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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 13(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): May 13, 1997
TERRITORIAL RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Colorado 0-9617 84-0821158
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File No.) Identification No.)
450 Sam Houston Parkway, #140, Houston, Texas 77060
(Address of Principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (281) 931-0604
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ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
None.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
None
ITEM 3. BANKRUPTCY OR RECEIVERSHIP.
None
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
None.
ITEM 5. OTHER EVENTS
As a result of certain amendments to the Articles of Incorporation of
Territorial Resources, Inc., a Colorado corporation ("Territorial"), effective
as of the close of business on May 12, 1997 (the "Effective Date"), each share
of Territorial's common stock, no par value each, issued and outstanding
immediately prior to the Effective Date (the "Old Common Stock") was
automatically reclassified as and changed, pursuant to a reverse stock split,
into one-third (1/3rd) of a share of outstanding common stock, no par value each
(the "New Common Stock"), of Territorial, subject to the treatment of fractional
share interests as described below. Each holder of a certificate or
certificates which immediately prior to the Effective Date represented
outstanding shares of Old Common Stock (the "Old Certificates," whether one or
more) is entitled to receive, upon surrender of such Old Certificates to the
corporation's transfer agent for cancellation, a certificate or certificates
(the "New Certificates," whether one or more) representing the number of whole
shares of the New Common Stock into which and for which the shares of the Old
Common Stock formerly represented by such Old Certificates so surrendered, are
reclassified. From and after the Effective Date, Old Certificates represent
only the right to receive New Certificates. The trading symbol for the New
Common Stock on the National Association of Securities Dealers' Electronic
Bulletin Board is "TERX."
No certificates or scrip representing fractional share interests in New
Common Stock will be issued, and no such fractional share interest will entitle
the holder thereof to vote, or to any rights of a shareholder of the
corporation. Any fraction of a share of New Common Stock to which the holder
would otherwise be entitled will be adjusted upward to the nearest whole share,
subject to the provisions of the amendments to the Articles of Incorporation of
Territorial effecting the reverse stock split.
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In addition, an amendment to the Articles of Incorporation of Territorial
was filed effective in early May 1997 that increased the number of authorized
shares of common stock, no par value, of Territorial from 30,000,000 to
200,000,000.
ITEM 6. RESIGNATION OF REGISTRANT'S DIRECTORS
None
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of business acquired.
None
( b) Pro forma financial information.
None
(c) Exhibits.
3 (i) Articles of Incorporation (as amended through May 19, 1997)
ITEM 8. CHANGE IN FISCAL YEAR.
None
ITEM 9. SALES OF EQUITY SECURITIES PURSUANT TO REGULATION S
None
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.
TERRITORIAL RESOURCES, INC.
Date: May 19, 1997 By: /s/ Daniel A. Mercier
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Chairman of the Board and
Chief Executive Officer
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Exhibit 3(i)
TERRITORIAL RESOURCES, INC.
ARTICLES OF INCORPORATION
(AS AMENDED THROUGH AND INCLUDING MAY 19, 1997)
ARTICLE I
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Name
----
The name of the corporation is: Territorial Resources, Inc.
ARTICLE II
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Period of Duration
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The corporation shall exist in perpetuity, from and after the date of
filing these Articles of Incorporation with the Secretary of State of the State
of Colorado unless dissolved according to law.
ARTICLE III
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Purposes and Powers
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1. Purposes. Except as restricted by the Articles of Incorporation, the
corporation is organized for the purpose of transacting all lawful business for
which corporations may be incorporated pursuant to the Colorado Corporation
Code.
2. Partial Liquidations. The board of directors of the corporation may
distribute, from time to time, to its shareholders in partial liquidation, out
of stated capital or capital surplus of the corporation, a portion of its assets
in cash or property.
3. Issuance of Shares. The board of directors of the corporation may
divide and issue any class of stock of the corporation in series pursuant to a
resolution properly filed with the Secretary of State of the State of Colorado.
ARTICLE IV
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Capital Stock
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The aggregate number of shares which this corporation shall have authority
to issue is (a) two hundred million (200,000,000) shares of common stock, no par
value each, which shares shall be hereinafter referred to as the "Common Stock",
and (b) five million (5,000,000) shares of preferred stock, $0.10 par value
each, which shares
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shall be hereinafter referred to as the "Preferred Stock". Three million five
hundred sixty-two thousand five hundred (3,672,500) of such shares of Preferred
Stock shall be designated as "Preferred Stock, Series A" (hereinafter referred
to as the "Series A Preferred Stock"). No holder of any shares of capital stock
of the corporation, whether now or hereafter authorized, shall have any
preemptive or preferential right to acquire any shares or securities of the
corporation, including shares or securities held in the treasury of the
corporation, and cumulative voting shall not be allowed in the election of
directors of the corporation. The above referenced shares of capital stock shall
also have the following other rights, preferences and limitations:
Common Stock
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1. Dividends. Subject to the rights and preferences of the Preferred
Stock, dividends in cash, property or other shares of the corporation may be
paid upon the Common Stock, as and when declared by the Board of Directors, out
of funds of the corporation to the extent and in the manner permitted by law.
2. Distribution in Liquidation. Upon any liquidation, dissolution or
winding up of the corporation, and after paying or adequately providing for the
payment of all its obligations, the remainder of the assets of the corporation
shall be distributed, either in cash or in kind, first to the holders of the
Preferred Stock to the extent and in the order they are entitled and, then, the
remainder pro rata to the holders of the Common Stock.
3. Voting Rights. Each outstanding share of Common Stock shall be
entitled to one vote and each fractional share of Common Stock shall be entitled
to a corresponding fractional vote on each matter submitted to a vote of
shareholders.
Series A Preferred Stock
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The Series A Preferred Stock shall have the following rights, preferences
and limitations:
1. Consideration. The Series A Preferred Stock shall be issued for such
consideration, not less than the respective par value thereof, and for such
corporate purposes as the Board of Directors of the corporation may determine.
2. Units. At the time of issuance of the Series A Preferred Stock, one
warrant (singularly the "Warrant" and collectively "Warrants") shall be issued
with respect to each share of Series A Preferred Stock. Each Warrant and share
of Series A Preferred Stock shall form a unit represented only by a single
certificate hereinafter referred to as the "Preferred Units"). The Preferred
Units shall be evidenced by certificates (the "Preferred Unit Certificates").
Until the expiration date of the Warrants, each Preferred Unit shall represent
one share
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of Preferred Stock and one Warrant. After such expiration date, each Preferred
Unit shall represent only one share of Preferred Stock. The Warrants shall have
such terms and conditions as the Board of Directors of the corporation shall
determine in its sole discretion. Subject to transfer agent and any other
requirements of the corporation, the Preferred Units will be transferable;
however, until the expiration date of the Warrants, the Series A Preferred Stock
will be separately transferable only after the Warrants corresponding to such
Series A Preferred Stock have been exercised.
3. Issue Price. The term "Issue Price" as hereinafter used shall mean
Twenty-Eight Cents ($.28) per each share of Series A Preferred Stock.
4. Dividends. The holders of Series A Preferred Stock shall be entitled
to receive quarterly dividends calculated on the aggregate Issue Price of their
shares of Series A Preferred Stock at a floating per annum rate (the "Dividend
Rate") equal to the rate Allied Bank of Texas, Houston, Texas has publicly
announced as being its prime rate (the "Prime Rate"), less one and one-half
percent (1 1/2%) per annum, but in no event shall such Dividend Rate ever be
less then eight percent (8%) per annum or more than fourteen percent (14%) per
annum. The dividends on the Series A Preferred Stock with respect to each
calendar quarter shall be declared and paid to the extent funds are legally
available out of surplus or net profits of the corporation on the first day of
January, April, July and October immediately following completion of the
calendar quarter (hereinafter singularly referred to as "Record Date" and
collectively as "Record Dates"), before any dividend shall be declared, set
apart for, or paid upon any other series of Preferred Stock or the Common Stock
of the corporation. The Dividend Rate for any calendar quarter shall be the
Prime Rate which is in effect on the Record Date constituting the first date of
such calendar quarter. The dividends on the Series A Preferred Stock shall be
cumulative, so that if the corporation fails in any calendar quarter to declare
and pay such dividends on all of the issued and outstanding Series A Preferred
Stock, such deficiency in the dividends shall be paid on or set apart for any
other series of Preferred Stock or the Common Stock. Such dividends, as
cumulated, are hereinafter referred to as the "accrued dividends."
In lieu of payment of any quarterly dividend in cash, the Board of
Directors of the corporation may, from time to time, elect to pay all or any
part of such dividend by issuing and distributing the corporation's Common Stock
to the holders of Series A Preferred Stock. In addition, should the corporation
elect not to pay a cash dividend for any quarter, the corporation is obligated
to distribute such Common Stock in lieu of the cash dividend, subject to other
applicable legal restrictions. Such distribution shall be pro rata to the
holders of Series A Preferred Stock. The number of shares of Common Stock to be
issued to the holders of Series A Preferred Stock in lieu of their cash dividend
shall be determined in accordance with the following:
AD
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N = (.90 x P)
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The letters in the above formula shall have the following meanings: "N"
means the number of shares of Common Stock which must be issued. "AD" means the
accrued dividend amount with respect to which the Common Stock is being
distributed. "P" means (I) in case the Common Stock is not then listed and
traded upon a recognized securities exchange, the average of all of the bid
prices for such stock on the applicable Record Date (as reported by a recognized
stock quotation service) or in the event that there shall be no such average of
bid prices on such Record Date, then such figure on the date nearest preceding
such Record Date when such quotations were given, or (ii) in case the Common
Stock shall then be listed and traded upon a recognized securities exchange, the
mean between the highest and lowest selling prices at which shares of the Common
Stock were traded on such recognized securities exchange on the Record Date or,
if the Common Stock was not traded on such Record Date, the mean of such prices
on the date nearest preceding such Record Date.
Dividends on shares of the Series A Preferred Stock shall accrue from the
date the Series A Preferred Stock is issued. Subject to the foregoing
provisions, the Series A Preferred Stock shall not be entitled to participate in
any other or additional surplus or net profits of the corporation.
5. Voting Rights. Each share of the Series A Preferred Stock shall
entitle the holder thereof to one vote for each share held, and, except as
otherwise provided herein or by law, the Series A Preferred Stock and the Common
Stock shall vote together as a class.
6. Liquidation Preference. In the event of a liquidation, dissolution or
winding up of the affairs of the corporation, whether voluntary or otherwise,
after payment or provision for payment of the debts and liabilities of the
corporation, the holders of the Series A Preferred Stock shall be entitled to
receive out of the remaining net assets of the corporation, the Issue Price in
cash or property for each outstanding share of Series A Preferred Stock owned by
such holder, plus any unpaid accrued dividends thereon before any payment to the
holders of any other series of Preferred Stock or the Common Stock.
7. Convertibility.
---------------
a. Convertibility into Common Units or Common Stock. The holders of
shares of outstanding Series A Preferred Stock shall have the right at any time
on or before June 14, 1988 to surrender the certificates evidencing such shares
and receive, in lieu and in conversion thereof and in lieu of any unpaid accrued
dividends, a certificate evidencing one share of Common Stock of the corporation
for each share of Series A Preferred Stock so surrendered, plus one additional
share of Common Stock for each Twenty-Eight Cents ($.28) of any unpaid accrued
dividends on the shares of Series A Preferred Stock so surrendered; provided
that, prior to the expiration date of the Warrants which are part of the
Preferred Units, the Series A Preferred Stock which is part of the Preferred
Units may not be converted until the corresponding Warrants
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are exercised. Although each holder of shares of Series A Preferred Stock may
exchange, convert and surrender all or any such shares, he shall not have the
right to exchange, convert and surrender a fraction of a share. The shares of
Series A Preferred Stock so exchanged and converted shall not be reissued by the
corporation.
Any holder of any Series A Preferred Stock electing to convert shall
surrender the certificates representing the shares to be converted at the office
of any transfer agent for the Series A Preferred Stock, with the form of written
request for conversion duly attached to such certificates. The conversion right
shall be deemed to have been exercised immediately prior to the close of
business on the date on which the certificates for such Series A Preferred stock
shall have been so surrendered, and the person entitled to receive the
securities issuable upon such conversion shall be treated for all purposes as
the record holder of same on said date. For purposes of this Paragraph 7,
shares of Series A Preferred Stock shall be deemed to have been surrendered when
they are (i) delivered to the corporation's transfer agent by hand, or (ii)
placed in the U.S. mails, first class, postage prepaid, addressed to the
corporation's transfer agent.
As soon as practicable after the conversion of any shares of Series A
Preferred Stock provided for herein into Common Stock, the corporation shall
deliver to the person entitled thereto, directly or at the office of the
transfer agent for such Series A Preferred Stock, certificates representing
shares of Common Stock. The corporation, as a condition to the exercise of any
right of conversion, may require the payment of a sum equal to any transfer tax
or other governmental charge (but not including any tax payable upon the issue
of stock deliverable upon such conversion) that may be imposed or required by
law upon any transfer incidental or prior thereto, or the submission of proper
proof that the same has been paid.
The conversion rate as to any unconverted shares of Series A Preferred
Stock at any time in effect hereunder shall be equitably adjusted in any of the
following cases:
(i) In case the corporation shall at any time issue any of its Common Stock
in subdivision of its outstanding Common Stock, by reclassification, or
otherwise, the conversion rate then in effect shall be increased
proportionately, and in like manner, in the case of any combination of Common
Stock, by reclassification or otherwise, the conversion rate then in effect
shall be proportionately decreased.
(ii) In case the corporation shall pay a dividend or make a distribution
upon its Common Stock in Common Stock or any security convertible into Common
Stock without the payment of any further consideration to receive such Common
Stock into which the security is convertible, then in each such case, from and
after the record date for determining the stockholders entitled to receive such
dividend or distribution, the conversion rate then in effect shall be increased
in proportion to the increase in the number of outstanding shares of Common
Stock effected by such
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dividend or distribution. For the purposes of this subparagraph, the payment of
a dividend in, or the distribution of, securities convertible into Common Stock
shall be deemed to have effected an increase in the number of outstanding shares
of Common Stock equal to the number of shares of Common Stock into which such
securities shall be initially convertible; provided, however, that upon the
expiration of the right to convert any of such convertible securities, the
increase in the number of outstanding shares of Common Stock deemed to have been
effected by the issuance of such convertible securities shall be disregarded and
the conversion rates for the Series A Preferred Stock shall be recalculated
based upon the aggregate shares of Common Stock actually received as a result of
conversion.
(iii) No adjustment of the conversion rate shall be made by reason of the
issuance of Common Stock or securities convertible into Common Stock in exchange
for cash, property or services equal to or in excess of Twenty-Two Cents ($.22)
per share.
(iv) Except as provided below, in case the corporation at any time or from
time to time shall issue or sell any additional shares of Common Stock at a
price per share less than Twenty-Two Cents ($.22) per share or issue, sell,
grant or assume any options to purchase, or securities convertible into, Common
Stock at a price per share less than said $.22 per share, the number of shares
of Common Stock into which each share of Series A Preferred Stock may be
converted thereafter shall be determined in accordance with the following
formula:
C x .22
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S = 12,465,420 + E + U
The letters in the above formula shall have the following meanings: "S"
means the number of shares of Common Stock into which each share of Series A
Preferred Stock may be converted. "C" means the total number of shares of
Common Stock outstanding immediately after the issuance or sale referred to
above. "E" means the aggregate consideration, if any, received by the
corporation upon such issue or sale of any such securities at a price per share
more than said $.22. "U" means the aggregate consideration, if any, received by
the corporation upon such issue or sale of such securities at a price per share
less than said $.22.
For purposes of the preceding paragraph, effect shall only be given to
options or any rights of conversion or exchange of convertible securities
(collectively referred to as "Options") if the aggregate consideration to be
received upon the issuance and exercise of the Options is less than said $.22
per share of Common Stock. In the event the aggregate consideration is less
than said $.22 per share, the computations in the preceding paragraph shall be
made assuming that the Options had been exercised. Upon the expiration of any
such Options which shall not have been exercised, the conversion rate, and any
subsequent adjustments based thereon, shall, upon such expiration, be recomputed
and effect shall only be given to additional shares of
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Common Stock actually issued or sold upon the exercise of such Options. The
aggregate consideration received shall include the consideration actually
received by the corporation upon such exercise.
For purposes of this Paragraph 7(a)(iv), (a) the issuance or of grant of
options with respect to employees of the corporation pursuant to any employee's
stock option, stock bonus or other employee benefit plans shall not be
considered any event requiring the adjustment of the conversion rate nor shall
shares issued or issuable pursuant to any such plan or consideration paid or
payable therefor be included in the formula contained above for determining any
adjustment of the conversion rate and (b) outstanding Common Stock repurchased
by the corporation and subsequently sold by the corporation for a price not less
than the repurchase price shall not require the adjustment of the conversion
rate.
(v) In case of any capital reorganization or any reclassification of the
capital stock of the corporation or in case of the consolidation or merger of
the corporation with or into another corporation or the conveyance of all or
substantially all of the assets of the corporation to another corporation, each
share of Series A Preferred Stock provided for herein shall be convertible
thereafter into the number of shares of stock or other securities or property to
which a holder of the number of shares of Common Stock of the corporation
deliverable upon conversion of such share of Series A Preferred Stock would have
been entitled upon such reorganization, reclassification, consolidation, merger
or conveyance; and, in any such case, appropriate adjustment (as determined by
the Board of Directors) shall be made in the application of the provisions
herein set forth with respect to the rights and interests thereafter of the
holders of the Series A Preferred Stock, to the end that the provisions set
forth herein (including provisions with respect to adjustments of the conversion
rate) shall thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter deliverable upon
the conversion of the shares of the Series A Preferred Stock.
Whenever the conversion rate is required to be adjusted as provided herein,
the corporation shall forthwith compute the adjusted conversion rate and shall
prepare a certificate setting forth such adjusted conversion rate and showing in
detail the facts upon which such adjustment is based. Such certificate shall
forthwith be filed with the transfer agent for the Series A Preferred Stock and
thereafter, until further adjusted, the adjusted conversion rate shall be as set
forth in said certificate, provided that the computation of the adjusted
conversion rate shall be reviewed at least annually by the independent
certificate public accountants regularly employed by the corporation and said
accountants shall file a corrected certificate, if required, with the transfer
agent. The corporation shall cause the transfer agent for the Series A Preferred
Stock to mail to the holders thereof, at the time of each such adjustment, a
statement setting forth the adjustment, if any, made in the conversion rate and
not theretofore reported to such holders, and the reasons for such adjustment.
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So long as any shares of the Series A Preferred Stock remaining outstanding
and the holders thereof have the right to convert said shares, the corporation
will at all times reserve from its authorized Common Stock a sufficient number
of shares to provide for such conversions. As a condition precedent to the
taking of any action which would cause an adjustment reducing the conversion
price below the then par value of the shares of Common Stock issuable upon
conversion of any Series A Preferred Stock provided for herein, the corporation
will take such corporate action as may be necessary in order that it may validly
and legally issue fully paid and nonassessable shares of such Common Stock at
such adjusted conversion price.
b. Convertibility into Debt. During the period commencing June 15, 1988
and ending September 15, 1988, each holder of Series A Preferred Stock shall
have the right to surrender the certificate or certificate evidencing not less
than all of such shares owned by him and receive, in lieu and in conversion
thereof and in lieu of any unpaid dividends theretofore accrued, an unsecured
negotiable promissory note (the "Promissory Note") issued by the corporation and
payable to said holder. The shares of Series A Preferred Stock so exchanged and
converted shall not be reissued by the corporation.
Each Promissory Note shall evidence an aggregate principal amount equal to
the number of shares of Series A Preferred Stock exchanged and converted
multiplied by the Issue Price, plus any unpaid accrued dividends. The unpaid
principal balance owing under the Promissory Note shall bear interest from the
date of issuance until paid at a floating simple interest per annum rate which
is the less of (i) two percent (2%) above the Prime Rate (as defined in Section
5 above) or (ii) the maximum rate permitted by law.
Each Promissory Note shall be payable in twenty (20) consecutive equal
quarterly installments of principal, plus accrued and unpaid interest. The
first of said installments shall be due and payable on or before January 1,
1989, and a like installment shall be due and payable on or before the first
business day of each succeeding calendar quarter thereafter. All unpaid
principal and accrued interest shall be due and payable on or before October 1,
1993.
The corporation shall have the right to prepay all or any portion of each
Promissory Note at any time without penalty.
Each holder of shares of Series A Preferred Stock exchanging and converting
said stock shall do so in the same manner provided in Section 7(a) above for the
exchange and conversion of shares of Series A Preferred Stock into Common Stock.
8. Restriction on Corporate Actions. So long as any shares of Series A
Preferred Stock remain outstanding, no corporate action of the character
hereinafter set
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forth in this section shall be taken by the corporation without the affirmative
vote or written consent of the holders of a majority in amount of the Series A
Preferred Stock. The corporate actions subject to the provisions of this section
are:
a. Amending, altering or repealing any of the provisions of this Section 8
which are protective provisions for the benefit of the holders of the Series A
Preferred Stock.
b. Selling, leasing or otherwise disposing of all or substantially all of
the corporation's assets.
c. Dissolving, liquidating or winding up the affairs of the corporation.
d. Merging, consolidating or combining with another corporation, except
when the corporation which is the subject of this instrument will be surviving
corporation.
e. Authorizing any stock ranking on a parity with or senior to the Series
A Preferred Stock as to dividends or liquidating preference.
f. Creating any bank debt, the principal amount of which exceeds an amount
equal to the difference between (i) the sum of (a) one-half (1/2) of the proved
oil and gas reserves of the corporation discounted at ten percent (10%) and (b)
the difference between the current assets and the current liabilities of the
corporation and (ii) an amount equal to the number of outstanding shares of
Series A Preferred Stock multiplied by the Issue Price.
Remaining Preferred Stock
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The remaining 1,437,500 shares of Preferred Stock shall be issued in one or
more series. The Board of Directors is hereby expressly authorized to divide
and issue such shares of Preferred Stock in such series and to fix the number of
shares constituting such series and the designation thereof to distinguish the
shares of such series from the shares of all other series. The shares of
Preferred Stock shall be identical except as to the following relative rights
and preferences, as to which there may be variations between different series,
with such variations in rights and preferences to be fixed by the Board of
Directors of the corporation:
a. The rate of dividend, the time of payment of dividends, whether
dividends are cumulative, and the date from which any dividends shall
accrue;
b. Whether shares may be redeemed and, if so, the redemption price and
the terms and conditions of redemption;
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c. The amount payable upon shares in the event of involuntary
liquidation;
d. The amount payable upon shares in the event of voluntary
liquidation;
e. Sinking fund or other provisions, if any, or the redemption or
purchase of shares;
f. The terms and conditions on which shares may be converted, if the
shares of any series are issued with the privilege of conversion;
g. Voting powers, if any; and
h. Any other rights and preferences the Board of Directors may
hereafter be permitted by law to fix.
Series B Preferred Stock
- ------------------------
There is hereby created a series of Preferred Stock of the corporation
consisting of one hundred twelve thousand five hundred (112,500) shares and
designated as "Preferred Stock, Series B" (hereinafter referred to as the
"Series B Preferred Stock"). The Series B Preferred Stock shall have the
following designations, preferences, limitations, and relative rights:
1. Dividend Provisions. The holders of Series B Preferred Stock shall be
entitled to participate with holders of the Common Stock in any dividends
declared and paid with respect to the Common Stock on the basis that the amount
of such dividend paid in respect of each outstanding share of Series B Preferred
Stock will equal the amount of the dividend in respect of each share of Common
Stock times the Conversion Rate (as defined in Paragraph 3 below) as of the
record date for determining stockholders entitled to such dividend.
2. Liquidation Provisions. In the event of any liquidation, dissolution
or winding up of the corporation, whether voluntary or involuntary, and after
the full preferential liquidation amount has been paid to, or determined and set
apart for, all other series of Preferred Stock hereafter authorized and issued,
if any, the remaining assets of the corporation available for distribution to
stockholders shall be distributed ratably to the holders of Common Stock and the
holders of Series B Preferred Stock on the basis that the amount of such
distribution paid in respect of each outstanding share of Series B Preferred
Stock will equal the amount of the distribution in respect of each share of
Common Stock times the Conversion Rate (as defined in Paragraph 3 below) as of
the record date for determining stockholders entitled to such distribution. In
the event the assets of the
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corporation available for distribution to its stockholders are insufficient to
pay the full preferential liquidation amount per share required to be paid on
the corporation's various other series of Preferred Stock that may then be
outstanding, the entire amount of assets of the corporation available for
distribution to stockholders shall be paid up to their respective full
liquidation amounts first to the such other series of Preferred Stock with a
liquidation preference, which amounts shall be distributed ratably among holders
of each such series of Preferred Stock, and the holders of Common Stock and the
Series B Preferred Stock shall receive nothing. A reorganization or any other
consolidation or merger of the corporation with or into any other corporation,
or any other sale of all or substantially all of the assets of the corporation,
shall not be deemed to be a liquidation, dissolution or winding up of the
corporation within the meaning of this Section, and the Series B Preferred Stock
shall be entitled only to (a) the right provided in any agreement or plan
governing the reorganization or other consolidation, merger or sale of assets
transactions, (b) the rights contained in the Colorado Business Corporation Act
and (c) the rights contained in other numbered Paragraphs of this "Series B
Preferred Stock" section.
3. Conversion Provisions. The Series B Preferred Stock shall be subject
to the following conversion provisions:
(a) Conversion.
(1) Subject to the terms and provisions of this Paragraph 3, each share of
Series B Preferred Stock shall be convertible and shall be deemed to have
been converted (the "Conversion"), without further action, into five (5)
shares of Common Stock (which number of shares of Common Stock shall be
subject to adjustment as provided in this Paragraph 3) of the corporation
immediately following the close of business on the first day (the
"Conversion Date") after March 31, 1997, that the corporation shall have a
sufficient number of authorized but unissued shares of Common Stock so as
to permit all shares of Series B Preferred Stock then issued to be so
converted. For purposes of the preceding sentence, the number of shares
of authorized but unissued shares of Common Stock shall not include any
shares of Common Stock that are subject to issuance upon either (a) the
exercise of any then outstanding stock option, warrant or other right to
acquire shares of Common Stock or (b) the conversion or exchange of any
debenture or other security (other than the Series B Preferred Stock)
convertible into or exchangeable for shares of Common Stock. The ratio of
the number of shares of Common Stock into which each share of Series B
Preferred Stock shall be convertible is sometimes referred to herein as the
"Conversion Rate."
(2) Not later than thirty (30) days following the Conversion Date, the
corporation shall deliver to each Holder of shares of Series B Preferred
Stock a written notice (the "Conversion Notice") of such conversion,
identifying the shares of Series B Preferred Stock (and the certificate
number or numbers thereof) that
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have been so converted; provided, however, that failure of the corporation
to provide such notice shall not affect the validity of the Conversion.
(3) No fractional shares of Series B Preferred Stock may be converted. No
fractional shares of Common Stock shall be issued upon conversion of the
Series B Preferred Stock. However, in lieu of the corporation's causing or
permitting the conversion into fractional shares of Common Stock, it shall
pay a cash adjustment in respect of such fractional interest in an amount
equal to such fractional interest multiplied by the then Current Market
Value (as defined in Paragraph 6 below) determined by the corporation as of
the Conversion Date.
(4) The corporation shall pay in cash the cash payment, if any, due as provided
in clause (a)(3) above, which cash payment shall be due on the date that
the certificate or certificates representing the shares of Common Stock to
be issued in connection with such conversion are due to be issued.
(5) The corporation shall have no responsibility to pay any taxes with respect
to the Series B Preferred Stock or the shares of Common Stock into which
the Series B Preferred Stock is to be converted.
(6) The Holder of each certificate representing shares of Series B Preferred
Stock, following the corporation's delivery of the Conversion Notice to
such Holder in accordance with the provisions of this Paragraph 3, shall
promptly return such certificate for cancellation to the corporation at its
principal place of business (currently located at 450 Sam Houston Parkway
East, Suite 140, Houston, Texas 77060, U.S.A., Attention: Corporate
Secretary). Whether or not returned, such certificate or certificates
shall be deemed canceled, and no longer representing outstanding shares of
Series B Preferred Stock, effective as of the Conversion Date (other than
with respect to the right to receive accrued and unpaid dividends, if any,
on the Series B Preferred Stock up to and including the Conversion Date,
the right to receive the proper number of shares of Common Stock or other
consideration upon the conversion thereof, and all rights of a holder of
Common Stock with respect to such shares of Common Stock immediately after
the conversion of such shares of Series B Preferred Stock). Within thirty
(30) days of its receipt of such certificate for cancellation, the
corporation shall complete the issuance of the shares of Common Stock and
deliver the same to and in the name of the Holder thereof.
(b) Adjustments to the Conversion Rate.
(1) If the Common Stock issuable on conversion of the Series B Preferred Stock
shall be subdivided into a greater number or combined into a lesser number
of shares of Common Stock, the holders of Series B Preferred Stock shall,
upon its conversion, be entitled to receive, in lieu of the Common Stock
which the Holders would have become entitled to received but for such
change, a number of
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shares of common stock that would have been subject to receipt if such
shares of series b preferred stock had been converted immediately before
that change.
(2) If the Common Stock issuable on conversion of the Series B Preferred Stock
shall be changed into the same or a different number of shares of any other
class or classes of stock, whether by capital reorganization,
reclassification, or otherwise (other than a subdivision or combination of
shares provided for above), the holders of Series B Preferred Stock shall,
upon its conversion, be entitled to receive, in lieu of the Common Stock
which the Holders would have become entitled to receive but for such
change, a number of shares of such other class or classes of stock that
would have been subject to receipt if such shares of Series B Preferred
Stock had been converted immediately before that change.
(3) If at any time there shall be a capital reorganization of the corporation's
Common Stock (other than a subdivision, combination, reclassification or
exchange of shares provided for elsewhere in this subsection (b)) or merger
of the corporation into another corporation, or the sale of the
corporation's properties and assets as, or substantially as, an entirety to
any other person, then, as a part of such reorganization, merger or sale,
lawful provision shall be made so that the Holders of the Series B
Preferred Stock shall thereafter be entitled to receive upon conversion of
the Series B Preferred Stock, the number of shares of stock or other
securities or property of the corporation, or of the successor corporation
resulting from such merger, to which holders of the Common Stock
deliverable upon conversion of the Series B Preferred Stock would have been
entitled on such capital reorganization, merger or sale if the Series B
Preferred Stock had been converted immediately before that capital
reorganization, merger or sale to the end that the provisions of this
paragraph (b)(3) (including adjustment of the Conversion Rate then in
effect and number of shares purchasable upon conversion of the Series B
Preferred Stock) shall be applicable after that event as nearly
equivalently as may be practicable.
(4) Any adjustments made pursuant to this paragraph (b) shall become effective
at the close of business on the day upon which such capital reorganization,
reclassification, reorganization, merger, consolidation, sale of assets or
other event becomes effective.
(c) Certificate as to Adjustments. Upon the occurrence of each adjustment or
readjustment of the Conversion Rate for any shares of Series B Preferred
Stock, the corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare
and furnish to each Holder affected thereby a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based. The corporation shall, upon the
written request at any time of any Holder, furnish or cause to be furnished
to such Holder a like
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certificate setting forth (i) such adjustment and readjustments, (ii) the
Conversion Rate at the time in effect and (iii) the number of shares of
Common Stock and the amount, if any, of other property which at the time
would be received upon the conversion of such Holder's shares of Series B
Preferred Stock.
(d) Notices of Record Date. In the event of the establishment by the
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
distribution, the corporation shall mail to each Holder of Series B
Preferred Stock at least twenty (20) days prior to the date specified
therein, a notice specifying the date on which any such record is to be
taken for the purposes of such distribution and the amount and character of
such distribution.
(e) Reservation of Stock Issuable Upon Conversion. At all times on and after
the Conversion Date, the corporation shall make available, reserve and keep
available out of its authorized but unissued shares of Common Stock solely
for the purpose of effecting the conversion of the shares of Series B
Preferred Stock such number of its shares of Common Stock as shall from
time to time be sufficient to effect the conversion of all then outstanding
shares of the Series B Preferred Stock; and if at any such time following
the Conversion Date the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all then
outstanding shares of Series B Preferred Stock, the corporation will take
such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose.
(f) Notices. Any notices required by the provisions of this Paragraph 3 to be
given to the Holders of shares of Series B Preferred Stock shall be deemed
given if deposited in the United States mail, postage prepaid, and
addressed to each Holder at such Holder's address appearing on the books of
the corporation.
4. Voting Provisions. The holders of shares of Series B Preferred Stock
shall have the right, voting as a single class together with the holders of
Common Stock, to a number of votes equal to the Conversion Rate for each share
of Series B Preferred Stock held by them on each matter submitted to a vote of
the stockholders of the Corporation. Except to the extent otherwise expressly
provided or required by law, the Series B Preferred Stock shall not entitle the
holders thereof to any voting rights as a separate class, and the consent of the
Holders thereof as a class shall not be required for the taking of any corporate
action.
5. Retired Shares. Any shares of Series B Preferred Stock converted,
purchased or otherwise acquired by the corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof, and, if
necessary, to provide for the lawful purchase of such shares, the capital
represented by such shares shall be reduced in accordance with the Colorado
Business Corporation Act. All such shares upon their cancellation shall become
authorized but unissued shares of Preferred Stock, $0.10 par
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<PAGE>
value each, of the corporation and may be reissued as part of another series of
Preferred Stock, $0.10 par value each, of the corporation.
6. Certain Definitions. For the purposes of this "Series B Preferred Stock"
section, the term "Current Market Value" per share of Common Stock shall mean
either (i) if shares of Common Stock are then traded over-the-counter in the
U.S., the value shall be deemed to be the average of the closing bid prices over
the thirty (30) day period ending three (3) days prior to the Conversion Date,
(ii) if shares of Common Stock are then traded on a U.S. national securities
exchange or the NASDAQ's National Market System, the value shall be deemed to be
the average of the closing prices on such exchange or National Market System
over the thirty (30) day period ending three days prior to the Conversion Date,
or (iii) if no such trading as described in clauses (i) and (ii) above then
exists, then the Current Market Value shall be determined in good faith by the
corporation.
7. U.S. Currency. Unless expressly provided herein to the contrary, all
payments of cash referred to herein shall be paid in United States Dollars, and
all dollar (or $) amounts referred to herein refer to United States Dollars.
15
<PAGE>
ANNEX I
FORM OF CONVERSION NOTICE
[Please Type or Print]
Territorial Resources, Inc. Date:____________________________
450 Sam Houston Parkway East, Suite 140
Houston, Texas 77060
USA
Attention: Corporate Secretary
Name: ______________________________________________________
Address: ______________________________________________________
______________________________________________________
______________________________________________________
Telephone: ____________________ Telecopier: ___________________
U.S. Taxpayer Identification No. or
Social Security No. (if applicable): _____________________________
The undersigned holder of the following shares of Series B Preferred Stock of
Territorial Resources, Inc., a Colorado corporation (the "corporation"), hereby
requests that such shares be converted into __________ shares of Common Stock of
the corporation in accordance with the terms of such Series B Preferred Stock.
SHARES OF SERIES B PREFERRED STOCK TO BE CONVERTED
Number of Shares of Series B Convertible Preferred Stock to be
Converted:_____________
Certificate Number (or Numbers):_______________________________________________
Name and Address for Issuance of Shares of Common Stock (if different from
above):
_________________________________
_________________________________
_________________________________
_________________________________
Printed or Typed
Name of Holder: ________________________________ (Must be signed by
By (execute here): ________________________________ registered holder)
Title: ________________________________
(If signature is by a spouse, administrator, guardian, attorney-in-fact, officer
of a corporation or other officer or capacity, please specify such capacity.)
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Simultaneously with the effective date of this amendment (the "Effective
Date"), each share of the corporation's Common Stock, no par value each, issued
and outstanding immediately prior to the Effective Date (the "Old Common Stock")
shall automatically and without any action on the part of the holder thereof be
reclassified as and changed, pursuant to a reverse stock split, into one-third
(1/3rd) of a share of the corporation's outstanding Common Stock, no par value
each (the "New Common Stock"), subject to the treatment of fractional share
interests as described below. Each holder of a certificate or certificates which
immediately prior to the Effective Date represented outstanding shares of Old
Common Stock (the "Old Certificates," whether one or more) shall be entitled to
receive upon surrender of such Old Certificates to the corporation's transfer
agent for cancellation, a certificate or certificates (the "New Certificates,"
whether one or more) representing the number of whole shares of the New Common
Stock into which and for which the shares of the Old Common Stock formerly
represented by such Old Certificates so surrendered, are reclassified under the
terms hereof. From and after the Effective Date, Old Certificates shall
represent only the right to receive New Certificates pursuant to the provisions
hereof. No certificates or scrip representing fractional share interests in New
Common Stock will be issued, and no such fractional share interest will entitle
the holder thereof to vote, or to any rights of a shareholder of the
corporation. Any fraction of a share of New Common Stock to which the holder
would otherwise be entitled will be adjusted upward to the nearest whole share.
If more than one Old Certificate shall be surrendered at one time for the
account of the same Shareholder, the number of full shares of New Common Stock
for which New Certificates shall be issued shall be computed on the basis of the
aggregate number of shares represented by the Old Certificates so surrendered.
In the event that the corporation's transfer agent determines that a holder of
Old Certificates has not tendered all his or her certificates for exchange, the
transfer agent shall carry forward any fractional share until all certificates
of that holder have been presented for exchange such that payment for fractional
shares to any one person shall not exceed the value of one share. If any New
Certificate is to be issued in a name other than that in which the Old
Certificates surrendered for exchange are issued, the Old Certificates so
surrendered shall be properly endorsed and otherwise in proper form for
transfer. From and after the Effective Date the amount of capital represented by
the shares of the New Common Stock into which and for which the shares of the
Old Common Stock are reclassified under the terms hereof shall be the same as
the amount of capital represented by the shares of Old Common Stock so
reclassified, until thereafter reduced or increased in accordance with
applicable law.
ARTICLE V
---------
Right of Directors to Contract with Corporation
-----------------------------------------------
No contract or other transaction between the corporation and one or more of
its directors or any other corporation, firm, association, or other entity in
which one or more of its directors are directors or officers or are financially
interested shall be either void or voidable solely because of such
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<PAGE>
relationship or interest or solely because such directors are present at the
meeting of the board of directors or a committee thereof which authorizes,
approves, or ratifies such contract or transaction or solely because their votes
are counted for such purpose if:
(a) The fact of such relationship or interest is disclosed or known to
the board of directors or committee which authorizes, approves, or ratifies
the contract or transaction by a vote or consent sufficient for the purpose
without counting the votes or consents of such interested directors; or
(b) The fact of such relationship or interest is disclosed or known to
the shareholders entitled to vote and they authorize, approve, or ratify
such contract or transaction by vote or written consent; or
(c) The contract or transaction is fair and reasonable to the
corporation.
Common or interested directors may be counted in determining the presence of
a quorum at a meeting of the board of directors or a committee thereof which
authorizes, approves, or ratifies such contract or transaction.
ARTICLE VI
----------
Corporate Opportunity
---------------------
The officers, directors and other members of management of this corporation
shall be subject to the doctrine of "corporate opportunities" only insofar as it
applies to business opportunities in which this corporation has expressed an
interest as determined from time to time by this corporation's board of
directors as evidenced by resolutions appearing in the corporation's minutes.
Once such areas of interest are delineated, all such business opportunities
within such areas of interest which come to the attention of the officers,
directors, and other members of management of this corporation shall be
disclosed promptly to this corporation, and made available to it. The board of
directors may reject any business opportunity presented to it and thereafter any
officer, director or other member of management may avail himself of such
opportunity. Until such time as this corporation, through its board of
directors, has designated an area of interest, the officers, directors and other
members of management of this corporation shall be free to engage in such areas
of interest on their own and this doctrine shall not limit the rights of any
officer, director or other member of management of this corporation to continue
a business existing prior to the time that such area of interest is designated
by the corporation. This provision shall not be construed to release any
employee of this corporation (other than an officer, director or member of
management) from any duties which he may have to this corporation.
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<PAGE>
ARTICLE VII
-----------
Indemnification
---------------
Directors and Others
--------------------
1. The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or investigative
(other than an action by or in the right of the corporation), by reason of the
fact that he is or was a director, officer, employee, or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise, against expenses (including attorneys'
fees), judgments, fines, and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit, or proceeding if he acted
in good faith and in a manner he reasonably believed to be in the best interests
of the corporation and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, or conviction or upon
a plea of nolo contendere or its equivalent shall not of itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in the best interests of the corporation and, with
respect to any criminal action or proceeding, had reasonable cause to believe
that his conduct was unlawful.
2. The corporation shall indemnify any person who was or is a party to or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee, or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in the best interests of the corporation; but no
indemnification shall be made in response of any claim, issue, or matter as to
which such person has been adjudged to be liable for negligence or misconduct in
the performance of his duty to the corporation unless and only to the extent
that the court in which such action or suit was brought determines upon
application that, despite the adjudication of liability, but in view of all
circumstances of the case, such person is fairly and reasonably entitled to
indemnification for such expenses which such court deems proper.
3. To the extent that a director, officer, employee, or agent of the
corporation has been successful on the merits in defense of any action, suit, or
proceeding referred to in this article or in defense of any claim, issue, or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.
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<PAGE>
4. Any indemnification under paragraph 1 or 2 of this article (unless
ordered by a court) shall be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee, or agent is proper in the circumstances because he has met
the applicable standard of conduct set forth in said paragraphs 1 or 2. Such
determination shall be made by the board of directors by a majority vote of a
quorum consisting of directors who were not parties to such action, suit, or
proceeding, or, if such a quorum is not obtainable or even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or by the shareholders.
5. Expenses (including attorneys' fees) incurred in defending a civil or
criminal action, suit, or proceeding may be paid by the corporation in advance
of the final disposition of such action, suit, or proceeding as authorized in
paragraph 4 of this article upon receipt of an undertaking by or on behalf of
the director, officer, employee, or agent to repay such amount unless it is
ultimately determined that he is entitled to be indemnified by the corporation
as authorized in this article.
6. The indemnification provided by this article shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
the Articles of Incorporation, any bylaw, agreement, vote of shareholders or
disinterested directors, or otherwise, and any procedure provided for by any of
the foregoing, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee, or agent and shall inure to
the benefit of heirs, executors, and administrators of such a person.
7. The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee, or agent of the corporation
or who is or was serving at the request of the corporation as a director,
officer, employee, or agent of another corporation, partnership, joint venture,
trust, or other enterprise against any liability asserted against him and
incurred by him in any such capacity or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of this article.
8. A unanimous vote of each class of shares entitled to vote shall be
required to amend this article.
ARTICLE VIII
------------
Shareholder Voting
------------------
A majority of the shares entitled to vote, represented in person or by
proxy, shall constitute a quorum at a meeting of shareholders.
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<PAGE>
When, with respect to any action to be taken by shareholders of this
Corporation, the laws of Colorado require the vote or concurrence of the holders
of two-thirds of the outstanding shares, of the shares entitled to vote thereon,
or of any class or series, such action may be taken by the vote or concurrence
of a majority of such shares or class or series thereof.
ARTICLE IX
----------
Adoption and Amendment of Bylaws
--------------------------------
The initial Bylaws of the corporation shall be adopted by its board of
directors. The power to alter or amend or repeal the Bylaws or adopt new Bylaws
shall be vested in the board of directors, but the holders of common stock may
also alter, amend or repeal the Bylaws or adopt new bylaws. The bylaws may
contain any provisions for the regulation and management of the affairs of the
corporation not inconsistent with law or these Articles of Incorporation.
ARTICLE X
---------
Registered Office and Registered Agent
--------------------------------------
The address of the registered office of the corporation is 10341 Rowlock
Way, Parker, CO 80134, and the name of the registered agent at such address is
Donald L. Oliver. Either the registered office or the registered agent may be
changed in the manner permitted by law.
ARTICLE XI
----------
Initial Board of Directors
--------------------------
The number of directors of the corporation shall be fixed by the Bylaws of
the corporation, except the initial board of directors of the corporation shall
consist of five directors. The names and addresses of the persons who shall
serve as directors until the first annual meeting of shareholders and until
their successors are elected and shall qualify are as follows:
NAME ADDRESS
---- -------
David L. Egleston 717 Seventeenth Street
Suite 2600
Denver, Colorado 80202
James R.Roshard 717 Seventeenth Street
Suite 2600
Denver, Colorado 80202
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<PAGE>
Shelby S. Dark, Jr. 717 Seventeenth Street
Suite 2600
Denver, Colorado 80202
E. Lee Gorsuch 717 Seventeenth Street
Suite 2600
Denver, Colorado 80202
William D. Jennings 717 Seventeenth Street
Suite 2600
Denver, Colorado 80202
ARTICLE XII
-----------
Incorporator
------------
The name and address of the incorporator is as follows:
NAME ADDRESS
---- -------
Paul H. Metzinger Nelson & Harding
717 Seventeenth Street
Suite 2600
Denver, Colorado 80202
22
