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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
June 3, 1998
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Date of Report (Date of earliest event reported)
COSTILLA ENERGY, INC.
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(Exact name of registrant as specified in its character)
Delaware 0-21411 75-2658940
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(State or other (Commission File Number) (IRS Employer
jurisdiction) Identification No.)
400 West Illinois, Suite 1000
Midland, Texas 79701
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(Address of principal executive offices)
(915) 683-3902
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(Registrant's telephone number, including area code)
N/A
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(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS
On June 3, 1998, Costilla Energy, Inc. (the "Registrant") closed a
private placement of 50,000 shares of its 7% (8% Paid in Kind) Series A
Cumulative Convertible Preferred Stock, $0.10 par value (the "Preferred Stock"),
to Enron Capital & Trade Resources Corp. and Joint Energy Development
Investments II Limited Partnership (the "Purchasers") for a purchase price of
$50.0 million. The Registrant will use the proceeds from the sale to reduce
existing bank debt and for general corporate purposes. A 4% placement fee was
paid to ECT Securities Corp., an affiliate of the Purchasers, in connection with
the transaction.
The terms, rights and preferences of the Preferred Stock are set forth
in that certain Certificate of Designations of 7% (8% Paid in Kind) Series A
Cumulative Convertible Preferred Stock of Costilla Energy, Inc. (the
"Certificate of Designations"), a copy of which is attached as an exhibit
hereto. The summary of such terms, rights and preferences set forth herein is
qualified in all respects by the more detailed provisions of the Certificate of
Designations.
The Preferred Stock accrues dividends payable quarterly in cash, or in
certain instances in shares of the Registrant's common stock, $0.10 par value
(the "Common Stock"). The dividend rate is 7% for dividends paid in cash and 8%
for dividends paid in shares of Common Stock. The holders of the Preferred Stock
may, at any time, convert shares of Preferred Stock into shares of the
Registrant's Common Stock at a conversion price of $12.39 (initially equivalent
to the rate of approximately 80.71 shares of Common Stock for each share of
Preferred Stock), subject to adjustment as described in the Certificate of
Designations. Based upon such initial conversion price, the 50,000 shares of
Preferred Stock issued to the Purchasers is convertible into 4,035,513 shares of
Common Stock, which would have constituted approximately 28.8% of the
outstanding Common Stock if such conversion had occurred June 3, 1998. The
Registrant may, at its option, redeem the shares of Preferred Stock after June
15, 2001, subject to certain limitations, for a redemption price equal to the
following percentage of the Liquidation Preference (as defined in the
Certificate of Designations) for a twelve-month period beginning on June 15 of
the year indicated: 2001: 107%; 2002: 103.5%; 2003: 101.75%; 2004 and
thereafter: 100%.
As more fully set forth in the Certificate of Designations, the holders
of the Preferred Stock are not entitled to any voting rights other than with
respect to certain transfers of substantially all the Registrant's assets
(whether by sale or business combination), items which effect the rights of the
Preferred Stock and issuances of any capital stock senior to or in parity with
the Preferred Stock. However, the holders of the Preferred Stock are entitled to
designate one (increasing to two or more upon occurrence of certain events)
nominee for appointment or election to the Registrant's Board of Directors, and
the Registrant is required to initially make such appointment and to
subsequently use its best efforts to have such nominee elected by the
shareholders. In accordance with this requirement, the Registrant created a new
position on its Board, classified as a Class II director (current term expiring
2001) in the Registrant's staggered Board structure. The newly-created position
has been filled by the appointment of Timothy J. Detmering, the designee of the
Purchasers.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) and (b) No financial statements are required
(c) Exhibits
4.1 Certificate of Designations of 7% (8% Paid
in Kind) Series A Cumulative Convertible
Preferred Stock of Costilla Energy, Inc.
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 hereunto duly authorized.
COSTILLA ENERGY, INC.
June 4, 1998 By: /s/ BOBBY W. PAGE
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Bobby W. Page, Senior
Vice President and
Chief Financial Officer
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description
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<S> <C>
4.1 Certificate of Designations of 7% (8% Paid in Kind)
Series A Cumulative Convertible Preferred Stock of
Costilla Energy, Inc.
</TABLE>
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EXHIBIT 4.1
CERTIFICATE OF DESIGNATIONS
OF
7% (8% PAID IN KIND) SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
($0.10 Par Value)
OF
COSTILLA ENERGY, INC.
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Pursuant to Section 151 of the Delaware General Corporation Law
-------------------
COSTILLA ENERGY, INC., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), HEREBY CERTIFIES in this
document (the "Certificate of Designation") that the following resolutions were
duly adopted by the Board of Directors of the Corporation pursuant to authority
conferred upon the Board of Directors by the provisions of the Certificate of
Incorporation of the Corporation (the "Certificate of Incorporation"), which
authorizes the issuance of up to 3,000,000 shares of preferred stock, $0.10 par
value, and pursuant to authority conferred upon the Board of Directors by
Section 151(a) of the Delaware General Corporation Law, at a meeting of the
Board of Directors duly held on May 29, 1998.
1. The Board of Directors on May 29, 1998 adopted the following
resolutions authorizing the issuance of a series of preferred stock, and fixing
the voting powers, designations, preferences, rights and qualifications,
limitations and restrictions thereof:
RESOLVED, that the Board of Directors hereby deems it
advisable and in the best interest of the Corporation to issue and sell
a series of 50,000 shares of preferred stock, $0.10 par value per share
of the Corporation (the "Preferred Stock"), convertible into shares of
common stock, $0.10 par value per share of the Corporation (the "Common
Stock"), at a price of $1,000.00 per share and having the other voting
powers, designations, preferences, rights and qualifications,
limitations and restrictions set forth below in these resolutions, and
such shares when so issued for the consideration described in this
resolution shall be validly issued, fully paid and nonassessable shares
of Preferred Stock.
RESOLVED, that pursuant to authority expressly granted to and
vested in the Board of Directors of the Corporation pursuant to the
provisions of the Certificate of Incorporation
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and Section 151(a) of the Delaware General Corporation Law, a series of
preferred stock, $0.10 par value per share, which shall consist of
50,000 of the 3,000,000 shares of preferred stock which the Corporation
now has authority to issue, be, and the same hereby is, authorized and
created and is approved for issuance, and the powers, designations,
preferences and relative, participating, optional and other special
rights of the shares of such series, and the qualifications,
limitations and restrictions thereof are hereby fixed as set forth in
these resolutions as follows:
1. NUMBER OF SHARES AND DESIGNATION. 50,000 shares of the Preferred
Stock, $0.10 par value per share, of the Corporation are hereby constituted as a
series of the preferred stock designated as "7% (8% Paid in Kind) Series A
Cumulative Convertible Preferred Stock". For so long as any of the Preferred
Stock is outstanding, the Corporation shall not authorize, create or issue any
class or series of capital stock or Convertible Securities, whether by
resolution of the Board of Directors pursuant to authority granted by the
Certificate of Incorporation, amendment to or restatement of the Certificate of
Incorporation, by contract or otherwise, that ranks prior to, or on a parity
with, the Preferred Stock as to dividends or as to the distribution of assets
upon liquidation, dissolution or winding up without the prior consent of the
Preferred Stock as provided in Section 9(g)(ii) hereof.
2. DEFINITIONS. (a) For purposes of the Preferred Stock and this
Certificate of Designation, the following terms shall have the meanings
indicated; particular terms having a specific meaning for only a portion of this
Certificate of Designation are defined in italics where they are so employed:
"Affiliate" and the terms contained in the definition thereof which are
themselves defined terms shall have the respective meanings given to such terms
in Rule 405 under the Securities Act.
"Board of Directors" shall mean the Board of Directors of the
Corporation or any committee authorized by such Board of Directors to perform
any of its responsibilities with respect to the Preferred Stock.
"Business Day" shall mean any day other than a Saturday, Sunday or a
day on which banking institutions in the City of Houston, Texas are authorized
or obligated by law or executive order to close.
"Cash Blockage Period" shall have the meaning set forth in Section 3(b)
hereof.
"Certificate of Designation" has the meaning set forth in the first
paragraph hereof.
"Certificate of Incorporation" has the meaning set forth in the first
paragraph of this Certificate of Designation.
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"Closing Price" with respect to a particular security on any day shall
mean on such day the last reported sales price, regular way, for such security
or, in case no sale takes place on such day, the average of the reported closing
bid and asked prices, regular way, for such security in either case as reported
on the New York Stock Exchange, on the principal national securities exchange on
which such security is listed or admitted to trading or, if not listed or
admitted to trading on any national securities exchange, on the National Market
System of the National Association of Securities Dealers, Inc. Automated
Quotation System ("NASDAQ National Market System") or, if such security is not
quoted on the NASDAQ National Market System, the average of the closing bid and
asked prices for such security in the over-the-counter market as reported by
NASDAQ or, if bid and asked prices for such security on each such date shall not
have been reported by NASDAQ, the average of the bid and asked prices for such
security for such day as furnished by any National Association of Securities
Dealers, Inc. ("NASD") member firm regularly making a market in such security
selected for such purpose by the board of directors or similar governing body of
the issuer of such security or, if no such quotations are available, the fair
market value of such security furnished by any NASD member firm selected from
time to time by the board of directors or similar governing body of the issuer
of such security for that purpose.
"Common Stock" shall mean the Common Stock of the Corporation, $0.10
par value per share.
"Conversion Price" shall mean the conversion price per share of Common
Stock into which the Preferred Stock is convertible, as such Conversion Price
may be adjusted pursuant to Section 7 hereof. The initial Conversion Price will
be $12.39 (initially equivalent to the rate of approximately 80.71 shares of
Common Stock for each share of Preferred Stock).
"Convertible Securities" means securities convertible into or
exchangeable for (i) Common Stock, or (ii) securities, or options, warrants,
rights to acquire securities, convertible into or exchangeable for Common Stock.
"Corporate Change" shall have the meaning set forth in Section 9(g)
hereof.
"Credit Facility" means a credit facility that is currently in effect
or may be entered into among the Corporation and the lenders parties thereto,
including any related note guarantees, collateral documents, instruments and
agreements executed in connection therewith and in each case as such agreements
may be amended (including any amendment and restatement thereof), supplemented
or otherwise modified from time to time, including any agreements extending the
maturity of, renewing, refunding, replacing, refinancing, increasing or
otherwise restructuring all or any portion of the indebtedness under such
agreements.
"Current Market Price" per share of Common Stock on any date shall mean
the average of the daily Closing Prices (weighted by volume) for the 20
consecutive Trading Dates commencing 22 Trading Dates before the date of
determination.
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"Defaulted Preferred Stock" shall have the meaning set forth in Section
9(c) hereof.
"Default Event" shall have the meaning set forth in Section 9(c)
hereof.
"dividend payment date" shall have the meaning set forth in Section
3(a) hereof.
"dividend payment record date" shall have the meaning set forth in
Section 3(a) hereof.
"Dividend Periods" shall mean quarterly dividend periods commencing on
the sixteenth day of March, June, September and December of each year and ending
on and including the day preceding the first day of the next succeeding Dividend
Period (other than the initial Dividend Period which shall commence on the Issue
Date and end on and include September 15, 1998).
"Dividend Stock" shall have the meaning set forth in Section 3(b)
hereof.
"Eligible Holders" shall have the meaning set forth in Section 9(b)
hereof.
"Excluded Stock" shall mean shares of Common Stock issued or reserved
for issuance by the Corporation as a stock dividend payable in shares of Common
Stock (including Dividend Stock paid as a dividend on the Preferred Stock as
provided in Section 3(b) hereof), or upon any sub-division or split-up of the
outstanding shares of Common Stock or Preferred Stock, or upon conversion of the
Preferred Stock.
"Issue Date" shall mean the first date on which shares of Preferred
Stock are issued.
"Liquidation Preference" shall have the meaning set forth in Section
4(a) hereof.
"Majority" shall mean more than 50.00%.
"NASD" shall have the meaning set forth in the definition of Closing
Price herein.
"NASDAQ National Market System" shall have the meaning set forth in the
definition of Closing Price herein.
"Notes" shall mean the Corporation's $180,000,000 aggregate principal
amount of 10 1/4% Senior Notes Due 2006, including the terms of the related
Indenture dated as of October 1, 1996 as amended by the First Supplemental
Indenture dated as of January 16, 1998 between the Company and State Street Bank
and Trust Company, as Trustee as such Notes and Indenture are constituted on the
date on which this Certificate of Designation is first filed with the Secretary
of State of the State of Delaware.
"Own Corporation Securities" means the direct or indirect beneficial
ownership of any shares of Preferred Stock or Common Stock underlying the
Preferred Stock in the following amounts: (i)
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in the case of Preferred Stock, any shares of Preferred Stock, or (ii) in the
case of Common Stock, an amount which constitutes 5% or more of the then
outstanding shares of Common Stock.
"Person" shall mean any individual, firm, partnership, corporation or
other entity, and shall include any successor (by merger or otherwise) of such
entity.
"Preferred Stock" shall mean the 7% (8% Paid in Kind) Series A
Cumulative Convertible Preferred Stock, $0.10 par value per share, of the
Corporation.
"Purchasers" shall mean Enron Capital & Trade Resources Corp. and Joint
Energy Development Investments II Limited Partnership.
"Redemption Price" shall have the meaning set forth in Section 5(a)
hereof.
"Registration Rights Agreement" means that certain Registration Rights
Agreement dated as of June 1, 1998 between the Corporation, Enron Capital &
Trade Resources Corp. and Joint Energy Development Investments II Limited
Partnership, as amended from time to time.
"Securities" shall have the meaning set forth in Section 7 (d)(iii)
hereof.
"Securities Purchase Agreement" means that certain Securities Purchase
Agreement dated as of June 1, 1998 between the Corporation, Enron Capital &
Trade Resources Corp. and Joint Energy Development Investments II Limited
Partnership.
"Subsidiary" means, when used with reference to an entity, any
corporation, a majority of the outstanding voting securities of which are owned
directly or indirectly by such entity. Such term shall also refer to any other
partnership, limited partnership, limited liability company, joint venture,
trust, or other business entity in which such entity has a material interest.
"Trading Date" with respect to any security means (i) if such security
is listed or admitted for trading on the New York Stock Exchange or another
national securities exchange, a day on which the New York Stock Exchange or such
other national securities exchange is open for trading, (ii) if such security is
quoted on the NASDAQ National Market System, or any similar system of automated
dissemination of quotations of securities prices, a day on which trades may be
made on such system, (iii) if not listed or admitted for trading on a national
securities exchange as described in clause (i) or quoted as described in clause
(ii), a day on which quotations are reported by the National Quotation Bureau
Incorporated, or (iv) otherwise, any Business Day.
"Transaction" shall have the meaning set forth in Section 7(e) hereof.
"Transfer Agent" means Boston EquiServe, L.P. or such other agent or
agents of the Corporation as may be designated by the Board of Directors as the
transfer agent or conversion agent for the Preferred Stock.
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"Unissued Preferred Stock" shall mean any of the authorized preferred
stock, $0.10 par value per share, of the Corporation other than the Preferred
Stock.
(b) Whenever the context requires, the gender of all words used in this
Certificate of Designation includes the masculine, feminine, and neuter. Except
as specified otherwise, all references to Sections refer to sections of this
Certificate of Designation. The word "including" shall mean "including, without
limitation" unless the context otherwise requires.
3. DIVIDENDS. (a) The holders of shares of the Preferred Stock shall be
entitled to receive, when and as declared by the Board of Directors out of funds
legally available therefor, cumulative cash dividends at an annual rate of
$70.00 per share of Preferred Stock, except to the extent, and only to the
extent, that dividends may be paid in Dividend Stock as provided in Section 3(b)
hereof. Dividends which are paid in Dividend Stock as provided in Section 3(b)
hereof shall be paid cumulative dividends at an annual rate of $80 per share.
Such dividends shall be cumulative from the Issue Date, whether or not in any
Dividend Period or Dividend Periods there shall be funds of the Corporation
legally available for the payment of such dividends and whether or not such
dividends are declared, and shall be payable quarterly, when and as declared by
the Board of Directors, on March 15, June 15, September 15 and December 15 in
each year (each a "dividend payment date"), commencing on September 15, 1998. If
any dividend payment date shall be on a day other than a Business Day, then the
dividend payment date shall be on the next succeeding Business Day. Each such
dividend shall be payable in arrears to the holders of record of shares of the
Preferred Stock, as they appear on the stock records of the Corporation at the
close of business on those dates (each such date, a "dividend payment record
date"), not less than 10 days nor more than 60 days preceding the dividend
payment dates thereof, as shall be fixed by the Board of Directors. Dividends on
the Preferred Stock shall accrue (whether or not declared) on a daily basis from
the Issue Date and accrued dividends for each Dividend Period shall accumulate
to the extent not paid on the dividend payment date first following the Dividend
Period for which they accrue. As used herein, the term "accrued" with respect to
dividends includes both accrued and accumulated dividends. Accrued and unpaid
dividends for any past Dividend Periods may be declared and paid at any time,
without reference to any regular dividend payment date, to holders of record on
such date, not exceeding 45 days preceding the payment date thereof, as may be
fixed by the Board of Directors.
(b) During any period in which the Corporation does not have legally
available funds for the payment of dividends in cash or is contractually
precluded by the terms of the Notes from paying dividends in cash on the
Preferred Stock (a "Cash Blockage Period"), the Corporation, at the election of
its Board of Directors, may pay dividends on the Preferred Stock in additional
duly and validly issued, fully paid and nonassessable shares of Common Stock
(the "Dividend Stock"), and, thereafter during the continuance of any such Cash
Blockage Period, dividends may be paid, at the sole election of the Corporation,
in shares of Dividend Stock. The number of shares of Dividend Stock payable on
the Preferred Stock for each quarterly dividend period during a Cash Blockage
Period shall be computed by dividing the amount of the full dividend by the
Current Market Price of the Common Stock as of the record date for determining
holders of record of Preferred Stock to whom the
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dividend is payable. No fractional shares of Dividend Stock shall be issued by
the Corporation. Instead of any fractional share of Dividend Stock that would
otherwise be issuable to a holder by way of a dividend on the Preferred Stock,
the Corporation shall either (i) pay a cash adjustment in respect of such
fractional share in an amount equal to the product of (A) the Closing Price of
the Common Stock (computed to the nearest whole cent) on the Trading Date
immediately preceding the dividend payment date, and (B) the fraction of a share
of Common Stock represented by such fractional interest or (ii) if cash
adjustments may not be paid because the Corporation is contractually precluded
by the terms of the Notes from paying dividends in cash on the Preferred Stock,
aggregate all such fractional shares into a whole number of shares and sell such
aggregated fractional shares on behalf of the holders entitled thereto in a
public or private sale and distribute the net cash proceeds from the sale
thereof to such holders pro rata. If the Corporation determines to aggregate and
sell such fractional shares, it shall endeavor to use its best efforts to secure
the best available sales price for such shares. The amount of Dividend Stock
issuable to a holder by way of a dividend shall be computed on the basis of the
aggregate number of shares of Preferred Stock registered in such holder's name
on the record date fixed for the payment of such dividend.
(c) The amount of dividends payable for each full Dividend Period for
the Preferred Stock shall be computed by dividing the annual dividend amount (at
the applicable dividend rate) by four (rounded down to the nearest cent). The
amount of dividends payable for the initial Dividend Period on the Preferred
Stock and any other period shorter or longer than a full Dividend Period on the
Preferred Stock shall be computed on the basis of a 360-day year consisting of
twelve 30-day months. Holders of shares of Preferred Stock called for redemption
on a redemption date falling between the close of business on a dividend payment
record date and the opening of business on the corresponding dividend payment
date shall, in lieu of receiving such dividend on the dividend payment date
fixed therefor, receive such dividend payment together with all other accrued
and unpaid dividends on the date fixed for redemption (unless such holder
converts such shares in accordance herewith). Holders of shares of Preferred
Stock shall not be entitled to any dividends, whether payable in cash, Dividend
Stock, property or securities, in excess of cumulative dividends, as herein
provided, on the Preferred Stock. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments on the
Preferred Stock which are in arrears.
(d) If the Corporation declares or pays a dividend upon the Common
Stock payable otherwise than in cash out of earnings or earned surplus
(determined in accordance with generally accepted accounting principles,
consistently applied) except for (i) a dividend or other distribution paid in
connection with the dissolution, termination or winding up of the Corporation,
or (ii) a stock dividend payable in shares of Common Stock (a "Liquidating
Dividend"), then the Corporation shall pay to the holders of the Preferred Stock
at the time of payment thereof the Liquidating Dividends which would have been
paid on the shares of Common Stock into which the outstanding shares of
Preferred Stock are then convertible at the then applicable Conversion Price had
all of the outstanding shares of such Preferred Stock been converted immediately
prior to the date on which a record is taken for such Liquidating Dividend, or,
if no record is taken, the date as of which the record holders of Common Stock
entitled to such Liquidating Dividend are to be determined.
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(e) So long as any shares of the Preferred Stock are outstanding and
only during any period stock ranking on a parity with the Preferred Stock has
been issued with the consent of the Preferred Stock as provided in Section
9(g)(ii), no dividends, except as described in the next succeeding sentence,
shall be declared or paid or set apart for payment on any class or series of
stock of the Corporation ranking, as to dividends, on a parity with the
Preferred Stock, for any period unless full cumulative dividends on all
outstanding shares of Preferred Stock have been or contemporaneously are
declared and paid (as to contemporaneous dividends, declared and paid in cash or
in Dividend Stock if such parity stock permits payment of dividends thereon in
Common Stock) or dividends in like consideration have been declared and a sum
sufficient for the payment thereof set apart for such payment for all Dividend
Periods terminating on or prior to the date of payment, or setting apart for
payment, of such full cumulative dividends on such parity stock. When dividends
are not paid in full or a sum sufficient for such payment is not set apart, as
aforesaid, upon the shares of the Preferred Stock and any other class or series
of stock ranking on a parity as to dividends with the Preferred Stock, all
dividends declared upon such other stock shall be declared and paid pro rata so
that in all cases the amounts of dividends per share declared and paid on the
Preferred Stock and such other stock shall bear to each other the same ratio
that accrued and unpaid dividends per share on the shares of the Preferred Stock
and on such other stock bear to each other. Except as set forth above in this
paragraph, so long as any shares of the Preferred Stock are outstanding, no
dividends shall be declared or paid or set apart for payment on any class or
series of stock of the Corporation ranking, as to dividends, on a parity with
the Preferred Stock, for any period.
(f) So long as any shares of the Preferred Stock are outstanding and
only during any period stock ranking on a parity with the Preferred Stock has
been issued with the consent of the Preferred Stock as provided in Section
9(g)(ii), no other stock of the Corporation ranking on a parity with the
Preferred Stock as to dividends or upon liquidation, dissolution or winding up
shall be redeemed, purchased or otherwise acquired for any consideration (or any
moneys be paid to or made available for a sinking fund or otherwise for the
purchase or redemption of any shares of any such stock) by the Corporation
(except by conversion into or exchange for stock of the Corporation ranking
junior to the Preferred Stock as to dividends and upon liquidation, dissolution
or winding up) unless (i) the full cumulative dividends, if any, accrued on all
outstanding shares of the Preferred Stock shall have been paid or cash
sufficient to pay such accrued dividends has been set apart for payment for all
past Dividend Periods and (ii) sufficient funds shall have been set apart for
the payment of the dividend for the current Dividend Period with respect to the
Preferred Stock. Except as set forth above in this paragraph, so long as any
shares of the Preferred Stock are outstanding, no other stock of the Corporation
ranking on a parity with the Preferred Stock as to dividends or upon
liquidation, dissolution or winding up shall be redeemed, purchased or otherwise
acquired for any consideration (or any moneys be paid to or made available for a
sinking fund or otherwise for the purchase or redemption of any shares of any
such stock) by the Corporation.
(g) So long as any shares of the Preferred Stock are outstanding, no
dividends (other than dividends or distributions paid in shares of Common Stock
or other stock ranking junior to the Preferred Stock as to dividends and upon
liquidation, dissolution or winding up) shall be declared
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or paid or set apart for payment and no other distribution shall be declared or
made or set apart for payment, in each case upon the Common Stock or any other
stock of the Corporation ranking junior to the Preferred Stock as to dividends
or upon liquidation, dissolution or winding up, nor shall any Common Stock nor
any other such stock of the Corporation ranking junior to the Preferred Stock as
to dividends or upon liquidation, dissolution or winding up be redeemed,
purchased or otherwise acquired for any consideration (or any moneys be paid to
or made available for a sinking fund or otherwise for the purchase or redemption
of any shares of any such stock) by the Corporation (except by conversion into
or exchange for stock of the Corporation ranking junior to the Preferred Stock
as to dividends and upon liquidation, dissolution or winding up) unless, in each
case (i) the full cumulative dividends, if any, accrued on all outstanding
shares of the Preferred Stock and (only if any stock ranking on a parity with
the Preferred Stock has been authorized by the Preferred Stock in accordance
with the provisions of Section 9(g)(ii)) any other stock of the Corporation
ranking on a parity with the Preferred Stock as to dividends shall have been
paid or set apart in cash for payment for all past Dividend Periods and all past
dividend periods with respect to such other stock and (ii) sufficient funds
shall have been set apart in cash for the payment of the dividend for the
current Dividend Period with respect to the Preferred Stock and (only if any
stock ranking on a parity with the Preferred Stock has been authorized by the
Preferred Stock in accordance with the provisions of Section 9(g)(ii)) for the
current dividend period with respect to any other stock of the Corporation
ranking on a parity with the Preferred Stock as to dividends.
(h) The Company shall take all actions required or permitted under
Delaware law to permit the payment of dividends on the Preferred Stock in the
manner and in the amounts specified herein.
4. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, before any payment or
distribution of the assets of the Corporation (whether capital or surplus) shall
be made to or set apart for the holders of Common Stock or any other series or
class or classes of stock of the Corporation ranking junior to the Preferred
Stock upon liquidation, dissolution or winding up, the holders of the shares of
Preferred Stock shall be entitled to receive $1,000.00 per share (the
"Liquidation Preference") plus an amount per share equal to all dividends
(whether or not earned or declared) accrued and unpaid thereon to the date of
final distribution to such holders; but such holders shall not be entitled to
any further payment. No payment on account of any liquidation, dissolution or
winding up of the Corporation shall be made to the holders of any class or
series of stock ranking on a parity with the Preferred Stock in respect of the
distribution of assets upon dissolution, liquidation or winding up unless (i)
the authorization and issuance of such shares of stock ranking on a parity with
the Preferred Stock was approved as provided in Section 9(g)(ii), and (ii) there
shall likewise be paid at the same time to the holders of the Preferred Stock
like proportionate amounts determined ratably in proportion to the full amounts
to which the holders of all outstanding shares of Preferred Stock and the
holders of all outstanding shares of such parity stock are respectively entitled
with respect to such distribution. If, upon any liquidation, dissolution or
winding up of the Corporation, the assets of the Corporation, or proceeds
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<PAGE> 10
thereof, distributable among the holders of the shares of Preferred Stock shall
be insufficient to pay in full the Liquidation Preference plus an amount per
share equal to all dividends (whether or not earned or declared) accrued and
unpaid thereon to the date of final distribution as aforesaid and liquidating
payments on any other shares of stock authorized as provided in Section 9(g)(ii)
and ranking, as to liquidation, dissolution or winding up, on a parity with the
Preferred Stock, then such assets, or the proceeds thereof, shall be distributed
among the holders of shares of Preferred Stock and any such other stock ratably
in accordance with the respective amounts which would be payable on such shares
of Preferred Stock and any such other stock if all amounts payable thereon were
paid in full. For the purposes of this Section 4, neither a consolidation or
merger of the Corporation with one or more corporations or other entities nor a
sale, lease, exchange or transfer of all or any part of the Corporation's assets
for cash, securities or other property shall be deemed to be a liquidation,
dissolution or winding up, voluntary or involuntary.
(b) Subject to the rights of the holders of shares of any series or
class or classes of stock which has been authorized as provided in Section
9(g)(ii) and which ranks on a parity with or prior to the Preferred Stock upon
liquidation, dissolution or winding up, upon any liquidation, dissolution or
winding up of the Corporation, after payment shall have been made in full to the
holders of Preferred Stock, as provided in this Section 4, any other series or
class or classes of stock ranking junior to the Preferred Stock upon
liquidation, dissolution or winding up shall, subject to the respective terms
and provisions (if any) applying thereto, be entitled to receive any and all
assets remaining to be paid or distributed, and the holders of Preferred Stock
shall not be entitled to share therein.
5. OPTIONAL REDEMPTION.
(a) Preferred Stock may not be redeemed by the Corporation prior to
June 15, 2001. On or after such date the Corporation, at its option, may redeem
the shares of Preferred Stock, in whole or in part, out of funds legally
available therefor, from time to time, subject to the notice provisions and
provisions for partial redemption described below, at any time in each of the
twelve-month periods beginning on June 15 in each of the following years if the
average (weighted by volume) Closing Price of the Common Stock, for at least
twenty of the thirty Trading Days on which trading in the Common Stock occurred
preceding the date on which notice of redemption is given by the Corporation as
provided herein equals or exceeds 150% of the then applicable Conversion Price
of the Preferred Stock, at the following redemption prices per share (expressed
as a percentage of the Liquidation Preference) plus an amount equal to accrued
and unpaid dividends, if any, to (and including) the date fixed for redemption,
whether or not earned or declared (the "Redemption Price").
<TABLE>
<CAPTION>
YEAR PRICE PER SHARE
- ---- ---------------
<S> <C>
2001 107%
2002 103.5%
2003 101.75%
2004 and 100%
thereafter
</TABLE>
10
<PAGE> 11
(b) In the event the Corporation shall redeem shares of Preferred
Stock, notice of such redemption shall be given by first class mail, postage
prepaid, mailed not less than 60 nor more than 90 days prior to the redemption
date, to each holder of record of the shares to be redeemed, at such holder's
address as the same appears on the stock records of the Corporation. Each such
notice shall state: (i) the redemption date; (ii) the number of shares of
Preferred Stock to be redeemed and, if less than all the shares held by such
holder are to be redeemed, the number of such shares to be redeemed from such
holder; (iii) the Redemption Price; (iv) the place or places where certificates
for such shares are to be surrendered for payment of the Redemption Price; (v)
the then current Conversion Price; and (vi) that dividends on the shares to be
redeemed shall cease to accrue on such redemption date. If, on the date fixed
for redemption, funds necessary for the redemption shall be available therefor
and shall have been irrevocably deposited or set aside, then, notwithstanding
that the certificates evidencing any shares of Preferred Stock so called for
redemption shall not have been surrendered, the dividends with respect to the
shares so called shall cease to accrue after the date fixed for redemption, such
shares shall no longer be deemed outstanding, all rights of the holders of such
shares as stockholders of the Company shall cease, and all rights whatsoever
with respect to the shares so called for redemption (except the right of the
holders to receive the Redemption Price without interest upon surrender of their
certificates therefor) shall terminate.
(c) Upon surrender in accordance with said notice of the certificates
for any such shares so redeemed (properly endorsed or assigned for transfer, if
the Board of Directors shall so require and the notice shall so state), such
shares shall be redeemed by the Corporation at the applicable Redemption Price
aforesaid. If fewer than all the outstanding shares of Preferred Stock are to be
redeemed, shares to be redeemed shall be selected by the Corporation from
outstanding shares of Preferred Stock not previously called for redemption pro
rata (as near as may be). If fewer than all the shares represented by any
certificate are redeemed, a new certificate shall be issued representing the
unredeemed shares without cost to the holder thereof.
(d) In the event that the Corporation has failed to pay accrued and
unpaid dividends on the Preferred Stock, it may not redeem less than all of the
then outstanding shares of the Preferred Stock until all such accrued and unpaid
dividends and the then current quarterly dividends have been paid in full in
cash.
(e) Notwithstanding the foregoing, if notice of redemption has been
given pursuant to this Section 5(a) and any holder of shares of Preferred Stock
shall, prior to the close of business on the redemption date, give written
notice to the Corporation pursuant to Section 7(b) hereof of the conversion of
any or all of the shares to be redeemed held by such holder (accompanied by a
certificate or certificates for such shares, duly endorsed or assigned to the
Corporation), then (i) the Corporation shall not have the right to redeem such
shares, (ii) the conversion of such shares to be redeemed shall become effective
as provided in Section 7 and (iii) any funds which shall have been deposited for
the payment of the Redemption Price for such shares shall be returned to the
Corporation immediately after such conversion (subject to declared dividends
payable to holders of shares of Preferred Stock on the dividend payment record
date for such dividends being so payable,
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<PAGE> 12
to the extent set forth in Section 7 hereof, regardless of whether such shares
are converted subsequent to such dividend payment record date and prior to the
related dividend payment date).
6. SHARES TO BE RETIRED. All shares of Preferred Stock purchased,
redeemed, exchanged or converted by the Corporation shall be retired and
canceled and shall be restored to the status of authorized but unissued shares
of preferred stock, without designation as to series, and may thereafter be
reissued.
7. CONVERSION. Holders of shares of Preferred Stock shall have the
right to convert all or a portion of such shares into shares of Common Stock, as
follows:
(a) Subject to and upon compliance with the provisions of this Section
7, a holder of shares of Preferred Stock shall have the right, at such holder's
option, at any time to convert all or any of such shares into the number of duly
and validly issued and fully paid and nonassessable shares of Common Stock
obtained by dividing the aggregate Liquidation Preference of the shares to be
converted by the then applicable Conversion Price and by surrender of such
shares, such surrender to be made in the manner provided in paragraph (b) of
this Section 7; provided, however, that the right to convert shares called for
redemption pursuant to Section 5 hereof shall terminate at the close of business
on the date fixed for such redemption. No share of Preferred Stock may be
converted in part into Common Stock; further provided, however, that a Holder
may provisionally convert any shares of Preferred Stock that are the subject of
a pending registration under Section 2(a) or 2(b) of the Registration Rights
Agreement, such conversion to be effective as of the effective date of the
related registration statement by so stating in the notice given in accordance
with paragraph (b) of this Section 7, and such conversion shall be effective
only if (i) the related registration statement is declared effective by the
Securities and Exchange Commission, (ii) no stop order or similar proceeding is
instituted by any regulatory authority having jurisdiction with respect to such
registration statement, and (iii) the Common Stock issuable upon such conversion
and registered under the registration statement is sold within 90 days after the
registration statement is declared effective, and , if effective, shall be
deemed to have been effective as of the close of business on the effective date
of the related registration statement; otherwise such shares of Preferred Stock
shall be deemed for all purposes hereunder (including accrual and payment of
dividends) to be and have been outstanding as shares of Preferred Stock during
any period in which such provisional conversion was pending.
(b) (i) In order to exercise the conversion right, the holder of each
share of Preferred Stock to be converted shall surrender the certificate
representing such share, duly endorsed or assigned to the Corporation or in
blank, at the office of the Transfer Agent in the Borough of Manhattan, City of
New York, accompanied by written notice to the Corporation that the holder
thereof elects to convert such share of Preferred Stock and stating whether or
not the conversion is a provisional conversion in connection with a registration
under the Registration Rights Agreement as provided in the final proviso of
Section 7(a). Unless the shares issuable on conversion are to be issued in the
same name as the name in which such share of Preferred Stock is registered, each
share surrendered for conversion shall be accompanied by instruments of
transfer, in form satisfactory to the Corporation, duly executed by the holder
or such holder's duly authorized attorney and an amount
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<PAGE> 13
sufficient to pay any transfer or similar tax (or evidence reasonably
satisfactory to the Corporation demonstrating that such taxes have been paid or
are not required to be paid).
(ii) Holders of shares of Preferred Stock who surrender their
shares of Preferred Stock for conversion shall be entitled to payment in cash by
the Corporation of all accrued and unpaid dividends to the date the Preferred
Stock is surrendered for conversion (or deemed to have been converted, in the
case of shares provisionally converted as provided in the final proviso to
Section 7(a)), prorated for any portion of the then current Dividend Period
during which the Preferred Stock is surrendered for conversion, whether or not
any dividend in respect of such then current dividend period has been declared
or set aside by the Board of Directors of the Corporation. Such payment,
together with any payment for fractional shares as provided in paragraph (c) of
this Section 7, shall be paid by the Corporation as promptly as practicable
following surrender of certificates for shares of Preferred Stock for conversion
as provided herein (or following the sale of the underlying Common Stock, in the
case of shares which are provisionally converted and are subsequently sold as
provided in the final proviso to Section 7(a)), and, when applicable, shall
accompany the certificates for Common Stock into which such shares of Preferred
Stock have been converted which are delivered in accordance with the following
paragraph.
(iii) As promptly as practicable after the surrender of
certificates for shares of Preferred Stock as aforesaid (unless such shares are
issued in connection with a provisional conversion in connection with a
registration under the Registration Rights Agreement), the Corporation shall
issue and shall deliver at such office to such holder, or on such holder's
written order, a certificate or certificates for the number of shares of Common
Stock issuable upon the conversion of such shares in accordance with the
provisions of this Section 7, and any fractional interest in respect of a share
of Common Stock arising upon such conversion shall be settled as provided in
paragraph (c) of this Section 7. If shares are surrendered for provisional
conversion, the Corporation shall either (A) reissue certificates for the number
of shares of Preferred Stock surrendered for provisional conversion if the
conditions of clauses (i) - (iii) of the final proviso to Section 7(a) are not
fulfilled, or (B) issue certificates for the number of shares of Common Stock
into which the shares provisionally surrendered have been converted to the order
of the purchaser thereof, if the conditions of clauses (i) - (iii) of the final
proviso to Section 7(a) are fulfilled, and any fractional interest in respect of
a share of Common Stock arising upon such conversion shall be settled as
provided in paragraph (c) of this Section 7.
(iv) Each conversion (other than provisional conversions)
shall be deemed to have been effected immediately prior to the close of business
on the date on which the certificates for shares of Preferred Stock shall have
been surrendered and such notice received by the Corporation as aforesaid, and
the person or persons in whose name or names any certificate or certificates for
shares of Common Stock shall be issuable upon such conversion shall be deemed to
have become the holder or holders of record of the shares represented thereby at
such time on such date and such conversion shall be at the Conversion Price in
effect at such time on such date, unless the stock transfer books of the
Corporation shall be closed on that date, in which event such person or persons
shall be deemed to have become such holder or holders of record at the close of
business on the next succeeding day on which such stock transfer books are open,
but such conversion shall be at the
13
<PAGE> 14
Conversion Price in effect on the date upon which such shares shall have been
surrendered and such notice received by the Corporation. All shares of Common
Stock delivered upon conversion of the Preferred Stock will upon delivery be
duly and validly issued and fully paid and nonassessable.
(c) In connection with the conversion of any shares of Preferred Stock,
no fractional shares or scrip representing fractions of shares of Common Stock
shall be issued upon conversion of the Preferred Stock. Instead of any
fractional interest in a share of Common Stock which would otherwise be
deliverable upon the conversion of a share of Preferred Stock, the Corporation
shall pay to the holder of such share an amount in cash (computed to the nearest
cent) equal to the Closing Price of Common Stock on the Trading Date immediately
preceding the date of conversion multiplied by the fraction of a share of Common
Stock represented by such fractional interest. If more than one share of
Preferred Stock shall be surrendered for conversion at one time by the same
holder, the number of full shares of Common Stock issuable upon conversion
thereof shall be computed on the basis of the aggregate number of shares of
Preferred Stock so surrendered.
(d) The Conversion Price shall be adjusted from time to time as
follows:
(i) In case the Corporation shall after the Issue Date (A) pay
a dividend or make a distribution on its Common Stock that is paid or made (1)
in shares of its Common Stock or (2) in rights to purchase stock or other
securities if such rights are not separable from the Common Stock except upon
the occurrence of a contingency, (B) subdivide or split its outstanding Common
Stock into a greater number of shares, (C) combine its outstanding Common Stock
into a smaller number of shares or (D) issue any shares of capital stock by
reclassification of its Common Stock, the Conversion Price in effect immediately
prior thereto shall be adjusted, or in the case of clause (A)(2) other provision
shall be made, so that the holder of any share of Preferred Stock thereafter
surrendered for conversion shall be entitled to receive the number of shares of
Common Stock of the Corporation and rights to purchase stock or other securities
which such holder would have owned or have been entitled to receive after the
occurrence of any of the events described above had such share been surrendered
for conversion immediately prior to the occurrence of such event or the record
date therefor, whichever is earlier. In the event of the redemption of any
rights referred to in clause (A), such holder shall have the right to receive,
in lieu of any such rights, any cash, property or securities paid in respect of
such redemption. An adjustment made pursuant to this subparagraph (i) shall
become effective immediately after the close of business on the record date for
determination of stockholders entitled to receive such dividend or distribution
in the case of a dividend or distribution (except as provided in paragraph (h)
below) and shall become effective immediately after the close of business on the
effective date in the case of a subdivision, split, combination or
reclassification. Any shares of Common Stock issuable in payment of a dividend
shall be deemed to have been issued immediately prior to the close of business
on the record date for such dividend for purposes of calculating the number of
outstanding shares of Common Stock under clauses (ii), (iii) and (iv) below.
(ii) In case the Corporation shall issue after the Issue Date
options, rights or warrants to all holders of Common Stock entitling them to
subscribe for or purchase Common Stock, or Convertible Securities, at an
exercise, purchase, conversion or exchange price or rate per share
14
<PAGE> 15
of Common Stock less than the Current Market Price per share of Common Stock at
the record date for the determination of stockholders entitled to receive such
options, rights or warrants (or if no record date is taken, the issuance date
thereof), then the Conversion Price in effect immediately prior thereto shall be
adjusted to equal the price determined by multiplying (A) the Conversion Price
in effect immediately prior to the date of issuance of such options, rights or
warrants by (B) a fraction, the numerator of which shall be the sum of (1) the
number of shares of Common Stock outstanding on the date of issuance of such
options, rights or warrants (without giving effect to any such issuance) and (2)
the number of shares which the aggregate proceeds from the exercise of such
options, rights or warrants (and the proceeds from the conversion or exchange of
the Convertible Securities acquired upon the exercise of any such options,
warrants or rights) for Common Stock would purchase at such Current Market
Price, and the denominator of which shall be the sum of (1) the number of shares
of Common Stock outstanding on the date of issuance of such options, rights or
warrants (without giving effect to any such issuance) and (2) the number of
additional shares of Common Stock offered for subscription or purchase upon the
exercise of such options, rights or warrants and upon the conversion or exchange
of such Convertible Securities. Such adjustment shall be made successively
whenever any such options, rights or warrants are issued, and shall become
effective immediately after such record date. In determining whether any
options, rights or warrants (or the related Convertible Securities) entitle the
holders of Common Stock to subscribe for or purchase shares of Common Stock at
less than such Current Market Price, there shall be taken into account any
consideration received by the Corporation upon issuance and upon exercise of
such options rights or warrants (and the conversion or exchange of such
Convertible Securities).
(iii) In case the Corporation shall issue after the Issue Date
any Common Stock (other than Excluded Stock) or Convertible Securities without
consideration or for a consideration per share of Common Stock less than the
Current Market Price per share of Common Stock on the date of such issuance,
then the Conversion Price in effect immediately prior thereto shall be reduced
to equal the price determined by multiplying (A) the Conversion Price in effect
immediately prior to the date of issuance of such Common Stock or Convertible
Securities by (B) a fraction, the numerator of which shall be the sum of (1) the
number of shares of Common Stock outstanding on the date of issuance of such
additional Common Stock or Convertible Securities (without giving effect to any
such issuance) and (2) the number of shares which the aggregate proceeds from
the issuance of such additional Common Stock and the conversion or exchange of
such Convertible Securities would purchase at such Current Market Price, and the
denominator of which shall be the sum of (3) the number of shares of Common
Stock outstanding on the date of issuance of such additional Common Stock or
Convertible Securities (without giving effect to any such issuance) and (4) the
number of additional shares of Common Stock issued plus the number of shares of
Common Stock issuable upon conversion or exchange of Convertible Securities for
no consideration or for a consideration less than the Current Market Price per
share of Common Stock on the date of such issuance. Such adjustment shall be
made successively whenever any such Common Stock or Convertible Securities
(other than Excluded Stock) are issued without consideration or for a
consideration per share of Common Stock less than the Current Market Price per
share of Common Stock on the date of such issuance, and shall become effective
immediately after such issuance date. In determining whether any shares of
Common Stock are being issued at less than such Current
15
<PAGE> 16
Market Price, there shall be taken into account any consideration received by
the Corporation upon issuance of Common Stock or Convertible Securities and upon
conversion or exchange of Convertible Securities.
(iv) In case the Corporation shall pay a dividend or make a
distribution to all holders of its Common Stock after the Issue Date of any
shares of capital stock of the Corporation or its subsidiaries (other than
Common Stock), or Convertible Securities, or evidences of its indebtedness or
assets, including securities (any of the foregoing being hereinafter in this
subparagraph (iv) called the "Securities") and cash to the extent in excess of
regular periodic cash dividends in an amount equal to that paid by the
Corporation on the Common Stock on the Issue Date (if any), but excluding
options, rights, warrants, dividends and distributions referred to in
subparagraphs (i) and (ii) above, regular periodic cash dividends in an amount
not greater than that paid by the Corporation on the Common Stock on the Issue
Date payable out of the Corporation's surplus that may from time to time be
declared by the Board of Directors and dividends and distributions in connection
with the liquidation, dissolution or winding up of the Corporation, then in each
such case, the Conversion Price shall be adjusted so that it shall equal the
price determined by multiplying (A) the Conversion Price in effect on the record
date mentioned below by (B) a fraction, the numerator of which shall be the
Current Market Price per share of the Common Stock on the record date mentioned
below less the then fair market value as determined by the Board of Directors
(whose determination shall, if made in good faith, be conclusive) as of such
record date of the portion of the Securities applicable to one share of Common
Stock, and the denominator of which shall be the Current Market Price per share
of the Common Stock on such record date; provided, however, that in the event
the then fair market value (as so determined) of the portion of Securities so
distributed applicable to one share of Common Stock is equal to or greater than
the Current Market Price per share of Common Stock on the record date mentioned
above, in lieu of the foregoing adjustment, adequate provision shall be made so
that each holder of shares of Preferred Stock shall have the right to receive
the amount and kind of Securities such holder would have received had such
holder converted each such share of Preferred Stock immediately prior to the
record date for the distribution of the Securities. Except as provided in
paragraph (h) below, such adjustment shall become effective immediately after
the record date for the determination of stockholders entitled to receive such
distribution.
(v) Upon the expiration or termination of the options, rights
or warrants described in Section 7(d)(ii) above, if any such options, rights or
warrants shall not have been exercised, then the Conversion Price shall
forthwith be readjusted and thereafter be the rate which it would have been had
an adjustment been made on the basis that (A) the only options, rights or
warrants so issued or sold were those so exercised and they were issued or sold
for the consideration actually received by the Corporation upon such exercise,
plus the consideration, if any, actually received by the Corporation for the
granting of all such rights or warrants whether or not exercised, plus the
consideration, if any, actually received by the Corporation upon the conversion
or exercise of any Convertible Securities issuable upon the exercise of such
options, rights or warrants and (B) the Corporation issued and sold a number of
shares of Common Stock equal to those actually issued upon exercise of such
options, rights or warrants or such conversion or exchange, and such shares were
issued and sold for a consideration equal to the sum of the aggregate exercise
price in effect
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<PAGE> 17
under the options, rights or warrants actually exercised at the respective dates
of their exercise plus the aggregate conversion or exchange price under
Convertible Securities actually converted or exchanged at the respective dates
of conversion or exchange. For purposes of subparagraphs (ii) and (iii), the
aggregate consideration received by the Corporation in connection with the
issuance of shares of Common Stock or of options, rights or warrants or
Convertible Securities shall be deemed to be equal to the sum of the aggregate
offering price (before deduction of underwriting discounts or commissions and
expenses payable to third parties) of all such securities plus the minimum
aggregate amount, if any, payable upon the exercise of such options, rights or
warrants or upon the conversion or exchange of such Convertible Securities into
shares of Common Stock. In the case of the issuance of Common Stock (otherwise
than upon the conversion of Preferred Stock or other Convertible Securities of
the Corporation) for a consideration in whole or in part other than cash,
including securities acquired in exchange therefor (other than securities by
their terms so exchangeable), the consideration other than cash shall be the
fair value thereof as determined by the Board of Directors, irrespective of any
accounting treatment; provided, that such fair value as determined by the Board
of Directors shall not exceed the aggregate Current Market Price of the shares
of Common Stock being issued as of the date the Board of Directors authorizes
the issuance of such shares.
(vi) No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at least 1% in
such price; provided, however, that any adjustments which by reason of this
subparagraph (vi) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment; and further provided, however, that
any adjustment shall be required and shall be made in accordance with the
provisions of this Section 7 (other than this subparagraph (vi)) not later than
such time as may be required in order to preserve the tax-free nature of a
distribution to the holders of shares of Common Stock. All calculations under
this Section 7 shall be made to the nearest cent (with $.005 being rounded
upward) or to the nearest 1/100th of a share (with .005 of a share being rounded
upward), as the case may be. Anything in this paragraph (d) to the contrary
notwithstanding, the Corporation shall be entitled, to the extent permitted by
law, to make such reductions in the Conversion Price, in addition to those
required by this paragraph (d), as it in its discretion shall determine to be
advisable in order that any stock dividend, subdivision of shares, distribution
of rights or warrants to purchase stock or securities, or distribution of other
assets or any other transaction which could be treated as any of the foregoing
transactions pursuant to Section 305 of the Internal Revenue Code of 1986, as
amended, hereafter made by the Corporation to its stockholders shall not be
taxable to such stockholders.
(e) In case the Corporation shall be a party to any transaction
(including without limitation a merger, consolidation, statutory share exchange,
sale of all or substantially all of the Corporation's assets or recapitalization
of the Common Stock (each of the foregoing being referred to as a
"Transaction"), in each case as a result of which shares of Common Stock shall
be converted into the right to receive stock, securities or other property
(including cash or any combination thereof), then the Preferred Stock remaining
outstanding will thereafter no longer be subject to conversion into Common Stock
pursuant to Section 7, but instead shall be convertible into the kind and amount
of shares of stock and other securities and property receivable (including cash)
upon the
17
<PAGE> 18
consummation of such Transaction by a holder of that number of shares or
fraction thereof of Common Stock into which one share of Preferred Stock was
convertible immediately prior to such Transaction. The Corporation shall not be
a party to any Transaction unless the terms of such Transaction are consistent
with the provisions of this Section 7(e) and it shall not consent or agree to
the occurrence of any Transaction until the Corporation has entered into an
agreement with the successor or purchasing entity, as the case may be, for the
benefit of the holders of the Preferred Stock which will contain provisions
enabling the holders of the Preferred Stock which remains outstanding after such
Transaction to convert into the consideration received by holders of Common
Stock at the Conversion Price immediately after such Transaction. In the event
that at any time, as a result of an adjustment made pursuant to this Section 7,
the Preferred Stock shall become subject to conversion into any securities other
than shares of Common Stock, thereafter the number of such other securities so
issuable upon conversion of the shares of Preferred Stock shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the shares of Preferred Stock
contained in this Section 7. The provisions of this Section 7(e) shall similarly
apply to successive Transactions.
(f) If:
(i) the Corporation shall declare a dividend (or any other
distribution) on the Common Stock that would cause an adjustment to the
Conversion Price of the Preferred Stock pursuant to the terms of any of the
paragraphs above;
(ii) the Corporation shall authorize the granting to the
holders of the Common Stock of rights or warrants to subscribe for or purchase
Convertible Securities or any shares of any other class or any other rights or
warrants;
(iii) there shall be any reclassification or change of the
Common Stock (other than an event to which Section 7(d)(i) applies) or any
consolidation or merger to which the Corporation is a party and for which
approval of any stockholders of the Corporation is required, or a statutory
share exchange, or a self tender offer by the Corporation for all or
substantially all of its outstanding shares of Common Stock, or the sale or
transfer of all or substantially all of the assets of the Corporation; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then the Corporation shall cause to be filed with the Transfer Agent and shall
cause to be mailed to the holders of shares of the Preferred Stock at their
addresses as shown on the stock records of the Corporation, as promptly as
possible, but at least 15 days prior to the applicable date hereinafter
specified, a notice stating (A) the date on which a record is to be taken for
the purpose of such dividend, distribution or granting of rights or warrants,
or, if a record is not to be taken, the date as of which the holders of Common
Stock of record to be entitled to such dividend, distribution or rights or
warrants are to be determined or (B) the date on which such reclassification,
change, consolidation, merger, statutory share exchange, sale, transfer,
dissolution, liquidation or winding
18
<PAGE> 19
up is expected to become effective or occur, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other property deliverable upon
such reclassification, change, consolidation, merger, statutory share exchange,
sale, transfer, dissolution, liquidation or winding up. Failure to give such
notice or any defect therein shall not affect the legality or validity of the
proceedings described in this Section 7.
(g) Whenever the Conversion Price is adjusted as herein provided, the
Corporation shall promptly file with the Transfer Agent an officers' certificate
signed by the President or a Vice President and the Chief Financial Officer or
the Secretary of the Corporation setting forth the Conversion Price after such
adjustment, the method of calculation thereof and setting forth a brief
statement of the facts requiring such adjustment and upon which such adjustment
is based. If the calculation of the adjustment requires a determination by the
Board of Directors pursuant to Section 7(d)(iv) or any similar provision, such
certificate shall include a copy of the resolution of the Board of Directors
relating to such determination. Promptly after delivery of such certificate, the
Corporation shall prepare a notice of such adjustment of the Conversion Price
setting forth the adjusted Conversion Price, the facts requiring such adjustment
and upon which such adjustment is based and the date on which such adjustment
becomes effective and shall mail such notice of such adjustment of the
Conversion Price to the holder of each share of Preferred Stock at such holder's
last address as shown on the stock records of the Corporation.
(h) In any case in which Section 7(d) provides that an adjustment shall
become effective immediately after a record date for an event and the date fixed
for conversion pursuant to Section 7 occurs after such record date but before
the occurrence of such event, the Corporation may defer until the actual
occurrence of such event (i) issuing to the holder of any share of Preferred
Stock surrendered for conversion the additional shares of Common Stock issuable
upon such conversion by reason of the adjustment required by such event over and
above the Common Stock issuable upon such conversion before giving effect to
such adjustment and (ii) paying to such holder any amount in cash in payment of
accrued but unpaid dividends pursuant to paragraph (b)(ii), or in lieu of any
fraction pursuant to paragraph (c), of this Section 7.
(i) For purposes of this Section 7, the number of shares of Common
Stock at any time outstanding shall not include any shares of Common Stock then
owned or held by or for the account of the Corporation or any corporation
controlled by the Corporation.
(j) If any single action would require adjustment pursuant to more than
one paragraph of this Section 7, only one adjustment shall be made and such
adjustment shall be the amount of adjustment which has the highest absolute
value to the holders of the Preferred Stock.
(k) In case the Corporation shall take any action affecting the Common
Stock, other than action described in this Section 7, which in the opinion of
the Board of Directors would materially adversely affect the conversion rights
of the holders of the shares of Preferred Stock, the Conversion Price for the
Preferred Stock shall be adjusted, to the extent permitted by law, in such
manner, if any, and at such time, as the Board of Directors may determine to be
equitable in the circumstances.
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Subject to the foregoing, there shall be no adjustment of the Conversion Price
in case of the issuance of any stock of the Corporation in a reorganization,
acquisition or other similar transaction except as specifically set forth in
this Section 7.
(l) The Corporation shall at all times reserve and keep available, free
from contractual or statutory preemptive rights, out of the aggregate of its
authorized but unissued shares of Common Stock or its issued shares of Common
Stock held in its treasury, or both, for the purpose of effecting conversion of
the Preferred Stock, the full number of shares of Common Stock deliverable upon
the conversion of all outstanding shares of Preferred Stock not theretofore
converted. For purposes of this paragraph (l), the number of shares of Common
Stock which shall be deliverable upon the conversion of all outstanding shares
of Preferred Stock shall be computed as if at the time of computation all such
outstanding shares were held by a single holder.
Before taking any action which would cause an adjustment reducing the
Conversion Price below the then par value of the shares of Common Stock
deliverable upon conversion of the Preferred Stock, the Corporation will take
any corporate action which may, in the opinion of its counsel, be necessary in
order that the Corporation may validly and legally issue fully paid and
nonassessable shares of Common Stock at such adjusted Conversion Price.
The Corporation will make the shares of Common Stock required to be
delivered upon conversion of the Preferred Stock eligible for trading upon the
NASDAQ National Market System or upon any national securities exchange upon
which the Common Stock shall then be traded, prior to such delivery.
Prior to the delivery of any securities which the Corporation shall be
obligated to deliver upon conversion of the Preferred Stock, the Corporation
will comply with all federal and state laws and regulations thereunder requiring
the registration of such securities with, or any approval of or consent to the
delivery thereof by, any governmental authority.
(m) The Corporation will pay any and all documentary stamp or similar
issue or transfer taxes payable in respect of the issue or delivery of the
shares of Preferred Stock (or any other securities issued on account of the
Preferred Stock pursuant hereto) or shares of Common Stock on conversion of or
as payment of a dividend or distribution on the Preferred Stock pursuant hereto;
provided, however, that the Corporation shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issue or
delivery of shares of Preferred Stock (or any other securities issued on account
of the Preferred Stock pursuant hereto) and the Corporation shall not be
required to make any issue or delivery unless and until the person requesting
such issue or delivery has paid to the Corporation the amount of any such tax or
has established, to the reasonable satisfaction of the Corporation, that such
tax has been paid or is not required to be paid.
(n) The Corporation shall not take any action which results in an
adjustment of the number of shares of Common Stock issuable upon conversion of a
share of Preferred Stock if the total number of shares of Common Stock issuable
after such action upon conversion of the Preferred Stock then outstanding,
together with the total number of shares of Common Stock then outstanding,
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would exceed the total number of shares of Common Stock then authorized under
the Certificate of Incorporation. Subject to the foregoing, the Corporation
shall take all such actions as it may deem reasonable under the circumstances to
provide for the issuance of such number of shares of Common Stock as would be
necessary to allow for the conversion from time to time, and taking into account
adjustments as herein provided, of outstanding shares of the Preferred Stock in
accordance with the terms and provisions of the Certificate of Incorporation.
8. RANKING. Any class or classes of stock of the Corporation shall be
deemed to rank as follows:
(a) So long as any shares of the Preferred Stock are outstanding and
only during any period stock ranking prior to the Preferred Stock has been
issued with the consent of the Preferred Stock as provided in Section 9(g)(ii),
PRIOR TO the Preferred Stock, as to dividends or as to the distribution of
assets upon liquidation, dissolution or winding up, if the holders of such class
shall be entitled to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in preference or
priority to the holders of Preferred Stock;
(b) So long as any shares of the Preferred Stock are outstanding and
only during any period stock ranking on a parity with the Preferred Stock has
been issued with the consent of the Preferred Stock as provided in Section
9(g)(ii), ON A PARITY WITH the Preferred Stock, as to dividends or as to the
distribution of assets upon liquidation, dissolution or winding up, whether or
not the dividend rates, dividend payment dates or redemption or liquidation
prices per share thereof be different from those of the Preferred Stock, if the
holders of such class of stock and the Preferred Stock shall be entitled to the
receipt of dividends or of amounts distributable upon liquidation, dissolution
or winding up, as the case may be, in proportion to their respective amounts of
accrued and unpaid dividends per share or liquidation prices, without preference
or priority of one over the other; and
(c) JUNIOR TO the Preferred Stock, as to dividends or as to the
distribution of assets upon liquidation, dissolution or winding up, if such
stock shall be the Common Stock or if the holders of Preferred Stock shall be
entitled to receipt of dividends or of amounts distributable upon liquidation,
dissolution or winding up, as the case may be, in preference or priority to the
holders of shares of such stock.
9. VOTING.
(a) Except as herein provided or as otherwise from time to time
required by law, holders of Preferred Stock shall have no voting rights.
(b) For so long as the Purchasers or any of their respective
Affiliates, designees or direct or indirect transferees of Preferred Stock
(collectively, "Eligible Holders") collectively Own Corporation Securities, the
Eligible Holders, acting by the vote of a Majority of the Preferred Stock (if
any Preferred Stock is then outstanding), or by a Majority of the Common Stock
held by Eligible Holders (if no Preferred Stock is then outstanding) issued upon
conversion of the Preferred Stock,
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shall have the right (i) collectively, to nominate one person for election to
the Board of Directors of the Corporation, or (ii) individually, (A) to receive
prior notice of any proposed action by the Corporation's Board of Directors, and
to receive reasonable notice of and to have one representative attend any
meeting of the Corporation's Board of Directors, (B) to receive, promptly after
they are produced, all management reports and management accounts relating to
the Corporation and (C) upon reasonable notice, to have access to the books and
records of the Corporation. The Corporation will take all steps necessary to
increase the then authorized number of members of the Board of Directors by one
and to have the person initially designated by the Eligible Holders appointed to
the Corporation's Board of Directors on the Issue Date. At each subsequent
election of directors at which the term of the nominee of the Eligible Holders
as a director of the Corporation expires, the Corporation will nominate the
designee of the Eligible Holders for election to the Corporation's Board of
Directors for the succeeding term for which directors are elected, will
recommend his or her election to the Corporation's stockholders and otherwise
will use its best efforts to cause the Corporation's stockholders to elect the
designee of the Eligible Holders to the Corporation's Board of Directors. The
rights set forth in this Section 9(b) shall survive any conversion of the
Preferred Stock for so long as Eligible Holders collectively Own Corporation
Securities as set forth herein.
(c) (i) In addition to the rights of Eligible Holders set forth in
Section 9(b), whenever, at any time or times, (A) dividends payable on the
shares of Preferred Stock at the time outstanding have not been declared and
paid in an aggregate amount equal to at least four consecutive quarterly
dividends on such shares or dividends on the Preferred Stock are paid in
Dividend Stock as provided in Section 3(c) hereof for four quarters in the
aggregate, (B) there occurs an event of default under the Notes or any then
outstanding Credit Facility which enables the holders of the Notes or of the
indebtedness outstanding under such Credit Facility, as the case may be, to
accelerate any of the indebtedness represented thereby, (C) the Corporation
breaches or otherwise fails to observe or perform any other representation,
warranty, covenant or agreement set forth in this Certificate of Designation,
the Securities Purchase Agreement or the Registration Rights Agreement, (D) the
entry by a court having jurisdiction in the premises of (1) a decree or order
for relief in respect of the Corporation or any Subsidiary of the Corporation in
an involuntary case or proceeding under United States bankruptcy laws, as now or
hereafter constituted, or any other applicable Federal, state, or foreign
bankruptcy, insolvency, or other similar law or (2) a decree or order adjudging
the Corporation or any Subsidiary of the Corporation a bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization, arrangement,
adjustment or composition of, or in respect of, the Corporation or any
Subsidiary of the Corporation under United States bankruptcy laws, as now or
hereafter constituted, or any other applicable Federal, state or foreign
bankruptcy, insolvency, or similar law, or appointing a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official of the
Corporation or any Subsidiary of the Corporation or of any substantial part of
the property of the Corporation or any Subsidiary of the Corporation, or
ordering the winding-up or liquidation of the affairs of the Corporation or any
Subsidiary of the Corporation, and the continuance of any such decree or order
for relief or any such other decree or order unstayed and in effect for a period
of 60 consecutive calendar days; or (E) (1) the commencement by the Corporation
or any Subsidiary of the Corporation of a voluntary case or proceeding under
United States Bankruptcy laws, as now or hereafter constituted, or any other
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applicable Federal, state, or foreign bankruptcy, insolvency or other similar
law or of any other case or proceeding to be adjudicated a bankrupt or
insolvent; or (2) the consent by the Corporation or any Subsidiary of the
Corporation to the entry of a decree or order for relief in respect of the
Corporation or any subsidiary of the Corporation in an involuntary case or
proceeding under United States bankruptcy laws, as now or hereafter constituted,
or any other applicable Federal, state, or foreign bankruptcy, insolvency, or
other similar law or to the commencement of any bankruptcy or insolvency case or
proceeding against the Corporation or any Subsidiary of the Corporation; or (3)
the filing by the Corporation or any Subsidiary of the Corporation of a petition
or answer or consent seeking reorganization or relief under United States
bankruptcy laws, as now or hereafter constituted, or any other applicable
Federal, state or foreign bankruptcy, insolvency or other similar law; or (4)
the consent by the Corporation or any Subsidiary of the Corporation to the
filing of such petition or to the appointment of or taking possession by a
custodian, receiver, liquidator, assignee, trustee, sequestrator or similar
official of the Corporation or any Subsidiary of the Corporation or of any
substantial part of the property of the Corporation or any Subsidiary of the
Corporation, or the making by the Corporation or any Subsidiary of the
Corporation of an assignment for the benefit of creditors; or (5) the admission
by the Corporation or any Subsidiary of the Corporation in writing of its
inability to pay its debts generally as they become due; or (6) the taking of
corporate action by the Corporation or any Subsidiary of the Corporation in
furtherance of any such action (each of the foregoing events in Section 9(c)(i)
(A)through (E) being referred to herein as a "Default Event"), the holders of
Preferred Stock shall have the right, voting separately as a class (the
Preferred Stock for purposes hereof, the "Defaulted Preferred Stock"), to elect
that number of directors which most closely approximates, as a portion of the
entire Board of Directors, but which is no greater than, the ratio that the
number of shares of Common Stock issuable at the then applicable Conversion
Price upon the conversion of the Preferred Stock would bear to the total number
of shares of Common Stock then outstanding (assuming all of the Preferred Stock
were then converted), but in no event less than two directors of the Corporation
(including in any computation hereunder any director nominated by the Eligible
Holders and elected to the Board of Directors as provided in Section 9(b)) at
the Corporation's next annual meeting of the stockholders and at each subsequent
annual meeting of stockholders; provided, however, that if such voting rights
shall become vested more than 90 days or less than 20 days before the date
prescribed for the annual meeting of stockholders, thereupon the holders of the
shares of Defaulted Preferred Stock shall be entitled to exercise their voting
rights at a special meeting of the holders of shares of Defaulted Preferred
Stock as set forth herein. At elections for such directors, each holder of
Preferred Stock shall be entitled to one vote for each share held. Upon the
vesting of such right of the holders of Defaulted Preferred Stock, the then
authorized number of members of the Board of Directors shall automatically be
increased by the number of directors which the Defaulted Preferred Stock are
entitled to elect as provided herein, and the vacancies so created shall be
filled by vote of the holders of outstanding Defaulted Preferred Stock as
hereinafter set forth. The right of holders of Defaulted Preferred Stock, voting
separately as a class, to elect members of the Board of Directors as aforesaid
shall continue (x) if the right to elect such directors arose because of an
event described in clause (A) (to the extent such right arose because of the
payment of dividends in Dividend Stock) or (D) or (E) of this Section 9(b)(i),
until all of the shares of the Preferred Stock have been converted, redeemed or
otherwise retired, (y) if the right to elect such directors arose because of an
event described in clause (B) or (C) of this Section 9(b)(i), until the event of
default, breach or failure has been cured, or (z) otherwise, until such time
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as all dividends accumulated on Defaulted Preferred Stock shall have been paid,
or declared and funds set aside for payment in full, at which time such right
shall terminate, except as herein or by law expressly provided, subject to
revesting in the event of each and every subsequent default of the character
above mentioned. As long as any shares of Preferred Stock shall remain
outstanding, the number of directors of the Corporation (excluding any directors
elected by vote of the holders of shares of Defaulted Preferred Stock) elected
at any meeting of stockholders of the Corporation at which directors are to be
elected shall not be such as would cause the number of directors in office after
such meeting (excluding any directors elected by vote of the holders of shares
of Defaulted Preferred Stock) to exceed a number less than the maximum number of
directors permitted by the Certificate of Incorporation which is the number
which most closely approximates, as a portion of the entire Board of Directors
so elected, but which is no greater than, the ratio that the number of shares of
Common Stock issuable at the then applicable Conversion Price upon the
conversion of the Preferred Stock would bear to the total number of shares of
Common Stock then outstanding (assuming all of the Preferred Stock were then
converted), but in no event less than two.
(ii) Upon the occurrence of a Default Event with respect to
the Corporation, within 10 days after such occurrence, the Corporation shall
mail to each registered holder of Preferred Stock a notice of such occurrence
setting forth in reasonable detail a description of the event constituting the
Default Event.
(d) Whenever such voting right shall have vested, such right may be
exercised initially either at a special meeting of the holders of shares of
Defaulted Preferred Stock called as hereinafter provided, or at any annual
meeting of stockholders held for the purpose of electing directors, and
thereafter at such meetings, or by the written consent of such holders pursuant
to Section 228 of the Delaware General Corporation Law.
(e) At any time when such voting right shall have vested in the holders
of shares of Defaulted Preferred Stock entitled to vote thereon, and if such
right shall not already have been initially exercised, an officer of the
Corporation shall, upon the written request of 10% of the holders of record of
shares of such Defaulted Preferred Stock then outstanding, addressed to the
Secretary of the Corporation, call a special meeting of holders of shares of
such Defaulted Preferred Stock. Such meeting shall be held at the earliest
practicable date upon the notice to holders of Defaulted Preferred Stock given
as required for annual meetings of stockholders at the place for holding annual
meetings of stockholders of the Corporation or, if none, at a place designated
by the Secretary of the Corporation. If such meeting shall not be called by the
proper officers of the Corporation within 30 days after the personal service of
such written request upon the Secretary of the Corporation, or within 30 days
after mailing the same within the United States, by registered mail, addressed
to the Secretary of the Corporation at its principal office (such mailing to be
evidenced by the registry receipt issued by the postal authorities), then the
holders of record of 10% of the shares of Defaulted Preferred Stock then
outstanding may designate in writing any person to call such meeting at the
expense of the Corporation, and such meeting may be called by such person so
designated upon the notice to holders of Defaulted Preferred Stock given as
required for annual meetings of stockholders and shall be held at the same place
as is elsewhere provided in this Section 9(e). Any holder of shares of Defaulted
Preferred Stock then outstanding that would be entitled to vote at such meeting
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shall have access to the stock books of the Corporation for the purpose of
causing a meeting of stockholders to be called pursuant to the provisions of
this paragraph. Notwithstanding the provisions of this Section 9(e), however, no
such special meeting shall be called or held during a period within 45 days
immediately preceding the date fixed for the next annual meeting of
stockholders.
(f) The directors elected as provided herein shall serve for the term
set forth in the bylaws or until their respective successors shall be elected
and shall qualify; any director elected by the holders of Defaulted Preferred
Stock may be removed without cause by, and shall not be removed without cause
otherwise than by, the vote of the holders of a majority of the outstanding
shares of the Defaulted Preferred Stock who are entitled to participate in such
election of directors, voting separately as a class, at a meeting called for
such purpose or by written consent as permitted by law and the Certificate of
Incorporation and By-laws of the Corporation. If the office of any director
elected by the holders of Defaulted Preferred Stock, voting separately as a
class, becomes vacant by reason of death, resignation, retirement,
disqualification or removal from office or otherwise, the remaining director
elected by the holders of Defaulted Preferred Stock, voting separately as a
class, may choose a successor who shall hold office for the unexpired term in
respect of which such vacancy occurred. Upon any termination of the right of the
holders of Defaulted Preferred Stock to vote for directors as herein provided,
the term of office of all directors then in office elected by the holders of
Defaulted Preferred Stock, voting separately as a class, shall terminate
immediately. Whenever the terms of office of the directors elected by the
holders of Defaulted Preferred Stock, voting separately as a class, shall so
terminate and the special voting powers vested in the holders of Defaulted
Preferred Stock shall have expired, the number of directors shall be reduced by
the number of directors whose term of office shall have terminated as provided
hereinabove.
(g) So long as any shares of the Preferred Stock remain outstanding,
the affirmative vote or consent of the holders of at least a Majority of the
shares of Preferred Stock outstanding at the time given either by written
consent or in person or by proxy at any special or annual meeting, and voting
separately as a separate class, shall be necessary to permit, effect or
validate:
(i) any transaction involving the sale, lease, transfer,
conveyance or other disposition (other than by way of merger or consolidation),
in one or a series of related transactions, of all or substantially all of the
assets of the Corporation and its subsidiaries taken as a whole or any
transaction involving any purchase, sale, acquisition, disposition, share
exchange, merger or consolidation or other business combination (collectively, a
"Corporate Change") if, after and giving effect to such Corporate Change, (A)
the holders of the Corporation's Common Stock immediately prior to the
transaction do not own a Majority or more of the voting power of the common
stock or other equity securities having ordinary voting rights in the election
of directors of the corporation or other Person resulting from or surviving the
transaction, or (B) individuals who before such Corporate Change was first
publicly announced constituted the Board of Directors of the Corporation cease
for any reason to constitute a majority of the Board of Directors of the Person
resulting from or surviving such Corporate Change;
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(ii) any amendment, alteration or repeal, whether by merger,
consolidation, resolution of the Board of Directors, certificate of designation,
or otherwise, of the Certificate of Incorporation that will (A) increase or
decrease the aggregate number of authorized shares of Preferred Stock or of the
Unissued Preferred Stock, (B) increase or decrease the par value of the
Preferred Stock, (C) effect an exchange, reclassification or cancellation of all
or part of the shares of the Preferred Stock, (D) effect an exchange, or create
a right of exchange, of all or any part of the shares of another class into the
shares of Preferred Stock, (E) change the designations, preferences, limitations
or relative rights of the shares the Preferred Stock, (F) change the shares of
the Preferred Stock into the same or a different number of shares of the same
class or series or another class or series, (G) create a new class or series of
shares having rights and preferences on a parity with, prior or superior to the
shares of the Preferred Stock, or increase the rights and preferences of any
class or series having rights and preferences on a parity with, prior or
superior to the shares of the Preferred Stock, or increase the rights and
preferences of any class or series having rights or preferences later or
inferior to the shares of the Preferred Stock in such a manner as to become on a
parity with, prior or superior to the shares of the Preferred Stock, (H) limit
or deny the existing preemptive rights of the shares of the Preferred Stock, or
(I) cancel or otherwise affect dividends on the shares of the Preferred Stock
that had accrued but had not been declared. If the holders of the outstanding
shares of Preferred Stock are entitled to vote as a class on a proposed
amendment and the amendment would affect all series of such class (other than
any series of which no shares are outstanding or any series that is not affected
by the amendment) equally, then the holders of the separate series shall not be
entitled to separate class votes, but shall instead vote together as one class;
or
(iii) the issuance of any class or series of capital stock
senior to, or on a parity with, the Preferred Stock.
(h) The Corporation covenants and agrees promptly after the Issue Date
to take any steps which may be necessary to amend the Certificate of
Incorporation and/or bylaws of the Corporation to provide for any increase in
the number of authorized directors of the Corporation necessary for the
Corporation to comply with its obligations under this Section 9.
10. RECORD HOLDERS. The Corporation and the Transfer Agent may deem and
treat the record holder of any shares of Preferred Stock as the true and lawful
owner thereof for all purposes, and neither the Corporation nor the Transfer
Agent shall be affected by any notice to the contrary.
11. NOTICE. Except as may otherwise be provided by law or provided for
herein, all notices referred to herein shall be in writing, and all notices
hereunder shall be deemed to have been given upon receipt, in the case of a
notice of conversion given to the Corporation as contemplated in Section 7(b)
hereof, or, in all other cases, upon the earlier of receipt of such notice or
three Business Days after the mailing of such notice if sent by registered mail
(unless first-class mail shall be specifically permitted for such notice under
the terms hereof) with postage prepaid, addressed: if to the Corporation, to its
offices at 400 West Illinois, Suite 1000, Midland, Texas 79701 (Attention:
Secretary) or other agent of the Corporation designated as permitted hereby; or,
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if to any holder of the Preferred Stock, to such holder at the address of such
holder of the Preferred Stock as listed in the stock record books of the
Corporation (which shall include the records of the Transfer Agent), or to such
other address as the Corporation or holder, as the case may be, shall have
designated by notice similarly given.
12. REGISTRATION OF TRANSFER. Upon the surrender of any certificate
representing Preferred Stock to the Transfer Agent, the Corporation shall cause
the Transfer Agent, at the request of the record holder of such certificate, to
execute and deliver (at the Corporation's expense) a new certificate or
certificates in exchange therefor, of Preferred Stock representing in the
aggregate the number of shares of Preferred Stock represented by the surrendered
certificate. Each such new certificate shall be registered in such name and
shall represent such number of shares of Preferred Stock as is requested by the
holder of the surrendered certificate and shall be substantially identical in
form to the surrendered certificate, and dividends shall accrue on the Preferred
Stock represented by such new certificate from the date to which dividends have
been fully paid on such Preferred Stock represented by the surrendered
certificate.
13. REPLACEMENT. Upon receipt of evidence reasonably satisfactory to
the Corporation (an affidavit of the registered holder shall be satisfactory) of
the ownership and the loss, theft, destruction or mutilation of any certificate
evidencing shares of Preferred Stock, and in the case of any such loss, theft or
destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Corporation shall
(at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of shares of Preferred Stock of
such class represented by such lost, stolen, destroyed or mutilated certificate
and dated the date of such lost, stolen, destroyed or mutilated certificate, and
dividends shall accrue on the Preferred Stock represented by such new
certificate from the date to which dividends have been fully paid on such lost,
stolen, destroyed or mutilated certificate.
IN WITNESS WHEREOF, this Certificate has been signed on behalf of the
Corporation by its President and attested to by its Assistant Secretary, all as
of the 29th day of May, 1998.
COSTILLA ENERGY, INC.
By: /s/ Michael J. Grella
------------------------------
Michael J. Grella, President
and Chief Executive Officer
Attest:
By: /s/ Bobby W. Page
-----------------------------
Bobby W. Page, Secretary
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STATE OF TEXAS )
)
COUNTY OF MIDLAND )
This instrument was acknowledged before me on May 29, 1998, by Michael
J. Grella, as President and Chief Executive Officer of Costilla Energy, Inc.
/s/ Retha Hunnicutt
- --------------------------------------------------------------
Notary Public
(My Commission Expires 5/24/00)
28
