EXHIBIT 10.3
AMENDED AND RESTATED GUARANTY AND EXCHANGE AGREEMENT
AMENDED AND RESTATED GUARANTY AND EXCHANGE AGREEMENT dated as of May
21, 1997 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 STATEMENTS
The Parent, the Company and the Noteholders have entered into that
certain Note Purchase Agreement, dated as of September 6, 1996 (the "ORIGINAL
NOTE AGREEMENT").
In connection with the Original Note Agreement, the Parent and the
Noteholders entered into that certain Guaranty and Exchange Agreement dated as
of September 6, 1996 (the "ORIGINAL GUARANTY AGREEMENT").
On even date herewith, the Parent, the Company and the Noteholders
have amended and restated the Original Note Agreement by entering into that
certain Amended and Restated Note Purchase Agreement (the "NOTE AGREEMENT")
whereby the Noteholders have committed to make Tranche C Advances (as defined in
the Amended Note Agreement) of up to $1,500,000.00.
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 to amend and restate the Original Guaranty
Agreement in its entirety 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).
Exhibit 10.3 - Page 1
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 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
Exhibit 10.3 - Page 2
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 and the Tranche C
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 any other reason (except full and
indefeasible payment of the Obligations, including, payment of the Tranche A
Notes and the Tranche C 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 and the
termination of the Commitments.
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
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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 and the Commitments have terminated. 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
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 SETOFF. 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 setoff and
application, PROVIDED that the failure to give such notice shall not affect the
validity of such setoff and application. The rights of the Noteholders under
this Section are in addition to other rights and remedies (including, without
limitation, other rights of setoff) 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
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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.
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 OF TRANCHE A NOTES. (a) Each Tranche A
Noteholder shall have the right, at the option of such holder at any time from
the date of issuance 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 "Tranche A Exchange Price" (as
defined below). As used herein, the term "TRANCHE A 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
Exhibit 10.3 - Page 5
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 "TRANCHE 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 Tranche A 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 Tranche A 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 3.03(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 Tranche A 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 3.05, 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 Tranche A
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).
(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 Tranche A 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 more than twice to exchange outstanding principal
amounts of the Tranche A Notes for Parent Common Stock.
SECTION 3.02. EXCHANGE OF TRANCHE C NOTES. (a) Each Tranche C
Noteholder shall have the right, at the option of such holder at any time from
the date of issuance up to and including the maturity date of the Tranche C
Notes, to exchange the outstanding principal amount of any Tranche C 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 the
Parent Comment Stock, subject to possible adjustment as provided below. The
number of shares of Parent Common Stock issuable in exchange for a Tranche C
Note shall be equal to the quotient of the principal amount of such Tranche C
Note (or the portion thereof) submitted for exchange plus accrued and
Exhibit 10.3 - Page 6
unpaid interest due thereon to the effective date of the exchange, divided by
the "Tranche C Exchange Price" (as defined below). As used herein, the term
"TRANCHE C EXCHANGE PRICE" shall mean the price of $1.50 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 3.02(C), 3.02(D) and
3.02(E) hereof, if at any time after an aggregate amount of at least $1,350,000
has been advanced under the Tranche C Notes the Average Price equals or exceeds
$3.00 per share (a "Tranche C Special Exchange Event"), the Company may, at its
option exercisable in its sole discretion at any time during the 30-day period
following such Tranche C Special Exchange Event, exchange all (but not less than
all) of the outstanding principal amount of the Tranche C 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 Tranche C
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
3.03(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 Tranche C
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 C 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 3.05, for which each
such Tranche C Note has been so exchanged. If the Company does not exchange the
Tranche C Notes in accordance with this SECTION 3.02(B) within the 30-day period
following any Tranche C Special Exchange Event, then a new period of trading
days shall begin for purposes of determining whether the Company may exchange
the Tranche C Notes pursuant to this SECTION 3.02(B).
(c) Notwithstanding the provisions of SECTION 3.02(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 Tranche C Special
Exchange Event shall be deemed to occur.
(d) Notwithstanding the provisions of SECTION 3.02(B), the Company
shall not exchange the Tranche C Notes for Parent Common Stock pursuant to
SECTION 3.02(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 3.02(B), the Company
may not exercise its right more than twice to exchange outstanding principal
amounts of the Tranche C Notes for Parent Common Stock.
SECTION 3.03. EXCHANGE PROCEDURE. (a) If any Tranche A Noteholder or
Tranche C Noteholder desires to exchange any Tranche A Note or Tranche C Note
for Parent Common Stock pursuant to SECTION 3.01(A) or SECTION 3.02(A) hereof,
the holder of such Tranche A Note or Tranche C Note shall deliver an irrevocable
written notice to the Company that the holder elects so to
Exhibit 10.3 - Page 7
exchange such Tranche A Note or Tranche C Note in accordance with the terms of
SECTION 3.01(A) or SECTION 3.02(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) or Section
3.02(B) hereof to exchange the outstanding principal amount of the Tranche A
Notes or Tranche C Notes for Parent Common Stock, the Company shall, within 30
days after the Tranche A Special Exchange Event or Tranche C 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 or the Tranche C Notes, as applicable, at such holder's
address as specified pursuant to the Note Agreement. Each such notice of
exchange shall specify the date such exchange was effected, the Tranche A
Exchange Price or Tranche C Exchange Price, the Exchange Rate (as defined in
SECTION 3.04), and that on and after such exchange date, interest will cease to
accrue on such outstanding principal amount of the Tranche A Notes and Tranche C
Notes being so exchanged.
(c) The Company will, as soon as practicable after such written
notice specified in SECTION 3.03(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 and Tranche C 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 3.05. In the case of an
exchange of a Tranche A Note or a Tranche C Note pursuant to SECTION 3.01(A) or
SECTION 3.02(A) hereof, such exchange shall be deemed to have been made as of
the date of the written notice delivered pursuant to SECTION 3.01(A) or SECTION
3.02(A) hereof, and the Person entitled to receive the Parent Common Stock
deliverable upon exchange of such Tranche A Note or Tranche C 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 or a Tranche C Note for Parent Common Stock
in accordance with this Agreement, the amount of the outstanding principal of
such Tranche A Note and the Tranche A Commitment of the holder of such Tranche A
Note and the amount of the outstanding principal of such Tranche C Note and the
Tranche C Commitment of the holder of such Tranche C Note, as applicable, shall
each be automatically reduced by the principal amount of such Tranche A Note or
Tranche C Note so exchanged.
SECTION 3.04. ADJUSTMENTS. The Tranche A Exchange Price and the
Tranche C 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 or a Tranche C 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 3.04, the
term "SHARES" means, collectively, (i) the shares of Parent Common Stock
issuable upon exchange of the Tranche A Notes and the Tranche C Notes,
respectively, 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
Exhibit 10.3 - Page 8
operation of this SECTION 3.04 the Tranche A Notes or the Tranche C 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 or Tranche C Notes shall be deemed to refer to and include the
exchange of the Tranche A Notes or Tranche C 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 or Tranche C Note
shall be appropriately adjusted so as to entitle the holder thereof to receive
upon exchange of its Tranche A Note or Tranche C 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 or
Tranche C 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 or a
Tranche C Note, for the same aggregate consideration provided herein, shall be
entitled upon exchange of such Tranche A Note or Tranche C Note to receive in
lieu of the number of shares of Parent Common Stock for which such Tranche A
Note or Tranche C 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 or Tranche C 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, 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 or Tranche C Note
shall, for the same aggregate consideration provided herein, be entitled upon
exchange of such Tranche A Note or Tranche C Note to receive, in lieu of shares
of Parent Common Stock for which such Tranche A Note or Tranche C 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
or Tranche C Note would have received pursuant to the terms of the merger,
consolidation or sale had such holder exchanged such Tranche A Note or
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Tranche C 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
3.04(C), provision shall be made in connection therewith for the surviving or
acquiring corporations, partnerships or other entities 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 the 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 or Tranche C Note shall, for the same aggregate consideration provided
herein, be entitled to receive upon exchange of such Tranche A Note or Tranche C
Note in lieu of the shares of Parent Common Stock for which such Tranche A Note
or Tranche C 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
or Tranche C 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 3.04(C)) proposes to liquidate and dissolve, Parent shall give notice
thereof as provided in SECTION 3.06(E) hereof and shall permit the holder of a
Tranche A Note or a Tranche C Note to exchange any unexchanged portion thereof
at any time, if such holder should elect to do so, and to participate as a
stockholder of Parent in connection with such dissolution.
(f) If the Tranche A Exchange Price or the Tranche C 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 Tranche A Exchange
Price and the Tranche C Exchange Price.
(g) In order to protect each holder of a Tranche A Note or a Tranche
C 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 3.04(A)) for a
consideration per share which is less than the then Tranche A Exchange Price or
the then Tranche C Exchange Price (a "SPECIAL ISSUANCE"), then forthwith upon
such issuance or sale the number of Shares (as defined in SECTION 3.04), as
determined immediately prior to such Special Issuance, will be increased to
equal the New Exchange Shares (as defined below), and the Tranche A Exchange
Price and the Tranche C Exchange Price, respectively, will be equal to the New
Exchange Price, in each case as determined pursuant to the following formulas:
NES = S x ((OS + SI) / (OS + X))
NEP = (OEP x S) / NES
Exhibit 10.3 - Page 10
where:
S = the Shares (as defined in SECTION 3.04), 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 3.04) as
determined immediately following the aggregate
adjustment made by reason of this SECTION 3.04(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 Tranche A Exchange Price with respect to Tranche A
Noteholders and the Tranche C Exchange Price with
respect to Tranche C Noteholders, respectively, as 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 3.04 attached hereto.
(h) Whenever the Exchange Rate or the Tranche A Exchange Price or
Tranche C Exchange Price is adjusted as provided in any provision of this
SECTION 3.04:
(i) the Company shall compute the adjusted Exchange Rate and Tranche
A Exchange Price or Tranche C Exchange Price, as applicable, in
accordance with this SECTION 3.04 and shall prepare a certificate
signed by the Senior Financial Officer of the Company setting forth
the adjusted Exchange Rate and Tranche A Exchange Price or Tranche C
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
(ii) a notice stating that the Exchange Rate and the Tranche A
Exchange Price or Tranche C Exchange Price, as applicable, has been
adjusted and setting forth the
Exhibit 10.3 - Page 11
adjusted Exchange Rate and the Tranche A Exchange Price or Tranche C
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
and Tranche C Note at such holder's address specified pursuant to
the Note Agreement.
(i) If at any time, as a result of any adjustment to the Exchange
Rate made pursuant to this SECTION 3.04, the holder of any Tranche A Note or
Tranche C 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 or Tranche C 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 3.04 with
respect to the Parent Common Stock.
(j) All of the events requiring adjustments pursuant to this SECTION
3.04 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 3.05. 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 or Tranche C Note. Instead of any
fractional share of Parent Common Stock that would otherwise be issuable upon
exchange of a Tranche A Note or a Tranche C 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) or SECTION 3.02(B)
hereof, the business day prior to the effective date of such exchange.
SECTION 3.06. 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 and the
Tranche C 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 and Tranche C 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 and Tranche C
Notes into Parent Common Stock at the Exchange Rate then in effect.
Exhibit 10.3 - Page 12
(b) If any shares of Parent Common Stock required to be reserved for
purposes of exchange of the Tranche A Notes and Tranche C Notes require
registration with or approval of any governmental 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 and the Tranche C 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 and Tranche C 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 or Tranche C 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 Tranche A Exchange Price
or the Tranche C 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 3.04 in the number of Shares or the Tranche A
Exchange Price or the Tranche C Exchange Price,
Exhibit 10.3 - Page 13
then the Company shall cause notice of any such intended action to be given to
each holder of the Tranche A Notes and Tranche C 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
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 3.07. 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 and Tranche C 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).
Exhibit 10.3 - Page 14
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 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, 1996, 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
Exhibit 10.3 - Page 15
make the statements therein not misleading. Since December 31, 1996, 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 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, 1996.
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,
Exhibit 10.3 - Page 16
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.
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
Exhibit 10.3 - Page 17
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 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
4,199,921 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
Exhibit 10.3 - Page 18
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.
(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.
Exhibit 10.3 - Page 19
(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) 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
Exhibit 10.3 - Page 20
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 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.
Exhibit 10.3 - Page 21
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 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.
Exhibit 10.3 - Page 22
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;
(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.
Exhibit 10.3 - Page 23
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.
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.
Exhibit 10.3 - Page 24
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 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.
Exhibit 10.3 - Page 25
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.
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.
Exhibit 10.3 - Page 26
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: ______________________
Ruben Medrano
President
TEXOIL COMPANY
By: ______________________
Ruben Medrano
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: ______________________
Gary Milavec
Vice President
Exhibit 10.3 - Page 27
SCHEDULE 3.04
AS OF MARCH 1, 1997
COMMON
SHARES PROCEEDS
EXPIRATION AFTER TO
NUMBER CLASS DATE CONVERSION TEXOIL
- ------ ----- ---- ---------- ------
4,058,648 Common ........................ 4,058,648 -0-
98,423 Employee Salary Compensation-- 98,423 -0-
'95 Plan
42,850 Employee Salary Compensation-- 42,850 -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
50,000 Option to Bill Seagle ($1.56) . 06-__-06 50,000 78,000
30,000 Option to Ruben Medrano ($1.31) 05-02-06 30,000 39,300
20,000 Option to J. D. Hughes ($1.25) 09-19-01 20,000 25,000
900,000 Convertible September 96 Notes 10-01-02 1,125,000 -0-
($.80)
3,000,000 Exchangeable RIMCO Tranche A .. 3,750,000 -0-
Notes ($.80)
TOTAL FULLY DILUTED 12,329,359 7,635,546
========== ==========
Exhibit 10.3 - Page 28
SCHEDULE 4.05
SUBSIDIARIES
NAME JURISDICTION OF INCORPORATION
---- -----------------------------
Texoil Company Tennessee
Texoil de Argentina, S.A. Nevada
Exhibit 10.3 - Page 29
SCHEDULE 4.08
LITIGATION
None
Exhibit 10.3 - Page 30