UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ----- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
-------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
Commission File Number 1-7796
TIPPERARY CORPORATION
(Exact name of registrant as specified in its charter)
Texas 75-1236955
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
633 Seventeenth Street, Suite 1550
Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 293-9379
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---------- ----------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding February 16, 1999
- ---------------------------- -----------------------------
Common Stock, $.02 par value 15,133,955 shares
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TIPPERARY CORPORATION AND SUBSIDIARIES
Index to Form 10-Q
Page No.
PART I. FINANCIAL INFORMATION (UNAUDITED)
Item 1. Financial Statements
Consolidated Balance Sheet
December 31, 1998 and September 30, 1998 1
Consolidated Statement of Operations
Three months ended December 31, 1998 and 1997 2
Consolidated Statement of Cash Flows
Three months ended December 31, 1998 and 1997 3
Notes to Consolidated Financial Statements 4-6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TIPPERARY CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 898 $ 633
Receivables 1,095 1,408
Inventory 219 218
Other current assets 234 66
------------- -------------
Total current assets 2,446 2,325
------------- -------------
Property, plant and equipment, at cost:
Oil and gas properties, full cost method 131,591 136,647
Other property and equipment 2,580 2,571
------------- -------------
134,171 139,218
Less accumulated depreciation, depletion and
amortization (93,751) (92,626)
------------- -------------
Property, plant and equipment, net 40,420 46,592
------------- -------------
Noncurrent portion of deferred income taxes, net 1,573 1,573
Other noncurrent assets 151 270
------------- -------------
$ 44,590 $ 50,760
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 593 $ 680
Accrued liabilities 366 341
Production taxes payable 106 103
Royalties payable 159 156
------------- -------------
Total current liabilities 1,224 1,280
------------- -------------
Long-term debt 11,800 16,500
Long-term note payable - related party 5,500 2,700
Commitments and contingencies (Note 6)
Minority interest 607 -
Stockholders' equity
Common stock; par value $.02; 20,000,000
shares authorized; 15,161,755 issued and
15,133,955 outstanding in December;
13,161,755 issued and 13,133,955
outstanding in September 303 263
Capital in excess of par value 108,039 105,564
Accumulated deficit (82,812) (75,476)
Treasury stock, at cost; 27,800 shares (71) (71)
------------- -------------
Total stockholders' equity 25,459 30,280
------------- -------------
$ 44,590 $ 50,760
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
1
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TIPPERARY CORPORATION AND SUBSIDIARIES
Consolidated Statement of Operations
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended
December 31,
-----------------------
1998 1997
-------- --------
<S> <C> <C>
Revenues $ 1,749 $ 2,564
Costs and expenses:
Operating 1,145 1,263
General and administrative 672 429
Depreciation, depletion and amortization 1,160 961
Write-down of oil and gas properties 5,727 -
-------- --------
Total costs and expenses 8,704 2,653
-------- --------
Operating income (loss) (6,955) (89)
Other income (expense):
Interest income 4 16
Interest expense (414) (221)
Foreign currency exchange gain 26 -
-------- --------
Total other expense (384) (205)
-------- --------
Income (loss) before income tax (7,339) (294)
Current income tax expense - -
-------- --------
Net income (loss) before minority interest (7,339) (294)
Minority interest in loss of subsidiary 3 -
-------- --------
Net income (loss) $ (7,336) $ (294)
======== ========
Net income (loss) per share - basic and diluted $ (.49) $ (.02)
======== ========
Weighted average shares outstanding 15,134 13,086
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
2
</Page>
TIPPERARY CORPORATION AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three months ended
December 31,
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (7,336) $ (294)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation, depletion and amortization 1,160 961
Write-down of oil and gas properties 5,727 -
Minority interest in loss of subsidiary (3) -
Change in assets and liabilities:
Decrease in receivables 313 65
Increase in inventory (1) (30)
(Increase) decrease in other current assets (168) 1
Decrease in accounts payable, accrued
liabilities and production taxes payable (59) (260)
Decrease in advances from joint owners - (468)
Increase in royalties payable 3 8
Other - (5)
--------- ---------
Net cash used in operating activities (364) (22)
--------- ---------
Cash flows from investing activities:
Proceeds from asset sales 705 1,456
Capital expenditures (1,385) (3,974)
--------- ---------
Net cash used in investing activities (680) (2,518)
--------- ---------
Cash flows from financing activities:
Proceeds from borrowing 2,800 -
Principal repayments (4,700) -
Proceeds from issuance of stock 2,375 152
Proceeds from subsidiary sale of stock 610 -
Proceeds from issuance of warrants 310 -
Payments for debt and equity financing (86) -
--------- ---------
Net cash provided by financing activities 1,309 152
--------- ---------
Net increase (decrease) in cash and cash equivalents 265 (2,388)
Cash and cash equivalents at beginning of period 633 3,529
--------- ---------
Cash and cash equivalents at end of period $ 898 $ 1,141
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 308 $ 302
Income taxes $ - $ -
Supplemental disclosure of non-cash investing and
financing activities:
Capital expenditures financed by notes
payable $ - $ 885
</TABLE>
See accompanying notes to consolidated financial statements.
3
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TIPPERARY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
- ---------------------
In the opinion of management, the accompanying unaudited financial statements
reflect all adjustments, consisting only of normal recurring adjustments, which
are necessary for a fair presentation of the consolidated financial position of
Tipperary Corporation (the "Company") at December 31, 1998, and the results of
its operations for the three-month periods ended December 31, 1998 and 1997.
The consolidated financial statements include the accounts of Tipperary
Corporation and its wholly-owned subsidiaries Tipperary Oil and Gas Corporation
and Burro Pipeline Corporation, and its majority-owned subsidiary, Tipperary Oil
and Gas (Australia) Pty Ltd., and its share of assets, liabilities, revenues and
expenses of unincorporated joint ventures and partnerships. The accounting
policies followed by the Company are included in Note 1 to the Consolidated
Financial Statements in the Annual Report on Form 10-K for the year ended
September 30, 1998. These financial statements should be read in conjunction
with the Form 10-K.
Impact of New Accounting Pronouncements
- ---------------------------------------
Effective October 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which
establishes standards for reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. The statement
divides comprehensive income into net income and other comprehensive income.
The Company had no items of other comprehensive income during the quarters ended
December 31, 1998, and December 31, 1997, and is therefore not required to
report comprehensive income.
The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"), effective October 1, 1998. SFAS 131 establishes standards for
disclosures regarding operating segments in both interim and annual financial
statements issued to shareholders and requires related disclosures about
products and services, geographic areas and major customers. This statement
need not be applied to interim financial statements in the initial year of its
application. The Company does not believe the adoption of SFAS 131 will have a
material impact on its financial statements.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). This statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999, and will be adopted by the Company effective
October 1, 1999. SFAS 133 requires companies to report the fair market value of
derivatives on the balance sheet and record in income or other comprehensive
income, as appropriate, any changes in the fair value of the derivative. The
Company does not believe that adoption of this Standard will have a material
impact on its financial statements.
NOTE 2 - WRITE-DOWN OF OIL & GAS PROPERTIES
At December 31, 1998, the Company recorded a $5,727,000 write-down of its U.S.
oil and gas properties. Under the full cost method of accounting, capitalized
oil and gas property costs, less accumulated amortization and related deferred
income taxes, may not exceed the present value of future net revenues from
proved reserves discounted at 10%, plus the lower of cost or market value of
unproved properties, less related income tax effects. This "ceiling test" must
be performed quarterly on a country-by-country basis. Based on December 31,
1998 oil and gas prices, the Company's domestic full cost pool book value
exceeded its ceiling test value by $5,727,000. Accordingly, the book value of
the Company's oil and gas properties was written down by this amount as of
December 31, 1998.
NOTE 3 - RELATED PARTY TRANSACTIONS
On December 22, 1998, the Company closed a transaction involving debt and equity
financing of $11,700,000 provided by Slough Estates USA Inc. ("Slough"), the
Company's largest shareholder. This financing was comprised of a loan
commitment for $6,000,000 to be used for development of the Comet Ridge project
in Australia; $4,000,000 from the issuance of 2,000,000 shares of restricted
common stock and asset sales; and an additional loan in the amount of
$1,700,000.
4
/Page
The commitment for the $6,000,000 loan was made to the Company's Australian
subsidiary. When received, the proceeds from this loan will be used to fund the
drilling of eight wells and to expand the gathering system on the Comet Ridge
project. The loan is evidenced by a five-year note bearing interest at the rate
of 10% per annum. The terms of the note also provide that Slough will receive
additional payments based upon a contractual payment right to 7% of the gross
revenues from both the existing and eight proposed wells until the loan is paid
in full, after which it will be on the eight new wells for the life of those
wells.
The shares of the Company's common stock were issued to Slough at a premium over
the market value on the date of closing. Of the $4,000,000 received by the
Company, $2,375,000 was received as proceeds from the issuance of common stock
and the premium of $1,625,000 was recorded as proceeds received from the sale of
assets acquired by Slough in the transaction. Approximately $705,000 of the
premium was allocated to the value of the contractual payment right and was
treated as a sale of a portion of the Company's share of reserves in the Comet
Ridge project. In accordance with the requirements of the full cost method of
accounting, the Australian full cost pool was reduced by this amount. In
connection with this transaction, the Company issued to Slough ten percent of
the common stock of the Australian subsidiary and a warrant to purchase up to
500,000 shares of the Company's common stock at $3.00 per share, exercisable
during a five-year period beginning in December 2000 and ending in December
2005. The portion of the premium assigned to the warrant and to the common
stock of the subsidiary was $310,000 and $610,000, respectively.
The loan of $1,700,000, together with the $2,700,000 note payable to Slough as
of September 30, 1998, and an additional $1,100,000 borrowed from Slough
subsequent to September 30, 1998, are due under the terms of a three-year note
for $5,500,000. The $1,700,000 proceeds from this loan and the $4,000,000
proceeds from the issuance of common stock and sale of assets were used to
reduce the Company's bank debt by $4,700,000 which reduced the current loan
balance due the bank to $11,800,000. The remaining $1,000,000 of the proceeds
from the financing was retained by the Company for capital expenditures and
working capital.
NOTE 4 - MINORITY INTEREST IN SUBSIDIARY
Effective December 22, 1998, the Company issued to Slough ten percent of the
common stock of its Australian subsidiary in accordance with the terms of the
previously described debt and equity financing transaction. See Note 3. The
resulting non-Company owned shareholder interest has been accounted for as a
minority interest in the accompanying Consolidated Financial Statements.
NOTE 5 - LOSS PER SHARE
The following table sets forth the computation of basic and diluted earnings
(loss) per share (in thousands except per share data):
<TABLE>
<CAPTION>
Three months ended
December 31,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Numerator:
for basic and diluted net income (loss) per share
-------------------------------------------------
- net income
(loss) available to common stockholders $ (7,336) $ (294)
Denominator:
for basic net income (loss) per share
-------------------------------------
- weighted average
shares outstanding 15,134 13,086
for diluted net income (loss) per share
---------------------------------------
- adjusted weighted
average shares outstanding and assumed conversion
of dilutive option shares 15,134 3,086
Basic loss per share $ (0.49) $ (0.02)
Diluted loss per share $ (0.49) $ (0.02)
</TABLE>
Potentially dilutive common stock shares from the exercise of options and
warrants were antidilutive for the quarters ended December 31, 1998 and 1997,
respectively.
5
/Page
NOTE 6 - COMMITMENTS AND CONTINGENCIES
The Company is plaintiff in a lawsuit filed on August 6, 1998, styled TIPPERARY
CORPORATION AND TIPPERARY OIL & GAS (AUSTRALIA) PTY LTD. V. TRI-STAR PETROLEUM
COMPANY, Cause No. CV42,265, in the District Court of Midland County, Texas.
The complaint, which concerns the Comet Ridge coalbed methane project in
Queensland, Australia, alleges that Tri-Star Petroleum Company ("Tri-Star"),
operator of the project, has failed to perform its duties under the operating
agreement, and seeks the removal of Tri-Star as operator, an accounting of
expenses charged to the joint interest account and unspecified amounts for
damages for breach of contract. Among the allegations in the complaint are that
Tri-Star has refused to allow the Company to inspect the books and records of
the project, has attempted to block the Company's right to take its
proportionate share of gas production in kind, may have improperly billed
expenses to the joint interest owners and has an impermissible conflict of
interest precluding it from acting as a reasonable and prudent operator. Tri-
Star has answered the complaint denying the claims and has filed a counterclaim
alleging that the Company has breached the operating agreement and interfered
with prospective contracts and business relations.
On March 14, 1997, the Company filed a complaint along with several other
plaintiffs in BTA OIL PRODUCERS, ET AL. V. MDU RESOURCES GROUP, INC., ET AL. in
Stark County Court in the Southwest Judicial District of North Dakota. The
plaintiffs are suing the defendants for breach of gas sales contracts, unjust
enrichment, implied trust and related business torts. The case concerns the
sale by plaintiffs and certain predecessors of natural gas processed at the
McKenzie Gas Processing Plant in North Dakota to Koch Hydrocarbons Company. It
also concerns the contracts for resale of that gas to MDU Resources Group, Inc.
and Williston Basin Interstate Pipeline Company. The defendants have answered
the complaint denying the claims, and discovery is in process.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information herein contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, which can be identified by
words such as "may," "will," "expect," "anticipate," "estimate" or "continue,"
or comparable words. In addition, all statements other than statements of
historical facts that address activities that the Company expects or anticipates
will or may occur in the future are forward-looking statements. Readers are
encouraged to read the SEC reports of the Company, particularly its Form 10-K
for the fiscal year ended September 30, 1998, for meaningful cautionary language
disclosing why actual results may vary materially from those anticipated by
management.
OVERVIEW
Tipperary Corporation and its subsidiaries (the "Company") are principally
engaged in the exploration for and development and production of crude oil and
natural gas. The Company's major areas of operations are in the Permian Basin,
Rocky Mountain and Mid-Continent areas of the United States, and in Queensland,
Australia, where it is involved in the development of a coalbed methane project.
The Company seeks to increase its oil and gas reserves through exploration,
exploitation and development projects and occasionally through the purchase of
producing properties.
FINANCIAL CONDITION
The Company had cash and temporary investments of $898,000 as of December 31,
1998 compared to $633,000 as of September 30, 1998. At December 31, 1998, the
Company had working capital of $1,222,000 compared to working capital of
$1,045,000 as of September 30, 1998. In recent years, the Company's primary
sources of funding have been operating cash flows, debt and equity financing and
sales of non-core producing properties. During the three months ended December
31, 1998, cash flows were provided by sales of assets to and debt and equity
financing from Slough Estates USA Inc. ("Slough"), the Company's largest
shareholder. These proceeds were used to reduce bank debt and for capital
expenditures and operating activities. Net cash used in operating activities
was $364,000 during the first quarter of fiscal 1999 compared to $22,000 for the
prior year quarter. The increase in net cash used in operating activities was
attributable to significantly lower U.S. oil and gas prices in the first quarter
of fiscal 1999 as compared to the first quarter of fiscal 1998.
During the three months ended December 31, 1998, net cash provided by financing
activities was $1,309,000. Total borrowings of $2,800,000 included $1,700,000
received from Slough in connection with the financing transaction in December
1998 and previous loans from Slough earlier in the quarter totaling $1,100,000.
With this transaction, the Company also received $4,000,000 from the issuance of
2,000,000 shares of the Company's common stock to Slough. Since these shares
were issued at a premium over the market value of the stock on the date of
closing, $2,375,000 was recorded as proceeds from issuance of common stock and
the premium of $1,625,000 was recorded as proceeds from the sale of assets
acquired by Slough in connection with the transaction. Of the total $1,625,000
proceeds, $705,000 was for contractual payment rights to revenue from the
Australian reserves, $610,000 was for the minority interest in the Australian
subsidiary, and $310,000 was for warrants Slough received to acquire restricted
shares of the Company's common stock. The total cash proceeds from this
transaction from Slough were $5,700,000. The Company used $4,700,000 to reduce
bank debt and $1,000,000 for capital expenditures and working capital. During
the prior year quarter, the Company received net financing proceeds of $152,000
from the issuance of 50,000 shares of common stock to a former director pursuant
to the exercise of warrants and 19,334 common shares to an employee pursuant to
the 1987 Employee Stock Option Plan.
During the three months ended December 31, 1998, the Company incurred capital
expenditures of $1,385,000 and received proceeds of $705,000 for the contractual
payment right to revenue from the Comet Ridge project discussed above. A total
of approximately $200,000 was expended for domestic operations and included
$79,000 for the purchase of additional interests in two of the Company's
operated wells, non-producing leasehold costs of $35,000 and development costs
and other capital expenditures of $86,000. Expenditures for the Comet Ridge
project in Queensland, Australia totaled approximately $1,185,000 for the first
quarter of fiscal 1999. Costs of approximately $300,000 were primarily
attributable to seismic data gathering activities. Two additional wells were
drilled and cased and are awaiting completion. The Company's share of the costs
to drill these wells was approximately $400,000. The remaining $485,000 was
expended for gas gathering and other capital items.
7
/Page
During the quarter ended December 31, 1997, the Company incurred capital
expenditures of $3,974,000, of which $779,000 was for domestic exploration and
other capital items and $3,195,000 was invested in the Comet Ridge coalbed
methane project in Queensland, Australia. Domestic capital expenditures
included drilling costs of approximately $618,000, approximately $150,000 for
non-producing leasehold acquisitions and $11,000 in other capital expenditures.
The Company's domestic exploration activities were focused in the Williston
Basin of Montana and North Dakota. The Company successfully recompleted a well
in Sheridan County, Montana and, together with industry partners, drilled and
completed a well in Divide County, North Dakota. The Comet Ridge project
expenditures of $3,195,000 included approximately $2,300,000 toward the purchase
of an additional 5% interest in the project and $895,000 in gas gathering and
compression, drilling and equipment costs and other capital items. At December
31, 1998, the Company's interest in the project was 55.75% of capital costs and
52.50% of operating expenses, and its net revenue interest was 46.22% prior to
project payout. Subsequent to project payout, the Company's interest is 45.35%
of capital and operating expenses, and its net revenue interest is 39.99%.
The Company received net payments related to its hedging activities of $23,000
and $22,000 during the quarters ending December 31, 1998, and December 31, 1997,
respectively. None of the Company's oil and gas production is currently hedged.
Management will continue to consider hedging a portion of the Company's oil and
gas production in the future.
The Company's bank credit agreement (the "agreement") provides a maximum loan
facility of $40,000,000 subject to borrowing base limitations described below.
The agreement contains provisions for both fixed rate and variable rate
borrowings. The loan agreement, as amended, provides for a two-tranche revolver
with interest at either the London Interbank Offered Rate ("LIBOR") plus 2.5%,
or the bank's Base Rate on the first $12,000,000 and either LIBOR plus 3.8% or
the bank's Base Rate plus 1% on the remainder. The LIBOR-based option may be
selected for periods not exceeding 90 days. The outstanding bank debt at
December 31, 1998, and September 30, 1998, was $11,800,000 and $16,500,000,
respectively, under both LIBOR and Base Rate loans. The weighted average
interest rate was 7.82% as of December 31, 1998, and 8.48% as of September 30,
1998. Upon expiration of the revolver (the "Conversion Date"), the principal
balance will convert to a three-year term loan. The Conversion Date was
recently extended by the bank from October 5, 1999 to October 5, 2000.
Certain of the Company's domestic oil and gas properties have been pledged as
security for the bank loan, and the Company recently pledged other unencumbered
properties at the request of the bank. The maximum borrowing base is determined
solely by the bank and is based upon its assessment of the value of the
Company's properties. This bank valuation is based upon the bank's assumptions
about reserve quantities, oil and gas prices, operating expenses and other
assumptions, all of which may change from time to time and which may differ from
the Company's assumptions. At December 31, 1998, the borrowing base was
$11,800,000. The borrowing base is subject to redetermination semi-annually,
with the next redetermination anticipated during the second or third quarter of
fiscal 1999. The Company is obligated to pay a commitment fee of 3/8% per annum
on the difference between the bank's average outstanding loan balance and the
borrowing base. The bank agreement provides that the Company may not pay
dividends or incur additional debt without the prior approval of the bank.
Due to the severe decline in oil and gas prices, the Company has recorded a non-
cash write-down of its United States full cost pool as of December 31, 1998, in
the amount of $5,727,000. The recent price declines have caused a significant
reduction of estimated future net revenues associated with the Company's
reserves. Under the full cost method of accounting, capitalized oil and gas
property costs, less accumulated amortization and related deferred income taxes,
may not exceed the present value of future net revenues from proved reserves,
plus the lower of cost or market value of unproved properties, less related
taxes. This "ceiling test" is performed quarterly. Based on oil and gas prices
at December 31, 1998, the Company's full cost pool exceeded the calculated
"ceiling test" value by $5,727,000. Accordingly, the book value of the
Company's oil and gas properties was written down by this amount as of December
31, 1998.
Due to the extremely low prices for oil and gas, the Company's net operating
cash flows were negative during the quarter ended December 31, 1998. In
addition to a significant decrease in revenue caused by these price declines,
the Company's general and administrative expenses have increased, primarily due
to litigation costs. Management is in the process of reducing these expenses
and is evaluating the economics of its oil and gas properties to determine
whether any may need to be temporarily or permanently shut in. The Company
recently reduced salaries expense through a 20% staff reduction and has
decreased other budgeted expenses as well. Additionally, certain Company
officers have agreed to accept a portion of their compensation in the form of
restricted shares of the Company's common stock, effective February 1, 1999.
This will further reduce cash compensation paid until oil and gas prices
increase and operating cash
8
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flows improve. With these reductions, the Company expects to reduce monthly
general and administrative expenses, excluding litigation costs, by
approximately 25%. The Company will continue to monitor operating and general
and administrative costs for further reductions and may seek additional
financing, if necessary, pending an increase in oil and gas prices.
If oil prices increase significantly in the near term, and/or the Company is
successful in causing a reduction in operating expenses in the Comet Ridge
coalbed methane project, it would be less likely that a further financing would
need to be accomplished in the near term. In addition, to the extent the
Company's proposed eight-well development drilling program in the Comet Ridge
project is successful, management anticipates that additional revenues from gas
sales would alleviate the need for additional financing.
YEAR 2000
The following information constitutes a "Year 2000 Readiness Disclosure" for
purposes of the Year 2000 Information and Readiness Disclosure Act.
The year 2000 compliance issue, which is common to most companies, concerns the
inability of computer information systems to properly recognize and process
date-sensitive information as the year 2000 approaches. This could result in
errors in information or significant system failures causing disruptions of
normal business operations.
The Company expects to resolve all issues relating to reprogramming, replacing
and testing the affected computer systems prior to June 30, 1999, so that they
are year 2000 compliant. To this end, the Company upgraded its core management
information operating system during February 1999 so that it will function
properly with respect to the year 2000 and beyond. The Company's management
information software applications have been modified and certified to be year
2000 compliant by its software vendor. This modified software is expected to
be installed in March 1999 and on-site testing completed by June 30, 1999. In
addition, the Company is currently conducting an inventory, review and
assessment of its desktop computers, networks, servers and software applications
to determine if they are year 2000 compliant. Management is also reviewing
internal non-information technology systems for year 2000 readiness and believes
that they are year 2000 compliant.
The Company has begun the process of contacting significant suppliers,
purchasers and financial institutions to ensure those parties have addressed
year 2000 issues and to assess the extent to which the Company's operations may
be impacted should those organizations fail to properly update their computer
systems. The Company cannot assure that there will not be material adverse
effects if these third parties fail to convert their systems in a timely manner
and currently believes this to be its most significant risk relating to the year
2000 issue. In order to mitigate the risk of potential failure of third parties
to achieve year 2000 compliance, contingency plans are being developed and the
Company will survey its significant suppliers and customers to ascertain the
status of their conversions and contingency plans.
The cost of the year 2000 project is not expected to be material. Funding will
be provided by operating cash flows and costs will be expensed as incurred.
Time and cost estimates are based on currently available information. Actual
results could differ materially from these estimates.
RESULTS OF OPERATIONS - COMPARISON OF THE THREE MONTHS ENDED DECEMBER 31, 1998
AND 1997
The Company reported a net loss of $7,336,000 for the three months ended
December 31, 1998, compared to a net loss of $294,000 for the three months ended
December 31, 1997. The loss for the first quarter of fiscal 1999 included a
non-cash write-down of U.S. oil and gas properties totaling $5,727,000. The
operating loss increased $6,866,000 to a loss of $6,955,000 in the fiscal 1999
quarter from an operating loss of $89,000 in the corresponding fiscal 1998
quarter. The increase in the operating loss is primarily due to the write-down
of oil and gas assets in the amount of $5,727,000. See Note 2 to the
Consolidated Financial Statements herein. The following are detailed
comparisons of the components of the respective periods.
Operating revenues for the three months ended December 31, 1998, decreased
$815,000, or 32%, to $1,749,000 from $2,564,000 reported for the corresponding
fiscal 1998 period. Oil volumes produced during the fiscal 1999 quarter
decreased 7% to 98,000 barrels from 105,000 barrels in the prior year's quarter,
decreasing revenue by $124,000. Domestic gas volumes produced decreased 3% to
327,000 Mcf in the current quarter compared to 336,000 Mcf in the
9
/Page
quarter ended December 31, 1997, resulting in a $17,000 decrease in revenues.
These volume decreases are attributable to sales of producing properties and to
natural production declines. Average oil prices decreased 42% to $10.23 for
the three months ended December 31, 1998, from $17.70 for the corresponding
prior year's quarter, resulting in a $732,000 decrease in revenue. Gas prices
relating to domestic production decreased 23% to $1.48 in the current quarter
versus $1.91 in the prior year's quarter, resulting in a $141,000 revenue
decrease. Included in revenue for the quarter ended December 31, 1998, are
revenues of $223,000 on sales of 181,000 Mcf, or $7.39 per equivalent barrel
produced ("BOE"), from the Comet Ridge coalbed methane project in Queensland,
Australia. There was no revenue from Australian gas sales during the prior year
quarter, as sales from the project commenced in February 1998. Saltwater
disposal and other income decreased $24,000 from the corresponding fiscal 1998
quarter.
Operating expenses decreased $118,000, or 9%, to $1,145,000 in the quarter ended
December 31, 1998, from $1,263,000 reported in the corresponding quarter in
fiscal 1998. The Company's average domestic lifting cost per BOE decreased to
$6.59 in the three months ended December 31, 1998, from $7.55 in the prior
year's three-month period. This decrease was attributable primarily to a
decrease in production taxes. The average lifting cost related to Comet Ridge
production was $6.49 per BOE for the quarter ended December 31, 1998. There
were no operating expenses related to this project during the prior year quarter
as sales had not yet commenced. The Company believes that operating expenses
for the Comet Ridge project have been higher than they should be and that
current operations should be generating positive cash flows. The Company is
currently involved in litigation with the operator concerning this and other
matters. See Note 6 to the Consolidated Financial Statements herein.
General and administrative expenses increased $243,000, or 57%, to $672,000 in
the quarter ended December 31, 1998, from $429,000 in the quarter ended December
31, 1997. This increase is primarily attributable to litigation costs
associated with the Comet Ridge coalbed methane project. See Note 6 to the
Consolidated Financial Statements herein.
Depreciation, depletion and amortization ("DD&A") expense for the three months
ended December 31, 1998, increased by $199,000, or 21%, to $1,160,000 from
$961,000 in the prior year quarter. The increase is attributable both to DD&A
related to the Company's Australia project for which there was no DD&A expense
in the prior year quarter and to significant revisions in reserve estimates at
December 31, 1998 due to price declines.
Interest income decreased $12,000, or 75%, to $4,000 in the quarter ended
December 31, 1998, from $16,000 in the corresponding prior year quarter due to a
decrease in the average quarterly balance of cash and cash equivalents.
Interest expense increased $193,000, or 87%, to $414,000 in the first quarter of
fiscal 1999 from $221,000 in the first quarter of fiscal 1998. The increase is
attributable to an increase in outstanding bank debt over the fiscal quarter
ended December 1997 and additional borrowings from Slough. When capitalized
interest during the first quarter of fiscal 1998 is included as an expense, the
increase in interest expense was $108,000. Bank debt was reduced by $4,700,000
on December 22, 1998. See Note 3 to the Consolidated Financial Statements
herein.
A foreign currency exchange gain of $26,000 was recognized during the quarter
ended December 31, 1998 related to revenue from the Comet Ridge project in
Queensland, Australia. There was no such gain or loss in the prior year period
as gas sales from the project had not commenced.
Net loss during the quarter ended December 31, 1998, included $3,000
attributable to the minority interest held by Slough in the Australian
subsidiary. The minority interest was acquired by Slough on December 22, 1998.
See Note 4 to the Consolidated Financial Statements herein.
10
/Page
PART II - OTHER INFORMATION
---------------------------
ITEM 1. Legal Proceedings
See Note 6 to the consolidated financial statements under Part I -
Item 1.
ITEM 2. Changes in Securities
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) EXHIBITS:
Filed in Part I
11. Computation of per share earnings
Filed in Part II
4.58 Promissory Note dated December 22, 1998, in the amount
of $5,500,000 issued by the Registrant to Slough
Estates USA Inc., filed herewith.
4.59 Loan Agreement and Promissory Note dated December 22,
1998, in the amount of $6,000,000 between Registrant
and Slough Estates USA Inc., filed herewith.
4.60 Security Agreement dated December 22, 1998, between the
Registrant and Slough Estates USA Inc., filed herewith.
4.61 Pledge of Stock dated December 22, 1998, between the
Registrant and Slough Estates USA Inc., filed herewith.
4.62 Second Amendment of Subordination Agreement dated
December 22, 1998, between Slough Estates USA Inc., and
US Bank, N.A. f/k/a Colorado National Bank, filed
herewith.
10.58 Warrant to Purchase the Registrant's common stock dated
December 22, 1998, issued to Slough Estates USA Inc.,
filed herewith.
10.59 Subscription Agreement to purchase Registrant's common
stock dated December 22, 1998, between the Registrant
and Slough Estates USA Inc., filed herewith.
27 Financial Data Schedule.
(b) REPORTS ON FORM 8-K:
On December 4, 1998, the Registrant filed a Current Report on Form 8-K
incorporating by reference a press release dated November 23, 1998,
announcing the agreement entered into with its largest shareholder,
Slough Estates USA Inc. ("Slough") for Slough to provide the
Registrant financing of $11.7 million.
11
/Page
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Tipperary Corporation
--------------------------------------------
Registrant
Date: February 16, 1999 By: /s/ David L. Bradshaw
---------------------------------------------
David L. Bradshaw, President, Chief Executive
Officer and Chairman of the Board of
Directors
Date: February 16, 1999 By: /s/ Lisa S. Wilson
---------------------------------------------
Lisa S. Wilson, Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS FOUND ON
PAGES 1 AND 2 OF THE COMPANY'S FORM 10-Q FOR THE THREE MONTHS ENDED DECEMBER
31, 1998,AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 898
<SECURITIES> 0
<RECEIVABLES> 1,095
<ALLOWANCES> 0
<INVENTORY> 219
<CURRENT-ASSETS> 2,446
<PP&E> 134,171
<DEPRECIATION> 93,751
<TOTAL-ASSETS> 44,590
<CURRENT-LIABILITIES> 1,224
<BONDS> 17,300
0
0
<COMMON> 303
<OTHER-SE> 25,156
<TOTAL-LIABILITY-AND-EQUITY> 44,590
<SALES> 1,749
<TOTAL-REVENUES> 1,749
<CGS> 1,145
<TOTAL-COSTS> 8,704
<OTHER-EXPENSES> (30)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 414
<INCOME-PRETAX> (7,336)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,336)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,336)
<EPS-PRIMARY> (.49)
<EPS-DILUTED> (.49)
</TABLE>
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS (THE "STATE ACTS"),
AND SHALL NOT BE SOLD, PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED
(WHETHER OR NOT FOR CONSIDERATION) BY THE HOLDER EXCEPT UPON THE ISSUANCE TO
TIPPERARY CORPORATION OF A FAVORABLE OPINION OF THE HOLDER'S COUNSEL OR
SUBMISSION TO TIPPERARY CORPORATION OF SUCH OTHER EVIDENCE AS MAY BE
SATISFACTORY TO COUNSEL TO TIPPERARY CORPORATION, TO THE EFFECT THAT ANY SUCH
TRANSFER SHALL NOT BE IN VIOLATION OF THE ACT AND THE STATE ACTS.
PROMISSORY NOTE
$5,500,000 Denver, Colorado
December 22, 1998
Tipperary Corporation, a Texas corporation ("Maker"), hereby promises to
pay to the order of Slough Estates USA Inc., a Delaware corporation ("Lender"),
at its office located at 33 West Monroe Street, Suite 2000, Chicago, Illinois
60603, or at any other place the holder hereafter designates, the principal sum
of $5,500,000, together with interest thereon in lawful money of the United
States as herein provided.
1. INTEREST. The unpaid principal balance of this Note shall bear
interest commencing on the date all proceeds of the loan are received by Maker,
such interest to be at the three-month London Interbank Offered Rate ("LIBOR")
plus (i) 3.5% per year until such date as the unpaid principal balance of this
Note becomes due and payable and (ii) 6.0% per year after such date as the
unpaid principal balance of this Note becomes due and payable, whether at
maturity or pursuant to other default as provided hereunder; said interest rate
to be adjusted in accordance with changes to LIBOR at such times as LIBOR is
changed, payable in arrears in calendar quarterly installments. Each such
quarterly interest payment shall be due and payable within five days of the end
of each calendar quarter. Interest shall be calculated based on the actual
number of days the principal balance remains outstanding in a year of 365 days.
2. MATURITY. The unpaid principal balance of this Note, together with
accrued and unpaid interest, shall be due and payable three years from the date
on which all proceeds of the loan have been received by Maker.
3. SECURITY. This Note is secured by a security agreement of even date
herewith, in favor of Lender.
4. PREPAYMENT. The unpaid principal balance of the Note, together with
accrued and unpaid interest, may be paid in whole or in part, at any time in the
sole discretion of Maker without penalty. Any prepayment in part by Maker shall
be first allocated to any accrued and unpaid interest, with any remaining amount
being allocated to the unpaid principal.
5. DEFAULT. If any of the following events occurs, all indebtedness
owing by Maker hereunder shall become forthwith due and payable to Lender, upon
delivery by Lender to Maker of a written notice of default and demand for
payment, and the expiration of the following periods from the delivery of such
notice, during which periods Maker shall have the ability to cure such default:
(i) in the case of (a) below, ten days, (ii) in the case of (b), (c) or (d)
below, 30 days and, (iii) in the case of (e) below, 15 days, or, if it is not
practicable for Maker to cure such default within said 15-day period and Maker
is diligently proceeding to cure such default, such time longer than 15 days as
is reasonable for Maker to cure such default.
/Page
(a) Any default by Maker in the payment, when due, of any part of the
principal of or interest on this Note and the payment of any other sums payable
by Maker pursuant to the terms of this Note.
(b) The insolvency or bankruptcy of Maker or any of its direct or
indirect subsidiaries, the execution by Maker or any of its direct or indirect
subsidiaries of an assignment for the benefit of creditors of substantially all
of the assets of Maker or any such direct or indirect subsidiary, or Maker's or
any of its direct or indirect subsidiary's consent to the appointment of a
trustee or a receiver or other officer of a court or other tribunal.
(c) The appointment of a trustee or receiver or other officer of a
court for Maker or any of its direct or indirect subsidiaries, or for a
substantial part of their properties, without the consent of Maker or of such
direct or indirect subsidiary, where no discharge is effected within 30 days.
(d) The institution of bankruptcy, reorganization, insolvency, or
liquidation proceedings by or against Maker or any of its direct or indirect
subsidiaries, and if against Maker or such a direct or indirect subsidiary,
where such proceeding is consented to by Maker or such subsidiary or remains
undismissed for 30 days.
(e) Any breach or failure of Maker to perform any term or condition
of this Note.
6. COLLECTION. Maker and all guarantors and endorsers of this Note shall
pay all costs and expenses of collection and enforcement of this Note, including
reasonable attorneys' fees.
7. WAIVER. Demand, presentment for payment, notice of dishonor, protest
and notice of protest are hereby waived.
8. PROCEEDS. The proceeds from this Note, to be given on and as of the
date of this Note, shall consist of (a) $1,700,000 in cash, (b) the cancellation
and surrender, by Lender to Maker of a Promissory Note made by Maker in favor of
Lender, dated December 20, 1996 in the principal amount of $2,300,000, and a
Promissory Note made by Maker in favor of Lender, dated August 31, 1998 in the
principal amount of $1,000,000, and (c) an acknowledgment, in the form attached
hereto as Exhibit A, that a loan of $500,000 advanced by Lender to Maker on
November 2, 1998 is repaid. The $1,700,000 cash proceeds are to be used for the
repayment of bank debt and general corporate purposes of Maker.
9. ASSIGNMENT. This Note may not be assigned by Lender or Maker without
the express written consent of the other party; provided, however, that Lender
may assign this Note to any of its affiliates without such consent. Such an
affiliate, for purposes of this Section 9, is any person of which Lender owns
directly or indirectly more than 50% of the voting equity interests, or such
person as owns directly or indirectly more than 50% of the voting equity
interests of Lender.
10. GOVERNING LAW. This Note is made and is being executed in the State
of Colorado, and the provisions hereof will be construed in accordance with the
laws of the State of Colorado. Furthermore, Lender and Maker (and their lawful
assignees, successors and endorsers) further agree that in the event of default
this Note may be enforced in any court of competent jurisdiction in the States
of Colorado or Illinois, and they do hereby submit to such jurisdiction in the
States of Colorado or Illinois.
11. SEVERABILITY. Invalidation of any of the provisions of this Note
shall not affect the remainder of this Note.
-2-
/Page
12. AMENDMENT. This Note may not be amended or modified except by an
instrument in writing signed by both parties.
13. SUBORDINATION. This Note is subject to the terms and provisions of a
Subordination Agreement, dated December 20, 1996, as amended, between Lender and
U.S. Bank, which terms and provisions are incorporated herein by reference.
TIPPERARY CORPORATION
By: /s/ David L. Bradshaw
----------------------------------------
David L. Bradshaw, President and
Chief Executive Officer
-3-
/Page
EXHIBIT A
ACKNOWLEDGMENT OF REPAYMENT OF DEBT
This Acknowledgment, dated as of December 22, 1998, relates to a loan in
the principal amount of $500,000 (the "Loan") advanced on November 2, 1998 by
Slough Estates USA Inc. ("Slough") to Tipperary Corporation ("Tipperary"). Upon
execution of that certain Promissory Note in the amount of $5,500,000 of even
date herewith (the "Note"), by Tipperary, as Maker, and Slough, as Lender, and
the payment, by Tipperary to Slough of accrued but unpaid interest on the Loan
at the rate of 8.5% per year, the Loan is hereby acknowledged to be paid in full
by Tipperary.
SLOUGH ESTATES USA INC.
By: /s/ Randall W. Rohner
----------------------------------------
Randall W. Rohner, Vice President and
Chief Financial Officer
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "AGREEMENT"), dated as of December 22, 1998, is
between Slough Estates USA Inc., a Delaware corporation ("LENDER"), the address
of which is 33 West Monroe Street, Suite 2000, Chicago Illinois 60603, and
Tipperary Oil & Gas (Australia) Pty Ltd., a company limited by shares under the
Corporations Act of Queensland, Australia ("BORROWER"), the address of which is
633 Seventeenth Street, Suite 1550, Denver, Colorado 8020
RECITALS:
A. Lender has agreed to loan Borrower Six Million Dollars (US
$6,000,000).
B. The loan will be recourse and secured by the hereinafter described
Collateral.
C. Lender and Borrower wish to set out the terms of the loan agreement.
NOW THEREFORE, for and in consideration of the terms of this Agreement, the
adequacy of which is hereby acknowledged, the parties agree as follows:
1. LOAN
1.1 LOAN OF FUNDS. At the hereinafter described Closing, Lender shall
loan, and Borrower shall borrow, the principal amount of Six Million Dollars (US
$6,000,000) (the "LOAN"). At Closing, Lender shall withhold from the proceeds
of the Note, as defined herein, an origination fee of Sixty Thousand Dollars
($60,000), equal to one percent (1%) of the principal amount of the Note. The
Loan shall be used to fund the drilling of eight (8) new wells (collectively,
the "NEW WELLS") on, and to expand the gas gathering system relating to, the
Comet Ridge Project (the "PROJECT") in Queensland, Australia. The New Wells
consist of Proposed Fairview Wells Nos. 21 through 28, on Petroleum Lease No.
91, as set forth in the attached Authorities for Expenditure, Geological
Prognoses/Start Memoranda and map, attached hereto as Exhibit A. The Project is
subject to that certain Joint Operating Agreement dated May 15, 1992 among
Tri-Star Petroleum Company, Tipperary Oil & Gas Corporation and others.
Borrower may lend a portion of the Loan to the other participants in the
Project, as provided in Section 5.2.
1.2 PROMISSORY NOTE. (a) At the Closing, Borrower shall execute a
Promissory Note (the "NOTE") in favor of Lender in the form and substance of the
Note attached hereto as Exhibit B. The Note shall be dated and issued on the
date of Closing and payable to the order of Lender in the principal amount of
the Loan. The Note shall be for a term of five (5) years, at which time the
entire unpaid principal balance of the Note, together with all accrued and
unpaid interest thereon and all other amounts due and owing thereunder, shall be
due and payable. The unpaid principal amount of the Loan, plus any other
outstanding balance, shall bear interest at the rate of therein stated. The
Note shall also be subject to the other terms set forth in Exhibit B.
(b) Payments of principal and interest under the Note are payable to Lender
by wire transfer or other deposit of immediately available funds into the
account designated by Lender at a bank or other financial institution situated
in the United States.
2. COLLATERAL
The Note is secured by a security agreement of even date herewith (the
"Security Agreement"), in favor of Lender, with respect to a pledge of the
issued and outstanding stock (the "TOGA STOCK") of Borrower, held by Tipperary
Oil & Gas Corporation ("TOGC"), a wholly-owned subsidiary of Tipperary
Corporation. The Security Agreement also pledges the TOGA Stock to secure
repayment,
/Page
as to principal and interest, of a Promissory Note, of even date herewith, as to
principal and interest, by Tipperary Corporation to Lender in the principal
amount of Five Million Five Hundred Thousand Dollars ($5,500,000). In the event
that certain governmental consents are obtained by or on behalf of Borrower and
other participants in the Project, then in place of such pledge of the TOGA
Stock, the Security Agreement grants certain security interests in the New
Wells, the Existing Wells (as "Existing Wells" is defined in the Note) and
certain other assets related to and included in the Project, to secure repayment
of the two promissory notes.
3. WARRANTIES, REPRESENTATIONS AND COVENANTS
3.1 WARRANTIES, REPRESENTATIONS AND COVENANTS OF BORROWER AND AFFILIATES.
In addition to any other warranties, representations, and covenants in this
Agreement, each of Borrower, Tipperary Corporation ("Tipperary"), and TOGC,
which is wholly-owned by Tipperary, warrants, represents, and covenants that:
(a) Except as otherwise provided herein, the Collateral is free of any
third party rights arising by, through, or under it;
(b) To the best of its knowledge, information, and belief, the Authority to
Prospect and Petroleum Leases Nos. 90, 91 and 92 relating to the Project are in
full force and effect and no event has occurred which, through the passage of
time or the expiration of any grace period provided for therein, would
constitute a default if not cured;
(c) To the best of its knowledge, information, and belief, the Existing
Wells are, and the New Wells will be, located on Petroleum Leases Nos. 90, 91
and 92; and within 45 days after the date hereof, Borrower will provide to
Lender an opinion of an independent surveyor, geologist or other reasonably
suitable professional person, in form reasonably satisfactory to Lender, that
the Existing Wells are, and as planned the New Wells will be, located on
Petroleum Leases Nos. 90, 91 and 92;
(d) To the best of its knowledge, information, and belief, the Project
complies with all applicable laws;
(e) Except for Civil Action No. C842,265, TIPPERARY CORPORATION AND
TIPPERARY OIL & GAS (AUSTRALIA) PTY LTD. V. TRI-STAR PETROLEUM COMPANY (the
"Tri-Star Litigation"), in the District Court of Midland County, Texas, it is
not as of the date hereof a party to any material litigation, arbitration, or
other proceeding, and to its knowledge there are no pending or threatened
litigation, arbitration, or other proceedings;
(f) It shall notify Lender as promptly as reasonably possible and, in any
event, no later than three (3) business days after receiving actual notice
thereof or prior to Closing, whichever first occurs, of any change in any of its
representations and warranties (including any change where any representation or
warranty that is given to its knowledge, information, and belief would no
longer be true or correct if such representation or warranty had not been
qualified in such manner) to the extent any such representation or warranty
would not be true and correct if made at such time;
(g) It is duly formed, validly existing and in good standing under the laws
of the jurisdiction of its formation;
(h) Its execution, delivery and performance of this Agreement, the Note and
the Security Agreement (the Security Agreement having been executed only by
Tipperary, but calling for performance by Borrower and TOGC as well) are within
its powers and have been duly authorized by all necessary action;
-2-
/Page
(i) This Agreement, the Note and the Security Agreement (the Security
Agreement having been executed only by Tipperary, but calling for performance by
Borrower and TOGC as well) have been duly executed and delivered by it and
constitute legal, valid and binding obligations enforceable against it in
accordance with their terms, except as such enforceability may be limited by
bankruptcy, insolvency or other similar laws affecting creditors' rights in
general;
(j) It will not breach any other agreement by entering into or performing
this Agreement, the Note or the Security Agreement (the Security Agreement
having been executed only by Tipperary, but calling for performance by Borrower
and TOGC as well);
(k) It is unaware of any material facts or circumstances that have not been
disclosed in this Agreement, but which should be disclosed to Lender, in order
to prevent the warranties, representations, and covenants in this Agreement from
being materially misleading;
(l) It shall protect, defend, indemnify, and hold Lender harmless from any
action, claim, demand, or damages resulting from a breach of its warranties,
representations, or covenants herein; and
(m) There are no claims for brokerage commissions, finders' fees or similar
compensation in connection with the transactions contemplated by this Agreement
based on any arrangement or agreement entered into by it. It shall pay, and
hold Lender harmless against, any liability, loss or expense (including, without
limitation, reasonable attorneys' fees and out-of-pocket expenses) arising in
connection with any such claim.
3.2 LENDER'S WARRANTIES AND REPRESENTATIONS. Lender warrants and
represents that:
(a) It is duly formed, validly existing and in good standing under the laws
of the jurisdiction of its formation;
(b) It has all requisite corporate powers and all governmental and
regulatory licenses, authorizations, consents and approvals required to carry on
its business as now conducted;
(c) Its execution, delivery and performance of this Agreement, the Note and
the Security Agreement are within its powers and have been duly authorized by
all necessary action;
(d) This Agreement, the Note and the Security Agreement have been duly
executed and delivered by it and constitute the legal, valid and binding
obligations of it enforceable against it in accordance with their terms, except
as such enforceability may be limited by bankruptcy, insolvency or other similar
laws affecting creditors' rights in general;
(e) It will not breach any other agreement by entering into or performing
this Agreement;
(f) It is unaware of any material facts or circumstances that have not been
disclosed in this Agreement, but which should be disclosed to Borrower, in order
to prevent the warranties, representations, and covenants in this Agreement from
being materially misleading; and
(g) It shall protect, defend, indemnify, and hold Borrower harmless from
any action, claim, demand, or damages resulting from a breach of its warranties,
representations, or covenants herein.
3.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties contained in this Agreement (regardless of where
appearing in this Agreement) shall survive the execution and delivery of this
Agreement.
-3-
/Page
4. ADDITIONAL AFFIRMATIVE COVENANTS
4.1 FINANCIAL STATEMENTS AND OTHER INFORMATION. (a) Borrower shall
maintain books and records in accordance with its customary accounting practices
and in which full, true and correct entries shall be made of all dealings and
transactions in relation to its business and activities. To the extent relevant
to its obligations under this Agreement, Borrower shall permit Lender to examine
and make abstracts or copies from its books and records, to conduct a collateral
audit and analysis of its accounts, and to discuss its affairs, finances and
accounts with its officers and accountants, all at such reasonable times and as
often as Lender may reasonably request. Borrower irrevocably authorizes Lender
upon an Event of Default to communicate directly with its accountants and
irrevocably authorizes and directs such accountants to disclose to Lender any
and all information with respect to the business and financial condition of
Borrower as Lender may from time to time request in writing. Borrower's books
and records will be located at Borrower's principal office.
(b) (i) Borrower shall provide Lender with annual financial statements of
Borrower, conforming to Borrower's customary accounting practices (which
financial statements shall be incorporated into the consolidated annual
financial statements audited by Tipperary Corporation's independent certified
public accountants) within ninety (90) days after the end of each fiscal year of
Borrower. Said statements shall contain such information as will enable Lender
to verify the correctness of any payments to be made by Borrower hereunder.
(ii) Borrower shall provide Lender with monthly financial statements,
prepared by Borrower and conforming to Borrower's customary accounting
practices, within forty-five (45) days after the end of each month. Said
statements shall contain such information as will enable Lender to verify the
correctness of any payments to be made by Borrower hereunder.
(c) Borrower shall promptly furnish Lender any additional information,
reports and statements to the extent reasonably relevant to ensuring compliance
with this Agreement.
4.2 INDEBTEDNESS. Borrower shall: (a) pay and discharge any and all
indebtedness payable by Borrower and any interest thereon, when due (whether by
scheduled maturity, required prepayment, acceleration, demand or otherwise) in
accordance with the agreements or instruments relating to such indebtedness, and
(b) perform, observe and discharge, in a material manner, all covenants,
conditions and obligations imposed upon Borrower by any and all agreements and
instruments relating to such indebtedness.
4.3 TAXES AND RETURNS. Borrower shall duly file all income tax returns
and all other tax returns and reports that are required to be filed within any
applicable jurisdiction and duly pay and discharge promptly all taxes,
assessments and other governmental charges imposed upon it; provided however,
Borrower shall not be required to pay any such tax, assessment or other
governmental charge the payment of which is being contested in good faith and by
appropriate proceedings being diligently conducted.
4.4 PAYMENT OF ACCOUNTS. Borrower shall promptly pay and discharge: (a)
all trade accounts payable in accordance with usual and customary business
practices, and (b) all claims for work, labor or materials which if unpaid might
become a lien upon any of its assets; provided however, Borrower shall not be
required to pay any such account payable or claim the payment of which is being
contested in good faith and by appropriate proceedings being diligently
conducted.
4.5 MAINTENANCE OF EXISTENCE AND CONTRACTS. Borrower shall preserve,
renew and keep in full force and effect its existence and rights and franchises
with respect thereto and maintain in full force and effect all surety, insurance
and financial responsibility bonds, letters of credit and other
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guarantees, permits, licenses, trademarks, trade names, approvals,
authorizations, charters, leases, transportation contracts and other contracts
necessary to carry on its business as the same is presently being carried on
and/or as the same is proposed to be carried on.
4.6 COMPLIANCE WITH AGREEMENTS AND LAWS. Borrower shall observe all
requirements of any foreign, federal, state or local governmental or regulatory
authority applicable to its business, except those being contested in good faith
by appropriate proceedings diligently pursued.
4.7 NOTIFICATION OBLIGATIONS. Borrower shall notify Lender in writing of
any of the following within five (5) days after learning of the occurrence
thereof, describing the same and, if applicable, the steps being taken by any
person affected with respect thereto:
(a) The occurrence of: (i) any Event of Default of this Agreement or (ii)
Borrower's failure to perform or observe any material term, covenant or
provision contained in this Agreement, the Note or the Security Agreement;
(b) The institution of any litigation, arbitration proceeding or
governmental or regulatory proceeding affecting Borrower, whether or not
considered to be covered by insurance, in which the claim for relief seeks
recovery of an amount in excess of One Hundred Thousand Dollars (US $100,000)
(or, if no dollar amount is specified in the claim for relief, in which there is
a reasonable likelihood of recovery of an amount in excess of US $100,000) or
any form of equitable relief;
(c) The entry of any judgment or decree against Borrower in an amount in
excess of One Hundred Thousand Dollars (US $100,000);
(d) Any information, notices, requests or reports filed by Borrower with,
or furnished to or received by Borrower from, any insurance agent, broker or
underwriter which is material to Borrower;
(e) The occurrence of any material adverse change in Borrower's assets,
liabilities, business, operations, prospects, income or condition (financial or
otherwise); and
(f) Any notices required to be provided pursuant to other provisions of
this Agreement and notice of the occurrence of such other events as Lender may
from time to time reasonably specify.
5. ADDITIONAL NEGATIVE COVENANTS
5.1 CONSOLIDATION, MERGER, DISSOLUTION, AND SALE OF ASSETS. (a) Borrower
shall not: (i) directly or indirectly merge into or with or consolidate with any
other entity or permit any other entity to merge into or with or consolidate
with it, (ii) sell, assign, transfer, abandon or otherwise dispose of
substantially all of its assets or (iii) wind up, liquidate or dissolve or
otherwise fail to maintain its existence.
(b) Other than in the ordinary course of business, Borrower shall not, and
shall not permit any of its subsidiaries to sell or otherwise dispose of any
substantial part of its assets or of any substantial part of its subsidiaries'
assets during any rolling twelve (12) month period, or enter into a sale and
leaseback of any substantial part of its properties; provided however, Borrower
may sell or otherwise dispose of a substantial part of its assets or assets of a
subsidiary as long as the proceeds from such sale in excess of a substantial
part of its assets are reinvested in Borrower or the subsidiary's business
within the 12 month period following such sale of assets, and if not so
reinvested then Borrower will make an offer on a pro rata basis with other
senior indebtedness, if any, to repay the Note, to the extent such proceeds are
not reinvested, at the Make-Whole Amount (as defined in the Note) from such
excess proceeds. For the purpose of this covenant only, "SUBSTANTIAL PART"
refers to assets
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which constitute ten percent (10%) or more of the total assets of Borrower and
its subsidiaries on a consolidated basis (as of the end of the most recent
fiscal quarter at the time of calculation).
5.2 USE OF LOAN. Unless Lender otherwise consents, the Loan proceeds
shall be used only for any one or more of the following purposes: (a) to fund
the drilling of the New Wells and to conduct operations and pay expenses
relating to the New Wells, (b) to expand the gas gathering system relating to
the Project and to conduct operations and pay expenses related to the gathering
system, and (c) to lend funds to other participants in the Project for the
purposes noted in clauses (a) and (b) of this Section.
5.3 CHANGES IN NATURE OF BUSINESS. Borrower shall not engage in any
business if, as a result, the general nature of the business which would then be
engaged in by Borrower as a whole would be substantially changed from the
general nature of the business engaged in by Borrower as of the date of this
Agreement, which is oil and gas exploration, production, and transportation.
5.4 TRANSACTION NOT IN ORDINARY COURSE OF BUSINESS. Except as otherwise
permitted herein, Borrower will not enter into any transaction not in the
ordinary course of business.
5.5 AMENDMENT OF ARTICLES OF ASSOCIATION. Borrower will not amend its
Articles of Association or Bylaws in any manner that could adversely affect
Lender's rights or Borrower's obligations under this Agreement, the Note or the
Security Agreement.
5.6 INSOLVENCY, APPOINTMENT OF RECEIVERS. Borrower shall not go into
voluntary bankruptcy or insolvency, or apply for or consent to the appointment
of a receiver or trustee of itself or of its Property or make any general
assignment for the benefit of its creditors, or suffer any order adjudicating it
to be bankrupt or insolvent or appointing a receiver or trustee of it or its
Property.
6. EVENTS OF DEFAULT AND REMEDIES
6.1 EVENTS OF DEFAULT. (a) The occurrence of any one or more of the
following for any reason whatsoever (whether voluntary or involuntary, by
operation of law or otherwise), if not cured within the applicable time frame
specified in 6.2, shall constitute an "EVENT OF DEFAULT":
(i) Borrower fails to make any installment or other payment of the
principal as and when such payments become due and payable according to the
terms of the Note, or the terms hereof or otherwise;
(ii) Borrower fails to make any payment of interest as and when such
payments become due and payable according to the terms of the Note, or the terms
hereof;
(iii) Borrower fails to perform any covenant hereunder or under the
Note or the Security Agreement;
(iv) Any representation, warranty, certification or statement of
Borrower made herein or in any financial statement furnished by Borrower to
Lender, is false or misleading in any material respect when made;
(v) Borrower wrongfully denies it has any further liability or
obligation hereunder or under the Note or the Security Agreement; or
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(vi) Borrower defaults in the observance or performance of any
covenant or term of any other indebtedness for borrowed money in excess of U.S.
$500,000 if such failure would permit the holder of such indebtedness to
accelerate its maturity with the passage of time.
(b) The occurrence of any one or more of the following for any reason
whatsoever (whether voluntary or involuntary, by operation of law or otherwise)
shall constitute an Event of Default:
(i) This Agreement, the Note or the Security Agreement shall at any
time for any reason cease to be in full force and effect or shall be declared to
be null and void by a court of competent jurisdiction, or if the validity or
enforceability thereof shall be contested or denied by Borrower, or if the
transactions contemplated hereunder or thereunder shall be contested by
Borrower;
(ii) Borrower: (A) applies for or consents to the appointment of or
the taking of possession by a receiver, custodian, trustee, liquidator or the
like of itself or of all or a substantial part of its assets, (B) admits in
writing its inability, or becomes generally unable, to pay its debts as such
debts become due, (C) makes a general assignment for the benefit of its
creditors, (D) commences a voluntary case under applicable bankruptcy laws, (E)
files a petition seeking to take advantage of any other law relating to
bankruptcy, insolvency, reorganization, winding-up, or composition and
adjustment of debts, (F) fails to controvert in a timely or appropriate manner,
or acquiesces in writing to, any petition filed against itself in an involuntary
case under applicable bankruptcy laws, or (G) takes any corporate action for the
purpose of effecting any of the foregoing; or
(iii) An involuntary proceeding shall be commenced or an involuntary
petition shall be filed in a court of competent jurisdiction seeking: (A) relief
in respect of Borrower or of a substantial part of its assets under applicable
bankruptcy laws, (B) the appointment of a receiver, trustee, custodian,
sequestrator or similar official of Borrower or of a substantial part of its
assets, or (C) the winding-up or liquidation of Borrower and such appeal
proceeding or petition shall continue undismissed for sixty (60) consecutive
days or an order or decree approving or ordering any of the foregoing shall
continue unstayed and in effect for sixty (60) consecutive days.
6.2 NOTICE OF DEFAULT. (a) Except as provided in Section 6.1(b), if
Lender believes Borrower is in breach of this Agreement, it shall give such
party written notice of the same and the opportunity, as set forth in this
subsection, to cure such breach. If the Notified Party does not:
(i) Cure such alleged default within the first to occur of: (A) ten
(10) days following receipt of such notice regarding payment of amounts owed
under the Note, or (B) thirty (30) days following receipt of such notice as to
all other matters; or
(ii) With respect to breaches (other than payments of principal,
interest, or other amounts owed to Lender) that cannot be cured within the time
noted in subsection (i) despite using reasonable diligence, commence to cure
such breach within five (5) days after its receipt of notice and thereafter
diligently pursue all steps necessary to cure the breach as expeditiously as is
reasonable under the circumstances; or
(iii) Notify Lender (within five (5) days of its receipt of notice
from Lender) that it disputes the existence of such alleged breach and institute
a legal proceeding in a court of competent jurisdiction contesting the alleged
breach within twenty (20) days of its receipt of such notice,
then Lender may give notice, and all amounts owed under this Agreement shall be
accelerated as provided in Section 6.3.
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(b) If Borrower commences a proceeding as provided in subsection (a)(iii)
contesting the existence of an alleged breach, then this Agreement shall not
terminate until a final nonappealable decision has been rendered in said
proceeding. If said decision holds that Borrower was in breach, then Lender may
give notice if Borrower has not cured such breach within the time periods
specified in subsection (a) (with said time periods beginning to run as if the
date of said decision constituted notice of breach from Lender), and all amounts
owed under this Agreement shall be accelerated as provided in Section 6.3.
(c) The obligation to pursue the procedures set out in subsection (a) shall
not apply in situations in which a statute of limitations may lapse during such
time period or in situations in which a party believes it may suffer irreparable
harm as a result of following such procedures. In such event, the party seeking
relief shall be entitled to seek expedited injunctive relief through a court of
competent jurisdiction.
6.3 ACCELERATION. If an Event of Default is not cured as above provided,
Lender may declare the entire outstanding principal balance of, all accrued and
unpaid interest on, and all fees, charges and other amounts due under this
Agreement and the Note to be forthwith due and payable at the Make-Whole Amount
(as defined in the Note) (except in the event of bankruptcy, in which event the
Note may be accelerated at par), whereupon the same shall become and be
immediately due and payable, without presentment, demand, protest or notice of
any kind, all of which are hereby expressly waived by Borrower, and Lender may
exercise any and all other rights and remedies which it may have under this
Agreement, the Note or the Security Agreement.
6.4 RIGHTS AND REMEDIES GENERALLY. Upon the occurrence and during the
continuance of any Event of Default, Lender shall have, in addition to any and
all other rights and remedies with respect to the Collateral contained in this
Agreement, the Note, or the Security Agreement, all of the rights and remedies
of a secured party under the Uniform Commercial Code of the relevant state or
states of the United States and any other applicable law upon default by a
Borrower, all of which rights and remedies shall be cumulative and
non-exclusive, to the extent permitted by law. In addition to all such rights
and remedies, Lender shall have the right to sell or otherwise dispose of all or
any part of the Collateral and the sale or other disposition of the Collateral,
or any part thereof, by Lender after an Event of Default may be for cash, credit
or any combination thereof, and the Lender may purchase all or any part of the
Collateral at public or, if permitted by law, private sale, and in lieu of
actual payment of such purchase price, set-off the amount of such purchase price
against Borrower's obligations then owing. Lender may, if it deems it
reasonable, postpone or adjourn any such sale from time to time by an
announcement at the time and place of sale or by announcement at the time and
place of such postponed or adjourned sale, without being required to give a new
notice of sale. Lender shall have the right to conduct such sales at such
locations and on such occasions as Lender may see fit.
6.5 SALE OR OTHER DISPOSITION OF COLLATERAL BY LENDER. Any notice
required to be given by Lender of a sale other disposition or other intended
action by Lender with respect to any of the Collateral that is deposited in the
United States mail, postage prepaid and duly addressed to Borrower at the
address specified herein for Notices, at least ten (10) days prior to such
proposed action, shall constitute fair and reasonable notice to Borrower of any
such action. Lender may apply the net proceeds of any sale or other disposition
of any of the Collateral or of any other collection of the proceeds of any of
the Collateral, after deducting all costs and expenses of every kind incurred
therein or incidental to the preparing for sale, selling or the like of the
Collateral or in any way related to Lender's rights hereunder (including without
limitation reasonable attorneys' fees and expenses, court costs, bonds and other
legal expenses, insurance, and other expenses incurred in connection with
exercising its rights) to the payment, in whole or in part, of Borrower's
obligations, whether due or not due, absolute or contingent, and only after
payment by Lender of such amounts will Lender be
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obligated to account to Borrower for the surplus, if any. The proceeds of any
disposition of any of Borrower's interest in the Collateral shall be applied by
Lender in the following order: (a) first, to the payment of all costs, expenses,
liabilities and advances made or incurred by Lender in connection with the
collection and enforcement of Borrower's obligations and the sale of Borrower's
interests in or other realization upon the Collateral; provided, however, that
nothing herein is intended to relieve Borrower of its obligation to pay such
costs, expenses, liabilities and advances; (b) second, to the payment of that
portion of Borrower's obligations constituting accrued and unpaid interest and
fees; (c) third, to the payment of all of the other Borrower's obligations; and
(d) fourth, the payment of any surplus remaining after the payment of the
amounts mentioned above shall be paid to Borrower or to whomsoever may be
lawfully entitled thereto.
6.6 LOAN IS RECOURSE. This Agreement and the Note are recourse against
Borrower and are secured by the Collateral. Borrower shall remain liable to
Lender for the payment of any deficiency.
6.7 POWER OF ATTORNEY. Borrower hereby makes, constitutes and appoints
Lender (and all persons designated by Lender) the true and lawful agent and
attorney-in-fact of Borrower with full power of substitution if an Event of
Default has occurred: (a) to sign the name of Borrower with respect to all
documents and negotiable instruments to the extent relevant to the Collateral;
and (b) to do any and all things necessary and take such actions in the name and
on behalf of Borrower to carry out the intent of this Agreement, including,
without limitation, the grant of the security interest granted under this
Agreement and to perfect and protect the security interest granted to Lender
with respect to the Collateral and Lender's rights under this Agreement, the
Note, and the Security Agreement. The power of attorney granted under this
Section shall be irrevocable until this Agreement is terminated.
6.8 WAIVER OF DEMAND. DEMAND, PRESENTMENT, PROTEST AND NOTICE OF DEMAND,
PRESENTMENT, PROTEST AND NONPAYMENT ARE HEREBY WAIVED BY BORROWER, AND IT ALSO
WAIVES THE BENEFIT OF ALL VALUATION, APPRAISAL AND EXEMPTION LAWS.
6.9 WAIVER OF NOTICE. IN THE EVENT OF AN EVENT OF DEFAULT, BORROWER
HEREBY WAIVES ALL RIGHTS TO NOTICE AND HEARING OF ANY KIND PRIOR TO THE EXERCISE
BY LENDER OF ITS RIGHTS TO REALIZE UPON THE COLLATERAL WITHOUT JUDICIAL PROCESS
OR WITHOUT PRIOR NOTICE OR HEARING.
7. CLOSING
7.1 CLOSING. (a) The closing of the Loan ("CLOSING") shall: (i) occur on
_____________, and (ii) be held at ___________________.
(b) At the Closing, the parties thereto shall execute the Note and the
Security Agreement and Lender shall wire transfer the Loan proceeds, net of the
origination fee set forth in Section 1.1, to an account designated by Borrower
at least three (3) business days prior to the Closing.
(c) Borrower shall issue to Lender 2,209,145 shares of its capital stock,
which is equal to ten percent (10%) of the number of shares issued and
outstanding and held by TOGC following or after the Closing.
(d) Borrower shall deliver or execute such additional documentation,
including opinions of counsel, as Lender may reasonably request in conjunction
with the Closing.
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7.2 CONDITIONS PRECEDENT. (a) Each of the following shall constitute a
condition precedent to Lender's obligation to close the Loan:
(i) All of Borrower's representations and warranties shall be true and
correct as of the Closing as if made at the time of the Closing.
(ii) Borrower shall not have been given a notice of default by Lender
that Borrower has failed to cure;
(iii) There shall have been no material adverse change between the
date hereof and the Closing in the status of the Project that could materially
and adversely affect the value of the Collateral; and
(iv) Lender has no reasonable cause to believe Borrower's warranties
or representations, to the extent qualified by having been made only to
Borrower's knowledge, information, and belief, would not be true and correct as
of the Closing if they had not been so qualified.
(b) If any of the aforesaid conditions precedent shall not have been
satisfied or shall not exist as of the Closing, then, unless Lender shall have
waived in writing the satisfaction or existence of such condition precedent, in
its election and in its sole and subjective discretion Lender shall not be
obligated to close the transactions contemplated hereby and the Agreement shall
terminate.
8. GENERAL
8.1. NOTICES. All notices required or permitted under this Agreement shall
be given by registered or certified mail, postage prepaid, or by hand or
commercial carrier delivery, directed as follows:
If intended for Lender:
Slough Estates USA Inc.
33 West Monroe Street
Suite 2000
Chicago, Illinois 60603
Attention: Marshall D. Lees, Chief Executive Officer
Telephone No.: 312-558-9100
with copy to:
Peter H. Fritts, Esq.
Wildman Harrold Allen & Dixon
225 West Wacker Drive
Chicago, Illinois 60606
Telephone No.: 312-201-2000
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If intended for Borrower:
Tipperary Oil & Gas (Australia) Pty. Ltd.
633 Seventeenth Street
Suite 1550
Denver, Colorado 80202
Attention: David L. Bradshaw, President, Chairman, and CEO
Telephone No. (303) 293-9379
with copy to:
Reid A. Godbolt, Esq.
Jones & Keller, P.C.
1625 Broadway, Suite 1600
Denver, Colorado 80202
Telephone No.: (303) 573-1600
Any notice delivered by mail in accordance with this paragraph shall be deemed
to have been duly given on the third (3rd) business day after the same is
deposited in any post office or postal box regularly maintained by the United
States postal service. Any notice delivered by hand or commercial carrier shall
be deemed to have been duly given upon actual receipt. Either party, by notice
given as above, may change the address to which future notices may be sent.
8.2. PARTIES IN INTEREST. All of the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the successors and permitted assigns of the Lender and Borrower; nothing in
this Agreement express or implied is intended to confer upon any other person
any rights or remedies under or by reason of this Agreement.
8.3. ENTIRE AGREEMENT. This Agreement , the Note and the Security
Agreement constitute the entire agreement and understanding of the parties.
There are no oral or written representations, understandings, stipulations,
agreements, or promises pertaining to the subject matter of this Agreement, the
Note or the Security Agreement not incorporated in writing herein or therein,
and neither this Agreement nor the Note or the Security Agreement nor any of the
terms, provisions, conditions, representations, or covenants herein or therein
contained can be modified, changed, terminated, amended, superseded, waived, or
extended except by an appropriate writing executed by the parties.
8.4 PARAGRAPH AND OTHER HEADINGS; PRONOUNS; AND CONSTRUCTION. The
paragraph and other headings contained in this Agreement are for reference only
and have no legal significance. The use of pronouns is generic and they shall
mean any gender or number as appropriate. The terms "include" or "including," or
similar terminology, shall be construed as meaning without limitation as to the
nature or scope of the referenced matters.
8.5 FURTHER ASSURANCES. Each party agrees to take such further actions
and execute such further documents as may be necessary or appropriate to
effectuate the purpose and intent of this Agreement.
8.6 GOVERNING LAW; AND VENUE. (a) This Agreement and all documents
executed pursuant hereto shall be construed and enforced in accordance with the
laws of the State of Colorado, except to the extent its laws regarding conflict
of laws or choice of law would otherwise apply the laws of another state.
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(b) Borrower and Lender: (i) consent to the non-exclusive jurisdiction of
any federal or state court of competent jurisdiction sitting in Colorado or
Illinois with respect to disputes arising under this Agreement, and (ii) agree
that any process, notice of motion or other application to said courts, or any
notice in connection with any action or proceeding hereunder may be served by
certified mail, postage prepaid, return receipt requested.
8.7 SURVIVAL AND NO MERGER. All warranties, representations, covenants,
and agreements made by either or both of the parties under or relating to this
Agreement shall be deemed and construed to be continuing and shall survive the
Closing and not be merged into other documents executed pursuant hereto.
8.8 NO WAIVER. Lender's failure at any time or times hereafter to require
strict performance by Borrower of any provision of this Agreement, the Note or
the Security Agreement shall not waive, affect or diminish any right of Lender
thereafter to demand strict compliance and performance therewith. None of the
undertakings, agreements, warranties, covenants or representations of Borrower
contained in this Agreement, the Note or the Security Agreement and no Event of
Default by the Borrower contained in this Agreement, the Note or the Security
Agreement shall be deemed to have been waived by Lender unless such waiver is by
an instrument in writing signed by Lender and directed to Borrower. No failure
or delay by Lender in exercising any right, remedy, power or privilege
hereunder or under the Note or the Security Agreement shall operate as a waiver
thereof; nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, remedy, power or
privilege. The remedies provided herein and in the Note and the Security
Agreement are cumulative and not exclusive of any remedies provided by law.
Nothing herein contained shall in any way affect the right of Lender to exercise
any statutory or common law right of lien or set-off.
8.9 RESURRECTION OF BORROWER'S OBLIGATIONS. To the extent that Lender
receives any payment on account of any of Borrower's obligations, and any such
payment(s) or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, subordinated and/or required to be repaid
to a trustee, receiver or any other person under any bankruptcy act, state or
federal law, common law or equitable cause, then, to the extent of such
payment(s) received, Borrower's obligations or part thereof intended to be
satisfied and any and all Liens upon or pertaining to any Collateral and
theretofore created and/or existing in favor of Lender as security for the
payment of such Borrower's obligations shall be revived and continue in full
force and effect, as if such payment(s) had not been received by Lender and
applied on account of Borrower's obligations.
8.10 EQUITABLE RELIEF. If Borrower fails to perform, observe or discharge
any of its obligations under this Agreement, any remedy at law may prove to be
inadequate relief to Lender; Borrower agrees that Lender, if Lender so requests,
shall be entitled to temporary and permanent injunctive relief in any such case
without the necessity of proving actual damages.
8.11 JOINT PARTICIPATION. Borrower has participated in the drafting of this
Agreement, the Note and the Security Agreement and expressly acknowledges such
joint participation, to avoid application of any rule construing contractual
language against the party which drafted the language.
8.12 PARTIAL INVALIDITY. The invalidity of any one or more of the
provisions of this Agreement and/or any of the other Loan Documents shall not
affect the remaining provisions hereof or thereof; and if one or more provisions
of this Agreement and/or in the Note or the Security Agreement shall be deemed
invalid in whole or in part by reason of any present or future law of the United
States or any State or any decision of any court, Borrower will execute and
deliver such other and further instruments and do such things as in the opinion
of counsel for the Lender will carry out the true intent and spirit of this
Agreement.
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8.13 WAIVER OF JURY TRIAL. Borrower hereby waives trial by jury in any
litigation in any court with respect to, in connection with, or arising out of
this Agreement, the Note or the Security Agreement, or the validity, protection,
interpretation, collection or enforcement thereof.
8.14 ATTORNEYS' FEES. In the event of a dispute among the parties that
results in litigation or arbitration, the prevailing party shall be entitled to
an award of attorneys' fees and costs.
8.15 SERVICE OF PROCESS. For purposes of commencing any action or
proceeding against Borrower relating to this Agreement, CT Corporation System,
1675 Broadway, Suite 1200, Denver, Colorado 80202, or Tipperary Corporation, 633
Seventeenth Street, Suite 1550, Denver, Colorado 80202, is hereby designated as
the agent of Borrower on whom all process commencing such action or proceeding
may be served.
IN WITNESS WHEREOF, the parties have executed this Loan and Security
Agreement as of the day and year first above written.
TIPPERARY OIL & GAS (AUSTRALIA) PTY LTD. SLOUGH ESTATES USA INC.
By: By:
----------------------------------- -----------------------------
David L. Bradshaw, President Randall W. Rohner, Vice
President and Chief Financial
Officer
TIPPERARY CORPORATION (only with respect to the
representations and warranties set forth in Section 3.2 above)
By:
-----------------------------------
David L. Bradshaw, President and
Chief Executive Officer
TIPPERARY OIL & GAS CORPORATION (only with respect to the
representations and warranties set forth in Section 3.2 above)
By:
-----------------------------------
David L. Bradshaw, President
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THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS (THE "STATE ACTS"),
AND SHALL NOT BE SOLD, PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED
(WHETHER OR NOT FOR CONSIDERATION) BY THE HOLDER EXCEPT UPON THE ISSUANCE TO
TIPPERARY OIL & GAS (AUSTRALIA) PTY LTD. OF A FAVORABLE OPINION OF THE HOLDER'S
COUNSEL OR SUBMISSION TO TIPPERARY OIL & GAS (AUSTRALIA) PTY LTD. OF SUCH OTHER
EVIDENCE AS MAY BE SATISFACTORY TO COUNSEL TO TIPPERARY OIL & GAS (AUSTRALIA)
PTY LTD., TO THE EFFECT THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE
ACT AND THE STATE ACTS.
EXHIBIT B
PROMISSORY NOTE
U.S. $6,000,000 Denver, Colorado
December 22, 1998
Tipperary Oil & Gas (Australia) Pty Ltd., a company limited by shares under
the Corporations Act of Queensland, Australia ("Maker"), hereby promises to pay
to the order of Slough Estates USA Inc., a Delaware corporation ("Lender"), at
its office located at 33 West Monroe Street, Suite 2000, Chicago, Illinois
60603, or at any other place the holder hereafter designates, the principal sum
of Six Million Dollars (U.S. $6,000,000), together with interest thereon in
lawful money of the United States as herein provided. This Note is executed
pursuant to that Loan Agreement (the "Loan Agreement") of even date herewith
between Lender and Maker, and capitalized terms used but not defined in this
Note are defined in the Loan Agreement.
1. INTEREST. The unpaid principal balance of this Note shall bear
interest commencing on the date all proceeds of the loan are received by Maker,
such interest to be at ten percent (10%) per annum, payable in arrears in
calendar quarterly installments. Interest shall be calculated based on the
actual number of days the principal balance remains outstanding in a year of 365
days.
2. MATURITY; PAYMENTS OF PRINCIPAL AND INTEREST. The unpaid principal
balance of this Note, together with accrued and unpaid interest, shall be due
and payable five years from the date all proceeds of the loan are received by
Maker. Principal and interest payments, which shall be payable quarterly or, as
Maker may from time to time determine at its option, monthly, within ten (10)
business days after the end of each calendar quarter or month, as the case may
be (with interest calculated through the end of such quarter or month), shall
equal the sum of (a) and (b) below (such calender quarter or month, as the case
may be, being hereafter referred to as a "Period"):
(a) Seventy-five percent (75%) of
(i) all proceeds received by Maker during the Period from
natural gas, condensate, crude oil and other hydrocarbons produced and
saved from or attributable to Maker's proportionate interests in Petroleum
Leases 90, 91 and 92, along with the equipment and other property and
rights located thereon or associated therewith in the Project (the "Subject
Properties") plus all insurance proceeds and other proceeds from Maker's
interests in the Subject Properties (exclusive of any interests by way of
Maker's loans to other participants in the Project pursuant to Section
5.2(c) of the Loan Agreement), minus
(ii) royalties to the State of Queensland, Australia, in respect
of the foregoing amounts referenced in clause (i) due and owing by Maker
during such Period, Approved Lease Operating Expenses, as defined below,
and all amounts payable, pursuant to paragraph 3 hereof, constituting
Contractual Payments by Maker to Lender, for such Period. Approved Lease
Operating Expenses shall consist of (A) production and other direct taxes
on the Subject Properties or the production therefrom that are due and
payable during such Period, (B) direct leasehold operating
/Page
expenses that are due and payable during such Period and (C) gathering and
compression costs that are due and payable during such Period; provided,
however, that all costs and expenses described in clauses (B) and (C) above
shall not exceed Five Thousand Seven Hundred Dollars (U.S. $5,700) per
month, or Seventeen Thousand One Hundred Dollars (U.S. $17,100) in the
aggregate per quarter, per producing well.
(b) All amounts received in respect of principal and interest on
loans from Maker to other participants in the Project under Section 5.2(c) of
the Loan Agreement for such quarter.
3. ADDITIONAL FINANCE CHARGES. As finance charges in addition to
interest as provided in paragraph 1 above, Borrower agrees to pay Lender
Contractual Payments, as defined below, of seven percent (7%) from the twenty
(20) existing wells in the Fairview Area (the "Existing Wells"), consisting of
Fairview Wells Nos. 1 through 20, on Petroleum Leases Nos. 90, 91 and 92, as set
forth on the map attached hereto as Attachment 1, and from the New Wells, as
defined in the Loan Agreement. Such payments will be made with respect to all
production on Existing Wells beginning with such production after the date the
Loan is made to Borrower, and such payments shall cease with respect to such
production after the date the Loan is repaid in full. As to the New Wells, such
payments will continue for so long as they are producing. Such amounts shall be
paid by Borrower to Lender on a quarterly basis with respect to, and within
forty-five (45) days following the end of, each calendar quarter during which
production royalties are paid. "Contractual Payments" are the contractual right
to receive a percentage of the gross proceeds of the crude oil, natural gas,
condensate and other hydrocarbons produced and sold, free of cost and without
reduction for drilling, development, operating, marketing or production expenses
or other costs incident to the production and sale of hydrocarbons produced,
except for production and severance taxes, if any.
4. LIMITATION ON FINANCE CHARGES. Notwithstanding any other provision in
this Note or in the Loan Agreement, the total "loan finance charge," as defined
in Section 18-15-102, Colorado Revised Statutes, under this Note and the Loan
Agreement, including without limitation the sum of (a) the origination fee
provided in Section 1.1 of the Loan Agreement, (b) interest as provided in
paragraph 1 hereof, (c) Contractual Payments as provided in paragraph 3 hereof
and (d) any premium upon a prepayment as provided in paragraph 6 hereof, with
respect to any calendar quarter (or lesser portion of a calendar quarter during
which there is an unpaid principal balance hereof), shall not exceed a rate of
forty-five percent (45%) per annum on the weighted average unpaid principal
balance during such quarter.
5. SECURITY. This Note is secured by a security agreement of even date
herewith in favor of Lender.
6. PREPAYMENT. Maker shall have the option to prepay this Note at any
time, in whole or in part, at the "Make-Whole Amount", which is defined as the
greater of: (a) this Note's remaining principal amount (or portion thereof being
prepaid, as applicable) or (b) the sum of the discounted values of each
remaining projected interest and principal payment as estimated by an
independent reservoir engineer selected by Borrower and reasonably acceptable to
Lender, with each such payment discounted at the rate equal to the U.S. Treasury
Rate plus 50 basis points. The U.S. Treasury Rate will be a rate equal to the
then current yield on the most actively traded U.S. Treasury security having a
maturity approximately equal to the remaining term of this Note, with such yield
to be determined by linear interpolation if no U.S. Treasury security of
appropriate maturity exists; provided, however, that until and including January
31, 1999, the Maker may make any such prepayments at the Make-Whole Amount as
provided above in clause (a) without regard to clause (b).
7. DEFAULT. Default shall occur upon an Event of Default, as provided in
the Loan Agreement and upon the occurrence of an Event of Default, Lender shall
have the remedies as therein provided.
-2-
/Page
8. COLLECTION. Maker and all guarantors and endorsers of this Note shall
pay all costs and expenses of collection and enforcement of this Note, including
reasonable attorneys' fees.
9. WAIVER. Demand, presentment for payment, notice of dishonor, protest
and notice of protest are hereby waived.
10. ASSIGNMENT. This Note may not be assigned by Lender or Maker without
the express written consent of the other party; provided, however, that Lender
may assign this Note to any of its affiliates without such consent. Such an
affiliate, for purposes of this paragraph 10, is any person of which Lender owns
directly or indirectly more than 50% of the voting equity interests, or such
person as owns directly or indirectly more than 50% of the voting equity
interests of Lender.
11. GOVERNING LAW. This Note is made and is being executed in the State
of Colorado, and the provisions hereof will be construed in accordance with the
laws of the State of Colorado. Furthermore, Lender and Maker (and their lawful
assignees, successors and endorsers) further agree that in the event of default
this Note may be enforced in any court of competent jurisdiction in the States
of Colorado or Illinois, and they do hereby submit to such jurisdiction in the
States of Colorado or Illinois.
12. SEVERABILITY. Invalidation of any of the provisions of this Note
shall not affect the remainder of this Note.
13. U.S. DOLLARS. All amounts payable by any party hereunder shall be
paid in United States Dollars.
14. AMENDMENT. This Note may be amended or modified pursuant to an
instrument in writing signed by both parties.
15. SERVICE OF PROCESS. For purposes of commencing any action or
proceeding against Maker relating to this Note, CT Corporation System, 1675
Broadway, Suite 1200, Denver, Colorado 80202, or Tipperary Corporation, 633
Seventeenth Street, Suite 1550, Denver, Colorado 80202, is hereby designated as
the agent of Maker on whom all process commencing such action or proceeding may
be served.
TIPPERARY OIL & GAS (AUSTRALIA) PTY LTD.
By: /s/ David L. Bradshaw
-----------------------------------
David L. Bradshaw, President
-3-
SECURITY AGREEMENT
THIS AGREEMENT is made this 22nd day of December 1998, by and between
Tipperary Corporation, a Texas corporation ("Debtor"), whose principal place of
business is 633 Seventeenth Street, Suite 1550, Denver, Colorado 80202, and
Slough Estates USA Inc., a Delaware corporation ("Secured Party"), whose office
is located at 33 West Monroe Street, Suite 2000, Chicago, Illinois 60603.
In consideration of the mutual covenants and promises set forth herein,
Debtor and Secured Party agree:
1. Debtor, as to itself and on behalf of any direct or indirect
subsidiary of Debtor located in the United States (including Debtor's wholly-
owned subsidiary, Tipperary Oil & Gas Corporation, which owns all of the issued
and outstanding shares of Tipperary Oil & Gas (Australia) Pty Ltd. ("TOGA"),
hereby grants or shall cause to be granted to Secured Party a security interest
in the Collateral, as set forth in Section 2, to secure performance and payment
of certain Promissory Notes, (i) the first, of even date herewith, payable to
Secured Party by Debtor in the amount of $5,500,000 and (ii) the second, to be
made after the date hereof, payable to Secured Party by TOGA in the amount of
$6,000,000. The $6,000,000 Promissory Note is subject to that certain Loan
Agreement, of even date herewith, between TOGA and Secured Party (the "Loan
Agreement"). Capitalized terms not otherwise defined herein shall have the
meanings set forth in the Loan Agreement.
2. The Collateral subject to this Agreement consists of:
(a) a pledge of all of the present and future issued and outstanding
stock of TOGA except for such shares as are owned by Secured Party (the
certificate for such pledged shares, together with stock power endorsed in blank
for transfer, being herewith delivered to Secured Party) to secure repayment of
the above two Promissory Notes; and
(b) a security interest in all material, consolidated assets of
Debtor located in the United States (excluding (1) any and all properties and
assets covered or purported to be covered by the Third Amended and Restated
Mortgage, Deed of Trust, Assignment of Proceeds, Security Agreement and
Financing Statement (Oil and Gas) dated March 30, 1992, effective as of October
4, 1990, from Debtor, et al., for the benefit of U.S. Bank National Association
f/k/a Colorado National Bank f/k/a Central Bank National Association ("Senior
Lender"), (2) any and all properties and assets covered or purported to be
covered by the Negative Pledge Agreement dated as of March 31, 1994 from Debtor,
et al., for the benefit of Senior Lender, (3) any and all other oil and/or gas
properties and related assets to which Senior Lender has given value in
determining the "Borrowing Base" pursuant to the Revolving Credit and Term Loan
Agreement dated as of March 30, 1992, as amended, between Debtor, et al. and
Senior Lender, and (4) any and all proceeds of the property and assets described
in (1) through (3) above), to secure repayment of the foregoing Promissory
Notes, subject to the following prior and otherwise permitted liens:
(i) purchase money liens, liens existing on property at the time
of acquisition and liens on the property of a corporation at the time it
becomes a subsidiary of Debtor or of a direct or indirect subsidiary of
Debtor (provided such liens are not incurred in contemplation of such
acquisition);
(ii) liens for taxes, assessments or other governmental charges
or levies not yet due or which are being contested in good faith by
appropriate proceedings;
(iii) liens in connection with workmen's compensation,
unemployment insurance or other social security, old age pension or public
liability obligations or to secure the performance of statutory
obligations, tenders, surety and appeal bonds, bids or contracts (other
than the payment of indebtedness of Debtor or of any of its direct or
indirect subsidiaries, except for such contracts as are secured by liens
otherwise permitted hereunder) in the ordinary course of business;
(iv) liens in connection with any litigation or other legal
proceeding or arising out of a judgment or award with respect to which an
appeal is being prosecuted;
/Page
(v) landlord's, vendor's, carrier's, warehousemen's,
repairmen's, mechanic's, workmen's, materialmen's, construction or similar
liens incurred in the ordinary course of business or which are being
contested in good faith by appropriate proceedings;
(vi) easements, rights-of-way, restrictions and other similar
encumbrances which, in the aggregate, do not materially adversely interfere
with the occupation, use and enjoyment of the property encumbered thereby;
(vii) extensions, renewals and replacements of the foregoing,
and other non-material liens incurred in the ordinary course of business;
and
(viii) liens securing debt created under capital leases.
3. Upon any default hereunder, Secured Party may proceed to exercise any
and all rights and remedies provided by Colorado law.
4. This Agreement shall be construed according the laws of the State of
Colorado.
5. At such time, and subject to such conditions, as hereafter provided,
in place of the pledge of TOGA stock herein provided as security, Debtor shall
cause TOGA to substitute collateral under this Agreement (the "Collateral
Substitution") consisting of (i) TOGA's right, title and interest in Petroleum
Leases 90, 91 and 92 relating to the Project (the "Project Leases") and (ii) an
assignment to Secured Party of all security interests, granted by other
participants in the Comet Ridge Project in connection with any loans made by
TOGA to such participants under Section 5.2(c) of the Loan Agreement (the "Loan
Participants"). The Collateral Substitution shall promptly take place following
such time as the Minister for Mines and Energy of Queensland, Australia,
consents to:
(a) the transfer to TOGA of, and the transfer to Secured Party of a
security interest in, TOGA's proportionate right, title and interest in the
Project Leases;
(b) the transfer to each Loan Participant of, the transfer to TOGA of
a security interest in, and the transfer by TOGA thence to Secured Party of such
security interest in, such Loan Participant's proportionate right, title and
interest in the Project Leases.
The Collateral Substitution shall be subject to the execution of such reasonable
documentation as may be necessary for such security interests to be perfected to
the reasonable satisfaction of Secured Party.
6. This Agreement is subject to the terms and provisions of a
Subordination Agreement dated as of December 20, 1996, as the same may
heretofore have been, or may hereafter be, amended, between Secured Party and
Senior Lender, which terms and provisions are incorporated herein by reference.
7. The invalidity or unenforceability of any particular provisions of
this Agreement shall not affect the other provisions hereof, and this Agreement
shall be construed in all respects as if such invalid or unenforceable
provisions were omitted.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the date first above written.
TIPPERARY CORPORATION SLOUGH ESTATES USA INC.
By: /s/ David L. Bradshaw By: /s/ Randall W. Rohner
-------------------------------- ---------------------------------
David L. Bradshaw, President and Randall W. Rohner, Vice President
and Chief Executive Officer and Chief Financial Officer
-2-
TIPPERARY OIL & GAS CORPORATION
PLEDGE OF STOCK
December 22, 1998
Tipperary Oil & Gas Corporation ("TOGC"), which is a wholly-owned
subsidiary of Tipperary Corporation ("Tipperary"), presently owns all of the
issued and outstanding capital stock of Tipperary Oil & Gas (Australia) Pty Ltd.
("TOGA"). In consideration of, and in order to induce Slough Estates USA Inc.
("Slough") to (a) loan funds to Tipperary as provided in a Promissory Note, of
even date herewith, in the principal amount of $5,500,000, and (b) after the
date hereof, to loan funds to TOGA, its subsidiary, as provided in a Promissory
Note in the principal amount of $6,000,000, TOGC hereby pledges all of the
presently issued and outstanding capital stock, held by TOGC (the "TOGA Stock"),
as collateral to secure repayment of the foregoing two Promissory Notes, as
provided in that certain Security Agreement, of even date herewith, between
Tipperary and Slough. TOGC represents and warrants to Slough that it will
benefit directly or indirectly from the two loans and acknowledges that such
benefit constitutes full and sufficient consideration for this pledge.
TIPPERARY OIL & GAS CORPORATION
By: /s/ David L. Bradshaw
-------------------------------------------------
David L. Bradshaw, President
SECOND AMENDMENT OF SUBORDINATION AGREEMENT
THIS SECOND AMENDMENT OF SUBORDINATION AGREEMENT (this "Amendment"), dated
as of December 22, 1998, is between SLOUGH ESTATES USA INC. ("Slough Estates"),
f/k/a SLOUGH PARKS INCORPORATED ("Slough Parks"), and U.S. BANK NATIONAL
ASSOCIATION ("USB"), f/k/a COLORADO NATIONAL BANK ("CNB").
RECITALS
A. Slough Parks and CNB executed and delivered a Subordination Agreement
dated as of December 20, 1996 (the "Subordination Agreement"), pursuant to
which, among other things, Slough Parks subordinated certain obligations owed to
Slough Parks by Tipperary Corporation, a Texas corporation ("Borrower"), to any
and all obligations owed to CNB by Borrower under or in connection with a
Revolving Credit and Term Loan Agreement dated as of March 30, 1992, as amended
(the "Loan Agreement"), among Borrower, et al. and CNB. The Subordination
Agreement was afterwards amended by an Amendment to Subordination Agreement and
Consent of Subordinating Party, dated as of February 13, 1998, between Slough
Parks and USB.
B. USB is the successor to CNB. Slough Estates is the same entity as
Slough Parks.
C. Slough Estates and Borrower are executing a Promissory Note, dated
December 22, 1998, in the principal amount of $5.5 million (the "Replacement
Subordinated Note"), which shall constitute all or a part of the "Subordinated
Obligations" as defined in the Subordination Agreement. In connection with the
Replacement Subordinated Note, the "Subordinated Note," as defined in the
Subordination Agreement, will be paid and the related "Pledged Interest," as
defined in the Subordination Agreement," will be released. Repayment of the
Replacement Subordinated Note, pursuant to a Security Agreement of even date
therewith (the "Security Agreement"), is secured in part by a security interest
in all material, consolidated assets of Debtor located in the United States
(excluding (1) any and all properties and assets covered or purported to be
covered by the Third Amended and Restated Mortgage, Deed of Trust, Assignment of
Proceeds, Security Agreement and Financing Statement (Oil and Gas) dated March
30, 1992, effective as of October 4, 1990, from Debtor, et al., for the benefit
of U.S. Bank National Association f/k/a Colorado National Bank f/k/a Central
Bank National Association ("Senior Lender"), (2) any and all properties and
assets covered or purported to be covered by the Negative Pledge Agreement dated
as of March 31, 1994 from Debtor, et al., for the benefit of Senior Lender, (3)
any and all other oil and/or gas properties and related assets to which Senior
Lender has given value in determining the "Borrowing Base" pursuant to the Loan
Agreement, and (4) any and all proceeds of the property and assets described in
(1) through (3) above), subject to certain otherwise permitted liens as set
forth in the Security Agreement (such collateral securing the Replacement
Subordinated Note, the "Replacement Pledged Interest").
D. The execution and delivery of this Amendment by Slough Estates is
required in order for the Replacement Subordinated Note and Security Agreement
to be in conformity with the Loan Agreement.
AMENDMENT
NOW THEREFORE, in consideration of $10.00 and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged:
1. All references in the Subordination Agreement to "Slough Parks
Incorporated" or "Subordinating Party" shall be deemed to be references to
Slough Estates USA Inc. f/k/a Slough Parks
/Page
Incorporated.
2. As of, and after the execution of this Amendment, all references in
the Subordination Agreement (i) to the Subordinated Note shall be deemed to be
to the Replacement Subordinated Note, as herein defined, and (ii) to the Pledged
Interest shall be deemed to be to the Replacement Pledged Interest, as herein
defined.
3. This Amendment may be executed in any number of counterparts, each of
which shall be an original and no one of which need be signed by all of the
parties, but all of which together shall constitute one and the same instrument.
4. Slough Estates hereby ratifies the Subordination Agreement and
confirms that it remains valid, enforceable and in full force and effect, as
amended.
SLOUGH ESTATES USA INC. U.S. BANK NATIONAL ASSOCIATION
f/k/a SLOUGH PARKS INCORPORATED f/k/a COLORADO NATIONAL BANK
By: By:
--------------------------------- ------------------------------------
Randall W. Rohner, Vice President Charles S. Searle, Senior Vice
And Chief Financial Officer President
-2-
THIS WARRANT AND THE RIGHTS REPRESENTED HEREBY SHALL NOT BE TRANSFERABLE AT ANY
TIME UNLESS (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, SHALL BE IN EFFECT WITH RESPECT TO THIS WARRANT OR THE SHARES ISSUABLE
HEREUNDER AT SUCH TIME, OR (ii) THE TRANSFER IS MADE IN COMPLIANCE WITH THE
PROVISIONS OF SECTION 5.
NUMBER: ______ 500,000 SHARES
OF COMMON STOCK
WARRANT
TO PURCHASE SHARES
OF
TIPPERARY CORPORATION
This certifies that, for value received, Slough Estates USA Inc., a
Delaware corporation, or its registered assigns, is entitled to purchase from
TIPPERARY CORPORATION, a Texas corporation (the "Company"), Five Hundred
Thousand (500,000) Shares, as defined below, at the price of Three Dollars and
no/100 ($3.00) per Share (as defined in Section 3) at any time, or in part from
time to time on or after December 21, 2000. This Warrant shall expire, if not
exercised prior thereto, on December 21, 2005. The provisions as to adjustment
of the initial exercise price set forth above and the number of Shares to be
issued upon the occurrence of certain events (the Provisions as to Adjustment)
are more fully set forth in Annex I hereto, all of which is incorporated herein
by reference. (Hereinafter, the initial exercise price set forth above in this
paragraph for the purchase of Shares upon the exercise of this Warrant, as
adjusted pursuant to the Provisions as to Adjustment, is referred to as the
"Exercise Price"). This Warrant is subject to the following provisions, terms
and conditions:
1. EXERCISE OF WARRANT.
(a) The rights represented by this Warrant may be exercised by the holder
hereof, in whole or in part, (but not as to a fractional Share), by the
surrender of this Warrant at the Company's principal office located in Denver,
Colorado (or such other office or agency of the Company as the Company may
designate by notice in writing to the holder hereof at the address of such
holder appearing on the books of the Company at anytime within the period above
named) and delivery of a completed subscription form in the form attached to
this Warrant as Exhibit A, and upon payment to the Company of the Exercise Price
for such Shares; provided, however, that any partial exercise of this Warrant
shall be for at least 100,000 Shares, except that the final, partial exercise of
this Warrant may be for less than 100,000 Shares.
(b) Payment of the Exercise Price shall be made in same day funds or by
wire transfer to such account as the Company may designate.
(c) The Company agrees that any Shares so purchased by the exercise of
this Warrant shall be deemed to be issued to the holder hereof or its nominee as
the record owner of such Shares as of the close of business on the date on which
this Warrant shall have been surrendered, the completed subscription form
delivered, and payment made for such Shares as aforesaid.
(d) Stock certificates evidencing Shares so purchased shall be delivered
to the holder hereof or its nominee as promptly as practicable, after the rights
represented by this Warrant shall have been so exercised. If this Warrant shall
have been exercised only in part, and unless this Warrant has expired, a new
Warrant representing the number of Shares with respect to which this Warrant
shall not then have been exercised shall also be delivered to the holder hereof
within such time. Notwithstanding the foregoing, however, the Company shall not
be required to deliver any stock certificate evidencing Shares upon exercise of
this Warrant except in accordance with the provisions, and subject to the
limitations, of Section 5. The Company will pay all expenses and charges
payable in connection with the preparation, execution and delivery of stock
certificates and any new Warrants.
/Page
2. CERTAIN COVENANTS OF THE COMPANY. The Company covenants and agrees
as follows:
(a) All Shares which may be issued upon the exercise of the rights
represented by this Warrant (all such Shares, whether previously issued or
subject to issuance upon the exercise of this Warrant, are from time to time
referred to herein as "Warrant Shares") will, upon issuance, be duly authorized
and issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issuance thereof.
(b) During the period within which the rights represented by this Warrant
may be exercised, the Company will at all times have authorized and reserved
free of preemptive or other rights for the exclusive purpose of issuance upon
exercise of the purchase rights evidenced by this Warrant, a sufficient number
of Shares to provide for the exercise of rights represented by this Warrant.
(c) The Company will not, by amendment or restatement of its Articles of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, issuance or sale of securities or otherwise, avoid or take any action
which would have the effect of avoiding the performance of any of the terms to
be performed hereunder by the Company, but will at all times in good faith carry
out all of the provisions of this Warrant and take all such action as may be
necessary or appropriate to protect the rights of the holder hereof against
dilution or other impairment and, in particular, will not permit the par value
of any Share to be or become greater than the then effective Exercise Price.
3. DEFINITION OF SHARES. As used herein, the term "Shares" shall mean
and include shares of the Common Stock, par value $.02 per share, of the Company
as are constituted and exist on the date hereof, and shall also include any
other class of the capital stock of the Company hereafter authorized which shall
neither be limited to a fixed sum or percentage of par value in respect to the
rights of the holders thereof to receive dividends and to participate in the
distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Company, nor be subject at any time to
redemption by the Company; provided that the Shares receivable upon exercise of
this Warrant shall include only Shares of the type as are constituted and exist
on the date hereof or Shares resulting from any reclassification of the Shares
as provided for in paragraph (C) of the Provisions as to Adjustment.
4. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant shall not
entitle the holder hereof as such to any rights whatsoever, including, without
limitation, voting rights, as a holder of Shares of the Company. No provisions
hereof, in the absence of affirmative action by the holder hereof to purchase
Shares, and no mere enumeration herein of the rights or privileges of such
holder, shall give rise to any liability of such holder as a holder of Shares of
the Company, regardless of who may assert such liability.
5. RESTRICTIONS ON TRANSFER.
(a) This Warrant shall not be exercisable by a transferee hereof and/or
transferable and the Warrant Shares shall not be transferable except upon the
conditions specified in this Section 5, which conditions are intended, among
other things, to ensure compliance with the provisions of the Securities Act of
1933, as amended, and the rules and regulations of the Securities and Exchange
Commission (the "Commission") thereunder (collectively the "Securities Act"), in
respect of the exercise and/or transfer of this Warrant and/or transfer of such
Warrant Shares.
(b) This Warrant and the Warrant Shares shall not be transferable (except
for a transfer of this Warrant or the Warrant Shares in an offering registered
under the Securities Act, including, without limitation, a transfer in a
registered offering effected pursuant to Section 6, and any subsequent transfer)
unless, prior to any transfer, the holder hereof shall have received from its
transferee reasonable assurances that such person is aware that this Warrant and
the Warrant Shares have not been registered under the Securities Act and that
such person is acquiring this Warrant or the Warrant Shares for investment only
and not with the view to the disposition or public offering thereof (unless in
an offering registered under the Securities Act or exempt therefrom), and that
such person is aware that the stock certificates evidencing
-2-
/Page
the Warrant Shares shall bear a legend restricting transfer and disposition
thereof in accordance with the Securities Act unless, in the opinion of counsel
to the Company, such legend may be omitted. In the event of any transfer of
this Warrant (other than a transfer in an offering registered under the
Securities Act, including, without limitations a transfer in a registered
offering effected pursuant to Section 6, and any subsequent transfer), the
holder hereof shall provide an opinion of counsel, who shall be reasonably
satisfactory to the Company, that an exemption from the registration
requirements of the Securities Act is available.
(c) Any permitted subsequent holder of this Warrant shall be subject to
all the terms and conditions herein, and shall acknowledge, in writing, upon
receipt of this Warrant, his or her acceptance of the terms and conditions
herein.
(d) To facilitate sales by a holder of this Warrant or Warrant Shares in
transactions qualifying under Rule 144 promulgated by the Commission under the
Securities Act, if available, the Company agrees to satisfy the current public
information requirements of said Rule 144, for as long as the Shares remain
registered under the Securities Exchange Act of 1934, as amended, and the rules
and regulations of the Commission thereunder (collectively the "Exchange Act"),
and to provide said holder upon request with such other information as such
holder may require for compliance with the provisions of said Rule 144.
6. REGISTRATION UNDER SECURITIES ACT.
(a) If the Company at any time proposes to register any issuance of its
securities under the Securities Act (other than a registration on Form S-8 in
connection with an employee stock purchase or option plan or on Form S-4 in
connection with mergers, acquisitions or exchange offerings), the Company will
at such time give prompt written notice to the holder hereof and to the holders
of all other Warrant Shares issuable from any outstanding Warrants (such
holders are hereinafter referred to as the "Prospective Sellers") of its
intention to do so. Upon the written request of a Prospective Seller, given
within 30 days after receipt of any such notice (which request shall state the
intended method of disposition of the Warrant Shares to be transferred by such
Prospective Seller), the Company shall use its best efforts to cause all Warrant
Shares, the holders of which (or of the Warrants to which the same are related),
shall have so requested registration of the transfer thereof, to be registered
under the Securities Act, all to the extent requisite to permit the sale or
other disposition (in accordance with the intended method thereof as aforesaid)
by the Prospective Sellers of such Warrant Shares. The rights granted pursuant
to this Section 6(a) shall not be effective with respect to the Prospective
Seller in the case of an underwritten public offering of securities of the
Company by the Company unless each Prospective Seller agrees to the terms and
conditions, including underwriting discounts and allowances, specified by the
managing underwriter of such offering with respect to such Warrant Shares. The
Company shall have the right to reduce the number of Warrant Shares of the
Prospective Sellers to be included in a registration statement pursuant to the
exercise of the rights granted by this Section 6(a) if, and to the extent, that
the managing underwriter of such offering is of the good faith opinion,
supported by written reasons therefor that the inclusion of such Warrant Shares
would materially, adversely affect the marketing of the securities of the
Company to be offered; provided, that any such reduction of the number of
Warrant Shares the transfer of which is to be registered on behalf of the
Prospective Sellers shall be made on the basis of a pro rata reduction of all
Warrant Shares of all Prospective Sellers.
(b) If and whenever the Company is required by the provisions of this
Section 6 to use its best efforts to effect the registration of any transfer of
Warrant Shares under the Securities Act, the Company will, as expeditiously as
possible,
(i) prepare and file with the Commission a registration statement
with respect to such transfer and use its best efforts to cause
such registration statement to become and remain effective, but
not for any period longer than nine months;
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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 as may be necessary to keep such
registration statement effective, and to comply with the
provisions of the Securities Act with respect to the transfer of
all securities covered by such registration statement, including,
without limitation, taking all necessary actions whenever the
Prospective Sellers of the Warrant Shares covered by such
registration statement shall desire to dispose of the same;
(iii) furnish to each Prospective Seller such number of copies of a
prospectus, including a preliminary prospectus, in conformity
with the requirements of the Securities Act, and such other
documents, as such Prospective Seller may reasonably request in
order to facilitate the disposition of the Warrant Shares owned
by such Prospective Seller and covered by such registration
statement;
(iv) use its best efforts to register or qualify the securities
covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as each
Prospective Seller shall request, and use its best efforts to do
any and all other acts and things which may be reasonably
necessary to enable such Prospective Seller to consummate the
disposition in such jurisdiction of the Warrant Shares owned by
such Prospective Seller and covered by such registration
statement; provided that, notwithstanding the foregoing, the
Company shall not be required to register in any jurisdiction as
a broker or dealer of securities or to grant its consent to
service of process in any such jurisdiction solely on account of
such intended disposition by such Prospective Seller;
(v) furnish to the Prospective Sellers whose intended dispositions
are registered a signed copy of an opinion of counsel for the
Company, in form and substance acceptable to such Prospective
Sellers, to the effect that: (A) a registration statement
covering such dispositions of Warrant Shares has been filed with
the Commission under the Securities Act and has been made
effective by order of the Commission, (B) such registration
statement and the prospectus contained therein and any amendments
or supplements thereto comply as to form in all material respects
with the requirements of the Securities Act, and nothing has come
to such counsel's attention which would cause him to believe that
the registration statement or such prospectus, amendment or
supplement, at the time such registration statement or amendment
became effective or such supplement was filed with the
Commission, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein (in the case of such
prospectus, amendment or supplement, in the light of the
circumstances under which they were made) not misleading
(provided that such counsel need not render any opinion with
respect to the financial statements and other financial,
engineering and statistical data included therein), and (C) to
the best of such counsel's knowledge, no stop order has been
issued by the Commission suspending the effectiveness of such
registration statement and no proceedings for the issuance of
such a stop order are threatened or contemplated;
(vi) furnish to the Prospective Sellers whose intended dispositions
are required a blue sky survey in the form and of the substance
customarily prepared by counsel for the Company and accepted by
sellers of securities in similar offerings, discussing and
describing the application provisions of the securities or blue
sky laws of each state or jurisdiction in which the Company shall
be required, pursuant to Section 6(b)(iv), to register or quality
such intended dispositions of such Warrant Shares, or, in the
event counsel for the underwriters in such offering shall be
preparing a blue sky survey, cause such counsel to furnish such
survey to, and to allow reliance thereon by, such Prospective
Sellers;
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(vii) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission under the Securities Act
and the Exchange Act, insofar as they relate to such registration
and such registration statement; and
(viii) use its best efforts to list such Warrant Shares on any
securities exchange on which any securities of the Company are
then listed or to admit such Warrant Shares for trading in any
national market system in which any securities of the Company are
then admitted for trading, if the listing or admission of such
securities is then permitted under the rules of such exchange or
system.
(c) With respect to the registration by the Company of transfers of
Warrant Shares under the Securities Act pursuant to Section 6(a), the Company
shall pay all expenses incurred by it in complying with this Section 6
(including, without limitation, all registration and filing fees, printing
expenses, blue sky fees and expenses, costs and expenses of audits, and
reasonable fees and disbursements of counsel for the Company and special counsel
designated by Prospective Sellers owning a majority of the Warrant Shares
covered by such registration, but specifically excluding any underwriting
discounts and allowances that are allocable to the Warrant Shares being sold by,
and which shall be paid by, the Prospective Sellers; provided, however, that if
any registration statement filed with the Commission by the Company under
Section 6(b) shall not be declared effective by the Commission, such attempted
registration shall not constitute a registration under this Section 6(c).
(d) It shall be a condition precedent to the obligations of the Company to
take any action pursuant to this Section 6 that each Prospective Seller, the
transfer of whose Warrant Shares is registered or to be registered under each
such registration, shall furnish to the Company such written information
regarding the securities held by such Prospective Seller as the Company shall
reasonably request and as shall be required in connection with the action to be
taken by the Company.
(e) (i) in the event of any registration of any transfer of Warrant
Shares under the Securities Act pursuant to this Section 6, the Company will
indemnify and hold harmless each Prospective Seller of such securities, each of
its officers, directors and partners, and each other person, if any, who
controls such Prospective Seller within the meaning of the Securities Act, and
each underwriter, if any, who participates in the offering of such securities,
against any losses, claims, damages or liabilities (or actions in respect
thereof, joint or several, to which each Prospective Seller, officer, director
or partner, controlling person or underwriter may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained, on
the effective date thereof, in any registration statement under which such
transfer of securities was registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by the Company of the
Securities Act, and will reimburse such Prospective Seller and each of its
officers, directors and partners, and each such controlling person or
underwriter, for any legal or any other expenses reasonably incurred by such
Prospective Seller or its officers, directors and partners or controlling
persons or by each such underwriter, in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
such registration statement, preliminary prospectus or prospectus or such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company through an instrument duly executed by such
Prospective Seller specifically for use in the preparation thereof. In the
event of any registration by the Company or any transfer of securities under the
Securities Act pursuant to this Section 6, each Prospective Seller of Warrant
Shares covered by such registration will indemnify and hold harmless the
Company, each other person, if any, who controls the Company within the meaning
of the Securities Act and each officer and director of the Company and the other
Prospective Sellers to the same extent that the Company agrees to indemnity it,
but only with respect
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to the written information relating to such Prospective Seller furnished to the
Company by such Prospective Seller aforesaid.
(ii) Each indemnified party shall, as promptly as practicable upon receipt
of notice of the commencement of any action against such indemnified party or
its officers, directors or partners, or any controlling person of such
indemnified party, in respect of which indemnity may be sought from an
indemnifying party on account of the indemnity agreement contained in Section
6(e)(i), notify the indemnifying party in writing of the commencement thereof.
The omission of such indemnified party to so notify the indemnifying party of
any such action shall not relieve the indemnifying party from any liability
which it may have on account of the indemnity agreement contained in Section
6(e)(i) to the extent that the failure to receive such notice within a
reasonable period of time shall not have caused harm, loss or damage to the
indemnifying party, provided that, conversely, if such failure to receive notice
shall have caused any harm, loss or damage to the indemnifying party, such
failure shall constitute a defense to any liability which such indemnifying
party may have on account of such agreement to the extent of the harm, loss or
damage so caused. In case any such action shall be brought against any
indemnified party, its officers, directors and partners, or any such controlling
person, and such indemnified party shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate in
(and, to the extent that the indemnifying party shall wish, to direct) the
defense thereof at the indemnifying party's own expense, in which event the
defense shall be conducted by recognized counsel chosen by the indemnifying
party and approved by the indemnified party (whose approval shall not
unreasonably be withheld) and the indemnified party may participate in such
defense at its own expense (unless it is advised by counsel that actual or
potential differing interests or defenses exist or may exist, in which case such
expenses shall be paid by the indemnifying party, provided that the indemnifying
party shall not be required to pay the expenses for more than one counsel for
all such indemnified parties).
7. TRANSFER; OWNERSHIP. Subject to Section 5, this Warrant and all
rights hereunder are transferable, in whole or in part, at the office or agency
of the Company referred to in Section 1 by the holder hereof in person or by a
duly authorized attorney, upon surrender of this Warrant, with an assignment,
acceptable to the Company, duly completed, at which time a new Warrant shall be
made and delivered by the Company, of the same tenor as this Warrant but
registered in the name of the transferee. The holder of this Warrant, by taking
or holding the same, consents and agrees that this Warrant, when endorsed in
blank, shall be deemed negotiable, and that the holder hereof, when this Warrant
shall have been so endorsed, may be treated by the Company and all other persons
dealing with this Warrant as the absolute owner hereof for any purpose and as
the person entitled to exercise the rights represented by this Warrant and to
transfer this Warrant on the books of the Company, any notice to the contrary
notwithstanding; but until such transfer on such books, the Company may treat
the registered holder hereof as the owner hereof for all purposes. Any
transfer of this Warrant shall be made in compliance with the Securities Act and
any applicable state securities or blue sky laws.
8. EXCHANGE AND REPLACEMENT. Subject to Section 7, this Warrant is
exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in Section 1, for new Warrants of like tenor
and date representing in the aggregate the right to purchase the number of
Shares which may be purchased hereunder, each of such new Warrants to represent
the right to purchase such number of Shares as shall be designated by said
holder hereof at the time of such surrender. Upon receipt by the Company at the
office or agency referred to in Section 1 of evidence reasonably satisfactory to
it of the loss, theft or destruction of this Warrant and of indemnity or
security reasonably satisfactory to it (provided that the written indemnity of
the holder hereof shall be deemed reasonably satisfactory to the Company for
such purposes), the Company will deliver a new Warrant of like tenor and date in
replacement of this Warrant. This Warrant shall be promptly canceled by the
Company upon the surrender hereof in connection with any transfer, exchange or
replacement. The Company will pay all expenses and charges payable in
connection with the preparation, execution and delivery of Warrants pursuant to
Section 7 and this Section 8.
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9. NOTICES. Any notice or other document required or permitted to be
given or delivered to the holder hereof shall be delivered at, or sent by
certified or registered mail to, Slough Estates USA Inc., 33 West Monroe Street,
Suite 2000, Chicago, Illinois 60603, or to such other address as shall have been
furnished to the Company in writing by the holder hereof. Any notice or other
document required or permitted to be given or delivered to the Company shall be
delivered at, or sent by certified or registered mail to, 633 Seventeenth, Suite
1550, Denver, Colorado 80202, or to such other address as shall have been
furnished in writing to the holder hereof by the Company. Any notice so
addressed and mailed by registered or certified mail or otherwise delivered,
shall be deemed to be given when actually received by the addressee.
10. GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
11. MISCELLANEOUS. This Warrant will be binding upon any partnership or
corporation succeeding to the Company by consolidation or acquisition of all or
substantially all of the Company's assets, and upon any successor or assign of
the holder hereto. This Warrant and any provision hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party (or any predecessor in interest thereof) against whom enforcement of the
same is sought. The headings in this Warrant are for purposes of reference only
and shall not affect the meaning or construction of any of the provisions
hereof.
IN WITNESS WHEREOF, Tipperary Corporation has caused this Warrant to be
signed by its duly authorized officers, under its corporate seal, to be dated
December 22, 1998.
TIPPERARY CORPORATION
By: /s/ David L. Bradshaw
---------------------------------------------
David L. Bradshaw, President and
Chief Executive Officer
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Annex I
TIPPERARY CORPORATION
PROVISIONS AS TO ADJUSTMENT OF
EXERCISE PRICE AND NUMBER OF SHARES
ISSUED UPON OCCURRENCE OF CERTAIN EVENTS
The Exercise Price and the number of Shares issuable upon the exercise of
the annexed Warrant to purchase shares of TIPPERARY CORPORATION, a Texas
corporation (herein and in this Warrant referred to as the "Company"), shall be
subject to adjustment from time to time as hereinafter provided; however, that
in no event shall the Exercise Price be increased to a price greater than Three
Dollars and no/100 ($3.00) per Share, except as provided by paragraph (C)
hereof. Upon each adjustment of the Exercise Price, the holder of this Warrant
shall thereafter be entitled to purchase, at the Exercise Price resulting from
such adjustment, the number of Shares obtained by multiplying the number of
Shares purchasable pursuant hereto immediately prior to such adjustment by a
fraction, the numerator of which is the Exercise Price in effect immediately
prior to such adjustment and the denominator of which is the Exercise Price
resulting from such adjustment. In making the adjustments to the Exercise
Price and the number of Shares issuable upon the exercise of this Warrant, the
following provisions shall be applicable:
(A) If and whenever the Company shall issue or sell any Shares for
consideration per Share at less than the Market Price (as hereinafter defined)
of such Shares on the date of such issue or sale, then forthwith upon such issue
or sale the Exercise Price in effect immediately prior thereto shall be adjusted
to an amount (calculated to the nearest cent) determined by dividing (i) an
amount equal to the sum of (a) the number of Shares outstanding immediately
prior to such issue or sale multiplied by the Exercise Price in effect
immediately prior to such issue or sale, and (b) the consideration, if any,
received by the Company upon such issue or sale by (ii) the total number of
Shares outstanding immediately after such issue or sale; provided, however, that
no adjustment shall be made hereunder by reason of:
(i) the grant of this Warrant or the issuance of Shares upon the exercise
of this Warrant or any other warrant of the Company (except for a
warrant issued after the date hereof the exercise price of which is
less than the Market Price on the date of issuance of such warrant);
or
(ii) the grant by the Company of options to purchase Shares in connection
with any purchase or option plan for the benefit of employees of the
Company, or any affiliates or subsidiaries thereof.
No adjustment of the Exercise Price shall be required to be made by the Company
and no notice hereunder must be given if the amount of any required adjustment
is less than 5% of the Exercise Price. In such case any such adjustment shall
be carried forward and shall be made (and notice thereof shall be given
hereunder) at the time of and together with the next subsequent adjustment
which, together with any adjustment so carried forward, shall amount to not less
than 5% of the Exercise Price.
(B) For the purposes of paragraph (A), the following provisions (i)
through (vi), inclusive, shall also be applicable:
(i) If, at the time Shares are issued and sold upon the conversion or
exchange of Convertible Securities or upon the exercise of rights or
options previously granted by the Company, the price per Share for
which such Shares are issued (determined by dividing (a) the total
amount, if any, received by the Company as consideration for such
Convertible Securities or for the granting of such rights or options,
plus the aggregate amount of additional consideration paid to the
Company upon the conversion or exchange of such Convertible Securities
(which, if so provided in such Convertible Securities, shall be deemed
to be equal to the outstanding principal amount of the indebtedness
represented by such Convertible Securities) or upon the exercise of
such rights or options, by (b) the total number of Shares issued upon
the conversion or exchange of
Annex - Page 1
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such Convertible Securities or upon the exercise of such rights or
options) shall be less than the Exercise Price in effect immediately
prior to such issue, sale or exercise, then the adjustments provided
for by the first paragraph of this Annex I and paragraph (A) shall be
made. In making the adjustment of the Exercise Price provided for by
paragraph (A), the amount described in clause (a) of this paragraph
(B)(i) shall be considered the consideration received by the Company
upon the issue or sale of the Shares for purposes of clause (i)(b) of
paragraph (A).
(ii) In case at any time any Shares or Convertible Securities or any rights
or options to purchase any Shares or Convertible Securities shall be
issued or sold for cash, the consideration received therefor shall be
deemed to be the amount received by the Company therefor without
deduction therefrom of any expenses incurred or any underwriting
commissions or concessions paid or allowed by the Company in
connection therewith. In case any Shares or Convertible Securities or
any rights or options to purchase any Shares or Convertible Securities
shall be issued or sold, in whole or in part, for consideration other
than cash, the amount of the consideration other than cash received by
the Company in exchange for the issue or sale of such Convertible
Securities shall be deemed to be the fair value of such consideration
as determined in good faith by the board of directors of the Company,
without deduction therefrom of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the Company
in connection therewith; provided that if the holder or holders of at
least 66-2/3% of the Warrant Shares purchasable under this Warrant
shall request in writing, the value of such consideration shall be
determined by an independent expert selected by such holders, the
costs and expenses of which shall be borne by the Company, and, if the
value of such consideration as so determined is less than the value
determined by the board of directors of the Company, the lesser value
shall be utilized in calculating the consideration per Share received
by the Company for purposes of making the adjustment provided by
paragraph (A). In the event of any merger or consolidation of the
Company in which the Company is not the surviving corporation or in
the event of any sale of all or substantially all of the assets of the
Company for stock or other securities of any corporation, the Company
shall be deemed to have issued a number of Shares for stock or
securities of such other corporation computed on the basis of the
actual exchange ratio on which the transaction was predicated and for
consideration that is equal to the fair market value on the date of
such transaction of such stock or securities of the other corporation,
and if any such calculation results in adjustment of the Exercise
Price, the determination of the number of Shares issuable upon
exercise of this Warrant immediately prior to such merger,
consolidation or sale, for purposes of paragraph (A), shall be made
after giving effect to such adjustment of the Exercise Price.
(iii) The number of Shares outstanding at any given time shall not include
Shares that have been redeemed by the Company and not canceled, if
any, and that are thus owned or held by or for the account of the
Company, and the disposition of any such Shares shall be considered an
issue or sale of Shares for purposes of paragraph (A).
(iv) "Market Price" shall mean the lower of (a) the average closing sales
prices of Shares recorded on the principal national securities
exchange on which the Shares are listed or in a national market system
for securities in which the Shares are admitted to trading or (b) the
average of the closing bid and asked prices of Shares reported in the
domestic over-the-counter market, for the 20 trading days immediately
prior to the day as of which the Market Price is being determined. If
the Shares are not listed on any national securities exchange or
admitted for trading in any national market system or traded in the
domestic over-the-counter market, the Market Price shall be the higher
of (y) the book value of the Shares as determined by a firm of
independent public accountants of recognized standing selected by the
board of directors of the Company as of the last day of any month
ending within 60 days preceding the date as of which the determination
is to be made or (z) the fair market value of the Shares determined in
good faith by the board of directors of the Company, provided that if
the holder or holders of at least 66-2/3% of the Warrant Shares
purchasable under the Warrant shall request in writing, the fair
Annex - Page 2
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market value of the Shares shall be determined by an independent
investment banking firm or other independent expert selected by such
holders and reasonably satisfactory to the Company, the costs and
expenses of which shall be born by the Company, which determination
shall be as of a date which is within 15 days of the date as of which
the determination is to be made.
(v) Anything herein to the contrary notwithstanding, in case the Company
shall issue any Shares in connection with the acquisition by the
Company of the stock or assets of any other corporation or the merger
of any other corporation into the Company under circumstances where,
on the date of the issuance of such Shares, the consideration received
for such Shares is less than the Market Price of the Shares, but on
the date the number of Shares was determined, the consideration
received for such Shares would not have been less than the Market
Price thereof, such Shares shall not be deemed to have been issued for
less than the Market Price, provided that the date the number of
shares was determined is not greater than ten days prior to the date
of issuance of such shares.
(vi) Anything in clause (ii) of this paragraph (B) to the contrary
notwithstanding, in the case of an acquisition where all or part of
the purchase price is payable in Shares or Convertible Securities but
is stated as a dollar amount, where the Company upon making the
acquisition pays only part of a maximum dollar purchase price which is
payable in Shares or Convertible Securities and where the balance of
such purchase price is deferred or is contingently payable under a
formula related to earnings over a period of time, (a) the
consideration received for any Shares or Convertible Securities
delivered at the time of the acquisition shall be deemed to be such
part of the total consideration as the portion of the dollar purchase
price then paid in Shares or Convertible Securities bears to the total
maximum dollar purchase price payable in Shares or Convertible
Securities and (b) in connection with each issuance of additional
Shares or Convertible Securities pursuant to the terms of the
agreement relating to such acquisition, the consideration received
shall be deemed to be such part of the total consideration as the
portion of the dollar purchase price then and theretofore paid in
Shares or Convertible Shares bears to the total maximum dollar
purchase price payable in Shares or Convertible Securities multiplied
by a fraction the numerator of which shall be the number of Shares (or
in the case of Convertible Securities other than capital stock of the
Company, the aggregate principal amount of such Convertible
Securities) then issued and the denominator of which shall be the
total number of shares (or in the case of Convertible Securities other
than capital stock of the Company, the aggregate principal amount of
such Convertible Securities) then and theretofore issued under such
acquisition agreement. In the event only a part of the purchase price
for an acquisition is paid in Shares or Convertible Securities in the
manner referred to in this clause (vi), the term "total consideration"
as used in this clause (vi) shall mean that part of the aggregate
consideration as is fairly allocable to the purchase price paid in
Shares or Convertible Securities in the manner referred to in this
clause (vi), as determined by the board of directors of the Company.
(C) In the case at any time the Company shall subdivide its outstanding
Shares into a greater number of Shares, then from and after the record date for
such subdivision the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of Shares
purchasable upon the exercise of this Warrant shall be correspondingly
increased, and, conversely, in case the outstanding Shares shall be combined
into a smaller number of Shares, then from and after the record date for such
combination the Exercise Price in effect immediately prior to such combination
shall be proportionately increased and the number of Shares purchasable upon the
exercise of this Warrant shall be correspondingly decreased.
(D) If any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company with another
corporation, or sale of all or substantially all of its assets to another
corporation, shall be effected in such a way that holders of Shares (or any
other securities of the Company then issuable upon the exercise of this Warrant)
shall be entitled to receive stock, securities
Annex - Page 3
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or assets with respect to or in exchange for Shares (or such other securities)
then, as a condition of such reorganization, reclassification, consolidation,
merger or sale, lawful and adequate provision shall be made whereby the holder
hereof shall thereafter have the right to purchase and receive upon the basis
and upon the terms and conditions specified in this Warrant and in lieu of the
Shares (or other securities) of the Company immediately theretofore purchasable
and receivable upon the exercise of the rights represented hereby, such shares
of stock, securities or assets as may be issued or payable with respect to or in
exchange for a number of outstanding Shares (or other securities) equal to the
number of Shares (or other securities) immediately theretofore so purchasable
and receivable had such reorganization, reclassification, consolidation, merger
or sale not taken place, and in any such case appropriate provision shall be
made with respect to the rights and interests of the holder of this Warrant to
the end that the provisions hereof (including, without limitation, provisions
for adjustment of the Exercise Price and of the number of Shares (or other
securities) purchasable upon the exercise of this Warrant and for the
registration thereof as provided in Section 6 of this Warrant) shall thereafter
be applicable, as nearly as may be, in relation to any shares of stock,
securities or assets thereafter deliverable upon the exercise hereof (including
an immediate adjustment, by reason of such consolidation, merger or sale, of the
Exercise Price to the value of the Shares (or other securities) reflected by the
terms of such consolidation, merger or sale if the value so reflected is less
than the Exercise Price in effect immediately prior to such consolidation,
merger or sale). In the event of a consolidation or merger of the Company with
or into another corporation as a result of which a greater or lesser number of
securities of the surviving corporation are issuable to holders of Shares in
respect of the number of Shares outstanding immediately prior to such
consolidation or merger, then the Exercise Price in effect immediately prior to
such consolidation or merger shall be adjusted in the same manner as though
there were a subdivision or combination of the outstanding Shares. The Company
shall not effect any such consolidation, merger or sale, unless prior to or
simultaneously with the consummation thereof the surviving or successor
corporation (if other than the Company) resulting from such consolidation or
merger of the corporation purchasing such assets shall assume, by written
instrument executed and mailed to the registered holder hereof at the last
address of such holder appearing on the books of the Company, the obligation to
deliver to such holder such Shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
purchase, and containing the express assumption of such surviving or successor
corporation of the due performance of every provision of this Warrant to be
performed by the Company and of all liabilities and obligations of the Company
hereunder.
(E) In case at any time the Company shall pay any dividend on or make any
other distribution with respect to Shares (or any other securities of the
Company then issuable upon the exercise of the Warrant) that is payable in
Shares, Convertible Securities, any other securities of the Company or other
stock, securities or assets, other than cash, then thereafter, and in lieu of
any adjustment of the Exercise Price and the number of Shares issuable upon the
exercise of this Warrant, the holder of this Warrant, upon any exercise of the
rights represented hereby, shall be entitled to receive the number of Shares
(or other securities) being purchased upon such exercise and, in addition to and
without further payment, the Shares, Convertible Securities, other Securities of
the Company or other stock, securities or assets which the holder of this
Warrant would have received by way of such distributions, as if continuously
since the date of the Warrant (or, if this Warrant shall have been issued
pursuant to Section 7 of this Warrant, the date of the predecessor Warrant to
which this Warrant relates), such holder had been the record holder of the
number of Shares (or other securities) then being purchased upon the exercise
hereof and had retained all such Shares, Convertible Securities, other
securities of the Company or other stock, securities or assets distributable
with respect to such Shares (or other securities) then being purchased upon the
exercise hereof and, furthermore, all cash, stock, securities or assets payable
as dividends or distributions with respect to the foregoing distributable
securities or assets and originating directly or indirectly therefrom. The
Company shall reserve and retain in escrow from any such dividend or
distribution of Shares, Convertible Securities, other securities of the Company
or other stock, securities or assets, and from any such dividends or
distributions with respect thereto and originating directly or indirectly
therefrom, such Shares, Convertible Securities, other securities of the Company
and other stock, securities, assets and cash as shall be necessary to fulfill
its obligations to the holder hereof pursuant to this paragraph (E).
Annex - Page 4
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(F) If at any time conditions arise by reason of action taken by the
Company, which in the good faith opinion of the board of directors of the
Company, are not adequately covered by the provisions of this Annex I, and which
might materially adversely affect the rights of the holder of this Warrant, the
Company shall appoint a firm of independent public accountants of recognized
standing (which may be the regular accountants or auditors of the Company),
which shall give their opinion as to the adjustments, if any, in the Exercise
Price and the number of Shares purchasable upon the exercise of this Warrant, or
other change in the rights of the holder hereof, on a basis consistent with the
other provisions of this Annex I, necessary to preserve without diminution the
rights of the holder hereof. Upon receipt of such opinion, the Company shall
forthwith make the adjustments described herein.
(G)(i) Within two (2) days of any adjustment of the Exercise Price or change
in the number of Shares purchasable upon the exercise of this Warrant
made pursuant to the above paragraphs (A) through (F) or any change
in the rights of the holder of this Warrant by reason of the
occurrence of events described such paragraphs, the Company shall give
written notice by certified or registered mail to the registered
holder of this Warrant at the address of such holder as shown on the
books of the Company, which notice shall describe the event requiring
such adjustments, the Exercise Price resulting from such adjustment,
the increase or decrease in the number of Shares purchasable upon the
exercise of this Warrant, and any other change in the rights of such
holder, and set forth in reasonable detail the method of calculation
of such adjustments and the facts upon which such calculations are
based. Within three (3) days of receipt from the holder hereof of a
written request therefor (which request shall not be made more than
once each calendar quarter), the Company shall give written notice by
certified or registered mail to such holder at its address as shown on
the books of the Company of the Exercise Price in effect as of the
date of receipt of such written request, and the number of Shares
purchasable or the number or amount of other shares of stock,
securities or assets receivable as of such date, and set forth in
reasonable detail the method of calculation of such numbers.
(ii) Upon each adjustment of the Exercise Price and each change in the
number of Shares purchasable upon the exercise of this Warrant, and
change in the rights of the holder of this Warrant by reason of the
occurrence of other events herein set forth, then and in each case,
upon written request of the holder of this Warrant (which request
shall be made not more often than once each calendar year), the
Company will at its expense promptly obtain an opinion of independent
public accountants reasonably satisfactory to each holder stating the
then effective Exercise Price and the number of Shares then
purchasable, or specifying the other shares of stock, securities or
assets and the amount thereof then receivable, and setting forth in
reasonable detail the method of calculation of such numbers and the
facts upon which such calculations are based. The Company will
promptly mail a copy of such opinion to the registered holder hereof.
(H) In case at any time:
(i) The Company shall pay any dividend payable in capital stock on its
outstanding Shares or make any distribution (other than regular cash
dividends) to the holders of Shares;
(ii) The Company shall offer for subscription pro rata to the holders of
Shares any additional capital stock or other rights;
(iii) There shall be authorized any capital reorganization or
reclassification of the capital stock of the Company, or consolidation
or merger of the Company with, or sale of all or substantially all of
its assets to, another corporation; or
(iv) There shall be authorized or commence a voluntary or involuntary
dissolution, liquidation or winding up of the Company,
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then, in one or more of said cases, the Company shall given written notice by
certified or registered mail to the holder of this Warrant at the address of
such holder as shown on the books of the Company on the date on which (1) the
books of the Company shall close or a record shall be taken for such dividend,
distribution, or subscription rights, or (2) such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up shall take place or be voted upon by the shareholders of the Company,
as the case may be. Such notice shall also specify the date as of which the
holders of record of Shares shall participate in such dividend, distribution or
subscription rights, or shall be entitled to exchange their Shares for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be. Such written notice shall be given at least
thirty (30) days prior to the action in question and no less than thirty (30)
days prior to the record date or the date on which the Company's books are
closed in respect thereto.
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EXHIBIT A
- ---------
SUBSCRIPTION FORM
To be Executed by the Registered Holder
Desiring to Exercise the Within Warrant of
TIPPERARY CORPORATION
The undersigned registered holder hereby exercises the right to purchase
_____ Shares (not less than 100,000 Shares, except for the final exercise of
this Warrant, which may be for a lesser number of Shares) covered by the within
Warrant according to the conditions thereof, and herewith makes payment of the
Exercise Price of such Shares, $__________.
Name of Registered Holder:
----------------------------------------------
Address of Registered Holder:
---------------------------------
---------------------------------
Registered Holder's Tax I.D. No.:
----------------------------
Name of Nominee (if applicable):
----------------------------
Address of Nominee:
-------------------------------------------
-------------------------------------------
Nominee's Tax I.D. No.:
---------------------------------
Signature of
Registered Holder:
--------------------------------------------
Title of Signing Officer
or Agent (if any):
--------------------------------------------
Dated: , 19 .
-------------------- ----
SUBSCRIPTION AGREEMENT
----------------------
TIPPERARY CORPORATION
---------------------
This Subscription Agreement (this "Agreement") is made this 22nd day of
December 1998, by and between Tipperary Corporation, a Texas corporation (the
"Company"), whose principal place of business is 633 Seventeenth Street, Suite
1550, Denver, Colorado 80202, and Slough Estates USA Inc., a Delaware
corporation (the "Purchaser"), whose office is located at 33 West Monroe Street,
Suite 2000, Chicago, Illinois 60603.
In consideration of the mutual promises and covenants herein contained, the
parties hereto agree as follows:
I. STOCK PURCHASE
1.1 STOCK PURCHASE. Subject to the terms and conditions hereof and in
reliance upon the representations and warranties contained herein, the Company
hereby issues and sells to the Purchaser, and the Purchaser hereby purchases
from the Company, 2,000,000 shares (the "Shares") of common stock of the
Company, $.02 par value ("Common Stock"), for a purchase price of $2.00 per
Share, for an aggregate purchase price for the Shares of $4,000,000.
1.2 PAYMENT FOR AND DELIVERY OF THE SHARES. Concurrently herewith, (a)
the Purchaser hereby makes payment of the $4,000,000 total purchase price for
the Shares (the "Purchase Price") to the Company by wire transfer of immediately
available funds to such account or accounts as the Company has designated to the
Purchaser, and (b) on the date hereof, the Company shall deposit with Federal
Express for overnight delivery to the custodians of the Purchaser, or shall
otherwise deliver as the Purchaser may direct, a certificate for the Shares to
be purchased by the Purchaser, duly registered in the name of the Purchaser.
1.3 RESTRICTIONS ON SHARES; SALES UNDER RULE 144.
The Purchaser understands that:
(a) The offer and sale of the Shares has not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), any state securities
laws or the laws of any foreign jurisdiction, but rather are being made
privately by the Company pursuant to the exemption from registration provided by
Section 4(2) of the Securities Act and applicable state law exemptions.
(b) All stock certificates evidencing the Shares shall bear a restrictive
legend in substantially the language set forth below.
The shares represented by this Certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"), and are
"restricted securities" as that term is defined in Rule 144 under
the Act. These shares may not be offered for sale, sold, or otherwise
transferred except pursuant to an effective registration statement
under the Act or pursuant to an exemption from registration under the
Act, the availability of which is to be established to the satisfaction
of the Company.
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(c) To facilitate sales by a holder of the Shares in transactions
qualifying under Rule 144 promulgated by the Securities and Exchange Commission
(the "Commission") under the Securities Act, if available, the Company agrees to
satisfy the current public information requirements of said Rule 144, for as
long as the Shares remain registered under the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the Commission thereunder
(collectively the "Exchange Act"), and to provide said holder upon request with
such other information as such holder may require for compliance with the
provisions of said Rule 144.
II. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
2.1 STATUS OF THE PURCHASER. The Purchaser hereby represents, warrants
and agrees that it is an "Accredited Investor" as that term is defined in Rule
501(a) of Regulation D promulgated by the Commission under the Securities Act.
2.2 INFORMATION PROVIDED RESPECTING THE COMPANY. The Purchaser has been
supplied with information and materials concerning the Company and its
operations, structuring and financing, including but not limited to copies of
its Annual Report on Form 10-K for the fiscal year ended September 30, 1997, its
Forms 10-Q for the quarters ended December 31, 1997, March 31, 1998 and June 30,
1998, and its definitive proxy statement for the 1998 Annual Meeting of
Shareholders. The Company has provided the Purchaser with the opportunity to
discuss with and ask questions of the Company's representatives concerning the
Company's business plan. All information requested by the Purchaser from the
Company or its representatives concerning the business and financial condition
of the Company and the terms and conditions of this Agreement has been furnished
to the Purchaser's satisfaction. The Purchaser has had the opportunity to ask
questions of and receive answers from management of the Company concerning the
terms and conditions of this Agreement, and to obtain from the Company any
additional information which the Company possesses or can acquire without
unreasonable effort or expense that is necessary to verify the accuracy of the
information provided to the Purchaser.
2.3 SHARES ACQUIRED BY THE PURCHASER.
The Purchaser represents, warrants and certifies to the Company as of the
date first above written that:
(a) The Purchaser is acquiring the Shares for the Purchaser's own account
and not for or on behalf of any other person;
(b) The Purchaser represents that the Shares have not been acquired with a
view towards distribution or for redistribution or with the current intent to
divide the Purchaser's participation with others;
(c) The Purchaser will only resell the Shares pursuant to registration
under the Securities Act and the laws of any applicable states or pursuant to an
available exemption from registration. Prior to any proposed sale, assignment,
transfer or pledge of the Shares (other than transfers not involving a change in
beneficial ownership), unless there is in effect a registration statement under
the Securities Act covering the proposed transfer, the Purchaser shall give
written notice to the Company of its intention to effect such transfer, sale,
assignment or pledge. The availability of an exemption from registration under
the Securities Act with respect to such transfer, sale, assignment or pledge
shall be
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established to the reasonable satisfaction of the Company, including, as the
Company may request, the provision to the Company of an opinion of counsel that
such an exemption is available.
2.4 INVESTMENT HEREIN IS CONSISTENT WITH THE PURCHASER'S INVESTMENT
PROGRAM. The Purchaser further represents that the Purchaser is familiar with
the type of investment which the Shares constitute. The Purchaser believes that
the Shares subscribed for herein are Shares of the kind the Purchaser wishes to
acquire and that the nature of the Shares subscribed for and the amount of the
Purchaser's subscription is consistent with the overall investment program and
financial position of the Purchaser. The Purchaser understands that Shares
purchased hereby have a high degree of risk, and the Purchaser may lose its
entire investment in the Shares.
2.5 KNOWLEDGE AND EXPERIENCE. The Purchaser has such knowledge and
experience in financial and business matters in general to evaluate the merits
and risks of the prospective investment and to make an informed investment
decision.
III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As a material inducement to the Purchaser to enter into this Agreement and
purchase the Shares hereunder, the Company hereby represents and warrants that:
3.1 ORGANIZATION, CORPORATE POWER, LICENSES. The Company is a corporation
duly organized, validly existing and in good standing under the laws of Texas
and is qualified to do business in every jurisdiction in which its ownership of
property or conduct of business requires it to qualify, except to the extent
that the failure to so qualify would not have a material adverse effect on the
business or financial condition of the Company. The Company possesses all
requisite corporate power and authority and all material licenses, permits and
authorizations necessary to own and operate its properties, to carry on its
businesses as now conducted and presently proposed to be conducted and to carry
out the transactions contemplated by this Agreement. The copies of the
Company's Articles of Incorporation and Bylaws which have been furnished to
Purchaser's counsel reflect all amendments made thereto at any time prior to the
date of this Agreement and are correct and complete.
3.2 CAPITAL STOCK AND RELATED MATTERS.
(a) As of the date hereof, the authorized capital stock of the Company
consists of 20,000,000 shares of $.02 par value Common Stock, of which
15,133,955 shares shall be issued and outstanding after the issuance of the
Shares hereunder, 10,000,000 shares of $1.00 par value Cumulative Preferred
Stock, none of which are issued, and 10,000,000 shares of $1.00 par value Non-
Cumulative Preferred Stock, none of which are issued. There are 926,800 shares
of Common Stock reserved for issuance upon exercise of the stock options granted
by the Company and outstanding warrants of the Company. As of the date hereof,
the Company has no outstanding stock or securities convertible or exchangeable
for any shares of its capital stock or containing any profit participation
features, nor any outstanding rights or options to subscribe for or to purchase
its capital stock or any stock or securities convertible into or exchangeable
for its capital stock or any stock appreciation rights or phantom stock plans,
except as set forth above. As of the date hereof, the Company shall not be
subject to any obligation (contingent or otherwise) to repurchase or otherwise
acquire or retire any shares of its capital stock or any warrants, options or
other rights to acquire its capital stock. As of the
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date hereof, all of the outstanding shares of the Company's capital stock shall
be validly issued, fully paid and nonassessable.
(b) There are no statutory or contractual shareholders' preemptive rights
or rights of refusal with respect to the issuance of the Shares hereunder. The
Company has not violated any applicable federal or state securities laws in
connection with the offer, sale or issuance of any of its capital stock, and the
offer, sale and issuance of the Shares hereunder do not require registration
under the Securities Act or any applicable state securities laws. Except as set
forth on the Capitalization Schedule, there are no agreements among the
Company's shareholders with respect to the voting or transfer of the Company's
capital stock.
3.3 AUTHORIZATION; NO BREACH. The execution, delivery and performance of
this Agreement and the issuance of the Shares have been duly authorized by the
Company. This Agreement constitutes a valid and binding obligation of the
Company, enforceable in accordance with its terms, subject to the effects of (i)
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other laws now or hereafter in effect relating to creditors' rights generally,
and (ii) general principles of equity. The execution and delivery by the
Company of this Agreement, the offering sale and issuance of the Shares and the
fulfillment of and compliance with the respective terms hereof and thereof by
the Company, do not and shall not (i) conflict with or result in a breach of the
terms, conditions or provisions of, (ii) constitute a default under, (iii)
result in the creation of any lien, security interest, charge or encumbrance
upon the Company's capital stock or assets pursuant to, (iv) give any third
party the right to modify, terminate or accelerate any obligation under, (v)
result in a violation of, or (vi) require any authorization, consent, approval,
exemption or other action by or notice or declaration to, or filing with,
(except as to such action as has been taken or such notice, declaration or
filing which the Company has made), any court or administrative or governmental
body or agency pursuant to, the Articles of Incorporation or Bylaws of the
Company, or any law, statute, rule or regulation to which the Company is
subject, or any agreement, instrument, order, judgment or decree to which the
Company is subject.
3.4 BROKERAGE. There are no claims for brokerage commissions, finders'
fees or similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement or agreement entered into by the
Company. The Company shall pay, and hold Purchaser harmless against, any
liability, loss or expense (including, without limitation, reasonable attorneys'
fees and out-of-pocket expenses) arising in connection with any such claim.
3.5 GOVERNMENTAL CONSENT, ETC. All permits, consents, approvals or
authorizations of, or declarations to or filings with, any governmental
authority required in connection with the execution, delivery and performance by
the Company of this Agreement, or the consummation by the Company of any other
transactions contemplated hereby or thereby, have been made, except as expressly
contemplated herein or in the exhibits hereto.
3.6 DISCLOSURE. Neither this Agreement nor any of the exhibits,
schedules, attachments, written statements, documents, certificates or other
items prepared or supplied to Purchaser by or on behalf of the Company with
respect to the transactions contemplated hereby contain any untrue statement of
a material fact or omit a material fact necessary to make each statement
contained herein and therein not misleading. There is no fact which the Company
has not disclosed to Purchaser in writing and of which any of its officers,
directors or executive employees is aware and which has had or would reasonably
be expected to have a material adverse effect upon the financial condition,
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operating results, assets, customer or supplier relations, employee relations or
business prospects of the Company.
IV. REGISTRATION RIGHTS UNDER SECURITIES ACT
4.1 If the Company at any time proposes to register any issuance of its
securities under the Securities Act (other than a registration on Form S-8 in
connection with an employee stock purchase or option plan or on Form S-4 in
connection with mergers, acquisitions or exchange offerings), the Company will
at such time give prompt written notice to the Purchaser of its intention to do
so. Upon the written request of the Purchaser, given within 30 days after
receipt of any such notice (which request shall state the intended method of
disposition of the Shares to be transferred by the Purchaser), the Company shall
use its best efforts to cause all of the Shares held by the Purchaser to be
registered under the Securities Act, all to the extent requisite to permit the
sale or other disposition (in accordance with the intended method thereof as
aforesaid) by the Purchaser of such Shares. The rights granted pursuant to this
Section 4.1 shall not be effective with respect to the Purchaser in the case of
an underwritten public offering of securities of the Company by the Company
unless the Purchaser agrees to the terms and conditions, including underwriting
discounts and allowances, specified by the managing underwriter of such offering
with respect to such Shares. The Company shall have the right to reduce the
number of Shares of the Purchaser to be included in a registration statement
pursuant to the exercise of the rights granted by this Section 4.1 if, and to
the extent that, the managing underwriter of such offering is of the good faith
opinion, supported by written reasons therefor that the inclusion of such Shares
would materially adversely affect the marketing of the securities of the Company
to be offered.
4.2 If and whenever the Company is required by the provisions of this
Article IV to use its best efforts to effect the registration of any transfer of
Shares under the Securities Act, the Company will, as expeditiously as possible,
(a) prepare and file with the Commission a registration statement with
respect to such transfer and use its best efforts to cause such registration
statement to become and remain effective, but not for any period longer than
nine months;
(b) prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective, and to comply
with the provisions of the Securities Act with respect to the transfer of all
securities covered by such registration statement, including, without
limitation, taking all necessary actions whenever the Purchaser, with respect to
such Shares covered by such registration statement, shall desire to dispose of
the same;
(c) furnish to the Purchaser such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents, as the Purchaser may reasonably
request in order to facilitate the disposition of the Shares owned by the
Purchaser and covered by such registration statement;
(d) use its best efforts to register or qualify the securities covered by
such registration statement under such other securities or blue sky laws of such
jurisdictions as the Purchaser shall request, and use its best efforts to do any
and all other acts and things which may be reasonably necessary to enable the
Purchaser to consummate the disposition in such jurisdiction of the Shares
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owned by the Purchaser and covered by such registration statement; provided
that, notwithstanding the foregoing, the Company shall not be required to
register in any jurisdiction as a broker or dealer of securities or to grant its
consent to service of process in any such jurisdiction solely on account of such
intended disposition by the Purchaser;
(e) furnish to the Purchaser a signed copy of an opinion of counsel for
the Company, in form and substance acceptable to the Purchaser, to the effect
that: (A) a registration statement covering such dispositions of Shares has been
filed with the Commission under the Securities Act and has been made effective
by order of the Commission, (B) such registration statement and the prospectus
contained therein and any amendments or supplements thereto comply as to form in
all material respects with the requirements of the Securities Act, and nothing
has come to such counsel's attention which would cause him to believe that the
registration statement or such prospectus, amendment or supplement, at the time
such registration statement or amendment became effective or such supplement was
filed with the Commission, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein (in the case of such prospectus, amendment or
supplement, in the light of the circumstances under which they were made) not
misleading (provided that such counsel need not render any opinion with respect
to the financial statements and other financial, engineering and statistical
data included therein), and (C) to the best of such counsel's knowledge, no stop
order has been issued by the Commission suspending the effectiveness of such
registration statement and no proceedings for the issuance of such a stop order
are threatened or contemplated;
(f) furnish to the Purchaser a blue sky survey in the form and of the
substance customarily prepared by counsel for the Company and accepted by
sellers of securities in similar offerings, discussing and describing the
application provisions of the securities or blue sky laws of each state or
jurisdiction in which the Company shall be required, pursuant to Section 4.2(d),
to register or quality such intended dispositions of such Shares, or, in the
event counsel for the underwriters in such offering shall be preparing a blue
sky survey, cause such counsel to furnish such survey to, and to allow reliance
thereon by, the Purchaser;
(g) otherwise use its best efforts to comply with all applicable rules and
regulations of the Commission under the Securities Act and the Exchange Act,
insofar as they relate to such registration and such registration statement; and
(g) use its best efforts to list such Shares on any securities exchange on
which any securities of the Company are then listed or to admit such Shares for
trading in any national market system in which any securities of the Company are
then admitted for trading, if the listing or admission of such securities is
then permitted under the rules of such exchange or system.
4.3 With respect to the registration by the Company of transfers of Shares
under the Securities Act pursuant to Section 4.1, the Company shall pay all
expenses incurred by it in complying with this Article IV (including, without
limitation, all registration and filing fees, printing expenses, blue sky fees
and expenses, costs and expenses of audits, and reasonable fees and
disbursements of counsel for the Company and special counsel designated by the
Purchaser, but specifically excluding any underwriting discounts and allowances
that are allocable to the Shares being sold by, and which shall be paid by, the
Purchaser; provided, however, that if any registration statement filed with the
Commission by the Company under Section 4.1 shall not be declared effective by
the Commission, such attempted registration shall not constitute a registration
under this Section 4.3.
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4.4 It shall be a condition precedent to the obligations of the Company to
take any action pursuant to this Article IV that the Purchaser shall furnish to
the Company such written information regarding the securities held by the
Purchaser as the Company shall reasonably request and as shall be required in
connection with the action to be taken by the Company.
4.5 (a) in the event of any registration of any transfer of Shares under
the Securities Act pursuant to this Article IV, the Company will indemnify and
hold harmless the Purchaser, each of its officers, directors and partners, and
each other person, if any, who controls the Purchaser within the meaning of the
Securities Act, and each underwriter, if any, who participates in the offering
of such securities, against any losses, claims, damages or liabilities (or
actions in respect thereof, joint or several, to which the Purchaser and each
officer, director or partner, controlling person or underwriter may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained, on the effective date thereof, in any registration statement under
which such transfer of securities was registered under the Securities Act, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of the Securities Act, and will reimburse the Purchaser and each of its
officers, directors and partners, and each such controlling person or
underwriter, for any legal or any other expenses reasonably incurred by the
Purchaser or its officers, directors and partners or controlling persons or by
each such underwriter, in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that the Company
will not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in such
registration statement, preliminary prospectus or prospectus or such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company through an instrument duly executed by the Purchaser
specifically for use in the preparation thereof. In the event of any
registration by the Company or any transfer of securities under the Securities
Act pursuant to this Article IV, the Purchaser will indemnify and hold harmless
the Company, each other person, if any, who controls the Company within the
meaning of the Securities Act and each officer and director of the Company to
the same extent that the Company agrees to indemnity it, but only with respect
to the written information relating to the Purchaser furnished to the Company by
the Purchaser.
(b) Each indemnified party shall, as promptly as practicable upon receipt
of notice of the commencement of any action against such indemnified party or
its officers, directors or partners, or any controlling person of such
indemnified party, in respect of which indemnity may be sought from an
indemnifying party on account of the indemnity agreement contained in Section
4.5(a), notify the indemnifying party in writing of the commencement thereof.
The omission of such indemnified party to so notify the indemnifying party of
any such action shall not relieve the indemnifying party from any liability
which it may have on account of the indemnity agreement contained in Section
4.5(a) to the extent that the failure to receive such notice within a reasonable
period of time shall not have caused harm, loss or damage to the indemnifying
party, provided that, conversely, if such failure to receive notice shall have
caused any harm, loss or damage to the indemnifying party, such failure shall
constitute a defense to any liability which such indemnifying party may have on
account of such agreement to the extent of the harm, loss or damage so caused.
In case any such action shall be brought against any indemnified party, its
officers, directors and partners, or any such controlling person, and such
indemnified party shall notify the indemnifying party of the commencement
thereof,
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the indemnifying party shall be entitled to participate in (and, to the extent
that the indemnifying party shall wish, to direct) the defense thereof at the
indemnifying party's own expense, in which event the defense shall be conducted
by recognized counsel chosen by the indemnifying party and approved by the
indemnified party (whose approval shall not unreasonably be withheld) and the
indemnified party may participate in such defense at its own expense (unless it
is advised by counsel that actual or potential differing interests or defenses
exist or may exist, in which case such expenses shall be paid by the
indemnifying party, provided that the indemnifying party shall not be required
to pay the expenses for more than one counsel for all such indemnified parties).
V. MISCELLANEOUS
5.1 GOVERNING LAW. The provisions hereof will be construed in accordance
with the laws of the State of Texas. The Company and the Purchaser hereby
submit to the jurisdiction of the state and federal courts located in Denver,
Colorado or Chicago, Illinois.
5.2 INDEMNIFICATION. The Purchaser agrees to indemnify and hold harmless
the Company and its officers, directors and persons who control the Company,
from and against all damages, losses, costs and expenses (including reasonable
attorneys' fees) which they may incur by reason of the failure of the Purchaser
to fulfill any of the terms or conditions of this Agreement, or by reason of any
breach of the representations and warranties made by the Purchaser in this
Agreement or in any document provided by it to the Company. The Company agrees
to indemnify and hold harmless the Purchaser and its officers, directors and
persons who control the Purchaser, from and against all damages, losses, costs
and expenses (including reasonable attorneys' fees) which they may incur by
reason of the failure of the Company to fulfill any of the terms or conditions
of this Agreement, or by reason of any breach of the representations and
warranties made by the Company in this Agreement or in any document provided by
it to the Purchaser.
5.3 ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the entire
understanding of the parties hereto and supersedes all prior agreements or
understandings with respect to the subject matter hereof. This Agreement may
not be amended or modified except by an instrument in writing signed by the
party against whom enforcement is sought.
5.4 ASSIGNMENT AND SUCCESSION; BENEFIT. This Agreement may not be
assigned by any party without the prior written consent of the other parties,
but shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns.
5.5 SEVERABILITY. The invalidity or unenforceability of any particular
provisions of this Agreement shall not affect the other provisions hereof, and
this Agreement shall be construed in all respects as if such invalid or
unenforceable provisions were omitted.
5.6 HEADINGS. The section headings contained herein are for convenience
only and are not intended to define or limit the contents of such sections.
5.7 NEUTRAL INTERPRETATION. This Agreement constitutes the product of the
negotiation of the parties hereto, and the enforcement hereof shall be
interpreted in a neutral manner, and not more strongly for or against any party
based upon the source of the draftsmanship hereof.
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5.8 COUNTERPARTS. This Agreement may be executed in counterparts, which
shall be deemed to constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.
TIPPERARY CORPORATION SLOUGH ESTATES USA INC.
By: /s/ David L. Bradshaw By: Randall W. Rohner
-------------------------------- -----------------------------
David L. Bradshaw, President and Randall W. Rohner, Vice
Chief Executive Officer President and Chief Financial
Officer
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