CONVERTIBLE PROMISSORY NOTE
(SUBORDINATED DEBT)
--------------------------------------------------------------------------------
Borrower: ▇▇▇▇▇▇▇▇ Petroleum Company, L.L.C.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Lender:
-------------------------------
-------------------------------
-------------------------------
--------------------------------------------------------------------------------
Principal Amount: $ Interest Rate: 8.0 %
------------------- ------
Date of Note:
------------------------
PROMISE TO PAY.
---------------
▇▇▇▇▇▇▇▇ Petroleum Company, L.L.C. ("Borrower") promises to pay to
("Lender"), or order, in lawful money of the United States
----------------------
of America, the principal amount of ($ ), or so much as may be outstanding,
together with interest on the unpaid outstanding principal balance from the Date
of Note, as indicated above, until such balance is paid in full. This
Convertible Promissory Note executed by Borrower in favor of Lender shall be
referred to as a "Note".
1. PAYMENT OF PRINCIPAL AND ACCRUED INTEREST.
------------------------------------------
Beginning as of the date of this Note first written above (the "Date of
Note") and continuing until the outstanding principal balance is paid in full,
interest will accrue at an annual rate of Eight Percent (8.0%). Interest will be
computed on a 365/360 day basis compounding monthly; that is in each month 1/360
of the Eight Percent (8.0%) annual interest rate, will be multiplied by (a) the
sum of (i) the outstanding principal balance and (ii) accumulated interest
outstanding as of the end of the prior month and (b) the actual number of days
that the principal was outstanding in such month.
1.1 Interest Accrual Period. Beginning as of the Date of Note first written
above and continuing through October 1, 2002 (the "Interest Accrual Period"),
interest shall accrue at an annual rate of Eight Percent (8.0%), compounding on
the last date of each calendar month as described above; provided, however, if
the Collateral Agent commences any action (judicial or extrajudicial) against
any collateral held by it pursuant to the terms of the Collateral Agency
Agreement, then such interest as may thereafter accrue shall be payable monthly,
in arrears, on or before the first day of each month thereafter. If on October
1, 2002, the common stock of ▇▇▇▇▇▇▇▇ Petroleum Corporation, a Delaware
Corporation ("▇▇▇▇▇▇▇▇-Delaware") has a closing price of at least $4.00 per
share, as adjusted pursuant to Section 3.2 hereof (the "First Benchmark Stock
Price"), then, at Borrower's option the Interest Accrual Period shall be
extended to October 1, 2003 (the "First Extension Option"). If Borrower
exercised the First Extension Option, and if on October 1, 2003, the common
stock of ▇▇▇▇▇▇▇▇-Delaware has a closing price of at least $5.00 per share, as
adjusted pursuant to Section 3.2 hereof (the "Second Benchmark Stock Price"),
then, at Borrower's option, the Interest Accrual Period shall be extended to
October 1, 2004 (the "Second Extension Option").
1.2 Principal Repayment Period. Beginning as of the end of the Interest
Accrual Period (initially October 1, 2002, but as may be adjusted pursuant to
Section 1.1 above), the sum of all principal and accrued interest through the
last day of the Interest Accrual Period shall be repaid in twenty-four equal
1
monthly installments beginning on the last day of the Interest Accrual Period
and continuing on the first day of the subsequent twenty-three months. The
period of time beginning on the last day of the Interest Accrual Period and
ending on the first day of the month that is twenty- three months after the last
day of the Interest Accrual Period shall be referred to as the "Principal
Repayment Period". For example, if the last day of the Interest Accrual Period
is October 1, 2002, the Principal Repayment Period shall be from October 1, 2002
through September 1, 2004.
1.3 Payment of Interest. During the Principal Repayment Period, all
interest that accrues beginning on the last day of the Interest Accrual Period
(initially October 1, 2002, but as may be adjusted by the First Extension
Option, or the Second Extension Option), shall be paid monthly on the first day
of each of the following months during the Principal Repayment Period.
2. CONVERSION OF PRINCIPAL AND ACCRUED INTEREST.
---------------------------------------------
Beginning as of the Date of this Note first written above and continuing
until all accrued interest and the outstanding principal balance is paid in
full, Lender may, at its option pursuant to the terms hereof, by delivering to
Borrower a Conversion Notice, as defined in Section 2.2, elect to require
Borrower to convert all or part of the accrued interest and outstanding
principal that is owing into shares of ▇▇▇▇▇▇▇▇-Delaware's common stock as
follows:
2.1 Conversion. Some or all of the accrued interest and principal amount
outstanding shall be convertible into a number of shares of ▇▇▇▇▇▇▇▇-Delaware's
common stock, which number of shares shall be equal to the quotient of (a) the
total accrued interest and outstanding principal subject to conversion divided
by (b) the Conversion Price, as defined in Section 3.1 (the "Conversion
Option").
2.2 Conversion Notice. "Conversion Notice" shall mean the written notice
that Lender may, at its option, give to Borrower, notifying Borrower of Lender's
decision to exercise a Conversion Option to convert some or all of the accrued
interest and outstanding principal into shares of ▇▇▇▇▇▇▇▇-Delaware's common
stock. Borrower will deliver to Lender the required shares of
▇▇▇▇▇▇▇▇-Delaware's common stock within five (5) business days of receiving the
Conversion Notice.
2.3 Minimum Conversion Amount. Each Conversion Notice given by Lender to
Borrower shall be for no less that 10% of the total amount of outstanding
principal and accrued interest owing under this Note from Borrower to Lender at
the time that the Conversion Notice is given.
3. CONVERSION PRICE.
-----------------
3.1 Conversion Price. The "Conversion Price" as used herein shall mean
$4.00, as adjusted pursuant to Section 3.2 hereof.
3.2 Adjustment to Conversion Price.
3.2.1 Definitions. As used in this Section 3.2 the following terms
shall have the following respective meanings:
(a) "Common Stock" shall mean shares of the presently authorized
common stock of ▇▇▇▇▇▇▇▇-Delaware and any stock into which such common stock may
hereafter be exchanged.
2
(b) "Options" shall mean the rights, options or warrants to
subscribe for, purchase or otherwise acquire shares of Common Stock or
Convertible Securities.
(c) "Convertible Amounts" shall mean the aggregate dollar amounts
that are subject to conversion at any given time pursuant to the Conversion
Option.
(d) "Convertible Securities" shall mean any evidence of
indebtedness, shares of stock or other securities directly or indirectly
convertible into or exchangeable for Common Stock.
3.2.2 Adjustments to Conversion Price. The Conversion Price shall be
subject to adjustment from time to time upon the occurrence of certain events,
as follows:
(a) Reclassification, Reorganization, Consolidation or Merger. In
the case of any reclassification of the Common Stock, or any reorganization,
consolidation or merger of ▇▇▇▇▇▇▇▇-Delaware with or into another corporation
(other than a merger or reorganization with respect to which ▇▇▇▇▇▇▇▇-Delaware
is the continuing corporation and which does not result in any reclassification
of the Common Stock), each share of Common Stock theretofore issuable upon
exercise of any Conversion Option, shall be properly adjusted as to the number
and kind of securities receivable upon the exercise of any Conversion Option,
such that Lender shall receive the number and kind of securities which a holder
of Common Stock would have been entitled to receive after the happening of any
of the events described in this subsection (a) had the conversion pursuant to
any Conversion Option been made immediately prior to the happening of such event
or the record date for such event, whichever is earlier. The provisions of this
subsection (a) shall similarly apply to successive reclassifications,
reorganizations, consolidations or mergers.
(b) Split, Subdivision or Combination of Shares. If
▇▇▇▇▇▇▇▇-Delaware at any time prior to Lender's exercise of any Conversion
Option shall split, subdivide or combine the Common Stock of ▇▇▇▇▇▇▇▇-Delaware,
the Conversion Price shall be proportionately decreased in the case of a split
or subdivision or proportionately increased in the case of a combination. Any
adjustment under this subsection (b) shall become effective when the split,
subdivision or combination becomes effective.
(c) Stock Dividends. If ▇▇▇▇▇▇▇▇-Delaware at any time prior to
Lender's exercise of any Conversion Option shall pay a dividend with respect to
Common Stock of ▇▇▇▇▇▇▇▇-Delaware payable in shares of Common Stock, Options, or
Convertible Securities, the Conversion Price shall be adjusted, from and after
the date of determination of the shareholders entitled to receive such dividend
or distributions, to that price determined by multiplying the Conversion Price
in effect immediately prior to such date of determination by a fraction (i) the
numerator of which shall be the total number of shares of Common Stock
outstanding immediately prior to such dividend or distribution, and (ii) the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such dividend or distribution (including Common
Stock issuable upon exercise, conversion or exchange of any Option or
Convertible Securities issued as such dividend or distribution). If the Options
or Convertible Securities issued as such dividend or distribution by their terms
provide, with the passage of time or otherwise, for any decrease in the
consideration payable to ▇▇▇▇▇▇▇▇-Delaware, or any increase by the number of
shares issuable upon exercise, conversion or exchange thereof (by change of rate
or otherwise), the Conversion Price shall, upon any such decrease or increase
becoming effective, be reduced to reflect such decrease or increased to reflect
such increase as if such decrease or increase became effective immediately prior
to the issuance of the Options or Convertible Securities as the dividend or
distribution. Any adjustment under this subsection (c) shall become effective on
the record date.
3
(d) Other Securities. In the event ▇▇▇▇▇▇▇▇-Delaware at any time
prior to Lender's exercise of any Conversion Option makes, or fixes a record
date for the determination of holders of Common Stock entitled to receive, a
dividend or other distribution payable in securities of ▇▇▇▇▇▇▇▇-Delaware other
than shares of Common Stock, then, and in each such event, provision shall be
made so that the Lender shall receive, upon exercise of any Conversion Option,
in addition to the number of shares of Common Stock receivable thereupon, the
amount of securities of the Borrower which the Lender would have received had
the Convertible Amounts been exchangeable for such Common Stock on the date of
such event and had the Lender thereafter, during the period from the date of
such event to and including the date of exercise, retained such securities
receivable by Lender as aforesaid during such period, subject to all other
adjustments called for during such period under this Section 3.2 with respect to
the rights of the Lender.
3.2.3 Other Adjustments. The First Benchmark Stock Price, the Second
Benchmark Stock Price, and the Clawback Price shall all be subject to adjustment
in the same manner and to the same extent as those adjustments made to the
Conversion Price pursuant to Section 3.2.2 above.
3.2.4 Fractional Shares. Pursuant to the Conversion Options, no
fractions of shares of Common Stock shall be issued, but in lieu thereof
Borrower shall pay a cash adjustment to Lender in respect of such fractional
interest in an amount equal to such fractional interest multiplied by the then
applicable Conversion Price; provided, however, that no payment will be made in
respect of such cash adjustment if the amount payable is less than Twenty and
No/100 Dollars ($20.00).
3.2.5 Reserving Shares. Borrower shall at all times reserve and keep
available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the Conversion Options of Lender, such number of shares of
Common Stock as shall from time to time be adjusted pursuant to this Section 3
hereof.
3.2.6 Registration of Shares. ▇▇▇▇▇▇▇▇-Delaware shall file with the
SEC within sixty (60) days following the Date of Note hereof a registration
statement on Form S-1 under the Securities Act of 1933, as amended, or such
other form that the Company is eligible to use or that the SEC deems appropriate
(the "Registration Statement") for the registration of the resale by the Lender
of the common stock of ▇▇▇▇▇▇▇▇-Delaware issuable upon conversion of this Note
("Registrable Securities"). The Company shall use its best efforts to have the
Registration Statement declared effective by the SEC by no later than ninety
(90) days after the Date of Note hereof and to ensure that the Registration
Statement, and the underlying prospectus, remains in effect for so long as any
Registrable Shares are outstanding.
(a) Notwithstanding the foregoing, ▇▇▇▇▇▇▇▇-Delaware may defer
the filing of the Registration Statement until a date not later than sixty (60)
days after the time set forth above if ▇▇▇▇▇▇▇▇-Delaware or its subsidiaries are
engaged in confidential negotiations or other confidential business activities,
disclosure of which would be required in such Registration Statement (but would
not be required if such Registration Statement were not filed).
(b) Notwithstanding the foregoing, if ▇▇▇▇▇▇▇▇-Delaware
determines in its good faith judgment that the filing of any supplement or
amendment to the Registration Statement in order to keep the Registration
Statement effective would require the disclosure of material information that
▇▇▇▇▇▇▇▇-Delaware has a bona fide business purpose for preserving as
confidential, then upon written notice of such determination by
▇▇▇▇▇▇▇▇-Delaware to the Lender, the obligation of ▇▇▇▇▇▇▇▇-Delaware to
4
supplement or amend the Registration Statement will be suspended until
▇▇▇▇▇▇▇▇-Delaware notifies the Lender in writing that the reasons for suspension
of such obligations no longer exist and ▇▇▇▇▇▇▇▇-Delaware amends or supplements
the Registration Statement as may be required. The maximum number of consecutive
days during which ▇▇▇▇▇▇▇▇-Delaware may delay the filing of any such supplement
or amendment shall not exceed sixty (60) days.
3.2.7 Notice of Adjustments. Whenever the Conversion Price is adjusted
pursuant to Section 3 hereof, Borrower shall promptly issue a notice signed by
its chief financial officer or chief executive officer stating, in reasonable
detail, the new Conversion Price as a result of each adjustment, a brief
statement of the facts requiring such adjustments and the computation thereof,
and the date such adjustments became effective, and Borrower shall mail (by
first class mail, postage prepaid) to Lender at Lender's address a copy of such
notice.
4. PREPAYMENT.
-----------
Some or all of the outstanding principal and accrued interest under this
Note may be prepaid at any time without penalty, pursuant to the terms described
herein (the "Prepayment Option"). Borrower may only exercise the Prepayment
Option, if after giving Lender twenty (20) day's prior written notice Lender has
not elected to exercise its Conversion Option for such amount as Borrower wants
to prepay.
5. BORROWER'S OPTION.
------------------
If Borrower notifies Lender that it wishes to exercise its Prepayment
Option for amounts that are not due for at least one year, and Lender then
elects to use its Conversion Option for such amounts, then ▇▇▇▇▇▇▇▇-Delaware may
elect to repurchase one half of the Common Stock that Lender received as a
result of exercising such Conversion Option at a price of $6.00 per share, as
adjusted pursuant to Section 3.2 (the "Clawback Price"). This option shall not
be assignable by ▇▇▇▇▇▇▇▇-Delaware to any other party.
6. METHOD OF PAYMENT.
------------------
Borrower will pay Lender principal and interest that is not converted into
shares of ▇▇▇▇▇▇▇▇-Delaware's common stock pursuant to the Conversion Option,
and loan fees by check made payable to the Lender drawn on a United States bank
and for United States dollars, or by wire transfer to an account of Lender at
Lender's address shown above or at such other place as Lender may designate in
writing. Unless otherwise agreed or required by applicable law, payments will be
applied first to any remaining amount of any unpaid collection costs and late
charges, then to accrued unpaid interest and then to any unpaid principal.
7. FIXED INTEREST RATE.
--------------------
The interest rate on this Note is Eight Percent (8.0%) per annum, or, if
lower, the maximum rate of interest allowed by applicable law.
8. NOTICES.
--------
Any notice or other communication required or permitted under this Note
shall be in writing and shall be delivered personally, sent by facsimile
transmission, or sent by overnight courier. Any such notice shall be deemed
received when so delivered personally, or when so transmitted by facsimile, or
if sent by overnight courier on the day after delivered to the courier as
follows:
5
TO BORROWER: ▇▇▇▇▇▇▇▇ Petroleum Company, L.L.C
333Texas Street
Suite 1375
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇)▇▇▇-▇▇▇▇
TO LENDER:
------------------------------------
------------------------------------
------------------------------------
with a copy to: Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ Guaranty Finance, LLC
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Any party may, by notice given in accordance with this Section to the other
parties, designate another address or person for receipt of notices hereunder.
9. DEFAULT.
--------
Borrower will be in default if any Event of Default occurs under the
▇▇▇▇▇▇▇▇ Credit Agreement.
10. LENDER'S RIGHTS.
----------------
Upon the occurrence and during the continuance of an Event of Default,
Lender may declare the entire unpaid principal balance on this Note and all
accrued unpaid interest immediately due and payable, without notice, and then
Borrower will pay that amount. Upon Borrower's failure to pay all amounts
declared due pursuant to this section, including failure to pay upon final
maturity, Lender at its option, may also, if permitted under applicable law, do
one or both of the following: (a) increase the interest rate on this Note up to
eighteen percent (18%) per annum, or, if lower, up to the maximum interest
amount allowable by applicable law, and (b) add any unpaid accrued interest to
principal and such sum will bear interest therefrom until paid at the rate
provided in this Note. Borrower agrees to pay all reasonable out of pocket
expenses of Lender in connection with the collection and enforcement of this
Note. This includes, subject to any limits under applicable law, Lender's
attorneys' fees and legal expenses whether or not there is a lawsuit, including
attorneys' fees and legal expenses for bankruptcy proceedings (including efforts
to modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collections services. Borrower also will pay any court
costs, in addition to all other sums provided by law. If there is a lawsuit,
Borrower agrees upon Lender's request to submit to the jurisdiction of any
federal or state court located in Shreveport, Louisiana. This Note shall be
governed by and construed in accordance with the laws of the State of Louisiana.
11. LOAN AGREEMENT.
---------------
This Note is subject to and shall be governed by all the terms and
conditions of the ▇▇▇▇▇▇▇▇ Credit Agreement, dated September , 1999, between
----
the Borrower and ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ Guaranty Finance, LLC, as Agent for Lender,
as amended from time to time (the "▇▇▇▇▇▇▇▇ Credit Agreement"). Capitalized
terms not otherwise defined herein shall have the meanings set forth in ▇▇▇▇▇▇▇▇
Credit Agreement.
6
12. OUT-OF-POCKET EXPENSES.
-----------------------
Borrower shall pay to Lender the reasonable out-of-pocket expenses of
Lender according to the provisions of Section 5.12 of the ▇▇▇▇▇▇▇▇ Credit
Agreement.
13. SERVICE CHARGE.
---------------
Since it would be impractical or extremely difficult to fix Lender's actual
damages for collecting and accounting for a late payment, if any payment to
Lender required herein is not paid on or before its due date, Borrower shall pay
to Lender an amount equal to five percent (5%) of any such late payment (but not
less than ten dollars ($10) nor more than two-hundred and fifty dollars ($250)).
14. GENERAL PROVISIONS.
-------------------
Lender may delay or forgo enforcing any of its rights or remedies under
this Note without losing them. Borrower and any other person who signs,
guarantees or endorses this Note may, to the extent allowed by law, waive any
applicable statute of limitations, presentment, demand for payment, protest and
notice of dishonor. Upon any change in the terms of this Note, and unless
otherwise expressly stated in writing, no party who signs this Note whether as
maker, guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew, extend (repeatedly and
for any length of time) or modify this Note, or release any party or guarantor;
or impair, fail to realize upon or perfect Lender's security interest in any
collateral securing this Note and take any other action deemed necessary by
Lender without the consent of or notice to anyone.
15. COLLATERAL.
-----------
This Note is secured by certain collateral of the Borrower and others as
more thoroughly described in the Security Documents (as defined in the ▇▇▇▇▇▇▇▇
Credit Agreement).
PRIOR TO SIGNING THIS NOTE BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF
A COMPLETED COPY OF THE NOTE.
BORROWER:
▇▇▇▇▇▇▇▇ PETROLEUM COMPANY, L.L.C.
By:
------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President
7
