<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for use of the
commission only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12S
UNIVERSAL SEISMIC ASSOCIATES, INC.
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(Name of Registrant as Specified In Its Charter)
UNIVERSAL SEISMIC ASSOCIATES, INC.
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required per Exchange Act Rule 14a-6(i)(2).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies: N/A
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(2) Aggregate number of securities to which transaction applies: N/A
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11(1): N/A
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(4) Proposed maximum aggregate value of transaction: N/A
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(5) Total fee paid: N/A
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: N/A
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.: N/A
- --------------------------------------------------------------------------------
(3) Filing Party: N/A
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(4) Date Filed: N/A
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(1) Estimated pursuant to Rule 0-11(c) and (a)(4), based on the book value of
the securities to be received by the registrant upon consummation of the
Mergers.
<PAGE> 2
UNIVERSAL SEISMIC ASSOCIATES, INC.
16420 PARK TEN PLACE, SUITE 300
HOUSTON, TEXAS 77084-5051
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH , 1998
Houston, Texas
February , 1998
To the Stockholders of UNIVERSAL SEISMIC ASSOCIATES, INC.:
Notice is hereby given that the annual meeting (the "Annual Meeting") of
the stockholders of Universal Seismic Associates, Inc., a Delaware corporation
(the "Company"), will be held at the Company's offices at 16420 Park Ten Place,
Suite 300, Houston, Texas on March , 1998, at 10:00 a.m., Houston time, for
the following purposes:
1. To elect five (5) persons to serve as directors on the Board of
Directors until the next annual meeting of stockholders and until their
successors have been elected and have qualified.
2. To approve the Note Exchange Agreement (the "Note Exchange
Agreement") among the Company, UNEXCO, Inc. ("UNEXCO") and RIMCO Partners,
L.P., RIMCO Partners, L.P. II, RIMCO Partners, L.P. III and RIMCO Partners,
L.P. IV (collectively, the "RIMCO Partnerships" or the "Noteholders") and
the transactions contemplated thereby, including the issuance of shares of
the Company's common stock, par value $0.0001 per share ("Common Stock"),
and 7.875% Convertible Subordinated General Obligation Notes in payment of
the outstanding indebtedness of the Company to the Noteholders (the "Note
Exchange"), as described in greater detail in the accompanying Proxy
Statement. The Note Exchange is conditioned on the Company having a
sufficient amount of authorized Common Stock to consummate the transactions
contemplated thereby, which may require that the stockholders approve
Proposal No. 3.
3. To consider and vote upon a proposal to change the state of
incorporation of the Company from Delaware to Texas (the
"Reincorporation"). The ability of the Company to consummate the Note
Exchange may be contingent upon the approval of the Reincorporation by the
stockholders of the Company.
4. To transact any other business which may properly come before the
meeting.
Stockholders of record at the close of business on February , 1998, are
entitled to notice of, and to vote at, the Annual Meeting. All stockholders are
cordially invited and urged to attend the Annual Meeting. YOUR VOTE IS
IMPORTANT. Regardless of whether you expect to attend the Annual Meeting, PLEASE
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENCLOSED
SELF-ADDRESSED POSTAGE PAID ENVELOPE AS SOON AS POSSIBLE. THE GIVING OF SUCH
PROXY WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IF YOU ATTEND THE ANNUAL
MEETING.
The Bylaws of the Company require that the holders of a majority of the
outstanding shares of Common Stock of the Company entitled to vote be
represented in person or by proxy at the Annual Meeting in order to constitute a
quorum for the transaction of business. It is important that your shares be
represented at the meeting in person or by proxy.
By order of the Board of Directors,
/s/ VICKI D. McLAREN
Vicki D. McLaren
Corporate Secretary
<PAGE> 3
UNIVERSAL SEISMIC ASSOCIATES, INC.
16420 PARK TEN PLACE, SUITE 300
HOUSTON, TEXAS 77084-5051
---------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD , MARCH , 1998
---------------------
SOLICITATION, REVOCATION AND EXERCISE OF PROXIES
The accompanying proxy is solicited on behalf of the Board of Directors of
Universal Seismic Associates, Inc., a Delaware corporation (the "Company"), for
use at the annual meeting of stockholders of the Company to be held at the time
and place specified below and for the purposes set forth in the notice (the
"Annual Meeting").
PLEASE SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE POSTAGE PAID ENVELOPE
PROVIDED.
Proxies in the form enclosed, which are properly executed and returned and
not subsequently revoked, will be voted at the Annual Meeting in accordance with
the directions specified thereon and otherwise in accordance with the judgment
of the persons designated as proxies. A proxy received by the Company's Board of
Directors may be revoked by the Company stockholder giving the proxy at any time
before it is exercised. A Company stockholder may revoke a proxy by notification
in writing to the Company's principal executive offices as follows: Universal
Seismic Associates, Inc., 16420 Park Ten Place, Suite 300, Houston, Texas
77084-5051, Attn: Vicki D. McLaren, Secretary. A proxy may also be revoked by
execution of a proxy bearing a later date or by attendance at the Annual Meeting
and voting by ballot.
This proxy solicitation is being made by the Company's Board of Directors.
The Company shall be responsible for its expenses incurred in preparing,
assembling, printing, and mailing this Proxy Statement to the Company's
stockholders. In addition to solicitation by mail, directors, officers and
regular employees of the Company may solicit proxies for the Annual Meeting
personally or by telephone or telecopy without receiving special compensation
therefor. The cost of soliciting proxies on behalf of the Board of Directors
will be borne by the Company. The Company's proxy solicitation will commence
with the mailing of this Proxy Statement on or about February , 1998.
VOTING AT MEETING: RECORD DATE
On February , 1998 (the "Record Date"), there were 5,234,109 shares of
the Company's common stock, par value $.0001 per share ("Common Stock"),
outstanding and entitled to vote at the Annual Meeting. Each holder of record of
Common Stock on the Record Date is entitled to cast one vote per share,
exercisable in person or by properly executed proxy, at the Annual Meeting. On
the matters upon which the holders of shares of Common Stock vote, the presence,
in person or by properly executed proxy, of the holders of a majority of the
outstanding shares of the Common Stock entitled to vote at the Annual Meeting is
necessary to constitute a quorum at the Annual Meeting.
<PAGE> 4
PROPOSAL 1: ELECTION OF DIRECTORS
It is proposed to elect five directors at the meeting, all of the Company's
nominees for which are currently serving as directors, to serve until the next
annual meeting of stockholders and until their successors shall have been
elected and qualified.
Each nominee has agreed to serve as a director if elected, and the Company
has no reason to believe that any nominee will be unable to serve. The persons
named in the accompanying proxy may act with discretionary authority to vote for
a new management nominee should any nominee named in this Proxy Statement become
unavailable for election, although management is unaware of any circumstances
likely to render any nominee unavailable for election. The election of directors
will require a plurality of the votes of the shares of Common Stock present or
represented by proxy at the meeting and entitled to vote thereon. There is no
cumulative voting with respect to the election of directors. THE BOARD OF
DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE NOMINATED DIRECTORS.
NOMINEES FOR DIRECTOR
The following table sets forth certain information regarding the current
members of and nominees for the Board of Directors as of February , 1998.
<TABLE>
<CAPTION>
YEAR FIRST
BECAME A
NAME AGE POSITION WITH COMPANY DIRECTOR
---- --- --------------------- ----------
<S> <C> <C> <C>
Calvin G. Cobb......................... 41 Director 1993
Gary J. Milavec........................ 36 Director 1996
Stephen F. Oakes....................... 48 Director 1996
Michael J. Pawelek..................... 39 Director and Executive Vice President 1992
Joe T. Rye............................. 59 Director, President and Chief Executive Officer 1997
</TABLE>
Set forth below is certain information concerning the nominees for election
as directors of the Company at the Annual Meeting, including the business
experience of each during at least the past five years.
Calvin G. Cobb has served as a director of the Company since March 1993.
Mr. Cobb also served as Chief Financial Officer and Treasurer of the Company, on
a temporary basis, from March through December 1993. Mr. Cobb is a Managing
Director of Corstone Corporation, a private merchant banking firm, with whom he
has been employed since August 1996. From September 1991 until July 1996, Mr.
Cobb was a Senior Managing Director of The London Manhattan Company, an
investment banking firm.
Gary J. Milavec has served as a director of the Company since February
1996. Since 1990, he has been employed by Resource Investors Management Company
Limited Partnership ("RIMCO"), a full service investment management company
specializing in the energy industry and the general partner of each of RIMCO
Partners, L.P., RIMCO Partners, L.P. II, RIMCO Partners, L.P. III, and RIMCO
Partners, L.P. IV (collectively, the "RIMCO Partnerships" or the "Noteholders").
Mr. Milavec also serves as a director of Texoil, Inc. and Brigham Exploration
Company.
Stephen F. Oakes has been a director of the Company since May 1996. From
1989 to 1992, he served as managing director of Robert Fleming, Inc., an
investment banking firm. He has been employed by RIMCO since 1992. Mr. Oakes
also serves as a director of Dawson Production Services, Inc.
Michael J. Pawelek served as President of the Company from January 1992 to
November 10, 1997 and additionally served as Chief Executive Officer from
December 1994 to November 10, 1997. Mr. Pawelek has served as a director of the
Company since January 1992. Mr. Pawelek is a director and President and Chief
Executive Officer of Kentex Holdings, Inc. ("Kentex"), whose principal asset
consists of all of the outstanding capital stock of Sierra Management, Inc., a
Texas corporation and a principal stockholder of the Company ("Sierra"). See
"Security Ownership of Certain Beneficial Owners and Management." Between
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November 1987 and January 1992, Mr. Pawelek was an officer and director of a
subsidiary of Sierra that conducted oil and gas operations.
Joe T. Rye has served as President and Chief Executive Officer of the
Company since November 10, 1997. Mr. Rye served as Chief Accounting Officer of
the Company from August 1997 to November 10, 1997. Prior to joining the Company,
Mr. Rye served as a director and Chief Financial Officer of Seagull Energy
Corporation from June 1982 through February 1992. From 1992 until joining the
Company, Mr. Rye was a consultant to energy and petrochemical companies and
operated family businesses. Mr. Rye also serves as a director of Penn Virginia
Corporation, a company engaged in oil and gas and coal leasing activities in
Appalachia.
BOARD COMMITTEES
The Company's Board of Directors has established an Audit Committee, which
committee's functions include reviewing internal controls and recommending to
the Board of Directors the engagement of the Company's independent certified
public accountants, reviewing with such accountants a plan and results of their
examination of the financial statements, and determining the independence of
such accountants. The Audit Committee is composed solely of directors who are
not officers or employees of the Company. Messrs. Cobb, Milavec and Oakes are
the current members of the Audit Committee. The Audit Committee met on well over
twenty occasions and on a daily basis for an extended period of time during the
1997 fiscal year, primarily as a result of the stockholder litigation described
in "Legal Proceedings" below.
On December 5, 1997, the Board of Directors established the RIMCO
Restructuring Committee, composed of Messrs. Cobb, Pawelek and Rye, to exercise
all powers and authority of the Board of Directors in connection with the
negotiation, amendment or modification of, or exchange of stock or other
securities or indebtedness for, outstanding indebtedness of the Company to the
RIMCO Partnerships.
The Board of Directors has not established a Compensation Committee or a
Nominating Committee. The functions typically associated with such committees
are performed by the full board.
During the Company's 1997 fiscal year (the year ended June 30, 1997), the
Board of Directors held twelve (12) meetings in person or by telephone
conference. Members of the Board of Directors are provided with information
between meetings regarding the operations of the Company and are consulted on an
informal basis with respect to pending business. Such consultations from time to
time lead to director action between meetings by unanimous written consent of
the directors, which occurred on one occasion in fiscal 1997. Each of the
incumbent directors attended no fewer than 75% of the aggregate of (i) the total
number of meetings of the Board of Directors held during the 1997 fiscal year
(for the period during which he was a director) and (ii) the total number of
meetings held by all committees of the Board of Directors on which he served
(during the periods that he served).
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table reflects the aggregate cash compensation paid to the
Chief Executive Officer of the Company in fiscal 1997 and to each of the
Company's executive officers whose compensation exceeded $100,000 for services
rendered during the fiscal year ended June 30, 1997:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------
OTHER ANNUAL LONG-TERM
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION COMPENSATION
--------------------------- ---- -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Michael J. Pawelek, 1997 $156,174 -0- $8,250 -0-
President and Chief 1996 $144,375 $20,681 $8,250 -0-
Executive Officer 1995 $120,000 -0- $8,250 -0-
Ronald L. England, 1997 $ 93,704 -0- $7,750 -0-
Chief Financial Officer 1996 $ 89,625 $12,948 $7,750 -0-
and Treasurer 1995 $ 67,750 -0- $7,750 -0-
</TABLE>
3
<PAGE> 6
Other Information Regarding Executive Compensation
There were no stock options or stock appreciation rights ("SARs") granted
to the Chief Executive Officer or any other persons during fiscal year 1997. The
Chief Executive Officer did not hold any unexercised options as of June 30, 1997
and did not exercise any options during the fiscal year ended June 30, 1997.
Compensation of Directors
The Company pays each director who is not an officer or employee of the
Company a $5,000 annual fee and an attendance fee of $500 for each meeting of
the Board of Directors or any committee thereof that such director actually
attends. In addition, the Company reimburses directors for their reasonable
expenses incurred in attending meetings of the Board of Directors and its
committees. Messrs. Oakes and Milavec have waived director fees through June 30,
1998. During fiscal year 1997, except as set forth below, no director received
more than the standard arrangement. Directors' compensation may be changed at
any time by the Board of Directors.
Non-employee directors are eligible for the grant of options to purchase
shares of Common Stock under the 1995 Non-Employee Directors' Stock Option Plan.
As of December 31, 1997, options to purchase 10,000 shares at $4.06 per share
issued to Calvin G. Cobb were the only such options outstanding and exercisable.
On November 20, 1997 Messrs. Cobb, Milavec and Oakes were granted options to
purchase 10,000 shares of Common Stock at a price of $1.95 per share, first
exercisable after the first Company stockholder annual meeting following the
grant of such options.
The Company maintains directors' and officers' liability insurance and its
Bylaws provide for mandatory indemnification of directors and officers to the
fullest extent permitted by Delaware law.
Employment Contracts
The Company has entered into a written employment contract with Michael J.
Pawelek dated February 9, 1998 under which Mr. Pawelek will serve as Executive
Vice President of the Company and as President of UNEXCO, Inc. ("UNEXCO")
through the last day of February, 2000, after which date the contract is subject
to annual renewal (the "Pawelek Employment Contract"). The Pawelek Employment
Contract provides that Mr. Pawelek shall receive as compensation (i) an annual
salary of not less than $150,000, (ii) a discretionary incentive bonus, (iii) an
automobile or automobile allowance and (iv) all benefits under any employee
benefit plan maintained by the Company. The Pawelek Employment Contract contains
the entire agreement between Mr. Pawelek and the Company and supersedes any
previous agreements.
On November 11, 1997 the Company entered into a written employment contract
with Steve Wood for a term of two years, which may be extended for one or more
successive additional one year terms, commencing November 11, 1997 ("the Wood
Employment Contract"). The Wood Employment Contract provides that Mr. Wood shall
serve as the Chief Operating Officer of the Company's seismic acquisition
subsidiary and shall receive as compensation (i) an annual base salary of
$180,000, (ii) a discretionary performance bonus, (iii) up to 100,000
nonqualified stock options (at an exercise price equal to 120 percent of the
market value of such stock on the grant date), 50,000 of which were granted upon
execution of the Wood Employment Contract and 50,000 of which are to be granted
upon the six month anniversary of the execution of the Wood Employment Contract
and (iv) benefits under all employee benefit plans made generally available to
the executive employees of the Company. The Wood Employment Contract provides
that in the event of a termination without "Cause" following a "Change in
Control," as such terms are defined in the Wood Employment Contract, the Company
shall continue making payments to Mr. Wood as if he was still employed for a
period equal to the lesser of one year or the remaining term of the Wood
Employment Contract.
On August 7, 1997, the Company entered into a written employment contract
with Joe T. Rye for a term of six months commencing on August 7, 1997 (the "Rye
Employment Contract"). The Rye Employment Contract provides that Mr. Rye shall
serve as the Company's Chief Accounting Officer and shall receive as
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<PAGE> 7
compensation (i) a monthly base salary of $17,500, (ii) 50,000 nonqualified
stock options (at an exercise price of $2.00 per share) and (iii) benefits under
all employee benefit plans and arrangements then in effect or which may be
established that are generally applicable to other senior executives of the
Company. If the Rye Employment Contract is terminated other than for "Cause", as
defined in the Rye Employment Contract, or upon Mr. Rye's becoming "Disabled",
as defined in the Rye Employment Contract, then Mr. Rye shall be paid upon
termination (i) any unpaid base salary earned prior to the termination date and
(ii) an amount equal to the amount of base salary that Mr. Rye would receive if
his employment had continued without change through the remainder of the term.
The Rye Employment Contract was amended as of November 10, 1997 (the "Amended
Rye Employment Contract"). The Amended Rye Employment Contract provides (i) that
the term of the contract shall continue until Mr. Rye or the Company shall give
sixty days written notice of cancellation, (ii) Mr. Rye shall serve as the
Company's President and Chief Executive Officer and (iii) Mr. Rye shall receive
as compensation (v) a monthly base salary of $20,000, (w) an additional 50,000
nonqualified stock options (at an exercise price of $1.95 per share), (x)
benefits under all employee benefit plans and arrangements then in effect or
which may be established that are generally applicable to other senior
executives of the Company, (y) an automobile or monthly transportation allowance
of $500 and (z) a performance bonus in the discretion of the Board of Directors.
The Company entered into a written employment agreement dated August 1,
1997 with Patrick A. Donais under which Mr. Donais is to serve as Vice
President, Exploration and Production, of UNEXCO (the "Donais Employment
Agreement"). The Donais Employment Agreement provides that Mr. Donais'
employment shall commence on August 1, 1997 and shall continue through July 31,
1998, and shall extend and renew automatically for successive one year terms
unless terminated by sixty days written notice. Under the Donais Employment
Agreement, Mr. Donais shall receive as compensation (i) an annual salary payable
in the amount of not less than $3,846 every two weeks, (ii) an automobile or
automobile allowance and (iii) all benefits under any plan maintained by the
Company for its employees. Mr. Donais' employment under the Donais Employment
Agreement may be terminated without notice for "good cause" as defined in the
Donais Employment Agreement.
On March 31, 1996 the Company entered into an employment agreement with
Peter B. Spooner under which Mr. Spooner shall serve as Vice President of the
Company (the "Spooner Employment Agreement"). The Spooner Employment Agreement
provides that Mr. Spooner's employment commences on May 1, 1996 and continues
through April 30, 1998, and shall extend and renew automatically for successive
one year terms unless terminated by sixty days written notice. The Spooner
Employment Agreement provides that Mr. Spooner shall receive as compensation (i)
an annual salary of $90,000, (ii) 100,000 stock options (at an exercise price of
1.2 times the fair market value), (iii) additional stock options based upon
performance and (iv) all benefits under any plan maintained by the Company for
its employees. Mr. Spooner's employment under the Spooner Employment Agreement
may be terminated without notice for "good cause" as defined in the Spooner
Employment Agreement. The Company has advised Mr. Spooner that it will not renew
the Spooner Employment Agreement after the expiration of the original term.
On March 1, 1995, the Company entered into a written employment agreement
with Ronald L. England under which Mr. England was employed to serve as the
Company's Chief Financial Officer (the "England Employment Agreement"). The
England Employment Agreement provides for an employment term commencing on March
1, 1995 and continuing through the last day of February 1997, and automatically
renews for successive two year terms unless terminated by written notice. The
England Employment Agreement provides that Mr. England shall receive as
compensation (i) an annual salary not less than $72,000, (ii) an incentive
bonus, (iii) an automobile and (iv) all benefits under any plan maintained by
the Company for its employees or senior executives. If Mr. England terminates
his employment for "Good Reason" or the Company terminates Mr. England for any
reason other than for "Cause," as such terms are defined in the England
Employment Agreement, the Company shall (i) continue to pay to Mr. England the
full amount of his then current annual salary and annual incentive bonus until
the next succeeding December 31 as of which the Company could have terminated
Mr. England's employment and (ii) pay Mr. England an amount equal to his then
current annual salary and incentive bonus paid or payable for the immediately
preceding year. Effective February 5, 1998, Mr. England resigned from his
positions as a director,
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<PAGE> 8
officer and employee of the Company. The Company paid Mr. England $60,000 and
Mr. England released the Company from any further obligations under the England
Employment Agreement or otherwise other than certain rights to indemnification
by reason of his service as a director, officer or employee of the Company.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Transactions between the Company and its officers, directors and principal
stockholders or affiliates of any of them have been and will be on terms no less
favorable to the Company than could be obtained from unaffiliated third parties.
Approval of a majority of disinterested members of the Board of Directors has
been and will continue to be required for any transaction between the Company
and its officers, directors, principal stockholders or affiliates.
On February 1, 1996, the Company entered into a consulting agreement with
Mr. Billy E. Trapp, the former President of the Company who retired from full
time employment in March 1991 (the "Billy Trapp Consulting Agreement"). Pursuant
to the Billy Trapp Consulting Agreement, the Company pays Mr. Trapp $4,000 per
month for his services as a consultant to the Company for a term of ten years,
provided that the Company may terminate the agreement for good cause. In
connection with the Billy Trapp Consulting Agreement, Mr. Trapp and his wife
executed a release agreement whereby each jointly and severally released the
Company, Sierra and their respective affiliates, officers, directors, employees
and representatives from any liabilities or claims related to a certain letter
agreement regarding advisory and consulting services dated February 14, 1992
between Mr. Trapp and the Company, a certain letter agreement for consulting
services, stock assignment, group life insurance coverages and termination of
stock options dated February 14, 1992 by Mr. Trapp, with a joinder by Mrs.
Trapp, and any other agreements or relationships between Mr. Trapp or Mrs. Trapp
and the Company or Sierra. In connection with amending the Billy Trapp
Consulting Agreement, the Company issued Mr. Trapp warrants to purchase 37,500
shares of common stock at $3.75 per share which have not been exercised. Billy
E. Trapp is the father of Rick E. Trapp, the Company's former Chief Executive
Officer and Chairman of the Board.
On December 15, 1994, the Company entered into a consulting agreement with
Rick E. Trapp, the former Chief Executive Officer and Chairman of the Board of
Directors, for a term of three years (the "Rick Trapp Consulting Agreement").
The Rick Trapp Consulting Agreement provided for (i) a monthly fee of $10,000 to
be paid to Mr. Trapp, and (ii) a covenant not to engage in certain activities in
competition with the Company for a period of six months following termination of
the Rick Trapp Consulting Agreement. On September 22, 1996, Mr. Trapp and the
Company agreed to terminate the Rick Trapp Consulting Agreement. In connection
therewith (i) the Company agreed to pay to Mr. Trapp the sum of $40,000, payable
in four equal monthly installments commencing on October 1, 1996, and (ii) Mr.
Trapp executed a release and waiver agreement pursuant to which Mr. Trapp agreed
to release the Company and its affiliates, officers, directors, employees and
representatives from any and all liability and claims related to Mr. Trapp's
employment with the Company, the termination of Mr. Trapp's employment, the Rick
Trapp Consulting Agreement and any other agreements and relationships between
the Company and Mr. Trapp. The Company has agreed to pay an outside firm engaged
by Mr. Trapp an amount not to exceed $40,000 for income tax planning expenses
related to Kentex and Sierra incurred in connection with the termination of the
Rick Trapp Consulting Agreement. The release and waiver agreement further
provided that Mr. Trapp shall not compete with the Company nor solicit any
employee, agent or representative of the Company for a period of one year
thereafter. The Company paid Mr. Trapp for four additional months as a result of
work performed by him (a total of $110,000 in fiscal 1997).
The Company and Brigham Exploration Company both participate in the
Southwest Danbury prospect. Mr. Milavec is a director of both companies.
The Company and Texoil, Inc. both participate in the Daniel Ranch and
Refugio prospects. Mr. Milavec is a director of both companies.
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<PAGE> 9
As of March 1, 1997 the Company entered into an agreement with Corstone
Corporation ("Corstone"), a business in which Calvin G. Cobb is a managing
director, to provide investor relations and corporate communication services.
The term of the agreement is one year and provides for a monthly fee of $9,500.
The stockholder litigation described in "Legal Proceedings" involved claims
against the individual directors, in addition to the Company itself, all of
which were settled by the Company on behalf of itself and its directors. The
Company paid approximately $1.15 million in legal, accounting and other costs to
defend the lawsuit, a portion of which it has recovered from its directors' and
officers' liability insurance carrier.
The Company has $225,235 in outstanding accounts payable to RIMCO and its
affiliates, primarily relating to reimbursement of (i) the RIMCO Partnerships
for certain legal fees the Company incurred in connection with the stockholder
litigation described in "Legal Proceedings" below, (ii) an affiliate of RIMCO
for proceeds from the sale of data on the Lake Boeuf prospect (see below) and
(iii) RIMCO for certain travel expenses incurred by Stephen F. Oakes. The
Company entered into an agreement with RIMCO Production Company, Inc., an
affiliate of RIMCO, for the provision of seismic services. Pursuant to such
contract, the Company has agreed to pay a portion of its revenues under such
contract to the satisfaction of such accounts payable.
RIMCO introduced the Company to the operator of the Lake Boeuf and East
Holly Beach prospects, and on April 17, 1996, the Company entered into
agreements to acquire an interest in both prospects. On May 14, 1996 the Company
and affiliates of RIMCO entered into an agreement under which such affiliates
agreed to pay the Company for 25% of the costs incurred to permit and acquire
the three dimensional seismic data and to participate on the same basis as the
Company as to 25% of the Company's then interest in the two prospects. In August
the Company sold a portion of its remaining interest in the Lake Boeuf prospect
to an unaffiliated party. The Company and affiliates of RIMCO also participate
in the Refugio prospects as non-operators, on similar terms.
RIMCO Financing
As of January 22, 1998, the Company was indebted to the Noteholders under
various financing agreements described below for $21,326,899 principal and
$811,368 accrued interest. The Noteholders have waived the Company's defaults
under the covenants in such financing agreements until July 1, 1998. The
Noteholders have also deferred payments of interest and principal due after June
30, 1997 until June 1, 1998. RIMCO has advised the Company that the Noteholders
have no further ability to invest in or make loans to the Company.
On January 19, 1996, the Company entered into a financing arrangement with
the Noteholders providing up to $7,000,000, of which $4,000,000 was immediately
funded to restructure existing debt. The debt restructure consisted of (i)
$3,500,000 in 10% Senior Secured General Obligation Notes secured by the
Company's seismic equipment and payable in 48 equal monthly installments of
principal plus interest (under which payments due after June 30, 1997 have been
extended to June 1, 1998), and (ii) $500,000 in 5% Convertible Notes maturing on
February 1, 1998, with monthly payments of interest, convertible into Common
Stock (the "Convertible Notes") at a conversion price of $3.45 per share,
subject to adjustment. The remaining $3,000,000 was subsequently funded under
10% Senior Secured Exchangeable General Obligation Notes, which were
exchangeable for common stock of the Company (the "Exchangeable Notes") at an
exchange price of $3.77 per share, subject to adjustment. The proceeds of the
Exchangeable Notes were used to finance the Company's exploration and production
activities and for general corporate purposes. In connection with this financing
arrangement, the Company issued to the Noteholders warrants to purchase 165,000
shares of the Company's common stock exercisable at a purchase price of $3.14
per share, subject to adjustment. On August 14, 1996, the Company exercised its
right to convert the Convertible Notes into 145,208 shares of the common stock
of the Company. On September 30, 1996, the Company exercised its right to
exchange the Exchangeable Notes for 795,754 shares of the Company's common
stock.
On May 28, 1996, the Company entered into an additional credit facility
with the Noteholders (other than RIMCO Partners, L.P. III) pursuant to which the
Company issued 10% Senior Secured General
7
<PAGE> 10
Obligation Notes in the aggregate principal amount of $6,500,000. The proceeds
were used to acquire new seismic equipment, to retire some existing debt and for
general corporate purposes. Interest only was payable until December 1, 1996.
The notes are secured by the Company's seismic equipment and are due December 1,
1999. All payments of principal and interest due after June 30, 1997 have been
extended to June 1, 1998. In connection with this credit facility, the Company
issued to the Noteholders warrants to purchase 278,650 shares of the Company's
common stock at a purchase price of $5.00 per share, subject to adjustment.
On December 20, 1996, the Company entered into another financing agreement
with the Noteholders to provide $4,000,000 (increased to $5,500,000 on March 27,
1997) under a revolving credit facility for the expansion of the Company's
exploration and production activities, under which facility $5,450,000 of
principal was outstanding at January 22, 1998. The Noteholders have the right of
approval on the acquisition of any property for which funds are advanced under
this revolving credit facility. In connection with this revolving credit
facility, the Company issued 12% Senior Secured General Obligation Notes with
interest only payable monthly (interest due after June 30, 1997 has been
extended to June 1, 1998) and the principal due December 1, 1999. The notes are
secured by the Company's oil and gas properties.
On March 27, 1997 the Company borrowed $2,000,000 from the Noteholders
under new 12% Senior Secured General Obligation Notes with interest only payable
monthly (interest due after June 30, 1997 has been extended to June 1, 1998) and
principal due December 1, 1999. The proceeds were used for working capital. The
notes are secured by the Company's seismic equipment.
On August 6, 1997 the Company borrowed an additional $2,000,000 from the
Noteholders under new 12% Senior Secured General Obligation Notes, also secured
by the Company's seismic equipment, with interest only payable monthly (the due
date of which has been extended to June 1, 1998) and principal due December 1,
1999. The proceeds were used to fund the stockholder settlement described under
"Legal Proceedings". The notes are secured by the Company's seismic equipment.
On November 3, 1997 the Company entered into a $3,874,383 financing
arrangement with the Noteholders (other than RIMCO Partners, L.P.), with
proceeds to be utilized to pay interest on certain of the Noteholders' prior
notes and for agreed upon working capital purposes. The agreement is in the form
of a series of 12% Senior Secured General Obligation Notes of which $2,144,000
were sold by the Company and $1,730,383 were sold by UNEXCO. The notes are
secured by the Company's seismic equipment and oil and gas properties. The
arrangements will function as revolving lines of credit for the respective
entities with payments of interest only until maturity on December 1, 1999. As
of [January 22, 1998, $1,794,000] was outstanding on the Company's line of
credit and $1,435,383 was outstanding on UNEXCO's line of credit.
Please see the discussion under "Proposal 2: Note Exchange" below for a
description of the proposed transaction between the Company, UNEXCO and the
Noteholders to restructure the Company's indebtedness to the Noteholders
described above.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under Section 16(a) of the Securities Exchange Act of 1934, directors,
certain officers and beneficial owners of 10% or more of the Company's Common
Stock are required from time to time to file with the SEC reports on Form 3, 4
or 5, relating principally to transactions in Company securities by such
persons. Based solely upon review of Forms 3 and 4 and amendments thereto
furnished to the Company during its fiscal year 1997, Forms 5 and amendments
thereto furnished to the Company with respect to its fiscal year 1997, and any
written representations received by the Company from a director, officer or
beneficial owner of more than 10% of the Common Stock by the Company ("reporting
persons") that no Form 5 is required, the Company believes that the following
reporting persons failed to file on a timely basis the following reports
required by Section 16(a) of the Securities Exchange Act of 1934 during the
Company's fiscal 1997 or prior years. On January 15, 1996, Kentex became the
beneficial owner of more than 10% of the Company's Common Stock by its
acquisition of all of the issued and outstanding common stock of Sierra, and Mr.
England assigned to Kentex warrants to purchase 105,000 shares of Common Stock.
In connection with these transactions, Kentex did not file a Form 3 which was
due on January 25, 1996, and neither Mr. England, Mr. Pawelek nor Mr. Trapp
filed a Form 4 which was due on February 10, 1996. Each of Kentex and Messrs.
England, Pawelek and
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<PAGE> 11
Trapp filed late Forms 5 for the fiscal year ended June 30, 1997, that reported
the foregoing transactions. In addition, Mr. Trapp reported on his Form 5 for
the fiscal year ended June 30, 1997 his purchase of shares of Common Stock
on , 199 and shares of Common Stock on , 199 , neither of
which were reported on Forms 4 that were due on , 199 and ,
199 , respectively. Mr. Oakes was elected a director in May 1996, and Mr.
Spooner was elected an executive officer in May 1996, and neither filed the Form
3 reporting such event within ten days after his election. Mr. Cobb received a
warrant to purchase 15,000 shares on January 16, 1996, which was not reported on
a Form 4 due February 10, 1996. In addition, Mr. Donais received options to
purchase 25,000 shares on February 19, 1996 and sold 1,500 shares of stock on
October 10, 1996, neither of which was reported on a Form 4 due March 10, 1996
and November 10, 1996, respectively. Vicki McLaren did not report the cashless
exercise of a stock option to acquire 5,000 shares of Common Stock on a Form 4
that was due on October 10, 1996. In addition, Ms. McLaren did not report the
grant to her of a stock option to purchase 5,000 shares of Common Stock on a
Form 5 that was due on August 14, 1996. Ms. McLaren filed a late Form 5 for the
fiscal year ended June 30, 1997, that reported both of these transactions.
LEGAL PROCEEDINGS
From time to time, the Company and its subsidiaries are defendants or
parties in lawsuits or other proceedings arising in the ordinary course of the
Company's business. Such lawsuits typically relate to claims arising from the
Company's seismic activities. The Company is not aware of any such proceedings
which it deems to be material.
The Company was involved in a proposed merger that was terminated during
November 1996 that led to a proxy contest with a group of stockholders that
styled themselves "The Universal Seismic Stockholders' Protective Committee"
(the "Stockholders' Committee"). The proxy contest was resolved at the
reconvened Annual Meeting of Stockholders on February 11, 1997, at which
management's slate of directors was reelected and all of the Stockholders'
Committee's proposals were defeated.
Thereafter, Michael T. Kanarellis, one of the members of the Stockholders'
Committee, submitted letters to various members of the Audit Committee of the
Company, alleging that "the Company's financial statements for the fiscal year
ended June 30, 1996 and the fiscal quarters ended September 30, 1996 and
December 31, 1996 were false and materially misstated" and alleging certain
specific items of misstatement. The group also filed suit against the Company
and its directors styled "The Universal Seismic Associates, Inc. Stockholders'
Protective Committee, Michael T. Kanarellis, and Robert J. Kecseg (Plaintiffs)
v. Michael J. Pawelek, Ronald L. England, Calvin G. Cobb, Gary Milavec, Steven
Oakes, Rick Trapp, Universal Seismic Associates, Inc., Rimco Associates, Inc.
and Resource Investors Management Company, L.P. (Defendants)," in the United
States District Court of Delaware.
All parties entered into a stipulation of settlement which was entered to
the Court on August 7, 1997, whereby the RIMCO Partnerships agreed to purchase
all of the shares of the Company Common Stock owned by the Stockholders'
Committee for an aggregate purchase price of $650,000, or $3.17 per share, with
the proceeds being used to fund the immediate costs of settlement and to pay
other expenses associated with the lawsuit. In connection with the settlement,
$1.75 million was paid in the settlement of the stockholder litigation, the
Company incurred $1,115,000 in expenses in connection with the litigation and
the Company reimbursed the Plaintiffs for $130,000 in expenses incurred in
connection with the stockholder litigation. Also in connection with the
settlement, the Company borrowed $2,000,000 from the RIMCO Partnerships under
new 12% Senior Secured General Obligation Notes. The settlement was approved by
the Court on October 1, 1997, at which time the Court entered judgment
dismissing all claims with prejudice. To date, Company has been reimbursed
$1,245,000 of its costs and expenses associated with the settlement of the
lawsuit from its directors' and officers' liability insurance carrier.
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<PAGE> 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table reflects the beneficial ownership of the Company Common
Stock as of January 22, 1998 with respect to (i) all persons known by the
Company to be the beneficial owner of more than five percent of the Company
Common Stock, (ii) directors and nominees for director of the Company and (iii)
directors and executive officers of the Company as a group:
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
AS OF JANUARY 22, 1998
-----------------------
NAME AND ADDRESS OF BENEFICIAL NUMBER PERCENT
OWNER, IDENTITY OF GROUP OF SHARES OF CLASS
------------------------------ --------- --------
<S> <C> <C>
Kentex Holdings, Inc. ...................................... 1,170,000(2) 22.4%
2014 Thompson Crossing
Richmond, Texas 77469
Rick E. Trapp............................................... 1,190,700(3) 22.8%
3926 Brynmawr
Richmond, Texas 77469
RIMCO Associates, Inc. ..................................... 1,609,912(4) 30.6%
22 Waterville Road
Avon, Connecticut 06001
Ronald L. England........................................... 1,172,000(5) 22.4%
Calvin G. Cobb.............................................. 45,000(6) *
Gary J. Milavec............................................. 10,000(7) *
Stephen F. Oakes............................................ 1,609,912(8) 30.8%
Michael J. Pawelek.......................................... 1,172,000(9) 22.4%
Joe T. Rye.................................................. 100,000(10) *
Steve Wood.................................................. 50,000(11) *
Directors and Executive Officers as a Group (6 persons)..... 2,976,912(12) 56.3%
</TABLE>
- ---------------
* Indicates less than one percent.
(1) Unless otherwise noted, each stockholder has sole voting and dispositive
power with respect to the shares of Common Stock.
(2) Includes 1,065,000 shares owned beneficially and of record by Sierra, which
is wholly owned by Kentex, and 105,000 shares purchasable within 60 days
pursuant to immediately exercisable warrants, 100,000 of which are
exercisable at a price of $3.75 per share and 5,000 of which are
exercisable at a price of $2.50 per share.
(3) Includes 20,700 shares owned beneficially and of record by Mr. Trapp and
1,170,000 shares owned beneficially by Kentex. Mr. Trapp owns 40% of
Kentex's outstanding voting securities and is the Chairman of the Board of
Kentex.
(4) Includes (i) 125,757 shares held of record, and 233,300 shares purchasable
within 60 days upon the exercise of warrants, by RIMCO Partners, L.P., (ii)
546,588 shares held of record, and 89,516 shares purchasable within 60 days
upon the exercise of warrants, by RIMCO Partners, L.P. II, (iii) 72,802
shares held of record, and 6,600 shares purchasable within 60 days upon the
exercise of warrants, by RIMCO Partners, L.P. III, and (iv) 401,115 shares
held of record, and 114,234 shares purchasable within 60 days upon the
exercise of warrants, by RIMCO Partners, L.P. IV. RIMCO Associates, Inc. is
the sole general partner of RIMCO, which is the sole general partner of
each of the RIMCO Partnerships, and may therefore be deemed to beneficially
own all of the Company's common stock owned by each of the RIMCO
Partnerships. The RIMCO Partnerships are also entitled to the economic
benefits of, and are therefore the beneficial owners of, 20,000 stock
options granted to Messrs. Milavec and Oakes under the 1995 Non-Employee
Directors' Stock Option Plan, which options are exercisable after the first
Company stockholder meeting following the grant of such options.
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<PAGE> 13
(5) Includes 2,000 shares owned beneficially and of record by Mr. England and
1,170,000 shares owned beneficially by Kentex. Mr. England owns 20% of
Kentex's outstanding voting securities and is a director of Kentex.
(6) Includes 5,000 shares owned beneficially and of record by Mr. Cobb and
5,000 shares purchasable within 60 days under an option granted pursuant to
the 1992 Stock Incentive Plan, 10,000 shares purchasable within 60 days
under an option granted pursuant to the 1995 Non-Employee Directors' Stock
Option Plan, 15,000 shares purchasable within 60 days under a warrant and
10,000 shares purchasable under an option granted pursuant to the 1995
Non-Employee Directors' Stock Option Plan after the first Company
stockholder meeting following the grant of such option.
(7) Excludes 1,599,912 shares beneficially owned by RIMCO Associates, Inc. and
RIMCO with respect to which Mr. Milavec has disclaimed beneficial ownership
and includes 10,000 shares purchasable under an option granted pursuant to
the 1995 Non-Employee Directors' Stock Option Plan after the first Company
stockholder meeting following the grant of such option.
(8) Includes 1,609,912 shares beneficially owned by RIMCO Associates, Inc. and
RIMCO, with respect to which Mr. Oakes shares voting rights.
(9) Includes 2,000 shares owned beneficially and of record by Mr. Pawelek and
1,170,000 shares owned beneficially by Kentex. Mr. Pawelek owns 40% of
Kentex's outstanding voting securities and is a director and officer of
Kentex and may, therefore, be deemed to beneficially own all of the
Company's common stock owned by Kentex.
(10) Includes 50,000 nonqualified stock options with an exercise price of $2.00
per share and 50,000 nonqualified stock options with an exercise price of
$1.95 per share.
(11) Includes 50,000 shares purchasable within 60 days pursuant to options
granted under the Wood Employment Contract.
(12) Includes 210,000 shares of Common Stock purchasable within 60 days under
options and warrants granted to various directors and officers, 1,589,912
shares beneficially owned by RIMCO Associates, Inc. with respect to which
Mr. Oakes shares voting rights (including 443,650 purchasable within 60
days pursuant to immediately exercisable warrants, but excluding options to
purchase 20,000 shares granted to Messrs. Oakes & Milavec), 5,000 shares of
Common Stock owned beneficially by Mr. Cobb, 2,000 shares of Common Stock
owned beneficially by Mr. Pawelek and 1,170,000 shares owned beneficially
by Kentex (including 105,000 purchasable within 60 days pursuant to
immediately exercisable warrants).
The address for each of the officers and directors of the Company is in
care of the Company at 16420 Park Ten Place, Suite 300, Houston, Texas
77084-5051.
PROPOSAL 2: NOTE EXCHANGE
This section of the Proxy Statement describes certain aspects of the Note
Exchange Agreement (the "Note Exchange Agreement") between the Company, UNEXCO
and the Noteholders and the transactions contemplated thereby, including the
issuance of shares of the Common Stock, and 7.875% Convertible Subordinated
General Obligation Notes ("Notes") in payment of the outstanding indebtedness of
the Company to the RIMCO Partnerships (the "Note Exchange"). The following
discussion is qualified in its entirety by reference to the Note Exchange
Agreement, which is attached hereto as Annex I. All stockholders are urged to
read the Note Exchange Agreement in its entirety.
THE NOTE EXCHANGE
The terms of the Note Exchange are set forth in the Note Exchange
Agreement, entered into by the Company, UNEXCO and the Noteholders on February
9, 1998. Under the terms of the Note Exchange Agreement, a copy of which is
attached to this Proxy Statement as Annex I, shares of Common Stock and Notes
will be issued in full payment of the Existing Notes (as hereinafter defined).
Upon the closing of the Note Exchange Agreement (the "Closing"), the
Noteholders shall exchange $15,000,000 of the outstanding principal amount of
the Existing Notes for Common Stock. The actual number of shares of Common Stock
to be issued in such exchange will be determined by dividing $15,000,000 by the
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<PAGE> 14
Exchange Price. The "Exchange Price" is the average closing price per share of
Common Stock (as reported by the principal securities exchange or trading
market, as the case may be, on which the Common Stock is then traded) during the
Trading Period (as hereinafter defined), excluding the five highest closing
prices and five lowest closing prices during the Trading Period, as adjusted for
any stock split. For purposes of determining the Exchange Price, the "Trading
Period" is the period of 30 trading days immediately preceding the second
trading day prior to the Annual Meeting; provided, however, that if less than an
aggregate of 300,000 shares of Common Stock are traded during such 30 trading
days, then such period shall be extended back to include such additional
consecutive trading days immediately preceding such 30 trading days until an
aggregate of at least 300,000 shares are traded during such period; provided,
further that in no event shall such period be extended back to include any
trading days on or before the date of this proxy statement.
The Exchange Price will be calculated by the Company and the Noteholders
after the close of business on March , 1998. After such date, stockholders of
the Company may call the Company toll-free at 1-800-578-0339 to obtain the
actual Exchange Price.
Furthermore, upon Closing, the Noteholders shall exchange (a) all remaining
outstanding principal amounts of the Existing Notes (after excluding the
$15,000,000 of principal exchanged for Common Stock described above), and (b)
all accrued, unpaid interest outstanding on the Existing Notes as of such date
(such aggregate amount of remaining principal of and accrued, unpaid interest on
the Existing Notes being referred to herein as the "Note Exchange Amount"), for
Notes in an aggregate principal amount equal to the Note Exchange Amount. The
Notes will be convertible into shares of Common Stock at the option of the
Noteholders at a price equal to 130% of the Exchange Price, and will be
convertible by the Company at various conversion prices under certain other
circumstances, as set forth in the Note Exchange Agreement. Furthermore, the
Company has the option of paying all or a portion of the interest due under the
Notes in Common Stock as set forth in the Note Exchange Agreement. For a
description of the Notes, see "Description of the Note Exchange Agreement" and
"Description of the Notes" below.
Assuming (a) the Note Exchange Proposal is approved by the stockholders,
(b) the transactions contemplated thereby are effected on March , 1998, (c)
there are no further payments on, or increases in the principal amounts of, the
Existing Notes, and (d) the Exchange Price equals the February , 1998 closing
price of the Common Stock on the NASDAQ National Market System of $ ,
("Current Market Price of Common Stock"), shares of Common Stock and
$ in Notes would be issued in full payment of the Existing Notes.
Because (x) the Exchange Price depends on an average market price of the Common
Stock prior to the Annual Meeting, (y) shares of Common Stock and Notes will be
issued in payment of both the principal of and accrued interest on the Existing
Notes and interest on the Existing Notes will continue to accrue until the
actual effective date of the Note Exchange, and (z) there may be additional
changes to the principal amount of the Existing Notes, the exact number of
shares of Common Stock and principal amount of Notes to be issued in connection
with the Note Exchange will depend upon the actual effective date of the Note
Exchange. See "Certain Effects of the Note Exchange" and "The Note Exchange
Agreement" below.
Upon satisfaction of the conditions described in the Note Exchange
Agreement, including the requisite approval of the stockholders of the Company,
the Existing Notes will be exchanged for the applicable number of shares of
Common Stock and Notes, discussed below. Upon the surrender of the Existing
Notes by the Noteholders and the issuance of the Common Stock and Notes in
payment of the Existing Notes pursuant to the terms of the Note Exchange
Agreement, the Existing Notes will be canceled and the Company will be released
from all its obligations and liabilities to the RIMCO Partnerships under the
Existing Notes.
Upon the exchange of the Existing Notes, the Noteholders shall deliver the
Existing Notes to the Company and shall deliver to the Company and UNEXCO full
releases of all guarantees, liens and security interests guaranteeing or
securing the Existing Notes and any other obligations of the Company or its
subsidiaries to any of the Noteholders or their affiliates (other than such
obligations that expressly survive the payment of the Existing Notes or the
termination of the respective Existing Note agreements).
Assuming the Exchange Price equals the Current Market Price of Common
Stock, the Note Exchange will involve the issuance of shares of Common
Stock to the Noteholders in exchange for the Existing
12
<PAGE> 15
Notes and the reservation of approximately an additional shares of Common
Stock for issuance upon conversion of the Notes. Under the foregoing assumption,
the Company currently does not have a sufficient number of authorized and
unissued shares of Common Stock available for issuance to accomplish the Note
Exchange. Pursuant to the Reincorporation Proposal set forth as Proposal No. 3,
the authorized shares of Common Stock of the Company will be increased to
40,000,000 shares, which the Company anticipates will be sufficient to complete
the Note Exchange.
The Board of Directors and RIMCO have agreed that approval of the Note
Exchange proposal (the "Note Exchange Proposal") requires the affirmative vote
of the holders of a majority of the Company's outstanding Common Stock and the
affirmative vote of the holders of a majority of the Company's outstanding
Common Stock that is not held by a Noteholder or an affiliate of any Noteholder.
THE RIMCO RESTRUCTURING COMMITTEE OF THE BOARD OF DIRECTORS CONSIDERS APPROVAL
OF THE NOTE EXCHANGE PROPOSAL TO BE IN THE BEST INTERESTS OF THE COMPANY AND ITS
STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR"
APPROVAL OF THE NOTE EXCHANGE AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY.
BACKGROUND OF THE NOTE EXCHANGE
The Existing Notes
For purposes of the Note Exchange Proposal, "Existing Notes" shall include
(a) the 10% Senior Secured General Obligation Notes, in the maximum aggregate
principal amount of $10,000,000 and the 12% Senior Secured General Obligation
Notes, in the maximum aggregate principal amount of $6,144,000, in each case
issued by the Company under the Existing Note Agreements (as hereinafter
defined) to which it is a party, and (b) the Amended and Restated 12% Senior
Secured General Obligation Notes, in the maximum aggregate principal amount of
$5,500,000 and the 12% Senior Secured General Obligation Notes, in the maximum
aggregate principal amount of $1,730,383, in each case issued by UNEXCO under
the Existing Note Agreements to which it is a party.
The "Existing Note Agreements" include (a) that certain Note Purchase
Agreement, dated January 19, 1996, among the Company and the Noteholders, (b)
that certain Note Purchase Agreement, dated May 28, 1996, among the Company and
the Noteholders (other than RIMCO Partners, L.P. III), (c) that certain Note
Purchase Agreement, dated March 27, 1997, among the Company and the Noteholders,
(d) that certain Note Purchase Agreement, dated August 6, 1997, among the
Company and the Noteholders, (e) that certain Note Purchase Agreement, dated
November 3, 1997, among the Company and the Noteholders (other than RIMCO
Partners, L.P.), (f) that certain Amended and Restated Note Purchase Agreement
dated March 27, 1997, among UNEXCO and the Noteholders and (g) that certain Note
Purchase Agreement, dated November 3, 1997, among UNEXCO and the Noteholders
(other than RIMCO Partners, L.P.).
As of February , 1998, the aggregate principal amount of the Existing
Notes was $ , and the aggregate accrued and unpaid interest on the
Existing Notes was $ . For additional discussion regarding the Company's
indebtedness to the RIMCO Partnerships, see "Proposal No. 1: Election of
Directors -- Certain Relationships and Related Party Transactions -- RIMCO
Financing" above.
Reasons For Note Exchange
The Existing Notes are part of a highly leveraged capital structure which
restricts the Company's access to equity and other financial resources. After
the Board of Directors determined that a merger or other business combination
involving the Company was not then a viable strategic alternative, the Company's
management recommended to the Board of Directors that the Company seek to
restructure its obligations to the RIMCO Partnerships in a manner that would
improve the Company's capital structure and increase its long-term viability.
See "Unaudited Pro Forma Consolidated Financial Data" below.
The Note Exchange would relieve the Company of substantial amounts of
compounding non-cash interest expense on the Existing Notes. Approximately
$ of interest expense would be eliminated for
13
<PAGE> 16
the remainder of the 1998 fiscal year. Scheduled interest and discount
amortization on the Existing Notes is $ and $ for the fiscal
years ending in 1999 and 2000, respectively. Based on the foregoing, the benefit
of the Note Exchange on net income available to common stockholders would be
$ and $ for the fiscal years ending in 1999 and 2000,
respectively.
The payment of the Existing Notes with shares of Common Stock and Notes
would relieve the Company of the obligation to commence the repayment of the
Existing Notes on June 1, 1998 and July 1, 1998, as applicable. Given the
current financial condition of the Company, if the Note Exchange is not
consummated it will be very difficult for the Company to pay the Existing Notes
when due or even to return to compliance with the Existing Notes and the
Existing Note Agreements when the existing default waivers expire. See "Proposal
No. 1: Election of Directors -- Certain Relationships and Related Party
Transactions -- RIMCO Financing" above.
Notwithstanding the foregoing, the Note Exchange will not eliminate the
Company's current need for cash. The Company anticipates that the release of
security interests pursuant to the terms of the Note Exchange Agreement will
enable the Company to borrow additional funds to satisfy working capital or
other needs. However, there can be no assurance that the Company will be able to
borrow additional funds, and the Company's ability to incur indebtedness is
restricted by the terms of the Note Exchange Agreement. See "Description of the
Notes" below.
The RIMCO Restructuring Committee
Gary J. Milavec and Stephen F. Oakes, managing directors of RIMCO, have
served on the Board of Directors of the Company since 1996. The RIMCO
Partnerships have been holders of the Existing Notes since January 1996 and
substantial holders of various interests in the Company since August 1996.
Upon Company management's recommendation to the Board of Directors that the
Company seek a restructuring of the Existing Notes, the Board of Directors of
the Company determined that a special committee of the Board of Directors should
be appointed to best serve the interests of the stockholders.
On December 5, 1997, the Board of Directors, pursuant to a unanimous
written consent, appointed a special committee of the Board of Directors (the
"RIMCO Restructuring Committee"), composed of Calvin G. Cobb, Michael J. Pawelek
and Joe T. Rye. The RIMCO Restructuring Committee was authorized to exercise all
the powers and authority of the Board of Directors in connection with the
negotiation, amendment or modification of, or exchange of stock or other
securities or indebtedness for, the Existing Notes or other indebtedness of the
Company to the Noteholders or their affiliates, and was authorized to exercise
all the powers and authority of the Board of Directors to incur indebtedness or
authorize the issuance of Common Stock or any other security of the Company in
connection with the foregoing. The RIMCO Restructuring Committee was also
authorized on behalf of the Company to engage an independent financial advisor
to provide such analysis of a proposed exchange as the RIMCO Restructuring
Committee may deem necessary or appropriate and, if requested by the RIMCO
Restructuring Committee, to provide an opinion as to the fairness of any such
exchange which may be negotiated by management of the Company.
Determinations of the RIMCO Restructuring Committee
At a meeting on February 5, 1998, following numerous discussions among the
members of the committee, the RIMCO Restructuring Committee by a unanimous vote
determined that the Note Exchange was fair to and in the best interests of the
Company and its stockholders, and subject to (i) approval of the Note Exchange
Proposal by the holders of a majority of the Company's outstanding Common Stock
and the holders of a majority of the Company's outstanding Common Stock that is
not held by a Noteholder or an affiliate of any Noteholder and (ii) the receipt
of a satisfactory fairness opinion from Dain Rauscher Incorporated (as discussed
below), the RIMCO Restructuring Committee authorized officers of the Company to
take such actions as may be necessary to consummate the transactions
contemplated by the Note
14
<PAGE> 17
Exchange Proposal as soon as practicable. In reaching its conclusions, the RIMCO
Restructuring Committee considered, among other things, the following material
factors:
(i) Non-public information provided by the Company's management and
the Company's financial, tax and legal advisors, which non-public
information consisted of information concerning the effects on the
Company's financial statements of the Existing Notes if such notes were to
remain outstanding, the anticipated effects of the Note Exchange Proposal
on the Company's financial statements, the anticipated federal income tax
consequences of the Note Exchange Proposal, the dilution of the Company's
stockholders, and various corporate, procedural and legal aspects of the
Note Exchange Proposal.
(ii) The reasons for the Note Exchange Proposal described above. See
"Background -- Reasons for Note Exchange."
(iii) Substantially final drafts of the Note Exchange Agreement and
its exhibits.
In reaching such decisions, the RIMCO Restructuring Committee considered
all of the foregoing factors together and did not place greater relative weight
on any one or more particular factors.
CERTAIN EFFECTS OF THE NOTE EXCHANGE
As of January 22, 1998, the RIMCO Partnerships owned approximately
1,146,262 of the issued and outstanding shares of Common Stock, and has the
right to acquire an additional 463,650 shares of Common Stock upon the exercise
of warrants, which would increase the RIMCO Partnerships' holdings to 30.4% of
the issued and outstanding Common Stock of the Company. As of ,
1998, the aggregate outstanding principal amount of the Existing Notes was
and the aggregate amount of the accrued and unpaid interest on the Existing
Notes was .
Assuming (a) the Note Exchange Proposal is approved by the stockholders,
(b) the transactions contemplated thereby are effected on , 1998,
(c) there are no further payments on, or increases in the principal amounts of,
the Existing Notes, and (d) the Exchange Price equals the Current Market Price
of Common Stock, shares of Common Stock and $ in Notes,
convertible into shares of Common Stock, would be issued in full payment of
the Existing Notes. Because (x) the Exchange Price depends on the average market
price of the Common Stock prior to the Annual Meeting, (y) shares of Common
Stock will be issued in payment of both the principal of and accrued interest on
the Existing Notes and interest on the Existing Notes will continue to accrue
until the actual effective date of the Note Exchange, and (z) there may be
additional changes to the principal amount of the Existing Notes, the exact
number of shares of Common Stock to be issued, and into which the Notes may be
converted will depend upon such effective date.
The Note Exchange will increase the percentage of Common Stock beneficially
owned by the RIMCO Partnerships, and will have a dilutive effect on the voting
power of the currently outstanding shares of Common Stock. Based on the
above-described assumptions, following the consummation of the Note Exchange,
the RIMCO Partnerships will own approximately % of the total number of
outstanding shares of Common Stock. Furthermore, following the consummation of
the Note Exchange, the RIMCO Partnerships would also have the right to acquire
an additional shares of Common Stock upon the conversion of the Notes and
the exercise of warrants, which would then increase its percentage of beneficial
ownership of Common Stock up to %, resulting in a further dilutive effect
on the current holders of Common Stock. Pursuant to the terms of the Notes, the
Company has the option of paying all or a portion of the interest due thereon in
Common Stock, which will also have a further dilutive effect on the current
holders of Common Stock.
If effected, the Note Exchange will substantially reduce the Company's
long-term debt and its annual interest expense. For a discussion of the
reduction of the Company's annual interest expense, see "Background of the Note
Exchange -- Reasons for Note Exchange" above.
If the Note Exchange Proposal is not approved by the Company's stockholders
and consummated, the Company will likely be in default under certain covenants
relating to the Company's indebtedness to the
15
<PAGE> 18
RIMCO Partnerships, which have been previously waived or modified by the RIMCO
Partnerships as discussed above. Upon default, the RIMCO Partnerships will be
entitled to exercise its remedies under the terms of such indebtedness, which
could result in the RIMCO Partnerships' foreclosure on substantially all of the
Company's assets, rendering the Company unable to conduct business.
FAIRNESS OPINION
The RIMCO Restructuring Committee has engaged Dain Rauscher Incorporated
("Dain Rauscher") to act as its financial advisor to render its opinion as to
the fairness, from a financial point of view, of the Note Exchange to the
Company's stockholders. After negotiating with multiple prospective financial
advisors, the RIMCO Restructuring Committee selected Dain Rauscher based on its
competitive fees and its expertise in such matters and its familiarity with the
industry and business of the Company. The Company agreed to pay Dain Rauscher a
fee of $100,000 for preparing the Fairness Opinion (as hereinafter defined),
which fee shall be payable regardless of Dain Rauscher's conclusion in such
opinion. The Company also agreed to reimburse Dain Rauscher for its reasonable
out-of-pocket expenses in connection with its services to the Company. The
Company has agreed to indemnify Dain Rauscher and its directors, officers,
agents, employees and controlling persons against any losses, claims, damages,
liabilities or expenses relating to Dain Rauscher's engagement to prepare its
Fairness Opinion; provided, that the Company will not be liable for losses,
claims, damages, liabilities or expenses that are finally judicially determined
to have resulted primarily from the willful misconduct or gross negligence of
the person seeking indemnification.
In the ordinary course of business, Dain Rauscher has previously provided
investment banking services to Texoil, Inc., a company of which Mr Milavec is a
director.
Prior to the Annual Meeting, Dain Rauscher will deliver to the Board of
Directors of the Company a written opinion (the "Fairness Opinion") as to the
fairness, from a financial point of view, of the Note Exchange to the holders of
Common Stock of the Company. The RIMCO Restructuring Committee shall then review
the Fairness Opinion to independently evaluate the fairness of the Note Exchange
and consider if it should change its previous determination that the Note
Exchange Proposal was fair to and in the best interests of the Company's
stockholders..
If following its review of the Fairness Opinion the RIMCO Restructuring
Committee determines that the Note Exchange is not fair to and in the best
interests of the Company's stockholders, the RIMCO Restructuring Committee
intends to terminate the Note Exchange Agreement.
In the event that following its review of the Fairness Opinion, the RIMCO
Restructuring Committee does not change its determination that the Note Exchange
is fair to and in the best interests of the Company's stockholders, the RIMCO
Restructuring Committee shall cause the Company to supplement this Proxy
Statement with a description of the Fairness Opinion. Any such supplement will
also include the full text of the Fairness Opinion, and the stockholders of the
Company will be urged to read the Fairness Opinion in its entirety. The Fairness
Opinion will not constitute a recommendation to any stockholder as to how such
stockholder should vote.
FEDERAL INCOME TAX CONSEQUENCES
Cancellation of Indebtedness
For federal income tax purposes, a debtor corporation that transfers
property in satisfaction of its debt is treated as if the corporation satisfied
the debt with an amount of money equal to the fair market value of the
transferred property. If the fair market value of property transferred is less
than the sum of (i) the principal amount of the debt and (ii) any accrued, but
unpaid, interest thereon, then the corporation must recognize such difference as
cancellation of indebtedness income ("COD income") pursuant to Section 108(e)(8)
of the Internal Revenue Code of 1986, as amended (the "Code"). However, if the
fair market value of property transferred exceeds such sum, the corporation may
not take a deduction or loss for such excess.
16
<PAGE> 19
Under the terms of the Note Exchange Agreement, the Company will issue
shares of its Common Stock and Notes to the RIMCO Partnerships in exchange for
the Existing Notes. The Note Exchange is structured such that the Company will
transfer Common Stock and Notes to the RIMCO Partnerships with an approximate
fair market value equal to the outstanding indebtedness. However, should the
fair market value of the property transferred to the RIMCO Partnerships be less
than the fair market value of the outstanding indebtedness (including accrued,
but unpaid, interest thereon) on the date of the exchange, then the Company will
recognize COD income equal to such difference. In particular, differences
between the Exchange Price and the market value of the Common Stock on the date
of Closing could result in the Company recognizing COD income.
Possible Ownership Change Under Section 382 of the Code
The Company estimates that it has net operating loss carry forwards
("NOLs") from prior fiscal years of approximately $15,367,000 available to
offset future taxable income. However, if the common stock issued by the Company
in the Note Exchange results in an "ownership change" (as hereinafter defined),
Sections 382 and 383 of the Code limit the NOLs and tax credit carry forwards
that may be used to offset the Company's taxable income. An "ownership change"
occurs if the percentage of stock of the corporation owned by one or more
shareholders who own 5% or more of the stock of the corporation ("5%
shareholders") increases by more than 50 percentage points over the lowest level
held by such 5% shareholders during a three-year testing period. The RIMCO
Partnerships are a 5% shareholder of the Company. The Company believes that the
transfer of its common stock to the RIMCO Partnerships in the Note Exchange will
result in an "ownership change" as defined in Section 382 of the Code.
Accordingly, the utilization of NOLs and tax credit carry forwards to offset COD
income resulting from the Note Exchange, if any, as well as other future taxable
income may be limited and, therefore, the amount of federal income tax the
Company would otherwise owe in future years may be increased as a result of the
Section 382 and 383 limitations.
If an "ownership change" occurs as a result of the Note Exchange, the
Company's annual utilization of its NOLs is limited to the product of the
Company's equity value immediately before the "ownership change" multiplied by
the highest applicable federal long-term tax exempt rate in effect for any three
month period ending with the month in which the "ownership change" occurs (which
would be 5.23% if the "ownership change" occurred in February 1998).
Continuity of Business Enterprise Requirement
Section 382 of the Code disallows the utilization of all NOLs if a
corporation's business is not continued for at least two years after an
"ownership change". Continuity of business enterprise generally requires that
the historic business of the corporation be continued for at least two years or
that a significant portion of its assets are used in some other business carried
on by the corporation. Therefore, if an "ownership change" occurs as a result of
the Note Exchange, and the Company violates the continuity of business
enterprise requirement, the Company will be prevented from using any of its
NOLs. However, it is anticipated that the Company will continue its historic
business and that the continuity of business enterprise requirement will be
satisfied.
THE FEDERAL INCOME TAX CONSEQUENCES OF THE PROPOSED NOTE EXCHANGE ARE
COMPLEX. THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME
TAXATION, NOR DOES IT DISCUSS ANY STATE, LOCAL, FOREIGN AND OTHER TAX LAWS, THAT
MAY BE RELEVANT TO THE PROPOSED NOTE EXCHANGE TO THE COMPANY. IN ADDITION, THE
FOREGOING SUMMARY DOES NOT DISCUSS ANY TAX CONSEQUENCES OF THE PROPOSED NOTE
EXCHANGE TO A PARTICULAR STOCKHOLDER. EACH STOCKHOLDER (ESPECIALLY IF SUCH
STOCKHOLDER IS A HOLDER OF AND IS EXCHANGING EXISTING DEBT FOR COMMON STOCK AND
NOTES OF THE COMPANY IN THE PROPOSED NOTE EXCHANGE) SHOULD CONSULT WITH HIS OR
HER TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH STOCKHOLDER OF THE
TRANSACTIONS CONTEMPLATED BY THE PROPOSED NOTE EXCHANGE, INCLUDING THE
APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
17
<PAGE> 20
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The selected consolidated financial data for the Company set forth below as
of and for the three years ended June 30, 1997 is derived from the consolidated
financial statements of the Company, which statements have been audited by
Coopers & Lybrand L.L.P. independent public accountants. The selected
consolidated financial data as of and for the three month period ended September
30, 1997 is derived from the unaudited consolidated financial statements of the
Company which, in the opinion of management of the Company, reflect all
adjustments (consisting of only normal recurring adjustments) necessary for a
fair presentation of such data. The data for the three months ended September
30, 1997 is not necessarily indicative of the results that may be expected for
the entire year. The selected consolidated financial data should be read in
conjunction with the Company's consolidated financial statements and the
accompanying notes thereto and Management's Discussion and Analysis or Plan of
Operation incorporated by reference into this Proxy Statement.
<TABLE>
<CAPTION>
HISTORICAL
-------------------------------------------------------
THREE MONTHS
ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
--------------------------------------- -------------
1995 1996 1997 1997
----------- ----------- ----------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total operating revenues................ $22,751,463 $25,599,121 $31,287,329 $ 9,463,888
Total operating expenses................ 21,194,589 25,302,906 36,661,381 10,252,289
Gain on sale of oil & gas property...... -- -- 559,461 --
----------- ----------- ----------- -----------
Total operating (loss) income........... 1,556,874 296,215 (4,814,591) (333,771)
Interest expense........................ (856,611) (1,121,969) (1,389,961) (436,777)
Other income............................ 4,964 16,897 33,013 9,025
----------- ----------- ----------- -----------
Net income (loss)....................... $ 705,227 $ (808,857) $(6,171,539) $ (761,523)
Net earnings (loss) per share........... $ 0.17 $ (0.19) $ (1.23) $ (0.15)
=========== =========== =========== ===========
Average common shares outstanding....... 4,202,498 4,211,129 5,012,732 5,234,109
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, JUNE 30, SEPTEMBER 30,
1995 1996 1997 1997
----------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......................... $(2,599,231) $(2,987,161) $(2,739,870) $(1,098,182)
Total assets............................ $18,347,064 $31,950,278 $32,276,234 $31,497,722
Long-term obligations, net of current... $ 1,732,231 $ 9,870,689 $15,616,255 $17,107,304
Stockholders' equity.................... $ 8,337,530 $ 7,898,825 $ 5,279,508 $ 4,517,985
</TABLE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following Unaudited Pro Forma Condensed Consolidated Balance Sheet (the
"Pro Forma Balance Sheet") reflects the issuance of shares of Common Stock and
$ in Notes in payment of the Existing Notes, assuming that the Exchange
Price equals the Current Market Price of Common Stock. The Pro Forma Balance
Sheet gives effect to the Note Exchange as if it had occurred on September 30,
1997.
If the Note Exchange is approved, the actual number of shares of Common
Stock and Notes which will be issued will differ from that assumed in the Pro
Forma Balance Sheet. The effective date of the Note Exchange, if consummated,
will occur at a date later than the dates assumed for the Pro Forma Financial
Data, and the principal and accrued interest on the Existing Notes will be
greater than the amounts assumed because of the additional accrual of interest.
The Pro Forma Financial Data is based upon assumptions that the Company
believes are reasonable and should be read in conjunction with the Company's
consolidated financial statements and the accompanying notes thereto which are
incorporated by reference in this document.
18
<PAGE> 21
UNIVERSAL SEISMIC ASSOCIATES, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
------
PRO FORMA
SEPTEMBER 30, SEPTEMBER 30,
1997 ADJUSTMENT 1997
------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.................... $ 698,808 $ (300,000)(1) $ 398,808
Trade accounts receivable, net............... 7,594,236 7,594,236
Costs in excess of billings and estimated
earnings on uncompleted contracts......... 50,587 50,587
Prepaid expenses and other current assets.... 430,620 430,620
------------ ----------- ------------
Total current assets................. 8,774,251 (300,000) 8,474,251
Property and equipment
Seismic property and equipment, net.......... 15,218,734 15,218,734
Oil and gas properties....................... 6,723,280 6,723,280
------------ ----------- ------------
Total property and equipment, net.... 21,942,014 -- 21,942,014
Other assets:
Goodwill, net................................ 588,983 588,983
Other........................................ 192,474 29,423(2) 221,897
------------ ----------- ------------
Total assets......................... $ 31,497,722 $ (270,577) $ 31,227,145
============ =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term obligations..... $ 2,191,960 $(1,571,902)(3) $ 620,058
Billings and estimated earnings in excess of
costs on uncompleted contracts............ -- -- --
Accounts payable............................. 5,343,943 -- 5,343,943
Other current liabilities.................... 2,336,530 -- 2,336,530
------------ ----------- ------------
Total current liabilities............ 9,872,433 (1,571,902) 8,300,531
Long-term obligations, set of current
maturities................................... 17,107,304 (13,428,098)(3) 3,679,206
------------ ----------- ------------
Total liabilities.................... 26,979,737 (15,000,000) 11,979,737
------------ ----------- ------------
Commitments and contingencies
Stockholders' equity:
Common stock................................. 524 1,200(4) 1,724
Additional paid in capital................... 17,105,443 14,728,223(5) 31,833,666
Accumulated deficit.......................... (12,567,982) -- (12,567,982)
Less: Treasury stock, at cost; 5,000
shares.................................... (20,000) -- (20,000)
------------ ----------- ------------
Total stockholders' equity........... 4,517,985 14,729,423 19,247,408
------------ ----------- ------------
Total liabilities and stockholders'
equity............................. $ 31,497,722 $ (270,577) $ 31,227,145
============ =========== ============
</TABLE>
- ---------------
(1) $300,000 credit to cash for costs related to debt conversion.
(2) $100,000 costs deferred relating to debt conversion less $70,577 unamortized
expense applicable to prior financing costs.
(3) Conversion of current and long term portion of debt of $15,000,000.
(4) 12,000,000 shares of Common Stock issued (assuming $1.25 Exchange Price) X
.0001 par value per share.
(5) Additional paid-in capital = $15,000,000 - $1,200 (common stock) - $70,547
(expensing prior financing costs) - $200,000 (costs related to debt
conversion).
19
<PAGE> 22
DESCRIPTION OF THE NOTE EXCHANGE AGREEMENT
The description of the Note Exchange Agreement set forth below does not
purport to be complete and is qualified in its entirety by reference to the Note
Exchange Agreement, a copy of which is attached to this Proxy Statement as Annex
I and incorporated herein by reference.
Exchange of Existing Notes
Subject to the terms and conditions of the Note Exchange Agreement, at the
Closing the Noteholders shall exchange $15,000,000 of the outstanding principal
amount of the Existing Notes for Common Stock. The number of shares of Common
Stock to be received by the Noteholders shall be determined by dividing
$15,000,000 by the Exchange Price. See "The Note Exchange" above. Each
Noteholder shall receive its pro rata share of such Common Stock based on the
proportion that the total amount of outstanding principal of and accrued, unpaid
interest on the Existing Notes held by such Noteholder as of the date of Closing
bears to the total amount of outstanding principal of and accrued, unpaid
interest on all of the Existing Notes as of the date of Closing. At the Closing,
the Company shall deliver to each Noteholder certificates for the number of full
shares of Common Stock to which each Noteholder shall be entitled in such
exchange and a cash adjustment for any fractional shares of Common Stock.
Subject to the terms and conditions of the Note Exchange Agreement, at the
Closing the Noteholders shall exchange (a) all remaining outstanding principal
amounts of the Existing Notes (after excluding the $15,000,000 of principal
exchanged for Common Stock described above), and (b) all accrued, unpaid
interest outstanding on the Existing Notes as of such date, for Notes in an
aggregate principal amount equal to the Note Exchange Amount. At the Closing,
the Company will issue and deliver to each Noteholder a Note in the principal
amount equal to such Noteholder's proportionate share of the Note Exchange
Amount. The Notes will be convertible into shares of the Common Stock of the
Company as described below in "Description of the Notes -- Conversion of Notes."
Closing; Conditions to Closing
The Closing shall occur five business days after the Annual Meeting or on
such other business day on or prior to June 1, 1998 as may be agreed upon by the
Company and the Noteholders. If at the Closing the Company shall fail to tender
the Notes and the certificates of Common Stock to the Noteholders as provided in
the Note Exchange Agreement, or any of the conditions set forth below shall not
have been fulfilled to the Noteholders' reasonable satisfaction, the Noteholders
shall, at the Noteholders' election, be relieved of all further obligations
under the Note Exchange Agreement, without thereby waiving any rights the
Noteholders may have by reason of such failure or such nonfulfillment. The
Noteholders' obligation to exchange the Existing Notes at the Closing is subject
to the fulfillment to the Noteholders' reasonable satisfaction, prior to or at
the Closing, of the following conditions:
(i) The Noteholders shall have received the following instruments and
agreements (collectively, with the Note Exchange Agreement, the
"Transaction Documents"), each dated the date of the Closing: (a) the Notes
duly executed by the Company; and (b) the Amended and Restated Stock
Ownership and Registration Rights Agreement duly executed by the Company,
UNEXCO and each Noteholder ("Registration Rights Agreement").
(ii) The transactions contemplated by the Note Exchange Agreement
shall have been approved at the Annual Meeting by the affirmative vote of
the holders of a majority of the outstanding Common Stock and by the
affirmative vote of the holders of a majority of the outstanding Common
Stock that is not held by a Noteholder or affiliate of any Noteholder.
(iii) The Company shall have delivered to the Noteholders certain
officer's certificates and certificates of appropriate public officials.
(iv) The Noteholders shall have received an opinion in form and
substance reasonably satisfactory to the Noteholders, dated the date of the
Closing, from Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P., counsel for the
Company and UNEXCO.
20
<PAGE> 23
(v) The representations and warranties of the Company in this
Agreement and the other Transaction Documents shall be correct when made
and at the time of the Closing; provided, that in the event the Company is
merged with or into its wholly-owned subsidiary prior to the Closing and
such wholly-owned subsidiary shall have executed a document satisfactory to
the Noteholders assuming all of the Company's liabilities and obligations
under the Note Exchange Agreement and the other Transaction Documents, this
condition shall not fail to be satisfied solely as a result of changes
resulting from such merger.
(vi) The Company shall have performed and complied with all agreements
and conditions contained in the Note Exchange Agreement or the other
Transaction Documents required to be performed or complied with by it prior
to or at the Closing and no default or event of default shall have occurred
and be continuing; provided, that in the event the Company is merged with
or into its wholly-owned subsidiary prior to the Closing and such
wholly-owned subsidiary shall have executed a document satisfactory to the
Noteholders assuming all of the Company's liabilities and obligations under
the Note Exchange Agreement and the other Transaction Documents, this
condition shall not fail to be satisfied solely as a result of changes
resulting from such merger.
(vii) All corporate and other proceedings in connection with the
transactions contemplated by the Note Exchange Agreement and all documents
and instruments incident to such transactions shall be reasonably
satisfactory to the Noteholders and the Noteholders' special counsel, and
the Noteholders and the Noteholders' special counsel shall have received
all such counterpart originals or certified or other copies of such
documents as the Noteholders or they may reasonably request.
(viii) The Company shall have renegotiated the LDI Lease (as defined
in the Note Exchange Agreement) on terms satisfactory to the Noteholders.
The Company's and the Noteholders' obligations under the Note Exchange
Agreement are subject to the condition that at Closing the Company shall have
sufficient authorized shares of Common Stock to issue shares of Common Stock in
exchange for the Existing Notes and to satisfy its conversion obligations under
the Note Exchange Agreement.
Subject to the foregoing conditions to the Noteholder's obligations to
exchange the Existing Notes, simultaneously with the exchange of the Existing
Notes at the Closing, the Noteholders shall deliver the Existing Notes to the
Company and shall deliver to the Company and UNEXCO full releases of (i) all
guarantees, liens and security interests guaranteeing or securing the Existing
Notes and (ii) any other obligations of the Company or any of its subsidiaries
to any of the Noteholders or their affiliates (other than such obligations that
expressly survive the payment of the Existing Notes or the termination of the
Existing Note Agreements). In addition, simultaneously with the exchange of the
Existing Notes at the Closing, the Noteholders shall execute and deliver to the
Company amendments to any outstanding warrants held by the Noteholders or their
affiliates and amendments to any agreements related to any such warrants, which
amendments shall waive all anti-dilution rights of the holders of such warrants,
to the extent (and only to the extent), such anti-dilution rights pertain to and
are affected by the transactions contemplated by the Note Exchange Agreement.
Notwithstanding any of the foregoing, the Company shall have the right at
any time prior to the Annual Meeting to terminate the Note Exchange Agreement,
without any liability to the Noteholders under the Note Exchange Agreement.
Representations and Warranties
The Note Exchange Agreement contains various representations and warranties
of the Company relating, among other things, to the following matters: (a)
corporate organization, (b) authorization, (c) compliance with laws and other
instruments, (d) governmental authorizations, (e) subsidiaries, (f) financial
statements, (g) disclosure, (h) litigation, (i) observance of agreements,
statutes and orders, (j) taxes, (k) title to property, (l) licenses and permits,
(m) compliance with the Employment Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder ("ERISA"), (n)
status under certain statutes, (o) capitalization, (p) securities matters, and
(q) environmental matters. The Note
21
<PAGE> 24
Exchange Agreement also contains representations and warranties of the
Noteholders relating to the purchase of the Notes for investment purposes,
status as an accredited investor, and an acknowledgment that the Notes have not
been registered under the Securities Act of 1933, as amended (the "Securities
Act").
DESCRIPTION OF THE NOTES
The description of the Notes set forth below does not purport to be
complete and is qualified in its entirety by reference to the Note Exchange
Agreement, a copy of which is attached to this Proxy Statement as Annex I and
incorporated herein by reference.
Payment of Notes
Payment Terms. The Notes shall be due and payable as follows: (a)
commencing on June 1, 1998, on each Quarterly Payment Date (as defined in the
Note Exchange Agreement), a payment equal to all accrued, unpaid interest on the
Notes shall be due and payable; and (b) on the Maturity Date (as hereinafter
defined), the entire unpaid principal of the Notes, together with all accrued,
unpaid interest on the Notes, shall be fully and finally due and payable. The
"Maturity Date" of the Notes is December 1, 1999, which may be extended with
respect to the Deficiency Portion (as hereinafter defined). If, however, a
Change of Control (as defined in the Note Exchange Agreement) shall occur, the
entire unpaid principal of the Notes, together with all accrued, unpaid interest
on the Notes, shall be fully and finally due and payable on the date one day
after such Change of Control occurs. All payments on the Notes shall be applied
pro rata, in accordance with the principal amounts outstanding on the Notes,
first to accrued, unpaid interest on the Notes and the remainder, if any, to the
principal amount outstanding on the Notes.
Option to Pay Interest in Common Stock. So long as no default or event of
default exists under the Notes, the Company shall have the option on each
Quarterly Payment Date to make payments of accrued interest on the Notes in
fully paid and non-assessable shares of Common Stock rather than cash. To
exercise such option the Company shall give written notice to the Noteholders
that it intends to exercise such option with respect to a particular interest
payment to be made on the Notes at least three business days prior to the
applicable Quarterly Payment Date. The number of shares issuable in payment of
accrued interest on the Notes shall be equal to the quotient of the amount of
accrued interest on the Notes to be paid in Common Stock divided by the Interest
Payment Price (as hereinafter defined) in effect on the applicable Quarterly
Payment Date. Upon the Company's exercise of the option to pay a particular
interest payment on the Notes in Common Stock, the Company will within 20
business days after the applicable Quarterly Payment Date deliver to each
Noteholder certificates for the full number of shares of Common Stock to which
such Noteholder is entitled to receive as the result of such interest payment
having been made in Common Stock and a cash adjustment for any fractional shares
of Common Stock, together with a statement setting forth in reasonable detail
the calculation of the number of shares of Common Stock delivered based on the
amount of interest on such Noteholder's Note paid in Common Stock and the
Interest Payment Price in effect on such Quarterly Payment Date. In the case of
payment of accrued interest on the Notes in Common Stock, the Noteholder
entitled to receive the Common Stock deliverable in payment of such accrued
interest shall be treated for all purposes as the record holder of such Common
Stock on the applicable Quarterly Payment Date. For purposes of determining the
amount of Common Stock issuable as interest hereunder, the term "Interest
Payment Price" shall be defined as (a) on June 1, 1998, the average closing
price per share of Common Stock (as reported by the principal securities
exchange or trading market, as the case may be, on which the Common Stock is
then traded) for the trading days included in the period since the date of
Closing, and (b) on any other Quarterly Payment Date, the average closing price
per share of Common Stock (as reported by the principal securities exchange or
trading market, as the case may be, on which the Common Stock is then traded)
for the trading days included in the period since the immediately preceding
Quarterly Payment Date, in each case, as adjusted for any stock split.
Extension of the Maturity Date. If, on December 1, 1999, (a) Cash
Availability (as hereinafter defined) is less than the sum of the aggregate
outstanding principal of and accrued, unpaid interest due on the Notes, and (b)
the Average Price (as hereinafter defined) of the Company's Common Stock on such
date is less than the Conversion Price (as hereinafter defined) on such date,
then the Noteholders may elect to extend the
22
<PAGE> 25
Maturity Date to June 1, 2001 for the Deficiency Portion of the Notes and, upon
such election the interest rate on the Notes shall be increased from 7.875% per
annum to 8.5% per annum. The term "Cash Availability" means, as of any date, the
aggregate amount of the Company's and its subsidiaries' cash, cash equivalents,
and borrowing availability under any then existing credit facility, which in the
good faith business judgment of the Board of Directors of the Company is
available to pay the outstanding principal and accrued, unpaid interest on the
Notes.
Optional Prepayments of Notes. The Company may, at its option, upon 20 days
prior written notice to the Noteholders and without penalty, premium or fee,
prepay at any time all, or from time to time any part of, the Notes at 100% of
the principal amount so prepaid, plus accrued interest on such principal amount.
In the case of each partial prepayment of the Notes, the principal amount of the
Notes to be prepaid shall be allocated among all of the Notes at the time
outstanding in proportion, as nearly as practicable, to the respective unpaid
principal amounts thereof not theretofore called for prepayment.
Conversion of Notes
Conversion at Option of Noteholders. Pursuant to the terms of the Note
Exchange Agreement, each Noteholder shall have the right, at the option of such
Noteholder exercisable at any time or from time to time that any of the Notes
shall remain outstanding, to convert the outstanding principal balance of the
Notes (or any portion thereof that is $1,000 or an integral multiple thereof),
plus accrued and unpaid interest due thereon to the effective date of the
conversion, into fully paid and non-assessable shares of Common Stock. The
number of shares of Common Stock issuable in the conversion of the Notes shall
be equal to the quotient of the principal amount of the Notes (or the portion
thereof) submitted for conversion plus accrued, unpaid interest due thereon to
the effective date of conversion, divided by the Conversion Price, subject to
adjustment as provided in the Note Exchange Agreement. For purposes of
conversion of the Notes, the term "Conversion Price" is defined as a price equal
to 130% of the Exchange Price, or, in case an adjustment of such price has taken
place pursuant to the provisions of the Note Exchange Agreement, then at the
price as last adjusted.
Special Conversion Events. If on any date following the issuance of the
Notes up to and including the Maturity Date, the average closing price per share
of Common Stock (as reported by the principal securities exchange or trading
market, as the case may be, on which the Common Stock is then traded and subject
to appropriate adjustment for any stock split) during a period of 20 consecutive
trading days immediately preceding such date (such 20-day average being referred
to herein as the "Average Price") equals or exceeds 150% of the Conversion Price
(a "Special Conversion Event"), the Company may, at its option exercisable in
its sole discretion at any time during the 30-day period following such Special
Conversion Event, convert all or any portion of the outstanding principal
balance of the Notes, plus accrued, unpaid interest due thereon to the effective
date of such conversion into fully paid and non-assessable shares of Common
Stock at the Conversion Price in effect as of the effective date of such
conversion. In the case of any conversion of less than all of the outstanding
Notes, the principal balance of the Notes to be converted shall be allocated
among all of the Notes at the time outstanding in proportion, as nearly as
practical, to the respective unpaid principal amounts thereof not previously
converted into Common Stock. Such conversion shall be deemed to have been
effected immediately upon the mailing of notice, which notice to be effective
must be deposited in the mail on or prior to the close of business on the
thirtieth day following the Special Conversion Event, whereupon the person or
persons entitled to receive the Common Stock deliverable upon such conversion
shall thereupon be treated for all purposes as the record holder or holders of
such Common Stock, and, to the extent of the conversion of the outstanding
principal balance of the Notes, the Notes shall be deemed to represent only the
right to receive certificates representing the number of shares of Common Stock,
plus cash in lieu of fractional shares in accordance with the terms of the Note
Exchange Agreement, into which each such Note has been so converted. If the
Company does not convert all or any portion of the Notes within the 30-day
period following any Special Conversion Event, then a new period of trading days
shall begin for purposes of determining whether the Company may convert the
Notes remaining outstanding pursuant to a Special Conversion Event.
Mandatory Conversion. If, on December 1, 1999, (i) Cash Availability is
less than the sum of the aggregate outstanding principal of and accrued, unpaid
interest due on the Notes, and (ii) the Average Price of the Common Stock on
such date is equal to or greater than the Conversion Price on such date, then
the
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Noteholders shall, and shall be deemed to have elected to, convert that portion
of the aggregate outstanding principal of the Notes, plus accrued, unpaid
interest due thereon to December 1, 1999, that exceeds the Cash Availability as
of such date (such excess portion of the outstanding principal of and interest
on the Notes being referred to herein as the "Deficiency Portion") into fully
paid and non-assessable shares of Common Stock at the Conversion Price then in
effect. Such conversion shall be deemed to have been effected as of December 1,
1999, whereupon the person or persons entitled to receive the Common Stock
deliverable upon such conversion shall thereupon be treated for all purposes as
the record holder or holders of such Common Stock, and, upon conversion of all
amounts outstanding under the Notes, the Notes shall be deemed to represent only
the right to receive certificates representing the number of shares of Common
Stock, plus cash in lieu of fractional shares, into which each such Note has
been so converted.
If, on December 1, 1999, (i) Cash Availability is less than the sum of the
aggregate outstanding principal of and accrued, unpaid interest due on the
Notes, (ii) the Average Price of the Common Stock on such date is less than the
Conversion Price on such date, and (iii) the Noteholders do not elect to extend
the Maturity Date in accordance with the terms of the Note Exchange Agreement as
described above, then the Noteholders shall, and shall be deemed to have elected
to, convert the Deficiency Portion of the Notes into fully paid and
non-assessable shares of Common Stock at the Average Price as of December 1,
1999. Such conversion shall be deemed to have been effected as of December 1,
1999, whereupon the person or persons entitled to receive the Common Stock
deliverable upon such conversion shall thereupon be treated for all purposes as
the record holder or holders of such Common Stock, and, upon conversion of all
amounts outstanding under the Notes, the Notes shall be deemed to represent only
the right to receive certificates representing the number of shares of Common
Stock, plus cash in lieu of fractional shares, into which each such Note has
been so converted.
Conversion Procedure; Fractional Shares. The procedure for the conversion
of the Notes is as set forth in the Note Exchange Agreement. No fractional
shares or scrip representing fractional shares of Common Stock shall be issued
upon the conversion of the Notes. Instead of any fractional share of Common
Stock that would otherwise be issuable upon conversion of the Notes, the Company
will pay a cash adjustment in respect of such fractional interest in an amount
equal to the same fraction of the market price per share of Common Stock (as
determined by the Board of Directors or in any manner prescribed by the Board of
Directors, which shall be the last reported sale price of the Common Stock on
the principal securities exchange or trading market on which the Common Stock is
then traded) at the close of business on the business day prior to the day of
surrender of shares for conversion or, in the case of conversion effected
pursuant to a Special Conversion Event, the business day prior to the effective
date of such conversion.
Adjustments. The Note Exchange Agreement provides for certain adjustments
to the Conversion Price in the event of a stock split, reverse stock split,
stock dividend, reclassification, recapitalization, reorganization, merger, sale
of substantially all of the Company's assets, liquidation, dissolution or
similar transaction. Furthermore, the Company from time to time may increase the
number of shares of Common Stock or amount of any other securities and property
into which a Note is convertible (the "Conversion Rate") by any amount for any
period of time if the period is at least 20 days and if the increase is
irrevocable during the period. Whenever the Conversion Rate is so increased, the
Company shall mail to Noteholders a notice of the increase as soon as
practicable after such notice has been prepared, and such notice shall state the
increased Conversion Rate and the period it will be in effect. The Company may
make such increases in the Conversion Rate, in addition to those required or
allowed by the Notes, as shall be determined by it, as evidenced by a resolution
of the Company's Board of Directors, to be advisable in order to avoid or
diminish any income tax to holders of Common Stock resulting from any dividend
or distribution of stock or issuance of rights or warrants to purchase or
subscribe for stock or from any event treated as such for income tax purposes.
Anti-Dilution. The Note Exchange Agreement provides that, in order to
protect each Noteholder against the dilution of its interest in the Company, if
and whenever on or after the closing of the Note Exchange Agreement the Company
issues or sells any Common Stock (except any "Permitted Issuance" as hereinafter
defined) for a consideration per share which is less than the initial Conversion
Price (a "Special Issuance"), then forthwith upon such issuance or sale the
number of Shares (as defined in the Note Exchange Agreement), as determined
immediately prior to such Special Issuance, and the Conversion Price will be
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adjusted pursuant to the Note Exchange Agreement. "Permitted Issuance" means any
all issuance of shares of Common Stock pursuant to (x) any stock option, stock
purchase or other employee or director benefit plan of the Company existing as
of the closing of the Note Exchange Agreement, (y) any warrant or other right to
purchase Common Stock existing as of the closing of the Note Exchange Agreement
and (z) the acquisition of assets of Kentex (which assets consist primarily of
Common Stock and warrants to acquire Common Stock) solely in exchange for the
issuance by the Company of shares of its Common Stock.
Additional Obligations of the Company. The Company shall at all times
reserve and keep available, out of its authorized and unissued stock, solely for
the purpose of effecting the conversion of the Notes, such number of shares of
its Common Stock free of preemptive rights as shall from time to time be
sufficient to effect the conversion of all Notes from time to time outstanding.
The Company shall from time to time, in accordance with applicable laws,
increase the authorized number of shares of Common Stock if at any time the
number of shares of Common Stock authorized but unissued shall not be sufficient
to permit the conversion of all the then outstanding Notes into Common Stock at
the Conversion Rate then in effect.
Subordination.
The indebtedness represented by the Notes and the payment of the principal
of and interest on the Notes are subordinate and subject in right of payment to
the prior payment in full of all Senior Debt. "Senior Debt" is indebtedness of
the Company and its subsidiaries for borrowed money from any bank or other
financial institution evidenced by written instruments (other than the Notes)
and having specified terms of repayment, including accrued, unpaid interest
thereon (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company) and any modifications,
renewals, extensions or refundings of such indebtedness, whether such
indebtedness is outstanding on the date of the Note Exchange Agreement or
thereafter created, incurred or assumed.
In the event of (a) any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding,
relative to the Company, or (b) any proceeding for the liquidation, dissolution
or other winding up of the Company, whether total or partial, whether voluntary
or involuntary and whether or not involving insolvency or bankruptcy, or (c) any
assignment for the benefit of creditors or any other marshaling of assets and
liabilities of the Company, then and in any such event the holders of the Senior
Debt shall be entitled to receive payment in full of all amounts due or to
become due on or in respect of all Senior Debt before the Noteholders are
entitled to receive any payment or distribution of any kind or character,
whether in cash, property or securities, on account of principal of or interest
on the Notes, and to that end the holders of Senior Debt shall be entitled to
receive, for application to the payment thereof, any payment or distribution of
any kind or character, whether in cash, property or securities, including any
such payment or distribution which may be payable or deliverable by reason of
the payment of any other indebtedness of the Company being subordinated to the
payment of the Notes, which may be payable or deliverable in respect of the
Notes in any such case, proceeding, dissolution, liquidation or other winding up
or event. In the event that, notwithstanding the foregoing provisions, any
Noteholder shall have received any payment or distribution of assets of the
Company of any kind or character, whether in cash, property or securities,
prohibited by the foregoing, including any such payment or distribution which
may be payable or deliverable by reason of the payment of any other indebtedness
of the Company being subordinated to the payment of the Notes, before all Senior
Debt is paid in full, then and in such event such payment or distribution shall
be paid over or delivered forthwith to the trustee in bankruptcy, receiver,
liquidating trustee, custodian, assignee, agent or other person making payment
or distribution of assets of the Company for application to the payment of
Senior Debt remaining unpaid, to the extent necessary to pay all Senior Debt in
full, after giving effect to any concurrent payment or distribution to the
holders of Senior Debt.
The Note Exchange Agreement also provides that in the event (i) and during
the continuation of any default in the payment of principal of or interest on
any Senior Debt, whether at the date of a required payment, maturity, upon
mandatory purchase, redemption or otherwise, or (ii) that any other default with
respect to any Senior Debt shall have occurred and be continuing, then no
payment (including any payment which may be payable by reason of the payment of
any other indebtedness of the Company being subordinated to the payment of the
Notes) shall be made by the Company on account of the principal of or interest
on the
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Notes or account of the purchase, redemption or other acquisition of Notes, (x)
in the case of any default described in clause (i) above, unless and until the
Senior Debt to which such default relates is discharged or such default shall
have been cured or waived or shall have ceased to exist or the holders of such
Senior Debt or their agents have waived the benefits thereof, and (y) in the
case of any default specified in clause (ii) above, from the date (the "Senior
Default Notice Date") the Company receives written notice of such default (a
"Senior Default Notice") from the holders of the Senior Debt to which such
default relates or any representative of such holders, until the earlier of (A)
180 days after the Senior Default Notice Date, (B) the date, if any, on which
the Senior Debt to which such default relates is discharged or such default
shall have been cured or waived or shall have ceased to exist or the holders of
such Senior Debt or their agent shall have waived the benefits hereof, or (C)
such number of days after the Senior Default Notice Date equal to 180 days less
the number of days pursuant to which payment of any amount owing on the Notes
has been prohibited pursuant to the above during the most recent 360 consecutive
days. In the event that, notwithstanding the foregoing, the Company shall make
any payment to any Noteholder prohibited by the foregoing provisions, then and
in such event such payment shall be paid over and delivered forthwith to the
Company.
Notwithstanding anything in the Note Exchange Agreement to the contrary, no
Noteholder shall exercise any right it may have to accelerate the maturity of
the Notes at any time when payment of any amount owing on the Notes is
prohibited, in whole or in part, pursuant to the restrictions discussed in the
two paragraphs above.
Affirmative Covenants
Pursuant to the terms of the Note Exchange Agreement, the Company covenants
that so long as any of the Notes are outstanding:
Provision of Information; Inspection. The Company shall provide the
Noteholders with certain financial and other corporate information and provide
prompt notice of any Default or Event of Default (as defined in the Note
Exchange Agreement). Furthermore, the Company shall permit the representatives
of each Noteholder, at the expense of the Company and upon reasonable prior
notice to the Company, to visit and inspect any of the offices or properties of
the Company or any subsidiary of the Company, to examine all their respective
books of account, records, reports and other papers, to make copies and extracts
therefrom, and to discuss their respective affairs, finances and accounts with
their respective officers and independent public accountants, all at such times
and as often as may be requested.
Compliance with Law; Contracts. The Company will, and will cause each of
its subsidiaries to, comply with all laws, ordinances or governmental rules or
regulations to which each of them is subject, including, without limitation,
environmental laws, and will obtain and maintain in effect all licenses,
certificates, permits, franchises and other governmental authorizations
necessary to the ownership of their respective properties or to the conduct of
their respective businesses, in each case to the extent necessary to ensure that
non-compliance with such laws, ordinances or governmental rules or regulations
or failures to obtain or maintain in effect such licenses, certificates,
permits, franchises and other governmental authorizations could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect (as defined in the Note Exchange Agreement). The Company will,
and will cause each of its subsidiaries to, comply with, and perform their
respective obligations under, each contract or agreement to which each is a
party (other than the LDI Lease and other than other contracts and agreements
relating to any Indebtedness (as defined in the Note Exchange Agreement) in an
aggregate outstanding principal amount of less than $500,000), unless, in the
good faith judgment of the Company, the failure to so comply or perform could
not reasonably be expected to have a Material Adverse Effect.
Insurance. The Company will, and will cause each of its subsidiaries to,
maintain, with financially sound and reputable insurers, insurance with respect
to their respective properties and businesses against such casualties and
contingencies, of such types, on such terms and in such amounts (including
deductibles, co-insurance and self-insurance, if adequate reserves are
maintained with respect thereto) as is customary in the case of entities of
established reputations engaged in the same or a similar business and similarly
situated.
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Maintenance of Properties. The Company will, and will cause each of its
subsidiaries to, maintain and keep, or cause to be maintained and kept, their
respective properties in good repair, working order and condition (other than
ordinary wear and tear), so that the business carried on in connection therewith
may be properly conducted at all times, provided that this covenant shall not
prevent the Company or any subsidiary from discontinuing the operation and the
maintenance of any of its properties if such discontinuance is desirable in the
conduct of its business and the Company has concluded that such discontinuance
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
Payment of Taxes and Claims. The Company will, and will cause each of its
subsidiaries to, file all tax returns required to be filed in any jurisdiction
and to pay and discharge all taxes shown to be due and payable on such returns
and all other taxes, assessments, governmental charges, or levies imposed on
them or any of their properties, assets, income or franchises, to the extent
such taxes and assessments have become due and payable and before they have
become delinquent and all claims for which sums have become due and payable that
have or might become a lien on properties or assets of the Company or any
subsidiary, provided that neither the Company nor any Subsidiary of the Company
need pay any such tax or assessment or claims if (i) the amount, applicability
or validity thereof is contested by the Company or such subsidiary on a timely
basis in good faith and in appropriate proceedings, and the Company or such
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 taxes and assessments in the
aggregate could not reasonably be expected to have a Material Adverse Effect.
Corporate Existence. The Company will at all times preserve and keep in
full force and effect its corporate existence. The Company will at all times
preserve and keep in full force and effect the corporate existence of each of
its subsidiaries and all rights and franchises of the Company and its
subsidiaries unless, in the good faith judgment of the Company, the termination
of or failure to preserve and keep in full force and effect such corporate
existence, right or franchise could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
Cash Availability. Subject to the Board of Directors' fiduciary duties to
the Company's stockholders, the Company shall use its reasonable best efforts to
cause the Company to have sufficient Cash Availability on December 1, 1999 to
pay the entire unpaid principal of and accrued, unpaid interest on the Notes.
Such reasonable best efforts shall include raising capital through equity and
debt offerings, sales of assets and refinancing the indebtedness under the
Notes.
Negative Covenants
Pursuant to the terms of the Note Exchange Agreement, the Company shall
covenant that so long as any of the Notes are outstanding:
Restrictions on Indebtedness. The Company will not, and will not permit any
subsidiary of the Company to, create, incur, assume, guaranty or permit to exist
any Indebtedness, except: (a) the Notes, (b) Indebtedness of the Company and its
subsidiaries as of the closing of the Note Exchange Agreement (including any
replacements or extensions of such Indebtedness) and (c) other Indebtedness of
the Company and its subsidiaries; provided, that the aggregate outstanding
principal amount of such other indebtedness under subclause (c) does not exceed
$10,000,000.
Restrictions on Liens. The Company will not, and will not permit any
subsidiary of the Company to, create, incur, assume, or permit to exist any Lien
(as defined in the Note Exchange Agreement) with respect to any asset now owned
or hereafter acquired, except:
(i) Liens securing the indebtedness of the Company and its
subsidiaries permitted under the restrictions on indebtedness discussed
above; and
(ii) certain other Liens which are typically immaterial or incurred in
the ordinary course of business, as described in greater detail in the Note
Exchange Agreement.
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Financial Covenant. The Company will not permit its Net Worth (as defined
in the Note Exchange Agreement) at any time to be less than $14,000,000.
Restricted Payments. The Company will not, directly or indirectly, make or
pay (a) any dividend or other distribution on any shares of the Company's
capital stock (including any dividends payable in shares of capital stock), or
(b) except in connection with the acquisition of assets of Kentex (which assets
consist primarily of Common Stock and warrants to acquire Common Stock) solely
in exchange for the issuance by the Company of shares of its Common Stock, any
payment on account of the purchase, redemption, retirement or acquisition of any
shares of the Company's capital stock or any option, warrant or other right to
acquire such shares.
Merger, Consolidation. Without the Noteholders' prior written consent, the
Company shall not, and shall not permit any subsidiary of the Company to, (a)
consolidate with or merge with any other person, except that any subsidiary of
the Company may consolidate or merge with any other subsidiary of the Company or
the Company or (b) convey, transfer or lease all or substantially all of its
assets in a single transaction or series of transactions to any person.
Restrictions on Asset Sales. Without the Noteholders' prior written
consent, the Company will not, and will not permit any subsidiary to, sell,
transfer, assign, convey or otherwise dispose of an interest in any asset now
owned or hereafter acquired, except (a) sales of interests in undeveloped oil
and gas properties in the ordinary course of business, (b) sales of produced
hydrocarbons in the ordinary course of business, and (c) sales of other assets
during each fiscal year that have an aggregate sales price of $1,000,000 or
less.
Transactions with Affiliates. The Company will not, and will not permit any
of its subsidiaries to, enter into directly or indirectly any material
transaction or material group of related transactions (including without
limitation the purchase, lease, sale or exchange of properties of any kind or
the rendering of any service) with any affiliate (other than the Company or
another Subsidiary of the Company), except in the ordinary course and pursuant
to the reasonable requirements of the Company's or such subsidiary's business
and upon fair and reasonable terms no less favorable to the Company or such
subsidiary than would be obtainable in a comparable arm's-length transaction
with a person not an affiliate.
Restriction on Subsidiaries. The Company will not, and will not permit any
of its subsidiaries to, create or otherwise cause or suffer to exist any
encumbrance or restriction which prohibits or otherwise restricts the ability of
any such subsidiary to pay dividends or make other distributions to the Company
or any other subsidiary of the Company.
Defaults and Remedies
Events of Default. An "Event of Default" shall exist if any of the
following conditions or events shall occur and be continuing:
(i) the Company defaults in the payment of any principal or interest
on any Note when the same becomes due and payable, whether at maturity, by
declaration or otherwise;
(ii) the Company defaults in the performance of or compliance with any
of the negative covenants set forth in the Note Exchange Agreement;
(iii) the Company defaults in the performance of or compliance with
any term contained the Note Exchange Agreement (other than those referred
to above) and such default is not remedied within 30 days after the earlier
of (a) a Responsible Officer (as defined in the Note Exchange Agreement)
obtains actual knowledge of such default or (b) the Company receives
written notice of such default from any holder of a Note;
(iv) any representation or warranty made in writing by or on behalf of
the Company or by any officer of the Company in the Note Exchange Agreement
or the other transaction documents or in any writing furnished in
connection with the transactions contemplated thereby proves to have been
false or incorrect in any material respect on the date as of which made;
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(v) (a) the Company or any subsidiary of the Company is in default (as
principal or as guarantor or other surety) in the payment of any principal
of or premium or interest on any Indebtedness that is outstanding in an
aggregate principal amount of at least $500,000 (excluding the LDI Lease)
beyond any period of grace provided with respect thereto, or (b) the
Company or any subsidiary of the Company is in default in the performance
of or compliance with any term of any evidence of any Indebtedness in an
aggregate outstanding principal amount of at least $500,000 (excluding the
LDI Lease) or of any mortgage, indenture or other agreement relating
thereto or any other condition exists, and as a consequence of such default
or condition such Indebtedness has become, or has been declared (or one or
more persons are entitled to declare such Indebtedness to be), due and
payable before its stated maturity or before its regularly scheduled dates
of payment, or (iii) as a consequence of the occurrence or continuation of
any event or condition (other than the passage of time or the right of the
holder of Indebtedness to convert such Indebtedness into equity interests),
the Company or any subsidiary of the Company has become obligated to
purchase or repay Indebtedness before its regular maturity or before its
regularly scheduled dates of payment in an aggregate outstanding principal
amount of at least $500,000 (excluding the LDI Lease), or one or more
persons have the right to require the Company or any subsidiary of the
Company to purchase or repay such Indebtedness;
(vi) the Company or any subsidiary of the Company (a) files, or
consents by answer or otherwise to the filing against it of, a petition for
relief or reorganization or arrangement or any other petition in
bankruptcy, for liquidation or to take advantage of any bankruptcy,
insolvency, reorganization, moratorium or other similar law of any
jurisdiction, (b) makes an assignment for the benefit of its creditors, (c)
consents to the appointment of a custodian, receiver, trustee or other
officer with similar powers with respect to it or with respect to any
substantial part of its property, (d) is adjudicated as insolvent or to be
liquidated, or (e) takes corporate action for the purpose of any of the
foregoing;
(vii) a Governmental Authority (as defined in the Note Exchange
Agreement) enters an order appointing, without consent by the Company or
any of its subsidiaries, a custodian, receiver, trustee or other officer
with similar powers with respect to it or with respect to any substantial
part of its property, or constituting an order for relief or approving a
petition for relief or reorganization or any other petition in bankruptcy
or for liquidation or to take advantage of any bankruptcy or insolvency law
of any jurisdiction, or ordering the dissolution, winding-up or liquidation
of the Company or any of its subsidiaries, or any such petition shall be
filed against the Company or any of its subsidiaries and such petition
shall not be dismissed within 120 days;
(viii) a final judgment or judgments for the payment of money
aggregating in excess of $500,000 are rendered against one or more of the
Company and its subsidiaries and such judgments are not, within 60 days
after entry thereof, bonded, discharged or stayed pending appeal, or are
not discharged within 60 days after the expiration of such stay; or
(ix) if (a) any Plan (as defined in the Note Exchange Agreement) shall
fail to satisfy the minimum funding standards of ERISA or the Code for any
plan year or part thereof or a waiver of such standards or extension of any
amortization period is sought or granted under section 412 of the Code, (b)
a notice of intent to terminate any Plan shall have been or is reasonably
expected to be filed with the PBGC (as defined in the Note Exchange
Agreement) or the PBGC shall have instituted proceedings under ERISA
section 4042 to terminate or appoint a trustee to administer any Plan or
the PBGC shall have notified the Company or any ERISA Affiliate (as defined
in the Note Exchange Agreement) that a Plan may become a subject to any
such proceedings, (c) the aggregate "amount of unfunded benefit
liabilities" (within the meaning of section 4001(a)(18) of ERISA) under all
Plans, determined in accordance with Title IV of ERISA, shall exceed
$25,000, (d) the Company or any ERISA Affiliate shall have incurred or is
reasonably expected to incur any liability pursuant to Title I or IV of
ERISA or the penalty or excise tax provisions of the Code relating to
employee benefit plans, (e) the Company or any ERISA Affiliate withdraws
from any Multiemployer Plan (as defined in the Note Exchange Agreement),
(f) the Company or any ERISA Affiliate fails to make any contribution due,
or payment to, any employee benefit plan, or (g) the Company or any
subsidiary establishes or amends any employee welfare benefit plan that
provides post-employment welfare benefits in a manner that would increase
the liability of the
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Company or any subsidiary thereunder, and any such event or events
described in clauses (a) through (g) above, either individually or together
with any other such event or events, could reasonably be expected to have a
Material Adverse Effect.
Acceleration. If an Event of Default with respect to the Company described
in paragraph (vi) or (vii) above has occurred, all the Notes then outstanding
shall automatically become immediately due and payable. If any other Event of
Default has occurred and is continuing, the Required Holders (as defined in the
Note Exchange Agreement) may at any time at its or their option, by notice or
notices to the Company, declare all the Notes then outstanding to be immediately
due and payable. If any Event of Default described in paragraph (i) above has
occurred and is continuing, any holder or holders of Notes at the time
outstanding affected by such Event of Default may at any time, at its or their
option, by notice or notices to the Company, declare all the Notes held by it or
them to be immediately due and payable. Upon any Notes becoming due and payable
upon a Default or Event of Default, whether automatically or by declaration,
such Notes will forthwith mature and the entire unpaid principal amount of such
Notes, plus all accrued and unpaid interest thereon, shall all be immediately
due and payable, in each and every case without presentment, demand, notice of
default, notice of intent to accelerate, notice of acceleration, protest or
further notice, all of which are hereby waived.
Other Remedies. If any Default or Event of Default has occurred and is
continuing, and irrespective of whether any Notes have become or have been
declared immediately due and payable, the holder of any Note at the time
outstanding may proceed to protect and enforce the rights of such holder by an
action at law, suit in equity or other appropriate proceeding, whether for the
specific performance of any agreement contained in the Note Exchange Agreement
or in any Note, or for an injunction against a violation of any of the terms
thereof, or in aid of the exercise of any power granted thereby or by law or
otherwise.
SPECIAL CONSIDERATIONS
In connection with the consideration of the Note Exchange Proposal,
stockholders of the Company should carefully examine the entire Proxy Statement
and give particular consideration to the following matters:
Minimum Net Worth
The Note Exchange Agreement provides that, unless otherwise agreed to in
writing by the Noteholders, the Company must maintain a net worth of at least
$14,000,000. Noncompliance with this affirmative covenant will constitute an
event of default under the Note Exchange Agreement, in which case the
Noteholders may declare the entire principal amount of the Notes and accrued and
unpaid interest thereon immediately due and payable, subject only to the
subordination provisions thereof.
Although as of the Closing the Company's net worth will be in excess of the
minimum net worth requirements set forth in the Note Exchange Agreement, if
losses for the remainder of fiscal 1998 and fiscal 1999 are comparable to
historic losses incurred during fiscal 1997, then the Company's net worth will
fall below $14,000,000 prior to maturity of the Notes, in the absence of
additional equity financing. The entire principal amount of the Notes and the
accrued and unpaid interest thereon could then be declared immediately due and
payable, by the Noteholders.
Limitations on Incurring Additional Indebtedness
The Note Exchange Agreement provides that the Company will not, and will
not permit any subsidiary of the Company to, create, incur, assume, guarantee,
or permit to exist any Indebtedness, except (a) the Notes, (b) Indebtedness to
the Company and its subsidiaries existing on the date of the Note Exchange
Agreement, (including any replacements or extensions of such Indebtedness) and
(c) other Indebtedness of the Company and its subsidiaries; provided, that the
aggregate outstanding principal amount of such other Indebtedness under
subclause (c) above does not exceed $10,000,000. Noncompliance with this
negative covenant will constitute an event of default under the Note Exchange
Agreement, in which case the Noteholders may
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declare the entire principal amount of the Notes and accrued and unpaid interest
thereon immediately due and payable, subject to the subordination restrictions
provided therein.
The restrictions on incurring additional Indebtedness may limit the
Company's ability to borrow money in the future. Furthermore, the Company does
not currently have sufficient working capital to support its operations, and
there can be no assurance that the Company will be able to borrow additional
funds to satisfy working capital or other needs. Accordingly, there can be no
assurance that the Note Exchange Proposal will secure the long-term financial
viability of the Company.
Absence of Premium
Assuming the Exchange Price equals the Current Market Price of Common
Stock, the Note Exchange will involve the issuance of shares of Common
Stock and Notes convertible into shares of Common Stock to the
Noteholders in exchange for the Existing Notes. The effect of the Note Exchange
Agreement is that the Noteholders will have gained control of the Company by
paying an average of market prices not involving any "control premium."
The Notes and the Note Exchange Agreement have no restrictions on the
Noteholders' ability to dispose of the Common Stock they receive under the Note
Exchange Agreement. Once the Noteholders have control of the Company, the
Noteholders can transfer the Common Stock, and thus control of the Company, in a
transaction in which the Company's stockholders do not participate, and if the
Noteholders receive any control premium in such transaction, other Company
stockholders are not entitled to participate or share in such premium.
PROPOSAL 3: REINCORPORATION
The Board of Directors of the Company has determined that it is in the best
interests of the Company to change the state of incorporation of the Company
from Delaware to Texas, subject to approval by the shareholders (the
"Reincorporation"). The Reincorporation will be effected by merging the Company
into Universal Seismic Associates - Texas, Inc., a newly organized Texas
corporation and wholly-owned subsidiary of the Company ("USA-Texas") that will
be the surviving corporation (the "Surviving Corporation").
Approval of the Reincorporation requires the affirmative vote of the
holders of a majority of the outstanding shares of Common Stock. THE BOARD OF
DIRECTORS CONSIDERS THE REINCORPORATION TO BE IN THE BEST INTERESTS OF THE
COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
REINCORPORATION.
GENERAL
If approved, the Reincorporation will be accomplished pursuant to the
Resolutions, copies of which are attached to this Proxy Statement as Annex II.
The Resolutions provide that the Reincorporation may be abandoned at any time at
the discretion of the Board of Directors of the Company.
If the Reincorporation is approved, USA-Texas will be governed by the Texas
Business Corporation Act ("TBCA") and its Articles of Incorporation and Bylaws
(together, the "Texas Charter"), which will result in certain changes in the
rights of shareholders. See "Principal Changes in the Company's Charter and
Bylaws to be Effected by Reincorporation" and "Certain Differences Between the
Corporation Laws of Texas and Delaware and Corresponding Charter and Bylaw
Provisions." The Reincorporation will not result in any changes in the business,
management, assets, liabilities or net worth of the Company.
CONVERSION OF SHARES
At and after the effective date of the Reincorporation (the "Effective
Date"), each outstanding share of the Company's Common Stock will be
automatically converted into and exchanged for one share of common stock, par
value $.0001 per share, of the Surviving Corporation ("Surviving Corporation
Common Stock")
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and the USA-Texas Common Stock held by the Company will be canceled. Although
such conversion of shares will not result in an immediate change in the present
ownership of shares of Common Stock of the Company, the Note Exchange will have
the effect of changing the ownership of the Company. See "Proposal 2: Note
Exchange -- Certain Effects of the Note Exchange" above. Stock certificates
evidencing outstanding shares of Common Stock will automatically be deemed to
represent the same number of shares of USA-Texas Common Stock on the Effective
Date as represented by such Company certificates immediately prior to the
Reincorporation. Stockholders of the Company will not be required to exchange
their Company stock certificates for Surviving Corporation stock certificates.
Following the Reincorporation, previously outstanding Company stock
certificates may be delivered in effecting sales, through a broker or otherwise,
of shares of USA-Texas Common Stock. The Common Stock is presently qualified for
trading on the Nasdaq National Market under the symbol "USAC" and, after the
Reincorporation, USA-Texas Common Stock will continue to be traded on the Nasdaq
National Market under the same symbol.
NO CHANGES IN BUSINESS PLAN, MANAGEMENT, ASSETS, LIABILITIES, NET WORTH OR
CAPITALIZATION
The proposed Reincorporation will not result in any change in the business,
management, assets, liabilities, net worth or capitalization of the Company.
Pursuant to the Reincorporation, the name of the Surviving Corporation shall
remain Universal Seismic Associates, Inc., all of the previously outstanding
shares of Common Stock of the Company shall be automatically converted into the
same number of shares of Surviving Corporation Common Stock and the business of
the Company shall be conducted by Surviving Corporation in the same places and
in the same manner as the business of the Company currently is conducted. The
directors nominated for election in Proposal 1 hereof and the executive officers
of the Company will serve as the directors and executive officers of Surviving
Corporation until their respective successors are elected. Promptly after the
effectiveness of the Reincorporation, the Company will issue an appropriate
press release announcing the completion of the Reincorporation.
REASONS FOR REINCORPORATION
The Company proposes to reincorporate as a Texas corporation for several
reasons. Primarily, the Company wishes to avoid paying certain franchise taxes
associated with incorporation in Delaware. In fiscal 1997 the Company paid
$ in Delaware franchise taxes which could have been avoided by
incorporating in Texas. The Reincorporation will not affect the amount of Texas
franchise taxes already being paid by the Company. A second benefit of the
Reincorporation is an increase in the authorized capital stock of the Surviving
Corporation, which will be increased to 40,000,000 shares of Common Stock and
1,000,000 shares of preferred stock, $.0001 par value per share ("Preferred
Stock"). See "Principal Changes in the Company's Charter and Bylaws to be
Effected by Reincorporation -- Change in Authorized Stock" below. This increase
in the number of shares of Common Stock may be necessary to effect the Note
Exchange. See "Proposal No. 2: Note Exchange" above.
No appraisal rights are available to holders of Common Stock in respect of
the Reincorporation.
PRINCIPAL CHANGE IN THE COMPANY'S CHARTER AND BYLAWS TO BE EFFECTED BY
REINCORPORATION
Upon completion of the Reincorporation, the Texas Charter will be the
charter documents of the Surviving Corporation. Although the provisions of the
Texas Charter are similar to those of the Company's Restated Certificate of
Incorporation, as amended ("Certificate of Incorporation") and Bylaws
(collectively, the "Delaware Charter") in many respects, the Reincorporation
includes implementation of certain provisions in the Texas Charter that affect
the rights of stockholders and management. Approval by the stockholders of the
Reincorporation will constitute approval of the terms of the Texas Charter,
including the provisions described below. In addition, certain other changes
altering the rights of stockholders and powers of management could be
implemented in the future by amendment of the Articles of Incorporation of the
Surviving Corporation following shareholder approval, and certain changes could
be implemented by amendment of the Bylaws of the Surviving Corporation without
shareholder approval. The following
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discussion is qualified in its entirety by reference to the TBCA and the
Delaware General Corporation Law ("DGCL") and applicable charter and bylaw
provisions.
Change in Authorized Stock
The authorized capital stock of the Surviving Corporation will consist of
40,000,000 shares of Common Stock and 1,000,000 shares of Preferred Stock.
Approval of the Reincorporation will thus have the effect of increasing the
number of authorized shares of Common Stock from 20,000,000 to 40,000,000 and
authorizing 1,000,000 shares of Preferred Stock. The Board of Directors will be
authorized to divide the Preferred Stock into series, to fix and determine
separately for each series any or all of its relative rights and preferences, to
issue shares of any series then or previously designated, fixed and determined,
and to increase or decrease the number of shares within any series. The relative
rights and preferences of shares of Preferred Stock may vary between series in
any and all respects.
As set forth above in "Proposal 2: Note Exchange -- The Note Exchange" and
based on certain assumptions described therein, consummation of the Note
Exchange could involve the issuance of shares of Common Stock to the
Noteholders in exchange for the Existing Notes and the reservation of
approximately an additional shares of Common Stock for issuance upon
conversion of the Notes. Based on the above-referenced assumptions, the Company
currently does not have a sufficient number of authorized and unissued shares of
Common Stock available for issuance to accomplish the Note Exchange. As a
result, the increase in the number of authorized shares of Common Stock pursuant
to the Reincorporation is likely necessary to effect the Note Exchange.
The Board of Directors believes that it is important for the Company to
have a sufficient reserve of shares of Common Stock available for the future
needs of the Company. Increasing the number of authorized shares of Common Stock
will facilitate any acquisition of other companies and properties and make
shares of Common Stock available for other corporate purposes, including any
future issuances of Common Stock in public or private financings, payment of
stock dividends, issuances of Common Stock upon subdivision of outstanding
shares through stock splits and issuances of Common Stock upon conversion or
exercise of any convertible securities, options, warrants or rights which may
hereafter be issued. Having such additional authorized shares of Common Stock
available for issuance in the future will give the Company greater flexibility
and will allow such shares to be issued without the expense and delay of a
special stockholders meeting. The additional shares of Common Stock will be
available for issuance without further action by the stockholders, unless such
action is required by applicable law or the rules of the Nasdaq National Market
or any stock exchange on which the Company's securities may then be listed. In
addition to the issuance of Common Stock in consideration of the Note Exchange,
or as otherwise contemplated by the Note Exchange Agreement, in connection with
the acquisition of assets of Kentex (which assets consist primarily of Common
Stock and warrants to acquire Common Stock) solely in exchange for the issuance
by the Company of shares of its Common Stock, or under its current stock option
plans, the Company currently has no plans, agreements, understandings or
arrangements that could or will result in the issuance of any Common Stock.
Management also believes that it is important for the Company to have a
sufficient reserve of shares of Preferred Stock available for the future needs
of the Company. Authorizing shares of Preferred Stock will make such shares
available for various corporate purposes, including any future issuances of
Preferred Stock in public or private financings or any other desirable corporate
purposes. Having such authorized shares of Preferred Stock available for
issuance in the future will give the Company greater flexibility and will allow
such shares to be issued without the expense and delay of a special shareholders
meeting. The shares of Preferred Stock will be available for issuance without
further action by the shareholders, unless such action is required by applicable
law or the rules of the Nasdaq National Market or any stock exchange on which
the Company's securities may then be listed. The Company does not have any
plans, agreements, understandings or arrangements that could or will result in
the issuance of any Preferred Stock.
Stockholders should note that certain disadvantages may result from the
authorization of additional shares of capital stock pursuant to the
Reincorporation. For example, the issuance of a significant amount of additional
authorized shares of Common Stock or Preferred Stock will likely result in
significant dilution of
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the beneficial ownership interests and/or voting power of the stockholders. Once
authorized in the Articles of Incorporation, shares of Common Stock or Preferred
Stock generally may be issued by the Board of Directors without further
authorization from the shareholders. Such additional shares may be issued for
cash, property, services or cancellation of indebtedness, or any combination
thereof, and at such price or prices and on such terms as the Board of Directors
deems reasonable under the circumstances. Holders of the Company's capital stock
have no preemptive rights with respect to the issuance of additional shares of
capital stock.
Stockholders should also note that, because the Board of Directors has the
power to determine the rights and preferences of the Preferred Stock, the
Company has the ability to issue Preferred Stock that has features senior to
those of the Common Stock. For example, a series of Preferred Stock may be
issued that is senior to the Common Stock with respect to dividends and
liquidation rights. Also, a series of Preferred Stock with conversion rights or
voting rights different from those of the Common Stock may be issued.
Although the Company is not presently aware of any proposed tender offer or
other takeover attempt, stockholders should be aware that the Board of Directors
could utilize the increased number of authorized shares defensively against an
actual or potential takeover threat. For example, the Board of Directors will
have full discretion, subject to its fiduciary duties, to issue shares of newly
authorized capital stock in (i) a private placement transaction which could have
the effect of diluting the stock ownership of a person seeking to obtain control
of the Company, or (ii) in conjunction with a stockholder's rights plan
(so-called "poison-pill"), in each such case without further approval of the
shareholders.
CERTAIN DIFFERENCES BETWEEN THE CORPORATION LAWS OF TEXAS AND DELAWARE AND
CORRESPONDING CHARTER AND BYLAW PROVISIONS
As a result of the Reincorporation, Company stockholders, whose rights are
governed by the DGCL, will become shareholders of the Surviving Corporation and
their rights as shareholders will then be governed primarily by the TBCA.
Certain differences between the DGCL and TBCA, as well as a description of
the corresponding provisions contained in the Delaware Charter and the Texas
Charter, as such differences may affect the rights of shareholders, are set
forth below. The following summary does not purport to be complete and is
qualified in its entirety by reference to the provisions of the TBCA and the
DGCL and applicable charter and bylaw provisions.
Mergers
Both the TBCA and DGCL generally permit a merger to become effective
without the approval of the surviving corporation's shareholders if the articles
or certificate of incorporation, as the case may be, of the surviving
corporation do not change following the merger, the amount of the surviving
corporation's common stock to be issued or delivered under the plan of merger
does not exceed 20% of the total shares of outstanding voting stock immediately
prior to the acquisition, and the board of directors of the surviving
corporation adopts a resolution approving the plan of merger.
Where shareholder approval is required under Texas law, a merger must
generally be approved by the holders of two-thirds of the outstanding shares of
the Texas corporation entitled to vote thereon, unless there is a class of stock
that is entitled to vote as a class, in which event the merger must be approved
by the holders of two-thirds of the outstanding shares of stock of each class
entitled to vote as a class and by the holders of two-thirds of the outstanding
shares otherwise entitled to vote. Where shareholder approval is required under
Delaware law, a merger can generally be approved by a majority vote of the
outstanding shares of capital stock of each class entitled to vote thereon.
Appraisal Rights
Shareholders of Texas corporations are entitled to exercise certain
dissenters' rights in the event of a sale, lease, exchange or other disposition
of all, or substantially all, of the property and assets of the corporation,
and, with the exceptions discussed below, a merger or consolidation.
Shareholders of a Delaware corporation
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have rights of appraisal in connection with certain mergers or consolidations.
In addition, a Delaware corporation may, but is not required to, provide in its
certificate of incorporation that appraisal rights shall be available to
shareholders in the event of an amendment to the certificate of incorporation,
the sale of all or substantially all of the assets of the corporation, or the
occurrence of any merger or consolidation regarding which appraisal rights are
not otherwise available and in which that Delaware corporation is not the
surviving or resulting company. No such provision is included in the Company's
Certificate of Incorporation.
No appraisal rights are available under either Texas or, except as
described below, Delaware law for the holders of any shares of a class or series
of stock of a Texas or Delaware corporation to a merger if that corporation
survives the merger and the merger did not require the vote of the holders of
that class or series of such corporation's stock; provided, however, that under
Delaware law appraisal rights will be available in any event to shareholders of
a Delaware corporation who are required to accept consideration for their shares
other than the consideration described below.
Both Texas and Delaware law have a provision which states that shareholders
do not have appraisal rights in connection with a merger where, on the record
date fixed to determine the shareholders entitled to vote on the merger or
consolidation, the stock of the corporation is listed on a national securities
exchange, is listed on the Nasdaq National Market or is held of record by more
than 2,000 shareholders, unless any of the following exceptions concerning
consideration paid to the shareholder for his shares are met. Under Texas law, a
shareholder will be entitled to dissent and be paid for his shares if,
notwithstanding the above, the shareholder is required to accept for his shares
any consideration other than (i) shares of stock of a corporation which,
immediately after the effective date of the merger, are listed on a national
securities exchange, are approved for quotation as a national market security on
an interdealer quotation system by the National Association of Securities
Dealers, Inc., or successor entity, or are held of record by not less than 2,000
shareholders, and (ii) cash in lieu of fractional shares otherwise entitled to
be received. Appraisal rights will be available to shareholders of a Delaware
corporation in the event of a merger or consolidation if such shareholders are
required by the terms of an agreement of merger or consolidation to accept for
their stock anything other than (i) shares of stock of the corporation surviving
or resulting from such merger or consolidation, or depository receipts in
respect thereof, (ii) shares of stock of any other corporation or depository
receipts in respect thereof, which at the effective date of the merger or
consolidation will be either listed on a national securities exchange,
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 shareholders, (iii) cash in lieu of fractional shares or
fractional depository receipts of a corporation described in (i) and (ii) above,
or (iv) any combination of the shares of stock, depository receipts and cash in
lieu of fractional shares or fractional depositary receipts described in (i),
(ii) and (iii) above.
Special Meetings
A special meeting of shareholders of a Texas corporation may be called by
the holders of shares entitled to cast not less than 10% of all shares entitled
to vote at the meeting, unless a different percentage, not to exceed 50%, is
provided in the articles of incorporation. Shareholders of Delaware corporations
do not have a right to call special meetings unless such right is conferred upon
the shareholders in the corporation's certificate of incorporation or bylaws.
The USA-Texas Bylaws provide that special meetings of shareholders may be called
by the President or any Vice President or by the Board of Directors or by the
holders of not less than 10% of all the shares entitled to vote at the meeting.
The Company's Bylaws provide that special meetings may be called by the Chairman
of the Board, by the President or by the Board of Directors, or by written order
of a majority of the directors, and shall be called by the Chairman of the
Board, the President or the Secretary at the request in writing of stockholders
owning a majority of the common stock of the Company issued and outstanding and
entitled to vote.
Actions Without a Meeting
Under Texas law, the shareholders may act without a meeting if a written
consent is signed by all the shareholders entitled to vote on the matter, unless
the articles of incorporation permit less than unanimous consent (but not less
than the number of votes that would be necessary to take such action at a
meeting). The
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USA-Texas Articles of Incorporation do not provide for less than unanimous
consent when action is taken without a meeting. Delaware law provides that
shareholders may take action without a meeting if a consent in writing to such
action is signed by the shareholders having the minimum number of votes that
would be necessary to take such action at a meeting, unless prohibited in the
certificate of incorporation. The Company's Certificate of Incorporation does
not prohibit shareholder action by written consent.
Election of Directors
Pursuant to Texas law, unless otherwise provided in the articles of
incorporation, shareholders shall be entitled to cumulative voting in the
election of directors if they provide the secretary of the corporation with
written notice prior to the day of the election of their intent to cumulate
their votes. Absent such notice, the directors of a corporation shall be elected
by a plurality of the votes cast by the holders of shares entitled to vote in
the election of directors at a meeting of shareholders at which a quorum is
present. The USA-Texas Articles of Incorporation prohibit cumulative voting in
the election of directors. Holders of Common Stock are not entitled to cumulate
their votes in the election of directors.
Voting on Other Matters
Under Texas law, an amendment to the articles of incorporation requires the
approval of the holders of at least two-thirds of the outstanding shares of the
corporation entitled to vote thereon, and the holders of two-thirds of the
outstanding shares of each class or series entitled to vote thereon as a class,
unless a different number, not less than a majority, is specified in the
articles of incorporation. The Articles of Incorporation of USA-Texas do not so
specify. Delaware law provides that amendments to the certificate of
incorporation must be approved by the holders of a majority of the corporation's
stock entitled to vote thereon, and the holders of a majority of the outstanding
stock entitled to vote thereon as a class, unless the certificate of
incorporation requires the vote of a larger portion of the outstanding stock or
any class thereof. The Company's Certificate of Incorporation does not provide
for approval of an amendment of the Certificate of Incorporation by more than a
majority vote.
The sale, lease, exchange or other disposition (not including any pledge,
mortgage, deed of trust or trust indenture unless otherwise provided in the
articles of incorporation) of all, or substantially all, the property and
assets, with or without the goodwill, of a Texas corporation, if not made in the
usual and regular course of its business, requires the approval of the holders
of at least two-thirds of the outstanding shares of the corporation entitled to
vote thereon, and the holders of two-thirds of the outstanding shares of each
class or series entitled to vote thereon as a class, unless the articles of
incorporation require the vote of a different number, not less than a majority,
of the shares outstanding. USA-Texas's Articles of Incorporation do not provide
for a different voting requirement. A Delaware corporation may sell, lease or
exchange all or substantially all of its property and assets when and as
authorized by the holders of a majority of the outstanding stock of the
corporation entitled to vote thereon, unless the certificate of incorporation
requires the vote of a larger portion of the outstanding stock. The Company's
Certificate of Incorporation does not so provide.
Under Texas law, the voluntary dissolution of a corporation requires the
approval of the holders of at least two-thirds of the total outstanding shares
of the corporation, and the holders of two-thirds of the outstanding shares of
each class or series entitled to vote thereon as a class, unless a different
amount, not less than a majority, is specified in the corporation's articles of
incorporation. Each outstanding share of a Texas corporation is entitled to vote
on dissolution. The Articles of Incorporation of USA-Texas do not provide for a
different number of shares for approval of dissolution. Delaware law requires
that dissolution must be approved by the holders of a majority of the
corporation's stock entitled to vote thereon, unless the certificate of
incorporation requires the vote of a larger portion of the outstanding stock.
The Company's Certificate of Incorporation does not provide for approval by more
than a majority vote.
Preemptive Rights
Under Texas law, shareholders possess preemptive rights as to the issuance
of additional or treasury securities by the corporation, unless the
corporation's articles of incorporation provide otherwise. USA-Texas's
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Articles of Incorporation provide that no shareholder or other person shall have
any preemptive right whatsoever. Shareholders of the Company also do not possess
such preemptive rights.
Dividends
A Delaware corporation may pay dividends not only out of surplus (the
excess of net assets over capital) but also out of net profits for the current
or preceding fiscal year if it has no surplus; provided, however, that if the
capital of the corporation has been decreased to an amount less than the
aggregate amount of the capital represented by the issued and outstanding stock
having a preference upon the distribution of assets, no dividends may be
declared out of net profits. A Texas corporation may make distributions only out
of surplus.
The Company's Bylaws provide that the Board of Directors may declare
dividends upon the capital stock of the Company, subject to provisions of the
Certificate of Incorporation, if any, at any regular or special meeting. The
Company's Certificate of Incorporation contains no provisions related to
dividends.
USA-Texas' Bylaws provide that, subject to the provisions of its Articles
of Incorporation, the Board of Directors of USA-Texas may authorize and make
distributions and share dividends at any regular or special meeting. USA-Texas'
Articles of Incorporation contain no provisions related to dividends.
Liquidation Rights
Generally under Texas and Delaware corporate law, shareholders are entitled
to share ratably in the distribution of assets upon the dissolution of their
corporation. Preferred shareholders typically do not participate in the
distribution of assets of a dissolved corporation beyond their established
contractual preferences. Once the rights of preferred shareholders have been
fully satisfied, common shareholders are entitled to the distribution of any
remaining assets.
Upon liquidation, dissolution or the winding up of the affairs of the
Company, holders of Common Stock are entitled to receive their pro rata portion
of the remaining assets of the Company after the holders of preferred stock have
been paid in full any sums to which they may be entitled. The Company currently
has no preferred stock outstanding. Upon the liquidation, dissolution or winding
up of the affairs of USA-Texas, the shareholders of USA-Texas Common Stock are
entitled to receive, in proportion to the number of shares held by them, all the
assets that remain after any preferential amounts have been distributed to the
holders of any preferred stock of USA-Texas. Although USA-Texas has authorized
preferred stock, it currently has none outstanding.
Limitation of Liability and Indemnification
Both Texas and Delaware corporate law permit a corporation to set limits on
the extent of a director's liability. The Company's Certificate of Incorporation
and USA-Texas' Articles of Incorporation both establish such limits to the
maximum extent permitted by applicable law. Both Texas and Delaware law permit a
corporation to indemnify its officers, directors, employees and agents if such
person acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation. Indemnification is not
allowed under either Texas or Delaware law, absent a court order to the
contrary, if an officer, director, employee or agent of the bank or corporation
is finally adjudged liable to the corporation.
The Company's Certificate of Incorporation authorizes permissive
indemnification of a officer, director, employee or agent of the Company and
those serving at the request of a director, officer, employee or agent of the
Company if he acted in good faith and in a manner which he reasonably believed
to be in or not opposed to the best interests of the Company.
USA-Texas' Bylaws provide that USA-Texas shall indemnify and advance
expenses to all directors, advisory directors, officers, employees and agents of
USA-Texas, and to all persons who are or were serving at the request of
USA-Texas as a director, advisory director, officer, partner, venturer,
proprietor, trustee, employee, agent or similar functionary of another
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other enterprise, to the maximum extent allowed by the TBCA and
other applicable law.
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Removal of Directors
A Texas corporation may provide in its articles of incorporation or bylaws,
and USA-Texas's Bylaws do provide, that a director can be removed with or
without cause by a vote of the holders of not less than a majority of the shares
entitled to vote. A majority of the stockholders of a Delaware corporation may
remove a director with or without cause except, unless the certificate of
incorporation provides otherwise, in the case of a corporation whose board is
classified and elected for staggered terms, in which case directors may be
removed only for cause. The Company's Certificate of Incorporation does not
provide for a classified board.
Inspection of Books and Records
Under Texas law, any person who has been a shareholder of record for at
least six months preceding his demand, or who is the holder of at least 5% of
all of the outstanding shares of a corporation, is entitled to examine relevant
books and records for any proper purpose. Under Delaware law, any shareholder
has such a right.
Antitakeover Provisions
Delaware has enacted antitakeover legislation. Section 203 of the DGCL
makes it more difficult to effect certain transactions between a Delaware
corporation (or its majority-owned subsidiaries) and an "Interested
Stockholder." The term "Interested Stockholder" is defined to include any person
owning 15% or more of the outstanding voting stock of a Delaware corporation and
affiliates and associates of such person. In general, under Section 203, for a
period of three years following the date that a stockholder becomes an
Interested Stockholder, the following types of transactions ("Business
Combinations") between a Delaware corporation and such Interested Shareholders
are prohibited unless certain conditions are met: (i) mergers or consolidations,
(ii) sales, leases, exchanges or other dispositions of 10% or more of (a) the
aggregate assets of the corporation or (b) the aggregate market value of all the
outstanding stock of the corporation, (iii) issuance or transfer by the
corporation of shares of its stock that would have the effect of increasing the
Interested Stockholder's proportionate share of stock of the corporation, (iv)
receipt by the Interested Stockholder of the benefit of loans, advances,
guarantees, pledges or other financial benefits provided by the corporation, and
(v) any other transaction that has the effect of increasing the proportionate
share of the stock of the corporation owned by the Interested Stockholder. The
three-year ban will not apply: (i) if, prior to the date upon which the
Interested Stockholder becomes such, the board of directors approves either the
proposed Business Combination or the transaction which would result in the
stockholder becoming an Interested Stockholder, (ii) if, upon the consummation
of the transaction that results in such stockholder becoming an Interested
Stockholder, the stockholder will own at least 85% of the voting stock of the
Delaware corporation which was outstanding on the date such transaction
commenced, or (iii) if such Business Combination is approved by the board of
directors and, at a meeting, by the holders of at least 66 2/3% of the
outstanding voting stock not owned by the Interested Stockholder.
This statute applies automatically to several classes of Delaware
corporations, including those with voting stock authorized for quotation on an
inter-dealer quotation system of a registered national securities association
(such as the Company's Common Stock), unless a majority of a corporation's
shareholders elects to be excluded from the statute's coverage by amendment to
the bylaws or certificate of incorporation of the corporation or its original
certificate of incorporation elects to be excluded from this statute. The
Company has not elected to opt out of the anti-takeover protection of Section
203 of the DGCL and, accordingly, such provisions apply to the Company.
Texas has enacted similar legislation which prohibits certain transactions
between Texas corporations and shareholders who beneficially own at least 20% of
such corporation's outstanding shares for a three year period from the date such
shareholder acquires such interest, unless the transactions are approved by the
corporation's board of directors prior to the transaction, or are ratified by
the shareholders within six months of the transaction. The Texas legislation
applies only to Texas corporations with 100 or more shareholders, having any of
its voting shares registered under the Securities Exchange Act of 1934, or
having any of its voting shares qualified for trading in a national market
system.
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Although certain of the specific differences between the voting and other
rights of USA-Texas shareholders and Company stockholders are discussed above,
the foregoing summary is not intended to be a complete statement of the
comparative rights of such shareholders under Texas and Delaware law, or the
rights of such persons under the respective charters and bylaws of the Company
and USA-Texas. Nor is the identification of certain specific differences meant
to indicate that other differences do not exist. The foregoing summary is
qualified in its entirety by reference to the particular requirements of the
TBCA and the DGCL, and the specific provisions of the Company's Certificate of
Incorporation and Bylaws, as amended and USA-Texas' Articles of Incorporation
and Bylaws.
SECURITIES LAW CONSEQUENCES
After the Reincorporation, the Surviving Corporation will be a
publicly-held company, its Common Stock is anticipated to be qualified for
trading on NASDAQ and it will file with the Securities and Exchange Commission
and provide to its shareholders the same type of information that Company had
previously filed and provided. The shares of the Surviving Corporation to be
issued in exchange for shares of the Company are not being registered under the
Securities Act, in reliance upon an exemption with respect to a merger which has
as its sole purpose a change in the domicile of the corporation. Stockholders
whose stock in the Company is freely tradable before the Reincorporation will
own freely tradable shares of the Surviving Corporation after the
Reincorporation. Shareholders holding restricted securities of the Surviving
Corporation will be subject to the same restrictions on transfer as those to
which their present shares of stock in the Company are subject. For purposes of
computing compliance with the holding period of Rule 144 under the Securities
Act, shareholders will be deemed to have acquired their shares in Surviving
Corporation on the date they acquired their shares in the Company. In summary,
the Surviving Corporation and its shareholders will be in the same respective
positions under the federal securities laws after the Reincorporation as were
the Company and its stockholders prior to the Reincorporation.
FEDERAL INCOME TAX CONSEQUENCES
The Reincorporation is intended to qualify as a reorganization within the
meaning of Section 368(a) of the Code. Provided that the Reincorporation does so
qualify under the Code, no gain or loss will be recognized by holders of the
Common Stock upon receipt of Surviving Corporation Common Stock in the
Reincorporation, and no gain or loss will be recognized by the Company or the
Surviving Corporation upon consummation of the Reincorporation. In addition,
each former holder of Common Stock will have the same basis in the Surviving
Corporation shares received by such holder in the Reincorporation as such holder
had in the surrendered in the Reincorporation, and such holder's holding period
with respect to such Surviving Corporation Common Stock will include the period
that the holder held the corresponding Common Stock surrendered in exchange
therefor, provided such Common Stock was held by the holder as a capital asset
at the time of the Reincorporation. The basis in the assets deemed transferred
by the Company to the Surviving Corporation in the Reorganization will remain
the same, and the rules of Section 381 will result in a carryover of tax
attributes from the Company to the Surviving Corporation.
In order for the Reincorporation to qualify as a reorganization under the
Code, certain requirements must be satisfied, including, without limitation, the
so-called "continuity of interest requirement." To satisfy the continuity of
interest requirement, holders of Common Stock must not, pursuant to a plan or
intent existing at or prior to the Reincorporation, sell, exchange, transfer, or
otherwise reduce the risk of loss relating to, so many of either (i) their
shares of Common Stock in anticipation of the Reincorporation or (ii) their
shares of Surviving Corporation shares of Common Stock to be received in the
Reincorporation, such that the Company shareholders, as a group, would no longer
have a significant equity interest in the business being conducted by the
Surviving Corporation after the Reincorporation.
The foregoing discussion of certain federal income tax aspects of the
Reincorporation is based on the Code, applicable regulations promulgated or
proposed thereunder, administrative rulings by the Internal Revenue Service and
judicial authority as of the date of this Proxy Statement, all of which are
subject to change, possibly with retroactive effect. There can be no assurance
that future changes in the foregoing precedents will not adversely affect the
tax consequences discussed herein or that there will not be differences
39
<PAGE> 42
of opinion as to the interpretation of such precedents. Accordingly,
stockholders of the Company should consult their own tax advisers as to the
specific consequences of the Reincorporation under their particular
circumstances, including the application of federal, state, local and foreign
income and other tax laws.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Coopers & Lybrand L.L.P., the Company's independent public accountants,
have audited the company's financial statements for the year ending June 30,
1997; however, no independent public accountant has been selected to audit the
Company's financial statements for the year ending June 30, 1998.
Representatives of Coopers & Lybrand L.L.P. are expected to be present at
the Annual Meeting, with the opportunity to make a statement if they desire to
do so. Such representatives are also expected to be available to respond to
appropriate questions.
STOCKHOLDER PROPOSALS FOR THE NEXT ANNUAL MEETING
From time to time stockholders present proposals which may be proper
subjects for inclusion in the Proxy Statement and for consideration at the
Annual Meeting. To be considered, proposals must be submitted on a timely basis.
Proposals for the next Annual Meeting of Stockholders must be received by the
Company (i) no later than , 1998 or (ii) if the date of the next
annual meeting is held more than thirty calendar days before or after March ,
1998, a reasonable time before the proxy solicitation for such annual meeting is
made. Any such proposals, as well as any questions related thereto, should be
directed to the Secretary of the Company at the address of the Company set forth
on the first page of the Proxy Statement.
OTHER MATTERS
The Board of Directors knows of no business other than the foregoing that
will be presented at the Annual Meeting. Should any other business come before
the Annual Meeting, it is the intention of the proxies named in the enclosed
proxy form to vote according to their best judgment on such matters.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, STOCKHOLDERS
ARE REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS SOON AS
POSSIBLE, WHETHER OR NOT THEY EXPECT TO ATTEND THE ANNUAL MEETING IN PERSON.
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<PAGE> 43
INCORPORATION BY REFERENCE
The Company's Annual Report on Form 10-KSB for the fiscal year ended June
30, 1997 accompanies this Proxy Statement. The following sections of such form
10-KSB are incorporated in this Proxy Statement by reference:
1. Management's Discussion and Analysis or Plan of Operation; and
2. Financial Statements.
The Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 1997 also accompanies this Proxy Statement and is incorporated herein by
reference.
By order of the Board of Directors,
/s/ VICKI D. McLAREN
VICKI D. MCLAREN,
Secretary
Houston, Texas
February , 1998
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<PAGE> 44
NOTE EXCHANGE AGREEMENT
This NOTE EXCHANGE AGREEMENT dated as of February 9, 1998 is
among UNIVERSAL SEISMIC ASSOCIATES, INC., a Delaware corporation (the
"COMPANY"), UNEXCO, INC., a Delaware corporation ("UNEXCO"), and RIMCO
PARTNERS, L.P., a Delaware limited partnership, RIMCO PARTNERS, L.P. II, a
Delaware limited partnership, RIMCO PARTNERS, L.P. III, a Delaware limited
partnership, and RIMCO PARTNERS, L.P. IV, a Delaware limited partnership
(together with their respective successors and assigns, collectively, the
"NOTEHOLDERS").
PRELIMINARY STATEMENT
A. The Company and UNEXCO have entered into the Existing
Note Agreements with the Noteholders under which the Company and UNEXCO have
issued and sold to the Noteholders the Existing Notes.
B. The Company, UNEXCO and the Noteholders desire to
enter into this Agreement to provide for the exchange of all outstanding
principal of and interest on the Existing Notes for Common Stock of the Company
and 7.875% Convertible Subordinated General Obligation Notes issued by the
Company in accordance with, and subject to, the terms and conditions hereof.
In consideration of the mutual covenants herein contained, the
Company and the Noteholders agree as follows:
ARTICLE I
DEFINITIONS, ETC.
SECTION 1.01 CERTAIN DEFINED TERMS. Capitalized terms used
in this Agreement and not otherwise defined herein shall have the respective
meanings set forth in ANNEX A attached hereto (such meanings to be equally
applicable to both singular and plural forms of the terms defined).
SECTION 1.02 COVENANT CONSTRUCTION. Each covenant
contained herein shall be construed (absent express provision to the contrary)
as being independent of each other covenant contained herein, so that
compliance with any one covenant shall not (absent such an express contrary
provision) be deemed to excuse compliance with any other covenant. Where any
provision herein refers to action to be taken by any Person, or which such
Person is prohibited from taking, such provision shall be applicable whether
such action is taken directly or indirectly by such Person.
SECTION 1.03 OTHER RULES OF CONSTRUCTION. The words
"hereof," "herein" and "hereunder" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. All references herein to articles,
<PAGE> 45
sections, annexes, exhibits and schedules shall, unless the context requires a
different construction, be deemed to be references to the articles and sections
of this Agreement and the annexes, exhibits and schedules attached hereto and
made a part hereof. In this Agreement, unless a clear contrary intention
appears, the word "including" (and with correlative meaning "include") means
including, without limiting the generality of any description preceding such
term. The headings of the various articles and sections of this Agreement are
for convenience only and shall not affect the meaning of the terms and
conditions of this Agreement. No provision of this Agreement shall be
interpreted or construed against any party solely because that party or its
legal representative drafted such provision.
ARTICLE II
EXCHANGE OF NOTES
SECTION 2.01 EXCHANGE FOR COMMON STOCK. Subject to the
terms and conditions hereof, at the Closing the Noteholders shall exchange with
the Company $15,000,000 of the outstanding principal amount of the Existing
Notes (on a pro rata basis as set forth below) for the issuance by the Company
to the Noteholders of fully paid and non- assessable shares of Common Stock of
the Company. The aggregate number of shares of Common Stock issued to the
Noteholders in such exchange shall be equal to $15,000,000 divided by the
Exchange Price. Each Noteholder shall receive its pro rata share of such Common
Stock based on the proportion that the total amount of outstanding principal of
and accrued, unpaid interest on the Existing Notes held by such Noteholder as
of the date of Closing bears to the total amount of outstanding principal of
and accrued, unpaid interest on all of the Existing Notes as of the date of
Closing. At the Closing, the Company will deliver to each Noteholder
certificates for the number of full shares of Common Stock to which each
Noteholder shall be entitled in such exchange and a cash adjustment for any
fractional shares of Common Stock.
SECTION 2.02 EXCHANGE FOR NOTES. Subject to the terms and
conditions hereof, at the Closing the Noteholders shall exchange (a) all
remaining outstanding principal amounts of the Existing Notes (such remaining
amount to be determined after deducting the $15,000,000 of principal exchanged
for Common Stock under SECTION 2.01) and (b) all accrued, unpaid interest
outstanding on the aggregate principal amount of the Existing Notes as of the
date of Closing (such aggregate amount of remaining outstanding principal of
and accrued, unpaid interest on the Existing Notes being referred to herein as
the "NOTE EXCHANGE AMOUNT") for the Company's 7.875% Convertible Subordinated
General Obligation Notes (such notes, together with any amendments, thereto,
and substitutions, exchanges or replacements therefor, being referred to herein
as the "NOTES") in the aggregate principal amount equal to the Note Exchange
Amount. At the Closing, the Company will issue and deliver to each Noteholder
a Note in the principal amount equal to such Noteholder's pro rata share of the
Note Exchange Amount (such pro rata share to be determined as set forth in
SECTION 2.01). The Notes will be convertible into shares of the Common Stock
of the
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<PAGE> 46
Company pursuant to and in accordance with ARTICLE IV. The Notes shall be
substantially in the form set out in EXHIBIT 2.02, with such changes therefrom,
if any, as may be approved by the Noteholders and the Company.
ARTICLE III
CLOSING
The exchange of the Existing Notes shall occur at the offices
of Andrews & Kurth, L.L.P., 600 Travis, Houston, Texas 77002, at 10:00 a.m.,
Houston time, at a closing (the "CLOSING") on the date five Business Days after
the Shareholder's Meeting or on such other Business Day on or prior to June 1,
1998 as may be agreed upon by the Company and the Noteholders. If at the
Closing the Company shall fail to tender the Notes and the certificates of
Common Stock to the Noteholders as provided in ARTICLE II, or any of the
conditions specified in this ARTICLE III shall not have been fulfilled to the
Noteholders' reasonable satisfaction, the Noteholders shall, at the
Noteholders' election, be relieved of all further obligations under this
Agreement, without thereby waiving any rights the Noteholders may have by
reason of such failure or such nonfulfillment.
The Noteholders' obligation to exchange the Existing Notes at
the Closing is subject to the fulfillment to the Noteholders' reasonable
satisfaction, prior to or at the Closing, of the following conditions in
Sections 3.01 through 3.08:
SECTION 3.01 EXECUTION OF DOCUMENTS. The Noteholders shall
have received the following instruments or agreements (together with this
Agreement, collectively, the "TRANSACTION DOCUMENTS") (in the case of the
Registration Rights Agreement in such number of counterparts as the Noteholders
may reasonably request) each dated the date of the Closing and duly executed by
the Persons indicated below:
(a) the Notes duly executed by the Company; and
(b) the Registration Rights Agreement duly executed by
the Company and each Noteholder.
SECTION 3.02 SHAREHOLDER APPROVAL. The transactions
contemplated hereunder shall have been approved at the Shareholder's Meeting by
the affirmative vote of the holders of a majority of the Company's outstanding
Common Stock and by the affirmative vote of the holders of a majority of the
Company's outstanding Common Stock that is not held by Noteholders or
Affiliates of any Noteholder.
SECTION 3.03 CERTIFICATES. The Company shall have
delivered to the Noteholders:
(a) an Officer's Certificate, dated the date of the
Closing, certifying that the conditions specified in SECTION 3.05 and SECTION
3.06 have been fulfilled;
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<PAGE> 47
(b) Officer's Certificates from the Company and UNEXCO
certifying as to the resolutions attached thereto and other corporate
proceedings relating to the authorization, execution and delivery of the Notes
and the other Transaction Documents to be executed by each such Person; and
(c) certificates of appropriate public officials as to
the corporate existence and good standing of, and the payment of all franchise
taxes owing by, the Company in the States of Delaware and Texas.
SECTION 3.04 OPINION OF COUNSEL. The Noteholders shall
have received opinions in form and substance reasonably satisfactory to the
Noteholders, dated the date of the Closing from Liddell, Sapp, Zivley, Hill &
LaBoon, counsel for the Company and UNEXCO, covering such matters incident to
the transactions contemplated hereby as the Noteholders or the Noteholders'
counsel may reasonably request (and the Company hereby instructs its counsel to
deliver such opinion to the Noteholders).
SECTION 3.05 REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company in this Agreement and the other
Transaction Documents shall be correct when made and at the time of the
Closing; provided, that in the event the Company is merged with and into its
wholly-owned Subsidiary prior to the Closing and such wholly- owned Subsidiary
shall have executed a document satisfactory to the Noteholders assuming all of
the Company's liabilities and obligations under this Agreement and the other
Transaction Documents, this condition shall not fail to be satisfied solely as
a result of changes resulting from such merger.
SECTION 3.06 PERFORMANCE; NO DEFAULT. The Company shall
have performed and complied with all agreements and conditions contained in
this Agreement or the other Transaction Documents required to be performed or
complied with by it prior to or at the Closing and no Default or Event of
Default shall have occurred and be continuing; provided, that in the event the
Company is merged with and into its wholly-owned Subsidiary prior to the
Closing and such wholly-owned Subsidiary shall have executed a document
satisfactory to the Noteholders assuming all of the Company's liabilities and
obligations under this Agreement and the other Transaction Documents, this
condition shall not fail to be satisfied solely as a result of changes
resulting from such merger.
SECTION 3.07 PROCEEDINGS AND DOCUMENTS. All corporate and
other proceedings in connection with the transactions contemplated by this
Agreement and all documents and instruments incident to such transactions shall
be reasonably satisfactory to the Noteholders and the Noteholders' special
counsel, and the Noteholders and the Noteholders' special counsel shall have
received all such counterpart originals or certified or other copies of such
documents as the Noteholders or they may reasonably request.
SECTION 3.08 LDI LEASE. The Company shall have renegotiated
the LDI Lease on terms satisfactory to the Noteholders.
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<PAGE> 48
SECTION 3.09 AUTHORIZED COMMON STOCK. The Company's and the
Noteholders' obligations hereunder shall be subject to the further condition
that at the Closing the Company shall have sufficient authorized shares of
Common Stock to satisfy its obligations under SECTIONS 2.01 and 4.05.
SECTION 3.10 CONDITION TO COMPANY OBLIGATIONS. The
Company's obligations at Closing are subject to the condition that the
transactions contemplated hereunder shall have been approved at the
Shareholder's Meeting by the affirmative vote of the holders of a majority of
the Company's outstanding Common Stock and by the affirmative vote of the
holders of a majority of the Company's outstanding Common Stock that is not
held by Noteholders or Affiliates of any Noteholder.
SECTION 3.11 SURRENDER OF NOTES AND RELEASE. Subject to
the foregoing conditions to the Noteholder's obligations to exchange the
Existing Notes, simultaneously with the exchange of the Existing Notes at the
Closing, the Noteholders shall deliver the Existing Notes to the Company and
shall deliver to the Company and UNEXCO full releases of (i) all guaranties,
liens and security interests guaranteeing or securing the Existing Notes and
(ii) any other obligations of the Company or any of its Subsidiaries to any of
the Noteholders or their Affiliates (other than such obligations that expressly
survive the payment of the Existing Notes or the termination of the Existing
Note Agreements). In addition, simultaneously with the exchange of the
Existing Notes at the Closing the Noteholders shall execute and deliver to the
Company amendments to any outstanding warrants held by the Noteholders or their
Affiliates and amendments to any agreements related to any such warrants, which
amendments shall waive all Anti-Dilution Rights of the holders of such
warrants, to the extent (and only to the extent) such Anti-Dilution Rights
pertain to and are affected by the transactions contemplated by this Agreement.
For purposes of this SECTION 3.11, "ANTI-DILUTION RIGHTS" shall mean any rights
of the holders of warrants pursuant to which the number of shares of Common
Stock for which any such warrant is exercisable is increased or the exercise
price at which any such warrant is exercisable is reduced as a result of the
issuance or sale by the Company of any of its Common Stock for consideration
per share of Common Stock which is less than the initial exercise price under
any such warrants.
SECTION 3.12 RIGHT TO TERMINATE. Notwithstanding the
foregoing, the Company shall have the right at any time prior to the
Shareholder's Meeting to terminate this Agreement, without any liability to the
Noteholders under this Agreement.
ARTICLE IV
CONVERSION OF NOTES
SECTION 4.01. CONVERSION. (a) Each Noteholder shall have
the right, at the option of such Noteholder exercisable at any time or from
time to time that any of the Notes shall remain outstanding, to convert the
outstanding principal balance of the Notes (or any portion thereof that is
$1,000 or an integral multiple thereof), plus accrued and unpaid interest due
thereon to the effective date of the conversion, into fully paid and
non-assessable shares of Common Stock. The
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number of shares of Common Stock issuable in the conversion of the Notes shall
be equal to the quotient of the principal amount of the Notes (or the portion
thereof) submitted for conversion plus accrued, unpaid interest due thereon to
the effective date of conversion, divided by the "Conversion Price" (as defined
below), subject to possible adjustment as provided below. As used herein, the
term "CONVERSION PRICE" shall mean a price equal to 130% of the Exchange Price
(or, in case an adjustment of such price has taken place pursuant to the
provisions hereof, then at the price as last adjusted).
(b) If on any date following the issuance of the Notes up
to and including the Maturity Date, the average closing price per share of
Common Stock (as reported by the principal securities exchange or trading
market, as the case may be, on which the Common Stock is then traded and
subject to appropriate adjustment for any Stock Split) during a period of 20
consecutive trading days immediately preceding such date (such 20-day average
being referred to herein as the "AVERAGE PRICE") equals or exceeds 150% of the
Conversion Price (a "SPECIAL CONVERSION EVENT"), the Company may, at its option
exercisable in its sole discretion at any time during the 30-day period
following such Special Conversion Event, convert all or any portion of the
outstanding principal balance of the Notes, plus accrued, unpaid interest due
thereon to the effective date of such conversion into fully paid and
non-assessable shares of Common Stock at the Conversion Price in effect as of
the effective date of such conversion. In the case of any conversion of less
than all of the outstanding Notes, the principal balance of the Notes to be
converted shall be allocated among all of the Notes at the time outstanding in
proportion, as nearly as practicable, to the respective unpaid principal
amounts thereof not previously converted into Common Stock. Such conversion
shall be deemed to have been effected immediately upon the mailing of the
notice referred to in SECTION 4.02(B) hereof, which notice to be effective must
be deposited in the mail on or prior to the close of business on the thirtieth
day following the Special Conversion Event, whereupon the person or persons
entitled to receive the Common Stock deliverable upon such conversion shall
thereupon be treated for all purposes as the record holder or holders of such
Common Stock, and, to the extent of the conversion of the outstanding principal
balance of the Notes, the Notes shall be deemed to represent only the right to
receive certificates representing the number of shares of Common Stock, plus
cash in lieu of fractional shares in accordance with SECTION 4.04, into which
each such Note has been so converted. If the Company does not convert all or
any portion of the Notes in accordance with this SECTION 4.01(B) within the
30-day period following any Special Conversion Event, then a new period of
trading days shall begin for purposes of determining whether the Company may
convert the Notes remaining outstanding pursuant to this SECTION 4.01(B).
(c) If, on December 1, 1999, (i) Cash Availability is
less than the sum of the aggregate outstanding principal of and accrued, unpaid
interest due on the Notes, and (ii) the Average Price of the Common Stock on
such date is equal to or greater than the Conversion Price on such date, then
the Noteholders shall, and shall be deemed to have elected to, convert that
portion of the aggregate outstanding principal of the Notes, plus accrued,
unpaid interest due thereon to December 1, 1999, that exceeds the Cash
Availability as of such date (such excess portion of the outstanding principal
of and interest on the Notes being referred to herein as the ("DEFICIENCY
PORTION")) into fully paid and non-assessable shares of Common Stock at the
Conversion Price then
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<PAGE> 50
in effect. Such conversion shall be deemed to have been effected as of
December 1, 1999, whereupon the person or persons entitled to receive the
Common Stock deliverable upon such conversion shall thereupon be treated for
all purposes as the record holder or holders of such Common Stock, and, upon
conversion of all amounts outstanding under the Notes, the Notes shall be
deemed to represent only the right to receive certificates representing the
number of shares of Common Stock, plus cash in lieu of fractional shares in
accordance with Section 4.04, into which each such Note has been so converted.
(d) If, on December 1, 1999, (i) Cash Availability is
less than the sum of the aggregate outstanding principal of and accrued, unpaid
interest due on the Notes, (ii) the Average Price of the Common Stock on such
date is less than the Conversion Price on such date, and (iii) the Noteholders
do not elect to extend the Maturity Date in accordance with SECTION 7.04, then
the Noteholders shall, and shall be deemed to have elected to, convert the
Deficiency Portion of the Notes into fully paid and non-assessable shares of
Common Stock at the Average Price as of December 1, 1999. Such conversion
shall be deemed to have been effected as of December 1, 1999, whereupon the
person or persons entitled to receive the Common Stock deliverable upon such
conversion shall thereupon be treated for all purposes as the record holder or
holders of such Common Stock, and, upon conversion of all amounts outstanding
under the Notes, the Notes shall be deemed to represent only the right to
receive certificates representing the number of shares of Common Stock, plus
cash in lieu of fractional shares in accordance with Section 4.04, into which
each such Note has been so converted.
SECTION 4.02. CONVERSION PROCEDURE. (a) If a Noteholder
desires to convert such Note into Common Stock pursuant to SECTION 4.01(A)
hereof or if the Notes have been converted pursuant to SECTIONS 4.01(B), (C),
or (D) hereof, the Noteholder shall surrender the Note at the office of the
Company, duly endorsed to the Company or in blank, or accompanied by proper
instruments of transfer to the Company or in blank, accompanied, in the case of
a conversion pursuant to SECTIONS 4.01(A) hereof, by an irrevocable written
notice to the Company that the Noteholder elects so to convert this Note in
accordance with the terms hereof, and specifying the name or names (with
address) in which a certificate or certificates for Common Stock are to be
issued.
(b) If the Company elects pursuant to SECTION 4.01(B)
hereof to convert the issued and outstanding Notes into Common Stock, the
Company shall, within 30 days after the Special Conversion Event with respect
to which such election is made, send notice (or cause notice to be sent) by
first class mail, postage prepaid, to each Noteholder of record of the Notes at
such Noteholder's address as specified pursuant to the Note Purchase Agreement.
Each such notice of conversion shall specify the date such conversion was
effected, the Conversion Price, the Conversion Rate (as defined in SECTION
4.03), the place or places that the certificates representing the Notes shall
be surrendered, and that on and after such conversion date, interest will cease
to accrue on such Notes.
(c) The Company will, as soon as practicable after such
surrender of the Notes accompanied, in the case of a conversion pursuant to
SECTIONS 4.01(A) hereof, by the written notice
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specified in SECTION 4.02(A) hereof and compliance with any other conditions
herein contained, deliver or cause to be delivered, to the Person for whose
account such Note was so surrendered, certificates for the number of full
shares of Common Stock to which such Person shall be entitled upon conversion
as aforesaid and a cash adjustment for any fraction of a share of Common Stock
as hereinafter provided. In the case of a conversion pursuant to SECTIONS
4.01(A) hereof, such conversion shall be deemed to have been made as of the
date of such surrender of the Note, and the Person entitled to receive the
Common Stock deliverable upon conversion of the Note shall be treated for all
purposes as the record holder of such Common Stock on such date of surrender.
SECTION 4.03. ADJUSTMENTS. The Conversion Price and the
number of shares of Common Stock or amount of any other securities and property
as hereinafter provided into which a Note is convertible (the "CONVERSION
RATE") shall be subject to adjustment from time to time effective upon each
occurrence of any of the following events. As used in this SECTION 4.03, the
term "SHARES" means, collectively, shares of Common Stock (i) issued or
issuable upon conversion of the Notes and (ii) converted, distributed, issued
or issuable with respect to, the shares included in clause (i) of this
definition. In case by reason of the operation of this SECTION 4.03 the Note
shall be convertible into any other shares of stock or other securities or
property of the Company or of any other corporation, any reference herein to
the conversion of the Note shall be deemed to refer to and include the
conversion of the Note for such other shares of stock or other securities or
property.
(a) If the Company shall declare or pay any dividend with
respect to its Common Stock payable in Common Stock, subdivide the outstanding
shares of Common Stock into a greater number of shares of Common Stock, or
reduce the number of shares of Common Stock outstanding (by stock split,
reverse stock split, reclassification or otherwise than by repurchase of its
Common Stock) (any of such events being hereinafter called a "STOCK SPLIT"),
the Conversion Price and number of shares of Common Stock issuable upon
conversion of the Notes shall be appropriately adjusted so as to entitle the
holder hereof to receive upon conversion of the Note, for the same aggregate
consideration provided herein, the same number of shares of Common Stock, plus
cash in lieu of fractional Shares, as the holder would have received as a
result of such Stock Split had the holder hereof converted the Note in full
immediately prior to such Stock Split.
(b) If the Company shall merge or consolidate with or
into one or more corporations or partnerships and the Company is the sole
surviving corporation, or the Company shall adopt a plan of recapitalization or
reorganization in which shares of Common Stock are exchanged for or changed
into another class of stock or other security of the Company, the Noteholders
shall, for the same aggregate consideration provided herein, be entitled upon
conversion of the Notes to receive in lieu of the number of shares of Common
Stock (plus cash in lieu of fractional Shares) into which the Notes would
otherwise be convertible, the number of shares of Common Stock or other
securities, plus cash in lieu of fractional Shares, to which such holder would
have been entitled pursuant to the terms of the agreement or plan of merger,
consolidation, recapitalization or reorganization had such holder converted the
Notes in full immediately prior to such merger, consolidation, recapitalization
or reorganization.
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(c) If the Company is merged or consolidated with or into
one or more corporations or partnerships under circumstances in which the
Company is not the sole surviving corporation, or if the Company sells or
otherwise disposes of substantially all its assets, and in connection with any
such merger, consolidation or sale the holders of Common Stock receive stock or
other securities convertible into equity of the surviving or acquiring
corporations or entities, after the effective date of such merger,
consolidation or sale, as the case may be, the Noteholders shall, for the same
aggregate consideration provided herein, be entitled upon conversion of the
Notes to receive, in lieu of shares of Common Stock (plus cash in lieu of
fractional Shares) into which the Notes would otherwise be convertible, shares
of such stock or other securities (plus cash in lieu of fractional Shares) as
the Noteholders would have received pursuant to the terms of the merger,
consolidation or sale had such Noteholder converted the Notes in full
immediately prior to such merger, consolidation or sale. In the event of any
consolidation, merger or sale as described in this SECTION 4.03(C), provision
shall be made in connection therewith for the surviving or acquiring
corporations or partnerships to assume all obligations and duties of the
Company hereunder with all such changes and adjustments in the number or kind
of shares of Common Stock or other securities or property or in the Conversion
Price as shall be required in connection with this SECTION 4.03.
(d) If the Company shall declare or pay any dividend, or
make any distribution, with respect to its Common Stock that is payable in
preferred stock or other securities, assets or rights to subscribe for or
purchase any security of the Company other than Common Stock, or that is
payable in debt securities of the Company convertible into Common Stock,
preferred stock or other equity securities of the Company, the holder hereof
shall, for the same aggregate consideration provided herein, be entitled to
receive upon conversion of the Notes in lieu of the shares of Common Stock
(plus cash in lieu of fractional Shares) into which the Notes would otherwise
be convertible, the same amount of Common Stock, preferred stock and other
securities, assets or rights to subscribe for or purchase any security (plus
cash in lieu of fractional Shares) as the holder would have received had the
holder converted the Notes in full immediately prior to any such dividend or
distribution.
(e) If the Company (other than in connection with a sale
described in SECTION 4.03(C)) proposes to liquidate and dissolve, the Company
shall give notice thereof as provided in SECTION 4.05(E) hereof and shall
permit the Noteholders to convert any unconverted portion hereof at any time,
if such holder should elect to do so, and participate as a stockholder of the
Company in connection with such dissolution.
(f) If the Conversion Price shall fall below the par
value of the Common Stock, the Company agrees to use its best efforts to
appropriately adjust the par value of the Common Stock to an amount less than
or equal to the Conversion Price.
(g) In order to protect each Noteholder against the
dilution of its interest in the Company, if and whenever on or after the date
hereof the Company issues or sells any Common Stock (except any Permitted
Issuance) for a consideration per share which is less than the initial
Conversion Price (a "SPECIAL ISSUANCE"), then forthwith upon such issuance or
sale the number of Shares (as defined in SECTION 4.03), as determined
immediately prior to such Special Issuance, will
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be increased to equal the New Conversion Shares (as defined below), and the
Conversion Price will be equal to the New Conversion Price, each as determined
pursuant to the following formulas:
NCS = S x ((OS + SI) / (OS + SI/OCP)
NCP = (OCP x S) / NCS
where:
S = the Shares (as defined in SECTION 4.03), as determined
immediately prior to such Special Issuance
OS = the number of shares of Common Stock outstanding immediately
prior to such Special Issuance on a fully diluted basis without
giving effect to such Special Issuance
NCS = the number of Shares (as defined in SECTION 4.03), as determined
immediately following the adjustment made by reason of this
SECTION 4.03(G) ("NEW CONVERSION SHARES")
SI = the number of shares of Common Stock issued or sold (or deemed
issued or sold) in such Special Issuance
SI/OCP = the number of shares of Common Stock that the aggregate cash
consideration actually received by the Company for SI would
purchase at OCP
NCP = the "NEW CONVERSION PRICE"
OCP = the Conversion Price in effect immediately prior to such Special
Issuance
"PERMITTED ISSUANCES" means any and all issuances of shares of Common Stock
pursuant to (x) any stock option, stock purchase or other employee or director
benefit plan of the Company existing as of the date hereof, (y) any warrant or
other right to purchase Common Stock existing as of the date hereof and (z) the
acquisition of assets of Kentex Holdings, Inc. (which assets consist primarily
of Common Stock and warrants to acquire Common Stock) solely in exchange for
the issuance by the Company of shares of its Common Stock.
(h) Whenever the Conversion Rate or the Conversion Price
is adjusted as provided in any provision of this SECTION 4.03:
(i) the Company shall compute the adjusted Conversion
Rate and Conversion Price, as applicable, in accordance with
this SECTION 4.03 and shall prepare a certificate signed by
the Senior Financial Officer of the Company setting forth the
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adjusted Conversion Rate and Conversion Price, as applicable,
and showing in reasonable detail the facts upon which such
adjustment is based, and such certificate shall forthwith be
filed with the Company or its designee; and
(ii) a notice stating that the Conversion Rate and the
Conversion Price, as applicable, has been adjusted and setting
forth the adjusted Conversion Rate and the Conversion Price,
as applicable, shall forthwith be required, and as soon as
practicable after it is prepared, such notice shall be mailed
by the Company to the holder of record of each Note at such
holder's address specified pursuant to this Agreement.
(i) If at any time, as a result of any adjustment to the
Conversion Rate made pursuant to this SECTION 4.03, the holder of any Note
thereafter surrendered for conversion shall become entitled to receive any
shares of the Company other than shares of the Company's Common Stock or to
receive any other securities, the number of such other shares or securities so
receivable upon conversion of such Note shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to
the provisions contained in this SECTION 4.03 with respect to the Common Stock.
(j) All of the events requiring adjustments pursuant to
the Notes are subject to such prohibitions, limitations, restrictions and other
provisions as set forth in this Agreement or the other Transaction Documents,
as any of same may be amended from time to time.
SECTION 4.04. CASH IN LIEU OF FRACTIONAL SHARES. No
fractional shares or scrip representing fractional shares of Common Stock shall
be issued upon the conversion of the Notes. Instead of any fractional share of
Common Stock that would otherwise be issuable upon conversion of the Notes, the
Company will pay a cash adjustment in respect of such fractional interest in an
amount equal to the same fraction of the market price per share of Common Stock
(as determined by the Board of Directors or in any manner prescribed by the
Board of Directors, which shall be the last reported sale price of the Common
Stock on the principal securities exchange or trading market on which the
Common Stock is then traded) at the close of business on the Business Day prior
to the day of surrender of shares for conversion or, in the case of conversion
effected pursuant to SECTION 4.01(B), (C) OR (D) hereof, the Business Day prior
to the effective date of such conversion.
SECTION 4.05. ADDITIONAL COMPANY OBLIGATIONS. (a) The
Company shall at all times reserve and keep available, out of its authorized
and unissued stock, solely for the purpose of effecting the conversion of the
Notes, such number of shares of its Common Stock free of preemptive rights as
shall from time to time be sufficient to effect the conversion of all Notes
from time to time outstanding. The Company shall from time to time, in
accordance with the laws of the State of Delaware, increase the authorized
number of shares of Common Stock if at any time the number of shares of Common
Stock authorized but unissued shall not be sufficient to permit the conversion
of all the then outstanding Notes into Common Stock at the Conversion Rate then
in effect.
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(b) If any shares of Common Stock required to be reserved
for purposes of conversion of the Notes require registration with or approval
of any governmental authority under any federal or state law before such shares
may be issued upon conversion, the Company will in good faith and as
expeditiously as possible endeavor to cause such shares to be duly registered
or approved, as the case may be. If the Common Stock is then traded on any
other national securities exchange or trading market, the Company will, if
permitted by the rules of such exchange or trading market, list and keep listed
on such exchange or approved for trading on such trading market, subject to
official notice of issuance, all shares of Common Stock issuable upon
conversion of the Notes.
(c) The Company will pay any and all issue or other taxes
that may be payable in respect of any issue or delivery of shares of Common
Stock on conversion of the Notes. The Company shall not, however, be required
to pay any tax that may be payable in respect of any transfer involved in the
issue or delivery of Common Stock (or other securities or assets) in any name
or names other than that in which the Notes were registered, and no such issue
or delivery shall be made unless and until the Person requesting such issue has
paid to the Company or its designee the amount of such tax or has represented,
to the reasonable satisfaction of the Company, that such tax has been paid.
(d) Before taking any action that would cause an
adjustment increasing the Conversion Rate, such that the effective Conversion
Price would be below the then par or stated value of the Common Stock, the
Company will take such corporate action as may, in the opinion of counsel to
the Company, be necessary in order that the Company may validly and legally
issue fully paid and non-assessable shares of Common Stock at the Conversion
Rate as so adjusted.
(e) In case the Company proposes, to the extent then
permitted by this Agreement and the other Transaction Documents,
(i) to pay any stock dividend upon the Common
Stock or make any distribution (other than ordinary cash
dividends payable out of earnings) or offer any subscription
or other rights to the holders of Common Stock, or
(ii) to effect any capital reorganization or
reclassification of capital stock of the Company, or
(iii) to effect the consolidation, merger, sale
of all or substantially all of the assets, liquidation,
dissolution or winding up of the Company, or
(iv) to take any other action that would result
in any adjustment pursuant to SECTION 4.03 in the number of
Shares or the Conversion Price,
then the Company shall cause notice of any such intended action to be given to
the Noteholders not less than 10 nor more than 60 days prior to the date on
which the transfer books of the Company shall close or a record be taken for
such dividend or distribution, or the date when such capital
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reorganization, reclassification, consolidation, merger, sale, liquidation,
dissolution or winding up shall be effected, or the date of such other event,
as the case may be.
SECTION 4.06. CONVERSION RATE INCREASE. (a) The Company from
time to time may increase the Conversion Rate by any amount for any period of
time if the period is at least 20 days and if the increase is irrevocable
during the period. Whenever the Conversion Rate is so increased, the Company
shall mail to Noteholders a notice of the increase at least 10 days before the
date the increased Conversion Rate takes effect, and such notice shall state
the increased Conversion Rate and the period it will be in effect.
(b) The Company may make such increases in the Conversion
Rate, in addition to those required or allowed by the Notes, as shall be
determined by it, as evidenced by a resolution of the Company's Board of
Directors, to be advisable in order to avoid or diminish any income tax to
holders of Common Stock resulting from any dividend or distribution of stock or
issuance of rights or warrants to purchase or subscribe for stock or from any
event treated as such for income tax purposes.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Noteholders that,
except as disclosed in a writing delivered to the Noteholders on the date
hereof:
SECTION 5.01 ORGANIZATION; POWER AND AUTHORITY. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware, and is duly qualified as a foreign
corporation and is in good standing in each jurisdiction in which such
qualification is required by law, other than those jurisdictions as to which
the failure to be so qualified or in good standing could not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect.
The Company has the corporate power and authority to own or hold under lease
the properties it purports to own or hold under lease, to transact the business
it transacts and proposes to transact, to execute and deliver this Agreement
and the other Transaction Documents to which it is a party and to perform the
provisions hereof and thereof.
SECTION 5.02 AUTHORIZATION, ETC. This Agreement and the
other Transaction Documents to which the Company is a party have been duly
authorized by all necessary corporate action on the part of the Company, and
this Agreement constitutes, and upon execution and delivery thereof each such
other Transaction Document will constitute, a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with
its terms, except as such enforceability may be limited by (a) applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and (b) general
principles of equity (regardless of whether such enforceability is considered
in a proceeding in equity or at law).
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SECTION 5.03 COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC.
The execution, delivery and performance by the Company of this Agreement and
the other Transaction Documents to which it is a party will not (a) contravene,
result in any breach of, or constitute a default under, or result in the
creation of any Lien in respect of any property of the Company or any
Subsidiary of the Company under, any indenture, mortgage, deed of trust, loan,
purchase or credit agreement, lease, corporate charter or by-laws, or any other
agreement or instrument to which the Company or any Subsidiary of the Company
is bound or by which the Company or any Subsidiary of the Company or any of
their respective properties may be bound or affected the consequence of which
would have a Material Adverse Effect, (b) conflict with or result in a breach
of any of the terms, conditions or provisions of any order, judgment, decree,
or ruling of any court, arbitrator or Governmental Authority in respect of a
proceeding to which the Company or any Subsidiary of the Company is a party or
(c) to the knowledge of the Company, violate any provision of any statute or
other rule or regulation of any Governmental Authority applicable to the
Company or any Subsidiary of the Company.
SECTION 5.04 GOVERNMENTAL AUTHORIZATIONS, ETC. Except for
the filing of a proxy statement with the Securities and Exchange Commission and
NASDAQ in connection with the Shareholders' Meeting and except for the approval
of the listing of the Shares with NASDAQ, no consent, approval or authorization
of, or registration, filing or declaration with, any Governmental Authority is
required in connection with the execution, delivery or performance by the
Company of this Agreement or the other Transaction Documents to which it is a
party.
SECTION 5.05 SUBSIDIARIES. SCHEDULE 5.05 contains complete
and correct lists of the Company's Subsidiaries, showing, as to each
Subsidiary, the correct name thereof, the jurisdiction of its organization, and
the percentage of shares of each class of its capital stock or similar equity
interests outstanding owned by the Company and each other Subsidiary. No
Subsidiary is a party to, or otherwise subject to any legal restriction or any
agreement (other than customary limitations imposed by corporate law statutes)
restricting the ability of such Subsidiary to pay dividends out of profits or
make any other similar distributions of profits to the Company or any of its
Subsidiaries that owns outstanding shares of capital stock or similar equity
interests of such Subsidiary.
SECTION 5.06 FINANCIAL STATEMENTS. Except as otherwise
disclosed to the Noteholders, the consolidated balance sheet of the Company and
its Subsidiaries as at September 30, 1997, and the related consolidated
statements of income, retained earnings and cash flows for the three-month
period then ended, copies of which the Company has delivered to each
Noteholder, fairly present in all material respects the consolidated financial
position of the Company and its Subsidiaries as of such date and the
consolidated results of their operations and cash flows for such period and
have been prepared in accordance with GAAP consistently applied throughout the
periods involved except as set forth in the notes thereto (subject, in the case
of any interim financial statements, to normal year-end adjustments).
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SECTION 5.07 DISCLOSURE. This Agreement, the documents,
certificates or other writings delivered to the Noteholders by or on behalf of
the Company in connection with the transactions contemplated hereby and the
financial statements referred to in SECTION 5.06, taken as a whole, do not
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading. Except as
disclosed in the financial statements referred to in SECTION 5.06, since
September 30, 1997, there has been no change in the financial condition,
operations, business, properties or prospects of the Company or any Subsidiary
except changes that individually or in the aggregate could not reasonably be
expected to have a Material Adverse Effect. There is no fact known to the
Company that could reasonably be expected to have a Material Adverse Effect
that has not been set forth herein or in the other documents, certificates and
other writings (including the financial statements referred to in SECTION 5.06)
delivered to the Noteholders by or on behalf of the Company specifically for
use in connection with the transactions contemplated hereby.
SECTION 5.08 LITIGATION. There are no actions, suits or
proceedings pending of which the Company or any of its Subsidiaries has
received notice or, to the knowledge of the Company, threatened against or
affecting the Company or any Subsidiary of the Company or any property of the
Company or any Subsidiary in any court or before any arbitrator of any kind or
before or by any Governmental Authority that, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect.
SECTION 5.09 OBSERVANCE OF AGREEMENTS, STATUTES AND ORDERS.
Neither the Company nor any Subsidiary of the Company is in default under any
term of any agreement or instrument to which it is a party or by which it is
bound, or any order, judgment, decree or ruling of any court, arbitrator or
Governmental Authority arising out of any proceeding to which it is a party or
of which it has notice or is in violation of any applicable law, ordinance,
rule or regulation (including without limitation Environmental Laws) of any
Governmental Authority, which default or violation, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.
SECTION 5.10 TAXES. The Company and its Subsidiaries have
filed all tax returns that are required to have been filed in any jurisdiction,
and have paid all taxes shown to be due and payable on such returns and all
other taxes and assessments levied upon them or their properties, assets,
income or franchises, to the extent such taxes and assessments have become due
and payable and before they have become delinquent, except for any taxes and
assessments (i) the amount of which is not individually or in the aggregate
Material or (ii) the amount, applicability or validity of which is currently
being contested in good faith by appropriate proceedings and with respect to
which the Company or a Subsidiary, as the case may be, has established adequate
reserves in accordance with GAAP. The Company knows of no basis for any other
tax or assessment that, if imposed, could reasonably be expected to have a
Material Adverse Effect. The charges, accruals and reserves on the books of
the Company and its Subsidiaries in respect of Federal, state or other taxes
for all fiscal periods are adequate in all material respects.
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SECTION 5.11 TITLE TO PROPERTY. The Company and its
Subsidiaries have good and sufficient title to their respective properties that
individually or in the aggregate are Material, including all such properties
reflected in the most recent audited balance sheet referred to in SECTION 5.06
or purported to have been acquired by the Company or any Subsidiary after said
date, in each case free and clear of Liens other than those permitted by this
Agreement. All leases that individually or in the aggregate are Material are
valid and subsisting and are in full force and effect in all material respects.
SECTION 5.12 LICENSES, PERMITS, ETC. The Company and its
Subsidiaries own or possess all licenses, permits, franchises, authorizations,
patents, copyrights, service marks, trademarks and trade names, or rights
thereto, that individually or in the aggregate are Material, without known
conflict with the rights of others. To the best knowledge of the Company, (a)
no product of the Company infringes in any material respect any license,
permit, franchise, authorization, patent, copyright, service mark, trademark,
trade name or other right owned by any other Person; and (b) there is no
Material violation by any Person of any right of the Company or any of its
Subsidiaries with respect to any patent, copyright, service mark, trademark,
trade name or other right owned or used by the Company or any of its
Subsidiaries.
SECTION 5.13 COMPLIANCE WITH ERISA.
(a) The Company and each ERISA Affiliate have operated
and administered each Plan, if any, in compliance with all applicable laws
except for such instances of noncompliance as have not resulted in and could
not reasonably be expected to result in a Material Adverse Effect. Neither the
Company nor any ERISA Affiliate has incurred any liability pursuant to Title I
or IV of ERISA or the penalty or excise tax provisions of the Code relating to
employee benefit plans (as defined in Section 3 of ERISA), and no event,
transaction or condition has occurred or exists that could reasonably be
expected to result in the incurrence of any such liability by the Company or
any ERISA Affiliate, or in the imposition of any Lien on any of the rights,
properties or assets of the Company or any ERISA Affiliate, in either case
pursuant to Title I or IV of ERISA or to such penalty or excise tax provisions
or to Section 401(a)(29) or 412 of the Code, other than such liabilities or
Liens as would not be individually or in the aggregate Material.
(b) The present value of the aggregate benefit
liabilities under each of the Plans (other than Multiemployer Plans),
determined as of the end of such Plan's most recently ended plan year on the
basis of the actuarial assumptions specified for funding purposes in such
Plan's most recent actuarial valuation report, did not exceed the aggregate
current value of the assets of such Plan allocable to such benefit liabilities.
The term "BENEFIT LIABILITIES" has the meaning specified in section 4001 of
ERISA and the terms "CURRENT VALUE" and "PRESENT VALUE" have the meaning
specified in section 3 of ERISA.
(c) The Company and its ERISA Affiliates have not
incurred withdrawal liabilities (and are not subject to contingent withdrawal
liabilities) under section 4201 or 4204 of ERISA in respect of Multiemployer
Plans that individually or in the aggregate are Material.
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(d) The expected post-retirement benefit obligation
(determined as of the last day of the Company's most recently ended fiscal year
in accordance with Financial Accounting Standards Board Statement No. 106,
without regard to liabilities attributable to continuation coverage mandated by
section 4980B of the Code) of the Company and its Subsidiaries is not Material.
SECTION 5.14 STATUS UNDER CERTAIN STATUTES. Neither the
Company nor any Subsidiary is subject to regulation under the Investment
Company Act of 1940, as amended, the Public Utility Holding Company Act of
1935, as amended, the Interstate Commerce Act, as amended, or the Federal Power
Act, as amended.
SECTION 5.15 CAPITALIZATION. The authorized capital stock
of the Company consists solely of 20,000,000 shares of $.0001 par common stock,
of which 5,234,109 shares were issued and outstanding as of February 6, 1998.
SECTION 5.16 SECURITIES MATTERS. Other than offers to
Accredited Investors, neither the Company nor anyone acting on its behalf has
directly or indirectly offered the Notes or any part thereof or any similar
securities for sale to, or solicited any offer to buy any of the same from, or
otherwise approached or negotiated in respect thereof with, anyone other than
the Noteholders named in SCHEDULE A. Neither the Company nor anyone acting on
its behalf has taken or will take any action which would subject the issuance
and sale of the Notes to the registration and prospectus delivery provisions of
the Securities Act.
SECTION 5.17 ENVIRONMENTAL MATTERS. Neither the Company
nor any Subsidiary has knowledge of any claim or has received any notice of any
claim, and no proceeding has been instituted of which the Company has notice
raising any claim against the Company or any of its Subsidiaries or any of
their respective real properties now or formerly owned, leased or operated by
any of them or other assets, alleging any damage to the environment or
violation of any Environmental Laws, except, in each case, such as could not
reasonably be expected to result in a Material Adverse Effect. Except as
otherwise disclosed to the Noteholders in writing, (a) neither the Company nor
any Subsidiary has knowledge of any facts which would give rise to any claim,
public or private, of violation of Environmental Laws or damage to the
environment emanating from, occurring on or in any way related to real
properties now or formerly owned, leased or operated by any of them or to other
assets or their use, except, in each case, such as could not reasonably be
expected to result in a Material Adverse Effect; (b) neither the Company nor
any of its Subsidiaries has stored any Hazardous Materials on real properties
now or formerly owned, leased or operated by any of them and has not disposed
of any Hazardous Materials in a manner contrary to any Environmental Laws in
each case in any manner that could reasonably be expected to result in a
Material Adverse Effect; and (c) all buildings on all real properties now
owned, leased or operated by the Company or any of its Subsidiaries are in
compliance with applicable Environmental Laws, except where failure to comply
could not reasonably be expected to result in a Material Adverse Effect.
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ARTICLE VI
REPRESENTATIONS OF THE NOTEHOLDERS
SECTION 6.01 PURCHASE FOR INVESTMENT. Each Noteholder
represents that it is acquiring its Notes for its own account or for one of its
separate accounts (or for the account of trusts for which it is trustee) for
investment with no intention of presently distributing or reselling the same,
subject, nevertheless, to its right to dispose of, in compliance with
applicable securities laws, its respective Notes, or any part of any thereof
held by it, if at some future time in its sole discretion it deems it advisable
so to do. Each Noteholder hereby agrees that it will not sell, transfer or
otherwise dispose of its Notes in violation of the Securities Act.
SECTION 6.02 STATUS; NO REGISTRATION. Each Noteholder
represents that it is an Accredited Investor. Each Noteholder acknowledges
that the Notes have not been registered under the Securities Act, and that such
Notes must be held indefinitely unless they are subsequently registered under
the Securities Act or an exemption from such registration is available.
ARTICLE VII
PAYMENT OF THE NOTES
SECTION 7.01 PLACE OF PAYMENT. The Company will pay all
sums becoming due to any Noteholder under any Transaction Document by the
method and at the address specified for such purpose below such Noteholder's
name in SCHEDULE A, or by such other method or at such other address as such
Noteholder shall have from time to time specified to the Company in writing for
such purpose, without the presentation or surrender of such Note or the making
of any notation thereon, except that upon written request of the Company made
concurrently with or reasonably promptly after payment or prepayment in full of
any Note, the Noteholders shall surrender such Note for cancellation,
reasonably promptly after any such request, to the Company at its principal
executive office.
SECTION 7.02 PAYMENTS DUE ON NON-BUSINESS DAYS. Anything
in this Agreement or the Notes to the contrary notwithstanding, any payment of
principal of or interest on any Note that is due on a date other than a
Business Day shall be made on the next succeeding Business Day without
including the additional days elapsed in the computation of the interest
payable on such next succeeding Business Day.
SECTION 7.03 MANDATORY REPAYMENT OF NOTES. The Notes shall
be due and payable as follows:
(a) commencing on June 1, 1998, on each Quarterly Payment
Date, a payment equal to all accrued, unpaid interest on the Notes shall be due
and payable;
(b) on the Maturity Date, the entire unpaid principal of
the Notes, together with all accrued, unpaid interest on the Notes, shall be
fully and finally due and payable; and
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(c) if a Change of Control shall occur, the entire unpaid
principal of the Notes, together with all accrued, unpaid interest on the Notes
shall be fully and finally due and payable on the date one day after such
Change of Control occurs.
All payments on the Notes shall be applied pro rata, in accordance with the
principal amounts outstanding on the Notes, first to accrued, unpaid interest
on the Notes and the remainder, if any, to the principal amount outstanding on
the Notes.
SECTION 7.04 EXTENSION OF MATURITY DATE. If, on December 1,
1999, (a) Cash Availability is less than the sum of the aggregate outstanding
principal of and accrued, unpaid interest due on the Notes and (b) the Average
Price of the Company's Common Stock on such date is less than the Conversion
Price on such date, then the Noteholders may elect to extend the Maturity Date
to June 1, 2001 for the Deficiency Portion of the Notes and, upon such
election, the interest rate on the Notes shall be increased from 7.875% per
annum to 8.5% per annum.
SECTION 7.05 OPTIONAL PREPAYMENTS OF NOTES. (a) The
Company may, at its option, upon ten days prior written notice to the
Noteholders and without penalty, premium or fee, prepay at any time all, or
from time to time any part of, the Notes at 100% of the principal amount so
prepaid, plus accrued interest on such principal amount.
(b) In the case of each partial prepayment of the Notes,
the principal amount of the Notes to be prepaid shall be allocated among all of
the Notes at the time outstanding in proportion, as nearly as practicable, to
the respective unpaid principal amounts thereof not theretofore called for
prepayment.
(c) Any Note paid or prepaid in full shall be surrendered
to the Company and canceled and shall not be reissued, and no Note shall be
issued in lieu of any prepaid principal amount of any Note.
SECTION 7.06 OPTION TO PAY INTEREST IN COMMON STOCK. (a) So
long as no Default or Event of Default exists, the Company shall have the
option on each Quarterly Payment Date to make payments of accrued interest on
the Notes in fully paid and non-assessable shares of Common Stock rather than
cash. To exercise such option the Company shall give written notice to the
Noteholders that it intends to exercise such option with respect to a
particular interest payment to be made on the Notes at least three Business
Days prior to the applicable Quarterly Payment Date.
(b) The number of shares issuable in payment of accrued
interest on the Notes shall be equal to the quotient of the amount of accrued
interest on the Notes to be paid in Common Stock divided by the Interest
Payment Price in effect on the applicable Quarterly Payment Date.
(c) Upon the Company's exercise of the option with
respect to a particular interest payment on the Notes in accordance with
SECTION 7.06(A), the Company will within 20 Business
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Days after the applicable Quarterly Payment Date deliver to each Noteholder
certificates for the full number of shares of Common Stock to which such
Noteholder is entitled to receive as the result of such interest payment having
been made in Common Stock and a cash adjustment for any fractional shares of
Common Stock, together with a statement setting forth in reasonable detail the
calculation of the number of shares of Common Stock delivered based on the
amount of interest on such Noteholder's Note paid in Common Stock and the
Interest Payment Price in effect on such Quarterly Payment Date. In the case
of payment of accrued interest on the Notes in Common Stock under this SECTION
7.06, the Noteholder entitled to receive the Common Stock deliverable in
payment of such accrued interest shall be treated for all purposes as the
record holder of such Common Stock on the applicable Quarterly Payment Date.
SECTION 7.07 PURCHASE OF NOTES. The Company will not, and
will not permit any Affiliate to, purchase, redeem, prepay or otherwise
acquire, directly or indirectly, any of the outstanding Notes except upon the
payment of the Notes in accordance with the terms of this Agreement and the
Notes. The Company will promptly cancel all Notes acquired by it or any
Affiliate pursuant to any payment, prepayment or purchase of Notes pursuant to
any provision of this Agreement and no Notes may be issued in substitution or
exchange for any such Notes.
ARTICLE VII A
SUBORDINATION
7.01A SECURITIES SUBORDINATED TO SENIOR DEBT. The Company
covenants and agrees, and each Noteholder, by its acceptance thereof, likewise
covenants and agrees, that, to the extent and in the manner hereinafter set
forth in this ARTICLE VIIA, the Indebtedness represented by the Notes and the
payment of the principal of and interest on each and all of the Notes are
hereby expressly made subordinate and subject in right of payment to the prior
payment in full of all Senior Debt.
SECTION 7.02A PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC.
In the event of (a) any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding,
relative to the Company, or (b) any proceeding for the liquidation, dissolution
or other winding up of the Company, whether total or partial, whether voluntary
or involuntary and whether or not involving insolvency or bankruptcy, or (c)
any assignment for the benefit of creditors or any other marshaling of assets
and liabilities of the Company, then and in any such event the holders of
Senior Debt shall be entitled to receive payment in full of all amounts due or
to become due on or in respect of all Senior Debt before the Noteholders are
entitled to receive any payment or distribution of any kind or character,
whether in cash, property or securities, on account of principal of or interest
on the Notes, and to that end the holders of Senior Debt shall be entitled to
receive, for application to the payment thereof, any payment or distribution of
any kind or character, whether in cash, property or securities, including any
such payment or distribution which may be payable or deliverable by reason of
the payment of any other Indebtedness of the Company being subordinated to the
payment of the Notes, which may be payable or
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deliverable in respect of the Notes in any such case, proceeding, dissolution,
liquidation or other winding up or event.
In the event that, notwithstanding the foregoing provisions of
this Section, any Noteholder shall have received any payment or distribution of
assets of the Company of any kind or character, whether in cash, property or
securities, prohibited by the foregoing, including any such payment or
distribution which may be payable or deliverable by reason of the payment of
any other Indebtedness of the Company being subordinated to the payment of the
Notes, before all Senior Debt is paid in full, then and in such event such
payment or distribution shall be paid over or delivered forthwith to the
trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee,
agent or other Person making payment or distribution of assets of the Company
for application to the payment of all Senior Debt remaining unpaid, to the
extent necessary to pay all Senior Debt in full, after giving effect to any
concurrent payment or distribution to or for the holders of Senior Debt.
For purposes of this ARTICLE VIIA only, the words "CASH,
PROPERTY OR SECURITIES" shall not be deemed to include any Common Stock issued
upon conversion of the Notes or in payment of accrued interest on the Notes, or
securities of the Company as reorganized or readjusted, or securities of the
Company or any other corporation provided for by a plan of reorganization or
readjustment that does not adversely alter the rights of holders of Senior Debt
which are subordinated in right of payment to all Senior Debt which may at the
time be outstanding to substantially the same extent as, or to a greater extent
than, the Notes are so subordinated as provided in this ARTICLE VIIA.
SECTION 7.03A ACCELERATION OF NOTES. Notwithstanding
anything in this Agreement to the contrary, no Noteholder shall exercise any
right it may have to accelerate the maturity of the Notes at any time when
payment of any amount owing on the Notes is prohibited, in whole or in part,
pursuant to SECTION 7.02A OR 7.04A.
SECTION 7.04A NO PAYMENT WHEN SENIOR DEBT IN DEFAULT. (a) In
the event (i) and during the continuation of any default in the payment of
principal of or interest on any Senior Debt, whether at the date of a required
payment, maturity, upon mandatory purchase, redemption or otherwise, or (ii)
that any other default with respect to any Senior Debt shall have occurred and
be continuing, then no payment (including any payment which may be payable by
reason of the payment of any other Indebtedness of the Company being
subordinated to the payment of the Notes) shall be made by the Company on
account of the principal of or interest on the Notes or on account of the
purchase, redemption or other acquisition of Notes, (x) in the case of any
default described in clause (i) above, unless and until the Senior Debt to
which such default relates is discharged or such default shall have been cured
or waived or shall have ceased to exist or the holders of such Senior Debt or
their agents have waived the benefits of this SECTION 7.04A, and (y) in the
case of any default specified in clause (ii) above, from the date (the "SENIOR
DEFAULT NOTICE DATE") the Company receives written notice of such default (a
"SENIOR DEFAULT NOTICE") from the holders of the Senior Debt to which such
default relates or any representative of such holders, until the earlier of (A)
180 days after the Senior Default Notice Date, (B) the date, if any, on which
the Senior Debt to which
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such default relates is discharged or such default shall have been cured or
waived or shall have ceased to exist or the holders of such Senior Debt or
their agents shall have waived the benefits of this SECTION 7.04A, or (C) such
number of days after the Senior Default Notice Date equal to 180 days less the
number of days pursuant to which payment of any amount owing on the Notes has
been prohibited pursuant to this SECTION 7.04A(a)(y) during the most recent 360
consecutive days.
(b) In the event that, notwithstanding the foregoing, the
Company shall make any payment to any Noteholder prohibited by the foregoing
provisions of this Section, then and in such event such payment shall be paid
over and delivered forthwith to the Company.
The provisions of this SECTION 7.04A shall not apply to any
payment with respect to which SECTION 7.02A would be applicable.
SECTION 7.05A SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR
DEBT. Subject to the payment in full of all amounts due on or in respect of
Senior Debt, the Noteholders shall be subrogated to the extent of the payments
or distributions made to the holders of such Senior Debt pursuant to the
provisions of this Article (equally and ratably with the holders of all
Indebtedness of the Company which by its express terms is subordinated to other
Indebtedness of the Company to substantially the same extent as the Notes are
subordinated and is entitled to like rights of subrogation) to the rights of
the holders of such Senior Debt to receive payments and distributions of cash,
property and securities applicable to the Senior Debt until the principal of
and interest on the Notes shall be paid in full. For purposes of such
subrogation, no payments or distributions to the holders of the Senior Debt of
any cash, property or securities to which the Noteholders would be entitled
except for the provisions of this Article, and no payments over pursuant to the
provisions of this Article to the holders of Senior Debt by Noteholders, shall,
as among the Company, its creditors other than holders of Senior Debt and the
Noteholders, be deemed to be a payment or distribution by the Company to or on
account of the Senior Debt.
SECTION 7.06A PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS.
The provisions of this Article are and are intended solely for the purpose of
defining the relative rights of the Noteholders on the one hand and the holders
of Senior Debt on the other hand. Nothing contained in this Article or
elsewhere in this Agreement or in the Notes is intended to or shall (a) impair,
as among the Company and the Noteholders, the obligation of the Company, which
is absolute and unconditional, to pay to the Noteholders the principal of and
interest on the Notes as and when the same shall become due and payable in
accordance with their terms; or (b) affect the relative rights against the
Company of the Noteholders; or (c) prevent any Noteholder from exercising all
remedies otherwise permitted by applicable law upon default under this
Agreement, subject to the rights, if any, under this Article of the holders of
Senior Debt to receive cash, property and securities otherwise payable or
deliverable to such Holder.
SECTION 7.07A NO WAIVER OF SUBORDINATION PROVISIONS. No
right of any present or future holder of any Senior Debt to enforce
subordination as herein provided 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
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noncompliance by the Company with the terms, provisions and covenants of this
Agreement, regardless of any knowledge thereof any such holder may have or be
otherwise charged with.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Debt may, at any time and from time to time,
without the consent of or notice to Noteholders, without incurring
responsibility to the Noteholders and without impairing or releasing the
subordination provided in this Article or the obligations hereunder of the
Noteholders to the holders of Senior Debt, do any one or more of the following:
(i) change the manner, place or terms of payment or extend the time of payment
of, or renew or alter, 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 collection of Senior Debt; and
(iv) exercise or refrain from exercising any rights against the Company and any
other Person.
SECTION 7.08A RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF
LIQUIDATING AGENT. Upon any payment or distribution of assets of the Company
referred to in this Article, the Noteholders shall be entitled to rely upon any
order or decree entered by any court of competent jurisdiction in which such
insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution,
winding up or similar case or proceeding is pending, or a certificate of the
trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for
the benefit of creditors, agent or other person making such payment or
distribution, delivered to the Noteholders, for the purpose of ascertaining the
Persons entitled to participate in such payment or distribution, the holders of
the Senior Debt and other Indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all
other facts pertinent thereto or to this Article.
SECTION 7.09A RIGHTS WITH RESPECT TO CONVERSION. Nothing
contained in this Article or elsewhere in this Agreement, or in any of the
Notes, shall prevent conversion of the Notes in accordance with ARTICLE IV.
SECTION 7.10A RIGHTS WITH RESPECT TO PAYMENT OF INTEREST.
Nothing contained in this Article or elsewhere in this Agreement, or in any of
the Notes, shall prevent the Company from making payments to the Noteholders of
accrued interest on the Notes in fully paid and non-assessable shares of Common
Stock rather than cash.
ARTICLE VIII
INFORMATION AS TO COMPANY
SECTION 8.01 FINANCIAL AND BUSINESS INFORMATION. The
Company shall deliver to each of the Noteholders:
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(a) Within 45 days after the end of each quarterly fiscal
period in each fiscal year of the Company, copies of (i) a consolidated balance
sheet of the Company and its Subsidiaries as at the end of such quarter, and
(ii) consolidated statements of income, changes in shareholders' equity and
cash flows of the Company and its Subsidiaries, for such quarter and for the
portion of the fiscal year ending with such quarter, setting forth in each case
in comparative form the figures for the corresponding periods in the previous
fiscal year, all in reasonable detail, prepared in accordance with GAAP
applicable to quarterly financial statements generally, and certified by a
Senior Financial Officer as fairly presenting, in all material respects, the
financial position of the companies being reported on and their results of
operations and cash flows, subject to changes resulting from year-end
adjustments.
(b) Within 90 days after the end of each fiscal year of
the Company, copies of (i) a consolidated balance sheet of the Company and its
Subsidiaries, as at the end of such year, and (ii) consolidated statements of
income, changes in shareholders' equity and cash flows of the Company and its
Subsidiaries, for such year, setting forth in each case in comparative form the
figures for the previous fiscal year, all in reasonable detail, prepared in
accordance with GAAP, and accompanied (A) by an opinion thereon of independent
certified public accountants of recognized national standing, which opinion
shall state that such financial statements present fairly, in all material
respects, the financial position of the companies being reported upon and their
results of operations and cash flows and have been prepared in conformity with
GAAP, and that the examination of such accountants in connection with such
financial statements has been made in accordance with generally accepted
auditing standards, and that such audit provides a reasonable basis for such
opinion in the circumstances, and (B) a certificate of such accountants stating
that they have reviewed this Agreement and stating further whether, in making
their audit, they have become aware of any condition or event that then
constitutes a Default or an Event of Default, and, if they are aware that any
such condition or event then exists, specifying the nature and period of the
existence thereof.
(c) Within 30 days after the end of each calendar month,
copies of (i) a consolidated balance sheet of the Company and its Subsidiaries
as at the end of such month, and (ii) consolidated statements of income,
changes in shareholders' equity and cash flows of the Company and its
Subsidiaries, for such month and for the portion of the fiscal year ending with
such month, setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year, all in reasonable detail,
prepared in accordance with GAAP applicable to monthly financial statements
generally, and certified by a Senior Financial Officer as fairly presenting, in
all material respects, the financial position of the companies being reported
on and their results of operations and cash flows, subject to changes resulting
from year-end adjustments.
(d) By September 30 of each year commencing September 30,
1998, the Company shall furnish to the Noteholders a Reserve Report dated as of
the immediately preceding June 30. Each Reserve Report shall be prepared by
certified independent petroleum engineers acceptable to the Noteholders. Each
such Reserve Report shall be in form and substance reasonably satisfactory to
the Noteholders and shall set forth, as of the immediately preceding June 30:
(i) the Proved Reserves attributable to the Company's and its Subsidiaries' Oil
and Gas Properties together with
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a projection of the rate of production and future net income, taxes, operating
expenses and capital expenditures with respect thereto as of such date, based
upon pricing and escalation assumptions acceptable to the Noteholders and (ii)
such other information as the Noteholders may reasonably request.
(e) Promptly upon their becoming available, one copy of
(i) each financial statement, report, notice or proxy statement sent by the
Company or any Subsidiary of the Company to public securities holders
generally, and (ii) each regular or periodic report, each registration
statement (without exhibits except as expressly requested by such holder), and
each prospectus and all amendments thereto filed by the Company or any
Subsidiary of the Company with the Securities and Exchange Commission and of
all press releases and other statements made available generally by the Company
or any Subsidiary of the Company to the public concerning developments that are
Material.
(f) Promptly, and in any event within five Business Days
after a Responsible Officer becoming aware of the existence of any Default or
Event of Default or that any Person has given any notice or taken any action
with respect to a claimed default hereunder or that any Person has given any
notice or taken any action with respect to a claimed default of the type
referred to in SECTION 11.01, a written notice specifying the nature and period
of existence thereof and what action the Company is taking or proposes to take
with respect thereto.
(g) Promptly, and in any event within five Business Days
after a Responsible Officer becoming aware of any of the following, a written
notice setting forth the nature thereof and the action, if any, that the
Company or an ERISA Affiliate proposes to take with respect thereto: (i) with
respect to any Plan, any reportable event, as defined in section 4043(b) of
ERISA and the regulations thereunder, for which notice thereof has not been
waived pursuant to such regulations as in effect on the date hereof; or (ii)
the taking by the PBGC of steps to institute, or the threatening by the PBGC of
the institution of, proceedings under section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Plan, or the receipt by
the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that
such action has been taken by the PBGC with respect to such Multiemployer Plan;
or (iii) any event, transaction or condition that could result in the
incurrence of any liability by the Company or any ERISA Affiliate pursuant to
Title I or IV of ERISA or the penalty or excise tax provisions of the Code
relating to employee benefit plans, or in the imposition of any Lien on any of
the rights, properties or assets of the Company or any ERISA Affiliate pursuant
to Title I or IV of ERISA or such penalty or excise tax provisions, if such
liability or Lien, taken together with any other such liabilities or Liens then
existing, could reasonably be expected to be Material.
(h) Promptly, and in any event within 30 days of receipt
thereof, copies of any notice to the Company or any Subsidiary of the Company
from any Federal or state Governmental Authority relating to any order, ruling,
statute or other law or regulation that could reasonably be expected to have a
Material Adverse Effect.
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(i) With reasonable promptness, such other data and
information relating to the business, operations, affairs, financial condition,
assets or properties of the Company or any of its Subsidiaries or relating to
the ability of the Company to perform its obligations hereunder and under the
Notes as from time to time may be reasonably requested by any Noteholder.
SECTION 8.02 OFFICER'S CERTIFICATE. Each set of financial
statements delivered to a holder of Notes pursuant to SECTION 8.01(A), SECTION
8.01(B) or SECTION 8.01(C) shall be accompanied by a certificate of a Senior
Financial Officer setting forth: (a) the information (including detailed
calculations) required in order to establish whether the Company was in
compliance with the requirements of SECTION 10.03 hereof during the monthly,
quarterly or annual period covered by the statements then being furnished
(including with respect to each such Section, where applicable, the
calculations of the maximum or minimum amount, ratio or percentage, as the case
may be, permissible under the terms of such Sections, and the calculation of
the amount, ratio or percentage then in existence); and (b) a statement that
such officer has reviewed the relevant terms hereof and has made, or caused to
be made, under his or her supervision, a review of the transactions and
conditions of the Company and its Subsidiaries from the beginning of the
monthly, quarterly or annual period covered by the statements then being
furnished to the date of the certificate and that such review shall not have
disclosed the existence during such period of any condition or event that
constitutes a Default or an Event of Default or, if any such condition or event
existed or exists (including, without limitation, any such event or condition
resulting from the failure of the Company or any Subsidiary of the Company to
comply with any Environmental Law), specifying the nature and period of
existence thereof and what action the Company shall have taken or proposes to
take with respect thereto.
SECTION 8.03 INSPECTION. The Company shall permit the
representatives of each Noteholder, at the expense of the Company and upon
reasonable prior notice to the Company, to visit and inspect any of the offices
or properties of the Company or any Subsidiary of the Company, to examine all
their respective books of account, records, reports and other papers, to make
copies and extracts therefrom, and to discuss their respective affairs, finances
and accounts with their respective officers and independent public accountants
(and by this provision the Company authorizes said accountants to discuss the
affairs, finances and accounts of the Company and its Subsidiaries), all at such
times and as often as may be requested.
ARTICLE IX
AFFIRMATIVE COVENANTS
The Company covenants that so long as any of the Notes are
outstanding:
SECTION 9.01 COMPLIANCE WITH LAW; CONTRACTS. The Company
will, and will cause each of its Subsidiaries to, comply with all laws,
ordinances or governmental rules or regulations to which each of them is
subject, including, without limitation, Environmental Laws, and will obtain and
maintain in effect all licenses, certificates, permits, franchises and other
governmental authorizations necessary to the ownership of their respective
properties or to the
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conduct of their respective businesses, in each case to the extent necessary to
ensure that non-compliance with such laws, ordinances or governmental rules or
regulations or failures to obtain or maintain in effect such licenses,
certificates, permits, franchises and other governmental authorizations could
not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. The Company will, and will cause each of its
Subsidiaries to, comply with, and perform their respective obligations under,
each contract or agreement to which each is a party (other than the LDI Lease
and other contracts and agreements relating to Indebtedness in an aggregate
outstanding principal amount of less than $500,000), unless, in the good faith
judgment of the Company, the failure to so comply or perform could not
reasonably be expected to have a Material Adverse Effect.
SECTION 9.02 INSURANCE. The Company will, and will cause
each of its Subsidiaries to, maintain, with financially sound and reputable
insurers, insurance with respect to their respective properties and businesses
against such casualties and contingencies, of such types, on such terms and in
such amounts (including deductibles, co-insurance and self-insurance, if
adequate reserves are maintained with respect thereto) as is customary in the
case of entities of established reputations engaged in the same or a similar
business and similarly situated.
SECTION 9.03 MAINTENANCE OF PROPERTIES. The Company will,
and will cause each of its Subsidiaries to, maintain and keep, or cause to be
maintained and kept, their respective properties in good repair, working order
and condition (other than ordinary wear and tear), so that the business carried
on in connection therewith may be properly conducted at all times, provided
that this Section shall not prevent the Company or any Subsidiary of the
Company from discontinuing the operation and the maintenance of any of its
properties if such discontinuance is desirable in the conduct of its business
and the Company has concluded that such discontinuance could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect.
SECTION 9.04 PAYMENT OF TAXES AND CLAIMS. The Company
will, and will cause each of its Subsidiaries to, file all tax returns required
to be filed in any jurisdiction and to pay and discharge all taxes shown to be
due and payable on such returns and all other taxes, assessments, governmental
charges, or levies imposed on them or any of their properties, assets, income
or franchises, to the extent such taxes and assessments have become due and
payable and before they have become delinquent and all claims for which sums
have become due and payable that have or might become a Lien on properties or
assets of the Company or any Subsidiary of the Company, provided that neither
the Company nor any Subsidiary of the Company need pay any such tax or
assessment or claims if (i) the amount, applicability or validity thereof is
contested by the Company or such Subsidiary on a timely basis in good faith and
in appropriate proceedings, and the Company or such Subsidiary has established
adequate reserves therefor in accordance with GAAP on the books of the Company
or such Subsidiary or (ii) the nonpayment of all such taxes and assessments in
the aggregate could not reasonably be expected to have a Material Adverse
Effect.
SECTION 9.05 CORPORATE EXISTENCE, ETC. The Company will at
all times preserve and keep in full force and effect its corporate existence.
The Company will at all times preserve and
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keep in full force and effect the corporate existence of each of its
Subsidiaries and all rights and franchises of the Company and its Subsidiaries
unless, in the good faith judgment of the Company, the termination of or
failure to preserve and keep in full force and effect such corporate existence,
right or franchise could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
SECTION 9.06 CASH AVAILABILITY. Subject to the Board of
Directors' fiduciary duties to the Company's stockholders, the Company shall
use its reasonable best efforts to cause the Company to have sufficient Cash
Availability on December 1, 1999 to pay the entire unpaid principal of and
accrued, unpaid interest on the Notes. Such reasonable best efforts shall
include raising capital through equity and debt offerings, sales of assets and
refinancing the Indebtedness under the Notes.
ARTICLE X
NEGATIVE COVENANTS
The Company covenants that so long as any of the Notes are
outstanding:
SECTION 10.01 RESTRICTIONS ON INDEBTEDNESS. The Company
will not, and will not permit any Subsidiary of the Company to, create, incur,
assume, Guaranty or permit to exist any Indebtedness, except: (a) the Notes,
(b) Indebtedness of the Company and its Subsidiaries existing on the date
hereof (including any replacements or extensions of such Indebtedness), and (c)
other Indebtedness of the Company and its Subsidiaries; provided, that the
aggregate outstanding principal amount of such other Indebtedness under this
subclause (c) does not exceed $10,000,000.
SECTION 10.02 RESTRICTIONS ON LIENS. The Company will not,
and will not permit any Subsidiary of the Company to, create, incur, assume, or
permit to exist any Lien with respect to any asset now owned or hereafter
acquired, except:
(a) Liens securing the Indebtedness of the Company and
its Subsidiaries permitted under SECTION 10.01;
(b) all contracts, leases, agreements and instruments,
and all defects and irregularities and other matters affecting the Company's or
its Subsidiaries' Oil and Gas Properties which were in existence at the time
such Oil and Gas Properties were originally acquired by such Person and all
routine operational agreements related to such Oil and Gas Properties entered
into in the ordinary course of business, which contracts, agreements,
instruments, defects, irregularities and other matters and routine operational
agreements do not reduce the Company's or its Subsidiaries' net interest in
production in its Oil and Gas Properties below the interests reflected in each
Reserve Report delivered to the Noteholders and do not interfere Materially
with the operation, value or use of such Oil and Gas Properties;
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(c) royalties, overriding royalties, reversionary
interests, production payments and similar burdens granted by the Company or
its Subsidiaries with respect to their respective Oil and Gas Properties to the
extent such burdens do not reduce the Company's or its Subsidiaries' net
interests in production in their respective Oil and Gas Properties below the
interests reflected in each Reserve Report delivered to the Noteholders and do
not operate to deprive the Company or its Subsidiaries of any Material rights
in respect of such Oil and Gas Properties;
(d) encumbrances consisting of easements of ingress or
egress over real property, where the same do not materially detract from the
use or enjoyment of such property by, or the value of such property to, the
Company;
(e) Liens for taxes or assessments or governmental
charges or levies, if payment shall not at the time be required to be made in
accordance with the provisions of SECTION 9.04;
(f) any judgment lien, unless the judgment it secures
shall not, within 30 days after the entry thereof, have been discharged or
execution thereof stayed pending appeal, or shall not have been discharged
within 30 days after the expiration of any such stay;
(g) statutory liens of landlords and liens of carriers,
warehousemen, mechanics, laborers and materialmen incurred in the ordinary
course of business for sums not yet due or being contested in good faith; and
(h) Liens (other than liens created by section 4068 of
ERISA) incurred on pledges or deposits made in the ordinary course of business
in connection with workmen's compensation, unemployment insurance, social
security laws or similar legislation.
SECTION 10.03 FINANCIAL COVENANT. The Company will not
permit its Net Worth at any time to be less than $14,000,000.
SECTION 10.04 RESTRICTED PAYMENTS. The Company will not,
directly or indirectly, make or pay (a) any dividend or other distribution on
any shares of the Company's capital stock (including any dividends payable in
shares of capital stock), or (b) except in connection with the acquisition of
assets of Kentex Holdings, Inc. (which assets consist primarily of Common Stock
and warrants to acquire Common Stock) solely in exchange for the issuance by
the Company of shares of its Common Stock, any payment on account of the
purchase, redemption, retirement or acquisition of any shares of the Company's
capital stock or any option, warrant or other right to acquire such shares.
SECTION 10.05 MERGER, CONSOLIDATION, ETC. Without the
Noteholders' prior written consent, the Company shall not, and shall not permit
any Subsidiary of the Company to, (a) consolidate with or merge with any other
Person, except that any Subsidiary of the Company may consolidate or merge with
any other Subsidiary of the Company or the Company or (b) convey,
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transfer or lease all or substantially all of its assets in a single
transaction or series of transactions to any Person.
SECTION 10.06 RESTRICTIONS ON ASSET SALES. Without the
Noteholders' prior written consent, the Company will not, and will not permit
any Subsidiary to, sell, transfer, assign, convey or otherwise dispose of an
interest in any asset now owned or hereafter acquired, except (a) sales of
interests in undeveloped Oil and Gas Properties in the ordinary course of
business, (b) sales of produced Hydrocarbons in the ordinary course of
business, and (c) sales of other assets during each fiscal year that have an
aggregate sales price of $1,000,000 or less.
SECTION 10.07 TRANSACTIONS WITH AFFILIATES. After the date
hereof, the Company will not, and will not permit any of its Subsidiaries to,
enter into directly or indirectly any Material transaction or Material group of
related transactions (including without limitation the purchase, lease, sale or
exchange of properties of any kind or the rendering of any service) with any
Affiliate (other than the Company or another Subsidiary of the Company), except
in the ordinary course and pursuant to the reasonable requirements of the
Company's or such Subsidiary's business and upon fair and reasonable terms no
less favorable to the Company or such Subsidiary than would be obtainable in a
comparable arm's-length transaction with a Person not an Affiliate.
SECTION 10.08 RESTRICTION ON SUBSIDIARIES. The Company will
not, and will not permit any of its Subsidiaries to, create or otherwise cause
or suffer to exist any encumbrance or restriction which prohibits or otherwise
restricts the ability of any such Subsidiary to pay dividends or make other
distributions to the Company or any other Subsidiary of the Company.
ARTICLE XI.
DEFAULT AND REMEDIES
SECTION 11.01 EVENTS OF DEFAULT. An "EVENT OF DEFAULT"
shall exist if any of the following conditions or events shall occur and be
continuing:
(a) the Company defaults in the payment of any principal
or interest on any Note when the same becomes due and payable, whether at
maturity, by declaration or otherwise; or
(b) the Company defaults in the performance of or
compliance with any term contained in ARTICLE X; or
(c) the Company defaults in the performance of or
compliance with any term contained herein (other than those referred to in
paragraphs (a) and (b) of this SECTION 11.01) and such default is not remedied
within 30 days after the earlier of (i) a Responsible Officer obtains actual
knowledge of such default or (ii) the Company receives written notice of such
default from any holder of a Note; or
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(d) any representation or warranty made in writing by or
on behalf of the Company or by any officer of the Company in this Agreement or
the other Transaction Documents or in any writing furnished in connection with
the transactions contemplated hereby or thereby proves to have been false or
incorrect in any Material respect on the date as of which made; or
(e) (i) the Company or any Subsidiary of the Company is
in default (as principal or as guarantor or other surety) in the payment of any
principal of or premium or interest on any Indebtedness that is outstanding in
an aggregate principal amount of at least $500,000 (excluding the LDI Lease)
beyond any period of grace provided with respect thereto, or (ii) the Company
or any Subsidiary of the Company is in default in the performance of or
compliance with any term of any evidence of any Indebtedness in an aggregate
outstanding principal amount of at least $500,000 (excluding the LDI Lease) or
of any mortgage, indenture or other agreement relating thereto or any other
condition exists, and as a consequence of such default or condition such
Indebtedness has become, or has been declared (or one or more Persons are
entitled to declare such Indebtedness to be), due and payable before its stated
maturity or before its regularly scheduled dates of payment, or (iii) as a
consequence of the occurrence or continuation of any event or condition (other
than the passage of time or the right of the holder of Indebtedness to convert
such Indebtedness into equity interests), (x) the Company or any Subsidiary of
the Company has become obligated to purchase or repay Indebtedness before its
regular maturity or before its regularly scheduled dates of payment in an
aggregate outstanding principal amount of at least $500,000 (excluding the LDI
Lease), or (y) one or more Persons have the right to require the Company or any
Subsidiary of the Company to purchase or repay such Indebtedness; or
(f) the Company or any Subsidiary of the Company (i)
files, or consents by answer or otherwise to the filing against it of, a
petition for relief or reorganization or arrangement or any other petition in
bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency,
reorganization, moratorium or other similar law of any jurisdiction, (ii) makes
an assignment for the benefit of its creditors, (iii) consents to the
appointment of a custodian, receiver, trustee or other officer with similar
powers with respect to it or with respect to any substantial part of its
property, (iv) is adjudicated as insolvent or to be liquidated, or (v) takes
corporate action for the purpose of any of the foregoing; or
(g) a Governmental Authority enters an order appointing,
without consent by the Company or any of its Subsidiaries, a custodian,
receiver, trustee or other officer with similar powers with respect to it or
with respect to any substantial part of its property, or constituting an order
for relief or approving a petition for relief or reorganization or any other
petition in bankruptcy or for liquidation or to take advantage of any
bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution,
winding-up or liquidation of the Company or any of its Subsidiaries, or any
such petition shall be filed against the Company or any of its Subsidiaries and
such petition shall not be dismissed within 120 days; or
(h) a final judgment or judgments for the payment of
money aggregating in excess of $500,000 are rendered against one or more of the
Company and its Subsidiaries and such
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judgments are not, within 60 days after entry thereof, bonded, discharged or
stayed pending appeal, or are not discharged within 60 days after the
expiration of such stay; or
(i) if (i) any Plan shall fail to satisfy the minimum
funding standards of ERISA or the Code for any plan year or part thereof or a
waiver of such standards or extension of any amortization period is sought or
granted under section 412 of the Code, (ii) a notice of intent to terminate any
Plan shall have been or is reasonably expected to be filed with the PBGC or the
PBGC shall have instituted proceedings under ERISA section 4042 to terminate or
appoint a trustee to administer any Plan or the PBGC shall have notified the
Company or any ERISA Affiliate that a Plan may become a subject to any such
proceedings (iii) the aggregate "amount of unfunded benefit liabilities"
(within the meaning of section 4001(a)(18) of ERISA) under all Plans,
determined in accordance with Title IV of ERISA, shall exceed $25,000, (iv) the
Company or any ERISA Affiliate shall have incurred or is reasonably expected to
incur any liability pursuant to Title I or IV of ERISA or the penalty or excise
tax provisions of the Code relating to employee benefit plans, (v) the Company
or any ERISA Affiliate withdraws from any Multiemployer Plan, (vi) the Company
or any ERISA Affiliate fails to make any contribution due, or payment to, any
employee benefit plan, or (vii) the Company or any Subsidiary establishes or
amends any employee welfare benefit plan that provides post-employment welfare
benefits in a manner that would increase the liability of the Company or any
Subsidiary thereunder, and any such event or events described in clauses (i)
through (vii) above, either individually or together with any other such event
or events, could reasonably be expected to have a Material Adverse Effect.
As used in this Section 11.01(i), the terms "EMPLOYEE BENEFIT PLAN" and
"EMPLOYEE WELFARE BENEFIT PLAN" shall have the respective meanings assigned to
such terms in Section 3 of ERISA.
SECTION 11.02 ACCELERATION.
(a) If an Event of Default with respect to the Company
described in paragraph (f) or (g) of SECTION 11.01 has occurred, all the Notes
then outstanding shall automatically become immediately due and payable.
(b) If any other Event of Default has occurred and is
continuing, the Required Holders may at any time at its or their option, by
notice or notices to the Company, declare all the Notes then outstanding to be
immediately due and payable.
(c) If any Event of Default described in paragraph (a) of
SECTION 11.01 has occurred and is continuing, any holder or holders of Notes at
the time outstanding affected by such Event of Default may at any time, at its
or their option, by notice or notices to the Company, declare all the Notes
held by it or them to be immediately due and payable.
Upon any Notes becoming due and payable under this SECTION
11.02, whether automatically or by declaration, such Notes will forthwith
mature and the entire unpaid principal amount of such Notes, plus all accrued
and unpaid interest thereon, shall all be immediately due and
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payable, in each and every case without presentment, demand, notice of default,
notice of intent to accelerate, notice of acceleration, protest or further
notice, all of which are hereby waived.
SECTION 11.03 OTHER REMEDIES. If any Default or Event of
Default has occurred and is continuing, and irrespective of whether any Notes
have become or have been declared immediately due and payable under SECTION
11.02, the holder of any Note at the time outstanding may proceed to protect
and enforce the rights of such holder by an action at law, suit in equity or
other appropriate proceeding, whether for the specific performance of any
agreement contained herein or in any Note, or for an injunction against a
violation of any of the terms hereof or thereof, or in aid of the exercise of
any power granted hereby or thereby or by law or otherwise.
SECTION 11.04 NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES,
ETC. No course of dealing and no delay on the part of any holder of any Note
in exercising any right, power or remedy shall operate as a waiver thereof or
otherwise prejudice such holder's rights, powers or remedies. No right, power
or remedy conferred by this Agreement or by any Note upon any holder thereof
shall be exclusive of any other right, power or remedy referred to herein or
therein or now or hereafter available at law, in equity, by statute or
otherwise. Without limiting the obligations of the Company under SECTION
13.01, the Company will pay to the holder of each Note on demand such further
amount as shall be sufficient to cover all reasonable costs and expenses of
such holder incurred in any enforcement or collection under this ARTICLE XI,
including, without limitation, reasonable attorneys' fees, expenses and
disbursements, together with interest on such amounts at the Default Rate
accruing from the date of demand.
ARTICLE XII
REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES
SECTION 12.01 REGISTRATION OF NOTES. The Company shall
keep at its principal executive office a register for the registration and
registration of transfers of Notes. The name and address of each holder of one
or more Notes, each transfer thereof and the name and address of each
transferee of one or more Notes shall be registered in such register. Prior to
due presentment for registration of transfer, the Person in whose name any Note
shall be registered shall be deemed and treated as the owner and holder thereof
for all purposes hereof, and the Company shall not be affected by any notice or
knowledge to the contrary. The Company shall give to any holder of a Note
promptly upon request therefor, a complete and correct copy of the names and
addresses of all registered holders of Notes.
SECTION 12.02 TRANSFER AND EXCHANGE OF NOTES. Subject to
compliance with all applicable securities laws, upon surrender of any Note at
the principal executive office of the Company for registration of transfer or
exchange (and in the case of a surrender for registration of transfer, duly
endorsed or accompanied by a written instrument of transfer duly executed by
the registered holder of such Note or his attorney duly authorized in writing
and accompanied by the address for notices of each transferee of such Note or
part thereof), the Company shall execute and deliver, at the Company's expense,
one or more new Notes (as requested by the holder thereof) in
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exchange therefor, in an aggregate principal amount equal to the unpaid
principal amount of the surrendered Note. Each such new Note shall be payable
to such Person as such holder may request and shall be substantially in the
form specified herein. Each such new Note shall be dated and bear interest
from the date to which interest shall have been paid on the surrendered Note or
dated the date of the surrendered Note if no interest shall have been paid
thereon.
SECTION 12.03 REPLACEMENT OF NOTES. Upon receipt by the
Company of evidence reasonably satisfactory to it of the ownership of and the
loss, theft, destruction or mutilation of any Note, and (a) in the case of
loss, theft or destruction, of indemnity reasonably satisfactory to it
(provided that if the holder of such Note is, or is a nominee for, an original
Noteholder, such Person's own unsecured agreement of indemnity shall be deemed
to be satisfactory), or (b) in the case of mutilation, upon surrender and
cancellation thereof, the Company at its own expense shall execute and deliver,
in lieu thereof, a new Note, dated and bearing interest from the date to which
interest shall have been paid on such lost, stolen, destroyed or mutilated Note
or dated the date of such lost, stolen, destroyed or mutilated Note if no
interest shall have been paid thereon.
ARTICLE XIII
MISCELLANEOUS
SECTION 13.01 TRANSACTION EXPENSES. Whether or not the
transactions contemplated hereby are consummated, the Company will pay all
reasonable costs and expenses (including reasonable attorneys' fees of a
special counsel and any local or other counsel) incurred by the Noteholders or
holder of a Note in connection with such transactions and in connection with
any amendments, waivers or consents under or in respect of this Agreement or
the other Transaction Documents (whether or not such amendment, waiver or
consent becomes effective), including, without limitation: (a) the reasonable
costs and expenses incurred in enforcing or defending (or determining whether
or how to enforce or defend) any rights under this Agreement or the other
Transaction Documents or in responding to any subpoena or other legal process
or informal investigative demand issued in connection with this Agreement or
the other Transaction Documents, or by reason of being a holder of any Note,
(b) the reasonable costs and expenses of negotiation, preparation and execution
of this Agreement and the other Transaction Documents, and (c) the reasonable
costs and expenses, including reasonable financial advisors' fees, incurred in
connection with the insolvency or bankruptcy of the Company or any Subsidiary
or in connection with any work-out or restructuring of the transactions
contemplated hereby and by the Notes. The Company will pay, and will save the
Noteholders and each other holder of a Note harmless from, all claims in
respect of any fees, costs or expenses if any, of brokers and finders (other
than those retained by the Noteholders). The obligations of the Company under
this SECTION 13.01 will survive the payment or transfer of any Note, the
enforcement, amendment or waiver of any provision of this Agreement or the
other Transaction Documents, and the termination of this Agreement.
SECTION 13.02 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All representations and warranties contained herein shall survive the execution
and delivery of this Agreement and the Notes, the transfer by the Noteholders
of any Note or portion thereof or interest therein and the
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payment of any Note, and may be relied upon by any subsequent holder of a Note,
regardless of any investigation made at any time by or on behalf of the
Noteholders or any other holder of a Note. All statements contained in any
certificate or other instrument delivered by or on behalf of the Company
pursuant to this Agreement shall be deemed representations and warranties of
the Company under this Agreement.
SECTION 13.03 AMENDMENT AND WAIVER. This Agreement and the
Notes may be amended, and the observance of any term hereof or of the Notes may
be waived (either retroactively or prospectively), with (and only with) the
written consent of the Company and the Required Holders, except that (a) no
amendment or waiver of any of the provisions of ARTICLES II, III OR IV, or any
defined term (as it is used therein), will be effective as to the Noteholders
unless consented to by all of the Noteholders in writing, and (b) no such
amendment or waiver may, without the written consent of the holder of each Note
at the time outstanding affected thereby, (i) subject to the provisions of
ARTICLE XI relating to acceleration or rescission, change the amount or time of
any prepayment or payment of principal of, or reduce the rate or change the
time of payment or method of computation of interest on, the Notes, or (ii)
change the percentage of the principal amount of the Notes the holders of which
are required to consent to any such amendment or waiver. Any amendment or
waiver consented to as provided in this SECTION 13.03 applies equally to all
holders of Notes and is binding upon them and upon each future holder of any
Note and upon the Company without regard to whether such Note has been marked
to indicate such amendment or waiver. No such amendment or waiver will extend
to or affect any obligation, covenant, agreement, Default or Event of Default
not expressly amended or waived or impair any right consequent thereon. No
course of dealing between the Company and the holder of any Note nor any delay
in exercising any rights hereunder or under any Note shall operate as a waiver
of any rights of any holder of such Note.
SECTION 13.04 NOTICES. All notices and communications
provided for hereunder shall be in writing and sent (a) by telecopy if the
sender on the same day sends a confirming copy of such notice by a recognized
overnight delivery service (charges prepaid), or (b) by registered or certified
mail with return receipt requested (postage prepaid), or (c) by a recognized
overnight delivery service (with charges prepaid). Any such notice must be
sent: (i) if to a Noteholder, to its address specified for such communications
in SCHEDULE A, or at such other address as it shall have specified to the
Company in writing, (ii) if to the Company or UNEXCO, to the Company at 16420
Park Ten Place, Suite 300, Houston, Texas 77084, Telecopy No.: 281-578-7091, or
at such other address as the Company shall have specified to the holder of each
Note in writing. Notices under this SECTION 13.04 will be deemed given only
when actually received.
SECTION 13.05 LIMITATION ON INTEREST. Each provision in
this Agreement and each other Transaction Document is expressly limited so that
in no event whatsoever shall the amount paid, or otherwise agreed to be paid,
by the Company for the use, forbearance or detention of the money to be loaned
under this Agreement or any other Transaction Document or otherwise (including
any sums paid as required by any covenant or obligation contained herein or in
any other Transaction Document which is for the use, forbearance or detention
of such money), exceed that amount of money which would cause the effective
rate of interest thereon to exceed the Highest
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Lawful Rate, and all amounts owed under this Agreement and each other
Transaction Document shall be held to be subject to reduction to the effect
that such amounts so paid or agreed to be paid which are for the use,
forbearance or detention of money under this Agreement or such Transaction
Document shall in no event exceed that amount of money which would cause the
effective rate of interest thereon to exceed the Highest Lawful Rate.
Notwithstanding the provisions of SECTION 13.14, to the extent that the Highest
Lawful Rate applicable to a Noteholder is at any time determined by Texas law,
such rate shall be the "indicated rate ceiling" described in Section (a)(1) of
Article 1.04 of Chapter 1, Title 79, of the Revised Civil Statutes of Texas,
1925, as amended; provided, however, to the extent permitted by such Article,
the Noteholders from time to time by notice to Company may revise the aforesaid
election of such interest rate ceiling as such ceiling affects the then-current
or future balances of the loans outstanding under the Notes. Notwithstanding
any provision in this Agreement or any other Transaction Document to the
contrary, if the maturity of the Notes or the obligations in respect of the
other Transaction Documents are accelerated for any reason, or in the event of
prepayment of all or any portion of the Notes or the obligations in respect of
the other Transaction Documents by the Company or in any other event, earned
interest on the Notes and such other obligations of the Company may never
exceed the maximum amount permitted by applicable law, and any unearned
interest otherwise payable under the Notes or the obligations in respect of the
other Transaction Documents that is in excess of the maximum amount permitted
by applicable law shall be canceled automatically as of the date of such
acceleration or prepayment or other such event and, if theretofore paid, shall
be credited on the principal of the Notes or, if the principal of the Notes has
been paid in full, refunded to the Company. In determining whether or not the
interest paid or payable, under any specific contingency, exceeds the Highest
Lawful Rate, the Company and the Noteholders shall, to the maximum extent
permitted by applicable law, amortize, prorate, allocate and spread, in equal
parts during the period of the actual term of this Agreement, all interest at
any time contracted for, charged, received or reserved in connection with the
Transaction Documents.
SECTION 13.06 INDEMNIFICATION. The Company agrees to
indemnify, defend and hold each Noteholder, their partners and their respective
officers, employees, agents, directors, partners, affiliates and shareholders
(collectively, "INDEMNIFIED PERSONS") harmless from and against any and all
loss, liability, damage, judgment, claim, deficiency or reasonable expense
(including interest, penalties, reasonable attorneys' fees and amounts paid in
settlement) incurred by or asserted against any Indemnified Person arising out
of, in any way connected with, or as a result of (a) the execution and delivery
of this Agreement and the other documents contemplated hereby, the performance
by the parties hereto and thereto of their respective obligations hereunder and
thereunder and consummation of the transactions contemplated hereby and
thereby, (b) any violation by the Company or any of its Subsidiaries of any
requirement of law, including but not limited to Environmental Laws, (c) any
Noteholder being deemed an operator of any real or personal property of the
Company in circumstances in which no Noteholder is generally operating or
generally exercising control over such property, to the extent such losses,
liabilities, damages, judgments, claims, deficiencies or expenses arise out of
or result from any Hazardous Materials located in, on or under such property or
(d) any claim, litigation, investigation or proceeding relating to any of the
foregoing, whether or not any Indemnified Person is a party thereto; provided
that such indemnity
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shall not apply to any such losses, claims, damages, liabilities or related
expenses that are determined by a court of competent jurisdiction by final and
nonappealable judgment to have resulted from the gross negligence or willful
misconduct of, or willful violation of the Transaction Documents by, such
Indemnified Person. WITHOUT LIMITING ANY PROVISION OF THIS AGREEMENT OR ANY OF
THE OTHER TRANSACTION DOCUMENTS, IT IS THE EXPRESS INTENTION OF THE PARTIES
THAT EACH INDEMNIFIED PERSON SHALL BE INDEMNIFIED AND HELD HARMLESS AGAINST ANY
AND ALL LOSSES, LIABILITIES, CLAIMS, DEFICIENCIES, JUDGMENTS AND REASONABLE
EXPENSES ARISING OUT OF OR RESULTING FROM THE ORDINARY NEGLIGENCE (WHETHER SOLE
OR CONTRIBUTORY) OF SUCH INDEMNIFIED PERSON. Each Indemnified Person will
attempt to consult with the Company prior to entering into any settlement of
any lawsuit or proceeding that could give rise to a claim for indemnity under
this SECTION 13.06, although nothing herein shall give the Company the right to
direct, or control any such settlement negotiations or any related lawsuit or
proceeding on behalf of such Indemnified Party. The obligations of the Company
under this SECTION 13.06 shall survive the termination of this Agreement and
repayment of the Notes.
SECTION 13.07 SUCCESSORS AND ASSIGNS. All covenants and
other agreements contained in this Agreement by or on behalf of any of the
parties hereto bind and inure to the benefit of their respective successors and
assigns (including, without limitation, any subsequent holder of a Note)
whether so expressed or not.
SECTION 13.08 SEVERABILITY. Any provision of this
Agreement that is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall (to the full
extent permitted by law) not invalidate or render unenforceable such provision
in any other jurisdiction.
SECTION 13.09 COUNTERPARTS. This Agreement may be executed
in any number of counterparts, each of which shall be an original but all of
which together shall constitute one instrument. Each counterpart may consist
of a number of copies hereof, each signed by less than all, but together signed
by all, of the parties hereto.
SECTION 13.10 CONFIDENTIALITY. In connection with the
negotiation and administration of this Agreement and the other Transaction
Documents, the Company has furnished and will from time to time furnish the
Noteholders certain written information (such information, other than any such
information which (i) was publicly available, or otherwise known to the
Noteholders, at the time of disclosure, (ii) subsequently becomes publicly
available other than through any act or omission by the Noteholders or (iii)
otherwise subsequently becomes known to the Noteholders, being hereinafter
referred to as "CONFIDENTIAL INFORMATION"). The Noteholders will maintain the
confidentiality of any Confidential Information in accordance with such
procedures as the Noteholders apply generally to information of that nature.
Subject to the prohibitions and restrictions imposed on the Noteholders with
respect to the Confidential Information under applicable securities laws, it is
understood that the foregoing will not restrict the Noteholders' ability
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to exchange such Confidential Information with their current or prospective
investors, assignees of the Notes and advisors. It is further understood that
the foregoing will not prohibit the disclosure of any or all Confidential
Information if and to the extent that such disclosure may be required or
requested (w) by a Governmental Authority, (x) pursuant to court order,
subpoena or other legal process or in connection with any pending or threatened
litigation hereunder, (y) otherwise as required by law, or (z) in order to
protect its interests or its rights or remedies hereunder or under the other
Transaction Documents; in the event of any required disclosure under clause
(w), (x), or (y) above, the Noteholders agree to use reasonable efforts to
inform the Company as promptly as practicable.
SECTION 13.11 FINAL AGREEMENT OF THE PARTIES. THIS
AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
SECTION 13.12 JURY WAIVER. THE COMPANY, UNEXCO AND THE
NOTEHOLDERS HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 13.13 CHOICE OF FORUM. THE COMPANY, UNEXCO AND
THE NOTEHOLDERS AGREE THAT ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY SHALL BE BROUGHT IN THE
FEDERAL OR STATE COURTS OF HARRIS COUNTY, TEXAS.
SECTION 13.14 GOVERNING LAW. This Agreement and the
Notes shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the law of the State of New York excluding
choice- of-law principles of the law of such State that would require the
application of the laws of a jurisdiction other than such State.
SECTION 13.15 TRANSACTIONS WITH NOTEHOLDERS. The
Noteholders hereby agree that the Company shall have not authority to enter
into any transaction with the Noteholders or their Affiliates unless such
transaction is first approved by a majority of the members of the Company's
board of directors, exclusive of any members of the Company's board of
directors affiliated with the Noteholders or who are serving at the direction
or request of the Noteholders or their Affiliates ("DISINTERESTED MAJORITY").
This SECTION 13.15 may not be amended by the Company unless such amendment is
approved by a Disinterested Majority.
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IN WITNESS WHEREOF, the Company, UNEXCO and the Noteholders
have caused this Agreement to be executed by their respective representatives
thereunto duly authorized effective as of the date first above written.
UNIVERSAL SEISMIC ASSOCIATES, INC.
By: /s/ JOE T. RYE
---------------------------------
Joe T. Rye
President and Chief
Executive Officer
UNEXCO, INC.
By: /s/ JOE T. RYE
----------------------------------
Joe T. Rye
Vice President
RIMCO PARTNERS, L.P.,
RIMCO PARTNERS, L.P. II,
RIMCO PARTNERS, L.P. III, AND
RIMCO PARTNERS, L.P. IV
By: RESOURCE INVESTORS MANAGEMENT
COMPANY LIMITED PARTNERSHIP,
THEIR GENERAL PARTNER
By: RIMCO ASSOCIATES, INC.,
ITS GENERAL PARTNER
By: /s/ GARY MILAVEC
----------------------------------
Gary Milavec
Vice President
<PAGE> 83
SCHEDULE A
INFORMATION RELATING TO NOTEHOLDERS
Name of Noteholders
RIMCO PARTNERS, L.P.
RIMCO PARTNERS, L.P. II
RIMCO PARTNERS, L.P. III
RIMCO PARTNERS, L.P. IV
(1) All payments by wire transfer of immediately available funds to:
Fleet Bank, N.Y.
ABA No. 021404465
Account Name: Universal Seismic Associates, Inc.
Automatic Clearing Account
Account No. 939 064 1743
with sufficient information to identify the source and
application of such funds.
(2) All notices of payments and
written confirmations of such
wire transfers:
Resource Investors Management Company
22 Waterville Road
Avon, Connecticut 06001
Attn: Doug Skelley
Telecopy No.: 860-678-9382
Schedule A-1
<PAGE> 84
(3) All other communications:
Resource Investors Management Company
Suite 6875
600 Travis Street
Houston, Texas 77002
Attn: Gary Milavec
Telecopy No.: 713-247-0730
with a copy to
Resource Investors Management Company
22 Waterville Road
Avon, Connecticut 06001
Attn: David Whitney
Telecopy No.: 860-678-9382
Schedule A-2
<PAGE> 85
SCHEDULE 5.05
SUBSIDIARIES
<TABLE>
<CAPTION>
JURISDICTION PERCENTAGE
SUBSIDIARY OF INCORPORATION OWNERSHIP
- ---------- ---------------- ---------
<S> <C> <C>
Universal Seismic Acquisition, Inc. Texas 100%
Universal Seismic Technologies, Inc. Texas 100%
Unexco, Inc. Delaware 100%
Universal Seismic Associates - Texas, Inc. Texas 100%
</TABLE>
Schedule 5.05
<PAGE> 86
ANNEX A
DEFINED TERMS
"ACCREDITED INVESTOR" means an "accredited investor" as such
term is defined in Regulation D, Rule 501, promulgated by the Securities and
Exchange Commission.
"AFFILIATE" means, at any time, and with respect to any
Person, (a) any other Person that at such time directly or indirectly through
one or more intermediaries Controls, or is Controlled by, or is under common
Control with, such first Person, and (b) any Person beneficially owning or
holding, directly or indirectly, 10% or more of any class of voting or equity
interests of the Company or any Subsidiary or any corporation of which the
Company and its Subsidiaries beneficially own or hold, in the aggregate,
directly or indirectly, 10% or more of any class of voting or equity interests.
As used in this definition, "CONTROL" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise. Unless the context otherwise clearly requires, any
reference to an "Affiliate" is a reference to an Affiliate of the Company.
"AGREEMENT" means this Note Exchange Agreement, as amended,
modified or restated from time to time.
"AVERAGE PRICE" is defined in SECTION 4.01(B).
"BUSINESS DAY" means any day other than a Saturday, a Sunday
or a day on which commercial banks in Houston, Texas or New York, New York are
required or authorized to be closed.
"CAPITAL LEASE" means, at any time, a lease with respect to
which the lessee is required concurrently to recognize the acquisition of an
asset and the incurrence of a liability in accordance with GAAP.
"CASH AVAILABILITY" means, as of any date, the aggregate
amount of the Company's and its Subsidiaries' cash, cash equivalents and
borrowing availability under any then existing credit facility, which in the
good faith business judgment of the Board of Directors of the Company is
available to pay the outstanding principal and accrued, unpaid interest on the
Notes.
"CHANGE OF CONTROL" means any of (a) the acquisition by any
Person or two or more Persons (excluding underwriters in the course of their
distribution of voting stock in an underwritten public offering) acting in
concert, of beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Security Exchange Act of 1934, as amended) of 35% or more of the
outstanding shares of voting stock of the Company, (b) 50% or more of the
members of the Board of Directors of the Company on any date shall not have
been (i) members of the Board of Directors of the Company on the date 12 months
prior to such date or (ii) approved (by recommendation, nomination, election or
otherwise) by Persons who constitute at least a majority of the members of the
Board of Directors of the Company as constituted on the date 12 months prior to
such date, (c) all
<PAGE> 87
or substantially all of the assets of the Company or any Subsidiary of the
Company are sold in a single transaction or series or related transactions to
any Person, or (d) the Company or any Subsidiary of the Company merges with or
consolidates with any other Person other than the merger or consolidation of
any Subsidiary of the Company with the Company or another Subsidiary of the
Company; provided, however, that no Change of Control shall be deemed to have
occurred if any of the facts or circumstances described above occurred as a
result of actions by the Noteholders or any of their Affiliates without the
approval of a Disinterested Majority or a majority of the Company's
stockholders that are not Noteholders or affiliates of a Noteholder.
"CLOSING" is defined in ARTICLE III.
"CODE" means the Internal Revenue Code of 1986, as amended
from time to time, and the rules and regulations promulgated thereunder from
time to time.
"COMMON STOCK" means fully paid and non-assessable shares of
common stock of the Company, par value $.0001 per share.
"COMPANY" is defined in the introduction to this Agreement.
"CONFIDENTIAL INFORMATION" is defined in SECTION 13.10.
"CONVERSION PRICE" is defined in SECTION 4.01(A).
"CONVERSION RATE" is defined in SECTION 4.03.
"DEFAULT" means an event or condition the occurrence or
existence of which would, with the lapse of time or the giving of notice or
both, become an Event of Default.
"DEFAULT RATE" means twelve percent (12%) per annum, but in no
event to exceed the Highest Lawful Rate.
"DEFICIENCY PORTION" is defined in SECTION 4.01(C).
"DISINTERESTED MAJORITY" is defined in SECTION 13.15.
"ENVIRONMENTAL LAWS" means any and all Federal, state, local,
and foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to pollution and the protection of the
environment or the release of any materials into the environment, including but
not limited to those related to hazardous substances or wastes, air emissions
and discharges to waste or public systems.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the rules and regulations promulgated
thereunder from time to time in effect.
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<PAGE> 88
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that is treated as a single employer together with the Company
under section 414 of the Code.
"EVENT OF DEFAULT" is defined in SECTION 11.01.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXCHANGE PRICE" means the average closing price per share of
Common Stock (as reported by the principal securities exchange or trading
market, as the case may be, on which the Common Stock is then traded) during
the Trading Period excluding the five highest closing prices and five lowest
closing prices during the Trading Period, as adjusted for any Stock Split.
"EXISTING NOTE AGREEMENTS" means, collectively, (a) that
certain Note Purchase Agreement, dated January 19, 1996, among the Company and
the Noteholders, (b) that certain Note Purchase Agreement, dated May 28, 1996,
among the Company and the Noteholders (other than RIMCO Partners, L.P. III),
(c) that certain Note Purchase Agreement, dated March 27, 1997, among the
Company and the Noteholders, (d) that certain Note Purchase Agreement, dated
August 6, 1997, among the Company and the Noteholders, (e) that certain Note
Purchase Agreement, dated November 3, 1997 among the Company and the
Noteholders (other than RIMCO Partners, L.P.), (f) that certain Amended and
Restated Note Purchase Agreement dated March 27, 1997 among UNEXCO and the
Noteholders and (g) that certain Note Purchase Agreement dated November 3, 1997
among UNEXCO and the Noteholders (other than RIMCO Partners, L.P.), as any of
the same may have been amended from time to time.
"EXISTING NOTES" means, collectively, (a) the 10% Senior
Secured General Obligation Notes, in the maximum aggregate principal amount of
$10,000,000 and the 12% Senior Secured General Obligation Notes, in the maximum
aggregate principal amount of $6,144,000, in each case, issued by the Company
under the Existing Note Agreements to which it is a party, and (b) the Amended
and Restated 12% Senior Secured General Obligation Notes, in the maximum
aggregate principal amount of $5,500,000 and the 12% Senior Secured General
Obligation Notes, in the maximum aggregate principal amount of $1,730,383.33,
in each case, issued by UNEXCO under the Existing Note Agreements to which it
is a party, together with any substitutions for any such notes and as any of
the same may be amended, replaced or restated.
"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States of America.
"GOVERNMENTAL AUTHORITY" means (a) the government of (i) the
United States of America or any State or other political subdivision thereof,
or (ii) any jurisdiction in which the Company or any of its Subsidiaries
conducts all or any part of its business, or which asserts jurisdiction over
any properties of the Company or any of its Subsidiaries, or (b) any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of, or pertaining to, any such government.
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<PAGE> 89
"GUARANTY" means, with respect to any Person, any obligation
(except the endorsement in the ordinary course of business of negotiable
instruments for deposit or collection) of such Person guaranteeing or in effect
guaranteeing any indebtedness, dividend or other obligation of any other Person
in any manner, whether directly or indirectly, including (without limitation)
obligations incurred through an agreement, contingent or otherwise, by such
Person: (a) to purchase such indebtedness or obligation or any property
constituting security therefor; (b) to advance or supply funds (i) for the
purchase or payment of such indebtedness or obligation, or (ii) to maintain any
working capital or other balance sheet condition or any income statement
condition of any other Person or otherwise to advance or make available funds
for the purchase or payment of such indebtedness or obligation; (c) to lease
properties or to purchase properties or services primarily for the purpose of
assuring the owner of such indebtedness or obligation of the ability of any
other Person to make payment of the indebtedness or obligation; or (d)
otherwise to assure the owner of such indebtedness or obligation against loss
in respect thereof. In any computation of the indebtedness or other
liabilities of the obligor under any Guaranty, the indebtedness or other
obligations that are the subject of such Guaranty shall be assumed to be direct
obligations of such obligor.
"HAZARDOUS MATERIAL" means any and all pollutants, toxic or
hazardous wastes or any other substances that might pose a hazard to health or
safety, the removal of which may be required or the generation, manufacture,
refining, production, processing, treatment, storage, handling, transportation,
transfer, use, disposal, release, discharge, spillage, seepage, or filtration
of which is or shall be restricted, prohibited or penalized by any applicable
law (including, without limitation, asbestos, urea formaldehyde foam insulation
and polycholorinated biphenyls).
"HIGHEST LAWFUL RATE" means with respect to any indebtedness
owed to any Noteholder under any Transaction Document, the maximum nonusurious
interest rate, if any, that at any time or from time to time may be contracted
for, taken, reserved, charged or received by such Noteholder with respect to
such indebtedness under law applicable to such Noteholder.
"HOLDER" means, with respect to any Note, the Person in whose
name such Note is registered in the register maintained by the Company pursuant
to SECTION 13.01.
"HYDROCARBONS" means oil, natural gas, condensate and all
other liquid or gaseous hydrocarbons and all products produced or separated
therefrom.
"INDEBTEDNESS" with respect to any Person means, at any time,
without duplication, (a) its liabilities for borrowed money and its redemption
obligations in respect of mandatorily redeemable Preferred Stock; (b) its
liabilities for the deferred purchase price of property acquired by such Person
(excluding accounts payable arising in the ordinary course of business but
including all liabilities created or arising under any conditional sale or
other title retention agreement with respect to any such property); (c) all
liabilities appearing on its balance sheet in accordance with GAAP in respect
of Capital Leases; (d) all liabilities for borrowed money secured by any Lien
with respect to any property owned by such Person (whether or not it has
assumed or otherwise become liable for such liabilities); (e) all its
liabilities in respect of letters of credit or instruments serving a
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<PAGE> 90
similar function issued or accepted for its account by banks and other
financial institutions (whether or not representing obligations for borrowed
money); (f) Swaps of such Person; and (g) any Guaranty of such Person with
respect to liabilities of a type described in any of clauses (a) through (f)
hereof. Indebtedness of any Person shall include all obligations of such
Person of the character described in clauses (a) through (g) to the extent such
Person remains legally liable in respect thereof notwithstanding that any such
obligation is deemed to be extinguished under GAAP.
"INDEMNIFIED PERSON" is defined in SECTION 13.06.
"INTEREST PAYMENT PRICE" means (a) on June 1, 1998, the
average closing price per share of Common Stock (as reported by the principal
securities exchange or trading market, as the case may be, on which the Common
Stock is then traded) for the trading days included in the period since the
date of Closing, and (b) on any other Quarterly Payment Date, the average
closing price per share of Common Stock (as reported by the principal
securities exchange or trading market, as the case may be, on which the Common
Stock is then traded) for the trading days included in the period since the
immediately preceding Quarterly Payment Date, in each case, as adjusted for any
Stock Split.
"INVESTMENT" means, with respect to any Person, any direct or
indirect purchase or other acquisition by such Person of stock or other
securities of any other Person, or any direct or indirect loan, advance or
capital contribution by such Person to any other Person, and any other item
which would be classified as an "investment" on a balance sheet of such Person
prepared in accordance with GAAP.
"LDI LEASE" means Lease No. 07312, Schedule 001, dated
September 23, 1993 and Restructured Equipment Lease No. 07312-001R, dated
November 1, 1995 between Universal Seismic Acquisition, Inc. and LDI.
"LIEN" means, with respect to any Person, any mortgage, lien,
pledge, charge, security interest or other encumbrance of any kind (whether
voluntary or involuntary), or any interest or title of any vendor, lessor,
lender or other secured party to or of such Person under any conditional sale
or other title retention agreement or Capital Lease, upon or with respect to
any property or asset of such Person (including in the case of stock,
stockholder agreements, voting trust agreements and all similar arrangements).
"MATERIAL" means, as to any Person, material in relation to
the business, operations, affairs, financial condition, assets, properties, or
prospects of such Person and its Subsidiaries and parents taken as a whole.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on
(a) the business, operations, affairs, financial condition, assets or
properties of the Company and its Subsidiaries taken as a whole, or (b) the
ability of the Company to perform its obligations under this Agreement and the
other Transaction Documents, or (c) the validity or enforceability of this
Agreement or the other Transaction Documents.
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<PAGE> 91
"MATURITY DATE" means December 1, 1999 or, with respect to the
Deficiency Portion of the Notes, such later date as provided for in SECTION
7.04.
"MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer
plan" (as such term is defined in section 4001(a)(3) of ERISA).
"NET WORTH" means, as of any date, the total shareholders'
equity (including capital stock, additional paid-in capital and retained
earnings after deducting treasury stock) which would appear on a consolidated
balance sheet of the Company and its Subsidiaries prepared as of such date in
accordance with GAAP.
"NEW CONVERSION PRICE" is defined in SECTION 4.03(G).
"NEW CONVERSION SHARES" is defined in SECTION 4.03(G).
"NOTE EXCHANGE AMOUNT" is defined in SECTION 2.02.
"NOTEHOLDERS" is defined in the introduction to this
Agreement.
"NOTES" is defined in SECTION 2.02.
"OFFICER'S CERTIFICATE" means a certificate of a Senior
Financial Officer or of any other officer of the Company whose responsibilities
extend to the subject matter of such certificate.
"OIL AND GAS PROPERTIES" means oil and gas leasehold
interests, overriding royalty interests, mineral interests, royalty interests,
net profits interests, oil payments, production payments, carried interests,
operating rights and other similar properties or interests, including
contractual rights to any of the foregoing, together with all wells and units
located on, or attributable to, such properties or interests.
"PBGC" means the Pension Benefit Guaranty Corporation referred
to and defined in ERISA or any successor thereto.
"PERMITTED ISSUANCES" is defined in SECTION 4.03(G).
"PERMITTED LIENS" means Liens permitted under SECTION 10.02.
"PERSON" means an individual, partnership, corporation,
limited liability company, association, trust, unincorporated organization, or
a government or agency or political subdivision thereof.
"PLAN" means an "employee benefit plan" (as defined in section
3(3) of ERISA) that is or, within the preceding five years, has been
established or maintained, or to which contributions are or, within the
preceding five years, have been made or required to be made, by the Company or
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<PAGE> 92
any ERISA Affiliate or with respect to which the Company or any ERISA Affiliate
may have any liability.
"PREFERRED STOCK" means any class of capital stock of a
corporation that is preferred over any other class of capital stock of such
corporation as to the payment of dividends or the payment of any amount upon
liquidation or dissolution of such corporation.
"PROVED RESERVES" means recoverable Hydrocarbon reserves that
have been proved to a high degree of certainty by analysis of the producing
history of a reservoir and/or by volumetric analysis of adequate geological and
engineering data. Commercial productivity has been established by actual
production, successful testing, or in certain cases by favorable core analyses
and electrical-log interpretation when the producing characteristics of the
formation are known from nearby fields.
"QUARTERLY PAYMENT DATE" means each March 1, June 1, September
1 and December 1, commencing June 1, 1998.
"REGISTRATION RIGHTS AGREEMENT" means that certain Amended and
Restated Stock Ownership and Registration Rights Agreement among the Company
and the Noteholders, in the form set out in EXHIBIT 3.01, with changes
therefrom, if any, as may be approved by the Noteholders and the Company, as
same may be amended from time to time.
"REQUIRED HOLDERS" means, at any time, the holder or holders
of more than 50% of the then outstanding principal amount of the Notes
(exclusive of Notes then owned by the Company or any of its Affiliates).
"RESERVE REPORT" means each reserve report delivered to the
Noteholders in accordance with SECTION 8.01(D).
"RESPONSIBLE OFFICER" means any Senior Financial Officer and
any other officer of the Company with responsibility for the administration of
the relevant portion of this Agreement.
"SECURITIES ACT" means the Securities Act of 1933, as amended
from time to time.
"SENIOR DEBT" means Indebtedness of the Company and its
Subsidiaries for borrowed money from any bank or other financial institution
evidenced by written instruments (other than the Notes) and having specified
terms of repayment, including all accrued, unpaid interest thereon (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company) and any modifications, renewals,
extensions or refundings of such Indebtedness, whether such Indebtedness is
outstanding on the date hereof or hereafter created, incurred or assumed.
"SENIOR DEFAULT NOTICE" is defined in SECTION 7.04A.
"SENIOR DEFAULT NOTICE DATE" is defined in SECTION 7.04A.
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<PAGE> 93
"SENIOR FINANCIAL OFFICER" means any of the chief financial
officer, principal accounting officer, treasurer or comptroller of the Company.
"SHARES" is defined in SECTION 4.03.
"SHAREHOLDERS' MEETING" means the annual meeting of
shareholders of the Company at which this Agreement and the transactions
contemplated hereby will be submitted to the Company's shareholders for their
approval.
"SPECIAL CONVERSION EVENT" is defined in SECTION 4.01(B).
"SPECIAL ISSUANCE" is defined in SECTION 4.03(G).
"STOCK SPLIT" is defined in SECTION 4.03(A).
"SUBSIDIARY" means, as to any Person, any corporation,
association or other business entity in which such Person or one or more of its
Subsidiaries or such Person and one or more of its Subsidiaries owns sufficient
equity or voting interests to enable it or them (as a group) ordinarily, in the
absence of contingencies, to elect a majority of the directors (or Persons
performing similar functions) of such entity, and any partnership or joint
venture if more than a 50% interest in the profits or capital thereof is owned
by such Person or one or more of its Subsidiaries or such Person and one or
more of its Subsidiaries (unless such partnership can and does ordinarily take
major business actions without the prior approval of such Person or one or more
of its Subsidiaries).
"SWAPS" means, with respect to any Person, foreign exchange
transactions and commodity, currency and interest rate swaps, floors, caps,
collars, forward sales, options, other similar transactions and combinations of
the foregoing.
"TRADING PERIOD" means the period of 30 trading days
immediately preceding the second trading day prior to the Shareholder's
Meeting; provided, however, that if less than an aggregate of 300,000 shares of
Common Stock were traded during such 30 trading days, then such period shall be
extended back to include such additional consecutive trading days immediately
preceding such 30 trading days until an aggregate of 300,000 shares were traded
during such period; provided, further that in no event shall such period be
extended back to include any trading days on or before the date the proxy
statement for the Shareholder's Meeting was mailed to the Company's
shareholders.
"TRANSACTION DOCUMENTS" is defined in SECTION 3.01.
"UNEXCO" means UNEXCO, Inc., a Delaware corporation and wholly
owned Subsidiary of the Company.
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<PAGE> 94
EXHIBIT 2.02
UNIVERSAL SEISMIC ASSOCIATES, INC.
7.875% CONVERTIBLE SUBORDINATED
GENERAL OBLIGATION NOTE
No. [____________] ____________, 1998
$[______________________]
FOR VALUE RECEIVED, the undersigned, UNIVERSAL SEISMIC
ASSOCIATES, INC., a Delaware corporation (the "COMPANY"), hereby promises to
pay to ___________________________________________________________, or
registered assigns, the principal sum of
_______________________________________________and___________/100 DOLLARS
($_________________________), together with interest (computed on the basis of
a 360-day year of twelve 30-day months) (a) on the unpaid principal balance
hereof at the rate of 7.875% per annum from the date hereof, until the
principal hereof shall have become due and payable (or at such higher rate per
annum as provided for in the Note Purchase Agreement referred to below), and
(b) on any overdue payment of principal or interest, at a rate per annum equal
to twelve percent (12%); provided, however, in no event shall such rate of
interest ever exceed the Highest Lawful Rate (as defined in the Note Purchase
Agreement referred to below).
This Note is one of a series of Notes (herein called the
"NOTES") issued pursuant to the Note Purchase Agreement dated of even date
herewith (as from time to time amended, modified or restated, the "NOTE
PURCHASE AGREEMENT"), among the Company and the Noteholders named therein and
is entitled to the benefits, and otherwise subject to the provisions, thereof,
including, without limitation, the limitations on interest set forth in SECTION
13.05 thereof and the subordination provisions therein; provided, that nothing
in such subordination provisions shall limit, release, impair or waive any
liability or obligation of the Company hereunder.
The principal amount of this Note and interest hereon shall be
due and payable at the places, on the dates and in the manner set forth in the
Note Purchase Agreement.
This Note is convertible into shares of common stock of the
Company upon the terms and conditions of the Note Purchase Agreement.
All payments on this Note shall be applied first, to the
accrued, unpaid interest hereon, and the remainder, if any, shall be applied to
the principal balance hereof. The Company has the right to prepay this Note,
in whole or in part, at any time prior to maturity.
This Note is a registered Note and, as provided in the Note
Purchase 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 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
<PAGE> 95
payment and for all other purposes, and the Company will not be affected by any
notice to the contrary.
If an Event of Default, as defined in the Note Purchase
Agreement, occurs and is continuing, the principal and other amounts
outstanding under this Note may be declared or otherwise become due and payable
in the manner, at the price and with the effect provided in the Note Purchase
Agreement.
This Note shall be governed by and construed in accordance
with the laws of the State of New York, excluding the choice of law rules
thereof.
UNIVERSAL SEISMIC ASSOCIATES, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Page 2
<PAGE> 96
EXHIBIT 3.01
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
STOCK OWNERSHIP AND
REGISTRATION RIGHTS AGREEMENT
AMONG
UNIVERSAL SEISMIC ASSOCIATES, INC.,
UNEXCO, INC.
AND
RIMCO PARTNERS, L.P.,
RIMCO PARTNERS, L.P. II,
RIMCO PARTNERS, L.P. III
AND
RIMCO PARTNERS, L.P. IV
____________, 1998
- --------------------------------------------------------------------------------
<PAGE> 97
AMENDED AND RESTATED STOCK OWNERSHIP
AND REGISTRATION RIGHTS AGREEMENT AMONG
UNIVERSAL SEISMIC ASSOCIATES, INC., UNEXCO, INC. AND
RIMCO PARTNERS, L.P., RIMCO PARTNERS, L.P. II,
RIMCO PARTNERS, L.P. III AND RIMCO PARTNERS, L.P. IV
THIS AMENDED AND RESTATED STOCK OWNERSHIP AND REGISTRATION
RIGHTS AGREEMENT dated as of ____________, 1998, (this "Agreement") is among
UNIVERSAL SEISMIC ASSOCIATES, INC., a Delaware corporation ("USA" or the
"Company"), UNEXCO, Inc., a Delaware corporation and wholly owned subsidiary of
USA ("UNEXCO"), and RIMCO Partners, L.P., RIMCO Partners, L.P. II, RIMCO
Partners, L.P. III and RIMCO Partners, L.P. IV (collectively, the "RIMCO
Holders," and together with their distributees, successors and assigns, the
"Holders"), is effective for all purposes as of the date specified in Article
III hereof.
W I T N E S S E T H:
WHEREAS, the Company, UNEXCO and the RIMCO Holders have
entered into that certain Stock Ownership and Registration Rights Agreement
dated January 19, 1996, as amended by that certain First Amendment to Stock
Ownership and Registration Rights Agreement dated May 28, 1996 (as so amended,
the "Existing Registration Rights Agreement"); and
WHEREAS, the 1996 Convertible Notes issued by the Company have
been converted into common stock of the Company, par value $.0001 per share
(the "Common Stock") in accordance with the terms thereof; and
WHEREAS, the 1996 Exchangeable Notes issued by UNEXCO have
been exchanged for Common Stock in accordance with the terms of that certain
Guaranty and Exchange Agreement dated January 19, 1996 among the Company,
UNEXCO and the RIMCO Holders; and
WHEREAS, the Company, UNEXCO and the RIMCO Holders have
entered into that certain Note Exchange Agreement dated February 9, 1998, (as
amended from time to time, the "Exchange Agreement") pursuant to which the
Existing Notes have been exchanged for Common Stock and the 1998 Convertible
Notes; and
WHEREAS, the Company, UNEXCO and the RIMCO Holders now desire
to amend and restate the Existing Registration Rights Agreement in accordance
with the terms hereof; and
WHEREAS, UNEXCO is executing this Agreement solely to evidence
its agreement to this amendment and restatement of the Existing Registration
Rights Agreement; and
WHEREAS, the execution and delivery of this Agreement is a
condition precedent to the closing of the transactions contemplated by the
Exchange Agreement; and
<PAGE> 98
NOW, THEREFORE, to induce the parties hereto to close the
transactions contemplated by the Exchange Agreement (such closing referred to
herein as the "Closing") and in consideration of the aforesaid and of the
mutual representations, warranties and covenants contained herein and in the
Exchange Agreement, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto, intending
to be legally bound, agree to amend and restate the Existing Registration
Rights Agreement to read as follows:
ARTICLE I
DEFINITIONS; COMPANY REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 1.01. CERTAIN DEFINED TERMS. For purposes of this
Agreement,
"1933 Act" means the Securities Act of 1933, as amended.
"1934 Act" means the Securities and Exchange Act of 1934, as amended.
"Agreement" has the meaning specified in the preamble.
"Blue Sky Filing" has the meaning specified in SECTION 2.09(A).
"Business Day" has the meaning specified in the Exchange Agreement.
"Closing" has the meaning specified in the recitals.
"Commission" means the Securities and Exchange Commission.
"Common Stock" has the meaning specified in the recitals.
"Company" has the meaning specified in the preamble.
"Demand Registrations" has the meaning specified in SECTION 2.01(A).
"Exchange Agreement" has the meaning specified in the recitals.
"Existing Notes" has the meaning specified in the Exchange Agreement.
"Holders" has the meaning specified in the preamble.
"1996 Convertible Notes" means those certain 5% Convertible Notes in
the aggregate principal amount of $500,000, issued by the Company to the RIMCO
Holders.
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<PAGE> 99
"1996 Exchangeable Notes" means those certain 10% Senior Secured
Exchangeable General Obligation Notes in the aggregate principal amount of
$3,000,000, dated January 19, 1996, issued by UNEXCO to the RIMCO Holders
(other than RIMCO Partners, L.P.).
"1998 Convertible Notes" means those certain 7.875% Convertible
Subordinated General Obligation Notes issued by the Company to the RIMCO
Holders under the Exchange Agreement as any of the same may be amended from
time to time, and all substitutions, exchanges or replacements for any such
notes.
"Permitted Interruption" has the meaning specified in SECTION 2.01(G).
"Person" has the meaning specified in Annex A to the Exchange
Agreement.
"Piggyback Registration" has the meaning specified in SECTION 2.02(A).
"Registrable Securities" means the Shares and the Related Securities.
As to any particular Registrable Securities, once issued such securities shall
cease to be Registrable Securities when (a) a registration statement with
respect to the sale of such securities shall have become effective under the
1933 Act and such securities shall have been disposed of in accordance with the
plan of distribution set forth in such registration statement, (b) such
securities shall have been distributed in accordance with Rule 144 under the
1933 Act or (c) such securities shall have been otherwise transferred, new
certificates therefor not bearing a legend restricting further transfer shall
have been delivered in exchange therefor by the Company and subsequent
disposition of such securities shall not require registration or qualification
under the 1933 Act or any similar state law then in force.
"Registration Expenses" has the meaning specified in SECTION 2.07.
"Related Securities" means, collectively, other than the Shares, (i)
any and all securities issued or issuable as a result of adjustments made under
the Exchange Agreement and Warrant Agreements, and in each case any and all
securities otherwise exchanged therefor or distributed, issued or issuable with
respect thereto and (ii) any and all securities of the Company or any successor
thereto or assignee thereof that are hereafter transferred, distributed, issued
or issuable to the Holders.
"RIMCO Holders" has the meaning specified in the preamble.
"Shares" means, collectively, shares of Common Stock (i) issued upon
conversion of the 1996 Convertible Notes, (ii) issued upon exchange of the 1996
Exchangeable Notes, (iii) issued or issuable upon exchange of the Existing
Notes under the Exchange Agreement, (iv) issued or issuable upon conversion of
the 1998 Convertible Notes, (v) issued in payment of accrued interest on the
1998 Convertible Notes, and (vi) issued or issuable upon exercise of the
Warrants, and in each case any and all shares of Common Stock exchanged
therefor or distributed, issued or issuable with respect thereto.
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"Transaction Documents" means, collectively, all of the Transaction
Documents as defined in the Exchange Agreement.
"USA" has the meaning specified in the preamble.
"UNEXCO" has the meaning specified in the preamble.
"Warrant Agreements" means collectively, that certain Warrant
Agreement, dated January 19, 1996, between the Company and the RIMCO Holders
and that certain Warrant Agreement, dated May 28, 1996, between the Company and
the RIMCO Holders (other than RIMCO Partners, L.P. III).
"Warrants" means collectively, the Warrants to purchase an aggregate
of 443,650 shares of Common Stock (subject to adjustment) issued by the Company
to the RIMCO Holders under the Warrant Agreements.
SECTION 1.02. UNDERTAKING TO FILE REPORTS AND COOPERATE IN RULE 144
TRANSACTIONS. For as long as any Holder shall continue to hold any
Registrable Securities, the Company shall file, on a timely basis, all annual,
quarterly and other reports required to be filed by it under Sections 13 and
15(d) of the 1934 Act and the rules and regulations promulgated by the
Commission thereunder, as amended from time to time during the term of this
Agreement. In the event of any proposed transfer of Registrable Securities
other than pursuant to a sale or transfer registered under the 1933 Act, the
Company shall cooperate with each Holder so as to enable such sales to be made
in accordance with applicable laws, rules and regulations, the requirements of
the Company's transfer agents, and the reasonable requirements of the broker
through which the sales are proposed to be executed, and shall, upon request
and subject to applicable law, furnish unlegended certificates representing
Shares and Related Securities in such numbers and denominations as any Holder
shall reasonably require for delivery pursuant to such sales. The Holders will
have all of the rights set forth in this Agreement to register the offering of
the Registrable Securities notwithstanding any availability of Rule 144 under
the 1933 Act with respect to the sale of all or part of the Registrable
Securities.
SECTION 1.03. ELECTION OF DIRECTOR TO BOARD OF DIRECTORS OF USA.
Subject to compliance with applicable law and the provisions of this SECTION
1.03, the RIMCO Holders holding not less than a majority (in then market value)
of the then outstanding Registrable Securities held by the RIMCO Holders, or
any designee thereof, shall be entitled to designate a total of two persons to
be members of the Company's Board of Directors. The Company will use its
reasonable best efforts, subject to compliance with applicable law and the
provisions of this SECTION 1.03, to elect or cause to be elected such two
persons designated by the RIMCO Holders or their designee. So long as (i) the
RIMCO Holders, together with their affiliates, own an aggregate of 20% or more
of the Common Stock, however acquired (or a then comparable proportion of the
equity securities of the Company entitled to vote for the election of
directors), the RIMCO Holders or their designee shall be entitled to the
benefits of this SECTION 1.03, with respect to each of the two directors
provided for herein (a
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total of two directors), and (ii) the RIMCO Holders, together with their
affiliates, own an aggregate of 5% or more of the Common Stock but less than
20% of the Common Stock, however acquired (or a then comparable proportion of
the equity securities of the Company entitled to vote for the election of
directors), the RIMCO Holders or their designee shall be entitled to the
benefits of this SECTION 1.03, with respect to one of the directors provided
for herein. The RIMCO Holders shall lose their right under this Agreement to
designate any person to serve as a member of the Company's Board of Directors
at such time as the RIMCO Holders, together with their affiliates, own an
aggregate of less than 5% of the Common Stock, however acquired (or a then
comparable proportion of the equity securities of the Company entitled to vote
for the election of directors). In the event of any resignation, removal, death
or other termination of any director so designated by the RIMCO Holders or
their designee, or the failure of the stockholders of the Company for any
reason to elect such designee or to reelect such director, the RIMCO Holders
holding not less than a majority (in then market value) of the then outstanding
Registrable Securities held by the RIMCO Holders, or any designee thereof,
shall be entitled to designate one person to serve on the Company's Board of
Directors in place of each such previously designated person, and the Company
will use its reasonable best efforts, subject to compliance with applicable
law, to elect or cause to be elected to the Board of Directors each such person
so designated by the RIMCO Holders or their designee; provided, however, that
such designation right of the RIMCO Holders or their designee shall be limited
as described above in this SECTION 1.03. The RIMCO Holders hereby undertake
and agree that, not later than 15 days following written request from the
Company, the RIMCO Holders or their designee shall furnish to the Company's
Board of Directors such information with respect to each such director designee
as is required to comply with applicable law, rule or regulation, and with
Items 401 and 404 of Regulation S-K or Regulation S-B or any successor
regulation under the 1933 Act, if then applicable to the Company.
SECTION 1.04. SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW.
The Company hereby represents and warrants that the Board of Directors of the
Company has taken all actions necessary under Delaware law, including, without
limitation, the approval of the Transaction Documents and the consummation of
the transactions contemplated thereby, to render the provisions of Section 203
of the Delaware General Corporation Law inapplicable to the RIMCO Holders and
their affiliates and to the transactions contemplated in the Transaction
Documents, including, without limitation, the acquisition of shares of Common
Stock by the RIMCO Holders pursuant to the transactions contemplated by the
Transaction Documents, as may be amended from time to time.
SECTION 1.05. NASDAQ NATIONAL MARKET LISTING. The Company hereby
represents and warrants that the Registrable Securities have been duly listed
on the Nasdaq National Market and are authorized and eligible for trading.
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ARTICLE II
REGISTRATION RIGHTS
SECTION 2.01. DEMAND REGISTRATIONS. (a) General. Upon the written
request of Holders of not less than a majority (in then market value) of the
then outstanding Registrable Securities, including not less than a majority (in
then market value) of the then outstanding Registrable Securities held by the
RIMCO Holders, that the Company effect the registration under the 1933 Act of
all or part of the Registrable Securities and specifying the intended method of
disposition thereof, the Company will give prompt written notice of such
request to all other Persons, if any, who have contractual rights to request
that any of their shares be piggybacked onto any registration form proposed to
be used to register the Registrable Securities requested by such Holders, and
thereupon the Company will, subject to the provisions of this Agreement, use
its best efforts to include in the registration under the 1933 Act all shares
of Common Stock that Persons having contractual registration rights with
respect to such shares have requested in writing that the Company register,
provided such request is given to the Company within 20 days after the receipt
of the aforesaid written notice by the Company (specifying the intended method
of disposition of such Common Stock), all to the extent requisite to permit the
intended disposition of the Registrable Securities and shares of Common Stock
to be so registered. All registrations requested pursuant to this SECTION
2.01(A) are referred to herein as "Demand Registrations."
(b) Number of Demand Registrations. Subject to the provisions of
SECTION 2.01(A), the Holders shall be entitled to request two Demand
Registrations.
(c) Registration of Other Securities. Whenever the Company shall
effect a Demand Registration pursuant to SECTION 2.01(A) in connection with an
underwritten offering by the Holders, no securities other than shares of Common
Stock shall be included among the securities covered by such registration
unless (i) the managing underwriter of such offering shall have advised the
Company in writing that the inclusion of such other securities would not
adversely affect such offering or (ii) the Holders of Registrable Securities
participating in such Demand Registration shall have consented in writing to
the inclusion of such other securities.
(d) Registration Statement Form. Demand Registrations shall be
on such appropriate registration form of the Commission (excluding Form S-8 or
Form S-4 (or any successor form)) (i) as shall be selected by the Company and
shall be acceptable to the Holders and (ii) as shall permit the disposition of
such Registrable Securities in accordance with the intended method or methods
of disposition specified in the Holders' request for such registration,
including, without limitation, a "shelf offering" or disposition pursuant to
Rule 415 under the 1933 Act. The Company agrees to include in any such
registration statement all information and exhibits that, in the opinion of
counsel to the Holders or counsel to the Company, is required to be included
therein.
(e) Effective Registration Statement. A registration requested
pursuant to SECTION 2.01(A) shall not be deemed to have been effected and will
not be considered one of the Demand Registrations which may be requested
pursuant to this Agreement if (i) a registration statement with
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respect thereto has not become effective or if the request for the Demand
Registration is withdrawn prior to effectiveness or such registration is
interfered with by any stop order, injunction or other order or requirement of
the Commission or other governmental agency or court for any reason and has not
thereafter become effective, (ii) after it has become effective, it does not
remain effective for a period of at least 120 days or, in the case of a "shelf"
registration or registration pursuant to Rule 415 under the 1933 Act, for a
period of at least two years (unless the Registrable Securities registered
thereunder have been sold or disposed of prior to the expiration of such
120-day period or such two-year period, as the case may be), (iii) the
conditions to closing specified in any underwriting agreement entered into in
connection with such registration are not satisfied or waived other than by
reason of the failure or refusal of the Holders to satisfy or perform a
condition to such closing or (iv) the Holders are not able to register and sell
all of the Registrable Securities requested to be included in such Demand
Registration. In any event, the Company shall pay all Registration Expenses in
connection with any such registration initiated but not so effected.
(f) Priority on Demand Registrations. In the event that the
managing underwriters of a requested Demand Registration advise the Company in
writing that in their opinion the number of shares of Registrable Securities
proposed to be included in any such registration exceeds the number of
securities that can be sold in such offering, the Company shall include in such
registration only the number of shares of Registrable Securities that in the
opinion of such underwriters can be sold. If the number of Registrable
Securities that can be sold in a Demand Registration exceeds the number of
shares of Registrable Securities requested to be sold, the Company shall
include in such Demand Registration (i) first, the Registrable Securities
requested to be included therein by the Holders, and (ii) second, other
securities requested to be included in such registration.
(g) Restrictions on Demand Registrations. The Company shall not
be obligated to effect any Demand Registration within three months after the
effective date of a previous Demand Registration or a previous registration
under which any Holder exercised piggyback rights pursuant to SECTION 2.02
hereof. The Company may postpone (such postponement referred to herein as a
"Permitted Interruption") for a reasonable period of time (not to exceed 90
days, which may not thereafter be extended without approval by the Holders,
which approval will not be unreasonably withheld) the filing or the
effectiveness of a registration statement for a Demand Registration if, at the
time it receives a request for such registration (i) the Company is engaged in
any active program for repurchase of Common Stock and furnishes to the Holders
an Officer's Certificate to that effect, (ii) the Company is conducting or
about to conduct an offering of Common Stock or other Company securities and
the Company is advised by the investment banker engaged by the Company to
conduct the offering that such offering would be affected adversely by the
registration so demanded and the Company furnishes to the Holders an Officer's
Certificate to that effect, or (iii) the board of directors of the Company
shall determine in good faith that such offering will interfere with a pending
or contemplated financing, merger, acquisition, business combination, sale of
assets, recapitalization or other similar corporate action of the Company and
the Company furnishes to the Holders an Officer's Certificate to that effect
provided, in each case, that any such activity by the Company is otherwise
permitted by the Transaction Documents as then in effect. After such Permitted
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Interruption the Company shall effect such registration as promptly as
practicable without further request from the Holders unless such request has
been withdrawn.
(h) Selection of Underwriters. The Holders shall have the right
to select such investment bankers and managers as shall be reasonably
acceptable to the Company to administer the offering of Registrable Securities
for which a Demand Registration is requested. The Holders shall, in their sole
discretion, negotiate the terms of the underwriters' fees and expenses, the
underwriting discount and commission and the transfer taxes.
(i) Preemption of Demand Registration. Notwithstanding anything
to the contrary contained herein, if at any time a Demand Registration has been
requested pursuant to SECTION 2.01(A), the Company may elect to effect an
underwritten primary registration on behalf of the Company if the Company's
board of directors believes that such primary registration would be in the best
interests of the Company or if the managing underwriter for the requested
Demand Registration advises the Company in writing that in their opinion in
order to sell the Registrable Securities subject to such Demand Registration
the Company should include its own securities. Promptly after receiving a
request for a Demand Registration, the Company shall notify the members of its
board of directors (and the board of directors shall consider the issue within
30 days after receiving such request), and the Company shall meet with the
managing underwriter and shall decide whether or not to effect an underwritten
primary registration on behalf of the Company, and failure to convene such a
meeting and make such determination within such 30-day period shall constitute
a waiver by the Company of its right to preempt a Demand Registration under
this SECTION 2.01(I). If the Company elects to effect a primary registration
after receiving a request to effect a Demand Registration, the Company shall
give prompt written notice (and in any event within 60 days after receiving a
request for a Demand Registration) to each Holder requesting such Demand
Registration of the Company's intention to effect such a primary registration
and shall afford such Holder or Holders rights to Piggyback Registrations
contained in SECTION 2.02 hereof. If the Company elects to effect a primary
registration after receiving a request to effect a Demand Registration, such
registration shall not count as one of the Demand Registrations of the Holders
permitted under SECTION 2.01(B) hereof.
SECTION 2.02. PIGGYBACK REGISTRATIONS. (a) General. Whenever the
Company proposes to register any shares of Common Stock or other Company equity
securities under the 1933 Act (other than registrations solely for shares to be
issued in connection with any employee benefit plan or a merger, consolidation
or other business combination registered on Form S-4 (or any successor form
thereto)) and the registration form to be used may be used for the registration
of Shares or Related Securities, as the case may be (a "Piggyback
Registration"), the Company shall give prompt written notice (in any event
within 10 Business Days after its receipt of notice of any exercise of other
registration rights) to each Holder of its intention to effect such a
registration and shall use its best efforts to include in such registration all
of the Registrable Securities with respect to which the Company receives from
any Holder a written request for inclusion therein within 20 days after the
receipt by the Holders of the Company's notice (five business days if the
Company gives telephonic notice to the Holders, with written confirmation to
follow immediately thereafter, stating that (i) such
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registration will be on Form S-3 (or any comparable or successor form or
comparable form then applicable to small business issuers) and (ii) such
shorter period of time is required because of a planned filing date), which
request shall specify the number of Registrable Securities to be disposed of by
such Holder and the intended method of disposition thereof. If the Company
elects, prior to effectiveness, not to proceed with a primary registration of
Common Stock or other Company equity securities, it shall not be obligated to
register any Registrable Securities unless such primary registration was
initiated as provided in SECTION 2.01(I) after the Company received a request
for Demand Registration.
(b) Priority on Primary Registrations. If a Piggyback
Registration is an underwritten primary registration on behalf of the Company
and the managing underwriter of such offering advises the Company in writing
that in their opinion the number of securities requested to be included in such
registration exceeds the number that can reasonably be sold in such offering,
then the Company shall include in such registration (i) first, the securities
that the Company proposes to sell, (ii) second, the Registrable Securities
requested to be included therein by one or more Holders and (iii) third, other
securities requested to be included in such registration. If the managing
underwriter of such offering subsequently advises the Company in writing that
the number of securities which can be sold exceeds the number of securities
included in the offering, the Company shall include in the registration the
securities that the Company proposes to sell and such additional securities
that (i) first, one or more Holders had originally requested be included in the
registration and (ii) second, others had originally proposed to include in the
registration.
(c) Priority on Secondary Registrations. If a Piggyback
Registration is an underwritten secondary registration on behalf of holders of
the Company's securities other than the Holders and the managing underwriter of
such offering advises the Company in writing that in their opinion the number
of securities requested to be included in such registration exceeds the number
that can reasonably be sold in such offering, then the Company shall include in
such registration (i) first, if such registration is being made on behalf of
other stockholders of the Company exercising demand registration rights, then
the securities so requested to be included therein in accordance with such
demand registration rights, (ii) second, the Registrable Securities requested
to be included in such registration by one or more Holders and (iii) third,
other securities requested to be included in such registration. If the
managing underwriter of such offering subsequently advises the Company in
writing that the number of securities that can be sold exceeds the number of
securities included in the offering, the Company shall include in the
registration such additional securities that (i) first, one or more Holders had
originally requested be included in the registration and (ii) second, others
had originally proposed to include in the registration.
(d) Other Registrations. If (i) the Company has previously filed
a registration statement with respect to any of the Registrable Securities
pursuant to SECTION 2.01(A) OR 2.02(A) and (ii) such previous registration has
not been withdrawn or abandoned, the Company shall not file or cause to be
effective any other registration of any of its equity securities or securities
convertible or exchangeable into or exercisable for its equity securities under
the 1933 Act (except on Form S-8 or Form S-4 or any successor form), whether on
its own behalf or at the request of any holder or
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holders of such securities, until a period of at least three months has elapsed
from the effective date of such previous registration (and, during the period
of any "shelf offering" or offering pursuant to Rule 415 under the 1933 Act,
during such time as any Holder is engaged in selling efforts pursuant thereto,
except with the prior written consent of the Holders named in the prospectus
for such "shelf offering").
(e) Piggyback Not A Demand Registration. Should any Holder's
participation in a registration be pursuant to a Piggyback Registration in
connection with (i) an underwritten primary registration on behalf of the
Company as described in SECTION 2.01(I) OR 2.02(B), or (ii) an underwritten
secondary registration on behalf of holders of the Company's securities other
than the Holders as described in SECTION 2.02(C), then such participation by
any Holder shall not constitute a Demand Registration for purposes of
determining the number of Demand Registrations the Holders are entitled to
pursuant to SECTION 2.01(B).
SECTION 2.03. HOLDBACK AGREEMENTS. (a) General. Each Holder
hereby agrees not to effect any public sale or distribution of equity
securities of the Company, or any securities convertible into or exchangeable
or exercisable for such securities, including, without limitation, sales
pursuant to Rule 144 under the 1933 Act (or any similar rule then in effect),
during the 10 days prior to and the 90 days beginning on the effective date of
any underwritten Demand Registration or any underwritten Piggyback Registration
in which Registrable Securities are included (except as part of such
underwritten registration) unless the underwriters managing the registered
public offering otherwise agree.
(b) Agreement by the Company. The Company agrees not to effect
any public sale or distribution of its equity securities, or any securities
convertible into or exchangeable or exercisable for such securities, during the
10 days prior to and during the 90 days beginning on the effective date of any
underwritten Demand Registration or any underwritten Piggyback Registration in
which Registrable Securities are included (except as part of such underwritten
registration in accordance with the provisions of this Agreement) unless the
underwriters managing the registered public offering otherwise agree.
(c) Registration Procedures. Whenever any Holder requests
registration pursuant to this Agreement, the Company shall use its reasonable
best efforts to effect the registration and the sale of Registrable Securities
for which registration is requested in accordance with the intended method of
disposition thereof, and pursuant thereto the Company shall as expeditiously as
possible:
(i) prepare and file with the Commission a registration
statement with respect to such securities and use its reasonable best
efforts to cause such registration statement to become effective
(provided that before filing a registration statement or prospectus or
any amendments or supplements thereto, the Company will furnish to the
counsel selected by the Holders copies of all documents proposed to be
filed, which documents will be subject to the review of such counsel);
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(ii) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used
in connection therewith and prepare and file any related registration
statement pursuant to Rule 462 under the 1933 Act, in each case as
necessary to keep such registration statement or registration
statements effective for a period of not less than 90 days after such
registration statement is declared effective, provided that the
Company shall have no obligation pursuant to this Agreement to
maintain the effectiveness of such registration statement after the
sale of the securities registered thereunder, and shall comply with
the provisions of the 1933 Act with respect to the disposition of all
securities owned by each Holder that are covered by such registration
statement during such period in accordance with the intended methods
of disposition by such Holder;
(iii) furnish to the Holders such number of copies of such
registration statement, each amendment and supplement thereto, the
prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as any Holder may
reasonably request in order to facilitate the disposition of the
shares owned by such Holder;
(iv) use its reasonable best efforts to register or
qualify such Registrable Securities under such other securities or
Blue Sky Laws of such jurisdictions as any Holder requests and do any
and all other acts and things that may be necessary or advisable to
enable each Holder to consummate the disposition in such jurisdictions
of the Registrable Securities (provided that the Company will not be
required to (A) qualify generally to do business in any jurisdiction
where it would not otherwise be required to qualify but for this
sub-clause (iv), (B) subject itself to taxation in any such
jurisdiction or (C) consent to general service of process in such
jurisdiction);
(v) cause all such shares of Registrable Securities to be
listed on each securities exchange or qualified for trading on each
market on which securities issued by the Company that are of the same
class as the Registrable Securities are then listed or traded;
(vi) provide a transfer agent and registrar for all such
Registrable Securities no later than the effective date of such
registration statement;
(vii) obtain a "cold comfort" letter from the Company's
independent public accountants in customary form, covering such
matters of the type customarily covered by "cold comfort" letters
delivered to underwriters, and covering such other matters as any
Holder may reasonably request; and obtain an opinion of counsel for
the Company in customary form, covering such matters of the type
customarily covered in opinions of legal counsel delivered to
underwriters, and covering such other matters as any Holder may
reasonably request;
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(viii) if underwriters are engaged in connection with any
registration referred to in this Agreement, the Company shall provide
customary indemnification, representations, covenants, opinions, and
other assurances to the underwriters, in each case in form and
substance reasonably satisfactory to such underwriter;
(ix) notify each Holder and the managing underwriters, if
any, promptly, and (if requested by any such Person) confirm such
advice in writing, (A) when a prospectus or any prospectus supplement
or post-effective amendment (or related registration statement filed
pursuant to Rule 462 under the 1933 Act) has been filed, and, with
respect to a registration statement or any post-effective amendment,
when the same has become effective, (B) of any request by the
Commission for amendments or supplements to a registration statement
or related prospectus or for additional information, (C) of the
issuance by the Commission of any stop order suspending the
effectiveness of a registration statement or the initiation of any
proceedings for that purpose, (D) of the receipt by the Company of any
notification with respect to the suspension of the qualification of
any of the registrable securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose, (E) of
the happening of any event that requires the making of any changes in
a registration statement or related prospectus so that such documents
will not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading, and (F) of the Company's
reasonable determination that a post-effective amendment to a
registration statement would be required;
(x) notify each Holder at any time when a prospectus
relating thereto is required to be delivered under the 1933 Act, of
the occurrence of any event as a result of which the prospectus
included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements
therein not misleading, and, at the request of any Holder, the Company
shall prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such shares such amended or
supplemented prospectus shall not contain an untrue statement of a
material fact or omit to state any fact necessary to make the
statements therein not misleading;
(xi) use its reasonable best efforts to obtain as soon as
reasonably practicable the withdrawal of any order suspending the
effectiveness of a registration statement, or the lifting of any
suspension of the qualification of any of the Registrable Securities
for sale in any jurisdiction;
(xii) if requested by the managing underwriters or any
Holder, incorporate in a prospectus supplement or post-effective
amendment such information as the managing underwriter and the Holders
agree should be included therein relating to the sale and distribution
of Registrable Securities, including, without limitation, information
with respect to the number of Registrable Securities being sold to
such underwriters, the purchase price being paid therefor by such
underwriters and any other terms of the underwritten (or best efforts
underwritten) offering of the Registrable Securities to be sold in
such offering; make
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all required filings of such prospectus supplement or post-effective
amendment as soon as notified of the matters to be incorporated in
such prospectus supplement or post-effective amendment; and supplement
or make amendments to any registration statement if requested by any
Holder or any underwriter of such securities;
(xiii) furnish to each Holder and each managing underwriter,
without charge, such signed copies of the registration statement or
statements and any post-effective amendment thereto, including
financial statements and schedules, all documents incorporated therein
by reference and all exhibits (including those incorporated by
reference) as any Holder or managing underwriter may reasonably
request;
(xiv) cooperate with reasonable requests of the Holders and
the managing underwriter, if any, to facilitate the timely preparation
and delivery of certificates representing Shares or Related Securities
to be sold and not bearing any restrictive legends unless required by
applicable law; and enable such certificates to be in such
denominations and registered in such names as the managing underwriter
may request at least two business days prior to any sale of
Registrable Securities to the underwriters;
(xv) in the case of an underwritten offering, enter into
such customary agreements (including underwriting agreements in
customary form) and take all such other actions as any Holder or
underwriter reasonably requests in order to expedite or facilitate the
disposition of such Registrable Securities; and
(xvi) make available for inspection by any Holder, any
underwriter participating in any disposition pursuant to such
registration statement, and any attorney, accountant or other agent
retained by any such Holder or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company,
and cause the Company's officers, directors, employees and independent
accountants to supply all information reasonably requested by any such
Holder, underwriter, attorney, accountant or agent in connection with
such registration statement.
SECTION 2.04. COMPANY REPORTS. The Company shall file all reports
required to be filed by it under the 1933 Act and the 1934 Act and the rules
and regulations promulgated by the Commission thereunder, and take such further
reasonable action as may be necessary or appropriate for the Company to use
Form S-2 or S-3 (or any similar registration form then applicable to small
business issuers or hereafter adopted by the Commission) to register the
Registrable Securities for sale thereon. Upon request, the Company shall
deliver to the Holders a written statement as to whether it has complied with
such requirements.
SECTION 2.05. INFORMATION TO BE FURNISHED BY THE HOLDERS. In
connection with any registration of shares of Registrable Securities hereunder,
the Company may require the Holders to furnish the Company with such
information regarding the Holders and the distribution of such shares as the
Company may from time to time reasonably request in writing in order to comply
with the
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1933 Act. Each Holder agrees to notify the Company as promptly as practicable
of any inaccuracy or change in information previously furnished to the Company
or of the occurrence of any event in either case as a result of which any
prospectus relating to such registration contains untrue statements of a
material fact regarding the Holders or the distribution of such shares or omits
to state any material fact regarding the Holders or the distribution of such
shares required to be stated therein or necessary to make the statement therein
not misleading in light of the circumstances under which such statements were
made, and to promptly furnish to the Company any additional information
required to correct and update any previously furnished information or required
such that such prospectus shall not contain, with respect to the Holders or the
distribution of such shares, an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which
such statements are made.
SECTION 2.06. SUSPENSION OF OFFERING PENDING PROSPECTUS SUPPLEMENT
OR AMENDMENT. Each Holder agrees that, upon receipt of any notice from the
Company of the occurrence of any event of the kind described in SECTION
2.03(C)(IX)(B), (C), (D), (E) OR (F) hereof, such Holder will forthwith
discontinue disposition of the Registrable Securities covered by such
registration statement or prospectus until such holder's receipt of the copies
of the supplemented or amended prospectus relating to such registration
statement or prospectus, or until it is advised in writing by the Company that
the use of the applicable prospectus may be resumed, and has received copies of
any additional or supplemental filings which are incorporated by reference in
such prospectus, and, if so directed by the Company, such Holder will deliver
to the Company all copies, other than permanent file copies then in such
Holder's possession, of the prospectus covering the shares of Registrable
Securities current at the time of receipt of such notice.
SECTION 2.07. REGISTRATION EXPENSES. (a) General. All expenses
incident to the Company's performance and execution of Demand Registrations or
Piggyback Registrations, and the Company's performance of or compliance with
this Agreement, including, without limitation, all registration and filing
fees, fees and expenses of compliance with securities or Blue Sky Laws,
expenses and fees for listing the securities on the appropriate securities
exchanges or qualifying such securities for trading in the appropriate
securities markets, costs of liability insurance, all internal expenses, the
expense of any annual audit or quarterly review, printing expenses, messenger
and delivery expenses, fees and disbursements of counsel for the Company and
all independent certified public accountants (including the expenses of any
special audit and "cold comfort" letters required by or incident to such
performance), and fees and costs of underwriters (excluding discounts and
commissions and fees of underwriters, selling brokers, dealer managers or
similar securities industry professionals relating to the distribution of the
Registrable Securities) and other Persons retained by the Company (all such
expenses being herein called "Registration Expenses"), shall be borne by the
Company.
(b) Reimbursement for Counsel Fees. In connection with each
Demand Registration and Piggyback Registration, the Company shall reimburse the
Holders for the reasonable fees and
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disbursements of one law firm chosen by Holders of a majority (in then market
value) of the then outstanding Registrable Securities.
(c) Payment of Expenses by the Holders. The Holders shall pay the
underwriters' discount and commissions and the commissions and fees, if any,
payable in respect of selling brokers, dealer managers or similar securities
industry professionals, and transfer taxes allocable to the registration of the
Holders' securities so included in any Demand Registration or Piggyback
Registration pursuant to this Agreement.
SECTION 2.08. UNDERWRITTEN OFFERINGS. (a) Underwriting Agreement.
In any underwritten offering by one or more Holders pursuant to a registration
requested under SECTION 2.01(A) OR 2.02(A), the Company shall enter into an
underwriting agreement which shall be reasonably satisfactory in form and
substance to such Holder or Holders and the underwriters and which shall
contain representations, warranties and agreements (including indemnification
agreements to the effect and consistent with that provided in SECTION 2.09
hereof) as are customarily included by an issuer in underwriting agreements
with respect to primary distributions.
(b) Condition to Participation and Qualifications to Obligations
Under Registration Covenants. The obligations of the Company to use its
reasonable efforts to cause the Registrable Securities to be registered under
the 1933 Act are subject to each of the conditions that no Holder may
participate in any underwritten offering hereunder unless such Holder (a)
agrees to sell such Registrable Securities on the basis provided in any
underwriting arrangements approved by the persons entitled hereunder to approve
such arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
and customarily required under the terms of such underwriting arrangements.
SECTION 2.09. INDEMNIFICATION. (a) By the Company. In the event
of any registration of any Registrable Securities under the 1933 Act, the
Company will, and hereby does, indemnify and hold harmless, to the fullest
extent permitted by law, each Holder, its directors and officers, each other
Person who participates as an underwriter in the offering or sale of such
securities and each other Person, if any, who controls such Holder or any such
underwriter within the meaning of the 1933 Act, against any and all losses,
claims, damages, liabilities and expenses, joint or several, (or actions or
proceedings, whether commenced or threatened, in respect thereof) to which they
or any of them may become subject under the 1933 Act or any other statute or
common law, including any amount paid in settlement of any litigation,
commenced or threatened, and to reimburse them for any legal or other expenses
incurred by them in connection with investigating any claims and defending any
actions, insofar as any such losses, claims, damages, liabilities, expenses or
actions arise out of or are based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the registration statement
relating to the sale of such securities or any post-effective amendment thereto
or any related registration statement filed pursuant to Rule 462 or similar
rule under the 1933 Act or in any filing made in connection with the
qualification of the offering under Blue Sky or other securities laws or
jurisdictions in which the Registrable Securities are offered ("Blue Sky
Filing"), or the omission or alleged omission to state a material fact therein
necessary in order to make the
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statements therein, in light of the circumstances under which they were made,
not misleading or (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus, if used prior to the
effective date of such registration statement (unless such statement is
corrected in the final prospectus and the Company has previously furnished
copies thereof to each Holder and the underwriters), or contained in the final
prospectus (as amended or supplemented if the Company shall have filed with the
Commission, and furnished to each Holder and the underwriters of such offering
copies thereof, prior to the written confirmation of any sale to the person
asserting liability, any amendment thereof or supplement thereto) if used
within the period during which the Company is required to keep the registration
statement to which such prospectus relates current, or the omission or alleged
omission to state therein (if so used) a material fact necessary in order to
make the statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, that the indemnification
agreement contained herein shall not (i) apply to such losses, claims, damages,
liabilities, expenses or actions arising out of, or based upon, any such untrue
statement or alleged untrue statement, or any such omission or alleged
omission, if such statement or omission was made in reliance upon and in
conformity with written information furnished to the Company by a Holder or
such underwriter expressly for use in connection with preparation of the
registration statement, any preliminary prospectus or final prospectus
contained in the registration statement, any such amendment or supplement
thereto or any Blue Sky Filing or (ii) inure to the benefit of any underwriter
or any person controlling such underwriter, to the extent that any such loss,
claim, damage, liability (or action or proceeding in respect thereof) or
expense arises out of such person's failure to send or give a copy of the final
prospectus, as the same may be then supplemented or amended, to the person
asserting an untrue statement or alleged untrue statement or omission or
alleged omission at or prior to the written confirmation of the sale of
Registrable Securities to such person if such statement or omission was
corrected in such final prospectus. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of such Holder
or any such director, officer or controlling person and shall survive the
transfer of such securities by such Holder.
(b) By the Holders. The Company may require, as a condition to
including any Registrable Securities in any registration statement filed
pursuant to SECTION 2.01 OR 2.02, that the Company shall have received an
undertaking satisfactory to it from the Holders to indemnify and hold harmless
(in the same manner and to the same extent as set forth in SECTION 2.09(A)) the
Company, each director of the Company, each officer of the Company and each
other person, if any, who controls the Company within the meaning of the 1933
Act, with respect to any untrue statement or alleged untrue statement in, or
omission or alleged omission from, such registration statement, any preliminary
prospectus or final prospectus contained therein, or any amendment or
supplement thereto, if such statement or omission was made in reliance upon and
in conformity with written information furnished to the Company by a Holder
expressly for use in the preparation of such registration statement,
preliminary prospectus, final prospectus, amendment or supplement. Such
indemnity shall remain in full force and effect, regardless of any
investigation made by or on behalf of the Company or any such director, officer
or controlling person and shall survive the transfer of such securities by such
Holder. In no event shall any indemnity paid by any Holder to the Company
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pursuant to this SECTION 2.09(B), or otherwise, exceed the proceeds received by
such Holder in such offering.
(c) Notices of Claims, etc. Promptly after receipt by an
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in SECTION 2.09(A) OR 2.09(B), such indemnified
party will, if a claim in respect thereof is to be made against an indemnifying
party, give written notice to the latter of the commencement of such action,
provided that the failure of or delay by any indemnified party to give notice
as provided herein shall not relieve the indemnifying party of its obligations
under SECTION 2.09(A) OR 2.09(B), as the case may be, except to the extent the
indemnifying party is materially prejudiced thereby. In case any such action
is brought against an indemnified party, the indemnifying party shall be
entitled to participate in and, unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist in respect of such claim, to assume the defense thereof,
jointly with any other indemnifying party similarly notified to the extent that
it may wish, with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof other than
reasonable costs of investigation. In the event that the indemnifying party
advises an indemnified party that it will contest a claim for indemnification
hereunder, or fails, within 30 days of receipt of any indemnification notice to
notify, in writing, such person of its election to defend, settle or
compromise, at its sole cost and expense, any action, proceeding or claim (or
discontinues its defense at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or otherwise compromise or
pay such action or claim. In any event, unless and until the indemnifying
party elects in writing to assume and does so assume the defense of any such
claim, proceeding or action, the indemnified party's costs and expenses arising
out of the defense, settlement or compromise of any such action, claim or
proceeding shall be losses subject to indemnification hereunder. The
indemnified party shall cooperate fully with the indemnifying party in
connection with any negotiation or defense of any such action or claim by the
indemnifying party and shall furnish to the indemnifying party all information
reasonably available to the indemnified party which relates to such action or
claim. The indemnifying party shall keep the indemnified party fully apprised
at all times as to the status of the defense or any settlement negotiations
with respect thereto. If the indemnifying party elects to defend any such
action or claim, then the indemnified party shall be entitled to participate in
such defense with counsel of its choice at its sole cost and expense. If the
indemnifying party does not assume such defense, the indemnified party shall
keep the indemnifying party apprised at all times as to the status of the
defense; provided, however, that the failure to keep the indemnifying party so
informed shall not affect the obligations of the indemnifying party hereunder.
No indemnifying party shall be liable for any settlement of any action, claim
or proceeding effected without its written consent; provided, however, that the
indemnifying party shall not unreasonably withhold, delay or condition its
consent. No indemnifying party shall, without the consent of the indemnified
party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the
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claimant or plaintiff to such indemnified party of a release from all liability
in respect to such claim or litigation.
(d) Contribution. If the indemnification provided for in or
pursuant to SECTION 2.09(A) OR 2.09(B) is due in accordance with the terms
thereof, but is held by a court to be unavailable or unenforceable in respect
of any losses, claims, damages, liabilities or expenses referred to therein,
then each applicable indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified person as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the
other in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or expenses as well as any other relevant
equitable considerations. The relative fault of the indemnifying party on the
one hand and of the indemnified person on the other shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the indemnifying party or by
the indemnified party, and by such party's relative intent, knowledge, access
to information and opportunity to correct or prevent such statement, or
omission. In no event shall the liability of any Holder be greater in amount
than the amount of proceeds received by such Holder upon such sale.
ARTICLE III
EFFECTIVE TIME AND TERM OF THIS AGREEMENT
SECTION 3.01. EFFECTIVE TIME AND TERM OF THIS AGREEMENT. This
Agreement will be effective for all purposes as of the Closing and will
continue in full force and effect until the first to occur of (i) the tenth
anniversary of the Closing and (ii) the date that no Holder owns any of the
Registrable Securities.
ARTICLE IV
MISCELLANEOUS
SECTION 4.01. SPECIFIC ENFORCEMENT. Each party acknowledges and
agrees that the other party could be irreparably damaged in the event any of
the provisions of this Agreement were not performed by the party required to
perform the same in accordance with their specific terms or were otherwise
breached. Each party accordingly agrees that the other party shall be entitled
to an injunction or injunctions to prevent breaches of the provisions of this
Agreement and to specifically enforce the terms and provisions hereof in any
court of the United States or any state thereof having jurisdiction, in
addition to any remedy to which a party may be entitled at law or equity.
SECTION 4.02. SEVERABILITY. Any provision of this Agreement that
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such
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prohibition or unenforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability in any jurisdiction shall
(to the full extent permitted by law) not invalidate or render unenforceable
such provision in any other jurisdiction.
SECTION 4.03. AMENDMENTS. This Agreement contains the entire
understanding of the parties with respect to the Registrable Securities, and
may be amended only by an agreement in writing signed by the Company and the
Holders of not less than a majority (in then market value) of the then
outstanding Registrable Securities, including not less than a majority (in then
market value) of the then outstanding Registrable Securities held by the RIMCO
Holders, provided, however, that in no event shall any amendment impose any
additional material obligations on any Holder without such Holder's written
consent.
SECTION 4.04. DESCRIPTIVE HEADINGS. Descriptive headings are for
convenience only and shall not control or affect the meaning or construction of
any provision of this Agreement.
SECTION 4.05. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies hereof, each signed by less than all, but together signed by
all, of the parties hereto.
SECTION 4.06. NOTICES. All notices and communications provided for
hereunder shall be in writing and sent (a) by telecopy if the sender on the
same day sends a confirming copy of such notice by a recognized overnight
delivery service (charges prepaid) or (ii) by registered or certified mail with
return receipt requested (postage prepaid) or (iii) by a recognized overnight
delivery service (with charges prepaid).
(i) if to a RIMCO Holder, at its addresses set forth
below, or such other address as it shall have specified to the Company
in writing,
(ii) if to any other Holder, at such address as specified
to the Company in writing in the notice provided in SECTION 4.09(B),
or such other address as such Holder shall have subsequently specified
to the Company in writing, and
(iii) if to the Company or UNEXCO, 16420 Park Ten Place,
Suite 300, Houston, Texas 77084-5051, Telecopy No.: 713-578-7091, or
such other address as it shall have specified to the Holders in
writing.
Notices given under this SECTION 4.06 shall be deemed given only when actually
received.
SECTION 4.07. GOVERNING LAW. This Agreement shall be construed and
enforced in accordance with, and the rights of the parties shall be governed
by, the laws of the State of New York, excluding choice-of-law principles of
the law of such State that would require the application of the laws of a
jurisdiction other than such State.
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SECTION 4.08. SURVIVAL. The representations and warranties made by
the Company and UNEXCO herein shall survive the execution and delivery of the
Transaction Documents and the purchase and transfer by the Holders of any of
the Registrable Securities, regardless of any investigation made at any time by
or on behalf of the RIMCO Holders or any other Holder. All statements
contained in any certificate or other instrument delivered by or on behalf of
the Company pursuant to this Agreement shall be deemed to be representations
and warranties of the Company under this Agreement.
SECTION 4.09. SUCCESSORS AND ASSIGNS. (a) Subject to the
provisions of SECTION 4.09(B), all covenants and other agreements contained in
this Agreement by or on behalf of any of the parties hereto bind and inure to
the benefit of their respective successors and assigns (including, without
limitation, any subsequent holder of a Note or any Registrable Securities)
whether so expressed or not.
(b) The Registrable Securities and rights of any Holder under this
Agreement with respect to any Registrable Securities may be assigned to any
person who acquires Registrable Securities from a Holder, except that any
Person who acquires such Registrable Securities (x) pursuant to a public
offering registered under the 1933 Act or (y) pursuant to a transfer made in
accordance with Rule 144 under the 1933 Act may not be assigned rights
hereunder with respect to such Registrable Securities. Notwithstanding the
foregoing, rights to cause a Demand Registration under SECTION 2.01(A) may only
be assigned if such rights are expressly assigned in writing from a Holder.
Any assignment of registration rights pursuant to this SECTION 4.09(B) shall be
effective upon receipt by the Company of written notice from such assigning
Holder (i) stating the name and address of any assignee, (ii) describing the
manner in which the assignee acquired the Registrable Securities from such
Holder and (iii) identifying the number of Registrable Securities with respect
to which the rights under this Agreement are being assigned.
SECTION 4.10. ACTIONS BY HOLDERS OF MAJORITY OF REGISTRABLE
SECURITIES. Each of the parties hereto agrees, in connection with the taking
of any action permitted to be taken hereunder by the Holders or RIMCO Holders
(as the case may be), that the Holders or RIMCO Holders (as the case may be)
holding a majority (in then market value) of the then outstanding Registrable
Securities are entitled to take such action.
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<PAGE> 117
IN WITNESS WHEREOF, the Company, UNEXCO and the RIMCO Holders have
caused this Agreement to be executed by their respective representatives
thereunto duly authorized, effective as of the date first above written.
UNIVERSAL SEISMIC ASSOCIATES, INC.
By:
--------------------------------
Name:
------------------------------
Title:
------------------------------
UNEXCO, INC.
By:
--------------------------------
Name:
-------------------------------
Title:
------------------------------
RIMCO PARTNERS, L.P.
RIMCO PARTNERS, L.P. II
RIMCO PARTNERS, L.P. III
RIMCO PARTNERS, L.P. III
By: RESOURCES INVESTORS MANAGEMENT
COMPANY LIMITED PARTNERSHIP,
their general partner
By: RIMCO ASSOCIATES, INC.,
its general partner
By:
--------------------------------
Name:
------------------------------
Title:
------------------------------
Addresses for Notices:
22 Waterville Road
Avon, Connecticut 06001
Telecopy No.: 213-678-9382
600 Travis Street -Suite 6875
Houston, Texas 77002
Telecopy No.: 713-247-0730
<PAGE> 118
ANNEX II
RESOLUTIONS OF THE
BOARD OF DIRECTORS OF
UNIVERSAL SEISMIC ASSOCIATES, INC.
Universal Seismic Associates, Inc., a Delaware corporation (the "Company"),
hereby adopts the following Resolutions for the purpose of changing the state of
incorporation of the Company from Delaware to Texas.
WHEREAS, the Company is the owner of all the issued and outstanding capital
stock of Universal Seismic Associates-Texas, Inc., a Texas corporation
("USA-Texas"); and
WHEREAS, the Board of Directors of the Company has determined that it is in
the best interests of the Company and its stockholders for the Company to
change its state of incorporation from Delaware to Texas;
NOW THEREFORE, BE IT RESOLVED that, pursuant to Section 253 of the Delaware
General Corporation Law and subject to the approval of the Company's
stockholders, the Company shall be merged with and into USA-Texas (the
"Reincorporation") with USA-Texas as the surviving corporation (the
"Surviving Corporation");
RESOLVED, FURTHER, that the Reincorporation shall be submitted to the
Company's stockholders for their approval at the Company's next annual
meeting;
RESOLVED, FURTHER, that at and after the effective date of the
Reincorporation (the "Effective Date"), (i) each outstanding share of the
Company's common stock, par value $.0001 per share ("Company Common
Stock"), will be automatically converted into and exchanged for one share
of USA-Texas common stock, par value $.0001 per share ("Surviving
Corporation Common Stock"), (ii) such conversion and exchange of shares
shall not result in any change in the present ownership of shares of stock
of the Company, (iii) stock certificates evidencing outstanding shares of
Company Common Stock shall automatically be deemed to represent the same
number and kind of shares of Surviving Corporation Common Stock on the
Effective Date as represented by such Company certificates immediately
prior to the Reincorporation and (iv) shareholders of the Company may, but
shall not be required to, exchange their certificates formerly evidencing
shares of Company Common Stock for certificates evidencing their shares of
Surviving Corporation Common Stock.
RESOLVED, FURTHER, that all outstanding shares of USA-Texas Common Stock
held by the Company shall be canceled without further consideration and
shall cease to be outstanding;
RESOLVED, FURTHER, that upon consummation of the Reincorporation, the name
of the Surviving Corporation shall be Universal Seismic Associates, Inc.;
RESOLVED, FURTHER, that the directors and officers of the Company shall be
the directors and officers of the Surviving Corporation;
RESOLVED, FURTHER, that the Reincorporation may be abandoned at any time at
the discretion of the Board of Directors of the Company;
RESOLVED, FURTHER, that the officers of the Company be, and each of them
hereby is, authorized and directed to execute and deliver Articles of
Merger for filing in the Texas Secretary of State's Office and a
Certificate of Ownership and Merger for filing in the Delaware Secretary of
State's Office and to take all such other actions as may be necessary,
proper or advisable to carry out the purposes and intent of the foregoing
resolutions; and
RESOLVED, FURTHER, that any and all actions taken in good faith by the
officers and directors of the Company prior to the date hereof on behalf of
the Company in furtherance of the transactions contemplated by the
foregoing resolutions are in all respects ratified, confirmed and approved
by the Company as its own act and deed and shall be conclusively deemed to
be such corporate act and deed for all purposes.
<PAGE> 119
UNIVERSAL SEISMIC ASSOCIATES, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD , 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Michael J. Pawelek and Joe T. Rye, or any
one or more of them, with full power of substitution, the attorneys and proxies
of the undersigned to vote the shares of common stock of Universal Seismic
Associates, Inc., a Delaware corporation (the "Company"), held of record by the
undersigned at the close of business on , 1998, at the annual meeting
of stockholders of the Company to be held at the offices of the Company located
at 16420 Park Ten Place, Suite 300, Houston, Texas 77084-5051 on ,
1998 at 10:00 a.m., Houston time, and at any adjournment thereof, as follows:
The board of directors recommends that the stockholders vote FOR the
proposals set forth on the reverse side.
This proxy is to be voted as directed. In the absence of specific direction,
it is intended to vote the shares represented by this proxy FOR the proposals.
IMPORTANT: SIGNATURE REQUIRED ON REVERSE SIDE
YOU ARE URGED TO SIGN AND RETURN YOUR PROXY WITHOUT DELAY IN THE RETURN ENVELOPE
PROVIDED FOR THE
PURPOSE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATE OR CANADA.
Please mark your votes with an "X".
(1) Election of directors.
[ ] FOR (except as withheld below) [ ] WITHHOLD VOTE
Nominees: Calvin G. Cobb, Gary J. Milavec, Stephen F. Oakes, Michael J.
Pawelek, Joe T. Rye.
(Instructions: To withhold authority to vote for any individually nominee,
write that nominee's name on the following line.)
- --------------------------------------------------------------------------------
(2) Note Exchange.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) Reincorporation.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Dated , 1998
-----------------------
By:
-----------------------------------
Name:
-----------------------------------
Capacity:
-----------------------------------
When signing this proxy, please
date it and take care to have the
signature conform to the
stockholder's name as it appears on
this side of the proxy. If shares
are registered in the names of two
or more persons, each person should
sign. Executors, administrators,
trustees and guardians should so
indicate when signing.
