
as provided herein.
1. Term of Warrant.
Subject to the terms and conditions set forth herein, this Warrant
shall be exercisable, in whole or in part, during the term commencing on the
Warrant Issue Date and ending at 5:00 p.m., Mountain Standard Time, on March
12, 2007, and shall be void thereafter.
2. Exercise Price.
The Exercise Price at which this Warrant may be exercised shall be
$1.75 per share of Common Stock, as may be adjusted from time to time pursuant
to Section 11 hereof.
<PAGE> 2
3. Exercise of Warrant.
3.1 Manner of Exercise.
The purchase rights represented by this Warrant are
exercisable by the Holder in whole or in part, but not for less than Five
Thousand (5,000) shares at any time, or from time to time, or such lesser
number of shares which may then constitute the maximum number purchasable under
this Warrant, with such number being subject to adjustment as provided in
Section 11 below), during the term hereof as described in Section 1 above, by
the surrender of this Warrant and the Notice of Exercise annexed hereto as
Exhibit A duly completed and executed on behalf of the Holder, at the office of
the Company, or such other office or agency of the Company as it may designate
by notice in writing to the Holder at the address of the Holder appearing on
the books of the Company, upon payment in cash or by check acceptable to the
Company equal to the purchase price of the shares to be purchased.
3.2 Issuance of Shares upon Exercise of Warrant.
This Warrant shall be deemed to have been exercised
immediately prior to the close of business on the date of its surrender for
exercise as provided above, and the person entitled to receive the shares of
Common Stock issuable upon such exercise shall be treated for all purposes as
the holder of record of such shares as of the close of business on such date.
As promptly as practicable on or after such date and in any event within ten
(10) days thereafter, the Company at its expense shall issue and deliver to the
person or persons entitled to receive the same a certificate or certificates
for the number of shares issuable upon such exercise. In the event that this
Warrant is exercised in part, the Company at its expense will execute and
deliver a new Warrant of like tenor exercisable for the number of shares for
which this Warrant may then be exercised.
4. No Fractional Shares or Scrip.
The Company shall not issue any fractional shares or scrip
representing fractional shares upon the exercise of this Warrant. In lieu of
any fractional share to which the Holder would otherwise be entitled, the
Company shall make a cash payment equal to the fair market value of one share
of common stock determined in accordance with Section 3 multiplied by such
fraction.
5. Replacement of Warrant.
On receipt of evidence reasonably satisfactory to the Company
of the loss, theft, destruction or mutilation of this Warrant and, in the case
of loss, theft or destruction, on delivery of an indemnity agreement reasonably
satisfactory in form and substance to the Company or, in the case of
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense shall execute and deliver, in lieu of this Warrant, a new warrant of
like tenor and amount.
<PAGE> 3
6. Rights of Stockholders.
Subject to Sections 9 and 11 of this Warrant, the Holder shall
not be entitled to vote or receive dividends or be deemed the holder of Common
Stock or any other securities of the Company that may at any time be issuable
on the exercise hereof for any purpose, nor shall anything contained herein be
construed to confer upon the Holder, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors
or upon any matter submitted to stockholders at any meeting thereof, or to give
or withhold consent to any corporate action, whether upon any recapitalization,
issuance of stock, reclassification of stock, change of par value, or change of
stock to no par value, consolidation, merger, conveyance, or otherwise, or to
receive notice of meetings, or to receive dividends or otherwise until the
Warrant shall have been exercised as provided herein.
7. Transfer of Warrant.
7.1 Warrant Register.
The Company will maintain a register (the "Warrant
Register") containing the names and addresses of the Holder and its
transferees. Any Holder of this Warrant or any portion thereof may change his
address as shown on the Warrant Register by written notice to the Company
requesting such change. Any notice or written communication required or
permitted to be given to the Holder may be delivered or given by mail to such
Holder as shown on the Warrant Register and at the address shown on the Warrant
Register. Until this Warrant is transferred on the Warrant Register of the
Company, the Company may treat the Holder as shown on the Warrant Register as
the absolute owner of this Warrant for all purposes, notwithstanding any notice
to the contrary.
7.2 Agent.
The Company may, by written notice to the Holder, appoint
an agent for the purpose of maintaining the Warrant Register referred to in
Section 7.1 above, issuing the Common Stock or other securities then issuable
upon the exercise of this Warrant, exchanging this Warrant, replacing this
Warrant, or any or all of the foregoing. Thereafter, any such registration,
issuance, exchange, or replacement, as the case may be, shall be made at the
office of such agent.
7.3 No Transfer or Assignment Allowed.
The Holder may not transfer or assign the Warrant in whole
or in part without compliance with all applicable federal and state securities
laws by the transferor and the transferee, including the delivery of investment
representation letters and, if this Warrant is sold, pledged or hypothecated in
whole or in part, legal opinions reasonably satisfactory to the Company, if
such are requested by the Company. Subject to the provisions of this Warrant
with respect to compliance with the Securities Act of 1933, as amended (the
"Act"), title to this Warrant may be transferred by endorsement by the Holder
executing a form of assignment (the "Assignment
<PAGE> 4
Form") reasonably acceptable to the Company and delivery in the same manner as
a negotiable instrument transferable by endorsement and delivery.
7.4 Issuance of New Warrant(s) to Transferee.
On surrender of this Warrant for exchange, properly
endorsed on the Assignment Form and subject to the provisions of this Warrant
with respect to compliance with the Act and with the limitations on assignments
and transfers and contained in this Section 7, the Company at its expense shall
issue to or on the order of the Holder a new warrant or warrants of like tenor,
in the name of the Holder or as the Holder may direct for the number of shares
of Common Stock issuable upon exercise hereof, upon Holder's payment of any
applicable transfer taxes.
7.5 Compliance with securities laws:
(a) Unregistered.
The Holder of this Warrant, by acceptance hereof,
acknowledges that this Warrant and the shares of Common Stock to be issued upon
exercise hereof, if the issuance or resale thereof is unregistered under the
Act, are being acquired solely for the Holder's own account and not as a
nominee for any other party, and for investment, and that the Holder will not
offer, sell or otherwise dispose of this Warrant or any shares of Common Stock
to be issued upon exercise hereof except under circumstances that will not
result in a violation of the Act or any applicable state securities laws. Upon
exercise of this Warrant, the Holder shall, if requested by the Company,
confirm in writing, in a form satisfactory to the Company, that Holder has such
investment intent as is required under the Act, if any.
(b) Legend.
This Warrant and all shares of Common Stock
issued upon exercise hereof that are not registered under the Act shall be
stamped or imprinted with a legend in substantially the following form in
addition to any legend required by state securities laws:
"THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH
SECURITIES AND ANY SECURITIES OR SHARES ISSUED HEREUNDER OR THEREUNDER MAY NOT
BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SAID ACT. COPIES OF THE AGREEMENT COVERING THE PURCHASE OF
THESE SECURITIES AND RESTRICTING THEIR TRANSFER OR SALE MAY BE OBTAINED AT NO
COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD HEREOF TO THE SECRETARY OF
THE COMPANY AT THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY."
<PAGE> 5
8. Reservation of Stock.
The Company covenants that during the period this Warrant is
exercisable, the Company will reserve and keep available from its authorized
and unissued Common Stock a sufficient number of shares to provide for the
issuance of all Common Stock issuable upon the exercise of this Warrant and,
from time to time, will take all steps necessary to amend its Certificate of
Incorporation (the "Certificate") to provide sufficient reserves of shares of
Common Stock issuable upon exercise of this Warrant. The Company further
covenants that all shares that may be issued upon the exercise of rights
represented by this Warrant and payment of the Exercise Price, all as set forth
herein, will be duly and validly issued and fully paid and nonassessable, not
subject to preemptive rights, free from all taxes, liens and charges in respect
of the issue thereof, other than taxes in respect of any transfer occurring
contemporaneously or otherwise specified herein. The Company agrees that its
issuance of this Warrant shall constitute full authority to its officers who
are charged with the duty of executing stock certificates to execute and issue
the necessary certificates for shares of Common Stock upon the exercise of this
Warrant.
Before taking any action which would cause an adjustment reducing
the current Exercise Price below the then par value, if any, of the shares of
Common Stock issuable upon exercise of this Warrant, the Company shall take any
corporate action which may be necessary in order that the Company may validly
and legally issue fully paid and nonassessable shares of such Common Stock at
such adjusted Exercise Price.
Before taking any action which would result in an adjustment in
the number of shares of Common Stock for which this Warrant is exercisable or
in the current Exercise Price, the Company shall obtain all such authorizations
or exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
9. Notices.
9.1 Issuance of Certificate Upon Adjustment.
Whenever the Exercise Price or number of shares
purchasable hereunder shall be adjusted pursuant to Section 11 hereof, the
Company shall issue a certificate signed by its Chief Financial Officer setting
forth, in reasonable detail, the event requiring the adjustment, the amount of
the adjustment, the method by which such adjustment was calculated, and the
Exercise Price and number of shares purchasable hereunder after giving effect
to such adjustment, and shall cause a copy of such certificate to be mailed, by
first-class mail, postage prepaid, to the Holder of this Warrant.
<PAGE> 6
9.2 Other Notices.
In case:
(i) the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them to receive any
dividend or other distribution, or any right to subscribe for or purchase any
shares of stock of any class or any other securities, or to receive any other
right, or
(ii) of any capital reorganization of the
Company, any reclassification of the capital stock of the Company, any
consolidation or merger of the Company with or into another corporation, or any
conveyance of all or substantially all of the assets of the Company to another
corporation, or
(iii) of any voluntary or involuntary
dissolution, liquidation or winding-up of the Company, then, and in each such
case, the Company will mail or cause to be mailed to the Holder a notice
specifying, as the case may be, (A) the date on which a record is to be taken
for the purpose of such dividend, distribution or right, and stating the amount
and character of such dividend, distribution or right, or (B) the date on which
such reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up is to take place, and the time, if any
is to be fixed, as of which the holder of record of Common Stock, or such stock
or securities at the time receivable upon the exercise of this Warrant, shall
be entitled to exchange their shares or such other stock or securities for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation
or winding-up. Such notice shall be mailed at least fifteen (15) days prior to
the date therein specified.
9.3 Deemed Receipt of Notices.
All such notices, advices and communications shall be
deemed to have been received (i) in the case of personal delivery, on the date
of such delivery, and (ii) in the case of mailing, on the third (3rd) business
day following the date of such mailing.
10. Amendments and Waivers.
Any term of this Warrant may be amended with the written consent
of the Company and the Holder. Any amendment effected in accordance with this
Section 10 shall be binding upon the Holder, each future holder of all rights
pursuant to this Warrant, and the Company. No waivers of, or exceptions to,
any term, condition or provision of this Warrant, in any one or more instances,
shall be deemed to be, or construed as, a further or continuing waiver of any
such term, condition or provision.
<PAGE> 7
11. Adjustments.
The Exercise Price and the number of shares of Common Stock
purchasable hereunder are subject to adjustment from time to time as follows:
11.1 Reorganizations, Consolidations, Mergers, Sales or Transfers.
If at any time while this Warrant, or any portion thereof,
is outstanding and unexpired there shall be (i) a reorganization, other than a
combination, reclassification, exchange or subdivision of shares otherwise
provided for herein, (ii) a merger or consolidation of the Company with or into
another corporation in which the Company is not the surviving entity, or a
reverse triangular merger in which the Company is the surviving entity but the
shares of the Company's capital stock outstanding immediately prior to the
merger are converted by virtue of the merger into other property, whether in
the form of securities, cash, or otherwise, (iii) an offering of Common Stock
or any other securities pro rata among the shareholders, or (iv) a sale or
transfer of the Company's properties and assets as, or substantially as, an
entirety to any other person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that the
Holder of this Warrant shall thereafter be entitled to receive upon exercise of
this Warrant, during the period specified herein and upon payment of the
Exercise Price then in effect, the number of shares of stock or other
securities or property of the successor corporation resulting from such
reorganization, merger, consolidation, sale or transfer that a Holder of the
shares deliverable upon exercise of this Warrant would have been entitled to
receive in such reorganization, consolidation, merger, sale or transfer if this
Warrant had been exercised immediately before such reorganization, merger,
consolidation, sale or transfer, all subject to further adjustment as provided
in this Section 11. The foregoing provisions of this Section 11.1 shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation that are
at the time receivable upon the exercise of this Warrant. If the per-share
consideration payable to the Holder hereof for shares in connection with any
such transaction is in a form other than cash or marketable securities, then
the value of such consideration shall be determined in good faith by the
independent members of the Company's Board of Directors. In all events,
appropriate adjustment, as determined in good faith by the independent members
of the Company's Board of Directors, shall be made in the application of the
provisions of this Warrant with respect to the rights and interests of the
Holder after the transaction, to the end that the provisions of this Warrant
shall be applicable after that event, as near as reasonably may be, in relation
to any shares or other property deliverable after that event upon exercise of
this Warrant.
The Company shall not effect any consolidation, merger,
sale or transfer of all or substantially all of its assets, unless prior to the
consummation thereof the successor corporation (if other than the Company)
resulting from such consolidation or merger, or the corporation into or for the
securities of which the previously outstanding stock of the Company shall be
changed in connection with such consolidation or merger, or the corporation
purchasing or otherwise acquiring such assets, as the case may be, shall assume
by written instrument executed and mailed or delivered to the registered Holder
at the last address of such Holder appearing on the books of the Company, the
obligation to deliver to such Holder, upon exercise of this War-
<PAGE> 8
rant, such shares of stock, securities or property, including case, as, in
accordance with the foregoing provisions, such Holder may be entitled to
purchase.
11.2 Change in Shares.
If the Company, at any time while this Warrant, or
any portion thereof, remains outstanding and unexpired, by reclassification of
securities or otherwise, shall change any of the securities as to which
purchase rights under this Warrant exist into the same or a different number of
securities of any other class or classes, this Warrant shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable as the result of such change with respect to the securities that
were subject to the purchase rights under this Warrant immediately prior to
such reclassification or other change and the Exercise Price therefor shall be
appropriately adjusted, all subject to further adjustment as provided in this
Section 11.
11.3 Splits or Combinations of Shares.
If the Company at any time while this Warrant, or any
portion thereof, remains outstanding and unexpired, shall split, subdivide or
combine the securities as to which purchase rights under this Warrant exist,
into a different number of securities of the same class, the number of
securities for which this Warrant is exercisable shall be proportionately
increased and the Exercise Price for such securities shall be proportionately
decreased in the case of a split or subdivision or the number of securities for
which this Warrant is exercisable shall be proportionately deceased and the
Exercise Price shall be proportionately increased in the case of a combination.
11.4 Stock Dividends and Distributions.
If while this Warrant, or any portion thereof,
remains outstanding and unexpired, the holders of the securities as to which
purchase rights under this Warrant exist at the time shall have received, or,
on or after the record date fixed for the determination of eligible
Stockholders, shall have become entitled to receive, without payment therefor,
other or additional stock or other securities or property (other than cash) of
the Company by way of dividend, then and in each case, this Warrant shall
represent the right to acquire, in addition to the number of shares of the
security receivable upon exercise of this Warrant, and without payment of any
additional consideration therefor, the amount of such other or additional stock
or other securities or property (other than cash) of the Company that such
holder would hold on the date of such exercise had it been the holder of record
of the security receivable upon exercise of this Warrant on the date hereof and
had thereafter, during the period from the date hereof to and including the
date of such exercise, retained such shares and/or all other additional stock
available by it as aforesaid during such period, giving effect to all
adjustments called for during such period by the provisions of this Section 11.
<PAGE> 9
11.5 New Certificate.
Upon the occurrence of each adjustment or
readjustment pursuant to this Section 11, the Company at its expense shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and furnish to each Holder of this Warrant a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Company shall, upon the written
request, at any time, of any such Holder, furnish or cause to be furnished to
such Holder a like certificate setting forth: (i) such adjustments and
readjustments; (ii) the Exercise Price at the time in effect; and (iii) the
number of shares and the amount, if any, of other property that at the time
would be received upon the exercise of the Warrant.
12. Limitation of Liability.
No provision hereof, in the absence of affirmative action by the
Holder to purchase shares of Common Stock, and no enumeration herein of the
rights or privileges of the Holder hereof, shall give rise to any liability of
such Holder for the purchase price of any Common Stock or as a stockholder of
the Company, whether such liability is asserted by the Company or by creditors
of the Company.
12.1 Miscellaneous.
Except as otherwise expressly provided herein, all
notices referred to in this Warrant will be in writing and will be delivered
personally or by registered or certified mail, return receipt requested,
postage prepaid and will be deemed to have been given when so personally
delivered or on the date of receipt appearing on the return receipt requested
or, if refused, on the date of refusal,
(i) To the Company:
Portfield Investments, Inc.
1493 Highway 6 & 50
Fruita, Colorado 81521
Attention: Keith Holder, President
(ii) To the Holder
Stephen W. Houghton
-------------
-------------
12.2 Other Matters.
The descriptive headings of the several parts and
paragraphs of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant. The corporate law of the State of Colorado
will govern all questions concerning the relative rights of the Com-
<PAGE> 10
pany and holders of its securities. All other questions concerning the
construction, validity and interpretation of this Warrant will be governed by
the internal law of the State of Colorado without regard to provisions of
conflicts or choice of law.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its officers thereunto duly authorized.
Dated as of March 12, 1997
PORTFIELD INVESTMENTS, INC.,
a Colorado corporation
By:
------------------------------
Keith Holder, President
<PAGE> 11
EXHIBIT A
FORM OF NOTICE OF EXERCISE
To: Portfield Investments, Inc.
(1) The undersigned hereby elects to purchase _____________ shares of
Common Stock of Portfield Investments, Inc., pursuant to the terms of
the attached Warrant.
(2) In exercising this Warrant, the undersigned hereby confirms and
acknowledges that:
(a) unless the shares have been registered under the Securities Act of
1933, as amended, the shares of Common Stock are being acquired
solely for the account of the undersigned, and not as a nominee
for any other party, and for investment; and
(b) the undersigned will not offer, sell or otherwise dispose of any
such shares of Common Stock except under circumstances that will
not result in a violation of the Securities Act of 1933, as
amended.
(3) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as
is specified below:
------------------------------------
(Name)
------------------------------------
(Name)
(4) Please issue a new Warrant for the unexercised portion of the attached
Warrant in the name of the undersigned or in such other name as is
specified below:
------------------------------------
(Name)
------------------------------------
(Name)
<PAGE> 1
Exhibit 10.9
LOAN AND SECURITY AGREEMENT
THIS AGREEMENT made this ____ day of October, 1995 by and between
National Canada Finance Corp., a Delaware corporation ("Lender"), with an
address at 1200 17th Street, Suite 2760, Denver, Colorado 80202, and Portfield
Investments, Inc., a Colorado corporation, Wescourt Group, Inc., a Delaware
corporation, Wescourt Distributing, Inc., a Colorado corporation, Wesfrac,
Inc., a Colorado corporation, Westec Denver, Inc., a Colorado corporation,
Petro-Mark Corp. Utah, a Colorado corporation, Wescourt Environmental, Inc., a
Colorado corporation, Petro-Mark Corp., a Colorado corporation, Petro-Mark
Corp., Montrose, Inc., a Colorado corporation, Westec Fruita, Inc., a Delaware
corporation, Montrose Propane, Inc., a Colorado corporation, Grand Mesa Texaco,
Inc., a Colorado corporation, Fruita Investments, Inc., a Colorado corporation,
Fruita Marketing & Management, Inc., a Delaware corporation, and Fruita RP
Holding, Inc, a Delaware corporation, all with an address at 1493 Highway 6 and
50, Fruita, Colorado 81521 (collectively "Borrowers"). Hereinafter, each of
the Borrowers may be referred to singularly as a "Borrower."
WITNESSETH:
WHEREAS, the parties wish to provide for the terms and conditions
upon which Loans may be made, and Letters of Credit may be issued, for the
account of Borrowers;
NOW, THEREFORE, in consideration of any Loans made and/or Letters
of Credit issued for the account of Borrowers, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
Borrowers, the parties agree as follows:
1. DEFINITIONS.
(a) "Account," "Account Debtor," "Chattel Paper," "Documents,"
"Equipment," "General Intangibles," "Goods," "Instruments" and "Inventory"
shall have the respective meanings assigned to such terms, as of the date of
this Agreement, in the Colorado Uniform Commercial Code.
(b) "Affiliate" shall mean any direct or indirect parent,
subsidiary, or sister company of any Person or any other Person directly or
indirectly controlling, controlled by or under common control with another
Person.
(c) "Agreement" shall mean this Loan and Security Agreement,
any exhibits or schedules hereto, any concurrent or subsequent rider hereto and
any extensions, supplements, amendments or modifications hereto.
(d) "Blocked Account" shall have the meaning specified in
SECTION 8 hereof.
<PAGE> 2
(e) "Collateral" shall mean all of the property of Borrowers
described in SECTION 5 hereof, together with all other real or personal
property of Borrowers now or hereafter pledged to Lender to secure repayment of
any of the Liabilities, including without limitation all Accounts, Inventory,
General Intangibles and Equipment of Borrowers.
(f) "Collateral Report" shall have the meaning specified in
SECTION 9 hereof.
(g) "Debt" shall mean, at any time, the liabilities of
Borrowers except for debt subordinated to the Liabilities (pursuant to a
written agreement in a form acceptable to Lender acting in good faith) as
determined in accordance with generally accepted accounting principles.
(h) "Eligible Accounts" shall mean those Accounts of any
Borrower which are evidenced by invoices requiring payment within thirty (30)
days from invoice date and are unpaid less than sixty days (60) days from
invoice date as well as those Accounts of any Borrower which are evidenced by
invoices requiring payment within ten (10) days from invoice date and are
unpaid less than thirty (30) days from invoice date, and which Lender, in good
faith, determines to be eligible. Without limiting the foregoing, unless
otherwise agreed by Lender, the following Accounts are not Eligible Accounts:
(i) all Accounts owing by a single Account Debtor, including currently
scheduled Accounts, if twenty-five percent (25%) or more of the balance owing
by such Account Debtor to Borrowers or any Borrower is ineligible for any
reason; (ii) Accounts with respect to which the Account Debtor is an officer,
director, employee, Subsidiary or Affiliate of any Borrower; (iii) Accounts
with respect to which the Account Debtor is the United States of America or any
department, agency or instrumentality thereof, unless the Borrower creating and
owning such Accounts assigns its rights to payment of such Accounts to Lender
pursuant to, and in full compliance with, the Assignment of Claims Act of 1940,
as amended; (iv) Accounts with respect to which the Account Debtor is not a
resident of the continental United States unless the Account Debtor has
supplied the Borrower owning such Accounts with an irrevocable letter of
credit, in form and substance satisfactory to Lender, issued by a U.S.
financial institution satisfactory to Lender, to cover the full amount of such
Accounts, and such letter of credit is assigned and delivered to Lender; (v)
Accounts in dispute or with respect to which the Account Debtor has asserted or
may assert a counterclaim or has asserted or may assert a right of setoff; (vi)
Accounts with respect to which the prospect of payment or performance by the
Account Debtor is or will be impaired, as determined by Lender in good faith;
(vii) Accounts with respect to which Lender does not have a first and valid
fully perfected security interest; (viii) Accounts with respect to which the
Account Debtor is the subject of bankruptcy or a similar insolvency proceeding
or has made an assignment for the benefit of creditors or whose assets have
been conveyed to a receiver or trustee; (ix) Accounts with respect to which the
Account Debtor's
-2-
<PAGE> 3
obligation to pay the Account is conditional upon the Account Debtor's approval
or is otherwise subject to any repurchase obligation or return right, as with
sales made on a bill-and-hold, guaranteed sale, sale-and-return, sale on
approval or consignment basis; (x) Accounts to the extent that the Account
Debtor's indebtedness to Borrowers or any Borrower exceeds a credit limit
determined by Lender in good faith; (xi) Accounts with respect to which the
Account Debtor is located in a state in which any Borrower is required to
obtain a certificate of authority to do business and be in good standing before
it can enforce any obligations owing from the Account Debtor unless such
Borrower, with respect to each such state, has received a certificate of
authority to do business and is in good standing in such state; (xii) Accounts
which arise out of sales not made in the ordinary course of any Borrower's
business; (xiii) Accounts with respect to which the Account Debtor has returned
to any Borrower any portion of the Inventory the sale of which gave rise to
such Accounts; and (xiv) Accounts with respect to which any document or
agreement executed or delivered in connection therewith, or any procedure used
in connection with any such document or agreement, fails in any material
respect to comply with the requirements of applicable law.
(i) "Eligible Acquired Equipment" shall mean Equipment of any
Borrower acquired as part of the acquisition of the assets of another business
after the date of this Agreement which Lender, in good faith, determines to be
eligible. Without limiting the foregoing, unless otherwise agreed by Lender,
the following Equipment of any Borrower is not Eligible Acquired Equipment: (i)
Equipment which is not in good condition; (ii) Equipment which is obsolete;
(iii) New Equipment which Lender determines, in good faith, to be unacceptable
due to age, type, category and/or quantity; (iv) Equipment with respect to
which Lender does not have a first and valid fully perfected security interest;
(v) Equipment which may constitute fixtures under applicable law; or (vi)
Equipment which is stored with or located on the premises of a bailee,
consignee, warehouseman, processor or other third party.
(j) "Eligible Existing Equipment" shall mean Equipment of any
Borrower existing as of the date of this Agreement which Lender, in good faith,
determines to be eligible. Without limiting the foregoing, unless otherwise
agreed by Lender, the following Equipment of any Borrower is not Eligible
Existing Equipment: (i) Equipment which is not in good condition; (ii)
Equipment which is obsolete; (iii) Equipment which Lender determines, in good
faith, to be unacceptable due to age, type, category and/or quantity; (iv)
Equipment with respect to which Lender does not have a first and valid fully
perfected security interest; (v) Equipment which may constitute fixtures under
applicable law; or (vi) Equipment which is stored with or located on the
premises of a bailee, consignee, warehouseman, processor or other third party.
(k) "Eligible Inventory" shall mean Inventory of any Borrower
consisting of gasoline and diesel fuel, oils, greases, antifreeze, natural gas
liquids, gasoline blend stocks, and diesel
-3-
<PAGE> 4
blend stocks which constitute raw materials which possess a ready market or
finished goods and which Lender, in good faith, determines to be eligible.
Without limiting the foregoing, unless otherwise agreed by Lender, the
following Inventory of any Borrower is not Eligible Inventory: (i) Inventory
which is not in good condition, or not currently usable or currently saleable
in the ordinary course of any Borrower's business; (ii) Inventory which is
obsolete; (iii) Inventory which Lender determines, in good faith, to be
unacceptable due to age, type, category and/or quantity; (iv) Inventory with
respect to which Lender does not have a first and valid fully perfected
security interest; (v) Inventory consisting of work-in-progress, packaging
materials or supplies; or (vi) Inventory which is stored with or located on the
premises of a bailee, consignee, warehouseman, processor or other third party
(such premises shall not include such Borrower's leased premises).
(l) "Eligible Purchased Equipment" shall mean Equipment of any
Borrower purchased after the date of this Agreement which Lender, in good
faith, determines to be eligible. Without limiting the foregoing, unless
otherwise agreed by Lender, the following Equipment of any Borrower is not
Eligible Purchased Equipment: (i) Equipment which is not in good condition;
(ii) Equipment which is obsolete; (iii) Equipment which Lender determines, in
good faith, to be unacceptable due to age, type, category and/or quantity; (iv)
Equipment with respect to which Lender does not have a first and valid fully
perfected security interest; (v) Equipment which may constitute fixtures under
applicable law; or (vi) Equipment which is stored with or located on the
premises of a bailee, consignee, warehouseman, processor or other third party.
(m) "Environmental Laws" shall mean all federal, state,
district, local and foreign laws, rules, regulations, ordinances, and consent
decrees relating to health, safety, hazardous substances, pollution and
environmental matters, as now or at any time hereafter in effect, applicable to
any Borrower's business and facilities (whether or not owned by it), including
laws relating to emissions, discharges, releases or threatened releases of
pollutants, contamination, chemicals, or hazardous, toxic or dangerous
substances, materials or wastes into the environment (including, without
limitation, ambient air, surface water, ground water, land surface or
subsurface strata) or otherwise relating to the generation, manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, chemicals, or hazardous, toxic or
dangerous substances, materials or wastes.
(n) "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended.
(o) "Event of Default" shall have the meaning specified in
SECTION 13 hereof.
(p) "good faith" shall mean honesty in fact in the conduct or
transaction concerned and the test for the good faith of
-4-
<PAGE> 5
any Person shall be a subjective rather than an objective (or reasonableness)
test of such Person's state of mind.
(q) "Hazardous Materials" shall mean any hazardous, toxic or
dangerous substances, materials and wastes, including, without limitation,
hydrocarbons (including naturally occurring or man-made petroleum and
hydrocarbons), flammable explosives, asbestos, urea formaldehyde insulation,
radioactive materials, biological substances, polychlorinated biphenyls,
pesticides, herbicides and any other kind and/or type of pollutants or
contaminants (including, without limitation, materials which include hazardous
constituents), sewage, sludge, industrial slag, solvents and/or any other
similar substances, materials, or wastes and including any other substances,
materials or wastes that are or become regulated under any Environmental Law
(including, without limitation any that are or become classified as hazardous
or toxic under any Environmental Law).
(r) "Indemnified Party" shall have the meaning specified in
SECTION 15 hereof.
(s) "Letter of Credit Issuer" shall mean National Bank of
Canada.
(t) "Letters of Credit" shall mean any Letter of Credit which
shall now or hereafter be issued by the Letter of Credit Issuer at the request
and for the account of any Borrower pursuant to the terms of this Agreement.
(u) "Liabilities" shall mean any and all obligations,
liabilities and indebtedness of Borrowers or any of them to Lender or to any
Affiliate of Lender of any and every kind and nature, howsoever created,
arising or evidenced and howsoever owned, held or acquired, whether now or
hereafter existing, whether now due or to become due, whether primary,
secondary, direct, indirect, absolute, contingent or otherwise (including
without limitation obligations of performance), whether several, joint or joint
and several, and whether arising or existing under written or oral agreement or
by operation of law, including without limitation all obligations for payment
of the Loans and for payment of the reimbursement obligations under SECTION
2(B) with respect to the Letters of Credit.
(v) "Loan" or "Loans" shall mean all advances made by Lender
to any Borrower pursuant to SECTION 2(A) hereof.
(w) "Loan Availability" for each Borrower shall mean, at any
time, the difference of the following:
(i) up to eighty-five percent (85%) of the face amount
(less maximum discounts, credits and allowances which may be taken by or
granted to Account Debtors in connection therewith) then outstanding
under such Borrower's existing Eligible Accounts at such time, less such
reserves as Lender in good faith elects to establish; plus
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<PAGE> 6
(ii) up to fifty percent (50%) of the value of such
Borrower's then-existing Eligible Inventory, valued at the lower of cost
(determined on an average cost basis and in accordance with generally
accepted accounting principles) or fair market value, less such reserves
as Lender in good faith elects to establish; plus
(iii) up to eighty percent (80%) of the orderly
liquidation value of such Borrower's then-existing Eligible Existing
Equipment less such reserves as Lender in good faith elects to
establish; plus
(iv) up to eighty percent (80%) of the value of such
Borrower's then-existing Eligible Purchased Equipment, valued at the
lower of the actual hard cost or orderly liquidation value of such
Equipment, less such reserves as Lender in good faith elects to
establish; plus
(v) up to eighty percent (80%) of the orderly
liquidation value of such Borrower's then-existing Eligible Acquired
Equipment less such reserves as Lender in good faith elects to
establish; minus
(vi) the aggregate undrawn face amount of the Letters
of Credit issued for the account of such Borrower.
Notwithstanding anything to the contrary contained herein, all Loans based upon
Eligible Purchased Equipment shall be made in increments of $100,000.00 and the
Loan Availability for Eligible Existing Equipment, Eligible Acquired Equipment,
and Eligible Purchased Equipment constituting the basis for any Loan shall be
decreased by 1.67% per month on the first day of each month following such
Loan. In addition, without limiting the foregoing, Lender shall reserve
against the Loan Availability for each Borrower on a monthly basis fifty
percent (50%) of the amount of any unpaid fuel taxes (net of any fuel tax
refunds) owing by that entity for the prior or any previous month (whether or
not such taxes are due and payable at such time). Such reserve for fuel taxes
shall be applied against the Loan Availability for each Borrower based: (i)
first, upon its Eligible Inventory, (ii) then, upon its Eligible Accounts, and
(iii) then, upon its Eligible Existing Equipment, Eligible Acquired Equipment,
and Eligible Purchased Equipment as determined by Lender in its sole
discretion. Notwithstanding anything to the contrary contained herein and
without waiving any Event of Default under this Agreement, the reserves for
unpaid fuel taxes against the Loan Availability for each Borrower shall be
increased to one hundred percent (100%) of the amount of any unpaid fuel taxes
owing by that entity (whether or not such taxes are due and payable at such
time) in the event that any Borrower fails to pay its fuel taxes when due and
payable.
(x) "Net Worth" of Portfield shall mean, at any time,
the total of shareholders' equity (including capital stock, additional paid-in
capital, and retained earnings) less intangible assets (including goodwill of
Portfield) plus debt subordinated to
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the Liabilities (pursuant to a written agreement in a form acceptable to Lender
- - working group in house to file -acting in good faith) calculated in
accordance with generally accepted accounting principles.
(y) "Obligors" shall mean Borrowers and each Person who is or
shall become primarily or secondarily liable for any of the Liabilities.
Hereinafter, each of the Obligors may be referred to singularly as an
"Obligor."
(z) "Other Agreements" shall mean all agreements, instruments
and documents, including without limitation guaranties, mortgages, trust deeds,
pledges, powers of attorney, consents, assignments, security agreements,
intercreditor agreements, support agreements, financing statements and all
other writings heretofore, now or from time to time hereafter executed by or on
behalf of any Borrower or any other Person and delivered to Lender or to any
Affiliate of Lender in connection with the Liabilities or the transactions
contemplated hereby.
(aa) "Permitted Liens" shall mean (i) statutory liens of
landlords, carriers, warehousemen, mechanics, materialmen or suppliers incurred
in the ordinary course of business and securing amounts not yet due or declared
to be due by the claimant thereunder, (ii) liens or security interests in favor
of Lender, (iii) zoning restrictions and easements, licenses, covenants and
other restrictions affecting the use of real property that do not individually
or in the aggregate have a material adverse effect on any Borrower's ability to
use such real property for its intended purpose in connection with any
Borrower's business, and (iv) the liens set forth on EXHIBIT A.
(bb) "Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, institution, entity, party or foreign or United States government
(whether federal, state, county, city, municipal or otherwise), including
without limitation any instrumentality, division, agency, body or department
thereof.
(cc) "Plan" shall mean any employee benefit plan defined in
Section 3(3) of ERISA, including any multiemployer plan or any employee welfare
benefit plan which is maintained or has been maintained pursuant to a
collective bargaining agreement to which two or more unrelated employers
contribute and in respect of which any Borrower is an "employer" as defined in
Section 3(5) of ERISA.
(dd) "Reference Rate" shall mean the rate of interest publicly
announced from time to time by National Bank of Canada at its principal office
as its prime lending rate. The Reference Rate is a reference rate and does not
necessarily represent the lowest or best rate actually charged to any customer.
Any change in the Reference Rate shall be effective as of the effective date
stated in the announcement by National Bank of Canada of such change.
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<PAGE> 8
(ee) "Subsidiary" shall mean any corporation of which more than
fifty percent (50%) of the outstanding capital stock having ordinary voting
power to elect a majority of the board of directors of such corporation
(irrespective of whether at the time stock of any other class of such
corporation shall have or might have voting power by reason of the happening of
any contingency) is at the time, directly or indirectly, owned by any Borrower
or by any partnership or joint venture of which more than fifty percent (50%)
of the outstanding equity interests are at the time, directly or indirectly,
owned by any Borrower.
(ff) "Termination Date" shall mean the earliest to occur of
the following: (i) October ___, 1998 (which date shall be automatically
extended by one (1) year on each anniversary of this Agreement unless Borrowers
or Lender provide each other with written notice of their intent not to extend
the Termination Date for an additional year prior to any anniversary of this
Agreement), (ii) the date Lender makes demand for the payment of the
Liabilities, or (iii) the date the Liabilities are accelerated pursuant to
SECTION 14 hereof.
2. LOANS; LETTERS OF CREDIT.
(a) Subject to the terms and conditions of this Agreement and
the Other Agreements, prior to the Termination Date and so long as no Event of
Default has occurred hereunder, Lender shall make Loans to any Borrower as such
Borrower shall from time to time request; provided, however, that: (i) the
total amount of all Loans outstanding to any Borrower shall not exceed such
Borrower's Loan Availability at any time; and (ii) the total unpaid principal
of all Loans outstanding to the Borrowers and all Letters of Credit issued for
the account of the Borrowers in the aggregate ("Maximum Credit") shall not
exceed Six Million Dollars ($6,000,000.00) at any time. Such Maximum Credit
shall be increased to: (i) Nine Million Dollars ($9,000,000.00) if Borrowers
provide Lender with at least ten (10) days' prior written notice of such
increase and pay the first additional Facility Fee described in this Agreement
and so long as no Event of Default has occurred hereunder or will occur
hereunder as a result of such increase in the Maximum Credit; and (ii) Twelve
Million Dollars ($12,000,000.00) if Borrowers provide Lender with at least ten
(10) days' prior written notice of such increase and pay both of the additional
Facility Fee described in this Agreement and so long as no Event of Default has
occurred hereunder or will occur hereunder as a result of such increase in the
Maximum Credit. Borrowers shall be entitled to reduce the Maximum Credit to
any level upon providing Lender with at least thirty (30) days' prior written
notice thereof and paying Lender any amounts necessary to reduce the total
amount of the outstanding Loans and the aggregate undrawn face amount of the
Letters of Credit to an amount equal to or less than the reduced Maximum Credit
and so long as no Event of Default has occurred hereunder.
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<PAGE> 9
The total unpaid principal of all Loans outstanding to the Borrowers
and: (i) based upon Eligible Inventory shall not exceed One Million Dollars
($1,000,000.00) at any time; (ii) and based upon Eligible Existing Equipment
and Eligible Acquired Equipment shall not exceed Two Million Dollars
($2,000,000.00) at any time; provided, however, that such limit shall be
increased to Four Million Dollars ($4,000,000.00) if the Maximum Credit is
increased to and maintained at Nine Million Dollars ($9,000,000.00) or Twelve
Million Dollars ($12,000,000.00) in accordance with the terms and conditions
set forth in this Agreement; and (iii) and based upon Eligible Purchased
Equipment shall not exceed Five Hundred Thousand Dollars ($500,000.00) at any
time; provided, however, that such limit shall be increased to One Million
Dollars ($1,000,000.00) if the Maximum Credit is increased to and maintained at
Nine Million Dollars ($9,000,000.00) or Twelve Million Dollars ($12,000,000.00)
in accordance with the terms and conditions set forth in this Agreement.
Prior to Lender making any Loan, the Loans shall be repaid as provided
elsewhere in this Agreement. If at any time the outstanding balance on any
Borrower's Loans exceeds its Loan Availability or the principal balance of the
outstanding Loans to Borrowers in the aggregate exceeds the Maximum Credit or
any of the other restrictions set forth in this Agreement, such Borrower or
Borrowers shall immediately, and without the necessity of a demand by Lender,
pay to Lender such amount as may be necessary to eliminate such excess.
(b) Subject to the terms and conditions of this Agreement and
the Other Agreements, prior to the Termination Date and so long as no Event of
Default has occurred hereunder, Lender shall at any Borrower's request, cause
one or more Letters of Credit to be issued for the account of such Borrower;
provided, however, that: (i) the total undrawn face amounts of the Letters of
Credit for the accounts of the Borrowers shall not exceed Seven Hundred Fifty
Thousand Dollars ($750,000.00) in the aggregate at any time; and (ii) the total
undrawn face amounts of the proposed Letter(s) of Credit shall not exceed the
difference between the Loan Availability of the requesting Borrower and the
outstanding principal balance of the Loans to such Borrower at such time. If
at any time the Loan Availability for any Borrower is less than zero, such
Borrower shall provide cash collateral to Lender in an amount equal to the
amount by which Loan Availability is less than zero to secure any Letters of
Credit for the account of such Borrower. The Letters of Credit shall be in
form and substance satisfactory to Lender and shall not have an expiration date
later than twelve (12) months from the date of issuance. Borrowers authorize
Lender to reimburse the Letter of Credit Issuer for any payments made in
respect of the Letters of Credit. Each Borrower shall reimburse Lender,
immediately upon demand, in the amount of any payments made by Lender to the
Letter of Credit Issuer or any Person with respect to the Letters of Credit
issued for the account of such Borrower, and until Lender shall have been so
reimbursed by such Borrower such payments by Lender shall be deemed to be
Loans. In connection with the Letters of Credit, each Borrower hereby
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<PAGE> 10
indemnifies Lender for any payments made by Lender with respect to the Letters
of Credit issued for the account of such Borrower and for any taxes, levies,
deductions, charges and costs and expenses incurred by Lender with respect to
the Letters of Credit.
3. FEES AND CHARGES. Borrowers shall pay to Lender the following
fees:
(a) Each Borrower shall pay to Lender interest on the
outstanding principal balance of its Loans monthly in arrears, on the first day
of each month following the execution of this Agreement, at the per annum rate
of one percent (1%) plus the Reference Rate [computed on the basis of a year of
three hundred sixty (360) days for the actual number of days elapsed];
provided, however, that such interest rate shall be reduced to the Reference
Rate plus three-fourths of one percent (0.75%) if Portfield's audited financial
statements indicate at least One Million Dollars ($1,000,000.00) of pre-tax
income before extraordinary or non-operating gains and losses for the fiscal
year ending February 29, 1996 and the ratio of Borrowers' total liabilities
calculated in accordance with generally accepted accounting principles (except
for debt subordinated to the Liabilities pursuant to a written agreement in a
form acceptable to Lender acting in good faith) to total Net Worth do not
exceed 4.00:1.0 for the fiscal year ending February 29, 1996 and, assuming such
requirements are satisfied, such interest rate shall be reduced to the
Reference Rate plus one-half of one percent (0.50%) if Portfield's audited
financial statements indicate at least One Million Dollars ($1,000,000.00) of
pre-tax income before extraordinary or non-operating gains and losses for the
fiscal year ending February 28, 1997 and the ratio of Borrowers' total
liabilities calculated in accordance with generally accepted accounting
principles (except for debt subordinated to the Liabilities pursuant to a
written agreement in a form acceptable to Lender acting in good faith) to total
Net Worth do not exceed 3.50:1.0 for the fiscal year ending February 28, 1997.
Following the occurrence of an Event of Default, each Borrower shall pay to
Lender interest on the outstanding principal balance of its Loans at the per
annum rate of two percent (2%) plus the Reference Rate. Interest shall be
computed on the basis of a year of three hundred sixty (360) days for the
actual number of days elapsed.
(b) Each Borrower shall pay to Lender a letter of credit fee
equal to two percent (2%) per annum [computed on the basis of a year of three
hundred sixty (360) days for the actual number of days elapsed] of the face
amount of the Letters of Credit issued for the account of such Borrower,
payable monthly in arrears, on the first day of each month following the
execution of this Agreement. In addition, each Borrower shall pay to Lender
all expenses incurred by Lender and the Letters of Credit Issuer in connection
with the issuance and negotiation of any Letters of Credit issued for the
account of such Borrower, payable on the date incurred by Lender or the Letter
of Credit Issuer.
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<PAGE> 11
(c) Borrowers shall pay to Lender, for the benefit of Lenders,
a facility fee equal to Fifteen Thousand Dollars ($15,000.00) upon the
execution of this Agreement. Borrowers also shall pay to Lender the following
additional facility fees if the Maximum Credit is increased as set forth below
under the terms and conditions set forth in this Agreement:
Increase in Maximum Credit Additional Facility Fee
-------------------------- -----------------------
$6,000,000.00 to $9,000,000.00 $15,000.00
$9,000,000.00 to $12,000,000.00 $15,000.00
or, in lieu of the foregoing additional facility fees,
$6,000,000.00 directly to $30,000.00
$12,000,000.00
(d) Borrowers shall pay to Lender an unused facility fee,
equal to the lesser of Five Thousand Dollars ($5,000.00) per annum or one
quarter of one percent (0.25%) per annum [computed on the basis of a year of
three hundred sixty days for the actual number of days elapsed], of the amount
by which Six Million Dollars ($6,000,000.00) exceeds the sum of the average
daily outstanding Loans, payable monthly in arrears, on the first day of each
month following the execution of this Agreement. Such unused facility fee
shall not be subject to the Five Thousand Dollars ($5,000.00) limitation and:
(i) be based upon the amount by which Nine Million Dollars ($9,000,000.00)
exceeds the sum of the average daily outstanding Loans plus the average daily
undrawn face amount of the Letters of Credit retroactive to the first day of
the calendar year in which the Maximum Credit was increased to Nine Million
Dollars ($9,000,000.00) if the Maximum Credit is increased to Nine Million
Dollars ($9,000,000.00) under the terms and conditions set forth in this
Agreement; and (ii) be based upon the amount by which Twelve Million Dollars
($12,000,000.00) exceeds the sum of the average daily outstanding Loans plus
the average daily undrawn face amount of the Letters of Credit retroactive to
the first day of the calendar year in which the Maximum Credit was increased to
Twelve Million Dollars ($12,000,000.00) if the Maximum Credit is increased to
Twelve Million Dollars ($12,000,000.00) under the terms and conditions set
forth in this Agreement.
(e) If this Agreement is terminated prior to the Termination
Date, the Borrowers shall pay to Lender an early termination fee equal to: (i)
$180,000.00 if such termination occurs prior to the first anniversary of this
Agreement; (ii) $120,000.00 if such termination occurs on or after the first
anniversary but prior to the second anniversary of this Agreement; (iii)
$60,000.00 if such termination occurs on or after the second anniversary but
prior to the third anniversary of this Agreement; and (iv) $30,000.00 if such
termination occurs on or after the third anniversary but prior to the fourth
anniversary of this Agreement.
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<PAGE> 12
(f) Borrowers shall pay to Lender an audit fee at a rate of
Five Hundred Dollars ($500) per auditor per day, plus travel and other out-of-
pocket expenses, which shall be payable by Borrowers upon completion of each
audit, for any audits conducted after the occurrence and during the continuance
of an Event of Default, or otherwise.
(g) Borrowers shall reimburse Lender and its Affiliates for
all other fees and expenses, including legal, consulting, appraisal and filing
fees, incurred in connection with the credit facilities provided under this
Agreement.
It is the intent of the parties that the rate of interest and the other fees
and charges to each Borrower under this Agreement shall be lawful; therefore,
if for any reason the interest or other fees and charges payable under this
Agreement are found by a court of competent jurisdiction, in a final
determination, to exceed the limit which Lender may lawfully charge any
Borrower, then the obligation to pay interest and other charges shall
automatically be reduced to such limit and, if any amount in excess of such
limit shall have been paid, then such amount shall be refunded to such
Borrower.
4. CONDITIONS OF ADVANCES AND LETTERS OF CREDIT. Without limiting
Lender's ability to limit or refuse to make advances hereunder, the making of
any advance provided for in this Agreement shall be conditioned upon the
following:
(a) Lender shall have received, (i) with respect to a request
for an advance, by at least eleven o'clock a.m. (11:00 a.m.) Denver time on the
day on which such advance is requested to be made hereunder, a telephonic
request from an officer of the Borrower requesting such advance (or any Person
authorized by such Borrower pursuant to a written list provided to Lender), for
an advance in a specific amount, and (ii) with respect to a request for the
issuance of a Letter of Credit, at least five days prior to the date such
Letter of Credit is requested to be issued, an application for such Letter of
Credit executed by an officer of the Borrower requesting such Letter of Credit.
In addition, Lender shall also have received all of the schedules and reports
required to have been delivered by Borrowers pursuant to SECTION 9 hereof;
(b) No Event of Default shall have occurred and be continuing;
(c) All of the representations and warranties contained in
this Agreement and the Other Agreements shall be true and correct as if made on
the date the request for an advance or Letter of Credit is made; and
(d) Lender shall have received, in form and substance
satisfactory to Lender, all certificates, orders, authorities, consents,
affidavits, appraisals, environmental reports, schedules, instruments, security
agreements, financing statements, certificate
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<PAGE> 13
of title documents, mortgages, guaranties, support agreements, assignments of
insurance policies, landlord and mortgagee waivers, and other documents which
are provided for hereunder, or which Lender may at any time request in good
faith.
5. GRANT OF SECURITY INTEREST TO LENDER. As security for the
payment or other satisfaction of its Liabilities, each Borrower hereby assigns
to Lender and grants to Lender a continuing security interest in the following
property of such Borrower, whether now or hereafter owned, existing, acquired
or arising and wherever now or hereafter located: (a) all Accounts and all
Goods whose sale, lease or other disposition by such Borrower has given rise to
Accounts and have been returned to or repossessed or stopped in transit by such
Borrower; (b) all Chattel Paper, Instruments, Documents and General Intangibles
(including without limitation all patents, patent applications, trademarks,
trademark applications, tradenames, trade secrets, goodwill, copyrights,
registrations, licenses, franchises, customer lists, tax refund claims, claims
against carriers and shippers, guarantee claims, contracts rights, security
interests, security deposits and any rights to indemnification); (c) all
Inventory and other Goods, including without limitation Equipment, furniture,
furnishings, machinery, motor vehicles, minerals and the like, and fixtures;
(d) all deposits and cash and any other property of such Borrower now or
hereafter in the possession, custody or control of Lender or any agent or any
Affiliate of Lender or any participant with Lender in the Loans and/or Letters
of Credit for any purpose (whether for safekeeping, deposit, collection,
custody, pledge, transmission or otherwise); and (e) all additions and
accessions to, substitutions for, and replacements, products and proceeds of
the foregoing property, including without limitation proceeds of all insurance
policies insuring the foregoing property, and all of such Borrower's books and
records relating to any of the foregoing and to such Borrower's business.
In addition, Borrowers shall assign to Lender all of their rights, title
and interests in an American Credit Indemnity or other accounts receivable
insurance policy covering all of their Accounts and key man life insurance
policies in the aggregate face amount of $2,000,000.00 on the life of Keith R.
Holder. The insurance policies and assignments shall be in a form and from
such companies as may be acceptable to Lender acting in good faith.
6. PRESERVATION OF COLLATERAL AND PERFECTION OF SECURITY INTERESTS
THEREIN. Borrowers shall, at Lender's request, at any time and from time to
time, execute and deliver to Lender such financing statements, documents and
other agreements and instruments (and pay the cost of filing or recording the
same in all public offices deemed necessary or desirable by Lender) and do such
other acts and things as Lender may deem necessary or desirable in order to
establish and maintain a valid, attached and perfected security interest in the
Collateral in favor of Lender (free and clear of all other liens, claims and
rights of third parties whatsoever, whether voluntarily or involuntarily
created, except Permitted Liens) to secure payment of the Liabilities, and
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<PAGE> 14
in order to facilitate the collection of the Collateral. Borrowers irrevocably
hereby make, constitute and appoint Lender (and all Persons designated by
Lender for that purpose) as Borrowers' true and lawful attorney and agent-in-
fact to execute such financing statements, documents and other agreements and
instruments and do such other acts and things as may be necessary to preserve
and perfect Lender's security interest in the Collateral if Borrowers fail to
execute the documents or take the actions described in this Section or an Event
of Default occurs under this Agreement. Borrowers further agree that a carbon,
photographic, photostatic or other reproduction of this Agreement or of a
financing statement shall be sufficient as a financing statement.
7. CAPITAL ADEQUACY. If Lender shall reasonably determine that the
application or adoption of any law, rule, regulation, directive,
interpretation, treaty or guideline regarding capital adequacy, or any change
therein or in the interpretation or administration thereof, whether or not
having the force of law, increases the amount of capital required or expected
to be maintained by Lender or any Person controlling, directly or indirectly,
Lender, and such increase is based upon the existence of Lender's obligations
hereunder and other commitments of this type, then from time to time, within
ten (10) days after demand from Lender, Borrowers shall pay to Lender such
amount or amounts as will compensate Lender or such controlling Person, as the
case may be, for such increased capital requirement. The determination of any
amount to be paid by Borrowers under this Section shall take into consideration
the policies of Lender or any Person controlling Lender with respect to capital
adequacy and shall be based upon any reasonable averaging, attribution and
allocation methods selected by Lender. A certificate of Lender setting forth
the amount or amounts as shall be necessary to compensate Lender as specified
in this Section shall be delivered to Borrowers and shall be conclusive in the
absence of manifest error.
8. COLLECTIONS.
(a) Each Borrower shall establish an account (the "Blocked
Account") in such Borrower's name with a financial institution acceptable to
Lender, into which such Borrower will immediately deposit all payments received
by such Borrower with respect to its Accounts and other Collateral in the
identical form in which such payments were made, whether by cash or check. If
any Borrower, any Affiliate or Subsidiary of any Borrower, or any shareholder,
officer, director, employee or agent of any Borrower or any Affiliate or
Subsidiary of such Borrower, or any other Person acting for or in concert with
such Borrower shall receive any monies, checks, notes, drafts or other payments
relating to or as proceeds of such Borrower's Accounts or other Collateral,
such Borrower, Affiliate, Subsidiary, and other Person shall receive all such
items in trust for, and as the sole and exclusive property of, Lender and,
immediately upon receipt thereof, shall remit the same (or cause the same to be
remitted) in kind to such Borrower's Blocked Account. The financial
institution with which each Blocked Account is established shall acknowledge
and agree, in a manner
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<PAGE> 15
satisfactory to Lender, that the amounts on deposit in such Blocked Account are
the sole and exclusive property of Lender, that such financial institution has
no right to setoff against the Blocked Account, and that such financial
institution shall wire, or otherwise transfer in immediately available funds in
a manner satisfactory to Lender, funds deposited in the Blocked Account on a
daily basis as such funds are collected, to Lender's account at National Bank
of Canada. Lender shall, two (2) business days after receipt by Lender of
immediately available funds in its account at National Bank of Canada, apply
the whole or any part of such collections or proceeds against the appropriate
Borrower's Liabilities in such order as Lender shall determine in its sole
discretion. Each Borrower agrees that all payments deposited to such Blocked
Account or otherwise received by Lender, whether in respect of the Accounts of
such Borrower or as proceeds of other Collateral or otherwise, will be applied
on account of the Liabilities of such Borrower in accordance with the terms of
this Agreement. All checks, drafts, instruments and other items of payment or
proceeds of Collateral shall be endorsed by Borrowers to Lender, and, if that
endorsement of any such item shall not be made for any reason, Lender is hereby
irrevocably authorized to endorse the same on Borrowers' behalf. For the
purpose of this paragraph, Borrowers irrevocably hereby make, constitute and
appoint Lender (and all Persons designated by Lender for that purpose) as
Borrowers' true and lawful attorney and agent-in-fact: (i) to endorse
Borrowers' names upon said items of payment and/or proceeds of Collateral and
upon any Chattel Paper of Borrowers, document, instrument, invoice or similar
document or agreement relating to any Account of any Borrower or goods
pertaining thereto; (ii) to take control in any manner of any item of payment
or proceeds thereof; and (iii) upon and following the occurrence of an Event of
Default, to have access to any lock box or postal box into which any Borrower's
mail is deposited, and open and process all mail addressed to any Borrower and
deposited therein.
(b) Lender may, at any time and from time to time, following
the occurrence of an Event of Default: (i) enforce collection of any Borrower's
Accounts or contract rights by suit or otherwise; (ii) exercise all of
Borrowers' rights and remedies with respect to proceedings brought to collect
any Borrower's Accounts; (iii) surrender, release or exchange all or any part
of any Borrower's Accounts, or compromise or extend or renew for any period
(whether or not longer than the original period) any indebtedness thereunder;
(iv) sell or assign any Borrower's Accounts upon such terms, for such amount
and at such time or times as Lender deems advisable; (v) prepare, file and sign
Borrowers' names on any proof of claim in bankruptcy or other similar document
against any Account Debtor; and (vi) do all other acts and things which Lender
in good faith deems necessary or desirable to fulfill Borrowers' obligations
under this Agreement and to allow Lender to collect the Borrowers' Accounts.
In addition to any other provision hereof, Lender may at any time, following
the occurrence of an Event of Default, at Borrowers' expense, notify any
parties obligated on any of the Accounts to make payment directly to Lender of
any amounts due or to become due thereunder.
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<PAGE> 16
(c) Lender, in its sole discretion, without waiving or
releasing any obligation, liability or duty of any Borrower under this
Agreement or the Other Agreements or any Event of Default, may at any time or
times hereafter, but shall not be obligated to, pay, acquire or accept an
assignment of any security interest, lien, encumbrance or claim asserted by any
Person in, upon or against the Collateral. All sums paid by Lender in respect
thereof and all costs, fees and expenses, including without limitation
reasonable attorney fees, all court costs and all other charges relating
thereto incurred by Lender shall constitute Loans, payable by such Borrower to
Lender on demand and, until paid, shall bear interest at the highest rate then
applicable to Loans hereunder.
(d) Immediately upon any Borrower's receipt of any portion of
the Collateral evidenced by an agreement, Instrument or Document, including
without limitation any Chattel Paper, such Borrower shall deliver the original
thereof to Lender together with an appropriate endorsement or other specific
evidence of assignment thereof to Lender (in form and substance acceptable to
Lender). If an endorsement or assignment of any such items shall not be made
for any reason, Lender is hereby irrevocably authorized, as Borrowers' attorney
and agent-in-fact, to endorse or assign the same on Borrowers' behalf.
9. SCHEDULES AND REPORTS.
(a) Each Borrower shall deliver to Lender, on a weekly basis
[or, if the Loans to any Borrower exceed sixty-five percent (65%) of the Loan
Availability for such Borrower or if the total outstanding balance on the Loans
to the Borrowers and the aggregate undrawn face amount of the Letters of Credit
issued for the account of Borrower exceed sixty-five percent (65%) of the
Maximum Credit, on a daily basis], a collateral report (the "Collateral
Report") describing all Accounts and Eligible Accounts created or acquired by
such Borrower and all amounts collected by such Borrower on Accounts subsequent
to the immediately preceding Collateral Report. In addition, each Borrower
shall deliver to Lender on a weekly basis (or, if Lender has provided any
Borrower with Loans based upon Eligible Inventory, on a daily basis in Lender's
discretion) with a schedule of Inventory owned by such Borrower and in such
Borrower's possession valued on an average cost basis and in accordance with
generally accepted accounting principles, information on all sales of or other
reduction of and all additions to Inventory, all returns of Inventory, all
credits issued by such Borrower and all complaints and claims against such
Borrower in connection with Inventory subsequent to the immediately preceding
Collateral Report. The Collateral Reports shall contain such additional
information as Lender shall require. Each Borrower also shall furnish copies of
any other reports or information concerning the Accounts and Inventory
included, described or referred to in the Collateral Reports, including without
limitation, but only if specifically requested by Lender, copies of all
invoices prepared in connection with the Accounts. Lender, through its
officers, employees or agents, shall have the right, at any time and from
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time to time in Lender's name, in the name of a nominee of Lender or in
Borrower's name, to verify the validity, amount or any other matter relating to
any of the Accounts, by mail, telephone, telegraph or otherwise. Borrowers
shall reimburse Lender, on demand, for all reasonable costs, fees and expenses
incurred by Lender in this regard.
(b) Without limiting the generality of the foregoing, each
Borrower shall deliver to Lender, at least once a month (or more frequently
when requested by Lender), a report describing its Eligible Accounts, non-
Eligible Accounts, accounts payable, Inventory, and Eligible Inventory as well
as containing an aging of its Accounts and accounts payable. Such report also
shall reconcile the information described in SECTION 9(a) for the past month
and describe the fuel taxes payable by such Borrower to any governmental
authority.
(c) All schedules, certificates, reports, and assignments and
other items delivered by Borrowers to Lender hereunder shall be executed by an
authorized representative of Borrowers and shall be in such form and contain
such information as Lender shall specify.
10. TERMINATION. This Agreement shall be in effect until the
Termination Date. The Liabilities as well as the security interests and liens
created under this Agreement and the Other Agreements shall survive such
termination until the Letters of Credit have been terminated and cancelled and
the payment of the other Liabilities has become indefeasible. At such time as
Borrowers have repaid all of the Liabilities and this Agreement has terminated,
Borrowers shall deliver to Lender a release, in form and substance satisfactory
to Lender, of all obligations and liabilities of Lender and its officers,
directors, employees, agents and Affiliates to Borrower and Lender shall
deliver to Borrowers a release of all obligations and liabilities of Borrowers
and their officers, directors, employees, agents and Affiliates to Lender.
Such releases shall be in form and substance reasonably acceptable to Lender.
11. REPRESENTATIONS, WARRANTIES AND COVENANTS. Borrowers hereby
represent, warrant and covenant that:
(a) The financial statements delivered or to be delivered by
each Borrower to Lender at or prior to the date of this Agreement and at all
times subsequent thereto accurately reflect the financial condition of such
Borrower, and there has been no adverse change in the financial condition, the
operations or any other status of such Borrower since the date of the financial
statements delivered to Lender most recently prior to the date of this
Agreement;
(b) The office where each Borrower keeps its books, records
and accounts (or copies thereof) concerning the Collateral, such Borrower's
chief executive offices and places of business and
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<PAGE> 18
all of such Borrower's other places of business, locations of Collateral and
post office boxes are as set forth in EXHIBIT B; Borrowers shall promptly (but
in no event less than ten (10) days prior thereto) advise Lender in writing of
the proposed opening of any new place of business, the closing of any existing
place of business, any change in the location of any Borrower's books, records
and accounts (or copies thereof) or the opening or closing of any post office
box of any Borrower;
(c) The Collateral, including without limitation the Equipment
is and shall be kept, or, in the case of vehicles, based, only at the addresses
set forth on the first page of this Agreement or on EXHIBIT B;
(d) If any of the Collateral consists of Goods of a type
normally used in more than one state, whether or not actually so used,
Borrowers shall immediately give written notice to Lender of any use of any
such Goods in any state other than a state in which Borrowers have previously
advised Lender such Goods shall be used, and such Goods shall not, unless
Lender shall otherwise consent in writing, be used outside of the continental
United States;
(e) Each Account which any Borrower shall, expressly or by
implication, request Lender to classify as an Eligible Account shall, as of the
time when such request is made, conform in all respects to the requirements of
such classification as set forth in the respective definitions of "Eligible
Account" as set forth herein and as otherwise established by Lender from time
to time, and such Borrower shall promptly notify Lender in writing if any such
Eligible Account shall subsequently become ineligible;
(f) Each Borrower is and shall at all times be the lawful
owners of the property now purportedly owned or hereafter purportedly acquired
by such Borrower, free from all liens, claims, security interests and
encumbrances whatsoever, whether voluntarily or involuntarily created and
whether or not perfected, other than the Permitted Liens;
(g) Each Borrower has the right and power and is duly
authorized and empowered to enter into, execute and deliver this Agreement and
the Other Agreements and perform its obligations hereunder and thereunder; each
Borrower's execution, delivery and performance of this Agreement and the Other
Agreements does not and shall not conflict with the provisions of any statute,
regulation, ordinance or rule of law, or any agreement, contract or other
document which may now or hereafter be binding on such Borrower, and each
Borrower's execution, delivery and performance of this Agreement and the Other
Agreements shall not result in the imposition of any lien or other encumbrance
upon any of its property under any existing indenture, mortgage, deed of trust,
loan or credit agreement or other agreement or instrument by which such
Borrower or any of its property may be bound or affected;
(h) There are no actions or proceedings which are pending or
threatened against any Borrower which might result in
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<PAGE> 19
any material adverse change in its financial condition or materially adversely
affect such Borrower's property and Borrowers shall, promptly upon becoming
aware of any such pending or threatened action or proceeding, give written
notice thereof to Lender;
(i) Each Borrower has obtained all licenses, authorizations,
approvals and permits, the lack of which would have a material adverse effect
on the operation of its business, and each Borrower is and shall remain in
compliance in all material respects with all applicable federal, state, local
and foreign statutes, orders, regulations, rules and ordinances, the failure to
comply with which could reasonably be expected to have a material adverse
effect on its business, property, assets, operations or condition, financial or
otherwise;
(j) All written information now, heretofore or hereafter
furnished by each Borrower to Lender is and shall be materially true and
correct as of the date with respect to which such information was or is
furnished;
(k) No Borrower is conducting, permitting or suffering to be
conducted, nor shall it conduct, permit or suffer to be conducted, any
activities or transactions with any Affiliate of any Borrower; provided,
however, that any Borrower may enter into transactions with Affiliates of any
Borrower in the ordinary course of business pursuant to terms that are no less
favorable to such Borrower than the terms upon which such transfers or
transactions would have been made had they been made to or with a Person that
is not an Affiliate of any Borrower and, in connection therewith, may transfer
cash or property to Affiliates of any Borrower for fair value;
(l) Except as set forth on EXHIBIT C, each Borrower's name has
always been as set forth on the first page of this Agreement and Borrowers use
no tradenames or division names in the operation of their businesses.
Borrowers shall notify Lender in writing within ten (10) days of the change of
any Borrower's name or the use of any tradenames or division names not
previously disclosed to Lender in writing;
(m) With respect to each Borrower's Equipment: (i) such
Borrower has good and indefeasible and merchantable title to and ownership of
all of its Equipment, including without limitation the Equipment described or
listed on the schedule of Equipment delivered to Lender concurrently with this
Agreement; (ii) such Borrower shall keep and maintain the Equipment in good
operating condition and repair and shall make all necessary replacements
thereof and renewals thereto so that the value and operating efficiency thereof
shall at all times be preserved and maintained; (iii) such Borrower shall not
permit any such items to become a fixture to real estate or an accession to
other personal property; and (iv) such Borrower, immediately on demand by
Lender, shall deliver to Lender any and all evidence of ownership of, including
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<PAGE> 20
without limitation certificates of title and applications of title to, any of
its Equipment;
(n) This Agreement and the Other Agreements to which any
Borrower are a party are the legal, valid and binding obligations of such
Borrower and are enforceable against such Borrower in accordance with their
respective terms;
(o) Each Borrower is solvent, is able to pay its debts as they
become due and has capital sufficient to carry on its business, now owns
property having a value both at fair valuation and at present fair saleable
value greater than the amount required to pay its debts, and will not be
rendered insolvent by the execution and delivery of this Agreement or any of
the Other Agreements or by completion of the transactions contemplated
hereunder or thereunder;
(p) Except as noted in SECTION 12(K) of this Agreement, no
Borrower is now obligated, nor shall it create, incur, assume or become
obligated (directly or indirectly), for any loans or other indebtedness for
borrowed money other than the Loans, except that such Borrower may: (i) borrow
money from a Person other than Lender on an unsecured and subordinated basis if
a subordination agreement in favor of Lender and in form and substance
satisfactory to Lender is executed and delivered to Lender relative thereto;
(ii) maintain any present indebtedness to any Person which is set forth on
EXHIBIT D; (iii) incur unsecured indebtedness to trade creditors in the
ordinary course of such Borrower's business; and (iv) acquire the assets of
another company and obtain an unsecured loan or a loan secured solely by the
acquired real property and the cash proceeds thereof from the seller of such
assets so long as no Event of Default has occurred or would be caused by such
action, Lender is provided with at least thirty (30) days' prior written notice
of such acquisition and a valid, enforceable, perfected, and sole lien,
security interest and encumbrance upon the acquired assets (except for the
acquired real property and the cash proceeds thereof), and a subordination or
intercreditor agreement in favor of Lender and in form and substance
satisfactory to Lender is executed and delivered to Lender by the seller of
such assets.
(q) No Borrower owns any margin securities, and none of the
proceeds of the Loans hereunder shall be used for the purpose of purchasing or
carrying any margin securities or for the purpose of reducing or retiring any
indebtedness which was originally incurred to purchase any margin securities or
for any other purpose not permitted by Regulation G or Regulation U of the
Board of Governors of the Federal Reserve System as in effect from time to
time;
(r) EXHIBIT E sets forth the names of all of the shareholders
of each Borrower and, except as set forth on EXHIBIT E, no Borrower has any
Subsidiaries or divisions, nor is any Borrower engaged in any joint venture or
partnership with any other Person;
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(s) Each Borrower is duly organized and in good standing in
its state of organization and each Borrower is duly qualified and in good
standing in all states where the nature and extent of the business transacted
by it or the ownership of its assets makes such qualification necessary;
(t) No Borrower is in default under any material contract,
lease or commitment to which it is a party or by which it is bound, nor do
Borrowers know of any dispute regarding any contract, lease or commitment which
is material to the continued financial success and well-being of any Borrower;
(u) There are no controversies pending or threatened between
any Borrower and any of its employees, other than employee grievances arising
in the ordinary course of business which are not, in the aggregate, material to
the continued financial success and well-being of such Borrower, and each
Borrower is in compliance in all material respects with all federal and state
laws respecting employment and employment terms, conditions and practices;
(v) Each Borrower possesses, and shall continue to possess,
adequate licenses, patents, patent applications, copyrights, service marks,
trademarks, trademark applications, tradestyles and tradenames to continue to
conduct its business as heretofore conducted by it;
(w) Except as set forth on EXHIBIT F attached hereto and
incorporated herein by this reference, Borrowers have not generated, used,
stored, treated, transported, manufactured, handled, produced or disposed of
any Hazardous Materials, on or off its premises (whether or not owned by it) in
any manner which at any time violates any applicable Environmental Law or any
license, permit, certificate, approval or similar authorization thereunder and
the operations of each Borrower complies in all material respects with all
Environmental Laws and all licenses, permits, certificates, approvals and
similar authorizations thereunder;
(x) Except as set forth on EXHIBIT F attached hereto, there
has been no investigation, proceeding, complaint, order, directive, claim,
citation or notice by any governmental authority or any other person nor is any
pending or to the best of any Borrower's knowledge threatened, with respect to
any non-compliance with or violation of the requirements of any Environmental
Law by any Borrower or the release, spill or discharge, threatened or actual,
of any Hazardous Material or the generation, use, storage, treatment,
transportation, manufacture, handling, production or disposal of any Hazardous
Materials or any other environmental, health or safety matter, which affects
any Borrower or its business, operations or assets or any properties at which
any Borrower has transported, stored or disposed of any Hazardous Materials;
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<PAGE> 22
(y) Except as set forth on EXHIBIT F attached hereto, no
Borrower has any material liability (contingent or otherwise) in connection
with a release, spill or discharge, threatened or actual, of any Hazardous
Materials or the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous Materials; and
(z) Each Borrower has all licenses, permits, certificates,
approvals or similar authorizations required to be obtained or filed in
connection with the operations of such
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<PAGE> 23
Borrower under any Environmental Law and all of such licenses, permits,
certificates, approvals or similar authorizations are valid and in full force
and effect.
Borrowers represent, warrant and covenant to Lender that all representations,
warranties and covenants of Borrowers contained in this Agreement (whether
appearing in SECTIONS 11 or 12 hereof or elsewhere) shall be true at the time
of Borrowers' execution of this Agreement, shall survive the execution,
delivery and acceptance hereof by the parties hereto and the closing of the
transactions described herein or related hereto, shall remain true until the
repayment in full of all of the Liabilities and termination of this Agreement,
and shall be remade by Borrowers at the time each Loan is made or Letters of
Credit issued pursuant to this Agreement.
12. ADDITIONAL COVENANTS OF BORROWER. Until payment or satisfaction
in full of all Liabilities and termination of this Agreement, unless Borrowers
obtain Lender's prior written consent waiving or modifying any of Borrowers'
covenants hereunder in any specific instance, Borrowers agree as follows:
(a) Each Borrower shall at all times keep accurate and
complete books, records and accounts with respect to all of such Borrower's
business activities, in accordance with sound accounting practices and
generally accepted accounting principles consistently applied, and shall keep
such books, records and accounts, and any copies thereof, only at the addresses
indicated for such purpose on EXHIBIT B;
(b) Each Borrower agrees to deliver to Lender the following
financial information, all of which shall be prepared in accordance with
generally accepted accounting principles consistently applied: (i) no later
than twenty-five (25) days after each calendar month, copies of internally
prepared financial statements, including without limitation balance sheets and
statements of income and retained earnings of such Borrower, certified by the
chief financial officer or other officer of such Borrower approved by Lender;
(ii) no later than ninety (90) days after the end of such Borrower's fiscal
years, annual financial statements certified by independent certified public
accountants selected by such Borrower and satisfactory to Lender, which
financial statements shall be accompanied by consolidating business projections
prepared by such Borrower for the following fiscal year; and (iii) such other
financial information as Lender shall reasonably request. Borrowers shall use
their best efforts to obtain a letter from the foregoing accountants which
acknowledges that such accountants are aware that Lender is relying upon the
foregoing financial statements in connection with the exercise of its rights
hereunder;
(c) Each Borrower shall promptly advise Lender in writing of
any material adverse change in the business, assets or condition, financial or
otherwise, of any Borrower, the occurrence
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<PAGE> 24
of any Event of Default hereunder or the occurrence of any event which, if
uncured, will become an Event of Default hereunder after notice or lapse of
time (or both);
(d) Lender, or any Persons designated by it, shall have the
right, upon reasonable notice prior to the occurrence of an Event of Default
and at any time thereafter, to call at Borrowers' places of business at any
reasonable times, and, without hindrance or delay, to inspect the Collateral
and to inspect, audit, check and make extracts from Borrowers' books, records,
journals, orders, receipts and any correspondence and other data relating to
Borrowers' businesses, the Collateral or any transactions between the parties
hereto, and shall have the right to make such verification concerning
Borrowers' businesses as Lender may consider reasonable under the
circumstances. Each Borrower shall furnish to Lender such information relevant
to Lender's rights under this Agreement as Lender shall at any time and from
time to time request. Each Borrower authorizes Lender to discuss the affairs,
finances and business of such Borrower with any officers, employees or
directors of such Borrower or with any Affiliate or the officers, employees or
directors of any Affiliate, and to discuss the financial condition of such
Borrower with such Borrower's independent public accountants. Any such
discussions shall be without liability to Lender or to such Borrower's
independent public accountants. Borrowers shall pay to Lender the fees and
out-of-pocket expenses incurred by Lender and described in SECTION 3(E) of this
Agreement, and all of such fees and expenses shall constitute Loans hereunder,
payable on demand and, until paid, shall bear interest at the highest rate then
applicable to Loans hereunder;
(e) Borrowers shall:
(i) keep the Collateral properly housed and shall keep
the Collateral insured for the full insurable value thereof against loss
or damage by fire, theft, explosion, sprinklers, collision (in the case
of motor vehicles) and such other risks as are customarily insured
against by Persons engaged in businesses similar to that of Borrowers
with such companies, in such amounts and under policies in such form as
shall be satisfactory to Lender. At the request of Lender, original (or
certified) copies of such policies of insurance shall be delivered to
Lender, together with evidence of payment of all premiums therefor, and
shall contain an endorsement, in form and substance acceptable to
Lender, showing loss under such insurance policies payable to Lender.
Such endorsement, or an independent instrument furnished to Lender,
shall provide that the insurance company shall give Lender at least
thirty (30) days written notice before any such policy of insurance is
altered or cancelled and that no act, whether willful or negligent, or
default of any Borrower or any other Person shall affect the right of
Lender to recover under such policy of insurance in case of loss or
damage. Borrowers hereby direct all insurers under such
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<PAGE> 25
policies of insurance to pay all proceeds payable thereunder directly to
Lender and all proceeds received by Lender may be applied to the Liabilities in
such order and manner as Lender shall determine. Borrowers irrevocably, make,
constitute and appoint Lender (and all officers, employees or agents designated
by Lender) as Borrowers' true and lawful attorney (and agent-in-fact) for the
purpose of making, settling and adjusting claims under such policies of
insurance (upon and following the occurrence of an Event of Default hereunder),
endorsing the names of Borrowers on any check, draft, instrument or other item
of payment for the proceeds of such policies of insurance, and making all
determinations and decisions with respect to such policies of insurance (upon
and following the occurrence of an Event of Default hereunder); and
(ii) maintain, at its expense, such public liability and
third party property damage insurance as is customary for Persons engaged in
businesses similar to that of Borrowers with such companies and in such
amounts, with such deductibles and under policies in such form as shall be
satisfactory to Lender and, at the request of Lender, original (or certified)
copies of such policies shall be delivered to Lender, together with evidence of
payment of all premiums therefor; each such policy shall contain an endorsement
showing Lender as additional insured thereunder and providing that the
insurance company shall give Lender at least thirty (30) days written notice
before any such policy shall be altered or cancelled.
If Borrowers at any time or times hereafter shall fail to obtain or
maintain any of the policies of insurance required above or to pay any premium
in whole or in part relating thereto, then Lender, without waiving or releasing
any obligation or default by Borrowers hereunder, may (but shall be under no
obligation to) obtain and maintain such policies of insurance and pay such
premiums and take such other actions with respect thereto as Lender deems
advisable. All sums disbursed by Lender in connection with any such actions,
including without limitation court costs, expenses, other charges relating
thereto and reasonable attorneys' fees, shall constitute Loans hereunder and
shall be payable on demand by Borrowers to Lender and, until paid, shall bear
interest at the highest rate then applicable to Loans hereunder;
(f) No Borrower shall use its property, or any part thereof,
in any unlawful business or for any unlawful purpose or use or maintain any of
its property in any manner that does or could result in material damage to the
environment or a violation of any applicable environmental laws, rules or
regulations; shall keep its property in good condition, repair and order;
(g) Each Borrower shall permit Lender to examine any of its or
any other Borrower's property at any time [subject to the restrictions set
forth in subsection (d) above]; shall not permit its property, or any part
thereof, to be levied upon under execution, attachment, distraint or other
legal process; shall not
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<PAGE> 26
grant a security interest in or suffer to exist a lien on any of its property
except for the Permitted Liens; shall not sell, lease, transfer or otherwise
dispose of any of its property except for the sale of Inventory in the ordinary
course of its business; and shall not secrete or abandon any of its or any
other Borrower's property, or remove or permit removal of any of its property
from any of the locations listed on EXHIBIT B or in any written notice to
Lender pursuant to SECTION 10(B) hereof, except for the removal of Inventory
sold in the ordinary course of such Borrower's business;
(h) All monies and other property obtained by any Borrower
from Lender pursuant to this Agreement will be used solely for the business
purposes of such Borrower;
(i) Each Borrower shall, at the request of Lender, indicate on
its records concerning the Collateral a notation, in form satisfactory to
Lender, of the security interest of Lender hereunder, and such Borrower shall
not maintain duplicates or copies of such records at any address other than
such Borrower's principal place of business set forth on the first page of this
Agreement;
(j) Each Borrower shall file all required tax returns and pay
all of its taxes when due, including without limitation taxes imposed by
federal, state or municipal agencies, and shall cause any liens for taxes to be
promptly released; provided, that such Borrower shall have the right to contest
the payment of such taxes in good faith by appropriate proceedings so long as:
(i) the amount so contested is shown on such Borrower's financial statements,
(ii) the contesting of any such payment does not give rise to a lien for taxes,
(iii) such Borrower keeps on deposit with Lender (such deposit to be held
without interest) an amount of money which, in the sole judgment of Lender, is
sufficient to pay such taxes and any interest or penalties that may accrue
thereon, and (iv) if such Borrower fails to prosecute such contest with
reasonable diligence, Lender may apply the money so deposited in payment of
such taxes. If such Borrower fails to pay any such taxes and in the absence of
any such contest by such Borrower, Lender may (but shall be under no obligation
to) advance and pay any sums required to pay any such taxes and/or to secure
the release of any lien therefor, and any sums so advanced by Lender shall
constitute Loans hereunder, shall be payable by such Borrower to Lender on
demand, and, until paid, shall bear interest at the highest rate then
applicable to Loans hereunder;
(k) No Borrower shall assume, guarantee or endorse, or
otherwise become liable in connection with, the obligations of any Person,
except: (i) by endorsement of instruments for deposit or collection or similar
transactions in the ordinary course of business, and (ii) for guarantees of
Affiliate obligations consented to by Lender which consent shall be granted or
denied by Lender acting in good faith;
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<PAGE> 27
(l) Except for The Coastal Corporation's acquisition of up to
fifty percent (50%) of Westec Denver, Inc. stock and the acquisition of assets
permitted in SECTION 11(p) of this Agreement, no Borrower shall permit any
change in its ownership or control or engage in any merger or acquisition
without obtaining the prior written consent of Lender which consent may be
withheld by Lender acting in good faith;
(m) Borrowers shall not declare or pay any dividend or other
distribution (whether in cash or in kind) on any class of their stock unless no
Event of Default has occurred or would be caused by such dividend or
distribution and Borrowers' dividends and distributions for any fiscal year do
not exceed fifty percent (50%) of Portfield's net income as reported on the
audited financial statement for such fiscal year;
(n) Each Borrower shall: (i) keep in full force and effect any
and all Plans which may, from time to time, come into existence under ERISA,
unless such Plans can be terminated without liability to such Borrower; (ii)
make contributions to all of the Plans in a timely manner and in a sufficient
amount to comply with the requirements of ERISA; (iii) comply with all material
requirements of ERISA which relate to Plans (including without limitation the
minimum funding standards of Section 302 of ERISA); and (iv) notify Lender
immediately upon receipt by such Borrower of any notice of the institution of
any proceeding or other action which may result in the termination of any
Plans;
(o) No Borrower shall amend its organizational documents or
change its fiscal year (which shall end on February 28th or 29th of each year);
(p) Each Borrower shall, at all times, comply in all material
respects with all laws, rules, regulations, licenses, permits, approvals and
orders applicable to it and duly observe all requirements of any Federal, State
or local governmental authority, including, without limitation, the Employee
Retirement Security Act of 1974, as amended, the Occupational Safety and Hazard
Act of 1970, as amended, the Fair Labor Standards Act of 1938, as amended, and
all statutes, rules, regulations, orders, permits and stipulations relating to
environmental pollution and employee health and safety, including, without
limitation, all of the Environmental Laws;
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<PAGE> 28
(q) Each Borrower shall establish and maintain, at its
expense, a system to assure and monitor its continued material compliance with
all Environmental Laws in all of its operations, which system shall include
annual reviews of such compliance by employees or agents of such Borrower who
are familiar with the `requirements of the Environmental Laws. Copies of all
environmental surveys, audits, assessments, feasibility studies and results of
remedial investigations shall be promptly furnished, or caused to be furnished,
by Borrowers to Lender. Each Borrower shall take prompt and appropriate action
to respond to any non-compliance with any of the Environmental Laws and shall
regularly report to Lender on such response.
(r) Each Borrower shall give both oral and written notice to
Lender immediately upon such Borrower's receipt of any notice of, or such
Borrower's otherwise obtaining knowledge of any of the following events
involving a liability or exposure equal to or exceeding $200,000.00 in the
aggregate: (i) the occurrence of any event involving the release, spill or
discharge, threatened or actual, of any Hazardous Material; (ii) any
investigation, proceeding, complaint, order, directive, claims, citation or
notice with respect to: (A) any non-compliance with or violation of any
Environmental Law by any Borrower or (B) the release, spill or discharge,
threatened or actual, of any Hazardous Material or (C) the generation, use,
storage, treatment, transportation, manufacture, handling, production or
disposal of any Hazardous Materials or (D) any other environmental, health or
safety matter, which affects any Borrower or its business, operations or assets
or any properties at which any Borrower transported, stored or disposed of any
Hazardous Materials;
(s) Without limiting the generality of the foregoing, whenever
Lender reasonably determines that there is material non-compliance, or any
condition which requires any action by or on behalf of any Borrower in order to
avoid any material non-compliance, with any Environmental Law, such Borrower
shall, at Lender's request and such Borrower's expense: (i) cause an
independent environmental engineer acceptable to Lender to conduct such tests
of the site where any Borrower's non-compliance or alleged non-compliance with
such Environmental Laws has occurred as to such non-compliance and prepare and
deliver to Lender a report as to such non-compliance setting forth the results
of such tests, a proposed plan for responding to any environmental problems
described therein, and an estimate of the costs thereof and (ii) provide to
Lender a supplemental report of such engineer whenever the scope of such non-
compliance, or such Borrower's response thereto or the estimated costs thereof,
shall change in any material respect;
(t) Borrowers shall indemnify and hold harmless Lender, its
directors, officers, employees, agents, invitees, representatives, successors
and assigns, from and against any and all losses, claims, damages, liabilities,
costs, and expenses (including attorneys' fees and legal expenses) directly or
indirectly arising out of or attributable to the use, generation, manufacture,
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<PAGE> 29
reproduction, storage, release, threatened release, spill, discharge, disposal
or presence of a Hazardous Material, including, without limitation, the costs
of any required or necessary repair, cleanup or other remedial work with
respect to any property of any Borrower and the preparation and implementation
of any closure, remedial or other required plans. All representations,
warranties, covenants and indemnifications in this Section shall survive the
payment of the Obligations and the termination or non-renewal of this
Agreement;
(u) Borrowers shall reimburse Lender for all reasonable costs
and expenses, including without limitation legal expenses and reasonable
attorneys' fees, incurred by Lender in connection with documentation and
consummation of this transaction and any other transactions between Borrowers
and Lender, including without limitation Uniform Commercial Code and other
public record searches, lien filings, Federal Express or similar express or
messenger delivery, appraisal costs, surveys, title insurance, engineering
reports and inspections, and environmental audit or review costs, and in
seeking to administer, collect, protect or enforce any rights in or to the
Collateral or incurred by Lender in seeking to collect any Liabilities and to
administer, participate, assign and/or enforce any of Lender's rights under
this Agreement and the Other Agreements. All such costs, expenses and charges
shall constitute Loans hereunder, shall be payable by Borrowers to Lender on
demand, and, until paid, shall bear interest at the highest rate then
applicable to Loans hereunder;
(v) Borrowers shall not incur more than $3,500,000.00 in
capital expenditures (excluding expenditures incurred as a result of Borrowers'
acquisition of the assets of another business) during the first fiscal year of
this Agreement, more than $5,500,000.00 in capital expenditures (excluding
expenditures incurred as a result of Borrowers' acquisition of the assets of
another business) during the first two years of this Agreement, more than
$7,500,000.00 in capital expenditures (excluding expenditures incurred as a
result of Borrowers' acquisition of the assets of another business) during the
first three years of this Agreement, or more than an amount deemed acceptable
to Lender acting in good faith during any extended term (if any) of this
Agreement. Borrowers shall provide Lender with a written report of their
capital expenditures on a monthly basis during the term of this Agreement.
Such report shall be in a form acceptable to Lender acting in good faith;
(w) Borrowers shall not permit the ratio of their total
liabilities calculated in accordance with generally accepted accounting
principles (except for debt subordinated to the Liabilities pursuant to a
written agreement in a form acceptable to Lender acting in good faith) to total
Net Worth to exceed the following amounts at any time during the term of this
Agreement:
First Fiscal Year: 4.75:1.0
Second Fiscal Year: 4.75:1.0
Third Fiscal Year: 4.75:1.0
Subsequent Fiscal
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<PAGE> 30
Years (if any): To be determined by Borrowers and Lender
acting in good faith, provided,
however, that if Borrowers and
Lender are unable to reach an
agreement, the ratio for the
subsequent fiscal year shall be the
ratio used for the immediately
preceding fiscal year
Borrowers shall provide Lender with a written report of their ratio of total
liabilities to total Net Worth on a monthly basis during the term of this
Agreement. Such report shall be in a form acceptable to Lender acting in good
faith; and
(x) Borrowers shall not permit their ratio of cumulative
earnings (exclusive of any extraordinary income, non-operating gains, loss
carryforwards, or gains due to changes in accounting) before taxes,
depreciation and amortization for the four (4) most recent fiscal quarters less
any cash income taxes paid during the applicable period to the sum of (i)
Borrowers' consolidated interest expense (including, without limitation,
imputed interest expense on capitalized leases) and (ii) the current maturities
of Borrowers' long-term indebtedness for the applicable period (all of the
foregoing determined in accordance with generally accepted accounting
principles) to be less than the following amounts at the end of each fiscal
quarter during the term of this Agreement:
Quarters ending between August
31, 1995 and February 29, 1996: 1.10:1.0
Quarters ending between May
31, 1996 and August 31, 1998: 1.25:1.0
Subsequent quarters (if any): To be determined by
Borrowers and Lender
acting in good faith,
provided, however, that
if Borrowers and Lender
are unable to reach an
agreement, the ratio
for the subsequent
quarter year shall be
the ratio used for the
immediately preceding
quarter year
Borrowers shall provide Lender with a written report of their ratio of
cumulative earnings for the four (4) most recent fiscal quarters (exclusive of
any extraordinary income, non-operating gains, loss carryforwards, or gains due
to changes in accounting) before taxes, depreciation and accruals less any cash
income taxes paid during the applicable period to the sum of (i) Borrowers'
consolidated interest expense (including, without limitation, imputed interest
expense on capitalized leases) and (ii) the current maturities of Borrower's
long-term indebtedness for the applicable period (all of the foregoing
determined in accordance with generally accepted accounting principles) on a
quarterly basis during the term of this
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<PAGE> 31
Agreement. Such report shall be in a form acceptable to Lender acting in good
faith.
13. DEFAULT. The occurrence of any one or more of the following
events shall constitute an "Event of Default" by Borrowers hereunder:
(a) the failure of any Obligor to pay when due any of the
Liabilities;
(b) the failure of any Obligor to perform, keep or observe any
of the covenants, conditions, promises, agreements or obligations of such
Obligor under this Agreement or any of the Other Agreements provided, however,
that an Event of Default shall not be deemed to have occurred under SECTION
12(w) of this Agreement unless Borrowers have failed to maintain the ratios set
forth therein for at least five (5) days from the date on which the Borrowers
provided or should have provided to Lender the written report described in
SECTION 12(w);
(c) the failure of any Obligor to perform, keep or observe any
of the covenants, conditions, promises, agreements or obligations of such
Obligor under any other agreement with any Person if such failure may have a
material adverse effect on such Obligor's business property, assets, operations
or condition, financial or otherwise;
(d) the making or furnishing by any Obligor to Lender of any
representation, warranty, certificate, schedule, report or other communication
within or in connection with this Agreement or the Other Agreements or in
connection with any other agreement between such Obligor and Lender, which is
untrue or misleading in any respect;
(e) the making or any attempt to make any levy, seizure or
attachment of any Borrower's property or any part thereof possessing a fair
market value of $25,000.00 or more in the aggregate;
(f) the commencement of any proceedings in bankruptcy by or
against any Obligor or for the liquidation or reorganization of any Obligor, or
alleging that such Obligor is insolvent or unable to pay its debts as they
mature, or for the readjustment or arrangement of any Obligor's debts, whether
under the United States Bankruptcy Code or under any other law, whether state
or federal, now or hereafter existing for the relief of debtors, or the
commencement of any analogous statutory or non-statutory proceedings involving
any Obligor; provided, however, that if such commencement of proceedings
against such Obligor is involuntary and such Obligor is contesting such
proceedings in good faith, such action shall not constitute an Event of Default
unless such proceedings are not dismissed within thirty (30) days after the
commencement of such proceedings;
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<PAGE> 32
(g) the appointment of a receiver or trustee for any Obligor,
for any of the Collateral or for any substantial part of any Obligor's assets
or the institution of any proceedings for the dissolution, or the full or
partial liquidation, of any Obligor which is a corporation or a partnership;
provided, however, that if such appointment or commencement of proceedings
against such Obligor is involuntary and such Obligor is contesting such
proceedings in good faith, such action shall not constitute an Event of Default
unless such appointment is not revoked or such proceedings are not dismissed
within thirty (30) days after the commencement of such proceedings;
(h) the entry of any judgments or orders against any Obligor
which equal or exceed $150,000.00 in the aggregate and which remain unsatisfied
or undischarged and in effect for thirty (30) days after such entry without a
stay of enforcement or execution;
(i) the death of any Obligor who is a natural Person or the
dissolution of any Obligor which is a partnership or corporation;
(j) the occurrence of a change of control, direct or indirect,
of any Borrower except as set forth in SECTION 12(l) of this Agreement;
(k) the occurrence of an event of default under, or the
revocation or termination of, any agreement, instrument or document executed
and delivered by any Person to Lender pursuant to which such Person has
guaranteed to Lender the payment of all or any of the Liabilities or has
granted Lender a security interest in or lien upon some or all of such Person's
real and/or personal property to secure the payment of all or any of the
Liabilities;
(l) the institution in any court of a criminal proceeding
against any Obligor, or the indictment of any Obligor for any crime; or
(m) Lender shall feel insecure in good faith for any reason
whatsoever, including without limitation fear of removal or waste of the
Collateral, or any part thereof.
14. REMEDIES UPON AN EVENT OF DEFAULT.
(a) Without limiting Lender's right to demand payment of the
Liabilities at any time, upon the Termination Date or the occurrence of an
Event of Default described in SECTION 13(f) hereof, all of the Liabilities
shall immediately and automatically become due and payable, without notice of
any kind and upon the occurrence of any other Event of Default, all Liabilities
may, at the option of Lender, and without demand, notice or legal process of
any kind, be declared, and immediately shall become, due and payable.
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<PAGE> 33
(b) Upon the Termination Date or the occurrence of an Event of
Default, Lender may exercise from time to time any rights and remedies
available to it under the Uniform Commercial Code and any other applicable law
in addition to, and not in lieu of, any rights and remedies expressly granted
in this Agreement or in any of the Other Agreements and all of Lender's rights
and remedies shall be cumulative and non-exclusive to the extent permitted by
law. In particular, but not by way of limitation of the foregoing, Lender may,
without notice, demand or legal process of any kind, take possession of any or
all of the Collateral (in addition to Collateral of which it already has
possession), wherever it may be found, and for that purpose may pursue the same
wherever it may be found, and may enter into any Borrower's premises where any
of the Collateral may be, and search for, take possession of, remove, keep and
store any of the Collateral until the same shall be sold or otherwise disposed
of, and Lender shall have the right to store the same at any Borrower's
premises without cost to Lender. At Lender's request, Borrowers shall, at
Borrowers' expense, assemble the Collateral and make it available to Lender at
one or more places to be designated by Lender and reasonably convenient to
Lender and Borrowers. Borrowers recognizes that if Borrowers fail to perform,
observe or discharge any of their Liabilities under this Agreement or the Other
Agreements, no remedy at law will provide adequate relief to Lender, and agree
that Lender shall be entitled to temporary and permanent injunctive relief in
any such case without the necessity of proving actual damages. Any
notification of intended disposition of any of the Collateral required by law
will be deemed reasonably and properly given if given at least ten (10)
calendar days before such disposition. Any proceeds of any disposition by
Lender of any of the Collateral may be applied by Lender to the payment of
expenses in connection with the Collateral, including without limitation legal
expenses and reasonable attorneys' fees, and any balance of such proceeds may
be applied by Lender toward the payment of such of the Liabilities, and in such
order of application, as Lender may from time to time elect, including without
limitation to provide cash collateral to secure the Letters of Credit.
15. INDEMNIFICATION. Borrowers agree to defend (with counsel
satisfactory to Lender), protect, indemnify and hold harmless Lender, each
Affiliate of Lender, and each of their respective officers, directors,
employees, attorneys and agents (each an "Indemnified Party") from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, expenses and disbursements of any kind or
nature (including without limitation the disbursements and the reasonable fees
of counsel for each Indemnified Party in connection with any investigative,
administrative or judicial proceeding, whether or not the Indemnified Party
shall be designated a party thereto), which may be imposed on, incurred by, or
asserted against, any Indemnified Party (whether direct, indirect or
consequential and whether based on any federal, state or local laws or
regulations, including without limitation securities, environmental and
commercial laws and regulations, under common law or in equity, or based on
contract or otherwise) in any manner relating to or
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<PAGE> 34
arising out of this Agreement or any Other Agreement, or any act, event or
transaction related or attendant thereto, the making and the management of the
Loans or any Letters of Credit, or the use or intended use of the proceeds of
the Loans or any Letters of Credit; provided, however, that Borrowers shall not
have any obligation hereunder to any Indemnified Party with respect to matters
caused by or resulting from the willful misconduct or gross negligence of such
Indemnified Party. To the extent that the undertaking to indemnify set forth
in the preceding sentence may be unenforceable because it is violative of any
law or public policy, Borrowers shall satisfy such undertaking to the maximum
extent permitted by applicable law. Any liability, obligation, loss, damage,
penalty, cost or expense covered by this indemnity shall be paid to each
Indemnified Party on demand, and, failing prompt payment, shall, together with
interest thereon at the highest rate then applicable to Loans hereunder from
the date incurred by each Indemnified Party until paid by Borrowers, be added
to the Liabilities of Borrowers and be secured by the Collateral. The
provisions of this Section shall survive the satisfaction and payment of the
other Liabilities and the termination of this Agreement.
16. NOTICE. All written notices and other written communications
with respect to this Agreement shall be sent by ordinary, certified or
overnight mail, by telecopy or delivered in person, and in the case of Lender
shall be sent to it at 1200 17th Street, Suite 2760, Denver, Colorado 80202,
Attention: William N. Tsiouvaras, and in the case of Borrower shall be sent to
it at its principal place of business set forth on the first page of this
Agreement, Attention: Keith R. Holder.
17. CHOICE OF GOVERNING LAW; CONSTRUCTION; FORUM SELECTION. This
Agreement and the Other Agreements are submitted by Borrowers to Lender for
Lender's acceptance or rejection at Lender's principal place of business as an
offer by Borrowers to borrow monies from Lender now and from time to time
hereafter, and shall not be binding upon Lender or become effective until
accepted by Lender, in writing, at said place of business. If so accepted by
Lender, this Agreement and the Other Agreements shall be deemed to have been
made at said place of business. THIS AGREEMENT AND THE OTHER AGREEMENTS SHALL
BE GOVERNED AND CONTROLLED BY THE INTERNAL LAWS OF THE STATE OF COLORADO AS TO
INTERPRETATION, ENFORCEMENT, VALIDITY, CONSTRUCTION, EFFECT, AND IN ALL OTHER
RESPECTS, INCLUDING WITHOUT LIMITATION THE LEGALITY OF THE INTEREST RATE AND
OTHER CHARGES, BUT EXCLUDING PERFECTION OF THE SECURITY INTERESTS IN THE
COLLATERAL, WHICH SHALL BE GOVERNED AND CONTROLLED BY THE LAWS OF THE RELEVANT
JURISDICTION. If any provision of this Agreement shall be held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or remaining provisions of this
Agreement.
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<PAGE> 35
To induce Lender to accept this Agreement, Borrowers irrevocably
agree that, subject to Lender's sole and absolute election, ALL ACTIONS OR
PROCEEDINGS IN ANY WAY, MANNER OR RESPECT, ARISING OUT OF OR FROM OR RELATED TO
THIS AGREEMENT, THE OTHER AGREEMENTS OR THE COLLATERAL SHALL BE LITIGATED IN
COURTS HAVING SITUS WITHIN THE CITY AND COUNTY OF DENVER, STATE OF COLORADO.
BORROWERS HEREBY CONSENT AND SUBMIT TO THE JURISDICTION OF ANY LOCAL, STATE OR
FEDERAL COURTS LOCATED WITHIN SAID CITY AND STATE. BORROWERS HEREBY WAIVE ANY
RIGHT THEY MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT
AGAINST BORROWERS BY LENDER IN ACCORDANCE WITH THIS SECTION.
18. PARTICIPATION; ASSIGNMENT. Lender shall have the right to assign
all or any of its rights under this Agreement and the Other Agreements, and/or
to offer participation interests therein, to any Affiliate or Subsidiary of
Lender, without the consent of Borrowers and, if an Event of Default has
occurred under this Agreement, to any non-Affiliate or non-Subsidiary of
Lender, without the consent of Borrowers. In addition, if the Maximum Credit
exceeds $12,000,000.00, Lender shall have the right to assign all or any of its
rights under this Agreement and the Other Agreements, and/or to offer
participation interests therein, to any non-Affiliate or non-Subsidiary of
Lender, without the consent of Borrowers; provided, however, that upon the
consummation of such assignment or participation, Borrowers shall be entitled
to terminate this Agreement without the payment of any fees described in
SECTION 3(e) so long as no Event of Default has occurred under this Agreement
and such termination, the full satisfaction of the Liabilities, and the
provision of the release described in SECTION 10 are completed within one
hundred and eighty days (180) from the earlier of the consummation or the
giving of notice to Borrowers of such assignment or participation. In the
event of any assignment or participation, Borrowers shall execute such
agreements, instruments and documents as Lender shall request in connection
therewith, including without limitation agreements, instruments and documents
in favor of each assignee and participant.
19. MODIFICATION AND BENEFIT OF AGREEMENT. This Agreement and the
Other Agreements may not be modified, altered or amended except by an agreement
in writing signed by Borrowers and Lender. Borrowers may not sell, assign or
transfer this Agreement, or the Other Agreements or any portion thereof,
including without limitation Borrowers' rights, titles, interest, remedies,
powers or duties thereunder.
20. HEADINGS OF SUBDIVISIONS. The headings of subdivisions in this
Agreement are for convenience of reference only, and shall not govern the
interpretation of any of the provisions of this Agreement.
21. POWER OF ATTORNEY. Borrowers acknowledge and agree that their
appointment of Lender as their attorney and agent-in-fact for
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<PAGE> 36
the purposes specified in this Agreement is an appointment coupled with an
interest and shall be irrevocable until all of the Liabilities are paid in full
and this Agreement is terminated.
22. WAIVER OF JURY TRIAL; OTHER WAIVERS; MISCELLANEOUS.
(a BORROWERS HEREBY WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS AGREEMENT,
ANY OF THE OTHER AGREEMENTS, THE LIABILITIES, THE COLLATERAL, ANY ALLEGED
TORTIOUS CONDUCT BY BORROWERS OR LENDER OR WHICH, IN ANY WAY, DIRECTLY OR
INDIRECTLY, ARISES OUT OF OR RELATES TO THE RELATIONSHIP BETWEEN BORROWERS AND
LENDER. IN NO EVENT SHALL LENDER BE LIABLE FOR LOST PROFITS OR OTHER SPECIAL
OR CONSEQUENTIAL DAMAGES.
(b Borrowers hereby waive demand, presentment, protest and
notice of nonpayment, and further waive the benefit of all valuation, appraisal
and exemption laws.
(c BORROWERS HEREBY WAIVE ALL RIGHTS TO NOTICE AND HEARING OF
ANY KIND PRIOR TO THE EXERCISE BY LENDER OF ITS RIGHTS TO REPOSSESS THE
COLLATERAL OF BORROWERS WITHOUT JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY
UPON SUCH COLLATERAL WITHOUT PRIOR NOTICE OR HEARING.
(d Lender's failure, at any time or times hereafter, to
require strict performance by any Borrower of any provision of this Agreement
or any of the Other Agreements shall not waive, affect or diminish any right of
Lender thereafter to demand strict compliance and performance by such Borrower
therewith or to demand strict compliance and performance by any other Borrower
therewith at any time. Any suspension or waiver by Lender of an Event of
Default under this Agreement or any default under any of the Other Agreements
shall not suspend, waive or affect any other Event of Default under this
Agreement or any other default under any of the Other Agreements, whether the
same is prior or subsequent thereto and whether of the same or of a different
kind or character. No delay on the part of Lender in the exercise of any right
or remedy under this Agreement or any Other Agreement shall preclude other or
further exercise thereof or the exercise of any right or remedy. None of the
undertakings, agreements, warranties, covenants and representations of
Borrowers contained in this Agreement or any of the Other Agreements and no
Event of Default under this Agreement or default under any of the Other
Agreements shall be deemed to have been suspended or waived by Lender unless
such suspension or waiver is in writing, signed by a duly authorized officer of
Lender and directed to Borrowers specifying such suspension or waiver.
(e Whenever this Agreement refers to "Borrowers'"
representations, warranties, covenants, indebtedness, liabilities, obligations,
and assets as opposed to those of any "Borrower", such representations,
warranties, covenants, indebtedness, liabilities
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<PAGE> 37
and obligations shall be joint and several in nature and such assets shall
include Borrowers' jointly and severally-owned assets.
BORROWER: LENDER:
PORTFIELD INVESTMENTS, INC. NATIONAL CANADA FINANCE CORP.
By: By:
----------------------------- ------------------------------
Title: Title: Vice President
--------------------------
WESCOURT GROUP, INC. By:
-------------------------------
Title:
----------------------------
By:
-----------------------------
Title:
--------------------------
WESCOURT DISTRIBUTING, INC.
By:
-----------------------------
Title:
--------------------------
WESFRAC, INC.
By:
-----------------------------
Title:
--------------------------
WESTEC DENVER, INC.
By:
-----------------------------
Title:
--------------------------
PETRO-MARK CORP. UTAH
By:
-----------------------------
Title:
--------------------------
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<PAGE> 38
WESCOURT ENVIRONMENTAL, INC.
By:
---------------------------
Title:
------------------------
PETRO-MARK CORP.
By:
---------------------------
Title:
------------------------
PETRO-MARK CORP., MONTROSE, INC.
By:
---------------------------
Title:
------------------------
WESTEC FRUITA, INC.
By:
---------------------------
Title:
------------------------
MONTROSE PROPANE, INC.
By:
---------------------------
Title:
------------------------
GRAND MESA TEXACO, INC.
By:
---------------------------
Title:
------------------------
FRUITA INVESTMENTS, INC.
By:
---------------------------
Title:
------------------------
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<PAGE> 39
FRUITA MARKETING & MANAGEMENT, INC.
By:
--------------------------------
Title:
-----------------------------
FRUITA RP HOLDING, INC.
By:
--------------------------------
Title:
-----------------------------
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<PAGE> 40
EXHIBIT A
Permitted Liens
1. CASTROL NORTH AMERICA AUTOMOTIVE, INC.
Petro Mark Corp. Utah, Inc. ("PMCU") and Castrol, Inc. ("Castrol") have
entered into a Distributor Loaned Equipment Program Agreement dated July
20, 1995 for participation by the PMCU in Castrol's Distributor LEAD
Program.
Pursuant to the Distributor Loaned Equipment Program Agreement, Castrol
shall finance certain lube bay equipment for PMCU and shall be granted a
security interest in such lube bay equipment to secure the amounts owing
by PMCU to Castrol in connection with the purchase of those goods.
Copies of the relevant documents shall be provided to Lender in prompt
manner.
2. TAL FINANCIAL CORPORATION, INC.
During October 1995, Wesfrac, Inc. ("Wesfrac") and Petro-Mark Corp.
("PMC") intend to enter into a five year operating lease agreement with
TAL Financial Corporation, Inc. for the following equipment:
Two (2) Bobtail vehicles (PMC)
One (1) Merichem light oil sweetening unit located at 1493
Highway 6 & 50, Fruita, CO - (Wesfrac)
One (1) Butane splitter (currently under construction at 1629 21
Road, Grand Junction, CO) - (Wesfrac)
Copies of the relevant documents shall be provided to Lender in a prompt
manner.
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<PAGE> 41
EXHIBIT B
Chief Executive Office, Other Offices, Places of Business and Post
Office Boxes
Chief Executive Offices
and Chief Place of
Business: 1493 Highway 6 and 50 Fruita,
Colorado 81521
Other Offices and Places
of Business: 2380 Hancock Expressway
Colorado Springs, Colorado 80910
6401 East 80th Avenue
Dupont, Colorado 80024
1451 21 Road
Grand Junction, Colorado 81505
501 North Townsend
Montrose, Colorado 81401
400 South Santa Fe Avenue
Pueblo, Colorado 81003
350 West D Street
Pueblo, Colorado 81003
701 East Elm
Trinidad, Colorado 81082
501 S. 9th Street
Canon City, Colorado 81212
1901 South 300 West
Salt Lake City, Utah 84115
Owner: Post Office Box
- ----- ---------------
Petro Mark Corp. P.O. Box 0493
Pueblo, CO 81003
Westec Denver, Inc. P.O. Box 155
Dupont, CO 80024
Petro Mark Corp., Utah P.O. Box 27047
Salt Lake City, UT 84127
Petro Mark Corp. P.O. Box 336
Trinidad, CO 81082
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<PAGE> 42
Petro Mark Corp. P.O. Box 670
Canon City, CO 81212
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<PAGE> 43
EXHIBIT C
Former Corporate Names
----------------------
Former Name: Present Company:
- ----------- ---------------
Westec Salt Lake City, Inc. Petro Mark Corp., Utah
Westec Operating Company, Inc. Petro Mark Corp.
Burnet Oil Co., Inc. Petro Mark Corp., Montrose, Inc.
Charterhall Trading, Inc. Wescourt Distributing, Inc.
Charterhall Refining and Wescourt Group, Inc.
Marketing, Inc.
Wescourt Group, Inc. also possesses a subsidiary, Wescourt Petroleum,
Inc., at the present time. However, such subsidiary possesses no assets, is
the process of being dissolved, and shall be dissolved in a prompt manner. The
Borrowers shall provide Lender with written evidence of the dissolution of
Wescourt Petroleum, Inc. in a prompt manner.
Trade Names
_____________________ possesses the registered trademark "Green
Gasoline."
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<PAGE> 44
EXHIBIT D
Permitted Indebtedness
1. Petro-Mark Corp., Utah fka Westec Salt Lake City, Inc. executed and
delivered to Triton Fuel Group, Inc. a promissory note in the original
principal amount of $1,075,000.00 on or about October 1, 1994. The
principal balance on the promissory note accrues simple interest at the
rate of 7% per annum. The promissory note is payable in 33 monthly
installments of $17,102.00 each followed by 42 monthly installments of
$11,455.00 each with the unpaid balance due and payable on February 1,
2001.
The promissory note is unsecured and subordinated to the payment of the
debt of Petro Mark Corp, Utah to any third parties. The promissory note
permits prepayments without penalties of any kind.
2. Wescourt Group, Inc. executed and delivered to Triton Fuel Group, Inc. a
promissory note in the original principal amount of $135,000 on or about
October 1, 1994. The principal balance on the promissory note accrues
simple interest at the rate of 7% per annum. The promissory note is
payable in 32 monthly installments of $4,500.00 each followed by a final
payment of $4,832.55 due and payable on July 1, 1997.
The promissory note is unsecured and subordinated to the payment of the
debt of Wescourt Group, Inc. to any third parties. The promissory note
permits prepayments without penalties of any kind.
3. Petro-Mark Corp. executed and delivered to Simpson Oil Company and Star
Oil Company a promissory note in the original principal amount of
$115,703.29 on or about October 1, 1994. The principal balance on the
promissory note accrues simple interest at the rate of 8% per annum.
The promissory note is payable in quarterly installments of $10,700.00
each with the unpaid balance due and payable on October 1, 1999.
The promissory note is unsecured.
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<PAGE> 45
EXHIBIT E
Shareholders and Subsidiaries
Portfield Investments, Inc. is owned by Petroleum Holding, Ltd. (60%)
and Keith R. Holder (40%).
Portfield Investments, Inc. is the sole shareholder of Wescourt Group,
Inc. and Wescourt Distributing, Inc.
Wescourt Group, Inc. is the sole shareholder of Wesfrac, Inc., Westec
Denver, Inc., Petro-Mark Corp., Utah, Wescourt Environmental, Inc., Petro-Mark
Corp., Petro Mark Corp., Montrose, Inc. and Westec Fruita, Inc. Wescourt
Group, Inc. also possesses a subsidiary, Wescourt Petroleum, Inc., at the
present time. However, such subsidiary possesses no assets, is the process of
being dissolved, and shall be dissolved in a prompt manner. The Borrowers
shall provide Lender with written evidence of the dissolution of Wescourt
Petroleum, Inc. in a prompt manner.
Petro Mark Corp., Montrose, Inc. is the sole shareholder of Montrose
Propane, Inc. and Grand Mesa Texaco, Inc..
Montrose Propane, Inc. is the sole shareholder of Fruita Investments,
Inc. and Fruita Marketing & Management, Inc.
Grand Mesa Texaco, Inc. is the sole shareholder of Fruita RP Holding,
Inc.
NOTE: Westec Denver, Inc., Coastal Mart, Inc. and Coastal Refining,
Inc. (collectively "Coastal") entered into an operating agreement on April 5,
1995. The operating agreement provides for Coastal to purchase 50% (fifty
percent) of Westec Denver, Inc.'s common stock on or after April 5, 2000.
-45-
<PAGE> 46
EXHIBIT F
Environmental Problems
1. Borrowers have not generated, used, stored, treated, transported,
manufactured, handled, produced or disposed of any Hazardous Materials,
on or off its premises (whether or not owned by it) in any manner which
at any time violates any applicable Environmental Law or any license,
permit, certificate, approval or similar authorization thereunder (and
would render Borrowers or any of them liable for damages and penalties
in the amount of $200,000.00 or more in the aggregate) and the
operations of each Borrower complies in all material respects with all
Environmental Laws and all licenses, permits, certificates, approvals
and similar authorizations thereunder.
2. There has been no investigation, proceeding, complaint, order,
directive, claim, citation or notice by any governmental authority or
any other person nor is any pending or to the best of any Borrower's
knowledge threatened, with respect to any non-compliance with or
violation of the requirements of any Environmental Law by any Borrower
or the release, spill or discharge, threatened or actual, of any
Hazardous Material or the generation, use, storage, treatment,
transportation, manufacture, handling, production or disposal of any
Hazardous Materials or any other environmental, health or safety matter,
which affects any Borrower or its business, operations or assets or any
properties at which any Borrower has transported, stored or disposed of
any Hazardous Materials and which could render Borrowers or any of them
liable for damages and penalties in the amount of $500,000.00 or more in
the aggregate.
3. No Borrower has any liability (contingent or otherwise) in connection
with a release, spill or discharge, threatened or actual, of any
Hazardous Materials or the generation, use, storage, treatment,
transportation, manufacture, handling, production or disposal of any
Hazardous Materials which could render Borrowers or any of them liable
for damages and penalties in the amount of $500,000.00 or more in the
aggregate.
4. NOTE: Westec Petroleum, Inc. ("WPI"), which is being dissolved,
formerly operated its business at 5300 E. 43rd Street, Denver, Colorado.
Such located was leased from Tamko Asphalt Products, Inc. ("Tamko") from
December 8, 1988 to March 31, 1994. The site had previously been used
by a number of non-related third parties for the unloading and trans-
shipping of hydrocarbon fuels including jet fuel.
-46-
<PAGE> 47
In May 1994, Portfield Investments, Inc. received notice from Tamko
alleging contamination of the leased premises. Both WPI and Tamko were
placed under a Service of Compliance Order and Invitation to Informal
Conference by the Colorado Department-Public Health and Environment.
The estimated remediation costs for the leased premises could total as
much as $50,000 per year for five years.
-47-
<PAGE> 48
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT AND RELATED
DOCUMENTS
This First Amendment to Loan and Security Agreement and Related
Documents ("First Amendment") is executed by Portfield Investments, Inc., a
Colorado corporation, Wescourt Group, Inc., a Delaware corporation, Wescourt
Distributing, Inc., a Colorado corporation, Wesfrac, Inc., a Colorado
corporation, Westec Denver, Inc., a Colorado corporation, Petro-Mark Corp.
Utah, a Colorado corporation, Wescourt Environmental, Inc., a Colorado
corporation, Petro-Mark Corp., a Colorado corporation, Petro-Mark Corp.,
Montrose, Inc., a Colorado corporation, Westec Fruita, Inc., a Delaware
corporation, Montrose Propane, Inc., a Colorado corporation, Grand Mesa Texaco,
Inc., a Colorado corporation, Fruita Investments, Inc., a Colorado corporation,
Fruita Marketing & Management, Inc., a Delaware corporation, and Fruita RP
Holding, Inc, a Delaware corporation, all with an address at 1493 Highway 6 and
50, Fruita, Colorado 81521 (collectively "Borrowers") and National Canada
Finance Corp., a Delaware corporation ("Lender"), with an address at 1200 17th
Street, Suite 2760, Denver, Colorado 80202 for valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, on this day of
October, 1995. Hereinafter, each of the Borrowers may be referred to singularly
as a "Borrower."
RECITALS
A. Borrowers executed and delivered to Lender a Loan and
Security Agreement and various related documents (collectively
"Loan Documents") on or about October 5, 1995.
B. Borrowers and Lender wish to add certain additional
terms and conditions to the Loan Documents as set forth in this
First Amendment.
AGREEMENTS
1. The Borrowers, jointly and severally, represent and warrant to and
covenant with Lender that: (a) Borrowers are not and have no relationship to
the various debtors described in the financing statements, notices of tax
liens, and other materials attached hereto as EXHIBIT A and incorporated herein
by this reference; (b) The Borrowers contemplated, but did not form, a company
to be called "Westec Grand Junction, Inc." and such entity has never existed or
been used as a trade name for the Borrowers or any of them; (c) Borrowers have
vacated their former business premises located at 1710 West 2600 South, Woods
Cross, Utah; (d) Borrowers lease certain real property in Garfield and Teller
Counties, Colorado; (e) none of Borrowers' business operations are conducted
and none of Borrowers' assets are located at 1710 West 2600 South, Woods Cross,
Utah or in Garfield and Teller Counties,
- 1 -
<PAGE> 49
Colorado, as of the date of this First Amendment; (f) Westec Petroleum, Inc.
does not and shall not possess any assets or parties possessing a lien or
security interest in its former assets (if any) and shall be dissolved within
thirty (30) days from the date of this First Amendment; and (g) none of
Borrowers' business operations shall be conducted and none of Borrowers' assets
shall be located on the properties described in Section 1(c) without Lender
being provided with: (i) at least ten (10) days' prior written notice thereof,
and (ii) such documents (such as financing statements, landlord waivers, and
mortgagee waivers) as Lender may request to provide Lender with a first
priority security interest in the assets located on such property.
2. Notwithstanding anything to the contrary contained in the Loan
Documents, Lender shall not be obligated to provide Borrowers with any advances
or other financial accommodations of any kind unless no event of default exists
under the Loan Documents and Borrowers provide Lender with the following
information and materials:
a. AN ENVIRONMENTAL REPORT ON THE BORROWERS' REAL
PROPERTY;
b. THE PAYOFF LETTER FROM BANK ONE TEXAS, N.A.;
c. THE TERMINATION STATEMENTS FOR THE FINANCING
STATEMENTS THAT WERE FILED AGAINST LANDMARK PETROLEUM,
INC. AND LANDMARK RESOURCES, INC. PRIOR TO THE
BORROWERS' ACQUISITION OF CERTAIN ASSETS BELONGING TO
THOSE COMPANIES;
d. the confirmation letters and termination statements
from Mercantile Bank of Forth Worth AND THE CIT
GROUP/CREDIT FINANCE, INC.;
e. the correct street address and legal description and
a copy of the lease for the Borrowers' premises in
Canon City, Colorado, as well as any NECESSARY LANDLORD
WAIVERS AND MORTGAGEE WAIVERS FOR THAT PROPERTY;
f. any financing statements and termination statements
necessary to provide Lender with a first priority
security interest in the Borrowers' personal property
and fixtures located in Fremont County, Colorado;
g. THE REMAINING CERTIFICATES OF TITLE PERTAINING TO
THE MOTOR VEHICLES BELONGING TO THE BORROWERS;
h. the landlord waivers for the Borrowers' premises in
DUPONT, MONTROSE and PUEBLO, Colorado, and SALT LAKE CITY,
Utah (provided, however, that Borrowers shall be
- 2 -
<PAGE> 50
entitled to provide Lender with the landlord waivers for the
Salt Lake City property within 30 days from the date of this
First Amendment);
UNION PACIFIC, SOUTHERN PACIFIC, DAUPHIN
i. the mortgagee waivers pertaining to all of the
Borrowers' premises;
CHASE AND SALT LAKE CITY
j. THE REVISED ENDORSEMENT TO THE AMERICAN CREDIT INDEMNITY
INSURANCE POLICY AS WELL AS THE DATE-STAMPED LOSS PAYEE FORM
AND CONFIRMATION LETTER FROM THAT INSURANCE COMPANY (as well
as a copy of any replacement accounts receivable insurance
policy and similar loss payee forms and confirmation letters
pertaining to such replacement policy);
k. THE CERTIFICATES OF INSURANCE AND LOSS PAYABLE ENDORSEMENTS
PERTAINING TO THE BORROWERS' CASUALTY AND LIABILITY INSURANCE
POLICIES;
l. the original life insurance policy and the date-stamped
Assignment of Life Insurance Policy as Collateral form and
confirmation letter from Principal Mutual Life Insurance
Company;
m. the Collateral Account Agreements and Lockbox Agreements
from the appropriate financial institutions;
n. the revised opinion letter from the Borrowers' counsel;
and
o. any other materials which Lender may reasonably require in
connection with Borrowers' loans.
All of the foregoing appraisals, reports, waivers, and other materials shall be
in such form and executed by such parties as may be acceptable to Lender in
good faith.
3. Lender shall be entitled to rely upon faxed or scanned
signatures in making advances or for any other purposes in
connection with the Borrowers' loans.
4. Notwithstanding anything to the contrary contained in the Loan
Documents, Borrowers shall be entitled to terminate the Loan Documents in the
event that Lender has not made an initial advance under the Loan Documents
within thirty (30) days from the date of this Agreement. Lender shall provide
Borrowers with any termination statements and other documents necessary to
release its liens and security interests against Borrowers' assets within sixty
(60) days from such termination date.
- 3 -
<PAGE> 51
5. This First Amendment shall be governed by the laws of
the State of Colorado.
6. The Loan Documents shall remain in full force and
effect except as amended by this Agreement.
7. This First Amendment and the various documents described
herein represent the complete and integrated understanding between the parties
pertaining to the subject matter hereof. All prior and contemporaneous
understandings and agreements, written or oral,express or implied, shall be of
no further force and effect to the extent inconsistent herewith.
BORROWER: LENDER:
PORTFIELD INVESTMENTS, INC. NATIONAL CANADA FINANCE CORP.
By:
--------------------------- By:
--------------------------
Title: Title: Vice President
------------------------
By:
--------------------------
Title: Vice President
WESCOURT GROUP, INC.
By:
---------------------------
Title:
------------------------
WESCOURT DISTRIBUTING, INC.
By:
---------------------------
Title:
------------------------
WESFRAC, INC.
By:
---------------------------
Title:
------------------------
WESTEC DENVER, INC.
By:
---------------------------
Title:
------------------------
- 4 -
<PAGE> 52
PETRO-MARK CORP. UTAH
By:
---------------------------
Title:
------------------------
WESCOURT ENVIRONMENTAL, INC.
By:
---------------------------
Title:
------------------------
PETRO-MARK CORP.
By:
---------------------------
Title:
------------------------
PETRO-MARK CORP., MONTROSE, INC.
By:
---------------------------
Title:
------------------------
WESTEC FRUITA, INC.
By:
---------------------------
Title:
------------------------
MONTROSE PROPANE, INC.
By:
---------------------------
Title:
------------------------
GRAND MESA TEXACO, INC.
By:
---------------------------
Title:
------------------------
FRUITA INVESTMENTS, INC.
By:
---------------------------
Title:
------------------------
FRUITA MARKETING & MANAGEMENT, INC.
By:
---------------------------
Title:
------------------------
FRUITA RP HOLDING, INC.
By:
---------------------------
Title:
------------------------
- 5 -
<PAGE> 53
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT AND RELATED
DOCUMENTS
This Second Amendment to Loan and Security Agreement and Related
Documents ("Agreement") is executed by Portfield Investments, Inc., a Colorado
corporation, Wescourt Group, Inc., a Delaware corporation, Wescourt
Distributing, Inc., a Colorado corporation, Wesfrac, Inc., a Colorado
corporation, Westec Denver, Inc., a Colorado corporation, Petro-Mark Corp.
Utah, a Colorado corporation, Petro-Mark Corp., a Colorado corporation,
Petro-Mark Corp., Montrose, Inc., a Colorado corporation, Westec Fruita, Inc.,
a Delaware corporation, Montrose Propane, Inc., a Colorado corporation, Grand
Mesa Texaco, Inc., a Colorado corporation, and Fruita RP Holding, Inc, a
Delaware corporation, all with an address at 1493 Highway 6 and 50, Fruita,
Colorado 81521 (collectively "Borrowers"), Mesa Environmental, Inc. fka
Wescourt Environmental, Inc., a Colorado corporation ("MEI"), Fruita
Investments, Inc., a Colorado corporation ("FII"), and Fruita Marketing &
Management, Inc., a Delaware corporation ("FMMI"), all with an address at 1493
Highway 6 and 50, Fruita, Colorado 81521, and National Canada Finance Corp., a
Delaware corporation ("Lender"), with an address at 1200 17th Street, Suite
2760, Denver, Colorado 80202 for valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, on this day of August, 1996.
Hereinafter, each of the Borrowers may be referred to singularly as a
"Borrower."
RECITALS
A. Borrowers and MEI, FII and FMMI executed and delivered to Lender a
Loan and Security Agreement ("Loan and Security Agreement") and various related
documents and a First Amendment to Loan and Security Agreement and Related
Documents on or about October 6, 1995. Hereinafter, the foregoing documents,
any related loan documents, and any amendments, modifications, replacements or
substitutions to any of the foregoing shall be referred to collectively as the
"Loan Documents."
B. The outstanding principal balance on Borrowers', MEI's, FII's and
FMMI's obligations to Lender under the Loan Documents amounted to approximately
$6,720,191.71 as of August 23, 1996 and interest and expenses are accruing
thereon as set forth in the Loan Documents. None of the principal balance on
Borrowers', MEI's, FII's and FMMI's obligations to Lender under the Loan
Documents consists of advances to MEI, FII or FMMI based on the accounts or
inventory belonging to those parties.
C. MEI's, FII's and FMMI's assets and liabilities are described in
EXHIBIT A attached hereto and incorporated herein by this reference in an
accurate and complete manner.
- 1 -
<PAGE> 54
D. Borrowers and Lender wish to amend the Loan Documents to, among
other things, release MEI, FII and FMMI from their obligations as Borrowers
under the Loan Documents and to release all of Lender's liens and security
interests against MEI's, FII's and FMMI's assets under the Loan Documents.
AGREEMENTS
1. Borrowers, MEI, FII and FMMI hereby acknowledge and reaffirm the
truth and accuracy of all of the foregoing Recitals and the representations and
other statements contained in the Loan Documents as of the date of this
Agreement.
2. The second paragraph of Section 2 of the Loan and Security
Agreement shall be amended to read:
The total unpaid principal of all Loans outstanding to the Borrowers
and: (i) based upon Eligible Inventory shall not exceed Two Million
Dollars ($2,000,000.00) at any time; (ii) and based upon Eligible
Existing Equipment and Eligible Acquired Equipment shall not exceed
Two Million Dollars ($2,000,000.00) at any time; provided, however,
that such limit shall be increased to Four Million Dollars
($4,000,000.00) if the Maximum Credit is increased to and maintained
at Nine Million Dollars ($9,000,000.00) or Twelve Million Dollars
($12,000,000.00) in accordance with the terms and conditions set forth
in this Agreement; and (iii) and based upon Eligible Purchased
Equipment shall not exceed Five Hundred Thousand Dollars ($500,000.00)
at any time; provided, however, that such limit shall be increased to
One Million Dollars ($1,000,000.00) if the Maximum Credit is increased
to and maintained at Nine Million Dollars ($9,000,000.00) or Twelve
Million Dollars ($12,000,000.00) in accordance with the terms and
conditions set forth in this Agreement.
3. Borrowers, MEI, FII and FMMI, jointly and severally, represent and
warrant to Lender that they have not defaulted upon any of their respective
obligations under the Loan Documents.
4. Based upon the truth and accuracy of the foregoing reaffirmations,
representations and warranties and in consideration for the releases and other
terms and conditions set forth in this Agreement, Lender hereby releases MEI,
FII and FMMI from their respective obligations under the Loan Documents and
releases its liens and security interests against MEI's, FII's and FMMI's
assets described in EXHIBIT A attached hereto.
5. BORROWERS, MEI, FII AND FMMI HEREBY WAIVE AND FOREVER DISCHARGE
LENDER AND ITS SHAREHOLDERS, DIRECTORS, OFFICERS, EMPLOYEES, AND AGENTS FROM
ALL KNOWN AND UNKNOWN, ABSOLUTE AND CONTINGENT, CLAIMS, DEFENSES, SETOFFS,
COUNTERCLAIMS, CAUSES OF
- 2 -
<PAGE> 55
ACTION, ACTIONS, SUITS OR OTHER LEGAL PROCEEDINGS OF ANY KIND EXISTING OR
ACCRUED AS OF THE DATE OF THIS AGREEMENT.
6. Notwithstanding the execution of this Agreement, Borrowers shall be
jointly and severally liable for the payment and performance of their present
and future obligations under the Loan Documents and all of their present and
future obligations to Lender under the Loan Documents and otherwise shall
continue to be secured by all of Borrowers' present and future personal and
real property and other rights and assets of any kind (collectively "Lender
Collateral") including, but not limited to, all of Borrowers' present and
future accounts, chattel paper, contract rights, documents, equipment,
fixtures, general intangibles, goods, instruments, inventory, minerals and the
like, and the proceeds and products thereof.
7. Borrowers, jointly and severally, hereby represent, warrant to and
covenant with that Lender's liens, security interests, encumbrances and claims
against the Lender Collateral shall continue to be prior and superior to any
other liens, security interests, encumbrances or claims of any kind except for
those specifically provided otherwise in the Loan Documents.
8. Borrowers, jointly and severally, shall pay Lender a fee of
$5,000.00 upon the execution of this Agreement. In addition, Borrowers, jointly
and severally, shall pay all of Lender' attorneys' fees and other expenses
incurred in connection with the negotiation, drafting or execution of this
Agreement. The amounts described in this paragraph shall be in addition to, and
not in lieu of, the interest, fees and other charges owing under the Loan
Documents.
9. The Loan Documents shall remain in full force and effect except as
amended by this Agreement.
10. This Agreement and the various documents described herein represent
the complete and integrated understanding between the parties pertaining to the
subject matter hereof. All prior and contemporaneous understandings and
agreements, written or oral, express or implied, shall be of no further force
and effect to the extent inconsistent herewith.
BORROWER: LENDER:
PORTFIELD INVESTMENTS, INC. NATIONAL CANADA FINANCE CORP.
By: By:
---------------------------- ------------------------------
Title: Vice President
Title:
-------------------------
By:
------------------------------
Title: Vice President
- 3 -
<PAGE> 56
WESCOURT GROUP, INC.
By:
---------------------------
Title:
------------------------
WESCOURT DISTRIBUTING, INC.
By:
---------------------------
Title:
------------------------
WESFRAC, INC.
By:
---------------------------
Title:
------------------------
WESTEC DENVER, INC.
By:
---------------------------
Title:
------------------------
PETRO-MARK CORP. UTAH
By:
---------------------------
Title:
------------------------
PETRO-MARK CORP.
By:
---------------------------
Title:
------------------------
PETRO-MARK CORP., MONTROSE, INC.
By:
---------------------------
Title:
------------------------
- 4 -
<PAGE> 57
WESTEC FRUITA, INC.
By:
---------------------------
Title:
------------------------
MONTROSE PROPANE, INC.
By:
---------------------------
Title:
------------------------
GRAND MESA TEXACO, INC.
By:
---------------------------
Title:
------------------------
FRUITA RP HOLDING, INC.
By:
---------------------------
Title:
------------------------
MESA ENVIRONMENTAL, INC.
fka WESCOURT ENVIRONMENTAL, INC.
By:
---------------------------
Title:
------------------------
FRUITA INVESTMENTS, INC.
By:
---------------------------
Title:
------------------------
- 5 -
<PAGE> 58
EXHIBIT A
- 6 -
<PAGE> 59
THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT AND RELATED
DOCUMENTS
This Third Amendment to Loan and Security Agreement and Related
Documents ("Agreement") is executed by Portfield Investments, Inc., a Colorado
corporation, Wescourt Group, Inc., a Delaware corporation, Wescourt
Distributing, Inc., a Colorado corporation, Wesfrac, Inc., a Colorado
corporation, Westec Denver, Inc., a Colorado corporation, Petro-Mark Corp.
Utah, a Colorado corporation, Petro-Mark Corp., a Colorado corporation,
Petro-Mark Corp., Montrose, Inc., a Colorado corporation, Westec Fruita, Inc.,
a Delaware corporation, Montrose Propane, Inc., a Colorado corporation, Grand
Mesa Texaco, Inc., a Colorado corporation, and Fruita RP Holding, Inc, a
Delaware corporation, all with an address at 1493 Highway 6 and 50, Fruita,
Colorado 81521 (collectively "Borrowers") and National Canada Finance Corp., a
Delaware corporation ("Lender") with an address at 1200 17th Street, Suite
2760, Denver, Colorado 80202 for valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, on this day of November, 1996.
Hereinafter, each of the Borrowers may be referred to singularly as a
"Borrower."
RECITALS
A. Borrowers, Mesa Environmental, Inc. fka Wescourt Environmental,
Inc., a Colorado corporation ("MEI"), Fruita Investments, Inc., a Colorado
corporation ("FII"), and Fruita Marketing & Management, Inc., a Delaware
corporation (FMMI"), executed and delivered to Lender a Loan and Security
Agreement ("Loan and Security Agreement") and various related documents and a
First Amendment to Loan and Security Agreement and Related Documents on or
about October 6, 1995 and a Second Amendment to Loan and Security Agreement and
Related Documents on or about August 23, 1996. Hereinafter, the foregoing
documents, any related loan documents, and any amendments, modifications,
replacements or substitutions to any of the foregoing shall be referred to
collectively as the "Loan Documents."
B. Subject to the terms and conditions set forth in the Loan Documents,
MEI, FII, and FMMI have been released from their obligations to Lender
thereunder.
C. Borrowers have defaulted upon their obligations to Lender under
Section 12(x) of the Loan and Security Agreement by failing to maintain the
ratio set forth therein prior to the quarter ending on May 31, 1996.
D. The outstanding principal balance on Borrowers' obligations to
Lender under the Loan Documents amounted to approximately $7,040,463.93 of
November 18, 1996 and interest and expenses are accruing thereon as set forth
in the Loan Documents.
- 1 -
<PAGE> 60
E. Borrowers and Lender wish to amend the Loan Documents, waive the
default described in Recital D, and resolve various other issues as set forth
in this Agreement.
AGREEMENTS
1. Borrowers hereby acknowledge and reaffirm the truth and accuracy
of all of the foregoing Recitals and the representations and other statements
contained in the Loan Documents as of the date of this Agreement.
2. Lender shall waive the default described in Recital D of this
Agreement.
3. Section 12(x) of the Loan and Security Agreement shall be amended to
read:
(x) Borrowers shall not permit their ratio of cumulative net income
(exclusive of any extraordinary income, non-operating gains,
loss carryforwards, or gains due to changes in accounting) plus
depreciation and amortization for the four (4) most recent
fiscal quarters to the sum of the current maturities of
Borrowers' long-term indebtedness (including, but not limited
to, the current portion of any terms loan owing to Lender) for
the applicable period (all of the foregoing determined in
accordance with generally accepted accounting principles) to be
less than 1.25:1.0 at the end of each fiscal quarter ending on
and after May 31, 1996 during the term of this Agreement.
Borrowers shall provide Lender with a written report of the
ratio described in this subsection (x) on a quarterly basis
during the term of this Agreement. Such report shall be in a
form acceptable to Lender acting in good faith.
4. Borrowers, jointly and severally, represent and warrant to Lender
that they have not defaulted upon any of their respective obligations under the
Loan Documents (except for the default described in Recital C which has been
waived by Lender).
5. BORROWERS HEREBY WAIVE AND FOREVER DISCHARGE LENDER AND ITS
SHAREHOLDERS, DIRECTORS, OFFICERS, EMPLOYEES, AND AGENTS FROM ALL KNOWN AND
UNKNOWN, ABSOLUTE AND CONTINGENT, CLAIMS, DEFENSES, SETOFFS, COUNTERCLAIMS,
CAUSES OF ACTION, ACTIONS, SUITS OR OTHER LEGAL PROCEEDINGS OF ANY KIND
EXISTING OR ACCRUED AS OF THE DATE OF THIS AGREEMENT.
6. Notwithstanding the execution of this Agreement, Borrowers shall be
jointly and severally liable for the payment and performance of their present
and future obligations under the Loan Documents and all of their present and
future obligations to Lender
- 2 -
<PAGE> 61
under the Loan Documents and otherwise shall continue to be secured by all of
Borrowers' present and future personal and real property and other rights and
assets of any kind (collectively "Lender Collateral") including, but not
limited to, all of Borrowers' present and future accounts, chattel paper,
contract rights, documents, equipment, fixtures, general intangibles, goods,
instruments, inventory, minerals and the like, and the proceeds and products
thereof.
7. Borrowers, jointly and severally, hereby represent, warrant to and
covenant with that Lender's liens, security interests, encumbrances and claims
against the Lender Collateral shall continue to be prior and superior to any
other liens, security interests, encumbrances or claims of any kind except for
those specifically provided otherwise in the Loan Documents.
8. Borrowers, jointly and severally, shall pay all of Lender'
attorneys' fees and other expenses incurred in connection with the negotiation,
drafting or execution of this Agreement. The amounts described in this
paragraph shall be in addition to, and not in lieu of, the interest, fees and
other charges owing under the Loan Documents.
9. The Loan Documents shall remain in full force and effect except as
amended by this Agreement.
10. This Agreement and the various documents described herein
represent the complete and integrated understanding between the parties
pertaining to the subject matter hereof. All prior and contemporaneous
understandings and agreements, written or oral, express or implied, shall be of
no further force and effect to the extent inconsistent herewith.
BORROWER: LENDER:
PORTFIELD INVESTMENTS, INC. NATIONAL CANADA FINANCE CORP.
By: By:
---------------------------- --------------------------------
William N. Tsiouvaras
Title: Title: Vice President
-------------------------
By:
------------------------------
Andrew M. Conneen, Jr.
Title: Vice President
WESCOURT GROUP, INC.
By:
----------------------------
Title:
-------------------------
- 3 -
<PAGE> 62
WESCOURT DISTRIBUTING, INC.
By:
----------------------------
Title:
-------------------------
WESFRAC, INC.
By:
----------------------------
Title:
-------------------------
WESTEC DENVER, INC.
By:
----------------------------
Title:
-------------------------
PETRO-MARK CORP. UTAH
By:
----------------------------
Title:
-------------------------
PETRO-MARK CORP.
By:
----------------------------
Title:
-------------------------
PETRO-MARK CORP., MONTROSE, INC.
By:
----------------------------
Title:
-------------------------
WESTEC FRUITA, INC.
By:
----------------------------
Title:
-------------------------
MONTROSE PROPANE, INC.
By:
----------------------------
Title:
-------------------------
GRAND MESA TEXACO, INC.
By:
----------------------------
Title:
-------------------------
FRUITA RP HOLDING, INC.
By:
----------------------------
Title:
-------------------------
- 4 -
<PAGE> 63
FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
AND RELATED DOCUMENTS
This Fourth Amendment to Loan and Security Agreement and Related
Documents ("Fourth Amendment") is executed by Portfield Investments, Inc., a
Colorado corporation ("Portfield"), Wescourt Group, Inc., a Delaware
corporation ("Wescourt"), Wescourt Distributing, Inc., a Colorado corporation,
Wesfrac, Inc., a Colorado corporation ("Wesfrac"), Westec Denver, Inc., a
Colorado corporation, Petro-Mark Corp. Utah, a Colorado corporation, Petro-Mark
Corp., a Colorado corporation, Petro-Mark Corp., Montrose, Inc., a Colorado
corporation ("Petro-Mark Montrose"), Westec Fruita, Inc., a Delaware
corporation ("Westec Fruita"), Montrose Propane, Inc. a Colorado corporation,
Grand Mesa Texaco, Inc., a Colorado corporation, and Fruita RP Holding, Inc., a
Delaware corporation, all with an address at 1493 Highway 6 and 50, Fruita,
Colorado 81521 (collectively "Borrowers"), Petro-Mark Convenience Stores, Inc.,
a Colorado corporation, with an address at 1493 Highway 6 and 50, Fruita,
Colorado 81521 ("PMCS"), and National Canada Finance Corp. with an address at
1200 17th Street, Suite 2760, Denver, Colorado 80202 ("NCFC"), for valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, on
this 12th day of March, 1997. Hereinafter, each of Borrowers may be referred
to singularly as a "Borrower."
RECITALS
A. Borrowers, Mesa Environmental, Inc. fka Wescourt
Environmental, Inc., a Colorado corporation ("MEI"), Fruita Investments, Inc.,
a Colorado corporation ("FII") and Fruita Marketing & Management, Inc., a
Delaware corporation ("FMMI") executed and delivered to NCFC a Loan and
Security Agreement and various other loan documents on or about October 6,
1995. Such documents have been amended by that First Amendment to Loan and
Security Agreement and Related Documents dated October 6, 1995, Second
Amendment to Loan and Security Agreement dated August 23, 1996, Third Amendment
to Loan and Security Agreement dated November 18, 1996 and various related
documents. Hereinafter, the Loan and Security Agreement and any amendments,
modifications, replacements and substitutions thereto may be referred to
collectively as the "NCFC Loan Agreement" and all of the documents described in
this paragraph, any related documents, instruments and agreements, and any
amendments, modifications, replacements and substitutions to any of the
foregoing may be referred to collectively as the "NCFC Loan Documents".
B. All capitalized terms not otherwise defined herein shall have
the meanings ascribed to such terms in the NCFC Loan Agreement.
C. Subject to the terms and conditions set forth in the NCFC Loan
Documents, MEI, FII, and FMMI have been released from their obligations to NCFC
thereunder.
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D. Borrowers and PMCS wish the following actions to be taken by
the parties described below:
(i) PMCS shall become a "Borrower" (as such term is defined
in the NCFC Loan Agreement) under the NCFC Loan Agreement and be
entitled to the rights and subject to the obligations of a "Borrower"
that are contained in the NCFC Loan Documents. Without limiting the
foregoing: (a) NCFC may make Loans and provide Letters of Credit to
or for the benefit of PMCS based upon the terms and conditions set
forth in the NCFC Loan Documents, (b) the other Borrowers, jointly
and severally, shall absolutely and unconditionally guaranty and
secure all of PMCS' Liabilities to NCFC and any Affiliate of NCFC with
all of their Collateral (except for the Petro-Mark Montrose and Westec
Fruita assets and Wesfrac Stock constituting a portion of the Heller
Collateral as defined below); and (c) PMCS shall absolutely and
unconditionally guaranty and secure all of the other Borrower's
Liabilities to NCFC and any Affiliate of NCFC with all of its
Collateral (except for the Heller Collateral);
(ii) In consideration for the Petro-Mark Montrose and Westec
Fruita Notes, Petro-Mark Montrose and Westec Fruita shall sell PMCS
the Petro-Mark Montrose and Westec Fruita Stores (as defined below) in
accordance with the Petro-Mark Montrose and Westec Fruita Purchase
Agreements (as defined below);
(iii) In consideration for the payment of $10,000,000.00,
Diamond Shamrock (as defined below) shall sell PMCS the Diamond
Shamrock Stores (as defined below) in accordance with the Diamond
Shamrock Purchase Agreement (as defined below);
(iv) Heller shall provide PMCS with the Heller Loan (as
defined below). Subject to the terms and conditions set forth in the
Intercreditor Agreement (as defined below), Portfield, Wescourt and
Wesfrac shall guarantee the payment and performance of PMCS'
obligations under the Heller Loan and PMCS, Wescourt and Wesfrac shall
provide Heller with a first priority security interest in: (a) certain
PMCS personal property assets described on EXHIBIT A attached hereto
and incorporated herein by this reference; (b) certain PMCS real
property and real property interests pertaining to the real property
located at the addresses set forth on EXHIBIT B attached hereto and
incorporated herein by this reference; (c) the Wesfrac Stock
constituting a portion of the Heller Collateral (as defined below);
and (d) a second priority security interest in the Fractionator (as
defined below);
(v) Morgan (as defined below) shall provide Portfield
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with the Morgan Loan (as defined below). WLD (as defined below) shall
guarantee the payment and performance of Portfield's obligations to
Morgan under the Morgan Loan. Portfield and Wescourt shall indemnify
WLD for any damages suffered by WLD with respect to the Morgan Loan
and Portfield shall secure its indemnity with a pledge of the
Portfield Note (as defined below) and an assignment of Portfield's
second priority security interest in the PMCS assets constituting a
portion of Heller's Collateral. Such indemnification agreements and
related pledges and assignments shall not be assigned, conveyed, sold,
transferred or encumbered by or to Morgan without NCFC's prior written
consent.
(vi) Portfield shall provide PMCS with the Portfield Loan
(as defined below) for the purchase of the Diamond Shamrock Stores.
Wescourt shall guarantee the payment and performance of PMCS'
obligations under the Portfield Loan and PMCS shall provide Portfield
with a second priority security interest in the PMCS assets
constituting a portion of the Heller Collateral.
E. The outstanding principal balance on Borrowers' and PMCS'
obligations to NCFC under the NCFC Loan Documents amounted to approximately
$6,520,568.91 of March 7, 1997 and interest and expenses are accruing thereon
as set forth in the NCFC Loan Documents.
F. Borrowers, PMCS and NCFC wish to amend certain terms and
conditions set forth in the NCFC Loan Documents to amend certain provisions
contained in the NCFC Loan Documents as set forth in this Fourth Amendment.
AGREEMENTS
1. The NCFC Loan Agreement and the other NCFC Loan Documents are
hereby amended as follows:
(a) PMCS is hereby added as an additional Borrower under
the NCFC Loan Agreement and all references to "Borrower" or
"Borrowers" shall mean Borrowers and PMCS, jointly and severally, in
all respects;
(b) All references to "Borrower" or "Borrowers" in the
Guaranties executed by the Borrowers and constituting a portion of the
NCFC Loan Documents shall mean Borrowers and PMCS, jointly and
severally, in all respects;
(c) All references to "Borrower" or "Borrowers" in the
Third Party Security Agreements executed by the Borrowers and
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constituting a portion of the NCFC Loan Documents shall mean Borrowers
and PMCS, jointly and severally, in all respects;
(d) All notices to Borrower, PMCS or NCFC under the Loan
Agreement and other Loan Documents shall be sent to the following
addresses and telecopy numbers for such parties:
If to any Borrower or PMCS:
1493 Highway 6 and 50
Fruita, Colorado 81521
Attn: Keith Holder
Telecopy: (970) 858-9626
If to NCFC:
1200 17th Street, Suite 2760
Denver, Colorado 80202
Attn: William N. Tsiouvaras
Telecopy: (303) 446-8787
(e) PMCS shall absolutely and unconditionally guarantee
the payment and performance of each Borrower's joint and several
obligations to NCFC under the NCFC Loan Documents upon the execution
of this Agreement. Such guaranty shall be in form and substance
acceptable to NCFC in its sole discretion;
(f) PMCS shall grant NCFC a first priority security
interest in its Collateral (except for the Heller Collateral excluding
the Fractionator) to secure the payment and performance of the
Borrower's and PMCS' joint and several obligations to NCFC under the
NCFC Loan Documents upon the execution of this Agreement. The
security agreements, financing statements, and other loan documents
executed by PMCS shall be in form and substance acceptable to NCFC in
its sole discretion;
(g) NCFC hereby releases all of its liens and security
interests in (i) the Heller Collateral excluding the Fractionator,
(ii) the Portfield Note and (iii) the Petro-Mark Montrose and Westec
Fruita Notes;
(h) PMCS and Borrowers shall provide and cause NCFC to be
provided with an Intercreditor and Subordination Agreement
("Intercreditor Agreement") upon the execution of this Fourth
Amendment. Such Intercreditor Agreement shall be in form and
substance and from such parties as are acceptable to NCFC in its sole
discretion;
(i) PMCS and Borrowers shall cause NCFC to be provided
with the Morgan Estoppel Letter (as defined below) prior to or
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upon the execution of this Fourth Amendment. (A faxed copy of such
letter has been provided to NCFC prior to the date hereof);
(j) PMCS and Borrowers shall provide NCFC with landlord
waivers for all of PMCS' leased premises [or permit NCFC to reserve
six (6) months' rent for each location that is not covered by a
landlord waiver] within twenty (20) days from the date of this Fourth
Amendment. Such landlord waivers shall be in form and substance
acceptable to NCFC in its sole discretion; and
(k) PMCS and Borrowers acknowledge and agree to comply
with and be bound by all of the terms and conditions of the NCFC Loan
Documents (including, but not limited to, the Intercreditor Agreement,
this Fourth Amendment, and any related documents) upon the execution
of this Fourth Amendment.
2. SECTION 1 of the NCFC Loan Agreement is hereby amended by
adding the following definitions:
"Convenience Stores" shall mean collectively the Diamond
Shamrock Stores and the Petro-Mark Montrose and Westec Fruita Stores
located at the addresses described in EXHIBIT B to the Fourth
Amendment.
"Diamond Shamrock" shall mean Diamond Shamrock Refining and
Marketing Company.
"Diamond Shamrock Purchase Agreement" shall mean the Asset
Purchase and Branding Agreement between Diamond Shamrock and Wescourt
dated October 29, 1996 as amended by the First Amendment to Asset
Purchase and Branding Agreement dated December 17, 1996, Second
Amendment to Asset Purchase and Branding Agreement dated as of January
27, 1997 and the Third Amendment to Asset Purchase and Branding
Agreement dated as of March 5, 1997, the letter agreement between
Diamond Shamrock, Wescourt and PMCS dated February 20, 1997, and the
Assumption and Amendment Agreement between Diamond Shamrock, Wescourt
and PMCS dated March 4, 1997.
"Diamond Shamrock Stores" shall mean the convenience stores
and related assets sold by Diamond Shamrock to PMCS and located at the
addresses described in EXHIBIT B to the Fourth Amendment.
"Fourth Amendment" shall mean the Fourth Amendment to Loan and
Security Agreement and Related Documents dated March 12, 1997 by and
among Borrowers and Lender.
"Fractionator" shall mean the equipment described in
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EXHIBIT C to the Fourth Amendment, all modifications, replacements and
substitutions thereto, and all identifiable cash proceeds of any of
the foregoing.
"Heller" shall mean Heller Financial, Inc.
"Heller Loan" shall mean the term loan in the original
principal amount of $8,000,000.00 from Heller to PMCS and evidenced by
the Heller Loan Documents.
"Heller Loan Documents" shall mean the Term Loan and Security
Agreement, Guaranties from Portfield, Wescourt and Wesfrac, Security
Agreements from Wescourt and Wesfrac, financing statements from PMCS,
Wescourt and Wesfrac, Deeds of Trust and Leasehold Deeds of Trust from
PMCS, and related documents dated on or about the date hereof.
"Heller Collateral" shall mean the Wesfrac Stock, the
Fractionator, and all of PMCS' personal property described on EXHIBIT
A to the Fourth Amendment and PMCS' real property and real property
interests pertaining to the real property located at the addresses
described on EXHIBIT B to the Fourth Amendment.
"Morgan" shall mean Morgan Guaranty Trust Company of New York.
"Morgan Estoppel Letter" shall mean the estoppel letter from
Morgan to Lender dated on or about March 5, 1997.
"Morgan Loan" shall mean the demand loan in the original
principal amount of up to $4,500,000.00 from Morgan to Portfield and
evidenced by the Morgan Loan Documents.
"Morgan Loan Documents" shall mean the Morgan Demand Note,
Guaranties from WLD, Morgan Estoppel Letter, the indemnifications of
Wescourt and Portfield to WLD for any damages suffered by WLD with
respect to the Morgan Loan, and related documents dated on or about
the date hereof.
"Petro-Mark Montrose" shall mean Petro-Mark Corp., Montrose,
Inc., a Colorado corporation.
"Petro-Mark Montrose and Westec Fruita Stores" shall mean the
convenience stores and related assets sold by Petro-Mark Montrose and
Westec Fruita to PMCS and located at the addresses described in
EXHIBIT B attached hereto.
"Petro-Mark Montrose and Westec Fruita Notes" shall mean the
subordinated unsecured promissory notes issued by PMCS in favor of
Petro-Mark Montrose and Westec Fruita in the original
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principal amounts of $716,438.78 and $485,925.82, respectively, for
the purchase of the Petro-Mark Montrose and Westec Fruita Stores.
"Petro-Mark Montrose and Westec Fruita Purchase Agreements"
shall mean the Asset Sale and Purchase Agreements between PMCS and
Petro-Mark Montrose and Westec Fruita, respectively, dated January 31,
1997;
"PMCS" shall mean Petro-Mark Convenience Stores, Inc., a
Colorado corporation.
"Portfield Loan" shall mean the term loan in the original
principal amount of $2,500,000.00 from Portfield to PMCS and evidenced
by the Portfield Loan Documents.
"Portfield Loan Documents" shall mean the Portfield Note,
security agreement, financing statements, and deeds of trust from
PMCS, guaranty from Wescourt, and related documents dated on or about
the date hereof.
"Portfield Note" shall mean the promissory note issued by PMCS
in favor of Portfield in the original principal amount of
$2,500,000.00 and dated on or about the date hereof.
"Wescourt" shall mean Wescourt Group, Inc., a Delaware
corporation.
"Wesfrac Stock" shall mean all of Wesfrac's issued and
outstanding stock at any time and all distributions thereon. (Nothing
contained herein shall constitute Lender's authorization for Wesfrac
to declare and/or issue any distributions on the Wesfrac stock that
are not permitted under the terms and conditions set forth in this
Agreement.
"Westec Fruita" shall mean Westec Fruita, Inc., a Delaware
corporation.
"WLD" shall mean the WLD Trust, an Ohio testamentary trust.
3. The following definitions set forth in SECTION 1 of the NCFC Loan
Agreement are hereby amended to read as follows:
"Collateral" shall mean all of the property of Borrowers
described in SECTION 5 hereof, together with all other real or
personal property of Borrowers now or hereafter pledged to Lender to
secure repayment of any of the Liabilities, including without
limitation all Accounts, Inventory, General Intangibles and Equipment
of Borrowers. Notwithstanding the foregoing, the term Collateral
shall not include the Heller Collateral.
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"Eligible Acquired Equipment" shall mean Equipment of any
Borrower acquired as part of the acquisition of the assets of another
business after the date of this Agreement which Lender, in good faith,
determines to be eligible. Without limiting the foregoing, unless
otherwise agreed by Lender, the following Equipment of any Borrower is
not Eligible Acquired Equipment: (i) Equipment which is not in good
condition; (ii) Equipment which is obsolete; (iii) New Equipment which
Lender determines, in good faith, to be unacceptable due to age, type,
category and/or quantity; (iv) Equipment with respect to which Lender
does not have a first and valid fully perfected security interest; (v)
Equipment which may constitute fixtures under applicable law; (vi)
Equipment which is stored with or located on the premises of a bailee,
consignee, warehouseman, processor or other third party; or (vii) any
Equipment constituting any portion of the Heller Collateral.
"Eligible Existing Equipment" shall mean Equipment of any
Borrower existing as of the date of this Agreement which Lender, in
good faith, determines to be eligible. Without limiting the
foregoing, unless otherwise agreed by Lender, the following Equipment
of any Borrower is not Eligible Existing Equipment: (i) Equipment
which is not in good condition; (ii) Equipment which is obsolete;
(iii) Equipment which Lender determines, in good faith, to be
unacceptable due to age, type, category and/or quantity; (iv)
Equipment with respect to which Lender does not have a first and valid
fully perfected security interest; (v) Equipment which may constitute
fixtures under applicable law; (vi) Equipment which is stored with or
located on the premises of a bailee, consignee, warehouseman,
processor or other third party; or (vii) any Equipment constituting
any portion of the Heller Collateral.
"Eligible Purchased Equipment" shall mean Equipment of any
Borrower purchased after the date of this Agreement which Lender, in
good faith, determines to be eligible. Without limiting the
foregoing, unless otherwise agreed by Lender, the following Equipment
of any Borrower is not Eligible Purchased Equipment: (i) Equipment
which is not in good condition; (ii) Equipment which is obsolete;
(iii) Equipment which Lender determines, in good faith, to be
unacceptable due to age, type, category and/or quantity; (iv)
Equipment with respect to which Lender does not have a first and valid
fully perfected security interest; (v) Equipment which may constitute
fixtures under applicable law; (vi) Equipment which is stored with or
located on the premises of a bailee, consignee, warehouseman,
processor or other third party; or (vii) any Equipment constituting
any portion of the Heller Collateral.
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4. SECTION 11(f) of the NCFC Loan Agreement is hereby amended to
read as follows:
(f) Each Borrower is and shall at all times be the lawful
owners of the property now purportedly owned or hereafter purportedly
acquired by such Borrower, free from all liens, claims, security
interests and encumbrances whatsoever, whether voluntarily or
involuntarily created and whether or not perfected, other than the
Permitted Liens. Notwithstanding the foregoing, Petro-Mark Montrose
and Westec Fruita shall be entitled to sell to PMCS the Petro-Mark
Montrose and Westec Fruita Stores under the terms and conditions set
forth in the Petro-Mark Montrose and Westec Fruita Purchase
Agreements.
5. SECTION 11(k) of the NCFC Loan Agreement is hereby amended to
read as follows:
(k) No Borrower is conducting, permitting or suffering to be
conducted, nor shall it conduct, permit or suffer to be conducted, any
activities or transactions with any Affiliate of any Borrower;
provided, however, that any Borrower may enter into transactions with
Affiliates of any Borrower in the ordinary course of business pursuant
to terms that are no less favorable to such Borrower than the terms
upon which such transfers or transactions would have been made had
they been made to or with a Person that is not an Affiliate of any
Borrower and, in connection therewith, may transfer cash or property
to Affiliates of any Borrower for fair value. Notwithstanding the
foregoing: (i) Petro-Mark Montrose and Westec Fruita may sell PMCS the
Petro- Mark Montrose and Westec Fruita Stores under the terms and
conditions set forth in the Petro-Mark Montrose and Westec Fruita
Purchase Agreements; (ii) PMCS may execute and deliver to Petro-Mark
Montrose and Westec Fruita the Petro-Mark Montrose and Westec Fruita
Notes in connection with PMCS' purchase of the Petro-Mark Montrose and
Westec Fruita Stores; (iii) Portfield may provide PMCS with the
Portfield Loan; (iv) PMCS and Wescourt may execute and deliver to
Portfield the Portfield Loan Documents; (v) PMCS may issue the
Portfield Note to Portfield; (vi) Portfield may provide an
indemnification to WLD for any damages suffered by WLD with respect to
the Morgan Loan and secure such indemnification with a pledge of the
Portfield Loan Documents (Lender recognizes that WLD may possess a
power of attorney for certain rights belonging to Portfield in its
collateral and, upon the foreclosure of Portfield's pledge to WLD of
the Portfield Loan Documents, WLD shall be the owner of such Loan
Documents and related rights in the PMCS assets constituting a portion
of the Heller Collateral); and (vii) Wescourt may provide an
indemnification to WLD for any damages suffered by WLD with respect to
the Morgan Loan.
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6. SECTION 11(p) of the NCFC Loan Agreement is hereby amended to
read as follows:
(p) Except as noted in SECTION 12(K) of this Agreement,
no Borrower is now obligated, nor shall it create, incur, assume or
become obligated (directly or indirectly), for any loans or other
indebtedness for borrowed money other than the Loans, except that such
Borrower may: (i) borrow money from a Person other than Lender on an
unsecured and subordinated basis if a subordination agreement in favor
of Lender and in form and substance satisfactory to Lender is executed
and delivered to Lender relative thereto; (ii) maintain any present
indebtedness to any Person and incur the other indebtedness which is
set forth on EXHIBIT D; (iii) incur unsecured indebtedness to trade
creditors in the ordinary course of such Borrower's business; and (iv)
acquire the assets of another company and obtain an unsecured loan or
a loan secured solely by the acquired real property and the cash
proceeds thereof from the seller of such assets so long as no Event of
Default has occurred or would be caused by such action, Lender is
provided with at least thirty (30) days' prior written notice of such
acquisition and a valid, enforceable, perfected, and sole lien,
security interest and encumbrance upon the acquired assets (except for
the acquired real property and the cash proceeds thereof), and a
subordination or intercreditor agreement in favor of Lender and in
form and substance satisfactory to Lender is executed and delivered to
Lender by the seller of such assets.
7. SECTION 12(k) of the NCFC Loan Agreement is hereby amended to
read as follows:
(k) No Borrower shall assume, guarantee or endorse, or
otherwise become liable in connection with, the obligations of any
Person, except: (i) by endorsement of instruments for deposit or
collection or similar transactions in the ordinary course of business,
and (ii) for guarantees of Affiliate obligations consented to by
Lender which consent shall be granted or denied by Lender acting in
good faith. Notwithstanding the foregoing, Lender consents to (A)
Portfield's, Wescourt's and Wesfrac's execution and delivery of the
guaranties constituting a portion of the Heller Loan Documents; (B)
Wescourt's execution and delivery of the guaranty constituting a
portion of the Portfield Loan Documents; (C) Portfield's guaranty of
PMCS's obligations under the Diamond Shamrock Purchase Agreement; (D)
the guaranties for the benefit of Lender pursuant to this Agreement
and the other Loan Documents; (E) Portfield's and Wescourt's
indemnifications to WLD for any damages suffered by WLD with respect
to the Morgan Loan; (F) Wescourt's and PMCS'
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indemnifications to Diamond Shamrock contained in the Diamond Shamrock
Purchase Agreement; and (G) the liens and security interests described
in Section 13 of this Agreement.
8. SECTION 12(l) of the NCFC Loan Agreement is hereby amended to
read as follows:
(l) Except for The Coastal Corporation's acquisition of up to
fifty percent (50%) of Westec Denver, Inc. stock and the acquisition
of assets permitted in SECTION 11(P) of this Agreement, no Borrower
shall permit any change in its ownership or control or engage in any
merger or acquisition without obtaining the prior written consent of
Lender which consent may be withheld by Lender acting in good faith.
Notwithstanding the foregoing, Lender hereby consents to: (i)
Petro-Mark Montrose's and Westec Fruita's sale to PMCS of the Petro-
Mark Montrose and Westec Fruita Stores; and (ii) PMCS's acquisition of
the Convenience Stores.
9. NCFC waives SECTION 12(o) of the NCFC Loan Agreement to the
extent necessary to permit the amendment of Portfield's articles of
incorporation of Portfield as set forth in EXHIBIT D attached hereto and
incorporated herein by this reference.
10. SECTION 13(l) of the NCFC Loan Agreement is hereby amended by
deleting the word "or" at the end of that subsection.
11. SECTION 13(m) of the NCFC Loan Agreement is hereby amended by
deleting the period at the end of that subsection and substituting a semicolon
in lieu of such period.
12. SECTION 13 of the NCFC Loan Agreement is hereby amended by
adding new SECTIONS 13(n), (o), (p) and (q) which shall read as follows:
(n) Borrowers fail to provide Lender with access to
accurate and complete copies of all of the existing Diamond Shamrock
Purchase Agreement and related documents, Petro-Mark Montrose and
Westec Fruita Purchase Agreement and related documents, Petro-Mark
Montrose and Westec Fruita Notes, Portfield Loan Documents (and
related WLD loan documents), Heller Loan Documents and Morgan Loan
Documents on or before any modification of this Agreement on or about
March 12, 1997;
(o) Borrowers fail to provide Lender with accurate and
complete copies of all of the existing Diamond Shamrock Purchase
Agreement and related documents, Petro-Mark Montrose and Westec Fruita
Purchase Agreement and related documents, Petro-Mark Montrose and
Westec Fruita Notes, Portfield Loan Documents (and related WLD loan
documents), Heller Loan
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Documents and Morgan Loan Documents within twenty (20) days from any
modification of this Agreement on or about March 12, 1997;
(p) Without limiting any of the other terms and
conditions set forth in this Agreement or the other Loan Documents,
any of the following occurs without the prior written consent of
Lender which may be withheld in Lender's sole discretion: (i) any
Borrower obtains any additional loans or other financial
accommodations from or provides any additional guaranties or
collateral to WLD, Morgan or Heller; or (ii) the Diamond Shamrock
Purchase Agreement and related documents, Petro-Mark Montrose and
Westec Fruita Purchase Agreement and related documents, Petro-Mark
Montrose and Westec Fruita Notes, Portfield Loan Documents (and
related WLD documents), Morgan Loan Documents or Heller Loan Documents
shall be prepaid in whole or in part (except for prepayments required
under the Heller Loan Documents for sales, loss or damage, or
condemnation of or to the Heller Collateral) or shall be amended,
modified, replaced, substituted or supplemented in any way which (A)
increases the amount of any loans or other obligations described
therein, (B) accelerates or increases any payments due thereunder, (C)
increases any interest rate described therein, (D) shortens the
maturity date thereof, or (E) increases, replaces or substitutes any
co-borrowers, accommodation parties, guaranties or collateral
therefor; or
(q) Without limiting any other Event of Default hereunder, a
material event of default shall occur under the Diamond Shamrock
Purchase Agreement and related documents, Petro-Mark Montrose and
Westec Fruita Purchase Agreement and related documents, Petro-Mark
Montrose and Westec Fruita Notes, Portfield Loan Documents (and
related WLD documents), Morgan Loan Documents or Heller Loan Documents
and not be cured or waived within the time periods permitted under
such documents or any lender or seller under such documents seeks to
accelerate its obligations from and/or exercise any post-default or
post-maturity remedies against the other parties under such
documents.
13. EXHIBIT A to the NCFC Loan Agreement (Permitted Liens) is
amended by adding the following provision:
3. the liens and security interests contained in the
Heller Loan Documents and Portfield Loan Documents as permitted or
restricted by this Agreement and any intercreditor agreement executed
by Lender.
14. EXHIBIT B to the NCFC Loan Agreement (Chief Executive Offices,
Other Offices, Places of Business and Post Office Boxes) is
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amended by adding the Other Offices contained at the following addresses:
3218 F. Road
Clifton, CO 81520
101 North Main @ First Street
Delta, CO 81416
2525 Broadway @ Monument Road
Grand Junction, CO 81501
2948 F Road @ 25 Road
Grand Junction, CO 81505
2903 North Avenue @ 29 Road
Grand Junction, CO 81504
201 North Avenue & Second Street
Grand Junction, CO 81504
938 South Townsend Avenue & Brown
Montrose, CO 81401
2902 Glen Avenue
Glenwood Springs, CO 81601
2526 Broadway
Grand Junction, CO 81501
2494 Highway 6 & 50
Grand Junction, CO 81505
502 Grand Avenue
Grand Junction, CO 81502
1502 Howard Street
Delta, CO 81416
646 E. Main
Montrose, CO 81401
15. EXHIBIT C to the NCFC Loan Agreement (Former Corporate
Names/Tradenames) is amended by adding the following tradename for PMCS:
Super Mart
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16. EXHIBIT D to the NCFC Loan Agreement (Permitted Indebtedness)
is amended by adding the following thereto:
4. All of the Indebtedness described in the Diamond
Shamrock Purchase Agreement and related documents, Petro-Mark Montrose
and Westec Fruita Purchase Agreement and related documents, Heller
Loan Documents, Morgan Loan Documents, Petro-Mark Montrose and Westec
Fruita Notes, and Portfield Loan Documents as permitted or restricted
by this Agreement or any intercreditor agreement executed by Lender.
17. EXHIBIT E to the NCFC Loan Agreement is amended by adding PMCS
as a subsidiary of Wescourt and Wescourt as PMCS' sole shareholder.
18. All of the NCFC Loan Documents are amended to incorporate the
same types of changes affecting the NCFC Loan Agreement that are described in
this Fourth Amendment.
19. Borrowers and PMCS hereby acknowledge and reaffirm the truth
and accuracy of all of the Recitals contained in this Fourth Amendment and the
representations and other statements contained in the NCFC Loan Documents
(including the Fourth Amendment) as of the date hereof.
20. Borrowers and PMCS, jointly and severally, hereby represent,
warrant and covenant to NCFC that NCFC's liens, security interests,
encumbrances and claims against the Collateral shall continue to be prior and
superior to any other liens, security interests, encumbrances or claims of any
kind except as otherwise specifically provided for in this Fourth Amendment,
the Intercreditor Agreement and the other NCFC Loan Documents.
21. Borrowers and PMCS, jointly and severally, represent and
warrant to NCFC that they have not defaulted upon any of their respective
obligations under the NCFC Loan Documents. Notwithstanding anything to the
contrary contained herein, NCFC hereby reserves all of its rights and remedies
against Borrowers, PMCS, any third party, or any of their assets for any Event
of
14
<PAGE> 77
Default under the NCFC Loan Documents that may have occurred prior to the date
hereof or may occur on or after the date hereof.
22. BORROWERS AND PMCS HEREBY WAIVE AND FOREVER DISCHARGE NCFC AND
ITS SHAREHOLDERS, DIRECTORS, OFFICERS, EMPLOYEES, AND AGENTS FROM ALL KNOWN AND
UNKNOWN, ABSOLUTE AND CONTINGENT, CLAIMS, DEFENSES, SETOFFS, COUNTERCLAIMS,
CAUSES OF ACTION, ACTIONS, SUITS OR OTHER LEGAL PROCEEDINGS OF ANY KIND
EXISTING OR ACCRUED AS OF THE DATE HEREOF.
23. Borrowers and PMCS shall be jointly and severally liable for
the payment and performance of Borrowers' and PMCS' present and future
indebtedness and obligations under the NCFC Loan Documents and all of
Borrowers' and PMCS' present and future indebtedness and obligations to NCFC
under the NCFC Loan Documents and otherwise shall be secured by all of
Borrowers' and PMCS' present and future personal and real property and other
rights and assets of any kind (other than the Heller Collateral excluding the
Fractionator) including, but not limited to, all of Borrowers' and PMCS'
present and future accounts, chattel paper, contract rights, documents,
equipment, fixtures, general intangibles, goods, instruments, inventory,
minerals and the like, and the proceeds and products thereof (other than the
Heller Collateral excluding the Fractionator, the Portfield Loan Documents and
the Petro-Mark Montrose and Westec Fruita Notes).
24. Borrowers and PMCS, jointly and severally, shall pay all of
NCFC's attorneys' fees and other expenses incurred in connection with the
review, negotiation, drafting and execution of this Fourth Amendment and any
related documents. The amounts described in this paragraph shall be in
addition to, and not in lieu of, the interest, fees and other charges owing
under the NCFC Loan Documents.
25. The NCFC Loan Documents shall remain in full force and effect
except as amended by this Fourth Amendment.
26. This Fourth Amendment, the various documents described herein
(including the Intercreditor Agreement), and any additional documents executed
or obtained by NCFC in connection the foregoing represent the complete and
integrated understanding between the parties pertaining to the subject matter
hereof. All prior and contemporaneous understandings and agreements, written
or oral,
15
<PAGE> 78
express or implied, shall be of no further force and effect to the extent
inconsistent herewith.
27. This Fourth Amendment shall be governed by the laws of the
State of Colorado.
28. This Fourth Amendment may be executed in counterparts and
shall be effective when at least one counterpart hereof shall be executed by
all of the parties hereto.
29. BORROWERS, PMCS AND NCFC HEREBY WAIVE ALL RIGHTS TO TRIAL BY
JURY IN ANY ACTION OR PROCEEDING WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS
FOURTH AMENDMENT, ANY OF THE OTHER LOAN DOCUMENTS, THE LIABILITIES, THE
COLLATERAL, ANY ALLEGED TORTIOUS CONDUCT BY BORROWERS OR NCFC OR WHICH, IN ANY
WAY, DIRECTLY OR INDIRECTLY, ARISES OUT OF OR RELATES TO THE RELATIONSHIP
BETWEEN BORROWERS AND NCFC. IN NO EVENT SHALL NCFC BE LIABLE FOR LOST PROFITS
OR OTHER SPECIAL OR CONSEQUENTIAL DAMAGES.
PORTFIELD INVESTMENTS, INC.
By:
-------------------------------------
Title:
----------------------------------
WESCOURT GROUP, INC.
By:
-------------------------------------
Title:
----------------------------------
WESCOURT DISTRIBUTING, INC.
By:
-------------------------------------
Title:
----------------------------------
16
<PAGE> 79
WESFRAC, INC.
By:
-------------------------------------
Title:
----------------------------------
WESTEC DENVER, INC.
By:
-------------------------------------
Title:
----------------------------------
PETRO-MARK CORP. UTAH
By:
-------------------------------------
Title:
----------------------------------
PETRO-MARK CORP.
By:
-------------------------------------
Title:
----------------------------------
PETRO-MARK CORP., MONTROSE, INC.
By:
-------------------------------------
Title:
----------------------------------
17
<PAGE> 80
WESTEC FRUITA, INC.
By:
-------------------------------------
Title:
----------------------------------
MONTROSE PROPANE, INC.
By:
-------------------------------------
Title:
----------------------------------
GRAND MESA TEXACO, INC.
By:
-------------------------------------
Title:
----------------------------------
FRUITA RP HOLDING, INC.
By:
-------------------------------------
Title:
----------------------------------
PETRO-MARK CONVENIENCE STORES, INC.
By:
-------------------------------------
Title:
----------------------------------
NATIONAL CANADA FINANCE CORP.
By:
-------------------------------------
Title:
----------------------------------
By:
-------------------------------------
Title:
----------------------------------
18
<PAGE> 81
EXHIBIT A
PERSONAL PROPERTY
1) That certain Asset Purchase and Branding Agreement dated
October 29, 1996 between Diamond Shamrock and Wescourt, as amended from time to
time in accordance with the terms thereof, which agreement has been assigned to
PMCS, subject to the terms of that certain Assignment of Representations,
Warranties, Covenants, Indemnities and Rights (the "Acquisition Assignment
Agreement") between PMCS and Heller; provided, that notwithstanding anything
herein to the contrary, the foregoing shall not include the terms and
conditions of such agreement which pertain to PMCS's inventory or accounts or
proceeds therefrom;
2) All equipment, machinery, furniture, furnishings and fixtures
owned or leased by PMCS located on, or used in the operation of a convenience
store business at the addresses on Exhibit "B", including, without limitation,
the convenience store, together with all furniture, fixtures, equipment in the
convenience store, any and all lighting (including without limitation any and
all lighting fixtures, lighting pedestals, and flood lights), removable signage
of all varieties (to the extent owned and not leased, except as provided in the
Acquisition Assignment Agreement), sprinkler controls, sprinkler solenoids,
sprinkler heads, exterior menu boards and exterior intercom ordering systems,
exterior music speakers and pedestals, and any and all personal property of any
kind or nature contained in, on, or around and/or associated, in any manner,
with the operation of the convenience store, and all building and construction
materials, supplies and equipment incorporated in the convenience store and all
machinery, appliances, pipes, conduits, generators, engines, pumps, motors,
compressors, boilers, condensing units, disposals, sprinklers, wiring and
furnishings of every kind and description which may be used in connection with
the operation of and located inside the convenience store; and any and all
gasoline or petroleum equipment for use with gasoline or petroleum products,
utensils, parts and spare parts therefor; all outside removable items and any
and all ice machines, ice cream machines, warmers, refrigerators, freezers,
ovens, and toasters; all security, fire, smoke and other alarm systems; all
cash registers and point-of-sale terminals; all computers (hardware and
software); all in-store communication devices; together with any and all
extensions, additions,
19
<PAGE> 82
improvements, betterments, after-acquired property that constitutes equipment,
machinery, furnishings, and fixtures of the nature described herein, renewals,
replacements and substitutions or proceeds from a voluntary or involuntary
sale, liquidation or conversion of any of the foregoing; and all attachments,
additions and accessions thereto, all whether nor or hereafter existing or
acquired;
3) All of PMCS's existing and after-acquired liquor licenses and
lottery licenses used by PMCS in connection with a convenience store business
at the addresses on Exhibit "B";
4) All agreements affecting the use, enjoyment or occupancy of a
convenience store business at the addresses on Exhibit "B", now or hereafter
entered into (the "LEASES") and the immediate and continuing right to collect
all rents, income, receipts, royalties, profits, issues, service
reimbursements, fees, revenues and prepayments of any of the same from or
related to the convenience store from time to time accruing under the Leases
(the "RENTS");
5) All claims, demands, rights of action, judgments, insurance
proceeds, compensation, awards of damages and settlements due PMCS hereafter
made resulting from the taking of a convenience store business at the addresses
on Exhibit "B", or any part thereof, by any lawful power or authority by
exercise of the rights of condemnation or under the power of eminent domain, or
for any damage (whether caused by such taking, by casualty or otherwise) to the
convenience store or any part thereof;
6) To the extent assignable, all now or hereafter existing
management contracts and all permits, certificates, licenses, approvals,
entitlements and authorizations, however characterized, issued or in any way
furnished for the acquisition, construction, operation and use of a convenience
store business at the addresses on Exhibit "B" and/or leases, including
building permits, environmental certificates, licenses, certificates of
operation, warranties and guaranties;
7) All of PMCS's rights in and to all trademarks, tradenames,
assumed names, and other rights and interests in and to the names and marks
used by PMCS in connection with a convenience store business at the addresses
on Exhibit "B"; and
20
<PAGE> 83
8) Any monies on deposit with or for the benefit of Heller
including deposits for the payment of real estate taxes.
Notwithstanding anything to the contrary herein, the foregoing collateral shall
not include (i) any of PMCS's accounts, inventory, cash (except (A) all
insurance, condemnation and other proceeds of (1) through (7) above and (B)
monies referenced in (8) above to the extent related to real estate owned or
leased by PMCS)) or the proceeds from such accounts, inventory or cash, or (ii)
any assets transferred by Portfield or any of its directly or indirectly owned
subsidiaries to PMCS after March 12, 1997.
21
<PAGE> 84
EXHIBIT B
CONVENIENCE STORES
Diamond Shamrock Stores (identified by location)
3218 F. Road
Clifton, CO 81520
101 North Main @ First Street
Delta, CO 81416
2525 Broadway @ Monument Road
Grand Junction, CO 81501
2948 F Road @ 25 Road
Grand Junction, CO 81505
2903 North Avenue @ 29 Road
Grand Junction, CO 81504
201 North Avenue & Second Street
Grand Junction, CO 81504
938 South Townsend Avenue & Brown
Montrose, CO 81401
2902 Glen Avenue
Glenwood Springs, CO 81601
Petro-Mark Montrose and Westec Fruita Stores
(identified by location)
2526 Broadway
Grand Junction, CO 81501
2494 Highway 6 & 50
Grand Junction, CO 81505
502 Grand Avenue
Grand Junction, CO 81502
1502 Howard Street
Delta, CO 81416
646 E. Main
Montrose, CO 81401
22
<PAGE> 85
EXHIBIT C
FRACTIONATOR
One (1) Deethanizer Tower, Hudson, Mfg., Serial No. 63.9, approx. 30" x
41-1/2', 596 PSI at 300 degrees, Insulated, 11,800 lb.
One (1) Depropanizer Tower, Hudson Mfg., Serial No. 63.10, approx. 30" x 65',
291 PSI at 300 degrees, Insulated, 18,900 lb.
One (1) Debutanizer Tower, Pipeline Services, Serial No. 684, approx. 24" x
60', 330 PSI at 400 degrees, 3-Section Flanged, Estimated 10,000-12,000 lb.
One (1) Debutanizing Tower, Transmix, Mfg. Hudson, Serial No. 63.11 approx. 18"
x 66', 210 PSI at 300 degrees, 11,500 lb.
One (1) Vacuum Tower, BTX, as shown on list, approx. 30" x 45', currently not
in service, estimated weight 10,000
One (1) Deethanizer Heat Exchanger/Reboiler, KEMCO, Mfg. 1963, Serial No.
63-222, 560 PSI at 300 degrees, approx. 175 sq. ft. capacity
One (1) Depropanizer Heat Exchanger/Reboiler, list shows KEMCO, approx. 100 sq.
ft.
One (1) Debutanizer Heat Exchanger/Reboiler, list shows KEMCO, approx. 825 sq.
ft.
One (1) Debutanizer Heat Exchanger/Reboiler, list shows KEMCO, approx. 65 sq.
ft.
Three (3) Absorber Tanks, plate shows SEMCO, Serial Nos. A2638, A2639, A2640,
Vertical Carbon Steel Seam Welded, approx. 72" x 22', 403 PSI at 750 degrees,
Mfg. 1963, storage only
Two (2) Deabsorber Tanks, Regeneration Exchanger, currently not in service,
plate shows SEMCO, approx. 72" x 20', Serial Nos. A2642 and A2641, 430 PSI at
650 degrees
One (1) Cooling Tower, list shows RAINEY, 12,800 sq. ft., 10 H.P., Debutanizer
Condenser
23
<PAGE> 86
One (1) Cooling Tower, list shows 37,400 sq. ft. capacity, two (2) top mounted
30 H.P. electric motors, high degree difficulty of removal,
Deethanizer/Depropanizer Condenser
One (1) Cooling Tower, list shows 11,800 sq. ft., 20 H.P. motor, Debutanizer
Condenser
One (1) Furnace, Struthers Wells Hot Oil Heater, 10M BTU per hour, vertical,
gas fired, 400 PSI at 650 degrees, Serial No. 63-5-7810, with Taylor and Barton
Chart Records, Honeywell Temperature Indicator, related equipment
One (1) Furnace, Struthers Wells Hot Oil Heater, 5M BTU per hour, vertical, gas
fired, 200 PSI at 650 degrees, Serial No. 63-5-7811, currently not in service
[C-]
Lot Transmix System, includes Ingersoll-Rand 2X1X10 Pump, 3 H.P. motor, Hudson
Dust Scrubber with Serial No. 63-22, 495 PSI and 150 degrees, approx. 28.7 5" x
6' Tank, Rainey Cooling Tower with 7-1/2 H.P. motor, 3 H.P. feed pump, etc.
Lot Hot Oil System, includes 25 H.P. Skidded Pump, Young Aftercooler, three (3)
valves, 4' x 8' Expansion Tank, related equipment
One (1) Pre-Heater, five (5) oval tubes, located behind #2 Debutanizer
One (1) Gas Compressor, Worthington, piston type, 130 H.P., list shows 10-1/2"
x 11" - 8 cylinder, located near large cooling tower
Lot Gas Compressor, Sundyne, includes two (2) 125 H.P. vertical turbine pumps,
one (1) currently disassembled, both not in service, [C-]
One (1) Triplex Pump, Wheatly, 30 H.P. motor
One (1) Quintiplex Pump, Wheatley, Model 5P-200A, 20 H.P.
Lot Surge/Scrubber Skid, includes SEMCO approx. 5' x 16' horizontal fuel gas
surge tank, SEMCO approx. 24" x 10' horizontal fuel gas scrubber tank, related
valves, piping, located near Wheatley
24
<PAGE> 87
Triplex and Quintiplex pumps, currently not in service
Lot Reflux Accumulator Skid, includes Hudson approx. 30" x 4-1/2' Tank, related
valves, piping, two (2) Pacific pumps with 10 H.P. motors, 5 H.P. pump, etc.
One (1) Air Compressor, Curtis, 2-Stage, 20 H.P. motor, horizontal tank
25
<PAGE> 88
EXHIBIT D
Amendment to Portfield, Inc. Articles of Incorporation
26
<PAGE> 89
FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
AND RELATED DOCUMENTS
This Fifth Amendment to Loan and Security Agreement and Related
Documents ("Fifth Amendment") is executed by Portfield Investments, Inc., a
Colorado corporation ("Portfield"), Wescourt Group, Inc., a Delaware
corporation ("Wescourt"), Wescourt Distributing, Inc., a Colorado corporation,
Wesfrac, Inc., a Colorado corporation ("Wesfrac"), Westec Denver, Inc., a
Colorado corporation ("Westec Denver"), Petro-Mark Corp. Utah, a Colorado
corporation, Petro-Mark Corp., a Colorado corporation, Petro-Mark Corp.,
Montrose, Inc., a Colorado corporation ("Petro-Mark Montrose"), Westec Fruita,
Inc., a Delaware corporation ("Westec Fruita"), Montrose Propane, Inc., a
Colorado corporation, Grand Mesa Texaco, Inc., a Colorado corporation, Fruita
RP Holding, Inc., a Delaware corporation ("Fruita RP Holding"), and Super Mart
Convenience Stores, Inc. fka Petro-Mark Convenience Stores, Inc., a Colorado
corporation ("SMCS"), all with an address at 1493 Highway 6 and 50, Fruita,
Colorado 81521 (collectively "Borrowers"), Moffitt Oil Company, Inc., a Texas
corporation, with an address at 1493 Highway 6 and 50, Fruita, Colorado 81521
("Moffitt"), and National Canada Finance Corp. with an address at 1200 17th
Street, Suite 2760, Denver, Colorado 80202 ("NCFC"), for valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, on
this 11th day of April, 1997. Hereinafter, each of Borrowers may be referred
to singularly as a "Borrower."
RECITALS
A. Borrowers (besides SMCS), Mesa Environmental, Inc. fka
Wescourt Environmental, Inc., a Colorado corporation ("MEI"), Fruita
Investments, Inc., a Colorado corporation ("FII") and Fruita Marketing &
Management, Inc., a Delaware corporation ("FMMI") executed and delivered to
NCFC a Loan and Security Agreement and various other loan documents on or about
October 6, 1995. Such documents have been amended by that certain First
Amendment to Loan and Security Agreement and Related Documents dated October 6,
1995, that certain Second Amendment to Loan and Security Agreement and Related
Documents dated August 23, 1996, that certain Third Amendment to Loan and
Security Agreement and Related Documents dated November 18, 1996, that certain
Fourth Amendment to Loan and Security Agreement and Related Documents dated
March 12, 1997 ("Fourth Amendment"), and the various related documents.
Hereinafter, the Loan and Security Agreement and any amendments, modifications,
replacements and substitutions thereto may be referred to collectively as the
"NCFC Loan Agreement" and all of the documents described in this paragraph, any
related documents, instruments and agreements, and any amendments,
modifications, replacements and substitutions to any of the foregoing may be
referred to collectively as the "NCFC Loan Documents".
<PAGE> 90
B. All capitalized terms not otherwise defined herein shall have
the meanings ascribed to such terms in the NCFC Loan Agreement.
C. Subject to the terms and conditions set forth in the NCFC Loan
Documents, MEI, FII, and FMMI have been released from their obligations to NCFC
thereunder.
D. Petro-Mark Convenience Stores, Inc. has changed its name to
Super Mart Convenience Stores, Inc.
E. Borrowers and Moffitt wish the following actions to be taken
by the parties described below:
(i) Moffitt shall become a "Borrower" (as such term is
defined in the NCFC Loan Agreement) under the NCFC Loan Agreement and
be entitled to the rights and subject to the obligations of a
"Borrower" that are contained in the NCFC Loan Documents. Without
limiting the foregoing: (a) NCFC may make Loans and provide Letters
of Credit to or for the benefit of Moffitt based upon the terms and
conditions set forth in the NCFC Loan Documents, (b) Borrowers,
jointly and severally, shall absolutely and unconditionally guaranty
and secure all of Moffitt's Liabilities to NCFC and any Affiliate of
NCFC with all of their Collateral; and (c) Moffitt shall absolutely
and unconditionally guaranty and secure all of Borrower's Liabilities
to NCFC and any Affiliate of NCFC with all of its Collateral;
(ii) In consideration for payments of $7,038,293.00 and
$25,000.00 to JoAnn Moffitt ("JoAnn") and $1,706,926.00 to each of Roy
Moffitt and Donald Moffitt, Jr., JoAnn shall assign, convey, sell and
transfer to Wesfrac all of Moffitt's issued and outstanding capital
stock ("Moffitt Stock") in accordance with the Moffitt Purchase
Agreement (as defined below);
(iii) Subject to the terms and conditions set forth in the
Intercreditor Agreement (as defined below), (a) Heller shall provide
Wesfrac, Westec Denver and Moffitt with the Second Heller Loan (as
defined below), (b) Borrowers (besides Wesfrac, Westec Denver and
SMCS) shall guaranty the payment and performance of Wesfrac's, Westec
Denver's and Moffitt's obligations to Heller under the Second Heller
Loan, and (c) Borrowers (besides SMCS) and Moffitt shall provide
Heller with a first priority security interest in the Second Heller
Collateral (as defined below) as security for the payment and
performance of Borrowers' (besides SMCS') and Moffitt's obligations
with respect to the Second Heller Loan;
(iv) Portfield shall borrow the remaining $2,000,000.00
available under the Morgan Loan and relend such monies to
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<PAGE> 91
Wesfrac under the Second Portfield Loan (as defined below) for the
purchase of the Moffitt Stock. Moffitt shall grant Portfield a second
priority security interest in all of its present and future equipment,
fixtures, the cash proceeds thereof and any other proceeds thereof
that do not constitute a portion of the Collateral to secure the
payment and performance of Wesfrac's obligations under the Second
Portfield Loan.
(v) In addition to the collateral described in the Fourth
Amendment that secures Portfield's indemnification to WLD for damages
suffered by WLD with respect to the Morgan Loan, to the extent that
the following assets constitute a portion of the Second Heller
Collateral, Borrowers (besides SMCS) shall provide WLD with a second
priority security interest in their present and future equipment,
fixtures, and the cash proceeds thereof and any other proceeds thereof
that do not constitute a portion of the Collateral and Portfield shall
provide WLD with a first priority assignment for security purposes of
the Second Portfield Loan Documents (and its rights in Moffitt's
present and future equipment, fixtures, the cash proceeds thereof and
any other proceeds thereof that do not constitute a portion of the
Collateral to secure Portfield's indemnification to WLD for damages
suffered by WLD with respect to the Morgan Loan.
F. The outstanding principal balance on Borrowers' and SMCS'
obligations to NCFC under the NCFC Loan Documents amounted to approximately
$6,583,802.02 as of April 9, 1997 and interest, fees and expenses are accruing
thereon as set forth in the NCFC Loan Documents.
G. Borrowers, Moffitt and NCFC wish to amend certain terms and
conditions set forth in the NCFC Loan Documents as set forth in this Fifth
Amendment.
AGREEMENTS
1. The NCFC Loan Agreement and the other NCFC Loan Documents are
hereby amended as follows:
(a) Moffitt is hereby added as an additional Borrower
under the NCFC Loan Agreement and all references to "Borrower" or
"Borrowers" shall mean Borrowers and Moffitt, jointly and severally,
in all respects;
(b) All references to "Borrower" or "Borrowers" in the
Guaranties executed by Borrowers and constituting a portion of the
NCFC Loan Documents shall mean Borrowers and Moffitt, jointly and
severally, in all respects;
-3-
<PAGE> 92
(c) All references to "Borrower" or "Borrowers" in the
Third Party Security Agreements executed by the Borrowers and
constituting a portion of the NCFC Loan Documents shall mean Borrowers
and Moffitt, jointly and severally, in all respects;
(d) All notices to Borrower, Moffitt or NCFC under the
Loan Agreement and other Loan Documents shall be sent to the following
addresses and telecopy numbers for such parties:
If to any Borrower or Moffitt:
c/o Portfield Investments, Inc.
1493 Highway 6 and 50
Fruita, Colorado 81521
Attn: Keith Holder
Telecopy: (970) 858-9626
If to NCFC:
1200 17th Street, Suite 2760
Denver, Colorado 80202
Attn: William N. Tsiouvaras
Telecopy: (303) 446-8787
(e) Moffitt shall absolutely and unconditionally guaranty
the payment and performance of each Borrower's present and future,
joint and several, obligations to NCFC upon the execution of this
Fifth Amendment. Such guaranty shall be in form and substance
acceptable to NCFC in its sole discretion;
(f) Keith R. Holder ("Holder") shall absolutely and
unconditionally guaranty the payment and performance of up to
$300,000.00 of the Borrowers' present and future, joint and several,
obligations to NCFC upon the execution of this Fifth Amendment.
Holder also shall be responsible for the payment of any attorneys'
fees, expenses and costs incurred in the enforcement of NCFC's rights
or Holder's obligations under such guaranty. The guaranty shall
expire on April 11, 1998 if no event of default has occurred and is
continuing under the NCFC Loan Documents on that date. The guaranty
shall be in form and substance acceptable to NCFC in its sole
discretion;
(g) Moffitt shall grant NCFC a first priority security
interest in its Collateral to secure the payment and performance of
Borrowers' and Moffitt's present and future, joint and several,
obligations to NCFC under the NCFC Loan Documents upon the execution
of this Fifth Amendment. The security agreements, financing
statements, and other loan documents executed by Moffitt shall be in
form and substance acceptable to NCFC in its sole discretion;
-4-
<PAGE> 93
(h) All references to "PMCS" or "Petro-Mark Convenience
Stores, Inc." in the NCFC Loan Documents shall mean "SMCS" or "Super
Mart Convenience Stores, Inc." respectively;
(i) NCFC hereby releases all of its liens and security
interests in (i) the Second Heller Collateral and (ii) the Second
Portfield Note and the Second Portfield Loan Documents.
(j) Borrowers and Moffitt shall provide and cause NCFC to
be provided with a First Amended and Restated Intercreditor and
Subordination Agreement ("Intercreditor Agreement") upon the execution
of this Fifth Amendment. Such Intercreditor Agreement shall be in
form and substance and from such parties as are acceptable to NCFC in
its sole discretion and shall replace and supersede the terms and
conditions set forth in the Intercreditor and Subordination between
Borrowers, Heller, WLD and NCFC dated as of March 12, 1997 in its
entirety;
(k) Borrowers and Moffitt shall provide NCFC with a
landlord waiver for each of Moffitt's leased premises within twenty
(20) days from the later of the date of this Fifth Amendment or the
execution of the lease for such premises. Until NCFC is provided with
a landlord waiver for any of Moffitt's leased premises, NCFC shall be
entitled to reserve six (6) months' rent for such premises against the
monies that otherwise would be capable of being borrowed by Moffitt
under the NCFC Loan Documents. NCFC shall be entitled to establish
similar reserves against the Borrowers for their leased premises. All
of the landlord waivers for the Borrowers' and Moffitt's leased
premises shall be in form and substance acceptable to NCFC in its sole
discretion; and
(l) Borrowers and Moffitt acknowledge and agree to comply
with and be bound by all of the terms and conditions of the NCFC Loan
Documents (including, but not limited to, the Intercreditor Agreement,
this Fifth Amendment, and any related documents) upon the execution of
this Fifth Amendment.
2. SECTION 1(a) of the NCFC Loan Agreement is hereby amended to
read as follows:
(a) "Account," "Account Debtor," "Chattel Paper,"
"Documents," "Equipment," "General Intangibles," "Goods,"
"Instruments," "Inventory" and "Investment Property" shall have the
respective meanings assigned to such terms in the Colorado Uniform
Commercial Code as amended from time to time.
3. SECTION 1 of the NCFC Loan Agreement is hereby amended by
adding the following definitions:
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<PAGE> 94
"Debt to Net Worth Ratio" shall mean the ratio of Borrowers'
total liabilities calculated in accordance with generally accepted
accounting principles (except for debt subordinated to the Liabilities
pursuant to a written agreement in a form acceptable to Lender acting
in good faith) to Borrowers' total Net Worth.
"Fifth Amendment" shall mean the Fifth Amendment to Loan and
Security Agreement and Related Documents dated on or about April 11,
1997 by and among Borrowers and Lender.
"Moffitt" shall mean Moffitt Oil Company, Inc., a Texas
corporation.
"Moffitt Purchase Agreement" shall mean the Stock Purchase
Agreement between Moffitt, JoAnn Moffitt, Roy Moffitt, Donald Moffitt,
Jr. and Wesfrac dated on or about April 11, 1997.
"Second Heller Collateral" shall mean all of Borrowers'
(besides SMCS') real and personal property described on EXHIBIT A to
the Fifth Amendment.
"Second Heller Loan" shall mean the term loan in the original
aggregate principal amount of up to $7,000,000.00 from Heller to
Wesfrac, Westec Denver and Moffitt in connection with the Second
Heller Loan Documents.
"Second Heller Loan Documents" shall mean any and all
agreements, instruments and documents, together with any amendments,
modifications, restatements and replacements thereof, now or hereafter
evidencing or securing the Second Heller Loan or any part thereof,
including, without limitation, the Term Loan and Guaranty Agreement,
Security Agreement Re: Equipment, Assignment of Stock Purchase
Agreement from Wesfrac, Pledge Agreement from Wesfrac and Wescourt,
Deed of Trust from Fruita RP Holding, and financing statements from
Borrowers (besides SMCS) dated on or about the date of the Fifth
Amendment.
"Second Portfield Loan" shall mean the term loan in the
original principal amount of $2,000,000.00 from Portfield to Wesfrac
in connection with the Second Portfield Loan Documents.
"Second Portfield Loan Documents" shall mean any and all
agreements, instruments and documents, together with any amendments,
modifications, restatements and replacements thereof, now or hereafter
evidencing or securing the Second Portfield Loan or any part thereof,
including, without limitation, the Second Portfield Note, security
agreements and
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financing statements from Moffitt, and related documents dated on or
about the date of the Fifth Amendment.
"Second Portfield Note" shall mean the promissory note issued
by Wesfrac in favor of Portfield in the original principal amount of
$2,000,000.00 and dated on or about the date of the Fifth Amendment.
"Tangible Net Worth" shall mean, at any time, the total of
shareholders' equity (including capital stock, additional paid-in
capital, and retained earnings) less intangible assets (including
goodwill) plus debt subordinated to the Liabilities (pursuant to a
written agreement in a form acceptable to Lender acting in good faith)
calculated in accordance with generally accepted accounting
principles.
4. The following definitions set forth in SECTION 1 of the NCFC Loan
Agreement are hereby amended to read as follows:
"Collateral" shall mean all of the property of Borrowers
described in SECTION 5 hereof, together with all other real or
personal property of Borrowers now or hereafter pledged to Lender to
secure repayment of any of the Liabilities, including without
limitation all Accounts, Inventory, Investment Property and General
Intangibles of Borrowers. Notwithstanding the foregoing, the term
Collateral shall not include the Heller Collateral or the Second
Heller Collateral.
"Loan Availability" for each Borrower shall mean, at any time,
the difference of the following:
(i) up to eighty-five percent (85%) of the face
amount (less maximum discounts, credits and allowances which
may be taken by or granted to Account Debtors in connection
therewith) then outstanding under such Borrower's existing
Eligible Accounts at such time, less such reserves as Lender
in good faith elects to establish; plus
(ii) up to fifty percent (50%) of the value of such
Borrower's then-existing Eligible Inventory, valued at the
lower of cost (determined on an average cost basis and in
accordance with generally accepted accounting principles) or
fair market value, less such reserves as Lender in good faith
elects to establish; plus
(iii) with respect to Wesfrac only, One Million Five
Hundred Thousand Dollars ($1,500,000.00) minus the One Hundred
Twenty Five Thousand Dollars ($125,000.00) monthly payments of
principal described in SECTION 2(c)
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of this Agreement; but only if such amounts are advanced to Wesfrac
on April 11, 1997; minus
(iv) the aggregate undrawn face amount of the Letters of Credit
issued for the account of such Borrower.
Notwithstanding anything to the contrary contained herein, Lender
shall reserve against the Loan Availability for each Borrower on a
monthly basis fifty percent (50%) of the amount of any unpaid fuel
taxes (net of any fuel tax refunds) owing by that entity for the prior
or any previous month (whether or not such taxes are due and payable
at such time). Such reserve for fuel taxes shall be applied against
the Loan Availability for each Borrower based: (i) first, upon its
Eligible Inventory, and (ii) then, upon its Eligible Accounts as
determined by Lender in its sole discretion.
Notwithstanding anything to the contrary contained herein and without
waiving any Event of Default under this Agreement, the reserves for
unpaid fuel taxes against the Loan Availability for each Borrower
shall be increased to one hundred percent (100%) of the amount of any
unpaid fuel taxes owing by that entity (whether or not such taxes are
due and payable at such time) in the event that any Borrower fails to
pay its fuel taxes when due and payable.
"Net Worth" shall mean, at any time, the total of
shareholders' equity (including capital stock, additional paid-in
capital, and retained earnings) plus debt subordinated to the
Liabilities (pursuant to a written agreement in a form acceptable to
Lender acting in good faith) calculated in accordance with generally
accepted accounting principles.
"Termination Date" shall mean the earliest to occur of the
following: (i) October 8, 1998; (ii) the date Lender makes demand for
the payment of the Liabilities; or (iii) the date the Liabilities are
accelerated pursuant to SECTION 14 hereof.
5. The definitions of "Eligible Acquired Equipment", "Eligible
Existing Equipment", and "Eligible Purchased Equipment" are hereby deleted in
their entirety.
6. Subparagraph (v) in the definition of Eligible Accounts is
hereby amended to read as follows:
(v) Accounts in dispute or with respect to which the Account
Debtor has asserted or may assert a counterclaim or has asserted or
may assert a right of setoff against any Borrower (provided, however,
that the
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"ineligible" portion of the account shall be limited to the amount of
the actual or potential setoff or counterclaim);
7. SECTION 2(a) of the NCFC Loan Agreement is hereby amended to
read as follows:
(a) Subject to the terms and conditions of this Agreement
and the Other Agreements, prior to the Termination Date and so long as
no Event of Default has occurred hereunder, Lender shall make Loans to
any Borrower as such Borrower shall from time to time request;
provided, however, that: (i) the total amount of all Loans outstanding
to any Borrower shall not exceed such Borrower's Loan Availability at
any time; and (ii) the total unpaid principal of all Loans outstanding
to the Borrowers and all Letters of Credit issued for the account of
the Borrowers in the aggregate ("Maximum Credit") shall not exceed
Nine Million Dollars ($9,000,000.00) at any time. Such Maximum Credit
shall be increased to:
(i) Twelve Million Dollars ($12,000,000.00) if
Borrowers provide Lender with at least ten (10) days' prior
written notice of such increase and pay the first additional
Facility Fee described in this Agreement and so long as no
Event of Default has occurred hereunder or will occur
hereunder as a result of such increase in the Maximum Credit;
and
(ii) Fourteen Million Dollars ($14,000,000.00) if
Borrowers provide Lender with at least ten (10) days' prior
written notice of such increase and pay or have paid all of
the additional Facility Fees described in this Agreement and
so long as no Event of Default has occurred hereunder or will
occur hereunder as a result of such increase in the Maximum
Credit.
The total unpaid principal of all Loans outstanding to
Borrowers based upon Eligible Inventory shall not exceed Three Million
Dollars ($3,000,000.00) at any time.
Prior to Lender making any Loan, the Loans shall be repaid as
provided elsewhere in this Agreement. If at any time the outstanding
balance on any Borrower's Loans exceeds its Loan Availability or the
principal balance of the outstanding Loans to Borrowers in the
aggregate exceeds the Maximum Credit or any of the other restrictions
set forth in this Agreement, such Borrower or Borrowers shall
immediately, and without the necessity of a demand by Lender, pay to
Lender such amount as may be necessary to eliminate such excess.
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8. The reference to "Seven Hundred Fifty Thousand Dollars
($750,000.00)" contained in SECTION 2(B) of the NCFC Loan Agreement is hereby
amended by to read "One Million Dollars ($1,000,000.00)".
9. SECTION 2 of the NCFC Loan Agreement is hereby amended by
adding SECTION 2(c) thereto which shall read as follows:
All Liabilities of Borrowers to Lender shall be due and payable on the
Termination Date. Unless due and payable on an earlier date in
accordance with the terms of this Agreement, the advance made by
Lender to Wesfrac based upon SUBSECTION (III) in the definition of
"Loan Availability" shall be repaid by Wesfrac in twelve monthly
installments of $125,000.00 plus all accrued but unpaid interest
thereon beginning on May 15, 1997 and continuing on the fifteenth day
of each calendar month thereafter until paid in full.
10. SECTION 3(a) of the NCFC Loan Agreement is hereby amended to
read as follows:
(a) Each Borrower shall pay to Lender interest on the
outstanding principal balance of its Loans monthly in arrears, on the
first day of each month following the execution of this Agreement, at
the per annum rate of one percent (1%) plus the Reference Rate;
provided, however, that such interest rate shall be:
(i) On the day following the closing of the Fifth
Amendment, reduced to the Reference Rate plus one-half of one
percent (.5%) per annum;
(ii) the reduction in the interest rate described in
the preceding subsection shall be eliminated retroactively to
the date of such reduction if (A) Portfield's audited
financial statements for the fiscal year ending February 28,
1997 do not indicate at least Seven Hundred Fifty Thousand
Dollars ($750,000.00) of pre-tax income before extraordinary
or non-operating gains or (B) Borrowers' have not complied
with all of the financial covenants contained in SECTIONS
12(w), (x), (y), (z) AND (aa) of this Agreement;
(iii) reduced to the Reference Rate if (A)
Portfield's audited financial statements for the fiscal year
ending February 28, 1998 indicate at least One Million Dollars
($1,000,000.00) of pre-tax income before extraordinary or
non-operating gains; (B) Borrowers' have complied with all of
the financial covenants contained in SECTIONS 12(w), (x), (y),
(z) AND (aa) of this Agreement; and (C) the reduction set
forth in subsection (i) above
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has not been eliminated pursuant to subsection (ii) above; and
(iv) reduced to the Reference Rate plus one-half of
one percent (.5%) per annum if (A) Portfield's audited financial
statements for the fiscal year ending February 28, 1998 indicate
at least One Million Dollars ($1,000,000.00) of pre-tax income
before extraordinary or non-operating gains; (B) Borrowers' have
complied with all of the financial covenants contained in
SECTIONS 12(w), (x), (y), (z) AND (aa) of this Agreement; and (C)
the reduction set forth in subsection (i) above has been
eliminated pursuant to subsection (ii) above.
In the event that any decrease in the interest rate is eliminated
retroactively as set forth above, Borrowers' shall pay Lender, upon
demand, all of the accrued but unpaid interest arising therefrom.
Notwithstanding anything to the contrary contained herein, following
the occurrence of an Event of Default, each Borrower shall pay to
Lender interest on the outstanding principal balance of its Loans at
the per annum rate of two percent (2%) plus the Reference Rate.
Interest shall be computed on the basis of a year of three hundred
sixty (360) days for the actual number of days elapsed.
11. SECTION 3 (c) of the NCFC Loan Agreement is hereby amended to
read as follows:
(c) All facility fees paid by Borrowers to Lender in
accordance with this Agreement (prior to amendment by the Fifth
Amendment) have been fully earned by Lender and are non-refundable.
Borrower shall pay to Lender on the closing of the Fifth Amendment,
(i) a fully-earned and non-refundable facility fee of $37,500.00 for
the activation of the additional financial accommodations contemplated
in SUBSECTION (iii) of the definition of "Loan Availability" and (ii)
a fully-earned and non-refundable transaction fee of $20,000.00 for
executing the Fifth Amendment and permitting the transactions
described therein. In addition to the foregoing facility fee,
transaction fee and all other facility fees previously paid by
Borrowers to Lender, Borrowers shall pay to Lender the following
fully-earned and non-refundable facility fees if the Maximum Credit is
increased as set forth below under the terms and conditions set forth
in this Agreement:
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<TABLE>
<CAPTION>
Increase in Maximum Credit Additional Facility Fee
-------------------------- -----------------------
<S> <C>
$ 9,000,000.00 to $12,000,000.00 $15,000.00
$12,000,000.00 to $14,000,000.00 $10,000.00
or, in lieu of the foregoing additional facility fees,
$ 9,000,000.00 directly to $25,000.00
$14,000,000.00
</TABLE>
12. SECTION 3(d) of the NCFC Loan Agreement is hereby amended to
read as follows:
(d) Borrowers shall pay to Lender an unused facility fee,
equal to one quarter of one percent (0.25%) per annum [computed on the
basis of a year of three hundred sixty days for the actual number of
days elapsed] of the amount by which Nine Million Dollars
($9,000,000.00) exceeds the sum of the average daily outstanding Loans
plus the average daily undrawn face amount of the Letters of Credit,
payable monthly in arrears, on the first day of each month following
the execution of this Agreement. Such unused facility fee shall:
(i) be based upon the amount by which Twelve Million
Dollars ($12,000,000.00) exceeds the sum of the average daily
outstanding Loans plus the average daily undrawn face amount
of the Letters of Credit retroactive to the first day of the
calendar year in which the Maximum Credit was increased to
Twelve Million Dollars ($12,000,000.00) if the Maximum Credit
is increased to Twelve Million Dollars ($12,000,000.00) under
the terms and conditions set forth in this Agreement; and
(ii) be based upon the amount by which Fourteen
Million Dollars ($14,000,000.00) exceeds the sum of the
average daily outstanding Loans plus the average daily undrawn
face amount of the Letters of Credit retroactive to the first
day of the calendar year in which the Maximum Credit was
increased to Fourteen Million Dollars ($14,000,000.00) if the
Maximum Credit is increased to Fourteen Million Dollars
($14,000,000.00) under the terms and conditions set forth in
this Agreement.
13. SECTION 5 of the NCFC Loan Agreement is hereby amended to read
as follows:
5. GRANT OF SECURITY INTEREST TO LENDER. As security
for the payment or other satisfaction of its Liabilities, each
Borrower hereby assigns to Lender and grants to Lender a continuing
security interest in the following property of such
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Borrower, whether now or hereafter owned, existing, acquired or arising
and wherever now or hereafter located:
(a) all Accounts and all Inventory whose sale, lease
or other disposition by such Borrower has given rise to
Accounts and have been returned to or repossessed or stopped
in transit by such Borrower;
(b) all Chattel Paper, Instruments (except for any
Wesfrac, Westec Denver or Moffitt stock), Documents,
Investment Property and General Intangibles (including without
limitation all patents, patent applications, trademarks,
trademark applications, tradenames, trade secrets, goodwill,
copyrights, registrations, licenses, franchises, customer
lists, tax refund claims, claims against carriers and
shippers, guaranty claims, contracts rights, security
interests, security deposits and any rights to
indemnification);
(c) all Inventory and minerals or the like;
(d) all deposits and cash and any other property of
such Borrower now or hereafter in the possession, custody or
control of Lender or any agent or any Affiliate of Lender or
any participant with Lender in the Loans and/or Letters of
Credit for any purpose (whether for safekeeping, deposit,
collection, custody, pledge, transmission or otherwise); and
(e) all additions and accessions to, substitutions
for, and replacements, products and proceeds of the foregoing
property, including without limitation proceeds of all
insurance policies insuring the foregoing property, and all of
such Borrower's books and records relating to any of the
foregoing and to such Borrower's business.
Notwithstanding anything to the contrary contained above, the
Collateral shall not include the Heller Collateral or the Second
Heller Collateral (to the extent that the Heller Collateral or the
Second Heller Collateral does not consist of any of the specific
Collateral or types of Collateral described above).
In addition, Borrowers shall assign to Lender all of their
rights, title and interests in an American Credit Indemnity or other
accounts receivable insurance policy covering all of their Accounts
and key man life insurance policies in the aggregate face amount of
$2,000,000.00 on the life of Keith R. Holder. The insurance policies
and assignments shall be in a form and from such companies as may be
acceptable to Lender acting in good faith.
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14. SECTION 8(a) of the NCFC Loan Agreement is hereby amended to
read as follows:
(a) Each Borrower shall establish an account (the
"Blocked Account") in such Borrower's name with a financial
institution acceptable to Lender, into which such Borrower will
immediately deposit all payments received by such Borrower with
respect to its Accounts and other Collateral in the identical form in
which such payments were made, whether by cash or check. If any
Borrower, any Affiliate or Subsidiary of any Borrower, or any
shareholder, officer, director, employee or agent of any Borrower or
any Affiliate or Subsidiary of such Borrower, or any other Person
acting for or in concert with such Borrower shall receive any monies,
checks, notes, drafts or other payments relating to or as proceeds of
such Borrower's Accounts or other Collateral, such Borrower,
Affiliate, Subsidiary, and other Person shall receive all such items
in trust for, and as the sole and exclusive property of, Lender and,
immediately upon receipt thereof, shall remit the same (or cause the
same to be remitted) in kind to such Borrower's Blocked Account. The
financial institution with which each Blocked Account is established
shall acknowledge and agree, in a manner satisfactory to Lender, that
the amounts on deposit in such Blocked Account are the sole and
exclusive property of Lender, that such financial institution has no
right to setoff against the Blocked Account, and that such financial
institution shall wire, or otherwise transfer in immediately available
funds in a manner satisfactory to Lender, funds deposited in the
Blocked Account on a daily basis as such funds are collected, to
Lender's account at National Bank of Canada. Lender shall,
immediately after receipt by Lender of immediately available funds in
its account at National Bank of Canada, apply the whole or any part of
such collections or proceeds against the appropriate Borrower's
Liabilities in such order as Lender shall determine in its sole
discretion. Each Borrower agrees that all payments deposited to such
Blocked Account or otherwise received by Lender, whether in respect of
the Accounts of such Borrower or as proceeds of other Collateral or
otherwise, will be applied on account of the Liabilities of such
Borrower in accordance with the terms of this Agreement. All checks,
drafts, instruments and other items of payment or proceeds of
Collateral shall be endorsed by Borrowers to Lender, and, if that
endorsement of any such item shall not be made for any reason, Lender
is hereby irrevocably authorized to endorse the same on Borrowers'
behalf. For the purpose of this paragraph, Borrowers irrevocably
hereby make, constitute and appoint Lender (and all Persons designated
by Lender for that purpose) as Borrowers' true and lawful attorney and
agent-in-fact: (i) to endorse Borrowers' names upon said items
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of payment and/or proceeds of Collateral and upon any Chattel Paper of
Borrowers, document, instrument, invoice or similar document or
agreement relating to any Account of any Borrower or goods pertaining
thereto; (ii) to take control in any manner of any item of payment or
proceeds thereof; and (iii) upon and following the occurrence of an
Event of Default, to have access to any lock box or postal box into
which any Borrower's mail is deposited, and open and process all mail
addressed to any Borrower and deposited therein.
15. SECTION 11(k) of the NCFC Loan Agreement is hereby amended to
read as follows:
(k) No Borrower is conducting, permitting or suffering to be
conducted, nor shall it conduct, permit or suffer to be conducted, any
activities or transactions with any Affiliate of any Borrower;
provided, however, that any Borrower may enter into transactions with
Affiliates of any Borrower in the ordinary course of business pursuant
to terms that are no less favorable to such Borrower than the terms
upon which such transfers or transactions would have been made had
they been made to or with a Person that is not an Affiliate of any
Borrower and, in connection therewith, may transfer cash or property
to Affiliates of any Borrower for fair value. Notwithstanding the
foregoing:
(i) Petro-Mark Montrose and Westec Fruita may sell
SMCS the Petro-Mark Montrose and Westec Fruita Stores under
the terms and conditions set forth in the Petro-Mark Montrose
and Westec Fruita Purchase Agreements;
(ii) SMCS may execute and deliver to Petro-Mark
Montrose and Westec Fruita the Petro-Mark Montrose and Westec
Fruita Notes in connection with SMCS' purchase of the
Petro-Mark Montrose and Westec Fruita Stores;
(iii) Portfield may provide SMCS with the Portfield
Loan;
(iv) SMCS and Wescourt may execute and deliver to
Portfield the Portfield Loan Documents;
(v) SMCS may issue the Portfield Note to Portfield;
(vi) Portfield may provide an indemnification to WLD
for any damages suffered by WLD with respect to the Morgan
Loan and secure such indemnification with a pledge of the
Portfield Loan Documents and the Second Portfield Loan
Documents (Lender recognizes that WLD may possess a power of
attorney for certain rights belonging to Portfield in its
collateral and, upon the foreclosure of
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Portfield's pledge to WLD of the Portfield Loan Documents and
the Second Portfield Loan Documents, WLD shall be the owner of
such Loan Documents and related rights in SMCS' assets
constituting a portion of the Heller Collateral and Moffitt's
assets constituting a portion of the Second Heller Collateral)
and a security interest in the Borrowers' (other than SMCS' and
Moffitt's) present and future equipment, fixtures, the cash
proceeds thereof and any other proceeds thereof that do not
constitute a portion of the Collateral;
(vii) Wescourt may provide an indemnification to WLD
for any damages suffered by WLD with respect to the Morgan
Loan;
(viii) Portfield may provide Wesfrac with the Second
Portfield Loan;
(ix) Wesfrac and Wescourt may execute and deliver to
Portfield the Second Portfield Loan Documents;
(x) Wesfrac may issue the Second Portfield Note to
Portfield;
(xi) Moffitt may grant Portfield a security interest
in its present and future equipment, fixtures, the cash
proceeds thereof and any other proceeds thereof that do not
constitute a portion of the Collateral as security for the
Second Portfield Loan; and
(xii) Borrowers (besides SMCS and Moffitt) may grant
WLD a security interest in their present and future equipment,
fixtures, the cash proceeds thereto and any other proceeds
thereof that do not constitute a portion of the Collateral as
security for Portfield's indemnifications to WLD in connection
with the Morgan Loan.
16. SECTION 12(k) of the NCFC Loan Agreement is hereby amended to
read as follows:
(k) No Borrower shall assume, guaranty or endorse, or
otherwise become liable in connection with, the obligations of any
Person, except: (i) by endorsement of instruments for deposit or
collection or similar transactions in the ordinary course of business,
and (ii) for guarantees of Affiliate obligations consented to by
Lender which consent shall be granted or denied by Lender acting in
good faith. Notwithstanding the foregoing, Lender consents to:
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(A) Portfield's, Wescourt's and Wesfrac's execution
and delivery of the guaranties constituting a portion of the
Heller Loan Documents;
(B) Wescourt's execution and delivery of the guaranty
constituting a portion of the Portfield Loan Documents;
(C) Portfield's guaranty of SMCS's obligations under
the Diamond Shamrock Purchase Agreement;
(D) the guaranties for the benefit of Lender pursuant
to this Agreement and the other Loan Documents;
(E) Portfield's and Wescourt's indemnifications to
WLD for any damages suffered by WLD with respect to the Morgan
Loan;
(F) Wescourt's and SMCS' indemnifications to Diamond
Shamrock contained in the Diamond Shamrock Purchase Agreement;
(G) the liens and security interests described in
SECTION 13 of this Agreement;
(H) Portfield's guaranty of Moffitt's obligations to
JoAnn Moffitt under the Lease Agreement dated on or about
April 11, 1997;
(I) Portfield's guaranty of JoAnn's guaranty
obligations as set forth in the Moffitt Purchase Agreement;
(J) Borrowers' (besides Wesfrac's, Westec Denver's,
SMCS' and Moffitt's) guaranty of Wesfrac's, Westec Denver's
and Moffitt's obligations to Heller under the Second Heller
Loan Documents; and
(K) Petro-Mark Montrose's guaranty of $400,000 or
less of the obligations of North Avenue Shell, LLC to Bank of
Colorado-Western Slope upon terms and conditions consented to
by Lender (which consent shall not be unreasonably withheld).
17. SECTION 11(m) of the NCFC Loan Agreement is hereby amended to
read as follows:
(m) With respect to each Borrower's Equipment: (i) such
Borrower has good and indefeasible and merchantable title to and
ownership of all of its Equipment, including without limitation the
Equipment described or listed on the schedule
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of Equipment delivered to Lender concurrently with this Agreement; and
(ii) such Borrower shall keep and maintain the Equipment in good
operating condition and repair and shall make all necessary
replacements thereof and renewals thereto so that the value and
operating efficiency thereof shall at all times be preserved and
maintained;
18. SECTION 12(l) of the NCFC Loan Agreement is hereby amended to
read as follows:
(l) Except for The Coastal Corporation's acquisition of up to
fifty percent (50%) of Westec Denver, Inc. stock and the acquisition
of assets permitted in SECTION 11(P) of this Agreement, no Borrower
shall permit any change in its ownership or control or engage in any
merger or acquisition without obtaining the prior written consent of
Lender which consent may be withheld by Lender acting in good faith.
Notwithstanding the foregoing, Lender hereby consents to:
(i) Petro-Mark Montrose's and Westec Fruita's sale to
SMCS of the Petro-Mark Montrose and Westec Fruita Stores;
(ii) SMCS's acquisition of the Convenience Stores; and
(iii) Wesfrac's acquisition of all of Moffitt's
issued and outstanding capital stock pursuant to the terms and
conditions of the Moffitt Purchase Agreement.
19. SECTION 12(v) of the NCFC Loan Agreement is hereby amended to
read as follows:
(v) Borrowers shall not incur more than $2,000,000.00 in
capital expenditures (excluding expenditures incurred as a result of
Borrowers' acquisition of the assets of another business) during any
fiscal year of this Agreement. Borrowers shall provide Lender with a
written report of their capital expenditures on a monthly basis during
the term of this Agreement. Such report shall be in a form acceptable
to Lender acting in good faith;
20. SECTION 12(w) of the NCFC Loan Agreement is hereby amended to
read as follows:
(w) Borrowers shall not permit the Debt to Net Worth
Ratio to exceed 5.00 to 1.00 at any time through the Termination Date.
The Debt to Net Worth Ratio which Borrowers shall be required to
maintain thereafter (if any) shall be determined by Borrowers and
Lender acting in good faith, provided, however, that if Borrowers and
Lender are unable to
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reach an agreement, the ratio for the subsequent fiscal year shall be
the ratio used for the immediately preceding fiscal year.
Borrowers shall provide Lender with a written report of their Debt to
Net Worth Ratio on a monthly basis during the term of this Agreement.
Such report shall be in a form acceptable to Lender acting in good
faith; and
21. SECTION 12 of the NCFC Loan Agreement is hereby amended by
adding SECTION 12(y) thereto which shall read as follows:
(y) Borrowers shall maintain a Tangible Net Worth equal
to or greater than (i) $3,000,000.00 from the date hereof through
February 27, 1998; (ii) $3,500,000.00 from February 28, 1998 through
February 27, 1999; and (iii) $4,000,000.00 from February 28, 1999
through February 27, 2000. The minimum Tangible Net Worth that
Borrowers are required to maintain under this subsection shall be
increased from the existing minimum requirement by $500,000.00 on
February 28, 2000 and further increased by increments of $500,000.00
each on a like date each year thereafter. Borrowers shall provide
Lender with a written report of their Tangible Net Worth on a monthly
basis during the term of this Agreement. Such report shall be in a
form acceptable to Lender acting in good faith.
22. SECTION 12 of the NCFC Loan Agreement is hereby amended by
adding SECTION 12(z) thereto which shall read as follows:
(z) Borrowers' net income determined after taxes but
before giving effect to extraordinary gains shall equal or exceed
$500,000.00 on February 28th of each year during the term of this
Agreement (beginning February 28, 1998).
23. SECTION 12 of the NCFC Loan Agreement is hereby amended by
adding SECTION 12(aa) thereto which shall read as follows:
(aa) Moffitt's minimum net profit as reflected on
Portfield's internally prepared financial statements with specific
reference to Portfield's monthly schedule entitled "Moffitt
Marine-Cashflow Summary" shall not be less than zero dollars in any
rolling three month period during the period April 1, 1997 through
February 28, 1998. Such calculations shall be made in accordance with
GAAP and shall specifically include the fees paid to Don Moffitt in
accordance with any consulting agreement between any of the Borrowers
and that person.
24. SECTION 13(p) of the NCFC Loan Agreement is hereby amended to
read as follows:
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<PAGE> 108
(p) Without limiting any of the other terms and
conditions set forth in this Agreement or the other Loan Documents,
any of the following occurs without the prior written consent of
Lender which may be withheld in Lender's sole discretion:
(i) any Borrower obtains any additional loans or
other financial accommodations from or provides any additional
guaranties or collateral to WLD, Morgan or Heller; or
(ii) the Diamond Shamrock Purchase Agreement and
related documents, Petro-Mark Montrose and Westec Fruita
Purchase Agreement and related documents, Petro-Mark Montrose
and Westec Fruita Notes, Portfield Loan Documents (and related
WLD documents), Morgan Loan Documents, Heller Loan Documents,
Moffitt Purchase Agreement and related documents, Second
Portfield Loan Documents (and related WLD documents), and
Second Heller Loan Documents shall be prepaid in whole or in
part (except for prepayments required under the Heller Loan
Documents or Second Heller Loan Documents for sales, loss or
damage, or condemnation of or to the Heller Collateral or
Second Heller Collateral) or shall be amended, modified,
replaced, substituted or supplemented in any way which (A)
increases the amount of any loans or other obligations
described therein, (B) accelerates or increases any payments
due thereunder, (C) increases any interest rate described
therein, (D) shortens the maturity date thereof, or (E)
increases, replaces or substitutes any co-borrowers,
accommodation parties, guaranties or collateral therefor;
25. SECTION 13(q) of the NCFC Loan Agreement is hereby amended to
read as follows:
(q) Without limiting any other Event of Default hereunder, a
material event of default shall occur under the Diamond Shamrock
Purchase Agreement and related documents, Petro-Mark Montrose and
Westec Fruita Purchase Agreement and related documents, Petro-Mark
Montrose and Westec Fruita Notes, Portfield Loan Documents (and
related WLD documents), Morgan Loan Documents, Heller Loan Documents,
Moffitt Purchase Agreement and related documents, Second Portfield
Loan Documents (and related WLD documents), and Second Heller Loan
Documents and not be cured or waived within the time periods permitted
under such documents or any lender or seller under such documents
seeks to accelerate its obligations from and/or exercise any
post-default or post-maturity remedies against the other parties
under such documents;
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26. SECTION 13 of the NCFC Loan Agreement is hereby amended by
adding new SECTIONS 13(r) AND (s) which shall read as follows:
(r) Borrowers fail to provide Lender with access to accurate
and complete copies of all of the existing Moffitt Purchase Agreement
and related documents, Second Portfield Loan Documents (and related
WLD loan documents), Second Heller Loan Documents and Morgan Loan
Documents on or before any modification of this Agreement on or about
April 11, 1997; or
(s) Borrowers fail to provide Lender with accurate and
complete copies of all of the existing Moffitt Purchase Agreement and
related documents, Second Portfield Loan Documents (and related WLD
loan documents), Second Heller Loan Documents and Morgan Loan
Documents within twenty (20) days from any modification of this
Agreement on or about April 11, 1997.
27. EXHIBIT A to the NCFC Loan Agreement (Permitted Liens) is
amended by adding the following provision:
4. the liens and security interests contained in the
Second Heller Loan Documents and Second Portfield Loan Documents as
permitted or restricted by this Agreement and any intercreditor
agreement executed by Lender.
5. the purchase money liens and security interests and
leasehold rights in existence on the date of the Fifth Amendment
securing the Permitted Indebtedness owing to Financial Federal Credit,
Inc., AT&T Credit Corporation, The Manifest Group, a division of Lyon
Financial Services, Inc., Concord Commercial, division of Marine
Midland Business Loans, Inc., Bankers Leasing Association of Houston,
Comerica Leasing Corporation, Textron Financial Corporation and Ford
Motor Credit Company (provided, however, that such liens, security
interests, and leasehold rights shall not constitute a lien, security
interest or other encumbrance on the Collateral).
28. EXHIBIT B to the NCFC Loan Agreement (Chief Executive Offices,
Other Offices, Places of Business and Post Office Boxes) is amended by adding
an additional office located at 13002 Kluge Road, Cypress, Texas.
29. EXHIBIT D to the NCFC Loan Agreement (Permitted Indebtedness)
is amended by adding the following thereto:
5. All of the Indebtedness described in the Moffitt
Purchase Agreement and related documents, Second Heller Loan
Documents, and Second Portfield Loan Documents as permitted or
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restricted by this Agreement or any intercreditor agreement executed
by Lender.
6. Indebtedness to Financial Federal Credit, Inc. in the
amount of $_____________ or less.
7. Indebtedness to AT&T Credit Corporation in the amount
of $_____________ or less.
8. Indebtedness to The Manifest Group, a division of
Lyon Financial Services, Inc. in the amount of $_____________ or less.
9. Indebtedness to Concord Commercial, division of
Marine Midland Business Loans, Inc. in the amount of $________________
or less.
10. Indebtedness to Bankers Leasing Association of
Houston in the amounts of $________________ or less.
11. Indebtedness to Comerica Leasing Corporation in the
amount of $________________ or less.
12. Indebtedness to Textron Financial Corporation in the
amount of $____________ or less.
30. EXHIBIT E to the NCFC Loan Agreement is amended by adding
Moffitt as a subsidiary of Wesfrac and Wesfrac as Moffitt's sole shareholder.
31. SECTION 1.1 of the Third Party Security Agreements executed by
Borrowers in connection with the NCFC Loan Agreement is hereby amended to read
as follows:
1.1 "Account," "Account Debtor," "Chattel Paper,"
"Documents," "Equipment," "General Intangibles," "Goods,"
"Instruments," "Inventory" and "Investment Property" shall have the
respective meanings assigned to such terms in the Colorado Uniform
Commercial Code as amended from time to time.
32. SECTION 2.1 of the Third Party Security Agreements executed by
Borrowers in connection with the NCFC Loan Agreement is hereby amended to read
as follows:
2.1 all Accounts and all Inventory whose sale, lease or
other disposition by Guarantor has given rise to Accounts and have
been returned to or repossessed or stopped in transit by such
Borrower;
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33. SECTION 2.2 of the Third Party Security Agreements executed by
Borrowers in connection with the NCFC Loan Agreement is hereby amended to read
as follows:
2.2 all Chattel Paper, Instruments, Documents, Investment
Property and General Intangibles (including without limitation all
patents, patent applications, trademarks, trademark applications,
tradenames, trade secrets, goodwill, copyrights, registrations,
licenses, franchises, customer lists, tax refund claims, claims
against carriers and shippers, guaranty claims, contracts rights,
security interests, security deposits and any rights to
indemnification);
34. SECTION 2.3 of the Third Party Security Agreements executed by
Borrowers in connection with the NCFC Loan Agreement is hereby amended to read
as follows:
2.3 all Inventory and minerals or the like;
35. SECTION 3.3 of the Third Party Security Agreements executed by
Borrowers in connection with the NCFC Loan Agreement is hereby amended to read
as follows:
3.3 [Intentionally Omitted].
36. SECTION 4.4 of the Third Party Security Agreements executed by
Borrowers in connection with the NCFC Loan Agreement is hereby amended to read
as follows:
4.4 Priority of Liens; Title to Properties. The security
interests and liens granted to Lender under this Agreement and the
other Financing Agreements constitute valid and perfected first
priority liens and security interests in and upon the Collateral
subject only to the liens permitted under Section 5.8 hereof.
Guarantor has good and marketable title to all of its properties and
assets subject to no liens, mortgages, pledges, security interests,
encumbrances or charges of any kind, except those granted to Lender
and such others as are permitted under Section 5.8 hereof.
37. SECTION 5.7 of the Third Party Security Agreements executed by
Borrowers in connection with the NCFC Loan Agreement is hereby amended to read
as follows:
5.7 Sale of Assets, Consolidation, Merger, Dissolution,
Etc. Guarantor shall not, directly or indirectly, (a) merge into or
with or consolidate with any other Person or permit any other Person
to merge into or with or consolidate with it, (bi sell, assign, lease,
transfer, abandon or otherwise dispose of any stock or indebtedness to
any other Person or
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<PAGE> 112
any of its assets to any other Person (except for sales of Inventory
in the ordinary course of business), (c) form or acquire any
subsidiaries, (d) wind up, liquidate or dissolve or (e) agree to do
any of the foregoing unless otherwise permitted under the Loan
Agreement in accordance with the terms and conditions set forth in the
Loan Agreement.
38. SECTION 5.8 of the Third Party Security Agreements executed by
Borrowers in connection with the NCFC Loan Agreement is hereby amended to read
as follows:
5.8 Encumbrances. Guarantor shall not create, incur, assume
or suffer to exist any security interest, mortgage, pledge, lien,
charge or other encumbrance of any nature whatsoever on any of its
assets or properties, including, without limitation, the Collateral,
except those permitted under the Loan Agreement in accordance with the
terms and conditions set forth in the Loan Agreement.
39. SECTION 5.9 of the Third Party Security Agreements executed by
Borrowers in connection with the NCFC Loan Agreement is hereby amended to read
as follows:
5.9 Indebtedness. Guarantor shall not incur, create, assume,
become or be liable in any manner with respect to, or permit to exist,
any obligations or indebtedness, except those permitted under the Loan
Agreement in accordance with the terms and conditions set forth in the
Loan Agreement.
40. SECTION 5.10 of the Third Party Security Agreements executed
by Borrowers in connection with the NCFC Loan Agreement is hereby amended to
read as follows:
5.10 Loans, Investments, Guarantees, Etc. Guarantor shall
not, directly or indirectly, make any loans or advance money or
property to any person, or invest in (by capital contribution,
dividend or otherwise) or purchase or repurchase the stock or
indebtedness or all or a substantial part of the assets or property of
any person, or guaranty, assume, endorse, or otherwise become
responsible for (directly or indirectly) the indebtedness,
performance, obligations or dividends of any Person or agree to do any
of the foregoing, except those permitted under the Loan Agreement in
accordance with the terms and conditions set forth in the Loan
Agreement.
41. SECTION 5.12 of each of the Third Party Security Agreements
executed by Borrowers in connection with the NCFC Loan Agreement is hereby
amended to read as follows:
5.12 Transactions with Affiliates. Guarantor shall not enter
into any transaction for the purchase, sale or exchange
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<PAGE> 113
of property or the rendering of any service to or by any affiliate,
except in the ordinary course of and pursuant to the reasonable
requirements of Guarantor's business and upon fair and reasonable
terms no less favorable to the Guarantor than Guarantor would obtain
in a comparable arm's length transaction with an unaffiliated person
except those permitted under the Loan Agreement in accordance with the
terms and conditions set forth in the Loan Agreement.
42. Each of the Third Party Security Agreements executed by
Borrowers in connection with the NCFC Loan Agreement is hereby amended by
adding a new SECTION 8.6 thereto which shall read as follows:
8.6 Waivers and Consents. Notice of acceptance of this
Agreement, the making of loans, advances and extensions of credit or
other financial accommodations to, and the incurring of any expenses
by or in respect of, Borrowers or any of them, and presentment,
demand, protest, notice of protest, notice of nonpayment or default
and all other notices to which Borrowers or any of them or Guarantor
are or may be entitled are hereby waived. Guarantor waives notice of,
and hereby consents to, (a) any amendment, modification, supplement,
renewal, restatement or extensions of time of payment of or increase
or decrease in the amount of any of the Obligations or to the
Financing Agreements or in any collateral, and the liens and security
interests granted herein shall apply to the Obligations as so amended,
modified, supplemented, renewed, restated or extended, increased or
decreased, (b) the taking, exchange, surrender and releasing of
collateral or guarantees now or at any time held by or available to
Lender for the obligations of Borrowers or any of them or any other
party at any time liable for or in respect of the Obligations
("Obligor"), (c) the exercise of, or refraining from the exercise of
any rights against Borrowers or any of them, Guarantor or any other
Obligor or any collateral, and (d) the settlement, compromise or
release of, or the waiver of any default with respect to, any
Obligations. Guarantor agrees that the amount of the Obligations, and
the liens and security interests created hereunder, shall not be
diminished and the liability of Guarantor hereunder shall not be
otherwise impaired or affected by any of the foregoing.
43. Immediately following the initial advances to the Borrowers
following the execution of this Fifth Amendment, the remaining Loan
Availability shall not be less than $1,500,000.00 and all of Borrowers'
accounts payable shall have been paid in a current fashion.
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<PAGE> 114
44. All of the NCFC Loan Documents are amended to incorporate the
same types of changes affecting the NCFC Loan Agreement that are described in
this Fifth Amendment.
45. Borrowers and Moffitt hereby acknowledge and reaffirm the
truth and accuracy of all of the Recitals contained in this Fifth Amendment and
the representations and other statements contained in the NCFC Loan Documents
(including the Fifth Amendment) as of the date hereof.
46. Borrowers and Moffitt, jointly and severally, hereby
represent, warrant and covenant to NCFC that NCFC's liens, security interests,
encumbrances and claims against the Collateral shall continue to be prior and
superior to any other liens, security interests, encumbrances or claims of any
kind except as otherwise specifically provided for in this Fifth Amendment, the
Intercreditor Agreement and the other NCFC Loan Documents.
47. Borrowers and Moffitt, jointly and severally, represent and
warrant to NCFC that they have not defaulted upon any of their respective
obligations under the NCFC Loan Documents. Notwithstanding anything to the
contrary contained herein, NCFC hereby reserves all of its rights and remedies
against Borrowers, Moffitt, any third party, or any of their assets for any
Event of Default under the NCFC Loan Documents that may have occurred prior to
the date hereof or may occur on or after the date hereof.
48. BORROWERS AND MOFFITT HEREBY WAIVE AND FOREVER DISCHARGE NCFC
AND ITS SHAREHOLDERS, DIRECTORS, OFFICERS, EMPLOYEES, AND AGENTS FROM ALL KNOWN
AND UNKNOWN, ABSOLUTE AND CONTINGENT, CLAIMS, DEFENSES, SETOFFS, COUNTERCLAIMS,
CAUSES OF ACTION, ACTIONS, SUITS OR OTHER LEGAL PROCEEDINGS OF ANY KIND
EXISTING OR ACCRUED AS OF THE DATE HEREOF.
49. Borrowers and Moffitt shall be jointly and severally liable
for the payment and performance of Borrowers' and Moffitt's present and future
indebtedness and obligations under the NCFC Loan Documents and all of
Borrowers' and Moffitt' present and future indebtedness and obligations to NCFC
under the NCFC Loan Documents and otherwise shall be secured by all of
Borrowers' and Moffitt's rights and assets described as a portion of NCFC's
collateral in the NCFC Loan Documents.
50. Borrowers and Moffitt, jointly and severally, shall pay all of
NCFC's attorneys' fees and other expenses incurred in connection with the
review, negotiation, drafting and execution of this Fifth Amendment and any
related documents. The amounts described in this paragraph shall be in
addition to, and not in lieu of, the interest, fees and other charges owing
under the NCFC Loan Documents.
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<PAGE> 115
51. The NCFC Loan Documents shall remain in full force and effect
except as amended by this Fifth Amendment.
52. This Fifth Amendment, the various documents described herein
(including the Intercreditor Agreement), and any additional documents executed
or obtained by NCFC in connection the foregoing represent the complete and
integrated understanding between the parties pertaining to the subject matter
hereof. All prior and contemporaneous understandings and agreements, written
or oral, express or implied, shall be of no further force and effect to the
extent inconsistent herewith.
53. This Fifth Amendment shall be governed by the laws of the
State of Colorado.
54. This Fifth Amendment may be executed in counterparts and shall
be effective when at least one counterpart hereof shall be executed by all of
the parties hereto.
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<PAGE> 116
55. BORROWERS, MOFFITT AND NCFC HEREBY WAIVE ALL RIGHTS TO TRIAL
BY JURY IN ANY ACTION OR PROCEEDING WHICH PERTAINS DIRECTLY OR INDIRECTLY TO
THIS FIFTH AMENDMENT, ANY OF THE OTHER LOAN DOCUMENTS, THE LIABILITIES, THE
COLLATERAL, ANY ALLEGED TORTIOUS CONDUCT BY BORROWERS OR NCFC OR WHICH, IN ANY
WAY, DIRECTLY OR INDIRECTLY, ARISES OUT OF OR RELATES TO THE RELATIONSHIP
BETWEEN BORROWERS AND NCFC. IN NO EVENT SHALL NCFC BE LIABLE FOR LOST PROFITS
OR OTHER SPECIAL OR CONSEQUENTIAL DAMAGES.
PORTFIELD INVESTMENTS, INC.
By:
-------------------------------------------
Name: Keith R. Holder
Title: President
WESCOURT GROUP, INC.
By:
-------------------------------------------
Name: Keith R. Holder
Title: President
WESCOURT DISTRIBUTING, INC.
By:
-------------------------------------------
Name: Keith R. Holder
Title: President
WESFRAC, INC.
By:
-------------------------------------------
Name: Paul J. Rath
Title: Chief Financial Officer and Secretary
WESTEC DENVER, INC.
By:
-------------------------------------------
Name: Paul J. Rath
Title: Chief Financial Officer and Secretary
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<PAGE> 117
PETRO-MARK CORP. UTAH
By:
--------------------------------------------------
Name: Keith R. Holder
Title: President
PETRO-MARK CORP.
By:
--------------------------------------------------
Name: Paul J. Rath
Title: Chief Financial Officer and Secretary
PETRO-MARK CORP., MONTROSE, INC.
By:
--------------------------------------------------
Name: Paul J. Rath
Title: Chief Financial Officer and Secretary
WESTEC FRUITA, INC.
By:
--------------------------------------------------
Name: Keith R. Holder
Title: President
MONTROSE PROPANE, INC.
By:
--------------------------------------------------
Name: Keith R. Holder
Title: President
GRAND MESA TEXACO, INC.
By:
--------------------------------------------------
Name: Keith R. Holder
Title: President
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<PAGE> 118
FRUITA RP HOLDING, INC.
By:
--------------------------------------------------
Name: Keith R. Holder
Title: President
SUPER MART CONVENIENCE STORES, INC.
By:
--------------------------------------------------
Name: Paul J. Rath
Title: Chief Financial Officer and Secretary
MOFFITT OIL COMPANY, INC.
By:
--------------------------------------------------
Name:
------------------------------------------------
Title:
-----------------------------------------------
NATIONAL CANADA FINANCE CORP.
By:
--------------------------------------------------
Name: William N. Tsiouvaras
Title: Vice President
By:
--------------------------------------------------
Name: Andrew M. Conneen, Jr.
Title: Vice President
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<PAGE> 119
EXHIBIT A
PERSONAL PROPERTY
1. All of the following pertaining to Borrowers' equipment:
(a) All Equipment, whether now owned or existing or
hereafter created, acquired or arising, or in which such Borrower now
has or hereafter acquires any rights (the term "Equipment" means and
includes all equipment and any other machinery, tools, fixtures, trade
fixtures, furniture, furnishings, office equipment and vehicles
(including vehicles subject to a certificate of title law), now or
hereafter used or usable in connection with such Borrower's business,
together with all parts, accessories and attachments relating to any
of the foregoing), including, without limitation, the Fractionator (as
defined in the Fourth Amendment);
(b) All supporting evidence and documents relating to any
of the above-described property, whether now owned or existing or
hereafter created, acquired or arising, including, without limitation,
delivery and installation certificates, invoice copies, delivery
receipts, insurance certificates and the like, together with all books
of account, ledgers and cabinets in which the same are reflected or
maintained;
(c) All accessions and additions to, and substitutions
and replacements of, any and all of the foregoing, whether now owned
or hereafter existing or hereafter created, acquired or arising; and
(d) All cash proceeds of the foregoing and any other
proceeds of the foregoing not constituting NCFC Collateral and all
insurance of the foregoing and cash proceeds thereof, whether now
owned or existing or hereafter created, acquired or arising.
2. All of the following pertaining to the shares of Wesfrac,
Westec Denver, and Moffitt:
Any and all right, title and interest of Wescourt Group, Inc.
and Wesfrac, Inc., whether now owned or existing or hereafter created,
acquired or arising, in and to the following:
(i) all shares of the capital stock of Wesfrac,
Inc., Westec Denver, Inc. and Moffitt Oil Company, Inc. owned
or held by Wescourt Group, Inc. and Wesfrac, Inc., whether now
existing or hereafter formed or acquired
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<PAGE> 120
(those shares delivered to and deposited with Heller
Financial, Inc., and all substitutions and additions to such
shares (herein, the "Pledged Securities");
(ii) all dividends, distributions and sums
distributable or payable from, upon or in respect of the
Pledged Securities;
(iii) all other rights and privileges incident to
the Pledged Securities; and
(iv) all cash proceeds of the foregoing and any
other proceeds of the foregoing not constituting NCFC
Collateral.
3. The collateral described in the Assignment of Stock Purchase
Agreement between JoAnn Moffitt, Roy Moffitt, Don Moffitt and Wesfrac dated on
or about April 11, 1997.
REAL PROPERTY
The following described property of Fruita RP Holding and all cash
proceeds and other proceeds thereof not constituting a portion of NCFC's
Collateral (which property is hereinafter sometimes collectively referred to as
the "Property"):
(a. The real estate located at 1493 Highway 6 & 50,
Fruita, Colorado 81521 (the "Land");
(b. All improvements of every nature whatsoever now or
hereafter situated on the Land and owned by Fruita RP Holding (the
"Improvements"), and all machinery, equipment and mechanical systems
and other equipment now or hereafter owned by Fruita RP Holding and
used in connection with the operation of the Improvements;
(c. All easements and appurtenances now or hereafter in
any way relating to the Land or Improvements or any part thereof;
(d. All agreements affecting the use, enjoyment or
occupancy of the Land and/or Improvements now or hereafter entered
into (the "Leases") and the immediate and continuing right to collect
all rents, income, receipts, royalties, profits, issues, service
reimbursements, fees, revenues and prepayments of any of the same from
or related to the Land and/or Improvements from time to time accruing
under the Leases and/or the operation of the Land and/or Improvements
(the "Rents"), reserving to Fruita RP Holding, however, so
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<PAGE> 121
long as no "Event of Default" has occurred under the Deed of Trust
from Fruita RP Holding to Heller, a revocable license to receive and
apply the Rents in accordance with the terms and conditions of
Paragraph 9 of such Deed of Trust;
(e. All claims, demands, judgments, insurance proceeds,
awards of damages and settlements hereafter made resulting from the
taking of the Land and/or the Improvements or any part thereof under
the power of eminent domain, or for any damage (whether caused by such
taking, by casualty or otherwise) to the Land or the Improvements or
any part thereof;
(f. To the extent assignable, all now or hereafter
existing management contracts and all permits, certificates, licenses,
approvals, entitlements and authorizations, however characterized,
issued or in any way furnished for the acquisition, construction,
operation and use of the Land, Improvements and/or Leases, including
building permits, environmental certificates, licenses, certificates
of operation, warranties and guaranties;
(g. Any monies on deposit with or for the benefit of
Heller for the payment of real estate taxes, insurance and other
matters pertaining to the Property.
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<PAGE> 122
SIXTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
AND RELATED DOCUMENTS
This Sixth Amendment to Loan and Security Agreement and Related
Documents ("Sixth Amendment") is executed by Portfield Investments, Inc., a
Colorado corporation ("Portfield"), Wescourt Group, Inc., a Delaware
corporation ("Wescourt"), Wescourt Distributing, Inc., a Colorado corporation
("Wescourt Distributing"), Wesfrac, Inc., a Colorado corporation ("Wesfrac"),
Westec Denver, Inc., a Colorado corporation ("Westec Denver"), Petro-Mark Corp.
Utah, a Colorado corporation ("Petro-Mark Utah"), Petro-Mark Corp., a Colorado
corporation ("Petro-Mark"), Petro-Mark Corp., Montrose, Inc., a Colorado
corporation ("Petro-Mark Montrose"), Westec Fruita, Inc., a Delaware
corporation ("Westec Fruita"), Montrose Propane, Inc., a Colorado corporation
("Montrose Propane"), Grand Mesa Texaco, Inc., a Colorado corporation ("Grand
Mesa"), Fruita RP Holding, Inc., a Delaware corporation ("Fruita RP Holding"),
Super Mart Convenience Stores, Inc. fka Petro-Mark Convenience Stores, Inc., a
Colorado corporation ("SMCS"), and Moffitt Oil Company, Inc., a Texas
corporation ("Moffitt"), all with an address at 1493 Highway 6 and 50, Fruita,
Colorado 81521 and National Canada Finance Corp. with an address at 1200 17th
Street, Suite 2760, Denver, Colorado 80202 ("NCFC"), for valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, on
this 12th day of August, 1997. Hereinafter, Portfield, Wescourt, Wescourt
Distributing, Wesfrac, Westec Denver, Petro-Mark Utah, Petro-Mark, Petro-Mark
Montrose, Westec Fruita, Montrose Propane, Grand Mesa, Fruita RP Holding, SMCS
and Moffitt may be referred to collectively as "Borrowers" and individually as
"Borrower."
RECITALS
A Borrowers (besides SMCS and Moffitt), Mesa Environmental, Inc.
fka Wescourt Environmental, Inc., a Colorado corporation ("MEI"), Fruita
Investments, Inc., a Colorado corporation ("FII") and Fruita Marketing &
Management, Inc., a Delaware corporation ("FMMI") executed and delivered to
NCFC a Loan and Security Agreement and various other loan documents on or about
October 6, 1995. Such documents have been amended by that certain First
Amendment to Loan and Security Agreement and Related Documents dated October 6,
1995, that certain Second Amendment to Loan and Security Agreement and Related
Documents dated August 23, 1996, that certain Third Amendment to Loan and
Security Agreement and Related Documents dated November 18, 1996, that certain
Fourth Amendment to Loan and Security Agreement and Related Documents dated
March 12, 1997 ("Fourth Amendment"), that Fifth Amendment to Loan and Security
Agreement and Related Documents dated April 11, 1997 ("Fifth Amendment") and
various related documents. Hereinafter, the Loan and Security Agreement and
any amendments,
<PAGE> 123
modifications, replacements and substitutions thereto may be referred to
collectively as the "NCFC Loan Agreement" and all of the documents described in
this paragraph, any related documents, instruments and agreements, and any
amendments, modifications, replacements and substitutions to any of the
foregoing may be referred to collectively as the "NCFC Loan Documents".
B All capitalized terms not otherwise defined herein shall have the
meanings ascribed to such terms in the NCFC Loan Agreement.
C Subject to the terms and conditions set forth in the NCFC Loan
Documents, MEI, FII, and FMMI have been released from their obligations to NCFC
thereunder.
D Petro-Mark Convenience Stores, Inc. has changed its name to
Super Mart Convenience Stores, Inc.
E Borrowers and NCFC wish to amend certain terms and conditions
set forth in the NCFC Loan Documents as set forth in this Sixth Amendment.
AGREEMENTS
1 Borrowers hereby acknowledge and reaffirm the truth and
accuracy of all of the foregoing Recitals and the representations and other
statements contained in the NCFC Loan Documents as of the date of this Sixth
Amendment.
2 The outstanding principal balance of the Liabilities of
Borrowers to Lender under the Loan Documents amounted to $13,557,357.71 as of
August 11, 1997 and interest, fees, and expenses are accruing thereon as set
forth in the Loan Documents.
3 SECTION 2(A) of the NCFC Loan Agreement is hereby amended to
read as follows:
(a) Subject to the terms and conditions of this Agreement
and the Other Agreements, prior to the Termination Date and so long as
no Event of Default has occurred hereunder, Lender shall make Loans to
any Borrower as such Borrower shall from time to time request;
provided, however, that: (i) the total amount of all Loans outstanding
to any Borrower shall not exceed such Borrower's Loan Availability at
any time; and (ii) the total unpaid principal of all Loans outstanding
to the Borrowers and all Letters of Credit issued for the account of
the Borrowers in the aggregate ("Maximum Credit") shall not exceed
Eighteen Million Dollars ($18,000,000.00) at any time.
2
<PAGE> 124
The total unpaid principal of all Loans outstanding to
Borrowers based upon Eligible Inventory shall not exceed Three Million
Dollars ($3,000,000.00) at any time.
Prior to Lender making any Loan, the Loans shall be repaid as
provided elsewhere in this Agreement. If at any time the outstanding
balance on any Borrower's Loans exceeds its Loan Availability or the
principal balance of the outstanding Loans to Borrowers in the
aggregate exceeds the Maximum Credit or any of the other restrictions
set forth in this Agreement, such Borrower or Borrowers shall
immediately, and without the necessity of a demand by Lender, pay to
Lender such amount as may be necessary to eliminate such excess.
4 SECTION 3(d) of the NCFC Loan Agreement is hereby amended to
read as follows:
(d) Borrowers shall pay to Lender an unused facility fee,
equal to one quarter of one percent (0.25%) per annum [computed on the
basis of a year of three hundred sixty days for the actual number of
days elapsed] of the amount by which Eighteen Million Dollars
($18,000,000.00) exceeds the sum of the average daily outstanding
Loans plus the average daily undrawn face amount of the Letters of
Credit, payable monthly in arrears, on the first day of each month
following the execution of this Agreement.
5 Borrowers and Moffitt, jointly and severally, hereby
represent, warrant and covenant to NCFC that NCFC's liens, security interests,
encumbrances and claims against the Collateral shall continue to be prior and
superior to any other liens, security interests, encumbrances or claims of any
kind except as otherwise specifically provided for in the NCFC Loan Documents.
6 Borrowers and Moffitt, jointly and severally, represent and
warrant to NCFC that they have not defaulted upon any of their respective
obligations under the NCFC Loan Documents. Notwithstanding anything to the
contrary contained herein, NCFC hereby reserves all of its rights and remedies
against Borrowers, any third party, or any of their assets for any Event of
Default under the NCFC Loan Documents that may have occurred prior to the date
hereof or may occur on or after the date hereof.
7 BORROWERS HEREBY WAIVE AND FOREVER DISCHARGE NCFC AND ITS
SHAREHOLDERS, DIRECTORS, OFFICERS, EMPLOYEES, AND AGENTS FROM ALL KNOWN AND
UNKNOWN, ABSOLUTE AND CONTINGENT, CLAIMS, DEFENSES, SETOFFS, COUNTERCLAIMS,
CAUSES OF ACTION, ACTIONS, SUITS OR OTHER LEGAL PROCEEDINGS OF ANY KIND
EXISTING OR ACCRUED AS OF THE DATE HEREOF.
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<PAGE> 125
8 Borrowers shall be jointly and severally liable for the
payment and performance of Borrowers' present and future indebtedness and
obligations under the NCFC Loan Documents and all of Borrowers' present and
future indebtedness and obligations to NCFC under the NCFC Loan Documents and
otherwise shall be secured by all of Borrowers' rights and assets described as
a portion of NCFC's collateral in the NCFC Loan Documents.
9 Borrowers,jointly and severally, shall pay NCFC a fully-earned
and non-refundable loan modification fee in the amount of $20,000.00 upon the
execution of this Sixth Amendment. In addition, upon NCFC's demand, Borrowers,
jointly and severally, shall pay all of NCFC's attorneys' fees and other
expenses incurred in connection with the review, negotiation, drafting and
execution of this Sixth Amendment and any related documents. The amounts
described in this paragraph shall be in addition to, and not in lieu of, the
interest, fees and other charges owing under the NCFC Loan Documents.
10 The NCFC Loan Documents shall remain in full force and effect
and as amended by this Sixth Amendment.
11 This Sixth Amendment, the other NCFC Loan Documents, and any
additional documents executed or obtained by NCFC in connection the
foregoing represent the complete and integrated understanding between the
parties pertaining to the subject matter hereof. All prior and contemporaneous
understandings and agreements, written or oral, express or implied, shall be of
no further force and effect to the extent inconsistent therewith.
12 This Sixth Amendment shall be governed by the laws of the
State of Colorado.
13 This Sixth Amendment may be executed in counterparts and shall
be effective when at least one counterpart hereof shall be executed by all of
the parties hereto.
14 BORROWERS AND NCFC HEREBY WAIVE ALL RIGHTS TO TRIAL BY JURY IN
ANY ACTION OR PROCEEDING WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS SIXTH
AMENDMENT, ANY OF THE OTHER LOAN DOCUMENTS, THE LIABILITIES, THE COLLATERAL, ANY
ALLEGED TORTIOUS CONDUCT BY BORROWERS OR NCFC OR WHICH, IN ANY WAY, DIRECTLY OR
INDIRECTLY, ARISES OUT OF OR RELATES TO THE RELATIONSHIP BETWEEN BORROWERS AND
NCFC. IN NO EVENT SHALL NCFC BE LIABLE FOR LOST PROFITS OR OTHER SPECIAL OR
CONSEQUENTIAL DAMAGES.
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<PAGE> 126
PORTFIELD INVESTMENTS, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
WESCOURT GROUP, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
WESCOURT DISTRIBUTING, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
WESFRAC, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
WESTEC DENVER, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
PETRO-MARK CORP. UTAH
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
5
<PAGE> 127
PETRO-MARK CORP.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
PETRO-MARK CORP., MONTROSE, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
WESTEC FRUITA, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
MONTROSE PROPANE, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
GRAND MESA TEXACO, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
FRUITA RP HOLDING, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
6
<PAGE> 128
SUPER MART CONVENIENCE STORES, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
MOFFITT OIL COMPANY, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
NATIONAL CANADA FINANCE CORP.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
7
<PAGE> 1
Exhibit 10.10
TERM LOAN AND GUARANTY AGREEMENT
THIS TERM LOAN AND GUARANTY AGREEMENT made, entered into and effective as
of the 11th day of April, 1997, by and among WESFRAC, INC., a Colorado
corporation ( Wesfrac ), WESTEC DENVER, INC., a Colorado corporation ( Westec
Denver ) and MOFFITT OIL COMPANY, INC., a Texas corporation ( Moffitt ), and
HELLER FINANCIAL, INC., a Delaware corporation ( Lender ) and the Guarantors
(as such term and other capitalized terms used herein without definition are
defined in Section 1. 1 hereof).
W I T N E S S E T H:
WHEREAS, Borrowers have applied to Lender for a term loan facility in the
aggregate principal amount of up to Seven Million Dollars ($7,000,000.00), the
proceeds of which will be used by Borrowers to finance the Acquisition and
refinance certain indebtedness of the Borrowers owing to NCFC;
WHEREAS, Lender has considered Borrowers' request for such financing and
is willing to extend such financing to Borrowers for such purposes subject to
the terms of this Agreement;
NOW, THEREFORE, in consideration of the foregoing premises, to induce
Lender to extend the financing provided for herein, and for other good and
valuable consideration, the sufficiency and receipt of all of which are
acknowledged by Borrowers and the Guarantors, Lender, Borrowers and the
Guarantors agree as follows:
1. DEFINITIONS, TERMS AND REFERENCES.
1.1. Certain Definitions. In addition to such other terms as are
elsewhere defined herein, as used in this Agreement and in any Exhibits, the
following terms shall have the following meanings, unless the context requires
otherwise:
Acquisition shall mean the acquisition of Moffitt contemplated by the
Acquisition Agreement.
Acquisition Agreements shall mean that certain Stock Purchase Agreement
dated April 11th, 1997 between Moffitt, JoAnn Moffitt, Roy Moffitt, Donald
Moffitt, Jr. and Wesfrac, the Moffitt Noncompete Agreements and all agreements
or documents delivered pursuant thereto or contemplated thereby.
Acquisition Agreement Assignment shall mean that certain Assignment of
Stock Purchase Agreement dated as of the date hereof by and between Wesfrac and
Lender with an acknowledgment thereof by JoAnn Moffitt, Roy Moffitt and Donald
Moffitt Jr.
1
<PAGE> 2
Affiliate in relation to any particular Person, shall mean any other
Person which, directly or indirectly, controls, or is controlled by, or is
under common control with, such Person. For purposes of this definition,
control shall mean the power, directly or indirectly, to (a) vote ten percent
(10%) or more of the outstanding stock having ordinary voting power for the
election of directors of such Person or (b) direct the management or policies
of such Person, whether by contract or otherwise. The term Affiliate shall
include, without limitation, and in any event, in respect of Borrower, (i) each
shareholder, and each officer and director of Borrower; and (ii) any
subsidiaries of Borrower that are at least 51% owned or controlled (by contract
or otherwise) by Borrower.
Agreement shall mean this Term Loan and Guaranty Agreement, as amended or
supplemented from time to time.
Applicable Rate shall mean (a) three and one-fourth percent (3.25%) plus
the Five Year Treasury Rate or (b) the Default Rate, as made applicable to the
Term Loan, pursuant to Section 2.4 hereof.
Bankruptcy Code shall mean Title 11 of the United. States Code, as amended
from time to time.
Borrowers mean, collectively, Wesfrac, Westec Denver and Moffitt and all
promises, covenants, representations and warranties of the Borrowers made in
the Loan Documents or in any other instruments or documents delivered pursuant
hereto or thereto shall be and constitute the joint and several promises,
covenants, representations and warranties of each and all of Wesfrac, Westec
Denver and Moffitt.
Business Day shall mean any day excluding Saturday, Sunday and any day
which is a legal holiday under the laws of the States of Illinois or Colorado
or is a day on which banking institutions located in such States are closed.
Closing Date shall mean the date of this Agreement.
Collateral shall mean, collectively, the Equipment Collateral, the Pledged
Stock, the Mortgaged Premises Headquarters, the Acquisition Agreement
Assignment and all other properties, rights, interests and privileges from time
to time subject to the Liens granted to the Lender pursuant to the Collateral
Documents.
Collateral Documents shall mean the Acquisition Agreement Assignment, the
Security Agreement, the Mortgage, the Stock Pledge Agreement together with all
other security agreements, mortgages, deeds of trust, assignments, financing
statements and other agreements and documents as shall from time to time secure
the Obligations.
Compliance Certificate shall mean a certificate of Borrowers executed by
the chief financial officer of each Borrower, on Borrowers' behalf, stating
that no Event of Default or Default Condition has occurred or exists, or if an
Event of Default or
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<PAGE> 3
Default Condition has occurred or exists, specifying the nature and period of
existence thereof and what action Borrowers have taken or propose to take with
respect thereto.
Default Condition has occurred or exists, or if an Event of Default or
Default Condition has occurred or exists, specifying the nature and period of
existence thereof and what action Borrowers have taken or propose to take with
respect thereto.
"Condemnation Proceeds" shall mean all compensation, awards, damages,
rights of action and proceeds due any Loan Party arising from any taking by any
lawful power or authority by exercise of the rights of condemnation or eminent
domain with respect to any of the Collateral.
"Contaminant" shall mean those substances which are regulated by or form
the basis of liability under federal, state or local environmental, health and
safety statutes or regulations including, without limitation, asbestos,
polychlorinated biphenyls ("PCBs") radioactive substances, petroleum, petroleum
products or any other material or substance which constitutes a material
health, safety or environmental hazard to any Person or Property.
"Convenience Stores" shall mean Super Mart Convenience Stores, Inc., a
Colorado corporation (formerly known as Petro-Mark Convenience Stores, Inc.).
"Debt to Worth Ratio" shall mean the ratio of (a) total liabilities
(excluding Subordinated Indebtedness) of the Wescourt Companies (computed on a
consolidated basis in accordance with GAAP) to (b) Net Worth.
"Default Condition" shall mean the occurrence of any event which, after
satisfaction of any requirement for the giving of notice or the lapse of time,
or both, would become an Event of Default.
"Default Rate" shall mean that simple interest rate equal to three percent
(3 %) per annum in excess of the Applicable Rate.
"EBITDA" means, with reference to any period, Net Earnings for such period
plus all amounts deducted in arriving at such Net Earnings amount in respect of
(i) interest expense for such period, plus (ii) federal, state and local income
taxes for such period, plus (iii) all amounts properly charged for depreciation
of fixed assets and amortization of intangible assets during such period on the
books of the Wescourt Companies and their Subsidiaries.
"Environmental Claim" shall mean any notice of violation, claim, suit,
demand, abatement or other order or direction (conditional or otherwise) by any
Governmental Authority or any Person for personal injury (including sickness,
disease or death), tangible or intangible property damage, damage to the
environment, pollution, contamination or other adverse effects on the
environment, or for fines, penalties or restrictions, resulting from or based
upon (i) the
3
<PAGE> 4
existence, or the continuation of the existence, of a Release (including,
without limitation, sudden or non-sudden, accidental or non-accidental
Releases) of, or exposure to, any Contaminant, or other release or emission in,
into or onto the environment (including, without limitation, the air, ground,
surface water, ground water or any surface) in, by, from, or related to any
Property, (ii) the environmental aspects of the transportation, storage,
treatment or disposal of materials, in connection with the operation of any
Property or (iii) the violation, or alleged violation, of any statutes,
ordinances, orders, rules, regulations, Permits, licenses, registrations or
approvals of or from any Governmental Authority relating to environmental
matters connected with any Property.
"Environmental Laws" shall mean all laws relating to the environmental,
safety, health and the regulation of Contaminants, including, without
limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act (42 U.S.C. Section 9601 et seq.), the Superfund Amendments and
Reauthorization Act of 1986, Public Law No. 99-499, 100 Stat. 163, the
Hazardous Material Transportation Act (49 U.S. C. Section 1801 et seq.), the
Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), the
Clean Water Act (33 U.S.C. Section 1251 et seq.), the Clean Air Act (42 U.S.C.
Section 7401 et seq.), the Toxic Substances Control Act, as amended (15 U.S.C.
Section 2601 et seq.), the Federal Insecticide, Fungicide, and Rodenticide Act
(7 U.S.C. Section 1369 et seq.), and the Occupational Safety and Health Act
(29 U.S.C. Section 651 et seq.), as such laws have been and hereafter may be
amended or supplemented, and any analogous future federal, or present or future
state or local laws and all rules and regulations promulgated pursuant thereto.
"Equipment Collateral" shall mean all equipment, vehicles, machinery,
furniture, furnishings, fixtures and related rights and properties owned or
leased by any Loan Party more particularly described in the Security Agreement.
"Event of Default" shall mean any of the events or conditions described in
Article 7 provided that any requirement for the giving of notice or the lapse
of time, or both, has been satisfied.
"First Portfield Loan Documents" shall mean the First Portfield Note and
the other agreements, instruments and documents executed or delivered by
Convenience Stores in connection therewith.
"First Portfield Note" shall mean the promissory note dated March 12, 1997
of Convenience Stores payable to the order of Portfield in the original
principal amount of $2,500,000.
"Five Year Treasury Rate" shall mean the yield to maturity, determined at
the close of business on the third Business Day immediately preceding the
Closing Date, on a currently outstanding, recently issued United States
Treasury Note with the same maturity as the Term Note; provided that if there
is no United States Treasury Note having such maturity, the maturity
4
<PAGE> 5
date used for purposes of this definition shall be the next following maturity
date, based upon chronological order.
"Fixed Charges" shall mean, with reference to any period, the sum of (i)
the aggregate amount of payments required to be made by the Wescourt Companies
and their Subsidiaries during the period in respect of principal on all
Indebtedness for borrowed money (whether at maturity, as a result of mandatory
sinking fund redemption, mandatory prepayment, acceleration or otherwise), plus
(ii) interest expense for such period, computed on a consolidated basis in
accordance with GAAP.
"Fractionator" shall mean that certain fractionator of Wesfrac located in
Fruita, Colorado which has been pledged as Collateral for the Obligations
pursuant to the Security Agreement.
"Fruita Holding" shall mean Fruita RP Holding, Inc., a Delaware
corporation.
"GAAP" shall mean generally accepted accounting principles which are (a)
consistent with the principles promulgated or adopted by the Financial
Accounting Standards Board and its predecessors as in effect from time to time,
(b) such that a certified public accountant would, insofar as the use of
accounting principles is pertinent, be in a position to deliver an unqualified
opinion as to financial statements in which such principles have been properly
applied and (c) applied on a basis consistent with prior periods; provided that
any changes in GAAP after the date hereof that would affect the calculation of
the covenants set forth in Section 6 shall be excluded in making such
calculations.
"Governmental Authority" shall mean any nation or government, federal,
state, city, town, municipality, county, local or political subdivision thereof
or thereto and any department, commission, instrumentality or agency exercising
executive, legislative, judicial, regulatory or administrative functions on
behalf thereof.
"Grand Mesa" shall mean Grand Mesa Texaco, Inc., a Colorado corporation.
"Guarantors" shall mean collectively, Portfield, Wescourt, Wescourt
Distributing, Petromark Utah, Petromark, Petromark Montrose Grand Mesa, Fruita
Holding, Westec Fruita and Montrose Propane and all promises, covenants,
representations and warranties of the Guarantors made in the other Loan
Documents or in any other instruments or documents delivered pursuant thereto
or thereto shall constitute the joint and several promises covenants,
representations and warranties of each and all of Portfield, Wescourt, Wescourt
Distributing, Petromark Utah, Petromark, Petromark Montrose and Montrose
Propane.
"Hazardous Materials" shall include Hazardous Substances, as defined by
the Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. Section 9601 et seq., any petroleum or petroleum products (excluding a
small quantity of gasoline and oil used in maintenance equipment on the
Property), asbestos or asbestos containing material, or any other
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<PAGE> 6
hazardous substances, hazardous wastes or hazardous materials as defined by
other Environmental Laws.
"Headquarters Mortgage" shall mean that certain Deed of Trust, Assignment
of Rents and Security Agreement and Fixture Filing bearing even date herewith
from Fruita Holding in favor of Lender.
"Indebtedness" shall mean, without duplication, all obligations,
contingent and otherwise, of the Wescourt Companies which in accordance with
GAAP should be classified as liabilities upon a consolidated balance sheet of
the Wescourt Companies, or to which reference should be made by footnotes
thereto, including, without limitation, in any event and whether or not so
classified: (a) all debt and similar monetary obligations, whether direct or
indirect; (b) all liabilities secured by any mortgage, pledge, security
interest, lien, charge, or other encumbrance existing on property owned or
acquired subject thereto, whether or not the liability secured thereby shall
have been assumed; and (c) all guarantees, endorsements and other contingent
obligations, whether direct or indirect, in respect of Indebtedness of others,
including any obligation to supply funds to or in any manner to invest in,
directly or indirectly, the debtor, to purchase Indebtedness, or to assure the
owner of Indebtedness against loss, through an agreement to purchase goods,
supplies, or services for the purpose of enabling the debtor to make payment of
the Indebtedness held by such owner or otherwise, and the obligations to
reimburse the issuer in respect of any letters of credit, except that
Indebtedness shall not include the amount of any Loan Party's obligations under
guaranties for the benefit of financial institutions lending to dealers that
enter into long-term exclusive supply contracts with another Loan Party.
"Independent Accountants" shall mean a firm of independent public
accountants selected by Borrowers and reasonably acceptable to Lender, it being
acknowledged by Lender that Coopers & Lybrand is so acceptable.
"Intercreditor Agreement" shall mean that certain Intercreditor and
Subordination Agreement dated as of March 12, 1997 as amended and restated
pursuant to that certain First Amended and Restated Intercreditor and
Subordination Agreement dated as of the date hereof among Borrowers, Lender,
NCFC, WLD Trust, Portfield and the other parties thereto as amended, modified,
substituted or replaced from time to time.
"Lender" shall have the meaning ascribed thereto in the initial recitals
to this Agreement. The term "Lender" shall also include any Participant to
whom Lender shall assign, in whole or in part, its right, title and interest in
and to the Obligations and hereunder subsequent to the Closing Date.
"Lien" means any mortgage, lien, security interest, pledge, charge or
encumbrance of any kind in respect of any Property, including the interests of
a vendor or lessor under any conditional sale.
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<PAGE> 7
"Loan Documents" shall mean this Agreement, the Term Note, the Collateral
Documents, the Intercreditor Agreement, and each and every other document,
instrument, certificate and agreement executed and/or delivered by any Loan
party in connection herewith, or any one, more, or all of the foregoing, all as
the context shall require.
"Loan Parties" means, collectively, any of the Borrowers and the
Guarantors and the promises, covenants, representations and warranties of the
Loan Parties made herein or in any other Loan Document shall be and constitute
the joint and several promises, covenants, representations and warranties of
each and all of the Loan Parties.
"Loan Year" means each period of twelve (12) consecutive months commencing
on the Closing Date and on each anniversary thereof, due and payable or
otherwise perform its obligations hereunder or under the other Loan Documents;
or (iii) the failure or inability, of such Loan Party to pay its obligations to
its creditors generally.
Material Adverse Effect shall mean an effect that has resulted in, will
result in, or is reasonably likely to result in, a Material Adverse Change.
Material Agreements shall mean all franchise and distribution rights
agreements with any petroleum companies; all real property leases with respect
to any Property; all loan and other debt instruments and agreements; all
management, employment and labor agreements; and any and all other agreements,
not specified hereinabove; provided, that in all cases cited above, the loss,
diminution or impairment of any such other agreement would have, or would
reasonably be expected to have, a Material Adverse Effect.
Moffitt shall mean Moffitt Oil Company, Inc., a Texas corporation.
Moffitt Noncompete Agreements shall mean (a) that certain Covenant to
Refrain from Certain Business Activities between Joann Moffitt and Wesfrac, (b)
that certain Covenant to Refrain from Certain Business Activities between Roy
Moffitt and Wesfrac and (c) that certain Covenant to Refrain from Certain
Business Activities between Donald Moffitt and Wesfrac.
Montrose-Propane shall mean Montrose Propane, Inc., a Colorado
corporation.
Morgan Demand Note shall mean the promissory note of Portfield dated April
11, 1997 payable to the order of Morgan Guaranty in the face principal amount
of $4,500,000.
Morgan Financing shall mean all indebtedness from time to time owing by
Portfield to Morgan Guaranty under the Morgan Loan Documents.
Morgan Loan Documents shall mean the Morgan Demand Note, the WLD Guaranty
and the other agreements, instruments and documents executed or delivered in
connection with the Morgan Financing.
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<PAGE> 8
Mortgaged Premises - Headquarters shall mean the real estate, building and
other Properties located thereon at 1493 Highway 6 and 50, Fruita, Colorado
81521 as more particularly described in the Headquarters Mortgage.
Mortgaged Properties shall mean the Mortgaged Premises-Headquarters and
all other Property subject to the Liens and security interests granted pursuant
to the Mortgages.
Mortgages shall mean the Headquarters Mortgage and all other mortgages,
deeds of trust or similar instruments pursuant to which Lender shall obtain a
mortgage lien, security interest or security title on or in any right, tide and
ownership of any Loan Party, as owner, lessee or otherwise, in and to any real
property owned by such Loan Party.
"Mortgages" shall mean the Headquarters Mortgage and all other mortgages,
deeds of trust or similar instruments pursuant to which Lender shall obtain a
mortgage lien, security interest or security title on or in any right, tide and
ownership of any Loan Party, as owner, lessee or otherwise, in and to any real
property owned by such Loan Party.
"NCFC" means National Canada Finance Corp.
"NCFC Collateral" shall have the same meaning herein a such term is
defined in the Intercreditor Agreement.
"NCFC Lien" means NCFC's Liens in any assets pledged to NCFC from time to
time pursuant to the NCFC Loan Documents which are subject to the Intercreditor
Agreement.
"NCFC Loan Documents" means that certain Loan and Security Agreement dated
as of October 6, 1995 among NCFC, Portfield, Wesfrac, Wescourt, Petro-Mark
Montrose, Wesfrac Fruita and certain other borrowers (as such agreement has
been or will be amended from time to time) and each of the agreements related
thereto, or any replacement or similar credit facility.
"Net Worth" shall mean, at any time, for the Wescourt Companies the total
of shareholders' equity (including capital stock, additional paid-in capital,
and retained earnings) plus Subordinated Indebtedness all as calculated on a
consolidated basis in accordance with GAAP.
"Net Earnings" shall mean, for any period for which the same is being
computed, the gross revenues of the Wescourt Companies for such period less all
expenses and other proper charges (including taxes on income) determined on a
consolidated basis in accordance with GAAP but excluding in any event any gains
resulting from the sale or other disposition of investments or other assets not
in the ordinary course of business, gains resulting from any reappraisal,
revaluation or write-up of assets and other extraordinary gains.
"Obligations" shall mean and include any and all indebtedness, liabilities
and obligations of the Loan Parties, or any of them, to Lender arising
hereunder or as a result hereof or under any
8
<PAGE> 9
other Loan Document, whether evidenced by the Term Note, provided for in
Article 9 hereof or otherwise, whether now existing or hereafter arising and
any and all extensions or renewals thereof in whole or in part.
"Participant" shall mean any Person to whom, now or hereafter, Lender
sells a participation interest in, or makes an assignment of, its right, title
or interest hereunder and in the Obligations (whether in whole or in part).
"Permit" shall mean any permit, approval, authorization, license,
variance, or permission required from a Governmental Authority having
jurisdiction under an applicable Environmental Law.
"Permitted Encumbrances" shall mean:
(1) liens for taxes, assessments or other governmental charges not
yet due and payable;
(2) statutory liens incurred by any Loan Party or its subsidiaries
of landlords, carriers, warehousemen, mechanics, materialmen and other similar
liens imposed by law, which are incurred in the ordinary course of business for
sums not more than thirty (30) days delinquent or which are being contested in
good faith; provided that a reserve or other appropriate provision shall have
been made therefor if required by GAAP and the aggregate amount of such liens
is less than $50.000;
(3) liens (other than any lien imposed by the Employee Retirement
Income Security Act of 1974 or any rule or regulation promulgated thereunder)
incurred or deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security, or to secure the performance of tenders, statutory obligations,
surety, stay, customs and appeal bonds, bids, leases, government contracts,
trade contracts, performance and return of money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);
(4) liens incurred by any Loan Party or its Subsidiaries for
purchase money obligations in an aggregate amount not to exceed $500,000 at any
time, provided any such lien encumbers only the asset so purchased or leased
and secures only Indebtedness incurred for the purchase of such asset;
(5) any attachment or judgment lien not constituting an Event of
Default under Section 7;
(6) easements, rights of way, restrictions, and other similar
charges or encumbrances not interfering in any material respect with the
ordinary conduct of the business of any Loan Party or any of its subsidiaries;
9
<PAGE> 10
(7) the NCFC Lien;
(8) the Portfield Lien and liens in favor of WLD subject to the
Intercreditor Agreement;
(9) involuntary lines incurred in the ordinary course of any Loan
Party's business (other than in connection with Indebtedness in an aggregate
principal amount with respect to such Loan Party not to exceed $50,000 at any
time;
(10) liens in favor of Lender; and
(11) the liens set forth on Schedule 1.1.
"Person" shall mean any individual, partnership, corporation, trust,
unincorporated association, business trust, sole proprietorship, or joint
venture, a government or any department, agency, political subdivision or
instrumentality thereof, or any other entity or organization.
"Petromark" shall mean Petro-Mark Corp., a Colorado corporation.
"Petromark Montrose" shall mean Petro-Mark Corp., Montrose, Inc., a
Colorado corporation.
"Petromark Utah" shall mean Petro-Mark Corp. Utah, a Colorado corporation.
"Pledged Stock" shall mean the shares of the capital stock of Wesfrac,
Westec Denver and Moffitt pledged pursuant to the Stock Pledge Agreement.
"Portfield" shall mean Portfield Investments, Inc., a Colorado
corporation.
"Portfield Lien" shall mean Portfield's Liens in those assets of
Convenience Stores and Moffitt pledged to Portfield to secure the Portfield
Loan (as defined in the Intercreditor Agreement) and the Second Portfield Loan
(as defined in the Intercreditor Agreement), together with the assignment of
such Liens to WLD pursuant to that certain Amended and Restated WLD Assignment
and Security Agreement dated as of the date hereof from, inter alia, Portfield
to WLD, which is subject to the terms of the Intercreditor Agreement.
"Property" shall mean any real or personal property owned, leased or
operated by the Loan Parties.
"Qualified Initial Public Offering" means an initial underwritten public
offering and sale for cash by Portfield or its successors of the common stock
of Portfield or its successors to an underwriter or underwriters pursuant to a
"firm commitment" underwriting agreement and registration statement declared
effective by the Securities and Exchange Commission under the
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<PAGE> 11
Securities Act of 1933, as amended, in which the Company receives net proceeds
of at least $10,000,000.
"Release" shall mean any actual or threatened release, spill, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching
or migration of Contaminants into the indoor or outdoor environment or into or
out of any Property, through or into the air, soil, subsurface strata, surface
water or ground water.
"Remedial Action" shall mean all actions required to (1) clean up, remove,
treat or m any . other way address Contaminants in the indoor or outdoor
environment; (2) prevent the Release or threat of Release or minimize the
further Release of Contaminants so they do not migrate or endanger or threaten
to endanger public health or welfare or the indoor or outdoor environment; or
(3) perform pre-remedial studies and investigations and post-remedial
monitoring and care in respect of actions contemplated in the preceding clauses
(1) and (2), in each instance in compliance with Environmental Laws.
"Second Portfield Loan" shall mean the term loan in the original principal
amount of $2,000,000 from Portfield to Wesfrac made pursuant to the Second
Portfield Loan Documents.
"Second Portfield Loan Documents" shall mean any and all agreements,
instruments and documents, as in effect on the date hereof evidencing or
securing the Second Portfield Loan, including without limitation, the Second
Portfield Note, the related security agreements and financing statements, dated
on or about the date of this Agreement.
"Second Portfield Note" shall mean that certain Promissory Note of Wesfrac
payable to the order of Portfield in the original principal amount of
$2,000,000 dated on or about the date of this Agreement.
"Security Agreement" shall mean that certain Security Agreement re:
Equipment dated as of even date herewith from the Loan Parties in favor of the
Lender.
"Stock Pledge Agreement" shall mean that certain Pledge Agreement dated
the date hereof executed and delivered by Wescourt and Wesfrac in favor of
Lender pledging all of the shares of the Wesfrac, Westec Denver and Moffitt as
security for the Obligations, which Pledge Agreement shall be in form and
substance reasonably satisfactory to Lender.
"Subsidiary" shall mean, with respect to any Person, any corporation or
partnership of which more than 50% of the outstanding equity interests having
the power to vote is at the time directly or indirectly owned by such Person,
by one or more Subsidiaries of such Person, or by such Person and one or more
of its Subsidiaries.
"Subordinated Indebtedness" shall mean, with respect to any Person,
Indebtedness of such Person which has been subordinated in right of payment to
the prior payment of all indebtedness, obligations and liabilities of the Loan
Parties or any of them owing to the Lender.
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"Tangible Net Worth" shall mean Net Worth less intangible assets
(including goodwill) of the Wescourt Companies computed on a consolidated basis
in accordance with GAAP.
"Term-Loan" shall mean the term loan made by Lender to Borrowers pursuant
to Section 2.1 below.
"Term Loan Facility" shall mean the term loan facility in the maximum
amount of Seven Million Dollars ($7,000,000) established by Lender in favor of
Borrowers pursuant to Section 2.1.
"Term Note" shall mean the joint and several Term Note in the form
attached hereto as Exhibit A issued by Borrowers to Lender to evidence the
repayment obligation associated with the Term Loan, as the same may from time
to time be amended together with any notes issued in substitution or
replacement therefor and any extensions or renewals thereof, in whole or in
part.
"UCC" shall mean the Uniform Commercial Code of Illinois, as in effect
from time to time.
"Wescourt" shall mean Wescourt Group, Inc., a Delaware corporation.
"Wescourt Distributing" shall mean Wescourt Distributing, Inc., a Colorado
corporation.
"Wescourt Companies" means Portfield and each of its Subsidiaries.
"Westec Fruita" shall mean Westec Fruita, Inc., a Delaware corporation.
"Wescourt Guaranty" shall mean the guaranty from Wescourt in favor of
Portfield guaranteeing the First Portfield Note.
"Wescourt WLD Guaranty" shall mean the guaranty from Wescourt in favor of
Portfield guaranteeing the WLD Guaranty.
"WLD" shall mean the WLD Trust, an Ohio testamentary trust.
"WLD Guaranty" shall mean the guaranty from WLD in favor of Morgan
Guaranty guaranteeing the Morgan Demand Note.
"WLD Guaranty Documents" shall mean the WLD Guaranty and all agreements,
instruments or documents executed or delivered in connection therewith.
1.2. USE OF DEFINED TERMS. All terms defined in this Agreement and the
Exhibits shall have the same defined meanings when used in any other Loan
Documents, unless the context shall require otherwise.
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1.3. ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall have the meanings generally attributed to such terms under GAAP.
1.4. UCC TERMS. The terms "equipment", "proceeds" and "products", as and
when used in the Loan Documents, together with any other or similar terms not
specifically defined herein but which are defined in the UCC shall have the
same meanings as given to such terms therein.
1.5. TERMINOLOGY. All personal pronouns used in this Agreement, whether
used in the masculine, feminine or neuter gender, shall include all other
genders; the singular shall include the plural, and the plural shall include
the singular. Titles of Articles and Sections in this Agreement are for
convenience only, and neither limit nor amplify the provisions of this
Agreement, and all references in this Agreement to Articles, Sections,
Subsections, paragraphs, clauses, subclauses or Exhibits shall refer to the
corresponding Article, Section, Subsection, paragraph, clause, subclause of, or
Exhibit attached to, this Agreement, unless specific reference is made to the
articles, sections or other subdivisions divisions of, or Exhibit to, another
document or instrument.
1.6. EXHIBITS. All Exhibits attached hereto are by reference made a part
hereof as fully as if the contents thereof were set forth expressly herein.
2. THE FINANCING.
2.1. TERM LOAN FUND. Subject to the terms and conditions of this
Agreement and in reliance upon the representations and warranties of Borrowers
and the other Loan Parties set forth herein and in the Loan Documents, Lender
agrees to lend Borrowers, on the Closing Date, an amount not to exceed Seven
Million Dollars ($7,000,000.00), for the purpose of financing the Acquisition
and refinancing certain term Indebtedness owing to NCFC. The Term Loan shall
be funded in one drawing and no amount of the Term Loan may be reborrowed once
disbursed, notwithstanding its repayment. Borrowers shall make principal and
interest payments on the dates and in the amounts as set forth in Sections 2.3
and 2.4.
2.2. TERM NOTE. The indebtedness represented by the Term Loan shall be
evidenced by the Term Note. The Term Note shall be executed by Borrowers and
delivered to Lender coincident with the disbursement of the Term Loan on the
Closing Date.
2.3. AMORTIZATION. The principal amount of the Term Loan shall be repaid
in sixty (60) consecutive equal monthly installments of principal and interest
based upon an the amortization schedule set forth in Exhibit B hereto, with a
sixty first (61st) and final balloon installments payment being equal to the
then unpaid principal on such Term Loan, plus any accrued and outstanding
interest thereon, to be due and payable on May 1, 2002, the final maturity
thereof.
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2.4. INTEREST. The Term Note shall bear interest (computed on the
basis of a year of 360 days for the actual number of days elapsed) at the rate
per annum determined by adding three and one fourth percent (3-1/4%) to the
Five Year Treasury Rate. Interest on the Term Loan shall be payable monthly in
arrears, commencing on May 1, 1997, to be collected for the preceding calendar
month (or, in the case of the first such payment, from the Closing Date through
the end of such calendar month), and thereafter interest. payments shall be
made on the first Business Day of each succeeding calendar month and upon
payment or prepayment in full (or in part to the extent permitted herein) of
the Term Note. Notwithstanding the foregoing, however, from and after the
occurrence of any Event of Default, and continuing for so long thereafter as
such Event of Default shall be continuing, Lender shall have the right to
increase the interest rate payable on the Term Note to the Default Rate
applicable thereto upon giving Borrowers written notice thereof, and Borrowers
shall be responsible for the payment of the additional interest resulting
therefrom in addition to the regularly scheduled principal amortization of the
Term Note, as described more particularly in Section 2.3, and accrued interest
thereon.
2.5. SECURITY DEPOSIT FEE. The $35,000 security deposit presently
held by Lender will be refunded to Borrowers, less Lender's costs and expenses,
within thirty (30) days from the Closing Date. If the Term Loan is not funded,
other than as a result of a breach by Lender under this Agreement, then Lender
may retain the deposit as liquidated damages and not as a penalty, without in
any way reducing Borrowers' liabilities with respect to Lender's expenses.
2.6. LATE CHARGE. If payment of any principal of, or interest on, the
Term Note or any other sum payable hereunder or under any other Loan Document
is not received within ten (10) calendar days after its due date, Lender shall
have the right to impose a late charge relative to such payment in an amount
equal to up to five percent (5%) of the amount of such past due payment, which
charge, if imposed by Lender, shall be due and payable by Borrowers immediately
upon receipt of notice thereof.
2.7. VOLUNTARY AND MANDATORY PREPAYMENTS
(a) Voluntary. The Term Note may be prepaid in whole, but not in part,
by Borrowers at any time after the first Loan Year, provided, however, that any
such prepayment must be preceded by at least ten (10) calendar days prior
written notice thereof to Lender; and, provided, further, that any such
prepayment made during the second through fourth Loan Years must be accompanied
by the payment of all then accrued, but unpaid, interest on the principal
amount to be prepaid together with a prepayment fee, representing liquidated
damages to Lender for the loss of its bargain and its costs for making funds
available to Borrowers hereunder and not a penalty, equal in amount to the
amount determined by multiplying the following applicable percentage for the
applicable Loan Year follow' the Closing Date by the principal amount of the
outstanding Term Loan: two percent (2%) for the second Loan Year, one percent
(1%) for the third Loan year, one-half percent (.5%) for the fourth Loan Year,
together with amounts payable by the Borrowers pursuant to Section 2.11 hereof.
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(b) Mandatory. The Borrowers and Guarantors agree that any net cash
insurance proceeds or net cash Condemnation Proceeds received by any of them
with respect to the Collateral shall, except to the extent otherwise provided
in the relevant Collateral Document, be immediately paid over to the Lender and
applied as and for a mandatory prepayment on the Term Note. The Borrowers and
the Guarantors further agree that any net proceeds from the sale or other
deposition of any Collateral shall also immediately be paid over to the Lender
and applied as and for a mandatory prepayment on the Term Note. All
prepayments pursuant to this Section 2.7(b) shall be applied to the several
installments of the Term Note in the inverse order of their respective
maturities and no amount prepaid hereunder may be reborrowed.
2.8. NATURE OF CHARGES IMPOSED. Lender and Borrowers hereby agree
that (i) the only charges imposed by Lender upon Borrowers for the use of money
in connection with the Term Loan Facility are and shall be interest at the
rates per annum expressed in Section 2.4 hereinabove and (ii) all other charges
imposed by Lender upon Borrowers in connection with the Term Loan Facility,
including, without limitation, the deposit heretofore made by Borrowers, as
described injection 2.5, the late charge provided for in Section 2.6, and any
breakage fee hereafter paid by Borrowers pursuant to Section 2.7, are and shall
be deemed to be charges made to compensate Lender for underwriting and
administrative services and costs, and other services and costs performed and
incurred, and to be performed and incurred, by Lender in connection with the
creation and administration of the Term Loan Facility, and shall under no
circumstances be deemed to be charges for the use of money for purposes of
Illinois law.
2.9. SAVINGS CLAUSE. Notwithstanding the foregoing or any provision
contained in this Agreement, the Term Note or any other Loan Document to the
contrary, if at any time the amount of interest computed with respect to the
Term Note on the basis of the Applicable Rate would exceed the amount of such
interest computed upon the basis of the maximum rate of interest permitted by
applicable state or federal law in effect from time to time hereafter, after
taking into account, to the extent required by applicable law, any and all
fees, payments, charges and calculations provided for in this Agreement or in
any other agreement between Borrowers and Lender (the "Maximum Legal Rate"),
the interest payable under this Agreement shall be computed upon the basis of
the Maximum Legal Rate, but any subsequent reduction in the Applicable Rate
shall not reduce such interest thereafter payable hereunder below the amount
computed on the basis of the Maximum Legal Rate until the aggregate amount of
such interest accrued and payable under this Agreement equals the total amount
of interest which would have accrued if such interest had been at all times
computed solely on the basis of the Applicable Rate. No agreements,
conditions, provisions or stipulations contained in this Agreement, the Term
Note or any other Loan Document or default of the Borrowers, or the exercise by
the Lender of the right to accelerate the payment of the maturity of principal
and interest, or to exercise any option whatsoever contained in this Agreement
or any other Loan Document, or arising of any contingency whatsoever, shall
entitle Lender to collect, in any event, interest exceeding the. Maximum Legal
Rate and in no event shall the Borrowers be obligated to pay interest exceeding
such Maximum Legal Rate and all agreements, conditions or stipulations, if any,
which may in any event or contingency whatsoever operate to bind, obligate or
compel the Borrowers to pay a rate of interest exceeding the Maximum Legal
Rate, shall be without binding force or effect, at
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law or in equity, to the extent only of the excess of interest over such
Maximum Legal Rate. In the event any interest is charged in excess of the
Maximum Legal Rate ("Excess Inte="), Borrowers acknowledge and stipulate that
any such charge shall be the result of an accidental and bona fide error, and
such Excess Interest shall be, first, applied to reduce the principal then
unpaid hereunder; second, applied to reduce any other Obligations, until paid
in full; and third, returned to the Borrowers, it being the intention of the
parties hereto not to enter at any time into a usurious or otherwise illegal
relationship. The Borrowers recognize that, with fluctuations in the interest
rate and the Maximum Legal Rate, such an unintentional result could
inadvertently occur. By the execution of this Agreement, the Borrowers
covenant that (i) the credit or return of any Excess Interest shall constitute
the acceptance by the Borrowers of such Excess Interest, and (h) the Borrowers
shall not seek or pursue any other remedy, legal or equitable, against Lender,
based in whole or in part upon the charging or receiving of any interest in
excess of the maximum authorized by applicable law. For the purpose of
determining whether or not any Excess Interest has been contracted for, charged
or received by Lender, all interest at any time contracted for, charged or
received by the Lender in connection with this Agreement shall be amortized,
prorated, allocated and spread in equal parts during the entire term of this
Agreement. The provisions of this Section shall be deemed to be incorporated
into each and every Term Note and other Loan Document or communication relating
to the. Obligations which sets forth or prescribes any account, right or claim
or alleged account, right or claim of the Lender with respect to the Borrowers
(or any other obligor in respect of Obligations), whether or not any provision
of this Section is referred to therein. All such documents and communications
and all figures set forth therein shall, for the sole purpose of computing the
extent of the liabilities and obligations of the Borrowers (or other obligor)
asserted by the Lender thereunder, be automatically recomputed by any Borrowers
or obligor, and by any court considering the same, to give effect to the
adjustments or credits required by this Section. If the applicable state or
federal law is amended in the future to allow a greater rate of interest to be
charged under this Agreement or any other Loan Documents than is presently
allowed by applicable state or federal law, then the limitation of interest
under this Section shall be increased to the maximum rate of interest allowed
by applicable state or federal law as amended, which increase shall be
effective hereunder on the effective date of such amendment. and all interest
charges owing to the Lender by reason thereof shall be payable upon demand.
2.10. BORROWERS'S LOAN ACCOUNT. Lender will maintain on its books and
records all loans and payments made to Lender by Borrowers. This loan account
will be maintained in accordance with Lender's customary accounting practices.
Borrowers promise to pay such amounts as may become or declare due pursuant to
the terms of this Agreement. The balance of the loan account recorded on
Lender's books and records shall absent manifest error be presumptive evidence
of the amounts due and owing to Lender by Borrowers, provided that any failure
by Lender to such record or error in recording shall not limit or otherwise
affect Borrowers' obligations to pay Borrowers' Obligations.
2.11. FIXED RATE BREAKAGE FEE. Upon any prepayment of the Term Loan
(regardless of the source of such prepayment and whether voluntary or
otherwise), in addition to any other prepayment fees due from Borrowers,
Borrowers shall pay an amount (the "Fixed Rate Breakage
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Fee") equal to the present value, for each remaining year of the term of such
prepaid Term Loan, of (1) the yield as reported in the Federal Reserve
statistical release H.15(519) under the caption "U.S. Government
Securities/Treasury Constant Maturities" (hereinafter "H.15(519)"(for a
Treasury Note with a term equal to that remaining on such Term Loan (which will
be obtained by interpolating between the yield reported on the H.15(519) for
specific whole years) on the date of the term Loan was funded (2) the yield as
reported on the date of such prepayment in the H.15(519) for a Treasury Note
with a term equal to that remaining on the Term Loan (which will be obtained by
interpolating between the yield reported on the H.15(519) for specific whole
years) on the date of such prepayment, multiplied by (a) the out-standing
principal balance of the Term Loan at the time of prepayment for purposes of
calculating such amount for the month during which such prepayment occurs and
by (b) the principal balance that would have been outstanding at the beginning
of each successive month in the remaining term of the Term Loan had the
amortization schedule set forth for the Term Loan been adhered to; provided,
that the rate determined in (2) above will be used as the discount rate in
computing such present value. The Fixed Rate Breakage Fee represents Lender's
reinvestment loss resulting from making a fixed rate loan.
3. COLLATERAL AND GUARANTY.
3.1. COLLATERAL. The payment and performance of the Obligations shall
at all times be secured by, among other things, all Collateral pursuant to the
Collateral Documents.
3.2. FURTHER ASSURANCES. Each of the Loan Parties further shall duly
execute and/or deliver (or cause to be duly executed and/or delivered) to
Lender any instrument, invoice, registration certificate, certificate of tide,
application, document, document of title, dock warrant, dock receipt, warehouse
receipt, bill of lading, order, financing statement, assignment, waiver,
consent or other writing which may be deemed necessary by Lender to reasonably
carry out the terms of this Agreement and any of the other Loan Documents and
to perfect its security interest in and facilitate its realization on the
Collateral. Each Loan Party agrees to perform or cause to be performed such
acts as Lender may reasonably request to establish and maintain for Lender a
valid and perfected first priority security interest in the Collateral, free
and clear of any liens, encumbrances or security interests other than in favor
of Lender and Permitted Encumbrances.
3.3. GUARANTY. The payment and performance of the Obligations shall
at all times be guaranteed by the Guarantors pursuant to Section 9 hereof.
4. GENERAL REPRESENTATIONS AND WARRANTEES. In order to induce
Lender to enter into this Agreement and to make the Term Loan, each Loan Party
hereby, represents and warrants to Lender that the following statements are
and, after giving effect to the Acquisition, will be true, correct and
complete.
4.1. EXISTENCE. Each Loan Party is a corporation duly organized,
validly existing and in good standing under the laws of the State of its
incorporation operating in accordance with its articles of incorporation and
by-laws. Each Loan Party is duly qualified to transact business in
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the jurisdiction wherein the nature of the activities conducted by it or assets
owned by it requires such licensing or qualification.
4.2. AUTHORITY. Each Loan Party has full power to make, deliver and
perform under this Agreement, the Term Note and the other Loan Documents to
which it is a party and have taken all necessary and appropriate action to
authorize the execution, delivery and performance of the Loan Documents. This
Agreement constitutes, and the Term Note and the remainder of the Loan
Documents to which each Loan Party is a party, when executed and delivered for
value received, will constitute, the valid obligations of Loan Parties, legally
binding upon them and enforceable against them in accordance with their
respective terms, except as such enforceability may be limited by bankruptcy,
insolvency or other similar creditors rights generally and equitable remedies
may be limited by equitable principles of law. The respective officers of the
Loan Parties whose names are inscribed below are duly authorized and empowered
to execute, attest and deliver this Agreement, the Term Note and the remainder
of the Loan Documents to which they are a party for and on their behalf, and to
bind Loan Parties accordingly thereby.
4.3. NO MATERIAL LITIGATION. There are no proceedings pending or, so
far as any Loan Party knows, threatened, before any court, arbitration panel or
administrative agency, no material disputes with any contract party and no
pending or threatened labor action which, in each case, if decided adversely to
such Loan Party, would have a Material Adverse Effect.
4.4. PAYMENT OF TAXES. Each Loan Party has filed or caused to be
filed any federal income tax returns required to be filed by it, and, to the
best of its knowledge following diligent inquiry, all other tax returns
required to be filed by it, and has paid all taxes not yet delinquent and any
assessments made against it. No Loan Party has participated in any "prohibited
transaction" (as defined in Section 4975 of the Internal Revenue Code of 1986)
that could subject such Loan Party to any tax or penalty.
4.5. NO VIOLATIONS, GENERALLY. The execution, delivery and
performance by each Loan Party of this Agreement, the Term Note and the other
Loan Documents to which it is a party do not and will not require any consent
or approval of any Person, except to the extent obtained by such Loan Party on
or prior to the Closing Date; or violate any material provision of any law,
rule, regulation, order, writ, judgment, injunction, decree, determination or
award presently in effect having applicability to any Loan Party; or result in
a breach of or constitute a default under any Material Agreement; and, to the
best of knowledge of each Loan Party following diligent inquiry, such Loan
Party is not in default under any such law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award or any Material Agreement;
provided that such default or violation, in any such case, would result in a
Material Adverse Effect.
4.6. FINANCIAL STATEMENTS; LIABILITIES. The audited consolidated
financial statements of the Wescourt Companies (other than Moffitt) for its
fiscal year ending February 28, 1996 and the unaudited consolidated financial
statements of the Wescourt Companies (other than Moffitt) for its interim
period ending on December 31, 1996 accurately and fairly represent the
financial condition of the Wescourt Companies (other than Moffitt) and the
transactions in its equity
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accounts as of the dates referred to therein, and have been prepared in
accordance with GAAP. There are no material liabilities, direct or indirect,
fixed or contingent, of the Wescourt Companies as of the date hereof which are
not reflected in such financial statements or in the notes thereto. There has
been no Material Adverse Change since December 31, 1996 in the business,
operations, prospects, properties, condition (financial or otherwise) of the
Wescourt Companies.
4.7. POLLUTION AND ENVIRONMENTAL CONTROL. Except as disclosed on
Schedule 4.7, (i) the business operations of each Loan Party comply in all
material respects with all applicable Environmental Laws; (ii) each Loan Party
has obtained all environmental, health and safety Permits necessary for the
operation of such Loan Party's business; and all such Permits are valid, and in
good standing and Borrowers is in compliance in all respects with all terms and
conditions of such Permits; (iii) Borrowers is not subject to any outstanding
written order or agreement with any Governmental Authority or with any private
Person respecting (a) any Environmental Laws, (b) any Remedial Actions, or (c)
any Environmental Claims arising from the Release of a Contaminant into the
environment; (iv) none of the operations of Borrowers is subject to any
judicial or administrative proceeding alleging a violation of any Environmental
Law; (v) none of the operations of any Loan Party is the subject of any federal
or state investigation evaluating whether any Remedial Action is needed to
respond to a Release of any Contaminant into the environment under any
applicable law; (vi) except as disclosed on environmental reports delivered to
any Loan Party, Lender, no Loan Party or to the best of any Loan Party's
knowledge, no predecessor of any Loan Party has filed any notice under any
federal or state law indicating past or present treatment, storage, or disposal
of a hazardous waste or reporting a spill or Release of a Contaminant into the
environment under any applicable law; (vii) no Loan Party Borrowers has any
known contingent liability in connection with any Release of any Contaminant
into the environment; (viii) the Loan Parties' operations do not involve the
generation, transportation, treatment or disposal of any hazardous waste, as
defined under 40 C.F.R. Parts 260-270 or any state equivalent (other than any
done in compliance with all Environmental Laws); (ix) no Loan Party has
disposed of any Contaminant by placing it in or on the ground, ground water or
surface water, and, to the best of the Loan Parties' knowledge, neither has any
lessee, prior owner, or other Person; and (x) no Lien in favor of any
Governmental Authority for (A) any liability under Environmental Laws or
regulations, or (B) damages arising from or costs incurred by such Governmental
Authority in response to a Release of a Contaminant into the environment, has
been filed or attached.
4.8. DISCLOSURE. No representation or warranty of any Loan Party, any
of its Subsidiaries contained in this Agreement, the financial statements
referred to in section 4.6 hereof, the financial statements of Moffitt, any
information or any other document, certificate or written statement furnished
to Lender by or on behalf of any such Person for use in connection with the
Loan Documents or with respect to the transactions contemplated by the
Acquisition Agreement contains any untrue statement of a material fact or
omitted, omits or will omit to state a material fact necessary in order to make
the statements contained herein or therein not misleading in light of the
circumstances in which the same were made.
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4.9. INTELLECTUAL PROPERTY. Each Loan Party and each of their
respective Subsidiaries owns, is licensed to use or otherwise has the right to
use, all patents, trademarks, trade names, copyrights, technology, know-how and
processes used in or necessary for the conduct of its business as currently
conducted that are material to the condition (financial or other), business or
operations of such Loan Party or its Subsidiaries (collectively called
INTELLECTUAL PROPERTY) and all such Intellectual Property is identified on
Schedule 4.9 and fully protected and/or duly and properly registered, filed or
issued in the appropriate office and jurisdictions for such registrations,
filing or issuances. Except as disclosed in Schedule 4.9, the use of such
Intellectual Property by any Loan Party or its Subsidiaries does not and has
not been alleged by any Person to infringe on the rights of any Person.
4.10. EMPLOYEE MATTERS. Except as set forth on Schedule 4.10, (a)
none of the Loan Parties nor any of their respective employees is subject to
any collective bargaining agreement, (b) no petition for certification or union
election is pending with respect to the employees of any Loan Party and no
union or collective bargaining unit has sought such certification or
recognition with respect to the employees of any Loan Party and (c) there are
no strikes, slowdowns, work, stoppages or controversies pending or, to the best
knowledge of the Loan Parties after due inquiry, threatened between any Loan
Party and its respective employees, other than employee grievances arising in
the ordinary course of business which could not reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect. Except as
set forth on Schedule 4.10, no Loan Party nor any of its Subsidiaries is
subject to an employment contract.
4.11. SOLVENCY. As of and from and after the date of this Agreement
and after giving effect to the consummation of the Acquisition, each Loan
Party: (a) owns and will own assets the fair saleable value of which are (i)
greater than the total amount of liabilities (including contingent liabilities)
of such Loan Party and (ii) greater than the amount that will be required to
pay the probable liabilities of such Loan Party's then existing debts as they
become absolute and matured considering all financing alternatives and
potential asset sales reasonably available to such Loan Party; (b) has capital
that is not unreasonably small in relation to its business as presently
conducted or any contemplated or undertaken transaction; and (c) does not
intend to incur and does not believe that it will incur debts beyond its
ability to pay such debts as they become due.
4.12. ACQUISITION. The Loan Parties have furnished the Lender with
true and correct copies of all Acquisition Agreements. Wesfrac had and has
full right, power and authority to enter into and consummate the Acquisition
and to perform and observe all of the matters and dealings provided for in the
Acquisition Agreements. The execution and delivery of the Acquisition
Agreements does not, nor will the performance or observe of any of the matters
or things therein provided for, contravene any provision of law or any articles
of incorporation, charter or by-laws of any Loan Party or of any covenant,
indenture or agreement of or affecting any Loan Party or any of its assets and
properties. No registrations, filings or consents were, are or will be
required in connection with the Acquisition other than those which have been
made or obtained. The Acquisition Agreements have been duly authorized,
unexecuted and delivered by the proper officers of all parties thereto and
constitute the valid and binding agreements of such parties
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enforceable against them in accordance with their terms. The Acquisition has
been consummated in accordance with the terms of the Acquisition Documents.
5. AFFIRMATIVE COVENANTS. Each Loan Party agrees that, so long as
any Obligations are outstanding, it will comply with the following covenants:
5.1. BOOKS AND RECORDS. Each Loan Party shall maintain, at all times,
true and complete books, records and accounts in which true and correct entries
are made of its transactions in accordance with GAAP.
5.2. PERIODIC FINANCIAL STATEMENTS. The Loan Parties shall, as soon as
practicable, and I in any event within sixty (60) days after the end of each
fiscal quarter, furnish to Lender and each Participant unaudited financial
statements of the Wescourt Companies including, in each instance,, balance
sheets and income statements, on a consolidated and consolidating basis, as
appropriate, and individual profit and loss statements as of and for the
quarterly period then ended and for its fiscal year to date, prepared in
accordance with GAAP, certified by the chief financial officer of the Wescourt
Companies in a certificate substantially in the form of Exhibit C attached
hereto, and accompanied by a report of performance or condition of the Wescourt
Companies as of or for the corresponding date or period in the preceding fiscal
year, displayed on a comparative basis.
5.3. ANNUAL FINANCIAL STATEMENTS. The Loan Parties shall, as soon as
practicable, and in any event within one hundred twenty (120) days after the
end of each fiscal year of the Wescourt Companies, furnish to Lender and each
Participant, individual profit and loss statements and annual audited financial
statements of the Wescourt Companies, including balance sheets, income
statements and cash flow statements for the fiscal year then ended, on a
consolidated and consolidating basis, as appropriate, which have been prepared
by the Independent Accountants. Such audited financial statements will be
required to be accompanied by the Independent Accountant's opinion, which
opinion shall be in form generally recognized as "unqualified".
5.4. COMPLIANCE CERTIFICATES. Together with each of the financial
statements described in Sections 5.2 and 5.3 above, and more frequently, if
requested by Lender, the Loan Parties shall deliver a Compliance Certificate to
Lender (together with calculation worksheets, including covenant calculations
contained in Sections 6.15 and 6.16 hereof) signed by the chief financial
officer of the Wescourt Companies, provided however that as long as no Event of
Default has occurred and is continuing, the Loan Parties shall not be required
to deliver a Compliance Certificate more often than once per fiscal quarter.
5.5. PAYMENT OF TAXES. The Loan Parties shall pay and discharge all
taxes, assessments and governmental charges upon them, their income and their
properties prior to the date on which penalties attach thereto, unless and to
the extent only that (x) such taxes, assessments and governmental charges are
being contested in good faith and by appropriate proceedings by the Loan
Parties and (y) the Loan Parties maintain reasonable reserves on their books
therefor.
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5.6. MAINTENANCE OF INSURANCE. Each Loan Party shall insure the
Collateral against fire, theft and such other risks as Under shall require from
time to time at the full replacement cost thereof, with Lender named as loss
payee and mortgagee thereof, with St. Paul Insurance or other responsible
insurance companies rated "A-' or better by A.M. Best Company. As to other
Property and risks, including, without limitation, liability coverage, each
Loan Party shall maintain such insurance, with such insurers (having the
minimum qualifications described above) on such Property, in such amounts and
against such risks as is customarily maintained by similar businesses operating
in the same vicinity; provided that such insurance shall not be less, in terms
of insurers, amounts, coverages or limitations, then the insurance being
maintained by such Loan Party on the Closing Date; and provided, further, that
such insurance shall include, in any event, at all times, automobile and
comprehensive general liability (inclusive of products liability coverage) of
at least Five Million Dollars ($5,000,000), in aggregate combined single limit
coverage; that Lender shall be shown by endorsement as "additional insured"
thereon and with breach of warranty endorsement favoring Lender. All such
insurance in existence on the Closing Date shall not be cancelable or
modifiable by any Loan Party, thereafter, unless with the prior written consent
of Lender, or by such Loan Party's insurer, unless with at least thirty (30)
days advance written notice to Lender thereof (except as may be necessary to
bring such insurance into compliance herewith from time to time). The Loan
Party shall file with Lender on the Closing Date and at least annually
thereafter or, at Lender's request at any time from and after the occurrence
of, and during the continuance of, any Event of Default, upon its request a
detailed list of such insurance then in effect stating the names of the
insurance companies, the amounts and rates of insurance, the dates of
expiration thereof, the properties and risks covered thereby and the insured
with respect thereto, together with copies of all such policies and the
insurer's certificate in regard thereto.
5.7. PRESERVATION OF EXISTENCE. Each Loan Party shall preserve and
maintain its corporate existence, rights, franchises and privileges in the
State of its incorporation and in the other jurisdiction where the nature of
the business conducted therein or the location of any Property therein requires
that such rights, franchises and privileges be preserved and maintained; and
obtain and maintain for itself all Permits, licenses, certificates of
convenience and necessity, operating rights, authorizations and consents as
shall be necessary or advisable to permit it to continue to operate its
business in the manner contemplated to be conducted by it on the Closing Date.
5.8. COMPLIANCE WITH LAWS. Each Loan Party shall comply with the
requirements of all applicable laws, rules, regulations, permits, hearings,
approvals and clearances and orders of any Governmental Authority, including
particularly, but without limitation, in respect of Environmental Laws and
laws, rules regulations and orders relating to taxes, employer and employee
contributions, securities, employee retirement and welfare benefits, and
employee health and safety.
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5.9. ENVIRONMENTAL LAW COMPLIANCE.
(a) On or before the Closing Date, the Loan Parties will provide Lender
with copies of any environmental assessments or similar reports made by or on
behalf of any Loan Party with respect to any Mortgaged Premises within the
preceding five (5) years and, subsequent to the Closing Date, the Loan Parties
will provide Lender with copies of any such assessments or reports thereafter
made by or on behalf of a Loan Party with respect to any Mortgaged Premises,
promptly as and when made or received by such Loan Party, but not later than
thirty (30) days thereafter. The foregoing shall be cumulative with, and in
addition to, any similar requirements made applicable to any Mortgaged Premises
in Section 11.1.
(b) Each Loan Party will notify Lender in writing of any Environmental
Claim or an accusation or allegation which may give rise to an Environmental
Claim hereafter made against it or received by it which would or would
reasonably be expected to have a Material Adverse Effect if determined
adversely to such Loan Party within ten (10) days after it first obtains
knowledge or notice thereof. Each such notice to Lender shall include a copy
of any claim, citation, order, notice or other communication (to the extent in
writing) received by such Loan Party from the Person making such Environmental
Claim, allegation or accusation, a description of the nature of such
Environmental Claim, allegation or accusation, the name of the Person making
such Environmental Claim, allegation or accusation, such Loan Party's
anticipated defense to such Environmental Claim, allegation or accusation or
the action such Loan Party proposes to take in respect of such Environmental
Claim, allegation or accusation and the anticipated costs to be incurred by
such Loan Party in connection with such Environmental Claim, allegation or
accusation ( ' including, without limitation, the amount of any anticipated
damages, the costs of defending such Environmental Claim and the costs of any
cleanup or corrective action).
(c) Each Loan Party covenants and agrees that it (i) shall not use,
generate, store, or allow to be generated, stored or used, any Hazardous
Materials, except in the ordinary course of such Loan Party's business and in
accordance with all Environmental Laws, and (ii) shall at all times maintain
its Property in full compliance with all applicable Environmental Laws,
including timely remediation if and when required.
(d) Each Loan Party shall, with due care, in a safe manner, detain the
spread of, ameliorate and remove from the any real property owned or leased by
such Loan Party (and from any other Property as required by any Environmental
Law) any Hazardous Materials contamination located on, under or about any such
Property and monitor or cause to be monitored the levels of Hazardous Materials
on, under or about any such Property or in the ground water in accordance with
the terms and procedures required by any federal, state or local governmental
agency having jurisdiction including, without limitation, any Regional Water
Quality Control Board and the Environmental Protection Agency.
(e) Lender may require any Loan Party from time to time to perform or
cause to be performed, such studies or assessments of the Property owned or
leased by such Loan Party, as
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Lender may reasonably deem necessary, appropriate or desirable, to determine
the status of environmental conditions on, under and about such Property, which
studies and assessments shall be for the benefit of Lender and shall be
prepared in accordance with the reasonable specifications established by
Lender.
(f) In addition, each Loan Party will promptly notify Lender of any
Release or material change in the nature or extent of any Contaminants used,
transported or stored by such Loan Party or any Subsidiary on any Mortgaged
Premises, and allow no material change in the use thereof or such Loan Party's
operations that would increase in any material amount the risk of violation of
the Environmental Laws without the express prior written approval of Lender.
(g) Each Loan Party further agrees to indemnify and hold Lender, each
Participant and the officers, directors, agents, employees, Affiliates and
representatives of Lender and each Participant (individually an "Indemnified
Party" and collectively the "Indemnified Parties") harmless from and against
any and all damages, penalties, fines, claims, liens, suits, liabilities, costs
(including necessary and actual clean-up and response costs), judgments, and
expenses (including reasonable attorneys' fees and any consultants' or. other
experts' fees and expenses) of every kind and nature suffered by or asserted
against any Indemnified Party (i) under or on account of the Environmental
Laws, including, without limitation, as a result of the past, present or future
institution of any suits, claims, actions, or proceedings by any Person against
such Loan Party or Lender in respect of any alleged violation of the
Environmental Laws by such Loan Party or such Loan Party's use, storage or
disposition of Contaminants, (ii) with respect to any past, present or future
Release or Contaminant affecting any Property, whether or not the same
originates or emanates from any Property or any contiguous real estate, (iii)
with respect to any other past, present or future matters affecting any
Property within the jurisdiction of any Governmental Authority administering
the Environmental Laws or (iv) with respect to any past, present or future
requirement under the Environmental Laws which requires the elimination or
removal of any Contaminants or other substances regulated pursuant to any
Environmental Laws, rules, or regulations of any Governmental Authority having
jurisdiction over any Loan Party, whether attributable to events occurring
before or after the Closing Date; provided, however, that the Loan Parties
shall not be liable for any of the foregoing arising directly from Lender's
gross negligence or willful misconduct. Any payments required to be made
hereunder shall be due and payable on demand.
(h) The agreements contained in the preceding clause (g) of this Section
5.9 shall survive the termination of this Agreement and shall continue in full
force and effect for so long as the prospect of any loss or liability covered
by the indemnity contained in such clause (d) exists.
5.10. LITIGATION: EVENTS OF DEFAULT, ETC. Promptly, after receipt of
notice or knowledge thereof, but not later than ten (10) days thereafter, the
Loan Parties will report to Lender: (1) any lawsuit or administrative
proceeding or arbitration proceeding in which any Loan Party is a defendant
wherein the amount of damages claimed against such Loan Party exceeds Two
Hundred Thousand Dollars ($200,000) of uninsured potential liability (in
Lender's reasonable opinion), or in which the validity of the Acquisition or
this Agreement or any Loan Document or
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any action taken or to be taken pursuant hereto or thereto is questioned; (ii)
any strike, walkout, lockout or other related legal action, whether pending or
threatened pertaining to any Loan Party; or (iii) the existence and nature of
any Default Condition or Event of Default.
6. NEGATIVE COVENANTS. Each Loan Party covenants and agrees that
until payment in full of all Obligations, unless Lender shall otherwise give
its prior written consent, such Loan Party shall comply with and shall cause
its Subsidiaries to comply with all covenants in this Section 6 applicable to
such Person.
6.1. INDEBTEDNESS. Without the prior consent of the Lender, the Loan
Parties will not and will not permit any of their Subsidiaries directly or
indirectly to create, incur, assume, guaranty, or otherwise become or remain
directly or indirectly liable with respect to any Indebtedness except:
(A) the Obligations;
(B) intercompany Indebtedness among such Loan Party and its
Subsidiaries; provided that the obligations of each obligor of such
Indebtedness shall: (1) be subordinated in right of payment to the Obligations
from and after such time as any portion of the Obligations shall become due and
payable (whether at stated maturity, by acceleration or otherwise) and (2) have
such other terms and provisions as Lender may reasonably require;
(C) Indebtedness subject to the terms of the Intercreditor Agreement;
(D) Indebtedness owing to trade creditors in the ordinary course of
business not more than 60 days past due; Indebtedness subject to the terms of
the Intercreditor Agreement;
(E) Indebtedness secured by liens described in clause (4) of the
definition of Permitted Encumbrances in Section 1. 1 hereof; and
(F) Indebtedness in addition to that otherwise permitted hereunder
not exceeding $100,000 at any one time outstanding.
6.2. LIENS AND RELATED MATTERS.
(A) No Liens. The Loan Parties will not and will not permit any of
their Subsidiaries directly or indirectly to create, incur, assume or permit to
exist any Lien on or with respect to any property or asset (including any
document or instrument with respect to goods or accounts receivable) of any
Loan Party or any of its Subsidiaries, whether now owned or hereafter acquired,
or any income or profits therefrom, except Permitted Encumbrances.
(B) No Negative Pledges. The Loan Parties will not and will not
permit any of its Subsidiaries directly or indirectly to enter into or assume
any agreement (other than the Loan
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Documents and as contemplated by the Intercreditor Agreement) prohibiting the
creation or assumption of any Lien upon its properties or assets, whether now
owned or hereafter acquired.
(C) No Restrictions on Subsidiary Distributions to such Loan Euty.
Except as provided herein, the Loan Parties will not and will not permit any of
their Subsidiaries directly or indirectly create or otherwise cause or suffer
to exist or become effective any consensual encumbrance or restriction of any
kind on the ability of any such Subsidiary to: (1) pay dividends or make any
other distribution on any of such Subsidiary's capital stock owned by any Loan
Party or any other Subsidiary; (2) subject to subordination provisions, pay any
Indebtedness owed to any Loan Party or any other Subsidiary; (3) make loans or
advances to any Loan Party or any other Subsidiary; or (4) transfer any of its
property or assets to any Loan Party or any other Subsidiary.
6.3. INVESTMENTS; JOINT VENTURES. The Loan Parties agree that they will
not and will not permit any of their Subsidiaries directly or indirectly to
make or own any Investment in any Person except:
(A) Cash Equivalents; provided that such Cash Equivalents are not
subject to set off rights in favor of the issuing bank arising from any banking
relationship of any Loan Party or its Subsidiaries;
(B) intercompany loans and investments to the extent permitted under
Section 6.1;
(C) loans and advances to employees for moving, entertainment, travel
and other similar expenses in the ordinary course of business not to exceed,
without the prior written consent of the Lender, $100,000 in the aggregate at
any time outstanding; and
(D) loans, advances and investments in addition to those otherwise
permitted hereunder not exceeding $100,000 in the aggregate.
"INVESTMENT" means (i) any direct or indirect purchase or other
acquisition by any Loan Party or any of its Subsidiaries of any beneficial
interest in, including stock, partnership interest or other equity securities
of, any other Person (other than a Person that prior to the relevant purchase
or acquisition was a Subsidiary of such. Loan Party) or (ii) any direct or
indirect loan, advance or capital contribution by such Loan Party or any of its
Subsidiaries to any other Person (other than a Subsidiary of such Loan Party),
including all indebtedness and accounts receivable from that other Person that
are not current assets or did not arise from sales to that other Person in the
ordinary course of business. The amount of any Investment shall be the
original cost of such Investment pill the cost of all additions thereto,
without any adjustments for increases or decreases in value, or write-ups,
write-downs or write-offs with respect to such Investment.
"CASH EQUIVALENTS" means: (i) marketable direct obligations issued or
unconditionally guarantied by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one (1) year from the date
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of acquisition thereof, (ii) commercial paper maturing no more than one (1)
year from the date issued and, at the time of acquisition, having a rating of
at least A-1 from Standard & Poor's Corporation or at least P-1 from Moody's
Investors Service, Inc.; (iii) certificates of deposit or bankers' acceptances
maturing within one (1) year from the date of issuance thereof issued by, or
overnight reverse repurchase agreements from, any commercial bank organized
under the laws of the United States of America or any state thereof or the
District of Columbia having combined capital and surplus of not less than
$500,000,000; (iv) time deposits maturing no more than thirty (30) days from
the date of creation thereof with commercial banks having membership in the
Federal Deposit Insurance Corporation in amounts not exceeding the lesser of
$100,000 or the maximum amount of insurance applicable to the aggregate amount
of such Loan Party's deposits at such institution; and (v) deposits or
investments in mutual or similar funds offered or sponsored by brokerage or
other companies having membership in the Securities Investor Protection
Corporation in amounts not exceeding the lesser of $100,000 or the maximum
amount of insurance applicable to the aggregate amount of the relevant Loan
Party's de posits at such institution.
6.4. CONTINGENT OBLIGATION. The Loan Parties agree that they will not and
will not permit any of their Subsidiaries directly or indirectly to create or
become or be liable with respect to any Contingent Obligation except those:
(A) resulting from endorsement of negotiable instruments for
collection in the ordinary course of business;
(B) arising under the Loan Documents and permitted under the
Intercreditor Agreement;
(C) existing on the Closing Date and described in Schedule 6.4
annexed hereto;
(D) arising under indemnity agreements to title insurers to cause
such title insurers to issue to Lender mortgagee title insurance policies;
(E) arising with respect to customary indemnification and purchase
price adjustment obligations incurred in connection with permitted sales of its
Properties;
(F) incurred with respect to Indebtedness permitted by Section 6.1;
and
(G) not permitted by clauses (A) through (F) above, so long as any
such Contingent Obligations, in the aggregate at any time outstanding, do not
exceed $500,000.
"CONTINGENT OBLIGATION", as applied to any Person, means any direct or
indirect liability, contingent or otherwise, of that Person: (i) with respect
to any indebtedness, lease, dividend or other obligation of another Person if
the primary purpose or intent of the Person incurring such liability, or the
primary effect thereof, is to provide assurance to the obligee of such
liability that such liability will be paid or discharged, or that any
agreements relating thereto
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will be complied with, or that the holders of such liability will be protected
(in whole or in part) against loss with respect thereto; (ii) with respect to
any letter of credit issued for the account of that Person or as to which that
Person is otherwise liable for reimbursement of drawings; or (iii) under any
foreign exchange contract, currency swap agreement, interest rate swap
agreement or other similar agreement or arrangement designed to alter the risks
of that Person arising from fluctuations in currency values or interest rates.
Contingent Obligations shall include (a) the direct or indirect guaranty,
endorsement (other than for collection or deposit in the ordinary course of
business), co- making, discounting with recourse or sale with recourse by such
Person of the obligation of another, (b) the obligation to make take-or-pay or
similar payments if required regardless of nonperformance by any other party or
parties to an agreement, and (c) any liability of such Person for the
obligations of another through any agreement to purchase, repurchase or
otherwise acquire such obligation or any property constituting security
therefor, to provide funds for the payment or discharge of such obligation or
to maintain the solvency, financial condition or any balance sheet item or
level of income of another., Contingent Obligations shall not include any Loan
Party's obligations under guaranties for the benefit of financial institutions
lending to dealers that enter into long term exclusive supply contracts with
another Loan Party. The amount of any Contingent Obligation shall be equal to
the amount of the obligation so guaranteed or otherwise supported or, if not a
fixed and determined amount, the maximum amount so guaranteed.
6.5. RESTRICTED JUNIOR PAYMENTS. The Loan Parties will not and will
not permit any of their Subsidiaries directly or indirectly to declare, order,
pay, make or set apart any sum for any Restricted Junior Payment except that
Subsidiaries of Portfield may make Restricted Junior Payments and Portfield may
make Restricted Junior Payments, if any, described on Schedule 6.5 hereto.
"RESTRICTED JUNIOR PAYMENT" means: W any dividend or other
distribution, direct or indirect, on account of any shares of any class of
stock or other equity security of such Loan Party or any of its Subsidiaries
now or hereafter outstanding, except a dividend payable solely in shares of
that class of stock to the holders of that class; (ii) any redemption,
conversion, exchange, retirement, sinking fund or similar payment, purchase or
other acquisition for value, direct or indirect, of any shares of any class of
stock or other equity security of such Loan Party or any of its Subsidiaries
now or hereafter outstanding; (iii) any payment or prepayment of principal of,
premium, if any, interest, redemption, conversion, exchange, purchase,
retirement, defeasance, sinking fund or similar payment with respect to, any
Subordinated Indebtedness; and (iv) any payment made to retire, or to obtain
the surrender of, 'any outstanding warrants, options or other rights to acquire
shares of any class of stock or other equity security of such Loan Party or any
of its Subsidiaries now or hereafter outstanding.
6.6. RESTRICTION ON FUNDAMENTAL CHANGES. The Loan Parties will not
and will not permit any of their Subsidiaries directly or indirectly to: (a)
amend, modify or waive any term or provision of its articles of incorporation
or by-laws unless required by law; (b) enter into any transaction of merger or
consolidation except any Subsidiary of any Loan Party may be merged with or
into such Loan Party (=gyi&d that such Loan Party is the surviving entity) or
any other
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Subsidiary of such Loan Party; (c) liquidate, wind-up or dissolve itself (or
suffer any liquidation or dissolution); or (d) acquire by purchase or otherwise
all or any substantial part of the business or assets of any other Person.
6.7. DISPOSAL OF ASSETS OR SUBSIDIARY STOCK. The Loan Parties will
not and will not permit any of their Subsidiaries directly or indirectly to:
convey, sell, lease, sublease, transfer or otherwise dispose of, or grant any
Person an option to acquire, in one transaction or a series of transactions any
of its property, business or assets, or the capital stock of or other equity
interests in any of its Subsidiaries, whether now owned or hereafter acquired
except for (a) bona fide sales of Inventory to customers for fair value in the
ordinary course of business and dispositions of obsolete equipment not used or
useful in the business and (b) Asset Dispositions if all of the following
conditions are met: (i) the market value of assets sold or otherwise disposed
of in any single transaction or series of related transactions does not exceed
$250,000 and the aggregate market value of assets sold or otherwise disposed of
in any fiscal year of such Loan Party does not exceed $250,000; (h) the
consideration received is at least equal to the fair market value of such
assets; (iii) the sole consideration received is cash; (iv) subject to the
terms of the Intercreditor Agreement, the Net Proceeds of such Asset
Disposition are applied as required by Section 2.7(b); (v) after giving effect
to the sale or other disposition of the assets included within the Asset
Disposition and the repayment of Indebtedness with the proceeds thereof, such
Loan Party is in compliance on a pro forma basis with the covenants set forth
in Section 6 recomputed for the most recently ended month for which information
is available and is in compliance with all other terms and conditions contained
in this Agreement; and (vi) no Default Condition or Event of Default shall
result from such sale or other disposition.
6.8. TRANSACTIONS WITH AFFILIATES. The Loan Parties will not and will
not permit any of their Subsidiaries directly or indirectly to enter into or
permit to exist any transaction (including the purchase, sale, lease or
exchange of any property or the rendering of any service) with any Affiliate or
with any director, officer or employee of any Loan Party, except (a) as set
forth on Schedule 6.8 or (b) transactions in the ordinary course of and
pursuant to the reasonable requirements of the business of such Loan Party or
any of its Subsidiaries and upon fair and reasonable terms which are fully
disclosed to Lender and are no less favorable to such Loan Party or such
Subsidiary than would be obtained in a comparable arm's length transaction with
a Person that is not an Affiliate. Notwithstanding the foregoing, no payments
may be made with respect to any items set forth on Schedule 6.8 upon the
occurrence and during the continuation of a Default or Event of Default, the
Loan Parties hereby representing to Lender that any agreements with respect to
such items are expressly subject to such condition.
6.9. MANAGEMENT AND SIMILAR FEES. The Loan Parties will not and will
not permit any of their Subsidiaries directly or indirectly to pay any
management, consulting or similar fees to any Affiliate or to any director,
officer or employee of any Loan Party except as set forth on Schedule 6.9.
Notwithstanding the foregoing, no payments may be made with respect to any
items set forth on Schedule 6.9 upon the occurrence and during the continuation
of a Default or Event of Default and each Loan Party represents that any
contracts or other agreements relating to such items are expressly subject to
such condition.
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6.10. CONDUCT OF BUSINESS. The Loan Parties will not and will not
permit any of their Subsidiaries directly or indirectly to engage in any
business other than businesses of the type in which they are engaged as of the
Closing Date.
6.11. CHANGES RELATING TO SUBORDINATED INDEBTEDAM. Without the prior
written consent of the Lender (such consent not to be unreasonably withheld),
the Loan Parties will not and will not permit any of their Subsidiaries
directly or indirectly to change or amend the terms of any Subordinated
Indebtedness if the effect of such amendment is to: (a) increase the interest
rate on such Indebtedness; (b) change the dates upon which payments of
principal or interest are due on such Indebtedness; (c) change any event of
default or add any covenant with respect to such Indebtedness; (d) change the
prepayment provisions of such Indebtedness; (e) change the subordination
provisions thereof (or the subordination terms of any guaranty thereof); or (f)
change or amend any other term if such change or amendment would materially
increase the obligations of the obligor or confer additional material rights on
the holder of such Indebtedness in a manner adverse to such Loan Party, any of
its Subsidiaries or Lender.
6.12. FISCAL YEAR. No Loan Party nor any Subsidiary of such Loan Party
shall change its fiscal year.
6.13. PRESS RELEASE: PUBLIC OFFERING MATERIALs. Except as required. by
law, the Loan Parties will not and will not permit any of their Subsidiaries to
disclose the name of Lender in, any press release or in any prospectus, proxy
statement or other materials filed with any governmental entity relating to a
public offering of the capital stock of any Loan Party without Lender's prior
written consent which shall not be unreasonably withheld.
6.14. SUBSIDIARIES. The Loan Parties will not and will not permit any of
their Subsidiaries directly or indirectly to establish. create or acquire any
new Subsidiary.
6.15. DEBT TO WORTH RATIO. The Loan Parties will at all times have a Debt
to Net Worth Ratio of not more than 5.0 to 1.0.
6.16. FIXED CHARGE COVERAGE RATIO. The Loan Parties shall not, at any
fiscal quarter and each of the period specified below, permit the ratio of
EBITDA for the four fiscal quarters then ended to Fixed Charges for the same
period (the "Fixed Charge Coverage Ratio") to be less than 1.25 to 1.00.
6.17. NO AMENDMENTS TO NCFC - PORTFIELD - WLD INDEBTEDNESS. Without
the prior written consent of the Lender (such consent not to be unreasonably
withheld), the Loan Parties will not change or amend any of the First Portfield
Loan Documents, Morgan Loan Documents, NCFC Loan Documents or Second Portfield
Loan Documents in any way which (a) increases the amount of any loans or other
obligations described therein, (b) accelerates or increases any payments due
thereunder,(c) increases any interest rate described therein, (d) shortens the
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maturity date thereof or (e) increases, replaces or substitutes any
co-borrowers accommodation parties, guaranties or collateral therefor.
7. EVENTS OF DEFAULT. The occurrence of any one or more of the
following events or conditions shall constitute an Event of Default hereunder,
provided that any requirement for the giving of notice or the lapse of time, or
both, has been satisfied:
7.1. TERM NOTE. The Borrowers shall fail to make any payments of
principal of, or interest on the Term Note, after the same shall become due and
payable and such failure continues for a period five Business Days.
7.2. OTHER OBLIGATIONS. Any Loan Party shall fail to pay any
Obligations (other than as evidenced by the Term Note) to Lender, within
fifteen (15) calendar days after the same shall become due and payable (unless
a longer or shorter grace period is provided therefor in any document,
instrument or agreement evidencing, pertaining to or securing the repayment of
such other Obligations, in which event such other grace period shall apply).
7.3. MISREPRESENTATIONS. Any Loan Party shall make any representation
or warranty in this Agreement or such Loan Party or any other party thereto
shall make any representation or warranty in any of the other Loan Documents or
in any certificate or statement furnished at any time hereunder or in
connection with this Agreement or any of the Loan Documents which proves to
have been untrue or misleading in any material respect when made or furnished.
7.4. COVENANTS. Any Loan Party shall default in the observance or
performance of any covenant or agreement contained in either Section 5 or 6; or
any Loan Party shall default in the observance or performance of any other
covenant or agreement contained in this Agreement or any of the other Loan
Documents, to the extent it is a party thereto, except for any default of the
types described in Sections 7.1, 7.2 or 7.3 above, and such default shall
continue for a period of thirty (30) calendar days from the date of receipt by
such Loan Party of written notice from Lender specifying such default (unless a
longer or shorter cure period is provided therefor in any such Loan Document,
in which case such other grace period shall apply), without such default being
waived or cured provided, however, in the case of such defaults which cannot be
cured within said thirty (30) day (or longer or shorter) period, that same
shall not be deemed an Event of Default so long as such Loan Party is
diligently pursuing cure of same and same are cured within ninety (90) days of
the expiration of the applicable period.
7.5. VOLUNTARY BANKRUPTCY. Any Loan Party shall file a voluntary
petition in bankruptcy or a voluntary petition or answer seeking liquidation,
reorganization, arrangement, readjustment of its debts, or for any other relief
under the Bankruptcy Code, or under any other act or law pertaining to
insolvency or debtor relief, whether state, Federal, or foreign, now or
hereafter existing; any Loan Party shall enter into any agreement indicating
its consent to, approval of, or acquiescence in, any such petition or
proceeding; any Loan Party shall apply for or permit the appointment by consent
or acquiescence of a receiver, custodian or trustee for all or a substantial
part of its Property; any Loan Party shall make an assignment for the benefit
of
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creditors; any Loan Party shall be unable or shall fail to pay its debts
generally as such debts become due; or any Loan Party shall admit, in writing,
its inability or failure to pay its debts generally as such debts become due.
7.6. INVOLUNTARY BANKRUPTCY. There shall have been filed against any
Loan Party an involuntary petition in bankruptcy or seeking liquidation,
reorganization, arrangement, readjustment of its debts or for any other relief
under the Bankruptcy Code, or under any other act or law pertaining to
insolvency or debtor relief, whether state, federal or foreign, now or
hereafter existing; any Loan Party shall suffer or permit the involuntary
appointment of a receiver, custodian or trustee or for all or a substantial
part of its Property; or any Loan Party shall suffer or permit the issuance of
a warrant of attachment, execution or similar process against all or any
substantial part of its Property; unless, in each other case, such petition,
appointment or process is fully bonded against, vacated or dismissed within
sixty (60) days from its effective date, but not later than sixty (60) days
prior to any proposed disposition of any assets pursuant to any such
proceeding.
7.7. JUDGMENTS. If one or more final, nonappealable judgments or
decrees shall be entered against any Loan Party involving in the aggregate a
personal liability of Two Hundred Thousand Dollars ($200,000) or more (or in
the event such party fails to pursue the appeal of such judgment or any rights
to appeal any such judgment have been revoked or have expired) and all such
judgments or decrees shall not have been vacated, discharged, stayed or bonded
pending appeal within sixty (60) days from the date such judgment becomes
nonappealable.
7.8. CHANGE OF CONTROL. If: (i) Portfield shall cease to own and
control, directly or indirectly, one hundred percent (100%) of the issued and
outstanding capital stock of Borrowers; or (ii) prior to a Qualified Initial
Public Offering, Keith Holder shall cease to be President and Chief Executive
Officer of Portfield (other than by reason of death or disability), or (iii)
any Loan Party shall merge with, or consolidate into, any other corporation
(unless such Loan Party shall be the surviving corporation in such merger); or
(iv) any Loan Party shall sell all, or substantially all, of its assets other
than to any other Loan Party.
7.9. LOSS OF COLLATERAL. If all or any material portion of the
Collateral: (i) suffers any loss, damage, theft or other casualty, in a single
occurrence or series of related occurrences; or (ii) becomes subject to any
lien, claim or encumbrance other than a Permitted Encumbrance; or (iii) is made
the subject of any proceeding in which the existence, scope, coverage, or
priority of the security interest of Lender therein is disputed.
7.10. DEFAULT UNDER OTHER LOAN DOCUMENTS. A default has occurred
under any other Loan Document (following any required notice or passage of time
or both).
7.11. CLOSING CONDITIONS. In the event Lender in its sole discretion
shall have waived any of the conditions precedent specified in Section 11.1,
the Borrowers shall have failed to satisfy the same within 30 days from the
Closing Date
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7.12. Cross Default to NCFC Loan Documents. In the event any default
(following passage of any applicable time period or giving of any required
notice or both) by any borrower under any NCFC Loan Document shall occur.
8. REMEDIES. Upon the occurrence or existence of any Event of
Default, or at any time thereafter, without prejudice to the rights of Lender
to enforce its claims against any Loan Party for damages for failure by any
Loan Party to fulfill any of its obligations hereunder, subject only to prior
receipt by Lender of payment in full of all Obligations then outstanding in a
form acceptable to Lender, Lender shall have all of the rights and remedies
described in Sections 8.1 and 8.2, inclusive, and it may exercise any one,
more, or all of such remedies, in its sole discretion, without thereby waiving
any of the others.
8.1. NON-BANKRUPTCY DEFAULT: When any Event of Default described in
Section 7.1 through 7.4, both inclusive or Sections 7.7 through 7.12 both
inclusive, has occurred and is continuing, the Lender may, by notice to the
Borrowers, take one or more of the following actions:
(a) terminate the obligation of the Lender to extend any further credit
hereunder on the date (which may be the date thereof) stated in such notice;
(b) declare the principal of and the accrued interest on the Term
Note to be forthwith due and payable and thereupon the Term Note, including
both principal and interest and all fees, charges and other Obligations payable
hereunder and under the other Loan Documents, shall be and become immediately
due and payable without further demand, presentment, protest or notice of any
kind; and
(c) enforce any and all rights and remedies available to it under the
Loan Documents or applicable law.
8.2. BANKRUPTCY DEFAULTS. When any Event of Default described in
Section 7.5 or 7.6 has occurred and is continuing, then the Term Note,
including both principal and interest, and all fees, charges and other
Obligations payable hereunder and under the other Loan Documents, shall
immediately become due and payable without presentment, demand, protest or
notice of any kind, and the obligation of the Lender to extend further credit
pursuant to any of the terms hereof shall immediately terminate. In addition,
the Lender may exercise any and all remedies available to it under the Loan
Documents or applicable law.-
9. THE GUARANTEES.
SECTION 9.1 THE GUARANTEES. To induce the Lender to provide the credit
described herein and in consideration of benefits expected to accrue to each
Guarantor by reason of and for other good and valuable consideration, receipt
of which is hereby acknowledged, each Guarantor hereby unconditionally and
irrevocably guarantees jointly and severally to the Lender and each other
holder of any of the Obligations, the due and punctual payment of all present
and future
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Obligations of any Loan Party evidenced by or arising out of the Loan
Documents, including, but not limited to, the due and punctual payment of
principal of and interest on the Term Note and the due and punctual payment of
all other Obligations now or hereafter owed by any Loan Party under the Loan
Documents as and when the same shall become due and payable, whether at stated
maturity, by acceleration or otherwise, according to the terms hereof and
thereof. In case of failure by any Loan Party punctually to pay any
indebtedness guaranteed hereby, each Guarantor hereby unconditionally agrees
jointly and severally to make such payment or to cause such payment to be made
punctually as and when the same shall become due and payable, whether at stated
maturity, by acceleration or otherwise, according to the terms hereof and
thereof. In case of failure by any Loan Party punctually to pay any
indebtedness guaranteed hereby, each Guarantor hereby unconditionally agrees
jointly and severally to make such payment or to cause such payment to be made
punctually as and when the same shall become due and payable, whether at stated
maturity, by acceleration or otherwise, and as if such payment were made by
such Loan Party.
SECTION 9.2. GUARANTEE UNCONDITIONAL. The obligations of each
Guarantor as a guarantor under this Section 9 shall be unconditional and
absolute and, without limiting the generality of the foregoing, shall not be
released, discharged or otherwise affected by:
(a) any extension, renewal, settlement, compromise, waiver or
release in respect of any Obligation of any Loan Party whether under this
Agreement or any other Loan Document or by operation of law or otherwise;
(b) any modification or amendment of or supplement to this Agreement
or any other Loan Document;
(c) any change in the corporate existence, structure or ownership of,
or any insolvency, bankruptcy, reorganization or other similar proceeding
affecting, any Loan Party, any other Guarantor, or any of their respective
assets, or any resulting release or discharge of any obligation of any Loan
Party or of any other Guarantor contained in any Loan Document;
(d) the existence of any claim, set-off or other rights which the
Guarantor may have at any time against the Lender or any other Person, whether
or not arising in connection herewith;
(e) any failure to assert, or any assertion of, any claim or demand
or any exercise of, or failure to exercise, any rights or remedies against any
Loan Party, any other Guarantor or any Collateral;
(f) any application of any sums by whomsoever paid or howsoever
realized to any obligation of any Loan Party, regardless of what obligations of
any Loan Party remain unpaid;
(g) any release of any Loan Party, any other Guarantor, or any
Collateral;
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(h) any invalidity or unenforceability relating to or against any
Loan Party or any other Guarantor for any reason of this Agreement or of any
other Loan Document or any provision of applicable law or regulation purporting
to prohibit the payment by any Borrower of the principal of or interest on the
Terms or any other amount payable by any Loan Party under the Loan Documents;
or
(i) any other act or omission to act or delay of any kind by the
Lender or any other Person or any other circumstance whatsoever that might, but
for the provisions of this paragraph, constitute a legal or equitable discharge
of the obligations of any Guarantor under this Section 9.
SECTION 9.3. DISCHARGE ONLY UPON PAYMENT IN FULL: REINSTATEMENT IN CERTAIN
CIRCUMSTANCES. Each Guarantor's obligations under this Section 9 shall remain
in full force and effect until the principal of any interest on the Term Note
and all other amounts payable by and Loan Party under this Agreement and all
other Loan Documents shall have been paid in full. If at any time any payment
of the principal of or interest on the Term Note or any other amount payable by
any Loan Party under the Loan Documents is rescinded or must be otherwise
restored or returned upon the insolvency, bankruptcy or reorganization of any
Loan Party or of a Guarantor, or otherwise, each Guarantor's obligations under
this Section 9 with respect to such payment shall be reinstated at such time as
through such payment had become due but had not been made at such time.
SECTION 9.4. SUBROGATION: LIMITATION ON RIGHT OF RECOVERY. No Guarantor
will exercise any rights which it may acquire by way of subrogation by any
payment made hereunder, or otherwise, until the Term Note and all other
Obligations shall have been paid in full. If any amount shall be paid to a
Guarantor on account of such subrogation rights at any time prior to the
payment in full of the Term Note and all other Obligations and amounts payable
by such Guarantor hereunder, such amount shall be held in trust for the benefit
of the Lender and shall forthwith be paid to the Lender or be credited and
applied upon the obligations of the Loan Parties under the Loan Documents,
whether matured or unmatured, in accordance with the terms of this Agreement.
Notwithstanding any other provision hereof, the right to recovery against each
Guarantor under this Section 9 shall not exceed $1.00 less than the amount
which would render such Guarantor's obligations under this Section 9 void or
voidable under applicable law, including without limitation fraudulent
conveyance law.
SECTION 9.5. WAIVERS. Each Guarantor irrevocably waives acceptance
hereof, presentment, demand, protest and any notice not provided for herein, as
well as any requirement that at any tune any action be taken by the Lender or
any other Person against the Borrowers, or any of them, another Guarantor or
any other Person.
SECTION 9.6. STAY OF ACCELERATION. If acceleration of the time for
payment of any amount payable by any Loan party under this Agreement or any
other Loan Document is stayed upon the insolvency, bankruptcy or reorganization
of such Loan party, all such amounts otherwise subject to acceleration under
the terms of this Agreement or the other Loan Documents shall nonetheless be
payable jointly and severally by the Guarantors hereunder forthwith on demand
by the Lender.
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10. MISCELLANEOUS.
10.1. WAIVER. Each and every right granted to Lender under this
Agreement, or any of the other Loan Documents, or any other document delivered
hereunder or in connection herewith or allowed it by law or in equity, shall be
cumulative and may be exercised from time to time. No failure on the part of
Lender to exercise, and no delay in exercising, any right shall operate as a
waiver thereof, nor shall any single or partial exercise by Lender of any right
preclude any other or future exercise thereof or the exercise of any other
right. No waiver by Lender of any Default Condition or Event of Default shall
constitute a waiver of any subsequent Default Condition or Event of Default.
10.2. GOVERNING LAW. THIS AGREEMENT AND, UNLESS OTHERWISE EXPRESSLY
PROVIDED THEREIN, THE TERM NOTES AND THE OTHER LOAN DOCUMENTS, AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER, SHALL BE GOVERNED BY,
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
ILLINOIS WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS.
10.3. SURVIVAL. All representations, warranties and covenants made
herein and in the other Loan Documents shall survive the execution and delivery
of this Agreement and such other Loan Documents. On the Closing Date,
Borrowers and the other Loan Parties shall be deemed to have restated, renewed
and reaffirmed all of such representations, warranties and covenants. The
terms and provisions of this Agreement shall continue in full force and effect,
notwithstanding the payment of the Term Note, until all of the Obligations have
been paid in full and Lender has terminated this Agreement in writing.
10.4. NO ASSIGNMENT BY LOAN PARTIES; LENDER MAY ASSIGN. No assignment
hereof shall be made by any Loan Party without the prior written consent of
Lender. Lender may assign, or sell participations in, its right, title and
interest herein and in the Loan Documents at any time hereafter without notice
to or consent of any Loan Party to any Participant. Upon any assignment by
Lender, the assignee shall be entitled to all the rights, powers, privileges
and remedies of Lender to the extent assigned, and the obligations of the Loan
Parties shall not be subject, as against any such assignee, to any defense,
set-off or counterclaim available to the Loan Parties against Lender and any
such defense, set-off or counterclaim may be asserted only against Lender.
Notwithstanding the foregoing, Lender may not assign any of its interest in the
Loan Documents to any Person which does not have total assets of at least
$1,000,000,000. Lender agrees to provide Borrowers with written notice of
assignment following an assignment of any interest herein or in the Loan
Documents.
10.5. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which when fully executed shall be an original, and all
of said counterparts taken together shall be deemed to constitute one and the
same agreement.
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10.6. REIMBURSEMENT. In connection with the documentation and funding for
the Term Loan, Borrowers agree to pay or reimburse Lender for all reasonable
costs, fees, and expenses incurred by Lender, including, but not limited to,
the fees and expenses of counsel for the Lender, all costs of recording and
filing of liens and/or mortgages, record searches, title registration,
appraisals, surveys, engineering, and any other fees incidental to
documentation or inspection.
10.7. AFTER DEFAULT. After an Event of Default, Borrowers agrees to
reimburse Lender for its out-of-pocket expenses incurred by Lender, including,
but not limited to, all costs for expenses, including reasonable attorneys'
fees and any other incidental fees or charges related to the Term Loan, and
should all or any portion of the Obligations be collected by or through an
attorney-at-law, Lender shall be entitled to collect from Borrowers reasonable
attorneys' fees and all costs of collection. If any taxes, fees or other costs
shall be payable on account of the execution, issuance, delivery or recording
of any of the Loan Documents, by reason of any existing or hereafter enacted
federal or state statute, Borrowers agree to pay all such taxes, reasonable
fees or other costs, including any applicable interest and penalty, and to
indemnify and hold Lender harmless from and against liability in connection
therewith.
10.8. SUCCESSORS AND ASSIGNS. This Agreement and every Loan Document
shall be binding upon and inure to the benefit of the successors and permitted
assigns of the parties hereto and thereto. The foregoing shall expressly
include, without limitation, in the case of Lender, any Participant.
10.9. SEVERABILITY. If any provision of this Agreement or of the Loan
Documents or the application thereof to any party thereto or circumstances
shall be invalid or unenforceable to any extent, the remainder of such Loan
Documents and the application of such provisions to any other party thereto or
circumstance shall not be affected thereby and shall be enforced to the
greatest extent permitted by law.
NOTICES. All notices, requests and demands to or upon the respective
parties hereto shall be deemed to have been given or made (i) when personally
delivered, (ii) three Business Days following deposit in the mail, registered
or certified mail, postage prepaid, or (iii) one Business Day following
delivery of said notice, request or demand to an overnight courier, addressed
as follows or to such other address as may be designated hereafter in writing
by the respective parties hereto (which, in the case of Lender, may include the
name and address of each Participant) except in cases where it is expressly
provided herein or by applicable law that such notice, demand to request is not
effective until received by the party to whom it is addressed:
Borrowers and Other Loan Parties:
c/o Portfield Investments, Inc.
1493 Highways 6 & 50
Fruita, Colorado 81521
Attn: Mr. Paul J. Rath, CFO
Facsimile number: 970-858-9306
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Lender:
HELLER FINANCIAL, INC.
Commercial Equipment Finance Division
500 West Monroe Street
Chicago, IL 60661
Attn: Regional Credit Manager
Facsimile number: 312-441-7519
with copy to:
HELLER FINANCIAL, INC.
500 West Monroe Street
Chicago, IL 60661
Attn: Legal Department
Facsimile number: 312-441-7208
10.11. ENTIRE AGREEMENT - AMENDMENT. This Agreement, together with the
Term Note and the other Loan Documents, constitute - the entire agreement
between the parties hereto with respect to the subject matter hereof and
thereof and supersedes any agreement or understanding, oral or written,
heretofore made in regard thereto, including any commitment letters or term
sheets issued by Lender to any of the Loan Parties. Neither this Agreement,
the Term Note nor any other Loan Document may be changed, waived, discharged,
modified or terminated orally, but only by an instrument in writing signed by
the party against whom enforcement is sought.
10.12 TIME OF ESSENCE. Time is of the essence in this Agreement, the
Term Note and the other Loan Documents.
10.13. INTERPRETATION. No provision of this Agreement or any Loan
Document shall be construed against or interpreted to the disadvantage of any
party hereto by any court or other governmental or judicial authority by reason
of such party having or being deemed to have structured or dictated such
provision.
10.14. LENDER NOT A JOINT VENTUREr. Neither this Agreement nor any
agreements, instruments, documents or transactions contemplated hereby
(including the Loan Documents) shall in any respect be interpreted, deemed or
construed as making Lender a partner or joint venturer with any Loan Party or
as creating any similar relationship or entity, and each Loan Party agrees that
it will not make any contrary assertion, contention, claim or counterclaim in
any action, suit or other legal proceeding involving Lender and any Loan Party.
10.15. JURISDICTION. EACH LOAN PARTY AGREES THAT ANY LEGAL ACTION OR
PROCEEDING WITH RESPECT TO THIS AGREEMENT, THE TERM
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NOTE OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF
ILLINOIS, COUNTY OF COOK OR THE UNITED STATES OF AMERICA FOR THE NORTHERN
DISTRICT OF ILLINOIS, CHICAGO DIVISION, ALL AS LENDER MAY ELECT. BY EXECUTION
OF THIS AGREEMENT, EACH LOAN PARTY HEREBY SUBMITS TO EACH SUCH JURISDICTION,
HEREBY EXPRESSLY WAIVING WHATEVER RIGHTS MAY CORRESPOND TO IT BY REASON OF ITS
PRESENT OR FUTURE DOMICILE AND CONSENTS TO SERVICE OF PROCESS BY WRITTEN NOTICE
GIVEN IN THE MANNER SPECIFIED FOR THE GIVING OF NOTICES IN SECTION 10.10 ABOVE;
PROVIDED, HOWEVER, THAT NOTHING HEREIN SHALL AFFECT THE RIGHT OF LENDER TO
COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST SUCH LOAN PARTY IN ANY
OTHER JURISDICTION OR TO SERVE PROCESS IN ANY MANNER PERMITTED OR REQUIRED BY
LAW.
10.16. PAYMENT ON NON-BUSINESS DAYS. Whenever any payment to be made
hereunder or under the Term Note shall be stated to be due on a Saturday,
Sunday or a public holiday under the laws of the State of Illinois, such
payment may be made on the next succeeding Business Day, and such extension of
time shall in such case be included in the computation of payment of interest
hereunder or under the Term Notes.
10.17. WAIVER OF RIGHTS. AFTER THE OCCURRENCE OF A DEFAULT CONDITION OR
EVENT OF DEFAULT, EACH LOAN PARTY HEREBY WAIVES ANY AND ALL RIGHTS, IF ANY,
WHICH SUCH LOAN PARTY OTHERWISE HAS OR MAY HAVE UNDER AND BY VIRTUE OF ANY
LAW,, WITH RESPECT TO THE RIGHT OF SUCH LOAN PARTY TO NOTICE AND TO A JUDICIAL
OR ADMINISTRATIVE HEARING PRIOR TO SEIZURE OF ANY COLLATERAL BY LENDER. EACH
OF LENDER AND EACH LOAN PARTY WAIVES ANY OBJECTION TO IMPROPER VENUE, FORUM NON
CONVENEENS OR RIGHT TO A TRIAL BY JURY IN ANY CLAIM, CAUSE OF ACTION OR
PROCEEDING, BASED UPON OR ARISING OUT OF THIS AGREEMENT OR THE LOAN DOCUMENTS.
THESE WAIVERS ARE KNOWINGLY, INTENTIONALLY, VOLUNTARILY AND FREELY MADE BY SUCH
LOAN PARTY AND LENDER, AND EACH LOAN PARTY ACKNOWLEDGES THAT NEITHER LENDER NOR
ANY PERSON ACTING ON BEHALF OF LENDER HAS MADE ANY REPRESENTATIONS OF FACT TO
INDUCE THESE WAIVERS OR HAS TAKEN ANY ACTIONS WHICH IN ANY WAY MODIFY OR
NULLIFY THEIR EFFECT. EACH LOAN PARTY AND LENDER ACKNOWLEDGE THAT THESE
WAIVERS ARE A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT
EACH LOAN PARTY AND LENDER HAVE ALREADY RELIED ON THESE WAIVERS IN ENTERING
INTO THIS AGREEMENT AND THE LOAN DOCUMENTS AND THAT EACH OF THEM WILL CONTINUE
TO RELY ON THESE WAIVERS IN THEIR RELATED FUTURE DEALINGS. EACH LOAN PARTY AND
LENDER FURTHER WARRANT AND REPRESENT THAT THEY HAVE BEEN REPRESENTED (OR HAVE
HAD THE OPPORTUNITY TO BE REPRESENTED) BY INDEPENDENT LEGAL COUNSEL IN
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THE SIGNING OF THIS AGREEMENT AND THE LOAN DOCUMENTS AND IN THE MAKING OF THESE
WAIVERS AND THAT THEY KNOWINGLY AND VOLUNTARILY WAIVE THEIR RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL.
10.18. CURE OF DEFAULTS BY LENDER. If, hereafter, any Loan Party defaults
in the performance of any duty or obligation to Lender hereunder, Lender may,
at its option, but without obligation, cure such default and any costs, fees
and expenses incurred by Lender in connection therewith including, without
limitation, for the purchase of insurance, the payment of taxes and the removal
or settlement of liens and claims, shall constitute Obligations, be payable on
demand and bear interest until paid at the Default Rate applicable to the Term
Note.
10.19. RECITALS. All recitals contained herein are hereby incorporated
by reference into this Agreement and made part thereof.
10.20. ATTORNEY-IN-FACT. Each Loan Party hereby designates, appoints and
empowers Lender irrevocably, upon the occurrence of an Event of Default and for
so long as such Event of Default is continuing, to act as its attorney-in-
fact, at such Loan Party's cost and expense, to do in the name of such Loan
Party any and all actions which Lender may deem necessary or advisable to carry
out the terms hereof, upon the failure, refusal or inability of such Loan Party
to do so, and the Loan Parties hereby agree to indemnify and hold Lender
harmless from any costs, damages, expenses or liabilities arising against or
incurred by Lender in connection therewith.
10.21. SOLE BENEFIT. The rights and benefits set forth in this Agreement
and in all the other Loan Documents are for the sole and exclusive benefit of
Lender, its Participants (if any) and the Loan Parties and may be relied upon
only by them.
10.22. REMEDIES. AFTER THE OCCURRENCE OF AN EVENT OF DEFAULT, UNLESS
EXPRESSLY PROVIDED TO THE CONTRARY, LENDER MAY ENFORCE ITS RIGHTS UNDER THIS
AGREEMENT AND ALL OTHER LOAN DOCUMENTS WITHOUT RESORT TO PRIOR JUDICIAL PROCESS
OR JUDICIAL HEARING, AND EACH LOAN PARTY EXPRESSLY WAIVES, RENOUNCES AND
KNOWINGLY RELINQUISHES ANY LEGAL RIGHT WHICH MIGHT OTHERWISE REQUIRE LENDER TO
ENFORCE ITS RIGHTS BY JUDICIAL PROCESS. IN SO PROVIDING FOR A NON-JUDICIAL
REMEDY, EACH LOAN PARTY RECOGNIZES AND CONCEDES THAT SUCH A REMEDY IS
CONSISTENT WITH THE USAGE OF THE TRADE, IS RESPONSIVE TO COMMERCIAL NECESSITY
AND IS THE RESULT OF BARGAINING AT ARM'S LENGTH. NOTHING IN THIS AGREEMENT IS
INTENDED TO PREVENT A LOAN PARTY OR LENDER FROM RESORTING TO JUDICIAL PROCESS
AT EITHER PARTY'S OPTION. EACH OF LENDER AND SUCH LOAN PARTY FURTHER AGREES
THAT NEITHER SHALL BE LIABLE TO THE OTHER FOR CONSEQUENTIAL OR SPECIAL DAMAGES
ARISING FROM BREACH OF CONTRACT, TORT OR OTHER WRONG OR CLAIM RELATING TO THE
ESTABLISHMENT, ADMINISTRATION OR COLLECTION OF ANY
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OBLIGATIONS HEREUNDER OR UNDER ANY LOAN DOCUMENT OR ANY ACTION (OR INACTION) BY
ANY PARTY HEREUNDER OR THEREUNDER.
10.23. INDEMNITY. Without limiting any provisions of Sections 5.9 or
10.6, the Loan Parties agree to save, indemnify and hold harmless Lender from
and against any and all debts, liabilities, obligations, damages, costs,
expenses or other claims incurred by Lender as a result of its entry into, and
performance under, this Agreement or any other Loan Documents except for any of
same arising directly from Lender's gross negligence or willful misconduct.
10.24. ACCEPTANCE. THIS AGREEMENT, TOGETHER WITH THE TERM NOTES AND ALL
OTHER LOAN DOCUMENTS, SHALL NOT BECOME EFFECTIVE UNLESS AND UNTIL (1) DULY
EXECUTED BY THE APPLICABLE LOAN PARTIES, (11) DELIVERED TO LENDER FOR
ACCEPTANCE IN CHICAGO, ILLINOIS, (III) ACCEPTED BY LENDER IN CHICAGO, ILLINOIS
AND (IV) DULY EXECUTED AND DELIVERED BY LENDER, AS APPROPRIATE, IN CHICAGO,
ILLINOIS. THE DISBURSEMENT OF THE PROCEEDS OF THE TERM LOAN BY LENDER FROM
CHICAGO, ILLINOIS SHALL BE EVIDENCE THAT THE FOREGOING CONDITIONS HAVE BEEN
FULFILLED.
11. CONDITIONS PRECEDENT.
11.1. CONDITIONS PRECEDENT TO LENDER'S ENTRY INTO THIS AGREEMENT. Unless
waived in writing by Lender at or prior to the execution and delivery of this
Agreement, the conditions set forth below shall constitute express conditions
precedent to any obligation of Lender hereunder:
(a) NO INJUNCTION; ETC. No action, proceeding, investigation,
regulation or legislation shall have been instituted, threatened or proposed
before any court, governmental agency or legislative body to enjoin, restrain,
or prohibit, or to obtain substantial damages in respect of, or which is
related to or arises out of this Agreement, or the consummation of the
transactions contemplated hereby, or which Lender determines would make it
inadvisable to consummate the transactions contemplated hereby.
(b) NO DEFAULT. No Default Condition or Event of Default shall have
occurred and be continuing.
(c) COMPLIANCE WITH LAWS GENERALLY, ENVIRONMENTAL LAW COMPLIANCE.
Lender shall be satisfied in all respects that each Loan Party is in material
compliance with all applicable federal, state and local laws and regulations,
including particularly, but without limitation, all Environmental Laws.
(d) MATERIAL AGREEMENTS. Lender shall have reviewed all Material
Agreements of the Loan Parties, and all of the foregoing shall be satisfactory
to Lender.
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(e) LITIGATION. Lender shall have reviewed all existing litigation,
injunctions and proceedings, if any, pending or threatened against the Loan
Parties and the results of such review shall be satisfactory to Lender.
(f) DOCUMENTATION. Lender shall have received the following
documents of general application to the Term Loan Facility, each to be in form
and substance satisfactory to Lender and its counsel, and duly executed and
delivered by the party or parties thereto:
(1) LOAN DOCUMENTS. This Agreement and all other Loan Documents to be
executed and delivered by the Loan Parties or their Affiliates hereunder and
under the Loan Documents on the Closing Date, to the extent not otherwise
specified below;
(2) INSURANCE CERTIFICATES. Receipt by Lender of a certificate from
the Loan Parties' insurer (or an authorized agent thereof) respecting all
insurance required hereunder or under the other Loan Documents, together with
copies of all insurance policies evidencing such insurance in each case in form
and substance acceptable to Lender;
(3) OPINION OF SUCH LOAN PARTY'S COUNSEL. Receipt by Lender of a
satisfactory opinion of counsel from legal counsel to the Loan Parties;
(4) SECRETARY AND OFFICER'S CERTIFICATES. Receipt by Lender of a
secretary's certificate and an officer's certificate from each Loan Party;
(5) TERM NOTE. A Term Note in a principal amount equal to such
requested Term Loan;
(6) FINANCING STATEMENTS/CERTIFICATES OF TITLe. Copies of all filing
receipts or acknowledgments or certificate of title issued by any Governmental
Authority to evidence any filing or recordation necessary to perfect the
security interests of Lender in all Collateral relating to the Term Loan and
evidence in a form acceptable to Lender that such security interests constitute
value and perfected first priority security interests in Lender's favor;
(7) SURVEY/SITE. A survey acceptable to Lender prepared in
accordance with the standards established by the American Land Title
Association ("ALTA") for the Mortgaged Premises-Headquarters, together with a
surveyor's certificate prepared at the expense of the Loan Parties from a
registered land surveyor and, if requested by Lender, a physical site
inspection report;
(8) MORTGAGES. The Headquarters Mortgage covering the Mortgaged
Premises - Headquarters;
(9) MORTGAGEE'S TITLE INSURANCE POLICY. An ALTA mortgagee's title
insurance policy, issued at the expense of the Loan Parties, by a title insurer
selected by the Loan Parties, but acceptable to Lender insuring Lender's
security interest in the Mortgaged Promises
42
<PAGE> 43
Headquarters in such amount containing only such conditions, limitations and
exceptions as shall be acceptable to Lender;
(10) INTERCREDITOR AGREEMENT. Negotiation, execution and delivery of
the Intercreditor Agreement, such Intercreditor Agreement to be in FORM and
substance satisfactory to Lender.
(11) LIST OF EQUIPMENT. Each Loan Party shall have delivered to
Lender a complete list of all Equipment Collateral.
(12) STOCK PLEDGE AGREEMENT. The Stock Pledge Agreement, together
with original certificates evidencing the Pledged Shares and blank undated
stock powers for each of such certificates together with such other related
documents and instruments reasonably requested by Lender.
(13) SECURITY AGREEMENT. The Security Agreement, together with such
UCC financing statements, certificates of title for vehicles and other related
documents and instruments reasonably requested by Lender.
(14) OTHER. Documents and Instrumentals. Such other documents
and instruments as Lender may reasonably request.
(g) ACQUISITION. he Acquisition shall have been consummated pursuant
to the Acquisition Agreements in a manner and pursuant to documentation
satisfactory to Lender.
(h) CLOSING FEE. The Loan Parties shall have paid to Lender a
non-refundable closing fee of $35,000 in immediately available funds.
(i) MATERIAL ADVERSE CHANGE. No Material Adverse Change shall have
occurred.
[SIGNATURE PAGES FOLLOW]
43
<PAGE> 44
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and such Loan Party has caused its seal to be affixed hereto, all as
of the day and year first above written.
WESFRAC, INC.
By:
--------------------------------------
Paul J. Rath
Chief Financial Officer and Secretary
WESTEC DENVER, INC.
By:
--------------------------------------
Paul J. Rath
Chief Financial Officer and Secretary
MOFFITT OIL COMPANY, INC.
By:
--------------------------------------
Paul J. Rath
Chief Financial Officer and Secretary
44
<PAGE> 45
GUARANTORS:
-----------
PORTFIELD INVESTMENTS, INC.
By:
--------------------------------------
Keith R. Holder President
WESCOURT GROUP, INC.
By:
--------------------------------------
Paul J. Rath
Chief Financial Officer and Secretary
WESCOURT DISTRIBUTING, INC.
By:
--------------------------------------
Keith R. Holder
President
PETRO-MARK CORP. UTAH, INC.
By:
--------------------------------------
Keith R. Holder
President
45
<PAGE> 46
PETRO-MARK CORP.
By:
--------------------------------------
Paul J. Rath
Chief Financial Officer and Secretary
PETRO-MARK CORP., MONTROSE, INC.
By:
--------------------------------------
Paul J. Rath
Chief Financial Officer and Secretary
GRAND MESA TEXACO, INC.
By:
--------------------------------------
Keith R. Holder
President
MONTROSE PROPANE, INC.
By:
--------------------------------------
Keith R. Holder
President
FRUITA RP HOLDING, INC.
By:
--------------------------------------
Keith R. Holder
President
46
<PAGE> 47
WESTEC FRUITA, INC.
By:
--------------------------------------
Keith R. Holder
President
LENDER,
------
HELLER FINANCIAL, INC.
By:
--------------------------------------
Its:
-------------------------------------
GRAND MESA TEXACO, INC.
By:
--------------------------------------
Keith R. Holder
President
47
<PAGE> 48
MONTROSE PROPANE, INC.
By:
--------------------------------------
Keith R. Holder
President
FRUITA RP HOLDINGS INC.
By:
--------------------------------------
Keith R. Holder
President
WESTEC FRUITA, INC.
By:
--------------------------------------
Keith R. Holder
President
HELLER FINANCIAL, INC.
By:
--------------------------------------
Its:
-------------------------------------
48
<PAGE> 1
Exhibit 10.11
TERM NOTE
$7,000,000 APRIL 11, 1997
CHICAGO, ILLINOIS
FOR VALUE RECEIVED, the undersigned, WESFRAC, INC., a Colorado
corporation, WESTEC DENVER, INC., a Colorado corporation, and MOFFITT OIL
COMPANY, INC., a Texas corporation (collectively, "Borrowers"), hereby jointly
and severally and unconditionally promise to pay to the order of HELLER
FINANCIAL, INC., a Delaware corporation ("Lender"), at Lender's office at 500
West Monroe Street, Chicago, Illinois 6066l, or at such other place as Lender
may from time to time designate in writing, in lawful money of the United
States of America and in immediately available funds, the principal sum of
SEVEN MILLION AND NO/100 DOLLARS ($7,000,000), or, if less, the aggregate
unpaid principal amount of advance made pursuant to Section 2.1 of the "Loan
Agreement" (as hereinafter defined), at such times as are specified in, and in
accordance with the provisions of, the Loan Agreement. This Term Note is
referred to in and was executed and delivered pursuant to that certain Loan and
Guaranty Agreement of even date herewith (the "Loan Agreement") between
Borrowers, the Lender, and the guarantors who are parties thereto, to which
reference is hereby made for a statement of the terms and conditions under
which the Term Loan evidenced hereby was made and is to be repaid. All terms
which are capitalized and used herein (which are not otherwise specifically
defined herein) and which are defined in the Loan Agreement shall be used in
this Term Note as defined in the Loan Agreement. This Term Note is secured by
the Collateral.
Borrowers further jointly and severally promise to pay interest on the
outstanding unpaid principal amount hereof, as provided in the Loan Agreement,
from the date hereof until payment in full hereof at the applicable rates
specified in Section 2.4 of the Loan Agreement; provided, however, that if
Lender, in its sole discretion, so elects, following the occurrence and during
the continuance of an Event of Default, Borrowers jointly and severally promise
to pay to Lender interest on the unpaid principal amount hereof at the
applicable rate specified in Section 2.4 of the Loan Agreement. Interest shall
be payable monthly in arrears on the dates specified in Section 2.4 of the Loan
Agreement, on the date of any prepayment and at maturity, whether by
acceleration or otherwise. Interest shall be computed on the closing daily
principal balance in Borrowers' Loan Account with respect to Term Loan on the
basis of a 360-day year for the actual number of days elapsed in the period
during which it accrues.
If a payment hereunder becomes due and payable on a day that is not a
Business Day, the payment may be made on the next succeeding Business Day, and
such extension of time shall be included in the computation of the amount of
interest due on such succeeding Business Day. Checks, drafts or similar items
of payment received by Lender shall not constitute payment, but credit therefor
shall, solely for the purpose of computing interest earned by Lender, be given
in accordance with the Loan Agreement. In no contingency or event whatsoever
shall interest charged hereunder, however such interest
1
<PAGE> 2
may be characterized or computed, exceed the highest rate permissible under any
law which a court of competent jurisdiction determines is applicable hereto.
In the event of any such determination, the provisions of Section 2.9 of the
Loan Agreement shall govern and control.
After the occurrence and during the continuance of an Event of
Default, Lender shall have the exclusive right to apply and to reapply any and
all payments hereunder against the Obligations of the Borrowers in such manner
as Lender deems advisable notwithstanding any previous entry by Lender upon
Borrowers' Loan Account or any other books and records.
If any suit or action is instituted or attorneys are employed to
collect this Term Note or any part thereof, Borrowers hereby jointly and
severally promise and agree to pay all costs of collection, including
attorneys' fees and court costs.
Borrowers and each endorser, guarantor and surety of this Term Note
hereby waives presentment for payment, protest and demand, and notice of
demand, protest, dishonor and nonpayment of this Term Note. Borrowers also
waive all rights to notice and hearing of any kind upon the occurrence of an
Event of Default and prior to the exercise by Lender of its rights to repossess
the Collateral without judicial process or to replevy, attach or levy upon the
Collateral without notice or hearing.
THIS TERM NOTE HAS BEEN DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN
MADE AT CHICAGO, ILLINOIS AND SHALL BE INTERPRETED AND THE RIGHTS AND
LIABILITIES OF THE PARTIES HERETO SHALL BE DETERMINED IN ACCORDANCE WITH THE
INTERNAL LAWS AND DECISIONS OF THE STATE OF ILLINOIS WITHOUT REGARD TO
CONFLICTS OF LAW PROVISIONS. Whenever possible each provision of this Term
Note shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Term Note shall be prohibited by
or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Term Note. Whenever in this
Term Note reference is made to Lender or Borrowers, such reference shall be
deemed to include, as applicable, a reference to their respective successors
and assigns. The provisions of this Term Note shall be binding upon and shall
inure to the benefit of such successors and assigns. Borrowers' successors and
assigns shall include, without limitation, a receiver, trustee or debtor in
possession of or for any of the Borrowers.
2
<PAGE> 3
IN WITNESS WHEREOF, Borrowers have executed this Term Note as of the
day and year first above written.
WESFRAC, INC.,
a Colorado corporation
By:
-----------------------------
Name: Paul J. Rath Title:
Chief Financial Officer and
Secretary
WESTEC DENVER, INC.,
a Colorado corporation
By:
-----------------------------
Name: Paul J. Rath Title:
Chief Financial Officer and
Secretary
MOFFITT OIL COMPANY, INC.,
a Texas corporation
By:
-----------------------------
Name: Paul J. Rath Title:
Chief Financial Officer and
Secretary
3
<PAGE> 1
Exhibit 10.12
TERM LOAN AND SECURITY AGREEMENT
THIS TERM LOAN AND SECURITY AGREEMENT, made, entered into and
effective as of the 12th day of March, 1997, by and between PETRO-MARK
CONVENIENCE STORES, INC., a Colorado corporation ("Borrower"), and HELLER
FINANCIAL, INC., a Delaware corporation ("Lender");
W I T N E S S E T H :
WHEREAS, Borrower has applied to Lender for a term loan facility in
the aggregate principal amount of up to Eight Million Dollars ($8,000,000.00),
the proceeds of which will be used by Borrower to finance the acquisition of
eight convenience store locations in the State of Colorado from Diamond
Shamrock Refining and Market Company, a Delaware corporation ("DS"), such
locations as more particularly described on Exhibit A hereto (the "Acquired
Locations");
WHEREAS, Lender has considered Borrower's request for such financing
and is willing to extend such financing to Borrower for such purpose in
accordance with the terms of this Agreement upon the execution of this
Agreement by Borrower, compliance by Borrower with all of the terms and
provisions of this Agreement and fulfillment by Borrower of all conditions
precedent to Lender's obligations herein contained;
WHEREAS, prior to the consummation of the transactions contemplated
hereby, Petro-Mark Corp., Montrose, Inc., a Colorado corporation ("Petro-Mark
Montrose"), and Westec Fruita, Inc., a Delaware corporation ("Westec Fruita"),
transferred the five convenience store locations in the State of Colorado more
particularly described on Exhibit B hereto (the "Existing Locations") to
Borrower in exchange for two subordinated promissory notes;
WHEREAS, each of Wescourt Group, Inc., a Delaware corporation
("Wescourt"), Portfield Investments, Inc., a Colorado corporation
("Portfield"), and Wesfrac, Inc., a Colorado corporation ("Wesfrac"), have
agreed to unconditionally guarantee Borrower's Obligations (as defined below)
hereunder and under the Loan Documents (as defined below) pursuant to the
Guaranty (as defined below); and
WHEREAS, Borrower has agreed to cause Wesfrac to grant Lender a
security interest in a certain fractionator located in Fruita, Colorado (the
"Fractionator") as additional collateral for the term loan facility.
NOW, THEREFORE, in consideration of the foregoing premises, to induce
Lender to extend the financing provided for herein, and for other good and
valuable consideration, the sufficiency and receipt of all of which are
acknowledged by Borrower, Lender and Borrower agree as follows:
1. DEFINITIONS, TERMS AND REFERENCES.
1.1. CERTAIN DEFINITIONS. In addition to such other terms as are
elsewhere defined herein, as used in this Agreement and in any Exhibits, the
following terms shall have the following meanings, unless the context requires
otherwise:
"Acquired Locations" shall have the meaning ascribed thereto in the
initial recitals to this Agreement.
"Acquisition Agreement" shall mean that certain Asset Purchase and
Branding Agreement dated October 29, 1996 between DS and Wescourt, as amended
from time in accordance with the terms thereof, which agreement has been
assigned to Borrower as of March 5, 1997.
"Acquisition Agreement Assignment" shall mean that certain Assignment
of Representations, Warranties, Covenants, Indemnities and Rights dated as of
the date hereof by and between Borrower and Lender with an acknowledgment
thereof by DS.
<PAGE> 2
"Affiliate", in relation to any particular Person, shall mean any
other Person which, directly or indirectly, controls, or is controlled by, or
is under common control with, such Person. For purposes of this definition,
"control" shall mean the power, directly or indirectly, to (a) vote ten percent
(10%) or more of the outstanding stock having ordinary voting power for the
election of directors of such Person or (b) direct the management or policies
of such Person, whether by contract or otherwise. The term "Affiliate" shall
include, without limitation, and in any event, in respect of Borrower, (i) each
shareholder, and each officer and director of Borrower; and (ii) any
subsidiaries of Borrower that are at least 51% owned or controlled (by contract
or otherwise) by Borrower.
"Agreement" shall mean this Term Loan and Security Agreement, as
amended or supplemented from time to time.
"Applicable Rate" shall mean the One Month LIBOR Rate or the Default
Rate, as made applicable to the Term Loan, pursuant to Section 2.4 hereof.
"Bankruptcy Code" shall mean Title 11 of the United States Code, as
amended from time to time.
"Borrower" shall have the meaning ascribed thereto in the initial
recitals to this Agreement.
"Business Day" shall mean any day excluding Saturday, Sunday and any
day which is a legal holiday under the laws of the States of Illinois or
Colorado or is a day on which banking institutions located in such States are
closed.
"Closed Store" shall mean any Acquired Location that closes and
remains closed in excess of one hundred eighty (180) days in any three hundred
sixty five (365) day period for a reason other than an insured casualty loss or
condemnation.
"Closing Date" shall mean the date of this Agreement.
"Collateral" shall mean, collectively, the Acquisition Agreement
(subject to the terms of the Acquisition Agreement Assignment), the Equipment
Collateral, the Fractionator, the shares subject to the Pledge covered by the
Wescourt Pledge Agreement, all of Borrower's existing and after-acquired liquor
licenses and lottery licenses, any real property owned or leased by Borrower
and subject to a Mortgage, the Condemnation Proceeds, and all other property of
Borrower described in Article 3, or any part thereof, or elsewhere herein or in
any Loan Document, all as the context shall require, in which Lender has, or is
to have, or hereafter may obtain, a security interest, lien or encumbrance
pursuant thereto, as security for payment of the Obligations, together with all
books and records related to the foregoing and the proceeds of all or any of
the above described property, including without limitation proceeds of any
insurance.
"Compliance Certificate" shall mean a certificate of Borrower executed
by chief financial officer of Borrower, on Borrower's behalf, stating that no
Event of Default or Default Condition has occurred or exists, or if an Event of
Default or Default Condition has occurred or exists, specifying the nature and
period of existence thereof and what action Borrower has taken or proposes to
take with respect thereto.
"Condemnation Proceeds" shall mean all compensation, awards, damages,
rights of action and proceeds due Borrower arising from any taking by any
lawful power or authority by exercise of the rights of condemnation or eminent
domain with respect to any of the Collateral.
"Contaminant" shall mean those substances which are regulated by or
form the basis of liability under federal, state or local environmental, health
and safety statutes or regulations including, without limitation, asbestos,
polychlorinated biphenyls ("PCBs"), radioactive substances, petroleum,
petroleum products or any other material or substance which constitutes a
material health, safety or environmental hazard to any Person or Property.
"Default Condition" shall mean the occurrence of any event which,
after satisfaction of any requirement for the giving of notice or the lapse of
time, or both, would become an Event of Default.
-2-
<PAGE> 3
"Default Rate" shall mean that simple interest rate equal to three
percent (3%) per annum in excess of the One Month LIBOR Rate.
"DS" shall have the meaning ascribed thereto in the initial recitals
to this Agreement.
"Environmental Claim" shall mean any notice of violation, claim, suit,
demand, abatement or other order or direction (conditional or otherwise) by any
Governmental Authority or any Person for personal injury (including sickness,
disease or death), tangible or intangible property damage, damage to the
environment, pollution, contamination or other adverse effects on the
environment, or for fines, penalties or restrictions, resulting from or based
upon (i) the existence, or the continuation of the existence, of a Release
(including, without limitation, sudden or non-sudden, accidental or
non-accidental Releases) of, or exposure to, any Contaminant, or other release
or emission in, into or onto the environment (including, without limitation,
the air, ground, surface water, ground water or any surface) in, by, from, or
related to any Property, (ii) the environmental aspects of the transportation,
storage, treatment or disposal of materials, in connection with the operation
of any Property or (iii) the violation, or alleged violation, of any statutes,
ordinances, orders, rules, regulations, Permits, licenses, registrations or
approvals of or from any Governmental Authority relating to environmental
matters connected with any Property.
"Environmental Laws" shall mean all laws relating to the
environmental, safety, health and the regulation of Contaminants, including,
without limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act (42 U.S.C. Section 9601 et seq.), the Superfund Amendments and
Reauthorization Act of 1986, Public Law No. 99-499, 100 Stat. 163, the
Hazardous Material Transportation Act (49 U.S.C. Section 1801 et seq.), the
Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), the
Clean Water Act (33 U.S.C. Section 1251 et seq.), the Clean Air Act (42 U.S.C.
Section 7401 et seq.), the Toxic Substances Control Act, as amended (15 U.S.C.
Section 2601 et seq.), the Federal Insecticide, Fungicide, and Rodenticide Act
(7 U.S.C. Section 136 et seq.), and the Occupational Safety and Health Act (29
U.S.C. Section 651 et seq.), as such laws have been and hereafter may be
amended or supplemented, and any analogous future federal, or present or future
state or local laws and all rules and regulations promulgated pursuant thereto.
"Equipment Collateral" shall mean all equipment, machinery, furniture,
furnishings and fixtures owned or leased by Borrower located on, or used or
useful in the operation of a convenience store business at any Financed
Convenience Store Location, including, without limitation, the convenience
store, together with all furniture, fixtures, equipment in the convenience
store, any and all lighting (including without limitation any and all lighting
fixtures, lighting pedestals, and flood lights), removable signage of all
varieties (to the extent owned and not leased, except as provided in the
Acquisition Assignment Agreement), sprinkler controls, sprinkler solenoids,
sprinkler heads, exterior menu boards and exterior intercom ordering systems,
exterior music speakers and pedestals, and any and all personal property of any
kind or nature contained in, on, or around and/or associated with in any manner
the operation of the convenience store, and all building and construction
materials, supplies and equipment incorporated in the convenience store and all
machinery, appliances, pipes, conduits, generators, engines, pumps, motors,
compressors, boilers, condensing units, disposals, sprinklers, wiring, and
furnishings of every kind and description which may be used or useful in
connection with the operation of and located inside the convenience store; and
any and all gasoline or petroleum equipment for use with gasoline or petroleum
products, utensils, parts and spare parts therefor; all outside removable items
and any and all ice machines, ice cream machines, warmers, refrigerators,
freezers, ovens, and toasters; all security, fire, smoke and other alarm
systems; Borrower's interests in all cash registers and point-of-sale
terminals; all computers (hardware and software); all in-store communication
devices; together with any and all extensions, additions, improvements,
betterments, after-acquired property that constitutes Equipment Collateral of
the nature described herein, renewals, replacements and substitutions or
proceeds from a voluntary or involuntary sale, liquidation or conversion of any
of the foregoing; and all attachments, additions and accessions thereto, all
whether now or hereafter existing or acquired; provided, that notwithstanding
anything herein to the contrary, Equipment Collateral shall not include
inventory, accounts receivable or proceeds therefrom.
"Event of Default" shall mean any of the events or conditions
described in Article 7, provided that any requirement for the giving of notice
or the lapse of time, or both, has been satisfied.
-3-
<PAGE> 4
"Existing Locations" shall have the meaning ascribed thereto in the
initial recitals to this Agreement.
"Financed Convenience Store Location" shall mean each parcel of real
property, either owned or leased by Borrower, on which Borrower is conducting
or is to conduct, a convenience store business with financing provided by
Lender, in whole or in part, at the Acquired Locations and the Existing
Locations, and any and all improvements thereto.
"Fractionator" shall have the meaning ascribed thereto in the initial
recitals to this Agreement.
"GAAP" shall mean generally accepted accounting principles which are
(a) consistent with the principles promulgated or adopted by the Financial
Accounting Standards Board and its predecessors as in effect from time to time,
(b) such that a certified public accountant would, insofar as the use of
accounting principles is pertinent, be in a position to deliver an unqualified
opinion as to financial statements in which such principles have been properly
applied and (c) applied on a basis consistent with prior periods; provided that
any changes in GAAP after the date hereof that would adversely affect Borrower
in the calculation of the covenants set forth in Section 6 shall be excluded in
making such calculations unless Borrower or any Affiliate has entered into any
agreement or contract which contains a more restrictive definition or
interpretation of GAAP, in which case Borrower shall apply such more
restrictive definition or interpretation of GAAP in calculating the covenants
set forth in Section 6.
"Governmental Authority" shall mean any nation or government, federal,
state, city, town, municipality, county, local or political subdivision thereof
or thereto and any department, commission, instrumentality or agency exercising
executive, legislative, judicial, regulatory or administrative functions on
behalf thereof.
"Guarantors" shall mean Portfield, Wescourt and Wesfrac, collectively
(each individually, a "Guarantor").
"Guaranty" shall mean that certain Guaranty dated the date hereof
executed and delivered by each of the Guarantors in favor of Lender, which
Guaranty shall be in form and substance reasonably satisfactory to Lender.
"Hazardous Materials" shall include Hazardous Substances, as defined
by the Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. Section 9601 et seq., any petroleum or petroleum products (excluding a
small quantity of gasoline and oil used in maintenance equipment on the
Property), asbestos or asbestos containing material, or any other hazardous
substances, hazardous wastes or hazardous materials as defined by other
Environmental Laws.
"Headquarters" shall mean the address of Borrower located at 1493
Highways 6 & 50, Fruita, Colorado 81521.
"Indebtedness" shall mean, without duplication, all obligations,
contingent and otherwise, which in accordance with GAAP should be classified
upon an obligor's consolidated balance sheet as liabilities, or to which
reference should be made by footnotes thereto, including, without limitation,
in any event and whether or not so classified: (a) all debt and similar
monetary obligations, whether direct or indirect; (b) all liabilities secured
by any mortgage, pledge, security interest, lien, charge, or other encumbrance
existing on property owned or acquired subject thereto, whether or not the
liability secured thereby shall have been assumed; and (c) all guarantees,
endorsements and other contingent obligations, whether direct or indirect, in
respect of Indebtedness of others, including any obligation to supply funds to
or in any manner to invest in, directly or indirectly, the debtor, to purchase
Indebtedness, or to assure the owner of Indebtedness against loss, through an
agreement to purchase goods, supplies, or services for the purpose of enabling
the debtor to make payment of the Indebtedness held by such owner or otherwise,
and the obligations to reimburse the issuer in respect of any letters of
credit, except that Indebtedness shall not include the amount of Borrower's
obligations under guaranties for the benefit of financial institutions lending
to dealers that enter into long-term exclusive supply contracts with an
Affiliate of Borrower.
"Independent Accountants" shall mean a firm of independent public
accountants selected on behalf of Borrower by the Board of Directors of
Borrower and reasonably acceptable to Lender, it being acknowledged by Lender
that Coopers & Lybrand is so acceptable.
-4-
<PAGE> 5
"Intercreditor Agreement" shall mean that certain Intercreditor and
Subordination Agreement dated as of the date hereof among Borrower, Lender,
Wesfrac, NCFC, The WLD Trust, Portfield, Wescourt and the other parties
thereto.
"Lender" shall have the meaning ascribed thereto in the initial
recitals to this Agreement. The term "Lender" shall also include any
Participant to whom Lender shall assign, in whole or in part, its right, title
and interest in and to the Obligations and hereunder subsequent to the Closing
Date.
"Loan Documents" shall mean this Agreement, the Term Note, each
Mortgage, each financing statement, the Guaranty, the Wesfrac Security
Agreement, the Intercreditor Agreement, the Wescourt Pledge Agreement, and each
and every other document, instrument, certificate and agreement executed and/or
delivered by Borrower, Wescourt or Wesfrac in connection herewith, or any one,
more, or all of the foregoing, all as the context shall require.
"Loan Year" means each period of twelve (12) consecutive months
commencing on the Closing Date and on each anniversary thereof.
"Material Adverse Change" shall mean any change occurring in the
business, operations, prospects, properties or condition (financial or
otherwise) of Borrower or any guarantor of the Obligations, which materially
and adversely affects (i) the ability of Borrower to own or operate its assets
or conduct its business as a going concern, (ii) the ability of Borrower to pay
the Obligations as and when due and payable or otherwise perform its
obligations hereunder or under the other Loan Documents; or (iii) the failure
or inability, of Borrower or any guarantor of the Obligations to pay or perform
its obligations to its creditors generally.
"Material Adverse Effect" shall mean an effect that has resulted in,
will result in, or is reasonably likely to result in, a Material Adverse
Change.
"Material Agreements" shall mean all franchise and distribution rights
agreements with any petroleum companies; all real property leases with respect
to any Financed Convenience Store Location; all loan and other debt instruments
and agreements; all management, employment and labor agreements; and any and
all other agreements, not specified hereinabove; provided, that in all cases
cited above, the loss, diminution or impairment of any such other agreement
would have, or would reasonably be expected to have, a Material Adverse Effect.
"Mortgage" shall mean any mortgage, deed of trust or similar
instrument pursuant to which Lender shall obtain a mortgage lien, security
interest or security title on or in any right, title and ownership of Borrower,
as owner, lessee or otherwise, in and to any Financed Convenience Store
Location.
"NCFC" means National Canada Finance Corp.
"NCFC Lien" means NCFC's security interests in any assets pledged to
NCFC from time to time pursuant to the NCFC Loan Agreement other than security
interests in any Collateral.
"NCFC Loan Agreement" means that certain Loan and Security Agreement
dated as of October 6, 1995 among NCFC, Portfield, Wesfrac, Wescourt, Petro-
Mark Montrose, Wesfrac Fruita and certain other borrowers (as such agreement
has been or will be amended from time to time) and each of the agreements
related thereto, or any replacement or similar credit facility.
"Net Worth" shall mean, at any time, the total of shareholders' equity
(including capital stock, additional paid-in capital, and retained earnings)
less intangible assets (including goodwill of Borrower) plus debt subordinated
to the Obligations calculated in accordance with GAAP.
-5-
<PAGE> 6
"Obligations" shall mean and include any and all indebtedness,
liabilities and obligations of Borrower to Lender arising hereunder or as a
result hereof or under any other Loan Document, whether evidenced by the Term
Note or otherwise, and any and all extensions or renewals thereof in whole or
in part.
"One Month LIBOR Rate" shall mean, for each calendar month, a rate of
interest equal to:
(a) the rate of interest determined by Lender at which
deposits in U.S. Dollars are offered for the one (1) month interest period
based on information presented on the Reuters Screen LIBO Page as of 11:00 A.M.
(London time) on the day which is two (2) Business Days prior to the first day
of each calendar month; provided that if at least two (2) such offered rates
appear on the Reuters Screen LIBO Page in respect of such interest period, the
arithmetic mean of all such rates (as determined by Lender) will be the rate
used; provided further that if there are fewer than two (2) offered rates or
Reuters ceases to provide LIBOR quotations, such rate shall be the arithmetic
mean rate of interest determined by Lender at which deposits in U.S. Dollars
are offered for the one (1) month interest period by Bankers Trust Company and
Chase Bank, N.A. (or their respective successors) to banks with combined
capital and surplus in excess of five hundred million dollars ($500,000,000) in
the London interbank market as of 11:00 A.M. (London time) on the applicable
interest rate determination date, divided by
(b) a number equal to 1.0 minus the aggregate (but without
duplication) of the rates (expressed as a decimal fraction) of reserve
requirements in effect on the day which is two (2) Business Days prior to the
beginning of each calendar month (including, without limitation, basic,
supplemental, marginal and emergency reserves under any regulations of the
Board of Governors of the Federal Reserve System or other Governmental
Authority having jurisdiction with respect thereto, as now and from time to
time in effect) for Eurocurrency funding (currently referred to as
"Eurocurrency liabilities" in Regulation D of such Board) which are required to
be maintained by a member bank of the Federal Reserve System; plus
(c) three and one-quarter percent (3.25%);
(such rate to be adjusted to the nearest one sixteenth of one percent
(1/16 of 1%) or, if there is no nearest one sixteenth of one percent (1/16 of
1%), to the next higher one sixteenth of one percent (1/16 of 1%)).
For purposes of the initial funding on the Closing Date, the
Applicable Rate shall be the One Month LIBOR Rate in effect on the Closing
Date, with interest payable in arrears and calculated daily on the basis of a
365 day year for the actual number of days elapsed during such calendar month.
"Participant" shall mean any Person to whom, now or hereafter, Lender
sells a participation interest in, or makes an assignment of, its right, title
or interest hereunder and in the Obligations (whether in whole or in part).
"Permit" shall mean any permit, approval, authorization, license,
variance, or permission required from a Governmental Authority having
jurisdiction under an applicable Environmental Law.
"Permitted Encumbrances" shall mean:
(1) liens for taxes, assessments or other
governmental charges not yet due and payable;
(2) statutory liens incurred by Borrower or its
subsidiaries of landlords, carriers, warehousemen, mechanics,
materialmen and other similar liens imposed by law, which are incurred
in the ordinary course of business for sums not more than thirty (30)
days delinquent or which are being contested in good faith; provided
that a reserve or other appropriate provision shall have been made
therefor if required by GAAP and the aggregate amount of such liens is
less than $50,000;
(3) liens (other than any lien imposed by the
Employee Retirement Income Security Act of 1974 or any rule or
regulation promulgated thereunder) incurred or deposits made
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in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social
security, or to secure the performance of tenders, statutory
obligations, surety, stay, customs and appeal bonds, bids, leases,
government contracts, trade contracts, performance and return of money
bonds and other similar obligations (exclusive of obligations for the
payment of borrowed money);
(4) liens incurred by Borrower or its
subsidiaries for purchase money obligations in an aggregate amount not
to exceed $500,000 at any time, provided any such lien encumbers only
the asset so purchased or leased and secures only Indebtedness
incurred for the purchase of such asset;
(5) any attachment or judgment lien not
constituting an Event of Default under Section 7;
(6) easements, rights of way, restrictions, and
other similar charges or encumbrances not interfering in any material
respect with the ordinary conduct of the business of Borrower or any
of its subsidiaries;
(7) the NCFC Lien;
(8) the Portfield Lien;
(9) involuntary liens incurred in the ordinary
course of Borrower's business (other than in connection with
Indebtedness) in an aggregate principal amount not to exceed $50,000
at any time at any Financed Convenience Store Location;
(10) liens in favor of Lender; and
(11) the liens set forth on Schedule 1.1.
"Person" shall mean any individual, partnership, corporation, trust,
unincorporated association, business trust, sole proprietorship, or joint
venture, a government or any department, agency, political subdivision or
instrumentality thereof, or any other entity or organization.
"Petromark Montrose" shall have the meaning ascribed thereto in the
initial recitals to this Agreement.
"Portfield" shall have the meaning ascribed thereto in the initial
recitals to this Agreement.
"Portfield Lien" shall mean Portfield's security interest in those
assets of Borrower pledged to Portfield to secure performance of Borrower's
obligations under a certain subordinated promissory note issued by Borrower to
Portfield in the principal amount of $2,000,000, together with the assignment
of such security interest to The WLD Trust pursuant to a certain WLD Assignment
and Security Agreement dated as of the date hereof among Portfield, The WLD
Trust, Borrower and the other parties named therein, which promissory note and
lien are subject to the terms of the Intercreditor Agreement.
"Property" shall mean any real or personal property owned, leased or
operated by Borrower.
"Qualified Initial Public Offering" means an initial underwritten
public offering and sale for cash by Portfield or its successors of the common
stock of Portfield or its successors to an underwriter or underwriters pursuant
to a "firm commitment" underwriting agreement and registration statement
declared effective by the Securities and Exchange Commission under the
Securities Act of 1933, as amended, in which the Company receives gross
proceeds of at least $10,000,000.
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"Release" shall mean any actual or threatened release, spill,
emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal,
leaching or migration of Contaminants into the indoor or outdoor environment or
into or out of any Property, through or into the air, soil, subsurface strata,
surface water or ground water.
"Remedial Action" shall mean all actions required to (1) clean up,
remove, treat or in any other way address Contaminants in the indoor or outdoor
environment; (2) prevent the Release or threat of Release or minimize the
further Release of Contaminants so they do not migrate or endanger or threaten
to endanger public health or welfare or the indoor or outdoor environment; or
(3) perform pre-remedial studies and investigations and post-remedial
monitoring and care in respect of actions contemplated in the preceding clauses
(1) and (2), in each instance in compliance with Environmental Laws.
"Term Loan" shall mean the term loan made by Lender to Borrower
pursuant to Section 2.1 below.
"Term Loan Facility" shall mean the term loan facility in the maximum
amount of Eight Million Dollars ($8,000,000) established by Lender in favor of
Borrower pursuant to Section 2.1.
"Term Note" shall mean the Term Note issued by Borrower to Lender to
evidence the repayment obligation associated with the Term Loan, together with
any extensions or renewals thereof, in whole or in part.
"UCC" shall mean the Uniform Commercial Code of Illinois, as in effect
from time to time.
"Wesfrac" shall have the meaning ascribed thereto in the initial
recitals to this Agreement.
"Wesfrac Security Agreement" shall mean that certain Security
Agreement dated the date hereof executed and delivered by Wesfrac in favor of
Lender, which Security Agreement shall be in form and substance reasonably
satisfactory to Lender.
"Wescourt" shall have the meaning ascribed thereto in the initial
recitals to this Agreement.
"Wescourt Pledge Agreement" shall mean that certain Pledge Agreement
dated the date hereof executed and delivered by Wescourt in favor of Lender
pledging all of the shares of Wesfrac, which Pledge Agreement shall be in form
and substance reasonably satisfactory to Lender.
"Westec Fruita" shall have the meaning ascribed thereto in the initial
recitals to this Agreement.
1.2. USE OF DEFINED TERMS. All terms defined in this Agreement and
the Exhibits shall have the same defined meanings when used in any other Loan
Documents, unless the context shall require otherwise.
1.3. ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall have the meanings generally attributed to such terms under GAAP.
1.4. UCC TERMS. The terms "equipment", "proceeds" and "products", as
and when used in the Loan Documents, together with any other or similar terms
not specifically defined herein but which are defined in the UCC shall have the
same meanings as given to such terms therein.
1.5. TERMINOLOGY. All personal pronouns used in this Agreement,
whether used in the masculine, feminine or neuter gender, shall include all
other genders; the singular shall include the plural, and the plural shall
include the singular. Titles of Articles and Sections in this Agreement are
for convenience only, and neither limit nor amplify the provisions of this
Agreement, and all references in this Agreement to Articles, Sections,
Subsections, paragraphs, clauses, subclauses or Exhibits shall refer to the
corresponding Article, Section, Subsection, paragraph, clause, subclause of, or
Exhibit attached to, this Agreement, unless specific reference is made to the
articles, sections or other subdivisions divisions of, or Exhibit to, another
document or instrument.
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1.6. EXHIBITS. All Exhibits attached hereto are by reference made a
part hereof as fully as if the contents thereof were set forth expressly
herein.
2. THE FINANCING.
2.1. TERM LOAN FACILITY. Subject to the terms and conditions of this
Agreement and in reliance upon the representations and warranties of Borrower
set forth herein and in the Loan Documents, Lender agrees to lend Borrower, on
the Closing Date, an amount not to exceed Eight Million Dollars
($8,000,000.00), for the purpose of financing the Acquired Locations. The
amount of the Term Loan Facility shall be reduced dollar for dollar to the
extent the purchase price for the Acquired Locations is reduced below Ten
Million Dollars $10,000,000. The Term Loan shall be funded in one drawing and
no amount of the Term Loan may be reborrowed once disbursed, notwithstanding
its repayment. Borrower shall make principal and interest payments on the
dates and in the amounts as set forth in Sections 2.3 and 2.4.
2.2. TERM NOTE. The indebtedness represented by the Term Loan shall
be evidenced by a Term Note. The Term Note shall be executed by Borrower and
delivered to Lender coincident with the disbursement of the Term Loan on the
Closing Date.
2.3. AMORTIZATION. The principal amount of the Term Loan shall be
repaid in eighty-five (85) consecutive monthly installments based upon an the
amortization schedule set forth in Exhibit C hereto, with a final balloon
payment being equal to the then unpaid principal on such Term Loan, plus any
accrued and outstanding interest thereon. The final balloon payment shall be
due and payable on the anniversary of the eighty-fifth (85th) month after the
Closing Date.
2.4. INTEREST. The Term Note shall bear interest at the One Month
LIBOR Rate. Interest shall be computed on the unpaid daily outstanding
principal balance of the Term Note on the day which is two (2) Business Days
prior to the first day of each calendar month on the basis of a 365 day year
for the actual number of days elapsed during such calendar month. Interest on
the Term Loan shall be payable monthly in arrears, commencing on April 1, 1997,
to be collected for the preceding calendar month (or, in the case of the first
such payment, from the Closing Date through the end of such calendar month),
and thereafter interest payments shall be made on the first Business Day of
each succeeding calendar month and upon payment or prepayment in full (or in
part to the extent permitted herein) of the Term Note. Notwithstanding the
foregoing, however, from and after the occurrence of any Event of Default, and
continuing for so long thereafter as such Event of Default shall be continuing,
Lender shall have the right to increase the interest rate payable on the Term
Note to the Default Rate applicable thereto upon giving Borrower written notice
thereof, and Borrower shall be responsible for the payment of the additional
interest resulting therefrom in addition to the regularly scheduled principal
amortization of the Term Note, as described more particularly in Section 2.3,
and accrued interest thereon.
2.5. SECURITY DEPOSIT/FEE. The Fifty Thousand Dollar ($50,000)
security deposit presently held by Lender will be refunded to Borrower, less
Lender's expenses, within thirty (30) days from the Closing Date. If the Term
Loan is not funded, other than as a result of a breach by Lender under this
Agreement, then Lender may retain the deposit as liquidated damages and not as
a penalty, without in any way reducing Borrower's liabilities with respect to
Lender's expenses.
2.6. LATE CHARGE. If payment of any principal of, or interest on,
the Term Note or any other sum payable hereunder or under any other Loan
Document is not received within ten (10) calendar days after its due date,
Lender shall have the right to impose a late charge relative to such payment in
an amount equal to up to five percent (5%) of the amount of such past due
payment, which charge, if imposed by Lender, shall be due and payable by
Borrower immediately upon receipt of notice thereof.
2.7. VOLUNTARY AND MANDATORY PREPAYMENT.
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(a) The Term Note may be prepaid in whole, but not in part, by
Borrower at any time after the first Loan Year, provided, however, that any
such prepayment must be preceded by at least thirty (30) calendar days prior
written notice thereof to Lender; and, provided, further, that any such
prepayment must be accompanied by the payment of all then accrued, but unpaid,
interest on the principal amount to be prepaid together with a prepayment
premium, representing liquidated damages to Lender for the loss of its bargain
and not a penalty, equal in amount to the amount calculated as follows:
Two (2%) percent of the principal amount prepaid if such prepayment
occurs in the second Loan Year; one (1%) percent of the principal
amount prepaid if such prepayment occurs in the third Loan Year; one-
half of one percent (0.5%) of the principal amount prepaid if such
prepayment occurs in the fourth Loan Year, and without premium at all
times thereafter.
(b) Borrower will within 10 days of occurrence report to Lender any
loss, damage, fire, theft or other casualty to any Collateral that is equal to
or greater than $250,000 in the aggregate, and whether Borrower has repaired
(or caused to be repaired) or replaced, or intends to repair (or cause to be
repaired) or replace, such Collateral. Lender is authorized and empowered to
make or file proofs of loss or damage (in each case, so long as no Event of
Default shall have occurred and be continuing, only so long as such loss or
damages is equal to or greater than $500,000) and to settle and adjust any
claim under insurance policies which insure against such risks, or to direct
Borrower, in writing, to agree with the insurance carrier(s) on the amount to
be paid in regard to such loss. All insurance proceeds and other amounts
receivable as a result of any such casualty shall at Lender's option, be
immediately paid to Lender or made available to Borrower for the repair,
replacement or restoration of the subject Collateral as set forth in this
subsection 2.7(c). So long as an Event of Default shall have occurred and be
continuing, all insurance proceeds, regardless of amount, shall be payable
directly to Lender.
Borrower shall immediately notify Lender of any action or proceeding
relating to any condemnation or other taking, whether direct or indirect, with
respect to any Financed Convenience Store Location, or part thereof, and
Borrower shall appear in and prosecute any such action or proceeding unless
otherwise directed by Lender in writing. Borrower authorizes Lender, at
Lender's option, as attorney-in-fact for Borrower, to commence, appear in and
prosecute, in Lender's or Borrower's name, any action or proceeding relating to
any condemnation or other taking of any Financed Convenience Store Location,
whether direct or indirect, and to settle or compromise any claim in connection
with such condemnation or other taking, provided such claim is for an amount
equal to or greater than $500,000. The proceeds of any award, payment or claim
for damages, direct or consequential, in connection with any such condemnation
or other taking, whether direct or indirect, of any Financed Convenience Store
Location, or part thereof, or for conveyances in lieu of condemnation, are
hereby assigned to and shall be paid to Lender as further security for the
payment and performance of the Obligations. So long as an Event of Default
shall have occurred and be continuing, all condemnation or similar proceeds,
regardless of amount, shall be payable directly to Lender.
Provided no Event of Default then exists hereunder, the net insurance
proceeds and net proceeds of any condemnation award (in each case after
deduction only of Lender's reasonable costs and expenses, if any, in collecting
the same) in amounts greater than $500,000 shall be made available for the
restoration or repair of the Financed Convenience Store Location if, in
Lender's sole judgment (i) restoration or repair and the continued operation of
the Financed Convenience Store Location is economically feasible, (ii) the
value of Lender's security is not materially reduced, (iii) the loss or
condemnation, as applicable, does not occur in the six (6) month period
preceding the stated maturity date and Lender's independent consultant
certifies that the restoration of the Financed Convenience Store Location can
be completed at least 90 days prior to the maturity date. Notwithstanding the
foregoing, it shall be a condition precedent to any disbursement of insurance
proceeds held by Lender hereunder that Lender shall have approved (x) all plans
and specifications for any proposed repair or restoration, (y) the construction
schedule and (z) the architect's and general contractor's contract for all
restoration that exceeds $500,000.00 in the aggregate. Lender may establish
other conditions it deems reasonably necessary to assure the work is fully
completed in a good and workmanlike manner free of all liens or claims by
reason thereof. If the net insurance proceeds or net proceeds of any
condemnation award, as applicable, are made available for restoration or
repair, such work shall be completed by Borrower in an expeditious and diligent
fashion, and in compliance with all applicable laws, rules and regulations. At
Lender's option, the net insurance proceeds or net proceeds of any condemnation
award equal to or greater than $500,000, as applicable, shall be disbursed
pursuant to a construction escrow acceptable to Lender. If following the
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final payments for the completion of such restoration or repair there are any
net insurance proceeds or net proceeds of any condemnation award, as
applicable, remaining, such proceeds shall be paid (I) to Lender to be applied
to the Obligations, whether or not due and payable until paid in full, and (II)
then to Borrower. If an Event of Default then exists, or any of the conditions
set forth in subparagraphs (i) through (iii) of this subsection 2.7(b) have not
been met or satisfied, the net insurance proceeds or net proceeds of any
condemnation award, as applicable, shall be applied to repay the Obligations,
whether or not due and payable, with any excess paid to Borrower.
2.8. NATURE OF CHARGES IMPOSED. Lender and Borrower hereby agree
that (i) the only charges imposed by Lender upon Borrower for the use of money
in connection with the Term Loan Facility are and shall be interest at the
rates per annum expressed in Section 2.4 hereinabove and (ii) all other charges
imposed by Lender upon Borrower in connection with the Term Loan Facility,
including, without limitation, the deposit heretofore made by Borrower, as
described in Section 2.5, the late charge provided for in Section 2.6, and any
prepayment premium hereafter paid by Borrower pursuant to Section 2.7, are and
shall be deemed to be charges made to compensate Lender for underwriting and
administrative services and costs, and other services and costs performed and
incurred, and to be performed and incurred, by Lender in connection with the
creation and administration of the Term Loan Facility, and shall under no
circumstances be deemed to be charges for the use of money for purposes of
Illinois law.
2.9. SAVINGS CLAUSE. Notwithstanding the foregoing or any provision
contained in this Agreement, the Term Note or any other Loan Document to the
contrary, if at any time the amount of interest computed with respect to the
Term Note on the basis of the Applicable Rate would exceed the amount of such
interest computed upon the basis of the maximum rate of interest permitted by
applicable state or federal law in effect from time to time hereafter, after
taking into account, to the extent required by applicable law, any and all
fees, payments, charges and calculations provided for in this Agreement or in
any other agreement between Borrower and Lender (the "Maximum Legal Rate"), the
interest payable under this Agreement shall be computed upon the basis of the
Maximum Legal Rate, but any subsequent reduction in the Applicable Rate shall
not reduce such interest thereafter payable hereunder below the amount computed
on the basis of the Maximum Legal Rate until the aggregate amount of such
interest accrued and payable under this Agreement equals the total amount of
interest which would have accrued if such interest had been at all times
computed solely on the basis of the Applicable Rate. No agreements,
conditions, provisions or stipulations contained in this Agreement, the Term
Note or any other Loan Document or default of the Borrower, or the exercise by
the Lender of the right to accelerate the payment of the maturity of principal
and interest, or to exercise any option whatsoever contained in this Agreement
or any other Loan Document, or arising of any contingency whatsoever, shall
entitle Lender to collect, in any event, interest exceeding the Maximum Legal
Rate and in no event shall the Borrower be obligated to pay interest exceeding
such Maximum Legal Rate and all agreements, conditions or stipulations, if any,
which may in any event or contingency whatsoever operate to bind, obligate or
compel the Borrower to pay a rate of interest exceeding the Maximum Legal Rate,
shall be without binding force or effect, at law or in equity, to the extent
only of the excess of interest over such Maximum Legal Rate. In the event any
interest is charged in excess of the Maximum Legal Rate ("Excess Interest"),
Borrower acknowledges and stipulates that any such charge shall be the result
of an accidental and bona fide error, and such Excess Interest shall be, first,
applied to reduce the principal then unpaid hereunder; second, applied to
reduce any other Obligations, until paid in full; and third, returned to the
Borrower, it being the intention of the parties hereto not to enter at any time
into a usurious or otherwise illegal relationship. The Borrower recognizes
that, with fluctuations in the interest rate and the Maximum Legal Rate, such
an unintentional result could inadvertently occur. By the execution of this
Agreement, the Borrower covenants that (i) the credit or return of any Excess
Interest shall constitute the acceptance by the Borrower of such Excess
Interest, and (ii) the Borrower shall not seek or pursue any other remedy,
legal or equitable, against Lender, based in whole or in part upon the charging
or receiving of any interest in excess of the maximum authorized by applicable
law. For the purpose of determining whether or not any Excess Interest has been
contracted for, charged or received by Lender, all interest at any time
contracted for, charged or received by the Lender in connection with this
Agreement shall be amortized, prorated, allocated and spread in equal parts
during the entire term of this Agreement. The provisions of this Section shall
be deemed to be incorporated into each and every Term Note and other Loan
Document or communication relating to the Obligations which sets forth or
prescribes any account, right or claim or alleged account, right or claim of
the Lender with respect to the Borrower (or any other obligor in respect of
Obligations), whether or not any provision of this Section is referred to
therein. All such documents and communications and all
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figures set forth therein shall, for the sole purpose of computing the extent
of the liabilities and obligations of the Borrower (or other obligor) asserted
by the Lender thereunder, be automatically recomputed by any Borrower or
obligor, and by any court considering the same, to give effect to the
adjustments or credits required by this Section. If the applicable state or
federal law is amended in the future to allow a greater rate of interest to be
charged under this Agreement or any other Loan Documents than is presently
allowed by applicable state or federal law, then the limitation of interest
under this Section shall be increased to the maximum rate of interest allowed
by applicable state or federal law as amended, which increase shall be
effective hereunder on the effective date of such amendment, and all interest
charges owing to the Lender by reason thereof shall be payable upon demand.
2.10 BORROWER'S LOAN ACCOUNT. Lender will maintain on its books
and records all loans and payments made to Lender by Borrower. This loan
account will be maintained in accordance with Lender's customary accounting
practices. Borrower promises to pay such amounts as may become or declare due
pursuant to the terms of this Agreement. The balance of the loan account
recorded on Lender's books and records shall absent manifest error be
presumptive evidence of the amounts due and owing to Lender by Borrower,
provided that any failure by Lender to such record or error in recording shall
not limit or otherwise affect Borrower's obligations to pay Borrower's
Obligations.
3. SECURITY INTEREST -- COLLATERAL. As security for the payment of
the Term Note and all other Obligations, Borrower hereby grants to Lender a
continuing, general lien upon, security interest in, and security title to the
Collateral. With respect to the Collateral, Borrower hereby, represents,
warrants and covenants to Lender as set forth in Sections 3.1 through 3.9,
inclusive.
3.1. GOOD TITLE; NO EXISTING ENCUMBRANCES. Borrower owns the
Collateral free and clear of any prior security interest, lien or encumbrance
thereon other than in favor of Lender other than Permitted Encumbrances, and no
financing statements, registration statements, certificates of title or other
evidences of the grant of a security interest respecting the Collateral exist
on any public records as of the date hereof, other than any in favor of Lender.
3.2. RIGHT TO GRANT SECURITY INTEREST; NO FURTHER ENCUMBRANCES.
Borrower has the right to grant the security interest in the Collateral
described in Section 3.1; Borrower will pay all sales, use, franchise and other
taxes and other charges against the Collateral; Borrower will not use the
Collateral illegally or allow the Collateral to be encumbered except for the
security interest in favor of Lender granted herein and Permitted Encumbrances;
provided that Borrower makes no representations or warranties concerning its
right to grant the security interest in the liquor licenses or lottery
licenses.
3.3. CONDITION OF COLLATERAL. To the best knowledge of Borrower, all
Equipment Collateral is in good working order and repair as of the Closing
Date, subject to normal wear and tear. Borrower will maintain the Equipment
Collateral in good working order and repair, in accordance with prudent
business judgment, subsequent to the Closing Date, subject to ordinary wear and
tear. Borrower further will take such actions subsequent to the Closing Date
as may be reasonably necessary to keep any manufacturer's warranty in effect
with respect to the Equipment Collateral.
3.4. NO SALE OF COLLATERAL. Subject to the following sentence,
Borrower will not sell, assign, lease, license, exchange, or otherwise dispose
of its right, title or interest in any of the Collateral, without in each case
first obtaining the prior written consent of Lender thereto, which shall not be
unreasonably withheld or delayed. Borrower will be permitted to substitute for
the existing Equipment Collateral, equipment of equal or greater value
(determined as of the time of substitution) without the prior written consent
of Lender, provided Lender maintains or is granted a first priority perfected
security interest in the substituted Collateral. Notwithstanding the
foregoing, Borrower may convert its existing leasehold interest in any Financed
Convenience Store Location to ownership in fee simple by Borrower provided
Borrower shall have first caused to be delivered to Lender (i) a deed of trust
or mortgage deed to secure debt or other similar instrument pursuant to which
Borrower shall convey to Lender or to a trustee for the benefit of Lender the
entirety of Borrower's right, title and interest in and to such Financed
Convenience Store Location, and (ii) an ALTA mortgagee's title insurance
policy, issued at Borrower's expense, by a title insurer selected by Borrower,
but reasonably acceptable to Lender insuring Lender's security interest in such
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Financed Convenience Store Location in such amount, and containing only such
conditions, limitations and exceptions as shall be acceptable to Lender.
3.5. WAIVERS. Borrower agrees to obtain, on Lender's behalf, such
waivers or consents from third parties, including, without limitation, any
lessor, licensor, operator, servicer or vendor, as Lender may reasonably
request at any time, in order to assure Lender in regard to the perfection and
priority of its security interest in, and ability to realize on, the
Collateral, other than parties having priority over Lender, in Lender's
reasonable opinion, as a matter of law .
3.6. FURTHER ASSURANCES. Borrower further shall duly execute and/or
deliver (or cause to be duly executed and/or delivered) to Lender any
instrument, invoice, registration certificate, certificate of title,
application, document, document of title, dock warrant, dock receipt, warehouse
receipt, bill of lading, order, financing statement, assignment, waiver,
consent or other writing which may be necessary to Lender to reasonably carry
out the terms of this Agreement and any of the other Loan Documents and to
perfect its security interest in and facilitate its realization on the
Collateral. Borrower shall perform or cause to be performed such acts as
Lender may reasonably request to establish and maintain for Lender a valid and
perfected first priority security interest in the Collateral, free and clear of
any liens, encumbrances or security interests other than in favor of Lender and
other than Permitted Encumbrances.
3.7. RIGHT TO INSPECT. Lender or any Participant have the right to
call at the Headquarters or at any Financed Convenience Store Location at any
reasonable time, and, without hindrance or delay, inspect, audit and check the
Collateral and make extracts from Borrower's books, records, journals, orders,
receipts and any correspondence and other data relating to the transactions
contemplated herein and to the Collateral, provided that unless an Event of
Default shall have occurred and be continuing such right shall be limited to
regular business hours upon one Business Day's prior notice.
3.8. CHANGE OF NAME. Borrower hereby acknowledges and agrees that
if, at any time hereafter, Borrower elects to move its chief executive office
and principal place of business from the Headquarters, or if Borrower elects to
change its name, identity or its structure to other than a corporate structure
Borrower will notify Lender in writing at least thirty (30) days prior thereto
(provided that the foregoing shall not be deemed a consent to any action
otherwise prohibited by the terms of this Agreement or any of the other Loan
Documents) and execute (or cause to be executed) such financing statements, or
amendments thereto, or other documents as Lender then may reasonably require in
response to such changed condition in accordance with Sections 3.5 and 3.6.
3.9. CHANGE OF LOCATION. Borrower further agrees not to remove any
Equipment Collateral from any Financed Convenience Store Location to any other
location without giving fifteen (15) days prior written notice to Lender.
4. GENERAL REPRESENTATIONS AND WARRANTIES. In order to induce Lender
to enter into this Agreement and to make the Term Loan, Borrower hereby,
represents and warrants to Lender as set forth in Sections 4.1 through 4.7,
inclusive.
4.1. EXISTENCE. Borrower is a corporation duly organized, validly
existing and in good standing under the laws of the State of Colorado operating
in accordance with its articles of incorporation and by-laws. Borrower is duly
qualified to transact business in the jurisdiction where any Financed
Convenience Store Location is located. The principal place of business and
chief executive office of Borrower is located at the Headquarters. Borrower
keeps its books and records concerning the Collateral at the Headquarters.
Schedule 4.1 attached hereto sets forth all of the locations of the Collateral.
Borrower was organized on November 20, 1996 and has conducted no business other
than operation of the Existing Locations (which operation commenced March 1,
1997) and the Acquisition of the Acquired Locations.
4.2. AUTHORITY. Borrower has the power to make, deliver and perform
under the Acquisition Agreement, this Agreement, the Term Note and the other
Loan Documents, and to borrow hereunder, and has taken all necessary and
appropriate action to authorize the execution, delivery and performance of the
Loan Documents and
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the Acquisition Agreement. The Acquisition Agreement and this Agreement
constitutes, and the Term Note and the remainder of the Loan Documents to which
Borrower is a party, when executed and delivered for value received, will
constitute, the valid obligations of Borrower, legally binding upon it and
enforceable against it in accordance with their respective terms, except as
such enforceability may be limited by bankruptcy, insolvency or other similar
creditors rights generally and equitable remedies may be limited by equitable
principles of law. The officers of Borrower whose names are inscribed below are
duly authorized and empowered to execute, attest and deliver the Acquisition
Agreement and related documents, this Agreement, the Term Note and the
remainder of the Loan Documents to which Borrower is a party for and on behalf
of Borrower, and to bind Borrower accordingly thereby.
4.3. NO MATERIAL LITIGATION. There are no proceedings pending or, so
far as Borrower knows, threatened, before any court, arbitration panel or
administrative agency, no material disputes with any contract party and no
pending or threatened labor action which, in each case, if decided adversely to
Borrower, would have a Material Adverse Effect.
4.4. PAYMENT OF TAXES. Borrower has filed or caused to be filed any
federal income tax returns required to be filed by it, and, to the best of its
knowledge following diligent inquiry, all other tax returns required to be
filed by it, and has paid all taxes not yet delinquent and any assessments made
against it. Borrower has not participated in any "prohibited transaction" (as
defined in Section 4975 of the Internal Revenue Code of 1986) that could
subject Borrower to any tax or penalty.
4.5. NO VIOLATIONS, GENERALLY. The execution, delivery and
performance by Borrower of the Acquisition Agreement, this Agreement, the Term
Note and the other Loan Documents to which it is a party do not and will not
require any consent or approval of any Person, except to the extent obtained by
Borrower on or prior to the Closing Date; or violate any material provision of
any law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award presently in effect having applicability to Borrower; or
result in a breach of or constitute a default under any Material Agreement;
and, to the best of Borrower's knowledge following diligent inquiry, Borrower
is not in default under any such law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award or any Material Agreement, which
default or violation, in any such case, would result in a Material Adverse
Effect.
4.6. FINANCIAL STATEMENTS; LIABILITIES. The audited consolidated
financial statements of Portfield and its subsidiaries for its fiscal year
ending February 28, 1996 and the unaudited consolidated financial statements of
Portfield for its interim period ending on December 31, 1996 accurately and
fairly represent the financial condition of Portfield and the transactions in
its equity accounts as of the dates referred to therein, and have been prepared
in accordance with GAAP. There are no material liabilities, direct or
indirect, fixed or contingent, of Portfield or its subsidiaries as of the date
hereof which are not reflected in such financial statements or in the notes
thereto. There has been no Material Adverse Change since December 31, 1996 in
the business, operations, prospects, properties, condition (financial or
otherwise) of Portfield or its subsidiaries. No financial statements of
Borrower currently exist.
4.7. POLLUTION AND ENVIRONMENTAL CONTROL. Except as disclosed on
Schedule 4.7, with respect to each Financed Convenience Store Location (i) the
business operations of Borrower comply in all material respects with all
applicable Environmental Laws; (ii) Borrower has obtained all environmental,
health and safety Permits necessary for the operation of Borrower's business;
and all such Permits are valid, and in good standing and Borrower is in
compliance in all respects with all terms and conditions of such Permits; (iii)
Borrower is not subject to any outstanding written order or agreement with any
Governmental Authority or with any private Person respecting (a) any
Environmental Laws, (b) any Remedial Actions, or (c) any Environmental Claims
arising from the Release of a Contaminant into the environment; (iv) none of
the operations of Borrower is subject to any judicial or administrative
proceeding alleging a violation of any Environmental Law; (v) none of the
operations of Borrower is the subject of any federal or state investigation
evaluating whether any Remedial Action is needed to respond to a Release of any
Contaminant into the environment under any applicable law; (vi) except as
disclosed on environmental reports delivered to Borrower and/or Lender, neither
Borrower nor to the best of Borrower's knowledge, any predecessor of Borrower
has filed any notice under any federal or state law indicating past or present
treatment, storage, or disposal of a hazardous waste or reporting a spill or
Release of a Contaminant into the
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<PAGE> 15
environment under any applicable law; (vii) Borrower has no known contingent
liability in connection with any Release of any Contaminant into the
environment; (viii) Borrower's operations do not involve the generation,
transportation, treatment or disposal of any hazardous waste, as defined under
40 C.F.R. Parts 260-270 or any state equivalent (other than any done in
compliance with all Environmental Laws); (ix) Borrower has not disposed of any
Contaminant by placing it in or on the ground, ground water or surface water,
and, to the best of Borrower's knowledge, neither has any lessee, prior owner,
or other Person; and (x) no Lien in favor of any Governmental Authority for (A)
any liability under Environmental Laws or regulations, or (B) damages arising
from or costs incurred by such Governmental Authority in response to a Release
of a Contaminant into the environment, has been filed or attached.
5. AFFIRMATIVE COVENANTS. Borrower agrees that, so long as any
Obligations are outstanding and this Agreement has not been terminated in
writing by Lender, Borrower will comply with the covenants set forth in the
following Sections 5.1 through 5.10.
5.1. BOOKS AND RECORDS. Borrower shall maintain, at all times, true
and complete books, records and accounts in which true and correct entries are
made of its transactions in accordance with GAAP.
5.2. PERIODIC FINANCIAL STATEMENTS. Borrower shall, as soon as
practicable, and in any event within sixty (60) days after the end of each
fiscal quarter, furnish to Lender and each Participant unaudited financial
statements of Borrower and Portfield, including, in each instance, balance
sheets and income statements, on a consolidated and consolidating basis, as
appropriate, and individual profit and loss statements on each Financed
Convenience Store Location as of and for the quarterly period then ended and
for its fiscal year to date, prepared in accordance with GAAP, certified by its
chief financial officer in a certificate substantially in the form of Exhibit D
attached hereto, and accompanied by a report of Borrower's performance or
condition as of or for the corresponding date or period in the preceding fiscal
year, displayed on a comparative basis.
5.3. ANNUAL FINANCIAL STATEMENTS. Borrower shall, as soon as
practicable, and in any event within one hundred twenty (120) days after the
end of each fiscal year of Borrower, furnish to Lender and each Participant,
individual profit and loss statements on each Financed Convenience Store
Location and annual audited financial statements of Borrower, including balance
sheets, income statements and cash flow statements for the fiscal year then
ended, on a consolidated and consolidating basis, as appropriate, which have
been prepared by its Independent Accountants. Such audited financial
statements will be required to be accompanied by the Independent Accountant's
opinion, which opinion shall be in form generally recognized as "unqualified".
5.4. COMPLIANCE CERTIFICATES. Together with each of the financial
statements described in Sections 5.2 and 5.3 above, and more frequently, if
requested by Lender, Borrower shall deliver a Compliance Certificate to Lender
(together with calculation worksheets, including covenant calculations
contained in Section 7.13) signed by the chief financial officer of Borrower,
provided however that as long as no Event of Default has occurred and is
continuing, Borrower shall not be required to deliver a Compliance Certificate
more often than once per month.
5.5. PAYMENT OF TAXES. Borrower shall pay and discharge all taxes,
assessments and governmental charges upon it, its income and its properties
prior to the date on which penalties attach thereto, unless and to the extent
only that (x) such taxes, assessments and governmental charges are being
contested in good faith and by appropriate proceedings by Borrower and (y)
Borrower maintains reasonable reserves on its books therefor.
5.6. MAINTENANCE OF INSURANCE. Borrower shall insure the Collateral
against fire, theft and such other risks as Lender shall require from time to
time at the full replacement cost thereof, with Lender named as loss payee and
mortgagee thereof, with St. Paul Insurance or other responsible insurance
companies rated "A-" or better by A.M. Best Company. As to other Property and
risks, including, without limitation, liability coverage, Borrower shall
maintain such insurance, with such insurers (having the minimum qualifications
described above) on such Property, in such amounts and against such risks as is
customarily maintained by similar businesses operating in the same vicinity;
provided that such insurance shall not be less, in terms of insurers, amounts,
coverages or limitations, then the insurance being maintained by Borrower on
the Closing Date; and provided, further, that such insurance shall include, in
any event, at all times, automobile and comprehensive general liability
(inclusive of products
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liability coverage) of at least Five Million Dollars ($5,000,000), in aggregate
combined single limit coverage; that Lender shall be shown by endorsement as
"additional insured" thereon and with breach of warranty endorsement favoring
Lender. All such insurance in existence on the Closing Date shall not be
cancelable or modifiable by Borrower, thereafter, unless with the prior written
consent of Lender, or by Borrower's insurer, unless with at least thirty (30)
days advance written notice to Lender thereof (except as may be necessary to
bring such insurance into compliance herewith from time to time). Borrower
shall file with Lender on the Closing Date and at least annually thereafter or,
at Lender's request at any time from and after the occurrence of, and during
the continuance of, any Event of Default, upon its request a detailed list of
such insurance then in effect stating the names of the insurance companies, the
amounts and rates of insurance, the dates of expiration thereof, the properties
and risks covered thereby and the insured with respect thereto, together with
copies of all such policies and the insurer's certificate in regard thereto.
5.7. PRESERVATION OF EXISTENCE. Borrower shall preserve and maintain
its corporate existence, rights, franchises and privileges in the State of
Colorado and in the other jurisdiction where the nature of the convenience
store business conducted therein or the location of any Property therein
requires that such rights, franchises and privileges be preserved and
maintained; and obtain and maintain for itself all Permits, licenses,
certificates of convenience and necessity, operating rights, authorizations and
consents as shall be necessary or advisable to permit it to continue to operate
its business in the manner contemplated to be conducted by it on the Closing
Date.
5.8. COMPLIANCE WITH LAWS. Borrower shall comply with the
requirements of all applicable laws, rules, regulations, permits, hearings,
approvals and clearances and orders of any Governmental Authority, including
particularly, but without limitation, in respect of Environmental Laws.
5.9. ENVIRONMENTAL LAW COMPLIANCE.
(a) On or before the Closing Date, Borrower will provide Lender with
copies of any environmental assessments or similar reports made by or on behalf
of Borrower with respect to any Financed Convenience Store Location within the
preceding five (5) years and, subsequent to the Closing Date, Borrower will
provide Lender with copies of any such assessments or reports thereafter made
by or on behalf of Borrower with respect to any Financed Convenience Store
Location, promptly as and when made or received by Borrower, but not later than
thirty (30) days thereafter. The foregoing shall be cumulative with, and in
addition to, any similar requirements made applicable to any Financed
Convenience Store Location in Section 10.1.
(b) Borrower will notify Lender in writing of any Environmental Claim
or an accusation or allegation which may give rise to an Environmental Claim
hereafter made against it or received by it which would or would reasonably be
expected to have a Material Adverse Effect if determined adversely to Borrower
within ten (10) days after it first obtains knowledge or notice thereof. Each
such notice to Lender shall include a copy of any claim, citation, order,
notice or other communication (to the extent in writing) received by Borrower
from the Person making such Environmental Claim, allegation or accusation, a
description of the nature of such Environmental Claim, allegation or
accusation, the name of the Person making such Environmental Claim, allegation
or accusation, Borrower's anticipated defense to such Environmental Claim,
allegation or accusation or the action Borrower proposes to take in respect of
such Environmental Claim, allegation or accusation and the anticipated costs to
be incurred by Borrower in connection with such Environmental Claim, allegation
or accusation (including, without limitation, the amount of any anticipated
damages, the costs of defending such Environmental Claim and the costs of any
cleanup or corrective action).
(c) Borrower covenants and agrees that it (i) shall not use,
generate, store, or allow to be generated, stored or used, any Hazardous
Materials, except in the ordinary course of Borrower's business and in
accordance with all Environmental Laws, and (ii) shall at all times maintain
the Property in full compliance with all applicable Environmental Laws,
including timely remediation if and when required.
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(d) Borrower shall, with due care, in a safe manner, detain the
spread of, ameliorate and remove from the any real property owned or leased by
Borrower (and from any other Property as required by any Environmental Law) any
Hazardous Materials contamination located on, under or about any such Property
and monitor or cause to be monitored the levels of Hazardous Materials on,
under or about any such Property or in the ground water in accordance with the
terms and procedures required by any federal, state or local governmental
agency having jurisdiction including, without limitation, any Regional Water
Quality Control Board and the Environmental Protection Agency.
(e) Lender may require Borrower from time to time to perform or cause
to be performed, such studies or assessments of the Property owned or leased by
Borrower, as Lender may reasonably deem necessary, appropriate or desirable, to
determine the status of environmental conditions on, under and about such
Property, which studies and assessments shall be for the benefit of Lender and
shall be prepared in accordance with the reasonable specifications established
by Lender.
(f) In addition, Borrower will promptly notify Lender of any Release
or material change in the nature or extent of any Contaminants used,
transported or stored by Borrower or any Subsidiary at any Financed Convenience
Store Location, and allow no material change in the use thereof or Borrower's
operations that would increase in any material amount the risk of violation of
the Environmental Laws without the express prior written approval of Lender.
(g) Borrower further agrees to indemnify and hold Lender, each
Participant and the officers, directors, agents, employees, Affiliates and
representatives of Lender and each Participant (individually an "Indemnified
Party" and collectively the "Indemnified Parties") harmless from and against
any and all damages, penalties, fines, claims, liens, suits, liabilities, costs
(including necessary and actual clean-up and response costs), judgments, and
expenses (including reasonable attorneys' fees and any consultants' or other
experts' fees and expenses) of every kind and nature suffered by or asserted
against any Indemnified Party (i) under or on account of the Environmental
Laws, including, without limitation, as a result of the past, present or future
institution of any suits, claims, actions, or proceedings by any Person against
Borrower or Lender in respect of any alleged violation of the Environmental
Laws by Borrower or Borrower's use, storage or disposition of Contaminants,
(ii) with respect to any past, present or future Release or Contaminant
affecting any Property, whether or not the same originates or emanates from any
Property or any contiguous real estate, (iii) with respect to any other past,
present or future matters affecting any Property within the jurisdiction of any
Governmental Authority administering the Environmental Laws or (iv) with
respect to any past, present or future requirement under the Environmental Laws
which requires the elimination or removal of any Contaminants or other
substances regulated pursuant to any Environmental Laws, rules, or regulations
of any Governmental Authority having jurisdiction over Borrower, whether
attributable to events occurring before or after the Closing Date; provided,
however, that Borrower shall not be liable for any of the foregoing arising
directly from Lender's gross negligence or willful misconduct. Any payments
required to be made hereunder shall be due and payable on demand.
(h) The agreements contained in the preceding clause (d) of this
Section 5.9 shall survive the termination of this Agreement and shall continue
in full force and effect for so long as the prospect of any loss or liability
covered by the indemnity contained in such clause (d) exists.
5.10. LITIGATION; EVENTS OF DEFAULT, ETC. Promptly, after receipt of
notice or knowledge thereof, but not later than ten (10) days thereafter,
Borrower will report to Lender: (i) any lawsuit or administrative proceeding
or arbitration proceeding in which Borrower is a defendant wherein the amount
of damages claimed against Borrower exceeds Two Hundred Thousand Dollars
($200,000) of uninsured potential liability (in Lender's reasonable opinion),
or in which the validity of this Agreement or any Loan Document or any action
taken or to be taken pursuant hereto or thereto is questioned; (ii) any strike,
walkout, lockout or other related legal action, whether pending or threatened
pertaining to Borrower; or (iii) the existence and nature of any Default
Condition or Event of Default.
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6. NEGATIVE COVENANTS. Borrower further agrees that, so long as
any Obligations are outstanding and this Agreement has not been terminated in
writing by Lender, Borrower or Portfield, as applicable, will NOT do any of the
acts described in Section 6.
6.1. EXPANSION. Engage in any business activities other than
operation of the Existing Locations and the Acquired Locations and other
substantially similar stores.
6.2 LEVERAGE RATIO. Portfield shall not permit its ratio,
calculated on a consolidated basis, of total liabilities calculated in
accordance with GAAP to total Net Worth to exceed 4.75 to 1.0; provided that
such ratio shall increase to 5.00 to 1.0 at such time as NCFC raises the
similar ratio contained in the NCFC Loan Agreement to at least 5.00 to 1.0.
6.3 EBIDTA TO INDEBTEDNESS RATIO. Portfield shall not permit its
ratio, calculated on a consolidated basis, of cumulative net income (exclusive
of any extraordinary income, non-operating gains, loss carryforwards, or gains
due to changes in accounting) plus depreciation and amortization for the four
(4) most recent fiscal quarters to the sum of the current maturities of
Portfield's long-term consolidated indebtedness for the applicable period (all
of the foregoing determined in accordance with GAAP) to be less than 1.25 to
1.0 at the end of any fiscal quarter.
Borrower shall cause Portfield to provide Lender with a written report
of such ratios on a quarterly basis, such report to be in a form reasonably
acceptable to Lender.
7. EVENTS OF DEFAULT. The occurrence of any events or conditions
described in Sections 7.1 through 7.11 shall constitute an Event of Default
hereunder, provided that any requirement for the giving of notice or the lapse
of time, or both, has been satisfied.
7.1. TERM NOTE. Borrower shall fail to make any payments of
principal of, or interest on the Term Note, after the same shall become due
and payable and such failure continues for a period five Business Days.
7.2. OTHER OBLIGATIONS. Borrower shall fail to pay any Obligations
(other than as evidenced by the Term Note) to Lender, within fifteen (15)
calendar days after the same shall become due and payable (unless a longer or
shorter grace period is provided therefor in any document, instrument or
agreement evidencing, pertaining to or securing the repayment of such other
Obligations, in which event such other grace period shall apply).
7.3. MISREPRESENTATIONS. Borrower shall make any representation or
warranty in this Agreement or Borrower or any other party thereto shall make
any representation or warranty in any of the other Loan Documents or in any
certificate or statement furnished at any time hereunder or in connection with
this Agreement or any of the Loan Documents which proves to have been untrue or
misleading in any material respect when made or furnished.
7.4. COVENANTS. Borrower shall default in the observance or
performance of any covenant or agreement contained in either Section 5 or 6; or
Borrower shall default in the observance or performance of any other covenant
or agreement contained in this Agreement or any of the Loan Documents, to the
extent it is a party thereto, except for any default of the types described in
Sections 7.1, 7.2 or 7.3 above, and such default shall continue for a period of
thirty (30) calendar days from the date of receipt by Borrower of written
notice from Lender specifying such default (unless a longer or shorter cure
period is provided therefor in any such Loan Document, in which case such other
grace period shall apply), without such default being waived or cured provided,
however, in the case of such defaults which cannot be cured within said thirty
(30) day (or longer or shorter) period, that same shall not be deemed an Event
of Default so long as Borrower is diligently pursuing cure of same and same are
cured within ninety (90) days of the expiration of the applicable period.
7.5. VOLUNTARY BANKRUPTCY. Borrower or any Guarantor shall file a
voluntary petition in bankruptcy or a voluntary petition or answer seeking
liquidation, reorganization, arrangement, readjustment of its debts, or for
any other relief under the Bankruptcy Code, or under any other act or law
pertaining to insolvency or debtor relief, whether state, Federal, or foreign,
now or hereafter existing; Borrower or any Guarantor shall enter into any
agreement indicating its consent to, approval of, or acquiescence in, any such
petition or proceeding; Borrower or any
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Guarantor shall apply for or permit the appointment by consent or acquiescence
of a receiver, custodian or trustee for all or a substantial part of its
Property; Borrower or any Guarantor shall make an assignment for the benefit of
creditors; Borrower or any Guarantor shall be unable or shall fail to pay its
debts generally as such debts become due; or Borrower or any Guarantor shall
admit, in writing, its inability or failure to pay its debts generally as such
debts become due.
7.6. INVOLUNTARY BANKRUPTCY. There shall have been filed against
Borrower or any Guarantor an involuntary petition in bankruptcy or seeking
liquidation, reorganization, arrangement, readjustment of its debts or for
any other relief under the Bankruptcy Code, or under any other act or law
pertaining to insolvency or debtor relief, whether state, federal or foreign,
now or hereafter existing; Borrower or any Guarantor shall suffer or permit the
involuntary appointment of a receiver, custodian or trustee or for all or a
substantial part of its Property; or Borrower or any Guarantor shall suffer or
permit the issuance of a warrant of attachment, execution or similar process
against all or any substantial part of its Property; unless, in each other
case, such petition, appointment or process is fully bonded against, vacated or
dismissed within sixty (60) days from its effective date, but not later than
ten (10) days prior to any proposed disposition of any assets pursuant to any
such proceeding.
7.7. JUDGMENTS. If one or more final, nonappealable judgments or
decrees shall be entered against Borrower or any Guarantor involving in the
aggregate a personal liability of Two Hundred Thousand Dollars ($200,000) or
more (or in the event such party fails to pursue the appeal of such judgment or
any rights to appeal any such judgment have been revoked or have expired) and
all such judgments or decrees shall not have been vacated, discharged, stayed
or bonded pending appeal within sixty (60) days from the date such judgment
becomes nonappealable.
7.8. CHANGE OF CONTROL. If: (i) Portfield shall cease to own and
control, directly or indirectly, one hundred percent (100%) of the issued and
outstanding capital stock of Borrower; or (ii) prior to a Qualified Initial
Public Offering, Keith Holder shall cease to be President and Chief Executive
Officer of Portfield, or (iii) Borrower shall merge with, or consolidate into,
any other corporation (unless Borrower shall be the surviving corporation in
such merger); or (iv) Borrower shall sell all, or substantially all, of its
assets.
7.9. LOSS OF COLLATERAL. If all or any material portion of the
Collateral: (i) suffers any loss, damage, theft or other casualty, in a single
occurrence or series of related occurrences; or (ii) becomes subject to any
lien, claim or encumbrance other than a Permitted Encumbrance; or (iii) is made
the subject of any proceeding in which the existence, scope, coverage, or
priority of the security interest of Lender therein is disputed.
7.10. DEFAULT UNDER OTHER LOAN DOCUMENTS. A default by any party
has occurred under any other Loan Document (following any required notice or
passage of time or both).
7.11. CLOSED STORE. In the event any Acquired Location becomes a
Closed Store.
7.12. CROSS DEFAULT TO NCFC LOAN AGREEMENT. In the event any default
(following passage of any applicable time period or giving of any required
notice or both) by any borrower under the NCFC Loan Agreement shall occur.
Notwithstanding the foregoing, so long as the NCFC Loan Agreement is with NCFC,
in the event there is an Event of Default hereunder as a result of a violation
of a covenant contained in Section 6 (financial covenants) of the NCFC Loan
Agreement as in effect on the date of this Agreement and NCFC waives such
violation in writing, then Lender shall waive the similar Event of Default
arising under Section 6 hereof to the same extent as NCFC waived such default
under the NCFC Loan Agreement.
7.13. DELIVERY OF TITLE POLICIES. In the event Borrower fails to
deliver to Lender by March 31, 1997 an ALTA mortgagee's title insurance policy,
issued at Borrower's expense, by a title insurer selected by Borrower, but
acceptable to Lender insuring Lender's security interest in each Existing
Location (including leasehold mortgages) in such amount, and containing only
such conditions, limitations and exceptions as shall be reasonably acceptable
to Lender.
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<PAGE> 20
8. REMEDIES. Upon the occurrence or existence of any Event of
Default, or at any time thereafter, without prejudice to the rights of Lender
to enforce its claims against Borrower for damages for failure by Borrower to
fulfill any of its obligations hereunder, subject only to prior receipt by
Lender of payment in full of all Obligations then outstanding in a form
acceptable to Lender, Lender shall have all of the rights and remedies
described in Sections 8.1 through 8.4, inclusive, and it may exercise any one,
more, or all of such remedies, in its sole discretion, without thereby waiving
any of the others.
8.1. ACCELERATION OF THE OBLIGATIONS. Lender, at its option, may
declare all of the Obligations (including but not limited to that portion
thereof evidenced by the Term Note) to be immediately due and payable,
whereupon the same shall become immediately due and payable without
presentment, demand, protest, notice of nonpayment or any other notice required
by law relative thereto, all of which are hereby expressly waived by Borrower,
anything contained herein to the contrary notwithstanding and, in connection
therewith, if Lender so elects, by further written notice to Borrower, Lender
may increase the rate of interest charged on the Term Note for so long
thereafter as Lender further shall elect to charge the Default Rate.
Thereafter, Lender, at its option, may, but shall not be obligated to, accept
less than the entire amount of Obligations due, if tendered, provided, however,
that unless then agreed to in writing by Lender, no such acceptance shall or
shall be deemed to constitute a waiver of any Event of Default or a
reinstatement of any commitments of Lender hereunder.
8.2. REMEDIES OF A SECURED PARTY. Lender shall thereupon have the
rights and remedies of a secured party under the UCC in effect on the date
thereof (regardless of whether the same has been enacted in the jurisdiction
where the rights or remedies are asserted), including, without limitation, the
right to take possession of any of the Collateral or the proceeds thereof, to
sell or otherwise dispose of the same, to apply the proceeds therefrom to any
of the Obligations in such order as Lender, in its sole discretion, may elect.
Lender shall give Borrower written notice of the time and place of any public
sale of the Collateral or the time after which any other intended disposition
thereof is to be made. The requirement of sending reasonable notice shall be
met if such notice is given to Borrower pursuant to Section 9.9 at least ten
(10) days before such disposition. Expenses of retaking, holding, insuring,
preserving, protecting, preparing for sale or selling or the like with respect
to the Collateral shall include, in any event, reasonable attorneys' fees and
other legally recoverable collection expenses, all of which shall constitute
Obligations.
8.3. REPOSSESSION OF THE COLLATERAL. Lender may take the Collateral
or any portion thereof into its possession, by such means (without breach of
the peace) and through agents or otherwise as it may elect (and, in connection
therewith, demand that Borrower assemble the Collateral at a place or places
and in such manner as Lender shall prescribe), and sell, lease or otherwise
dispose of the Collateral or any portion thereof in its then condition or
following any commercially reasonable preparation or processing, which
disposition may be by public or private proceedings, by one or more contracts,
as a unit or in parcels, at any time and place and on any terms, so long as the
same are commercially reasonable. To facilitate the foregoing, Borrower agrees
to make available to Lender the Headquarters or any other premises then owned
or leased by Borrower on which Collateral then may be situated for such
purposes, without charge or undue delay, and on such terms as Lender then may
reasonably request (including, without limitation, if Lender so requests, the
temporary or permanent vacation by Borrower of any leased premises).
8.4. OTHER REMEDIES. Unless and except to the extent expressly
provided for to the contrary herein, the rights of Lender specified herein
shall be in addition to, and not in limitation of, Lender's rights under the
UCC, as amended from time to time, or any other statute or rule of law or
equity, or under any other provision of any of the Loan Documents, or under the
provisions of any other document, instrument or other writing executed by
Borrower or any third party in favor of Lender, all of which may be exercised
successively or concurrently.
9. MISCELLANEOUS.
9.1. WAIVER. Each and every right granted to Lender under this
Agreement, or any of the other Loan Documents, or any other document delivered
hereunder or in connection herewith or allowed it by law or in equity, shall be
cumulative and may be exercised from time to time. No failure on the part of
Lender to exercise, and no delay in exercising, any right shall operate as a
waiver thereof, nor shall any single or partial exercise by Lender of
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<PAGE> 21
any right preclude any other or future exercise thereof or the exercise of any
other right. No waiver by Lender of any Default Condition or Event of Default
shall constitute a waiver of any subsequent Default Condition or Event of
Default.
9.2. GOVERNING LAW. THIS AGREEMENT AND, UNLESS OTHERWISE EXPRESSLY
PROVIDED THEREIN, THE TERM NOTES AND THE OTHER LOAN DOCUMENTS, AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER, SHALL BE GOVERNED BY,
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
ILLINOIS WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS.
9.3. SURVIVAL. All representations, warranties and covenants made
herein and in the other Loan Documents shall survive the execution and delivery
of this Agreement and such other Loan Documents. On the Closing Date, Borrower
shall be deemed to have restated, renewed and reaffirmed all of such
representations, warranties and covenants. The terms and provisions of this
Agreement shall continue in full force and effect, notwithstanding the payment
of the Term Note, until all of the Obligations have been paid in full and
Lender has terminated this Agreement in writing.
9.4. NO ASSIGNMENT BY BORROWER; LENDER MAY ASSIGN. No assignment
hereof shall be made by Borrower without the prior written consent of Lender.
Lender may assign, or sell participations in, its right, title and interest
herein and in the Loan Documents at any time hereafter without notice to or
consent of Borrower to any Participant. Upon any assignment by Lender, the
assignee shall be entitled to all the rights, powers, privileges and remedies
of Lender to the extent assigned, and the obligations of Borrower shall not be
subject, as against any such assignee, to any defense, set-off or counterclaim
available to Borrower against Lender and any such defense, set-off or
counterclaim may be asserted only against Lender. Notwithstanding the
foregoing, Lender may not assign any of its interest in the Loan Documents to
any Person which does not have total assets of at least $1,000,000,000. Lender
agrees to provide Borrower with written notice of assignment following an
assignment of any interest herein or in the Loan Documents.
9.5. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which when fully executed shall be an original, and all
of said counterparts taken together shall be deemed to constitute one and the
same agreement.
9.6. REIMBURSEMENT. In connection with the documentation and funding
for the Term Loan, Borrower agrees to pay or reimburse Lender for all
reasonable costs, fees, and expenses incurred by Lender, including, but not
limited to, all costs of recording and filing of liens and/or mortgages, record
searches, title registration, appraisals, surveys, engineering, and any other
fees incidental to documentation or inspection.
9.7 AFTER DEFAULT. After an Event of Default, Borrower agrees to
reimburse Lender for its out-of-pocket expenses incurred by Lender, including,
but not limited to, all costs for expenses, including reasonable attorneys'
fees and any other incidental fees or charges related to the Term Loan, and
should all or any portion of the Obligations be collected by or through an
attorney-at-law, Lender shall be entitled to collect from Borrower reasonable
attorneys' fees and all costs of collection. If any taxes, fees or other costs
shall be payable on account of the execution, issuance, delivery or recording
of any of the Loan Documents, by reason of any existing or hereafter enacted
federal or state statute, Borrower agrees to pay all such taxes, reasonable
fees or other costs, including any applicable interest and penalty, and to
indemnify and hold Lender harmless from and against liability in connection
therewith.
9.8. SUCCESSORS AND ASSIGNS. This Agreement and every Loan Document
shall be binding upon and inure to the benefit of the successors and permitted
assigns of the parties hereto and thereto. The foregoing shall expressly
include, without limitation, in the case of Lender, any Participant.
9.9. SEVERABILITY. If any provision of this Agreement or of the Loan
Documents or the application thereof to any party thereto or circumstances
shall be invalid or unenforceable to any extent, the remainder of such Loan
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<PAGE> 22
Documents and the application of such provisions to any other party thereto or
circumstance shall not be affected thereby and shall be enforced to the
greatest extent permitted by law.
9.10. NOTICES. All notices, requests and demands to or upon the
respective parties hereto shall be deemed to have been given or made (i) when
personally delivered, (ii) three Business Days following deposit in the mail,
registered or certified mail, postage prepaid, or (iii) one Business Day
following delivery of said notice, request or demand to an overnight courier,
addressed as follows or to such other address as may be designated hereafter in
writing by the respective parties hereto (which, in the case of Lender, may
include the name and address of each Participant) except in cases where it is
expressly provided herein or by applicable law that such notice, demand to
request is not effective until received by the party to whom it is addressed:
Borrower:
PETRO-MARK CONVENIENCE STORES, INC.
c/o Portfield Investments, Inc.
1493 Highways 6 & 50
Fruita, Colorado 81521
Attn: Mr. Paul J. Rath, CFO
Facsimile number: 970-858-9306
with a copy to:
MORRISON & FORESTER LLP
5200 Republic Plaza
370 17th Street
Denver, Colorado 80202-5638
Attn: Nesa E. Hassanein
Facsimile number: 303-592-1510
Lender:
HELLER FINANCIAL, INC.
Commercial Equipment Finance Division
500 West Monroe Street
Chicago, IL 60661
Attn: Regional Credit Manager
Facsimile number: 312-441-7519
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<PAGE> 23
with copy to:
HELLER FINANCIAL, INC.
500 West Monroe Street
Chicago, IL 60661
Attn: Legal Department
Facsimile number: 312-441-7208
9.11. ENTIRE AGREEMENT - AMENDMENT. This Agreement, together with
the Term Note and the other Loan Documents, constitute the entire agreement
between the parties hereto with respect to the subject matter hereof and
thereof and supersedes any agreement or understanding, oral or written,
heretofore made in regard thereto, including that certain Commitment Letter
dated January 16, 1997 issued by Lender to Portfield. Neither this Agreement,
the Term Note nor any other Loan Document may be changed, waived, discharged,
modified or terminated orally, but only by an instrument in writing signed by
the party against whom enforcement is sought.
9.12. TIME OF THE ESSENCE. Time is of the essence in this Agreement,
the Term Note and the other Loan Documents.
9.13. INTERPRETATION. No provision of this Agreement or any Loan
Document shall be construed against or interpreted to the disadvantage of any
party hereto by any court or other governmental or judicial authority by reason
of such party having or being deemed to have structured or dictated such
provision.
9.14. LENDER NOT A JOINT VENTURER. Neither this Agreement nor any
agreements, instruments, documents or transactions contemplated hereby
(including the Loan Documents) shall in any respect be interpreted, deemed or
construed as making Lender a partner or joint venturer with Borrower or as
creating any similar relationship or entity, and Borrower agrees that it will
not make any contrary assertion, contention, claim or counterclaim in any
action, suit or other legal proceeding involving Lender and Borrower.
9.15. JURISDICTION. BORROWER AGREES THAT ANY LEGAL ACTION OR
PROCEEDING WITH RESPECT TO THIS AGREEMENT, THE TERM NOTE OR ANY OTHER LOAN
DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF ILLINOIS, COUNTY OF COOK
OR THE UNITED STATES OF AMERICA FOR THE NORTHERN DISTRICT OF ILLINOIS, CHICAGO
DIVISION, ALL AS LENDER MAY ELECT. BY EXECUTION OF THIS AGREEMENT, BORROWER
HEREBY SUBMITS TO EACH SUCH JURISDICTION, HEREBY EXPRESSLY WAIVING WHATEVER
RIGHTS MAY CORRESPOND TO IT BY REASON OF ITS PRESENT OR FUTURE DOMICILE AND
CONSENTS TO SERVICE OF PROCESS BY WRITTEN NOTICE GIVEN IN THE MANNER SPECIFIED
FOR THE GIVING OF NOTICES IN SECTION 9.10 ABOVE; PROVIDED, HOWEVER, THAT
NOTHING HEREIN SHALL AFFECT THE RIGHT OF LENDER TO COMMENCE LEGAL PROCEEDINGS
OR OTHERWISE PROCEED AGAINST BORROWER IN ANY OTHER JURISDICTION OR TO SERVE
PROCESS IN ANY MANNER PERMITTED OR REQUIRED BY LAW.
9.16. PAYMENT ON NON-BUSINESS DAYS. Whenever any payment to be made
hereunder or under the Term Note shall be stated to be due on a Saturday,
Sunday or a public holiday under the laws of the State of Illinois, such
payment may be made on the next succeeding Business Day, and such extension of
time shall in such case be included in the computation of payment of interest
hereunder or under the Term Notes.
9.17. WAIVER OF RIGHTS. AFTER THE OCCURRENCE OF A DEFAULT CONDITION
OR EVENT OF DEFAULT, BORROWER HEREBY WAIVES ANY AND ALL RIGHTS, IF ANY, WHICH
BORROWER OTHERWISE HAS OR MAY HAVE UNDER AND BY VIRTUE OF ANY LAW, WITH RESPECT
TO THE RIGHT OF BORROWER TO NOTICE AND TO A JUDICIAL OR ADMINISTRATIVE HEARING
PRIOR TO SEIZURE OF ANY COLLATERAL BY LENDER. EACH OF LENDER AND BORROWER
WAIVES ANY OBJECTION TO IMPROPER VENUE, FORUM NON CONVENIENS OR RIGHT TO A
TRIAL BY JURY IN ANY CLAIM, CAUSE OF ACTION OR PROCEEDING, BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR THE LOAN
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<PAGE> 24
DOCUMENTS. THESE WAIVERS ARE KNOWINGLY, INTENTIONALLY, VOLUNTARILY AND FREELY
MADE BY BORROWER AND LENDER, AND BORROWER ACKNOWLEDGES THAT NEITHER LENDER NOR
ANY PERSON ACTING ON BEHALF OF LENDER HAS MADE ANY REPRESENTATIONS OF FACT TO
INDUCE THESE WAIVERS OR HAS TAKEN ANY ACTIONS WHICH IN ANY WAY MODIFY OR
NULLIFY THEIR EFFECT. BORROWER AND LENDER ACKNOWLEDGE THAT THESE WAIVERS ARE A
MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT BORROWER AND
LENDER HAVE ALREADY RELIED ON THESE WAIVERS IN ENTERING INTO THIS AGREEMENT AND
THE LOAN DOCUMENTS AND THAT EACH OF THEM WILL CONTINUE TO RELY ON THESE WAIVERS
IN THEIR RELATED FUTURE DEALINGS. BORROWER AND LENDER FURTHER WARRANT AND
REPRESENT THAT THEY HAVE BEEN REPRESENTED (OR HAVE HAD THE OPPORTUNITY TO BE
REPRESENTED) BY INDEPENDENT LEGAL COUNSEL IN THE SIGNING OF THIS AGREEMENT AND
THE LOAN DOCUMENTS AND IN THE MAKING OF THESE WAIVERS AND THAT THEY KNOWINGLY
AND VOLUNTARILY WAIVE THEIR RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
9.18. CURE OF DEFAULTS BY LENDER. If, hereafter, Borrower defaults
in the performance of any duty or obligation to Lender hereunder, Lender may,
at its option, but without obligation, cure such default and any costs, fees
and expenses incurred by Lender in connection therewith including, without
limitation, for the purchase of insurance, the payment of taxes and the removal
or settlement of liens and claims, shall constitute Obligations, be payable on
demand and bear interest until paid at the Default Rate applicable to the Term
Note.
9.19. RECITALS. All recitals contained herein are hereby
incorporated by reference into this Agreement and made part thereof.
9.20. ATTORNEY-IN-FACT. Upon the occurrence of an Event of Default
and for so long as such Event of Default is continuing, Borrower hereby
designates, appoints and empowers Lender irrevocably to act as its
attorney-in-fact, at Borrower's cost and expense, to do in the name of Borrower
any and all actions which Lender may deem necessary or advisable to carry out
the terms hereof, upon the failure, refusal or inability of Borrower to do so,
and Borrower hereby agrees to indemnify and hold Lender harmless from any
costs, damages, expenses or liabilities arising against or incurred by Lender
in connection therewith.
9.21. SOLE BENEFIT. The rights and benefits set forth in this
Agreement and in all the other Loan Documents are for the sole and exclusive
benefit of Lender, its Participants (if any) and Borrower and may be relied
upon only by them.
9.22. REMEDIES. AFTER THE OCCURRENCE OF AN EVENT OF DEFAULT, UNLESS
EXPRESSLY PROVIDED TO THE CONTRARY, LENDER MAY ENFORCE ITS RIGHTS UNDER THIS
AGREEMENT AND ALL OTHER LOAN DOCUMENTS WITHOUT RESORT TO PRIOR JUDICIAL PROCESS
OR JUDICIAL HEARING, AND BORROWER EXPRESSLY WAIVES, RENOUNCES AND KNOWINGLY
RELINQUISHES ANY LEGAL RIGHT WHICH MIGHT OTHERWISE REQUIRE LENDER TO ENFORCE
ITS RIGHTS BY JUDICIAL PROCESS. IN SO PROVIDING FOR A NON-JUDICIAL REMEDY,
BORROWER RECOGNIZES AND CONCEDES THAT SUCH A REMEDY IS CONSISTENT WITH THE
USAGE OF THE TRADE, IS RESPONSIVE TO COMMERCIAL NECESSITY AND IS THE RESULT OF
BARGAINING AT ARM'S LENGTH. NOTHING IN THIS AGREEMENT IS INTENDED TO PREVENT
BORROWER OR LENDER FROM RESORTING TO JUDICIAL PROCESS AT EITHER PARTY'S OPTION.
EACH OF LENDER AND BORROWER FURTHER AGREES THAT NEITHER SHALL BE LIABLE TO THE
OTHER FOR CONSEQUENTIAL OR SPECIAL DAMAGES ARISING FROM BREACH OF CONTRACT,
TORT OR OTHER WRONG OR CLAIM RELATING TO THE ESTABLISHMENT, ADMINISTRATION OR
COLLECTION OF ANY OBLIGATIONS HEREUNDER OR UNDER ANY LOAN DOCUMENT OR ANY
ACTION (OR INACTION) BY EITHER PARTY HEREUNDER OR THEREUNDER.
9.23. INDEMNITY. Without limiting any provisions of Sections 5.9 or
9.6, Borrower agrees to save, indemnify and hold harmless Lender from and
against any and all debts, liabilities, obligations, damages, costs,
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<PAGE> 25
expenses or other claims incurred by Lender as a result of its entry into, and
performance under, this Agreement or any other Loan Documents except for any of
same arising directly from Lender's gross negligence or willful misconduct.
9.24. ACCEPTANCE. THIS AGREEMENT, TOGETHER WITH THE TERM NOTES AND
ALL OTHER LOAN DOCUMENTS, SHALL NOT BECOME EFFECTIVE UNLESS AND UNTIL (I) DULY
EXECUTED BY BORROWER, (II) DELIVERED TO LENDER FOR ACCEPTANCE IN CHICAGO,
ILLINOIS, (III) ACCEPTED BY LENDER IN CHICAGO, ILLINOIS AND (IV) DULY EXECUTED
AND DELIVERED BY LENDER, AS APPROPRIATE, IN CHICAGO, ILLINOIS. THE
DISBURSEMENT OF THE PROCEEDS OF THE TERM LOANS BY LENDER FROM CHICAGO, ILLINOIS
SHALL BE EVIDENCE THAT THE FOREGOING CONDITIONS HAVE BEEN FULFILLED.
10. CONDITIONS PRECEDENT.
10.1. CONDITIONS PRECEDENT TO LENDER'S ENTRY INTO THIS AGREEMENT.
Unless waived in by Lender at or prior to the execution and delivery of this
Agreement, the conditions set forth below shall constitute express conditions
precedent to any obligation of Lender hereunder:
(a) NO INJUNCTION; ETC. No action, proceeding,
investigation, regulation or legislation shall have been instituted, threatened
or proposed before any court, governmental agency or legislative body to
enjoin, restrain, or prohibit, or to obtain substantial damages in respect of,
or which is related to or arises out of this Agreement, or the consummation of
the transactions contemplated hereby, or which Lender determines would make it
inadvisable to consummate the transactions contemplated hereby.
(b) NO DEFAULT. No Default Condition or Event of Default
shall have occurred and be continuing.
(c) COMPLIANCE WITH LAWS GENERALLY; ENVIRONMENTAL LAW
COMPLIANCE. Lender shall be satisfied in all respects that Borrower is in
material compliance with all applicable federal, state and local laws and
regulations, including particularly, but without limitation, all Environmental
Laws.
(d) MATERIAL AGREEMENTS. Lender shall have reviewed all of
Borrower's Material Agreements, and all of the foregoing shall be satisfactory
to Lender.
(e) LITIGATION. Lender shall have reviewed all existing
litigation, injunctions and proceedings, if any, pending or threatened against
Borrower and the results of such review shall be satisfactory to Lender.
(f) DOCUMENTATION. Lender shall have received the following
documents of general application to the Term Loan Facility, each to be in form
and substance satisfactory to Lender and its counsel, and duly executed and
delivered by the party or parties thereto:
(1) LOAN DOCUMENTS. This Agreement and all other Loan
Documents to be executed and delivered by Borrower or its Affiliates hereunder
and under the Loan Documents on the Closing Date, to the extent not otherwise
specified below;
(2) INSURANCE CERTIFICATES. Receipt by Lender of a
certificate from Borrower's insurer (or an authorized agent thereof) respecting
all insurance required hereunder, together with copies of all insurance
policies evidencing such insurance in each case in form and substance
acceptable to Lender;
(3) OPINION OF BORROWER'S COUNSEL. Receipt by Lender of
a satisfactory opinion of counsel from Borrower's legal counsel;
(4) SECRETARY'S AND OFFICER'S CERTIFICATE. Receipt by
Lender of a secretary's certificate and an officer's certificate from Borrower;
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<PAGE> 26
(5) TERM NOTE. A Term Note in a principal amount equal
to such requested Term Loan;
(6) FINANCING STATEMENTS. Copies of all filing receipts
or acknowledgments issued by any Governmental Authority to evidence any filing
or recordation necessary to perfect the security interests of Lender in all
Collateral relating to the Term Loan and evidence in a form acceptable to
Lender that such security interests constitute value and perfected first
priority security interests in Lender's favor;
(7) ENVIRONMENTAL ASSESSMENT. An environmental
assessment prepared at Borrower's expense by an independent environmental
engineer selected by Borrower, but acceptable to Lender, the scope and
substance of which shall be satisfactory to Lender;
(8) SURVEY/SITE INSPECTION. A current "as-built"
boundary survey prepared in accordance with the standards established by the
American Land Title Association ("ALTA") for each Financed Convenience Store
Location owned by Borrower, together with a surveyor's certificate prepared at
Borrower's expense from a registered land surveyor and, if requested by Lender,
a physical site inspection report;
(9) MORTGAGE. A deed of trust or mortgage deed to secure
debt or other similar instrument pursuant to which Borrower shall convey to
Lender or to a trustee for the benefit of Lender the entirety of Borrower's
right, title and interest in and to (including leasehold mortgages) each
Financed Convenience Store Location;
(10) MORTGAGE'S TITLE INSURANCE POLICY. An ALTA
mortgagee's title insurance policy, issued at Borrower's expense, by a title
insurer selected by Borrower, but acceptable to Lender insuring Lender's
security interest in each Financed Convenience Store Location (including
leasehold mortgages) in such amount, and containing only such conditions,
limitations and exceptions as shall be acceptable to Lender;
(11) INTERCREDITOR AGREEMENT. Negotiation, execution and
delivery of the Intercreditor Agreement, such Intercreditor Agreement to be in
form and substance satisfactory to Lender.
(12) LIST OF EQUIPMENT. Borrower shall have delivered to
Lender a complete list of all Equipment Collateral, and with respect to the
Acquired Locations, as delivered to Borrower by DS.
(13) WESCOURT PLEDGE AGREEMENT. Borrower shall have
caused Wescourt to execute and deliver the Wescourt Pledge Agreement, together
with related documents and instruments reasonably requested by Lender.
(14) WESFRAC SECURITY AGREEMENT. Borrower shall have
caused Wesfrac to execute deliver the Wesfrac Security Agreement, together with
related documents and instruments reasonably requested by Lender.
(15) ACQUISITION AGREEMENT ASSIGNMENT. Borrower shall
execute and deliver, and cause DS to acknowledge in writing, to Lender the
Acquisition Agreement Assignment in form and substance reasonably satisfactory
to Lender.
(16) OTHER DOCUMENTS AND INSTRUMENTS. Such other
documents and instruments as Lender may reasonably request.
(g) ACQUISITION OF ACQUIRED LOCATIONS. Borrower shall
have consummated the acquisition of the Acquired Locations pursuant to the
Acquisition Agreement for an amount not in excess of $10,000,000, all in form
and substance satisfactory to Lender.
(h) SUBORDINATED DEBT. Borrower's Affiliates shall have
provided at least $2,000,000 of subordinated debt financing to Borrower to
partially finance acquisition of the Acquired Locations.
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<PAGE> 27
(i) CLOSING FEE. Borrower shall have paid to Lender a
closing fee of $40,000 in immediately available funds.
(j) FRACTIONATOR. Wesfrac shall have granted to Lender a
valid and perfected second security interest in the Fractionator.
(k) MATERIAL ADVERSE CHANGE. No Material Adverse Change
shall have occurred.
(l) TRANSFER OF EXISTING LOCATIONS. Borrower shall have
caused Petro-Mark Montrose and Westec Fruita to have transferred the Existing
Locations to Borrower, in a manner reasonably satisfactory to Lender.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and Borrower has caused its seal to be affixed hereto, all as of
the day and year first above written.
"BORROWER"
PETRO-MARK CONVENIENCE STORES, INC.
By:
------------------------------------
Name: Keith Holder
Title: President
"LENDER"
HELLER FINANCIAL, INC.
By:
------------------------------------
Name: Walter R. Schoultz
Title: Vice President
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<PAGE> 1
Exhibit 10.13
TERM NOTE
$8,000,000.00 Chicago, Illinois
March 12, 1997
FOR VALUE RECEIVED, the undersigned, PETRO-MARK CONVENIENCE STORES,
INC., a Colorado corporation ("Borrower"), hereby unconditionally promises to
pay to the order of HELLER FINANCIAL, INC. ("Lender"), at its office 500 West
Monroe Street, Chicago, Illinois 60661, or at such other place as the holder of
this Term Note may from time to time designate in writing, in lawful money of
the United States of America and in immediately available funds, the principal
sum of EIGHT MILLION AND 00/100 CENTS ($8,000,000.00) at such times as are
specified in accordance with the provisions of that certain Term and Loan and
Security Agreement dated as of March 12, 1997 between Lender and Borrower (as
the same may be amended, restated, modified or supplemented and in effect from
time to time, the "Loan Agreement").
This Term Note is one of the Notes referred to in, was executed and
delivered pursuant to, and evidences obligations of the Borrower under the Loan
Agreement, to which reference is hereby made for a statement of the terms and
conditions under which the loan evidenced hereby is made and is to be repaid
and for a statement of Lender's remedies upon the occurrence of an Event of
Default (as defined therein). The Loan Agreement is incorporated herein by
reference in its entirety. Capitalized terms used but not otherwise defined
herein are used in this Term Note as defined in the Loan Agreement.
Borrower further promises to pay interest on the outstanding unpaid
principal amount hereof from the date hereof until payment in full hereof at
the rate from time to time applicable to the Term Loan as determined in
accordance with the Loan Agreement.
Interest on this Term Note shall be payable at the rates, at the times
and from the dates specified in the Loan Agreement, on the date of any
prepayment hereof, at maturity, whether due by acceleration or otherwise, and
as otherwise provided in the Loan Agreement.
This Term Note is secured pursuant to the Loan Agreement and the Loan
Documents referred to therein, and reference is made thereto for a statement of
the terms and conditions of such security.
Borrower hereby waives demand, presentment and protest and notice of
demand, presentment, protest and nonpayment. Borrower also waives all rights
to notice and hearing of any kind upon the occurrence and continuance of an
Event of Default prior to the exercise by Lender of its right to repossess the
Collateral without judicial process or to replevy, attach or levy upon the
Collateral without notice or hearing.
<PAGE> 2
In addition to, and not in limitation of, the foregoing and the
provisions of the Loan Agreement, the undersigned further agrees, subject only
to any limitation imposed by applicable law, to pay all expenses, including
attorneys' fees and legal expenses, incurred by the holder of this Term Note in
endeavoring to collect any amounts payable hereunder which are not paid when
due, whether by acceleration or otherwise.
THIS TERM NOTE SHALL BE DEEMED TO HAVE BEEN DELIVERED AND MADE AT
CHICAGO, ILLINOIS AND SHALL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF
THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED
TO CONFLICTS OF LAW PROVISIONS) AND JUDICIAL DECISIONS OF THE STATE OF
ILLINOIS.
This Term Note may not be changed, modified or terminated orally, but
only by an agreement in writing. Whenever possible each provision of this Term
Note shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Term Note shall be prohibited by
or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Term Note. Whenever in this
Term Note reference is made to Lender or Borrower, such reference shall be
deemed to include, as applicable, a reference to their respective permitted
successors and assigns and, in the case of Lender, any financial institutions
to which it has sold or assigned all or any part of its commitment to make the
Term Loan as permitted under the Loan Agreement. The provisions of this Term
Note shall be binding upon and shall inure to the benefit of such permitted
successors and assigns. Borrower's successors and assigns shall include,
without limitation, a receiver, trustee or debtor in possession of or for
Borrower.
PETRO-MARK CONVENIENCE STORES, INC.,
a Colorado corporation
By:
----------------------------------
Name: Keith Holder
Title: President
2
<PAGE> 1
Exhibit 10.14
DEMAND NOTE
U.S. $ 4,500,000.00 Date: 2-28, 1997
FOR VALUE RECEIVED, Portfield Investments, Inc. (the "Borrower")
promises to pay the order of MORGAN GUARANTY TRUST COMPANY OF NEW YORK (the
"Bank"), ON DEMAND at its office at 60 Wall Street, New York, New York
10260-0060, U.S.A., for the account of Its Lending Office (as hereinafter
defined), in lawful money of the United States of America in same day funds (or
in such funds as may from time to time become customary for the settlement of
international transactions in U.S. dollars), the lesser of (i) U.S.
$4,500,000.00 or (ii) the then-outstanding principal amount of each loan (the
"Loan" or "Loans") made by the Bank from time to time to the Borrower
hereunder. The borrower shall pay interest on the unpaid principal amount of
each Loan until maturity on the dates and at a rate per annum as hereinafter
set forth. As used herein, "Lending Office" means, (i) with regard to Loans
bearing interest based on the Prime Rate (as hereinafter defined)
(collectively, "Domestic Loans"), the office of the Bank located at 60 Wall
Street, New York, New York or such other office as the Bank may designate, and
(ii) with regard to Loans bearing interest based on the Eurodollar Rate (as
hereinafter defined) (collectively, "Eurodollar Loans"), the Nassau (Bahamas)
office of the Bank or such other office as the Bank may designate.
Interest based on the Prime Rate shall be computed on the basis of a
year of 365 days (or 366 days in a leap year) and paid for actual days elapsed
(including the first day but excluding the last day). Interest based on the
Eurodollar Rate shall be computed on the basis of a year of 360 days and paid
for the actual number of days elapsed (including the first day but not
excluding the last day).
Each Eurodollar Loan shall bear interest at a rate per annum (the
"Eurodollar Rate") equal to the Adjusted Eurodollar Rate (as hereinafter
defined) plus 2.000% of (the "Eurodollar Margin"), payable on the last day of
the Interest Period applicable thereto and, if such Interest Period is longer
than three months, at intervals of three months after the day thereof. The
"Adjusted Eurodollar Rate" applicable to any Interest Period (as hereinafter
defined) means a rate per annum equal to the quotient obtained (rounded
upwards, if necessary, to the next higher 1/100 of 1%) by dividing (i) the
applicable London Interbank Offered Rate by (ii) 1.00 minus the Eurodollar
Reserve Percentage. The "London Interbank Offered Rate" applicable to any
Interest Period means the rate per annum at which deposits in U.S. dollars are
offered to the Bank in the London Interbank market at approximately 11:00 a.m.
(London time) two business days prior to the first day of such Interest Period
in an amount of time comparable to such Interest Period. The "Eurodollar
Reserve Percentage" means for any day that percentage (expressed as a decimal)
which is in effect on such day, as prescribed by the Board of Governors of the
Federal Reserve System (or any successor) for determining the maximum reserve
requirement for a member bank of the Federal Reserve System in New York City
with deposits exceeding five billon dollars in respect of "Eurocurrency
Liabilities" (or in respect of any other category of liabilities which includes
deposits by reference to which
<PAGE> 2
the interest rate on the Loans is determined or any category of extensions of
credit or other assets which includes loans by a non-United States office of
the Bank to United States residents). The Adjusted Eurodollar Percentage. As
used herein, the term "Interest Period" means the period beginning on the date
of each Eurodollar Loan and ending on the numerically corresponding day in the
calendar month one, three or six months after such date; provided, that if an
Interest Period would otherwise end on a day which is not a business day it
shall be extended to the next succeeding business day unless such business day
falls in the next calendar month, in which case the Interest Period shall and
on the next preceding business day; provided , further, that if the Bank shall
not have received written notice to the contrary from the Borrower at least
five business days prior to the end of an Interest Period the Borrower shall be
deemed to have requested to select an Interest Period with a duration equal to
that then ending. As used herein, the term "business day" means any day on
which dealings in U.S. dollar deposits are carried on in the London Interbank
market and on which commercial banks are open for domestic and foreign exchange
business in London and New York City. Notice by the Bank to the Borrower of the
rate of interest so determined shall be binding and conclusive upon the
Borrower in the absence of manifest error.
Each Domestic Loan shall bear interest payable on the last day of each
month at a rate per annum for each day equal to the rate of interest publicly
announced by the Bank in New York City from time to time as its Prime Rate (the
"Prime Rate") for such day, plus 0.000%.
The Borrower shall pay interest on the unpaid principal amount of each
Loan after the maturity thereof and, to the extent permitted by law, on accrued
and unpaid interest until paid at a rate per annum equal to the sum of 2% plus
the Prime Rate.
If after the date of this Note any applicable rule, executive order,
decree, regulation or interpretation is amended, modified, enacted or
promulgated by any government or governmental authority so as to (i) change the
basis of taxation of payments to the Bank or the Lending Office of the Bank
extending a Eurodollar Loan (the "Eurodollar Lending Office") in respect to the
principal of and interest on any Eurodollar Loan (except for changes in the
rate of taxation on the overall net income of the Bank by the United States of
America or the Eurodollar Lending Office of the Bank by the jurisdiction in
which such Lending Office is located), or (ii) impose, modify or deem
applicable any reserve, special deposit or similar requirement against any of
the assets of, deposits with or for the account of, or credit extended by the
Bank's Eurodollar Lending Office, or (iii) impose on the Bank (or its
Eurodollar Lending Office) or the London Interbank market any other conditions
affecting any Loan, the Loans or this Note, and the result of any of the
foregoing is to increase the cost to the Bank (of its Eurodollar Lending
Office) of agreeing to make or making, funding or maintaining any Loan
evidenced by the Note or would have the effect of reducing the rate of return
on the capital of the Bank or any entity controlling the Bank (its "Parent") as
a consequence of agreeing to make any Loan, or to reduce the amount of any sum
receivable by the Bank (or its Eurodollar Lending Office) on this Note, then
the Borrower shall pay to the Bank or its Parent upon demand such amount as
will compensate the Bank or is Parent for such
<PAGE> 3
additional cost or reduction in return. A certificate of the Bank setting forth
the basis for the determination of any amount necessary to compensate the Bank
or its Parent as aforesaid shall be conclusive as the determination of such
amount in the absence of manifest error.
If, after the date of this Note, the introduction of, or any
change in, any applicable law, rule or regulation or in the interpretation or
administration thereof by any governmental authority charged with the
interpretation or administration thereof or compliance by the Bank (or its
Eurodollar Lending Office) with any request or directive (whether or not having
the force of law) of any such authority shall make it unlawful or impossible
for the Bank (or its Eurodollar Lending Office) to make, maintain or fund its
Eurodollar Loans, the Bank forthwith shall so notify the Borrower. Upon receipt
of such notices, the Borrower shall prepay in full the then outstanding
principal amount of each Eurodollar Loan, together with accrued interest
thereon, either (a) on the last day of the Interest Period applicable thereto
if the Bank may lawfully continue to maintain and fund such Loan to such day or
(b) immediately if the Bank may not lawfully continue to fund and maintain such
Loan to such day.
Eurodollar Loans may not be repaid at the Borrower's option
on a date other than the last day of an Interest Period. If, however, the
Borrower makes any payment of principal of any Eurodollar Loan on any day other
than the last day of the Interest Period applicable thereto, the Borrower shall
reimburse the Bank on demand for any loss or expense incurred by it as a result
of the timing of such payment, including (without limitation) any loss incurred
in obtaining, liquidating or employing deposits from third parties, provided
that the Bank shall have delivered to the Borrower a certificate as to the
amount of such loss, which certificate shall be conclusive in the absence of
manifest error.
Domestic Loans may be prepaid at any time without penalty or
premium.
The Borrower hereby waives diligence, presentment, demand,
protest and notice of any kind whatsoever. The non-exercise by the Bank of its
rights hereunder in any particular instance shall not constitute a waiver of
any right in any subsequent instance.
The holder of this Note shall, and is hereby authorized by the
Borrower to, endorse on the schedule forming a part hereof appropriate
notations evidencing the date and the amount of each Loan made by the Bank, the
date and amount of each payment of principal, whether such Loan is a Domestic
or Eurodollar Loan and, in the case of Eurodollar Loans, the Eurodollar Rate
applicable thereto.
If this Note is not paid in full when due the Borrower agrees
to pay all costs and expenses of collection, including reasonable attorney's
fees.
Upon the nonpayment of any amount when due hereunder, the holder shall
have the rights and remedies provided in the Uniform Commercial Code in force
in New York at the date of execution of this Note and in addition to, in
substitution for, in modification
<PAGE> 4
of, or in conjunction with those rights and remedies, the holder or its agents
may, in its discretion, sell, assign and deliver all or any part of the
Collateral at any broker's board or at public or private sale without notice or
advertisement, and bid and become purchasers at any public sale or at any
broker's board, and, if notice to the Borrower is required by law, give written
notice to the Borrower five days prior to the date of public sale of the
Collateral or prior to the date after which private sale of the Collateral will
be made by mailing such notice to the address designated by the Borrower with
the Borrower's signature below. The Borrower agrees that the proceeds of the
disposition of the Collateral may be applied by the holder to the satisfaction
of the liabilities of the Borrower to the holder in any order of preference
which the holder, in its sole discretion, chooses, and that the excess, if any,
shall be returned to the Borrower, which shall continue liable to the holder
for any deficiency remaining with interest thereon. The waiver or remedying of
any default shall not operate as a waiver of the default remedies or any other
prior to subsequent default.
The undersigned, if more than one, shall be jointly and severally
liable hereunder and the term "Borrower" shall mean the undersigned or any one
or more of them and their heirs, executors, administrators, successors and
assigns.
<PAGE> 5
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAW OF THE STATE OF NEW YORK. THE BORROWER HEREBY SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW YORK CITY
FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS NOTE
OR ANY AGREEMENT RECEIVED BY THE BANK IN CONNECTION HEREWITH, THE BORROWER
IRREVOCABLY WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
THE BORROWER MAY NOW OR HEREAFTER HAVE TO THE CLAIM THAT ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. THE BORROWER
HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE OR ANY AGREEMENT RECEIVED BY
THE BANK IN CONNECTION HEREWITH.
Signature: Signature:
- ----------------------------------- -----------------------------
Portfield Investments Inc.
Address: Address:
------------------ -------------------
------------------ -------------------
<PAGE> 6
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
INVESTMENT OF PURPOSE FOR AN EXTENSION OF CREDIT
SECURED BY MORGAN STOCK
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
NAME OF BANK
(FEDERAL RESERVE FORM U-7)
This form is required by law (15 U.S.C. Sections 78g and 78w; 12 CFR 221)
Instructions:
<TABLE>
<S> <C>
1. This form must be completed when a bank designated as qualified for trading in the
extends credit in excess of $100,000 secured National Market System under a designation plan
directly or indirectly, in whole or in part, by approved by the securities and Exchange
any margin stock. Commission (NMS security) and (4) shares of
mutual funds, unless 95 percent of the assets of
2. The term "margin stock" is defined in the fund are continuously invested in U.S.
Regulation U (12 CFR 221) and includes, government agency stocks or municipal
principally: (1) stocks that are registered on a obligations.
national securities exchange or that are on
the Federal Reserve Board's List of Marginable 3. Please print or type. If space is inadequate,
OTC Stocks; (2) debt securities (bonds) that are attach separate sheet.
convertible into margin stocks; (3) any over-the-
counter security
</TABLE>
Part 1 To be completed by borrower(s).
1. What is the amount of the credit being extended?
----------------------------
2. Will any part of this credit be used to purchase or carry margin stock?
Yes No
--- ---
If the answer is "no" describe the specific purpose of the credit.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
I (we) have read this form and certify that to and that the margin stock and any other
the best of my (our) knowledge and belief the securities collaterizing this credit are
information given is true, accurate, and authentic, genuine, un_______ and not stolen,
complete, forged or counterfeit.
</TABLE>
Signed: Signed:
- ---------------------------------- ----------------------------------
Borrower's Signature Date Borrower's Signature Date
Portfield Investments, Inc.
- ---------------------------------- ----------------------------------
Print or Type Name Print or Type Name
This form should not be signed in black.
A borrower who falsely certifies the purposes of a credit on this
form or otherwise willfully or intentionally evades the provisions
of Regulation U will also violate Federal Reserve Regulation X
"Borrower of Securities Credit."
<PAGE> 1
Exhibit 10.15
AMENDED AND RESTATED
PORTFIELD INDEMNIFICATION AGREEMENT
FOR VALUE RECEIVED, and in consideration of advances, credits or other
financial accommodations which The WLD Trust, an Ohio Testamentary Trust ("WLD
Trust"), may now or hereafter extend to Portfield Investments, Inc., a
corporation formed under the laws of the state of Colorado ("Portfield"),
pursuant to a loan made by Morgan Guaranty Trust Company of New York ("Morgan")
to Portfield under that certain Demand Note dated February 28, 1997 (the
"Note"), Portfield hereby unconditionally and absolutely agrees to indemnify
and hold WLD Trust harmless from and against any and all costs, indebtedness,
obligations and liabilities of every kind and nature, whether now existing or
hereafter created or arising, whether direct or indirect, absolute or
contingent, which WLD Trust pays or incurs under that certain Guaranty dated
February 28, 1997 (the "Guaranty") given by WLD Trust to Morgan to guaranty
Portfield's obligations under the Note, including all expenses, legal or
otherwise, including court costs and reasonable attorney's fees, which WLD
Trust pays or incurs in connection therewith (collectively, the
"Indebtedness"). Portfield covenants and agrees to pay and perform its
liabilities and obligations under the Note promptly as and when the same shall
become due to Morgan thereunder, and Portfield shall not commit nor permit to
occur any default under the provisions of the Note.
This Amended and Restated Indemnification Agreement amends and
restates that certain Indemnification Agreement dated March 12, 1997 given by
Portfield to WLD.
Portfield's obligations hereunder are secured by a pledge of
"Collateral" as defined in and pursuant to that certain Amended and Restated
WLD Security Agreement of even date herewith by and among WLD Trust, Portfield,
Wescourt Group, Inc., a corporation formed under the laws of the state of
Delaware, Wescourt Distributing, Inc., a corporation formed under the laws of
the state of Colorado, Wesfrac, Inc., a corporation formed under the laws of
the state of Colorado, Westec Denver, Inc., a corporation formed under the laws
of the state of Colorado, Petro-Mark Corp. Utah, a corporation formed under the
laws of the state of Colorado, Petro-Mark Corp., a corporation formed under the
laws of the state of Colorado, Petro-Mark Corp. Montrose, Inc., a corporation
formed under the laws of the state of Colorado, Westec Fruita, Inc., a
corporation formed under the laws of the state of Delaware, Montrose Propane,
Inc., a corporation formed under the laws of the state of Colorado, Grand Mesa
Texaco, Inc., a corporation formed under the laws of the state of Colorado,
Fruita RP Holding, Inc., a corporation formed under the laws of the state of
Delaware, Super-Mart Convenience Stores, Inc., a corporation formed under the
laws of the state of Colorado, and Moffitt Oil Company, Inc., a corporation
formed under the laws of the state of Texas.
The terms of this Amended and Restated Indemnification Agreement are
subject to the terms, express or implied, and provisions of a certain First
Amended and Restated Intercreditor and Subordination Agreement, dated as of the
date hereof, among Heller Financial, Inc., a corporation formed under the laws
of the state of Delaware, National Canada Finance Corp., a corporation formed
under the laws of the state of Delaware, WLD Trust and the other parties named
1
<PAGE> 2
therein, as the same may be amended, modified, substituted or replaced from
time to time (the "First Amended and Restated Intercreditor Agreement"), and to
the extent any conflict arises between this Amended and Restated
Indemnification Agreement and the First Amended and Restated Intercreditor
Agreement, then the terms of the First Amended and Restated Intercreditor
Agreement shall control in all respects and this Amended and Restated
Indemnification Agreement shall be interpreted as if those terms of the First
Amended and Restated Intercreditor Agreement are explicitly set forth herein.
Portfield's obligations hereunder shall be unconditional and shall not
be subject to any defense, setoff, counterclaim or recoupment whatsoever,
irrespective of the genuineness, validity, regularity or enforceability of the
Note or Guaranty or any conduct of Portfield, WLD Trust or Morgan which might
constitute a legal or equitable discharge of a surety, guarantor or guaranty.
WLD Trust may continue to act in reliance on Portfield's
indemnification hereunder, and this Amended and Restated Indemnification
Agreement shall remain in full force and effect with respect to the
Indebtedness until all amounts to be paid and actions to be performed by
Portfield under the Note have been paid and performed in full. Portfield
agrees that this Amended and Restated Indemnification Agreement shall continue
to be effective or be reinstated, as the case may be, if at any time payment,
or any part thereof, of the Note or the Indebtedness is set aside, rescinded,
or must otherwise be returned by WLD Trust or Morgan for any reason, including
the insolvency, bankruptcy or reorganization of Portfield or any other person
or entity, and this Amended and Restated Indemnification Agreement shall be
binding and enforceable as though such returned or rescinded payment had never
been made.
The liability hereunder shall not be affected or impaired by, and WLD
Trust and Morgan are hereby expressly authorized to make from time to time,
without notice to anyone, any sale, pledge, surrender, compromise, release,
renewal, extension, modification or other disposition of or with respect to the
Note or this Amended and Restated Indemnification Agreement or any security or
collateral therefor, and such liability shall not be affected or impaired by
any acceptance by WLD Trust or Morgan of any security for, or other guarantors
of, the Note, or by any forbearance or indulgence by WLD Trust or Morgan in the
collection of, or any failure, neglect or omission on its part to realize upon
any collateral or security therefor, or to enforce any lien upon or right of
appropriation of any monies, credits or property of Portfield in the possession
of WLD Trust or Morgan, or by any application of payments or credits on the
Indebtedness or the Note.
Any and all monies, credits or other property belongings to Portfield
in the possession or under the control of WLD Trust may be appropriated and
applied against the liability of Portfield hereunder.
Portfield waives presentment, protest, demand, notice of dishonor or
default, notice of acceptance of this Amended and Restated Indemnification
Agreement, notice of any loans made, extensions granted or other action taken
in reliance hereon and all demands and notices of any kind in connection with
this Amended and Restated Indemnification Agreement or the Indebtedness. No
delay on the part of WLD Trust or Morgan in the exercise of any right or remedy
shall preclude other or further exercise thereof or the exercise of any other
right or remedy. No action
2
<PAGE> 3
of WLD Trust or Morgan permitted hereunder shall in any way impair or affect
this Amended and Restated Indemnification Agreement.
As a condition to payment or performance by Portfield under this
Amended and Restated Indemnification Agreement, neither WLD Trust nor Morgan
shall be required to, and Portfield hereby waives any rights to require WLD
Trust or Morgan to prosecute or seek to enforce any remedies against any other
party liable to WLD Trust or Morgan on account of the Guaranty, the Note or the
Indebtedness or to require WLD Trust or Morgan to seek to enforce or resort to
any remedies with respect to any security interests, liens or encumbrances
granted to WLD Trust or Morgan by Portfield or any other party on account of
the Guaranty or the Indebtedness.
Portfield agrees to pay, upon WLD Trust's demand therefor, any and all
costs, fees and expenses (including reasonable attorneys' fees, costs and
expenses) incurred by WLD Trust (i) in enforcing any of WLD Trust's rights
hereunder, and (ii) in representing WLD Trust in any litigation, contest, suit
or dispute, or to commence, defend or intervene or to take any action with
respect to any litigation, contest, suit or dispute (whether instituted by WLD
Trust, Morgan, Portfield or any other person) in any way relating to the Note
and to the extent not paid the same shall become part of the Indebtedness
hereunder. Any sums not paid when due hereunder bear interest until paid at
the default rate specified in the Note. Enforcement costs and interest are
included in the "Indebtedness" and secured by the Amended and Restated WLD
Security Agreement.
This Amended and Restated Indemnification Agreement, and each and
every part hereof, shall be binding upon Portfield and upon the successors and
assigns of Portfield, and shall inure to the benefit of WLD Trust, its
successors and assigns.
THIS AMENDED AND RESTATED INDEMNIFICATION AGREEMENT HAS BEEN EXECUTED,
DELIVERED AND ACCEPTED AT AND SHALL HAVE BEEN DEEMED TO HAVE BEEN MADE AT
FRUITA, COLORADO, AND SHALL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF
THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
COLORADO OTHER THAN LAWS PERTAINING TO CONFLICTS. PORTFIELD HEREBY WAIVES ANY
OBJECTION TO IMPROPER VENUE, FORUM NON CONVENIENS, AND ANY RIGHTS TO A TRIAL BY
JURY OF ANY CLAIM OR CAUSE OF ACTION OR IN ANY LITIGATION OR ANY COURT WITH
RESPECT TO OR ARISING OUT OF THIS AMENDED AND RESTATED INDEMNIFICATION
AGREEMENT. THIS WAIVER IS INFORMED AND FREELY MADE. PORTFIELD ACKNOWLEDGES
THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO WLD TRUST TO ENTER INTO A BUSINESS
RELATIONSHIP, THAT IT HAS ALREADY RELIED ON THE WAIVER IN ACCEPTING THIS
AMENDED AND RESTATED INDEMNIFICATION AGREEMENT, AND THAT IT WILL CONTINUE TO
RELY ON THE WAIVER IN ITS RELATED FUTURE DEALINGS. PORTFIELD FURTHER WARRANTS
AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT
IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL.
3
<PAGE> 4
IN WITNESS WHEREOF, the undersigned has executed and delivered this Amended and
Restated Indemnification Agreement on this April 11, 1997.
Portfield Investments, Inc., a Colorado corporation
By:
--------------------------------------
Keith Holder
Its: President
Address for notices: 1493 Highways 6 and 50
Fruita, Colorado 80521
4
<PAGE> 1
Exhibit 10.16
WLD ASSIGNMENT AND SECURITY AGREEMENT
THIS WLD ASSIGNMENT AND SECURITY AGREEMENT ("WLD Security
Agreement") is made this March 12, 1997, by and among The WLD Trust, an Ohio
Testamentary Trust ("WLD Trust"), Portfield Investments, Inc., a corporation
formed under the laws of the state of Colorado ("Portfield"), Wescourt Group,
Inc., a corporation formed under the laws of the state Delaware ("Wescourt"),
Wescourt Distributing, Inc., a corporation formed under the laws of the state
of Delaware ("Wescourt Distributing"), Wesfrac, Inc., a corporation formed
under the laws of the state of Colorado ("Wesfrac"), Westec Denver, Inc., a
corporation formed under the laws of the state of Colorado ("Westec Denver"),
Petro-Mark Corp. Utah, a corporation formed under the laws of the state of
Colorado ("Petro-Mark/Utah"), Petro-Mark Corp., a corporation formed under the
laws of the state of Colorado ("Petro-Mark Corp."), Petro-Mark Corp. Montrose,
Inc., a corporation formed under the laws of the state of Colorado
("Montrose"), Westec Fruita, Inc., a corporation formed under the laws of the
state of Delaware ("Westec Fruita"), Montrose Propane, Inc., a corporation
formed under the laws of the state of Colorado ("Montrose Propane"), Grand Mesa
Texaco, Inc., a corporation formed under the laws of the state of Colorado
("Grand Mesa Texaco"), Fruita RP Holding, Inc., a corporation formed under the
laws of the state of Delaware ("Fruita RP Holding"), and Petro-Mark Convenience
Stores, Inc., a corporation formed under the laws of the state of Colorado
("Petro-Mark/Colorado").
RECITALS
A. Pursuant to that certain Demand Note made by Portfield to Morgan
Guaranty Trust Company of New York ("Morgan") of even date herewith (the
"Morgan Note"), Morgan will loan Portfield up to four million five hundred
thousand dollars ($4,500,000). As a condition precedent to funding the Morgan
Note, Morgan required and WLD Trust agreed to guaranty the full and prompt
payment by Portfield of all amounts due under the Morgan Note pursuant to that
certain guarantee of even date herewith (the "WLD Guaranty").
B. Portfield owns, directly or indirectly, all of the issued and
outstanding shares of stock of each of Wescourt, Wescourt Distributing,
Wesfrac, Westec Denver, Petro-Mark/Utah, Petro-Mark Corp., Petro-Mark Corp.,
Montrose, Westec Fruita, Montrose Propane, Grand Mesa Texaco, Fruita RP
Holding, and Petro-Mark/Colorado. For purposes of this WLD Security Agreement,
the parties shall sometimes refer to Portfield's related entities,
collectively, as the "Related Parties" and, individually, as a "Related Party."
C. From the proceeds of the Morgan Note and pursuant to that certain
Secured Promissory Note of even date herewith (the "Petro-Mark/Colorado Note"),
Portfield loaned PetroMark/Colorado two million five hundred thousand dollars
($2,500,000) for Petro-Mark/Colorado to use to acquire certain properties from
Diamond Shamrock Refining and Marketing Company, a corporation formed under the
laws of the state of Delaware ("Diamond Shamrock"), pursuant to that certain
Purchase and Branding Agreement dated October 29, 1996, as amended. The Note is
subordinate to all of the rights of both Heller Financial, Inc., a corporation
formed under the laws of Delaware ("Heller Financial"), pursuant to the "Heller
Loan Agreement" (as hereinafter defined), and National Canada Finance Corp., a
Delaware
1
<PAGE> 2
corporation ("NCFC"), pursuant to the "NCFC Security Agreements" (as
hereinafter defined). To secure its performance of all of its obligations under
the Petro-Mark/Colorado Note, Petro-Mark/Colorado pledged to Portfield certain
of its assets as more particularly described in that certain
Petro-Mark/Colorado Security Agreement (the "PetroMark/Colorado Security
Agreement"), subject to the prior senior liens of Heller Financial, pursuant to
that certain Security Agreement of even date herewith and certain deeds of
trust recorded against fee simple and leasehold interests in real property of
Petro-Mark/Colorado. Further, Portfield requires, and Wescourt agrees, to
guaranty the full and prompt performance of Petro-Mark/Colorado under the
Petro-Mark/Colorado Note pursuant to that certain Wescourt Guaranty of even
date herewith (the "Wescourt Petro-Mark Guaranty").
D. From the proceeds of the Morgan Note and pursuant to a form of
secured promissory note (the "Moffitt Note") in substantially the same form as
the Petro-Mark/Colorado Note, Portfield may loan Wescourt or its assignee up to
two million dollars ($2,000,000) for Wescourt's or its assignee's use in its
acquisition (the "Moffitt Acquisition") of all of the shares (the "Moffitt
Shares") of stock of Moffitt Oil Company, Inc., a corporation formed under the
laws of the state of Texas ("Moffitt"). To secure its performance of all of its
obligations under the Moffitt Note, Wescourt shall cause Moffitt or its
assignee, after the closing of the purchase of the Moffitt Shares, to pledge
all of its assets to Portfield pursuant to a form of security agreement (the
"Moffitt Security Agreement") in substantially the same form as the Petro-Mark
Security Agreement.
E. WLD Trust requires, as a condition precedent to Portfield's draw
against the Morgan Note to fund the Petro-Mark/Colorado Note and the Moffitt
Note, Portfield to indemnify and hold WLD Trust harmless under the WLD
Guarantee pursuant to that certain Indemnification Agreement (the "Portfield
Indemnification") of even date herewith. To secure Portfield's obligations
under the Portfield Indemnification, WLD Trust requires and Portfield and the
Related Parties (i) hereby grant a security interest to WLD Trust in (A) the
Petro-Mark/Colorado Note and all security therefor, and (B) the Moffitt Note
and all security therefor; and, (ii) agree to grant, subject in each case to
any prior liens and security interests as set forth in this WLD Security
Agreement, a security interest in all of Portfield's and the Related Parties'
Equipment, including the "Fractionator" (as hereinafter defined), if and when
Portfield and the Related Parties have fully and irrevocably satisfied to
NCFC's satisfaction all of Portfields' and the Related Parties' obligations
incurred on a term loan basis from NCFC, and NCFC has released its prior
security interest in Portfield's and the Related Parties' Equipment.
F. WLD Trust requires, as a condition precedent to Portfield's draw
against the Morgan Note to fund the Petro-Mark/Colorado Note, Wescourt to
indemnify and hold WLD Trust harmless under the WLD Guarantee pursuant to that
certain Indemnification Agreement (the "Wescourt Indemnification") of even date
herewith. To secure Wescourt's obligations under the Wescourt Indemnification,
WLD requires and Portfield, Wescourt and the other Related Parties hereby
grant, subject in each case to any prior liens and security interests as set
forth in this WLD Security Agreement, a security interest to WLD in all of
Portfield's and the Related Parties' Equipment, if and when Portfield and the
Related Parties have fully and irrevocably satisfied to NCFC's satisfaction all
of Portfields' and the Related Parties' obligations incurred on a
2
<PAGE> 3
term loan basis from NCFC, and NCFC has released its prior security interest in
Portfield's and the Related Parties' Equipment.
G. Pursuant to that certain Term Loan and Security Agreement of even
date herewith (the "Heller Loan Agreement"), Heller Financial loaned
Petro-Mark/Colorado eight million dollars ($8,000,000) for Petro-Mark/Colorado
to acquire certain properties from Diamond Shamrock. To secure its performance
under the Term Note it issued to Heller Financial pursuant to the Heller Loan
Agreement, Petro-Mark/Colorado granted Heller Financial a first priority
security interest in those parcels of real property which it owns and in all of
Petro-Mark/Colorado's equipment and its leasehold interests in those parcels of
real property which it leases.
H. As additional security for Petro-Mark/Colorado's performance under
the Heller Loan Agreement, Heller Financial required and Wesfrac granted,
pursuant to that certain Security Agreement of even date herewith (the
"Fractionator Security Agreement"), Heller Financial a second priority security
interest in that certain piece of equipment, known as a "Fractionator" (as more
particularly defined in the Intercreditor Agreement described below), which
security interest is junior only to the prior security interest of NCFC.
Further, as additional security for Portfield's performance under the Portfield
Indemnification, WLD Trust requires and Wesfrac agrees to grant, to WLD Trust a
second priority security interest in the Fractionator pursuant to the terms and
conditions of this WLD Security Agreement and subject to the "Intercreditor
Agreement" (as hereinafter defined) if and when Portfield and the Related
Parties have fully and irrevocably satisfied to NCFC's satisfaction all of
Portfields' and the Related Parties' obligations incurred on a term loan basis
from NCFC, and NCFC has released its prior security interest in the
Fractionator.
I. NCFC has, pursuant to various security and pledge agreements
(collectively, the "NCFC Security Agreements"), a security interest in certain
of the Related Parties' assets, including without limitation, a senior security
interest in the Fractionator.
J. Pursuant to that certain Intercreditor and Subordination Agreement
of even date herewith (the "Intercreditor Agreement"), Heller Financial, NCFC
and WLD Trust and the other parties named therein have set forth their
respective priorities, rights and obligations with respect to the various
collateral, including the Fractionator, for which Portfield and the Related
Entities granted security interests.
NOW, THEREFORE, in consideration of the foregoing, and the promises
set forth herein, the parties agree as follows:
1. RECITALS AND DEFINITIONS.
The recitals hereto are made a part hereof by this reference.
Capitalized terms that are not defined elsewhere herein shall have the meanings
set forth in the Uniform Commercial Code in force in the state of Colorado at
the date of execution of this Security Agreement (the "Colorado Uniform
Commercial Code").
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2. COLLATERAL.
2.1 Assignments and Grant of Security Interests.
To secure the prompt, full and faithful performance
by Portfield of all of the provisions to be kept, observed or performed by
Portfield under the Portfield Indemnification, by Wescourt under the Wescourt
Indemnification and by Portfield and the Related Parties under this WLD
Security Agreement (collectively, the "Secured Liabilities"), Portfield and the
Related Parties, as appropriate, hereby assign all of their respective rights,
title and interests in, or grants to WLD Trust the following security interests
in, and collateral assignment of, the following assets (collectively, the
"Collateral"):
(a) Petro-Mark/Colorado Note and Security
Agreement and Wescourt Guaranty.
(i) Assignment.
Portfield irrevocably and
unconditionally grants, transfers and assigns to WLD Trust all of Portfield's
present and future right, title and interest in and to the PetroMark/Colorado
Note, the Petro-Mark/Colorado Security Agreement, including any and all deeds
of trust made by Petro-Mark/Colorado in favor of Portfield to secure the
Petro-Mark/Colorado Note, and the Wescourt Petro-Mark Guaranty (collectively,
the "Petro-Mark Loan Documents"), together with all advance payments and other
amounts paid or payable to or deposited with Portfield thereunder, and
guaranties for either of the Petro-Mark Loan Documents, and all other rights
and interests of Portfield under or in respect of the Petro-Mark Loan
Documents.
(ii) Collection of Payments Due.
Notwithstanding the assignment set
forth in Section 2.1(a)(i), so long as no "Event of Default" (as hereinafter
defined) has occurred and is continuing, Portfield shall have the right (a) to
collect, receive, hold and dispose of amounts payable under the Petro-Mark Loan
Documents and to apply the same to the payment of amounts due from time to time
from Portfield under the Morgan Note subject to any restrictions imposed on
such application pursuant to the terms and provisions of the Intercreditor
Agreement, and (b) subject to the requirements of Section 2.1(a)(iii) below, to
enforce, supplement, modify, amend, renew, extend, terminate and otherwise
administer the Petro-Mark Loan Documents and deal with Petro-Mark Loan
Documents. During the continuance of any Event of Default, only WLD Trust shall
have the right to take the actions described in the preceding sentence, subject
to any restriction imposed on such action pursuant to the terms and conditions
of the Intercreditor Agreement, and WLD Trust may notify Petro-Mark/Colorado to
make all such payments directly to WLD Trust or as WLD Trust may direct. All
payments under the PetroMark/Colorado Loan Documents received by Portfield
during the existence of any Event of Default shall be held by Portfield in
trust for WLD Trust and not commingled with any other funds of Portfield, and
Portfield shall apply such funds only as directed by WLD Trust.
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(iii) Maintenance and Enforcement of
Petro-Mark Loan Documents.
Unless WLD Trust otherwise consents
in writing, Portfield shall: (a) take all action reasonably necessary or
appropriate to maintain and enforce its rights and interests under the
Petro-Mark Loan Documents; (b) comply in all material respects with its
obligations under the Petro-Mark Loan Documents; (c) not transfer, encumber or
further assign any of Portfield's Interest in the Petro-Mark Loan Documents;
(d) not commit or permit any material breach or default on the part of
Portfield under the Petro-Mark Loan Documents; (e) not otherwise permit or
agree to any supplement, modification, amendment, renewal, extension,
termination or surrender of, or consent or agree to any waiver of or departure
from the terms of, or otherwise release any interest in or rights under or in
connection with, the Petro-Mark Loan Documents.
(iv) Actions.
At the direction of WLD Trust and at
Portfield's sole expense, Portfield shall appear in and defend any claim or any
action or other proceeding purporting to affect the Petro-Mark Loan Documents
or the rights, powers or interests of WLD Trust under this assignment, and give
WLD Trust prompt written notice of any such claim, action or proceeding. If any
Event of Default has occurred and is continuing, WLD Trust shall have the right
to appear in and defend any such claim or proceeding on its own behalf, and
Portfield shall reimburse WLD Trust all costs and expenses incurred by WLD
Trust in connection therewith, including attorney's fees, which reimbursable
expenses shall be additional Secured Liabilities secured by the Collateral.
(b) Moffitt Note and Security Agreement.
(i) Assignment.
Portfield irrevocably and
unconditionally agrees, upon the closing the acquisition of the Moffitt Shares,
to grant, transfer and assign to WLD Trust all of Portfield's present and
future right, title and interest in and to the Moffitt Note and the Moffitt
Security Agreement, together with all advance payments and other amounts paid
or payable to or deposited with Portfield thereunder, all other security and
guaranties for either of the Moffitt Note and the Moffitt Security Agreement,
and all other rights and interests of Portfield under or in respect of the
Moffitt Note and the Moffitt Security Agreement.
(ii) Collection of Payments Due.
Notwithstanding the assignment set
forth in Section 2.1(b)(i), so long as no Event of Default has occurred and is
continuing, Portfield shall have the right (a) to collect, receive, hold and
dispose of amounts payable under the Moffitt Note and the Moffitt Security
Agreement and to apply the same to the payment of amounts due from time to time
from Portfield under the Morgan Note subject any restrictions imposed on such
application pursuant to the terms and provisions of the Intercreditor
Agreement, and (b) subject to the
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requirements of Section 2.1(b)(iii) below, to enforce, supplement, modify,
amend, renew, extend, terminate and otherwise administer the Moffitt Note and
the Moffitt Security Agreement and deal with Moffitt in relation to the Moffitt
Note and the Moffitt Security Agreement. During the continuance of any Event of
Default, only WLD Trust shall have the right to take the actions described in
the preceding sentence, and WLD Trust may notify Wescourt to make all such
payments directly to WLD Trust or as WLD Trust may direct. All payments under
the Moffitt Loan Documents received by Portfield during the existence of any
Event of Default shall be held by Portfield in trust for WLD Trust and not
commingled with any other funds of Portfield, and Portfield shall apply such
funds only as directed by WLD Trust.
(iii) Maintenance and Enforcement of Note
and Security Agreement.
Unless WLD Trust otherwise consents
in writing, Portfield shall: (a) take all action reasonably necessary or
appropriate to maintain and enforce its rights and interests under the Moffitt
Note and the Moffitt Security Agreement; (b) comply in all material respects
with its obligations under the Moffitt Note and the Moffitt Security Agreement;
(c) not transfer, encumber or further assign any of Portfield's interest in the
Moffitt Note and the Moffitt Security Agreement; (d) not commit or permit any
material breach or default on the part of Portfield under the Moffitt Note and
the Moffitt Security Agreement; (e) not otherwise permit or agree to any
supplement, modification, amendment, renewal, extension, termination or
surrender of, or consent or agree to any waiver of or departure from the terms
of, or otherwise release any interest in or rights under or in connection with,
the Moffitt Note and the Moffitt Security Agreement.
(iv) Actions.
At the direction of WLD Trust and at
Portfield's sole expense, Portfield shall appear in and defend any claim or any
action or other proceeding purporting to affect the Moffitt Note and the
Moffitt Security Agreement or the rights, powers or interests of WLD Trust
under this assignment, and give WLD Trust prompt written notice of any such
claim, action or proceeding. If any Event of Default has occurred and is
continuing, WLD Trust shall have the right to appear in and defend any such
claim or proceeding on its own behalf, and Portfield shall reimburse WLD Trust
all costs and expenses incurred by WLD Trust in connection therewith, including
attorney's fees, which reimbursable expenses shall be additional Secured
Liabilities secured by the Collateral.
(c) Fractionator.
Wesfrac agrees to irrevocably and
unconditionally grant a security interest in and to the Fractionator to WLD
Trust, subject only to the prior security interest of Heller Financial, if and
when Portfield and the Related Parties have fully and irrevocably satisfied to
NCFC's satisfaction all of Portfields' and the Related Parties' obligations
incurred on a term loan basis from NCFC, and NCFC has released its prior
security interest in the Fractionator.
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(d) Portfield's and the Related Parties'
Equipment.
Each of Portfield and the Related Parties
irrevocably and unconditionally agree to grant to WLD Trust, subject to the
prior security interests described in this WLD Security Agreement and except to
the extent the appropriate Related Party is prohibited from granting a junior
security interest under any prior perfected security interest, in and to all of
the Equipment which Portfield and the Related Parties now own or may hereafter
acquire if and when Portfield and the Related Parties have fully and
irrevocably satisfied to NCFC's satisfaction all of Portfields' and the Related
Parties' obligations incurred on a term loan basis from NCFC, and NCFC has
released its prior security interest in Portfield's and the Related Parties'
Equipment.
2.2 Entries on Portfield's and the Related Parties' Books.
Portfield and each of Related Parties shall make
appropriate entries upon their respective financial statements and books and
records disclosing WLD Trust security interest in and collateral assignment of
the Collateral.
2.3 Supplemental Documentation.
Portfield and the Related Parties shall execute and
deliver to WLD Trust, at the request of WLD Trust, all agreements, instruments
and documents that WLD Trust may reasonably request, in form and substance
acceptable to WLD Trust, to perfect and maintain perfected WLD Trust's security
interest in the Collateral and to consummate the transactions contemplated in
or by this WLD Security Agreement, and Portfield and the Related Parties agree
that a carbon, photographic or photostatic copy, or other reproduction, of this
Agreement or of any financing statement, shall be sufficient as a financing
statement.
2.4 Right to Inspect Collateral.
WLD Trust shall have the right, at any time during
Portfield's and the Related Parties' usual business hours, to inspect the
Collateral, all related records and the premises upon which the Collateral is
located, and to verify the amount and condition of or any other matter relating
to the Collateral.
2.5 Third-Party Claims Against Collateral.
WLD Trust, in its sole and absolute discretion, may
at any time or times hereafter, but shall be under no obligation, to pay,
acquire or accept an assignment of any security interest, lien, encumbrance or
claim asserted by any person or entity against the Collateral.
2.6 Disposition of Collateral.
In no event shall Portfield or any Related Party make
any sale, transfer or other disposition of any of the Equipment included in the
Collateral, except in the ordinary course of Portfield's or the appropriate
Related Parties' business, for transfers or assignments to
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entities in which Portfield owns, directly or indirectly, a majority interest,
or as authorized in a writing executed by WLD Trust and delivered to Portfield
or the appropriate Related Party. No such authorization given by WLD Trust to
sell any specified portion of Collateral or any items thereof, and no waiver by
WLD Trust in connection therewith shall establish a custom or constitute a
waiver of the prohibition contained in this WLD Security Agreement against such
sales, with respect to any portion of the Collateral or any items thereof not
covered by said authorization.
2.7 Set-off Against Secured Liabilities.
WLD Trust may, in its sole discretion and regardless
of the adequacy of the Collateral, upon the occurrence of an Event of Default,
reduce to cash any deposits or other sums at any time credited by or payable or
due from Portfield or any Related Party to WLD Trust, or any monies, cash, cash
equivalents, securities, instruments, documents or other assets of Portfield or
any of the Related Parties in the possession or control of Portfield, the
Related Parties or their bailees for any purpose, apply same to or setoff
against the Secured Liabilities.
3. PRIORITY OF INTERCREDITOR AGREEMENT.
The terms of this Agreement are subject to the terms, express
or implied, and provisions of the Intercreditor Agreement, and to the extent
any conflict arises between this Agreement and the Intercreditor Agreement,
then the terms of the Intercreditor Agreement shall control in all respects and
this Agreement shall be interpreted as if those terms of the Intercreditor
Agreement are explicitly set forth herein.
4. PORTFIELD'S AND RELATED PARTIES' WARRANTIES, REPRESENTATIONS
AND COVENANTS
Portfield and the Related Parties make the following
representations, covenants and warranties to WLD Trust:
4.1 Priority of Lien and Location of Collateral.
Except for the prior and senior liens of Heller
Financial pursuant to the Heller Loan Agreement, and NCFC pursuant to the NCFC
Security Agreements, and as set forth in the Intercreditor Agreement and for
the permitted encumbrances as set forth on Exhibit B hereof, Portfield and each
of the Related Parties, with respect to the Collateral which each pledges to
WLD Trust hereunder, warrants and represents to and covenants with WLD Trust
that:
(i) Portfield or the Related Party, as
the case may be, has and at all times hereafter shall have good, indefeasible
and merchantable title to and ownership of their respective Collateral, free
and clear of all liens, claims, security interests and encumbrances except
those of WLD Trust or as otherwise described in or permitted under this WLD
Security Agreement; and
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their respective Collateral at their ordinary places of business, and they
shall not remove the Collateral from that Place of Business unless and until
Portfield or the respective Related Party gives WLD Trust written notice
thereof at least thirty (30) days prior thereto.
4.2 Insurance.
At its sole cost and expense, Portfield and each
Related Party shall keep and maintain their respective Collateral which is
tangible real or personal property insured for its full insurable value against
loss or damage by fire, theft, explosion, sprinklers and all other hazards and
risks ordinarily insured against by other owners or users of such properties in
similar businesses. Portfield or the Related Party, as appropriate, shall
notify WLD Trust promptly of any event or occurrence which causes a material
loss or decline in value of the Collateral and the estimated, or actual, if
available, amount of such loss or decline. All policies of insurance on the
Collateral shall be in form and with insurers recognized as adequate by prudent
business persons and all such policies shall be in such amounts as may be
satisfactory to WLD Trust. Upon WLD Trust's request, Portfield or the Related
Party, as appropriate, shall deliver to WLD Trust the original or certified
copy of each policy of insurance and evidence of payment of all premiums
therefor. Such policies of insurance shall contain an endorsement, in form and
substance acceptable to WLD Trust, showing loss payable to WLD Trust. Such
endorsement shall provide that the insurance companies will give WLD Trust at
least thirty (30) days prior written notice before any such policy shall be
altered or canceled and that no act or default of Portfield or the Related
Party, as appropriate, or any other person shall affect the right of WLD Trust
to recover under such policy in case of loss or damage. Portfield or the
Related Party, as appropriate, hereby directs all insurers under such policies
to pay all proceeds payable thereunder directly to WLD Trust, and WLD Trust
shall remit to Portfield or the Related Party, as appropriate, any of the
proceeds paid to WLD Trust in excess of the Secured Liabilities at that time.
4.3 Charges and Other Claims.
Portfield or the Related Party, as appropriate, shall
promptly pay when due all of the federal, state, county, city, municipal or
other governmental taxes, levies, assessments, charges, liens, claims or
encumbrances upon or relating to their respective Collateral (collectively, the
"Charges"). In the event Portfield or the Related Party, as appropriate, at any
time or times hereafter, shall fail to pay the Charges or to promptly obtain
the discharge of such Charges, Portfield or the Related Party, as appropriate,
shall so advise WLD Trust in writing and WLD Trust may, without waiving or
releasing any obligation or liability of Portfield or the Related Party, as
appropriate, hereunder or any Event of Default, in its sole discretion, at any
time or times thereafter, make such payment, or any part thereof, or obtain
such discharge and take any other action with respect thereto which WLD Trust
deems advisable. All sums so paid by WLD Trust and any expenses, including
reasonable attorneys' fees, court costs, expenses and other charges relating
thereto, shall be payable, upon demand, by Portfield or the Related Party, as
appropriate, to WLD Trust and shall be additional Secured Liabilities hereunder
secured by the Collateral. Notwithstanding anything to the contrary herein,
Portfield or the Related Party, as appropriate, may dispute the Charges without
prior payment thereof, even if such non-payment
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may cause a lien to attach to the Collateral, provided that Portfield or the
Related Party, as appropriate, shall give WLD Trust written notice of such
dispute and shall be diligently contesting the same in good faith in an
appropriate proceeding, and provided further, that none of Portfield nor any
Related Party shall permit any Collateral to be lost through foreclosure of any
such lien.
4.4 Valid Existence and Good Standing
Portfield and each Related Party, as appropriate, is
validly incorporated and existing and in good standing under the laws of the
state of their respective incorporation, and is qualified to do business and is
in good standing under the laws of each and every state in which the nature of
Portfield's or the appropriate Related Party's business requires such
qualification.
4.5 Authorization
Portfield's and each Related Party's, as appropriate,
execution and delivery of this WLD Security Agreement and the performance of
its obligations hereunder have been duly authorized by all necessary action and
will not violate any provision of law.
4.6 No Consent or Default
Portfield's and each Related Party's execution and
delivery of this WLD Security Agreement and the performance of their respective
obligations hereunder do not require any consent under and will not result in a
breach of or default under any resolution, indenture, note, contract, agreement
or other instrument to which Portfield or the Related Party, as appropriate, is
a party or is otherwise subject or bound, and does not contravene any provision
of applicable law or regulation, or any order, decree, writ or injunction or
any of Portfield's or the appropriate Related Party's organizational documents.
4.7 Solvency.
Portfield and each Related Party is now and at all
times hereafter, shall be solvent and generally paying its debts as they
mature, and each of Portfield and the Related Parties now own and shall at all
times hereafter own property which, at a fair valuation, is greater than the
sum of its debts.
4.8 No Actions or Proceedings
There are no actions, suits or proceedings pending or
to the best of Portfield's or the appropriate Related Party's knowledge
threatened, before or by any court, regulatory or governmental agency, or
public board or body, against or affecting the Portfield or the Related Party,
as appropriate, or the Collateral.
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4.9 Further Assurances.
Portfield or the Related Party, as appropriate,
shall, at any time or from time to time, upon the written request of WLD Trust,
execute, and, if required, record, and pay all fees, taxes or other expenses
relating thereto, all such further documents and do all such other acts and
things as WLD Trust may reasonably request to effectuate the transaction herein
contemplated.
4.10 Maintenance of Ability to Pay.
Portfield shall not enter into any transaction not in
the ordinary course of business which materially and adversely affects its
ability to repay the Secured Liabilities, or any other obligations and
liabilities of Portfield to any third party or the Collateral.
5. DEFAULT.
5.1 Event of Default.
The occurrence of any one of the following events
("Event of Default") shall constitute a default under this WLD Security
Agreement: (a) if Portfield fails to perform, keep or observe any term,
provision, condition, covenant, warranty or representation contained in the
Portfield Indemnification, or Portfield or any Related Party fails to perform,
keep or observe any term, provision, condition, covenant, warranty or
representation contained in this WLD Security Agreement, after the expiration
of all applicable notice and cure periods; (b) if any of Portfield's assets are
attached, seized, subjected to a writ of distress warrant, or are levied upon
or become subject to any lien or come within the possession of any receiver,
trustee, custodian or assignee for the benefit of creditors; (c) if Portfield
becomes insolvent or generally fails to pay, or admits in writing its inability
to pay its debts as they become due; (d) if a petition under any section or
chapter of the United States Bankruptcy Act or any similar law or regulation is
filed by or against Portfield, or if Portfield shall make an assignment for the
benefit of creditors, or the appointment of a conservator for all or any
portion of Portfield's assets; or (e) if there is an Event of Default under
either the Petro-Mark/Colorado Loan Documents or the Moffitt Loan Documents,
subject to the terms and conditions of the Intercreditor Agreement.
5.2 WLD Trust's Rights and Remedies.
Upon the occurrence of an Event of Default, subject
to the prior rights of NCFC and Heller Financial as their interests may appear
in the Heller Loan Agreement, the NCFC Security Agreements and the
Intercreditor Agreement, WLD Trust shall have the rights and remedies provided
in the Colorado Uniform Commercial Code and other applicable laws and in
addition to, in substitution for, in modification of, or in conjunction with
those rights and remedies, WLD Trust or its agents may, in its discretion,
sell, assign and deliver all or any part of the Collateral at any brokers'
board or at public or private sale without notice or advertisement, and bid and
become purchasers at any public sale or at any broker's board, and, if notice
to Portfield or any of the Related Parties is required by law, give written
notice to Portfield or the appropriate Related Party five (5) business days
prior to the date of public sale of the Collateral or prior to the date after
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which private sale of the Collateral will be made by mailing such notice to the
address designated in this WLD Security Agreement. Portfield and the Related
Parties agree that the proceeds of the disposition of the Collateral may be
applied by WLD Trust to the satisfaction of Portfield's Liabilities in any
order of preference which WLD Trust, in its sole discretion, chooses, and that
the excess, if any, shall be returned to Portfield or the appropriate Related
Party, which shall continue liable to WLD Trust for any deficiency remaining
with interest thereon.
6. MISCELLANEOUS.
6.1 Release of Security Interest.
Upon payment in full of all of Portfield's
Liabilities, WLD Trust shall release its security interest in the Collateral
created by this WLD Security Agreement.
6.2 Application of Payments.
Portfield and the Related Parties waive the right to
direct the application of any and all payments at any time or times hereafter
received by WLD Trust on account of Portfield's Liabilities and Portfield and
the Related Parties agree that WLD Trust shall have the continuing exclusive
right to apply and re-apply any and all such payments in such manner as WLD
Trust may deem advisable, notwithstanding any entry by Portfield or the Related
Parties upon any of their respective books and records.
6.3 WLD Trust's Right to Assign.
WLD Trust may assign, negotiate, pledge or otherwise
hypothecate this WLD Security Agreement, enter into participation agreements,
or any of its rights and security hereunder and, in case of such assignment,
Portfield and the Related Parties will accord full recognition thereto and
agree that all rights and remedies of WLD Trust in connection with the interest
so assigned shall be enforceable against Portfield and the Related Parties by
such assignee with the same force and effect and to the same extent as the same
would have been enforceable by WLD Trust but for such assignment.
6.4 Prohibition of Assignments by Portfield and the
Related Parties.
None of Portfield or the Related Parties shall assign
or transfer any of their respective rights hereunder without WLD Trust's prior
written consent, except for transfers or assignments by the Related Parties to
entities in which Portfield owns, directly or indirectly, a majority interest.
6.5 Costs of Enforcement.
Portfield and the Related Parties shall pay and
reimburse WLD Trust for all costs, expenses and reasonable attorney's fees
incurred in seeking to enforce the terms of this WLD Security Agreement and in
connection with preparations for the commencement of any action, proceeding or
suit or preparations for the defense of any threatened action, proceeding or
suit,
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whether or not actually filed, affecting this WLD Security Agreement, including
without limitation appraiser's fees, documentary and expert evidence fees and
costs, stenographers' charges and title charges. All such costs, expenses and
fees shall become additional indebtedness secured by the Collateral and shall
become immediately due and payable when paid or incurred by WLD Trust.
6.6 Remedies.
Each right, power and remedy of WLD Trust now or
hereafter existing at law or in equity shall be cumulative and concurrent and
shall be in addition to every right, power and remedy provided for in this WLD
Security Agreement, and the exercise of any right, power or remedy shall not
preclude the simultaneous or later exercise of any other right, power or
remedy.
6.7 No Waiver.
Time is of the essence of this WLD Security
Agreement. No delay or failure by WLD Trust to insist upon the strict
performance of any term hereof or to exercise any right, power or remedy
provided for herein or therein as a consequence of an Event of Default
hereunder or thereunder, and no acceptance of any payment of the principal,
interest or premium if any, on the respective note during the continuance of
any such Event of Default, shall constitute a waiver of any such term, such
Event of Default or such right, power or remedy. The exercise by WLD Trust of
any right, power or remedy conferred hereunder upon WLD Trust or by law or
equity shall not preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. No waiver of any Event of Default
hereunder shall affect or alter this WLD Security Agreement, which shall
continue in full force and effect with respect to any other then existing or
subsequent Events of Default.
6.8 Amendment.
This WLD Security Agreement shall not be amended,
modified or terminated orally but may only be amended, modified or terminated
pursuant to written agreement among the parties.
6.9 Notices.
Any notice, demand, request or other communication
desired to be given or re quired pursuant to the terms hereof shall be in
writing and shall be delivered by telecopy, facsimile, personal service or sent
by registered or certified mail, return receipt requested, postage prepaid,
addressed as follows or to such other address as the parties hereto may
designate in writing from time to time:
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Portfield and Related Parties:
Portfield Investments, Inc.
1493 Highways 6 and 50
Fruita, Colorado 81521
Attention: Keith Holder, President
WLD Trust: The WLD Trust
Las Olas Centre
450 East Las Olas Boulevard, Suite 900
Four Lauderdale, Florida 33301
Attention: Ronald A. Adelhelm, Vice President
of Finance and Administration -
Chief Financial Officer
Any such notice, demand, request or other communication shall be deemed given
when personally delivered or if mailed five (5) business days after deposit in
the mail.
6.10 Headings.
The various headings used in this WLD Security
Agreement as headings for paragraphs or otherwise are for convenience only and
shall not be used in interpreting the text of the paragraphs in which they
appear and shall not limit or otherwise affect the meanings thereof.
6.11 Severability.
If any provision in this WLD Security Agreement is
held by a court of law to be in violation of any applicable local, state or
federal law, statute, ordinance, administration or judicial decision, or public
policy, and if such court should declare such provision of this WLD Security
Agreement to be illegal, invalid, unlawful, void, voidable, or unenforceable as
written, then such provision shall be given full force and effect to the
fullest possible extent that is legal, valid and enforceable, that the
remainder of this WLD Security Agreement shall be construed as if such illegal,
invalid, unlawful, void, voidable or unenforceable provision was not contained
therein, and that the rights, obligations and interest of the parties under the
remainder of this WLD Security Agreement shall continue in full force and
effect.
6.12 Names.
Regardless of their form, all words shall be deemed
singular or plural and to have such gender as required by the text.
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6.13 Applicable Law.
This WLD Security Agreement has been executed,
delivered and accepted at and shall have been deemed to have been made at
Fruita, Colorado, and shall be interpreted and the rights and liabilities of
the parties hereto determined in accordance with the laws of the State of
Colorado other than laws pertaining to conflicts.
6.14 Disclaimer by WLD Trust.
Except as set forth in this WLD Security Agreement,
WLD Trust shall not be liable for any debts or claims accruing in favor of any
parties against any of Portfield, the Related Parties or the Collateral. WLD
Trust is not and shall not be an agent of Portfield or the Related Parties for
any purposes. Approvals granted by WLD Trust for any matters covered under this
WLD Security Agreement shall be narrowly construed to cover only the parties
and facts identified in any written approval or if not in writing such
approvals shall be solely for the benefit of WLD Trust.
6.15 Effect of Termination.
Except to the extent provided to the contrary in this
WLD Security Agreement, no termination or cancellation of this WLD Security
Agreement, regardless of cause or procedure, shall in any way affect or impair
the powers, obligations, duties, rights and liabilities of the parties in any
way or respect relating to (i) any transaction or event occurring prior to such
termination or cancellation, or (ii) any of the undertakings, agreements,
covenants, warranties and representations of Portfield or the Related Parties
contained in this WLD Security Agreement. All such undertakings, agreements,
covenants, warranties and representations shall survive such termination or
cancellation.
6.16 Portfield's and Related Parties' Waiver of Notice.
Except as otherwise specifically provided in this WLD
Security Agreement, Portfield and each of the Related Parties waive any and all
notice or demand which Portfield or the Related Parties might be entitled to
receive with respect to this WLD Security Agreement by virtue of the Colorado
Uniform Commercial Code or any applicable statute or law, and waives
presentment, demand and protest and notice of presentment, protest, default,
dishonor, non-payment, maturity, release, compromise, settlement, extension or
renewal of any or all commercial paper, accounts, contract rights, documents,
instruments, chattel paper and guaranties at any time held by WLD Trust on
which any of the WLD Trust may in any way be liable and hereby ratifies and
confirms whatever WLD Trust may do in this regard.
6.17 Multiple Counterparts.
This WLD Security Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument.
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<PAGE> 16
IN WITNESS WHEREOF, this WLD Security Agreement has been duly executed
as the day and year specified at the beginning hereof.
The WLD Trust, Portfield Investments, Inc.,
an Ohio Testamentary Trust a Colorado corporation
by: by:
------------------------------ -----------------------------
Ronald A. Adelhelm, Keith Holder, President
Attorney-in-Fact
Wescourt Group, Inc., Wescourt Distributing, Inc.,
a Delaware corporation a Colorado corporation
by: by:
------------------------------ -----------------------------
Keith Holder, President Keith Holder, President
Wesfrac, Inc., Westec Denver, Inc.,
a Colorado corporation a Colorado corporation
by: by:
------------------------------ -----------------------------
Paul J. Rath, Secretary Paul J. Rath, Secretary
Petro-Mark Corp. Utah, Petro-Mark Corp.,
a Colorado corporation a Colorado corporation
by: by:
------------------------------ -----------------------------
Keith Holder, President Paul J. Rath, Secretary
Petro-Mark Corp. Montrose, Inc., Westec Fruita, Inc.,
a Colorado corporation a Colorado corporation
by: by:
------------------------------ -----------------------------
Paul J. Rath, Secretary Keith Holder, President
Montrose Propane, Inc., Grand Mesa Texaco, Inc.,
a Colorado corporation a Colorado corporation
by: by:
------------------------------ -----------------------------
Keith Holder, President Keith Holder, President
Fruita RP Holding, Inc., Petro-Mark Convenience Stores,Inc.,
a Delaware corporation a Colorado corporation
by: by:
------------------------------ -----------------------------
Keith Holder, President Keith Holder, President
<PAGE> 17
EXHIBIT A
PERMITTED ENCUMBRANCES
Permitted Encumbrances shall mean the following:
(i) liens incurred and pledges and deposits made in the ordinary
course of business in connection with workmen's compensation, unemployment
insurance, old-age pensions and other social security benefits;
(ii) liens securing the performance of bids, tenders, leases,
contracts (other than for the repayment of borrowed money), statutory
obligations, surety, customs and appeal bonds and other obligations of like
nature, incurred as an incident to and in the ordinary course of business:
(iii) liens imposed by law, such as carriers' warehousemen's,
mechanics', materialmen's and vendors' liens, incurred in good faith in the
ordinary course of business and securing obligations which are not yet due or
which are being contested in good faith by appropriate proceedings;
(iv) liens securing the payment of taxes, assessments and
governmental charges or levies, either (x) not delinquent or (y) being
contested in good faith by appropriate legal or administrative proceedings and
as to which Petro-Mark shall have set aside on its books adequate reserves in
accordance with generally accepted accounting principals;
(v) zoning restrictions, easements, licenses, reservations,
provisions, covenants, conditions, waivers, restrictions on the use of property
or irregularities of title, none of which materially impairs the use of any
material property of Petro-Mark or the value or such property;
(vi) liens on property existing at the time such property is acquired
by Petro-Mark;
(vii) liens arising out of judicial proceedings to the extent they do
not constitute an Event of Default under Section 5; and
(viii) extensions, renewals and replacements of liens referred to
above; provided, however, that any such extension, renewal or replacement lien
shall be limited to the property or assets covered by the lien extended,
renewed or replaced and that the obligations secured by any such extension,
renewal or replacement lien shall be in an amount not greater than the amount
of the obligations secured by the lien extended, renewed or replaced.
<PAGE> 1
Exhibit 10.17
FIRST AMENDED AND RESTATED
INTERCREDITOR AND SUBORDINATION AGREEMENT
This First Amended and Restated Intercreditor and Subordination
Agreement ("Agreement") is executed by Portfield Investments, Inc., a Colorado
corporation ("Portfield"), Wescourt Group, Inc., a Delaware corporation
("Wescourt"), Wescourt Distributing, Inc., a Colorado corporation, Wesfrac,
Inc., a Colorado corporation ("Wesfrac"), Westec Denver, Inc., a Colorado
corporation ("Westec Denver"), Petro-Mark Corp. Utah, a Colorado corporation,
Petro-Mark Corp., a Colorado corporation, Petro-Mark Corp., Montrose, Inc., a
Colorado corporation ("Petro-Mark Montrose"), Westec Fruita, Inc., a Delaware
corporation ("Westec Fruita"), Montrose Propane, Inc., a Colorado corporation,
Grand Mesa Texaco, Inc., a Colorado corporation, Fruita RP Holding, Inc., a
Delaware corporation ("Fruita RP Holding"), Super Mart Convenience Stores, Inc.
fka Petro-Mark Convenience Stores, Inc., a Colorado corporation ("SMCS") and
Moffitt Oil Company, Inc., a Texas corporation, all with an address at 1493
Highway 6 and 50, Fruita, Colorado 81521 (collectively "Borrowers" and
singularly "Borrower"), Heller Financial, Inc. ("Heller"), whose address is 500
West Monroe Street, Chicago, Illinois 60661, WLD Trust ("WLD"), an Ohio
testamentary trust, whose address is 450 East Las Olas Boulevard, Suite 900,
Fort Lauderdale, Florida 33301 and National Canada Finance Corp. ("NCFC"),
whose address is 1200 17th Street, Suite 2760, Denver, Colorado 80202, for
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, on this 11th day of April, 1997. Hereinafter, the parties to
this Agreement may be referred to collectively as the "Parties" and
individually as a "Party."
RECITALS
A. SMCS purchased from Petro-Mark Montrose and Westec Fruita the
Petro-Mark Montrose and Westec Fruita Stores (as defined below) in accordance
with the Petro-Mark Montrose and Westec Fruita Purchase Agreements (as defined
below). In consideration therefor, SMCS provided Petro-Mark Montrose and
Westec Fruita with the Petro-Mark Montrose and Westec Fruita Notes (as defined
below).
B. SMCS purchased from Diamond Shamrock (as defined below) the
Diamond Shamrock Stores in accordance with the Diamond Shamrock Purchase
Agreement (as defined below).
C. Wesfrac desires to purchase from JoAnn Moffitt all of
Moffitt's issued and outstanding capital stock in accordance with the Moffitt
Purchase Agreement (as defined below).
D. Morgan (as defined below) has provided and wishes to provide
Portfield with various loans and other financial accommodations pursuant to the
Morgan Loan Documents (as defined below).
<PAGE> 2
E. WLD has guaranteed the Morgan Loan (as defined below) and has
been indemnified for any payments upon such guaranty as set forth in the WLD
Documents (as defined below).
F. Portfield has provided SMCS with various loans and other
financial accommodations pursuant to the Portfield Loan Documents (as defined
below) and wishes to provide Wesfrac with the various loans and other financial
accommodations pursuant to the Second Portfield Loan Documents (as defined
below).
G. Heller has provided SMCS with various loans and other
financial accommodations pursuant to the Heller Loan Documents (as defined
below) and wishes to provide Wesfrac, Westec Denver and Moffitt with various
loans and other financial accommodations pursuant to the Second Heller Loan
Documents.
H. NCFC has provided or wishes to provide Borrowers with various
loans and other financial accommodations or amend such loans and other
financial accommodations pursuant to the NCFC Loan Documents (as defined
below).
I. None of the Borrowers, WLD, Heller or NCFC are willing to
provide, engage in, or permit the foregoing transactions unless such parties
execute and agree to abide by the terms and conditions set forth in this
Agreement.
AGREEMENTS
1. Definitions. Besides the other terms defined herein, the
following terms shall have the meaning set forth below for the purposes of this
Agreement:
"Adjusted EBITDA" shall mean earnings, before interest, cash
taxes actually paid, depreciation and amortization minus all principal
and interest payments made with respect to any indebtedness
subordinate in right of payment to funded debt.
"Collateral" shall mean the NCFC Collateral, Heller
Collateral, Second Heller Collateral, WLD Collateral, Portfield
Collateral and Second Portfield Collateral.
"Convenience Stores" shall mean the Diamond Shamrock Stores
and the Petro-Mark Montrose and Westec Fruita Stores described on
EXHIBIT A attached hereto and incorporated herein by this reference.
"Debt" shall mean the Petro-Mark Montrose and Westec Fruita
Debt, Morgan Debt, WLD Debt, Portfield Debt, Second Portfield Debt,
Heller Debt, Second Heller Debt and NCFC Debt.
2
<PAGE> 3
"Diamond Shamrock" shall mean Diamond Shamrock Refining and
Marketing Company.
"Diamond Shamrock Purchase Agreement" shall mean the Asset
Purchase and Branding Agreement between Diamond Shamrock and Wescourt
dated October 29, 1996 as amended by the First Amendment to Asset
Purchase and Branding Agreement dated December 17, 1996, Second
Amendment to Asset Purchase and Branding Agreement dated as of January
27, 1997 and the Third Amendment to Asset Purchase and Branding
Agreement dated as of March 5, 1997, the letter agreement between
Diamond Shamrock, Wescourt and SMCS dated February 20, 1997, and the
Assumption and Amendment Agreement between Diamond Shamrock, Wescourt
and SMCS dated March 4, 1997.
"Diamond Shamrock Stores" shall mean the convenience stores
and related assets sold by Diamond Shamrock to SMCS and located at the
addresses described in EXHIBIT A attached hereto.
"Documents" shall mean the NCFC Loan Documents, Heller Loan
Documents, Second Heller Loan Documents, Portfield Loan Documents,
Second Portfield Loan Documents, Petro-Mark and Westec Fruita Loan
Documents, Morgan Loan Documents and WLD Documents.
"Encumbrance" shall mean all present and future liens,
security interests, encumbrances or claims of any kind.
"Fixed Charges" shall mean (i) interest expense (excluding
interest paid on the Portfield Debt and Second Portfield Debt), (ii)
current maturities of long-term debt (excluding the Portfield Debt and
Second Portfield Debt), and (iii) cash taxes actually paid.
"Fractionator" shall mean the equipment described in EXHIBIT B
attached hereto and incorporated herein by this reference, all
modifications, replacements and substitutions thereto, and all cash
proceeds of the foregoing and any other proceeds of the foregoing that
do not constitute a portion of NCFC's Collateral.
"Heller" shall mean Heller Financial, Inc.
"Heller Collateral" shall mean the Wesfrac Stock, the
Fractionator, and all of SMCS' personal and real property described on
EXHIBIT C attached hereto and incorporated herein by this reference.
"Heller Debt" shall mean all obligations, liabilities and
indebtedness from time to time owing by SMCS to Heller in connection
with the Heller Loan.
3
<PAGE> 4
"Heller Loan" shall mean the term loan in the original
principal amount of up to $8,000,000.00 from Heller to SMCS.
"Heller Loan Documents" shall mean any and all agreements,
instruments and documents, together with any amendments,
modifications, restatements and replacements thereof, now or hereafter
evidencing or securing the Heller Loan or any part thereof, including,
without limitation, the Term Loan and Security Agreement, Guaranty
from Portfield, Wescourt and Wesfrac, Security Agreements from
Wescourt and Wesfrac, financing statements from SMCS, Wescourt and
Wesfrac, and Deeds of Trust and Leasehold Deeds of Trust from SMCS
dated on or about March 12, 1997.
"Morgan" shall mean Morgan Guaranty Trust Company of New York.
"Morgan Debt" shall mean all obligations, liabilities and
indebtedness from time to time owing by Portfield to Morgan in
connection with the Morgan Loan.
"Morgan Loan" shall mean the demand loan in the original
principal amount of up to $4,500,000.00 from Morgan to Portfield.
"Morgan Loan Documents" shall mean any and all agreements,
instruments and documents, together with any amendments,
modifications, restatements and replacements thereof, now or hereafter
evidencing or securing the Morgan Loan or any part thereof, including,
without limitation, the Morgan Demand Note, the Guaranty from WLD,
Portfield Indemnification Agreement, Wescourt Indemnification
Agreement, Morgan Estoppel Letter dated on or about March 12, 1997.
"NCFC Collateral" shall mean all of Borrowers' present and
future personal and real property securing the NCFC Debt. The term
"NCFC Collateral" shall not include (a) the Portfield Note and related
security agreements, deeds of trust and other documents providing
Portfield with an Encumbrance on the portion of the Heller Collateral
described in SECTION 4(B) of this Agreement, (b) the Petro-Mark
Montrose and Westec Fruita Notes, (c) the Wesfrac Stock, (d) the
Heller Collateral or the Second Heller Collateral (to the extent that
the Heller Collateral or the Second Heller Collateral does not consist
of any of the specific Collateral or types of Collateral described in
NCFC's Loan Documents), (e) the Second Portfield Note and related
security agreement and other documents providing Portfield with and
Encumbrance on Moffitt's assets constituting a portion of the Second
Heller Collateral.
4
<PAGE> 5
"NCFC Debt" shall mean all obligations, liabilities and
indebtedness from time to time owing by Borrowers to NCFC or any other
affiliate of NCFC.
"NCFC Loan Documents" shall mean any and all agreements,
instruments and documents, together with any amendments,
modifications, restatements and replacements thereof, now or hereafter
evidencing, guaranteeing or securing the NCFC Debt or any part
thereof.
"Overlap Heller Collateral" shall mean that portion of the
Heller Collateral that also constitutes a portion of the Second Heller
Collateral, including, but not limited to, the Fractionator and the
Wesfrac Stock.
"Petro-Mark Montrose and Westec Fruita Debt" shall mean all
obligations, liabilities and indebtedness from time to time owing by
SMCS to Petro-Mark Montrose and Westec Fruita in connection with the
Petro-Mark Montrose and Westec Fruita Loan.
"Petro-Mark Montrose and Westec Fruita Loan" shall mean the
loans in the original principal amounts of up to $716,438.78 and
$485,925.82 to SMCS from Petro-Mark Montrose and Westec Fruita,
respectively.
"Petro-Mark Montrose and Westec Fruita Loan Documents" shall
mean any and all agreements, instruments and documents, together with
any amendments, modifications, restatements and replacements thereof,
now or hereafter evidencing the Petro-Mark Montrose and Westec Fruita
Loan or any part thereof, including, without limitation, the
Petro-Mark Montrose and Westec Fruita Purchase Agreements, the
Petro-Mark Montrose and Westec Fruita Notes dated on or about February
25, 1997.
"Petro-Mark Montrose and Westec Fruita Notes" shall mean the
subordinated unsecured promissory notes issued by SMCS in favor of
Petro-Mark Montrose and Westec Fruita in the original principal
amounts of $716,438.78 and $485,925.82, respectively, for the purchase
of the Petro-Mark Montrose and Westec Fruita Stores.
"Petro-Mark Montrose and Westec Fruita Purchase Agreements"
shall mean the Asset Sale and Purchase Agreements between SMCS and
Petro-Mark Montrose and Westec Fruita, respectively, dated January 31,
1997.
"Petro-Mark Montrose and Westec Fruita Stores" shall mean the
convenience stores and related assets sold by Petro-Mark Montrose and
Westec Fruita to SMCS and located at the addresses described in
EXHIBIT A attached hereto.
5
<PAGE> 6
"Portfield Debt" shall mean all obligations, liabilities and
indebtedness from time to time owing by SMCS to Portfield in
connection with the Portfield Loan.
"Portfield Loan" shall mean the term loan in the original
principal amount of up to $2,500,000.00 from Portfield to SMCS.
"Portfield Loan Documents" shall mean any and all agreements,
instruments and documents, together with any amendments,
modifications, restatements and replacements thereof, now or hereafter
evidencing or securing the Portfield Loan or any part thereof,
including, without limitation, the Portfield Note, security agreement
and financing statements from SMCS, guaranty from Wescourt, Deeds of
Trust and Leasehold Deeds of Trust from SMCS, and the related
documents dated on or about March 12, 1997.
"Portfield Note" shall mean the promissory note issued by SMCS
in favor of Portfield in the original principal amount of
$2,500,000.00 and dated on or about March 12, 1997.
"Proceeding" shall mean any voluntary or involuntary
insolvency, bankruptcy, receivership, custodianship, liquidation,
dissolution, reorganization, assignment for the benefit of creditors,
appointment of a custodian, receiver, trustee or other officer with
similar powers or any other proceeding for the liquidation,
dissolution or other winding up of a person.
"Second Heller Collateral" shall mean the real and personal
property of Borrowers described on EXHIBIT D attached hereto and
incorporated herein by this reference.
"Second Heller Debt" shall mean all obligations, liabilities
and indebtedness from time to time owing by Borrowers (besides SMCS)
to Heller in connection with the Second Heller Loan.
"Second Heller Loan" shall mean the term loans in the original
aggregate principal amount of up to $7,000,000.00 from Heller to
Wesfrac, Westec Denver, and Moffitt.
"Second Heller Loan Documents" shall mean any and all
agreements, instruments and documents, together with any amendments,
modifications, restatements and replacements thereof, now or hereafter
evidencing or securing the Second Heller Loan or any part thereof,
including, without limitation, the Term Loan and Guaranty Agreement,
Security Agreement Re: Equipment, Assignment of Stock Purchase
Agreements from Wesfrac, Pledge Agreement from Wesfrac and Wescourt,
Deed of Trust from Fruita RP Holding, financing
6
<PAGE> 7
statements from Borrowers (besides SMCS), dated on or about the date
hereof.
"Second Portfield Debt" shall mean all obligations,
liabilities and indebtedness from time to time owing by Wesfrac to
Portfield in connection with the Second Portfield Loan.
"Second Portfield Loan" shall mean the term loan in the
original principal amount of up to $2,000,000.00 from Portfield to
Wesfrac.
"Second Portfield Loan Documents" shall mean any and all
agreements, instruments and documents, together with any amendments,
modifications, restatements and replacements thereof, now or hereafter
evidencing or securing the Second Portfield Loan or any part thereof,
including, without limitation, the Second Portfield Note, security
agreement and financing statements from Moffitt, and the related
documents dated on or about the date hereof.
"Second Portfield Note" shall mean the promissory note issued
by Wesfrac in favor of Portfield in the original principal amount of
$2,000,000.00 and dated on or about the date hereof.
"Secured Parties" shall mean Portfield, WLD, Heller and NCFC.
"Secured Party" shall mean any one of the Secured Parties.
"Wesfrac Stock" shall mean all of Wesfrac's issued and
outstanding stock at any time.
"WLD Collateral" shall mean (a) the Portfield Note and related
security agreements, deeds of trust and other documents providing
Portfield with an Encumbrance on the portion of the Heller Collateral
described in SECTION 4(B) of this Agreement, (b) the Second Portfield
Note and related security agreements providing Portfield with and
Encumbrance on Moffitt's assets constituting a portion of the Second
Heller Collateral, and (c) Borrower's (besides SMCS' and Moffitt's)
present and future equipment, fixtures, cash proceeds thereof and any
other proceeds thereof that do not constitute a portion of the NCFC
Collateral.
"WLD Debt" shall mean all indemnification obligations,
liabilities and indebtedness from time to time owing by Portfield and
Wescourt to WLD with respect to the Morgan Loan.
7
<PAGE> 8
"WLD Documents" shall mean any and all agreements, instruments
and documents, together with any amendments, modifications,
restatements and replacements thereof, now or hereafter evidencing,
guarantying or securing the WLD Debt or any part thereof, including,
without limitation, the Portfield and Wescourt Indemnification
Agreements, and First Amended and Restated Assignment and Security
Agreement from Borrowers to WLD dated on or about the date hereof.
2. Priority and Subordination of Payments to Parties.
(a) Payments to NCFC and Heller. Notwithstanding
anything to the contrary herein, the NCFC Debt, the Heller Debt and
the Second Heller Debt shall be pari passu in all rights of payment
whether in a liquidation of assets, plan of reorganization or
otherwise, except to the extent that such payments constitute the
proceeds of the NCFC Collateral, Heller Collateral or Second Heller
Collateral, whereupon the payments of such proceeds shall be governed
by the priority of NCFC's and Heller's Encumbrances in the Collateral.
(b) Subordination of Portfield Debt. No payment shall be
made upon the Portfield Debt or the related guaranty by Wescourt and
Portfield shall not setoff any Borrower's obligations to Portfield
pertaining to the Portfield Debt except for payments under the
conditions described in the following sentence. So long as no event
of default has occurred and is continuing under the NCFC Loan
Documents, Heller Loan Documents or Second Heller Loan Documents or
would occur as a result thereof and, in addition for subsections (iii)
and (iv) below, so long as the additional $1,500,000 in revolving
loans from NCFC to Wesfrac allowed under SUBSECTION (III) in the
definition of Loan Availability in the NCFC Loan Agreement and all
interest, fees and expenses applicable thereto have been fully and
irrevocably paid to NCFC, the following payments may be made upon the
Portfield Debt:
(i) Regularly scheduled payments of interest as
set forth in the Portfield Note on the date hereof;
(ii) One (1) $500,000.00 payment of principal
provided that such payment is made within sixty (60) days
following Wesfrac's purchase of Moffitt's stock or such longer
period as may be acceptable to WLD;
(iii) Commencing with the quarter ending February 28,
1998, payments of principal to the extent that the ratio of
Portfield's consolidated Adjusted EBITDA to Fixed Charges
(determined on a quarterly basis) would not be less than 1.25
to 1.00 for the trailing twelve (12) month period; and
8
<PAGE> 9
(iv) The Portfield Debt may be paid in full or in
part from the proceeds of any initial public offering of any
Borrower's stock that results in such Borrower receiving at
least $10,000,000.00 of net proceeds therefrom.
During the continuance of the Morgan Debt, any payments on the
Portfield Debt shall be remitted to Morgan. During the continuance of
the WLD Debt (but not the Morgan Debt), any payments on the Portfield
Debt shall be remitted to WLD.
(c) Subordination of Second Portfield Debt. No payment
shall be made upon the Second Portfield Debt or the related guaranty
by Wescourt and Portfield shall not setoff any Borrower's obligations
to Portfield pertaining to the Second Portfield Debt except for
payments under the conditions described in the following sentence. So
long as no event of default has occurred and is continuing under the
NCFC Loan Documents, Heller Loan Documents or Second Heller Loan
Documents or would occur as a result thereof and, in addition for
subsections (ii) and (iii) below, so long as the additional $1,500,000
in revolving loans from NCFC to Wesfrac allowed under SUBSECTION (III)
in the definition of Loan Availability in the NCFC Loan Agreement and
all interest, fees and expenses applicable thereto have been fully and
irrevocably paid to NCFC, the following payments may be made upon the
Second Portfield Debt:
(i) Regularly scheduled payments of interest as
set forth in the Second Portfield Note on the date hereof;
(ii) Commencing with the quarter ending February 28,
1998, payments of principal to the extent that the ratio of
Portfield's consolidated Adjusted EBITDA to Fixed Charges
(determined on a quarterly basis) would not be less than 1.25
to 1.00 for the trailing twelve (12) month period; and
(iii) The Second Portfield Debt may be paid in full
or in part from the proceeds of any initial public offering of
any Borrower's stock that results in such Borrower receiving
at least $10,000,000.00 of net proceeds therefrom.
During the continuance of the Morgan Debt, any payments on the Second
Portfield Debt shall be remitted to Morgan. During the continuance of
the WLD Debt (but not the Morgan Debt), any payments on the Second
Portfield Debt shall be remitted to WLD.
(d) Subordination of WLD Debt. Except as specifically
described in subsection (f) below, no payment shall be made
9
<PAGE> 10
upon the WLD Debt and WLD shall not setoff any Borrower's obligations
to WLD pertaining to the WLD Debt until the NCFC Debt, Heller Debt and
Second Heller Debt have been completely and irrevocably satisfied and
NCFC and Heller have been released from any obligation to provide any
Borrower with any additional loans, advances or other financial
accommodations of any kind.
(e) Subordination of Petro-Mark Montrose and Westec
Fruita Notes. No payment shall be made upon the Petro-Mark Montrose
and Westec Fruita Notes and the holder of the Petro-Mark Montrose and
Westec Fruita Notes shall not setoff any Borrower's obligations to
such holder pertaining to the Petro-Mark Montrose and Westec Fruita
Notes until the NCFC Debt, Heller Debt and Second Heller Debt have
been completely and irrevocably satisfied and NCFC and Heller have
been released from any obligation to provide any Borrower with any
additional loans, advances or other financial accommodations of any
kind.
(f) Corresponding Payments on WLD Debt, Portfield Debt
and Second Portfield Debt. Any payment on the Morgan Debt (besides
payments originating from WLD) also shall constitute a payment in the
same amount on the WLD Debt. In addition, any such payment on the
Morgan Debt or the WLD Debt also shall constitute: (i) a payment in
the same amount on the Portfield Debt if the payment originates from
SMCS; (ii) a payment in the same amount on the Second Portfield Debt
if the payment originates from Wesfrac or Moffitt; or (iii) a pro-rata
reduction of the Portfield Debt and the Second Portfield Debt, with
the reduction allocated between them according to their respective
outstanding principal balances immediately before the payment, if the
payment originates from Portfield or any of its direct or indirect
subsidiaries other than SMCS, Wesfrac or Moffitt.
3. Priority and Absence of Encumbrances Against the NCFC
Collateral. The following shall be the relative priority of the Encumbrances
and the absence of Encumbrances of each Secured Party in the NCFC Collateral,
regardless of the date, manner, time or order of attachment, perfection or
recording of the Encumbrances granted to any Secured Party, any provision of
law or judicial decision, any term or condition contained in any Secured
Party's Documents, or whether any Secured Party holds possession of all or any
part of the NCFC Collateral:
(a) NCFC shall have a first priority Encumbrance in the
NCFC Collateral to secure the NCFC Debt; and
(b) Except as specifically described in this Agreement,
no other Party shall have an Encumbrance in the NCFC Collateral and
Borrowers shall not grant an Encumbrance in the
10
<PAGE> 11
NCFC Collateral to any other person or entity that violates any of the
Documents.
4. Priority and Absence of Encumbrances Against the Heller
Collateral. The following shall be the relative priority of the Encumbrances of
each Secured Party in the Heller Collateral, regardless of the date, manner,
time or order of attachment, perfection or recording of the Encumbrances
granted to any Secured Party, any provision of law or judicial decision, any
term or condition contained in any Secured Party's Documents, or whether any
Secured Party holds possession of all or any part of the Heller Collateral:
(a) Heller shall have a first priority Encumbrance in
the Heller Collateral (other than the Overlap Heller Collateral) to
secure the Heller Loan;
(b) Heller shall have a second priority Encumbrance in
the Overlap Heller Collateral to secure the Heller Loan;
(c) Portfield shall have a second priority Encumbrance in
the Heller Collateral (other than the Overlap Heller Collateral) to
secure the Portfield Loan (and Portfield shall assign such Encumbrance
to WLD subject to the terms of the WLD Documents and this Agreement);
(d) WLD shall have a third priority Encumbrance against
the Fractionator and also shall have the various assigned rights
described in the preceding subsection to secure the WLD Debt; and
(e) Except as specifically described in this Agreement,
no other Party shall have an Encumbrance in the Heller Collateral and
Borrowers shall not grant an Encumbrance in the Heller Collateral to
any other person or entity that violates any of the Documents.
5. Priority and Absence of Encumbrances Against the Second Heller
Collateral. The following shall be the relative priority of the Encumbrances of
each Secured Party in the Second Heller Collateral, regardless of the date,
manner, time or order of attachment, perfection or recording of the
Encumbrances granted to any Secured Party, any provision of law or judicial
decision, any term or condition contained in any Secured Party's Documents, or
whether any Secured Party holds possession of all or any part of the Second
Heller Collateral:
(a) Heller shall have a first priority Encumbrance in the
Second Heller Collateral (including the Overlap Heller Collateral) to
secure the Second Heller Loan;
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<PAGE> 12
(b) To the extent the following assets constitute a
portion of the Second Heller Collateral, Portfield shall have a second
priority Encumbrance in Moffitt's present and future equipment,
fixtures, the cash proceeds thereof and the other proceeds thereof
that do not constitute a portion of the NCFC Collateral to secure the
Second Portfield Loan (and Portfield shall assign such Encumbrance to
WLD subject to the terms of the WLD Documents and this Agreement);
(c) To the extent the following assets constitute a
portion of the Second Heller Collateral, WLD shall have a second
priority Encumbrance against Borrower's (other than SMCS' and
Moffitt's) present and future equipment, fixtures, the cash proceeds
thereof and the other proceeds thereof that do not constitute a
portion of the NCFC Collateral and shall have the assigned rights
described in the preceding subsection to secure the WLD Debt; and
(d) Except as specifically described in this Agreement,
no other Party shall have an Encumbrance in the Second Heller
Collateral and Borrowers shall not grant an Encumbrance in the Second
Heller Collateral to any other person or entity that violates any of
the Documents.
6. Priority and Absence of Encumbrances Against WLD Collateral.
The following shall be the relative priority of the Encumbrances and the
absence of Encumbrances of each Secured Party in the WLD Collateral (other than
the Heller Collateral and Second Heller Collateral), regardless of the date,
manner, time or order of attachment, perfection or recording of the
Encumbrances granted to any Secured Party, any provision of law or judicial
decision, any term or condition contained in any Secured Party's Documents, or
whether any Secured Party holds possession of all or any part of the WLD
Collateral (other than the Heller Collateral and the Second Heller Collateral):
(a) WLD shall have a first priority Encumbrance in the
WLD Collateral (other than the Heller Collateral and Second Heller
Collateral); and
(b) Except as specifically described in this Agreement,
no other Party shall have an Encumbrance in the WLD Collateral (other
than the Heller Collateral and Second Heller Collateral) and Borrowers
shall not grant an Encumbrance in the WLD Collateral (other than the
Heller Collateral and Second Heller Collateral) to any other person or
entity that violates any of the Documents.
7. Absence of Encumbrances Against Petro-Mark Montrose and Westec
Fruita Notes. No Party shall have an Encumbrance in the Petro-Mark Montrose
and Westec Fruita Notes and Borrowers shall not
12
<PAGE> 13
grant an Encumbrance in the Petro-Mark Montrose and Westec Fruita Notes to any
other person or entity.
8. Acceleration of Debt and Enforcement of Post-Default Rights
Against Collateral.
(a) NCFC Collateral. Subject to the specific terms and
conditions set forth in this Agreement and following an event of
default described in NCFC's Loan Documents that is not cured in a
timely manner, NCFC may, at its option, take any action to accelerate
the payment of the NCFC Debt, collect the NCFC Debt, and enforce any
of its post-default rights with respect to the NCFC Collateral without
the consent of any other Party; provided, however, that NCFC shall
provide Heller with simultaneous written notice of any election to
exercise such post-default actions.
(b) The Heller Collateral and Second Heller Collateral.
Subject to the specific terms and conditions set forth in this
Agreement and following an event of default described in Heller's Loan
Documents or the Second Heller Loan Documents that is not cured in a
timely manner, Heller may, at its option, take any action to
accelerate the payment of the Heller Debt or the Second Heller Debt,
collect the Heller Debt or the Second Heller Debt, and enforce any of
its post-default rights with respect to the Heller Collateral or the
Second Heller Collateral without the consent of any other Party;
provided, however, that Heller shall provide NCFC with simultaneous
written notice of any election to exercise such post-default actions.
9. Acknowledgment, No Contest and Cooperation. Each Secured
Party hereby acknowledges and consents to the Encumbrances granted to any other
Secured Party that are described in this Agreement. None of the Secured
Parties shall contest the validity, perfection, priority or enforceability of
any Encumbrance granted to any other Secured Party as set forth herein nor
interfere with the exercise of another Secured Party's rights and remedies
against such other Secured Party's senior Collateral. Each Secured Party
hereby agrees to cooperate in the defense of any action contesting the
validity, perfection, priority or enforceability of such Encumbrances
consistent with the other provisions of this Agreement.
No Secured Party shall take any action to foreclose, realize upon or
to enforce any of its rights with respect to any Collateral that is subject to
a senior Encumbrance belonging to another Secured Party; provided, however,
that nothing contained herein shall prevent any junior Secured Party from
accelerating its Debt and receiving and applying any proceeds from the
liquidation of such Collateral upon the complete and irrevocable satisfaction
of the senior Encumbrances upon such Collateral. To the extent that
13
<PAGE> 14
any Secured Party obtains possession of any Collateral that is subject to a
senior Encumbrance belonging to another Secured Party, the Secured Party having
possession shall notify the other Secured Party of such fact and, at the
expense and upon the request of the Secured Party that has the senior
Encumbrance in such Collateral, shall deliver such Collateral to such senior
Secured Party. In addition, following the occurrence of any event of default
under the NCFC Loan Documents that is not cured in a timely manner, NCFC shall
be entitled to enter upon any Borrowers' premises and repossess, remove and/or
dispose of such Collateral so long as NCFC provides the person or entity in
possession of such premises with at least five (5) days prior written notice
thereof.
10. No Amendments or Modifications of the Portfield Loan
Documents, Second Portfield Loan Documents, WLD Documents, or Morgan Documents.
Without limiting any of the terms and conditions set forth in the NCFC Loan
Documents, Heller Loan Documents, or Second Heller Loan Documents, Borrowers
and WLD shall not take any of the following actions without obtaining the prior
written consent of NCFC and Heller which may be withheld by NCFC's and Heller
in their sole discretion: (a) any Borrower obtaining any additional loans or
other financial accommodations from WLD or Morgan; (b) any Borrower providing
any additional guaranties or collateral to WLD or Morgan or for the benefit of
WLD or Morgan (except as specifically described in this Agreement); (c) any
Borrower prepaying the Portfield Debt, Second Portfield Debt, WLD Debt or
Morgan Debt (except as specifically described in this Agreement); or (d) any
Borrower or WLD amending, modifying, replacing, substituting or supplementing
the Portfield Loan Documents, Second Portfield Loan Documents, WLD Documents or
Morgan Documents in any way which (i) increases the amount of any loans or
other obligations described therein, (ii) accelerates or increases any payments
due thereunder, (iii) increases any interest rate described therein, (iv)
shortens the maturity date thereof, or (v) increases, replaces or substitutes
any guaranties or collateral therefor except as specifically described in this
Agreement.
11. Proceedings. In the event of any Proceeding involving any
Borrower: (a) all NCFC Debt, Heller Debt and Second Heller Debt first shall be
paid in full in cash before any payment of or with respect to the WLD Debt
shall be made; (b) any payment or distribution, whether in cash, property or
securities which, but for the terms hereof, otherwise would be payable or
deliverable in respect of the WLD Debt, shall be paid or delivered directly to
NCFC and Heller on a pari passu basis until all NCFC Debt, Heller Debt and
Second Heller Debt is paid in full in cash, and WLD irrevocably authorizes,
empowers and directs all receivers, trustees, liquidators, custodians,
conservators and others having authority in the premises to effect all such
payments and distributions, and WLD also irrevocably authorizes, empowers and
directs the holders of the NCFC Debt, Heller Debt and Second Heller Debt to
demand, sue for, collect and receive every such payment or
14
<PAGE> 15
distribution; (c) WLD agrees to execute and deliver to the holders of the NCFC
Debt, Heller Debt and Second Heller Debt or their representatives all such
further instruments confirming the authorization referred to in the foregoing
clause (b), (d) WLD agrees not to initiate or prosecute or encourage any other
person to initiate or prosecute any claim, action or other proceeding
challenging the enforceability of the NCFC Debt, Heller Debt or Second Heller
Debt or any Encumbrance securing the NCFC Debt, Heller Debt or Second Heller
Debt, and (e) WLD agrees to execute, verify, deliver and file any proofs of
claim in respect of the WLD Debt requested by Heller and NCFC in connection
with any such Proceeding and hereby irrevocably authorizes, empowers and
appoints Heller, NCFC and their agents and attorneys-in-fact to (i) execute,
verify, deliver and file such proofs of claim upon the failure of WLD promptly
to do so (and, in any event, prior to thirty (30) days before the expiration of
the time to file any such proof), and (ii) vote or refrain from voting such
claim in any such Proceeding; provided Heller and NCFC shall have no obligation
to execute, verify, deliver, file and/or vote any such proof of claim and, if
Heller and NCFC cannot agree on the vote to be cast based upon such claim, no
vote shall be cast thereon. In the event that Heller or NCFC votes or refrains
from voting any claim in accordance with the authority granted hereby, WLD
shall not be entitled to vote, change or withdraw such vote. The NCFC Debt,
Heller Debt and Second Heller Debt shall continue to be treated pari passu as
set forth in this section and the provisions of this section shall continue to
govern the relative rights and priorities of the NCFC Debt, Heller Debt, Second
Heller Debt and WLD Debt even if all or part of the NCFC Debt, Heller Debt or
Second Heller Debt or the Encumbrances securing the NCFC Debt, Heller Debt or
Second Heller Debt are subordinated, set aside, avoided or disallowed in
connection with any such Proceeding and this section shall be reinstated if at
any time any payment of any of the NCFC Debt, Heller Debt or Second Heller Debt
is rescinded or must otherwise be returned by any holders of NCFC Debt, Heller
Debt or Second Heller Debt or any representative of such holder.
12. Continued Effectiveness of this Agreement. The terms of this
Agreement, the subordination effected hereby, and the rights and the
obligations of the Secured Parties arising hereunder, shall not be affected,
modified or impaired in any manner or to any extent by: (a) any amendment or
modification of or supplement to any of the Documents; (b) the validity or
enforceability of any of the Documents; or (c) any exercise or non-exercise of
any right, power or remedy under or in respect of any Debt or any of the
Documents. The Secured Parties hereby acknowledge that the provisions of this
Agreement are intended to be enforceable at all times, whether before the
commencement of, after the commencement of, in connection with or premised on
the occurrence of a Proceeding.
15
<PAGE> 16
13. Representations and Warranties. Each Secured Party hereby
represents and warrants to the other Secured Parties as follows:
(a Authority. Each Secured Party has all requisite
power and authority to enter into this Agreement.
(b Binding Agreements. This Agreement, when executed
and delivered, will constitute the valid and legally binding
obligation of each Secured Party enforceable in accordance with its
terms.
14. Cumulative; No Waivers. Subject to the express terms and
conditions set forth herein, each and every right, remedy and power granted to
any Secured Party hereunder shall be cumulative and in addition to any other
right, remedy or power specifically granted or existing herein, in the other
Documents, in equity, at law, by virtue of statute or otherwise, and may be
exercised by such Secured Party, from time to time, concurrently or
independently and as often and in such order as such Secured Party may deem
expedient in accordance with this Agreement. Any failure or delay on the part
of any Secured Party thereafter to exercise any right, remedy or power
specifically granted herein and any single or partial exercise of any such
right, remedy or power shall not preclude any other or further exercise thereof
or the exercise of any other right, remedy or power, and no such failure,
delay, abandonment or single or partial exercise of the rights of any Secured
Party hereunder shall be deemed to establish a custom or course of dealing or
performance among the parties hereto.
15. Modification. Any modification or waiver of any provision of
this Agreement, or any consent to any departure therefrom, shall not be
effective in any event unless the same is in writing and signed by each party
hereto that is affected by such modification or waiver and then such
modification, waiver or consent shall be effective only in the specific
instance and for the specific purpose given. Any notice to or demand on any
party in any event not specifically required of a party hereunder shall not
entitle any party to any other or further notice or demand in the same, similar
or other circumstances unless specifically required hereunder.
16. Notices. Unless otherwise specifically provided herein, any
notice or other communication required or permitted to be given shall be in
writing addressed to the respective party as set forth below and may be
personally served, telecopied or sent by overnight courier service or United
States mail, certified or registered, and shall be deemed to have been given
(a) if delivered in person, when delivered; (b) if delivered by telecopy, on
the date of transmission if transmitted on a business day before 4:00 p.m.
(Chicago time) or, if not, on the next succeeding business day; (c) if
delivered by overnight courier, two (2) business days after
16
<PAGE> 17
delivery to such courier properly addressed; or (d) if by United States mail,
four (4) business days after deposit in the United States mail, postage prepaid
and properly addressed. Notices shall be addressed as follows:
If to NCFC:
National Bank of Canada
1200 17th Street
One Tabor Center, Suite 2760
Denver, Colorado 80202
Attention: William N. Tsiouvaras, Vice President
Telecopy: (303) 446-8787
With a copy to:
Block Markus Williams, L.L.C.
1700 Lincoln, Suite 3550
Denver, Colorado 80203
Attention: Keith Block, Esq.
Telecopy: (303) 866-0101
If to Heller:
Heller Financial, Inc.
500 West Monroe Street
Chicago, Illinois 60661
Attention: Portfolio Manager
Commercial Equipment Finance Division
Telecopy: (312) 441-7367
With a copy to:
Heller Financial, Inc.
500 West Monroe Street
Chicago, Illinois 60661
Attention: Legal Department
Commercial Equipment Finance Division
Telecopy: (312) 441-7208
If to WLD:
WLD Trust
c/o WLD Enterprises, Inc.
Suite 900, Las Olas Centre
450 East Las Olas Boulevard
Fort Lauderdale, Florida 33301
Attention: Douglas Luke and Ronald Adelhelm
Telecopy: (954) 760-9845
17
<PAGE> 18
If to any Borrower:
c/o Portfield Investments, Inc.
1493 Highways 6 and 50
Fruita, Colorado 81521
Attention: Chief Financial Officer
Telecopy: (970) 858-9626
or in any case, to such other address as the party addressed shall have
previously designated by written notice to the serving party, given in
accordance with this Section. A notice not given as provided above shall, if
it is in writing, be deemed given if and when actually received by the party to
whom given.
17. Severability. In the event that any provision of this
Agreement is deemed to be invalid, illegal or unenforceable by reason of the
operation of any law or by reason of the interpretation placed thereon by any
court or governmental authority, the validity, legality and enforceability of
the remaining provisions of this Agreement shall not in any way be affected or
impaired thereby, and the affected provision shall be modified to the minimum
extent permitted by law so as most fully to achieve the intention of this
Agreement.
18. Successors and Assigns. This Agreement shall inure to the
benefit of the successors and assigns of each party hereto and shall be binding
upon the successors and assigns of any Secured Party.
19. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall be one and the same instrument.
20. Defined Rights of the Parties. The provisions of this
Agreement are solely for the purpose of defining the relative rights of the
Parties and shall not be deemed to create any rights or priorities in favor of
any other person or entity. This Agreement shall govern any conflicts that may
arise between any Documents and this Agreement.
21. Headings. The paragraph headings used in this Agreement are
for convenience only and shall not affect the interpretation of any of the
provisions hereof.
22. Applicable Law. This Agreement shall be governed by, and be
construed and interpreted in accordance with, the internal laws (as opposed to
conflict of laws provisions) of the State of Colorado.
23. Termination. This Agreement shall terminate with respect to a
Secured Party when such Secured Party's Debt has been
18
<PAGE> 19
completely and irrevocably satisfied and such Secured Party has been released
from any obligation to provide any Borrower with any additional loans, advances
or financial accommodations of any kind and such party has terminated its
Documents. Such termination shall not relieve a Secured Party from any
violation of its obligations to another Secured Party under this Agreement.
24. Jurisdiction and Venue. The Parties consent to the
jurisdiction and venue of any federal or state court located in the City and
County of Denver, State of Colorado, with respect to any litigation pertaining
to the negotiation, execution, interpretation, or enforcement of any right or
obligation under this Agreement.
25. Integration. This Agreement constitutes the complete and
integrated understanding between the Parties with respect to the subject matter
hereof. All prior or contemporaneous understandings and agreements, written or
oral, express or implied, are of no further force and effect to the extent
inconsistent herewith.
26. Waiver of Marshalling. Subject to the specific terms and
conditions set forth in this Agreement, each Secured Party hereby waives any
and all rights to have the other Secured Parties' collateral in which such
other Secured Parties have a prior lien and security interest, or any part
thereof, marshalled upon the foreclosure of any of such Secured Party's
collateral.
27. Amendment and Restatement. This Agreement amends and
restates, but does not constitute a novation or extinguishment of, that certain
Intercreditor and Subordination Agreement by and among the Borrowers (besides
Moffitt), Heller, WLD and NCFC dated March 12, 1997 in its entirety.
28. Future Grant of Security Interest to Heller and WLD. Upon the
complete and irrevocable payment of the NCFC Debt, the termination of any
obligations of NCFC to provide any loans or other financial accommodations to
any Borrower, and the termination of NCFC's Documents, Borrowers shall: (a)
grant Heller a first priority Encumbrance against all proceeds of the Second
Heller Collateral (instead of only the cash proceeds thereof and the other
proceeds thereof that do not constitute a portion of the NCFC Collateral) to
secure the Second Heller Loan, (ii) grant WLD a second priority Encumbrance
against all proceeds of the Second Heller Collateral (instead of only the cash
proceeds thereof and the other proceeds thereof that do not constitute a
portion of the NCFC Collateral) to secure the WLD Debt.
19
<PAGE> 20
[THIS PAGE INTENTIONALLY LEFT BLANK]
20
<PAGE> 21
28. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES ITS
RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS AGREEMENT OR ANY DEALINGS AMONG THEM RELATING TO THE SUBJECT MATTER OF
THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. THE SCOPE OF THIS WAIVER IS
INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN
ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING
WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND
ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THIS WAIVER IS IRREVOCABLE, MEANING
THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (UNLESS SUCH WRITING
MAKES SPECIFIC REFERENCE TO THIS SECTION).
PORTFIELD INVESTMENTS, INC.
By: /s/ KEITH R. HOLDER
---------------------------------
Name: Keith R. Holder
Title: President
WESCOURT GROUP, INC.
By: /s/ KEITH R. HOLDER
---------------------------------
Name: Keith R. Holder
Title: President
WESCOURT DISTRIBUTING, INC.
By: /s/ KEITH R. HOLDER
---------------------------------
Name: Keith R. Holder
Title: President
WESFRAC, INC.
By: /s/ PAUL J. RATH
---------------------------------
Name: Paul J. Rath
Title: Chief Financial Officer and Secretary
21
<PAGE> 22
WESTEC DENVER, INC.
By: /s/ PAUL J. RATH
-----------------------------------------
Name: Paul J. Rath
Title: Chief Financial Officer and Secretary
PETRO-MARK CORP. UTAH
By: /s/ KEITH R. HOLDER
-----------------------------------------
Name: Keith R. Holder
Title: President
PETRO-MARK CORP.
By: /s/ PAUL J. RATH
-----------------------------------------
Name: Paul J. Rath
Title: Chief Financial Officer and Secretary
PETRO-MARK CORP., MONTROSE, INC.
By: /s/ PAUL J. RATH
-----------------------------------------
Name: Paul J. Rath
Title: Chief Financial Officer and Secretary
WESTEC FRUITA, INC.
By: /s/ KEITH R. HOLDER
-----------------------------------------
Name: Keith R. Holder
Title: President
MONTROSE PROPANE, INC.
By: /s/ KEITH R. HOLDER
-----------------------------------------
Name: Keith R. Holder
Title: President
22
<PAGE> 23
GRAND MESA TEXACO, INC.
By: /s/ KEITH R. HOLDER
---------------------------
Name: Keith R. Holder
Title: President
FRUITA RP HOLDING, INC.
By: /s/ KEITH R. HOLDER
---------------------------
Name: Keith R. Holder
Title: President
SUPER MART CONVENIENCE STORES, INC.
By: /s/ PAUL J. RATH
---------------------------
Name: Paul J. Rath
Title: Chief Financial Officer and Secretary
MOFFITT OIL COMPANY, INC.
By: /s/ PAUL J. RATH
---------------------------
Name: Paul J. Rath
-------------------------
Title: SEC/CFO
------------------------
WLD TRUST
By: /s/ WILLIAM D. HORVITZ
---------------------------
Name: William D. Horvitz
Title: Trustee
HELLER FINANCIAL, INC.
By: /s/ WALTER R. SCHAEFFER
---------------------------
Name: Walter R. Schaeffer
-------------------------
Title: Vice President
------------------------
23
<PAGE> 24
NATIONAL CANADA FINANCE CORP.
By: /s/ WILLIAM N. TSIOUVARAS
--------------------------------
Name: William N. Tsiouvaras
Title: Vice President
By: /s/ ANDREW M. CONNEEN, JR.
--------------------------------
Name: Andrew M. Conneen, Jr.
Title: Vice President
24
<PAGE> 25
EXHIBIT A
CONVENIENCE STORES
DIAMOND SHAMROCK STORES (identified by location)
3218 F. Road
Clifton, CO 81520
101 North Main @ First Street
Delta, CO 81416
2525 Broadway @ Monument Road
Grand Junction, CO 81501
2948 F Road @ 25 Road
Grand Junction, CO 81505
2903 North Avenue @ 29 Road
Grand Junction, CO 81504
201 North Avenue & Second Street
Grand Junction, CO 81504
938 South Townsend Avenue & Brown
Montrose, CO 81401
2902 Glen Avenue
Glenwood Springs, CO 81601
PETRO-MARK MONTROSE AND WESTEC FRUITA STORES (identified by location)
2526 Broadway
Grand Junction, CO 81501
2494 Highway 6 & 50
Grand Junction, CO 81505
502 Grand Avenue
Grand Junction, CO 81502
1502 Howard Street
Delta, CO 81416
646 E. Main
Montrose, CO 81401
25
<PAGE> 26
EXHIBIT B
FRACTIONATOR
One (1) Deethanizer Tower, Hudson, Mfg., Serial No. 63.9, approx. 30" x
41-1/2', 596 PSI at 300 degrees, Insulated, 11,800 lb.
One (1) Depropanizer Tower, Hudson Mfg., Serial No. 63.10, approx. 30" x 65',
291 PSI at 300 degrees, Insulated, 18,900 lb.
One (1) Debutanizer Tower, Pipeline Services, Serial No. 684, approx. 24" x
60', 330 PSI at 400 degrees, 3-Section Flanged, Estimated 10,000-12,000 lb.
One (1) Debutanizing Tower, Transmix, Mfg. Hudson, Serial No. 63.11 approx. 18"
x 66', 210 PSI at 300 degrees, 11,500 lb.
One (1) Vacuum Tower, BTX, as shown on list, approx. 30" x 45', currently not
in service, estimated weight 10,000
One (1) Deethanizer Heat Exchanger/Reboiler, KEMCO, Mfg. 1963, Serial No.
63-222, 560 PSI at 300 degrees, approx. 175 sq. ft. capacity
One (1) Depropanizer Heat Exchanger/Reboiler, list shows KEMCO, approx. 100 sq.
ft.
One (1) Debutanizer Heat Exchanger/Reboiler, list shows KEMCO, approx. 825 sq.
ft.
One (1) Debutanizer Heat Exchanger/Reboiler, list shows KEMCO, approx. 65 sq.
ft.
Three (3) Absorber Tanks, plate shows SEMCO, Serial Nos. A2638, A2639, A2640,
Vertical Carbon Steel Seam Welded, approx. 72" x 22', 403 PSI at 750 degrees,
Mfg. 1963, storage only
Two (2) Deabsorber Tanks, Regeneration Exchanger, currently not in service,
plate shows SEMCO, approx. 72" x 20', Serial Nos. A2642 and A2641, 430 PSI at
650 degrees
One (1) Cooling Tower, list shows RAINEY, 12,800 sq. ft., 10 H.P., Debutanizer
Condenser
One (1) Cooling Tower, list shows 37,400 sq. ft. capacity, two (2) top mounted
30 H.P. electric motors, high degree difficulty of removal,
Deethanizer/Depropanizer Condenser
One (1) Cooling Tower, list shows 11,800 sq. ft., 20 H.P. motor, Debutanizer
Condenser
26
<PAGE> 27
One (1) Furnace, Struthers Wells Hot Oil Heater, 10M BTU per hour, vertical,
gas fired, 400 PSI at 650 degrees, Serial No. 63-5-7810, with Taylor and Barton
Chart Records, Honeywell Temperature Indicator, related equipment
One (1) Furnace, Struthers Wells Hot Oil Heater, 5M BTU per hour, vertical, gas
fired, 200 PSI at 650 degrees, Serial No. 63-5-7811, currently not in service
[C-]
Lot Transmix System, includes Ingersoll-Rand 2X1X10 Pump, 3 H.P. motor, Hudson
Dust Scrubber with Serial No. 63-22, 495 PSI and 150 degrees, approx. 28.7 5" x
6' Tank, Rainey Cooling Tower with 7-1/2 H.P. motor, 3 H.P. feed pump, etc.
Lot Hot Oil System, includes 25 H.P. Skidded Pump, Young Aftercooler, three (3)
valves, 4' x 8' Expansion Tank, related equipment
One (1) Pre-Heater, five (5) oval tubes, located behind #2 Debutanizer
One (1) Gas Compressor, Worthington, piston type, 130 H.P., list shows 10-1/2"
x 11" - 8 cylinder, located near large cooling tower
Lot Gas Compressor, Sundyne, includes two (2) 125 H.P. vertical turbine pumps,
one (1) currently disassembled, both not in service, [C-]
One (1) Triplex Pump, Wheatley, 30 H.P. motor
One (1) Quintiplex Pump, Wheatley, Model 5P-200A, 20 H.P.
Lot Surge/Scrubber Skid, includes SEMCO approx. 5' x 16' horizontal fuel gas
surge tank, SEMCO approx. 24" x 10' horizontal fuel gas scrubber tank, related
valves, piping, located near Wheatley Triplex and Quintiplex pumps, currently
not in service
Lot Reflux Accumulator Skid, includes Hudson approx. 30" x 4-1/2' Tank, related
valves, piping, two (2) Pacific pumps with 10 H.P. motors, 5 H.P. pump, etc.
One (1) Air Compressor, Curtis, 2-Stage, 20 H.P. motor, horizontal tank
27
<PAGE> 28
EXHIBIT C
DESCRIPTION OF HELLER COLLATERAL
Real Property: The real estate pertaining to the convenience stores
described in Exhibit "A"
Personal Property and Fixtures:
1) That certain Asset Purchase and Branding Agreement dated
October 29, 1996 between Diamond Shamrock and Wescourt, as amended from time to
time in accordance with the terms thereof, which agreement has been assigned to
SMCS, subject to the terms of that certain Assignment of Representations,
Warranties, Covenants, Indemnities and Rights (the "Acquisition Assignment
Agreement") between SMCS and Heller; provided, that notwithstanding anything
herein to the contrary, the foregoing shall not include the terms and
conditions of such agreement which pertain to SMCS' accounts or inventory or
the proceeds from such inventory, accounts or cash;
2) All equipment, machinery, furniture, furnishings and fixtures
owned or leased by SMCS located on or used in the operation of a convenience
store business at the addresses on Exhibit "A", including, without limitation,
the convenience store, together with all furniture, fixtures, equipment in the
convenience store, any and all lighting (including without limitation any and
all lighting fixtures, lighting pedestals, and flood lights), removable signage
of all varieties (to the extent owned and not leased, except as provided in the
Acquisition Assignment Agreement), sprinkler controls, sprinkler solenoids,
sprinkler heads, exterior menu boards and exterior intercom ordering systems,
exterior music speakers and pedestals, and any and all personal property of any
kind or nature contained in, on, or around and/or associated, in any manner,
with the operation of the convenience store, and all building and construction
materials, supplies and equipment incorporated in the convenience store and all
machinery, appliances, pipes, conduits, generators, engines, pumps, motors,
compressors, boilers, condensing units, disposals, sprinklers, wiring and
furnishings of every kind and description which may be used in connection with
the operation of and located inside the convenience store; and any and all
gasoline or petroleum equipment for use with gasoline or petroleum products,
utensils, parts and spare parts therefor; all outside removable items and any
and all ice machines, ice cream machines, warmers, refrigerators, freezers,
ovens, and toasters; all security, fire, smoke and other alarm systems; all
cash registers and point-of-sale terminals; all computers (hardware and
software); all in-store communication devices; together with any and all
extensions, additions, improvements, betterments, after-acquired property that
constitutes equipment, machinery, furnishings, and fixtures of the nature
28
<PAGE> 29
described herein, renewals, replacements and substitutions or proceeds from a
voluntary or involuntary sale, liquidation or conversion of any of the
foregoing; and all attachments, additions and accessions thereto, all whether
nor or hereafter existing or acquired;
3) All of SMCS' existing and after-acquired liquor licenses and
lottery licenses used by SMCS in connection with a convenience store business
at the addresses on Exhibit "A";
4) All agreements affecting the use, enjoyment or occupancy of a
convenience store business at the addresses on Exhibit "A", now or hereafter
entered into (the "LEASES") and the immediate and continuing right to collect
all rents, income, receipts, royalties, profits, issues, service
reimbursements, fees, revenues and prepayments of any of the same from or
related to the convenience store from time to time accruing under the Leases
(the "RENTS");
5) All claims, demands, rights of action, judgments, insurance
proceeds, compensation, awards of damages and settlements due SMCS hereafter
made resulting from the taking of a convenience store business at the addresses
on Exhibit "A", or any part thereof, by any lawful power or authority by
exercise of the rights of condemnation or under the power of eminent domain, or
for any damage (whether caused by such taking, by casualty or otherwise) to the
convenience store or any part thereof;
6) To the extent assignable, all now or hereafter existing
management contracts and all permits, certificates, licenses, approvals,
entitlements and authorizations, however characterized, issued or in any way
furnished for the acquisition, construction, operation and use of a convenience
store business at the addresses on Exhibit "A" and/or leases, including
building permits, environmental certificates, licenses, certificates of
operation, warranties and guaranties;
7) All of SMCS' rights in and to all trademarks, tradenames,
assumed names, and other rights and interests in and to the names and marks
used by SMCS in connection with a convenience store business at the addresses
on Exhibit "A"; and
8) Any monies on deposit with or for the benefit of Heller
including deposits for the payment of real estate taxes.
Notwithstanding anything to the contrary herein, the foregoing collateral shall
not include (i) any of SMCS' accounts, inventory, cash (except (A) all
insurance proceeds, condemnation and other proceeds related to (1) through (7)
above and (B) monies referenced in (8) above to the extent related to real
estate owned or leased by SMCS), or the proceeds from such accounts, inventory
or cash, or (ii) any assets transferred by Portfield or any of its directly or
indirectly owned subsidiaries to SMCS after March 12, 1997.
29
<PAGE> 30
EXHIBIT D
DESCRIPTION OF SECOND HELLER COLLATERAL
1. All of the following pertaining to Borrowers' equipment:
(a) All Equipment, whether now owned or existing or
hereafter created, acquired or arising, or in which such Borrower now
has or hereafter acquires any rights (the term "Equipment" means and
includes all equipment and any other machinery, tools, fixtures, trade
fixtures, furniture, furnishings, office equipment and vehicles
(including vehicles subject to a certificate of title law), now or
hereafter used or usable in connection with such Borrower's business,
together with all parts, accessories and attachments relating to any
of the foregoing), including, without limitation, the Fractionator (as
defined in the Fourth Amendment);
(b) All supporting evidence and documents relating to any
of the above-described property, whether now owned or existing or
hereafter created, acquired or arising, including, without limitation,
delivery and installation certificates, invoice copies, delivery
receipts, insurance certificates and the like, together with all books
of account, ledgers and cabinets in which the same are reflected or
maintained;
(c) All accessions and additions to, and substitutions
and replacements of, any and all of the foregoing, whether now owned
or hereafter existing or hereafter created, acquired or arising; and
(d) All cash proceeds of the foregoing and any other
proceeds of the foregoing not constituting NCFC Collateral and all
insurance of the foregoing and cash proceeds thereof, whether now
owned or existing or hereafter created, acquired or arising.
2. All of the following pertaining to the shares of Wesfrac,
Westec Denver, and Moffitt:
Any and all right, title and interest of Wescourt Group, Inc.
and Wesfrac, Inc., whether now owned or existing or hereafter created,
acquired or arising, in and to the following:
(i) all shares of the capital stock of Wesfrac,
Inc., Westec Denver, Inc. and Moffitt Oil Company, Inc. owned
or held by Wescourt Group, Inc. and Wesfrac, Inc., whether now
existing or hereafter formed or acquired (those shares
delivered to and deposited with Heller
30
<PAGE> 31
Financial, Inc., and all substitutions and additions to such
shares (herein, the "Pledged Securities");
(ii) all dividends, distributions and sums
distributable or payable from, upon or in respect of the
Pledged Securities;
(iii. all other rights and privileges incident to the Pledged Securities; and
(iv) all cash proceeds of the foregoing and any
other proceeds of the foregoing not constituting NCFC
Collateral.
3. The collateral described in the Assignment of Stock Purchase
Agreement between JoAnn Moffitt, Roy Moffitt, Don Moffitt and Wesfrac dated on
or about April 11, 1997.
REAL PROPERTY
The following described property of Fruita RP Holding and all cash
proceeds and other proceeds thereof not constituting NCFC Collateral (which
property is hereinafter sometimes collectively referred to as the "Property"):
(a) The real estate located at 1493 Highway 6 & 50,
Fruita, Colorado 81521 (the "Land");
(b) All improvements of every nature whatsoever now or
hereafter situated on the Land and owned by Fruita RP Holding (the
"Improvements"), and all machinery, equipment and mechanical systems
and other equipment now or hereafter owned by Fruita RP Holding and
used in connection with the operation of the Improvements;
(c) All easements and appurtenances now or hereafter in
any way relating to the Land or Improvements or any part thereof;
(d) All agreements affecting the use, enjoyment or
occupancy of the Land and/or Improvements now or hereafter entered
into (the "Leases") and the immediate and continuing right to collect
all rents, income, receipts, royalties, profits, issues, service
reimbursements, fees, revenues and prepayments of any of the same from
or related to the Land and/or Improvements from time to time accruing
under the Leases and/or the operation of the Land and/or Improvements
(the "Rents"), reserving to Fruita RP Holding, however, so long as no
"Event of Default" has occurred under the Deed of Trust from Fruita RP
Holding to Heller, a revocable license to
31
<PAGE> 32
receive and apply the Rents in accordance with the terms and
conditions of Paragraph 9 of such Deed of Trust;
(e) All claims, demands, judgments, insurance proceeds,
awards of damages and settlements hereafter made resulting from the
taking of the Land and/or the Improvements or any part thereof under
the power of eminent domain, or for any damage (whether caused by such
taking, by casualty or otherwise) to the Land or the Improvements or
any part thereof;
(f) To the extent assignable, all now or hereafter
existing management contracts and all permits, certificates, licenses,
approvals, entitlements and authorizations, however characterized,
issued or in any way furnished for the acquisition, construction,
operation and use of the Land, Improvements and/or Leases, including
building permits, environmental certificates, licenses, certificates
of operation, warranties and guaranties;
(g) Any monies on deposit with or for the benefit of
Heller for the payment of real estate taxes, insurance and other
matters pertaining to the Property.
32
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY STATE OF OTHER NAMES UNDER WHICH
------------------ -------- -----------------------
INCORPORATION SUBSIDIARY DOES BUSINESS
------------- ------------------------
- --------------------------------------------------------------------------------
<S> <C> <C>
Wescourt Group, Inc. Delaware None
- --------------------------------------------------------------------------------
Wescourt Distributing, Inc. Delaware None
- --------------------------------------------------------------------------------
Wesfrac, Inc. Colorado None
- --------------------------------------------------------------------------------
Westec Denver, Inc. Colorado None
- --------------------------------------------------------------------------------
Petro-Mark Corp. Colorado None
- --------------------------------------------------------------------------------
Petro-Mark Corp. Utah Colorado None
- --------------------------------------------------------------------------------
Petro-Mark Corp., Montrose, Inc. Colorado None
- --------------------------------------------------------------------------------
Super Mart Convenience Stores, Inc. Colorado None
- --------------------------------------------------------------------------------
Moffitt Oil Company, Inc. Texas None
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our firm included in or made a part of this
Registration Statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
San Antonio, Texas
October 30, 1997
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on
Form S-1 of the following:
o Our report dated May 11, 1997, except for Note 14, as to which the
date is November 3, 1997, on our audits of the consolidated
financial statements of Triumph Fuels Corporation (formerly Portfield
Investments, Inc.).
o Our report dated October 16, 1997 on our audits of the financial
statements of Moffitt Oil Company, Inc.
o Our report dated October 1, 1997 on our audits of the combined
financial statements of Winnco, Inc. and W.W. Transports, Inc.
We also consent to the reference to our firm under the caption "Experts."
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Denver, Colorado
November 3, 1997
<PAGE> 1
Exhibit 23.4
CONSENT OF PATRICK B. COLLINS
I hereby consent to the use of my name under the heading "MANAGEMENT" in
the Prospectus which is a part of this Registration Statement on Form S-1, and
to the use of my name wherever appearing in this Registration Statement on Form
S-1 and related Prospectus, and any amendments thereto.
Dated: October 30, 1997
/s/ PATRICK B. COLLINS
-------------------------------
Patrick B. Collins
<PAGE> 1
Exhibit 23.5
CONSENT OF MARVIN L. DIMOND
I hereby consent to the use of my name under the heading "MANAGEMENT" in
the Prospectus which is a part of this Registration Statement on Form S-1, and
to the use of my name wherever appearing in this Registration Statement on Form
S-1 and related Prospectus, and any amendments thereto.
Dated: October 30, 1997
/s/ MARVIN L. DIMOND
-------------------------------
Marvin L. Dimond
<PAGE> 1
Exhibit 23.6
CONSENT OF S. LEE CRAWLEY
I hereby consent to the use of my name under the heading "MANAGEMENT" in
the Prospectus which is a part of this Registration Statement on Form S-1, and
to the use of my name wherever appearing in this Registration Statement on Form
S-1 and related Prospectus, and any amendments thereto.
Dated: October 30, 1997
/s/ S. LEE CRAWLEY
-------------------------------
S. Lee Crawley
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> FEB-28-1997 FEB-28-1998
<PERIOD-START> MAR-01-1996 MAR-01-1997
<PERIOD-END> FEB-28-1997 AUG-31-1997
<CASH> 207,376 2,590
<SECURITIES> 0 0
<RECEIVABLES> 7,192,319 17,678,759
<ALLOWANCES> 0 441,436
<INVENTORY> 3,260,969 4,058,516
<CURRENT-ASSETS> 12,595,275 24,822,985
<PP&E> 10,193,855 19,344,751
<DEPRECIATION> 2,319,284 3,061,803
<TOTAL-ASSETS> 21,982,554 62,754,642
<CURRENT-LIABILITIES> 10,234,257 26,692,507
<BONDS> 0 0
0 0
2,000,000 2,000,000
<COMMON> 50,000 272,940
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 21,982,554 62,754,642
<SALES> 135,464,474 103,707,838
<TOTAL-REVENUES> 135,464,474 103,707,838
<CGS> 123,821,211 93,442,036
<TOTAL-COSTS> 123,821,211 93,442,036
<OTHER-EXPENSES> 10,230,719 9,002,436
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 817,509 1,267,948
<INCOME-PRETAX> 674,708 (417,325)
<INCOME-TAX> 256,626 (154,410)
<INCOME-CONTINUING> 418,082 (262,915)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 418,082 (262,915)
<EPS-PRIMARY> .22 (.14)
<EPS-DILUTED> .22 (.14)
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