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EXHIBIT 4.1
CERTIFICATE OF DESIGNATIONS, PREFERENCES,
AND RELATIVE RIGHTS AND LIMITATIONS
OF THE
SERIES A SENIOR CONVERTIBLE CUMULATIVE PREFERRED STOCK
OF
CONTANGO OIL & GAS COMPANY
(the "Corporation")
1. Designation. A series of the Preferred Stock of the Corporation is
hereby designated as "Series A Senior Convertible Cumulative Preferred Stock"
consisting initially of 5,000 authorized shares each having a par value of $0.04
(hereinafter called the "Series A Preferred Stock"). Shares of the Series A
Preferred Stock shall rank prior to the Corporation's Common Stock (and any
Junior Stock (as hereinafter defined) with respect to the payment of dividends
or distributions and upon liquidation, dissolution, winding-up or otherwise.
(All equity securities of the Corporation to which the Series A Preferred Stock
ranks prior, whether with respect to dividends or distributions or upon
liquidation, dissolution, winding-up or otherwise, including the Common Stock,
are collectively referred to herein as "Junior Stock"; all equity securities of
the Corporation with which the Series A Preferred Stock ranks on a parity,
whether with respect to dividends or distributions or upon liquidation,
dissolution, winding-up or otherwise, are collectively referred to herein as
"Parity Stock"; and all equity securities of the Corporation to which the
Preferred Stock ranks junior, whether with respect to dividends or distributions
or upon liquidation, dissolution, winding-up or otherwise, are collectively
referred to herein as "Senior Stock"). Except for shares of Series A Preferred
Stock issuable in accordance with Section 2 hereof, the Corporation shall not
issue any shares of Series A Preferred Stock after the initial issuance of
Series A Preferred Stock.
2. Dividends.
(a) The holders of the shares of Series A Preferred Stock shall be
entitled to receive quarterly dividends at a dividend rate equal to 8% per annum
(or 2% per Quarterly Dividend Period) if paid in cash on a current quarterly
basis (the "Cash Dividend Rate") or otherwise at a dividend rate equal to 10%
per annum (or 2.5% per Quarterly Dividend Period) if not paid on a current
quarterly basis or if paid in shares of Series A Preferred Stock (the "PIK
Dividend Rate"), in either case as adjusted pursuant to Section 2(e) below, if
applicable (the applicable dividend rate being hereinafter referred to as the
"Dividend Rate"), in each case computed on the basis of $1,000 per share, when
and as declared by the Board of Directors of the Corporation, out of funds or
shares of Series A Preferred Stock legally available for the payment of
dividends. Quarterly dividend periods (each a "Quarterly Dividend Period") shall
commence on January 1, April 1, July 1 and October 1 in each year, except that
the first Quarterly Dividend Period shall commence on the date of issuance of
the Series A Preferred Stock, and shall end on and include
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the day immediately preceding the first day of the next Quarterly Dividend
Period. Dividends on the shares of Series A Preferred Stock shall be payable on
March 31, June 30, September 30 and December 31 of each year (a "Dividend
Payment Date"), commencing September 30, 2000. Each such dividend shall be paid
to the holders of record of the Series A Preferred Stock as they shall appear on
the stock register of the Corporation on such record date, not exceeding 45 days
nor less than 10 days preceding such Dividend Payment Date, as shall be fixed by
the Board of Directors of the Corporation or a duly authorized committee
thereof.
If, on any Dividend Payment Date, the holders of the Series A
Preferred Stock shall not have received the full dividends provided for in this
Section 2(a) in cash or in kind, then such dividends shall cumulate, whether or
not earned or declared, with additional dividends thereon, compounded quarterly,
at the PIK Dividend Rate applicable to the Series A Preferred Stock as provided
in this Section 2(a), for each succeeding full Quarterly Dividend Period during
which such dividends shall remain unpaid.
(b) The amount of any dividends accrued on any share of the Series A
Preferred Stock on any Dividend Payment Date shall be deemed to be the amount of
any unpaid dividends accumulated thereon to and including such Dividend Payment
Date, whether or not earned or declared. The amount of dividends accrued on any
share of the Series A Preferred Stock on any date other than a Dividend Payment
Date shall be deemed to be the sum of (i) the amount of any unpaid dividends
accumulated thereon to and including the last preceding Dividend Payment Date,
whether or not earned or declared, and (ii) an amount determined by multiplying
(x) the Cash Dividend Rate by (y) a fraction, the numerator of which shall be
the number of days from the last preceding Dividend Payment Date to and
including the date on which such calculation is made and the denominator of
which shall be the full number of days in such Quarterly Dividend Period.
(c) Immediately prior to authorizing or making any distribution in
liquidation with respect to the Series A Preferred Stock (other than a purchase
or acquisition of Series A Preferred Stock pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding Series A Preferred
Stock), the Board of Directors shall, to the extent of any funds legally
available therefor, declare a dividend in cash on the Series A Preferred Stock
payable on the distribution date in an amount equal to any accrued and unpaid
dividends on the Series A Preferred Stock as of such date.
(d) The Board of Directors may declare dividends payable in shares of
Series A Preferred Stock in lieu of cash dividends on a Dividend Payment Date.
In the event the Board of Directors elects to declare a dividend payable in
shares of Series A Preferred Stock, each holder of shares of Series A Preferred
Stock shall be entitled to receive such additional shares of Series A Preferred
Stock (or cash in lieu of a fraction thereof) equal to the product of (x) the
number of shares of Series A Preferred Stock held by such holder multiplied by
(y) the PIK Dividend Rate.
(e) Notwithstanding any other provision hereof, the Dividend Rate shall
be increased by four percent (4%) per annum (1) on (and effective as of 12:01
a.m. on) November 1, 2000 if the Corporation has not filed with the Securities
Exchange Commission (the "SEC") prior to the close of business on October 31,
2000 the "Initial Registration Statement" as defined in and pursuant to Section
7.1 of that certain Securities Purchase Agreement dated as of December 29,
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1999 between the Corporation and Trust Company of the West in the capacities
described therein, which increase in the Dividend Rate shall remain in effect
until 11:59 p.m. on the date of filing with the SEC of such Initial Registration
Statement if such filing occurs, and (2) on (and effective as of 12:01 a.m. on)
April 1, 2001 if the Initial Registration Statement shall not have been declared
effective by the SEC as of March 31, 2001, which increase in the Dividend Rate
shall remain in effect until 11:59 p.m. on the date the Initial Registration
Statement is declared effective by the SEC. For purposes of this Section 2(e),
the Initial Registration Statement shall not be considered filed with the SEC
unless it is filed by the Corporation in good faith with all required
attachments and financial statements.
3. Priority.
(a) Priority as to Dividends.
(i) Holders of shares of the Series A Preferred Stock shall be
entitled to receive the dividends provided for in Section 2 hereof in preference
to and in priority over any dividends or distributions upon any Junior Stock. No
dividends shall be declared or paid or set apart for payment on any Junior Stock
for any period unless at the time of such declaration or payment or setting
apart for payment (A) full cumulative dividends have been or contemporaneously
are declared and paid in cash (or declared and a sum sufficient for the payment
thereof set apart for such payment) on the Series A Preferred Stock for all
Quarterly Dividend Periods terminating on or prior to the date of payment of
such dividends on Junior Stock, (B) an amount equal to the dividends accrued on
the Series A Preferred Stock from the last Dividend Payment Date to the date of
payment of such dividends on Junior Stock has been declared and set apart in
cash for payment on the Series A Preferred Stock and (C) the dividend payment
for the most recent Quarterly Dividend Period on the Series A Preferred Stock
has been paid entirely in cash.
(ii) No dividends shall be declared or paid or set apart for
payment on any Parity Stock for any period unless at the time of such
declaration or payment or setting aside for payment dividends have been or
contemporaneously are declared and paid in accordance with Section 2 hereof on
the Series A Preferred Stock for all Quarterly Dividend Periods terminating on
or prior to the date of payment of such dividends on Parity Stock. All dividends
paid upon shares of the Series A Preferred Stock and any Parity Stock shall be
paid pro rata so that the amount of dividends paid per share of the Series A
Preferred Stock and such Parity Stock shall in all cases bear to each other the
same ratio that accrued and unpaid dividends per share on the Series A Preferred
Stock and such Parity Stock bear to each other.
(b) Priority on Redemption. The Corporation shall not, directly or
indirectly, redeem or purchase or otherwise acquire for value any Junior Stock
or Parity Stock unless, at the time of making such redemption, purchase or other
acquisition, full cumulative dividends have been or contemporaneously are
declared and paid in accordance with Section 2 hereof (or declared and a sum (or
shares of Series A Preferred Stock) sufficient for payment thereof set apart for
such payment) on the Series A Preferred Stock for all Quarterly Dividend Periods
terminating on or prior to the date of redemption of Junior Stock and/or Parity
Stock.
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4. Redemption. Upon the sale, conveyance or disposition of all or
substantially all of the assets of the Corporation or a sale, conveyance or
disposition of a majority of the outstanding shares of common stock in a
transaction or series of related transactions (except for a merger or
consolidation after the consummation of which the stockholders of the
Corporation prior to such merger or consolidation own a majority of the voting
securities of the surviving corporation or its parent corporation), each holder
of Series A Preferred Stock shall have the right to require that the Corporation
redeem all or any part of such holder's Series A Preferred Stock for cash out of
legally available funds at a price per share equal to the Liquidation Preference
(as defined in Section 7(d)). If on the date of such sale, conveyance or
disposition funds legally available for such redemption shall be insufficient to
redeem all of the outstanding shares of Series A Preferred Stock held by holders
who have elected to have their shares redeemed, funds to the extent legally
available shall be used for such purpose and the Corporation shall effect such
redemption pro rata according to the number of shares of Series A Preferred
Stock held by each holder thereof. The redemption requirements provided hereby
shall be continuous, so that if on the date of such sale, conveyance or
disposition such requirements cannot be fully discharged, without further action
by any holder of the Series A Preferred Stock funds legally available shall be
applied therefor until such requirements are fulfilled. Upon payment in full of
the amounts owing under this Section 4 to any holder of Series A Preferred Stock
who has elected to have its shares redeemed, then notwithstanding that the
certificate or certificates evidencing such shares shall not have been
surrendered, the dividends with respect to such shares shall cease to accrue
after the date of such payment in full and all rights with respect to such
shares shall forthwith terminate.
5. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or involuntary, after payment or
provision for payment of the debts and other liabilities of the Corporation, the
holders of shares of the Series A Preferred Stock shall be entitled to receive,
out of the assets of the Corporation, whether such assets are capital or surplus
and whether or not any dividends as such are declared, $1,000 per share plus an
amount equal to all accrued and unpaid dividends thereon to the date fixed for
distribution, and no more, before any distribution shall be made to the holders
of Junior Stock with respect to the distribution of assets. If the assets of the
Corporation are not sufficient to pay in full the liquidation payments payable
to the holders of outstanding shares of the Series A Preferred Stock and any
other Parity Stock, then the holders of all such shares shall share ratably in
such distribution of assets in accordance with the amount which would be
otherwise payable on such distribution to the holders of Series A Preferred
Stock and the holders of such Parity Stock were such liquidation payments paid
in full. Except as provided, in this Section 5(a), in the event of any
liquidation, dissolution or winding up of the affairs of the Corporation, the
holders of shares of Series A Preferred Stock shall not be entitled to any
additional payments.
(b) Written notice of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation, stating a payment
date and the place where the distributive amounts shall be payable, shall be
given by mail, postage prepaid, not less than 30 days prior to the payment date
stated therein, to the holders of record of the Series A Preferred Stock at
their respective addresses as the same shall appear on the books of the
Corporation.
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6. Voting Rights.
(a) General. In addition to the rights otherwise provided for herein or
by law, holders of Series A Preferred Stock shall be entitled to vote, together
with the holders of Common Stock and any other voting Junior Stock or Parity
Stock, as one class on all matters submitted to a vote of stockholders of the
Corporation, in the same manner and with the same effect as the holders of
Common Stock. In any such vote, each share of Series A Preferred Stock shall
entitle the holder thereof to one vote per share for each share of Common Stock
(including fractional shares) into which each share of Series A Preferred Stock
is then convertible, rounded to the nearest one-tenth of a share.
(b) Protective Provisions. So long as any Series A Preferred Stock is
outstanding, the holders of the Series A Preferred Stock shall have the voting
power provided for by law and the Corporation covenants and agrees that it shall
not, without the written consent in lieu of a meeting, or the affirmative vote
at a meeting called for such purpose, of holders of Series A Preferred Stock of
record that hold at least a majority of the outstanding Series A Preferred
Stock, voting as a separate class:
(i) amend, alter or repeal, in any manner whatsoever, the
designations, powers, preferences, relative, participating, optional or other
special rights, qualifications, limitations and restrictions of the Series A
Preferred Stock;
(ii) authorize, issue, or agree to authorize or issue, whether
by reclassification or otherwise, any Senior Stock;
(iii) authorize, issue, or agree to authorize or issue,
whether by reclassification or otherwise, any new class or series of stock or
any other securities convertible into equity securities of the Corporation
ranking on a parity with the holders of Series A Preferred Stock with respect to
the rights of redemption, liquidation, preference, voting or dividends, or any
increase in the authorized or designated number of any such new class or series,
other than Series B Preferred Stock of the Corporation (the "Series B
Preferred") issued on material terms and conditions no more favorable to the
holder thereof than the Series A Preferred Stock or as otherwise approved by the
holders of a majority of the Series A Preferred Stock (which approval shall not
be unreasonably withheld), which Series B Preferred shall have a conversion
price per share of not less than $2.00 and shall be designated, issued and sold
prior to June 30, 2001 for an aggregate purchase price not to exceed $7,500,000;
(iv) amend, alter or repeal any provision of the Certificate
of Incorporation of the Corporation;
(v) directly or indirectly, redeem, purchase or otherwise
acquire for value (including through an exchange), or set apart money or other
property for any mandatory purchase or other analogous fund for the redemption,
purchase or acquisition of, any shares of Common Stock or other Junior Stock;
(vi) consolidate or merge with or into any other corporation
where (1) the Corporation is not the surviving corporation or (2) the
Corporation shall issue to any person as consideration in respect of such
consolidation or merger any capital stock of the Corporation
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representing 20% or more of the Corporation's outstanding capital stock prior to
such consolidation or merger;
(vii) sell or convey all or substantially all of the assets of
the Corporation, or dissolve or liquidate the Corporation; or
(viii) incur any indebtedness, liabilities or obligations
constituting Restricted Debt (as defined below), which in the aggregate with all
other Restricted Debt of the Corporation (on a consolidated basis) is in excess
of 50% of the NPV10 (as defined below) of the Proved Reserves (as defined below)
attributable to the properties of the Corporation at the time of incurrence.
For purposes of this Section 6(b), the following terms shall
have the meanings set forth below:
"NPV10" means with respect to any Proved Reserves as expected
to be produced from the properties of the Corporation, the net present value of
the future net revenues expected to accrue to the Corporation's interests in
such Reserves during the remaining expected economic lives of such Reserves,
discounted at 10% per annum. Each calculation of such expected future net
revenues shall be made at the time of incurrence in accordance with the then
existing standards of the Society of Petroleum Engineers and Society of
Petroleum Evaluation Engineers, provided that in any event:
(i) appropriate deductions shall be made for (A) direct
taxes and existing burdens, (B) lease operating
expenses, (C) transportation, gathering and marketing
burdens, (D) capital expenditures (including plugging
and abandonment costs), and (E) general and
administrative or overhead costs pursuant to the
relevant operating agreements (COPAS); and
(ii) the pricing assumptions and escalations used in
determining NPV10 for any particular Proved Reserves
shall be:
(A) the contract price, if any, during the term
of any written oil and gas sales contract
between Corporation and unrelated persons;
or
(B) if no sales contract exits:
(I) for volumes of oil and gas swapped
or hedged with investment grade
counter parties, the hedged price
net of any costs, expenses or
deductions relating thereto; and
(II) for "naked" or long unhedged
volumes, the oil and gas prices
reflected in the NYMEX oil and gas
strips going forward one year with
adjustment for basis (quality and
geographical) differentials.
"Proved Reserves" means those reserves which are "proved oil
and gas reserves" within the meaning of Rule 4-10 of Regulation S-X, 17 C.F.R.
Section 210.4-10 of the SEC. In
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addition, Proved Reserves must have facilities to process and transport those
reserves to market which are operational at the time of the estimate, or there
is a commitment or reasonable expectation to install such facilities in the
future.
"Restricted Debt" of any Person means debt in any of the
following categories: (i) debt for borrowed money; (ii) debt constituting an
obligation to pay the deferred purchase price of property or services; (iii)
debt evidenced by a bond, debenture, note or similar instrument; (iv) debt which
(A) would under GAAP be shown on the Corporation's balance sheet as a liability
and (B) is payable more than one year from the date of creation thereof (other
than reserves for taxes and contingent obligations); (v) debt constituting
principal under leases capitalized in accordance with GAAP; (vi) debt arising
under conditional sales or other title retention agreements; (vii) debt owing
under direct or indirect guaranties of debt of any other person or constituting
obligations to purchase or acquire or to otherwise protect or insure a creditor
against loss in respect of debt of any other person (such as obligations under
working capital maintenance agreements, agreements to keep-well, or agreements
to purchase debt, assets, goods, securities or services), but excluding
endorsements in the ordinary course of business of negotiable instruments in the
course of collection; (viii) debt with respect to letters of credit or
applications or reimbursement agreements therefor; provided, however, that the
term "Restricted Debt" shall not include debt which is 60 days or less past due
that was incurred on ordinary trade terms and is owed by the Corporation
incurring the same to vendors, suppliers, or other persons providing goods and
services for use by the Corporation in the ordinary course of its business.
(c) Dividend Default. In the event of a Dividend Default (as
hereinafter defined), the number of directors on the Board of Directors of the
Corporation shall be increased by two directors, both of whom shall be elected
as soon as practicable pursuant to the Bylaws of the Corporation by the holders
of the Series A Preferred Stock, to serve until the later of (i) the date of the
next annual meeting of stockholders and until such directors' successors are
elected and qualify and (ii) the date in which the Dividend Default is cured;
provided, however, that if permitted under applicable law, the holders of the
Series A Preferred Stock shall have the right to elect the same individual to
serve as both directors and if so elected such individual shall be treated as
constituting two directors for all purposes including without limitation voting
and quorum. A "Dividend Default" shall occur if, at any time, dividends are not
paid in full (either in cash or in kind as provided for herein) with respect to
all shares of Series A Preferred Stock on any two consecutive Dividend Payment
Dates.
(d) Board of Directors. The Corporation's Board of Directors shall
consist of (a) prior to the issuance of the Corporation's Series B Preferred,
not more than eight (8) members, or ten (10) members if a Dividend Default shall
have occurred entitling the holders of the Series A Preferred Shares to appoint
two additional directors, and (b) after the issuance of the Corporation's Series
B Preferred, not more than nine (9) members, or eleven (11) members if a
dividend default shall occurred entitling the holders of the Series B Preferred
to appoint two additional directors (a "Series B Dividend Default"), or thirteen
(13) members if a Dividend Default and a Series B Dividend Default shall have
occurred. If at any time a majority of the holders of Series A Preferred Stock
has not appointed or nominated for election at least one of the members of the
Corporation's Board of Directors and shares of Series A Preferred Stock remain
outstanding, then the holders of Series A Preferred Stock shall be entitled to
appoint one
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observer to the Corporation's Board of Directors (the "Observer"). Such Observer
shall have the right to attend, and receive all materials distributed for or at,
all meetings (telephone and otherwise) of the Board of Directors (including
committees thereof) and shall be entitled to the same rights and privileges as
directors of the Corporation, except that such Observer shall not be entitled to
vote on matters presented to or discussed by the Board of Directors. The
Observer will receive compensation from the Corporation for his services as
observer on an equal basis with the directors of the Corporation and shall be
entitled to be reimbursed by the Corporation for all reasonable costs and
expenses incurred in connection with his participation in meetings or other
activities of the Board of Directors. The holders of the Series A Preferred
Stock will use commercially reasonable efforts to cause the Observer to keep all
information provided to the Observer in connection with all meetings of the
Board of Directors confidential prior to its becoming public, except that the
Observer shall be permitted to disclose such information (i) to officers,
directors, employees, representatives, agents, auditors, accountants,
consultants, advisors, lawyers and affiliates of the holders of the Series A
Preferred Stock in the ordinary course of business who have been made aware of
the confidential nature of the information; (ii) to prospective assignees and
their respective directors, employees, agents and representatives who have
agreed in writing to become subject to this confidentiality provision, (iii) as
required by applicable law, or pursuant to subpoenas or other legal process, or
as requested by governmental agencies and examiners; (iv) to the extent such
information (A) becomes available to the Observer other than as a result of a
breach of this provision or (B) becomes available to the Observer on a
non-confidential basis, or (v) to the extent the Corporation shall have
consented to such disclosure in writing.
7. Conversion Rights.
(a) Voluntary Conversion. At a holder's election, the Series A
Preferred Stock may be converted, in whole or in part, to fully paid and
nonassessable shares of Common Stock at a conversion price of $1.25 per share,
as adjusted in accordance with Section 8 hereof (the "Conversion Price"). The
number of shares of the Common Stock into which a share of Series A Preferred
Stock is convertible shall be equal to the Liquidation Preference (as defined in
Section 7(d)) of such share of Series A Preferred Stock divided by the
Conversion Price in effect on the Voluntary Conversion Date (as hereinafter
defined).
(b) Exercise of Voluntary Conversion Privilege. In order to exercise
the voluntary conversion privilege, the registered holder of any share of Series
A Preferred Stock to be converted shall surrender the certificate representing
such share at the office of the Corporation and shall give written notice (the
"Conversion Notice") to the Corporation at said office that the holder elects to
convert such shares of Series A Preferred Stock or a specified portion thereof
into shares of Common Stock. As promptly as practicable after the receipt of the
Conversion Notice (such date of receipt, the "Voluntary Conversion Date") and
the surrender of such shares of Series A Preferred Stock, the Corporation shall
issue and deliver to the registered holder of such shares of Series A Preferred
Stock, at the address set forth on the Conversion Notice, a certificate or
certificates for the number of full shares of Common Stock, as applicable,
issuable upon the conversion of such shares of Series A Preferred Stock (or a
specified portion thereof) and cash in respect of any fraction of a share
issuable upon such conversion. Such conversion shall be deemed to have been
effected at the close of business on the Voluntary Conversion Date, and the
holder of such shares of Series A Preferred Stock shall be deemed to have become
the
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holder of record of the shares of Common Stock represented thereby as of the
Voluntary Conversion Date.
(c) Mandatory Conversion. In the event the mean average traded price of
the Corporation's Common Stock on each of the immediately preceding 20
consecutive Trading Days (as hereinafter defined) is equal to or greater than
$2.00 per share (as adjusted for any subdivision or combination of outstanding
Common Stock) (a "Mandatory Conversion Event"), the Corporation may elect to
convert all, but not less than all, of the outstanding shares of Series A
Preferred Stock to fully paid and nonassessable shares of Common Stock at the
Conversion Price (as defined in Section 7(a)). In order to effect the mandatory
conversion of the Series A Preferred Stock, the Corporation shall mail notice
(the "Mandatory Conversion Notice") to all holders of outstanding shares of
Series A Preferred Stock within 10 days after the occurrence of a Mandatory
Conversion Event, specifying a date (which must be at least 10 but not more than
30 days after the date of such notice (the "Mandatory Conversion Date"). The
number of shares of the Common Stock into which a share of Series A Preferred
Stock is convertible shall be equal to the quotient of the Liquidation
Preference (as defined in Section 7(d)) of such share of Series A Preferred
Stock divided by the Conversion Price.
On or before the Mandatory Conversion Date, each holder of
Series A Preferred Stock shall surrender the certificate(s) representing the
Series A Preferred Stock to the Corporation at said office, accompanied by a
written statement setting forth the name or names (with address) in which the
certificate or certificates for shares of Common Stock shall be issued. As
promptly as practicable thereafter, the Corporation shall issue and deliver to
the registered holder of such shares of Series A Preferred Stock, at the address
specified by the holder, a certificate or certificates for the full shares of
Common Stock issuable upon mandatory conversion pursuant to this Section 7(c).
For purposes of this Section 7(c), "Trading Day" shall mean
(1) (x) if the Common Stock is listed on at least one stock exchange, a day on
which there is trading on the principal stock exchange on which the Common Stock
is listed, (y) if the Common Stock is not listed on a stock exchange, but sale
prices of the Common Stock are reported on an automated quotation system, a day
on which trading is reported on the principal automated quotation system on
which sales of the Common Stock are reported, or (z) if the Common Stock is not
listed on a stock exchange and sale prices of the Common Stock are not reported
on an automated quotation system, a day on which quotations are reported by
National Quotation Bureau Incorporated, and (2) the volume of shares of Common
Stock sold on such day is 50,000 shares (as adjusted in the same manner and
proportion as the adjustment of a Stock Unit in accordance with Section 8(a)
hereof) or more. For purposes of this Section 7(c), Trading Days shall not be
deemed to be "consecutive" if there shall occur any day which meets the criteria
set forth in clause (1) of the preceding sentence but does not meet the criteria
set forth in clause (2) thereof between one Trading Day and the next Trading
Day.
(d) As used in this Section 7, the term "Liquidation Preference" shall
mean the sum of (i) $1,000 per share of Series A Preferred Stock and (ii)
accrued and unpaid dividends on the applicable Conversion Date calculated in
accordance with Sections 2(a) and (b) hereof.
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(e) Fractional Shares. The Corporation shall not be required to issue
fractional shares of Common Stock upon the conversion of shares of the Series A
Preferred Stock. If shares of the Series A Preferred Stock (or specified
portions thereof, if applicable) shall be presented for conversion which would
result in the issuance of any fraction of a share of Common Stock, the
Corporation may instead pay an amount in cash equal to the Conversion Price on
the day immediately preceding the Voluntary Conversion Date or the Mandatory
Conversion Date, as the case may be, multiplied by such fraction.
(f) Reservation of Shares. The Corporation shall at all times reserve
and keep available, free from preemptive rights, out of its authorized but
unissued Common Stock, for the purpose of enabling it to set aside shares to
satisfy any obligation to issue shares of Common Stock upon conversion of Series
A Preferred Stock, such number of shares of Common Stock as shall then be
issuable upon the conversion of all outstanding shares of Series A Preferred
Stock. The shares of Common Stock issuable upon conversion of shares of Series A
Preferred Stock shall, upon issuance, be duly authorized, validly issued, fully
paid, nonassessable, free of preemptive rights and free and clear of all liens,
charges, security interests and other encumbrances whatsoever.
8. Adjustment of Number of Shares Issuable Upon Conversion and the
Conversion Price. The number of shares issuable upon conversion and the
Conversion Price (and each component thereof) are subject to adjustment from
time to time as set forth in this Section 8 with respect to any fact or event
described herein occurring after the date hereof. Anything contained in this
Section 8 notwithstanding, any adjustment made pursuant to any provision of this
Section 8 shall be made without duplication of an adjustment otherwise required
by and made pursuant to another provision of this Section 8 on account of the
same facts or events.
(a) Definitions. For purposes of this Section 8, the following terms
shall have the meanings ascribed to such terms below:
"5-DAY AVERAGE PRICE" per share of Common Stock, for purposes of
any provision herein at the date specified in such provision, shall
mean the average closing price of the Common Stock on the securities
exchange or other national market system on which the Common Stock
is then traded over the 5-trading day period immediately prior to
such date or, if the Common Stock is not then traded on a securities
exchange or national market system, the average of the bid and asked
prices on the over-the-counter market on which the Common Stock is
then traded as of the close of such market over the 5-trading day
period immediately prior to such date.
"30-DAY AVERAGE PRICE" per share of Common Stock, for purposes
of any provision herein at the date specified in such provision,
shall mean the average closing price of the Common Stock on the
securities exchange or other national market system on which the
Common Stock is then listed over the 30-trading day period
immediately prior to such date or, if the Common Stock is not then
traded on a securities exchange or national market system, the
average of the bid and asked prices on the over-the-counter market
on which the Common Stock is then traded as of the close of such
market over the 30-trading day period immediately prior to such
date.
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"ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares of
Common Stock issued by the Corporation after the Closing Date other
than (i) any shares of Common Stock issued pursuant to the
outstanding warrants and options listed on Attachment 1, (ii) shares
of Common Stock issued pursuant to options to purchase Common Stock
issued pursuant to the Corporation's 1999 Stock Incentive Plan,
including those options issued to date and listed on Attachment 1,
in an aggregate amount not to exceed 5,000,000 shares, (iii) any
shares of Common Stock issued upon the exercise of options granted
to Juneau Exploration Company, LLC ("JEX") pursuant to the
Corporation's exploration agreement with JEX dated September 1,
1999, as amended, (iv) any shares of Common Stock issued to Glen
Dillon in a number not to exceed 1,250 per month, (v) any shares of
Common Stock issued upon conversion of Series A Preferred Stock
issued to the Trust Company of the West, in its capacities as
Investment Manager and Custodian ("TCW"), (vi) any shares of Common
Stock issued to William Gibbons, the Corporation's treasurer and
assistant secretary, in a number not to exceed 2,000 shares per
month through December 31, 2000, (vii) any shares of Common Stock
issued pursuant to warrants to purchase up to 125,000 shares of
Common Stock issued to Fairfield Industries Incorporated on or prior
to the Closing Date, (viii) any shares of Common Stock issued
pursuant to warrants to purchase up to 125,000 shares of Common
Stock issued to JEX on or prior to the Closing Date, (ix) any shares
of Common Stock issued pursuant to warrants to purchase up to
250,000 shares of Common Stock issued to the Southern Ute Indian
Tribe doing business as the Southern Ute Indian Tribe Growth Fund
("SUIT") on or prior to the Closing Date, (x) any shares of Common
Stock issued pursuant to warrants to purchase up to 500,000 shares
of Common Stock issued to TCW on or prior to the Closing Date, (xi)
any shares of Common Stock issued pursuant to options granted to
SUIT on a quarterly basis to the same extent such options are
granted to the Corporation's outside directors under the 1999 Stock
Incentive Plan, (xii) any shares of Common Stock issued pursuant to
options granted to TCW on a quarterly basis to the same extent such
options are granted to the Corporation's outside directors under the
1999 Stock Incentive Plan, (xiii) any shares of Common Stock issued
upon conversion of the Corporation's Series B Preferred, at a
conversion price per share of not less than $2.00, which Series B
Preferred shall be designated, issued and sold prior to June 30,
2001 for an aggregate purchase price not to exceed $7,500,000, and
(xiv) any shares of Common Stock issued pursuant to a 401(k) or
other qualified retirement plan for officers, directors or employees
of the Corporation and its affiliates in an aggregate amount not to
exceed 100,000 shares.
"APPRAISED VALUE" shall mean the fair market value of all
outstanding Common Stock, as determined by a written appraisal (the
"APPRAISAL") prepared by a national or major regional investment
bank acceptable to the Board of Directors of the Corporation and the
holders of the Series A Preferred Stock. "Fair market value" is
defined for this purpose as the price in a single transaction
determined on a going-concern basis that would be agreed upon by the
most
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<PAGE> 12
likely hypothetical buyer for 100% of the equity capital of the
Corporation. In the event that the Corporation and the holders of
the Series A Preferred Stock cannot, in good faith, agree upon an
investment bank, then the Corporation, on the one hand, and the
holders of the Series A Preferred Stock, on the other hand, shall
each select an investment bank, the two investment banks so selected
shall select a third investment bank who shall be directed to
prepare the Appraisal and the term Appraised Value shall mean the
appraised value set forth in the Appraisal prepared in accordance
with this definition. The Corporation shall pay for the cost of any
such Appraisal.
"CLOSING DATE" shall mean August 24, 2000.
"CONVERTIBLE SECURITIES" shall mean evidences of indebtedness,
shares of stock or other securities which are convertible or
exchangeable for Additional Shares of Common Stock, either
immediately or upon the arrival of a specified date or the happening
of a specified event.
"CURRENT CONVERSION PRICE" per share of Common Stock, for the
purpose of any provision herein at the date herein specified, shall
mean the amount equal to the quotient resulting from dividing the
Conversion Price per Stock Unit in effect on such date by the number
of shares (including any fractional share) of Common Stock
comprising a Stock Unit on such date.
"CURRENT MARKET PRICE" per share of Common Stock for the
purposes of any provision herein at a date herein specified, shall
mean the greater of (i) the 30-Day Average Price of the Common Stock
or (ii) the 5-Day Average Price of the Common Stock; provided, that
if the Current Market Price per share of Common Stock cannot be
ascertained by such methods, then the Current Market Price per share
of Common Stock shall be deemed to be the greater of (i) the net
book value per share of Common Stock, determined in accordance with
generally accepted accounting principles, or (ii) the fair value per
share of Common Stock determined pursuant to the Appraised Value.
"STOCK UNIT" shall mean one share of Common Stock, as such
Common Stock was constituted on the date of original issue of the
Series A Preferred Stock and thereafter shall mean such number of
shares (including any fractional shares) of Common Stock as shall
result from the adjustments specified in this Section 8.
(b) Stock Dividends, Subdivisions and Combinations. In case at any time
or from time to time the Corporation shall:
(i) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, Common Stock, or
(ii) subdivide its outstanding shares of Common Stock into a larger
number of shares of Common Stock, or
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<PAGE> 13
(iii) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock,
then the number of shares of Common Stock comprising a Stock Unit immediately
after the happening of any event described in clauses (i) through (iii) above
shall be adjusted so as to consist of the number of shares of Common Stock which
a record holder of the number of shares of Common Stock constituting a Stock
Unit immediately prior to the happening of such event would own or be entitled
to receive after the happening of event described in clauses (i) through (iii)
above.
(c) Certain Other Dividends and Distributions. In case at any time or
from time to time the Corporation shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive any dividend or other
distribution of:
(i) cash (other than a cash distribution made as a dividend and
payable out of earnings or earned surplus legally available for the payment of
dividends under the laws of the jurisdiction of incorporation of the
Corporation, to the extent, but only to the extent, that the aggregate of all
such dividends paid or declared after the date hereof, does not exceed the
consolidated net income of the Corporation and its consolidated subsidiaries
earned subsequent to the date hereof determined in accordance with generally
accepted accounting principles), or
(ii) any evidence of its indebtedness (other than Convertible
Securities), any shares of its stock (other than Additional Shares of Common
Stock) or any other securities or property of any nature whatsoever (other than
cash and other than Convertible Securities or Additional Shares of Common
Stock), or
(iii) any warrants, options or other rights to subscribe for or
purchase (x) any evidences of its indebtedness (other than Convertible
Securities), (y) any shares of its stock (other than Additional Shares of Common
Stock) or (z) any other securities or property of any nature whatsoever (other
than cash and other than Convertible Securities or Additional Shares of Common
Stock),
then the number of shares of Common Stock thereafter comprising a Stock Unit
shall be adjusted to that number determined by multiplying the number of shares
of Common Stock comprising a Stock Unit immediately prior to such adjustment by
a fraction (A) the numerator of which shall be the Current Market Price per
share of Common Stock at the date of taking such record, and (B) the denominator
of which shall be such Current Market Price per share of Common Stock minus the
portion applicable to one share of Common Stock of any such cash so
distributable (if any) and of the fair value of any and all such evidences of
indebtedness, shares of stock, other securities or property, or warrants,
options or other subscription or purchase rights, so distributable (if any).
Such fair value shall be determined pursuant to the Valuation Procedure. The
"Valuation Procedure" is a determination of fair value of any property made in
good faith by the Board of Directors of the Corporation; provided, that if the
holders of a majority of the Series A Preferred Stock object to such
determination within ten days of receipt of written notification thereof, then
the fair value of such property shall be determined in good faith by a
recognized national or major regional investment bank selected the Board of
Directors, which investment bank is not reasonably objected to by the holders of
a majority of the Series A Preferred Stock.
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<PAGE> 14
The fees and expenses of such investment bank shall be paid by the Corporation.
A reclassification (other than a change in par value) of the Common Stock into
shares of Common Stock and shares of any other class of stock shall be deemed a
distribution by the Corporation to the holders of its Common Stock of such
shares of such other class of stock within the meaning of this Section 8(c) and,
if the outstanding shares of Common Stock shall be changed into a larger or
smaller number of shares of Common Stock as a part of such reclassification,
shall be deemed a subdivision or combination, as the case may be, of the
outstanding shares of Common Stock within the meaning of Section 8(b).
(d) Issuance of Additional Shares of Common Stock. In case at any time
or from time to time the Corporation shall (except as hereinafter provided)
issue, whether in connection with the merger of a corporation into the
Corporation or otherwise, any Additional Shares of Common Stock for a
consideration per share less than the greater of (i) the Current Conversion
Price or (ii) the Current Market Price per share of Common Stock, then the
number of shares of Common Stock thereafter comprising a Stock Unit shall be
adjusted to be the greater of (A) that number determined by multiplying the
number of shares of Common Stock comprising a Stock Unit immediately prior to
such adjustment by a fraction (i) the numerator of which shall be the Current
Conversion Price per share of Common Stock, and (ii) the denominator of which
shall be the consideration per share received by the Corporation for such
Additional Shares of Common Stock or (B) that number determined by multiplying
the number of shares of Common Stock comprising a Stock Unit immediately prior
to such adjustment by a fraction (x) the numerator of which shall be the number
of shares of Common Stock outstanding, plus the number of such Additional Shares
of Common Stock so issued, and (y) the denominator of which shall be the number
of shares of Common Stock outstanding, plus the number of shares of Common Stock
which the aggregate consideration for the total number of such Additional Shares
of Common Stock would purchase at the greater of the Current Conversion Price
and the Current Market Price per share of Common Stock. For purposes of this
Section 8(d), the date as of which the Current Market Price per share of Common
Stock shall be computed shall be the earlier of (i) the date on which the
Corporation shall enter into a firm contract for the issuance of such Additional
Shares of Common Stock, or (ii) the date of actual issuance of such Additional
Shares of Common Stock. The provisions of this Section 8(d) shall not apply to
any issuance of Additional Shares of Common Stock for which an adjustment is
provided under Section 8(b). No adjustment of the number of shares of Common
Stock comprising a Stock Unit shall be made under this Section 8(d) upon the
issuance of any Additional Shares of Common Stock which are issued pursuant to
the exercise of any warrants, options or other subscription or purchase rights
or pursuant to the exercise of any conversion or exchange rights in any
Convertible Securities, if any such adjustment shall previously have been made
upon the issuance of such warrants, options or other rights or upon the issuance
of such Convertible Securities (or upon the issuance of any warrants, options or
other rights therefor) pursuant to Section 8(e) or Section 8(f).
(e) Issuance of Warrants, Options or Other Rights. In case at any time
or from time to time the Corporation shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a distribution of, or
shall otherwise issue, any warrants, options or other rights to subscribe for or
purchase any Additional Shares of Common Stock or any Convertible Securities and
the consideration per share for which Additional Shares of Common Stock may at
any time thereafter be issuable pursuant to such warrants, options or other
rights or pursuant to the terms of such Convertible Securities shall be less
than the greater of (A) the Current
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<PAGE> 15
Conversion Price per share of Common Stock or (B) the Current Market Price per
share of Common Stock, then the number of shares of Common Stock thereafter
comprising a Stock Unit shall be adjusted to be the greater of those numbers
determined pursuant to the first sentence of Section 8(d). All adjustments made
pursuant to this Section 8(e) shall be made on the basis that (i) the maximum
number of Additional Shares of Common Stock issuable pursuant to all such
warrants, options or other rights or necessary to effect the conversion or
exchange of all such Convertible Securities shall be deemed to have been issued
as of the date specified in the last sentence of this Section 8(e), (ii) the
aggregate consideration for such maximum number of Additional Shares of Common
Stock shall be deemed to be the minimum consideration received and receivable by
the Corporation for the issuance of such Additional Shares of Common Stock
pursuant to such warrants, options or other rights or pursuant to the terms of
such Convertible Securities and (iii) the consideration per share received by
the Corporation for such Additional Shares of Common Stock shall be that number
determined by dividing (x) the aggregate consideration for such maximum number
of Additional Shares of Common Stock (determined as set forth in clause (ii) of
this sentence) by (y) the maximum number of Additional Shares of Common Stock
issuable pursuant to all such warrants, options or other rights or necessary to
effect the conversion or exchange of all such Convertible Securities (determined
as set forth in clause (i) of this sentence). For purposes of this Section 8(e),
the computation date for subclause (i) above and as of which the Current Market
Price and the Current Conversion Price per share of Common Stock shall be
computed shall be the earliest of (A) the date on which the Corporation shall
take a record of the holders of its Common Stock for the purpose of entitling
them to receive any such warrants, options or other rights, (B) the date on
which the Corporation shall enter into a firm contract for the issuance of such
warrants, options or other rights, and (C) the date of actual issuance of such
warrants, options or other rights.
(f) Issuance of Convertible Securities. In case at any time or from
time to time the Corporation shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a distribution of, or shall
otherwise issue, any Convertible Securities and the consideration per share for
which Additional Shares of Common Stock may at any time thereafter be issuable
pursuant to the terms of such Convertible Securities shall be less than the
greater of (A) the Current Conversion Price per share of Common Stock or (B) the
Current Market Price per share of Common Stock, then the number of shares of
Common Stock thereafter comprising a Stock Unit shall be adjusted to be the
greater of those numbers determined pursuant to the first sentence of Section
8(d). All adjustments made pursuant to this Section 8(f) shall be made on the
basis that (i) the maximum number of Additional Shares of Common Stock necessary
to effect the conversion or exchange of all such Convertible Securities shall be
deemed to have been issued as of the computation date specified in the
penultimate sentence of this Section 8(f), (ii) the aggregate consideration for
such maximum number of Additional Shares of Common Stock shall be deemed to be
the minimum consideration received and receivable by the Corporation for the
issuance of such Additional Shares of Common Stock pursuant to the terms of such
Convertible Securities and (iii) the consideration per share received by the
Corporation for such Additional Shares of Common Stock shall be that number
determined by dividing (x) the aggregate consideration for such maximum number
of Additional Shares of Common Stock (determined as set forth in clause (ii) of
this sentence) by (y) the maximum number of Additional Shares of Common Stock
necessary to effect the conversion or exchange of all such Convertible
Securities (determined as set forth in clause (i) of this sentence). For
purposes of this Section 8(f), the computation date for clause (i) above and as
of
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<PAGE> 16
which the Current Market Price and the Current Conversion Price per share of
Common Stock shall be computed shall be the earliest of (A) the date on which
the Corporation shall take a record of the holders of its Common Stock for the
purpose of entitling them to receive any such Convertible Securities, (B) the
date on which the Corporation shall enter into a firm contract for the issuance
of such Convertible Securities, and (C) the date of actual issuance of such
Convertible Securities. No adjustment of the number of shares of Common Stock
comprising a Stock Unit shall be made under this Section 8(f) upon the issuance
of any Convertible Securities which are issued pursuant to the exercise of any
warrants, options or other subscription or purchase rights therefor, if any such
adjustment shall previously have been made upon the issuance of such warrants,
options or other rights pursuant to Section 8(e).
(g) Superseding Adjustment of Stock Unit. If, at any time after any
adjustment of the number of shares of Common Stock comprising a Stock Unit shall
have been made pursuant to the foregoing Section 8(e) or Section (f) on the
basis of the issuance of warrants, options or other rights or the issuance of
other Convertible Securities, or after any new adjustment of the number of
shares of Common Stock comprising a Stock Unit shall have been made pursuant to
this Section 8(g),
(i) such warrants, options or rights or the right of
conversion or exchange in such other Convertible Securities shall expire, and a
portion or all of such warrants, options or rights, or the right of conversion
or exchange in respect of a portion of such other Convertible Securities, as the
case may be, shall not have been exercised, or
(ii) the consideration per share for which Additional Shares
of Common Stock are issuable pursuant to such warrants, options or rights or the
terms of such other Convertible Securities, shall be increased solely by virtue
of provisions therein contained for an automatic increase in such consideration
per share upon the arrival of a specified date or the happening of a specified
event,
such previous adjustment shall be rescinded and annulled and the Additional
Shares of Common Stock which were deemed to have been issued by virtue of the
computation made in connection with the adjustment so rescinded and annulled
shall no longer be deemed to have been issued by virtue of such computation.
Thereupon, a recomputation shall be made of the effect of such warrants, options
or rights or other Convertible Securities on the basis of:
(iii) treating the number of Additional Shares of Common
Stock, if any, theretofore actually issued or issuable pursuant to the previous
exercise of such warrants, options or rights or such right of conversion or
exchange, as having been issued on the date or dates of such issuance as
determined for purposes of such previous adjustment and for the consideration
actually received and receivable therefor, and
(iv) treating any such warrants, options or rights or any such
other Convertible Securities which then remain outstanding as having been
granted or issued immediately after the time of such expiration or of such
increase of the consideration per share for which such Additional Shares of
Common Stock are issuable under such warrants, options or rights or other
Convertible Securities,
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and, if and to the extent called for by the foregoing provisions of this Section
8 on the basis aforesaid, a new adjustment of the number of shares of Common
Stock comprising a Stock Unit shall be made, which new adjustment shall
supersede the previous adjustment so rescinded and annulled.
(h) Other Provisions Applicable to Adjustments Under this Section 8.
The following provisions shall be applicable to the making of adjustments of the
number of shares of Common Stock comprising a Stock Unit hereinbefore provided
for in this Section 8:
(i) Treasury Stock. The sale or other disposition of any issued
shares of Common Stock owned or held by or for the account of the Corporation
shall be deemed an issuance thereof for purposes of this Section 8.
(ii) Computation of Consideration. To the extent that any
Additional Shares of Common Stock or any Convertible Securities or any warrants,
options or other rights to subscribe for or purchase any Additional Shares of
Common Stock or any Convertible Securities shall be issued solely for cash
consideration, the consideration received by the Corporation therefor shall be
deemed to be the amount of cash received by the Corporation therefor, or, if
such Additional Shares of Common Stock or Convertible Securities are offered by
the Corporation for subscription, the subscription price, or, if such Additional
Shares of Common Stock or Convertible Securities are sold to underwriters or
dealers for public offering without a subscription offering, the initial public
offering price, in any such case excluding any amounts paid or receivable for
accrued interest or accrued dividends and without deduction of any compensation,
discounts or expenses paid or incurred by the Corporation for and in the
underwriting of, or otherwise in connection with, the issue thereof. To the
extent that such issuance shall be for a consideration other than solely for
cash, then, except as herein otherwise expressly provided, the amount of such
consideration shall be deemed to be the fair value of such consideration at the
time of such issuance as determined pursuant to the Valuation Procedure. The
consideration for any Additional Shares of Common Stock issuable pursuant to any
warrants, options or other rights to subscribe for or purchase the same shall be
the consideration received or receivable by the Corporation for issuing such
warrant, options or other rights, plus the additional consideration payable to
the Corporation upon the exercise of such warrants, options or other rights. The
consideration for any Additional Shares of Common Stock issuable pursuant to the
terms of any Convertible Securities shall be the consideration received or
receivable by the Corporation for issuing any warrants, options or other rights
to subscribe for or purchase such Convertible Securities (if any), plus the
consideration paid or payable to the Corporation in respect of the subscription
for or purchase of such Convertible Securities, plus the additional
consideration, if any, payable to the Corporation upon the exercise of the right
of conversion or exchange in such Convertible Securities.
(iii) When Adjustments To Be Made. The adjustments required by the
preceding Sections 8(b) through (h) inclusive shall be made whenever and as
often as any specified event requiring an adjustment shall occur. For the
purpose of any adjustment, any specified event shall be deemed to have occurred
at the close of business on the date of its occurrence.
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(iv) Fractional Interests. In computing adjustments under this
Section 8, fractional interests in Common Stock shall be taken into account to
the nearest 1/100th of a share.
(v) When Adjustment Not Required. If the Corporation shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive a dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution thereof to shareholders, legally abandon
its plan to pay or deliver such dividend, distribution, subscription or purchase
rights, then thereafter no adjustment shall be required by reason of the taking
of such record and any such adjustment previously made in respect thereof shall
be rescinded and annulled.
(i) Merger, Consolidation or Disposition of Assets. In case the
Corporation shall merge or consolidate into another corporation, or shall sell,
transfer or otherwise dispose of all or substantially all of its property,
assets or business to another corporation and pursuant to the terms of such
merger, consolidation or disposition, shares of common stock of the successor or
acquiring corporation are to be received by or distributed to the holders of
Common Stock of the Corporation, then each holder of Series A Preferred Stock
shall have the right thereafter to receive Stock Units each comprising the
number of shares of common stock of the successor or acquiring corporation
receivable upon or as a result of such merger, consolidation or disposition of
assets by a holder of the number of shares of Common Stock comprising a Stock
Unit immediately prior to such event. If, pursuant to the terms of such merger,
consolidation or disposition of assets, any cash, shares of stock or other
securities or property of any nature whatsoever (including warrants, options or
other subscription or purchase rights) are to be received by or distributed to
the holders of Common Stock of the Corporation in addition to common stock of
the successor or acquiring corporation, there shall be an adjustment in the
number of shares of Common Stock thereafter comprising a Stock Unit to that
number determined by multiplying the number of shares of Common Stock comprising
a Stock Unit immediately prior to such adjustment by a fraction (x) the
numerator of which shall be the Current Market Price per share of Common Stock
at the date of such merger, consolidation or disposition, and (y) the
denominator of which shall be such Current Market Price per share minus the
portion applicable to one share of Common Stock of any cash so distributed and
of the fair value of any and all such shares of stock, securities or other
property. Such fair value shall be determined pursuant to the Valuation
Procedure. In case of any such merger, consolidation or disposition of assets,
the successor or acquiring corporation shall expressly assume the due and
punctual observance and performance of each and every covenant and condition
contained herein to be performed and observed by the Corporation and all of the
obligations and liabilities hereunder and thereunder, subject to such
modification as shall be necessary to provide for adjustments of Stock Units
which shall be as nearly equivalent as practicable to the adjustments provided
for in this Section 8. For the purposes of this Section 8 "common stock of the
successor or acquiring corporation" shall include stock of such corporation of
any class which is not preferred as to dividends or assets over any other class
of stock of such corporation and which is not subject to redemption. The
foregoing provisions of this Section 8(i) shall similarly apply to successive
mergers, consolidations or dispositions of assets.
(j) Other Action Affecting Common Stock. In case at any time or from
time to time the Corporation shall take any action affecting its Common Stock,
other than an action described
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in any of the foregoing Sections 8(b) to Section 8(i), inclusive, of this
Section 8 and the actions described in clauses (i) through (xiv) of the
definition of Additional Shares of Common Stock, then, unless in the reasonable
opinion of the Board of Directors of the Corporation such action will not have a
materially adverse effect upon the rights of the holders of the Series A
Preferred Stock, the number of shares of Common Stock or other stock comprising
a Stock Unit, or the Conversion Price thereof, shall be adjusted in such manner
and at such time as the Board of Directors of the Corporation may in good faith
determine to be equitable in the circumstances.
(k) No Adjustments for Certain Transactions. Notwithstanding anything
to the contrary contained herein, the number of shares of Common Stock
comprising a Stock Unit and the Current Conversion Price per Stock Unit shall
not be adjusted, nor be subject to adjustment, on account of the granting of any
rights under a phantom stock plan, stock appreciation rights plan or other
deferred compensation plan to officers, directors or employees of the
Corporation or its affiliates, if (i) no shares of Common Stock are issued or
required to be issued under any such plan and (ii) the only consideration paid
or payable to any participant in such plan is cash.
9. Notice to Holders of Series A Preferred Stock.
(a) Notice of Adjustment of Stock Unit or Current Conversion Price.
Whenever the number of shares of Common Stock comprising a Stock Unit or the
Current Conversion Price per Stock Unit shall be adjusted pursuant to Section 8,
the Corporation shall forthwith obtain a certificate signed by the president of
the Corporation and the principal financial officer of the Corporation, setting
forth, in reasonable detail, the event requiring the adjustment and the method
by which such adjustment was calculated (including a statement of the fair
value, as determined by the Board of Directors of the Corporation, of any
evidences of indebtedness, shares of stock, other securities or property or
warrants, options or other subscription or purchase rights referred to in
Section 8(c), Section 8(h)(ii) or Section 8(i)) and specifying the number of
shares of Common Stock comprising a Stock Unit and (if such adjustment was made
pursuant to Section 8(i) or Section 8(j)) describing the number and kind of any
other shares of stock comprising a Stock Unit, and any change in the Current
Conversion Price thereof after giving effect to such adjustment or change. The
Corporation shall promptly, and in any case within 10 days after the making of
such adjustment, cause a signed copy of such certificate to be delivered to each
holder of Series A Preferred Stock. The Corporation shall keep at its office or
agency copies of all such certificates and cause the same to be available for
inspection at said office during normal business hours by any holder of Series A
Preferred Stock or any prospective purchaser of Series A Preferred Stock
designated by a holder.
(b) Notice of Certain Corporate Action. In case the Corporation shall
propose (i) to pay any dividend payable in cash or in stock of any class to the
holders of its Common Stock or to make any other distribution to the holders of
its Common Stock, or (ii) to offer to the holders of its Common Stock rights to
subscribe for or to purchase any Additional Shares of Common Stock or shares of
stock of any class or any other securities, rights or options, or (iii) to
effect any reclassification of its Common Stock (other than a reclassification
involving only the subdivision or combination of outstanding shares of Common
Stock), or (iv) to effect any capital reorganization, or (v) to effect any
consolidation, merger or sale, change to the Corporation's charter or bylaws,
transfer or other disposition of all or substantially all of its property,
assets or business, or (vi) to effect the liquidation, dissolution or winding up
of the Corporation, then in
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each such case, the Corporation shall give to each holder of Series A Preferred
Stock, a notice, certified by the president of the Corporation and the principal
financial officer of the Corporation, of such proposed action, which shall
specify the date on which a record is to be taken for the purposes of such stock
dividend, distribution or rights, or the date on which such reclassification,
reorganization, consolidation, merger, sale, change to the Corporation's charter
or bylaws, transfer, disposition, liquidation, dissolution, or winding up is to
take place and the date of participation therein by the holders of Common Stock,
if any such date is to be fixed, and shall also set forth such facts with
respect thereto as shall be reasonably necessary to indicate the effect of such
action on the Common Stock and the number and kind of any other shares of stock
which will comprise a Stock Unit, and the Current Conversion Price thereof,
after giving effect to any adjustment which will be required as a result of such
action. Such notice shall be so given in the case of any action covered by
clause (i) or (ii) above at least twenty days prior to the record date for
determining holders of the Common Stock for purposes of such action, and in the
case of any other such action, at least thirty days prior to the date of the
taking of such proposed action or the date of participation therein by the
holders of Common Stock, whichever shall be the earlier.
10. No Impairment. Other than in connection with the amendment of its
Articles of Incorporation approved by the requisite number of stockholders, the
Corporation will not, through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Corporation but will at all times in good
faith assist in the carrying out of all the provisions of this Certificate and
in the taking of all action as may be necessary or appropriate in order to
protect the conversion rights of the holders of the Series A Preferred Stock
against impairment. Without limiting the generality of the foregoing, the
Corporation (i) will not permit the par value of any shares of stock at the time
receivable upon the conversion of the Series A Preferred Stock to exceed the
Current Conversion Price then in effect, (ii) will take all such action as may
be necessary or appropriate in order that the corporation may validly and
legally issue fully paid non-assessable shares of stock on the conversion of the
Series A Preferred Stock, and (iii) will not issue any Additional Shares of
Common Stock or Convertible Securities or take any action which results in any
adjustment of the Current Conversion Price or the number of shares comprising a
Stock Unit if the total number of shares of Common Stock issuable after such
issuance or action upon the conversion or payment of all outstanding dividends
on, all of the then outstanding shares of Series A Preferred Stock will exceed
the total number of shares of Common Stock then authorized by the Corporation's
Articles of Incorporation and available for the purpose of issue upon such
conversion or payment of such dividend.
20
