UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-8704
HOWELL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 74-1223027
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1111 Fannin, Suite 1500, Houston, Texas 77002
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 658-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
Common Stock, $1 par value New York Stock Exchange
$3.50 Convertible Preferred Stock, Series A, National Association of
$1 par value Securities Dealers, Inc.
Automated Quotation System
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
-----
The market value of all shares of Common Stock on March 1, 1995 was
approximately $62.9 million. The aggregate market value of the shares held by
nonaffiliates on that date was approximately $45.5 million. As of March 1,
1995, there were 4,836,876 common shares outstanding.
Documents Incorporated by Reference:
Howell Corporation proxy statement to be filed in connection with the 1995
Annual Shareholders' Meeting (to the extent set forth in Part III of this Form
10-K).
<PAGE>
HOWELL CORPORATION
1994 FORM 10-K ANNUAL REPORT
Table of Contents
Page
PART I
Item 1. Business 1
Item 2. Properties 4
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters 12
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 8. Financial Statements and Supplementary Data 19
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 19
PART III
Item 10. Directors and Executive Officers of the Registrant 19
Item 11. Executive Compensation 20
Item 12. Security Ownership of Certain Beneficial Owners and
Management 20
Item 13. Certain Relationships and Related Transactions 20
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 20
<PAGE>
PART I
Item 1. Business
A. General
Howell Corporation and its subsidiaries (the Company) is primarily engaged
in exploration, production, acquisition and development of oil and gas
properties. The Company is also involved in compatible crude oil marketing,
technical fuels and chemical processing, and transportation. A description of
each of the Company's principal business segments and the markets in which they
operate is summarized below. For information relating to industry segments,
reference is made to "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and notes thereto.
Oil and Gas Exploration and Production
The Company's oil and gas exploration and production activities are
conducted entirely within the United States by Howell Petroleum Corporation
(HPC) and are concentrated along the Gulf Coast, both offshore and onshore and
in Wyoming. At December 31, 1994, the Company's estimated proved oil reserves
were 7,216 MBbl and estimated proved natural gas reserves were 70,939 MMcf. The
Company's three major producing properties, Main Pass Block 64 (Main Pass), the
LaBarge Project and the North Frisco City Field, together represented 4,810 MBbl
and 55,699 MMcf of the Company's estimated proved reserves of oil and natural
gas, respectively, at December 31, 1994. The Company's interest in the LaBarge
Project is also the source of all of the Company's proved reserves of carbon
dioxide and helium (79,904 MMcf and 1,422 MMcf, respectively, at December 31,
1994). In addition, the Company owns fee mineral interests in 876,000 net acres
in Mississippi, Alabama and Louisiana. Substantially all of the Company's oil
and natural gas production is sold on the spot market or pursuant to contracts
priced according to the spot market. HPC has 69 employees.
The oil and gas industry is highly competitive. Major oil and gas
companies, independent operators, drilling and production purchase programs, and
individual producers and operators are active bidders for desirable oil and gas
properties, as well as the equipment and labor required to operate those
properties. Many competitors have financial resources substantially greater,
and staffs and facilities substantially larger, than those of the Company. The
availability of a ready market for the oil and gas production of the Company
depends in part on the cost and availability of alternative fuels, the level of
consumer demand, the extent of other domestic production of oil and gas, the
extent of importation of foreign oil and gas, the cost of and proximity to
pipelines and other transportation facilities, regulations by state and federal
authorities, and the cost of complying with applicable environmental
regulations.
Crude Oil Marketing
Howell Crude Oil Company (HCO), a wholly-owned subsidiary with 28
employees, conducts the operations of the Company's crude oil marketing segment.
HCO has the responsibility for supplying the Company's technical fuels segment
with crude oil and purchases, markets and exchanges about 67,000 BPD of crude
oil and condensate from approximately 400 operators and marketers. The Company
moves crude oil by common carrier pipelines or by Company trucks to pipeline
injection points and to customers' facilities. HCO focuses its third-party
operations on smaller producers, emphasizing service to the producer as a way to
distinguish HCO from its competitors. HCO also owns a 5.5 mile pipeline in the
Gulf of Mexico, which is used to transport the Company's Main Pass production.
In addition, HCO has access to 32 pipeline injection points in Texas,
Mississippi, Louisiana and Florida. In seeking the best price for the crude
oil, HCO often enters into exchange agreements with others to take advantage of
quality and location differentials. Sales of crude oil to Marathon Oil Company
accounted for approximately 18% of the Company's consolidated revenues in 1994.
Profit margins in crude oil marketing are small and significantly
influenced by both the real and expected volatility in crude oil prices as well
as intense competition throughout the industry. The Company competes with four
national and six regional gatherers. In 1993, the Company initiated a limited
program of hedging its crude oil inventories to minimize the effects of future
price fluctuations. With the continuing
<PAGE>
decline in domestic crude oil production, larger companies with the financial
ability to withstand significant market swings might have an advantage.
Technical Fuels and Chemical Processing
The Company develops, manufactures and markets hydrocarbons-based research
and reference fuels and provides chemical toll processing services through its
wholly-owned subsidiary Howell Hydrocarbons & Chemicals, Inc. (HHC), which has
55 employees. The Company conducts its research and reference fuels operations
and its chemical processing operations at its modern, 50-acre facility in
Channelview, Texas. Extensive construction at the facility since 1988 has
expanded the available office, laboratory and warehouse space to 24,500 square
feet. The Company now has available for the technical fuels operations a 1,800
BPD sweet crude unit and a 400 BPD sour crude unit, as well as extensive
laboratory blending and dedicated storage facilities, including leased storage
near its major customers in Detroit, Michigan. For the chemical processing
operations, the facility includes three large diameter stainless steel
distillation columns for batch or continuous processing and extensive stainless
steel and carbon steel tankage. In the second half of 1993, the Company
constructed a synthesis reaction unit that became operational in 1994. The
modern facilities afforded the Company the ability to obtain expanded air
permits that enhance its competitive position.
The technical fuels business involves the processing of crude oil and
blending of petroleum products and additives to create specialty fuels used for
testing such things as lubricants and engine emissions. HHC's customer base for
its technical fuels products includes the U.S. Government and automobile
manufacturers worldwide. HHC has relatively few competitors in the technical
fuels market; however, each is substantially larger and has greater financial
resources than HHC. Environmental and other governmental regulations relating
to combustion product emissions, mileage criteria and equipment design continue
to increase. As a result, the Company continues to develop new products to meet
customer requirements and serve the growing demand for technical fuels.
HHC has conducted chemical toll processing and product terminalling
activities at the Channelview facility for six years. In 1992, 1993 and 1994,
toll processing operations were short-term in nature and consisted primarily of
reprocessing customers' chemicals that did not meet product specifications and
standby processing when the customer's own plant was unable to handle the
processing.
The synthesis reaction unit capabilities that the Company can now offer are
expected to significantly expand the tolling and manufacturing services of HHC.
A portion of this new capability will be utilized under the terms of a six-year
contract the Company has negotiated with a major chemical company. Production
of the new chemical compounds under this contract began in February 1994.
With the completion of construction, HHC has turned its attention to
obtaining additional long-term toll manufacturing contracts. HHC has
competition for these contracts from numerous companies offering similar
services in the Houston area and worldwide. HHC believes its modern computer
process control equipment and its access to rail and water transportation give
it an advantage over some of its competitors.
Transportation
Howell Transportation Services, Inc. (HTS), a wholly-owned subsidiary with
152 employees, conducts the Company's bulk liquids truck transportation
operations. With Interstate Commerce Commission authority to provide
transportation services throughout the United States, HTS can satisfy the
existing needs of its affiliates and seek opportunities to haul bulk liquids for
third parties as well. In 1994, HTS saw a significant increase in its revenues
from third party carriage.
HTS operates a fleet of 74 tractors and 112 trailers used to haul crude
oil, petroleum specialty products, petrochemicals and chemicals. HTS' trailer
fleet consists of 51 aluminum crude oil trailers, each capable of hauling about
200 barrels of oil, 47 stainless steel trailers, each capable of hauling up to
6,950 gallons of chemicals, and 14 specially designed, high volume aluminum
product trailers, each capable of hauling up to
<PAGE>
8,500 gallons of compatible chemicals and petroleum products. The addition of
specially designed aluminum trailers to the fleet has given HTS a cost advantage
over its competitors, which generally provide only the lower volume stainless
steel trailers. HTS expends considerable effort on driver safety and training
programs and has been successful in reducing employee turnover. HTS competes
with many other entities in providing transportation services. Many of these
competitors have greater financial resources and a larger number of trucks than
HTS. HTS competes with other entities on the basis of price, quality of
equipment and personnel, safety record and service. Meeting tight product
quality specifications and delivery deadlines has been important to Howell since
it began operating trucks for its own products in 1955.
B. Governmental and Environmental Regulation
Governmental Regulation
Domestic development, production and sale of oil and gas are extensively
regulated at both the federal and state levels. Legislation affecting the oil
and gas industry is under constant review for amendment or expansion, frequently
increasing the regulatory burden. Also, numerous departments and agencies, both
federal and state, have issued rules and regulations binding on the oil and gas
industry and its individual members, compliance with which is often difficult
and costly and some of which carry substantial penalties for failure to comply.
State statutes and regulations require permits for drilling operations, drilling
bonds and reports concerning wells. Texas and other states in which the Company
conducts operations also have statutes and regulations governing conservation
matters, including the unitization or pooling of oil and gas properties and
establishment of maximum rates of production from oil and gas wells. The
existing statutes or regulations currently limit the rate at which oil and gas
is produced from wells in which the Company owns an interest. The Company's
other business segments also operate under strict governmental regulation. The
refining and processing of fuels and chemicals is subject to state and federal
regulations regarding air and water emissions and the disposal of wastes.
Federal and state authorities also regulate the transportation of petroleum
products and chemicals.
Environmental Regulation
The Company's operations are subject to extensive and developing federal,
state and local laws and regulations relating to environmental, health and
safety matters, petroleum, chemical products and materials, and waste
management. Permits, registrations or other authorizations are required for the
operation of certain of the Company's facilities and for its oil and gas
exploration, production, transportation, processing and chemical toll processing
activities. These permits, registrations or authorizations are subject to
revocation, modification and renewal. The Company has determined that the
federal wastewater discharge permit at its Channelview facility may have expired
prior to the transfer of the permit to the Company. The Company has taken steps
to resolve this matter. In addition, the Company has been penalized for the
failure to properly handle and dispose of some wastes at the facility it
formerly owned in San Antonio, Texas. See Note 9 of Notes to Consolidated
Financial Statements. Governmental authorities have the power to enforce
compliance with these regulatory requirements, the provisions of required
permits, registrations or other authorizations, and lease conditions, and
violators are subject to civil and criminal penalties, including fines,
injunctions or both. Failure to obtain or maintain a required permit may also
result in the imposition of civil and criminal penalties. Third parties may
have the right to sue to enforce compliance. The cost of environmental
compliance has not had a material adverse effect on the Company's operations or
financial condition in the past. However, violations of applicable regulatory
requirements, environment-related lease conditions or required environmental
permits, registrations or other authorizations can result in substantial civil
and criminal penalties as well as potential court injunctions curtailing
operations.
Some risk of costs and liabilities related to environmental, health and
safety matters is inherent in the Company's operations, as it is with other
companies engaged in similar businesses, and there can be no assurance that
material costs or liabilities will not be incurred. In addition, it is possible
that future developments, such as stricter requirements of environmental or
health and safety laws and regulations affecting the Company's business or more
stringent interpretations of, or enforcement policies with respect to, such laws
<PAGE>
and regulations, could adversely affect the Company. To meet changing
permitting and operational standards, the Company may be required, over time, to
make site or operational modifications at the Company's facilities, some of
which might be significant and could involve substantial expenditures. In
particular, federal regulatory programs focusing on the increased regulation of
storm water run-off, oil spill prevention and response and air emissions
(especially those that may be considered toxic) are currently being implemented.
There can be no assurance that material costs or liabilities will not arise from
these or additional environmental matters that may be discovered or otherwise
may arise from future requirements of law.
The Company has made a commitment to comply with environmental regulations.
Personnel with training and experience in safety, health and environmental
matters are responsible for compliance activities. Senior management personnel
are involved in the planning and review of environmental matters.
C. Employment Relations
In addition to the employees of the four main business segments, the
Company has 25 other employees, for a total of 329 employees. The Company's
employees are not represented by a union for collective bargaining purposes.
The Company has experienced no work stoppages or strikes as a result of labor
disputes and considers relations with its employees to be good. The Company
maintains group life, medical, dental, long-term disability and accidental death
and dismemberment insurance plans for its employees. In addition, the Company
provides its employees with a Company stock purchase plan, a thrift plan and a
Simplified Employee Pension Plan.
Item 2. Properties
A. Supplementary Oil and Gas Producing Information (Unaudited)
The oil and gas producing activities of the Company are summarized below.
Substantially all of the Company's producing properties are subject to a lien
held by a bank. See Note 5 of Notes to Consolidated Financial Statements.
Oil and Gas Wells
As of December 31, 1994, the Company owned interests in productive oil and
gas wells (including producing wells and wells capable of production) as
follows:
<TABLE>
<CAPTION>
Productive Wells
Gross<F1> Net
<S> <C> <C>
Oil wells 279 78
Gas wells 125 21
--- --
Total 404 99
--- --
_________________
<FN>
<F1>
One or more completions in the same well are counted as one well; 2 of the
wells have multiple completions.
</FN>
</TABLE>
Reserves
The Company's net proved reserves of crude oil, condensate and natural gas
liquids (referred to herein collectively as "oil") and its net proved reserves
of gas have been estimated by the Company's engineers in accordance with
guidelines established by the Securities and Exchange Commission. The reserve
estimates at December 31, 1994, have been audited by independent petroleum
consultants, H. J. Gruy and Associates, Inc. The estimates for the prior years
were audited by L. A. Martin & Associates, Inc. These estimates were used in
the computation of depreciation, depletion and amortization included in the
Company's consolidated financial statements and for other reporting purposes.
The Company has not filed any estimates of reserves with any
<PAGE>
federal authority or agency during the past year other than estimates contained
in its last annual report on Form 10-K. Set forth below are estimates of the
Company's net proved oil and gas reserves, all located in the United States.
Estimated Quantities of Proved Oil and Gas Reserves
Oil Gas
(Bbls) (Mcf)
As of December 31, 1991 6,530,556 71,743,910
Revisions of previous estimates (81,907) (1,014,756)
Extensions, discoveries & other additions 1,072,485 1,700,108
Purchases of minerals in place 263,693 586,021
Production (881,799) (3,911,896)
Sales of minerals in place (42,644) (6,917)
--------- -----------
As of December 31, 1992 6,860,384 69,096,470
Revisions of previous estimates 115,544 770,842
Extensions, discoveries & other additions 1,026,261 2,358,595
Purchases of minerals in place 567,901 2,723,519
Production (1,204,948) (3,652,022)
Sales of minerals in place (94,221) (603,424)
----------- ----------
As of December 31, 1993 7,270,921 70,693,980
Revisions of previous estimates (37,261) (1,656,466)
Extensions, discoveries & other additions 1,523,356 5,327,274
Production (1,336,937) (3,208,139)
Sales of minerals in place (204,323) (218,059)
---------- ---------
As of December 31, 1994 7,215,756 70,938,590
========== ==========
Proved developed reserves:
December 31, 1991 3,589,150 70,808,938
December 31, 1992 4,167,854 68,001,964
December 31, 1993 6,782,015 63,618,243
December 31, 1994 6,201,176 63,677,432
Proved oil reserves at December 31, 1994 include 378,185 barrels of natural
gas liquids.
The reserves as of December 31, 1994, shown in the table above include
461,233 barrels of oil and 3,248,244 Mcf of gas attributable to the Company's
producing fee mineral interests.
In addition to the oil and gas reserves shown above, HPC, through its
participation in the LaBarge Project in southwestern Wyoming, had proved carbon
dioxide reserves of 79,903,890 Mcf and proved helium reserves of 1,422,181 Mcf
at December 31, 1994.
Oil and Gas Leaseholds
The following table sets forth the Company's ownership interest in
leaseholds as of December 31, 1994. The oil and gas leases in which the Company
has an interest are for varying primary terms, and many require
<PAGE>
the payment of delay rentals to continue the primary term. The leases may be
surrendered by the Company at any time by notice to the lessors, by the
cessation of production or by failure to make timely payment of delay rentals.
<TABLE>
<CAPTION>
Developed<F2> Undeveloped
----------------- -----------
Gross Net Gross Net
Acres Acres Acres Acres
<S> <C> <C> <C> <C>
Alabama 15,880 7,313 24,296 13,445
Louisiana 1,051 222 240 49
Mississippi 80 29 10,707 5,185
Oklahoma 4,979 3,474 2,453 1,160
Texas 14,777 5,735 17,035 5,451
Wyoming 37,688 19,127 19,008 3,621
All other states combined 5,544 2,680 10,289 2,043
Offshore 7,025 5,589 26,520 23,179
------ ------ ------- ------
Total 87,024 44,169 110,548 54,133
====== ====== ======= ======
<FN>
<F2>
Acres spaced or assignable to productive wells.
</FN>
</TABLE>
In addition to the acreage under leaseholds as shown above, the Company
owns the fee mineral acreage shown in the table below:
<TABLE>
<CAPTION>
Developed<F3> Undeveloped
---------------- ---------------
Gross Net Gross Net
Acres Acres Acres Acres
<S> <C> <C> <C> <C>
Alabama 4,042 2,021 617,444 308,330
Louisiana 6,582 934 9,317 4,461
Mississippi 19,596 9,798 1,117,820 550,762
------ ------ --------- -------
Total 30,220 12,753 1,744,581 863,553
====== ======= ========= =======
_________________
<FN>
<F3>
Acres spaced or assignable to productive wells.
</FN>
</TABLE>
Drilling Activity
The following table shows the Company's net productive and dry exploratory
and development wells drilled in the United States:
Exploratory Development
---------------- -------------------
Net Net Net Net
Productive Dry Productive Dry
Year Wells Holes Wells Holes
1994 0.53 2.17 2.03 -
1993 0.05 0.79 3.34 0.67
1992 0.96 1.61 2.33 0.46
The table above reflects only the drilling activity in which the Company
had a working interest participation. In addition, in 1994, 18 gross productive
wells were drilled on the Company's fee mineral acreage.
<PAGE>
Sales Prices and Production Costs
The following table sets forth the average prices received by the Company
for its production, the average production (lifting) costs and amortization per
equivalent barrel of production:
United States
1994 1993 1992
Average sales prices:
Crude oil, condensate and
natural gas liquids (per Bbl) $14.40 $15.86 $18.79
Natural gas (per Mcf) $1.70 $1.87 $1.72
Production (lifting) costs (per
equivalent barrel of production) $4.23 $5.18 $5.48
Amortization (per equivalent barrel
of production) $4.96 $4.68 $4.30
Natural gas production is converted to barrels using its estimated energy
equivalent of six Mcf per barrel.
Oil and Gas Producing Activities
CAPITALIZED COSTS. The following table presents the Company's aggregate
capitalized costs relating to oil and gas producing activities, all located in
the United States, and the aggregate amount of related depreciation, depletion
and amortization:
December 31, 1994 December 31, 1993
(In thousands)
Capitalized Costs:
Oil and gas producing properties,
all being amortized $264,430 $256,227
Fee mineral interests, unproven 18,200 18,260
-------- --------
Total $282,630 $274,487
======== ========
Accumulated depreciation, depletion
and amortization $178,147 $169,142
======== ========
COSTS INCURRED. The following table presents costs incurred by the
Company, all in the United States, in oil and gas property acquisition,
exploration and development activities:
Year Ended December 31,
1994 1993 1992
(In thousands)
Property acquisition:
Unproved fee mineral interests $ 3 $18,260 $ -
Unproved leaseholds 792 225 210
Proved properties - 6,868 1,536
Exploration 3,252 2,794 3,300
Development 5,559 7,622 6,192
------ ------- -------
$9,606 $35,769 $11,238
====== ======= =======
Included in proved property acquisition costs for the year ended December
31, 1993, is $6,061,000 expended for the producing fee mineral interests
acquired from the Federal Intermediate Credit Bank of Jackson, Mississippi.
In 1994, $63,000 of cost of unproved mineral interests was transferred to
the full-cost pool, representing the cost of mineral properties that were
drilled and evaluated during the year. This transfer of costs is not reflected
in the table above.
<PAGE>
RESULTS OF OPERATIONS. The following table sets forth the results of
operations of the Company's oil and gas producing activities, all in the United
States. The table does not include activities associated with carbon dioxide,
helium and sulfur produced from the LaBarge Project or with activities
associated with leasing the Company's fee mineral interests. The table does
include the revenues and costs associated with the Company's production from its
fee mineral interests.
Year Ended December 31,
1994 1993 1992
(In thousands)
Revenues $24,608 $26,757 $23,521
Production (lifting) costs 7,914 9,393 8,410
Depreciation, depletion and amortization 9,282 8,483 6,603
------ ------ ------
7,412 8,881 8,508
Income tax expense 2,283 2,800 2,622
------ ------ ------
Results of operations (excluding
corporate overhead and interest cost) $5,129 $6,081 $5,886
====== ====== ======
Included in the 1994 and 1993 amounts above are $1,908,000 and $1,104,000
of revenues and $141,000 and $76,000 of production costs, respectively, from the
production from the Company's producing fee mineral interests.
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED
OIL AND GAS RESERVES. The accompanying table presents a standardized measure of
discounted future net cash flows relating to the production of the Company's
estimated proved oil and gas reserves at the end of 1994 and 1993. The method
of calculating the standardized measure of discounted future net cash flows is
as follows:
(1) Future cash inflows are computed by applying year-end prices of oil and gas
to the Company's year-end quantities of proved oil and gas reserves. Future
price changes are considered only to the extent provided by contractual
arrangements in existence at year-end.
(2) Future development and production costs are estimates of expenditures to be
incurred in developing and producing the proved oil and gas reserves at year-
end, based on year-end costs and assuming continuation of existing economic
conditions.
(3) Future income tax expenses are calculated by applying the applicable
statutory federal income tax rate to future pretax net cash flows. Future
income tax expenses reflect the permanent differences, tax credits and
allowances related to the Company's oil and gas producing activities included in
the Company's consolidated income tax expense.
(4) The discount, calculated at ten percent per year, reflects an estimate of
the timing of future net cash flows to give effect to the time value of money.
<PAGE>
December 31, December 31,
1994 1993
(In thousands)
Future cash inflows $218,234 $223,095
Future production costs 83,823 98,771
Future development costs 11,057 5,740
Future income tax expenses 25,286 22,167
-------- --------
Future net cash flows 98,068 96,417
10% annual discount for estimated
timing of cash flows 29,633 32,156
-------- --------
Standardized measure of discounted
future net cash flows relating
to proved oil and gas reserves $ 68,435 $64,261
======== =======
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS. The
table below presents a reconciliation of the aggregate change in standardized
measure of discounted future net cash flows:
Year Ended December 31,
1994 1993 1992
(In thousands)
Sales and transfers, net of
production costs $(16,693) $(17,363) $(15,110)
Net changes in prices and production costs 7,354 (12,012) (261)
Extensions and discoveries, net of future
production and development costs 17,850 12,325 16,082
Purchases of minerals in place - 7,967 2,625
Sales of minerals in place (1,546) (1,145) (134)
Previously estimated development costs
incurred during the period (446) (1,811) (1,997)
Revisions of quantity estimates (1,453) 1,018 (1,045)
Accretion of discount 6,426 5,802 5,042
Net change in income taxes (994) 5,334 (2,433)
Changes in production rates (timing)
and other (6,324) 6,124 4,831
-------- -------- --------
Net change $ 4,174 $ 6,239 $ 7,600
======== ======== ========
Description of Significant Properties
The three producing properties of major significance to the Company are
Main Pass Block 64, located in federal waters offshore Louisiana, the North
Frisco City Field in Alabama and the LaBarge Project located in southwestern
Wyoming. These properties represent, in total, 4,810 MBbl and 55,699 MMcf of
the Company's estimated proved reserves of oil and natural gas, respectively, at
December 31, 1994. In addition, the Company owns fee mineral interests in
876,000 net acres in Mississippi, Alabama and Louisiana. The following sets
forth certain information with respect to the Company's interest in its most
significant properties.
Main Pass Block 64. Main Pass Block 64 (Main Pass) is located in federal
waters offshore Louisiana about 70 miles southeast of New Orleans. The Company,
as operator, discovered oil and gas upon drilling a test well in 1982. By
August 1983, the Company had completed nine producing wells, one gas injection
well, and designed, constructed and placed on-line a production platform and oil
<PAGE>
pipeline facilities. Since then, the Company has completed eight more wells,
tied into an interstate natural gas pipeline system, converted the gas injection
well to a producing well and increased its working interest from 52% to almost
80%. In 1989, the Company acquired an 80% working interest in an adjacent block
with five wells, a production platform and oil and gas pipelines. The Company
subsequently unitized portions of these two blocks covering the then known
limits of the main pay sand (the 7,300' Sand Unit), and then designed,
constructed and placed on-line a waterflood project intended to repressure the
7,300' Sand Unit. Gross cumulative production from the field over almost twelve
years has totaled 9,021 MBbl of oil and 24,892 MMcf of natural gas. During the
fourth quarter of 1994, net production averaged 1,220 BOPD and 173 McfPD of
natural gas.
Under a farm-out arrangement from the Company, a third party drilled,
completed and tested a deep test well in 1993. During 1994, the Company and its
partners in the 7300' Sand Unit acquired the deep well from the third party.
The consideration for this acquisition was the Company's acceptance of liability
to plug the deep well when it is abandoned. In December 1994, the Company
connected this well to the existing platform and production began in January
1995.
The Company currently has a working interest which averages approximately
80% in 24 gross (19.1 net) wells, five of which are water injection wells. All
of the water injection wells are located on the adjacent block, utilizing the
production platform as a water injection facility.
Proved reserves attributable to Main Pass at December 31, 1994 were 3,622
MBbl of oil and 7,346 MMcf of natural gas, representing 50% and 10%,
respectively, of the Company's proved oil and natural gas reserves.
North Frisco City Field. The North Frisco City Field (North Frisco City),
located in Monroe County, Alabama, was discovered in March 1991. After the
discovery well was completed, the structural complexity of this find led the
Company and its partners to run a 3-D seismic program over the potential field
area. Based on this data, five successful development wells were completed
during 1992, two in 1993 and three in 1994. Only one dry hole has been drilled
to date, thereby establishing an eastern limit to the field. In the fourth
quarter of 1994, the field was unitized. The Company currently has a 24.1%
working interest in nine gross (2.2 net) producing wells in the Unit, each of
which is producing from the Frisco City sand member of the Haynesville formation
at a depth of about 12,000 feet. In addition, the Company has interests in two
wells not included in the Unit. Aggregate net production from this field
averaged 1,128 BPD of crude oil, 208 BPD of natural gas liquids and 1,066 McfPD
of natural gas during the fourth quarter of 1994.
The Company's estimated proved reserves from its working interest in North
Frisco City at December 31, 1994 were 1,188 MBbl of oil and 2,608 MMcf of
natural gas, representing approximately 16% and 4%, respectively, of the
Company's total proved oil and natural gas reserves. The Company also owns a
royalty interest in this field through its ownership of the fee mineral
properties discussed below. Analysis of reservoir and production data from this
field indicates that a pressure maintenance program could substantially increase
the amount of proved reserves. The Company plans to initiate this type of
program in 1995.
Fee Mineral Properties. In August 1993, the Company acquired all of the
fee mineral properties of the Federal Intermediate Credit Bank of Jackson,
Mississippi (FICBJ). The Company paid FICBJ $24.1 million for these properties
and expended an additional $0.2 million for costs related to the acquisition.
The properties consist of 876,000 net acres of fee mineral interests
located in Mississippi (64%), Alabama (35%) and Louisiana (1%). The purchase
price was allocated $6.1 million to producing acreage and $18.2 million to non-
producing acreage. The value assigned to the producing acreage is included in
the full cost pool being amortized as described in Note 1 of Notes to the
Consolidated Financial Statements.
In 1994 the producing acreage produced 72,801 barrels of oil and 443,378
Mcf of natural gas at average sales prices of $14.41 per Bbl and $1.79 per Mcf,
respectively. Proved reserves attributable to the producing acreage at December
31, 1994, were 461 MBbl of oil and 3,248 MMcf of natural gas.
The non-producing fee mineral properties generate lease bonus and delay
rental revenues. During 1994 and the period in 1993 while the Company owned the
properties, revenues of $0.5 million and $0.1 million, respectively, were
generated from these types of activities.
<PAGE>
In February 1994, the Company entered into a joint venture with several
industry companies to pursue exploration and development opportunities derived
from the Company's fee mineral interests. Howell continues to receive all of
the revenues from lease bonuses, delay rentals and its royalty interests in the
fee mineral properties. The purpose of the joint venture is to actively
participate, as working interest owners, in drilling prospects brought to the
Company by explorationists who actively generate in the Mississippi and Alabama
areas where the Company's fee mineral acreage is located.
LaBarge Project. The LaBarge Project, located in southwestern Wyoming,
consists of three federal units, seventeen producing wells, a field gathering
system, a dehydration plant, a 32-mile dehydrated raw gas pipeline, a gas
processing plant with a capacity for processing up to 600,000 McfPD of raw gas
into natural gas, carbon dioxide, helium and sulfur, and marketing facilities
for the sale of the plant products. The Company has a 4.8% working interest in
one of the units, the Fogarty Creek Unit. The Company has an interest in 12
gross (0.6 net) wells producing from depths between 14,500 feet to 17,000 feet
in the Fogarty Creek Unit. Exxon Company USA (Exxon) holds a 92% interest in
the Fogarty Creek Unit and a 100% interest in each of the other two units, the
plants and the marketing facilities.
The Company's raw gas is processed pursuant to an agreement with Exxon
which provided for an initial processing fee equal to 65% of the sales value of
the plant product through August 1991, increasing to 75% from that date forward
until the sooner of payout of the gas processing plant or September 2021, at
which time it will adjust to a cost-plus fee, not to exceed 50% of the sales
value of the products. The processing agreement also provides for Exxon to
market all of the Company's products from the LaBarge Project.
The Company has significant production and reserves of carbon dioxide and
helium and small amounts of production and reserves of sulfur from its interest
in the LaBarge Project, which are not included in its production and proved
reserves of oil and natural gas discussed elsewhere in Item 2. The table below
presents information on the Company's net production of natural gas, carbon
dioxide and helium attributable to the Company's interest in the LaBarge
Project. The natural gas data from the LaBarge Project is also included in the
other tables set forth elsewhere in Item 2.
<TABLE>
LaBarge Production
<CAPTION>
Year Ended December 31,
1994 1993 1992
(in thousands, except unit prices)
<S> <C> <C> <C>
Production data (net):
Natural gas (Mcf) 1,141 1,162 1,125
Carbon dioxide (Mcf) <F4> 843 1,311 1,365
Helium (Mcf) 34 35 34
Average sales price per unit:
Natural gas (Mcf) $1.53 $1.67 $1.59
Carbon dioxide (Mcf) $0.56 $0.58 $0.65
Helium (Mcf) $51.61 $50.95 $48.90
Financial data:
Revenues $3,975 $4,927 $4,374
Processing costs 3,141 3,948 3,292
------ ------ ------
Cash flows $834 $979 $1,082
====== ====== ======
_________________
<FN>
<F4>
Because of a lack of market, approximately 74%, 64% and 61% of the volume
produced in 1994, 1993 and 1992, respectively, was vented and not sold. Amounts
included in the table reflect only volumes sold.
</FN>
</TABLE>
<PAGE>
Until October 1994, the Company, Exxon and Bechtel Enterprises, Inc.
(Bechtel) had an exclusive site development agreement for an electric
cogeneration facility at the LaBarge gas processing plant. The parties allowed
the agreement to expire as efforts to locate electric supply contracts continue.
Based on the business concepts and strategies the Company established
during the early stages of developing the proposed LaBarge cogeneration plant,
the Company began to investigate other geographic areas in which some of the
same concepts and strategies may apply. As a result of this investigation, the
Company and Bechtel entered into an exclusive site development agreement with
Conoco Inc. to develop a similar project in New Mexico. Additional agreements
with Sonat Inc. for a facility in Mississippi and Amoco Canada Petroleum Company
Ltd. for a facility in Canada were also negotiated. The Conoco and Sonat
agreements expire in the third quarter of 1995 and the Amoco agreement expires
in 1996.
If the companies successfully obtain contracts to supply electricity to be
generated from the proposed cogeneration plants, then definitive agreements
covering ownership, gas supply, site lease, financing and other matters must be
negotiated. The proposed cogeneration plants are subject to a number of
contingencies, some of which have been outlined above. There can be no
assurance that all of these contingencies will be met or that any of these
projects will proceed.
B. Other Properties
In addition to the oil and gas properties described above, the Company and
its subsidiaries lease approximately 47,500 sq. ft. for use as corporate and
administrative offices in Houston, Texas. The Company's technical fuels and
chemical processing operations are conducted at a 50 acre facility owned by the
Company. The facility, located in Channelview, Texas, includes buildings
covering 24,500 sq. ft.
Item 3. Legal Proceedings
The Company, through its subsidiaries, is involved from time to time in
various claims, lawsuits and administrative proceedings incidental to its
business. In the opinion of management, the ultimate liability thereunder, if
any, will not have a material adverse effect on the financial condition or
results of operations of the Company. See Note 8 of Notes to Consolidated
Financial Statements.
Item 4. Submission of Matters to a Vote of Security Holders
None
Part II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
Howell Corporation common stock is traded on the New York Stock Exchange.
Symbol: HWL
Cash
Price Dividends
-------------- ---------
For quarter ending High Low $
March 31, 1993 14 1/4 10 7/8 0.04
June 30, 1993 14 7/8 12 1/4 0.04
September 30, 1993 14 1/4 10 7/8 0.04
December 31, 1993 12 1/8 10 1/2 0.04
March 31, 1994 13 5/8 11 0.04
June 30, 1994 12 1/8 10 1/2 0.04
September 30, 1994 12 1/4 10 7/8 0.04
December 31, 1994 13 1/4 11 1/4 0.04
<PAGE>
Approximate number of equity shareholders as of December 31, 1994: 1,800.
It is the current intention of the Company to continue to pay quarterly
cash dividends on its common stock. No assurance can be given, however, as to
timing and amount of any future dividends which necessarily will depend on the
earnings and financial needs of the Company, legal restraints and other
considerations that the Company's Board of Directors deems relevant. The
ability of the Company to pay dividends on its common stock is currently subject
to certain restrictions contained in its bank loan agreement. See Item 7
Management's Discussion and Analysis of Financial Condition - Liquidity and
Capital Resources.
In addition, the Company has 690,000 shares of convertible preferred stock
outstanding. These shares were issued in April 1993. The $3.50 convertible
preferred stock is traded on the National Association of Securities Dealers,
Inc. Automated Quotation System (NASDAQ) under the symbol HWLLP. See Note 6 of
Notes to Consolidated Financial Statements.
Item 6. Selected Financial Data
The information below is presented in order to highlight significant trends
in the Company's results from continuing operations and financial condition.
See Consolidated Financial Statements and notes thereto.
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992 1991 1990
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues $448,952 $411,736 $461,316 $478,325 $484,941
Net earnings (loss) from operations $2,883 $2,527 $431 $(7,626) $5,626
Net earnings (loss) per common share
from operations $.10 $.18 $.09 $(1.58) $1.17
Property, plant and equipment, net $124,773 $125,113 $98,552 $98,450 $95,419
Total assets $182,440 $164,542 $158,181 $149,319 $159,659
Long-term debt $33,098 $35,879 $42,491 $39,232 $26,193
Shareholders' equity $75,919 $76,225 $43,089 $43,304 $52,572
Cash dividends per common share $.16 $.16 $.16 $.32 $.57
</TABLE>
The loss from operations in 1991 includes a pre-tax write-down of the
Company's oil and gas assets of $11,830,000.
Summarized below are the Company's unaudited quarterly financial data for
1994 and 1993.
1994 Quarters
First Second Third Fourth
(In thousands, except per share amounts)
Revenues $87,674 $109,013 $120,530 $131,735
Earnings before income taxes $505 $1,330 $1,309 $1,107
Net earnings $352 $905 $876 $750
Net earnings (loss) per common share $(.05) $.06 $.06 $.03
<PAGE>
1993 Quarters
First Second Third Fourth
(In thousands, except per share amounts)
Revenues $112,964 $109,822 $98,119 $90,831
Earnings before income taxes $622 $917 $1,337 $715
Net earnings $437 $641 $942 $507
Net earnings (loss) per common share $.09 $.04 $.07 $(.02)
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following is a discussion of the Company's financial condition, results
of operations, capital resources and liquidity. This discussion and analysis
should be read in conjunction with the Consolidated Financial Statements of the
Company and the notes thereto.
RESULTS OF OPERATIONS
The Company's principal business segments are oil and gas production, crude
oil marketing, technical fuels and chemical processing, and transportation.
Results of operations by segment for the three years ended December 31, 1994 are
discussed below. The table below for each segment's revenues does not reflect
the elimination of intercompany revenues. See Note 7 of Notes to Consolidated
Financial Statements.
Oil and Gas Production
Year Ended December 31,
1994 1993 1992
Revenues (in thousands):
Sales of oil and natural gas $24,608 $26,757 $23,521
Sales of LaBarge other products 2,227 2,582 2,651
Gas marketing 1,560 1,842 8,597
Minerals leasing and other 523 100 -
------- ------- -------
Total revenues $28,918 $31,281 $34,769
======= ======= =======
Operating profit (in thousands) $6,224 $7,287 $6,954
====== ====== ======
Operating information:
Average net daily production:
Oil (barrels) 3,663 3,301 2,409
Natural gas (Mcf) 8,789 10,006 10,688
Average sales prices:
Oil (per barrel) $14.40 $15.86 $18.79
Natural gas (per Mcf) $1.70 $1.87 $1.72
Revenues
Revenues from sales of oil and natural gas decreased in 1994 when compared
to 1993 despite an 11% increase in the Company's average daily oil production.
This decline in revenues was primarily due to 9% decreases in average sales
prices of both oil and natural gas and a 12% decline in gas production. The
increase in oil production is attributable to production from horizontal well
successes, a full year of production
<PAGE>
from the minerals properties acquired in August 1993 and a slight increase in
oil production at the Company's Main Pass Field.
At the Company's Main Pass Field, the effects of the waterflood project
became even more evident. Net oil production at the Main Pass Field improved
from the 1993 average of 1,107 barrels per day to 1,250 barrels per day in 1994.
The expected decline in natural gas production from the 7,300' sand that began
in the latter half of 1993 continued throughout 1994. In 1993, net natural gas
production at this field averaged 1,334 Mcf per day, although in the fourth
quarter of 1993 the average was 303 Mcf per day. The average net natural gas
production in 1994 was even lower at 169 Mcf per day.
The Company has a revenue interest in nine successful horizontal wells in
central Texas. Horizontal wells have short lives, typically producing half of
their reserves in the first six months. In 1994, oil production from horizontal
wells averaged 244 barrels per day. In 1993, horizontal well production
contributed 136 barrels per day.
The effect on the annual average daily oil production of the Company's
mineral fee properties in 1994 and 1993 was 199 and 100 barrels, respectively.
Revenues from the sales of LaBarge other products are attributable to sales
of carbon dioxide, helium and sulfur. The production level of helium was
relatively stable in 1994 when compared to 1993; however, carbon dioxide sales
volumes declined due to a lack of market. Sulfur sales revenues in both years
were insignificant. Gas marketing revenues decreased in 1994 due to the decline
in natural gas market prices.
Total revenues decreased in 1993 when compared to 1992, primarily due to
the Company's decision in June 1992 to limit its marketing of natural gas for
third parties. An increase of 37% in the average daily oil production of the
Company was partially offset by a decline in the average sales price for the
Company's oil production of $2.93 per barrel. Revenues from the sales of
LaBarge other products in 1993 decreased from 1992 levels due to decreased sales
prices for carbon dioxide.
Operating Profit
In 1994, the operating profit of this segment decreased $1.1 million when
compared to 1993. The lower average gas sales price combined with lower natural
gas production was the largest factor in this decline in operating profit.
Partially offsetting this factor was a decrease in production costs per
equivalent barrel of production from $5.18 in 1993 to $4.23 in 1994, which can
be attributed to the effects of the producing fee mineral interests where the
Company does not have to share in operating costs. The effect on operating
profits in 1994 of minerals leasing activities also mitigated the effects of the
reductions in natural gas prices and production.
General and administrative costs decreased $0.1 million in 1994 to $2.0
million. Depreciation, depletion and amortization was $9.3 million in 1994
compared to $8.5 million in 1993. This rise reflects increased production and
an increase in the amortization rate of $0.28 per equivalent barrel of
production.
The increase in operating profit in 1993 when compared to 1992 was $0.3
million. A combination of improved oil production and lower production costs
per barrel offset by higher general and administrative costs and depreciation,
depletion and amortization produced the increase.
In 1995, the Company expects to drill several wells on prospects which
include its fee mineral acreage in Mississippi and Alabama. Although results
from drilling exploratory wells on acreage in West Texas were not as successful
as the Company had hoped in 1994, with one successful well and five dry holes,
the Company believes significant potential still exists for the area and plans
to drill several more exploratory wells.
<PAGE>
Crude Oil Marketing
Year Ended December 31,
1994 1993 1992
(In thousands)
Revenues $402,855 $369,054 $417,046
Operating profit $2,085 $844 $544
Revenues increased 9% in 1994 despite a drop in crude oil sales prices.
The Company sold 67,174 barrels per day of crude oil in 1994, an increase of
10,093 barrels per day from 1993. The acquisition of the pipeline injection
points of Essex Oil Company provided the Company with additional marketing
locations beginning in March 1994, allowing the Company to be more competitive
in these areas, which contributed significantly to this increase in barrels.
Operating profits in 1994 improved significantly over 1993 levels. The increase
in barrels sold combined with improved margins, due partly to the limited use of
hedging techniques, were factors resulting in the improved operating profits.
Revenues declined in 1993 from the 1992 level due to lower oil prices.
Operating profits in 1993, however, were improved when compared to the prior
year. Operating profits in 1992 had been negatively affected by the losses
incurred in the latter part of that year as a result of unintentionally high
inventory levels when prices were declining at a time when the Company did not
hedge inventories.
Technical Fuels and Chemical Processing
Year Ended December 31,
1994 1993 1992
(In thousands)
Revenues $29,580 $25,300 $21,260
Operating profit (loss) $579 $85 $(1,696)
The technical fuels and chemical processing segment not only had a 17%
improvement in revenues in 1994, but also enjoyed a significant improvement in
operating results from the breakeven result in 1993.
Revenues increased in 1994 from both increased sales of research and
reference fuels and higher revenues from chemical toll processing activities. A
combination of new environmental mandates and development in 1992 of new test
procedures by the American Society of Testing and Materials (ASTM) produced
opportunities in 1993 and 1994 for development of new research and reference
fuels. Volumes sold of these fuels increased from 179,866 barrels in 1992 to
215,628 and 257,604 in 1993 and 1994, respectively.
Chemical processing revenues improved in 1994 as a result of the
availability of synthesis reaction capabilities beginning in February 1994 after
completion of the related construction. Revenues from chemical processing
suffered in 1993 and 1992 from a cyclical downturn in the chemical industry.
The technical fuels and chemical processing segment has experienced
significant increases each year since 1992 in its operating profits. The
operating loss in 1992 was affected by costs associated with the closure of the
San Antonio facility, the decline in technical fuels sales while tests were
developed by ASTM and the chemical industry downturn. Improvements in each of
these areas led to the higher operating profits in 1993 and 1994.
<PAGE>
Transportation
Year Ended December 31,
1994 1993 1992
(In thousands)
Revenues $12,418 $9,247 $7,061
Operating profit (loss) $ 1,289 $ 585 $ (14)
Revenues increased approximately 34% in 1994 due to a $1.6 million increase
in revenues from third party hauls and a $1.1 million increase in revenues from
transporting crude oil for the Company's crude oil marketing segment. The
increase in third party hauls can be attributed largely to a contract with
Lyondell Petrochemical Company to service substantially all of their truck
transportation needs. This contract, which began in the third quarter of 1994,
helped the transportation segment increase its exposure to other potential
customers. In 1994, approximately 20% of this segment's total revenues resulted
from transporting for third parties.
The improvement in 1993 over the 1992 revenue level resulted primarily from
hauling crude oil. A significant increase in activity in Alabama increased the
crude oil volumes hauled in that area.
Certain costs of the transportation segment are fixed in nature; therefore,
all costs did not increase as the volume of hauls increased. The improvement in
revenues in 1993 and 1994 without an equal increase in costs resulted in the
improvement in operating profit in 1993 and 1994.
Net Interest Expense
In 1994, market interest rates as reflected by the prime rate rose 2.5
percentage points from 6% to 8.5%. As substantially all of the Company's debt
is subject to market rates, this rate increase contributed to higher interest in
1994 for the Company when compared to 1993. In addition, the Company had a
higher level of average debt outstanding in 1994.
In April 1993, the Company raised $32.9 million in a public offering of
convertible preferred stock. The proceeds from this offering allowed the
Company to reduce its average debt outstanding in 1993 as compared to 1992,
resulting in a decrease in interest expense in 1993 of $0.4 million.
Provision for Income Taxes
The effects of statutory depletion deductions in excess of cost basis
resulted in the variations in 1994 and 1993 in the Company's tax rate from the
statutory federal rate. In 1992, the Company had a tax benefit for federal tax
purposes due to these same deductions.
Under the methodology of Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes", the Revenue Reconciliation Act of 1993 (the
Act) did not have a material impact on the tax provision of the Company in 1993,
and the Act is not expected to have a material impact on the tax provision in
future years. In addition, the Act had no effect on the Company's recorded
deferred tax liability.
LIQUIDITY AND CAPITAL RESOURCES
Effective December 31, 1992, the Company amended and restated its long-term
revolving credit/term loan agreement (Credit Facility). The borrowing base
under the Credit Facility at December 31, 1994 was $41,000,000, and will decline
by $820,000 monthly until such time as it is redetermined. The borrowing base
is reviewed semi-annually by the bank with mandatory payments if the borrowing
base, as determined solely by
<PAGE>
the bank based on the Company's interest in proved oil and gas reserves, is less
than the outstanding balance on the loan. The Company has assumed that,
although the borrowing base will decrease in 1995, the decrease would not result
in a mandatory repayment under the terms of the Credit Facility, and, therefore,
none of the debt is reflected as a current obligation. The Credit Facility
provides for a revolving period until June 1, 1996, with interest to be paid
monthly at the rate selected by the Company of either (1) a Floating Base Rate
(as defined in the Credit Facility) that is generally the prevailing prime rate
or (2) a rate based on LIBOR. A LIBOR-based rate of 8.375% was applicable to
$18 million of the outstanding balance under the Credit Facility at December 31,
1994. The remainder of the outstanding balance was subject to the Floating Base
Rate of 8.5%. At the end of the revolving period, the revolving loan converts
automatically to a four-year term loan with principal payments to be made in
sixteen quarterly installments along with accrued interest on the unpaid
principal balance at a rate equal to the prime rate. The Credit Facility also
provides for the issuance of letters of credit in an amount up to $5.0 million.
The amount of letters of credit outstanding reduces the amount of the available
commitment.
The Credit Facility is collateralized by mortgages on substantially all of
the Company's producing oil and gas properties, the stock of HPC and the
guarantee of the Company. There is no compensating balance requirement and the
Credit Facility carries a commitment fee of 3/8% on the available portion of the
commitment. The Credit Facility limits the ability of the Company, without the
bank's prior approval, to (i) declare or pay dividends on shares of any class of
its capital stock any time a default or event of default (as defined in the
Credit Facility) exists or will result from such declaration or payment; (ii)
enter into certain extraordinary corporate transactions, including a merger,
consolidation, liquidation or dissolution; or (iii) during any 12-month period,
dispose of assets having an aggregate book value of more than five percent of
the Company's net worth. Material financial covenants and restrictions include
requirements to maintain a ratio of current assets plus the available portion of
the commitment to current liabilities of at least 1:1, to maintain tangible net
worth, as defined in the Credit Facility, of a floating amount that was $65.1
million at December 31, 1994, and to prohibit certain defined types of
additional indebtedness and the granting of certain liens on the Company's
assets without bank approval. Based on the terms of the Credit Facility, at
December 31, 1994, $6.4 million of the Company's retained earnings was
unrestricted as to the payment of common and preferred dividends. This amount
varies based on changes in the shareholders' equity of the Company.
Effective December 23, 1994, the Company entered into a letter of credit
facility agreement (LC Facility). The LC Facility provides for the issuance of
letters of credit in the aggregate not to exceed the lesser of the commitment of
$7.5 million or the Borrowing Base, as defined in the LC Facility. At December
31, 1994, the Borrowing Base was $7.5 million. The LC Facility carries a
commitment fee of 1/4% on the available portion of the commitment. Covenants
under the LC Facility are the same as those described above for the Credit
Facility. Collateral for the LC Facility consists of the inventories and
accounts receivable of HCO, the stock of HCO and the guarantee of the Company.
In 1993, the Company issued 690,000 shares of $3.50 convertible preferred
stock. The net proceeds from the sale were $32.9 million. Dividends on the
convertible preferred stock are to be paid quarterly. Such dividends accrue and
are cumulative. The Company has paid all dividends timely.
At December 31, 1994, the Company had working capital of $1.9 million. In
1994, it generated cash flow from operating activities of $17.9 million. The
transportation, crude oil marketing and technical fuels and chemical processing
segments are expected by the Company to continue to positively impact 1995
operating cash flow, offset to some extent by the impact of higher market
interest rates.
The Company currently anticipates spending approximately $0.7 million
during fiscal 1995 and approximately $0.7 million during fiscal 1996 at various
of its facilities for capital and operating costs associated with ongoing
environmental compliance and will continue to have expenditures in connection
with environmental matters beyond fiscal 1996. The Company's Channelview
facility, most of which has been constructed since 1988, was designed and
engineered to comply with the more stringent current regulations. The Company
has determined that the federal wastewater discharge permit at its Channelview
facility may have
<PAGE>
expired prior to the transfer of the permit to the Company. The Company is
taking steps to resolve this matter. See Note 9 of Notes to Consolidated
Financial Statements.
The Company believes that its cash flow from operations and amounts
available under the Credit Facility will be sufficient to satisfy its current
liquidity requirements. At December 31, 1994, the Company had $12.7 million
available to it under the Credit Facility. A significant decline in the value
of the Company's proved reserves could result in the bank reducing the borrowing
base, causing mandatory payments under the Credit Facility. While the Company
does not expect this to happen in 1995, such payments would adversely affect the
Company's ability to carry out its planned capital expenditure program.
In order to guarantee the Company a specific minimum sales price for its
crude oil, the Company purchased a put option and sold a call option covering
approximately 3,300 barrels per day of crude oil production for an eighteen
month period beginning March 1, 1995. The option strike prices are based on the
average price of crude oil on the organized exchange, with monthly settlement.
The strike prices are $17 per barrel for the put option and $20 per barrel for
the call option.
On January 24, 1995, Norcen Explorer, Inc. (Norcen) accepted, subject to
the execution of a definitive purchase and sale agreement, the Company's offer
to purchase certain oil and gas properties and undeveloped leaseholds owned by
Norcen. All of the properties are located in Mississippi. Closing is scheduled
to take place in March 1995. The net purchase price is estimated to be $5.8
million.
On February 22, 1995, the Company signed a purchase and sale agreement with
Exxon Pipeline Company to acquire three crude oil pipeline systems located in
Texas, Mississippi/Louisiana and Florida/Alabama. The purchase price is $63.5
million, and the Company expects to spend $4.9 million during 1995 on additional
costs related to the acquisition. The transaction is expected to close on March
31, 1995, although the consummation of the acquisition is subject to due
diligence procedures.
The Company has obtained commitments from a group of banks, one of which is
the Company's current lender, to provide financing for this transaction. The
new financing arrangement will replace both the existing Credit Facility and the
LC Facility and will have terms similar to those of the existing facilities.
See Note 10 of Notes to Consolidated Financial Statements.
Item 8. Financial Statements and Supplementary Data
The response to this item is submitted as a separate section of this report
(see page 22).
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
Part III
Item 10. Directors and Executive Officers of the Registrant
Regarding Directors, the information appearing under the caption "Election
of Directors" set forth in the Company's definitive proxy statement, to be filed
within 120 days after the close of the fiscal year in connection with the 1995
Annual Shareholders' Meeting, is incorporated herein by reference. Regarding
executive officers, information is set forth below.
<PAGE>
The executive officers are elected annually.
Name Age Position
Paul N. Howell 76 Chairman and Chief Executive Officer
Paul W. Funkhouser 42 President and Chief Operating Officer
Allyn R. Skelton, II 43 Senior Vice President, Chief Financial
Officer and Secretary
Mr. Paul N. Howell is Chief Executive Officer and Chairman of the Board of
the Company. He has been Chief Executive Officer since 1955.
Mr. Paul W. Funkhouser was elected President and Chief Operating Officer in
February 1990. Prior to his election he had served as Executive Vice President
since July 1988 and Secretary since October 1988. Mr. Funkhouser served as Vice
President - Petroleum from August 1984 until July 1988. He joined the Company
in 1983. In April 1991, Mr. Funkhouser was elected a Director of the Company.
Mr. Allyn R. Skelton, II, was elected Senior Vice President of the Company
in July 1993, Chief Financial Officer in May 1989, Vice President in July 1988
and Secretary in February 1990. He had served as the Controller of the Company
since April 1985. Mr. Skelton also served as Secretary of the Company from
October 1985 until October 1988. He joined the Company in 1983.
Regarding delinquent filers pursuant to Item 405 of Regulation S-K, the
information appearing under the caption "Compliance with Section 16(a) of the
Securities Exchange Act of 1934" set forth in the Company's definitive proxy
statement, to be filed within 120 days after the close of the fiscal year in
connection with the 1995 Annual Shareholders' Meeting, is incorporated herein by
reference.
Item 11. Executive Compensation
The information appearing under the captions "Compensation of Executive
Officers" and "Certain Transactions" set forth in the Company's definitive proxy
statement, to be filed within 120 days after the close of the fiscal year in
connection with the 1995 Annual Shareholders' Meeting, is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information appearing under the caption "Security Ownership of
Management and Certain Beneficial Owners" set forth in the Company's definitive
proxy statement, to be filed within 120 days after the close of the fiscal year
in connection with the 1995 Annual Shareholders' Meeting, is incorporated herein
by reference.
Item 13. Certain Relationships and Related Transactions
The information appearing under the caption "Certain Transactions" set
forth in the Company's definitive proxy statement, to be filed within 120 days
after the close of the fiscal year in connection with the 1995 Annual
Shareholders' Meeting, is incorporated herein by reference.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) and (2). The response to this portion of Item 14 is submitted as a
separate section of this report (see page 22).
(a)(3) and (c). The response to this portion of Item 14 is submitted as a
separate section of this report (see page 40).
(b). Reports on Form 8-K. None were filed during the last quarter of the
Registrant's fiscal year ended December 31, 1994.
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HOWELL CORPORATION
(Registrant)
By /s/ Paul W. Funkhouser
----------------------------
Paul W. Funkhouser
President,
Chief Operating Officer and
Director
Date: February 27, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Signature Title Date
Principal Executive
/s/ Paul N. Howell Officer and Director February 27, 1995
--------------------
Paul N. Howell
Chairman of the Board
and
Chief Executive Officer
Principal Financial and
/s/ Allyn R. Skelton, II Accounting Officer February 27, 1995
--------------------
Allyn R. Skelton, II
Senior Vice President, Chief Financial
Officer and Secretary
/s/ Jack T. Trotter Director February 27, 1995
--------------------
Jack T. Trotter
/s/ Wallace S. Wilson Director February 27, 1995
--------------------
Wallace S. Wilson
/s/ Robert M. Ayres, Jr. Director February 27, 1995
--------------------
Robert M. Ayres, Jr.
<PAGE>
HOWELL CORPORATION AND SUBSIDIARIES
FORM 10-K
ITEMS 8, 14(a) (1) and (2)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES
The following consolidated financial statements of the registrant and its
subsidiaries required to be included in Items 8 and 14(a)(1) are listed below:
Page
Independent Auditors' Report 23
Consolidated Financial Statements:
Consolidated Balance Sheets 24
Consolidated Statements of Earnings 25
Consolidated Statements of Shareholders' Equity 26
Consolidated Statements of Cash Flows 27
Notes to Consolidated Financial Statements 28
The following consolidated supplemental schedules of the registrant and its
subsidiaries are included in Item 14(a)(1):
Page
Supplemental Schedules:
Property, Plant and Equipment 38
Accumulated Depreciation, Depletion and Amortization
of Property, Plant and Equipment 39
The financial statement schedules are omitted because they are not
applicable, are not required or because the required information is included in
the Consolidated Financial Statements or notes thereto.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To Howell Corporation:
We have audited the accompanying consolidated balance sheets of Howell
Corporation and its subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of earnings, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Corporation's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Howell Corporation and its
subsidiaries at December 31, 1994 and 1993, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1994 in conformity with generally accepted accounting principles.
Our audits were conducted for the purpose of forming an opinion on the
basic financial statements taken as a whole. The supplemental schedules listed
in the Index on page 22 are presented for the purpose of additional analysis and
are not a required part of the basic financial statements. These schedules are
the responsibility of the Company's management. Such schedules have been
subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, are fairly stated in all material
respects when considered in relation to the basic financial statements taken as
a whole.
DELOITTE & TOUCHE LLP
Houston, Texas
February 27, 1995
<PAGE>
HOWELL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31,
1994 1993
(In thousands)
Assets
Current assets:
Cash and cash equivalents $3,340 $3,337
Trade accounts receivable, less allowance
for doubtful accounts of
$214,000 in 1994 and $201,000 in 1993 48,432 30,352
Inventories 2,655 2,573
Other current assets 1,520 1,998
------ ------
Total current assets 55,947 38,260
------- -------
Property, plant and equipment:
Oil and gas properties, utilizing the
full-cost method of accounting 264,430 256,227
Fee mineral interests, unproven 18,200 18,260
Other 34,837 32,516
Less accumulated depreciation, depletion
and amortization (192,694) (181,890)
--------- ---------
Net property, plant and equipment 124,773 125,113
--------- ---------
Other assets 1,720 1,169
--------- ---------
Total assets $182,440 $164,542
--------- ---------
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term debt $2,670 $2,055
Accounts payable 46,178 27,521
Accrued liabilities 5,152 4,496
--------- ---------
Total current liabilities 54,000 34,072
--------- ---------
Deferred income taxes 19,273 18,216
--------- ---------
Other liabilities 150 150
--------- ---------
Long-term debt and capital lease obligation 33,098 35,879
--------- ---------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $1 par value, 690,000
shares issued and
outstanding; liquidation value of
$17,250,000 690 690
Common stock, $1 par value; 4,836,876
shares issued and outstanding 4,837 4,837
Additional paid-in capital 33,518 33,518
Retained earnings 36,874 37,180
--------- ---------
Total shareholders' equity 75,919 76,225
--------- ---------
Total liabilities and shareholders'
equity $182,440 $164,542
========= =========
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
HOWELL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
Year Ended December 31,
1994 1993 1992
(In thousands, except per share amounts)
Revenues $448,952 $411,736 $461,316
-------- -------- --------
Costs and expenses:
Products including operating expenses 431,783 396,556 449,942
Selling, general and administrative expenses 10,992 9,912 8,586
-------- -------- --------
442,775 406,468 458,528
-------- -------- --------
Other income (expense):
Interest expense (2,237) (1,915) (2,280)
Interest income 131 308 119
Other, net 180 (70) (334)
-------- -------- --------
(1,926) (1,677) (2,495)
-------- -------- --------
Earnings from operations before income taxes 4,251 3,591 293
Provision (credit) for income taxes 1,368 1,064 (138)
-------- -------- --------
Net earnings $2,883 $2,527 $431
======== ======== ========
Weighted average shares outstanding 4,837 4,823 4,811
======== ======== ========
Net earnings per common share $0.10 $0.18 $0.09
======== ======== ========
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
HOWELL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
<CAPTION>
Preferred Stock Common Stock Treasury Stock
-------------- ------------ --------------
Additional
Paid-In Retained
Shares $ Shares $ Capital Earnings Shares $ Total
(In thousands, except number of shares)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1991 - $ - 4,817,496 $4,817 $ 1,201 $37,424 12,000 $(138) $43,304
Net earnings - 1992 - - - - - 431 - - 431
Cash dividends -
$.16 per common share - - - - - (770) - - (770)
Common stock issued to
employees upon exercise of
stock options - - 11,880 12 92 - - - 104
Sale of treasury shares - - - - - (3) (2,000) 23 20
----- --- --------- ------ ------ ------- ------ ---- -------
Balances, December 31, 1992 - - 4,829,376 4,829 1,293 37,082 10,000 (115) 43,089
Net earnings - 1993 - - - - - 2,527 - - 2,527
Cash dividends - $.16 per
common share - - - - - (772) - - (772)
Cash Dividends - $2.40 per
preferred share - - - - - (1,657) - - (1,657)
Common stock issued to
director upon exercise
of stock options - - 7,500 8 55 - - - 63
Sale of preferred stock 690,000 690 - - 32,170 - - - 32,860
Sale of treasury stock - - - - - - (10,000) 115 115
------- --- --------- ------ ------ ------ ------- --- -------
Balances, December 31, 1993 690,000 690 4,836,876 4,837 33,518 37,180 - - 76,225
Net earnings - 1994 - - - - - 2,883 - - 2,883
Cash dividends - $.16 per
common share - - - - - (774) - - (774)
Cash Dividends - $3.50 per
preferred share - - - - - (2,415) - - (2,415)
------- ---- --------- ------ ------- ------- ------ --- -------
Balances, December 31, 1994 690,000 $690 4,836,876 $4,837 $33,518 $36,874 - $ - $75,919
======= ==== ========= ====== ======= ======= ====== === =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
HOWELL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Year Ended December 31,
1994 1993 1992
(In thousands)
OPERATING ACTIVITIES:
Earnings from operations $ 2,883 $ 2,527 $ 431
Adjustments to reconcile net earnings to
cash provided by operations:
Depreciation, depletion and amortization 12,323 11,070 9,337
Deferred income taxes 1,057 1,032 (192)
(Gain) loss on sale(s) of asset(s) (25) (11) 141
(Increase) decrease in accounts receivable (18,080) 21,519 (10,367)
Increase in inventories (82) (86) (268)
Decrease (increase) in other current assets 478 (580) 1,073
Increase (decrease) in accounts payable 18,657 (20,650) 5,487
Increase (decrease) in accrued and other
liabilities 656 (1,147) 497
------- ------- ------
Cash provided by operating activities 17,867 13,674 6,139
------- ------- ------
INVESTING ACTIVITIES:
Proceeds from the disposition of assets 1,450 1,491 1,822
Additions to property, plant and equipment (13,408) (39,111) (12,307)
Other, net (551) 28 368
------- ------- --------
Cash utilized in investing activities (12,509) (37,592) (10,117)
------- ------- --------
FINANCING ACTIVITIES:
Long-term debt:
(Repayments) borrowings under revolving
credit agreement (300) (4,550) 1,835
Payments to Department of Energy (1,047) (981) (29)
Other borrowings - - 1,672
Other repayments (819) (479) (193)
Cash dividends:
Common shareholders (774) (772) (770)
Preferred shareholders (2,415) (1,657) -
Issuance of preferred stock - 32,860 -
Exercise of stock options - 63 104
Sale of treasury shares - 115 20
------- ------- ------
Cash (utilized in) provided by
financing activities (5,355) 24,599 2,639
------- ------- ------
NET INCREASE (DECREASE) IN CASH BALANCE 3 681 (1,339)
CASH, BEGINNING OF YEAR 3,337 2,656 3,995
------ ------ ------
CASH, END OF YEAR $3,340 $3,337 $2,656
====== ====== ======
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
HOWELL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Years Ended December 31, 1994, 1993 and 1992
Note 1. Summary of Significant Accounting Policies
Principles of consolidation
The consolidated financial statements include the accounts of Howell
Corporation and its subsidiaries (the Company). All significant intercompany
accounts and transactions have been eliminated.
Inventories
Inventories of crude oil and refined products are stated at the lower of
market or monthly weighted average cost. Crude oil exchange transactions are
included as additions to or reductions of inventories at the time title passes.
The Company has a limited program of hedging its crude oil inventories and fixed
purchase price commitments. Crude oil future contracts are being used as the
hedging tool. Changes in the market value of the futures transactions are
deferred until the gain or loss is recognized on the hedged transactions.
Other inventories are stated at the lower of average cost or market.
Property, depreciation, depletion and amortization
The Company follows the full-cost method of accounting for its oil and gas
exploration and production activities, which are conducted solely in the United
States. Consequently, all costs pertaining to the acquisition, exploration and
development of oil and gas reserves are capitalized and amortized on the unit-of
- -production method as the remaining proved oil and gas reserves are produced.
The Company's net investment in oil and gas properties is subject to a quarterly
ceiling limitation calculation that is based on the present value of future net
revenues from estimated production of proved oil and gas reserves valued at
current prices. Costs in excess of the ceiling limitation are currently charged
to expense. Gains or losses upon the disposition of a property, normally
treated as an adjustment to capitalized costs, are recognized currently in the
event of a sale of a significant portion (normally in excess of 25%) of oil and
gas reserves.
The costs allocated to the unproven fee mineral interests of the Company
are excluded from amortization under the full cost method of accounting
described above. These costs are reviewed periodically for impairment. This
impairment will generally be based on geographic or geologic data. At the time
of any impairment, the related costs will be added to the costs being amortized
under the full-cost method of accounting. Due to the perpetual nature of the
Company's ownership of these mineral interests, the drilling of a well, whether
successful or unsuccessful, may not represent a complete test of all depths of
interest. Therefore, at the time that a well is drilled only a portion of the
costs allocated to the acreage drilled may be added to the costs being
amortized.
Other property and equipment are carried at cost. Depreciation is provided
principally by the straight-line method over the estimated useful lives of the
assets, primarily 10 to 15 years for technical fuels and chemical processing and
terminalling facilities and improvements, 20 to 25 years for buildings, and 2 to
5 years for transportation and operating equipment.
Maintenance and repairs are charged to expense as incurred, while renewals
and betterments are capitalized.
<PAGE>
Income taxes
In 1991, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (Statement 109),
which governs the accounting recognition of income taxes in its financial
statements. Statement 109 defines a balance sheet (liability) approach in the
calculation of the deferred tax balance at each financial statement date by
applying the provisions of enacted tax laws to measure the deferred tax
consequences of the differences in the tax and financial (book) bases of assets
and liabilities as they result in net taxable or deductible amounts in future
years. The net taxable or deductible amounts in future years are adjusted for
the effect of utilizing the carryback/carryforward attributes of any net losses
generated and available tax credits.
Earnings per common share
Earnings per common share has been computed by dividing net earnings, after
reduction for preferred stock dividends, by the weighted average number of
common shares outstanding. Shares issuable in connection with stock options are
not included in the per share computations since their dilutive effect is less
than 3%. Earnings per share assuming full dilution does not result in a
difference from earnings per share assuming no dilution. The common shares
issuable upon conversion of the convertible preferred stock are anti-dilutive,
and the common shares issuable in connection with stock options result in a
dilutive effect of less than 3%.
Consolidated Statements of Cash Flows
Included in the statements of cash flows are cash equivalents defined as
short-term, highly liquid investments that are readily convertible to cash and
so near to maturity that their value would not change significantly because of
changes in interest rates. The Company made cash payments for interest of
$2,179,000, $1,816,000 and $2,411,000 in 1994, 1993 and 1992, respectively. In
1994 and 1993 cash payments for income taxes totaled $126,000 and $171,000,
respectively. In 1992, cash refunds for income taxes less cash payments totaled
$369,000.
Supplementary Oil and Gas Producing Information (Unaudited)
The supplementary oil and gas producing information required by Statement
of Financial Accounting Standards No. 69, "Disclosures about Oil and Gas
Producing Activities," is included in Item 2 Properties in this annual report on
Form 10-K.
Disclosures about Fair Value of Financial Instruments
The Company estimates that the carrying amount of its cash and cash
equivalents as reflected in its balance sheet approximates fair value because of
the short-term maturity of those items.
Information on the fair value of the Company's long-term debt and capital
lease obligation can be found in Note 5.
Environmental Liabilities
The Company provides for the estimated costs of environmental liabilities
based on engineering estimates of the costs that will be necessary for
remediation. Information regarding environmental liabilities can be found in
Note 9. Ongoing environmental compliance costs, including maintenance and
monitoring costs, are charged to expense as incurred.
Production Hedge
As stated above, crude oil future contracts are being used as a hedging
tool in a limited program of hedging crude oil inventories and fixed purchase
price commitments. In addition, for the second half of 1994, the Company
purchased a put option for its crude oil production to guarantee the Company a
specific minimum
<PAGE>
sales price for the volume of production hedged. Because market prices were
higher than the option strike price, the option was not exercised.
In 1995, the Company purchased a put option and sold a call option covering
3,300 barrels per day of oil production for an eighteen month period beginning
March 1, 1995. The option strike prices are based on the average price of crude
oil on the organized exchange, with monthly settlement. The strike prices are
$17 per barrel for the put option and $20 per barrel for the call option. The
premium for the options will be amortized over the period.
Note 2. Inventories
The major classes of inventory at December 31, 1994 and 1993 were as
follows:
1994 1993
(In thousands)
Refined products $1,333 $1,265
Crude oil 578 924
Other materials and supplies 744 384
------ ------
$2,655 $2,573
====== ======
Note 3. Note Receivable
On April 21, 1992, the Company sold its San Antonio, Texas, refinery for a
sales price of $2.2 million. The Company received a downpayment of $0.4 million
and a note requiring monthly principal and interest payments for three years.
In 1993, the time period for repayment was extended one additional year. The
interest rate for the note is 10%. Due to the uncertainty about the ultimate
collection of the note receivable, the Company has not recognized gain on the
sale or interest income on the note until its collectibility appears to be more
certain. At December 31, 1994, the company that purchased the facility was
delinquent in its payments to the Company under the terms of the note. The
Company believes the salvage value of the refinery would exceed the remaining
note receivable, net of deferred gain, of $0.1 million at December 31, 1994,
should the Company decide to foreclose on the mortgage.
At December 31, 1994, the note receivable is reflected in the balance sheet
as follows (in thousands):
Other current assets (current portion of note
receivable of $558 less deferred gross profit
of $458) $100
Other assets (long-term portion of note receivable
of $590 less deferred gross profit of $590) $ -
The receipt of the note receivable is a non-cash transaction and is not
reflected in the statement of cash flows for the year ended December 31, 1992.
<PAGE>
Note 4. Income Taxes
A summary of the provision (credit) for income taxes included in the
consolidated statements of earnings is as follows:
Year Ended December 31,
1994 1993 1992
(In thousands)
Current:
Federal $ - $ - $ -
State 161 32 130
Deferred 1,207 1,032 (268)
------ ------ ------
$1,368 $1,064 $ (138)
====== ====== ======
Deferred income taxes are provided on all temporary differences between
financial and taxable income. The approximate tax effects of each significant
type of temporary difference and carryforward were as follows:
Year Ended December 31,
1994 1993
(In thousands)
Accrual of costs not deductible for tax $ 841 $ 742
Difference in book and tax basis of note receivable 391 361
Statutory depletion carryforwards 1,043 752
Net operating loss carryforwards 3,421 3,993
------ ------
Total deferred tax assets 5,696 5,848
------ ------
Differences between book and tax bases of property,
plant and equipment (24,858) (23,086)
Other (111) (978)
-------- --------
Total deferred tax liabilities (24,969) (24,064)
-------- --------
Net deferred income taxes $(19,273) $(18,216)
======== ========
The following table accounts for the difference between the actual tax
provision (credit) and the amounts obtained by applying the applicable statutory
U.S. Federal income tax rate of 34% to the earnings before income taxes:
Year Ended December 31,
1994 1993 1992
(In thousands)
Provision for income taxes at the statutory rate $1,445 $1,221 $100
Statutory depletion in excess of cost basis (237) (310) (366)
Other 160 153 128
------ ------ ------
$1,368 $1,064 $ (138)
====== ====== ======
At December 31, 1994, the Company, for tax reporting purposes, has a net
operating loss carryforward of $9,661,000 that has been recognized as a
reduction of the deferred tax liability. The carryforward, if not previously
utilized, expires as follows: $4,230,000 in 2006, $4,128,000 in 2007 and
$1,303,000 in 2008. In addition, the Company, for tax reporting purposes, has a
statutory depletion carryforward of $2,896,000 that has been recognized as a
reduction of the deferred tax liability. This carryforward has no expiration.
<PAGE>
Note 5. Debt and Available Credit Facilities
Long-term debt and the capital lease obligation of the Company as of
December 31, 1994 and 1993 were as follows:
1994 1993
(In thousands)
Note payable under a $41.0 million revolving
credit/term loan agreement $24,200 $24,500
Note payable to Department of Energy (DOE) 9,387 10,434
Note payable to Paul N. Howell 2,000 2,000
Note payable to G.E. Capital - 774
Capital lease obligation for transportation equipment 181 226
----- -----
35,768 37,934
Less: Current maturities 2,670 2,055
------ -------
$33,098 $35,879
======= =======
Maturities of long-term debt for the five years subsequent to December 31,
1994 are as follows (in thousands):
Total Bank DOE Other
1995 $2,622 $ - $2,122 $ 500
1996 6,791 3,025 2,266 1,500
1997 8,468 6,050 2,418 -
1998 8,631 6,050 2,581 -
1999 6,050 6,050 - -
Thereafter 3,025 3,025 - -
------- ------- ------ ------
$35,587 $24,200 $9,387 $2,000
======= ======= ====== ======
The following is a schedule by years of future minimum lease payments for
the capital lease obligation, together with the present value of the net minimum
lease payments as of December 31, 1994 (in thousands):
1995 $60
1996 60
1997 83
----
Total minimum lease payments $203
Less: Amount representing interest 22
----
Present value of net minimum lease payments $181
====
Revolving credit/term loan agreement
Effective December 31, 1992, the Company amended and restated its long-term
revolving credit/term loan agreement (Credit Facility). The borrowing base
under the Credit Facility at December 31, 1994 was $41.0 million, and will
decline by $0.8 million monthly until such time as it is redetermined. The
borrowing base is reviewed semi-annually by the bank with mandatory payments if
the borrowing base, as determined solely by the bank based on the Company's
interest in proved oil and gas reserves, is less than the outstanding balance on
the loan. The Company has assumed that, although the borrowing base will
decrease in 1995, the decrease would not result in a mandatory repayment under
the terms of the Credit Facility, and, therefore, none of the debt is reflected
as a current obligation. The Credit Facility provides for a revolving period
until June 1, 1996,
<PAGE>
with interest to be paid monthly at the rate selected by the Company of either
(1) a Floating Base Rate (as defined in the Credit Facility) that is generally
the prevailing prime rate or (2) a rate based on LIBOR. A LIBOR-based rate of
8.375% was applicable to $18 million of the outstanding balance under the Credit
Facility at December 31, 1994. The remainder of the outstanding balance was
subject to the Floating Base Rate of 8.5%. At the end of the revolving period,
the revolving loan converts automatically to a four-year term loan with
principal payments to be made in sixteen quarterly installments along with
accrued interest on the unpaid principal balance at a rate equal to the prime
rate. The Credit Facility also provides for the issuance of letters of credit
in an amount up to $5.0 million. The amount of letters of credit outstanding
reduces the amount of the available commitment. The available commitment at
December 31, 1994 was $12.7 million.
The Credit Facility is collateralized by mortgages on substantially all of
the Company's producing oil and gas properties, the stock of Howell Petroleum
Corporation and the guarantee of the Company. There is not a compensating
balance requirement, and the Credit Facility carries a commitment fee of 3/8% on
the available portion of the commitment. Material covenants and restrictions
include requirements to maintain a ratio of current assets plus the available
portion of the commitment to current liabilities of at least 1:1, to maintain
tangible net worth, as defined in the Credit Facility, of a floating amount that
was $65.1 million at December 31, 1994, and to prohibit certain defined types of
additional indebtedness and the granting of certain liens on the Company's
assets without bank approval. Based on the terms of the Credit Facility, at
December 31, 1994, $6.4 million of the Company's retained earnings was
unrestricted as to the payment of dividends. This amount varies based on
changes in the shareholders' equity of the Company.
Letter of credit agreement
Effective December 23, 1994, the Company entered into a letter of credit
facility agreement (LC Facility). The LC Facility provides for the issuance of
letters of credit in the aggregate not to exceed the lesser of the commitment of
$7.5 million or the Borrowing Base, as defined in the LC Facility. At December
31, 1994, the Borrowing Base was $7.5 million. The LC Facility carries a
commitment fee of 1/4% on the available portion of the commitment. Covenants
under the LC Facility are the same as those described above for the Credit
Facility. Collateral for the LC Facility consists of the inventories and
accounts receivable of Howell Crude Oil Company, the stock of Howell Crude Oil
Company and the guarantee of the Company.
Department of Energy
As a result of an agreement settling allegations by the DOE against the
Company related to crude oil pricing and allocation regulation violations in the
1970's, the Company agreed, in 1989, to pay $19.4 million to the DOE. The
remaining balance owed at December 31, 1994 was $9.4 million.
In September 1992, the Company renegotiated the payment terms and interest
rate for its obligation to the DOE. The interest rate is now based upon a
trailing average prime rate. At December 31, 1994, that rate was 7.75%.
The payments required by the agreement may be accelerated at the Company's
discretion or pursuant to a formula based on proceeds from any significant sale
of assets by the Company or its affiliates. Asset sales in 1990 through 1994,
based on the formula contained in the final order, did not result in an
acceleration of principal payments. There is a provision in the agreement for
securing the installment payments due the DOE, but only under certain conditions
which are applicable in the event the Company's current secured lender releases
its security. Other than the financial obligations discussed above, the
agreement does not impose any restrictions or limitations on the manner in which
the Company may conduct its business in the future.
Other
During 1982, the Company borrowed $4.5 million from Paul N. Howell,
Chairman and Chief Executive Officer of the Company. In 1987, 1988 and 1991 the
Company made partial repayments of the term note totaling $2.5 million. In
December 1994, the term note was renewed and is now due February 28, 1996, with
<PAGE>
up to $0.5 million of the loan amount payable upon demand. The loan is
unsecured. Interest accrues at the prevailing prime rate and is payable
quarterly. At December 31, 1994, the outstanding principal balance due Mr.
Howell was $2.0 million.
In June 1992, the Company borrowed $1.4 million from General Electric
Capital Corporation and purchased operating equipment for its offshore oil and
gas production facility. The note was repaid in 1994.
In July 1992, the Company entered into a capital lease for transportation
equipment. The obligation is payable in monthly installments with interest at
7.4%. The obligation is secured by the equipment. Included in property at
December 31, 1994, is the cost of the transportation equipment under capital
lease of $0.3 million and accumulated depreciation of $0.1 million on the
equipment.
Fair value of long-term debt
The fair value of the Company's long-term debt and its capital lease
obligation at December 31, 1994 was estimated to be the same as its carrying
value in the balance sheet, as all debt obligations were negotiated or
renegotiated during 1992 and/or bear interest at floating market rates.
Note 6. Shareholders' Equity
Preferred stock
At the Company's Annual Meeting of Shareholders on April 25, 1994, the
shareholders approved a proposal to increase the authorized number of shares of
preferred stock to 3,000,000. At December 31, 1994 and 1993, the Company had
3,000,000 and 1,000,000 shares of preferred stock authorized, respectively.
In April 1993, the Company completed a public offering of 690,000 shares of
$3.50 convertible preferred stock. The offering was priced at $50 per share to
yield 7%. The convertible preferred stock is convertible into common stock of
the Company at the option of the holder, at any time, at a conversion rate equal
to, generally, 3.03 common shares for each preferred share, with fractional
shares paid in cash. The Company has the option to redeem the convertible
preferred stock at a declining premium redemption price beginning in 1996.
Dividends on the convertible preferred stock are to be paid quarterly.
Such dividends accrue and are cumulative. Holders of the preferred stock have
no voting rights except on matters affecting the rights of preferred
shareholders. If at any time the equivalent of six quarterly dividends payable
on the preferred stock are accrued and unpaid, the preferred shareholders will
be entitled to elect two additional directors to the Company's Board of
Directors. The Company is current in the payment of preferred dividends.
Common stock
At December 31, 1994 and 1993, the Company had 10,000,000 shares of common
stock authorized.
Under the Company's 1975 Nonqualified Stock Option Plan, options to
purchase 180,000 shares could be granted. At December 31, 1994 and 1993,
options to acquire 4,020 shares were outstanding and exercisable, at an average
price of $14.88 per share. No options were exercised pursuant to the 1975 Plan
during 1994 or 1993 and no additional options may be granted under this plan.
Under the Company's 1988 Stock Option Plan, options to purchase 750,000
shares may be granted. At December 31, 1993, options to acquire 304,253 shares
were outstanding, of which 169,180 were exercisable at an average price of $9.99
per share. The average exercise price of all options outstanding at December
31, 1993 was $10.39 per share. At December 31, 1994, options to acquire 443,173
shares were outstanding, of which 209,758 were exercisable at an average price
of $10.12 per share. The average exercise price of all options outstanding at
December 31, 1994 was $10.56 per share. Options to acquire 7,500 and 11,880
shares were exercised in 1993 and 1992, respectively, at average exercise prices
of $8.32 and $8.68 per share, respectively.
<PAGE>
Note 7. Segment Information
Financial information about the Company's continuing operations for each of
the years ended December 31, 1994, 1993 and 1992 is summarized as follows:
<TABLE>
<CAPTION>
Technical
Fuels
& Inter-
Oil & Gas Crude Oil Chemical Trans- segment
Production Marketing Processing portation Other Sales Total
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1994
Revenues $28,918 $402,855 $29,580 $12,418 $ 16 $(24,835) $448,952
Operating profit (loss) $6,224 $2,085 $579 $1,289 $(342) $9,835
General corporate expense $(3,658)
Other income (expense), net $(1,926)
Earnings from operations
before income taxes $4,251
Identifiable assets $105,806 $42,794 $22,377 $2,894 $8,569 $182,440
Capital expenditures $9,606 $765 $1,345 $1,407 $285 $13,408
Depreciation, depletion and
amortization $9,282 $280 $2,024 $410 $327 $12,323
December 31, 1993
Revenues $31,281 $369,054 $25,300 $9,247 $ - $(23,146) $411,736
Operating profit (loss) $7,287 $844 $85 $585 $ (61) $8,740
General corporate expense (3,472)
Other income (expense), net (1,677)
Earnings from operations
before income taxes $3,591
Identifiable assets $107,996 $24,111 $22,306 $1,506 $8,623 $164,542
Capital expenditures $35,769 $296 $2,423 $338 $285 $39,111
Depreciation, depletion
and amortization $8,483 $213 $1,851 $264 $259 $11,070
December 31, 1992
Revenues $34,769 $417,046 $21,260 $7,061 $15 $(18,835) $461,316
Operating profit (loss) $6,954 $544 $(1,696) $(14) $(60) $5,728
General corporate expense $(2,940)
Other income (expense), net $(2,495)
Earnings from operations
before income taxes $293
Identifiable assets $81,499 $45,866 $21,939 $1,595 $7,282 $158,181
Capital expenditures $11,238 $265 $306 $445 $53 $12,307
Depreciation, depletion and
amortization $6,603 $224 $2,009 $224 $277 $9,337
</TABLE>
<PAGE>
In addition to the results of the Company's oil and gas exploration and
production activities, the oil and gas production segment information includes
the gas marketing activities of the Company and the results of production of
carbon dioxide, helium and sulfur from the LaBarge Project.
Intersegment sales by the oil and gas production segment to the crude oil
marketing segment were $14,258,000, $14,146,000 and $12,063,000 in 1994, 1993
and 1992, respectively. Intersegment sales by the transportation segment to the
crude oil marketing segment in 1994, 1993 and 1992 were $7,743,000, $6,642,000
and $5,006,000, respectively. Intersegment sales by the transportation segment
to the technical fuels and chemical processing segment in 1994, 1993 and 1992
were $2,066,000, $1,683,000 and $1,140,000, respectively. Intersegment sales by
the oil and gas production segment to the technical fuels and chemical
processing segment in 1994, 1993 and 1992 were $768,000, $675,000 and $626,000,
respectively. These amounts have been eliminated in consolidation.
Marathon Oil Company, a customer of the crude oil marketing segment,
accounted for approximately 18% of consolidated revenues in 1994 and
approximately 11% of consolidated revenues in 1993 and 1992.
Note 8. Litigation
Donna Refinery Partners, Ltd. v. Howell Crude Oil Company and Howell
Corporation; Texas District Court; No. 89-033634. In December 1993, a jury
verdict of $1.9 million was rendered against the Company in this lawsuit
alleging breach of contract. The trial judge reduced the jury verdict to
approximately $675,000. The Company believes the judgment is in error. The
Company filed a motion for a new trial that was denied, so the Company appealed
the decision. Donna has filed an appeal to increase the recovery by $1.25
million. The Company does not believe that the ultimate resolution of this
matter will have a material adverse effect on the financial condition or results
of operations of the Company.
There are various other lawsuits and claims against the Company, none of
which, in the opinion of management, will have a material adverse effect on the
Company.
Note 9. Commitments and Contingencies
In January 1995, an Agreed Order with the Texas Natural Resource
Conservation Commission was signed by the Company with respect to alleged
violations of rules regarding the permitting and storage of hazardous wastes at
a facility that was previously owned by the Company. Penalties totaling $26,000
were assessed. During 1994, the Company incurred costs of $213,000 related to
remediation and disposal of the hazardous wastes. Additional testing and
monitoring of the groundwater and formal approval of the remediation work is
still required. At this time, the Company has not determined whether the
Company or the new owner of the facility is the responsible party for the
additional testing and monitoring requirements. The Company does not believe
that this matter will have a material adverse effect on the financial condition
or results of operations of the Company.
The Channelview facility is discharging wastewater pursuant to a state
wastewater discharge permit. Industries located in the state of Texas are
required to obtain wastewater discharge permits from the state and from the
Environmental Protection Agency (EPA). When the Company purchased the
Channelview facility in 1988, it requested and obtained a transfer of these
permits. In 1990, the Company applied for a renewal of both the federal and the
state wastewater permits. The state permit was reissued in 1992. During 1993,
the Company determined that the federal wastewater discharge permit may have
expired prior to the EPA's transfer of the permit to the Company. The EPA has
been contacted to resolve this issue, and the Company will be negotiating to
obtain a renewed permit. Penalties may potentially be imposed upon the Company
as a result of this matter; however, until this matter is resolved, the amount
of such penalties, if any, cannot be quantified. While penalties may be
material and the actions of regulatory bodies are not subject to accurate
prediction, based on information currently available to the Company and on the
circumstances present at its Channelview facility (including the existence of
the state permit, the Company's compliance with the more stringent state permit
and the ability, if required, to operate the Channelview facility utilizing
holding tanks and offsite third
<PAGE>
party treatment facilities in the absence of a permit), the Company does not
believe that this matter will have a material adverse effect on the financial
condition or results of operations of the Company.
The Company occupies office and operational facilities and uses equipment
under operating lease arrangements. Expense of these arrangements amounted to
$2,078,000 in 1994, $1,729,000 in 1993 and $1,560,000 in 1992. At December 31,
1994, long-term commitments for lease of facilities and equipment totaled
approximately $8,818,000, consisting of $2,146,000, $1,588,000, $753,000,
$538,000 and $513,000 for the years 1995 through 1999, respectively, and
$3,280,000 thereafter.
Note 10. Subsequent Events
On January 24, 1995, Norcen Explorer, Inc. (Norcen) accepted, subject to
the execution of a definitive purchase and sale agreement, the Company's offer
to purchase certain oil and gas properties and undeveloped leaseholds owned by
Norcen. All of the properties are located in Mississippi. Closing is scheduled
to take place in March 1995. The net purchase price is estimated to be $5.8
million.
On February 22, 1995, the Company signed a purchase and sale agreement with
Exxon Pipeline Company to acquire three crude oil pipeline systems located in
Texas, Mississippi/Louisiana and Florida/Alabama. The purchase price is $63.5
million, and the Company expects to spend $4.9 million during 1995 on additional
costs related to the acquisition. The transaction is expected to close on March
31, 1995, although the consummation of the acquisition is subject to due
diligence procedures.
The Company has obtained commitments from a group of banks, one of which is
the Company's current lender, to provide financing for this transaction. The
commitments are subject to the typical requirements for due diligence and
successful negotiation of loan documents. The new financing arrangement will
replace both the existing Credit Facility and the LC Facility and will have
terms similar to those of the existing facilities while extending the revolving
period until June 1, 1997, and increasing the amounts available under the LC
Facility to $15 million. Additionally, the new facility will provide for a term
loan in the amount of $57.5 million payable in quarterly installments of $1.4
million. Interest rates are the same as the existing facility except that the
new facility provides for a reduction in the add-on to LIBOR when the Company
meets certain debt to capitalization thresholds. Beginning with quarters ending
in 1996, the Company will be required to make prepayments on the term note from
excess cash flow from the pipeline activities as defined in the agreements.
<PAGE>
<TABLE>
HOWELL CORPORATION AND SUBSIDIARIES
Supplemental Schedule of
Property, Plant and Equipment
<CAPTION>
Balance Transfers
at and Balance
Beginning Additions Retirements Other at End
Classification of Year at Cost and Sales Adjustments of Year
- -------------- --------- --------- ---------- ----------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1992:
Land $ 589 $ - $ 101 $ - $ 488
Technical fuels and chemical
processing facilities 30,414 - 9,827 562 21,149
Construction in progress 297 295 - (562) 30
Transportation equipment 1,797 413 80 - 2,130
Other facilities and equipment 5,256 361 1,560 - 4,057
Oil and gas properties 231,266 11,238 1,348 - 241,156
Crude oil pipeline 1,300 - - - 1,300
-------- ------- ------- ------- --------
Total $270,919 $12,307 $12,916 $ - $270,310
======== ======= ======= ======= ========
Year ended December 31, 1993:
Land $ 488 $ - $ - $ - $ 488
Technical fuels and chemical
processing facilities 21,149 - 21 806 21,934
Construction in progress 30 2,423 - (492) 1,961
Transportation equipment 2,130 282 70 (178) 2,164
Other facilities and equipment 4,057 637 93 68 4,669
Oil and gas properties 241,156 17,509 2,438 - 256,227
Fee mineral interests - 18,260 - - 18,260
Crude oil pipeline 1,300 - - - 1,300
-------- ------- ------ ------- --------
Total $270,310 $39,111 $2,622 $204 $307,003
======== ======= ====== ======= ========
Year ended December 31, 1994:
Land $ 488 $ 16 $ - $ - $ 504
Technical fuels and chemical
processing facilities 21,934 - 26 3,097 25,005
Construction in progress 1,961 1,345 - (3,097) 209
Transportation equipment 2,164 1,312 277 (95) 3,104
Other facilities and equipment 4,669 1,129 1,178 95 4,715
Oil and gas properties 256,227 9,603 1,463 63 264,430
Fee mineral interests 18,260 3 - (63) 18,200
Crude oil pipeline 1,300 - - - 1,300
-------- ------- ------ ------- --------
Total $307,003 $13,408 $2,944 $ - $317,467
======== ======= ====== ======= ========
</TABLE>
<PAGE>
<TABLE>
HOWELL CORPORATION AND SUBSIDIARIES
Supplemental Schedule of
Accumulated Depreciation, Depletion and
Amortization of Property, Plant and Equipment
<CAPTION>
Balance Transfers
at and Balance
Beginning Additions Retirements Other at End
Classification of Year at Cost and Sales Adjustments of Year
- -------------- --------- --------- --------- ----------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1992:
Technical fuels and chemical
processing facilities $12,256 $1,981 $8,460 $ - $ 5,777
Transportation equipment 759 223 53 - 929
Other facilities and equipment 2,883 395 702 - 2,576
Oil and gas properties 155,870 6,603 833 - 161,640
Crude oil pipeline 701 135 - - 836
-------- ------- ------ ------- --------
Total $172,469 $9,337 $10,048 $ - $171,758
======== ======= ====== ======= ========
Year ended December 31, 1993:
Technical fuels and chemical
processing facilities $5,777 $1,851 $ 21 $ 123 $ 7,730
Transportation equipment 929 223 65 (42) 1,045
Other facilities and equipment 2,576 411 75 123 3,035
Oil and gas properties 161,640 8,483 981 - 169,142
Crude oil pipeline 836 102 - - 938
-------- ------- ------ ------- --------
Total $171,758 $11,070 $1,142 $ 204 $181,890
======== ======= ====== ======= ========
Year ended December 31, 1994:
Technical fuels and chemical
processing facilities $ 7,730 $ 2,024 $ 26 $ - $ 9,728
Transportation equipment 1,045 357 46 (65) 1,291
Other facilities and equipment 3,035 558 1,170 65 2,488
Oil and gas properties 169,142 9,282 277 - 178,147
Crude oil pipeline 938 102 - - 1,040
-------- ------- ------ ------- --------
Total $181,890 $12,323 $1,519 $ - $192,694
======== ======= ====== ======= ========
</TABLE>
<PAGE>
HOWELL CORPORATION AND SUBSIDIARIES
Form 10-K
Index to Exhibits
Exhibits not incorporated herein by reference to a prior filing are designated
by an asterisk (*) and are filed herewith. Exhibits designated by two asterisks
(**) are incorporated herein by reference to the Company's Form S-1 Registration
Statement, registration No. 33-59338, filed on March 10, 1993.
Exhibit
Number Description
- -------- -----------
3.1 ** Certificate of Incorporation, as amended, of the Company.
3.1(a) Certificate of Amendment to the Certificate of Incorporation of the
Company (filed as an exhibit to the Company's Report on Form 10-Q for
the quarterly period ended June 30, 1994).
3.2 ** By-laws of the Company.
10.1 ** Howell Corporation 1988 Stock Option Plan.
10.2 ** First Amendment to the Howell Corporation 1988 Stock Option Plan.
10.3 ** Second Amendment to the Howell Corporation 1988 Stock Option Plan.
10.4 ** Form of Stock Option Agreement.
10.5 ** Form of Indemnity Agreement by and between the Company and each of its
directors and executive officers.
10.6 ** Credit Agreement by and between Howell Petroleum Corporation and Bank
One, Texas, N.A. (Bank One) dated as of December 31, 1992.
10.7 ** Promissory Note of Howell Petroleum Corporation payable to the order
of Bank One dated December 31, 1992.
10.8 ** Guaranty by Howell Corporation in favor of Bank One dated as of
December 31, 1992.
10.9 ** Amended and Restated Mortgage and Deed of Trust, Indenture and
Security Agreement by and between Howell Petroleum Corporation and
Bank One dated as of December 31, 1992.
10.10 ** Security Agreement (Stock Pledge) by the Company in favor of Bank One
dated as of December 31, 1992.
10.11 ** Subordination Agreement by and among the Company, Bank One and Howell
Petroleum Corporation dated as of December 31, 1992.
10.12 * Promissory Note dated December 19, 1994 by and between the Company and
Paul N. Howell.
10.13 ** Split Dollar Life Insurance Agreement dated January 27, 1990 between
the Company, Steven K. Howell, Douglas W. Howell, David L. Howell,
Bradley N. Howell and Charles W. Hall, Trustee of the Howell 1990
Children's Trusts.
10.14 ** Deferred Compensation and Salary Continuation Agreement dated January
23, 1990 by and between the Company and Paul N. Howell.
10.15 ** United States of America Department of Energy Economic Regulatory
Administration Consent Order with the Company dated as of February 23,
1989.
10.16 ** Letter from the Department of Energy to the Company dated September
10, 1992 modifying the terms of the Consent Order.
10.19 ** United States Department of the Interior Bureau of Land Management Oil
and Gas Lease of Submerged Lands under the Outer Continental Shelf
Land Act by and between the United States of America and Howell
Petroleum Corporation effective as of December 1, 1981.
10.20 ** United States Department of the Interior Minerals Management Service
Oil and Gas Lease of Submerged Lands under the Outer Continental Shelf
Lands Act by and between the United States of America and Total
Petroleum, Inc., effective as of July 1, 1983.
10.21 ** Assignment, Bill of Sale and conveyance by Total Petroleum, Inc., as
assignor, to Oil Acquisitions, Inc., dated January 19, 1989.
<PAGE>
Exhibit
Number Description
- -------- -----------
10.22 ** Unit Operating Agreement 7300' Sand Unit, Blocks 64 and 65 Main Pass
Area, Offshore Plaquemines Parish, Louisiana, by and among Howell
Petroleum Corporation, Oil Acquisitions, Inc., Woods Petroleum
Corporation, BHP Petroleum (Americas) Inc. and Challenger Minerals,
Inc., dated as of March 1, 1990.
10.23 ** Unit Agreement for Outer Continental Shelf Development and Production
Operations on the 7300' Sand Unit, Blocks 64 and 65, Main Pass Area,
Offshore Plaquemines Parish, Louisiana, by and among Howell Petroleum
Corporation, Oil Acquisitions, Inc., Woods Petroleum Corporation, BHP
Petroleum (Americas) Inc. and Challenger Minerals, Inc., dated as of
April 19, 1990.
10.24 ** Processing Agreement by and between Howell Petroleum Corporation and
Exxon Company, U.S.A., effective as of August 1, 1988.
10.25 ** United States Department of the Interior Minerals Management Service
Oil and Gas Lease under the Outer Continental Shelf Lands Act by and
between the United States of America and Oil Acquisitions, Inc.,
effective as of October 1, 1990.
10.26 ** United States Department of the Interior Minerals Management Service
Oil and Gas Lease of Submerged Lands under the Outer Continental Shelf
Lands Act by and between the United States of America and Oil
Acquisitions, Inc., effective as of December 1, 1990.
10.27 ** United States Department of the Interior Minerals Management Service
Oil and Gas Lease of Submerged Lands under the Outer Continental Shelf
Lands Act by and between the United States of America and Howell
Petroleum Corporation effective as of May 1, 1991.
10.28 ** United States Department of the Interior Minerals Management Service
Oil and Gas Lease of Submerged Lands under the Outer Continental Shelf
Lands Act by and between the United States of America and Howell
Petroleum Corporation effective as of July 1, 1991.
10.29 ** United States Department of the Interior Minerals Management Service
Oil and Gas Lease of Submerged Lands under the Outer Continental Shelf
Lands Act by and between the United States of America and Howell
Petroleum Corporation effective as of May 1, 1991.
10.30 Purchase and Sale Agreement between Federal Intermediate Credit Bank
of Jackson and Howell Petroleum Corporation (filed as an exhibit to
the Company's Report on Form 10-Q for the quarterly period ended June
30, 1993).
10.31 Lease Agreement by and between Texas Commerce Bank National
Association and Howell Corporation dated as of December 13, 1993
(filed as an exhibit to the Company's Report on Form 10-K for the year
ended December 31, 1993).
10.32 Third Amendment to the Howell Corporation Stock Option Plan (filed as
an Exhibit to the Company's Report on Form 10-Q for the quarterly
period ended June 30, 1994).
10.33 First Amendment to Credit Agreement Between Howell Petroleum
Corporation and Bank One, Texas, N.A. effective as of November 16,
1993 (filed as an Exhibit to the Company's Report on Form 10-Q for the
quarterly period ended June 30, 1994).
10.34 First Amendment to Guaranty Between Howell Corporation and Bank One,
Texas, N.A. effective as of November 16, 1993 (filed as an Exhibit to
the Company's Report on Form 10-Q for the quarterly period ended June
30, 1994).
10.35 Ratification of and Amendment to Amended and Restated Mortgage, Deed
of Trust, Indenture, Security Agreement, Financing Statement and
Assignment of Production dated as of November 16, 1993 (filed as an
Exhibit to the Company's Report on Form 10-Q for the quarterly period
ended June 30, 1994).
10.36 Mortgage, Deed of Trust, Indenture, Security Agreement, Financing
Statement and Assignment of Production From Howell Petroleum
Corporation to Bank One, Texas, N.A. dated as of November 16, 1993
(filed as an Exhibit to the Company's Report on Form 10-Q for the
quarterly period ended June 30, 1994).
10.37 Second Amendment to Credit Agreement Between Howell Petroleum
Corporation and Bank One, Texas, N.A. effective as of June 1, 1994
(filed as an Exhibit to the Company's Report on Form 10-Q for the
quarterly period ended June 30, 1994).
<PAGE>
Exhibit
Number Description
- -------- -----------
10.38 * Credit Agreement between Howell Crude Oil Company and Bank One dated
as of December 23, 1994.
10.39 * Security Agreement between Howell Crude Oil Company and Bank One dated
December 23, 1994.
10.40 * Guaranty by the Company in favor of Bank One dated as of February 1,
1995.
10.41 * Security Agreement (Stock Pledge) by the Company in favor of Bank One
dated February 1, 1995.
11 * Computation of Earnings per Share.
21 * Subsidiaries of the Company.
23 * Consent of Deloitte & Touche LLP.
EXHIBIT 10.12
PROMISSORY NOTE
Date: December 19, 1994
Maker: Howell Corporation
Payee: Paul N. Howell
Place for Payment: 1111 Fannin, Suite 1500, Houston (Harris County), Texas
Principal Amount *: TWO MILLION DOLLARS AND NO CENTS ($2,000,000.00)
* The Principal Amount represents a renewal/rollover of the unpaid portion of
that certain note dated December 9, 1993.
Annual Interest Rate and Terms of Payment:
The prime rate from time-to-time in effect. The term "prime rate", as used
herein, shall mean at any time the rate per annum then charged by Bank One,
Texas, N.A., for 90-day unsecured commercial loans to large corporate customers
of the highest credit standing; the rate at which interest accrues hereon shall
change from time-to-time concurrently with each change in the prime rate. All
interest shall be payable quarterly and be computed for the actual number of
days elapsed on the basis of the year consisting of 365 days.
Terms of Payment (Principal):
Any amount up to Five Hundred Thousand Dollars ($500,000) is payable on demand
of Payee.
The outstanding balance is payable in full on or before February 28, 1996.
Prepayment in full or in part is allowed without penalty, at the sole option of
Maker.
Maker promises to pay to the order of Payee at the Place for Payment and
according to the Terms of Payment the Principal Amount plus interest at the
rates stated above. All unpaid amounts shall be due by the final scheduled
payment date.
On default in the payment of this note, it shall become immediately due at the
election of Payee. Maker and each surety, endorser, and guarantor waive all
demands for payment, presentations for payment, notices of intention to
accelerate maturity, protests, and notices of protests.
If this note is given to an attorney for collection, or if suit is brought for
collection, or if it is collected through probate, bankruptcy, or other judicial
proceedings, then Maker shall pay Payee reasonable attorney's fees in addition
to other amounts due. Reasonable attorney's fees shall be 10% of all amounts
due unless either party pleads otherwise.
Nothing in this note shall authorize the collection of interest in excess of the
highest rate allowed by law.
The terms Maker and Payee and other nouns and pronouns include the plural if
more than one. The terms Maker and Payee also include their respective heirs,
personal representatives, and assigns.
ATTEST: HOWELL CORPORATION
/s/ Allyn R. Skelton, II /s/ Paul W. Funkhouser
Allyn R. Skelton, II Paul W. Funkhouser
Secretary President
EXHIBIT 10.38
CREDIT AGREEMENT
BETWEEN
HOWELL CRUDE OIL COMPANY
AND
BANK ONE, TEXAS, N.A.
Dated as of December 23, 1994
- ------------------------------------------
$7,500,000 LETTER OF CREDIT FACILITY
- ------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS AND INTERPRETATION 1
1.1 Terms Defined Above 1
1.2 Additional Defined Terms 1
1.3 Undefined Financial Accounting Terms 14
1.4 References 14
1.5 Articles and Sections 15
1.6 Number and Gender 15
1.7 Incorporation of Exhibits 15
ARTICLE II TERMS OF FACILITY 15
2.1 Letters of Credit 15
2.2 Use of Letters of Credit 16
2.3 Interest 16
2.4 Time, Place, and Method of Payments 16
2.5 Borrowing Base Determinations 16
2.6 Mandatory Prepayments 17
2.7 Commitment Fee 17
2.8 Administration Fee 17
2.9 Letter of Credit Fee 18
2.10 Security Interest in Deposit Accounts;
Right of Offset 18
2.11 General Provisions Relating to Interest 18
2.12 Yield Protection 19
ARTICLE III CONDITIONS 20
3.1 Receipt of Loan Documents and Other Items 20
3.2 Each Letter of Credit 22
ARTICLE IV REPRESENTATIONS AND WARRANTIES 23
4.1 Due Authorization 23
4.2 Corporate Existence 23
4.3 Valid and Binding Obligations 24
4.4 Security Instruments 24
4.5 Title to Assets 24
4.6 Scope and Accuracy of Financial Statements 24
4.7 No Material Misstatements 24
4.8 Liabilities, Litigation, and Restrictions 24
4.9 Authorizations; Consents 25
4.10 Compliance with Laws 25
4.11 ERISA 25
4.12 Environmental Laws 26
4.13 Compliance with Federal Reserve Regulations 26
4.14 Investment Company Act Compliance 26
4.15 Public Utility Holding Company Act
Compliance 26
4.16 Proper Filing of Tax Returns; Payment of
Taxes Due 26
4.17 Intellectual Property 26
4.18 Casualties or Taking of Property 27
4.19 Locations of Borrower 27
4.20 Subsidiaries 27
ARTICLE V AFFIRMATIVE COVENANTS 27
5.1 Maintenance and Access to Records 27
5.2 Quarterly Financial Statements; Compliance
Certificates 27
5.3 Annual Financial Statements 28
5.4 Monthly Reports 28
5.5 Notices of Certain Events 28
5.6 Additional Information 29
5.7 Compliance with Laws 30
5.8 Payment of Assessments and Charges 30
5.9 Maintenance of Corporate Existence and Good
Standing 30
5.10 Further Assurances 31
5.11 Initial Fees and Expenses of Counsel to
Lender 31
5.12 Subsequent Fees and Expenses of Lender 31
5.13 Maintenance and Inspection of Properties 32
5.14 Maintenance of Insurance 32
5.15 Maintenance of Operating Accounts 32
5.16 Indemnification 32
ARTICLE VI NEGATIVE COVENANTS 33
6.1 Indebtedness 33
6.2 Contingent Obligations 33
6.3 Liens 34
6.4 Sales of Assets 34
6.5 Loans or Advances 34
6.6 Investments 34
6.7 Dividends and Distributions 34
6.8 Issuance of Stock; Changes in Corporate
Structure 35
6.9 Transactions with Affiliates 35
6.10 Lines of Business 35
6.11 ERISA Compliance 35
6.12 Tangible Net Worth 35
6.13 Futures Contracts 35
ARTICLE VII EVENTS OF DEFAULT 35
7.1 Enumeration of Events of Default 35
7.2 Remedies 38
ARTICLE VIII MISCELLANEOUS 39
8.1 Transfers; Participations 39
8.2 Survival of Representations, Warranties,
and Covenants 39
8.3 Notices and Other Communications 39
8.4 Parties in Interest 40
8.5 Rights of Third Parties 40
8.6 No Waiver; Rights Cumulative 40
8.7 Survival Upon Unenforceability 41
8.8 Amendments; Waivers 41
8.9 Controlling Agreement 41
8.10 Disposition of Collateral 41
8.11 GOVERNING LAW 41
8.12 JURISDICTION AND VENUE 41
8.13 WAIVER OF RIGHTS TO JURY TRIAL 42
8.14 ENTIRE AGREEMENT 42
8.15 Counterparts 42
LIST OF EXHIBITS
Exhibit I - Form of Borrowing Base Report
Exhibit II - Form of Compliance Certificate
Exhibit III - Form of Opinion of Counsel
Exhibit IV - Disclosures
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made and entered into as of the 23rd day of
December, 1994, by and between HOWELL CRUDE OIL COMPANY, a Delaware corporation
(the "Borrower"), and BANK ONE, TEXAS, N.A., a national banking association (the
"Lender").
W I T N E S S E T H:
In consideration of the mutual covenants and agreements herein
contained, the Borrower and the Lender hereby agree as follows:
DEFINITIONS AND INTERPRETATION
1.1 Terms Defined Above. As used in this Credit Agreement, the terms
"Borrower" and "Lender" shall have the meaning assigned to them hereinabove.
1.2 Additional Defined Terms. As used in this Credit Agreement, each of the
following terms shall have the meaning assigned thereto in this Section, unless
the context otherwise requires:
"Accounts" shall mean all accounts receivable, book debts, notes, drafts,
instruments, documents, acceptances, and other forms of obligations now owned or
hereafter received or acquired by or belonging or owing to the Borrower
(including, without limitation, under any trade names, styles, or divisions
thereof), whether arising from the sale or lease of goods or the rendition of
services or any other transaction (including, without limitation, any such
obligation which might be characterized as an account, general intangible, other
than contract rights under contracts containing prohibitions against assignment
of or the granting of a security interest in the rights of a party thereunder,
or chattel paper under the Uniform Commercial Code in effect in any
jurisdiction), and all rights of the Borrower in, to, and under all purchase
orders now owned or hereafter received or acquired by it for goods or services,
and all rights of the Borrower to any goods the sale or lease of which gave rise
to any of the foregoing (including, without limitation, returned or repossessed
goods and rights of unpaid sellers), and all moneys due or to become due to the
Borrower under all contracts for the sale or lease of goods or the performance
of services (whether or not earned by performance) or in connection with any
other transaction, now in existence or hereafter arising,
<PAGE>
including, without limitation, all collateral security and guarantees of any
kind given by any Person with respect to any of the foregoing.
"Administration Fee" shall mean the fee payable to the Lender by the Borrower
pursuant to Section 2.8.
"Affiliate" shall mean any Person directly or indirectly controlling, or under
common control with, the Borrower and includes any Subsidiary of the Borrower
and any "affiliate" of the Borrower within the meaning of Reg. 240.12b-2 of the
Securities Exchange Act of 1934, as amended, with "control," as used in this
definition, meaning possession, directly or indirectly, of the power to direct
or cause the direction of management, policies or action through ownership of
voting securities, contract, voting trust, or membership in management or in the
group appointing or electing management or otherwise through formal or informal
arrangements or business relationships.
"Agreement" shall mean this Credit Agreement, as it may be amended,
supplemented, or restated from time to time.
"Available Commitment" shall mean, at any time, an amount equal to the
remainder, if any, of (a) the lesser of the Facility Amount or the Borrowing
Base in effect at such time minus (b) the L/C Exposure at such time.
"Base Rate" shall mean the interest rate announced or published by the Lender
from time to time as its general reference rate of interest, which Base Rate
shall change upon any change in such announced or published general reference
interest rate and which Base Rate may not be the lowest interest rate charged by
the Lender.
"Borrowing Base" shall mean, at any time, an amount equal to 80% of the
aggregate amount of all Eligible Accounts at such time.
"Borrowing Base Report" shall mean a report provided by the Borrower pursuant to
Section 5.4, substantially in the form of Exhibit I hereto.
"Business Day" shall mean a day other than a Saturday, Sunday, legal holiday for
commercial banks under the laws of the State of Texas, or any other day when
banking is suspended in the State of Texas.
<PAGE>
"Closing Date" shall mean the effective date of this Agreement.
"Code" shall mean the United States Internal Revenue Code of 1986, as amended
from time to time.
"Collateral" shall mean all Accounts, Inventory, and general intangibles of the
Borrower, the stock of the Borrower pledged by the Guarantor pursuant to the
Stock Pledge, and any other Property of the Borrower, the Guarantor, or any
other Person now or at any time used or intended as security for the payment or
performance of all or any portion of the Obligations.
"Commitment" shall mean the obligation of the Lender, subject to applicable
provisions of this Agreement, to issue Letters of Credit pursuant to Section
2.1.
"Commitment Fee" shall mean each fee payable to the Lender by the Borrower
pursuant to Section 2.7.
"Commitment Period" shall mean the period from and including the Closing Date to
but not including the Commitment Termination Date.
"Commitment Termination Date" shall mean June 1, 1996.
"Commonly Controlled Entity" shall mean any Person which is under common control
with the Borrower or the Guarantor within the meaning of Section 4001 of ERISA.
"Compliance Certificate" shall mean each certificate, substantially in the form
attached hereto as Exhibit II, executed by a Responsible Officer of the Borrower
and the Guarantor and furnished to the Lender from time to time in accordance
with Section 5.2.
"Contingent Obligation" shall mean, as to any Person, any obligation of such
Person guaranteeing or in effect guaranteeing any Indebtedness, leases,
dividends, or other obligations of any other Person (for purposes of this
definition, a "primary obligation") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
regardless of whether such obligation is contingent, (a) to purchase any primary
obligation or any Property constituting direct or indirect security therefor,
(b) to advance or supply funds (i) for the purchase or payment of any primary
obligation, or (ii) to maintain working or equity capital of any other Person in
respect of any
<PAGE>
primary obligation, or otherwise to maintain the net worth or solvency of any
other Person, (c) to purchase Property, securities or services primarily for the
purpose of assuring the owner of any primary obligation of the ability of the
Person primarily liable for such primary obligation to make payment thereof, or
(d) otherwise to assure or hold harmless the owner of any such primary
obligation against loss in respect thereof, with the amount of any Contingent
Obligation being deemed to be equal to the stated or determinable amount of the
primary obligation in respect of which such Contingent Obligation is made or, if
not stated or determinable, the maximum reasonably anticipated liability in
respect thereof as determined by such Person in good faith.
"Credit Accounts" shall mean any "account" as such term is defined in Section
9.106 of the UCC and any "chattel paper" as such term is defined in Section
9.105(a)(2) of the UCC, now or hereafter owned by the Borrower, which is
classified as a receivable on the balance sheet of the Borrower resulting from
the sale of crude oil or condensate.
"Default" shall mean any event or occurrence which with the lapse of time or the
giving of notice or both would become an Event of Default.
"Default Rate" shall mean a per annum interest rate equal to the Base Rate plus
five percent (5%), but in no event exceeding the Highest Lawful Rate.
"Dollars" and "$" shall mean dollars in lawful currency of the United States of
America.
"Eligible Accounts" shall mean, at a particular date, Credit Accounts:
(a) which are not outstanding more than 25 days from the end of the preceding
month;
(b) which are not outstanding more than 5 days past the due date expressed in
the related invoice;
(c) which are not owed by an obligor that has Credit Accounts, 10% or more of
which are not Eligible Accounts;
<PAGE>
(d) which are not owed by an obligor that already has Credit Accounts in an
amount equal to or exceeding 25% of the total amount of Eligible Accounts;
(e) which are not owed by an obligor that has taken any of the actions or
suffered any of the events of the kind described in Section 7.1(e) or (f),
unless the payment obligations of such obligor in respect of any such Credit
Account are supported by a letter of credit the terms of which are satisfactory
to the Lender;
(f) which are bona fide, valid, and legally enforceable obligations of the
parties thereto or the account debtor in respect thereof and arise from the
actual sale and delivery of goods or the rendition of services in the ordinary
course of business to such parties or account debtors;
(g) as to which all consents, licenses, approvals, or authorizations of, or
registrations or declarations with, any Governmental Authority required to be
obtained, effected, or given in connection with the execution, delivery, and
performance thereof by each party obligated thereunder have been duly obtained,
effected, or given, are in full force and effect, and do not subject the scope
of such Credit Accounts to any materially adverse limitation, either specific or
general in nature;
(h) as to which neither the Borrower nor (to the best knowledge of the
Borrower) any other party to such Credit Account is in default or is likely to
become in default in the performance or observance of any of the terms thereof
and as to which the Borrower has fully performed all its obligations;
(i) against which, to the knowledge of the Borrower, no defense, offset,
counterclaim, or claim has been asserted and which, to the knowledge of the
Borrower, are not subject to any defense, offset, counterclaim, or claim;
(j) which are solely owned by the Borrower and in which the Borrower has good
and marketable
<PAGE>
title, free and clear of any and all Liens or rights of others, other than
Permitted Liens, and which are subject to a valid and continuing first-priority
perfected Lien in favor of the Lender pursuant to the Security Instruments,
subject only to Permitted Liens;
(k) as to which no amounts payable under or in connection therewith are
evidenced by promissory notes or other instruments except (i) instruments which
constitute a part of chattel paper and which have been individually marked to
show the Lien created by the Security Instruments, and (ii) notes or instruments
which have been delivered to the Lender;
(l) as to which no security agreement, financing statement, equivalent security
or lien instrument, or continuation statement covering all or any part thereof
is on file or of record in any public office, except such as may have been filed
in favor of the Lender pursuant to the Security Instruments; and
(m) which the Lender has not otherwise determined in the exercise of its good
faith discretion to be unacceptable in accordance with its customary practices
for facilities of this nature.
"Environmental Complaint" shall mean any written complaint, order, directive,
claim, citation, or notice of violation, investigation, or potential liability
by or from any Governmental Authority, or any written complaint or claim by or
from any other Person with respect to (a) air emissions of Hazardous Substances,
(b) spills, releases, or discharges of Hazardous Substances to soils, any
improvements located thereon, surface water, groundwater, or the sewer, septic,
waste treatment, storage, or disposal systems servicing any Property of the
Borrower or the Guarantor or any Affiliate of the Guarantor, (c) solid or liquid
waste disposal, (d) the use, generation, storage, transportation, or disposal of
any Hazardous Substance, or (e) other environmental, health, or safety matters
affecting any Property of the Borrower or the Guarantor or any Affiliate of the
Guarantor or the business conducted thereon.
<PAGE>
"Environmental Laws" shall mean (a) the following federal laws as they may be
amended from time to time: the Clean Air Act, the Clean Water Act, the Safe
Drinking Water Act, the Comprehensive Environmental Response, Compensation and
Liability Act, the Endangered Species Act, the Resource Conservation and
Recovery Act, the Occupational Safety and Health Act, the Hazardous Materials
Transportation Act, the Superfund Amendments and Reauthorization Act, and the
Toxic Substances Control Act; (b) any and all equivalent environmental statutes
of any state in which Property of the Borrower, the Guarantor, or any Affiliate
of the Guarantor is situated, as they may be amended from time to time; (c) any
rules or regulations promulgated under or adopted pursuant to the above federal
and state laws; and (d) any other equivalent federal, state, or local statute or
any requirement, rule, regulation, code, ordinance, or order adopted pursuant
thereto, including, without limitation, those relating to the generation,
transportation, treatment, storage, recycling, disposal, handling, or release of
Hazardous Substances.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations thereunder and interpretations
thereof.
"Event of Default" shall mean any of the events specified in Section 7.1.
"Facility Amount" shall mean the amount of $7,500,000.
"Financial Statements" shall mean statements of the financial condition of the
Borrower and/or the Guarantor as at the point in time and for the period
indicated and consisting of at least a balance sheet and related statements of
operations, common stock and other stockholders' equity, and cash flows for the
Borrower alone or, where indicated, on a consolidated and consolidating basis
with the Guarantor and, when required by applicable provisions of this Agreement
to be audited, accompanied by the unqualified certification of a nationally-
recognized firm of independent certified public accountants or other independent
certified public accountants acceptable to the Lender and footnotes to any of
the foregoing, all of which shall be prepared in accordance with GAAP (except
that separate financial statements of the Borrower not consolidated with the
Guarantor need not contain footnotes or provision for income taxes) consistently
applied and in comparative form with respect to the corresponding period of the
preceding fiscal period.
<PAGE>
"GAAP" shall mean generally accepted accounting principles established by the
Financial Accounting Standards Board or the American Institute of Certified
Public Accountants and in effect in the United States from time to time.
"Governmental Authority" shall mean any nation, country, commonwealth,
territory, government, state, county, parish, municipality, or other political
subdivision and any entity exercising executive, legislative, judicial,
regulatory, or administrative functions of or pertaining to government.
"Guarantor" shall mean Howell Corporation, a Delaware corporation.
"Guaranty" shall mean the Guaranty executed by the Guarantor in favor of the
Lender, guaranteeing the payment and performance of the Obligations,
substantially in the form of Guaranty attached hereto as Exhibit V, as it may be
ratified, amended, restated, or supplemented from time to time.
"Hazardous Substances" shall mean flammables, explosives, radioactive materials,
hazardous wastes, asbestos, or any material containing asbestos, polychlorinated
biphenyls (PCBs), toxic substances or related materials, petroleum, petroleum
products, associated oil or natural gas exploration, production, and development
wastes, in each case to the extent regulated under any Environmental Law, or any
substances defined as "hazardous substances," "hazardous materials," "hazardous
wastes," or "toxic substances" under the Comprehensive Environmental Response,
Compensation and Liability Act, as amended, the Superfund Amendments and
Reauthorization Act, as amended, the Hazardous Materials Transportation Act, as
amended, the Resource Conservation and Recovery Act, as amended, the Toxic
Substances Control Act, as amended, or any other law or regulation now or
hereafter enacted or promulgated by any Governmental Authority.
"Highest Lawful Rate" shall mean the maximum non-usurious interest rate, if any
(or, if the context so requires, an amount calculated at such rate), that at any
time or from time to time may be contracted for, taken, reserved, charged, or
received under applicable laws of the State of Texas or the United States of
America, whichever authorizes the greater rate, as such laws are presently in
effect or, to the extent allowed
<PAGE>
by applicable law, as such laws may hereafter be in effect and which allow a
higher maximum non-usurious interest rate than such laws now allow.
"Indebtedness" shall mean, as to any Person, without duplication, (a) all
liabilities (excluding reserves for deferred income taxes, deferred compensation
liabilities, and other deferred liabilities and credits) which in accordance
with GAAP would be included in determining total liabilities as shown on the
liability side of a balance sheet, (b) all obligations of such Person evidenced
by bonds, debentures, promissory notes, or similar evidences of indebtedness,
(c) all other indebtedness of such Person for borrowed money and capitalized
leases, and (d) all obligations of others, to the extent any such obligation is
secured by a Lien on the assets of such Person (whether or not such Person has
assumed or become liable for the obligation secured by such Lien).
"Insolvency Proceeding" shall mean application (whether voluntary or instituted
by another Person) for or the consent to the appointment of a receiver, trustee,
conservator, custodian, or liquidator of any Person or of all or a substantial
part of the Property of such Person, or the filing of a petition (whether
voluntary or instituted by another Person) commencing a case under Title 11 of
the United States Code, seeking liquidation, reorganization, or rearrangement or
taking advantage of any bankruptcy, insolvency, debtor's relief, or other
similar law of the United States, the State of Texas, or any other jurisdiction.
"Insolvent" or "Insolvency" shall mean, with respect to any Multiemployer Plan,
that such Plan is insolvent within the meaning of such term as used in Section
4245 of ERISA.
"Intellectual Property" shall mean patents, patent applications, trademarks,
tradenames, copyrights, technology, know-how, and processes.
"Inventory" shall mean all now owned or hereafter acquired goods and other
personal property now or hereafter owned by the Borrower which are held for sale
or lease or are furnished or are to be furnished under contracts of service or
which constitute raw materials, work in process, or materials used or consumed
in the business of the Borrower, and all finished goods, including, without
limitation, all goods of the Borrower
<PAGE>
classified as "inventory" in Section 9.109(4) of the UCC.
"Investment" in any Person shall mean any stock, bond, note, or other evidence
of Indebtedness, or any other security
(other than current trade and customer accounts) of, investment or partnership
interest in or loan to, such Person.
"L/C Exposure" shall mean, at any time, the aggregate face amount of the
outstanding Letters of Credit at such time minus the aggregate amount, if any,
funded by the Lender under such Letters of Credit at such time.
"Letter of Credit" shall mean any commercial or standby letter of credit issued
by the Lender for the account of the Borrower pursuant to Section 2.1.
"Letter of Credit Application" shall mean the standard letter of credit
application and agreement employed by the Lender from time to time in connection
with letters of credit.
"Letter of Credit Fee" shall mean each fee payable to the Lender by the Borrower
pursuant to Section 2.9 upon or in connection with the issuance of a Letter of
Credit.
"Lien" shall mean any interest in Property securing an obligation owed to, or a
claim by, a Person other than the owner of such Property, whether such interest
is based on common law, statute, or contract, and including, but not limited to,
the lien or security interest arising from a mortgage, ship mortgage,
encumbrance, pledge, security agreement, conditional sale or trust receipt, or a
lease, consignment, or bailment for security purposes (other than true leases or
true consignments), liens of mechanics, materialmen, and artisans, maritime
liens and reservations, exceptions, encroachments, easements, rights of way,
covenants, conditions, restrictions, leases, and other title exceptions and
encumbrances affecting Property which secure an obligation owed to, or a claim
by, a Person other than the owner of such Property (for the purpose of this
Agreement, the Borrower shall be deemed to be the owner of any Property which it
has acquired or holds subject to a conditional sale agreement, financing lease,
or other arrangement pursuant to which title to the Property has been retained
by or vested in some other Person for security purposes), and the filing or
recording of any financing statement or other security
<PAGE>
instrument in any public office (other than in connection with true leases or
true consignments).
"Limitation Period" shall mean any period while any amount remains owing under
this Agreement or the Letter of Credit Applications and interest on such amount,
calculated at the applicable interest rate, plus any fees or other sums payable
under any Loan Document and deemed to be interest under applicable law, would
exceed the amount of interest which would accrue at the Highest Lawful Rate.
"Loan Documents" shall mean this Agreement, the Guaranty, the Letter of Credit
Applications, the Letters of Credit, the Security Instruments, and all other
documents and instruments now or hereafter delivered pursuant to the terms of or
in connection with this Agreement, the Guaranty, the Letter of Credit
Applications, the Letters of Credit, or the Security Instruments, and all
renewals and extensions of, amendments and supplements to, and restatements of,
any or all of the foregoing from time to time in effect.
"Material Adverse Effect" shall mean any adverse effect upon the Collateral or
the business of the Borrower or the Guarantor or any Affiliate of the Guarantor
which significantly increases the risk that any of the Obligations will not be
repaid as and when due.
"Multiemployer Plan" shall mean a Plan which is a multiemployer plan as defined
in Section 4001(a)(3) of ERISA.
"Obligations" shall mean, without duplication, (a) the Reimbursement
Obligations, (b) the undrawn, unexpired amount of all outstanding Letters of
Credit, (c) the obligation of the Borrower for the payment of Commitment Fees,
Facility Fees, and Letter of Credit Fees, (d) the obligations of the Guarantor
under the Guaranty, and (e) all other obligations and liabilities of the
Borrower or the Guarantor to the Lender, now existing or hereafter incurred,
under, arising out of or in connection with any Loan Document, and to the extent
that any of the foregoing includes or refers to the payment of amounts deemed or
constituting interest, only so much thereof as shall have accrued, been earned
and which remains unpaid at each relevant time of determination.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established pursuant
to Subtitle A of Title
<PAGE>
IV of ERISA or any entity succeeding to any or all of its functions under ERISA.
"Permitted Liens" shall mean (a) Liens for taxes, assessments, or other
governmental charges or levies not yet due or which (if foreclosure, distraint,
sale, or other similar proceedings shall not have been initiated) are being
contested in good faith by appropriate proceedings, and such reserve as may be
required by GAAP shall have been made therefor, (b) Liens in connection with
workers' compensation, unemployment insurance or other social security (other
than Liens created by Section 4068 of ERISA), old-age pension, or public
liability obligations which are not yet due or which are being contested in good
faith by appropriate proceedings, if such reserve as may be required by GAAP
shall have been made therefor, (c) Liens in favor of vendors, carriers,
warehousemen, repairmen, mechanics, workmen, materialmen, construction, or
similar Liens arising by operation of law in the ordinary course of business in
respect of obligations which are not yet due or which are being contested in
good faith by appropriate proceedings, if such reserve as may be required by
GAAP shall have been made therefor, (d) Liens in favor of operators and non-
operators under joint operating agreements or similar contractual arrangements
arising in the ordinary course of the business of the Borrower or the Guarantor
to secure amounts owing, which amounts are not yet due or are being contested in
good faith by appropriate proceedings, if such reserve as may be required by
GAAP shall have been made therefor, (e) Liens under production sales agreements,
division orders, operating agreements, and other agreements customary in the oil
and gas business for processing, producing, and selling hydrocarbons securing
obligations not constituting Indebtedness, (f) easements, rights of way,
restrictions, and other similar encumbrances, and minor defects in the chain of
title which are customarily accepted in the oil and gas financing industry, none
of which interfere with the ordinary conduct of the business of the Borrower or
the Guarantor or materially detract from the value or use of the Property to
which they apply, (g) Liens of record under terms and provisions of the leases,
unit agreements, assignments, and other transfer of title documents in the chain
of title under which the Borrower or the Guarantor acquired the relevant
Property, and (h) Liens in favor of the Lender and other Liens expressly
permitted under the Security Instruments.
<PAGE>
"Person" shall mean an individual, corporation, partnership, trust,
unincorporated organization, government, any agency or political subdivision of
any government, or any other form of entity.
"Plan" shall mean, at any time, any employee benefit plan which is covered by
ERISA and in respect of which the Borrower, the Guarantor, or any Commonly
Controlled Entity is (or, if such plan were terminated at such time, would under
Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5)
of ERISA.
"Principal Office" shall mean the principal office of the Lender in Houston,
Texas, presently located at 910 Travis.
"Prohibited Transaction" shall have the meaning assigned to such term in Section
4975 of the Code.
"Property" shall mean any interest in any kind of property or asset, whether
real, personal or mixed, tangible or intangible.
"Receivable Report" means a schedule provided to the Lender by the Borrower
pursuant to Section 5.4 and reflecting a detailed listing (showing the names
and, if requested by the Lender, addresses of account debtors and amounts owing)
and aging (in appropriate columns entitled "Current" and "Past-Due") of the
Credit Accounts.
"Reimbursement Obligation" shall mean the obligation of the Borrower to provide
to the Lender or reimburse the Lender for any amounts payable, paid, or incurred
by the Lender with respect to Letters of Credit.
"Release of Hazardous Substances" shall mean any emission, spill, release,
disposal, or discharge, except in accordance with applicable Requirements of Law
or the terms of a valid permit, license, certificate, or approval of the
relevant Governmental Authority, of any Hazardous Substance, in amounts in
excess of the relevant reportable quantity, into or upon (a) the air, (b) soils
or any improvements located thereon, (c) surface water or groundwater, or (d)
the sewer or septic system, or the waste treatment, storage, or disposal system
servicing any Property of the Borrower or the Guarantor.
<PAGE>
"Reorganization" shall mean, with respect to any Multiemployer Plan, that such
Plan is in reorganization within the meaning of such term in Section 4241 of
ERISA.
"Reportable Event" shall mean any of the events set forth in Section 4043(b) of
ERISA, other than those events as to which the thirty-day notice period is
waived under subsections .10, .11, .12, .13, .14, .16, .18, .19 or .20 of PBGC
Reg. 2615.
"Requirement of Law" shall mean, as to any Person, the certificate or articles
of incorporation and by-laws or other organizational or governing documents of
such Person, and any applicable law, treaty, ordinance, order, judgment, rule,
decree, regulation, or determination of an arbitrator, court, or other
Governmental Authority, including, without limitation, rules, regulations,
orders, and requirements for permits, licenses, registrations, approvals, or
authorizations, in each case as such now exist or may be hereafter amended and
are applicable to or binding upon such Person or any of its Property or to which
such Person or any of its Property is subject.
"Responsible Officer" shall mean, as to any Person, its President, any Vice
President, or its Treasurer.
"Security Instruments" shall mean the security instruments executed and
delivered in satisfaction of the condition set forth in Section 3.1(e), the
Stock Pledge, and all other documents and instruments at any time executed as
security for all or any portion of the Obligations, as such instruments may be
amended, restated, or supplemented from time to time.
"Single Employer Plan" shall mean any Plan which is covered by Title IV of
ERISA, but which is not a Multiemployer Plan.
"Stock Pledge" shall mean the Security Agreement (Stock Pledge) from the
Guarantor covering 100% of the stock of the Borrower owned by the Guarantor
substantially in the form of Security Agreement (Stock Pledge) attached hereto
as Exhibit VI, accompanied by stock certificates evidencing such stock and stock
powers endorsed in blank.
"Subsidiary" shall mean, as to any Person, a corporation of which shares of
stock having ordinary voting power (other than stock having such power only by
reason of
<PAGE>
the happening of a contingency) to elect a majority of the board of directors or
other managers of such corporation are at the time owned, or the management of
which is otherwise controlled, directly or indirectly through one or more
intermediaries, or both, by such Person.
"Superfund Site" shall mean those sites listed on the Environmental Protection
Agency National Priority List or any comparable state registries or list in any
state of the United States and, in each case, designated for remedial action.
"Tangible Net Worth" shall mean (a) total assets, as would be reflected on a
balance sheet of the Borrower prepared in accordance with GAAP (except for the
omission of footnotes and provision for income taxes), exclusive of Intellectual
Property, experimental or organization expenses, franchises, licenses, permits,
and other intangible assets, treasury stock, unamortized underwriters' debt
discount and expenses, and goodwill minus (b) total liabilities, as would be
reflected on a balance sheet of the Borrower prepared in accordance with GAAP
(except for the omission of footnotes and provision for income taxes).
"Transferee" shall mean any Person to which the Lender has sold, assigned,
transferred, or granted a participation in any of the Obligations, as authorized
pursuant to Section 8.1, and any Person acquiring, by purchase, assignment,
transfer, or participation, from any such purchaser, assignee, transferee, or
participant, any part of such Obligations.
"UCC" shall mean the Uniform Commercial Code as from time to time in effect in
the State of Texas.
1.3 Undefined Financial Accounting Terms. Undefined financial accounting terms
used in this Agreement shall be defined according to GAAP at the time in effect.
1.4 References. References in this Agreement to Exhibit, Article, or Section
numbers shall be to Exhibits, Articles, or Sections of this Agreement, unless
expressly stated to the contrary. References in this Agreement to "hereby,"
"herein," "hereinafter," "hereinabove," "hereinbelow," "hereof," "hereunder" and
words of similar import shall be to this Agreement in its entirety and not only
to the particular Exhibit, Article, or Section in which such reference appears.
<PAGE>
1.5 Articles and Sections. This Agreement, for convenience only, has been
divided into Articles and Sections; and it is understood that the rights and
other legal relations of the parties hereto shall be determined from this
instrument as an entirety and without regard to the aforesaid division into
Articles and Sections and without regard to headings prefixed to such Articles
or Sections.
1.6 Number and Gender. Whenever the context requires, reference herein made to
the single number shall be understood to include the plural; and likewise, the
plural shall be understood to include the singular. Definitions of terms
defined in the singular or plural shall be equally applicable to the plural or
singular, as the case may be, unless otherwise indicated. Words denoting sex
shall be construed to include the masculine, feminine and neuter, when such
construction is appropriate; and specific enumeration shall not exclude the
general but shall be construed as cumulative.
1.7 Incorporation of Exhibits. The Exhibits attached to this Agreement are
incorporated herein and shall be considered a part of this Agreement for all
purposes.
ARTICLE II
TERMS OF FACILITY
2.1 Letters of Credit.
(a) Upon the terms and conditions (including, without limitation, the right of
the Lender to decline to issue any Letter of Credit so long as any Default or
Event of Default exists) and relying on the representations and warranties
contained in this Agreement, the Lender agrees, during the Commitment Period, to
issue Letters of Credit following the receipt not less than two Business Days
prior to the requested date for issuance of the relevant Letter of Credit, of a
Letter of Credit Application executed by the Borrower; provided, however, (i) no
Letter of Credit shall have an expiration date which is more than 180 days after
the issuance thereof or more than 60 days after the Commitment Termination Date,
(ii) each automatically renewable Letter of Credit shall provide that it may be
terminated by the Lender at its then current expiry date by not less than 30
days' written notice by the Lender to the beneficiary of such Letter of Credit,
and (iii) the Lender shall not be obligated to issue any Letter of Credit if (A)
the face amount thereof would exceed the Available Commitment, or (B) after
giving effect to the issuance thereof, the L/C
<PAGE>
Exposure would exceed the lesser of the Facility Amount or the Borrowing Base
then in effect.
(b) Should the Lender be called upon by the beneficiary of any Letter of Credit
to honor all or any portion of the commitment thereunder, whether upon the
presentation of drafts or otherwise, the Borrower shall pay the amount of such
draw immediately upon demand by the Lender in accordance with the provisions of
this Agreement and the applicable Letter of Credit Application and do and
perform every act and discharge all of its other obligations in connection
therewith pursuant to this Agreement and the applicable Letter of Credit
Application.
2.2 Use of Letters of Credit. This letter of credit facility shall be used
solely for the issuance of letters of credit to support crude oil purchases by
the Borrower.
2.3 Interest. Subject to the terms of this Agreement (including, without
limitation, Section 2.11) and notwithstanding the provisions of the applicable
Letter of Credit Application, interest on any Reimbursement Obligation shall
accrue and be payable at a rate per annum equal to the Default Rate, computed on
the basis of a year of 365 or 366 days, as the case may be, and actual days
elapsed (including the first day but excluding the last day) during the period
for which payable and shall be payable upon demand by the Lender at any time as
to all or any portion of such interest. Interest provided for herein and in the
Letter of Credit Applications shall be calculated on unpaid sums actually
advanced and outstanding pursuant to the terms of this Agreement and the Letter
of Credit Applications and only for the period from the date or dates of such
advances until repayment.
2.4 Time, Place, and Method of Payments. All payments required pursuant to
this Agreement or the Letter of Credit Applications (a) shall be made in lawful
money of the United States of America and in immediately available funds, (b)
shall be deemed received by the Lender on the next Business Day following
receipt if such receipt is after 5:00 p.m., Central Standard or Daylight Savings
Time, as the case may be, on any Business Day, and (c) shall be made at the
Principal Office.
2.5 Borrowing Base Determinations.
(a) The Borrowing Base as of the Closing Date is acknowledged by the Borrower
and the Lender to be $7,500,000.
<PAGE>
(b) The Borrowing Base shall be redetermined monthly on the basis of
information supplied by the Borrower in compliance with the provisions of this
Agreement, including, without limitation, Borrowing Base Reports and Receivable
Reports, and all other information available to the Lender, subject, in the case
of any increase in the Borrowing Base, to the normal credit approval process of
the Lender. Notwithstanding the foregoing, the Lender may at its discretion
redetermine the Borrowing Base at any time and from time to time.
(c) Upon each determination of the Borrowing Base by the Lender, the amount of
the Borrowing Base as shown on the most recent Borrowing Base Report received by
the Lender shall be the Borrowing Base hereunder unless the Lender notifies the
Borrower verbally (confirming such notice promptly in writing) of any different
determination within five (5) Business Days of the Lender's receipt of such
Borrowing Base Report, and any different Borrowing Base so communicated to the
Borrower shall become effective upon such timely notification and shall remain
in effect until the next subsequent determination of the Borrowing Base.
(d) The Borrowing Base shall represent the determination by the Lender, in
accordance with the applicable definitions and provisions herein contained and
its customary lending practices for loans of this nature, of the value, for loan
purposes, of the Eligible Accounts, subject, in the case of any increase in the
Borrowing Base, to the normal credit approval process of the Lender.
Furthermore, the Borrower acknowledges that the determination of the Borrowing
Base contains an equity cushion (market value in excess of loan value), which is
acknowledged by the Borrower to be essential for the adequate protection of the
Lender.
2.6 Mandatory Prepayments. If at any time the L/C Exposure exceeds the lesser
of the Facility Amount or the Borrowing Base then in effect, the Borrower shall,
within two (2) days of notice from the Lender of such occurrence, in accordance
with the provisions of the relevant Letter of Credit Applications executed by
the Borrower or otherwise to the satisfaction of the Lender, deposit with the
Lender, as additional collateral securing the Obligations, an amount of cash, in
immediately available funds, equal to the L/C Exposure minus the lesser of the
Facility Amount or the Borrowing Base. The cash deposited with the Lender in
satisfaction of the requirement provided in this Section may be invested, at the
sole discretion of the Lender and then only at the express direction of the
Borrower as to investment vehicle and maturity (which shall be no later than
<PAGE>
the latest expiry date of any then outstanding Letter of Credit), for the
account of the Borrower in cash or cash equivalent investments offered by or
through the Lender.
2.7 Commitment Fee. In addition to the Facility Fees and Letter of Credit Fees
payable hereunder and to compensate the Lender for maintaining funds available,
the Borrower shall pay to the Lender, in immediately available funds, on the
first day of April, 1995, and on the first day of each third calendar month
thereafter during the Commitment Period (or within five days following the
notice from the Lender of the amount of Commitment Fee owing, if later), a fee
in the amount of one-fourth of one percent (1/4%) per annum, calculated on the
basis of a year of 365 or 366 days, as the case may be, and actual days elapsed
(including the first day but excluding the last day), on the average daily
amount of the Available Commitment during the preceding three-month period.
2.8 Administration Fee. In addition to Commitment Fees and Letter of Credit
Fees payable hereunder and to compensate the Lender for the extension of credit
hereunder, the Borrower shall pay to the Lender, in immediately available funds,
on the Closing Date, and on each anniversary date of this Agreement thereafter
during the Commitment Period, an administration fee in the amount of $2,500.
2.9 Letter of Credit Fee. In addition to Commitment Fees and Facility Fees
payable hereunder, the Borrower agrees to pay to the Lender, on the date of
issuance of each Letter of Credit, a fee equal to the greater of $500 or one
percent (1%) per annum, calculated on the basis of a year of 365 or 366 days, as
the case may be, and actual days elapsed (including the first day but excluding
the last day), on the face amount of such Letter of Credit during the period for
which such Letter of Credit is issued. The Borrower also agrees to pay to the
Lender on demand its customary letter of credit transactional fees, including,
without limitation, amendment fees, payable with respect to each Letter of
Credit.
2.10 Security Interest in Deposit Accounts; Right of Offset. As security for
the payment and performance of the Obligations, the Borrower hereby transfers,
assigns, and pledges to the Lender and grants to the Lender a security interest
in all funds of the Borrower now or hereafter or from time to time on deposit
with the Lender, with such interest of the Lender to be retransferred,
reassigned, and/or released by the Lender, as the case may be, at the expense of
the Borrower upon payment in full and complete performance by the Borrower of
all Obligations. All remedies as secured party or assignee of such funds shall
be exercisable by the Lender upon the occurrence of any Event of Default,
regardless of whether the exercise of any such remedy
<PAGE>
would result in any penalty or loss of interest or profit with respect to any
withdrawal of funds deposited in a time deposit account prior to the maturity
thereof. Furthermore, the Borrower hereby grants to the Lender the right,
exercisable at such time as any Obligation shall mature, whether by acceleration
of maturity or otherwise, of offset or banker's lien against all funds of the
Borrower now or hereafter or from time to time on deposit with the Lender,
regardless of whether the exercise of any such remedy would result in any
penalty or loss of interest or profit with respect to any withdrawal of funds
deposited in a time deposit account prior to the maturity thereof.
2.11 General Provisions Relating to Interest.
(a) It is the intention of the parties hereto to comply strictly with the usury
laws of the State of Texas and the United States of America. In this
connection, there shall never be collected, charged, or received on the sums
advanced hereunder interest in excess of that which would accrue at the Highest
Lawful Rate. For purposes of Article 5069-1.04, Vernon's Texas Civil Statutes,
as amended, the Borrower agrees that the Highest Lawful Rate shall be the
"indicated (weekly) rate ceiling" as defined in such Article, provided that the
Lender may also rely, to the extent permitted by applicable laws of the State of
Texas or the United States of America, on alternative maximum rates of interest
under other laws of the State of Texas or the United States of America
applicable to the Lender, if greater.
(b) Notwithstanding anything herein or in the Letter of Credit Applications to
the contrary, during any Limitation Period, the interest rate to be charged on
amounts evidenced by the Letter of Credit Applications shall be the Highest
Lawful Rate, and the obligation, if any, of the Borrower for the payment of fees
or other charges deemed to be interest under applicable law shall be suspended.
During any period or periods of time following a Limitation Period, to the
extent permitted by applicable laws of the State of Texas or the United States
of America, the interest rate to be charged hereunder shall remain at the
Highest Lawful Rate until such time as there has been paid to the Lender (i) the
amount of interest in excess of that accruing at the Highest Lawful Rate that
the Lender would have received during the Limitation Period had the interest
rate remained at the otherwise applicable rate, and (ii) all interest and fees
otherwise payable to the Lender but for the effect of such Limitation Period.
<PAGE>
(c) If, under any circumstances, the aggregate amounts paid under this
Agreement, the Letter of Credit Applications, or any other Loan Document include
amounts which by law are deemed interest and which would exceed the amount
permitted if the Highest Lawful Rate were in effect, the Borrower stipulates
that such payment and collection will have been and will be deemed to have been,
to the extent permitted by applicable laws of the State of Texas or the United
States of America, the result of mathematical error on the part of the Borrower
and the Lender; and the Lender shall promptly refund the amount of such excess
(to the extent only of such interest payments in excess of that which would have
accrued and been payable on the basis of the Highest Lawful Rate) upon discovery
of such error by the Lender or notice thereof from the Borrower. Excess
amounts paid which by law are deemed interest, if any, shall be credited by the
Lender on the principal amount of the Obligations, or if the principal amount of
the Obligations shall have been paid in full, refunded to the Borrower.
(d) All sums paid, or agreed to be paid, to the Lender for the use, forbearance
and detention of the proceeds of any advance hereunder shall, to the extent
permitted by applicable law, be amortized, prorated, allocated, and spread
throughout the full term hereof until paid in full so that the actual rate of
interest is uniform but does not exceed the Highest Lawful Rate throughout the
full term hereof.
2.12 Yield Protection. If at any time after the Closing Date, and from time to
time, the Lender determines that due to the adoption or modification of any
applicable Requirement of Law regarding taxation, the required levels of
reserves of the Lender, deposits, insurance or capital (including any allocation
of capital requirements or conditions), or similar requirements, or any
interpretation or administration thereof by any Governmental Authority, central
bank or comparable agency charged with the interpretation, administration, or
compliance of the Lender with any of such requirements, has or would have the
effect of (a) increasing the costs of the Lender relating to the Obligations,
the Commitment, or the issuance of Letters of Credit by the Lender hereunder, or
(b) reducing the yield or rate of return of the Lender on the Obligations to a
level below that which the Lender could have achieved but for the adoption or
modification of any such requirements, the Borrower shall, within ten Business
Days of any request by the Lender (which request shall be in writing and shall
contain information relating to the effects described in clause (a) or (b)
above), pay to the Lender such additional amounts as (in the good faith judgment
of the Lender based on reasonable computation) will
<PAGE>
compensate the Lender for such increase in costs or reduction in yield or rate
of return of the Lender; provided that the Borrower shall not be obligated for
the payment of such additional amounts payable pursuant to this Section to the
extent such additional amounts accrued more than 90 days prior to the date upon
which the Borrower was given such notice. No failure by the Lender to demand
immediate payment of any additional amounts payable under this Section shall
constitute a waiver of the right of the Lender to demand payment of such amounts
at any subsequent time. Nothing contained in this Section shall be construed or
so operate as to require the Borrower to pay any interest, fees, costs, or
charges greater than permitted by applicable law.
ARTICLE III
CONDITIONS
The obligations of the Lender to enter into this Agreement and to issue Letters
of Credit are subject to the satisfaction of the following conditions precedent:
3.1 Receipt of Loan Documents and Other Items. The Lender shall have no
obligation to issue the initial Letter of Credit unless and until all matters
incident to the consummation of the transactions contemplated herein shall be
satisfactory to the Lender, and the Lender shall have received, reviewed, and
approved the following documents and other items, appropriately executed when
necessary and, where applicable, acknowledged by one or more authorized officers
of the Borrower or the Guarantor, as the case may be, all in form and substance
satisfactory to the Lender and dated, where applicable, of even date herewith or
a date prior thereto and acceptable to the Lender:
(a) multiple counterparts of this Agreement, as requested by the Lender;
(b) copies of the Articles of Incorporation or Certificate of Incorporation and
all amendments thereto and the bylaws and all amendments thereto of the
Borrower, accompanied by a certificate issued by the secretary or an assistant
secretary of the Borrower, to the effect that each such copy is correct and
complete;
(c) certificate of incumbency and signatures of all officers of the Borrower
who are authorized to execute Loan Documents on behalf of the Borrower, such
certificate being executed by the secretary or an assistant secretary of the
Borrower;
<PAGE>
(d) copies of corporate resolutions approving the Loan Documents and
authorizing the transactions contemplated herein and therein, duly adopted by
the board of directors of the Borrower, accompanied by certificates of the
secretary or an assistant secretary of the Borrower, to the effect that such
copies are true and correct copies of resolutions duly adopted at a meeting or
by unanimous consent of the board of directors of the Borrower, and that such
resolutions constitute all the resolutions adopted with respect to such
transactions, have not been amended, modified, or revoked in any respect, and
are in full force and effect as of the date of such certificate;
(e) multiple counterparts, as requested by the Lender, of the following
Security Instruments creating, perfecting, and otherwise establishing Liens in
favor of the Lender in and to the Collateral:
(i) Security Agreement from the Borrower covering all Accounts, Inventory, and
general intangibles of the Borrower; and
(ii) Financing Statement from the Borrower, as debtor, constituent to the
instrument described in clause (i) above.
(f) Financial Statements of the Borrower and the Guarantor as of September 30,
1994;
(g) certificates dated as of a recent date from the Secretary of State or other
appropriate Governmental Authority evidencing the existence or qualification and
good standing of the Borrower in its jurisdiction of incorporation and in any
other jurisdictions where it does business;
(h) results of searches of the UCC Records of the Secretary of State of the
States of Florida, Louisiana, Mississippi, and Texas from a source acceptable to
the Lender and reflecting no Liens against any of the Collateral as to which
perfection of a Lien is accomplished by the filing of a financing statement
other than in favor of the Lender;
(i) the opinion of counsel of the Borrower and the Guarantor, in the form
attached hereto as Exhibit III, with such changes thereto as may be approved by
the Lender;
<PAGE>
(j) Notice of Final Agreement executed by the Borrower and the Guarantor; and
(k) such other agreements, documents, instruments, opinions, certificates,
waivers, consents, and evidence as the Lender may reasonably request.
3.2 Each Letter of Credit. In addition to the conditions precedent stated
elsewhere herein, the Lender shall not be obligated to issue any Letter of
Credit unless:
(a) the Borrower shall have delivered to the Lender a Letter of Credit
Application at least two Business Days prior to the requested issuance date for
the relevant Letter of Credit; and each statement or certification made in such
Letter of Credit Application shall be true and correct in all material respects
on the requested date for the issuance of such Letter of Credit;
(b) no Event of Default or Default shall exist or will occur as a result of the
issuance of the requested Letter of Credit;
(c) if requested by the Lender, the Borrower and the Guarantor shall have
delivered evidence satisfactory to the Lender substantiating any of the matters
contained in this Agreement which are necessary to enable the Borrower to
qualify for the issuance of such Letter of Credit;
(d) no event shall have occurred which, in the reasonable opinion of the
Lender, could have a Material Adverse Effect;
(e) each of the representations and warranties contained in this Agreement
shall be true and correct and shall be deemed to be repeated by the Borrower as
if made on the requested date for the issuance of such Letter of Credit;
(f) for each Letter of Credit issued on or after February 15, 1995, the
Guaranty and the Stock Pledge, and for any Letter of Credit all of the other
Security Instruments shall be in full force and effect and provide to the Lender
the security intended thereby;
(g) each of the Borrower and the Guarantor shall hold full legal title to the
Collateral pledged by such entity and be the sole beneficial owner thereof;
<PAGE>
(h) the Lender shall have received reimbursement from the Borrower, or special
legal counsel for the Lender shall have received payment from the Borrower, for
(i) all reasonable fees and expenses of counsel to the Lender for which the
Borrower is responsible pursuant to applicable provisions of this Agreement and
for which invoices have been presented as of or prior to the date of the
relevant Letter of Credit Application, and (ii) estimated fees charged by filing
officers and other public officials incurred or to be incurred in connection
with the filing and recordation of any Security Instruments, for which invoices
have been presented as of or prior to the date of the requested Letter of Credit
Application; and
(I) all matters incident to the consummation of the transactions hereby
contemplated shall be reasonably satisfactory to the Lender.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement and to issue Letters of
Credit, the Borrower represents and warrants to the Lender (which
representations and warranties shall survive the delivery of any Letter of
Credit Application) that:
4.1 Due Authorization. The execution and delivery by the Borrower of this
Agreement and the Letter of Credit Applications, the repayment of the
Reimbursement Obligations, the execution and delivery of the Security
Instruments by the Borrower, and the performance of all obligations of the
Borrower under the Loan Documents are within the power of the Borrower, have
been duly authorized by all necessary corporate action by the Borrower, and do
not and will not (a) require the consent of any Governmental Authority, (b)
contravene or conflict with any Requirement of Law, (c) contravene or conflict
with any indenture, instrument, or other agreement to which the Borrower is a
party or by which any Property of the Borrower may be presently bound or
encumbered, or (d) result in or require the creation or imposition of any Lien
in, upon or of any Property of the Borrower under any such indenture,
instrument, or other agreement, other than the Loan Documents.
4.2 Corporate Existence. The Borrower is a corporation duly organized, legally
existing, and in good standing under the laws of its state of incorporation and
is duly qualified as a foreign corporation and is in good standing in all
jurisdictions wherein
<PAGE>
the ownership of Property or the operation of its business necessitates same,
other than those jurisdictions wherein the failure to so qualify will not have a
Material Adverse Effect.
4.3 Valid and Binding Obligations. All Loan Documents to which the Borrower is
a party, when duly executed and delivered by the Borrower, will be the legal,
valid, and binding obligations of the Borrower, enforceable against the Borrower
in accordance with their respective terms.
4.4 Security Instruments. The provisions of each Security Instrument executed
by the Borrower are effective to create in favor of the Lender, a legal, valid,
and enforceable Lien in all right, title, and interest of the Borrower in the
Collateral described therein, which Liens, assuming the accomplishment of
recording and filing in accordance with applicable laws prior to the
intervention of rights of other Persons, shall constitute fully perfected
first-priority Liens on all right, title, and interest of the Borrower in the
Collateral described therein.
4.5 Title to Assets. The Borrower has good and indefeasible title to all of
its Properties, free and clear of all Liens except Permitted Liens.
4.6 Scope and Accuracy of Financial Statements. The Financial Statements of
the Borrower as of September 30, 1994, present fairly the financial position and
results of operations and cash flows of the Borrower in accordance with GAAP
(except for the omission of footnotes and provision for income taxes) as at the
relevant point in time or for the period indicated, as applicable, subject to
normal year-end audit adjustments. No event or circumstance has occurred since
September 30, 1994, which could reasonably be expected to have a Material
Adverse Effect.
4.7 No Material Misstatements. No information, exhibit, statement, or report
furnished to the Lender by or at the direction of the Borrower in connection
with this Agreement contains any material misstatement of fact or omits to state
a material fact or any fact necessary to make the statements contained therein
not misleading as of the date made or deemed made in light of the circumstances
in which they were made.
4.8 Liabilities, Litigation, and Restrictions. Other than as disclosed in the
Financial Statements provided to the Lender on or before the Closing Date, the
Borrower has no liabilities, direct, or contingent, which may materially and
adversely affect its business or operations or its ownership of the Collateral.
Except as disclosed in writing to the Lender on the Closing Date, no litigation
or other action of any nature in which the Borrower is a party and in which the
amount in controversy
<PAGE>
exceeds $100,000 is pending before any Governmental Authority or, to the best
knowledge of the Borrower, threatened against or affecting the Borrower. No
unusual or unduly burdensome restriction, restraint or hazard exists by
contract, Requirement of Law, or otherwise relative to the business or
operations of the Borrower or the ownership and operation of the Collateral
other than such as relate generally to Persons engaged in business activities
similar to those conducted by the Borrower the effect of which could reasonably
be expected to have a Material Adverse Effect.
4.9 Authorizations; Consents. Except as expressly contemplated by this
Agreement, no authorization, consent, approval, exemption, franchise, permit, or
license of, or filing with, any Governmental Authority or any other Person is
required to authorize or is otherwise required in connection with the valid
execution and delivery by the Borrower of the Loan Documents or any instrument
contemplated hereby, the repayment by the Borrower of the Reimbursement of
Obligations and interest and fees provided in the Letter of Credit Applications
and this Agreement, or the performance by the Borrower of the Obligations.
4.10 Compliance with Laws. The Borrower and its Property, including, without
limitation, the Collateral, are in compliance with all applicable Requirements
of Law, including, without limitation, Environmental Laws, the Natural Gas
Policy Act of 1978, as amended, and ERISA, except to the extent non-compliance
with any such Requirements of Law would not have a Material Adverse Effect.
4.11 ERISA. No Reportable Event has occurred with respect to any Single
Employer Plan, and each Single Employer Plan has complied with and been
administered in all material respects in accordance with applicable provisions
of ERISA and the Code. To the best knowledge of the Borrower, (a) no Reportable
Event has occurred with respect to any Multiemployer Plan, and (b) each
Multiemployer Plan has complied with and been administered in all material
respects with applicable provisions of ERISA and the Code. The present value of
all benefits vested under each Single Employer Plan maintained by the Borrower
or any Commonly Controlled Entity (based on the assumptions used to fund such
Plan) did not, as of the last annual valuation date applicable thereto, exceed
the value of the assets of such Plan allocable to such vested benefits. Neither
the Borrower nor any Commonly Controlled Entity has had a complete or partial
withdrawal from any Multiemployer Plan for which there is any withdrawal
liability. As of the most recent valuation date applicable to any Multiemployer
Plan, neither the Borrower nor any Commonly Controlled Entity would become
subject to any liability under ERISA if the Borrower or such Commonly Controlled
Entity were to
<PAGE>
withdraw completely from such Multiemployer Plan. Neither the Borrower nor any
Commonly Controlled Entity has received notice that any Multiemployer Plan is
Insolvent or in Reorganization. To the best knowledge of the Borrower, no such
Insolvency or Reorganization is reasonably likely to occur. The Borrower has no
reason to believe that the annual cost during the term of this Agreement to the
Borrower and all Commonly Controlled Entities for post-retirement benefits to be
provided to the current and former employees of the Borrower and all Commonly
Controlled Entities under Plans which are welfare benefit plans (as defined in
Section 3(1) of ERISA) will, in the aggregate, have a Material Adverse Effect.
4.12 Environmental Laws.
(a) No Property of the Borrower is currently on or has ever been on, or, to the
knowledge of the Borrower, is adjacent to any Property which is on or has ever
been on, any federal or state list of Superfund Sites.
(b) To the knowledge of the Borrower, no Hazardous Substances have been
generated, transported, and/or disposed of by the Borrower at a site which was,
at the time of such generation, transportation, and/or disposal, or has since
become, a Superfund Site.
(c) Except in accordance with applicable Requirements of Law or the terms of a
valid permit, license, certificate, or approval of the relevant Governmental
Authority, no Release of Hazardous Substances by the Borrower or from,
affecting, or related to any Property of the Borrower or, to the knowledge of
the Borrower, any Property adjacent to any Property of the Borrower, has
occurred.
(d) No Environmental Complaint has been received by the Borrower which has not
been satisfactorily resolved.
4.13 Compliance with Federal Reserve Regulations. No transaction contemplated
by the Loan Documents is in violation of any regulations promulgated by the
Board of Governors of the Federal Reserve System, including, without limitation,
Regulations G, T, U, or X.
4.14 Investment Company Act Compliance. The Borrower is not, nor is the
Borrower directly or indirectly controlled by or acting on behalf of any Person
which is, an "investment company" or an "affiliated person" of an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
<PAGE>
4.15 Public Utility Holding Company Act Compliance. The Borrower is not a
"holding company," or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company," within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
4.16 Proper Filing of Tax Returns; Payment of Taxes Due. All United States
income tax returns and all other tax returns which are required to be filed on
behalf of the Borrower have been filed, and all taxes owing by the Borrower and
the Guarantor have been paid except such as are being contested in good faith
and as to which adequate provisions and disclosures have been made in accordance
with GAAP. The respective charges and reserves on the books of the Borrower and
the Guarantor with respect to taxes and other governmental charges are adequate.
4.17 Intellectual Property. The Borrower owns or is licensed to use all
Intellectual Property necessary to conduct all business material to its
condition (financial or otherwise), business, or operations as such business is
currently conducted. No claim has been asserted or is pending by any Person
with the respect to the use of any such Intellectual Property or challenging or
questioning the validity or effectiveness of any such Intellectual Property; and
the Borrower knows of no valid basis for any such claim. The use of such
Intellectual Property by the Borrower does not infringe on the rights of any
Person, except for such claims and infringements as do not, in the aggregate,
give rise to any material liability on the part of the Borrower.
4.18 Casualties or Taking of Property. Since September 30, 1994, neither the
business nor any Property of the Borrower has been materially adversely affected
as a result of any fire, explosion, earthquake, flood, drought, windstorm,
accident, strike or other labor disturbance, embargo, requisition or taking of
Property, or cancellation of contracts, permits, or concessions by any
Governmental Authority, riot, activities of armed forces, or acts of God.
4.19 Locations of Borrower. The principal place of business and chief executive
office of the Borrower is located at the address of the Borrower set forth in
Section 8.3 or at such other location as the Borrower may have, by proper
written notice hereunder, advised the Lender, provided that such other location
is within a state in which appropriate financing statements from the Borrower in
favor of the Lender have been filed.
4.20 Subsidiaries. The Borrower has no Subsidiaries except those
<PAGE>
described on Exhibit IV under the heading "Subsidiaries of Borrower", and the
Guarantor has no Subsidiaries except those described on Exhibit IV under the
heading "Subsidiaries of Guarantor".
ARTICLE V
AFFIRMATIVE COVENANTS
So long as any Obligation remains outstanding or unpaid or any Commitment
exists, the Borrower shall:
5.1 Maintenance and Access to Records. Keep adequate records, in accordance
with GAAP, of all its transactions so that at any time, and from time to time,
its true and complete financial condition may be readily determined, and
promptly following the reasonable request of the Lender, make such records
available for inspection by the Lender and, at the expense of the Borrower,
allow the Lender to make and take away copies thereof.
5.2 Quarterly Financial Statements; Compliance Certificates. Deliver to the
Lender, on or before the 45th day after the close of each of the first three
quarterly periods of each fiscal year of the Borrower, (a) a copy of the
unaudited Financial Statements of the Borrower and the unaudited consolidated
and consolidating Financial Statements of the Guarantor as at the close of such
quarterly period and from the beginning of such fiscal year to the end of such
period, such Financial Statements to be certified by the chief financial officer
of the Borrower and the Guarantor as having been prepared in accordance with
GAAP (except for the omission of footnotes and provision for income taxes in the
separate financial statements of the Borrower not consolidated with the
Guarantor) consistently applied and as a fair presentation of the condition of
the Borrower and the Guarantor, subject to changes resulting from normal
year-end audit adjustments, and (b) a Compliance Certificate.
5.3 Annual Financial Statements. Deliver to the Lender, on or before the 90th
day after the close of each fiscal year of the Borrower, (a) a copy of the
annual unaudited Financial Statements of the Borrower, certified by the chief
financial officer of the Borrower as having been prepared in accordance with
GAAP (except for the omission of footnotes and provision for income taxes)
consistently applied and as a fair presentation of the condition of the
Borrower, (b) a copy of the annual audited consolidated and unaudited
consolidating Financial Statements of the Guarantor and (c) a Compliance
Certificate.
5.4 Monthly Reports. Deliver to the Lender, on or before the 20th day after
the close of each calendar month, a Receivable Report
<PAGE>
and a Borrowing Base Report, each as of the last day of the immediately
preceding month. Each Receivable Report delivered hereunder shall contain, if
requested by the Lender, names and addresses for each account debtor.
5.5 Notices of Certain Events. Deliver to the Lender, promptly upon having
knowledge of the occurrence of any of the following events or circumstances, a
written statement with respect thereto, signed by a Responsible Officer of the
Borrower and setting forth the relevant event or circumstance and the steps
being taken by the Borrower or the Guarantor with respect to such event or
circumstance:
(a) any Default or Event of Default;
(b) any default or event of default under any contractual obligation of the
Borrower or the Guarantor, or any litigation, investigation, or proceeding
between the Borrower or the Guarantor and any Governmental Authority which, in
either case, if not cured or if adversely determined, as the case may be, could
reasonably be expected to have a Material Adverse Effect;
(c) any litigation or proceeding involving the Borrower or the Guarantor as a
defendant or in which any Property of the Borrower or the Guarantor is subject
to a claim and in which the amount involved is $1,000,000 or more and which is
not covered by insurance or which affect title to any Collateral or in which
injunctive or similar relief is sought;
(d) the receipt by the Borrower of any Environmental Complaint or any formal
request from any Governmental Authority for information (other than requirements
for compliance reports) regarding any Release of Hazardous Substances by the
Borrower or from, affecting, or related to any Property of the Borrower, the
effect of which could reasonably be expected to have a Material Adverse Effect;
(e) any actual, proposed, or threatened testing or other investigation by any
Governmental Authority concerning the environmental condition of, or relating
to, any Property of the Borrower following any allegation of a violation of any
Requirement of Law, the effect of which could reasonably be expected to have a
Material Adverse Effect;
(f) any Release of Hazardous Substances by the Borrower or from, affecting, or
related to any Property of the Borrower except in accordance with applicable
<PAGE>
Requirements of Law or the terms of a valid permit, license, certificate, or
approval of the relevant Governmental Authority, or the violation of any
Environmental Law, or the revocation, suspension, or forfeiture of or failure to
renew, any permit, license, registration, approval, or authorization which could
reasonably be expected to have a Material Adverse Effect;
(g) any Reportable Event or imminently expected Reportable Event with respect
to any Plan; any withdrawal from, or the termination, Reorganization or
Insolvency of, any Multiemployer Plan; the institution of proceedings or the
taking of any other action by the PBGC, the Borrower, the Guarantor or any
Commonly Controlled Entity or Multiemployer Plan with respect to the withdrawal
from, or the termination, Reorganization or Insolvency of, any Single Employer
Plan or Multiemployer Plan; or any Prohibited Transaction in connection with any
Plan or any trust created thereunder, the effect of which could reasonably be
expected to have a Material Adverse Effect, and the action being taken by the
Internal Revenue Service with respect thereto;
(h) any other event or condition which could reasonably be expected to have a
Material Adverse Effect; and
(i) the failure of any Credit Account to be paid within 5 days from the due
date expressed in the related invoice.
5.6 Additional Information. Furnish to the Lender, within five days after any
material report (other than financial statements) or other communication is sent
by the Borrower, the Guarantor, or any Subsidiary of the Guarantor to its
stockholders (in their capacity as stockholders) or filed by the Borrower, the
Guarantor, or any Subsidiary of the Guarantor with the Securities and Exchange
Commission or any successor or analogous Governmental Authority, copies of such
report or communication and, promptly upon the request
<PAGE>
of the Lender, such additional financial or other information concerning the
assets, liabilities, operations, and transactions of the Borrower as the Lender
may from time to time request; and notify the Lender not less than ten Business
Days prior to the occurrence of any condition or event that may change the
proper location for the filing of any financing statement or other public notice
or recording for the purpose of perfecting a Lien in any Collateral, including,
without limitation, any change in (a) its name, (b) the location of its
principal place of business or chief executive office, or (c) the location of
any Inventory to a state other than Florida, Louisiana, Mississippi, or Texas in
an aggregate amount in excess of $350,000; and upon the request of the Lender,
execute such additional Security Instruments as may be necessary or appropriate
in connection therewith.
5.7 Compliance with Laws. Except to the extent the failure to comply or cause
compliance would not have a Material Adverse Effect, (a) comply with all
applicable Requirements of Law, including, without limitation, (i) the Natural
Gas Policy Act of 1978, as amended, (ii) ERISA, (iii) Environmental Laws, and
(iv) all permits, licenses, registrations, approvals, and authorizations (A)
related to any natural or environmental resource or media located on, above,
within, in the vicinity of, related to or affected by any Property of the
Borrower, (B) required for the performance of the operations of the Borrower, or
(C) applicable to the use, generation, handling, storage, treatment, transport,
or disposal of any Hazardous Substances; and (b) cause all employees, crew
members, agents, contractors, subcontractors, and future lessees (pursuant to
appropriate lease provisions) of the Borrower, while such Persons are acting
within the scope of their relationship with the Borrower, to comply with all
such Requirements of Law as may be necessary or appropriate to enable the
Borrower to so comply.
5.8 Payment of Assessments and Charges. Pay all taxes, assessments,
governmental charges, rent, and other Indebtedness which, if unpaid, might
become a Lien against the Property of the Borrower, except any of the foregoing
being contested in good faith and as to which adequate reserve in accordance
with GAAP has been established or unless failure to pay would not have a
Material Adverse Effect; and provide evidence satisfactory to the Lender of the
payment by the Guarantor of its obligations to the Department of Energy promptly
after the making of each such payment by the Guarantor.
5.9 Maintenance of Corporate Existence and Good Standing. Maintain its
corporate existence or qualification and good standing in its jurisdictions of
incorporation and in all jurisdictions wherein the Property now owned or
hereafter acquired or business now or hereafter conducted necessitates same
except to the extent the failure to do so would not have a Material Adverse
Effect.
5.10 Further Assurances. Promptly cure any defects in the execution and
delivery of any of the Loan Documents and all agreements contemplated thereby,
and execute, acknowledge, and deliver such other assurances and instruments and
take such action as shall, in the opinion of the Lender, be necessary to fulfill
the terms of the Loan Documents and to perfect and maintain the perfection of
the Liens on the Collateral.
5.11 Initial Fees and Expenses of Counsel to Lender. Upon request by the
Lender, promptly reimburse the Lender for all reasonable
<PAGE>
fees and expenses of Jackson & Walker, L.L.P., special counsel to the Lender, in
connection with the preparation of this Agreement and all documentation
contemplated hereby, the satisfaction of the conditions precedent set forth
herein, the filing and recordation of Security Instruments, and the consummation
of the transactions contemplated in this Agreement.
5.12 Subsequent Fees and Expenses of Lender. Within five days of the request by
the Lender, reimburse the Lender (to the fullest extent permitted by law) for
all amounts reasonably expended, advanced, or incurred by or on behalf of the
Lender (excluding overhead and internal charges of the Lender) to satisfy any
obligation of the Borrower under any of the Loan Documents; to collect the
Obligations; to ratify, amend, restate, or prepare additional Loan Documents, as
the case may be; for the filing and recordation of Security Instruments; to
enforce the rights of the Lender under any of the Loan Documents; and to protect
the Properties or business of the Borrower and the Guarantor, including, without
limitation, the Collateral, which amounts shall be deemed compensatory in nature
and liquidated as to amount upon notice to the Borrower by the Lender and which
amounts shall include, but not be limited to (a) all court costs, (b) reasonable
attorneys' fees, (c) reasonable fees and expenses of auditors and accountants
incurred to protect the interests of the Lender, (d) fees and expenses incurred
in connection with the participation by the Lender as a member of the creditors'
committee in a case commenced under any Insolvency Proceeding, (e) fees and
expenses incurred in connection with lifting the automatic stay prescribed in
362 Title 11 of the United States Code, and (f) fees and expenses incurred in
connection with any action pursuant to 1129 Title 11 of the United States Code
all reasonably incurred by the Lender in connection with the collection of any
sums due under the Loan Documents, together with interest at the per annum
interest rate equal to the Floating Rate, calculated on a basis of a calendar
year of 365 or 366 days, as the case may be, counting the actual number of days
elapsed, on each such amount from the date of notification that the same was
expended, advanced, or incurred by the Lender until the date it is repaid to the
Lender, with the obligations under this Section surviving the non-assumption of
this Agreement in a case commenced under any Insolvency Proceeding and being
binding upon the Borrower and/or a trustee, receiver, custodian, or liquidator
of the Borrower appointed in any such case.
5.13 Maintenance and Inspection of Properties. Maintain all of its tangible
Properties in good repair and condition, ordinary wear and tear excepted, make
all necessary replacements thereof, and operate such Properties in a good and
workmanlike manner unless the failure to do so would not have a Material Adverse
Effect; and permit any authorized representative of the Lender to visit
<PAGE>
and inspect, at the expense of the Borrower, any tangible Property of the
Borrower.
5.14 Maintenance of Insurance. Maintain insurance with respect to its
Properties and businesses against such liabilities, casualties, risks, and
contingencies as is customary in the relevant industry and sufficient to prevent
a Material Adverse Effect, all such insurance to be in amounts and from insurers
acceptable to the Lender and naming the Lender as loss payee, and, upon any
renewal of any such insurance and at other times upon request by the Lender,
furnish to the Lender evidence, satisfactory to the Lender, of the maintenance
of such insurance. The Lender shall have the right to collect, and the Borrower
hereby assigns to the Lender, any and all monies that may become payable under
any policies of insurance relating to business interruption or by reason of
damage, loss, or destruction of any of the Properties of the Borrower. In the
event of any damage, loss, or destruction for which insurance proceeds relating
to business interruption or Properties of the Borrower exceed $250,000, the
Lender may, at its option, apply all such sums or any part thereof received by
it toward the payment of the Obligations, whether matured or unmatured,
application to be made first to interest and then to principal, and shall
deliver to the Borrower the balance, if any, after such application has been
made. In the event of any such damage, loss, or destruction for which insurance
proceeds are $250,000 or less, provided that no Default or Event of Default has
occurred and is continuing, the Lender shall deliver any such proceeds received
by it to the Borrower. In the event the Lender receives insurance proceeds not
attributable to Properties or business interruption, the Lender shall deliver
any such proceeds to the Borrower.
5.15 Maintenance of Operating Accounts. Maintain its primary operating accounts
with the Lender.
5.16 Indemnification. Indemnify and hold the Lender and its shareholders,
officers, directors, employees, agents, attorneys-in-fact, and affiliates
harmless from and against any and all claims, losses, damages, liabilities,
fines, penalties, charges, administrative and judicial proceedings and orders,
judgments, remedial actions, requirements and enforcement actions of any kind,
and all costs and expenses incurred in connection therewith (including, without
limitation, attorneys' fees and expenses), arising directly or indirectly, in
whole or in part, from (a) the presence of any Hazardous Substances on, under,
or from any Property of the Borrower, whether prior to or during the term
hereof, (b) any activity carried on or undertaken on or off any Property of the
Borrower, whether prior to or during the term hereof, and whether by the
Borrower or any predecessor in title, employee, agent, contractor, or
subcontractor of the
<PAGE>
Borrower or any other Person at any time occupying or present on such Property,
in connection with the handling, treatment, removal, storage, decontamination,
cleanup, transportation, or disposal of any Hazardous Substances at any time
located or present on or under such Property, (c) any residual contamination on
or under any Property of the Borrower, (d) any contamination of any Property or
natural resources arising in connection with the generation, use, handling,
storage, transportation or disposal of any Hazardous Substances by the Borrower
or any employee, agent, contractor, or subcontractor of the Borrower while such
Persons are acting within the scope of their relationship with the Borrower,
irrespective of whether any of such activities were or will be undertaken in
accordance with applicable Requirements of Law, or (e) the performance and
enforcement of any Loan Document, any allegation by any beneficiary of a Letter
of Credit of a wrongful dishonor by the Lender of a claim or draft presented
thereunder, or any other act or omission in connection with or related to any
Loan Document or the transactions contemplated thereby, including, without
limitation, any of the foregoing in this Section arising from negligence,
whether sole or concurrent, on the part of the Lender or any of its
shareholders, officers, directors, employees, agents, attorneys-in-fact, or
affiliates, but excluding any of the foregoing in this Section arising from the
gross negligence or willful misconduct of the Lender; with the foregoing
indemnity surviving satisfaction of all Obligations and the termination of this
Agreement.
ARTICLE VI
NEGATIVE COVENANTS
So long as any Obligation remains outstanding or unpaid or any Commitment
exists, the Borrower will not:
6.1 Indebtedness. Create, incur, assume, or suffer to exist, or permit any
Subsidiary of the Borrower to create, incur, assume, or suffer to exist, any
Indebtedness, whether by way of loan or otherwise; provided, however, the
foregoing restriction shall not apply to (a) the Obligations, (b) accounts
payable incurred in the ordinary course of business, which are not unpaid in
excess of 60 days beyond invoice date or are being contested in good faith and
as to which such reserve as is required by GAAP has been made, or (c) crude oil,
natural gas, or other hydrocarbon swap agreements.
6.2 Contingent Obligations. Create, incur, assume, or suffer to exist, or
permit any Subsidiary of the Borrower to create, incur, assume, or suffer to
exist, any Contingent Obligation; provided, however, the foregoing restriction
shall not apply to
<PAGE>
(a) performance guarantees, performance surety or other bonds provided in the
ordinary course of business, (b) indemnity obligations incurred in the ordinary
course of business so long as such obligations do not cover the primary
obligation of any Affiliate of the Borrower or any Subsidiary, or (c) trade
credit incurred or operating leases entered into in the ordinary course of
business.
6.3 Liens. Create, incur, assume, or suffer to exist any Lien on any of its
Property, whether now owned or hereafter acquired, or its capital stock;
provided, however, the foregoing restrictions shall not apply to Permitted
Liens.
6.4 Sales of Assets. Without the prior written consent of the Lender, sell,
transfer, or otherwise dispose of, in one or any series of transactions within
any 12-month period, assets, whether now owned or hereafter acquired, the
aggregate book value of which exceeds $1,000,000, or enter into any agreement to
do so; provided, however, the foregoing restriction shall not apply to (a) the
sale of hydrocarbons or Inventory in the ordinary course of business, (b) the
sale of crude oil pursuant to forward sales agreements, or (c) the sale or other
disposition of Property destroyed, lost, worn out, damaged, or having only
salvage value or no longer used or useful in the business of the Borrower or the
Guarantor.
6.5 Loans or Advances. Make or agree to make or allow to remain outstanding,
or permit any Subsidiary or other Affiliate of the Borrower to make or agree to
make or allow to remain outstanding, any loans or advances to any Person;
provided, however, the foregoing restrictions shall not apply to (a) advances or
extensions of credit in the form of accounts receivable incurred in the ordinary
course of business and upon terms common in the industry for such accounts
receivable, or (b) so long as no Default or Event of Default exists, loans or
advances in the ordinary course of business to the Guarantor or any wholly-owned
Subsidiary of the Guarantor.
6.6 Investments. Acquire Investments in, or purchase or otherwise acquire all
or substantially all of the assets of, or permit any Subsidiary of the Borrower
to acquire Investments in, or purchase or otherwise acquire all or substantially
all of the assets of, any Person.
6.7 Dividends and Distributions. Declare, pay, or make, whether in cash or
Property of the Borrower, any dividend or distribution on, or purchase, redeem,
or otherwise acquire for value, any share of any class of its capital stock at
any time that (a) a Default or Event of Default exists or will occur as the
result of the payment of such dividend or distribution, or (b) the L/C
<PAGE>
Exposure exceeds the lesser of the Facility Amount or the Borrowing Base then in
effect.
6.8 Issuance of Stock; Changes in Corporate Structure. Issue or agree to issue
additional shares of capital stock, in one or any series of transactions, to any
Person other than the Guarantor; enter into any transaction of consolidation,
merger, or amalgamation; liquidate, wind up, or dissolve (or suffer any
liquidation or dissolution).
6.9 Transactions with Affiliates. Directly or indirectly, enter into any
material transaction (including the sale, lease, or exchange of Property or the
rendering of service) with any of its Affiliates, other than upon fair and
reasonable terms no less favorable than could be obtained in an arm's length
transaction with a Person which was not an Affiliate.
6.10 Lines of Business. Expand, on its own or through any Subsidiary, into any
line of business other than gathering, transportation and marketing of crude oil
and condensate.
6.11 ERISA Compliance. Permit any Plan maintained by it or any Commonly
Controlled Entity to (a) engage in any Prohibited Transaction, the effect of
which would have a Material Adverse Effect, (b) incur any "accumulated funding
deficiency," as such term is defined in Section 302 of ERISA, or (c) terminate
in a manner which could result in the imposition of a Lien on any Property of
the Borrower pursuant to Section 4068 of ERISA; or assume an obligation to
contribute to any Multiemployer Plan; or acquire any Person or the assets of any
Person which has now or has had at any time an obligation to contribute to any
Multiemployer Plan.
6.12 Tangible Net Worth. Permit Tangible Net Worth to be less than $4,000,000
at any time.
6.13 Futures Contracts. Enter into or permit to exist, or permit any Subsidiary
of the Borrower to enter into or permit to exist, any fixed price futures
contracts, the obligations of the Borrower under which are not covered by
hedging agreements, at any one time outstanding in excess of, in the aggregate,
$2,000,000.
ARTICLE VII
EVENTS OF DEFAULT
7.1 Enumeration of Events of Default. Any of the following events shall
constitute an Event of Default:
<PAGE>
(a) default shall be made in the payment when due of any Reimbursement
Obligation or in the payment when due of any fee or other sum payable under any
Loan Document and, with respect to the payment of fees only, such default shall
continue for three days;
(b) default shall be made by the Borrower or the Guarantor in the due
observance or performance of any of their respective obligations under the Loan
Documents, and, with respect to the observance or performance of obligations of
the Borrower pursuant to Sections 5.1, 5.2, 5.3, 5.4, 5.5(d), (e), (f) or (g),
5.6, 5.13, 5.14, 6.1(b), 6.10, or 6.14 and obligations of the Guarantor pursuant
to Sections 4.1, 4.2(d), 4.2(e), 4.2(f), 4.2(g), 4.3, 5.12, 5.13, 5.14, or 5.15
of the Guaranty only, such default shall continue for 30 days after the earlier
of notice thereof to the Borrower by the Lender or knowledge thereof by the
Borrower or the Guarantor;
(c) any representation or warranty made by the Borrower or the Guarantor in any
of the Loan Documents proves to have been untrue in any material respect or any
representation, statement (including Financial Statements), certificate, or data
furnished or made to the Lender in connection herewith proves to have been
untrue in any material respect as of the date the facts therein set forth were
stated or certified;
(d) default shall be made by the Borrower or the Guarantor (as principal or
guarantor or other surety) in the payment of any Indebtedness for borrowed
money, capitalized leases, or owing to the Department of Energy, and such
default shall remain unremedied for in excess of the period of grace, if any,
with respect thereto;
(e) either the Borrower or the Guarantor shall (i) apply for or consent to the
appointment of a receiver, trustee, or liquidator of it or all or a substantial
part of its assets, (ii) file a voluntary petition commencing an Insolvency
Proceeding, (iii) make a general assignment for the benefit of creditors,
(iv) be unable, or admit in writing its inability, to pay its debts generally as
they become due, or (v) file an answer admitting the material allegations of a
petition filed against it in any Insolvency Proceeding;
(f) an order, judgment, or decree shall be entered against either the Borrower
or the Guarantor by any court of competent jurisdiction or by any other duly
authorized authority, on the petition of a creditor or otherwise, granting
relief in any Insolvency Proceeding or approving a petition seeking
reorganization or an arrangement of its debts or appointing a receiver, trustee,
conservator, custodian, or liquidator of it or all or any substantial part of
its assets, and such order,
<PAGE>
judgment, or decree shall not be dismissed or stayed within 30 days;
(g) the levy against any significant portion of the Property of the Borrower or
the Guarantor, or any execution, garnishment, attachment, sequestration, or
other writ or similar proceeding which is not permanently dismissed or
discharged within 30 days after the levy;
(h) a final and non-appealable order, judgment, or decree shall be entered
against the Borrower or the Guarantor for money damages and/or Indebtedness due
in an amount in excess of $1,000,000, and such order, judgment, or decree shall
not be dismissed or stayed or paid within 30 days; provided, however, this Event
of Default shall not be applicable to the outstanding judgment in favor of Donna
Refinery Partners, Ltd. up to the aggregate amount of $1,900,000;
(i) either the Borrower or the Guarantor shall have (i) concealed, removed, or
diverted, or permitted to be concealed, removed, or diverted, any part of its
Property, with intent to hinder, delay, or defraud its creditors or any of them,
(ii) made or suffered a transfer of any of its Property which may be fraudulent
under any bankruptcy, fraudulent conveyance, or similar law, (iii) made any
transfer of its Property to or for the benefit of a creditor at a time when
other creditors similarly situated have not been paid, or (iv) shall have
suffered or permitted, while insolvent, any creditor to obtain a Lien upon any
of its Property through legal proceedings or distraint which is not vacated
within 30 days from the date thereof;
(j) any Security Instrument shall for any reason not, or cease to, create valid
and perfected first-priority Liens against the Collateral purportedly covered
thereby;
(k) any Person shall engage in any "prohibited transaction" (as defined in
Section 406 of ERISA or Section 4975 of the Code) involving any Plan, the effect
of which would have a Material Adverse Effect; any "accumulated funding
deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall
exist with respect to any Plan for which an excise tax is due or would be due in
the absence of a waiver; a Reportable Event shall occur with respect to, or
proceedings shall commence to have a trustee appointed, or a trustee shall be
appointed, to administer or to terminate, any Single Employer Plan, which
Reportable Event or commencement of proceedings or appointment of a trustee is,
in the reasonable opinion of the Lender, likely to result in the termination of
such Plan for purposes of Title IV of ERISA; any Single Employer Plan shall
terminate for purposes of Title IV of ERISA; the Borrower, the Guarantor or any
Commonly Controlled Entity shall incur, or in the reasonable opinion of the
Lender, be likely to incur any liability in connection with a withdrawal from,
<PAGE>
or the Insolvency or Reorganization of, a Multiemployer Plan; or any other event
or condition shall occur or exist with respect to a Plan and the result of such
events or conditions referred to in this Section 7.1(l) could subject the
Borrower, the Guarantor or any Commonly Controlled Entity to any tax (other than
an excise tax under Section 4980 of the Code), penalty or other liabilities
which taken in the aggregate would have a Material Adverse Effect and any such
circumstance shall exist for in excess of 30 days;
(l) the Guarantor shall cease to own all of the outstanding capital stock of
any class issued by the Borrower;
(m) default shall be made by the Borrower in the payment when due of any
purchase price for crude oil payable to the beneficiary of any Letter of Credit;
or
(n) the Guarantor shall fail to execute and deliver, or cause to be executed
and delivered, to the Lender the Guaranty, the Stock Pledge, and all other
documents, certificates, resolutions, opinions of counsel, and agreements
requested by the Lender in connection therewith on or before February 15, 1995;
or
(o) the occurrence of a Material Adverse Effect and the same shall remain
unremedied for in excess of 30 days after notice given by the Lender.
7.2 Remedies.
(a) Upon the occurrence of an Event of Default specified in Sections 7.1(e) or
(f), immediately and without notice, (i) all Obligations shall automatically
become immediately due and payable, without presentment, demand, protest, notice
of protest, default, or dishonor, notice of intent to accelerate maturity,
notice of acceleration of maturity, or other notice of any kind, except as may
be provided to the contrary elsewhere herein, all of which are hereby expressly
waived by the Borrower; (ii) the Commitment shall immediately cease and
terminate unless and until reinstated by the Lender in writing; and (iii) the
Lender is hereby authorized at any time and from time to time, without notice to
the Borrower (any such notice being expressly waived by the Borrower), to set-
off and apply any and all deposits (general or special, time or demand,
provisional or final) held by the Lender and any and all other indebtedness at
any time owing by the Lender to or for the credit or account of the Borrower
against any and all of the Obligations.
(b) Upon the occurrence of any Event of Default other than those specified in
Sections 7.1(e) or (f), (i) the Lender may, by notice to the Borrower, declare
all Obligations immediately due and payable, without presentment, demand,
protest, notice of protest, default, or dishonor, notice of intent to accelerate
maturity, notice of acceleration of maturity, or other notice of any kind,
<PAGE>
except as may be provided to the contrary elsewhere herein, all of which are
hereby expressly waived by the Borrower; (ii) the Commitment shall immediately
cease and terminate unless and until reinstated by the Lender in writing; and
(iii) the Lender is hereby authorized at any time and from time to time, without
notice to the Borrower (any such notice being expressly waived by the Borrower),
to set-off and apply any and all deposits (general or special, time or demand,
provisional or final) held by the Lender and any and all other indebtedness at
any time owing by the Lender to or for the credit or account of the Borrower
against any and all of the Obligations although such Obligations may be
unmatured.
(c) Upon the occurrence of any Event of Default, the Lender may, in addition to
the foregoing in this Section, exercise any or all of its rights and remedies
provided by law or pursuant to the Loan Documents.
ARTICLE VIII
MISCELLANEOUS
8.1 Transfers; Participations. The Lender may, at any time, sell, transfer,
assign, or grant participations in the Obligations or any portion thereof;
provided, however, the Lender will not assign the Obligations or any portion
thereof without the prior consent of the Borrower, which consent will not be
unreasonably withheld. It is expressly agreed that no consents shall be
required in connection with granting participations in, or pledging to the
Federal Reserve Bank, the Obligations or any portion thereof. The Lender may
forward to each Transferee and prospective Transferee all documents and
information relating to such Obligations, whether furnished by the Borrower or
otherwise obtained, as the Lender determines necessary or desirable. The
Borrower agrees that each Transferee, regardless of the nature of any transfer
to it, may exercise all rights (including, without limitation, rights of
set-off) with respect to the portion of the Obligations held by it as fully as
if such Transferee were the direct holder thereof, subject to any agreements
between such Transferee and the transferor to such Transferee.
8.2 Survival of Representations, Warranties, and Covenants. All
representations and warranties of the Borrower and all covenants and agreements
herein made shall survive the execution and delivery of the Letter of Credit
Applications and the Security Instruments and shall remain in force and effect
so long as any Obligation is outstanding or any Commitment exists.
8.3 Notices and Other Communications. Except as to verbal notices expressly
authorized herein, which verbal notices shall be
<PAGE>
confirmed in writing, all notices, requests, and communications hereunder shall
be in writing (including by telecopy). Unless otherwise expressly provided
herein, any such notice, request, demand, or other communication shall be deemed
to have been duly given or made when delivered by hand, or, in the case of
delivery by mail, when deposited in the mail, certified mail, return receipt
requested, postage prepaid, or, in the case of telecopy notice, when receipt
thereof is acknowledged orally or by written confirmation report, addressed as
follows:
(a) if to the Lender, to:
Bank One, Texas, N.A.
910 Travis
Houston, Texas 77002
Attention: Energy Group
(or for notice by mail, to:
P. O. Box 2629
Houston, Texas 77252-2629
Attention: Energy Group)
Telecopy: (713) 751-3544
(b) if to the Borrower, to:
Howell Crude Oil Company
1111 Fannin, Suite 1500
Houston, Texas 77002
Attention: Allyn Skelton
Telecopy: (713) 658-4007
Any party may, by proper written notice hereunder to the others, change the
individuals or addresses to which such notices to it shall thereafter be sent.
8.4 Parties in Interest. Subject to the restrictions on changes in corporate
structure set forth in Section 6.8 and other applicable restrictions contained
herein, all covenants and agreements herein contained by or on behalf of the
Borrower or the Lender shall be binding upon and inure to the benefit of the
Borrower or the Lender, as the case may be, and their respective legal
representatives, successors, and assigns.
8.5 Rights of Third Parties. All provisions herein are imposed solely and
exclusively for the benefit of the Lender and the Borrower. No other Person
shall have any right, benefit, priority, or interest hereunder or as a result
hereof or have standing to require satisfaction of provisions hereof in
accordance with their terms, and any or all of such provisions may be freely
waived in whole or in part by the Lender at any time if in its sole discretion
it deems it advisable to do so.
<PAGE>
8.6 No Waiver; Rights Cumulative. No course of dealing on the part of the
Lender, its officers or employees, nor any failure or delay by the Lender with
respect to exercising any of its rights under any Loan Document shall operate as
a waiver thereof. The rights of the Lender under the Loan Documents shall be
cumulative and the exercise or partial exercise of any such right shall not
preclude the exercise of any other right. The issuance of a Letter of Credit
shall not constitute a waiver of any of the covenants, warranties, or
conditions of the Borrower contained herein. In the event the Borrower is
unable to satisfy any such covenant, warranty, or condition, the issuance of a
Letter of Credit shall not have the effect of precluding the Lender from
thereafter declaring such inability to be an Event of Default as hereinabove
provided.
8.7 Survival Upon Unenforceability. In the event any one or more of the
provisions contained in any of the Loan Documents or in any other instrument
referred to herein or executed in connection with the Obligations shall, for any
reason, be held to be invalid, illegal, or unenforceable in any respect, such
invalidity, illegality, or unenforceability shall not affect any other provision
of any Loan Document or of any other instrument referred to herein or executed
in connection with such Obligations.
8.8 Amendments; Waivers. Neither this Agreement nor any provision hereof may
be amended, waived, discharged, or terminated orally, but only by an instrument
in writing signed by the party against whom enforcement of the amendment,
waiver, discharge, or termination is sought.
8.9 Controlling Agreement. In the event of a conflict between the provisions
of this Agreement and those of any other Loan Document, the provisions of this
Agreement shall control.
8.10 Disposition of Collateral. Notwithstanding any term or provision, express
or implied, in any of the Security Instruments, the realization, liquidation,
foreclosure, or any other disposition on or of any or all of the Collateral
shall be in the order and manner and determined in the sole discretion of the
Lender; provided, however, that in no event shall the Lender violate applicable
law or exercise rights and remedies other than those provided in such Security
Instruments or otherwise existing at law or in equity.
8.11 GOVERNING LAW. THIS AGREEMENT, THE LETTER OF CREDIT APPLICATIONS, AND THE
GUARANTY SHALL BE DEEMED TO BE CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING
EFFECT TO PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW; PROVIDED,
<PAGE>
HOWEVER, THAT VERNON'S TEXAS CIVIL STATUTES, ARTICLE 5069, CHAPTER 15 (WHICH
REGULATES CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRIPARTY
ACCOUNTS) SHALL NOT APPLY.
8.12 JURISDICTION AND VENUE. ALL ACTIONS OR PROCEEDINGS WITH RESPECT TO,
ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO, OR FROM
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE LITIGATED, AT THE SOLE
DISCRETION AND ELECTION OF THE LENDER, IN COURTS HAVING SITUS IN HOUSTON, HARRIS
COUNTY, TEXAS. THE BORROWER HEREBY SUBMITS TO THE JURISDICTION OF ANY LOCAL,
STATE, OR FEDERAL COURT LOCATED IN HOUSTON, HARRIS COUNTY, TEXAS, AND HEREBY
WAIVES ANY RIGHTS IT MAY HAVE TO TRANSFER OR CHANGE THE JURISDICTION OR VENUE OF
ANY LITIGATION BROUGHT AGAINST IT BY THE LENDER IN ACCORDANCE WITH THIS SECTION.
8.13 WAIVER OF RIGHTS TO JURY TRIAL. THE BORROWER AND THE LENDER HEREBY
KNOWINGLY, VOLUNTARILY, INTENTIONALLY, IRREVOCABLY, AND UNCONDITIONALLY WAIVE
ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING, COUNTERCLAIM, OR
OTHER LITIGATION THAT RELATES TO OR ARISES OUT OF ANY OF THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT OR THE ACTS OR OMISSIONS OF THE LENDER IN THE ENFORCEMENT OF
ANY OF THE TERMS OR PROVISIONS OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR
OTHERWISE WITH RESPECT THERETO. THE PROVISIONS OF THIS SECTION ARE A MATERIAL
INDUCEMENT FOR THE LENDER ENTERING INTO THIS AGREEMENT.
8.14 ENTIRE AGREEMENT. THIS AGREEMENT AMENDS, RESTATES, AND REPLACES THE
EXISTING CREDIT AGREEMENT AND CONSTITUTES THE ENTIRE AGREEMENT BETWEEN THE
PARTIES HERETO WITH RESPECT TO THE SUBJECT HEREOF AND SHALL SUPERSEDE ANY PRIOR
AGREEMENT BETWEEN THE PARTIES HERETO, WHETHER WRITTEN OR ORAL, RELATING TO THE
SUBJECT HEREOF, INCLUDING, WITHOUT LIMITATION, THE EXISTING CREDIT AGREEMENT AND
THE CORRESPONDENCE DATED DECEMBER 11, 1992, FROM THE LENDER TO THE GUARANTOR AND
THE TERM SHEET ENCLOSED THEREWITH. FURTHERMORE, IN THIS REGARD, THIS AGREEMENT
AND THE OTHER WRITTEN LOAN DOCUMENTS REPRESENT, COLLECTIVELY, THE FINAL
AGREEMENT AMONG THE PARTIES THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF SUCH PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS AMONG SUCH PARTIES.
8.15 Counterparts. For the convenience of the parties, this Agreement may be
executed in multiple counterparts, each of which for all purposes shall be
deemed to be an original, and all such counterparts shall together constitute
but one and the same Agreement.
IN WITNESS WHEREOF, this Agreement is deemed executed effective as of
the date first above written.
<PAGE>
BORROWER:
HOWELL CRUDE OIL COMPANY
By: /s/ Mark J. Gorman
Printed Name: Mark J. Gorman
Title: President
LENDER:
BANK ONE, TEXAS, N.A.
By:/s/ Stephen M. Smith
Stephen M. Smith
Vice President
EXHIBIT 10.39
SECURITY AGREEMENT
BETWEEN
HOWELL CRUDE OIL COMPANY
(DEBTOR)
AND
BANK ONE, TEXAS, NATIONAL ASSOCIATION
(SECURED PARTY)
December 23, 1994
LETTER OF CREDIT FACILITY TO HOWELL CRUDE OIL COMPANY
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS AND INTERPRETATION 1
1.1 Terms Defined Above 1
1.2 Terms Defined in Credit Agreement 1
1.3 Additional Defined Terms 1
1.4 Undefined Financial Accounting Terms 3
1.5 References. 4
1.6 Articles and Sections 4
1.7 Number and Gender 4
ARTICLE II GRANT OF SECURITY INTEREST 4
ARTICLE III REPRESENTATIONS AND WARRANTIES 5
3.1 Validity, Perfection and Priority 5
3.2 No Liens; Other Financing Statements 5
3.3 Location of Debtor and Collateral 5
3.4 Accounts 6
3.5 Tradenames; Prior Names 6
3.6 Inventory not Covered by Documents 6
ARTICLE IV COVENANTS 6
4.1 Further Assurances 6
4.2 Change of Chief Executive Office 7
4.3 Change of Name or Corporate Structure 7
4.4 Maintain Records and Accounts 8
4.5 Right of Inspection 8
4.6 Possession of Collateral 8
4.7 Financing Statement Filings; Notifications 8
ARTICLE V ACCOUNTS 9
5.1 Debtor Remains Liable under Accounts 9
5.2 Collections on Accounts 9
ARTICLE VI POWER OF ATTORNEY 9
6.1 Appointment as Attorney-in-Fact 9
6.2 No Duty on the Part of Secured Party 11
ARTICLE VII REMEDIES; RIGHTS UPON DEFAULT 11
7.1 Rights and Remedies Generally 11
7.2 Proceeds 12
7.3 Collection of Accounts 12
7.4 Disposition of Collateral 12
7.5 Debtor's Accounts 13
7.6 Possession of Collateral 13
7.7 Disposition of the Collateral 13
7.8 Recourse 14
7.9 Expenses; Attorneys' Fees 15
7.10 Application of Proceeds 15
7.11 Limitation on Duties Regarding Preservation
of Collateral 15
7.12 Waiver of Claims 15
7.13 Discontinuance of Proceedings 16
ARTICLE VIII INDEMNITY 16
8.1 INDEMNITY 16
8.2 Indemnity Obligations Secured by Collateral;
Survival 17
ARTICLE IX MISCELLANEOUS 18
9.1 No Waiver; Remedies Cumulative 18
9.2 Termination; Release 18
9.3 Counterparts 18
9.4 Marshalling 18
9.5 Severability 18
9.6 Financing Statement Filing 19
9.7 Notices and Other Communications 19
9.8 Parties in Interest 19
9.9 Amendments 19
9.10 ENTIRE AGREEMENT 19
9.11 GOVERNING LAW 19
9.12 JURISDICTION AND VENUE 19
9.13 WAIVER OF RIGHTS TO JURY TRIAL 20
<PAGE>
SECURITY AGREEMENT
This SECURITY AGREEMENT (this "Agreement"), dated as of December 23,
1994, is between HOWELL CRUDE OIL COMPANY, a Delaware corporation (the
"Debtor"), and BANK ONE, TEXAS, NATIONAL ASSOCIATION, a national banking
association (the "Secured Party").
W I T N E S S E T H:
WHEREAS, pursuant to the terms and conditions of the Credit Agreement
dated of even date herewith, by and between the Debtor and the Secured Party (as
amended, restated, or supplemented from time to time, the "Credit Agreement"),
the Secured party has agreed to issue Letters of Credit for the account of the
Debtor; and
WHEREAS, pursuant to the terms of the Credit Agreement and as an
inducement to the Secured Party to issue letters of credit for the account of
the Debtor pursuant to the Credit Agreement, the Debtor has agreed to execute
this Agreement in favor of the Secured Party;
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Debtor hereby agrees with the Secured Party as follows:
DEFINITIONS AND INTERPRETATION
1.1 Terms Defined Above. As used herein, each of the terms "Agreement,"
"Credit Agreement," "Debtor," and "Secured Party" shall have the meaning
assigned to such term hereinabove.
1.2 Terms Defined in Credit Agreement. Each capitalized term used but not
defined herein shall have the meaning assigned to such term in the Credit
Agreement.
1.3 Additional Defined Terms. As used herein, each of the following terms
shall have the following meanings:
"Accounts" shall mean all accounts receivable, book debts, notes, drafts,
instruments, documents, acceptances, and other forms of obligations now owned or
hereafter received or acquired by or belonging or owing to the Debtor
(including, without limitation, under any trade names, styles, or divisions
thereto), whether arising from the sale or lease of goods or the rendition of
services or any other transaction (including, without limitation, any such
obligation which might be characterized as an account, general intangible, other
than contract rights under contracts containing prohibitions against assignment
of or the granting of a security interest in the rights of a party thereunder,
or chattel paper under the Uniform Commercial Code in effect in any
jurisdiction), and all rights of the Debtor in, to, and under all purchase
orders now owned or hereafter received or acquired by it for goods or services,
and all rights of the Debtor to any goods the sale or lease of which gave rise
to any of the foregoing (including, without limitation, returned or repossessed
goods and rights of unpaid sellers), and all moneys due or to become due to the
Debtor under all contracts for the sale or lease of goods or the performance of
services (whether or not earned by performance) or in connection with any other
transaction, now in existence or hereafter arising, including, without
limitation, all collateral security and guarantees of any kind given by any
Person with respect to any of the foregoing.
"Account Debtor" shall mean each Person obligated on an Account, Chattel Paper,
or General Intangible.
"Account Records" shall mean (a) all original copies of all documents,
instruments, or other writings evidencing the Accounts, (b) all books,
correspondence, credit or other files, records, ledger sheets or cards,
invoices, and other papers relating to the Accounts, including, without
limitation, all tapes, cards, computer tapes, computer discs, computer runs,
record keeping systems, and other papers and documents relating to the Accounts,
whether in the possession or under the control of the Debtor or any computer
bureau or agent from time to time acting for or on behalf of the Debtor or
otherwise, (c) all evidences of the filing of financing statements and the
registration of other instruments in connection therewith and amendments,
supplements, or other modifications thereto, notices to other creditors or
secured parties, and certificates, acknowledgements, or other writings,
including, without limitation, lien search reports, from filing or other
registration offices, (d) all credit information, reports, and memoranda
relating thereto, and (e) all other written or non-written forms of information
related in any way to the foregoing or any Account.
"Chattel Paper" shall mean all chattel paper (as such term is defined in Section
9-105(a)(2) of the UCC) of the Debtor.
"Collateral" shall have the meaning assigned to it in Article II.
"General Intangibles" shall mean all general intangibles (as such term is
defined in Section 9-106 of the UCC) of the Debtor, including, without
limitation, rights to the payment of money (other than Accounts), net profit
interests, contracts, licenses, and franchises (excluding licenses and
franchises which prohibit the assignment or grant of a security interest by the
Debtor), federal income tax refunds, trade names, distributions on certificated
securities (as defined in 8-102(a)(1) of the UCC) and uncertificated securities
(as defined in 8-102(a)(2) of the UCC), computer programs and other computer
software, inventions, designs, trade secrets, goodwill, proprietary rights,
customer lists, supplier contracts, sale orders, correspondence, advertising
materials, payments due in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of any property, reversionary interests in
pension and profit-sharing plans and reversionary, beneficial and residual
interests in trusts, credits with and other claims against any Person, together
with any collateral for any of the foregoing and the rights under any security
agreement granting a security interest in such collateral.
"Indemnitees" shall mean the Secured Party and its shareholders, officers,
directors, employees, agents, attorneys-in-fact, and affiliates.
"Inventory" shall mean all inventory (as such term is defined in 9-109(4) of
the UCC) of the Debtor, including, without limitation, all goods (whether such
goods are in the possession of the Debtor or of a bailee or other Person for
sale, lease, storage, transit, processing, use or otherwise and whether
consisting of whole goods, spare parts, components, supplies, materials or
consigned or returned or repossessed goods), including, without limitation, all
such goods which are held for sale or lease or are to be furnished (or which
have been furnished) under any contract of service or which are raw materials or
work in progress or materials used or consumed in the business of the Debtor.
"Proceeds" shall mean proceeds (as such term is defined in Section 9-306(a) of
the UCC).
"Secured Obligations" shall mean the Obligations.
"UCC" shall mean the Uniform Commercial Code as in effect from time to time in
the State of Texas.
1.4 Undefined Financial Accounting Terms. Undefined financial accounting terms
used in this Agreement shall have the meanings assigned to such terms according
to GAAP.
1.5 References. The words "hereby," "herein," "hereinabove," "hereinafter,"
"hereinbelow," "hereof," "hereunder," and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not to any
particular Article, Section, or provision of this Agreement. References in this
Agreement to Articles, Sections, or Exhibits are to such Articles, Sections, or
Exhibits of this Agreement unless otherwise specified.
1.6 Articles and Sections. This Agreement, for convenience only, has been
divided into Articles and Sections; and it is understood that the rights and
other legal relations of the parties hereto shall be determined from this
instrument as an entirety and without regard to the aforesaid division into
Articles and Sections and without regard to headings prefixed to such Articles
or Sections.
1.7 Number and Gender. Whenever the context requires, reference herein made to
the single number shall be understood to include the plural; and likewise, the
plural shall be understood to include the singular. Words denoting sex shall be
construed to include the masculine, feminine and neuter, when such construction
is appropriate; and specific enumeration shall not exclude the general but shall
be construed as cumulative. Definitions of terms defined in the singular or
plural shall be equally applicable to the plural or singular, as the case may
be, unless otherwise indicated.
ARTICLE II
GRANT OF SECURITY INTEREST
As security for the prompt and complete payment and performance in full of all
Secured Obligations, the Debtor hereby assigns and transfers for the purpose of
security and pledges to the Secured Party and grants to the Secured Party a
security interest in and continuing lien on all right, title, and interest of
the Debtor in, to, and under the following, in each case, whether now owned or
existing or hereafter acquired or arising, and wherever located (all of which is
herein collectively called the "Collateral"):
(a) all Accounts;
(b) all Account Records;
(c) all Chattel Paper;
(d) all General Intangibles;
(e) all Inventory; and
(f) all accessions and additions to any or all of the foregoing, all
substitutions and replacements for any or all of the foregoing, and all
Proceeds and products of any or all of the foregoing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Debtor hereby represents and warrants to the Secured Party, which
representations and warranties shall survive execution and delivery of this
Agreement, as follows:
3.1 Validity, Perfection and Priority. The security interests in the
Collateral granted to the Secured Party hereunder constitute valid and
continuing security interests in the Collateral. Upon the filing of financing
statements, naming the Debtor as "debtor" and the Secured Party as "secured
party" and describing the Collateral, in the filing offices set forth on Exhibit
A, the security interests granted to the Secured Party hereunder will constitute
valid first-priority perfected security interests in all Collateral with respect
to which a security interest can be perfected by the filing of a financing
statement, subject only to Permitted Liens.
3.2 No Liens; Other Financing Statements.
(a) Except for the Lien granted to the Secured Party hereunder and Permitted
Liens, the Debtor owns each item of the Collateral free and clear of any and all
Liens, rights, or claims of all other Persons, and the Debtor shall defend the
Collateral against all claims and demands of all Persons at any time claiming
the same or any interest therein adverse to the Secured Party.
(b) No financing statement or other evidence of Lien covering or purporting to
cover any of the Collateral is on file in any public office other than (i)
financing statements in favor of the Secured Party, (ii) financing statements
for which proper termination statements have been delivered to the Secured Party
for filing, and (iii) financing statements filed in connection with Permitted
Liens.
3.3 Location of Debtor and Collateral. The chief executive office of the
Debtor is located at 1111 Fannin, Suite 1500, Houston, Texas 77002. The
primary copies of the Account Records are located at, and all Accounts and
General Intangibles are maintained at, and controlled and directed (including,
without limitation, for general accounting purposes) from, such chief executive
office. The Inventory is located in the states listed on Exhibit A.
3.4 Accounts.
(a) Each Account (i) is and will be, in all material respects, the genuine,
legal, valid, and binding obligation of the Account Debtor in respect thereof,
representing an unsatisfied obligation of such Account Debtor, (ii) is and will
be, in all material respects, enforceable in accordance with its terms, (iii) is
not and will not be subject to any setoffs, defenses, taxes, counterclaims
(except (A) with respect to refunds, returns, and allowances in the ordinary
course of business, and (B) to the extent that such Account may not yet have
been earned by performance), and (iv) is and will be, in all material respects,
in compliance with all applicable laws, whether federal, state, local, or
foreign.
(b) No Accounts which are evidenced by Chattel Paper require the consent of the
Account Debtor in respect thereof in connection with their assignment hereunder.
3.5 Tradenames; Prior Names. The Debtor has not conducted business under any
name other than its current name during the last five years.
3.6 Inventory not Covered by Documents. None of the Inventory, and at the time
the security interest in favor of the Secured Party attaches hereunder, none of
the Inventory hereafter acquired will be, covered by any document as defined in
the UCC (i.e., a document of title) unless such document is prepared, endorsed,
and delivered to the Secured Party in such manner so as to permit the Secured
Party, at all times while the Inventory is covered by such document, to maintain
a perfected security interest in such document and the Inventory covered
thereby. The Debtor will designate the Secured Party's security interest on all
documents and will mark its books and records to indicate such security
interest.
ARTICLE IV
COVENANTS
The Debtor covenants and agrees with the Secured Party that from and after the
date of this Agreement:
4.1 Further Assurances. At any time and from time to time, upon the request of
the Secured Party, and at the sole expense of the Debtor, the Debtor will
promptly and duly execute and deliver any and all such further instruments,
endorsements, powers of attorney, and other documents, make such filings, give
such notices, and take such further action as the Secured Party may reasonably
deem desirable in obtaining the full benefits of this Agreement and the rights,
remedies, and powers herein granted, including, without limitation, the
following:
(a) the filing of financing statements, in form acceptable to the Secured Party
under the Uniform Commercial Code in effect in any jurisdiction with respect to
the liens and security interests granted hereby;
(b) the performance of all searches of public records deemed necessary by the
Secured Party to establish and determine the priority of the security interests
of the Secured Party or to determine the presence or priority of other secured
parties; and
(c) the furnishing to the Secured Party from time to time of reports and
schedules in connection with the Collateral as required pursuant to the Credit
Agreement, all in reasonable detail and in form reasonably satisfactory to the
Secured Party.
4.2 Change of Chief Executive Office. The Debtor will not move its chief
executive office except to such new location as the Debtor may establish in
accordance with the last sentence of this Section. The originals of all Account
Records and General Intangibles will be kept at such chief executive office or
at the locations referred to in Section 3.3, or at such new locations as the
Debtor may establish in accordance with the last sentence of this Section. All
Accounts, Account Records, and General Intangibles of the Debtor will be
maintained at and controlled and directed (including, without limitation, for
general accounting purposes) from the locations referred to in Section 3.3 or
such new locations as the Debtor may establish in accordance with the last
sentence of this Section. With respect to any new location, promptly upon the
request of the Secured Party, the Debtor shall take all such action as the
Secured Party may request to maintain the security interest of the Secured Party
in the Collateral granted hereby at all times fully perfected with the same or
better priority and in full force and effect. The Debtor shall not establish a
new location for its chief executive office or such activities (or move any such
activities from the locations referred to in Section 3.3) until it shall have
given to the Secured Party not less than ten days' prior written notice of its
intention to do so, clearly describing such new location and providing such
other information in connection therewith as the Secured Party may reasonably
request.
4.3 Change of Name or Corporate Structure. The Debtor shall not change its
name or corporate structure or conduct business under any name other than its
current name without giving notice thereof to the Secured Party within ten days
thereafter, clearly describing such new name, or corporate structure or such new
tradename and providing such other information in connection therewith as the
Secured Party may reasonably request. With respect to such new name, corporate
structure, or tradename, promptly upon the request of the Secured Party, the
Debtor shall take all such action as the Secured Party may reasonably request to
maintain the security interest of the Secured Party in the Collateral granted
hereby at all times fully perfected with the same or better priority and in full
force and effect.
4.4 Maintain Records and Accounts. The Debtor will keep and maintain, or cause
to be kept and maintained, at its own cost and expense satisfactory and complete
records of the Collateral, including, but not limited to, the originals of all
documentation with respect to all Accounts and General Intangibles and records
of all payments received and all credits granted on the Accounts, all
merchandise returned, and all other dealings therewith.
4.5 Right of Inspection. The Secured Party shall upon reasonable notice to the
Debtor have full and free access during normal business hours of the Debtor to
all the books, correspondence, and records of the Debtor; and the Secured Party
and its representatives may examine the same, take extracts therefrom, and make
photocopies thereof.
4.6 Possession of Collateral. The Secured Party shall be deemed to have
possession of any of the Collateral in transit to it or set apart for it.
Otherwise the Collateral shall remain in the Debtor's constructive possession
and control at all times, at the Debtor's risk of loss, and shall (except for
sales permitted by Section 6.4 of the Credit Agreement) be kept at the locations
represented in Section 3.3.
4.7 Financing Statement Filings; Notifications. The Debtor recognizes that
financing statements pertaining to the Collateral have been or will be filed
with the offices of the Secretary of State for the States listed in Exhibit A
hereto. The Debtor will immediately notify the Secured Party of any condition
or event that may change the proper location for the filing of any financing
statement or other public notice or recording for the purpose of perfecting a
security interest in the Collateral. Without limiting the generality of the
foregoing, the Debtor will (a) notify the Secured Party within a reasonable
period of time in advance of any change to a jurisdiction other than as
represented in Section 3.3 hereof, (i) in the location of the Debtor's chief
place of business, (ii) in the location of the Inventory, (iii) in the location
of the office where the Debtor keeps its records concerning the Accounts and the
General Intangibles and the original of all the Accounts Records, or (iv) in the
"location" of the Debtor within the meaning of Section 9-103(c) of the UCC, and
(b) immediately notify Secured Party of any change in the Debtor's name. In any
notice furnished pursuant to this Section, the Debtor will expressly state that
the notice is required by this Agreement and contains facts that will or may
require additional filings of financing statements or other notices for the
purpose of continuing perfection of the Secured Party's security interest in the
Collateral.
ARTICLE V
ACCOUNTS
5.1 Debtor Remains Liable under Accounts. Anything herein to the contrary
notwithstanding (including, without limitation, the grant of any rights to the
Secured Party), the Debtor shall remain liable under each of the Accounts to
observe and perform all the conditions and obligations to be observed and
performed by it thereunder, all in accordance with the terms of any agreement
giving rise to each such Account. The Secured Party shall not have any
obligation or liability under any Account (or any agreement giving rise thereto)
by reason of or arising out of this Agreement or the receipt by the Secured
Party of any payment relating to such Account pursuant hereto, nor shall the
Secured Party be obligated in any manner to perform any of the obligations of
the Debtor under or pursuant to any Account (or any agreement giving rise
thereto), to make any payment, to make any inquiry as to the nature or the
sufficiency of any payment received by it or as to the sufficiency of any
performance by any party under any Account (or any agreement giving rise
thereto), to present or file any claim, to take any action to enforce any
performance, or to collect the payment of any amounts which may have been
assigned to it or to which it may be entitled at any time or times.
5.2 Collections on Accounts. Prior to the occurrence of an Event of Default,
the Secured Party hereby authorizes the Debtor to collect the Accounts. At any
time following and during the continuance of any Event of Default, the Secured
Party may curtail or terminate said authority at any time and itself, or by its
agents, collect all Accounts, and any payments of Accounts collected by the
Debtor shall be held by the Debtor in trust for the Secured Party, segregated
from other funds of the Debtor. All Proceeds, while held by the Secured Party
(or by the Debtor in trust for the Secured Party) shall continue to be
Collateral securing all of the Secured Obligations and shall not constitute
payment thereof until applied as hereinafter provided.
ARTICLE VI
POWER OF ATTORNEY
6.1 Appointment as Attorney-in-Fact. The Debtor hereby irrevocably constitutes
and appoints the Secured Party and any officer or agent thereof, with full power
of substitution, as its true and lawful attorney-in-fact, with full irrevocable
power and authority in the place and stead of the Debtor and in the name of the
Debtor or in its own name, from time to time in the discretion of the Secured
Party, for the purpose of carrying out the terms of this Agreement, to take any
and all appropriate action and to execute any and all documents and instruments
which may be necessary or desirable to accomplish the purposes of this
Agreement, and, without limiting the generality of the foregoing, the Debtor
hereby gives the Secured Party the power and right, on behalf of the Debtor,
without notice to or assent by the Debtor, to do the following:
(a) in the case of any Account, at any time when the authority of the Debtor to
collect the Accounts has been curtailed or terminated pursuant hereto, or in the
case of any other Collateral, at any time when any Event of Default shall have
occurred and be continuing, in the name of the Debtor or its own name, or
otherwise, to take possession of and indorse and collect any checks, drafts,
notes, acceptances, or other instruments for the payment of moneys due under, or
with respect to, any Collateral; in the name of the Debtor or otherwise to
direct any party liable for any payment under any of the Collateral to make
payment of any and all moneys due or to become due thereunder directly to the
Secured Party or as the Secured Party shall direct; to ask or demand for,
collect, receive payment of, and receipt for, any and all moneys, claims, and
other amounts due or to become due at any time in respect of or arising out of
any Collateral;
(b) at any time when an Event of Default shall have occurred and be continuing,
to prepare, sign, and file financing statements and amendments thereto in the
name of the Debtor;
(c) at any time when an Event of Default shall have occurred and be continuing,
to take or cause to be taken all actions necessary to perform or comply or cause
performance or compliance with the terms of this Agreement, including, without
limitation, actions to pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral, to effect any repairs or obtain any insurance
called for by the terms of this Agreement, and to pay all or any part of the
premiums therefor and the costs thereof;
(d) upon the occurrence and during the continuance of any Event of Default, (i)
to sign and indorse any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications, notices, and other documents in connection with any of the
Collateral, (ii) to commence and prosecute any suits, actions, or proceedings at
law or in equity in any court of competent jurisdiction to collect the
Collateral or any portion thereof and to enforce any other right in respect of
any Collateral, (iii) to defend any suit, action, or proceeding brought against
the Debtor with respect to any Collateral, (iv) to settle, compromise, or adjust
any suit, action, or proceeding described in the preceding clause and, in
connection therewith, to give such discharges or releases as the Secured Party
may deem appropriate, and (v) generally, to sell or transfer and make any
agreement with respect to or otherwise deal with any of the Collateral as fully
and completely as though the Secured Party were the absolute owner thereof for
all purposes, and to do, at the option of the Secured Party and the expense of
the Debtor, at any time, or from time to time, all acts and things which the
Secured Party deems necessary to protect, preserve, or realize upon the
Collateral and the Liens of the Secured Party thereon and to effect the intent
of this Agreement, all as fully and effectively as the Debtor might do; and
(e) at any time when an Event of Default shall have occurred and be continuing,
to execute, in connection with any foreclosure, any endorsements, assignments,
or other instruments of conveyance or transfer with respect to the Collateral.
The Debtor hereby ratifies all that said attorneys shall lawfully do or cause to
be done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable so long as any Obligation remains outstanding
or any Commitment exists. The Debtor hereby acknowledges and agrees that in
acting pursuant to this power-of-attorney the Secured Party shall be acting in
its own interest and shall have no fiduciary duties to the Debtor, and the
Debtor hereby waives any claims to the rights of a beneficiary of a fiduciary
relationship hereunder.
6.2 No Duty on the Part of Secured Party. The powers conferred on the Secured
Party hereunder are solely to protect the interests of the Secured Party in the
Collateral and shall not impose any duty upon the Secured Party to exercise any
such powers. The Secured Party shall be accountable only for amounts that it
actually receives as a result of the exercise of such powers, and, except for
its own gross negligence, neither it nor any of its officers, directors,
employees, or agents shall be responsible to the Debtor for any act or failure
to act hereunder.
ARTICLE VII
REMEDIES; RIGHTS UPON DEFAULT
7.1 Rights and Remedies Generally. If an Event of Default shall occur and be
continuing, then and in every such case, the Secured Party shall have all the
rights of a secured party under the UCC, all rights now or hereafter existing
under all other applicable laws, and, subject to any mandatory requirements of
applicable law then in effect, all rights set forth in this Agreement and the
other Loan Documents. No enumeration of rights in this Section or elsewhere in
this Agreement or in any other Loan Document or other agreement shall be deemed
to in any way limit the rights of the Secured Party as described in this
Section.
7.2 Proceeds. If an Event of Default shall occur and be continuing, in
addition to the rights of the Secured Party specified with respect to the
payment of Accounts, (a) all Proceeds received by the Debtor consisting of cash,
checks, and other near-cash items shall be held by the Debtor in trust for the
Secured Party, segregated from other funds of the Debtor, and shall forthwith
upon receipt by the Debtor, be turned over to the Secured Party, in the same
form received by the Debtor (appropriately indorsed or assigned by the Debtor to
the order of the Secured Party or in such other manner as shall be satisfactory
to the Secured Party), and (b) any and all such Proceeds received by the Secured
Party (whether from the Debtor or otherwise), or any part thereof, shall be
applied by the Secured Party as provided in Section 7.10 hereof.
7.3 Collection of Accounts. If an Event of Default shall occur and be
continuing:
(a) the Secured Party may instruct the obligor or obligors on any obligation
owing or purporting to be owed to the Debtor constituting the Collateral
(including, without limitation, the Accounts) to make any payment required by
the terms of such obligation directly to the Secured Party;
(b) the Secured Party shall have the right from time to time to modify
(including, without limitation, to extend the time for payment or arrange for
payment in installments) or waive rights under any such obligation and to
compromise or settle counterclaims or setoffs with the obligor under any such
obligation; and
(c) any and all of such proceeds of such collections paid to the Secured Party,
or any part thereof, (after deduction of the Secured Party's expenses of
collection, including, without limitation, reasonable attorneys' fees and
disbursements), shall be applied by the Secured Party as provided in Section
7.10 hereof.
7.4 Disposition of Collateral. If an Event of Default shall occur and be
continuing:
(a) the Secured Party may direct the Debtor to sell, assign, or otherwise
liquidate or dispose of all or from time to time any portion of the Collateral,
and the Debtor shall do so, and the Secured Party may take possession of the
Proceeds of such Collateral. The Secured Party may direct the Debtor to direct
that all Proceeds of such Collateral be paid directly to the Secured Party or
may permit the Proceeds of such Collateral to be paid to the Debtor and all such
Proceeds consisting of cash, checks, or near-cash items shall be held by the
Debtor in trust for the Secured Party, segregated from other funds of the Debtor
in a separate deposit account containing only Proceeds and shall forthwith upon
receipt by the Debtor, be turned over to the Secured Party, in the same form
received by the Debtor (appropriately indorsed or assigned by the Debtor to the
order of the Secured Party or in such other manner as shall be satisfactory to
the Secured Party); and
(b) any and all such Proceeds received by the Secured Party (whether from the
Debtor or otherwise), shall be applied by the Secured Party as provided in
Section 7.10 hereof.
7.5 Debtor's Accounts. If an Event of Default shall occur and be continuing,
the Secured Party may liquidate any securities held in any accounts of the
Debtor and apply the proceeds thereof and any other amounts held in any accounts
of the Debtor as provided in Section 7.10 hereof.
7.6 Possession of Collateral. If an Event of Default shall occur and be
continuing, (a) the Secured Party may, personally or by agents or attorneys,
immediately retake possession of the Collateral (including the originals of all
or any Accounts and Account Records) or any part thereof, from the Debtor or any
other Person which then has possession of any part thereof with or without
notice or judicial process, and for that purpose may enter upon the Debtor's
premises where any of the Collateral is located and remove the same and may make
reasonable use in connection with such removal of any and all services,
supplies, aids, and other facilities of the Debtor, and (b) upon three days'
notice to the Debtor, the Debtor shall, at its own expense, assemble the
Collateral, including, without limitation, the originals of all Account Records
(or from time to time any portion thereof) and make it available to the Secured
Party by delivery to the Secured Party at any location designated by the Secured
Party which is reasonably convenient to both parties, whether at the premises of
the Debtor or the Secured Party or elsewhere. The Debtor shall, at its sole
expense, store and keep any Collateral so assembled at such place or places
pending further action by the Secured Party and while the Collateral shall be so
stored and kept, provide such guards and maintenance services as shall be
reasonably necessary to protect the same and to preserve and maintain the
Collateral in good condition. The Debtor's obligation to so assemble and
deliver the Collateral is of the essence of this Agreement and, accordingly,
upon application to a court of equity having jurisdiction, the Secured Party
shall be entitled to a decree requiring specific performance by the Debtor of
such obligation.
7.7 Disposition of the Collateral. If an Event of Default shall occur and be
continuing, the Secured Party may sell, assign, lease, give an option or options
to purchase, or otherwise dispose of the Collateral (or contract to do any of
the foregoing) under one or more contracts or as an entirety, and, to the extent
permitted by applicable law, without the necessity of gathering at the place of
sale the property to be sold, at public or private sale or sales, conducted by
any officer, nominee or agent of, or auctioneer or attorney for the Secured
Party at any location of any third party conducting or otherwise involved in
such sale or any office of the Secured Party or elsewhere and in general in such
manner, at such time or times and upon such terms and conditions and at such
price as may be commercially reasonable, for cash or on credit or for future
delivery without assumption of any credit risk. Any of the Collateral may be
sold, leased, assigned, or options or contracts entered to do so, or otherwise
disposed of, in the condition in which the same existed when taken by the
Secured Party or after any overhaul or repair which may be commercially
reasonable. Any such disposition which shall be a private sale or other private
proceeding shall be made upon not less than ten days' written notice to the
Debtor specifying the time after which such disposition is to be made and the
intended sale price or other consideration therefor. Any such disposition which
shall be a public sale shall be made upon not less than ten days' written notice
to the Debtor (which the Debtor agrees to be commercially reasonable) specifying
the time and place of such sale and, in the absence of applicable requirements
of law to the contrary, shall be by public auction (which may, at the option or
the Secured Party, be subject to reserve), after publication of commercially
reasonable notice of such auction. To the extent permitted by applicable law,
the Secured Party may bid for and become the purchaser of the Collateral or any
item thereof, offered for sale in accordance with this Section without
accountability to the Debtor (except to the extent of surplus money received) as
provided below. In the payment of the purchase price of the Collateral, the
purchaser shall be entitled to have credit on account of the purchase price
thereof of amounts owing to such purchaser on account of any of the Secured
Obligations and any such purchaser may deliver notes, claims for interest, or
claims for other payment with respect to such Secured Obligations in lieu of
cash up to the amount which would, upon distribution of the net proceeds of such
sale, be payable thereon. Such notes, if the amount payable hereunder shall be
less than the amount due thereon, shall be returned to the holder thereof after
being appropriately stamped to show partial payment. Notwithstanding the
foregoing, if the Collateral or any portion thereof is perishable or threatens
to decline speedily in value or is of a type customarily sold in a recognized
market only such notice as shall be reasonably practicable shall be required.
7.8 Recourse. The Debtor shall remain liable for any deficiency if the
proceeds of any sale or other disposition of the Collateral are insufficient to
satisfy the Secured Obligations. The Debtor shall also be liable for all
reasonable expenses of the Secured Party incurred in connection with collecting
such deficiency, including, without limitation, the reasonable fees and
disbursements of any attorneys employed by the Secured Party to collect such
deficiency.
7.9 Expenses; Attorneys' Fees. The Debtor shall reimburse the Secured Party
for all its reasonable expenses in connection with the exercise of its rights
and remedies hereunder, including, without limitation, reasonable attorneys'
fees and legal expenses incurred by the Secured Party.
7.10 Application of Proceeds. The proceeds of any disposition of Collateral
shall be applied as follows:
(a) to the payment of any and all reasonable expenses and fees (including
attorneys' fees and disbursements) incurred by the Secured Party in connection
with the exercise of its rights and remedies hereunder, including, without
limitation, reasonable expenses and fees in connection with obtaining, taking
possession of, removing, holding, insuring, repairing, preparing for sale or
lease, storing and disposing of Collateral;
(b) to the satisfaction of the Secured Obligations in such order as the Secured
Party may elect; and
(c) after the indefeasible payment in full in cash of all Secured Obligations,
to the Debtor or to whomever may lawfully be entitled to receive the same or as
a court of competent jurisdiction may direct.
7.11 Limitation on Duties Regarding Preservation of Collateral. The Secured
Party's sole duty with respect to the custody, safekeeping, and physical
preservation of the Collateral in its possession, under Section 9.207 of the UCC
or otherwise, shall be to deal with it in the same manner as the Secured Party
deals with similar property for its own account. The Secured Party shall have
no obligation to take any steps to preserve rights against prior parties to any
Collateral. Except for matters constituting gross negligence, neither the
Secured Party nor any of its directors, officers, employees, or agents shall be
liable for failure to demand, collect, or realize upon all or any part of the
Collateral or for any delay in doing so or shall be under any obligation to sell
or otherwise dispose of any Collateral upon the request of the Debtor or
otherwise.
7.12 Waiver of Claims. Except as otherwise provided in this Agreement, the
Debtor hereby waives, to the extent permitted by applicable law, notice of and
judicial hearing in connection with the Secured Party's taking possession or the
Secured Party's disposition of any of the Collateral in accordance herewith,
including, without limitation, any and all prior notice and hearing for any
prejudgment remedy or remedies and any such right which the Debtor would
otherwise have under the constitution or any statute of the United States or any
state, and the Debtor hereby further waives, to the extent permitted by law:
(a) all damages occasioned by such taking of possession except any damages
which are the direct result of the gross negligence of the Secured Party;
(b) all other requirements as to the time, place, and terms of sale or other
requirements with respect to the enforcement of the rights of the Secured Party
hereunder;
(c) demand of performance or other demand, notice of intent to demand or
accelerate, notice of acceleration, presentment, protest, advertisement, or
notice of any kind to or upon the Debtor or any other Person, except as may be
required by the Credit Agreement; and
(d) all rights of redemption, appraisement, valuation, diligence, stay,
extension, or moratorium now or hereafter in force under any applicable law in
order to stay or delay the enforcement of this Agreement, including the absolute
sale of the Collateral or any portion thereof, and the Debtor, for itself and
all who may claim under it, insofar as it or they now or hereafter lawfully may,
hereby waives the benefit of all such laws.
7.13 Discontinuance of Proceedings. In case the Secured Party shall have
instituted any proceeding to enforce any right, power, or remedy under this
Agreement by foreclosure, sale, entry, or otherwise, and such proceeding shall
have been discontinued or abandoned for any reason, then and in every such case,
the Debtor and the Secured Party shall be returned to their former positions and
rights hereunder with respect to the Collateral subject to the security interest
created under this Agreement, and all rights, remedies, and powers of the
Secured Party shall continue as if no such proceeding had been instituted.
ARTICLE VII
INDEMNITY
8.1 INDEMNITY.
(a) THE DEBTOR AGREES TO INDEMNIFY, REIMBURSE, AND HOLD THE INDEMNITEES
HARMLESS FROM ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES,
CLAIMS, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES, OR DISBURSEMENTS (INCLUDING
REASONABLE ATTORNEYS' FEES AND EXPENSES) (FOR THE PURPOSES OF THIS SECTION ALL
OF THE FOREGOING ARE COLLECTIVELY CALLED "EXPENSES") OF WHATSOEVER KIND OR
NATURE WHICH MAY BE IMPOSED ON, ASSERTED AGAINST, OR INCURRED BY ANY OF SUCH
INDEMNITEES IN ANY WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT OR THE
DOCUMENTS EXECUTED IN CONNECTION HEREWITH OR IN ANY OTHER WAY CONNECTED WITH THE
ADMINISTRATION OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ENFORCEMENT OF ANY
OF THE TERMS OF OR THE PRESERVATION OF ANY RIGHTS HEREUNDER, INCLUDING, WITHOUT
LIMITATION, THOSE ARISING FROM THE NEGLIGENCE, WHETHER SOLE OR CONCURRENT, OF
ANY INDEMNITEE; PROVIDED THAT NO SUCH INDEMNITEE SHALL BE INDEMNIFIED PURSUANT
TO THIS SECTION FOR EXPENSES TO THE EXTENT ARISING FROM THE GROSS NEGLIGENCE OF
SUCH INDEMNITEE.
(b) The Debtor agrees that upon written notice by any such Indemnitee of any
assertion that could give rise to an Expense, the Debtor shall assume full
responsibility for the defense thereof. Without limiting the application of
part (a) of this Section, the Debtor agrees to pay or reimburse the Secured
Party on demand for any and all reasonable fees, costs, and expenses of whatever
kind or nature incurred in connection with the creation, preservation, or
protection of the Secured Party's Liens on, and security interests in, the
Collateral, including, without limitation, all reasonable fees and taxes in
connection with the recording or filing of instruments and documents in public
offices, payment, or discharge of any taxes or Liens or security interests upon
or in respect of the Collateral, premiums for insurance with respect to the
Collateral, all reasonable expenses incurred in the custody, preservation, use,
or operation of the Collateral when Collateral is in the Secured Party's
possession, and all other reasonable fees, costs, and expenses in connection
with protecting, maintaining, or preserving the Collateral and the Secured
Party's interest therein, whether through judicial proceedings or otherwise, or
in defending or prosecuting any actions, suits, or proceedings arising out of or
relating to the Collateral.
(c) Without limiting the application of parts (a) or (b) of this Section, the
Debtor agrees to pay, indemnify, and hold each Indemnitee harmless from and
against any Expenses which such Indemnitee may suffer, expend, or incur in
consequence of or growing out of any misrepresentation by the Debtor in this
Agreement or in any statement or writing contemplated by or made or delivered
pursuant to or in connection with this Agreement.
(d) If and to the extent that the obligations of the Debtor under this Section
are unenforceable for any reason, Debtor hereby agrees to make the maximum
contribution to the payment and satisfaction of such obligations which is
permissible under applicable law.
8.2 Indemnity Obligations Secured by Collateral; Survival. Any amounts paid by
any Indemnitee as to which such Indemnitee has the right to reimbursement shall
constitute Secured Obligations secured by the Collateral. The indemnity
obligations of the Debtor contained in this Article VIII shall continue in full
force and effect notwithstanding the full payment and performance of the Secured
Obligations and the termination of this Agreement.
ARTICLE IX
MISCELLANEOUS
9.1 No Waiver; Remedies Cumulative. No failure or delay on the part of the
Secured Party in exercising any right, power, or privilege hereunder and no
course of dealing between the Debtor and the Secured Party shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, power, or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power, or privilege. A waiver by the Secured Party
of any right or remedy hereunder on any one occasion shall not be construed as a
bar to any right or remedy which the Secured Party would otherwise have on any
future occasion. The rights and remedies herein expressly provided are
cumulative, may be exercised singly or concurrently and as often and in such
order as the Secured Party deems expedient, and are not exclusive of any rights
or remedies which the Secured Party would otherwise have whether by agreement or
now or hereafter existing under applicable law. No notice to or demand on the
Debtor in any case shall entitle the Debtor to any other or further notice or
demand in similar or other circumstances or constitute a waiver of the rights of
the Secured Party to any other or further action in any circumstances without
notice or demand.
9.2 Termination; Release. When the Secured Obligations have been indefeasibly
paid and performed in full and the Commitment has terminated, this Agreement
shall terminate, and the Secured Party, at the request and sole expense of the
Debtor, will execute and deliver to the Debtor the proper instruments (including
Uniform Commercial Code termination statements) acknowledging the termination of
this Agreement, and will duly assign, transfer, and deliver to the Debtor,
without recourse, representation, or warranty of any kind whatsoever, such of
the Collateral as may be in possession of the Secured Party and has not
theretofore been disposed of, applied, or released.
9.3 Counterparts. This Agreement may be executed in any number of counterparts
and by the different parties hereto on separate counterparts, each of which when
so executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument.
9.4 Marshalling. The Secured Party shall not be under any obligation to
marshall any assets in favor of the Debtor or any other Person or against or in
payment of any or all of the Secured Obligations.
9.5 Severability. In case any provision in or obligation under this Agreement
or the Secured Obligations shall be invalid, illegal, or unenforceable in any
jurisdiction, the validity, legality, and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
9.6 Financing Statement Filing. A photocopy or other reproduction of this
Agreement shall be sufficient as a financing statement and may be filed in lieu
of the original to the extent permitted by applicable law.
9.7 Notices and Other Communications. Except as to oral notices expressly
authorized herein, all notices, requests, and communications under this
Agreement shall be in writing (including by telecopy). Unless otherwise
expressly provided herein, any such notice, request, or communication shall be
deemed to have been duly given or made when provided in accordance with the
terms of the Credit Agreement.
9.8 Parties in Interest. This Agreement shall be binding upon and inure to the
benefit of the Debtor, the Secured Party, and their respective legal
representatives, successors, and assigns. No other Person shall have any right,
benefit, priority, or interest hereunder or as a result hereof or have standing
to require satisfaction of provisions hereof in accordance with their terms, and
any or all of such provisions may be freely waived in whole or in part by the
Secured Party at any time if the Secured Party in its sole discretion deems it
advisable to do so.
9.9 Amendments. Neither this Agreement nor any provision hereof may be
amended, supplemented, modified, discharged, or terminated orally, but only by
an instrument in writing signed by the party against whom enforcement of the
amendment, supplement, modification, discharge, or termination is sought.
9.10 ENTIRE AGREEMENT. THIS AGREEMENT CONSTITUTES THE ENTIRE AGREEMENT BETWEEN
THE PARTIES HERETO WITH RESPECT TO THE SUBJECT HEREOF AND SHALL SUPERSEDE ANY
PRIOR AGREEMENTS, WHETHER WRITTEN OR ORAL, BETWEEN THE PARTIES HERETO RELATING
TO THE SUBJECT HEREOF. FURTHERMORE, IN THIS REGARD, THIS AGREEMENT AND THE
OTHER WRITTEN LOAN DOCUMENTS REPRESENT, COLLECTIVELY, THE FINAL AGREEMENT AMONG
THE PARTIES THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF SUCH PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS AMONG SUCH PARTIES.
9.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (WITHOUT GIVING EFFECT TO
PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAWS).
9.12 JURISDICTION AND VENUE. ALL ACTIONS OR PROCEEDINGS WITH RESPECT TO,
ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO OR FROM
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT TO WHICH THE DEBTOR IS A PARTY MAY BE
LITIGATED, AT THE SOLE DISCRETION AND ELECTION OF THE SECURED PARTY, IN COURTS
HAVING SITUS IN HOUSTON, HARRIS COUNTY, TEXAS. THE DEBTOR HEREBY SUBMITS TO THE
JURISDICTION OF ANY LOCAL, STATE, OR FEDERAL COURT LOCATED IN HOUSTON, HARRIS
COUNTY, TEXAS, AND HEREBY WAIVES ANY RIGHTS IT MAY HAVE TO TRANSFER OR CHANGE
THE JURISDICTION OR VENUE OF ANY LITIGATION BROUGHT AGAINST IT BY THE SECURED
PARTY IN ACCORDANCE WITH THIS SECTION.
9.13 WAIVER OF RIGHTS TO JURY TRIAL. THE DEBTOR AND THE SECURED PARTY HEREBY
KNOWINGLY, VOLUNTARILY, INTENTIONALLY, IRREVOCABLY, AND UNCONDITIONALLY WAIVE
ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING, COUNTERCLAIM, OR
OTHER LITIGATION THAT RELATES TO OR ARISES OUT OF ANY OF THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT OR THE ACTS OR OMISSIONS OF THE SECURED PARTY IN THE
ENFORCEMENT OF ANY OF THE TERMS OR PROVISIONS OF THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT OR OTHERWISE WITH RESPECT THERETO. THE PROVISIONS OF THIS SECTION
ARE A MATERIAL INDUCEMENT FOR THE SECURED PARTY ENTERING INTO THE CREDIT
AGREEMENT.
IN WITNESS WHEREOF, the Debtor and the Secured Party have caused this
Agreement to be duly executed and delivered as of the date first above written.
DEBTOR:
HOWELL CRUDE OIL COMPANY
By: /s/ Mark J. Gorman
Printed Name: Mark J. Gorman
Title: President
SECURED PARTY:
BANK ONE, TEXAS, NATIONAL
ASSOCIATION
By: /s/ Stephen M. Smith
Stephen M. Smith
Vice President
EXHIBIT A
Section 3.1: FILING LOCATIONS
Secretaries of State of Florida, Louisiana, Mississippi, and
Texas
Section 3.3: LOCATIONS OF INVENTORY
Florida
Louisiana
Mississippi
Texas
EXHIBIT 10.40
GUARANTY
BY
HOWELL CORPORATION
IN FAVOR OF
BANK ONE, TEXAS, N.A.
Dated as of February 1, 1995
LETTER OF CREDIT FACILITY TO HOWELL CRUDE OIL COMPANY
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS AND INTERPRETATION 1
1.1 Terms Defined Above 1
1.2 Terms Defined in Credit Agreement 1
1.3 Additional Defined Terms 1
1.4 Undefined Financial Accounting Terms 3
1.5 References. 3
1.6 Articles and Sections 3
1.7 Number and Gender 3
ARTICLE II GUARANTY 4
2.1 Guaranty 4
2.2 Absolute, Complete, and Continuing Guaranty 4
2.3 Liability Not Impaired 5
2.4 Primary Liability 5
2.5 Security; Additional Guarantees 5
2.6 Waivers 5
2.7 Pursuit of Remedies; Subrogation 6
2.8 Status of Borrower 6
2.9 Independent Review; Solvency 6
2.10 Application of Payments 7
2.11 Enforcement Costs 7
ARTICLE III REPRESENTATIONS AND WARRANTIES 7
3.1 Due Authorization 7
3.2 Corporate Existence 8
3.3 Valid and Binding Obligations 8
ARTICLE IV AFFIRMATIVE COVENANTS 8
4.1 Maintenance and Access to Records 8
4.2 Notices of Certain Events 8
4.3 Additional Information 10
4.4 Maintenance of Corporate Existence and
Good Standing 10
4.5 Compliance with Laws 10
4.6 Payment of Assessments and Charges 10
4.7 Indemnification 10
4.8 Further Assurances 11
ARTICLE V NEGATIVE COVENANTS 12
5.1 Indebtedness 12
5.2 Contingent Obligations 12
5.3 Liens 12
5.4 Sales of Assets 13
5.5 Loans or Advances 13
5.6 Investments 13
5.7 Dividends and Distributions 14
5.8 Capital Expenditures 14
5.9 Issuance of Stock; Changes in Corporate
Structure 14
5.10 Transactions with Affiliates 14
5.11 Rental or Lease Agreements 14
5.12 Tangible Net Worth 14
5.13 Current Ratio 15
5.14 Total Debt to Capitalization Ratio 15
5.15 Cash Flow Coverage 15
ARTICLE VI MISCELLANEOUS 15
6.1 Survival of Representations, Warranties, and
Covenants 15
6.2 Notices and Other Communications 15
6.3 Parties in Interest 16
6.4 Rights of Third Parties 16
6.5 No Waiver; Rights Cumulative 16
6.6 Survival Upon Unenforceability 16
6.7 Amendments; Waivers 16
6.8 Review of Guaranty 17
6.9 Payments 17
6.10 GOVERNING LAW 17
6.11 JURISDICTION AND VENUE 17
6.12 WAIVER OF RIGHTS TO JURY TRIAL 17
6.13 ENTIRE AGREEMENT 18
<PAGE>
GUARANTY
This GUARANTY dated as of February 1, 1995, is by HOWELL CORPORATION,
a Delaware corporation (the "Guarantor") in favor of BANK ONE, TEXAS, N.A., a
national banking association (the "Lender").
W I T N E S S E T H :
WHEREAS, pursuant to the terms and conditions of the Credit Agreement
dated December 23, 1994, between Howell Crude Oil Company, a Delaware
corporation (the "Borrower"), and the Lender (as such agreement may be amended,
restated, or supplemented from time to time, the "Credit Agreement"), the Lender
has agreed to issue Letters of Credit for the account of the Borrower;
WHEREAS, the Guarantor, as the shareholder of the Borrower, will
derive substantial direct and indirect benefits from the issuance of the Letters
of Credit; and
WHEREAS, pursuant to the Credit Agreement and as an inducement to the
Lender to issue Letters of Credit for the account of the Borrower pursuant to
the Credit Agreement, the Guarantor has agreed to execute this Guaranty in favor
of the Lender;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
DEFINITIONS AND INTERPRETATION
1.1 Terms Defined Above. As used in this Guaranty, each of the terms
"Borrower," "Credit Agreement," "Guarantor," and "Lender" shall have the meaning
assigned to such term hereinabove.
1.2 Terms Defined in Credit Agreement. Each capitalized term used but not
defined herein shall have the meaning assigned to such term in the Credit
Agreement.
1.3 Additional Defined Terms. As used in this Guaranty, each of the following
terms shall have the meaning assigned thereto in this Section, unless the
context otherwise requires:
"Capitalization" shall mean, at any time, the sum of Total Debt plus
Consolidated Shareholders' Equity.
"Consolidated Cash Flow" shall mean, for any period, (a) the sum of Consolidated
Net Income for such period, Consolidated Interest Expense for such period, and
consolidated depreciation, amortization, and other non-cash expenses for the
Guarantor, the Borrower, and the Subsidiaries for such period deducted in the
determination of Consolidated Net Income for such period, minus (b) cash
dividends paid by the Guarantor in such period.
"Consolidated Debt Service" shall mean, for any period, an amount equal to the
sum of Consolidated Interest Expense for such period plus Consolidated Principal
Payments for such period.
"Consolidated Interest Expense" shall mean, for any period, the total interest
expense (including, without limitation, interest expense attributable to
capitalized leases) of the Guarantor, the Borrower, and the Subsidiaries, on a
consolidated basis, for such period, determined in accordance with GAAP.
"Consolidated Net Income" shall mean, for any period, the net income (or loss)
of the Guarantor, the Borrower, and the Subsidiaries, on a consolidated basis,
for such period, determined in accordance with GAAP.
"Consolidated Principal Payments" shall mean, for any period, the total amount
of all mandatory payments of principal with respect to Indebtedness of the
Guarantor, the Borrower, and the Subsidiaries, on a consolidated basis, for such
period.
"Consolidated Shareholders' Equity" shall mean, at any time, all amounts which
would, in accordance with GAAP, be included under consolidated common stock and
other stockholders' equity of the Guarantor (including, without limitation,
amounts for non-redeemable preferred stock, common stock, capital surplus, and
retained earnings and other stockholders' equity so long as not subject to any
mandatory redemption).
"Current Assets" shall mean the sum of all assets which would, in accordance
with GAAP, be included as current assets on a consolidated balance sheet of the
Guarantor, the Borrower, and the Subsidiaries as of the date of calculation plus
an amount equal to the Available Commitment (as such term is defined in the
Credit Agreement dated as of December 31, 1992, by and between Howell Petroleum
Corporation and the Lender (the "Howell Petroleum Credit Agreement") as of such
date.
"Current Liabilities" shall mean all liabilities which would, in accordance with
GAAP, be included as current liabilities on a consolidated balance sheet of the
Guarantor, the Borrower, and the Subsidiaries as of the date of calculation.
"Guaranteed Indebtedness" shall mean the Indebtedness and other obligations as
to which payment is guaranteed by the Guarantor hereunder pursuant to Section
2.1.
"Subsidiaries" shall mean all Subsidiaries (as defined in the Credit Agreement)
of the Guarantor other than the Borrower.
"Tangible Net Worth" shall mean (a) total assets, as would, in accordance with
GAAP, be reflected on a consolidated balance sheet of the Guarantor, the
Borrower, and the Subsidiaries, exclusive of Intellectual Property, experimental
or organization expenses, franchises, licenses, permits, and other intangible
assets, treasury stock, unamortized underwriters' debt discount and expenses,
and goodwill minus (b) total liabilities, as would, in accordance with GAAP, be
reflected on a consolidated balance sheet of the Guarantor, the Borrower, and
the Subsidiaries.
"Total Debt" shall mean, at any time, the total liabilities of the Guarantor,
the Borrower, and the Subsidiaries, on a consolidated basis, for borrowed money,
capitalized leases, and obligations to the Department of Energy.
1.4 Undefined Financial Accounting Terms. Undefined financial accounting terms
used in this Guaranty shall have the meanings assigned to such terms according
to GAAP.
1.5 References. The words "hereby," "herein," "hereinabove," "hereinafter,"
"hereinbelow," "hereof," "hereunder," and words of similar import when used in
this Guaranty shall refer to this Guaranty as a whole and not to any particular
Article, Section, or provision of this Guaranty. References in this Guaranty to
Article or Section numbers are to such Articles or Sections of this Guaranty
unless otherwise specified.
1.6 Articles and Sections. This Guaranty, for convenience only, has been
divided into Articles and Sections; and it is understood that the rights and
other legal relations of the parties hereto shall be determined from this
instrument as an entirety and without regard to the aforesaid division into
Articles and Sections and without regard to headings prefixed to such Articles
or Sections.
1.7 Number and Gender. Whenever the context requires, reference herein made to
the single number shall be understood to include the plural; and likewise, the
plural shall be understood to include the singular. Words denoting sex shall be
construed to include the masculine, feminine and neuter, when such construction
is appropriate; and specific enumeration shall not exclude the general but shall
be construed as cumulative. Definitions of terms defined in the singular or
plural shall be equally applicable to the plural or singular, as the case may
be, unless otherwise indicated.
GUARANTY
2.1 Guaranty. The Guarantor unconditionally guarantees to the Lender the
prompt payment and performance when due (whether at stated maturity, by
acceleration, or otherwise) of the Obligations.
2.2 Absolute, Complete, and Continuing Guaranty. This is an absolute,
complete, and continuing Guaranty; and no notice of the Obligations, the
issuance of any Letter of Credit, the making of any payment under any Letter of
Credit, or any extension of credit now or hereafter contracted by or extended to
the Borrower need be given to the Guarantor. The grant of any Liens by the
Guarantor shall not in anyway limit or be construed as limiting the Lender to
collect payment of any liability of the Guarantor incurred hereby from the
Collateral, but it is expressly understood and provided that the liability of
the Guarantor hereunder shall constitute the absolute and unconditional
obligation of the Guarantor. The Borrower and the Lender may, in accordance
with the terms of the Credit Agreement, rearrange, extend, and/or renew all or
any portion of the Obligations without notice to the Guarantor; and in such
event, the Guarantor shall remain fully bound hereunder for payment of the
Guaranteed Indebtedness. The obligations of the Guarantor hereunder shall not
be released, impaired, or diminished by any amendment, modification, or
alteration of any Loan Document, except as may be expressly provided in any such
amendment, modification, or alteration. The Guarantor shall remain liable under
this Guaranty regardless of whether the Borrower or any other guarantor be found
not liable on all or any part of the Obligations for any reason, including,
without limitation, insanity, minority, disability, bankruptcy, insolvency,
death, liquidation, or dissolution, even though rendering all or any part of the
Obligations void, unenforceable, or uncollectible as against the Borrower or any
other guarantor. This Guaranty shall continue to be effective or shall be
reinstated, as the case may be, if at any time any payment of any of the
Guaranteed Indebtedness is rescinded or must otherwise be returned by the Lender
upon the insolvency, bankruptcy, or reorganization of the Borrower or otherwise,
all as though such payment had not been made and will, thereupon, guarantee
payment of such amount as to which refund or restitution has been made, together
with interest accruing thereon subsequent to the date of refund or restitution
at the applicable rate under the Credit Agreement and collection costs and fees
(including, without limitation, attorneys' fees) applicable thereto.
2.3 Liability Not Impaired. The liabilities and obligations of the Guarantor
hereunder shall not be affected or impaired by (a) the failure of the Lender or
any other Person to exercise diligence or reasonable care in the preservation,
protection, or other handling or treatment of all or any part of the Collateral,
(b) the failure of any Lien intended to be granted or created to secure all or
any part of the Obligations to be properly perfected or created or the
unenforceability of any Lien for any other reason, or (c) the subordination of
any such Lien to any other Lien.
2.4 Primary Liability. The liability of the Guarantor for the payment of the
Guaranteed Indebtedness shall be primary and not secondary.
2.5 Security; Additional Guarantees. The Guarantor authorizes the Lender,
without notice to or demand upon the Guarantor and without affecting the
liability of the Guarantor hereunder, (a) to take and hold security voluntarily
provided by any Person as security for the payment of all or any portion of the
Guaranteed Indebtedness and the other Obligations, and to exchange, enforce,
waive, and/or release any such security; (b) to apply such security and direct
the order or manner of sale thereof as the Lender in its discretion may
determine; and (c) to obtain a guaranty of all or any portion of the Guaranteed
Indebtedness and the other Obligations from any one or more other Persons and to
enforce, waive, rearrange, modify, limit, or release at any time or times such
other Persons from their obligations under such guaranties, whether with or
without consideration.
2.6 Waivers. The Guarantor waives any right to require the Lender to (a)
proceed against the Borrower or make any effort at the collection of the
Guaranteed Indebtedness from the Borrower or any other guarantor or Person
liable for all or any part of the Guaranteed Indebtedness, (b) proceed against
or exhaust any collateral securing the Guaranteed Indebtedness, or (c) pursue
any other remedy in the power of the Lender. The Guarantor further waives any
and all rights and remedies of suretyship, including, without limitation, those
it may have or be able to assert by reason of the provisions of Chapter 34 of
the Texas Business and Commerce Code. The Guarantor waives any defense arising
by reason of any disability, lack of corporate authority or power, or other
defense of the Borrower or any other guarantor of all or any part of the
Obligations. The Guarantor expressly waives all notices of any kind,
presentment for payment, demand for payment, protest, notice of protest, notice
of intent to accelerate maturity, notice of acceleration of maturity, dishonor,
diligence, notice of any amendment of any Loan Document, notice of any adverse
change in the financial condition of the Borrower, notice of any adjustment,
indulgence, forbearance, or compromise that might be granted or given by the
Lender to the Borrower, and notice of acceptance of this Guaranty, acceptance on
the part of the Lender being conclusively presumed by its request for this
Guaranty and the delivery of this Guaranty to the Lender. The liability and
obligations of the Guarantor hereunder shall not be affected or impaired by any
action or inaction by the Lender in regard to any matter waived or notice of
which is waived by the Guarantor in this Guaranty.
2.7 Pursuit of Remedies; Subrogation. The Lender may pursue any remedy without
altering the obligations of the Guarantor hereunder and without liability to the
Guarantor, even though the pursuit of such remedy may result in the loss by the
Guarantor of rights of subrogation or to proceed against others for
reimbursement or contribution or any other right. In no event shall any payment
by the Guarantor entitle it, by subrogation or otherwise, to any rights against
the Borrower or to participate in any security now or hereafter held by the
Lender prior to the payment in full of all Obligations and, in any event, not
until 367 days after the making of any payment and/or the granting of any Lien
to secure all or any part of the Obligations by the Borrower or any other
guarantor of all or any part of the Obligations.
2.8 Status of Borrower. Should the status of the Borrower change in any way,
as a result of reorganization or dissolution, any sale, lease, or transfer of
any or all of the assets of the Borrower, any change in the shareholders,
partners, or members of the Borrower or otherwise, this Guaranty shall continue
and shall cover the Guaranteed Indebtedness under the new status. This Section
shall not, however, be construed to authorize any action by the Borrower
otherwise prohibited under the Credit Agreement or any other Loan Document.
2.9 Independent Review; Solvency. The Guarantor is familiar with and has
independently reviewed the books and records regarding the financial condition
of the Borrower and is familiar with the value of any and all property intended
as Collateral; however, the Guarantor is not relying on such financial condition
or such Collateral as an inducement to enter into this Guaranty. The Guarantor
acknowledges that it is not relying on any representations (oral or otherwise)
of the Lender or any other Person except as may be expressly described in this
Guaranty. As of the date hereof, and after giving effect to this Guaranty and
the contingent obligations evidenced hereby, the Guarantor is and will be
solvent, and has and will have Property which, valued fairly, exceed the
obligations, debts, and liabilities of the Guarantor, and has and will have
Property in the State of Texas sufficient to satisfy, repay, and discharge the
same. In the event of the insolvency of the Guarantor, the Lender shall have
the option to declare the Guaranteed Indebtedness immediately due and payable
from the Guarantor.
2.10 Application of Payments. If the Borrower shall at any time or times be or
become obligated to the Lender for the payment of any Indebtedness other than
the Obligations, the Lender (without in any manner impairing its rights
hereunder or diminishing the liability of the Guarantor) shall, subject to the
terms of the Loan Documents, be at liberty to apply, regardless of whether the
Obligations or such other Indebtedness is then due, to such Indebtedness other
than the Obligations (a) any amounts paid to, received by, or in the possession
of the Lender from or attributable to the Borrower or any other Person liable
for any of the Obligations or such other Indebtedness, (b) any amounts from or
attributable to or representing proceeds of any Property or security held by the
Lender to secure payment of all or any portion of the Obligations or such other
Indebtedness, and (c) any credits, deposits, or offsets due the Borrower or
other Person liable on all or any portion of the Obligations or such other
Indebtedness. The Lender shall have the right, but shall not be obligated, to
apply all payments, credits, offsets, and amounts becoming available for
application on or for credit against the Indebtedness (now or hereafter
existing) of the Borrower to the Lender first toward payment and satisfaction of
the Indebtedness of the Borrower not hereby guaranteed before making application
thereof on or against the Guaranteed Indebtedness.
2.11 Enforcement Costs. If the Guaranteed Indebtedness is not paid by the
Guarantor when due, as required herein, and this Guaranty is placed in the hands
of an attorney for collection or is enforced by suit or through probate or
bankruptcy court or through any other judicial proceedings, the Guarantor shall
pay to the Lender an amount equal to the reasonable attorneys' fees and
collection costs incurred by the Lender in the collection of the Guaranteed
Indebtedness.
REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into the Credit Agreement and to issue Letters of
Credit for the account of the Borrower, the Guarantor represents and warrants to
the Lender (which representations and warranties shall survive the delivery of
this Guaranty and the other Loan Documents) that:
3.1 Due Authorization. The execution and delivery by the Guarantor of this
Guaranty and the performance of all obligations of the Guarantor hereunder are
within the power of the Guarantor, have been duly authorized by all necessary
corporate action, do not and will not (a) require the consent of any
Governmental Authority, (b) contravene or conflict with any provision of law or
the charter or bylaws of the Guarantor, (c) contravene or conflict with any
indenture, instrument, or other agreement to which the Guarantor is a party or
by which any Property of the Guarantor may be presently bound or encumbered, or
(d) result in or require the creation or imposition of any Lien upon any
Property of the Guarantor under any such indenture, instrument, or other
agreement, other than the Loan Documents.
3.2 Corporate Existence. The Guarantor is a corporation duly organized,
legally existing, and in good standing under the laws of its state of
incorporation and is duly qualified as a foreign corporation and is in good
standing in all jurisdictions wherein the ownership of Property or the operation
of its business necessitates same, other than those jurisdictions wherein the
failure to so qualify will not have a Material Adverse Effect.
3.3 Valid and Binding Obligations. This Guaranty, when duly executed and
delivered by the Guarantor, will be the legal, valid, and binding obligation of
the Guarantor, enforceable against the Guarantor in accordance with its terms.
AFFIRMATIVE COVENANTS
Unless agreed in writing by the Lender to the contrary, the Guarantor covenants,
so long as any Obligation remains outstanding or unpaid or any Commitment
exists, to:
4.1 Maintenance and Access to Records. Keep adequate records, in accordance
with GAAP, of all its transactions so that at any time, and from time to time,
its true and complete financial condition may be readily determined, and
promptly following the reasonable request of the Lender, make such records
available for inspection by the Lender and, at the expense of the Guarantor,
allow the Lender to make and take away copies thereof.
4.2 Notices of Certain Events. Deliver to the Lender, promptly upon having
knowledge thereof, a written statement with respect to the occurrence of any of
the following events or circumstances, signed by a Responsible Officer of the
Guarantor and setting forth the relevant event or circumstance and the steps
being taken by the Guarantor or any Subsidiary with respect to such event or
circumstance:
(a) any Default or Event of Default;
(b) any default or event of default under any contractual obligation of the
Guarantor or any Subsidiary, or any litigation, investigation, or proceeding
between the Guarantor or any Subsidiary and any Governmental Authority which, in
either case, if not cured or if adversely determined, as the case may be, could
reasonably be expected to have a Material Adverse Effect;
(c) any litigation or proceeding involving the Guarantor or any Subsidiary as a
defendant or in which any Property of the Guarantor or any Subsidiary is subject
to a claim and in which the amount involved is $1,000,000 or more and which is
not covered by insurance or in which injunctive or similar relief is sought;
(d) the receipt by the Guarantor or any Subsidiary of any Environmental
Complaint or any formal request from any Governmental Authority for information
(other than requirements for compliance reports) regarding any Release of
Hazardous Substances by the Guarantor or any Subsidiary or from, affecting, or
related to any Property of the Guarantor or any Subsidiary, the effect of which
could reasonably be expected to have a Material Adverse Effect;
(e) any actual, proposed, or threatened testing or other investigation by any
Governmental Authority or other Person concerning the environmental condition
of, or relating to, any Property of the Guarantor or any Subsidiary following
any allegation of a violation of any Requirement of Law, the effect of which
could reasonably be expected to have a Material Adverse Effect;
(f) any Release of Hazardous Substances by the Guarantor or any Subsidiary or
from, affecting, or related to any Property of the Guarantor or any Subsidiary
except in accordance with applicable Requirements of Law or the terms of a valid
permit, license, certificate, or approval of the relevant Governmental
Authority, or the violation of any Environmental Law, or the revocation,
suspension, or forfeiture of or failure to renew, any permit, license,
registration, approval, or authorization which could reasonably be expected to
have a Material Adverse Effect;
(g) any Reportable Event or imminently expected Reportable Event with respect
to any Plan or any withdrawal from, or the termination, Reorganization, or
Insolvency of, any Multiemployer Plan, or the institution of proceedings or the
taking of any other action by PBGC, the Guarantor, or any Commonly Controlled
Entity or Multiemployer Plan with respect to the withdrawal from or the
termination, Reorganization, or Insolvency of, any Single Employer Plan or
Multiemployer Plan; or any Prohibited Transaction in connection with any Plan or
any trust created thereunder, the effect of which could reasonably be expected
to have a Material Adverse Effect, and the action being taken by the Internal
Revenue Service with respect thereto; and
(h) any other event or condition which could reasonably be expected to cause a
Material Adverse Effect.
4.3 Additional Information. Furnish to the Lender, within five days after any
material report (other than financial statements) or other communication is sent
by the Guarantor or any Subsidiary to its stockholders (in their capacity as
stockholders) or filed by the Guarantor or any Subsidiary with the Securities
and Exchange Commission or any successor or analogous Governmental Authority,
copies of such report or communication promptly upon the request of the Lender,
such additional financial or other information concerning the assets,
liabilities, operations, and transactions of the Guarantor and the Subsidiaries
as the Lender may from time to time request.
4.4 Maintenance of Corporate Existence and Good Standing. Maintain its
corporate existence or qualification and good standing in its jurisdictions of
incorporation and in all jurisdictions wherein the Property now owned or
hereafter acquired or business now or hereafter conducted necessitates same
except to the extent failure to do so would not have a Material Adverse Effect.
4.5 Compliance with Laws. Except to the extent the failure to comply or cause
compliance would not have a Material Adverse Effect, (a) comply with all
applicable Requirements of Law, including, without limitation, (i) the Natural
Gas Policy Act of 1978, as amended, (ii) ERISA, (iii) Environmental Laws, and
(iv) all permits, licenses, registrations, approvals, and authorizations (A)
related to any natural or environmental resource or media located on, above,
within, in the vicinity of, related to or affected by any Property of the
Guarantor, (B) required for the performance of the operations of the Guarantor,
or (C) applicable to the use, generation, handling, storage, treatment,
transport, or disposal of any Hazardous Substances; and (b) cause all employees,
crew members, agents, contractors, subcontractors, and future lessees (pursuant
to appropriate lease provisions) of the Guarantor, while such Persons are acting
within the scope of their relationship with the Guarantor, to comply with all
such Requirements of Law as may be necessary or appropriate to enable the
Guarantor to so comply.
4.6 Payment of Assessments and Charges. Pay all taxes, assessments,
governmental charges, rent, and other Indebtedness which, if unpaid, might
become a Lien against the Property of the Guarantor, except any of the foregoing
being contested in good faith and as to which adequate reserve in accordance
with GAAP has been established or unless failure to pay would not have a
Material Adverse Effect; and provide evidence satisfactory to the Lender of the
payment by the Guarantor of its obligations to the Department of Energy promptly
after the making of each such payment by the Guarantor.
4.7 Indemnification. Indemnify and hold the Lender and its shareholders,
officers, directors, employees, agents, attorney-in-fact, and affiliates
harmless from and against any and all claims, losses, damages, liabilities,
fines, penalties, charges, administrative and judicial proceedings and orders,
judgments, remedial actions, requirements and enforcement actions of any kind,
and all costs and expenses incurred in connection therewith (including, without
limitation, attorneys' fees and expenses), arising directly or indirectly, in
whole or in part, from (a) the presence of any Hazardous Substances on, under,
or from the Property of the Borrower, the Guarantor, or any Subsidiary, whether
prior to or during the term hereof, (b) any activity carried on or undertaken on
or off the Property of the Borrower, the Guarantor, or any Subsidiary, whether
prior to or during the term hereof, and whether by the Borrower, the Guarantor,
or any Subsidiary or any predecessor in title, employee, agent, contractor, or
subcontractor of the Borrower, the Guarantor, or any Subsidiary or any
predecessor in title, or any other Person at any time occupying or present on
such Property, in connection with the handling, treatment, removal, storage,
decontamination, cleanup, transportation, or disposal of any Hazardous
Substances at any time located or present on or under such Property, (c) any
residual contamination on or under the Property of the Borrower, the Guarantor,
or any Subsidiary, (d) any contamination of any Property or natural resources
arising in connection with the generation, use, handling, storage,
transportation, or disposal of any Hazardous Substances by the Borrower, the
Guarantor, or any Subsidiary or any employee, agent, contractor, or
subcontractor of the Borrower, the Guarantor, or any Subsidiary while such
Persons are acting within the scope of their relationship with the Borrower, the
Guarantor, or any Subsidiary, irrespective of whether any of such activities
were or will be undertaken in accordance with applicable Requirements of Law, or
(e) the performance and enforcement of any Loan Document, any allegations by any
beneficiary of a Letter of Credit of a wrongful dishonor by the Lender of a
claim or draft presented thereunder, or any other act or omission in connection
with or related to any Loan Document and the transactions contemplated thereby,
INCLUDING, WITHOUT LIMITATION, ANY OF THE FOREGOING ARISING FROM NEGLIGENCE,
WHETHER SOLE OR CONCURRENT, ON THE PART OF THE LENDER OR ANY OF ITS
SHAREHOLDERS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT, OR
AFFILIATES, BUT EXCLUDING ANY OF THE FOREGOING IN THIS SECTION ARISING FROM THE
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE LENDER; with the foregoing
indemnity surviving satisfaction of all obligations of the Guarantor hereunder
and all other Obligations and the termination of this Agreement and the Credit
Agreement.
4.8 Further Assurances. Promptly cure any defects in the execution and
delivery of any of the Loan Documents executed by the Guarantor and execute,
acknowledge, and deliver such other assurances and instruments as shall, in the
opinion of the Lender, be necessary to fulfill the terms of the Loan Documents
executed by the Guarantor.
NEGATIVE COVENANTS
Unless agreed in writing by the Lender to the contrary, so long as any
Obligation remains outstanding or unpaid or any Commitment exists, the Guarantor
will not:
5.1 Indebtedness. Create, incur, assume, or suffer to exist any Indebtedness,
whether by way of loan or otherwise; provided, however, the foregoing
restriction shall not apply to (a) the Obligations, (b) accounts payable
incurred in the ordinary course of business, which are not unpaid in excess of
120 days beyond invoice date or are being contested in good faith and as to
which such reserve as is required by GAAP has been made, (c) crude oil, natural
gas, or other hydrocarbon swap agreements, in form and substance and with a
Person acceptable to the Lender, provided that each commitment issued under any
approved crude oil, natural gas, or other hydrocarbons swap agreement must also
be approved by the Lender, (d) interest rate swap or other financial hedging
agreements, in form and substance and with a Person acceptable to the Lender,
(e) obligations secured by Permitted Liens to the extent constituting
Indebtedness, (f) currently existing Indebtedness of the Guarantor to the
Department of Energy not exceeding the principal amount of $9,387,000, or (g)
Indebtedness of the Guarantor to Paul N. Howell not exceeding $2,250,000.
5.2 Contingent Obligations. Create, incur, assume, or suffer to exist any
Contingent Obligation; provided, however, the foregoing restriction shall not
apply to (a) performance guarantees and performance surety or other bonds
provided in the ordinary course of business, (b) trade credit incurred or
operating leases entered into in the ordinary course of business, (c)
obligations of Howell Petroleum Corporation under a credit facility with the
Lender in an amount not exceeding $75,000,000, (d) the Guaranteed Indebtedness,
(e) obligations secured by Permitted Liens to the extent constituting Contingent
Obligations, or (f) the guaranty of the obligations of Howell Transportation
Services, Inc. owing to Associates Leasing, Inc. in an amount not exceeding
$300,000.
5.3 Liens. Create, incur, assume, or suffer to exist any Lien on any of its
Properties, whether now owned or hereafter acquired, or its capital stock, or
permit any Subsidiary to do so; provided, however, the foregoing restrictions
shall not apply to (a) Permitted Liens, (b) Permitted Liens as such term is
defined in the Howell Petroleum Credit Agreement, (c) Liens on oil and gas
properties of Howell Petroleum Corporation securing its obligations under a
credit facility with the Lender in an amount not exceeding $75,000,000, (d)
Liens on Property acquired by the Guarantor or any Subsidiary after the Closing
Date and in effect at the time of such acquisition, or (e) Liens securing the
purchase price of Property acquired by the Guarantor or any Subsidiary in the
ordinary course of business provided that such Liens cover only the acquired
Property.
5.4 Sales of Assets. Without the prior written consent of the Lender, sell,
transfer, or otherwise dispose of, in one or any series of transactions in any
12-month period, assets, whether now owned or hereafter acquired, or enter into
any agreement to do so, or permit any Subsidiary to do any of the foregoing in
this Section; provided, however, the foregoing restrictions shall not apply to
(a) the sale of assets the aggregate book value of which does not exceed five
percent (5%) of the net worth of the Guarantor, (b) the sale of hydrocarbons or
inventory in the ordinary course of business, or (c) the sale or other
disposition of Property destroyed, lost, worn out, damaged, or having only
salvage value or no longer used or useful in the business of the Guarantor, the
Borrower, or any Subsidiary.
5.5 Loans or Advances. Make or agree to make or allow to remain outstanding
any loans or advances to any Person; provided, however, the foregoing
restrictions shall not apply to (a) advances or extensions of credit in the form
of accounts receivable incurred in the ordinary course of business and upon
terms common in the industry for such accounts receivable, (b) advances to
employees of the Guarantor or any Subsidiary for the payment of expenses in the
ordinary course of business, or (c) loans or advances to the Borrower or, so
long as no Default or Event of Default exists, any Subsidiary.
5.6 Investments. Acquire Investments in, or purchase or otherwise acquire all
or substantially all of the assets of, any Person, or permit any Subsidiary to
do so; provided, however, the foregoing restriction shall not apply to the
purchase or acquisition of (a) Oil and Gas Properties, (b) Investments in the
form of (i) debt securities issued or directly and fully guaranteed or insured
by the United States Government or any agency or instrumentality thereof, with
maturities of no more than one year, (ii) commercial paper of a domestic issuer
rated at the date of acquisition at least P-2 by Moody's Investor Service, Inc.
or A-2 by Standard & Poor's Corporation and with maturities of no more than one
year from the date of acquisition, or (iii) repurchase agreements covering debt
securities or commercial paper of the type permitted in this Section,
certificates of deposit, demand deposits, eurodollar time deposits, overnight
bank deposits, and bankers' acceptances, with maturities of no more than one
year from the date of acquisition, issued by or acquired from or through the
Lender or any bank or trust company organized under the laws of the United
States or any state thereof and having capital surplus and undivided profits
aggregating at least $100,000,000, (c) other short-term Investments similar in
nature and degree of risk to those described in clause (b) of this Section, (d)
money-market funds, or (e) capital expenditures for Howell Hydrocarbons &
Chemicals, Inc. permitted by Section 5.8.
5.7 Dividends and Distributions. Declare, pay, or make, whether in cash or
Property, any dividend or distribution on, or purchase, redeem, or otherwise
acquire for value, any share of any class of its capital stock at any time that
a Default or Event of Default exists or will occur as the result thereof.
5.8 Capital Expenditures. Make expenditures exceeding $1,500,000 in the
aggregate for Howell Hydrocarbons & Chemicals, Inc., in any calendar year for
capital or fixed assets for Howell Hydrocarbons & Chemicals, Inc., or permit
Howell Hydrocarbons & Chemicals, Inc., to do so; provided, however, the
foregoing restrictions shall not apply to financed capital expenditures by
Howell Hydrocarbons & Chemicals, Inc., which financing is supported by a firm
processing or similar revenue generating contract between Howell Hydrocarbons &
Chemicals, Inc. and a third party acceptable to the Lender the proceeds from
which will provide for complete amortization of the Indebtedness incurred in
connection with such financed capital expenditures.
5.9 Issuance of Stock; Changes in Corporate Structure. Issue or agree to issue
additional shares of capital stock, in one or any series of transactions for any
consideration other than cash; enter into any transaction of consolidation,
merger, or amalgamation; or liquidate, wind up, or dissolve (or suffer any
liquidation or dissolution); or permit any Subsidiary to do any of the foregoing
in this Section.
5.10 Transactions with Affiliates. Directly or indirectly, enter into any
material transaction (including the sale, lease, or exchange of Property or the
rendering of service) with any of its Affiliates, other than upon fair and
reasonable terms no less favorable than could be obtained in an arm's length
transaction with a Person which was not an Affiliate, or permit any Subsidiary
to do so.
5.11 Rental or Lease Agreements. Enter into any contract to rent or lease any
Properties, real or personal, or permit any Subsidiary to do so; provided,
however, the foregoing restrictions shall not apply to (a) leases in effect as
of the Closing Date and renewals and extensions thereof under terms and
conditions not materially different from those in effect as of the Closing Date,
(b) oil, gas, and mineral leases, or (c) other operating leases the rental and
lease payments under which in any calendar or fiscal year do not exceed $500,000
in the aggregate for all such leases of the Guarantor, the Borrower, and the
Subsidiaries.
5.12 Tangible Net Worth. Permit Tangible Net Worth to be less than $39,000,000
plus (a) 50% of positive Net Income for all fiscal quarters ending subsequent to
September 30, 1992, and (b) 70% of any increase in net worth of the Guarantor
resulting from the sale or issuance of capital stock after September 30, 1992;
provided, however, in the event the Borrower or any subsidiary is required by
GAAP to write down the carrying value of its Oil and Gas Properties as a result
of lower prices for hydrocarbons, the required level of Tangible Net Worth shall
be reduced by the amount of such write down but not more than $5,000,000 in the
aggregate for all such write downs.
5.13 Current Ratio. Permit the ratio of Current Assets to Current Liabilities to
be less than 1.0 to 1.0 at any time.
5.14 Total Debt to Capitalization Ratio. Permit the ratio of Total Debt to
Capitalization to be greater than .5 to 1.0.
5.15 Cash Flow Coverage. Permit, as of the close of any fiscal quarter, the
ratio of (a) Consolidated Cash Flow for the preceding four fiscal quarters to
(b) Consolidated Debt Service for such quarters to be less than 2.0 to 1.0.
MISCELLANEOUS
6.1 Survival of Representations, Warranties, and Covenants. All
representations and warranties of the Guarantor and all covenants and agreements
herein made shall survive the issuance of the Letters of Credit and shall remain
in force and effect so long as any Obligation is outstanding or any Commitment
exists.
6.2 Notices and Other Communications. Except as to verbal notices expressly
authorized herein, which verbal notices shall be confirmed in writing, all
notices, requests, and communications hereunder shall be in writing (including
by telecopy). Unless otherwise expressly provided herein, any such notice,
request, demand, or other communication shall be deemed to have been duly given
or made when delivered by hand, or, in the case of delivery by mail, when
deposited in the mail, certified mail, return receipt requested, postage
prepaid, or, in the case of telecopy notice, when receipt thereof is
acknowledged orally or by written confirmation report, addressed as follows:
if to the Lender, to:
Bank One, Texas, N.A.
Travis
Houston, Texas 77002
Attention: Energy Group
(or for notice by mail, to:
O. Box 2629
Houston, Texas 77252-2629
Attention: Energy Group)
Telecopy: (713) 751-3544
if to the Guarantor, to:
Howell Corporation
Fannin, Suite 1500
Houston, Texas 77002
Attention: Allyn Skelton
Telecopy: (713) 658-4007
Any party may, by proper written notice hereunder to the others, change the
individuals or addresses to which such notices to it shall thereafter be sent.
6.3 Parties in Interest. Subject to any applicable restrictions contained
herein, all covenants and agreements herein contained by or on behalf of the
Guarantor or the Lender shall be binding upon and inure to the benefit of the
Guarantor or the Lender, as the case may be, and their respective legal
representatives, successors, and assigns.
6.4 Rights of Third Parties. All provisions herein are imposed solely and
exclusively for the benefit of the Lender. No other Person shall have any
right, benefit, priority, or interest hereunder or as a result hereof or have
standing to require satisfaction of provisions hereof in accordance with their
terms; and any or all of such provisions may be freely waived in whole or in
part by the Lender at any time if in its sole discretion it deems it advisable
to do so.
6.5 No Waiver; Rights Cumulative. No course of dealing on the part of the
Lender, its officers or employees, nor any failure or delay by the Lender with
respect to exercising any of its rights under any Loan Document shall operate as
a waiver thereof. The rights of the Lender under the Loan Documents shall be
cumulative and the exercise or partial exercise of any such right shall not
preclude the exercise of any other right.
6.6 Survival Upon Unenforceability. In the event any one or more of the
provisions contained in any of the Loan Documents or in any other instrument
referred to herein or executed in connection with the Guaranteed Indebtedness or
the Obligations shall, for any reason, be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provision of any Loan Document or of any other
instrument referred to herein or executed in connection with such Guaranteed
Indebtedness or the Obligations.
6.7 Amendments; Waivers. Neither this Guaranty nor any provision hereof may be
amended, waived, discharged, or terminated orally, but only by an instrument in
writing signed by the party against whom enforcement of the amendment, waiver,
discharge, or termination is sought.
6.8 Review of Guaranty. This Guaranty was reviewed by the Guarantor, and the
Guarantor acknowledges and agrees that it understands fully all of the terms of
this Guaranty and the consequences and implications of its execution of this
Guaranty and has been afforded an opportunity to have this Guaranty reviewed by
an attorney and such other Persons as desired and to discuss the terms,
consequences, and implications of this Guaranty with such attorney and other
Persons.
6.9 Payments. All amounts becoming payable by the Guarantor under this
Guaranty shall be payable to the Lender at the address of the Lender set forth
hereinabove.
6.10 GOVERNING LAW. THIS GUARANTY SHALL BE DEEMED TO BE A CONTRACT MADE UNDER
AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE
OF TEXAS WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF RELATING TO CONFLICTS OF
LAW, PROVIDED, HOWEVER, THAT VERNON'S TEXAS CIVIL STATUTES, ARTICLE 5069,
CHAPTER 15 (WHICH REGULATES CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING
TRI-PARTY ACCOUNTS) SHALL NOT APPLY.
6.11 JURISDICTION AND VENUE. ALL ACTIONS OR PROCEEDINGS WITH RESPECT TO,
ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO, OR FROM
THIS GUARANTY OR ANY OTHER LOAN DOCUMENT TO WHICH THE GUARANTOR IS A PARTY MAY
BE LITIGATED, AT THE SOLE DISCRETION AND ELECTION OF THE LENDER, IN COURTS
HAVING SITUS IN HOUSTON, HARRIS COUNTY, TEXAS. THE GUARANTOR HEREBY SUBMITS TO
THE JURISDICTION OF ANY LOCAL, STATE, OR FEDERAL COURT LOCATED IN HOUSTON,
HARRIS COUNTY, TEXAS, AND HEREBY WAIVES ANY RIGHTS IT MAY HAVE TO TRANSFER OR
CHANGE THE JURISDICTION OR VENUE OF ANY LITIGATION BROUGHT AGAINST IT BY THE
LENDER IN ACCORDANCE WITH THIS SECTION.
6.12 WAIVER OF RIGHTS TO JURY TRIAL. THE GUARANTOR AND THE LENDER HEREBY
KNOWINGLY, VOLUNTARILY, INTENTIONALLY, IRREVOCABLY, AND UNCONDITIONALLY WAIVE
ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING, COUNTERCLAIM, OR
OTHER LITIGATION THAT RELATES TO OR ARISES OUT OF ANY OF THIS GUARANTY OR ANY
OTHER LOAN DOCUMENT OR THE ACTS OR OMISSIONS OF THE LENDER IN THE ENFORCEMENT OF
ANY OF THE TERMS OR PROVISIONS OF THIS GUARANTY OR ANY OTHER LOAN DOCUMENT OR
OTHERWISE WITH RESPECT THERETO. THE PROVISIONS OF THIS SECTION ARE A MATERIAL
INDUCEMENT FOR THE LENDER ENTERING INTO THE CREDIT AGREEMENT.
6.13 ENTIRE AGREEMENT. THIS GUARANTY CONSTITUTES THE ENTIRE AGREEMENT BETWEEN
THE PARTIES HERETO WITH RESPECT TO THE SUBJECT HEREOF AND SHALL SUPERSEDE ANY
PRIOR AGREEMENTS, WHETHER WRITTEN OR ORAL, BETWEEN THE PARTIES HERETO RELATING
TO THE SUBJECT HEREOF. FURTHERMORE, IN THIS REGARD, THIS GUARANTY AND THE OTHER
WRITTEN LOAN DOCUMENTS REPRESENT, COLLECTIVELY, THE FINAL AGREEMENT AMONG THE
PARTIES THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF SUCH PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS AMONG SUCH PARTIES.
IN WITNESS WHEREOF, this Guaranty is executed as of the date first
above written.
HOWELL CORPORATION
By: /s/ Paul W. Funkhouser
Printed Name: Paul W. Funkhouser
Title: President
BANK ONE, TEXAS, N.A.
By: /s/ Stephen M. Smith
Stephen M. Smith
Vice President
EXHIBIT 10.41
SECURITY AGREEMENT
(Stock Pledge)
BY
HOWELL CORPORATION
IN FAVOR OF
BANK ONE, TEXAS, NATIONAL ASSOCIATION
February 1, 1995
-----------------------------------------------------
LETTER OF CREDIT FACILITY TO HOWELL CRUDE OIL COMPANY
-----------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS AND INTERPRETATION 1
1.1 Terms Defined Above 1
1.2 Terms Defined in Credit Agreement 2
1.3 Additional Defined Terms 2
1.4 Undefined Financial Accounting Terms 2
1.5 Terms Defined in Texas Business and Commerce
Code 2
1.6 References. 2
1.7 Articles and Sections 2
1.8 Number and Gender 3
ARTICLE 2 SECURITY INTEREST 3
2.1 Grant of Security Interest in Collateral 3
2.2 Delivery of Securities 3
2.3 Power of Attorney 3
ARTICLE 3 REPRESENTATIONS AND WARRANTIES 5
3.1 Status of Securities 5
3.2 No Material Misstatements 5
3.3 Ownership and Liens 5
ARTICLE 4 COVENANTS AND AGREEMENTS 5
4.1 Payment of Assessments and Charges 5
4.2 Delivery of Collateral 6
4.3 Further Assurances 6
4.4 Prohibited Liens and Filings 6
ARTICLE 5 RIGHTS AND REMEDIES 6
5.1 Remedies Upon Default 6
5.2 Voting Rights, Dividends, Etc. Prior to Default 7
5.3 Voting Rights, Dividends, Etc. After Default 8
5.4 Proceeds 9
5.5 Lender Duties 9
5.6 The Lender's Actions 9
ARTICLE 6 MISCELLANEOUS 10
6.1 Transfer of Obligations and Collateral 10
6.2 Cumulative Security 10
6.3 Continuing Agreement 10
6.4 Cumulative Rights 11
6.5 Exercise of Rights 11
6.6 Remedy and Waiver 11
6.7 Non-Judicial Remedies 11
6.8 Preservation of Liability 11
6.9 Notices and Other Communications 11
6.10 Parties in Interest 12
6.11 Amendment and Waiver 12
6.12 Invalidity 12
6.13 GOVERNING LAW 12
6.14 JURISDICTION AND VENUE 13
6.15 WAIVER OF RIGHTS TO JURY TRIAL 13
6.16 ENTIRE AGREEMENT 13
<PAGE>
SECURITY AGREEMENT
(Stock Pledge)
THIS SECURITY AGREEMENT (this "Security Agreement") dated as of the
1st day of February, 1995, is entered into between HOWELL CORPORATION, a
Delaware corporation (the "Pledgor"), and BANK ONE, TEXAS, NATIONAL ASSOCIATION,
a national banking association (the "Lender").
W I T N E S S E T H :
WHEREAS, pursuant to the terms and conditions of the Credit Agreement
dated December 23, 1994, by and between Howell Crude Oil Company, a Delaware
corporation (the "Corporation"), and the Lender (as such agreement may be
amended, restated, or supplemented from time to time, the "Credit Agreement"),
the Lender has agreed to issue letters of credit for the account of the
Corporation;
WHEREAS, the Pledgor is the owner of the shares of issued and
outstanding common stock described in Schedule I hereof (the "Securities")
issued by the Corporation;
WHEREAS, the Pledgor, as the shareholder of the Corporation, will
derive substantial direct and indirect benefits from the extension of credit by
the Lender to the Corporation; and
WHEREAS, pursuant to the terms of the Credit Agreement and as an
inducement to the Lender to issue letters of credit for the account of the
Corporation pursuant to the Credit Agreement, the Pledgor has agreed to execute
this Security Agreement in favor of the Lender;
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Pledgor hereby agrees with the Lender as follows:
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1 Terms Defined Above. As used in this Security Agreement, the
terms "Corporation," "Credit Agreement," "Lender," "Pledgor," "Securities," and
"Security Agreement" will have the meanings indicated above.
1.2 Terms Defined in Credit Agreement. Each capitalized term used
but not defined herein shall have the meaning assigned to such term in the
Credit Agreement.
1.3 Additional Defined Terms. As used in this Security Agreement,
the following terms will have the meanings indicated:
(a) "Collateral" will mean the Securities and the certificates
representing the Securities; all dividends, cash, instruments and other property
from time to time received, receivable or otherwise distributed in respect of or
in exchange for any or all of the Securities, including, without limitation, all
additional shares of stock of the Corporation from time to time acquired by the
Pledgor by way of stock dividend or stock split; the certificates representing
such additional shares; all dividends, cash, instruments or other property from
time to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of such additional shares; and all proceeds of any of
the foregoing in this definition.
(b) "Event of Default" shall mean any Event of Default, as defined in
the Credit Agreement, or the failure of the Pledgor to comply with Regulations
G, T, U or X of the Board of Governors of the Federal Reserve System, as
amended.
1.4 Undefined Financial Accounting Terms. Undefined financial
accounting terms used in this Security Agreement shall have the meanings
assigned to such terms according to GAAP.
1.5 Terms Defined in Texas Business and Commerce Code. Any term used
herein that is defined in the Texas Business and Commerce Code shall have the
meaning assigned to such term therein, unless the context otherwise requires or
such term is otherwise defined herein.
1.6 References. The words "hereby," "herein," "hereinabove,"
"hereinafter," "hereinbelow," "hereof," "hereunder," and words of similar import
when used in this Security Agreement shall refer to this Security Agreement as a
whole and not to any particular Article, Section, or provision of this Security
Agreement. References in this Security Agreement to Article or Section numbers
are to such Articles or Sections of this Security Agreement unless otherwise
specified.
1.7 Articles and Sections. This Security Agreement, for convenience
only, has been divided into Articles and Sections; and it is understood that the
rights and other legal relations of the parties hereto shall be determined from
this instrument as an entirety and without regard to the aforesaid division into
Articles and Sections and without regard to headings prefixed to such Articles
or Sections.
1.8 Number and Gender. Whenever the context requires, reference
herein made to the single number shall be understood to include the plural; and
likewise, the plural shall be understood to include the singular. Words
denoting sex shall be construed to include the masculine, feminine and neuter,
when such construction is appropriate; and specific enumeration shall not
exclude the general but shall be construed as cumulative. Definitions of terms
defined in the singular or plural shall be equally applicable to the plural or
singular, as the case may be, unless otherwise indicated.
ARTICLE 2
SECURITY INTEREST
2.1 Grant of Security Interest in Collateral. The Pledgor, for value
received, the receipt and sufficiency of which are hereby acknowledged, and to
induce the Lender to issue Letters of Credit for the benefit of the Corporation,
hereby pledges to the Lender and hereby grants to the Lender a first lien on and
a security interest in the Collateral to secure the Obligations.
2.2 Delivery of Securities. All certificates or instruments
representing or evidencing the Securities shall be delivered to and held by the
Lender for the sole purpose of possession of the Collateral or any portion
thereof pursuant to this Security Agreement, and shall be in suitable form for
transfer by delivery, or shall be accompanied by duly executed instruments of
transfer or assignment in blank, all in form and substance satisfactory to the
Lender. The Lender shall at all times have actual possession of the Securities
and shall be deemed to have possession of any of the Collateral in transit to it
or set apart for it.
2.3 Power of Attorney. The Pledgor hereby irrevocably constitutes
and appoints the Lender and any authorized officer or agent thereof, with full
power of substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of the Pledgor and in the
name of the Pledgor or in its own name, from time to time in the Lender's
discretion, for the purpose of carrying out the terms of this Security
Agreement, and without notice to the Pledgor, to take any and all appropriate
action and to execute any and all documents and instruments which may be
necessary or desirable to accomplish the purposes of this Security Agreement,
including, without limitation, the following:
(a) upon the occurrence and during the continuance of any Event of
Default, to transfer to or register any or all of the Collateral in the name of
the Lender or any of its nominees;
(b) to exchange the certificates or instruments representing or
evidencing the Collateral for certificates or instruments of smaller or larger
denominations;
(c) upon the occurrence and during the continuance of any Event of
Default, (i) to receive payment of and receipt for any and all moneys, claims
and other amounts due and to become due at any time in respect of or arising out
of any Collateral, (ii) to commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction to
collect the Collateral or any part thereof and to enforce any other right in
respect of any Collateral, (iii) to defend any suit, action or proceeding
brought against the Pledgor with respect to any Collateral, (iv) to settle,
compromise or adjust any suit, action or proceeding described above and, in
connection therewith, to give such discharges or releases as the Lender may deem
appropriate, and (v) to complete any blanks contained in any instruments of
transfer or assignment appended to or delivered with the certificates
representing the Securities; and
(d) to exchange any of the Collateral for other property upon
reorganization, recapitalization or other readjustment of the Corporation, and
in connection therewith to deposit any of the Collateral with any committee or
depository upon such terms as the Lender may determine; and, subsequent to any
Event of Default, to exercise, at the option of the Lender, voting rights as to
any of the Collateral;
all without notice and without liability except to account for property actually
received by the Lender.
The Pledgor hereby ratifies all that said attorney shall lawfully do
or cause to be done within the scope of the power of attorney granted hereunder.
This power of attorney is a power coupled with an interest and shall be
irrevocable so long as any Obligation remains outstanding or any Commitment
exists. The powers conferred on the Lender hereunder are solely to protect its
interests in the Collateral and shall not impose any duty upon it to exercise
any such powers. The Lender shall be accountable only for amounts that it
actually receives as a result of the exercise of such powers and neither it nor
any of its officers, directors, employees or agents shall be responsible to the
Pledgor for any act or failure to act, except for gross negligence.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into the Credit Agreement and issue
Letters of Credit for the account of the Corporation, the Pledgor represents and
warrants to the Lender (which representations and warranties shall survive the
delivery of this Security Agreement and the other Loan Documents) that:
3.1 Status of Securities. All signatures on the Securities are
genuine or authorized; the transfer of the Securities by the Pledgor to the
Lender is effective; the Pledgor knows of no fact that might impair the validity
of the Securities; and the Securities (a) have been duly authorized, validly
issued, drawn, made, and/or accepted, (b) are genuine, validly outstanding,
fully paid, and nonassessable, (c) were not issued in violation of the
preemptive rights of any Person or any agreement by which the Pledgor or any
issuer of such Collateral is bound, and (d) have not been materially altered.
3.2 No Material Misstatements. No information, exhibit, or report
furnished by the Pledgor to the Lender in connection with the negotiation of any
Loan Document contained or contains any material misstatement of fact or omitted
to state a material fact or any fact necessary to make the statements contained
therein, in light of the circumstances in which they were made, not misleading.
3.3 Ownership and Liens. Except for the security interest of the
Lender, the Pledgor owns (and at the time of transfer or delivery of the
Collateral to the Lender owned or will own) good and indefeasible title to the
Collateral free and clear of any other security interests, liens, adverse
claims, or options; the Pledgor has (and at the time of transfer or delivery of
the Collateral to the Lender had or will have) full right, power, and authority
to convey, assign, transfer, and deliver the Collateral to the Lender and to
grant a security interest in the Collateral to the Lender in the manner provided
herein.
ARTICLE 4
COVENANTS AND AGREEMENTS
Unless agreed in writing by the Lender to the contrary, the Pledgor
agrees, so long as any Obligation remains outstanding or unpaid or any
Commitment exists:
4.1 Payment of Assessments and Charges. To pay all taxes, charges,
liens and assessments against the Collateral; and upon the failure of the
Pledgor to do so, the Lender at its option may, but will not be obligated to,
pay any of them.
4.2 Delivery of Collateral. That any and all
(i) dividends paid or payable other than in cash and all instruments
and other property received, receivable or otherwise distributed in respect of
or in exchange for any Collateral,
(ii) dividends and other distributions paid or payable in cash in
respect of any Collateral in connection with a partial or total liquidation or
dissolution or in connection with a reduction of capital, capital surplus or
paid-in surplus, and
(iii) cash paid, payable or otherwise distributed in respect of
principal of, in redemption of or in exchange for any Collateral,
shall be forthwith delivered to the Lender to hold as Collateral for the benefit
of the Lender and shall, if received by the Pledgor, be received in trust for
the benefit of the Lender, be segregated from the other property or funds of the
Pledgor, and be forthwith delivered to the Lender as Collateral in the same form
as so received (with any necessary endorsement).
4.3 Further Assurances. To promptly cure any defects in the
execution and delivery of any of the Loan Documents executed by the Pledgor and
execute, acknowledge, and deliver such other assurances and instruments and take
such other action as shall, in the opinion of the Lender, be necessary to
fulfill the terms of the Loan Documents executed by the Pledgor and to confirm,
perfect, and preserve the security interest created and intended to be created
hereby and to vest more completely in and assure to the Lender its rights under
this Security Agreement.
4.4 Prohibited Liens and Filings. That it will not pledge, mortgage,
or otherwise encumber, create, or suffer a security interest to exist in any of
the Collateral (other than in favor of the Lender) or sell, assign, or otherwise
transfer any of the Collateral to anyone other than the Lender or file or permit
to be filed any financing statement or other security instrument with respect to
the Collateral other than in favor of the Lender.
ARTICLE 5
RIGHTS AND REMEDIES
5.1 Remedies Upon Default. (a) Upon the occurrence and during the
continuance of an Event of Default, the Lender may, at its option, declare all
Obligations immediately due and payable, without presentment, demand, protest,
notice of protest, default or dishonor, notice of intent to accelerate maturity,
notice of acceleration of maturity or other notice of any kind, all of which are
hereby expressly waived by the Pledgor, and may exercise any and all other
remedies provided by law or pursuant to the Loan Documents.
(b) If all or any part of the Obligations shall become due and
payable, the Lender may then, or at any time thereafter, apply, set-off,
collect, sell in one or more sales, or otherwise dispose of, any or all of the
Collateral, in its then condition or following any commercially reasonable
preparation or processing, in such order as the Lender may elect. Any such sale
may be made either at public or private sale at the place of business of the
Lender, any brokers' board or securities exchange or elsewhere, either for cash
or upon credit or for future delivery, at such price as the Lender may deem
fair. The Lender may be the purchaser of any or all Collateral so sold and may
hold the same thereafter in its own right free from any claim of the Pledgor or
right of redemption. No such purchase or holding by the Lender shall be deemed
a retention by the Lender in satisfaction of the Obligations. All demands,
notices, and advertisements, and the presentment of property at sale are hereby
waived. If, notwithstanding the foregoing provisions, any applicable provision
of the Uniform Commercial Code or other law requires the Lender to give
reasonable notice of any such sale or disposition or other action, ten days'
prior written notice shall constitute reasonable notice. The Lender may require
the Pledgor to assemble the Collateral and make it available to the Lender at a
place designated by the Lender that is reasonably convenient to the Lender and
the Pledgor. Any sale hereunder may be conducted by an auctioneer or any
officer or agent of the Lender.
(c) In connection with the sale of Collateral which is stock or other
investment securities, the Lender must limit prospective purchasers to the
extent deemed necessary or advisable by the Lender to render such sale exempt
from the registration requirements of the Securities Act of 1933, as amended
(the "Act"), and any applicable state securities laws. No sale so made in good
faith by the Lender shall be deemed not to be "commercially reasonable" because
so made; provided, however, that nothing in this Security Agreement shall be
deemed to impose any obligation whatsoever to file a registration statement
under the Act or any state securities law with respect to any sale of Collateral
by the Lender.
5.2 Voting Rights, Dividends, Etc. Prior to Default.
So long as no Event of Default shall have occurred and be continuing:
(a) the Pledgor will be entitled to exercise any and all voting and
other consensual rights pertaining to the Collateral or any part thereof for any
purpose not inconsistent with the terms of this Security Agreement;
(b) subject to the further provisions of this Security Agreement, the
Pledgor shall be entitled to receive and retain any and all dividends paid in
respect of the Collateral; provided, however, that any and all
(i) dividends paid or payable other than in cash and all
instruments and other Property received, receivable, or otherwise distributed in
respect of or in exchange for any Collateral,
(ii) dividends and other distributions paid or payable in cash in
respect of any Collateral in connection with a partial or total liquidation or
dissolution or in connection with a reduction of capital, capital surplus or
paid-in surplus, and
(iii) cash paid, payable or otherwise distributed in respect of
principal of, in redemption of or in exchange for any Collateral,
shall be forthwith delivered to the Lender to hold as Collateral for the
benefit of the Lender and shall, if received by the Pledgor, be received in
trust for the benefit of the Lender, be segregated from the other property or
funds of the Pledgor, and be forthwith delivered to the Lender as Collateral in
the same form as so received (with any necessary endorsement); and
(c) the Lender shall execute and deliver (or cause to be executed and
delivered) to the Pledgor all such proxies and other instruments as the Pledgor
may reasonably request for the purpose of enabling the Pledgor to exercise the
voting and other rights which it is entitled to exercise pursuant to Section
5.2(a) above and to receive the dividends which it is authorized to receive and
retain.
5.3 Voting Rights, Dividends, Etc. After Default. Upon the
occurrence and during the continuance of an Event of Default:
(a) at the option of the Lender with notice to the Pledgor, all
rights of the Pledgor to exercise the voting and other consensual rights which
it would otherwise be entitled to exercise pursuant to Section 5.2(a) above and
to receive the dividends and interest payments which it would otherwise be
authorized to receive and retain pursuant to Section 5.2(b) above shall cease
and shall thereupon become vested in the Lender, who shall thereupon have the
sole right to exercise such voting and other consensual rights and to receive
and hold as Collateral such dividends; and
(b) all dividends which are received by the Pledgor contrary to the
provisions of Section 5.3(a) above shall be received in trust for the benefit of
the Lender, shall be segregated from other funds of the Pledgor and shall be
forthwith paid over to the Lender as Collateral in the same form as so received
(with any necessary endorsement).
5.4 Proceeds. Prior to all or any part of the Obligations becoming
due and payable as specified in Section 5.1, all cash sums or other property
received by the Lender on account of the Collateral shall be held as Collateral.
After all or any part of the Obligations shall become due and payable as
specified in Section 5.1, the proceeds of any sale or other disposition of the
Collateral and all sums received or collected by the Lender from or on account
of the Collateral shall be applied by the Lender in the manner set forth in
9.504 of the UCC.
5.5 Lender Duties. The Lender shall be under no duty whatsoever to
make or give any presentment, demand for performance, notice of nonperformance,
protest, notice of protest, notice of dishonor, or other notice or demand in
connection with any Collateral or the Obligations, or to take any steps
necessary to preserve any rights against prior parties. The Lender shall not be
liable for failure to collect or realize upon any or all of the Obligations or
Collateral, or for any delay in so doing, nor shall the Lender be under any duty
to take any action whatsoever with regard thereto. The Lender shall use
reasonable care in the custody and preservation of any Collateral in its posses
sion. The Lender shall have no duty to comply with any recording, filing, or
other legal requirements necessary to establish or maintain the validity,
priority, or enforceability of, or the Lender's rights in or to, any of the
Collateral.
5.6 The Lender's Actions. The Pledgor waives any right to require
the Lender to proceed against any person, exhaust any collateral or pursue any
other remedy in the Lender's power; waives any and all notice of acceptance of
this Security Agreement or of creation, modification, renewal, or extension for
any period of any Obligations; and waives any defense arising by reason of any
disability or other defense of the Corporation or any other guarantor or Person
primarily or secondarily liable with respect to all or any portion of the
Obligations ("Other Liable Party"), or by reason of the cessation from any cause
whatsoever of the liability of the Corporation or any Other Liable Party. All
dealings between the Corporation or the Pledgor and the Lender shall
conclusively be presumed to have been had or consummated in reliance upon this
Security Agreement. Until all Obligations shall have been paid and/or performed
in full and the Commitment shall have terminated, the Pledgor (i) shall have no
right to subrogation, (ii) waives any right to enforce any remedy that the
Lender now has or may hereafter have against the Corporation or any Other Liable
Party, and (iii) except as otherwise expressly provided in this Security
Agreement, waives any benefit of and right to participate in any collateral or
security whatsoever now or hereafter held by the Lender.
ARTICLE 6
MISCELLANEOUS
6.1 Transfer of Obligations and Collateral. Subject to the terms of
the Credit Agreement, the Pledgor hereby agrees that the Lender may transfer any
or all of the Obligations. Upon any such transfer, the Lender may transfer any
or all of the Collateral and shall be fully discharged thereafter from all
liability with respect to the Collateral so transferred, and the transferee
shall be vested with all rights, powers, and remedies of the Lender hereunder
with respect to Collateral so transferred. With respect to any Collateral not
so transferred, the Lender shall retain all rights, powers, and remedies hereby
given. The Lender may at any time deliver any or all of the Collateral to the
Pledgor, whose receipt shall be a complete and full acquittance for the Collat
eral so delivered, and the Lender shall thereafter be discharged from any
liability therefor.
6.2 Cumulative Security. The execution and delivery of this Security
Agreement in no manner shall impair or affect any other security (by endorsement
or otherwise) for the payment of the Obligations. No security taken hereafter
as security for payment of all or any portion of the Obligations shall impair in
any manner or affect this Security Agreement. All such present and future
additional security is to be considered as cumulative security.
6.3 Continuing Agreement. This is a continuing agreement and the
conveyance hereunder shall remain in full force and effect and all the rights,
powers, and remedies of the Lender hereunder shall continue to exist until the
Obligations shall be paid in full as the same become due and payable, the
Commitment has terminated, and the Lender, upon request of the Pledgor, has
executed a written termination statement, reassigned to the Pledgor, without
recourse, the Collateral and all rights and liens conveyed hereby and returned
possession of the Collateral to the Pledgor. Furthermore, it is contemplated by
the parties hereto that there may be times when no Obligations shall be owing.
Notwithstanding such occurrences, this Security Agreement shall remain valid and
shall be in full force and effect as to subsequent Obligations provided that the
Lender has not executed a written termination statement and returned possession
of the Collateral to the Pledgor. Otherwise, this Security Agreement shall
continue irrespective of the fact that the liability of the Corporation or any
Other Liable Party may have ceased and notwithstanding the death or incapacity
of the Pledgor or any Other Liable Party or any other event or proceeding
affecting the Corporation, the Pledgor, and/or any Other Liable Party.
6.4 Cumulative Rights. The rights, powers, and remedies of the
Lender hereunder shall be in addition to all rights, powers, and remedies given
by statute or rule of law and are cumulative. The exercise of any one or more
of the rights, powers, and remedies provided herein shall not be construed as a
waiver of any other rights, powers, and remedies of the Lender. The Lender
shall have the rights, powers, and remedies of a secured party under the Texas
Business and Commerce Code, as amended.
6.5 Exercise of Rights. Time shall be of the essence for the
performance of any act under this Security Agreement by the Pledgor, but neither
the Lender's acceptance of partial or delinquent payments nor any forbearance,
failure, or delay by the Lender in exercising any right, power or remedy shall
be deemed a waiver of any obligation of the Pledgor, the Corporation, or any
Other Liable Party or of any right, power, or remedy of the Lender or preclude
any other or further exercise thereof; and no single or partial exercise of any
right, power, or remedy shall preclude any other or further exercise thereof or
the exercise of any other right, power, or remedy.
6.6 Remedy and Waiver. The Lender may remedy or waive any default
without waiving the default remedied or waiving any prior or subsequent default.
6.7 Non-Judicial Remedies. The Lender may enforce its rights
hereunder without prior judicial process or judicial hearing. The Pledgor
expressly waives, renounces, and knowingly relinquishes any and all legal rights
which might otherwise require the Lender to enforce its rights by judicial
process. In so providing for non-judicial remedies, the Pledgor recognizes and
concedes that such remedies are consistent with the usage of the trade, are
responsive to commercial necessity and are the result of bargain at arm's
length. Nothing herein is intended to prevent the Lender or the Pledgor from
resorting to judicial process at such party's option.
6.8 Preservation of Liability. Neither this Security Agreement nor
the exercise by the Lender of (or the failure to so exercise) any right, power,
or remedy conferred herein or by law shall be construed as relieving the Pledgor
or any Other Liable Party from full liability thereon and for any deficiency
thereon.
6.9 Notices and Other Communications. Except as to verbal notices
expressly authorized herein, which verbal notices shall be confirmed in writing,
all notices, requests, and communications hereunder shall be in writing
(including by telecopy). Unless otherwise expressly provided herein, any such
notice, request, demand, or other communication shall be deemed to have been
duly given or made when delivered by hand, or, in the case of delivery by mail,
when deposited in the mail, certified mail, return receipt requested, postage
prepaid, or, in the case of telecopy notice, when receipt thereof is
acknowledged orally or by written confirmation report, addressed as follows:
(a) if to the Lender, to:
Bank One, Texas, National Association
910 Travis
Houston, Texas 77002
Attention: Energy Group
(or for notice by mail, to:
P. O. Box 2629
Houston, Texas 77252-2629
Attention: Energy Group)
Telecopy: (713) 751-3544
(b) if to the Pledgor, to:
Howell Corporation
1111 Fannin, Suite 1500
Houston, Texas 77002
Attention: Allyn Skelton
Telecopy: (713) 658-4007
Any party may, by proper written notice hereunder to the others,
change the individuals or addresses to which such notices to it shall thereafter
be sent.
6.10 Parties in Interest. All covenants and agreements herein
contained by or on behalf of the Pledgor or the Lender shall be binding upon and
inure to the benefit of the Pledgor or the Lender, as the case may be, and their
respective legal representatives, successors, and assigns.
6.11 Amendment and Waiver. This Security Agreement may not be amended
nor may any of its terms be waived except in writing duly signed by the party
against whom enforcement of the amendment or waiver is sought.
6.12 Invalidity. If any provision of this Security Agreement is
rendered or declared illegal, invalid, or unenforceable by reason of any
existing or subsequently enacted legislation or by a judicial decision that has
become final, the Pledgor and the Lender shall promptly meet and negotiate
substitute provisions for those rendered illegal, invalid, or unenforceable, but
all of the remaining provisions shall remain in full force and effect.
6.13 GOVERNING LAW. THIS SECURITY AGREEMENT SHALL BE DEEMED TO BE A
CONTRACT MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF
RELATING TO CONFLICTS OF LAW, PROVIDED, HOWEVER, THAT VERNON'S TEXAS CIVIL
STATUTES, ARTICLE 5069, CHAPTER 15 (WHICH REGULATES CERTAIN REVOLVING CREDIT
LOAN ACCOUNTS AND REVOLVING TRI-PARTY ACCOUNTS) SHALL NOT APPLY.
6.14 JURISDICTION AND VENUE. ALL ACTIONS OR PROCEEDINGS WITH RESPECT
TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO, OR
FROM THIS SECURITY AGREEMENT OR ANY OTHER LOAN DOCUMENT TO WHICH THE PLEDGOR IS
A PARTY MAY BE LITIGATED, AT THE SOLE DISCRETION AND ELECTION OF THE LENDER, IN
COURTS HAVING SITUS IN HOUSTON, HARRIS COUNTY, TEXAS. THE PLEDGOR HEREBY
SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE, OR FEDERAL COURT LOCATED IN
HOUSTON, HARRIS COUNTY, TEXAS, AND HEREBY WAIVES ANY RIGHTS IT MAY HAVE TO
TRANSFER OR CHANGE THE JURISDICTION OR VENUE OF ANY LITIGATION BROUGHT AGAINST
IT BY THE LENDER IN ACCORDANCE WITH THIS SECTION.
6.15 WAIVER OF RIGHTS TO JURY TRIAL. THE PLEDGOR AND THE LENDER
HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, IRREVOCABLY, AND UNCONDITIONALLY
WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING, COUNTERCLAIM,
OR OTHER LITIGATION THAT RELATES TO OR ARISES OUT OF ANY OF THIS SECURITY
AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE ACTS OR OMISSIONS OF THE LENDER IN
THE ENFORCEMENT OF ANY OF THE TERMS OR PROVISIONS OF THIS SECURITY AGREEMENT OR
ANY OTHER LOAN DOCUMENT OR OTHERWISE WITH RESPECT THERETO. THE PROVISIONS OF
THIS SECTION ARE A MATERIAL INDUCEMENT FOR THE LENDER ENTERING INTO THE CREDIT
AGREEMENT.
6.16 ENTIRE AGREEMENT. THIS SECURITY AGREEMENT CONSTITUTES THE
ENTIRE AGREEMENT BETWEEN THE PARTIES HERETO WITH RESPECT TO THE SUBJECT HEREOF
AND SHALL SUPERSEDE ANY PRIOR AGREEMENTS, WHETHER WRITTEN OR ORAL, BETWEEN THE
PARTIES HERETO RELATING TO THE SUBJECT HEREOF. FURTHERMORE, IN THIS REGARD,
THIS SECURITY AGREEMENT AND THE OTHER WRITTEN LOAN DOCUMENTS REPRESENT,
COLLECTIVELY, THE FINAL AGREEMENT AMONG THE PARTIES THERETO AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF SUCH PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG SUCH
PARTIES.
IN WITNESS WHEREOF, this Security Agreement is executed as of the date
first above written.
DEBTOR
HOWELL CORPORATION
By: /s/ Paul W. Funkhouser
Printed Name: Paul W. Funkhouser
Title: President
BANK ONE, TEXAS, NATIONAL
ASSOCIATION
By: /s/ Stephen M. Smith
Stephen M. Smith
Vice President
<PAGE>
SCHEDULE I
Stock Number
Stock Class of Certificate Par of
Issuer Stock No. Value Shares
Howell Crude Common No. 1 1.00 1,000
Oil Company
EXHIBIT 11
<TABLE>
HOWELL CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
<CAPTION>
Year Ended December 31,
1994 1993 1992
(In thousands, except per share amounts)
<S> <C> <C> <C>
PRIMARY EARNINGS PER SHARE
Computation for Statement of Earnings
Reconciliation of net income per statement
of earnings to amount used in calculation
of earnings per share - assuming
no dilution:
Net earnings $2,883 $2,527 $ 431
Subtract - Dividend to preferred
shareholders 2,415 1,657 -
------ ------ ------
Net earnings, as adjusted $ 468 $ 870 $ 431
====== ====== ======
Weighted average number of common
shares outstanding 4,837 4,823 4,811
====== ====== ======
Earnings per share - assuming no
dilution <F1> $ .10 $ .18 $ .09
====== ====== ======
Additional Primary Computation
Net earnings, as adjusted per primary
computation above $ 468 $ 870 $ 431
====== ====== ======
Adjustment to weighted average number of
shares outstanding:
Weighted average number of shares
outstanding per primary
computation above 4,837 4,823 4,811
Add - Dilutive effect of outstanding
options (as determined by
application of the treasury stock
method) 56 58 38
------ ------ ------
Weighted average number of shares
outstanding, as adjusted 4,893 4,881 4,849
====== ====== ======
Primary earnings per share, as adjusted $ .10 <F2> $ .18 <F2> $ .09 <F2>
====== ====== ======
<PAGE>
FULLY DILUTED EARNINGS PER SHARE
Computation for Statement of Earnings
Net earnings, as adjusted per primary
computation above $468 $ 870 $ 431
====== ====== ======
Weighted average number of common shares
outstanding, per primary computation
above 4,837 4,823 4,811
====== ====== ======
Earnings per share - assuming full
dilution <F1> $ .10 $ .18 $ .09
====== ====== ======
Additional Fully Diluted Computation
Additional adjustment to net earnings,
as adjusted per fully diluted
computation above:
Net earnings, as adjusted per
fully diluted computation above $ 468 $ 870 $ 431
Add - Dividend to preferred
shareholders 2,415 1,657 -
------ ----- ------
Net earnings, as adjusted $2,883 $2,527 $ 431
====== ====== ======
Additional adjustment to weighted
average number of shares outstanding:
Weighted average number of shares
outstanding, per fully diluted
computation above 4,837 4,823 4,811
Add - Dilutive effect of
outstanding options (as determined
by the application of the treasury
stock method) 56 59 49
Weighted average number of shares
issuable from assumed exercise
of convertible preferred stock 2,091 1,530 -
------ ------ ------
Weighted average number of common
shares, as adjusted 6,984 6,412 4,860
====== ====== ======
Fully diluted earnings per share $ .41 <F3> $ .39 <F3> $ .09 <F2>
====== ====== ======
<FN>
<F1>
These amounts agree with the reported amounts on the statements of earnings.
<F2>
This calculation is submitted in accordance with Regulation S-K item 601(b)(11)
although not required by footnote 2 to paragraph 14 of APB Opinion No. 15
because it results in dilution of less than 3%.
<F3>
This calculation is submitted in accordance with Regulation S-K item 601(b)(11)
although it is contrary to paragraph 40 of APB Opinion No. 15 because it
produces an anti-dilutive result.
</FN>
</TABLE>
EXHIBIT 21
HOWELL CORPORATION
Parent and Subsidiaries
December 31, 1994
The following is a list of all significant operating subsidiaries of the
Company on December 31, 1994. Each of the subsidiaries is included in the
Company's Consolidated Financial Statements.
<TABLE>
<CAPTION>
Percentage of
Voting Securities
Jurisdiction of Held by
Incorporation Immediate Parent
<S> <C> <C>
Howell Corporation Delaware <F1>
Howell Crude Oil Company Delaware 100%
Howell Gas Management Company Delaware 100%
Howell Hydrocarbons & Chemicals, Inc. Delaware 100%
Howell Petroleum Corporation Delaware 100%
Howell Power Systems, Inc. Delaware 100%
Howell Transportation Services, Inc. Delaware 100%
__________________________
<FN>
<F1>
Paul N. Howell may be considered a "parent" of the Company. On December 31,
1994, Mr. Howell is deemed to own "beneficially", as that term is defined in
Rule 13(d)(3) of the General Rules and Regulations under the Securities Exchange
Act of 1934, 24% of the voting securities of the Company.
</FN>
</TABLE>
EXHIBIT 23
HOWELL CORPORATION
Independent Auditors' Consent
To Howell Corporation:
We consent to the incorporation by reference in
Registration Statement No. 33-28389 of Howell Corporation on
Form S-8 of our report dated February 27, 1995, appearing in
this Annual Report on Form 10-K of Howell Corporation for
the year ended December 31, 1994.
DELOITTE & TOUCHE LLP
Houston, Texas
March 15, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL STATEMENT INFORMATION FROM THE FORM 10-K OF
HOWELL CORPORATION FOR THE YEAR ENDED DECEMBER 31, 1994 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 3340
<SECURITIES> 0
<RECEIVABLES> 48432
<ALLOWANCES> 214
<INVENTORY> 2655
<CURRENT-ASSETS> 55947
<PP&E> 317467
<DEPRECIATION> 192694
<TOTAL-ASSETS> 182440
<CURRENT-LIABILITIES> 54000
<BONDS> 33098
<COMMON> 4837
0
690
<OTHER-SE> 70392
<TOTAL-LIABILITY-AND-EQUITY> 182440
<SALES> 448952
<TOTAL-REVENUES> 448952
<CGS> 431783
<TOTAL-COSTS> 431783
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2237
<INCOME-PRETAX> 4251
<INCOME-TAX> 1368
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2883
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
