WESTERN NATIONAL BANK
508 WEST WALL STREET, SUITE 1100
MIDLAND, TEXAS
79701
Dawson
Geophysical Company
508 West Wall Street, Suite 800
Midland, Texas 79701
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RE:
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Revolving Line of Credit Loan from
Western National Bank to Dawson Geophysical Company
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Pursuant to the
terms of a letter loan agreement, dated as of January 18,
2006, (the “ Existing Loan Agreement ”), Western
National Bank, a national banking association (alternatively,
“ Western ” or the “ Bank ”),
has previously committed to provide to Dawson Geophysical Company,
a Texas corporation (alternatively “ Dawson
Geophysical ” or the “ Borrower ”), a
revolving line of credit loan in the original principal amount of
Ten Million and No/Dollars ($10,000,000.00) (the Existing
Loan ”). The Existing Loan is evidenced by a Revolving
Line of Credit Note, of even date herewith, executed by the
Borrower on behalf of Western, in the original principal amount of
Ten Million and No/100 Dollars ($10,000,000.00) (the “
Existing Note ”). The Existing Note is secured by that
certain Security Agreement, dated as of January 18, 2006,
covering those accounts receivable described therein (the “
Existing Security Agreement ”). From time to time, the
Security Agreement, and any financing statements filed to perfect
the security interest created thereunder, may be collectively
referred to herein as the “ Existing Security
Instruments ”.
Borrower has
now requested that Western renew and extend the Existing Loan, as
well as provide additional funds under a new revolving line of
credit loan in the original principal amount of Twenty Million and
No/100 Dollars ($20,000,000.00) (the “ Loan ”).
The Loan will be evidenced by a Revolving Line of Credit Note, of
even date herewith, in the original principal amount of Twenty
Million and No/100 Dollars ($20,000,000.00), which will renew and
extend the Existing Note (the “ Note ”). The
Borrower’s performance under the Note will be secured by its
execution of a new Security Agreement, of even date herewith, the
security interest of which will be perfected by the filing of
amendments to the financing statement, both covering the accounts
receivable described therein (collectively, the “ Security
Instruments ”). This Agreement, as defined below, the
Note, the Security Instruments, and any other documents executed
simultaneously herewith are collectively referred to as the “
Loan Documents ”.
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Western has
agreed to renew the Existing Loan into the Loan, as well as provide
additional funds under the Loan. In consideration of
Western’s renewal of the Existing Loan into the Loan and
agreement to advance of additional funds, Borrower has agreed to
execute this Loan Agreement, the Note, and the Security Agreement
required by the Bank, subject to the fulfillment of the following
terms and conditions of this letter loan agreement (the “
Agreement ”):
This Agreement,
dated as of January 18, 2007 , and any extensions,
renewals, or modifications hereof.
Dawson
Geophysical Company
The lesser of
the following amounts: (a) the face amount of the Note; or
(b) the Borrowing Base then in effect.
Interest under
the Note shall accrue at an annual rate equal to the Prime Rate.
For purposes of this Agreement, the “Prime Rate”
shall be defined as that rate established as the prime rate in the
money rate table of The Wall Street Journal , a Dow Jones
publication, as of each Business Day, as hereinafter defined, (and
for holidays or weekends, the Prime Rate shall be the prime rate
published in that money rate table of The Wall Street
Journal, as of the close of business on the most recent
Business Day immediately preceding such weekend or holiday).
Without notice to the Borrower or any other person, the Prime Rate
may change from time to time pursuant to the preceding sentence,
with the effective date of each change to be the effective date
reflected in the money rate table of The Wall Street Journal
. The Prime Rate is a reference rate and does not necessarily
represent the lowest or best rate actually charged to any customer.
The Bank may make commercial loans or other loans at rates of
interest at, above, or below the Prime Rate. “Business
Day” shall mean any day other than a Saturday, Sunday or
legal holiday for commercial banks under the laws of the State of
Texas.
The Loan shall
be secured by the Security Instruments.
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Under the Note,
funds will be available on a revolving basis through
January 18, 2008 , the maturity date of the Loan (the
“ Revolving Period ”). During the Revolving
Period, the Borrower may borrow, repay, and re-borrow funds as long
as the aggregate amount (including outstanding letters of credit)
does not exceed the Commitment.
At any time,
and from time to time, the amounts outstanding under the Revolver
Note shall not exceed the lesser of: (a) the face amount of
the Revolver Note; or (b) the Borrowing Base, as determined
from time to time by the Bank, acting in its sole and unlimited
discretion (said lesser amount being referred to herein as the
“ Revolver Commitment ”). As used in this
Agreement, the term “ Borrowing Base ” shall
mean an amount equal to seventy-five percent (75%) of the
Borrower’s Eligible Accounts.
For the
purposes of this Agreement, the term “ Eligible
Account ” shall mean an account receivable of any of the
Borrower (net of any credit balance, trade discount, or unbilled
amount or retention) that is contractually due, for which each of
the following statements is accurate and complete (and the
Borrower, by including such account receivable in any computation
of the Borrowing Base, shall be deemed to represent and warrant to
the Bank the accuracy and completeness of such
statements):
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a.
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Said account receivable is a binding
and valid obligation of the obligor thereon, in full force and
effect, and enforceable in accordance with its terms;
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b.
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Said account receivable is genuine,
in all respects, as appearing on its face as represented in the
books and records of Borrower, and all information set forth
therein is true and correct;
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c.
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Said account receivable is free of
all default of any party thereto, counterclaims, offsets, and
defenses, and from any rescission, cancellation, or avoidance, and
all right thereof, whether by operation of law or
otherwise;
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d.
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The
payment of said account receivable is not more than ninety
(90) days past due the invoice date thereof;
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e.
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Said account receivable is free of
concessions or understandings with the obligor thereon of any kind
not disclosed to and approved by the Bank in writing;
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f.
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Said account receivable is, and at
all times will be, free and clear of all liens except those in
favor of the Bank;
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g.
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Said account receivable is not a
receivable arising from intercompany indebtedness existing between
or among any of the Borrower;
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h.
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Said account receivable is derived
from sales made or services rendered to the obligor in the ordinary
course of the business of the Borrower;
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i.
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The
obligor on said account receivable (i) is located within the
United States or the District of Columbia; (ii) is not the
subject of any bankruptcy or insolvency proceeding, nor has a
trustee or receiver been appointed for all or a substantial part of
its property, nor has said obligor made an assignment for the
benefit of creditors, admitted its inability to pay its debts as
they mature or suspended its business, (iii) is not
affiliated, directly or indirectly, with Borrower, as a subsidiary
or affiliate, employee or otherwise; and (iv) is not a state
or federal government department, commission, board, bureau, or
agency;
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j.
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Said account receivable did not
arise from a single customer whose accounts receivable to Borrower
constitute more than twenty-five percent (25%) of Borrower’s
accounts receivable;
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k.
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Said account receivable is not owed
by a customer whose principal place of business is located in a
foreign country; and
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l.
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Said account receivable did not
arise from sales to an obligor as to whom fifteen percent (15%) or
more of the total accounts receivable owing by such obligor to the
Borrower are delinquent accounts receivable (that is, an account
that is more than ninety (90) days delinquent).
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The Borrower
may request in writing an increase in the Borrowing Base, such
request to be accompanied by a description and evaluation of any
additional collateral to be provided by the Bank. The Bank may
evaluate such for an increase in its sole and absolute discretion,
and in conjunction with such evaluation, may conduct a full credit
analysis of the Borrower and the existing or additional
collateral.
If the
aggregate amounts outstanding under the Note exceeds the Revolver
Commitment at any time, the Bank will provide written notice of
that event to Borrower. On or before the tenth (10
th ) day following receipt of such notification by
Borrower, Borrower will either, at the direction of the Bank,
acting in its sole and absolute discretion: (a) make a
mandatory payment to the Bank of the principal of the Note in an
amount at least equal to the amount necessary to cause the
outstanding principal balance of the Note to be less than or equal
to the Revolver Commitment; or (b) create liens on other
assets of Borrower, satisfactory in nature, quantity, and value to
the Bank, acting in its sole discretion, said assets to have a fair
market value sufficient to at least equal to the amount necessary
to cause the outstanding principal balance of the Note to be less
than or equal to the Revolver Commitment.
Although the
Borrower is responsible on a corporate basis for the full repayment
of principal and interest due on the Obligations and for any other
Event of Default for which the Borrower is responsible, the Bank
specifically acknowledges and agrees that neither any of the
directors, officers,
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or employees of
the Borrower nor any of the Borrower’s shareholders shall
have any personal liability whatsoever for the repayment of the
Loan. The sole party responsible for repayment of the Loan shall be
the Borrower, and the sole security for the Loan shall be the
Collateral covered by the Security Instruments.
Funds from the
Loan shall be to renew and extend the Existing Loan and to provide
working capital to offset the increase in accounts receivable due
to the significant growth in Borrower’s business. No proceeds
from the Loan shall be used for the purpose of purchasing or
carrying margin stock in violation of Regulations G, U, or X of the
Board of Governors of the Federal Reserve System.
As stated, the
maturity date of the Note is January 18,
2008.
II.
REPRESENTATIONS AND WARRANTIES
A.
Good Standing and Identity . The Borrower is a
corporation, duly organized and in good standing under the laws of
Texas. The Borrower’s legal name is that reflected in the
address of this Agreement. Borrower has the power to own its
property and to carry on its business in each jurisdiction in which
the Borrower operates.
B.
Authority and Compliance . The Borrower has full power
and authority to enter into this Agreement, to make the borrowing
hereunder, to execute and deliver the Note, to mortgage those
interests covered by the Security Instruments, and to incur the
obligations provided for herein, all of which will be duly
authorized by all proper and necessary corporate action. No consent
or approval of any public authority is required as a condition to
the validity of this Agreement, the Note, and the Security
Instrument, and Borrower is in compliance with all laws and
regulatory requirements to which he is subject.
C.
Litigation . There are no proceedings pending or, to the
knowledge of Borrower, threatened before any court or
administrative agency that will or may have a material adverse
effect on the financial condition or operations of Borrower, except
as disclosed to the Bank in writing prior to the date of this
Agreement.
D.
Ownership of Assets . As of the date of this Agreement,
Borrower has good title to the interests covered by the Security
Instruments and any other collateral pledged and the other
collateral is owned free and clear of liens. Borrower will at all
times maintain its tangible property, real and personal, in good
order and repair, taking into consideration reasonable wear and
tear.
E.
Taxes . All income taxes and other taxes due and payable
through the date of this Agreement have been paid prior to becoming
delinquent.
F.
Financial Statements . The books and records of the
Borrower properly reflect the financial condition of the Borrower
in all material respects, and there has been no material change in
Borrower’s financial condition as represented in its most
recent financial statements.
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