Document:

cwei111414creditagreement_amend1

Exhibit 10.1
AMENDMENT NO. 1 TO 
THIRD AMENDED AND RESTATED CREDIT AGREEMENT

This AMENDMENT NO. 1 TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT (“Amendment”) entered into on November 12, 2014 (the “Amendment Effective Date”) is by and among Clayton Williams Energy, Inc., a Delaware corporation (the “Borrower”), the subsidiaries of the Borrower party hereto (together with the Borrower, the “Guarantors”), the Lenders party hereto (as defined below), and JPMorgan Chase Bank, N.A., as administrative agent (in such capacity, the “Administrative Agent”) and as issuing bank (in such capacity, the “Issuing Bank”).
RECITALS

A.The Borrower is party to that certain Third Amended and Restated Credit Agreement dated as of April 23, 2014 among the Borrower, the financial institutions party thereto from time to time, as lenders (the “Lenders”), the Administrative Agent and the Issuing Bank (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”).

B.Subject to the terms and conditions set forth herein, the parties hereto wish to amend the Credit Agreement as provided herein.

NOW THEREFORE, in consideration of the premises and the mutual covenants, representations and warranties contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
Section 1.Defined Terms.  As used in this Amendment, each of the terms defined in the opening paragraph and the Recitals above shall have the meanings assigned to such terms therein.  Each term defined in the Credit Agreement and used herein without definition shall have the meaning assigned to such term in the Credit Agreement, unless expressly provided to the contrary.

Section 2.Other Definitional Provisions.  Article, Section, Schedule, and Exhibit references are to Articles and Sections of and Schedules and Exhibits to this Amendment, unless otherwise specified.  The words “hereof”, “herein”, and “hereunder” and words of similar import when used in this Amendment shall refer to this Amendment as a whole and not to any particular provision of this Amendment.  The term “including” means “including, without limitation,”.  Paragraph headings have been inserted in this Amendment as a matter of convenience for reference only and it is agreed that such paragraph headings are not a part of this Amendment and shall not be used in the interpretation of any provision of this Amendment.

Section 3.Increase of Borrowing Base.  Effective as of the Amendment Effective Date, the Borrowing Base is hereby increased from $415,000,000 to $600,000,000.  Once effective, the new Borrowing Base amount shall remain in effect at that level until the Borrowing Base is redetermined or reduced in accordance with the Credit Agreement.  For the avoidance of 

#4735663.5

doubt, the increase in the Borrowing Base pursuant to this Section 3 is the Scheduled Redetermination scheduled to be made on or about November 1, 2014.

Section 4.Increase of Aggregate Commitment.  Effective as of the Amendment Effective Date, the Aggregate Commitment is hereby increased from $415,000,000 to $500,000,000.  Upon the effectiveness of this Amendment pursuant to Section 8 below, each Lender’s Commitment shall be the Commitment set forth on Schedule 2.01 attached hereto.  The Unused Commitment Fees provided for in Section 2.12(a) of the Credit Agreement shall hereafter be computed on the basis of the Commitments as so increased.  For the avoidance of doubt, the increase in the Aggregate Commitment pursuant to this Section 4 is not being made pursuant to Section 2.03 of the Credit Agreement.

Section 5.Reallocation of Commitments and Loans.  The Lenders have agreed among themselves to reallocate their respective Commitments as contemplated by this Amendment.  On the Amendment Effective Date and after giving effect to such reallocation and the increase of the Aggregate Commitment contemplated by Section 4, the Commitment and Applicable Percentage of each Lender shall be as set forth on Schedule 2.01 attached hereto and each Lender shall own its Applicable Percentage of the outstanding Loans.  The reallocation and adjustment to the Commitments of each Lender as contemplated by this Section 5 shall be deemed to have been consummated pursuant to the terms of the Assignment and Assumption attached as Exhibit A to the Credit Agreement as if each of the Lenders had executed an Assignment and Assumption with respect to such reallocation and adjustment.  The Borrower and the Administrative Agent hereby consent to such reallocation and adjustment of the Commitments.  The Administrative Agent hereby waives the $3,500 processing and recordation fee set forth in Section 11.04(b)(ii)(C) of the Credit Agreement with respect to the assignments and reallocations of the Commitments contemplated by this Section 5.  To the extent requested by any Lender, and in accordance with Section 2.16 of the Credit Agreement, the Borrower shall pay to such Lender, within the time period prescribed by Section 2.16 of the Credit Agreement, any amounts required to be paid by the Borrower under Section 2.16 of the Credit Agreement in the event the payment of any principal of any Eurodollar Loan or the conversion of any Eurodollar Loan other than on the last day of an Interest Period applicable thereto is required in connection with the reallocation contemplated by this Section 5.

Section 6.Amendments to Credit Agreement.  

(a)Section 1.01 of the Credit Agreement is hereby amended by amending and restating the following defined term in its entirety as follows:

“Aggregate Commitment” means, at any time, the sum of the Commitments of all the Lenders at such time, as such amount may be reduced or increased from time to time pursuant to Section 2.02 and Section 2.03; provided that such amount shall not at any time exceed the lesser of (a) the Borrowing Base then in effect and (b) the Maximum Facility Amount. As of the First Amendment Effective Date, the Aggregate Commitment is $500,000,000.

-2-

(b)Section 1.01 of the Credit Agreement is hereby amended by inserting the following new defined term in its appropriate alphabetical order:

“First Amendment Effective Date” means November 12, 2014.
(c)Schedule 2.01 to the Credit Agreement (Applicable Percentages and Commitments) is hereby amended and restated in its entirety in the form attached hereto as Schedule 2.01.

Section 7.Representations and Warranties.  The Borrower and each Guarantor hereby represents and warrants that: (a) after giving effect to this Amendment, the representations and warranties contained in the Credit Agreement, as amended hereby, and the representations and warranties contained in the other Loan Documents are true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representation or warranty that already is qualified or modified by materiality in the text thereof) on and as of the date hereof as if made on as and as of such date except to the extent that any such representation or warranty expressly relates solely to an earlier date, in which case such representation or warranty is true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representation or warranty that already is qualified or modified by materiality in the text thereof) as of such earlier date; (b) after giving effect to this Amendment, no Default has occurred and is continuing; (c) the execution, delivery and performance of this Amendment are within the limited liability company, limited partnership, or corporate power and authority of the Borrower and each Guarantor and have been duly authorized by appropriate limited liability company, limited partnership or corporate action and proceedings; (d) this Amendment constitutes the legal, valid, and binding obligation of the Borrower and each Guarantor enforceable in accordance with its terms, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the rights of creditors generally and general principles of equity; (e) there are no governmental or other third party consents, licenses and approvals required in connection with the execution, delivery, performance, validity and enforceability of this Amendment; and (f) the Liens under the Security Instruments are valid and subsisting and secure the Obligations, as amended hereby.

Section 8.Conditions to Effectiveness.  This Amendment shall become effective as of the Amendment Effective Date and enforceable against the parties hereto upon the occurrence of the following conditions precedent:

(a)The Administrative Agent shall have received multiple original counterparts, as requested by the Administrative Agent, of this Amendment, duly and validly executed and delivered by duly authorized officers of the Borrower, the Guarantors, the Administrative Agent, and each Lender.

(b)The Administrative Agent, for the ratable benefit of the Lenders, shall have received upfront fees in an amount agreed to between the Administrative Agent and the Borrower and, to the extent invoiced, reimbursement or payment of all out of pocket expenses required to be reimbursed or paid by the Borrower under the Loan Documents, including all reasonable fees, expenses and disbursements of counsel for the Administrative Agent. 

-3-

(c)The Administrative Agent shall have received such other instruments and documents incidental and appropriate to the transactions provided for herein as the Administrative Agent or its special counsel may reasonably request prior to the Amendment Effective Date, and all such documents shall be in form and substance satisfactory to the Administrative Agent.

(d)The representations and warranties in this Amendment shall be true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof) as of the date hereof except to the extent that any such representation or warranty expressly relates solely to an earlier date, in which case it shall have been true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof) as of such earlier date, and no Default shall have occurred and be continuing. 

Section 9.Acknowledgments and Agreements.  

(a)The Borrower acknowledges that on the date hereof all outstanding Obligations are payable in accordance with their terms and the Borrower waives any defense, offset, counterclaim or recoupment with respect thereto.

(b)The Administrative Agent, the Issuing Bank, and the Lenders hereby expressly reserve all of their rights, remedies, and claims under the Loan Documents, as amended hereby.  Except as expressly set forth herein, this Amendment shall not constitute a waiver or relinquishment of (i) any Default or Event of Default under any of the Loan Documents, as amended hereby, (ii) any of the agreements, terms or conditions contained in any of the Loan Documents, as amended hereby, (iii) any rights or remedies of the Administrative Agent, the Issuing Bank, or any Lender with respect to the Loan Documents, as amended hereby, or (iv) the rights of the Administrative Agent, the Issuing Bank, or any Lender to collect the full amounts owing to them under the Loan Documents, as amended hereby.

(c)The Borrower, each Guarantor, Administrative Agent, the Issuing Bank and each Lender do hereby adopt, ratify, and confirm the Credit Agreement, as amended hereby, and acknowledge and agree that the Credit Agreement, as amended hereby, is and remains in full force and effect, and the Borrower and each Guarantor acknowledge and agree that their respective liabilities and obligations under the Credit Agreement, as amended hereby, and the other Loan Documents, are not impaired in any respect by this Amendment.

(d)From and after the date hereof, all references to the Credit Agreement and the Loan Documents shall mean such Credit Agreement and such Loan Documents as amended by this Amendment and the other documents executed pursuant hereto.  This Amendment is a Loan Document for the purposes of the provisions of the other Loan Documents.  Without limiting the foregoing, any breach of representations, warranties, and covenants under this Amendment shall be a Default or Event of Default, as applicable, under the Credit Agreement.

(e)From and after the Amendment Effective Date, the Borrower shall indemnify the Administrative Agent, and hold it harmless from, any and all losses, claims, damages, liabilities
-4-

and related expenses, including Taxes and the fees, charges and disbursements of any counsel for any of the foregoing, arising in connection with the Administrative Agent’s treating, for purposes of determining withholding Taxes imposed under FATCA, the Credit Agreement as qualifying as a “grandfathered obligation” within the meaning of Treasury Regulation Section 1.1471-2(b)(2)(i).

Section 10.Reaffirmation of the Guaranty.  Each Guarantor hereby ratifies, confirms, acknowledges and agrees that its obligations under Article VIII of the Credit Agreement are in full force and effect and that such Guarantor continues to unconditionally and irrevocably guarantee the full and punctual payment, when due, whether at stated maturity or earlier by acceleration or otherwise, all of the Guaranteed Liabilities, as such Guaranteed Liabilities may have been amended by this Amendment, and its execution and delivery of this Amendment does not indicate or establish an approval or consent requirement by such Guarantor under the Credit Agreement in connection with the execution and delivery of amendments, consents or waivers to the Credit Agreement or any of the other Loan Documents.

Section 11.Counterparts.  This Amendment may be signed in any number of counterparts, each of which shall be an original and all of which, taken together, constitute a single instrument.  This Amendment may be executed by facsimile or other electronic signature and all such signatures shall be effective as originals.

Section 12.Successors and Assigns.  This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted pursuant to the Credit Agreement.

Section 13.Invalidity.  In the event that any one or more of the provisions contained in this Amendment 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 Amendment.

Section 14.Governing Law.  This Amendment shall be construed in accordance with and governed by the law of the State of New York.

Section 15.Entire Agreement. THIS AMENDMENT, THE CREDIT AGREEMENT, AS AMENDED HEREBY, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED CONSTITUTE THE ENTIRE UNDERSTANDING AMONG THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF AND SUPERSEDE ANY PRIOR AGREEMENTS, WRITTEN OR ORAL, WITH RESPECT THERETO.

THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
[SIGNATURES BEGIN ON NEXT PAGE]

-5-

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized as of the day and year first above written.
BORROWER:                CLAYTON WILLIAMS ENERGY, INC.

By: /s/ Michael L. Pollard    
Michael L. Pollard, Senior Vice President

		
	GUARANTORS:
	SOUTHWEST ROYALTIES, INC.

WARRIOR GAS CO.
CWEI ACQUISITIONS, INC.
ROMERE PASS ACQUISITION L.L.C.
CWEI ROMERE PASS ACQUISITION CORP.
BLUE HEEL COMPANY
TEX-HAL PARTNERS, INC.
DESTA DRILLING GP, LLC
WEST COAST ENERGY PROPERTIES GP, LLC
CLAJON INDUSTRIAL GAS, INC.
CLAYTON WILLIAMS PIPELINE CORPORATION

By: /s/ Michael L. Pollard    
Michael L. Pollard, Senior Vice President
of each of the Guarantors listed above

DESTA DRILLING, L.P.

By:    Desta Drilling GP, LLC, its general partner

By: /s/ Michael L. Pollard    
Michael L. Pollard, Senior Vice President

SWR VPP, LLC

By:    Southwest Royalties, Inc., its sole member 

By: /s/ Michael L. Pollard    
Michael L. Pollard, Senior Vice President

Signature Page to
Amendment No. 1 to Third Amended and Restated Credit Agreement
(Clayton Williams Energy, Inc.)

ADMINISTRATIVE AGENT/
		
	ISSUING BANK/LENDER:
	JPMORGAN CHASE BANK, N.A.,

as Administrative Agent, Issuing Bank and a Lender

By: /s/ Anson D. Williams    
Name: Anson D. Williams
Title: Authorized Agent

Signature Page to
Amendment No. 1 to Third Amended and Restated Credit Agreement
(Clayton Williams Energy, Inc.)

		
	LENDER:
	WELLS FARGO BANK, N.A.

By: /s/ Edward Pak
Name: Edward Pak
Title: Director

Signature Page to
Amendment No. 1 to Third Amended and Restated Credit Agreement
(Clayton Williams Energy, Inc.)

		
	LENDER:
	MUFG UNION BANK, N.A. (f/k/a UNION BANK, N.A.)

By: /s/ Rachel Bowman
Name: Rachel Bowman 
Title: Vice President

Signature Page to
Amendment No. 1 to Third Amended and Restated Credit Agreement
(Clayton Williams Energy, Inc.)

		
	LENDER:
	COMPASS BANK

By: /s/ Kathleen J. Bowmen
Name: Kathleen J. Bowen 
Title: Senior Vice President

Signature Page to
Amendment No. 1 to Third Amended and Restated Credit Agreement
(Clayton Williams Energy, Inc.)

		
	LENDER:
	FROST BANK

By: /s/ Alex Zemkoski
Name: Alex Zemkoski
Title: Senior Vice President

Signature Page to
Amendment No. 1 to Third Amended and Restated Credit Agreement
(Clayton Williams Energy, Inc.)

		
	LENDER:
	THE ROYAL BANK OF SCOTLAND PLC

By: /s/ James L. Moyes
Name: James L. Moyes
Title: Managing Director

Signature Page to
Amendment No. 1 to Third Amended and Restated Credit Agreement
(Clayton Williams Energy, Inc.)

		
	LENDER:
	KEYBANK NATIONAL ASSOCIATION

By: /s/ John Dravenstott
Name: John Dravenstott 
Title: Vice President

Signature Page to
Amendment No. 1 to Third Amended and Restated Credit Agreement
(Clayton Williams Energy, Inc.)

		
	LENDER:
	NATIXIS, NEW YORK BRANCH

By: /s/ Justin Bellamy
Name: Justin Bellamy 
Title: Director

By: /s/ Stuart Murray
Name: Stuart Murray
Title: Managing Director

Signature Page to
Amendment No. 1 to Third Amended and Restated Credit Agreement
(Clayton Williams Energy, Inc.)

		
	LENDER:
	UBS AG, STAMFORD BRANCH

By: /s/ Lana Gifas
Name: Lana Gifas
Title: Director

By: /s/ Jennifer Anderson
Name: Jennifer Anderson
Title: Associate Director

Signature Page to
Amendment No. 1 to Third Amended and Restated Credit Agreement
(Clayton Williams Energy, Inc.)

		
	LENDER:
	FIFTH THIRD BANK

By: /s/ Richard Butler 
Name: Richard Butler
Title: Senior Vice President

Signature Page to
Amendment No. 1 to Third Amended and Restated Credit Agreement
(Clayton Williams Energy, Inc.)

		
	LENDER:
	U.S. BANK NATIONAL ASSOCIATION

By: /s/ Tara McLean
Name: Tara McLean
Title: Vice President

Signature Page to
Amendment No. 1 to Third Amended and Restated Credit Agreement
(Clayton Williams Energy, Inc.)

		
	LENDER:
	WHITNEY BANK

By: /s/ Parker U. Mears
Name: Parker U. Mears
Title: Vice President

Signature Page to
Amendment No. 1 to Third Amended and Restated Credit Agreement
(Clayton Williams Energy, Inc.)

		
	LENDER:
	BANK OF AMERICA, N.A.

By:  /s/ Joseph Scott
Name: Joseph Scott
Title: Director

Signature Page to
Amendment No. 1 to Third Amended and Restated Credit Agreement
(Clayton Williams Energy, Inc.)

		
	LENDER:
	BRANCH BANKING AND TRUST COMPANY

By: /s/ Parul June
Name: Parul June
Title: Vice President

Signature Page to
Amendment No. 1 to Third Amended and Restated Credit Agreement
(Clayton Williams Energy, Inc.)

		
	LENDER:
	CAPITAL ONE, NATIONAL ASSOCIATION

By: /s/ David Morris
Name: David Morris
Title: Senior Vice President

Signature Page to
Amendment No. 1 to Third Amended and Restated Credit Agreement
(Clayton Williams Energy, Inc.)

		
	LENDER:
	PNC BANK, NATIONAL ASSOCIATION

By: /s/ Jonathan Luchansky
Name: Jonathan Luchansky
Title: Assistant Vice President

Signature Page to
Amendment No. 1 to Third Amended and Restated Credit Agreement
(Clayton Williams Energy, Inc.)

SCHEDULE 2.01

APPLICABLE PERCENTAGES AND COMMITMENTS

	
				
	Lender
	Title
	Applicable Percentage
	Commitment as of the First Amendment Effective Date

	JPMorgan Chase Bank, N.A.
	Administrative Agent
	16.686746988%
	$83,433,734.94  

	Wells Fargo Bank, N.A.
	Syndication Agent
	9.337349398%
	$46,686,746.98 

	Union Bank, N.A.
	Documentation Agent
	9.337349398%
	$46,686,746.98 

	Compass Bank
	 
	6.024096386%
	$30,120,481.93 

	Frost Bank
	 
	6.024096386%
	$30,120,481.93 

	The Royal Bank of Scotland plc
	 
	6.024096386%
	$30,120,481.93 

	KeyBank National Association
	 
	6.024096386%
	$30,120,481.93 

	Natixis, New York Branch
	 
	6.024096386%
	$30,120,481.93 

	UBS AG, Stamford Branch
	 
	5.000000000%
	$25,000,000.00 

	Fifth Third Bank
	 
	4.216867470%
	$21,084,337.35 

	U.S. Bank National Association
	 
	4.216867470%
	$21,084,337.35 

	Whitney Bank
	 
	4.216867470%
	$21,084,337.35 

	Bank of America, N.A.
	 
	4.216867470%
	$21,084,337.35 

	Branch Banking and Trust Company
	 
	4.216867470%
	$21,084,337.35 

	Capital One, National Association
	 
	4.216867470%
	$21,084,337.35 

	PNC Bank, National Association
	 
	4.216867470%
	$21,084,337.35 

	TOTAL:
	 
	100.000000000%
	$500,000,000.00Exhibit 10.1

 

THIS NOTE AND ANY COMMON STOCK ISSUABLE UPON THE CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR APPLICABLE STATE SECURITIES LAWS (THE “STATE ACTS”), AND MAY NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM, AS EVIDENCED BY A LEGAL OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO SUCH EFFECT. NOTWITHSTANDING THE FOREGOING, THIS NOTE AND ANY COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES.

Z TRIM HOLDINGS, INC.

14% NONCONVERTIBLE SUBORDINATED SECURED NOTE

DUE 2 Months from Issuance

Issuance Date: September 29, 2014

Amount $85,000.00

For value received, Z TRIM HOLDINGS, INC., an Illinois corporation (the “Company”), hereby promises to pay to the order of Edward B. Smith (together with his successors and permitted assigns, the “Holder”), in accordance with the terms hereinafter provided, the principal amount of Eighty-Five thousand dollars ($85,000.00) (the “Principal Amount”). The Company is issuing this nonconvertible subordinated secured note (this “Note” and, collectively with all other 14% nonconvertible subordinated secured notes issued in connection with the limited convertible subordinated secured note offering, the “14% Notes”) to the Holder. As used herein, the term “Issuance Date” means September 29, 2014.

The Company hereby promises to pay to the order of the Holder the Principal Amount in United States Dollars in immediately available funds to the Holder at the address of the Holder as set forth in the Security Agreement (as defined below), or at such other place as the Holder may designate from time to time in writing to the Company, on November 28, 2014 (the “Maturity Date”), with interest to the Holder on the aggregate unconverted and then outstanding Principal Amount in accordance with the provisions hereof. All interest payments under or pursuant to this Note shall be made in cash pursuant to Section 1.1 hereof.

Subject to the terms and conditions of (i) a 12.5% Convertible Senior Secured Note dated February 11, 2014 (the “February Note”) made by the Company in favor of Edward B. Smith (“Smith”), (ii) an Intercreditor Agreement dated as of March 18, 2014 by and between Fordham Capital Partners, LLC (“Fordham”) and Smith, (iii) a Security Agreement dated as of March 24, 2014 by and between the Company and Fordham, and (iv) an Equipment Revolving Note dated March 24, 2014 (the “Revolving Note”) made by the Company in favor of Fordham, the Company granted Smith and Fordham a security interest (the “First Priority Security Interest”) in certain collateral to secure the obligations of the Company under the February Note and the Revolving Note; this Note is secured by a certain collateral (the “Collateral”), as more particularly described and provided herein, and is entitled to the benefits thereof. The Uniform Commercial Code (the “UCC”) financing statements on form UCC-1 filed in connection with the Notes and all other documents executed and delivered by the Company to the Holder under which the Holder is granted Liens on assets of the Company are collectively referred to as the “Security Documents.”

 

It is agreed to and understood by the parties that the Holder of the Note can elect to, upon the closing of a financing transaction with Legends Securities for units which will consist of a convertible note payable and a certain amount of warrants to purchase common shares of Z Trim Holdings, Inc. stock, convert the Holder’s investment in this Note into an investment in the units of the Legends Securities’ transaction.

ARTICLE I

THE NOTE

Section 1.1           Interest. Simple interest on the outstanding Principal Amount of this Note shall commence accruing on the Issuance Date and shall accrue daily at a non-compounded rate of fourteen percent (14%) per annum (the “Interest Rate”) until payment in full of the Principal Amount and all accrued and unpaid interest and other amounts which may become due hereunder have been made. Interest shall be computed on the basis of a 365-day year and actual days elapsed. Accrued interest on the Principal Amount of this Note (the “Interest Amount”) shall be payable to the Holder, on the Maturity Date, in cash.

Section 1.2           Ranking and Covenants.

(a)           Other than the First Priority Security Interest, no indebtedness of the Company or any subsidiary of the Company is senior to this Note in right of payment, whether with respect to principal, interest or damages or upon liquidation, dissolution or otherwise. Until this Note is fully paid and discharged in full, the Company shall not, and shall not permit any subsidiary of the Company to, directly or indirectly, incur any indebtedness for borrowed money (other than Permitted Indebtedness (as defined in Section 6.14 below)) unless such indebtedness is expressly subordinated to this Note pursuant to a written subordination agreement acceptable in form, scope and substance to the Holders of not less than a simple majority of the then outstanding aggregate principal on the 14% Notes, provided, however, that notwithstanding the foregoing, the Company may issue, without the consent of the Holders, up to a total of $20 million in aggregate principal amount of 14% or 12.5% convertible senior or subordinated secured notes (inclusive of this Note and all other 14% Notes) on substantially similar terms and conditions as this Note (the “Follow-On Secured Notes”). The Follow-On Secured Notes and any note issued by the Company pursuant to such proviso issued under the same terms shall rank pari passu with the Company’s obligations under this Note and may be secured equally and ratably by Liens, on or with respect to any of the Company’s property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom and shall have the benefit, to the full extent that and with such priority as the obligations under this Note.

 

2

(b)           Except for Permitted Liens (as defined in Section 6.14 below), until this Note is fully paid and discharged in full, the Company shall not, and shall not permit any subsidiary of the Company to, directly or indirectly, incur any Lien (as defined in Section 6.14 below) on or with respect to any of the Collateral now owned or hereafter acquired, or any interest therein or any income or profits therefrom, without the prior written consent of the Holders of not less than a simple majority of the then outstanding aggregate principal on the 14% Notes.

(c)           Until this Note is fully paid and discharged in full, the Company shall not, and shall not permit any subsidiary of the Company to, directly or indirectly, without the prior written consent of the Holders of not less than the simple majority of the then outstanding aggregate principal amount of the Follow-On Secured Notes, redeem, purchase or otherwise acquire any of the Company’s capital stock or set aside any monies for such a redemption, purchase or other acquisition.

(d)           The Company shall perform any and all acts and execute any and all documents (including, without limitation, the execution, amendment or supplementation of any financing statement and continuation statement) for filing under the provisions of the UCC and the rules and regulations thereunder, or any other statute, rule or regulation of any applicable jurisdiction which are necessary at the reasonable request of the Holder or its counsel in order to maintain in favor of the Holder of the Note, a valid and perfected Lien on and security interest in the Collateral.

Section 1.3           Payment on Non-Business Days. Whenever any payment to be made shall be due on a Saturday, Sunday or a public holiday under the laws of the State of Illinois, such payment may be due on the next succeeding business day and such next succeeding day shall be included in the calculation of the Interest Amount on such date.

Section 1.4           Transfers. This Note may not be sold, transferred or otherwise disposed of by the Holder to any Person without the express written consent of the Company, which consent shall not be unreasonably withheld, conditioned or delayed.

Section 1.5           Replacement. Upon receipt of a duly executed and notarized written statement from the Holder with respect to the loss, theft or destruction of this Note (or any replacement hereof) and a standard indemnity reasonably satisfactory to the Company, or, in the case of a mutilation of this Note, upon surrender and cancellation of such mutilated Note, the Company shall issue a new Note, of like tenor and amount, in lieu of such lost, stolen, destroyed or mutilated Note. The Holder hereby unconditionally agrees to indemnify and hold harmless the Company against any claims, loss, liabilities, damages and expenses that may arise directly or indirectly on account of the actual or alleged loss, mutilation, theft or destruction of the original Note or the issuance of a new Note in exchange for said Note.

Section 1.6           Collateral. “Collateral” shall mean, collectively, all of the following:

		(i)	all Accounts;

		(ii)	all Chattel Paper;

		(iii)	all Deposit Accounts;

		(iv)	all Documents;

		(v)	all Equipment;

 

3

		(vi)	all Fixtures;

		(vii)	all General Intangibles;

		(viii)	all Instruments;

		(ix)	all Inventory;

		(x)	all Investment Property;

		(xi)	all Software;

		(xii)	all money, cash or cash equivalents;

		(xiii)	all other goods and personal property, whether tangible or intangible; and

		(xiv)	all Supporting Obligations and Letter-of-Credit Rights of the Company.

ARTICLE II

EVENTS OF DEFAULT; REMEDIES

Section 2.1           Events of Default. The occurrence of any of the following events shall be an “Event of Default” under this Note:

(a)           Any default in the payment of the (i) Principal Amount or (ii) Interest Amount on, or liquidated damages, if any, in respect of, this Note, in each case free of any claim of subordination, as and when the same shall become due and payable (whether on the Maturity Date or by acceleration or otherwise) which default is not cured within ten (10) Trading Days;

(b)           the Company’s express notice to the Holder, including by way of public announcement, at any time, of its inability to comply or its intention not to comply with proper requests for conversion of this Note into Common Shares;

(c)           the Company shall fail for any reason to deliver the required certificates to the Holder prior to the fifth (5th) Trading Day after a Conversion Date pursuant to and in accordance with Section 3.3 or the Company shall provide express notice to the Holder, including by way of public announcement, at any time, of its inability to comply or of its intention not to comply with the requests for conversion of this Note in accordance with the terms hereof;

(d)           the Company or any subsidiary shall (i) apply for or consent to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property or assets, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under the United States Bankruptcy Code (as now or hereafter in effect) or under the comparable laws of any jurisdiction (foreign or domestic), (iv) file a petition seeking to take advantage of any bankruptcy, insolvency, moratorium, reorganization or other similar law affecting the enforcement of creditors’ rights generally, (v) acquiesce in writing to any petition filed against it in an involuntary case under United States Bankruptcy Code (as now or hereafter in effect) or under the comparable laws of any jurisdiction (foreign or domestic), (vi) issue a notice of bankruptcy or winding down of its operations or issue a press release regarding same, (vii) by any act or failure to act expressly indicate its consent to, approval of or acquiescence in any of the foregoing, or (viii) take any corporate or other action for the purpose of effecting any of the foregoing;

(e)           a proceeding or case shall be commenced in respect of the Company or any subsidiary, without its application or consent, in any court of competent jurisdiction, seeking (i) the liquidation, reorganization, moratorium, dissolution, winding up, or composition or readjustment of its debts, (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of it or of all or any substantial part of its assets in connection with its liquidation or dissolution or (iii) similar relief in respect of it under any law providing for the relief of debtors, and such proceeding or case described in clause (i), (ii) or (iii) shall continue undismissed, or unstayed and in effect, for a period of sixty (60) days or any order for relief shall be entered in an involuntary case under United States Bankruptcy Code (as now or hereafter in effect) or under the comparable laws of any jurisdiction (foreign or domestic) against the Company or any subsidiary or action under the laws of any jurisdiction (foreign or domestic) analogous to any of the foregoing shall be taken with respect to the Company or any subsidiary and shall continue undismissed, or unstayed and in effect for a period of sixty (60) days; or

 

4

(f)           the Company or any subsidiary shall default in any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement of the Company in an amount exceeding $250,000, whether such indebtedness now exists or shall hereafter be created and such default shall result in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable; or

(g)           if the Company ceases conducting a substantial portion of its operations as currently in effect as of the date hereof.

Section 2.2           Remedies Upon An Event of Default. If an Event of Default shall have occurred and shall be continuing, the Holder of this Note may at any time at its option:

(a)           demand that the principal amount of this Note then outstanding shall be converted into Common Shares at the Conversion Price (as defined in Section 3.2(a) below) then in effect; or declare immediately due and payable the full Principal Amount of this Note, together with the Interest Amount and other amounts owing in respect thereof, in cash, which aggregate amount payable upon an Event of Default shall be equal to the Mandatory Repayment Amount, defined in Section 3.4(a)(iv) below; provided, however, that upon the occurrence of an Event of Default described in paragraphs (d) or (e) of Section 2.1, the outstanding principal balance and accrued interest hereunder shall be automatically due and payable. Commencing five (5) days after the occurrence of any Event of Default that causes or if uncured will cause, the acceleration of this Note, the Interest Rate shall accrue at a rate of 18% per annum, or such lower maximum amount of interest permitted to be charged under applicable law. All Notes for which the full Mandatory Repayment Amount hereunder shall have been paid in accordance herewith shall promptly be surrendered to or as directed by the Company. The Holder need not provide and the Company hereby waives any presentment, demand, protest or other notice of any kind. Such declaration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a Note holder until such time, if any, as the full payment under this Section shall have been received by it. No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon; or

(b)           exercise or otherwise enforce any one or more of the Holder’s rights, powers, privileges, remedies and interests under this Note, the Security Documents, or applicable law.

ARTICLE III

NEGATIVE COVENANTS

Section 3.1           Negative Covenants. So long as any portion of this Note is outstanding, the Company will not and will not permit any of its subsidiaries to directly or indirectly:

(a)           Consistent with Section 1.2, enter into, create, incur, assume or suffer to exist any indebtedness or Liens of any kind, on or with respect to any of its property or assets or Collateral now owned or hereafter acquired or any interest therein or any income or profits therefrom that is senior to, or pari passu with, in any respect, the Company’s obligations under the Notes other than obligations expressly permitted by Section 1.2;

 

5

(b)           Consistent with Section 1.2, repay, repurchase or offer to repay, repurchase, make any payment in respect of or otherwise acquire any of its Common Shares or other equity securities;

(c)           amend its certificate of incorporation, bylaws or charter documents so as to adversely affect any rights of the Holder; provided, however, that reincorporating the Company in Delaware and eliminating cumulative voting rights for directors shall not be deemed a violation of this covenant;

(d)           create or acquire any subsidiary after the date hereof unless (i) such subsidiary is a wholly-owned subsidiary of the Company and (ii) such subsidiary becomes party to the Security Documents (either by executing a counterpart thereof or an assumption or joinder agreement in respect thereof) and, to the extent required by the Holder, satisfied each condition of this Agreement as if such subsidiary were a subsidiary on the Issuance Date; or

(e)           enter into any agreement with respect to any of the foregoing.

ARTICLE IV

MISCELLANEOUS

Section 4.1           Notices.

(a)           Any notice, demand, request, waiver or other communication required or permitted to be given hereunder, including, without limitation, any Notice of Conversion, shall be in writing and shall be delivered personally, by facsimile, or sent by a nationally recognized overnight courier service, addressed to the Company at the address set forth above, facsimile number (847) 549-6028, Attn: Steven J. Cohen, or such other address or facsimile number as the Company may specify for such purposes by notice to the Holders delivered in accordance with this Section. Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number or address of such Holder appearing on the books and records of the Company, or if no such facsimile number or address appears, at the principal place of business of the Holder. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section prior to 5:30 p.m. (central time), (ii) the date after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section later than 5:30 p.m. (central time) on any date and earlier than 11:59 p.m. (central time) on such date (iii) the second Trading Day following the date of mailing, if sent by nationally recognized overnight courier services, or (iv) upon actual receipt by the party to whom such notice is required to be given.

(b)           The Company will give written notice to the Holder at least ten (10) days prior to the date on which the Company takes a record (i) with respect to any dividend or distribution upon the Common Shares, (ii) with respect to any pro rata subscription offer to holders of Common Shares or (z) for determining rights to vote with respect to any Organic Change, dissolution, liquidation or winding-up, but in no event shall such notice be provided to the Holder prior to such information being made known to the public. The Company also will give written notice to the Holder at least twenty (20) days prior to the date on which any dissolution, liquidation or winding-up will take place, but in no event shall such notice be provided to the Holder prior to such information being made known to the public. Notwithstanding anything herein to the contrary, the failure to deliver such notice any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice.

 

6

Section 4.2           Governing Law; Consent to Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with Illinois law, and shall be venued in Lake County, Illinois.

Section 4.3           Absolute Obligation. Except as expressly provided herein, no provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the Principal Amount, the Interest Amount, and liquidated damages, if any, on this Note at the time, place, and rate, and in the coin or currency, herein prescribed. This Note is a direct debt obligation of the Company. This Note ranks pari passu with all other Notes now or hereinafter issued under the terms set forth herein.

Section 4.4           Security Interest. This note is a direct debt obligation of the Company and, is secured by a subordinated perfected security interest in all of the assets of the Company for the benefit of the Holders.

Section 4.5           Headings. Article and section headings in this Note are included herein for purposes of convenience of reference only and shall not constitute a part of this Note for any other purpose.

Section 4.6           Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief. The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note, at law or in equity (including, without limitation, a decree of specific performance and/or other injunctive relief), no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing herein shall limit a Holder’s right to pursue actual damages for any failure by the Company to comply with the terms of this Note. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder hereof and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable and material harm to the Holder and that the remedy at law for any such breach may be inadequate. Therefore the Company agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available rights and remedies, at law or in equity, to seek and obtain such equitable relief, including but not limited to an injunction restraining any such breach or threatened breach, without the necessity of showing economic loss and without any bond or other security being required.

Section 4.7           Enforcement Expenses. If (a) this Note is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding or (b) an attorney is retained to represent the Holder in an bankruptcy, reorganization, receivership of the Company or other proceeding affecting Company creditors’ rights and involving a claim under this Note, then the Company shall the pay costs incurred by the Holder for such collection, enforcement or action, including, without limitation, reasonable attorneys’ fees and disbursements

Section 4.8           Binding Effect. Subject to applicable securities laws, the obligations of the Company and the Holder set forth herein shall be binding upon the successors and assigns of each such party, whether or not such successors or assigns are permitted by the terms hereof.

Section 4.9           Amendments. This Note may not be modified or amended in any manner except in writing executed by the Company and the Holders of not less than a simple majority of the then outstanding aggregate principal on the 2014 Notes.

 

7

Section 4.10           Compliance with Securities Laws. The Holder of this Note acknowledges that this Note is being acquired solely for the Holder’s own account and not as a nominee for any other party, and for investment and not with a view to the distribution hereof. This Note and any Note issued in substitution or replacement therefor shall be stamped or imprinted with a legend in substantially the following form:

“THIS NOTE AND ANY COMMON STOCK ISSUABLE UPON THE CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM, AS EVIDENCED BY A LEGAL OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO SUCH EFFECT. NOTWITHSTANDING THE FOREGOING, THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES.”

Section 4.11           Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege, nor shall any waiver by the Holder of any such right or rights on any one occasion be deemed a waiver of the same right or rights on any future occasion.

Section 4.12           Company’s Waivers.

Except as otherwise specifically provided herein, the Company and all others that may become liable for all or any part of the obligations evidenced by this Note, hereby waive presentment, demand, notice of nonpayment, protest and all other demands’ and notices in connection with the delivery, acceptance, performance and enforcement of this Note, and do hereby consent to any number of renewals of extensions of the time or payment hereof and agree that any such renewals or extensions may be made without notice to any such persons and without affecting their liability herein and do further consent to the release of any person liable hereon, all without affecting the liability of the other persons, firms or Company liable for the payment of this Note, AND DO HEREBY WAIVE TRIAL BY JURY.

Section 4.13           Seniority. This Note is senior in right of payment to any and all other indebtedness of the Company, except for the First Priority Security Interest.

Section 4.14           Definitions. For the purposes hereof, the following term shall have the following meaning:

“Asset Sale” means (i) in one or more transactions, the sale, lease, conveyance or other disposition of any material amount of assets or material rights other than in the ordinary course of business, and (ii) the sale of debt or equity interests in any of the Company’s subsidiaries.

“Lien” means any mortgage, charge, pledge, lien (statutory or other), security interest, hypothecation, assignment for security, claim or preference or priority or other encumbrance upon or with respect to any property of any kind. A Person shall be deemed to own subject to a Lien any property which such Person has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement.

 

8

“Permitted Indebtedness” means (i) indebtedness evidenced by the 14% Notes, including any Follow-On Senior Secured Notes; (ii) indebtedness to the extent existing on the date hereof or any replacement indebtedness not to exceed the amount of such existing indebtedness; (iii) indebtedness which may, from time to time be incurred or guaranteed by the Company which in the aggregate principal amount does not exceed $1,000,000; (iv) the endorsement of instruments for the purpose of deposit or collection in the ordinary course of business; (v) indebtedness relating to contingent obligations of the Company and its subsidiaries under guaranties in the ordinary course of business of the obligations of suppliers, customers, and licensees of the Company and its subsidiaries, including indebtedness of up to $500,000 in the aggregate associated with standby letters of credit issued to manufacturers of the Company’s products; (vi) indebtedness relating to loans from the Company to its subsidiaries; (vii) indebtedness relating to equipment leases in an amount not to exceed $500,000, and indebtedness relating to capital leases in an amount not to exceed $100,000; and (viii) accounts or notes payable arising out of the purchase of merchandise, supplies, equipment, software, computer programs or services in the ordinary course of business.

 “Permitted Lien” means (i) Liens for taxes, assessments and other governmental charges, if payment thereof shall not at the time be required to be made, and provided such reserve as shall be required by generally accepted accounting principles consistently applied shall have been made therefor; (ii) Liens of workmen, materialmen, vendors, suppliers, mechanics, carriers, warehouseman and landlords or other like Liens, incurred in the ordinary course of business for sums not then due or being contested in good faith, if an adverse decision in which contest would not materially affect the business of the Company; (iii) Liens securing indebtedness of the Company or any subsidiaries which is in an aggregate principal amount not exceeding $1,00,000 and which Liens are subordinate to liens on the same assets held by the Purchaser; (iv) statutory Liens of landlords, statutory Liens of banks and rights of set-off, and other Liens imposed by law, in each case incurred in the ordinary course of business (x) for amounts not yet overdue or (y) for amounts that are overdue and that are being contested in good faith by appropriate proceedings, so long as such reserves or other appropriate provisions, if any, as shall be required by generally accepted accounting principles shall have been made for any such contested amounts; (v) Liens incurred or deposits made in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, trade contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (vi) any attachment or judgment Lien not constituting an Event of Default; (vii) easements, rights-of-way, restrictions, encroachments, and other minor defects or irregularities in title, in each case which do not and will not interfere in any material respect with the ordinary conduct of the business of the Company or any of its subsidiaries; (viii) any (x) interest or title of a lessor or sublessor under any lease, (y) restriction or encumbrance that the interest or title of such lessor or sublessor may be subject to, or (z) subordination of the interest of the lessee or sublessee under such lease to any restriction or encumbrance referred to in the preceding clause (y), so long as the holder of such restriction or encumbrance agrees to recognize the rights of such lessee or sublessee under such lease; (ix) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (x) any zoning or similar law or right reserved to or vested in any governmental office or agency to control or regulate the use of any real property; (xi) Liens securing obligations (other than obligations representing debt for borrowed money) under operating, reciprocal easement or similar agreements entered into in the ordinary course of business of the Company and its subsidiaries; (xii) the replacement, extension or renewal of any Lien permitted by this Section upon or in the same property theretofore subject or the replacement, extension or renewal (without increase in the amount or change in any direct or contingent obligor) of the indebtedness secured thereby; and (xiii) Liens securing the 14% Notes, including any Follow-On Senior Secured Notes.

[Signature on Next Page]

 

9

IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of the Issuance Date set out above.

	 	
Z TRIM HOLDINGS, INC.

	 	 	 
	 	
By:

	
/s/ Steve Cohen

	 	 	 
	 	
Print Name:

	
Steve Cohen

	 	 	 
	 	
Title:   

	
CEO

	 	 	 
	 	
Date:

	
September 29, 2014

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00237-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00237-of-00352.parquet"}]]