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HALLWOOD CONSOLIDATED RESOURCES CORPORATION
$25,000,000
10.32% SENIOR SUBORDINATED NOTES DUE DECEMBER 23, 2007
and
COMMON STOCK PURCHASE WARRANTS
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SUBORDINATED NOTE AND WARRANT PURCHASE AGREEMENT
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Dated as of December 23, 1997
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TABLE OF CONTENTS
(Not Part of Agreement)
Page
PARAGRAPH 1. AUTHORIZATION OF ISSUE OF SECURITIES.............................1
1A. Authorization of Issue of Notes.................................1
1B. Authorization of Issue of Warrants..............................1
PARAGRAPH 2. PURCHASE AND SALE OF SECURITIES..................................2
2. Purchase and Sale of Securities.................................2
PARAGRAPH 3. CONDITIONS PRECEDENT.............................................2
3. Conditions to Closing...........................................2
3A. Certain Documents.........................................2
3B. Opinion of Purchaser's Special Counsel....................4
3C. Representations and Warranties; No Default................4
3D. Purchase Permitted By Applicable Laws.....................4
3E. Proceedings...............................................4
3F. Private Placement Numbers.................................4
3G. Fees......................................................4
PARAGRAPH 4. PREPAYMENTS......................................................5
4. Prepayments.....................................................5
4A. Required Prepayments......................................5
4B. Optional Prepayment of Notes with Yield-Maintenance
Amount...................................................5
4C. Change in Control.........................................5
4D. Partial Payments Pro Rata.................................7
4E. Retirement of Notes.......................................7
PARAGRAPH 5. AFFIRMATIVE COVENANTS............................................7
5. Affirmative Covenants...........................................7
5A. Financial Statements......................................7
5B. Information Required by Rule 144A........................10
5C. Inspection of Property...................................10
5D. Covenant to Secure Notes Equally.........................10
5E. Corporate Existence, Licenses and Permits; Maintenance
of Properties...........................................11
5F. Maintenance of Insurance.................................11
5G. Payment of Taxes and Other Claims........................11
5H. ERISA Compliance.........................................12
(i)
5I. Compliance with Laws.....................................12
5J. Maintenance of Books of Record; Reserves.................12
5K. Assumption of the Subsidiary Guaranty by After-Acquired
Subsidiaries............................................12
PARAGRAPH 6. NEGATIVE COVENANTS..............................................13
6. Negative Covenants.............................................13
6A. Financial Covenants......................................13
6B. Other Restrictions.......................................13
6C. Change of Business.......................................17
6D. New Subsidiaries.........................................17
PARAGRAPH 7. SUBORDINATION OF NOTES..........................................17
7A. Subordination...........................................17
7B. Obligation of the Company Unconditional.................19
7C. Subrogation.............................................19
7D. Rights of Holders of Senior Debt........................19
PARAGRAPH 8. EVENTS OF DEFAULT...............................................20
8. Events of Default..............................................20
8A. Acceleration............................................20
8B. Rescission of Acceleration..............................23
8C. Notice of Acceleration or Rescission....................23
8D. Other Remedies..........................................23
PARAGRAPH 9. REPRESENTATIONS, COVENANTS AND WARRANTIES.......................24
9. Representations, Covenants and Warranties......................24
9A. Organization............................................24
9B. Financial Statements....................................24
9C. Actions Pending.........................................24
9D. Outstanding Indebtedness................................25
9E. Title to Properties.....................................25
9F. Taxes...................................................25
9G. Conflicting Agreements and Other Matters................25
9H. Authorized Capital Stock................................26
9I. Offering of Securities..................................26
9J. Use of Proceeds.........................................27
9K. ERISA...................................................27
9L. Governmental Consent....................................27
9M. Environmental Compliance................................28
9N. Disclosure..............................................28
(ii)
PARAGRAPH 10. REPRESENTATIONS OF THE PURCHASER...............................28
10. Representations of the Purchaser..............................28
10A. Nature of Purchase......................................28
10B. Source of Funds.........................................28
PARAGRAPH 11. DEFINITIONS....................................................29
11. Definitions...................................................29
11A. Yield-Maintenance Terms.................................29
11B. Other Terms.............................................30
11C. Accounting Principles, Terms and Determinations.........39
PARAGRAPH 12. MISCELLANEOUS..................................................39
12. Miscellaneous.................................................39
12A. Note Payments...........................................40
12B. Expenses................................................40
12C. Consent to Amendments...................................40
12D. Form, Registration, Transfer and Exchange of Notes;
Lost Notes.............................................41
12E. Persons Deemed Owners; Participations...................41
12F. Survival of Representations and Warranties;
Entire Agreement.......................................41
12G. Successors and Assigns..................................42
12H. Disclosure to Other Persons.............................42
12I. Notices.................................................42
12J. Payments Due on Non-Business Days.......................42
12K. Satisfaction Requirement................................43
12L. Governing Law...........................................43
12M. Waiver of Jury Trial; Consent to Jurisdiction;
Limitation of Remedies.................................43
12N. Severability............................................44
12O. Descriptive Headings....................................44
12P. Maximum Interest Payable................................44
12Q. Counterparts............................................45
(iii)
PURCHASER SCHEDULE
SCHEDULE 9D -- EXISTING INDEBTEDNESS, NON-RECOURSE DEBT AND
LIENS
SCHEDULE 9G -- LIST OF AGREEMENTS RESTRICTING INDEBTEDNESS
EXHIBIT A -- FORM OF SENIOR SUBORDINATED NOTE
EXHIBIT B -- FORM OF COMMON STOCK PURCHASE WARRANT
EXHIBIT C-1 -- FORM OF OPINION OF COMPANY'S GENERAL COUNSEL
EXHIBIT C-2 -- FORM OF OPINION OF COMPANY'S SPECIAL COUNSEL
EXHIBIT D -- FORM OF SUBSIDIARY GUARANTY
EXHIBIT E -- FORM OF PARTICIPATION RIGHTS AGREEMENT
EXHIBIT F -- FORM OF REGISTRATION RIGHTS AGREEMENT
EXHIBIT G -- FORM OF ASSUMPTION OF SUBSIDIARY GUARANTY
EXHIBIT H -- FORM OF OPINION RELATING TO FUTURE SUBSIDIARY'S
ASSUMPTION OF SUBSIDIARY GUARANTY
(iv)
HALLWOOD CONSOLIDATED RESOURCES CORPORATION
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
As of December 23, 1997
The Prudential Insurance Company of America
c/o Prudential Capital Group
Four Gateway Center
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
$25,000,000 10.32% Senior Subordinated Notes due 2007
Common Stock Purchase Warrants
Ladies and Gentlemen:
The undersigned, Hallwood Consolidated Resources Corporation, a Delaware
corporation (the "Company"), hereby agrees with you as follows:
PARAGRAPH 1. AUTHORIZATION OF ISSUE OF SECURITIES.
1A. Authorization of Issue of Notes. The Company will authorize the issue
of its senior subordinated promissory notes (any such promissory notes which
have been issued pursuant to this Agreement, and any such notes which may be
issued in substitution or exchange therefor, herein collectively called the
"Notes") in the aggregate principal amount of $25,000,000, to be dated the date
of issue thereof, to mature December 23, 2007 and to bear interest on the unpaid
balance thereof from the date thereof until the principal thereof shall have
become due and payable at the rate of 10.32% per annum and on overdue payments
at the rate specified therein; such Notes shall be substantially in the form of
Exhibit A attached hereto.
1B. Authorization of Issue of Warrants. The Company will also authorize the
issue of its Common Stock Purchase Warrants (any such Common Stock Purchase
Warrants which have been issued pursuant to this Agreement, and any such Common
Stock Purchase Warrants which may be issued in substitution or exchange
therefor, herein collectively called the "Warrants") evidencing rights to
purchase from the Company an aggregate of 98,599 shares of the Company's common
stock, par value $.01 per share (the "Common Stock"), at an initial exercise
price per share of $28.99, at any time or from time to time after the Date of
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Closing, all subject to the terms, conditions and adjustments set forth in the
Warrants; such Warrants shall be substantially in the form of Exhibit B attached
hereto.
Capitalized terms used herein have the meanings specified in paragraph 11.
PARAGRAPH 2. PURCHASE AND SALE OF SECURITIES.
2. Purchase and Sale of Securities. The Company hereby agrees to sell to
you and, subject to the terms and conditions herein set forth, you agree to
purchase from the Company the following:
(i) Notes in the aggregate principal amount of $25,000,000; and
(ii) Warrants evidencing rights to purchase an aggregate of 98,599
shares of Common Stock.
The aggregate purchase price for the Notes shall be 100% of the principal amount
of the Notes. The aggregate purchase price for the Warrants shall be $10.00.
The Company will deliver to you, at the offices of ▇▇▇▇▇ & ▇▇▇▇▇, L.L.P. at ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, (a) one or more Notes registered in your name,
evidencing the aggregate principal amount of Notes to be purchased by you and in
the denomination or denominations specified in the Purchaser Schedule attached
hereto, and (b) one or more Warrants registered in your name, evidencing rights
to purchase an aggregate of 98,599 shares of Common Stock, such Warrant or
Warrants to evidence rights to purchase the number of shares of Common Stock
specified in the Purchaser Schedule attached hereto, against payment of the
purchase price for the Securities by transfer of immediately available funds for
credit to account # 4159-672336 at ▇▇▇▇▇ Fargo Bank, Denver, Colorado,
ABA#▇▇▇▇▇▇▇▇▇, on the date of closing, which shall be December 23, 1997 or any
other date on or before December 31, 1997 upon which the Company and you may
mutually agree (the "Closing" or the "Date of Closing").
PARAGRAPH 3. CONDITIONS PRECEDENT.
3. Conditions to Closing. Your obligation to purchase and pay for the
Securities to be purchased by you hereunder is subject to the satisfaction, on
or before the Date of Closing, of the following conditions:
3A. Certain Documents. You shall have received the following, each dated
the Date of Closing unless otherwise indicated:
(i) The Notes to be purchased by you.
(ii) The Warrants to be purchased by you.
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(iii) Certified copies of the resolutions of the Board of Directors of
the Company approving this Agreement, the Notes, the Subsidiary Guaranty,
the Warrants, the Registration Rights Agreement and the Participation
Rights Agreement and of all documents evidencing other necessary corporate
or limited partnership action and governmental approvals, if any, with
respect to this Agreement, the Notes, the Subsidiary Guaranty, the
Warrants, the Registration Rights Agreement and the Participation Rights
Agreement.
(iv) A certificate of the Secretary or an Assistant Secretary of the
Company certifying the names and true signatures of the officers of the
Company authorized to sign this Agreement, the Notes, the Subsidiary
Guaranty, the Warrants, the Registration Rights Agreement, the
Participation Rights Agreement and the other documents to be delivered
hereunder.
(v) Certified copies of the Certificate of Incorporation and bylaws of
the Company and of the Limited Partnership Agreement, as amended, and the
Certificate of Limited Partnership, as amended, of HCP.
(vi) Favorable opinions of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq., General Counsel of
the Company, and of King & Spalding, special counsel to the Company and
HCP, satisfactory to you and substantially in the respective forms of
Exhibits C-1 and C-2 attached hereto and as to such other matters as you
may reasonably request.
(vii) Certified copies of Requests for Information or Copies (Form
UCC-11), or equivalent reports, dated within 30 days prior to the Date of
Closing, listing all effective financing statements which name the Company
or HCP (under its or their present name or any previous name) as debtor and
which are filed in the States of Colorado, Louisiana and Texas.
(viii) A letter satisfactory to you from Prudential Securities, Inc.,
placement agent for the Company, regarding the private offering of the
Securities.
(ix) The Registration Rights Agreement, duly executed and delivered by
the Company.
(x) The Participation Rights Agreement, duly executed and delivered by
the Company and HEP.
(xi) The Subsidiary Guaranty, in the form of Exhibit D attached
hereto, duly executed and delivered by HCP.
(xii) An amendment to the Credit Agreement to permit the issuance of
the Notes and the execution, delivery and performance of this Agreement and
the Subsidiary Guaranty.
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(xiii) Additional documents or certificates with respect to legal
matters or corporate or other proceedings related to the transactions
contemplated hereby as you may reasonably request.
3B. Opinion of Purchaser's Special Counsel. You shall have received from
▇▇▇▇▇ & ▇▇▇▇▇, L.L.P., who are acting as special counsel for you in connection
with this transaction, a favorable opinion satisfactory to you as to such
matters incident to the matters herein contemplated as you may reasonably
request.
3C. Representations and Warranties; No Default. The representations and
warranties contained in paragraph 9 hereof and in section 8 of the Subsidiary
Guaranty shall be true on and as of the Date of Closing, except to the extent of
changes caused by the transactions herein contemplated; there shall exist on the
Date of Closing no Event of Default or Default; and the Company shall have
delivered to you an Officer's Certificate, dated the Date of Closing, to both
such effects.
3D. Purchase Permitted By Applicable Laws. The offer by the Company of, and
the purchase of and payment for, the Securities to be purchased by you on the
Date of Closing on the terms and conditions herein provided (including the use
of the proceeds of such Securities by the Company) shall not violate any
applicable law or governmental regulation (including, without limitation,
Section 5 of the Securities Act or Regulation G or X of the Board of Governors
of the Federal Reserve System) and shall not subject you to any tax, penalty,
liability or other onerous condition under or pursuant to any applicable law or
governmental regulation, and you shall have received such certificates or other
evidence as you may request to establish compliance with this condition.
3E. Proceedings. All corporate and other proceedings taken or to be taken
in connection with the transactions contemplated hereby and all documents
incident hereto shall be satisfactory in substance and form to you, and you
shall have received all such counterpart originals or certified or other copies
of such documents as you may reasonably request.
3F. Private Placement Numbers. Private Placement numbers issued by Standard
& Poor's CUSIP Service Bureau (in cooperation with the Securities Valuation
Office of the National Association of Insurance Commissioners) shall have been
obtained for the Notes and the Warrants.
3G. Fees. Without limiting the provisions of paragraph 12B, your special
counsel and your petroleum engineering consultant shall have received their
respective fees, charges and disbursements to the extent reflected in statements
rendered to the Company at least one Business Day prior to the Closing.
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PARAGRAPH 4. PREPAYMENTS.
4. Prepayments. The Notes shall be subject to prepayment only with respect
to the prepayments specified in paragraphs 4A, 4B and 4C.
4A. Required Prepayments. Until the Notes shall be paid in full, the
Company shall apply to the prepayment of the Notes, without premium, the sum of
$5,000,000 on December 23 in each of the years 2003 through 2006, inclusive, and
such principal amounts of the Notes, together with accrued and unpaid interest
thereon to such prepayment dates, shall become due on such prepayment dates. The
remaining outstanding principal amount of the Notes, together with interest
accrued and unpaid thereon, shall become due on the maturity date of the Notes.
4B. Optional Prepayment of Notes with Yield-Maintenance Amount.
(i) The Notes shall be subject to prepayment, on any Business Day, in
whole at any time or from time to time in part (in multiples of
$1,000,000), at the option of the Company, at 100% of the principal amount
so prepaid plus unpaid accrued interest thereon to the prepayment date plus
the Yield-Maintenance Amount, if any, with respect to each Note being so
prepaid. Any partial prepayment of the Notes pursuant to this paragraph 4B
shall be applied in satisfaction of required payments of principal in
inverse order of their scheduled due dates.
(ii) The Company shall give the holder of each Note irrevocable
written notice of any prepayment pursuant to this paragraph 4B not less
than 25 days and not more than 45 days prior to the prepayment date,
specifying such prepayment date and the principal amount of the Notes, and
of the Notes held by such holder, to be prepaid on such date and stating
that such prepayment is to be made pursuant to this paragraph 4B. Notice of
prepayment having been given as aforesaid, the principal amount of the
Notes specified in such notice, together with interest thereon to the
prepayment date and together with the Yield-Maintenance Amount, if any,
with respect thereto, shall become due and payable on such prepayment date.
4C. Change in Control.
(i) Notice of Occurrence of Change in Control. The Company will,
within five Business Days after any Responsible Officer has knowledge of
the occurrence of any Change in Control, give written notice of such Change
in Control to each holder of Notes. If a Change in Control has occurred,
such notice shall contain and constitute an offer to prepay Notes as
described in clause (iii) of this paragraph 4C and shall be accompanied by
the certificate described in clause (vi) hereof.
(ii) Notice of Impending Change in Control. The Company will not take
any action that consummates or finalizes a Change in Control unless at
least 30 days prior to such action it shall have given to each holder of
5
Notes written notice of such impending Change in Control.
(iii) Offer to Prepay Notes. The offer to prepay Notes contemplated by
the foregoing clause (i) shall be an offer to prepay, in accordance with
and subject to this paragraph 4C, all, but not less than all, the Notes
held by each holder (in this case only, "holder" in respect of any Note
registered in the name of a nominee for a disclosed beneficial owner shall
mean such beneficial owner) on a date specified in such offer (the
"Proposed Prepayment Date"). Such Proposed Prepayment Date shall be not
less than 50 days and not more than 60 days after the date of such offer
(if the Proposed Prepayment Date shall not be specified in such offer, the
Proposed Prepayment Date shall be the 50th day after the date of such
offer).
(iv) Rejection; Acceptance. A holder of Notes may accept the offer to
prepay made pursuant to this paragraph 4C by causing a notice of such
acceptance to be delivered to the Company at least five days prior to the
Proposed Prepayment Date. A failure by a holder of Notes to respond to an
offer to prepay made pursuant to this paragraph 4C shall be deemed to
constitute an acceptance of such offer by such holder.
(v) Prepayment; Reduction of Required Prepayments. Prepayment of the
Notes to be prepaid pursuant to this paragraph 4C shall be at 100% of the
principal amount of such Notes, plus interest on such Notes accrued to the
date of prepayment plus Yield-Maintenance Amount, if any, with respect to
each Note being so prepaid. On the Business Day preceding the date of
prepayment under this paragraph 4C, the Company shall deliver to each
holder of Notes being so prepaid a statement showing the Yield-Maintenance
Amount due in connection with such prepayment and setting forth the details
of the computation of such amount. Such prepayment shall be made on the
Proposed Prepayment Date. Upon any partial prepayment of Notes pursuant to
this paragraph 4C, the principal amount of the required prepayment of Notes
becoming due under paragraph 4A on or after the date of such prepayment
shall be reduced in the same proportion as the aggregate unpaid principal
amount of Notes is reduced as a result of such prepayment.
(vi) Officer's Certificate. Each offer to prepay the Notes pursuant to
this paragraph 4C shall be accompanied by a certificate, executed by a
Responsible Officer of the Company and dated the date of such offer,
specifying: (a) the Proposed Prepayment Date; (b) that such offer is made
pursuant to this paragraph 4C; (c) the principal amount of each Note
offered to be prepaid; (d) the estimated Yield-Maintenance Amount due in
connection with such prepayment (calculated as if the date of such notice
were the date of the prepayment) and the details of such calculation; (e)
the interest that would be due on each Note offered to be prepaid, accrued
to the Proposed Prepayment Date; (f) that the conditions of this paragraph
4C have been fulfilled; and (g) in reasonable detail, the nature and date
of the Change in Control.
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4D. Partial Payments Pro Rata. Upon any partial prepayment of Notes
pursuant to paragraph 4A or 4B the principal amount so prepaid shall be
allocated to all Notes at the time outstanding (including, for the purpose of
this paragraph 4D only, all such Notes prepaid or otherwise retired or purchased
or otherwise acquired by the Company or any of its Subsidiaries or Affiliates
other than by prepayment pursuant to paragraph 4A, 4B or 4C) in proportion to
the respective outstanding principal amounts thereof.
4E. Retirement of Notes. The Company shall not, and shall not permit any of
its Subsidiaries or Affiliates to, prepay or otherwise retire in whole or in
part prior to their stated final maturity (other than by prepayment pursuant to
paragraph 4A, 4B or 4C or upon acceleration of such final maturity pursuant to
paragraph 8A), or purchase or otherwise acquire, directly or indirectly, Notes
held by any holder unless the Company or such Subsidiary or Affiliate shall have
offered to prepay or otherwise retire or purchase or otherwise acquire, as the
case may be, the same proportion of the aggregate principal amount of Notes held
by each other holder of Notes at the time outstanding upon the same terms and
conditions. Any Notes so prepaid or otherwise retired or purchased or otherwise
acquired by the Company or any of its Subsidiaries or Affiliates shall not be
deemed to be outstanding for any purpose under this Agreement, except as
provided in paragraph 4D.
PARAGRAPH 5. AFFIRMATIVE COVENANTS.
5. Affirmative Covenants.
So long as any Note shall remain unpaid (or, if no Note shall remain unpaid
but any Warrant shall remain outstanding, (i) if at the time in question the
Common Stock is listed or admitted to trading on any national securities
exchange or is traded in the over-the-counter market and is subject to bid and
asked prices with respect thereto being quoted in the NASDAQ National Market,
then only with respect to the covenants of the Company set forth in paragraphs
5A(i), (ii), (iii) and (vii) and 5B, or (ii) if the Common Stock is not so
listed, admitted to trading or subject to such bid and asked prices being so
quoted, then only with respect to the covenants of the Company set forth in
paragraphs 5A, 5B and 5C (other than the provisions thereof that permit
inspection of properties or require that the Company bear the expense of any
inspection therein contemplated)), the Company covenants that:
5A. Financial Statements. The Company will deliver to each holder in
duplicate:
(i) as soon as practicable and in any event within 50 days after the
end of each quarterly period (other than the last quarterly period) in each
fiscal year, consolidated statements of income and cash flows and a
consolidated statement of stockholders' equity of the Company and its
Subsidiaries for the period from the beginning of the current fiscal year
to the end of such quarterly period, and a consolidated balance sheet of
the Company and its Subsidiaries as at the end of such quarterly period,
setting forth in each case in comparative form figures for the
corresponding period in the preceding fiscal year, all in reasonable detail
7
and satisfactory in form to the Required Holder(s) and certified by an
authorized financial officer of the Company, subject to changes resulting
from year-end adjustments; provided, that delivery pursuant to clause (iii)
below of copies of the Quarterly Report on Form 10-Q of the Company for
such quarterly period filed with the Securities and Exchange Commission
shall be deemed to satisfy the requirements of this clause (i) with respect
to consolidated financial statements if such financial statements are
included in such report;
(ii) as soon as practicable and in any event within 100 days after the
end of each fiscal year, consolidated statements of income and cash flows
and a consolidated statement of stockholders' equity of the Company and its
Subsidiaries for such year, and a consolidated balance sheet of the Company
and its Subsidiaries as at the end of such year, setting forth in each case
in comparative form corresponding consolidated figures from the preceding
annual audit, all in reasonable detail and satisfactory in form to the
Required Holder(s) and reported on by independent public accountants of
recognized national standing selected by the Company whose report shall be
without limitation as to the scope of the audit and satisfactory in
substance to the Required Holder(s); provided, that delivery pursuant to
clause (iii) below of copies of the Annual Report on Form 10-K of the
Company for such fiscal year filed with the Securities and Exchange
Commission shall be deemed to satisfy the requirements of this clause (ii)
with respect to consolidated financial statements if such financial
statements are included in such report;
(iii) promptly upon transmission thereof, copies of all such financial
statements, proxy statements, notices and reports as it shall send to its
public stockholders and copies of all registration statements (without
exhibits) and all reports which it files with the Securities and Exchange
Commission (or any governmental body or agency succeeding to the functions
of the Securities and Exchange Commission);
(iv) promptly upon receipt thereof, a copy of each other report
submitted to the Company or any Subsidiary by independent accountants in
connection with any annual, interim or special audit made by them of the
books of the Company or any Subsidiary;
(v) as soon as practicable and in any event within five Business Days
after any officer of the Company obtaining knowledge (a) of any condition
or event which, in the opinion of management of the Company, could have a
material adverse effect on the business, condition (financial or other),
assets, properties, operations or prospects of the Company and its
Subsidiaries taken as a whole, (b) that any Person has given any notice to
the Company or any of its Subsidiaries or taken any other action with
respect to a claimed default or event or condition of the type referred to
in paragraph 8A(iii), (c) of the institution of any litigation involving
claims against the Company or any of its Subsidiaries equal to or greater
than $200,000 with respect to any single cause of action or of any adverse
determination in any court proceeding in any litigation involving a
potential liability to the Company or any of its Subsidiaries equal to or
greater than $200,000 with respect to any single cause of action which
makes the likelihood of an adverse determination in such litigation against
8
the Company or such Subsidiary substantially more probable, (d) of any
regulatory proceeding which could have a material adverse effect on the
business, condition, (financial or other), assets, properties, operations
or prospects of the Company and its Subsidiaries taken as a whole, an
Officer's Certificate specifying the nature and period of existence of any
such condition or event, or specifying the notice given or action taken by
such Person and the nature of any such claimed default, event or condition,
or specifying the details of such proceeding, litigation or dispute and
what action the Company or any of its Subsidiaries has taken, is taking or
proposes to take with respect thereto;
(vi) promptly after the filing or receiving thereof, copies of all
reports and notices which the Company or any Subsidiary files under ERISA
with the Internal Revenue Service or the PBGC or the U.S. Department of
Labor or which the Company or any Subsidiary receives from any of them;
(vii) (a) by April 1 and August 1 of each year, a report in form and
substance reasonably satisfactory to the Required Holders, which may be
prepared by or under the supervision of a petroleum engineer who may be an
employee of the Company or an Affiliate, which shall evaluate each interest
in oil and gas reserves (including without limitation any production
payment with respect to any such reserves) which is, or is to be, taken
into account in the determination of the "Debt Limit" pursuant to the
Credit Agreement as of the preceding December 31 or June 30, respectively;
and (b) together with the report furnished pursuant to the foregoing clause
(a) as of December 31 of any year, an audit report by April 1 of each year,
which shall be in form and substance reasonably satisfactory to the
Required Holders and shall be prepared by ▇▇▇▇▇▇▇▇▇▇ Petroleum Consultants,
Inc. or other independent petroleum engineers reasonably acceptable to the
Required Holders, which audit report shall state that such independent
petroleum engineers have reviewed at least 50% in value of the interests in
oil and gas reserves subject to such report in detail in order to confirm
the reserve figures and have conducted a general review of the remaining
properties of the Company and its Subsidiaries, provided that each year the
detailed review of 50% of the interests in oil and gas reserves contained
in such audit report shall cover a different group of such interests so
that 100% of such interests will be covered over each four-year period; and
provided, further that each such review will always include the two
interests in oil and gas properties greatest in value at the time of such
review; and provided, further, that the reviews contained in each audit
report shall separately cover proved developed producing reserves, proved
developed non- producing reserves and proved undeveloped reserves;
(viii) all other reports and information the Company is required to
provide to the banks under the Credit Agreement; and
(ix) with reasonable promptness, such other information respecting the
condition or operations, financial or otherwise, of the Company or any of
its Subsidiaries as such holder may reasonably request.
9
Together with each delivery of financial statements required by clauses (i) and
(ii) above, the Company will deliver to each holder an Officer's Certificate
demonstrating (with computations in reasonable detail) compliance by the Company
and its Subsidiaries with the provisions of paragraphs 6A(1), 6A(2), 6B(2),
6B(4), 6B(6) and 6B(7) and stating that there exists no Event of Default or
Default, or, if any Event of Default or Default exists, specifying the nature
and period of existence thereof and what action the Company proposes to take
with respect thereto. Together with each delivery of financial statements
required by clause (ii) above, the Company will deliver to each holder a
certificate of such accountants stating that, in making the audit necessary for
their report on such financial statements, they have obtained no knowledge of
any Event of Default or Default, or, if they have obtained knowledge of any
Event of Default or Default, specifying the nature and period of existence
thereof. Such accountants, however, shall not be liable to anyone by reason of
their failure to obtain knowledge of any Event of Default or Default which would
not be disclosed in the course of an audit conducted in accordance with
generally accepted auditing standards.
The Company also covenants that immediately after any Responsible Officer
obtains knowledge of an Event of Default or Default, it will deliver to each
holder an Officer's Certificate specifying the nature and period of existence
thereof and what action the Company proposes to take with respect thereto.
5B. Information Required by Rule 144A. The Company will, upon the request
of the holder of any Security provide such holder, and any qualified
institutional buyer designated by such holder, such financial and other
information as such holder may reasonably determine to be necessary in order to
permit compliance with the information requirements of Rule 144A under the
Securities Act in connection with the resale of the Securities, except at such
times as the Company is subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act. For the purpose of this paragraph 5B, the term
"qualified institutional buyer" shall have the meaning specified in Rule 144A
under the Securities Act.
5C. Inspection of Property. The Company will permit any Person designated
by the holder of any Security in writing, at the Company's expense during the
continuance of a Default or Event of Default if such designation has been made
by a Significant Holder and otherwise at the expense of the holder making such
designation, to visit and inspect any of the properties of the Company and its
Subsidiaries, to examine the corporate books and financial records of the
Company and its Subsidiaries and make copies thereof or extracts therefrom and
to discuss the affairs, finances and accounts of any of such corporations with
the principal officers of the Company and its indepen dent public accountants
(and by this provision the Company authorizes such accountants to discuss the
affairs, finances and accounts of such corporations), all at such reasonable
times and as often as such holder may reasonably request.
5D. Covenant to Secure Notes Equally. The Company will, if it or any
Subsidiary shall create or assume any Lien upon any of its property or assets,
whether now owned or hereafter acquired to secure Indebtedness other than Liens
permitted by paragraph 6B(2) (unless prior written consent to the creation or
assumption thereof shall have been obtained pursuant to paragraph 12C), make or
10
cause to be made effective provision whereby the Notes will be secured by such
Lien equally and ratably with any and all other Indebtedness thereby secured so
long as any such other Indebtedness shall be so secured pursuant to such
agreements and instruments as shall be approved by the Required Holder(s), and
the Company will cause to be delivered to the holder of each Note an opinion of
independent counsel to the effect that such agreements and instruments are
enforceable in accordance with their terms and that the Notes are equally and
ratably secured with such other Indebtedness.
5E. Corporate Existence, Licenses and Permits; Maintenance of Properties.
The Company will at all times do or cause to be done all things necessary to
maintain, preserve and renew its existence as a corporation organized under the
laws of a state of the United States of America, will preserve and keep in force
and effect, and cause each of its Subsidiaries to preserve and keep in force and
effect, all licenses and permits necessary to the conduct of its and their
respective businesses and will maintain and keep, and will cause each of its
Subsidiaries to maintain and keep, its and their respective properties in good
repair, working order and condition, and from time to time make all necessary
and proper repairs, renewals and replacements, so that the business carried on
in connection therewith may be properly and advantageously conducted at all
times in the normal course of business as conducted prior to the date of repair;
provided, however, that nothing contained in this paragraph 5E shall prevent the
Company or any Subsidiary from ceasing or omitting to exercise any right,
license or permit or to make any repair, renewal or replacement that (i) in the
reasonable judgment of the Company or such Subsidiary is no longer in the best
interests of the Company or such Subsidiary and (ii) such cessation or omission
could not result in a material adverse effect on the business, condition
(financial or other), assets, properties, operations or prospects of the Company
and its Subsidiaries taken as a whole.
5F. Maintenance of Insurance. The Company will carry and maintain, and
cause each Subsidiary to carry and maintain, insurance (subject to customary
deductibles and retentions) in at least such amounts and against such
liabilities and hazards and by such methods as customarily maintained by other
companies operating similar businesses.
5G. Payment of Taxes and Other Claims. The Company will and will cause each
of its Subsidiaries to file all income tax or similar 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,
levies, trade accounts payable and claims for work, labor or materials (all the
foregoing being referred to collectively as "Claims") payable by any of them, to
the extent such Claims have become due and payable and before they have become
delinquent; provided that neither the Company nor any Subsidiary need pay any
Claim 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 generally accepted accounting principles on the
books of the Company or such Subsidiary or (ii) the nonpayment of all such
Claims in the aggregate could not result in a material adverse change in the
business, condition (financial or other), assets, properties, operations or
prospects of the Company and its Subsidiaries taken as a whole.
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5H. ERISA Compliance. The Company will, and will cause each ERISA Affiliate
to, at all times:
(i) with respect to each Plan, make timely payments of contributions
required to meet the minimum funding standard set forth in ERISA or the
Code with respect thereto and, with respect to any Multiemployer Plan, make
timely payment of contributions required to be paid thereto as provided by
Section 515 of ERISA, and
(ii) comply with all other provisions of ERISA applicable to the
Company or such ERISA Affiliate, as the case may be,
except for such failures to make contributions and failures to comply as could
not have a material adverse effect on the business, condition (financial or
other), assets, properties, operations or prospects of the Company and its
Subsidiaries taken as a whole.
5I. Compliance with Laws. The Company will comply, and will cause each of
its Subsidiaries to comply, with all applicable laws, rules, regulations and
orders (including those relating to protection of the environment) except, in
any such case, where failure to comply could not have a material adverse effect
on the business, condition (financial or other), assets, properties, operations
or prospects of the Company and its Subsidiaries taken as a whole.
5J. Maintenance of Books of Record; Reserves. The Company, both
individually and on a consolidated basis, will keep proper books of record and
account and set aside appropriate reserves, all in accordance with GAAP.
5K. Assumption of the Subsidiary Guaranty by After-Acquired Subsidiaries.
The Company will, if it acquires the stock or other equity interest of any
Person which after giving effect to such acquisition is a Subsidiary and which
delivers or is required to deliver a Guarantee, or grants or is required to
▇▇▇▇▇ ▇ ▇▇▇▇, to any holder of Senior Debt (or a trustee, collateral agent or
similar Person on behalf of such holder), cause such Subsidiary to deliver to
you (i) an Assumption of Subsidiary Guaranty, in the form of Exhibit G attached
hereto, duly executed by such Subsidiary, (ii) a copy of a resolution of the
board of directors of such Subsidiary, or other appropriate organizational
action if such Subsidiary is not a corporation, approving the Assumption of
Subsidiary Guaranty and the execution and delivery thereof, which copy shall be
certified to be a true copy by the Secretary or an Assistant Secretary of such
Subsidiary or other appropriate person if such Subsidiary is not a corporation,
and (iii) an opinion, in the form of Exhibit H attached hereto, from counsel to
the Company addressing such Subsidiary and such Assumption of Subsidiary
Guaranty.
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PARAGRAPH 6. NEGATIVE COVENANTS.
6. Negative Covenants. So long as any Note shall remain unpaid, the Company
covenants that:
6A. Financial Covenants. The Company will not permit, at any time,
6A(1). Total Debt to EBITDA Ratio. The ratio of (i) Total Debt to (ii)
EBITDA for the most recently ended four consecutive fiscal quarters to be
greater than 4.00 to 1.00.
6A(2). Consolidated Net Worth. Consolidated Net Worth on the last day of
any fiscal quarter, commencing with the fiscal quarter ending December 31, 1997,
to be less than the sum of (i) $31,255,900 plus (ii) 100% of any Equity Proceeds
plus (iii) the cumulative total of 50% of Consolidated Net Income for each
fiscal quarter after September 30, 1997 in which Consolidated Net Income is
positive, to and including the fiscal quarter ended on such measurement date.
6B. Other Restrictions. The Company will not and will not permit any
Subsidiary to:
6B(1). Prohibition Against Layering Indebtedness. Incur, create, issue,
assume, guarantee or in any other manner become directly or indirectly liable
with respect to or responsible for, or permit to remaining outstanding, any
Indebtedness (including, without limitation, Indebtedness permitted pursuant to
paragraphs 6A(1) and 6B(6)) that is subordinate or junior in right of payment to
any Senior Debt or any Guarantee in respect thereof unless such Indebtedness is
subordinate in right of payment to the Notes or the Subsidiary Guaranty, as the
case may be, at least to the same extent as the Notes are subordinate in right
of payment to Senior Debt pursuant to the subordination provisions contained in
paragraph 7 or the Subsidiary Guaranty is subordinate in right of payment to
Senior Debt pursuant to the subordination provisions contained in the Subsidiary
Guaranty, as the case may be.
6B(2). Liens. Create, assume or suffer to exist any Lien upon any of its
properties or assets, whether now owned or hereafter acquired (whether or not
provision is made for the equal and ratable securing of the Notes in accordance
with the provisions of paragraph 5D), except:
(i) Liens, on assets of the Company and HCP other than limited partner
units or other equity interests in HEP, securing Senior Debt and
obligations in respect of Hedging Transactions and Swaps of the Company and
HCP under the Credit Agreement;
(ii) the Lien in favor of FAR Gas Acquisitions Corporation described
on Schedule 9D attached hereto;
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(iii) statutory Liens incidental to the conduct of business or the
ownership of properties of the Company and its Subsidiaries (including
Liens in connection with worker's compensation, unemployment insurance and
other like laws (other than Liens imposed by ERISA), warehousemen's and
mechanic's liens and statutory landlord's liens) and Liens to secure
statutory obligations, property taxes and assessments of governmental
charges or other Liens of like general nature which in each case are
incurred in the ordinary course of business and not in connection with the
borrowing of money, the obtaining of advances or credit or the payment of
the deferred purchase price of property and which do not in any event
materially impair the value or use of the property encumbered thereby in
the operation of the business of the Company and its Subsidiaries; provided
in each case, that the obligation secured is not overdue or is being
contested in good faith by appropriate proceedings and reserves with
respect thereto have been established to the extent required by GAAP;
(iv) Liens on properties of the Company and its Subsidiaries that
secure Non-recourse Debt in an aggregate amount not to exceed at any time
5% of Consolidated Net Worth, unless otherwise agreed to in writing by the
Required Holders; and
(v) other Liens on the property of the Company or any Subsidiary,
provided that the aggregate amount of Indebtedness or other obligations
secured by such Liens plus (without duplication) the aggregate amount of
Indebtedness of all Subsidiaries does not exceed at any time the greater of
$1,000,000 or 2% of Consolidated Net Worth.
6B(3). Consolidation, Merger or Transfer of Assets. Merge or consolidate
with or into any Person or convey, transfer, lease or otherwise dispose of all
or substantially all of its assets to any Person, except that:
(i) any Subsidiary may merge with the Company (provided that the
Company shall be the sole continuing or surviving Person) or with any one
or more other Person(s) (provided that each surviving Person shall be a
Wholly Owned Subsidiary);
(ii) any Subsidiary may convey, transfer, lease or otherwise dispose
of all or substantially all of its assets to the Company or to a Wholly
Owned Subsidiary; and
(iii) the Company may merge or consolidate with or into any other
corporation or convey, transfer, lease or otherwise dispose of all or
substantially all of its assets to any other corporation or to HEP or a
limited partnership formed as the successor to HEP and the Company;
provided, that: (a) there shall be a single successor formed by such
14
consolidation or a single survivor formed by such merger, as the case may
be, (b) the successor formed by such consolidation, the survivor of such
merger, HEP, such limited partnership or the corporation that acquires by
conveyance, transfer, lease or other disposition all or substantially all
of the assets of the Company, as the case may be, shall be organized and
existing under the laws of a state of the United States and shall have a
majority of its assets and business located in the United States, (c) if
the Company is not such successor or survivor, then either (1) the
successor, survivor or acquirer (including HEP or such limited partnership)
or (2) the corporation (which shall be organized and existing under the
laws of a state of the United States and shall have a majority of its
assets and business located in the United States) that owns a majority of
the Voting Stock of the successor, survivor or acquirer shall have
expressly assumed all obligations of the Company under or with respect to
the Notes, the Warrants, this Agreement, the Registration Rights Agreement,
the Participation Rights Agreement and any other agreement entered into in
connection with the transactions contemplated hereby, (d) the Person
assuming such obligations shall have caused to be delivered to each holder
of Securities an opinion of independent counsel reasonably acceptable to
the Required Holder(s), to the effect that all agreements and instruments
effecting such assumption are enforceable in accordance with their terms
(subject to customary exceptions regarding bankruptcy and equitable
principles and such other exceptions and qualifications, if any, that are
reasonably approved by the Required Holders) and comply with the terms
hereof, (e) no Default or Event of Default shall exist, either prior to or
immediately after giving effect to such merger, consolidation or asset
conveyance, transfer, lease or other disposition, and (f) the consolidated
net worth (which shall be determined in the same manner as Consolidated Net
Worth) of the successor, survivor or acquirer (including circumstances in
which the Company is the successor or the survivor) or, in the case of
clause (c)(2) above, the parent corporation of the successor, survivor or
acquirer, shall be equal to or greater than the Consolidated Net Worth of
the Company immediately prior to such merger, consolidation or asset
transfer, lease or other disposition.
6B(4). Limitation on Certain Asset Dispositions. Except as permitted by
paragraph 6B(3), make any Asset Disposition unless (a) in the good faith opinion
of the Company, the Asset Disposition is in exchange for consideration having a
Fair Market Value at least equal to that of the property exchanged and is in the
best interest of the Company or such Subsidiary; (b) immediately after giving
effect to the Asset Disposition, no Default or Event of Default would exist; and
(c) immediately after giving effect to the Asset Disposition, the Disposition
Value of all property that was the subject of any Asset Disposition occurring
(i) in the period of 365 days then ending would not exceed 15% of Consolidated
Assets as of the end of the then most recently ended fiscal quarter of the
Company, and (ii) at any time after September 30, 1997 would not exceed 40% of
Consolidated Assets as of the end of the then most recently ended fiscal quarter
of the Company. Notwithstanding anything contained in the foregoing to the
contrary, if the net proceeds for any Transfer is applied to a Property
15
Reinvestment Application within 180 days after such Transfer, then such
Transfer, only for the purpose of determining compliance with clause (c) of this
paragraph 6B(4) as of any date, shall be deemed not to be an Asset Disposition.
6B(5). Transactions With Affiliates. Other than in the case of transactions
between Wholly Owned Subsidiaries, directly or indirectly, purchase, acquire or
lease any property from, or sell, transfer or lease any property to, or
otherwise deal with, in the ordinary course of business or otherwise, (i) any
Affiliate, (ii) any Person owning, beneficially or of record, directly or
indirectly, either individually or together with all other Persons to whom such
Person is related by blood, adoption or marriage, stock of the Company (of any
class having ordinary voting power for the election of directors) aggregating 5%
or more of such voting power or (iii) any Person related by blood, adoption or
marriage to any Person described or coming within the provisions of clause (i)
or (ii) of this paragraph 6B(5), except in the ordinary course of business (as
determined by reference to the ordinary course of business in the oil and gas
industry) and pursuant to the reasonable requirements of the Company's or such
Subsidiary's business and upon terms and conditions at least as favorable to the
Company or such Subsidiary as the terms and conditions that would then be
obtainable in a comparable arm's-length transaction with a Person not an
Affiliate; provided, that the Company may sell to, or purchase from, any such
Person shares of the Company's stock so long as no Default or Event of Default
exists immediately prior to or immediately after giving effect to any such
purchase by the Company; provided, further, that the Company may enter into a
merger, consolidation or sale or other disposition of all or substantially all
of the assets of the Company with HEP in a transaction if such transaction
complies in all respects with the provisions of paragraph 6B(3)(iii); and
provided, further, that the Company or any of its Subsidiaries may participate
in, or effect any transaction in connection with, any joint enterprise or other
joint arrangement with any Affiliate if the Company or such Subsidiary
participates in or effects such transaction in the ordinary course of its
business and on a basis no less advantageous than the basis on which the Company
or such Subsidiary would participate in a similar transaction with a Person not
an Affiliate.
6B(6). Priority Debt. Permit Indebtedness of Subsidiaries plus (without
duplication) Indebtedness secured by Liens permitted by clause (v) of paragraph
6B(2) to exceed, at any time, the greater of $1,000,000 or 2% of Consolidated
Net Worth.
6B(7). Hedging Transactions. Be or become a party to any Swap or any
Hedging Transaction for any purpose except for bona fide hedging purposes.
Without limiting the generality of the foregoing, at no time during any calendar
year will the Company be a party to or permit any Subsidiary to be a party to
any Hedging Transaction with respect to natural gas or crude oil if, immediately
after giving effect to such Hedging Transaction, the aggregate reference
quantity of hydrocarbons with respect to Hedging Transactions with respect to
natural gas or crude oil that the Company and its Subsidiaries shall have
entered into during such year exceeds 65% of the aggregate natural gas and crude
oil production of the Company and its Subsidiaries for such year (calculated on
the basis of actual natural gas and crude oil production for such year to date
16
and a good faith estimate of the aggregate amount of such production for the
remainder of such year).
6C. Change of Business. The Company will not and will not permit any
Subsidiary to change in any material respect the nature of its respective
business or operations from the exploration, development and production,
gathering, processing and marketing of oil and gas and activities relating
directly thereto, and will not engage, and will not permit any Subsidiary to
engage, directly or indirectly, in any material business activity, or purchase
or otherwise acquire any material property, in any case not directly related to
the conduct of the above-described business or operations.
6D. New Subsidiaries. The Company will not form, create or otherwise have
any Subsidiaries other than HCP and HCRC Holdings, Inc., a Delaware corporation.
PARAGRAPH 7. SUBORDINATION OF NOTES.
7A. Subordination. Anything in this Agreement to the contrary
notwithstanding, the Indebtedness evidenced by the Notes, including principal,
Yield-Maintenance Amount, if any, and interest, shall be subordinate and junior
to the extent set forth in subparagraphs (i) through (vi) inclusive, below, to
all Senior Debt.
(i) If the Company shall default in the payment of any principal of or
interest on any Senior Debt in an amount in excess of $100,000 owing under
any single instrument when the same becomes due and payable, whether at
maturity or at a date fixed for prepayment or at any other date on which
the Company is required to prepay any Senior Debt or by declaration of
acceleration or otherwise, then, unless and until such default shall have
been remedied by payment in full or waived, no holder of the Notes shall
accept or receive any direct or indirect payment of or on account of any
Indebtedness in respect of the Notes.
(ii) In the event of any insolvency, bankruptcy, liquidation,
reorganization or other similar proceedings, or any receivership
proceedings in connection therewith, relative to the Company, and in the
event of any proceedings for voluntary liquidation, dissolution or other
winding up of the Company, whether or not involving insolvency or
bankruptcy proceedings, then all Senior Debt shall first be paid in full
before any payment of or on account of principal or Yield-Maintenance
Amount, if any, or interest is made by the Company in respect of the Notes.
(iii) In any of the proceedings referred to in subparagraph (ii)
above, any payment or distribution of any kind or character, whether in
cash, property, stock or obligations, which may be payable or deliverable
by the Company in respect of the Notes shall be paid or delivered directly
to the holders of Senior Debt (or to a banking institution selected by the
17
court or Person making the payment or delivery or designated by any holder
of Senior Debt) for application in payment thereof in accordance with the
priorities then existing among such holders, unless and until all Senior
Debt shall have been paid in full; provided, however, that
(a) if the payment or delivery by the Company of such cash,
property, stock or obligations to the holders of the Notes is
authorized by an order or decree giving effect, and stating in such
order or decree that effect is given, to the subordination of the
Notes to Senior Debt, and made in a reorganization proceeding under
any applicable bankruptcy or reorganization law, no payment or
delivery by the Company of such cash, property, stock or obligations
payable or deliverable with respect to the Notes shall be made to the
holders of Senior Debt; and
(b) no such delivery shall be made to holders of Senior Debt of
stock or obligations if the delivery thereof is authorized by an order
or decree giving effect, and stating in such order or decree that
effect is given, to the subordination of the Notes to Senior Debt, and
if such stock or obligations are subordinate and junior (whether by
law or agreement) at least to the extent provided in this paragraph 7
to the payment of all Senior Debt then outstanding and to the payment
of any stock or obligations which are issued pursuant to such
reorganization proceedings in exchange or substitution for any Senior
Debt then outstanding.
A transaction permitted by paragraph 6B(3)(iii) shall not be
deemed a dissolution, winding-up, liquidation or reorganization for
the purposes of this paragraph 7.
(iv) Upon the occurrence and during the continuance of any Default
Subordination Event (other than under circumstances when the terms of
subparagraph (ii) above are applicable), no holder of Notes shall accept or
receive any direct or indirect payment by setoff or otherwise of or on
account of any indebtedness in respect of the Notes during the Stand-Still
Period, provided that in the case of any payment on or in respect of any
Note which would (in the absence of any such Default Subordination Event)
have been due and payable on any date during such Stand-Still Period, the
provisions of this subparagraph (iv) shall not prevent such payment on or
after the date immediately following the termination of such Stand-Still
Period. There shall be no more than three Stand-Still Periods so long as
the Notes are outstanding.
(v) If any payment or distribution of any character, whether in cash,
securities or other property, shall be received by any holder of Notes in
contravention of any of the terms of this paragraph 7 and before all the
Senior Debt shall have been paid in full, such payment or distribution
shall be received in trust for the benefit of the holders of the Senior
Debt at the time outstanding and shall forthwith be paid over or delivered
and transferred to the holders of Senior Debt.
18
(vi) If any payment by the Company in respect of Senior Debt must be
disgorged by any holder of Senior Debt as a result of any action under the
United States Bankruptcy Code or other debtor relief law, the obligations
in respect of which such payment was made shall continue to constitute
Senior Debt and shall remain entitled to the benefit of the provisions of
this provision. Without limitation of the foregoing, in the event of any
such disgorgement by a holder of Senior Debt, all holders of Notes, if any,
who have become subrogated to the rights of such holder of Senior Debt
pursuant to this Agreement and have obtained payment from the Company
through the exercise of such subrogation rights shall disgorge and pay to
such holder of Senior Debt any payment so obtained, to the extent of the
payment or payments disgorged by such holders of Senior Debt.
7B. Obligation of the Company Unconditional. The provisions of this
paragraph 7 are for the purpose of defining the relative rights of the holders
of Senior Debt on the one hand, and the holders of the Notes on the other hand,
against the Company and its property, and nothing herein shall impair, as
between the Company and the holders of the Notes, the obligation of the Company,
which is unconditional and absolute, to pay to the holders thereof the principal
thereof and Yield- Maintenance Amount, if any, and interest thereon in
accordance with their terms and the provisions hereof, nor shall anything herein
prevent the holders of the Notes from exercising all remedies otherwise
permitted by applicable law or hereunder upon default hereunder or under the
Notes (including, without limitation, the right to demand payment and ▇▇▇ for
performance hereof and of the Notes and to accelerate the maturity thereof as
provided in paragraph 8A), subject to the rights, if any, under this paragraph 7
of holders of Senior Debt to receive cash, property, stock or obligations
otherwise payable or deliverable by the Company to the holders of the Notes.
7C. Subrogation. Upon payment in full of Senior Debt, the holders of the
Notes shall be subrogated to the rights of the holders of the Senior Debt to
receive payments or distributions of assets of the Company made on Senior Debt
until the principal of and Yield-Maintenance Amount, if any, and interest on the
Notes shall be paid in full, and, for the purposes of such subrogation, no
payments to the holders of Senior Debt of any cash, property, stock or
obligations to which the holders of the Notes would be entitled except for the
provisions of paragraph 7A(iii) shall, as between the Company, its creditors
(other than the holders of the Senior Debt) and the holders of the Notes, be
deemed to be a payment by the Company to or on account of Senior Debt.
7D. Rights of Holders of Senior Debt. The provisions of this paragraph 7
shall be deemed a continuing offer to all holders of Senior Debt to act in
reliance on such provisions (but no such reliance shall be required to be proven
to receive the benefits hereof) and may be enforced by such holders and no right
of any present or future holder of any Senior Debt to enforce subordination as
provided in this paragraph 7 shall at any time in any way be prejudiced or
impaired by any act or failure to act on the part of the Company or by any act
or failure to act by any such holder, or by any non-compliance by the Company
with the terms, provisions and covenants of this Agreement or the Notes. Without
in any way limiting the generality of the foregoing, the holders of Senior Debt
may, at any time and from time to time, without the consent of or notice to the
holders of the Notes, and without impairing or releasing the subordination
provided in this paragraph 7 or the obligations hereunder of the holders of the
19
Notes to the holders of Senior Debt, do any one or more of the following,
subject in all cases to the limitations contained in the definition of Senior
Debt: (i) change the manner, place or terms of payment or extend the time of
payment of, or renew or alter (including, without limitation, by increasing or
decreasing the "Availability Limit" and the "Debt Limit," in each case as
defined in the Credit Agreement pursuant to which Senior Debt is incurred), or
waive defaults under, Senior Debt, or otherwise amend or supplement in any
manner Senior Debt or any instrument evidencing the same or any agreement under
which Senior Debt is outstanding; (ii) sell, exchange, release or otherwise deal
with any property pledged, mortgaged or otherwise securing Senior Debt; (iii)
release any Person liable in any manner for the payment or collection of Senior
Debt; and (iv) exercise or refrain from exercising any rights against the
Company and any other Person, including any guarantor or surety.
PARAGRAPH 8. EVENTS OF DEFAULT.
8. Events of Default.
8A. Acceleration. If any of the following events shall occur and be
continuing for any reason whatsoever (and whether such occurrence shall be
voluntary or involuntary or come about or be effected by operation of law or
otherwise):
(i) the Company defaults in the payment of any principal of or Yield-
Maintenance Amount payable with respect to any Note, in any case when the
same shall become due, either by the terms thereof or otherwise as herein
provided; or
(ii) the Company defaults in the payment of any interest on any Note
for more than five days after the date due; or
(iii) the Company or any Subsidiary defaults (whether as primary
obligor or as guarantor or other surety) in any payment of principal of or
interest on or premium, if any, with respect to any other Indebtedness
beyond any period of grace provided with respect thereto, or the Company or
any Subsidiary fails to perform or observe any other agreement, term or
condition contained in any agreement under which any such Indebtedness is
created (or if any other event thereunder or under any such agreement shall
occur and be continuing) and the effect of such failure or other event is
to cause such obligation to become due (or to be purchased by the Company
or any Subsidiary) prior to any stated maturity; provided, that the
aggregate amount of all obligations as to which such a payment default
shall occur and be continuing or such a failure or other event causing
acceleration (or sale to the Company or any Subsidiary) shall occur and be
continuing exceeds $2,500,000; or
(iv) any representation or warranty made by the Company herein, by a
Subsidiary in the Subsidiary Guaranty or by the Company or any of its
officers in any writing furnished in connection with or pursuant to this
Agreement shall be false in any material respect on the date as of which
made; or
20
(v) the Company fails to perform or observe any term, covenant or
agreement contained in ▇▇▇▇▇▇▇▇▇ ▇▇, ▇▇(▇), ▇▇(▇), ▇▇(▇), ▇▇(▇), ▇▇(▇),
6B(7) or 6D; or
(vi) the Company fails to perform or observe any other agreement,
covenant, term or condition contained herein and such failure shall not be
remedied within 30 days after (a) any Responsible Officer obtains actual
knowledge thereof or (b) the Company receives written notice of such
failure from any holder; or
(vii) the Company or any Subsidiary makes an assignment for the
benefit of creditors or is generally not paying its debts as such debts
become due; or
(viii) any decree or order for relief in respect of the Company or any
Subsidiary is entered under any bankruptcy, reorganization, compromise,
arrangement, insolvency, readjustment of debt, dissolution or liquidation
or similar law, whether now or hereafter in effect (the "Bankruptcy Law"),
of any jurisdiction; or
(ix) the Company or any Subsidiary petitions or applies to any
tribunal for, or consents to, the appointment of, or taking possession by,
a trustee, receiver, custodian, liquidator or similar official of the
Company or any Subsidiary, or of any substantial part of the assets of the
Company or any Subsidiary, or commences a voluntary case under the
Bankruptcy Law of the United States or any proceedings (other than
proceedings for the voluntary liquidation and dissolution of a Subsidiary)
relating to the Company or any Subsidiary under the Bankruptcy Law of any
other jurisdiction; or
(x) any such petition or application is filed, or any such proceedings
are commenced, against the Company or any Subsidiary and the Company or
such Subsidiary by any act indicates its approval thereof, consent thereto
or acquiescence therein, or an order, judgment or decree is entered
appointing any such trustee, receiver, custodian, liquidator or similar
official, or approving the petition in any such proceedings, and such
order, judgment or decree remains unstayed and in effect for more than 30
days; or
(xi) any order, judgment or decree is entered in any proceedings
against the Company decreeing the dissolution of the Company and such
order, judgment or decree remains unstayed and in effect for more than 60
days; or
(xii) any order, judgment or decree is entered in any proceedings
against the Company or any Subsidiary decreeing a split-up of the Company
or such Subsidiary which requires the divestiture of assets representing a
substantial part, or the divestiture of the stock of a Subsidiary whose
assets represent a substantial part, of the consolidated assets of the
Company and its Subsidiaries (determined in accordance with generally
accepted accounting principles) or which requires the divestiture of
assets, or stock of a Subsidiary, which shall have contributed a
substantial part of consolidated net income of the Company and its
21
Subsidiaries (determined in accordance with GAAP) for any of the three
fiscal years then most recently ended, and such order, judgment or decree
remains unstayed and in effect for more than 60 days; or
(xiii) one or more final judgments or final orders, in an aggregate
amount in excess of $1,000,000 is rendered against the Company or any
Subsidiary and either (i) enforcement proceedings have been commenced by
any creditor upon such judgment or order or (ii) within 45 days after entry
thereof, such judgment is not discharged or execution thereof stayed
pending appeal, or within 45 days after the expiration of any such stay,
such judgment is not discharged; or
(xiv) any Termination Event with respect to a Plan shall have occurred
and, within 30 days after the occurrence thereof, (a) such Termination
Event (if correctable) shall not have been corrected and (b) the then
present value of such Plan's vested benefits exceeds the then current value
of assets accumulated in such Plan by more than the amount of $1,000,000
(or in the case of a Termination Event involving the withdrawal of a
"substantial employer" (as defined in Section 4001(a) (2) of ERISA), the
withdrawing employer's proportionate share of such excess shall exceed such
amount); or
(xv) the Company or any of its ERISA Affiliates as employer under a
Multiemployer Plan shall have made a complete or partial withdrawal from
such Multiemployer Plan and the plan sponsor of such Multiemployer Plan
shall have notified such withdrawing employer that such employer has
incurred a withdrawal liability in an aggregate amount exceeding
$1,000,000;
then (a) if such event is an Event of Default specified in clause (i) or (ii) of
this paragraph 7A, the holder of any Note (other than the Company or any of its
Subsidiaries or Affiliates) may at its option, by notice in writing to the
Company, declare such Note to be, and such Note shall thereupon be and become,
immediately due and payable at par together with interest accrued thereon,
without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by the Company, (b) if such event is an Event of Default
specified in clause (viii), (ix) or (x) of this paragraph 8A with respect to the
Company, all of the Notes at the time outstanding shall automatically become
immediately due and payable together with interest accrued thereon and together
with the Yield-Maintenance Amount, if any, with respect to each Note, without
presentment, demand, protest or notice of any kind, all of which are hereby
waived by the Company, and (c) if such event is not an Event of Default
specified in clause (viii), (ix) or (x) of this paragraph 8A with respect to the
Company, the Required Holder(s) may at its or their option, by notice in writing
to the Company, declare all of the Notes to be, and all of the Notes shall
thereupon be and become, immediately due and payable together with interest
accrued thereon and together with the Yield-Maintenance Amount, if any, with
respect to each Note, without presentment, demand, protest or other notice of
any kind, all of which are hereby waived by the Company.
22
The Company acknowledges, and the parties hereto agree, that each holder of
a Note has the right to maintain its investment in the Notes free from repayment
by the Company (except as herein specifically provided for) and that the
provisions for payment of the Yield-Maintenance Amount by the Company in the
event that the Notes are prepaid or are accelerated as a result of an Event of
Default are intended to provide compensation for the deprivation of such right
under such circumstances.
8B. Rescission of Acceleration. At any time after any or all of the Notes
shall have been declared immediately due and payable pursuant to paragraph 8A,
the Required Holder(s) may, by notice in writing to the Company, rescind and
annul such declaration and its consequences if (i) the Company shall have paid
all overdue interest on the Notes, the principal of and Yield-Maintenance
Amount, if any, payable with respect to any Notes which have become due
otherwise than by reason of such declaration, and interest on such overdue
interest and overdue principal and Yield- Maintenance Amount, if any, at the
rate specified in the Notes, (ii) the Company shall not have paid any amounts
which have become due solely by reason of such declaration, (iii) all Events of
Default and Defaults, other than non-payment of amounts which have become due
solely by reason of such declaration, shall have been cured or waived pursuant
to paragraph 12C, and (iv) no judgment or decree shall have been entered for the
payment of any amounts due pursuant to the Notes or this Agreement. No such
rescission or annulment shall extend to or affect any subsequent Event of
Default or Default or impair any right arising therefrom.
8C. Notice of Acceleration or Rescission. Whenever any Note shall be
declared immediately due and payable pursuant to paragraph 8A or any such
declaration shall be rescinded and annulled pursuant to paragraph 8B, the
Company shall forthwith give written notice thereof to the holder of each Note
at the time outstanding.
8D. Other Remedies. If any Event of Default or Default shall occur and be
continuing, the holder of any Note may proceed to protect and enforce its rights
under this Agreement, such Note and the Subsidiary Guaranty by exercising such
remedies as are available to such holder in respect thereof under applicable
law, either by suit in equity or by action at law, or both, whether for specific
performance of any covenant or other agreement contained in this Agreement or
the Subsidiary Guaranty or in aid of the exercise of any power granted herein or
therein. No remedy conferred in this Agreement upon the holder of any Note is
intended to be exclusive of any other remedy, and each and every such remedy
shall be cumulative and shall be in addition to every other remedy conferred
herein or now or hereafter existing at law or in equity or by statute or
otherwise.
23
PARAGRAPH 9. REPRESENTATIONS, COVENANTS AND WARRANTIES.
9. Representations, Covenants and Warranties. The Company represents,
covenants and warrants as follows:
9A. Organization. The Company is a corporation duly organized and validly
existing in good standing under the laws of the State of Delaware, and HCP is
duly formed and existing as a limited partnership in good standing under the
laws of the State of Colorado. HCP and HCRC Holdings, Inc. a Delaware
corporation which is the sole limited partner of HCP, are the only Subsidiaries
of the Company. Each of the Company and its Subsidiaries is duly qualified and
in good standing as a foreign corporation or limited partnership, as the case
may be, in each jurisdiction in which the nature of the business transacted or
the property owned or leased is such as to require such qualification, except
where such failure to be so qualified, whether individually or in the aggregate,
would not result in any material adverse effect upon the business, condition
(financial or other), assets, properties, operations or prospects of the Company
and its Subsidiaries taken as a whole. The execution, delivery and performance
by the Company of this Agreement, the Notes, the Warrants, the Registration
Rights Agreement and the Participation Rights Agreement are within the Company's
corporate powers and have been duly authorized by all necessary corporate
action. The execution, delivery and performance by HCP of the Subsidiary
Guaranty are within the limited partnership powers of HCP and have been duly
authorized by all necessary action on the part of HCP.
9B. Financial Statements. The Company has furnished you with the following
financial statements, identified by a principal financial officer of the
Company: (i) a consolidated balance sheet of the Company and its Subsidiaries as
at December 31 in each of the years 1994 to 1996, inclusive, and consolidated
statements of income, stockholders' equity and cash flows of the Company and its
Subsidiaries for each such year, all reported on by Deloitte & Touche LLP; and
(ii) a consolidated balance sheet of the Company and its Subsidiaries as at
September 30, 1997 and consolidated statements of income, stockholders' equity
and cash flows for the fiscal quarter ended on such date, prepared by the
Company. Such financial statements (including any related schedules and/or
notes) are true and correct in all material respects (subject, as to interim
statements, to changes resulting from audits and year-end adjustments, which in
the aggregate will not be material), have been prepared in accordance with GAAP
consistently followed throughout the periods involved and show all liabilities,
direct and contingent, of the Company and its Subsidiaries required to be shown
in accordance with GAAP. The balance sheets fairly present the condition of the
Company and its Subsidiaries as at the dates thereof, and the statements of
income, stockholders' equity and cash flows fairly present the results of the
operations of the Company and its Subsidiaries and their cash flows for the
periods indicated. There has been no material adverse change in the business,
condition (financial or other), assets, properties, operations or prospects of
the Company and its Subsidiaries taken as a whole since December 31, 1996.
9C. Actions Pending. Except as disclosed to you in a letter of even date
herewith, there is no action, suit, investigation or proceeding pending or, to
the knowledge of the Company, threatened against the Company or any of its
24
Subsidiaries, or any properties or rights of the Company or any of its
Subsidiaries, by or before any court, arbitrator or administrative or
governmental body which could reasonably be expected to result in any material
adverse change in the business, condition (financial or other), assets,
properties, operations or prospects of the Company and its Subsidiaries taken as
a whole. There is no action, suit, investigation or proceeding pending or
threatened against the Company or any of its Subsidiaries which purports to
affect the validity or enforceability of this Agreement, any Note, the
Subsidiary Guaranty, any Warrant, the Registration Rights Agreement or the
Participation Rights Agreement.
9D. Outstanding Indebtedness. Neither the Company nor any of its
Subsidiaries has outstanding any Indebtedness or Non-recourse Debt except as
permitted by paragraphs 6A(1) and 6B(6) and all of which is described in
Schedule 9D attached hereto. There exists no default under (and no waiver of
default is currently in effect with respect to) the provisions of any instrument
evidencing such Indebtedness or of any agreement relating thereto, 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.
9E. Title to Properties. The Company has, and each of its Subsidiaries has,
(i) in the case of each property having a market value of at least $100,000,
good and marketable title to its respective real properties (including, without
limitation, oil and gas properties but excluding office space that it leases),
and (ii) in the case of all of its other respective properties and assets, good
title, including for purposes of both clause (i) and clause (ii) the properties
and assets reflected in the balance sheet as at September 30, 1997 referred to
in paragraph 9B (other than properties and assets disposed of in the ordinary
course of business). All leases necessary in any material respect for the
conduct of the respective businesses of the Company and its Subsidiaries are
valid and subsisting and are in full force and effect.
9F. Taxes. The Company has, and each of its Subsidiaries has, filed all
federal, state and other income tax returns which, to the knowledge of the
officers of the Company, are required to be filed, and each has paid all taxes
as shown on such returns and on all assessments received by it to the extent
that such taxes have become due, except such taxes as are being contested in
good faith by appropriate proceedings and for which adequate reserves have been
established in accordance with GAAP.
9G. Conflicting Agreements and Other Matters. Neither the Company nor any
of its Subsidiaries is subject to any charter, limited partnership agreement or
other corporate or limited partnership restriction which materially and
adversely affects its business, property or assets, or financial condition.
Neither the Company nor any of its Subsidiaries is a party to any contract or
agreement which materially and adversely affects (after taking into
consideration the benefits reasonably expected to be obtained by the Company or
such Subsidiary thereunder) its business, property or assets, or financial
condition. Neither the execution nor delivery of this Agreement, the Notes, the
25
Subsidiary Guaranty, the Warrants, the Registration Rights Agreement or the
Participation Rights Agreement nor the offering, issuance and sale of the
Securities, nor fulfillment of nor compliance with the terms and provisions
hereof and of the Notes, the Subsidiary Guaranty, the Warrants, the Registration
Rights Agreement and the Participation Rights Agreement will conflict with, or
result in a breach of the terms, conditions or provisions of, or constitute a
default under, or result in any violation of, or result in the creation of any
Lien upon any of the properties or assets of the Company or any of its
Subsidiaries pursuant to, the charter, limited partnership agreement or by-laws
of the Company or any of its Subsidiaries, any award of any arbitrator or any
agreement (including any agreement with stockholders), instrument, order,
judgment, decree, statute, law, rule or regulation to which the Company or any
of its Subsidiaries is subject. Neither the Company nor any of its Subsidiaries
is a party to, or otherwise subject to any provision contained in, any
instrument evidencing Indebtedness of the Company or such Subsidiary, any
agreement relating thereto or any other contract or agreement (including its
charter) which limits the amount of, or otherwise imposes restrictions on the
incurring of, Indebtedness of the Company of the type to be evidenced by the
Notes or of the Indebtedness of HCP or any other Subsidiary of the type to be
evidenced by the Subsidiary Guaranty except as set forth in the agreements
listed in Schedule 9G attached hereto.
9H. Authorized Capital Stock. The authorized capital stock of the Company
consists of 10,000,000 shares of Common Stock, $0.01 par value per share, of
which 2,977,542 shares are issued and outstanding as of the date hereof, and
500,000 shares of Preferred Stock, $0.01 par value, none of which has been
issued. All the outstanding shares of Common Stock are duly authorized, validly
issued, fully paid and nonassessable. The Company does not have outstanding any
warrants, options, convertible securities or other rights for the purchase or
acquisition of shares of its capital stock other than (a) the Warrants and (b)
options outstanding under its 1995 Stock Option Plan to purchase 159,000 shares
of Common Stock (options for all of such shares having become vested and for
10,770 of such shares having been exercised as of the date of this Agreement)
and options outstanding under its 1997 Stock Option Plan to purchase 159,000
shares of Common Stock (options for none of such shares having been exercised,
and options for 53,000 of such shares having become vested, as of the date of
this Agreement). The Warrants and shares of Common Stock issuable upon the
exercise of the Warrants have been duly and validly authorized, and such shares
of Common Stock have been duly reserved for issuance upon exercise of the
Warrants. No shareholder of the Company or any other Person is entitled to
preemptive or similar rights with respect to the shares of Common Stock which
are issuable upon exercise of the Warrants and, if and when issued upon exercise
of the Warrants in accordance with the provisions thereof, such shares will be
validly issued, fully paid and nonassessable shares.
9I. Offering of Securities. Neither the Company nor any agent acting on its
behalf has, directly or indirectly, offered the Notes, the Warrants or any
similar security of the Company for sale to, or solicited any offers to buy the
Notes, the Warrants or any similar security of the Company from, or otherwise
approached or negotiated with respect thereto with, any Person other than
institu tional investors, and neither the Company nor any agent acting on its
behalf has taken or will take any action which would subject the issuance or
sale of the Notes or the Warrants to the provisions of Section 5 of the
26
Securities Act or to the provisions of any securities or Blue Sky law of any
applicable jurisdiction.
9J. Use of Proceeds. Neither the Company nor any Subsidiary owns any
"margin stock" as defined in Regulation G (12 CFR Part 207) of the Board of
Governors of the Federal Reserve System ("margin stock") other than the
1,948,189 Class A Units of limited partner interest and the 129,877 Class C
Units of limited partner interest owned by the Company in HEP (the "HEP Units").
The proceeds of sale of the Securities will be used to refinance existing
Indebtedness of the Company as indicated in Schedule 9D, to acquire producing
property and for general corporate purposes. None of such proceeds will be used,
directly or indirectly, for the purpose, whether immediate, incidental or
ultimate, of purchasing or carrying any margin stock or for the purpose of
maintaining, reducing or retiring any Indebtedness which was originally incurred
to purchase or carry any stock that is currently a margin stock or for any other
purpose which might constitute this transaction a "purpose credit" within the
meaning of such Regulation G. Neither the Company nor any agent acting on its
behalf has taken or will take any action which might cause this Agreement or the
Securities to violate Regulation G or any other regulation of the Board of
Governors of the Federal Reserve System or to violate the Exchange Act, in each
case as in effect now or as the same may hereafter be in effect. The HEP Units
do not constitute more than 22% of the value of the assets of the Company and
its Subsidiaries, on a consolidated basis, prior to the receipt by the Company
of the proceeds from the issuance of the Securities, and the Company does not
have any present intention that HEP Units or other margin stock will constitute
more than 25% of the value of the assets of the Company and its Subsidiaries, on
a consolidated basis.
9K. ERISA. No accumulated funding deficiency (as defined in section 302 of
ERISA and section 412 of the Code), whether or not waived, exists with respect
to any Plan (other than a Multiemployer Plan). No liability to the PBGC has been
or is expected by the Company or any ERISA Affiliate to be incurred with respect
to any Plan (other than a Multiemployer Plan) by the Company, any Subsidiary or
any ERISA Affiliate which is or would be materially adverse to the business,
condition (financial or other), assets, properties, operations or prospects of
the Company and its Subsidiaries taken as a whole. Neither the Company, any
Subsidiary nor any ERISA Affiliate has incurred or presently expects to incur
any withdrawal liability under Title IV of ERISA with respect to any
Multiemployer Plan which is or would be materially adverse to the business,
condition (financial or other), assets, properties, operations or prospects of
the Company and its Subsidiaries taken as a whole. The execution and delivery of
this Agreement and the issuance and sale of the Securities will be exempt from,
or will not involve any transaction which is subject to, the prohibi tions of
section 406 of ERISA and will not involve any transaction in connection with
which a penalty could be imposed under section 502(i) of ERISA or a tax could be
imposed pursuant to section 4975 of the Code. The representation by the Company
in the next preceding sentence is made in reliance upon and subject to the
accuracy of your representation in paragraph 10B.
9L. Governmental Consent. Neither the nature of the Company or of any
Subsidiary, nor any of their respective businesses or properties, nor any
relationship between the Company or any Subsidiary and any other Person, nor any
circumstance in connection with the offering, issuance, sale or delivery of the
27
Securities is such as to require any authorization, consent, approval, exemption
or other action by or notice to or filing with any court or administrative or
governmental or regulatory body (other than routine filings after the Date of
Closing with the Securities and Exchange Commission and/or state Blue Sky
authorities) in connection with the execution and delivery of this Agreement,
the Subsidiary Guaranty, the Registration Rights Agreement, the Participation
Rights Agreement, the offering, issuance, sale or delivery of the Securities or
fulfillment of or compliance with the terms and provisions of this Agreement,
the Subsidiary Guaranty, the Registration Rights Agreement, the Participation
Rights Agreement or the Securities.
9M. Environmental Compliance. The Company and its Subsidiaries and all of
their respective properties and facilities have complied at all times and in all
respects with all federal, state, local and regional statutes, laws, ordinances
and judicial or administrative orders, judgments, rulings and regulations
relating to protection of the environment except, in all such cases considered
in the aggregate, where failure to comply would not reasonably be expected to
result in a material adverse effect on the business, condition (financial or
other), assets, properties, operations or prospects of the Company and its
Subsidiaries taken as a whole.
9N. Disclosure. Neither this Agreement nor any other document, certificate
or statement furnished to you by or on behalf of the Company in connection
herewith contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein and
therein not misleading. There is no fact peculiar to the Company or any of its
Subsidiaries which materially adversely affects or in the future may (so far as
the Company can now foresee) materially adversely affect the business, property
or assets, or financial condition of the Company or any of its Subsidiaries and
which has not been set forth in this Agreement or in the other documents,
certificates and statements furnished to you by or on behalf of the Company
prior to the date hereof in connection with the transactions contemplated
hereby. The pro forma financial projections dated as of October 7, 1997 titled
"$25MM Fixed Debt, $50MM Total Debt, Arcadia at 10% RoR 10% Drilling" and
previously delivered to you by the Company are reasonable based on the
assumptions stated therein and the best information available to the officers of
the Company other than with respect to the assumptions regarding the acquisition
of assets of Arcadia.
PARAGRAPH 10. REPRESENTATIONS OF THE PURCHASER.
10. Representations of the Purchaser. You represent as follows:
10A. Nature of Purchase. You are an "insurance company" as defined in
section 2(13) of the Securities Act and you are not acquiring the Notes to be
purchased by you hereunder with a view to or for sale in connection with any
distribution thereof within the meaning of the Securities Act of 1933, as
amended, provided that the disposition of your property shall at all times be
and remain within your control.
10B. Source of Funds. No part of the funds being used by you to pay the
purchase price of the Notes being purchased by you hereunder constitutes assets
allocated to a separate account maintained by you. For the purpose of this
28
paragraph 10B, the terms "separate account" shall have the meaning specified in
section 3 of ERISA.
PARAGRAPH 11. DEFINITIONS.
11. Definitions. For the purpose of this Agreement, the terms defined in
the introductory sentence and in paragraphs 1 and 2 shall have the respective
meanings specified therein, and the following terms shall have the meanings
specified with respect thereto below (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
11A. Yield-Maintenance Terms.
"Business Day" shall mean any day other than a Saturday, a Sunday or a
day on which commercial banks in New York City are required or authorized
to be closed.
"Called Principal" shall mean, with respect to any Note, the principal
of such Note that is to be prepaid pursuant to paragraph 4B or 4C or is
declared to be immediately due and payable pursuant to paragraph 8A, as the
context requires.
"Designated Spread" shall mean, (i) with respect to the Called
Principal of any Note that is prepaid pursuant to paragraph 4C, 2.50% (250
basis points), and (ii) in all other cases 1.00% (100 basis points).
"Discounted Value" shall mean, with respect to the Called Principal of
any Note, the amount obtained by discounting all Remaining Scheduled
Payments with respect to such Called Principal from their respective
scheduled due dates to the Settlement Date with respect to such Called
Principal, in accordance with accepted financial practice and at a discount
factor (applied on the same periodic basis as that on which interest on the
Notes is payable) equal to the Reinvestment Yield with respect to such
Called Principal.
"Reinvestment Yield" shall mean the sum of the Designated Spread plus
the yield to maturity implied by (i) the yields reported, as of 10:00 a.m.
(New York City time) on the Business Day next preceding the Settlement Date
with respect to such Called Principal, on the display designated as "Page
678" on the Telerate Service (or such other display as may replace Page 678
on the Telerate Service) for actively traded U.S. Treasury securities
having a maturity equal to the Remaining Average Life of such Called
Principal as of such Settlement Date, or if such yields shall not be
reported as of such time or the yields reported as of such time shall not
be ascertainable, (ii) the Treasury Constant Maturity Series yields
reported, for the latest day for which such yields shall have been so
reported as of the Business Day next preceding the Settlement Date with
respect to such Called Principal, in Federal Reserve Statistical Release
H.15 (519) (or any comparable successor publication) for actively traded
U.S. Treasury securities having a constant maturity equal to the Remaining
Average Life of such Called Principal as of such Settlement Date. Such
implied yield shall be determined, (a) if necessary, by (x) converting U.S.
Treasury ▇▇▇▇ quotations to bond- equivalent yields in accordance with
accepted financial practice and (y) interpolating linearly between yields
reported for various maturities and (b) by converting all such implied
yields to a quarterly payment basis in accordance with accepted financial
practice.
"Remaining Average Life" shall mean, with respect to the Called
Principal of any Note, the number of years (calculated to the nearest
one-twelfth year) obtained by dividing (i) such Called Principal into (ii)
the sum of the products obtained by multiplying (a) each Remaining
Scheduled Payment of such Called Principal (but not of interest thereon) by
(b) the number of years (calculated to the nearest one-twelfth year) which
will elapse between the Settlement Date with respect to such Called
Principal and the scheduled due date of such Remaining Scheduled Payment.
"Remaining Scheduled Payments" shall mean, with respect to the Called
Principal of any Note, all payments of such Called Principal and interest
thereon that would be due on or after the Settlement Date with respect to
such Called Principal if no payment of such Called Principal were made
prior to its scheduled due date.
"Settlement Date" shall mean, with respect to the Called Principal of
any Note, the date on which such Called Principal is to be prepaid pursuant
to paragraph 4B or 4C or is declared to be immediately due and payable
pursuant to paragraph 8A as the context requires.
"Yield-Maintenance Amount" shall mean, with respect to any Note, an
amount equal to the excess, if any, of the Discounted Value of the Called
Principal of such Note over the sum of (i) such Called Principal plus (ii)
interest accrued thereon as of and including the Settlement Date with
respect to such Called Principal. The Yield-Maintenance Amount shall in no
event be less than zero.
11B. Other Terms.
"Affiliate" shall mean any Person directly or indirectly controlling,
controlled by, or under direct or indirect common control with, the
Company. A Person shall be deemed to control a corporation if such Person
possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such corporation, whether
through the ownership of voting securities, by contract or otherwise.
Unless the context clearly requires otherwise, "Affiliate" shall mean an
Affiliate of the Company.
"Asset Disposition" shall mean, with respect to the Company or any
Subsidiary, any transaction or series of related transactions in which such
Person sells, conveys, transfers, leases (as lessor) or otherwise disposes
of (collectively, for purposes of this definition, a "transfer"), directly
or indirectly, any of its property or assets, including, without
limitation, any Indebtedness of any Subsidiary or capital stock of or other
equity interests in any Subsidiary (including the issuance of such stock or
other equity interests by such Subsidiary), other than (i) transfers from a
Subsidiary to the Company or a Wholly Owned Subsidiary, (ii) transfers from
the Company to another corporation, HEP or a limited partnership described
in paragraph 6B(3)(iii) of all or substantially all of the assets of the
29
Company pursuant to, and in compliance with the terms of, such paragraph or
(iii) sales of oil and gas production in the ordinary course of the Company's or
a Subsidiary's business.
"Bankruptcy Law" shall have the meaning specified in clause (viii) of
paragraph 8A.
"Business Day" shall mean any day on which banks are open for business
in New York City (other than a Saturday, a Sunday or a legal holiday in the
States of New York or New Jersey).
"Capitalized Lease Obligation" shall mean any rental obligation which,
under generally accepted accounting principles, would be required to be
capitalized on the books of the Company or any Subsidiary, taken at the
amount thereof accounted for as indebtedness (net of interest expense) in
accordance with such principles.
"Change in Control" shall mean if any Person or Persons acting in
concert, together with Affiliates thereof, shall in the aggregate, directly
or indirectly, control or own (beneficially or otherwise) more than 50% (by
number of shares) of the issued and outstanding Voting Stock of the
Company. Notwithstanding the foregoing, a merger or consolidation of the
Company with, or a sale of all or substantially all of the assets of the
Company to, HEP or a corporation or limited partnership formed to combine
the assets of HEP and the Company will not be a "Change in Control".
"Claims" shall have the meaning specified in paragraph 5G.
"Closing" or "Date of Closing" shall have the meaning specified in
paragraph 2.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Common Stock" shall have the meaning specified in paragraph 1B.
"Consolidated Assets" shall mean, at any time, the total assets of the
Company and its Subsidiaries which would be shown as assets on a
consolidated balance sheet of the Company and its Subsidiaries as of such
time prepared in accordance with GAAP, after eliminating, without
duplication, (i) amounts properly attributable to minority interests, if
any, in the stock and surplus of Subsidiaries, and (ii) assets subject to
Non-recourse Debt.
"Consolidated Interest Expense" shall mean, with respect to any
period, the sum (without duplication) of the following (in each case,
eliminating, without duplication, all offsetting debits and credits between
the Company and its Subsidiaries, all other items required to be eliminated
in the course of the preparation of consolidated financial statements of
the Company and its Subsidiaries in accordance with GAAP, all amounts
properly attributable to minority interests, if any, in the stock and
surplus of Subsidiaries, all items that are included in such consolidated
30
financial statements by virtue of the proportionate consolidation method of
accounting and constitute the pro rata share of the Company and its
Subsidiaries of the activities of HEP, and all items in respect of
Non-recourse Debt): (a) all interest and prepayment charges in respect of
Indebtedness of the Company and its Subsidiaries (including imputed
interest in respect of Capitalized Lease Obligations and net costs of
Swaps) deducted in determining Consolidated Net Income for such period,
together with all interest capitalized or deferred during such period and
not deducted in determining Consolidated Net Income for such period, and
(b) all debt discount and expense amortized or required to be amortized in
the determination of Consolidated Net Income for such period.
"Consolidated Net Income" shall mean, with respect to any period, the
sum of (i) distributions from HEP that are actually received by the Company
or any of its Subsidiaries during such period plus, without duplication,
(ii) the net income (or loss) of the Company and its Subsidiaries for such
period as determined in accordance with GAAP, after eliminating, without
duplication, (a) all items required to be eliminated in the course of the
preparation of consolidated financial statements of the Company and its
Subsidiaries in accordance with GAAP, (b) all amounts properly attributable
to minority interests, if any, in the stock and surplus of Subsidiaries,
(c) all items that are included in such consolidated financial statements
by virtue of the proportionate consolidation method of accounting and
constitute the pro rata share of the Company and its Subsidiaries of the
activities of HEP, and (d) all items in respect of Non-recourse Debt;
provided that there shall also be excluded the following: any gains (net of
expenses and taxes applicable thereto) in excess of losses resulting from
the sale, conversion or other disposition of capital assets (i.e., assets
other than current assets), any gains resulting from the write-up of
assets, any earnings of any Person acquired by the Company or any
Subsidiary through purchase, merger or consolidation or otherwise for any
period prior to the date of acquisition, any deferred credit representing
the excess of equity in any Subsidiary at the date of acquisition over the
cost of the investment in such Subsidiary, any gains from the acquisition
of securities or the retirement or extinguishment of Indebtedness, any
gains on collections from insurance policies or settlements, any
restoration to income of any contingency reserve, except to the extent that
provision for such reserve was made out of income accrued during such
period, the cumulative effect of changes in accounting principles included
in income during the period, any income or gain during such period from any
discontinued operations or the disposition thereof, from any extraordinary
items or from any prior period adjustments, or, in the case of a successor
to the Company or any Subsidiary by consolidation or merger or as a
transferee of its assets, any earnings of the successor corporation prior
to such consolidation, merger or transfer of assets or any equity of the
Company or any Subsidiary in the undistributed earnings (but not losses) of
any Person which is not a Subsidiary.
"Consolidated Net Worth" shall mean an amount equal to consolidated
stockholders' equity of the Company determined in accordance with GAAP
(less amounts attributable to redeemable preferred stock) minus the net
equity of the Company and its Subsidiaries in any assets subject to
Non-recourse Debt.
31
"Convertible Securities" shall mean any debt instrument that is by its
terms convertible into an equity interest in the Company or a Subsidiary.
"Credit Agreement" shall mean the Second Amended and Restated Credit
Agreement dated as of May 31, 1997, among the Company, HCP and the banks
listed therein, First Union National Bank, as Collateral Agent, and ▇▇▇▇▇▇
Guaranty Trust Company of New York, as Agent, as amended from time to time.
"Default Subordination Event" shall mean the existence of all of the
following: (i) a Subordination Event of Default shall have occurred and be
continuing in respect of any Senior Debt, (ii) the holders of the Notes
shall have received a notice from or on behalf of any holder of such Senior
Debt specifying that such Subordination Event of Default has occurred and
is continuing and that such notice constitutes a "Default Subordination
Notice" and (iii) no other Default Subordination Notice shall have been
delivered by any holder of Senior Debt within the 365 day period
immediately preceding the giving of such notice. The "Stand-Still Period"
relating to any Default Subordination Event shall be deemed to continue
until the earlier of (a) the Subordination Event of Default under the
Senior Debt giving rise thereto shall have been cured or waived; (b) a
period of 120 days shall have elapsed from the giving of the Default
Subordination Notice relating thereto; and (c) the Senior Debt giving rise
thereto shall have been accelerated.
"Default Subordination Notice" shall have the meaning specified in the
definition of "Default Subordination Event."
"Disposition Value" shall mean, at any time, with respect to any
property
(a) in the case of property that does not constitute Subsidiary
Stock, the book value thereof at the time of such disposition, and
(b) in the case of property that constitutes Subsidiary Stock, an
amount equal to that percentage of book value of the assets of the
Subsidiary that issued such stock as is equal to the percentage that
the book value of such Subsidiary Stock represents of the book value
of all of the outstanding capital stock of such Subsidiary (assuming,
in making such calculations, that all securities convertible into such
capital stock are so converted and giving full effect to all
transactions that would occur or be required in connection with such
conversion) determined at the time of the disposition thereof, in good
faith by the Company.
"EBITDA" shall mean, for any period, the sum of (i) Consolidated Net
Income plus (ii) to the extent deducted in the determination of
Consolidated Net Income (other than as a result of clauses (b), (c) and (d)
of the definition thereof), (a) all provisions for federal, state and other
income tax, (b) Consolidated Interest Expense and (c) provisions for
depletion, depreciation and amortization and impairment of oil and gas
properties.
32
"Equity Proceeds" shall mean the aggregate sum of (i) the net proceeds
received after the Date of Closing by the Company or any Subsidiary upon
the sale of any equity interest in the Company or any Subsidiary (other
than in the case of sales by a Subsidiary to the Company or to a Wholly
Owned Subsidiary), plus (ii) the net proceeds received after the Date of
Closing by the Company or any Subsidiary upon (a) the exercise of the
Warrants, or any other warrants, options or similar instruments issued by
the Company or any Subsidiary (other than in the case of warrants or
similar instruments issued to and held by the Company or a Wholly Owned
Subsidiary), and (b) the conversion of any Convertible Securities into
common stock or other equity interest in the Company or any Subsidiary
(other than conversions by the Company or a Wholly Owned Subsidiary).
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" shall mean any corporation which is a member of the
same controlled group of corporations as the Company within the meaning of
section 414(b) of the Code, or any trade or business which is under common
control with the Company within the meaning of section 414(c) of the Code.
"Event of Default" shall mean any of the events specified in paragraph
8A, provided that there has been satisfied any requirement in connection
with such event for the giving of notice, or the lapse of time, or the
happening of any further condition, event or act, and "Default" shall mean
any of such events, whether or not any such requirement has been satisfied.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" shall mean, at any time and with respect to any
property, the sale value of such property that would be realized in an
arm's-length sale at such time between an informed and willing buyer and an
informed and willing seller (neither being under a compulsion to buy or
sell).
"GAAP" shall have the meaning specified in paragraph 11C.
"Guarantee" shall mean, with respect to any Person, any direct or
indirect liability, contingent or otherwise, of such Person with respect to
any indebtedness, lease, dividend or other obligation of another,
including, without limitation, any such obligation directly or indirectly
guaranteed, endorsed (otherwise than for collection or deposit in the
ordinary course of business) or discounted or sold with recourse by such
Person, or in respect of which such Person is otherwise directly or
indirectly liable, including, without limitation, any such obligation in
effect guaranteed by such Person through any agreement (contingent or
otherwise) to purchase, repurchase or otherwise acquire such obligation or
any security therefor, or to provide funds for the payment or discharge of
such obligation (whether in the form of loans, advances, stock purchases,
capital contributions or otherwise), or to maintain the solvency or any
balance sheet or other financial condition of the obligor of such
obligation, or to make payment for any products, materials or supplies or
33
for any transportation or services regardless of the non-delivery or
non-furnishing thereof, in any such case if the purpose, intent or effect
of such agreement is to provide assurance that such obligation will be paid
or discharged, or that any agreements relating thereto will be complied
with, or that the holders of such obligation will be protected against loss
in respect thereof. The amount of any Guarantee shall be equal to the
outstanding principal amount of the obligation guaranteed or such lesser
amount to which the maximum exposure of the guarantor shall have been
specifically limited.
"HCP" shall mean Hallwood Consolidated Partners, L.P., a Colorado
limited partnership.
"Hedging Transaction" shall mean any commodity basis swap, forward
commodity transaction, commodity swap, commodity option, commodity index
swap, commodity cap transaction, commodity floor transaction, commodity
collar transaction, any other similar transaction that relates to
commodities (including any option with respect to any of the foregoing
transactions) or any combination of the foregoing transactions. For the
purposes of this Agreement, the amount of the obligation under any Hedging
Transaction 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 Hedging Transaction had terminated at the end of such
fiscal quarter, and in making such determination, if any agreement relating
to such Hedging Transaction 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.
"HEP" shall mean Hallwood Energy Partners, L.P., a Delaware limited
partnership, and its successors.
"Indebtedness" shall mean, with respect to any Person and without
duplication: (i) all items (excluding items of contingency reserves or of
reserves for deferred income taxes) which under GAAP are shown on the
balance sheet as a liability (including, without limitation, Capitalized
Lease Obligations, but excluding accounts payable in the ordinary course of
business and accrued expenses shown as current liabilities; (ii)
indebtedness secured by any Lien existing on property owned subject to such
Lien, whether or not the indebtedness secured thereby shall have been
assumed, provided, that the obligations secured by any Liens permitted by
paragraph 6B(2)(iv) shall not constitute Indebtedness; (iii) redemption
obligations in respect of mandatorily redeemable preferred stock; (iv) all
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); (v) Swaps and Hedging Transactions; and (vi) Guarantees of
Indebtedness of other Persons of the types described in the foregoing
clauses (i) through (vi). Indebtedness of any Person shall include all
obligations of such Person of the character described in clauses (i)
through (vi) to the extent such Person remains legally liable in respect
thereof notwithstanding that any such obligation is deemed to be
extinguished under GAAP.
34
"Lien" shall mean any mortgage, pledge, priority, security interest,
encumbrance, contractual deposit arrangement, lien (statutory or otherwise)
or charge of any kind (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement, any
lease in the nature thereof, and the filing of or agreement to give any
financing statement under the Uniform Commercial Code of any jurisdiction)
or any other type of preferential arrangement for the purpose, or having
the effect, of protecting a creditor against loss or securing the payment
or performance of an obligation.
"Multiemployer Plan" shall mean any Plan which is a "multiemployer
plan" (as such term is defined in section 4001(a)(3) of ERISA).
"Non-recourse Debt" means Indebtedness which is secured by specific
assets and is issued pursuant to or evidenced or secured by an instrument
which limits the recourse against the obligor thereunder to such specific
assets and which, in the case of Indebtedness created, assumed, or incurred
after the date hereof, contains a provision to the effect that if the
holder of such Indebtedness should ever become entitled to recourse against
the obligor pursuant to ss.1111(b) of the Bankruptcy Reform Act of 1978
(11. U.S.C. ss.111(b)) or any other provision of any bankruptcy insolvency,
or other law of any jurisdiction, then such holder's claim in respect of
such Indebtedness shall thereupon become and thereafter remain in all
respects subordinate and junior to all indebtedness evidenced by the Notes
and such holder shall not be entitled to receive any payment, under any
condition, in respect of any such Indebtedness until all Notes and all
other amounts which may become due, or are stated in this Agreement to
become due, shall have been paid in full or funds for their payment shall
have been duly and sufficiently provided.
"Notes" shall have the meaning specified in paragraph 1A.
"Officer's Certificate" shall mean a certificate signed in the name of
the Company by its President, one of its Vice Presidents or its Treasurer.
"Participation Rights Agreement" shall mean the Participation Rights
Agreement, dated of even date herewith, by and among you, the Company and
certain holders of the Common Stock, that are parties thereto; such
Participation Rights Agreement shall be substantially in the form of
Exhibit E attached hereto.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
successor entity.
"Person" shall mean and include an individual, a partnership, a joint
venture, a corporation, a trust, a limited liability company, an
unincorporated organization and a government or any department or agency
thereof.
35
"Plan" shall mean any "employee pension benefit plan" (as such term is
defined in section 3 of ERISA) which is or has been established or
maintained, or to which contributions are or have been made, by the Company
or any ERISA Affiliate.
"Property Reinvestment Application" means, with respect to any
Transfer of property, the satisfaction of each of the following conditions:
(a) an amount equal to the proceeds with respect to such Transfer
shall have been applied, or irrevocably committed and then actually
applied within 30 days, to the acquisition by the Company, or any of
its Subsidiaries making such Transfer, of oil and gas property that is
not encumbered by (i) any Lien (other than Liens described in
paragraph 6B(2)(iv)) or (ii) any Lien described in paragraph 6B(2)(i)
but only if the proceeds result from a Transfer of oil and gas
property that also was subject to such a Lien; and
(b) the Company shall have delivered an Officer's Certificate to
each holder referring to paragraph 6B(4) and identifying the property
that was the subject of such Transfer, the Disposition Value of such
property, and the nature, terms, amount and application of the
proceeds from the Transfer.
"Registration Rights Agreement" shall mean the Registration Rights
Agreement, dated of even date herewith, by and between you and the Company
and substantially in the form of Exhibit F attached hereto.
"Required Holder(s)" shall mean the holder or holders of at least
662/3% of the aggregate principal amount of the Notes from time to time
outstanding.
"Responsible Officer" shall mean the chief executive officer, chief
operating officer, chief financial officer or chief accounting officer of
the Company or any other officer of the Company involved principally in its
financial administration or its controllership function.
"Securities" shall mean the Notes and the Warrants.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Senior Debt" shall mean the unpaid principal of, interest on premium,
if any, and commitment and other similar fees with respect to Indebtedness
pursuant to the Credit Agreement outstanding, from time to time, in
accordance with paragraph 6A(1).
"Significant Holder" shall mean each holder of at least 10% of the
Notes or 10% of the Warrants.
"Stand-Still Period" shall have the meaning specified in the
definition of "Default Subordination Event."
36
"Subordination Event of Default" shall mean (i) any default in the
payment of any principal of or interest on any Senior Debt in an amount
less than or equal to $100,000 owing under any single instrument when the
same becomes due and payable or (ii) any event of default under any other
agreement evidencing Senior Debt that would entitle the holders of such
Senior Debt to accelerate the obligations under such Senior Debt (other
than as a result of any nonpayment of any amount owing under Senior Debt).
"Subsidiary" shall mean a corporation, trust, association, partnership
or other business entity of which, at the time such determination is made,
at least 50.1% of the total Voting Stock is owned by the Company and/or one
or more of its Subsidiaries.
"Subsidiary Guaranty" shall mean the Senior Subordinated Guaranty,
dated of even date herewith and executed by HCP and each other Subsidiary,
in substantially the form of Exhibit D attached hereto.
"Subsidiary Stock" means, with respect to any Person, the stock (or
any options or warrants to purchase stock or other securities exchangeable
for or convertible into stock) of any Subsidiary of such Person.
"Swaps" shall mean with respect to any Person, payment obligations
with respect to interest rate swaps, currency swaps and similar obligations
(other than Hedging Transactions), in each case 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.
"Termination Event" shall mean (i) a Reportable Event described in
Section 4043 of ERISA and the regulations issued thereunder (other than a
Reportable Event not subject to the provision for 30-day notice to the
Pension Benefit Guaranty Corporation under such regulations), or (ii) the
withdrawal of the Company or any of its ERISA Affiliates from a Plan during
a plan year in which it was a "substantial employer" as defined in Section
4001(a)(2) of ERISA, or (iii) the filing of a notice of intent to terminate
a Plan or the treatment of a Plan amendment as a termination under Section
4041 of ERISA, or (iv) the institution of proceedings to terminate a Plan
by the Pension Benefit Guaranty Corporation, or (v) any other event or
condition that might constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan.
37
"Total Debt" shall mean, at the time of determination, the then
outstanding aggregate principal amount of all Indebtedness, other than
Non-recourse Debt, of the Company and its Subsidiaries on a consolidated
basis.
"Transfer" means, with respect to any Person, any transaction in which
such Person sells, conveys, transfers or leases (as lessor) any of its
property, including, without limitation, Subsidiary Stock. For purposes of
determining the application of the proceeds in respect of any Transfer, the
Company may designate any Transfer as one or more separate Transfers each
yielding separate proceeds. In any such case, (a) the Disposition Value of
any property subject to each such separate Transfer and (b) the amount of
Consolidated Assets attributable to any property subject to each such
separate Transfer shall be determined by ratably allocating the aggregate
Disposition Value of, and the aggregate Consolidated Assets attributable
to, all property subject to all such separate Transfers to each such
separate Transfer on a proportionate basis.
"Transferee" shall mean any direct or indirect transferee of all or
any part of any Note or Warrant purchased by you under this Agreement.
"Voting Stock" shall mean, securities or other equity interest of any
class or classes, the holders of which are ordinarily, in the absence of
contingencies, entitled to vote for the election or removal of corporate
directors or persons (such as general partners or managers) performing
similar functions in the case of business entities other than corporations.
"Warrants" shall have the meaning specified in paragraph 1B.
"Wholly Owned Subsidiary" shall mean any Subsidiary all of the equity
interests (except directors' qualifying shares) of which are owned,
directly or indirectly, by the Company or other Wholly Owned Subsidiaries.
11C. Accounting Principles, Terms and Determinations. All references in
this Agreement to "generally accepted accounting principles" or to "GAAP" shall
be deemed to refer to generally accepted accounting principles in effect in the
United States at the time of application thereof. Unless otherwise specified
herein, all accounting terms used herein shall be interpreted, all
determinations with respect to accounting matters hereunder shall be made, and
all unaudited financial statements and certificates and reports as to financial
matters required to be furnished hereunder shall be prepared, in accordance with
generally accepted accounting principles, applied on a basis consistent with the
most recent audited consolidated financial statements of the Company and its
Subsidiaries delivered pursuant to clause (ii) of paragraph 5A or, if no such
statements have been so delivered, the most recent audited financial statements
referred to in clause (i) of paragraph 9B.
PARAGRAPH 12. MISCELLANEOUS.
12. Miscellaneous.
38
12A. Note Payments. So long as you shall hold any Note, the Company will
make payments of principal of, interest on and any Yield-Maintenance Amount
payable with respect to such Note, which comply with the terms of this
Agreement, by wire transfer of immediately available funds for credit (not later
than 12:00 noon, New York City time, on the date due) to your account or
accounts as specified in the Purchaser Schedule attached hereto, or such other
account or accounts in the United States as you may designate in writing,
notwithstanding any contrary provision herein or in any Note with respect to the
place of payment. You agree that, before disposing of any Note, you will make a
notation thereon (or on a schedule attached thereto) of all principal payments
previously made thereon and of the date to which interest thereon has been paid.
The Company agrees to afford the benefits of this paragraph 12A to any
Transferee which shall have made the same agreement as you have made in this
paragraph 12A.
12B. Expenses. The Company agrees, whether or not the transactions
contemplated hereby shall be consummated, to pay, and save you and any
Transferee harmless against liability for the payment of, all out-of-pocket
expenses arising in connection with such transactions, including (i) all
document production and duplication charges and the fees and expenses of any
special counsel engaged by you or such Transferee in connection with this
Agreement, the transactions contemplated hereby and any subsequent proposed
modification of, or proposed consent under, this Agreement whether or not such
proposed modification shall be effected or proposed consent granted, and (ii)
the costs and expenses, including attorneys' fees, incurred by you or such
Transferee in enforcing (or determining whether or how to enforce) any rights
under this Agreement, the Notes, the Warrants, the Registration Rights Agreement
or the Participation Rights Agreement or in responding to any subpoena or other
legal process or informal investigative demand issued in connection with this
Agreement, such other documents or the transactions contemplated hereby or
thereby or by reason of your or such Transferee's having acquired any Note or
Warrant, including without limitation costs and expenses incurred in any
bankruptcy case. The obligations of the Company under this paragraph 12B shall
survive the transfer of any Note or portion thereof or interest therein by you
or any Transferee and the payment of any Note.
12C. Consent to Amendments. This Agreement may be amended, and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, if the Company shall obtain the written consent
to such amendment, action or omission to act, of the Required Holder(s) except
that, without the written consent of the holder or holders of all Notes at the
time outstanding, no amendment to this Agreement shall change the maturity of
any Note, or change the principal of, or the rate or time of payment of interest
on or any Yield-Maintenance Amount payable with respect to any Note, or affect
the time, amount or allocation of any prepayments, or change the proportion of
the principal amount of the Notes required with respect to any consent,
amendment, waiver or declaration. Each holder of any Securities at the time or
thereafter outstanding shall be bound by any consent authorized by this
paragraph 12C, whether or not such Securities shall have been marked to indicate
such consent, but any Securities issued thereafter may bear a notation referring
to any such consent. No course of dealing between the Company and the holder of
any Securities nor any delay in exercising any rights hereunder or under any
Securities shall operate as a waiver of any rights of any holder of such
Securities. As used herein and in the Notes, the term "this Agreement" and
39
references thereto shall mean this Agreement as it may from time to time be
amended or supplemented.
12D. Form, Registration, Transfer and Exchange of Notes; Lost Notes. The
Notes are issuable as registered notes without coupons in denominations of at
least $100,000, except as may be necessary to reflect any principal amount not
evenly divisible by $100,000. The Company shall keep at its principal office a
register in which the Company shall provide for the registration of Notes and of
transfers of Notes. Upon surrender for registration of transfer of any Note at
the principal office of the Company, the Company shall, at its expense, execute
and deliver one or more new Notes of like tenor and of a like aggregate
principal amount, registered in the name of such transferee or transferees. At
the option of the holder of any Note, such Note may be exchanged for other Notes
of like tenor and of any authorized denominations, of a like aggregate principal
amount, upon surrender of the Note to be exchanged at the principal office of
the Company. Whenever any Notes are so surrendered for exchange, the Company
shall, at its expense, execute and deliver the Notes which the holder making the
exchange is entitled to receive. Every Note surrendered for registration of
transfer or exchange shall be duly endorsed, or be accompanied by a written
instrument of transfer duly executed, by the holder of such Note or such
holder's attorney duly authorized in writing. Any Note or Notes issued in
exchange for any Note or upon transfer thereof shall carry the rights to unpaid
interest and interest to accrue which were carried by the Note so exchanged or
transferred, so that neither gain nor loss of interest shall result from any
such transfer or exchange. Upon receipt of written notice from the holder of any
Note of the loss, theft, destruction or mutilation of such Note and, in the case
of any such loss, theft or destruction, upon receipt of such holder's unsecured
indemnity agreement, or in the case of any such mutilation upon surrender and
cancellation of such Note, the Company will make and deliver a new Note, of like
tenor, in lieu of the lost, stolen, destroyed or mutilated Note.
12E. Persons Deemed Owners; Participations. Prior to due presentment for
registration of transfer, the Company may treat the Person in whose name any
Note is registered as the owner and holder of such Note for the purpose of
receiving payment of principal of, interest on and any Yield-Maintenance Amount
payable with respect to such Note and for all other purposes whatsoever, whether
or not such Note shall be overdue, and the Company shall not be affected by
notice to the contrary. Subject to the preceding sentence, the holder of any
Note may from time to time grant participations in such Note to any Person on
such terms and conditions as may be determined by such holder in its sole and
absolute discretion, provided that any such participation shall be in a
principal amount of at least $100,000.
12F. Survival of Representations and Warranties; Entire Agreement. All
representa tions and warranties contained herein or made in writing by or on
behalf of the Company in connection herewith shall survive the execution and
delivery of this Agreement and the Notes, the transfer by you of any Warrant or
Note or portion thereof or interest therein and the payment of any Note, and may
be relied upon by any Transferee, regardless of any investigation made at any
time by or on behalf of you or any Transferee. Subject to the preceding
sentence, this Agreement, the Notes, the Warrants, the Registration Rights
Agreement and the Participation Rights Agreement embody the entire agreement and
40
understanding between you and the Company and supersede all prior agreements and
understandings relating to the subject matter hereof.
12G. Successors and Assigns. All covenants and other agreements in this
Agreement contained by or on behalf of either of the parties hereto shall bind
and inure to the benefit of the respective successors and assigns of the parties
hereto (including, without limitation, any Transferee) whether so expressed or
not.
12H. Disclosure to Other Persons. The Company acknowledges that the holder
of any Security may deliver copies of any financial statements and other
documents delivered to such holder, and disclose any other information disclosed
to such holder, by or on behalf of the Company or any Subsidiary in connection
with or pursuant to this Agreement to (i) such holder's directors, officers,
employees, agents and professional consultants, (ii) any other holder of any
Security, (iii) any Person to which such holder offers to sell such Security or
any part thereof, (iv) any Person to which such holder sells or offers to sell a
participation in all or any part of a Note, (v) any Person from which such
holder offers to purchase any other security of the Company, (vi) any federal or
state regulatory authority having jurisdiction over such holder, (vii) the
National Association of Insurance Commissioners or any similar organization or
(viii) any other Person to which such delivery or disclosure may be necessary or
appropriate (a) in compliance with any law, rule, regulation or order applicable
to such holder, (b) in response to any subpoena or other legal process or
informal investigative demand or (c) in connection with any litigation to which
such holder is a party.
12I. Notices. All notices or other communications provided for hereunder
shall be in writing and sent by first class mail or nationwide overnight
delivery service (with charges prepaid) and (i) if to you, addressed to you at
the address specified for such communications in the Purchaser Schedule attached
hereto, or at such other address as you shall have specified to the Company in
writing, (ii) if to any other holder of any Security, addressed to such other
holder at such address as such other holder shall have specified to the Company
in writing or, if any such other holder shall not have so specified an address
to the Company, then addressed to such other holder in care of the last holder
of such Security which shall have so specified an address to the Company, and
(iii) if to the Company, addressed to it at ▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇. ▇▇▇▇., ▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: Legal Department, or at such other
address as the Company shall have specified to the holder of each Security in
writing; provided, that any such communication to the Company may also, at the
option of the holder of any Security, be delivered by any other means either to
the Company at its address specified above or to any officer of the Company.
12J. Payments Due on Non-Business Days. Anything in this Agreement or the
Notes to the contrary notwithstanding, any payment of principal of or interest
or Yield-Maintenance Amount 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.
41
12K. Satisfaction Requirement. If any agreement, certificate or other
writing, or any action taken or to be taken, is by the terms of this Agreement
required to be satisfactory to you or to the Required Holder(s), the
determination of such satisfaction shall be made by you or the Required
Holder(s), as the case may be, in the sole and exclusive judgment (exercised in
good faith) of the Person or Persons making such determination.
12L. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF
THE STATE OF NEW YORK. This Agreement may not be changed orally, but (subject to
the provisions of paragraph 12C) only by an agreement in writing signed by the
party against whom enforcement of any waiver, change, modification or discharge
is sought.
12M. Waiver of Jury Trial; Consent to Jurisdiction; Limitation of Remedies.
(i) THE COMPANY AND EACH HOLDER OF SECURITIES HEREBY KNOWINGLY,
VOLUNTARILY, AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY
JURY IN ANY LITIGATION OF ANY CLAIM WHICH IS BASED HEREON, OR ARISES OUT
OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT, THE NOTES, THE WARRANTS,
THE REGISTRATION RIGHTS AGREEMENT OR THE PARTICIPATION RIGHTS AGREEMENT, OR
ANY TRANSACTIONS RELATING HERETO OR THERETO, OR ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF THE
COMPANY OR SUCH HOLDERS. THE COMPANY ACKNOWLEDGES THAT THIS PROVISION IS A
MATERIAL INDUCEMENT FOR YOU TO ENTER INTO THIS AGREEMENT.
(ii) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT,
THE NOTES, THE WARRANTS, THE REGISTRATION RIGHTS AGREEMENT OR THE
PARTICIPATION RIGHTS AGREEMENT, OR ANY TRANSACTIONS RELATING HERETO OR
THERETO, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
ORAL OR WRITTEN), OR ACTIONS OF THE COMPANY OR THE HOLDERS OF SECURITIES
MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR THE UNITED STATES
OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND THE COMPANY HEREBY
ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS. THE
COMPANY HEREBY IRREVOCABLY WAIVES ANY OBJECTIONS, INCLUDING, WITHOUT
LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF
FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF
42
ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS.
12N. Severability. Any provision of this Agreement which 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 not invalidate or render unenforceable such provision in any
other jurisdiction.
12O. Descriptive Headings. The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
12P. Maximum Interest Payable. The Company, you and any other holders of
the Notes specifically intend and agree to limit contractually the amount of
interest payable under this Agreement, the Notes and all other instruments and
agreements related hereto and thereto to the maximum amount of interest lawfully
permitted to be charged under applicable law. Therefore, none of the terms of
this Agreement, the Notes or any instrument pertaining to or relating to this
Agreement or the Notes shall ever be construed to create a contract to pay
interest at a rate in excess of the maximum rate permitted to be charged under
applicable law, and neither the Company, any guarantor nor any other party
liable or to become liable hereunder, under the Notes, any guaranty or under any
other instruments and agreements related hereto and thereto shall ever be liable
for interest in excess of the amount determined at such maximum rate, and the
provisions of this paragraph 12P shall control over all other provisions of this
Agreement, any Notes, any guaranty or any other instrument pertaining to or
relating to the transactions herein contemplated. If any amount of interest
taken or received by you or any holder of a Note shall be in excess of said
maximum amount of interest which, under applicable law, could lawfully have been
collected by you or such holder incident to such transactions, then such excess
shall be deemed to have been the result of a mathematical error by all parties
hereto and shall be refunded promptly by the Person receiving such amount to the
party paying such amount, or, at the option of the recipient, credited ratably
against the unpaid principal amount of the Note or Notes held by you or such
holder, respectively. All amounts paid or agreed to be paid in connection with
such transac tions which would under applicable law be deemed "interest" shall,
to the extent permitted by such applicable law, be amortized, prorated,
allocated and spread throughout the stated term of this Agreement and the Notes.
"Applicable law" as used in this paragraph means that law in effect from time to
time which permits the charging and collection of the highest permissible
lawful, nonusurious rate of interest on the transactions herein contemplated
including laws of the State of New York and of the United States of America, and
"maximum rate" as used in this paragraph means, with respect to each of the
Notes, the maximum lawful, nonusurious rates of interest (if any) which under
applicable law may be charged to the Company from time to time with respect to
such Notes.
43
12Q. Counterparts. This Agreement may be executed in any number of counter
parts, each of which shall be an original but all of which together shall
constitute one instrument.
[Remainder of Page Intentionally Left Blank; Signature Page Follows]
44
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter and return the same to the
Company, whereupon this letter shall become a binding agreement between the
Company and you.
Very truly yours,
HALLWOOD CONSOLIDATED RESOURCES
CORPORATION
By /s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: Vice President
The foregoing Agreement is hereby accepted as of the date first above written.
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By: /s/
Vice President
45
EXHIBIT A
[FORM OF SENIOR SUBORDINATED NOTE]
HALLWOOD CONSOLIDATED RESOURCES CORPORATION
10.32% SENIOR SUBORDINATED NOTE DUE DECEMBER 23, 2007
No._________________ ___________, _____
$___________________ PPN 40636V A* 0
FOR VALUE RECEIVED, the undersigned, HALLWOOD CONSOLIDATED RESOURCES
CORPORATION (the "Company"), a corporation organized and existing under the laws
of the State of Delaware, hereby promises to pay to
_____________________________, or registered assigns, the principal sum of
___________________________ DOLLARS ($______________) on December 23, 2007, with
interest (computed on the basis of a 360-day year -- 30-day month) payable
quarterly (or, upon the occurrence of a Default or an Event of Default and until
such Default of Event of Default has been cured or waived in writing (such
period constituting a "Default Interest Period"), at the option of the
registered holder hereof, on demand) on the 23rd day of March, June, September
and December in each year, commencing with the 23rd day of March, June,
September or December next succeeding the date hereof, until the principal
hereof shall have become due and payable (a) on the unpaid balance hereof at the
rate of 10.32% per annum from the date hereof, and (b) during a Default Interest
Period on the unpaid balance hereof and all other obligations of the Company
under the Note Agreement referred to below, including any payment or overdue
payment or prepayment of principal, interest and any Yield-Maintenance Amount
(as such term is defined in the Note Agreement referred to below), at a rate per
annum from time to time equal to the lesser of (i) the maximum rate permitted by
applicable law or (ii) the greater of (y) 12.32% or (z) 2.0% over the rate of
interest publicly announced by The Bank of New York from time to time in New
York City as its Prime Rate.
Payments of principal of, interest on and any Yield-Maintenance Amount
payable with respect to this Note are to be made at the main office of The Bank
of New York in New York City or at such other place as the holder hereof shall
designate to the Company in writing, in lawful money of the United States of
America.
This Note is one of a series of 10.32% Senior Subordinated Notes (the
"Notes") issued pursuant to a Subordinated Note and Warrant Purchase Agreement,
dated as of December 23, 1997 (the "Agreement"), between the Company and The
Prudential Insurance Company of America and is entitled to the benefits thereof.
A-1
This Note is a registered Note and, as provided in the Agreement, upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder's attorney duly authorized in writing, a new Note
of like tenor for a like principal amount will be issued to, and registered in
the name of, the transferee. Prior to due presentment for registration of
transfer, the Company may treat the person in whose name this Note is registered
as the owner hereof for the purpose of receiving payment and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
This Note is subject to certain prepayments, as specified in the Agreement.
This Note and the debt evidenced hereby, including the principal, interest
and Yield- Maintenance Amount, if any, shall at all times remain junior and
subordinate to any and all Senior Debt (as defined in the Agreement), all on the
terms and to the extent more fully set forth in the Agreement.
If an Event of Default, as defined in the Agreement, shall occur and be
continuing, the principal of this Note may be declared or otherwise become due
and payable in the manner and with the effect provided in the Agreement.
The Company, and the purchaser and the registered holder of this Note
specifically intend and agree to limit contractually the amount of interest
payable under this Note to the maximum amount of interest lawfully permitted to
be charged under applicable law. Therefore, none of the terms of this Note shall
ever be construed to create a contract to pay interest at a rate in excess of
the maximum rate permitted to be charged under applicable law, and neither the
Company nor any other party liable or to become liable hereunder shall ever be
liable for interest in excess of the amount determined at such maximum rate, and
the provisions of paragraph 12P of the Agreement shall control over any contrary
provision of this Note.
THIS NOTE IS INTENDED TO BE PERFORMED IN THE STATE OF NEW YORK AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAW OF SUCH STATE.
HALLWOOD CONSOLIDATED
RESOURCES CORPORATION
By
[Vice] President
A-2