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EXHIBIT 4.1
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PETROGLYPH ENERGY, INC.
$5,000,000
8% Senior Subordinated Notes due August 19, 2004
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NOTE PURCHASE AGREEMENT
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Dated August 20, 1999
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TABLE OF CONTENTS
Section Page
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1. AUTHORIZATION OF NOTES...................................................................................1
2. SALE AND PURCHASE OF NOTES...............................................................................1
3. CLOSING..................................................................................................1
4. CONDITIONS TO CLOSING....................................................................................2
4.1. Certain Documents as of the Date Hereof.........................................................2
4.2. Representations and Warranties..................................................................2
4.3. Performance; No Default.........................................................................2
4.4. Purchase Permitted By Applicable Law, etc.......................................................3
4.5. Changes in Corporate Structure..................................................................3
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................................3
5.1. Organization; Power and Authority...............................................................3
5.2. Authorization, etc..............................................................................3
5.3. Organization and Ownership of Shares of Subsidiaries; Affiliates................................3
5.4. Financial Statements............................................................................4
5.5. Compliance with Laws, Other Instruments, etc....................................................4
5.6. Governmental Authorizations, etc................................................................5
5.7. Litigation; Observance of Agreements, Statutes and Orders.......................................5
5.8. Taxes...........................................................................................5
5.9. Title to Property; Leases.......................................................................5
5.10. Compliance with ERISA...........................................................................6
5.11. Private Offering by the Company.................................................................6
5.12. Use of Proceeds; Margin Regulations.............................................................7
5.13. Existing Indebtedness...........................................................................7
5.14. Foreign Assets Control Regulations, etc.........................................................7
5.15. Status under Certain Statutes...................................................................7
5.16. Environmental Matters...........................................................................7
6. REPRESENTATIONS OF THE PURCHASER.........................................................................8
6.1. Purchase for Investment.........................................................................8
6.2. Source of Funds.................................................................................8
7. INFORMATION AS TO COMPANY................................................................................8
7.1. Financial and Business Information..............................................................8
7.2. Inspection.....................................................................................11
8. PREPAYMENT OF THE NOTES.................................................................................11
8.1. Optional Prepayments...........................................................................11
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8.2. Allocation of Partial Prepayments..............................................................11
8.3. Maturity; Surrender, etc.......................................................................12
8.4. Mandatory Prepayment...........................................................................12
9. AFFIRMATIVE COVENANTS...................................................................................12
9.1. Compliance with Law............................................................................12
9.2. Insurance......................................................................................12
9.3. Maintenance of Properties......................................................................13
9.4. Payment of Taxes and Claims....................................................................13
9.5. Corporate Existence, etc.......................................................................13
9.6. Additional Warrants............................................................................13
10. NEGATIVE COVENANTS......................................................................................14
10.1. Transactions with Affiliates...................................................................14
10.2. Merger, Consolidation, etc.....................................................................14
10.3. Liens..........................................................................................14
10.4. Indebtedness...................................................................................15
10.5. Sale of Assets.................................................................................15
11. EVENTS OF DEFAULT.......................................................................................15
12. REMEDIES ON DEFAULT, ETC................................................................................17
12.1. Acceleration...................................................................................17
12.2. Other Remedies.................................................................................17
12.3. No Waivers or Election of Remedies, Expenses, etc..............................................17
13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES...........................................................18
13.1. Registration of Notes..........................................................................18
13.2. Transfer and Exchange of Notes.................................................................18
13.3. Replacement of Notes...........................................................................18
14. PAYMENTS ON NOTES.......................................................................................19
14.1. Place of Payment...............................................................................19
14.2. Home Office Payment............................................................................19
15. EXPENSES, ETC...........................................................................................19
15.1. Expenses.......................................................................................19
15.2. Survival.......................................................................................20
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT............................................20
17. AMENDMENT AND WAIVER....................................................................................20
17.1. Requirements...................................................................................20
17.2. Solicitation of Holders of Notes...............................................................20
17.3. Binding Effect, etc............................................................................21
18. NOTICES.................................................................................................21
19. REPRODUCTION OF DOCUMENTS...............................................................................22
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20. CONFIDENTIAL INFORMATION................................................................................22
21. SUBORDINATION...........................................................................................23
22. MISCELLANEOUS...........................................................................................23
22.1. Successors and Assigns.........................................................................23
22.2. Payments Due on Non-Business Days..............................................................23
22.3. Severability...................................................................................23
22.4. Construction...................................................................................23
22.5. Counterparts...................................................................................24
22.6. Governing Law..................................................................................24
22.7. Consent to Jurisdiction/Venue..................................................................24
SCHEDULE A -- DEFINED TERMS
SCHEDULE B -- CALCULATION OF ADDITIONAL WARRANTS
SCHEDULE 5.3 -- Subsidiaries of the Company and
Ownership of Subsidiary Stock
SCHEDULE 5.4 -- Financial Statements
SCHEDULE 5.7 -- Certain Litigation
SCHEDULE 5.12 -- Use of Proceeds
SCHEDULE 5.13 -- Existing Indebtedness and Liens
EXHIBIT 1 -- Form of 8% Senior Subordinated Note due August 19, 2004
EXHIBIT 2 -- Form of Warrant Agreement
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PETROGLYPH ENERGY, INC.
1302 North Grand
Hutchinson, Kansas 67501
8% Senior Subordinated Notes due August 19, 2004
August 20, 1999
III Exploration Company
555 South Cole Road
Boise, Idaho 83707
Ladies and Gentlemen:
Petroglyph Energy, Inc., a Delaware corporation (the "COMPANY"),
agrees with you as follows:
1. AUTHORIZATION OF NOTES.
The Company will authorize the issue and sale of $5,000,000 aggregate
principal amount of its 8% Senior Subordinated Notes due August 19, 2004 (the
"NOTES", such term to include any such notes issued in substitution therefor
pursuant to Section 13 of this Agreement). The Notes shall be substantially in
the form set out in Exhibit 1, with such changes therefrom, if any, as may be
approved by you and the Company. Certain capitalized terms used in this
Agreement are defined in Schedule A; references to a "Schedule" or an "Exhibit"
are, unless otherwise specified, to a Schedule or an Exhibit attached to this
Agreement.
2. SALE AND PURCHASE OF NOTES.
Subject to the terms and conditions of this Agreement, the Company
will issue and sell to you and you will purchase from the Company, at the
Closing provided for in Section 3, the Notes at the purchase price of 100% of
the principal amount thereof.
3. CLOSING.
The sale and purchase of the Notes shall occur at the offices of the
Company, 1302 North Grand, Hutchinson, Kansas 67501, at 10:00 a.m., Central
time, at a closing (the "CLOSING") on August 20, 1999. At the Closing the
Company will deliver to you the Notes to be purchased by you in the form of a
single Note (or such greater number of Notes in denominations of at least
$100,000 as you may request) dated the date of the Closing and registered in
your name, against delivery by you to the Company or its order of immediately
available funds in the amount of the
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purchase price therefor by wire transfer of immediately available funds for the
account of the Company to Petroglyph Operating Company, Inc., account number
020087, First National Bank of Hutchinson, Hutchinson, Kansas, ABA number
101100171. If at the Closing the Company shall fail to tender such Notes to you
as provided above in this Section 3, or any of the conditions specified in
Section 4 shall not have been fulfilled to your satisfaction, you shall, at
your election, be relieved of all further obligations under this Agreement,
without thereby waiving any rights you may have by reason of such failure or
such nonfulfillment.
4. CONDITIONS TO CLOSING.
Your obligation to purchase and pay for the Notes to be sold to you at
the Closing is subject to the fulfillment to your satisfaction, prior to or at
the Closing, of the following conditions:
4.1. CERTAIN DOCUMENTS AS OF THE DATE HEREOF. You shall have received the
following, each dated the date hereof:
(a) The Notes.
(b) A Warrant Agreement.
(c) The Subordination Agreement.
(d) A certificate certifying as to the resolutions attached
thereto and other corporate proceedings relating to the authorization,
execution and delivery of the Notes, this Agreement and the Warrant
Agreement.
(e) Additional documents or certificates, in form and
substance satisfactory to you, with respect to legal matters or
corporate or other proceedings related to the transactions
contemplated hereby as you may reasonably request.
4.2. REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company in this
Agreement shall be correct when made and at the time of the Closing.
4.3. PERFORMANCE; NO DEFAULT.
The Company shall have performed and complied with all
agreements and conditions contained in this Agreement required to be performed
or complied with by it prior to or at the Closing and after giving effect to
the issue and sale of the Notes (and the application of the proceeds thereof as
contemplated by Schedule 5.12) no Default or Event of Default shall have
occurred and be continuing.
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4.4. PURCHASE PERMITTED BY APPLICABLE LAW, ETC.
On the date of the Closing your purchase of Notes shall (i)
be permitted by the laws and regulations of each jurisdiction to which you are
subject, (ii) not violate any applicable law or regulation (including, without
limitation, Regulation U, T or X of the Board of Governors of the Federal
Reserve System) and (iii) not subject you to any tax, penalty or liability
under or pursuant to any applicable law or regulation, which law or regulation
was not in effect on the date hereof.
4.5. CHANGES IN CORPORATE STRUCTURE.
The Company shall not have changed its jurisdiction of
incorporation or been a party to any merger or consolidation and shall not have
succeeded to all or any substantial part of the liabilities of any other
entity, at any time following the date of the most recent financial statements
referred to in Schedule 5.4.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to you that:
5.1. ORGANIZATION; POWER AND AUTHORITY.
The Company is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation, 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
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. The Company 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 Notes and to perform the provisions hereof and
thereof.
5.2. AUTHORIZATION, ETC.
This Agreement and the Notes have been duly authorized by all
necessary corporate action on the part of the Company, and this Agreement
constitutes, and upon execution and delivery thereof each Note will constitute,
a legal, valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, except as such enforceability may be
limited by (i) applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and (ii) general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at
law).
5.3. ORGANIZATION AND OWNERSHIP OF SHARES OF SUBSIDIARIES; AFFILIATES.
(a) Schedule 5.3 contains (except as noted therein) complete
and correct lists (i) of the Company's Subsidiaries, showing, as to
each Subsidiary, the correct name
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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 the Company and each other Subsidiary, (ii) of
the Company's Affiliates, other than Subsidiaries, and (iii) of the
Company's directors and executive officers.
(b) All of the outstanding shares of capital stock or similar
equity interests of each Subsidiary shown in Schedule 5.3 as being
owned by the Company and its Subsidiaries have been validly issued,
are fully paid and nonassessable and are owned by the Company or
another Subsidiary free and clear of any Lien (except as otherwise
disclosed in Schedule 5.3).
(c) Each Subsidiary identified in Schedule 5.3 is a
corporation or other legal entity duly organized, validly existing and
in good standing under the laws of its jurisdiction of organization,
and is duly qualified as a foreign corporation or other legal entity
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 could not,
individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. Each such Subsidiary has the corporate or
other power and authority to own or hold under lease the properties it
purports to own or hold under lease and to transact the business it
transacts and proposes to transact.
(d) No Subsidiary is a party to, or otherwise subject to any
legal restriction or any agreement (other than this Agreement, the
agreements listed on Schedule 5.3 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 the Company or any of its Subsidiaries that owns
outstanding shares of capital stock or similar equity interests of
such Subsidiary.
5.4. FINANCIAL STATEMENTS.
The Company has delivered to you copies of the financial
statements of the Company and its Subsidiaries listed on Schedule 5.4. All of
said financial statements (including in each case the related schedules and
notes) fairly present in all material respects the consolidated financial
position of the Company and its Subsidiaries as of the respective dates
specified in such Schedule and the consolidated results of their operations and
cash flows for the respective periods so specified 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).
5.5. COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC.
The execution, delivery and performance by the Company of
this Agreement and the Notes will not (i) 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 the Company or any Subsidiary 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 the Company
or any Subsidiary is bound or by which the Company or any Subsidiary or any of
their respective properties may be bound
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or affected, (ii) 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 applicable to the Company or any
Subsidiary or (iii) violate any provision of any statute or other rule or
regulation of any Governmental Authority applicable to the Company or any
Subsidiary.
5.6. 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 the Company of this
Agreement or the Notes.
5.7. LITIGATION; OBSERVANCE OF AGREEMENTS, STATUTES AND ORDERS.
(a) Except as disclosed in Schedule 5.7, there are no
actions, suits or proceedings pending or, to the knowledge of the
Company, threatened against or affecting the Company or any Subsidiary
or any property of the Company or any Subsidiary in any court or
before any arbitrator of any kind or before or by any Governmental
Authority that, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect.
(b) Neither the Company 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 or is 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, could
reasonably be expected to have a Material Adverse Effect.
5.8. TAXES.
The Company 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 the Company or a
Subsidiary, as the case may be, has established adequate reserves in accordance
with GAAP. The Company knows of no basis for any other tax or assessment that
could reasonably be expected to have a Material Adverse Effect. The charges,
accruals and reserves on the books of the Company and its Subsidiaries in
respect of Federal, state or other taxes for all fiscal periods are adequate.
5.9. TITLE TO PROPERTY; LEASES.
The Company and its Subsidiaries have good and sufficient
title to their respective properties that individually or in the aggregate are
Material, in each case free and clear
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of Liens prohibited by this Agreement. All leases that individually or in the
aggregate are Material are valid and subsisting and are in full force and
effect in all material respects.
5.10. COMPLIANCE WITH ERISA.
(a) The Company 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 could
not reasonably be expected to result in a Material Adverse Effect.
Neither the Company 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 the Company or any ERISA
Affiliate, or in the imposition of any Lien on any of the rights,
properties or assets of the Company 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 Company 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.
(c) The expected postretirement benefit obligation
(determined as of the last day of the Company'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 of the Code) of the
Company and its Subsidiaries is not Material.
(d) The execution and delivery of this Agreement and the
issuance and sale of the Notes hereunder will not involve any
transaction that is subject to the prohibitions of section 406 of
ERISA or in connection with which a tax could be imposed pursuant to
section 4975(c)(1)(A)-(D) of the Code. The representation by the
Company in the first sentence of this Section 5.10(d) is made in
reliance upon and subject to (i) the accuracy of your representation
in Section 6.2 as to the sources of the funds used to pay the purchase
price of the Notes to be purchased by you and (ii) the assumption,
made solely for the purpose of making such representation, that
Department of Labor Interpretive Bulletin 75-2 with respect to
prohibited transactions remains valid in the circumstances of the
transactions contemplated herein.
5.11. PRIVATE OFFERING BY THE COMPANY.
Neither the Company nor anyone acting on its behalf has
offered the Notes or any similar securities for sale to, or solicited any offer
to buy any of the same from, or otherwise approached or negotiated in respect
thereof with, any person other than you. Neither the Company nor anyone acting
on its behalf has taken, or will take, any action that would subject
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the issuance or sale of the Notes to the registration requirements of Section 5
of the Securities Act.
5.12. USE OF PROCEEDS; MARGIN REGULATIONS.
The Company will apply the proceeds of the sale of the Notes
as set forth in Schedule 5.12. No part of the proceeds from the sale of the
Notes hereunder will be used, directly or indirectly, for the purpose of buying
or carrying any margin stock within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System, or for the purpose of buying or
carrying or trading in any securities under such circumstances as to involve
the Company in a violation of Regulation X of said Board (12 CFR 224) or to
involve any broker or dealer in a violation of Regulation T of said Board (12
CFR 220).
5.13. EXISTING INDEBTEDNESS.
Except as described therein, Schedule 5.13 sets forth a
complete and correct list of all outstanding Indebtedness of the Company and
its Subsidiaries as of August 20, 1999. Neither the Company nor any Subsidiary
is in default and no waiver of default is currently in effect, except for any
such waiver relating to the execution and delivery of this Note Purchase
Agreement, in the payment of any principal or interest on any Indebtedness of
the Company or such Subsidiary and no event or condition exists with respect to
any Indebtedness of the Company or any Subsidiary that would permit (or that
with notice or the lapse of time, or both, would permit) one or more Persons to
cause such Indebtedness to become due and payable before its stated maturity or
before its regularly scheduled dates of payment.
5.14. FOREIGN ASSETS CONTROL REGULATIONS, ETC.
Neither the sale of the Notes by the Company hereunder nor
its use of the proceeds thereof will violate the Trading with the Enemy Act, as
amended, or any of the foreign assets control regulations of the United States
Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling
legislation or executive order relating thereto.
5.15. STATUS UNDER CERTAIN STATUTES.
Neither the Company nor any Subsidiary 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.
5.16. ENVIRONMENTAL MATTERS.
Neither the Company nor any Subsidiary has knowledge of any
claim or has received any notice of any claim, and no proceeding has been
instituted raising any claim against the Company 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 could not
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reasonably be expected to result in a Material Adverse Effect. Except as
otherwise disclosed to you in writing,
(a) neither the Company nor any Subsidiary 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 could not reasonably be
expected to result in a Material Adverse Effect;
(b) neither the Company 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 could reasonably be expected to result in
a Material Adverse Effect; and
(c) all buildings on all real properties now owned, leased or
operated by the Company or any of its Subsidiaries are in compliance
with applicable Environmental Laws, except where failure to comply
could not reasonably be expected to result in a Material Adverse
Effect.
6. REPRESENTATIONS OF THE PURCHASER.
6.1. PURCHASE FOR INVESTMENT.
You represent that you are purchasing the Notes for your own
account or for one or more separate accounts maintained by you or for the
account of one or more pension or trust funds and not with a view to the
distribution thereof, provided that the disposition of your or their property
shall at all times be within your or their control. You understand that the
Notes have not been registered under the Securities Act and may be resold only
if registered pursuant to the provisions of the Securities Act or if an
exemption from registration is available, except under circumstances where
neither such registration nor such an exemption is required by law, and that
the Company is not required to register the Notes.
6.2. SOURCE OF FUNDS.
You represent that the source of funds to be used by you to
pay the purchase price of the Notes to be purchased by you hereunder does not
include assets of any employee benefit plan, other than a plan exempt from the
coverage of ERISA. As used in this Section 6.2, the term "EMPLOYEE BENEFIT
PLAN", has the meaning assigned to such term in Section 3 of ERISA.
7. INFORMATION AS TO COMPANY.
7.1. FINANCIAL AND BUSINESS INFORMATION.
The Company shall deliver to each holder of Notes:
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(a) Statements.
(i) Annual Statements. -- within 105 days after the end of
each fiscal year of the Company, duplicate copies of,
(A) a consolidated balance sheet of the Company and
its Subsidiaries, as at the end of such year, and
(B) consolidated statements of income, changes in
shareholders' equity and cash flows of the Company 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 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; provided that the delivery within the time period
specified above of the Company's Annual Report on Form 10-K for such
fiscal year (together with the Company's annual report to
shareholders, if any, prepared pursuant to Rule 14a-3 under the
Exchange Act) prepared in accordance with the requirements therefor
and filed with the Securities and Exchange Commission, shall be deemed
to satisfy the requirements of this Section 7.1(a)(i);
(ii) Quarterly Statements -- within 45 days after the end of
each fiscal quarter of the Company, duplicate copies of,
(A) a consolidated balance sheet of the Company and
its Subsidiaries, as at the end of such quarter, and
(B) consolidated statements of income, changes in
shareholders' equity and cash flows of the Company and its
Subsidiaries, for such quarter,
setting forth in each case in comparative form the figures for the
previous fiscal quarter, all in reasonable detail, prepared in
accordance with GAAP, and reviewed by independent certified public
accountants of recognized national standing, which review shall
confirm 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 review of such accountants in
connection with such financial statements has been made in accordance
with generally accepted auditing standards; provided that the delivery
within the time period specified above of the Company's Quarterly
Report on Form 10-Q for such fiscal quarter (together with the
Company's quarterly report to shareholders, if any, prepared pursuant
to Rule 14a-3 under the Exchange Act) prepared in accordance with the
requirements therefor and
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filed with the Securities and Exchange Commission, shall be deemed to
satisfy the requirements of this Section 7.1(a)(ii);
(b) SEC and Other Reports -- promptly upon their becoming
available, one copy of (i) each financial statement, report, notice or
proxy statement sent by the Company 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 the Company or any Subsidiary with the
Securities and Exchange Commission and of all press releases and other
statements made available generally by the Company or any Subsidiary
to the public concerning developments that are Material;
(c) Notice of Default or Event of Default -- promptly, and in
any event within five days after a Responsible Officer 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(f), 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;
(d) ERISA Matters -- promptly, and in any event within five
days after a Responsible Officer becoming aware of any of the
following, a written notice setting forth the nature thereof and the
action, if any, that the Company 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 the Company 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 the Company 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 the Company 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 have a Material
Adverse Effect;
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(e) Requested Information -- with reasonable promptness, such
other data and information relating to the business, operations,
affairs, financial condition, assets or properties of the Company or
any of its Subsidiaries or relating to the ability of the Company to
perform its obligations hereunder and under the Notes as from time to
time may be reasonably requested by any such holder of Notes.
7.2. INSPECTION.
The Company shall permit the representatives of each holder
of Notes:
(a) No Default -- if no Default or Event of Default then
exists, at the expense of such holder and upon reasonable prior notice
to the Company, to visit the principal executive office of the
Company, to discuss the affairs, finances and accounts of the Company
and its Subsidiaries with the Company's officers, and (with the
consent of the Company, which consent will not be unreasonably
withheld) its independent public accountants, and (with the consent of
the Company, which consent will not be unreasonably withheld) to visit
the other offices and properties of the Company and each Subsidiary,
all at such reasonable times and as often as may be reasonably
requested in writing; and
(b) Default -- if a Default or Event of Default then exists,
at the expense of the Company to visit and inspect any of the offices
or properties of the Company or any Subsidiary, to examine 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 the Company
authorizes said accountants to discuss the affairs, finances and
accounts of the Company and its Subsidiaries), all at such reasonable
times and as often as may be reasonably requested in writing.
8. PREPAYMENT OF THE NOTES.
8.1. OPTIONAL PREPAYMENTS.
The Company may, at its option, upon notice as provided
below, prepay at any time all, or from time to time any part of, the Notes, at
100% of the principal amount so prepaid. The Company will give each holder of
Notes written notice of each optional prepayment under this Section 8.2 not
less than five days prior to the date fixed for such prepayment. Each such
notice shall specify such date, the aggregate principal amount of the Notes to
be prepaid on such date, the principal amount of each Note held by such holder
to be prepaid (determined in accordance with Section 8.3), and the interest to
be paid on the prepayment date with respect to such principal amount being
prepaid.
8.2. ALLOCATION OF PARTIAL PREPAYMENTS.
In the case of each partial prepayment of the Notes, the
principal amount of the Notes to be prepaid shall be allocated among all of the
Notes at the time outstanding in
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proportion, as nearly as practicable, to the respective unpaid principal
amounts thereof not theretofore called for prepayment.
8.3. MATURITY; SURRENDER, ETC.
In the case of each prepayment of Notes pursuant to this
Section 8, the principal amount of each Note to be prepaid shall mature and
become due and payable on the date fixed for such prepayment, together with
interest on such principal amount accrued to such date. From and after such
date, unless the Company shall fail to pay such principal amount when so due
and payable, together with the interest, as aforesaid, interest on such
principal amount shall cease to accrue. Any Note paid or prepaid in full shall
be surrendered to the Company and cancelled and shall not be reissued, and no
Note shall be issued in lieu of any prepaid principal amount of any Note.
8.5 MANDATORY PREPAYMENTS.
In the event that the Company repays the Senior Indebtedness in full
prior to August 20, 2003, each Note shall mature and become due and payable one
year after the repayment of the Senior Indebtedness, but not sooner than three
years from the date hereof, together with interest on such principal amount
accrued to such date. From and after such date, unless the Company shall fail
to pay such principal amount when so due and payable, together with the
interest, as aforesaid, interest on such principal amount shall cease to
accrue. Any Note paid or prepaid in full shall be surrendered to the Company
and cancelled and shall not be reissued, and no Note shall be issued in lieu of
any prepaid principal amount of any Note.
9. AFFIRMATIVE COVENANTS.
The Company covenants that so long as any of the Notes are
outstanding:
9.1. COMPLIANCE WITH LAW.
The Company 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 could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
9.2. INSURANCE.
The Company will and will cause each of its Subsidiaries to
maintain, with financially sound and reputable insurers, insurance with respect
to their respective properties and businesses against such casualties and
contingencies, of such types, on such terms and in such amounts (including
deductibles, co-insurance and self-insurance, if adequate reserves are
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maintained with respect thereto) as is customary in the case of entities of
established reputations engaged in the same or a similar business and similarly
situated.
9.3. MAINTENANCE OF PROPERTIES.
The Company 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, provided that this Section shall not prevent
the Company or any Subsidiary from discontinuing the operation and the
maintenance of any of its properties if such discontinuance is desirable in the
conduct of its business and the Company has concluded that such discontinuance
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
9.4. PAYMENT OF TAXES AND CLAIMS.
The Company 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 the Company or any Subsidiary,
provided that neither the Company nor any Subsidiary need pay any such tax or
assessment or claims if (i) the amount, applicability or validity thereof is
contested by the Company or such Subsidiary on a timely basis in good faith and
in appropriate proceedings, and the Company or a Subsidiary has established
adequate reserves therefor in accordance with GAAP on the books of the Company
or such Subsidiary or (ii) the nonpayment of all such taxes and assessments in
the aggregate could not reasonably be expected to have a Material Adverse
Effect.
9.5. CORPORATE EXISTENCE, ETC.
The Company will at all times preserve and keep in full force
and effect its corporate existence. Subject to Section 10.2, the Company will
at all times preserve and keep in full force and effect the corporate existence
of each of its Subsidiaries (unless merged into the Company or a Subsidiary)
and all rights and franchises of the Company and its Subsidiaries unless, in
the good faith judgment of the Company, the termination of or failure to
preserve and keep in full force and effect such corporate existence, right or
franchise could not, individually or in the aggregate, have a Material Adverse
Effect.
9.6. ADDITIONAL WARRANTS.
In consideration of your agreement to enter into this
Agreement and to purchase the Notes, on each annual anniversary date of this
Agreement and the date the Notes are paid in full, the Company shall issue to
you warrants to purchase the number of shares of the common stock of the
Company calculated as of such date pursuant to Schedule B attached to this
Agreement.
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10. NEGATIVE COVENANTS.
The Company covenants that so long as any of the Notes are
outstanding:
10.1. TRANSACTIONS WITH AFFILIATES.
The Company will not and will not permit any Subsidiary to
enter into directly or indirectly any 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 the Company or another Subsidiary), except in the
ordinary course and pursuant to the reasonable requirements of the Company's or
such Subsidiary's business and upon fair and reasonable terms no less favorable
to the Company or such Subsidiary than would be obtainable in a comparable
arm's-length transaction with a Person not an Affiliate.
10.2. MERGER, CONSOLIDATION, ETC.
The Company shall not consolidate with or merge with any
other corporation or convey, transfer or lease substantially all of its assets
in a single transaction or series of transactions to any Person unless:
(a) the successor formed by such consolidation or the
survivor of such merger or the Person that acquires by conveyance,
transfer or lease substantially all of the assets of the Company as an
entirety, as the case may be, shall be a solvent corporation organized
and existing under the laws of the United States or any State thereof
(including the District of Columbia) with a net worth in excess of
that of the Company immediately prior to the consummation of such
consolidation or merger or conveyance, transfer or lease, and, if the
Company is not such corporation, (i) such corporation shall have
executed and delivered to each holder of any Notes its assumption of
the due and punctual performance and observance of each covenant and
condition of this Agreement and the Notes and (ii) shall have caused
to be delivered to each holder of any Notes an opinion of nationally
recognized independent counsel, or other independent counsel
reasonably satisfactory to you, to the effect that all agreements or
instruments effecting such assumption are enforceable in accordance
with their terms and comply with the terms hereof;
(b) immediately after giving effect to such transaction, no
Default or Event of Default shall have occurred and be continuing.
No such conveyance, transfer or lease of substantially all of the assets of the
Company shall have the effect of releasing the Company or any successor
corporation that shall theretofore have become such in the manner prescribed in
this Section 10.2 from its liability under this Agreement or the Notes.
10.3. LIENS.
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The Company will not, directly or indirectly, create, incur
or suffer or permit to be created or incurred or to exist any Lien upon any of
its assets except (a) Liens in favor of you, and (b) Permitted Liens.
10.4. INDEBTEDNESS.
The Company will not, directly or indirectly, create, incur
or suffer to exist any direct, indirect, fixed or contingent liability for any
Indebtedness, other than (i) the Notes in an amount not to exceed $5,000,000,
(ii) the Indebtedness described on Schedule 5.13 (including any extension in
the maturity of or any increase in the principal amount of such indebtedness
and any refunding, refinancing or renewal of such Indebtedness which extends
the maturity of or increases the principal amount of such Indebtedness), (iii)
obligations to pay Taxes, (iv) accounts payable in the ordinary course of
business, (v) Permitted Purchase Money Indebtedness, (vi) salaries and wages,
(vii) accrued expenses, deferred credits and loss contingencies which are
properly classified as liabilities or indebtedness under GAAP, (viii)
Subordinated Indebtedness, and (ix) Swaps.
10.5. SALE OF ASSETS.
The Company will not, without the prior written approval of
holders of the Note, directly or indirectly, sell, lease or otherwise dispose
of all or any substantial part of its assets, other than (i) sales of inventory
in the ordinary course of business, (ii) sales by the Company of Proven
Reserves which do not exceed $500,000 in the aggregate during any fiscal year
and (iii) sales by the Company of its assets from time to time, the net
proceeds of which are used to repay Senior Indebtedness in full.
11. EVENTS OF DEFAULT.
An "EVENT OF DEFAULT" shall exist if any of the following conditions
or events shall occur and be continuing:
(a) the Company defaults in the payment of any principal, if
any, on any Note when the same becomes due and payable, whether at
maturity or at a date fixed for prepayment or by declaration or
otherwise; or
(b) the Company defaults in the payment of any interest on
any Note for more than five Business Days after the same becomes due
and payable; or
(c) the Company defaults in the performance of or compliance
with any term contained herein (other than those referred to in
paragraphs (a) and (b) of this Section 11) and such default is not
remedied within 90 days after the earlier of (i) a Responsible Officer
obtaining actual knowledge of such default and (ii) the Company
receiving written notice of such default from any holder of a Note
(any such written notice to be identified as a "notice of default" and
to refer specifically to this paragraph (c) of Section 11); or
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(d) any representation or warranty made in writing by or on
behalf of the Company or by any officer of the Company in this
Agreement or in any writing furnished in connection with the
transactions contemplated hereby proves to have been false or
incorrect in any material respect on the date as of which made; or
(e) (i) the Company or any Subsidiary is in default (as
principal or as guarantor or other surety) in the payment of any
principal of or premium or interest on any Indebtedness that is
outstanding in an aggregate principal amount of at least $500,000
beyond any period of grace provided with respect thereto, or (ii) the
Company or any Subsidiary is in default in the performance of or
compliance with any term of any evidence of any Indebtedness in an
aggregate outstanding principal amount of at least $500,000 or of any
mortgage, indenture or other agreement relating thereto or any other
condition exists, and as a consequence of such default or condition
such Indebtedness has become, or has been declared (or one or more
Persons are entitled to declare such Indebtedness to be), due and
payable before its stated maturity or before its regularly scheduled
dates of payment, or (iii) as a consequence of the occurrence or
continuation of any event or condition (other than the passage of time
or the right of the holder of Indebtedness to convert such
Indebtedness into equity interests), or (iv) the Company or any
Subsidiary has become obligated to purchase or repay Indebtedness
before its regular maturity or before its regularly scheduled dates of
payment in an aggregate outstanding principal amount of at least
$500,000; or
(f) the Company or any Subsidiary (i) is generally not
paying, or admits in writing its inability to pay, its debts as they
become due, (ii) files, or consents by answer or otherwise to the
filing against it of, a petition for relief or reorganization or
arrangement or any other petition in bankruptcy, for liquidation or to
take advantage of any bankruptcy, insolvency, reorganization,
moratorium or other similar law of any jurisdiction, (iii) makes an
assignment for the benefit of its creditors, (iv) consents to the
appointment of a custodian, receiver, trustee or other officer with
similar powers with respect to it or with respect to any substantial
part of its property, (v) is adjudicated as insolvent or to be
liquidated, or (vi) takes corporate action for the purpose of any of
the foregoing; or
(g) a court or governmental authority of competent
jurisdiction enters an order appointing, without consent by the
Company or any of its Subsidiaries, a custodian, receiver, trustee or
other officer with similar powers with respect to it or with respect
to any substantial part of its property, or constituting an order for
relief or approving a petition for relief or reorganization or any
other petition in bankruptcy or for liquidation or to take advantage
of any bankruptcy or insolvency law of any jurisdiction, or ordering
the dissolution, winding-up or liquidation of the Company or any of
its Subsidiaries, or any such petition shall be filed against the
Company or any of its Subsidiaries and such petition shall not be
dismissed within 60 days; or
(h) a final judgment or judgments for the payment of money
aggregating in excess of $500,000 are rendered against one or more of
the Company and its Subsidiaries and which judgments are not, within
60 days after entry thereof, bonded, discharged or
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stayed pending appeal, or are not discharged within 60 days after the
expiration of such stay; or
(i) a Change of Control shall occur.
12. REMEDIES ON DEFAULT, ETC.
12.1. ACCELERATION.
(a) If an Event of Default with respect to the Company
described in paragraph (f) or (g) of Section 11 (other than an Event
of Default described in clause (i) of paragraph (f) or described in
clause (vi) of paragraph (f) by virtue of the fact that such clause
encompasses clause (i) of paragraph (f)) has occurred, all the Notes
then outstanding shall automatically become immediately due and
payable.
(b) If any other Event of Default has occurred and is
continuing, any holder or holders of more than fifty-one percent (51%)
in principal amount of the Notes at the time outstanding may at any
time at its or their option, by notice or notices to the Company,
declare all the Notes then outstanding to be immediately due and
payable.
(c) If any Event of Default described in paragraph (a) or (b)
of Section 11 has occurred and is continuing, any holder or holders of
Notes at the time outstanding affected by such Event of Default may at
any time, at its or their option, by notice or notices to the Company,
declare all the Notes held by it or them to be immediately due and
payable.
Upon any Notes becoming due and payable under this Section
12.1, whether automatically or by declaration, such Notes will forthwith mature
and the entire unpaid principal amount of such Notes, plus all accrued and
unpaid interest thereon, shall all be immediately due and payable, in each and
every case without presentment, demand, protest or further notice, all of which
are hereby waived.
12.2. OTHER REMEDIES.
If any Default or Event of Default has occurred and is
continuing, and irrespective of whether any Notes have become or have been
declared immediately due and payable under Section 12.1, the holder of any Note
at the time outstanding may proceed to protect and enforce the rights of such
holder by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or in
any Note, or for an injunction against a violation of any of the terms hereof
or thereof, or in aid of the exercise of any power granted hereby or thereby or
by law or otherwise.
12.3. NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC.
No course of dealing and no delay on the part of any holder
of any Note in exercising any right, power or remedy shall operate as a waiver
thereof or otherwise prejudice such holder's rights, powers or remedies. No
right, power or remedy conferred by this
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Agreement or by any Note upon any holder thereof shall be exclusive of any
other right, power or remedy referred to herein or therein or now or hereafter
available at law, in equity, by statute or otherwise. Without limiting the
obligations of the Company under Section 15, the Company will pay to the holder
of each Note on demand such further amount as shall be sufficient to cover all
costs and expenses of such holder incurred in any enforcement or collection
under this Section 12, including, without limitation, reasonable attorneys'
fees, expenses and disbursements.
13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
13.1. REGISTRATION OF NOTES.
The Company shall keep at its principal executive office a
register for the registration and registration of transfers of Notes. The name
and address of each holder of one or more Notes, each transfer thereof and the
name and address of each transferee of one or more Notes shall be registered in
such register. Prior to due presentment for registration of transfer, the
Person in whose name any Note shall be registered shall be deemed and treated
as the owner and holder thereof for all purposes hereof, and the Company shall
not be affected by any notice or knowledge to the contrary. The Company shall
give to any holder of a Note that is an Institutional Investor promptly upon
request therefor, a complete and correct copy of the names and addresses of all
registered holders of Notes.
13.2. TRANSFER AND EXCHANGE OF NOTES.
Upon surrender of any Note at the principal executive office
of the Company for registration of transfer or exchange (and in the case of a
surrender for registration of transfer, duly endorsed or accompanied by a
written instrument of transfer duly executed by the registered holder of such
Note or his attorney duly authorized in writing and accompanied by the address
for notices of each transferee of such Note or part thereof), the Company shall
execute and deliver, at the Company's expense (except as provided below), one
or more new Notes (as requested by the holder thereof) in exchange therefor, in
an aggregate principal amount equal to the unpaid principal amount of the
surrendered Note. Each such new Note shall be payable to such Person as such
holder may request and shall be substantially in the form of Exhibit 1. Each
such new Note shall be dated and bear interest from the date to which interest
shall have been paid on the surrendered Note or dated the date of the
surrendered Note if no interest shall have been paid thereon. The Company may
require payment of a sum sufficient to cover any stamp tax or governmental
charge imposed in respect of any such transfer of Notes. Notes shall not be
transferred in denominations of less than $100,000, provided that if necessary
to enable the registration of transfer by a holder of its entire holding of
Notes, one Note may be in a denomination of less than $100,000. Any transferee,
by its acceptance of a Note registered in its name (or the name of its
nominee), shall be deemed to have made the representation set forth in Section
6.2.
13.3. REPLACEMENT OF NOTES.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of any Note, and
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(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (provided that if the holder of such
Note is, or is a nominee for, an original Purchaser, such Person's own
unsecured agreement of indemnity shall be deemed to be satisfactory),
or
(b) in the case of mutilation, upon surrender and
cancellation thereof,
the Company at its own expense shall execute and deliver, in lieu thereof, a
new Note, dated and bearing interest from the date to which interest shall have
been paid on such lost, stolen, destroyed or mutilated Note or dated the date
of such lost, stolen, destroyed or mutilated Note if no interest shall have
been paid thereon.
14. PAYMENTS ON NOTES.
14.1. PLACE OF PAYMENT.
Subject to Section 14.2, payments of principal, if any, and
interest becoming due and payable on the Notes shall be made in Boise, Idaho at
the principal office of III Exploration Company in such jurisdiction. The
Company may at any time, by notice to each holder of a Note, change the place
of payment of the Notes so long as such place of payment shall be either the
principal office of the Company in such jurisdiction or the principal office of
a bank or trust company in the United States.
14.2. HOME OFFICE PAYMENT.
So long as you shall be the holder of any Note, and
notwithstanding anything contained in Section 14.1 or in such Note to the
contrary, the Company will pay all sums becoming due on such Note for
principal, and interest by the method and at the address specified for such
purpose below your name on the signature page hereto, or by such other method
or at such other address as you shall have from time to time specified to the
Company in writing for such purpose, without the presentation or surrender of
such Note or the making of any notation thereon, except that upon written
request of the Company made concurrently with or reasonably promptly after
payment or prepayment in full of any Note, you shall surrender such Note for
cancellation, reasonably promptly after any such request, to the Company at its
principal executive office or at the place of payment most recently designated
by the Company pursuant to Section 14.1. Prior to any sale or other disposition
of any Note held by you or your nominee you will, at your election, either
endorse thereon the amount of principal paid thereon and the last date to which
interest has been paid thereon or surrender such Note to the Company in
exchange for a new Note or Notes pursuant to Section 13.2.
15. EXPENSES, ETC.
15.1. EXPENSES.
The Company will pay all reasonable costs and expenses
(including reasonable attorneys' fees) incurred by you in connection with the
negotiation and execution of this Agreement and in connection with any
amendments, waivers or consents under or in respect of
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this Agreement or the Notes (whether or not such amendment, waiver or consent
becomes effective), including, without limitation: (a) the costs and expenses
incurred in enforcing or defending (or determining whether or how to enforce or
defend) any rights under this Agreement or the Notes or in responding to any
subpoena or other legal process or informal investigative demand issued in
connection with this Agreement or the Notes, or by reason of being a holder of
any Note, and (b) the costs and expenses, including financial advisors' fees,
incurred in connection with the insolvency or bankruptcy of the Company or any
Subsidiary or in connection with any work-out or restructuring of the
transactions contemplated hereby and by the Notes. The Company will pay, and
will save you 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 you).
15.2. SURVIVAL.
The obligations of the Company under this Section 15 will
survive the payment or transfer of any Note, the enforcement, amendment or
waiver of any provision of this Agreement or the Notes, and the termination of
this Agreement.
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE
AGREEMENT.
All representations and warranties contained herein shall survive the
execution and delivery of this Agreement and the Notes, the purchase or
transfer by you 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 you or any
other holder of a Note. All statements contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant to this Agreement
shall be deemed representations and warranties of the Company under this
Agreement. Subject to the preceding sentence, this Agreement and the Notes
embody the entire agreement and understanding between you and the Company and
supersede all prior agreements and understandings relating to the subject
matter hereof.
17. AMENDMENT AND WAIVER.
17.1. REQUIREMENTS.
This Agreement and the Notes may be amended, and the
observance of any term hereof or of the Notes may be waived (either
retroactively or prospectively), with (and only with) the written consent of
the Company and you.
17.2. SOLICITATION OF HOLDERS OF NOTES.
(a) Solicitation. The Company will provide each holder of the
Notes (irrespective of the amount of Notes then owned by it) with
sufficient information, sufficiently far in advance of the date a
decision is required, to enable such holder to make an informed and
considered decision (but not to guarantee that such holder will make
an informed and considered decision) with respect to any proposed
amendment,
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waiver or consent in respect of any of the provisions hereof or of the
Notes. The Company will deliver executed or true and correct copies of
each amendment, waiver or consent effected pursuant to the provisions
of this Section 17 to each holder of outstanding Notes promptly
following the date on which it is executed and delivered by, or
receives the consent or approval of, the requisite holders of Notes.
(b) Payment. The Company will not directly or indirectly pay
or cause to be paid any remuneration, whether by way of supplemental
or additional interest, fee or otherwise, or grant any security, to
any holder of Notes as consideration for or as an inducement to the
entering into by any holder of Notes or any waiver or amendment of any
of the terms and provisions hereof unless such remuneration is
concurrently paid, or security is concurrently granted, on the same
terms, ratably to each holder of Notes then outstanding even if such
holder did not consent to such waiver or amendment.
17.3. BINDING EFFECT, ETC.
Any amendment or waiver consented to as provided in this
Section 17 applies equally to all holders of Notes and is binding upon them and
upon each future holder of any Note and upon 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,
agreement, Default or Event of Default not expressly amended or waived or
impair any right consequent thereon. No course of dealing between 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. As used herein, the term "THIS AGREEMENT" and references thereto shall
mean this Agreement as it may from time to time be amended or supplemented.
18. 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 you, to you at the address specified for
such communications on the signature page hereto, or at such
other address as you shall have specified to the Company in
writing,
(ii) if to any other holder of any Note, to such
holder at such address as such other holder shall have
specified to the Company in writing, or
(iii) if to the Company, to the Company at its
address set forth at the beginning hereof to the attention of
the Chief Financial Officer with a copy to the Chief
Executive Officer, or at such other address as the Company
shall have specified to the holder of each Note in writing.
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Notices under this Section 18 will be deemed given only when actually received.
19. REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating thereto, including, without
limitation, (a) consents, waivers and modifications that may hereafter be
executed, (b) documents received by you at the Closing (except the Notes
themselves), and (c) financial statements, certificates and other information
previously or hereafter furnished to you, may be reproduced by you by any
photographic, photostatic, microfilm, microcard, miniature photographic or
other similar process and you may destroy any original document so reproduced.
The Company agrees and stipulates that, to the extent permitted by applicable
law, any such reproduction shall be admissible in evidence as the original
itself in any judicial or administrative proceeding (whether or not the
original is in existence and whether or not such reproduction was made by you
in the regular course of business) and any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
This Section 19 shall not prohibit the Company or any other holder of Notes
from contesting any such reproduction to the same extent that it could contest
the original, or from introducing evidence to demonstrate the inaccuracy of any
such reproduction.
20. CONFIDENTIAL INFORMATION.
For the purposes of this Section 20, "CONFIDENTIAL INFORMATION" means
information delivered to you by or on behalf of the Company or any Subsidiary
in connection with the transactions contemplated by or otherwise pursuant to
this Agreement that is proprietary in nature and that was clearly marked or
labeled or otherwise adequately identified when received by you as being
confidential information of the Company or such Subsidiary, provided that such
term does not include information that (a) was publicly known or otherwise
known to you prior to the time of such disclosure, (b) subsequently becomes
publicly known through no act or omission by you or any person acting on your
behalf, (c) otherwise becomes known to you other than through disclosure by the
Company or any Subsidiary or (d) constitutes financial statements delivered to
you under Section 7.1 that are otherwise publicly available. You will maintain
the confidentiality of such Confidential Information in accordance with
procedures adopted by you in good faith to protect confidential information of
third parties delivered to you, provided that you may deliver or disclose
Confidential Information to (i) your directors, officers, employees, agents,
attorneys and affiliates (to the extent such disclosure reasonably relates to
the administration of the investment represented by your Notes), (ii) your
financial advisors and other professional advisors who agree to hold
confidential the Confidential Information substantially in accordance with the
terms of this Section 20, (iii) any other holder of any Note, (iv) any
Institutional Investor to which you sell or offer to sell such Note or any part
thereof or any participation therein (if such Person has agreed in writing
prior to its receipt of such Confidential Information to be bound by the
provisions of this Section 20), (v) any Person from which you offer to purchase
any security of the Company (if such Person has agreed in writing prior to its
receipt of such Confidential Information to be bound by the provisions of this
Section 20), (vi) any federal or state regulatory authority having jurisdiction
over you, (vii) the National Association of Insurance Commissioners or any
similar organization, or any nationally recognized rating agency that requires
access to information about your investment portfolio or (viii) any other
Person to which such delivery or disclosure may be necessary or appropriate
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(w) to effect compliance with any law, rule, regulation or order applicable to
you, (x) in response to any subpoena or other legal process, (y) in connection
with any litigation to which you are a party or (z) if an Event of Default has
occurred and is continuing, to the extent you may reasonably determine such
delivery and disclosure to be necessary or appropriate in the enforcement or
for the protection of the rights and remedies under your Notes and this
Agreement. Each holder of a Note, by its acceptance of a Note, will be deemed
to have agreed to be bound by and to be entitled to the benefits of this
Section 20 as though it were a party to this Agreement. On reasonable request
by the Company in connection with the delivery to any holder of a Note of
information required to be delivered to such holder under this Agreement or
requested by such holder (other than a holder that is a party to this Agreement
or its nominee), such holder will enter into an agreement with the Company
embodying the provisions of this Section 20.
21. SUBORDINATION. The Company, you and each other holder of a Note by its
acceptance thereof, agree that the payment of the principal of, and interest
on, and all other amounts owing in respect of, the Notes is and shall be hereby
expressly subordinated, to the prior payment in full of all Senior Indebtedness
as provided in that certain Subordination Agreement of even date herewith in
the form attached hereto as Exhibit C.
22. MISCELLANEOUS.
22.1. 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.
22.2. PAYMENTS DUE ON NON-BUSINESS DAYS.
Anything in this Agreement or the Notes to the contrary
notwithstanding, any payment of principal of or interest on any Note that is
due on a date other than a Business Day shall be made on the next succeeding
Business Day without including the additional days elapsed in the computation
of the interest payable on such next succeeding Business Day.
22.3. 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.
22.4. 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
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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.
22.5. 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.
22.6. 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 Idaho 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.
22.7 CONSENT TO JURISDICTION/VENUE . The Company, for itself, its respective
successors and assigns, hereby (A) irrevocably submits to the nonexclusive
jurisdiction of the state and federal courts of the state of Idaho and agrees
and consents that service of process may be made upon it in any legal
proceeding arising out of or in connection with this Agreement by service of
process as provided by Idaho law, (B) irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the
laying of venue of any litigation arising out of or in connection with this
Agreement and the obligations brought in the courts of Ada County, Idaho, or in
any United States District Court for the District of Idaho, (C) irrevocably
waives any claims that any litigation brought in any such court has been
brought in an inconvenient forum, (D) agrees to designate and maintain an agent
for service of process in Ada County, Idaho in connection with any such
litigation and to deliver III evidence thereof, (E) irrevocable consents to the
service of process out of any of the aforemetioned courts in any such
litigation by the mailing of copies thereof by certified mail, return reciept
requested, postage prepaid, to III at its address set forth herein and (F)
irrevocably agrees that any legal proceeding against any lender arising out of
or in connection with this Agreement shall be brought in the courts of Ada
County, Idaho, or in any United States District Court for the District of
Idaho. Nothing herein shall affect the right of III to commence any legal
proceedings or otherwise proceed against the Company in any jurisdiction or to
serve process in any matter permitted by applicable law.
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If you are in agreement with the foregoing, please sign the
form of agreement on the accompanying counterpart of this Agreement and return
it to the Company, whereupon the foregoing shall become a binding agreement
between you and the Company.
Very truly yours,
PETROGLYPH ENERGY, INC.
By: /s/ Robert C.Murdock
----------------------------------------
Robert C. Murdock, President and Chief
Executive Officer
The foregoing is hereby
agreed to as of the
date thereof.
III EXPLORATION COMPANY
By: /s/ Wm. C. Glynn
------------------------------
Wm. C. Glynn, President
Address:
555 South Cole Road
Boise, Idaho 83707
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SCHEDULE A
DEFINED TERMS
As used herein, the following terms have the respective meanings set
forth below or set forth in the Section hereof following such term:
"ACQUISITION DOCUMENTS" means (a) the Asset Purchase Agreement, dated
August 20, 1999, between Williams Production Rocky Mountain Company and the
Company and (b) the other agreements or instruments delivered in connection
therewith to consummate the acquisition contemplated thereby.
"AFFILIATE" means, at any time, and with respect to any Person, (a) any
other Person that at such time directly or indirectly through one or more
intermediaries Controls, or is Controlled by, or is under common Control with,
such first Person, and (b) any Person beneficially owning or holding, directly
or indirectly, 10% or more of any class of voting or equity interests of the
Company or any Subsidiary or any corporation of which the Company and its
Subsidiaries beneficially own or hold, in the aggregate, directly or
indirectly, 10% or more of any class of voting or equity interests. As used in
this definition, "CONTROL" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise. Unless the context otherwise clearly requires, any reference to an
"Affiliate" is a reference to an Affiliate of the Company.
"BUSINESS DAY" means any day other than a Saturday, a Sunday or a day on
which commercial banks in Hutchinson, Kansas or Boise, Idaho are required or
authorized to be closed.
"CAPITAL LEASE" means, at any time, a lease with respect to which the
lessee is required concurrently to recognize the acquisition of an asset and
the incurrence of a liability in accordance with GAAP.
"CHANGE OF CONTROL" means any event or occurrence whereby any group
(other than III Exploration Company and its Affiliates) becomes the beneficial
owner, directly or indirectly, of voting stock of the Company which has
aggregate voting power that at the time in question both (a) exceeds the
aggregate voting power of all stock of the Company then owned by III
Exploration Company and its Affiliates on a combined basis, and (b) exceeds
thirty percent (30%) of the total voting power of all then outstanding voting
stock of the Company. As used in this definition, "group" has the meaning
applied to such term in Rule 13d-5 under the Securities Act, and "beneficial
owner" has the meaning applied to such term in Rule 13d-3 under the Securities
Act, in each case as the Securities Act and the aforementioned Rules thereunder
are in effect.
"CLOSING" is defined in Section 3.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time, and the rules and regulations promulgated thereunder from time to time.
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"COMPANY" means Petroglyph Energy, Inc., a Delaware corporation.
"CONFIDENTIAL INFORMATION" is defined in Section 20.
"DEFAULT" means an event or condition the occurrence or existence of
which would, with the lapse of time or the giving of notice or both, become an
Event of Default.
"DEFAULT RATE" means that rate of interest that is two percent per annum
above the rate of interest stated in clause (a) of the first paragraph of the
Notes.
"ENVIRONMENTAL LAWS" means any and all Federal, state, local, and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or governmental
restrictions relating to pollution and the protection of the environment or the
release of any materials into the environment, including but not limited to
those related to hazardous substances or wastes, air emissions and discharges
to waste or public systems.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the rules and regulations promulgated thereunder
from time to time in effect.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that is treated as a single employer together with the Company
under section 414 of the Code.
"EVENT OF DEFAULT" is defined in Section 11.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States of America.
"GOVERNMENTAL AUTHORITY" means
(a) the government of
(i) the United States of America or any State or other political
subdivision thereof, or
(ii) any jurisdiction in which the Company or any Subsidiary conducts
all or any part of its business, or which asserts jurisdiction over any
properties of the Company or any Subsidiary, or
(b) any entity exercising executive, legislative, judicial, regulatory or
administrative functions of, or pertaining to, any such government.
"GUARANTY" means, with respect to any Person, any obligation (except the
endorsement in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing or in effect guaranteeing
any indebtedness, dividend or other obligation of
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any other Person in any manner, whether directly or indirectly, including
(without limitation) obligations incurred through an agreement, contingent or
otherwise, by such Person:
(a) to purchase such indebtedness or obligation or any property
constituting security therefor;
(b) to advance or supply funds (i) for the purchase or payment of such
indebtedness or obligation, or (ii) to maintain any working capital or other
balance sheet condition or any income statement condition of any other Person
or otherwise to advance or make available funds for the purchase or payment of
such indebtedness or obligation;
(c) to lease properties or to purchase properties or services primarily
for the purpose of assuring the owner of such indebtedness or obligation of the
ability of any other Person to make payment of the indebtedness or obligation;
or
(d) otherwise to assure the owner of such indebtedness or obligation
against loss in respect thereof.
In any computation of the indebtedness or other liabilities of the obligor
under any Guaranty, the indebtedness or other obligations that are the subject
of such Guaranty shall be assumed to be direct obligations of such obligor.
"HAZARDOUS MATERIAL" means any and all pollutants, toxic or hazardous
wastes or any other substances that might pose a hazard to health or safety,
the removal of which may be required or the generation, manufacture, refining,
production, processing, treatment, storage, handling, transportation, transfer,
use, disposal, release, discharge, spillage, seepage, or filtration of which is
or shall be restricted, prohibited or penalized by any applicable law
(including, without limitation, asbestos, urea formaldehyde foam insulation and
polycholorinated biphenyls, but expressly not including crude oil, natural gas
liquids and related by-products).
"HOLDER" means, with respect to any Note, the Person in whose name such
Note is registered in the register maintained by the Company pursuant to
Section 13.1.
"INDEBTEDNESS" with respect to any Person means, at any time, without
duplication,
(a) its liabilities for borrowed money and its redemption obligations in
respect of mandatorily redeemable Preferred Stock;
(b) its liabilities for the deferred purchase price of property acquired
by such Person (excluding accounts payable arising in the ordinary course of
business but including all liabilities created or arising under any conditional
sale or other title retention agreement with respect to any such property);
(c) all liabilities appearing on its balance sheet in accordance with
GAAP in respect of Capital Leases;
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(d) all liabilities for borrowed money secured by any Lien with respect
to any property owned by such Person (whether or not it has assumed or
otherwise become liable for such liabilities);
(e) all its liabilities in respect of letters of credit or instruments
serving a similar function issued or accepted for its account by banks and
other financial institutions (whether or not representing obligations for
borrowed money);
(f) Swaps of such Person; and
(g) any Guaranty of such Person with respect to liabilities of a type
described in any of clauses (a) through (f) hereof.
Indebtedness of any Person shall include all obligations of such Person of the
character described in clauses (a) through (g) to the extent such Person
remains legally liable in respect thereof notwithstanding that any such
obligation is deemed to be extinguished under GAAP.
"LIEN" means, with respect to any Person, any mortgage, lien, pledge,
charge, security interest or other encumbrance, or any interest or title of any
vendor, lessor, lender or other secured party to or of such Person under any
conditional sale or other title retention agreement or Capital Lease, upon or
with respect to any property or asset of such Person (including in the case of
stock, stockholder agreements, voting trust agreements and all similar
arrangements).
"MATERIAL" means material in relation to the business, operations,
affairs, financial condition, assets, properties, or prospects of the Company
and its Subsidiaries taken as a whole.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the
business, operations, affairs, financial condition, assets or properties of the
Company and its Subsidiaries taken as a whole, or (b) the ability of the
Company to perform its obligations under this Agreement and the Notes, or (c)
the validity or enforceability of this Agreement or the Notes.
"MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer plan" (as
such term is defined in section 4001(a)(3) of ERISA).
"NOTES" is defined in Section 1.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.
"PERMITTED LIENS" means (i) any Liens securing the Indebtedness set forth
on Schedule 5.13, (ii) pledges or deposits made to secure payment of worker's
compensation, or to participate in any fund in connection with worker's
compensation, unemployment insurance, pensions or other social security
programs, (iii) encumbrances consisting of zoning restrictions, easements, or
other restrictions on the use of real property, none of which impair the use of
such property by the Person in question in the operations of its business, and
none of which is violated by existing or proposed structures or land use, (iv)
Liens for Taxes not yet due and payable, mechanics', materialmen, warehousemen,
carriers, operators or other like Liens, for services or materials for
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which payment is not yet due and payable, and landlord's Liens for rental not
yet due and payable, (v) royalty interests, overriding royalty interests, net
profits interests, production payments or other payments out of or with respect
to the production of hydrocarbons, (vi) Permitted Purchase Money Liens, and
(vii) Liens securing the Senior Indebtedness.
"PERMITTED PURCHASE MONEY INDEBTEDNESS" means Indebtedness (i) in an
aggregate amount outstanding at any time not to exceed $300,000, (ii) incurred
to finance the purchase of machinery, equipment, vehicles or other capital
assets, (iii) in a principal amount not exceeding 100% of the purchase price of
the assets purchased with the proceeds of such Indebtedness, and (iv) incurred
substantially simultaneously with the purchase of such assets.
"PERMITTED PURCHASE MONEY LIENS" means Liens encumbering machinery,
equipment, vehicles or other capital assets securing Permitted Purchase Money
Indebtedness, the proceeds of which are used to finance the purchase of such
assets; provided, that such Liens shall not attach to or encumber any other
assets, and such Liens shall be granted substantially simultaneously with the
purchase of such assets.
"PERSON" means an individual, partnership, corporation, limited liability
company, association, trust, unincorporated organization, or a government or
agency or political subdivision thereof.
"PLAN" means an "employee benefit plan" (as defined in section 3(3) of
ERISA) that is or, within the preceding five years, has been established or
maintained, or to which contributions are or, within the preceding five years,
have been made or required to be made, by the Company or any ERISA Affiliate or
with respect to which the Company or any ERISA Affiliate may have any
liability.
"PREFERRED STOCK" means any class of capital stock of a corporation that
is preferred over any other class of capital stock of such corporation as to
the payment of dividends or the payment of any amount upon liquidation or
dissolution of such corporation.
"PROPERTY" or "PROPERTIES" means, unless otherwise specifically limited,
real or personal property of any kind, tangible or intangible, choate or
inchoate.
"PROVEN RESERVES" means, at any particular time, the estimated quantities
of hydrocarbons which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs .
"RESPONSIBLE OFFICER" means the President or any Senior Financial Officer.
"SECURITIES ACT" means the Securities Act of 1933, as amended from time
to time.
"SENIOR FINANCIAL OFFICER" means the chief financial officer, principal
accounting officer, treasurer or comptroller of the Company.
"SENIOR INDEBTEDNESS" means all principal of the loans outstanding under
the Second Amended and Restated Loan Agreement dated as of September 30, 1998,
by and among
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Petroglyph Energy, Inc. and The Chase Manhattan Bank, as amended, modified or
restated from time to time, all interest thereon (including any interest
accruing after the date of commencement of any insolvency or similar proceeding
against the Company), and all other amounts outstanding thereunder, including
all expenses, indemnities and penalties and all commitment or other similar
fees payable by any Affiliate of the Company from time to time under such
Amended and Restated Loan Agreement.
"SUBORDINATED INDEBTEDNESS" means all present and future Indebtedness and
all renewals, extensions and modifications thereof, now or hereafter owed to
any Person by the Company, arising from, by virtue of, or pursuant to any loan
document, or otherwise, together with all interest accruing thereon and costs,
expenses and attorneys' fees incurred in the enforcement or collection thereof,
which by its terms is subordinated to repayment of the Notes.
"SUBSIDIARY" means, as to any Person, any corporation, association or
other business entity in which such Person or one or more of its Subsidiaries
or such Person and one or more of its Subsidiaries owns sufficient equity or
voting interests to enable it or them (as a group) ordinarily, in the absence
of contingencies, to elect a majority of the directors (or Persons performing
similar functions) of such entity, and any partnership or joint venture if more
than a 50% interest in the profits or capital thereof is owned by such Person
or one or more of its Subsidiaries or such Person and one or more of its
Subsidiaries (unless such partnership can and does ordinarily take major
business actions without the prior approval of such Person or one or more of
its Subsidiaries). Unless the context otherwise clearly requires, any reference
to a "Subsidiary" is a reference to a Subsidiary of the Company.
"SWAPS" means, with respect to any Person, payment obligations with
respect to interest rate swaps, currency swaps and similar obligations
obligating such Person to make payments, whether periodically or upon the
happening of a contingency. For the purposes of this Agreement, the amount of
the obligation under any Swap shall be the amount determined in respect thereof
as of the end of the then most recently ended fiscal quarter of such Person,
based on the assumption that such Swap had terminated at the end of such fiscal
quarter, and in making such determination, if any agreement relating to such
Swap provides for the netting of amounts payable by and to such Person
thereunder or if any such agreement provides for the simultaneous payment of
amounts by and to such Person, then in each such case, the amount of such
obligation shall be the net amount so determined.
"TAXES" means all taxes, assessments, fees, levies, imposts, duties,
deductions, withholdings, or other charges of any nature whatsoever from time
to time or at any time imposed by any law or governmental authority.
"WARRANT AGREEMENT" means a warrant agreement in favor of the purchaser
named herein in the form attached hereto as Exhibit 2.
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SCHEDULE B
CALCULATION OF ADDITIONAL WARRANTS
Warrants will accrue sufficient to increase your annual nominal return to
18% (or an incremental 10% over the coupon rate).
For example, if $5,000,000 remains outstanding until the end of year 5
when the notes are repaid, the value of the warrants determined on each
anniversary date and issued within 30 days thereof would be calculated as
follows:
Year 1
$5,000,000 x 10% = $500,000
(assume year end stock price of $6 and a $3 exercise price)
Warrant shares issued at year end: $500,000 / $3 = 166,667
Year 2
$5,000,000 x 10% = $500,000
(assume stock price of $8 and a $3 exercise price)
Warrant shares issued at year end: $500,000 / $5 = 100,000
Year 3
$5,000,000 x 10% = $500,000
(assume stock price of $12 and a $3 exercise price)
Warrant shares issued at year end: $500,000 / $9 = 55,556
The example would continue as above for years 4 and 5
For the purpose of calculating the number of warrant shares, in the event
that the trailing 30 day average stock price falls to or remains below $3.00,
the exercise price of the warrants issued will be 80% of the trailing 30 day
average stock price, otherwise the exercise price of issued warrants will be
$3.00.
The number of warrant shares issued attributable to interest payments
during the term of the Agreement shall not exceed 250,000 in any single year,
or 400,000 in the aggregate over the first three years, or 750,000 in aggregate
during the term.
Each warrant will expire 5 years after its issuance date.
In the event that the Company shall at any time subdivide its
outstanding shares of common stock into a greater number of shares (by stock
split, stock dividend, recapitalization or otherwise), the number of warrants
issuable pursuant to the Agreement immediately prior to such subdivision shall
be proportionately increased and the exercise price shall be proportionately
reduced. Conversely, in the event that the outstanding shares of common stock
shall at any time be combined into a smaller number of shares (by reverse stock
split or otherwise), the number of warrants issued pursuant to the Agreement
immediately prior to such combination shall be proportionately reduced and the
exercise price shall be proportionately increased.
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