CREDIT AGREEMENT DATED AS OF MARCH 31, 2013,
BUT MADE EFFECTIVE AS OF APRIL 16, 2013, BY AND AMONG
PETRON ENERGY II,INC., PETRON ENERGY II PIPELINE,INC., ANDPETRON ENERGY II WELL SERVICE, INC., COLLECTIVELY, ASBORROWERS,
AND
TCA GLOBAL CREDIT MASTER FUND, LP, AS LENDER
CREDIT AGREEMENT
This CREDIT AGREEMENT (this “Agreement”), dated as of March 31, 2013, butmade effective as of April 16, 2013 (the“EffectiveDate”), is executed by and amongPETRON ENERGYII,INC., a Nevada corporation (the “IssuingBorrower”),PETRONENERGYII PIPELINE,INC.,aTexascorporation,andPETRONENERGYIIWELLSERVICE,INC., aTexascorporation(eachoftheforegoing,includingtheIssuingBorrower,hereinafter sometimes individually referred to as a“Borrower” and all such entities sometimes hereinafter collectively referred toas “Borrowers” or the“CreditParties”), andTCAGLOBALCREDIT MASTERFUND,LP(“Lender”).
WHEREAS, Borrowers have requested that Lender extend a revolving credit facility to Borrowersof up to Five Million and No/100 Dollars ($5,000,000.00) for the purposes permitted hereunder;andforthesepurposes,Lenderiswillingtomakecertainloansandextensionsof credit to Borrowers of up to such amount and upon the terms and conditions set forth herein; and
WHEREAS,Borrowershaveagreed tosecureallof theirobligationsunderthe Loan DocumentsbygrantingtoLenderafirstprioritysecurityinterest inandLienuponalloftheir existing and after-acquired personal and real property; and
WHEREAS, in connection with the loans and extensions of credit to bemade by Lender pursuanttothisAgreement,theofficersanddirectorsoftheBorrowersarewillingtoexecute validity guarantees in favor of Lender in connection with the Borrowers’obligationsunderthe Loan Documents;
NOW, THEREFORE, in consideration of thepremisesandthemutualcovenants hereinafter contained, and for other good and valuable consideration, the parties hereto agree asfollows:
1. DEFINITIONS.
1.1DefinedTerms.ForthepurposesofthisAgreement,thefollowingcapitalized words and phrases shall have themeanings set forth below.
(a)“Account”shallmean,individually,and“Accounts”shallmean, collectively,any and all accounts (as such termisdefined in the UCC) of each of the Borrowers.
(b)“Affiliate” (a) of Lender shallmean: (i) any entity which, directly or indirectly,controlsoriscontrolledbyorisundercommoncontrolwithLender;and(ii)any entityadministeredormanagedbyLender, or anAffiliateor investmentadvisorthereof and whichisengagedinmaking,purchasing,holdingorotherwiseinvestingincommercialloans; and(b)ofaBorrowershallmeanany entitywhich,directlyorindirectly,controlsor iscontrolled byorisundercommoncontrolwith anyBorrower.WithrespecttoanAffiliateofLenderoran AffiliateofBorrowers,anentityshallbedeemedtobe“controlledby”anotherentityifsuch other entity possesses, directly or indirectly, power to direct or cause the direction of themanagementand policies of such entity, whether by contract, ownership of voting securities,membership interests or otherwise.
(c) “Agreement”shallmeanthisCreditAgreementbyandamongBorrowers and Lender.
(d)“AncillaryOilandGasAgreements”shallmeanallcontractsor agreementsunderwhichanyBorrowerhasrights toenterland,explore,developorproduce MineralProducts,sellMineralProducts,oranyothercontracts oragreements,writtenororal, whethernowexistingorhereaftercreated,thatinanywayarerelatedtoorotherwiseconnected to any of the foregoing or to any Borrower Leases or any Oil and Gas Purchase Agreements.
(e)“Borrower”and“Borrowers”shallhavethemeaninggiventosuchterms in the preamble hereof.
(f) “BorrowerLeases”shallmeantheoilandgasleasesandleasehold estates ofthe Borrowersidentified inExhibit “A”attachedhereto.
(g)“BorrowingBaseAmount”shallmean,iftheReserveAmounthasnot beenfullycollectedbyLenderasof thedatetheBorrowingBaseAmountiscalculated,thenan amount,expressedinDollars,equaltoeightypercent(80%)of theamountoffundsthen availableandclearedintheLockBoxAccount asofthedatetheBorrowingBaseAmountis calculated, less the Reserve Amount, less any interest or fees then due and payable to Lender underthisAgreement.IftheReserveAmounthasbeenfullycollectedbyLenderintheLock BoxAccountasofthedatetheBorrowingBaseAmountiscalculated,then“BorrowingBaseAmount” shallmean an amount, expressed in Dollars, equal to one hundred percent (100%) of the amount of funds then available and cleared in the Lock Box Account as ofthe date the BorrowingBaseAmountiscalculated,lesstheReserveAmount,lessanyinterestorfeesthen due and payable to Lender under this Agreement.
(h) “BorrowingBaseCertificate” shallmean a certificate delivered by LendertoBorrowersfromtimetotimeinaformacceptabletoLender, pursuantto whichthe formula and calculation of the Borrowing Base Amount ismade.
(i)“BusinessDay”shallmeananydayotherthanaSaturday,Sundayora legal holiday on which banks are authorized orrequired to be closed for the conduct of commercial banking business inthe State of Florida.
(j)“CapitalExpenditures”shallmeanexpenditures(includingCapital Lease obligations which should be capitalized under GAAP) for the acquisition of fixed assets which are required to be capitalized under GAAP.
(k)“CapitalLease”shallmean,astoanyPerson,aleaseofanyinterestin anykindofpropertyorasset,whetherreal,personalormixed,or tangibleorintangible,bysuch Person as lessee that is, or should be, in accordance with GAAP, recorded as a “capital lease” on the balance sheets of any Borrower.
(l)“ChangeinControl”shallmeananysale,conveyance,assignmentor othertransfer,directlyorindirectly, of any ownership interest of anyBorrower,whichresultsin anychangeintheidentityoftheindividualsorentitiespreviouslyinControlofsuch Borroweror thegrantofasecurityinterestinanyownershipinterestofanyPerson,directlyorindirectly
ControllinganyBorrower,whichcouldresultinachangeintheidentityoftheindividualsor entitiespreviously in Control ofsuchBorrower.
(m)“ClosingDate” shall mean the date upon which the first Revolving Loan hereunder is initially funded.
(n)“Collateral”shallmean,collectively,andwhethernowexistingor hereafter arising, all assets which secure the Loans, including, without limitation, all existing and after-acquiredtangibleandintangibleassetsandpropertyofeachoftheBorrowers,including realpropertyownedbyeachoftheBorrowers, theBorrowerLeases,theOilandGasPurchase Agreements, and the Ancillary Oil and Gas Agreements, with respect to which each of the Borrowers grant to Lender a Lien under the terms of the Security Agreement and any of the other Loan Documents.
(o)“CommonStock” shallmean the common stock of the Issuing Borrower, par value $0.001 per share.
(p)“ComplianceCertificate” shallmean the covenant compliance certificate contemplated bySection 10.11 hereof, the formof which is attached hereto asExhibit “B”.
(q)“ConfessionofJudgment”shallmeantheconfessionofjudgment executedbytheBorrowersinfavoroftheLender,theformofwhichisattachedheretoasExhibit “C”.
(r)“ContingentLiability”and“ContingentLiabilities” shallmean, respectively,eachobligationandliabilityofBorrowersandallsuch obligationsandliabilitiesof Borrowers incurred pursuant to any agreement,undertaking or arrangement by which Borrowers, oranyoneofthem,either:(i)guarantee,endorse orotherwisebecomeorarecontingentlyliable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supplyfundsto,orotherwisetoinvestin,adebtor,orotherwisetoassureacreditoragainst loss) the indebtedness, dividend, obligation or other liability of any other Person in any manner (other thanbyendorsementofinstrumentsinthecourseofcollection), includingwithoutlimitation,any indebtedness, dividend or other obligation whichmay be issued or incurred at somefuture time; (ii) guarantee the payment of dividends or other distributions upon the shares or ownership interestofanyotherPerson;(iii)undertakeoragree(whethercontingentlyorotherwise):(A) to purchase, repurchase, orotherwiseacquireanyindebtedness,obligationorliabilityofanyother Personoranypropertyorassetsconstitutingsecuritytherefor;(B)toadvanceorprovidefundsforthepaymentordischargeof anyindebtedness,obligationorliabilityof anyotherPerson (whetherintheformofloans,advances,stockpurchases,capitalcontributionsorotherwise),or tomaintainsolvency,assets,levelof income,workingcapitalorotherfinancialconditionofany otherPerson;or(C)tomakepaymenttoanyotherPerson otherthan forvaluereceived;(iv) agree to lease property or to purchase securities, property or services from such other Person withthepurposeorintentof assuringtheownerof suchindebtednessorobligationof theability of such other Person tomake payment of the indebtedness or obligation; (v) to induce the issuanceof,orinconnectionwiththeissuanceof,anyletterofcreditforthebenefitofsuchother Person;or(vi)undertakeoragree otherwisetoassureacreditor againstloss. Theamountofany Contingent Liability shall (subjecttoanylimitationsetforthherein)bedeemedtobethe
outstandingprincipalamount(ormaximumpermittedprincipalamount,iflarger)ofthe indebtedness, obligation or other liability guaranteed or supported thereby.
(s)“Control”or“Controlling”shallmeanthepossessionofthepowerto direct, or cause the direction of, themanagement and policies of a Person by contract, voting of securities, or otherwise.
(t) “CreditParties”shallhavethemeaninggiventoitinthepreamble hereof.
(u) “Customer”shallmeananyPersonwhoisobligatedtoanyBorrowerfor any Receipts.
(v)“DefaultRate” shallmean a per annumrate of interest equal to the highest rate permitted byapplicable law.
(w)“Depreciation” shallmean thetotal amounts added to depreciation, amortization,obsolescence,valuationandother properreserves,asreflectedonanyBorrower’s financial statements and determined in accordance with GAAP.
(x) “Dollars”or“$”means lawful currency of the United StatesofAmerica.
(y) “EBIDTA”shallmean,foranyperiod,thesum ofthefollowing:(i)Net Income (excluding extraordinary and unusual itemsand income or loss attributable to aminority equitypositioninanyaffiliatedcorporationorSubsidiary)forsuchperiod;plus (ii)interest expense;plus(iii)incomeandfranchisetaxespayable or accrued;plus (iv) Depreciation for such period;plus (v) all other non-cash charges; plus (vi)managementfees;plus (vii) costs, fees and expensesincurredinconnectionwith, or otherwise associated with,theclosingofthetransaction contemplatedbythisAgreement;plus(viii)depletion (calculated in accordance with GAAP);minus(ix)thatportionofNetIncomearisingoutofthesaleofassets outsideoftheOrdinary Courseof Business(totheextentnotpreviously excludedunderclause(i)of thisdefinition),in each case to the extent included indetermining Net Income for such period.
(z) “EffectiveDate”shallhavethemeaninggiventoitinthepreamble hereof.
(aa)“EmployeePlan” includes any pension, stock bonus, employee stock ownership plan, retirement, disability,medical,dentalorotherhealth plan, life insurance or other death benefit plan, profit sharing, deferred compensation, stock option, bonus or other incentive plan, vacation benefit plan, severanceplanorotheremployeebenefitplanorarrangement, including, without limitation, those pension, profit-sharing and retirement plans of Borrowers describedfrom timetotimeinthefinancialstatementsofeachBorrowerandanypensionplan, welfareplan,DefinedBenefitPensionPlans(as definedinERISA)oranymulti-employerplan,maintainedoradministeredbyanyBorrowerortowhichanyBorrowerisapartyormayhave any liability or by which any Borrower is bound.
(bb)“EnvironmentalLaws” shallmean all federal, state,district, local and foreignlaws,rules,regulations,ordinances,andconsentdecreesrelatingtohealth,safety,
hazardoussubstances,pollutionand environmentalmatters, asnoworatanytimehereafterin effect,applicabletoBorrowers’businessor facilitiesownedoroperatedbyanyBorrower, includinglawsrelating toemissions,discharges,releasesorthreatenedreleasesofpollutants, contamination, chemicals, or hazardous, toxic or dangerous substances,materials or wastes in the environment (including, without limitation,ambientair,surfacewater,landsurfaceorsubsurface strata) or otherwise relating to the generation,manufacture, processing, distribution, use, treatment, storage, disposal, transport or handlingof Hazardous Materials.
(cc) “ERISA”shallmeantheEmployeeRetirementIncome SecurityActof 1974, as amended fromtime to time.
(dd) “EventofDefault”shallmeananyoftheeventsorconditionssetforthin Section 12 hereof.
(ee)“ExchangeAct” shallmean the SecuritiesExchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
(ff)“FundedIndebtedness”shallmean,astoanyPerson,without duplication:(i)allindebtednessforborrowedmoney ofsuchPerson(includingprincipal,interest and, if not paid when due, fees and charges), whether or not evidencedbybonds,debentures, notesorsimilarinstruments;(ii)allobligations topaythedeferredpurchasepriceofpropertyor services; (iii) all obligations, contingent or otherwise, with respect to themaximum face amount ofalllettersofcredit(whetherornotdrawn),bankers’acceptancesandsimilarobligations issuedfortheaccountofsuchPerson(includingtheLettersofCredit),andallunpaiddrawings inrespectofsuchlettersofcredit, bankers’acceptancesandsimilarobligations;and(iv)all indebtedness secured by any Lien on any property owned by such Person, whether or not such indebtednesshasbeenassumedbysuchPerson (provided,however, if such Person has not assumedorotherwisebecomeliable in respect of such indebtedness, such indebtedness shall be deemedtobeinanamountequaltothefairmarketvalueofthepropertysubject tosuch Lien at thetimeofdetermination).Notwithstanding theforegoing,FundedIndebtednessshallnot includetradepayablesandaccrued expenses incurred by suchPersoninaccordancewith customary practices and in the Ordinary Course of Business of such Person.
(gg)“GAAP” shallmean United States generally accepted accounting principlessetforthfrom timetotimeintheopinionsandpronouncementsoftheAccounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncementsoftheFinancialAccountingStandardsBoard(oragencieswithsimilar functions of comparable stature and authority within the U.S. accounting profession), which are applicable to the circumstances as of the date of determination;provided,however, that interimfinancialstatements or reports shall be deemed in compliance with GAAP despite the absence of footnotes and fiscal year-end adjustments as required by GAAP.
(hh)“GovernmentalAuthority”means any foreign, federal, state or local government,oranypoliticalsubdivisionthereof,oranycourt,agencyorotherbody, organization,group,stockmarketor exchange exercising any executive,legislative,judicial, quasi-judicial, regulatory or administrative function of government.
(ii)“HazardousMaterials” shallmean any hazardous, toxicor dangerous substance,materials and wastes, including, without limitation, hydrocarbons (including naturally occurringorman-madepetroleum andhydrocarbons),flammableexplosives,asbestos,urea formaldehydeinsulation,radioactivematerials, biologicalsubstances,polychlorinatedbiphenyls, pesticides,herbicidesandanyotherkindand/or typeofpollutantsorcontaminants(including, without limitation,materials which includehazardousconstituents),sewage,sludge,industrial slag, solvents and/or any other similar substances,materials or wastes that are or become regulated under any Environmental Law (including, without limitation, any that are or become classified as hazardousor toxic under any Environmental Law).
(jj) “InterestRate”shallmeanafixedrateofinterestequaltoElevenPercent
(11%) per annum, calculated on the actual number of days elapsed over a 360-day year. (kk) “Lender” shall have themeaning given to it in the preamble hereof.
(ll)“Liabilities”shallmean,atalltimes,allliabilitiesof Borrowersthat wouldbeshownassuchonthebalancesheetsof eachBorrowerpreparedinaccordancewith GAAP.
(mm)“Lien”shallmean,withrespectto anyPerson,anymortgage,pledge, hypothecation,judgmentlienorsimilarlegalprocess, titleretentionlien,orotherlienorsecurity interest granted by such Person or arising by judicial process or otherwise, including, without limitation,theinterestofavendorunderanyconditionalsaleorothertitleretention agreement and the interest of a lessor undera lease of any interest in any kind of property or asset, whether real, personal ormixed, or tangible or intangible, by such Person as lessee that is, or should be, a Capital Lease on the balancesheet of such Person preparedinaccordancewithGAAP.
(nn)“Loan”or“Loans”shallmeantheaggregateofallRevolvingLoansmade by Lender to Borrower under andpursuant to this Agreement.
(oo) “LoanDocuments”shallmeanthosedocuments listedinSections3.1and
3.2hereof,andanyotherdocumentsorinstruments executed in connection with this Agreement or the Revolving Loans contemplated hereby,and all renewals, extensions, future advances, modifications, substitutions, or replacements thereof.
(pp)“MaterialAdverseEffect”shallmean:(i)amaterialadversechangein, oramaterialadverseeffectupon,theassets,business,prospects,properties,financialcondition or results of operations of any Borrower, individually, or all Borrowers, collectively; (ii) amaterialimpairmentoftheabilityofanyBorrower,individually,orallBorrowers,collectively, toperformanyoftheirrespectiveObligationsunderanyoftheLoanDocuments;(iii)amaterial adverseeffecton:(A)anymaterialportionof theCollateral; (B) thelegality,validity,binding effectorenforceabilityagainstanyBorrowerofanyoftheLoanDocuments;(C)theperfection orpriority(subjecttoPermittedLiens)ofanyLiengrantedtoLenderunderanyLoanDocument; or(D)therightsorremedies ofLenderunderanyLoanDocument;or(iv)amaterialadverse effectorimpairmentontheLender’sabilitytosellAdvisoryFeeSharesorothersharesof Issuing Borrower’s Common Stock issuable toLender under anyLoan Documents without limitationor restrictioninthePrincipalTradingMarket. Forpurposesofdeterminingwhether
anyoftheforegoingchanges,effects,impairments,orothereventshaveoccurred,such determination shall be made by Lender, in itssole, but reasonablyexercised, discretion.
(qq)“MaterialContract”shallmean any contract or agreement to which any Borrower is a party or by which any Borrower or any of their respective assets are bound and which: (i) must be disclosed to the SEC orany other Governmental Authority pursuant to the SecuritiesAct,theExchangeAct,therulesandregulationsoftheSEC,oranyotherlaws,rules orregulationsofanyGovernmentalAuthority; (ii)involvesaggregatepaymentsofTwenty-Five ThousandDollars($25,000)ormoretoorfromanyBorrower;(iii)involvesdelivery,purchase, licensingorprovision,byortoanyBorrower,ofanygoods,services,assetsorotheritems havingavalue(orpotentialvalue)overthe termofsuchcontractoragreementofTwenty-five Thousand Dollars ($25,000) ormore or is otherwisematerialtotheconduct of any Borrower’s businessasnowconductedandascontemplatedto beconductedinthefuture;(iv)involvesa BorrowerLease,an OilandGasPurchaseAgreement,oranyAncillaryOiland GasAgreements; (v)imposesanyguaranty,suretyorindemnification obligations on any Borrower; or (vi) prohibits any Borrower fromengaging in any business or competing anywhere in the world.
(rr)“MineralProducts”shallmeanoil,gasorothermineralsorother substances extracted from the Earth,and all byproductsrelated thereto.
(ss) “NetIncome”shallmean,withrespecttoanyperiod,theamountshown opposite the caption “Net Income” or a similar caption on the financial statements of any Borrower, prepared in accordance with GAAP.
(tt)“Obligations” shallmean all loans, advances and other financial accommodations (whether primary, contingent or otherwise), all interest accrued thereon (includinginterestwhichwouldbe payableaspost-petitioninconnectionwithanybankruptcyor similarProceeding,whetherornotpermittedasaclaim thereunder), and anyfeesduetoLender under this Agreement or the other Loan Documents, any expenses incurred by Lender under this Agreement or the other Loan Documents, andanyand all other liabilities and obligations of each of the Borrowers to Lender, and the performance by each of the Borrowers of all covenants, agreementsandobligationsofeverynatureandkindon thepartofBorrowerstobeperformed under this Agreement and any other Loan Documents.
(uu)“OilandGasPurchaseAgreements” shallmean all agreements, whether writtenororal,andwhethernowexisting or hereafter created, forthesaleofMineralProducts, includingsuchagreementsinexistenceasof the Closing Date with High SierraCrude Oil & Marketing.
(vv)“OrdinaryCourseofBusiness”means the ordinary course of business consistentwithpastcustom andpractice(includingwithrespecttoquantity,qualityand frequency).
(ww) “PaymentDate”shallhave themeaninggiventoitinSection2.1(c)hereof.
(xx) “PermittedLiens”shallmean:(i)LiensforTaxes,assessmentsorother governmentalchargesnotatthetimedelinquentorthereafterpayablewithoutpenaltyorbeing
contested in good faith by appropriate proceedingsand, in each case, for which adequate reserves aremaintainedinaccordancewithGAAPandinrespectofwhichnoLienhasbeen filed;(ii) Liens of carriers, warehousemen,mechanics andmaterialmen arising in the Ordinary Course of BusinessandothersimilarLiensimposedbylaw;(iii)Liensintheform ofdepositsorpledges incurredinconnectionwithworker’scompensation,unemploymentcompensationandother typesofsocialsecurity(excludingLiensarisingunderERISAorinconnectionwithsurety bonds, bids, performance bonds and similar obligations) for sums not overdue or being contested ingoodfaithbyappropriateproceedingsandnot involvinganyadvancesorborrowedmoneyor thedeferred purchasepriceofproperty orservices, whichdonotintheaggregatematerially detractfromthevalueofthepropertyorassets ofanyBorrowertakenasawholeormaterially impairtheusethereof intheoperationof anyBorrower’sbusinessand,ineachcase,forwhich adequatereservesaremaintainedinaccordance withGAAPandinrespectofwhichnoLienhas beenfiled;(iv)Liensdescribed intheFinancialStatements andthereplacement,extensionor renewalofanysuchLienuponorinthesamepropertysubjecttheretoarisingoutofthe extension, renewal or replacement of the indebtedness secured thereby (without increase in the amountthereof);(v) attachments,appealbonds,judgmentsandothersimilarLiens,forsumsnot exceeding FiftyThousandand00/100Dollars($50,000)arisingin connection withcourt proceedings,providedtheexecutionorotherenforcementofsuchLiensiseffectivelystayedand the claimssecuredtherebyarebeingactively contested in good faithandbyappropriate proceedingsandtotheextentsuch judgmentsorawardsdo notconstitute an Event of Default; (vi)zoning andsimilarrestrictionsontheuseofpropertyandeasements,rightsofway, restrictions,minordefectsorirregularities in titleandother similarLiensnotinterferinginanymaterialrespectwiththeordinaryconductofthe businessofanyBorrower;(vii)Liensarisingin connectionwithCapitalLeases(and attachingonlytothepropertybeingleased);(viii)Liensthat constitutepurchasemoneysecurityinterestson anypropertysecuringindebtednessincurredfor thepurposeoffinancingalloranypartofthecostofacquiringsuchproperty,provided that any suchLien attaches tosuchpropertywithinsixty(60)daysoftheacquisitionthereofandattaches solely to the property so acquired; (ix) Liens granted to Lender hereunder and under the Loan Documents; (x) any interest or titleofalessor,sublessor,licensororsublicensorunderanylease ornon-exclusivelicensepermitted bythisAgreement;(xi)Liensarisingfromprecautionary uniform commercialcodefinancing statementsfiledunder any leasepermitted by this Agreement;and(xii)banker’sLiensandrightsof set-offoffinancialinstitutionsarisingin connectionwithitemsdepositedinaccountsmaintained at such financial institutions and subsequentlyunpaidandunpaidfeesandexpenses that are charged to any Borrower by suchfinancial institutions in the Ordinary Course of Business of themaintenance andoperation of such accounts.
(yy)“Permit”meansanylicense,permit, approval,waiver,order, authorization,rightorprivilegeofanynaturewhatsoever,granted,issued,approvedorallowed by any Governmental Authority.
(zz)“Person”shallmeananyindividual,partnership,limitedliability company,limitedliabilitypartnership,corporation, trust,jointventure,jointstockcompany, association, unincorporated organization, government or agency or political subdivision thereof, or other entity.
(aaa) “PrincipalTradingMarket”shallmeantheNasdaqGlobalSelect Market,theNasdaqGlobalMarket,theNasdaqCapitalMarket,theOTCBulletinBoard,the OTC Markets, the NYSE Euronext, the NYSE Market, or any other nationally recognized tradingorexchangemarketacceptabletoLender, whicheverisatthetimetheprincipaltrading exchange ormarket for the Common Stock.
(bbb) “Proceeding”meansanydemand,claim,suit,action,litigation, investigation,audit,study, arbitration, administrative hearing,oranyotherproceedingofany nature whatsoever.
(ccc)“RealProperty”meansanyrealestate, land,building,structure, improvement, fixture or other real property of any nature whatsoever, including, but not limited to, fee and leasehold interests.
(ddd)“Receipts” shallmean all revenues, receipts, receivables, Accounts, collections or any other funds at any time received or receivable by any Borrower, or otherwise owing to any Borrower, in connection with its business, operations or from any other source.
(eee) “ReceiptsCollectionFee”shallmeanasurchargeof1.20%ofall
Receiptsdeposited into the Lock Box Account.
(fff)“RegulatoryChange”shallmeantheintroductionof,oranychangein any applicable law, treaty, rule, regulation or guideline or in the interpretation or administration thereof by any Governmental Authority or any central bank or other fiscal,monetary or other authority having jurisdiction over Lender or its lending office.
(ggg)“ReserveAmount” shallmean an amount, expressed in Dollars, equal to twenty percent (20%) ofthe then applicable Revolving Loan Commitment.
(hhh)“RevolvingLoan” and “RevolvingLoans” shallmean, respectively, each directadvance,andtheaggregateofallsuchdirectadvances,madebyLendertoBorrowers under and pursuant toSection 2.1 ofthis Agreement.
(iii) “RevolvingLoanAvailability” shallmean at any time the then applicable
RevolvingLoan Commitment.
(jjj)“RevolvingLoanCommitment”shallmean,ontheClosingDate,Four Hundred Fifty Thousand and No/100 Dollars ($450,000.00), and in the event Borrowers request and Lender agrees to increase the Revolving Loan Commitmentpursuant toSection 2.1(b), thereafter,shallmeantheamounttowhichLenderagreestoincreasetheRevolvingLoan Commitment,up to Five Million and No/100Dollars ($5,000,000.00), all as applicable pursuant toSection 2.1(b).
(kkk)“RevolvingLoanMaturityDate”shallmeantheearlierof:(i)six(6) monthsfromtheClosingDate;(ii)uponprepaymentoftheRevolvingNotebyBorrowers (subjecttoSection2.1(d)(ii));or(iii)theoccurrenceofanEventofDefaultandaccelerationof theRevolvingNotepursuanttothis Agreement,unlessthedateinclause(i)shallbeextended pursuanttoSection2.3orbyLenderpursuanttoanymodification,extension orrenewalnote
executedbyBorrowersandacceptedbyLenderinitssoleandabsolutediscretioninsubstitution for the Revolving Note.
(lll)“RevolvingNote”shallmeanthatcertainRevolvingNoteintheprincipal amountoftheRevolvingLoanCommitmentofevendateherewithmadebyBorrowersinfavor ofLender,informsubstantiallysimilartothatofExhibit“D”attachedhereto,andanyrenewal, extension, future advance,modification, substitution, or replacement thereof.
(mmm)“SEC” shallmean the United StatesSecurities and Exchange Commission.
(nnn) “SecuritiesAct” shall mean the Securities Act of 1933, as amended.
(ooo)“SecurityAgreement”shallmeanaSecurityAgreementinfavorof
Lender, informsubstantiallysimilarto that ofExhibit “E”attached hereto.
(ppp)“Subsidiary”and“Subsidiaries”shallmean,respectively,eachandall suchcorporations,partnerships,limitedpartnerships,limited liabilitycompanies,limitedliability partnershipsorotherentitiesofwhichorinwhichaPerson owns,directlyorindirectly,fifty percent(50%)ormoreof:(i)thecombinedvotingpowerofallclasses ofstockhavinggeneral votingpowerunderordinarycircumstancestoelect amajorityoftheboardofdirectorsofsuch entityifacorporation;(ii)themanagementauthorityandcapitalinterestorprofitsinterestof suchentity, ifapartnership,limitedpartnership,limitedliabilitycompany,limitedliability partnership, jointventure orsimilarentity;or(iii) thebeneficialinterestofsuchentity, ifatrust, association or other unincorporatedorganization.
(qqq)“UCC”shallmeantheUniformCommercialCodeineffectinNevadafromtimetotime.
(rrr)“ValidityGuaranties”shallmeanthevalidityguarantiesexecutedby such officers and directors of Borrowers as Lender shall require, in Lender’s sole discretion, which shall be substantially in theformofExhibit “F”attached hereto.
1.2AccountingTerms.AnyaccountingtermsusedinthisAgreementwhicharenot specificallydefinedhereinshallhavethemeaningscustomarilygiventhem inaccordancewith GAAP.Calculationsanddeterminationsof financialandaccountingtermsusedandnot otherwisespecificallydefinedhereunderandthe preparationoffinancialstatementstobe furnishedtoLenderpursuantheretoshallbemadeandprepared,bothasto classificationofitems and as to amount, in accordance with GAAP, as used in the preparation of the financial statementsofanyBorroweron thedate ofthisAgreement.Ifany changesin accounting principlesorpracticesfrom thoseusedinthepreparationofthefinancialstatementsarehereafter occasionedbythepromulgationof rules,regulations,pronouncementsandopinionsbyor requiredby theFinancialAccountingStandardsBoardortheAmericanInstituteofCertified Public Accountants (or any successor thereto or agencies with similar functions), which results in amaterialchangeinthemethodofaccountingin thefinancialstatementsrequired tobe furnishedtoLenderhereunderor inthecalculationoffinancialcovenants,standardsorterms containedinthisAgreement,thepartieshereto agreetoenterintogoodfaithnegotiationsto amendsuchprovisionssoasequitablytoreflectsuchchangestotheendthatthecriteriafor
evaluating the financial condition andperformanceofeachBorrowerwillbethesameaftersuch changesastheywerebeforesuchchanges;and if thepartiesfailtoagreeontheamendmentof suchprovisions,Borrowerswillfurnishfinancialstatementsinaccordancewithsuchchangesbut shallprovidecalculationsforallfinancialcovenants,perform allfinancialcovenantsand otherwiseobserveallfinancialstandardsand termsinaccordancewithapplicableaccounting principlesandpracticesineffectimmediatelypriortosuchchanges. Calculationswithrespectto financial covenants required to be stated inaccordancewithapplicableaccountingprinciplesand practicesin effectimmediatelypriortosuchchangesshallbereviewedand certifiedby Borrowers’accountants.
1.3OtherTermsDefinedinUCC.Allotherwordsandphrasesusedhereinandnot otherwise specifically defined shallhave the respectivemeanings assigned to such terms in the UCC, asamended fromtime to time, to the extent the same are used or defined therein.
1.4OtherDefinitionalProvisions;Construction.Wheneverthecontextsorequires, theneutergenderincludesthemasculineandfeminine,thesinglenumberincludestheplural, andviceversa.Thewords“hereof”,“herein”and“hereunder”andwordsofsimilarimportwhen usedinthisAgreementshallrefertothisAgreementasawholeandnottoanyparticular provision of this Agreement, and references to Article, Section, Subsection, Annex, Schedule, Exhibitand likereferencesare referencesto thisAgreementunlessotherwisespecified. Wherevertheword“include,”“includes”or“including”isusedin thisAgreement,itwillbe deemed to be followed by the words “without limitation.”An Event of Default shall “continue” orbe“continuing”untilsuchEventofDefaulthasbeen waivedin accordancewithSection 14.3 hereof.ReferencesinthisAgreementtoany party shallincludesuch party’s successors and permittedassigns.Referencestoany“Section”shallbea referencetosuchSectionof this Agreementunlessotherwisestated.Theterm “Borrower”or“Borrowers”shallrefercollectively tothe IssuingBorrowerandallof its Subsidiariesfromtimetotimeinexistence,whethermadea part of this Agreement or not, and to each of them individually, in each case as the contextmay so require, it being the intent ofthe parties under this Agreement thatalloftheterms,conditions, provisionsandrepresentationshereof shall,tothegreatestextentpossible,applyequallytoeach ofthem,asifeachterm,covenant,provision andrepresentationwasseparatelymadehereinby each of them, exceptonly with respect to any terms andprovisions that dealdirectly with the issuanceofanyCommon StockoftheIssuingBorrower,inwhichcasetheterm Borrowershallmean and refer only to the Issuing Borrower. To the extent any of the provisions of the other Loan Documents are inconsistent with the terms of this Agreement, the provisions of this Agreement shall govern.
2. REVOLVING LOAN FACILITY.
2.1RevolvingLoan.
(a)RevolvingLoanCommitment.Subjecttothetermsandconditionsofthis AgreementandtheotherLoanDocuments, and in reliance upon the representationsand warrantiesofBorrowerssetforthhereinandintheotherLoanDocuments,LenderagreestomakesuchRevolvingLoansatsuch timesasBorrowersmayfrom timetotimerequest,pursuant tothetermsofthisAgreement,until,butnotincluding,theRevolvingLoanMaturityDate,and in such amounts asBorrowers may from time to time request up to the Revolving Loan
Availability(andsubjectatall timestotheamountsavailabletobeborrowedinaccordancewith theBorrowingBaseCertificate);provided,however,thatthe aggregateprincipalbalanceof all RevolvingLoansoutstandingatanytimeshallnotexceedtheRevolving LoanAvailability;and furtherprovided,however, that, notwithstanding anything contained in this Agreement or any other Loan Documents to the contrary, each Revolving Loan requested by Borrowers under this AgreementshallbesubjecttoLender’sapproval, whichapprovalmaybe givenorwithheldin Lender’s sole and absolute discretion.RevolvingLoansmadebyLendermayberepaidand, subject to the terms and conditions hereof, borrowed again up to, but not including, the RevolvingLoanMaturityDate,unlesstheRevolvingLoansareotherwiseterminatedor extended as provided in this Agreement. The Revolving Loans shall be used by Borrower for the specific purposes permitted hereunder and for no other purpose.
(b)IncreasetoRevolvingLoanCommitment.Borrowersmayrequest,from timetotime,thattheRevolvingLoanCommitmentbeincreasedtoup toFiveMillionDollars ($5,000,000); and Lender, in its sole discretion,maymake available Revolving Loan Commitmentincreases toBorrowers.Lender’selection toincreasetheRevolvingLoan Commitmentfrom timetotimemaybegrantedordeniedbyLenderinitssoleandabsolute discretion,however,ataminimum, thefollowing conditionsmustbesatisfied,inLender’ssole and absolutediscretion:
(i) noEventofDefaultshallhaveoccurredorbecontinuing,orresultfromthe applicable increase ofthe Revolving Loan Commitment;
(ii) Borrowersshallhaveexecutedanddeliveredaneworrevised RevolvingNote;
(iii)After giving effect to such increase, the amountof the aggregate outstandingprincipalbalanceofallRevolvingLoansshallnotbeinexcessoftheRevolving Loan Availability; and
(iv) Lendershallhavereviewedandaccepted,initssoleandabsolute discretion,theamountandtypeof currentandhistoricalReceiptsoftheBorrowers,orother Collateral requiredfor the increase.
(c)RevolvingLoanInterestandPayments.Exceptasotherwiseprovided in this Section, the outstanding principal balance of the Revolving Loans shall be repaid on or before the Revolving Loan Maturity Date.Principalamountsrepaidon theRevolvingNotemay bere-borrowed.TheprincipalamountoftheRevolvingLoansoutstandingfromtimetotime shallbearinterestattheInterestRate.TheReceiptsCollectionFee,accruedandunpaidinterest on the unpaid principal balance ofallRevolvingLoansoutstandingfrom time to time, and other feesandchargesduehereundershallbepayableonaweeklybasisontheweeklyanniversary date of the Closing Date, or such other date as Lender and Borrowersmayagreeupon(provided, however,ifnosuchotheragreementismadeor reached, thenontheweeklyanniversarydateof the Closing Date), commencing on thefirstsuchdate tooccurafterthedate hereof andonthe Revolving Loan Maturity Date (each a“PaymentDate”). Anyamount of principal or interest on the Revolving Loans which is not paid when due, whether at stated maturity, by acceleration or otherwise, shall at Lender’soption bear interest payableon demand at the Default Rate.
(d)RevolvingLoan Principal Repayments.
(i)MandatoryPrincipalPrepayments;Overadvances.AllRevolving Loans hereunder shallbe repaid by Borrowerson or before the Revolving Loan Maturity Date, unlesspayablesoonerpursuanttotheprovisionsofthisAgreement.Intheeventtheaggregate outstanding principal balance of all Revolving Loans hereunder exceed the Revolving Loan Availability,Borrowersshall,uponnoticeordemandfrom Lender,immediatelymakesuch repayments of the Revolving Loans or take such other actions as shall be necessary to eliminate suchexcess.LendershallapplyfundsreceivedintotheLockBoxAccountinaccordancewith Section 2.1(e) below.
(ii)OptionalPrepayments.Borrowersmay,fromtimetotime,prepay the Revolving Loan, in whole or in part,provided,however, that if prior to the Revolving Loan MaturityDate,BorrowersprepaytheentireoutstandingamountoftheRevolvingLoaninfull and then terminate the RevolvingLoan Commitment, Borrower shall pay to Lender as liquidated damages and compensation for the costs of being preparedtomakefundsavailablehereunder,an amountequaltoFivePercent(5%)ofthethen applicableRevolvingLoanCommitment(the “PrepaymentPenalty”).Thepartiesagreethattheamount payablepursuanttothissubsection (ii)isareasonablecalculationofLender’slostprofitsinviewofthedifficultiesand impracticalityofdeterminingactualdamagesresultingfromanearlyterminationof the RevolvingLoanCommitment.Notwithstandingthe foregoing,thePrepaymentPenaltyshallbe reduced to Two and One-Half percent (2.5%) if the prepayment and termination of the RevolvingLoanCommitmentoccursafterthefirstOne-HundredEighty(180)daysfollowing the Closing Date.
(e)Collections;LockBox.
(i)TotheextentanyCustomersmakeorpayany Receiptstoany Borrowerbyawiretransferorotherform ofelectronicfundstransfer,theneachBorrowershall directandinstructallofsuchCustomerstomake allsuchwiretransferorotherelectronicfund transfer payments directly tothe Lock Box Account.To the extent any Customersmake or pay any Receipts to any Borrower by any other form other than wire transfer or electronic funds transfer(suchasthrough acheck), theneach BorrowershalldirectallofitsCustomerstomake andsendallsuchpaymentsandReceiptsdirectlytoapostofficeboxdesignatedby,andunder theexclusivecontrolof,Lender(suchpost officeboxisreferredtohereinasthe“LockBox”).EachBorrowerherebyagreestoundertakeany andallrequiredactions,executeanyrequired documents,instrumentsoragreements,ortootherwisedoanyotherthingrequiredorrequested byLenderinordertoeffectuatetheforegoing.Lendershallmaintainanaccountatafinancial institutionacceptabletoLender initssoleandabsolutediscretion(the“LockBoxAccount”), whichLock BoxAccountshallbemaintainedinLender’sname,andintowhichallReceipts, whetherthroughwires,checks,oranyotherform, andallothermonies,checks,notes,draftsor other payments of any kind owing or payable to any of the Borrowers, shall be deposited. If any Borrower,any Affiliate or Subsidiary, any shareholder, officer, director, employee or agent of any Borrower or any Affiliate or Subsidiary, or any other Person actingfor or in concert with any Borrower, shall receive anymonies, checks, notes,drafts or other payments orReceipts,whether froma Customer, as proceeds fromCollateral,or form anyothersource,theapplicableBorrower and each such Person shall receive all such items in trust for, and as the sole and exclusive
propertyof,Lender,and,immediatelyuponreceiptthereof,shallremitthesame(orcausethe same to be remitted) inkind to the Lock Box Account.
(ii)BorrowersandLenderagreethatallpaymentsmadetotheLock Box Account, whether in respectof Receipts, as proceeds ofCollateral,orotherwise,willbe sweptfromtheLockBoxAccounttoLenderoneachPaymentDatetobeappliedaccordingto thefollowingpriorities:(1)tounpaidfees and expenses due hereunder including, without limitation,anyrecurringfeesduepursuanttoSection2.2hereof;(2)to anycustodian/back-up servicer (ifapplicable);(3)to anyaccruedbutunpaidReceiptsCollection Fee;(4)toaccrued but unpaidinterestowedunderSections2.1(c)and2.4 hereof;(5)ifatanytimetheLenderisnot holding, in the Lock Box Account,an amount equal to at leasttheReserveAmount,thenall ReceiptsreceivedintotheLockBoxAccountshallbewithheldandappliedbyLenderto amounts required to establish the Reserve Amount, until the Reserve Amount is reached, which ReserveAmount(orportionthereof)maybekept andmaintainedintheLockBoxAccount duringthedurationofthisAgreementasadditionalsecurity for the Obligations; (6) to amounts payablepursuanttoSection2.1(d);and(7)upontheoccurrenceofanEventofDefault,to Lender(includinganyReserveAmountthenin the Lock Box Account), to reduce the outstandingRevolvingLoanbalancetozero(eachoftheforegoingpayments,the“Lock BoxPayments”).Theamount remaining in the Lock Box Account following the payment of the LockBoxPaymentsoneachPaymentDate(lessanyamount intheLock BoxAccountwithheld andappliedbyLendertotheReserveAmount) shallbereferredtohereinasthe“NetAmount”. TheLenderagreesthat,providedtheBorrowers areingoodstandingunderthisAgreementand the other Loan Documents, and provided no Event of Default exists under this Agreement or any otherLoanDocument,andprovidednoeventhasoccurredthat,withthepassage of time,orthe givingofnotice, orboth, wouldconstitutean EventofDefaultunderthisAgreementoranyother LoanDocument,theNetAmountwillbetransferredtoBorrowersfrom theLockBoxAccount viawiretransferorelectronicfundstransferto anaccountdesignatedbytheBorrowersonthe immediatelysubsequentPaymentDate.Borrowers agreeto payallreasonablefees,costsand expenses in connection with opening andmaintaining of the LockBox and the Lock Box Account.Allofsuchreasonablefees,costsand expenses, if not paid by Borrowers within five (5) Business Days of Lender’s written request,may be paid by Lender and in such event all amountspaidbyLendershallconstituteObligations hereunder,shallbe payabletoLenderby Borrowers upon demand, and, until paid, shall bear interest at the Default Rate.
(iii)It is intended that all Receipts, and all other checks, drafts, instruments and other items of payment or proceeds of Collateral at any time received, dueor owingtoanyBorrowerfrom aCustomer,anyotherPerson,orotherwise,shallbedeposited directly into the Lock Box Account, and if not deposited directly into the Lock Box Account, shallbeimmediatelyremittedorendorsedbyBorrowers to Lender into the Lock Box Account, and,ifthatremittanceorendorsementofanysuchitem shallnotbeimmediatelymadeforany reason,Lenderisherebyirrevocablyauthorized toremitorendorsethesameoneachBorrower’s behalf.ForpurposeofthisSection,eachBorrowerirrevocablyherebymakes,constitutesand appoints Lender (and all Persons designated byLender for that purpose) as each Borrower’s true andlawfulattorneyandagent-in-fact:(A)toendorsesuchBorrower’snameuponsaidReceipts or items of payment and/or proceeds of Collateral and upon any chattel paper, document, instrument, invoice or similar document or agreement relating to any Receipts of such Borrower; (B)totakecontrolinanymannerofanyitemofpaymentorproceedsthereof;(C)tohaveaccess
to such Borrower’s operating accounts, through such Borrower’s online banking system, or otherwise,tomakeremittancesofanyReceipts depositedthereinintotheLockBoxAccountas required hereby; and (D) to have access to any lockbox or postal box into which any of Borrowers’mail is deposited, and open and processallmailaddressedtoanyBorrowerand deposited therein.
(iv)Lendermay, atanytime andfrom timetotimeaftertheoccurrence and during the continuance of an Event of Default, whetherbefore orafternotificationtoany CustomerandwhetherbeforeorafterthematurityofanyoftheObligations:(A) enforce collectionof anyoftheAccountsandReceiptsofanyBorrowerorotheramountsowedtoany Borrowerbysuitorotherwise; (B)exerciseallof therightsandremedies ofeachBorrowerwith respect to Proceedings brought to collect any Accounts, Receipts, or other amounts owed to each Borrower; (C) surrender, release or exchange all or any part of any Accounts, Receipts, or other amountsowedtoeachBorrower,orcompromise orextend orrenewforanyperiod (whetheror notlongerthantheoriginalperiod)anyindebtednessthereunder;(D)sellor assignanyAccount orReceipts ofanyBorrower,orotheramountowed toanyBorrower,upon suchterms,forsuch amount and at such time or times as Lender deems advisable; (E) prepare, file and sign any Borrower’snameonanyproofofclaim inbankruptcyorothersimilar documentagainstany Customer or other Person obligated to any Borrower; and (F) do all other acts and things which arenecessary,inLender’ssolediscretion, to fulfilleachBorrower’sobligationsunderthis Agreement and the other Loan Documents and to allow Lender to collect the Accounts, Receipts, orotheramounts owedtoeachBorrower.Inadditiontoany otherprovision hereof,Lendermay atany timeaftertheoccurrence and during the continuance of anEventof Default,atBorrowers’ expense, notify any parties obligated on any of the Accounts and Receipts tomake payment directly to Lender of any amounts due or to become due thereunder.
(v) Onamonthly basis,Lendershall deliver to Borrowers an invoice andanaccount statementshowingallLoans, chargesand payments,whichshallbedeemedfinal, binding and conclusive upon Borrowers, unless Borrowers notify Lender inwriting,specifying any error therein, within thirty (30) days of the date such account statement is sent to Borrowers and any such notice shall only constitute an objection to the items specifically identified.
2.2Fees.
(a)Intentionally Left Blank.
(b)AssetMonitoringFee.BorrowersagreetopaytoLenderanasset monitoringfee(“AssetMonitoringFee”)equaltoOneThousandFive-HundredandNo/100
Dollars ($1,500.00), which shall be due and payable on the Closing Date, and thereafter on the firstdayofeachthird(3rd) calendarmonthduringthetermofthisAgreement.TheAsset MonitoringFeeshallbeincreased inincrementsofFiveHundredandNo/100Dollars($500.00) eachtimetheRevolvingLoanCommitmentamount isincreasedpursuanttoSection 2.1(b); providedthattheAssetMonitoring Feeshallneverexceed TwoThousandFiveHundredand No/100 Dollars ($2,500.00).
(c)TransactionAdvisoryFee.BorrowersagreetopaytoLender,onthe
ClosingDate,atransactionadvisoryfeeequaltofourpercent(4.0%)oftheRevolvingLoan
CommitmentasoftheClosingDate.BorrowersagreetopaytoLenderatransactionadvisory feeequaltotwopercent(2.0%)ontheamountofanyincreaseof theRevolvingLoan Commitment pursuant toSection 2.1(b), which shall be due and payable on the date of any increase to the Revolving Loan Commitment pursuant toSection 2.1(b).
(d)DueDiligenceFees.Borrowersagreetopayaduediligencefeeequalto Ten Thousand and No/100 Dollars ($10,000.00), which shall be due and payable in full on the ClosingDate,oranyremainingportion thereof shall be due and payableontheClosingDateifa portion of such fee was paid upon the execution of any termsheet related to this Agreement.
(e)DocumentReviewandLegalFees.Borrowersagreetopayadocument reviewandlegalfeeequalto TwelveThousandFiveHundred andNo/100Dollars($12,500.00) whichshallbedueandpayableinfullontheClosingDate,oranyremainingportionthereof shallbedueandpayableontheClosingDateifaportionofsuchfeewaspaiduponthe execution of any termsheet related to this Agreement.
(f)OtherFees.EachoftheBorrowersalsoagreestopaytotheLender(or anydesigneeoftheLender),upondemand,ortootherwiseberesponsibleforthepaymentof, any and all other costs, fees andexpenses,including the reasonable fees, costs, expenses and disbursementsofcounselfortheLenderandof anyexpertsandagents,whichtheLendermay incurorwhichmayotherwisebedueandpayableinconnectionwith:(i)thepreparation, negotiation, execution, delivery, recordation,administration,amendment,waiver,subordination, or othermodification or termination of this Agreement or any other Loan Documents (provided thatthereshallbenofeesforthepreparation andnegotiationofthisAgreementotherthanas specificallysetforthinthisSection2.2);(ii) anydocumentarystamptaxes,intangiblestaxes, recordingfees,filingfees,orother similartaxes,feesorchargesimposedbyorduetoany GovernmentalAuthorityinconnectionwiththisAgreementoranyotherLoanDocuments; (iii)theexerciseorenforcementofany oftherightsoftheLenderunderthisAgreementorthe LoanDocuments;or(iv) thefailurebyanyBorrowertoperform orobserveanyoftheprovisions ofthisAgreementoranyoftheLoanDocuments.Includedintheforegoingshallbethe amount ofallexpensespaidorincurred byLenderinconsulting withcounselconcerning anyofits rights underthisAgreementoranyotherLoanDocument orunderapplicablelaw. Allsuchcostsand expenses, if not so immediately paid when due or upon demand thereof, shall bear interest from the date of outlay until paid, at the Default Rate. All of such costs and expenses shall be additional Obligations of the Borrowers to Lender secured under the Loan Documents. The provisionsofthis Subsection shall survive the termination ofthis Agreement.
(g)MinimumMonthlyFee.Itistheintentionofthepartiesheretothat,prior toanEventofDefault,theaggregatesum ofallrecurringmonthlyfeesandinterestpayableby BorrowershereundertoLenderforeachcalendarmonthduringtheterm hereofshallnotbeless than One and Five Tenths Percent (1.5%) of the then applicable Revolving Loan Commitment (the“MinimumFees”).Intheeventduringanycalendarmonthduringtheterm ofthis Agreement,therecurringmonthlyfeesandinterest payablebyBorrowerstoLenderhereunder arelessthantheMinimum Fees,theninadditiontoallsuchrecurringmonthlyfeesandinterest payable, the Borrowers shall pay to Lender, on thenextPaymentDate,anamountdeterminedby Lendersuch thatwhenaddedtotherecurringmonthlyfeesandinterestpayabletoLendereach calendarmonth hereunder, such amount shall never be less than the MinimumFees.
(h)Advisory Fee.
(i)ShareIssuance.Inconsiderationofadvisoryservicesprovidedby LendertoIssuingBorrowerpriortotheClosingDate,theIssuingBorrowershallpaytoLendera fee equal to $100,000.00 (the“AdvisoryFee”).The Advisory Fee shall be initially paid by the issuance toLenderofrestrictedsharesoftheIssuingBorrower’sCommonStock(the“AdvisoryFeeShares”) in accordance with the terms and provisions of this Section.For purposes of determiningthenumberofsharesissuableto LenderunderthisSection2.2(h),theIssuing Borrower’sCommonStockshallbevaluedattheaverageof thevolumeweightedaverageprice fortheCommonStockforthefive(5)Business Days immediately prior to the date the BorrowersexecutethisAgreement(the“ValuationDate”),asreportedbyBloombergorsuch otherreportingserviceacceptabletoLender(the“VWAP”).TheLendershallconfirmtothe IssuingBorrowerinwriting,theVWAPforthe CommonStockasoftheValuationDate,andthe Issuing Borrower shall issue to Lender, on the Closing Date, a number of Advisory Fee Shares equal to two hundred percent (200%) of the AdvisoryFee, based on such VWAP as of the ValuationDate. OntheClosingDate,theIssuingBorrowershallinstructitstransfer agent(the “Transfer Agent”)toissuecertificates representingtheAdvisoryFeeSharesissuabletothe Lenderhereunder,andshallcauseitsTransferAgent todeliversuchcertificatestoLenderwithin five (5) Business Days fromthe Closing Date. In the event such certificates representing the AdvisoryFeeShares issuablehereundershallnot bedeliveredtotheLenderwithinsaidfive (5) Business Day period, same shall be an immediate default under this Agreement and the other LoanDocuments. TheAdvisoryFeeShares, whenissued,shallbedeemedtobevalidlyissued, fullypaid,andnon-assessablesharesofthe IssuingBorrower’sCommonStock.TheAdvisory FeeSharesshallbedeemedfullyearnedasofthedatethe Borrowersexecutethis Agreement, regardless of the amountor number ofRevolving Loansmade hereunder.
(ii)Adjustments.ItistheintentionoftheIssuingBorrowerand LenderthattheLendershallbeabletoselltheAdvisoryFeeSharesandgeneratenetproceeds (netofallbrokeragecommissionsandotherfeesorchargespayablebyLenderinconnection withthesalethereof)from suchsaleequaltotheAdvisoryFee.Inthis regard,theLendershall havetherighttoselltheAdvisoryFeeShares in thePrincipalTradingMarket,orotherwise,at anytimeinaccordancewithapplicablesecuritieslaws.Aftertheearlierto occurof:(A)thesale ofallAdvisoryFeeShares;or(B)Lenderreceivingnetproceeds fromthesaleoftheAdvisory FeeSharesequaltotheAdvisory Fee,theLendershalldelivertotheIssuingBorrowera reconciliationstatementshowingthenetproceedsactuallyreceivedbytheLenderfromthesale of the Advisory Fee Shares (the“SaleReconciliation”).If, as of the date of the delivery by LenderoftheSaleReconciliation,theLenderhasnotrealizedandreceivednetproceedsfrom thesaleoftheAdvisory FeeShares equaltoat leasttheAdvisoryFee, asshownontheSale Reconciliation, then the Issuing Borrower shall immediately take all required action necessary or requiredinordertocausetheissuanceof additionalsharesof CommonStocktotheLenderinan amount sufficient such that, when sold and the net proceeds thereof are added to the net proceeds fromthesaleofanyofthepreviouslyissuedandsoldAdvisoryFeeShares,theLendershall have received totalnet funds equal to the Advisory Fee. If additionalshares of Common Stock areissuedpursuanttotheimmediatelypreceding sentence,andafterthesaleofsuchadditional issued shares of Common Stock, the Lender still has not received netproceeds equal to at least theAdvisoryFee,then theIssuing Borrowershallagainberequired toimmediatelytakeall required action necessary or required in order to cause the issuance of additional shares of
CommonStocktotheLenderas contemplatedabove,andsuchadditionalissuancesshall continueuntiltheLenderhasreceivednetproceedsfromthesaleofsuchCommonStockequal to the Advisory Fee. In the event the Lender receives net proceeds fromthe sale of Advisory Fee SharesequaltotheAdvisoryFeebeforeLenderhassoldallAdvisoryFeeSharesissuedto Lenderhereunder,thentheLender shallreturnallsuchremainingAdvisoryFeeSharestothe IssuingBorrower.IntheeventadditionalCommonStockisrequiredtobeissuedasoutlined above,theIssuingBorrowershallinstructitsTransferAgenttoissuecertificatesrepresenting such additional shares of Common Stock to the Lender immediately subsequent to the Lender’s notification totheIssuingBorrowerthatadditionalsharesof CommonStockare issuable hereunder, and the Issuing Borrower shall in any event cause its Transfer Agent to deliver such certificatestoLenderwithinfive(5)BusinessDaysfollowingthedateLendernotifiesthe Issuing Borrower thatadditional shares of Common Stock are to be issued hereunder.In the eventsuchcertificatesrepresentingsuchadditionalsharesofCommon Stockissuablehereunder shallnotbedeliveredto theLenderwithinsaidfive(5)BusinessDayperiod,sameshallbean immediate default under this Agreement and the Loan Documents. Notwithstanding anything containedinthisSection2.2(h) tothecontrary,atanytimeonorpriortotheRevolvingLoan MaturityDate,theIssuingBorrowershallhave theright,atanytimeduringsuchperiod,to redeem anyAdvisoryFeeSharesthenintheLender’spossessionforanamountpayablebythe IssuingBorrowertoLenderinDollarsequaltotheAdvisory Fee,lessanynetproceeds received by the Lender fromany previous sales of Advisory Fee Shares.Upon Lender’s receipt of such cash payment in accordance with the immediately preceding sentence, the Lender shall return anythenremainingAdvisoryFeeSharesinitspossessionbacktotheIssuingBorrower. Inthe eventtheLenderelects toincreasetheRevolvingLoanCommitmentaspermittedbythis Agreement,theBorrowersagreeto payadditionaladvisoryfeesto Lender eitherincashorina similarmannerassetforthinthisSection2.2(h)throughtheissuanceof additionalAdvisoryFee Shares,at Lender’ssolediscretion,inan amountto be determined by Lender.
(iii)MandatoryRedemption.Notwithstandinganythingcontainedin thisAgreementtothecontrary,intheeventtheLenderhasnotrealizednetproceedsfromthe saleofAdvisoryFeeSharesequaltoatleasttheAdvisoryFeebyadatethatistwelve(12) monthsfrom theClosingDate,thenatanytimethereafter, theLendershallhavetheright,upon writtennoticeto the IssuingBorrower,torequirethattheIssuingBorrower redeem allAdvisory Fee Shares then in Lender’s possession for Dollars equal to the Advisory Fee, less any net proceeds received by the Lender from any previous sales of Advisory Fee Shares, if any.In the eventsuchredemptionnoticeisgivenbytheLender,theIssuingBorrowershallredeem thethen remaining Advisory Fee Shares in Lender’s possession for an amount of Dollars equal to the AdvisoryFee,lessanynetproceedsreceivedby theLenderfromanyprevioussalesofAdvisory FeeShares, ifany,payablebywire transfertoanaccountdesignatedby Lenderwithinfive(5) Business Days fromthe date the Lender deliverssuch redemption notice to the Issuing Borrower.
(iv)SurvivingObligations.TheBorrowersagreeandacknowledge thatnotwithstandingthe termination of thisAgreement,orthepaymentinfullof allof the Borrowers’ Obligations hereunder or under any other Loan Documents, the Issuing Borrower’s obligations and liability under thisAgreementandtheotherLoanDocuments,andtheLender’s LienandsecurityinterestonallCollateral,shallsurvive,shallremainvalidandeffectiveand shallnotbereleasedorterminated,untiltheIssuingBorrowerhasfullycompliedwithallof its obligationswithrespecttopaymentoftheAdvisoryFee,andLenderhasgeneratedandreceived
netproceedsfromthesaleoftheAdvisoryFeeShares(orotherwisereceivedequivalentpayment thereofinDollars as permitted hereunder) equal to the Advisory Fee.
(i)Matters with Respect to Common Stock.
(i)IssuanceofConversionShares.Thepartiesheretoacknowledge that pursuant to the terms of the Revolving Note, Lender has the right, at its discretion, to convert amounts due under the Revolving Note into CommonStock in accordance with the terms of the RevolvingNote.Intheevent,foranyreason,theIssuingBorrowerfailstoissue,orcausethe Transfer Agent to issue, any portion of the Common Stock issuable upon conversion of the RevolvingNote(the“ConversionShares”)to Lenderinconnection withtheexercisebyLender ofanyofitsconversionrightsundertheRevolvingNote,thenthepartiesheretoacknowledge thatLendershallirrevocablybeentitledtodelivertotheTransferAgent, onbehalfof itself and theIssuingBorrower,a“ConversionNotice”(asdefinedinthe Revolving Note) requesting the issuance of the Conversion Shares then issuable in accordancewith the terms of the Revolving Note,andtheTransferAgent,providedthey aretheactingtransferagentfortheIssuing Borroweratthetime,shall,andtheIssuingBorrowerherebyirrevocablyauthorizes and directs the Transfer Agent to, without any furtherconfirmation or instructions from the Issuing Borrower,issuetheConversionSharesapplicabletotheConversionNoticethenbeingexercised, and surrender to a nationally recognized overnight courier for delivery to Lender at the address specifiedintheConversionNotice,acertificateoftheCommon StockoftheIssuingBorrower, registered in the nameof Lender or its designee, for the number of Conversion Shares to which Lender shall be then entitled under the Revolving Note, as set forth in the Conversion Notice.
(ii)IssuanceofAdditionalCommonStockUnderSection2.2(h).The partiesheretoacknowledgethatpursuanttoSection2.2(h)above,theIssuingBorrowerhas agreedtoissue,simultaneouslywiththeexecutionof thisAgreementandinthefuture,certain shares of the Issuing Borrower’s Common Stock in accordance with the terms of Section 2.2(h) above. Intheevent,foranyreason,theIssuingBorrowerfailstoissue,orcauseitsTransfer Agenttoissue,anyportionof theCommonStockissuabletoLenderunderSection 2.2(h), either noworinthefuture,thenthepartiesheretoacknowledgethatLendershallirrevocablybe entitledtodelivertothe TransferAgent,onbehalf of itself andtheIssuingBorrower,awritten instructionrequestingtheissuanceoftheshares ofCommonStockthenissuableinaccordance withSection2.2(h)above,andtheTransferAgent,providedthey aretheactingtransferagentfor theIssuingBorroweratthetime,shall,andthe IssuingBorrowerherebyirrevocablyauthorizes anddirectstheTransferAgentto,withoutanyfurtherconfirmationorinstructionsfrom the Issuing Borrower, issue such shares of the Issuing Borrower’s Common Stock as directed by Lender,andsurrendertoanationallyrecognizedovernight courier for delivery to Lender at the addressspecifiedin theLender’snotice, acertificateof theCommonStockoftheIssuing Borrower,registeredinthenameofLenderor itsdesignee,forthenumberofsharesofCommon Stock issuable to Lender in accordance with Section 2.2(h).
(iii)RemovalofRestrictiveLegends.IntheeventthatLenderhasany sharesoftheIssuingBorrower’sCommonStockbearing any restrictive legends, and Lender, throughitscounselorotherrepresentatives,submitstotheTransferAgentanysuchsharesfor the removal of the restrictive legends thereon,whether in connection with a sale of such shares pursuanttoanyexemptiontotheregistrationrequirementsundertheSecuritiesActorthelaws
orrulesofanyGovernmentalAuthority,orotherwise,andtheIssuingBorrowerandorits counsel refuses or fails for any reason to render an opinion of counsel or any other documents, certificatesorinstructionsrequiredfortheremovalof therestrictive legends,then:(A)tothe extent such legends could be lawfully removed under applicable laws, Issuing Borrower’s failure toprovidetherequiredopinionofcounseloranyotherdocuments,certificatesorinstructions required for the removal of the restrictive legends shall be animmediate Event of Default under this Agreement and allother Loan Documents;and (B) the Issuing Borrower hereby agrees and acknowledges that Lender is hereby irrevocably and expressly authorized to have counsel to Lenderrenderanyandallopinions andothercertificatesorinstrumentswhichmayberequired forpurposesofremovingsuchrestrictivelegends,andtheIssuingBorrowerhereby irrevocably authorizesanddirectstheTransferAgentto,withoutanyfurtherconfirmationorinstructions from theIssuingBorrower,issueanysuchshares withoutrestrictivelegendsasinstructedby Lender,and surrendertoacommoncarrierforovernightdeliverytotheaddressasspecifiedby Lender,certificates,registeredin thenameofLenderoritsdesignees,representingthesharesof CommonStocktowhichLenderis entitled,withoutanyrestrictivelegendsandotherwisefreely transferable on the books and records of the Issuing Borrower.
(iv)AuthorizedAgentoftheIssuing Borrower.TheIssuingBorrower herebyirrevocablyappointstheLenderanditscounselanditsrepresentatives,eachasthe Issuing Borrower’sduly authorized agentandattorney-in-factfortheIssuingBorrowerforthe purposesof authorizingandinstructingtheTransferAgenttoprocessissuances,transfersand legendremovalsuponinstructionsfrom Lender,oranycounselorrepresentativesofLender,as specifically contemplated herein.The authorization and power of attorney granted hereby is coupledwithaninterestandisirrevocablesolongasany ObligationsoftheBorrowersunder thisAgreementoranyotherLoanDocumentsremainoutstanding,andsolongastheLender owns or has the right to receive, any sharesof the Issuing Borrower’s Common Stock hereunder orundertheRevolvingNote.Inthisregard,theIssuingBorrowerherebyconfirmstothe TransferAgentandtheLenderthatitcanNOT andwillNOTgiveinstructions,includingstop ordersorotherwise,inconsistentwiththetermsof thisAgreementwithregardtothematters contemplatedherein,andthattheLendershallhave theabsoluterighttoprovideacopyofthis Agreement to the Transfer Agent asevidence of the Issuing Borrower’s irrevocableauthority for Lender and Transfer Agent to process issuances, transfers and legend removals upon instructions from Lender,oranycounselorrepresentatives ofLender,asspecificallycontemplatedherein, without any further instructions, orders or confirmations from the Issuing Borrower.
(v)Injunction and Specific Performance.The IssuingBorrower specificallyacknowledgesandagrees thatintheeventofabreachorthreatenedbreachbythe Issuing Borrower of any provision of this Section 2.2(i), the Lender will be irreparably damaged andthatdamagesatlawwouldbeaninadequateremedyif thisAgreementwerenotspecifically enforced.Therefore,intheeventofabreachorthreatenedbreachofanyprovisionofthis Section2.2(i)bytheIssuingBorrower,theLender shallbeentitledto obtain,inadditiontoall otherrightsorremediesLendermay have, at law or in equity,an injunction restrainingsuch breach, without being required toshowanyactualdamageortopostanybondorothersecurity, and/or to a decree for specific performance of the provisions of this Section 2.2(i).
2.3RenewalofRevolvingLoans;Non-RenewalofRevolvingLoans;Fees.Solong asnoEventofDefaultexists,andsolongasnoeventhasoccurredthat,withthepassageoftime,
thegivingof notice,orboth,wouldconstituteanEventof Default,Borrowersshallhavethe optiontorenewtheRevolvingLoanCommitmentandextendtheRevolving LoanMaturityDate forone(1)additionalsix(6)monthperiod.Toexercisesuchoption,Borrowersshallgive written notice to Lender of Borrowers’ renewal of theRevolving Loan Commitment and extensionoftheRevolvingLoanMaturityDateforanadditionalsix(6)monthperiodonor before a date that is twenty (20) days prior to the Revolving Loan Maturity Date.
2.4InterestandFeeComputation;CollectionofFunds.Interestaccruedhereunder shallbepayableassetforthinSection2.1(d)hereof.Exceptasotherwisesetforthherein,all interestandfeesshallbecalculatedonthebasisofayearconsistingof360daysandshallbe paid for the actual number of days elapsed.Principal payments submitted in funds not immediatelyavailable shallcontinuetobearinterestuntilcollected.Ifanypaymenttobemade by Borrowers hereunder or under the Revolving Note shall become dueon a day other than a BusinessDay,suchpayment shallbemadeon thenextsucceedingBusinessDayandsuch extensionoftimeshallbeincludedincomputinganyinterestinrespectofsuchpayment.Any Obligationswhicharenotpaidwhendue(subject to applicable grace periods) shall bear interest at the Default Rate.
2.5AutomaticDebit.Inordertoeffectuatethetimelypaymentofanyofthe Obligationswhendue,eachBorrowerherebyauthorizesand directsLender,atLender’soption, to:(i)debit,orcauseorinstructthedebitof,theamountoftheObligationstoanyordinary depositaccountofanyBorrower;or(ii)makeaRevolvingLoanhereunderto paytheamountof the Obligations.
2.6DiscretionaryDisbursements.Lender,in itssoleandabsolutediscretion,may immediatelyuponnoticetoBorrowers,disburseanyorallproceedsoftheRevolvingLoansmadeoravailabletoBorrowerspursuanttothis Agreementtopayanyfees,costs,expensesor other amounts required to be paid by Borrowershereunder and not so paid.Allmonies so disbursedshallbeapartofthe Obligations, payable by Borrowers on demand fromLender.
2.7USDollars;CurrencyRisk.AllReceiptswillbeinDollars.IntheeventReceipts arenotinDollars,BorrowersshallbeartheriskofLender’scurrencylosses,andifLender suffersacurrencylossandtheresultistoincreasethecosttoLenderor toreducetheamountof anysumreceivedorreceivablebyLenderunderthisAgreementorundertheRevolvingNote with respect thereto, then after demand by Lender (which demand shall be accompanied by a certificate setting forth reasonablydetailed calculationsofthebasisofsuchdemand),Borrowers shall pay to Lender such additional amount or amounts as will compensateLender for such increasedcostorsuchreduction.BorrowersherebyauthorizeLenderto advanceorcausean advanceofRevolvingLoanstopayfortheincreasedcostsorreductionsassociatedwithany such currency losses.
3. CONDITIONS OF BORROWING.
Notwithstandinganyotherprovisionof this Agreement,theobligationof Lenderto disburseormakeallor anyportionofanyLoansissubjecttosatisfactionofallofthefollowing conditionsprecedent(unlessaconditioniswaivedin writingbyLender)containedinthisArticle
3.
3.1Intentionally Left Blank.
3.2LoanDocumentstobeExecutedbyBorrowers.Asaconditionprecedentto Lender’sdisbursalormakingoftheLoanspursuanttothis Agreement,Borrowersshallhave executedorcausetobeexecutedanddeliveredtoLenderallofthefollowingdocuments,eachof whichmust be satisfactory to Lender and Lender’s counsel in form, substance and execution:
Borrowers;
(a)CreditAgreement.One(1)originalofthisAgreementdulyexecutedby
Borrowers;
(b)RevolvingNote. One(1)originalRevolvingNotedulyexecutedby
(c)SecurityAgreement.One(1)originaloftheSecurityAgreementdatedas of the date of this Agreement, executed by Borrowers;
(d)Confession of Judgment. One (1) original of the Confession of Judgment, duly executed by each of the Borrowers.
(e)ValidityGuaranties.ValidityGuaranteesdulyexecutedbysuchofficers and directors of Borrowers as Lender shall require;
(f)SearchResults.CopiesofUCCsearch reportsdatedsuchadateasis reasonablyacceptabletoLender,listing alleffectivefinancingstatementswhichnameany Borrower,underitspresentnameandanyprevious names,asdebtors,togetherwithcopiesof such financing statements;
(g)OrganizationalandAuthorizationDocuments.Acertificateofthe corporatesecretaryorother officer of each Borrower certifying and attaching: (i) copies of its articlesofincorporationandbylaws;(ii)resolutionsof theboardofdirectorsofsuchBorrower, approving and authorizing such Borrower’s issuance of the Revolving Note and Advisory Fee Shares, and the execution, delivery andperformanceoftheLoanDocumentstowhichitisparty andthetransactionscontemplatedthereby;(iii) thesignaturesandincumbencyoftheofficersof such Borrower executing any of the Loan Documents, each of which such Borrower hereby certifiestobetrueandcomplete,andinfull forceand effectwithoutmodification,itbeing understoodthatLendermayconclusivelyrely oneachsuchdocumentandcertificateuntil formally advised by such Borrower of any changes therein; and (iv) good standing certificate in the state of incorporationof such Borrowerand ineach otherstate requested by Lender;
(h)Insurance.EvidencesatisfactorytoLenderoftheexistenceofinsurance requiredtobemaintainedpursuanttoSection10.4,togetherwith evidencethatLenderhasbeen namedasadditionalinsuredandlender’s loss payee, as applicable, onallrelatedinsurance policies;
(i)Opinion of Counsel.A customary opinion of Borrowers’ counsel, in form reasonably satisfactory to Lender;
(j)Leasehold Mortgages.One (1) original Mortgage, Security Agreement, FixtureFiling,FinancingStatementandAssignmentofProduction,orsimilarinstrument,in form andsubstanceacceptabletoLender,encumberingtheBorrowerLeasesandotherassetsof the Borrowers covered thereby;
(k)Assignmentof Payment Receivable.One (1) original Assignment of Payment Receivable instrument in form and substance acceptable to Lender, pursuant to which BorrowersassigntoLenderany and all rights of Borrowers underanyOilandGasPurchase Agreements; and
(l)EstoppelCertificateandAcknowledgmentofPaymentAssignment.One (1) original Estoppel Certificate and AcknowledgmentofPaymentAssignmentinstrument, pursuanttowhichanyPersonthatpurchasesMineralProductsfrom anyBorroweragrees,among otherthings,tomakepaymentunderanyOiland GasPurchaseAgreementsdirectlytoLender; and
(m)AdditionalDocuments.Suchotheragreements,documents,instruments, certificates, financial statements,schedules,resolutions,opinionsofcounsel,notesandother items which Lender shall require in connectionwith this Agreement.
3.3IssuanceofStock.TheIssuingBorrowershallhaveissuedanddeliveredto Lenderanirrevocableissuanceinstructionletterandboardresolutioninform andsubstance acceptabletoLender,irrevocably authorizingtheissuanceoftheAdvisoryFeeSharesand irrevocablydirectingitsTransferAgenttoissueanddelivertheAdvisoryFeeSharestoLender or its designee.
3.4PaymentofFees.BorrowersshallhavepaidtoLenderallfees,costsand expenses,including,butnotlimited to,duediligenceexpenses,attorney’sfees,searchfees,title fees, documentation and filing fees (including documentary stamps and taxes payable on the face amount of the Revolving Note).
3.5EventofDefault.NoEventofDefault,oreventwhich,withnoticeorlapseof time, or both, would constitute anEvent of Default, shall have occurred and be continuing.
3.6Adverse Changes. There shall not haveoccurred any Material Adverse Effect.
3.7Litigation.Nopendingclaim,investigation,litigationorgovernmental ProceedingshallhavebeeninstitutedagainstanyBorroweroranyoftheirrespective Subsidiaries or any of their respective officers or shareholders.
3.8Representations and Warranties.No representation or warranty of Borrowers contained herein or in any LoanDocuments shall be untrue or incorrect in anymaterial respect as of the date of any Loans as thoughmade on such date, except to the extent such representation or warrantyexpresslyrelates to an earlier date.
3.9DueDiligence.Thebusiness,legalandcollateralduediligencereviewperformed byLender,including,butnotlimitedto,areviewofBorrowers’historicalperformanceand
financialinformation,mustbeacceptabletoLenderinitssolediscretion.Lenderreservesthe right to increase any and all aspects of itsdue diligence in Lender’s sole discretion.
3.10KeyPersonnelInvestigations.Lendershallbesatisfied,initssolediscretion, withresultsfrom backgroundinvestigationsconductedonkeymembersofBorrowers’principals andmanagement teams.
3.11RepaymentofOutstandingIndebtedness.Borrowersshallhaverepaidinfullall outstandingindebtednesssecuredby Collateral,otherthanindebtedness givingrisetoPermitted Liens.
4. NOTESEVIDENCING LOANS.
TheRevolvingLoansshallbeevidencedbytheRevolvingNote(togetherwithanyand allrenewal,extension,modificationorreplacementnotesexecutedbyBorrowersanddelivered toLenderandgiveninsubstitutiontherefor)dulyexecutedbyBorrowersandpayabletothe orderofLender.Atthetimeof theinitialdisbursementofaRevolvingLoanandateachtimean additionalRevolving Loan shall be requested hereunder or a repaymentmade in whole or in part thereon, an appropriate notationthereofshallbemadeonthebooksandrecordsofLender.All amounts recorded shall be, absent demonstrableerror, conclusive and binding evidence of: (i) the principalamountoftheRevolvingLoansadvanced hereunder;(ii)anyunpaidinterestowingon theRevolvingLoans;and(iii)allamountsrepaid ontheRevolvingLoans.Thefailuretorecord any such amount or any error in recording suchamountsshall not, however, limit or otherwise affecttheobligationsofBorrowersundertheRevolvingNotetorepaytheprincipalamountof the Revolving Loans, together withallinterestaccruingthereon.
5. MANNER OF BORROWING.
5.1LoanRequests.SubjecttoSection2.1(a)andArticle3hereof,theLoansshallbemadeavailabletoBorrowersuponBorrowers’request,fromanyPersonwhoseauthoritytoso acthas notbeenrevokedbyanyBorrowerinwritingpreviouslyreceivedbyLender.Borrowersmaymakerequestsforborrowingnomorethanonetimeeverytwo(2)weeksuptothethen applicable Revolving Loan Commitment;provided,however,that,notwithstandinganything containedin thisAgreementoranyotherLoan Documentstothecontrary,eachRevolvingLoan requestedbyBorrowersunderthisAgreementshall be subject to Lender’s approval, which approvalmaybegivenorwithheldinLender’ssoleandabsolutediscretion.Arequestfora Loanmayonlybemade ifnodefaultorEvent ofDefaultshallhaveoccurredorbecontinuing andshallbesubjectto:(i)Lender’spreparationofaBorrowingBase Certificate, showing that there is borrowing availabilityunder the RevolvingLoan Commitment; and (ii) Receipts deposited into the Lock Box Account and other Collateral being acceptable to Lender. In addition, a request for a Loanmust be received by no later than 11:00 a.m. eastern timethe day it istobefundedandbeinaminimumamountequaltoFiftyThousandDollarsandNo/100 ($50,000.00).
5.2Communications.Lenderisauthorizedtorelyonanywritten,verbal,electronic, telephonicortelecopyloanrequestswhichLenderbelievesinits goodfaithjudgmenttoemanatefromthePresidentorChiefExecutiveOfficer,oranyotherauthorizedrepresentativeof
Borrowers.Each Borrower hereby irrevocablyconfirms, ratifies and approves all such advances byLenderandeach ofsuchBorrowershereby indemnifiesLenderagainstlosses andexpenses (including court costs, attorneys’andparalegals’fees)andshallholdLenderharmlesswith respect thereto.
6. SECURITY FOR THE OBLIGATIONS.
Tosecurethepaymentandperformanceby Borrowersofthe Obligations hereunder,each Borrowergrants,underandpursuant totheSecurityAgreementexecutedbyBorrowersdatedas ofthedatehereof,toLender,itssuccessorsand assigns, a continuing, first-prioritysecurity interest in, and does hereby assign, transfer,mortgage, convey, pledge, hypothecate and set over toLender,itssuccessors andassigns, alloftheright,titleand interestof eachBorrowerinandto the Collateral, whether now owned or hereafter acquired, and all proceeds (including, without limitation,allinsuranceproceeds)andproductsof anyoftheCollateral.Atany timeupon Lender’srequest,BorrowersshallexecuteanddelivertoLenderanyotherdocuments, instrumentsorcertificatesrequestedbyLenderfor thepurposeofproperlydocumentingand perfecting the security interests of Lender inandtotheCollateralgrantedhereunder,including any additional security agreements, mortgages,control agreements, and financing statements.
7. REPRESENTATIONS AND WARRANTIES OF BORROWERS.
ToinduceLendertomaketheLoans,each Borrowermakesthefollowingrepresentations andwarrantiestoLender,eachofwhichshallbetrueandcorrectinallmaterialrespectsas ofthe date of the execution and delivery of this Agreement and as of the date of each Loanmade hereunder,excepttotheextentsuch representation expressly relatestoanearlierdate,andwhich shall survivethe execution and delivery ofthis Agreement:
7.1Subsidiaries.OtherthanPetronEnergyIIPipeline,Inc.,aTexascorporation,and Petron Energy IIWell Service, Inc., a Texas corporation, both of which are wholly-owned Subsidiaries oftheIssuingBorrower,noBorrowerowns,directlyorindirectly,anyoutstanding votingsecuritiesoforotherinterestsin,orhave any Control over, any other Person.Borrowers further represent and warrant thatPetronEnergy,Inc.isanentitywithsimilarownersandmanagementastheBorrowers,butthatsuchentity’stotalassetsowned haveanaggregatefairmarket value of less than $5,000.00.
7.2BorrowerOrganizationandName.EachBorrowerisacorporation,duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, andhasthefullpowerandauthority andallnecessaryPermitsto:(i)enterintoandexecutethis Agreement and the Loan Documents and to perform all of its obligations hereunder and thereunder; and (ii) own and operate its assets and properties and toconduct and carry on its businessasandtotheextentnowconducted.EachBorrowerisdulyqualifiedtotransact business and is in good standing as a foreign corporation in each jurisdiction where the character of its business or the ownership oruseandoperationofitsassets or properties requires such qualification.Theexactlegalname ofeachBorrowerisassetforthinthe firstparagraphofthis Agreement, and no Borrower currently conducts, nor has any Borrower, during the last five (5) years conducted, business under any other name or trade name.
7.3Authorization;Validity.EachBorrowerhasfullright,powerandauthorityto enterinto thisAgreement,tomaketheborrowingsandexecuteanddelivertheLoanDocuments asprovidedhereinandtoperform allofitsdutiesandobligationsunderthisAgreementandthe LoanDocumentsandnootheractionorconsent on the part of any Borrower, its board of directors, stockholders, or anyother Person isnecessary or required by any Borrower to execute this Agreement and the Loan Documents, consummate the transactions contemplated herein and therein,andperform allofitsobligationshereunderandthereunder.Theexecutionanddelivery of thisAgreementandtheLoanDocumentswillnot,norwilltheobservanceorperformanceof anyofthemattersandthingshereinorthereinsetforth,violateorcontraveneanyprovisionof laworofanyBorrower’sArticlesofIncorporationorBylaws,orothergoverningdocuments. Allnecessaryandappropriatecorporateactionhasbeentakenonthepartofeach Borrowerto authorizetheexecution anddeliveryof thisAgreementandtheLoanDocumentsandthe issuance of the Revolving Note and the Advisory Fee Shares.This Agreement and the Loan Documents are valid and binding agreementsandcontractsofeachBorrower,enforceable againsteachBorrowerinaccordancewiththeir respectiveterms,excepttotheextentthat enforcementthereofmaybelimitedbybankruptcy,insolvency,reorganization,moratorium and otherlawsenacted forthereliefofdebtorsgenerallyandothersimilarlawsaffectingthe enforcementofcreditors’rightsgenerallyor byequitableprincipleswhichmayaffectthe availabilityofspecificperformanceandotherequitableremedies.NoBorrowerknowsofany reasonwhyanyBorrowercannotperform anyofitsObligationsunderthisAgreement,theLoan Documents or any related agreements.
7.4Capitalization.TheauthorizedcapitalstockofeachBorrowerisassetforthinSchedule7.4attached hereto.Schedule7.4shall specify, for each Borrower, the total numberof authorizedsharesofcapitalstock,andof suchauthorizedshares, thenumberwhichare designatedasCommonStockandthenumberdesignatedaspreferredstock.Schedule7.4shall alsospecify,foreachBorrower,asofthedate hereof,thenumberofsharesofCommonStock issued and outstanding and the number of sharesof preferred stock issued and outstanding. All of the outstanding shares of capital stock of each Borrower are validly issued, fully paid and nonassessable,havebeenissuedincompliancewith all foreign,federalandstatesecuritieslaws andnoneofsuchoutstandingshares were issued in violation of any preemptiverightsorsimilar rights to subscribefororpurchasesecurities.As of thedateof thisAgreement,nosharesofany Borrower’scapitalstockaresubjecttopreemptive rightsoranyothersimilarrightsoranyLiens, claimsorencumbrancessufferedorpermittedbyanyBorrower.TheCommonStockiscurrently quoted on the OTC Bulletin Board under the trading symbol “PEIID”.The Issuing Borrower has receivednonotice, eitheroralor written,withrespecttothecontinuedeligibilityoftheCommon Stock for quotation on the Principal Trading Market, and the Issuing Borrower hasmaintained all requirements on its part forthe continuation of such quotation. Except as set forth inSchedule 7.4attached heretoand exceptforthesecuritiestobeissuedpursuantto this Agreement,asofthedateofthisAgreement:(i)therearenooutstandingoptions,warrants,scrip, rightstosubscribeto,callsorcommitmentsofany character whatsoever relating to, or securities orrightsconvertibleinto,anysharesofcapital stock of Issuing Borrower or any of its Subsidiaries, or contracts, commitments, understandings or arrangements by which Issuing Borroweroranyofits Subsidiariesisormay becomeboundtoissueadditionalsharesofcapital stockoftheIssuingBorroweroranyofitsSubsidiariesoroptions, warrants, scrip, rights to subscribeto, callsorcommitmentsofanycharacter whatsoever relating to, orsecuritiesorrights convertible into, any shares of capital stock of Issuing Borrower or any of its Subsidiaries; (ii)
there are no outstanding debt securities, notes, credit agreements, credit facilities or other contractsorinstruments evidencingindebtednessofIssuingBorroweroranyofitsSubsidiaries, orbywhichIssuingBorroweroranyofitsSubsidiariesisormaybecomebound;(iii) thereare no outstanding registration statements with respectto Issuing Borrower or any of its Subsidiaries, or any of their respective securities, and there are no outstanding comment lettersfrom the SEC, thePrincipalTradingMarket,or anyotherGovernmentalAuthoritywithrespecttoanysecurities ofIssuingBorroweroranyofitsSubsidiaries;(iv)therearenoagreementsorarrangements underwhichIssuingBorroweroranyofitsSubsidiariesisobligated toregisterthesaleofanyof its securities under the Securities Act or any other law of any other Governmental Authority; (v) therearenofinancingstatementsfiledwithanyGovernmentalAuthoritysecuringany obligationsofIssuingBorroweroranyofitsSubsidiaries,orfiledinconnectionwithanyassets orpropertiesofIssuingBorroweroranyofitsSubsidiaries;(vi)therearenosecuritiesor instrumentscontaininganti-dilutionorsimilarprovisionsthatwillbetriggeredbythis Agreement or any related agreement or the consummation of the transactions described herein or therein;and(vii)therearenooutstandingsecurities or instruments of any Borrower which contain any redemption or similar provisions, and there areno contracts or agreements by which suchBorrowerisormaybecomeboundtoredeem asecurityofsuchBorrower(exceptpursuant to this Agreement). Each Borrower has furnished to the Lender true, complete and correct copies of such Borrower’s Certificate of Incorporation, as amended and as in effect on the date hereofandsuchBorrower’sBylaws,asineffect onthedatehereof,andanyothergoverningor organizationaldocuments,asapplicable.Exceptforthedocumentsdeliveredto Lenderin accordance with the immediately precedingsentence,therearenoothershareholderagreements, votingagreements,operatingagreements,orother contractsoragreementsof anynatureorkind thatrestrict, limitorinanymannerimposeobligations,restrictionsorlimitationsonthe governance of each Borrower.
7.5NoConflicts;ConsentsandApprovals.Theexecution,deliveryandperformance ofthisAgreementandtheLoan Documents, andtheconsummationofthetransactions contemplatedherebyandthereby,includingtheissuanceoftheAdvisory FeeShares, willnot:(i) constituteaviolationof orconflictwiththeCertificateofIncorporation,Bylaws,oranyother organizationalorgoverningdocumentsofanyBorrower;(ii)constituteaviolationof,ora defaultorbreachunder(eitherimmediately,uponnotice,uponlapseoftime,orboth),or conflictswith,orgivestoanyotherPersonanyrightsoftermination,amendment,acceleration or cancellationof,anyprovisionofanycontractoragreementtowhichanyBorrowerisapartyor bywhichanyofitsortheirassetsorpropertiesmaybebound; (iii)constituteaviolationof,ora defaultorbreachunder(eitherimmediately,uponnotice,uponlapseoftime,orboth),or conflicts with, any order, writ, injunction, decree, or any other judgment ofany nature whatsoever; (iv)constitute a violation of, or conflict with, any law, rule, ordinance or other regulation(includingforeignandUnited Statesfederaland statesecuritieslawsandtherulesand regulationsofanyPrincipalTrading Market);or(v)resultin thelossoradversemodificationof, ortheimpositionofanyfine,penaltyorotherLien,claim orencumbrancewithrespectto,any Permitgrantedorissuedto,orotherwiseheldbyorfortheuse of,anyBorroweroranyoftheir respectiveassets. NoBorroweris inviolationofits Certificateof Incorporation, Bylaws,or otherorganizationalorgoverningdocuments,asapplicable,and noBorrowerisindefaultor breach (and noeventhasoccurred whichwith noticeorlapseoftimeorboth couldputany Borrowerin defaultorbreach)under,andnoBorrowerhastakenanyactionorfailedtotakeany action that would give to any other Person any rights of termination, amendment, acceleration or
cancellationof,anycontractoragreementtowhichanyBorrowerisapartyorbywhichany property or assets of any Borrower are bound or affected.No business of any Borrower is being conducted, and shall not be conducted, in violation of any law, rule, ordinance or other regulation.Exceptasspecificallycontemplated bythisAgreement,noBorrowerisrequiredto obtain any consent or approval of,from,orwithanyGovernmental Authority, or any other Person,inorderforittoexecute,deliverorperformanyofitsobligationsunderthisAgreement ortheLoanDocumentsinaccordancewiththeterms hereoforthereof,ortoissuetheAdvisory FeeSharesinaccordancewiththetermshereof.Allconsents andapprovalswhichanyBorrower isrequiredtoobtainpursuanttotheimmediatelyprecedingsentencehavebeen obtainedor effected on or priorto the date hereof.
7.6Issuance of Securities. TheAdvisoryFeeSharesare duly authorized and, upon issuanceinaccordancewith thetermshereof,shallbeduly issued,fully paidandnon-assessable, andfreefromallLiens,claims,charges,taxes, orotherencumbranceswithrespecttotheissue thereof,andwillbeissuedincompliancewith allapplicableUnitedStatesfederalandstate securitieslawsandthelawsofanyforeignjurisdictionapplicabletotheissuancethereof.Any sharesissuableuponconversionoftheRevolvingNote,in accordancewiththetermsofthe RevolvingNote,aredulyauthorizedand,uponissuanceinaccordancewiththetermshereof, shallbedulyissued,fullypaidandnon-assessable,andfreefromallLiens,claims,charges, taxes,or other encumbrances with respect to the issue thereof, and willbe issued incompliance withallapplicableUnitedStatesfederalandstatesecuritieslawsand thelawsofanyforeign jurisdiction applicable totheissuancethereof.Assumingtheaccuracyof theLender’s representations under Section 8 hereof, the issuance of the Advisory Fee Shares and any shares issuableuponconversionoftheRevolvingNoteis andwillbeexemptfrom:(i)theregistration andprospectusdeliveryrequirementsof the Securities Act;(ii) the registration and/or qualification provisionsof allapplicablestateandprovincialsecuritiesand“bluesky”laws;and (iii)anysimilarregistration orqualification requirementsofanyforeignjurisdictionorother Governmental Authority.
7.7ComplianceWithLaws.ThenatureandtransactionofeachBorrower’sbusiness and operations and the use of its properties and assets, including, but not limited to, the Collateraloranyrealestateowned,leased,or occupiedbyeachBorrower,donotandduringthe term oftheLoansshallnot,violateorconflictwith anyapplicablelaw,statute,ordinance,rule, regulationororderofanykindornature,including,withoutlimitation, theprovisionsoftheFair Labor Standards Act or any zoning, land use, building, noise abatement, occupational health and safetyorotherlaws,anyPermitoranycondition,grant,easement, covenant, condition or restriction, whether recorded or not, except to the extentsuchviolation orconflictwouldnot result in aMaterial Adverse Effect.
7.8EnvironmentalLawsandHazardousSubstances.Excepttotheextentthatanyof thefollowingwouldnothaveaMaterialAdverse Effect(includingfinancialreserves,insurance policiesandcureperiodsrelatingtocompliancewithapplicablelawsandPermits)andareused insuchamountsasarecustomaryintheOrdinary Course of Business in compliance with all applicableEnvironmentalLaws, eachBorrowerrepresentsandwarrantstoLenderthat,toits knowledge:(i)noBorrowerhasgenerated,used,stored,treated,transported,manufactured, handled,produced ordisposed of any Hazardous Materials,on or off any of the premises of any Borrower(whetherornotownedbyanyBorrower)inanymannerwhichatanytimeviolatesany
EnvironmentalLaworanyPermit,certificate,approvalorsimilar authorizationthereunder; (ii) the operations of each Borrower comply in allmaterial respects with all Environmental Laws and all Permits certificates, approvalsand similarauthorizations thereunder; (iii) there has been no investigation,Proceeding,complaint,order, directive, claim,citationornoticebyany GovernmentalAuthorityoranyotherPerson, norisanypendingor,toanyBorrower’s knowledge,threatened;and(iv)noBorrowerhas anyliability,contingent orotherwise,in connectionwitharelease,spillor discharge,threatenedoractual, ofanyHazardousMaterialsor the generation, use, storage, treatment, transportation,manufacture, handling, production or disposal of any Hazardous Material.
7.9CollateralRepresentations.NoPersonotherthaneachBorrower,ownsorhas otherrightsintheCollateral,andtheCollateralisfreefrom anyLienofanykind,otherthanthe Lien ofLender and Permitted Liens.
7.10SECDocuments;FinancialStatements.TheCommonStockoftheIssuing Borrower is registered pursuant toSection 12 of the Exchange Act, the Company is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, and the Company has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with theSECoranyotherGovernmentalAuthority(all oftheforegoingfiledwithinthetwo(2)years precedingthedatehereoforamendedafterthedatehereofandallexhibitsincluded therein and financialstatementsandschedulestheretoanddocumentsincorporatedbyreferencetherein, being hereinafter referred to as the“SECDocuments”). The Issuing Borrower is current with its filing obligations under the Exchange Act and all SEC Documents have been filed on a timely basisortheIssuingBorrowerhas receivedavalidextensionofsuchtimeoffilingandhasfiled any such SEC Document prior to the expiration of any such extension. The Issuing Borrower representsandwarrantsthattrueand completecopiesoftheSECDocumentsareavailableonthe SEC’s website (www.sec.gov) at no charge to Lender, andLender acknowledges that itmay retrieve allSECDocumentsfromsuchwebsiteand Lender’s accesstosuch SECDocuments throughsuchwebsiteshallconstitutedelivery oftheSECDocumentstoLender;provided, however,thatifLenderisunabletoobtainanyofsuchSECDocumentsfrom suchwebsiteatno charge,asresultofsuchwebsitenotbeingavailableoranyotherreasonbeyondLender’s control, then upon request from Lender, the Issuing Borrower shall deliver to Lender true and completecopiesofsuch SECDocuments.Asoftheirrespectivedates,theSECDocuments compliedinallmaterialrespectswiththerequirementsoftheExchangeAct,andnoneofthe SECDocuments,atthetimetheywerefiledwith theSEC,containedanyuntruestatementofamaterialfactoromittedtostateamaterialfactrequiredtobestated therein ornecessaryinorder tomake the statements therein, in light of the circumstances under which they weremade, notmisleading.NoneofthestatementsmadeinanysuchSECDocumentsis,orhasbeen,required tobeamendedorupdatedunder applicablelaw(exceptforsuchstatementsashavebeen amended or updated in subsequent filingsprior thedate hereof, which amendmentsorupdates are alsopart of the SEC Documents). As of their respective dates, the consolidated financial statements of the Issuing Borrower and its Subsidiaries included in the SEC Documents (the “FinancialStatements”)compliedinallmaterialrespectswith applicable accounting requirements and the published rulesandregulationsoftheSECwithrespectthereto.Allof the Financial Statements have been prepared inaccordance with GAAP, consistently applied, during the periods involved (except: (i) asmay be otherwise indicated in such Financial Statements or the notes thereto; or (ii) in the case of unaudited interimstatements, to the extent they may
excludefootnotesormaybecondensedorsummarystatements),andfairly present in all material respectstheconsolidatedfinancialpositionof theBorrowerandallof itsSubsidiariesasof the datesthereof andtheconsolidatedresultsof its operationsandcashflowsfortheperiodsthen ended(subject,inthecaseofunauditedstatements,tonormalyear-endauditadjustments).To theknowledgeofeachBorroweranditsofficers,nootherinformationprovidedbyoronbehalf of any Borrower to the Lender which is not included in the SEC Documents contains any untrue statement of amaterial fact or omits to state anymaterial fact necessary in order tomake the statementstherein,inthelightofthecircumstanceunderwhich theyareorweremade,notmisleading.
7.11AbsenceofCertainChanges.SincethedatethelastoftheSECDocumentswas filed with the SEC, none of the following have occurred:
(a)There has been no event or circumstanceof any nature whatsoever that has resulted in, or could reasonably be expected to result in, aMaterial Adverse Effect;or
(b)Any transaction, event, action, development, payment, or any othermatter of any nature whatsoever entered into by any Borrower other than in the Ordinary Course of Business.
7.12LitigationandTaxes.ThereisnoProceeding pending,ortoeachBorrower’s knowledge,threatened,againstany Borrowerortheirrespectiveofficers,managers,membersor shareholders, or against or affecting any of their respective assets.In addition, there is no outstanding judgments, orders, writs, decrees or other similarmatters or items against or affectinganyBorrower,itsbusinessorassets.NoBorrowerhasreceived anymaterialcomplaint from anyCustomer,supplier,vendororemployee.EachBorrowerhasdulyfiledallapplicable foreignandU.S.incomeorothertax returnsand haspaidallforeignand U.S.incomeorother taxeswhendue.ThereisnoProceeding,controversyorobjectionpendingorthreatenedin respect of any tax returns of any Borrower.
7.13EventofDefault.NoEventofDefaulthasoccurredandiscontinuing,andno eventhasoccurredandiscontinuing which,with thelapseoftime,thegivingofnotice,orboth, would constitute such an Event of Default under this Agreement or any of the other Loan Documents, and no Borrower is in default (without regard to graceorcure periods) under any contract or agreement to which it is a party or by which any of their respectiveassetsarebound.
7.14ERISAObligations.TotheknowledgeofeachBorrower,allEmployeePlansof eachBorrowermeettheminimum fundingstandardsofSection302 ofERISA,whereapplicable, andeachsuchEmployeePlanthatisintendedtobequalifiedwithinthemeaningofSection 401 oftheInternalRevenueCodeof1986isqualified.Nowithdrawalliabilityhasbeenincurred under any such Employee Plans andno “Reportable Event” or “Prohibited Transaction” (as such termsaredefinedinERISA),hasoccurredwith respecttoanysuch EmployeePlans,unless approvedby theappropriategovernmentalagencies.TotheknowledgeofeachBorrower,each Borrowerhaspromptlypaidanddischargedallobligationsandliabilitiesarisingunderthe ERISA of acharacterwhich if unpaid or unperformedmight result in the imposition of a Lien against any of its properties or assets.
7.15AdverseCircumstances.Nocondition,circumstance,event,agreement, document, instrument, restriction, litigation or Proceeding (or threatened litigationor Proceeding orbasistherefor)existswhich:(i)couldadverselyaffectthevalidityorpriorityof theLiens granted to Lender under the Loan Documents; (ii) could adversely affect the ability of any Borrowertoperform itsobligationsundertheLoanDocuments;(iii)wouldconstituteadefault underanyoftheLoanDocuments; (iv)wouldconstitute suchadefaultwith thegivingofnotice or lapse of time or both; or (v) would constituteor give rise to a Material Adverse Effect.
7.16Liabilities and Indebtedness of the Borrower.NoBorrower has any Funded Indebtedness or any liabilities or obligations of any nature whatsoever, except: (i) as disclosed in theFinancialStatements;or(ii)liabilitiesandobligationsincurred intheOrdinaryCourseof Business of each Borrower since the date of the last Financial Statements filed by the Issuing Borrower with the SEC which do not or would not,individuallyorin the aggregate,exceed Ten Thousand Dollars ($10,000) or otherwise have a Material Adverse Effect.
7.17Real Estate.
(a)RealPropertyOwnership.ExceptfortheBorrowerLeases,Borrower does not own any RealProperty.
(b)RealPropertyLeases.ExceptfortheBorrowerLeases,noBorrower leasesanyotherRealProperty.Withrespectto eachoftheBorrowerLeases:(i)eachBorrower hasbeeninpeacefulpossessionoftheproperty leasedthereunderandneitherBorrowernorthe landlord is in default thereunder; (ii) no waiver, indulgence or postponement of any of the obligations thereunder has been granted by any Borrower or landlord thereunder; and (iii) there exists no event, occurrence, condition or act known to any Borrowerwhich, upon notice or lapse oftimeorboth,wouldbeorcouldbecomeadefault thereunder or whichcouldresultinthe termination of the Borrower Leases, or any of them, or have a Material Adverse Effect.No Borrowerhasviolated norbreachedanyprovisionofanysuchBorrowerLeases,andall obligations required to be performed by any Borrower under any of such Borrower Leases have been fully, timely and properly performed.Each Borrower has delivered to theLender true, correctandcompletecopiesofallBorrowerLeases,includingallmodificationsand amendments thereto,whetherinwritingorotherwise.NoBorrowerhasreceivedany writtenororalnoticeto theeffectthatanyoftheBorrowerLeaseswillnotberenewedattheterminationoftheterm of such Borrower Leases, or that theBorrower Leases willberenewed only at higher rents.
7.18MaterialContracts.Anaccurate,currentandcompletecopyofeachofthe MaterialContractshasbeenfurnishedtoLenderand/orisreadily availableaspartoftheSEC Documents,andeachoftheMaterialContractsconstitutestheentireagreementoftherespective parties thereto relating to the subjectmatter thereof.There are no outstanding offers, bids, proposals or quotationsmade by any Borrower which, if accepted,would create a Material Contract with such Borrower.Each of the Material Contracts is in full force and effect and is a valid and binding obligation of the parties thereto in accordance with the terms and conditions thereof.To theknowledgeofeach Borrowerand itsofficers,allobligationsrequiredtobe performedunderthetermsofeachoftheMaterialContracts byany partytheretohavebeenfully performedbyallpartiesthereto,andnopartytoanyMaterialContractsis indefaultwithrespect toanytermorconditionthereof,norhasanyeventoccurredwhich,throughthepassageoftime
orthegivingofnotice,orboth,wouldconstituteadefaultthereunder or would cause the acceleration ormodificationofanyobligationofanypartytheretoorthecreationofanylien, claim,chargeorotherencumbranceuponanyoftheassetsorpropertiesofanyBorrower. Further,noBorrowerhasreceivedanynotice,nordoesanyBorrowerhaveanyknowledge,of any pending or contemplated termination of any of the Material Contracts and, no such termination is proposed or has been threatened, whether in writing or orally.Borrowers represent and warrant that as of the Closing Date, Borrowers only sell Mineral Products under an oral Oil and Gas Purchase agreementwith High Sierra Crude Oil & Marketing.
7.19TitletoAssets.EachBorrowerhasgoodandmarketabletitleto,oravalid leaseholdinterestin,allof itsassetsandpropertieswhicharematerialtoitsbusinessand operations as presently conducted, free and clear of all liens, claims, charges or other encumbrances or restrictions on thetransferoruseofsame.Except as would not have a Material AdverseEffect,theassetsandpropertiesofeach Borrowerareingoodoperatingconditionand repair,ordinarywearandtearexcepted,andare freeofanylatentorpatentdefectswhichmight impairtheirusefulness,andaresuitableforthepurposesforwhichtheyarecurrentlyusedand for the purposes for which they are proposed to be used.
7.20IntellectualProperty. EachBorrowerownsorpossessesadequateandlegally enforceablerightsorlicensestousealltrademarks,tradenames,servicemarks,servicemark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmentalauthorizations,tradesecretsandall otherintellectualpropertyrightsnecessaryto conduct its business as now conducted. No Borrower has any knowledge of any infringement by anyBorroweroftrademark,tradenamerights,patents, patent rights,copyrights,inventions, licenses,servicenames,servicemarks,servicemarkregistrations,tradesecretorother intellectualproperty rightsofothers,and,to theknowledgeofeachBorrower,thereisnoclaim, demandorProceeding,orotherdemandofanynature beingmadeorbroughtagainst,ortoeach Borrowers’ knowledge, being threatened against, any Borrower regarding trademark, trade name, patents, patent rights, invention, copyright, license,servicenames,servicemarks,servicemark registrations,tradesecretorotherintellectualpropertyinfringement;andnoBorrowerisaware of any facts or circumstances whichmight give rise to any of the foregoing.
7.21LaborandEmploymentMatters.NoBorrowerisinvolvedinanylabordispute or, to the knowledge of any Borrower, is any such dispute threatened.To the knowledge of each Borroweranditsofficers,noneoftheemployees ofanyBorrowerisamemberofaunionand eachBorrowerbelievesthatits relationswithitsemployeesaregood.Totheknowledgeofeach Borroweranditsofficers,eachBorrowerhascompliedinallmaterialrespectswithalllaws, rules,ordinancesandregulationsrelatingto employmentmatters,civilrightsandequal employmentopportunities.
7.22Insurance.EachBorroweriscoveredbyvalid,outstandingandenforceable policiesofinsurancewhichwere issuedtoitbyreputableinsurersofrecognizedfinancial responsibility, covering its properties, assets and business against losses and risks normally insuredagainstbyothercorporationsorentitiesinthesameorsimilarlinesof businessesasthe Borrowers are engaged and in coverage amounts which are prudent and typically and reasonably carried by such other corporationsorentities(the“InsurancePolicies”).SuchInsurance Policiesareinfullforceandeffect,andallpremiumsduethereonhavebeenpaid.Noneofthe
InsurancePolicieswilllapse orterminateasa resultof thetransactions contemplatedbythis Agreement.EachBorrowerhascompliedwiththeprovisionsofsuchInsurancePolicies.No BorrowerhasbeenrefusedanyinsurancecoveragesoughtorappliedforandnoBorrowerhas anyreasontobelievethatitwillnotbeabletorenewitsexistingInsurancePoliciesasandwhen suchInsurancePoliciesexpireortoobtainsimilar coveragefrom similarinsurersasmaybe necessarytocontinueitsbusinessatacostthatwouldnotmateriallyandadverselyaffectthe condition, financial or otherwise, or the earnings, business oroperations of any Borrower.
7.23Permits.EachBorrowerpossessesallPermitsnecessarytoconductitsbusiness, andnoBorrowerhasreceivedanynoticeof,orisotherwiseinvolvedin,anyProceedings relating to the revocation ormodification of any such Permits.All such Permits are valid and in fullforceandeffectandeachBorrowerisinfull compliancewiththerespectiverequirementsof all such Permits.
7.24LendingRelationship.EachBorroweracknowledgesandagreesthatthe relationship hereby created with Lender is and has been conducted on an open and arm’s length basis in which no fiduciary relationship exists and that no Borrower has relied, nor is relying on, any such fiduciary relationship in executing this Agreement and in consummating the Loans. Lenderrepresentsthatitwillreceive theRevolvingNotepayabletoitsorderasevidenceof the Loans.
7.25CompliancewithRegulationU.NoportionoftheproceedsoftheLoansshallbe usedbyany Borrower,oranyAffiliatesofBorrower, eitherdirectly orindirectly,forthepurpose ofpurchasingorcarryinganymarginstock,withinthemeaningofRegulationUasadoptedby the Board of Governors of the Federal Reserve System.
7.26GovernmentalRegulation.NoBorroweris,noraftergivingeffecttoanyLoan, will be, subject to regulation under the Public Utility Holding Borrower Act of 1935, the Federal Power Act or the Investment Company Act of 1940 or to any foreign, federal or state statute or regulation limiting its ability to incur indebtedness for borrowedmoney.
7.27BankAccounts.Schedule7.27setsforth,withrespecttoeachaccountofeach Borrowerwithanybank, broker,merchantprocessor,orother depositoryinstitution:(i)thename andaccountnumberofsuchaccount;(ii)thenameandaddressof the institutionwheresuch account is held; (iii) the name of any Person(s) holding a power of attorney with respect to such account,ifany;and(iv)thenamesofallauthorizedsignatoriesandother Personsauthorizedto withdraw funds fromeach such account.
7.28PlacesofBusiness.TheprincipalplaceofbusinessofeachBorrowerissetforth onSchedule7.28andeachBorrowershallpromptlynotifyLenderofanychangeinsuch location.NoBorrowerwillremoveorpermittheCollateraltoberemovedfromsuchlocations without the prior written consent of Lender, except for: (i) certain heavy equipment kept at third partysiteswhenconductingbusinessormaintenance;(ii)vehicles,containers androlling stock; (iii)Inventorysoldorleasedin theOrdinaryCourseofBusiness;and(iv)temporary removalof Collateraltootherlocationsforrepairormaintenanceasmayberequiredfrom timetotimein each instance in the Ordinary Course of Business of each Borrower.
7.29IllegalPayments.NoBorrower,noranydirector,officer,member,manager, agent,employeeorotherPersonactingonbehalfofanyBorrowerhas,inthecourseofhis actionsfor,oronbehalfof,anyBorrower: (i)usedanycorporatefundsforanyunlawful contribution,gift,entertainmentorotherunlawfulexpensesrelatingtopoliticalactivity;(ii)made any direct or indirect unlawful payment to any foreign or domestic government official or employeefrom corporatefunds;(iii)violatedor isinviolationofanyprovisionoftheU.S. ForeignCorruptPracticesActof1977,asamended, oranysimilarforeignlaworregulation;or (iv)madeanybribe,rebate,payoff,influence payment,kickbackorotherunlawfulpaymentto any foreign or domestic government official or employee.
7.30RelatedPartyTransactions.Exceptforarm’slengthtransactionspursuantto which any Borrower makes payments in the Ordinary Course of Business upon termsno less favorablethansuchBorrowercouldobtainfromthirdparties,noneof theofficers,directors,managers, or employees of any Borrower, nor any stockholders,members or partners who own, legallyorbeneficially, five percent (5%) or more of theownership interests of any Borrower (each a“MaterialShareholder”), is presently a party to any transaction with any Borrower (otherthanforservicesasemployees,officersanddirectors),includinganycontractproviding for the furnishing of services to or by, providing for rental ofreal or personal property to or from, orotherwiserequiringpaymentsto or from, any officer, directoror such employee or Material Shareholderor,tothebestknowledgeofeach Borrower,anyotherPersonin whichanyofficer, director,oranysuchemployeeorMaterialShareholderhasasubstantialormaterialinterestinor ofwhichanyofficer,directororemployeeofanyBorrowerorMaterialShareholderisanofficer, director, trustee or partner.There are no claims, demands, disputesor Proceedings of any nature or kind between any Borrower and any officer, director or employee of any Borrower or any Material Shareholder, or between any of them, relating to any Borrower.
7.31InternalAccountingControls.EachBorrowermaintainsasystem ofinternal accountingcontrolssufficienttoprovidereasonableassurancethat:(i)transactionsareexecuted inaccordancewithmanagement’sgeneralorspecificauthorizations;(ii) transactionsare recordedasnecessarytopermitpreparationoffinancialstatementsinconformitywithGAAP andtomaintainassetaccountability;(iii) accesstoassetsispermittedonlyinaccordancewithmanagement’s general or specific authorization;and (iv) the recorded accountabilityfor assets is compared with the existing assets at reasonable intervalsandappropriateactionistakenwith respect to any differences.
7.32BrokerageFees.ExceptforMeyersAssociates,LP,thereisnoPersonactingon behalfofanyBorrowerwhoisentitledtoorhasanyclaim foranybrokerageorfinder’sfeeor commission in connection with the execution ofthisAgreementortheconsummationofthe transactions contemplated hereby.MeyersAssociates,LP, a FINRA registered securities brokeragefirm,shallbepaidafinder’sfee bytheBorrowers,atClosing,inaccordancewitha separate agreement between the Borrowers and Meyers Associates, LP.
7.33NoGeneralSolicitation.NoBorrower,noranyoftheirrespectiveAffiliates,nor anyPersonactingonitsortheirbehalf,hasengagedinanyformofgeneralsolicitationor generaladvertising(withinthemeaningofRegulationDunder theSecuritiesAct)inconnection with the offer or issuance of the Revolving Note, the Advisory Fee Shares or the shares issuable upon conversion of the Revolving Note.
7.34NoIntegratedOffering.NoBorrower,noranyoftheirrespectiveAffiliates,nor anyPersonactingonitsortheirbehalfhas,directlyorindirectly,madeanyoffersorsalesofany security or solicited any offers to buy any security, under circumstances that would require registrationoftheRevolvingNote, theAdvisoryFeeSharesoranysecuritiesissuableupon conversion of the Revolving Note under theSecurities Act or any other law of any applicable GovernmentalAuthority,orcausethisofferingof suchsecuritiestobeintegratedwithprior offeringsbyanyBorrowerforpurposesoftheSecurities Actoranyotherlawof anyapplicable Governmental Authority.
7.35PrivatePlacement.Assumingtheaccuracy oftheLender’s representationsand warrantiessetforthinSection8below,noregistrationundertheSecuritiesActor thelaws,rules or regulations of any other Governmental Authority is required for the issuance of the Revolving Note, the Advisory Fee Shares or the shares issuable upon conversion of the Revolving Note as contemplated hereby.
7.36CompleteInformation.ThisAgreementandallfinancialstatements,schedules, certificates,confirmations,agreements,contracts,andothermaterialssubmittedto Lenderin connection with or in furtherance of this Agreement by or on behalf of any Borrower fully andfairlystatesthematterswithwhichtheypurporttodeal,anddonotmisstateanymaterialfact nor, separately or in the aggregate, fail to state anymaterial fact necessary tomake the statementsmade notmisleading.
8. REPRESENTATIONS AND WARRANTIES OF LENDER.
Lendermakesthefollowingrepresentations andwarrantiestotheBorrowers,eachof whichshallbetrueandcorrectinallmaterialrespectsasofthedateoftheexecutionand deliveryofthisAgreementandasofthedateof eachLoanmadehereunder,exceptto theextent such representation expressly relates to an earlierdate,andwhichshallsurvivetheexecutionand delivery of this Agreement:
8.1Investment Purpose. Lender is acquiring the Revolving Note, the Advisory Fee Sharesorthesharesissuableuponconversion oftheRevolvingNote,foritsownaccount,for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof, except pursuant to sales registered or exempted under the Securities Act.
8.2AccreditedLenderStatus.Lenderisan“AccreditedLender”asthattermis defined in Rule 501(a)(3) of Regulation D promulgated under the Securities Act.
8.3RelianceonExemptions.LenderunderstandsthattheRevolvingNote,the AdvisoryFeeSharesorthesharesissuable uponconversionoftheRevolvingNote,areeach beingofferedandsoldtoitinrelianceonspecificexemptionsfrom theregistrationrequirements ofUnitedStatesfederalandstate securitieslaws,andthatBorrowersarerelyinginpartuponthe truthandaccuracyof,andLender’scompliancewith,therepresentations,warranties, agreements,acknowledgmentsandunderstandingsofLendersetforthherein in order to determine theavailabilityofsuchexemptions andtheeligibilityofLendertoacquiresuch securities.
8.4Information.Lenderhasbeenfurnishedwithallmaterialsithasrequestedrelating tothebusiness,financesandoperationsofBorrowersandinformationdeemedmaterialby Lender tomaking an informed investment decision regarding the Revolving Note. Lender has beenaffordedtheopportunitytoaskquestionsofBorrowersandtheirmanagement.Neither such inquiries nor any other due diligence investigations conducted by Lender or its representativesshall modify,amendoraffectLender’s righttorelyonBorrowers’ representationsandwarrantiescontainedinArticle7aboveorinanyotherLoanDocuments. Lender understands that its investment in the Revolving Note involves a high degree of risk. Lender is in a position regarding Borrowers,which, based upon economic bargaining power, enabledandenablesLendertoobtain informationfrom Borrowersinordertoevaluatethemerits and risks of this investment. Lender has sought such accounting, legal and tax advice, as it has considerednecessarytomakeaninformedinvestmentdecisionwithrespecttotheRevolving Note.
8.5NoGovernmentalReview.LenderunderstandsthatnoUnitedStatesfederalor stateagencyoranyotherGovernmentalAuthorityhaspassedonormadeanyrecommendation or endorsement of the Revolving Note, or the fairness or suitability of the investment in the Revolving Note, nor have such authorities passed upon or endorsed themerits of the offering of the Revolving Note.
8.6Transfer or Resale. Lender understandsthat: (i) the Revolving Note, the Advisory FeeSharesandthesharesissuableuponconversionoftheRevolvingNote,havenotbeenand arenotbeingregisteredundertheSecuritiesActoranyotherstatesecuritieslaws,andmaynot beofferedforsale,sold,assignedortransferredunless:(A)subsequentlyregisteredthereunder; or(B)Lendershallhavedelivered to Issuing Borrower an opinionofcounsel,inagenerally acceptableform,totheeffectthatsuchsecurities tobesold, assignedor transferredmaybesold, assignedortransferredpursuant toanexemptionfromsuchregistrationrequirements;and(ii) neitherBorrowernoranyotherPersonisunderanyobligationtoregistersuchsecuritiesunder theSecuritiesActoranystatesecuritieslawsor tocomplywiththetermsandconditionsofany exemption thereunder, except as otherwise set forth in thisAgreement.
8.7Intentionally Left Blank.
8.8Authorization,Enforcement.ThisAgreementhasbeendulyandvalidly authorized, executed and delivered on behalf of Lender and is a valid and binding agreement of Lenderenforceableinaccordancewithitsterms, exceptassuchenforceabilitymaybelimitedby generalprinciplesofequityorapplicable bankruptcy,insolvency,reorganization,moratorium, liquidation andothersimilarlaws relating to,oraffectinggenerally,theenforcementof applicablecreditors’rights and remedies.
8.9Intentionally Left Blank.
8.10DueFormationofLender.Lenderisanentitythathasbeenformedandvalidly exists and has not been organized for the specific purpose of purchasing the Revolving Note and is not prohibited fromdoing so.
8.11NoLegalAdvicefromBorrower.Lenderacknowledgesthatithadthe opportunity to review this Agreement and the transactions contemplated bythisAgreementwith hisoritsownlegalcounselandinvestmentand taxadvisors.Lenderisrelyingsolelyonsuch counsel and advisors and not on any statements orrepresentations of Borrowers or any of their representatives or agentsfor legal, tax or investment advice with respect to this investment, the transactionscontemplatedbythisAgreementorthesecurities lawsofanyjurisdiction;provided, however,theforegoingshallnotmodify, amendor affectLender’srighttorelyonBorrowers’ representations and warranties contained inArticle 7 above or in any other Loan Documents.
9. NEGATIVE COVENANTS.
9.1Indebtedness.NoBorrowershall,eitherdirectlyorindirectly,create,assume, incurorhaveoutstandinganyFundedIndebtedness (including purchase money indebtedness), or become liable, whether as endorser, guarantor, surety or otherwise, for any debt or obligation of any other Person, except:
(a) the Obligations;
(b)endorsement for collection or deposit of any commercial paper secured in the Ordinary Course of Business;
(c)obligationsfortaxes,assessments,municipalorothergovernmental charges;provided,thesamearebeingcontestedingoodfaith byappropriateproceedingsandare insured against or bonded over tothesatisfactionofLender;
(d)obligationsforaccounts payable,otherthanformoneyborrowed,incurred in the Ordinary Course of Business; provided that,anymanagementorsimilarfeespayableby anyBorrowershallbefullysubordinatedinright ofpaymenttothepriorpaymentinfullofthe Loansmadehereunder;
(e) obligationsexistingonthedatehereofwhicharedisclosedonthe
Financial Statements;
(f) unsecuredintercompanyFundedIndebtednessincurredintheOrdinary
Course of Business;
(g)FundedIndebtednessexistingontheClosing Date and set forth in the FinancialStatements,includinganyextensionsorrefinancingsoftheforegoing,whichdonot increasetheprincipalamountofsuchFundedIndebtednessasofthedate of such extension or refinancing;providedsuchFundedIndebtedness is subordinated to theObligationsowedto Lenderpursuanttoasubordinationagreement,in formandcontentacceptabletoLenderinits solediscretion,whichshallinclude an indefinite standstill on remediesandpaymentblockage rights during any default;
(h) FundedIndebtednessconsistingofCapitalLeaseobligationsorsecuredby
PermittedLiensofthetypedescribedinclause(g)ofthedefinitionthereofnottoexceed
$250,000 in the aggregate at any time;
(i) ContingentLiabilitiesarisingwithrespecttocustomaryindemnification obligations in favor of purchasers in connection with dispositions permitted hereunder;
(j) ContingentLiabilitiesincurredintheOrdinaryCourseofBusinesswith respect to surety and appeal bonds, performance bonds and other similar obligations; and
(k) ContingentLiabilitiesarisingunderindemnityagreementstotitleinsurers to cause such title insurers to issue toLender titleinsurancepolicies.
9.2Encumbrances.NoBorrowershall,eitherdirectlyorindirectly,create,assume, incurorsufferorpermittoexistanyLienorchargeofanykindorcharacteruponanyassetof anyBorrowerortheirSubsidiaries;whetherownedatthedatehereoforhereafteracquired, except Permitted Liensor as otherwise authorized by Lender in writing.
9.3Investments.NoBorrowershall,either directly or indirectly,make or have outstanding any new investments (whether through purchase of stocks, obligations or otherwise) in,orloansoradvancesto,anyotherPerson,oracquireallorany substantialpartoftheassets, business, stock or other evidence of beneficialownership of any other Person exceptfollowing:
Closing Date;
(a) ThestockorotherownershipinterestsinaSubsidiaryexistingasofthe
United States;
(b) investmentsindirectobligationsoftheUnitedStatesoranystateinthe
Business;
(c) tradecreditextendedbyanyBorrowerintheOrdinaryCourseof
(d) investmentsinsecuritiesofCustomersreceivedpursuanttoanyplanof reorganization or similar arrangement upon the bankruptcy or insolvency of such Customers;
Statements;
(e) investmentsexistingontheClosingDateandsetforthintheFinancial
(f) Contingent Liabilitiespermitted pursuant toSection 9.1; or
(g) Capital Expenditures permitted underSection 9.5.
9.4Transfer;Merger.NoBorrowershall,eitherdirectlyorindirectly,permita ChangeinControl,merge,consolidate,sell,transfer,license,lease, encumberorotherwise disposeofalloranypartofits propertyorbusinessorallorany substantialpartof itsassets,or sellordiscount(withorwithoutrecourse)anyofitsNotes(asdefinedintheUCC),Chattel Paper, Payment Intangibles or Accounts;provided,however, that any Borrowermay:
(a) sell or lease Inventory and Equipment inthe Ordinary Course of Business;
(b)uponnotlessthanthree(3)Business Days’priorwrittennoticetoLender, any Subsidiary of any Borrowermaymerge with (so long as the applicable Borrower remains the surviving entity), ordissolve or liquidate into, or transfer itsproperty to any Borrower;
(c) disposeofused,worn-outorsurplusequipmentintheOrdinaryCourseof Business;
(d) discount or write-off overdue Accounts for collection in the Ordinary
Course of Business;
(e) sellorotherwisedispose(includingcancellationofFundedIndebtedness)
of any Investment permitted underSection 9.3in the Ordinary Course of Business; and
(f) grant Permitted Liens.
9.5CapitalExpenditures.WithoutLender’spriorconsent,noBorrowershallmakeor incur obligationsfor any CapitalExpenditures in any fiscal year.
9.6IssuanceofStock.NoBorrowershall,norshallanyBorrowerpermitanyofits Subsidiariesto,eitherdirectlyorindirectly,issueordistributeanyadditionalcapitalstockor other securities of any such Borrower or theirSubsidiaries without the prior written consent of Lender.
9.7Distributions;RestrictedPayments.NoBorrowershall:(i)purchaseorredeem any shares of its stock or declare or pay any dividends or distributions, whether in cash or otherwise, set aside any funds foranysuchpurposeormakeany distributiontoitsshareholders,makeanydistributionofitspropertyorassetsormakeanyloans,advancesorextensionsof credit to, or investmentsin, any Persons, including, without limitation, such Borrower’s Affiliates,officers,partnersoremployees,withoutthepriorwrittenconsentof Lender;(ii)make anypaymentsofany FundedIndebtednessotherthan aspermitted hereunder;or(iii)increasethe annual salary paid to any officers of any Borrower as of the Closing Date, unless any such increaseispartofawrittenemploymentcontractwithanysuchofficersentered into priortothe Closing Date, a copy of which has beendelivered to and approved by the Lender.
9.8UseofProceeds.NoBorrower,noranyoftheirSubsidiariesorAffiliates,shall use any portion of the proceeds of the Loans, either directly or indirectly, for the purpose of purchasinganysecuritiesunderwrittenbyanyAffiliateofLender.Inaddition, noBorrower,nor anyoftheirSubsidiariesorAffiliates,shalluse anyportionoftheproceedsoftheLoans,either directly or indirectly, forany of the following purposes: (i) tomake any payment towards any FundedIndebtedness ofanyBorroweroranySubsidiaries orAffiliatesthereof;(ii)topayany taxesof anynatureorkindthatmay beduebyanyBorroweroranySubsidiaries orAffiliates thereof;(iii) topayanyobligations orliabilitiesofanynatureorkinddueorowingtoany officers,directors,employees,orMaterialShareholdersofanyBorroweror anySubsidiariesor Affiliatesthereof.BorrowersshallonlyusetheproceedsoftheLoans(oranyportionthereof) for the purposes set forth in a“UseofProceedsConfirmation” to be executed by Borrowers on theClosingDate,unlessBorrowersobtain thepriorwrittenconsentofLenderto useproceeds of Loans for any other purpose, which consentmay be granted or withheld by Lender in its sole and absolute discretion.
9.9BusinessActivities;ChangeofLegalStatusandOrganizationalDocuments.No Borrowershall:(i)engageinanylineofbusinessotherthanthebusinessesengagedinonthe datehereofandbusinessreasonably relatedthereto;(ii)changeitsname,itstypeoforganization, itsjurisdictionsoforganizationorotherlegalstructure;or(iii)permititsArticlesof Incorporation, Bylaws, or other organizational documents to be amended ormodified in any way which could reasonably be expected tohave a Material Adverse Effect.
9.10TransactionswithAffiliates.NoBorrowershallenterintoanytransactionwith anyofitsAffiliates,exceptintheOrdinaryCourseofBusinessanduponfairandreasonable termsthatarenolessfavorabletosuchBorrower than it would obtain inacomparablearm’s length transaction with a Person not an Affiliate ofsuch Borrower.
9.11BankAccounts.NoBorrowershallmaintainanybank,deposit,creditcard payment processing accounts, or other accounts with any financial institution, or any other Person, for any Borrower or any Subsidiary or AffiliateofanyBorrower,otherthanBorrowers’ respectiveaccountslistedintheattachedSchedule7.27,andotherthantheLockBoxAccount established pursuant to this Agreement.Specifically, no Borrowermay change,modify, close or otherwiseaffecttheLockBoxAccount,oranyoftheotheraccountslistedinSchedule7.27, without Lender’s prior written approval, which approvalmay be withheld or conditioned in Lender’s sole and absolute discretion.
9.12SaleofMineralProducts. NoBorrowershallsellanyMineralProductstoany Person other than High Sierra Crude Oil & Marketing, Dorado Oil Company and/or ScissorTail Energy,LLC,unlessanduntilBorrowersand anysuchotherPersonshallhaveexecuted instrumentsacceptabletoLendersubstantiallysimilartotheinstrumentsreferencedinSections
3.2(k) and 3.2(l) hereof.
9.13Payments on Certain Existing Debt.Borrowers represent and warrant that Borrowers have certain Funded Indebtedness in favor of Louise Somes,EugenePankey,Bernard Simon,Jim Stanley,andKirkDortch(the “RestrictedDebt”).Inthisregard,Borrowershereby agreethatBorrowersshallnotmakeanypaymentsofanykindto anyholdersoftheRestricted Debt,eitherinDollars,other currency,orinkind,unlessanduntiltheLendershallhavefirst approved any such payments in writing.
10. AFFIRMATIVE COVENANTS.
10.1CompliancewithRegulatoryRequirements.UpondemandbyLender,Borrowers shall reimburse Lenderfor Lender’s additional costs and/or reductions in the amount of principal orinterestreceivedorreceivableby Lenderifat anytimeafterthedateofthisAgreementany law,treatyorregulationoranychangeinanylaw,treatyorregulationortheinterpretation thereofbyanyGovernmentalAuthoritychargedwiththeadministrationthereoforany other authorityhavingjurisdictionover LenderortheLoans,whetherornothavingtheforceoflaw, shallimpose,modifyordeemapplicableanyreserveand/orspecialdepositrequirementagainst or in respect of assets held by or deposits in or for the account of the Loans by Lender or impose onLenderanyothercondition withrespecttothisAgreementortheLoans,theresultofwhichis toeitherincreasethecosttoLenderofmaking ormaintainingtheLoansortoreducetheamount ofprincipalorinterestreceivedorreceivablebyLenderwithrespecttosuchLoans.Said
additionalcostsand/orreductionswillbethosewhichdirectlyresultfromtheimpositionofsuch requirement or condition on themaking ormaintaining of such Loans.
10.2CorporateExistence.EachBorrowershallatalltimespreserveandmaintainits: (i)existenceandgoodstandinginthejurisdictionof itsorganization;and(ii)itsqualificationto dobusinessandgoodstandingineachjurisdictionwherethenature ofitsbusinessmakessuch qualificationnecessary(otherthansuchjurisdictionsinwhichthefailuretobequalifiedorin good standing could not reasonably be expectedtohaveaMaterialAdverseEffect),andshallat alltimescontinueasagoingconcerninthe businesswhichsuch Borrowerispresently conducting.
10.3MaintainProperty.EachBorrowershallatalltimesmaintain,preserveandkeep its plants, properties and equipment, including, but not limited to, any Collateral, in good repair, workingorderandcondition,normalwearandtearexcepted,andshallfromtimetotime,aseach Borrower deems appropriate in its reasonable judgment,makeall needful and proper repairs, renewals, replacements, and additions thereto so that at all times the efficiency thereof shall befullypreservedandmaintained.Each BorrowershallpermitLendertoexamineandinspectsuch plant,propertiesandequipment,including,but notlimitedto,anyCollateral,atallreasonable times upon reasonable notice during business hours.During the continuance of any Event of Default,Lendershall,atBorrowers’expense, havetherighttomakeadditionalinspections without providing advance notice.
10.4MaintainInsurance.EachBorrowershallatalltimesinsureandkeepinsured withinsurancecompaniesacceptabletoLender, allinsurablepropertyownedbyeachBorrower which is of a character usually insured by companies similarly situated and operating like properties,againstlossordamagefrom environmental,fireandsuchotherhazardsorrisksasare customarily insured against by companiessimilarly situated and operating likeproperties; and shallsimilarlyinsureemployers’,publicandprofessional liabilityrisks.Priortothe dateof the funding of any Loans under this Agreement, each Borrower shall deliver to Lender a certificate settingforth insummaryform thenatureand extent oftheinsurancemaintainedpursuanttothis Section.All such policies of insurancemust be satisfactory toLender in relation to the amount andtermoftheObligationsandtypeandvalueoftheCollateralandassetsofeachBorrower, shallidentifyLenderassole/lender’slosspayeeandasanadditionalinsured.Intheeventany BorrowerfailtoprovideLenderwithevidenceof theinsurancecoveragerequiredbythisSection oratanytimehereaftershallfailtoobtainormaintainany of thepoliciesof insurancerequired above, or to pay any premium in whole or in part relating thereto, then Lender, without waiving or releasing any obligation or default by any Borrower hereunder,may at any time (but shall be under no obligation to so act), obtain andmaintain such policies of insurance and pay such premiumand take any other action with respect thereto, which Lender deems advisable. This insurancecoverage:(i)may,butneednot,protectanyBorrower’sinterest in such property, including,butnotlimitedto,theCollateral;and (ii)maynotpayanyclaimmadeby,oragainst, any Borrower in connection with such property, including, but not limited to, the Collateral. Any Borrowermay later cancel any such insurance purchased by Lender, but only after providingLenderwithevidencethattheinsurancecoveragerequiredby thisSectionisinforce. The costs of such insurance obtained by Lender, through and including the effective date such insurancecoverageis canceled orexpires, shallbepayableondemand byBorrowerstoLender, together with interest at the Default Rate on suchamounts until repaid and any other charges by
Lenderinconnection withtheplacementofsuchinsurance.Thecostsofsuchinsurance,whichmaybegreaterthan the costof insurancewhichanyBorrowermaybeabletoobtainonitsown, together with interestthereon at the Default Rate and any other charges by Lender in connection with the placement of such insurancemay be added to the total Obligations due and owing to the extent not paid by any applicable Borrower.
10.5Tax Liabilities.
(a)EachBorrowershallatalltimespayanddischargeallproperty,income andothertaxes,assessmentsandgovernmentalchargesupon,andallclaims(includingclaims for labor, materials and supplies) against suchBorrower or any of its properties, Equipment or Inventory, before the same shall become delinquent and before penalties accrue thereon, unless and to the extent that the sameare being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP are beingmaintained.
(b)EachBorrowershallbe solelyresponsibleforthepaymentof anyandall documentarystampsandothertaxesimposedby theStateofFloridainconnectionwiththe execution of this Agreement, the Security Agreement and the Revolving Note.
10.6ERISALiabilities;EmployeePlans.EachBorrowershall:(i)keepinfullforce andeffectanyandallEmployeePlanswhicharepresentlyinexistenceormay,fromtimeto time,comeintoexistenceunderERISA,andnotwithdrawfromanysuchEmployeePlans, unless such withdrawal can be effected or such Employee Plans can be terminated without liabilitytosuchBorrower;(ii)makecontributionstoallof suchEmployeePlans inatimelymannerandinasufficientamounttocomply with the standards of ERISA, including theminimumfundingstandardsofERISA;(iii)complywithallmaterialrequirements ofERISA whichrelatetosuchEmployeePlans;(iv) notify Lenderimmediately upon receipt by such Borrowerof anynoticeconcerningtheimpositionofanywithdrawalliabilityoroftheinstitution ofanyProceedingorotheractionwhichmayresultintheterminationofanysuchEmployee Plans or the appointment of a trustee to administer such Employee Plans; (v) promptly advise Lender of the occurrence of any “ReportableEvent” or “Prohibited Transaction” (as such terms are defined in ERISA), with respect to any such Employee Plans; and (vi) amend any Employee Planthatisintendedtobequalified withinthemeaningofSection401oftheInternalRevenue Codeof1986totheextentnecessarytokeep theEmployeePlanqualified,andtocausethe EmployeePlantobeadministered and operated in amanner that does not cause the Employee Plan to lose its qualified status.
10.7FinancialStatements.Borrowersshallatalltimesmaintainasystemof accounting capable of producing consolidated financial statements in compliance with GAAP (providedthatmonthlyfinancialstatementsshall notberequiredtohavefootnotedisclosure,are subjecttonormalyearendadjustmentsandneednotbeconsolidated),andshallfurnishto Lenderoritsauthorized representativessuch informationregardingtheconsolidatedbusiness affairs,operationsandfinancialconditionofBorrowersasLendermayfrom timetotimerequest or require, including, but not limited to:
(a)IftheRevolvingLoanMaturityDateisextendedbeyondtheoriginalterm, assoonasavailable,andinanyevent,withinninety(90)daysafterthecloseofeachfiscalyear,
a copy of the consolidated annual audited financial statements of Borrowers, including balance sheet,statement of income and retained earnings, statement of cash flows for the fiscal year then ended,inreasonabledetail,prepared andreviewedbyanindependentcertifiedpublicaccountant reasonably acceptable to Lender, containingan unqualified opinion of such accountant;
(b)assoonasavailable,andinanyevent,withinsixty(60)daysafterthe closeofeachfiscalquarter,acopyoftheconsolidated quarterlyfinancialstatementsof Borrowers, including balance sheet, statement of income and retained earnings,statement of cash flowsforthefiscalyearthenended, inreasonable detail,preparedandcertifiedasaccurateinallmaterial respects by the President or Chief Financial Officer of each Borrower;
(c)assoonasavailable,andinanyevent,withinthirty(30)daysfollowing theendof eachcalendarmonth, acopyoftheconsolidatedfinancialstatementsofBorrowers regarding suchmonth, including balance sheet, statement of income and retained earnings, statementofcashflowsforthemonththenended,inreasonabledetail, prepared and certifiedas accurate in allmaterial respects by the President or Chief Financial Officer of each Borrower.
No change with respect to such accounting principles shall bemade by any Borrower without giving prior notification toLender. Each Borrower represents and warrants to Lenderthatthefinancialstatementsdeliveredto Lenderatorpriortotheexecutionanddelivery ofthisAgreementandtobedeliveredatalltimes thereafter accurately reflect andwillaccurately reflecttheconsolidatedfinancialcondition of Borrowers inallmaterialrespects.Lendershall havetherightatalltimes(andonreasonablenoticesolongastherethendoesnotexistany Event of Default) during business hours to inspect the books and records of each Borrower andmakeextractstherefrom.EachBorrowershallatalltimescomplywithallreporting requirements of the SEC to the extent applicable.
Each Borrower agrees to advise Lender immediately, in writing, of the occurrence of any Material Adverse Effect, or the occurrence of any event, circumstanceor other happening that couldbe reasonablyexpected to lead to or become a Material Adverse Effect.
10.8AdditionalReportingRequirements.EachBorrowershallprovidethefollowing reports and statements to Lender as follows:
(a)OntheClosingDate,BorrowersshallprovidetoLenderanincome statementprojectionshowing,inreasonabledetail, theBorrowers’incomestatementprojections forthetwelve(12)calendarmonths followingtheClosingDate(the “IncomeProjections”).In addition,onthefifteenth(15th) dayofeverycalendarmonth aftertheClosingDate,the Borrowers shall provide to Lender a report comparingtheIncomeProjectionstoactualresults. AnyvarianceintheIncomeProjectionstoactual resultsthatismorethantenpercent(10%) (eitheraboveorbelow)willrequiretheBorrowersto submittoLenderwrittenexplanations asto the nature and circumstances for the variance.
(b)Onthefifteenth(15th) dayofeverycalendarmonth after the Closing Date, theBorrowersshallprovidetoLenderareport comparingtheuseoftheproceedsofthe Revolving Loans set forth in the Use of Proceeds Confirmation, with the actual use of such proceeds.Anyvarianceintheactualuseofsuchproceedsfromtheamountssetforthinthe
approved Use of proceeds Confirmation will require the Borrowers to submit to Lender written explanationsas to the nature and circumstances for the variance.
(c)Borrowersshall submit to Lender true and correct copies of all bank statements received by any Borrower within five (5) days after such Borrower’s receipt thereof fromits bank.
(d)Promptlyuponreceiptthereof,BorrowersshallprovidetoLendercopies ofinterim andsupplementalreports,ifany,submitted toanyBorrowerby independent accountants in connection with any interimaudit or review of the books of any Borrower.
10.9AgedAccounts/PayablesSchedules.IfBorrowersrequiredrawsfromthefacility contemplatedherebyatleastonceaweek,theneachBorrowershall,onthefirst(1st)and fifteenth(15th) day ofeachandeverycalendarmonth,delivertoLenderanaged scheduleofthe AccountsofeachBorrower,listingthenameandamountduefrom eachCustomerandshowing theaggregateamountsduefrom:(i)0-30days;(ii) 31-60days;(iii)61-90days;(iv)91-120 days; and (v)more than 120 days, and certified as accurate by the Chief Financial Officer or the PresidentofeachBorrower.If,however,Borrowersrequiredrawsfromthefacility contemplatedherebylessthanonceaweek,thentheagedscheduleof Accountsrequiredbythe immediatelyprecedingsentenceshallberequiredtobedeliveredwithinfive(5)daysafterthe end of each consecutive calendarmonth during the term hereof. Each Borrowershall, within five(5)daysaftertheendof eachcalendarmonth,delivertoLenderanagedscheduleofthe accountspayableofeachBorrower,listingthenameandamountduetoeachcreditorand showingtheaggregateamountsduefrom:(v)0-30 days;(w)31-60days;(x) 61-90days; (y)91-
120 days; and (z)more than 120 days, and certified as accurate by the Chief Financial Officer or the President of each Borrower.
10.10FailuretoProvideReports.Ifatanytimeduringthetermof thisAgreement, BorrowersshallfailtotimelyprovideanyreportsrequiredtobeprovidedbyBorrowersto LenderunderthisAgreementoranyotherLoanDocument,inadditiontoallotherrightsand remedies that Lendermay have under this Agreement and the other Loan Documents, Lender shallhavetherighttorequire,ateachinstanceofany suchfailure, uponwrittennoticeto Borrowers,thattheBorrowersredeemAdvisoryFeeShares,forDollars,inanamountequalto
8.33% of the Advisory Fee, which cash redemption payment shall be due and payable by wire transfertoanaccountdesignatedbyLenderwithinfive(5)BusinessDaysfrom thedatethe Lender delivers such redemption notice to the Borrowers.
10.11CovenantCompliance.Borrowersshall,withinthirty(30)daysaftertheendof each calendarmonth, deliver to Lender aCompliance Certificate showing complianceby Borrowerswiththecovenantstherein,and certifiedasaccuratebythePresidentorChief Financial Officer of Borrowers.
10.12ContinuedDueDiligence/FieldAudits.Borrowersacknowledgethatduringthe term ofthisAgreement,Lenderanditsagentsandrepresentativesundertakeongoingand continuing due diligence reviews of Borrowersand their business and operations.Such ongoing duediligencereviewsmayinclude,andeachBorrowerdoesherebyallowLender,to conductsite visitsandfieldexaminationsoftheofficelocationsofeachBorrowerandtheassetsandrecords
ofeachBorrower,theresults ofwhichmustbe satisfactorytoLenderinLender’ssoleand absolutediscretion.Inthisregard,inordertocoverLender’sexpensesof theongoingdue diligencereviewsandanysitevisitsorfieldexaminationswhichLendermayundertakefrom time to time while this Agreement is in effect, the Borrowers shallpay to Lender, withinfive (5) BusinessDaysafterreceiptofaninvoiceordemandthereforfrom Lender,afeeofupto$4,000 peryear(basedontwo(2)expectedfiledauditsandongoingduediligenceof$2,000peraudit) tocoversuchongoingexpenses.Failuretopaysuchfeeasandwhenrequiredshallbedeemed an Event of Default under this Agreementand all other Loan Documents.The foregoing notwithstanding,fromandaftertheoccurrenceofanEventofDefaultoranyeventwhichwith notice, lapse of time or both, would become an Event of Default, Lendermay conduct site visits, fieldexaminationsandotherongoingreviewsofeachBorrower’srecords,assetsandoperations at any time, in its sole discretion, without any limitations in terms of number of site visits or examinationsandwithoutbeinglimitedtothefee herebycontemplated,allatthesoleexpenseof Borrowers.
10.13NoticeandOtherReports.Borrowersshallprovidepromptwrittennoticeto Lenderifat anytimeanyBorrowerfailstocomplywithanyof thecovenantsinSection11 herein.In addition, Borrowers shall, within such period of time as Lendermay reasonably specify, deliver to Lender such other schedulesandreportsasLendermay reasonably require.
10.14CollateralRecords.EachBorrowershallkeepfullandaccuratebooksandrecords relating to the Collateral and shallmark such books and records to indicate Lender’s Lien in the Collateralincluding,withoutlimitation,placing alegend,informandcontentreasonably acceptabletoLender,onallChattelPapercreatedbyBorrowersindicatingthatLenderhasa Lien in suchChattel Paper.
10.15NoticeofProceedings.EachBorrowershall,promptly,butnotmorethanfive(5) days after knowledge thereof shall have cometo the attention of any officer of such Borrower, givewritten noticetoLenderof allthreatened orpendingactions,suits, andProceedingsbefore any court or governmental department, commission, board or other administrative agency, or before or involving any other Person, whichmay have a Material Adverse Effect.
10.16NoticeofDefault.EachBorrowershall,promptly,butnotmorethanfive(5) daysafterthecommencementthereof,givenotice to Lender in writingof the occurrence of an EventofDefaultorofanyeventwhich,withthelapseoftime,thegivingofnoticeorboth, would constitute an Event of Default hereunder.
10.17EnvironmentalMatters.Ifanyreleaseorthreatenedreleaseorotherdisposalof Hazardous Substances shall occur or shall have occurred on any real property or any other assets of anyBorroweroranySubsidiaryorAffiliateof anyBorrower,suchBorrowershallcausethe promptcontainmentand/orremovalofsuchHazardous Substances and the remediation and/or operationofsuchrealpropertyorotherassetsasnecessarytocomplywithallEnvironmental Laws and to preserve the value of such real propertyor other assets.Without limiting the generalityof theforegoing,eachBorrowershallcomplywithany Federalorstatejudicialor administrativeorderrequiringtheperformanceat anyrealpropertyofanyBorrowerofactivities inresponsetothereleaseorthreatenedreleaseof aHazardousSubstance.Totheextentthatthe transportationofHazardousSubstancesispermittedbythisAgreement,Borrowersshalldispose
ofsuchHazardousSubstances,orofanyotherwastes,onlyatlicenseddisposalfacilities operating in compliancewith Environmental Laws.
10.18ReportingStatus;Listing.SolongasthisAgreementremainsineffect,andforso longasLenderowns,legallyorbeneficially,any oftheAdvisoryFeeSharesorothersharesof Common Stock, or has the right to receive anyadditionalsharesofCommonStock,theIssuing Borrowershall:(i)fileinatimelymannerallreportsrequiredtobefiledundertheSecurities Act,theExchangeActoranysecuritieslawsandregulationsthereofapplicabletotheBorrower ofanystateoftheUnitedStates, orbytherulesandregulationsofanyGovernmentalAuthority or the Principal Trading Market, and, to provide a copy thereof tothe Lender promptly after suchfiling;(ii)notterminateitsstatusas anissuerrequiredtofilereportsundertheExchangeAct, even if the Exchange Act and the rules and regulations thereunder would otherwise permit such termination;(iii)ifrequiredbytherulesandregulationsofthePrincipalTradingMarketoranyotherGovernmentalAuthority,promptlysecure thelistingoftheAdvisoryFeeSharesandany other shares of the Issuing Borrower’s Common Stock issuable to Lender under any Loan DocumentsuponthePrincipalTradingMarket(subjecttoofficialnoticeofissuance)and,take allreasonableactionunderitscontroltomaintainthecontinuedlisting, quotationandtradingof itsCommonStockonthePrincipalTradingMarket,and theIssuingBorrowershallcomplyinall respectswiththeIssuingBorrower’s reporting, filingandotherobligations underthebylawsor rulesofthePrincipalTradingMarket,theFinancial Industry Regulatory Authority,Inc.andsuch otherGovernmentalAuthorities, asapplicable.TheIssuing Borrowershallpromptlyprovideto Lendercopiesofanynoticesitreceivesfromthe SEC, any Principal TradingMarket,orany otherGovernmentalAuthority,to theextentanysuchnoticescouldinanywayhaveorbe reasonably expected to havea Material Adverse Effect.
10.19Rule144.WithaviewtomakingavailabletoLenderthebenefitsofRule144 undertheSecuritiesAct(“Rule144”),oranysimilarruleorregulationof theSECthatmayat anytimepermitLendertoselltheAdvisoryFeeSharesorothersharesofCommonStock issuable to Lender under any Loan Documents to the public without registration, the Issuing Borrower represents andwarrants that: (i) the Issuing Borrower is, and has been for a period of at leastninety(90)daysimmediatelyprecedingthedatehereof,subjecttothereporting requirementsofSection13or15(d)oftheExchangeAct;(ii)theIssuing Borrowerhasfiledall requiredreportsunderSection13or15(d)oftheExchangeAct duringthetwelve(12)months precedingtheClosingDate(orforsuchshorter periodthattheIssuingBorrowerwasrequiredto filesuchreports);and(iii)theIssuingBorrowerisnotanissuerdefinedasa“ShellCompany” (ashereinafterdefined).Forthepurposeshereof,theterm“ShellCompany”shallmeanan issuerthatmeetsthatdescriptiondefinedunderRule144. Inaddition, solong asLenderowns, legally or beneficially, any securities of the Issuing Borrower, the Issuing Borrower shall, at its sole expense:
(a) Make,keepandensurethatadequatecurrentpublicinformationwith respect to the Issuing Borrower, as required in accordance with Rule 144, is publicly available;
(b)furnishtotheLender,promptlyuponreasonablerequest:(A)awritten statementbytheIssuingBorrowerthatithascompliedwiththereportingrequirementsofRule
144,theSecuritiesAct,andtheExchangeAct;and(b)suchotherinformationasmaybe reasonablyrequestedbyLendertopermittheLendertosellanyoftheAdvisoryFeeSharesor
othersharesofCommonStockacquiredhereunderorundertheRevolvingNotepursuanttoRule
144, without limitation or restriction; and
(c)promptly at the request of Lender,give the Issuing Borrower’s Transfer Agentinstructionstotheeffectthat,upontheTransferAgent’sreceiptfrom Lenderofa certificate (a “Rule144Certificate”) certifying that Lender’s holding period (as determined in accordancewiththeprovisionsof Rule144)foranyportionoftheAdvisoryFeeSharesorshares ofCommonStockissuableuponconversionoftheRevolvingNotewhichLenderproposesto sell (or any portion of such shares which Lender is not presently selling, but for which Lender desires to remove any restrictive legends applicable thereto) (the“SecuritiesBeingSold”) is not lessthansix(6)months,andreceiptbythe TransferAgentofthe“Rule 144Opinion”(as hereinafterdefined)from theIssuingBorroweroritscounsel(orfrom Lenderanditscounselas permittedbelow),theTransferAgentistoeffectthetransfer(orissuanceofanewcertificate withoutrestrictivelegends,if applicable) of the Securities BeingSoldandissuetoLenderor transferee(s) thereofoneormorestockcertificatesrepresentingthetransferred(orre-issued) SecuritiesBeingSoldwithoutanyrestrictivelegendandwithoutrecordinganyrestrictions on thetransferabilityofsuchsharesontheTransfer Agent’sbooksandrecords.Inthisregard,upon Lender’srequest,theIssuingBorrowershallhaveanaffirmativeobligationtocauseitscounsel to promptly issue to the Transfer Agent a legal opinion providing that, based on the Rule 144
Certificate, the Securities Being Soldmay be sold pursuant to the provisions of Rule 144, even in theabsenceofaneffectiveregistrationstatement,orre-issuedwithout anyrestrictivelegends pursuanttotheprovisionsofRule144,evenintheabsenceof aneffectiveregistrationstatement (the“Rule144Opinion”). If the Transfer Agent requires any additional documentation in connectionwithanyproposedtransfer(orre-issuance)byLender of any Securities Being Sold, theIssuingBorrowershallpromptlydeliverorcausetobedeliveredtotheTransferAgentorto anyotherPerson,allsuchadditionaldocumentationasmay benecessarytoeffectuatethe transfer (or re-issuance) of the SecuritiesBeing Sold and the issuance of an unlegended certificatetoanysuchLenderor anytransfereethereof,allat theIssuingBorrower’sexpense. Any and all fees, charges or expenses, including, withoutlimitation,attorneys’feesandcosts, incurredbyLenderin connectionwithissuanceofanysuchshares,ortheremovalofany restrictivelegendsthereon,orthetransferofanysuchsharesto any assignee of Lender, shall be paidbytheIssuingBorrower,and if not paid by the Issuing Borrower,theLendermay,butshall not be required to, pay any suchfees, charges or expenses,andtheamountthereof, together with interestthereonatthehighestnon-usuriousrate permittedbylaw,from thedateofoutlay,until paid in full, shall be due and payable by the Issuing Borrower to Lender immediately upon demand therefor, and all such amounts advancedby the Lender shall be additional Obligations dueunderthisAgreementandtheRevolvingNoteandsecuredundertheLoanDocuments.In the event that the Issuing Borrower and/or its counsel refuses or fails for any reason to render the Rule 144Opinion or any other documents, certificates or instructions required to effectuate the transfer (or re-issuance) of the SecuritiesBeing Sold and the issuance of an unlegended certificatetoanysuch Lenderor anytransfereethereof,then:(A)to theextenttheSecurities BeingSoldcouldbelawfullytransferred(orre-issued)withoutrestrictionsunderapplicable laws, Issuing Borrower’sfailure to promptly provide the Rule 144 Opinion or any other documents,certificates orinstructionsrequiredtoeffectuatethetransfer(orre-issuance)ofthe Securities BeingSoldandtheissuanceofanunlegendedcertificatetoanysuchLenderorany transfereethereofshallbeanimmediateEventofDefaultunderthisAgreementandallother Loan Documents; and (B) the Issuing Borrower hereby agrees and acknowledges that Lender is
herebyirrevocablyandexpresslyauthorizedto havecounseltoLenderrenderanyandall opinions and other certificates or instruments whichmay berequired for purposes of effectuating thetransfer(orre-issuance)of theSecuritiesBeingSoldandtheissuanceofanunlegended certificate to any such Lender or any transferee thereof, and the Issuing Borrower hereby irrevocably authorizes and directs the Transfer Agent to, without any further confirmation or instructionsfromtheIssuingBorrower,transferorre-issueanysuchSecuritiesBeingSoldas instructed by Lender and its counsel.
10.20Reservation ofShares.TheIssuingBorrowershalltakeallactionreasonably necessaryto atalltimeshaveauthorized,and reservedforthepurposeof issuance,suchnumber ofsharesofCommonStockasshallbenecessarytoeffectthe fullconversion oftheRevolving Noteinaccordancewithitsterms(the“ShareReserve”).IfatanytimetheShareReserveis insufficienttoeffectthefullconversionof theRevolvingNotethenoutstanding,theIssuing BorrowershallincreasetheShareReserveaccordingly.IftheIssuingBorrowerdoesnothave sufficientauthorizedandunissued sharesof CommonStockavailableto increasetheShare Reserve, the Issuing Borrower shall call and hold a specialmeeting of the shareholders within sixty(60)daysofsuchoccurrence, ortakeactionbythe writtenconsentof theholders of amajority of the outstanding shares of Common Stock, if possible, for the sole purpose of increasingthenumberofsharesauthorized.IssuingBorrower’smanagementshallrecommend to the shareholders to vote in favor of increasing the number of shares of Common Stock authorized.
11. FINANCIAL COVENANTS.
11.1PositiveEBITDA.Borrowers,collectively,shall,commencingwiththethird fiscal quarter following the Closing Date, cause a positiveEBITDA to bemaintained.
11.2RevenueCovenant.ForeachcalendarquarterwhilethisAgreementremainsin effect, Borrowers, collectively, shall have sales revenues that are not less than seventy-five percent(75%)ofthesalesrevenuesshownfor thecorrespondingcalendarquarteronthemost recent of the Financial Statements.
12. EVENTSOF DEFAULT.
Borrowers,withoutnoticeordemandofanykind,shallbeindefaultunderthis
Agreement upon the occurrence of any of the following events (each an“Event of Default”):
12.1NonpaymentofObligations.AnyamountdueandowingontheRevolvingNote oranyoftheObligations,whetherbyitstermsorasotherwiseprovidedherein,isnotpaidonthe date such amount is due.
12.2Misrepresentation.Anywrittenwarranty,representation,certificateorstatement ofanyBorrowerinthis Agreement,theLoanDocumentsoranyotheragreementwithLender shall be false ormisleading in anymaterial respect whenmade or deemedmade.
12.3Nonperformance.Any failure to perform or default in the performance of any covenant,conditionoragreementcontainedinthis Agreement(nototherwiseaddressedinthisArticle12),whichfailuretoperformordefaultinperformancecontinuesforaperiodoffifteen
(15)daysafterBorrowersreceivenoticeorknowledgefromanysourceofsuchfailureto perform ordefaultinperformance(providedthatifthefailuretoperform ordefaultin performance is not capable of being cured, inLender’s sole discretion, then the cure period set forthhereinshallnotbeapplicableandthefailureordefault shallbeanimmediateEventof Default hereunder).
12.4Default under Loan Documents.Any failure to perform or default in the performancebyanyBorrowerthatcontinuesafterapplicablegraceand cureperiodsunderany covenant, condition or agreement contained inany of the other Loan Documents or any other agreementwithLender,allof whichcovenants,conditionsandagreementsarehereby incorporatedin this Agreement by express reference.
12.5DefaultunderOtherObligations.AnydefaultbyanyBorrowerinthepaymentof principal,interestoranyothersum foranyotherobligationbeyondanyperiodofgraceprovided withrespecttheretoorintheperformanceof any,other term,condition orcovenantcontainedin anyagreement(including,butnotlimitedto,any capitaloroperatingleaseoranyagreementin connectionwiththedeferredpurchasepriceofproperty),theeffectofwhichdefaultistocause orpermittheholderofsuchobligation(ortheotherpartytosuch otheragreement)to causesuch obligationoragreementtobecomeduepriortoitsstatedmaturity,toterminatesuchother agreement, or to otherwisemodify or adversely affect such obligationor agreement in amanner that could have a Material Adverse Effect on such Borrower.
12.6AssignmentforCreditors.AnyBorrowermakesanassignmentforthebenefitof creditors,failstopay,oradmitsinwritingitsinabilitytopayitsdebtsastheymature;orif a trusteeofanysubstantialpartoftheassetsofanyBorrowerisappliedfororappointed,andin thecaseofsuchtrusteebeing appointed inaProceedingbroughtagainstsuch Borrower,such Borrower, by any action or failure to act indicatesitsapprovalof,consentto,oracquiescencein suchappointment andsuchappointmentisnotvacated, stayedonappealorotherwiseshallnot have ceased to continue in effect within sixty(60) days after the date of such appointment.
12.7Bankruptcy.AnyProceedinginvolvinganyBorrower,iscommencedbyor againstanyBorrowerunderanybankruptcy, reorganization,arrangement,insolvency, readjustment of debt, dissolution or liquidation law or statute of the federal government or any state government, and in the case of any such ProceedingbeinginstitutedagainstanyBorrower: (i) such Borrower, by any action or failure to act, indicates its approval of, consent to or acquiescencetherein;or(ii)anordershallbe enteredapprovingthepetitioninsuchProceedings andsuchorderisnotvacated,stayedonappealorotherwiseshallnothaveceasedto continuein effect withinsixty (60)days after theentry thereof.
12.8Judgments.Theentryofanyjudgment,decree,levy,attachment,garnishmentor other process, or the filing of any Lien against the property of any Borrower for an amount in excessof$50,000andwhichisnotfullycoveredbyinsuranceandsuchjudgmentorother processwouldhaveaMaterialAdverseEffecton theabilityofsuchBorrowertoperform under this Agreement or under Loan Documents, as determined by Lender in its sole discretion,unless suchjudgmentorotherprocessshallhavebeen,withinsixty(60)daysfrom theentrythereof:(i) bonded over to the satisfaction of Lender and appealed; (ii)vacated; or (iii) discharged.
12.9Material Adverse Effect.A Material Adverse Effect shall occur.
12.10ChangeinControl.Exceptas permittedunderthisAgreement,anyChangein Controlshalloccur;provided,however,aChange inControlshallnotconstituteanEventof Defaultif:(i)itarisesoutof aneventorcircumstancebeyond thereasonablecontrolofany Borrower (for example, but not by way of limitation,a transfer of ownership interest due to death orincapacity);and(ii)withinsixty(60)days aftersuchChangeinControl,suchBorrower provides Lender with information concerning the identity and qualifications of the individual or individualswhowillbeinControl, andsuchindividualorindividuals shallbeacceptableto Lender, inLender’s sole discretion.
12.11CollateralImpairment.Theentryof anyjudgment,decree,levy,attachment, garnishmentorotherprocess,or thefilingofanyLienagainst,anyoftheCollateralorany collateralunderaseparatesecurityagreementsecuringanyofthe Obligations,andsuch judgmentorotherprocessshallnot havebeen,withinthirty(30)daysfromtheentrythereof:(i) bonded over to the satisfaction of Lender and appealed; (ii) vacated; or (iii) discharged, or the loss,theft,destruction, seizureorforfeiture,orthe occurrenceofanymaterialdeteriorationor impairmentofanyoftheCollateraloranyoftheCollateralunderanysecurityagreement securinganyoftheObligations,oranymaterialdeclineordepreciation inthevalueormarket price thereof(whetheractualorreasonablyanticipated),whichcausestheCollateral, inthesole opinionofLenderactingingoodfaith,tobecomeunsatisfactoryastovalueorcharacter,or whichcausesLendertoreasonablybelievethat it is insecure and that the likelihood for repaymentoftheObligationsisorwillsoonbeimpaired,timebeingoftheessence.Thecause of such deterioration, impairment, decline or depreciation shall include, but is not limited to, the failure by any Borrower to do any act deemed reasonably necessaryby Lender to preserve andmaintain thevalue andcollectability ofthe Collateral.
12.12AdverseChangeinFinancialCondition.Thedeterminationingoodfaithby Lenderthatamaterialadversechangehasoccurred inthefinancialconditionoroperationsofthe Borrowers, or the Collateral, which change couldhave a Material Adverse Effect, or otherwise adverselyaffecttheprospectforLendertofully andpunctuallyrealizethefullbenefitsconferred on Lender by this Agreement, or the prospect of repayment of all Obligations.
12.13AdverseChangeinValueofCollateral. Thedeterminationingoodfaithby
Lender that the securityfor the Obligations is or has become inadequate.
12.14ProspectofPaymentorPerformance.ThedeterminationingoodfaithbyLender thattheprospectforpaymentorperformanceofanyoftheObligationsisimpairedforany reason.
13. REMEDIES.
UpontheoccurrenceandduringthecontinuanceofanEventofDefault,Lendershall haveallrights,powersandremediessetforthintheLoanDocuments,inanywrittenagreement orinstrument(otherthanthisAgreementortheLoanDocuments)relatingtoanyof the Obligationsoranysecuritytherefor,orasotherwiseprovidedat laworinequity.Without limitingthegeneralityoftheforegoing,Lendermay,atitsoption,upontheoccurrence and
duringthecontinuanceofanEventofDefault, declareitscommitmentstoBorrowerstobe terminated and all Obligations to be immediately due and payable;provided,however, that upon theoccurrenceofanEventof DefaultundereitherSection12.6,“AssignmentforCreditors”,orSection12.7,“Bankruptcy”,allcommitments ofLendertoBorrowersshallimmediately terminate and all Obligations shall be automatically due and payable, all without demand, notice orfurtheractionofanykindrequiredonthepartofLender.TheBorrowersherebywaiveany and all presentment, demand, notice of dishonor, protest, and all other notices and demands in connectionwiththeenforcementofLender’s rightsundertheLoanDocuments,andhereby consentto,andwaivenoticeofrelease,withorwithoutconsideration,oftheBorrowersorofany Collateral, notwithstanding anythingcontained herein or in the Loan Documents to the contrary.
NoEventof DefaultshallbewaivedbyLender,exceptandunlesssuchwaiverisin writing and signed by Lender.No failure or delay on the part of Lender in exercising any right, powerorremedyhereundershalloperateasawaiveroftheexerciseofthesameoranyother right at any other time; nor shall any single or partial exercise of any such right, power or remedy precludeanyotherorfurtherexercisethereofor theexerciseofanyotherright,powerorremedy hereunder.ThereshallbenoobligationonthepartofLendertoexerciseanyremedyavailable toLenderinanyorder.Theremediesprovidedforhereinarecumulativeandnotexclusiveof anyremediesprovidedatlaworin equity.EachBorroweragreesthatintheeventthatany Borrower fails to perform, observe or discharge any of its Obligations orliabilities under this Agreement,theRevolvingNote,andotherLoan Documents,orany otheragreementswith Lender,noremedyoflawwillprovideadequaterelief toLender,andfurtheragreesthatLender shallbeentitledtotemporary andpermanentinjunctiverelief inanysuchcasewithoutthe necessity of proving actual damages.
UpontheoccurrenceofanEventofDefault,inadditiontoanyotherrightsorremedies theLendermayhaveundertheLoanDocumentsorapplicablelaw,theLendershallhavethe right,butnottheobligation,tocausetheConfessionofJudgmenttobeenteredintoacourtof competent jurisdiction, provided, however, that the Lender shall give the Borrower ten (10) days written notice ofits intent tofile the Confession ofJudgment, during which period the Borrower shall have the opportunity to cure the applicable defaults.
14. MISCELLANEOUS.
14.1ObligationsAbsolute.NoneofthefollowingshallaffecttheObligationsofany
Borrower to Lender under this Agreement or Lender’s rights with respect to the Collateral:
(a) acceptanceorretentionbyLenderofotherpropertyoranyinterestin property as security for the Obligations;
(b) releasebyLenderofalloranypartoftheCollateralorofanypartyliable with respect to the Obligations (otherthan Borrowers);
(c) release,extension,renewal,modificationorsubstitutionbyLenderofthe
Revolving Note, or any note evidencing any of the Obligations; or
(d)failure of Lender to resort to any other securityor to pursue Borrowersor anyotherobligorliableforanyoftheObligations before resorting toremediesagainstthe Collateral.
14.2EntireAgreement.ThisAgreementandtheotherLoanDocuments:(i)arevalid, bindingand enforceableagainsttheeachoftheBorrowersandLenderinaccordancewithits provisionsandnoconditionsexistastotheirlegaleffectiveness;(ii)constitute theentire agreementbetweentheparties;and(iii)arethefinalexpressionof theintentionsofthe BorrowersandLender.Nopromises,eitherexpressedorimplied,existbetweentheBorrowers andLender,unlesscontainedhereinorintheLoanDocuments.ThisAgreementandtheLoan Documentssupersedeallnegotiations,representations, warranties,commitments,offers, contracts(of anykindornature,whetheroralorwritten)priortoorcontemporaneouswiththe execution hereof.
14.3Amendments;Waivers.Noamendment,modification,termination,dischargeor waiver of any provision of this Agreement or of the Loan Documents, or consent to any departurebyBorrowerstherefrom,shallinanyeventbeeffectiveunlessthesameshallbein writing and signed by Lender, and then such waiveror consent shall be effective only for the specific purpose for which given.
14.4WAIVER OFDEFENSES.THE CREDITPARTIESWAIVEEVERY PRESENT AND FUTURE DEFENSE, CAUSEOF ACTION,COUNTERCLAIM OR SETOFF WHICH THE CREDIT PARTIES MAY HAVE AS OF THE DATE HEREOF TO ANY ACTIONBY LENDERIN ENFORCINGTHISAGREEMENT AND THE OTHERLOAN DOCUMENTS.THECREDITPARTIESWAIVEANYIMPLIEDCOVENANTOFGOOD FAITHANDRATIFYANDCONFIRMWHATEVERLENDERMAY DOPURSUANTTO THE TERMS OF THIS AGREEMENT ANDTHE OTHERLOAN DOCUMENTS AS OFTHE DATEOFTHISAGREEMENT.THISPROVISIONISAMATERIALINDUCEMENTFOR LENDER GRANTING ANY FINANCIALACCOMMODATIONTO BORROWER.
14.5WAIVEROFJURYTRIAL.LENDERANDEACHOFTHECREDIT PARTIES,AFTER CONSULTINGORHAVINGHAD THEOPPORTUNITYTOCONSULTWITHCOUNSEL, KNOWINGLY, VOLUNTARILY AND INTENTIONALLYWAIVES, IRREVOCABLY,THERIGHTTOTRIALBYJURYWITH RESPECTTO ANY LEGAL PROCEEDINGBASEDHEREON,ORARISINGOUTOF,UNDERORINCONNECTIONWITH THIS AGREEMENT, THE REVOLVING NOTE, ANY LOAN DOCUMENT OR ANY OF THEOBLIGATIONS,THECOLLATERAL, OR ANY OTHER AGREEMENT EXECUTEDORCONTEMPLATEDTOBEEXECUTED INCONJUNCTIONWITHTHIS AGREEMENT, OR ANY COURSEOFCONDUCTOR COURSEOFDEALINGINWHICH LENDER ANDBORROWER(OR EITHER GUARANTOR) ARE ADVERSE PARTIES. THIS PROVISION IS A MATERIAL INDUCEMENTFORLENDERGRANTINGANY FINANCIAL ACCOMMODATION TOBORROWER.
14.6MANDATORYFORUMSELECTION.TOINDUCELENDERTOMAKE THE LOANS, EACH BORROWER IRREVOCABLY AGREES THATANY DISPUTE ARISING UNDER,RELATING TO, OR IN CONNECTION WITH, DIRECTLY OR INDIRECTLY,THISAGREEMENTORRELATEDTOANYMATTERWHICHISTHE
SUBJECTOF ORINCIDENTAL TO THIS AGREEMENTANY OTHERLOAN DOCUMENT, ORTHECOLLATERAL(WHETHERORNOTSUCHCLAIMISBASED UPON BREACH OFCONTRACT OR TORT) SHALL BE SUBJECT TO THE EXCLUSIVE JURISDICTIONANDVENUEOFTHESTATEAND/ORFEDERALCOURTSLOCATED IN BROWARD COUNTY, FLORIDA. THIS PROVISION IS INTENDED TO BE A “MANDATORY” FORUM SELECTION CLAUSEAND GOVERNED BY AND INTERPRETEDCONSISTENTWITH FLORIDALAW. EACH BORROWER HEREBY CONSENTS TO THE EXCLUSIVE JURISDICTION AND VENUE OF ANY STATE OR FEDERAL COURT HAVING ITSSITUS INSAIDCOUNTY,AND EACHWAIVESANY OBJECTIONBASEDON FORUMNON CONVENIENS. EACH BORROWER HEREBY WAIVESPERSONALSERVICEOFANYANDALLPROCESSANDCONSENTTHAT ALLSUCHSERVICE OFPROCESS MAYBE MADE BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, DIRECTED TO A BORROWER, AS APPLICABLE, AS SET FORTH HEREIN IN THEMANNERPROVIDEDBYAPPLICABLE STATUTE, LAW, RULE OFCOURT OR OTHERWISE.
14.7Assignability.LendermayatanytimeassignLender’srightsinthisAgreement, the Revolving Note, any Loan Document, the Obligations, or any part thereof and transfer Lender’srightsinanyoralloftheCollateral,andLenderthereaftershallberelievedfrom all liabilitywithrespecttosuchCollateral.Inaddition,Lendermayatanytimeselloneormore participationsintheLoans.TheCreditPartiesmaynotsellorassignthisAgreement,anyLoan Documentoranyotheragreement withLender,oranyportionthereof,eithervoluntarilyorby operationoflaw,nordelegateanyofitsdutiesofobligationshereunderorthereunder,without the priorwritten consent ofLender, which consentmay be withheldin Lender’s sole and absolutediscretion.ThisAgreementshallbebindinguponLenderandtheCreditPartiesand theirrespectivelegalrepresentatives, successorsandpermittedassigns. Allreferenceshereinto a Borrower shallbe deemed to include any successors, whether immediate or remote.In the case ofajointventureorpartnership,theterm “Borrower”shallbedeemedtoincludealljoint venturers or partners thereof, who shall be jointly and severally liable hereunder.
14.8Confidentiality.Eachofthepartiesheretoshallkeepconfidentialanyinformation obtained from the other party (except information publicly available or in such party’s domain priortodisclosureofsuchinformationfromtheotherpartyhereto,andexceptasrequiredby applicablelaws)andshallpromptlyreturn totheotherpartyallschedules,documents, instruments, work papers and other written information without retaining copies thereof, previously furnished by it asa result ofthis Agreement or in connection herewith.
14.9Publicity.Lendershallhavetherighttoapprove,beforeissuance,anypress release or any other public statement with respect to the transactions contemplated herebymade by Borrowers; provided, however, that Borrowers shall be entitled, without the prior approval of Lender,toissueany pressrelease orotherpublicdisclosurewithrespecttosuch transactions required under applicable securities or other laws or regulations.Notwithstanding the foregoing, Borrowersshallusetheirbestefforts toconsultLenderinconnection with anysuchpressrelease orotherpublicdisclosureprior toitsreleaseandLendershallbeprovidedwithacopythereof uponreleasethereof.Lendershallhavetherighttomakeanypressreleasewithrespecttothe transactions contemplated hereby without Borrowers’ approval.In addition, with respect to any pressreleasetobemadebyLender,Borrowersherebyauthorizeandgrantblanketpermissionto
Lender to include the Issuing Borrower’s stock symbol, if any, in any press releases.Borrowers shall,promptlyuponrequest,executeanyadditionaldocumentsofauthorityorpermissionasmay be requested by Lender in connection with any such press releases.
14.10BindingEffect. ThisAgreementshallbecomeeffectiveuponexecutionby
Borrowers and Lender.
14.11GoverningLaw.ExceptinthecaseoftheMandatoryForumselectionClausein section14.6above,whichclauseshallbegoverned andinterpretedinaccordancewithFlorida law,thisAgreement,theLoanDocumentsandtheRevolvingNote shallbedeliveredand accepted in and shall be deemed to be contractsmadeunder and governed by the internal laws of theStateofNevada,andforall purposesshallbeconstruedinaccordancewith thelawsofsuch State, without giving effect to the choice of law provisionsofsuch State.
14.12Enforceability.Whereverpossible, eachprovisionofthisAgreementshallbe interpretedinsuchmannerastobeeffectiveand validunderapplicablelaw,butifanyprovision ofthisAgreementshallbeprohibitedby,unenforceableorinvalidunderany jurisdiction, such provisionshallastosuchjurisdiction, be severable and be ineffectivetotheextentofsuch prohibition or invalidity, without invalidatingtheremainingprovisionsofthisAgreementor affecting the validity or enforceabilityofsuch provision in any other jurisdiction.
14.13SurvivalofBorrower’sRepresentations.Allcovenants,agreements, representationsandwarranties made by any Borrower herein shall, notwithstanding any investigationbyLender,bedeemedmaterial andrelieduponbyLenderandshallsurvivethemaking and execution of this Agreement and the Loan Documents and the issuance of the Revolving Note, and shall be deemed to becontinuing representations and warranties until such time as each Borrower has fulfilledall of its Obligations toLender, and Lender has been paid in full.Lender,inextendingfinancialaccommodations toBorrowers,is expresslyacting and relying on the aforesaid representations and warranties.
14.14ExtensionsofLender’sCommitmentandtheRevolvingNote.ThisAgreement shallsecureandgovernthetermsofanyextensionsorrenewalsof Lender’scommitment hereunderandtheRevolvingNote pursuanttotheexecutionofanymodification,extensionor renewalnoteexecutedbyBorrowersandacceptedbyLenderinitssoleandabsolutediscretion in substitution for the Revolving Note.
14.15TimeofEssence.Timeisoftheessenceinmakingpaymentsofallamountsdue LenderunderthisAgreementandin theperformanceand observancebyeachBorrowerofeach covenant, agreement, provision and termofthis Agreement.
14.16Counterparts.ThisAgreementmaybeexecutedinanynumberofcounterparts and by different parties hereto in separate counterparts, each of which when so executed and deliveredshallbedeemedtobeanoriginaland allofwhichtakentogethershallconstituteone and the same instrument.
14.17ElectronicSignatures.Lenderisherebyauthorizedtorelyuponandacceptasan original any Loan Documents or other communication which is sent to Lender by facsimile, telegraphicorotherelectronictransmission(each,a“Communication”)whichLenderingood
faith believes has been signed by a Borrower and has been delivered to Lender by a properly authorizedrepresentativeofaBorrower,whetheror notthatisinfactthecase.Notwithstanding theforegoing,LendershallnotbeobligatedtoacceptanysuchCommunicationasanoriginal andmay in any instancerequire that an original document be submitted to Lender in lieu of, or in addition to, any such Communication.
14.18Notices.Any notices, consents, waivers, or other communications required or permittedtobegivenunderthetermsofthisAgreementmustbeinwritingandineachcase properlyaddressedtothepartytoreceivethesameinaccordancewiththeinformationbelow, andwillbe deemedtohavebeen delivered:(i)ifmailedbycertifiedmail,returnreceipt requested,postageprepaidandproperlyaddressedtotheaddressbelow, thenthree(3)business daysafterdepositof sameinaregularlymaintained U.S. Mail receptacle;or(ii)ifmailedby Federal Express, UPS or other nationally recognized overnight courier service, next business morningdelivery,thenone(1)businessdayafterdepositof sameinaregularlymaintained receptacleofsuchovernightcourier;or(iii) ifhanddelivered,thenuponhanddeliverythereofto theaddress indicatedonorpriorto5:00p.m.,EST,onaBusinessDay.Anynoticehand delivered after 5:00 p.m., EST,shall be deemed delivered on the followingBusiness Day. Notwithstanding the foregoing, notice, consents, waivers or other communications referred to in thisAgreementmaybesentbyfacsimile,e-mail,orothermethodofdelivery,butshallbe deemedtohavebeen deliveredonly whenthesendingpartyhasconfirmed(byreplye-mailor someotherform ofwrittenconfirmation)thatthenoticehasbeenreceivedbytheother party. The addresses and facsimile numbers for such communications shallbe as set forth below, unless such address or information is changed by a notice conforming to the requirements hereof.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:
If to any Borrower:Petron Energy II, Inc.
17950 Preston Road, Suite 960
Dallas, TX 75252
Attention:Mr. FloydSmith, CEO
E-Mail:fsmith@petronenergy.com
If to the Lender: TCA Global Credit Master Fund, LP
1404 Rodman Street
Hollywood, Florida 33020
Attention:Robert Press, Director
Telephone:(786) 323-1650
Facsimile:(786) 323-1651
E-Mail:bpress@trafcap.com
With a Copy to: David Kahan, P.A.
6420 Congress Ave., Suite 1800
Boca Raton, Florida 33487
Telephone:(561) 672-8330
Facsimile:(561) 672-8301
E-Mail:david@dkpalaw.com
14.19Indemnification.EachBorroweragrees todefend,protect,indemnifyandhold harmless Lender and all of its officers, directors, employees and agents (including, without limitation, those retained in connection with thetransactions contemplated by this Agreement) (each,a“LenderIndemnitee”andcollectively,the“LenderIndemnitees”)fromandagainst any and all liabilities, obligations, losses, damages,penalties,actions,Proceedings,judgments, suits, claims, costs, expenses and distributions of any kindor nature (including, without limitation,thedisbursementsand thereasonablefeesofcounselforeachLenderIndemnitee thereto),whichmaybeimposedon,incurred by,orassertedagainst,anyLenderIndemnitee (whether direct, indirect or consequential and whether based on any federal, state or local laws or regulations, including,without limitation, securities, Environmental Laws and commercial laws andregulations,undercommonlaworinequity,orbasedoncontractorotherwise)inanymanner relating to or arising out of this Agreement or any of the Loan Documents, or any act, eventortransactionrelatedor attendant thereto, the preparation, execution and delivery of this AgreementandtheLoanDocuments,including, butnotlimitedto,themakingorissuanceandmanagementof the Loans, the use or intended use of the proceeds of the Loans, the enforcement ofLender’srightsandremediesunderthisAgreement,theLoanDocuments,theRevolving Note, any other instruments and documents delivered hereunder, or under any other agreement betweenBorrowersandLender;provided,however,thatBorrowersshallnothaveany obligationshereundertoanyLenderIndemniteewith respecttomatterscausedbyorresulting fromthe willfulmisconduct or gross negligence ofsuch Lender Indemnitee. To the extent that the undertaking to indemnify set forth in the preceding sentencemay be unenforceable because it violates any law or public policy, Borrowers shall satisfy such undertaking to themaximum extent permitted by applicable law. Any liability, obligation, loss, damage, penalty, cost or expense covered by this indemnity shall be paid to eachLender Indemnitee on demand, and, failingpromptpayment,shall,togetherwithinterestthereonattheDefaultRatefrom thedate incurredby eachLenderIndemniteeuntilpaid byBorrowers, beaddedtotheObligationsof BorrowersandbesecuredbytheCollateral. Theprovisionsof thisSectionshallsurvivethe satisfaction and payment ofthe other Obligations and the termination ofthis Agreement.
14.20Release.Inconsiderationofthemutualpromisesandcovenantsmadeherein,and othergood andvaluableconsideration,thereceiptandsufficiencyofwhichishereby acknowledged, and intending to be legally bound hereby, each Borrower hereby agrees to fully, finally and forever release and forever discharge and covenant not to sue Lender, and/or and its parentcompanies,subsidiaries,affiliates,divisions,and theirrespectiveattorneys,officers, directors,agents,shareholders,members,employees,predecessors, successors, assigns,personal representatives,partners,heirsandexecutorsfrom anyandalldebts,fees,attorneys’fees,liens, costs,expenses,damages,sumsofmoney,accounts,bonds,bills,covenants,promises, judgments,charges, demands,claims,causesofaction,suits,Proceedings,liabilities,expenses, obligationsorcontractsofanykindwhatsoever, whetherinlaworinequity,whetherassertedor unasserted,whetherknownorunknown,fixedorcontingent,understatuteorotherwise,from the beginningof timethroughtheClosingDate,including,withoutlimitingthegeneralityofthe foregoing,anyandallclaims relatingtoorarisingoutof anyfinancingtransactions,credit facilities, debentures, security agreements, andotheragreementsincluding,withoutlimitation, eachoftheLoanDocuments,enteredintoby anyBorrowerwithLenderandanyandallclaims that any Borrower does not know or suspect to exist, whether through ignorance, oversight,error, negligence,orotherwise,andwhich,ifknown,wouldmateriallyaffecttheirdecisiontoenter into this Agreement or the related Loan Documents.
14.21Interpretation.Ifany provisioninthisAgreementrequiresjudicialorsimilar interpretation, the judicial or other such body interpreting or construing such provision shall not applytheassumptionthatthetermshereofshall bemore strictlyconstruedagainstoneparty becauseoftherulethataninstrumentmustbe construedmorestrictlyagainstthepartywhich itself or through its agentspreparedthesame.Thepartieshereby agree that allparties and their agentshave participatedin the preparation hereof equally.
14.22CompliancewithFederalLaw.TheCreditPartiesshall:(i)ensurethatnoPerson who owns acontrolling interest in or otherwise controls a Credit Party is or shall be listed on the SpeciallyDesignatedNationals and Blocked PersonList or othersimilar listsmaintained by the Office of Foreign Assets Control (“OFAC”), the Department of theTreasury, included in any ExecutiveOrdersoranyothersimilarlistsfrom anyGovernmentalAuthority,foreignor national; (ii) not use or permit theuse of theproceeds of the Loans toviolate any of the foreign asset control regulations of OFAC or any enabling statute or ExecutiveOrder relating thereto, or anyothersimilarnationalorforeigngovernmental regulations;and(iii) comply, and cause each of suchCreditParty’sSubsidiariestocomply,withallapplicableLenderSecrecy Act(“BSA”)laws and regulations, as amended.As required by federal law and Lender’s policies and practices,Lendermayneedtoobtain,verifyand record certain customeridentification information and documentation in connection with opening ormaintaining accounts or establishingorcontinuing to provide services.
14.23JointandSeveralLiability.Theliability ofallBorrowershereunderforthe Obligations, or for the performance of any other term, condition, covenant or agreement ofany Borrower hereunder, shallbejointandseveral.
[REMAINDER OFPAGE LEFT BLANK, SIGNATURE PAGEFOLLOWS.]
INWITNESSWHEREOF,BorrowersandLenderhaveexecutedthis CreditAgreementas ofthedaleOmabovewritten.
BORROWERS:
PETRON ENERGY II, INC. ,
aNevadacorporation
PETRON ENERGY II, PIPELINE, INC.,
aTexascorporation
PETRON ENERGY II, WELL
SERVICE, INC.,
aTexascorporation
LENDER:
TCAGLOBALCREDITMASTERFUND,LP
By:TCA GlobalCreditFundGP,Ltd.
Its:GeneralPartner
By: _________________________
RobertPress,Director
58
Exhibit A Borrower Leases
Exhibit B
Form of Covenant ComplianceCertificate
Exhibit C Confession of Judgment
Exhibit D
Form of Revolving Note
Exhibit E
Form of Security Agreement
Exhibit F
Form of Validity Guaranties