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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
RIO GRANDE, INC.
(Name of Issuer)
Common Stock, $.01 Par Value Per Share
(Title of Class of Securities)
767094 20 4
(CUSIP Number)
Tye G. Darland
Koch Exploration Company
4111 East 37th Street North
Wichita, Kansas 67220
(316) 828-8623
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications)
January 16, 1997
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G
to report the acquisition which is the subject of this Schedule 13D, and
filing this schedule because of Rule 13d-1(b)(3) or (4), check the
following box [ ]
Check the following box if a fee is being paid with this statement [ ].
(A fee is not required only if the reporting person: (1) has a previous
statement on file reporting beneficial ownership of more than five percent
of the class of securities described in Item 1; and (2) has filed no
amendment subsequent thereto reporting beneficial ownership of five percent
or less of such class.) (See Rule 13d-7.)
CUSIP NO.: 767094 20 4
(1) NAMES OF REPORTING PERSONS : Koch Exploration Company
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(2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (A) [ ]
(B) [ ]
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(3) SEC USE ONLY
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(4) SOURCE OF FUNDS: WC
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(5) CHECK BOX OF DISCLOSURE IF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEM 2(d) OR 2(e) [ ]
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(6) CITIZENSHIP OR PLACE OF ORGANIZATION: STATE OF KANSAS
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NUMBER OF SHARES (7) SOLE VOTING POWER 2,733,975 (100,000
of such shares of
Common Stock will
be acquired when its
nominees join the
Rio Grande board of
directors and the
remaining shares of
Common Stock may be
acquired upon
conversion of the
Series B Preferred
Stock)
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BENEFICIALLY OWNED (8) SHARED VOTING POWER - 0 -
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BY EACH REPORTING (9) SOLE DISPOSITIVE POWER 2,733,975 (100,000
of such shares of
Common Stock will
be acquired when its
nominees join the
Rio Grande board of
directors and the
remaining shares of
Common Stock may
be acquired upon
conversion of the
Series B Preferred
Stock)
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PERSON WITH (10) SHARED DISPOSITIVE POWER - 0 -
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(11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON :
2,733,975 shares (100,000 of such shares of Common Stock will be acquired
when its nominees join the Rio Grande board of directors and the remaining
shares of Common Stock may be acquired upon conversion of the Series B
Preferred Stock)
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(12) CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ]
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(13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 33.0%
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(14) TYPE OF REPORTING PERSON: CO
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CUSIP NO.: 767094 20 4
(1) NAMES OF REPORTING PERSONS : Koch Industries, Inc.
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(2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (A) [ ]
(B) [ ]
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(3) SEC USE ONLY
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(4) SOURCE OF FUNDS: Not Applicable
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(5) CHECK BOX OF DISCLOSURE IF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEM 2(d) OR 2(e) [ ]
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(6) CITIZENSHIP OR PLACE OF ORGANIZATION: STATE OF KANSAS
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NUMBER OF SHARES (7) SOLE VOTING POWER 2,733,975 (100,000
of such shares of
Common Stock will be
acquired when its
nominees join the
Rio Grande board of
directors and the
remaining shares of
Common Stock may be
acquired upon
conversion of the
Series B Preferred
Stock)
------------------------------------------------
BENEFICIALLY OWNED (8) SHARED VOTING POWER - 0 -
------------------------------------------------
BY EACH REPORTING (9) SOLE DISPOSITIVE POWER 2,733,975 (100,000
of such shares of
Common Stock will
be acquired when its
nominees join the
Rio Grande board of
directors and the
remaining shares of
Common Stock may
be acquired upon
conversion of the
Series B Preferred
Stock)
-------------------------------------------------
PERSON WI (10) SHARED DISPOSITIVE POWER - 0 -
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(11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON:
2,733,975 shares (100,000 of such shares of Common Stock will be acquired
when its nominees join the Rio Grande board of directors and the remaining
shares of Common Stock may be acquired upon conversion of the Series B
Preferred Stock)
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(12) CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ]
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(13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 33.0%
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(14) TYPE OF REPORTING PERSON: CO
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SCHEDULE 13D
Item 1. Security and Issuer
Shares of Common Stock, $.01 par value per share (the "Common
Stock"), of Rio Grande, Inc. ("Rio Grande"), 10101 Reunion Place, Suite
210, San Antonio, Texas 78216-4156.
Item 2. Identity and Background
1. (a) - (c) and (f). One of the persons filing this statement is Koch
Exploration Company, a Kansas corporation ("KEC"). KEC's principal
office is located at 4111 East 37th Street North, Wichita, Kansas
67220. KEC is principally engaged in the acquisition and production
of natural gas properties. KEC is a wholly-owned subsidiary of Koch
Industries, Inc.
The names, citizenship, business addresses, present principal
occupation or employment and the name, and the principal business
address of any corporation or other organization in which such
employment is conducted of the directors and executive officers of
KEC are as set forth on Appendix A attached hereto and are
incorporated herein by reference.
(d) and (e). Neither KEC, nor to the best of its knowledge, any person
listed on Appendix A has during the last five years (i) been
convicted in a criminal proceeding (excluding traffic violations or
similar misdemeanors) or (ii) been subject to a judgment, decree or
final order enjoining future violations of, or prohibiting or
mandating activities subject to, federal or state securities laws or
finding any violation with respect to such laws.
2. (a) - (c) and (f). One of the persons filing this statement is Koch
Industries, Inc., a Kansas corporation ("Koch"). Koch's principal
office is located at 4111 East 37th Street North, Wichita, Kansas
67220. Koch is a diversified energy company.
The names, citizenship, business addresses, present principal
occupation or employment and the name, and the principal business
address of any corporation or other organization in which such
employment is conducted of the directors and executive officers of
Koch are as set forth on Appendix B attached hereto and are
incorporated herein by reference.
(d) and (e). Neither Koch, nor to the best of its knowledge, any
person listed on Appendix B has during the last five years (i) been
convicted in a criminal proceeding (excluding traffic violations or
similar misdemeanors) or (ii) been subject to a judgment, decree or
final order enjoining future violations of, or prohibiting or
mandating activities subject to, federal or state securities laws or
finding any violation with respect to such laws.
Item 3. Source and Amount of Funds or Other Consideration
On January 16, 1997, Rio Grande issued and sold to KEC 500,000 shares
of Rio Grande's Series A Preferred Stock, par value $.01 per share (the
"Series A Preferred Stock") and 500,000 shares of Rio Grande's Series B
Preferred Stock, par value $.01 per share (the "Series B Preferred Stock"),
for an aggregate purchase price of $10,000,000. Rio Grande also granted
KEC an option to purchase an additional 200,000 shares of Series A
Preferred Stock for an aggregate exercise price of $2,000,000, such option
to be exercised at any time on or after January 16, 1999 but on or before
January 16, 2000. The consideration used by KEC for the acquisition
reported herein came from the working capital of KEC.
Item 4. Purpose of Transaction
KEC acquired the Series A Preferred Stock and the Series B Preferred
Stock contemporaneously and in connection with an affiliate of KEC agreeing
to enter into a master commodity swap agreement with Rio Grande with
respect to U.S. Gulf Coast pipeline kerosene-based aviation jet fuel. KEC
acquired the Series A Preferred Stock and the Series B Preferred Stock as
an investment and is bound by the terms and conditions of the Preferred
Stock Purchase Agreement dated as of January 16, 1997 by and between KEC
and Rio Grande (the "Purchase Agreement") (a copy of which is attached
hereto as Exhibit 2), a Registration Rights Agreement dated as of January
16, 1997 by and between KEC and Rio Grande (the "Registration Rights
Agreement") (a copy of which is attached hereto as Exhibit 3), a
Stockholders Agreement dated as of January 16, 1997 by and among Robert A.
Buschman and Guy Bob Buschman and their spouses, Rio Grande and KEC (the
"Stockholders Agreement") (a copy of which is attached hereto as Exhibit 4)
and the Certificate of Designations of the Series A Preferred Stock, Series
B Preferred Stock and Series C Preferred Stock of Rio Grande, Inc. (the
"Certificate of Designations") (a copy of which is attached hereto as
Exhibit 5). The Purchase Agreement, the Registration Rights Agreement, the
Stockholders Agreement and the Certificate of Designations are incorporated
herein by reference and are described in greater detail in Item 6.
The Stockholders Agreement places certain limitations on KEC's
ability to sell the Series B Preferred Stock. Subject to the terms and
conditions of the Purchase Agreement, the Registration Agreement, the
Stockholders Agreement and the Certificate of Designations; to a continuing
review of the prospects of Rio Grande, market conditions and economic
conditions; and to other relevant factors, KEC may purchase shares of
Common Stock, will, as long as its nominees are on the Rio Grande board of
directors, acquire shares of Common Stock (up to a maximum of 75,000 shares
per director) pursuant to a Rio Grande non-qualified stock plan and may
purchase 200,000 additional shares of Series A Preferred Stock pursuant to
the option it has received or may dispose of the shares of Series A
Preferred Stock, Series B Preferred Stock or Common Stock it owns or may
otherwise acquire.
Although their plans may change in the future, except as otherwise
noted, neither KEC nor Koch have any plans or proposals, other than as
described herein, that relate to or would result in the following:
(a) The acquisition of additional securities of Rio Grande or the
disposition of securities of Rio Grande, except that KEC may
convert the Series B Preferred Stock in accordance with the
terms of Section B.5 of the Certificate of Designations (which
is described in greater detail in Item 6); KEC, between January
16, 1999 and January 16, 2000, may exercise its option to
acquire an additional 200,000 shares of Series A Preferred Stock
for $2,000,000; and KEC, annually and as long as its nominees
are on the Rio Grande board of directors (up to a maximum of
75,000 shares per director), will acquire shares of Common Stock
pursuant to a Rio Grande non-qualified stock plan;
(b) An extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving Rio Grande or any of
its subsidiaries;
(c) A sale or transfer of a material amount of assets of Rio Grande
or any of its subsidiaries;
(d) Any change in the present board of directors or management of
Rio Grande, including any plans or proposals to change the
number or term of directors or to fill any existing vacancies on
the board, except that KEC intends to name two directors to join
the present Rio Grande board of directors;
(e) Any material change in the present capitalization or dividend
policy of Rio Grande;
(f) Any other material change in Rio Grande's business or corporate
structure;
(g) Changes in Rio Grande's charter, bylaws or instruments
corresponding thereto or other actions which may impede the
acquisition of control of Rio Grande by any person;
(h) Causing the Common Stock, which is not currently listed on an
exchange to be delisted from an exchange;
(i) A class of equity securities of Rio Grande becoming eligible for
termination of registration pursuant to Section 12(g)(4) of the
Securities Exchange Act of 1934; or
(j) Any action similar to any of those enumerated above.
Item 5. Interest in Securities of the Issuer
(a) KEC may be deemed to beneficially own 2,733,975 shares of Common
Stock (33.0%), 100,000 of which it will acquire when its two nominees join
the Rio Grande board of directors and the remaining shares which it may
acquire upon the conversion of the Series B Preferred Stock into Common
Stock (which can occur at any time). Pursuant to a Rio Grande
non-qualified stock plan, each director will receive 50,000 shares of
Common Stock when they join the board of directors and, annually
thereafter, receive an additional grant of 5,000 shares of Common Stock per
year as long as they remain a director of Rio Grande until such director
has received a total of 75,000 shares pursuant to the plan. All shares of
such Common Stock which otherwise would be issued to the nominees of KEC
will, pursuant to the terms of the non-qualified stock plan, instead be
issued directly to KEC and such shares of Common Stock will be owned by
KEC. The calculation of the foregoing percentage is based on the number of
shares of Common Stock shown as being outstanding on the Form 10-Q
Quarterly Report filed by Rio Grande with the Securities and Exchange
Commission for the quarter ended October 31, 1996 and assumes full
conversion into Common Stock of all of the shares of Series B Preferred
Stock held by KEC. None of the other persons whose names are listed on
Appendix A or Appendix B or Koch beneficially owns any shares of Common
Stock of Rio Grande.
(b) Koch, by virtue of its status as the owner of 100% of the
outstanding capital stock of KEC, may be deemed to be, for purposes of this
Schedule 13D, the beneficial owner of all of the shares of Common Stock
beneficially owned by KEC. As a result, KEC and Koch each may be deemed to
have voting and disposition power with respect to all of the shares of
Common Stock owned by KEC. However, Koch disclaims beneficial ownership as
to all of the shares of Common Stock owned by KEC. In addition, all of the
shares of Common Stock beneficially owned by KEC are subject to the terms
and conditions of the Purchase Agreement, the Registration Agreement, the
Stockholders Agreement and the Certificate of Designations.
(c) Except as described herein, there have been no transactions by
KEC, Koch or the persons whose names are listed on Appendix A or Appendix B
in securities of Rio Grande during the past sixty days.
(d) No one other than KEC is known to have the right to receive or
the power to direct the receipt of dividends from, or the proceeds from the
sale of, the shares of Common Stock owned by KEC.
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships with
Respect to Securities of the Issuer
KEC's rights with respect to the shares of Common Stock of Rio Grande
are subject to the terms and conditions of the Purchase Agreement, the
Registration Agreement, the Stockholders Agreement and the Certificate of
Designations. For a complete description, your attention is directed to
each of these documents which have been filed as exhibits to this Schedule
13D and are incorporated herein by reference. A summary of these terms and
conditions are described below:
Purchase Agreement
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KEC and Rio Grande entered into the Purchase Agreement, as of January
16, 1997, which, among other things, provides for the purchase by KEC at a
purchase price of $10 million of 500,000 shares of Series A Preferred Stock
and 500,000 Shares of Series B Preferred Stock from Rio Grande and grants
to KEC the right to purchase at a purchase price of $2 million an
additional 200,000 shares of Series A Preferred Stock on or after January
16, 1999 but on or before January 16, 2000. The Purchase Agreement also
granted to KEC the right of first refusal in regard to future financings of
Rio Grande by the issuance of new securities. The Purchase Agreement
further states that all of the Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock, par value $.01 per share (the "Series C
Preferred Stock") will contain a legend stating that such shares have not
been registered. In addition, the Series B Preferred Stock and the Series
C Preferred Stock will contain a legend stating that they cannot be
transferred without transferring the corresponding shares of Series B
Preferred Stock or Series C Preferred Stock, as the case may be, as well.
Finally, the Purchase Agreement contains certain negative covenants which
prohibit Rio Grande from performing certain acts without the consent of
KEC, as long as KEC owns at least $2,500,000 in aggregate face value of the
Series A Preferred Stock and the Series B Preferred Stock.
Registration Agreement
- ----------------------
KEC and Rio Grande entered into the Registration Agreement, as of
January 16, 1997, pursuant to which, among other things, KEC is entitled,
subject to certain limitations, to include its shares of Common Stock
issuable on the conversion of the Series B Preferred Stock owned by KEC in
certain registrations with the Securities and Exchange Commission initiated
by Rio Grande under the Securities Act of 1933, as amended. The
Registration Agreement also provides that KEC may require Rio Grande to
effect an additional three demand registrations of all or a specified
portion of Rio Grande's Common Stock owned by KEC which was issued or is
issuable upon the conversion of the Series B Preferred Stock owned by KEC
and, in addition, contains other customary provisions.
Stockholder Agreement
- ---------------------
KEC, Rio Grande, Robert Buschman and Guy Bob Buschman, and their
respective spouses, have entered into the Stockholders Agreement, as of
January 16, 1997, which, among other things, provides that if Robert
Buschman or Guy Bob Buschman proposes to transfer, sell or otherwise
dispose of their shares of Common Stock in Rio Grande, KEC would have the
right to participate in such transfer under the same terms and conditions.
In addition, Robert Buschman and Guy Bob Buschman were granted the right of
first purchase on any proposed sale or transfer of Series B Preferred Stock
owned by KEC. Finally, the Stockholders Agreement provides that Robert
Buschman and Guy Bob Buschman have agreed to vote their respective shares
of Common Stock in favor of the nominees selected by KEC to the Board of
Directors of Rio Grande once KEC owns greater than 10% of the Common Stock
of Rio Grande. The Stockholders Agreement further provides that Robert
Buschman and Guy Bob Buschman may not sell, assign, or otherwise transfer
any shares of Common Stock owned by them on or before January 18, 2000.
Certificate of Designations
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Rio Grande has executed the Certificate of Designations, as of
January 16, 1997, which, among other things, establishes and fixes the
number of shares to be included in any series of preferred stock and the
designation, rights, preferences, powers, restrictions, and limitations of
the shares of such series.
With respect to the Series B Preferred Stock, KEC shall be entitled
to receive cumulative dividends at the rate of .035 shares of Series C
Preferred Stock per fiscal quarter for each share of Series B Preferred
Stock it owns. On the earlier to occur of the date when Rio Grande does
not have a sufficient number of shares of Series C Preferred Stock
available for issue as dividends or the date on which any shares of Series
C Preferred Stock are redeemed pursuant to Section B.4 of the Certificate
of Designations, KEC shall be entitled to receive cumulative cash dividends
compounded annually at the rate of fourteen percent (14%) of the face value
of the Series B Preferred Stock per share per annum.
As long as KEC owns all the Series B Preferred Stock, it will be
entitled to cast twenty-four percent (24%) of the votes eligible for
casting on that date in respect to any and all matters presented to the
stockholders of Rio Grande for their action or consideration. In addition,
as long as KEC owns all the shares of Series B Preferred Stock, KEC will be
entitled to cast fifty-one percent (51%) of the votes eligible for casting
on that date with respect to any and all matters presented to the
stockholders of Rio Grande if Rio Grande has failed to pay in whole or in
part three consecutive quarterly dividends. Such voting percentages will
be decreased pro rata with KEC's reduction in ownership of the shares of
Series B Preferred Stock.
In addition, for so long as there are more than two hundred thousand
(200,000) shares of Series B Preferred Stock issued and outstanding, the
holders of the Series B Preferred Stock shall have the right at each
stockholder meeting for the election of directors to nominate and elect to
Rio Grande's board of directors that number of individuals who represent
not less than one-third (1/3) of the number of members constituting the
board. If there are less than two hundred thousand (200,000) shares of
Series B Preferred Stock issued and outstanding, the holders of the Series
B Preferred Stock shall have the right to elect one (1) member of the board
of directors of Rio Grande. If Rio Grande shall be in arrears in whole or
in part with regard to quarterly dividends for three (3) consecutive
dividend payment dates or does not redeem the Series B Preferred Stock on
the redemption date as more specifically described in the Certificate of
Designations or a significant event occurs, as more specifically described
in the Certificate of Designations, the holders of the Series B Preferred
Stock shall have the right at any annual or special meeting of stockholders
to nominate and elect to Rio Grande's board such number of individuals
representing a majority of the number of members constituting Rio Grande's
board.
If, on or before January 16, 2002, Rio Grande successfully completes
a registered public offering resulting in gross proceeds to Rio Grande of
more than fifteen million dollars ($15,000,000) but less than or equal to
twenty million dollars ($20,000,000), each holder of Series B Preferred
Stock may elect to require Rio Grande to redeem not more than one-half
(1/2) of the then issued and outstanding shares of Series B Preferred Stock
owned by such holder at an amount per share of Series B Preferred Stock
equal to the offering price of the Common Stock sold in such registered
offering. Upon such an election, an equal percentage of Series B Preferred
Stock held by any such holder shall be converted into Common Stock. If Rio
Grande does not successfully complete a registered on or before January 16,
2002, then at any time after such date, the holders of a majority of the
then issued and outstanding shares of Series B Preferred Stock may elect or
require Rio Grande to redeem shares of Series B Preferred Stock in an
amount equal to the face value plus accrued but unpaid dividends.
Furthermore, Rio Grande may, at any time after January 16, 2003 redeem all
of the then issued and outstanding shares of Series B Preferred Stock if
all accrued dividends have been declared and paid through the most recent
dividend payment date. The redemption price for any such redemption shall
be the face value of all of the then outstanding shares of the Series B
Preferred Stock plus an additional amount equal to ten percent (10%) of the
face value of such outstanding shares.
Each share of Series B Preferred Stock is also convertible, at the
option of the holder thereof, at any time into a number of fully paid and
nonassessable shares of Common Stock and at a price as more particularly
described in the Certificate of Designations. Such conversion is subject
to anti-dilution provisions as more specifically described in the
Certificate of Designations. Finally, upon the successful consummation of
the sale of shares of Common Stock of Rio Grande in a registered public
offering resulting in gross proceeds to Rio Grande of more than twenty
million dollars ($20,000,000) at a price per share of Common Stock as more
specifically described in the Certificate of Designations, then effective
upon the consummation of such registered public offering, all issued and
outstanding shares of Series B Preferred Stock shall automatically be
converted into Common Stock at the then effective conversion price as more
specifically described in the Certificate of Designations.
Item 7. Material to Be Filed as Exhibits
The following are filed as exhibits or appendices to this Schedule 13D:
APPENDIX A Information Concerning Directors and Executive Officers of KEC.
APPENDIX B Information Concerning Directors and Executive Officers of Koch.
EXHIBIT 1 Agreement relating to filing of joint acquisition statement.
EXHIBIT 2 Preferred Stock Purchase Agreement dated as of January 16, 1997
by and between KEC and Rio Grande
EXHIBIT 3 Registration Rights Agreement dated as of January 16, 1997 by
and between KEC and Rio Grande
EXHIBIT 4 Stockholders Agreement dated as of January 16, 1997 by and among
Robert A. Buschman and Guy Bob Buschman and their spouses, Rio
Grande and KEC
EXHIBIT 5 Certificate of Designations of Series A Preferred Stock, Series
B Preferred Stock and Series C Preferred Stock of Rio Grande,
Inc.
SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief,
the undersigned certifies that the information set forth in this statement
is true, complete and correct.
Date: January 27, 1997 KOCH EXPLORATION COMPANY
By: /s/ Dale G. Schlinsog
_________________________________
Name: Dale G. Schlinsog
Title: Vice President
KOCH INDUSTRIES, INC.
By: /s/ F. Lynn Markel
__________________________________
Name: F. Lynn Markel
Title: Executive Vice President
Appendix A
Directors and Executive Officers of Koch Exploration Company ("KEC")
and their respective positions with Koch Industries, Inc. ("Koch")
Name Position at KEC Position at Koch
- -------------------------- -------------------- -----------------------
Kyle D. Vann President Senior Vice President
Diana M. Knigge Vice President
John C. McMahon Vice President
Lawrence R. Purtell Vice President Secretary
Dale G. Schlinsog Vice President
H. Allan Caldwell Secretary Assistant Secretary
F. Lynn Markel Treasurer/Director Executive Vice President -
Finance & Administration
Donald Lee Cordes Director Executive Vice President
and Special Counsel
W. W. Hanna Director Chief Operating Officer
Each of the foregoing persons is a citizen of the United States. The
principal business address of each of such persons is 4111 East 37th Street
North, Wichita, Kansas 67220. The present principal occupation or
employment of each such person is the position each holds with Koch listed
in the far right-hand column above.
Appendix B
Directors and Executive Officers of Koch Industries, Inc.
Name Position
- ------------------------------- ------------------------------------------
Charles G. Koch Chief Executive Officer
William W. Hanna President, Chief Operating Officer and
Director
F. Lynn Markel Executive Vice President - Finance &
Administration, Treasurer and Director
Donald Lee Cordes Executive Vice President, Special Counsel
and Director
David H. Koch Executive Vice President - Chemical and
Director
J. (Joseph) W. (William) Moeller Executive Vice President - International
and Director
S. V. Varner Consultant and Director
Lawrence R. Purtell Senior Vice President, General Counsel and
Secretary
Diana Kidd Controller
E. Pierce Marshall Director
Each of the foregoing persons is a citizen of the United States. The
principal business address of each of such persons is 4111 East 37th Street
North, Wichita, Kansas 67220, and the present principal occupation or
employment of each such person, except for Mr. Marshall, is as listed
above. Mr. Marshall's principal occupation or employment is as the
president emeritus of Marshall Petroleum, Inc. His principal business
address is 7600 West Tidwell, Suite 800, Houston, Texas 77040.
Exhibit 1
This Agreement is entered into by and among Koch Exploration Company,
a Kansas corporation, and Koch Industries, Inc., a Kansas corporation.
Each of the persons named above hereby agrees that the Schedule 13D
to which this Agreement is attached as an exhibit, which is to be filed
with the Securities and Exchange Commission, is to be filed on behalf of
each such person.
This Agreement may be executed in multiple counterparts, each of
which shall constitute an original.
IN WITNESS HEREOF, each of the undersigned has executed this
Agreement or caused this Agreement to be executed on its behalf this 27th
day of January, 1997.
KOCH EXPLORATION COMPANY
By: /s/ Dale G. Schlinsog
_________________________________
Name: Dale G. Schlinsog
Title: Vice President
KOCH INDUSTRIES, INC.
By: /s/ F. Lynn Markel
_________________________________
Name: F. Lynn Markel
Title: Executive Vice President
Exhibit 2
PREFERRED STOCK PURCHASE AGREEMENT
THIS PREFERRED STOCK PURCHASE AGREEMENT (as amended from time to
time, the "Agreement"), dated as of January 16, 1997, is by and between
Koch Exploration Company, a Kansas corporation ("Purchaser") and Rio
Grande, Inc., a Delaware corporation ("Rio Grande").
RECITALS
A. Rio Grande and its Subsidiaries are in the business of
acquiring, producing, selling and developing oil and gas properties and
businesses relating to the foregoing, including, without limitation,
exploring for, producing, transporting, marketing and selling oil, natural
gas and related hydrocarbons.
B. Purchaser desires to purchase from Rio Grande, and Rio Grande
desires to issue and sell to Purchaser, 500,000 shares of Rio Grande's
Series A Preferred Stock, par value $.01 per share, and 500,000 shares of
Rio Grande's Series B Preferred Stock, par value $.01 per share, for an
aggregate purchase price of $10,000,000, and on the other terms and subject
to the conditions hereinafter set forth.
AGREEMENTS
In consideration of the recitals and the mutual promises, covenants
and agreements herein contained and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto intending to be legally bound hereby agree as follows:
ARTICLE ONE
DEFINITIONS
SECTION 1.1 Definitions. Certain terms used herein shall have
the indicated meanings as set forth on Schedule 1.1.
SECTION 1.2 Accounting Terms. All accounting terms,
determinations and computations not specifically defined herein shall be
construed and made in accordance with GAAP as applied in the preparation of
the Rio Grande Audited Financial Statements, including all notes thereto
(but only to the extent such application is consistent with GAAP).
ARTICLE TWO
PURCHASE AND SALE
SECTION 2.1 Authorization of Preferred Stock. Prior to Closing,
Rio Grande shall file the Certificate of Designation with the Secretary of
State for the State of Delaware.
SECTION 2.2 Sale of Preferred Stock. Subject to the satisfaction
of the terms and conditions herein set forth and in reliance upon the
respective representations and warranties of the parties set forth herein,
at the Closing Rio Grande agrees to sell to Purchaser, free and clear of
any liens, claims, charges or encumbrances whatsoever, and Purchaser agrees
to purchase from Rio Grande, 500,000 shares of Series A Preferred Stock,
par value $.01, and 500,000 shares of Series B Preferred Stock, par value
$.01, (collectively, the "Purchased Shares"), for an aggregate purchase
price of $10,000,000 (the "Purchase Price"). Rio Grande and Purchaser
agree that such purchase price is equal to $10.00 per share of Series A
Preferred Stock and $10.00 per share of Series B Preferred Stock. At the
Closing, Rio Grande agrees to grant to Purchaser an option to purchase an
additional 200,000 shares of Series A Preferred Stock (the "Option Shares")
in accordance with and subject to the terms and conditions set forth in
Section 6.1.
SECTION 2.3 Closing Date. The Closing shall take place at 10:00
a.m., San Antonio, Texas time, on January 16, 1997 or such other time and
date mutually agreed by Rio Grande and Purchaser (the "Closing Date") at
the offices of Rio Grande in San Antonio, or at such other place as may be
mutually agreed upon by Rio Grande and Purchaser.
SECTION 2.4 Activity at Closing. At Closing, the following shall
occur:
(a) Actions to be taken by Rio Grande. At Closing, Rio Grande
shall:
(i) Stock Certificates. Deliver to Purchaser (a) ten
certificates for Series A Preferred Stock, each representing 50,000
shares of such Series A Preferred Stock and in the aggregate all such
certificates representing 500,000 shares of Series A Preferred Stock
and (b) ten certificates for Series B Preferred Stock, each
representing 50,000 shares of such Series B Preferred Stock and in
the aggregate all such certificates representing 500,000 shares of
Series B Preferred Stock, all of such certificates duly executed and
registered in the name of Purchaser (or in the name of such nominee
as Purchaser shall designate).
(ii) Registration Rights Agreement. Execute and deliver to
Purchaser the Registration Rights Agreement in form and substance
satisfactory to Purchaser and Rio Grande.
(iii) Swap Agreement. Deliver to Purchaser a true and
correct copy of a fully executed Master Commodity Swap Agreement
(the "Swap Agreement") between Rio Grande and Koch Oil Company, a
division of Koch Industries, Inc., pertaining to crude oil in form
and substance satisfactory to Purchaser, Rio Grande and the Senior
Lenders.
(iv) Officer's Certificate. Deliver to Purchaser a
certificate, executed by the President and Chief Financial Officer of
Rio Grande, to the effect that as of the Closing Date (1) no default
exists under the Senior Loan Agreements, (2) the representations and
warranties set forth in Section 3.1 are accurate in all material
respects as of the Closing Date as if made on the Closing Date, and
(3) since the date hereof there has been no Material Adverse Change.
(v) Legal Opinion. Deliver to Purchaser the opinion of Cox &
Smith Incorporated, counsel to Rio Grande, dated the Closing Date,
substantially in the form of Exhibit B.
(vi) Secretary's Certificate. Deliver to Purchaser copies of
each of the following, in each case certified by the Secretary of Rio
Grande to be in full force and effect on the Closing Date:
(1) the Charter as of the Closing certified by the
Secretary of State for the State of Delaware as of a date not
more than seven days prior to the Closing;
(2) the By-laws; and
(3) resolutions of the Board of Directors of Rio Grande,
the form and substance of which are satisfactory to Purchaser,
adopting and authorizing the execution and filing of the
Certificate of Designation, and authorizing the execution,
delivery and performance of this Agreement and the Registration
Rights Agreement and the transactions contemplated hereby and
thereby, including the issuance and sale of the Purchased
Shares.
(vii) Good Standing Certificates. Deliver to Purchaser
copies of a certificate of existence and, where a jurisdiction issues
good standing certificates, a good standing certificate with respect
to Rio Grande and for each of the Subsidiaries of Rio Grande in their
respective jurisdictions of incorporation or formation from the
respective public authorities of their states of incorporation or
formation as of a date not more than fifteen days prior to the
Closing.
(viii) Expenses. Pay to Purchaser, by wire transfer of
immediately available funds to an account designated in written
instructions theretofore received by Rio Grande from Purchaser, an
amount equal to the lesser of $50,000 or the amount of all direct
out-of-pocket expenses reasonably incurred by Purchaser in connection
with the negotiation, review and consummation of this Agreement and
the transactions contemplated hereby. In lieu of such wire transfer,
such amount may be credited against the Purchase Price at Closing,
thereby reducing the amount to be wire transferred by Purchaser
pursuant to Section 2.4(b)(i).
(b) Actions to be taken by Purchaser. At Closing, Purchaser shall:
(i) Payment. Pay the Purchase Price (minus any adjustments
thereto pursuant to Section 2.4(b)(ix) above) by wire transfer of
immediately available funds to an account designated by Rio Grande in
written instructions theretofore received by Purchaser.
(ii) Registration Rights Agreement. Execute and deliver to Rio
Grande the Registration Rights Agreement.
(iii) Stockholders Agreement. Execute and deliver to each
of Robert A. Buschman and Guy Bob Buschman a Stockholders' Agreement
in form and substance satisfactory to Purchaser.
(iv) Officer's Certificate. Deliver to Rio Grande a
certificate, executed by the Vice President of Purchaser to the
effect that as of the Closing Date the representations and warranties
set forth in Section III.2 hereof are true and accurate in all
material respects as of the Closing Date.
ARTICLE THREE
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 Representations and Warranties of Rio Grande. Rio
Grande represents and warrants to Purchaser that as of the date hereof and
as of the Closing Date:
SECTION 3.1.1 Corporate Organization and Standing; Power and
Authority. Rio Grande and each of its Subsidiaries is a corporation or
limited partnership (as the case may be) duly organized, validly existing
and in good standing under the laws of the jurisdiction of its
incorporation or formation, and is duly qualified to do business and in
good standing as a foreign corporation or limited partnership in all
jurisdictions in which it is required to be qualified in order to do
business, except where the failure to be so qualified would not have a
Material Adverse Effect on Rio Grande and its Subsidiaries on a
consolidated basis. Accurate and complete copies of the Charter and
By-laws and of the organizational documents of each of Rio Grande's
Subsidiaries have heretofore been delivered to Purchaser. Rio Grande and
each of its Subsidiaries has full power and authority to own or lease its
properties and to carry on its business as it is presently being
conducted. Rio Grande has full corporate power and authority to enter into
this Agreement and the Registration Rights Agreement and to perform its
obligations hereunder and thereunder.
SECTION 3.1.2 Authorized Capital Stock of Rio Grande.
(a) The authorized capital stock of Rio Grande will, as of the
Closing Date, consist of 12,000,000 shares of common stock, $.01 par value,
(the "Common Stock") and 3,000,000 shares of preferred stock, par value
$.01 per share, consisting of the following:
(i) 700,000 shares of Series A Preferred Stock, none of which
shall be issued or outstanding except for the 500,000 shares issued
to Purchaser at Closing;
(ii) 500,000 shares of Series B Preferred Stock, none of which
shall be issued or outstanding except for the 500,000 shares issued
to Purchaser at Closing;
(iii) 500,000 shares of Series C Preferred Stock, none of
which shall be issued or outstanding; and
(iv) 1,300,000 shares of other preferred stock, the rights and
preferences of which having not been established by Rio Grande's
Board of Directors and none of which shares shall be issued or
outstanding.
Schedule 3.1.2(a) sets forth as of December 31, 1996 the following
information: (i) the number of issued and outstanding shares of Common
Stock, (ii) the number of shares of Common Stock issuable upon the exercise
of options, warrants or other rights of purchase which were exercisable as
of December 31, 1996, including the exercise price for each such share;
(iii) the number of shares of Common Stock issuable upon the exercise of
options, warrants or other rights of purchase which were not exercisable as
of December 31, 1996, including the exercise price for each such share and
(iv) the number of shares of Common Stock issuable pursuant to any other
contract, option, warrant or commitment of any character granted or issued
by Rio Grande. The shares of Common Stock issuable upon the exercise of
all options, warrants or other rights of purchase have been duly reserved
for issuance upon such exercise. Since December 31, 1996, Rio Grande has
not issued or agreed to issue any shares of Common Stock or any options,
warrants or other rights to purchase Common Stock.
(b) On the Closing Date, after giving effect to the consummation of
the transactions contemplated by this Agreement, to the knowledge of Rio
Grande no person or group that would be required to report its ownership of
Rio Grande's equity securities on a Schedule 13D or an amendment thereto
will be the legal or beneficial owner (within the meaning of Rule 13d-3
promulgated by the Commission pursuant to the Exchange Act) of 5% or more
of the issued and outstanding Common Stock other than as set forth on
Schedule 3.1.2(b).
(c) No Person has any preemptive right to purchase or subscribe for
any shares of Common Stock, preferred stock or any other securities of Rio
Grande. Except for the Series B Preferred Stock (which is convertible into
shares of Common Stock) and except as disclosed on Schedule 3.1.2(a), there
are no outstanding securities of Rio Grande or any of its Subsidiaries
which are convertible into or exchangeable for any shares of Rio Grande
capital stock; there are no existing contracts, options, warrants, calls or
similar commitments of any character granted or issued by Rio Grande or any
of its Subsidiaries calling for or relating to the issuance or transfer of
shares of capital stock or any other securities of Rio Grande or any of its
Subsidiaries; and there are no stock appreciation rights, contingent
interest certificates or coupons, phantom stock rights or similar interests
granted or issued by Rio Grande.
(d) Except as set forth on Schedule 3.1.2(d), the Company has no
obligation to register any of its Common Stock or other securities under
the Securities Act.
(e) Cumulative voting in the election of directors of Rio Grande is
not permitted. Except as set forth on Schedule 3.1.2(e), to Rio Grande's
knowledge there exist (and upon consummation of the transactions
contemplated by this Agreement, there will exist) (a) no voting trusts,
voting agreements or other arrangements by or among any of its stockholders
regarding the voting of Rio Grande Common Stock and (b) no agreements
between any of the stockholders or one or more groups of stockholders of
Rio Grande who hold individually or beneficially 5% or more of Rio Grande's
equity securities and Rio Grande related to Rio Grande or its capital
stock.
SECTION 3.1.3 Authorization and Enforceability. All corporate
action on the part of Rio Grande and its directors and stockholders
necessary for the authorization, execution, delivery and performance by Rio
Grande of this Agreement, the Registration Rights Agreement and the
Acquisition Agreement (and related agreements) to which Rio Grande is a
party, as the case may be; the consummation of the transactions
contemplated hereby and thereby (including the Acquisition); and the
authorization of the Preferred Stock and issuance and delivery of the
Purchased Shares have been taken. Each of this Agreement and the
Acquisition Agreement is a legal, valid and binding obligation of Rio
Grande, enforceable against Rio Grande in accordance with its terms, except
as limited by bankruptcy, insolvency or other laws affecting creditors'
rights generally or by general equitable principles. Upon execution, the
Registration Rights Agreement will be a legal, valid and binding obligation
of Rio Grande, enforceable against Rio Grande in accordance with its terms,
except as limited by bankruptcy, insolvency or other laws affecting
creditors' rights generally or by general equitable principles. The
Purchased Shares, when issued, sold and delivered in accordance with the
terms of this Agreement, and the Series C Preferred Stock when issued and
delivered pursuant to the Certificate of Designation, and the Option Shares
when issued, sold and delivered in accordance with the terms of this
Agreement, will be duly and validly issued, fully paid, non-assessable and
free and clear of all liens, charges, claims and encumbrances. The shares
of Common Stock issuable upon the conversion of Series B Preferred Stock
have been duly reserved for issuance upon the conversion of Series B
Preferred Stock and, when issued upon the conversion of Series B Preferred
Stock in accordance with the Charter Certificate of Designation, will be
duly and validly issued, fully paid and non-assessable and free and clear
of all liens, charges, claims and encumbrances.
SECTION 3.1.4 Title to and Condition of Assets. Except as set
forth on Schedule 3.1.4, Rio Grande and each of its Subsidiaries has good
and valid title to all properties, assets and rights of every name and
nature now reflected as being owned by it in the books and records from
which it prepares financial statements, free from all defects, liens,
charges and encumbrances whatsoever (other than insubstantial defects in
title customary in the oil and gas industry and other liens which singly
and in the aggregate do not materially detract from the value or impair the
use of the affected properties). The material tangible assets of Rio
Grande and its Subsidiaries, which are reasonably necessary for the
operation of the business of Rio Grande and its Subsidiaries taken as a
whole, are in good working condition, ordinary wear and tear excepted, are
able to serve the function for which they are currently being used, and to
Rio Grande's knowledge there are no conditions or events which would
prevent continued normal operation of said material tangible assets.
SECTION 3.1.5 Subsidiaries and Other Investments. Except as
indicated on Schedule 3.1.5, Rio Grande does not own, directly or
indirectly, any shares of capital stock of any corporation or hold any
equity or ownership interest in any other Person.
SECTION 3.1.6 Financial Statements. Copies of (a) the Rio Grande
Audited Balance Sheet, and related audited statements of income, earnings
and cash flows for the fiscal year then ended, including the notes thereto
(collectively, the "Rio Grande Audited Financial Statements") and (b) the
unaudited balance sheet of Rio Grande and its Subsidiaries as of October
31, 1996 as filed with the Commission on Form 10-QSB (the "Rio Grande
Unaudited Balance Sheet"), and related unaudited statements of income,
earnings and cash flow for the nine months then ended (collectively, the
"Rio Grande Unaudited Financial Statements"), are included in the Publicly
Filed Documents that have heretofore been delivered to Purchaser. The Rio
Grande Audited Financial Statements have been prepared from the books and
records of Rio Grande and its Subsidiaries in conformity with GAAP applied
on a basis consistent with the applicable prior date or period and present
fairly in all material respects the financial condition of Rio Grande and
its Subsidiaries as at the Audit Date and the results of operations and
cash flow of Rio Grande and its Subsidiaries for the periods indicated.
The Rio Grande Unaudited Financial Statements have been prepared from the
books and records of Rio Grande and its Subsidiaries in conformity with
GAAP (subject to normal year-end audit adjustments and the absence of
footnotes) and present fairly in all material respects the financial
condition of Rio Grande and its Subsidiaries as at the Interim Balance
Sheet Date and the results of operations and cash flow of Rio Grande and
its Subsidiaries for the nine months then ended. The books of account of
Rio Grande and its Subsidiaries fairly reflect all material transactions of
Rio Grande and its Subsidiaries and are correct and complete in all
material respects.
SECTION 3.1.7 Absence of Undisclosed Liabilities. As of the
Interim Balance Sheet Date, Rio Grande had (and as of the date hereof Rio
Grande has and as of the Closing Date Rio Grande will have) no material
liabilities (matured or unmatured, fixed or contingent) known to it which
are not fully reflected or provided for on the Rio Grande Unaudited Balance
Sheet as at the Interim Balance Sheet Date), or any material loss
contingency (as defined in State of Financial Accounting Standards No. 5)
known to it whether or not required by GAAP to be shown on the Rio Grande
Unaudited Balance Sheet, except obligations to perform under commitments
incurred in the ordinary course of business after the Interim Balance Sheet
Date. A portion of the monthly revenues received by Rio Grande's
Subsidiaries from offshore properties located in the Gulf of Mexico is
deducted by the operator to fund future estimated abandonment costs. The
amount of the abandonment escrow and the accrued platform abandonment
expense recognized by Rio Grande is based on the ratio of produced reserves
to the remaining proved producing reserves of the properties based upon
information provided by the operator of the respective properties.
SECTION 3.1.8 Pro Forma Financial Information and Projections. A
true and correct copy of the Acquisition Agreement has heretofore been
filed with the Commission on December 16, 1996 as an Exhibit to a Periodic
Report on Form 10QSB and has been delivered to Purchaser. Purchaser has
been furnished copies of (i) a pro forma balance sheet of Rio Grande and
its Subsidiaries as of July 31, 1996 giving effect to the Acquisition as of
such date (the "Pro Forma Balance Sheet") and (ii) a projected statement of
earnings and cash flows of Rio Grande for the fiscal year ended January 31,
1997, projected statements of earnings and cash flow for Rio Grande and its
Subsidiaries for fiscal years ended January 31, 1998 through January 31,
2007, the projected year end balance sheet for Rio Grande and its
Subsidiaries as of January 31, 1997, and the projected year-end balance
sheets for Rio Grande and its Subsidiaries for the fiscal years ending
January 31, 1998 through January 31, 2001 (collectively the "Projections").
The Projections were prepared in good faith and were and are based upon the
assumptions reflected therein, which Purchaser acknowledges having reviewed
and having had an opportunity to discuss with representatives of Rio
Grande.
SECTION 3.1.9 Minute Books. The copies of the minute books of Rio
Grande and its Subsidiaries which were delivered to Purchaser are complete
in all material respects and reflect all transactions referred to in such
minutes in all material respects.
SECTION 3.1.10 Leases. Schedule 3.1.10 sets forth leases pursuant
to which Rio Grande and any of its Subsidiaries lease real or personal
property. Except as specifically noted on Schedule 3.1.10, all leases and
other agreements pursuant to which Rio Grande or its Subsidiaries lease
from others real or personal property that serve as collateral pursuant to
the Senior Loan Agreements are in good standing, valid and effective in
accordance with their respective terms without any material defaults
thereunder, and to Rio Grande's knowledge, all other leases and agreements
pursuant to which Rio Grande or its Subsidiaries lease from others real or
personal property are in good standing, valid and effective in accordance
with their respective terms without any material defaults thereunder.
SECTION 3.1.11 Proprietary Rights. As of the date hereof and from
and after the Closing Date, each of Rio Grande and its Subsidiaries will
own or have the unrestricted right to use all Proprietary Rights that are
necessary to permit the business of Rio Grande and its Subsidiaries, as
they propose to conduct them, to be carried on after the Closing Date in
the manner in which they are currently conducted. To Rio Grande's
knowledge, the use of such Proprietary Rights by Rio Grande and/or its
Subsidiaries does not and will not violate or infringe on the proprietary
rights of any third party, there is no claim, action, proceeding or
investigation pending or threatened against Rio Grande or any of its
Subsidiaries with respect to any of such Proprietary Rights and none of Rio
Grande and its Subsidiaries have any knowledge that any third party is
infringing any of such Proprietary Rights. Neither Rio Grande nor any of
its Subsidiaries is in material default under any license or other
agreement relating to any of such Proprietary Rights and all such licenses
and agreements are valid, enforceable and in full force and effect and
there is no event or condition which, with notice or lapse of time, or
both, would constitute an event of default under such licenses or
agreements.
SECTION 3.1.12 Insurance. Rio Grande and its Subsidiaries maintain
insurance with reputable insurers with respect to their respective
properties and business against such casualties and contingencies and in
such types and amounts as are set forth on Schedule 3.1.12. All such
insurance policies are in full force and effect and Rio Grande and its
Subsidiaries are not in default under any such policy. True and complete
summaries of such policies as in effect on the date hereof have been
provided to Purchaser. Such policies provide insurance coverage adequate
to comply with worker's compensation, transportation and other laws
applicable to Rio Grande and/or its Subsidiaries and any permits, licenses,
approvals and/or contracts to which Rio Grande and/or its Subsidiaries are
parties.
SECTION 3.1.13 Taxes. Rio Grande and each of its Subsidiaries has
duly filed all tax reports and returns (including all federal, state and
local income tax, franchise tax, gross receipts, sales tax, wage tax and
real and personal property tax returns) required to be filed by it, has
duly paid all taxes and other charges (including customs duties) reflected
on such tax reports and returns as being due and has withheld all taxes
required to be withheld by it by any federal, state, local or foreign
taxing authority, excepting in each case such taxes as are being contested
in good faith or where the failure to pay such taxes would not have a
Material Adverse Effect on the Company and its Subsidiaries on a
consolidated basis. The federal and state income tax returns of Rio Grande
and its Subsidiaries have never been audited. There are no outstanding
waivers by Rio Grande or any of its Subsidiaries to extend the statute of
limitations on any tax assessment or powers of attorney relating thereto.
Neither Rio Grande nor any of its Subsidiaries has filed with the Internal
Revenue Service any election or consent under Section 341(f) of the Code.
As of January 31, 1996, the net operating loss carryforward of Rio Grande
as reflected in its federal income tax return, Form 1120, was $16,964,968.
To Rio Grande's knowledge, there have been no transfers by or among holders
of five percent or more of the Common Stock that have resulted in a
limitation on the net operating loss carryforward.
SECTION 3.1.14 Disclosure of Contracts and Arrangements. To Rio
Grande's knowledge, the exhibits listed in the Publicly Filed Documents
constitute all of the contracts that would be required to be filed pursuant
to Item 601(b)(4), (9), (10), (22), and (23) of Regulation S-B (as
promulgated by the Commission) if an Annual Report on Form 10-KSB were
being filed on the Closing Date. Accurate and complete copies of all such
contracts have heretofore been furnished to Purchaser, all contracts
referenced in the first sentence hereof are valid and in full force and
effect, and neither Rio Grande nor any of its Subsidiaries is in material
default, and has not been notified by any other party that it is in
material default, under any contract described above. To Rio Grande's
knowledge, no party with whom Rio Grande or any of its Subsidiaries has an
agreement which is of material importance to Rio Grande or any of its
Subsidiaries is in default thereunder. Neither Rio Grande nor any of its
Subsidiaries is subject to any contract, the performance of which it
reasonably anticipates could have a Materially Adverse Effect or would be
considered unreasonably burdensome in its industry. The Annual Report on
Form 10-KSB for the fiscal year ended on the Audit Date, and all other
Publicly Filed Documents complied in form with all rules and regulations of
the Commission and accurately described the affairs and condition of Rio
Grande and its Subsidiaries for the periods indicated therein in all
material respects.
SECTION 3.1.15 No Adverse Changes. Except as set forth in Schedule
3.1.15, since the Interim Balance Sheet Date there has not been:
() any material adverse change in the condition (financial or
otherwise including environmental matters), assets, liabilities,
business or business prospects of Rio Grande or its Subsidiaries from
that shown by the Rio Grande Unaudited Balance Sheet as at the
Interim Balance Sheet Date;
(b) any dividend, declaration, setting aside or payment or
other distribution in respect of any of Rio Grande's capital stock or
any direct or indirect redemption, purchase or other acquisition of
any of such stock by Rio Grande;
(c) any labor dispute, or any other event, development, or
condition, of any character, or threat of the same, materially
adversely affecting the business or business prospects of Rio Grande
of its Subsidiaries;
(d) any asset or property of Rio Grande or its Subsidiaries
made subject to a lien of any kind (other than insubstantial defects
in title customary in the oil and gas industry and other liens which
singly and in the aggregate do not materially detract from the value
or impair the use of the affected properties);
(e) any material liability or obligation incurred by Rio
Grande or its Subsidiaries, other than liabilities or obligations
incurred in the ordinary course of business;
(f) any waiver of any valuable right of Rio Grande or its
Subsidiaries or any cancellation of any debt or claim held by Rio
Grande or its Subsidiaries, in either case in an amount that would be
material to Rio Grande and its Subsidiaries on a consolidated basis;
(g) any issuance of any stock, bonds or other securities
(including options, warrants, or rights) of Rio Grande or its
Subsidiaries or any agreements or commitments respecting the same
(except as contemplated hereby);
(h) any sale, assignment or transfer of any material tangible
or intangible assets of Rio Grande or its Subsidiaries except with
respect to tangible assets in the ordinary course of business;
(i) any extraordinary increase, direct or indirect, in the
compensation paid or payable to any officer, director, employee or
agent of Rio Grande or its Subsidiaries;
(j) any wage or salary increase applicable to any group or
classification of employees generally (other than in connection with
the general salary plan of Rio Grande or its Subsidiaries), any
employment contract with or loan to any officer or employee, or any
material transaction of any other nature with any director, officer,
shareholder or employee of Rio Grande or its Subsidiaries except on
terms no less favorable to Rio Grande than would be obtained in an
arms length transaction with an unaffiliated third party;
(k) any material transaction, contract or commitment outside
the ordinary course of business, except as contemplated by this
Agreement, the Acquisition Agreement, the Senior Loan Agreements (as
amended), the Reid Engagement and the transactions contemplated
hereby and thereby;
(l) any material change in its accounting methods or
practices; or
(m) any event requiring the Company to file a Current Report
on Form 8-K.
SECTION 3.1.16 Litigation. There is no action, suit, proceeding or
investigation pending or, to the knowledge of Rio Grande, threatened
against or affecting Rio Grande or any of its Subsidiaries or any property
or right of Rio Grande or any of its Subsidiaries, and neither Rio Grande
nor any of its Subsidiaries is aware of any facts which would provide a
valid basis for any investigation, action, suit, proceeding or claim.
SECTION 3.1.17 Compliance with Laws. Rio Grande and each of its
Subsidiaries has complied with and is not in default in any respect under,
any law, ordinance, requirement, regulation, rule or order applicable to
its business, including equal employment opportunity laws, employee safety
laws, Environmental Laws, transportation, equipment safety laws and other
governmental regulations affecting the conduct of its business, except
where the failure to so comply would not have a Material Adverse Effect on
Rio Grande and its Subsidiaries or on a consolidated basis. Neither Rio
Grande nor any of its Subsidiaries is subject to any continuing court or
administrative order, writ, injunction or decree, applicable specifically
to it, its business, property or employees, or, is in default with respect
to any order, writ, injunction or decree of any court or federal, state,
municipal or other governmental department, commission, board, agency or
instrumentality, domestic or foreign.
SECTION 3.1.18 Absence of Conflicts. The execution and delivery of
this Agreement, the Registration Rights Agreement, the Swap Agreement, the
Stockholders Agreement and the Acquisition Agreement, the consummation of
the transactions provided for herein or therein (including the Acquisition)
and the fulfillment by Rio Grande and/or any of its Subsidiaries of the
terms hereof or thereof, do not and/or will not (a) conflict with or result
in a breach of any provision of the Charter or By-laws or the charter or
by-laws or partnership agreement or other organizational documents of any
of its Subsidiaries, (b) result in a conflict or default or give rise to
any right of termination, cancellation or acceleration under any of the
terms, conditions or provisions of any note, bond, mortgage, loan
agreement, indenture, license, lease, agreement or other instrument or
obligation to which Rio Grande or any of its Subsidiaries is a party or by
which Rio Grande or any of its Subsidiaries is bound (including the Senior
Loan Agreements but excluding the 11.5% Notes), (c) violate any order,
writ, injunction, decree, or any statute, rule or regulation applicable to
Rio Grande or any of its Subsidiaries or any of the material properties or
assets of Rio Grande or any of its Subsidiaries or (d) conflict with or
give rise to any right of termination under, or materially and adversely
affect, any material permit, license or authorization of any governmental
authorizations used or required by Rio Grande or any of its Subsidiaries.
SECTION 3.1.19 Consents. No consent, approval or other action by any
local, state, federal or foreign governmental authority or any third person
is required in connection with the execution and delivery by Rio Grande of
this Agreement, the Registration Rights Agreement and the Acquisition
Agreement and the consummation of the transactions contemplated hereby and
thereby except for consents and approvals that have been obtained as of the
Closing Date.
SECTION 3.1.20 Employee Benefit Plans.
(a) No Plan is subject to Title IV of ERISA and no Plan is a
"multiemployer plan" (as that term is defined in sections 3(37) and
4001(a)(3)of ERISA).
(b) To the extent required by applicable law or regulations, all
Plans have been accurately described in the Publicly Filed Documents and
there have been no material changes in the provisions thereof.
(c) All Plans comply and have been administered in form and
operation in all material respects with all requirements of applicable law.
(d) There are no actions, suits, or claims (except for the one
outstanding employment claim summarized on Schedule 3.1.20) pending or
threatened involving any Plan or the assets thereof and no facts exist
which could give rise to any such actions, suits or claims (other than
routine claims for benefits).
(e) No Plan provides pension, post-retirement medical or
post-retirement life insurance benefits (except as may be required by
section 601 of ERISA or section 4980B of the Code).
(f) There have been no "prohibited transactions" (as described in
section 406 of ERISA) with respect to any Plan and neither the Company nor
any Subsidiary has otherwise engaged in any prohibited transaction.
(g) To the extent required, actuarially adequate accruals for all
obligations under each of the Plans are reflected in the Rio Grande Audited
Financial Statements and such obligations include a pro rata amount of the
contributions that would otherwise have been made in accordance with past
practices and applicable law for plan years which include the Closing Date.
SECTION 3.1.21 Labor Relations. Neither Rio Grande nor any of its
Subsidiaries is a party to any collective bargaining agreement. No strike,
work stoppage or other labor dispute relating to Rio Grande or any of its
Subsidiaries is pending or, to the knowledge of Rio Grande or any of its
Subsidiaries, is threatened and no application for certification of a
collective bargaining agent is pending or, to the knowledge of Rio Grande
or any of its Subsidiaries, is threatened. There are no unfair labor
practice charges or grievances pending or in process or, to Rio Grande's
knowledge, threatened by or on behalf of any employee of Rio Grande or any
of its Subsidiaries nor have any complaints been received by Rio Grande or
any of its Subsidiaries or, to the knowledge of Rio Grande or any of its
Subsidiaries, threatened or filed, with any federal, state or local
governmental agencies alleging employment discrimination or other
violations of laws pertaining to such employees.
SECTION 3.1.22 Compensation, Ownership and Conflicts of Interest.
The Publicly Filed Documents set forth in all material respects the
information required by Regulation S-B, Items 401-404 to be disclosed in
such Publicly-Filed Documents for the periods covered thereby. Since the
dates and periods covered by the Publicly-Filed Documents no material
change has occurred in the type, nature or amount of the arrangements and
transactions covered by such items in Regulation S-B.
SECTION 3.1.23 Licenses and Permits. Rio Grande and each of its
Subsidiaries has all material licenses, permits and other authorizations of
governmental authorities, domestic and foreign, used or required by it in
the conduct of its business, is in full compliance with the material terms
of and requirements that are conditions to the existence of such material
licenses, permit and other authorization, and has not received any notice
(nor does Rio Grande or any of its Subsidiaries have any reason to believe)
that revocation is being considered with respect to any of such material
licenses, permits or authorizations.
SECTION 3.1.24 Absence of Certain Payments. Neither Rio Grande nor
any of its Subsidiaries, or any Person acting with knowledge or
authorization of Rio Grande on behalf of Rio Grande or its Subsidiaries,
has made any payment to or conferred any benefit, directly or indirectly,
on suppliers, customers, employees or agents of suppliers or customers, or
officials or employees of any government or agency or instrumentality of
any government (domestic or foreign) or any political parties or candidates
for office, which is or was unlawful.
SECTION 3.1.25 Environmental Matters. Except as set forth in
Schedule 3.1.25, (a) all facilities and property (including underlying
groundwater) owned, leased or operated by Rio Grande or any of its
Subsidiaries have been, and continue to be, owned, leased or operated by
Rio Grande and its Subsidiaries in material compliance with all
Environmental Laws; (b) there have been no past, and there are no pending
or, to the knowledge of Rio Grande, threatened (i) claims, complaints,
notices or inquiries to, or requests for information received by, Rio
Grande or any of its Subsidiaries with respect to any alleged violation of
any Environmental Law, or (ii) claims, complaints, notices or inquiries to,
or requests for information received by, Rio Grande or any of its
Subsidiaries regarding potential liability under any Environmental Law or
under any common law theories relating to operations or the condition of
any facilities or property (including underlying groundwater) owned, leased
or operated by Rio Grande or any of its Subsidiaries; (c) there have been
no Releases of Hazardous Materials at, on or under any property now or
previously owned or leased or operated by Rio Grande or any of its
Subsidiaries that, singly or in the aggregate, have, or may reasonably be
expected to have, a Material Adverse Effect; (d) Rio Grande and its
Subsidiaries have been issued and are in material compliance with all
material permits, certificates, approvals, licenses and other
authorizations required under Environmental Laws; (e) no property now or
previously owned, leased or operated by Rio Grande or any of its
Subsidiaries is listed or, to Rio Grande's knowledge proposed for listing,
on the National Priorities List pursuant to CERCLA, on the CERCLIS or on
any other federal or state list of sites requiring investigation or
clean-up; (f) there are no underground storage tanks, active or abandoned,
including petroleum storage tanks, on or under any property now or
previously owned, leased or operated by Rio Grande or any of its
Subsidiaries that, singly or in the aggregate, have, or may reasonably be
expected to have, a Material Adverse Effect; (g) neither Rio Grande nor any
Subsidiary of Rio Grande has directly transported or directly arranged for
the transportation of any Hazardous Material to any location which is
listed or, to Rio Grande's knowledge proposed for listing, on the National
Priorities List pursuant to CERCLA, on the CERCLIS or on any similar
federal or state list or which is the subject of federal, state or local
enforcement actions or other investigations which may reasonably be
expected to lead to claims against Rio Grande or such Subsidiary thereof
for any remedial work, damage to natural resources or personal injury,
including claims under CERCLA; (h) there are no polychlorinated biphenyls,
radioactive materials or friable asbestos present at any property now or
previously owned or leased or operated by Rio Grande or any Subsidiary of
Rio Grande that, singly or in the aggregate, have, or may reasonably be
expected to have, a Material Adverse Effect; and (i) to the knowledge of
Rio Grande, no conditions exist at, on or under any property now or
previously owned or leased or operated by Rio Grande or any of its
Subsidiaries which, with the passage of time, or the giving of notice or
both, would give rise to liability under any Environmental Law which may
reasonably be expected to have a Material Adverse Effect.
SECTION 3.1.26 Fees and Commissions. Except as set forth on
Schedule 3.1.26, neither Rio Grande nor any Person acting on behalf of Rio
Grande has retained any finder, broker, agent, financial advisor or other
intermediary (collectively, "Rio Grande Intermediary") in connection with
the transactions contemplated hereby. Rio Grande shall indemnify and hold
harmless Purchaser from liability for any compensation to any Rio Grande
Intermediary (including, without limitation, any Persons listed in Schedule
3.1.26) and the fees and expenses of defending against such liability or
alleged liability.
SECTION 3.1.27 Regulation G, Etc. None of the proceeds from the
sale of the Purchased Shares or Option Shares will be used, directly or
indirectly, for the purpose of purchasing or carrying any "margin stock" as
defined in Regulation G (12 CFR Part 207) of the Board of Governors of the
Federal Reserve System (herein called "margin stock") or for the purpose of
reducing or retiring any indebtedness which was originally incurred to
purchase or carry margin stock or for any other purpose which might
constitute this transaction or transactions relating to the Acquisition a
"purpose credit" within the meaning of Regulation G. Neither Rio Grande,
any of its Subsidiaries nor any agent acting on its behalf has taken or
will take any action which might cause this Agreement to violate Regulation
G, T, U or X or any other regulation of the Board of Governors of the
Federal Reserve System or to violate the Exchange Act.
SECTION 3.1.28 Senior Loan Agreements; No Restrictive Covenants.
All agreements between Rio Grande and/or its Subsidiaries and Comerica
Bank-Texas are listed on Schedule 3.1.28. Rio Grande has delivered to
Purchaser true, correct and complete copies of the Senior Loan Agreements,
as in effect on the date hereof and as at the Closing. Except as set forth
in the Senior Loan Agreements, there are no contractual arrangements to
which Rio Grande or any of its Subsidiaries is a party or is bound that
would prohibit or restrict the dividend payments on any series of Preferred
Stock or the redemption, conversion or issuance of any Preferred Stock or
Common Stock in accordance with the terms of this Agreement and/or the
Certificate of Designation or that would limit or prevent any Subsidiaries
of Rio Grande from paying dividends or making advances to its immediate
corporate parent. The Senior Loan Agreements are in full force and effect
and there does not exist any default thereunder and Rio Grande is not aware
of any presently existing facts or circumstances which with the passage of
time would result in a default under the Senior Loan Agreements.
SECTION 3.1.29 Holding Company and Investment Company Status.
Neither Rio Grande nor any of its Subsidiaries is a "holding company", or a
"subsidiary company" of a "holding company", or an "affiliate" of a
"holding company", or a "public utility", within the meaning of the Public
Utility Holding Company Act of 1935 or a "public utility" within the
meaning of the Federal Power Act. Neither Rio Grande nor any of its
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of
1940 or an "investment adviser" within the meaning of the Investment
Advisers Act of 1940.
SECTION 3.1.30 Absence of Untrue Statements. Neither this Agreement
nor any Schedule or Exhibit, nor any other document, certificate or
statement prepared by Rio Grande and furnished or to be furnished to
Purchaser by Rio Grande in connection with the transactions contemplated
hereby, taken as a whole, contains or will contain any untrue statement of
a material fact or omits or will omit to state a material fact necessary in
order to make the statements contained herein and therein not misleading.
There is no fact relating to the condition (financial or otherwise),
properties, assets, operations, results of operations, business or
prospects of Rio Grande which could reasonably be expected to have a
Material Adverse Effect which has not been disclosed to Purchaser.
SECTION 3.2 Representations and Warranties of Purchaser.
Purchaser hereby represents and warrants to Rio Grande as of the date
hereof and as of the Closing Date as follows:
SECTION 3.2.1 Purchase for Investment. Purchaser is acquiring the
Purchased Shares for investment and not with a present view to distributing
all or any part thereof in any transaction or series of transactions which
would constitute a "distribution" within the meaning of the Securities Act,
subject at all times to the right of such Purchaser to dispose of its
property in its own discretion subject to the provisions of Section 6.2.
Purchaser acknowledges that the Purchased Shares have not been registered
under the Securities Act. Purchaser agrees that Purchased Shares will bear
a legend or legends substantially to the effect of the legend or legends
set forth in Section 6.2 hereto.
SECTION 3.2.2 Investor Qualifications. Purchaser is an "accredited
investor" as defined in Rule 501 promulgated by the Commission pursuant to
the Securities Act.
SECTION 3.2.3 Due Authorization. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Kansas and has full corporate power and authority to enter into
this Agreement and to perform the transactions contemplated herein. This
Agreement, the Registration Rights Agreement, the Stockholders' Agreement,
and the Swap Agreement have been duly and validly executed and delivered by
Purchaser (or the respective affiliate of Purchaser made a party thereto)
and each constitutes the legal, valid and binding obligation of Purchaser
(or such affiliate), enforceable in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
moratorium, reorganization or other laws affecting creditors' rights
generally or by the availability of equitable remedies.
SECTION 3.2.4 Consents. All consents, approvals, qualifications,
licenses, orders or authorizations of, or filings with, any governmental
authority required in connection with Purchaser's valid execution, delivery
and performance of this Agreement have been obtained or made, or will as of
the Closing Date have been obtained or made.
SECTION 3.2.5 No Violation. The execution and delivery by
Purchaser of this Agreement and the execution and delivery by Purchaser
and/or an affiliate of Purchaser of all other agreements and instruments to
be executed and delivered by Purchaser or such affiliate in connection
herewith, the consummation by Purchaser and any such affiliate of the
transactions provided for herein and therein and contemplated hereby or
thereby, and the fulfillment by Purchaser or such Affiliate of the terms
hereof and thereof, will not (a) conflict with or result in a breach of any
provision of Purchaser's or such affiliate's certificate of incorporation
or by-laws or (b) result in a default, give rise to any right of
termination, cancellation or acceleration, or require any consent or
approval, under any of the terms, conditions or provisions of any note,
bond, mortgage, loan agreement, indenture, license, agreement, lease or any
other instrument or obligation to which Purchaser or Purchaser's respective
affiliate is a party or by which it is bound.
SECTION 3.2.6 Brokers and Finders. Neither Purchaser nor any
Person acting on behalf of such Purchaser has retained any finder, broker,
agent, financial advisor or other intermediary in connection with the
transactions contemplated by this Agreement.
ARTICLE FOUR
CONDITIONS TO THE CLOSING
SECTION 4.1 Conditions to Obligations of Purchaser. The
obligation of Purchaser to purchase the Purchased Shares at the Closing is
subject to the fulfillment on or before the Closing of the following
conditions:
SECTION 4.1.1 Representations and Warranties; Performance. (a) (i)
The representations and warranties set forth in Section 3.1 shall be
accurate as of the Closing Date and (ii) since the Interim Balance Sheet
Date, there shall have been no Material Adverse Change; and (b) Rio Grande
shall have performed all obligations and complied with all covenants and
agreements required to be performed or to be complied with by it under this
Agreement on or prior to the Closing Date.
SECTION 4.1.2 Stockholders' Agreement; Employment Agreements.
Robert A. Buschman, Guy Bob Buschman and Purchaser shall have executed a
Stockholders' Agreement and Purchaser shall have been provided copies of
fully executed Employment Agreements between Rio Grande and each of Guy Bob
Buschman and Gary Scheele, in each case such agreements being in form and
substance satisfactory to Purchaser.
SECTION 4.1.3 Consents. Any foreign, federal, state or local
governmental authority or regulatory agency having jurisdiction, to the
extent that its consent, approval or other action is required for the
consummation of the transactions contemplated by this Agreement or the
agreements entered into in connection herewith, shall have granted such
required consents or approvals and taken any other such required actions.
SECTION 4.1.4 Proceedings and Documents. As of the Closing, all
corporate and other proceedings in connection with the transactions
contemplated hereby, and all documents and instruments incident to such
transactions, and all documents to be delivered to Purchaser pursuant to
Section 2.4, shall be satisfactory in form and substance to, and shall have
been delivered to, Purchaser and, as to legal matters, its counsel, and
Purchaser shall have received at or prior to the Closing any other
documents as it shall have reasonably requested.
SECTION 4.1.5 Indebtedness; Acquisition. No default shall exist
under any of the Senior Loan Agreements and all conditions to the
consummation of the Acquisition (other than the payment of the purchase
price) shall have been satisfied on the day of Closing.
SECTION 4.1.6 Qualifications. As of the Closing, all
authorizations, approvals or permits of, or filings with, any governmental
authority, including state securities or "Blue Sky" authorities, that are
required by law in connection with the lawful sale and issuance of the
Purchased Shares shall have been duly obtained by Rio Grande, and shall be
effective as of the Closing.
SECTION 4.1.7 Authorization. Purchaser shall have received
approval from its upper management or board of directors, as the case may
be, to close the transactions contemplated hereunder.
SECTION 4.2 Conditions Precedent to Obligations of Rio Grande.
The obligation of Rio Grande to issue and sell the Purchased Shares at the
Closing is subject to the fulfillment on or before the Closing of the
following condition:
SECTION 4.2.1 Representations and Warranties. The representations
and warranties set forth in this Agreement made by Purchaser shall be
accurate as of the Closing Date as if made on the Closing Date.
SECTION 4.2.2 Senior Loan Agreements; Acquisition. The Senior Loan
Agreements shall have been modified and amended in such respects as shall
in form and substance be satisfactory to Rio Grande, and all conditions to
the consummation of the Acquisition (other than payment of the purchase
price) shall have been satisfied on the date of Closing.
ARTICLE FIVE
COVENANTS
Rio Grande hereby covenants and agrees with Purchaser as follows:
SECTION 5.1 Regular Reporting Information. Rio Grande will
furnish to Purchaser by overnight courier not later than five days
following the filing by Rio Grande or any of its Subsidiaries with the
Commission, a copy of each report on Form 8-K, 10-QSB or 10-KSB under the
Exchange Act, each registration statement filed pursuant to the Securities
Act and each communication delivered to its stockholders as a class.
SECTION 5.2 Other Information.
(a) Promptly after the occurrence thereof, Rio Grande will (unless
Purchaser specifically otherwise directs in writing) notify Purchaser of
the existence and nature of a default under the Senior Loan Agreements and
the steps that it intends to take to cure such default. During the
pendency of any such default, Rio Grande shall provide to Purchaser, upon
Purchaser's reasonable request, with reports as to such default and/or its
efforts to cure same.
(b) Upon the reasonable request of Purchaser, Rio Grande will
deliver to Purchaser other information and data, not proprietary in nature
(in the good faith judgment of Rio Grande), pertaining to its business,
financial and corporate affairs to the extent that such delivery will not
violate any then applicable laws or any contracts of Rio Grande with third
persons. Rio Grande will permit any Person designated by Purchaser in
writing, at the expense of Purchaser, to visit and inspect any of the
properties of Rio Grande, including its books of account, and to discuss
its affairs, finances and accounts with Rio Grande's officers or directors,
all at such reasonable times and as often as Purchaser may reasonably
request, all in a manner consistent with the reasonable security and
confidentiality needs of Rio Grande, provided, that Rio Grande shall be
under no such obligation (i) with respect to information deemed in good
faith by Rio Grande to be proprietary or (ii) if Rio Grande's board of
directors reasonably believes such visit, inspection or discussion would
violate applicable laws or any contract with third persons.
Notwithstanding the foregoing, Purchaser acknowledges that in connection
with its review of information and data pertaining to Rio Grande it will be
provided information that has not been publicly disclosed and may
constitute material inside information within the meaning of applicable
securities laws. Purchaser agrees to retain in confidence all such
information, data, reports, compilations or reviews, to refrain from
disclosing any of such information to any third party until and unless such
information is otherwise publicly disclosed, to use such information solely
and exclusively as permitted by law, and to permit no use of such
information that would or might be detrimental to Rio Grande from a
competitive standpoint or otherwise.
(c) Business Plan. Not less than 30 days prior to the commencement
of each fiscal year, Rio Grande shall provide to Purchaser a business plan
for such fiscal year; provided, however, the business plan for the fiscal
year ending January 31, 1998 shall be provided to Purchaser within thirty
days of Closing. The business plan shall be in form and substance
reasonably satisfactory to Purchaser and shall in any event cover those
items described in Exhibit D. Within 30 days after the end of each fiscal
quarter, Rio Grande shall provide to Purchaser a summary comparing the
business plan to Rio Grande's actual performance during such fiscal
quarter.
SECTION 5.3 Rule 144 and Rule 144A Information. Rio Grande shall
(i) make and keep "current public information" "available" (as both such
terms are defined in Rule 144 under the Securities Act), (ii) timely file
with the Commission, in accordance with all rules and regulations
applicable thereto, all reports and other documents (x) required of Rio
Grande for Rule 144, as it may be amended from time to time (or any rule,
regulation or statute replacing Rule 144), to be available to stockholders
of Rio Grande and (y) required to be filed under section 15(d) of the
Exchange Act, notwithstanding that Rio Grande's duty to file such reports
or documents may be suspended or otherwise terminated under the express
terms of such provision and (iii) upon request by Purchaser, furnish to
Purchaser a written statement by Rio Grande that it has complied with the
reporting requirements of the Exchange Act and Rule 144, together with a
copy of the most recent annual or quarterly report of Rio Grande and such
reports and documents filed by Rio Grande with the Commission as may
reasonably be requested by Purchaser. Rio Grande shall, upon Purchaser's
request or upon the request of a prospective buyer (a "Prospective Buyer")
of shares of Common Stock or Preferred Stock, deliver to Purchaser and such
Prospective Buyer, all information described in Section (d)4(i) of Rule
144A under the Securities Act (all of such information being "reasonably
current" as described in such Section (d)4(i)) if Rio Grande (x) is not
subject to Section 13 or 15(d) of the Exchange Act, and (y) is not exempt
from reporting pursuant to Rule 12g3-2(b) under the Exchange Act.
SECTION 5.4 Liability Insurance. Rio Grande will maintain in
full force and effect a policy or policies of standard comprehensive
general liability insurance underwritten by a financially sound and
reputable U.S. insurance company (as of the date the policy is secured)
insuring Rio Grande's and its Subsidiaries' properties and business against
such losses and risks, and in such amounts, as are adequate for its
business and as are customarily carried by entities of similar size engaged
in the same or similar business. Such policies shall include property loss
insurance policies, with extended coverage, sufficient in amount to allow
the substantial replacement of any of its tangible properties which might
be damaged or destroyed by the risks or perils normally covered by such
policies. Rio Grande shall, upon the written request of Purchaser,
purchase liability insurance covering the directors of Rio Grande.
SECTION 5.5 Dividend and Redemption Restrictions. Except as
otherwise permitted pursuant to the Certificate of Designation, so long as
Purchaser is the holder of any Preferred Stock, neither Rio Grande nor any
of its Subsidiaries shall enter into any contract or agreement except the
Senior Loan Agreements as in effect on the Closing Date which by its terms
restricts payments of dividends on, or redemptions or conversions of,
shares of Rio Grande's capital stock and/or, in the case of the
Subsidiaries of Rio Grande, restricts the making of advances to any
Subsidiary of Rio Grande.
SECTION 5.6 Payment of Notes. Upon Closing, Rio Grande shall
segregate into a separate bank account funds sufficient to pay and
discharge the 11.5% Notes. Rio Grande shall, as soon as reasonably
practical after the Closing, prepay the 11.5% Notes in accordance with the
terms thereof.
SECTION 5.7 Treatment of Preferred Stock. Rio Grande shall treat
all distributions (other than payments in redemption of the Preferred Stock
that are not with respect to accrued but unpaid dividends) paid by it on
the Preferred Stock as non-deductible dividends on all of its tax returns.
SECTION 5.8 Price Risk Protection. Except as otherwise agreed by
Purchaser, so long as Purchaser owns any Preferred Stock in Rio Grande, Rio
Grande shall have price risk protection in place on Rio Grande's net oil
and gas production using a 6:1 gas/oil ratio. This risk protection shall
be in the form of one or more swap, hedge, floor, collar or similar
agreements with a reputable institution that has a S&P long term unsecured
debt rating of at least AA or a Moody's long term unsecured debt rating of
Aa. Rio Grande shall have price risk management in place at closing that
will extend for at least 12 months. Rio Grande shall inform Purchaser (or
its affiliate) when Rio Grande desires to enter into a commodity price risk
management agreement and shall grant Purchaser (or its affiliate) the right
to match the terms of any proposal for commodity price risk management
services. For the purposes of this Section, unless the Senior Lenders
consent otherwise, Rio Grande shall not put in place such price risk
protection in excess of the following amounts of barrels of oil (or its
equivalent) per day or at a price less than the following: (a) through
October 31, 1997, 700 barrels of oil and $20.09; (b) for the period
November 1, 1997 through October 31, 1998, 600 barrels of oil and $20.66,
and (c) November 1, 1998 through October 31, 1999, 500 barrels of oil and
$20.23.
SECTION 5.9 Negotiations Regarding Marketing Agreement.
(a) Rio Grande will facilitate negotiations and discussions between
Purchaser (or affiliate of Purchaser) and Highland Energy Company with
regard to the prospective purchase by Purchaser (or such affiliate) of oil,
natural gas and related hydrocarbons (collectively, "Products") produced
from mineral properties owned or leased by Rio Grande; provided, however,
any prospective agreements between Purchaser (or an affiliate of
Purchaser), Rio Grande and/or Highland relating to the sale of Products to
any entity affiliated with Purchaser must be in form and substance
satisfactory to Rio Grande and its Senior Lenders and must provide to Rio
Grande prices for its Product at least equivalent to the prices that could
be obtained in an arms length transaction with an unaffiliated third party.
(b) Within thirty (30) days of Closing, Rio Grande shall enter into
one or more marketing agreements with Purchaser (or its affiliate) for the
purchase, sale and transportation of all oil and gas products (i) produced
by Rio Grande, (ii) that is currently under contract with another party to
become effective at such time when the existing contract expires, and (iii)
subsequently acquired by Rio Grande; provided, that such agreement shall be
at arms-length, for a term of not less than five years, and shall
incorporate terms and conditions satisfactory to Purchaser, Rio Grande and
the Senior Lenders. Such marketing agreement would automatically be
renewed on a year to year basis for so long as Purchaser (or its affiliate)
owns a majority of the Series B Preferred Stock (or the equivalent of a
majority of Series B Preferred Stock in the event of the conversion of such
stock into Common Stock as provided herein). In respect to such marketing
agreements:
(i) Rio Grande would grant to Koch the right to purchase all
crude oil/condensate and/or natural gas owned or controlled by Rio Grande
(whether Rio Grande's owned/controlled interest is by lease, ownership or
any other device), wherever located in the United States;
(ii) Koch would have the right, but not the obligation, to
purchase said crude oil/condensate and natural gas from Rio Grande on an
outright basis;
(iii) If Koch exercises this right in association with the
purchase of crude oil/condensate it would pay a price equal to the highest
price which Koch pays in the region where the crude/oil condensate is
produced, for comparable term, location, and quantities of crude oil. Any
deviations in these categories will trigger adjustments to the price paid.
Prices payable for natural gas and associated products shall be based on
the prices Rio Grande could receive under competitive marketing
arrangements; and
(iv) the specific details regarding the associated crude oil
and natural gas purchase and sale transaction will be the subject of
separate crude oil and natural gas purchase and sales contracts between
Koch and Rio Grande.
SECTION 5.10 Financing Right.
(a) Financing Right of First Refusal. Before offering or selling
any New Securities to any third party in a transaction principally designed
to provide additional debt or equity financing for Rio Grande and/or its
subsidiaries, Rio Grande shall first offer to sell such New Securities to
Purchaser. If Rio Grande intends to so issue New Securities, it shall give
each Holder written notice of such intention, describing the amount of
funds Rio Grande wishes to raise, the type of New Securities to be issued,
the price thereof and the general terms upon which Rio Grande proposes to
effect such issuance. Purchaser shall have fifteen (15) days from the date
when any such notice is received to agree to purchase all or part of such
New Securities for the price and upon the general terms and conditions
specified in Rio Grande's notice (or on such other terms as Rio Grande and
Purchaser may agree upon during such 15-day period) by giving written
notice to Rio Grande stating the quantity of New Securities to be so
purchased.
If at the end of such 15-day period (or the end of the additional
ten-day period provided for overallotments) the Purchaser fails to exercise
the foregoing right of first refusal with respect to all of the New
Securities being offered by Rio Grande, Rio Grande may within 120 days
after the end of such 15-day period sell such New Securities to a third
party or parties at a price and upon general terms no more favorable to the
purchasers thereof than specified in the foregoing notice given to
Purchaser, provided that Rio Grande must first reoffer the New Securities
to Purchaser pursuant to the preemptive right described in subparagraph (b)
below. In the event Rio Grande has not sold such New Securities within
such 120-day period, Rio Grande shall not thereafter issue or sell any New
Securities without first offering such New Securities to Purchaser in the
manner provided above in this subparagraph (a).
(b) Preemptive Right. This subparagraph (b) shall apply to any
offers by Rio Grande to issue or sell New Securities after Rio Grande first
complies with subparagraph (a) above. Rio Grande hereby grants to
Purchaser a right of first refusal to purchase, on a pro rata basis, all or
any part of New Securities (as defined below) which Rio Grande may, from
time to time, propose to sell and issue to third parties, subject to the
terms and conditions set forth below. The Purchaser's pro rata share, for
purposes of this subparagraph (b) shall equal a fraction, the numerator of
which is the number of shares of Common Stock then held by Purchaser and/or
issuable upon conversion or exercise of any Preferred Stock, convertible
securities, options, rights or warrants then held by Purchaser, and the
denominator of which is the total number of shares of Common Stock then
outstanding or issuable upon conversion or exercise of any Preferred Stock,
convertible securities, options, rights or warrants.
If this subparagraph (b) applies, Rio Grande shall give Purchaser
written notice of its intention to issue or sell New Securities, describing
the type of New Securities to be issued, the price thereof and the general
terms upon which Rio Grande proposes to effect such issuance. Purchaser
shall have seven (7) business days from the date of when any such notice is
received to agree to purchase all or part of its pro rata share of such New
Securities for the price and upon the general terms and conditions
specified in Rio Grande's notice by giving written notice to Rio Grande
stating the quantity of New Securities to be so purchased.
If Purchaser fails to exercise the foregoing right of first refusal
with respect to any New Securities within such 7-day period (or the
additional seven-day period provided for overallotments), Rio Grande may
within the balance of the 120 days set forth in subparagraph (a) sell any
or all of such New Securities not agreed to be purchased by Purchaser, at a
price and upon general terms no more favorable to the purchasers thereof
than specified in the notice given to Purchaser pursuant to above. In the
event Rio Grande has not sold such New Securities within such 120-day
period, Rio Grande shall not thereafter issue or sell any New Securities
without first offering such New Securities to Purchaser in the manner
provided in subparagraph (a) above.
(c) Assignment; Termination. This rights set forth in this Section
5.10 may not be assigned or transferred, except that such rights are
assignable by Purchaser in whole or in part to any Permitted Assign. This
Section 5.10 shall not apply to any New Securities first offered by Rio
Grande after January 15, 2002.
SECTION 5.11 Negative Covenants. For so long as Purchaser owns
more than $2,500,000 in aggregate face amount of the issued and outstanding
Series A Preferred Stock and/or Series B Preferred Stock (except with
regard to 5.11(m), which shall apply regardless of ownership), without the
prior written consent of Purchaser (which consent may not be unreasonably
withheld), Rio Grande hereby agrees that it will not, and it will cause its
Subsidiaries not to:
(a) authorize or issue shares of any class of stock having any
preference or priority as to dividends or assets superior to or on a
parity with any such preference or priority of the Preferred Stock;
(b) permit the number of directors constituting the Board of
Directors of Rio Grande to be less than six or more than nine;
(c) reclassify any shares of any class of stock into shares
having any preference or priority as to dividends or assets superior
to or on a parity with any such preference or priority of the
Preferred Stock;
(d) engage in any business other than acquiring, producing,
selling and developing oil and gas properties; and exploring for,
producing, transporting, marketing and selling oil, natural gas and
related hydrocarbons;
(e) merge or consolidate with any Person (other than mergers
of wholly-owned Subsidiaries with and into each other or Rio Grande),
or directly or indirectly sell, lease or otherwise dispose of assets
involving an aggregate consideration of more than ten percent (10%)
of the book value of its assets on a consolidated basis at the time
of such sale, lease or disposition in any 12-month period, other than
in the ordinary course of business;
(f) repurchase or agree to repurchase any shares of its Common
Stock or any options, warrants or other rights to acquire shares of
its Common Stock except for the redemption of Preferred Stock in
accordance with the Charter and as permitted by the Certificate of
Designation, Section B.3(c)(v);
(g) unless all dividends accrued on shares of the Preferred
Stock shall have been declared and paid, pay cash dividends or make
any other distribution on, or redeem, any shares of Common Stock;
(h) without limiting (g), pay dividends or make any other
distribution on any shares of Common Stock at any time prior to
January 15, 1999;
(i) enter into, or permit a Subsidiary to enter into, any new
agreement or make any amendment to any existing agreement, which by
its terms would restrict Rio Grande's performance of its obligations
to holders of Preferred Stock;
(j) after the Closing, enter into any agreement with any
holder or prospective holder of any securities of Rio Grande
providing for the granting to such holder of registration rights,
preemptive rights, special voting rights or protection against
dilution;
(k) except as otherwise provided in Schedule 5.11(k), incur
any indebtedness for borrowed money or become a guarantor or
otherwise contingently liable for any such indebtedness except for
trade payables, purchase money obligations or other unsecured
indebtedness incurred in the ordinary course of business;
(l) incur any additional indebtedness if Rio Grande's total
indebtedness exceeds or if the additional debt will result in the
total indebtedness by Rio Grande exceeding 65% of the present value,
using a 12% discount factor ("PV12"), of the Proved Reserves (as
defined below) net to Rio Grande's interest. The PV12 shall be
determined by using reserve projections provided by an independent
engineering firm or firms as mutually agreed upon by Rio Grande and
Purchaser. Proved Reserves will be determined by utilizing 100% of
the proved developed producing reserve profile, 75% of the proved
developed not producing reserve profile and 50% of the proved
undeveloped reserve profile. The operating costs used in the
appraisal shall be based on the prior twelve (12) months average
lease operating costs disregarding the lowest and highest cost months
in such twelve (12) month period. The oil and gas prices shall be
based on the then current futures price strip less any pertinent
adjustments for basis differential and any other associated burdens.
Capital expenditures that are necessary for development of such
reserves shall be included. Purchaser may request a redetermination
of the value of Rio Grande's reserves if the Senior Lenders have not
required a redetermination within 120 days of request and if in
Purchaser's reasonable assessment, the total debt of Rio Grande has
exceeded 65% of the PV12 value for more than 90 consecutive days;
(m) directly or indirectly use or permit to be used the "Koch"
name (or the name of Purchaser or any of Purchaser's affiliates) in
any public announcements, press releases, filings with any
governmental authority (including, without limitation, filings made
pursuant to the Securities Act or the Exchange Act or other
information provided to the Commission whether or not deemed "filed"
pursuant to the Securities Act or the Exchange Act), marketing or
advertising materials or otherwise, except as required by law in the
good faith judgment of Rio Grande;
(n) reduce the percentage of shares of Preferred Stock
required to consent to any of the above matters, or alter or negate
the need for such consent; or
(o) grant or issue at an exercise price less than the
Conversion Price (as defined in the Certificate of Designation) any
rights, options, or warrants to directly or indirectly subscribe for,
purchase, or otherwise acquire shares of Common Stock, or any
evidences of indebtedness, shares, or other securities directly or
indirectly convertible into or exchangeable for shares of Common
Stock, that would constitute upon issuance Adjustment Shares pursuant
to Section B.5(a)(i) of the Certificate of Designation.
ARTICLE SIX
OPTION SHARES; TRANSFER
SECTION 6.1 Option to Purchase. For purposes of this Agreement,
the shares of Series A Preferred Stock to be issued pursuant to Section 2.2
of this Agreement as Purchased Shares are referred to as the "Initially
Issued Series A Preferred Stock." Rio Grande hereby grants to Purchaser
the right and option to purchase an additional four-tenths (0.40) of one
(1) share of Series A Preferred Stock for each one (1) share of Initially
Issued Series A Preferred Stock then held by Purchaser or such subsequent
holder; provided, however, this option shall expire and be of no further
force and effect upon redemption in full of the Initially Issued Series A
Preferred Stock. The exercise price shall be $4.00 for each four-tenths
(0.40) of one (1) share of Series A Preferred Stock so purchased (or $10.00
for each whole share of Series A Preferred Stock so purchased), meaning
that if such option is exercised in full with respect to all 500,000 shares
of Initially Issued Series A Preferred Stock, would be entitled to purchase
200,000 shares of Series A Preferred Stock for an aggregate exercise price
of $2,000,000. The foregoing option may be exercised by Purchaser at any
time on or after January 16, 1999 but on or before January 16, 2000 (the
"Option Period"). The option may be exercised in whole or in part and may
be exercised at any time and from time to time during the Option Period.
To exercise this option, Purchaser shall deliver to Rio Grande (i)
the certificate or certificates for the shares of the Initially Issued
Series A Preferred Stock as to which the option to purchase is being
exercised, (ii) written notice stating that the Purchaser is electing to
exercise its option to purchase with respect to all or any number of the
shares of Initially Issued Series A Preferred Stock represented by such
certificate or certificates, specifying the number of shares of Series A
Preferred Stock to be purchased as a result of such exercise and specifying
Purchaser's or such holder's name or the names of the nominees in which
Purchaser wishes the certificate or certificates of Series A Preferred
Stock to be issued and (iii) a certified or cashier's check payable to the
order of Rio Grande in the amount of the purchase price of the shares being
purchased pursuant to the exercise of such option. Upon receipt of such
notice, certificate and purchase price, Rio Grande shall promptly issue the
additional purchased shares and re-issue the Initially Issued Series A
Preferred Stock evidenced by the certificate so delivered, in each case in
the names specified in the notice. Once the option has been exercised with
respect to a share of Initially Issued Series A Preferred Stock, the
foregoing option shall terminate as to that share of Initially Issued
Series A Preferred Stock but not as to any other share of Initially Issued
Series A Preferred Stock as to which the option to purchase had never been
exercised.
SECTION 6.2 Restrictive Legends. (a) Except as otherwise
permitted by this Section 6.2, each certificate representing Preferred
Stock constituting "restricted securities" as defined in Rule 144 under the
Securities Act ("Restricted Securities") shall bear a legend substantially
in the form shown below:
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE LAWS OF ANY STATE
AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH ACT OR LAWS,
OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL OR
OTHER EVIDENCE, SATISFACTORY TO THE COMPANY AND ITS COUNSEL,
THAT SUCH REGISTRATION IS NOT REQUIRED."
(b) In addition to the legend set forth in Section 6.2(a), each
certificate representing Series B Preferred Stock shall bear a legend
substantially in the form shown below:
"THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN CERTIFICATE OF
DESIGNATION, RIGHTS AND PREFERENCES OF THE CORPORATION, WHICH PROHIBITS THE
TRANSFER OF THIS CERTIFICATE INDEPENDENTLY AND APART FROM A CERTIFICATE
REPRESENTING SHARES OF SERIES C PREFERRED STOCK. SUCH CERTIFICATE MAY BE
OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION."
(c) In addition to the legend set forth in Section 6.2(a), each
certificate representing Series C Preferred Stock shall bear a legend
substantially in the form shown below:
"THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN CERTIFICATE OF
DESIGNATION, RIGHTS AND PREFERENCES OF THE CORPORATION, WHICH PROHIBITS THE
TRANSFER OF THIS CERTIFICATE INDEPENDENTLY AND APART FROM A CERTIFICATE
REPRESENTING SHARES OF SERIES B PREFERRED STOCK. SUCH CERTIFICATE MAY BE
OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION."
SECTION 6.3 Notice of Proposed Transfer; Opinions of Counsel.
Prior to any transfer of any Restricted Securities which are not
registered under an effective registration statement under the Securities
Act, the holder thereof will give written notice to Rio Grande of such
holder's intention to effect such transfer, describing in reasonable detail
the manner of the proposed transfer. If any such holder delivers to Rio
Grande (i) an opinion of counsel reasonably acceptable to Rio Grande and
its counsel to the effect that the proposed transfer may be effected
without registration of such Restricted Securities under the Securities Act
and applicable blue sky laws and (ii) such other documents, certificates or
information pertaining to such transfer as Rio Grande may reasonably
request, Rio Grande agrees to transfer such Restricted Securities to the
proposed transferee; provided, however, the newly issued certificate will
contain a legend substantially in the form shown in Section 6.2, above.
SECTION 6.4 Issuance of Certificates Without Legend. Upon
receipt of evidence satisfactory to Rio Grande confirming that some or all
of the shares of Preferred Stock or common stock issued upon conversion of
the Series B Preferred Stock are no longer Restricted Securities, Rio
Grande shall reissue or shall authorize its transfer agent to reissue
certificates representing such shares without the restrictive legend
provided for in Section 6.2 hereof. In connection with any such request
for reissuance, Rio Grande may require an opinion of counsel, satisfactory
to Rio Grande in form and substance, that the shares in question are no
longer Restricted Securities.
ARTICLE SEVEN
MISCELLANEOUS
SECTION 7.1 Written Waivers. Any waiver, permit, consent or
approval of any kind or character on the part of any party of any
provisions or conditions of this Agreement must be made in writing and
shall be effective only to the extent specifically set forth in such
writing.
SECTION 7.2 Indemnification.
SECTION 7.2.1 By Rio Grande. Rio Grande hereby indemnifies and
agrees to defend and hold Purchaser harmless from, against and in respect
of any and all claims, demands, losses, costs, expenses, obligations,
liabilities, damages, recoveries and deficiencies, including interest,
penalties and attorneys' fees, that such Purchaser shall incur or suffer,
which arise, result from, or relate to the breach or failure of performance
by Rio Grande, or the falsity of any of the representations or warranties,
covenants or agreements in this Agreement or the Registration Rights
Agreement, or in any certificate or other instrument furnished or to be
furnished by Rio Grande or any Subsidiary hereunder or thereunder.
SECTION 7.2.2 By Purchaser. Purchaser hereby indemnifies and
agrees to defend and hold Rio Grande harmless from, against and in respect
of any and all claims, demands, losses, costs, expenses, obligations,
liabilities, damages, recoveries and deficiencies, including interest,
penalties and attorneys' fees, that Rio Grande shall incur or suffer, which
arise, result from, or relate to the breach or failure of performance by
Purchaser, or the falsity of any of the representations or warranties,
covenants or agreements in this Agreement or the Registration Rights
Agreement, or in any certificate or other instrument furnished or to be
furnished by Purchaser or any Subsidiary hereunder or thereunder.
SECTION 7.3 Successors and Assigns. This Agreement is binding
upon Rio Grande and Purchaser and inures to the benefit of Rio Grande,
Purchaser and their respective successors and Permitted Assigns.
SECTION 7.4 Severability. Whenever possible, each provision of
this Agreement will be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Agreement is held
to be prohibited by or invalid under applicable law, such provision will be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement.
SECTION 7.5 Descriptive Headings. The descriptive headings of
this Agreement are inserted for convenience of reference only and do not
constitute a part of this Agreement.
SECTION 7.6 Notices. Any notices required or permitted to be
given hereunder shall be delivered personally, sent by overnight courier or
mailed, registered or certified mail, return receipt requested, to the
following addresses, and shall be deemed to have been received on the day
of personal delivery, one Business Day after deposit with an overnight
courier or three business days after deposit in the mail:
If to Purchaser, to: Koch Exploration Company
4111 E. 37th Street North
Wichita, Kansas 67220
Attention: Vice President
If to Rio Grande, to: Rio Grande, Inc.
10101 Reunion Place
Union Square, Suite 210
San Antonio, Texas 78216
Attention: President and Chief
Executive Officer
or to such other address as any party may specify in a written notice given
to the other parties hereto.
SECTION 7.7 Governing Law. The corporate law of Delaware will
govern all issues concerning the relative rights of holders of the
Preferred Stock as such. All other questions concerning the construction,
validity and interpretation of this Agreement and the Exhibits and
Schedules shall be governed by the internal law, and not the law of
conflicts of, the State of Texas, and the performance of the obligations
imposed by this Agreement, shall be governed by the laws of the State of
Texas applicable to contracts made and wholly to be performed in that
state.
SECTION 7.8 Exhibits and Schedules. All Exhibits and Schedules
are an integral part of this Agreement.
SECTION 7.9 Final Agreement. This Agreement, together with those
documents expressly referred to herein including the Registration Rights
Agreement, constitute the final agreement of the parties concerning the
matters referred to herein, and supersedes all prior agreements and
understandings with respect to such matters.
SECTION 7.10 Execution in Counterparts. This Agreement may be
executed in any number of counterparts, each of which when so executed and
delivered shall be deemed an original, and such counterparts together shall
constitute one instrument. A photographic, photostatic, facsimile or other
similar reproduction of a writing signed by a party shall be regarded as an
executed original. Delivery of counterparts by facsimile shall be deemed
delivery of the original by a party.
SECTION 7.11 Further Assurances. Upon reasonable request of
either party, the other party hereto will on and after the Closing Date
take such reasonable actions as may be required to carry out the purposes
of this Agreement, the terms of the Certificate of Designation and the
Registration Rights Agreement.
SECTION 7.12 Remedies Cumulative. The remedies provided in this
Agreement shall be cumulative and shall not preclude the assertion or
exercise of any other rights or remedies available by law, in equity or
otherwise.
SECTION 7.13 Effect of Investigation. Any due diligence review,
audit or other investigation or inquiry undertaken or performed by or on
behalf of Purchaser shall not limit, qualify, modify or amend the
representations, warranties or covenants of, or indemnities by Rio Grande
made or undertaken pursuant to this Agreement, irrespective of the
knowledge and information received (or which should have been received
therefrom) by Purchaser; provided, however, if Purchaser or any
representative thereof becomes aware of facts or circumstances constituting
an actual or an alleged breach or falsity of a representation, warranty or
covenant of Rio Grande prior to Closing, and notwithstanding its knowledge
of such facts or circumstances, Purchaser acquires the Purchased Shares as
set forth herein, Purchaser may not thereafter assert such alleged breach
or falsity as a grounds for relief pursuant to Section 7.2.1 of this
Agreement or otherwise.
SECTION 7.14 Survival and Renewal of Representations and
Warranties. The representations, warranties, indemnities and covenants of
Rio Grande contained herein shall survive the Closing. The representations
and warranties of Rio Grande contained herein shall be made on the date
hereof and deemed remade on and as of the Closing Date.
SECTION 7.15 Fees and Expenses. Rio Grande will bear all of its
own expenses in connection with the preparation, execution and negotiation
of this Agreement and the Registration Rights Agreement, and the
transactions contemplated hereby and thereby. If Purchaser does not close
the purchase of the Purchased Shares as a result of a breach of
representation, warranty or covenant by Rio Grande, Rio Grande shall pay to
Purchaser the sum of $100,000 in same day or immediately available funds.
SECTION 7.16 Interpretation. In this Agreement, unless a clear
contrary intention appears:
(a) the singular number includes the plural number and vice versa;
(b) reference to any Person includes such Person's successors and
assigns but, if applicable, only if such successors and assigns are
permitted by this Agreement, and reference to a Person in a particular
capacity excludes such Person in any other capacity or individually;
(c) reference to any gender includes each other gender;
(d) reference to any agreement (including this Agreement and the
Schedules and Exhibits), document or instrument means such agreement,
document or instrument as amended or modified and in effect from time to
time in accordance with the terms thereof and, if applicable, the terms
hereof and reference to any promissory note includes any promissory note
which is an extension or renewal thereof or a substitute or replacement
therefor;
(e) reference to any applicable law means such applicable law as
amended, modified, codified, replaced or reenacted, in whole or in part,
and in effect from time to time, including rules and regulations
promulgated thereunder and reference to any section or other provision of
any applicable law means that provision of such applicable law from time to
time in effect and constituting the substantive amendment, modification,
codification, replacement or reenactment of such section or other
provision;
(f) reference to any Article, Section, Schedule or Exhibit means
such Article or Section hereof or Schedule or Exhibit hereto;
(g) "hereunder", "hereof", "hereto" and words of similar import
shall be deemed references to this Agreement as a whole and not to any
particular Article, Section or other provision hereof; and
(h) "including" (and with correlative meaning "include") means
including without limiting the generality of any description preceding such
term.
ARTICLE EIGHT
TERMINATION
SECTION 8.1 Termination. This Agreement may be terminated at any
time prior to the Closing:
(a) by mutual consent of Purchaser and Rio Grande;
(b) by either Rio Grande or Purchaser if the Closing shall not
have occurred by January 17, 1997, provided that the failure to
consummate the transactions contemplated hereby is not a result of
the failure by the party so electing to terminate this Agreement to
perform any of its obligations hereunder.
SECTION 8.2 Effect of Termination. Except for the obligations of
Section 7.15 hereof, if this Agreement shall be terminated pursuant to
Section 8.1, all obligations, representations and warranties of the parties
hereto under the Agreement shall terminate and there shall be no liability
of any party to another party.
The parties hereto have executed this Agreement as of the date first
set forth above.
Rio Grande, Inc.
By:
Its:
Koch Exploration Company
By:
Its:
Exhibit 3
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT dated as of the 16th day of
January, 1997, is entered into by and between RIO GRANDE, INC., a Delaware
corporation ("Rio Grande"), and KOCH EXPLORATION COMPANY, a Kansas
corporation ("Purchaser").
RECITALS
WHEREAS, Rio Grande and Purchaser have entered into a Preferred Stock
Purchase Agreement dated as of January 16, 1997, concerning, among other
things, the issuance and sale of shares of Rio Grande's preferred stock
(the "Stock Purchase Agreement"); and
WHEREAS, Rio Grande and the Purchaser desire to enter into this
Agreement in connection with, and as an integral part of, their execution
of the Stock Purchase Agreement;
NOW, THEREFORE, for and in consideration of the mutual promises of
the parties hereto, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. DEFINITIONS
1.1 "Agreement" shall mean, and the words "herein," "hereof,"
"hereunder" and words of similar import shall refer to, this instrument and
any amendment hereto.
1.2 "Commission" shall refer to the Securities and Exchange
Commission.
1.3 "Common Stock" shall refer to any and all of Rio Grande's common
stock, $.01 par value, including, but not limited to, the Conversion Stock.
1.4 "Conversion Stock" shall refer to any and all (i) Common Stock
issued and issuable upon conversion of the Series B Preferred Stock, and
(ii) Common Stock issued as dividends on or in any combination or
subdivision of the foregoing. When the phrase "Conversion Stock" is used
herein, it shall refer to the sum of shares of Common Stock issued as a
result of the conversion of, plus shares of Common Stock issuable on
conversion of, the Series B Preferred Stock, unless otherwise specified.
Conversion Stock shall exclude any shares otherwise included in the
foregoing from and after the date that such shares are sold pursuant to a
Registered Public Offering.
1.5 "Demand Stock" is defined in Section 2.1A.
1.6 "Exchange Act" shall refer to the Securities Exchange Act of
1934, as amended.
1.7 "Holders of Registrable Securities" (including references to
holders of certain percentages of Registrable Securities) collectively
refers to the holders of Series B Preferred Stock (to the extent that such
shares of stock have not then been converted into Common Stock) and the
holders of shares of Common Stock that theretofore have been issued upon
the conversion of Series B Preferred Stock (based upon conversion of the
Series B Preferred Stock).
1.8 "Initiating Holders" means holder(s) of Registrable Securities
who in the aggregate hold not less than forty percent (40%) of the
Registrable Securities (assuming for this purpose that all issued and
outstanding Series B Preferred Stock is converted into Conversion Stock).
1.9 "Person" shall refer to any natural person, partnership,
corporation, association, joint stock company, trust, joint venture,
unincorporated organization or other entity, or a governmental entity or
any department, agency or political subdivision thereof.
1.10 "Preferred Stock" shall refer to the Series B Preferred Stock.
1.11 "Registered Public Offering" shall refer to a public sale of Rio
Grande's Common Stock pursuant to an effective registration statement,
other than a registration effected solely to implement an employee benefit
plan, a transaction in which Rule 145 of the Commission is applicable or
any other form or type of registration in which Registrable Securities
cannot be included pursuant to Commission rule or practice.
1.12 "Registrable Securities" shall refer to the Conversion Stock.
1.13 "Reporting Company" shall mean a Person subject to the filing
requirements of Section 13 or 15 of the Exchange Act or a Person who has
completed a Registered Public Offering.
1.14 "Securities Act" shall refer to the Securities Act of 1933, as
amended.
1.15 "Series B Preferred Stock" shall refer to any and all of Rio
Grande's Series B Preferred Stock, par value $.01 per share.
2. REGISTRATION RIGHTS.
2.1 Demand Registration Rights.
A. Upon the written request by the Initiating Holders to
register Registrable Securities, Rio Grande shall promptly deliver notice
of such request to all holders of Registrable Securities (such holders of
Registrable Securities being referred to as the "Notified Persons"), who
then shall have 30 days to indicate in writing if they desire to be
included in such registration. If the Initiating Holders intend to
distribute the Demand Stock by means of an underwriting, they shall so
advise Rio Grande as part of their written request. "Demand Stock" shall
mean all of the shares of Registrable Securities being requested to be
registered by the Initiating Holders and the Notified Persons. Rio Grande
will use its best efforts to expeditiously (but in any event within 90 days
of the written request described in the first sentence of this section)
effect the registration of the Demand Stock under the Securities Act and
qualify the Demand Stock for sale under any state blue sky law, but only to
the extent provided for in the following provisions of this Article II;
provided, however, that the shares of Demand Stock for which registration
has been requested shall constitute at least 40% of the total shares of
Registrable Securities then outstanding (assuming for this purpose that all
issued and outstanding Series B Preferred Stock is converted into
Conversion Stock).
Rio Grande shall not be required to effect registration pursuant to
requests under this Section 2.1 more than three (3) times for the holders
of the Registrable Securities as a group. A demand registration instituted
pursuant to this Section 2.1 shall not be counted as such unless and until
(1) Rio Grande shall have in good faith filed a registration statement with
the Commission pursuant to this Section 2.1 and (2) the holders holding at
least a majority of the Registrable Securities included in such offering
elect to proceed with the registration process after receiving the
Commission's complete initial comments, if any, to the first filing of such
registration statement. Rio Grande shall not be required to include in
such registration any shares of Common Stock that are issuable upon the
conversion of Preferred Stock unless the holder commits in writing to Rio
Grande that such holder will convert the Preferred Stock into shares of
Common Stock before or not later than simultaneously with the effectiveness
of the registration statement registering those shares of Common Stock.
B. Whenever a demand registration pursuant to Section 2.1A is
made, Rio Grande shall be entitled to include in any registration statement
(i) shares of Common Stock to be sold by other holders of Common Stock with
registration rights that allow such holders to participate in the
registration (the "Other Registration Rights Holders"), and (ii) shares of
Common Stock to be sold by Rio Grande for its own account; provided,
however that if the managing underwriter determines in good faith that the
number of shares of Common Stock to be sold in such registration should be
limited due to market conditions, then the number of shares of Common Stock
included by Rio Grande in such registration shall be reduced to the extent
necessary to cause the total number of shares of Common Stock being so
registered to be reduced to the number determined by the underwriter, and
if such reduction is not sufficient, then after the number of shares of
Common Stock included by Rio Grande has been decreased to zero, then the
number of shares of Common Stock included by the Other Registration Rights
Holders shall be reduced pro rata among the Other Registration Rights
Holders to the extent necessary to cause the total number of shares of
Common Stock being so registered to be further reduced to the number
determined by the underwriter, and if such further reduction is not
sufficient, then after the number of shares of Common Stock included by the
Other Registration Rights Holders is reduced to zero, then the Demand Stock
shall be reduced pro_rata to the extent necessary to cause the number of
shares of Demand Stock so registered to equal the number determined by the
underwriter.
Except as permitted herein, Rio Grande may not cause any other
registration of securities for sale for its own account or for Persons
other than a holder of Registrable Securities (other than a registration
effected solely to implement an employee benefit plan or a transaction to
which Rule 145 of the Commission is applicable, or as may be required
pursuant to the terms of those certain Warrant Agreements, as amended
through the date hereof, issued by the Company in connection with the
Company's 1995 11.50% Subordinated Notes) to become effective less than 180
days after the effective date of any registration required pursuant to this
Section 2.1.
C. If at the time of any request to register Demand Stock
pursuant to this Section 2.1, Rio Grande is preparing a registration
statement for a Registered Public Offering which in fact is filed and
becomes effective within 90 days after the request, then Rio Grande may at
its option direct that such request to register Demand Stock be delayed for
a period not in excess of six months from the effective date of such
offering. Such right to delay a request shall be exercised by Rio Grande
not more than once in any two year period. Nothing in this Section 2.1C
shall preclude a holder of Registrable Securities from enjoying
registration rights pursuant to the terms of Section 2.2 hereof. No demand
shall be made by holders of Registrable Securities at any time, within six
(6) months of the effective date of any other registration of Common Stock
in which holders of Registrable Securities were entitled to participate
pursuant to the terms of this Agreement.
Rio Grande may postpone for a reasonable period of time (not to
exceed 90 days) the filing of any registration statement otherwise required
to be prepared and filed by it pursuant to this Section 2.1 if, at the time
it receives a request for registration:
(x) the Board of Directors of Rio Grande shall determine in good
faith that such offering will interfere materially with a pending or
contemplated financing, merger, sale of assets, recapitalization or other
similar corporate action of Rio Grande and Rio Grande shall have furnished
to the persons seeking such registration a certificate signed by the
President of Rio Grande to that effect, accompanied by a certified copy of
the relevant board resolutions; or
(y) the Board of Directors of Rio Grande shall determine in good
faith that the disclosures required in connection with such registration
could reasonably be expected to materially adversely affect the business or
prospects of Rio Grande and Rio Grande shall have furnished to the persons
seeking such registration a certificate signed by the President of Rio
Grande to that effect, accompanied by a certified copy of the relevant
board resolutions.
2.2 Piggyback Registration. If Rio Grande at any time proposes a
Registered Public Offering, it will, as soon as practicable but no less
than 30 days prior to filing the registration statement, give written
notice to all holders of Registrable Securities of its intention to do so
(stating the intended method of disposition of such securities). Upon the
written request of any holders of Registrable Securities given within 20
days after transmittal by Rio Grande to the holders of such notice, Rio
Grande will, subject to the limits contained in this Section 2.2, use its
best efforts to cause those Registrable Securities of said requesting
holders to be included in such registration statement; provided, however
that if the underwriter managing such registration determines in good faith
that market or economic conditions limit the amount of securities which may
reasonably be expected to be sold, Rio Grande may limit the number of
shares of Common Stock included by persons other than Rio Grande,
including, without limitation, the Registrable Securities (the "Piggyback
Stock") to be included in such registration and the holders of the
Piggyback Stock will be allowed to register their Piggyback Stock pro rata
based on the number of shares of Piggyback Stock held by such holders,
respectively. If any holder of Piggyback Stock disapproves of the terms of
any such underwriting, he may elect to withdraw therefrom by written notice
to Rio Grande and the managing underwriter. If, by the withdrawal of such
Piggyback Stock, a greater number of Piggyback Stock held by other holders
of Piggyback Stock may be included in such registration (up to the limit
imposed by the underwriters), Rio Grande shall offer to all holders of
Piggyback Stock who have included Piggyback Stock in the registration the
right to include additional Piggyback Stock, pro rata. Any Piggyback Stock
excluded or withdrawn from such underwriting shall be withdrawn from such
registration. Rio Grande shall be under no obligation to complete any
offering of its securities it proposes to make and shall incur no liability
to any holder of Registrable Securities for its failure to do so.
2.3 Registration Procedures. If and whenever Rio Grande is required
by the provisions of this Article II to use its best efforts to effect the
registration of Registrable Securities under the Securities Act, Rio Grande
will, as expeditiously as possible:
(i) prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause
such registration statement to become and remain effective for the period
provided in this Article II;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities Act
with respect to the sale or other disposition of all securities covered by
such registration statement whenever the seller or sellers of such
securities shall desire to sell or otherwise dispose of the same, but only
to the extent provided in this Article II;
(iii) furnish to each seller such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents, as such
seller may reasonably request in order to facilitate the public sale or
other disposition of the securities owned by such seller;
(iv) use its best efforts to register or qualify the securities
covered by such registration statement under such other securities or state
blue sky laws of such jurisdictions as each seller, or in the case of an
underwritten public offering, the managing underwriter shall reasonably
request, and do any and all other acts and things which may be necessary
under such securities or blue sky laws to enable the public sale or other
disposition of the securities in such jurisdictions, except that Rio Grande
shall not for any such purpose be required to qualify to do business as a
foreign corporation in any jurisdiction wherein it is not so qualified;
(v) before filing the registration statement or prospectus or
amendments or supplements thereto, furnish to one special counsel selected
by the holders of a majority of the Registrable Securities included in such
offering copies of such documents proposed to be filed which shall be
subject to the reasonable approval of such special counsel;
(vi) if the offering is underwritten, at the request of any
seller, use its best efforts to furnish on the date securities are
delivered to the underwriter for sale pursuant to such registration (A) an
opinion of counsel for Rio Grande, dated the effective date of the
registration statement, addressed to the seller and to Rio Grande, and (B)
a "comfort" letter signed by the independent public accountants who have
certified Rio Grande's financial statements included in the registration
statement, addressed to the seller and the underwriter, covering
substantially the same matters with respect to the registration statement
(and the prospectus included therein) and (in the case of the accountants'
letter) with respect to events subsequent to the date of the financial
statements, as are customarily covered (at the time of such registration)
in opinions of issuer's counsel and in accountants' letters delivered to
the underwriters in underwritten public offerings of securities;
(vii) cause all Registrable Securities covered by such
registration to be listed on each securities exchange, including the Nasdaq
Stock Market, on which similar securities issued by Rio Grande are then
listed; and
(viii) take such other actions as shall be reasonably
requested by a holder of Registrable Securities included in such
registration.
provided, however, that notwithstanding any other provision of this Article
II, Rio Grande shall not in any event be required to use its best efforts
to maintain the effectiveness of any such registration statement for a
period in excess of 90 days or 120 days in the case of registrations
pursuant to Section 2.1 (or at the request of the selling holders, an
additional 90 days or 120 days as the case may be). The term "seller" as
used in this Article II refers to a holder of the Registrable Securities
selling such shares.
In connection with each registration hereunder, each seller shall
furnish to Rio Grande in writing such information with respect to such
seller as reasonably shall be necessary in order to assure compliance with
federal and applicable state securities laws.
2.4 Expenses. All expenses incurred in effecting the registration
provided for in Sections 2.1, 2.2 and Section 2.9, including without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for Rio Grande and fees of one special counsel for
all of the selling holders of the Registrable Securities being so
registered selected by the holders of a majority of the Registrable
Securities included in the registration, underwriting expenses (other than
fees, commissions or discounts relating to the sale of shares of Common
Stock, other than for the account of Rio Grande, that are included in the
registration), expenses of any audits incident to or required by any such
registration, expenses of complying with the securities or blue sky laws of
any jurisdictions pursuant to Section 2.3(iv) hereof, and any other
expenses incurred in taking the actions described in Section 2.3 (all of
such expenses referred to as "Registration Expenses"), shall be paid by Rio
Grande; provided, however that in the case of a registration pursuant to
Section 2.1, participating sellers of Registrable Securities shall bear
their respective pro rata portion of expenses incurred by Rio Grande for
its accountants to audit other than year-end financial statements, unless
in the case of a registration pursuant to Section 2.1 in which more than
40% of the Common Stock included in such registration is Common Stock for
the account of Rio Grande, in which case Rio Grande shall pay its
proportionate share of such additional audit expense.
2.5 Indemnification.
A. In the event of any registration of any of its securities
under the Securities Act pursuant to this Article II, Rio Grande shall
indemnify and hold harmless the seller of such securities, each underwriter
(as defined in the Securities Act), and each other Person who participates
in the offering of such securities and each other Person, if any, who
controls (within the meaning of the Securities Act) such seller,
underwriter or participating Person (individually and collectively the
"Indemnified Person") against any and all losses, claims, damages or
liabilities (collectively the "liability"),to which such Indemnified Person
may become subject insofar as such liability (or action in respect thereof)
arises out of or is based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in any registration statement
under which such securities were registered under the Securities Act, any
preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereto, (ii) any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading or (iii) any violation by Rio
Grande of any rule or regulation promulgated under the Securities Act or
any state securities law applicable to and relating to action or inaction
required of Rio Grande in connection with any such registration. Rio
Grande shall reimburse each such Indemnified Person for all fees and
expenses (including reasonable legal fees) reasonably incurred by such
Indemnified Person in connection with investigating or, subject to
paragraph D of this Section 2.5, defending or settling any such liability;
provided, however, that Rio Grande shall not be liable to any Indemnified
Person in any such case to the extent that any such liability arises out of
or is based upon any alleged untrue statements or alleged omissions made in
such registration statement, preliminary or final prospectus, or amendment
or supplement thereto, in reliance upon and in conformity with written
information furnished to Rio Grande by such Indemnified Person specifically
for use therein.
B. Each holder of any securities sold pursuant to any
registration under this Article II shall, by acceptance of the proceeds
thereof, indemnify and hold harmless, for the sale of its securities in
such registration, each other holder of any such securities, Rio Grande,
its directors and officers, its legal counsel and independent public
accountants, each underwriter and each other Person, if any, who controls
Rio Grande or such underwriter (individually and collectively the "Rio
Grande Indemnified Person"), against any and all losses, claims, damages or
liabilities, to which any such Rio Grande Indemnified Person may become
subject insofar as such liability (or actions in respect thereof) arises
out of or is based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in any registration statement
under which securities were registered under the Securities Act at the
written request of such holder, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto, or
(ii) any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading, in the case of (i) and (ii) to the extent, but only to the
extent, that such alleged untrue statement or alleged omission was made in
such registration statement, preliminary or final prospectus, amendment or
supplement thereto in reliance upon and in conformity with written
information furnished to Rio Grande by such holder specifically for use
therein, and then only to the extent that such untrue statement or alleged
untrue statements or omission or alleged omissions by the holder were not
based on the authority of an expert as to which the holder had no
reasonable ground to believe, and did not believe, that the statements made
on the authority of such expert were untrue or that there was an omission
to state a material fact. Such holder shall reimburse any Rio Grande
Indemnified Person for any reasonable legal fees reasonably incurred in
investigating or, subject to Paragraph D of this Section 2.5, defending any
such liability.
C. Indemnification similar to that specified in Section 2.5A
and Section 2.5B shall be given by Rio Grande and each holder of any
securities sold pursuant to a registration under this Article II (with such
modifications as may be appropriate) with respect to any required
registration or other qualification of such securities under any federal or
state law or regulation of a governmental authority other than the
Securities Act.
D. In the event Rio Grande, any holder of Registrable
Securities or of securities sold pursuant to this Agreement or any other
Person receives a complaint, claim or other notice of any liability or
action, giving rise to a claim for indemnification under paragraphs A, B or
C of this Section 2.5, the Person claiming indemnification under such
paragraphs shall promptly notify the Person against whom indemnification is
sought of such complaint, notice, claim or action, and such indemnifying
Person shall have the right to investigate and defend any such loss, claim,
damage, liability or action; provided however, that failure to so notify
shall not affect the indemnification rights under paragraphs A, B or C of
this Section 2.5 except to the extent (but only to the extent) the
indemnifying person was materially adversely prejudiced by such failure.
The Person claiming indemnification shall have the right to employ separate
counsel in any such action and to participate in the defense thereof, but
the fees and expenses of such counsel shall not be at the expense of the
Person against whom indemnification is sought (unless the indemnifying
party fails to defend the Persons rightfully claiming indemnification under
this Section 2.5, in which case the fees and expenses of such separate
counsel shall be borne by the Person against whom indemnification is
sought). In no event shall a Person against whom indemnification is sought
be obligated to indemnify any Person for any settlement of any claim or
action effected without the indemnifying Person's prior written consent.
E. If the indemnification provided for in this Section 2.5 is
held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage or
expense referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party thereunder, shall contribute to the
amount paid or payable by such indemnified party as a result of such loss,
liability, claim, damage or expense in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and of
the indemnified party on the other hand in connection with the statements
or omissions which resulted in such loss, liability, claim, damage or
expense as well as any other relevant equitable considerations. The
relevant fault of the indemnifying party and the indemnified party shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. Notwithstanding the foregoing, the
amount any holder of Registrable Securities shall be obligated to
contribute pursuant to this Section 2.5E shall be limited to an amount
equal to the proceeds received by such holder pursuant to the registration
statement which gives rise to such obligation to contribute (less the
aggregate amount of any damages which the holder has otherwise been
required to pay in respect of such loss, claim, damage, liability or action
or any substantially similar loss, claim, damage, liability or action
arising from the sale of such securities).
F. The indemnification provided by this Section 2.5 shall be
a continuing right to indemnification and shall survive the registration
and sale of any securities by any Person entitled to indemnification
hereunder and the expiration or termination of this Agreement.
2.6 Termination of Registration Rights. Notwithstanding the
foregoing provisions of this Article II, the rights to registration and the
designation of Conversion Stock as Registrable Securities shall terminate
as to any particular securities when such securities shall have been
transferred or assigned in any manner except as set forth in Section 2.10
hereto.
2.7 Compliance with Rule 144 and Rule 144A. Rio Grande shall make
available to each holder of Registrable Securities the benefit of certain
rules and regulations of the Commission which may permit such holder to
sell Conversion Stock to the public without registration under the
Securities Act by (a) making and keeping "current public information"
"available" (as both such terms are defined in Rule 144 under the
Securities Act) at all times, (b) use its best efforts to timely file with
the Commission, in accordance with all rules and regulations applicable
thereto, all reports and other documents (i) required of Rio Grande for
Rule 144, as it may be amended from time to time (or any rule, regulation
or statute replacing Rule 144), to be available to stockholders of Rio
Grande and (ii) required to be filed under Section 15(d) of the Exchange
Act, notwithstanding that Rio Grande's duty to file such reports or
documents may be suspended or otherwise terminated under the express terms
of such provision and (c) upon request by such holder, furnishing such
holder a written statement by Rio Grande that it has complied with the
reporting requirements of the Exchange Act and Rule 144, together with a
copy of the most recent annual or quarterly report of Rio Grande and such
reports and documents filed by Rio Grande with the Commission as may
reasonably be requested by such holder in order that such holder may avail
itself of any rule or regulation of the Commission allowing sales of
Conversion Stock without registration under the Securities Act. Rio Grande
shall, upon such holder's request or upon the request of a prospective
buyer (a "Prospective Buyer") of Conversion Stock, deliver to such holder
and such Prospective Buyer, all information described in Section (d)(i) of
Rule 144A under the Securities Act (all of such information being
"reasonably current" as described in such Section (d)4(i) if Rio Grande (x)
is not subject to Section 13 or 15(d) of the Exchange Act, and (y) is not
exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange Act.
2.8 Amendments. The provisions of this Agreement may be amended,
and Rio Grande may take any action herein prohibited or omit to perform any
act herein required to be performed by it, only if Rio Grande has obtained
the written consent of holders of at least 66-2/3% of the Registrable
Securities.
2.9 Short Form Registration. Rio Grande shall use its best efforts
to qualify for registration on Form S-2, Form S-3 or similar short form
registration statement (the "Short Form"). If and when Rio Grande so
qualifies to use a Short Form, the holders of the Registrable Securities
shall have the right to request registration on the Short Form as the
demand registration right created by Section 2.1 hereof. In such case, the
provisions of Section_2.1 shall apply to such demand registration except
that the registration shall be on the Short Form so specified by the
holders of the Registrable Securities.
2.10 Transferability of Registration Rights. The right to cause Rio
Grande to register Registrable Securities of a holder and keep information
available granted to a holder of Registrable Securities by Rio Grande under
this Agreement may be assigned by a holder of Registrable Securities to any
partner, shareholder or affiliate of such holder, to any other holder of
Registrable Securities, or to a transferee or assignee who receives at
least 500,000 shares of Registrable Securities (as adjusted for stock
splits and the like); provided, that Rio Grande is given written notice by
the holder of Registrable Securities at the time of or within a reasonable
time after said transfer, stating the name and address of said transferee
or assignee and identifying the securities with respect to which such
registration rights are being assigned. As used herein, an "affiliate" of
a holder of Registrable Securities shall mean any Person who controls, is
under common control with, or is controlled by such holder.
2.11 Designation of Underwriter. In the case of any registration
effected pursuant to this Article II, Rio Grande shall have the right to
designate the managing underwriter, subject to the approval of the holders
of a majority of the Registrable Securities included in such offering.
With respect to offerings under Section 2.1, the holders of the Demand
Stock shall negotiate with the underwriter selected by Rio Grande with
regard to the underwriting of the Demand Stock; provided, however, that if
the holders of a majority of the Demand Stock have not agreed with such
underwriter as to the terms and conditions of such underwriting within
twenty (20) days following commencement of such negotiations, the holders
of a majority of the Demand Stock may select an underwriter of their
choice, provided such underwriter is reasonably acceptable to Rio Grande.
Rio Grande and each holder of Registrable Securities included in the
registration shall enter into an underwriting agreement in customary form
with the managing underwriter.
3. MISCELLANEOUS.
3.1 Remedies. Any Person having any rights under any provision of
this Agreement will be entitled to enforce such rights specifically, to
recover any damages by reason of any breach of any provision of this
Agreement, and to exercise all other rights granted by law or equity, which
rights may be exercised cumulatively and not alternatively. The prevailing
party in any such dispute shall receive its reasonable attorneys' fees and
costs.
3.2 Successors and Assigns. Except as otherwise expressly provided
herein, all covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto will bind and inure to the benefit of
the respective successors and assigns of the parties hereto whether so
expressed or not.
3.3 Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision will be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement.
3.4 Counterparts. This Agreement may be executed in two or more
counterparts, any one of which need not contain the signatures of more than
one party, but all such counterparts when taken together will constitute
one and the same Agreement.
3.5 Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of
this Agreement.
3.6 Notices. Any notices required or permitted to be sent shall be
delivered personally, telecopied or mailed, certified mail, postage
prepaid, return receipt requested, to the following addresses until such
addresses have been changed by written notice delivered pursuant to this
Section 3.6 and shall be deemed to have been delivered and received three
(3) business days after such mailing, when delivered personally or when
receipt is confirmed by an individual if sent by telecopy:
If to Rio Grande: Rio Grande, Inc.
10101 Reunion Place
Union Square, Ste. 210
San Antonio, Texas 78216
Attn: President
Telecopy No.:(210) 308-8111
If to Purchaser: Koch Exploration Company
4111 E. 37th St. North
Wichita, Kansas 67220
Attn: Vice President
Telecopy No.:_(316) 828-5390
3.7 Governing Law. The validity, meaning and effect of this
Agreement shall be determined in accordance with the laws of Texas
applicable to contracts made and to be performed in that state.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date and year first written above.
Rio Grande:
RIO GRANDE, INC.
By: _________________________
Its:
Purchaser:
KOCH EXPLORATION COMPANY
By: _________________________
Its:
Exhibit 4
STOCKHOLDERS AGREEMENT
THIS STOCKHOLDERS AGREEMENT (this "Agreement") is made this 16th day
of January, 1997, by and among Robert A. Buschman and Guy Bob Buschman, in
their capacities as stockholders, (the "Founders"), Rio Grande, Inc., a
Delaware corporation (the "Company"), and the persons and organizations
whose signatures appear below (whether one or more, the "Stockholders").
WHEREAS, pursuant to that certain Preferred Stock Purchase Agreement
dated as of January 16, 1997, the Stockholders acquired from the Company
shares of its Series A Preferred Stock, par value $.01 per share (the
"Series A Preferred Stock") and shares of its Series B Preferred Stock, par
value $.01 per share ("Series B Preferred Stock") which are convertible
into shares of common stock of the Company, par value $.01 per share, as
more fully set forth in the Certificate of Designation filed with the
Secretary of State of Delaware on January 15, 1997 (such Common Stock,
adjusted, hereinafter referred to as, the "Common Stock"); and
WHEREAS, the Founders are presently the legal or beneficial owner of
2,360,940 shares, collectively, of the outstanding Common Stock of the
Company; and
WHEREAS, the Founders have agreed pursuant to this Agreement, among
other things, to grant the Stockholders the opportunity to participate,
upon the terms and conditions set forth in this Agreement, in certain
subsequent sales of the Common Stock of the Company made by the Founders to
induce the Stockholders to make the proposed investment;
NOW, THEREFORE, THE PARTIES HERETO, INTENDING TO BE LEGALLY BOUND,
HEREBY AGREE AS FOLLOWS:
ARTICLE 1
Sales by a Founder
1.1 Notice of Certain Purchase Offers. Prior to January 18, 2002
(unless otherwise terminated pursuant to Section 5.1 hereof), except as set
forth in Section 1.5, should either Founder propose to accept one or more
bona fide offers (collectively the "Purchase Offer") from any Persons to
purchase shares of the Company's Common Stock from the Founder (a
"Transferring Founder"), then such Transferring Founder shall promptly
notify each Stockholder of the terms and conditions of such Purchase Offer.
For purposes hereof, a "Person" means a natural person, partnership,
corporation, association, joint stock company, trust, joint venture,
unincorporated organization or other entity, or a governmental entity or
any department, agency or political subdivision thereof.
1.2 Right to Participate. Each Stockholder shall have the right,
exercisable upon written notice to the Transferring Founder within 15
Business Days after the date of receipt of the notice of the Purchase
Offer, to participate in the Transferring Founder's sale of Common Stock on
the same terms and conditions. A "Business Day" means any day other than
Saturday, Sunday or a day on which national banks located in the State of
Kansas are authorized to be closed for business. If no Stockholder elects
to participate in the Purchase Offer as provided herein, then the
Transferring Founder may offer such Common Stock to any Outsider pursuant
to the terms of the Purchase Offer. To the extent a Stockholder exercises
such right of participation, the number of shares of Common Stock which the
Transferring Founder may sell pursuant to such Purchase Offer shall be
correspondingly reduced in accordance with the provisions below. The right
of participation of each Stockholder shall be subject to the following
terms and conditions:
(a) Each Stockholder may sell all or any part of that number
of shares of Common Stock of the Company which it then owns equal to the
product obtained by multiplying (i) the aggregate number of shares of
Common Stock covered by the Purchase Offer by (ii) a fraction the numerator
of which is the number of shares of Common Stock of the Company at the time
owned by such Stockholder and the denominator of which is the combined
number of shares of Common Stock of the Company at the time owned by the
Transferring Founder (including shares transferred to Permitted Transferees
as hereinafter defined in accordance herewith) and the Stockholders. For
purposes of making such computation, each Stockholder shall be deemed to
own the number of shares of Common Stock into which all its Series B
Preferred Stock is convertible on the date such Stockholder receives the
notice of the Purchase Offer.
(b) Each Stockholder may participate in the sale by delivering
to the Transferring Founder for transfer to the purchase offeror one or
more certificates, properly endorsed for transfer, which represent
the number of shares of Common Stock which such
Stockholder elects to sell pursuant to this Section 1.2 not to exceed the
number of shares of Common Stock which it may sell as determined in
accordance with Section 1.2(a) above; or
that number of shares of Series B Preferred Stock which is
at such time convertible into the number of shares of Common Stock which
such Stockholder elects to sell pursuant to this Section 1.2 not to exceed
the number of shares of Common Stock which it may sell as determined in
accordance with Section 1.2(a) above; provided, however, that if the
purchase offeror objects to the delivery of Series B Preferred Stock in
lieu of Common Stock, such Stockholder may convert and deliver Common Stock
as provided in subparagraph (b)(i) above.
(c) If a Stockholder elects not to participate in such a sale
and the terms and conditions of such sale thereafter materially change
(except with regard to the purchase price, as to which any change shall be
deemed material), the Founders must once again give the notice required in
Section 1.1 and allow each such Stockholder the opportunity to participate
in such sale.
1.3 Consummation of Sale. The stock certificate or certificates
which the Stockholder delivers to the Transferring Founder pursuant to
Section 1.2 shall be transferred by the Transferring Founder to the
purchase offeror in consummation of the sale of the Common Stock pursuant
to the terms and conditions specified in the Section 1.1 notice to the
Stockholders, and the Transferring Founder shall promptly thereafter remit
to such Stockholder that portion of the sale proceeds to which such
Stockholder is entitled by reason of its participation in such sale.
1.4 Ongoing Rights. The exercise or non-exercise of the rights
of the Stockholders hereunder to participate in one or more sales of Common
Stock made by the Founders shall not adversely affect their rights to
participate in subsequent sales of Common Stock by either Founder pursuant
to Section 1.1 hereof.
1.5 Permitted Transfers. The participation rights of the
Stockholders and restriction on transfers by the Founders shall not apply
(a) to offers or sales by the Founders or their Permitted Transferees in an
underwritten public offering or otherwise pursuant to an effective
registration statement, on the facilities of a national securities exchange
or in any other recognized public securities market, (b) to any pledge of
Common Stock made by a Founder pursuant to a bona fide loan transaction
which creates a mere security interest, (c) upon the death of a Founder, to
any transfer of Common Stock owned by such Founder on the date of such
Founder's death to such Founder's ancestors or descendants or spouse or to
a trustee for their benefit or to any charity, (d) to any inter vivos gift
of shares to such Founder's ancestors or descendants or spouse or to a
trust for the benefit of any of the foregoing, or (ed) to any other bona
fide gift (collectively, "Permitted Transfers" and the respective
transferees "Permitted Transferee"); provided, however, that (i) such
Founder shall inform the Stockholders of any Permitted Transfer involving
singly or in the aggregate more than one percent (1%) of the outstanding
stock on a fully diluted basis and (ii) to the extent any Person (other
than an underwriter in connection with a registered offering) acquires
beneficial ownership of Common Stock representing more than 5% of the then
outstanding shares of Common Stock on a fully diluted basis as a result of
a Permitted Transfer, the transferring Founder will request such Person to
furnish the Stockholders with a written agreement to be bound by and comply
with all provisions of this Agreement applicable to such Founder; provided,
to the extent a Founder makes a Permitted Transfer and subsequently
re-acquires shares from such Permitted Transferee, those shares shall again
become subject to the terms hereof.
1.6 Restrictions on Transfer On or Before January 18, 2000. Without
the prior written consent of the Stockholders, except as otherwise
expressly permitted by Sections 1.5(a) - (c)Sections 1.5(a)-(d), neither
Founder will sell, assign or otherwise transfer any shares of Common Stock
owned by such Founder on or before January 18, 2000; provided, that if the
Stockholders consent to a proposed sale, assignment or transfer on or
before January 18, 2000 pursuant to this provision, the other provisions of
this Agreement will apply to such sale, assignment or transfer.
1.7 Termination. The rights of the Stockholders set forth in this
Article 1 shall terminate and have no further force and effect after
January 18, 2000, unless earlier terminated in accordance with other
provisions hereof.
ARTICLE 2
Sales by Stockholders
2.1 During the term hereof and except as set forth in this Article
2, no Stockholder may sell any Series B Preferred Stock which such
Stockholder now owns, or which such Stockholder may hereafter acquire, to a
person not a party to this Agreement (an "Outsider"), unless such person is
an affiliate of such Stockholder, without first offering the Series B
Preferred Stock which the Stockholder wishes to transfer to the Company and
the Founders pursuant to the procedures set forth in this Article on
substantially the same terms as will be offered to the Outsider. If, at
the end of the Second Option Period as provided in Section 2.4, the Company
or the Founders have not agreed to acquire all of the offered Series B
Preferred Stock, then all of such Series B Preferred Stock may be
transferred to an Outsider in compliance with Section 2.3.
2.2 All offers to transfer made pursuant to this Article shall state
the proposed purchase price and all other terms applicable to the proposed
transfer to the Outsider.
2.3 Any transfer to an Outsider must be effected in accordance with
the provisions hereof:
(a) the transferring Stockholder shall transfer all the
Preferred Stock which was offered pursuant to Section 2.1;
(b) such transfer must be made on substantially the same terms
set forth in the offer to the Company and the Founders; and
(c) such transfer must be made within one hundred (120) days
after expiration of the Second Option Period.
Any proposed transfer of Series B Preferred Stock which does not
comply with the provisions of Section 2.3 must be reoffered to the Company
and the Founders.
2.4 Before any Stockholder may transfer or dispose of all or any of
such Stockholder's Series B Preferred Stock in a transaction subject to the
provisions of this Article, such Stockholder must first offer such Series B
Preferred Stock to the Company and, if the Company refuses such offer, then
to the Founders pro rata, according to their then existing Common Stock
ownership interests. The offering price shall be equal to or less than the
purchase price, and otherwise on substantially the same terms, proposed to
be offered by such Stockholder to the Outsider. Such offer to the Company
shall be held open by such Stockholder for a period of ten (10) days from
the date of such offer, which period shall be known as the "First Option
Period" and such offer to the Founders shall be held open by such
Stockholder for a period of ten (10) days from the end of the First Option
Period, which period shall be known as the "Second Option Period".
2.5 The Company may, within the First Option Period, accept such
offer as to all the Series B Preferred Stock so offered. In the event such
offer is not accepted by the Company, then the Founders may, pro rata or
otherwise as agreed among said Founders, within the Second Option Period,
accept such offer as to all the Series B Preferred Stock so offered. In
the event such offer is not accepted by the Company and/or the Founders as
to all the Series B Preferred Stock so offered, then the transferring
Stockholder may offer such Series B Preferred Stock to any Outsider
pursuant to the terms of Section 2.3; provided, if either the Company or
the Founders elects not to participate in such a sale and the terms and
conditions of such sale thereafter materially change, the transferring
Stockholder must once again give the notice required in Section 2.1 and
allow the Company and the Founders to exercise their right under this
Article 2.
ARTICLE 3
Prohibited Transfers
3.1 Treatment of Prohibited Transfers. In the event a Founder
should sell any Common Stock of the Company in contravention of the
participation rights of the Stockholders under this Agreement (a
"Prohibited Transfer"), the Stockholders, in addition to such other
remedies as may be available at law, in equity or hereunder, shall have the
put option provided in Section 3.2 below, and such Founder (the "Breaching
Founder") shall be bound by the applicable provisions of such put option.
3.2 Put Option. In the event of a Prohibited Transfer, each
Stockholder shall have the right to sell to the Breaching Founder a number
of shares of Common Stock of the Company (either directly or through
delivery of convertible Series B Preferred Stock) equal to the number of
shares each Stockholder would have been entitled to transfer to the
purchaser in the Prohibited Transfer pursuant to the terms hereof. Such
sale shall be made on the following terms and conditions:
(a) The price per share at which the shares are to be sold to
the Breaching Founder shall be equal to the price per share paid by the
purchaser to the Breaching Founder in the Prohibited Transfer. Such
Breaching Founder shall also reimburse each Stockholder for any and all
fees and expenses, including legal fees and expenses, incurred pursuant to
the exercise or the attempted exercise of the Stockholder's rights under
this Article 3.
(b) Within 90 days after the later of the date on which the
Stockholders (i) received notice from the Breaching Founder of the
Prohibited Transfer or (ii) otherwise become aware of the Prohibited
Transfer, each Stockholder shall, if exercising the put option created
hereby, deliver to such Breaching Founder the certificate or certificates
representing shares to be sold, each certificate to be properly endorsed
for transfer.
(c) Such Breaching Founder shall, upon receipt of the
certificate or certificates for the shares to be sold by a Stockholder,
pursuant to Section 3.2(b), pay the aggregate purchase price therefor and
the amount of reimbursable fees and expenses, as specified in Section
3.2(a), by certified check or bank draft made payable to the order of such
Stockholder.
ARTICLE 4
Legended Certificates
4.1 Legend. Each certificate representing shares of Series B
Preferred Stock of the Company issued to the Stockholders or of the Common
Stock of the Company now or hereafter owned by the Founders or issued to
any Permitted Transferee permitted assign of the Stockholders Permitted
Transferee pursuant to Section 1.5 who agrees to be bound by the
restrictions set forth herein shall be endorsed with the following legend:
"THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN
STOCKHOLDERS AGREEMENT BY AND BETWEEN THE STOCKHOLDERS, THE
CORPORATION AND CERTAIN HOLDERS OF PREFERRED STOCK OF THE
CORPORATION. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN
REQUEST TO THE SECRETARY OF THE CORPORATION."
4.2 Legend Removal. The Section 4.1 legend shall be removed (i)
upon termination of this Agreement in accordance with the provisions of
Section 5.1; or (ii) in connection with a Permitted Transfer or other sale
permitted by terms hereof; provided the Company may request an opinion of
counsel reasonably acceptable in form and substance to the Company to the
effect that the proposed transfer is permitted pursuant to the terms of
this Article and that the shares issued to the transferee are not required
to be legended in accordance with the terms hereof.
ARTICLE 5
Miscellaneous Provisions
5.1 Termination. This Agreement shall terminate upon the earliest
of (i) upon the consummation of an underwritten public offering of the
Company's Common Stock registered under the Securities Act of 1933, as
amended, which results in aggregate net proceeds to the Company of not less
than $20,000,000 at a public offering price of more than $____the Minimum
Price (as defined in the Certificate of Designation, Preferences and Rights
dated January 15, 1997), per share (appropriately adjusted to reflect any
stock split, stock dividend or recapitalization of the Company from the
date of this Agreement); (ii) as to any party, upon the death of such
party; or (iii) as to the Stockholders, at such time as the Stockholders
ceases to own 50,000 shares of Series A Preferred Stock, 50,000 shares of
Series B Preferred Stock,; or Common Stock representing in the aggregate
more than ten percent (10%) of the outstanding Common Stock of the Company
on a fully diluted basis; or (iv) as to either Founder, at such time as
said Founder ceases to own Common Stock representing in the aggregate more
than ten percent (10%) of the outstanding Common Stock on a fully diluted
basis; or (v) upon the expiration of five years from the date hereof
(except in regard to Section 5.9).
5.2 Notices. Any notice required or permitted to be given to a
party pursuant to the provisions of this Agreement shall be in writing and
shall be effective upon personal delivery or upon deposit in the U.S. mail,
postage prepaid and properly addressed to the party to be notified as set
forth below such party's signature or at such other address as such party
may designate by ten (10) days' advance written notice to the other parties
hereto.
5.3 Successors and Assigns. Except as otherwise set forth herein,
this Agreement and the rights and obligations of the parties hereunder
shall inure to the benefit of, and be binding upon, their respective
successors, assigns and legal representatives. The participation rights of
the Stockholders hereunder are only assignable (i) by each of such
Stockholders to any partner, shareholder or affiliate thereof, or (ii) to
an assignee or transferee who acquires at least 50,000 shares of Series B
Preferred Stock (or shares of Common Stock issuable upon conversion of
such Series B Preferred Stock or a combination of such Series B Preferred
Stock and Common Stock). As used herein, an "affiliate" of a Stockholder
shall mean any Person who controls, is under common control with, or is
controlled by such Stockholder.
5.4 Severability. In the event one or more of the provisions of
this Agreement should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Agreement,
and this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein.
5.5 Amendments. Any amendment or modification of this Agreement
shall be effective only if evidenced by a written instrument executed by
duly authorized representatives of the parties hereto. Any waiver by a
party of its rights hereunder shall be effective only if evidenced by a
written instrument executed by a duly authorized representative of such
party, provided, however, that holders of a majority of the Common Stock
issued or issuable upon conversion of the Series B Preferred Stock may,
with the prior written consent of the Founders and the Company, waive,
modify or amend on behalf of all Stockholders any provisions hereof. In no
event shall such waiver of any rights hereunder constitute the waiver of
such rights in any future instance unless the waiver so specifies in
writing.
5.6 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware
without regard to conflict of laws.
5.7 Other Obligations of Company. The Company agrees to use its
best efforts to enforce the terms of this Agreement, to inform the Founders
and Stockholders of any breach hereof and to assist the Founders and
Stockholders in the exercise of their rights and performance of their
obligations under Article 3 hereof.
5.8 Ownership of Shares. Each Founder represents and warrants, with
respect to the shares of Common Stock owned by such Founder, that such
Founder is the sole legal and beneficial owner of the shares of Common
Stock subject to this Agreement and that no Person has any interest (other
than a community property interest) in such shares.
5.9 Voting Agreement. (a) From and after the date on which
shares of Series B Preferred Stock have been converted into shares of
Common Stock (the "Trigger Date") and for so long as the Stockholders own
in excess of ten percent (10%) of the outstanding shares of Common Stock on
a fully diluted basis, the Founders agree to vote all shares of Common
Stock owned, or controlled or voted by each of them in favor of any
Stockholders' nominees, if any, for the Board of Directors.
(b) The Founders shall not vote any shares of Common Stock
owned or controlled by either of them to remove any of the Stockholders'
nominees from the Board without the consent of Stockholders holding a
majority of the shares of Series B Preferred Stock and Common Stock issued
upon conversion of the Series B Preferred Stock owned by all such
Stockholders ("Majority in Interest"). Any vacancy on the Board caused by
the death, resignation or removal of any of the Stockholders' nominees
shall be filled promptly by another person nominated by the Majority in
Interest at a special meeting of the Company's stockholders held for that
purpose. The failure of the Stockholders to exercise their rights under
this Section 5.9 shall not constitute a waiver of their right to exercise
such right in the future.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year indicated above.
FOUNDERS:
----------------------------
Robert A. Buschman
Address: 10101 Reunion Place, Suite 210
San Antonio, Texas 78216
------------------------------
Guy Bob Buschman
Address: 10101 Reunion Place, Suite 210
San Antonio, Texas 78216
COMPANY:
RIO GRANDE, INC.
---------------------------
By:
Title:
Address: 10101 Reunion Place
Union Square, Suite 210
San Antonio, TX 78216
Attention: President
STOCKHOLDER:
KOCH EXPLORATION COMPANY
----------------------------
By:
Title:
Address: 4111 E. 37th Street North
Wichita, KS 67220
Attention: Vice President
Consent of Spouse:
I acknowledge that I have read the foregoing Agreement and that I
know its contents, and I agree to be deemed to be a "Founder" for purposes
of the foregoing Agreement. I am aware that by its provisions if I and/or
my spouse agree to sell all or part of the shares of Common Stock of the
Company held of record by either or both of us, including my community
property interest in such shares, if any, co-sale rights (as described in
the Agreement) must be granted to the Stockholders by the seller. I hereby
agree that those shares and my interest in them, if any, are subject to the
provisions of the Agreement and that I will take no action at any time to
hinder operation of, or violate, the Agreement.
SPOUSE OF ROBERT A. BUSCHMAN:
--------------------------------
Name:
SPOUSE OF GUY BOB BUSCHMAN:
---------------------------------
Cindy Buschman
Exhibit 5
CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS
OF
SERIES A PREFERRED STOCK
SERIES B PREFERRED STOCK
SERIES C PREFERRED STOCK
OF
RIO GRANDE, INC.
RIO GRANDE, INC., a Delaware corporation (the "Company"), acting
pursuant to Section 151 of the General Corporation Law of Delaware, does
hereby submit the following Certificate of Designation, Preferences and
Rights of its Series A Preferred Stock, Series B Preferred Stock and Series
C Preferred Stock.
FIRST: The name of the Company is Rio Grande, Inc.
SECOND: At a duly called meeting of the Board of Directors of the
Company held January 15, 1997, the following resolutions were duly adopted:
WHEREAS the Certificate of Incorporation of the Company authorizes
preferred stock consisting of 3,000,000 shares, par value $.01 per share
("Preferred Stock"), issuable from time to time in one or more series, and
common stock consisting of 12,000,000 shares, par value $.01 per share
("Common Stock"); and
WHEREAS the Board of Directors of the Company is authorized to
establish and fix the number of shares to be included in any series of
Preferred Stock and the designation, rights, preferences, powers,
restrictions and limitations of the shares of such series; and
WHEREAS it is the desire of the Board of Directors to establish and
fix the number of shares to be included in three new series of Preferred
Stock, to wit: 700,000 shares of Series A Preferred Stock, 500,000 shares
of Series B Preferred Stock and 500,000 shares of Series C Preferred Stock,
having the respective rights, preferences, powers, restrictions and
limitations described below;
NOW, THEREFORE, BE IT RESOLVED that pursuant to Section 4 of the
Company's Certificate of Incorporation, as amended, there is hereby
established the following series of Preferred Stock, par value $.01, of the
Company to have the following designations, rights, preferences, powers,
restrictions and limitations, which shall be deemed to be set forth in a
supplement to Section 4 of the Company's Certificate of Incorporation:
A. Series A Preferred Stock.
There is hereby established a Series A Preferred Stock, consisting of
700,000 shares, having a face value of $10.00 per share (the "Face Value")
and having the rights, preferences, powers, restrictions and limitations
set forth in this Article A. For all purposes in this Article A pertaining
to the Series A Preferred Stock, the term "Junior Stock" shall include
Series B Preferred Stock, Series C Preferred Stock, Common Stock and other
capital stock of the Company not expressly designated to be on parity with
or senior to the Series A Preferred Stock.
2. Dividends.
The holders of the Series A Preferred Stock shall be entitled to
receive, out of funds legally available therefor, cumulative dividends at
the rate of 15% of the Face Value of the Series A Preferred Stock (subject
to appropriate adjustments in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such shares) per
share per annum, payable in preference and priority to any payment of any
cash dividend on Junior Stock and payable on the first day of February,
May, August and November of each year ("Dividend Payment Date"), when and
as declared by the Board of Directors of the Company; provided that the
first Dividend Payment Date shall be May 1, 1997 and such dividend payment
shall include pro-rata dividends from the date of issuance of the Series A
Preferred Stock to January 31, 1997.
Such dividends shall accrue with respect to each share of Series A
Preferred Stock from the date on which such share is issued and outstanding
and thereafter shall be deemed to accrue from day to day whether or not
earned or declared and whether or not there exists profits, surplus or
other funds legally available for the payment of dividends, and shall be
cumulative so that if such dividends on the Series A Preferred Stock shall
not have been paid, or declared and set apart for payment, the deficiency
shall be fully paid or declared and set apart for payment before any
dividend shall be paid or declared or set apart for any Junior Stock and
before any purchase or acquisition of any Junior Stock is made by the
Company. At the earlier of: (i) prior to the redemption of the Series A
Preferred Stock; (ii) three (3) days prior to the consummation of an
underwritten Registered Public Offering of the type described in Section
A.4(a); or (iii) the liquidation of the Company, the sale of the Company
or, directly or indirectly, all or substantially all of its assets, or the
merger, consolidation or other combination of the Company with another
entity in a transaction in which the Company is not the surviving entity,
any accrued but undeclared dividends shall be paid to the holders of record
of outstanding shares of Series A Preferred Stock. No accumulation of
dividends on the Series A Preferred Stock shall bear interest.
2. Liquidation, Dissolution or Winding Up.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company, the holders of shares of Series A
Preferred Stock then outstanding shall be entitled to be paid out of the
assets of the Company available for distribution to its stockholders,
before any payment shall be made to the holders of Junior Stock by reason
of their ownership thereof, an amount equal to the Face Amount per share of
Series A Preferred Stock plus any accrued but unpaid dividends to the
payment date (whether or not declared) (the "Liquidation Value"). If upon
any such liquidation, dissolution or winding up of the Company the
remaining assets of the Company available for distribution to its
stockholders shall be insufficient to pay the holders of shares of Series A
Preferred Stock the full amount to which they shall be entitled, the
holders of shares of Series A Preferred Stock shall share ratably in any
distribution of the remaining assets and funds of the Company in proportion
to the respective amounts which would otherwise be payable in respect of
the shares held by them upon such distribution if all amounts payable on or
with respect to such shares were paid in full.
(b) Unless the holders of a majority of the Series A Preferred Stock
then outstanding otherwise consent in writing or by vote, the merger,
consolidation or other combination of the Company into or with another
corporation, partnership, limited liability company or other entity which
results in the exchange of more than 50% of the voting securities of the
Company for securities or other consideration issued or paid or caused to
be issued or paid by such other corporation, partnership, limited liability
company or other entity or an affiliate thereof, or the sale, directly or
indirectly, of all or substantially all the assets of the Company, shall be
deemed to be a liquidation, dissolution or winding up of the Company for
purposes of this Section, and shall entitle the holders of Series A
Preferred Stock to receive at the closing, in cash, securities or other
property, the amounts as specified in Section A.2(a) above. The value of
such property, rights or other securities shall be determined in good faith
by the Board of Directors of the Company.
3. Voting.
(a) Generally. Except as otherwise provided by applicable law or as
provided in this Section A, Series A Preferred Stock shall not entitle the
holders thereof to any voting rights.
(b) No Impairment. The Company shall not amend, alter or repeal
preferences, rights, powers or other terms of the Series A Preferred Stock,
whether in the Certificate of Incorporation or Bylaws of the Company or
otherwise, so as to affect adversely the Series A Preferred Stock, or
amend, alter or repeal this Section A.3, without the prior written consent
or affirmative vote of the holders of a majority of the then outstanding
shares of Series A Preferred Stock, given in writing or by vote at a
meeting, consenting or voting (as the case may be) separately as a class.
For this purpose, without limiting the generality of the foregoing, the
authorization or issuance of any series of Preferred Stock or other capital
stock which is on a parity with or has preference or priority over the
Series A Preferred Stock as to the right to receive either dividends or
amounts distributable upon liquidation, dissolution or winding up of the
Company shall be deemed to affect adversely the Series A Preferred Stock.
(c) Common Stock Dividends. Prior to January 16, 1999, or if at any
time the Company is in arrears in the payment of dividends as set forth in
Section A.1, the Company shall not declare or pay cash dividends or other
distributions on or with respect to shares of Common Stock without the
prior written consent or affirmative vote of the holders of a majority of
the then outstanding shares of Series A Preferred Stock, given in writing
or by vote at a meeting, consenting or voting (as the case may be)
separately as a class.
4. Redemption of the Series A Preferred Stock.
(a) Mandatory Redemption. If, on or before January 16, 2002, the
Company completes successfully a Registered Public Offering, the Company
shall redeem (unless otherwise prevented by law) all (but not less than
all) outstanding shares of Series A Preferred Stock (a "Mandatory
Redemption") at an amount per share equal to the Face Value plus accrued
but unpaid dividends on such shares, if any, accrued to the date of
redemption (the "Mandatory Redemption Price"). As used herein, "Registered
Public Offering" shall refer to a public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, other
than a registration effected in connection with an employee benefit plan or
a transaction of a type specified in Rule 145 under such Act (or any
successor thereto). The redemption shall occur on the same day on which
the Registered Public Offering is consummated (the "Mandatory Redemption
Date").
Not more than 60 days nor less than 10 days before the Mandatory
Redemption Date, the Company shall send notice of the Mandatory Redemption
by first-class certified mail, postage prepaid and return receipt
requested, to the holders of the shares of Series A Preferred Stock to be
redeemed at their respective addresses as the same shall appear on the
books of the Company. The notice shall refer to this Section A.4(a) and
shall specify the Mandatory Redemption Date and the time and place of the
Mandatory Redemption. Before, on or after the Mandatory Redemption Date,
each holder of Series A Preferred Stock to be redeemed shall surrender to
the Company the certificate or certificates representing such shares, in
the manner and at the place designated in the Mandatory Redemption Notice,
and thereupon the Mandatory Redemption Price of such shares shall be
payable to the order of the person whose name appears on such certificate
or certificates as the owner thereof and each surrendered certificate shall
be cancelled. Notwithstanding delivery of a Mandatory Redemption Notice in
accordance with this Section A.4(a), any such notice shall be deemed
conditional and expressly subject to consummation of the Registered Public
Offering referred to hereinabove, and if said Registered Public Offering
shall not be consummated, any such Mandatory Redemption Notice shall be
deemed void ab initio and of no force and effect.
(b) Redemption at Option of Majority of Holders. If the Company
does not successfully complete a Registered Public Offering (as described
in Section A.4(a)) on or before January 16, 2002, then at any time after
January 16, 2002 but only at any time during the first 10 days after each
Dividend Payment Date (the "Redemption Election Period") the holders of a
majority of the then issued and outstanding shares of Series A Preferred
Stock (the "Majority Holders") may elect to require the Company to redeem
shares of Series A Preferred Stock at an amount equal to the Face Value
plus accrued but unpaid dividends to the respective dates of redemption of
the shares (the "Optional Redemption Price") in accordance with this
Section A.4(b). The Majority Holders may require the Company to redeem
with respect to each Redemption Election Period up to that number of shares
of Series A Preferred Stock equal to 10% of the aggregate number of shares
of Series A Preferred Stock that the Company has issued (whether or not
then issued or outstanding, including shares of Series A Preferred Stock
that were issued and subsequently redeemed or otherwise cancelled) as of
the beginning of such Redemption Election Period.
If the Majority Holders elect to cause such a redemption, they shall
so notify the Company in writing (the "Redemption Exercise Notice"). Upon
receipt of the Redemption Exercise Notice the Company shall promptly (and
in any event within 10 days of receipt of the Redemption Exercise Notice)
notify all holders of Series A Preferred Stock of such election by sending
a notice (the "Optional Redemption Notice") by first class certified mail,
postage prepaid and return receipt requested to the holders of Series A
Preferred Stock at their respective addresses as the same shall appear on
the books of the Company. The Optional Redemption Notice shall refer to
this Section A.4(b) and shall specify the last day of the month following
the month during which the Company received the Redemption Exercise Notice
as the date on which shares of Series A Preferred Stock will be redeemed in
accordance with this Section A.4(b) (the "Optional Redemption Date"). The
Company shall promptly notify (the "Section A.4(b) Redemption Notice") each
holder of Series A Preferred Stock of the number of shares of Series A
Preferred Stock held by such holder which are being redeemed pursuant to
this Section on any Optional Redemption Date. An election by the Majority
Holders in accordance with this Section A.4(b) shall be binding upon all
holders of the Series A Preferred Stock, and shares of Series A Preferred
Stock shall be redeemed pro rata among all holders of said shares to give
effect to the provisions of this Section A.4(b).
Upon receipt of the Section A.4(b) Redemption Notice, and before, on
or after the Optional Redemption Date, each holder of Series A Preferred
Stock to be redeemed shall surrender to the Company the certificate or
certificates representing such shares, in the manner and at the place
designated in the Section A.4(b) Redemption Notice, and thereupon the
Optional Redemption Price of such shares shall be payable to the order of
the person whose name appears on such certificate or certificates as the
owner thereof and each surrendered certificates shall be cancelled. The
Company shall promptly reissue to such holders (or their nominees)
certificates evidencing any shares of Series A Preferred Stock represented
by the surrendered certificates which are not redeemed.
(c) Redemption at the Option of the Company. The Company may at any
time after January 16, 2003 redeem all of the then issued and outstanding
shares of Series A Preferred Stock as set forth in this Section A.4(c) if
all accrued dividends have been declared and paid to the holders of record
of the outstanding shares of Series A Preferred Stock through the most
recent Dividend Payment Date. The date of such redemption (the "Company
Redemption Date") shall be designated in the notice described in the
succeeding paragraph and must be a date within ten (10) business days after
a Dividend Payment Date. The redemption price for any redemption pursuant
to this Section A.4(c) (the "Company Redemption Price") shall be the Face
Value of all of the outstanding shares of Series A Preferred Stock plus an
additional amount equal to 10% of the Face Value of such outstanding shares
of Series A Preferred Stock.
Not more than sixty (60) days nor less than fifteen (15) days before
the Company Redemption Date, the Company shall send notice of the
redemption by first-class, certified mail, postage prepaid and return
receipt requested, to all of the holders of the shares of Series A
Preferred Stock at their respective addresses as the same shall appear on
the books of the Company. The notice shall refer to this Section A.4(c)
and shall specify the Company Redemption Date and the time and place of the
redemption. Before, on or after the Company Redemption Date, each holder
of Series A Preferred Stock shall surrender to the Company the certificate
or certificates representing such shares, in the manner and at the place
designated in the Company Redemption Notice, and thereupon the Company
Redemption Price of such shares shall be payable to the order of the person
whose name appears on such certificate or certificates as the owner thereof
and each surrendered certificate shall be cancelled.
(d) Provision for Payment. "Redemption Date" shall refer to the
Mandatory Redemption Date (in the case of redemptions governed by Section
A.4(a)), an Optional Redemption Date (in the case of redemptions governed
by Section A.4(b)), and a Company Redemption Date (in the case of
redemptions governed by Section A.4(c). "Redemption Price" shall mean the
amount to be paid by the Company on a particular Redemption Date pursuant
to Section A.4(a) (as the Mandatory Redemption Price), Section A.4(b) (as
the Optional Redemption Price), or Section A.4(c) (as the Company
Redemption Price) as applicable. On or prior to each Redemption Date, the
Company shall deposit the Redemption Price of all shares of Series A
Preferred Stock designated for redemption on that Redemption Date with a
bank or trust corporation having aggregate capital and surplus in excess of
$100,000,000 as a trust fund for the benefit of the respective holders of
the shares designated for redemption and not yet redeemed, with irrevocable
instructions and authority to the bank or trust corporation to pay the
Redemption Price for such shares to their respective holders on or after
the related Redemption Date upon receipt of notification from the Company
that such holder has surrendered his share certificate to the Company
pursuant to Section A.4(a), Section A.4(b) or Section A.4(c) above. As of
the Redemption Date, the deposit shall constitute full payment of the
shares being redeemed on that Redemption Date, and from and after the
Redemption Date the shares so called for redemption on that Redemption Date
shall be redeemed and shall be deemed to be no longer outstanding, and the
holders thereof shall cease to be stockholders with respect to such shares
and shall have no rights with respect thereto except the rights to receive
from the bank or trust corporation payment of the Redemption Price of the
shares, without interest, upon surrender of their certificates therefor.
The balance of any moneys deposited by the Company pursuant to this Section
A.4(d) remaining unclaimed at the expiration of three (3) years following
the Redemption Date shall thereafter be returned to the Company upon its
request expressed in a resolution of its Board of Directors.
(e) Rights Upon Redemption. From and after the Redemption Date,
unless there shall have been a default in payment of the Redemption Price,
all rights of the holders of shares of Series A Preferred Stock to be
redeemed on that Redemption Date as holders of Series A Preferred Stock
(except the right to receive the Redemption Price without interest upon
surrender of their certificate or certificates) shall cease with respect to
such shares, and such shares shall not thereafter be transferred on the
books of the Company or be deemed to be outstanding for any purpose
whatsoever. If the funds of the Company legally available for redemption
of shares of Series A Preferred Stock on any Redemption Date are
insufficient to redeem the total number of shares of Series A Preferred
Stock to be redeemed on such date, those funds which are legally available
will be used to redeem the maximum possible number of such shares ratably
among the holders of such shares to be redeemed based upon their holdings
of Series A Preferred Stock. At any time thereafter when additional funds
of the Company in excess of One Hundred Thousand Dollars ($100,000) are
legally available for the redemption of shares of Series A Preferred Stock,
such funds will immediately be used to redeem the balance of the shares
which the Company has become obligated to redeem on any Redemption Date,
but which it has not redeemed. The shares of Series A Preferred Stock not
redeemed shall remain outstanding and entitled to all the rights and
preferences provided herein.
(f) Cancellation of Redeemed Stock. Any shares of Series A
Preferred Stock redeemed pursuant to this Section shall be cancelled and
shall not under any circumstances be reissued; and the Company may from
time to time take such appropriate corporate action as may be necessary to
reduce accordingly the number of authorized shares of the Company's capital
stock.
(g) Acquisition by Company. The Company will not, and will not
permit any subsidiary of the Company to, purchase or acquire any shares of
Series A Preferred Stock otherwise than pursuant to (A) the terms of this
Section A.4 or (B) an offer made on the same terms to all holders of Series
A Preferred Stock at the time outstanding.
5. No Sinking Fund.
There shall be no sinking fund for the payment of dividends, or
liquidation preferences on the Series A Preferred Stock or the redemption
of any shares thereof.
B. Series B Preferred Stock
There is hereby established a Series B Preferred Stock, consisting of
500,000 shares, having a face value of $10.00 per share (the "Face Value")
and having the rights, preferences, powers, restrictions and limitations
set forth in this Article B. Except as set forth herein, for all purposes
in this Article B pertaining to the Series B Preferred Stock, the term
"Junior Stock" shall include Series C Preferred Stock, Common Stock and
other capital stock of the Company not expressly designated to be on parity
with or senior to the Series B Preferred Stock; provided, however, that
Series C Preferred Stock shall not be junior to the Series B Preferred
Stock with respect to the payment of dividends as set forth in Section C.1
and Section B.1, respectively, and dividends on the Series C Preferred
Stock shall be payable in preference and priority to any payment of
dividends on the Series B Preferred Stock.
1. Dividends.
The holders of the Series B Preferred Stock shall be entitled to
receive, out of funds legally available therefor, cumulative dividends at
the rate of .035 shares of Series C Preferred Stock (subject to appropriate
adjustments in the event of any stock dividend, stock split, combination or
other similar recapitalization affecting such shares) per fiscal quarter of
the Company per share of Series B Preferred Stock. On the earlier to occur
of (i) the date on which the Company does not have a sufficient number of
shares of Series C Preferred Stock available for issue as dividends
hereunder or (ii) the date on which any shares of Series B Preferred Stock
are redeemed pursuant to Section B.4 below, then in lieu of the dividend
described in the first sentence of this Section B.1, the holders of the
Series B Preferred Stock shall be entitled to receive, out of funds legally
available therefor, cumulative cash dividends compounded annually at the
rate of 14% of the Face Value of the Series B Preferred Stock per share per
annum (subject to appropriate adjustments in the event of any stock
dividend, stock split, combination or other similar recapitalization
affecting such shares). All dividends on Series B Preferred Stock shall be
payable in preference and priority to any payment of any dividend on Junior
Stock, but payable after any payment of any dividend on Series A Preferred
Stock and Series C Preferred Stock, and payable on the first day of
February, May, August and November of each year ("Dividend Payment Date"),
when and as declared by the Board of Directors of the Company; provided
that the first Dividend Payment Date shall be May 1, 1997 and shall include
dividends beginning February 1, 1997.
Such dividends shall accrue with respect to each share of Series B
Preferred Stock beginning on February 1, 1997 and thereafter shall be
deemed to accrue from day to day whether or not earned or declared and
whether or not there exists profits, surplus or other funds legally
available for the payment of dividends, and shall be cumulative so that if
such dividends on the Series B Preferred Stock shall not have been paid, or
declared and set apart for payment, the deficiency shall be fully paid or
declared and set apart for payment before any dividend shall be paid or
declared or set apart for any Junior Stock and before any purchase or
acquisition of any Junior Stock is made by the Company. At the earlier of:
(i) prior to the redemption of the Series B Preferred Stock; (ii) three (3)
days prior to the consummation of an underwritten Registered Public
Offering of the type described in Section B.4(a); or (iii) the liquidation
of the Company, the sale of the Company or, directly or indirectly, all or
substantially all of its assets, or the merger, consolidation or other
combination of the Company with another entity in a transaction in which
the Company is not the surviving entity, any accrued but undeclared
dividends shall be paid to the holders of record of outstanding shares of
Series B Preferred Stock. No accumulation of dividends on the Series B
Preferred Stock shall bear interest.
Within ten (10) days after each Dividend Payment Date, holders of
Series B Preferred Stock will receive written notification from the Company
or the transfer agent specifying the number of shares of Series C Preferred
Stock paid as a dividend and the recipient's aggregate holdings of Series C
Preferred Stock as of that Dividend Payment Date and after giving effect to
the dividend. Certificates evidencing the shares of Series C Preferred
Stock issued as dividends on the Series B Preferred Stock shall be mailed
promptly by the Company to the holders of record of the Series B Preferred
Stock as their names and addresses appear on the share register of the
Company or at the office of the transfer agent on the corresponding
Dividend Payment Date.
2. Liquidation, Dissolution or Winding Up.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company, the holders of shares of Series B
Preferred Stock then outstanding shall be entitled to be paid out of the
assets of the Company available for distribution to its stockholders, after
and subject to the payment in full of all amounts required to be
distributed to the holders of Series A Preferred Stock of the Company, but
before any payment shall be made to the holders of Junior Stock by reason
of their ownership thereof, an amount equal to $10 per share of Series B
Preferred Stock plus accrued but unpaid dividends to the payment date
(whether or not declared) (the "Liquidation Value"). If upon any such
liquidation, dissolution or winding up of the Company the remaining assets
of the Company available for distribution to its stockholders shall be
insufficient to pay the holders of shares of Series B Preferred Stock the
full amount to which they shall be entitled, the holders of shares of
Series B Preferred Stock shall share ratably in any distribution of the
remaining assets and funds of the Company in proportion to the respective
amounts which would otherwise be payable in respect of the shares held by
them upon such distribution if all amounts payable on or with respect to
such shares were paid in full.
(b) Unless the holders of a majority of the Series B Preferred Stock
then outstanding otherwise consent in writing or by vote, the merger,
consolidation or other combination of the Company into or with another
corporation, partnership, limited liability company or other entity which
results in the exchange of more than 50% of the voting securities of the
Company for securities or other consideration issued or paid or caused to
be issued or paid by such other corporation, partnership, limited liability
company or other entity or an affiliate thereof, or the sale, directly or
indirectly, of all or substantially all the assets of the Company, shall be
deemed to be a liquidation, dissolution or winding up of the Company for
purposes of this Section, and shall entitle the holders of Series B
Preferred Stock to receive at the closing in cash, securities or other
property the amounts as specified in Section B.2(a) above. The value of
such property, rights or other securities shall be determined in good faith
by the Board of Directors of the Company.
3. Voting.
(a) General Right. In addition to the other voting rights provided
by this Section B or provided by applicable law, each holder of outstanding
shares of Series B Preferred Stock shall be entitled to vote the Weighted
Number of Votes (as defined below) related to the number of shares of
Series B Preferred Stock held by such holder at each meeting of
stockholders of the Company (and written actions of stockholders in lieu of
meetings) with respect to any and all matters presented to the stockholders
of the Company for their action or consideration. "Weighted Number of
Votes" as to one share of Series B Preferred Stock means as of any
particular date the quotient of the Targeted Voting Power as of such date
divided by the number of shares of Series B Preferred Stock issued and
outstanding as of such date. For so long as 500,000 shares of Series B
Preferred Stock are issued and outstanding, the "Targeted Voting Power"
shall mean, as of a particular date on which the vote of stockholders is
taken, that number of votes necessary to result in all of the holders of
the then issued and outstanding shares of Series B Preferred Stock holding
collectively 24% of the votes eligible for casting on that date and the
holders of the then issued and outstanding shares of Common Stock holding,
collectively, 76% of the votes eligible for casting on that date.
Notwithstanding the foregoing, if at any time the Company shall be in
arrears in whole or in part with regard to quarterly dividends as specified
in Section B.1 for three (3) consecutive Dividend Payment Dates, the
holders of a majority of the then issued and outstanding shares of Series B
Preferred Stock may notify the Company of their election to exercise their
rights under this sentence and, upon the Company's receipt of such notice
and unless and until the Company distributes in full to the holders of
Series B Preferred Stock all dividends which are in arrears, the "24%"
percentage contained in the definition of "Targeted Voting Power" shall be
deemed to be "51%", subject to adjustment as set forth below. If at any
time less than 500,000 shares of Series B Preferred Stock are issued and
outstanding, then the percentages specified above in the definition of
"Targeted Voting Power" (i.e., 24% or 51%, as the case may be) shall be
reduced by multiplying said Targeted Voting Power by a fraction, the
numerator of which shall be the number of shares of Series B Preferred
Stock which are then issued and outstanding and the denominator of which
shall be 500,000.
Except as provided by law, by the provisions of Subsection B.3(b),
B.3(c) or B.3(d) or by the provisions establishing any other series of
Preferred Stock, holders of Series B Preferred Stock shall vote together
with the holders of Common Stock as a single class.
(b) No Impairment. The Company shall not amend, alter or repeal
preferences, rights, powers or other terms of the Series B Preferred Stock,
whether in the Certificate of Incorporation or Bylaws of the Company or
otherwise, so as to affect adversely the Series B Preferred Stock, or
amend, alter or repeal this Section B.3, without the prior written consent
or affirmative vote of the holders of a majority of the then outstanding
shares of Series B Preferred Stock, given in writing or by vote at a
meeting, consenting or voting (as the case may be) separately as a class.
For this purpose, without limiting the generality of the foregoing, the
authorization or issuance of any series of Preferred Stock or other capital
stock which is on a parity with or has preference or priority over the
Series B Preferred Stock as to the right to receive either dividends or
amounts distributable upon liquidation, dissolution or winding up of the
Company shall be deemed to affect adversely the Series B Preferred Stock.
(c) Voting on other Certain Events. Without the prior written
consent or affirmative vote of the holder(s) of a majority of the then
outstanding shares of Series B Preferred Stock, voting as a single class,
in person or by proxy, either in writing without a meeting or at a special
or annual meeting of shareholders called for the purpose, the Company shall
not, and it will cause its subsidiaries not to:
(i) authorize or issue shares of any class of stock (other
than the Series A and Series C Preferred Stock authorized hereby)
having any preference or priority as to dividends or assets superior
to or on a parity with any such preference or priority of the Series
B Preferred Stock;
(ii) permit the number of directors constituting the Board of
Directors of the Company to be less than six or more than nine;
(iii) reclassify any shares of any class of stock into
shares having any preference or priority as to dividends or assets
superior to or on a parity with any such preference or priority of
the Series B Preferred Stock;
(iv) engage in any business other than acquiring, producing,
selling and developing oil and gas properties and exploring for,
producing, transporting, marketing and selling oil, natural gas and
related hydrocarbons;
(v) repurchase or agree to repurchase more than 12,500 shares
of its Common Stock or any options, warrants or other rights to
acquire shares of its Common Stock; provided, however, this provision
shall not be interpreted as limiting the redemption rights of the
Company or the holders of the Series A Preferred Stock, Series B
Preferred Stock, or Series C Preferred Stock as set forth in this
Certificate of Designation, or as limiting the ability of the Company
with Board approval to repurchase up to 75,000 shares of Common Stock
(or rights to acquire Common Stock) from employees other than Robert
A. Buschman, Guy Bob Buschman, or Gary Scheele);
(vi) without limiting any other right of the holders of Series
B Preferred Stock, pay cash dividends or make any other distribution
on any shares of Common Stock at any time prior to January 16, 1999;
(vii) enter into, or permit a Subsidiary to enter into, any new
agreement or make any amendment to any existing agreement, which by
its terms would restrict the Company's performance of its obligations
to holders of Series B Preferred Stock; or
(viii) reduce the percentage of shares of Series B Preferred
Stock required to consent to any of the above matters, or alter or
negate the need for such consent.
(d) Board of Directors.
(i) For so long as there are more than 200,000 shares of
Series B Preferred Stock issued and outstanding, the holders of the Series
B Preferred Stock shall have the right at each stockholder meeting for the
election of directors and from time to time, voting as a class separate and
apart from the Common Stock, to nominate and elect to the Company's board
of directors ("Board"), that number of individuals (the "Series B
Nominees") who, immediately after giving effect to their election and at
all times thereafter, represent not less than one-third of the number of
members constituting the Board; provided, however, that if there are less
than 200,000 shares of Series B Preferred Stock issued and outstanding, the
holders of the Series B Preferred Stock shall have the right to elect one
member of the Board of Directors; and provided further that a majority of
the holders of Series B Preferred Stock may waive the foregoing rights in
whole or in part and designate a lesser number of Series B Nominees for
election as directors at any stockholder meeting for the election of
directors, which waiver shall be effective until the next annual meeting of
stockholders.
(ii) In the event (A) the Company shall be in arrears in whole
or in part with regard to quarterly dividends as specified in Section B.1
for three (3) consecutive Dividend Payment Dates or (B) does not redeem the
Series B Preferred Stock on the Redemption Date as required in Section B.4
or (C) a Significant Event occurs (the occurrence of any of the events
described in (A), (B) or (C) being an "Additional Board Election Event"),
and so long thereafter as such failure to pay dividends or redeem shares or
Significant Event remains uncured (the "Additional Board Election Period"),
the holders of the Series B Preferred Stock shall have the right at any
annual or special meeting of stockholders, voting as a class separate and
apart from the Common Stock, to nominate and elect to the Company's Board
such number of individuals (the "Additional Nominees") who, immediately
after giving effect to their election together with the persons serving on
the Board pursuant to Section B.4(d)(i), if any, represent a majority of
the number of members constituting the Company's Board. A "Significant
Event" shall mean and be deemed to exist with respect to the Company if (i)
the Company files a voluntary petition, or there is filed against the
Company an involuntary petition, seeking relief under any applicable
bankruptcy or insolvency law, (ii) a receiver is appointed for any of the
Company's properties or assets, (iii) the Company makes or consents to the
making of a general assignment for the benefit of creditors or (iv) the
Company becomes insolvent or generally fails to pay, or admits in writing
its inability or unwillingness to pay, its debts as they become due. If an
Additional Board Election Event occurs, the following shall apply:
(x) Upon the request of the holders of a majority of the
Series B Preferred Stock, the Company shall call a special
meeting ("Special Meeting") of the Company's stockholders as a
result of the occurrence of an Additional Board Election Event,
such Special Meeting to be held as soon as reasonably
practicable but not later than sixty (60) days thereafter. The
failure of the holders of the Series B Preferred Stock to
exercise their rights under this clause (x) shall not constitute
a waiver of their right to exercise such right in the future.
(y) At the Special Meeting and if a quorum consisting of
the holders of a majority of the Series B Preferred Stock are
present in person or by proxy, the Additional Nominees shall be
nominated and elected by the vote as a class of the Series B
Preferred Stock with each share of Series B Preferred Stock
entitled to one vote. Once elected, the Additional Nominees
shall serve until the Additional Board Election Period
terminates, subject to their reelection each year by the Series
B Preferred Stock, as provided for herein, at the annual meeting
of the Company.
(z) The Additional Board Election Period shall terminate
by reason of the cure or waiver in writing (signed by the
holders of a majority of the Series B Preferred Stock) of the
Additional Board Election Event and at such time, subject to
revesting of such rights in the event of a subsequent occurrence
of an Additional Board Election Event thereafter, the term of
office of the Additional Nominees shall terminate with respect
to such Additional Board Election Period, the right of the
Series B Stock to nominate the Additional Nominees shall expire
with respect to such Additional Board Election Period and the
Additional Nominees shall thereupon be deemed to have been
removed as members of the Board.
(iii) Except as set forth in Section B.3(d)(ii)(z), no Board
member elected by the holders of Series B Preferred Stock pursuant to this
Section B.3(d) (a "Nominee") may be removed from the Board without the
consent of the holders of a majority of the Series B Preferred Stock voting
together as a class, with each share of Series B Preferred Stock having one
vote. Any vacancy on the Board caused by the death, resignation or removal
of any Nominee shall be filled promptly by another person nominated by the
holders of a majority of the Series B Preferred Stock at a special meeting
of the Company's stockholders held for that purpose. Upon the request of
the holders of a majority of the Series B Preferred Stock, the Company
shall call a special meeting of the Company's stockholders as a result of
any vacancy on the Board caused by the death, resignation or removal of any
Nominee; such special meeting shall be held as soon as reasonably
practicable but not later than sixty (60) days thereafter (or such shorter
period as may be permitted by law). The failure of the holders of the
Series B Preferred Stock to exercise their rights under this subsection
(iii) shall not constitute a waiver of their right to exercise such right
in the future. At the special meeting and if a quorum consisting of the
holders of a majority of the Series B Preferred Stock are present in person
or by proxy, the person designated by the holders of Series B Preferred
Stock to fill such vacancy shall be nominated and elected by the vote as a
class of the Series B Preferred Stock with each share of Series B Preferred
Stock entitled to one vote.
(e) Common Stock Dividends. Prior to January 16, 1999, or if at any
time the Company is in arrears in the payment of dividends as set forth in
Section B.1, the Company shall not declare or pay cash dividends or other
distributions on or with respect to shares of Common Stock without the
prior written consent or affirmative vote of the holders of a majority of
the then outstanding shares of Series B Preferred Stock, given in writing
or by vote at a meeting, consenting or voting (as the case may be)
separately as a class.
4. Redemption of the Series B Preferred Stock.
(a) Optional Redemption On or Before January 16, 2002 at Option of
Majority Holders. If, on or before January 16, 2002, the Company completes
successfully a Registered Public Offering resulting in gross proceeds to
the Company of more than $15,000,000 but less than or equal to $20,000,000,
each holder of Series B Preferred Stock may elect to require the Company to
redeem not more than one-half (1/2) of the then issued and outstanding
shares of Series B Preferred Stock owned by such holder as provided below
(a "Section B.4(a) Redemption") at an amount per share of Series B
Preferred Stock equal to the offering price per share of the Common Stock
in such Registered Public Offering (the "Section B.4(a) Redemption Price").
Upon such an election, an equal percentage of Series B Preferred Stock held
by any such holder shall be converted in accordance with the provisions of
Section B.6(b), below. As used herein, "Registered Public Offering" shall
refer to a public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, other than a registration
effected in connection with an employee benefit plan or a transaction of a
type specified in Rule 145 under such Act (or any successor thereto).
Not more than three days after the filing with the Securities and
Exchange Commission of the Registration Statement related to the Registered
Public Offering, the Company shall send notice of the Registered Public
Offering by first-class certified mail, postage prepaid and return receipt
requested, to the holders of the shares of Series B Preferred Stock at
their respective addresses as the same shall appear on the books of the
Company. The notice shall refer to this Section B.4(a), shall specify the
projected closing date and the estimated range of the offering price per
share of the Common Stock in such Registered Public Offering and shall
include a copy of the preliminary prospectus filed by the Company with the
SEC relating to the Registered Public Offering. Each holder of Series B
Preferred Stock shall have the right, at any time on or before the 15th day
after the date on which the Company mailed such notice, to deliver written
notice (the "Election Notice") to the Company electing to have a specified
portion (but not more than 1/2) of such holder's Series B Preferred Stock
redeemed by the Company pursuant to this Section B.4(a); provided such
election may be conditioned upon the Section B.4(a) Redemption Price being
not less than the minimum amount specified in such holder's Election
Notice. The Company shall promptly notify (the "Section B.4(a) Redemption
Notice") each holder of Series B Preferred Stock of the number of shares of
Series B Preferred Stock held by such holder which are being redeemed
pursuant to this Section. The redemption (and conversion pursuant to
Section B.6(b)) shall occur and be effective in all respects on the same
day on which the Registered Public Offering is consummated (the "Section
B.4(a) Redemption Date"), and thereafter the holder of shares being
redeemed pursuant to this Section B.4(a) shall have only the rights set
forth in Sections B.4(d) and Section B.4(e) hereof.
Before, on or after the Section B.4(a) Redemption Date, each holder
of Series B Preferred Stock to be redeemed shall surrender to the Company
the certificate or certificates representing such shares, in the manner and
at the place designated in the Section B.4(a) Redemption Notice, and
thereupon the Section B.4(a) Redemption Price of such shares shall be
payable to the order of the person whose name appears on such certificate
or certificates as the owner thereof and each surrendered certificates
shall be cancelled. The Company shall promptly reissue to such holders (or
their nominees) certificates evidencing the shares of Series B Preferred
Stock represented by the surrendered certificates which are not redeemed.
(b) Redemption at Option of Majority of Holders. If the Company
does not successfully complete a Registered Public Offering (as described
in Section B.4(a)) on or before January 16, 2002, then at any time after
January 16, 2002 but only at any time during the first 10 days after each
Dividend Payment Date (the "Redemption Election Period") the holders of a
majority of the then issued and outstanding shares of Series B Preferred
Stock (the "Majority Holders") may elect to require the Company to redeem
shares of Series B Preferred Stock at an amount equal to the Face Value
plus accrued but unpaid dividends to the respective dates of redemption of
the shares (the "Optional Redemption Price") in accordance with this
Section B.4(b). The Majority Holders may require the Company to redeem
with respect to each Redemption Election Period up to that number of shares
of Series B Preferred Stock equal to 10% of the aggregate number of shares
of Series B Preferred Stock that the Company has issued (whether or not
then issued or outstanding, including shares of Series B Preferred Stock
that were issued and subsequently redeemed or otherwise cancelled) as of
the beginning of such Redemption Election Period.
If the Majority Holders elect to cause such a redemption, they shall
so notify the Company in writing (the "Redemption Exercise Notice"). Upon
receipt of the Redemption Exercise Notice the Company shall promptly (and
in any event within 10 days of receipt of the Redemption Exercise Notice)
notify all holders of Series B Preferred stock of such election by sending
a notice (the "Optional Redemption Notice") by first class certified mail,
postage prepaid and return receipt requested to the holders of Series B
Preferred Stock at their respective addresses as the same shall appear on
the books of the Company. The Optional Redemption Notice shall refer to
this Section B.4(b) and shall specify the last day of the month following
the month during which the Company received the Redemption Exercise Notice
as the date on which shares of Series B Preferred Stock will be redeemed in
accordance with this Section B.4(b) (the "Optional Redemption Date"). The
Company shall promptly notify (the "Section B.4(b) Redemption Notice") each
holder of Series B Preferred Stock of the number of shares of Series B
Preferred Stock held by such holder which are being redeemed pursuant to
this Section on an Optional Redemption Date. An election by the Majority
Holders in accordance with this Section B.4(b) shall be binding upon all
holders of the Series B Preferred Stock, and Series B Preferred Stock shall
be redeemed pro rata among all holders of said shares to give effect to the
provisions of this Section B.4(b).
Upon receipt of the Section B.4(b) Redemption Notice, and before, on
or after the Optional Redemption Date, each holder of Series B Preferred
Stock to be redeemed shall surrender to the Company the certificate or
certificates representing such shares, in the manner and at the place
designated in the Section B.4(b) Redemption Notice, and thereupon the
Optional Redemption Price of such shares shall be payable to the order of
the person whose name appears on such certificate or certificates as the
owner thereof and each surrendered certificates shall be cancelled. The
Company shall promptly reissue to such holders (or their nominees)
certificates evidencing any shares of Series B Preferred Stock represented
by the surrendered certificates which are not redeemed.
(c) Redemption at the Option of the Company. The Company may at any
time after January 16, 2003 redeem all of the then issued and outstanding
shares of Series B Preferred Stock as set forth in this Section B.4(c) if
all accrued dividends have been declared and paid to the holders of record
of the outstanding shares of Series B Preferred Stock through the most
recent Dividend Payment Date. The redemption shall occur on a date
specified by the Company (the "Company Redemption Date"), which must be a
date within ten (10) business days after a Dividend Payment Date. The
redemption price for any redemption pursuant to this Section B.4(c) (the
"Company Redemption Price") shall be the Face Value of all of the
outstanding shares of Series B Preferred Stock plus an additional amount
equal to 10% of the Face Value of such outstanding shares of Series B
Preferred Stock.
Not more than sixty (60) days nor less than fifteen (15) days before
the Company Redemption Date, the Company shall send notice of redemption
pursuant to this Section B.4(c) by first-class, certified mail, postage
prepaid and return receipt requested, to all of the holders of the shares
of Series B Preferred Stock at their respective addresses as the same shall
appear on the books of the Company. The notice shall refer to this Section
B.4(c) and shall specify the Company Redemption Date and the time and place
of the redemption. Before, on or after the Company Redemption Date, each
holder of Series B Preferred Stock shall surrender to the Company the
certificate or certificates representing such shares, in the manner and at
the place designated in the Company Redemption Notice, and thereupon the
Company Redemption Price of such shares shall be payable to the order of
the person whose name appears on such certificate or certificates as the
owner thereof and each surrendered certificate shall be cancelled.
Notwithstanding the foregoing, delivery by the Company to the holders of
the Series B Preferred Stock of a Company Redemption Notice pursuant to
this Section B.4(c) shall not prejudice or foreclose the rights of said
holders to convert shares of Series B Preferred Stock to Common Stock
pursuant to Section B.5(a) hereof so long as the Conversion Date (as
defined in Section B.5(c)(i)) precedes the Company Redemption Date as
defined herein.
(d) Provision for Payment. "Redemption Date" shall refer to the
Section B.4(a) Redemption Date (in the case of redemptions governed by
Section B.4(a)), an Optional Redemption Date (in the case of redemptions
governed by Section B.4(b)), and a Company Redemption Date (in the case of
redemptions governed by Section B.4(c)). "Redemption Price" shall mean the
amount to be paid by the Company on a particular Redemption Date pursuant
to Section B.4(a), Section B.4(b), or Section B.4(c), as applicable. On or
prior to each Redemption Date, the Company shall deposit the Redemption
Price of all shares of Series B Preferred Stock designated for redemption
on that Redemption Date with a bank or trust corporation having aggregate
capital and surplus in excess of $100,000,000 as a trust fund for the
benefit of the respective holders of the shares designated for redemption
and not yet redeemed, with irrevocable instructions and authority to the
bank or trust corporation to pay the Redemption Price for such shares to
their respective holders on or after the related Redemption Date upon
receipt of notification from the Company that such holder has surrendered
his share certificate to the Company pursuant to Section B.4(a), Section
B.4(b), or Section B.4(c) above. As of the Redemption Date, the deposit
shall constitute full payment of the shares being redeemed on that
Redemption Date, and from and after the Redemption Date the shares so
called for redemption on that Redemption Date shall be redeemed and shall
be deemed to be no longer outstanding, and the holders thereof shall cease
to be stockholders with respect to such shares and shall have no rights
with respect thereto except the rights to receive from the bank or trust
corporation payment of the Redemption Price of the shares, without
interest, upon surrender of their certificates therefor. The balance of
any moneys deposited by the Company pursuant to this Section B.4(d)
remaining unclaimed at the expiration of three (3) years following the
Redemption Date shall thereafter be returned to the Company upon its
request expressed in a resolution of its Board of Directors.
(e) Rights Upon Redemption. From and after the Redemption Date,
unless there shall have been a default in payment of the Redemption Price,
all rights of the holders of shares of Series B Preferred Stock to be
redeemed on that Redemption Date as holders of Series B Preferred Stock
(except the right to receive the Redemption Price without interest upon
surrender of their certificate or certificates) shall cease with respect to
such shares, and such shares shall not thereafter be transferred on the
books of the Company or be deemed to be outstanding for any purpose
whatsoever. If the funds of the Company legally available for redemption
of shares of Series B Preferred Stock on any Redemption Date are
insufficient to redeem the total number of shares of Series B Preferred
Stock to be redeemed on such date, those funds which are legally available
will be used to redeem the maximum possible number of such shares ratably
among the holders of such shares to be redeemed based upon their holdings
of Series B Preferred Stock or upon the respective Holder Elections. At
any time thereafter when additional funds of the Company in excess of One
Hundred Thousand Dollars ($100,000) are legally available for the
redemption of shares of Series B Preferred Stock, such funds will
immediately be used to redeem the balance of the shares which the Company
has become obliged to redeem on any Redemption Date, but which it has not
redeemed. The shares of Series B Preferred Stock not redeemed shall remain
outstanding and entitled to all the rights and preferences provided herein.
(f) Cancellation of Redeemed Stock. Any shares of Series B
Preferred Stock redeemed pursuant to this Section shall be cancelled and
shall not under any circumstances be reissued; and the Company may from
time to time take such appropriate corporate action as may be necessary to
reduce accordingly the number of authorized shares of the Company's capital
stock.
(g) Acquisition by Company. The Company will not, and will not
permit any subsidiary of the Company to, purchase or acquire any shares of
Series B Preferred Stock otherwise than pursuant to (A) the terms of this
Section B.4 or (B) an offer made on the same terms to all holders of Series
B Preferred Stock at the time outstanding.
5. Optional Conversion.
The holders of the Series B Preferred Stock shall have conversion
rights as described in this Section B.5 (the "Conversion Rights"). In the
event of a liquidation of the Company, the Conversion Rights shall
terminate at the close of business on the first full day preceding the date
fixed for the payment of any amounts distributable on liquidation to the
holders of Series B Preferred Stock.
(a) Right to Convert. Each share of Series B Preferred Stock shall
be convertible, at the option of the holder thereof, at any time and from
time to time, upon surrender of certificates representing shares of Series
B Preferred Stock and without payment of any further consideration, into
the number of fully paid and nonassessable shares of Common Stock (or
rights to acquire Common Stock) described in Section B.5(a)(i) hereof at an
effective conversion price per share (the "Conversion Price") described in
Section B.5(a)(ii) hereof, subject to adjustment as provided below. The
date on which any such right to convert is exercised as provided in Section
B.5(c) hereof is hereinafter referred to as the "Conversion Date."
(i) Number of Shares. Any additional shares of Common Stock
issued by the Company at any time or from time to time after January 16,
1997 (the "Base Date") and before any applicable Conversion Date at a price
per share that is less than the then applicable Conversion Price (but not
including any shares issued as dividends or distributions as provided in
Section B.5(f) or upon a stock split or combination as provided in Section
B.5(e); any shares issuable upon conversion of the Series B Preferred
Stock; any shares issuable upon exercise of any options granted pursuant to
the terms of the Company's stock option plans existing and as in effect on
the Base Date, or up to 300,000 additional shares of Common Stock issuable
upon exercise of options granted after the Base Date pursuant to the terms
of any option plan or arrangement of the Company adopted after the Base
Date, including any shares of Common Stock issuable as a result of
antidilution provisions of any such options; and any shares of Common Stock
issuable upon exercise of warrants granted in connection with the Company's
1995 11.50% Subordinated Notes, such warrants have been amended through the
Base Date, including any shares issuable as a result of antidilution
provisions of such warrants) shall be referred to herein as "Adjustment
Shares." The number of shares of Common Stock issuable upon conversion of
each share of the Series B Preferred Stock tendered for conversion pursuant
to the terms of this Section B.5 on any date from and after the Base Date
shall initially be equal to 5.26795.
For purposes of this Section B.5, the term "Initial Number of
Fully Diluted Shares" shall mean 10,974,895 shares of Common Stock, which
number is equal to the sum of (i) the total number of shares Common Stock
issued and outstanding at the Base Date; plus (ii) the sum of the total
number of shares reserved for issuance upon exercise of options granted
pursuant to the terms of the Company's stock option plans existing and as
in effect on the Base Date plus 300,000 additional shares of Common Stock
that may be issued upon exercise of options granted after the Base Date
pursuant to the terms of any option plan or arrangement of the Company
adopted after the Base Date plus the number of shares of Common Stock
issuable upon exercise of Warrants granted in connection with the Company's
1995 11.50% Subordinated Notes, as such Warrants have been amended through
the Base Date; plus (iii) the number of shares of Common Stock that would
represent 24% of the Initial Number of Fully Diluted Shares. The number of
shares of Common Stock issuable upon conversion of each share of the Series
B Preferred Stock shall be adjusted upon the issuance of any Adjustment
Shares, on any date from and after the Base Date, to equal the total number
of shares determined by the following formula, rounded to the nearest
1/100,000 of a share: (a).24 multiplied by (b) the sum of (aa) the Initial
Number of Fully Diluted Shares plus (bb) the quotient of (aaa) the number
of shares of Adjustment Shares issued and outstanding at the Conversion
Date, divided by (bbb) 1 minus .24, divided by (c) the total number of
shares of Series B Preferred Stock issued and outstanding on the Base Date.
(ii) Conversion Price. The Conversion Price per share shall
initially be equal to $1.898.
(b) Fractional Shares. No fractional shares of Common Stock shall
be issued upon conversion of the Series B Preferred Stock. In lieu of
fractional shares, the Company shall pay cash equal to such fraction
multiplied by the then effective Conversion Price.
(c) Mechanics of Conversion.
(i) In order to convert shares of Series B Preferred Stock into
shares of Common Stock, the holder shall surrender the certificate or
certificates for such shares of Series B Preferred Stock, duly endorsed, at
the office of the transfer agent (or at the principal office of the Company
if the Company serves as its own transfer agent), together with written
notice that such holder elects to convert all or any number of the shares
represented by such certificate or certificates. Such notice shall state
such holder's name or the names of the nominees in which such holder wishes
the certificate or certificates for shares of Common Stock to be issued.
The date of receipt of such certificates and notice by the transfer agent
or the Company shall be the conversion date ("Conversion Date"). The
Company shall, as soon as practicable after the Conversion Date, issue and
deliver at such office to such holder, or to his nominees, a certificate or
certificates for the number of shares of Common Stock to which such holder
shall be entitled, together with cash in lieu of any fraction of a share.
(ii) The Company shall at all times during which the Series B
Preferred Stock shall be outstanding, reserve and keep available out of its
authorized but unissued stock, for the purpose of effecting the conversion
of the Series B Preferred Stock (whether pursuant to this Section B.5 or
pursuant to Section B.6), such number of its duly authorized shares of
Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding Series B Preferred Stock. Before taking 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 the Series B Preferred Stock, the Company will take any corporate action
which may, in the opinion of its counsel, be necessary in order that the
Company may validly and legally issue fully paid and nonassessable shares
of Common Stock at such adjusted Conversion Price.
(iii) All shares of Series B Preferred Stock, which shall have
been surrendered for conversion as herein provided shall no longer be
deemed to be outstanding and all rights with respect to such shares,
including the rights, if any, to receive dividends, notices and to vote,
shall immediately cease and terminate on the Conversion Date, except only
the right of the holders thereof to receive shares of Common Stock in
exchange therefor. Any shares of Series B Preferred Stock so converted
shall be retired and cancelled and shall not be reissued, and the Company
may from time to time take such appropriate action as may be necessary to
reduce the number of shares of authorized Series B Preferred Stock
accordingly.
(iv) If the conversion is in connection with an underwritten
offering of securities registered pursuant to the Securities Act of 1933,
as amended, the conversion may at the option of any holder tendering Series
B Preferred Stock for conversion, be conditioned upon the consummation of
the sale of securities pursuant to such offering, in which event the
person(s) entitled to receive the Common Stock issuable upon such
conversion of the Series B Preferred Stock shall not be deemed to have
converted such Series B Preferred Stock until immediately prior to the
closing of the sale of securities.
(d) Adjustment of Conversion Price Upon Issuance of Adjustment
Shares. In the event the Company shall at any time after the Base Date
issue Adjustment Shares (excluding shares issued as a dividend or
distribution as provided in Section B.5(f) or upon a stock split or
combination as provided in Section B.5(e)), without consideration or for a
consideration per share less than the applicable Conversion Price in effect
on the date of and immediately prior to such issue, then and in such event,
the Conversion Price shall be reduced, concurrently with such issue, to a
price (calculated to the nearest 1/1000 of one cent) determined by
multiplying such Conversion Price by a fraction, (A) the numerator of which
shall be equal to the Initial Number of Fully Diluted Shares, plus the
quotient of (a) the aggregate consideration received by the Company for
Adjustment Shares issued and outstanding at the Conversion Date, divided by
(b) the Conversion Price immediately preceding the event requiring such
adjustment, (B) and the denominator of which shall be equal to the sum of
the Initial Number of Fully Diluted Shares plus the number of shares of
Adjustment Shares issued and outstanding at the Conversion Date.
For purposes of this Section B.5(d), the consideration received by
the Company for the issue of any Adjustment Shares of Common Stock shall be
computed as follows:
(A) insofar as it consists of cash, be computed at the
aggregate of cash received by the Company, excluding amounts
paid or payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other than cash,
be computed at the fair market value thereof at the time of such
issue, as determined in good faith by the Board of Directors;
and
(C) in the event Adjustment Shares of Common Stock are
issued together with other shares or securities or other assets
of the Company for consideration which covers both, be the
proportion of such consideration so received, computed as
provided in clauses (A) and (B) above, as determined in good
faith by the Board of Directors.
(e) Adjustment to Conversion Price for Stock Splits and
Combinations. If the Company shall at any time or from time to time after
the Base Date effect a subdivision of the outstanding Common Stock, the
Conversion Price then in effect immediately before that subdivision shall
be proportionately decreased. If the Company shall at any time or from
time to time after the Base Date combine the outstanding shares of Common
Stock, the Conversion Price then in effect immediately before the
combination shall be proportionately increased. Any adjustment under this
paragraph shall become effective at the close of business on the date the
subdivision or combination becomes effective.
(f) Adjustment to Conversion Price for Certain Dividends and
Distributions. In the event the Company at any time, or from time to time
after the Base Date shall make or issue a dividend or other distribution
payable in additional shares of Common Stock, then and in each such event
the Conversion Price shall be decreased as of the time of such issuance, by
multiplying the Conversion Price by a fraction:
() the numerator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior
to the time of such issuance, and
() the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior
to the time of such issuance plus the number of shares of Common
Stock issuable in payment of such dividend or distribution.
(g) Adjustments for Other Dividends and Distributions. In the event
the Company at any time or from time to time after the Base Date shall make
or issue a dividend or other distribution payable in securities of the
Company other than shares of Common Stock, then and in each such event
provision shall be made so that the holders of shares of the Series B
Preferred Stock shall receive upon conversion thereof in addition to the
number of shares of Common Stock receivable thereupon, the amount of
securities of the Company that they would have received had their Series B
Preferred Stock been converted into Common Stock on the date of such event
and had thereafter, during the period from the date of such event to and
including the Conversion Date, retained such securities receivable by them
as aforesaid during such period given application to all adjustments called
for during such period, under this paragraph with respect to the rights of
the holders of the Series B Preferred Stock.
(h) Adjustment for Stock Splits, Reclassification, Exchange, or
Substitution. If at any time from and after the Base Date the Common Stock
issuable upon the conversion of the Series B Preferred Stock shall be
subdivided or combined, if any additional shares of Common Stock are issued
as a dividend or distribution of Company securities, or if the Common Stock
is otherwise changed into the same or a different number of shares of any
class or classes of stock, whether by capital reorganization,
reclassification, or otherwise (other than a dividend or distribution as
described in Section B.5(g) above, or a reorganization, merger,
consolidation, or sale of assets provided for below), then and in each such
event the holder of each share of Series B Preferred Stock shall have the
right thereafter to convert such share into the kind and amount of shares
of stock and other securities and property receivable upon such
subdivision, combination, dividend, reorganization, reclassification, or
other change, by holders of the number of shares of Common Stock into which
such shares of Series B Preferred Stock would have been converted
immediately prior to such subdivision, combination, dividend,
reorganization, reclassification, or change, all subject to further
adjustment as provided herein.
(i) Adjustment for Merger or Reorganization, etc. In case of any
consolidation or merger of the Company with or into another corporation,
partnership, limited liability company or other entity or the sale of all
or substantially all of the assets of the Company to another corporation,
partnership, limited liability company or other entity (other than a
consolidation, merger or sale which is treated as a liquidation pursuant to
Section B.2(b)), (i) if the surviving entity shall consent in writing to
the following provisions, then each share of Series B Preferred Stock shall
thereafter be convertible into the kind and amount of shares of stock or
other securities or property to which a holder of the number of shares of
Common Stock of the Company deliverable upon conversion of such Series B
Preferred Stock would have been entitled upon such consolidation, merger or
sale; and, in such case, appropriate adjustment (as determined in good
faith by the Board of Directors) shall be made in the application of the
provisions in this Section B.5 set forth with respect to the rights and
interest thereafter of the holders of the Series B Preferred Stock, to the
end that the provisions set forth in this Section B.5 (including provisions
with respect to changes in and other adjustments of the Conversion Price)
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 Series B Preferred Stock; or (ii) if the surviving entity
shall not so consent, then each holder of Series B Preferred Stock may,
after receipt of notice specified in subsection (l) below ("Notice of
Record Date"), elect to convert such stock into Common Shares as provided
in this Section B.5 or to accept the distributions to which he shall be
entitled under Section B.2(a) and Section B.2(b), assuming holders of a
majority of the Series B Preferred Stock have not voted, as per Section
B.2(b), that the merger or consolidation shall not be deemed to be a
liquidation.
(j) No Impairment. The Company will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by
the Company, but will at all times in good faith assist in the carrying out
of all the provisions of this Section B.5 and in the taking of all such
action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series B Preferred Stock against
impairment.
(k) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Section
B.5 or to the number of shares of Common Stock issuable upon conversion of
Series B Preferred Stock pursuant to Section B, the Company at its expense
shall promptly compute such adjustment or readjustment in accordance with
the terms hereof and furnish to each holder, if any, of Series B Preferred
Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is
based and shall file a copy of such certificate with its corporate records.
The Company shall, upon the written request at any time of any holder of
Series B Preferred Stock, furnish or cause to be furnished to such holder a
similar certificate setting forth (i) such adjustments and readjustments,
(ii) the Conversion Price then in effect, and (iii) the number of shares of
Common Stock and the amount, if any, of other property which then would be
received upon the conversion of Series B Preferred Stock. Despite such
adjustment or readjustment, the form of each or all Series B Preferred
Stock Certificates, if the same shall reflect the initial or any subsequent
conversion price, need not be changed in order for the adjustments or
readjustments to be valued in accordance with the provisions of this
Certificate of Designation, which shall control.
(l) Notice of Record Date. In the event:
() that, without limiting the rights of the holders of
Series B Preferred Stock pursuant to Section B.3, the Company
declares a dividend (or any other distribution) on its Common
Stock payable in Common Stock or other securities of the
Company;
() that the Company subdivides or combines its
outstanding shares of Common Stock;
() of any reclassification of the Common Stock of the
Company (other than a subdivision or combination of its
outstanding shares of Common Stock or a stock dividend or stock
distribution thereon), or of any consolidation or merger of the
Company into or with another corporation, or of the sale of all
or substantially all of the assets of the Company; or
() of the involuntary or voluntary dissolution,
liquidation or winding up of the Company;
then the Company shall cause to be filed at its principal office or at the
office of the transfer agent of the Series B Preferred Stock, and shall
cause to be mailed to the holders of the Series B Preferred Stock at their
last addresses as shown on the records of the Company or such transfer
agent, at least ten days prior to the record date specified in (A) below or
twenty days before the date specified in (B) below, a notice stating
(m) the record date of such dividend, distribution, subdivision
or combination, or, if a record is not to be taken, the date as of
which the holders of Common Stock of record to be entitled to such
dividend, distribution, subdivision or combination are to be
determined, or
(n) the date on which such reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up is expected to
become effective, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their
shares of Common Stock for securities or other property deliverable
upon such reclassification, consolidation, merger, sale, dissolution
or winding up.
6. Mandatory Conversion.
(a) Registered Public Offering in Excess of $20,000,000. Upon the
successful consummation of the sale of shares of Common Stock in a
Registered Public Offering resulting in gross proceeds to the Company of
more than $20,000,000 and at a price per share of Common Stock which is
equal to or greater than (i) the aggregate Face Value of the issued and
outstanding Series B and Series C Preferred Stock on such date, divided by
(ii) the total number of shares of Common Stock that would have been
issuable on the date of consummation of such offering upon conversion of
the Series B Preferred Stock in accordance with the terms of Section B.5
hereof, (which minimum price shall hereinafter be referred to as the
"Minimum Price"), then, effective upon the consummation of such Registered
Public Offering (the "Conversion Date"), all issued and outstanding shares
of Series B Preferred Stock not otherwise converted by the holders thereof
on or before the consummation of such Registered Public Offering shall
automatically and without further action on the part of the respective
holder or the Company be converted into Common Stock at the then effective
Conversion Price pursuant to Section B.5 and all shares of Series B
Preferred Stock then outstanding shall be cancelled.
(b) Upon the successful consummation of the sale of shares of Common
Stock in a Registered Public Offering resulting in gross proceeds to the
Company of more than $15,000,000 but less than or equal to $20,000,000, if
any holders of Series B Preferred Stock have elected to redeem shares of
said Series B Preferred Stock in a Section B.4(a) Redemption and such
shares are redeemed as set forth therein, then on the Section B.4(a)
Redemption Date, a number of shares of Series B Preferred Stock equal to
that number redeemed by each such holder pursuant to Section B.4(a) shall
automatically and without further action on the part of the respective
holder or the Company be converted into Common Stock at the then effective
Conversion Price and the shares of Series B Preferred Stock thus converted
shall be cancelled. The Conversion Date for any conversion pursuant to
this provision shall be the Section B.4(a) Redemption Date.
(c) The Company shall give all holders of record of shares of Series
B Preferred Stock then outstanding written notice of the conversion of the
shares of Series B Preferred Stock being converted pursuant to this Section
B.6. Such notice will be sent by first class or registered mail, postage
prepaid, to each record holder of Series B Preferred Stock at such holder's
address last shown on the records of the transfer agent for the Series B
Preferred Stock (or the records of the Company, if it serves as its own
transfer agent). In such case, the holder may surrender the certificate or
certificates for such shares of Series B Preferred Stock, duly endorsed, at
the office of the transfer agent (or at the principal office of the Company
if the Company serves as its own transfer agent), together with a notice
stating such holder's name or the names of the nominees in which such
holder wishes the certificate or certificates for shares of Common Stock to
be issued. The Company shall, as soon as practicable after the receipt of
the Series B Certificates and notice by the transfer agent, issue and
deliver at such office to such holder, or to his nominees, a certificate or
certificates for the number of shares of Common Stock to which such holder
shall be entitled, together with cash in lieu of any fraction of a share.
Notwithstanding any provision hereof, all shares of Series B Preferred
Stock converted pursuant to the provisions of this Section B.6 shall no
longer be deemed to be outstanding and all rights with respect to such
shares of Series B Preferred Stock, including the rights, if any, to
receive dividends, notices, and to vote, shall immediately cease and
terminate on the Conversion Date, except only the right of the holders
thereof to receive shares of Common Stock in exchange therefor. Any shares
of Series B Preferred Stock so converted shall be retired and cancelled and
shall not be reissued, and the Company may from time to time take such
appropriate action as may be necessary to reduce the number of authorized
Series B Preferred Stock accordingly.
7. Sinking Fund.
There shall be no sinking fund for the payment of dividends, or
liquidation preferences on the Series B Preferred Stock or the redemption
of any shares thereof.
C. Series C Preferred Stock
There is hereby established a Series C Preferred Stock, consisting of
500,000 shares, having a face value of $10.00 per share (the "Face Value")
and having the rights, preferences, powers, restrictions and limitations
set forth in this Article C. For all purposes in this Article C pertaining
the Series C Preferred Stock, the term "Junior Stock" shall include Common
Stock and other capital stock of the Company not expressly designated to be
on parity with or senior to the Series C Preferred Stock and shall include
Series B Preferred Stock, but only with respect to the payment of dividends
as set forth in Section C.1 and Section B.1, respectively (to wit,
dividends on the Series C Preferred Stock shall be payable in preference
and priority to any payment of dividends on the Series B Preferred Stock).
1. Dividends.
The holders of the Series C Preferred Stock shall be entitled to
receive, out of funds legally available therefor, cumulative dividends at
the rate of 14% of the Face Value of the Series C Preferred Stock (subject
to appropriate adjustments in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such shares) per
share per annum, payable in preference and priority to any payment of any
cash dividend on Junior Stock and payable on the first day of February,
May, August and November of each year ("Dividend Payment Date", when and as
declared by the Board of Directors of the Company; provided that the first
Dividend Payment Date shall be May 1, 1997 and such dividend payment shall
include pro-rata dividends from the date of issuance of the Series C
Preferred Stock to January 31, 1997.
Such dividends shall accrue with respect to each share of Series
C Preferred Stock from the date on which such share is issued and
outstanding and thereafter shall be deemed to accrue from day to day
whether or not earned or declared and whether or not there exists profits,
surplus or other funds legally available for the payment of dividends, and
shall be cumulative so that if such dividends on the Series C Preferred
Stock shall not have been paid, or declared and set apart for payment, the
deficiency shall be fully paid or declared and set apart for payment before
any dividend shall be paid or declared or set apart for any Junior Stock
and before any purchase or acquisition of any Junior Stock is made by the
Company. At the earlier of: (i) prior to the redemption of the Series C
Preferred Stock; (ii) three (3) days prior to the consummation of an
underwritten Registered Public Offering of the type described in Section
C.4(a); or (iii) the liquidation of the Company, the sale of the Company
or, directly or indirectly, all or substantially all of its assets, or the
merger, consolidation or other combination of the Company with another
entity in a transaction in which the Company is not the surviving entity,
any accrued but undeclared dividends shall be paid to the holders of record
of outstanding shares of Series C Preferred Stock. No accumulation of
dividends on the Series C Preferred Stock shall bear interest.
2. Liquidation, Dissolution or Winding Up.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company, the holders of shares of Series C
Preferred Stock then outstanding shall be entitled to be paid out of the
assets of the Company available for distribution to its stockholders, after
and subject to the payment in full of all amounts required to be
distributed to the holders of Series A Preferred Stock and Series B
Preferred Stock of the Company, but before any payment shall be made to the
holders of Junior Stock by reason of their ownership thereof, an amount
equal to $10 per share of Series C Preferred Stock plus accrued but unpaid
dividends to the payment date (whether or not declared) (the "Liquidation
Value"). If upon any such liquidation, dissolution or winding up of the
Company the remaining assets of the Company available for distribution to
its stockholders shall be insufficient to pay the holders of shares of
Series C Preferred Stock the full amount to which they shall be entitled,
the holders of shares of Series C Preferred Stock shall share ratably in
any distribution of the remaining assets and funds of the Company in
proportion to the respective amounts which would otherwise be payable in
respect of the shares held by them upon such distribution if all amounts
payable on or with respect to such shares were paid in full.
(b) Unless the holders of a majority of the Series C Preferred Stock
then outstanding otherwise consent in writing or by vote, the merger,
consolidation or other combination of the Company into or with another
corporation, partnership, limited liability company or other entity which
results in the exchange of more than 50% of the voting securities of the
Company for securities or other consideration issued or paid or caused to
be issued or paid by such other corporation, partnership, limited liability
company or other entity or an affiliate thereof, or, the sale, directly or
indirectly, of all or substantially all the assets of the Company shall be
deemed to be a liquidation, dissolution or winding up of the Company for
purposes of this Section, and shall entitle the holders of Series C
Preferred Stock to receive at the closing, in cash, securities or other
property, the amounts as specified in Section C.2(a) above. The value of
such property, rights or other securities shall be determined in good faith
by the Board of Directors of the Company.
3. Voting.
(a) Generally. Except as otherwise provided by applicable law or as
other provided in this Section C, Series C Preferred Stock shall not
entitle the holders thereof to any voting rights.
(b) No Impairment. The Company shall not amend, alter or repeal
preferences, rights, powers or other terms of the Series C Preferred Stock
so as to affect adversely the Series C Preferred Stock, or amend, alter or
repeal this Section C.3, without the prior written consent or affirmative
vote of the holders of a majority of the then outstanding shares of Series
C Preferred Stock, given in writing or by vote at a meeting, consenting or
voting (as the case may be) separately as a class. For this purpose,
without limiting the generality of the foregoing, the authorization or
issuance of any shares of a series of Preferred Stock other than Series A
Preferred Stock and Series B Preferred Stock described in Articles A and B
above, respectively, or other capital stock which is on a parity with or
has preference or priority over the Series C Preferred Stock as to the
right to receive either dividends or amounts distributable upon
liquidation, dissolution or winding up of the Company shall be deemed to
affect adversely the Series C Preferred Stock.
(c) Common Stock Dividends. Prior to January 16, 1999 or if the
Company is in arrears in the payment of dividends as set forth in Section
C.1, the Company shall not declare or pay cash dividends or other
distributions on or with respect to shares of Common Stock without the
prior written consent or affirmative vote of the holders of a majority of
the then outstanding shares of Series C Preferred Stock, given in writing
or by vote at a meeting, consenting or voting (as the case may be)
separately as a class.
4. Redemption of the Series C Preferred Stock.
(a) Redemption in Connection with Registered Public Offering. If the
Company successfully consummates a Registered Public Offering as described
in Section B.6(a), then the Company shall have the right to redeem all (but
not less than all) of the issued and outstanding shares of Series C
Preferred Stock pursuant to this Section C.4(a) (the "Section C.4(a)
Redemption") for a redemption price of $.01 per share of Series C Preferred
Stock (the "Section C.4(a) Redemption Price"). The redemption shall occur
on the same day on which the Registered Public Offering is consummated (the
"Section C.4(a) Redemption Date").
Not more than 60 days nor less than 10 days before the Section C.4(a)
Redemption Date, the Company shall send notice of the Section C.4(a)
Redemption (the "Section C.4(a) Redemption Notice") by first-class
certified mail, postage prepaid and return receipt requested, to the
holders of the shares of Series C Preferred Stock to be redeemed at their
respective addresses as the same shall appear on the books of the Company.
The notice shall refer to this Section C.4(a) and shall specify the
anticipated Section C.4(a) Redemption Date. Before, on or after the
Section C.4(a) Redemption Date, each holder of Series C Preferred Stock to
be redeemed shall surrender to the Company the certificate or certificates
representing such shares, in the manner and at the place designated in the
Section C.4(a) Redemption Notice, and thereupon the Section C.4(a)
Redemption Price of such shares shall be payable to the order of the person
whose name appears on such certificate or certificates as the owner thereof
and each surrendered certificates shall be cancelled. Notwithstanding
delivery of a Section C.4(a) Redemption Notice in accordance with this
Section C.4(a), any such notice shall be deemed conditional and expressly
subject to consummation of the Registered Public Offering referred to
hereinabove, and if said Registered Public Offering shall not be
consummated, any such Section C.4(a) Redemption Notice shall be deemed void
ab initio and of no force and effect.
(b) Redemption Upon Partial Conversion of Series B Preferred Stock.
If the Company successfully consummates a Registered Public Offering as
described in Section B.6(b), then the Company shall have the right to
redeem all (but not less than all) of the issued and outstanding shares of
Series C Preferred Stock that were originally issued as dividends on the
Series B Preferred Stock being redeemed in accordance with the provisions
of Section B.4(a) pursuant to this Section C.4(b) (the "Section C.4(b)
Redemption") for a redemption price of $.01 per share of Series C Preferred
Stock (the "Section C.4(b) Redemption Price"). The redemption shall occur
on the same day on which the Registered Public Offering is consummated (the
"Section C.4(b) Redemption Date").
Not more than 60 days nor less than 10 days or such lesser amount as
may be practicable before the Section C.4(b) Redemption Date, the Company
shall send notice of the Section C.4(b) Redemption (the "Section C.4(b)
Redemption Notice") by first-class certified mail, postage prepaid and
return receipt requested, to the holders of the shares of Series C
Preferred Stock to be redeemed at their respective addresses as the same
shall appear on the books of the Company. The notice shall refer to this
Section C.4(b) and shall specify the anticipated Section C.4(b) Redemption
Date. Before, on or after the Section C.4(b) Redemption Date, each holder
of Series C Preferred Stock to be redeemed shall surrender to the Company
the certificate or certificates representing such shares, in the manner and
at the place designated in the Section C.4(b) Redemption Notice, and
thereupon the Section C.4(b) Redemption Price of such shares shall be
payable to the order of the person whose name appears on such certificate
or certificates as the owner thereof and each surrendered certificates
shall be cancelled. Notwithstanding delivery of a Section C.4(b)
Redemption Notice in accordance with this Section C.4(b), any such notice
shall be deemed conditional and expressly subject to consummation of the
Registered Public Offering referred to hereinabove, and if said Registered
Public Offering shall not be consummated, any such Section C.4(b)
Redemption Notice shall be deemed void ab initio and of no force and
effect.
(c) Redemption at Option of Majority of Holders. If the Company
does not successfully complete a Registered Public Offering as described in
Section B.4(a) on or before January 16, 2002, then at any time after
January 16, 2002 but only at any time during the first 10 days after each
Dividend Payment Date (the "Redemption Election Period") the holders of a
majority of the then issued and outstanding shares of Series C Preferred
Stock (the "Majority Holders") may elect to require the Company to redeem
shares of Series C Preferred Stock at an amount equal to the Face Value
plus an amount equal to accrued but unpaid dividends to the respective
dates of redemption of the shares (the "Optional Redemption Price") in
accordance with this Section C.4(c). The Majority Holders may require the
Company to redeem with respect to each Redemption Election Period up to
that number of shares of Series C Preferred Stock equal to 10% of the
aggregate number of shares of Series C Preferred Stock that the Company has
issued (whether or not then issued or outstanding, including shares of
Series B Preferred Stock that were issued and subsequently redeemed or
otherwise cancelled.)
If the Majority Holders elect to cause such a redemption, they shall
so notify the Company in writing (the "Redemption Exercise Notice"). Upon
receipt of the Redemption Exercise Notice the Company shall promptly (and
in any event within 10 days of receipt of the Redemption Exercise Notice)
notify all holders of Series C Preferred stock of such election by sending
a notice (the "Optional Redemption Notice") by first class certified mail,
postage prepaid and return receipt requested to the holders of Series C
Preferred Stock at their respective addresses as the same shall appear on
the books of the Company. The Optional Redemption Notice shall refer to
this Section C.4(c) and shall specify the last day of the month following
the month during which the Company received the Redemption Exercise Notice
as the date on which shares of Series C Preferred Stock will be redeemed in
accordance with this Section C.4(c) (the "Optional Redemption Date"). The
Company shall promptly notify (the "Section C.4(c) Redemption Notice") each
holder of Series C Preferred Stock of the number of shares of Series C
Preferred Stock held by such holder which are being redeemed pursuant to
this Section. An election by the Majority Holders in accordance with this
Section C.4(c) shall be binding upon all holders of the Series C Preferred
Stock, and shares of Series C Preferred Stock shall be redeemed pro rata
among all holders of said shares to give effect to the provisions of this
Section C.4(c).
Upon receipt of the Section C.4(c) Redemption Notice, and before, on
or after the Optional Redemption Date, each holder of Series C Preferred
Stock to be redeemed shall surrender to the Company the certificate or
certificates representing such shares, in the manner and at the place
designated in the Section C.4(b) Redemption Notice, and thereupon the
Optional Redemption Price of such shares shall be payable to the order of
the person whose name appears on such certificate or certificates as the
owner thereof and each surrendered certificates shall be cancelled. The
Company shall promptly reissue to such holders (or their nominees)
certificates evidencing the shares of Series C Preferred Stock represented
by the surrendered certificates which are not redeemed.
(d) Redemption at Option of the Company. The Company may at any time
after January 16, 2003 redeem all of the then issued and outstanding shares
of Series C Preferred Stock as set forth in this Section C.4(d) if all
accrued dividends have been declared and paid to the holders of record of
the outstanding shares of Series C Preferred Stock through the most recent
Dividend Payment Date. The date of such redemption (the "Company
Redemption Date") shall be designated in the notice described in the
succeeding paragraph and must be a date within ten (10) business days after
a Dividend Payment Date. The redemption price for any redemption pursuant
to this Section C.4(d) (the "Company Redemption Price") shall be the Face
Value of all of the outstanding shares of Series C Preferred Stock plus an
additional amount equal to 10% of the Face Value of such outstanding shares
of Series C Preferred Stock.
Not more than sixty (60) days nor less than fifteen (15) days before
the Company Redemption Date, the Company shall send notice of redemption
pursuant to this Section C.4(d) by first-class, certified mail, postage
prepaid and return receipt requested, to all the holders of the shares of
Series C Preferred Stock at their respective addresses and the same shall
appear on the books of the Company. The notice shall refer to this Section
C.4(d) and shall specify the Company Redemption Date and the time and place
of the redemption. Before, on or after the Company Redemption Date, each
holder of Series C Preferred Stock shall surrender to the Company the
certificate or certificates representing such shares, in the manner and at
the place designated in the Company Redemption Notice, and thereupon the
Company Redemption Price of such shares shall be payable to the order of
the person whose name appears on such certificate or certificates as the
owner thereof and each surrendered certificate shall be cancelled.
(e) Provision for Payment. "Redemption Date" shall refer to the
Section C.4(a) Redemption Date (in the case of redemptions governed by
Section C.4(a)), a Section C.4(b) Redemption Date (in the case of
redemptions governed by Section C.4(b)), an Optional Redemption Date (in
the case of redemptions governed by Section C.4(c)), or a Company
Redemption Date (in the case of redemptions governed by Section C.4(d)).
"Redemption Price" shall mean the amount to be paid by the Company on a
particular Redemption Date pursuant to Section C.4(a), Section C.4(b),
Section C.4(c), or Section C.4(d), as applicable. On or prior to each
Redemption Date, the Company shall deposit the Redemption Price of all
shares of Series C Preferred Stock designated for redemption on that
Redemption Date with a bank or trust corporation having aggregate capital
and surplus in excess of $100,000,000 as a trust fund for the benefit of
the respective holders of the shares designated for redemption and not yet
redeemed, with irrevocable instructions and authority to the bank or trust
corporation to pay the Redemption Price for such shares to their respective
holders on or after the related Redemption Date upon receipt of
notification from the Company that such holder has surrendered his share
certificate to the Company pursuant to Section C.4(a), Section C.4(b),
Section C.4(c) or Section C.4(d) above. As of the Redemption Date, the
deposit shall constitute full payment of the shares being redeemed on that
Redemption Date, and from and after the Redemption Date the shares so
called for redemption on that Redemption Date shall be redeemed and shall
be deemed to be no longer outstanding, and the holders thereof shall cease
to be stockholders with respect to such shares and shall have no rights
with respect thereto except the rights to receive from the bank or trust
corporation payment of the Redemption Price of the shares, without
interest, upon surrender of their certificates therefor. The balance of
any moneys deposited by the Company pursuant to this Section C.4(e)
remaining unclaimed at the expiration of three (3) years following the
Redemption Date shall thereafter be returned to the Company upon its
request expressed in a resolution of its Board of Directors.
(f) Rights Upon Redemption. From and after the Redemption Date,
unless there shall have been a default in payment of the Redemption Price,
all rights of the holders of shares of Series C Preferred Stock to be
redeemed on that Redemption Date as holders of Series C Preferred Stock
(except the right to receive the Redemption Price without interest upon
surrender of their certificate or certificates) shall cease with respect to
such shares, and such shares shall not thereafter be transferred on the
books of the Company or be deemed to be outstanding for any purpose
whatsoever. If the funds of the Company legally available for redemption
of shares of Series C Preferred Stock on any Redemption Date are
insufficient to redeem the total number of shares of Series C Preferred
Stock to be redeemed on such date, those funds which are legally available
will be used to redeem the maximum possible number of such shares ratably
among the holders of such shares to be redeemed based upon their holdings
of Series C Preferred Stock. At any time thereafter when additional funds
of the Company are legally available for the redemption of shares of Series
C Preferred Stock such funds will immediately be used to redeem the balance
of the shares which the Company has become obliged to redeem on any
Redemption Date, but which it has not redeemed. The shares of Series C
Preferred Stock not redeemed shall remain outstanding and entitled to all
the rights and preferences provided herein.
(g) Cancellation of Redeemed Stock. Any shares of Series C
Preferred Stock redeemed pursuant to this Section shall be canceled and
shall not under any circumstances be reissued; and the Company may from
time to time take such appropriate corporate action as may be necessary to
reduce accordingly the number of authorized shares of the Company's capital
stock.
(h) Acquisition by Company. The Company will not, and will not
permit any subsidiary of the Company to, purchase or acquire any shares of
Series C Preferred Stock otherwise than pursuant to (A) the terms of this
Section C.4 or (B) an offer made on the same terms to all holders of Series
C Preferred Stock at the time outstanding.
5. Sinking Fund.
There shall be no sinking fund for the payment of dividends, or
liquidation preferences on the Series C Preferred Stock or the redemption
of any shares thereof.
D. Provisions Applicable to Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock, as described in Articles A, B and
C, supra.
1. Registration of Transfer of Preferred Stock. The Company will
keep at its principal office a register for the registration of the Series
A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock.
Subject to and in accordance with the terms of the Certificate, upon the
surrender of any certificate representing shares of any series of Preferred
Stock at the Company's principal office, the Company will, at the request
of the registered holder of such certificate, execute and deliver, at the
Company's expense, a new certificate or certificates in exchange
representing the number of shares and series of Preferred Stock represented
by the surrendered certificate. Each such new certificate shall be
registered in such name and shall represent such number of shares of
Preferred Stock as shall be requested by the holder of the surrendered
certificate, should be substantially identical in form to the surrendered
certificate, and the Preferred Stock represented by such new certificate
shall earn dividends from the date to which dividends shall have been paid
on the shares represented by the surrendered certificate.
2. Replacement.
Upon receipt by the Company of evidence reasonably satisfactory to it
of ownership of and the loss, theft, destruction or mutilation of any
certificate evidencing one or more shares of Preferred Stock the Company at
its expense will execute and deliver in lieu of such certificate, a new
certificate of like kind, representing the number of shares of Preferred
Stock which shall have been represented by such lost, stolen, destroyed or
mutilated certificate, dividends thereon shall accrue from the date to
which dividends shall have been paid on such lost, stolen, destroyed or
mutilated certificate.
3. Certain Events.
If any event occurs as to which, in the opinion of a majority of the
holders of Series B Preferred Stock, the provisions of this Certificate of
Designation, Preferences and Rights are not strictly applicable, or, if
strictly applicable, would not fairly protect the respective rights of the
holders of the Preferred Stock and the Company in accordance with the
essential intent and principles of such provisions, then the Board of
Directors shall make an adjustment in the application of such provision, in
accordance with such essential intent and principles, so as to protect such
rights as aforesaid, but in no event shall any adjustment have the effect
of increasing the conversion price as otherwise determined pursuant to the
any of the provisions of this Certificate (except as expressly set forth
herein) or diminishing the rights of the holders with regard to dividend
payments and payments upon liquidation.
4. Restrictions on Transferability. Shares of Series B Preferred
Stock may be transferred only if transferred together with shares of Series
C Preferred Stock previously issued as dividends thereon to Section B.1,
and not otherwise. Shares of Series C Preferred Stock may not be
transferred independently and apart from the underlying shares of Series B
Preferred Stock. Certificates of shares of Series B Preferred Stock and
Series C Preferred Stock shall bear a legend in substantially the form set
forth below evidencing such restrictions.
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE LAWS OF ANY STATE
AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH ACT OR LAWS,
OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL OR
OTHER EVIDENCE, SATISFACTORY TO THE COMPANY AND ITS COUNSEL,
THAT SUCH REGISTRATION IS NOT REQUIRED."
"THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN CERTIFICATE OF
DESIGNATION, RIGHTS AND PREFERENCES OF THE CORPORATION, WHICH PROHIBITS THE
TRANSFER OF THIS CERTIFICATE INDEPENDENTLY AND APART FROM A CERTIFICATE
REPRESENTING SHARES OF SERIES C PREFERRED STOCK. SUCH CERTIFICATE MAY BE
OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION."
"THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN CERTIFICATE OF
DESIGNATION, RIGHTS AND PREFERENCES OF THE CORPORATION, WHICH PROHIBITS THE
TRANSFER OF THIS CERTIFICATE INDEPENDENTLY AND APART FROM A CERTIFICATE
REPRESENTING SHARES OF SERIES B PREFERRED STOCK. SUCH CERTIFICATE MAY BE
OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION."
* * * * * *
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designation, Preferences and Rights to be executed by its President and
attested to by its Secretary this _____day of January, 1997.
Rio Grande, Inc.
------------------------------------
By:
Its: President
ATTEST:
- ------------------------------
Its: Secretary
[Seal]
