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EXHIBIT No. 10.20
SECOND AMENDED AND RESTATED LOAN AGREEMENT
between
NATURAL GAS SERVICES GROUP, INC.
and
WESTERN NATIONAL BANK
Dated as of November 3, 2003
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SECOND AMENDED AND RESTATED LOAN AGREEMENT
This Second Amended and Restated Loan Agreement, dated as of November
3, 2003, is made and entered into by and among Natural Gas Services Group, Inc.,
a Colorado corporation (the "Borrower"), and Rotary Gas Systems, Inc., a Texas
corporation, NGE Leasing, Inc., a Texas corporation, and Great Lakes
Compression, Inc., a Colorado corporation (collectively, the "Guarantors"), and
Western National Bank, a national banking association (the "Lender").
Recitals
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WHEREAS, the Borrower and the Lender are parties to that certain First
Amended and Restated Loan Agreement, dated as of March 26, 2003 (said First
Amended and Restated Loan Agreement, the "Prior Loan Agreement");
WHEREAS, pursuant to the Prior Loan Agreement, the Borrower is now
indebted to the Lender as evidenced by (i) that certain Revolving Line of Credit
Promissory Note, dated March 26, 2003, in the original principal amount of
$750,000.00, (ii) that certain Line B Term Promissory Note, dated March 26,
2003, in the original principal amount of $2,150,000.00, (iii) that certain
Consolidated Term Promissory Note, dated April 3, 2002, in the original
principal amount of $2,146,660.93,(iv) that certain Multiple Advance Term
Promissory Note, dated April 3, 2002, in the original principal amount of
$1,853,340.00, and (v) that certain Line A Term Promissory Note, dated September
30, 2002, in the original principal amount of $3,500,000.00.
WHEREAS, the Borrower has requested that the Lender (i) make additional
loans to the Borrower; (ii) renew, extend, rearrange and consolidate into a
single term loan all of the Borrower's indebtedness evidenced by the Line A Term
Promissory Note, the Line B Term Promissory Note, the Consolidated Term
Promissory Note and the Multiple Advance Term Promissory Note; and (iii)
maintain and continue the Borrower's revolving line of credit facility pursuant
to the Revolving Line of Credit Promissory Note and this Second Amended and
Restated Loan Agreement; and
WHEREAS, the Bank is agreeable to the Borrower's requests but only upon
and subject to the terms and provisions which are hereinafter specified.
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NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto hereby agree as follows:
ARTICLE I
Definitions
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1.1 Defined Terms. In addition to the terms defined in the preamble and
elsewhere in this Agreement, the following terms shall have the following
meanings:
"Advance" means any loan disbursement to or on behalf of Borrower under
any of the Loan Papers, including, without limitation, all amounts initially
advanced under the Notes and all Subsequent Advances.
"Advance Note" means the Advancing Line of Credit Promissory Note
described in Section 2.1(b) hereof, as the same may be renewed, extended,
increased or otherwise modified from time to time.
"Affiliate" means, as to any person, (a) any other person (other than a
Subsidiary) which, directly or indirectly, is in control of, is controlled by,
or is under common control with, such person or (b) any person who is a
director, officer or partner (i) of such person, (ii) of any Subsidiary of such
person or (iii) of any person described in the preceding clause (a). For
purposes of this definition, "control" of a person means the power, directly or
indirectly, either to (i) vote 10% or more of the securities having ordinary
voting power for the election of directors of such person or (ii) direct or
cause the direction of the management and policies of such person whether by
contract or otherwise.
"Agreement" means this Second Amended and Restated Loan Agreement, as
amended, restated, supplemented or otherwise modified from time to time.
"Bank Liens" means Liens in favor of the Lender, securing all or any
portion of the Obligations, including, but not limited to, Rights in any
Collateral created in favor of the Lender, whether by mortgage, pledge,
hypothecation, assignment, transfer or other granting or creation of Liens.
"Borrowing Base" means at any date the amount set forth in line M in the
Borrowing Base Report, as determined pursuant to and in accordance with Section
2.3 and Exhibit D of this Agreement at such date.
"Borrowing Base Report" shall have the meaning given to such term as
set forth in Section 2.3(b) of this Agreement.
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"Business Day" means every day on which Lender is open for banking
business.
"Change of Control" means the occurrence after the date of this
Agreement of any circumstance or event in which (i) a person shall cause or
bring about (through solicitation of proxies or otherwise) the removal or
resignation of a majority of the members of the Board of Directors of the
Borrower serving in such capacity on the date of this Agreement or a person
causes or brings about (through solicitation of proxies or otherwise) an
increase in the size of the existing Board of Directors of the Borrower such
that the existing members of the Board of Directors thereafter represent a
minority of the total number of persons comprising the entire Board; or (ii) a
person, including a "group" as defined in Section 13(d)(3) of the Securities
Exchange Act of 1934, becomes the beneficial owner of shares of any class of
stock of the Borrower having thirty percent (30%) or more of the total number of
votes that may be cast for the election of directors of the Borrower.
"Collateral" means any and all property, tangible or intangible, now
existing or hereafter acquired, mortgaged, pledged, assigned or otherwise
encumbered by the Borrower, the Subsidiaries or any other person to or for the
benefit of the Lender pursuant to any of the Loan Papers now or hereafter
executed and delivered by the Borrower or any of its Subsidiaries or any other
person to secure the payment and performance of the Notes and obligations of the
Borrower hereunder or under any of the other Loan Papers, as any such Loan Paper
may be amended, supplemented or otherwise modified from time to time.
"Consolidated Cash Flow" means, with respect to any period of
calculation thereof, the sum of (i) the consolidated pre-tax net income (or
loss), less actual taxes paid, from continuing operations of the Borrower and
its Subsidiaries during such period (excluding extraordinary income but
including extraordinary expenses), plus (ii) depreciation, depletion,
amortization and interest expenses deducted in determining consolidated net
income (or loss) of the Borrower and its Subsidiaries during such period, all
determined on a consolidated basis.
"Consolidated Current Ratio" means the ratio of (i) the sum of the
current assets of the Borrower and its Subsidiaries to (ii) the sum of the
current liabilities (excluding current maturities of long-term debt) of the
Borrower and its Subsidiaries, all determined on a consolidated basis.
"Consolidated Debt" means at a particular date the total Debt of the
Borrower and its Subsidiaries, determined on a consolidated basis.
"Consolidated Fixed Charges" means, with respect to any period of
calculation thereof, the sum of (a) the aggregate principal amount of all Debt
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of the Borrower and its Subsidiaries paid or due and payable during such period
plus (b) all interest, including, without limitation, imputed interest in
connection with Financing Leases, paid or accrued by the Borrower and its
Subsidiaries during such period; provided, however, that any principal amount of
Debt and any interest payable in one fiscal period and paid in another shall not
be twice included in Consolidated Fixed Charges.
"Consolidated Intangible Assets" means those assets of the Borrower and
its Subsidiaries, determined on a consolidated basis, that would be classified
as intangible assets in accordance with generally accepted accounting
principles, but in any event including, without limitation, (i) deferred assets,
other than prepaid insurance and prepaid taxes; (ii) patents, copyrights,
trademarks, tradenames, franchises, goodwill, experimental expenses and other
similar assets which would be classified as intangible assets on a balance sheet
of such person, prepared in accordance with generally accepted accounting
principles; (iii) unamortized debt discount and expense, and unamortized
organization and reorganization expense; and (iv) assets located, and notes and
receivables due from obligors domiciled, outside of the United States.
"Consolidated Tangible Net Worth" means at a particular date (i) the
sum of (a) all amounts which would be included under stockholders' equity, on a
consolidated balance sheet of the Borrower and its Subsidiaries and (b) the
outstanding principal amount of the Subordinated Notes, less (ii) the sum of the
aggregate book value of Consolidated Intangible Assets, all determined on a
consolidated basis.
"Consolidated Term Promissory Note" means that certain Consolidated
Term Promissory Note, dated April 3, 2002, made, executed and delivered by the
Borrower pursuant to the Prior Loan Agreement and in the original principal
amount of $2,146,660.93.
"Contractual Obligation" means, as to any person, any provision of any
security issued by such person or of any agreement, instrument or other
undertaking to which such person is a party or by which it or any of its
property is bound.
"Debt" means, for the Borrower and any Subsidiary, at any particular
date, and without duplication, the sum at such date of (i) all indebtedness of
such person for borrowed money or for the deferred purchase price of property or
services (other than current trade liabilities incurred in the ordinary course
of business and payable in accordance with customary practices) for which such
person is liable, contingently or otherwise, as obligor, guarantor or otherwise,
or in respect of which such person otherwise assures a creditor against loss;
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(ii) all obligations of such person under leases which shall have been, or
should have been, in accordance with generally accepted accounting principles,
recorded as capital leases in respect of which such person is liable,
contingently or otherwise, as obligor, guarantor or otherwise, or in respect of
which obligations such person otherwise assures a creditor against loss, (iii)
unfunded vested benefits under each ERISA Plan; (iv) all indebtedness and other
liabilities secured by any Lien on any property owned by such person even though
such person has not assumed or otherwise become liable for payment thereof; (v)
all obligations of such person in respect of letters of credit, acceptances or
similar obligations issued or created for the account of such person; and (vi)
indebtedness of such person evidenced by a bond, debenture, note or similar
instrument, excluding, however, the Subordinated Notes.
"Environmental Complaint" means any complaint, request for information,
summons, order, demand, citation, notice or other written communication from any
person or Governmental Authority with respect to the existence or alleged
existence of a violation of any Requirement of Law or liability resulting from
any air emission, water discharge, noise emission, asbestos, Hazardous Substance
or any other environmental, health or safety matter at, upon, under or within
any of the property owned, operated or used by the Borrower or any of its
Subsidiaries.
"ERISA Plan" shall have the meaning given to such term as set forth in
Section 4.15 of this Agreement.
"Event of Default" shall have the meaning given to such term as set
forth in Section 7.1 of this Agreement.
"Financing Lease" means any lease of property, real or personal, the
obligations of the lessee in respect of which are required in accordance with
generally accepted accounting principles to be capitalized on a balance sheet of
the lessee.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Hazardous Substance" shall have the meaning given to such term as set
forth in Section 4.20 of this Agreement.
"Highest Lawful Rate" means the maximum rate of interest (or, if the
context so requires, an amount calculated at such rate) which Lender is allowed
to contract for, charge, take, reserve or receive under applicable law after
taking into account, to the extent required by applicable law, any and all
relevant payments or charges under the Loan Papers.
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"Lien" means any interest in property securing an obligation owed to,
or a claim by, a person other than the owner of the property, whether such
interest is based on the common law, statute or contract, including, but not
limited to, a lien or security interest arising from any mortgage, encumbrance,
pledge, hypothecation, assignment, deposit arrangement, or preference, priority
or other security agreement (including, without limitation, any conditional sale
or other title retention agreement or trust receipt or a lease, consignment or
bailment for security purposes). The term "Lien" shall also include
reservations, exceptions, encroachments, easements, rights of way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
affecting property.
"Line A Term Promissory Note" means that certain Term Promissory Note,
dated September 30, 2002, made, executed and delivered by the Borrower pursuant
to the Prior Loan Agreement and in the original principal amount of
$3,500,000.00.
"Line B Term Promissory Note" means that certain Line B Term Promissory
Note, dated March 26, 2003, made, executed and delivered by the Borrower
pursuant to the Prior Loan Agreement and in the original principal amount of
$2,150,000.00.
"Loan Papers" means (i) this Agreement, (ii) the Notes and (iii) any
and all notes, mortgages, deeds of trust, security agreements, pledge
agreements, financing statements, guaranties, and other agreements, documents,
certificates, letters and instruments ever delivered or executed pursuant to, or
in connection with, this Agreement, whether existing on the date hereof or
thereafter created, as any of the same may hereafter be amended, supplemented,
extended or restated.
"Material Adverse Effect" means any set of circumstances or events
which (i) has, will or could reasonably be expected to have any material adverse
effect upon the validity or enforceability of this Agreement or any of the other
Loan Papers or the Rights or remedies of the Lender hereunder or thereunder;
(ii) is or could reasonably be expected to be material and adverse to the
financial condition, business, operations, property or prospects of the Borrower
or any of its Subsidiaries; (iii) will or could reasonably be expected to impair
the ability of the Borrower or any of its Subsidiaries to perform its respective
obligations under the terms and conditions of any of the Loan Papers to which it
is a party; or (iv) will or could reasonably be expected to cause an Event of
Default.
"Material Agreement" of any person means any material written or oral
agreement, contract, commitment, arrangement or understanding to which such
person is a party, by which such person is directly or, to such person's
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knowledge, indirectly bound, or to which any asset of such person may be
subject, which is not cancelable by such person upon 30 days or less notice
without liability for further payment other than nominal penalties, excluding,
however, such agreements, contracts, commitments, arrangements or understandings
pursuant to which the subject matter thereof does not exceed $50,000.00 in the
aggregate.
"Multiple Advance Term Promissory Note" means that certain Multiple
Advance Term Promissory Note, dated April 3, 2002, made, executed and delivered
by the Borrower pursuant to the Prior Loan Agreement and in the original
principal amount of $1,853,340.00.
"Note" or "Notes" means the individual or collective reference, as the
context may require, to the Advance Note, Revolving Line of Credit Promissory
Note and the Term Promissory Note.
"Obligations" means the unpaid principal of and interest on the Notes
and all other present and future indebtedness, obligations and liabilities of
the Borrower and any of its Subsidiaries to the Lender, and all renewals,
rearrangements and extensions thereof, or any part thereof, now or hereafter
owed to Lender by the Borrower or any of its Subsidiaries, whether arising from,
by virtue of, or pursuant to any Loan Paper, or otherwise, together with all
interest accruing thereon and all costs, expenses and attorneys' fees incurred
in the enforcement or collection thereof, and whether such indebtedness,
obligations and liabilities are direct, indirect, fixed, contingent, liquidated,
unliquidated, joint, several, or joint and several or were, prior to acquisition
thereof by Lender, owed to some other person.
"Prime Rate" means that variable rate of interest per annum published
in the Money Rates section of The Wall Street Journal as its "prime rate". If
the Money Rates section of The Wall Street Journal does not have a rate
designated by it as its "prime rate," then the "Prime Rate" shall be deemed to
be the variable rate of interest per annum which is the general reference rate
designated by the Lender as its "reference rate", "base rate" or other similar
rate and which is comparable to the "Prime Rate" as described above. The Prime
Rate is used by Lender as a general reference rate of interest, taking into
account such factors as Lender may deem appropriate, it being understood that it
is not necessarily the lowest or best rate actually charged to any customer and
that Lender may make various commercial or other loans at rates of interest
having no relationship to such rate.
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"Relevant Environmental Law" means any and all foreign, federal, state,
local or municipal laws, rules, orders, regulations, statutes, ordinances,
codes, decrees, requirements of any Governmental Authority or other Requirements
of Law (including common law) regulating, relating to or imposing liability or
standards of conduct concerning protection of human health, wildlife or the
environment, as now or may at any time hereafter be in effect.
"Requirement of Law" means, as to any person, the certificate and
articles of incorporation and bylaws, articles of organization, regulations or
other organizational or governing documents of such person, and any law, treaty,
rule or regulation or determination of an arbitrator or a court or other
Governmental Authority, in each case applicable to or binding upon such person
or any of its property or to which such person or any of its property is
subject.
"Revolving Line of Credit Promissory Note" means the Revolving Line of
Credit Promissory Note, dated March 26, 2003, in the original principal amount
of $750,000.00,made by Borrower payable to the order of Lender, bearing interest
as provided therein and maturing on March 15, 2004, as the same may be renewed,
extended, increased or otherwise modified from time to time.
"Rights" means rights, remedies, powers, privileges and benefits.
"Subsequent Advance" means any disbursement to or on behalf of Borrower
after the initial Advance under the Advance Note or the Revolving Line of Credit
Promissory Note pursuant to the provisions of Section 2.1 and Section 2.2
hereof.
"Subordinated Notes" means the Series A 10% Subordinated Notes due
December 31, 2006 in the aggregate outstanding principal amount of $1,539,260.62
outstanding on the date of this Agreement, issued by NGE Leasing, Inc., a
Subsidiary of the Borrower.
"Subsidiary" means, as to the Borrower or any other designated person,
a corporation, partnership, limited liability company or other entity of which
shares of stock or other ownership interests having ordinary voting power (other
than stock or such other ownership interests having such power only by reason of
the happening of a contingency) to elect a majority of the board of directors,
managers or other governing body of such corporation, partnership, limited
liability company or other entity are at the time owned, or the management of
which is otherwise controlled, directly or indirectly, through one or more
intermediaries, or both, by the Borrower or such other designated person.
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"Term Promissory Note" means the Term Promissory Note described in
Section 2.1(a) hereof, as the same may be renewed, extended, increased or
otherwise modified from time to time.
1.2 Accounting Principles. Where the character or amount of any asset
or liability or item of income or expense is required to be determined or any
consolidation or other accounting computation is required to be made for the
purposes of this Agreement or any other Loan Paper, such determination,
consolidation or computation shall be made in accordance with generally accepted
accounting principles consistently applied, except where such principles are
inconsistent with the requirements or definitions of this Agreement.
1.3 Directly or Indirectly. When any provision in this Agreement refers
to action to be taken by any person, or which such person is prohibited from
taking, such provision shall be applicable where the action in question is taken
directly or indirectly.
1.4 Plural and Singular Forms. The definitions given to terms defined
herein shall be equally applicable to both the singular and plural forms of such
terms.
1.5 References. The words "hereof", "herein" and "hereunder" and words
of similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and section,
subsection, schedule and exhibit references are to this Agreement unless
otherwise specified.
ARTICLE II
Amount and Terms of Loans; Subordination
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2.1 The Loans. Subject to and upon the terms and conditions and relying
on the representations and warranties contained in this Agreement, Lender agrees
to make loans to the Borrower as follows:
(a) Term Loan - Contemporaneously with the execution and
delivery hereof, the Borrower shall execute and deliver to the Lender the
promissory note in the form of Exhibit A hereto in the original principal amount
of $7,521,109.00, in renewal, extension, rearrangement and consolidation of the
Borrower's indebtedness to Lender evidenced by the Line A Term Promissory Note,
Line B Term Promissory Note, Consolidated Term Promissory Note and the Multiple
Advance Term Promissory Note. The Term Promissory Note shall mature on the date
stated therein and shall bear interest on the unpaid principal amount thereof
from time to time outstanding at the applicable interest rate per annum as
provided in the Term Promissory Note. Principal and interest on the Term
Promissory Note shall be payable in the manner and on the dates specified
therein.
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(b) Advance Type Term Loans. Contemporaneously with the
execution and delivery hereof, the Borrower shall execute and deliver to the
Lender the promissory note in the form of Exhibit B hereto in the original
principal amount of $10,000,000.00. Subject to and upon the terms and conditions
of this Agreement and the Advance Note, the Borrower may, at any time and from
time to time during the period commencing on the date of the Advance Note and
ending at the close of business on November 3, 2004, request one or more
Advances and borrow (without the ability to reborrow amounts paid under the
Advance Note) under the Advance Note; provided, however, and notwithstanding the
face amount of the Advance Note, without the prior written consent of Lender in
its sole discretion the cumulative aggregate principal amount of all Advances
under the Advance Note shall never exceed the lesser of (i) $7,000,000.00 or
(ii) the amount available for Advance under the Advance Note and Revolving Line
of Credit Promissory Note as determined in accordance with and set forth in line
O in the Borrowing Base Report. The Advance Note shall mature as provided
therein and shall bear interest on the unpaid principal amount thereof from time
to time outstanding at the applicable interest rate per annum as provided in the
Advance Note. Principal and interest on the Advance Note shall be payable in the
manner and on the dates specified therein. The Advance Note, including the loans
evidenced thereby, is a multiple advance term loan facility and shall not be
construed as a revolving line of credit as reborrowings are not permitted.
(c) Revolving Loans. Pursuant to the Prior Loan Agreement, the
Borrower executed and delivered to the Lender the Revolving Line of Credit
Promissory Note, the outstanding principal balance of which is $350,000.00 on
the date of this Agreement. All amounts outstanding under the Revolving Line of
Credit Promissory Note on the date of this Agreement shall be deemed to be
Advances made under and pursuant to this Agreement, and the Revolving Line of
Credit Promissory Note is and shall remain in full force and effect in
accordance with the terms thereof, subject in all respects to the terms of this
Agreement and the other Loan Papers. Subject to and upon the terms and
conditions of this Agreement and the Revolving Line of Credit Promissory Note,
the Borrower may request one or more Advances and borrow, prepay and reborrow at
any time and from time to time under the Revolving Line of Credit Promissory
Note; provided, however, the aggregate principal amount of all Advances
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outstanding at any one time under the Revolving Line of Credit Promissory Note
shall never exceed the lesser of (i) $750,000.00 or (ii) the amount available
for Advance under the Revolving Line of Credit Promissory Note as determined in
accordance with and as set forth in line Q in the Borrowing Base Report. The
Revolving Line of Credit Promissory Note shall mature on the date stated therein
and shall bear interest on the unpaid principal amount thereof from time to time
outstanding at the applicable interest rate per annum as provided in the
Revolving Line of Credit Promissory Note. Principal and interest on the
Revolving Line of Credit Promissory Note shall be payable in the manner and on
the dates specified therein.
2.2 Procedure For Borrowings. (a) At the time of the initial Advance
under the Advance Note or the Revolving Line of Credit Promissory Note, as the
case may be, the conditions set forth in Section 3.1 of this Agreement shall
have been satisfied and, with respect to each Subsequent Advance under the
Advance Note or the Revolving Line of Credit Promissory Note, the conditions set
forth in Section 3.2 hereof shall have been satisfied at the time of each such
Subsequent Advance. At the time of each request for a Subsequent Advance under
the Advance Note or the Revolving Line of Credit Promissory Note, the Borrower
shall simultaneously furnish to the Lender a written notice of borrowing (dated
as of the date of the request for such Subsequent Advance and otherwise being in
substantially the form attached hereto as Exhibit C) confirming (i) the Note
under which the Subsequent Advance has been requested, (ii) the amount of the
requested Subsequent Advance and(iii) the absence of any Event of Default at the
date of such request. Each request for a Subsequent Advance under the Advance
Note or the Revolving Line of Credit Promissory Note must be in the minimum
amount of $50,000.00 or the unadvanced portion of the Note under which the
Subsequent Advance has been requested, whichever is less. Assuming the
satisfaction of the conditions set forth in this Section 2.2, requests for
Subsequent Advances under the Advance Note or the Revolving Line of Credit
Promissory Note will be funded on the same Business Day that Lender receives
Borrower's request for each such Subsequent Advance; provided that Borrower's
request is received by the Lender prior to 12:00 noon on the date of any such
request.
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(b) The Lender shall maintain in accordance with its usual
practice one or more accounts or other records evidencing the Obligations of the
Borrower to the Lender resulting from each loan made by the Lender from time to
time under the Notes, including the amounts of principal and interest payable
and paid to the Lender from time to time under this Agreement and each
respective Note. The entries made in such accounts or records of the Lender
shall be prima facie evidence of the existence and amounts of the Obligations of
the Borrower and its Subsidiaries therein recorded; provided, however, that the
failure of the Lender to maintain any such accounts or records, or any error
therein, shall not in any manner affect the absolute and unconditional
obligation of the Borrower to repay (with applicable interest) all loans made to
the Borrower in accordance with the terms of this Agreement and the Notes.
2.3 Borrowing Base. The Borrowing Base shall be determined as follows:
(a) Initial Borrowing Base. The initial Borrowing Base shall
be $14,654,940 during the period from the date hereof to the date on which the
Borrower receives notice of the first redetermination of the Borrowing Base by
the Lender pursuant to Section 2.3(b) and thereafter the amount of the Borrowing
Base shall be the Borrowing Base most recently determined pursuant to Section
2.3(b).
(b) Redeterminations of the Borrowing Base. (i) No later than
45 days after the end of each month, the Borrower shall, at its own expense,
furnish to the Bank a borrowing base report (the "Borrowing Base Report") in the
form attached hereto as Exhibit D, which shall be dated as of the end of each
such month.
(ii) Within 15 days after it receives each Borrowing
Base Report, the Lender may in its sole discretion, but shall not be obligated
to, redetermine the Borrowing Base, and shall notify the Borrower of the new
Borrowing Base, if any; provided, however, if the Lender does not so notify the
Borrower of a new Borrowing Base within such 15-day period, then the Borrowing
Base set forth in the Borrowing Base Report furnished to the Lender by the
Borrower pursuant to Section 2.3(b)(i) shall be deemed to be the redetermined
Borrowing Base until a new Borrowing Base is redetermined by the Lender and
notice of such new Borrowing Base is given by the Lender to the Borrower. Each
redetermination of the Borrowing Base shall be made by the Lender in the
exercise of its sole discretion in accordance with the then current standards
and practices of the Lender for similar loans, taking into account such factors
as the Lender may deem appropriate, including, without limitation, the nature
and extent of the Borrower's interest in the accounts and leases receivable and
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inventory upon which the Borrowing Base is then redetermined. The Lender may in
its sole discretion discount the value of any property included in the
redetermination of the Borrowing Base as set forth in a Borrowing Base Report by
the same factors utilized by it in discounting the value of comparable borrowing
base assets in comparable transactions for comparable borrowers.
(iii) Each delivery by the Borrower to the Lender of
a Borrowing Base Report shall be deemed to constitute a representation and
warranty by the Borrower to the Lender that the Borrower and its Subsidiaries
have good and marketable title to the Collateral owned by each of them and
described therein, and that such Collateral is not subject to any Lien other
than Bank Liens and Liens permitted by Section 6.8.
2.4 Optional and Mandatory Prepayments. (a) The Borrower may at any
time and from time to time prepay any one or all of the Notes, in whole or in
part, without premium or penalty, upon prior or simultaneous irrevocable notice
to the Lender, specifying the Note to be prepaid, the date and the amount of
prepayment. If any such notice is given, the amount specified in such notice
shall be due and payable on the date specified therein. Partial prepayments
shall be in an aggregate principal amount of $20,000.00 or a whole multiple
thereof, or shall equal the aggregate outstanding balance of the Note being
prepaid.
(b) If the aggregate unpaid principal amount of all Notes
shall at any time exceed the Borrowing Base at such time, the Lender shall so
notify the Borrower, and the Borrower shall, within fifteen Business Days after
such notification, first prepay the principal of the Revolving Line of Credit
Promissory Note in an aggregate amount at least equal to such excess, together
with accrued interest on the amount prepaid to the date of such prepayment and,
to the extent such excess is not eliminated by the prepayment of the Revolving
Line of Credit Promissory Note, the Borrower shall next prepay the principal of
the Advance Note and Term Promissory Note, in that order, in an aggregate amount
equal to the remaining unpaid excess amount.
2.5 Payment Procedure. Each payment or prepayment on the Notes must be
made at the principal office of Lender in funds which are or will be available
for immediate use by Lender on or before 12:00 noon Midland, Texas time on the
day such payment is due or such prepayment is made. In any case where a payment
of principal of, or interest on, the Notes is due on a day which is not a
Business Day, the Borrower shall be entitled to delay such payment until the
next succeeding Business Day, but interest shall continue to accrue until the
payment is in fact made.
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2.6 Order of Application. Except as otherwise provided in the Loan
Papers, all payments and prepayments on the Obligations, including proceeds from
the exercise of any Rights of Lender under the Loan Papers, shall be applied to
the Obligations in the following order: (i) first, to reasonable expenses for
which Lender shall not have been reimbursed under the Loan Papers and then to
all amounts to which Lender is entitled to indemnification under the Loan
Papers; (ii) to the accrued interest on the Note being paid or prepaid; (iii) to
the principal of the Note being paid or prepaid and, with regard to the Advance
Note and the Term Promissory Note, applied upon installments of most remote
maturity; and (iv) to the remaining Obligations.
2.7 Commitment and Arrangement Fee; Borrowing Base Determination Fee.
The Borrower agrees to pay to Lender a nonrefundable commitment and arrangement
fee in the amount of $35,000.00.
2.8 Subordination of Subordinated Notes. Subject to Section 6.15
hereof, the indebtedness of NGE Leasing, Inc. evidenced by the Subordinated
Notes and any guarantee thereof by the Borrower and any and all renewals,
extensions, refundings and modifications (but not increases) thereto are hereby
subordinated and subject in right of payment and in all other respects to the
prior payment in full of (a) all Debt of the Borrower and any Subsidiary to the
Lender, (b) any other indebtedness, liability or obligation, contingent or
otherwise, of Borrower or any Subsidiary or Guarantor to Lender, and any
guaranty, endorsement or other contingent obligation in respect thereof, whether
outstanding on the date hereof or hereafter created, incurred or assumed, and
(c) modifications, renewals, extensions, increases, rearrangements and
refundings of any such indebtedness, liabilities or obligations owed to the
Lender.
ARTICLE III
Conditions Precedent
--------------------
3.1 Conditions to Initial Advance. The obligation of Lender to renew
and extend the Borrower's Debt to Lender pursuant to the Term Promissory Note
and to make the initial Advance under the Advance Note and the Revolving Line of
Credit Promissory Note is subject to the satisfaction and fulfillment of each of
the following conditions precedent which shall have occurred on or before the
date hereof, or simultaneously with the closing of the transactions contemplated
by this Agreement, unless compliance therewith shall have been waived in writing
by Lender:
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(a) There shall have been duly executed, where appropriate,
and delivered by the Borrower (and/or any other requisite party thereto) the
following:
(1) this Agreement;
(2) the Notes;
(3) Stock Pledge Agreements covering the capital
stock of NGE Leasing, Inc., Rotary Gas Systems, Inc. and Great
Lakes Compression, Inc., in each case being in substantially
the form attached hereto as Exhibit E;
(4) the Security Agreement in substantially the form
attached hereto as Exhibit F;
(5) a certificate of account status (good standing)
and a certificate of existence for Borrower in the
jurisdiction under the laws of which Borrower is organized and
in each jurisdiction wherein Borrower's operations,
transaction of business or ownership of property make
qualification as a foreign corporation necessary;
(6) an Officer's Certificate in substantially the
form attached hereto as Exhibit G, which shall contain the
names and signatures of the officers of the Borrower
authorized to execute Loan Papers and which shall certify to
the truth, correctness and completeness of the following
exhibits attached thereto: (A) a copy of resolutions duly
adopted by the Board of Directors of the Borrower and in full
force and effect at the time this Agreement is entered into,
covering the matters described in subparagraph (d) below of
this Section 3.1, (B) a copy of the charter documents of
Borrower and all amendments thereto, certified by the
appropriate official of Borrower's state of organization, and
(C) a copy of the bylaws of Borrower, and certifying as to
such other matters as Lender may reasonably require; and
(7) such other documents or instruments as Lender may
reasonably require.
15
(b) There shall have been executed, where appropriate, and
delivered by the Guarantors (and/or any other requisite party thereto) the
following, all of which shall be in form and substance satisfactory to Lender
and its counsel:
(1) Guaranty Agreements in substantially the form
attached hereto as Exhibit H;
(2) Security Agreements in substantially the form
attached hereto as Exhibit I;
(3) a certificate of account status (good standing)
and a certificate of existence for each Subsidiary in the
jurisdiction under the laws of which each Subsidiary is
organized and in each jurisdiction wherein its operations,
transaction of business or ownership of property made
qualification as a foreign entity necessary;
(4) an Officer's Certificate of each Guarantor in
substantially the form attached hereto as Exhibit J, which
shall contain the names and signatures of the officers of each
Guarantor authorized to execute Loan Papers and which shall
certify to the truth, correctness and completeness of the
following exhibits attached thereto: (A) a copy of resolutions
duly adopted by the Board of Directors of such Guarantor and
in full force and effect at the time this Agreement is entered
into, covering the matters described in subparagraph (e) below
of this Section 3.1, (B) a copy of the charter or other
organizational documents of each such Guarantor and all
amendments thereto, certified by the appropriate official of
such Guarantor's state of organization, and (C) a copy of the
bylaws of each such Guarantor, and certifying as to such other
matters as Lender may reasonably require; and
(5) such other documents or instruments as Lender may
reasonably require.
(c) All requirements of notice to perfect each Bank Lien shall
have been accomplished or arrangements made therefor to the satisfaction of
Lender and its counsel;
(d) The Borrower shall have approved the execution, delivery
and performance of the Loan Papers to which it is a party by resolutions
satisfactory to Lender and its counsel, authorizing (i) the execution, delivery
and performance of this Agreement, the Notes and the other Loan Papers to which
16
the Borrower is a party, (ii) the borrowings contemplated hereunder and (iii)
the granting by it of the pledge and security interests pursuant to the Loan
Papers to which the Borrower is a party and appropriate certificates as to such
actions, showing the parties authorized to execute the Loan Papers and all items
required herein, shall have been delivered to the Lender;
(e) The respective boards of directors of each Guarantor shall
have approved the execution, delivery and performance of the Loan Papers to
which it is a party by resolutions satisfactory to Lender and its counsel,
authorizing (i) the execution, delivery and performance of the Loan Papers to
which it is a party, (ii) acknowledging the benefits and consideration to such
Guarantor from the borrowings contemplated hereunder and (iii) authorizing the
granting by it of the pledge and security interests pursuant to the Loan Papers
to which it is a party and appropriate certificates as to such actions, showing
the parties authorized to execute such Loan papers and all items required
herein, shall have been delivered to Lender;
(f) There shall exist no Event of Default hereunder, nor shall
any events or circumstances have occurred, and not theretofore been cured, which
with notice or lapse of time or both, would constitute an Event of Default
hereunder;
(g) The representations and warranties of the Borrower
contained in Article IV shall be true and correct in all material respects;
(h) No suit, action or other proceeding by a third party or a
Governmental Authority shall be pending or threatened which relates to this
Agreement or the transactions contemplated hereby; and
(i) The Lender shall have received the commitment and
arrangement fee required by Section 2.7 hereof.
3.2 Conditions to Subsequent Advances. The obligation of the Lender to
make any Subsequent Advance under the Advance Note and the Revolving Line of
Credit Promissory Note requested to be made by the Borrower on any date is
subject to the satisfaction of the following conditions precedent:
(a) Each of the representations and warranties made by the
Borrower in or pursuant to the Loan Papers shall be true and correct in all
material respects on and as of such date as if made on and as of such date.
17
(b) No Event of Default shall have occurred and be continuing
on such date or after giving effect to the Subsequent Advance requested to be
made on such date.
(c) Notwithstanding Section 2.4(b), after giving effect to the
Advances under the Revolving Line of Credit Promissory Note requested by
Borrower to be made on any date, the aggregate principal amount of the Revolving
Line of Credit Promissory Note then outstanding shall not exceed the lesser of
(i) $750,000.00 or (ii) the Borrowing Base then in effect.
(d) After giving effect to the Advances under the Advance Note
requested by Borrower to be made on any date, the cumulative aggregate principal
amount of all Advances under the Advance Note shall not exceed $7,000,000.00.
(e) Each request for an Advance under the Advance Note shall
have been received by Lender prior to November 3, 2004.
(f) No litigation, investigation or proceeding of or before
any arbitrator or Governmental Authority shall be pending or, to the knowledge
of the Borrower, threatened by or against the Borrower or the Lender with
respect to this Agreement or any of the other Loan Papers or the transactions
contemplated by this Agreement or any of the other Loan Papers.
(g) The Lender shall have received all Borrowing Base Reports
required to be delivered by Borrower pursuant to Section 2.3(b)(i).
Each borrowing by the Borrower hereunder shall constitute a
representation and warranty by the Borrower as of the date thereof that the
conditions contained in this Section 3.2 have been satisfied.
3.3 Corporate Proceedings and Documents. In addition to the conditions
precedent set forth in Section 3.1 and Section 3.2, all corporate and other
proceedings, and all documents, instruments and other legal matters in
connection with the transactions contemplated by this Agreement and the other
Loan Papers shall be satisfactory in form, substance and date to the Lender, and
Lender shall have received such other documents and legal opinions in respect of
any aspect or consequence of the transactions contemplated hereby or thereby as
it shall reasonably request.
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ARTICLE IV
Representations and Warranties
------------------------------
As a material inducement to Lender to enter into this Agreement, the
Borrower hereby represents and warrants to the Lender that:
4.1 Organization, Existence and Good Standing; Compliance With Law. The
Borrower and each of its Subsidiaries (a) is duly organized, validly existing
and in good standing under the laws of its state of organization, (b) is duly
qualified, in good standing and authorized to do business in each jurisdiction
where the character of its operations, transaction of business or ownership of
property makes such qualification necessary, except where the absence of
qualification, good standing or authorization would not have a Material Adverse
Effect and (c) is in compliance with all Requirements of Law, except to the
extent that the failure to comply therewith could not, in the aggregate,
reasonably be expected to have a Material Adverse Effect.
4.2 Authorization. Each of the Borrower and its Subsidiaries has the
corporate power and authority, and the legal right, to make, deliver and perform
the Loan Papers to which it is a party and, in the case of the Borrower, to
borrow hereunder, and in the case of the Subsidiaries, to guarantee the
obligations of the Borrower hereunder, and each of the Borrower and its
Subsidiaries has taken all necessary corporate action to authorize the
borrowings and other transactions on the terms and conditions of each Loan Paper
to which it is a party, the grant of the Bank Liens on the Collateral pursuant
to the Loan Papers to which it is a party and the execution, delivery and
performance of the Loan Papers to which it is a party.
4.3 Enforceable Obligations. This Agreement and each of the other Loan
Papers to which the Borrower or any of its Subsidiaries is a party have been
duly executed and delivered on behalf of the Borrower or its Subsidiaries, as
the case may be. This Agreement constitutes and the other Loan Papers to which
the Borrower or any of its Subsidiaries is a party, when executed and delivered
will constitute, a legal, valid and binding obligation of the Borrower and any
of its Subsidiaries, as the case may be, enforceable against the Borrower and
any of its Subsidiaries, as the case may be, in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, fraudulent transfer or
similar laws affecting the enforcement of creditors' rights generally and by
general equitable principles (whether enforcement is sought by proceedings in
equity or at law).
19
4.4 No Conflicts or Consents. The execution, delivery and performance
of this Agreement, the Notes and the other Loan Papers, the borrowings hereunder
and the use of the proceeds thereof will not violate any Requirement of Law or
Contractual Obligation of the Borrower or any of its Subsidiaries and will not
result in, or require, the creation or imposition of any Lien on any of its or
their respective properties, assets or revenues pursuant to any such Requirement
of Law or Contractual Obligation, except as contemplated by the Loan Papers. No
consent or authorization of, filing with or other act by or in respect of, any
Governmental Authority or any other person is required in connection with the
borrowings hereunder or with the execution, delivery, performance, validity or
enforceability of this Agreement, the Notes or the other Loan Papers.
4.5 Financial Statements. The unaudited consolidated financial
statements of Natural Gas Services Group, Inc. and Rotary Gas Systems, Inc., NGE
Leasing, Inc. and Great Lakes Compression, Inc. for the eight-month period ended
August 31, 2003, which have been delivered to Lender, are complete and correct
as they relate to the Borrower and its Subsidiaries, have been prepared in
accordance with generally accepted accounting principles, consistently applied,
and present fairly the unaudited consolidated financial condition and results of
operations of the Borrower and its Subsidiaries, as of the dates and for the
periods stated (subject only to normal year-end adjustments with respect to such
unaudited interim statements). During the period from August 31, 2003 to and
including the date hereof, no change has occurred in the condition, financial or
otherwise, of the Borrower and its consolidated Subsidiaries, taken as a whole,
which could reasonably be expected to result in a Material Adverse Effect, and
there has been no sale, transfer or other disposition by the Borrower or any of
its Subsidiaries since August 31, 2003 of any material part of its business or
property and no purchase or other acquisition of any business or property
material in relation to the consolidated condition, financial or otherwise, of
the Borrower and its Subsidiaries.
4.6 Other Obligations. As of the date hereof, neither Borrower nor any
Subsidiary has any outstanding Debt or other material liabilities, direct or
indirect, absolute or contingent, which is, in the aggregate, material to the
Borrower and its Subsidiaries and not shown in the financial statements referred
to in Section 4.5 hereof. Borrower is not aware of any fact, circumstance, act,
condition or development which will have or which threatens to have any Material
Adverse Effect.
4.7 Investments, Advances and Guaranties. At the date of this
Agreement, Borrower has not made investments in, advances to or guaranties of
20
the obligations of any person, except as reflected in the financial statements
referred to in Section 4.5 hereof.
4.8 Litigation. There is no litigation, legal, administrative or
arbitral proceeding, investigation or other action of any nature pending or, to
the knowledge of the Borrower, threatened against or affecting the Borrower
which involves the possibility of any judgment or liability not fully covered by
indemnity agreements or insurance, and which would have a Material Adverse
Effect.
4.9 No Burdensome Restrictions. No unusual or unduly burdensome
restriction, restraint or hazard exists under or by reason of any Contractual
Obligation or, to the best of Borrower's knowledge, any Requirement of Law.
4.10 Taxes. All tax returns required to be filed by the Borrower and
its Subsidiaries with all Governmental Authorities have been filed, and all
taxes, assessments, fees and other governmental charges imposed upon Borrower
and its Subsidiaries or upon any of their respective property, income or
franchises which are due and payable, have been paid (other than any the amount
or validity of which are currently being contested in good faith by appropriate
proceedings and with respect to which reserves in conformity with generally
accepted accounting principles have been provided on the consolidated financial
statements of the Borrower); and no tax Lien has been filed and, to the
knowledge of Borrower, no claim is being asserted with respect to any such tax,
fee or other charge.
4.11 Purpose of Loan. The proceeds of the loans made pursuant to
Section 2.1 and evidenced by the Notes have been or will be used by the Borrower
for the following purposes:
(a) with respect to loans made pursuant to and evidenced by
the Revolving Line of Credit Promissory Note, for general working capital
purposes;
(b) with respect to loans made pursuant to and evidenced by
the Term Promissory Note, in renewal, extension, rearrangement and consolidation
of the (i) Line A Term Promissory Note, (ii) Line B Term Promissory Note, (iii)
Consolidated Term Promissory Note and the (iv) Multiple Advance Term promissory
Note; and
(c) with respect to loans made pursuant to and evidenced by
the Advance Note, for the construction of natural gas compressors.
21
4.12 Title to Properties; Liens. Each of the Borrower and its
Subsidiaries have good record and defensible title to, or a valid leasehold
interest in, all its real property, and good title to all its other properties
and, except for Liens of the type permitted under Section 6.8 of this Agreement,
there are no Liens on any properties or assets of the Borrower or any of its
Subsidiaries.
4.13 Insurance. The Borrower and its Subsidiaries maintain with
financially sound and reputable insurance companies insurance in at least such
amounts and against at least such risks (but including in any event public
liability) as are usually insured against in the same general area by companies
engaged in the same or a similar business and such insurance is otherwise in
compliance with the Loan Papers.
4.14 No Default. Neither the Borrower nor any of its Subsidiaries is in
default under or with respect to any of its Contractual Obligations in any
respect, other than defaults which could not have a Material Adverse Effect. No
Event of Default has occurred and is continuing.
4.15 ERISA Plans. Borrower does not have any plans subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA Plan").
4.16 Principal Business Office and Location of Records. The Borrower's
principal place of business and chief executive offices are located at ▇▇▇▇ ▇.
▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, and the records of the Borrower and each of its
Subsidiaries concerning its ownership of assets, business and operations are
located at such address.
4.17 Licenses, Permits and Franchises, etc. The Borrower and each of
its Subsidiaries owns, or is licensed to use, all permits, know-how, processes,
technology, franchises, patents, patent rights, trade names, trademarks,
trademark rights and copyrights which are necessary or required for the
ownership or operation of its properties and the conduct of its business.
Borrower is not aware of any fact or condition that might cause any of such
rights not to be renewed in due course.
4.18 Subsidiaries. The following constitute all the Subsidiaries of the
Borrower at the date hereof:
NGE Leasing, Inc.
Rotary Gas Systems, Inc.
Great Lakes Compression, Inc.
22
Each such Subsidiary is wholly owned by the Borrower.
4.19 No Material Omissions or Misstatements. No information, exhibit or
report furnished to Lender by the Borrower in connection with the negotiation of
this Agreement contains any material misstatement of fact or omits to state a
material fact or any fact necessary to make the statements contained therein not
misleading. Without limiting the generality of the foregoing, there are no
material facts relating to the Loan Papers, the Collateral or the financial
condition, assets, liabilities, results of operations or business of the
Borrower or any of its Subsidiaries which could, collectively or individually,
have a Material Adverse Effect and which have not been disclosed in writing to
Lender as an exhibit to this Agreement or in the financial statements of the
Borrower referred to in Section 4.5 of this Agreement.
4.20 Environmental Matters.
(a) No Environmental Complaint has been issued or filed, no penalty has
been assessed and, to the knowledge of Borrower, no investigation or review is
pending or threatened by any Governmental Authority or other person (i) with
respect to any alleged violation of any law, ordinance, rule, regulation or
order of any Governmental Authority in connection with the property, operations
or conduct of the business of the Borrower or any of its Subsidiaries, or (ii)
with respect to any alleged failure to have any permit, certificate, license,
approval, requisition or authorization required in connection with the property,
operations or conduct of the business of the Borrower or any of its Subsidiaries
or (iii) with respect to any generation, treatment, storage, recycling,
transportation or disposal or release, all as defined in 42 USC ss. 9601(22)
("Release") (other than Releases in compliance with Relevant Environmental Laws
or permits issued thereunder), of any toxic, caustic or otherwise hazardous
substance, including petroleum, its derivatives, by-products and other
hydrocarbons, solid waste, contaminants, polychlorinated biphenyls, paint
containing lead, urea, formaldehyde, foam insulation, and discharge of sewage or
effluent, whether or not regulated under federal, state or local environmental
statutes, ordinances, rules, regulations or orders ("Hazardous Substance")
generated by the operations or business, or located at any property, of the
Borrower or any of its Subsidiaries.
23
(b) Except in substantial compliance with Relevant
Environmental Laws and permits issued thereunder (i) neither the Borrower nor
its Subsidiaries, nor the businesses conducted by the Borrower and its
Subsidiaries, have placed, held, located or disposed of any Hazardous Substance
on, under or at any property now or previously owned or leased by the Borrower
or any of its Subsidiaries, and none of such properties has been used (by the
Borrower or any of its Subsidiaries) as a dump site or storage (whether
permanent or temporary) site for any Hazardous Substance; (ii) no
polychlorinated biphenyls, urea or formaldehyde is or has been present at any
property now or previously owned or leased by the Borrower or any of its
Subsidiaries; (iii) no asbestos is or has been present at any property now or
previously owned or leased by the Borrower or any of its Subsidiaries; (iv)
there are no underground storage tanks which have been used to store or have
contained any Hazardous Substance, active or abandoned, at any property now or
previously owned or leased by the Borrower or any of its Subsidiaries; (v) no
Hazardous Substance has been released at, on or under any property previously
owned or leased by the Borrower or any of its Subsidiaries; and (vi) no
Hazardous Substance has been released or is present, in a reportable or
threshold quantity, where such a quantity has been established by statute,
ordinance, rule, regulation or order, at, on or under any property now or
previously owned by the Borrower or any of its Subsidiaries.
(c) The Borrower and its Subsidiaries have not transported or
arranged for the transportation (directly or indirectly) of any Hazardous
Substance to any location which is listed or proposed for listing under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended by the Superfund Amendments and Reauthorization Act of 1986 ("CERCLA"),
the Comprehensive Environmental Response, Compensation and Liability Information
System ("CERCLIS") or on any similar state list or which is the subject of
federal, state or local enforcement actions or other investigations.
(d) There are no environmental Liens on any property owned or
leased by the Borrower or any of its Subsidiaries, and no actions by any
Governmental Authority have been taken or are in the process of being taken
which could subject any of such properties to such Liens.
(e) Prior to the date hereof, the Borrower has provided to
Lender all environmental investigations, studies, audits, tests, reviews or
other analyses conducted by or which are in the possession of the Borrower or
any of its Subsidiaries in relation to any property or facility now or
previously owned or leased by the Borrower or any of its Subsidiaries.
24
4.21 Investment Company Act. Neither the Borrower nor any of its
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended.
4.22 Public Utility Holding Company Act. The Borrower is not a "holding
company", or a "subsidiary company" of a "holding company", or an "affiliate" of
a "holding company" or of a "subsidiary company" of a "holding company", or a
"public utility" within the meaning of the Public Utility Holding Company Act of
1935, as amended.
4.23 Federal Regulations. No part of the proceeds of any loan will be
used for "purchasing" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation G or Regulation U of the
Board of Governors of the Federal Reserve System as now and from time to time
hereafter in effect. If requested by the Bank, the Borrower will furnish to the
Bank a statement to the foregoing effect in conformity with the requirements of
FR From G-1 or FR Form U-1 referred to in said Regulation G or Regulation U, as
the case may be.
4.24 Casualties: Taking of Properties. Since the dates of the financial
statements of the Borrower and its Subsidiaries delivered to the Lender as
described in Section 4.5, neither the business nor the assets or properties of
the Borrower or any Subsidiary have been affected (to the extent it is
reasonably likely to cause a Material Adverse Effect), as a result of any fire,
explosion, earthquake, flood, drought, windstorm, accident, strike or other
labor disturbance, embargo, requisition or taking of property or cancellation of
contracts, permits or concessions by and domestic or foreign government or any
agency thereof, riot, activities of armed forces or acts of God or of any public
enemy.
4.25 Not A Utility. Neither the Borrower nor any of its Subsidiaries is
an entity engaged in the State of Texas in the (i) generation, transmission or
distribution and sale of electric power; (ii) transportation, distribution and
sale through a local distribution system of natural or other gas for domestic,
commercial, industrial or other use; (iii) provision of telephone or telegraph
service to others; (iv) production, transmission or distribution and sale of
steam or water; (v) operation of a railroad; or (vii) provision of sewer service
to others.
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ARTICLE V
Affirmative Covenants
---------------------
As a material inducement to Lender to enter into this Agreement, the
Borrower hereby covenants and agrees that from the date hereof until payment in
full of the Obligations, the Borrower shall and shall cause each of its
Subsidiaries to:
5.1 Financial Statements and Other Information. Promptly furnish to
Lender copies of (i) such information regarding its business and affairs and
financial condition as Lender may reasonably request, and (ii) without request,
the following:
(a) as soon as available, but in any event not later than 90
days after the end of each fiscal year of the Borrower, a copy of the audited
consolidated balance sheet of the Borrower and its consolidated Subsidiaries as
at the end of such year and the related audited consolidated statements of
income and changes in cash flows for such year, setting forth in each case in
comparative form the figures for the previous year, reported on without a "going
concern" or like qualification or exception, or qualification arising out of the
scope of the audit, by ▇▇▇▇ + Associates LLP or other independent certified
public accounting firm of recognized standing acceptable to the Lender;
(b) as soon as available, but in any event not later than 45
days after the end of each month, the unaudited consolidated balance sheet of
the Borrower and its consolidated Subsidiaries as at the end of such month and
the related unaudited consolidated statements of income and changes in cash
flows of the Borrower and its consolidated Subsidiaries for such month and for
the period from the beginning of the most recent fiscal year to the end of such
month, certified by the chief financial officer of the Borrower (subject to
normal year-end audit adjustments);
(c) as soon as available, but in any event not later than 45
days after the end of each month, calculations of the Consolidated Current
Ratio, Consolidated Tangible Net Worth, Debt Service Ratio and Consolidated Debt
to Consolidated Tangible Net Worth Ratio of the Borrower for the periods
required as set forth in Section 6.1 of this Agreement;
(d) as soon as available, but in any event not later than 45
days after the end of each month, a list of all accounts payable and accounts
receivable of the Borrower and its consolidated Subsidiaries, and an aging of
such accounts on the basis of 30-60-90 and over 90 days from date of invoice;
26
(e) promptly upon their becoming available, but in any event
not later than five days after the same are sent, copies of all financial
statements, reports, notices and proxy statements sent or made available
generally by the Borrower to its shareholders, of all regular and periodic
reports and all private placement memorandums and all registration statements
and prospectuses, if any, filed by the Borrower with any securities exchange or
with the Securities and Exchange Commission; and all press releases and other
statements made available generally by the Borrower to the public concerning
material developments in the business of the Borrower;
(f) immediately after becoming aware of the existence of, or
any material change in the status of, any Environmental Complaint or any
litigation which could have a Material Adverse Effect if determined adversely
against the Borrower or any of its Subsidiaries, a written communication to
Lender of such matter;
(g) immediately upon becoming aware of an Event of Default or
the existence of any condition or event which constitutes, or with notice or
lapse of time, or both, would constitute an Event of Default, a verbal
notification to Lender specifying the nature and period of existence thereof and
what action the Borrower is taking or proposes to take with respect thereto and,
immediately thereafter, a written confirmation to Lender of such matters;
(h) immediately after becoming aware that any person has given
notice or taken any action with respect to a claimed default under any
indenture, mortgage, deed of trust, promissory note, loan agreement, note
agreement, joint venture agreement or any other Material Agreement or other
undertaking to which the Borrower or any Subsidiary is a party, a verbal
notification to Lender specifying the notice given or action taken by such
person and the nature of the claimed default and what action the Borrower is
taking or proposes to take with respect thereto and, immediately thereafter, a
written communication to Lender of such matters;
(i) within 45 days after the end of each month, the Borrowing
Base Report required by Section 2.3(b)(i) of this Agreement;
(j) within 45 days after the end of each month, a compliance
certificate in the form attached hereto as Exhibit K, which shall be signed by
the chief executive officer or principal financial officer of the Borrower;
27
(k) as soon as available, but in any event not later than 45
days after the end of each calendar quarter, a report, in detail reasonably
satisfactory to Lender, (i) setting forth, by owner, the unit number, serial
number or other identifying number of each gas compressor owned by the Borrower
and its Subsidiaries, (ii) stating whether or not each compressor identified in
the report has been leased or rented to any person and, if so, a brief
description of the lease, including, without limitation, the date of the lease
and the name of the lessee, (iii) describing the specific location of each gas
compressor, (iv) attaching copies of any compressor lease or rental agreement
entered into during the prior month and (v) including such other information as
Lender shall reasonably require.
5.2 Taxes; Other Claims. Pay and discharge all taxes, assessments and
governmental charges or levies imposed upon the Borrower and its Subsidiaries,
or upon or in respect of all or any part of the income, property or business of
the Borrower and its Subsidiaries, all trade accounts payable in accordance with
usual and customary business terms, and all claims for work, labor or materials,
which, if unpaid, might become a Lien or charge upon any or all of the property
of the Borrower or any of its Subsidiaries; provided, however, the Borrower and
its Subsidiaries shall not be required to pay any such tax, assessment, charge,
levy, account payable or claim if (i) the validity, applicability or amount
thereof is currently being contested in good faith by appropriate actions or
proceedings diligently conducted which will prevent the forfeiture or sale of
any property of the Borrower and its Subsidiaries or any material interference
with the use thereof by the Borrower or its Subsidiaries, and (ii) the Borrower
shall have set aside on its consolidated financial statements reserves therefor
deemed adequate under generally accepted accounting principles.
5.3 Compliance and Maintenance. (i) Maintain its corporate existence,
rights and franchises; (ii) observe and comply with all Requirements of Law,
including, without limitation, Relevant Environmental Laws; and (iii) maintain
the Collateral and all other equipment, properties and assets (and any
properties, equipment and assets leased by or consigned to it or held under
title retention or conditional sales contracts) in good and workable condition
at all times and make all repairs, replacements, additions, betterments and
improvements to its properties, equipment and assets as are needful and proper
so that the business carried on in connection therewith may be conducted
properly and efficiently at all times.
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5.4 Maintenance of Insurance. Maintain with financially sound and
reputable insurers, insurance with respect to its properties and business
against such liabilities, casualties, risks and contingencies and in such types
and amounts as is customarily carried by companies engaged in the same or
similar businesses and similarly situated. From time to time, upon request by
Lender, the Borrower will furnish Lender with copies of certificates, binders
and policies necessary to give Lender reasonable assurance of the existence of
such coverage. Borrower agrees to promptly notify Lender of any termination or
other material change in Borrower's insurance coverage and, if requested by
Lender, to provide Lender with all information about the renewal of each policy
at least 15 days prior to the expiration thereof. In the case of any fire,
accident or other casualty causing loss or damage to any property of Borrower,
the proceeds of such policies in excess of $50,000.00 shall, at Borrower's
option, be used to (i) replace the lost or damaged property with similar
property having a value at least equivalent to the lost or damaged property, or
(ii) prepay the Existing Notes to the extent of such proceeds.
5.5 Reimbursement of Fees and Expenses. Pay all reasonable fees and
expenses incurred by Lender and its designated representatives in connection
with this Agreement, all renewals hereof, the other Loan Papers or other
transactions pursuant hereto or to the other Loan Papers, whether the services
provided hereunder or thereunder are provided directly by Lender or by a third
party selected by Lender, as well as all costs of filing and recordation, all
reasonable legal and accounting fees, all costs associated with enforcing any of
Lender's Rights under the Loan Papers, including, without limitation, costs of
repossessing, storing, transporting, preserving and insuring any Collateral that
Borrower or any of its Subsidiaries may pledge to Lender, all court costs
associated with enforcing or defending Lender's Rights against the Borrower, its
Subsidiaries or any third party challenging said Rights and any other cost or
expense incurred by Lender or its designated representatives in connection
herewith or with the other Loan Papers, together with interest at a rate per
annum 2% above the Prime Rate on each such amount commencing on the date notice
of such expenditure is given to the Borrower by Lender until the date it is
repaid to Lender.
5.6 Indemnification. Indemnify, save and hold harmless the Lender and
its Affiliates, directors, officers, agents, attorneys and employees
(collectively, the "Indemnitees") from and against: (a) any and all claims,
demands, actions or causes of action that are asserted against any Indemnitee by
any person (other than the Borrower) if the claim, demand, action or cause of
action directly or indirectly relates to a claim, demand, action or cause of
29
action that such person asserts or may assert against the Borrower, any
Affiliate of the Borrower or any officer, director or shareholder of the
Borrower; (b) any and all claims, demands, actions or causes of action that are
asserted against any Indemnitee by any person (other than the Borrower) if the
claim, demand, action or cause of action arises out of or relates to the loans
made by Lender to the Borrower under the Notes and this Agreement, the use or
contemplated use of proceeds of such loans or the relationship of the Borrower
and the Lender under this Agreement; (c) any administrative or investigative
proceeding by any Governmental Authority arising out of or related to a claim,
demand, action or cause of action described in clauses (a) or (b) above; and (d)
any and all liabilities, losses, costs or expenses (including reasonable
attorneys' fees and disbursements) that any Indemnitee suffers or incurs as a
result of any of the foregoing; provided, that no Indemnitee shall be entitled
to indemnification for any liability, loss, cost or expense caused by its own
gross negligence or willful misconduct. If any claim, demand, action or cause of
action is asserted against any Indemnitee and such Indemnitee intends to claim
indemnification from the Borrower under this Section 5.6, such Indemnitee shall
promptly notify the Borrower, but the failure to so promptly notify the Borrower
shall not affect the obligations of the Borrower under this Section 5.6 unless
such failure materially prejudices the Borrower's right to participate, or the
Borrower's rights, if any, in the contest of such claim, demand, action or cause
of action, as hereinafter provided. Each Indemnitee may, and if requested by the
Borrower in writing shall, in good faith contest the validity, applicability and
amount of such claim, demand, action or cause of action with counsel selected by
such Indemnitee and reasonably acceptable to the Borrower, and shall permit the
Borrower to participate in such contest. Any Indemnitee that proposes to settle
or compromise any claim or proceeding for which the Borrower may be liable for
payment of indemnity hereunder shall give the Borrower written notice of the
terms of such proposed settlement or compromise reasonably in advance of
settling or compromising such claim or proceeding and shall obtain the
Borrower's prior written consent, which consent shall not be unreasonably
withheld. In connection with any claim, demand, action or cause of action
covered by this Section 5.6 against more than one Indemnitee, all such
Indemnitees shall be represented by the same legal counsel selected by the
Indemnitees and reasonably acceptable to the Borrower; provided, that if such
legal counsel determines in good faith and advises the Borrower in writing that
representing all such Indemnitees would or could result in a conflict of
interest under legal requirements or ethical principles applicable to such legal
counsel or that a defense or counterclaim is available to an Indemnitee that is
not available to all such Indemnitees, then to the extent reasonably necessary
30
to avoid such a conflict of interest or to permit unqualified assertion of such
a defense or counterclaim, each Indemnitee shall be entitled to separate
representation by legal counsel selected by that Indemnitee and reasonably
acceptable to the Borrower. Any obligation or liability of the Borrower to any
Indemnitee under this Section 5.6 shall survive the expiration or termination of
this Agreement and the repayment of the Loans and the payment of all other
Obligations owing to the Lender for the statute of limitations period applicable
to such claim or contest.
5.7 Further Assurances. Use its best efforts to cure any defects in the
execution and delivery of any of the Loan Papers to which it is a party and in
any other instrument or document referred to or mentioned herein, and
immediately execute and deliver to Lender, upon Lender's request, all such other
and further instruments as may be required or desired by Lender from time to
time in compliance with or accomplishment of the covenants and agreements of the
Borrower made herein and in the other Loan Papers.
5.8 Inspection and Visitation. Permit any officer, employee, agent or
representative of Lender to visit and inspect any of the properties and assets
of the Borrower and its Subsidiaries, examine all of its books, records and
accounts, and take copies and extracts therefrom, all at such reasonable times
and during normal business hours as Lender may request and, further, the
Borrower shall allow and does hereby grant Lender the right to contact any
employees, associates, Affiliates, officers, accountants and auditors of
Borrower and its Subsidiaries as Lender may desire, and upon the occurrence and
during the continuance of an Event of Default, Lender shall have the right to
contact the customers of Borrower and its Subsidiaries.
5.9 Compliance With Laws. Comply with all Requirements of Law, the
violation of which could have a Material Adverse Effect.
5.10 Accounts and Records. Keep books of record and account in which
full, true and correct entries will be made of all dealings or transactions in
relation to its business and activities, in accordance with generally accepted
accounting principles consistently applied, except only for changes in
accounting principles or practices with which the Borrower's independent public
accountants concur.
5.11 Environmental Complaints. Promptly give notice to Lender (a) of
any Environmental Complaint affecting the Borrower or any of its Subsidiaries,
any property owned, operated or used by the Borrower or any of its Subsidiaries,
or any part thereof or the operations of the Borrower or any of its
31
Subsidiaries, or any other person on or in connection with such property or any
part thereof (including receipt by the Borrower or any of its Subsidiaries of
any notice of (i) the happening of any event involving the use, spill, release,
leak, seepage, discharge or clean-up of any Hazardous Substance or (ii) any
complaint, order, citation or notice with regard to air emissions, water
discharges, or any other environmental, health or safety matter affecting the
Borrower or any of its Subsidiaries from any person or entity (including without
limitation the United States Environmental Protection Agency)), and (b) of any
notice from any person of (i) any violation or alleged violation of any Relevant
Environmental Law relating to any such property or any part thereof or any
activity at any time conducted on any such property, (ii) the occurrence of any
release, spill or discharge in a quantity that is reportable under any Relevant
Environmental Law or (iii) the commencement of any clean-up pursuant to or in
accordance with any Relevant Environmental Law of any Hazardous Substance on or
about any such property or any part thereof.
ARTICLE VI
Negative Covenants
------------------
As a material inducement to Lender to enter into this Agreement, the
Borrower covenants and agrees that from the date hereof until payment in full of
the Obligations, the Borrower shall not, and (except with respect to Section
6.1) shall not permit any of its Subsidiaries to, directly or indirectly:
6.1 Financial Covenants.
(a) Consolidated Current Ratio. Permit the Consolidated
Current Ratio, as defined herein and calculated pursuant to Exhibit L hereto, to
be less than 2.0 to 1.0 as of November 30, 2003 and as of the end of each month
after November 30, 2003.
(b) Consolidated Tangible Net Worth. Permit the Consolidated
Tangible Net Worth, as defined herein and calculated pursuant to Exhibit M
hereto, to be less than $10,750,000.00 as of November 30, 2003 and December 31,
2003; less than $10,900,000.00 as of January 31, 2004 and as of the end of each
month thereafter through and including December 31, 2004; or less than
$12,200,000.00 as of January 31, 2005 and as of the end of each month
thereafter.
(c) Debt Service Ratio. Permit the ratio of (i) Consolidated
Cash Flow to (ii) Consolidated Fixed Charges, as such terms are defined herein
and as calculated pursuant to Exhibit N hereto, to be less than 1.25 to 1.00 as
of the end of each fiscal quarter of the Borrower.
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(d) Consolidated Debt to Consolidated Tangible Net Worth
Ratio. Permit the ratio of (i) Consolidated Debt to (ii) Consolidated Tangible
Net Worth, as such terms are defined herein and calculated pursuant to Exhibit O
hereof, to be more than 1.60 to 1.00 as of November 30, 2003 and as of the end
of each month thereafter through and including December 31, 2004, or more than
1.50 to 1.00 as of January 31, 2005 and as of the end of each month after
January 31, 2005.
6.2 Debt. Create, assume, incur or have outstanding any Debt, except:
(a) Debt of the Borrower and its Subsidiaries to the Lender;
(b) Debt existing on the date of this Agreement which is set
forth in the financial statements referred to in Section 4.5 of this Agreement,
but not any increases thereof;
(c) obligations for the payment of rent or hire of property
under leases or lease agreements which would not cause the aggregate amount of
all payments made by the Borrower and its Subsidiaries pursuant to such leases
or lease agreements to exceed $200,000.00 in the aggregate during any calendar
year; and
(d) additional Debt of the Borrower and its Subsidiaries not
to exceed $100,000.00 in the aggregate principal amount at any one time
outstanding.
6.3 ERISA Compliance. (a) Engage in any "prohibited transaction" as
such term is defined in Section 4975 of the Internal Revenue Code of 1986, as
amended;
(b) incur any "accumulated funding deficiency" as such term is
defined in Section 302 of ERISA; or
(c) terminate any such plan in a manner which could result in
the imposition of a Lien on the property of Borrower or any Subsidiary pursuant
to Section 4068 of ERISA.
6.4 Amendment of Organizational Documents. Amend or otherwise modify
its articles of incorporation, regulations, articles of organization or
otherwise change its corporate or limited liability company structure in any
manner, except as required by Section 5.12 hereof.
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6.5 Fiscal Year. Permit its fiscal year to end on a day other than the
last day of December of each year.
6.6 Nature of Business. Make any significant or substantial change in
the nature of its business as being conducted on the date of this Agreement.
6.7 Disposition of Collateral. Sell, transfer, lease, exchange,
alienate or otherwise dispose of (whether in one transaction or in a series of
transactions) all or any part of the Collateral, except as permitted by Section
6.12.
6.8 Liens. Create, incur, assume or permit to exist any Lien upon any
of its properties, assets or revenues, whether now owned or hereafter acquired,
or agree to do any of the foregoing, except:
(a) Bank Liens;
(b) Liens to secure payments of workmen's compensation,
unemployment insurance, old age pensions or other social security;
(c) deposits or pledges to secure performance of bids,
tenders, contracts (other than contracts for the payment of money), leases,
public or statutory obligations, surety or appeal bonds, or other deposits or
pledges for purposes of like general nature in the ordinary course of business;
(d) Liens for taxes, assessments or other governmental charges
or levies which are not delinquent or which are in good faith being contested by
appropriate proceedings; provided, however, this exception shall not allow any
Lien imposed by the U.S. Government for failure to pay income, payroll, FICA or
similar taxes, other than any such Lien where (i) the validity, applicability or
amount thereof is being contested in good faith by appropriate proceedings which
will prevent the forfeiture or sale of any property of the Borrower or any
Subsidiary or any material interference with the use thereof by the Borrower or
any Subsidiary, and (ii) the Borrower shall have set aside on its books reserves
appropriate within generally accepted accounting principles with respect
thereto;
(e) vendors', operators', materialmen's, mechanics',
carriers', workmen's, repairmen's or other like Liens arising by operation of
34
law in the ordinary course of business and securing obligations less than 90
days from the date of invoice, and on which no suit to foreclose has been filed,
or which are in good faith being contested by appropriate proceedings;
(f) Liens created by or resulting from any litigation or legal
proceeding which is being contested in good faith by appropriate proceedings;
and
(g) Liens permitted by the other Loan Papers.
6.9 Dividends, Redemptions and Other Payments. Declare or pay any
dividends (except dividends payable solely in its own capital stock) on, or
redeem, retire, purchase or otherwise acquire for value, any shares of any class
of its respective shares of capital stock, now or hereafter outstanding, or
return any capital to its shareholders, or make any other distribution in
respect thereof, whether in cash or property or in obligations of the Borrower
or any Subsidiary, except that: (a) Borrower's Subsidiaries may declare, pay or
make dividends or distributions to Borrower and (b) Borrower may declare and pay
cash dividends on its outstanding shares of 10% Convertible Series A Preferred
Stock, $.01 par value per share, if: (i) there is not in existence, at the time
of the dividend payment to be made, an "Event of Default" as defined in Section
7.1 of this Agreement; and (ii) the dividend payment to be made would not cause
or result in the occurrence of an Event of Default.
6.10 Limitation on Fundamental Changes. Enter into any merger,
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer
or otherwise dispose of (whether in one transaction or in a series of related
transactions), all or substantially all of its property, business or assets
(whether now owned or hereafter acquired), or make any material change in its
present method of conducting business, except as required by Section 5.12
hereof.
6.11 Transactions with Affiliates. Enter into any transaction
(including, but not limited to, the sale or exchange of property or the
rendering of services) with any of its Affiliates, other than in the ordinary
course of business and upon terms no less favorable than could be obtained in an
arm's-length transaction with a person that was not an Affiliate.
6.12 Disposition of Assets. Sell, convey, transfer, lease, exchange,
alienate or otherwise dispose of any of its respective property or assets,
except, to the extent not otherwise prohibited under the other Loan Papers:
35
(a) equipment which is worthless or obsolete or which is
replaced by equipment of equal suitability and value; and
(b) inventory and equipment which is sold or leased in the
ordinary course of business.
6.13 Limitation on Negative Pledge Clauses. Enter into with any person
any agreement, other than (a) this Agreement and (b) the other Loan Papers,
which prohibits or limits the ability of the Borrower or any of its Subsidiaries
to create, incur, assume or suffer to exist any Lien upon any of its property,
assets or revenues, whether now owned or hereafter acquired.
6.14 Terms of Other Agreements. Become a party to any agreement (or any
amendment, supplement, extension or other modification thereto or thereof)
which, in any manner (i) violates, conflicts with or creates a breach of any of
the terms or provisions of this Agreement or any of the other Loan Papers, (ii)
provides for the granting or conveyance to any person other than Lender of Liens
on or affecting the Collateral, or (iii) restricts the Borrower's or any of its
Subsidiaries (a) rights of ownership, possession or operation of all or any part
of the Collateral or (b) rights or ability to direct the use or disposition of
all or any part of the Collateral or (c) which requires the consent of any
person (other than Lender) to use or dispose of any of the Collateral for any
purpose or to act or refrain from acting with respect thereto.
6.15 Subordinated Notes. Make any payment of principal or interest on
the Subordinated Notes, unless:
(i) there is not in existence, at the time of the principal or interest
payment to be made, an "Event of Default" as defined in Section 7.1 of
this Agreement; and
(ii) the principal or interest payment to be made would not cause or
result in the occurrence of an Event of Default as defined in Section
7.1 of this Agreement.
6.16 Amendment of Compressor Leases. Amend or otherwise modify in any
material respect any lease or rental agreement covering any of the Borrower's or
Subsidiaries' gas compressors; provided, however, it shall not be a violation of
this Section 6.16 if upon expiration of a lease or rental agreement by its own
terms Borrower enters into a new lease or rental agreement with the same lessee.
36
6.17 Use of Loan Proceeds. Use the proceeds of any Advance for any
purpose other than as described in Section 4.11 hereof.
ARTICLE VII
Default and Remedies
--------------------
7.1 Events of Default. If any one or more of the following shall occur
and shall not have been remedied in the period, if any, provided for, an "Event
of Default" shall be deemed to have occurred hereunder and with respect to all
of the Obligations, unless waived in writing by Lender:
(a) default shall be made in the payment when due of any
installment of principal or interest on the Notes or any other Obligations;
(b) any representation or warranty made by the Borrower herein
or in any of the other Loan Papers or in any certificate, document or financial
or other statement furnished to Lender under or in connection with this
Agreement or any other Loan Paper shall be or shall prove to have been incorrect
or untrue or misleading in any material respect on or as of the date made or
deemed made and shall continue unremedied for a period of 30 days after the
earlier of (i) the Borrower becoming aware of such default or (ii) the Lender
giving notice thereof to the Borrower;
(c) default shall be made by the Borrower or any Subsidiary in
the due performance or observance of any covenant, condition or agreement
contained in any of the Loan Papers to which it is a party and such default
shall continue unremedied for a period of 30 days after the earlier of (i)
Borrower becoming aware of such default or (ii) the Lender giving notice thereof
to the Borrower;
(d) Borrower or any Subsidiary shall (i) apply for or consent
to the appointment of a receiver, trustee or liquidator of itself or of all or a
substantial part of its assets; (ii) be unable, or admit in writing its
inability, or fail to confirm its ability (when requested to do so by Lender) to
pay its debts as they become due; (iii) make a general assignment for the
benefit of creditors; (iv) be adjudicated a bankrupt or insolvent or file a
voluntary petition in bankruptcy; (v) file a petition or an answer seeking
reorganization or an arrangement with creditors or to take advantage of any
bankruptcy or insolvency law; (vi) file an answer admitting the material
37
allegations of, or consent to, or default in answering, a petition filed against
it in any bankruptcy, reorganization or insolvency proceedings; or (vii) take
any action for the purpose of effecting any of the foregoing;
(e) an order, judgment or decree shall be entered by any court
of competent jurisdiction approving a petition seeking reorganization of the
Borrower or any of its Subsidiaries or appointing a receiver, trustee or
liquidator of the Borrower or any of its Subsidiaries or of all or a substantial
part of its assets, and such order, judgment or decree shall continue unstayed
in effect for any period of 30 consecutive days;
(f) the failure of the Borrower or any of its Subsidiaries to
have discharged within a period of 30 days after the commencement thereof any
attachment, sequestration or similar proceeding against any of its properties or
assets having a value of $100,000.00 or more;
(g) any acceleration, notice of default, default, filing of
suit or notice of breach by any lender, lessor, creditor or other party to any
Material Agreement to which the Borrower or any of its Subsidiaries is a party,
or to which its properties or assets are subject;
(h) the occurrence of a Material Adverse Effect with respect
to Borrower or any of its Subsidiaries;
(i) the occurrence of a Change of Control;
(j) final judgment or judgments shall be entered against the
Borrower or any of its Subsidiaries involving in the aggregate a liability (not
paid or fully covered by insurance or not otherwise covered by indemnity
agreements acceptable to Lender in its sole discretion) of $100,000.00 or more,
and such judgment or judgments shall not have been vacated, discharged, stayed
or bonded pending appeal within 60 days from the entry thereof; or
(k) if, at any time, the then existing President of the
Borrower or the then existing Chief Executive Officer (if there shall be one) of
the Borrower ceases, for any reason, to hold such office and a replacement for
such officer acceptable to Lender is not appointed within 120 days thereafter.
7.2 Remedies.
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(a) Upon the occurrence of any Event of Default described in
Section 7.1(d) or Section 7.1(e) hereof, the lending obligations (including the
obligations to make Advances under Section 2.1 hereof), if any, of Lender
hereunder shall immediately terminate, and the entire principal amount of all
Obligations then outstanding together with interest then accrued and unpaid
thereon shall become immediately due and payable, all without demand and
presentment for payment, notice of nonpayment, protest, notice of protest,
notice of dishonor, notice of intention to accelerate maturity or notice of
acceleration of maturity, or any other notice of default of any kind, all of
which are hereby expressly waived by the Borrower.
(b) Upon the occurrence and at any time during the continuance
of any other Event of Default specified in Section 7.1 hereof, Lender may, by
written notice to the Borrower, (i) declare the entire principal amount of all
Obligations then outstanding, together with interest then accrued and unpaid
thereon, to be immediately due and payable without demand and presentment for
payment, notice of nonpayment, protest, notice of protest, notice of dishonor,
notice of intention to accelerate maturity or notice of acceleration of
maturity, or any other notice of default of any kind, all of which are hereby
expressly waived by the Borrower, and (ii) terminate the lending obligations, if
any, of Lender hereunder unless and until Lender shall reinstate same in
writing.
7.3 Right of Setoff. Upon the occurrence and during the continuance of
any Event of Default, or if the Borrower becomes insolvent, however evidenced,
Lender is hereby authorized at any time and from time to time, without prior
notice to Borrower (any such notice being expressly waived by the Borrower), to
setoff 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 Lender to or for the credit or the account of Borrower against any and all of
the Obligations, irrespective of whether or not Lender shall have made any
demand under this Agreement or the Notes and although such Obligations may be
unmatured. Lender agrees promptly to notify Borrower after any such setoff and
application, provided that the failure to give such notice shall not affect the
validity of such setoff and application. The rights of Lender under this Section
7.3 are in addition to other rights and remedies (including, without limitation,
other rights of setoff) which Lender may have.
7.4 Delegation of Duties and Rights. Lender may perform any of its
duties or exercise any of its Rights under the Loan Papers by or through its
officers, directors, employees, attorneys, agents or other representatives.
39
7.5 Lender Not in Control. None of the covenants or other provisions
contained in this Agreement or the other Loan Papers shall, or shall be deemed
to, give Lender the Right to exercise control over the affairs or management of
the Borrower.
7.6 Waivers by Lender. The acceptance by Lender at any time and from
time to time of part payment on the Obligations shall not be deemed to be a
waiver of any Event of Default then existing. No waiver by Lender of any Event
of Default shall be deemed to be a waiver of any other then-existing or
subsequent Event of Default. No delay or omission by Lender in exercising any
Right under this Agreement or any of the other Loan Papers shall impair such
Right or be construed as a waiver thereof or any acquiescence therein.
7.7 Cumulative Rights. All Rights available to Lender under this
Agreement and the other Loan Papers are cumulative of, and in addition to, all
other Rights available to Lender at law or in equity. The exercise or partial
exercise of any such Right shall not preclude the exercise of any other Right
under the Loan Papers or otherwise.
7.8 Expenditures by Lender. All court costs, reasonable attorneys'
fees, other costs of collection, and other sums spent by Lender pursuant to the
exercise of any Right provided herein shall be payable to Lender on demand,
shall become part of the Obligations, and shall bear interest at a rate per
annum 2% above the Prime Rate on each such amount commencing on the date notice
of such claims, judgments, costs, charges or attorneys' fees is given to
Borrower by Lender until the date paid by Borrower.
ARTICLE VIII
Miscellaneous
-------------
8.1 Survival of Representations and Warranties. All representations and
warranties of the Borrower made herein, in the other Loan Papers to which it is
a party and in any document, certificate or statement delivered pursuant hereto
or in connection herewith shall survive the execution and delivery of this
Agreement and the Notes.
8.2 Communications. Unless specifically otherwise provided, whenever
any Loan Paper requires or permits any consent, approval, notice, request, or
demand from one party to another, such communication must be in writing (which
may be by cable, telex, telecopy, fax or other similar means of remote facsimile
40
transmission) to be effective and shall be deemed to have been given on the day
actually delivered or, if mailed, on the third day (or if such third day is not
a Business Day, then on the next succeeding Business Day) after it is enclosed
in an envelope, addressed to the party to be notified at the address stated
below, properly stamped, sealed, and deposited in the appropriate official
postal service. Until changed by notice pursuant hereto, the address of each
party for purposes of this Agreement is as follows:
BORROWER:
Natural Gas Services Group, Inc.
▇▇▇▇ ▇. ▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn. ▇▇▇▇ Wait
Facsimile Number for Notice: (▇▇▇) ▇▇▇-▇▇▇▇
or
LENDER:
Western National Bank
▇▇▇ ▇. ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Facsimile Number for Notice: (▇▇▇) ▇▇▇-▇▇▇▇
8.3 Binding on Successors. All covenants and agreements herein
contained by or on behalf of the Borrower shall bind the Borrower's successors
and assigns and shall inure to the benefit of Lender and its successors and
assigns; provided, however, that Borrower may not assign its Rights or
obligations hereunder without the prior written consent of Lender. If the Lender
sells participations in or assigns the Notes or other Obligations owing to the
Lender to other lenders (which the Lender may undertake to do in its sole
discretion), each of such other lenders shall have the rights to setoff against
such Obligations and similar rights or Liens to the same extent as may be
available to the Lender.
8.4 Governing Law. THIS AGREEMENT AND THE OTHER LOAN PAPERS SHALL BE
DEEMED TO BE CONTRACTS MADE UNDER, AND SHALL BE CONSTRUED IN ACCORDANCE WITH,
AND GOVERNED BY, THE LAWS OF THE STATE OF TEXAS; PROVIDED, HOWEVER, THAT THE
RIGHTS PROVIDED IN ANY LOAN PAPER WITH REFERENCE TO PROPERTIES COVERED THEREBY
41
THAT ARE SITUATED IN OTHER STATES MAY BE GOVERNED BY THE LAWS OF SUCH OTHER
STATES, AND PROVIDED, FURTHER, THAT THE LAWS PERTAINING TO THE ALLOWABLE RATES
OF INTEREST MAY, FROM TIME TO TIME, BE GOVERNED BY THE LAWS OF THE UNITED STATES
OF AMERICA.
8.5 Usury Savings Clause. It is the intention of the parties hereto
that Lender shall conform strictly to usury laws applicable to it. Accordingly,
if the transactions contemplated hereby would be usurious as to Lender under
laws applicable to it (including the laws of the United States of America and
the State of Texas or any other jurisdiction whose laws may be mandatorily
applicable to Lender notwithstanding the other provisions hereof), then, in that
event, notwithstanding anything to the contrary in the Notes, this Agreement or
any other Loan Paper or other agreement entered into in connection with or as
security for the Notes, (i) the aggregate of all consideration which is
contracted for, taken, reserved, charged or received by Lender under the Notes,
this Agreement or any other Loan Paper or agreement entered into in connection
with or as security for the Notes shall under no circumstances exceed the
maximum amount allowed by such applicable law, and any excess shall be credited
by Lender on the principal amount of the Obligations to Lender (or, to the
extent that the principal amount of the Obligations shall have been or would
thereby be paid in full, refunded by Lender to the Borrower); and (ii) in the
event that the maturity of the Notes is accelerated by reason of an Event of
Default under this Agreement or otherwise, or in the event of any prepayment,
then such consideration that constitutes interest under law applicable to Lender
may never include more than the maximum amount allowed by such applicable law,
and excess interest, if any, provided for in the Notes, this Agreement or
otherwise shall be cancelled automatically by Lender as of the date of such
acceleration of prepayment and, if theretofore paid, shall be credited by Lender
on the principal amount of the Obligations (or, to the extent that the principal
amount of such Obligations shall have been or would thereby be paid in full,
refunded by Lender to the Borrower).
To the extent that Texas Finance Code Section 303.002 is relevant to
Lender for the purposes of determining the Highest Lawful Rate, the applicable
rate ceiling under such provisions shall be determined by the indicated (weekly)
rate ceiling from time to time in effect, subject to Lender's right subsequently
to change such method in accordance with applicable law. Notwithstanding
42
anything to the contrary contained herein or in any of the other Loan Papers, it
is not the intention of the Lender to accelerate the maturity of any interest
that has not accrued at the time of such acceleration or to collect unearned
interest at the time of such acceleration.
8.6 Severability. If one or more of the provisions contained herein or
in the Notes or any of the other Loan Papers shall, for any reason, be held
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement, the
Notes or any of the other Loan Papers.
8.7 Non-Waiver. No Advance hereunder shall constitute a waiver of the
representations, warranties, conditions or agreements of Borrower or of any of
the conditions of Lender's obligations to make further Advances. If Borrower is
unable to satisfy any such representation, warranty, condition or agreement, no
such Advance shall have the effect of precluding Lender from thereafter
declaring such inability to be an Event of Default as hereinabove provided.
8.8 Counterparts. This Agreement may be executed by one or more of the
parties to this Agreement on any number of separate counterparts, each of which
shall be deemed to be an original, but all of which taken together shall
constitute one and the same instrument.
8.9 Amendments and Waivers. Neither this Agreement, the Notes nor any
of the other Loan Papers may be amended or waived orally, but only by an
instrument in writing signed by Borrower and Lender (and/or any other person
which is a party to the Loan Paper being amended or waived).
8.10 Terms and Headings. Terms used herein but not defined shall have
the meanings accorded them under generally accepted accounting principles, or
the Texas Uniform Commercial Code, as appropriate. All headings used herein are
for convenience and reference purposes only and shall not affect the substance
of this Agreement.
8.11 Conflicts. If there is ever a conflict between any of the terms,
conditions, representations, warranties or covenants contained in this Agreement
and the terms, conditions, representations, warranties or covenants in any of
the other Loan Papers executed by the Borrower, the provisions of this Agreement
shall govern and control; provided, however, the fact that any term, condition,
representation, warranty or covenant contained in such other Loan Paper is not
contained herein shall not be, or be deemed to be, a conflict.
43
8.12 Environmental Indemnity. Borrower hereby agrees to defend,
indemnify, pay and hold Lender and its officers, directors, employees and agents
(each, an "Indemnitee") harmless from and against, and shall reimburse each
Indemnitee for, any and all loss, claim, liability, damages, injunctive relief,
penalty, judgment, suit, obligation, injury to persons, property or natural
resources, cost, expense or disbursement of any kind or nature whatsoever
including, without limitation, attorneys' fees and costs attributable to any
action or cause of action (whether or not each Indemnitee shall be designated a
party thereto), arising, directly or indirectly, in whole or in part, out of the
release or presence, or alleged release or alleged presence, or any Hazardous
Substance, at, on, or under, surrounding or in connection with any of the real
property owned or leased by Borrower ("Premises"), or any portion thereof,
whether foreseeable or unforeseeable, regardless of the source of such release
and regardless of when such release occurred or such presence is discovered. The
foregoing indemnity includes, without limitation, all cost in law or in equity
of removal, remediation of any kind and disposal of any such Hazardous
Substance, all costs of determining whether the Premises are in compliance, and
causing the Premises to be in compliance, with all Requirements of Law relating
to Hazardous Substances, all costs associated with claims for damages to
persons, property or natural resources, and each Indemnitee's consultants' fees
(including attorneys' fees and costs) and court costs. The obligations of
Borrower under this indemnity shall survive the repayment of the Notes and shall
be independent of the obligations of Borrower to the Indemnitees in connection
with the Notes. The rights of each Indemnitee under this indemnity shall be in
addition to any other rights and remedies of such Indemnitee under any guaranty
or any document or instrument now or hereafter executed in connection with this
Agreement, the Notes, the Loan Papers or at law or in equity.
8.13 Renewal, Extension or Rearrangement. All provisions of this
Agreement and any of the other Loan Papers relating to the Notes or any other
Obligations shall apply with equal force and effect to each and all promissory
notes hereafter executed which in whole or in part represent a renewal,
extension for any period, increase or rearrangement of any part of the
Obligations originally represented by the Notes or any part of such other
Obligations.
8.14 Direct Benefit. The loans hereunder and any additional loans are
for the direct benefit of each of the Borrower and its Subsidiaries and the
loans hereunder will be used by them for general working capital purposes. The
Borrower and its Subsidiaries are engaged as an integrated group in the
manufacturing, leasing and financing of industrial equipment and systems for the
44
oil and gas industry and other industries, and any benefits to the Borrower or
any of its Subsidiaries are a benefit to all of them, both directly or
indirectly, inasmuch as the successful operation and condition of the Borrower
and its Subsidiaries is dependent upon the continued successful performance of
the functions of the integrated group as a whole.
8.15 Waivers. No course of dealing on the part of the Lender, its
officers, employees, consultants or agents, nor any failure or delay by the
Lender with respect to exercising any right, power or privilege of the Lender
under this Agreement, the Notes or any other Loan paper shall operate as a
waiver thereof, except as otherwise provided in Section 8.9 hereof.
8.16 Cumulative Rights. Rights and remedies of the Lender under this
Agreement, the Notes and the other Loan Papers shall be cumulative, and the
exercise or partial exercise of any such right or remedy shall not preclude the
exercise of any other right or remedy.
8.17 Governmental Regulation. Anything contained herein to the contrary
notwithstanding, the Lender shall not be obligated to extend credit to the
Borrower in an amount in violation of any limitation or prohibition provided by
any applicable statute or regulation.
8.18 Exhibits. The exhibits, annexes and schedules attached to this
Agreement are incorporated herein and shall be considered a part of this
Agreement for the purposes stated herein, except that in the event of any
conflict between any of the provisions of such exhibits, annexes and schedules
and the provisions of this Agreement, the provisions of this Agreement shall
prevail. All capitalized terms used in such exhibits, annexes and schedules, but
not defined therein, shall have the same meanings as given to such terms in this
Agreement.
THIS AGREEMENT AND THE OTHER LOAN PAPERS REPRESENT THE ENTIRE AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES. THERE ARE NO
UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.
EXECUTED EFFECTIVE as of the date first above written.
45
BORROWER:
---------
NATURAL GAS SERVICES GROUP, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
GUARANTORS:
----------
ROTARY GAS SYSTEMS, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
NGE LEASING, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
---------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President
GREAT LAKES COMPRESSION, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President
LENDER:
WESTERN NATIONAL BANK
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Executive
Vice President
46
