THIRD AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
This THIRD AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT (the "Agreement") is between the undersigned
Borrowers, YALE E. KEY, INC. ("Yale"), KEY ENERGY DRILLING,
INC. D/B/A CLINT HURT DRILLING ("Hurt"), and WELLTECH
EASTERN, INC. ("WellTech") and the undersigned Lender, THE
CIT GROUP/CREDIT FINANCE, INC., concerning loans and other
credit accommodations to be made by Lender to Borrowers.
SECTION 1. PARTIES; BACKGROUND
1.1 The "Borrowers" are the persons, firms,
corporations or other entities, identified as the Borrowers in
Section 10.6(c) and their successors and assigns. All
references to "Borrower" shall mean each of them individually,
and all references to "Borrowers" shall mean each of them,
jointly, severally and collectively, and the successors and
assigns of each.
1.2 The "Lender" is The CIT Group/Credit Finance,
Inc. and its successors and assigns.
1.3 (i) Yale (the "Original Borrower"), Eskey, Inc.
(the "Original Guarantor"), and Fidelcor Business Credit
Corporation ("Fidelcor") entered into a loan transaction (the
"Original Loan Transaction") on December 29, 1988, and, in
connection therewith, Yale executed a Promissory Note in
favor of Fidelcor (the "Original Note"), and Yale delivered to
Fidelcor a Security Agreement (the "Security Agreement") and
certain related agreements and documents. As part of the
Original Loan Transaction, Eskey, Inc. executed a Corporate
Continuing Guaranty (the "Original Guaranty") in favor
of Fidelcor, guaranteeing unconditionally Yale's obligations
to Fidelcor. The Original Note, the Security Agreement, the
Original Guaranty, and all documents related thereto are
referred to herein as the "1988 Agreements".
(ii) On June 29, 1990, Yale and Fidelcor
entered into an Amended and Restated Loan and Security
Agreement (the Security Agreement as amended by the Amended
and Restated Loan and Security Agreement, being referred to
herein as the "Original Loan Agreement"); Yale executed a
Restated Promissory Note which amended and restated the Original
Note; and Eskey, Inc. reaffirmed its obligations under the
Original Guaranty by executing the Reaffirmation and Amendment
of Guaranty and Subordination Agreement; all of the foregoing
being referred to as the "Amendment Agreements". On July 25,
1990, Skeeter Well Service, Inc. ("Skeeter") executed a
Guaranty in favor of Lender and entered into a Security
Agreement with Lender (the "Skeeter Agreements"). The Amendment
Agreements and the Skeeter Agreements, along with all
documents executed in connection therewith, are referred to as
the "1990 Agreements".
(iii) On February 4, 1991, Fidelcor sold and
assigned to CIT the Original Loan Transaction, including all of
its right, title, and interest in and to the 1988 Agreements
and the 1990 Agreements.
(iv) On or about December 8, 1992,
pursuant to a plan of reorganization, Key Energy Group, Inc.,
a newly formed wholly-owned subsidiary of National
Environmental Group, Inc. ("NEGI"), and ESKEY, Inc., a
wholly-owned subsidiary of NEGI, merged with NEGI. NEGI was the
surviving corporation and its name was changed to Key Energy
Group, Inc.
(v) In March 1991, Yale, a wholly-owned
subsidiary of Key Energy Group, Inc. ("Key"), merged with
Skeeter Well Service, Inc. and Yale was the surviving
corporation. In July 1993, OEI Acquisition Corp., a
wholly-owned subsidiary of Key, merged with Odessa Exploration
Incorporated. OEI Acquisition Corp. was the surviving
corporation and its name was changed to "Odessa
Exploration Incorporated" ("Odessa"). In March 1995, Key Energy
Drilling, Inc., a wholly-owned subsidiary of Key, acquired
the assets of Clint Hurt & Associates, Inc. and the right
to use the name "Clint Hurt Drilling."
(vi) On May 19, 1994, Yale executed a
Second Amended and Restated Promissory Note (the "Second
Amended Note") in favor of CIT in the principal amount of
$4,326,666.69. On December 27, 1994, Yale executed a
Promissory Note (Term Note) (the "Term Note") in favor of CIT
in the principal amount of $2,500,000.00. The Second Amended
Note and the Term Note are referred to as the "1994 Notes".
(vii) The 1988 Agreements, the 1990
Agreements, and the 1994 Notes are referred to herein as the
"Original Loan Documents". Yale and Key are from time-to-time
referred to as the "Original Obligors".
(viii) On November 18, 1995, Key and
WellTech, Inc. entered into an Agreement and Plan of Merger
(the "Merger Agreement") evidencing their intent to merge
WellTech, Inc. with and into Key in accordance with the general
corporation laws of the states of Delaware and Maryland (the
"Merger").
(ix) On January 19, 1996: (i) Yale, Hurt,
Key and Lender entered into that certain Second Amended
and Restated Loan and Security Agreement which amended and
restated the Original Loan Agreement (the "Second Loan
Agreement"); and (ii) WellTech, Inc., Bronson Production, Inc.
("BPI") and Lender entered into that certain Loan and Security
Agreement (the "WellTech Agreement"").
(x) In connection with the Second Loan
Agreement and the WellTech Agreement, Borrowers and BPI
executed the following promissory notes (the "1996 Notes")
which amended, renewed and restated in part the 1994 Notes:
(i) that certain Promissory Note dated
January 19, 1996 in the original principal
amount of $10,004,082 executed by Yale and
payable to CIT (the "Original Yale Note");
(ii) that certain Promissory Note
dated January 19, 1996 in the original
principal amount of $1,230,000 executed by
Hurt and payable to CIT (the "Original Clint Hurt Note");
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(iii) that certain Promissory Note
dated January 19, 1996 in the original
principal amount of $875,350 executed by BPI
and payable to CIT (the "Original BPI Note");
(iv) that certain Promissory Note
dated January 19, 1996 in the original
principal amount of $10,946,836 executed
by WellTech, Inc. and payable to CIT (the "Original
WellTech Note").
(xi) The Merger was concluded and became
effective on March 28, 1996. Following the Merger, Key, as
the survivor of the merged entities, transferred all of the
assets and liabilities of WellTech, Inc. to WellTech. On May
10, 1996 BPI and WellTech merged and WellTech is the surviving
corporation.
(xii) Yale, Hurt and WellTech have requested,
and Lender has agreed, to consolidate and amend the Second
Loan Agreement and the WellTech Agreement, and accordingly
the parties are entering into this Agreement. In addition,
Key, which is not a party to this Agreement, has entered into
that certain Guaranty dated of even date herewith by which Key
has unconditionally guaranteed all Obligations of the Borrowers
to CIT hereunder.
(xiii) In connection with this Agreement
the 1996 Notes are being amended and restated as follows, all
such notes as amended, renewed or restated from time to time
hereafter being referred to as the "Promissory Notes":
(i) The Original Yale Note has
been amended and restated of even date
herewith by that certain Amended and Restated
Promissory Note dated of even date herewith in the
original principal amount of $10,004,082 executed by Yale
and payable to CIT;
(ii) The Original Clint Hurt Note
has been amended and restated of even date
herewith by that certain Amended and Restated
Promissory Note dated of even date herewith in the
original principal amount of $1,230,000 executed by Hurt
and payable to CIT;
(iii) The Original BPI Note and the
Original WellTech Note have been amended and
restated of even date herewith by that
certain Amended and Restated Promissory Note dated of
even date herewith in the original principal
amount of $11,822,186 executed by WellTech and
payable to CIT.
1.4 Any accounting term used in this Agreement
shall have, unless otherwise specifically provided herein,
the meaning customarily given in accordance with generally
accepted accounting principles ("GAAP"), and all financial
computations hereunder shall be computed, unless
otherwise specifically provided herein, in accordance with
GAAP as consistently applied and using the same method for
inventory valuation as used in the preparation of a Borrower's
financial statements.
1.5 Capitalized terms not otherwise defined herein
shall, unless the context indicates otherwise, have the
meanings provided for by the Uniform Commercial Code to the
extent the same are used or defined therein. Wherever
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appropriate in the context, terms used herein in the singular
also include the plural, and vice versa, and each masculine,
feminine, or neuter pronoun shall also include the other
genders.
1.6 The terms "herein," "hereof" and "hereunder"
and other words of similar import refer to this Agreement as
a whole and not to any particular section, paragraph or
subdivision. The section titles, and list of exhibits appear
as a matter of convenience only and shall not affect the
interpretation of this Agreement. All references to statutes
and related regulations shall include any amendments of same
and any successor statutes and regulations. All references to
any instruments or agreements, shall include any and
all modifications or amendments thereto and any and all
extensions or renewals thereof.
SECTION 2. LOANS AND OTHER CREDIT ACCOMMODATIONS
2.1 Revolving Loans. Lender shall, subject to the
terms and conditions contained herein, make revolving loans
to each of the Borrowers ("Revolving Loans") in amounts
requested by such Borrower from time to time, but not in
excess of such Borrower's Net Availability existing
immediately prior to the making of the requested loan and
provided the requested loan would not cause the outstanding
Obligations of all Borrowers in the aggregate to exceed the
Maximum Credit; provided further, however, that Lender shall
be under no obligation to make Revolving Loans to any Borrower
following the filing of an involuntary petition, action or
proceeding against any Borrower or guarantor (and for so long
thereafter as such involuntary petition, action, or
proceeding remains undismissed or unstayed, and subject to
the terms and provisions of Section 7.1(h)) seeking
reorganization, arrangement or readjustment of such Borrower's
or guarantor's debts or for any other relief under the
bankruptcy laws of the United States now or hereafter in effect.
(a) The " Maximum Credit" is set forth in Section
10.1(a) hereof.
(b) "Accounts Availability" equals the product
obtained by multiplying the outstanding amounts of a
Borrower's separate Eligible Accounts, net of taxes,
discounts, allowances, and credits given or claimed, by the
Eligible Accounts Percentage set forth in Section 10.1(b), and
deducting therefrom any Reserves.
(c) The "Net Availability" shall be calculated at any
time as an amount equal to the Maximum Credit minus the
aggregate amount of all then-outstanding Obligations by the
Borrowers to Lender.
(d) "Yale's Net Availability" shall be calculated as
the lesser of
(i) the Maximum Credit, less the Obligations; and
(ii) Yale's Accounts Availability, less Yale's
Revolving Loans.
(e) "Hurt's Net Availability" shall be calculated as
the lesser of:
(i) the Maximum Credit, less the Obligations; and
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(ii) $2,000,000, less the sum of Hurt's Term
Loan, Hurt's Capital Expenditures Loan, and
Hurt's Revolving Loans; and
(iii) Hurt's Accounts Availability, less Hurt's
Revolving Loans.
(f) "WellTech's Net Availability" shall be calculated
as the lesser of:
(i) the Maximum Credit, less the Obligations; and
(ii) WellTech's Accounts Availability, less
WellTech's Revolving Loans and Accommodations.
(g) "Eligible Accounts" are accounts created by a
Borrower in the ordinary course of its business which are and
remain acceptable to Lender for lending purposes. General
criteria for Eligible Accounts are set forth below but may be
revised from time to time, by Lender, in its sole judgment,
on fifteen (15) days prior written notice to the Borrowers.
Lender shall, in general, deem accounts to be Eligible
Accounts if: (1) such accounts arise from bona fide completed
transactions and have not remained unpaid for more than the
number of days after the invoice date set forth in Section
10.1(c); (2) the amounts of the accounts reported to Lender are
absolutely owing to a Borrower and do not arise from sales on
consignment, guaranteed sale or other terms under which payment
by the account debtors may be conditional or contingent; (3)
the account debtor's chief executive office or principal
place of business is located in the United States; (4) such
accounts do not arise from progress billings or retainages or
bill and hold sales; (5) there are no contra
relationships, setoffs, counterclaims or disputes existing
with respect thereto (but that portion of the account for which
no contras, setoffs, counterclaims or disputes are applicable
may be deemed an Eligible Account) and there are no other
facts existing or threatened which would impair or delay the
collectibility of all or any portion thereof; (6) the goods
giving rise thereto were not at the time of the sale subject
to any liens except those permitted in this Agreement; (7) such
accounts are not accounts with respect to which the account
debtor or any officer or employee thereof is an officer,
employee or agent of or is affiliated with any Borrower,
directly or indirectly, whether by virtue of family
membership, ownership, control, management or otherwise; (8)
such accounts are not accounts with respect to which the
account debtor is the United States or any State or political
subdivision thereof or any department, agency or
instrumentality of the United States, any State or political
subdivision, unless there has been compliance with the
Assignment of Claims Act or any similar State or local law, if
applicable; (9) the Borrowers have delivered to Lender
or Lender's representative such original documents as Lender
may have reasonably requested pursuant to Section 5.8 hereof in
connection with such accounts and Lender shall have received a
verification of such account, reasonably satisfactory to it, if
sent to the account debtor or any other obligor or any
bailee pursuant to Section 5.4 hereof; (10) there are no
facts existing or threatened which are reasonably likely to
result in any adverse change in the account debtor's
financial condition; (11) such accounts owed by a single
account debtor or its affiliates do not represent more than
twenty percent (20%) of all otherwise Eligible Accounts of all
Borrowers, provided, however, that with respect to the Eligible
Accounts of Parker & Parsley, Inc., such accounts may not
represent more than thirty-two percent (32%) of all otherwise
Eligible Accounts of all Borrowers (accounts excluded from
Eligible Accounts solely by reason of this subsection (11)
shall nevertheless be considered Eligible Accounts to the extent
of the amount of such accounts which does not exceed twenty
percent (20%) or in the case of Parker & Parsley, Inc.
thirty-two percent (32%), of all otherwise
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Eligible Accounts); (12) such accounts are not owed by an
account debtor who is or whose affiliates are "past due" (i.e.
where more than 90 days have elapsed since the invoice date of
such accounts) upon other accounts owed to Borrowers
comprising more than fifty percent (50%) of the accounts of
such account debtor or its affiliates owed to such Borrower;
(13) such accounts are owed by account debtors whose total
indebtedness to a Borrower does not exceed the amount of any
customer credit limits as established, and changed, from time
to time by Lender upon notice to such Borrower (accounts
excluded from Eligible Accounts solely by reason of this
subsection (13) shall nevertheless be considered Eligible
Accounts to the extent the amount of such accounts does not
exceed such customer credit limit); (14) with respect to which
the account debtor is located in the states of New Jersey,
Minnesota, West Virginia, or any other state requiring the
filing of a Business Activity Report or similar document in
order to bring suit or otherwise enforce its remedies against
such account debtor in the courts or through any judicial
process of such state, unless such Borrower has qualified to do
business in such states, or has filed a Notice of Business
Activities Report or similar document with such states, as
appropriate, for the then current year; and (15) such
accounts are owed by account debtors deemed creditworthy at
all times by Lender.
(h) Lender shall have a continuing right to
deduct reserves in determining Accounts Availability and
each individual Borrower's Net Availability ("Reserves"),
and to increase and decrease such Reserves from time to time, if
and to the extent that, in Lender's sole judgement, such
Reserves are necessary to protect Lender against any state of
facts which does, or would, with notice or passage of time or
both, constitute an Event of Default or have a material adverse
effect on any Collateral. Lender may, at its option, implement
Reserves by designating as ineligible a sufficient amount of
accounts which would otherwise be Eligible Accounts so as to
reduce Net Availability and/or each individual Borrower's
Accounts Availability by the amount of the intended Reserve.
(i) Subject to the terms and conditions hereof,
including but not limited to the existence of sufficient
Net Availability and Accounts Availability, each Borrower
agrees to borrow amounts from time to time such that the
aggregate outstanding Revolving Loans and Term Loans to both
Borrowers shall at all times equal or exceed the principal
amount set forth in Section 10.1(d) as the Minimum Borrowing.
Each Borrower covenants, represents and warrants to Lender
that they will jointly and severally maintain Net
Availability at all times in amounts sufficient to permit
Borrowers to comply with the Minimum Borrowing requirement.
In the event Borrowers do not borrow sufficient amounts to
continuously meet or exceed the Minimum Borrowing
requirement, or in the event Borrowers fail to maintain Net
Availability at all times at amounts sufficient to permit
Borrowers to comply with the Minimum Borrowing requirement,
then, in either of such events, Borrowers shall be deemed to
have borrowed from Lender jointly such additional sums from
time to time as may be necessary in order for Borrowers to
continuously meet the Minimum Borrowing requirement. Such sums
shall be added to the principal amount of the outstanding
Revolving Loans for the sole purpose of computing
interest due under this Agreement. Notwithstanding the
provisions of the immediately preceding sentence, Lender
shall have no obligation to disburse to Borrowers, or any of
them, any amount deemed to have been borrowed for purposes
of meeting the Minimum Borrowing requirement unless
Borrowers actually requested such disbursement from Lender and
unless the Net Availability is sufficient to support such
disbursement.
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2.2 Term Loan.
(a) The amount of any term loans made by Lender to any
Borrower on the date hereof is set forth in Section 10.2(a)
(the "Initial Term Loans"). Such Initial Term Loans are
evidenced by Promissory Notes delivered by each Borrower
receiving an Initial Term Loan to Lender and shall be repaid,
together with interest and other amounts, in accordance
with this Agreement and such Promissory Notes.
(b) The amount of any additional term loans which may
be available to any Borrower at Lender's discretion after
the date hereof is set forth in Section 10.2(b) ("Capital
Expenditures Loans" and together with the Initial Term Loans,
the "Term Loans"). Such Capital Expenditures Loans shall be
evidenced by promissory notes delivered by such Borrower to
Lender, in form and substance reasonably acceptable to Lender,
and shall be repaid together with interest and other amounts in
accordance with this Agreement and such promissory notes.
(c) All appraisals conducted in connection with the
Term Loans shall be conducted at Borrowers' expense by an
independent appraiser reasonably acceptable to Lender. In
addition, with respect to the Capital Expenditures Loans,
(i) Lender shall have received such appraisal at least thirty
(30) days prior to the date of the requested advance for such
Capital Expenditures Loan, (ii) Lender shall have received
from Borrower evidence reasonably satisfactory to Lender that
the machinery and equipment has been purchased by Borrower
and delivered to such Borrower at one of its locations set forth
in Section 10.6(e) and that such machinery and equipment is
in place and operational and (iii) Lender shall have received
invoices and such other documentation as reasonably requested
by Lender.
2.3 Accommodations.
(a) Lender may, in its sole discretion, issue or
cause to be issued, from time to time at any Borrower's request
and on terms and conditions and for purposes satisfactory to
Lender, credit accommodations consisting of letters of credit,
bankers' acceptances, merchandise purchase guaranties or
other guaranties or indemnities for such Borrower's account
("Accommodations"). Each such Borrower shall execute and
perform additional agreements relating to the Accommodations
in form and substance reasonably acceptable to Lender and the
issuer of any Accommodations, all of which shall supplement
the rights and remedies granted herein. Any payments made by
Lender or any affiliate of Lender in connection with the
Accommodations shall constitute additional Revolving Loans
to such Borrower.
(b) In addition to the fees and costs of any issuer in
connection with issuing or administering Accommodations,
the Borrower requesting the Accommodation shall pay
monthly to Lender, on the first day of each month, a charge
on such Borrower's open Accommodations at the rate per annum set
forth in Section 10.3(a) (the "Accommodation Charges").
(c) No Accommodation will be issued (i) unless the
full amount of the Accommodation requested, plus fees and
costs for issuance (unless paid by Borrower), is less than
the Net Availability existing immediately prior to the issuance
of the requested Accommodation, or (ii) if the requested
Accommodation would cause the outstanding Obligations to exceed
the Maximum Credit, or (iii) if the requested Accommodation
would cause the open amount of Accommodations
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issued to all Borrowers to exceed, at any time, the
Accommodation sublimit set forth in Section 10.3(b), or
(iv) if the expiry date of the requested Accommodation
extends beyond the initial term (or any renewal terms
if applicable) of this Agreement.
(d) All indebtedness, liabilities and
obligations of any sort whatsoever, however arising,
whether present or future, fixed or contingent, secured or
unsecured, due or to become due, paid or incurred, arising
or incurred in connection with any Accommodation shall be
included in the term "Obligations," as defined herein, and shall
include, without limitation, (i) all amounts due or which may
become due under any Accommodation; (ii) all amounts charged
or chargeable to any Borrower or to Lender by any bank, other
financial institution or correspondent bank which opens,
issues, or is involved with such Accommodations; (iii) Lender's
Accommodation Charges and all fees, costs and other charges
of any issuer of any Accommodation; and (iv) all duties,
freight, taxes, costs, insurance and all such other charges
and expenses which may pertain directly or indirectly to any
Obligations or Accommodations or to the goods or documents
relating thereto.
(e) Each Borrower unconditionally agrees to indemnify
and hold Lender harmless from any and all loss, claim or
liability (including reasonable attorneys' fees) arising from
any transactions or occurrences relating to any Accommodation
established or opened for such Borrower's account, the
Collateral relating thereto and any drafts or acceptances
thereunder, including any such loss or claim due to any action
taken by an issuer of any Accommodation. Each Borrower
further agrees to indemnify and hold Lender harmless for any
errors or omissions other than gross negligence, bad faith,
or willful misconduct in connection with the Accommodations,
whether caused by Lender, by the issuer of any Accommodation
or otherwise. Each Borrower's unconditional obligation to
indemnify and hold Lender harmless under this provision shall
not be modified or diminished for any reason or in any manner
whatsoever, except for Lender's gross negligence, bad faith,
or willful misconduct. Each Borrower agrees that any charges
made to Lender by any issuer of any Accommodation shall be
conclusive on such Borrower and may be charged to such
Borrower's account.
(f) Lender shall not be responsible for (i) the
conformity of any goods to the documents presented; (ii) the
validity or genuineness of any documents; or (iii) delay,
default, or fraud by any Borrower or shipper and/or anyone else
in connection with the Accommodations or any underlying
transaction.
(g) Each Borrower agrees that any action taken by
Lender, if taken in good faith, or any action taken by an
issuer of any Accommodation, under or in connection with any
Accommodation, shall be binding on such Borrower and shall not
create any resulting liability to Lender. In furtherance
thereof, Lender shall have the full right and authority to
clear and resolve any questions of non-compliance of
documents; to give any instructions as to acceptance or
rejection of any documents or goods; to execute for each
Borrower's account any and all applications for steamship or
airway guarantees, indemnities or delivery orders; to grant any
extensions of the maturity of, time of payment for, or time of
presentation of, any drafts, acceptances, or documents; and to
agree to any amendments, renewals, extensions, modifications,
changes or cancellations of any of the terms or conditions of
any of the applications or Accommodations. All of the foregoing
actions may be taken in Lender's sole name, and the issuer
thereof shall be entitled to comply with and honor any and
all such documents or instruments executed by or received
solely from Lender, all without any notice
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to or any consent from any Borrower. None of the foregoing
actions described in this subsection (g) may be taken by any
Borrower without Lender's express written consent.
2.4 Certain Amounts Due on Demand. Lender may, in its
sole discretion, make or permit Revolving Loans,
Accommodations, or other Obligations in excess of the Maximum
Credit, Accounts Availability or Net Availability or
applicable formulas or sublimits. All or any portion of such
excess(es) shall become immediately due and payable upon
Lender's demand.
SECTION 3. INTEREST AND FEES
3.1 (a) Interest on the Revolving Loans shall be
payable by the Borrowers on the first day of each month,
calculated upon the closing daily balances in the loan
account of the Borrowers for each day during the
immediately preceding month, at the per annum rate (the "Annual
Rate") set forth as the Interest Rate in Section 10.4(a).
The Annual Rate shall increase or decrease by an amount equal
to each increase or decrease, respectively, in the Prime Rate
(as herein defined), effective as of the date of each such
change, On and after any Event of Default or termination or
non-renewal hereof, interest on all unpaid matured obligations
shall accrue at a rate equal to two percent (2%) per annum in
excess of the Annual Rate otherwise payable until such time as
all Obligations are indefeasibly paid in full (notwithstanding
entry of any judgment against any Borrower or the exercise of
any other right or remedy by Lender), and all such interest
shall be payable on demand. Notwithstanding the foregoing
provisions of this Section 3.1(a) regarding the rates of
interest applicable to Revolving Loans and any rate of interest
applicable to any Term Loan:
(i) If at any time the amount of interest
computed on the basis of either the Annual Rate or the
rate provided by any Promissory Note pursuant to
Section 2.2 of this Agreement (the "Note Rate") would
exceed the amount of interest computed upon the basis of the
maximum rate of interest (the "Maximum Legal Rate")
permitted by applicable state or federal law in
effect from time to time hereafter, after taking into
account, to the extent required by applicable law, any and
all fees, payments, charges and calculations provided
for in this Agreement or in any other agreement between
Borrowers or any individual Borrower and Lender, the
interest payable under this Agreement shall be computed
on the basis of the Maximum Legal Rate, but any subsequent
reduction in the Annual Rate or the Note Rate (if
applicable) shall not reduce such interest thereafter
payable hereunder below the amount computed on the
basis of the Maximum Legal Rate until the aggregate
amount equals the total amount of interest which would have
accrued if such interest had been at all times computed
solely on the basis of the Annual Rate and the Note Rate
(if applicable).
(ii) No agreements, conditions, provisions
or stipulations contained in this Agreement or any
other instrument, document or agreement between
Borrowers, or any of them, and the Lender, or default of
any Borrower, or the exercise by the Lender of the right
to accelerate the maturity of the payment of the
principal and interest or to exercise any option
whatsoever contained in this Agreement or any other
agreement among Borrowers, or any of them, and the Lender, or
the arising of any contingency whatsoever, shall
entitle the Lender to collect, in any event, interest
exceeding the Maximum Legal Rate and in no event shall
any Borrower be obligated to pay interest exceeding such
Maximum Legal Rate and all agreements, conditions or
stipulations, if any, which may in any event or
contingency whatsoever operate to bind, obligate or
compel any Borrower to pay a rate of interest
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exceeding the Maximum Legal Rate, shall be without
binding force or effect, at law or in equity, to the
extent only of the excess of interest over such
Maximum Legal Rate. In the event that any interest is
charged in excess of the Maximum Legal Rate ("Excess"),
each Borrower acknowledges and stipulates that any such
charge shall be the result of an accidental and bona
fide error, and such Excess shall be, first, applied
to reduce the principal amount of indebtedness then
unpaid hereunder; second, applied to reduce such Borrower's
other Obligations hereunder; and third, returned to
such Borrower, it being the intention of the parties
hereto not to enter at any time into a usurious or
otherwise illegal relationship. Each Borrower recognizes
that, with fluctuations in the Annual Rate, the Note
Rate, and the Maximum Legal Rate, such an
unintentional result could inadvertently occur. By the
execution of this Agreement, each Borrower covenants that
(x) the credit or return of any Excess shall constitute the
acceptance by each Borrower of such Excess, and (y)
no Borrower shall seek or pursue any other remedy,
legal or equitable, against Lender, based in whole or
in part upon the charging or receiving of any interest in
excess of the maximum authorized by applicable law. For
the purpose of determining whether or not any Excess has
been contracted for, charged, or received by Lender, all
interest at any time contracted for, charged or received
by the Lender in connection with this Agreement shall be
amortized, prorated, allocated and spread in equal parts
during the entire term of this Agreement.
(iii) The provisions of Section 3.1(a)(ii)
shall be deemed to be incorporated into every document
or communication relating to the Obligations which
sets forth or prescribes any account, right or claim or
alleged account, right or claim of the Lender with respect to
each Borrower (or any other obligor in respect of the
Obligations), whether or not any provision of Section
3.1 is referred to therein. All such documents and
communications and all figures set forth therein shall,
for the sole purpose of computing the extent of the
liabilities and obligations of each Borrower (or any
other obligor) asserted by the Lender thereunder, be
automatically recomputed by such Borrower or obligor,
and by any court considering the same, to give effect to the
adjustments or credits required by Section 3.1(a)(ii).
(iv) If the applicable state or federal law
is amended in the future to allow a greater rate of
interest to be charged under this Agreement or any
other loan documents than is presently allowed by
applicable state or federal law, then the limitation of
interest hereunder shall be increased to the maximum
rate of interest allowed by applicable state or federal
law as amended, which increase shall be effective
hereunder on the effective date of such amendment, and all
interest charges owing to the Lender by reason thereof shall
be payable upon demand.
(b) The "Prime Rate" is the per annum rate of
interest publicly announced by Chase Manhattan Bank, New York,
New York, or the applicable rate of its successors or assigns,
from time to time as its prime rate (the prime rate is not
intended to be the lowest rate of interest charged by Chase
Manhattan Bank, New York, New York, or its successors or
assigns, to its borrowers).
3.2 The Borrowers collectively shall pay Lender on
the date hereof a Closing Commitment Fee in the amount set forth
in Section 10.4(b), which fee is fully earned as of the date
hereof.
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3.3 The Borrowers collectively shall pay Lender
monthly, on the first day of each month, in arrears, an
Unused Line Fee for each month during the initial and each
renewal Term at the rate per annum set forth in Section
10.4(c), calculated upon the amount, if any, by which the
Maximum Credit exceeds the average outstanding daily principal
balance during the preceding month of all Revolving Loans,
Accommodations and any Term Loan and Capital Expenditures Loan.
3.4 At Lender's option, all principal, interest
(other than unmatured accrued interest), fees, costs, expenses
and other charges provided for in this Agreement, or in any
other agreement now or hereafter existing between Lender and
any Borrower, may be charged to any loan account of such
Borrower maintained by Lender. Interest, fees for
Accommodations, the Unused Line Fee and any other amounts
payable by the Borrowers, or any of them, to Lender based on a
per annum rate shall be calculated on the basis of actual
days elapsed over a 360-day year.
3.5 If as a result of any regulatory change directly
or indirectly affecting Lender or any of Lender's affiliated
companies there shall be imposed, modified or deemed
applicable any tax excluding any tax on or measured by
income, gross receipts, charges, or rates of Lender, reserve,
special deposit, minimum capital, capital ratio, or similar
requirement against or with respect to or measured by
reference to loans made or to be made hereunder or
participations therein, or to Accommodations, and the
result shall be to increase the cost to Lender or to any of
Lender's affiliated companies of making or maintaining any
loan or Accommodation hereunder or to any other party
maintaining any participation therein, or reduce any amount
receivable in respect of any such loan (which increase in
cost, or reduction in amount receivable, shall be the result
of Lender's or Lender's affiliated companies' reasonable
allocation among all affected customers of the aggregate of
such increases or reductions resulting from such event), then,
within ten (10) days after receipt by the Borrowers of a
certificate from Lender containing the information described
in this Section 3.5, each Borrower agrees, jointly and
severally, from time to time to pay Lender such additional
amounts as shall be sufficient to compensate Lender or any of
Lender's affiliated companies for such increased costs or
reductions in amounts which Lender determines in its sole
discretion are material. Notwithstanding the foregoing, all
such amounts shall be subject to the provisions of Section
3.1. The certificate requesting compensation under this
Section 3.5 shall identify the regulatory change which has
occurred, the requirements which have been imposed,
modified or deemed applicable, the amount of such additional
cost or reduction in the amount receivable and the way in
which such amount has been calculated.
3.6 For purposes of calculating any interest,
fees, balances or expenses hereunder, the outstanding daily
principal balance of the Revolving Loans will be deemed to
be zero in the event that the outstanding daily principal
balance of the Revolving Loans is a credit balance.
SECTION 4. GRANT OF SECURITY INTEREST
4.1 To secure the payment and performance in full of
all Obligations, each Borrower hereby grants to Lender a
continuing security interest in and lien upon, and a right of
setoff against, and each Borrower hereby assigns and
pledges to Lender, all of the Collateral, including any
Collateral not deemed eligible for lending purposes.
4.2 "Obligations" shall mean any and all Revolving
Loans, Term Loans, Accommodations and all other indebtedness,
liabilities and obligations of every kind, nature and
description owing by any Borrower to Lender and/or its
11
affiliates, including principal, interest, charges, fees and
expenses, however evidenced, whether as principal, surety,
endorser, guarantor or otherwise, whether arising under this
Agreement or otherwise, whether now existing or hereafter
arising, whether arising before, during or after the initial
or any renewal Term or after the commencement of any case with
respect to any Borrower under the United States Bankruptcy Code
or any similar statute, whether direct or indirect, absolute
or contingent, joint or several, due or not due, primary or
secondary, liquidated or unliquidated, secured or
unsecured, original, renewed or extended and whether arising
directly or howsoever acquired by Lender including from any
other entity outright, conditionally or as collateral
security, by assignment, merger with any other entity,
participations or interests of Lender in the obligations of
such Borrower to others, assumption, operation of law,
subrogation or otherwise and shall also include all amounts
chargeable to the Borrowers under this Agreement or in
connection with any of the foregoing.
4.3 "Collateral" shall mean all of the following
property of each Borrower:
All now owned and hereafter acquired right, title and
interest of each Borrower in, to and in respect of all:
accounts, interests in goods represented by accounts,
returned, reclaimed or repossessed goods with respect thereto
and rights as an unpaid vendor; contract rights; chattel paper;
general intangibles (including, but not limited to, tax
and duty refunds, registered and unregistered patents,
trademarks, service marks, copyrights, trade names,
applications for the foregoing, trade secrets, goodwill,
processes, drawings, blueprints, customer lists, licenses,
whether as licensor or licensee, choses in action and other
claims, and existing and future leasehold interests in
equipment, real estate and fixtures); documents; instruments;
letters of credit, bankers' acceptances or guaranties; cash
monies, deposits, securities, bank accounts, deposit
accounts, investment property, credits and other property now
or hereafter held in any capacity by Lender, its
affiliates, or any entity which, at any time, participates in
Lender's financing of such Borrower, or at any other depository
or other institution; agreements or property securing or
relating to any of the items referred to above;
All now owned and hereafter acquired right, title and
interest of each Borrower in, to and in respect of goods,
including, but not limited to:
All inventory, wherever located, whether now
owned or hereafter acquired, of whatever kind, nature or
description, including all raw materials, work-in-process,
finished goods, and materials to be used or consumed in each
Borrower's business; and all names or marks affixed to or to be
affixed thereto for purposes of selling same by the seller,
manufacturer, lessor or licensor thereof;
All equipment and fixtures, wherever located,
whether now owned or hereafter acquired, including, without
limitation, all machinery, equipment, motor vehicles,
furniture and fixtures, and any and all additions,
substitutions, replacements (including spare parts), and
accessions thereof and thereto;
All consumer goods, farm products, crops, timber,
minerals or the like (including oil and gas), wherever
located, whether now owned or hereafter acquired, of
whatever kind, nature or description;
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All now owned and hereafter acquired right, title and
interests of each Borrower in, to and in respect of any real or
other personal property in or upon which Lender has or may
hereafter have a security interest, lien or right of setoff;
All present and future books and records relating to
any of the above including, without limitation, all computer
programs, printed output and computer readable data in the
possession or control of any Borrower, any computer
service bureau or other third party;
All products and proceeds of the foregoing in
whatever form and wherever located, including, without
limitation, all insurance proceeds and all claims against third
parties for loss or destruction of or damage to any of the
foregoing.
SECTION 5. COLLECTION AND ADMINISTRATION
5.1 Borrowers are authorized to collect the
accounts and any other proceeds of Collateral, on behalf of and
in trust for Lender, at the Borrowers' expense, but such
authority shall automatically terminate upon an Event of
Default. Lender may modify or terminate such authority at any
time whether or not an Event of Default has occurred and
directly collect the accounts and other monetary obligations
included in the Collateral. Each Borrower shall, at such
Borrower's expense and in the manner requested by Lender
from time to time, direct that remittances and all other
proceeds of accounts and other Collateral shall be (a) sent to a
post office box designated by and/or in the name of Lender
or in the name of such Borrower, but as to which access is
limited to Lender and/or (b) deposited into a bank account
maintained in the name of Lender and/or a blocked bank account
under arrangements with the depository bank under which all
funds deposited to such blocked bank account are required
to be transferred solely to Lender. Regardless whether such
account is maintained in the name of the Borrowers, or any of
them, or the Lender, the Borrowers shall bear the risk of loss
of all funds in such account. In connection therewith, each
Borrower shall execute such post office box and/or blocked
bank account agreements as Lender shall specify.
5.2 All Obligations shall be payable at Lender's office
set forth below or at Lender's bank designated in Section
10.6(b) or at such other bank or place as Lender may
expressly designate from time to time for purposes of this
Section. Lender shall apply all proceeds of accounts or
other Collateral received by Lender and all other payments in
respect of the Obligations to the Revolving Loans whether or
not then due or to any other Obligations then due, in whatever
order or manner Lender shall determine. Lender shall
have the continuing and exclusive right to apply and reverse
and reapply any and all such proceeds and payments to any
portion of the Obligations. For purposes of determining
Accounts Availability and Net Availability, remittances and
other payments with respect to the Collateral and
Obligations will be treated as credited to the loan account
of the Borrowers maintained by Lender and Collateral
balances to which they relate, upon the date of Lender's
receipt of advice from Lender's bank that such remittances
or other payments have been credited to Lender's account or in
the case of remittances or other payments received, directly
in kind by Lender, upon the date of Lender's deposit thereof at
Lender's bank, subject to final payment and collection. In
computing interest charges, the loan account of the Borrowers
maintained by Lender will be credited with remittances and other
payments two (2) Business Days after Lender's receipt of advice
of deposit of remittances and other payments in Lender's
account at Lender's bank designated in Section 10.6(b) or
at such other financial
13
institution as Lender may designate. "Business Day" shall
mean any day other than a Saturday or Sunday or any other day on
which Lender or banks in Chicago, Illinois or New York, New
York are authorized to close.
5.3 Lender shall render to Borrowers monthly a loan
account statement. Each statement shall be considered correct
and binding upon each Borrower as an account stated, except to
the extent that Lender receives, within ninety (90) days after
the mailing of such statement, written notice from any
Borrower of any specific exceptions by such Borrower to that
statement.
5.4 Lender may, at any time, whether or not an Event
of Default has occurred, without notice to or assent of any
Borrower, (a) notify any account debtor that the accounts
and other Collateral which includes a monetary obligation
have been assigned to Lender by any such Borrower and that
payment thereof is to be made to the order of and directly to
Lender, (b) send, or cause to be sent by its designee,
requests (which may identify the sender by a pseudonym)
for verification of accounts and other Collateral directly
to any account debtor or any other obligor or any bailee with
respect thereto, and (c) demand, collect or enforce payment of
any accounts or such other Collateral, but without any duty to
do so, and Lender shall not be liable for any, failure to
collect or enforce payment thereof. At Lender's request,
all invoices and statements sent to any account debtor, other
obligor or bailee, shall state that the accounts and such
other Collateral have been assigned to Lender and are payable
directly and only to Lender.
5.5 Each Borrower hereby appoints Lender and any
designee of Lender as such Borrower's attorney-in-fact and
authorizes Lender or such designee, at such Borrower's sole
expense, to exercise at any times in Lender's or such designee's
discretion all or any of the following powers, which powers of
attorney, being coupled with an interest, shall be irrevocable
until all Obligations have been paid in full: (a) receive,
take, endorse, assign, deliver, accept and deposit, in the
name of Lender or such Borrower, any and all cash, checks,
commercial paper, drafts, remittances and other instruments
and documents relating to the Collateral or the proceeds
thereof, (b) transmit to account debtors, other obligors or
any bailees notice of the interest of Lender in the Collateral
or request from account debtors or such other obligors or
bailees at any time, in the name of such Borrower or Lender or
any designee of Lender, information concerning the
Collateral and any amounts owing with respect thereto, (c)
notify account debtors or other obligors to make payment
directly to Lender, or notify bailees as to the disposition of
Collateral, (d) after an Event of Default has occurred and has
not been waived or cured to Lender's satisfaction, take or
bring, in the name of Lender or such Borrower, all steps,
actions, suits or proceedings deemed by Lender necessary or
desirable to effect collection of or other realization upon the
accounts and other Collateral, (e) after an Event of Default
has occurred and has not been waived or cured to Lender's
satisfaction, change the address for delivery of mail to such
Borrower and to receive and open mail addressed to any such
Borrower, (f) after an Event of Default has occurred and has
not been waived or cured to Lender's satisfaction, extend the
time of payment of, compromise or settle for cash, credit,
return of merchandise, and upon any terms or conditions, any
and all accounts or other Collateral which includes a monetary
obligation and discharge or release the account debtor or
other obligor, without affecting any of the Obligations, and
(g) execute in the name of such Borrower and file against
such Borrower in favor of Lender financing statements or
amendments with respect to the Collateral.
5.6 Each Borrower hereby releases and exculpates
Lender, its officers, employees and designees, from any
liability arising from any acts under this Agreement or in
furtherance thereof, whether as attorney-in-fact or otherwise,
14
whether of omission or commission, and whether based upon any
error of judgment or mistake of law or fact, except for willful
misconduct, gross negligence, or bad faith. In no event will
Lender have any liability to any Borrower for lost profits or
other special or consequential damages.
5.7 After written notice by Lender to the Borrowers and
automatically, without notice, after an Event of Default which
has not been waived or cured to Lender's satisfaction, no
Borrower shall, without the prior written consent of Lender in
each instance, (a) grant any extension of time of payment of
any of the accounts or any other Collateral which includes a
monetary obligation, (b) compromise or settle any of the
accounts or any such other Collateral for less than the full
amount thereof, (c) release in whole or in part any account
debtor or other person liable for the payment of any of the
accounts or any such other Collateral, or (d) grant any credits,
discounts, allowances, deductions, return authorizations or the
like with respect to any of the accounts or any such other
Collateral.
5.8 At such times as Lender may reasonably request
and in the manner specified by Lender, each Borrower shall
deliver to Lender or Lender's representative true and
correct copies of original invoices, agreements, proofs of
rendition of services and delivery of goods and other documents
evidencing or relating to the transactions which gave rise to
accounts or other Collateral, together with customer
statements, schedules describing the accounts or other
Collateral and/or statements of account and confirmatory
assignments to Lender of the accounts or other Collateral,
in form and substance reasonably satisfactory to Lender
and duly executed by such Borrower. After an Event of Default
has occurred, each Borrower shall deliver to Lender the
originals of the foregoing documents upon Lender's request
therefor. Without limiting the provisions of Section 5.7,
a Borrower's granting of credits, discounts, allowances,
deductions, return authorizations or the like will be
promptly reported to Lender in writing. In no event shall
any such schedule or confirmatory assignment (or the
absence thereof or omission of any of the accounts or other
Collateral therefrom) limit or in any way be construed as a
waiver, limitation or modification of the security interests or
rights of Lender or the warranties, representations and
covenants of any Borrower under this Agreement. Any documents,
schedules, invoices or other paper delivered to Lender by the
Borrowers may be destroyed or otherwise disposed of by Lender
six (6) months after receipt by Lender, unless such Borrower
requests their return in writing in advance, and makes prior
arrangements for their return, at such Borrower's expense.
5.9 From time to time as requested by Lender, at the
sole expense of the Borrowers, Lender or its designee shall
have access, prior to an Event of Default during reasonable
business hours and on or after an Event of Default at any time,
to all of the premises where Collateral is located for the
purposes of inspecting the Collateral and all Borrowers'
books and records, and each Borrower shall permit Lender or
its designee to make such copies of such books and records or
extracts therefrom as Lender may reasonably request.
Without expense to Lender, Lender may use such of any Borrower's
personnel, equipment, including computer equipment,
programs, printed output and computer readable media, supplies
and premises for the collection of accounts and realization on
other Collateral as Lender, in its sole discretion, deems
appropriate. Each Borrower hereby irrevocably authorizes all
accountants and third parties to disclose and deliver to
Lender at such Borrower's expense all financial
information, books and records, work papers, management
reports and other information in their possession regarding
such Borrower.
15
5.10 If after receipt of any payment of, or proceeds
applied to the payment of, all or any part of the
Obligations, the Lender is for any reason required to surrender
such payment or proceeds because such payment or proceeds is
invalidated, declared fraudulent, set aside, determined to
be void or voidable as a preference, or a diversion of
trust funds, or for any other reason, then: the Obligations or
any part thereof intended to be satisfied shall be revived and
continue and this Agreement shall continue in full force as
if such payment or proceeds had not been received by the Lender,
and each Borrower shall be jointly and severally liable to
pay to the Lender, and hereby does indemnify the Lender and
hold the Lender harmless, for the amount of such payment or
proceeds surrendered. The provisions of this Section 5.10
shall be and remain effective notwithstanding any contrary
action which may have been taken by the Lender in reliance
upon such payment or proceeds, and any such contrary action
so taken shall be without prejudice to the Lender's rights under
this Agreement and shall be deemed to have been conditioned upon
such payment or proceeds having become final and irrevocable.
The provisions of this Section 5.10 shall survive the
termination of this Agreement.
SECTION 6. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS
Each Borrower hereby represents, warrants and
covenants to Lender the following, the truth and accuracy of
which, and compliance with which, shall be continuing
conditions of the making of loans or other credit
accommodations by Lender to any Borrower:
6.1 Each Borrower shall keep and maintain its books
and records in accordance with generally accepted accounting
principles, consistently applied. The Borrowers shall on a
consolidated basis, at each Borrower's expense, on or before
the fifteenth (15th) day of each month, deliver to Lender
true and complete monthly agings of its accounts receivable
and, on or before the twentieth (20th) day of each month,
deliver to Lender true and complete agings of its accounts and
notes payable, monthly inventory reports and monthly
internally prepared interim financial statements including
consolidating financial statements of the Borrowers and any
of the Borrowers' subsidiaries, all in such form, and together
with such other information with respect to the business of
each Borrower or any guarantor, as Lender may reasonably
request. Quarterly, the Borrowers shall deliver to Lender
a certificate verifying Borrowers' compliance with the
financial covenants set forth in Section 6.11 and Section 10.5,
such certificate to be delivered as soon as available but in
no event later than forty-five (45) days after the end of
the relevant fiscal quarter, provided, however, that with
respect to the certificate verifying compliance during the
final fiscal quarter of each fiscal year, Borrowers shall
deliver such certificate to Lender no later than sixty (60)
days after the end of such fiscal quarter. Annually, the
Borrowers shall deliver to Lender consolidated audited
financial statements of Key accompanied by the report and
opinion thereon of independent certified public
accountants reasonably acceptable to Lender and consolidating
financial statements of Borrowers and any of Borrowers'
subsidiaries, as soon as available, but in no event later
than ninety (90) days after the end of the Borrowers' fiscal
year. Additionally, promptly upon the filing thereof,
Borrower shall deliver to Lender true and complete copies of
any 10-Q Report, 10-K Report and any other report or document
filed by Borrowers, or any of them, with the Securities and
Exchange Commission, or any other governmental agency.
6.2 Each Borrower may from time to time render
invoices to account debtors under its trade names set forth
in Section 10.6(f) after Lender has received prior written
notice from such Borrower of the use of such trade names and as
to which, such Borrower agrees that: (a) each trade name does
not refer
16
to another corporation or other legal entity, (b) all
accounts and proceeds thereof (including any returned
merchandise) invoiced under any such trade names are owned
exclusively by such Borrower and are subject to the security
interest of Lender and the other terms of this Agreement,
and (c) all schedules of accounts and confirmatory
assignments including any sales made or services rendered
using the trade name shall show such Borrower's name as
assignor and Lender is authorized to receive, endorse and
deposit to any loan account of such Borrower maintained by
Lender all checks or other remittances made payable to any
trade name of such Borrower representing payment with respect
to such sales or services.
6.3 Each Borrower shall promptly notify Lender in
writing of any loss, damage, investigation, action, suit,
proceeding or claim relating to a material portion of the
Collateral or which may result in any material adverse change
in such Borrower's business, assets, liabilities or
condition, financial or otherwise.
6.4 Each Borrower's books and records concerning
accounts and its chief executive office are and shall be
maintained only at the address set forth in Section 10.6(d).
Each Borrower's only other places of business and the only
other locations of Collateral, if any, are and shall be the
addresses set forth in Section 10.6(e) hereof, except any
Borrower may change such locations in the ordinary course of
business or open a new place of business after thirty (30)
days prior written notice to Lender. Prior to any change in
location or opening of any new place of business, each Borrower
shall execute and deliver or cause to be executed and
delivered to Lender such financing statements, financing
documents, mortgages, and security and other agreements as
Lender may reasonably require, including, without limitation,
those described in Section 6.14. Without otherwise limiting the
effect of the foregoing, Borrower may change the location of its
well servicing rigs and drilling rigs without prior approval
of Lender; provided, however, such well servicing rigs and
drilling rigs may not be removed from the state where they are
located as of the date hereof, and Borrowers shall within five
(5) days of Lender's request, provide Lender with a listing of
the current locations of all well servicing rigs and drilling
rigs.
6.5 Each Borrower has and at all times will continue
to have good and marketable title to all of the Collateral, free
and clear of all liens, security interests, claims or
encumbrances of any kind except those, if any, set forth on
Schedule A hereto.
6.6 No Borrower shall directly or indirectly:
(a) sell, lease, transfer, assign, abandon or otherwise
dispose of any part of the Collateral or any material portion
of its other assets (other than sales of inventory to buyers
in the ordinary course of business) or (b) consolidate with or
merge with or into any other entity, or permit any other
entity to consolidate with or merge with or into such
Borrower or (c) form or acquire any interest in any firm,
corporation or other entity.
6.7 Each Borrower shall at all times maintain, with
financially sound and reputable insurers, casualty insurance
with respect to the Collateral and other assets. All such
insurance policies shall be in such form, substance, amounts
and coverage as may be reasonably satisfactory to Lender
and shall provide for thirty (30) days prior written notice to
Lender of cancellation or reduction of coverage. Each
Borrower hereby irrevocably appoints Lender and any designee of
Lender as, attorney-in-fact for such Borrower to obtain at
such Borrower's expense, any such insurance should such
Borrower fail to do so and, after an Event of Default that is
continuing, to adjust or settle any claim or other matter under
or arising pursuant to such insurance or to amend or cancel
17
such insurance. Each Borrower shall deliver to Lender evidence
of such insurance and a lender's loss payable endorsement
satisfactory to Lender as to all existing and future
insurance policies with respect to the Collateral. Each
Borrower shall deliver to Lender, in kind, all instruments
representing proceeds of insurance received by such Borrower.
Prior to an Event of Default, Lender may permit Borrowers to
apply any insurance proceeds received at any time to the cost
of repairs to or replacement of any portion of the Collateral
and/or, at Lender's option, payment of or as security for any
of the Obligations, whether or not due; provided, however,
that if Lender elects to apply the insurance proceeds to the
then outstanding Obligations, Lender will apply the proceeds (i)
first to reduce the Capital Expenditures Loans, (ii) second,
to reduce other Term Loans, and (iii) third, to reduce the
Revolving Loans. After the occurrence of an Event of Default
which has not been cured to Lender's satisfaction, Lender may
permit Borrowers to apply any insurance proceeds received at any
time to the cost of repairs to or replacement of any portion of
the Collateral and/or, at Lender's option, to payment of
or as security for any of the Obligations, whether or not
due, in any order or manner as Lender determines.
6.8 Each Borrower is and at all times will continue to
be in compliance with the requirements of all material laws,
rules, regulations and orders of any governmental authority
relating to its business (including laws, rules,
regulations and orders relating to taxes, payment and
withholding of payroll taxes, employer and employee
contributions and similar items, securities, employee
retirement and welfare benefits, employee health and
safety, or environmental matters) and all material agreements
or other instruments, binding on such Borrower or its property.
All of each Borrower's inventory shall be produced in
accordance with the requirements of the Federal Fair Labor
Standards Act of 1938, as amended and all rules, regulations
and orders related thereto. Each Borrower shall pay and
discharge all taxes, assessments and governmental charges
against such Borrower or any Collateral prior to the date
on which penalties are imposed or liens attach with respect
thereto, unless the, same are being contested in good faith and,
at Lender's option, Reserves are established for the amount
contested and penalties which may accrue thereon.
6.9 With respect to each account deemed an Eligible
Account, except as reported in writing to Lender, (a) Borrower
has no knowledge that any of the criteria for eligibility are
not or are no longer satisfied, (b) each is valid and legally
enforceable and represents an undisputed bona fide
indebtedness incurred by the account debtor for the sum
reported to Lender, (c) each arises from an absolute and
unconditional sale of goods, without any right of return or
consignment, or from a completed rendition of services, (d)
each is not, at the time such account arises, subject to any
defense, offset, dispute, contra relationship, counterclaim,
or any given or claimed credit, allowance or discount
except as disclosed to Lender in writing and approved by
Lender in writing, and (e) all statements made and all
unpaid balances and other information appearing in the
invoices, agreements, proofs of rendition of services and
delivery of goods and other documentation relating to the
accounts, and all confirmatory assignments, schedules,
statements of account and books and records with respect
thereto, are in all material respects true and correct and what
they purport to be.
6.10 With respect to each Borrower's equipment,
each such Borrower shall maintain equipment having an
aggregate value of at least 85% of the then current appraised
forced liquidation value of all of such Borrower's equipment
in good order and repair, and in running and marketable
condition, ordinary wear and tear excepted.
18
6.11 Borrowers shall at all times on a consolidated
basis maintain cash flow coverage, tangible net worth, and
liabilities to tangible net worth as set forth in Section 10.5
and no Borrower shall, directly or indirectly, expend or
commit to expend, for fixed or capital assets (including
capital lease obligations) an amount in excess of the capital
expenditure limit set forth in Section 10.5 in any fiscal year
of Borrowers. In addition, after the date of this Agreement
no Borrower will enter into any operating or capital lease as
lessee or sublessee if, after giving effect thereto, the
aggregate amount of additional operating or capital lease
rentals payable by all Borrowers in any fiscal year with
respect to all such leases entered into in such fiscal year
would exceed $1,500,000.
6.12 Except as set forth on Schedule 6.12 hereto
and as otherwise provided herein, no Borrower will, directly
or indirectly: (a) lend or advance money or property to,
guarantee or assume indebtedness of, or invest (by capital
contribution or otherwise) in any person, firm, corporation or
other entity; or (b) declare, pay or make any cash dividend,
redemption or other distribution on account of any shares of any
class of stock of such Borrower now or hereafter outstanding;
or (c) make any payment of the principal amount of or interest
on any indebtedness owing to any officer, director,
shareholder, or affiliate of such Borrower; or (d) make any
loans or advances to any officer, director, employee,
shareholder or affiliate of such Borrower (including, but not
limited to, any other Borrower) provided, however, that,
with respect to advances to officers and employees, Borrowers
may make such advances in the ordinary course of business as
long as all such advances at any time outstanding do not
exceed $25,000 in the aggregate during any fiscal year of
Borrowers; or (e) enter into any sale or lease or other
transaction with any officer, director, employee, shareholder
or affiliate of such Borrower on terms that are less
favorable to such Borrower than those which might be obtained
at the time from persons who are not an officer, director,
employee, shareholder or affiliate of such Borrower.
Notwithstanding the foregoing, each Borrower (each, an
"Intercompany Lender") may make loans to any other Borrower
(each, an "Intercompany Borrower") provided however that (i) all
such loans to any Intercompany Borrower shall be evidenced by
the Intercompany Note and Security Agreement executed by
such Intercompany Borrower (the "Chattel Paper") and (ii)
Lender retains a properly perfected security interest in
the Chattel Paper at the time of such intercompany loan.
In addition, WellTech may make intercompany loans to
WellTech's 63% owned subsidiary, Servicios WellTech, S.A.
("Servicios") as long as (a) all such intercompany loans are
properly documented on WellTech's books and records, (b) all
such intercompany loans are memorialized by one or more
Intercompany Note and Security Agreements (the "Servicios
Chattel Paper"), (c) no such additional intercompany loans to
Servicios after January 19, 1996 would exceed the amount of
$500,000 which is part of the principal amount as set forth in
the related Intercompany Note and Security Agreement executed by
Servicios of even date herewith, and (d) Lender retains a
properly perfected security interest in the Servicios Chattel
Paper at the time of such intercompany loan.
6.13 Each Borrower shall pay, on Lender's demand, all
costs, expenses, filing fees and taxes payable in connection
with the preparation, execution, delivery, recording,
administration, collection, liquidation, enforcement and
defense of the Obligations, Lender's rights in the Collateral,
this Agreement and all other existing and future agreements or
documents contemplated herein or related hereto, including any
amendments, waivers, supplements or consents which may hereafter
be made or entered into in respect hereof, or in any way
involving claims or defense asserted by Lender or claims or
defense against Lender asserted by such Borrower, any
guarantor or any third party directly or indirectly
arising out of or related to the relationship between such
Borrower and Lender or any guarantor and Lender, including,
but not limited to the
19
following, whether incurred before, during or after the
initial or any renewal Term or after the commencement of any
case with respect to any such Borrower or any guarantor under
the United States Bankruptcy Code or any similar statute: (a)
all costs and expenses of filing or recording (including
Uniform Commercial Code financing statement filing taxes and
fees, documentary taxes, intangibles taxes and mortgage
recording taxes and fees, if applicable); (b) all title
insurance and other insurance premiums, appraisal fees,
fees incurred in connection with any environmental report,
audit or survey and search fees; (c) all fees relating to the
wire transfer of loan proceeds and other funds and fees for
returned checks; (d) all reasonable expenses and costs
heretofore and from time to time hereafter incurred by Lender
during the course of periodic field examinations of the
Collateral and the Borrowers' operations, plus a per diem
charge at the rate of $650 per person, per day for Lender's
examiners in the field and office; and (e) the reasonable
costs, fees and disbursements of in-house and outside counsel
to Lender.
6.14 At the request of Lender, at any time and from
time to time at such Borrower's sole expense, each Borrower
shall execute and deliver or cause to be executed and
delivered to Lender such agreements, documents and
instruments, including waivers, consents and subordination
agreements from mortgagees or other holders of security
interests or liens, landlords or bailees, and do or cause
to be done such further acts as Lender, in its discretion,
deems necessary or desirable to create, preserve,
perfect or validate any security interest of Lender or the
priority thereof in the Collateral and otherwise to
effectuate the provisions and purposes of this Agreement.
Each Borrower hereby authorizes Lender to file financing
statements or amendments against such Borrower in favor of
Lender with respect to the Collateral, without such
Borrower's signature and to file as financing statements
any carbon, photographic or other reproductions of this
Agreement or any financing statements signed by such Borrower.
6.15 Each Borrower authorizes Lender, at
Lender's option, as attorney-in-fact for such Borrower, to
commence, appear in and prosecute, in Lender's or such
Borrower's name and with the participation of such Borrower,
any action or proceeding relating to any condemnation or
other taking of any Collateral comprised of real property and
to settle or compromise any claim in connection with any such
condemnation or other taking. Any award for the taking of, or
damage to, all or any part of the Collateral, or any interest
therein, upon the lawful exercise of power of eminent domain
shall be payable to Lender who, after deducting its expenses,
including reasonable attorneys' fees, may apply the sums so
received to the portion of the Obligations hereby secured last
falling due or in such other manner as Lender may desire. Each
Borrower agrees to execute such further assignments of any
compensations, awards, damages, claims, rights of action and
proceeds as Lender reasonably may require.
6.16 Each Borrower assumes all responsibility and
liability arising from or relating to the use, sale, or
other disposition of the Collateral. Neither the Lender nor
any of its officers, directors, employees, and agents shall
be liable or responsible in any way for the safekeeping of
any of the Collateral, or for any act or failure to act with
respect to the Collateral, or for any loss or damage thereto,
or for any diminution in the value thereof, or for any act of
default by any warehouseman, carrier, forwarding agency or,
other person whomsoever, all of which shall be at the
Borrowers' sole risk. The Obligations shall not be affected
by any failure of the Lender to take any steps to perfect its
security interest in or to collect or realize upon the
Collateral, nor shall loss of or damage to the Collateral
release any Borrower from any of the Obligations. The Lender
may (but shall not be required to), to the extent set forth in
this Agreement or applicable law, without notice to or
20
consent from any Borrower, sue upon or otherwise collect,
extend the time for payment of, modify or amend the terms of,
compromise or settle for cash or credit, grant other
indulgences, extensions, renewals, compositions, or
releases, and take or omit to take any other action with
respect to the Collateral, any security therefor, any agreement
relating thereto, any insurance applicable thereto, or any
person liable directly or indirectly in connection with any of
the foregoing, without discharging or otherwise affecting
the liability of the Borrower for the Obligations.
6.17 Each Borrower shall notify Lender in writing
of the following matters at the following times:
(a) Immediately after becoming aware of the
existence of any Event of Default.
(b) Immediately after becoming aware that
the holder of any capital stock of such Borrower
has given notice or taken any action with respect to a
claimed default.
(c) Immediately after becoming aware of any
material adverse change in the Collateral or in any
Borrower's property, business, operations, or
condition (financial or otherwise).
(d) Immediately after becoming aware of any
pending or threatened action, proceeding, or
counterclaim by any individual, sole
proprietorship, partnership, joint venture, trust,
unincorporated organization, association, corporation,
Public Authority, or any other entity, or any
pending or threatened investigation by a Public
Authority, which may materially and adversely affect the
Collateral, the repayment of the Obligations, the
Lender's rights under the Loan Documents, or the
Collateral or in any Borrower's property, business,
operations, or condition (financial or otherwise).
(e) Immediately after becoming aware of any
pending or threatened strike, work stoppage, material
unfair labor practice claim, or other material labor
dispute affecting any Borrower or any of its
subsidiaries.
(f) Immediately after becoming aware of any
violation of any law, statute, regulation, or
ordinance of a Public Authority applicable to any
Borrower, which may materially and adversely affect
the Collateral, the repayment of the Obligations,
the Lender's rights under this Agreement, or the
Collateral or any Borrower's property, business,
operations, or condition (financial or otherwise).
(g) Immediately after becoming aware of any
violation or any investigation of a violation by any
Borrower of environmental laws which would
materially and adversely affect the Collateral, any
Borrower's property, business, operation or condition
(financial or otherwise).
(h) Thirty (30) days prior to any Borrower
changing its name.
Each notice given under this Section 6.17 shall describe the
subject matter thereof in reasonable detail and shall set
forth the action that such Borrower has taken or proposes to
take with respect thereto. As used herein, the term
21
"Public Authority" shall mean the government of any country or
sovereign state, or of any state, province, municipality, or
other political subdivision thereof, or any department, agency,
public corporation or other instrumentality of any of the
foregoing.
6.18 (a) Except with respect to the matters
described in Schedule B hereto, neither Borrower nor any
subsidiary of any Borrower, except in compliance in all
material respects with all laws, ordinances, regulations,
administrative orders, notices and decrees of any
governmental authority pertaining to Borrower or such
subsidiary, (i) may own, occupy, or operate a site or vessel
on which any hazardous material or oil is stored, transported
or disposed of; or (ii) may directly or indirectly transport,
or arrange for the transport, of any hazardous material or oil;
or (iii) will cause, or have legal responsibility for, any
release, or threat of release, of any hazardous material or oil
on or from the real property identified in Section 10.6 (the
"Premises"), or any other site or vessel presently owned,
occupied, or operated either by any Borrower or any subsidiary
or any person for whose conduct any Borrower or any subsidiary
is responsible. Except with respect to the matters described
in Schedule B, neither Borrower nor any subsidiary of any
Borrower may cause, or have legal responsibility for, any
release, or threat of release, of any hazardous material or
oil on or from the Premises, or any other site or vessel
presently owned, occupied, or operated by any Borrower, any
subsidiary or any person for whose conduct any Borrower or any
subsidiary is responsible, where any such release or threat of
release can reasonably be expected to result in a material
liability of any Borrower or any subsidiary or a lien on the
Premises or other property of any Borrower or any subsidiary.
(b) Except with respect to the matters described in
Schedule B hereto, no Borrower nor any Borrower's subsidiary
has, except in compliance in all material respects with all
laws, ordinances, regulations, administrative orders, notices
and decrees of any governmental authority pertaining thereto,
(i) owned, occupied or operated a site or vessel on which any
hazardous materials or oil were stored, transported or
disposed of by any Borrower or such subsidiary; (ii) directly or
indirectly transported, or arranged for the transport, of
any hazardous material or oil; or (iii) caused, or become
legally responsible for, any material release or threat of
release, of any hazardous material or oil on or from the
Premises or any other site or vessel owned, occupied or
operated either by any Borrower, any subsidiary of any
Borrower or any person for whose conduct any Borrower or any
subsidiary of any Borrower is responsible. Except with
respect to the matters described in Schedule B, no
Borrower nor its subsidiaries has caused, or become legally
responsible for, any release or threat of release of any
hazardous material or oil on or from the Premises or any other
site or vessel owned, occupied or operated either by any
Borrower, any subsidiary of any Borrower or any person for
whose conduct any Borrower or any subsidiary of any Borrower is
responsible, where any such release or threat of release can
reasonably be expected to result in a material liability to
any Borrower or any subsidiary of any Borrower or a lien on
the Premises or other property of any Borrower or any subsidiary
of any Borrower.
(c) Except with respect to the matters described
in Schedule B, no Borrower nor any subsidiary of any Borrower
has received notification from any federal, state, foreign or
other governmental authority of: any potential, known or threat
of release of any hazardous material or oil on or from the
Premises or any other site or vessel at any time owned,
occupied or operated either by any Borrower, any subsidiary
of any Borrower or any person for whose conduct any Borrower or
any subsidiary of any Borrower is responsible or whose liability
may result in a lien on the Premises or any other property of
any Borrower or any subsidiary of any Borrower; or of the
incurrence of any expense or loss by such
22
governmental authority or by any other person, in
connection with the assessment, containment, or removal of any
release, or threat of release, of any hazardous material or oil
from the Premises or any such site or vessel.
(d) Each Borrower shall, and shall cause the other
Borrowers and each subsidiary of any Borrower to:
(i) comply with all material laws,
ordinances, regulations, administrative orders,
notices and decrees of any governmental authority
pertaining to the storage, transport, release and disposal of
hazardous material or oil;
(ii) except in compliance with all
applicable laws, ordinances, regulations,
administrative orders, notices and decrees of any
governmental authority refrain from disposing of hazardous
material or oil on the Premises or on any other site or
vessel owned, occupied or operated either by any
Borrower, any subsidiary of any Borrower, or by any
person for whose conduct any Borrower or any subsidiary of any
Borrower is responsible;
(iii) engage in such activity as is
reasonable and prudent under the circumstances to (w)
determine whether and to what extent hazardous
materials or oil is present on the Premises or on any other
site or vessel at any time owned, occupied or operated
either by any Borrower, any subsidiary of any
Borrower, or by any person for whose conduct any
Borrower or any subsidiary of any Borrower is responsible
or whose liability may result in a lien on the Premises
or other property of any Borrower or any subsidiary
of any Borrower, (x) determine whether and to what
extent containment or removal of such hazardous
material or oil as may then be present is necessary or
appropriate in light of applicable law or potential harms
or damages which may result therefrom, (y) carry out
any activities necessary or appropriate under clauses
(w) and (x), and (z) qualify for insurance programs or
safe harbors which may be available under applicable law,
ordinances and regulations;
(iv) provide Lender with written notice:
(x) upon any Borrower's obtaining knowledge or any
material release, or threat of release, or any
hazardous material or oil at or from the Premises, or
any other site or vessel at any time owned, occupied, or
operated by any Borrower, or any subsidiary of any
Borrower, or by any person for whose conduct any
Borrower, or any subsidiary of any Borrower, is
responsible, where such release or threat of release is
required to be reported to any governmental
authority by any Borrower or any subsidiary of any
Borrower or any other such person, or may result in a
lien on the Premises or other property of any Borrower
or any subsidiary of any Borrower; (y) upon any
Borrower's or any Borrower's subsidiary's receipt of
any notice to such effect from any federal, state,
foreign or other governmental authority; and (z) upon any
Borrower's or any Borrower's subsidiary's obtaining
knowledge of any incurrence of any expense or loss by
any such governmental authority in connection with the
assessment, containment, or removal of any
hazardous material or oil for which expense or loss any Borrower
or any subsidiary may be liable in any material amount
or for which expense a lien may be imposed on the
Premises or any other property of any Borrower or
any subsidiary of any Borrower; and
(v) jointly and severally indemnify, defend
and hold Lender harmless from any claim brought or
threatened against Lender by any Borrower, or any
subsidiary of any Borrower, any guarantor or endorser
of the Obligations, or any governmental agency or authority or
any
23
other person (as well as from attorneys' and
environmental expert's reasonable fees and expenses in
connection therewith) on account of the presence of
hazardous material or oil on the Premises, or any other
site or vessel at any time owned, occupied or operated by any
Borrower or any subsidiary of any Borrower or any
person for whose conduct any Borrower or any subsidiary
of any Borrower may be responsible, or whose liability
may result in a lien on the Premises or other property of any
Borrower or any subsidiary of any Borrower, the past,
present or future release or threat of release of
hazardous materials or oil on or from the Premises, or
any other site or vessel at any time owned, occupied or
operated by any Borrower, or any subsidiary of any Borrower,
or by any person for whose conduct any Borrower or
any subsidiary of any Borrower may be responsible or
whose liability may result in a lien on the Premises or
other property of any Borrower or any subsidiary of any
Borrower, or the failure by any Borrower to comply with the
terms and provisions of this Section 6.18 (each of
which may be defended, compromised, settled, or
pursued by Lender with counsel of Lender's selection,
but at the expense of the Borrowers, on a joint and several
basis, and, in the case of compromise or settlement prior
to an Event of Default, with the consent of any
Borrower, which consent shall bind all Borrowers). The
within indemnification shall survive payment of the
Obligations and/or any termination, release, or discharge
executed by Lender in favor of any Borrower or any
subsidiary of any Borrower or other person.
(e) As used in this Section 6.18, the term "oil" shall
mean oil and/or any other petroleum product or by-product.
6.19 At Lender's option, and at each Borrower's
expense, Lender may order appraisals of the forced
liquidation value of Borrower's machinery and equipment,
provided, however, that the timing and manner of all such
appraisals shall be commercially reasonable in all respects.
If the principal balance of the Term Loans outstanding to any
Borrower, as of the date of the appraisal, exceeds eighty-two
percent (82%) of the appraised forced liquidation value of
such Borrower's machinery and equipment, such Borrower shall
make additional principal payments with respect to the Term
Loan in an amount equal to 1/12 of the amount by which the
outstanding principal balance of such Borrower's Term Loans
exceeds eighty-two percent (82%) of the appraised forced
liquidation value of such Borrower's machinery and equipment as
of the date of the appraisal, such payments to be paid
concurrently with the monthly Term Loan installments due
under the Term Loans, until the entire excess amount has been
fully amortized.
6.20 No Borrower shall directly or indirectly enter
into or permit to exist, any transaction with Odessa as
obligor to such Borrower, direct or contingent, by reason of
any loan, advance, lease, sale or other financing
transaction, investment or otherwise; provided, however, that
Hurt may provide services from time to time to Odessa as
long as the aggregate of all such accounts outstanding at any
time does not exceed $300,000.00.
SECTION 7. EVENTS OF DEFAULT AND REMEDIES
7.1 All Obligations shall be immediately due and
payable, without notice or demand, and any provisions of this
Agreement as to future loans and credit accommodations by
Lender shall terminate automatically, upon the termination
or non-renewal of this Agreement or, at Lender's option, upon
or at any time after the occurrence or existence of any one or
more of the following "Events of Default":
24
(a) Any Borrower fails to pay when due any of the
Obligations or fails to perform any of the terms of this
Agreement or any other existing or future financing, security
or other agreement between such Borrower and Lender or any
affiliate of Lender;
(b) Any representation, warranty or statement of
fact made by any Borrower to Lender in this Agreement or
any other agreement, schedule, confirmatory assignment or
otherwise, or to any affiliate of Lender, shall prove inaccurate
or misleading in any material respect;
(c) Any guarantor revokes, terminates or fails to
perform any of the terms of any guaranty, endorsement or other
agreement of such party in favor of Lender or any affiliate of
Lender;
(d) Any judgment or judgments aggregating in excess
of $50,000 or any injunction or attachment (except statutory
liens or attachments for amounts not yet due and payable) is
obtained against any Borrower or any guarantor which remains
unstayed for a period of ten (10) days or is enforced;
(e) Any Borrower or any guarantor or a general
partner of a guarantor or a Borrower (which is a partnership),
being a natural person, dies, or any Borrower or any guarantor
which is a partnership or corporation, is dissolved, or any
Borrower or any guarantor which is a corporation fails to
maintain its corporate existence in good standing, or Borrower
or any guarantor suspends its usual business or engages in a
different line of business from the line of business it is
engaged in as of the date of this Agreement;
(f) Any change in the chief executive officer or
president of Key without Lender's prior written consent;
(g) Any Borrower or any guarantor of any of the
Obligations becomes insolvent, makes an assignment for the
benefit of creditors, makes or sends notice of a bulk
transfer or calls a general meeting of its creditors or
principal creditors;
(h) Any petition or application for any relief under
the bankruptcy laws of the United States now or hereafter in
effect or under any insolvency, reorganization, receivership,
readjustment of debt, dissolution or liquidation law or statute
of any jurisdiction now or hereafter in effect (whether at law
or in equity) is filed by any Borrower or any guarantor or, if
filed against any Borrower or any guarantor of any of the
Obligations, is not dismissed within sixty (60) days;
(i) The indictment or threatened indictment of any
Borrower or any guarantor under any criminal statute, or
commencement or threatened commencement of criminal or civil
proceedings against any Borrower or any guarantor, pursuant to
which statute or proceedings the penalties or remedies sought
or available include forfeiture of any of the property of such
Borrower or such guarantor;
25
(j) Any event of default under any financing,
security or other agreement, document or instrument at any time
executed and/or delivered to, with or in favor of Lender or any
of its affiliates by any affiliate of any Borrower;
(k) Lender in good faith believes that either (i)
the prospect of payment or performance of the Obligations is
impaired or (ii) the Collateral is not sufficient to secure
fully the Obligations; or
(l) Any default by any Borrower under any
material agreement or instrument, in favor of any individual
or entity other than Lender and such default continues for
thirty (30) days after such breach first occurs; provided,
however, that such grace period shall not apply, and an Event
of Default shall exist, promptly upon such breach, if such
breach may not, in Lender's reasonable determination, be cured
by Borrower during such thirty (30) day grace period.
7.2 Upon the occurrence of an Event of Default
which has not been waived by Lender or cured to Lender's
satisfaction and at any time thereafter, Lender shall have all
rights and remedies provided in this Agreement, any other
agreements between any Borrower and Lender, the Uniform
Commercial Code or other applicable law, all of which rights and
remedies may be exercised without notice to any Borrower, all
such notices being hereby waived, except such notice as is
expressly provided for hereunder or is not waivable under
applicable law. All rights and remedies of Lender are
cumulative and not exclusive and are enforceable, in
Lender's discretion, alternatively, successively, or
concurrently on any one or more occasions and in any order
Lender may determine. Without limiting the foregoing, Lender
may (a) accelerate the payment of all Obligations and demand
immediate payment thereof to Lender, (b) to the extent
permitted by law, with or without judicial process or the aid
or assistance of others, enter upon any premises on or in
which any of the Collateral may be located and take
possession of the Collateral or complete processing,
manufacturing and repair of all or any portion, of the
Collateral, (c) require any Borrower, at such Borrower's
expense, to assemble and make available to Lender any part or
all of the Collateral at any place and time designated by
Lender, (d) collect, foreclose, receive, appropriate, set off
and realize upon any and all Collateral, (e) extend the time of
payment of, compromise or settle for cash, credit, return of
merchandise, and upon any terms or conditions, any and all
accounts or other Collateral which includes a monetary
obligation and discharge or release the account debtor or other
obligor, without affecting any of the Obligations, (f) sell,
lease, transfer, assign, deliver or otherwise dispose of any
and all Collateral (including, without limitation, entering
into contracts with respect thereto, by public or private
sales at any exchange, broker's board, any office of Lender
or elsewhere) at such prices or terms as Lender may deem
reasonable, for cash, upon credit or for future delivery, with
the Lender having the right to purchase the whole or any part of
the Collateral at any such public sale, all of the
foregoing being free from any right or equity of redemption
of any Borrower which right or equity of redemption is hereby
expressly waived and released by each Borrower. If any of the
Collateral is sold or leased by Lender upon credit terms or
for future delivery, the Obligations shall not be reduced as
a result thereof until payment therefor is finally collected
by Lender. If notice of disposition of Collateral is required by
law, ten (10) business days prior notice by Lender to
the Borrowers designating the time and place of any public
sale or the time after which any private sale or other intended
disposition of Collateral is to be made, shall be deemed to be
reasonable notice thereof and each Borrower waives any
other notice. In the event Lender institutes an action to
recover any Collateral or seeks recovery of any Collateral by
way of prejudgment remedy, each Borrower waives to the
extent permitted by law the posting of any bond which
might otherwise be required.
26
7.3 Lender may apply the cash proceeds of Collateral
actually received by Lender from any sale, lease,
foreclosure or other disposition of the Collateral to payment
of any of the Obligations, in whole or in part (including
reasonable attorneys' fees and legal expenses incurred by
Lender with respect thereto or otherwise chargeable to the
Borrowers) and in such order as Lender may elect, whether or
not then due. Each Borrower shall remain liable to Lender for
the payment of any deficiency together with interest at the
highest rate provided for herein and all costs and expenses of
collection or enforcement, including reasonable attorneys'
fees and legal expenses.
7.4 Lender may, at its option, cure any default by any
Borrower under any agreement with a third party or pay or bond
on appeal any judgment entered against any Borrower,
discharge taxes, liens, security interests or other
encumbrances at any time levied on or existing with respect to
the Collateral and pay any amount, incur any expense or perform
any act which, in Lender's sole judgment, is necessary or
appropriate to preserve, protect, insure, maintain or realize
upon the Collateral. Lender may charge the Borrowers' loan
account for any amounts so expended, such amounts to be
repayable by the Borrowers on demand. Lender shall be under
no obligation to effect such cure, payment, bonding or
discharge, and shall not by doing so, be deemed to have assumed
any obligation or liability of any Borrower.
SECTION 8. JURY TRIAL WAIVER; CERTAIN OTHER WAIVERS AND CONSENTS
8.1 WAIVER OF JURY TRIAL. LENDER AND EACH BORROWER
ACKNOWLEDGE AND AGREE THAT ANY CONTROVERSY WHICH MAY
ARISE UNDER THIS AGREEMENT OR THE RELATIONSHIP ESTABLISHED
HEREBY WOULD BE BASED UPON DIFFICULT AND COMPLEX ISSUES,
AND THEREFORE, THE PARTIES AGREE THAT ANY LAWSUIT GROWING OUT
OF ANY SUCH CONTROVERSY WILL BE TRIED IN A COURT OF COMPETENT
JURISDICTION BY A JUDGE SITTING WITHOUT JURY. TRIAL BY A
JUDGE SITTING WITHOUT A JURY WILL FURTHER RESULT IN THE
AVOIDANCE OF DELAYS, A STREAMLINING OF THE PROCEEDINGS
INVOLVED AND, AS A RESULT, WILL MINIMIZE THE EXPENSE OF ANY
SUCH LAWSUIT FOR THE BENEFIT OF EACH BORROWER AND LENDER. EACH
BORROWER HEREBY WAIVES TRIAL BY JURY, RIGHTS OF SET OFF, AND
THE RIGHT TO IMPOSE COUNTERCLAIMS (EXCEPT BY COMPULSORY
COUNTERCLAIMS) IN ANY LITIGATION IN ANY COURT WITH RESPECT
TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT,
THE OTHER LOAN DOCUMENTS, THE OBLIGATIONS OR THE
COLLATERAL, OR ANY INSTRUMENT OR DOCUMENT DELIVERED PURSUANT
HERETO OR THERETO, OR ANY OTHER CLAIM OR DISPUTE HOWSOEVER
ARISING, BETWEEN THE BORROWERS, OR ANY OF THEM, AND THE
LENDER. EACH BORROWER HEREBY CONFIRMS THAT THE FOREGOING
WAIVERS ARE INFORMED AND FREELY MADE.
8.2 Each Borrower hereby irrevocably submits and
consents to the nonexclusive jurisdiction of the State and
Federal Courts located in the State in which the office of
Lender designated in Section 10.6(a) is located and any other
State where any Collateral is located with respect to any action
or
27
proceeding arising out of this Agreement, the Collateral or
any matter arising therefrom or relating thereto. In any such
action or proceeding, each Borrower waives personal service of
the summons and complaint or other process and papers therein
and agrees that the service thereof may be made by mail directed
to such Borrower at its chief executive office set forth herein
or other address thereof of which Lender has received notice
as provided herein, service to be deemed complete five (5)
days after mailing by certified or registered mail, or as
permitted under the rules of either of said Courts. Any
such action or proceeding commenced by any Borrower against
Lender will be litigated only in a Federal Court located in the
district, or a State Court in the State and County, in which the
office of Lender designated in Section 10.6(a) is located and
each Borrower waives any objection based on forum non conveniens
and any objection to venue in connection therewith.
8.3 Lender shall not, by any act, delay, omission
or otherwise be deemed to have expressly or impliedly
waived any of its rights or remedies unless such waiver shall
be in writing and signed by an authorized officer of Lender.
A waiver by Lender of any right or remedy on any one occasion
shall not be construed as a bar to or waiver of any such
right or remedy which Lender would otherwise have on any
future occasion, whether similar in kind or otherwise.
8.4 Unless otherwise expressly provided herein, each
Borrower waives, to the extent permitted by applicable law,
diligence, presentment, protest and notice of demand or
dishonor and protest as to any instrument, notice of intent to
accelerate and notice of acceleration, notice of default,
notice of protest, demand, dishonor or nonpayment, as well as
any and all other notices to which it might otherwise be
entitled. No notice to or demand on any Borrower which the
Lender may elect to give shall entitle such Borrower to any
further notice or demand in the same, similar or other
circumstances.
8.5 The provisions of Chapter 15 of the Texas Credit
Code (Vernon's Texas Civil Statutes) Article 5069-15 are
specifically declared by Lender and the Borrowers not to be
applicable to this Agreement or the transactions
contemplated hereby.
SECTION 9. TERM OF AGREEMENT; MISCELLANEOUS
9.1 Term. This Agreement shall only become effective
upon the execution and delivery of this Agreement by each
Borrower and Lender and shall continue in full force and effect
until either December 31, 1998, or January 5, 1999, at
Lender's option, and shall be deemed automatically renewed for
successive terms of two (2) years thereafter unless
terminated as of the end of the initial or any renewal term
(each a "Term") by the Lender or any Borrower giving the other
parties hereto written notice at least sixty (60) days prior
to the end of the then-current Term.
9.2 Any of the Borrowers may also terminate this
Agreement by giving Lender at least thirty (30) days prior
written notice at any time upon payment in full of all of the
Obligations as provided herein, including the early
termination fee provided below. Lender shall also have the
right to terminate this Agreement at any time upon or after the
occurrence of an Event of Default. If Lender terminates this
Agreement upon or after the occurrence of an Event of Default,
or if any of the Borrowers shall terminate this Agreement as
permitted herein effective prior to the end of the then-current
Term, in addition to all other Obligations, the Borrowers
collectively shall pay to Lender, upon the effective date of
termination, in view of the impracticality and extreme
28
difficulty of ascertaining actual damages and by mutual
agreement of the parties as to a reasonable calculation of
Lender's lost profits, an early termination fee equal to:
(a) fifty percent (50%) of the average
monthly interest and fees payable by the Borrowers to
Lender with respect to the Revolving Loans for the
immediately preceding six (6) months or from the date of
this Agreement, whichever is the shorter period, multiplied by
(b) either (i) the number of months (or
any part thereof) remaining in the then-current Term,
if the Borrowers' written notice of termination is
received by Lender or termination by Lender is effective
more than sixty (60) days prior to the end of the then-current
Term or (ii) the number of months (or any part
thereof) remaining in the then-current Term plus
twenty-four (24) if the Borrowers' written notice of
termination is received by Lender or termination by Lender is
effective within sixty (60) days prior to the end of the
then-current Term.
For purposes of calculating the early termination fee, in
no event will the average monthly interest be less than the
interest which would have been payable if the Revolving Loans
had equaled the Minimum Borrowing set forth in Section 10.1(d)
on each day during the calculation period.
9.3 Borrowers may prepay, in whole or in part, the
Term Loans prior to the end of the then current Term. If such
prepayment is made with funds other than funds obtained from a
public offering or private placement of equity or debt by
Borrowers, the Borrowers collectively shall pay to Lender,
upon the effective date of termination, in view of the
impracticality and extreme difficulty of ascertaining actual
damages and by mutual agreement of the parties as to a
reasonable calculation of Lender's lost profits, an early
termination fee equal to:
(a) fifty percent (50%) of the average
monthly interest and fees payable by the Borrowers to
Lender with respect to the Term Loans for the
immediately preceding six (6) months or from the date of this
Agreement, whichever is the shorter period, multiplied by
(b) either (i) the number of months (or
any part thereof) remaining in the then-current Term,
if the Borrowers' written notice of termination is
received by Lender or termination by Lender is effective
more than sixty (60) days prior to the end of the then-current
Term or (ii) the number of months (or any part
thereof) remaining in the then-current Term plus
twenty-four (24) if the Borrowers' written notice of
termination is received by Lender or termination by Lender is
effective within sixty (60) days prior to the end of the
then-current Term.
If such payment is made with funds obtained from a
public offering or private placement of equity or debt by
Borrowers, then, in lieu of the fee set forth in (a) and (b)
above, Borrowers shall collectively pay to Lender an early
termination fee of $100,000.00.
9.4 Upon termination of this Agreement by the
Borrowers, as permitted herein, in addition to payment of all
Obligations which are not contingent, each Borrower shall
deposit such amount of cash collateral as Lender reasonably
determines is necessary to secure Lender from loss, cost,
damage or expense, including reasonable attorneys' fees, in
connection with any open Accommodations
29
or remittance items or other payments provisionally credited
to the Obligations and/or to which Lender has not yet received
final and indefeasible payment.
9.5 Except as otherwise provided, all notices,
requests and demands hereunder shall be (a) made to Lender at
its address set forth in Section 10.6(a) and to each
Borrower at its chief executive office set forth in Section
10.6(d), or to such other address as either party may
designate by written notice to the other in accordance with
this provision, and (b) deemed to have been given or made: if
by hand, immediately upon delivery; if by telex, telegram or
telecopy (fax), immediately upon receipt; if by overnight
delivery service, upon receipt; and if by certified mail,
return receipt requested five (5) days after mailing.
9.6 If any provision of this Agreement is held to
be invalid or unenforceable, such provision shall not affect
this Agreement as a whole, but this Agreement shall be
construed as though it did not contain the particular provision
held to be invalid or unenforceable.
9.7 Neither this Agreement nor any provision hereof
shall be amended, modified or discharged orally or by course
of conduct, but only by a written agreement signed by an
authorized officer of Lender and Borrowers. This Agreement
shall be binding upon and inure to the benefit of each of the
parties hereto and their respective successors and assigns,
except that any obligation of Lender under this Agreement
shall not be assignable nor inure to the successors and
assigns of Borrowers.
9.8 No termination of this Agreement shall relieve
or discharge any Borrower of its Obligations, grants of
Collateral, duties and covenants hereunder or otherwise
including, without limitation, the continuation and
survival in full force and effect of all security interests and
liens of Lender in and upon all then-existing and
thereafter-arising or acquired Collateral and all warranties and
waivers of Borrowers, until such time as all Obligations to
Lender have been indefeasibly paid and satisfied in full.
9.9 The enumeration herein of the Lender's rights and
remedies is not intended to be exclusive, and such rights and
remedies are in addition to and not by way of limitation of
any other rights or remedies that the Lender may have under
the Uniform Commercial Code or other applicable law. The Lender
shall have the right, in its sole discretion, to determine
which rights and remedies are to be exercised and in which
order. The exercise of one right or remedy shall not preclude
the exercise of any others, all of which shall be cumulative.
The Lender may, without limitation, proceed directly against
the Borrowers, or any of them, to collect the Obligations
without any prior recourse to the Collateral.
9.10 Whenever an Event of Default exists, the
Lender is hereby authorized at any time and from time to
time, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held
and other indebtedness at any time owing by the Lender or any
affiliate of such Lender to or for the credit or the account of
any Borrower against any and all of the Obligations, whether or
not then due and payable.
9.11 Lender may grant the right to participate in
Loans and to enter into participation agreements with one or
more participating lenders; and, in the event that Lender does
grant such right to participate in Loans, Lender may do so with
such participating lenders, and on such terms and
conditions, as
30
shall be acceptable to Lender. If a participating lender shall
at any time with the Borrowers' knowledge participate with the
Lender in the Loans, each Borrower hereby grants to such
participating lender, and the Lender and such
participating lender shall have and are hereby given, a
continuing lien on and security interest in any money,
securities and other property of such Borrower in the custody or
possession of the participating lender, including, the right
of set-off, to the extent of such participating lender's
participation in the Obligations, and such participating
lender shall be deemed to have the same right of set-off to
the extent of such participating lender's participation in the
Obligations under this Agreement, as it would have if it
were a direct lender.
9.12 All terms used herein which are defined in the
Uniform Commercial Code shall have the meanings given therein
unless otherwise defined in this Agreement and all
references to the singular or plural herein shall also mean the
plural or singular, respectively.
9.13 THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE IN WHICH THE
OFFICE OF LENDER SET FORTH IN SECTION 10.6(a) BELOW IS LOCATED.
9.14 THIS AGREEMENT (AND THE PROMISSORY NOTES
REFERRED TO IN SECTION 2.2), ARE INTENDED BY THE BORROWERS AND
THE LENDER TO BE THE FINAL, COMPLETE, AND EXCLUSIVE
EXPRESSION OF THE AGREEMENT BETWEEN THEM. THIS AGREEMENT
SUPERSEDES ANY AND ALL PRIOR ORAL OR WRITTEN AGREEMENTS
RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. NO MODIFICATION,
RESCISSION, WAIVER, RELEASE, OR AMENDMENT OF ANY PROVISION OF
THIS AGREEMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT
SIGNED BY THE BORROWERS AND A DULY AUTHORIZED OFFICER OF
LENDER.
9.15 This Agreement may be executed in any number of
counterparts, and by the Lender and the Borrowers in separate
counterparts, each of which shall be an original, but all of
which shall together constitute on and the same agreement.
9.16 The captions contained in this Agreement are for
convenience only, are without substantive meaning and should not
be construed to modify, enlarge, or restrict any provision.
9.17 This Agreement amends and restates in its entirety
the Second Loan Agreement and the WellTech Agreement. The
execution of this Agreement, the Promissory Notes, and the
other loan documents executed in connection herewith does not
extinguish the indebtedness outstanding in connection
therewith nor does it constitute a novation with respect to
indebtedness outstanding in connection with the Original Loan
Agreement or the indebtedness evidenced by the Original Loan
Documents or the Second Loan Agreement or the WellTech
Agreement. The Borrowers and Lender ratify and confirm each of
the Original Loan Documents including each of the security
documents executed pursuant to the Original Loan Agreement or
the Second Loan Agreement or the WellTech Agreement, and agree
that such Original Loan Documents as amended and modified
hereby continue to be legal, valid, binding and enforceable in
accordance with their respective terms. Without limiting the
generality of the foregoing and notwithstanding any loan
document to the contrary, each Borrower and Lender agree and
acknowledge that:
31
(i) the term "Loan Agreement" as used in each loan document,
including, but not limited to, each of the Promissory Notes,
means this Agreement; (ii) the term "Indebtedness,"
"Obligations" or "Secured Obligations" as used in any loan
document means the Obligations; and (iii) the term "Lender" as
used in the Loan Documents means the Lender as defined herein.
9.18 Releases. As a material inducement to Lender to
enter into this Agreement, each Borrower hereby represents and
warrants that there are no claims or offsets against, or
defenses or counterclaims to, the terms and provisions of and
the other obligations created or evidenced by the Original
Loan Documents, the Second Loan Agreement or the WellTech
Agreement. Each of the Original Obligors hereby releases,
acquits, and forever discharges Lender, and its current
parent, subsidiaries and affiliated organizations, and the
current offices, employees, attorneys and agents of each of
the foregoing (all of whom are herein jointly and severally
referred to as the "Released Parties") from any and all
liability, damages, losses, obligations, costs, expenses, suits,
claims, demands, causes of action for damages or any other
relief, whether or not now known or suspected, of any kind,
nature or character, at law or in equity, that any of them now
has or may have ever had against any of the Released Parties,
including, but not limited to, those relating to (a) usury
or penalties or damages therefor, (b) allegations that a
partnership existed between Borrower and the Released Parties,
(c) allegations of unconscionable acts, deceptive trade
practices, lack of good faith or fair dealing, lack of
commercial reasonableness or special relationships, such
as fiduciary, trust or confidential relationships, (d)
allegations of dominion, control, alter ego, instrumentality,
fraud, misrepresentation, duress, coercion, undue influence,
interference or negligence, (e) allegations of tortious
interference with present or present or prospective business
relationships or of antitrust or (f) slander, libel or damage to
reputation (hereinafter being collectively referred to as the
"Claims"), all of which Claims are hereby waived.
SECTION 10. ADDITIONAL DEFINITIONS AND TERMS
10.1 (a) Maximum Credit: $35,000,000
(b) Eligible Accounts Percentage:
Eighty-Five Percent (85%) so long
as the dilution percentage of such
accounts does not exceed Four Percent (4%) whereupon
the Eligible Accounts Percentage shall be
reduced to an amount deemed reasonable
by Lender.
(c) Maximum days after Invoice
Date for Eligible Accounts: 90 days;
provided, however, that Lender may
make advances up to $250,000.00 in the aggregate at
any given time against Eligible Accounts which
are between 91 days and 120 days past
invoice date.
(d) Minimum Borrowing: $20,000,000;
provided, however, that if the Term
Loans are repaid in full from either
(i) Borrowers' operating income or (ii) the proceeds
of a stock offering of Key, then the
Minimum Borrowing will be $12,000,000.
(e) Sublimits:
(i) For Yale, $35,000,000 less
all Obligations of Hurt and
WellTech;
32
(ii) For Hurt, the lesser of (i)
$2,000,000, and (ii)
$35,000,000 less all Obligations of
Yale and WellTech; and
(iii) For WellTech, $35,000,000
less all Obligations of Hurt
and Yale;
10.2 The lesser of eighty-two percent (82%) of the
forced liquidation value of the Borrower's equipment and
(a) Term Loan:
(i) For Yale, $10,004,082;
(ii) For Hurt, $1,230,000; and
(iii) For WellTech, $11,822,186.
(b) Capital Expenditures Loans
(ss.2.2(b)): In addition, Lender will
provide Borrowers with a line of credit
in the aggregate amount of up to the amount set forth
below ("Capital Expenditures Line") for the
equipment purchased by Borrowers after
November 6, 1995, which is
acceptable to Lender for lending purposes
("Acceptable Capital Expenditures"). Advances, if
any, by Lender against Borrower'
Acceptable Capital Expenditures
("Capital Expenditures Loans") shall be
limited to seventy percent (70%) of the forced
liquidation value of such Capital
Expenditures, as set forth in an
appraisal delivered to Lender in
accordance with Section 2.2(c), and such advances
will be evidenced by a Promissory Note and
be amortized over 84 months. Any
advances made under the Capital
Expenditures Line will be made at the sole
discretion of Lender.
(i) For Yale, up to $2,500,000
less all outstanding Advances
under the Capital
Expenditures Line;
(ii) For Hurt, up to the lesser of
(i) $2,000,000, and (ii)
$2,500,000 less all outstanding
Advances under the Capital Expenditures
Line; and
(iii) For WellTech, up to
$2,500,000 less all
outstanding advances under the Capital
Expenditures Line.
10.3 Accommodations:
(a) Lender's Charge for
Accommodations: 1.25% per annum with respect to all
outstanding Accommodations
(b) Sublimit for Accommodations:
$1,800,000
33
10.4 Fees:
(a) Interest Rate: Prime Rate plus 1.25%
per annum
(b) Closing Fees: N/A
(c) Unused Line Fee Rate: N/A
10.5 Financial Covenants: Unless indicated otherwise,
all amounts below shall be determined in accordance with
generally accepted accounting principles, in effect on the date
hereof, consistently applied:
(a) "Consolidated Debt Service (Fixed
Charge) Coverage Ratio" means the
ratio of (a) the sum of net income
plus (i) depreciation and amortization expenses plus
(ii) increases in deferred taxes less (iii)
decreases in deferred taxes
resulting from tax payments
actually made; divided by (b) the sum of payments on
long term indebtedness plus (i) capital
lease payments plus (ii) any unfunded
capital expenditures; (c) determined
on a consolidated basis.
Testing of the following ratio
will begin on March 31, 1996.
Borrowers will maintain a
Consolidated Debt Service (Fixed
Charge) Coverage Ratio of not less than 1.30
to 1.00, such ratio to be tested at the end of each
calendar quarter (i.e. as of March
31, June 30, September 30 and
December 31) based on the prior
12-month period.
(b) "Consolidated Tangible Net Worth"
means the amount by which the sum
of (a) Shareholders' Equity plus
Subordinated Debt (non-current balance) exceeds (b)
Intangible Assets, determined on a consolidated
basis for all Borrowers. For this
purpose: "Shareholders Equity"
means shareholders' equity determined
according to GAAP; and "Intangible Assets" means (i)
assets which are treated as intangible
pursuant to GAAP; (ii) obligations
owing by any persons that are
officers, directors, shareholders, employees,
subsidiaries or affiliates, or any entity in
which any such person owns any
interest; and (iii) any asset which
is intangible or lacks intrinsic and
marketable value or collectibility, including without
limitation goodwill, noncompetition
agreements, patents, copyrights,
trademarks, franchises or
organization or research and development costs,
prepaid expenses or investments
in subsidiaries/affiliates; and (iv)
any other assets determined to be
intangible by Lender in its
reasonable credit judgment.
Borrowers will maintain a
Consolidated Tangible Net Worth of
not less than $30,000,000, such ratio to be
tested as of the end of each calendar quarter (i.e.
as of March 31, June 30, September 30 and
December 31).
(c) Total Liabilities (as defined
by GAAP) to Consolidated Tangible
Net Worth:
Borrowers will not allow the
ratio of Total Liabilities to
Consolidated Tangible Net Worth to be
greater than 2.25 to 1.00, such ratio to be tested as
34
of the end of any calendar quarter
(i.e. as of March 31, June 30,
September 30 and December 31).
(d) Maximum Annual Capital Expenditures:
Borrowers will not allow their
Capital Expenditures to exceed
$7,000,000 during any Fiscal Year.
10.6 (a) Lender's Office: 10 South
LaSalle Street
Chicago, Illinois 60603
(b) Lender's Bank: Bank of
America Illinois
231 South LaSalle Street
Chicago, Illinois 60697
(c) Borrowers: Yale E. Key, Inc.
Key Energy Drilling,
Inc. d/b/a Clint
Hurt Drilling
WellTech Eastern, Inc.
(d) Borrowers' Chief Executive Offices:
1. Yale:
1503 East Taylor
Midland, Texas 79702
2. Key Energy Drilling, Inc.
d/b/a Clint Hurt Drilling:
1503 East Taylor
Midland, Texas 79702
3. WellTech Eastern, Inc.
5967 Venture Way
Mt. Pleasant, Michigan 48858
(e) Attached hereto as Schedule 10.6(e)
is a correct and complete listing of
all of Borrowers' other Offices and
Locations of Collateral identifying each location
by street address, listing the name and address of
each owner of each location and if
different from the owner, the name
and address of each lessor of each
location.
(f) Borrowers' Trade Names for Invoicing:
1. Yale: Bonner Hoffman Oil
Well Service Skeeter
Machen Oil Well Service
Key Fishing & Rental Tools
Key Tank Rentals
Key Mud
2. Key Energy Drilling, Inc.
d/b/a Clint Hurt Drilling:
None
3. WellTech: WellTech
Mid-Continent Division
35
IN WITNESS WHEREOF, Borrowers and Lender have duly
executed this Agreement this day of May, 1996.
LENDER: BORROWERS:
THE CIT GROUP/CREDIT YALE E. KEY, INC.
FINANCE, INC.
By: By: Name: Mr.Morris
Horstmann Name: Francis D. John Title: Vice
President Title: Executive Vice President
KEY ENERGY DRILLING,
INC. D/B/A CLINT HURT
DRILLING
By:
Name: Francis D. John
Title: Executive Vice President
WELLTECH EASTERN,
INC.
By:
Name: Francis D. John
Title: President
36
SCHEDULE A
Permitted Liens
Amended and Restated Intercompany Notes and Security Agreements
as follows:
Intercompany Note and Security Agreement executed by Hurt
for the benefit of Yale and endorsed to Lender.
Intercompany Note and Security Agreement executed by Key for the
benefit of Yale and endorsed to Lender.
Intercompany Note and Security Agreement executed by WellTech
for the benefit of Yale and endorsed to Lender.
Intercompany Note and Security Agreement executed by Yale
for the benefit of Hurt and endorsed to Lender.
Intercompany Note and Security Agreement executed by Key for the
benefit of Hurt and endorsed to Lender.
Intercompany Note and Security Agreement executed by WellTech
for the benefit of Hurt and endorsed to Lender.
Intercompany Note and Security Agreement executed by Yale for
the benefit of Key and endorsed to Lender.
Intercompany Note and Security Agreement executed by Hurt for
the benefit of Key and endorsed to Lender.
Intercompany Note and Security Agreement executed by WellTech
for the benefit of Key and endorsed to Lender.
Intercompany Note and Security Agreement executed by Yale
for the benefit of WellTech and endorsed to Lender.
Intercompany Note and Security Agreement executed by Key
for the benefit of WellTech and endorsed to Lender.
Intercompany Note and Security Agreement executed by Hurt
for the benefit of WellTech and endorsed to Lender.
Security Agreement between Nubs Well Servicing, Inc., and
WellTech, Inc., and Assumption Agreement entered into by
WellTech Eastern, Inc., and Guaranty executed by Key.
SCHEDULE B
The following should be noted with respect to environmental
matters:
1. WellTech conducts its operations from well servicing
yards owned and leased as described on Schedule
10.6(e). These yards and vehicles located thereon are
subject to contamination resulting from fueling of the
rigs from gasoline and diesel tanks situated on certain of
the properties; washing the rigs using a mild
detergent with resulting flow-off and servicing the
rigs at the site using oil, grease and other types of
lubricants.
2. WellTech conducts liquid hauling operations in
both Oklahoma and Michigan. These operations entail
the hauling of liquid substances and wastes and the
disposal of such substances in disposal wells permitted
for this purpose.
3. In connection with the trucking operations mentioned
in No. 2 above, WellTech has acquired three disposal
wells in the State of Michigan and five disposal wells
in the State of Oklahoma. These wells are properly
permitted and caution is taken to deter unauthorized use of the
wells.
4. Bronson Production, Inc., acquired the Wlosinski
No. 2-27 well in Manistee County, Michigan in 1994
from Terra Energy, Ltd. Terra has entered into final
administrative consent order assessing civil penalty
against respondent, Terra Energy, Ltd., on May 9, 1995. The
alleged infractions relate to injecting into the well
pressures in excess of permissible pressures; failing
to submit monthly, quarterly and annual monitoring
reports; and failure to post an acceptable
alternative demonstration of financial responsibility. Terra
paid a fine of approximately $35,000 and seeks
reimbursement from the Company for a portion of the
amount paid.
5. The Santa Maria, California property, formerly leased
and utilized last in April 1992, by WellTech in its
California operations, is subject to limited
reclamation activities. While WellTech has not acknowledged any
liability or responsibility, approximately $15,000 has
been contributed towards efforts with the
representative of the property owners to satisfy the
Santa Maria County Environmental Agency. There is an
understanding that the efforts will be pursued jointly
to avoid litigation with the property owners.
WellTech owns and operates the following above-ground and
underground storage tanks:
1. Mid-Continent Region - Fuel Tanks
There are only two underground tanks on property owned
or leased by the Company at the El Reno, Oklahoma
facility in El Reno, Oklahoma. These tanks were in the
ground at the time WellTech acquired the El Reno,
Oklahoma property and have not been used by the Company
since the acquisition. At the time of the acquisition,
the soils around the tanks were tested and no
contamination was found as documented in an
environmental assessment delivered to the Company.
Above the ground storage tanks are located in:
Canadian, Texas Countyline,
Oklahoma Guthrie, Oklahoma
Lindsay, Oklahoma Oklahoma City, Oklahoma
Northeastern Region - Fuel Tanks
There are no underground tanks
A single above the ground storage tank
is located at WellTech's well servicing yard
in Kalkaska, Michigan.
SCHEDULE 6.12
1. Key has guaranteed the obligations of Odessa to
Norwest Bank Texas, Midland.
2. Key will pay the bonuses due to Francis D. John under Mr.
John's Employment Agreement with Key.
3. Key will guarantee WellTech's obligations relating to the
Nub's acquisition and note balance: $200,000 - $250,000
4. WellTech leases from Hidco Development Corporation,
which is owned by Kenneth C. Hill and his spouse, real
property used for well servicing yards in Mt. Pleasant,
Michigan and Ripley, West Virginia. Lease terms, including
rental rates, are deemed by management to be competitive.
5. WellTech leases from Talon Development Corporation real
property used for its servicing yard in Indiana,
Pennsylvania. Kenneth C. Hill owns a 33 1/3 interest in
Talon Development Corporation. Lease terms including rental
rates are deemed by management to be competitive.
6. WellTech initiated a management incentive compensation
plan which requires the payment of sums of money to
various parties contingent upon the attainment of a
stipulated level of profitability. No payments have been
made pursuant to this plan since its adoption.
SCHEDULE 10.6(e)