- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): October 29, 1999
EMERGING ALPHA CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 33-61888-FW 72-1235449
(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
220 Camp Street
New Orleans, Louisiana 70130
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (504) 524-1801
- --------------------------------------------------------------------------------
<PAGE>
Item 2. Acquisition or Disposition of Assets
On October 29, 1999, pursuant to the terms of the Stock Purchase Agreement
by and among Emerging Alpha Corporation ("Emerging Alpha") and the stockholders
of Gas Jack, Inc., an Oklahoma corporation ("Gas Jack"), Emerging Alpha acquired
all of the outstanding capital stock of Gas Jack for $2.7 million in cash. The
purchase price was financed through a $2.8 million term loan facility provided
by Hibernia National Bank to Emerging Alpha. In addition, Emerging Alpha and Gas
Jack entered into a $1.0 million working capital facility with Hibernia National
Bank primarily to be used to finance the working capital requirements of Gas
Jack.
Gas Jack is now a wholly owned subsidiary of Emerging Alpha and its
principal operating subsidiary. Gas Jack is a compressor manufacturer and
service provider to the oil and gas industry. Gas Jack is based in Oklahoma
City, Oklahoma and has field operations in Oklahoma, Texas, New Mexico, Kansas,
Arkansas and Colorado.
In addition, on October 29, 1999, Emerging Alpha acquired all of the
outstanding units of GJ Measurement, L.L.C., an Oklahoma limited liability
company, for 33,333 shares of Emerging Alpha common stock. GJ Measurement is now
wholly owned subsidiary of Emerging Alpha. GJ Measurement is a natural gas
measurement and testing service company.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired.
To be filed by amendment.
(b) Pro Forma Financial Information.
To be filed by amendment.
(c) Exhibits.
10.1 Stock Purchase Agreement, dated as of October 29, 1999, by and among
Emerging Alpha Corporation and the Stockholders of Gas Jack, Inc.
10.2 Loan Agreement, dated as of October 29, 1999, by and between Hibernia
National Bank and Emerging Alpha Corporation.
10.3 Loan Agreement, dated as of October 29, 1999, by and among Hibernia
National Bank, Emerging Alpha Corporation and Gas Jack, Inc.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EMERGING ALPHA CORPORATION
Date: November 9, 1999 By: /s/ JERRY W. JARRELL
--------------------------
Jerry W. Jarrell
Chief Financial Officer
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number
- -------
10.1 Stock Purchase Agreement, dated as of October 29, 1999, by and among
Emerging Alpha Corporation and the Stockholders of Gas Jack, Inc.
10.2 Loan Agreement, dated as of October 29, 1999, by and between Hibernia
National Bank and Emerging Alpha Corporation.
10.3 Loan Agreement, dated as of October 29, 1999, by and among Hibernia
National Bank, Emerging Alpha Corporation and Gas Jack, Inc.
STOCK PURCHASE AGREEMENT
by
and
between
EMERGING ALPHA CORPORATION,
and
THE STOCKHOLDERS OF GAS JACK, INC.
Dated as of October 29, 1999
<PAGE>
ATTACHMENTS
Appendix I - Definitions
Exhibit A - List of Sellers and Share Ownership
Exhibit B - Form of Escrow Agreement
Exhibit C - Form of Employment Agreement
Disclosure Schedules
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is made as of October 29,
1999, by and among (i) Emerging Alpha Corporation, a Delaware corporation
("Buyer"), and (ii) each stockholder of Gas Jack, Inc., an Oklahoma corporation
(the "Company"), set forth in Exhibit A (individually, "Seller" and
collectively, "Sellers").
RECITALS:
WHEREAS, Sellers own all of the outstanding capital stock of the Company;
and
WHEREAS, Buyer desires to purchase from Sellers all of the Company's
outstanding capital stock, and Sellers desire to sell to Buyer all of the
Company's outstanding capital stock, in accordance with this Agreement's terms
and conditions.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants contained herein, Buyer and each Seller agree as follows:
ARTICLE 1.
PURCHASE AND SALE OF SHARES
1.1 Purchase and Sale of Shares. On and subject to the terms and conditions
of this Agreement, Buyer agrees to purchase from each Seller, and each Seller
agrees to sell to Buyer, all of the Shares such Seller owns for the
consideration specified in Section 1.2.
1.2 Purchase Price. The purchase price for the Shares is $2,700,000 (the
"Purchase Price"). The Purchase Price will be allocated among Sellers in
proportion to their respective holdings of Shares as set forth in Exhibit A.
1.3 The Closing. The closing of the purchase and sale of the Shares (the
"Closing") will take place at the offices of the Company at 8224 SW 3rd Street,
Oklahoma City, Oklahoma, commencing at 9:00 a.m., local time, on the business
day following the satisfaction or waiver of all conditions to the obligations of
the Parties to consummate the purchase and sale of the Shares (other than
conditions with respect to actions the respective Parties will take at the
Closing itself) or such other date as Buyer and the Requisite Sellers may
mutually determine (the "Closing Date").
1.4 Deliveries at the Closing. At the Closing:
(a) Sellers will deliver to Buyer:
(i) certificates representing the Shares, duly endorsed (or
accompanied by duly executed stock powers);
<PAGE>
(ii) a certificate, duly executed by or on behalf of each Seller
and the Company, as to whether each condition specified in
Sections 6.1(a)-(h) has been satisfied in all respects;
(iii) except as contemplated by Section 1.4(a)(iv), a copy of each
Organization Document of the Company;
(iv) a certificate of incorporation and good standing/existence
of the Company certified by an appropriate authority of the
Governmental Authority issuing such certificate;
(v) secretary's certificates of each of the Sellers that is not
an individual in a form reasonably acceptable to Buyer;
(vi) opinion of counsel to Sellers in a form reasonably
acceptable to Buyer; and
(vii) the resignation, effective as of the Closing, of Chen Ding
as director of the Company;
(b) Buyer will deliver to Sellers:
(i) $2,200,000 in cash, via Fedwire transfer, which will be
allocated among Sellers as set forth in Exhibit ------- A;
(ii) $500,000 to be deposited into the escrow account established
in accordance with the Escrow Agreement;
(iii) a certificate, duly executed on behalf of Buyer, as to
whether each condition specified in Section 6.2(a)-(c) has
been satisfied in all respects;
(iv) a certificate of incorporation and good standing/existence
of Buyer certified by an appropriate authority of the
Governmental Authority issuing such certificate; and
(v) the Employment Agreements, duly executed on behalf of Buyer.
(c) The respective parties thereto will execute and deliver the
Employment Agreements (and Sellers will cause the Company to execute and
deliver the Employment Agreements.)
(d) The parties thereto will execute and deliver the Escrow Agreement
(and Sellers and Buyer will use their Best Efforts to cause the Escrow
Agent to execute and deliver the Escrow Agreement).
2
<PAGE>
ARTICLE 2.
REPRESENTATIONS AND WARRANTIES
CONCERNING THE TRANSACTION
2.1 Representations and Warranties of Sellers. Each Seller hereby severally
and not jointly represents and warrants to Buyer that the statements contained
in this Section 2.1 as to such Seller (but not as to any other Seller) are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Section
2.1).
(a) Status of Certain Sellers. Each Seller that is an entity is an
entity duly created, formed or organized, validly existing, and in good
standing under the Laws of the jurisdiction of its creation, formation, or
organization. There is no pending or, to each Seller's Knowledge,
Threatened, Action (or Basis therefor) for the dissolution, liquidation,
insolvency, or rehabilitation of any Seller.
(b) Power and Authority; Enforceability. Each Seller that is an entity
has the power and authority to execute and deliver each Transaction
Document to which such Seller is a party, and to perform and consummate the
Transactions. Each Seller that is an individual has the requisite
competence and authority to execute and deliver each Transaction Document
to which it is a party, and to perform and to consummate the Transactions.
Such Seller has taken all actions necessary to authorize the execution and
delivery of each Transaction Document to which it is party, the performance
of such Seller's obligations thereunder, and the consummation of the
Transactions. Each Transaction Document has been duly authorized, executed,
and delivered by, and is Enforceable against, such Seller.
(c) No Violation. The execution and the delivery of the Transaction
Documents by each Seller party thereto and the performance and consummation
of the Transactions by such Seller will not (i) Breach any Law or Order to
which such Seller is subject or, if such Seller is an entity, any provision
of its Organizational Documents, (ii) Breach any Contract, Order, or Permit
to which such Seller is a party or by which such Seller is bound or to
which any of such Seller's assets is subject, or (iii) require any Consent.
(d) Brokers' Fees. Such Seller has no Liability to pay any
compensation to any broker, finder, or agent with respect to the
Transactions for which Buyer or the Company could become directly or
indirectly Liable.
(e) Shares; Seller Information. Such Seller holds of record and owns
beneficially the number of Shares as set forth next to such Seller's name
in Exhibit A, free and clear of any Encumbrances (other than any
restrictions under the Securities Act and state securities Laws). With
respect to such Seller, Exhibit A also sets forth the address, state of
residence and federal tax identification number (or social security number,
as applicable) of such Seller as of the date hereof. Such Seller is not a
party to any Contract that could require such Seller to sell, transfer, or
otherwise dispose of any
3
<PAGE>
capital stock of the Company (other than this Agreement). Such Seller is
not a party to any Contract with respect to any capital stock of the
Company.
2.2 Representations and Warranties of Buyer. Buyer represents and warrants
to Sellers that the statements contained in this Section 2.2 are correct and
complete as of the date of this Agreement and will be correct and complete as of
the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 2.2).
(a) Entity Status. Buyer is an entity duly created, formed or
organized, validly existing and in good standing under the Laws of
Delaware. There is no pending or, to Buyer's Knowledge, Threatened, Action
(or Basis therefor) for the dissolution, liquidation, insolvency, or
rehabilitation of Buyer.
(b) Power and Authority; Enforceability. Buyer has the relevant entity
power and authority to execute and deliver each Transaction Document to
which it is party, and to perform and consummate the Transactions. Buyer
has taken all action necessary to authorize the execution and delivery of
each Transaction Document to which it is party. Each Transaction Document
to which Buyer is party has been duly authorized, executed and delivered
by, and is Enforceable against, Buyer.
(c) No Violation. The execution and delivery of the Transaction
Documents to which Buyer is party by Buyer and the performance and
consummation of the Transactions by Buyer will not (a) Beach any Law or
Order to which Buyer is subject or any provision of its Organizational
Documents; (b) Breach any Contract, Order, or Permit to which Buyer is a
party or by which it is bound or to which any of its assets is subject; or
(c) require any Consent.
(d) Brokers' Fees. Buyer has no Liability to pay any compensation to
any broker, finder, or agent with respect to the Transactions for which any
Seller could become Liable.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES
CONCERNING THE COMPANY
Each Seller severally and not jointly represents and warrants to Buyer that
the statements contained in this Article 3 are correct and complete as of the
date of this Agreement and will be correct and complete as of the Closing Date
(as though made then and as though the Closing Date were substituted for the
date of this Agreement throughout this Article 3), except as set forth in the
Disclosure Schedules delivered by Sellers to Buyer on the date hereof (the
"Schedules").
3.1 Corporate Status. The Company is a corporation duly created, formed or
organized, validly existing, and in good standing under the Laws of Oklahoma.
The Company is duly authorized to conduct its business and is in good standing
under the laws of each jurisdiction where such qualification is required. The
Company has the requisite power and authority necessary to own or lease its
properties and to carry on its businesses as currently
4
<PAGE>
conducted. Schedule 3.1 lists the Company's directors and officers. Sellers have
delivered to Buyer correct and complete copies of the Company's Organizational
Documents, as amended to date. The Company is not in Breach of any provision of
its Organizational Documents. There is no pending or, to any Seller's Knowledge,
Threatened, Action (or Basis therefor) for the dissolution, liquidation,
insolvency, or rehabilitation of the Company.
3.2 Power and Authority; Enforceability. The Company has the relevant
corporate power and authority necessary to execute and deliver each Transaction
Document to which it is a party and to perform and consummate the Transactions.
The Company has taken all action necessary to authorize the execution and
delivery of each Transaction Document to which it is a party, the performance of
the Company's obligations thereunder, and the consummation of the Transactions.
Each Transaction Document to which the Company is Party has been duly
authorized, executed, and delivered by, and is Enforceable against, the Company.
3.3 No Violation. The execution and the delivery of the applicable
Transaction Documents by the Company and the performance of its obligations
hereunder and thereunder, and consummation of the Transactions by the Company
will not (a) Breach any Law or Order to which the Company is subject or any
provision of the Organizational Documents of the Company; (b) Breach any
Contract, Order, or Permit to which the Company is a party or by which it is
bound or to which any of its assets is subject (or result in the imposition of
any Encumbrance upon any of its assets); (c) require any Consent; or (d) cause
the recognition of gain or loss for Tax purposes with respect to the Company or
subject the Company or its assets to any Tax.
3.4 Brokers' Fees. The Company will, at the time of the closing, have no
Liability to pay any compensation to any broker, finder, or agent with respect
to the Transactions.
3.5 Capitalization. The Company's authorized Equity Interests consist of
5,000,000 Shares, of which 2,364,753 Shares are issued, 1,504,319 shares are
issued and outstanding, and 864,434 Shares are held in treasury. All of the
issued and outstanding Shares: (i) have been duly authorized and are validly
issued, fully paid, and nonassessable, (ii) were issued in compliance with all
applicable state and federal securities Laws, (iii) were not issued in Breach of
any Commitments, and (iv) are held of record by the respective Sellers as set
forth in Exhibit A. No Commitments exist with respect to any Equity Interest of
the Company, and no such Commitments will arise in connection with the
Transactions. At the time of the Closing, there will be no Contracts with
respect to the voting or transfer of the Company's Equity Interests, and the
Company will not be obligated to redeem or otherwise acquire any of its
outstanding Equity Interests.
3.6 Records. The copies of the Company's Organizational Documents that were
provided to Buyer are accurate and complete and reflect all amendments made
through the date of this Agreement. The Company's minute books and other records
made available to Buyer for review were correct and complete as of the date of
such review, no further entries have been made through the date of this
Agreement that have not been made known to Buyer, such minute books and records
contain the true signatures of the persons purporting to have signed them, and
such minute books and records contain an accurate record of all actions of the
shareholders and directors of the Company taken by written consent, at a
meeting, or otherwise since formation.
5
<PAGE>
3.7 Subsidiaries. The Company has no Subsidiaries.
3.8 Financial Statements. Set forth on Schedule 3.8 are the following
financial statements (collectively the "Financial Statements"):
(a) audited balance sheets and statements of income, changes in
stockholders' equity, and cash flow as of and for the fiscal years ended
December 31, 1993, 1994, 1995, 1996 and 1997 as of and for the fiscal year
ended December 31, 1998 (the "Most Recent Year End") for the Company; and
(b) unaudited balance sheet and statement of income and cash flow (the
"Interim Financial Statements") as of and for the nine months ended
September 30, 1999 (the "Balance Sheet Date") for the Company.
The Financial Statements have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby, present fairly the
financial condition of the Company as of such dates and the results of
operations of the Company for such periods, are correct and complete, and are
consistent with the books and records of the Company; provided, however, that
the Interim Financial Statements are subject to normal year-end adjustments
(which will not be material individually or in the aggregate) and do not contain
footnotes and other presentation items.
3.9 Subsequent Events. Except as set forth in Schedule 3.9 and 3.18, since
the Balance Sheet Date there has not been any Material Adverse Change with
respect to the Company. In addition, since that date, except as set forth in
Schedules 3.9 and 3.18, none of the following has occurred to the date of this
Agreement and, except in the Ordinary Course of Business, none will occur to the
date of the closing, without the approval of Buyer.
(a) the Company has not sold, leased, transferred, or assigned any
assets other than for a fair consideration in the Ordinary Course of
Business;
(b) the Company has not entered into any Contract (or series of
related Contracts) either involving more than $10,000 or outside the
Ordinary Course of Business;
(c) no Seller that is party to any Contract to which the Company is a
party or by which it is bound or any of its assets is subject has Breached
any such Contract;
(d) no Encumbrance has been imposed upon any of the assets of the
Company;
(e) the Company has not made any capital expenditure (or series of
related capital expenditures) either involving more than $10,000 or outside
the Ordinary Course of Business;
(f) the Company has not made any capital investment in, any loan to,
or any acquisition of the securities or assets of, any other Person (or
series of related capital
6
<PAGE>
investments, loans, and acquisitions) either involving more than $10,000 or
outside the Ordinary Course of Business;
(g) the Company has not issued any note, bond, or other debt security
or created, incurred, assumed, or guaranteed any Liability for borrowed
money or capitalized lease Contract either involving more than $10,000
individually or in the aggregate;
(h) the Company has not delayed or postponed the payment of accounts
payable or other Liabilities outside the Ordinary Course of Business;
(i) the Company has not canceled, compromised, waived, or released any
Action (or series of related Actions) either involving more than $10,000 or
outside the Ordinary Course of Business;
(j) the Company has not granted any Contracts or any rights under or
with respect to any Intellectual Property; other than in connection with
the sale or lease of the goods or services in the Ordinary Course of
Business;
(k) there has been no change made or authorized to the Organizational
Documents of the Company;
(l) the Company has not issued, sold, or otherwise disposed of any of
its Equity Interests;
(m) the Company has not declared, set aside, or paid any dividend or
made any distribution with respect to its Equity Interests (whether in cash
or in kind) or redeemed, purchased, or otherwise acquired any of its Equity
Interests;
(n) the Company has not experienced any damage, destruction, or loss
(whether or not covered by insurance) to its properties;
(o) the Company has not made any loan to, or entered into any
transaction outside the normal course of employment with, any of its
directors, officers, or employees;
(p) the Company has not entered into any employment, collective
bargaining, or similar Contract or modified the terms of any existing such
Contract;
(q) the Company has not committed to pay any bonus or granted any
increase in the base compensation (i) of any director, officer, or employee
thereof that is a Seller or an Affiliate thereof, or (ii) outside of the
Ordinary Course of Business, of any of its other directors, officers, or
employees;
(r) the Company has not adopted, amended, modified, or terminated any
bonus, profit-sharing, incentive, severance, or similar Contract for the
benefit of any of its directors, officers, or employees (or taken any such
action with respect to any other Employee Benefit Plan);
7
<PAGE>
(s) the Company has not made any other change in employment terms for
(i) any officer or employee thereof that is a Seller or an Affiliate
thereof, or (ii) outside of the Ordinary Course of Business, any of its
other directors, officers, or employees;
(t) the Company has not made or pledged to make any charitable or
other capital contribution either involving more than $5,000 (individually
or in the aggregate) or outside the Ordinary Course of Business;
(u) there has not been any other occurrence, event, incident, action,
failure to act, or transaction with respect to the Company either involving
more than $10,000 (individually or in the aggregate) or outside the
Ordinary Course of Business; and
(v) the Company has not committed to do any of the foregoing.
3.10 Liabilities. The Company has no Liability (and there is no Basis for
any present or future Action or Order against any of them giving rise to any
Liability), except for (a) Liabilities reflected in the Interim Financial
Statements and not heretofore paid or discharged, (b) Liabilities which have
arisen after the Balance Sheet Date in the Ordinary Course of Business which,
individually or in the aggregate, are not material and are of the same character
and nature as the Liabilities reflected in the Interim Financial Statements none
of which results from or relates to any Breach of Contract, Breach of warranty,
tort, infringement, or Breach of Law or arose out of any Action or Order; (c)
Liabilities under the items disclosed in Schedules 3.9, 3.14(b), 3.18, 3.21 and
3.26; and (d) product warranty obligations and liabilities arising in the
Ordinary Course of Business.
3.11 Legal Compliance. The Company and its respective predecessors and
Affiliates has complied with all applicable Laws, and no Action is pending or,
to the Knowledge of any Seller Party, Threatened (and there is no Basis
therefor) against it alleging any failure to so comply.
3.12 Tax Matters. Except as set forth on Schedule 3.12, the Company is not
is subject to any Liabilities for Taxes, including Taxes relating to prior
periods, other than those set forth or adequately reserved against in the
Interim Financial Statements or those incurred since the Balance Sheet Date in
the Ordinary Course of Business. The Company has duly filed when due all Tax
reports and returns in connection with and in respect of its business, assets
and employees, and has timely paid and discharged all amounts shown as due
thereon. The Company has made available to Buyer accurate and complete copies of
all of its Tax reports and returns for all periods, except those periods for
which returns are not yet due. The Company has not received any notice of any
Tax deficiency outstanding, proposed or assessed against or allocable to it, and
has not executed any waiver of any statute of limitations on the assessment or
collection of any Tax or executed or filed with any Governmental Authority any
Contract now in effect extending the period for assessment or collection of any
Taxes against it. There are no Encumbrances for Taxes upon, pending against or
Threatened against, any asset of the Company. The Company is not subject to any
Tax allocation or sharing Contract.
3.13 Title to Assets. The Company has good, marketable, and indefeasible
title to, or a valid leasehold interest in, the properties and assets they use,
located on their premises, or
8
<PAGE>
shown on the Interim Financial Statements or acquired after the date thereof,
free and clear of all Encumbrances, except for properties and assets disposed of
in the Ordinary Course of Business since the date of the Interim Financial
Statements.
3.14 Real Property.
(a) The Company does not own any interests in real property, other
than leases listed on Schedule 3.14(b).
(b) Schedule 3.14(b) lists and describes briefly all real property
leased or subleased to the Company. Sellers have delivered to Buyer correct
and complete copies of the lease and sublease Contracts (as amended to
date) listed in Schedule 3.14(b). With respect to each lease and sublease
Contract required to be listed in Schedule 3.14(b) and to the extent
necessary to ensure that the Company will not suffer any material damage,
loss or diminution of enjoyment in respect of the real property leased or
subleased:
(i) the Contract is Enforceable;
(ii) the Contract will continue to be Enforceable on identical
terms following the consummation of the Transactions;
(iii) no party to the Contract is in Breach, and no event has
occurred which, with notice or lapse of time, would
constitute a Breach thereunder;
(iv) no party to the Contract has repudiated any provision
thereof;
(v) there are no Actions, Orders, or forbearances in effect as
to the Contract;
(vi) with respect to each sublease Contract, the representations
and warranties set forth in Sections 3.14(b)(i) through (v)
are true and correct with respect to the underlying lease
Contract;.
(vii) the Company has not granted or suffered to exist any
Encumbrance in the leasehold or subleasehold Contract;
(viii) all facilities leased or subleased under the Contract have
received all Permits required in connection with the
operation thereof and have been operated and maintained in
accordance with applicable Laws; and
(ix) all facilities leased or subleased under the Contract are
supplied with utilities and other services necessary for the
operation of said facilities.
3.15 Intellectual Property. Except as set forth in Schedule 3.15, the
Company owns, or possesses adequate rights to use, all Intellectual Property
used in its business as currently, or
9
<PAGE>
as currently proposed to be, conducted. No Consent of any Person is required for
the Company's interest in the Intellectual Property to continue to be
Enforceable by the Company following the Transactions. The Company's use of the
Intellectual Property in its business as currently conducted does not and the
use of the Intellectual Property by the Company after Closing will not, infringe
upon any rights any other Person owns or holds.
3.16 Tangible Assets. The Company owns or leases all buildings, machinery,
equipment, and other tangible assets necessary for the conduct of its businesses
as currently conducted. Each such tangible asset is free from defects (patent
and latent), has been maintained in accordance with normal industry practice, is
in good operating condition and repair (subject to normal wear and tear), and is
suitable for the purposes for which it currently is used.
3.17 Inventory. The Company' inventory, whether reflected on the Financial
Statements or not, consists of raw materials and supplies, manufactured and
processed parts, goods in process, and finished goods, all of which is
merchantable and fit for the purpose for which it was procured or manufactured,
and, except as has been written down or reserved against on the Interim
Financial Statements, none of which is obsolete, damaged, or defective. Any
inventory that has been written down or reserved against on the Interim
Financial Statements has either been written off. written down or reserved
against to its net realizable value. The quantities of any kind of inventory are
reasonable in the current (and the currently foreseeable) circumstances of the
Company.
3.18 Contracts. Except as otherwise disclosed in Schedules 3.9, 3.10,
3.14(b), 3.15, 3.21 and 3.26, Schedule 3.18 lists the following Contracts to
which the Company is a party as at the date of this Agreement (but not
thereafter):
(a) any Contract (or group of related Contracts) for the lease of
personal property to or from any Person providing for lease payments in
excess of $10,000 per annum;
(b) any Contract (or group of related Contracts) for the purchase or
sale of raw materials, commodities, supplies, products, or other personal
property, or for the furnishing or receipt of services, the performance of
which will extend over a period of more than one year, result in a loss to
the Company, or involve consideration in excess of $10,000;
(c) any Contract concerning a limited liability company, partnership,
joint venture or similar arrangement;
(d) any Contract (or group of related Contracts) under which it has
created, incurred, assumed, or guaranteed any Liability for borrowed money
or any capitalized lease in excess of $10,000, or under which it has
imposed or suffered to exist an Encumbrance on any of its assets;
(e) any Contract concerning confidentiality or noncompetition, except
a confidentiality agreement with Brooks Mims Talton;
10
<PAGE>
(f) any Contract with any Seller or any of their Affiliates (other
than the Company);
(g) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other similar Contract
for the benefit of its current or former directors, officers, and
employees;
(h) any collective bargaining Contract;
(i) any Contract for the employment of any individual on a full-time,
part-time, consulting, or other basis providing annual compensation in
excess of $10,000 or providing severance benefits;
(j) any Contract under which it has advanced or loaned any amount to
any of its directors or officers or any Seller or, outside the Ordinary
Course of Business, to its employees that are not Sellers.
(k) any other Contract (or group of related Contracts) the performance
of which involves consideration in excess of $10,000.
Sellers have delivered to Buyer a correct and complete copy of each written
Contract (as amended to date) listed in Schedule 3.18. With respect to each such
Contract to the extent necessary to ensure that the Company will not suffer any
material damage, loss or diminution of enjoyment in respect of the subject
matter of such Contract.
(a) the Contract is Enforceable;
(b) the Contract will continue to be Enforceable on identical terms
following the consummation of the Transactions;
(c) no party is in Breach, and no event has occurred which, with
notice or lapse of time, would constitute a Breach under the Contract; and
(d) no party has repudiated any provision of the Contract.
3.19 Receivables. All of the Receivables are Enforceable, represent bona
fide transactions, and arose in the Ordinary Course of Business of the Company,
and are reflected properly in its books and records. All of the Receivables are
good and collectible receivables, are current, and will be collected in
accordance with past practice and the terms of such receivables (and in any
event within six months following the Closing Date), without set off or
counterclaims, subject only to the reserve for bad debts reflected in the
Interim Financial Statements.
3.20 Powers of Attorney. The only outstanding power of attorney executed on
behalf of the Company is to the third-party payroll processing vendor for the
sole purpose of filing payroll tax returns.
11
<PAGE>
3.21 Insurance. Schedule 3.21 sets forth the following information with
respect to each insurance policy Contract (including policies providing
property, casualty, liability, and workers' compensation coverage and bond and
surety arrangements) to which the Company has been a party, a named insured, or
otherwise the beneficiary of coverage at July 31, 1999:
(a) the name of the insurer, the name of the policyholder, and the
name of each covered insured,
(b) the policy number and the period of coverage;
(c) the scope (including an indication of whether the coverage was on
a claims made, occurrence, or other basis) and amount of coverage; and
(d) a description of any retroactive premium adjustments or other
loss-sharing arrangements.
With respect to each insurance policy Contract and subject to the policy and
expiration dates and any other termination rights of the insurer thereunder:
(a) the Contract is Enforceable;
(b) the Contract will continue to be Enforceable on identical terms
following the consummation of the Transactions;
(c) neither the Company nor any other party to the Contract is in
Breach (including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of
time, would constitute such a Breach under the Contract; and
(d) no party to the Contract has repudiated any provision thereof.
The Company has been covered during the past nine years by insurance in
scope and amount customary and reasonable for the businesses in which it has
engaged during the aforementioned period.
3.22 Litigation. The Company (a) is not subject to any outstanding Order
and (b) is not a party or, to any Seller's Knowledge, is Threatened to be made a
party to any Action.
3.23 Product Warranty. Each product manufactured, sold, leased, or
delivered by the Company has been in conformity with all applicable Law,
Contracts, and all express and implied warranties, and the Company has not any
Liability (and there is no Basis for any present or future Action against any of
them giving rise to any Liability) for replacement or repair thereof or other
Damages in connection therewith, subject only to the reserve for product
warranty claims set forth on the face of the Interim Financial Statements
(rather than in any notes thereto) as adjusted for the passage of time through
the Closing Date in accordance with the Company' past custom and practice. No
product designed, manufactured, sold, leased, or delivered by the Company is
subject to any guaranty, warranty, or other indemnity or similar Liability
beyond the applicable standard terms and conditions of sale or lease. Schedule
3.23 includes copies of the
12
<PAGE>
standard terms and conditions of sale or lease for the Company (containing
applicable guaranty, warranty, and similar Liability indemnity provisions).
3.24 Product Liability. The Company has no Liability (and there is no Basis
for any present or future Action against any of them giving rise to any
Liability) arising out of any injury to individuals or property as a result of
the ownership, possession, or use of any product designed, manufactured, sold,
leased, or delivered by the Company.
3.25 Labor; Employees. To each Seller's Knowledge, no executive, key
employee, or group of employees has any plans to terminate employment with the
Company. The Company is not a party to or bound by any collective bargaining
Contract, nor has any of them experienced any strikes, grievances, claims of
unfair labor practices, or other collective bargaining disputes. The Company has
not committed any unfair labor practice. No Seller has any Knowledge of any
organizational effort currently being made or Threatened by or on behalf of any
labor union with respect to employees of the Company.
3.26 Employee Benefits. Schedule 3.26 lists each Employee Benefit Plan that
the Company maintains or to which it contributes. With respect to any employee
benefit plan, within the meaning of Section 3(3) of ERISA, which is subject to
ERISA and which is sponsored, maintained or contributed to, or has been
sponsored, maintained or contributed to within six years prior to the Closing
Date, by the Company or any member of the Controlled Group of Corporations of
which the Company is part, (a) no withdrawal Liability, within the meaning of
Section 4201 of ERISA, has been incurred, which withdrawal Liability has not
been satisfied, (b) no Liability to the PBGC has been incurred by the Company or
any member of the Controlled Group of Corporations of which the Company is part,
which Liability has not been satisfied, (c) no accumulated funding deficiency,
whether or not waived, within the meaning of Section 302 of ERISA or Section 412
of the Code has been incurred, and (d) all contributions (including
installments) to such plan required by Section 302 of ERISA and Section 412 of
the Code have been timely made. With respect to any kind of employee benefit
plan, such plan has been funded and maintained in compliance with all Laws
applicable thereto and the requirements of such plan's governing documents.
3.27 Environmental, Health, and Safety Matters.
(a) The Company has complied and is in compliance with all
Environmental, Health, and Safety Requirements in all material respects.
(b) Without limiting Section 3.29, the Company has obtained, has
complied in all material respects with, and is in compliance with all
Permits that are required pursuant to Environmental, Health, and Safety
Requirements for the occupation of its facilities and the operation of its
business. Except as set forth in Schedule 3.27(b), such Permits are in full
force and effect, free from Breach, and will not be adversely affected by
the Transactions.
(c) The Company has not received any written or oral notice, report or
other information regarding any actual or alleged violation of
Environmental, Health, and Safety Requirements or any Liabilities,
including any investigatory, remedial or
13
<PAGE>
corrective Liabilities, relating to any of them or its facilities arising
under Environmental, Health, and Safety Requirements.
(d) Except as listed on Schedule 3.27(d), none of the following exists
at any property or facility owned or operated by the Company: (i) under or
above-ground storage tanks, (ii) asbestos containing material in any form
or condition, (iii) materials or equipment containing polychlorinated
biphenyls, or (iv) landfills, surface impoundments, or disposal areas.
(e) The Company has not treated, stored, disposed of, arranged for or
permitted the disposal of, transported, handled, or Released any substance,
including any hazardous substance, or owned or operated any property or
facility (and no such property or facility is contaminated by any such
substance) in a manner that has given or would give rise to any Damages,
including any Damages for response costs, corrective action costs, personal
injury, property damage or natural resources damages, pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, the Solid Waste Disposal Act, as amended, or any other
Environmental, Health, and Safety Requirements.
(f) The Transactions will not result in any Liabilities for site
investigation or cleanup, or require the Consent of any Person, pursuant to
any of the so-called "transaction-triggered" or "responsible property
transfer" Environmental, Health, and Safety Requirements.
(g) The Company has not, either expressly or by operation of Law,
assumed or undertaken any Liability, including any obligation for
corrective or remedial action, of any other Person relating to
Environmental, Health, and Safety Requirements.
(h) No facts, events or conditions relating to the past or present
facilities, properties or operations of the Company will prevent, hinder or
limit continued compliance with Environmental, Health, and Safety
Requirements, give rise to any Damages pursuant to Environmental, Health,
and Safety Requirements, or give rise to any other Liabilities pursuant to
Environmental, Health, and Safety Requirements.
3.28 Customers and Suppliers. Schedule 3.28 lists the Company's (a)
ten largest customers in terms of sales during (i) the twelve month period
ended as of the Most Recent Year End and (ii) the eight-month period ended
as of the Balance Sheet Date and states the approximate total sales by the
Company to each such customer during such periods, respectively and (b) the
ten largest suppliers during the 12 month period ended as of the Most
Recent Year End and the eight-month period ended as of the Balance Sheet
Date. Except as set forth in Schedule 3.28, no Seller has received or has
Knowledge of any notice of termination or an intention to terminate the
relationship with the Company from any such customer or supplier.
3.29 Permits. The Company possesses all Permits required to be
obtained for its business and operations. Except as set forth in Schedule
3.29, such Permits are in full force and effect, free from Breach, and the
Transactions will not adversely affect them.
14
<PAGE>
3.30 Foreign Practices Act Compliance. No Seller Party has, directly
or indirectly, in connection with the Company's business, made or agreed to
make any payment to any Person connected with or related to any
Governmental Authority, except payments or contributions required or
allowed by applicable Law. The internal accounting controls and procedures
of the Company are sufficient to cause the Company to comply with the
Foreign Corrupt Practices Act.
3.31 Year 2000 Compliant. The Company has undertaken the program to
become Year 2000 Compliant described in Schedule 3.31.
3.32 Certain Business Relationships with the Company. Except as
disclosed in Schedule 3.18, none of Sellers and their Affiliates has been
involved in any business arrangement or relationship with the Company
within the past 12 months, except that the Company has sold or leased
certain compressor units to Art Swanson. The sales and lease revenue from
Art Swanson were $97,000 in 1998 and $87,000 in 1997. The rates charged to
Art Swanson were, and are, the same as the rates for customers that are not
Affiliates of the Company. None of Sellers and their Affiliates owns any
asset that is used in the Company's business.
3.33 Accuracy of Information Furnished. No representation, statement,
or information contained in this Agreement (including the Schedules) or any
Contract or document executed in connection herewith or delivered pursuant
hereto or thereto or made or furnished to Buyer or its representatives by
any Seller contains or will contain any untrue statement of a material fact
or omits or will omit any material fact necessary to make the information
contained therein not misleading. The Sellers have provided Buyer with
correct and complete copies of all documents listed or described in the
Schedules.
ARTICLE 4.
PRE-CLOSING COVENANTS
The Parties agree as follows with respect to the period between the
execution of this Agreement and the Closing:
4.1 General. Each Party will use its Best Efforts to take all actions and
to do all things necessary, proper, or advisable to consummate, make effective,
and comply with all of the terms of this Agreement and the Transactions
(including satisfaction, but not waiver, of the Closing conditions set forth in
Article 6).
4.2 Notices and Consents. Each Seller will give any notices to third
parties, and will use its Best Efforts to obtain any third party Consents, that
Buyer reasonably may request in connection with the matters referred to in
Sections 2.1(c) and 3.3.
4.3 Operation of Business. The Company will not engage in any practice,
take any action, or enter into any transaction outside the Ordinary Course of
Business or engage in any practice, take any action, or enter into any
transaction of the sort described in Section 3.9, outside the Ordinary Course of
Business without prior written approval of Buyer. Subject to compliance with
applicable Law, from the date hereof until the earlier to occur of Closing or
the Termination Date, the Seller Parties will confer on a regular and frequent
basis with one or more representatives of Buyer to report on operational matters
and the general status of the Company'
15
<PAGE>
ongoing business, operations and finances and will promptly provide to Buyer or
its representatives copies of all filings they make with any Governmental
Authority during such period.
4.4 Preservation of Business. The Company will use its Best Efforts to keep
its business and properties substantially intact, including its present
operations, physical facilities, working conditions, and relationships with
lessors, licensors, suppliers, customers, and employees.
4.5 Full Access. The Company will permit representatives of Buyer
(including financing providers) to have full access at all reasonable times, and
in a manner so as not to interfere with the normal business operations of the
Company, to all premises, properties, personnel, books, records, Contracts, and
documents pertaining to the Company and will furnish copies of all such books,
records, Contracts and documents and all financial, operating and other data and
information as Buyer may reasonably request; provided, however, that no
investigation pursuant to this Section 4.5 will affect any representations or
warranties made herein or the conditions to the obligations of the Parties to
consummate the Transactions.
4.6 Notice of Developments. Sellers will give prompt written notice to
Buyer of any development occurring after the date of this Agreement which causes
or reasonably could be expected to cause a Breach of any of the representations
and warranties in Section 2.1 or Article 3. Buyer will give prompt written
notice to Sellers of any development occurring after the date of this Agreement
which causes or reasonably could be expected to cause a Breach of any of the
representations and warranties in Section 2.2. No disclosure by any Party
pursuant to this Section 4.6 shall be deemed to amend or supplement the
Schedules or to prevent or cure any misrepresentation or Breach of warranty or
covenant.
4.7 Affiliated Transactions. The Sellers will cause all Contracts and
transactions by and between Sellers and any Affiliate of Sellers, on the one
hand, and the Company, on the other hand (other than those referred to in
Section 3.32), to be terminated effective as of the Closing, without any cost or
continuing obligation to the Company, and will deliver to Buyer evidence of such
terminations that is reasonably acceptable to Buyer.
4.8 Charges, Fees. Sellers will, prior to the Closing, take such steps as
are necessary to ensure that no sums are owed or payable by the Company to any
Person in the nature of a transfer charge or processing fee with respect to any
Contracts of the Company
4.9 Site Inspections. Subject to compliance with applicable Law and
applicable Environmental, Health, and Safety Requirements, from the date hereof
until the earlier to occur of the Closing or the Termination Date, Buyer may
undertake (at Buyer's sole cost and expense) an environmental assessment or
assessments of the operations, business and/or properties of the Company. Such
assessment may include a review of Permits, files and records, as well as visual
and physical inspections and testing and, if testing is involved, will be
performed pursuant to a separate agreement to be entered into containing normal
terms as to liability for damage to property or persons and use of the test
results. The Sellers will cooperate in good faith with Buyer's effort to conduct
such an assessment.
16
<PAGE>
ARTICLE 5.
POST-CLOSING COVENANTS
The Parties agree as follows with respect to the period following the
Closing:
5.1 General. In case at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, each Party
will take such further action (including the execution and delivery of such
further instruments and documents) as any other Party reasonably may request to
carry out the purpose of this Agreement, all at the requesting Party's sole cost
and expense (unless the requesting Party is entitled to indemnification therefor
under Article 8). Sellers acknowledge and agree that after the Closing Buyer
will be entitled to possession of all documents, books, records, agreements, and
financial data of the Company.
5.2 Litigation Support. So long as any Party actively is contesting or
defending against any Action in connection with (a) the Transactions or (b) any
fact, situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving the Company, each other Party will cooperate with
such Party and such Party's counsel in the contest or defense, make available
their personnel, and provide such testimony and access to their books and
records as shall be necessary in connection with the contest or defense, at the
sole cost and expense of the contesting or defending Party (unless the
contesting or defending Party is entitled to indemnification therefor under
Article 8).
5.3 Transition. No Seller will take any action that is designed or intended
to have the effect of discouraging any lessor, licensor, customer, supplier, or
other business associate of any of the Company from maintaining the same
business relationships with the Company after the Closing as it maintained with
the Company prior to the Closing. Each Seller will refer all customer inquiries
relating to the Company to Buyer from and after the Closing.
5.4 Confidentiality. Each Seller will treat and hold as such all of the
Confidential Information, refrain from using any of the Confidential Information
except in connection with this Agreement, and deliver promptly to Buyer or
destroy, at the request and option of Buyer, all tangible embodiments (and all
copies) of the Confidential Information which are in Seller's possession. If any
Seller is requested or required (by oral question or request for information or
documents in any Action) to disclose any Confidential Information, that Seller
will notify Buyer promptly of the request or requirement so that Buyer may seek
an appropriate protective Order or waive compliance with this Section 5.4. If,
in the absence of a protective Order or the receipt of a waiver hereunder, any
Seller that is, on the written advice of counsel, compelled to disclose any
Confidential Information to any Governmental Authority, arbitrator, or mediator
or else stand Liable for contempt, that Seller may disclose the Confidential
Information to the Governmental Authority, arbitrator, or mediator; provided,
however; that the disclosing Seller shall use its Best Efforts to obtain, at the
request of Buyer, an Order or other assurance that confidential treatment will
be accorded to such portion of the Confidential Information required to be
disclosed as Buyer shall designate.
5.5 Restrictive Covenants. To assure that Buyer and the Company will
realize the benefits of the Transactions, each Seller hereby agrees not to:
17
<PAGE>
(a) From the Closing Date until the later of (i) three years after the
Closing Date, and (ii) if Seller is an individual, two years after he is no
longer employed by Buyer, the Company, or any of their Affiliates, directly
or indirectly, alone or as a partner, joint venturer, officer, director,
member, employee, consultant, agent, independent contractor or Equity
Interest holder of, or lender to, any Person or business, engage in the
kind of business currently conducted by the Company or conducted by the
Company on the Closing Date (the "Relevant Business") in Oklahoma, Texas or
any state that borders Oklahoma or Texas.
(b) From the Closing Date until the later of (i) three years after the
Closing Date, and (ii) if Seller is an individual, two years after he is no
longer employed by Buyer, the Company, or any of their Affiliates, directly
or indirectly, alone or as a partner, joint venturer, officer, director,
member, employee, consultant, agent, independent contractor or Equity
Interest holder of, or lender to, any Person or business, engage in the
Relevant Business anywhere within a 200-mile radius of any location where
Buyer, the Company, or any of their Affiliates engage in the Relevant
Business.
(c) From the Closing Date until the later of (i) three years after the
Closing Date, and (ii) if Seller is an individual, two years after he is no
longer employed by Buyer, the Company or any of their Affiliates, directly
or indirectly, alone or as a partner, joint venturer, officer, director,
member, employee, consultant, agent, independent contractor or Equity
Interest holder of, or lender to, any Person or business, engage in any
business that is in competition with any business in which Buyer, the
Company or any of their Affiliates engage, and that is within a 50-mile
radius of any location at which Buyer, the Company, or any of their
Affiliates engages in such business at the time such Seller commences to
engage in such competitive activity.
(d) From the Closing Date until the later of (i) three years after the
Closing Date, and (ii) if Seller is an individual, two years after he is no
longer employed by Buyer, the Company or any of their Affiliates, directly
or indirectly (A) induce any Person which is a customer of Buyer, the
Company, or any of their Affiliates to patronize any business directly or
indirectly in competition with the Relevant Business conducted by Buyer,
the Company, or any of their Affiliates; (B) canvass, solicit, or accept
from any Person who is a customer of Buyer, the Company, or any of their
Affiliates, any such competitive business; or (C) request or advise any
Person who is a customer or vendor of Buyer, the Company or any of their
Affiliates, to withdraw, curtail, or cancel any such customer's or vendor's
business with such Person.
(e) From the Closing Date until the later of (i) six months after the
Closing Date, and (ii) if Seller is an individual, six months after he is
no longer employed by Buyer, the Company, or any of their Affiliates,
directly or indirectly employ or knowingly permit such Seller to employ any
person who was employed by Buyer, the Company, or any of their Affiliates
within the prior six months.
(f) From the Closing Date until the later of (i) three years after the
Closing Date, and (ii) if Seller is an individual, two years after he is no
longer employed by Buyer, the Company, or any of their Affiliates, directly
or indirectly, (A) solicit for
18
<PAGE>
employment by any such Seller or anyone else, any employee or then
currently active independent contractor of Buyer, the Company, or any of
their Affiliates, or any person who was an employee or then currently
active independent contractor of Buyer, the Company, or any of their
Affiliates, within the six-month period immediately preceding such
solicitation of employment, other than such person (1) whose employment or
independent contractor relationship was terminated by the applicable
Person, or (2) who independently responded to a general solicitation for
employment by such Seller; or (B) induce or attempt to induce, any employee
or independent contractor of Buyer, the Company, or any of their
Affiliates, to terminate such employee's employment or independent
contractor's active contractual relationship with such Person.
(g) Call on any Acquisition Candidate with the Knowledge of such
Acquisition Candidate's status as such, for the purpose of acquiring, or
arranging the acquisition of, that Acquisition Candidate by any Person
other than Buyer, the Company or any of their Affiliates.
Notwithstanding the foregoing, the beneficial ownership of less than 1% of
the Equity Interests of any Person having a class of Equity Interest
actively traded on a national securities exchange or over-the-counter
market shall not be deemed, in and of itself, to Breach the prohibitions of
this Section 5.5. Each Seller agrees and acknowledges that the restrictions
in this Section 5.5 are reasonable in scope and duration and are necessary
to protect Buyer and the Company after the Closing. If any Seller is found
to have Breached this Section, then, in addition to all other remedies that
may be available to Buyer, an amount of time equal to the period such
Seller was found to be in Breach of this Section shall be added to the time
periods contemplated by this Section. If any provision of this Section 5.5,
as applied to any Party or to any circumstance, is adjudged by a
Governmental Authority, arbitrator, or mediator not to be enforceable in
accordance with its terms, the same will in no way affect any other
circumstance or the enforceability of the remainder of this Agreement. If
any such provision, or any part thereof, is held not to be enforceable in
accordance with its terms because of the duration of such provision, the
area covered thereby, or the scope of the activities covered, the Parties
agree that the Governmental Authority, arbitrator, or mediator making such
determination shall have the power to reduce the duration, area, and/or
scope of activities of such provision, and/or to delete specific words or
phrases, and in its reduced form, such provision shall then be Enforceable
and shall be enforced. The Parties agree and acknowledge that the Breach of
this Section 5.5 will cause irreparable Damage to Buyer and the Company and
upon breach of any provision of this Section 5.5, Buyer and/or the Company
shall be entitled to injunctive relief, specific performance, or other
equitable relief without bond or other security; provided, however, that
the foregoing remedies shall in no way limit any other remedies which Buyer
and/or the Company may have. Further, each Seller agrees to the
jurisdiction of an appropriate Governmental Authority, arbitrator and
mediator in Oklahoma City, Oklahoma, for the enforcement of this Section.
19
<PAGE>
ARTICLE 6.
CLOSING CONDITIONS
6.1 Conditions Precedent to Obligation of Buyer. Buyer's obligation to
consummate the Transactions contemplated to occur in connection with the Closing
and thereafter is subject to the satisfaction of each condition precedent listed
below. Unless expressly waived pursuant to this Agreement, no representation,
warranty, covenant, right or remedy available to Buyer in connection with the
Transactions will be deemed waived by any of the following actions or inactions
by or on behalf of Buyer (regardless of whether any Seller is given notice of
any such matter): (i) consummation by Buyer of the Transactions, (ii) any
inspection or investigation, if any, of the Company or any Seller, (iii) the
awareness of any fact or matter acquired (or capable or reasonably capable of
being acquired) with respect to the Company or Sellers, or (iv) any other
action, in each case at any time, whether before, on, or after the Closing Date;
provided, however, that Buyer does not at the date of this Agreement have actual
knowledge that any of Sellers' representations or warranties hereunder are
inaccurate.
(a) Accuracy of Representations and Warranties. Each representation
and warranty set forth in Section 2.1 and Article 3 must have been accurate
and complete as of the date of this Agreement, and must be accurate and
complete as of the Closing Date, as if made on the Closing Date, without
giving effect to any supplements to the Schedules.
(b) Compliance with Obligations. Each Seller must have performed and
complied with all of its covenants to be performed or complied with at or
prior to Closing (singularly and in the aggregate).
(c) No Material Adverse Change or Destruction of Property. Since the
date of this Agreement there must have been no event, series of events or
the lack of occurrence thereof which, singularly or in the aggregate, could
reasonably be expected to have a Material Adverse Effect on the Company
since the date of this Agreement, in particular, (i) there must have been
no Material Adverse Change to any of the Company or their assets, (ii)
there must not have been any action or inaction by a Governmental
Authority, arbitrator or mediator which could reasonably be expected to
cause a Material Adverse Change to the Company, and (iii) there must not
have been any fire, flood, casualty, act of God or the public enemy or
other cause (regardless of insurance coverage for such damage) which event
could reasonably be expected to have a Material Adverse Effect on the
Company.
(d) Consents. The Seller and Buyer must have received Consents to the
Transactions and waivers of rights to terminate or modify any rights or
obligations of any Seller from any Person from whom such Consent is
required, including under any Contract listed or required to be listed in
Schedule 3.14(b), 3.15, 3.18, 3.21 and 3.26 or Law, or who as a result of
the Transactions, would have such rights to terminate or modify such
Contracts, either by their terms or as a matter of Law.
(e) No Adverse Litigation. There must not be pending or Threatened any
Action by or before any Governmental Authority, arbitrator, or mediator
which shall seek
20
<PAGE>
to restrain, prohibit, invalidate, or collect Damages arising out of, the
Transactions, or which, in the reasonable judgment of Buyer, makes it
inadvisable to proceed with the Transactions.
(f) Liabilities. Prior to the Closing, the Sellers must have obtained
and delivered to Buyer full satisfactions or releases of all Liabilities
due to or from the Company which are due to be satisfied or released under
this Agreement to or on behalf of (i) any Affiliate of the Company or (ii)
Sellers or any Affiliate of Sellers, except the Liabilities of Art Swanson
referred to in Section 3.32.
(g) Reimbursement of Financial Advisory Fees. Prior to the Closing,
Sellers shall have reimbursed the Company for all fees and expenses paid to
Rauscher Pierce Refsnes, Inc. in connection with such firm's financial
advisory services to the Company in connection with the Transactions or
otherwise.
(h) Receivables from Sellers. Prior to the Closing, Sellers shall have
repaid all outstanding indebtedness of Sellers to the Company, together
with accrued and unpaid interest, to the Company.
6.2 Conditions Precedent to Sellers' Obligation. Each Seller's obligation
to consummate the Transactions contemplated to occur in connection with the
Closing and thereafter is subject to the satisfaction of each condition
precedent listed below. Unless expressly waived pursuant to this Agreement, no
representation, warranty, covenant, right, or remedy available to any Seller in
connection with the Transactions will be deemed waived by any of the following
actions or inactions by or on behalf of any Seller (regardless of whether Buyer
is given notice of any such matter): (i) consummation by Sellers of the
Transactions, (ii) any inspection or investigation, if any, of Buyer, (iii) the
awareness of any fact or matter acquired (or capable or reasonably capable of
being acquired) with respect to Buyer, or (iv) any other action, in each case at
any time, whether before, on, or after the Closing Date; provided, however, that
none of the Sellers has, at the date of this Agreement, actual knowledge that
any of Buyer's representations or warranties are inaccurate.
(a) Accuracy of Representations and Warranties. Each representation
and warranty set forth in Section 2.2 must have been accurate and complete
as of the date of this Agreement, and must be accurate and complete as of
the Closing Date, as if made on the Closing Date;
(b) Compliance with Obligations. Buyer must have performed and
complied with all its covenants and obligations required by this Agreement
to be performed or complied with at or prior to Closing (singularly and in
the aggregate);
(c) No Order or Injunction. There must not be issued and in effect any
Order restraining or prohibiting the Transactions.
(d) No Adverse Litigation. There must not be pending or threatened any
action by or before any Governmental Authority, arbitrator, or mediator
which shall seek to restrain, prohibit, or invalidate, or collect Damages
arising out of, the Transactions, or
21
<PAGE>
which in the reasonable judgment of Sellers, makes it inadvisable to
proceed with the Transactions.
ARTICLE 7.
TERMINATION
7.1 Termination of Agreement. The Parties may terminate this Agreement as
provided below:
(a) Buyer and the Requisite Sellers may terminate this Agreement as to
all Parties by mutual written consent at any time prior to the Closing;
(b) Buyer or the Requisite Sellers may terminate this Agreement upon
delivery of notice if the Closing has not occurred prior to December 31,
1999, provided that the party delivering such notice shall not have caused
such failure to close;
(c) Buyer may terminate this Agreement by giving written notice to the
Sellers at any time prior to the Closing if any Seller has Breached any
representation, warranty, or covenant contained in this Agreement in any
material respect (except with respect to materiality for any provisions
including the word "material" or words of similar import and Section 4.8,
in which case such termination rights will arise upon any Breach); and
(d) The Sellers may terminate this Agreement by giving notice to Buyer
at any time prior to the Closing if Buyer has Breached any representation,
warranty, or covenant contained in this Agreement in any material respect
(except with respect to materiality for any provisions including the word
"material" or words of similar import, in which case such termination
rights will arise upon any Breach).
7.2 Effect of Termination.
(a) Each Party's termination right under this Agreement is in addition
to any other rights it may have under this Agreement or otherwise, and the
exercise of a termination right will not be an election of remedies. Except
for the obligations under this Article 7 and Article 9, if this Agreement
is terminated under Section 7.1, then, except as provided in this Section
7.2 all further obligations of the Parties under this Agreement will
terminate.
(b) If Buyer or the Sellers terminate this Agreement pursuant to
Section 7.1(c) or (d), as the case may be, then the rights of the
non-breaching Party(ies) to pursue all legal remedies for Damages such
Party(ies) suffer will survive such termination unimpaired.
22
<PAGE>
ARTICLE 8.
INDEMNIFICATION
8.1 Survival of Representations and Warranties.
(a) Each representation and warranty of Sellers contained in Section
2.1 (a "Seller's Personal Representation") and any certificate related to
such representations and warranties will survive the Closing and will
continue in full force and effect forever. Each representation and warranty
of the Sellers contained in Article 3 (a "Seller's Company Representation")
and any certificate related to such representations and warranties will
survive the Closing and continue in full force and effect through December
31, 2000, except the representations and warranties set forth in Sections
3.1, 3.2, and 3.5 which will survive the Closing and will continue in full
force and effect forever.
(b) Each representation and warranty of Buyer contained in Section 2.2
and any certificate directly related to such representations and warranties
will survive the Closing and continue in full force and effect forever.
8.2 Indemnification Provisions for Buyer's Benefit. Subject to Sections 8.5
and 8.6, each Seller, severally and not jointly, will indemnify and hold the
Seller Indemnitees harmless from and pay any and all Damages, directly or
indirectly, resulting from, relating to, arising out of, or attributable to any
of the following:
(a) any Breach of any representation or warranty such Seller has made
in this Agreement, as if such representation or warranty was made on and as
of the date of this Agreement (without giving effect to any supplement to
the Schedules), or any other certificate or document such Seller or the
Company has delivered pursuant to this Agreement;
(b) any Breach of any representation or warranty such Seller has made
in this Agreement as if such representation or warranty were made on and as
of the Closing Date (without giving effect to any supplement to the
Schedules), other than any such Breach that is disclosed in a supplement to
the Schedules delivered under Article 3, as having caused a condition
specified in Section 6.1 not to be satisfied; and
(c) any Breach by such Seller of any covenant or obligation of such
Seller in this Agreement.
8.3 Indemnification Provisions for Sellers' Benefit. Buyer will indemnify
and hold the Buyer Indemnitees harmless from and pay any and all Damages,
directly or indirectly, resulting from, relating to, arising out of, or
attributable to any of the following:
(a) any Breach of any representation or warranty Buyer has made in
this Agreement or any other certificate Buyer has delivered to Sellers
pursuant to this Agreement; and
23
<PAGE>
(b) any Breach by Buyer of any covenant or obligation of Buyer in this
Agreement.
8.4 Indemnification Claim Procedures.
(a) If any Action is commenced in which any Indemnitee is a party
which may give rise to a claim for indemnification against any Indemnitor
then such Indemnitee shall promptly give notice to the Indemnitor. Failure
to notify the Indemnitor will not relieve the Indemnitor of any Liability
that it may have to the Indemnitee, except to the extent the defense of
such Action is materially and irrevocably prejudiced by the Indemnitee's
failure to give such notice.
(b) An Indemnitor will have the right to defend against an
Indemnification Claim with counsel of its choice reasonably satisfactory to
the Indemnitee if (i) within 15 days following the receipt of notice of the
Indemnification Claim the Indemnitor notifies the Indemnitee in writing
that the Indemnitor will indemnify the Indemnitee subject to the provisions
of this Article 8, (ii) the Indemnitor provides the Indemnitee with
evidence reasonably acceptable to the Indemnitee that the Indemnitor will
have the financial resources to defend against the Indemnification Claim
and satisfy its indemnification obligations under this Article 8, and,
subject to the provisions of this Article 8, pay, in cash, all Damages the
Indemnitee may suffer resulting from, relating to, arising out of, or
attributable to the Indemnification Claim, and (iii) the Indemnitor
continuously conducts the defense of the Indemnification Claim actively and
diligently.
(c) So long as the Indemnitor is conducting the defense of the
Indemnification Claim in accordance with Section 8.4(b), (i) the Indemnitee
may retain separate co-counsel at its sole cost and expense and participate
in the defense of the Indemnification Claim, (ii) the Indemnitee will not
consent to the entry of any Order with respect to the Indemnification Claim
without the prior written consent of the Indemnitor (not to be withheld
unreasonably), and (iii) the Indemnitor will not consent to the entry of
any Order with respect to the Indemnification Claim without the prior
written consent of the Indemnitee (not to be withheld unreasonably,
provided that it will not be deemed to be unreasonable for an Indemnitee to
withhold its consent with respect to any finding of or admission (1) of any
violation of any Law, Order or Permit, or (2) which Indemnitee believes
could have a material adverse effect on any other Actions to which the
Indemnitee or its Affiliates are party or to which Indemnitee has a good
faith belief they may become party).
(d) In connection with any Indemnification Claim for Taxes, or if any
condition in Section 8.4(b) is or becomes unsatisfied, (i) the Indemnitee
may defend against, and with the consent of the Indemnitor, which will not
be unreasonably withheld, consent to the entry of any Order with respect to
an Indemnification Claim (ii) each Indemnitor will reimburse the Indemnitee
promptly and periodically for the Damages relating to defending against the
Indemnification Claim, and (iii) each Indemnitor will remain Liable for any
Damages the Indemnitee may suffer relating to the Indemnification Claim, in
all the foregoing cases, to the fullest extent and subject to the
limitations provided in this Article 8.
24
<PAGE>
(e) In connection with third-party claims, each Party hereby consents
to the non-exclusive jurisdiction of any Governmental Authority in which an
Action is brought against any Indemnitee for purposes of any
Indemnification Claim that an Indemnitee may have under this Agreement with
respect to such Action or the matters alleged therein, and agrees that
process may be served on such Party with respect to such claim anywhere in
the world.
8.5 Limitations on Indemnification Liability. Claims for indemnification
under this Article 8 will not be made for the first $10,000 of Damages. Each
Seller's aggregate liability for indemnification under this Article 8 will not
exceed an amount equal to the portion of the Purchase Price allocable to the
Shares sold by such Seller (calculated based on the percentage of ownership of
the Company of such Seller set forth on Exhibit A hereto); provided, however,
that each Seller's aggregate Liability for Breaches of such Seller's Company
Representations will not exceed such Seller's allocable portion of $500,000
(calculated based on the percentage of ownership of the Company of such Seller
set forth on Exhibit A hereto).
8.6 Escrow; Set Off Rights. Indemnification obligations of any Seller may
be satisfied by setting off all or any part of any Damages Buyer suffers if the
Requisite Sellers in the case of Breaches of Seller's Company Representations,
or such Seller in the case of Breaches of Seller's Personal Representations, and
Buyer jointly instruct the Escrow Agent under the Escrow Agreement to pay over
to Buyer a corresponding amount from the escrowed funds in the Escrow Account
credited to the account of such Seller.
ARTICLE 9.
MISCELLANEOUS
9.1 Schedules.
(a) The disclosures in the Schedules, and those in any supplement
thereto, relate only to the representations and warranties in the Section
or paragraph of the Agreement to which they expressly relate and not to any
other representation or warranty in this Agreement.
(b) Nothing in the Schedules will be deemed adequate to disclose an
exception to a representation or warranty made herein, unless the Schedules
identify the exception with reasonable particularity.
9.2 Entire Agreement. This Agreement, together with the Exhibits and
Schedules hereto and the certificates, documents, instruments and writings that
are delivered pursuant hereto, constitutes the entire agreement and
understanding of the Parties in respect of its subject matters and supersedes
all prior understandings, agreements, or representations by or among the
Parties, written or oral, to the extent they relate in any way to the subject
matter hereof or the Transactions.
9.3 Successors. All of the terms, agreements, covenants, representations,
warranties, and conditions of this Agreement are binding upon, and inure to the
benefit of and are enforceable by, the Parties and their respective successors.
If a Seller is an entity and if the principal business, operations or a majority
or substantial portion of the assets of such Seller are
25
<PAGE>
assigned, conveyed, allocated or otherwise transferred, including, by sale,
merger, consolidation, amalgamation, conversion or similar transactions, such
receiving Person or Persons shall automatically become bound by and subject to
the provisions of this Agreement, and such Seller shall cause the receiving
Person or Persons to expressly assume its obligations hereunder.
9.4 Assignments. No Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of Buyer and Sellers'; provided, however, that Buyer may (a) assign any or all
of its rights and interests hereunder to one or more of its Affiliates and (b)
designate one or more of its Affiliates to perform its obligations hereunder (in
any or all of which cases Buyer nonetheless shall remain responsible for the
performance of all of its obligations hereunder).
9.5 Notices. All notices, requests, demands, claims and other
communications hereunder will be in writing. Any notice, request, demand, claim
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to Buyer and after Closing to the Company:
Emerging Alpha Corporation
17571 Red Oak Drive
Houston, Texas 77090
Attn: Jerry W. Jarrell
Tel: (281) 537-9602
Fax: (281) 397-6319
Copy to (which shall not constitute notice):
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
711 Louisiana, Suite 1900
Houston, Texas 77002
Attn: Richard J. Wilkie
Tel: (713) 220-5819
Fax: (713) 236-0822
If to Sellers and before Closing to the Company
Gas Jack, Inc.
8224 SW 3rd Street
Oklahoma City, OK 73128
Attn: Jeffrey E. Henderson
Tel: (405) 787-2802
Fax: (405) 787-2404
26
<PAGE>
For Discovery partnerships:
Rockefeller & Co., Inc.
30 Rockefeller Plaza
New York, New York 10112
Attn: Robert C. Paul
Tel: (212) 649-1751
Fax: (212) 649-5977
For Citicap:
2 World Trade Center
Suite 2248
New York, NY 10048
Attn: Chen Ding, Ph.D
For Art L. Swanson and Estate of Ran Ricks:
c/o Ricks Exploration Inc.
3000 Oklahoma Tower
210 Park Avenue
Oklahoma City, OK 73102
Tel: (405) 516-1100
Fax: (405) 516-1101
For J.W. Waldrop:
c/o Waldrop's Engine Service
P.O. Box 589
Woodward, Oklahoma 73802
Tel: (580) 256-8961
Fax: (580) 254-3354
For Jeffrey E. Henderson:
8224 SW 3rd Street
Oklahoma City, OK 73128
Attn: Jeffrey E. Henderson
Tel: (405) 787-2808
Fax: (405) 787-2404
27
<PAGE>
For Joseph D. Vaughn:
8224 SW 3rd Street
Oklahoma City, OK 73128
Tel: (405) 787-2808
Fax: (405) 787-2404
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
9.6 Specific Performance. Each Party acknowledges and agrees that the other
Parties would be damaged irreparably if any provision of this Agreement is not
performed in accordance with its specific terms or is otherwise Breached.
Accordingly, each Party agrees that the other Parties will be entitled to an
injunction or injunctions to prevent Beaches of the provisions of this Agreement
and to enforce specifically this Agreement and its terms and provisions in any
Action instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter, in addition to any other remedy to
which they may be entitled, at Law or in equity.
9.7 Time. Time is of the essence in the performance of this Agreement.
9.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
9.9 Headings. The article and section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.10 Governing Law. This Agreement and the performance of the Transactions
and obligations of the Parties hereunder will be governed by and construed in
accordance with the laws of the State of Delaware.
9.11 Amendments and Waivers. No amendment, modification, replacement,
termination or cancellation of any provision of this Agreement will be valid,
unless the same shall be in writing and signed by Buyer and the Requisite
Sellers. No waiver by any Party of any default, misrepresentation, or breach of
warranty or covenant hereunder, whether intentional or not, may be deemed to
extend to any prior or subsequent default, misrepresentation, or Breach of
warranty or covenant hereunder or affect in any way any rights arising because
of any prior or subsequent such occurrence.
28
<PAGE>
9.12 Expenses. Except as otherwise expressly provided in this Agreement,
each Party will bear its own costs and expenses incurred in connection with the
preparation, execution and performance of this Agreement and the Transactions
including all fees and expenses of agents, representatives, financial advisors,
legal counsel and accountants. Sellers agree that the Company has not borne or
will bear any out-of-pocket costs and expenses (including any legal fees and
expenses of any Seller Party) in connection with this Agreement or any of the
Transactions.
9.13 Construction. The Parties have participated jointly in the negotiation
and drafting of this Agreement. If an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the Parties and no presumption or burden of proof shall arise favoring or
disfavoring any Party because of the authorship of any provision of this
Agreement. Any reference to any federal, state, local, or foreign Law shall be
deemed also to refer to Law as amended and all rules and regulations promulgated
thereunder, unless the context requires otherwise. The word "including" means
"including without limitation." The Parties intend that each representation,
warranty, and covenant contained herein shall have independent significance. If
any Party has breached any representation, warranty, or covenant contained
herein in any respect, the fact that there exists another representation,
warranty or covenant relating to the same subject matter (regardless of the
relative levels of specificity) which the Party has not breached shall not
detract from or mitigate the fact that the Party is in breach of the first
representation, warranty, or covenant.
9.14 Incorporation of Exhibits, Annexes, and Schedules. The Exhibits,
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
9.15 Dispute Resolution.
(a) If the Parties (for purposes of this Section, Sellers shall be
considered one Party and Buyer shall be considered one Party) are unable to
resolve any controversy, dispute, claim or other matter in question arising
out of, or relating to, this Agreement, any provision hereof, the alleged
breach hereof, or in any way relating to the subject matter of this
Agreement, or the relationship between the parties created by this
Agreement, including questions concerning the scope and applicability of
this Section 9.15, whether sounding in contract, tort or otherwise, at law
or in equity, under State or federal law, whether provided by statute or
common law, for damages or any other relief (any such controversy, dispute,
claim or other matter in question, a "Dispute"), on or before the 30th day
following the receipt by Sellers or Buyer, as the case may be, of written
notice of such Dispute from the other Party, which notice describes in
reasonable detail the nature of the Dispute and the facts and circumstances
relating thereto, Sellers or Buyer may, by delivery of written notice to
the other Party), require that a representative of Sellers and of Buyer
meet at a mutually agreeable time and place with an independent mediator in
an attempt to resolve such Dispute. Such meeting shall take place on or
before the 10th day following the date of the notice requiring such
meeting, and if the Dispute has not been resolved within 10 days following
such meeting, Sellers or Buyer may cause such Dispute to be resolved by
binding arbitration in Oklahoma City, Oklahoma, by submitting such Dispute
for arbitration within 10 days following the
29
<PAGE>
expiration of such 10-day period. This agreement to arbitrate shall be
specifically enforceable against the Parties.
(b) It is the intention of the Parties that the arbitration shall be
governed by and conducted pursuant to the Federal Arbitration Act, as such
Act is modified by this Section 9.15. If it is determined the Federal
Arbitration Act is not applicable to this Agreement (e.g., this Agreement
does not evidence a transaction involving interstate commerce), this
agreement to arbitrate shall nevertheless be enforceable pursuant to
applicable State law. While the arbitrators may refer to the Commercial
Arbitration Rules of the American Arbitration Association (the "Rules") for
guidance with respect to procedural matters, the arbitration proceeding
shall not be administered by the American Arbitration Association but
instead shall be self-administered by the Parties until the arbitrators are
selected and then the proceeding shall be administered by the arbitrators.
(c) The validity, construction, and interpretation of this agreement
to arbitrate, and all procedural aspects of the arbitration conducted
pursuant to this agreement to arbitrate, including but not limited to, the
determination of the issues that are subject to arbitration (i.e.,
arbitrability), the scope of the arbitrable issues, allegations of "fraud
in the inducement" to enter into this Agreement or this arbitration
provision, allegations of waiver, laches, delay or other defenses to
arbitrability, and the rules governing the conduct of the arbitration
(including the time for filing an answer, the time for the filing of
counterclaims, the times for amending the pleadings, the specificity of the
pleadings, the extent and scope of discovery, the issuance of subpoenas,
the times for the designation of experts, whether the arbitration is to be
stayed pending resolution of related litigation involving third parties not
bound by this arbitration agreement, the receipt of evidence, and the
like), shall be decided by the arbitrators.
(d) The rules of arbitration of the Federal Arbitration Act, as
modified by this Agreement, shall govern procedural aspects of the
arbitration; to the extent the Federal Arbitration Act as modified by this
Agreement does not address a procedural issue, the arbitrators may refer
for guidance to the Commercial Arbitration Rules then in effect with the
American Arbitration Association. The arbitrators may refer for guidance to
the Federal Rules of Civil Procedure, the Federal Rules of Civil Evidence,
and the federal law with respect to the discovery process, applicable legal
privileges, and admissible evidence. In deciding the substance of the
Parties' Dispute, the arbitrators shall refer to the substantive laws of
the State of Delaware for guidance (excluding Delaware's conflict-of-law
rules or principles that might call for the application of the law of
another jurisdiction). The arbitrators shall have the authority to assess
the costs and expenses of the arbitration proceeding (including the
arbitrators' fees and expenses) against either or both parties. However,
each party shall bear its own attorneys fees and the arbitrators shall have
no authority to award attorneys fees.
(e) When a Dispute has been submitted for arbitration, within 15 days
of such submission, Sellers will choose an arbitrator, and Buyer will
choose an arbitrator. While the third arbitrator shall be neutral, the two
party-appointed arbitrators are not required to be neutral and it shall not
be grounds for removal of either of the two party-appointed arbitrators or
for vacating the arbitrators' award that either of such arbitrators has
past or
30
<PAGE>
present minimal relationships with the Party that appointed such
arbitrator. Evident partiality on the part of an arbitrator exists only
where the circumstances are such that a reasonable person would have to
conclude there in fact existed actual bias and a mere appearance or
impression of bias will not constitute evident partiality or otherwise
disqualify an arbitrator. Minimal or trivial past or present relationships
between the neutral arbitrator and the party selecting such arbitrator or
any of the other arbitrators, or the failure to disclose such minimal or
trivial past or present relationships, will not by themselves constitute
evident partiality or otherwise disqualify any arbitrator. Upon selection
of the third arbitrator, each of the three arbitrators shall agree in
writing to abide faithfully by the terms of this agreement to arbitrate.
The three arbitrators shall make all of their decisions by majority vote.
If one of the party-appointed arbitrators refuses to participate in the
proceedings or refuses to vote, the decision of the other two arbitrators
shall be binding. If an arbitrator dies or becomes physically incapacitated
and is unable to fulfill his or her duties as an arbitrator, the
arbitration proceeding shall continue with a substitute arbitrator selected
as follows: if the incapacitated arbitrator is a party-appointed
arbitrator, the party shall promptly select a new arbitrator, and if the
incapacitated arbitrator is the neutral arbitrator, the two-party appointed
arbitrators shall select a substitute neutral arbitrator.
(f) The final hearing shall be conducted within 60 days of the
selection of the third arbitrator. The final hearing shall not exceed ten
working days, with each party to be granted one-half of the allocated time
to present its case to the arbitrators. There shall be a transcript of the
hearing before the arbitrators. The arbitrators shall render their ultimate
decision within 20 days of the completion of the final hearing completely
resolving all of the Disputes between the parties that are the subject of
the arbitration proceeding. The arbitrators' ultimate decision after final
hearing shall be in writing, but shall be as brief as possible, and the
arbitrators shall assign their reasons for their ultimate decision. In case
the arbitrators award any monetary Damages in favor of either party, the
arbitrators shall certify in their award that they have not included any
Damages prohibited by Article 8.
(g) The arbitrators' award shall, as between the Parties to this
Agreement and those in privity with them, be final and entitled to all of
the protections and benefits of a final judgment, e.g., res judicata (claim
preclusion) and collateral estoppel (issue preclusion), as to all Disputes,
including compulsory counterclaims, that were or could have been presented
to the arbitrators. The arbitrators' award shall not be reviewable by or
appealable to any court, except to the extent permitted by the Federal
Arbitration Act.
(h) It is the intent of the parties that the arbitration proceeding
shall be conducted expeditiously, without initial recourse to the courts
and without interlocutory appeals of the arbitrators' decisions to the
courts. However, if a party refuses to honor its obligations under this
agreement to arbitrate, the other Party may obtain appropriate relief
compelling arbitration in any court having jurisdiction over the Parties;
the order compelling arbitration shall require that the arbitration
proceedings take place in Oklahoma City, Oklahoma, as specified above. The
Parties may apply to any court for orders requiring witnesses to obey
subpoenas issued by the arbitrators. Moreover, any and all of the
arbitrators' orders and decisions may be enforced if necessary by any
court.
31
<PAGE>
The arbitrators' award may be confirmed in, and judgment upon the award
entered by, any federal or State court having jurisdiction over the
Parties.
(i) To the fullest extent permitted by law, this arbitration
proceeding and the arbitrators award shall be maintained in confidence by
the parties. However, a violation of this covenant shall not affect the
enforceability of this arbitration agreement or of the arbitrators' award.
(j) A Party's breach of this Agreement shall not affect this agreement
to arbitrate. Moreover, the parties' obligations under this arbitration
provision are enforceable even after this Agreement has terminated. The
invalidity or unenforceability of any provision of this arbitration
agreement shall not affect the validity or enforceability of the Parties'
obligation to submit their Disputes to binding arbitration or the other
provisions of this agreement to arbitrate.
32
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first above written.
Buyer
Emerging Alpha Corporation
By: /S/ JERRY W. JARRELL
-----------------------------------
Name: Jerry W. Jarrell
Title: Chief Financial Officer
Sellers
Ran Ricks, Jr. 1981 Revocable Trust, Roy W.
Chandler and Art L. Swanson, Co-Trustees
By: /S/ ART L. SWANSON
-----------------------------------
Art L. Swanson
Co-Trustee
By: /S/ ART L. SWANSON
-----------------------------------
Art L. Swanson
Attorney-in-Fact for Roy W. Chandler,
Co-Trustee
/S/ ART L. SWANSON
-----------------------------------
Art L. Swanson
/S/ J. W. WALDROP
-----------------------------------
J. W. Waldrop
/S/ JEFFREY E. HENDERSON
-----------------------------------
Jeffrey E. Henderson
/S/ JOSEPH D. VAUGHN
-----------------------------------
Joseph D. Vaughn
S-1
<PAGE>
DISCOVERY FUND I-90
LIMITED PARTNERSHIP
DISCOVERY FUND II-90
LIMITED PARTNERSHIP
DISCOVERY FUND III-90
LIMITED PARTNERSHIP
By: Discovery Associates 90, L.P.
as General Partner
By: Rockefeller & Co., Inc.
as Managing Partner
By: /S/ JOHN T. LEYDEN
-----------------------------------
Name: John T. Leyden
Title: Vice President - Treasurer
CITICAP, INC.
By: /S/ CHEN DING
-----------------------------------
Name: Chen Ding
Title: President
S-2
<PAGE>
APPENDIX I
DEFINITIONS
"Action" means any action, appeal, petition, plea, charge, complaint,
claim, suit, demand, litigation, arbitration, mediation, hearing, inquiry,
investigation or similar event, occurrence, or proceeding.
"Acquisition Candidate" means (i) any Person engaged in the Relevant
Business, or (ii) any project with respect to the Relevant Business, and in
either case (A) which was called on by Buyer, any Seller Party, or any of their
Affiliates, in connection with the possible acquisition by Buyer, the Company,
or any of their Affiliates of that Person or project, or (B) with respect which
Buyer, any Seller Party, or any of their Affiliates has made an acquisition
analysis.
"Affiliate" with respect to any specified Person, means a Person that,
directly or indirectly, through one or more intermediaries, controls or is
controlled by, or is under common control with, such specified Person.
"Ancillary Agreements" means the Escrow Agreement, the Employment
Agreements and any other agreements or instruments entered into in connection
with the Transactions.
"Balance Sheet Date" is defined in Section 3.8.
"Basis" means any past or current fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction about which the relevant Person has Knowledge
that forms or could form the basis for any specified consequence.
"Best Efforts" means the efforts, time, and costs that a prudent Person
desirous of achieving a result would use, expend, or incur in similar
circumstances to ensure that such result is achieved as expeditiously as
possible; provided, however, that no such use, expenditure, or incurrence will
be required if it would have a Material Adverse Effect on such Person.
"Breach" means any breach, inaccuracy, failure to perform, failure to
comply, conflict with, default, violation, acceleration, termination,
cancellation, modification, or required notification.
"Buyer" is defined in the preamble to this Agreement.
"Buyer Indemnitees" means Sellers and their respective officers, directors,
employees, agents, representatives, controlling Persons, stockholders, and
Affiliates.
"Closing" is defined in Section 1.3.
"Closing Date" is defined in Section 1.3.
"Commitment" with respect to any Person means (a) options, warrants,
convertible securities, exchangeable securities, subscription rights, conversion
rights, exchange rights, or
1
<PAGE>
other Contracts that could require such Person to issue any of its Equity
Interests, or any other securities convertible into, exchangeable or exercisable
for, or representing the right to subscribe for any Equity Interest of such
Person; (b) statutory pre-emptive rights or pre-emptive rights granted under the
applicable Person's Organizational Documents; and (c) stock appreciation rights,
phantom stock, profit participation, or other similar rights with respect to
such Person.
"Company" is defined in the preamble to this Agreement.
"Confidential Information" means any non-public and proprietary information
concerning the businesses and affairs of Buyer or the Company that, if disclosed
to third parties, could cause Damage to Buyer or the Company.
"Consent" means any consent, approval, notification, waiver, or other
similar action that is necessary or convenient.
"Contract" means any contract, agreement, arrangement, commitment, letter
of intent, memorandum of understanding, heads of agreement, promise, obligation,
right, instrument, document, or other similar understanding, whether written or
oral.
"Damages" means all damages (including incidental and consequential
damages), losses (including any diminution in value), Liabilities, payments,
amounts paid in settlement, obligations, fines, penalties, costs, expenses
(including reasonable fees and expenses of outside attorneys, accountants and
other professional advisors and of expert witnesses and other costs of
investigation, preparation and litigation in connection with any Action or
Threatened Action) of any kind or nature whatsoever; provided, however, Damages
shall not include lost profits, expectancy, or consequential, punitive or
exemplary damages unless such items are incurred by an Indemnitee or Indemnitees
in connection with a third-party claim for Damages.
"Employee Benefit Plan" means any (a) nonqualified deferred compensation or
retirement plan or arrangement that is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement that is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement that is an Employee Pension Benefit Plan (including any
Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe
benefit plan or program.
"Employee Pension Benefit Plan" is defined in ERISA Section 3(2).
"Employee Welfare Benefit Plan" is defined in ERISA Section 3(1).
"Employment Agreements" means the employment Contracts between the Company
and each of Jeffrey E. Henderson and Joseph D. Vaughn, in substantially the form
of Exhibit C.
"Encumbrance" means any Order, Security Interest, Contract, easement,
covenant, community property interest, equitable interest, right of first
refusal, or restriction of any kind, including any restriction on use, voting,
transfer, receipt of income, or exercise of any other attribute of ownership.
2
<PAGE>
"Enforceable" - a Contract is "Enforceable" if it is the legal, valid, and
binding obligation of the applicable Person enforceable against such Person in
accordance with its terms, except as such enforceability may be subject to the
effects of bankruptcy, insolvency, reorganization, moratorium, or other Laws
relating to or affecting the rights of creditors, and general principles of
equity.
"Environment" means soil, land surface or subsurface strata, waters
(including, navigable ocean, stream, pond, reservoirs, drainage, basins,
wetland, ground, and drinking), sediments, ambient air (including indoor),
noise, plant life, animal life, and all other environmental media or natural
resources.
"Environmental, Health, and Safety Requirements" means all Orders,
Contracts, Laws, and programs (including those promulgated or sponsored by
industry associations, insurance companies, and risk management companies)
concerning or relating to public health and safety, worker/occupational health
and safety, and pollution or protection of the Environment, including those
relating to the presence, use, manufacturing, refining, production, generation,
handling, transportation, treatment, transfer, storage, disposal, distribution,
importing, labeling, testing, processing, discharge, Release, Threatened
Release, control, or other action or failure to act involving cleanup of any
hazardous materials, substances or wastes, chemical substances or mixtures,
pesticides, pollutants, contaminants, toxic chemicals, petroleum products or
byproducts, asbestos, polychlorinated biphenyls, noise, or radiation, each as
amended and as now in effect and in effect at Closing.
"Equity Interest" means (a) with respect to a corporation, any and all
shares of capital stock and any Commitments with respect thereto, (b) with
respect to a partnership, limited liability company, trust or similar Person,
any and all units, interests or other partnership/limited liability company
interests, and any Commitments with respect thereto, and (c) any other direct or
indirect equity ownership or participation in a Person.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"Escrow Agent" means The Chase Manhattan Bank or its Affiliate.
"Escrow Agreement" means the escrow agreement between Buyer, Sellers, and
Escrow Agent, in substantially the form of Exhibit B.
"Fiduciary" is defined in ERISA Section 3(21).
"Financial Statements" is defined in Section 3.8.
"Foreign Corrupt Practices Act" means the Foreign Corrupt Practices Act of
1977.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"Governmental Authority" means any legislature, agency, bureau, branch,
department, division, commission, court, tribunal, magistrate, justice,
multi-national organization, quasi-
3
<PAGE>
governmental body, or other similar recognized organization or body of any
federal, state, county, municipal, local, or foreign government or other similar
recognized organization or body exercising similar powers or authority.
"Indemnification Claim" means any claim for indemnification by an
Indemnitee against an Indemnitor under this Agreement.
"Indemnitees" means, individually and as a group, the Buyer Indemnitees and
the Seller Indemnitees.
"Indemnitor" means any Person having any Liability to any Indemnitee under
this Agreement.
"Intellectual Property" means all (a) inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations relating thereto, (b) trademarks, service marks, trade dress,
logos, trade names, and corporate names, and all goodwill associated therewith,
together with all translations, adaptations, derivations, and combinations,
applications, registrations, and renewals relating thereto, (c) copyrightable
works, all copyrights, and all applications, registrations, and renewals
relating thereto, (d) trade secrets and confidential business information
(including ideas, research and development, know-how, formulas, compositions,
manufacturing and production processes and techniques, technical data, designs,
drawings, specifications, customer and supplier lists, pricing and cost
information, and business and marketing plans and proposals), (e) computer
software (including all data and related documentation), (f) other proprietary
rights, and (g) copies and tangible embodiments of the foregoing (in whatever
form or medium).
"Interim Balance Sheet" means the balance sheet contained within the
Interim Financial Statements.
"Interim Financial Statements" is defined in Section 3.8.
"Knowledge" - an individual will be deemed to have "Knowledge" of a
particular fact or other matter if (a) such individual is actually aware of such
fact or other matter; or (b) such individual would be aware of such fact or
matter if he had inquired of the appropriate officers or employees of the
Company. A Person other than an individual will be deemed to have "Knowledge" of
a particular fact or other matter if (i) any individual who is serving as a
director, officer, partner, member, executor, or trustee of such Person (or in
any similar capacity) had actual Knowledge of such matter, or (ii) any employee
of such Person who is charged with responsibility for a particular area of such
Person's operations (e.g., an employee in charge of environmental matters with
respect to knowledge of environmental matters), has, or at any time had,
Knowledge of such fact or other matter.
"Law" means any law (statutory, common, or otherwise), constitution,
treaty, convention, ordinance, equitable principle, code, rule, regulation,
executive order, or other similar authority
4
<PAGE>
enacted, adopted, promulgated, or applied by any Governmental Authority, each as
amended and now in effect or in effect at Closing.
"Liability" means any liability or obligation, whether known or unknown,
asserted or unasserted, absolute or contingent, matured or unmatured,
conditional or unconditional, latent or patent, accrued or unaccrued, liquidated
or unliquidated, or due or to become due.
"Material Adverse Change (or Effect)" means a change (or effect) in the
condition (financial or otherwise), properties, assets, Liabilities, rights,
obligations, operations, business, or prospects which change (or effect),
individually or in the aggregate, could reasonably be expected to be materially
adverse to such condition, properties, assets, Liabilities, rights, obligations,
operations, business, or prospects.
"Most Recent Year End" is defined in Section 3.8.
"Multiemployer Plan" is defined in ERISA Section 3(37).
"Order" means any order, ruling, decision, verdict, decree, writ, subpoena,
mandate, precept, command, directive, consent, approval, award, judgment,
injunction, or other similar determination or finding by, before, or under the
supervision of any Governmental Authority, arbitrator, or mediator.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity,
quality and frequency) of the Company or other relevant Person, as the case may
be.
"Organizational Documents" means the articles of incorporation, certificate
of incorporation, charter, bylaws, articles of formation, regulations, operating
agreement, certificate of limited partnership, partnership agreement, and all
other similar documents, instruments or certificates executed, adopted, or filed
in connection with the creation, formation, or organization of a Person,
including any amendments thereto.
"Parties" is defined in the preamble to this Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permit" means any permit, license, certificate, approval, consent, notice,
waiver, franchise, registration, filing, accreditation, or other similar
authorization required by any Law or Governmental Authority.
"Person" means any individual, partnership, limited liability company,
corporation, association, joint stock company, trust, joint venture, labor
organization, unincorporated organization, or Governmental Authority.
"Prohibited Transactions" is defined in ERISA Section 406 and Code Section
4975.
"Purchase Price" is defined in Section 1.2.
5
<PAGE>
"Receivables" means all receivables of the Company, including all Contracts
in transit, manufacturers warranty receivables, notes, accounts receivable,
trade account receivables, and insurance proceeds receivable.
"Release" means any spilling, leaking, emitting, discharging, depositing,
escaping, leaching, dumping, or other release into the Environment.
"Relevant Business" is defined in Section 5.5(a).
"Reportable Event" is defined in ERISA Section 4043.
"Requisite Sellers" means Sellers holding at least a majority in interest
of the Shares as set forth in Exhibit A.
"Schedules" is defined in the preamble to Article 3.
"Seller" and "Sellers" are defined in the preamble to this Agreement.
"Seller's Company Representation" is defined in Section 8.1(a).
"Seller Indemnitees" means (i) Buyer and its officers, directors,
employees, agents, representatives, controlling Persons, stockholders and (ii)
if the Closing occurs, the Company and any Person who was an officer, director
or employee of the Company if such Person at and after the date hereof and the
time of Closing is not a Seller or an Affiliate thereof.
"Sellers' Personal Representation" is defined in Section 8.1(a).
"Share" means any share of the Common Stock, par value $0.10 per share, of
the Company.
"Subsidiary" is defined in the preamble to this Agreement.
"Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Section 59A),
customs, duties, capital stock, franchise, profits, withholding, social
security, unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes required to be filed with any
Governmental Authority, including any schedule or attachment thereto, and
including any amendment thereof.
"Threatened" means a demand or statement has been made (orally or in
writing) or a notice has been given (orally or in writing), or any other event
has occurred or any other circumstances exist that would lead a prudent Person
to conclude that a cause of Action or other matter is likely to be asserted,
commenced, taken, or otherwise pursued in the future.
6
<PAGE>
"Threatened Release" means any event that has occurred or other
circumstances that exist that could lead a prudent Person to conclude that any
Release whether intentional or unintentional, is likely to occur now or in the
future.
"Threshold Amount" is defined in Section 8.5(c).
"Transactions" means all of the transactions contemplated by this
Agreement, including: (a) the sale of the Shares by Sellers to Buyer and Buyer's
delivery of the Purchase Price therefor; (b) the execution, delivery, and
performance of all of the documents, instruments and agreements to be executed,
delivered, and performed in connection herewith, including each Ancillary
Agreement; and (c) the performance by Buyer and Sellers of their respective
covenants and obligations (pre- and post-Closing) under this Agreement.
"Transaction Documents" means this Agreement and the Ancillary Agreements.
"Year 2000 Compliant" means all computer programs, information systems and
microchip and microprocessor technologies (imbedded or otherwise) owned, used,
under Contract, or relied upon by a Person will accurately process information
or other data before, as of, and after December 31, 1999.
================================================================================
LOAN AGREEMENT
dated as of
October 29, 1999
By and Between
EMERGING ALPHA CORPORATION
and
HIBERNIA NATIONAL BANK
================================================================================
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT dated as of October 29, 1999, by and among EMERGING
ALPHA CORPORATION, a Delaware corporation ("Borrower"), and HIBERNIA NATIONAL
BANK, a national banking association ("Bank").
W I T N E S S E T H:
WHEREAS, Borrower has applied to Bank for a term loan in an amount of
$2,800,000.00 to finance its acquisition of all outstanding and issued shares of
stock of Gas Jack, Inc., and to refinance existing debt owed by Gas Jack, Inc.
to certain of its creditors; and,
WHEREAS, Bank has agreed to provide such requested credit facility to the
Borrower pursuant to the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein set forth,
the Borrower and Bank do hereby covenant and agree as follows, to-wit:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.1. Defined Terms. As used in this Agreement, and unless the
context requires a different meaning, the following terms have the meanings
indicated:
"Agreement" shall mean this Loan Agreement, as the same may from time to
time be amended, modified or supplemented and in effect.
"Assignment of Leases" shall mean an assignment to be granted by Gas Jack
to Bank of all right, title and interest in and to its leases of
compressors to its customers, and all proceeds thereof, as the same may
from time to time be amended, modified or supplemented and in effect.
"Bank" shall mean Hibernia National Bank, a national banking association.
"Borrower" shall mean Emerging Alpha Corporation, a Delaware corporation
which intends to change its name to Compresco, Inc., together with its
successors and assigns.
"Business Day" shall mean a day other than a Saturday, Sunday or legal
holiday for commercial banks under the laws of the State of Louisiana or a
day on which national banks are authorized to be closed in New Orleans,
Louisiana.
<PAGE>
"Cash Flow" shall mean, for any period, the earnings of such Person(s)
before interest, taxes, depreciation and amortization.
"Collateral" shall mean any interest in any kind of property or assets
pledged, mortgaged or otherwise subject to an Encumbrance in favor of Bank
pursuant to the Collateral Documents.
"Collateral Documents" shall collectively refer to the Assignment of
Leases, the Security Agreements, the Stock Pledge, the Securities Account
Pledge, all related financing statements required by Bank, and any and all
other documents in which an Encumbrance is created on any property of the
Borrower or of any third person to secure payment of the Indebtedness of
Borrower or any part thereof.
"Consolidated Subsidiary" or "Consolidated Subsidiaries" shall mean a
Subsidiary or Subsidiaries, respectively, of Borrower, whose financial
statements are prepared on a consolidated basis with those of Borrower in
accordance with GAAP, and shall specifically include Gas Jack.
"Current Assets" shall mean the assets of Borrower and its Consolidated
Subsidiaries treated as current assets in accordance with GAAP.
"Current Liabilities" shall mean all liabilities of Borrower and its
Consolidated Subsidiaries treated as current liabilities in accordance with
GAAP, including without limitation, all obligations payable on demand or
within one year after the date on which the determination is made, and
final maturities and sinking funds payments required to be made within one
year after the date on which the determination is made, but excluding all
such liabilities or obligations which are renewable or extendible at the
option of such Person to a date more than one year from the date of
determination.
"Current Ratio" shall mean, at any time, the ratio of Current Assets to
Current Liabilities.
"Debt" shall mean any and all amounts and/or liabilities owing from time to
time by Borrower (and of its Consolidated Subsidiaries, if the context may
so require) to any Person, including the Bank, direct or indirect,
liquidated or contingent, now existing or hereafter arising, including
without limitation (i) indebtedness for borrowed money; (ii) the amounts of
all standby and commercial letters of credit and bankers acceptances,
matured or unmatured, issued on behalf of such Person; (iii) guaranties by
such Person of the obligations of any other Person, whether direct or
indirect, whether by agreement to purchase the indebtedness of any other
Person or by agreement for the furnishing of funds to any other Person
through the purchase or lease of goods, supplies or services (or by way of
stock purchase, capital contribution, advance or loan) for the purpose of
paying or discharging the indebtedness of any other Person, or otherwise;
(iv) the present value of all obligations of such Person for the payment of
rent or hire of property of any kind (real or personal) under leases or
lease agreements required to be capitalized under GAAP, and
2
<PAGE>
(v) trade payables incurred in the ordinary course of business or otherwise
by such Person.
"Debt Service Coverage Ratio" shall mean, for any twelve-month period
ending on the date of determination of same, the ratio of (1) the earnings
of Borrower and its Consolidated Subsidiaries before interest, taxes,
depreciation and amortization during such period to (2) the amount of
interest expense and current maturities of long-term indebtedness of
Borrower and its Consolidated Subsidiaries during such period.
"Default" shall mean an event which with the giving of notice or the lapse
of time (or both) would constitute an Event of Default hereunder.
"Dollars" and "$" shall mean lawful money of the United States of America.
"Encumbrances" shall mean individually, collectively and interchangeably
any and all presently existing and/or future mortgages, liens, privileges,
servitudes, rights-of-way and other contractual and/or statutory security
interests and rights of every nature and kind that, now and/or in the
future may affect the property of Borrower or any Collateral or any part or
parts thereof.
"Environmental Laws" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section
9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act
of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource
Conservation and Recovery Act, 49 U.S.C. Section 6901, et seq., the
Louisiana Environmental Affairs Act, La. R.S. 30:2001 et seq., or other
applicable Governmental Requirements or regulations adopted pursuant to any
of the foregoing.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Equipment" shall mean all machinery, equipment, furniture and fixtures,
now owned or hereafter acquired by Borrower and/or Gas Jack, or in which
Borrower and/or Gas Jack now has or hereafter may acquire any right, title
or interest, and any and all additions, substitutions and replacements
thereof, wherever located, together with all attachments, components,
parts, products, equipment and accessories installed therein or affixed
thereto, including, but not limited to, all equipment as defined in ss.
9-109(2) of the UCC, and all fixtures as defined in ss. 9-313(1)(a) of the
UCC.
"Event of Default" shall mean individually, collectively and
interchangeably any of the Events of Default set forth below in Section
10.1 hereof.
"Funded Debt" shall mean, at any time, the sum of all interest-bearing Debt
of Borrower and its Consolidated Subsidiaries.
3
<PAGE>
"Funded Debt to Cash Flow Ratio" shall mean, as of the end of each fiscal
quarter of Borrower and its Consolidated Subsidiaries, the ratio of (1) the
amount of Funded Debt of Borrower and its Consolidated Subsidiaries at the
end of such fiscal quarter, to (2) the amount of Cash Flow of Borrower and
its Consolidated Subsidiaries for the immediately preceding twelve-month
period ending as of the end of the such fiscal quarter.
"GAAP" shall mean, at any time, accounting principles generally accepted in
the United States as then in effect.
"Gas Jack" shall mean Gas Jack, Inc., an Oklahoma corporation, together
with its successors and assigns.
"General Intangibles" shall mean all general intangibles, as defined in
ss.9-106 of the UCC, of the Borrower and/or Gas Jack, whether now owned or
hereafter acquired, and shall include, without limitation (i) all
contractual rights and obligations or indebtedness owing to Borrower and/or
Gas Jack (other than Receivables) from whatever source; (ii) all things and
actions, rights represented by judgments and claims arising out of tort and
other claims related to the Collateral, including the right to assert and
otherwise be the proper party of interest to commence and prosecute
actions; (iii) all goodwill, patents, patent licenses, trademarks,
trademark licenses, trade names, service marks, trade secrets, rights and
intellectual property, copyrights, permits and licenses; (iv) all rights or
claims in respect of refunds for taxes paid; and (v) all deposit accounts
of Borrower and/or Gas Jack.
"Governmental Requirement" shall mean any applicable state, federal or
local law, statute, ordinance, code, rule, regulation, order or decree.
"Guaranties" shall mean that certain Commercial Guaranty of Brooks Mims
Talton, III, dated of even date herewith, that certain unlimited in solido
guaranty to be provided by Gas Jack pursuant to the terms of Section 6.2
hereof, and any other guaranties of any Person which guarantee payment of
any part of the Indebtedness, as any of such guaranties may be amended and
from time to time in effect.
"Guarantors" shall mean Brooks Mims Talton, III, Gas Jack, and any other
Persons who may from time to time guarantee payment of any part of the
Indebtedness.
"Indebtedness" shall mean, at any time, the indebtedness of Borrower
evidenced by the Term Note executed by Borrower pursuant to this Agreement,
in principal, interest, costs, expenses and reasonable attorneys' fees and
all other fees and charges, together with all commitment fees and other
indebtedness and costs and expenses for which Borrower is responsible under
this Agreement or under any of the Related Documents. In addition, the word
"Indebtedness" also includes any and all other loans, extensions of credit,
obligations, debts and liabilities, plus interest thereon, of Borrower that
may now and in the future be owed to or incurred in favor of Bank, as well
as all claims by Bank against Borrower, whether existing now or later;
whether they are voluntary or involuntary, due or to become due, direct or
indirect or by way of assignment, determined or
4
<PAGE>
undetermined, absolute or contingent, liquidated or unliquidated; whether
Borrower may be liable individually or jointly with others, of every nature
and kind whatsoever, in principal, interest, costs, expenses and reasonable
attorneys' fees and all other fees and charges; whether Borrower may be
obligated as principal obligor, guarantor, surety, accommodation party or
otherwise.
"Inventory" shall mean all inventory, as defined in ss.9-109(4) of the UCC,
of Borrower and/or Gas Jack, whether now owned or hereafter acquired by
Borrower and/or Gas Jack, wherever located, and shall include all of
Borrower's and Gas Jack's raw materials, work in process, finished goods,
merchandise, parts and supplies, of every kind and description, and goods
held for sale or lease or furnished under contracts of service in which
Borrower and/or Gas Jack now has or hereafter acquires any right, whether
held by Borrower and/or Gas Jack or others, and all documents of title,
warehouse receipts, bills of lading, and all other documents of every type
covering all or any part of the foregoing. Inventory includes inventory
temporarily out of the custody or possession of Borrower or Gas Jack and
all returns on Receivables.
"Investment Property" shall all investment property of Borrower and/or Gas
Jack, whether now owned or hereafter acquired, consisting of certificated
and uncertificated securities, securities entitlements, securities
accounts, commodity contracts and commodity accounts (as each of said items
are defined in ss. 9-115 of the UCC and in La. R. S. 10:8-102).
"Keenan" shall mean Burt H. Keenan (Social Security No. ###-##-####), his
successors, heirs, legatees and assigns.
"Loan Documents" shall mean this Agreement, the Term Note, the Collateral
Documents and any other Related Documents.
"Lockbox Account" shall have the meaning ascribed to such term in Section
8.15 hereof.
"Material Adverse Change" shall mean, with respect to Borrower or Gas Jack,
an event which causes a material adverse effect on the business, assets,
operations or condition (financial or otherwise) of either such entities,
or which otherwise changes in a materially adverse way any other facts,
circumstances or conditions which Bank has relied upon or utilized in
making the Term Loan Commitment hereunder.
"Maturity Date" shall mean the earlier to occur of (a) October 29, 2004, or
(b) the date of the earlier acceleration of the Term Loan by Bank pursuant
to Article X hereof.
"Permitted Encumbrances" shall have the meaning ascribed to such term in
Section 9.4 hereof.
5
<PAGE>
"Person" shall mean an individual or a corporation, partnership, trust,
joint venture, incorporated or unincorporated association, joint stock
company, government, or an agency or political subdivision thereof, or
other entity of any kind.
"Purchase Agreement" shall mean that certain Stock Purchase Agreement dated
as of October 29, 1999, by and among Borrower and the Estate of Ran Ricks,
Jr., Art L. Swanson, J.W. Waldrop, Jeffrey E. Henderson, Joseph D. Vaughn,
Discovery Fund I-90 Limited Partnership, Discovery Fund II-90 Limited
Partnership, Discovery Fund III-90 Limited Partnership, and Citicap, Inc.
"Receivables" shall mean, with respect to Borrower and/or Gas Jack, all
accounts (as such term is defined in ss.9-106 of the UCC) of Borrower
and/or Gas Jack, and shall include all trade accounts, other receivables,
or other rights to payment for goods sold or leased by or services rendered
by Borrower and/or Gas Jack(or a third party grantor acceptable to Bank).
"Related Documents" shall mean and include individually, collectively,
interchangeably and without limitation all promissory notes, credit
agreements, loan agreements, guaranties, security agreements, mortgages,
collateral mortgages, deeds of trust, and all other instruments and
documents, whether now or hereafter existing, executed in connection with
the Indebtedness.
"Security Agreements" shall mean, collectively, (i) that certain Commercial
Security Agreement dated of even date herewith by Borrower in favor of
Bank, affecting, without limitation, all of Borrower's Receivables,
Inventory, Investment Property, Equipment, General Intangibles and deposit
accounts and other funds on deposit with Bank, as the same may be amended
or modified from time to time, and (ii) that certain Commercial Security
Agreement to be executed by Gas Jack in favor of Bank pursuant to the terms
hereof, affecting, without limitation, all of Gas Jack's Receivables,
Inventory, Investment Property, Equipment, General Intangibles and deposit
accounts and other funds on deposit with Bank, as the same may be amended
or modified from time to time.
"Securities Account Pledge" shall mean that certain Investment Property
Security Agreement October 8, 1999, by Keenan in favor of Bank affecting,
among other property described therein, all of Keenan's rights in and to
that certain investment account no. 5AL005694 maintained by Keenan with
Hibernia Investment Securities, Inc., as the same may be amended or
modified from time to time.
"Solvent" shall mean, when used with respect to any Person on a particular
day, that on such date (i) the fair value of the property of such Person is
greater than the total amount of liabilities, including without limitation,
contingent liabilities, of such person, (ii) the present fair salable value
of the assets of such person is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured, (iii) such Person is able to realize upon its
assets and pay its debts and other liabilities, contingent obligations and
other commitments as they mature in the ordinary course of business, (iv)
such Person does not intend to, and does not believe that
6
<PAGE>
it will, incur debts and liabilities beyond such Person's ability to pay as
such debts and liabilities mature, and (v) such Person is not engaged in
business or a transaction, and is not about to engage in business or a
transaction, for which such Person's property would constitute unreasonably
small capital after giving due consideration to the prevailing practice in
the industry in which such person is engaged. In computing the amount of
contingent liabilities at any time, it is intended that such liabilities
will be computed at the amount which, in light of all of the facts and
circumstances existing at such time, represents the amount that can be
reasonably expected to become an actual or matured liability.
"Subsidiaries" shall mean at any date, with respect to any Person, all the
corporations of which such Person at such date, directly or indirectly,
owns 50% or more of the outstanding capital stock (excluding directors'
qualifying shares), and "Subsidiary" means any one of the Subsidiaries.
"Stock Pledge" shall mean that certain pledge and security agreement to be
executed and delivered by Borrower in favor of Bank pursuant to the terms
hereof, affecting all outstanding shares of stock of Gas Jack acquired
pursuant to the Purchase Agreement, as the same may be amended or modified
from time to time.
"Tangible Net Worth" shall mean, at any time, the amount of the total
assets of Borrower and its Consolidated Subsidiaries, determined on a
consolidated basis, excluding intangible assets (i.e., patents, copyrights,
trademarks, trade names, franchises, goodwill, organizational expenses, and
similar intangible expenses, but including leaseholds and leasehold
improvements), less the amount of the total liabilities of Borrower and its
Consolidated Subsidiaries, determined on a consolidated basis.
"Term Loan Commitment" means the agreement by Bank to make the Term Loan in
accordance with the provisions of Article II hereof.
"Term Loan" shall mean the loan made by Bank under the Term Note to
Borrower in accordance with and subject to the terms of the Term Loan
Commitment.
"Term Note" shall mean that certain promissory note made by Borrower dated
of even date herewith, payable to the order of Bank in principal amount of
$2,800,000.00, as said Term Note is more fully described in Section 2.2
hereof, together with any and all extensions, renewals, modifications and
substitutions therefor.
"UCC" shall mean the Uniform Commercial Code, Commercial Laws-Secured
Transactions (La. R.S. 10:9-101 et seq.) in the State of Louisiana, as
amended from time to time, provided that if by reason of mandatory
provisions of law, the perfection or effect of perfection or non-perfection
of the Bank's Encumbrances against the Collateral is governed by the
Uniform Commercial Code as in effect in a jurisdiction other than the State
of Louisiana, "UCC" means the Uniform Commercial Code as in effect in such
other jurisdiction.
7
<PAGE>
Section 1.2. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP, and all financial
data submitted pursuant to this Agreement shall be prepared in accordance with
GAAP.
ARTICLE II
THE TERM LOAN
Section 2.1. The Term Loan. Subject to the terms, conditions and provisions
of this Agreement, Bank agrees to make a term loan to Borrower in an amount of
$2,800,000.00 (the "Term Loan"), the proceeds of which shall be used exclusively
by Borrower to finance part of its cost of the acquisition of all outstanding
and issued shares of stock of Gas Jack pursuant to the terms of the Purchase
Agreement, and to refinance existing indebtedness of Gas Jack owed to UMB
Oklahoma Bank.
Section 2.2. The Term Note. Borrower's indebtedness to Bank pursuant to the
Term Loan shall be evidenced by the Term Note. The Term Note shall bear interest
at a fixed rate of 8.8% per annum from its date until paid in full, with
interest payable monthly on the last day of each month commencing November 30,
1999, and on the day of each month thereafter this Note is paid in full. The
principal amount outstanding under the Term Note shall be payable in 59
installments in the amount of $46,666.67 each, commencing November 30, 1999, and
continuing on the same day of each month thereafter through and including
September 30, 2004, plus a final installment due on the Maturity Date, at which
time all outstanding principal and accrued interest under the Term Note shall be
due and payable in full
Section 2.3. Prepayment of Term Loan. Borrower may prepay the Term Loan in
whole or in part at any time provided that any prepayment of principal be
accompanied by the payment of accrued simple interest and any unpaid late
charges due under the Term Note through the date of prepayment. All prepayments
of principal shall be applied to installments of principal due in an inverse
order of maturity. Any partial prepayments under the Term Loan will not relieve
the Borrower of its obligation to make regularly scheduled payments under the
above payment schedule. Such prepayments will instead reduce the principal
balance due, and the Borrower may be required to make fewer payments under the
Term Note. Amounts prepaid under the Term Note may not be reborrowed.
Section 2.4. Use of Proceeds. Borrower shall use the proceeds of the Term
Loan solely for the purposes described in Section 2.1 hereof.
ARTICLE III
[Intentionally left blank]
8
<PAGE>
ARTICLE IV
CERTAIN GENERAL PROVISIONS
Section 4.1. Payments to Bank. All payments of principal, interest,
commitment fees and any other amounts due hereunder or under any of the other
Related Documents shall be made to the Bank at the Bank's office at 313
Carondelet Street, New Orleans, Louisiana 70130, or at such other location that
the Bank may from time to time designate in writing to Borrower, in each case in
immediately available funds.
Section 4.2. No Offset, etc. All payments by Borrower hereunder and under
any of the other Related Documents shall be made without setoff or counterclaim
and free and clear of and without deduction for any taxes, levies, imposts,
duties, charges, fees, deductions, withholdings, compulsory loans, restrictions
or conditions of any nature now or hereafter imposed or levied by any
jurisdiction or any political subdivision thereof or taxing or other authority
therein unless Borrower is compelled by law to make such deduction or
withholding. If any such obligation is imposed upon Borrower with respect to any
amount payable by it hereunder or under any of the other Loan Documents,
Borrower will pay to the Bank, on the date on which such amount is due and
payable hereunder or under such other Related Document, such additional amount
as shall be necessary to enable the Bank to receive the same net amount which
Bank would have received on such due date had no such obligation been imposed
upon Borrower. Borrower will deliver promptly to the Bank certificates or other
valid vouchers for all taxes or other charges deducted from or paid with respect
to payments made by Borrower hereunder or under such other Loan Documents.
Section 4.3. Computations. All computations of interest on the Term Loan
and of commitment or other fees shall be assessed utilizing a 360-day daily
interest factor over the number of days in an actual calendar year (365 days or
366 days in a leap year). Bank shall determine each interest rate applicable to
the Term Loans in accordance with this Agreement, and Bank's determination of
same shall be conclusive in the absence of manifest error. Except as otherwise
provided herein, whenever a payment hereunder or under any of the other Related
Documents becomes due on a day that is not a Business Day, the due date for such
payment shall be extended to the next succeeding Business Day, and interest
shall accrue during such extension. The outstanding amount of the Term Loan as
reflected on the Bank's books and records from time to time shall be prima facie
evidence of the amounts so outstanding.
Section 4.4. Additional Costs, etc. If any present or future applicable
law, which expression, as used herein, includes statutes, rules and regulations
thereunder and interpretations thereof by any competent court or by any
governmental or other regulatory body or official charged with the
administration or the interpretation thereof and requests, directives,
instructions and notices at any time or from time to time hereafter made upon or
otherwise issued to the Bank
9
<PAGE>
by any central bank or other fiscal, monetary or other authority (whether or not
having the force of law), shall:
(1) subject the Bank to any tax, levy, impost, duty, charge, fee, deduction
or withholding of any nature with respect to this Agreement, the other
Related Documents or the Indebtedness (other than taxes based upon or
measured by the revenue, income or profits of the Bank), or
(2) materially change the basis of taxation (except for changes in taxes on
revenue, income or profits) of payments to the Bank of the principal of or
the interest on the Indebtedness of any other amounts payable to the Bank
under this Agreement or the other Related Documents, or
(3) impose or increase or render applicable (other than to the extent
specifically provided for elsewhere in this Agreement) any special deposit,
reserve, assessment, liquidity, capital adequacy or other similar
requirements (whether or not having the force of law) against assets held
by, or deposits in or for the account of, or loans by, or commitments of an
office of the Bank, or
(4) impose on the Bank any other conditions or requirements with respect to
this Loan Agreement, the other Related Documents, the Indebtedness, or any
class of loans of which the Indebtedness forms a part, and the result of
any of the foregoing is
(i) to increase the cost to the Bank of making, funding, issuing,
renewing, extending or maintaining the Indebtedness, or
(ii) to reduce the amount of principal, interest or other amount
payable to the Bank hereunder on account of such the Indebtedness, or
(iii) to require the Bank to make any payment or to forego any
interest or other sum payable hereunder, the amount of which payment
or foregone interest or other sum is calculated by reference to the
gross amount of any sum receivable or deemed received by the Bank from
Borrower hereunder,
then, and in each such case, Borrower will, upon demand made by the Bank at any
time and from time to time and as often as the occasion therefor may arise, pay
to the Bank such additional amounts as will be sufficient to compensate the Bank
for such additional cost, reduction, payment or foregoing interest or others
sum.
Section 4.5. Capital Adequacy. If after the date hereof the Bank reasonably
determines that (a) the adoption of or change in any law, governmental rule,
regulations, policy guideline or directive (whether or not having the force of
law) regarding capital requirements for banks or bank holding companies or any
change in the interpretation or application thereof by a court or governmental
authority with appropriate jurisdiction, or (b) compliance by the Bank or any
corporation controlling the Bank with any law, governmental rule, regulation,
policy, guideline or directive (whether or not having the force of law) of any
such entity regarding
10
<PAGE>
capital adequacy, has the effect of reducing the return on the Bank's Term Loan
to a level below that which the Bank could have achieved but for such adoption,
change or compliance (taking into consideration the Bank's then existing
policies with respect to capital adequacy and assuming full utilization of such
entity's capital) by any amount deemed by the Bank to be material, then the Bank
may notify Borrower of such fact. Borrower agrees to pay the Bank for the amount
of such reduction in the return on capital as and when such reduction is
determined upon presentation by the Bank of a certification in accordance with
paragraph Section 4.6.
Section 4.6. Certificate; Optional Right of Prepayment. Bank shall provide
Borrower with a certificate setting forth any additional amounts which it
declares to be payable pursuant to Sections 4.4 and 4.5 hereof, and a complete
explanation of such amounts which are due, and each such certificate shall be
conclusive, absent manifest error, that such amounts are due and owing. Borrower
shall have the right, at any time within 90 days of receipt of any such
certificate, to prepay the Term Loan (subject to any and all prepayment
penalties, if any, under the terms of this Agreement) without being obligated to
pay any such additional costs set forth in such certificate, after which Bank
shall promptly terminate, discharge and release of record (at Borrower's
expense) all of its Encumbrances affecting the Collateral and return all
Collateral to Borrower.
Section 4.7. Commitment Fee for the Term Loan. In addition to the other
fees and expenses described in Section 11.4 hereof, the Borrower has paid or
shall pay upon the execution of this Agreement the remaining balance due on the
Bank's total commitment fee in the amount of $28,000.00 for the Term Loan
Commitment.
ARTICLE V
SECURITY FOR THE INDEBTEDNESS
Section 5.1. Security. The Indebtedness shall be secured by the following:
(a) the Assignment of Leases;
(b) the Security Agreements;
(c) the Guaranties;
(d) the Stock Pledge;
(e) the Securities Account Pledge; and,
(f) such other Collateral Documents now or hereafter granted by any Person
as security for any part of the Indebtedness.
11
<PAGE>
Section 5.2. Agreement to Release Securities Account Pledge. Bank hereby
agrees that in the event that the shareholders of Borrower contribute an
additional $1 million in equity subsequent to the date hereof, and Borrower
thereafter applies as much of such additional equity as may be required to pay
all then outstanding revolving loans which Bank has committed to extend to
Borrower and Gas Jack as co-borrowers, Bank agrees, provided no Default or Event
of Default then exists, to release the Securities Accounts Pledge and any claim
or Encumbrance to the funds and/or securities contained therein.
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.1. Conditions Precedent to the Term Loan. The obligation of Bank
to make the Term Loan hereunder shall be subject to the satisfaction and the
continued satisfaction of the following conditions precedent:
(a) Borrower shall have executed and delivered to Bank this Agreement, the
Collateral Documents, the Term Note and all other documents required by this
Agreement, all in form and substance and in such number of counterparts as may
be required by Bank;
(b) Brooks Mims Talton, III, shall have executed and delivered to Bank his
unlimited in solido Guaranty of the Indebtedness and all other present and
future Debt of Borrower to Bank;
(c) The representations and warranties of Borrower and Guarantors as set
forth herein, or any Related Document furnished to Bank in connection herewith,
shall be and remain true and correct;
(d) Bank shall have received a favorable legal opinion of counsel to
Borrower and Guarantors, in scope and substance satisfactory to Bank;
(e) Bank shall have received certified resolutions of Borrower authorizing
the Term Loan and the execution and delivery of all documents contemplated
hereby;
(f) Bank shall have received all fees, charges and expenses which are due
and payable as specified in this Agreement or any Related Document;
(g) No Default or Event of Default shall exist or shall result from the
making of the Term Loan;
(h) Borrower shall have provided Bank with all financial statements,
reports and certificates required by this Agreement;
12
<PAGE>
(i) Bank's counsel shall have reviewed the corporate structure and articles
of incorporation of Borrower, and shall be satisfied with the validity, due
authorization and enforceability of all Related Documents;
(j) There shall have been no change to the corporate structure and
ownership of Borrower than from what has been previously represented to Bank;
(k) Bank shall have received evidence acceptable to Bank and its counsel
that its Encumbrances affecting the Collateral shall have a first priority
position, subject only to Permitted Encumbrances, upon the funding of the Term
Loan and the cancellation of certain liens held by UMB Oklahoma Bank against
assets of Gas Jack contemporaneously with the payment of the loans of Gas Jack
from the proceeds of the Term Loan;
(l) Bank shall have received evidence that all other policies of insurance
required by this Agreement and the Collateral Documents are in full force and
effect;
(m) Bank, at its option and for its sole benefit, shall have conducted an
audit of each Borrower's payment records, ledger sheets, and computer tapes or
disks kept to record payment information, and of Borrower's other books,
records, and operations, and Bank shall be satisfied as to their condition;
(n) Keenan shall have granted the Securities Account Pledge to Bank, the
securities account affected by the Securities Account Pledge shall have been
established by Keenan with the purchase or deposit of securities or cash therein
with an aggregate market value of not less than $1 million, and Keenan, Hibernia
Investment Securities, Inc., and Bank shall have entered into an account control
agreement on terms and conditions acceptable to Bank which provide Bank with
"control" over such securities account within the meaning of the UCC; and,
(o) There shall have occurred no Material Adverse Change.
Section 6.2. Conditions Subsequent to the Term Loan. The obligation of Bank
to allow the Term Loan hereunder to remain outstanding shall be subject to the
satisfaction of the following conditions within two (2) Business Days of the
funding of the Term Loan:
(a) Gas Jack shall have executed and delivered to Bank its unlimited in
solido Guaranty of the Indebtedness, and all other present and future Debt of
Borrower to Bank, as well as its Security Agreement affecting all of its present
and future Receivables, Inventory, Investment Property, Equipment, General
Intangibles and deposit accounts and other funds on deposit with Bank and the
Assignment of Leases in form and substance satisfactory to Bank;
(b) Bank shall have received certified resolutions of Gas Jack authorizing
its Guaranty, Assignment of Leases and Security Agreement;
(c) Bank shall have received a favorable legal opinion of counsel to Gas
Jack with respect to the enforceability and binding effect of Gas Jack's
Guaranty, Assignment of Leases and Security Agreement, in scope and substance
satisfactory to Bank;
13
<PAGE>
(d) Bank shall have received evidence acceptable to Bank and its counsel
that its Encumbrances affecting the Collateral owned by Gas Jack shall have a
first priority position, subject only to Permitted Encumbrances; and,
(e) Borrower shall have executed and delivered the Stock Pledge and shall
have delivered all outstanding and issued shares of stock of Gas Jack acquired
pursuant to the Purchase Agreement to Bank, together with stock powers and Reg U
statements which Bank may reasonably require.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Bank as follows:
Section 7.1. Corporate Authority. Borrower is a corporation duly created,
validly existing and in good standing under the laws of the State of Delaware,
and is duly qualified and in good standing as a foreign corporation in all other
jurisdictions where the failure to qualify would have an adverse effect upon its
ability to perform its obligations under this Agreement and all Related
Documents. Borrower has the power to enter into this Agreement, issue the Term
Note, mortgage and grant security interests in the Collateral in the manner and
for the purpose contemplated by the Collateral Documents. Borrower has the
corporate power to perform their obligations hereunder and under this Agreement
and of the Related Documents. The making and performance by Borrower of this
Agreement and of the Related Documents have been duly authorized by all
necessary corporate action (including all necessary shareholder action), and do
not and will not violate any provision of any law, rule, regulation, order,
writ, judgment, decree, determination or award presently in effect having
applicability to Borrower or the articles of incorporation of Borrower. The
making and performance by Borrower of this Agreement and the Related Documents
do not and will not result in a breach of or constitute a default under any
indenture or loan or credit agreement or any other agreement or instrument to
which Borrower is a party or by which it may be bound or affected, or result in,
or require, the creation or imposition of any mortgage, deed of trust, pledge,
lien, security interest or other charge or encumbrance of any nature (other than
as contemplated this Agreement and by the Related Documents) upon or with
respect to any of the properties now owned or hereafter acquired by Borrower,
and Borrower is not in default under or in violation of any such order, writ,
judgment, decree, determination, award, indenture, agreement or instrument. This
Agreement and each of the Related Documents to which Borrower is a party
constitutes legal, valid and binding obligations of Borrower, enforceable in
accordance with its terms, except to the extent that the enforceability of such
instruments may be subject to the effect of applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally, or the effect of general equity principles.
14
<PAGE>
Section 7.2. Financial Statements. The balance sheet of Borrower at the
date thereof, and the related statements of income and retained earnings for the
periods covered thereby, copies of which have been delivered to Bank, are
complete and correct and fairly present the financial condition of Borrower as
of the date or dates thereof. Each of said financial statements were prepared in
conformity with GAAP applied on a basis consistent with the preceding year. No
Material Adverse Change has occurred since said dates in the financial position
or in the results of operations of Borrower in its business taken as a whole.
Section 7.3. Title to Collateral. Borrower has good and marketable title to
the Collateral in which it has or shall grant Bank an Encumbrance as security
for the Indebtedness, free and clear of all Encumbrances other than Permitted
Encumbrances. The Collateral Documents constitute legal, valid and perfected
first Encumbrances on the property interests covered thereby, subject only to
Permitted Encumbrances.
Section 7.4. Litigation. Other than as has been disclosed previously to
Bank in writing, there are no material legal actions, suits or proceedings
pending or, to the best of Borrower's knowledge, threatened against or affecting
Borrower or any of its properties before any court or administrative agency
(federal, state or local), which, if determined adversely to Borrower, would
constitute a Material Adverse Change, and there are no judgments or decrees
affecting Borrower or its properties (including, without limitation, the
Collateral) which are or may become an Encumbrance against such properties.
Section 7.5. Approvals. No authorization, consent, approval or formal
exemption of, nor any filing or registration with, any governmental body or
regulatory authority (federal, state or local), and no vote, consent or approval
of the shareholders of Borrower is or will be required in connection with the
execution and delivery by Borrower of the Related Documents or the performance
by Borrower of its obligations hereunder and under the other Related Documents.
Section 7.6. Licenses. Borrower possesses adequate franchises, licenses and
permits to own its properties and to carry on its business as presently
conducted.
Section 7.7. Adverse Agreements. Borrower is not a party to any agreement
or instrument, or subject to any charter or other restriction, materially and
adversely affecting its business, properties, assets, or operations or its
condition (financial or otherwise), and Borrower is not in default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any agreement or instrument to which it is a party,
which default would constitute a Material Adverse Change.
Section 7.8. Default or Event of Default. No Default or Event of Default
hereunder has occurred or is continuing or will occur as a result of the giving
effect hereto.
Section 7.9. Employee Benefit Plans. Each employee benefit plan as to which
Borrower may have any liability complies in all material respects with all
applicable requirements of law and regulations, and (i) no Reportable Event (as
defined in ERISA) has occurred with respect to any such plan, (ii) Borrower has
not withdrawn from any such plan or initiated steps to do so, and (iii) no steps
have been taken to terminate any such plan.
15
<PAGE>
Section 7.10. Investment Company Act. Borrower is not an "investment
company" or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
Section 7.11. Public Utility Holding Company Act. Borrower is not a
"holding company," or a "subsidiary company" of a "holding company," within the
meaning of the Public Utility Holding Company Act of 1935, as amended.
Section 7.12. Regulations G, T and U. Borrower is not engaged principally,
or as one of its important activities, in the business of extending credit for
the purpose of purchasing or carrying margin stock (within the meaning of
Regulations G, T and U of the Board of Governors of the Federal Reserve System),
and none of the proceeds of the Term Loan will be used for the purpose of
purchasing or carrying such margin stock.
Section 7.13. Location of Borrower's Offices, Records and Inventory and
Equipment. The chief place of business of Borrower, and the office where
Borrower keeps its records concerning the Collateral, and the present locations
of Borrower's Inventory (other than Inventory out on lease) and Equipment, are
as follows:
Place of Business/Records Location Inventory and Equipment Locations
- ---------------------------------- ---------------------------------
Borrower -
17571 Red Oak Drive 17571 Red Oak Drive
Houston, TX 77090 Houston, TX 77090
(no presently owned Inventory)
Section 7.14. Information. All information heretofore or contemporaneously
herewith furnished by Borrower to Bank for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all information
hereafter furnished by or on behalf of Borrower to Bank will be, true and
accurate in every material respect on the date as of which such information is
dated or certified; and none of such information is or will be incomplete by
omitting to state any material fact necessary to make such information not
misleading.
Section 7.15. Environmental Matters. Except as may have been disclosed in
writing to Bank prior to the date hereof, no properties of Borrower has ever
been, and ever will be so long as this Agreement remains in effect, used for the
generation, manufacture, storage, treatment, disposal, release or threatened
release of any hazardous waste or substance, as those terms are defined in the
Environmental Laws, except in compliance with such Environmental Laws. Except as
may have been disclosed in writing by Borrower to Bank, Borrower represents and
warrants that it is in compliance with all Environmental Laws affecting it and
its properties.
Section 7.16. Solvency of Borrower. Borrower is, and after consummation of
the transactions contemplated by this Agreement (including the making of the
Term Loan), and after giving effect to all obligations incurred by Borrower in
connection herewith, will be, Solvent.
16
<PAGE>
Section 7.17. Year 2000 Compliance. Borrower represents and warrants that
all material systems used in the conduct of its business will have appropriate
capabilities and compatibility to handle calendar dates falling on or after
January 1, 2000, and all information pertaining to such calendar dates. Upon
reasonable request, Borrower agrees to provide to Bank documentation
satisfactory to Bank to establish that its systems and software are year 2000
compliant, or that Borrower is in the process of implementing a plan to ensure
that its systems and software will be 2000 compliant before December 31, 1999.
Section 7.18. Survival of Representations and Warranties. Borrower
understands and agrees that Bank is relying upon the above representations and
warranties in making the Term Loan to Borrower. Borrower further agrees that the
foregoing representations and warranties shall be continuing in nature and shall
remain in full force and effect until such time as the Indebtedness shall be
paid in full, or until this Agreement shall be terminated, whichever is the last
to occur.
ARTICLE VIII
AFFIRMATIVE COVENANTS
In addition to the covenants contained in the Collateral Documents, which
covenants are hereby ratified and confirmed by Borrower, Borrower covenants and
agrees as follows:
Section 8.1. Financial Statements. Borrower will furnish or cause to
be furnished to Bank:
(a) within forty-five (45) days following the end of each fiscal quarter
of Borrower, financial statements consisting of a balance sheet of
Borrower and Gas Jack as of the end of such fiscal quarter, and
statements of income and statements of cash flow of Borrower and Gas
Jack for such fiscal quarter and for the fiscal year through such
fiscal quarter, all certified by the chief financial officer of
Borrower or Gas Jack, as the case may be, as having been prepared in
accordance with GAAP consistently applied;
(b) within forty-five (45) days following the end of each fiscal quarter
of Borrower, the consolidated and consolidating financial statements
of Borrower and its Consolidated Subsidiaries consisting of a balance
sheet as of the end of such fiscal quarter, and statements of income
and statements of cash flow of Borrower and its Consolidated
Subsidiaries for such fiscal quarter and for the fiscal year through
such fiscal quarter, all certified by the chief financial officer of
Borrower as having been prepared in accordance with GAAP consistently
applied, together with the 10-Q or equivalent report submitted by
Borrower to the Securities and Exchange Commission for such period;
17
<PAGE>
(c) as soon as available and in any event within ninety (90) days
following the close of each fiscal year of Borrower, unqualified
audited consolidated and consolidating financial statements of
Borrower and its Consolidated Subsidiaries consisting of a balance
sheet as of the end of such fiscal year and statements of income, and
statement of cash flow for such fiscal year, setting forth in each
case in comparative form the corresponding figures for the preceding
fiscal year, certified by independent public accountants of recognized
standing acceptable to Bank, together with the 10-K or equivalent
report submitted by Borrower to the Securities and Exchange Commission
for such period;
(d) within fifteen days (15) of the filing of same, copies of all Forms
1120 and all schedules and attachments thereto as submitted annually
to the Internal Revenue Service by Borrower and its Consolidated
Subsidiaries;
(e) with each set of quarterly financial reports submitted in accordance
with paragraph (a) above, a compliance certificate signed by the chief
financial officer of each Borrower, certifying that said officer has
reviewed this Agreement and to the best of his or her knowledge no
Default or Event of Default has occurred, or if such Default or Event
of Default has occurred, specifying the nature and extent thereof, and
that all financial covenants in this Agreement have been met, and
providing a computation of all financial covenants contained herein;
(f) as soon as available and in any event within thirty (30) days
following the end of each calendar year, the personal financial
statements of Brooks Mims Talton, III, signed by Mr. Talton and
submitted pursuant to fully completed forms of personal financial
statements provided by Bank, together with his federal tax returns and
all schedules thereto, within fifteen (15) days of the filing of same;
(g) on a bi-annual basis, commencing on the second anniversary date of the
date of this Agreement, a third-party collateral appraisal prepared by
MB Valuation Services or other reputable appraisal service firm
approved by Bank, which is addressed to Bank;
(h) within 15 days of receipt of same, copies of all statements received
by Keenan from Hibernia Investment Securities, Inc. regarding the
securities account subject to the Securities Account Pledge; and,
(i) such other necessary financial information concerning Borrower and
Guarantors as Bank may reasonably request from time to time.
Section 8.2. Notice of Default; Litigation; ERISA Matters. Borrower will
give written notice to Bank as soon as reasonably possible and in no event more
than five (5) Business Days of (i) the occurrence of any Default or Event of
Default hereunder of which it has knowledge, (ii) the filing of any actions,
suits or proceedings against Borrower in any court or before any governmental
authority or tribunal of which it has knowledge which could cause a Material
Adverse Change with respect to Borrower, (iii) the occurrence of a reportable
event
18
<PAGE>
under, or the institution of steps by Borrower to withdraw from, or the
institution of any steps to terminate, any employee benefit plan as to which
Borrower may have liability, or (iv) the occurrence of any other action, event
or condition of any nature of which Borrower has knowledge which may cause, or
lead to, or result in, any Material Adverse Change.
Section 8.3. Maintenance of Corporate Existence, Properties and Liens.
Borrower will (i) continue to engage in the business presently being operated by
it; (ii) maintain its corporate existence and good standing in each jurisdiction
in which it is required to be qualified; (iii) keep and maintain all franchises,
licenses and properties necessary in the conduct of its business in good order
and condition; (iv) duly observe and conform to all material requirements of any
governmental authorities relative to the conduct of its business or the
operation of its properties or assets; and, (v) maintain in favor of Bank a
first perfected lien and security interest in the Collateral, subject only to
other Permitted Encumbrances.
Section 8.4. Collateral Schedules and Locations. As often as Bank shall
reasonably require, Borrower shall deliver to Bank schedules of such Collateral,
including such information as Bank may require, including without limitation
names and addresses of account debtors and agings of Receivables and General
Intangibles and the location of all Inventory.
Section 8.5. Taxes. Borrower shall pay or cause to be paid when due, all
taxes, local and special assessments, and governmental and other charges of
every type and description, that may from time to time be imposed, assessed and
levied against it and its properties. Borrower further agree to furnish Bank
with evidence that such taxes, assessments, and governmental and other charges
due by the Borrower have been paid in full and in a timely manner. Borrower may
withhold any such payment or elect to contest any lien if Borrower is in good
faith conducting an appropriate proceeding to contest the obligation to pay and
so long as Bank's interest in the Collateral is not jeopardized.
Section 8.6. Required Insurance. Borrower shall maintain insurance with
insurance companies in such amounts and against such risks as is usually carried
by owners of similar businesses and properties in the same general areas in
which each of them operates, and as shall be reasonably satisfactory to Bank,
such insurance to include appropriate liability, hazard, business interruption,
workmens' compensation coverages as Bank may require, naming Bank as loss payee
and/or additional insured, as appropriate. With respect to the Collateral,
Borrower agrees to provide Bank with the types of insurance coverages required
by the Collateral Documents affecting such Collateral.
Borrower agrees to provide Bank with originals or certified copies of such
policies of insurance. Borrower further agrees to promptly furnish Bank with
copies of all renewal notices and, if requested by Bank, with copies of receipts
for paid premium. Borrower shall provide Bank with originals or certified copies
of all renewal or replacement policies of insurance no later than fifteen (15)
days before any such existing policy or policies should expire. If Borrower's
insurance policies required hereunder and renewals thereof are held by another
person, Borrower agree to supply original or certified copies of the same to
Bank within the time periods required above.
19
<PAGE>
Section 8.7. Performance of Loan Documents. Borrower shall duly and
punctually pay and perform its obligations under the Term Note, under this
Agreement and under each of the Related Documents, in accordance with the terms
hereof and thereof.
Section 8.8. Compliance with Environmental Laws. Borrower shall comply with
and shall cause all of its employees, agents, invitees or sublessees to comply
with all Environmental Laws with respect to the disposal of industrial refuse or
waste, and/or the discharge, procession, treatment, removal, transportation,
storage and handling of hazardous or toxic wastes and substances, and pay
immediately when due the cost of removal of any such waste or substances from,
and keep its properties free of any lien imposed pursuant to any such laws,
rules, regulations or orders.
Borrower shall give notice to Bank as soon as reasonably possible and in no
event more than five (5) days after it receives any compliance orders,
environmental citations, or other notices from any governmental entity relating
to any environmental condition relating to its properties or elsewhere for which
it may have legal responsibility with a full description thereof. Borrower
agrees to take any and all reasonable steps, and to perform any and all
reasonable actions necessary or appropriate to promptly comply with any such
citations, compliance orders or Environmental Laws requiring Borrower to remove,
treat or dispose of such hazardous materials, wastes or conditions at the sole
expense of Borrower, to provide Bank with satisfactory evidence of such
compliance; provided, however, that nothing contained herein shall preclude
Borrower from contesting any such compliance orders or citations if such contest
is made in good faith, appropriate reserves are established for the payment for
the cost of compliance therewith, and Bank's security interest in any such
property affected thereby (or the priority thereof) is not jeopardized.
Regardless of whether any Event of Default hereunder shall have occurred
and be continuing, Borrower (i) releases and waives any present or future claims
against Bank for indemnity or contribution in the event Borrower becomes liable
for remediation costs under and Environmental Laws, and (ii) agrees to defend,
indemnify and hold harmless Bank from any and all liabilities (including strict
liability), actions, demands, penalties, losses, costs or expenses (including,
without limitation, reasonable attorneys fees and remedial costs), suits,
administrative orders, agency demand letters, costs of any settlement or
judgment and claims of any and every kind whatsoever which may now or in the
future (whether before or after the termination of this Agreement) be paid,
incurred, or suffered by, or asserted against Bank by any person or entity or
governmental agency for, with respect to, or as a direct or indirect result of,
the presence on or under, or the escape, seepage, leakage, spillage, discharge,
emission, or release from or onto the property of Borrower of any hazardous
materials, wastes or conditions regulated by any Environmental Laws,
contamination resulting therefrom, or arising out of, or resulting from, the
environmental condition of such property or the applicability of any
Environmental Laws relating to hazardous materials (including, without
limitation, CERCLA or any so called federal, state or local "super fund" or
"super lien" laws, statute, ordinance, code, rule, regulation, order or decree)
regardless of whether or not caused by or within the control of Bank. The
covenants and indemnities contained in this Section 8.8 shall survive
termination of this Agreement.
20
<PAGE>
Section 8.9. Further Assurances. Borrower will, at any time and from time
to time, execute and deliver such further instruments and take such further
action as may reasonably be requested by Bank, in order to cure any defects in
the execution and delivery of, or to comply with or accomplish the covenants and
agreements contained in this Agreement or the Collateral Documents.
Section 8.10. Financial Covenants. Borrower shall comply with the following
covenants and ratios:
(a) Borrower and its Consolidated Subsidiaries shall maintain a ratio of
Current Ratio of not less than 1.10 to 1.00 as of the end of each
fiscal quarter.
(b) Borrower and its Consolidated Subsidiaries shall maintain a Tangible
Net Worth of not less than $2,750,447.00 plus 50% of the net income of
Borrower and its Consolidated Subsidiaries (with no deduction for net
losses) derived after 12/31/98.
(c) Borrower and its Consolidated Subsidiaries shall maintain a Funded
Debt to Cash Flow Ratio of (i) less than or equal to 4.0 to 1.0 as of
the end of each fiscal quarter through 12/31/00, (ii) less than or
equal to 3.5 to 1.0 as of the end of each fiscal quarter thereafter
through 12/31/01, and (iii) less than or equal to 3.0 to 1.0 as of the
end of each fiscal quarter thereafter.
(d) Borrower and its Consolidated Subsidiaries shall maintain a Debt
Service Coverage Ratio of (i) greater than 1.0 to 1.0 as of the end of
each fiscal quarter through 12/31/00 (provided, however, that for the
period ending 12/31/00 only, the Debt Service Coverage Ratio shall be
based on the current quarter's annualized interest expense), (ii)
greater than or equal to 1.2 to 1.0 as of the end of each fiscal
quarter thereafter through 12/31/01, and (iii) greater than or equal
to 1.50 to 1.0 as of the end of each fiscal quarter thereafter.
Section 8.11. Operations. Borrower shall conduct its business affairs in a
reasonable and prudent manner and in compliance with all applicable federal,
state and municipal laws, ordinances, rules and regulations respecting its
properties, charters, businesses and operations, including compliance with all
minimum funding standards and other requirements of ERISA of 1974, and other
laws applicable to any employee benefit plans which it may have, and at all time
shall remain a "going concern" as defined by its auditors.
Section 8.12. Change of Location. Borrower shall, within ten (10) Business
Days prior to any such addition or change, notify Bank in writing of any
proposed additions to or changes in the location of the Collateral (other than
leased Inventory) or of the location of its chief executive office.
Section 8.13. Employee Benefit Plans. So long as this Agreement remains in
effect, Borrower will maintain each employee benefit plan as to which it may
have any liability, in compliance with all applicable requirements of law and
regulations.
21
<PAGE>
Section 8.14. Field Audits; Other Information. Borrower shall allow Bank's
employees and agents access to its books and records and properties during
normal business hours to perform field audits from time to time. Borrower will
provide Bank with such other information as Bank may reasonably request from
time to time.
Section 8.15 Pledged Securities Account. Borrower shall cause Keenan to at
all time maintain sufficient cash or securities in the securities account
subject to the Securities Account Pledge so as to maintain the account with a
market value of not less than $1 million.
Section 8.16. Deposit and Operating Accounts. Borrower shall maintain all
of its primary deposit and operating accounts with Bank so long as any of the
Indebtedness remains outstanding.
ARTICLE IX
NEGATIVE COVENANTS
In addition to the negative covenants contained in the Collateral
Documents, which covenants are hereby ratified and confirmed by Borrower,
Borrower covenants and agrees as follows:
Section 9.1. Limitations on Fundamental Changes. Borrower shall not change
the nature of its business or its name (other than the presently anticipated
name change of Borrower to Compresco, Inc.), grant credit terms to its customers
on terms different than those presently granted to customers, or form any
subsidiary without the prior written consent of the Bank, nor shall it enter
into any transaction of merger or consolidation, nor liquidate or dissolve
itself (nor suffer any liquidation or dissolution).
Section 9.2. Disposition of Assets. Borrower shall not convey, sell, lease,
assign, transfer or otherwise dispose of, any of its property, business or
assets whether now owned or hereafter acquired except for (i) inventory and
compressors sold to customers in the ordinary course of business, (ii) property
disposed of in the ordinary course of business, provided that, if such property
is to be replaced, the net cash proceeds of each such transaction are applied to
obtain a replacement item or items within 30 days of the disposition thereof, or
(iii) other dispositions of property whose fair market value does not exceed
$50,000.00 in the aggregate during each fiscal year.
Section 9.3. Restricted Payments. Borrower shall not declare or pay (or set
aside reserves for payment of) any dividends or distributions or redeem, retire,
or repurchase any shares of its capital stock, make any shareholder/affiliate
loans, pay excessive shareholder compensation or enter into any similar
transactions with the shareholders of Borrower and their related interests
without the prior written consent of the Bank.
22
<PAGE>
Section 9.4. Encumbrances. Borrower shall not create, incur, assume or
permit to exist any Encumbrances on any of its property now owned or hereafter
acquired, except for the following (hereinafter referred to as the "Permitted
Encumbrances"):
(a) Encumbrances for taxes, assessments, or other governmental charges not
yet due or which are being contested in good faith by appropriate
action promptly initiated and diligently conducted, if such reserves
as shall be required by GAAP shall have been made therefor.
(b) Encumbrances of landlords, vendors, carriers, warehousemen, mechanics,
laborers and materialmen arising by law in the ordinary course of
business for sums either not yet due or being contested in good faith
by appropriate action promptly initiated and diligently conducted, if
such reserve as shall be required by generally accepted accounting
principles shall have been made therefor.
(c) Inchoate liens arising under ERISA to secure the contingent
liabilities, if any, permitted by this Agreement.
(d) The pledge of the Collateral and any other liens in favor of the Bank
to secure the Indebtedness of the Borrower to the Bank.
(e) Liens which, as of the date hereof, have been disclosed to and
approved by Bank in writing.
Section 9.5. Debts, Guaranties and Other Obligations. Borrower will not
incur, create, assume or in any manner become or be liable in respect of any
indebtedness, direct or contingent, except for:
(a) The Indebtedness to the Bank under this Agreement;
(b) Trade payables or non-material operating leases from time to time
incurred in the ordinary course of business; and,
(c) Taxes, assessments or other government charges which are not yet due
or are being contested in good faith by appropriate action promptly
initiated and diligently conducted, if such reserve as shall be
required by generally accepted accounting principles shall have been
made therefor.
Section 9.6. Changes in Control and Management. Borrower shall not allow
any change in the control of the Borrowers ("control" for the purposes hereof
shall mean the power, direct or indirect, (i) to vote 51% or more of the
securities having ordinary voting power for the election of directors of
Borrower, or (ii) to direct or cause the direction of the management and
policies of Borrower whether by contract or otherwise) from the ownership
structure of Borrower which exists as of the date hereof (which ownership is as
has been represented to Bank by Borrower), nor shall it allow any change in its
executive management which exists as of the date hereof without the prior
written consent of Bank.
23
<PAGE>
Section 9.7. Other Agreements. Borrower will not enter into any agreement
containing any provision which would be violated or breached by the performance
of their obligations hereunder or under any instrument or document delivered or
to be delivered by them hereunder or in connection herewith.
Section 9.8. Transactions with Affiliates. Borrower will not enter into any
agreement with any affiliate except to the extent that such agreements are
commercially reasonable which provide for terms which would normally be
obtainable in an arm's length transaction with an unrelated third party. To the
extent any inter-company loans are permitted hereunder, they shall be
subordinated in payment to the Indebtedness.
ARTICLE X
EVENTS OF DEFAULT
Section 10.1. Events of Default. The occurrence of any one or more of the
following shall constitute an Event of Default:
Default under the Indebtedness. Should Borrower default in the payment of
principal or interest under the Indebtedness.
Default under this Agreement. Should Borrower violate or fail to comply
fully with any of the terms and conditions of, or default under, this Agreement,
and such default not be cured within thirty days of the occurrence thereof
(provided, however, that no cure period shall be available for a default in the
obligation to comply with negative covenants contained herein or to maintain
insurance coverages required hereby).
Default Under Other Agreements. Should any event of default occur or exist
under any of the Related Documents or should Borrower, any Guarantor or Keenan
violate, or fail to comply fully with, any terms and conditions of any of the
Collateral Documents or Related Documents, and such default not be cured within
thirty days of the occurrence thereof (provided, however, that no cure period
shall be available for a default in the obligation to comply with negative
covenants contained therein or to maintain insurance coverages affecting the
Collateral required thereby).
Other Defaults in Favor of Bank. Should Borrower or any Guarantor default
under any other loan, extension of credit, security agreement, or other
obligation in favor of Bank and fail to cure same in accordance with any
applicable cure periods.
Default in Favor of Third Parties. Should Borrower or any Guarantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person that
may materially affect any of the Collateral, or the ability of Borrower or any
such Guarantor to perform its obligations under this
24
<PAGE>
Agreement, or any Related Document, or pertaining to the Indebtedness and fail
to cure same in accordance with any applicable cure periods.
Insolvency. The following occurrences, in addition to the failure or
suspension of Borrower or any corporate Guarantor, shall constitute an Event of
Default hereunder:
(a) Filing by Borrower or any Guarantor of a voluntary petition or any
answer seeking reorganization, arrangement, readjustment of its debts
or for any other relief under any applicable bankruptcy act or law, or
under any other insolvency act or law, now or hereafter existing, or
any action by Borrower or any Guarantor consenting to, approving of,
or acquiescing in, any such petition or proceeding; the application by
Borrower or any Guarantor for, or the appointment by consent or
acquiescence of, a receiver or trustee of Borrower or of any Guarantor
for all or a substantial part of its property; the making by Borrower
or by any Guarantor of an assignment for the benefit of creditors; the
inability of Borrower or any Guarantor or the admission by Borrower or
any Guarantor in writing, of its inability to pay its debts as they
mature (the term "acquiescence" means the failure to file a petition
or motion in opposition to such petition or proceeding or to vacate or
discharge any order, judgment or decree providing for such appointment
within sixty (60) days after the appointment of a receiver or
trustee); or
(b) Filing of an involuntary petition against Borrower or any Guarantor in
bankruptcy or seeking reorganization, arrangement, readjustment of its
debts or for any other relief under any applicable bankruptcy act or
law, or under any other insolvency act or law, now or hereafter
existing and such petition remains undismissed or unanswered for a
period of sixty (60) days from such filing; or the insolvency
appointment of a receiver or trustee of Borrower or of any Guarantor
for all or a substantial part of its property and such appointment
remains unvacated or unopposed for a period of sixty (60) days from
such appointment, execution or similar process against any substantial
part of the property of Borrower or of any Guarantor and such warrant
remains unbonded or undismissed for a period of sixty (60) days from
notice to Borrower or such Guarantor of its issuance.
Dissolution Proceedings. Should proceedings for the dissolution or
appointment of a liquidator of Borrower or any corporate Guarantor be commenced.
Death or Incapacity of Individual Guarantors. Should any individual
Guarantor die or become incapacitated or interdicted.
False Statements. Should any representation or warranty of Borrower or any
Guarantor made in connection with the Indebtedness prove to be incorrect or
misleading in any material respect when made or reaffirmed.
Material Adverse Change. Should a Material Adverse Change with respect to
Borrower or any Guarantor occur at any time and not be cured within ten days of
the occurrence thereof.
25
<PAGE>
Upon the occurrence of an Event of Default, all commitments of Bank under
this Agreement will terminate immediately, and, at Bank's option, the Term Note
and all Indebtedness of Borrower will become immediately due and payable, all
without notice of any kind to Borrower, except that in the case of type
described in the "Insolvency" subsection above, such acceleration shall be
automatic and not optional.
Upon the occurrence of an Event of Default, Bank may proceed to realize
upon the Collateral under the terms of the Collateral Documents and exercise any
other rights which it has by law or contract (which rights shall be cumulative
in nature).
Section 10.2. Waivers by Borrower. Except as otherwise provided for in this
Agreement and by applicable law, Borrower waives (i) presentment, demand and
protest and notice of presentment, dishonor, notice of intent to accelerate,
notice of acceleration, protest, default, nonpayment, maturity, release,
compromise, settlement, extension or renewal of any or all commercial paper,
accounts, contract rights, documents, instruments, chattel paper and guaranties
at any time held by Bank on which Borrower may in any way be liable and hereby
ratifies and confirms whatever Bank may do in this regard, (ii) all rights to
notice and a hearing prior to Bank's taking possession or control of, or to
Bank's replevy, attachment or levy upon, the Collateral or any bond or security
which might be required by any court prior to allowing Bank to exercise any of
its remedies, and (iii) the benefit of all valuation, appraisal and exemption
laws. Each Borrower acknowledges that it has been advised by counsel of its
choice with respect to this Agreement, the other Collateral Documents, and the
transactions evidenced by this Agreement and other Collateral Documents.
ARTICLE XI
MISCELLANEOUS
Section 11.1. No Waiver; Modification in Writing. No failure or delay on
the part of Bank in exercising any right, power or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy hereunder. No amendment,
modification or waiver of any provision of this Agreement or of the Term Note,
nor consent to any departure by Borrower therefrom, shall in any event be
effective unless the same shall be in writing signed by or on behalf of Bank and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given. No notice to or demand on Borrower in
any case shall entitle Borrower to any other or further notice or demand in
similar or other circumstances.
Section 11.2. Payment on Non-Business Day. Whenever any payment to be made
hereunder or on account of the Term Note shall be scheduled to become due on a
day which is not a Business Day, such payment may be made on the next succeeding
Business Day, and such
26
<PAGE>
extension of time shall in such case be included in computing interest and fees
payable hereunder or on account of the Term Note.
Section 11.3. Addresses for Notices. All notices and communications
provided for hereunder shall be in writing and, shall be mailed, by certified
mail, return receipt requested, or delivered as set forth below unless any
person named below shall notify the others in writing of another address, in
which case notices and communications shall be mailed, by certified mail, return
receipt requested, or delivered to such other address.
If to Bank:
Hibernia National Bank
P. O. Box 61540
New Orleans, LA 70161
Attention: Manager-Energy/Maritime Department
If to Borrower:
Emerging Alpha Corporation
17571 Red Oak Drive
Houston, TX 77090
Attention: Mr. Jerry W. Jarrell
Section 11.4. Fees and Expenses. Borrower agrees to pay all fees, costs and
expenses of Bank in connection with the preparation, execution and delivery of
this Agreement, and all Related Documents to be executed in connection herewith
and subsequent modifications or amendments to any of the foregoing, including
without limitation, the reasonable fees and disbursements of counsel to Bank,
and to pay all costs and expenses of Bank in connection with the enforcement of
this Agreement, the Term Note or the other Related Documents, including
reasonable legal fees and disbursements arising in connection therewith.
Borrower agrees to pay all costs associated with the issuance of any insurance
coverages, appraisals and field examinations of Borrower's property which may be
required by this Agreement and any of the Related Documents. Borrower also
agrees to pay, and to save Bank harmless from any delay in paying stamp and
other similar taxes, if any, which may be payable or determined to be payable in
connection with the execution and delivery of this Agreement, the Term Note, the
other Related Documents, or any modification thereof.
Section 11.5. Security Interest and Right of Set-off. Bank shall have a
continuing security interest in, as well as the right to set-off the obligations
of Borrower hereunder against, all funds which Borrower may maintain on deposit
with Bank (with the exception of funds deposited in Borrower's accounts in trust
for third parties or funds deposited in pension accounts, IRA's, Keogh accounts
and All Saver Certificates), and Bank shall have a lien upon and a security
interest in all property of Borrower in Bank's possession or control which shall
secure the Indebtedness of Borrower.
27
<PAGE>
Section 11.6. Waiver of Marshaling. Borrower shall not at any time
hereafter assert any right under any law pertaining to marshaling (whether of
assets or liens) and Borrower expressly agrees that Bank may execute or
foreclose upon the Collateral in such order and manner as Bank, in its sole
discretion, deems appropriate.
Section 11.7. Governing Law. This Agreement and the Term Note shall be
deemed to be contracts made under the laws of the State of Louisiana and for all
purposes shall be construed in accordance with the laws of said State.
Section 11.8. Consent to Loan Participation. Borrower agrees and consents
to Bank's sale or transfer, whether now or later, of one or more participation
interests in the Indebtedness of the Borrower arising pursuant to this Agreement
to one or more purchasers, whether related or unrelated to Bank. Bank may
provide, without any limitation whatsoever, to any one or more purchasers, or
potential purchasers, any information or knowledge Bank may have about Borrower
or about any other matter relating to such Indebtedness, and Borrower hereby
waives any rights to privacy it may have with respect to such matters. Borrower
additionally waives any and all notices of sale of participation interests, as
well as all notices of any repurchase of such participation interests. Borrower
also agrees that the purchasers of any such participation interest will be
considered as the absolute owners of such interests in such Indebtedness.
Section 11.9. WAIVER OF JURY TRIAL; SUBMISSION TO JURISDICTION. (a)
BORROWER AND BANK HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
WHICH BORROWER AND BANK MAY BE PARTIES, ARISING OUT OF OR IN ANY WAY PERTAINING
TO (i) THE TERM NOTE, (ii) THIS AGREEMENT, (iii) THE COLLATERAL DOCUMENTS OR
(iv) THE COLLATERAL. IT IS AGREED AND UNDERSTOOD THAT THIS WAIVER CONSTITUTES A
WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR
PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS
AGREEMENT. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE
BORROWER AND THE BANK, AND THE BORROWER AND THE BANK HEREBY REPRESENT THAT NO
REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE
THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT.
BORROWER AND THE BANK EACH FURTHER REPRESENTS THAT IT HAS BEEN REPRESENTED IN
THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT
LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE
OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.
(b) BORROWER HEREBY IRREVOCABLY CONSENTS TO THE JURISDICTION OF THE STATE
COURTS OF LOUISIANA AND THE FEDERAL COURTS IN LOUISIANA AND AGREES THAT ANY
ACTION OR PROCEEDING ARISING OUT OF OR BROUGHT TO ENFORCE THE PROVISIONS OF THE
TERM NOTE, THIS AGREEMENT AND/OR THE COLLATERAL DOCUMENTS MAY BE BROUGHT IN ANY
COURT HAVING SUBJECT MATTER JURISDICTION.
28
<PAGE>
Section 11.10. Severability. If a court of competent jurisdiction finds any
provision of this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any such
offending provision shall be deemed to be modified to be within the limits of
enforceability or validity; however, if the offending provision cannot be so
modified, it shall be stricken and all other provisions of this Agreement in all
other respects shall remain valid and enforceable.
Section 11.11. Headings. Article and Section headings used in this
Agreement are for convenience only and shall not affect the construction of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
EMERGING ALPHA CORPORATION
By: /S/ JERRY W. JARRELL
-----------------------------------------
Jerry W. Jarrell, Chief Financial Officer
HIBERNIA NATIONAL BANK
By: /S/ NANCY MORAGAS
-----------------------------------------
Printed Name: Nancy Moragas
Title: Assistant Vice President
29
================================================================================
LOAN AGREEMENT
dated as of
October 29, 1999
By and Among
EMERGING ALPHA CORPORATION,
GAS JACK, INC.,
and
HIBERNIA NATIONAL BANK
================================================================================
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT dated as of October 29, 1999, by and among EMERGING
ALPHA CORPORATION, a Delaware corporation ("Emerging Alpha"), GAS JACK, INC., an
Oklahoma corporation ("Gas Jack"), and HIBERNIA NATIONAL BANK, a national
banking association ("Bank").
W I T N E S S E T H:
WHEREAS, Emerging Alpha and Gas Jack (collectively, the "Borrowers") have
applied to Bank for a $1,000,000.00 revolving line of credit; and,
WHEREAS, Bank has agreed to provide such requested credit facility to the
Borrowers pursuant to the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein set forth,
the Borrowers and Bank do hereby covenant and agree as follows, to-wit:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.1. Defined Terms. As used in this Agreement, and unless the
context requires a different meaning, the following terms have the meanings
indicated:
"Account Debtor" shall mean a Person obligated upon a Receivable owed to
either of the Borrowers.
"Assignment of Leases" shall mean that certain Collateral Assignment of
Leases dated of even date herewith granted by Gas Jack to Bank affecting
all right, title and interest in and to its leases of compressors to its
customers, and all proceeds thereof, as the same may from time to time be
amended, modified or supplemented and in effect.
"Agreement" shall mean this Loan Agreement, as the same may from time to
time be amended, modified or supplemented and in effect.
"Bank" shall mean Hibernia National Bank, a national banking association.
"Bank's Current Revolving Loan Commitment Exposure" shall have the meaning
ascribed to such term in Section 2.1 hereof.
<PAGE>
"Base Rate" shall mean the per annum rate of interest published from time
to time in the Wall Street Journal as the "prime rate" or the base rate of
interest on corporate loans posted by at least 75% of the nation's 30
largest banks, such rate to be adjusted automatically on and as of the
effective date of any change in such rate.
"Borrowers" shall mean, collectively, Emerging Alpha Corporation, a
Delaware corporation which intends to change its name to Compresco, Inc.,
together with its successors and assigns, and Gas Jack, Inc., an Oklahoma
corporation, together with its successors and assigns, and "Borrower" shall
refer to either of them, as the context may require.
"Borrowing Base Amount" shall mean, as determined by Bank from time to
time, the lesser of (a) $1,000,000.00; or (b) the sum of (i) 80% of the
aggregate amount of Eligible Receivables (or such lesser percentage as Bank
deems appropriate, in its sole discretion, exercising reasonable credit
judgment), plus (ii) the lesser of (1) 50% of the aggregate amount of
Eligible Inventory (or such lesser percentage as Bank deems appropriate, in
its sole discretion, exercising reasonable credit judgment), or (2) an
amount equal to the amount determined at any time pursuant to clause (b)(i)
hereof. Bank shall have the right to make adjustments to advance rates and
as to the eligibility of Inventory and Receivables as a result of field
examinations of Borrowers' Collateral (using reasonable lending discretion)
which Bank shall perform from time to time as deemed necessary by Bank at
any time while any Revolving Loans remain outstanding.
"Business Day" shall mean a day other than a Saturday, Sunday or legal
holiday for commercial banks under the laws of the State of Louisiana or a
day on which national banks are authorized to be closed in New Orleans,
Louisiana.
"Cash Flow" shall mean, for any period, the earnings of such Person(s)
before interest, taxes, depreciation and amortization.
"Collateral" shall mean any interest in any kind of property or assets
pledged, mortgaged or otherwise subject to an Encumbrance in favor of Bank
pursuant to the Collateral Documents.
"Collateral Documents" shall collectively refer to the Assignment of
Leases, the Security Agreements, the Stock Pledge, the Securities Account
Pledge, all related financing statements required by Bank, and any and all
other documents in which an Encumbrance is created on any property of the
Borrowers or of any third person to secure payment of the Indebtedness of
Borrowers or any part thereof.
"Consolidated Subsidiary" or "Consolidated Subsidiaries" shall mean a
Subsidiary or Subsidiaries, respectively, of Emerging Alpha, whose
financial statements are prepared on a consolidated basis with those of
Emerging Alpha in accordance with GAAP, and shall specifically include Gas
Jack.
2
<PAGE>
"Current Assets" shall mean the assets of Emerging Alpha and its
Consolidated Subsidiaries treated as current assets in accordance with
GAAP.
"Current Liabilities" shall mean all liabilities of Emerging Alpha and its
Consolidated Subsidiaries treated as current liabilities in accordance with
GAAP, including without limitation, all obligations payable on demand or
within one year after the date on which the determination is made, and
final maturities and sinking funds payments required to be made within one
year after the date on which the determination is made, but excluding all
such liabilities or obligations which are renewable or extendible at the
option of such Person to a date more than one year from the date of
determination.
"Current Ratio" shall mean, at any time, the ratio of Current Assets to
Current Liabilities.
"Debt" shall mean any and all amounts and/or liabilities owing from time to
time by Borrowers (or any one or more of them) to any Person, including the
Bank, direct or indirect, liquidated or contingent, now existing or
hereafter arising, including without limitation (i) indebtedness for
borrowed money; (ii) the amounts of all standby and commercial letters of
credit and bankers acceptances, matured or unmatured, issued on behalf of
Borrowers (or any one or more of them); (iii) guaranties by the Borrowers
(or of any one or more of them) of the obligations of any other Person,
whether direct or indirect, whether by agreement to purchase the
indebtedness of any other Person or by agreement for the furnishing of
funds to any other Person through the purchase or lease of goods, supplies
or services (or by way of stock purchase, capital contribution, advance or
loan) for the purpose of paying or discharging the indebtedness of any
other Person, or otherwise; (iv) the present value of all obligations of
the Borrowers (or any one or more of them) for the payment of rent or hire
of property of any kind (real or personal) under leases or lease agreements
required to be capitalized under GAAP, and (v) trade payables incurred in
the ordinary course of business or otherwise by Borrowers (or any one or
more of them).
"Debt Service Coverage Ratio" shall mean, for any twelve-month period
ending on the date of determination of same, the ratio of (1) the earnings
of Emerging Alpha and its Consolidated Subsidiaries before interest, taxes,
depreciation and amortization during such period to (2) the amount of
interest expense and current maturities of long-term indebtedness of
Emerging Alpha and its Consolidated Subsidiaries during such period.
"Default" shall mean an event which with the giving of notice or the lapse
of time (or both) would constitute an Event of Default hereunder.
"Dollars" and "$" shall mean lawful money of the United States of America.
"Eligible Inventory" shall mean all of the Inventory of Borrowers except:
3
<PAGE>
(a) Inventory that is not encumbered by a first priority perfected
Encumbrance granted in favor of Bank, where first priority
perfection is confirmed by evidence or opinions acceptable to
Bank.
(b) Inventory that is not owned by Borrowers free and clear of all
Encumbrances and claims of third parties except for Permitted
Encumbrances.
(c) Inventory that Bank, in its sole discretion, deems obsolete,
unsalable, damaged, defective, or unfit for sale or lease or
further processing.
(d) Inventory which Bank, exercising reasonable credit judgment,
deems to be unqualified or ineligible.
(e) Inventory located at a leased location unless a subordination of
the landlord's lien has been provided to Bank in form and
substance which is satisfactory to Bank.
"Eligible Receivables" shall mean, at any time, all Receivables which
contain selling terms and conditions acceptable to Bank. The net amount of
any Eligible Receivables against which Borrowers may borrow shall exclude
all returns, discounts, credits, and offsets of any nature. Unless
otherwise agreed to by Bank in writing, Eligible Receivables do not
include:
(a) Receivables that are not encumbered by a first priority perfected
Encumbrance granted in favor of Bank, where first priority
perfection is confirmed by evidence or opinions acceptable to
Bank.
(b) Receivables that are not free and clear of all Encumbrances and
claims of third parties, except for Permitted Encumbrances.
(c) Receivables that have not been paid in full within the earlier of
(i) three (3) times ordinary invoice terms from the invoice date,
or (ii) ninety (90) days from the invoice date.
(d) Receivables of any Account Debtor with more than twenty-five
percent (25%) aggregate Receivables owed being due and payable
for more than the lesser of (i) three (3) times ordinary invoice
terms from the invoice date, or (ii) ninety (90) days from the
invoice date, unless Bank, upon request of Borrowers and in its
sole discretion, agrees to allow inclusion of the Receivables
from any particular Account Debtor for a particular month as
Eligible Receivables.
(e) Receivables due from any single Account Debtor (including all
subsidiaries and affiliates of an Account Debtor) in excess of
fifty percent (50%) of either Borrower's total otherwise Eligible
Receivables, unless
4
<PAGE>
Bank, upon request of Borrowers and in its sole discretion,
agrees to allow inclusion of the excess Receivables (or a portion
thereof) from any such Account Debtor for a particular month as
Eligible Receivables.
(f) Receivables with respect to which the Account Debtor is a
shareholder, a director, an officer, an employee, or an agent of
either Borrower.
(g) Receivables with respect to which the Account Debtor is a
Subsidiary of, or affiliated with or related to either Borrower
or its shareholders, directors, or officers.
(h) Receivables with respect to which goods are placed on
consignment, guaranteed sale, or other terms by reason of which
the payment by the Account Debtor may be conditional.
(i) Receivables with respect to which the Account Debtor is a
resident of, or incorporated in, a jurisdiction located outside
of the United States, except to the extent such Receivables are
supported by insurance, bonds or other assurances satisfactory to
Bank.
(j) Receivables with respect to which either Borrower is or may
become liable to the Account Debtor for goods sold or services
rendered by the Account Debtor to such Borrower.
(k) Receivables which are subject to dispute, counterclaim, or
setoff.
(l) Receivables with respect to which the goods have not been shipped
or delivered, or the services have not been rendered, to the
Account Debtor.
(m) Receivables which Bank, exercising reasonable credit judgment,
deems to be ineligible for any reasonable reason.
(n) Receivables of any Account Debtor who has filed or has had filed
against it a petition in bankruptcy or an application for relief
under any provision of any state or federal bankruptcy,
insolvency, or debtor-in-relief acts; or who has had appointed a
trustee, custodian, or receiver for the assets of such Account
Debtor; or who has made an assignment for the benefit of
creditors or has become insolvent or fails generally to pay its
debts (including its payrolls) as such debts become due.
(o) Receivables with respect to which the Account Debtor is the
United States government or any department or agency of the
United States, unless encumbered by a first priority perfected
Security Interest granted in favor of Bank, acknowledged by the
appropriate governmental agency and where first priority
perfection is confirmed by evidence or opinions acceptable to
Bank.
5
<PAGE>
(p) Receivables arising pursuant to a bonded contract.
"Emerging Alpha" shall mean Emerging Alpha Corporation, a Delaware
corporation which intends to change its name to Compresco, Inc., together
with its successors and assigns.
"Encumbrances" shall mean individually, collectively and interchangeably
any and all presently existing and/or future mortgages, liens, privileges,
servitudes, rights-of-way and other contractual and/or statutory security
interests and rights of every nature and kind that, now and/or in the
future may affect the property of either Borrower or any part or parts
thereof.
"Environmental Laws" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section
9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act
of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource
Conservation and Recovery Act, 49 U.S.C. Section 6901, et seq., the
Louisiana Environmental Affairs Act, La. R.S. 30:2001 et seq., or other
applicable Governmental Requirements or regulations adopted pursuant to any
of the foregoing.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Equipment" shall mean all machinery, equipment, furniture and fixtures,
now owned or hereafter acquired by either Borrower, or in which either
Borrower now has or hereafter may acquire any right, title or interest, and
any and all additions, substitutions and replacements thereof, wherever
located, together with all attachments, components, parts, products,
equipment and accessories installed therein or affixed thereto, including,
but not limited to, all equipment as defined in ss. 9-109(2) of the UCC,
and all fixtures as defined in ss. 9-313(1)(a) of the UCC.
"Event of Default" shall mean individually, collectively and
interchangeably any of the Events of Default set forth below in Section
10.1 hereof.
"Funded Debt" shall mean, at any time, the sum of all interest-bearing Debt
of Emerging Alpha and its Consolidated Subsidiaries.
"Funded Debt to Cash Flow Ratio" shall mean, as of the end of each fiscal
quarter of Emerging Alpha and its Consolidated Subsidiaries (including Gas
Jack), the ratio of (1) the amount of Funded Debt of Emerging Alpha and its
Consolidated Subsidiaries at the end of such fiscal quarter, to (2) the
amount of Cash Flow of Emerging Alpha and its Consolidated Subsidiaries for
the immediately preceding twelve-month period ending as of the end of the
such fiscal quarter.
"GAAP" shall mean, at any time, accounting principles generally accepted in
the United States as then in effect.
6
<PAGE>
"Gas Jack" shall mean Gas Jack, Inc., an Oklahoma corporation, together
with its successors and assigns.
"General Intangibles" shall mean all general intangibles, as defined in
ss.9-106 of the UCC, of the Borrowers, whether now owned or hereafter
acquired, and shall include, without limitation (i) all contractual rights
and obligations or indebtedness owing to Borrowers (other than Receivables)
from whatever source arising (including, without limitation, all rights of
the Borrowers under leases of compressors or other Inventory or Equipment
of Borrowers to third parties); (ii) all things and actions, rights
represented by judgments and claims arising out of tort and other claims
related to the Collateral, including the right to assert and otherwise be
the proper party of interest to commence and prosecute actions; (iii) all
goodwill, patents, patent licenses, trademarks, trademark licenses, trade
names, service marks, trade secrets, rights and intellectual property,
copyrights, permits and licenses; (iv) all rights or claims in respect of
refunds for taxes paid; and (v) all deposit accounts of Borrowers.
"Governmental Requirement" shall mean any applicable state, federal or
local law, statute, ordinance, code, rule, regulation, order or decree.
"Guaranties" shall mean that certain Commercial Guaranty of Brooks Mims
Talton, III, dated of even date herewith, together with any other
guaranties of any Person which guarantee payment of any part of the
Indebtedness, as any of such guaranties may be amended and from time to
time in effect.
"Guarantors" shall mean Brooks Mims Talton, III, together with any other
Persons who may from time to time guarantee payment of any part of the
Indebtedness.
"Indebtedness" shall mean, at any time, the indebtedness of Borrowers
evidenced by the Revolving Note executed by Borrowers pursuant to this
Agreement, in principal, interest, costs, expenses and reasonable
attorneys' fees and all other fees and charges, together with all
commitment fees and other indebtedness and costs and expenses for which
Borrowers are responsible under this Agreement or under any of the Related
Documents. In addition, the word "Indebtedness" also includes any and all
other loans, extensions of credit, obligations, debts and liabilities, plus
interest thereon, of Borrowers (or either one of them) that may now and in
the future be owed to or incurred in favor of Bank, as well as all claims
by Bank against Borrowers, whether existing now or later; whether they are
voluntary or involuntary, due or to become due, direct or indirect or by
way of assignment, determined or undetermined, absolute or contingent,
liquidated or unliquidated; whether Borrowers may be liable individually or
jointly with others, of every nature and kind whatsoever, in principal,
interest, costs, expenses and reasonable attorneys' fees and all other fees
and charges; whether Borrowers may be obligated as principal obligor,
guarantor, surety, accommodation party or otherwise.
"Inventory" shall mean all inventory, as defined in ss.9-109(4) of the UCC,
of Borrowers, whether now owned or hereafter acquired by Borrowers,
wherever located, and shall include all of Borrowers' raw materials, work
in process, finished goods, merchandise,
7
<PAGE>
parts and supplies, of every kind and description, and goods held for sale
or lease or furnished under contracts of service in which Borrowers now
have or hereafter acquire any right, whether held by Borrowers or others,
and all documents of title, warehouse receipts, bills of lading, and all
other documents of every type covering all or any part of the foregoing.
Inventory includes inventory temporarily out of the custody or possession
of Borrowers and all returns on Receivables.
"Investment Property" shall all investment property of Borrowers, whether
now owned or hereafter acquired, consisting of certificated and
uncertificated securities, securities entitlements, securities accounts,
commodity contracts and commodity accounts (as each of said items are
defined in ss. 9-115 of the UCC and in La. R. S. 10:8-102).
"Keenan" shall mean Burt H. Keenan (Social Security No. ###-##-####), his
successors, heirs, legatees and assigns.
"Loan Documents" shall mean this Agreement, the Revolving Note, the
Collateral Documents and any other Related Documents.
"Lockbox Account" shall have the meaning ascribed to such term in Section
8.15 hereof.
"Material Adverse Change" shall mean, with respect to either of the
Borrowers, an event which causes a material adverse effect on the business,
assets, operations or condition (financial or otherwise) of either such
Borrower, or which otherwise changes in a materially adverse way any other
facts, circumstances or conditions which Bank has relied upon or utilized
in making the Revolving Loan Commitment hereunder.
"Permitted Encumbrances" shall have the meaning ascribed to such term in
Section 9.4 hereof.
"Person" shall mean an individual or a corporation, partnership, trust,
joint venture, incorporated or unincorporated association, joint stock
company, government, or an agency or political subdivision thereof, or
other entity of any kind.
"Receivables" shall mean, with respect to Borrowers, all accounts (as such
term is defined in ss.9-106 of the UCC) of Borrowers, and shall include all
trade accounts, other receivables, or other rights to payment for goods
sold or leased by or services rendered by Borrowers (or a third party
grantor acceptable to Bank).
"Related Documents" shall mean and include individually, collectively,
interchangeably and without limitation all promissory notes, credit
agreements, loan agreements, guaranties, security agreements, mortgages,
collateral mortgages, deeds of trust, and all other instruments and
documents, whether now or hereafter existing, executed in connection with
the Indebtedness.
8
<PAGE>
"Revolving Loan Commitment" means the agreement by Bank to Borrowers to
make Revolving Loans in accordance with the provisions of Article II
hereof.
"Revolving Loans" shall mean loans made by Bank under the Revolving Note to
Borrowers in accordance with and subject to the terms of the Revolving Loan
Commitment.
"Revolving Note" shall mean that certain promissory note made by Borrowers,
as co-makers, dated of even date herewith, payable to the order of Bank in
principal amount of $1,000,000.00, as said Revolving Note is more fully
described in Section 2.1 hereof, together with any and all extensions,
renewals, modifications and substitutions therefor.
"Security Agreements" shall mean, collectively, (i) that certain Commercial
Security Agreement dated of even date herewith by Emerging Alpha in favor
of Bank, affecting, without limitation, all of Emerging Alpha's
Receivables, Inventory, Investment Property, Equipment, General Intangibles
and deposit accounts and other funds on deposit with Bank, as the same may
be amended or modified from time to time, and (ii) that certain Commercial
Security Agreement dated of even date herewith by Gas Jack in favor of
Bank, affecting, without limitation, all of Gas Jack's Receivables,
Inventory, Investment Property, Equipment, General Intangibles and deposit
accounts and other funds on deposit with Bank, as the same may be amended
or modified from time to time.
"Securities Account Pledge" shall mean that certain Investment Property
Security Agreement dated October 8, 1999, by Keenan in favor of Bank
affecting, among other property described therein, all of Keenan's rights
in and to that certain investment account no. 5AL005694 maintained by
Keenan with Hibernia Investment Securities, Inc., as the same may be
amended or modified from time to time.
"Solvent" shall mean, when used with respect to any Person on a particular
day, that on such date (i) the fair value of the property of such Person is
greater than the total amount of liabilities, including without limitation,
contingent liabilities, of such person, (ii) the present fair salable value
of the assets of such person is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured, (iii) such Person is able to realize upon its
assets and pay its debts and other liabilities, contingent obligations and
other commitments as they mature in the ordinary course of business, (iv)
such Person does not intend to, and does not believe that it will, incur
debts and liabilities beyond such Person's ability to pay as such debts and
liabilities mature, and (v) such Person is not engaged in business or a
transaction, and is not about to engage in business or a transaction, for
which such Person's property would constitute unreasonably small capital
after giving due consideration to the prevailing practice in the industry
in which such person is engaged. In computing the amount of contingent
liabilities at any time, it is intended that such liabilities will be
computed at the amount which, in light of all of the facts and
circumstances existing at such time, represents the amount that can be
reasonably expected to become an actual or matured liability.
9
<PAGE>
"Subsidiaries" shall mean at any date, with respect to any Person, all the
corporations of which such Person at such date, directly or indirectly,
owns 50% or more of the outstanding capital stock (excluding directors'
qualifying shares), and "Subsidiary" means any one of the Subsidiaries.
"Stock Pledge" shall mean that certain Pledge and Security Agreement dated
October 29, 1999, by Emerging Alpha in favor of Bank, affecting all
outstanding shares of stock of Gas Jack and certain other collateral more
fully described therein, as the same may be amended or modified from time
to time.
"Tangible Net Worth" shall mean, at any time, the amount of the total
assets of Emerging Alpha and its Consolidated Subsidiaries, determined on a
consolidated basis, excluding intangible assets (i.e., patents, copyrights,
trademarks, trade names, franchises, goodwill, organizational expenses, and
similar intangible expenses, but including leaseholds and leasehold
improvements), less the amount of the total liabilities of Emerging Alpha
and its Consolidated Subsidiaries, determined on a consolidated basis.
"Termination Date" shall mean, with respect to Bank's Revolving Loan
Commitment, the earlier to occur of (a) October 29, 2001, or (b) the
earlier date of termination of the Revolving Loan Commitment pursuant to
Article X hereof.
"UCC" shall mean the Uniform Commercial Code, Commercial Laws-Secured
Transactions (La. R.S. 10:9-101 et seq.) in the State of Louisiana, as
amended from time to time, provided that if by reason of mandatory
provisions of law, the perfection or effect of perfection or non-perfection
of the Bank's Encumbrances against the Collateral is governed by the
Uniform Commercial Code as in effect in a jurisdiction other than the State
of Louisiana, "UCC" means the Uniform Commercial Code as in effect in such
other jurisdiction.
Section 1.2. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP, and all financial
data submitted pursuant to this Agreement shall be prepared in accordance with
GAAP.
ARTICLE II
REVOLVING LOANS
Section 2.1. The Revolving Loan Commitment. Subject to the terms and
conditions of this Agreement, Bank agrees to extend credit to Borrowers during
the period from the date hereof until the Termination Date by making Revolving
Loans to Borrowers from time to time; provided, however, that at no time shall
the sum of the aggregate principal amount of Revolving Loans to Borrowers at
such time outstanding (said sum, at any time, being hereinafter referred to as
the "Bank's Current Revolving Loan Commitment Exposure"), exceed the Borrowing
Base Amount then in effect. In the event, at any time, and from time to time,
the Bank's Current
10
<PAGE>
Revolving Loan Commitment Exposure exceeds the Borrowing Base Amount then in
effect, Borrowers shall immediately prepay the Revolving Loans by such an amount
to cause the Bank's Current Revolving Loan Commitment Exposure to equal the
Borrowing Base Amount (or, at the option of Bank, Borrowers may post cash
collateral or other collateral acceptable to Bank in its sole discretion to
secure such deficiency in the Borrowing Base Amount). Within the limits set
forth herein, Borrowers may borrow from Bank hereunder, repay any and all such
Revolving Loans as hereinafter provided and reborrow hereunder. Borrowers'
obligation to repay the Revolving Loans made by Bank shall be evidenced by a
master promissory note made by Borrowers as co-makers (the "Revolving Note")
payable to the order of Bank in the principal sum of $1,000,000.00, dated the
date of this Agreement, with a final maturity of October 29, 2001, and bearing
interest at the Base Rate from time to time in effect, adjusted daily. The
Borrowers shall be solidarily liable for all Revolving Loans and other
obligations to Bank arising pursuant to this Agreement or the Revolving Note.
Section 2.2. Manner and Notice of Borrowing Under the Revolving Loan
Commitment. Requests for advances under the Revolving Loan Commitment may be
made by Borrowers in person, in writing or through telephone calls to Bank and
such requests shall be fully authorized by Borrowers if made by any one of the
persons designated by Borrowers in writing to Bank. Bank shall have the right,
but not the obligation, to verify any telephone requests by calling the person
who made the request at the telephone number designated by Borrowers in writing
to Bank. Requests for advances must be received by not later than 11:00 a.m.
(Central Time) on the date of the proposed advance.
Section 2.3. Payment of the Revolving Note Under the Revolving Loan
Commitment. Interest on the unpaid principal balance of the Revolving Note shall
be payable monthly on the last day of each month, commencing November 30, 1999,
and on the last day of each month thereafter until the Revolving Note is paid in
full. All principal shall be payable in a single installment due on the
Termination Date; subject to, however, the mandatory prepayment requirement set
forth above in Section 2.1 hereof which requires Borrowers to prepay the
Revolving Loans under the Revolving Note in the event, at any time and from time
to time, the Bank's Current Revolving Loan Commitment Exposure exceeds the
Borrowing Base Amount then in effect (or which, at the option of Bank, requires
that Borrowers post cash collateral or other collateral acceptable to Bank in
its sole discretion, to secure such deficiency in its Borrowing Base Amount).
Borrowers hereby authorize Bank to debit their checking accounts maintained with
Bank to pay interest due on the Revolving Note on each interest payment date and
to credit all proceeds of their Receivables received in the Lockbox Account when
collected (or earlier, if Bank in its sole discretion allows such funds to be
available to Borrowers prior to the date on which any checks or other
instruments given in payment of Receivables are actually collected) towards
payment of the Revolving Loans outstanding under the Revolving Note.
Section 2.4. Proceeds of Lockbox Account. Borrowers have executed (or
shall, within 90 days of the date hereof, execute) a lockbox agreement with
Bank, pursuant to which all checks, drafts and other instruments evidencing
payment of Borrowers' Receivables shall be delivered to Bank and deposited into
Borrowers' Lockbox Account more fully described in Section 8.15 hereof.
Borrowers authorize Bank to apply, from time to time, at Borrower's
11
<PAGE>
request, the proceeds of their Receivables actually collected (or, at the sole
discretion of Bank, amounts which have been received but not yet collected) by
the Bank from the Lockbox Account to reduce in whole or in part the outstanding
principal balance of the Revolving Loans due under the Revolving Note. Such
payments will adjust availability immediately for purposes of loan availability
and on the next day for bookkeeping and interest purposes.
Section 2.5. Overlines and Overadvances. In the event the unpaid principal
amount of the outstanding Revolving Loans under the Revolving Loan Commitment
ever exceeds the maximum Borrowing Base Amount), Borrowers agree to pay the
excess amount (an "overline") immediately upon demand by Bank. In the event the
unpaid principal amount of the outstanding Revolving Loans under the Revolving
Loan Commitment ever exceeds the current Borrowing Base Amount then in effect,
Borrowers agree to pay the excess amount (an "overadvance") immediately upon
demand by Bank. Overlines and overadvances shall bear interest at the rate
stated in the Note. If not sooner paid, interest on overlines and overadvances
shall be paid on the last day of each month, until the Termination Date. Upon
request of Bank, Borrowers shall execute a promissory note, payable to the order
of Bank, to represent the amount of any overline and any overadvance; however,
Borrowers acknowledge and agree that the records of Bank and this Agreement
shall constitute conclusive evidence of any overline or overadvance and the
obligation of Borrowers to repay any overline or overadvance, with interest. All
overlines and overadvances for which Bank has not demanded payment earlier, and
all unpaid and accrued interest on overlines and overadvances not due and
payable earlier, shall be due and payable on the Termination Date. Borrowers
acknowledge and agree that Bank is not obligated to Borrowers to make any
Revolving Loan that would create an overline or an overadvance.
Section 2.6. Early Termination. Bank agrees that Borrowers shall have the
right to terminate this Agreement prior to the Termination Date upon Borrowers
(a) giving Lender ninety (90) days' written notice of termination and
designating a termination effective date, and (b) paying to Bank on the
designated termination effective date, the aggregate unpaid principal amount of
all Revolving Loans then outstanding and all accrued unpaid interest, together
with all other applicable fees, costs and charges, if any, not yet paid.
Section 2.7. Use of Proceeds. Borrowers shall use the proceeds of the
Revolving Loans for general corporate purposes (but not for the purchase of any
producing oil and gas properties).
ARTICLE III
[Intentionally left blank]
12
<PAGE>
ARTICLE IV
CERTAIN GENERAL PROVISIONS
Section 4.1. Payments to Bank. All payments of principal, interest,
commitment fees and any other amounts due hereunder or under any of the other
Related Documents shall be made to the Bank at the Bank's office at 313
Carondelet Street, New Orleans, Louisiana 70130, or at such other location that
the Bank may from time to time designate in writing to Borrowers, in each case
in immediately available funds.
Section 4.2. No Offset, etc. All payments by Borrowers hereunder and under
any of the other Related Documents shall be made without setoff or counterclaim
and free and clear of and without deduction for any taxes, levies, imposts,
duties, charges, fees, deductions, withholdings, compulsory loans, restrictions
or conditions of any nature now or hereafter imposed or levied by any
jurisdiction or any political subdivision thereof or taxing or other authority
therein unless Borrowers are compelled by law to make such deduction or
withholding. If any such obligation is imposed upon Borrowers with respect to
any amount payable by them hereunder or under any of the other Loan Documents,
Borrowers will pay to the Bank, on the date on which such amount is due and
payable hereunder or under such other Related Document, such additional amount
as shall be necessary to enable the Bank to receive the same net amount which
Bank would have received on such due date had no such obligation been imposed
upon Borrowers. Borrowers will deliver promptly to the Bank certificates or
other valid vouchers for all taxes or other charges deducted from or paid with
respect to payments made by Borrowers hereunder or under such other Loan
Documents.
Section 4.3. Computations. All computations of interest on the Revolving
Loans and of commitment or other fees shall be assessed utilizing a 360-day
daily interest factor over the number of days in an actual calendar year (365
days or 366 days in a leap year). Bank shall determine each interest rate
applicable to the Revolving Loans in accordance with this Agreement, and Bank's
determination of same shall be conclusive in the absence of manifest error.
Except as otherwise provided herein, whenever a payment hereunder or under any
of the other Related Documents becomes due on a day that is not a Business Day,
the due date for such payment shall be extended to the next succeeding Business
Day, and interest shall accrue during such extension. The outstanding amount of
the Revolving Loans as reflected on the Bank's books and records from time to
time shall be prima facie evidence of the amounts so outstanding.
Section 4.4. Additional Costs, etc. If any present or future applicable
law, which expression, as used herein, includes statutes, rules and regulations
thereunder and interpretations thereof by any competent court or by any
governmental or other regulatory body or official charged with the
administration or the interpretation thereof and requests, directives,
instructions and notices at any time or from time to time hereafter made upon or
otherwise issued to the Bank
13
<PAGE>
by any central bank or other fiscal, monetary or other authority (whether or not
having the force of law), shall:
(1) subject the Bank to any tax, levy, impost, duty, charge, fee, deduction
or withholding of any nature with respect to this Agreement, the other
Related Documents or the Indebtedness (other than taxes based upon or
measured by the revenue, income or profits of the Bank), or
(2) materially change the basis of taxation (except for changes in taxes on
revenue, income or profits) of payments to the Bank of the principal of or
the interest on the Indebtedness of any other amounts payable to the Bank
under this Agreement or the other Related Documents, or
(3) impose or increase or render applicable (other than to the extent
specifically provided for elsewhere in this Agreement) any special deposit,
reserve, assessment, liquidity, capital adequacy or other similar
requirements (whether or not having the force of law) against assets held
by, or deposits in or for the account of, or loans by, or commitments of an
office of the Bank, or
(4) impose on the Bank any other conditions or requirements with respect to
this Loan Agreement, the other Related Documents, the Indebtedness, or any
class of loans of which the Indebtedness forms a part, and the result of
any of the foregoing is
(i) to increase the cost to the Bank of making, funding, issuing,
renewing, extending or maintaining the Indebtedness, or
(ii) to reduce the amount of principal, interest or other amount
payable to the Bank hereunder on account of such the Indebtedness, or
(iii) to require the Bank to make any payment or to forego any
interest or other sum payable hereunder, the amount of which payment
or foregone interest or other sum is calculated by reference to the
gross amount of any sum receivable or deemed received by the Bank from
Borrowers hereunder,
then, and in each such case, Borrowers will, upon demand made by the Bank at any
time and from time to time and as often as the occasion therefor may arise, pay
to the Bank such additional amounts as will be sufficient to compensate the Bank
for such additional cost, reduction, payment or foregoing interest or others
sum.
Section 4.5. Capital Adequacy. If after the date hereof the Bank reasonably
determines that (a) the adoption of or change in any law, governmental rule,
regulations, policy guideline or directive (whether or not having the force of
law) regarding capital requirements for banks or bank holding companies or any
change in the interpretation or application thereof by a court or governmental
authority with appropriate jurisdiction, or (b) compliance by the Bank or any
corporation controlling the Bank with any law, governmental rule, regulation,
policy, guideline or directive (whether or not having the force of law) of any
such entity regarding
14
<PAGE>
capital adequacy, has the effect of reducing the return on the Bank's Revolving
Loans to a level below that which the Bank could have achieved but for such
adoption, change or compliance (taking into consideration the Bank's then
existing policies with respect to capital adequacy and assuming full utilization
of such entity's capital) by any amount deemed by the Bank to be material, then
the Bank may notify Borrowers of such fact. Borrowers agree to pay the Bank for
the amount of such reduction in the return on capital as and when such reduction
is determined upon presentation by the Bank of a certification in accordance
with paragraph Section 4.6.
Section 4.6. Certificate; Optional Right of Prepayment. Bank shall provide
Borrowers with a certificate setting forth any additional amounts which it
declares to be payable pursuant to Sections 4.4 and 4.5 hereof, and a complete
explanation of such amounts which are due, and each such certificate shall be
conclusive, absent manifest error, that such amounts are due and owing.
Borrowers shall have the right, at any time within 90 days of receipt of any
such certificate, to prepay all the Revolving Loans (subject to any and all
prepayment penalties, if any, under the terms of this Agreement) without being
obligated to pay any such additional costs set forth in such certificate, after
which Bank shall promptly terminate, discharge and release of record (at
Borrowers' expense) all of its Encumbrances affecting the Collateral and return
all Collateral to Borrowers.
Section 4.7. Fees for the Revolving Loans. In addition to the other fees
and expenses described in Section 11.4 hereof, the Borrowers have paid or shall
pay Bank the following fees:
(a) Borrowers shall pay Bank upon the execution of this Agreement the
remaining balance due on the Bank's total commitment fee in the amount of
$10,000.00 for the Revolving Loan Commitment, which fee has been fully earned by
Bank regardless of whether the Revolving Loans are ever funded.
(b) Borrowers shall pay Bank for the costs (including hourly rates of
personnel and out-of-pocket expenses) of performing field examinations of the
Collateral not more than twice per year.
(c) Borrowers shall pay to Bank an unused facility fee on the daily average
unused portion of the Revolving Loan Commitment [the "unused portion" being the
amount by which the maximum dollar amount of the Revolving Note ($1,000,000.00)
exceeds the outstanding principal balance due under the Revolving Note] from the
date of this Agreement through the Termination Date, at the rate of 0.375% per
annum, payable for each three (3) calendar month period (each calendar quarter),
in arrears, fifteen (15) days after last day of each calendar quarter. The first
unused facility fee payment is due on January 15, 2000, covering the period
beginning on the date of this Agreement through December 31, 1999.
15
<PAGE>
ARTICLE V
SECURITY FOR THE INDEBTEDNESS
Section 5.1. Security. The Indebtedness shall be secured by the following:
(a) the Assignment of Leases;
(b) the Security Agreements;
(c) the Guaranties;
(d) the Stock Pledge;
(e) the Securities Account Pledge; and,
(f) such other Collateral Documents now or hereafter granted by any Person
as security for any part of the Indebtedness.
Section 5.2. Agreement to Release Securities Account Pledge. Bank hereby
agrees that in the event that the shareholders of Emerging Alpha contribute an
additional $1 million in equity subsequent to the date hereof, and Emerging
Alpha thereafter applies as much of such additional equity as may be required to
pay all then outstanding Revolving Loans, Bank agrees, provided no Default or
Event of Default then exists, to release the Securities Accounts Pledge and any
claim or Encumbrance to the funds and/or securities contained therein.
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.1. Conditions Precedent to All Revolving Loans. The obligation of
Bank to make any Revolving Loans hereunder shall be subject to the satisfaction
and the continued satisfaction of the following conditions precedent:
(a) Borrowers shall have executed and delivered to Bank this Agreement, the
Collateral Documents, the Revolving Note and all other documents required by
this Agreement, all in form and substance and in such number of counterparts as
may be required by Bank;
(b) Brooks Mims Talton, III, shall have executed and delivered to Bank his
unlimited in solido Guaranty of the Indebtedness and all other present and
future Debt of Borrowers to Bank.
16
<PAGE>
(c) The representations and warranties of Borrowers and Guarantors as set
forth herein, or any Related Document furnished to Bank in connection herewith,
shall be and remain true and correct;
(d) Bank shall have received a favorable legal opinion of counsel to
Borrowers and Guarantors, in scope and substance satisfactory to Bank;
(e) Bank shall have received certified resolutions of Borrowers authorizing
the Revolving Loans and the execution and delivery of all documents contemplated
hereby;
(f) Bank shall have received all fees, charges and expenses which are due
and payable as specified in this Agreement or any Related Document;
(g) No Default or Event of Default shall exist or shall result from the
making of a Revolving Loan;
(h) Borrowers shall have each provided Bank with all financial statements,
reports and certificates required by this Agreement (including an initial
borrowing base certificate of Borrowers);
(i) Bank's counsel shall have reviewed the corporate structure and articles
of incorporation of Borrowers, and shall be satisfied with the validity, due
authorization and enforceability of all Related Documents;
(j) There shall have been no change to the corporate structure and
ownership of Borrowers than from what has been previously represented to Bank;
(k) Bank shall have received evidence acceptable to Bank and its counsel
that its Encumbrances affecting the Collateral shall have a first priority
position, subject only to Permitted Encumbrances;
(l) Bank shall have received evidence that all other policies of insurance
required by this Agreement and the Collateral Documents are in full force and
effect,
(m) Bank, at its option and for its sole benefit, shall have conducted an
audit of each Borrowers' payment records, ledger sheets, and computer tapes or
disks kept to record payment information, and of Borrowers' other books,
records, and operations, and Bank shall be satisfied as to their condition.
(n) Keenan shall have granted the Securities Account Pledge to Bank, the
securities account affected by the Securities Account Pledge shall have been
established by Keenan with the purchase or deposit of securities or cash therein
with an aggregate market value of not less than $1 million, and Keenan, Hibernia
Investment Securities Corporation, and Bank shall have entered into an account
control agreement on terms and conditions acceptable to Bank which provide Bank
with "control" over such securities account within the meaning of Section 9-115
of the UCC.
17
<PAGE>
(o) Emerging Alpha shall have delivered all outstanding and issued shares
of stock of Gas Jack to Bank, together with stock powers and Reg U statements
which Bank may reasonably require, pursuant to the terms of the Stock Pledge.
(n) There shall have occurred no Material Adverse Change.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
Borrowers represent and warrant to Bank as follows:
Section 7.1. Corporate Authority. Emerging Alpha is a corporation duly
created, validly existing and in good standing under the laws of the State of
Delaware, and is duly qualified and in good standing as a foreign corporation in
all other jurisdictions where the failure to qualify would have an adverse
effect upon its ability to perform its obligations under this Agreement and all
Related Documents. Gas Jack is a corporation duly created, validly existing and
in good standing under the laws of the State of Oklahoma, and is duly qualified
and in good standing as a foreign corporation in all other jurisdictions where
the failure to qualify would have an adverse effect upon its ability to perform
its obligations under this Agreement and all Related Documents. Borrowers have
the power to enter into this Agreement, issue the Revolving Note, mortgage and
grant security interests in the Collateral in the manner and for the purpose
contemplated by the Collateral Documents. Borrowers have the corporate power to
perform their obligations hereunder and under this Agreement and of the Related
Documents. The making and performance by Borrowers of this Agreement and of the
Related Documents have been duly authorized by all necessary corporate action
(including all necessary shareholder action), and do not and will not violate
any provision of any law, rule, regulation, order, writ, judgment, decree,
determination or award presently in effect having applicability to Borrowers or
the articles of incorporation of Borrowers. The making and performance by
Borrowers of this Agreement and the Related Documents do not and will not result
in a breach of or constitute a default under any indenture or loan or credit
agreement or any other agreement or instrument to which either Borrower is a
party or by which it may be bound or affected, or result in, or require, the
creation or imposition of any mortgage, deed of trust, pledge, lien, security
interest or other charge or encumbrance of any nature (other than as
contemplated this Agreement and by the Related Documents) upon or with respect
to any of the properties now owned or hereafter acquired by such Borrower, and
neither Borrower is in default under or in violation of any such order, writ,
judgment, decree, determination, award, indenture, agreement or instrument. This
Agreement and each of the Related Documents to which either Borrower is a party
constitutes legal, valid and binding obligations of each such Borrower,
enforceable in accordance with its terms, except to the extent that the
enforceability of such instruments may be subject to the effect of applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally, or the effect of general equity principles.
18
<PAGE>
Section 7.2. Financial Statements. The balance sheet of Borrowers at the
date thereof, and the related statements of income and retained earnings for the
periods covered thereby, copies of which have been delivered to Bank, are
complete and correct and fairly present the financial condition of Borrowers as
of the date or dates thereof. Each of said financial statements were prepared in
conformity with GAAP applied on a basis consistent with the preceding year. No
Material Adverse Change has occurred since said dates in the financial position
or in the results of operations of Borrowers in their businesses taken as a
whole.
Section 7.3. Title to Collateral. Each Borrower has good and marketable
title to the Collateral in which it has or shall grant Bank an Encumbrance as
security for the Indebtedness, free and clear of all Encumbrances other than
Permitted Encumbrances. The Collateral Documents constitute legal, valid and
perfected first Encumbrances on the property interests covered thereby, subject
only to Permitted Encumbrances.
Section 7.4. Litigation. Other than as has been disclosed previously to
Bank in writing, there are no material legal actions, suits or proceedings
pending or, to the best of each Borrower's knowledge, threatened against or
affecting such Borrower or any of its properties before any court or
administrative agency (federal, state or local), which, if determined adversely
to such Borrower, would constitute a Material Adverse Change, and there are no
judgments or decrees affecting Borrowers or their properties (including, without
limitation, the Collateral) which are or may become an Encumbrance against such
properties.
Section 7.5. Approvals. No authorization, consent, approval or formal
exemption of, nor any filing or registration with, any governmental body or
regulatory authority (federal, state or local), and no vote, consent or approval
of the shareholders of Borrowers is or will be required in connection with the
execution and delivery by Borrowers of the Related Documents or the performance
by Borrowers of their obligations hereunder and under the other Related
Documents.
Section 7.6. Licenses. Each Borrower possesses adequate franchises,
licenses and permits to own its properties and to carry on its business as
presently conducted.
Section 7.7. Adverse Agreements. Neither Borrower is a party to any
agreement or instrument, or subject to any charter or other restriction,
materially and adversely affecting its business, properties, assets, or
operations or its condition (financial or otherwise), and neither Borrower is in
default in the performance, observance or fulfillment of any of the obligations,
covenants or conditions contained in any agreement or instrument to which it is
a party, which default would constitute a Material Adverse Change.
Section 7.8. Default or Event of Default. No Default or Event of Default
hereunder has occurred or is continuing or will occur as a result of the giving
effect hereto.
Section 7.9. Employee Benefit Plans. Each employee benefit plan as to which
Borrowers may have any liability complies in all material respects with all
applicable requirements of law and regulations, and (i) no Reportable Event (as
defined in ERISA) has
19
<PAGE>
occurred with respect to any such plan, (ii) neither Borrower has withdrawn from
any such plan or initiated steps to do so, and (iii) no steps have been taken to
terminate any such plan.
Section 7.10. Investment Company Act. Neither Borrower is an "investment
company" or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
Section 7.11. Public Utility Holding Company Act. Neither Borrower is a
"holding company," or a "subsidiary company" of a "holding company," within the
meaning of the Public Utility Holding Company Act of 1935, as amended.
Section 7.12. Regulations G, T and U. Neither Borrower is engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations G, T and U of the Board of Governors of the Federal
Reserve System), and none of the proceeds of the Revolving Loans will be used
for the purpose of purchasing or carrying such margin stock.
Section 7.13. Location of Borrowers' Offices, Records and Inventory and
Equipment. The chief place of business of Borrowers, and the office where
Borrowers keeps their records concerning the Collateral, and the present
locations of Borrowers' Inventory (other than Inventory out on lease) and
Equipment, are as follows:
Place of Business/Records Location Inventory and Equipment Locations
- ---------------------------------- ---------------------------------
Emerging Alpha -
17571 Red Oak Drive 17571 Red Oak Drive
Houston, TX 77090 Houston, TX 77090
(no presently owned Inventory)
Gas Jack -
17571 Red Oak Drive 17571 Red Oak Drive
Houston, TX 77090 Houston, TX 77090
8224 SW 3rd 8224 SW 3rd
Oklahoma City, OK 73128 Oklahoma City, OK 73128
Section 7.14. Information. All information heretofore or contemporaneously
herewith furnished by Borrowers to Bank for the purposes of or in connection
with this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrowers to Bank will be,
true and accurate in every material respect on the date as of which such
information is dated or certified; and none of such information is or will be
incomplete by omitting to state any material fact necessary to make such
information not misleading.
20
<PAGE>
Section 7.15. Environmental Matters. Except as may have been disclosed in
writing to Bank prior to the date hereof, no properties of Borrowers has ever
been, and ever will be so long as this Agreement remains in effect, used for the
generation, manufacture, storage, treatment, disposal, release or threatened
release of any hazardous waste or substance, as those terms are defined in the
Environmental Laws, except in compliance with such Environmental Laws. Except as
may have been disclosed in writing by Borrowers to Bank, Borrowers represent and
warrant that they are in compliance with all Environmental Laws affecting them
and their properties.
Section 7.16. Solvency of Borrowers. Each Borrower is, and after
consummation of the transactions contemplated by this Agreement (including the
making of the Revolving Loans), and after giving effect to all obligations
incurred by each such Borrower in connection herewith, will be, Solvent.
Section 7.17. Year 2000 Compliance. Borrowers represent and warrant that
all material systems used in the conduct of their respective businesses will
have appropriate capabilities and compatibility to handle calendar dates falling
on or after January 1, 2000, and all information pertaining to such calendar
dates. Upon reasonable request, Borrowers agree to provide to Bank documentation
satisfactory to Bank to establish that its systems and software are year 2000
compliant, or that Borrowers are in the process of implementing a plan to ensure
that their systems and software will be 2000 compliant before December 31, 1999.
Section 7.18. Survival of Representations and Warranties. Borrowers
understand and agree that Bank is relying upon the above representations and
warranties in making the Revolving Loans to Borrowers. Borrowers further agree
that the foregoing representations and warranties shall be continuing in nature
and shall remain in full force and effect until such time as the Indebtedness
shall be paid in full, or until this Agreement shall be terminated, whichever is
the last to occur.
ARTICLE VIII
AFFIRMATIVE COVENANTS
In addition to the covenants contained in the Collateral Documents, which
covenants are hereby ratified and confirmed by Borrowers, Borrowers covenant and
agree as follows:
Section 8.1. Financial Statements. Borrowers will furnish or cause to be
furnished to Bank:
(a) within forty-five (45) days following the end of each fiscal quarter
of Borrowers, financial statements consisting of a balance sheet of
each Borrower as of the end of such fiscal quarter, and statements of
income and statements of cash flow of
21
<PAGE>
each Borrower for such fiscal quarter and for the fiscal year through
such fiscal quarter, all certified by the chief financial officer of
each Borrower as having been prepared in accordance with GAAP
consistently applied;
(b) within forty-five (45) days following the end of each fiscal quarter
of Borrowers, the consolidated and consolidating financial statements
of Emerging Alpha and its Consolidated Subsidiaries consisting of a
balance sheet as of the end of such fiscal quarter, and statements of
income and statements of cash flow of Emerging Alpha and its
Consolidated Subsidiaries for such fiscal quarter and for the fiscal
year through such fiscal quarter, all certified by the chief financial
officer of Emerging Alpha as having been prepared in accordance with
GAAP consistently applied, together with the 10-Q or equivalent report
submitted by Emerging Alpha to the Securities and Exchange Commission
for such period;
(c) as soon as available and in any event within ninety (90) days
following the close of each fiscal year of Borrowers, unqualified
audited consolidated and consolidating financial statements of
Emerging Alpha and its Consolidated Subsidiaries consisting of a
balance sheet as of the end of such fiscal year and statements of
income, and statement of cash flow for such fiscal year, setting forth
in each case in comparative form the corresponding figures for the
preceding fiscal year, certified by independent public accountants of
recognized standing acceptable to Bank, together with the 10-K or
equivalent report submitted by Emerging Alpha to the Securities and
Exchange Commission for such period;
(d) within fifteen days (15) of the filing of same, copies of all Forms
1120 and all schedules and attachments thereto as submitted annually
to the Internal Revenue Service by Emerging Alpha and its Consolidated
Subsidiaries;
(e) with each set of quarterly financial reports submitted in accordance
with paragraph (a) above, a compliance certificate signed by the chief
financial officer of each Borrower, certifying that said officer has
reviewed this Agreement and to the best of his or her knowledge no
Default or Event of Default has occurred, or if such Default or Event
of Default has occurred, specifying the nature and extent thereof, and
that all financial covenants in this Agreement have been met, and
providing a computation of all financial covenants contained herein;
(f) within fifteen (15) days following the end of each calendar month, a
borrowing base certificate showing each Borrower's total Receivables
and Inventory, minus ineligibles, total Eligible Receivables and
Eligible Inventory, usage and availability, in form and substance
acceptable to Bank, with such borrowing base certificate to be
certified by the chief financial officers of Borrowers;
(g) within fifteen (15) days following the end of each calendar month, an
aging of each Borrower's Receivables and accounts, together with a
certificate executed by the chief financial officer of each Borrower,
identifying the amount of Eligible Receivables and Eligible Inventory
of each such Borrower as of the end of such
22
<PAGE>
month, together with a collateral location report and a lease status
report relating to leased Inventory of Borrowers as of the end of such
quarter, all in such form and containing such representations and
warranties as Bank may reasonably require;
(h) as soon as available and in any event within thirty (30) days
following the end of each calendar year, the personal financial
statements of Brooks Mims Talton, III, signed by Mr. Talton and
submitted pursuant to fully completed forms of personal financial
statements provided by Bank, together with his federal tax returns and
all schedules thereto, within fifteen (15) days of the filing of same;
(i) on a bi-annual basis, commencing on the second anniversary date of the
date of this Agreement, a third-party collateral appraisal prepared by
MB Valuation Services or other reputable appraisal service firm
approved by Bank, which is addressed to Bank;
(j) within 15 days of receipt of same, copies of all statements received
by Keenan from Hibernia Investment Securities, Inc. regarding the
securities account subject to the Securities Account Pledge; and,
(k) such other necessary financial information concerning Borrowers and
Guarantors as Bank may reasonably request from time to time.
Section 8.2. Notice of Default; Litigation; ERISA Matters. Borrowers will
give written notice to Bank as soon as reasonably possible and in no event more
than five (5) Business Days of (i) the occurrence of any Default or Event of
Default hereunder of which either of them has knowledge, (ii) the filing of any
actions, suits or proceedings against either Borrower in any court or before any
governmental authority or tribunal of which it has knowledge which could cause a
Material Adverse Change with respect to such Borrower, (iii) the occurrence of a
reportable event under, or the institution of steps by either Borrower to
withdraw from, or the institution of any steps to terminate, any employee
benefit plan as to which such Borrower may have liability, or (iv) the
occurrence of any other action, event or condition of any nature of which either
Borrower has knowledge which may cause, or lead to, or result in, any Material
Adverse Change.
Section 8.3. Maintenance of Corporate Existence, Properties and Liens. Each
Borrower will (i) continue to engage in the business presently being operated by
it; (ii) maintain its corporate existence and good standing in each jurisdiction
in which it is required to be qualified; (iii) keep and maintain all franchises,
licenses and properties necessary in the conduct of its business in good order
and condition; (iv) duly observe and conform to all material requirements of any
governmental authorities relative to the conduct of its business or the
operation of its properties or assets; and, (v) maintain in favor of Bank a
first perfected lien and security interest in the Collateral, subject only to
other Permitted Encumbrances.
Section 8.4. Collateral Schedules and Locations. As often as Bank shall
reasonably require, Borrowers shall deliver to Bank schedules of such
Collateral, including such information
23
<PAGE>
as Bank may require, including without limitation names and addresses of account
debtors and agings of Receivables and General Intangibles and the location of
all Inventory.
Section 8.5. Taxes. Each Borrower shall pay or cause to be paid when due,
all taxes, local and special assessments, and governmental and other charges of
every type and description, that may from time to time be imposed, assessed and
levied against it and its properties. Borrowers further agree to furnish Bank
with evidence that such taxes, assessments, and governmental and other charges
due by the Borrowers have been paid in full and in a timely manner. Borrowers
may withhold any such payment or elect to contest any lien if either such
Borrower is in good faith conducting an appropriate proceeding to contest the
obligation to pay and so long as Bank's interest in the Collateral is not
jeopardized.
Section 8.6. Required Insurance. Borrowers shall maintain insurance with
insurance companies in such amounts and against such risks as is usually carried
by owners of similar businesses and properties in the same general areas in
which each of them operates, and as shall be reasonably satisfactory to Bank,
such insurance to include appropriate liability, hazard, business interruption,
workmens' compensation coverages as Bank may require, naming Bank as loss payee
and/or additional insured, as appropriate. With respect to the Collateral of
Borrowers, Borrowers agree to provide Bank with the types of insurance coverages
required by the Collateral Documents affecting such Collateral.
Borrowers agree to provide Bank with originals or certified copies of such
policies of insurance. Borrowers further agree to promptly furnish Bank with
copies of all renewal notices and, if requested by Bank, with copies of receipts
for paid premium. Borrowers shall provide Bank with originals or certified
copies of all renewal or replacement policies of insurance no later than fifteen
(15) days before any such existing policy or policies should expire. If
Borrowers' insurance policies required hereunder and renewals thereof are held
by another person, Borrowers agrees to supply original or certified copies of
the same to Bank within the time periods required above.
Section 8.7. Performance of Loan Documents. Borrowers shall duly and
punctually pay and perform their obligations under the Revolving Note, under
this Agreement and under each of the Related Documents, in accordance with the
terms hereof and thereof.
Section 8.8. Compliance with Environmental Laws. Borrowers shall comply
with and shall cause all of their respective employees, agents, invitees or
sublessees to comply with all Environmental Laws with respect to the disposal of
industrial refuse or waste, and/or the discharge, procession, treatment,
removal, transportation, storage and handling of hazardous or toxic wastes and
substances, and pay immediately when due the cost of removal of any such waste
or substances from, and keep its properties free of any lien imposed pursuant to
any such laws, rules, regulations or orders.
Each Borrower shall give notice to Bank as soon as reasonably possible and
in no event more than five (5) days after it receives any compliance orders,
environmental citations, or other notices from any governmental entity relating
to any environmental condition relating to its properties or elsewhere for which
it may have legal responsibility with a full description thereof.
24
<PAGE>
Each Borrower agrees to take any and all reasonable steps, and to perform any
and all reasonable actions necessary or appropriate to promptly comply with any
such citations, compliance orders or Environmental Laws requiring either such
Borrower to remove, treat or dispose of such hazardous materials, wastes or
conditions at the sole expense of such Borrower, to provide Bank with
satisfactory evidence of such compliance; provided, however, that nothing
contained herein shall preclude Borrowers from contesting any such compliance
orders or citations if such contest is made in good faith, appropriate reserves
are established for the payment for the cost of compliance therewith, and Bank's
security interest in any such property affected thereby (or the priority
thereof) is not jeopardized.
Regardless of whether any Event of Default hereunder shall have occurred
and be continuing, Borrowers (i) release and waive any present or future claims
against Bank for indemnity or contribution in the event either Borrower becomes
liable for remediation costs under and Environmental Laws, and (ii) agree to
defend, indemnify and hold harmless Bank from any and all liabilities (including
strict liability), actions, demands, penalties, losses, costs or expenses
(including, without limitation, reasonable attorneys fees and remedial costs),
suits, administrative orders, agency demand letters, costs of any settlement or
judgment and claims of any and every kind whatsoever which may now or in the
future (whether before or after the termination of this Agreement) be paid,
incurred, or suffered by, or asserted against Bank by any person or entity or
governmental agency for, with respect to, or as a direct or indirect result of,
the presence on or under, or the escape, seepage, leakage, spillage, discharge,
emission, or release from or onto the property of Borrowers of any hazardous
materials, wastes or conditions regulated by any Environmental Laws,
contamination resulting therefrom, or arising out of, or resulting from, the
environmental condition of such property or the applicability of any
Environmental Laws relating to hazardous materials (including, without
limitation, CERCLA or any so called federal, state or local "super fund" or
"super lien" laws, statute, ordinance, code, rule, regulation, order or decree)
regardless of whether or not caused by or within the control of Bank. The
covenants and indemnities contained in this Section 8.8 shall survive
termination of this Agreement.
Section 8.9. Further Assurances. Borrowers will, at any time and from time
to time, execute and deliver such further instruments and take such further
action as may reasonably be requested by Bank, in order to cure any defects in
the execution and delivery of, or to comply with or accomplish the covenants and
agreements contained in this Agreement or the Collateral Documents.
Section 8.10. Financial Covenants. Borrowers shall comply with the
following covenants and ratios:
(a) Emerging Alpha and its Consolidated Subsidiaries shall maintain a
ratio of Current Ratio of not less than 1.10 to 1.00 as of the end of
each fiscal quarter.
(b) Emerging Alpha and its Consolidated Subsidiaries shall maintain a
Tangible Net Worth of not less than $2,750,447.00 plus 50% of the net
income of Emerging
25
<PAGE>
Alpha and its Consolidated Subsidiaries (with no deduction for net
losses) derived after 12/31/98.
(c) Emerging Alpha and its Consolidated Subsidiaries shall maintain a
Funded Debt to Cash Flow Ratio of (i) less than or equal to 4.0 to 1.0
as of the end of each fiscal quarter through 12/31/00, (ii) less than
or equal to 3.5 to 1.0 as of the end of each fiscal quarter thereafter
through 12/31/01, and (iii) less than or equal to 3.0 to 1.0 as of the
end of each fiscal quarter thereafter.
(d) Emerging Alpha and its Consolidated Subsidiaries shall maintain a Debt
Service Coverage Ratio of (i) greater than 1.0 to 1.0 as of the end of
each fiscal quarter through 12/31/00 (provided, however, that for the
period ending 12/31/00 only, the Debt Service Coverage Ratio shall be
based on the current quarter's annualized interest expense), (ii)
greater than or equal to 1.2 to 1.0 as of the end of each fiscal
quarter thereafter through 12/31/01, and (iii) greater than or equal
to 1.50 to 1.0 as of the end of each fiscal quarter thereafter.
Section 8.11. Operations. Each Borrower shall conduct its business affairs
in a reasonable and prudent manner and in compliance with all applicable
federal, state and municipal laws, ordinances, rules and regulations respecting
its properties, charters, businesses and operations, including compliance with
all minimum funding standards and other requirements of ERISA of 1974, and other
laws applicable to any employee benefit plans which it may have, and at all time
shall remain a "going concern" as defined by its auditors.
Section 8.12. Change of Location. Each Borrower shall, within ten (10)
Business Days prior to any such addition or change, notify Bank in writing of
any proposed additions to or changes in the location of the Collateral (other
than leased Inventory) or of the location of its chief executive office.
Section 8.13. Employee Benefit Plans. So long as this Agreement remains in
effect, each Borrower will maintain each employee benefit plan as to which it
may have any liability, in compliance with all applicable requirements of law
and regulations.
Section 8.14. Field Audits; Other Information. Each Borrower shall allow
Bank's employees and agents access to its books and records and properties
during normal business hours to perform field audits from time to time,
including an asset based field audit to be conducted to determine the initial
Borrowing Base Amount hereunder, on not less than a semiannual basis. Based upon
the information provided by such audits, Bank shall have the right to make
adjustments to the advance rates for the and/or eligibility definitions used in
determining the Borrowing Base Amount and the level of monitoring required.
Borrowers will provide Bank with such other information as Bank may reasonably
request from time to time.
Section 8.15. Lockbox Account. Borrowers shall establish, not later than 90
days from the date of this Agreement, a lockbox account with Bank into which all
proceeds of Receivables of Borrowers shall be deposited. Upon the establishment
of such account, each Borrower will promptly direct its customers to remit
payments of all of their accounts receivable to such
26
<PAGE>
lockbox. Remittances received under the lockbox arrangement will be deposited by
the Bank to the demand deposit account to be established and maintained by
Borrowers with the Bank (the "Lockbox Account"). Borrowers shall deposit all
payments of accounts receivable which are not remitted by customers directly to
the Lockbox Account into the Lockbox Account on the date such remittance is
received. Borrowers will have no access to any funds in the Lockbox Account for
so long as any Event of Default exists hereunder.
Section 8.16 Pledged Securities Account. Borrowers shall cause Keenan to at
all time maintain sufficient cash or securities in the securities account
subject to the Securities Account Pledge so as to maintain the account with a
market value of not less than $1 million.
Section 8.17. Deposit and Operating Accounts. Borrowers shall maintain all
of their primary deposit and operating accounts with Bank (it being understood
that Gas Jack will be allowed to maintain local banking accounts in Oklahoma
City to use in connection with its trade payables and payroll) so long as any of
the Revolving Loans remain outstanding.
ARTICLE IX
NEGATIVE COVENANTS
In addition to the negative covenants contained in the Collateral
Documents, which covenants are hereby ratified and confirmed by Borrowers,
Borrowers covenant and agree as follows:
Section 9.1. Limitations on Fundamental Changes. Borrowers shall not change
the nature of their respective businesses or their names (other than the
presently anticipated name change of Emerging Alpha to Compresco, Inc.), grant
credit terms to its customers on terms different than those presently granted to
customers, or form any subsidiary without the prior written consent of the Bank,
nor shall it enter into any transaction of merger or consolidation, nor
liquidate or dissolve itself (nor suffer any liquidation or dissolution).
Section 9.2. Disposition of Assets. Borrowers shall not convey, sell,
lease, assign, transfer or otherwise dispose of, any of their property, business
or assets whether now owned or hereafter acquired except for (i) inventory and
compressors sold to customers in the normal course of business, (ii) property
disposed of in the ordinary course of business, provided that, if such property
is to be replaced, the net cash proceeds of each such transaction are applied to
obtain a replacement item or items within 30 days of the disposition thereof, or
(iii) other dispositions of property whose fair market value does not exceed
$50,000.00 in the aggregate during each fiscal year.
Section 9.3. Restricted Payments. Borrowers shall not declare or pay (or
set aside reserves for payment of) any dividends or distributions or redeem,
retire, or repurchase any shares of its capital stock, make any
shareholder/affiliate loans, pay excessive shareholder
27
<PAGE>
compensation or enter into any similar transactions with the shareholders of
Borrowers and their related interests without the prior written consent of the
Bank.
Section 9.4. Encumbrances. Borrowers shall not create, incur, assume or
permit to exist any Encumbrances on any of their property now owned or hereafter
acquired, except for the following (hereinafter referred to as the "Permitted
Encumbrances"):
(a) Encumbrances for taxes, assessments, or other governmental charges not
yet due or which are being contested in good faith by appropriate
action promptly initiated and diligently conducted, if such reserves
as shall be required by GAAP shall have been made therefor.
(b) Encumbrances of landlords, vendors, carriers, warehousemen, mechanics,
laborers and materialmen arising by law in the ordinary course of
business for sums either not yet due or being contested in good faith
by appropriate action promptly initiated and diligently conducted, if
such reserve as shall be required by generally accepted accounting
principles shall have been made therefor.
(c) Inchoate liens arising under ERISA to secure the contingent
liabilities, if any, permitted by this Agreement.
(d) The pledge of the Collateral and any other liens in favor of the Bank
to secure the Indebtedness of the Borrowers to the Bank.
(e) Liens which, as of the date hereof, have been disclosed to and
approved by Bank in writing.
Section 9.5. Debts, Guaranties and Other Obligations. Borrowers will not
incur, create, assume or in any manner become or be liable in respect of any
indebtedness, direct or contingent, except for:
(a) The Indebtedness to the Bank under this Agreement;
(b) Trade payables or non-material operating leases from time to time
incurred in the ordinary course of business; and,
(c) Taxes, assessments or other government charges which are not yet due
or are being contested in good faith by appropriate action promptly
initiated and diligently conducted, if such reserve as shall be
required by generally accepted accounting principles shall have been
made therefor.
Section 9.6. Changes in Control and Management. Borrowers shall not allow
any change in the control of the Borrowers ("control" for the purposes hereof
shall mean the power, direct or indirect, (i) to vote 51% or more of the
securities having ordinary voting power for the election of directors of such
Borrower, or (ii) to direct or cause the direction of the management and
policies of such Borrower whether by contract or otherwise) from the ownership
structure of
28
<PAGE>
the Borrowers which exists as of the date hereof (which ownership is as has been
represented to Bank by Borrowers), nor shall it allow any change in its
executive management which exists as of the date hereof without the prior
written consent of Bank.
Section 9.7. Other Agreements. Borrowers will not enter into any agreement
containing any provision which would be violated or breached by the performance
of their obligations hereunder or under any instrument or document delivered or
to be delivered by them hereunder or in connection herewith.
Section 9.8. Transactions with Affiliates. Borrowers will not enter into
any agreement with any affiliate except to the extent that such agreements are
commercially reasonable which provide for terms which would normally be
obtainable in an arm's length transaction with an unrelated third party. To the
extent any inter-company loans are permitted hereunder, they shall be
subordinated in payment to the Indebtedness.
ARTICLE X
EVENTS OF DEFAULT
Section 10.1. Events of Default. The occurrence of any one or more of the
following shall constitute an Event of Default:
Default under the Indebtedness. Should Borrowers default in the payment of
principal or interest under the Indebtedness.
Default under this Agreement. Should Borrowers violate or fail to comply
fully with any of the terms and conditions of, or default under, this Agreement,
and such default not be cured within thirty days of the occurrence thereof
(provided, however, that no cure period shall be available for a default in the
obligation to comply with negative covenants contained herein or to maintain
insurance coverages required hereby).
Default Under Other Agreements. Should any event of default occur or exist
under any of the Related Documents or should either Borrower, any Guarantor or
Keenan violate, or fail to comply fully with, any terms and conditions of any of
the Collateral Documents or Related Documents, and such default not be cured
within thirty days of the occurrence thereof (provided, however, that no cure
period shall be available for a default in the obligation to comply with
negative covenants contained therein or to maintain insurance coverages
affecting the Collateral required thereby).
Other Defaults in Favor of Bank. Should either Borrower or any Guarantor
default under any other loan, extension of credit, security agreement, or other
obligation in favor of Bank and fail to cure same in accordance with any
applicable cure periods, or should there occur an
29
<PAGE>
"Event of Default" as defined in that certain Loan Agreement dated as of October
29, 1999, between Emerging Alpha and Bank, as said agreement may be amended from
time to time.
Default in Favor of Third Parties. Should either Borrower or any Guarantor
default under any loan, extension of credit, security agreement, purchase or
sales agreement, or any other agreement, in favor of any other creditor or
person that may materially affect any of the Collateral, or the ability of
either such Borrower or any such Guarantor to perform its obligations under this
Agreement, or any Related Document, or pertaining to the Indebtedness and fail
to cure same in accordance with any applicable cure periods.
Insolvency. The following occurrences, in addition to the failure or
suspension of either Borrower or any corporate Guarantor, shall constitute an
Event of Default hereunder:
(a) Filing by either Borrower or any Guarantor of a voluntary petition or
any answer seeking reorganization, arrangement, readjustment of its
debts or for any other relief under any applicable bankruptcy act or
law, or under any other insolvency act or law, now or hereafter
existing, or any action by either Borrower or any Guarantor consenting
to, approving of, or acquiescing in, any such petition or proceeding;
the application by either Borrower or any Guarantor for, or the
appointment by consent or acquiescence of, a receiver or trustee of
either Borrower or of any Guarantor for all or a substantial part of
its property; the making by either Borrower or by any Guarantor of an
assignment for the benefit of creditors; the inability of either
Borrower or any Guarantor or the admission by either Borrower or any
Guarantor in writing, of its inability to pay its debts as they mature
(the term "acquiescence" means the failure to file a petition or
motion in opposition to such petition or proceeding or to vacate or
discharge any order, judgment or decree providing for such appointment
within sixty (60) days after the appointment of a receiver or
trustee); or
(b) Filing of an involuntary petition against either Borrower or any
Guarantor in bankruptcy or seeking reorganization, arrangement,
readjustment of its debts or for any other relief under any applicable
bankruptcy act or law, or under any other insolvency act or law, now
or hereafter existing and such petition remains undismissed or
unanswered for a period of sixty (60) days from such filing; or the
insolvency appointment of a receiver or trustee of either Borrower or
of any Guarantor for all or a substantial part of its property and
such appointment remains unvacated or unopposed for a period of sixty
(60) days from such appointment, execution or similar process against
any substantial part of the property of either Borrower or of any
Guarantor and such warrant remains unbonded or undismissed for a
period of sixty (60) days from notice to such Borrower or such
Guarantor of its issuance.
Dissolution Proceedings. Should proceedings for the dissolution or
appointment of a liquidator of either Borrower or any corporate Guarantor be
commenced.
30
<PAGE>
Death or Incapacity of Individual Guarantors. Should any individual
Guarantor die or become incapacitated or interdicted.
False Statements. Should any representation or warranty of either Borrower
or any Guarantor made in connection with the Indebtedness prove to be incorrect
or misleading in any material respect when made or reaffirmed.
Material Adverse Change. Should a Material Adverse Change with respect to
either Borrower or any Guarantor occur at any time and not be cured within ten
days of the occurrence thereof.
Upon the occurrence of an Event of Default, all commitments of Bank under
this Agreement will terminate immediately (including any obligation to make any
further Revolving Loans), and, at Bank's option, the Revolving Note and all
Indebtedness of Borrowers will become immediately due and payable, all without
notice of any kind to Borrowers, except that in the case of type described in
the "Insolvency" subsection above, such acceleration shall be automatic and not
optional.
Upon the occurrence of an Event of Default, Bank may increase the rate of
interest borne by the Revolving Note to the default rate of interest provided
for under the Revolving Note, proceed to realize upon the Collateral under the
terms of the Collateral Documents, and/or exercise any other rights which it has
by law or contract (which rights shall be cumulative in nature).
Section 10.2. Waivers by Borrowers. Except as otherwise provided for in
this Agreement and by applicable law, Borrowers waive (i) presentment, demand
and protest and notice of presentment, dishonor, notice of intent to accelerate,
notice of acceleration, protest, default, nonpayment, maturity, release,
compromise, settlement, extension or renewal of any or all commercial paper,
accounts, contract rights, documents, instruments, chattel paper and guaranties
at any time held by Bank on which Borrowers may in any way be liable and hereby
ratifies and confirms whatever Bank may do in this regard, (ii) all rights to
notice and a hearing prior to Bank's taking possession or control of, or to
Bank's replevy, attachment or levy upon, the Collateral or any bond or security
which might be required by any court prior to allowing Bank to exercise any of
its remedies, and (iii) the benefit of all valuation, appraisal and exemption
laws. Each Borrower acknowledges that it has been advised by counsel of its
choice with respect to this Agreement, the other Collateral Documents, and the
transactions evidenced by this Agreement and other Collateral Documents.
ARTICLE XI
MISCELLANEOUS
Section 11.1. No Waiver; Modification in Writing. No failure or delay on
the part of Bank in exercising any right, power or remedy hereunder shall
operate as a waiver thereof, nor
31
<PAGE>
shall any single or partial exercise of any such right, power or remedy preclude
any other or further exercise thereof or the exercise of any other right, power
or remedy hereunder. No amendment, modification or waiver of any provision of
this Agreement or of the Revolving Note, nor consent to any departure by either
Borrower therefrom, shall in any event be effective unless the same shall be in
writing signed by or on behalf of Bank and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. No notice to or demand on either Borrower in any case shall entitle
either Borrower to any other or further notice or demand in similar or other
circumstances.
Section 11.2. Payment on Non-Business Day. Whenever any payment to be made
hereunder or on account of the Revolving Note shall be scheduled to become due
on a day which is not a Business Day, such payment may be made on the next
succeeding Business Day, and such extension of time shall in such case be
included in computing interest and fees payable hereunder or on account of the
Revolving Note.
Section 11.3. Addresses for Notices. All notices and communications
provided for hereunder shall be in writing and, shall be mailed, by certified
mail, return receipt requested, or delivered as set forth below unless any
person named below shall notify the others in writing of another address, in
which case notices and communications shall be mailed, by certified mail, return
receipt requested, or delivered to such other address.
If to Bank:
Hibernia National Bank
P. O. Box 61540
New Orleans, LA 70161
Attention: Manager-Energy/Maritime Department
If to Borrowers:
Emerging Alpha Corporation
1751 Red Oak Drive
Houston, TX 77090
Attention: Mr. Jerry W. Jarrell
Section 11.4. Fees and Expenses. Borrowers agree to pay all fees, costs and
expenses of Bank in connection with the preparation, execution and delivery of
this Agreement, and all Related Documents to be executed in connection herewith
and subsequent modifications or amendments to any of the foregoing, including
without limitation, the reasonable fees and disbursements of counsel to Bank,
and to pay all costs and expenses of Bank in connection with the enforcement of
this Agreement, the Revolving Note or the other Related Documents, including
reasonable legal fees and disbursements arising in connection therewith.
Borrowers agree to pay all costs associated with the issuance of any insurance
coverages, appraisals and field examinations of Borrowers' property which may be
required by this Agreement and any of
32
<PAGE>
the Related Documents. Borrowers also agree to pay, and to save Bank harmless
from any delay in paying stamp and other similar taxes, if any, which may be
payable or determined to be payable in connection with the execution and
delivery of this Agreement, the Revolving Note, the other Related Documents, or
any modification thereof.
Section 11.5. Security Interest and Right of Set-off. Bank shall have a
continuing security interest in, as well as the right to set-off the obligations
of Borrowers hereunder against, all funds which either Borrower may maintain on
deposit with Bank (with the exception of funds deposited in Borrowers' accounts
in trust for third parties or funds deposited in pension accounts, IRA's, Keogh
accounts and All Saver Certificates), and Bank shall have a lien upon and a
security interest in all property of either Borrower in Bank's possession or
control which shall secure the Indebtedness of Borrowers.
Section 11.6. Waiver of Marshaling. Borrowers shall not at any time
hereafter assert any right under any law pertaining to marshaling (whether of
assets or liens) and Borrowers expressly agree that Bank may execute or
foreclose upon the Collateral in such order and manner as Bank, in its sole
discretion, deems appropriate.
Section 11.7. Governing Law. This Agreement and the Revolving Note shall be
deemed to be contracts made under the laws of the State of Louisiana and for all
purposes shall be construed in accordance with the laws of said State.
Section 11.8. Consent to Loan Participation. Borrowers agree and consent to
Bank's sale or transfer, whether now or later, of one or more participation
interests in the Indebtedness of the Borrowers arising pursuant to this
Agreement to one or more purchasers, whether related or unrelated to Bank. Bank
may provide, without any limitation whatsoever, to any one or more purchasers,
or potential purchasers, any information or knowledge Bank may have about
Borrowers or about any other matter relating to such Indebtedness, and Borrowers
hereby waive any rights to privacy it may have with respect to such matters.
Borrowers additionally waive any and all notices of sale of participation
interests, as well as all notices of any repurchase of such participation
interests. Borrowers also agree that the purchasers of any such participation
interest will be considered as the absolute owners of such interests in such
Indebtedness.
Section 11.9. WAIVER OF JURY TRIAL; SUBMISSION TO JURISDICTION. (a)
BORROWERS AND BANK HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
WHICH BORROWERS AND BANK MAY BE PARTIES, ARISING OUT OF OR IN ANY WAY PERTAINING
TO (i) THE REVOLVING NOTE, (ii) THIS AGREEMENT, (iii) THE COLLATERAL DOCUMENTS
OR (iv) THE COLLATERAL. IT IS AGREED AND UNDERSTOOD THAT THIS WAIVER CONSTITUTES
A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR
PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS
AGREEMENT. THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE
BORROWERS AND THE BANK, AND THE BORROWERS AND THE BANK HEREBY REPRESENT THAT NO
REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE
THIS
33
<PAGE>
WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. EACH OF
THE BORROWERS AND THE BANK EACH FURTHER REPRESENTS THAT IT HAS BEEN REPRESENTED
IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT
LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE
OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.
(b) EACH BORROWER HEREBY IRREVOCABLY CONSENTS TO THE JURISDICTION OF THE
STATE COURTS OF LOUISIANA AND THE FEDERAL COURTS IN LOUISIANA AND AGREES THAT
ANY ACTION OR PROCEEDING ARISING OUT OF OR BROUGHT TO ENFORCE THE PROVISIONS OF
THE REVOLVING NOTE, THIS AGREEMENT AND/OR THE COLLATERAL DOCUMENTS MAY BE
BROUGHT IN ANY COURT HAVING SUBJECT MATTER JURISDICTION.
Section 11.10. Severability. If a court of competent jurisdiction finds any
provision of this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any such
offending provision shall be deemed to be modified to be within the limits of
enforceability or validity; however, if the offending provision cannot be so
modified, it shall be stricken and all other provisions of this Agreement in all
other respects shall remain valid and enforceable.
Section 11.11. Headings. Article and Section headings used in this
Agreement are for convenience only and shall not affect the construction of this
Agreement.
34
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
EMERGING ALPHA CORPORATION
By: /S/ JERRY W. JARRELL
----------------------------------------------
Jerry W. Jarrell, Chief Financial Officer
GAS JACK, INC.
By: /S/ JERRY W. JARRELL
----------------------------------------------
Jerry W. Jarrell, Chief Financial Officer
HIBERNIA NATIONAL BANK
By: /S/ NANCY MORAGAS
----------------------------------------------
Printed Name: Nancy Moragas
Title: Assistant Vice President
