SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-SB
General Form For Registration of Securities
of Small Business Issuers Under Section 12(b)
or 12(g) of the Securities Act of 1934
AMERICAN ENERGY SERVICES, INC.
(Name of small business issuer in its charter)
TEXAS 76-0279288
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7224 Lawndale 77012
Houston, Texas (Zip Code)
(Address of principal executive offices)
Issuer's telephone number: (713) 928-5311
-------------------------------
Securities to be registered under Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
------------------- ------------------------------------
- NONE -
Securities to be registered under Section 12(g) of the Act:
COMMON STOCK $.001 PAR VALUE
(Title of Class)
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TABLE OF CONTENTS
PART I
Item 1 Description of Business..........................................
Item 2. Management's Discussion and Analysis or Plan of Operation........
Item 3. Description of Property..........................................
Item 4. Security Ownership of Certain Beneficial Owners and Management...
Item 5. Directors, Executive Officers, Promoters and Control Persons.....
Item 6. Executive Compensation...........................................
Item 7 Certain Relationships and Related Transactions...................
Item 8. Description of Securities........................................
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity
and other Shareholder Matters....................................
Item 2. Legal Proceedings.................................................
Item 3. Changes and Disagreements with Accountants........................
Item 4. Recent Sales of Unregistered Securities...........................
Item 5. Indemnification of Officers and Directors.........................
PART F/S
Financial Statements..............................................
PART III
Item 1. Index to Exhibits.................................................
Item 2. Description of Exhibits...........................................
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SPECIAL NOTE REGARDING FORWARD - LOOKING STATEMENTS
Certain statements in this Registration Statement constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). Words such as "expects,"
"anticipates," "intends," "plans," "believes," "seeks," "estimates," and
variations of which words and similar expressions are intended to identify such
forward looking statements. These statements are based on current expectations
and projections about the Company's business and industry and assumptions made
by management and are not guarantees of future performance. Therefore, actual
events and results may differ materially from those expressed or forecasted in
the forward looking statements due to factors such as the economic conditions of
the industries served by the Company (including the energy, chemical and
petrochemical industries), the availability to the Company of sufficient working
capital to bid for and perform contracts, the ability of the subvendors used by
the Company to meet many of its manufacturing requirements, demand for
custom-engineered flow control valves in general and specifically for the
Company's services, and other factors identified in this Registration Statement.
Given these uncertainties, prospective investors are cautioned not to place
undue reliance on such forward-looking statements. The Company undertakes no
obligation to update any forward looking statements in this Registration
Statement.
EXPLANATORY NOTE:
All share and per share information contained herein has been adjusted to
reflect a ten-for-one reverse split of the common stock of the Company, as
hereinafter defined, effected on August 28, 1997.
ITEM 1. DESCRIPTION OF BUSINESS
THE COMPANY
American Energy Services, Inc., a Texas corporation ("Old AES"), was
founded and incorporated in 1987. AES specialized in designing, manufacturing,
marketing and servicing high quality, custom-engineered flow control valves,
including gate, globe, check and ball valves for use by a broad range of
industrial, commercial and utility entities. Old AES began operations in 1989
after acquiring certain operating assets previously owned by two other valve
manufacturing and remanufacturing businesses, CGM Valve, Inc. ("CGM") and
American Energy Valves, Inc. ("AEV"). The Company's current directors, Larry
Elliott, Patrick Elliott, Sidney McCarra, Mark Elliott, and Cary McCarra, were
previously associated with CGM and AEV.
In January 1996, Old AES was merged with and into Seahawk Overseas
Exploration Company, a California corporation ("Seahawk"), pursuant to that
certain Agreement and Plan of Merger by and between AES and Seahawk (the
"Merger"). At the time of the Merger, Seahawk was a "shell" corporation with
substantially no assets, business or operations. Old AES's previous stockholders
received approximately 95% of the issued and outstanding stock of Seahawk in
connection with the Merger. As a result of the Merger, Seahawk became the
surviving entity but its name was changed to American Energy Services, Inc., a
California corporation. In February 1996, the directors and officers of Seahawk
formed a new corporation under the name American Energy Services, Inc., a Texas
corporation ("New AES"). Subsequent to the formation of New AES, Seahawk was
merged with and into the New AES in order to maintain the historic domicile of
Old AES in Texas and to retain the historic business name. As used herein,
references to the "Company" or to "AES" refer to New AES, and its predecessors.
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The Company's products include both standard and specialty valves of
varying sizes and pressures used to regulate the movement of liquids, gases and
solid materials. The Company markets and sells its products worldwide to
processing manufacturers, energy companies and engineering/construction
contractors. Principal end-user markets served by the Company include domestic
and international oil and gas production, transmission and refining segments of
the energy industry, and the petrochemical, processing and power generation
industries.
The Company utilizes both Company owned and operated manufacturing
facilities and AES quality audited, contractually licensed manufacturing
subcontractors to produce the full line of AES standard and engineered valves.
For much of its standard product manufacturing requirements, AES relies on
a network of AES selected subcontractors, all of which are audited and licensed
under internationally recognized quality programs, including ISO 9000 and API
Q1. This arrangement has allowed the Company to reduce fixed costs by minimizing
its investments in plant and equipment. Moreover, by maintaining manufacturing
relations all over the world, the Company has been able to attract additional
customers worldwide.
The Company does, however, design, engineer, and manufacture certain
products at one of its Houston facilities. It has full scale manufacturing
capabilities, including large turning and machine centers, heavy duty cranes,
and full welding facilities in its manufacturing facility located in Houston,
Texas. The Company also houses a fully equipped engineering department with a
computer aided design (CAD) system and metallurgical equipment to determine ASTM
specified requirements.
VALVE DESIGN AND MANUFACTURE
The Company manufactures valves to the following qualifications: API 6D,
API 6A, API 600, API 599, and API 602. The Company is a licensed API monogram
holder under specifications 6D and Q1 and its Quality Assurance Manual is ISO
9000 approved. Steps involved with the design and manufacture of the Company's
valves include (i) consultation with the customer's project coordinators, (ii)
general design work and detailed engineering, (iii) fabrication and assembly and
(iv) final installation.
The Company's sales personnel and independent marketing representatives,
or agents, initiate sales calls and coordinate bid proposals with the Company's
quotation specialists. The quotation specialists produce proposals that identify
preliminary design and cost estimators for a type of valve to be utilized for a
specific application. AES marketing management must also determine whether there
is a sufficient amount of working capital available to generate revenue. Under
normal operating conditions, forty percent (40%) to sixty-five percent (65%) of
a contract amount must be available to fund the Company's working capital
requirements. As a result of limited working capital, of more than $700,000,000
contract quotations given by the Company during the fiscal year ending February
28, 1998, the Company was only able to accept contract amounts totaling
approximately $13,000,000, a 2% success ratio.
The initial design efforts involve significant communication and
coordination with the customer so that valve specifications are identified and
agreed upon. For custom-engineered valve projects, design concepts are tested
against established empirical data and previously manufactured valve designs.
The Company maintains a
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source library of designs from which to choose and the Company's computer aided
design capabilities provide readily available and accessible valve design
parameters. When orders require standard valve designs, the Company's engineers
and quality assurance personnel verify that the Company's "off the shelf"
designs comply with required specifications. Once the valve application has been
clearly defined, the Company's engineers formulate a design for the manufactured
valve. Project engineers perform complete engineering services, including
mechanical schematics, layouts and drawings. Process and electrical control
systems can also be integrated into the design.
The manufacturing step of the process involves fabrication and assembly of
component parts to meet specific valve designs and specifications. The Company
produces machined assemblies from raw castings and forgings or sourced machined
assemblies, which are fully inspected for material and tolerance compliance,
from subcontractors. The assembly groups are then put together as a complete
valve, and function and operation tests are performed. Testing involves
configuring testing procedures and changing the equipment before each test in
order to ensure that the valves meet the particular project's needs and
requirements. The Company believes that its testing of valve integrity is the
basis for the Company's ability to provide performance and quality guarantees
and total concept capability. After testing is completed, the valves are
prepared for shipment.
Because the manufacturing phase can last several weeks to several months,
customers frequently request partial shipment of finished products and
components. The Company generally invoices the customer as deliveries are made.
However, on certain highly specialized products or large projects, the Company
invoices under a milestone payment basis. Receivables represent billings for
delivered products or milestone achievements. Revenue is recognized using the
percentage-of-completion method.
NEW PRODUCTS AND SERVICES
Starting in 1993, the Company has developed (i) a full line of refinery
and process gate, globe, swing check, and ball valves of varying sizes, (ii) a
line of specialty valve products, designed and manufactured to meet a client's
particular valve application requirements, and (iii) other products, including
lubricated plug valves, rotary control valves, linear control valves, geothermal
through conduit gate valves and pressure seal valves. The Company offers
trunnion mounted ball valves, floating ball valves, reduced and full bore type,
in virtually any metallurgy required.
SPECIAL PRODUCTS. The Company designs and manufactures high pressure
three-way ball valves for high temperature switching service, metal seated ball
valves for various services including abrasives, three-way piggable "Y" pattern
ball valves for dock loading applications, rapid shutoff high pressure flood
valves for NASA launch pad facilities, rotary control valves for quiet
operations for the US Navy Submarine Division, and cryogenic valves (gate, globe
and ball valves) for service to - 150 degrees Celsius.
QUALITY COMMITMENT AND CONTROL
The Company's comprehensive quality control program is designed to ensure
that valves manufactured by the Company, as well as components purchased from
outside manufacturers, meet the Company's quality standards. The Company's
quality control program includes inspections at all stages of the design and
manufacturing process at the Company's manufacturing facility. All purchased
components and products
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assembled by subcontractors are also inspected to ensure that they perform
properly. Thus far, the Company management has been satisfied with the quality
and reliability of products assembled by subcontractors. However, there can be
no assurance that such products will always perform properly. The failure of a
product to perform properly could have a material adverse effect upon the
Company's business, operating results, and financial condition.
Since 1989, the Company has manufactured over 60,000 valve units. Due to
the Company's strict adherence to quality standards, less than one-fifth of one
percent of these 60,000 valve units produced have required any type of field
service or plant refitting. The Company is licensed under internationally
recognized quality programs, including API Specifications 6D, Q1 and its Quality
Assurance Manual is IS09000 approved. In addition, the Company has been a member
of several standardization societies including the American Petroleum Institute
and the American Society for Testing Materials (ASTM), among others.
SUPPLIERS AND SUBCONTRACTORS
The Company purchases nearly all castings, forgings, and certain finished
or semi-finished components used in its products from domestic and international
suppliers including foundries and forging companies, bolt distributors and soft
goods distributors. The Company performs most of the finished machining for the
Company's engineered products. The Company also assembles valve components, and
performs pressure testing and final preparation of the finished product. During
the fiscal year ended February 28, 1998, the Company purchased from its leading
sub-vendors, CMEC and DHV, 18% and 11%, respectively, of all components
purchased by the Company for its fiscal 1998 sales.
CUSTOMERS
The Company's customers include manufacturers, energy companies, domestic
and international oil and gas producers, transmission and refining segments of
the energy industry, and the petrochemical processing and power generation
industries. End-users of the Company's products consist of a broad range of
industrial, commercial and utility companies. The Company's customer base is
comprised of 300 accounts with over 125 considered active. The Company markets
and sells a vast majority of its products internationally while marketing
domestically through distribution. Over the last nine years, the Company has
placed in service approximately $64 million dollars worth of valve products.
The Company seeks to serve a sufficiently large number of customers to
avoid dependence on any one customer or industry. Some of the Company's
principal customers include Kuwait Oil Corporation, Petroleos Mexicanos, Bechtel
Corporation, EcoPetrol, British Petroleum, and Parsons Engineering. During the
Company's fiscal year ended February 28, 1997, sales to the Company's four
largest customers, Parsons Engineering, EPX Trading Co., Inc., Lancaster Steel
and Eastern Bechtel Ltd. accounted for 17%, 15%, 15% and 12%, respectively, of
the Company's net sales. For year ended February 28, 1998, sales to the
Company's largest customer, Techint Cotecol S.A., accounted for 31% of the
Company's net sales. Due to the nature of the Company's operations, it is
anticipated that significant portions of future revenues may continue to be
attributable to a few customers, although it is likely that the identity of such
customers will change from period to period. Because of the Company's range of
gate, globe, check and ball valves and the variety of applications available to
the valves sold by the Company, the Company maintains a broad customer base
within the various industries it serves.
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The Company's products are used by a variety of segments of the general
industries indicated below:
ENERGY INDUSTRY POWER GENERATION
Refiners and Processors Cogenerators
Oil and Gas Producers Utility
Transmission Companies
PLASTIC AND PETROCHEMICAL MINING AND MINERAL PROCESSING
Petrochemical Complexes Water and Waste Treatment
Base Resin Manufacturers Catalysts
Base Chemicals Steel Mills
Pulp and Paper
MARKETING AND DISTRIBUTION
DOMESTIC. The Company's domestic (United States and Canada) marketing
network consists of a primary distribution relationship with multifaceted
production, general supply companies and specialty valve distributors.
Presently, the Company's distribution activities are in the initial stages of
growth. Since January 1995, the Company has established distribution agreements
with four (4) separate supply companies in North America. Distributed product
provided by AES from January 1995 through January 31, 1998 exceeds $4,000,000
with a distribution backlog as of July 1, 1998 in excess of approximately
$1,500,000.
INTERNATIONAL. The Company markets its valve products internationally
through a network of independent manufacturer's representative firms or agents
located in every major oil and gas producing and/or consuming country in the
world. The Company maintains relationships with international customers by
regularly sending the Company's international marketing personnel to foreign
countries to discuss local market conditions, to conduct technical presentations
to potential buyers and to participate in point of sale commercial negotiations
during major bid activities. Both domestic and international engineered product
sales involve the Company's technical sales personnel and valve engineering
consultants. The Company's quotation specialists act as liaisons between
customers and the Company's design and engineering group by responding to
customer requests for proposals regarding the cost of a certain quantity of
valves that meet specific design and capability criteria.
The Company's international markets are divided among the following areas:
1. Western Hemisphere: Mexico, Venezuela, Argentina, Colombia, Peru,
Ecuador, Brazil
2. Europe: North Sea, Continental Europe, United Kingdom,
Russia
3. Africa: Nigeria, Algeria, Offshore West Africa, South
Africa
4. Middle East: Turkey, Syria, Saudi Arabia, Kuwait, U.A.E., Egypt
5. Sub-Continent: India, Pakistan, Bangladesh
6. Pacific Rim: Singapore, Malaysia, Indonesia, Japan, Korea,
Thailand
7. China: Mainland China, Hong Kong, Taiwan
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The market and demand for the Company's valves have grown rapidly
recently, primarily as a result of the resurgence of the industries to which the
Company markets. The international energy, chemical, and petrochemical
industries, as well as domestic refining and pipeline markets have experienced
rapid growth. In response to such growth, the Company has opened regional or
country offices staffed by marketing personnel indigenous to the local market
and technically well versed in valve product applications. The Company employs
support personnel in Beijing, China, Seoul Korea, and Calgary, Canada.
The prospects for the Company depend to a large extent upon the economic
condition of the industries to which the Company markets. Should these
industries experience an economic downturn, there may be a significant reduction
in the demand for the Company's products. Many of the Company's competitors are
significantly larger than the Company and have substantially greater financial
and other resources at their disposal. No assurance, therefore, can be given as
to the Company's ability to compete effectively in the event the industries it
serves experience an economic downturn.
In addition to direct marketing by independent and Company marketing
representatives, the Company markets its products and services through
catalogues and brochures. The Company also advertises and attends major trade
shows and conventions worldwide.
COMPETITION AND INDUSTRY
The valve manufacturing industry is highly competitive. Although reliable
comparative figures are not available, the Company believes that its principal
competitors have more extensive and diversified operations and also have
financial, operating and other resources substantially in excess of those
available to the Company. However, personal relationships and interaction with
clients worldwide at their places of business has proven to be a very effective
way of combating competition, developing business and cutting costs. Many years
of experience with international manufacturers and suppliers have allowed the
Company to purchase valve castings and semi-finished components used in its
products at cost competitive prices.
The Company has also been able to successfully compete because minimal
overhead and fixed manufacturing costs have allowed it to bid and complete
projects at lower prices than its competitors. Many other large traditionally
structured valve manufacturers have a substantial capital investment in domestic
plant and equipment along with continuing monthly maintenance and production
expenses. In contrast, the Company has structured a flexible custom
manufacturing, assembly, testing, and quality verification plant in Houston,
Texas that is staffed by a core group of experienced, quality-oriented valve
experts. The Company's specialized facility is supported and complemented by
both domestic and international quality conscious valve manufacturing
subcontractors that are selectively utilized on a when needed basis - only as
project quality and budget requirements dictate. By outsourcing its
manufacturing requirements, not only has the Company been able to minimize fixed
costs, but it has also established a large network of subcontractors
strategically located throughout the world that can provide annual valve
manufacturing capacity exceeding $100 million.
The Company competes against numerous valve manufacturers. Several of the
Company's competitors are more established in the industry and have
substantially greater manufacturing, marketing and financial resources than the
Company. However, the Company plans to remain competitive by continuing to
maintain strict quality standards, respond flexibly and responsibly to
customers' needs, and deliver high quality products on a reliable basis and at
competitive prices.
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Some of the Company's competitors include large, well-established US-based
valve manufacturers with revenues in excess of $200 million, including Cooper
Industries, Crane Valve Company and Zidell Corporation, among others. These
large domestic-based producers, which are established domestically and
internationally, are able to protect their market territories by target pricing,
approval protection, and local relations. Further, their large amount of capital
and reserves allow them to survive difficult economic downturns. Another group
of competitors includes divisional or stand-alone US valve manufacturers with
revenues between $20 million and $100 million, including TK Valve and Tom
Wheatley Valve Corporation, both of which are divisions of Dresser Industries,
Inc.
The Company also competes with several international competitors located
in various parts of Europe, North and South America and Asia. One group of
international valve manufacturers with which the Company competes, including
Kitz, Grove-Italia and PBV, are recognized, well established, international
valve manufacturers with revenues between $10 million and $1 billion. The
Company also competes with various low cost producers located in Eastern Europe,
India and China.
BACKLOG
The Company's total backlog of valve manufacturing contracts as of July 1,
1998 was approximately $12,800,000. Approximately 90% of the Company's present
backlog of contracts is at least partially secured for payment by irrevocable
letters of credit, milestones, progress payments, or wire transfer of funds at
time of shipment; however, the majority of the Company's contracts are
terminable by the customer without penalty. As such, there can be no assurance
that the amount of backlog ultimately will be realized.
INDUSTRY OUTLOOK
OIL AND GAS PRODUCTION, TRANSMISSION AND REFINING. Both domestic and
international production, transmission and refining markets demand high quality,
reliable and long-lasting products for their facilities. The domestic valve
market has historically been dominated by brand name products; however, given
the economics of domestic deregulation coupled with international end-user
acceptance of low-bid, technically capable valve products, the international
marketplace is expected to provide quality conscious, low-priced valve
manufacturers like the Company with many opportunities.
PETROCHEMICAL, CHEMICAL AND PROCESSING. Over the last few years, the
Company has experienced an increasing demand from the international
petrochemical and refinery industries for the Company's products. The Company's
current positive outlook is directly impacted by the new construction projects
regularly announced by the worldwide chemical and petrochemical industries.
POWER GENERATION AND OTHER. The power generation, textile, pulp and paper,
food, and mineral processing industries have historically comprised a modest
amount of the Company's revenues and business development efforts. However,
because the future of these industries is believed by management to offer the
Company opportunities for growth, the Company intends to devote a greater amount
of its marketing and business development efforts to these industries.
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TRADEMARKS AND PROPRIETARY RIGHTS
The Company owns 100% of the Full Port Cartridge Loaded Forged Check Valve
design which has been patented with the United States Patent and Trademark
Office (US Patent No. 5,522,423). The Company is also in the process of
developing several other patents, including a Prescription Compact Thru-Conduit
Terminal Gate Valve and a Three-Port Terminal Switch Valve. The Company has also
registered the names AEV, AES, and AES Accuseal 500 with the United States
Patent and Trademark Office.
RESEARCH AND DEVELOPMENT
The Company currently conducts regular research and development activities
involving the engineering and design of valve products. During the fiscal years
ended February 28, 1996, February 28, 1997, and February 28, 1998, approximately
$165,000, $400,500, and $226,000, respectively, was expended in connection with
such activities. Management anticipates that research and development costs as a
percentage of sales will not increase materially from current levels.
ENVIRONMENTAL COMPLIANCE
The Company's operations are subject to a variety of federal, state and
local laws and regulations, including laws and regulations relating to the
protection of the environment. The Company is required to expend financial and
managerial resources to comply with such laws and related permit requirements in
its operations and anticipates that it will continue to do so in the future.
Although such expenditures historically have not been material to the Company,
the fact that such laws or regulations are changed frequently makes it
impossible for the Company to predict the cost or impact of such laws and
regulations on its future operations. Modification of existing laws or
regulations or the adoption of new laws or regulations affecting the Company's
operations could adversely affect the Company. The Company believes that it
currently is in material compliance with all such applicable laws and
regulations.
EMPLOYEES
At July 1, 1998, the Company employed 60 persons. None of the Company's
employees are covered by collective bargaining agreements. The Company considers
its employee relations to be satisfactory.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW
AES was founded and incorporated in 1987. The Company began active
operations in 1989 as a result of its acquisition of certain operating assets
previously owned by two other valve manufacturing & remanufacturing businesses,
CGM Valve and American Energy Valve, Inc.("AEV"). In 1992, AES acquired all
remaining assets of AEV.
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Since 1989 AES has specialized in designing, manufacturing & providing
high quality standard & custom engineered flow control valves including gate,
globe, check, ball & plug valves for use by a broad range of industrial,
commercial and utility clients.
In January, 1996 AES was merged with & into a California shell
corporation, Seahawk. In February, 1996, Seahawk was merged into a new Texas
corporation under the name American Energy Services, Inc. to maintain the
historical domicile business name of AES in Texas.
RESULTS OF OPERATIONS
Fiscal year ending February 28, 1998 compared with Fiscal year ending
February 28, 1997.
Net sales for the Company's fiscal year ended February 28, 1998 ("fiscal
1998") increased $1,271,000, or 12%, over the Company's fiscal year ended
February 28, 1997 ("fiscal 1997"), to $11,989,000 in fiscal 1998 from
$10,718,000 in fiscal 1997. The majority of the increase was the result of
aggressive sales efforts initiated during mid 1996 to regain market presence in
AES project business.
Cost of sales for fiscal 1998 increased $1,262,000, or 15%, over fiscal
1997 from $8,340,000 in fiscal 1997 to $9,601,000 in fiscal 1998.
Gross profit for fiscal 1998 was $2,387,000 and was essentially the same
for fiscal 1997 at $2,378,000.
Operating expenses decreased approximately $1,959,000 or 53%, to
$1,727,000 for fiscal 1998 from $3,686,000 for 1997. This significant decrease
in operating expenses was primarily attributable to the following factors: (i)
fiscal 1997's operating expenses included $900,000 worth of bad debt while
fiscal 1998 had only $20,000 and (ii) AES management engaged in certain cost
control measures which further reduced 1998 operating expenses.
Operating expenses as a percentage of sales decreased from 34% in fiscal
1997 to 14% in fiscal 1998.
Under other expenses, the cost of financing was almost unchanged as AES
continued to utilize its project specific financing and operating credit lines
to support daily operation and organization of AES project business. Interest
charges for 1998 were $500,000 down $5,000 from fiscal 1997 at $505,000. Total
other expenses of $483,000 for fiscal 1998 were lower, than total other expenses
of $512,000 for fiscal 1997.
On August 28, 1997 the Company effected a 1-for-10 reverse stock split and
outstanding shares decreased to 6,199,000.
Net income before taxes improved $1,998,000 from a fiscal 1997 pretax loss
of $1,820,000 to fiscal 1998 pretax profit of $178,000. The Company received a
future income tax benefit of approximately $596,000 as a result of losses from
operations during fiscal 1997.
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Net income after income tax benefits or expense improved from a fiscal
1997 loss of $1,225,000 to fiscal 1998 profit of $109,000. As a result, the
Company showed basic and diluted income per share of $.02 for fiscal 1998.
Three months ended May 31, 1998 compared with the three months ended May
31, 1997.
Net sales for the three months ended May 31, 1998 decreased $632,000, or
21% from the three months ended May 31, 1997 to $2,405,000 in 1998 from
$3,037,000 in 1997. This decrease was primarily due to working capital
constraints.
Cost of sales for the three months ended May 31, 1998 decreased $716,000,
or 29%, from the three months ended May 31, 1997 to $1,760,000 in 1998 from
$2,476,000 in 1997. This decrease was primarily caused by improved manufacturing
efficiency and lower purchase price for raw materials.
Gross profit for the three months ended May 31, 1998 increased $84,000, or
2%, from the three months ended May 31, 1997 to $645,000 in 1998 from $561,000
in 1997. Gross profit as a percent of sales improved from 18% in 1997 to 27% in
1998.
Operating expenses for the three months ended May 31, 1998 decreased
$49,000, or 11%, from the three months ended May 31, 1997 to $407,000 in 1998
from $456,000 in 1997. This decrease was the result of improved operating
efficiency.
Under other expenses, the cost of financing decreased by $36,000 to
$100,000 in 1998 from $136,000 in 1997. This was from reduced debt and
restructuring of loans for lower interest rates.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at February 28, 1998 was a deficit of $1,149,000, compared
to a deficit of $1,898,000 at February 28, 1997. Cash provided by operating
activities was $548,000 for fiscal 1998, compared to $1,541,000 used by
operations for fiscal 1997. The improvement in cash from operations resulted
primarily from the improvement of operating results from a net loss of
$1,225,000 in fiscal 1997 to a net income of $109,000 for fiscal 1998. Working
capital at May 31, 1998 was a deficit of $982,000, as compared to a deficit of
$1,966,000 at May 31, 1997. Cash provided by operating activities was $209,000
for the three months ended May 31, 1998, and $108,000 for the three months ended
May 31, 1997. Capital expenditures totaled $391,000 for fiscal 1998. In the
fiscal 1997, capital expenditures were $460,000.
The Company anticipates that cash flows will not be adequate to overcome
the deficit in working capital and provide for the growth anticipated from the
current economic conditions and the aggressive marketing plan management would
like to pursue. The shortage of working capital over the past year has caused
inefficiencies and lost opportunities. The Company has been successful in
negotiating for advance payments from many customers to satisfy some working
capital needs. Additional working capital has been provided by pledging or
borrowing against letters of credit established by customers. The working
capital deficit will continue to hinder operations and profitability during at
least the next nine to twelve months. The Company currently has orders in
backlog that it anticipates will be shipped during the next six months and the
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Company believes that revenues from these orders will ease working capital
needs. However, there can be no assurance that these orders will ultimately be
completed or that the profit margins earned by the Company with respect to these
orders will be sufficient to adequately address working capital needs. The
Company intends to seek additional capital as necessary for these purposes
through one or more funding sources that may include borrowings guaranteed by
the EXIM Bank for export sales, private trade finance companies, or offerings of
debt and/or securities of the Company. There can be no assurance that such
capital will be available to the Company at the time it is required or on terms
acceptable to the Company.
The Company estimates its capital expenditure needs for the fiscal year
ending February 28, 1999 will be approximately $600,000 for new production
equipment, computers and software. In the three months ended May 31, 1998,
capital expenditures were $12,000.
At February 28, 1998, the Company had two notes from its principal bank
used to finance export sales, which are guaranteed by EXIM Bank: one for
$2,000,000 and one for $644,000. The $2,000,000 loan is a revolving loan, due on
demand, with interest at prime, plus 0.5%. The $644,000 loan has been reduced by
a $252,000 payment made in May 1998. The balance is to be paid out over two
years, in monthly installments of $18,658, with interest at 8.5%; provided
however, the bank can demand payment at any time on this loan. The Company also
has a loan guaranteed by the Small Business Administration for $1,200,000,
payable over ten years of installments of $16,192, including interest at prime
plus 2%. Another loan, collateralized by the Company's main manufacturing
facility, is payable in monthly payments of $3,410, with interest at 10.5%.
Other loans are for short term transactional financing and equipment purchases,
with varying maturities and interest rates. For more information on loans, see
Notes 3 and 4 in the February 28, 1998 financial statements.
ITEM 3. DESCRIPTION OF PROPERTY
PRINCIPAL PLANTS AND OTHER PROPERTY
The Company maintains two operating locations in Houston, Texas. The
Company's main warehouse and Directors Meeting Room are located at 7311 Old
Galveston Road, Suite 130, Houston, Texas 77034. ("Old Galveston Road") is also
the site of certain quality assurance and distribution activities. Old Galveston
Road is leased from an unaffiliated third party and is approximately 25,000
square feet. Monthly rent is $2,500.00. The facility is leased through February
28, 1999. The other operating location ("Lawndale") has approximately 40,000
square feet of space and functions as the Company's main manufacturing plant.
The Company believes that its property and equipment are adequate for its
present activities.
REAL ESTATE AND OPERATING DATA
The book value, of the Lawndale facility, amounts to less than ten percent
(10%) of the total assets of the Company.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
13
<PAGE>
The following table sets forth certain information concerning the number
of shares of Common Stock owned beneficially as of July 1, 1998 by : (i) each
person known to the Company to own more than five percent (5%) of any class of
the Company's voting securities; (ii) each director of the Company; and (iii)
all directors and officers as a group.
TITLE NAME AND ADDRESS AMOUNT AND NATURE PERCENT
OF CLASS OF BENEFICIAL OWNER OF BENEFICIAL OWNER OF CLASS
---------- -------------------- ------------------- -------------
Common Stock Larry S. Elliott 1 1,708,679.2 27.56%
5319 Mandell
Houston, TX 77005
Common Stock Pat S. Elliott 2 1,767,457.8 28.51%
2608 Green Tee
Pearland, TX 77581
Common Stock Mark P. Elliott 883,728.9 14.26%
3504 E. Circle Drive
Pearland, TX 77581
Common Stock Sidney J. McCarra 1,237,425.5 19.96%
1903 Orchard Country
Houston, TX 77062
Common Stock Cary P. McCarra 294,576.3 4.75%
3663 Nasa Road 1, #301
Seabrook, TX 77586
Common Stock All directors and 5,891,867.7 95.05%
officers as a group
- ------------------------------------------------------------------------------
Unless otherwise indicated, all shares of Common Stock are held directly
with sole voting and investment powers.
1. Includes 1,708,679.2 shares owned by the Larry S. Elliott Trust for the
benefit of Ross S. Elliott and Laura Elise Elliott, the children of Larry S.
Elliott. Larry S. Elliott, as trustee of this trust, has sole voting and
dispositive power over the trust assets.
2. Includes 1,767,457.8 shares owned by the Pat S. Elliott Trust for the
benefit of Mark P. Elliott, Shannon Elliott and Michelle Elliott, the children
of Pat S. Elliott. Pat S. Elliott, as trustee of this trust, has sole voting and
dispositive power over the trust assets.
The Company is not aware of any arrangement which might result in a change
of control in the future.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
14
<PAGE>
The following table sets forth certain information about the directors and
executive officers of the Company:
DIRECTORS AND EXECUTIVE OFFICERS
NAME AGE POSITION
--------- ----- ------------
Patrick S. Elliott 54 Director/President
Chairman of the Board /Vice
Larry S. Elliott 51 President
Mark P. Elliott 34 Director/Vice President
Cary P. McCarra 36 Director/Vice President
Sidney J. McCarra 47 Director/Vice President
PATRICK S. ELLIOTT Patrick Elliott has served as Vice President of the
Company since March 1989 and as Chairman of the Board and a director since
October 1992. In October 1997, Mr. Elliott was appointed President of AES. For
the past five years, he has devoted his time to the management and operation of
the Company. He has assisted in manufacturing and design oversight and sales.
Recently, with the addition of new key manufacturing personnel, he moved to the
accounting/purchasing department to oversee financial management as it applies
to budgeting, purchasing, and all aspects of cash management.
LARRY S. ELLIOTT Larry Elliott has served as President of the Company
since March 1989 and as a director since October 1992. In October 1997, Mr.
Elliott was appointed Chairman of the Board of Directors of AES. He is mainly
responsible for directing and managing the growth and profitability of the
Company. He has over 27 years experience in the valve industry, including
extensive business travel and relationships in 45 countries. He is familiar with
every major area of the Company, including sales, engineering, manufacturing,
accounting, and legal.
MARK P. ELLIOTT Mark Elliott has served as a director of the Company since
October 1992 and as Vice President since March 1989. During that time, he has
been responsible for marketing and selling the Company's valves and services to
the oil and petrochemical industry. He is currently Vice President of Sales and
leads the efforts of the Company's Sales Department.
CARY P. MCCARRA Cary McCarra has served as a director of the Company since
October 1992 and as Vice President since March 1989. He has nearly 20 years
experience in the valve industry, including welding, machining, assembly and
testing. He is currently responsible for on-site inspection tours of all current
and potential Company vendors, including auditing Quality Assurance programs and
witnessing procedure implementation.
SIDNEY J. MCCARRA Sidney McCarra has served as a director of the Company
since October 1992 and as Vice President since March 1989. He has been active in
the valve manufacturing and remanufacturing industry since 1974. He has served
as Vice President of Procurement and Vice President of Operations. He has been
15
<PAGE>
responsible for purchasing valve products and equipment, including parts,
machinery and valves, and for managing day to day operations, including
accounting, collections, shipping, receiving, and sales. He is currently
responsible for locating and approving new quality vendors, negotiating vendor
contracts, and performing management duties for all foreign operations as it
relates to product distribution and project business.
FAMILY RELATIONSHIPS. Patrick and Larry Elliott are brothers. Mark P.
Elliott is Patrick Elliott's son and Larry Elliott's nephew. Cary and Sidney
McCarra are brothers.
ITEM 6. EXECUTIVE COMPENSATION
The following summary compensation table sets forth certain information
regarding compensation paid during the fiscal year ending February 28, 1998 to
the executives of the Company.
SUMMARY COMPENSATION TABLE
Name and
Principal Year Salary Bonus
Position ($) ($)
Larry S. Elliott
Vice President 1998 143,000
Patrick S. Elliott
President 1998 107,000
Mark P. Elliott
Vice President 1998 100,500
Cary P. McCarra
Vice President 1998 98,500
Sidney J. McCarra
Vice President 1998 99,800
Presently there are no options, benefit plans nor employment agreements
between the Company and the officers.
COMPENSATION OF DIRECTORS. No director of the Company received any form of
compensation from the Company for any services provided as a director, for
committee participation, or for special assignments.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
16
<PAGE>
The Company intends that any transactions between the Company and its officers,
directors, principal stockholders, affiliates or advisors will be on terms no
less favorable to the Company than those reasonably obtainable from third
parties.
ITEM 8. DESCRIPTION OF SECURITIES
COMMON STOCK
The Company's Articles of Incorporation authorize the Company to issue
100,000,000 shares of Common Stock, par value $.001 per share ("Common Stock").
As of July 1, 1998, there are 6,198,966 issued and outstanding shares of Common
Stock held of record by approximately 1,500 shareholders.
Holders of Common Stock are entitled to one vote per share on each matter
submitted to vote at any meeting of shareholders. Common Stock does not carry
cumulative voting rights and, therefore, holders of a majority of the
outstanding shares of Common Stock will be able to elect the entire Board of
Directors, if they choose to do so, in which event the holders of the remaining
shares will be unable to elect directors. There are currently five (5) members
on the Board of Directors. The By-Laws of the Company provide that the number of
directors shall be five. The Common Stock has no preemptive or other
subscription rights, has no conversion rights and is not subject to redemption.
WARRANTS
In December 1995, the Company granted the William H. Murphy & Co.,
investment bankers for the Company, a five (5) year option to purchase up to
310,098 shares of the Company's Common Stock. The options have an aggregate
exercise price of $51,000.00, or approximately $.17 per share.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
MARKET INFORMATION
There is no established public trading market for shares of the Company's
Common Stock. As of July 1, 1998, there were approximately 1,500 holders of the
Company's Common Stock.
The Company has not distributed any dividends during fiscal years 1997 and
1998.
17
<PAGE>
Under conditions of the Loan Agreements between AES and its Bank, the
Company is prohibited from paying dividends on its common stock, other than
dividends payable in shares of the Company stock.
ITEM 2. LEGAL PROCEEDINGS
The Company is the plaintiff or has been named as a defendant in various
lawsuits arising in the ordinary course of business. Management believes that
the ultimate resolution of such litigation will not have a material adverse
impact on the Company's results of operations or financial position.
In December 1996, the Company filed suit against Union Pacific Resources
Company ("UPRC") and DTI DiversTech, Inc. in the 190th Judicial District Court
of Harris County, Texas. The lawsuit seeks actual damages for injuries to AES
for certain breach of contract claims against UPRC and willful slander claims
against UPRC and its agents arising from events related to a multi-million
dollar valve contract entered into by and between the Company and UPRC. A
dispute arose between the parties regarding certain commercial and quality
issues in connection with valves delivered by the Company to UPRC pursuant to
the valve contract. The parties resolved this dispute pursuant to an agreement
executed in August 1994, pursuant to which UPRC acknowledged the Company's
ability to manufacture valves for sour gas and cryogenic service. The lawsuit
alleges that UPRC and its agents subsequently defamed the Company. In addition
to actual damages, the Company is seeking special damages, exemplary damages and
attorneys fees and other costs of suit. No counterclaims have been filed in this
action.
In January 1998 K&M International Corporation ("K&M") filed suit against
the Company in the 55th Judicial District Court of Harris County, Texas, in
connection with the Company's termination of K&M as the Company's representative
for Kuwait and outstanding orders related thereto. In connection with this
matter, K&M is claiming actual damages totaling $395,000 for reimbursement of
certain payments made to the Company, lost business revenues and other damages,
plus attorney's fees and court costs. In June 1998, the Company initiated a
counterclaim against K&M asserting claims of breach of contract and fraud in
excess of $460,000, plus all costs and court fees.
AES intends to vigorously pursue both of UPRC claims and the counter-claims in
the K&M dispute and defend against the claims in the K & M suit. However, the
ultimate outcome of these lawsuits cannot be predicted with certainty.
ITEM 3. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS
None.
18
<PAGE>
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
The following information sets forth certain information for all
securities the Company has sold during the past 3 years without registration
under the Securities Act of 1933 (the "Securities Act"):
In connection with a migratory merger effective August 22, 1996, pursuant
to which Seahawk was merged with and into the Company, 6,198,966 shares of the
Company's stock were issued to the Seahawk stockholders. Since this merger was
solely for the purpose of changing the domicile of the Company, this transaction
was deemed not to constitute a sale in accordance with Rule 145 promulgated
pursuant to the Securities Act.
There has been no other issuance of stock by AES during the last three
years.
There were no underwriters participating in this transaction.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles of Incorporation of the Company provide that the Company
shall indemnify its directors, officers, employees and agents, to the fullest
extent permitted by law. The laws of the State of Texas permit, and in some
cases require, corporations to indemnify officers, directors, agents and
employees who are or have been a party to or are threatened to be made a party
to litigation against judgments, fines, settlements and reasonable expenses
under certain circumstances.
The Company has also adopted provisions in its Articles of Incorporation
that limit the liability of its directors to the fullest extent permitted by the
laws of the State of Texas. Under the Company's Articles of Incorporation, and
as permitted by the laws of the State of Texas, a director is not liable to the
Company or its shareholders for damages for breach of fiduciary duty. Such
limitation of liability does not affect liability for (i) breach of the
director's duty of loyalty to the corporation or its shareholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of the law, (iii) any transaction from which the director derived an
improper personal benefit, or (iv) the payment of any unlawful dividend.
19
<PAGE>
PART F/S
Please refer to the Consolidated Financial Statements and the index
thereto which appear on pages F-1 to F- 10 hereof.
PART III
ITEM 1. INDEX OF EXHIBITS
See the "Index to Exhibits" which appears after page F-22.
ITEM 2. DESCRIPTION OF EXHIBITS
2.1 Articles of Incorporation of the Company
2.2 Articles of Merger of Seahawk Overseas Exploration Corporation
with and into the Company
2.3 Bylaws of the Company
2.4 Form of Common Stock Certificate
2.5 Common Stock Purchase Warrant of Murphy & Co.
6.1 Promissory Note dated November 17, 1997 executed by the
Company in favor of Metrobank, N.A., in the original principal
amount of $1,200,000.00.
20
<PAGE>
6.2 Promissory Note dated May 2, 1998 executed by the Company in
favor of Metrobank, N.A., in the original principal amount of
$2,000,000.00.
6.3 Security Agreement dated May 2, 1998 executed by the Company
in favor of Metrobank, N.A., in the original principal amount
of $2,000,000.00.
6.4 Promissory Note dated February 2, 1998 executed by the Company
in favor of Metrobank, N. A., in the original principal amount
of $644,465.00.
6.5 Security Agreement dated February 2, 1998 executed by the
Company in favor of Metrobank, N.A., in the original principal
amount of $644,465.00.
10.1 Consent of Simonton, Kutac & Barnidge
27.1 Financial Data Schedule
Pursuant to Section 12 of the Securities Exchange Act of 1934, the
registrant certifies that it meets all of the requirements for filing on
Form 10-SB and has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMERICAN ENERGY SERVICES, INC.,
a Texas corporation
By: /s/ LARRY S. ELLIOTT
Larry S. Elliott
Vice President and Chairman of the Board
21
<PAGE>
AMERICAN ENERGY SERVICES, INC.
INDEX TO FINANCIAL STATEMENTS
Reports of Independent Auditors................................ F-1
Balance Sheets as of February 28, 1997 and February 28, 1998... F-2
Statements of Operations for years ended February 28, 1997
and February 28, 1998.......................................... F-4
Statements of Changes in Stockholder's Equity for years ended
February 28, 1997 and February 28, 1998........................ F-5
Statements of Cash Flows for years ended February 28, 1997 and
February 28, 1998.............................................. F-6
Notes to the Financial Statements.............................. F-8
Balance Sheet as of May 31, 1998 (Unaudited)................... F-18
Statement of Operations for the three-month periods ended
May 31, 1997 and 1998 (Unaudited).............................. F-20
Statements of Cash Flows for the three-month periods ended
May 31, 1997 and 1998 (Unaudited).............................. F-21
Notes to Unaudited Financial Statements........................ F-22
-22-
<PAGE>
[SIMONTON, KUTAC & BARNIDGE, L.L.P. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
May 21, 1998
The Board of Directors
American Energy Services, Inc.
We have audited the accompanying balance sheets of American Energy Services,
Inc. as of February 28, 1998 and 1997, and the related statements of operations,
changes in stockholders' equity (deficit) and cash flows for the years then
ended. 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. These 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 financial position of American Energy Services, Inc.
as of February 28, 1998 and 1997, and the results of its operations and cash
flows for the years then ended in conformity with generally accepted accounting
principles.
SIMONTON, KUTAC & BARNIDGE, L.L.P.
F-1
<PAGE>
AMERICAN ENERGY SERVICES, INC.
BALANCE SHEETS
ASSETS
FEBRUARY 28,
--------------------------
1998 1997
----------- -----------
Current Assets:
Cash and cash equivalents .................. $ 13,786 $ 471,796
Certificates of deposit .................... 17,380 5,216
Accounts receivable - trade net of allowance
for doubtful accounts of $20,000 and $0 . 516,921 1,408,587
Accounts receivable - other ................ 60,686 61,919
Income tax receivable ...................... 147,543 157,543
Prepaids and other ......................... 100,081 31,057
Costs in excess of billings on
uncompleted contracts ................... 1,169,885 64,936
Inventories ................................ 1,495,016 2,419,579
----------- -----------
Total Current Assets ................... 3,521,298 4,620,633
Property, Plant and Equipment:
Machinery and equipment .................. 1,307,682 1,224,948
Furniture and fixtures ................... 219,840 191,085
Vehicles ................................. 81,553 81,553
Building and improvements ................ 219,741 204,511
Land ..................................... 76,894 86,570
----------- -----------
1,905,710 1,788,667
Less accumulated depreciation ............... (614,725) (477,035)
----------- -----------
1,290,985 1,311,632
Trademarks, patents and drawings ............ 877,967 536,184
Less accumulated amortization ............... (163,937) (92,220)
----------- -----------
714,030 443,964
Deferred tax asset ......................... 500,224 568,883
Other Assets ............................... 154,399 60,768
----------- -----------
Total Assets ........................... $ 6,180,936 $ 7,005,880
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
AMERICAN ENERGY SERVICES, INC.
BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
FEBRUARY 28,
--------------------------
1998 1997
----------- -----------
Current Liabilities:
Notes payable ............................. $ 2,668,000 $ 3,922,212
Current portion of long-term obligations .. 144,122 258,900
Accounts payable and accrued expenses ..... 1,658,970 2,078,076
Billings in excess of costs on uncompleted
contracts ............................... 199,029 179,041
Notes payable to shareholders ............. -- 80,645
----------- -----------
Total Current Liabilities ............. 4,670,121 6,518,874
----------- -----------
Long-term obligation, net of current portion 1,341,328 491,115
Commitments and Contingencies
Stockholders' Equity (Deficit):
Capital stock - no par value, 10,000,000
shares authorized; 6,198,966 shares
issued and outstanding ................. 218,583 154,105
Accumulated deficit ....................... (49,096) (158,214)
----------- -----------
Total Stockholders' Equity (Deficit) .. 169,487 (4,109)
----------- -----------
Total Liabilities and Stockholders'
Equity (Deficit) .................... $ 6,180,936 $ 7,005,880
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
AMERICAN ENERGY SERVICES, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
FEBRUARY 28,
-----------------------------
1998 1997
------------ ------------
Net sales ............................... $ 11,988,693 $ 10,717,563
Cost of sales ........................... 9,601,222 8,339,696
------------ ------------
Gross Profit ........................ 2,387,471 2,377,867
Operating expenses ...................... 1,726,878 3,686,306
------------ ------------
Income (loss) from operations .......... 660,593 (1,308,439)
Other expenses (income):
Interest, net .......................... 499,955 504,982
Other, net ............................. (17,139) 6,829
------------ ------------
482,816 511,811
------------ ------------
Net income (loss) before taxes ...... 177,777 (1,820,250)
Income tax (expense) benefit ............ (68,659) 595,625
------------ ------------
Net income (loss) ................... $ 109,118 $ (1,224,625)
============ ============
Basic and diluted income (loss) per share $ 0.02 $ (0.20)
============ ============
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
AMERICAN ENERGY SERVICES, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED FEBRUARY 28, 1998 AND 1997
<TABLE>
<CAPTION>
RETAINED TOTAL
CAPITAL STOCK EARNINGS/ STOCKHOLDERS'
-------------------- (ACCUM. EQUITY/
SHARES AMOUNT DEFICIT) (DEFICIT)
--------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at February 29, 1996 ......... 6,198,966 $154,105 $ 1,066,411 $ 1,220,516
Net loss ............................. -- -- (1,224,625) (1,224,625)
--------- -------- ----------- -----------
Balance at February 28, 1997 ......... 6,198,966 154,105 (158,214) (4,109)
Preferential distribution of
net Seahawk assets ................. -- 64,478 -- 64,478
Net income ........................... -- -- 109,118 109,118
--------- -------- ----------- -----------
Balance at February 28, 1998 ......... 6,198,966 $218,583 $ (49,096) $ 169,487
========= ======== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
AMERICAN ENERGY SERVICES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
FEBRUARY 28,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) ............................... $ 109,118 $(1,224,625)
Adjustments to reconcile net income (loss) to
cash provided (used )by operating activities:
Depreciation and amortization ................ 209,407 145,196
Provision for bad debts ...................... 20,000 --
Loss on disposal of fixed assets ............. -- 3,392
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable .. 872,899 (742,199)
Decrease in income tax receivable ........... 10,000 75,990
(Increase) decrease in costs in excess of
billings on uncompleted contracts .......... (1,104,949) 392,677
Decrease in inventories ..................... 924,563 122,252
(Increase) decrease in prepaids and other ... (69,024) 78,982
Decrease (increase) in deferred tax asset ... 68,659 (568,883)
Increase in other assets .................... (93,631) (37,107)
(Decrease) increase in accounts payable ..... (419,106) 60,649
Increase in billings in excess of costs
on uncompleted contracts ................... 19,988 179,041
Decrease deferred income tax liability ...... -- (26,742)
----------- -----------
Net Cash Provided (Used) by Operating
Activities............................... 547,924 (1,541,377)
Cash Flows from Investing Activities:
Purchase of property, plant and equipment ..... (49,527) (176,014)
Purchase of trademarks, patents and drawings .. (341,783) (284,452)
Purchase of certificates of deposit ........... (12,164) --
----------- -----------
Net Cash Used in Investing Activities ...... (403,474) (460,466)
Cash Flows from Financing Activities:
Proceeds from long-term obligations ........... 1,199,460 13,749
Payments of long-term obligations ............. (541,217) (192,468)
Proceeds from note payable .................... 1,554,589 5,451,094
Payments of note payable ...................... (2,808,801) (2,908,777)
Cash distribution to pre-merger shareholders
of Seahawk .................................. (6,491) --
----------- -----------
Net Cash (Used) Provided by Financing
Activities................................. (602,460) 2,363,598
----------- -----------
Net (decrease) increase in cash and cash
equivalents.................................... (458,010) 361,755
Cash and cash equivalents at beginning of year .. 471,796 110,041
----------- -----------
Cash and cash equivalents at end of year ........ $ 13,786 $ 471,796
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
AMERICAN ENERGY SERVICES. INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED
FEBRUARY 28,
---------------------
1998 1997
-------- --------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the years for
Interest ....................................... $505,929 $536,187
======== ========
Income taxes ................................... $ -- $ --
======== ========
Noncash transactions
Equipment acquired under long-term obligations . $ 77,192 $490,404
======== ========
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
AMERICAN ENERGY SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1998 AND 1997
NOTE I - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
American Energy Services, Inc. ("Company" or "AES") is a manufacturer of
custom-engineered flow control valves. The Company has sales to customers
located throughout the world.
In January 1996, AES completed a merger with Seahawk Overseas Exploration
Company (Seahawk), a California corporation. Seahawk acquired 100% of the
outstanding common shares of AES through the issuance of 58,918,677 shares of
its common stock. The acquisition was accounted for as a purchase with AES as
the acquirer (reverse acquisition). AES's previous shareholders received 95% of
the outstanding stock of the combined enterprise. Under the terms of the merger
agreement, the Company merged with AES in to a newly formed Texas corporation
for the purpose of changing both its domicile from California to Texas and its
name to "American Energy Services, Inc."
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying financial statement follows.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid short-term
investments with a maturity of ninety days or less from the purchase date to be
cash equivalents. At February 28, 1998, all certificates of deposit have a
maturity of greater than ninety days and secure outstanding letters of credit.
INVENTORIES - Inventories consist of valve parts and finished goods. Inventories
are valued at the lower of cost or market using the average cost method, which
approximates First-in and First-out (FIFO).
REVENUE RECOGITION - Revenues from the sale of flow control valves are recorded
when the products are shipped or when title passes.
Revenues on long-term contracts involving a system of control flow valves for a
single installation are recorded using the percentage-of-completion method
commencing when progress reaches a point where experience is sufficient to
estimate final results with reasonable accuracy. The portion of the total
contract price accrued is based on the ratio of costs incurred to date to total
estimated costs on each contract. Losses, if any to be incurred on contracts in
progress, are charged to income in full as soon as they become apparent.
F-8
<PAGE>
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated at
cost. Depreciation is provided in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives on a
straight-line basis. Estimated service lives are as follows:
ESTIMATED
SERVICE
LIVES
------------
Machinery and equipment 15 years
Furniture and fixtures 5 - 10 years
Vehicles 5 years
Building and improvements 5 - 31.5 years
TRADEMARKS, PATENTS AND DRAWINGS - Trademarks, patents and drawings are stated
at cost. Amortization is provided in amounts sufficient to relate the cost of
amortizable assets to operations over their estimated services lives on a
straight-line basis. Estimated service lives are as follows:
ESTIMATED
SERVICE
LIVES
--------
Trademarks 10 years
Patents 17 years
Drawings 10 years
INCOME TAXES - Deferred income taxes are reported for temporary differences
between items of income or expense reported in the financial statements and
those reported for income tax purposes. For income tax purposes, the Company
depreciates property, plant and equipment using accelerated methods.
USE OF ESTIMATES - In preparing the financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
the financial statements and revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECLASSIFICATIONS - Certain reclassifications have been made to the 1997
balances to conform to the 1998 presentation.
F-9
<PAGE>
NEW ACCOUNTING STANDARDS - In June 1997, the Financial Accounting Standards
Board issued SFAS No. 130, "Reporting Comprehensive Income." This statement,
which is effective for fiscal years beginning after December 15, 1997,
establishes standards for reporting and displaying comprehensive income and its
components in the financial statements. Under this statement, the Company is
required to classify items of other comprehensive income by their nature in a
financial statement and display the accumulated balance of other comprehensive
income separately from retained earnings in the stockholder's equity section of
the balance sheet.
EARNINGS (LOSS) PER SHARE - Basic earnings per share has been computed by
dividing net income by the weighted average number of shares outstanding during
the period. Diluted earnings per share has been computed by dividing net income
by the weighted average number of shares plus common stock equivalents
outstanding during the period, computed using the treasury stock method.
NOTE 2 - CONTRACTS IN PROGRESS
Information regarding long-term contracts in progress at February 28, 1998, are
as follows:
1998 1997
----------- -----------
Expenditures on uncompleted contracts .. $ 1,416,787 $ 2,077,228
Estimated earnings thereon ............. 565,943 723,883
----------- -----------
1,982,730 2,801,111
Less billings applicable thereto ....... 1,011,874 2,915,216
----------- -----------
$ 970,856 $ (114,105)
=========== ===========
Included in accompanying balance sheet under following captions:
1998 1997
----------- ------------
Costs in excess of billings on
uncompleted contracts .................. $ 1,169,885 $ 64,936
Billings in excess of costs on
uncompleted contracts .................. (199,029) (179,041)
----------- ------------
$ 970,856 $ (114,105)
=========== ============
F-10
<PAGE>
NOTE 3 - NOTES PAYABLE
Notes payable consists of the following at February 28, 1998:
Note payable to a bank with interest at prime (8.5% at February
28, 1998) due with principal, principal advances are due on
demand, but if no demand is made, then in monthly installments
of $18,658 including interest, secured by substantially all
assets of the Company ....................................... $ 644,465
Line of credit agreement with a bank with interest at prime plus
0.5% (9% at February 28, 1998) due monthly, providing for
maximum borrowings of $2,000,000, secured by substantially all
assets of the Company. Principal advances are due on demand;
line matures on May 2, 1998 and is collateralized by
substantially all assets of the Company ...................... 2,000,000
An unsecured line of credit agreement, with a bank with
interest at prime plus 1.5% (10% at February 28, 1998) due on
demand, providing for maximum borrowings of $24,000 .......... 23,535
----------
$2,668,000
==========
At February 28, 1997, the Company had five line of credit agreements with a bank
with monthly interest varying from prime plus 1% to prime plus 1.5% (9.25% to
9.75% at February 28, 1997), providing for maximum borrowings of $5,000,000 and
collateralized by substantially all assets of the Company. Principal advances
were due 180 days from the date of drawdown, or at maturity.
NOTE 4 - LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
FOR THE YEARS ENDED
FEBRUARY 28,
------------------
1998 1997
----------- ----
Note payable to a bank due in monthly installments of $16,192,
including interest at prime plus 2% (IO. 5% at February 28,
1998); due February 17, 2008, collateralized by machinery
equipment, furniture, fixtures and patents ................ $ 1,200,000 $--
F-11
<PAGE>
NOTE 4 - LONG-TERM OBLIGATIONS (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
FEBRUARY 28,
---------------------
1998 1997
---------- --------
<S> <C> <C>
Note payable to a bank; due in monthly installments of $3,410,
including interest at 10.5%; due October 5, 2002; collateralized
by land, building, equipment and inventory .......................... 156,093 239,513
Four notes payable to a bank; due in monthly installments of
$371, $231, $533, and $479, including interest at 7.5%, 10.5%,
8.5% and 9.75%; due May 1997, February 1998 and August 21, 1999;
collateralized by automobiles ....................................... 33,345 45,161
Obligations under capital leases; due in monthly installments
ranging from $532 to $4,899, including interest at various
rates ranging from 3.0% to 13.4%; collateralized by the related
assets .............................................................. 96,012 465,341
---------- --------
1,485,450 750,015
Less current portion ............................................ 144,122 258,900
---------- --------
$1,341,328 $491,115
========== ========
</TABLE>
Approximate future maturities of long-term obligations as of February 28, 1998
are as follows:
FOR THE YEARS ENDED
-------------------
1999 $144,122
2000 143,119
2001 151,483
2002 149,055
2003 144,334
Thereafter 753,337
----------
$1,485,450
==========
F-12
<PAGE>
NOTE 5 - CAPITAL LEASES
The Company is the lessee of certain equipment under capital leases expiring in
various years through 2001. The assets and liabilities under capital leases are
recorded at the lower of the present value of the minimum lease payments or the
fair value of the asset. The assets are depreciated over the lower of the
related lease terms or their estimated productive lives. Depreciation of assets
under capital leases is included in depreciation expense.
Following is a summary of equipment held under capital leases:
FOR THE YEARS ENDED
FEBRUARY 28,
--------------------------
1998 1997
--------- --------
Machinery and equipment ................ $ 56,782 $ 519,042
Furniture and fixtures ................. 73,976 50,368
--------- --------
130,758 569,410
Less accumulated depreciation ......... (20,324) (37,345)
--------- --------
$ 110,434 $ 532,065
========= ========
Future minimum lease payments under capital leases as of February 28, 1998 are
as follows:
FOR THE YEARS ENDED
-------------------
1999 ....................................... $ 36,520
2000 ....................................... 29,371
2001 ....................................... 27,091
2002 ....................................... 14,247
2003 ....................................... 9,498
---------
Total minimum lease payments .............. 116,727
Less amount representing interest .......... (20,715)
---------
Present value of net minimum lease payments. $ 96,012
=========
Interest rates on capitalized leases vary and are imputed based on the lower of
the Company's incremental borrowing rate at the inception of each lease or the
lessor's implicit rate of return.
F-13
<PAGE>
NOTE 6 - COMMITMENTS AND CONTINGENCIES
The Company leases office space under an operating lease expiring in 1999. For
the years ended February 28, 1998 and 1997, such lease payments amounted to
$49,642 and $61,491.
The minimum rental commitments under operating leases are as follows:
FOR THE YEAR ENDED
------------------
1999................................................... $30,540
-------
Total minimum payments required ....................... $30,540
=======
At February 28, 1998, the Company had $314,249 of outstanding letters of credit.
The Company is engaged in various lawsuits either as plaintiff or defendant. In
the opinion of management, based upon advice of counsel, the ultimate outcome of
these lawsuits will not have a material impact on the Company's financial
statements.
NOTE 7 - INCOME TAXES
Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities as
measured by the enacted tax rates which will be in effect when these differences
reverse. Deferred tax expense is the result of changes in deferred tax assets
and liabilities.
The expense (benefit) for income taxes consists of the following:
FOR THE YEARS ENDED
FEBRUARY 28,
----------------------------
1998 1997
------- ---------
Current ......................... $ -- $ --
Deferred ........................ 68,659 (595,625)
------- ---------
Total ......................... $ 68,659 $ (595,625)
======= =========
F-14
<PAGE>
A reconciliation of income taxes computed at the statutory Federal income tax
rate and income taxes reported in the statements of earnings follows:
FOR THE YEARS ENDED
FEBRUARY 28,
-------------------------
1998 1997
------- ---------
Tax at statutory rate .................. $ 60,444 $ (618,885)
Non-deductible expenses ................ 6,614 20,740
Other .................................. l0,60l 2,520
------- ---------
Total expense (benefit) ............ $68,659 $(595,625)
======= =========
The long-term deferred tax asset at February 28, 1998 and 1997, results from
the following:
FEBRUARY 28,
----------------------
1998 1997
--------- ---------
Bases differences in intangibles and fixed assets $(448,551) $(304,055)
Net operating loss carryforward ................ 938,148 862,311
Miscellaneous costs capitalized for tax purposes 10,627 10,627
--------- ---------
$ 500,224 $ 568,883
========= =========
The Internal Revenue Service is examining the Company's Federal Income Tax
return for the year ended February 28, 1993. Management believes that the
ultimate resolution of the examination will not have a substantial effect upon
the Company's financial condition or results of operation.
NOTE 8 - SIGNIFICANT CUSTOMERS
The Company had sales to one customer that constituted 31% of net sales for the
year ended February 28, 1998. The following are sales constituting more than 10%
of net sales for the year ended February 28, 1997:
Customer A ..................................................... 17%
Customer B ..................................................... 15%
Customer C ..................................................... 15%
Customer D ..................................................... 12%
Foreign sales were 93% and 83% of total sales in 1998 and 1997, respectively.
F-15
<PAGE>
NOTE 9 - WARRANTS
The Company has issued warrants to the lead investment banker to purchase 5% of
the equity of the Company for approximately $51,000 and are exerciseable for a
period of five years after the date of the merger. The number of shares
authorized for grant under this warrant agreement amounted to 309,948 as of
February 28, 1998 and 1997. No warrants have been exercised.
NOTE 10 - REVERSE STOCK SPLIT
On August 28, 1997, the Company effected a one for ten reverse stock split. To
effect the split, the Company's authorized, no par stock decreased to 10,000,000
shares and issued and outstanding shares decreased to 6,198,966 shares.
All references in the accompanying financial statements to the number of common
shares and per share amounts for 1997 have been restated to reflect the stock
split.
NOTE 11 - EARNINGS (LOSS) PER SHARE
The following data shows the amounts used in computing earnings (loss) per share
and the effect on the weighted average number of shares of dilutive potential
common stock.
FEBRUARY 28,
-------------------------
1998 1997
---------- -----------
Income (loss) available to common stockholders
used in basic and diluted earnings per share $ 109,118 $(1,224,625)
---------- -----------
Weighted average number of common shares used
in basic earnings (loss) per share ......... 6,198,966 6,198,966
Effect of stock warrants .................... -- (16,452)
---------- -----------
Weighted number of common shares and diluted
potential common stock used in dilutive
earnings (loss) per share .................. 6,198,966 6,182,514
========== ===========
The effects of stock warrants were not included in computing diluted earnings
(loss) per share in 1998 because their effects were antidilutive.
F-16
<PAGE>
NOTE 12 - PREFERENTIAL DISTRIBUTION
In accordance with the merger agreement, the Company made a preferential
distribution of the net assets of Seahawk to the pre-merger shareholders of
Seahawk. The net assets distributed were as follows:
Cash .............................................. $ 6,491
Land .............................................. 9,676
Note payable to Directors of Seahawk .............. (80,645)
--------
$(64,478)
========
F-17
<PAGE>
AMERICAN ENERGY SERVICES, INC.
BALANCE SHEETS
UNAUDITED
ASSETS
MAY 31
----------------------------
1998 1997
----------- -----------
Current Assets:
Cash and cash equivalents .............. $ 1,916 $ 695,543
Certificates of deposit ................ 32,380 5,216
Accounts receivable - trade net
of allowance for doubtful
accounts of $20,000 and $0
182,069 1,894,310
Accounts receivable - other ............ 63,111 174,953
Income tax receivable .................. 147,543 157,543
Prepaids and other ..................... 109,801 24,077
Costs in excess of billings on
uncompleted contracts ............... 2,135,573 1,200,673
Inventories ............................ 1,610,408 1,987,921
----------- -----------
Total Current Assets ................ 4,282,801 6,140,236
Property, Plant and Equipment:
Machinery and equipment ................ 1,307,682 1,234,647
Furniture and fixtures ................. 225,081 191,085
Vehicles ............................... 81,553 81,553
Building and improvements .............. 219,741 217,184
Land ................................... 76,894 86,570
----------- -----------
1,910,951 1,811,039
Less accumulated depreciation ................ (648,956) (511,452)
----------- -----------
1,261,995 1,299,587
Trademarks, patents and drawings ............. 884,348 542,980
Less accumulated amortization ................ (178,747) (108,534)
----------- -----------
705,601 434,446
Deferred tax asset ........................... 454,474 568,883
Other assets ................................. 154,399 60,968
----------- -----------
Total Assets ........................... $ 6,859,270 $ 8,504,120
=========== ===========
F-18
<PAGE>
AMERICAN ENERGY SERVICES, INC.
BALANCE SHEETS (CONTINUED)
UNAUDITED
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
MAY 31
----------------------------
1998 1997
----------- -----------
Current Liabilities:
Notes payable .......................... $ 2,466,912 $ 4,137,701
Current portion of long-term
obligations ............................ 142,213 257,030
Accounts payable and accrued
expenses ............................... 1,948,694 2,259,048
Billings in excess of costs on
uncompleted contracts .................. 707,037 1,372,107
Notes payable to shareholders .......... -- 80,645
----------- -----------
Total Current Liabilities ........... 5,264,856 8,106,531
Long-term obligation, net of current
portion ...................................... 1,332,088 422,053
Commitments and Contingencies ................ -- --
Stockholders' Equity(Deficit)
Capital stock - .001 par value,
100,000,000 shares authorized;
6,201,966 shares issued and
outstanding ........................... 6,202
Additional paid in capital ............. 212,381 147,903
Accumulated (deficit) earnings -
Begining ............................... (49,096) (158,214)
Current period earnings
(loss) ................................. 92,839 (20,355)
----------- -----------
Total Stockholders'
Equity(Deficit) ..................... 262,326 (24,464)
----------- -----------
Total Liabilities and
Stockholders' Equity(Deficit) ....... $ 6,859,270 $ 8,504,120
=========== ===========
F-19
<PAGE>
AMERICAN ENERGY SERVICES
STATEMENTS OF OPERATIONS
UNAUDITED
QUARTER ENDED MAY 31
----------------------------
1998 1997
----------- -----------
Net sales .................................... $ 2,404,918 $ 3,036,612
Cost of sales ................................ 1,759,825 2,475,693
----------- -----------
Gross Profit ........................... 645,093 560,919
Operating expenses ........................... 407,203 455,725
----------- -----------
Income from operations ................ 237,890 105,194
Other expenses (income)
Interest, net .......................... 100,475 135,755
Other, net ............................. (1,174) (10,206)
----------- -----------
99,301 125,549
----------- -----------
Net income (loss) before taxes ...... 138,589 (20,355)
Income tax expense ........................... 45,750 0
----------- -----------
Net income (loss) ................... $ 92,839 $ (20,355)
=========== ===========
Basic and diluted income
(loss) per share ....................... $ 0.015 $ (0.003)
=========== ===========
F-20
<PAGE>
AMERICAN ENERGY SERVICES, INC.
STATEMENT OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
FOR THE QUARTERS
ENDED MAY 31
------------------------
1998 1997
--------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (loss) ................................. $ 92,839 $ (20,355)
Adjustments to reconcile net income (loss) to
cash provided (used) by operating activities:
Depreciation and amortization ................... 49,041 50,731
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable ... 332,427 (598,757)
(Increase) in costs in excess of billings
on uncompleted contracts ................... (965,688) (1,135,737)
(Increase) Decrease in inventories ........... (115,392) 431,658
(Increase) Decrease in prepaids and other .... (9,720) 6,780
Decrease in deferred tax asset ............... 45,750 --
Increase in accounts payable ................. 271,371 180,972
Increase in billings in excess of cost
on uncompleted contracts ................... 508,008 1,193,066
--------- -----------
Net Cash Provided (used) by Operating Activities . 208,636 108,358
Cash Flows from Investing Activities:
Purchase of property, plant and equipment ......... (5,241) (22,372)
Purchase of trademarks, patterns and drawings ..... (6,381) (6,796)
Purchase of certificates of deposit ............... (15,000) --
--------- -----------
Net Cash Used in Investing Activities .......... (26,622) (29,168)
Cash Flows from Financing Activities:
Payments of long-term obligations ................. (11,150) (70,932)
Proceeds from note payable ........................ 116,340 1,002,408
Payment of note payable ........................... (299,074) (786,919)
--------- -----------
Net cash (Used) provided by Financing Activities (193,884) 144,557
Net (Decrease) increase in cash and cash equivalents .. (11,870) 223,747
Cash and cash equivalents at beginning of period ...... 13,786 471,796
--------- -----------
Cash and cash equivalents at end of period ............ $ 1,916 $ 695,543
========= ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the quarters for Interest ....... $ 109,591 $ 135,755
========= ===========
Taxes ........................................ $ -- $ --
========= ===========
</TABLE>
F-21
<PAGE>
AMERICAN ENERGY SERVICES, INC.
Note 1. General
The unaudited financial statements included herein for the Company for the
quarters ended May 31, 1997 and 1998 have been prepared without audit pursuant
to the rules and regulations of the Securities and Exchange Commission and
include all adjustments which are, in the opinion of management, necessary for a
fair presentation. Certain information and footnote disclosures required by
generally accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations. These financial statements should be read in
conjunction with the audited financial statements and related notes thereto
included with this filing for the annual periods ended February 28, 1997 and
1998.
The results for interim periods are not necessarily indicative of trends or of
results to be expected for the full year.
Note 2. Per share computations
All references in the accompanying financial statements to the number of common
shares and per share amounts for May 31, 1997 have been restated to reflect
reverse split of August 28, 1997.
F-22
<PAGE>
AMERICAN ENERGY SERVICES, INC.
INDEX TO EXHIBITS
2.1 Articles of Incorporation of the Company
2.2 Articles of Merger of Seahawk Overseas Exploration Corporation with
and into the Company
2.3 Bylaws of the Company
2.4 Form of Common Stock Certificate
2.5 Common Stock Purchase Warrant of Murphy & Co
6.1 Promissory Note dated November 17, 1997 executed by the
Company in favor of Metrobank, N.A., in the original principal
amount of $1,200,000.00.
6.2 Promissory Note dated May 2, 1998 executed by the Company in
favor of Metrobank, N.A., in the original principal amount of
$2,000,000.00.
6.3 Security Agreement dated May 2, 1998 executed by the Company
in favor of Metrobank, N.A., in the original principal amount
of $2,000,000.00.
6.4 Promissory Note dated February 2, 1998 executed by the Company
in favor of Metrobank, N. A., in the original principal amount
of $644,465.00.
6.5 Security Agreement dated February 2, 1998 executed by the
Company in favor of Metrobank, N.A., in the original principal
amount of $644,465.00.
10.1 Consent of Simonton, Kutac & Barnidge
27.1 Financial Data Schedule
EXHIBIT 2.1
ARTICLES OF INCORPORATION
OF
AMERICAN-ENERGY SERVICES, INC.
The undersigned natural person of the age of eighteen (18) years or more, a
citizen of the State of Texas, acting as an incorporator of a corporation
(hereinafter referred to as the "Corporation") under the Texas Business
Corporation Act (the "TBCA"), hereby adopts the following Articles of
Incorporation for the Corporation:
ARTICLE I.
NAME
The name of the Corporation is AMERICAN ENERGY SERVICES, INC.
ARTICLE II.
DURATION
The period of the duration of the Corporation is perpetual.
ARTICLE II.
PURPOSE
The purpose for which the Corporation is organized is to transact any and
all lawful business for which corporations may be incorporated under the TBCA.
ARTICLE IV.
CAPITAL STOCK
Section 1. AUTHORIZED SHARES. The aggregate number of shares which the
Corporation shall have authority to issue is 100,000,000 shares of voting Common
Stock of $.001 par value each.
Section 2. PREEMPTIVE RIGHTS DENIED. No shareholder shall have any
preemptive right to acquire any additional unissued or treasury shares of the
Corporation of any class now or hereafter authorized or held.
Section 3. CUMULATIVE VOTING DENIED. Shareholders of the Corporation shall
not have the right to accumulate their votes at any election of directors. At
each such election of directors, each shareholder shall be entitled to vote in
person or by proxy the number of shares
- 1 -
<PAGE>
ARTICLES OF INCORPORATION
OF
AMERICAN ENERGY SERVICES, INC.
The undersigned natural person of the age of eighteen (18) years or more, a
citizen of the State of Texas, acting as an incorporator of a corporation
(hereinafter referred to as the "Corporation") under the Texas Business
Corporation Act (the "TBCA"), hereby adopts the following Articles of
Incorporation for the Corporation:
ARTICLE I.
NAME
The name of the Corporation is AMERICAN ENERGY SERVICES, INC.
ARTICLE II.
DURATION
The period of the duration of the Corporation is perpetual.
ARTICLE II.
PURPOSE
The purpose for which the Corporation is organized is to transact any and
all lawful business for which corporations may be incorporated under the TBCA.
ARTICLE IV.
CAPITAL STOCK
Section 1. AUTHORIZED SHARES. The aggregate number of shares which the
Corporation shall have authority to issue is 100,000,000 shares of voting Common
Stock of $0 par value each.
Section 2. PREEMPTIVE RIGHTS DENIED. No shareholder shall have any
preemptive right to acquire any additional unissued or treasury shares of the
Corporation of any class now or hereafter authorized or held.
Section 3. CUMULATIVE VOTING DENIED. Shareholders of the Corporation shall
not have the right to accumulate their votes at any election of directors. At
each such election of directors, each shareholder shall be entitled to vote in
person or by proxy the number of shares
-1-
<PAGE>
owned by him in the election of each director for whose election he has a right
to vote.
Section 4. IDENTICAL RIGHTS EXCEPT FOR VOTING. All shares of stock of the
Corporation shall be common stock of the Corporation and, shall have identical
rights for all purposes.
ARTICLE V.
INITIAL CONSIDERATION FOR ISSUANCE OF SHARES
The Corporation will not commence business until it has received for the
issuance of its shares consideration of a value of at least One Thousand Dollars
($1,000.00), consisting of money, labor done or property actually received.
ARTICLE VI.
INITIAL REGISTERED OFFICE AND AGENT
The address of the initial registered office of the Corporation is 7311 OLD
GALVESTON ROAD, SUITE 110, HOUSTON, TEXAS 77034. The name of the initial
registered agent of the Corporation at such address is LARRY ELLIOTT.
ARTICLES VII.
INITIAL BOARD OF DIRECTORS
The number of directors shall from time to time be fixed by the Bylaws of
the Corporation. The number of directors constituting the initial Board of
Directors is five (5). Directors need not be residents of the State of Texas or
shareholders of the Corporation. The name and address of the person who is
elected to serve as director until the first annual meeting of the shareholders,
or until his successor shall have been duly elected and qualified, unless they
shall sooner die, resign or be removed, in accordance with the Bylaws of the
Corporation, are as follows:
NAME ADDRESS
Larry Elliott 7311 Old Galveston Road, Suite 110
Houston, Texas 77034
Pat Elliott 7311 Old Galveston Road, Suite 110
Houston, Texas 77034
Mark Elliot 7311 Old Galveston Road, Suite 110
Houston, Texas 77034
Sid McCarra 7311 Old Galveston Road, Suite 110
Houston, Texas 77034
- 2 -
<PAGE>
Cary McCarra 7311 Old Galveston Road, Suite 110
Houston, Texas 77034
ARTICLE VIII.
INDEMNIFICATION
The Corporation shall indemnify its current or former directors, officers,
employees and agents or any person who served or is serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise from and
against any and all expenses, liabilities or other matters to the fullest extent
permitted by the TBCA. Such indemnification shall not be deemed exclusive of any
other rights to which such person may be entitled, under any Bylaws, agreements,
vote of shareholders or disinterested directors, or otherwise, both as to
actions taken in their official capacity and as to actions taken in another
capacity while holding such office, and shall inure to the benefit of the heirs,
executors and administrators of such persons. The Corporation shall have the
power to enter into agreements providing for indemnification by the Corporation
of current or former officers, directors, general partners, employees and agents
or any other person of or who served any predecessor corporation, partnership,
joint venture, trust or other enterprise from and against any and all expenses,
liabilities or other matters.
ARTICLE IX.
LIMITATION OF DIRECTOR LIABILITY
To the greatest extent permitted by applicable law in effect from time to
time, a director of the Corporation shall not be liable to the Corporation or
its shareholders for monetary damages for an act or omission in the director's
capacity as a director except for liability for: (i) a breach of a director's
duty of loyalty to the Corporation or its shareholders; (ii) an act or omission
not in good faith or that involves intentional misconduct or a knowing violation
of the law; (iii) a transaction from which a director received an improper
benefit, whether or not the benefit resulted from an action taken within the
scope of the director's office; (iv) an act or omission for which the liability
of a director is expressly provided for by statute; or (v) an act relating to an
unlawful stock repurchase or payment of a dividend.
ARTICLE X.
CONFLICT OF INTEREST
No contract or other transaction between the Corporation and any other
corporation shall be affected by the fact that one (1) or more of the Directors
or officers of this Corporation is interested in or is a director or officer of
such other corporation, and any Director or officer individually may be a party
to or may be interested in any contract or transaction of this Corporation. No
contract or transaction of this Corporation with any person or persons, firm or
association shall be affected by the fact that any Director or officer of this
Corporation is
- 3 -
<PAGE>
party to or interested in such contract or transaction, or in any way connected
with such person or persons, firm or association, provided that the interest in
any such contract or other transaction shall be authorized or ratified by the
vote of a sufficient number of Directors of the Corporation not so interested.
In the absence of fraud, no Director or officer having such adverse interest
shall be liable to the Corporation or to any Shareholder or creditor thereof, or
to any other person, for any loss incurred by it under or by reason of such
contract or transaction, nor shall any such Director or officer be accountable
for any gains or profits realized thereon. In any case described in this Article
X, any such Director may be counted in determining the existence of a quorum at
any meeting of the Board of Directors which shall authorize or ratify any such
contract or transaction.
ARTICLE XI.
SHAREHOLDER AUTHORIZATION OR APPROVAL
Any action of the Corporation which, under the provisions of the TBCA or
any other applicable law, is required to be authorized or approved by the
holders of any specified fraction which is in excess of one-half or any
specified percentage which is in excess of fifty percent (50%) of the
outstanding shares (or of any class or series thereof) of the Corporation shall,
notwithstanding any law, be deemed effectively and properly authorized or
approved if authorized or approved by the vote of the holders of more than fifty
percent (50%) of the outstanding shares of each such class or series). Without
limiting the generality of the foregoing, the foregoing provisions of this
Article XI shall be applicable to any required shareholder authorization or
approval of: (a) any amendment to these articles of incorporation; (b) any plan
or merger, share exchange, or reorganization involving the Corporation; (c) any
sale, lease exchange, or other disposition of all, or substantially all, of the
property and assets of the Corporation; and (d) any voluntary dissolution of the
Corporation.
ARTICLE XII.
SHAREHOLDER MEETINGS
Any action which may be taken, or which is required by law or the Articles
of Incorporation or Bylaws of the Corporation to be taken, at any annual or
special meeting of shareholders may be taken without a meeting, without prior
notice, and without a vote, if a consent or consents in writing, setting forth
the action so taken. shall have been signed by the holder or holders of shares
having not less than the minimum number of votes that would be necessary to take
such action at a meeting at which the holders of all shares entitled to vote on
the action were present and voted.
ARTICLE XIII.
INCORPORATOR
The name and address of the incorporator of the Corporation is as follows:
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<PAGE>
NAME ADDRESS
David E. Hammer 3040 Post Oak Blvd., Suite 1040
Houston, Texas 77056
IN WITNESS WHEREOF, the undersigned, being the incorporator designated in
Article XIII, executes these Articles of Incorporation and certifies to the
trust of the facts stated therein this 2nd day of February 1996.
INCORPORATOR:
/s/ DAVID E. HAMMER
DAVID E. HAMMER
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EXHIBIT 2.2
ARTICLES OF MERGER
OF
SEAHAWK OVERSEAS EXPLORATION CORPORATION
WITH AND INTO
AMERICAN ENERGY SERVICES, INC.
Pursuant to the provisions of Article 5.04 of the Texas Business
Corporation Act (the "TBCA"), the undersigned domestic corporations adopt the
following Article of Merger for the purpose of effecting a merger in accordance
with the provisions of Article 5.01 of the TBCA.
1. The plan of merger has been adopted in accordance with the provisions of
Article 5.04 of the TBCA providing for the combination of American Energy
Services, Inc. ("AES") and Seahawk Overseas Exploration Corporation ("Seahawk"),
and resulting in AES being the surviving corporation in the merger. Attached
hereto as Annex A is the Agreement and Plan of Merger which is hereby
incorporated by reference ("Plan of Merger").
2. The name of each of the undersigned corporations, the type of such
corporation and the laws under which such corporation was organized are:
NAME OF CORPORATION TYPE OF ENTITY STATE
- ------------------- -------------- -----
American Energy Services, Inc. Corporation Texas
Seahawk Overseas Exploration Corporation Corporation California
3. The laws of California under which Seahawk Overseas Exploration
Corporation is organized permit such merger.
4. The Plan of merger was duly approved by the shareholders of the
undersigned domestic corporation in the manner prescribed by the Texas Business
Corporation Act and was approved by the undersigned foreign corporation in the
manner prescribed by the laws of the State of California.
The Plan of Merger was duly authorized by all action required by the laws
under which it was incorporated or organized and by its constituent documents.
As to each of the undersigned corporations, the approval of whose
shareholders is required, the number of shares outstanding as of the date that
the Plan of merger was approved and the total number of shares voted for and
against such Plan of Merger were as follows:
NUMBER OF NUMBER OF
NAME OF SHARES SHARES VOTED
CORPORATION CLASS OUTSTANDING FOR AGAINST
----------- ----- ----------- --- -------
American Energy Common Stock 1,000 1,000 -0-
Services Inc. par value $0
Seahawk Overseas Common Stock 58,918,677 58,918,677 -0-
Exploration Corporation par value $0
<PAGE>
5. AES, the surviving corporation hereby: (a) agrees that it may be served
with process in the State of California in any proceeding for the enforcement of
any obligations of the undersigned foreign corporation and in any proceeding for
the enforcement of the rights of a dissenting shareholder of such foreign
corporation against the surviving corporation; (b) irrevocably appoints the
secretary of the State of California its agent to accept service of process in
any such proceeding and (c) agrees that it will promptly pay to the dissenting
shareholders of such foreign corporation the amount, if any, to which they shall
be entitled under provisions of the California law with respect to the rights of
dissenting shareholders.
6. The merger shall not be effective until such date and time as an
appropriate Agreement of Merger under the California General Corporate Law shall
have been filed with the Office of the Secretary of State of the State of
California, which date shall not be later than July 24, 1996.
AMERICAN ENERGY SERVICES, INC.
By: /s/ LARRY ELLIOT
Larry Elliot, President
SEAHAWK OVERSEAS EXPLORATION
CORPORATION
By: /s/ LARRY ELLIOT
Larry Elliot
<PAGE>
ANNEX "A"
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER ("Agreement") dated as of April 23, 1996,
is by and between Seahawk Overseas Exploration Corporation, a California
corporation ("Seahawk") and American Energy Services, Inc., a newly formed Texas
corporation, ("AES").
RECITALS
WHEREAS, the parties to this Agreement desire to adopt a plan of
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, a amended.
WHEREAS, the parties to this Agreement deem it advisable that Seahawk be
merged into AES pursuant to this Agreement and in accordance with the applicable
statutes of the States of California and Texas; and
NOW, THEREFORE, in consideration of the premises hereof and the mutual
agreements, representations, warranties, and covenants contained herein, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
THE MERGER
1. Seahawk shall merge with and into AES and as a result thereof, AES shall
be the sole surviving corporation and the separate existence of Seahawk shall
cease. The purpose of this merger is to change the domicile of Seahawk from
California to Texas. Upon the merger, AES shall automatically succeed to,
without other transfer, all properties and assets, shall be subject to all debts
and liabilities of Seahawk.
2. Each share of issued Seahawk common stock, $0 par value, shall be
cancelled and converted by the merger and this Agreement into one (1) share of
AES common stock, $0 par value. Upon the merger, each share of Seahawk stock
Issued and outstanding immediately prior to the merger shall automatically be
cancelled.
3. All provisions of the Agreement and Plan of Merger dated December 22,
1995 by and between AES and Seahawk (attached as Exhibit "A") shall continue to
be in force and effect.
4. AES represents and warrants to Seahawk as follows:
(a) AES is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Texas and has the corporate power
necessary to carry on it business as it is now being conducted.
<PAGE>
(b) As of the date of this Agreement, the authorized capital stock of AES
is 100 million shares of common stock, $0 par value per share, of which 1,000
are currently validly issued and outstanding, fully paid and non-assessable.
There are no existing options, warrants, calls or commitments of any kind
obligating AES to issue any unissued AES common stock nor does AES have any
outstanding commitment or obligation to repurchase, reacquire, or redeem any of
AES's outstanding common stock.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
AMERICAN ENERGY SERVICES, INC.
By: /s/ LARRY ELLIOT
Larry Elliot, President
SEAHAWK OVERSEAS EXPLORATION
CORPORATION
By: /s/ LARRY ELLIOT
Larry Elliot, President
BYLAWS
OF
AMERICAN ENERGY SERVICES, INC.
<PAGE>
TABLE OF CONTENTS
ARTICLE I. Offices ....................................................... 1
ARTICLE II. Shareholders................................................... 1
Section 1. Annual Meeting ....................................... 1
Section 2. Special Meetings...................................... 1
Section 3. Place of Meeting ..................................... 1
Section 4. Notice of Meeting .................................... 2
Section 5. Closing of Transfer Records or Fixing of Record Date . 2
Section 6. Voting Lists ......................................... 3
Section 7. Quorum ............................................... 3
Section 8. Proxies .............................................. 4
Section 9. Voting of Shares ..................................... 4
Section 10. Voting of Shares by Certain Holders .................. 4
Section 11. Order of Business and Rules of Procedure ............. 4
Section 12. Inspectors of Election ............................... 5
Section 13. Transfer of Ownership Stock .......................... 5
ARTICLE III. Board of Directors ........................................... 6
Section 1. General Powers ........................................ 6
Section 2. Number, Tenure and Qualifications ..................... 6
Section 3. Regular Meetings ...................................... 6
Section 4. Special Meetings ...................................... 6
Section 5. Notice ................................................ 6
Section 6. Quorum ................................................ 7
Section 7. Manner of Acting ...................................... 7
Section 8. Vacancies ............................................. 7
Section 9. Compensation .......................................... 7
Section 10. Presumption of Assent.................................. 7
ARTICLE IV. Officers ...................................................... 7
Section 1. Number ................................................ 7
Section 2. Election and Term of Office ........................... 8
Section 3. Removal ............................................... 8
Section 4. Vacancies ............................................. 8
Section 5. Chairman of the Board ................................. 8
Section 6. President ............................................. 8
Section 7. Vice-Presidents ....................................... 8
Section 8. Secretary ............................................. 9
Section 9. Treasurer ............................................. 9
Section 10. Assistant Secretaries and Assistant Treasurers ........ 9
Section 11. Salaries .............................................. 9
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ARTICLE V. Indemnification of Directors, Officers, Employees and Agents..10
ARTICLE VI. Contracts, Loans, Checks and Deposits ...................... 10
Section 1. Contracts ............................................ 10
Section 2. Loans ................................................ 10
Section 3. Checks, Drafts, Etc .................................. 10
Section 4. Deposits ............................................. 10
ARTICLE VII. Certificates for Shares and Their Transfer ................ 10
Section 1. Certificates for Shares .............................. 10
Section 2. Transfer of Shares ................................... 11
ARTICLE VIII. Fiscal Year .............................................. 11
ARTICLE IX. Distributions .............................................. 11
ARTICLE X. Share Dividends ............................................. 11
ARTICLE XI. Seal ....................................................... 11
ARTICLE XII. Amendments ................................................ 12
ARTICLE XIII. Notice and Waiver of Notice .............................. 12
ARTICLE XIV. Action Without a Meeting .................................. 12
Section 1. Written Consent ...................................... 12
Section 2. Conference Telephone ................................. 12
ARTICLE XV. Books and Records .......................................... 13
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<PAGE>
BYLAWS
OF
AMERICAN ENERGY SERVICES, INC.
ARTICLE I.
OFFICES
The principal office of the Corporation in the State of Texas shall be
located in the City of Houston, County of Harris. The Corporation may have such
other offices, either within or without the State of Texas, as the Board of
Directors may designate or as the business of the Corporation may require from
time to time.
The registered office of the Corporation in the State of Texas may be, but
need not be, identical with the principal office in the State of Texas, and the
address of the registered office may be changed from time to time by the Board
of Directors.
ARTICLE II.
SHAREHOLDERS
Section 1. ANNUAL MEETING. The annual meeting of the Shareholders shall be
held on the day and at the time designated by the Board of Directors and shall
be for the purpose of electing Directors and for the transaction of such other
business as may come before the meeting. If the day fixed for the annual meeting
shall be a legal holiday in the State of Texas, such meeting shall be held on
the next succeeding business day. If the election of Directors shall not be held
on the day designated herein for the annual meeting of the Shareholders, or at
any adjournment thereof, the Board of Directors shall cause the election to be
held at a special meeting of the Shareholders as soon thereafter as convenient.
Section 2. SPECIAL MEETINGS. Special meetings of the Shareholders may be
called by the majority of the members of the Board of Directors, the Chairman of
the Board, if any, or the President, and shall be called by the President at the
request of the holders of not less than one-tenth (1/10th) of all the
outstanding shares of the Corporation entitled to vote at the meeting for any
purpose or purposes, unless otherwise prescribed by statute.
Section 3. PLACE OF MEETING. Meetings of Shareholders may be held at any
place designated in the notice or waiver of notice of the meeting, either within
or without the State of Texas. If no designation is so made, meetings of
Shareholders shall be held at the principal office of the Corporation.
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<PAGE>
Section 4. NOTICE OF MEETING. Written or printed notice stating the place,
day and hour of the meeting, and in case of a special meeting the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
(10) nor more than fifty (50) days before the date of the meeting, either
personally or by mail, by or at the direction of the President or the Secretary,
or the officer or persons calling the meeting, to each Shareholder of record
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail, addressed to the Shareholder
at his address as it appears on the stock transfer books of the Corporation,
with postage thereon prepaid and certified with return receipt requested.
Section 5. CLOSING OF TRANSFER RECORDS OR FIXING OF RECORD DATE.
(a) FIXING RECORD DATES FOR MATTERS OTHER THAN CONSENTS TO ACTION.
The Board of Directors of the Corporation may provide that the
stock transfer books be closed for a stated period not to
exceed fifty (50) days for the purpose of determining
Shareholders entitled to notice of or to vote at any meeting of
Shareholders or any adjournment thereof, or Shareholders
entitled to receive payment of any distribution, or in order to
make a determination of Shareholders for any other proper
purpose (other than a distribution involving a purchase or
redemption by the Corporation of any of its own shares). If the
share transfer records are closed as set forth in this Section,
the records shall be closed for at least ten (10) days
immediately preceding the meeting. In lieu of closing the share
transfer records, the Board of Directors may fix in advance a
date as the record date for any such determination of
Shareholders, the date to be not more than fifty (50) days, and
in case of a meeting of Shareholders not less than ten (10)
days, prior to the date on which the particular action
requiring determination of Shareholders is to be taken. If the
share transfer records are not closed and no record date is
fixed for determination of Shareholders entitled to notice of
or to vote at a meeting of Shareholders, or Shareholders
entitled to receive payment of a distribution or share dividend
(other than a distribution involving a purchase or redemption
by the Corporation of any of its own shares), the date on which
notice of the meeting is mailed, or the date on which the
resolution of the Board of Directors declaring such dividend is
adopted, as the case may be, shall be the record date for
determination of Shareholders. When a determination of
Shareholders entitled to vote at any meeting of Shareholders
has been made as provided in this Section, such determination
shall apply to any adjournment thereof except where the
determination has been made by closing the share transfer
records and the stated period of closing has expired.
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<PAGE>
(b) FIXING RECORD DATES FOR CONSENTS TO ACTION. Unless a record
date has previously been determined by the Board of Directors,
whenever action by Shareholders is proposed to be taken by
consent in writing without a meeting of Shareholders, the Board
of Directors may fix a record date for the purpose of
determining Shareholders entitled to consent to that action,
which record date shall not proceed, and shall not be more than
ten (10) days after, the date on 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 and the
prior action of the Board of Directors is not otherwise
required by statute, the record date for determining
Shareholders entitled to consent to action in writing without a
meeting 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, its principal place of business, or an officer or agent
of the Corporation having custody of the books in which
proceedings of meetings of Shareholders are recorded. Delivery
to the Corporation's principal place of business shall be
addressed to the President or the principal executive officer
of the Corporation. If no record date shall have been fixed by
the Board of Directors and prior action of the Board of
Directors is required by statute, the record date for
determining Shareholders entitled to consent to action in
writing without a meeting shall be at the close of business on
the date on which the Board of Directors adopts a resolution
taking such prior action.
Section 6. VOTING LISTS. The officer or agent having charge of the stock
transfer books of the Corporation shall make a complete alphabetical list of
Shareholders entitled to vote at such meeting, or any adjournment thereof, their
addresses and the number of shares held by each, which list shall be kept on
file at the registered office or principal place of business of the Corporation
for a period of ten (10) days prior to such meeting and shall be subject to
inspection by any Shareholder at any time during usual business hours. The
Shareholder list shall also be produced and kept open at the time and place of
the meeting and shall be subject to the inspection of any Shareholder during the
entire meeting. The original stock transfer books shall be prima facie evidence
as to Shareholders entitled to examine such list or transfer books or to vote at
any meeting of Shareholders.
Section 7. QUORUM. The holders of a majority of the outstanding shares of
the Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of Shareholders unless otherwise provided in
the Articles of Corporation. If the holders of less than a majority of the
outstanding shares are represented at a meeting, the holders of a majority of
the shares so represented may adjourn the meeting from time to time without
further notice. At such adjourned meeting at which a quorum shall be present or
represented, any
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<PAGE>
business may be transacted which might have been transacted at the meeting as
originally notified. The Shareholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough Shareholders to leave less than a quorum.
Section 8. PROXIES. At all meetings of Shareholders, a Shareholder may
vote either in person or by proxy executed in writing by the Shareholder. A
telegraph, telex, cablegram, or similar transmission by a Shareholder, or a
photographic, photostatic, facsimile, or similar reproduction of a writing
executed by a Shareholder, shall be treated as an execution in writing for this
purpose. Such proxy shall be filed with the Secretary of the Corporation before
or at the time of the meeting. No proxy will be valid after eleven (11) months
from the date of its execution, unless otherwise provided in the proxy. A proxy
shall be revocable unless the proxy form conspicuously states that the proxy is
irrevocable and the proxy is coupled with an interest.
Section 9. VOTING OF SHARES. Each outstanding share entitled to vote shall
be entitled to one vote on each matter for which it is entitled to vote unless a
contrary number or percentage of votes for such share is specifically set forth
in the Articles of Corporation of the Corporation.
Section 10. VOTING OF SHARES BY CERTAIN HOLDERS. Shares held by an
administrator, executor, guardian, or conservator may be voted by him, either in
person or by proxy, without a transfer of such shares into his name. Shares
standing in the name of a trustee may be voted by him, either in person or by
proxy, but no trustee shall be entitled to vote shares held by him without
transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer into his name if authority to do so be contained
in an appropriate order of the court by which such receiver was appointed.
A Shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Shares standing in the name of the Corporation or held by it in a
fiduciary capacity shall not be voted, directly or indirectly, at any meeting,
and shall not be counted in determining the total number of outstanding shares
at any given time.
Section 11. ORDER OF BUSINESS AND RULES OF PROCEDURE. At all annual and
special meetings of Shareholders the following order of business may be used to
the extent the chairman of the meeting determines the order to be helpful:
(1) Call to order;
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<PAGE>
(2) Election of a Chairman and appointment of a Secretary of the
meeting;
(3) Presentation of proof of due calling and notice of the
meeting;
(4) Presentation and examination of proxies;
(5) Ascertainment and announcement of presence of quorum;
(6) Approval of or waiver of approval of prior minutes;
(7) Reports of officers;
(8) Nomination of Directors;
(9) Receipt of motions and resolutions;
(10) Discussion of election of Directors, motions and resolutions;
(11) Vote on Directors, motions and resolutions;
(12) Any other unfinished business;
(13) Any other new business;
(14) Adjournment.
Section 12. INSPECTORS OF ELECTION. In advance of any meeting of
Shareholders, the Board of Directors may appoint one (1) or more inspectors of
election. If an appointment of election inspectors is made and any appointed
person fails to serve, the Chairman of the meeting may appoint a replacement. If
an inspector of election is appointed, he shall: (a) determine the number of
shares outstanding, the voting power of each share, the number of shares
represented at the meeting, the existence of a quorum, and the authenticity,
validity and effect of proxies; (b) receive votes, assents and consents, and
hear and determine all challenges and questions in any way arising in connection
with a vote; (c) count and tabulate all votes, assents and consents, and
determine and announce results; and (d) do all other acts as may be proper to
conduct elections or votes with fairness to all Shareholders.
Section 13. TRANSFER OF OWNERSHIP STOCK. Shares representing ownership of
the capital stock of this Corporation shall be freely transferable subject,
however, to the content of any buy/sell and/or stock purchase or redemption
agreement and Article VII of the Bylaws and any amendments thereto, between this
Corporation and its Shareholders, and any Shareholder may transfer capital stock
to any other Shareholder, to the Corporation itself, or to a person who is not a
Shareholder and provided further that the terms and conditions of any buy/sell
and/or stock
-5-
<PAGE>
purchase or redemption agreement, and any such amendments thereto, are fully
satisfied. In the event such transfer occurs, then such new Shareholder shall
have all the rights and privileges of any other Shareholder of this Corporation.
ARTICLE III.
BOARD OF DIRECTORS
Section 1. GENERAL POWERS. The powers of the Corporation shall be
exercised by or under the authority of, and the business and affairs of the
Corporation shall be managed under the direction of, the Board of Directors
of the Corporation.
Section 2. NUMBER, TENURE AND OUALIFICATIONS. The number of Directors of
the Corporation shall be the number of the members of the initial Board of
Directors as set forth in the Articles of Corporation or such other number, not
less than one (1), as may be specified in an amendment to this provision of the
Bylaws. Each Director shall hold office until the next annual meeting of
Shareholders or until his successor shall have been duly elected and qualified.
Any Director or the entire Board of Directors may be removed at any time, with
or without cause, by a vote of the holders of a majority of the shares then
entitled to vote at an election of Directors or by the unanimous consent action
of Shareholders as provided in Article XIV of these Bylaws. Directors must be
residents of the State of Texas and Shareholders of the Corporation.
Section 3. REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held without notice other than this Bylaw immediately after, and at the
same place as, the annual meeting of Shareholders. By resolution, the Board of
Directors may provide the time and place, either within or without the State of
Texas, for the holding of additional regular meetings without notice other than
such resolution.
Section 4. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the President or any Director. The person
or persons authorized to call special meetings of the Board of Directors may fix
any place, either within or without the State of Texas, as the place for holding
any special meeting of the Board of Directors called by them.
Section 5. NOTICE. Notice of any special meeting, effective upon delivery
in accordance herewith, shall be given at least one (1) day prior thereto by
oral or written notice delivered personally, or by written notice mailed to each
Director at his business address or by telegram or facsimile transmission. If
mailed, the notice shall be deemed to be delivered three (3) days following its
deposit in the United States mail so addressed, with postage thereon prepaid and
certified with return receipt requested. If notice is given by telegram, it
shall be deemed to be delivered when delivered to the telegraph company. The
attendance of a Director at a meeting shall constitute a waiver of notice of
such meeting, except where a Director attends a meeting for the express purpose
of objecting to the transaction of any business because the
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<PAGE>
meeting is not lawfully called or convened. The business to be transacted at a
special meeting of the Board of Directors shall be specified in the notice of
such meeting.
Section 6. QUORUM. A majority of the number of Directors fixed by Section
2 of this Article III shall constitute a quorum for the transaction of business
at any meeting of the Board of Directors, but if less than such majority is
present at a meeting, a majority of the Directors present may adjourn the
meeting from time to time without further notice.
Section 7. MANNER OF ACTING. The act of the majority of the Directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors.
Section 8. VACANCIES. Any vacancy occurring in the Board of Directors may
be filled by the affirmative vote of a majority of the remaining Directors
though less than a quorum of the Board of Directors. A Director elected to fill
a vacancy shall be elected for the unexpired term of his predecessor in office.
Any directorship to be filled by reason of an increase in the number of
Directors shall be filled by election at an annual meeting or at a special
meeting of Shareholders called for that purpose or by the Board of Directors for
a term of office continuing only until the next election of one or more
Directors by the Shareholders; provided that the Board of Directors may not fill
more than two such directorships during the period between any two successive
annual meetings of Shareholders.
Section 9. COMPENSATION. By resolution of the Board of Directors, the
Directors may be paid a fixed sum and/or their expenses of attendance, if any,
at each meeting of the Board of Directors, or may be paid a stated salary for
acting as a Director. No such payment shall preclude any Director from serving
the Corporation in any other capacity and receiving compensation therefor.
Section 10. PRESUMPTION OF ASSENT. A Director who is present at a meeting
of the Board of Directors shall be presumed to have assented to any action taken
thereat unless his dissent shall be entered in the minutes of the meeting or
unless he shall file his written dissent to such action with the secretary of
the meeting before adjournment thereof or shall forward his dissent by
registered mail to the Secretary of the Corporation immediately after
adjournment of the meeting. Such right to dissent shall not apply to a Director
who voted in favor of such action.
ARTICLE IV.
OFFICERS
Section 1. NUMBER. The officers of the Corporation shall be a President
and a Secretary, each of whom shall be elected by the Board of Directors. Such
other officers, including a Chairman of the Board, one (1) or more
Vice-Presidents (the number thereof to be determined by the Board of Directors),
a Treasurer, and assistant officers as the Board of Directors may deem to be
necessary may be elected or appointed by the Board of Directors.
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<PAGE>
Any two (2) or more offices may be held by the same person. If any two (2) or
more offices are held by the same person, such person shall be entitled to
exercise the rights and duties of each such office as set forth hereinafter. If
the holder of two (2) or more corporate offices is required to sign any
corporate documents, instruments, certificates, agreements, or any other
documents on the Corporation's behalf, then the signature of such person in any
one (1) of his capacities shall be sufficient to bind the Corporation.
Section 2. ELECTION AND TERM OF OFFICE. The officers of the Corporation
shall be elected at the annual meeting of the Board of Directors to be held
immediately after, and at the same place as, the annual meeting of the
Shareholders. If the election of officers shall not be held at the annual
meeting, such election shall be held as soon thereafter as may be convenient.
Each officer shall hold office until his death, resignation or removal, or until
his successor shall have been duly elected and shall have qualified.
Section 3. REMOVAL. Any officer or agent elected or appointed by the Board
of Directors may be removed by the Board of Directors whenever in its judgment
the best interests of the Corporation would be served thereby, but the removal
shall be without prejudice to the contract rights, if any, of the person so
removed.
Section 4. VACANCIES. A vacancy in any office resulting from death,
resignation, removal, disqualification, or otherwise may be filled by the Board
of Directors for the unexpired portion of the term.
Section 5. CHAIRMAN OF THE BOARD. The Chairman of the Board of Directors,
if a Chairman of the Board is elected by the Directors, shall be the chief
executive officer of the Corporation, and subject to the Board of Directors,
shall in general supervise and control all of the affairs of the Corporation. He
shall preside at all meetings of the Shareholders and of the Board of Directors.
Section 6. PRESIDENT. Subject to the Chairman of the Board, if any, and
the Board of Directors itself, the President shall in general supervise and
control all of the business and affairs of the Corporation. He may sign, with
the Secretary or any other proper officer of the Corporation thereunto
authorized by the Board of Directors, certificates for shares of the
Corporation, any deeds, mortgages, bonds, contracts, or other instruments which
the Board of Directors has authorized to be executed, except in cases where the
signing and execution thereof shall be expressly delegated by the Board of
Directors or by these Bylaws to some other officer or agent of the Corporation,
or shall be required by law to be otherwise signed or executed; and in general
shall perform all duties incident to the office of President and such other
duties as may be prescribed by the Chairman of the Board of Directors, if any,
and the Board of Directors from time to time.
Section 7. VICE-PRESIDENTS. In the absence of the President or in the
event of his death, inability, or refusal to act, the Vice-President, if any (or
in the event there be more than one (1) Vice-President, the Vice-Presidents in
the order designated at the time of their election,
-8-
<PAGE>
or in the absence of any designation then in the order of their election) shall
perform the duties of the President, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the President. Any
Vice-President may sign with the Secretary or an Assistant Secretary,
certificates for shares of the Corporation, and shall perform such other duties
as from time to time may be assigned to him by the Chairman of the Board of
Directors, if any, the President or by the Board of Directors.
Section 8. SECRETARY. The Secretary shall: (a) keep the minutes of the
Shareholders' and of the Board of Directors' meetings in one (1) or more books
provided for that purpose; (b) see that all notices are given in accordance with
the provisions of these Bylaws or as required by law; (c) be custodian of the
corporate records and of the seal of the Corporation; (d) keep a register of the
post office address of each Shareholder which shall be furnished to the
Secretary by such Shareholder; (e) sign with the President or a Vice-President
certificates for shares of the Corporation, the issuance of which shall have
been authorized by resolution of the Board of Directors; (f) have general charge
of the stock transfer books of the Corporation; and (g) in general perform all
duties incident to the office of Secretary and such other duties as from time to
time may be assigned to him by the Chairman of the Board of Directors, if any,
the President or by the Board of Directors.
Section 9. TREASURER. The Treasurer, if any and if required by the Board
of Directors, shall give a bond for the faithful discharge of his duties in such
sum and with such surety or sureties as the Board of Directors shall determine.
He shall: (a) have charge and custody of and be responsible for all funds and
securities of the Corporation; (b) receive and give receipts for moneys due and
payable to the Corporation from any source whatsoever; (c) deposit all such
moneys in the name of the Corporation in the banks, trust companies, or other
depositories as shall be selected in accordance with the provisions of Article
VI of these Bylaws; and (d) in general perform all of the duties incident to the
office of Treasurer and such other duties as from time to time may be assigned
to him by the Chairman of the Board of Directors, if any, the President or by
the Board of Directors.
Section 10. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The Assistant
Secretaries, when authorized by the Board of Directors, may sign with the
President or a Vice-President certificates for shares of the Corporation, the
issuance of which shall have been authorized by a resolution of the Board of
Directors. If required by the Board of Directors, the Assistant Treasurers shall
give bonds for the faithful discharge of their duties in such sums and with such
sureties as the Board of Directors shall determine. The Assistant Secretaries
and Assistant Treasurers, in general, shall perform the duties of the Secretary
or the Treasurer, respectively, in his absence and such other duties as shall be
assigned to them by the Secretary or the Treasurer, respectively, or by the
Chairman of the Board of Directors, if any, the President or the Board of
Directors.
Section 11. SALARIES. The salaries of the officers shall be fixed from
time to time by the Board of Directors, and no officer shall be prevented from
receiving his salary by reason of the fact that he is also a Director of the
Corporation.
-9-
<PAGE>
ARTICLE V.
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
The Corporation shall indemnify its past and present Directors, officers,
employees and agents to the fullest extent permitted and in the manner provided
by Article 2.02-1 of the Texas Business Corporation Act, and other applicable
law, against any liability asserted against any such person and incurred by him
in such a capacity or arising out of his status as such a person, including
reasonable expenses incurred by such person in connection with a proceeding
relating to such liability. In addition, the Corporation may purchase liability
insurance for such persons against any such liability.
ARTICLE VI.
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. CONTRACTS. The Board of Directors may authorize any officer,
officers, agent or agents to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the Corporation and such authority
may be general or confined to specific instances.
Section 2. LOANS. No loans shall be contracted on behalf of the
Corporation and no evidences of indebtedness shall be issued in its name
unless authorized by a resolution of the Board of Directors. This
authorization may be general or confined to specific instances.
Section 3. CHECKS, DRAFTS, ETC. All checks, drafts, or other orders for the
payment of monies, notes or other evidences of indebtedness issued in the name
of the Corporation shall be signed by such officer, officers, agent or agents,
of the Corporation and in such manner as shall from time to time be determined
by resolution of the Board of Directors.
Section 4. DEPOSITS. All funds of the Corporation not otherwise employed
shall be deposited to the credit of the Corporation in such banks, trust
companies, or other depositories as the Board of Directors may select from time
to time.
ARTICLE VII.
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. CERTIFICATES FOR SHARES. Certificates representing shares of the
Corporation shall be in the form as shall be determined by the Board of
Directors. The certificates shall be signed by the President or a Vice-President
and by the Secretary or an Assistant Secretary. All certificates for shares
shall be consecutively numbered or otherwise identified. The name and address of
the person to whom the shares represented thereby are issued, with the number of
shares and date of issue, shall be entered on the stock transfer books of the
Corporation. All
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<PAGE>
certificates surrendered to the Corporation for transfer shall be cancelled and
no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and cancelled, except that in the
case of a lost, destroyed, or mutilated certificate a new one may be issued
therefor upon such terms and indemnity to the Corporation as the Board of
Directors may prescribe.
Section 2. TRANSFER OF SHARES. Transfer of shares of the Corporation shall
be made only on the stock transfer books of the Corporation by the holder of
record thereof or by his legal representative, who shall furnish proper evidence
of authority to transfer, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the Corporation, and on
surrender for cancellation of the certificate for such shares. The person in
whose name shares stand on the books of the Corporation shall be deemed by the
Corporation to be the owner thereof for all purposes.
ARTICLE VIII.
FISCAL YEAR
The fiscal year of the Corporation shall be the calendar year.
ARTICLE IX.
DISTRIBUTIONS
The Board of Directors of the Corporation may authorize, and the
Corporation may make, distributions from time to time in the manner and upon the
terms and conditions provided by law and its Articles of Incorporation.
ARTICLE X.
SHARE DIVIDENDS
The Board of Directors of the Corporation may authorize, and the
Corporation may pay, share dividends from time to time in the manner and upon
the terms and conditions provided by law and its Articles of Incorporation.
ARTICLE XI.
SEAL
The Board of Directors may adopt a corporate seal which shall be circular
in form and shall have inscribed thereon the name of the Corporation and the
state of incorporation. If a corporate seal is adopted it may be used by causing
it, or a facsimile thereof, to be affixed to documents of any nature executed by
corporate officers or agents; provided, however, it shall
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<PAGE>
not be necessary for a document executed in the name and on behalf of the
Corporation by any authorized officer or agent to have a seal affixed in order
to fully bind the Corporation, and the adoption of a corporate seal shall not be
construed in any way to require the use of a corporate seal in order for an
otherwise properly executed document to be fully binding on the Corporation.
ARTICLE XII.
AMENDMENTS
The power to alter, amend, or repeal these Bylaws and to adopt new Bylaws
is delegated to the Board of Directors, but any Bylaws so adopted, altered, or
amended by the Board of Directors may be altered or repealed by a majority vote
of the Shareholders.
ARTICLE XIII.
NOTICE AND WAIVER OF NOTICE
Whenever any notice is required to be given under the provisions of these
Bylaws, and unless otherwise provided hereunder, said notice shall be deemed to
be sufficient if deposited in the United States mail, postage prepaid and
certified with return receipt requested, addressed to the person entitled
thereto at his address as it appears on the books of the Corporation, and that
notice shall be deemed to have been delivered three (3) days following the date
it was mailed. A waiver of notice shall be deemed equivalent to receipt of
notice when it has been signed by the person or persons entitled to said notice,
whether before or after the time stated therein. Neither the business to be
transacted at, nor the purposes of, any regular or special meeting of the Board
of Directors or Shareholders need be specified in the waiver of notice of the
meeting.
ARTICLE XIV.
ACTION WITHOUT A MEETING
Section 1. WRITTEN CONSENT. Any action required or permitted to be taken at
a meeting of the Shareholders, Board of Directors, or any committee may be taken
without a meeting if a written consent setting forth the action so taken is
signed by all the Shareholders, Directors, or committee members, as the case may
be, and such action shall have the same force and effect as if it were approved
by a unanimous vote at a meeting thereof, duly and regularly called.
Section 2. CONFERENCE TELEPHONE. Shareholders, Directors, or members of any
committee may participate in and hold a meeting thereof by means of a conference
telephone or similar communications equipment whereby all persons participating
in the meeting can hear each other, and participation in this manner at a
meeting shall constitute presence in person at
-12-
<PAGE>
the meeting, except where a person participates in the meeting for the express
purpose of objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened. Minutes of any meeting involving
participation by conference telephone or similar communications equipment shall
be prepared and kept in the same manner as minutes of any other meetings.
ARTICLE XV.
BOOKS AND RECORDS
The Corporation shall keep books and records including, but not limited to,
minutes of the proceedings of its Shareholders, its Board of Directors, and each
committee of its Board of Directors. The Corporation shall keep at its
registered office or principal place of business a record of the original
issuance of shares issued by the Corporation and a record of each transfer if
those shares that have been presented to the Corporation for registration of
transfer. Such records shall contain the names and addresses of all past and
current Shareholders of the Corporation and the number and class of shares
issued by the Corporation held by each of them.
I hereby certify, as Secretary of the Corporation, that the foregoing are
the Bylaws of the Corporation, as adopted by written consent of the Board of
Directors in lieu of organizational meeting the 10th day of February, 1996.
SID MCCARRA, Secretary
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EXHIBIT 2.4
NUMBER SHARES
1475
INCORPORATED UNDER THE LAWS OF THE STATE OF
TEXAS
AMERICAN ENERGY SERVICES, INC.
The Corporation is authorized to issue 100,000,000 Common Shares --
Par Value $.001 each
THIS CERTIFIES THAT ______________________________________ is the owner of
________________________________________________________________ fully paid and
non-assessable Shares of the above Corporation transferable only on the books of
the Corporation by the holder hereof in person or by duly authorized Attorney
upon surrender of this Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and to be sealed with the Seal of the
Corporation.
Dated __________________________________________
<PAGE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations. Additional abbreviations may also
be used though not in the list.
<TABLE>
<CAPTION>
<S> <C> <C>
TEN COM -- as tenants in common UNIV GIFT MIN ACT --........................Custodian(Minor)
TEN ENT -- as tenants by the entireties under Uniform Gifts to Minors Act....................(state)
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
</TABLE>
FOR VALUE RECEIVED, THE UNDERSIGNED HEREBY SELLS, ASSIGNS AND TRANSFERS UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
...............................................................................
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
...............................................................................
........................................................................ SHARES
REPRESENTED BY THE WITHIN CERTIFICATE, AND HEREBY IRREVOCABLY CONSTITUTES AND
APPOINTS ......................................................................
..................................................ATTORNEY TO TRANSFER THE SAID
SHARES ON THE BOOKS OF THE WITHIN-NAMED CORPORATION WITH FULL POWER OF
SUBSTITUTION IN THE PREMISES.
DATED,.........................................
IN PRESENCE
OF
...............................................
...............................................
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE.
NOTICE: The signature in this assignment must correspond with the name as
written upon the face of the certificate in every particular without alteration
or enlargement, or any change whatever.
EXHIBIT 2.5
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE. SUCH
SECURITIES MAY NOT BE SOLD, ASSIGNED OR OTHERWISE TRANSFERRED EXCEPT UPON SUCH
REGISTRATION OR UPON ADVICE TO THE CORPORATION BY ITS COUNSEL THAT REGISTRATON
IS NOT REQUIRED FOR SUCH SALE, ASSIGNMENT OR TRANSFER.
THE TRANSFER OF THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE HEREOF IS SUBJECT TO COMPLIANCE WITH THE CONDITIONS SPECIFIED BELOW,
AND NO TRANSFER OF THIS WARRANT OR SUCH SHARES SHALL BE VALID UNTIL SUCH
CONDITIONS HAVE BEEN FULFILLED.
AMERICAN ENERGY SERVICES INC.
COMMON STOCK PURCHASE WARRANT
NO. OO1A
THIS IS TO CERTIFY THAT, for value received, Wm. H. Murphy & Co., Inc. (the
"Holder"), upon due exercise of this Warrant, is entitled to purchase from
American Energy Services Inc., a Texas corporation (the "Company"), before the
close of business on December 31, 2000 (the "Expiration Date"), all or any part
of 310,098 shares of fully paid and non-assessable Common Stock, $.001 par
value, of the Company (the "Common Stock"), at a purchase price per share (the
"Initial Purchase Price") computed pursuant to Section 1 below, both the Initial
Purchase Price and the number of shares of Common Stock issuable upon exercise
of this Warrant being subject to possible adjustment as provided below.
This Warrant is hereinafter called the "Warrant" and the shares of Common
Stock issuable upon exercise hereof are hereinafter called the "Warrant Shares."
The term "Warrant" shall also include other warrants granted by the Company on
the date of grant of this Warrant, and the term "Warrant Shares" shall also
include shares issuable upon exercise thereof.
1. INITIAL PURCHASE PRICE. The Initial Purchase Price per share of Common
Stock under this Warrant will be at the par value.
2. EXERCISE OF WARRANT. The Holder of this Warrant may, at any time on or
after December 31, 1995, and on or before the Expiration Date, exercise this
Warrant in whole or in part from time to time for the purchase of the shares of
Common Stock which such Holder is then entitled to purchase hereunder at the
Purchase Price (as hereinafter defined). In order to exercise this Warrant in
whole or in part, the Holder hereof shall deliver to the Company (a) a written
notice of such Holder's election to exercise this Warrant, which notice shall
specify the number of whole shares of Common Stock to be purchased, (b) payment
of the aggregate purchase price of the shares of Common Stock being purchased by
certified or cashier's check, and (c) this Warrant; provided however, that, in
case the issuance of such shares shall not have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), the Company may
require that such Holder furnish to the Company a written statement that such
Holder is purchasing such shares for such Holder's own account for investment
and not with a view to the distribution thereof and that none of such shares
will be offered or sold in violation of the provisions of the Securities Act.
Upon receipt of the notice of exercise,, the payment and surrender of this
Warrant, the Company shall, as promptly as practicable, execute or cause to be
executed and deliver to such Holder a certificate or certificates representing
the aggregate number of shares of Common Stock specified in such notice. The
stock certificate or certificates so delivered shall be in the denomination of
100 shares each or such other denominations as may be specified in such notice
and shall be registered in the name of such Holder or, subject to Section 4,
such other name as shall be designated in such notice.
Page 1 of 10
<PAGE>
No fractional shares of Common Stock are to be issued upon the exercise of
this Warrant. If this Warrant shall have been exercised only in part, the
Company shall, at the time of delivery of said certificate or certificates,
deliver to such Holder a new warrant evidencing the rights of such Holder to
purchase the remaining shares of Common Stock called for by this Warrant, which
new warrant shall in all other respects be identical with this Warrant, or, at
the request of such Holder, appropriate notation may be made on this Warrant and
the same returned to such Holder. The Company shall pay all expenses, taxes and
other charges payable in connection with the preparation,, execution and
delivery of stock certificates under this Section, except that, in case such
stock certificates to be registered in a name or names other than the name of
the Holder of this Warrant, all stock transfer taxes payable upon the execution
and delivery of such stock certificate or certificates shall be paid by the
Holder hereof at the time of delivering the notice of exercise mentioned above.
In such case, the Holder hereof shall deliver with such notice of exercise
evidence, satisfactory to the Company, that such taxes have been paid.
The Company represents, warrants and agrees that all shares of Common Stock
issuable upon any exercise of this Warrant shall be validly authorized and
issued, fully paid and non-assessable.
This Warrant shall not entitle the Holder hereof to any of the rights of a
stockholder of the Company.
3. TRANSFER, DIVISION AND COMBINATION. Subject to the provisions of Section
4, this Warrant is transferable in the same manner and with the same effect as
in the case of a negotiable instrument payable to a specified person. The
Company, however, may treat the registered Holder hereof as the owner hereof for
all purposes until this Warrant shall have been surrendered for transfer as
hereinafter provided. Upon surrender of this Warrant at the principal office of
the Company, together with a written assignment of this Warrant duly executed by
the Holder hereof or his agent or attorney, the Company shall, subject to
Section 4, execute and deliver a new warrant or warrants in the name of the
assignee or assignees and in the denominations specified in such instrument of
assignment, and this Warrant shall promptly be canceled.
This Warrant may subject to Section 4, be divided or combined with other
warrants upon presentation hereof at the principal once of the Company, together
with a written notice specifying the names and denominations in which new
warrants are to be issued signed by the Holder or his agent or attorney. Subject
to compliance with the preceding paragraph and with Section 4, as to any
transfer which may be involved in such division or combination, the Company
shall execute and deliver a new warrant or warrants in exchange for the warrant
or warrants to be divided or combined in accordance with such notice.
The Company shall pay all expenses, taxes and other charges payable in
connection with the preparation execution and delivery of warrants under this
Section.
4. RESTRICTIONS ON TRANSFER; COMPLIANCE WITH SECURITIES ACT; REGISTRATION
RIGHTS.
(a) This Warrant and the related Warrant Shares shall not be transferable
except upon the conditions specified in this Section, which conditions are
intended, among other things, to ensure compliance with the provisions of the
Securities Act or any applicable state securities laws in respect of the
transfer of such Warrant or such Warrant Shares.
(b) By acceptance of this Warrant, the Holder of this Warrant agrees, prior
to any transfer or attempted transfer of such Warrant or the related Warrant
Shares, to give written notice to the Company of such Holder's intention to
effect such transfer. The notice shall describe the manner and circumstances of
the proposed transfer in detail and shall contain an undertaking by the Holder
to furnish such other information as may be required to enable the Company's
counsel to render the opinions referred to below, and shall give the identity
and address of the Holder's counsel. The Holder shall submit a copy of the
notice
Page 2 of 10
<PAGE>
(c) to the counsel designated in the notice and the Company shall submit a
copy thereof to its counsel, and the following provisions shall apply:
(i) If, in the opinion of both the Company's and the Holder's counsel, the
proposed transfer of the Warrant or Warrant Shares may be effected without
registration of the Warrant or Warrant Shares under the Securities Act, the
Company shall, as promptly as practicable, so notify the Holder who will then be
entitled to transfer the Warrant or Warrant Shares in accordance with the terms
of the notice delivered by the Holder to the Company.
(ii) If, in the opinion of either the Company's or the Holder's counsel,
the proposed transfer of the Warrant or Warrant Shares may not be effected
without registration of the Warrant or Warrant Shares under the Securities Act,
the Company shall, as promptly as practicable, so notify the Holder, and the
Company shall not be obligated to effect the proposed transfer, except pursuant
to an offering registered under the Securities Act.
(c) If the Company shall file a registration statement under the Securities
Act in connection with a proposed offering of its securities for cash through
underwriters (other than a registration statement on Form 5-8), the Company
shall give written notice thereof to the Holder of this Warrant. Upon written
notice from the Holder, received by the Company within the time period (not
fewer than ten (10) days) specified in such notice, that the Holder desires that
Warrant Shares to be acquired upon exercise of this Warrant be included in such
registration statement (which request shall specify the number of Warrant Shares
which such Holder desires to include in such registration statement), the
Company shall use its best efforts to include all or a portion of the Warrant
Shares in such registration statement, as a part of such underwriting, subject
to such conditions as may be determined by the managing underwriter. If,
however, the Company and such managing underwriter conclude before the
effectiveness of such registration statement that to include all or part of the
Warrant Shares requested by the Holder in such registration would be detrimental
to the offering of securities by the Company, the number of Warrant Shares to be
included in the registration may be reduced (or eliminated) to the extent deemed
appropriate in the sole discretion of the Company, in good faith, after using
its best efforts to include all or as many as possible of the Warrant Shares
requested by the Holder.
With respect to any registration of Warrant Shares under the Securities Act
pursuant to Subsection (c) of this Section, the Company shall pay all expenses
incurred by it in effecting such registration (including, without limitation,
all registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company and expenses of special audits incident to or required
by any such registration); PROVIDED HOWEVER, that the Company shall not be
required to pay (i) the fees and expenses of counsel or other advisors for the
Holder, (ii) underwriting discounts and commissions relating to any of the
Warrant Shares to be registered or (iii) premiums on insurance required by any
underwriter insofar as such premiums relate to the offering of Warrant Shares.
(d) It shall be a condition precedent to the obligation of the Company to
take any action pursuant to Subsection (c) of this Section that the Holder of
the Warrant Shares to be registered under each such registration shall furnish
to the Company such information regarding the securities held by such Holder and
the intended method of disposition thereof as the Company shall reasonably
request in connection with the action to be taken by the Company.
In no event shall the Company be required (i) to amend any registration
statement filed pursuant to Subsection (c) of this Section after it has become
effective, or to amend or supplement any prospectus to permit the continued
disposition of the securities registered under any registration statement or
(ii) to execute a general consent to service in process or to qualify to do
business in any state in connection with the qualification of the Warrant Shares
for sale under state securities laws.
Page 3 of 10
<PAGE>
(e) In the event of any registration of any of its securities under the
Securities Act pursuant to this Section, the Company shall indemnity and hold
harmless the seller of such securities and each other person, if any, who
controls such seller within the meaning of the Securities Act against any
losses, claims, damages or liabilities, joint or several, to which such seller
or controlling person may become subject insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact contained,
on the effective date thereof, in any registration statement under which such
securities were registered under the Securities Act, any preliminary prospectus
or final prospectus contained therein or any amendment or supplement thereto, or
arise out of or are based upon the omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading. In addition, the Company shall reimburse such seller and each such
controlling person for any legal or any other expenses reasonably incurred by
such seller or such controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action. The Company shall
not, however, be obligated under this Subsection (e) to indemnity or reimburse
any person to the extent that such loss, claim, damage or liability arises out
of or is based upon an untrue statement, alleged untrue statement, omission or
alleged omission made in a registration statement, preliminary or final
prospectus, or any amendment thereof or supplement thereto in reliance upon and
in conformity with written information furnished to the Company through an
instrument duly executed by the seller or the controlling person specifically
for use in the preparation thereof. If the offering pursuant to any such
registration statement is made through underwriters, the Company agrees to enter
into an underwriting agreement in customary form with such underwriters and to
indemnity such underwriters and each person who controls such underwriters
within the meaning of the Securities Act. In the event of any registration by
the Company of any of its securities under the Securities Act pursuant to this
Section, each seller of the securities so registered will indemnity and hold
harmless the Company, each other person, if any, who controls the Company within
the meaning of the Securities Act and each officer and director of the Company
to the same extent that the Company agrees to indemnity it, but only with
respect to the written information relating to such seller furnished to the
Company by such seller as aforesaid.
(f) Each certificate for Warrant Shares issued upon exercise of this
Warrant shall bear a legend to the effect that the Warrant Shares may not be
transferred except upon compliance with the provisions of this Section 4, and
each certificate for Warrant Shares transferred pursuant to Subsection (b)(i) of
this Section shall also bear such a legend unless, in the opinion of counsel for
the Company, such a legend is not required.
(g) The Holder hereby covenants and agrees with the Company as follows:
(i) The Holder acknowledges being informed that this Warrant or the Warrant
Shares must be held by the Holder indefinitely unless the Warrants or Warrant
Shares are registered for sale by the Holder under the Securities Act or an
exemption from such registration is available. The Holder understands that any
routine sale of the Warrant Shares made in reliance upon Rule 144 promulgated
under the Securities Act can be made only in limited amounts after the
expiration of a period of two years from the date of receipt of the Warrant
Shares and otherwise in accordance with the terms and conditions of Rule 144,
and further understands that in the event that the exemption from registration
provided by Rule 144 is not available, compliance with some other exemption
under the Securities Act will be required in the absence of registration.
(ii) The Company may instruct its transfer agents not to transfer any of
the Warrant Shares unless the transfer agents have been advised by the Company
or otherwise have been satisfied that the Holder has complied with the
provisions above-described.
Page 4 of 10
<PAGE>
(iii) The Holder understands that the Company has not covenanted and is not
obligated to furnish a registration statement under the Securities Act covering
the Warrants or the Warrant Shares, to file a notification under any regulations
promulgated pursuant to the Securities Act with respect to the Warrants or the
Warrant Shares, or to take any other action that would make available an
exemption from registration, except as set forth in Section 4(b). The Company
covenants and agrees that it will use its best efforts to make publicly
available, from time to time, such information as will permit the Holder to
comply with the requirements of Rule 144 relating to current public information,
that it will upon request furnish the Holder a written certificate relating to
its compliance with the reporting requirements of the Securities Exchange Act of
1934, as amended, and the regulations and rules thereunder and that it will
otherwise cooperate in good faith with the Holder in connection with any sale
under Rule 144.
5. Adjustment of Purchase Rights.
(a) As used herein:
(i) "Purchase Price" at any time shall mean the price per share of Common
Stock of the Company at which at any time this Warrant shall be exercisable
(including the Initial Purchase Price) in accordance with the provisions hereof.
(ii) "Common Stock" shall mean stock of the Company of any class, whether
now or hereafter authorized, which has the right to participate in the
distribution of either earnings or assets of the Company without limit as to the
amount or percentage, provided however, that the term "Warrant Shares" shall
mean only the Common Stock of the Company authorized at the date of this Warrant
and stock of any other class into which such presently authorized Common Stock
may hereinafter have been changed. In case by reason of the operation of this
Section 5 this Warrant shall be exercisable for any other shares of stock or
other securities or property of the Company or of any other corporation, any
reference herein to the exercise of this Warrant shall be deemed to refer to and
include the exercise of this Warrant for such other shares of stock or other
securities or property.
(iii) "Additional Stock" shall mean any Common Stock (including shares held
in treasury) issued after the date hereof except for Warrant Shares.
(b) If any of the following events occurs at any time or from time to time
prior to the expiration of this Warrant by exercise or by its terms, the
indicated adjustments shall be made in the Purchase Price (as in effect at the
time of such event and from time to time thereafter), and in the number of
shares of Common Stock or the class of securities purchasable upon any exercise
of this Warrant, as appropriate:
(i) If the Company shall issue any Additional Stock, then the number of
shares purchasable under this Warrant immediately prior to the issue of such
Additional Stock shall immediately be increased so that the number of shares
purchasable under this Warrant shall bear the same ratio to the number of shares
of Common Stock outstanding immediately after the issuance of such Additional
Stock as the number of shares purchasable under this Warrant immediately prior
to the issuance of such Additional Stock bears to the number of shares of Common
Stock outstanding immediately prior to the issuance of such Additional Stock,
and the Purchase Price in effect immediately prior to the issuance of such
additional Stock shall immediately be reduced so that the aggregate Purchase
Price of all shares of Common Stock purchasable under this Warrant immediately
after the issuance of such Additional Stock shall be equal to the aggregate
Purchase Price of all shares of Common Stock purchasable under this Warrant
immediately prior to the issuance of such Additional Stock.
Page 5 of 10
<PAGE>
(ii) If the Company subdivides its outstanding shares of Common Stock into
a greater number of shares, the Purchase Price in effect immediately prior to
such division shall be proportionately reduced, and the number of shares
purchasable under this Warrant shall be proportionately increased. Conversely,
if the outstanding shares of Common Stock of the Company are in any manner
combined into a smaller number of shares, the Purchase Price in effect
immediately prior to such combination shall be proportionately increased, and
the number of shares purchasable under this Warrant shall be proportionately
reduced.
(iii) If the Company declares any dividend on its Common Stock payable in
stock or other securities of the Company or of any other corporation, or in
property or otherwise than in cash, to the holders of its Common Stock, the
Holder of this Warrant shall, without additional cost, be entitled to receive
upon any exercise of this Warrant, in addition to the Common Stock to which the
Holder would otherwise be entitled, the number of shares of stock or other
securities or property which the Holder would have been entitled to receive if
he had been a Holder immediately prior to the record date for such dividend of
the number of shares of Common Stock purchased pursuant to such exercise, which
number of shares of stock or other securities and the purchase price therefor
shall be subject to adjustment pursuant to the provisions of this Section 5 from
and after such record date.
(iv) If there occurs any recapitalization or reclassification of the Common
Stock of the Company or any merger of the Company and one or more other
corporations with the Company as the surviving corporation, as a result of which
holders of the Company's Common Stock receive other stock, securities or
property in lieu of or in addition to, but on account of their Common Stock,
the Holder of this Warrant upon any exercise after the record date for
determination of stockholders entitled to such other stock, securities or
property, shall receive, in lieu of or in addition to any shares of Common Stock
of the Company, the proportionate shares of all stock, securities or other
property issued, paid or delivered for or on all of the Common Stock of the
Company as would have been allocable to the shares of Common Stock that would
have been purchased pursuant to such exercise of this Warrant if such exercise
had been made immediately prior to such record date, which number of shares of
stock or other securities and the purchase price therefor shall be subject to
adjustment pursuant to the provisions of this Section 5 from and after such
record date.
(v) If there occurs any merger or consolidation of the Company with or into
another corporation so that another corporation is the surviving or resulting
corporation, or if there occurs any sale of substantially all of the assets of
the Company or any similar transaction, the Holder of this Warrant shall have
the right to exercise this Warrant with respect to the kind and amount of stock
or other securities and property received by reason of such consolidation,
merger or sale of assets by a Holder of the number of shares which might have
been purchased upon exercise of this Warrant immediately prior to such
consolidation, merger or sale of assets, and the amount of such stock or other
securities and the purchase price therefor shall be subject to adjustment
pursuant to the provisions of this Section 5 from and after such consolidation,
merger or sale of assets. The Company shall not enter into any agreement for any
such consolidation, merger or sale, or any similar transaction, unless such
agreement contains adequate provisions guaranteeing the right of the Holder of
this Warrant under this Section 5(b)(v),
6. SPECIAL AGREEMENTS OF THE COMPANY.
(a) The Company covenants and agrees that it will reserve and set apart and
have at all times a number of shares of authorized but un-issued Common Stock
deliverable upon the exercise of the Warrants or any other rights or privileges
provided for therein sufficient to enable it at any time to fulfill all of its
obligations thereunder; and if at any time the number of authorized but
un-issued shares of Common Stock shall not be sufficient to effect the exercise
of the Warrants at the Purchase Price then in effect, the Company will take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but un-issued shares of Common Stock to such number of shares as
shall be sufficient for such purpose.
Page 6 of 10
<PAGE>
As a condition precedent to the taking of any action which would cause an
adjustment reducing the then prevailing Purchase Price below the then par value,
if any, per share of the Common Stock issuable upon exercise of this Warrant,
the Company will take such corporate action as may, in the opinion of its
counsel, be necessary in order that the Company may validly and legally issue
its Common Stock at the adjusted Purchase Price upon conversion of this Warrant
in accordance with the provisions of this Section 6.
If any shares of the Company reserved or to be reserved for the purpose of
exercise of this Warrant require registration or qualification with or approval
of any governmental authority under any Federal or State law before such shares
may be validly issued upon exercise, then the Company covenants that it will in
good faith and as expeditiously as possible endeavor to secure such registration
or approval, as the case may be, PROVIDED HOWEVER, that this provision shall not
require the Company to endeavor to secure such registration, qualification or
approval in order to enable any person to sell or distribute this Warrant or any
Common Stock received upon exercise of this Warrant.
The Company covenants that all shares of Common Stock which may be issued
upon exercise of this Warrant will be upon issuance fully paid and
non-assessable and, except as set forth herein, the Company will pay all taxes,
liens and charges with respect to the issuance thereof.
(b) Whenever the number of shares purchasable under this Warrant or the
Purchase Price shall be adjusted as required by the provisions of Section 5
hereof, the Company shall forthwith mail a notice setting forth the adjusted
Purchase Price and the adjusted number of Warrant Shares for which this Warrant
is exercisable to the registered Holder of this Warrant at his last address as
it shall appear on the registration books, but failure to give or receive such
notice, or any defects therein, or in the mailing thereof, shall not affect such
adjustment in Purchase Price or number of Warrant Shares,
(c) In case the Company proposes:
(i) to pay any stock dividend upon the Common Stock, make any distribution
(other than ordinary cash dividends payable out of earnings) or offer any
subscription or other rights to the Holders of Common Stock;
(ii) to effect any capital reorganization or reclassification of capital
stock of the Company; or
(iii) to effect the consolidation merger, sale of all or substantially all
of the assets, liquidation, dissolution or winding up of the Company; then the
Company shall cause notice of any such intended action to be given to the Holder
of this Warrant not less than twenty (20) nor more than forty (40) days prior to
the date on which such capital reorganization, reclassification, consolidation,
merger, sale, liquidation, dissolution or winding up shall be effected, as the
case may be.
7. NOTICES. Any notice or other document required or permitted to be given
or delivered to the Holder of this Warrant and the Warrant Shares shall be sent
by certified or registered mail to the address shown on this Warrant or such
other address as shall have been famished to the Company in writing by such
Holder. Any notice or other document required or permitted to be given or
delivered to the Company shall be sent by certified or registered mail to the
principal office of the Company at 7311 OLD GALVESTON ROAD, HOUSTON, Texas
77234, attention of the President, or such other address as shall have been
furnished to the Holder of Warrants and Holders of Warrant Shares by the
Company.
Page 7 of 10
<PAGE>
8. LIMITATION OF LIABILITY. No provision hereof, in the absence of
affirmative action by the Holder to purchase shares of Common Stock, and no mere
enumeration herein of the rights or privileges of the Holder hereof, shall give
rise to any liability of such Holder for the Purchase Price or as a stockholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in its
name by its President and its Secretary.
AMERICAN ENERGY SERVICES, INC., a
TEXAS CORPORATION
By:_____________________________
PAT S. ELLIOTT, PRESIDENT
ATTEST:
________________________
LARRY ELLIOTT, SECRETARY
DATE: MARCH __, 1998
Page 8 of 10
<PAGE>
ASSIGNMENT
TO BE EXECUTED BY THE REGISTERED HOLDER IF HE DESIRES TO
TRANSFER THE WARRANT
FOR VALUE RECEIVED,____________________ hereby sells, assigns and transfers unto
_________________________ the right to purchase _____________________ evidenced
by the within Warrant, and does hereby irrevocably constitute and appoint
Attorney to transfer the said Warrant on the books of the Company with full
power of substitution.
_______________________________
Signature
_______________________________
Print Name
_______________________________
_______________________________
Address
Dated: _______, ____
In the presence of:
____________________
NOTICE
The signature of the foregoing Assignment must correspond to the name as
written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
Page 9 of 10
<PAGE>
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER IF HE DESIRES TO
EXERCISE THE WARRANT
The undersigned hereby exercises the right to purchase _______________
covered by this Warrant according to the conditions thereof and herewith
makes payment of the Purchase Price for such in full.
_______________________________
Signature
_______________________________
Print Name
_______________________________
_______________________________
Address
Date: _______, ____
Page 10 of 10
EXHIBIT 6.1
U. S. SMALL BUSINESS ADMINISTRATION
SBA LOAN NUMBER
PLP-165-196-4010
NOTE
Houston, Texas (City and State)
$1,200,000 11/17/97 (Date)
For value received, the undersigned promises to pay to the order of
MetroBank, N.A. (Payee) at its office in the city of Houston, State of Texas or
at holder's option, at such other place as may be designated from time to time
by the holder One Million Two Hundred Thousand and No/100 dollars, (write out
amount) with interest on unpaid principal computed from the date of each advance
to the undersigned at the rate of ten and one-half percent (10.50%) per annum,
payment to be made in installments as follows:
See attached Exhibit "A"
If this note contains a fluctuating interest rate, the notice provision is
not a pre-condition for fluctuation (which shall take place regardless of
notice). Payment of any installment of principal or interest owing on this Note
may be made prior to the maturity date thereof without penalty. Borrower shall
provide lender with written notice of intent to prepay part or all of this loan
at least three (3) weeks prior to the anticipated prepayment date. A prepayment
is any payment made ahead of schedule that exceeds twenty (20) percent of then
outstanding principal balance. If borrower makes a prepayment and fails to give
at least three weeks advance notice of intent to prepay, then, notwithstanding
any other provision to the contrary in this note or other document, borrower
shall be required to pay lender three weeks interest on the unpaid principal as
of the date preceding such prepayment.
SBA Form 147 (5-87) Previous editions obsolete Page 1
<PAGE>
The term "Indebtedness" as used herein shall mean the indebtedness
evidenced by this Note, including principal, interest, and expenses, whether
contingent, now due or hereafter to become due and whether heretofore or
contemporaneously herewith or hereafter contracted. The term "Collateral" as
used in this Note shall mean any funds, guaranties, or other property or rights
therein of any nature whatsoever or the proceeds thereof which may have been,
are, or hereafter may be, hypothecated, directly or indirectly by the
undersigned or others, in connection with, or as security for, the indebtedness
or any part thereof. The Collateral, and each part thereof, shall secure the
Indebtedness and each part thereof. The covenants and conditions set forth or
referred to in any and all instruments of hypothecation constituting the
Collateral are hereby incorporated in this Note as covenants and conditions of
the undersigned with the same force and effect as though such covenants and
conditions were fully set forth herein.
The Indebtedness shall immediately become due and payable, without notice
or demand, upon the appointment of a receiver or liquidator, whether voluntary
or involuntary, for the undersigned or for any of its property, or upon the
filing of a petition by or against the undersigned under the provisions of any
State insolvency law or under the provisions of the Bankruptcy Reform Act of
1978, as amended, or upon the making by the undersigned of an assignment for the
benefit of its creditors. Holder is authorized to declare all or any part of the
Indebtedness immediately due and payable upon the happening of any of the
following events: (1) Failure to pay any part of the Indebtedness when due; (2)
nonperformance by the undersigned of any agreement with, or any condition
imposed by, Holder or Small Business Administration (hereinafter called
"SBA"), with respect to the Indebtedness; (3) Holder's discovery of the
undersigned's failure in any application of the undersigned to Holder or SBA to
disclose any fact deemed by Holder to be material or of the making therein or in
any of the said agreements, or in any affidavit or other documents submitted in
connection with said application or the indebtedness, of any misrepresentation
by, on behalf of, or for the benefit of the undersigned; (4) the reorganization
(other than a reorganization pursuant to any of the provisions of the Bankruptcy
Reform Act of 1978, as amended) or merger or consolidation of the undersigned
(or the making of any agreement therefor) without the prior written consent of
Holder; (5) the undersigned's failure duly to account, to Holder's satisfaction,
at such time or times as Holder may require, for any of the Collateral, or
proceeds thereof, coming into the control of the undersigned; or (6) the
institution of any suit affecting the undersigned deemed by Holder to affect
adversely its interest hereunder in the Collateral or otherwise. Holder's
failure to exercise its rights under this paragraph shall not constitute a
waiver thereof.
Upon the nonpayment of the Indebtedness, or any part thereof, when due,
whether by acceleration or otherwise, Holder is empowered to sell, assign, and
deliver the whole or any part of the Collateral at public or private sale,
without demand, advertisement or notice of the time or place of sale or of any
adjournment thereof, which are hereby expressly waived. After deducting all
expenses incidental to or arising from such sale or sales, Holder may apply the
residue of the proceeds thereof to the payment of the Indebtedness, as it shall
deem proper, returning the excess, if any, to the undersigned. The undersigned
hereby waives all right of redemption or appraisement whether before or after
sale.
Holder is further empowered to collect or cause to be collected or
otherwise to be converted into money all or any part of the Collateral, by suit
or otherwise, and to surrender, compromise, release, renew, extend, exchange, or
substitute any item of the Collateral in transactions with the undersigned or
any third party, irrespective of any assignment thereof by the undersigned, and
without prior notice to or consent of the undersigned or any assignee. Whenever
any item of the Collateral shall not be paid when due, or otherwise shall be in
default, whether or not the indebtedness, or any part thereof, has become due,
Holder shall have the same rights and powers with respect to such item of the
Collateral as are granted in this paragraph in case of nonpayment of the
indebtedness, or any part thereof, when due. None of the rights, remedies,
privileges, or powers of Holder expressly provided for herein shall be
exclusive, but each of them shall be cumulative with and in addition to every
other right, remedy, privilege, and power now or hereafter existing in favor of
Holder, whether at law or equity, by statute or otherwise.
The undersigned agrees to take all necessary steps to administer,
supervise, preserve, and protect the Collateral; and regardless of any action
taken by Holder, there shall be no duty upon Holder in this respect. The
undersigned shall pay all expenses of any nature, whether incurred in or out of
court, and whether incurred before or after this Note shall become due at its
maturity date or otherwise, including but not limited to reasonable attorney's
fees and costs, which Holder may deem necessary or proper in connection with the
satisfaction of the Indebtedness or the administration, supervision,
preservation, protection of (including, but not limited to, the maintenance of
adequate insurance) or the realization upon the Collateral. Holder is authorized
to pay at any time and from time to time any or all of such expenses, add the
amount of such payment to the amount of the Indebtedness, and charge interest
thereon at the rate specified herein with respect to the principal amount of
this Note.
The security rights of Holder and its assigns hereunder shall not be
impaired by Holder's sale, hypothecation or rehypothecation of any note of the
undersigned or any item of the Collateral, or by any indulgence, including but
not limited to (a) any renewal, extension, or modification which Holder may
grant with respect to the Indebtedness or any part thereof, or (b) any
surrender, compromise release, renewal, extension, exchange, or substitution
which Holder may grant in respect of the Collateral, or (c) any indulgence
granted in respect of any endorser, guarantor, or surety. The purchaser,
assignee, transferee, or pledgee of this Note, the Collateral, and guaranty, and
any other document (or any of them), sold, assigned, transferred, pledged, or
repledged, shall forthwith become vested with and entitled to exercise all the
powers and rights given by this Note and all applications of the undersigned to
Holder or SBA, as if said purchaser, assignee, transferee, or pledgee were
originally named as Payee in this Note and in said application or applications.
SBA Form 147 (5-87) Page 2
<PAGE>
This promissory note is given to secure which SBA is making or in
which it is participating and, pursuant to Part 101 of the Rules and Regulations
of SBA (13 C.F.R. 101.1(d)), this instrument is to be construed and (when SBA is
the Holder or a party in interest) enforced in accordance with applicable
Federal law.
American Energy Services, Inc.
By: /s/ PATRICK S. ELLIOTT
Patrick S. Elliott, President
Note.--Corporate applicants must execute Note, in corporate name, by duly
authorized officer, and seal must be affixed and duly attested: partnership
applicants must execute Note in firm name, together with signature of a general
partner.
SBA Form 147 (s-877) Previous editions obsolete Page 3
U.S. GOVERNMENT PRINTING OFFICE : 1993 O - 151-355
<PAGE>
EXHIBIT "A"
Note payable TEN (10) years and THREE (3) months from date of note, with
interest at the rate of TEN AND ONE-HALF (10.50%) percent per annum, first THREE
(3) installments of interest only payable monthly, beginning ONE (1) month from
the date of the note and installments of $16,192.20 including principal and
interest, payable monthly, beginning FOUR (4) months from the date of the note,
and thereafter until paid in full; provided that all principal and interest
shall become due and payable TEN (10) years and THREE (3) months from date of
note and each payment, when received, shall be applied first to interest accrued
to the date of receipt, and the balance, if any, to principal.
Undersigned further agrees that, upon the expiration of the calendar
quarter in which the date hereof falls, the rate of interest herein shall
increase or decrease on the first business day of each calendar quarter to a
percentage per annum equal to the interest rate to which the rate in this note
is pegged (the minimum prime lending rate) at large U.S. money center commercial
banks, as published in The Wall Street Journal plus TWO (2.0%) percentage
points, and the change in the rate of interest herein shall be determined and
become effective as of the first business day of each calendar quarter. Holder
should give written notice to the undersigned of each increase or decrease in
the interest rate within thirty days after the effective date of the change.
Lender has the right to raise or lower the monthly payment to assure such
payment will amortize the note within the bounds of the stated maturity.
Notwithstanding the foregoing the interest rate on this Note shall never
exceed the maximum rate permitted by the usury laws of Texas or any pre-empting
federal law, if any, applicable to this kind of loan at the time of fluctuation
in said interest rate.
If the undersigned shall be in default in payment due to on the
indebtedness herein, and the Small Business Administration (SBA) purchases its
guaranteed portion of said indebtedness, the rate of interest on both the
guaranteed and unguaranteed portion herein, shall become fixed at the rate in
effect as of the initial date of default. If the undersigned shall not be in
default in payment when SBA purchases its guaranteed portion, the rate of
interest on both the guaranteed and unguaranteed portion herein shall be fixed
at the rate in effect as of the date of purchase by SBA.
If the guaranteed portion of this loan is sold in the secondary market,
borrower shall provide Lender with written notice of intent to repay part or all
of this loan at least three (3) weeks prior to the anticipated prepayment date.
A prepayment is any payment made ahead of schedule that exceeds twenty (20%)
percent of the then outstanding principal balance. If Borrower makes a
prepayment and fails to give all least three (3) weeks advance notice of intent
to prepay, then, notwithstanding any other provision to the contrary in this
document, borrower shall be required to pay lender three (3) weeks interest on
the unpaid principal as of the date of such prepayment.
Undersigned hereby waive(s) presentment, demand, protest or notice of
nonpayment and intent to accelerate this Note and/or demand for payment of past
due installments as a condition precedent to acceleration.
/s/ S.S.E.
Initials
<PAGE>
LOAN DOCUMENT CHECKLIST
XX UN-TX................... UNIVERSAL NOTE....................... (02/96)
XX AG/CO-DT-TX............. REAL ESTATE DEED OF TRUST............ (12/94)
XX SA/SA-E................. SECURITY AGREEMENT/EXTENSION......... (08/91)
XX ASMT-RENT-TX............ ABSOLUTE ASSIGNMENT OF LEASES AND
RENTS............................... (01/95)
XX LCA..................... LINE OF CREDIT AGREEMENT............. (05/91)
XX DA...................... DISBURSEMENT AUTHORIZATION........... (08/85)
XX API..................... AGREEMENT TO PROVIDE INSURANCE....... (08/93)
Items marked with "XX' have been completed by Loan Processor Plus.
BORROWER: AMERICAN ENERGY SERVICES, INC.
ADDRESS: 7224 LAWNDALE
CITY, STATE, ZIP: HOUSTON, TX 77539
OFFICER #: 52 (AMAL GUNERATNE)
FUNDING DATE: May 2, 1998
EXHIBIT 6.2
<TABLE>
<CAPTION>
<S> <C> <C>
AMERICAN ENERGY SERVICES, INC. METROBANK, N.A. ACCOUNT #: AG/#52
7224 LAWNDALE GALLERIA BRANCH Loan Number #721099972
HOUSTON, TX 77539 5065 WESTHEIMER, STE. #1111 Date MAY 2, 1998
BORROWER'S NAME AND HOUSTON, TX 77056 Mat. Date SEPTEMBER 2, 1998
ADDRESS LENDER'S NAME AND ADDRESS Loan Amount $2,000,000.00
"I" includes each borrower "You" means the lender, its successors Renewal of #721099972
above, jointly and severally. and assigns.
</TABLE>
hereby authorize and request the following disbursement from the loan referenced
above:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Amount given to me directly $ i. RENEW NOTE#721099972 $ 2,000,000.00
Amount paid on my account (# ) $ j. $
To Lender $ k. $
Amounts paid to others on my behalf: l. $
To Property Insurance Company $ m. $
To Credit Life Insurance Company $ n. $
To Disability Insurance Company $ o. $
To Public Officials $ p. $
$ q. $
Comments: INTEREST OWED FROM 04-02-98 TO AMERICAN ENERGY SERVICES, INC.
06-02-98 ($30,500) AND RECORDING FEES $50.00 BY: /s/ PAT ELLIOT President
NAME: , TITLE:
BY:
Loan Officer: NAME: , TITLE:
</TABLE>
1988 BANKERS SYSTEMS, INC., ST. CLOUD, MN 56301 FORM DA 8/13/85 (page 1 of 1)
<PAGE>
<TABLE>
<S> <C>
AMERICAN ENERGY SERVICES, INC. METROBANK, N.A. ACCOUNT #: AG/#52
7224 LAWNDALE GALLERIA BRANCH Loan Number #721099972
HOUSTON, TX 77539 5065 WESTHEIMER, STE. #1111 Date: MAY 2, 1998
HOUSTON, TX 77056 Maturity Date: SEP. 2, 1998
Loan Amount $2,000,000.00
Renewal of: #721099972
SSN/TIN: 76-0279883
</TABLE>
BORROWER'S NAME AND ADDRESS LENDER's NAME AND ADDRESS
* Includes each borrower above, joint "You" means the lender, its
and severally. successors and assigns.
For value received, I promise to pay to you, or your order, at your address
listed above the PRINCIPAL sum of TWO MILLION AND NO/100* Dollars $2,000,000.00
SINGLE ADVANCE: I will receive all of this principal sum on
. No additional advances are
contemplated under this note.
MULTIPLE ADVANCE: The principal sum shown above is the maximum amount of
principal I can borrow under this note. On MAY 2, 1998 I will receive the amount
of $____________________________ and future principal advances are contemplated.
CONDITIONS: The conditions for future advances are SEE ATTACHED "LOAN
MONITORING WORKSHEET" AND "EXIM BANK SPECIAL CONDITIONS". UNLESS ALL
CONDITIONS BY EXIM BANK HAVE BEEN MET, METROBANK IS NOT OBLIGATED TO FUND.
[X] OPEN END CREDIT: You and I agree that I may borrow up to the maximum amount
of principal more than one time. This feature is subject to all other
conditions and expires on SEPTEMBER 2, 1998.
[ ] CLOSED END CREDIT: You and I agree that I may borrow up to the maximum only
one time (and subject to all other conditions).
INTEREST: I agree to pay interest on the outstanding principal balance from MAY
2, 1998 at the rate of 9.000% per year until FIRST CHANGE DATE.
VARIABLE RATE: This rate may then change as stated below. * QUARTERLY
[X] INDEX RATE: The future rate will be 0.500% OVER the following index rate:
PRIME RATE AS PUBLISHED IN THE WALL STREET JOURNAL.
[X] CALLING RATE: The interest rate ceiling for this note is the * ceiling
rate announced by the Credit Commissioner from time to time.
[X] FREQUENCY AND TIMING: The rate on this note may change as often as DAILY.
A change in the interest rate will take effect ON THE SAME DAY.
[ ] LIMITATIONS: During the term of this loan, the applicable annual interest
rate will be more than
% or less than %. The rate may not
change more than % each .
EFFECT OF VARIABLE RATE: A change in the interest rate will have the following
effect on the payments:
[X] The amount of each scheduled payment [X] The amount of the final
will change. payment will change.
[ ] ___________________________________________________________________________
ACCRUAL METHOD: Interest will be calculated on a ACTUAL/360 basis.
INTEREST MATURITY RATE: I agree to pay interest on the unpaid balance of this
note owing after maturity, and until paid in full, as stated below:
[X] on the same fixed or variable rate basis in effect before maturity (as
indicated above).
[ ] at a rate equal to
LATE CHARGE: If a payment is made more than days after it is
due, I agree to pay a late charge of .
ADDITIONAL CHARGES: In addition to interest, I agree to pay the following
charges which [ ] are [ ] are not included in the principal amount above:
PAYMENTS: I agree to pay this note as follows:
INTEREST: I agree to pay accrued interest ON DEMAND, BUT IF NO DEMAND IS MADE
THEN ON THE 2ND DAY OF EACH MONTH BEGINNING JUNE 2, 1998
INSTALLMENTS: I agree to pay this note in payments. The first
payment will be in the amount of $
and will be due on . A payment of $ will be due
thereafter. The final payment of the entire
unpaid balance of principal and interest will be
due .
ADDITIONAL TERMS:
REPAYMENT TERMS: INTEREST PAYMENT MONTHLY; PRINCIPAL ADVANCED TO BE REPAID UPON
COLLECTION A/R OR AT MATURITY, WHICHEVER COMES FIRST.
GENERAL PROVISION: THIS NOTE IS SUBJECT TO THE ARBITRATION PROGRAM ENTERED INTO
BETWEEN BORROWER AND LENDER:
***THIS IS A RENEWAL OF SAME LOAN #721099972
THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES
Signature for Lender
______________________________
AMAL GUNERATNE, VICE PRESIDENT
[X] SECURITY: This note is separately secured by (describe separate document by
type and date): SECURITY AGREEMENT, LINE OF CREDIT AGREEMENT, GUARANTY
AGREEMENTS, ARBITRATION AGREEMENT.
(This section is for your internal use. Failure to list a separate security
document does not mean the agreement will not secure this note.)
PURPOSE: The purpose of this loan is BUSINESS: TO REDEEM LN #721099972.
SIGNATURES: I AGREE TO THE TERMS OF THIS NOTE (INCLUDING THOSE ON PAGE 2). I
HAVE RECEIVED A COPY ON TODAY'S DATE.
AMERICAN ENERGY SERVICES, INC.
BY: /s/ PAT ELLIOTT
NAME: Pat Elliot
TITLE: President
BY:
NAME:
TITLE:
<PAGE>
DEFINITIONS: As used on page 1, "[X]" means the terms that apply to this loan.
"I," "me" or "my" means each Borrower who signs this note and each other
person or legal entity (including guarantors, endorsers, and sureties) who
agrees to pay this note (together referred to as "us"). "You" or "your"
means the Lender and its successors and assigns.
APPLICABLE LAW: The law of the state of Texas will govern this note. Any term of
this note which is contrary to applicable law will not be effective, unless the
law permits you and me to agree to such a variation. If any provision of this
agreement cannot be enforced according to its terms, this fact will not affect
the enforceability of the remainder of this agreement. No modification of this
agreement may be made without your express written consent. Time is of the
essence in this agreement.
PAYMENTS: Each payment I make on this note will first reduce the amount I owe
you for charges which are neither interest nor principal. The remainder of each
payment will then reduce accrued unpaid interest, and then unpaid principal. If
you and I agree to a different application of payments, we will describe our
agreement on this note. I may prepay a part of, or the entire balance of this
loan without penalty, unless we specify to the contrary on this note. Any
partial prepayment will not excuse or reduce any later scheduled payment until
this note is paid in full unless, when I make the prepayment, you and I agree in
writing to the contrary).
INTEREST: Interest accrues on the principal remaining unpaid from time to time,
until paid in full. If I receive the principal in more than one advance, each
advance will start to earn interest only when I receive the advance. The
interest rate in effect on this note at any given time will apply to the entire
principal at that time. Notwithstanding anything to the contrary, I do not agree
to pay and you do not intend to charge any rate of interest that is higher than
the maximum rate of interest you could charge under applicable law for the
extension of credit that is agreed to here (either before or after maturity). If
any notice of interest accrual is sent and is in error, we mutually agree to
correct it, and if you actually collect more interest than allowed by law and
this agreement, you agree to refund it to me.
INDEX RATE: The index will serve only as a device for setting the rate on this
note. You do not guarantee by selecting this index, or the margin, that the rate
on this note will be the same rate you charge on any other loans or class of
loans to me or other borrowers.
ACCRUAL METHOD: The amount of interest that I will pay on this loan will be
calculated using the interest rate and accrual method stated on page 1 of this
note. For the purpose of interest calculation, the accrual method will determine
the number of days in a "year." If no accrual method is stated, then you may
use any reasonable accrual method for calculating interest.
POST MATURITY RATE: For purposes of deciding when the "Post Maturity Rate"
(shown on page 1) applies, the term "maturity" means the date of the last
scheduled payment indicated on page 1 of this note or the date you accelerate
payment on the note, whichever is earlier.
SINGLE ADVANCE LOANS: If this is a single advance loan, you and I expect that
you will make only one advance of principal. However, you may add other amounts
to the principal if you make any payments described in the "PAYMENTS BY
LENDER" paragraph below.
MULTIPLE ADVANCE LOANS: If this is a multiple advance loan, you and I expect
that you will make more than one advance of principal. If this is closed end
credit, repaying a part of the principal will not entitle me to additional
credit.
PAYMENTS BY LENDER: If you are authorized to pay, on my behalf, charges I am
obligated to pay (such as property insurance premiums), then you may treat those
payments made by you as advances and add them to the unpaid principal under this
note, or you may demand immediate payment of the charges.
SET-OFF: I agree that you may set off any amount due and payable under this note
against any right I have to receive money from you.
"Right to receive money from you" means:
(1) any deposit account balance I have with you;
(2) any money owed to me on an item presented to you or in your possession
for collection or exchange; and
(3) any repurchase agreement or other nondeposit obligation.
"Any amount due and payable under this note" means the total amount of
which you are entitled to demand payment under the terms of this note at the
time you set off. This total includes any balance the due date for which you
properly accelerate under this note.
If my right to receive money from you is also owned by someone who has not
agreed to pay this note, your right of set-off will apply to my interest in the
obligation and to any other amounts I could withdrawn on my sole request or
endorsement. Your right of set-off does not apply to an account or other
obligation where my rights are only as a representative. It also does not apply
to any Individual Retirement Account or other tax-deferred retirement account.
You will not be liable for the dishonor of any check when the dishonor
occurs because you set off this debt against any of my accounts. I agree to hold
you harmless from any such claims arising as a result of your exercise of your
right of set-off.
REAL ESTATE OR RESIDENCE SECURITY: If this note is secured by real estate or a
residence that is personal property, the existence of a default and your
remedies for such a default will be determined by applicable law, by the terms
of any separate instrument creating the security interest and, to the extent not
prohibited by law and not contrary to the terms of the separate security
instrument, by the "Default" and "Remedies" paragraphs herein.
DEFAULT: I will be in default on this loan and any agreement securing this loan
if any one or more of the following occurs:
(1) I fail to perform any obligation which I have undertaken in this note
or any agreement securing this note; or
(2) you, in good faith, believe that the prospect of payment or the
prospect of my performance of any other of my obligations under this
note or any agreement securing this note is impaired.
If any of us are in default on this note or any security agreement, you may
exercise your remedies against any or all of us.
REMEDIES: If I am in default on this note you have, but are not limited to, the
following remedies:
(1) You may demand immediate payment of my debt under this note
(principal, accrued unpaid interest and other accrued charges).
(2) You may set off this debt against any right I have to the payment of
money from you, subject to the terms of the "Set-Off" paragraph
herein.
(3) You may demand security, additional security, or additional parties to
be obligated to pay this note as a condition for not using any other
remedy.
(4) You may refuse to make advances to me or allow purchases on credit by
me.
(5) You may use any remedy you have under state or federal law.
By selecting any one or more of these remedies you do not give up your
right to later use any other remedy. By waiving your right to declare an event
to be a default, you do not waive your right to later consider the event as a
default if it continues or happens again.
COLLECTION COSTS AND ATTORNEY'S FEES: I agree to pay all costs of collection,
replevin or any other or similar type of cost if I am in default. In addition,
if you hire an attorney to collect this note, I also agree to pay any fee you
incur with such attorney plus court costs (except where prohibited by law). To
the extent permitted by the United States Bankruptcy Code, I also agree to pay
the reasonable attorney's fees and costs you incur to collect this debt as
awarded by any court exercising jurisdiction under the Bankruptcy Code.
WAIVER: I give up my rights to require you to do certain things. I will not
require you to:
(1) demand payment of amounts due (presentment);
(2) obtain official certification of nonpayment (protest);
(3) give notice that amounts due have not been paid (notice of dishonor);
(4) give notice of intent to accelerate; or
(5) give notice of acceleration.
I waive any defenses I have based on suretyship or impairment of
collateral.
OBLIGATIONS INDEPENDENT: I understand that I must pay this note even if someone
else has also agreed to pay it (by, for example, signing this form or a separate
guarantee or endorsement). You may sue me alone, or anyone else who is obligated
on this note, or any number of us together, to collect this note. You may do so
without any notice that it has not been paid (notice of dishonor). You may
without notice release any party to this agreement without releasing any other
party. If you give up any of your rights, with or without notice, it will not
affect my duty to pay this note. Any extension of new credit to any of us, or
renewal of this note by all or less than all of us will not release me from my
duty to pay it. (Of course, you are entitled to only one payment in full.) I
agree that you may at your option extend this note or the debt represented by
this note, or any portion of the note or debt, from time to time without limit
or notice and for any term without affecting my liability for payment of this
note. I will not assign my obligation under this agreement without your prior
written approval.
CREDIT INFORMATION: I agree and authorize you to obtain credit information about
me from time to time (for example, by requesting a credit report) and to report
to others your credit experience with me (such as a credit reporting agency). I
agree to provide you, upon request, any financial statement or information you
may deem necessary. I warrant that the financial statements and information I
provide to you are or will be accurate, correct and complete.
NOTICE: Unless otherwise required by law, any notice to me shall be given by
delivering it or by mailing it by fist class mail addressed to me at my last
known address. My current address is on page 1. I agree to inform you in writing
of any change in my address. I will give any notice to you by mailing it first
class to your address stated on page 1 of this agreement, or to any other
address that you have designated.
<TABLE>
<CAPTION>
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BORROWER'S
INITIALS INTEREST
DATE OF PRINCIPAL (NOT PRINCIPAL PRINCIPAL INTEREST INTEREST PAID
TRANSACTION ADVANCE REQUIRED) PAYMENTS BALANCE RATE PAYMENTS THROUGH:
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<S> <C> <C>
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</TABLE>
(page 2 of 2)
EXHIBIT 6.3
AMERICAN ENERGY SERVICES, INC.
7224 LAWNDALE
HOUSTON, TX 77539
TAXPAYER I.D. NUMBER: 76-0279883
METROBANK, N.A. GALLERIA BRANCH
5065 WESTHEIMER, STE. #1111
HOUSTON, TX 77056
SECURED PARTY'S NAME AND ADDRESS
("You" means the Secured Party, its successors and assigns.)
I am entering into this security agreement with you on MAY 2, 1998 (date).
SECURED DEBTS. I agree that this security agreement will secure the payment and
performance of the debts, liabilities or obligations described below that (Check
one) [ ] I [X] AMERICAN ENERGY SERVICES, INC., LOAN #721099972, DTD.
05-02-98; I/A/O $2,000,000 owe(s) to you now or in the future:ttttttttt
(Check one below):
[X] SPECIFIC DEBT(S): The debt(s), liability or obligations evidenced by
(describe): NOTE #721099972 FROM AMERICAN ENERGY SERVICES, INC. and
all extensions, renewals, refinancings, modifications and replacements
of the debt, liability or obligation.
[ ] ALL DEBT(S). Except in those cases listed in the "LIMITATIONS"
paragraph on page 2, each and every debt, liability and obligation of
every type and description (whether such debt, liability or obligation
now exists or is incurred or created in the future and whether it is
or may be direct or indirect, due or to become due, absolute or
contingent, primary or secondary, liquidated or unliquidated, or
joint, several or joint and several).
SECURITY INTEREST. To secure the payment and performance of the above described
Secured Debts, liabilities and obligations, I give you a security interest
in all of the property described below, that I now own and that I may own
in the future (including, but not limited to, all parts, accessories,
repairs, improvements, and accessions to the property), wherever the
property is or may be located, and all proceeds and products from the
property.
[X] INVENTORY: All inventory which I hold for ultimate sale or lease, or
which has been or will be supplied under contracts of service, or
which are raw materials, work in process, or materials used or
consumed in my business:
[X] EQUIPMENT: All equipment including, but not limited to, all machinery,
vehicles, furniture, fixtures, manufacturing equipment, farm machinery
and equipment, shop equipment, office and recordkeeping equipment, and
parts and tools. All equipment described in a list or schedule which I
give to you will also be included in the secured property, but such a
list is not necessary for a valid security interest in my equipment.
[ ] FARM PRODUCTS: All farm products, but not limited to:
(a) all poultry and livestock and their young, along with their
products, produce and replacements;
(b) all crops, annual or perennial, and all products of the crops; and
(c) all feed, seed, fertilizer, medicines, and other supplies used or
produced in my farming operations.
[X] ACCOUNTS, INSTRUMENTS, DOCUMENTS, CHATTEL PAPER AND OTHER RIGHTS TO
PAYMENT: All rights I have now and that I may have in the future to
the payment of money, including but not limited to: (a) payment for
goods and other property sold or leased or for services rendered,
whether or not I have earned such payment by performance; and (b)
rights to pay arising out of all present and future debt instruments,
chattel paper and loans and obligations receivable. The above includes
any rights and interests (including all liens and security interests)
which I may have by law or agreement against any account debtor or
obligor of mine.
[X] GENERAL INTANGIBLES: All general intangibles including, but not
limited to, tax refunds, applications for patents, patents,
copyrights, trademarks, trade secrets, good will, trade names,
customer lists, permits and franchises, and the right to use my name.
[ ] GOVERNMENT PAYMENTS AND PROGRAMS: All payments, accounts, general
intangibles, or other benefits (including, but not limited to,
payments in kind, deficiency payments, letters of entitlement,
warehouse receipts, storage payments, emergency assistance payments,
diversion payments, and conservation reserve payments) in which I now
have and in the future may have any rights or interest and which arise
under or as a result of any preexisting, current or future Federal or
state governmental program (including, but not limited to, all
programs administered by the Commodity Credit Corporation and the
ASCS).
[X] THE SECURED PROPERTY INCLUDES, BUT IS NOT LIMITED BY, THE FOLLOWING:
SEE EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF
If this agreement covers timber to be cut, minerals (including oil and gas),
fixtures or crops growing or to be grown, the legal description is:
-------------------------------------------------------------------------
I am a(n) [ ] Individual [ ] partnership [X] corporation
[ ] ________________________________________________
[ ] If checked, file this agreement in the real estate records.
Record Owner (if not me):
___________________________________________________________________
___________________________________________________________________
The property will be used for [ ] personal [X] business
[ ] agricultural [ ]________________ reasons.
METROBANK, N.A. GALLERIA BRANCH
(Secured Party's Name)
By: AMAL GUNERAINE
Title: VICE PRESIDENT
I AGREE TO THE TERMS SET OUT ON BOTH PAGE 1 AND PAGE 2 OF THIS AGREEMENT.
I have received a copy of this document on today's date.
AMERICAN ENERGY SERVICES, INC.
(Debtor's Name)
By: /s/ PAT ELLIOTT
NAME:
Title: PRESIDENT
By:
NAME:
Title:
(page 1 of 2)
<PAGE>
GENERALLY -- "You" means the Secured Party identified on page 1 of this
agreement. "I," "me" and "my" means each person who signs this security
agreement as Debtor and who agrees to give the property described in this
agreement as security for the Secured Debts. All terms and duties under this
agreement are joint and individual. No modification of this security agreement
is effective unless made in writing and signed by you and me. This security
agreement remains in effect, even if the note is paid and I owe no other debt to
you, until discharged in writing. Time is of the essence in this agreement.
APPLICABLE LAW -- I agree that this security agreement will be governed by the
law of the state in which you are located. If property described in this
agreement is located in another state, this agreement may also, in some
circumstances, be governed by the law of the state in which the property is
located.
To the extent permitted by law, the terms of this agreement may vary
applicable law. If any provision of applicable law may not be varied by
agreement, any provision of this agreement that does not comply with that law
will not be effective. If any provision of this agreement cannot be enforced
according to its terms, this fact will not affect the enforceability of the
remainder of this agreement.
OWNERSHIP AND DUTIES TOWARD PROPERTY -- I represent that I own all of the
property, or to the extent this is a purchase money security interest I will
acquire ownership of the property with the proceeds of the loan, I will defend
it against any other claim. Your claim to the property is ahead of the claims of
any other creditor. I agree to do whatever you require to protect your security
interest and to keep your claim in the property ahead of the claims of other
creditors. I will not do anything to harm your position.
I will keep books, records and accounts about the property and my business
in general. I will let you examine these records at any reasonable time. I will
prepare any report or accounting you request, which deals with the property.
I will keep the property in my possession and will keep it in good repair
and use it only for the purpose(s) described on page 1 of this agreement. I will
not change this specified use without your express written permission. I
represent that I am the original owner of the property and, if I am not, that I
have provided you with a list of prior owners of the property.
I will keep the property at my address listed on page 1 of this agreement,
unless we agree I may keep it at another location. If the property is to be used
in another state, I will give you a list of those states. I will not try to sell
the property unless it is inventory or I receive your written permission to do
so. If I sell the property I will have the payment made payable to the order of
you and me.
You may demand immediate payment of the debt(s) if the debtor is not a
natural person and without your prior written consent (1) a beneficial interest
in the debtor is sold or transferred or (2) there is a change in either the
identity or number of members of a partnership or (3) there is a change in
ownership of more than 25 percent of the voting stock of a corporation.
I will pay all taxes and charges on the property as they become due. You
have the right of reasonable access in order to inspect the property. I will
immediately inform you of any loss or damage to the property.
LIMITATIONS -- This agreement will not secure a debt described in the
section entitled "Secured Debts" on page 1:
1) if you fail to make any disclosure of the existence of this security
interest required by law for such other debt;
2) if this security interest is in my principal dwelling and you fail to
provide (to all persons entitled) any notice of right of rescission
required by law for such other debt;
3) to the extent that this security interest is in "household goods" and
the other debt to be secured is a "consumer" loan (as those terms are
defined in applicable federal regulations governing unfair and deceptive
credit practices);
4) if this security interest is in margin stock subject to the requirements
of 12 C.F.R. Section 207 or 221 and you do not obtain a statement of
purpose if required under these regulations with respect to that debt;
or
5) if this security interest is unenforceable by law with respect to that
debt.
PURCHASE MONEY SECURITY INTEREST -- For the sole purpose of determining the
extent of a purchase money security interest arising under this security
agreement: (a) payments on any non-purchase money loan also secured by this
agreement will not be deemed to apply to the purchase money loan, and (b)
payments on the purchase money loan will be deemed to apply first to the
non-purchase money portion of the loan, if any, and then to the purchase money
obligations in the order in which the items of collateral were acquired or if
acquired at the same time, in the order selected by you. No security interest
will be terminated by application of this formula. "Purchase money loan" means
any loan the proceeds of which, in whole or in part, are used to acquire any
collateral securing the loan and all extensions, renewals, consolidations and
refinancings of such loan.
AUTHORITY OF SECURED PARTY TO MAKE ADVANCES AND PERFORM FOR DEBTOR -- I agree to
pay you on demand any sums you advanced on my behalf including, but not limited
to, expenses incurred in collecting, insuring, conserving, or protecting the
property or in any inventories, audits, inspections or other examinations by you
in respect to the property. If I fail to pay such sums, you may do so for me,
adding the amount paid to the other amounts secured by this agreement. All such
sums will be due on demand and will bear interest at the highest rate provided
in any agreement, note or other instrument evidencing the Secured Debt(s) and
permitted by law at the time of the advance.
If I fail to perform any of my duties under this security agreement, or any
mortgage, deed of trust, lien or other security interest, you may without notice
to me perform the duties or cause them to be performed. I understand that this
authorization includes, but is not limited to, permission to: (1) prepare, file,
and sign my name to any necessary reports or accountings; (2) notify any account
debtor of your interest in this property and tell the account debtor to make the
payments to you or someone else you name, rather than me; (3) place on any
chattel paper a note indicating your interest in the property; (4) in my name,
demand, collect, receive and give a receipt for, compromise, settle, and handle
any suits or other proceedings involving the collateral; (5) take any action you
feel is necessary in order to realize on the collateral, including performing
any part of a contract or endorsing it in my name; and (6) make an entry on my
books and records showing the existence of the security agreement. Your right to
perform for me shall not create an obligation to perform and your failure to
perform will not preclude you from exercising any of your other rights under the
law or this security agreement.
INSURANCE -- I agree to buy insurance on the property against the risks and for
the amounts you require and to furnish you continuing proof of coverage. I will
have the insurance company name you as loss payee on any such policy. You may
require added security if you agree that insurance proceeds may be used to
repair or replace the property. I will buy insurance from a firm licensed to do
business in the state where you are located. The firm will be reasonably
acceptable to you. The insurance will last until the property is released from
this agreement. If I fail to buy or maintain the insurance (or fail to name you
as loss payee) you may purchase it yourself.
WARRANTIES AND REPRESENTATIONS -- If this agreement includes accounts, I will
not settle any account for less than its full value without your written
permission. I will collect all accounts until you tell me otherwise. I will keep
the proceeds from all the accounts and any goods which are returned to me or
which I take back in trust for you. I will not mix them with any other property
of mine. I will deliver them to you at your request. If you ask me to pay you
the full price on any returned items or items retaken by myself, I will do so.
If this agreement covers inventory, I will not dispose of its except in my
ordinary course of business at the fair market value for the property, or at a
minimum price established between you and me.
If this agreement covers farm products I will provide you, at your request,
a written list of the buyers, commission merchants or selling agents to or
through whom I may sell my farm products. In addition to those parties named on
this written list, I authorize you to notify at your sole discretion any
additional parties regarding your security interest in my farm products. I
remain subject to all applicable penalties for selling my farm products in
violation of my agreement with you and the Food Security Act. In this paragraph
the terms farm products, buyers, commission merchants and selling agents have
the meanings given to them in the Federal Food Security Act of 1985.
DEFAULT -- I will be in default if any one or more of the following occur: (1) I
fail to make a payment on time or in the amount due; (2) I fail to keep the
property insured, if required; (3) I fail to pay, or keep any promise, on any
debt or agreement I have with you; (4) any other creditor of mine attempts to
collect any debt I owe him through court proceedings; (5) I die, am declared
incompetent, make an assignment for the benefit of creditors, or become
insolvent (either because my liabilities exceed my assets or I am unable to pay
my debts as they become due); (6) I make any written statement or provide any
financial information that is untrue or inaccurate at the time it was provided;
(7) I do or fail to do something which causes you to believe that you will have
difficulty collecting the amount I owe you; (8) I change my name or assume an
additional name without first notifying you before making such a change; (9)
failure to plant, cultivate and harvest crops in due season; (10) if any loan
proceeds are used for a purpose that will contribute to excessive erosion of
highly erodible land or to the conversion of wetlands to produce an agricultural
commodity, as further explained in 7 C.F.R. Part 1940, Subpart G, Exhibit M.
REMEDIES -- If I am in default on this agreement, you have the following
remedies:
1) You may demand immediate payment of all I owe you under any obligation
secured by this agreement.
2) You may set off any obligation I have to you against any right I have
to the payment of money from you.
3) You may demand more security or new parties obligated to pay any debt I
owe you as a condition of giving up any other remedy.
4) You may make use of any remedy you have under state or federal law.
5) If I default by failing to pay taxes or other charges, you may pay them
(but you are not required to do so). If you do, I will repay to you the
amount you paid plus interest at the highest contract rate.
6) You may require me to gather the property and make it available to you
in a reasonable fashion.
7) You may repossess the property and sell it as provided by law. You may
repossess the property so long as the repossession does not involve a
breach of the peace or an illegal entry onto my property. You may sell
the property as provided by law. You may apply what you receive from
the sale of the property to: your expenses; your reasonable attorney's
fees and legal expenses (where not prohibited by law); any debt I owe
you. If what you receive from the sale of the property does not satisfy
the debts, you may take me to court to recover the difference (where
permitted by law).
I agree that 10 days written notice sent to my address listed on page 1
by first class mail will be reasonable notice to me under the Uniform
Commercial Code.
If any items not otherwise subject to this agreement are contained in
the property when you take possession, you may hold these items for me
at my risk and you will not be liable for taking possession of them.
8) In some cases, you may keep the property to satisfy the debt. You may
enter upon and take possession of all or any part of my property, so
long as you do not breach the peace or illegally enter onto the
property, including lands, plants, buildings, machinery, and equipment
as may be necessary to permit you to manufacture, produce, process,
store or sell or complete the manufacture, production, processing,
storing or sale of any of the property and to use and operate the
property for the length of time you feel is necessary to protect your
interest, all without payment or compensation to me.
By choosing any one or more of these remedies, you do not waive your right
to later use any other remedy. You do not waive a default if you choose not to
use any remedy, and, by electing not to use any remedy, you do not waive your
right to later consider the event a default and to immediately use any remedies
if it continues or occurs again.
FILING -- A carbon, photographic or other reproduction of this security
agreement or the financing statement covering the property described in this
agreement may be used as a financing statement where allowed by law. Where
permitted by law, you may file a financing statement which does not contain my
signature, covering the property secured by this agreement.
CO-MAKERS -- If more than one of us has signed this agreement, we are all
obligated equally under the agreement. You may sue any one of us or any of us
together if this agreement is violated. You do not have to tell me if any term
of the agreement has not been carried out. You may release any co-signer and I
will still be obligated under this agreement. You may release any of the
security and I will still be obligated under this agreement. Waiver by you of
any of your rights will not affect my duties under this agreement. Extending
this agreement or new obligations under this agreement, will not affect my duty
under the agreement.
(page 2 of 2)
<PAGE>
_________ STATE OF TEXAS _____________________________ SPACE ABOVE THIS LINE
FOR RECORDING DATA _____________________________________________________________
ABSOLUTE ASSIGNMENT OF LEASES AND RENTS
1. DATE AND PARTIES. The date of this Absolute Assignment of Leases and Rents
(Absolute Assignment) is May 2, 1998 and the parties, their addresses and
tax identification numbers, if required, are as follows:
ASSIGNOR: AMERICAN ENERGY SERVICES, INC.
CORPORATION
7224 LAWNDALE
HOUSTON, TX 77539
TAXPAYER I.D. #: 76-0279883
[ ] If checked, refer to the attached Addendum incorporated herein, for
additional Assignors, their signatures and acknowledgements.
TRUSTEE: ROBERT R. TRIMBLE
TRUSTEE
9600 BELLAIRE STE 252
HOUSTON, TX 77036
TAXPAYER I.D. #: 76-0201440
LENDER: METROBANK, N.A. GALLERIA BRANCH
ORGANIZED AND EXISTING UNDER THE LAWS
OF THE UNITED STATES OF AMERICA
5065 WESTHEIMER, STE. #1111
HOUSTON, TX 77056
TAXPAYER I.D. #: 76-0201440
2. ASSIGNMENT OF LEASES AND RENTS. To induce Lender to extend the Obligations
(hereafter defined) and for good and valuable consideration, including Ten
Dollars paid to Lender, the receipt and sufficiency of which is
acknowledged, Assignor absolutely, unconditionally, irrevocably and
immediately assigns, grants, sells and conveys to Trustee, in trust for the
benefit of Lender, all of Assignor's right, title and interest in and to any
and all of the following (collectively referred to as "Collateral"):
A. Existing or future leases, subleases, licenses, guaranties of
performance of any party thereunder and any other written or verbal
agreements for the use and occupancy of any portion of the Property
(hereafter defined), including any extensions, renewals, modifications
or substitutions of such agreements, including but not limited to the
following described Leases (Leases):
B. Rents, issues and profits (Rents), including without limitation,
security deposits, minimum rents, percentage rent, additional rent,
common area maintenance charges, parking charges, real estate taxes,
other applicable taxes, insurance premium contributions, liquidated
damages following default, cancellation premiums, "loss of rents"
insurance, guest receipts, revenues, royalties, proceeds, bonuses,
accounts, contract rights, general intangibles, and all rights and
claims which Assignor may have that in any way pertains to or is on
account of the use or occupancy of the whole or any part of the
Property.
This assignment is an absolute assignment and not an assignment for
additional security. In the event any item listed as Leases or Rents is
determined to be personal property, this Absolute Assignment will also be
regarded as a security agreement.
3. OBLIGATIONS DEFINED. The term "Obligations" is defined as follows:
A. Debt incurred under the terms of all promissory note(s), contract(s),
guaranty(s) or other evidence of debt described below and all their
extensions, renewals, modifications or substitutions (Evidence of Debt).
(WHEN REFERENCING THE DEBTS BELOW IT IS SUGGESTED THAT YOU INCLUDE ITEMS
SUCH AS THE BORROWERS' NAMES, NOTE AMOUNTS, INTEREST RATES, MATURITY
DATES, ETC.)
PROMISSORY NOTE #721099972 (EXIM BANK COMMITMENT #AP069603XB) IN THE
AMOUNT OF $2,000,000.00 FROM AMERICAN ENERGY SERVICES, INC. TO
METROBANK, N.A.; DATED 05-02-98 AT A CURRENT RATE OF PRIME PLUS .5%; TO
MATURE ON SEPTEMBER 2, 1998.
(page 1 of 6)
<PAGE>
B. All future advances from Lender to Assignor or other future obligations
of Assignor to Lender under any promissory note, contract, guaranty or
other evidence of debt executed by Assignor in favor of lender executed
after this Absolute Assignment whether or not this Absolute Assignment
is specifically referenced. If more than one person signs the Absolute
Assignment, each Assignor agrees that this Absolute Assignment will
secure all future advances and future obligations that are given to or
incurred by any one or more Assignor, or any one or more Assignor and
others. All future advances and other future obligations are secured by
this Absolute Assignment even though all or part may not yet be
advanced. All future advances and other future obligations are secured
as if made on the date of this Absolute Assignment. Nothing in this
Absolute Assignment shall constitute a commitment to make additional or
future loans or advances in any amount. Any such commitment must be
agreed to in a separate writing.
C. All obligations Assignor owes to Lender, which may later arise, to the
extent not prohibited by law, including without limitation, liabilities
for overdrafts relating to any deposit account agreement between
Assignor and Lender.
D. All additional sums advanced and expenses incurred by Lender for
insuring, preserving or otherwise protecting the Collateral and its
value and any other sums advanced and expenses incurred by the Lender
under the terms of this Absolute Assignment.
E. Assignor's performance under the terms of any instrument evidencing a
debt by Assignor to Lender and any security instrument securing,
guarantying or otherwise relating to the debt.
This Absolute Assignment will not secure any other debt if the Lender
fails to give any required notice of the right of recissions.
4. PAYMENTS. Assignor agrees that all payments under the Obligations will be
paid when due and in accordance with the terms of each Evidence of Debt and
this Absolute Assignment.
5. COLLECTION OF RENTS. Lender grants Assignor a revocable license to collect,
receive, enjoy and use the Rents so long as Assignor is not in default.
Assignor's default automatically and immediately revokes this license.
Except for one lease period's rent. Assignor will not collect in advance any
Rents due in future lease periods without Lender's prior written consent.
Assignor will receive any Rents in trust for Lender and Assignor will not
commingle the Rents with any other funds. When Lender so directs, Assignor
will endorse and deliver any payments of Rents from the Property to Lender.
Assignor agrees that Lender will not be considered to be a
mortgagee-in-possession by executing this Absolute Assignment or by
collecting or receiving payments on the obligations (hereafter defined), but
only may become a mortgagee-in-possession after Assignor's license to
collect, receive, enjoy and use the Rents is revoked by Lender or
automatically revoked on Assignor's default, and Lender actually takes
possession of the Property. Consequently, until Lender takes actual
possession of the Property, Lender is not obligated to perform or discharge
any obligation of Assignor under the Leases, appear in or defend any action
or proceeding relating to the Rents, the Leases or the Property, or be
liable in any way for any injury or damage to any person or property
sustained in or about the Property.
6. WARRANTIES AND COVENANTS. To induce Lender to extend credit by entering into
the Obligations, Assignor makes the following warranties and covenants:
A. Assignor has good title to the Leases, Rents and Property and the right
to absolutely, unconditionally, irrevocably and immediately assign,
grant, convey and sell the Leases and Rents and no other person has any
right in the Leases and Rents.
B. Assignor has recorded the Leases as required by law or as otherwise
prudent for the type and use of the Property.
C. No default exists under the Leases, and the parties subject to the
Leases have not violated any applicable law on leases, licenses and
landlords and tenants. Assignor, at its sole cost and expense, will
keep, observe and perform, and require all other parties to the Leases
to comply with, the Leases and any applicable law. If Assignor or any
party to the Lease defaults or fails to observe any applicable law,
Assignor will promptly notify Lender of this noncompliance.
D. When any Lease provides for an abatement of Rents due to fire, flood or
other casualty, Assignor will insure against this risk of loss with a
policy satisfactory to Lender.
E. Assignor will promptly provide Lender with copies of the Leases and will
certify these Leases are true and correct copies. This existing Leases
will be provided on execution of the Absolute Assignment, and all future
Leases will be provided immediately after they are executed.
<PAGE>
F. Immediately after execution of this Absolute Assignment, Assignor will
notify all current and future tenants and others obligated under the
Leases of Lender's right to the Leases and Rents, and will request that
they immediately pay all future Rents directly to Lender when Assignor
or Lender demand them to do so.
G. When Lender requests, Assignor will provide to Lender an accounting of
Rents, prepared in a form acceptable to Lender, subject to generally
accepted accounting principles in effect when such statements are made,
and certified by Assignor or Assignor's accountant to be current, true,
accurate and complete as of the date requested by Lender.
H. Assignor has not sublet, modified, extended, canceled, or otherwise
altered the Leases, or accepted the surrender of the Property covered by
the Leases (unless the Leases so required), nor will Assignor do so
without Lender's prior written consent.
I. Assignor has not assigned, compromised, subordinated or encumbered the
Leases and Rents, and will not do so without Lender's prior written
consent.
J. Assignor will not enter into any future Leases without prior written
consent from Lender and at Lender's request, Assignor will execute and
deliver such further assurances and assignments as to these future
Leases as Lender requires from time to time.
(page 2 of 6)
<PAGE>
K. Assignor will not sell or remove any personal property on the Property,
unless Assignor replaces this personal property with like kind for the
same or better value.
L. Assignor will appear in and prosecute its claims or defend its title to
the Leases and Rents against any claims that would impair Assignor's
interest under this Absolute Assignment, and on Lender's request.
Assignor will also appear in any action or proceeding in the name and on
behalf of Lender. Assignor will pay Lender for all costs and expenses,
including reasonable attorneys' fees, incurred by Lender for appearing
in any action or proceeding related to the Leases or Rents. Assignor
agrees to assign to Lender, as requested by Lender, any rights, claims
or defenses which Assignor may have against parties who supply labor or
materials to improve or maintain the leaseholds subject to the Leases
and/or the Property.
M. If Lender acts to manage, protect and preserve the Property, Lender does
not assume or become liable for its maintenance, depreciation, or other
losses or damages, except those due to Lender's gross negligence or
intentional torts. Otherwise, Assignor will indemnify Lender and hold
Lender harmless for any and all liability, loss or damage that Lender
may incur as a result of this Absolute Assignment or any action taken to
manage, protect or preserve the Property or Lender's interest in the
Leases and Rents.
N. Assignor will not cause or permit the leasehold estate under the Leases
to merge with Assignor's reversionary interest, and agrees that the
Lease shall remain in full force and effect regardless of any merger of
the Assignor's interests and of any merger of the interests of Assignor
and of tenants and other parties obligated under the Lease.
O. Lender will be the crditor of each tenant and of anyone else obligated
under the Leases who is subject to any assignment for the benefit of
creditors, an insolvency, a dissolution or a receivership proceeding, or
a bankruptcy.
P. If Assignor become subject to a voluntary or involuntary bankruptcy,
then Assignor agrees that the Leases and Rents are "cash collateral" as
defined by the U.S. Bankruptcy Code, 11 U.S.C. ^ 363, as amended, and
Lender is entitled to receive relief from the automatic stay in
bankruptcy for the purpose of making this Absolute Assignment effective
and enforceable under state and federal law.
7. TRANSFER OF AN INTEREST IN THE ASSIGNOR. If Assignor is an entity other
than a natural person (such as a corporation or other organization), Lender
may demand immediate payment if:
A. A beneficial interest in Assignor is sold or transferred;
B. There is a change in either the identity or number of members of a
partnership or similar entity; or
C. There is a change in ownership of more than 25 percent of the voting
stock of a corporation or similar entity.
However, Lender may not demand payment in the above situations if it is
prohibited by law as of the date of this Absolute Assignment.
8. ENTITY WARRANTIES AND REPRESENTATIONS. If Assignor is an entity other than
a natural person (such as a corporation or other organization), Assignor
makes to Lender the following warranties and representations which shall be
continuing as long as the Obligations remain outstanding:
A. Assignor is an entity which is duly organized and validly existing in
the Assignor's state of incorporation or organization. Assignor is in
good standing in all states in which Assignor transacts business.
Assignor has the power and authority to own the Leases, the Rents and
the Property and to carry on its business as now being conducted and, as
applicable, is qualified to do so in each state in which Assignor
operates.
B. The execution, delivery and performance of this Absolute Assignment by
Assignor and the obligations evidenced by the Obligations are within the
power of Assignor, have been duly authorized, have received all
necessary governmental approval, and will not violate any provision of
law, or order of court or governmental agency.
C. Other than disclosed in writing to Lender, Assignor has not changed its
name within the last ten years and has not used any other trade or
fictitious name. Without Lender's prior written consent, Assignor does
not and will not use any other name and will preserve its existing name,
trade names and franchises until the Obligations are satisfied.
9. DEFAULT. Assignor will be in default if any of the following occur:
A. Any party obligated on the Obligations fails to make payment when due;
B. A breach of any term or covenant in this Absolute Assignment or any
other document executed for the purpose of creating, securing or
guarantying the Obligations;
C. The making or furnishing of any verbal or written representation,
statement or warranty to Lender that is false or incorrect in any
material respect by Assignor or any person or entity obligated on the
Obligations;
D. The death, dissolution, appointment of a receiver for, or application of
any debtor relief law to, Assignor or any person or entity obligated on
the Obligations;
E. A good faith belief by Lender at any time that Lender is insecure with
respect to any person or entity obligated on the Obligations or that the
prospect of any payment is impaired or the Collateral is impaired;
F. A material adverse change in Assignor's business including ownership,
management, and financial conditions, which Lender in its opinion
believes impairs the value of the Collateral or repayment of the
Obligations; or
G. Any loan proceeds are used for a purpose that will contribute to
excessive erosion of highly erodible land or to the conversion of
wetlands to produce an agricultural commodity, as further explained in 7
C.F.R. Part 1940, Subpart G, Exhibit M.
10. REMEDIES ON DEFAULT. Subject to any notice and right to cure, mediation or
other such rights and limitations, Lender may accelerate the Obligations
and enforce this Absolute Assignment in a manner provided by law if
Assignor is in default. At the option of the Lender, all or any part of the
agreed fees and charges and the Obligations shall become immediately due
and payable, after giving notice if required by law, upon the occurrence of
a default or anytime thereafter.
(page 3 of 6)
<PAGE>
On or after Assignor's default and to the extent not prohibited or limited
by law, Lender may, without regard to the adequacy of the security for the
Obligations, without bond, with or without bringing any action or
proceeding, in person or by an agent, or by a receiver (who may be Lender's
officer or employee) or other person appointed by a court: enter upon, take
possession of, and manage and operate the Property; make, modify, enforce,
cancel or accept the surrender of any Leases; obtain and evict tenants,
operators, concessionaires, and licensees; fix or modify Rents; and
terminate Assignor's right to collect Rent, and thereafter either with or
without taking possession of the Property, in its own name, sue for or
otherwise collect and receive all Rents, including those past due and
unpaid, and after giving proper receipts and releases, apply the Rents in
the order as required by law and otherwise as Lender determines, to the
costs and expenses of operation and collection, including reasonable
attorneys' fees, and to the Obligations due under this Absolute Assignment;
and do any acts or incur any costs which Lender deems proper to protect
Lender's interest under this Absolute Assignment until the Obligations are
paid in full. The enforcement of Lender's remedies to collect and receive
Rents, once exercised, shall continue for so long as Lender shall elect,
notwithstanding that such collection and application of Rents may have cured
the original default.
In addition, Lender shall be entitled to all remedies provided at law and
the terms of the Obligations, this Absolute Assignment and any related
documents. All remedies are distinct, cumulative and not exclusive, and the
Lender is entitled to all remedies provided at law or in equity, whether or
not expressly set forth. The acceptance by Lender of any sum in payment or
partial payment on the Obligations after the balance is due or is
accelerated or after enforcement actions or proceedings are filed shall not
constitute a waiver of Lender's right to require complete cure of any
existing default. By not exercising any remedy on Assignors' default, Lender
does not waive Lender's right to later consider the event a default if it
continues or happens again.
11. EXPENSES; ADVANCES ON COVENANTS; ATTORNEYS' FEES; COLLECTION COSTS. Except
when prohibited by law, Assignor agrees to pay all of Lender's expenses if
Assignor breaches any covenant in this Absolute Assignment. Assignor will
also pay on demand all of Lender's expenses incurred in collecting,
insuring, preserving or protecting the Collateral and Lender's assignment
interest or in any audits, inspections or other examination by Lender with
respect to the Collateral. These expenses will bear interest from the date
of the payment until paid in full at the highest interest rate in effect as
provided in the terms of the Obligations, shall become part of the
Obligations and shall be SECURED BY THIS ABSOLUTE ASSIGNMENT. Assignor
agrees to pay all costs and expenses incurred by Lender in collecting,
enforcing or protecting Lender's rights and remedies under this Absolute
Assignment. This amount may include without limitation attorneys' fees,
court costs and other legal expenses. This Absolute Assignment shall remain
in effect until released. Assignor agrees to pay for any recordation costs
of such release.
12. ENVIRONMENTAL LAWS AND HAZARDOUS SUBSTANCES. As used in this section, (1)
"Environmental Law" means, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA, 42 U.S.C.
9601 et seq.), all other federal, state and local laws, regulations,
ordinances, court orders, attorney general opinions or interpretive letters
concerning the public health, safety, welfare, environment or hazardous
substance; and (2) "Hazardous Substance" means any toxic, radioactive or
hazardous material, waste, pollutant or contaminant which has
characteristics which render the substance dangerous or potentially
dangerous to the public health, safety, welfare or environment. The term
includes, without limitation, any substances defined as "hazardous
material", "toxic substances", "hazardous waste" or "hazardous
substance" under any Environmental Law.
Assignor represents, warrants and agrees that:
A. Except as previously disclosed and acknowledged in writing, no Hazardous
Substance has been, is or will be located, transported, manufactured,
treated, refined, or handled by any person on, under or about the
Property, except in the ordinary course of business and in strict
compliance with all applicable Environmental Law.
B. Except as previously disclosed and acknowledged in writing, Assignor has
not and will not cause, contribute to, or permit the release of any
Hazardous Substance on the Property.
C. Assignor will immediately notify Lender if (1) a release or threatened
release of Hazardous Substance occurs on, under or about the Property or
migrates or threatens to migrate from nearby property; or (2) there is a
violation of any Environmental Law concerning the Property. In such an
event, Assignor will take all necessary remedial action in accordance
with Environmental Law.
D. Except as previously disclosed and acknowledged in writing, Assignor has
no knowledge or reason to believe there is any pending or threatened
investigation, claim, or proceeding of any kind relating to (1) any
Hazardous Substance located on, under or about the Property; or (2) any
violation by Assignor or any tenant of any Environmental Law. Assignor
will immediately notify Lender in writing as soon as Assignor has reason
to believe there is any such pending or threatened investigation, claim
or proceeding. In any event, Lender has the right, but not the
obligation, to participate in any such proceeding including the right to
receive copies of any documents relating to such proceedings.
E. Except as previously disclosed and acknowledged in writing, Assignor and
every tenant under the Leases have been, are and shall remain in full
compliance with any applicable Environmental Law.
F. Except as previously disclosed and acknowledged in writing, there are no
underground storage tanks, private dumps or open wells located on or
under the Property and no such tank, dump or well will be added unless
Lender first consents in writing.
G. Assignor will regularly inspect the Property, monitor the activities and
operations on the Property, and confirm that all permits, licenses or
approvals required by any applicable Environmental Law are obtained and
complied with.
H. Assignor will permit, or cause any tenant to permit, Lender or Lender's
agent to enter and inspect the Property and review all records at any
reasonable time to determine (1) the existence, location and nature of
any Hazardous Substance on, under or about the Property; (2) the
existence, location, nature, and magnitude of any Hazardous Substance
that has been released on, under or about the Property; or (3) whether
or not Assignor and any tenant are in compliance with applicable
Environmental Law.
(page 4 of 6)
<PAGE>
I. Under Lender's request and at any time, Assignor agrees, at Assignor's
expense, to engage a qualified environmental engineer to prepare an
environmental audit of the Property and to submit the results of such
audit to Lender. The choice of the environmental engineer who will
perform such audit is subject to Lender's approval.
J. Lender has the right, but not the obligation, to perform any of
Assignor's obligations under this section at Assignor's expense.
K. As a consequence of any breach of any representation, warranty or
promise made in this section, (1) Assignor will indemnify and hold
Lender and Lender's successors or assigns harmless from and against all
losses, claims, demands, liabilities, damages, cleanup, response and
remediation costs, penalties and expenses, including without limitation
all costs of litigation and attorneys' fees, which Lender and Lender's
successors or assigns may sustain; and (2) at Lender's discretion,
Lender may release this Absolute Assignment and in return Assignor will
provide Lender with collateral of at least equal value to the Collateral
assigned by this Absolute Assignment without prejudice to any of
Lender's rights under this Absolute Assignment.
L. Notwithstanding any of the language contained in this Absolute
Assignment to the contrary, the terms of this section shall survive any
satisfaction of this Absolute Assignment regardless of any passage of
title to Lender or any disposition by Lender of any or all of the
Collateral or Property. Any claims and defenses to the contrary are
hereby waived.
13. APPOINTMENT OF A RECEIVER. On or after an Assignor's default, Assignor
agrees and consents to Lender applying to the court -- without notice to or
challenge by Assignor -- for an appointment of a receiver for the benefit of
Lender. Assignor also agrees that the appointed receiver can take possession
of the Property and the Leases, and can receive, collect and apply the
Rents. Any Rents so collected shall be applied as the court authorizes to
pay taxes, to provide insurance, to make repairs and to pay costs of any
other expenses relating to the Property, the Leases and the Rents, and any
remaining sums shall be applied to the Obligations. Assignor agrees that
this appointment of a receiver may be without notice to Assignor, without
giving bond, without reference to the then-existing value of the Property,
and without regard to the insolvency of any person liable for any of the
Obligations.
14. FINANCIAL INFORMATION AND ADDITIONAL DOCUMENTS. Assignor will provide to
Lender on request, any financial statement or information Lender deems
necessary. Assignor agrees to sign, deliver, and file any additional
documents or certifications that Lender may consider necessary to perfect,
make effective, continue, and preserve Assignor's obligations and Lender's
interest under the Absolute Assignment.
15. JOINT AND INDIVIDUAL LIABILITY; CO-SIGNERS, SUCCESSORS AND ASSIGNS BOUND.
All duties under this Absolute Assignment are joint and individual. If
Assignor signs this Absolute Assignment, but does not sign any Evidence of
Debt, Assignor does so only to assign Assignor's interest in the Collateral
for the payment of the Obligations and Assignor does not agree to be
personally liable on the Obligations. If this Absolute Assignment provides
Collateral for a guaranty between Lender and Assignor and does not directly
secure the obligation which is guarantied, Assignor agrees to waive any
rights that may prevent Lender from bringing any action or claim against
Assignor or any party indebted under the obligation. These rights may
include without limitation any anti-deficiency or one-action laws. Assignor
agrees that Lender and any party to this Absolute Assignment may extend,
modify and make any change in the terms of this Absolute Assignment or any
Evidence of Debt without Assignor's consent. Such a change will not release
Assignor from the terms of this Absolute Assignment. The duties and benefits
of this Absolute Assignment shall bind and benefit the successors and
assigns of Assignor and Lender.
16. APPLICABLE LAW; SEVERABILITY; INTERPRETATION. This Absolute Assignment is
governed by the laws of the jurisdiction in which Lender is located, except
to the extent otherwise required by the laws of the jurisdiction where the
Property is located. This Absolute Assignment is complete and fully
integrated. This Absolute Assignment may not be amended or modified by oral
agreement. Any section in this Absolute Assignment, attachments, or any
agreement related to the Obligations that conflicts with applicable law will
not be effective, unless that law expressly or impliedly permits the
variations by written agreement. If any section of this Absolute Assignment
cannot be enforced according to its terms, that section will be severed and
will not affect the enforceability of the remainder of this Absolute
Assignment. Whenever used, the singular shall include the plural and the
plural the singular. The captions and headings of the sections of this
Absolute Assignment are for convenience only and are not to be used to
interpret or define the terms of this Absolute Assignment. Time is of the
essence in this Absolute Assignment.
17. NOTICE. Unless otherwise required by law, any notice shall be given by
delivering it or by mailing it by first class mail, to the appropriate
party's address on page 1 of this Absolute Assignment, or to any other
address designated in writing. Notice to one assignor will be deemed to be
notice to all assignors.
18. WAIVER. Except to the extent prohibited by law, Assignor waives all rights
relating to appraisement relating to the Collateral.
19. TERM. This Absolute Agreement shall remain in full force and effect until
all of the Obligations are paid or otherwise discharged and Lender is no
longer obligated to advance funds under any loan or credit agreement which
is a part of the Obligations. If any or all payments of the Obligations are
subsequently invalidated, declared void or voidable, or set aside and are
required to be repaid to a trustee, custodian, receiver or any other party
under any bankruptcy act or other state or federal law, then the Obligations
will be revived and will continue in full force and effect as if this
payment had not been made.
20. USUARY SAVINGS. In no event shall any provision of this Absolute Assignment
or any other instrument evidencing or securing the Obligations ever obligate
Assignor to pay or allow Lender to collect interest on the Obligations at a
rate greater than the maximum non-usurious rate permitted by applicable law.
(page 5 of 6)
<PAGE>
21. REAL ESTATE PROPERTY. The term "Property" as used in this Absolute
Assignment shall include the following described real property:
REFER TO EXHIBIT "A" WHICH IS ATTACHED HERETO AND MADE A PART HEREOF.
The Property is located in (County): HARRIS at (Address): 7224 LAWNDALE,
(City): HOUSTON, TEXAS, (Zip Code): 77539
22. ADDITIONAL TERMS.
SIGNATURES: By signing below, Assignor agrees to the terms and covenants
contained in this Absolute Assignment and in any attachments. Assignor also
acknowledges receipt of a copy of this Absolute Assignment on the date
stated above on page 1.
---------------------------------------------------------
THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OR PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
The parties' signatures below indicate agreement with the statements
contained within this box.
---------------------------------------------------------
<TABLE>
<S> <C> <C>
Entity Name: AMERICAN ENERGY SERVICES, INC., Entity Name: ------------------------------------------------
CORPORATION
BY: /s/ PAT S. ELLIOTT ------------------------------------------------
(Signature) (Date) (Signature) (Date)
Name: --------------------------
Title: ------------------------
BY: ------------------------------------------------ ------------------------------------------------
(Signature) (Date) (Signature) (Date)
Name: ------------------------
Title: ------------------------
</TABLE>
ACKNOWLEDGEMENT:
STATE OF
- ------------------, COUNTY OF
- ------------------ } ss.
This instrument was acknowledged before me this
- --------- day of
- ---------------
by
- ------------------------------------------------------------------------
My commission expires:
(Seal)
---------------------------------------
(Notary Public)
(Business or Entity Acknowledgment)
STATE OF TEXAS, COUNTY OF HARRIS} ss.
This instrument was acknowledged before me this 2nd day of May, 1998
by NAME:
- ------------------ TITLE:
- ------------------
NAME:
- ------------------; TITLE:
- ------------------(Title(s))
of AMERICAN ENERGY SERVICES, INC. (Name of Business or Entity)
a CORPORATION on behalf of the business or entity.
My commission expires
(Seal)
---------------------------------------
(Notary Public)
(page 6 of 6)
<PAGE>
_________ STATE OF TEXAS _____________________________ SPACE ABOVE THIS LINE
FOR RECORDING DATA _____________________________________________________________
REAL ESTATE DEED OF TRUST
(WITH FUTURE ADVANCE CLAUSE)
1. DATE AND PARTIES. The date of this Deed of Trust (Security Instrument) is
May 2, 1998 and the parties, their addresses and tax identification numbers,
if required, are as follows:
GRANTOR: AMERICAN ENERGY SERVICES, INC.
CORPORATION
7224 LAWNDALE
HOUSTON, TX 77539
TAXPAYER I.D. #: 76-0279883
[ ] If checked, refer to the attached Addendum incorporated herein, for
additional Grantors, their signatures and acknowledgements.
TRUSTEE: ROBERT R. TRIMBLE
TRUSTEE
9600 BELLAIRE STE 252
HOUSTON, TX 77036
TAXPAYER I.D. #: 76-0201440
LENDER: METROBANK, N.A. GALLERIA BRANCH
ORGANIZED AND EXISTING UNDER THE LAWS
OF THE UNITED STATES OF AMERICA
5065 WESTHEIMER, STE. #1111
HOUSTON, TX 77056
TAXPAYER I.D. #: 76-0201440
2. CONVEYANCE. In consideration of Ten Dollars paid in hand, and for the
purpose of securing the Secured Debt (defined below) and Grantor's performance
under this Security Instrument, Grantor irrevocably grants, sells, and conveys
unto Trustee, in trust for the benefit of Lender, with power of sale, the
following described property:
REFER TO EXHIBIT "A' WHICH IS ATTACHED HERETO AND MADE A PART HEREOF
The property is located in Harris County at 7224 Lawndale, Houston, Texas 77539.
Together with all rights, easements, appurtenances, royalties, mineral rights,
oil and gas rights, crops, timber, all diversion payments or third party
payments made to crop producers, all water and riparian rights, wells, ditches,
reservoirs, and water stock and all existing and future improvements,
structures, fixtures, and replacements that may now, or at any time in the
future, be part of the real estate described above (all referred to as
"Property").
3. SECURED DEBT AND FUTURE ADVANCES. The term "Secured Debt" is defined as
follows:
A. Debt incurred under the terms of all promissory note(s), contract(s),
guaranty(s) or other evidence of debt described below and all their
extensions, renewals, modifications or substitutions (Evidence of Debt).
(WHEN REFERENCING THE DEBTS BELOW IT IS SUGGESTED THAT YOU INCLUDE ITEMS
SUCH AS THE BORROWERS' NAMES, NOTE AMOUNTS, INTEREST RATES, MATURITY
DATES, ETC.)
PROMISSORY NOTE #721099972 (EXIM BANK COMMITMENT #AP069603XB) IN THE
AMOUNT OF $2,000,000.00 FROM AMERICAN ENERGY SERVICES, INC. TO
METROBANK, N.A.; DATED 05-02-98 AT A CURRENT RATE OF PRIME PLUS .5%; TO
MATURE ON SEPTEMBER 2, 1998.
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B. All future advances from Lender to Grantor or other future obligations
of Grantor to Lender under any promissory note, contract, guaranty, or
other evidence of debt existing now of executed after this Security
Instrument whether or not this Security Instrument is specifically
referenced. If more than one person signs this Security Instrument, each
Grantor agrees that this Security Instrument will secure all future
advances and future obligations that are given to or incurred by any one
or more Grantor, or any one or more Grantor and others. All future
advances and other future obligations are secured by this Security
Instrument even though all or part may not yet be advanced. All future
advances and other future obligations are secured as if made on the date
of this Security Instrument. Nothing in this Security Instrument shall
constitute a commitment to make additional or future loans or advances
in any amount. Any such commitment must be agreed to in a separate
writing.
C. All obligations Grantor owes to Lender, which now exist or may later
arise, to the extent not prohibited by law, including, but not limited
to, liabilities for overdrafts relating to any deposit account agreement
between Grantor and Lender.
D. All additional sums advanced and expenses incurred by Lender for
insuring, preserving or otherwise protecting the Property and its value
and any other sums advanced and expenses incurred by Lender under the
terms of this Security Instrument.
This Security Instrument will not secure any other debt if Lender fails to
give any required notice of the right of rescission.
4. PAYMENTS. Grantor agrees that all payments under the Secured Debt will be
paid when due and in accordance with the terms of the Secured Debt and this
Security Instrument.
5. WARRANTY OF TITLE. Grantor warrants that Grantor is or will be lawfully
seized of the estate conveyed by this Security Instrument and has the right
to irrevocably grant, convey and sell the Property to Trustee, in trust,
with power of sale. Grantor also warrants that the Property is unencumbered,
except for encumbrances of record.
6. PRIOR SECURITY INTERESTS. With regard to any other mortgage, deed of trust,
security agreement or other lien document that created a prior security
interest or encumbrance on the Property, Grantor agrees:
A. To make all payments when due and to perform or comply with all
covenants.
B. To promptly deliver to Lender any notices that Grantor receives from the
holder.
C. Not to allow any modification or extension of, nor to request any future
advances under any note or agreement secured by the lien document
without Lender's prior written consent.
7. CLAIMS AGAINST TITLE. Grantor will pay all taxes, assessments, liens,
encumbrances, lease payments, ground rents, utilities, and other charges
relating to the Property when due. Lender may require Grantor to provide to
Lender copies of all notices that such amounts are due and the receipts
evidencing Grantor's payment. Grantor will defend title to the Property
against any claims that would impair the lien of this Security Instrument.
Grantor agrees to assign to Lender as requested by Lender, any rights,
claims or defenses Grantor may have against parties who supply labor or
materials to maintain or improve the Property.
8. DUE ON SALE OR ENCUMBRANCE. Lender may, at its option, declare the entire
balance of the Secured Debt to be immediately due and payable upon the
creation of, or contract for the creation of, any lien, encumbrance,
transfer or sale of the Property. This right is subject to the restrictions
imposed by federal law (12 C.F.R. 591), as applicable. This covenant shall
run with the Property and shall remain in effect until the Secured Debt is
paid in full and this Security Instrument is released.
9. TRANSFER OF AN INTEREST IN THE GRANTOR. If Grantor is an entity other than a
natural person (such as a corporation or other organization), Lender may
demand immediate payment if:
A. A beneficial interest in Grantor is sold or transferred.
B. There is a change in either the identity or number of members of a
partnership or similar entity.
C. There is a change in ownership of more than 25 percent of the voting
stock of a corporation or similar entity.
However, Lender may not demand payment in the above situations if it is
prohibited by law as of the date of this Security Instrument.
10. ENTITY WARRANTIES AND REPRESENTATIONS. If Grantor is an entity other than a
natural person (such as a corporation or other organization), Grantor makes
to Lender the following warranties and representations which shall continue
as long as the Secured Debt remains outstanding.
A. Grantor is duly organized and validly existing in the Grantor's state of
incorporation or organization. Grantor is in good standing in all states
in which Grantor transacts business. Grantor has the power and authority
to own the Property and to carry on its business as now being conducted
and, as applicable, is qualified to do so in each state in which Grantor
operates.
B. The execution, delivery and performance of this Security Instrument by
Grantor and the obligation evidenced by the Secured Debt are within the
power of Grantor, have been duly authorized, have received all necessary
governmental approval, and will not violate any provision of law, or
order of court or governmental agency.
C. Other than previously disclosed in writing to Lender, Grantor has not
changed its name within the last ten years and has not used any other
trade or fictitious name. Without Lender's prior written consent,
Grantor does not and will not use any other name and will preserve its
existing name, trade names and franchises until the Secured Debt is
satisfied.
11. PROPERTY CONDITION, ALTERATIONS AND INSPECTION. Grantor will keep the
Property in good condition and make all repairs that are reasonably
necessary. Grantor shall not commit or allow any waste, impairment, or
deterioration of the Property. Grantor will keep the Property free of
noxious weeds and grasses. Grantor agrees that the nature of the occupancy
and use will not substantially change without Lender's prior written
consent. Grantor will not permit any change in any license, restrictive
covenant or easement without Lender's prior written consent. Grantor will
notify Lender of all demands, proceedings, claims, and actions against
Grantor, and of any loss or damage to the Property.
No portion of the Property will be removed, demolished or materially altered
without Lender's prior written consent except that Grantor has the right to
remove items of personal property comprising a part of the Property that
become worn or obsolete, provided that such personal property is replaced
with other personal property at least equal in value to the replaced
personal property, free from any title retention device, security agreement
or other encumbrance. Such replacement of personal property will be deemed
subject to the security interest created by this Security Instrument.
Grantor shall not partition or subdivide the Property without Lender's
written consent.
Lender or Lender's agents may, at Lender's option, enter the Property at any
reasonable time for the purpose of inspecting the Property. Lender shall
give Grantor notice at the time of or before an inspection specifying a
reasonable purpose for the inspection. Any inspection of the Property shall
be entirely for Lender's benefit and Grantor will no way rely on Lender's
inspection.
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12. AUTHORITY TO PERFORM. If Grantor fails to perform any duty or any of the
covenants contained in this Security Instrument, Lender may, without notice,
perform or cause them to be performed. Grantor appoints Lender as attorney
in fact to sign Grantor's name or pay any amount necessary for performance.
Lender's right to perform for Grantor shall not create an obligation to
perform, and Lender's failure to perform will not preclude Lender from
exercising any of Lender's other rights under the law or this Security
Instrument. If any construction on the Property is discontinued or not
carried on in a reasonable manner, Lender may take all steps necessary to
protect Lender's security interest in the Property, including completion of
the construction.
13. ASSIGNMENT OF LEASES AND RENTS. Grantor irrevocably grants, conveys and
sells to Trustee, in trust for the benefit of the Lender, as additional
security all the right, title and interest in and to any and all:
A. Existing or future leases, subleases, licenses, guaranties and any other
written or verbal agreements for the use and occupancy of any portion of
the Property, including any extensions, renewals, modifications or
substitutions of such agreements (all referred to as "Leases").
B. Rents, issues and profits (all referred to as "Rents"), including but
not limited to security deposits, minimum rent, percentage rent,
additional rent, common area maintenance charges, parking charges, real
estate taxes, other applicable taxes, insurance premium contributions,
liquidated damages following default, cancellation premiums, "loss of
rents" insurance, guest receipts, revenues, royalties, proceeds,
bonuses, accounts, contract rights, general intangibles, and all rights
and claims which Grantor may have that in any way pertain to or are on
account of the use or occupancy of the whole or any part of the
Property.
In the event any item listed as Leases or Rents is determined to be personal
property, this Security Instrument will also be regarded as a security
agreement.
Grantor will promptly provide Lender with true and correct copies of all
existing and future Leases. Grantor may collect, receive, enjoy and use the
Rents so long as Grantor is not in default. Except for one lease period's
rent, Grantor will not collect in advance any future Rents without Lender's
prior written consent. Upon default, Grantor will receive Rents in trust for
Lender and Grantor will not commingle the Rents with any other funds.
Amounts collected shall be applied at Lender's discretion to payments on the
Secured Debt as therein provided, to costs of managing, protecting and
preserving the Property and to any other necessary related expenses
including Lender's attorneys' fees and court costs.
Grantor agrees that this assignment is immediately effective between the
parties to this Security Instrument and effective as to third parties on
Grantor's default when Lender or Trustee takes an affirmative action as
prescribed by the law of the state where the Property is located. This
assignment will remain effective until the Secured Debt is satisfied. Unless
otherwise provided by state law, Grantor agrees that Lender or Trustee may
take actual possession of the Property without commencing any legal action
or proceeding. Actual possession of the Property is deemed to occur when
Lender notifies Grantor of Grantor's default and demands that Grantor and
Grantor's tenants pay all Rents due or to become due directly to Lender.
Thereafter, either Lender or Grantor may notify the tenants and demand that
all future Rents be paid directly to Lender. On receiving the notice of
default, Grantor will endorse and deliver to Lender any payments of Rents.
If Grantor becomes subject to a voluntary or involuntary bankruptcy. Grantor
agrees that Lender and Trustee are entitled to receive relief from the
automatic stay in bankruptcy for the purpose of making this assignment
effective and enforceable under state and federal law.
Grantor warrants that no default exists under the Leases or any applicable
landlord law. Grantor also agrees to maintain, and to require the tenants to
comply with, the Leases and any applicable law. Grantor will promptly notify
Lender of any noncompliance. If Grantor neglects or refuses to enforce
compliance with the terms of the Leases, then Lender or Trustee may opt to
enforce compliance. Grantor will obtain Lender's written authorization
before Grantor consents to sublet, modify, cancel, or otherwise alter the
Leases, to accept the surrender of the Property covered by such Leases
(unless the Leases so require), or to assign, compromise or encumber the
Leases or any future Rents. If Lender acts to manage, protect and preserve
the Property, Lender does not assume or become liable for its maintenance,
depreciation, or other losses or damages, except those due to Lender's gross
negligence or intentional torts. Otherwise, Grantor will hold Lender
harmless and indemnify Lender for any and all liability, loss or damage that
Lender may incur as a consequence of the assignment under this section.
14. LEASEHOLDS; CONDOMINIUMS; PLANNED UNIT DEVELOPMENTS. Grantor agrees to
comply with the provisions of any lease if this Security Instrument is on a
leasehold. If the Property includes a unit in a condominium or a planned
unit development, Grantor will perform all of Grantor's duties under the
covenants, by-laws, or regulations of the condominium or planned unit
development.
15. DEFAULT. Grantor will be in default if any of the following occur:
A. Any party obligated on the Secured Debt fails to make payment when due;
B. A breach of any term or covenant in this Security Instrument or any
other document executed for the purpose of creating, securing or
guarantying the Secured Debt;
C. The making or furnishing of any verbal or written representation,
statement or warranty to Lender that is false or incorrect in any
material respect by Grantor or any person or entity obligated on the
Secured Debt;
D. The death, dissolution, or insolvency of, appointment of a receiver for,
or application of any debtor relief law to, Grantor or any other person
or entity obligated on the Secured Debt;
E. A good faith belief by Lender at any time that Lender is insecure with
respect to any person or entity obligated on the Secured Debt or that
the prospect of any payment is impaired or the value of the Property is
impaired;
F. A material adverse change in Grantor's business including ownership,
management, and financial conditions, which Lender in its opinion
believes impairs the value of the Property or repayment of the Secured
Debt; or
G. Any loan proceeds are used for a purpose that will contribute to
excessive erosion of highly erodible land or to the conversion of
wetlands to produce an agricultural commodity, as further explained in 7
C.F.R. Part 1940, Subpart G, Exhibit M.
16. REMEDIES ON DEFAULT. In some instances, federal and state law will require
Lender to provide Grantor with notice of the right to cure, or other notices
and may establish time schedules for foreclosure actions. Subject to these
limitations, if any, Lender may accelerate the Secured Debt and foreclose
this Security Instrument in a manner provided by law if Grantor is in
default.
At the option of Lender, all or any part of the agreed fees and charges,
accrued interest and principal shall become immediately due and payable,
after giving notice if required by law, upon the occurrence of a default or
anytime thereafter. In addition, Lender shall be entitled to all the
remedies provided by law, the terms of the Secured Debt, this Security
Instrument and any related documents, including without limitation, the
power to sell the property.
In the event of default, it shall be the duty of the Trustee, at the request
of Lender (which request is hereby conclusively presumed), to invoke power
of sale as required by Section 51.002 of the Texas Property Code, as then
amended. Trustee shall advertise and sell the Property as a whole or in
separate parcels at public auction to the highest bidder for cash and convey
indefeasible title to the Property with covenants of general warranty.
Trustee shall give notice of sale including the
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time, terms and place of sale and a description of the Property to be sold
as required by the applicable law in effect at the time of the proposed
sale.
Upon sale of the Property and to the extent not prohibited by law, Trustee
shall make and deliver a deed to the Property sold which conveys absolute
title to the purchaser, and after first paying all fees, charges and costs,
shall pay to Lender all monies advanced for repairs, taxes, insurance,
liens, assessments and prior encumbrances and interest thereon, and the
principal and interest on the Secured Debt, paying the surplus, if any, to
Grantor. Lender may purchase the Property. The recitals in any deed of
conveyance shall be prima facie evidence of the facts set forth therein.
All remedies are distinct, cumulative and not exclusive, and the Lender is
entitled to all remedies provided at law or equity, whether or not expressly
set forth. The acceptance by Lender of any sum in payment or partial payment
on the Secured Debt after the balance is due or is accelerated or after
foreclosure proceedings are filed shall not constitute a waiver of Lender's
rights to require full and complete cure of any existing default. By not
exercising any remedy on Grantor's default, Lender does not waive Lender's
right to later consider the event a default if it continues or happens
again.
17. FORECLOSURE. In the event a foreclosure under power of sale should be
commenced by the Trustee, Lender may at any time before the sale of the
Property direct the Trustee to abandon the sale, and may then institute suit
for the collection of the Secured Debt and for the foreclosure of the lien
of this Security Instrument. It is further agreed that if Lender should
institute a suit for the collection of the Secured Debt, and for a
foreclosure of the lien of this Security Instrument, that Lender may at any
time before the entry of a final judgment in said suit dismiss the same, and
require the Trustee to sell the Property in accordance with the provisions
of this Security Instrument. Lender, if it is the highest bidder, shall have
the right to purchase at any sale of the Property, and to have the amount
for which such Property is sold credited on the Secured Debt.
18. EXPENSES; ADVANCES ON COVENANTS; ATTORNEYS' FEES; COLLECTION COSTS. Except
when prohibited by law, Grantor agrees to pay all of Lender's expenses if
Grantor breaches any covenant in this Security Instrument. Grantor will also
pay on demand any amount incurred by Lender for insuring, inspecting,
preserving or otherwise protecting the Property and Lender's security
interest. These expenses will bear interest from the date of the payment
until paid in full at the highest interest rate in effect as provided in the
terms of the Secured Debt. Grantor agrees to pay all costs and expenses
incurred by Lender in collecting, enforcing or protecting Lender's rights
and remedies under this Security Instrument. This amount may include, but is
not limited to, attorneys' fees, court costs, and other legal expenses. This
Security Instrument shall remain in effect until released. Grantor agrees to
pay for any recordation costs of such release.
19. ENVIRONMENTAL LAWS AND HAZARDOUS SUBSTANCES. As used in this section, (1)
Environmental Law means, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA, 42 U.S.C. 9601 et seq.),
all other federal, state and local laws, regulations, ordinances, court
orders, attorney general opinions or interpretive letters concerning the
public health, safety, welfare, environment or a hazardous substance; and
(2) Hazardous Substance means any toxic, radioactive or hazardous material,
waste, pollutant or contaminant which has characteristics which render the
substance dangerous or potentially dangerous to the public health, safety,
welfare or environment. The term includes, without limitation, any
substances defined as "hazardous material," "toxic substances," "hazardous
waste" or "hazardous substance" under any Environmental Law.
Grantor represents, warrants and agrees that:
A. Except as previous disclosed and acknowledged in writing to Lender, no
Hazardous Substance has been, is, or will be located, transported,
manufactured, treated, refined, or handled by any person on, under or
about the Property, except in the ordinary course of business and in
strict compliance with all applicable Environmental Law.
B. Except as previously disclosed and acknowledged in writing to Lender,
Grantor has not and will not cause, contribute to, or permit the release
of any Hazardous Substance on the Property.
C. Grantor will immediately notify Lender if (1) a release or threatened
release of Hazardous Substance occurs on, under or about the Property or
migrates or threatens to migrate from nearby property; or (2) there is a
violation of any Environmental Law concerning the Property. In such an
event, grantor will take all necessary remedial action in accordance
with Environmental Law.
D. Except as previously disclosed and acknowledged in writing to Lender,
Grantor has no knowledge of or reason to believe there is any pending or
threatened investigation, claim, or proceeding of any kind relating to
(1) any Hazardous Substance located on, under or about the Property; or
(2) any violation by Grantor or any tenant of any Environmental Law.
Grantor will immediately notify Lender in writing as soon as Grantor has
reason to believe there is any such pending or threatened investigation,
claim, or proceeding. In such an event, Lender has the right, but not
the obligation, to participate in any such proceeding including the
right to receive copies of any documents relating to such proceedings.
E. Except as previously disclosed and acknowledged in writing to Lender,
Grantor and every tenant have been, are and shall remain in full
compliance with any applicable Environmental Law.
F. Except as previously disclosed and acknowledged in writing to Lender,
there are no underground storage tanks, private dumps or open wells
located on or under the Property and no such tank, dump or well will be
added unless Lender first consents in writing.
G. Grantor will regularly inspect the Property, monitor the activities and
operations on the Property, and confirm that all permits, licenses or
approvals required by any applicable Environmental Law are obtained and
complied with.
H. Grantor will permit, or cause any tenant to permit, Lender or Lender's
agent to enter and inspect the Property and review all records at any
reasonable time to determine (1) the existence, location and nature of
any Hazardous Substance on, under or about the Property; (2) the
existence, location, nature, and magnitude of any Hazardous Substance
that has been released on, under or about the Property; or (3) whether
or not Grantor and any tenant are in compliance with applicable
Environmental Law.
I. Upon Lender's request and at any time, Grantor agrees, at Grantor's
expense, to engage a qualified environmental engineer to prepare an
environmental audit of the Property and to submit the results of such
audit to Lender. The choice of the environmental engineer who will
perform such audit is subject to Lender's approval.
J. Lender has the right, but not the obligation, to perform any of
Grantor's obligations under this section at Grantor's expense.
K. As a consequence of any breach of any representation, warranty or
promise made in this section, (1) Grantor will indemnify and hold Lender
and Lender's successors or assigns harmless from and against all losses,
claims, demands, liabilities, damages, cleanup, response and remediation
costs, penalties and expenses, including without limitation all costs of
litigation and attorney's fees, which Lender and Lender's successors or
assigns may sustain; and (2) at Lender's discretion, Lender may release
this Security Instrument and in return Grantor will provide
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Lender with collateral of at least equal value to the Property secured
by this Security Instrument without prejudice to any of Lender's rights
under this Security Instrument.
L. Notwithstanding any of the language contained in this Security
Instrument to the contrary, the terms of this section shall survive any
foreclosure or satisfaction of this Security Instrument regardless of
any passage of title to Lender or any disposition by Lender of any or
all of the Property. Any claims and defenses to the contrary are hereby
waived.
20. CONDEMNATION. Grantor will give Lender prompt notice of any pending or
threatened action, by private or public entities to purchase or take any or
all of the Property through condemnation, eminent domain, or any other
means. Grantor authorizes Lender to intervene in Grantor's name in any of
the above described actions or claims. Grantor assigns to Lender the
proceeds of any award or claim for damages connected with a condemnation or
other taking of all or any part of the Property. Such proceeds shall be
considered payments and will be applied as provided in this Security
Instrument. This assignment of proceeds is subject in the terms of any prior
mortgage, deed of trust, security agreement or other lien document.
21. INSURANCE. Grantor agrees to maintain insurance as follows:
A. Grantor shall keep the Property insured against loss by fire, flood,
theft and other hazards and risks reasonably associated with the
Property due to its type and location. This insurance shall be
maintained in the amounts and for the periods that Lender requires. The
insurance carrier providing the insurance shall be chosen by Grantor
subject to Lender's approval, which shall not be unreasonably withheld.
If Grantor fails to maintain the coverage described above, Lender may,
at Lender's option, obtain coverage to protect Lender's rights in the
Property according to the terms of this Security Instrument.
All insurance policies and renewals shall be acceptable to Lender and
shall include a standard "mortgage clause" and, where applicable, "loss
payee clause." Grantor shall immediately notify Lender of cancellation
or termination of the insurance. Lender shall have the right to hold the
policies and renewals. If Lender requires, Grantor shall immediately
give to Lender all receipts of paid premiums and renewal notices. Upon
loss, Grantor shall give immediate notice to the insurance carrier and
Lender. Lender may make proof of loss if not made immediately by
Grantor.
Unless otherwise agreed in writing, all insurance proceeds shall be
applied to restoration or repair of the Property or to the Secured Debt,
whether or not then due, at Lender's option. Any application of proceeds
to principal shall not extend or postpone the due date of scheduled
payment nor change the amount of any payments. Any excess will be paid
to the Grantor. If the Property is acquired by Lender, Grantor's right
to any insurance policies and proceeds resulting from damage to the
Property before the acquisition shall pass to Lender to the extent of
the Secured Debt immediately before the acquisition.
B. Grantor agrees to maintain comprehensive general liability insurance
naming Lender as an additional insured in an amount acceptable to
Lender, insuring against claims arising from any accident or occurrence
in or on the Property.
C. Grantor agrees to maintain rental loss or business interruption
insurance, as required by Lender, in an amount equal to at least
coverage of one year's debt service, and required escrow account
deposits (if agreed to separately in writing), under a form of policy
acceptable to Lender.
22. ESCROW FOR TAXES AND INSURANCE. Unless otherwise provided in a separate
agreement, Grantor will not be required to pay to Lender funds for taxes
and insurance in escrow.
23. FINANCIAL REPORTS AND ADDITIONAL DOCUMENTS. Grantor will provide to Lender
upon request, any financial statement or information Lender may deem
reasonably necessary. Grantor agrees to sign, deliver, and file any
additional documents or certifications that Lender may consider necessary
to perfect, continue, and preserve Grantor's obligations under this
Security Instrument and Lender's lien status on the Property.
24. JOINT AND INDIVIDUAL LIABILITY; CO-SIGNERS; SUCCESSORS AND ASSIGNS
BOUND. All duties under this Security Instrument are joint and individual.
If Grantor signs this Security Instrument but does not sign an evidence of
debt, Grantor does so only to mortgage Grantor's interest in the Property
to secure payment of the Secured Debt and Grantor does not agree to be
personally liable on the Secured Debt. If this Security Instrument secures
a guaranty between Lender and Grantor, Grantor agrees to waive any rights
that may prevent Lender from bringing any action or claim against Grantor
or any party indebted under the obligation. These rights may include, but
are not limited to, any anti-deficiency or one-action laws. Grantor agrees
that Lender and any party to this Security Instrument may extend, modify or
make any change in the terms of this Security Instrument or any evidence of
debt without Grantor's consent. Such a change will not release Grantor from
the terms of this Security Instrument. The duties and benefits of this
Security Instrument shall bind and benefit the successors and assigns of
Grantor and Lender.
25. APPLICABLE LAW; SEVERABILITY; INTERPRETATION. This Security Instrument is
governed by the laws of the jurisdiction in which Lender is located, except
to the extent otherwise required by the laws of the jurisdiction where the
Property is located. This Security Instrument is complete and fully
integrated. This Security Instrument may not be amended or modified by oral
agreement. Any section in this Security Instrument, attachments, or any
agreement related to the Secured Debt that conflicts with applicable law
will not be effective, unless that law expressly or impliedly permits the
variations by written agreement. If any section of this Security Instrument
cannot be enforced according to its terms, that section will be severed and
will not affect the enforceability of the remainder of this Security
Instrument. Whenever used, the singular shall include the plural and the
plural the singular. The captions and headings of the sections of this
Security Instrument are for convenience only and are not to be used to
interpret or define the terms of this Security Instrument. Time is of the
essence in this Security Instrument.
26. SUCCESSOR TRUSTEE. Lender, at Lender's option, may from time to time remove
Trustee and appoint a successor trustee without any other formality than
the designation in writing. The successor trustee, without conveyance of
the Property, shall succeed to all the title, power and duties conferred
upon Trustee by this Security Instrument and applicable law.
27. NOTICE. Unless otherwise required by law, any notice shall be given by
delivering it or by mailing it by first class mail to the appropriate
party's address on page 1 of this Security Instrument, or to any other
address designated in writing. Notice to one grantor will be deemed to be
notice to all grantors.
28. USURY SAVINGS. In no event shall any provision of this Security Instrument
or any other instrument evidencing or securing the Secured Debt ever
obligate Grantor to pay or allow Lender to collect interest on the Secured
Debt at a rate greater than the maximum non-usurious rate permitted by
applicable law.
29. WAIVERS. Except to the extent prohibited by law, Grantor waives all
appraisement relating to the Property.
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30. U.C.C. PROVISIONS. If checked, the following are applicable to, but do not
limit, this Security Instrument:
[ ] CONSTRUCTION LOAN. This Security Instrument secures an obligation
incurred for the construction of an improvement on the Property.
[ ] FIXTURE FILING. Grantor grants to Lender a security interest in all
goods that Grantor owns now or in the future and that are or will become
fixtures related to the Property.
[ ] CROPS; TIMBER; MINERALS; RENTS, ISSUES, AND PROFITS. Grantors grants to
Lender a security interest in all crops, timber, and minerals located on
the Property as well as all rents, issues, and profits of them
including, but not limited to, all Conservation Reserve Program (CRP)
and Payment in Kind (PIK) payments and similar governmental programs
(all of which shall also be included in the term "Property").
[ ] PERSONAL PROPERTY. Grantor grants to Lender a security interest in all
personal property located on or connected with the Property; including
all farm products, inventory, equipment, accounts, documents,
instruments, chattel paper, general intangibles, and all other items of
personal property Grantor owns now or in the future and that are used or
useful in the construction, ownership, operation, management, or
maintenance of the Property (all of which shall also be included in the
term "Property"). The term "personal property" specifically excludes
that property described as "household goods" secured in connection with
a "consumer" loan as those terms are defined in applicable federal
regulations governing unfair and deceptive credit practices.
[ ] FILING AS FINANCING STATEMENT. Grantor agrees and acknowledges that this
Security Instrument also suffices as a financing statement and any
carbon, photographic or other reproduction may be filed of record for
purposes of Article 9 of the Uniform Commercial Code.
31. OTHER TERMS. If checked, the following are applicable to this Security
Instrument:
[X] LINE OF CREDIT. The Secured Debt includes a revolving line of credit
provision. Although the Secured Debt may be reduced to a zero balance,
this Security Instrument will remain in effect until released.
[ ] AGRICULTURAL PROPERTY. Grantor covenants and warrants that the Property
will be used principally for agricultural or farming purposes and that
Grantor is an individual or entity allowed to own agricultural land as
specified by law.
[X] SEPARATE ASSIGNMENT. The Grantor has executed or will execute a separate
assignment of leases and rents. Any such separate assignment duly
executed will supersede the "Assignment of Leases and Rents" section of
this Security Instrument.
[ ] ADDITIONAL TERMS.
SIGNATURES: By signing below, Grantor agrees to the terms and covenants
contained in this Security Instrument and in any attachments. Grantor also
acknowledges receipt of a copy of this Security Instrument on the date stated on
page 1.
THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS,
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
The parties' signatures below indicate agreement with the statements
contained within this box.
<TABLE>
<CAPTION>
<S> <C> <C>
Entity Name: AMERICAN ENERGY SERVICES, INC., Entity Name:
CORPORATION ------------------------------------------------
BY: ------------------------------------------------ ------------------------------------------------
(Signature) (Date) (Signature) (Date)
Name: /s/ PATRICK S. ELLIOTT
Title: President
BY: ------------------------------------------------ ------------------------------------------------
(Signature) (Date) (Signature) (Date)
Name: ------------------------
Title: ------------------------
</TABLE>
ACKNOWLEDGEMENT:
(Individual)
STATE OF
- ------------------, COUNTY OF
- ------------------ } ss.
This instrument was acknowledged before me this
- --------- day of
- ---------------
by
- ------------------------------------------------------------------------
My commission expires:
(Seal)
---------------------------------------
(Notary Public)
(Business or Entity Acknowledgment)
STATE OF TEXAS, COUNTY OF HARRIS} ss.
This instrument was acknowledged before me this 2nd day of May, 1998
by NAME: AND NAME:
TITLE: AND TITLE: (Title(s))
of AMERICAN ENERGY SERVICES, INC. (Name of Business or Entity)
a CORPORATION on behalf of the business or entity.
My commission expires
(Seal)
---------------------------------------
(Notary Public)
(page 6 of 6
<PAGE>
<TABLE>
<S> <C>
AMERICAN ENERGY SERVICES, INC. METROBANK, N.A. GALLERIA BRANCH
7224 LAWNDALE 5065 WESTHEIMER, STE. #1111
HOUSTON, TX 77539 HOUSTON, TX 77056
BORROWER'S (BUYER'S OR LESSEE'S) NAME
AND ADDRESS SECURED PARTY'S (OR LESSOR'S) NAME AND ADDRESS
"I" means the borrowers (buyers "You" means the secured party (or lessor) named
or lessees) named above. above.
</TABLE>
DATE: 05/02/98 LOAN (LEASE OR CONTRACT) NUMBER: #721099972
ADDITIONAL INFORMATION: INVENTORY RELATED TO FOREIGN ACCOUNTS, ALL INVENTORY,
EQUIPMENT, FURNITURE & FIXTURES
SECTION 1: AGREEMENT TO PROVIDE INSURANCE: As part of my loan, lease, or
contract, I agree:
(1) to insure the property and/or the persons listed in section 2 with the
coverage shown in section 3 below;
(2) to have you named on the policy, with the "status" listed below;
(3) to arrange for the insurance company to notify you that the policy is
in effect and your status has been noted;
(4) to pay for this insurance, including any fee for this endorsement;
(5) to keep the insurance in effect until the debts listed above, and any
other debts which now or later may be secured by the property, are
paid. (I understand that the property may secure debts in addition to
any listed above.)
IF I DEFAULT: If I fail to keep one or more of these promises:
(1) I agree that you may (but are not required to) buy insurance to
protect your interest and add the cost to what I owe you.
(2) I also understand that I may be in default on the underlying debts,
and that you may decide to invoke other remedies available to you for
such default as well.
SECTION 2: DESCRIPTION OF COLLATERAL AND/OR PERSONS TO BE INSURED:
INVENTORY RELATED TO FOREIGN ACCOUNTS, ALL INVENTORY, EQUIPMENT, FURNITURE &
FIXTURES
Autos include: Year Make Model Body Style Vehicle Identification Number
SECTION 3: COVERAGES: Show the risks, amount of coverage required, and
maximum deductible allowed:
Homeowner's Coverage: [ ] H.O. [ ] Other (Describe)
Deductible:
Automobile Coverages: [ ] Fire [ ] Theft [ ] Collision [ ] Comprehensive
[ ] Liability
Deductible: Life and Disability Coverages: Minimum limits:
SECTION 4: YOUR STATUS: SHOW HERE HOW THE SECURED PARTY (OR LESSOR) SHOULD BE
LISTED ON THE INSURANCE POLICY: [ ] Lienholder [ ] Certificate Holder
[ ] Additional Insured [ ] Mortgagee [XX] LOSS PAYEE
SECTION 5: INSURANCE COMPANY: THIS IS THE INSURANCE COMPANY WHICH WILL PROVIDE
THE INSURANCE COVERAGE:
- --------------------------------------------------------------------------------
Name Address City and State Policy Number Effective: from to
SECTION 6: INSURANCE AGENCY AND AGENT: THIS IS THE INSURANCE AGENCY THROUGH
WHICH I HAVE PURCHASED THE REQUIRED INSURANCE (OR INTEND TO):
- --------------------------------------------------------------------------------
Name Address City and State Telephone Number
SECTION 7: SIGNATURES FOR BORROWERS (BUYERS OR LESSEES) AND AUTHORIZATION TO
INSURANCE AGENT AND COMPANY:
I (we) have made this agreement and have provided the information above. I have
received a copy of this agreement.
I (we) request the insurance company an agency shown above to provide the
average(s) listed above, and to show the Secured Party (or Lessor) on the policy
the status shown above.
I (we) also request that the insurance company or its authorized agent
immediately confirm the policy to the Secured Party (or Lessor) on the policy
with the status shown above.
I (we) also request that the insurance company or its authorized agent
immediately confirm the policy to the Secured Party (or Lessor) by signing this
form and forwarding a copy of the policy to the Secured Party (or Lessor), or
each part of the policy as may be necessary.
X AMERICAN ENERGY SERVICES, INC.
NAME: /s/PAT S. ELLIOTT , TITLE: Pres.
NAME:
- ------------------------------------, TITLE:------------------
SECTION 8: SIGNATURE FOR SECURED PARTY (LESSOR) AND REQUEST FOR CONFIRMATION:
I ask that upon receipt of this form the insurance company or agency named above
confirm the policy coverages shown above.
FOR THE SECURED PARTY: X -----------------------------------------
(OR LESSOR) AMAL GUNERATNE, V.P.
SECTION 9: SIGNATURE FOR INSURANCE COMPANY AND CONFIRMATION:
By signing below I confirm the insurance coverages agreed to be provided by our
insured and that you will be notified not less than 10 days before cancellation.
PLEASE TYPE NAME, TITLE, COMPANY, AND
PHONE NUMBER AND RETURN TO SECURED
PARTY OR LESSOR X --------------------------------------
(page 1 of 1)
<PAGE>
<TABLE>
<S> <C> <C>
AMERICAN ENERGY SERVICES, INC. METROBANK, N.A. GALLERIA Line of Credit No.#721099972
7224 LAWNDALE BRANCH Date MAY 2, 1998
HOUSTON, TX 77539 5065 WESTHEIMER, STE. #1111 Max. Credit Amt. $2,000,000.00
BORROWER'S NAME AND ADDRESS Houston, TX 77056 Loan Ref. No. #721099972
LENDER'S NAME AND ADDRESS "You" means the lender, its
"I" Includes each borrower above, successors and assigns.
jointly and severally.
</TABLE>
You have extended to me a line of credit in the
AMOUNT of TWO MILLION AND NO/100 $2,000,000.00
You will make loans to me from time to time until 12:00 P.M., on September 2,
1998. Although the line of credit expires on that date, I will remain obligated
to perform all my duties under this agreement so long as I owe you any money
advanced according to the terms of this agreement, as evidenced by any note or
notes I have signed promising to repay these amounts.
This line of credit is an agreement between you and me. It is not intended that
any third party receive any benefit from this agreement, whether by direct
payment, reliance for future payment or in any other manner. This agreement is
not a letter of credit.
1. AMOUNT: This line of credit is:
[X] OBLIGATORY: You may not refuse to make a loan to me under this line of
credit unless one of the following occurs:
a. I have borrowed the maximum amount available to me;
b. This line of credit has expired;
c. I have defaulted on the note (or notes) which show my indebtedness
under this line of credit;
d. I have violated any term of this line of credit or any note or other
agreement entered into in connection with this line of credit;
e. ____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
[ ] DISCRETIONARY: You may refuse to make a loan to me under this line of
credit once the aggregate outstanding advances equal or exceed
_____________________________ $____________________________________.
Subject to the obligatory or discretionary limitations above, this line of
credit is:
[X] OPEN-END (Business or Agricultural only): I may borrow up to the maximum
amount of principal more than one time.
[ ] CLOSED-END: I may borrow up to the maximum only one time.
2. PROMISSORY NOTE: I will repay any advances made according to this line of
credit agreement as set out in the promissory note, i signed on May 2, 1998,
or any note(s) I sign at a later time which represent advances under this
agreement. The note(s) set(s) out the terms relating to maturity, interest
rate, repayment and advances. If indicated on the promissory note, the
advances will be made as follows: SEE ATTACHED "LOAN MONITORING WORKSHEET"
AND "EXIM BANK SPECIAL CONDITIONS". UNLESS ALL CONDITIONS BY EXIM BANK HAVE
BEEN MET, METROBANK IS NOT OBLIGATED TO FUND.
3. RELATED DOCUMENTS: I have signed the following documents in connection with
this line of credit and note(s) entered into in accordance with this line of
credit:
[X] security agreement dated MAY 2, 1998 [X] ARBITRATION AGREEMENT
[ ] mortgage dated [ ]
[X] guaranty dated [ ]
4. REMEDIES: If I am in default on the note(s) you may:
a. take any action as provided in the related documents;
b. without notice to me, terminate this line of credit.
By selecting any of these remedies you do not give up your right to
later use any other remedy. By deciding not to use any remedy should I
default, you do not waive your right to later consider the event a default,
if it happens again.
5. COSTS AND FEES: If you hire an attorney to enforce this agreement I will pay
your reasonable attorney's fees, where permitted by law. I will also pay
your court costs and costs of collection, where permitted by law.
6. COVENANTS: For as long as this line of credit is in effect or I owe you
money for advances made in accordance with the line of credit, I will do the
following:
a. maintain books and records of my operations relating to the need for
this line of credit;
b. permit you or any of your representatives to inspect and/or copy these
records;
c. provide to you any documentation requested by you which support the
reason for making any advance under this line of credit;
d. permit you to make any advance payable to the seller (or seller and me)
of any items being purchased with that advance;
e. SEE ATTACHED "LOAN MONITORING WORKSHEET" AND "EXIM BANK SPECIAL
CONDITIONS". UNLESS ALL CONDITIONS BY EXIM BANK HAVE BEEN MET, METROBANK
IS NOT OBLIGATED TO FUND.
7. NOTICES: All notices or other correspondence with me should be sent to my
address stated above. The notice or correspondence shall be effective when
deposited in the mail, first class, or delivered to me in person.
8. MISCELLANEOUS: This line of credit may not be changed except by a written
agreement signed by you and me. The law of the state in which you are
located will govern this agreement. Any term of this agreement which is
contrary to applicable law will not be effective, unless the law permits you
and me to agree to such a variation.
FOR THE LENDER SIGNATURES: I AGREE TO THE TERMS OF
THIS LINE OF CREDIT. I HAVE RECEIVED
A COPY ON TODAY'S DATE
AMAL GUNERATNE AMERICAN ENERGY SERVICES, INC.
Title VICE PRESIDENT BY: /s/ P S ELLIOTT PRESIDENT
NAME: , TITLE:
BY:
NAME: , TITLE:
(page 1 of 1)
<PAGE>
<TABLE>
<S> <C> <C>
AMERICAN ENERGY SERVICES, INC. METROBANK, N.A. GALLERIA EXTENSION OF SECURITY
7224 LAWNDALE BRANCH AGREEMENT DATED:
HOUSTON, TX 77539 5065 WESTHEIMER, STE. #1111 MAY 2, 1998
HOUSTON, TX 77056
DEBTOR'S NAME AND ADDRESS SECURED PARTY'S NAME AND ADDRESS
</TABLE>
For value received, the Debtor hereby grants the Secured Party a security
interest in the following additional collateral:
EXHIBIT "A'
ASSIGNMENT OF ALL FOREIGN A/R AND PROCEEDS THEREOF AND ASSIGNMENT OF INVENTORY
RELATED TO FOREIGN ACCOUNTS (INCLUDING WIP); ALL INVENTORY, CHATTEL PAPER,
ACCOUNTS, CONTRACT RIGHTS, EQUIPMENT, GENERAL INTANGIBLES AND FIXTURES; TOGETHER
WITH THE FOLLOWING SPECIFICALLY DESCRIBED PROPERTY: FURNITURE, MACHINERY AND ANY
LEASEHOLD IMPROVEMENTS; WHETHER ANY OF THE FOREGOING IS OWNED NOW OR ACQUIRED
LATER; ALL ACCESSIONS, ADDITIONS, REPLACEMENTS, AND SUBSTITUTIONS RELATING TO
ANY OF THE FOREGOING; ALL RECORDS OF ANY KIND RELATING TO ANY OF THE FOREGOING;
ALL PROCEEDS RELATING TO ANY OF THE FOREGOING (INCLUDING INSURANCE, GENERAL
INTANGIBLES AND OTHER ACCOUNTS PROCEEDS). TO BE LOCATED AT 7224 LAWNDALE,
HOUSTON, TX 77539 OR WHEREVER LOCATED.
*************(CROSS-COLLATERALIZED WITH EXISTING AND PROPOSED LOANS);
By signing below, Debtor acknowledges that this document describes additional
collateral which is subject to all terms and conditions of the Security
Agreement referred to above.
AMERICAN ENERGY SERVICES, INC.
Authorized Signature(s) of Secured Party -- sign below only if filing this
document.
Debtor BY: /s/ P S ELLIOTT PRESIDENT
(Name) (Title)
(page 1 of 1)
EXHIBIT 6.4
<TABLE>
<S> <C> <C>
AMERICAN ENERGY SERVICES, INC. METROBANK, N.A. GALLERIA ACCOUNT #: AG-52
7224 LAWNDALE BRANCH Loan Number 721099972
HOUSTON, TX 77539 5065 WESTHEIMER, STE. #1111 Date: JANUARY 30, 1998
HOUSTON, TX 77056 Maturity Date: MAY 2, 1998
Loan Amount: $2,000,000.00
BORROWER'S NAME AND ADDRESS LENDER'S NAME AND ADDRESS Renewal Of 721099972
"I" includes each borrower above, "You" means the lender, its successors SSN/TIN: 76-0279883
joint and severally. and assigns.
</TABLE>
For value received, I promise to pay to you, or your order, at your address
listed above the PRINCIPAL sum of TWO MILLION AND NO/100**Dollars $2,000,000.00
[ ] SINGLE ADVANCE: I will receive all of this principal sum on _______________.
No additional advances are contemplated under this note.
[X] MULTIPLE ADVANCE: The principal sum shown above is the maximum amount of
principal I can borrow under this note. On JANUARY 30, 1998 I will receive
the amount of $_______________________ and future principal advances are
contemplated.
CONDITIONS:The conditions for future advances are SEE ATTACHED "LOAN
MONITORING WORKSHEET" AND "EXIM BANK SPECIAL CONDITIONS". UNLESS ALL
CONDITIONS BY EXIM BANK HAVE BEEN MET, METROBANK IS NOT OBLIGATED TO FUND.
[X] OPEN END CREDIT: You and I agree that I may borrow up to the maximum
amount of principal more than one time. This feature is subject to all
other conditions and expires on MAY 2, 1998.
[ ] CLOSED END CREDIT: You and I agree that I may borrow up to the maximum
only one time (and subject to all other conditions).
INTEREST: I agree to pay interest on the outstanding principal balance from JAN.
30, 1998 at the rate of 9.000% per year until FIRST CHANGE DATE.
[X] VARIABLE RATE: This rate may then change as stated below. * QUARTERLY
[X] INDEX RATE: The future rate will be 0.500% OVER the following index
rate: PRIME RATE AS PUBLISHED IN THE WALL STREET JOURNAL.
[X] CEILING RATE: The interest rate ceiling for this not is the * ceiling
rate announced by the Credit Commissioner from time to time.
[X] FREQUENCY AND TIMING: The rate on this note may change as often as DAILY
A change in the interest rate will take effect ON THE SAME DAY
[ ] LIMITATIONS: During the term of this loan, the applicable annual
interest rate will not be more than ___% or less than ___%. The rate may
not change more than ______________________________% each
_____________________________ .
[X] EFFECT OF VARIABLE RATE: A change in the interest rate will have the
following effect on the payments:
[ ]The amount of each scheduled payment will change. [ ] The amount of
the final payment will change.
[ ]________________________________________________________________ .
ACCRUAL METHOD: Interest will be calculated on a ACTUAL/360 basis.
POST MATURITY RATE: I agree to pay interest on the unpaid balance of this note
owing after maturity, and until paid in full, as stated below:
[X] on the same fixed or variable rate basis in effect before maturity (as
indicated above).
[ ] at a rate equal to _________________________________________________
[ ] LATE CHARGE: If a payment is made more than _________________ days after
it is due, I agree to pay a late charge of ___________________
____________________________________________________________________
[X] ADDITIONAL CHARGES: In addition to interest, I agree to pay the following
charges which M are H are not included in the principal amount above:
$40,000 LOAN FEE; $82 TITLE SEARCH FEE; $50 D/T FILING FEE.
PAYMENTS: I agree to pay this note as follows:
[X] INTEREST: I agree to pay accrued interest ON DEMAND, BUT IF NO DEMAND IS
MADE THEN ON THE 2ND DAY OF EACH MONTH BEGINNING MARCH 2, 1998.
[X] PRINCIPAL: I agree to pay the principal ON DEMAND, BUT IF NO DEMAND IS MADE
THEN ON MAY 2, 1998.
[ ] INSTALLMENTS: I agree to pay this note in __________________________________
payments. The first payment will be in the amount of $______________________
and will be due __ . A payment of $_____________________________ will be due
____________________________________________________________________________
_________________________________ thereafter. The final payment of the
entire unpaid balance of principal and interest will be due_________________
______________________________ .
ADDITIONAL TERMS:
**REPAYMENT TERMS: INTEREST PAYMENT MONTHLY; PRINCIPAL ADVANCED TO BE REPAID
UPON COLLECTION OF A/R OR AT MATURITY, WHICHEVER COMES FIRST.
**GENERAL PROVISION: THIS NOTE IS SUBJECT TO THE ARBITRATION PROGRAM ENTERED
INTO BETWEEN BORROWER AND LENDER.
THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
SIGNATURE FOR LENDER
X /s/ AMAL GUNERATNE
AMAL GUNERATNE, VICE PRESIDENT
[X] SECURITY: This note is separately secured by (describe separate document by
type and date): SECURITY AGREEMENT, LINE OF CREDIT AGREEMENT, GUARANTY
AGREEMENTS, ARBITRATION AGREEMENT
(This section is for your internal use. Failure to list a separate security
document does not mean the agreement will not secure this note.)
PURPOSE: The purpose of this loan is BUSINESS: TO RENEW LN#721099972.
SIGNATURES: I AGREE TO THE TERMS OF THIS NOTE (INCLUDING THOSE ON PAGE 2). I
HAVE RECEIVED A COPY ON TODAY'S DATE.
AMERICAN ENERGY SERVICES, INC.
BY:
LARRY ELLIOTT, PRESIDENT
BY: /s/ PAT ELLIOTT
OR PAT ELLIOTT, VICE PRESIDENT
(PAGE 1 OF 2)
<PAGE>
DEFINITIONS: As used on page 1, "[X]" means the terms that apply to this loan.
"I," "me" or "my" means each Borrower who signs this note and each other person
or legal entity (including guarantors, endorsers, and sureties) who agrees to
pay this note (together referred to as "us"). "You" or "your" means the Lender
and its successors and assigns.
APPLICABLE LAW: The law of the state of Texas will govern this note. Any term of
this note which is contrary to applicable law will not be effective, unless the
law permits you and me to agree to such a variation. If any provision of this
agreement cannot be enforced according to its terms, this fact will not affect
the enforceability of the remainder of this agreement. No modification of this
agreement may be made without your express written consent. Time is of the
essence in this agreement.
PAYMENTS: Each payment I make on this note will first reduce the amount I owe
you for charges which are neither interest nor principal. The remainder of each
payment will then reduce accrued unpaid interest, and then unpaid principal. If
you and I agree to a different application of payments, we will describe our
agreement on this note. I may prepay a part of, or the entire balance of this
loan without penalty, unless we specify to the contrary on this note. Any
partial prepayment will not excuse or reduce any later scheduled payment until
this note is paid in full unless, when I make the prepayment, you and I agree in
writing to the contrary).
INTEREST: Interest accrues on the principal remaining unpaid from time to time,
until paid in full. If I receive the principal in more than one advance, each
advance will start to earn interest only when I receive the advance. The
interest rate in effect on this note at any given time will apply to the entire
principal advanced at that time. Notwithstanding anything to the contrary, I do
not agree to pay and you do not intend to charge any rate of interest that is
higher than the maximum rate of interest you could charge under applicable law
for the extension of credit that is agreed to here (either before or after
maturity). If any notice of interest accrual is sent and is in error, we
mutually agree to correct it, and if you actually collect more interest than
allowed by law and this agreement, you agree to refund it to me.
INDEX RATE: The index will serve only as a device for setting the rate on this
note. You do not guarantee by selecting this index, or the margin, that the rate
on this note will be the same rate you charge on any other loans or class of
loans to me or other borrowers.
ACCRUAL METHOD: The amount of interest that I will pay on this loan will be
calculated using the interest rate and accrual method stated on page 1 of this
note. For the purpose of interest calculation, the accrual method will determine
the number of days in a "year." If no accrual method is stated, then you may
use any reasonable accrual method for calculating interest.
POST MATURITY RATE: For purposes of deciding when the "Post Maturity Rate"
(shown on page 1) applies, the term "maturity" means the date of the last
scheduled payment indicated on page 1 of this note or the date you accelerate
payment on the note, whichever is earlier.
SINGLE ADVANCE LOANS: If this is a single advance loan, you and I expect that
you will make only one advance of principal. However, you may add other amounts
to the principal if you make any payments described in the "PAYMENTS BY
LENDER" paragraph below.
MULTIPLE ADVANCE LOANS: If this is a multiple advance loan, you and I expect
that you will make more than one advance of principal. If this is closed end
credit, repaying a part of the principal will not entitle me to additional
credit.
PAYMENTS BY LENDER: If you are authorized to pay, on my behalf, charges I am
obligated to pay (such as property insurance premiums), then you may treat those
payments made by you as advances and add them to the unpaid principal under this
note, or you may demand immediate payment of the charges.
SET-OFF: I agree that you may set off any amount due and payable under this note
against any right I have to receive money from you.
"Right to receive money from you" means:
(1) any deposit account balance I have with you;
(2) any money owed to me on an item presented to you or in your possession
for collection or exchange; and
(3) any repurchase agreement or other nondeposit obligation.
"Any amount due and payable under this note" means the total amount of
which you are entitled to demand payment under the terms of this note at the
time you set off. This total includes any balance the due date for which you
properly accelerate under this note.
If my right to receive money from you is also owned by someone who has not
agreed to pay this note, your right of set-off will apply to my interest in the
obligation and to any other amounts I could withdraw on my sole request or
endorsement. Your right of set-off does not apply to an account or other
obligation where my rights are only as a representative. It also does not apply
to any Individual Retirement Account or other tax-deferred retirement account.
You will not be liable for the dishonor of any check when the dishonor
occurs because you set off this debt against any of my accounts. I agree to hold
you harmless from any such claims arising as a result of your exercise of your
right of set-off.
REAL ESTATE OR RESIDENCE SECURITY: If this note is secured by real estate or a
residence that is personal property, the existence of a default and your
remedies for such a default will be determined by applicable law, by the terms
of any separate instrument creating the security interest and, to the extent not
prohibited by law and not contrary to the terms of the separate security
instrument, by the "Default" and "Remedies" paragraphs herein.
DEFAULT: I will be in default on this loan and any agreement securing this loan
if any one or more of the following occurs:
(1) I fail to perform any obligation which I have undertaken in this note
or any agreement securing this note; or
(2) you, in good faith, believe that the prospect of payment or the
prospect of my performance of any other of my obligations under this
note or any agreement securing this note is impaired.
If any of us are in default on this note or any security agreement, you may
exercise your remedies against any or all of us.
REMEDIES: If I am in default on this note you have, but are not limited to, the
following remedies:
(1) You may demand immediate payment of my debt under this note
(principal, accrued unpaid interest and other accrued charges).
(2) You may set off this debt against any right I have to the payment of
money from you, subject to the terms of the "Set-Off" paragraph
herein.
(3) You may demand security, additional security, or additional parties to
be obligated to pay this note as a condition for not using any other
remedy.
(4) You may refuse to make advances to me or allow purchases on credit by
me.
(5) You may use any remedy you have under state or federal law.
By selecting any one or more of these remedies you do not give up your
right to later use any other remedy. By waiving your right to declare an event
to be a default, you do not waive your right to later consider the event as a
default if it continues or happens again.
COLLECTION COSTS AND ATTORNEY'S FEES: I agree to pay all costs of collection,
replevin or any other or similar type of cost if I am in default. In addition,
if you hire an attorney to collect this note, I also agree to pay any fee you
incur with such attorney plus court costs (except where prohibited by law). To
the extent permitted by the United States Bankruptcy Code, I also agree to pay
the reasonable attorney's fees and costs you incur to collect this debt as
awarded by any court exercising jurisdiction under the Bankruptcy Code.
WAIVER: I give up my rights to require you to do certain things. I will not
require you to:
(1) demand payment of amounts due (presentment);
(2) obtain official certification of nonpayment (protest);
(3) give notice that amounts due have not been paid (notice of dishonor);
(4) give notice of intent to accelerate; or
(5) give notice of acceleration.
I waive any defenses I have based on suretyship or impairment of
collateral.
OBLIGATIONS INDEPENDENT: I understand that I must pay this note even if someone
else has also agreed to pay it (by, for example, signing this form or a separate
guarantee or endorsement). You may sue me alone, or anyone else who is obligated
on this note, or any number of us together, to collect this note. You may do so
without any notice that it has not been paid (notice of dishonor). You may
without notice release any party to this agreement without releasing any other
party. If you give up any of your rights, with or without notice, it will not
affect my duty to pay this note. Any extension of new credit to any of us, or
renewal of this note by all or less than all of us will not release me from my
duty to pay it. (Of course, you are entitled to only one payment in full.) I
agree that you may at your option extend this note or the debt represented by
this note, or any portion of the note or debt, from time to time without limit
or notice and for any term without affecting my liability for payment of the
note. I will not assign my obligation under this agreement without your prior
written approval.
CREDIT INFORMATION: I agree and authorize you to obtain credit information about
me from time to time (for example, by requesting a credit report) and to report
to others your credit experience with me (such as a credit reporting agency). I
agree to provide you, upon request, any financial statement or information you
may deem necessary. I warrant that the financial statements and information I
provide to you are or will be accurate, correct and complete.
NOTICE: Unless otherwise required by law, any notice to me shall be given by
delivering it or by mailing it by first class mail addressed to me at my last
known address. My current address is on page 1. I agree to inform you in writing
of any change in my address. I will give any notice to you by mailing it first
class to your address stated on page 1 of this agreement, or to any other
address that you have designated.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
BORROWER'S
INITIALS INTEREST
DATE OF PRINCIPAL (NOT PRINCIPAL PRINCIPAL INTEREST INTEREST PAID
TRANSACTION ADVANCE REQUIRED) PAYMENTS BALANCE RATE PAYMENTS THROUGH:
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(page 2 of 2)
<PAGE>
<TABLE>
<S> <C> <C>
AMERICAN ENERGY SERVICES, INC. METRO BANK, N.A. GALLERIA ACCOUNT #: AG-52
7311 OLD GALVESTON RAOD BRANCH Loan Number 721099982
HOUSTON, TX 77034 5065 WESTHEIMER, STE. #1111 Date: JANUARY 30, 1998
HOUSTON, TX 77056 Maturity Date: FEB. 2, 2000
Loan Amount: $644,464.70
BORROWER'S NAME AND ADDRESS LENDER'S NAME AND ADDRESS Renewal Of
"I" includes each borrower above, "You" means the lender, its successors SSN/TIN: 76-0279883
joint and severally. and assigns.
</TABLE>
For value received, I promise to pay to you, or your order, at your address
listed above the PRINCIPAL sum of SIX HUNDRED FORTY FOUR THOUSAND FOUR HUNDRED
SIXTY FOUR AND 70/100**Dollars $644,464.70
[X] SINGLE ADVANCE: I will receive all of this principal sum on JANUARY 30,
1998. No additional advances are contemplated under this note.
[ ] MULTIPLE ADVANCE: The principal sum shown above is the maximum amount of
principal I can borrow under this note. On _____________________________ I
will receive the amount of $_______________________ and future principal
advances are contemplated.
CONDITIONS:The conditions for future advances are _________________________
____________________________________________________________________
____________________________________________________________________
[ ]OPEN END CREDIT: You and I agree that I may borrow up to the maximum
amount of principal more than one time. This feature is subject to all
other conditions and expires on _______________.
[ ]CLOSED END CREDIT: You and I agree that I may borrow up to the maximum
only one time (and subject to all other conditions).
INTEREST: I agree to pay interest on the outstanding principal balance from JAN.
30, 1998 at the rate of 8.500% per
year until FIRST CHANGE DATE.
[X] VARIABLE RATE: This rate may then change as stated below. * QUARTERLY
[X]INDEX RATE: The future rate will be EQUAL TO the following index
rate: PRIME RATE AS PUBLISHED IN THE WALL STREET JOURNAL.
[X]CEILING RATE: The interest rate ceiling for this note is the *
ceiling rate announced by the Credit Commissioner from time to time.
[X]FREQUENCY AND TIMING: The rate on this note may change as often as
DAILY A change in the interest rate will take effect ON THE SAME DAY
[ ]LIMITATIONS: During the term of this loan, the applicable annual
interest rate will not be more than ___________________________% or
less than ___________________________%. The rate may not change more
than ______________________________% each __________________________
[X]EFFECT OF VARIABLE RATE: A change in the interest rate will have the
following effect on the payments:
[X]The amount of each scheduled payment will change.
[ ]The amount of the final payment will change.
[ ] ______________________________________________________________
ACCRUAL METHOD: Interest will be calculated on a ACTUAL/360 basis.
POST MATURITY RATE: I agree to pay interest on the unpaid balance of this note
owing after maturity, and until paid in full, as stated below:
[X]on the same fixed or variable rate basis in effect before maturity (as
indicated above).
[ ]at a rate equal to ___________________________________________________
[ ]LATE CHARGE: If a payment is made more than _________________ days after it
is due, I agree to pay a late charge of _____________________________________
_____________________________________________________________________________
[X] ADDITIONAL CHARGES: In addition to interest, I agree to pay the following
charges which M are H are not included in the principal amount above:
$1,000 LOAN FEE.
PAYMENTS: I agree to pay this note as follows:
[X] INTEREST: I agree to pay accrued interest WITH PRINCIPAL.
[X] PRINCIPAL: I agree to pay the principal ON DEMAND, BUT IF NO DEMAND IS
MADE.
[X] INSTALLMENTS: I agree to pay this note in 24 payments. The first payment
will be in the amount of $18,658.00 and will be due on March 2, 1998. A
payment of $18,658.00 will be due ON THE 2ND DAY OF EACH MONTH
thereafter. The final payment of the entire unpaid balance of principal
and interest will be due FEBRUARY 2, 2000.
ADDITIONAL TERMS:
**GENERAL PROVISION: THIS NOTE IS SUBJECT TO THE ARBITRATION PROGRAM ENTERED
INTO BETWEEN BORROWER AND LENDER.
**PLEASE SEE ATTACHED EXIM BANK "SPECIAL CONDITIONS" FOR ALL REQUIRED
CONDITIONS.
THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
SIGNATURE FOR LENDER
X /s/ AMAL GUNERAINE
AMAL GUNERAINE, VICE PRESIDENT
[X]SECURITY: This note is separately secured by (describe separate document by
type and date): SECURITY AGREEMENT; GUARANTY AGREEMENTS; ARBITRATION
AGREEMENT.
(This section is for your internal use. Failure to list a separate security
document does not mean the agreement will not secure this note.)
PURPOSE: The purpose of this loan is BUSINESS: PAYOFF LN#721099980; CONVERT TO
TERM LOAN.
SIGNATURES: I AGREE TO THE TERMS OF THIS NOTE (INCLUDING THOSE ON PAGE 2). I
HAVE RECEIVED A COPY ON TODAY'S DATE.
AMERICAN ENERGY SERVICES, INC.
BY:
LARRY ELLIOTT, PRESIDENT
BY: /s/ PAT ELLIOTT
OR PAT ELLIOTT, VICE PRESIDENT
(PAGE 1 OF 2)
<PAGE>
DEFINITIONS: As used on page 1, "H" means the terms that apply to this loan.
"I," "me" or "my" means each Borrower who signs this note and each other
person or legal entity (including guarantors, endorsers, and sureties) who
agrees to pay this note (together referred to as "us"). "You" or "your"
means the Lender and its successors and assigns.
APPLICABLE LAW: The law of the state of Texas will govern this note. Any term of
this note which is contrary to applicable law will not be effective, unless the
law permits you and me to agree to such a variation. If any provision of this
agreement cannot be enforced according to its terms, this fact will not affect
the enforceability of the remainder of this agreement. No modification of this
agreement may be made without your express written consent. Time is of the
essence in this agreement.
PAYMENTS: Each payment I make on this note will first reduce the amount I owe
you for charges which are neither interest nor principal. The remainder of each
payment will then reduce accrued unpaid interest, and then unpaid principal. If
you and I agree to a different application of payments, we will describe our
agreement on this note. I may prepay a part of, or the entire balance of this
loan without penalty, unless we specify to the contrary on this note. Any
partial prepayment will not excuse or reduce any later scheduled payment until
this note is paid in full (unless, when I make the prepayment, you and I agree
in writing to the contrary).
INTEREST: Interest accrues on the principal remaining unpaid from time to time,
until paid in full. If I receive the principal in more than one advance, each
advance will start to earn interest only when I receive the advance. The
interest rate in effect on this note at any given time will apply to the entire
principal advanced at that time. Notwithstanding anything to the contrary, I do
not agree to pay and you do not intend to charge any rate of interest that is
higher than the maximum rate of interest you could charge under applicable law
for the extension of credit that is agreed to here (either before or after
maturity). If any notice of interest accrual is sent and is in error, we
mutually agree to correct it, and if you actually collect more interest than
allowed by law and this agreement, you agree to refund it to me.
INDEX RATE: The index will serve only as a device for setting the rate on this
note. You do not guarantee by selecting this index, or the margin, that the rate
on this note will be the same rate you charge on any other loans or class of
loans to me or other borrowers.
ACCRUAL METHOD: The amount of interest that I will pay on this loan will be
calculated using the interest rate and accrual method stated on page 1 of this
note. For the purpose of interest calculation, the accrual method will determine
the number of days in a "year." If no accrual method is stated, then you may
use any reasonable accrual method for calculating interest.
POST MATURITY RATE: For purposes of deciding when the "Post Maturity Rate"
(shown on page 1) applies, the term "maturity" means the date of the last
scheduled payment indicated on page 1 of this note or the date you accelerate
payment on the note, whichever is earlier.
SINGLE ADVANCE LOANS: If this is a single advance loan, you and I expect that
you will make only one advance of principal. However, you may add other amounts
to the principal if you make any payments described in the "PAYMENTS BY
LENDER" paragraph below.
MULTIPLE ADVANCE LOANS: If this is a multiple advance loan, you and I expect
that you will make more than one advance of principal. If this is closed end
credit, repaying a part of the principal will not entitle me to additional
credit.
PAYMENTS BY LENDER: If you are authorized to pay, on my behalf, charges I am
obligated to pay (such as property insurance premiums), then you may treat those
payments made by you as advances and add them to the unpaid principal under this
note, or you may demand immediate payment of the charges.
SET-OFF: I agree that you may set off any amount due and payable under this note
against any right I have to receive money from you.
"Right to receive money from you" means:
(1) any deposit account balance I have with you;
(2) any money owed to me on an item presented to you or in your possession
for collection or exchange; and
(3) any repurchase agreement or other nondeposit obligation.
"Any amount due and payable under this note" means the total amount of
which you are entitled to demand payment under the terms of this note at the
time you set off. This total includes any balance the due date for which you
properly accelerate under this note.
If my right to receive money from you is also owned by someone who has not
agreed to pay this note, your right of set-off will apply to my interest in the
obligation and to any other amounts I could withdraw on my sole request or
endorsement. Your right of set-off does not apply to an account or other
obligation where my rights are only as a representative. It also does not apply
to any Individual Retirement Account or other tax-deferred retirement account.
You will not be liable for the dishonor of any check when the dishonor
occurs because you set off this debt against any of my accounts. I agree to hold
you harmless from any such claims arising as a result of your exercise of your
right of set-off.
REAL ESTATE OR RESIDENCE SECURITY: If this note is secured by real estate or a
residence that is personal property, the existence of a default and your
remedies for such a default will be determined by applicable law, by the
terms of any separate instrument creating the security interest and, to the
extent not prohibited by law and not contrary to the terms of the separate
security instrument, by the "Default" and "Remedies" paragraphs herein.
DEFAULT: I will be in default on this loan and any agreement securing this loan
if any one or more of the following occurs:
(1) I fail to perform any obligation which I have undertaken in this note
or any agreement securing this note; or
(2) you, in good faith, believe that the prospect of payment or the
prospect of my performance of any other of my obligations under this
note or any agreement securing this note is impaired.
If any of us are in default on this note or any security agreement, you may
exercise your remedies against any or all of us.
REMEDIES: If I am in default on this note you have, but are not limited to, the
following remedies:
(1) You may demand immediate payment of my debt under this note
(principal, accrued unpaid interest and other accrued charges).
(2) You may set off this debt against any right I have to the payment of
money from you, subject to the terms of the "Set-Off" paragraph
herein.
(3) You may demand security, additional security, or additional parties to
be obligated to pay this note as a condition for not using any other
remedy.
(4) You may refuse to make advances to me or allow purchases on credit by
me.
(5) You may use any remedy you have under state or federal law.
By selecting any one or more of these remedies you do not give up your
right to later use any other remedy. By waiving your right to declare an event
to be a default, you do not waive your right to later consider the event as a
default if it continues or happens again.
COLLECTION COSTS AND ATTORNEY'S FEES: I agree to pay all costs of collection,
replevin or any other or similar type of cost if I am in default. In addition,
if you hire an attorney to collect this note, I also agree to pay any fee you
incur with such attorney plus court costs (except where prohibited by law). To
the extent permitted by the United States Bankruptcy Code, I also agree to pay
the reasonable attorney's fees and costs you incur to collect this debt as
awarded by any court exercising jurisdiction under the Bankruptcy Code.
WAIVER: I give up my rights to require you to do certain things. I will not
require you to:
(1) demand payment of amounts due (presentment);
(2) obtain official certification of nonpayment (protest);
(3) give notice that amounts due have not been paid (notice of dishonor);
(4) give notice of intent to accelerate; or
(5) give notice of acceleration.
I waive any defenses I have based on suretyship or impairment of
collateral.
OBLIGATIONS INDEPENDENT: I understand that I must pay this note even if someone
else has also agreed to pay it (by, for example, signing this form or a separate
guarantee or endorsement). You may sue me alone, or anyone else who is obligated
on this note, or any number of us together, to collect this note. You may do so
without any notice that it has not been paid (notice of dishonor). You may
without notice release any party to this agreement without releasing any other
party. If you give up any of your rights, with or without notice, it will not
affect my duty to pay this note. Any extension of new credit to any of us, or
renewal of this note by all or less than all of us will not release me from my
duty to pay it. (Of course, you are entitled to only one payment in full.) I
agree that you may at your option extend this note or the debt represented by
this note, or any portion of the note or debt, from time to time without limit
or notice and for any term without affecting my liability for payment of this
note. I will not assign my obligation under this agreement without your prior
written approval.
CREDIT INFORMATION: I agree and authorize you to obtain credit information about
me from time to time (for example, by requesting a credit report) and to report
to others your credit experience with me (such as a credit reporting agency). I
agree to provide you, upon request, any financial statement or information you
may deem necessary. I warrant that the financial statements and information I
provide to you are or will be accurate, correct and complete.
<PAGE>
NOTICE: Unless otherwise required by law, any notice to me shall be given by
delivering it or by mailing it by fist class mail addressed to me at my last
known address. My current address is on page 1. I agree to inform you in writing
of any change in my address. I will give any notice to you by mailing it first
class to your address stated on page 1 of this agreement, or to any other
address that you have designated.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
BORROWER'S
INITIALS INTEREST
DATE OF PRINCIPAL (NOT PRINCIPAL PRINCIPAL INTEREST INTEREST PAID
TRANSACTION ADVANCE REQUIRED) PAYMENTS BALANCE RATE PAYMENTS THROUGH:
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------------------------
/ / $ $ $ % $ / /
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(page 2 of 2)
<PAGE>
AMERICAN ENERGY SERVICES, METROBANK, N.A. ACCOUNT #: AG-52
INC. GALLERIA BRANCH Loan Number 721099982
7311 OLD GALVESTON ROAD 5065 WESTHEIMER, STE. Date: FEBRUARY 2, 1998
HOUSTON, TX 77034 #1111 Mat. Date FEBRUARY 2,
HOUSTON, TX 77056 2000
BORROWER'S NAME AND Loan Amount $644,464.70
ADDRESS LENDER'S NAME AND Renewal of
"I" includes each ADDRESS
borrower above, jointly "You" means the lender,
and severally. its successors and
assigns.
Hereby authorize and request the following disbursement from the loan referenced
above:
<TABLE>
<S> <C> <C> <C> <C>
Amount given to me directly $ i. PAYOFF LN#721099980 $ 644,464.70
Amount paid on my account
(# ) $ j. $
To Lender $ k. $
Amounts paid to others on my
behalf: l. $
To Property Insurance Company $ m. $
To Credit Life Insurance Company $ n. $
To Disability Insurance Company $ o. $
To Public Officials $ p. $
</TABLE>
Comments: $1,000 LOAN FEE.
**INTEREST OWED TO
2-2-98 FOR LN#721099982 $5,754.71
Loan Officer:
AMERICAN ENERGY SERVICES, INC.
BY:
LARRY ELLIOTT, PRESIDENT
BY: /s/ P S ELLIOTT
OR PAT ELLIOTT, VICE PRESIDENT
(page 1 of 1)
<PAGE>
SPECIAL CONDITIONS:
1. EXIMBANK EXPORT CREDIT INSURANCE POLICY. In the event the Borrower wishes
to sell on open account terms, as a condition precedent to making any
Disbursement under the Loan to finance said open account sales, the Lender
shall ensure that the Borrower has obtained an Eximbank Export Credit
Insurance policy ("Eximbank Policy") for comprehensive commercial and
political risks, on terms acceptable to Eximbank, and that coverage under
said Eximbank Policy shall be in full force and effect as of the date of
any Disbursement made to finance open account sales under the Loan, and
throughout the remainder of the term of the Loan. The proceeds of such
Policy paid to the Lender pursuant to the assignment shall be applied first
toward reducing any amount then outstanding under the Loan.
2. SUBORDINATED STOCKHOLDER DEBT. Prior to or as of the Closing Date, the
Borrower shall deliver to the Lender, in form and substance satisfactory to
the Lender, a written undertaking from the Borrower and its stockholders
stating that there shall be no payments of any amounts outstanding under
any loans, notes, bonds, debentures or other debt, either now or hereafter
existing, owed by the Borrower to any stockholder, (collectively,
"Subordinated Debt") until all amounts outstanding under the Loan
("Senior Debt") have been paid in full; and that in the event of the
dissolution or winding up of the Borrower's business affairs, the
Subordinated Debt shall at all times be subordinated to the Senior Debt.
3. ADVANCES TO STOCKHOLDERS AND AFFILIATES. During the term of the Loan, the
Borrower shall not make any advances to any stockholder or affiliated or
related entity (including but not limited to, partnerships, joint ventures,
joint stock companies, corporations, parent companies or subsidiaries). In
the event that such advances are made, the Lender shall not make any
further Disbursements to the Borrower under the Loan without the prior
written approval of Eximbank.
4. DIVIDEND RESTRICTIONS. The Borrower shall not pay any dividends (other than
dividends payable in shares of the Borrower's stock) on any class of shares
of the Borrower's stock.
5. ASSIGNMENT OF LIFE INSURANCE POLICY PROCEEDS. An assignment of the proceeds
of the life insurance policy opened in the names of Larry Elliott, Patrick
Elliott, and Sydney McCarra each in the amount of $866,666 shall be
executed in favor of the Lender for the benefit of the Loan. The proceeds
of such assignment paid to the Lender shall be applied first towards
reducing any amount then outstanding under the Loan. The Lender shall
require that the Borrower notify the Lender and Eximbank in writing
immediately upon the event of an occurrence under such life insurance
policy. Thereafter, the Lender shall not make any further Disbursements to
the Borrower under the Loan without the prior written approval of Eximbank.
<PAGE>
6. TAX REFUND AND BECHTEL SETTLEMENT. Upon receipt by the Borrower of the tax
refund in the anticipated amount of $230,000 and the $252,000 payment from
Bechtel as part of the settlement of the valves supplied under the Ras
Tanura contract, all such amount must be immediately applied to the
outstanding principal balance of AP069904XX.
7. PROGRESS REPORTS. The Lender must provide Eximbank with a monthly status
report on the Borrower, including loan balances, borrowing base
availability and payments received for the period.
8. ASSIGNMENT OF LETTER OF CREDIT PROCEEDS. The Borrower shall assign to the
Lender the proceeds of [each] Letter of Credit pursuant to an executed
assignment of proceeds acknowledged by the paying bank ("Assignment of
Proceeds"), a signed and dated copy of which shall be delivered to the
Lender. Each assignment of Proceeds shall provide that all payments under
the Letter of Credit shall be made directly to the Lender.
9. DIVIDEND RESTRICTIONS. The Borrower shall not pay any dividends (other than
dividends payable in shares of the Borrower's stock) on any class of shares
of the Borrower's stock.
10. SALARY MANAGEMENT FEES AND BONUS RESTRICTIONS. The Borrower shall not: (i)
give any salary increase to officers or stockholders; (ii) pay any
management fees; and (iii) pay any bonus to officers or stockholders in any
one fiscal year.
11. LOANS TO STOCKHOLDERS AND AFFILIATES. The Borrower shall not make any loans
to any stockholder or entity affiliated with the Borrower.
12. INDIRECT EXPORT. As a condition precedent to any Disbursement, the Borrower
shall provide to the Lender a written certification stating that the items
financed with the Loan shall be sold solely pursuant to an export
transaction.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
AMERICAN ENERGY SERVICES, METROBANK, N.A. ACCOUNT #: AG-52
INC. GALLERIA BRANCH Loan Number 721099982
7311 OLD GALVESTON ROAD 5065 WESTHEIMER, STE. #1111 Date FEBRUARY 2, 1998
HOUSTON, TX 77034 HOUSTON, TX 77056 Mat. Date FEBRUARY 2, 2000
BORROWER'S NAME AND LENDER'S NAME AND ADDRESS Loan Amount $644,464.70
ADDRESS "You" means the lender, its successors Renewal of
"I" includes each and assigns.
borrower above, jointly
and severally.
</TABLE>
I hereby authorize and request the following disbursement from the loan
referenced above:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Amount given to me directly $ i. PAYOFF LN#721099980 $ 644,464.70
Amount paid on my account (# ) $ j. $
To Lender $ k. $
Amounts paid to others on my behalf: l. $
To Property Insurance Company $ m. $
To Credit Life Insurance Company $ n. $
To Disability Insurance Company $ o. $
To Public Officials $ p. $
$ q. $
Comments: $1,000 LOAN FEE.**INTEREST OWED TO -2-98 FOR AMERICAN ENERGY SERVICES, INC.
LN#721099980$5,754.71 BY:
LARRY ELLIOT, PRESIDENT
BY: PAT ELLIOT
Loan Officer: OR PAT ELLIOT, VICE PRESIDENT
</TABLE>
(page 1 of 1)
<PAGE>
SPECIAL CONDITIONS:
1. EXIMBANK EXPORT CREDIT INSURANCE POLICY. In the event the Borrower wishes to
sell on open account terms, as a condition precedent to making any
Disbursement under the Loan to finance said open account sales, the Lender
shall ensure that the Borrower has obtained an Eximbank Export Credit
Insurance policy ("Eximbank Policy") for comprehensive commerical and
political risks, on terms acceptable to Eximbank, and that coverage under
said Eximbank Policy shall be in full force and effect as of the date of any
Disbursement made to finance open account sales under the Loan, and
throughout the remainder of the term of the Loan. The proceeds of such
Policy paid to the Lender pursuant to the assignment shall be applied first
toward reducing any amount then outstanding under the Loan.
2. SUBORDINATED STOCKHOLDER DEBT. Prior to or as of the Closing Date, the
Borrower shall deliver to the Lender, in form and substance satisfactory to
the Lender, a written undertaking from the Borrower and its stockholders
stating that there shall be no payments of any amounts outstanding under any
loans, notes, bonds, debentures or other debt, either now or hereafter
existing, owned by the Borrower to any stockholder, (collectively,
"Subordinated Debt") until all amounts outstanding under the Loan
("Senior Debt") have been paid in full; and that in the event of the
dissolution or winding up of the Borrower's business affairs, the
Subordinated Debt shall at all times be subordinated to the Senior Debt.
3. ADVANCES TO STOCKHOLDERS AND AFFILIATES. During the term of the Loan, the
Borrower shall not make any advances to any stockholder or affiliated or
related entity (including but not limited to, partnerships, joint ventures,
joint stock companies, corporations, parent companies or subsidiaries). In
the event that such advances are made, the Lender shall not make any further
Disbursements to the Borrower under the Loan without the prior written
approval of Eximbank.
4. DIVIDEND RESTRICTIONS. The Borrower shall not pay any dividends (other than
dividends payable in shares of the Borrower's stock) on any class of shares
of the Borrower's stock.
5. ASSIGNMENT OF LIFE INSURANCE POLICY PROCEEDS. An assignment of the proceeds
of the life insurance policy opened in the names of Larry Elliott, Patrick
Elliott, and Sydney McCarra each in the amount of $866,666 shall be executed
in favor of the Lender for the benefit of the Loan. The proceeds of such
assignment paid to the Lender shall be applied first towards reducing any
amount then outstanding under the Loan. The Lender shall require that the
Borrower notify the Lender and Eximbank in writing immediately upon the
event of an occurrence under such life insurance policy. Thereafter, the
Lender shall not make any further Disbursements to the Borrower under the
Loan without the prior written approval of Eximbank.
<PAGE>
6. TAX REFUND AND BECHTEL SETTLEMENT. Upon receipt by the Borrower of the tax
refund in the anticipated amount of $230,000 and the $252,000 payment from
Bechtel as part of the settlement of the valves supplied under the Ras
Tanura contract, all such amounts must be immediately applied to the
outstanding principal balance of AP069904XX.
7. PROGRESS REPORTS. The Lender must provide Eximbank with a monthly status
report on the Borrower, including loan balances, borrowing base availability
and payments received for the period.
8. ASSIGNMENT OF LETTER OF CREDIT PROCEEDS. The Borrower shall assign to the
Lender the proceeds of [each] Letter of Credit pursuant to an executed
assignment of proceeds acknowledged by the paying bank ("Assignment of
Proceeds"), a signed and dated copy of which shall be delivered to the
Lender. Each assignment of Proceeds shall provide that all payments under
the Letter of Credit shall be made directly to the Lender.
9. DIVIDEND RESTRICTIONS. The Borrower shall not pay any dividends (other than
dividends payable in shares of the Borrower's stock) on any class of shares
of the Borrower's stock.
10. SALARY MANAGEMENT FEES AND BONUS RESTRICTIONS. The Borrower shall not: (i)
give any salary increase to officers or stockholders; (ii) pay any
management fees; and (iii) pay any bonus to officers or stockholders in any
one fiscal year.
11. LOANS TO STOCKHOLDERS AND AFFILIATES. The Borrower shall not make any loans
to any stockholder or entity affiliated with the Borrower.
12. INDIRECT EXPORT. As a condition precedent to any Disbursement, the Borrower
shall provide to the Lender a written certification stating that the items
financed with the Loan shall be sold solely pursuant to an export
transaction.
<PAGE>
AMERICAN ENERGY SERVICES, METROBANK, N.A. ACCOUNT #: AG-52
INC. GALLERIA BRANCH Loan Number 721099982
7311 OLD GALVESTON ROAD 5065 WESTHEIMER, STE. Maturity Date FEB. 2,
HOUSTON, TX 77034 #1111 2000
HOUSTON, TX 77056 Loan Amount $644,464.70
Renewal Of
SSN/TIN: 76-0279883
BORROWER'S NAME AND LENDER's NAME AND ADDRESS
ADDRESS "You" means the lender,
"I" includes each its successors and
borrower above, joint and assigns.
severally.
For value received, I promise to pay to you, or your order, at your address
listed above the PRINCIPAL sum of SIX HUNDRED FORTY FOUR THOUSAND FOUR HUNDRED
SIXTY FOUR AND 70/100* * * * * * * * * * * * Dollars $644,464.70
[X]SINGLE ADVANCE: I will receive all of this principal sum on FEBRUARY 2, 1998.
No additional advances are contemplated under this note.
[ ]MULTIPLE ADVANCE: The principal sum shown above is the maximum amount of
principal I can borrow under this note. On __________________________________
__________________I will receive the amount of $ and
future principal advances are contemplated.
CONDITIONS: The conditions for future advances are
_____________________________________________________________________________
_____________________________________________________________________________
[ ]OPEN END CREDIT: You and I agree that I may borrow up to the maximum amount
of principal more than one time. This feature is subject to all other
conditions and expires on _____________________________________________.
[ ]CLOSED END CREDIT: You and I agree that I may borrow up to the maximum only
one time (and subject to all other conditions).
INTEREST: I agree to pay interest on the outstanding principal balance from FEB.
2, 1998 at the rate of 8.500% per year until FIRST CHANGE DATE.
[X] VARIABLE RATE: This rate may then change as stated below. * QUARTERLY
[X]INDEX RATE: The future rate will be EQUAL TO the following index rate:
PRIME RATE AS PUBLISHED IN THE WALL STREET JOURNAL.
[X]CALLING RATE: The interest rate ceiling for this note is the * ceiling
rate announced by the Credit Commissioner from time to time.
[X]FREQUENCY AND TIMING: The rate on this note may change as often as DAILY.
A change in the interest rate will take effect ON THE SAME DAY.
[ ]LIMITATIONS: During the term of this loan, the applicable annual
interest rate will be more than % or
less than %. The rate may not change
more than % each .
EFFECT OF VARIABLE RATE: A change in the interest rate will have the
following effect on the payments:
[X]The amount of each scheduled payment will change. [ ]The amount of
the final payment will change.
[ ]At a rate equal to ______________________________________________
ACCRUAL METHOD: Interest will be calculated on a ACTUAL/360 basis.
POST MATURITY RATE: I agree to pay interest on the unpaid balance of this note
owing after maturity, and until paid in full, as stated below:
[X]on the same fixed or variable rate basis in effect before maturity (as
indicated above).
[ ]at a rate equal to ____________________________________________________.
[ ]LATE CHARGE: If a payment is made more than days after it is
due, I agree to pay a late charge of ________________________________________
_____________________________________________________________________________
[X] ADDITIONAL CHARGES: In addition to interest, I agree to pay the following
charges which H are H are not included in the principal amount above: $1,000
LOAN FEE.
PAYMENTS: I agree to pay this note as follows:
[X] INTEREST: I agree to pay accrued interest WITH PRINCIPAL.
[X] PRINCIPAL: I agree to pay the principal ON DEMAND, BUT IF NO DEMAND IS MADE.
[X] INSTALLMENTS: I agree to pay this note in 24 payments. The first payment
will be in the amount of $18,658.00 and will be due MARCH 2, 1998. A payment
of $18,658.00 will be due ON THE 2ND DAY OF EACH MONTH thereafter. The final
payment of the entire unpaid balance of principal and interest will be due
FEBRUARY 2, 2000.
ADDITIONAL TERMS:
**GENERAL PROVISION: THIS NOTE IS SUBJECT TO THE ARBITRATION PROGRAM ENTERED
INTO BETWEEN BORROWER AND LENDER.
**PLEASE SEE ATTACHED EXIM BANK "SPECIAL CONDITIONS" FOR ALL REQUIRED
CONDITIONS.
THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES
Signature for Lender
X_______________________________________________________________________________
AMAL GUNERATNE, VICE PRESIDENT
________________________________________________________________________________
[X] SECURITY: This note is separately secured by (describe separate document by
type and date): SECURITY AGREEMENT, GUARANTY AGREEMENTS, ARBITRATION
AGREEMENT.
(This section is for your internal use. Failure to list a separate security
document does not mean the agreement will not secure this note.)
PURPOSE: The purpose of this loan is BUSINESS: PAYOFF LN#721099980; CONVERT TO
TERM LOAN.
SIGNATURES: I AGREE TO THE TERMS OF THIS NOTE (INCLUDING THOSE ON PAGE 2). I
have received a copy on today's date.
AMERICAN ENERGY SERVICES, INC.
BY: ____________________________________________________________________________
LARRY ELLIOTT, PRESIDENT
BY: /s/ PAT ELLIOTT
OR PAT ELLIOTT, VICE PRESIDENT
________________________________________________________________________________
EXHIBIT 6.5
AMERICAN ENERGY SERVICES, INC. METROBANK, N.A. GALLERIA
7311 OLD GALVESTON ROAD BRANCH
HOUSTON, TX 77034 5065 WESTHEIMER, STE. #1111
TAXPAYER I.D. NUMBER: HOUSTON, TX 77056
76-0279883
DEBTOR'S NAME, ADDRESS AND SECURED PARTY'S NAME AND
SSN OR TIN ADDRESS
"I" means each ("You" means the Secured
Debtor who signs.) Party, its successors and
assigns.)
I am entering into this security agreement with you on FEBRUARY 2, 1998 (date).
SECURED DEBTS. I agree that this security agreement will secure the payment and
performance of the debts, liabilities or obligations described below that
(Check one)[X] I [ ] (name) __________________________________________________
________________________________ owe(s) to you now or in the future:
(Check one below):
[ ] SPECIFIC DEBT(S). The debt(s), liability or obligations evidenced by
(describe): ___________________________________________________________
and all extensions, renewals, refinancings, modifications and
replacements of the debt, liability or obligation.
[X] ALL DEBT(S). Except in those cases listed in the "LIMITATIONS"
paragraph on page 2, each and every debt, liability and obligation of
every type and description (whether such debt, liability or obligation
now exists or is incurred or created in the future and whether it is or
may be direct or indirect, due or to become due, absolute or contingent,
primary or secondary, liquidated or unliquidated, or joint, several or
joint and several).
SECURITY INTEREST. To secure the payment and performance of the above described
Secured Debts, liabilities and obligations, I give you a security interest
in all of the property described below that I now own and that I may own in
the future (including, but not limited to, all parts, accessories, repairs,
improvements, and accessions to the property), wherever the property is or
may be located, and all proceeds and products from the property.
[X] INVENTORY: All inventory which I hold for ultimate sale or lease, or which
has been or will be supplied under contracts of service, or which are raw
materials, work in process, or materials used or consumed in my business.
[ ] EQUIPMENT: All equipment including, but not limited to, all machinery,
vehicles, furniture, fixtures, manufacturing equipment, farm machinery and
equipment, shop equipment, office and recordkeeping equipment, and parts and
tools. All equipment described in a list or schedule which I give to you
will also be included in the secured property, but such a list is not
necessary for a valid security interest in my equipment.
[ ] FARM PRODUCTS: All farm products including, but not limited to:
(a) all poultry and livestock and their young, along with their products,
produce and replacements;
(b) all crops, annual or perennial, and all products of the crops; and
(c) all feed, seed, fertilizer, medicines, and other supplies used or
produced in my farming operations.
[X] ACCOUNTS, INSTRUMENTS, DOCUMENTS, CHATTEL PAPER AND OTHER RIGHTS TO PAYMENT:
All rights I have now and that I may have in the future to the payment of
money including, but not limited to:
(a) payment for goods and other property sold or leased or for services
rendered, whether or not I have earned such payment by performance; and
(b) rights to payment arising out of all present and future debt
instruments, chattel paper and loans and obligations receivable.
The above include any rights and interests (including all liens and security
interests) which I may have by law or agreement against any account debtor or
obligor of mine.
[X] GENERAL INTANGIBLES: All general intangibles including, but not limited to,
tax refunds, applications for patents, patents, copyrights, trademarks,
trade secrets, good will, trade names, customer lists, permits and
franchises, and the right to use my name.
[ ] GOVERNMENT PAYMENTS AND PROGRAMS: All payments, accounts, general
intangibles, or other benefits (including, but not limited to, payments in
kind, deficiency payments, letters of entitlement, warehouse receipts,
storage payments, emergency assistance payments, diversion payments, and
conservation reserve payments) in which I now have and in the future may
have any rights or interest and which arise under or as a result of any
preexisting, current or future Federal or state governmental program
(including, but not limited to, all programs administered by the Commodity
Credit Corporation and the ASCS).
[X] THE SECURED PROPERTY INCLUDES, BUT IS NOT LIMITED BY, THE FOLLOWING: ALL
INVENTORY AND PROCEED FROM BECHTEL: P.O. #22700-100-L-13A-LAC & P.O.
#22700-100-J-41J-LAC; A/R FROM IRS IN REGARD TO A TAX REFUND.
If this agreement covers timber to be cut, minerals (including oil and gas),
fixtures or crops growing or to be grown, the legal description is:
________________________________________________________________________________
I am a(n) [ ] individual [ ] partnership [X] corporation
[ ]___________________________________________________________________________
[ ] If checked, file this agreement in the real estate records.
Record Owner (if not me): ______________________________________________________
________________________________________________________________________________
_______________________________________________________________________________.
The property will be used for [ ] personal [X] business
[ ] agricultural [ ] ________________________________________ reasons.
METROBANK, N.A. GALLERIA BRANCH
(Secured Party's Name)
By: ____________________________________________________________________________
AMAL GUNERATNE
Title: VICE PRESIDENT
I AGREE TO THE TERMS SET OUT ON BOTH PAGE 1 AND PAGE 2 OF THIS AGREEMENT. I have
received a copy of this document on today's date.
AMERICAN ENERGY SERVICES, INC.
(Debtor's Name)
By: LARRY ELLIOTT
Title: PRESIDENT
By: /s/ PAT ELLIOTT
OR PAT ELLIOTT
Title: VICE PRESIDENT
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use in this Registration Statement on Form 10-SB of our
report dated May 21, 1998 relating to the financial statements of American
Energy Services, Inc. for the years ended February 28, 1998 and 1997.
/s/ SIMONTON, KUTAC & BARNIDGE, LLP
Houston, Texas
July 24, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM 3 MONTHS ENDED MAY 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> FEB-28-1998 FEB-28-1998
<PERIOD-END> MAY-31-1998 FEB-28-1998
<CASH> 1,916 31,167
<SECURITIES> 32,380 0
<RECEIVABLES> 412,723 597,607
<ALLOWANCES> (20,000) (20,000)
<INVENTORY> 1,610,408 1,495,016
<CURRENT-ASSETS> 4,282,801 3,521,299
<PP&E> 1,910,951 1,905,710
<DEPRECIATION> (648,956) 614,725
<TOTAL-ASSETS> 6,859,270 6,180,938
<CURRENT-LIABILITIES> 5,264,856 4,670,122
<BONDS> 0 0
0 0
0 0
<COMMON> 6,202 218,583
<OTHER-SE> 256,124 169,488
<TOTAL-LIABILITY-AND-EQUITY> 6,859,270 6,180,938
<SALES> 2,404,918 11,988,694
<TOTAL-REVENUES> 2,404,918 11,994,520
<CGS> 1,759,825 9,601,221
<TOTAL-COSTS> 2,167,028 11,328,101
<OTHER-EXPENSES> (1,174) 482,817
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 100,475 505,929
<INCOME-PRETAX> 138,589 177,776
<INCOME-TAX> 45,750 68,658
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 92,839 109,117
<EPS-PRIMARY> .00 .02
<EPS-DILUTED> .015 .02
</TABLE>
