EXHIBIT 10.4
GUARANTY AND EXCHANGE AGREEMENT
GUARANTY AND EXCHANGE AGREEMENT dated as of September 6, 1996 among
TEXOIL, INC., a Nevada corporation ("PARENT"), TEXOIL COMPANY, a Tennessee
corporation (the "COMPANY") and RIMCO PARTNERS, L.P., a Delaware limited
partnership, RIMCO PARTNERS, L.P. II, a Delaware limited partnership, RIMCO
PARTNERS, L.P. III, a Delaware limited partnership, and RIMCO PARTNERS, L.P. IV,
a Delaware limited partnership.
PRELIMINARY STATEMENT
The Noteholders have entered into a Note Purchase Agreement dated of
even date herewith (said Agreement, as it may hereafter be amended or otherwise
modified from time to time, being the "NOTE AGREEMENT") with the Company and
Parent. The Company is a wholly-owned subsidiary of Parent. It is a condition
precedent to the obligation of the Noteholders to make Advances under the Note
Agreement that the Company and Parent shall have executed and delivered this
Agreement. Parent has determined that it will receive a substantial benefit if
Advances are made to the Company under the Note Agreement.
In consideration of the mutual covenants herein contained, Parent,
the Company and the Noteholders agree as follows:
ARTICLE I
DEFINITIONS, ETC.
SECTION 1.01. CERTAIN DEFINED TERMS. Capitalized terms used in this
Agreement and not otherwise defined herein shall have the respective meanings
set forth in the Note Agreement and the Annex A attached thereto (such meanings
to be equally applicable to both singular and plural forms of the terms
defined).
SECTION 1.02. COVENANT CONSTRUCTION. Each covenant contained herein
shall be construed (absent express provision to the contrary) as being
independent of each other covenant contained herein, so that compliance with any
one covenant shall not (absent such an express contrary provision) be deemed to
excuse compliance with any other covenant. Where any provision herein refers to
action to be taken by any Person, or which such Person is prohibited from
taking, such provision shall be applicable whether such action is taken directly
or indirectly by such Person.
SECTION 1.03. OTHER RULES OF CONSTRUCTION. 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. All references herein to articles, sections, annexes, exhibits
and schedules shall, unless the context requires a different construction, be
deemed to be references to the articles and sections of this Agreement and the
annexes, exhibits
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and schedules attached hereto and made a part hereof. In this Agreement, unless
a clear contrary intention appears, the word "including" (and with correlative
meaning "include") means including, without limiting the generality of any
description preceding such term. The headings of the various articles and
sections of this Agreement are for convenience only and shall not affect the
meaning of the terms and conditions of this Agreement. No provision of this
Agreement shall be interpreted or construed against any party solely because
that party or its legal representative drafted such provision.
ARTICLE II
GUARANTY
SECTION 2.01. GUARANTY. Parent hereby unconditionally and
irrevocably guarantees the full and punctual payment when due, whether at stated
maturity or earlier by acceleration or otherwise, of any and all debts,
liabilities and obligations of the Company now or hereafter existing under the
Note Agreement, the Notes or any of the other Transaction Documents whether for
principal, interest (including, without limitation, all interest that accrues
after the commencement of any proceeding by or against the Company under any
bankruptcy, insolvency, liquidation, moratorium, receivership, reorganization or
other similar debtor relief law), fees, expenses or otherwise (such obligations
being the "OBLIGATIONS"), and agrees to pay any and all reasonable costs and
expenses (including counsel fees and legal expenses) incurred by the Noteholders
in connection with the protection, defense or enforcement of any rights under
this Agreement and any of the other Transaction Documents.
SECTION 2.02. GUARANTY ABSOLUTE. Parent unconditionally guarantees
that the Obligations will be paid strictly in accordance with the terms of the
Note Agreement, the Notes and the other Transaction Documents, regardless of any
law, regulation or order now or hereafter in effect in any jurisdiction
affecting any of such terms or the rights of the Noteholders with respect
thereto. The liability of Parent under this Agreement shall be absolute and
unconditional irrespective of: (a) any lack of validity or enforceability of the
Note Agreement, the Notes, the other Transaction Documents or any other
agreement or instrument relating thereto (unless such invalidity or
unenforceability results from a failure of consideration on the part of the
Noteholders); (b) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Obligations, or any other amendment or
waiver of or any consent to departure from the Note Agreement, the Notes or the
other Transaction Documents; (c) any taking, exchange, release or non-perfection
of any collateral, or any release or amendment or waiver of or consent to
departure from any other guaranty, for all or any of the Obligations; (d) any
manner of application of collateral, or proceeds thereof, to all or any of the
Obligations, or any manner of sale or other disposition of any collateral for
all or any of the Obligations or any other assets of the Company; (e) any
change, restructuring or termination of the corporate structure or existence of
the Company; or (f) any other circumstances which might otherwise constitute a
defense available to, or a discharge of, the Company or a guarantor (except full
and indefeasible payment of the Obligations, including, payment of the Tranche A
Notes, via exchange for Parent Common Stock in accordance with Article III
hereof).
The obligations of Parent under this Agreement shall not be subject
to reduction, termination or other impairment by reason of any setoff,
recoupment, counterclaim or defense or for
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any other reason (except full and indefeasible payment of the Obligations,
including, payment of the Tranche A Notes, via exchange for Parent Common Stock
in accordance with Article III hereof). This Agreement is to be in addition to
and is not to prejudice or be prejudiced by any other securities or guaranties
(including any guaranty signed by Parent) which the Noteholders may now or
hereafter hold from or on account of the Company and is to be binding on Parent
as a continuing security notwithstanding any payments from time to time made to
the Noteholders or any settlement of account or disability or incapacity
affecting Parent or any other thing whatsoever. This Agreement is a continuing
guaranty and shall remain in full force and effect until payment in full of the
Obligations and all other amounts payable under this Agreement.
SECTION 2.03. WAIVER. Parent hereby waives promptness, diligence,
notice of acceptance and any other notice with respect to any of the Obligations
and this Agreement and any liability to which this Agreement applies or may
apply, and waives presentment, demand of payment, notice of intent to
accelerate, notice of acceleration, notice of dishonor or nonpayment, and any
requirement that the Noteholders institute suit, collection proceedings or take
any other action to collect the Obligations including any requirement that the
Noteholders protect, secure, perfect or insure any security interest or lien or
any property subject thereto or exhaust any right or take any action against the
Company or any other person or entity or any collateral (it being the intention
of the Noteholders and Parent that this Agreement is to be a guaranty of payment
and not of collection) or that the Company or any other person be joined in any
action hereunder. Notwithstanding the provisions of SECTION 8.12, Parent hereby
expressly waives each and every right to which it may be entitled by virtue of
the suretyship laws of the State of Texas, including, without limitation, any
and all rights it may have pursuant to Rule 31 or Rule 32, Texas Rules of Civil
Procedure, Section 17.001 of the Texas Civil Practice and Remedies Code and
Chapter 34 of the Texas Business and Commerce Code. Parent hereby waives
marshalling of assets and liabilities, sale in inverse order of alienation,
notice by the Noteholders of any indebtedness or liability to which it applies
or may apply any amounts received by the Noteholders, and of the creation,
advancement, increase, existence, extension, renewal, rearrangement and/or
modification of the Obligations.
SECTION 2.04. WAIVER OF SUBROGATION; ETC. Parent will not exercise
any rights of subrogation under this Agreement, by any payment made hereunder or
otherwise, until such time as the Noteholders have received full payment of the
Obligations. If, notwithstanding the preceding sentence, any amount shall be
paid to Parent on account of subrogation rights at any time when all the
Obligations shall not have been paid in full, such amount shall be held in trust
for the benefit of the Noteholders and shall forthwith be paid to the
Noteholders to be credited and applied upon the Obligations in accordance with
the terms of the Note Agreement.
Parent hereby subordinates all indebtedness owing to it from the
Company to all indebtedness of the Company to the Noteholders, and agrees that
upon the occurrence and continuance of an Event of Default or any event which
with the giving of notice or lapse of time could become an Event of Default, it
shall not accept any payment on the same until payment in full of the
Obligations, and shall in no circumstance whatsoever attempt to set off or
reduce any Obligations hereunder because of such indebtedness. Parent further
subordinates any lien or security interest that it has or may have on any
collateral or security securing payment of the Obligations to the liens and
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security interest on said collateral and security in favor of the Noteholders,
but the foregoing shall in no event imply or be construed to imply the
Noteholders' agreement or consent to the existence of any such security
interests in favor of Parent.
SECTION 2.05. RIGHT OF SET-OFF. Upon the occurrence and during the
continuance of any Event of Default the Noteholders are hereby authorized at any
time and from time to time, to the fullest extent permitted by law, to set off
and apply any and all deposits (general or special, time or demand, provisional
or final) at any time held and other indebtedness at any time owing by the
Noteholders to or for the credit or the account of Parent against any and all of
the obligations of Parent now or hereafter existing under this Agreement,
irrespective of whether or not the Noteholders shall have made any demand under
this Agreement and although such obligations may be contingent and unmatured.
The Noteholders agree promptly to notify Parent after any such set-off and
application, PROVIDED that the failure to give such notice shall not affect the
validity of such set-off and application. The rights of the Noteholders under
this Section are in addition to other rights and remedies (including, without
limitation, other rights of set-off) which the Noteholders may have.
SECTION 2.06. TRANSACTION DOCUMENTS. Parent acknowledges that it has
had full and complete access to the Note Agreement, the Notes and the other
Transaction Documents, has fully reviewed same and is fully aware of their
contents.
SECTION 2.07. EFFECT OF BANKRUPTCY PROCEEDING, ETC. This Agreement
shall continue to be effective, or be automatically reinstated, as the case may
be, if at any time payment, in whole or in part, of any of the sums due any
Noteholders pursuant to the terms of the Note Agreement or hereunder is
rescinded or must otherwise be restored or returned by the Noteholders upon the
insolvency, bankruptcy, dissolution, liquidation or reorganization of the
Company or Parent, or upon or as a result of the appointment of a custodian,
receiver, trustee or other officer with similar powers with respect to the
Company or Parent or any substantial part of their property, or otherwise, all
as though such payments had not been made. If an Event of Default shall at any
time have occurred and be continuing and declaration of such Event of Default
shall at such time be prevented by reason of the pendency against the Company of
a case or proceeding under a bankruptcy or insolvency law, Parent agrees that,
for purposes of this Agreement and its obligations hereunder, the Note Agreement
shall be deemed to have been declared in default with the same effect as if the
Note Agreement had been declared in default in accordance with the terms
thereof, and Parent shall forthwith pay the amounts specified by the Noteholders
to be paid thereunder, any interest thereon and any other amounts guaranteed
hereunder without further notice or demand.
SECTION 2.08. NO WAIVER; REMEDIES. No failure on the part of the
Noteholders to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
SECTION 2.09. PLEDGE AGREEMENT. Parent's obligations under this
Agreement are secured by the Pledge Agreement.
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SECTION 2.10. FURTHER ASSURANCES. Parent hereby agrees to execute
and deliver all such instruments and take all such action as the Noteholders may
from time to time reasonably request in order to fully effectuate the purpose of
this Agreement.
ARTICLE III
EXCHANGE AGREEMENT
SECTION 3.01. EXCHANGE. (a) Each Tranche A Noteholder shall have the
right, at the option of such holder at any time up to and including the maturity
date of the Tranche A Notes, to exchange the outstanding principal amount of any
Tranche A Note (or any portion thereof), plus accrued and unpaid interest due
thereon to the effective date of the exchange, into fully paid and
non-assessable shares of common stock, par value $.01 per share, of Parent (the
"PARENT COMMON STOCK"), subject to possible adjustment as provided below. The
number of shares of Parent Common Stock issuable in exchange for a Tranche A
Note shall be equal to the quotient of the principal amount of such Tranche A
Note (or the portion thereof) submitted for exchange plus accrued and unpaid
interest due thereon to the effective date of the exchange, divided by the
"Exchange Price" (as defined below). As used herein, the term "EXCHANGE PRICE"
shall mean the price of $.80 per share, or, in case an adjustment of such price
has taken place pursuant to the provisions hereof, then at the price as last
adjusted.
(b) Subject to the provisions of SECTIONS 3.01(C), 3.01(D) and
3.01(E) hereof, if at any time after an aggregate amount of at least $2,800,000
has been advanced under the Tranche A Notes, the average closing price per share
of Parent Common Stock (as reported by the principal securities exchange or
trading market, as the case may be, on which the Parent Common Stock is then
traded) during a period of 20 consecutive trading days (such 20-day average
being referred to herein as the "AVERAGE PRICE") equals or exceeds $3.00 per
share (a "SPECIAL EXCHANGE EVENT"), the Company may, at its option exercisable
in its sole discretion at any time during the 30-day period following such
Special Exchange Event, exchange all (but not less than all) of the outstanding
principal amount of the Tranche A Notes, plus accrued and unpaid interest due
thereon to the effective date of such exchange, into fully paid and
non-assessable shares of Parent Common Stock at the Exchange Price then in
effect. Such exchange shall be deemed to have been effected immediately upon the
mailing of the notice referred to in SECTION 3.02(B) hereof, which notice to be
effective must be deposited in the mail on or prior to the close of business on
the thirtieth day following the Special Exchange Event, whereupon the person or
persons entitled to receive the Parent Common Stock deliverable upon such
exchange shall thereupon be treated for all purposes as the record holder or
holders of such Parent Common Stock, and the Tranche A Notes shall be deemed to
represent only the right to receive certificates representing the number of
shares of Parent Common Stock, plus cash in lieu of fractional shares in
accordance with SECTION 3.04, for which each such Tranche A Note has been so
exchanged. If the Company does not exchange the Tranche A Notes in accordance
with this SECTION 3.01(B) within the 30-day period following any Special
Exchange Event, then a new period of trading days shall begin for purposes of
determining whether the Company may exchange the Tranche A Notes pursuant to
this SECTION 3.01(B).
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(c) Notwithstanding the provisions of SECTION 3.01(B) hereof, during
any period of time in which the Parent Common Stock is not traded on a
securities exchange or other established trading market, no Special Exchange
Event shall be deemed to occur.
(d) Notwithstanding the provisions of SECTION 3.01(B), the Company
shall not exchange the Tranche A Notes for Parent Common Stock pursuant to
SECTION 3.01(B) unless the Replacement 12% Convertible Promissory Notes
evidencing the New Shareholder Debt are simultaneously converted pursuant to the
terms of such notes.
(e) Notwithstanding the provisions of SECTION 3.01(B), the Company
may not exercise its right to exchange all of the outstanding principal amount
of the Tranche A Notes for Parent Common Stock more than twice.
SECTION 3.02. EXCHANGE PROCEDURE. (a) If any Tranche A Noteholder
desires to exchange any Tranche A Note for Parent Common Stock pursuant to
SECTION 3.01(A) hereof, the holder of such Tranche A Note shall deliver an
irrevocable written notice to the Company that the holder elects so to exchange
such Tranche A Note in accordance with the terms of SECTION 3.01(A) hereof, and
specifying the name or names (with address) in which a certificate or
certificates for Parent Common Stock are to be issued.
(b) If the Company elects pursuant to SECTION 3.01(B) hereof to
exchange the outstanding principal amount of the Tranche A Notes for Parent
Common Stock, the Company shall, within 30 days after the Special Exchange Event
with respect to which such election is made, send notice (or cause notice to be
sent) by first class mail, postage prepaid, to each holder of record of the
Tranche A Notes at such holder's address as specified pursuant to the Tranche A
Note Agreement. Each such notice of exchange shall specify the date such
exchange was effected, the Exchange Price, the Exchange Rate (as defined in
SECTION 3.03), and that on and after such exchange date, interest will cease to
accrue on such outstanding principal amount of the Tranche A Notes being so
exchanged.
(c) The Company will, as soon as practicable after such written
notice specified in SECTION 3.02(A) or (B) hereof and compliance with any other
conditions herein contained, deliver or cause to be delivered, to the holder of
record of each Tranche A Note to be exchanged, certificates for the number of
full shares of Parent Common Stock to which such Person shall be entitled upon
exchange as aforesaid and a cash adjustment for any fraction of a share of
Parent Common Stock as provided in SECTION 3.04. In the case of an exchange of a
Tranche A Note pursuant to SECTION 3.01(A) hereof, such exchange shall be deemed
to have been made as of the date of the written notice delivered pursuant to
SECTION 3.02(A) hereof, and the Person entitled to receive the Parent Common
Stock deliverable upon exchange of such Tranche A Note shall be treated for all
purposes as the record holder of such Parent Common Stock on and after such date
of notice.
(d) Upon the exchange of all or a portion of the outstanding
principal amount of a Tranche A Note for common stock of Parent in accordance
with this Agreement, the amount of the
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outstanding principal of such Tranche A Note and the Tranche A Commitment of the
holder of such Tranche A Note shall each be automatically reduced by the
principal amount of such Tranche A Note so exchanged.
SECTION 3.03. ADJUSTMENTS. The Exchange Price and the number of
shares of Parent Common Stock and the number or amount of any other securities
and property as hereinafter provided into which a Tranche A Note is exchangeable
(the "EXCHANGE RATE") shall be subject to adjustment from time to time effective
upon each occurrence of any of the following events. As used in this Section
3.03 the term "SHARES" means, collectively, (i) the shares of Parent Common
Stock issuable upon exchange of the Tranche A Notes and (ii) any securities
exchangeable for or issuable with respect to, the shares included in clause (i)
of this definition. In case by reason of the operation of this SECTION 3.03 the
Tranche A Notes shall be exchangeable for any other shares of stock or other
securities or property of Parent or of any other corporation, any reference
herein to the exchange of the Tranche A Notes shall be deemed to refer to and
include the exchange of the Tranche A Notes for such other shares of stock or
other securities or property.
(a) If Parent shall declare or pay any dividend with respect to
Parent Common Stock payable in Parent Common Stock, subdivide the outstanding
shares of Parent Common Stock into a greater number of shares of Parent Common
Stock, or reduce the number of shares of Parent Common Stock outstanding (by
stock split, reverse stock split, reclassification or otherwise than by
repurchase of its Parent Common Stock) (any of such events being hereinafter
called a "STOCK SPLIT"), the Exchange Price and number of shares of Parent
Common Stock issuable upon exchange of any Tranche A Note shall be appropriately
adjusted so as to entitle the holder thereof to receive upon exchange of its
Tranche A Note, for the same aggregate consideration provided herein, the same
number of shares of Parent Common Stock (plus cash in lieu of fractional shares)
as the holder would have received as a result of such Stock Split had such
holder exchanged such Tranche A Note in full immediately prior to such Stock
Split.
(b) If Parent shall merge or consolidate with or into one or more
corporations or partnerships and Parent is the sole surviving corporation, or
Parent shall adopt a plan of recapitalization or reorganization in which shares
of Parent Common Stock are exchanged for or changed into another class of stock
or other security or property of Parent, the holder of a Tranche A Note, for the
same aggregate consideration provided herein, shall be entitled upon exchange of
such Tranche A Note to receive in lieu of the number of shares of Parent Common
Stock for which such Tranche A Note would otherwise be exchangeable, the number
of shares of Parent Common Stock or other securities (plus cash in lieu of
fractional shares) or property to which such holder would have been entitled
pursuant to the terms of the agreement or plan of merger, consolidation,
recapitalization or reorganization had such holder exchanged such Tranche A Note
in full immediately prior to such merger, consolidation, recapitalization or
reorganization.
(c) If Parent is merged or consolidated with or into one or more
corporations or partnerships under circumstances in which Parent is not the sole
surviving corporation, or if Parent sells or otherwise disposes of substantially
all its assets, and in connection with any such merger,
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consolidation or sale the holders of Parent Common Stock receive stock or other
securities convertible into equity of the surviving or acquiring corporations or
entities, or other securities or property, after the effective date of such
merger, consolidation or sale, as the case may be, the holder of a Tranche A
Note shall, for the same aggregate consideration provided herein, be entitled
upon exchange of the Tranche A Note to receive, in lieu of shares of Parent
Common Stock for which such Tranche A Note would otherwise be exchangeable,
shares of such stock or other securities (plus cash in lieu of fractional
shares) or property as the holder of such Tranche A Note would have received
pursuant to the terms of the merger, consolidation or sale had such holder
exchanged such Tranche A Note in full immediately prior to such merger,
consolidation or sale. In the event of any consolidation, merger or sale as
described in this SECTION 3.03(C), provision shall be made in connection
therewith for the surviving or acquiring corporations or partnerships to assume
all obligations and duties of Parent hereunder.
(d) If Parent shall declare or pay any dividend, or make any
distribution, with respect to its Parent Common Stock that is payable in
preferred stock or other securities, cash, assets or rights to subscribe for or
purchase any security of Parent other than Parent Common Stock, or that is
payable in debt securities of Parent convertible into Parent Common Stock,
preferred stock or other equity securities of Parent, the holder of a Tranche A
Note shall, for the same aggregate consideration provided herein, be entitled to
receive upon exchange of such Tranche A Note in lieu of the shares of Parent
Common Stock for which such Tranche A Note would otherwise be exchangeable, the
same amount of Parent Common Stock, preferred stock and other securities, cash,
assets or rights to subscribe for or purchase any security (plus cash in lieu of
fractional shares) as the holder would have received had the holder exchanged
such Tranche A Note in full immediately prior to any such dividend or
distribution being made.
(e) If Parent (other than in connection with a sale described in
SECTION 3.03(C)) proposes to liquidate and dissolve, Parent shall give notice
thereof as provided in SECTION 3.05(E) hereof and shall permit the holder of a
Tranche A Note to exchange any unexchanged portion thereof at any time, if such
holder should elect to do so, and participate as a stockholder of Parent in
connection with such dissolution.
(f) If the Exchange Price shall fall below the par value of the
Parent Common Stock, Parent agrees to use commercially reasonable efforts to
appropriately adjust the par value of the Parent Common Stock to an amount less
than or equal to the Exchange Price.
(g) In order to protect each holder of a Tranche A Note against the
dilution of its interest in Parent, if and whenever on or after the date hereof
Parent issues or sells any Parent Common Stock (except any Permitted Issuance or
any issuance pursuant to SECTION 3.03(A)) for a consideration per share which is
less than the then Exchange Price (a "SPECIAL ISSUANCE"), then forthwith upon
such issuance or sale the number of Shares (as defined in SECTION 3.03), as
determined immediately prior to such Special Issuance, will be increased to
equal the New Exchange Shares (as defined below), and the Exchange Price will be
equal to the New Exchange Price, each as determined pursuant to the following
formulas:
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NES = S x ((OS + SI) / (OS + X))
NEP = (OEP x S) / NES
where:
S = the Shares (as defined in SECTION 3.03), as determined immediately
prior to such Special Issuance
OS = the number of shares of Parent Common Stock outstanding
immediately prior to such Special Issuance on a fully diluted basis
without giving effect to such Special Issuance
NES = the number of Shares (as defined in SECTION 3.03) as determined
immediately following the aggregate adjustment made by reason of
this SECTION 3.03(G) ("NEW EXCHANGE SHARES")
SI = the number of shares of Parent Common Stock issued or sold (or
deemed issued or sold) in such Special Issuance
X = the number of shares of Parent Common Stock that the aggregate
cash consideration actually received by Parent for SI would purchase
at OEP
NEP = the "NEW EXCHANGE PRICE"
OEP = the Exchange Price in effect immediately prior to such Special
Issuance
"PERMITTED ISSUANCES" means any and all issuances of shares of Parent Common
Stock pursuant to (x) any stock option, stock purchase or other employee or
director benefit plan of Parent and (y) any warrant or other right to purchase
Parent Common Stock, in each case existing as of the date hereof and
specifically disclosed on SCHEDULE 3.03 attached hereto.
(h) Whenever the Exchange Rate or the Exchange Price is adjusted as
provided in any provision of this SECTION 3.03:
(i) the Company shall compute the adjusted Exchange Rate and
Exchange Price, as applicable, in accordance with this SECTION 3.03
and shall prepare a certificate signed by the Senior Financial
Officer of the Company setting forth the adjusted Exchange Rate and
Exchange Price, as applicable, and showing in reasonable detail the
facts upon which such adjustment is based, and such certificate
shall forthwith be filed with the Company or its designee; and
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(ii) a notice stating that the Exchange Rate and the Exchange Price,
as applicable, has been adjusted and setting forth the adjusted
Exchange Rate and the Exchange Price, as applicable, shall forthwith
be required, and as soon as practicable after it is prepared, such
notice shall be mailed by the Company to the holder of record of
each Tranche A Note at such holder's address specified pursuant to
the Tranche A Note Agreement.
(i) If at any time, as a result of any adjustment to the Exchange
Rate made pursuant to this SECTION 3.03, the holder of any Tranche A Note
thereafter surrendered for exchange shall become entitled to receive any shares
of Parent other than shares of Parent Common Stock or to receive any other
securities, the number of such other shares or securities so receivable upon
exchange of such Tranche A Note shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable to the provisions
contained in this SECTION 3.03 with respect to the Parent Common Stock.
(j) All of the events requiring adjustments pursuant to this SECTION
3.03 are subject to such prohibitions, limitations, restrictions and other
provisions as set forth in the Transaction Documents, as may be amended from
time to time.
SECTION 3.04. CASH IN LIEU OF FRACTIONAL SHARES. No fractional
shares or scrip representing fractional shares of Parent Common Stock shall be
issued upon the exchange of any Tranche A Note. Instead of any fractional share
of Parent Common Stock that would otherwise be issuable upon exchange of a
Tranche A Note, the Company will pay a cash adjustment in respect of such
fractional interest in an amount equal to the same fraction of the market price
per share of Parent Common Stock (as determined by the Board of Directors of the
Company or in any manner prescribed by the Board of Directors of the Company,
which shall be the last reported sale price of the Parent Common Stock on the
principal securities exchange or trading market on which the Parent Common Stock
is then traded) at the close of business on the business day prior to the day of
surrender of shares for exchange or, in the case of an exchange effected
pursuant to SECTION 3.01(B) hereof, the business day prior to the effective date
of such exchange.
SECTION 3.05. ADDITIONAL PARENT OBLIGATIONS. (a) Parent shall at all
times reserve and keep available, out of its authorized and unissued stock,
solely for the purpose of effecting the exchange of the Tranche A Notes, such
number of shares of Parent Common Stock free of preemptive rights as shall from
time to time be sufficient to effect the exchange of all Tranche A Notes from
time to time outstanding. Parent shall from time to time, in accordance with the
laws of the State of Nevada, increase the authorized number of shares of Parent
Common Stock if at any time the number of shares of Parent Common Stock
authorized but unissued shall not be sufficient to permit the exchange of all
the then outstanding Tranche A Notes into Parent Common Stock at the Exchange
Rate then in effect.
(b) If any shares of Parent Common Stock required to be reserved for
purposes of exchange of the Tranche A Notes require registration with or
approval of any governmental
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authority under any federal or state law before such shares may be issued upon
exchange, Parent will in good faith and as expeditiously as possible endeavor to
cause such shares to be duly registered or approved, as the case may be. If the
Parent Common Stock is then traded on any national securities exchange or
trading market, Parent will, if permitted by the rules of such exchange or
trading market, list and keep listed on such exchange or approved for trading on
such trading market, subject to official notice of issuance, all shares of
Parent Common Stock issuable upon exchange of the Tranche A Notes.
(c) The Company will pay any and all issue or other taxes that may
be payable in respect of any issue or delivery of shares of Parent Common Stock
on exchange of a Tranche A Note. The Company shall not, however, be required to
pay any tax that may be payable in respect of any transfer involved in the issue
or delivery of Parent Common Stock (or other securities or assets) in any name
or names other than that in which such Tranche A Note was registered, and no
such issue or delivery shall be made unless and until the Person requesting such
issue has paid to the Company or its designee the amount of such tax or has
represented, to the reasonable satisfaction of the Company, that such tax has
been paid.
(d) Before taking any action that would cause an adjustment
increasing the Exchange Rate, such that the effective Exchange Price would be
below the then par or stated value of the Parent Common Stock, the Company and
Parent will take such corporate action as may, in the opinion of counsel to the
Company and counsel to Parent, be necessary in order that Parent may validly and
legally issue fully paid and non-assessable shares of Parent Common Stock at the
Exchange Rate as so adjusted.
(e) In case Parent proposes, to the extent then permitted by the
Transaction Documents,
(i)to pay any stock dividend upon the Parent Common Stock or
make any distribution (other than ordinary cash dividends payable
out of earnings) or offer any subscription or other rights to the
holders of Parent Common Stock, or
(ii) to effect any capital reorganization or reclassification
of capital stock of Parent, or
(iii) to effect the consolidation, merger, sale of all or
substantially all of the assets, liquidation, dissolution or winding
up of Parent, or
(iv) to take any other action that would result in any
adjustment pursuant to SECTION 3.03 in the number of Shares or the
Exchange Price,
then the Company shall cause notice of any such intended action to be given to
each holder of the Tranche A Notes not less than 30 nor more than 60 days prior
to the date on which the transfer books of Parent shall close or a record be
taken for such dividend or distribution, or the date when such
::ODMA\PCDOCS\DOCS\88117\1
Exhibit 10.4 - Page 11
capital reorganization, reclassification, consolidation, merger, sale,
liquidation, dissolution or winding up shall be effected, or the date of such
other event, as the case may be.
SECTION 3.06. EXCHANGE RATE INCREASE. (a) The Company from time to
time may increase the Exchange Rate by any amount for any period of time if the
period is at least 20 days and if the increase is irrevocable during the period.
Whenever the Exchange Rate is so increased, the Company shall mail to holders of
record of the Tranche A Notes a notice of the increase at least 15 days before
the date the increased Exchange Rate takes effect, and such notice shall state
the increased Exchange Rate and the period it will be in effect.
(b)The Company may make such increases in the Exchange Rate, in
addition to those required or allowed by this Article III, as shall be
determined by it, as evidenced by a resolution of the Company's Board of
Directors, to be advisable in order to avoid or diminish any income tax to
holders of Parent Common Stock resulting from any dividend or distribution of
stock or issuance of rights or warrants to purchase or subscribe for stock or
from any event treated as such for income tax purposes.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Noteholders that:
SECTION 4.01. ORGANIZATION; POWER AND AUTHORITY. Parent is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Nevada, and is duly qualified as a foreign corporation and is in
good standing in each jurisdiction in which such qualification is required by
law, other than those jurisdictions as to which the failure to be so qualified
or in good standing would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on Parent. Parent has the corporate
power and authority to own or hold under lease the properties it purports to own
or hold under lease, to transact the business it transacts and proposes to
transact, to execute and deliver this Agreement and the other Transaction
Documents to which it is a party and to perform the provisions hereof and
thereof.
SECTION 4.02. AUTHORIZATION, ETC. This Agreement and the other
Transaction Documents to which it is a party have been duly authorized by all
necessary corporate action on the part of Parent, and this Agreement
constitutes, and upon execution and delivery thereof each other Transaction
Document to which it is a party will constitute, a legal, valid and binding
obligation of Parent enforceable against Parent in accordance with its terms,
except as such enforceability may be limited by (a) applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and (b) general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
SECTION 4.03. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC. The
execution, delivery and performance by Parent of this Agreement and the other
Transaction Documents to which it is a party will not (a) contravene, result in
any breach of, or constitute a default under, or result in
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Exhibit 10.4 - Page 12
the creation of any Lien in respect of any property of Parent or any of its
Subsidiaries under, any indenture, mortgage, deed of trust, loan, purchase or
credit agreement, lease, corporate charter or by-laws, or any other agreement or
instrument to which Parent or any of its Subsidiaries is bound or by which
Parent or any of its Subsidiaries or any of their respective properties may be
bound or affected (except for Liens created under the Transaction Documents) the
consequence of which would have a Material Adverse Effect on Parent or any of
its Subsidiaries, (b) conflict with or result in a breach of any of the terms,
conditions or provisions of any order, judgment, decree, or ruling of any court,
arbitrator or Governmental Authority in respect of a proceeding to which Parent
or any of its Subsidiaries is a party or (c) to the knowledge of Parent, violate
any provision of any statute or other rule or regulation of any Governmental
Authority applicable to Parent or any of its Subsidiaries.
SECTION 4.04. GOVERNMENTAL AUTHORIZATIONS, ETC. No consent, approval
or authorization of, or registration, filing or declaration with, any
Governmental Authority is required in connection with the execution, delivery or
performance by Parent of this Agreement or the other Transaction Documents to
which it is a party that has not been obtained.
SECTION 4.05. SUBSIDIARIES. SCHEDULE 4.05 contains complete and
correct lists of Parent's Subsidiaries, showing, as to each Subsidiary, the
correct name thereof, the jurisdiction of its organization, and the percentage
of shares of each class of its capital stock or similar equity interests
outstanding owned by Parent and each other Subsidiary. No Subsidiary is a party
to, or is otherwise subject to any legal restriction or any agreement (other
than the Note Agreement, this Agreement and customary limitations imposed by
corporate law statutes) restricting the ability of such Subsidiary to pay
dividends out of profits or make any other similar distributions of profits to
Parent or any of its Subsidiaries that owns outstanding shares of capital stock
or similar equity interests of such Subsidiary.
SECTION 4.06. FINANCIAL STATEMENTS. The consolidated balance sheet
of Parent and its Subsidiaries as at December 31, 1995, and the related
consolidated statements of income, retained earnings and cash flows for the
12-month period then ended, copies of which Parent has delivered to each
Noteholder, fairly present in all material respects the consolidated financial
position of Parent and its Subsidiaries as of such date and the consolidated
results of their operations and cash flows for such period and have been
prepared in accordance with GAAP consistently applied throughout the periods
involved except as set forth in the notes thereto (subject, in the case of any
interim financial statements, to normal year-end adjustments).
SECTION 4.07. DISCLOSURE. This Agreement, the documents,
certificates or other writings delivered to the Noteholders by or on behalf of
Parent in connection with the transactions contemplated hereby and the financial
statements referred to in SECTION 4.06, taken as a whole, do not contain any
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein not misleading. Since December 31, 1995, there
has been no change in the financial condition, operations, business, properties
or prospects of Parent or any of its Subsidiaries except changes that
individually or in the aggregate would not reasonably be expected to have a
Material Adverse Effect on Parent or any of its Subsidiaries. There is no fact
known to
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Exhibit 10.4 - Page 13
Parent that would reasonably be expected to have a Material Adverse Effect on
Parent or any of its Subsidiaries that has not been set forth herein or in the
other documents, certificates and other writings (including the financial
statements referred to in SECTION 4.06) delivered to the Noteholders by or on
behalf of Parent specifically for use in connection with the transactions
contemplated hereby.
SECTION 4.08. LITIGATION. Except as disclosed in SCHEDULE 4.08,
there are no actions, suits or proceedings pending of which Parent has received
notice, or, to the knowledge of Parent, threatened against or affecting Parent
or any of its Subsidiaries or any property of Parent or any of its Subsidiaries
in any court or before any arbitrator of any kind or before or by any
Governmental Authority that, individually or in the aggregate, would reasonably
be expected to have a Material Adverse Effect on Parent or any of its
Subsidiaries.
SECTION 4.09. OBSERVANCE OF AGREEMENTS, STATUTES AND ORDERS. Neither
Parent nor any Subsidiary is in default under any term of any agreement or
instrument to which it is a party or by which it is bound, or any order,
judgment, decree or ruling of any court, arbitrator or Governmental Authority
arising out of any proceeding to which it is a party or of which it has notice
or in violation of any applicable law, ordinance, rule or regulation (including
without limitation Environmental Laws) of any Governmental Authority, which
default or violation, individually or in the aggregate, would reasonably be
expected to have a Material Adverse Effect on Parent or any of its Subsidiaries.
SECTION 4.10. TAXES. Parent and its Subsidiaries have filed all tax
returns that are required to have been filed in any jurisdiction, and have paid
all taxes shown to be due and payable on such returns and all other taxes and
assessments levied upon them or their properties, assets, income or franchises,
to the extent such taxes and assessments have become due and payable and before
they have become delinquent, except for any taxes and assessments (i) the amount
of which is not individually or in the aggregate Material or (ii) the amount,
applicability or validity of which is currently being contested in good faith by
appropriate proceedings and with respect to which Parent or any of its
Subsidiaries, as the case may be, has established adequate reserves in
accordance with GAAP. Parent knows of no basis for any other tax or assessment
that, if imposed, would reasonably be expected to have a Material Adverse Effect
on Parent or any of its Subsidiaries. The charges, accruals and reserves on the
books of Parent and its Subsidiaries in respect of Federal, state or other taxes
for all fiscal periods are adequate in all respects. The Federal income tax
liabilities of Parent and its Subsidiaries have been determined by the Internal
Revenue Service and paid for all fiscal years up to and including the fiscal
year ended December 31, 1995.
SECTION 4.11. TITLE TO PROPERTY. Parent and its Subsidiaries have
good and sufficient title to their respective properties that individually or in
the aggregate are Material, including all such properties reflected in the most
recent audited balance sheet referred to in SECTION 4.06 or purported to have
been acquired by Parent or any Subsidiary after said date, in each case free and
clear of Liens other than Permitted Liens.
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Exhibit 10.4 - Page 14
SECTION 4.12. LICENSES, PERMITS, ETC. Parent and its Subsidiaries
own or possess all licenses, permits, franchises, authorizations, patents,
copyrights, service marks, trademarks and trade names, or rights thereto, that
individually or in the aggregate are Material, without known conflict with the
rights of others. To the best knowledge of Parent, (a) no product of Parent
infringes in any material respect any license, permit, franchise, authorization,
patent, copyright, service mark, trademark, trade name or other right owned by
any other Person; and (b) there is no Material violation by any Person of any
right of Parent or any of its Subsidiaries with respect to any patent,
copyright, service mark, trademark, trade name or other right owned or used by
Parent or any of its Subsidiaries.
SECTION 4.13. COMPLIANCE WITH ERISA.
(a)Parent and each ERISA Affiliate have operated and administered
each Plan in compliance with all applicable laws except for such instances of
noncompliance as have not resulted in and would not reasonably be expected to
result in a Material Adverse Effect on Parent. Neither Parent nor any ERISA
Affiliate has incurred any liability pursuant to Title I or IV of ERISA or the
penalty or excise tax provisions of the Code relating to employee benefit plans
(as defined in section 3 of ERISA), and no event, transaction or condition has
occurred or exists that could reasonably be expected to result in the incurrence
of any such liability by Parent or any ERISA Affiliate, or in the imposition of
any Lien on any of the rights, properties or assets of Parent or any ERISA
Affiliate, in either case pursuant to Title I or IV of ERISA or to such penalty
or excise tax provisions or to Section 401(a)(29) or 412 of the Code, other than
such liabilities or Liens as would not be individually or in the aggregate
Material.
(b)The present value of the aggregate benefit liabilities under each
of the Plans (other than Multiemployer Plans), determined as of the end of such
Plan's most recently ended plan year on the basis of the actuarial assumptions
specified for funding purposes in such Plan's most recent actuarial valuation
report, did not exceed the aggregate current value of the assets of such Plan
allocable to such benefit liabilities. The term "BENEFIT LIABILITIES" has the
meaning specified in section 4001 of ERISA and the terms "CURRENT VALUE" and
"PRESENT VALUE" have the meaning specified in section 3 of ERISA.
(c)Parent and its ERISA Affiliates have not incurred withdrawal
liabilities (and are not subject to contingent withdrawal liabilities) under
section 4201 or 4204 of ERISA in respect of Multiemployer Plans that
individually or in the aggregate are Material.
(d)The expected post-retirement benefit obligation (determined as of
the last day of Parent's most recently ended fiscal year in accordance with
Financial Accounting Standards Board Statement No. 106, without regard to
liabilities attributable to continuation coverage mandated by section 4980B or
the Code) of Parent and its Subsidiaries is not Material.
SECTION 4.14. STATUS UNDER CERTAIN STATUTES. Neither Parent nor any
of its Subsidiaries is subject to regulation under the Investment Company Act of
1940, as amended, the
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Exhibit 10.4 - Page 15
Public Utility Holding Company Act of 1935, as amended, the Interstate Commerce
Act, as amended, or the Federal Power Act, as amended.
SECTION 4.15. CAPITALIZATION. The authorized capital stock of Parent
consists solely of 50,000,000 shares of $.01 par common stock, of which
4,157,073 shares are issued and outstanding and 10,000,000 shares of $.01 par
Series A preferred stock, of which 23,000 shares are issued and outstanding.
SECTION 4.16. ENVIRONMENTAL MATTERS. Neither Parent nor any of its
Subsidiaries has knowledge of any claim or has received any notice of any claim,
and no proceeding has been instituted of which Parent has notice raising any
claim against Parent or any of its Subsidiaries or any of their respective real
properties now or formerly owned, leased or operated by any of them or other
assets, alleging any damage to the environment or violation of any Environmental
Laws, except, in each case, such as would not reasonably be expected to result
in a Material Adverse Effect on Parent or any of its Subsidiaries. Except as
otherwise disclosed to the Noteholders in writing, (a) neither Parent nor any of
its Subsidiaries has knowledge of any facts which would give rise to any claim,
public or private, of violation of Environmental Laws or damage to the
environment emanating from, occurring on or in any way related to real
properties now or formerly owned, leased or operated by any of them or to other
assets or their use, except, in each case, such as would not reasonably be
expected to result in a Material Adverse Effect on Parent or any of its
Subsidiaries; (b) neither Parent nor any of its Subsidiaries has stored any
Hazardous Materials on real properties now or formerly owned, leased or operated
by any of them and has not disposed of any Hazardous Materials in a manner
contrary to any Environmental Laws in each case in any manner that would
reasonably be expected to result in a Material Adverse Effect on Parent or any
of its Subsidiaries; and (c) all buildings on all real properties now owned,
leased or operated by Parent or any of its Subsidiaries are in compliance with
applicable Environmental Laws, except where failure to comply would not
reasonably be expected to result in a Material Adverse Effect on Parent or any
of its Subsidiaries.
ARTICLE V
INFORMATION AS TO PARENT
SECTION 5.01. FINANCIAL AND BUSINESS INFORMATION. Parent shall
deliver to each of the Noteholders:
(a)Within 45 days after the end of each quarterly fiscal period in
each fiscal year of Parent, copies of (i) a consolidated balance sheet of Parent
and its Subsidiaries as at the end of such quarter, and (ii) consolidated
statements of income, changes in shareholders' equity and cash flows of Parent
and its Subsidiaries, for such quarter and for the portion of the fiscal year
ending with such quarter, setting forth in each case in comparative form the
figures for the corresponding periods in the previous fiscal year, all in
reasonable detail, prepared in accordance with GAAP applicable to quarterly
financial statements generally, and certified by a Senior Financial Officer of
Parent as fairly presenting, in all material respects, the financial position of
the companies being reported on and their results of operations and cash flows,
subject to changes resulting from year-end adjustments.
::ODMA\PCDOCS\DOCS\88117\1
Exhibit 10.4 - Page 16
(b)Within 90 days after the end of each fiscal year of Parent,
copies of (i) a consolidated balance sheet of Parent and its Subsidiaries, as at
the end of such year, and (ii) consolidated statements of income, changes in
shareholders' equity and cash flows of Parent and its Subsidiaries, for such
year, setting forth in each case in comparative form the figures for the
previous fiscal year, all in reasonable detail, prepared in accordance with
GAAP, and accompanied by (A) an opinion thereon of independent certified public
accountants of recognized national standing, which opinion shall state that such
financial statements present fairly, in all material respects, the financial
position of the companies being reported upon and their results of operations
and cash flows and have been prepared in conformity with GAAP, and that the
examination of such accountants in connection with such financial statements has
been made in accordance with generally accepted auditing standards, and that
such audit provides a reasonable basis for such opinion in the circumstances,
and (B) a certificate of such accountants stating that they have reviewed this
Agreement and stating further whether, in making their audit, they have become
aware of any condition or event that then constitutes a Default or an Event of
Default, and, if they are aware that any such condition or event then exists,
specifying the nature and period of the existence thereof.
(c)Within 20 days after the end of each calendar month, copies of
(i) a consolidated balance sheet of Parent and its Subsidiaries as at the end of
such month, and (ii) consolidated statements of income, changes in shareholders'
equity and cash flows of Parent and its Subsidiaries, for such month and for the
portion of the fiscal year ending with such month, setting forth in each case in
comparative form the figures for the corresponding periods in the previous
fiscal year, all in reasonable detail, prepared in accordance with GAAP
applicable to monthly financial statements generally, and certified by a Senior
Financial Officer of Parent as fairly presenting, in all material respects, the
financial position of the companies being reported on and their results of
operations and cash flows, subject to changes resulting from year-end
adjustments.
(d)Promptly upon their becoming available, one copy of (i) each
financial statement, report, notice or proxy statement sent by Parent or any
Subsidiary to public securities holders generally, and (ii) each regular or
periodic report, each registration statement (without exhibits except as
expressly requested by such holder), and each prospectus and all amendments
thereto filed by Parent or any Subsidiary with the Securities and Exchange
Commission and of all press releases and other statements made available
generally by Parent or any Subsidiary to the public concerning developments that
are Material.
(e)Promptly, and in any event within five Business Days after a
Responsible Officer of Parent becoming aware of the existence of any Default or
Event of Default or that any Person has given any notice or taken any action
with respect to a claimed default hereunder or that any Person has given any
notice or taken any action with respect to a claimed default of the type
referred to in SECTION 11.01, a written notice specifying the nature and period
of existence thereof and what action the Company is taking or proposes to take
with respect thereto.
(f)Promptly, and in any event within five Business Days after a
Responsible Officer of Parent becoming aware of any of the following, a written
notice setting forth the nature thereof and the action, if any, that Parent or
an ERISA Affiliate proposes to take with respect thereto: (i)
::ODMA\PCDOCS\DOCS\88117\1
Exhibit 10.4 - Page 17
with respect to any Plan, any reportable event, as defined in section 4043(b) of
ERISA and the regulations thereunder, for which notice thereof has not been
waived pursuant to such regulations as in effect on the date hereof; or (ii) the
taking by the PBGC of steps to institute, or the threatening by the PBGC of the
institution of, proceedings under section 4042 of ERISA for the termination of,
or the appointment of a trustee to administer, any Plan, or the receipt by
Parent or any ERISA Affiliate of a notice from a Multiemployer Plan that such
action has been taken by the PBGC with respect to such Multiemployer Plan; or
(iii) any event, transaction or condition that could result in the incurrence of
any liability by Parent or any ERISA Affiliate pursuant to Title I or IV of
ERISA or the penalty or excise tax provisions of the Code relating to employee
benefit plans, or in the imposition of any Lien on any of the rights, properties
or assets of Parent or any ERISA Affiliate pursuant to Title I or IV of ERISA or
such penalty or excise tax provisions, if such liability or Lien, taken together
with any other such liabilities or Liens then existing, could reasonably be
expected to be Material as to Parent.
(g)Promptly, and in any event within five Business Days of receipt
thereof, copies of any notice to Parent or any Subsidiary from any Federal or
state Governmental Authority relating to any order, ruling, statute or other law
or regulation that could reasonably be expected to have a Material Adverse
Effect;
(h)Promptly, and in any event within five Business Days after a
Responsible Officer of Parent becoming aware thereof, any event which would
reasonably be expected to have a Material Adverse Effect on Parent or any of its
Subsidiaries.
(i)With reasonable promptness, such other data and information
relating to the business, operations, affairs, financial condition, assets or
properties of Parent or any of its Subsidiaries or relating to the ability of
Parent to perform its obligations hereunder and under the Notes as from time to
time may be reasonably requested by any of Noteholder.
SECTION 5.02. OFFICER'S CERTIFICATE. Each set of financial
statements delivered to a holder of Notes pursuant to SECTION 5.01(A), SECTION
5.01(B) or SECTION 5.01(C) shall be accompanied by a certificate of a Senior
Financial Officer of Parent setting forth: (a) the information (including
detailed calculations) required in order to establish whether Parent was in
compliance with the requirements of SECTION 7.03 hereof during the monthly,
quarterly or annual period covered by the statements then being furnished
(including with respect to each such Section, where applicable, the calculations
of the maximum or minimum amount, ratio or percentage, as the case may be,
permissible under the terms of such Sections, and the calculation of the amount,
ratio or percentage then in existence); and (b) a statement that such officer
has reviewed the relevant terms hereof and has made, or caused to be made, under
his or her supervision, a review of the transactions and conditions of Parent
and its Subsidiaries from the beginning of the monthly, quarterly or annual
period covered by the statements then being furnished to the date of the
certificate and that such review shall not have disclosed the existence during
such period of any condition or event that constitutes a Default or an Event of
Default or, if any such condition or event existed or exists (including, without
limitation, any such event or condition resulting from the failure of Parent or
any Subsidiary to
::ODMA\PCDOCS\DOCS\88117\1
Exhibit 10.4 - Page 18
comply with any Environmental Law), specifying the nature and period of
existence thereof and what action Parent shall have taken or proposes to take
with respect thereto.
SECTION 5.03. INSPECTION. Parent shall permit the representatives of
each Noteholder, at the expense of Parent, upon reasonable prior notice to
Parent and during normal business hours, to visit and inspect any of the offices
or properties of Parent or any Subsidiary, to examine all their respective books
of account, records, reports and other papers, to make copies and extracts
therefrom, and to discuss their respective affairs, finances and accounts with
their respective officers and independent public accountants (and by this
provision Parent authorizes said accountants to discuss the affairs, finances
and accounts of Parent and its Subsidiaries), all at such times and as often as
may be requested.
ARTICLE VI
AFFIRMATIVE COVENANTS
Parent covenants that so long as any of the Commitments remain in
effect or any of the Notes are outstanding:
SECTION 6.01. COMPLIANCE WITH LAW; CONTRACTS. Parent will, and will
cause each of its Subsidiaries to, comply with all laws, ordinances or
governmental rules or regulations to which each of them is subject, including,
without limitation, Environmental Laws, and will obtain and maintain in effect
all licenses, certificates, permits, franchises and other governmental
authorizations necessary to the ownership of their respective properties or to
the conduct of their respective businesses, in each case to the extent necessary
to ensure that non-compliance with such laws, ordinances or governmental rules
or regulations or failures to obtain or maintain in effect such licenses,
certificates, permits, franchises and other governmental authorizations would
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Parent or any of its Subsidiaries. Parent will, and will cause
each of its Subsidiaries to, comply with, and perform their respective
obligations under, each contract or agreement to which each is a party, unless,
in the good faith judgment of Parent, the failure to so comply or perform would
not reasonably be expected to have a Material Adverse Effect on Parent or any of
its Subsidiaries.
SECTION 6.02. MAINTENANCE OF PROPERTIES. Parent will, and will cause
each of its Subsidiaries to, maintain and keep, or cause to be maintained and
kept, their respective properties in good repair, working order and condition
(other than ordinary wear and tear), so that the business carried on in
connection therewith may be properly conducted at all times.
SECTION 6.03. PAYMENT OF TAXES AND CLAIMS. Parent will, and will
cause each of its Subsidiaries to, file all tax returns required to be filed in
any jurisdiction and to pay and discharge all taxes shown to be due and payable
on such returns and all other taxes, assessments, governmental charges, or
levies imposed on them or any of their properties, assets, income or franchises,
to the extent such taxes and assessments have become due and payable and before
they have become delinquent and all claims for which sums have become due and
payable that have or might become a Lien on properties or assets of Parent or
any of its Subsidiaries, provided that neither Parent nor
::ODMA\PCDOCS\DOCS\88117\1
Exhibit 10.4 - Page 19
any of its Subsidiaries need pay any such tax or assessment or claims if (i) the
amount, applicability or validity thereof is contested by Parent or such
Subsidiary on a timely basis in good faith and in appropriate proceedings, and
Parent or such Subsidiary has established adequate reserves therefor in
accordance with GAAP on the books of Parent or such Subsidiary or (ii) the
nonpayment of all such taxes and assessments in the aggregate would not
reasonably be expected to have a Material Adverse Effect on Parent or any of its
Subsidiaries.
SECTION 6.04. CORPORATE EXISTENCE, ETC. Parent will at all times
preserve and keep in full force and effect its corporate existence. Parent will
at all times preserve and keep in full force and effect the corporate existence
of each of its Subsidiaries and all rights and franchises of Parent and its
Subsidiaries unless, in the good faith judgment of Parent, the termination of or
failure to preserve and keep in full force and effect such corporate existence,
right or franchise would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on Parent or any of its Subsidiaries.
ARTICLE VII
NEGATIVE COVENANTS
Parent covenants that so long as any of the Commitments remain in
effect or any of the Notes are outstanding:
SECTION 7.01. RESTRICTIONS ON INDEBTEDNESS. Parent will not, and
will not permit any of its Subsidiaries to, create, incur, assume, Guaranty or
permit to exist any Indebtedness, except:
(a)the Notes;
(b)the Bridge Shareholder Debt; and
(c)the New Shareholder Debt.
SECTION 7.02. RESTRICTIONS ON LIENS. Parent will not, and will not
permit any of its Subsidiaries to, create, incur, assume, or permit to exist any
Lien with respect to any asset now owned or hereafter acquired, except Permitted
Liens.
SECTION 7.03. FINANCIAL COVENANTS. Parent will not permit its
Current Assets at any time, to be less than the sum of (a) its Current
Liabilities as at such date, MINUS (b) any portion of such Current Liabilities
consisting of amounts owing on the Notes.
SECTION 7.04. RESTRICTED DISBURSEMENTS. Parent will not, and will
not permit any of its Subsidiaries, directly or indirectly, make any Restricted
Disbursements except:
(a)Permitted Investments;
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(b)so long as no Default or Event of Default has occurred and is
continuing, Permitted Preferred Stock Dividends; and
(c)Restricted Disbursements by the Company that are permitted under
SECTION 10.04 of the Note Agreement.
SECTION 7.05. MERGER, CONSOLIDATION, ETC. Parent will not, and will
not permit any of its Subsidiaries to, consolidate with or merge with any other
Person or convey, transfer or lease all or substantially all of its assets in a
single transaction or series of transactions to any Person.
SECTION 7.06. RESTRICTIONS ON ASSET SALES. Parent will not, and will
not permit any of its Subsidiaries to, sell, transfer, assign, convey or
otherwise dispose of an interest in any asset now owned or hereafter acquired,
except for the sale of Hydrocarbon production in the ordinary course of business
by the Company.
SECTION 7.07. TRANSACTIONS WITH AFFILIATES. Parent will not, and
will not permit any of its Subsidiaries to, enter into directly or indirectly
any Material transaction or Material group of related transactions (including
without limitation the purchase, lease, sale or exchange of properties of any
kind or the rendering of any service) with any Affiliate (other than Parent or
another Subsidiary), except in the ordinary course and pursuant to the
reasonable requirements of Parent's or such Subsidiary's business and upon fair
and reasonable terms no less favorable to Parent or such Subsidiary than would
be obtainable in a comparable arm's-length transaction with a Person not an
Affiliate.
SECTION 7.08. CHANGE IN BUSINESS. Parent will not, and will not
permit any of its Subsidiaries to, directly or indirectly engage to a material
extent in any business other than those in which each such Person is presently
engaged or that are directly related thereto, or discontinue any of its existing
lines of business or substantially alter such Person's method of doing business.
SECTION 7.09. SHAREHOLDER DEBT. Parent will not amend the terms of
the Shareholder Debt Restructure Documents without the prior written consent of
the Noteholders. The Parent will not, and will not permit any Subsidiary to,
directly or indirectly, make any payment of principal or interest on the Bridge
Shareholder Debt or the New Shareholder Debt, except for Permitted Shareholder
Debt Payments made by Parent; provided, however, that Parent will not make any
such Permitted Shareholder Debt Payments, if a Default or Event of Default has
occurred and is continuing.
::ODMA\PCDOCS\DOCS\88117\1
Exhibit 10.4 - Page 21
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. TRANSACTION EXPENSES. Whether or not the transactions
contemplated hereby are consummated, Parent will pay all reasonable costs and
expenses (including reasonable attorneys' fees of a special counsel and any
local or other counsel) incurred by the Noteholders or holder of a Note in
connection with such transactions and in connection with any amendments, waivers
or consents under or in respect of this Agreement or the other Transaction
Documents (whether or not such amendment, waiver or consent becomes effective),
including, without limitation: (a) the reasonable costs and expenses incurred in
enforcing or defending (or determining whether or how to enforce or defend) any
rights under this Agreement or the other Transaction Documents or in responding
to any subpoena or other legal process or informal investigative demand issued
in connection with this Agreement or the other Transaction Documents, or by
reason of being a holder of any Note, (b) the reasonable costs and expenses of
negotiation, preparation and execution of this Agreement and the other
Transaction Documents, and (c) the reasonable costs and expenses, including
reasonable financial advisors' fees, incurred in connection with the insolvency
or bankruptcy of Parent or any Subsidiary or in connection with any proposed or
finalized work-out or restructuring of the transactions contemplated hereby and
by the Notes. Parent will pay, and will save the Noteholders and each other
holder of a Note harmless from, all claims in respect of any fees, costs or
expenses, if any, of brokers and finders (other than those retained by the
Noteholders). The obligations of Parent under this SECTION 8.01 will survive the
payment or transfer of any Note, the enforcement, amendment or waiver of any
provision of this Agreement or the other Transaction Documents, and the
termination of this Agreement.
SECTION 8.02. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained herein shall survive the execution and
delivery of this Agreement and the other Transaction Documents, the purchase or
transfer by the Noteholders of any Note or portion thereof or interest therein
and the payment of any Note, and may be relied upon by any subsequent holder of
a Note, regardless of any investigation made at any time by or on behalf of the
Noteholders or any other holder of a Note. All statements contained in any
certificate or other instrument delivered by or on behalf of Parent pursuant to
this Agreement shall be deemed representations and warranties of Parent under
this Agreement.
SECTION 8.03. AMENDMENT AND WAIVER. This Agreement may be amended,
and the observance of any term hereof may be waived (either retroactively or
prospectively), with (and only with) the written consent of the Required
Holders, except that no amendment or waiver may, without the written consent of
the holder of each Note at the time outstanding affected thereby, release Parent
from its obligations hereunder. Any amendment or waiver consented to as provided
in this SECTION 8.03 applies equally to all holders of Notes and is binding upon
them and upon each future holder of any Note and upon Parent and the Company
without regard to whether such Note has been marked to indicate such amendment
or waiver. No such amendment or waiver will extend to or affect any obligation,
covenant or agreement not expressly amended or waived or impair any right
consequent thereon. No course of dealing between Parent or the Company and the
holder of any
::ODMA\PCDOCS\DOCS\88117\1
Exhibit 10.4 - Page 22
Note nor any delay in exercising any rights hereunder or under any Note shall
operate as a waiver of any rights of any holder of such Note.
SECTION 8.04. NOTICES. All notices and communications provided for
hereunder shall be in writing and sent (a) by telecopy if the sender on the same
day sends a confirming copy of such notice by a recognized overnight delivery
service (charges prepaid), or (b) by registered or certified mail with return
receipt requested (postage prepaid), or (c) by a recognized overnight delivery
service (with charges prepaid). Any such notice must be sent: (i) if to a
Noteholder, to its address specified for such communications in Schedule A to
the Note Agreement, or at such other address as it shall have specified to
Parent in writing, (ii) if to Parent, to Parent at 1600 Smith Street, Suite
4000, Houston, Texas 77002, Telecopy No.: 713-652-9601, or at such other address
as Parent shall have specified to the holder of each Note in writing. Notices
under this SECTION 8.04 will be deemed given only when actually received.
SECTION 8.05. LIMITATION ON INTEREST. Each provision in this
Agreement and each other Transaction Document is expressly limited so that in no
event whatsoever shall the amount paid, or otherwise agreed to be paid, by
Parent for the use, forbearance or detention of the money to be loaned to the
Company under the Notes or any other Transaction Document or otherwise
(including any sums paid as required by any covenant or obligation contained
herein or in any other Transaction Document which is for the use, forbearance or
detention of such money), exceed that amount of money which would cause the
effective rate of interest thereon to exceed the Highest Lawful Rate, and all
amounts owed under this Agreement and each other Transaction Document shall be
held to be subject to reduction to the effect that such amounts so paid or
agreed to be paid which are for the use, forbearance or detention of money under
this Agreement or such Transaction Document shall in no event exceed that amount
of money which would cause the effective rate of interest thereon to exceed the
Highest Lawful Rate.
SECTION 8.06. SUCCESSORS AND ASSIGNS. All covenants and other
agreements contained in this Agreement by or on behalf of any of the parties
hereto bind and inure to the benefit of their respective successors and assigns
(including, without limitation, any subsequent holder of a Note) whether so
expressed or not.
SECTION 8.07. SEVERABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall (to the full extent permitted by law)
not invalidate or render unenforceable such provision in any other jurisdiction.
SECTION 8.08. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies hereof, each signed by less than all, but together signed by
all, of the parties hereto.
::ODMA\PCDOCS\DOCS\88117\1
Exhibit 10.4 - Page 23
SECTION 8.09. FINAL AGREEMENT OF THE PARTIES. THIS AGREEMENT AND THE
OTHER TRANSACTION DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
SECTION 8.10. JURY WAIVER. PARENT, THE COMPANY AND THE NOTEHOLDERS
HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
SECTION 8.11. CHOICE OF FORUM. PARENT, THE COMPANY AND THE
NOTEHOLDERS AGREE THAT ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY SHALL BE BROUGHT IN THE
FEDERAL OR STATE COURTS OF HARRIS COUNTY, TEXAS, OTHER THAN LEGAL PROCEEDINGS
INSTITUTED BY THE NOTEHOLDERS WITH RESPECT TO THEIR RIGHTS AND REMEDIES UNDER
THE SECURITY DOCUMENTS, WHICH PROCEEDINGS MAY BE BROUGHT IN THE FEDERAL OR STATE
COURTS OF HARRIS COUNTY, TEXAS OR THE COURTS OF ANY OTHER JURISDICTION DEEMED
APPROPRIATE BY THE NOTEHOLDERS TO ENFORCE THEIR RIGHTS AND REMEDIES UNDER THE
SECURITY DOCUMENTS.
SECTION 8.12. GOVERNING LAW. This Agreement shall be construed and
enforced in accordance with, and the rights of the parties shall be governed by,
the law of the State of New York excluding choice-of-law principles of the law
of such State that would require the application of the laws of a jurisdiction
other than such State.
IN WITNESS WHEREOF, Parent, the Company and the Noteholders have
caused this Agreement to be executed by their respective representatives
thereunto duly authorized effective as of the date first above written.
TEXOIL, INC.
By: /S/ RUBEN MEDRANO
Name: Ruben Medrano
Title:President
::ODMA\PCDOCS\DOCS\88117\1
Exhibit 10.4 - Page 24
TEXOIL COMPANY
By: /S/ RUBEN MEDRANO
Name: Ruben Medrano
Title:President
RIMCO PARTNERS, L.P.
RIMCO PARTNERS, L.P. II,
RIMCO PARTNERS, L.P. III, AND
RIMCO PARTNERS, L.P. IV
By: RESOURCE INVESTORS MANAGEMENT COMPANY
LIMITED PARTNERSHIP, their general partner
By: RIMCO ASSOCIATES, INC.,
its general partner
By: /S/ GARY MILAVEC
Name: Gary Milavec
Title:Vice President
::ODMA\PCDOCS\DOCS\88117\1
Exhibit 10.4 - Page 25
SCHEDULE 3.03
CAPITALIZATION SCHEDULE
AS OF JULY 31, 1996
Common
Shares PROCEEDS
Expiration After TO
NUMBER CLASS DATE CONVERSION TEXOIL
4,058,6481 Common 4,058,648 -0-
98,4232 Employee Salary Compensation-- 98,423 -0-
'95 Plan
29,4633 Employee Salary Compensation-- 29,463 -0-
'96 Plan
23,000 Class "A" Preferred 766,667 -0-
750,000 Class "A" Warrants ($3.50) 05-26-99 750,000 $2,625,000
750,000 Class "B" Warrants ($4.50) 05-26-99 750,000 3,375,000
300,000 Underwriter Warrants ($3.88) 05-26-99 300,000 1,162,500
281,384 Options to J. Graves ($.45) 12-31-99 281,384 126,623
281,384 Options to J. Richardson ($.45) 12-31-99 281,384 126,623
20,000 Employee Options ($3.00) RM 20,000 60,000
5,000 Option to Marc Countiss ($3.50) 09-15-00 5,000 17,500
1,100,000 Convertible May 96 Notes ($.80) 1,375,000 -0-
1,100,000 Convertible May 96 Note 5 years 1,100,000 1,441,000
Warrants ($1.31) - to be
eliminated at Closing.
50,000 Option to Bill Seagle ($1.56) 50,000 78,000
30,000 Option to Ruben Medrano ($1.31) 30,000 39,300
20,000 Option to J. D. Hughes ($1.25) - 20,000 25,000
to be issued upon Closing.
TOTAL FULLY DILUTED 9,915,969 $9,076,546
========= ==========
- --------
1. Number accurate as of March 31, 1995 (see first quarter 1995 10-QSB)
2. Includes shares issued from April 1995 through February 1996
3. Includes shares to be issued from March 1996 through July 1996
::ODMA\PCDOCS\DOCS\88117\1
Exhibit 10.4 - Page 26
SCHEDULE 4.05
SUBSIDIARIES
NAME JURISDICTION OF INCORPORATION
Texoil Company Tennessee
Texoil de Argentina, S.A. Nevada
::ODMA\PCDOCS\DOCS\88117\1
Exhibit 10.4 - Page 27
SCHEDULE 4.08
LITIGATION
None
::ODMA\PCDOCS\DOCS\88117\1
Exhibit 10.4 - Page 28