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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) December 23, 1996
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MAGNUM PETROLEUM, INC.
(Exact name of registrant as specified in its charter)
NEVADA 1-12508 87-0462881
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
600 EAST LAS COLINAS BOULEVARD, SUITE 1200, IRVING, TEXAS 75039
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (214) 401-0752
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(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS.
On December 9, 1996 the Registrant executed definitive agreements concerning the
private placement of $10 million in convertible preferred stock with Trust
Company of the West and TCW Asset Management Company, as agent for certain
institutional investors (collectively herein referred to as "TCW"). Terms of
the 1996 Series A Convertible Preferred Stock call for a) a fixed annual
cumulative dividend rate of 8.75%, payable quarterly in arrears commencing
December 31, 1996, b) convertibility into common shares of the Company at a
conversion price of $5.875 per share, and c) if not already converted, an option
by the Company after two years to exchange the 1996 Series A Convertible
Preferred Stock for a Convertible Subordinated Debenture of equivalent value.
Financial funding of the equity placement occurred December 23, 1996 and was
applied to the Company's senior bank credit facility. As a condition of the
private placement, when required, the Company will fund the capital costs
necessary for developing existing proved oil and gas properties owned by the
Company by utilizing the availability under its existing senior bank credit
facility.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) EXHIBITS
4.1 Certificate of Voting Powers, Designations, Preferences, and Relative,
Participating, Optional or Other Special Rights of 1996 Series A
Convertible Preferred Stock, dated as of December 6, 1996.
10.1 Stock Purchase Agreement among Magnum Petroleum, Inc. and Trust
Company of the West and TCW Asset Management Company, in the
capacities described herein, TCW Debt and Royalty Fund IVB and TCW
Debt and Royalty Fund IVC, dated as of December 6, 1996.
99.1 Press Release dated December 9, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MAGNUM PETROLEUM, INC.
BY: /s/ Gary C. Evans
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Gary C. Evans
President and CEO
Dated: January 15, 1997
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EXECUTION ORIGINAL
CERTIFICATE OF VOTING POWERS, DESIGNATIONS,
PREFERENCES, AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF
1996 SERIES A CONVERTIBLE PREFERRED STOCK
Dated as of December 6, 1996
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TABLE OF CONTENTS
1. Certain Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Ranking of the 1996 Series A Preferred Stock . . . . . . . . . . . . . 8
3. Dividends; Restricted Payments . . . . . . . . . . . . . . . . . . . . 9
3.1. Dividend Payment Dates . . . . . . . . . . . . . . . . . . . . . 9
3.2. Form of Payment . . . . . . . . . . . . . . . . . . . . . . . . 9
3.3. Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.4. Restricted Payments . . . . . . . . . . . . . . . . . . . . . . 10
4. Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.1. Mandatory Redemption . . . . . . . . . . . . . . . . . . . . . . 11
4.2. Redemption Upon Change of Control. . . . . . . . . . . . . . . . 11
4.3. Optional Redemption. . . . . . . . . . . . . . . . . . . . . . . 12
4.4. Redemption Notice. . . . . . . . . . . . . . . . . . . . . . . . 12
5. Liquidation Rights . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6. Voting Rights of 1996 Series A Preferred Stock . . . . . . . . . . . . 13
6.1. Voting Rights. . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.2. Special Voting Rights. . . . . . . . . . . . . . . . . . . . . . 14
6.2.1 Special Voting Events. . . . . . . . . . . . . . . . . 14
6.2.2 Limited Voting Events. . . . . . . . . . . . . . . . . 17
6.3. Procedures Relating to Special Voting Rights . . . . . . . . . . 18
6.4. Rights Relating to Board of Directors. . . . . . . . . . . . . . 19
6.5. Certain Actions by the Company . . . . . . . . . . . . . . . . . 19
7. Covenants of the Company . . . . . . . . . . . . . . . . . . . . . . . 21
7.1. Board of Directors . . . . . . . . . . . . . . . . . . . . . . . 21
7.2. Financial Statements . . . . . . . . . . . . . . . . . . . . . . 21
7.3. Inspection of Property . . . . . . . . . . . . . . . . . . . . . 23
7.4. Development of Company's Properties. . . . . . . . . . . . . . . 23
7.5. Change in Control/Management . . . . . . . . . . . . . . . . . . 23
7.6. Conduct of Business. . . . . . . . . . . . . . . . . . . . . . . 23
7.7. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.8. Maintenance of Property; Development and Maintenance . . . . . . 24
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7.9. Common Stock Reserved; Legality. . . . . . . . . . . . . . . . . 24
8. Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
8.1. Right of Holder to Convert . . . . . . . . . . . . . . . . . . . 24
8.2. Mechanics of Conversion by Holder. . . . . . . . . . . . . . . . 25
8.3. Right of the Company to Convert. . . . . . . . . . . . . . . . . 25
8.4. Mechanics of Conversion by the Company . . . . . . . . . . . . . 26
8.5. Adjustments to Conversion Price for Voting Events. . . . . . . . 27
8.6. Adjustment to Conversion Price on June 30, 1997. . . . . . . . . 27
8.7. Adjustment to Conversion Price on July 1, 1997 . . . . . . . . . 28
8.8. Adjustments to Conversion Price for Diluting Issues. . . . . . . 28
8.9. No Impairment. . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.10. Certificate as to Adjustments . . . . . . . . . . . . . . . . 38
8.11. Notices of Record Date. . . . . . . . . . . . . . . . . . . . 38
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MAGNUM PETROLEUM, INC.
Certificate of Voting Powers, Designations,
Preferences, and Relative, Participating,
Optional or Other Special Rights of
1996 Series A Convertible Preferred Stock
We, Gary C. Evans, President and Chief Executive Officer, and Morgan
Johnston, Secretary, of Magnum Petroleum, Inc. (the "COMPANY"), a corporation
organized and existing under the General Corporation Law of the State of Nevada,
in accordance with the provisions of Section 78.195 of the Nevada Revised
Statutes thereof, DO HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors by
the Articles of Incorporation, as amended, of the Company, said Board of
Directors, at a meeting of the Board of Directors held pursuant to the General
Corporation Law of the State of Nevada, duly adopted a resolution providing for
the issuance of one million (1,000,000) shares of a new series of preferred
stock designated as 1996 Series A Convertible Preferred Stock, which resolution
is as follows:
RESOLVED, that pursuant to the Articles of Incorporation of the
Company, there be and hereby is authorized and created a series of preferred
stock, to consist of 1,000,000 shares with a par value of $.001 per share and a
stated value of $10.00 per share and that the voting powers, designations,
preferences, and relative, participating, optional or other special rights of
the 1996 Series A Convertible Preferred Stock (the "1996 SERIES A PREFERRED
STOCK") and the qualifications, limitations or restrictions thereof be as
follows:
1. CERTAIN DEFINITIONS.
The following terms shall have the following meanings:
"5-DAY AVERAGE PRICE" per share of Common Stock, for purposes of any
provision herein at the date specified in such provision, shall mean the average
closing price of the Common Stock on the securities exchange or other national
market system
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on which the Common Stock is then listed over the 5-trading day period
immediately prior to such date.
"60-DAY AVERAGE PRICE" per share of Common Stock, for purposes of any
provision herein at the date specified in such provision, shall mean the average
closing price of the Common Stock on the securities exchange or other national
market system on which the Common Stock is then listed over the 60-trading day
period immediately prior to such date.
"10-DAY AVERAGE PRICE" per share of Common Stock, for purposes of any
provision herein at the date specified in such provision, shall mean the average
closing price of the Common Stock on the securities exchange or other national
market system on which the Common Stock is then listed over the 10-trading day
period immediately prior to such date.
"30-DAY AVERAGE PRICE" per share of Common Stock, for purposes of any
provision herein at the date specified in such provision, shall mean the average
closing price of the Common Stock on the securities exchange or other national
market system on which the Common Stock is then listed over the 30-trading day
period immediately prior to such date.
"ACT" shall mean the Securities Act of 1933, as amended.
"ADDITIONAL SHARES OF NONPREFERRED STOCK" shall mean all shares of
Nonpreferred Stock issued by the Company after the Closing Date other than (i)
the shares of Common Stock issued to a holder of the 1996 Series A Preferred
Stock upon conversion or redemption of, or dividends on, the 1996 Series A
Preferred Stock, (ii) any shares of Common Stock issued pursuant to the
outstanding warrants listed on ATTACHMENT 1 hereto, (iii) any shares of Common
Stock issued pursuant to options, rights or warrants to purchase Common Stock
issued pursuant to the Company's Incentive Stock Option Plan PROVIDED, that (a)
such issuances do not exceed in the aggregate 1,200,000 shares (including those
options previously issued and listed on ATTACHMENT 2 hereto) and (b) the
exercise price under such options, rights and warrants (other than those listed
on
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ATTACHMENT 2 hereto) shall be payable in cash and shall be not less than the
greater of $4.70 per share or the Fair Market Price on the date of issuance of
the option, right or warrant, (iv) the issuance of up to 5,750,000 shares of
Common Stock in the aggregate (a) in one or more underwritten public offerings
after the Closing Date and on or before June 30, 1997 at a price per share less
than the Conversion Price but not less than $4.00 and/or (b) pursuant to the
exercise of the IPO Warrants at a price of $5.50 per share on or before November
12, 1998 and (v) shares of Common Stock, either sold to employees of the Company
or contributed as a matching contribution at a price not less than the then
current Fair Market Price pursuant to the Company's 401(k) plan.
"BUSINESS DAY" means any day other than a Saturday, a Sunday, any day
on which the New York Stock Exchange is closed or any other day on which banking
institutions in New York or California are authorized or required by law to be
closed.
"CASH EQUIVALENT AMOUNT" means, with respect to any cash amount which
may, in accordance with the terms of this Certificate, be paid to the holders of
the 1996 Series A Preferred Stock by way of dividend, redemption or other
distribution, the number of shares (or fraction thereof) of Common Stock equal
in value to such cash amount. For purposes of determining the Cash Equivalent
Amount, the shares of Common Stock shall be valued at 80% multiplied by the
lower of (i) the 30-Day Average Price of the Common Stock or (ii) the 5-Day
Average Price of the Common Stock; PROVIDED, that if the Cash Equivalent Amount
cannot be ascertained by such methods, then the Common Stock shall be valued at
80% multiplied by the lower of (i) the net book value per share of Common Stock,
determined in accordance with generally accepted accounting principles, or
(ii) the fair value per share of Common Stock determined pursuant to the
Valuation Procedure. The Cash Equivalent Amount shall be determined as of the
date immediately prior to the date of issuance of any such Common Stock.
"CLOSING DATE" means the date of the closing of the first sale of the
1996 Series A Preferred Stock.
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"COMMISSION" shall mean the Securities and Exchange Commission or any
other similar or successor agency of the federal government administering the
Act.
"COMMON STOCK" shall mean the Company's common stock, $.002 par value
per share.
"CONVERSION PRICE" shall initially be $5.875 and shall be adjusted and
readjusted from time to time as provided in SECTION 8.
"CONVERTIBLE SECURITIES" shall mean evidences of indebtedness, shares
of stock or other securities which are convertible into or exchangeable for
Additional Shares of Nonpreferred Stock, either immediately or upon the arrival
of a specified date or the happening of a specified event.
"COVERAGE DEFICIENCY" shall mean the failure of the Company to
maintain a Coverage Ratio of at least 150% at any time.
"COVERAGE RATIO" shall mean, at any time in question the quotient
obtained by dividing:
(i) The sum of (A) working capital (as defined in GAAP) net of
or reduced by funds allocated to the payment of outstanding debt or sinking
fund obligations, (B) 100% of the NPV10 of all Proved Reserves attributable
to the interests of the Company in oil and gas properties as determined
from the Independent Engineering Report most recently prepared as of such
time (which report shall be adjusted to reduce the projected cash flow and
production volumes of oil and gas by the volumes of oil and gas actually
produced since the effective date of such report) and (C) 100% of the NPV10
of Projected Operating Profits
by
(ii) the Gross Liabilities at such time.
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"DEVELOPMENT PLAN" shall mean the plan of development attached to the
Secretary's Certificate pursuant to Section 3.1.7(a) of the Stock Purchase
Agreement relating to the 1996 Series A Preferred Stock, as such Development
Plan may be amended from time to time with the consent of the holders of the
1996 Series A Preferred Stock pursuant to SECTION 6.5(f) hereof.
"DIRECT TAXES" means production, severance, ad valorem, excise,
franchise or other taxes or governmental charges or assessments on the oil and
gas properties of the Company or the production therefrom or the proceeds of
such production, but excluding any federal, state or local income taxes.
"FAIR MARKET PRICE" per share of Common Stock, for purposes of any
provision herein at the date specified in such provision, shall mean the greater
of (i) the 30-Day Average Price of the Common Stock or (ii) the 5-Day Average
Price of the Common Stock; PROVIDED, that if the Fair Market Price per share of
Common Stock cannot be ascertained by such methods, then the Fair Market Price
per share of Common Stock shall be deemed to be the greater of (i) the net book
value per share of Common Stock, determined in accordance with generally
accepted accounting principles, or (ii) the fair value per share of Common Stock
determined pursuant to the Valuation Procedure.
"FREELY TRADEABLE COMMON STOCK" shall mean Common Stock (A) for which
a registration statement with respect to the sale of such Common Stock shall
have become effective under the Act and all of such Common Stock may be disposed
of from time to time in transactions on the principal exchange or market where
such Common Stock is publicly traded or in negotiated transactions, (B) all of
which may be distributed immediately to the public pursuant to Rule 144 (or any
successor provision) under the Act, or (C) all of which is represented by
certificates not bearing a legend restricting transfer and the disposition of
which Common Stock does not require registration or qualification under the Act
or any state securities laws then in force.
"GAAP" means with respect to the Company and any Affiliate domiciled
in the United States, those generally accepted accounting principles and
practices which are recognized
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as such by the Financial Accounting Standards Board (or any generally
recognized successor) in the United States.
"GROSS LIABILITIES" shall mean all liabilities of the Company
determined in accordance with GAAP plus the Liquidation Value.
"INCENTIVE STOCK OPTION PLAN" shall mean that certain Incentive Stock
Option Plan, to be adopted by the Board of Directors on or before December 31,
1996, which shall be consistent with the summary of principal terms delivered to
purchasers of the 1996 Series A Preferred Stock prior to the Closing Date, as
the same may be amended from time to time with the prior approval of the holders
of a majority of the 1996 Series A Preferred Stock.
"INDEPENDENT ENGINEER" shall mean Gaffney, Cline & Associates, Inc. or
such other independent engineering consultant selected by the Company from those
on the approved list of TCW (as defined in the Stock Purchase Agreement),
attached hereto as EXHIBIT A.
"INDEPENDENT ENGINEERING REPORT" shall mean the engineering reports
prepared by the Independent Engineer (i) covering all of the material oil and
gas properties of the Company, (ii) prepared at the Company's expense, (iii)
reporting on the Proved Developed Producing Reserves, Proved Developed
Non-Producing Reserves and Proved Undeveloped Reserves of the oil and gas
properties of the Company, and separately calculating the NPV10 of each such
category of Reserves, and (iv) using pricing specified in the definition of
NPV10 of Proved Reserves.
"IPO WARRANTS" shall mean those certain warrants for the purchase of
not more than 854,176 shares of Common Stock at a price of $5.50 per share
expiring November 12, 1998 and issued pursuant to that certain Warrant Agreement
dated as of October 1, 1995 between the Company and Securities Transfer
Corporation, a Texas corporation.
"JUNIOR STOCK" shall have the meaning set forth in SECTION 2.
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"LIMITED VOTING EVENTS" shall mean each of the events specified in
SECTION 6.2.2.
"LIQUIDATION AMOUNT" means $10.00, plus a sum equal to all accumulated
but unpaid dividends and interest thereon, if any, through the date of any
determination thereof, per share of 1996 Series A Preferred Stock.
"LIQUIDATION VALUE" shall mean the Liquidation Amount with respect to
all issued and outstanding 1996 Series A Preferred Stock plus any unreimbursed
costs and expenses payable to the holders of the 1996 Series A Preferred Stock
pursuant to the terms hereof or the Stock Purchase Agreement.
"NET CASH RECEIPTS" means the sum per share of the 1996 Series A
Preferred Stock of (i) any net cash received by the Holders of the 1996 Series A
Preferred Stock as dividends or distributions on the 1996 Series A Preferred
Stock and (ii) any net cash proceeds received by the Holders of the 1996 Series
A Preferred Stock from the sale of any Dividend Shares less any and all expenses
and costs incurred in connection with the issuance, holding, sale or transfer of
such Dividend Shares.
"NONPREFERRED STOCK" shall mean the Common Stock and shall also
include stock of the Company of any other class which is not preferred as to
dividends or assets over any other class of stock of the Company and which is
not subject to redemption.
"NPV10 OF PROVED RESERVES" shall mean with respect to any Proved
Reserves expected to be produced from the oil and gas properties of the Company,
the net present value of the future net revenues expected to accrue to the
Company's interests in such Reserves during the remaining expected economic
lives of such Reserves, discounted at 10% per annum. Each calculation of such
expected future net revenues shall be made as of the date when requested in
accordance with the then existing standards of the Society of Petroleum
Engineers and Society of Petroleum Evaluation Engineers and using all
assumptions, estimates and projections, including without limitation estimated
product prices, capital expenditures, lease and well operating expenses and
taxes (other than income taxes in accordance with applicable
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provisions of item 302 of Regulation S-K of the Commission and Statement of
Financial Accounting Standards No. 69), as in effect from time to time, for
the purpose of preparing reports on Form 10-K of Persons subject to the
reporting requirements of the Exchange Act.
"NPV10 OF PROJECTED OPERATING PROFITS" shall mean with respect to
any net profits reasonably projected to be received by the Company from the
operation of gathering and processing facilities owned by the Company under
contracts which are in effect with respect to such gathering and processing
facilities, the net present value of such future net profits expected to
accrue to the Company during the remaining terms of any contracts to provide
gathering or processing services with respect to production of Proved
Developed Producing Reserves (which in any event shall not extend beyond
either (a) the first date any party to such contract other than the Company
may terminate such contract without cause or (b) the expected economic lives
of the Reserves the production of which is being gathered or processed under
such contracts), discounted at 10% per annum. Each calculation of such future
net profits shall be made by the Independent Engineer as of the date when
requested in accordance with the then existing standards of the Society of
Petroleum Engineers and Society of Petroleum Evaluation Engineers, PROVIDED,
that in any event:
(i) appropriate deductions shall be made for (A) Direct Taxes
and existing burdens, (B) direct operating expenses, (C) third party
transportation, gathering and processing costs, if any, (D) capital
expenditures, and (E) any direct general, administrative, and overhead
costs, all consistent with the most recent actual costs and expenses and,
as to the items described in clauses (B), (C), (D) and (E) above only,
escalated at three percent (3%) per annum commencing with the calendar year
immediately following the date of calculation; and
(ii) the pricing assumptions and escalations used in determining
NPV10 for any net profits expected to be received under contracts with
respect to such gathering and processing facilities shall be the contract
price, if any,
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during the term of any written gathering or processing contract between
the Company and unrelated Persons escalated as provided in the particular
contract but not otherwise.
"NPV30 AMOUNT" means the aggregate amount per share of the 1996 Series
A Preferred Stock of the net present values, as of the date of the first
issuance of shares of the 1996 Series A Preferred Stock, of all Net Cash
Receipts discounted quarterly from the date actually received by the Holders of
the 1996 Series A Preferred Stock at an annual discount rate of 30% using the
discount factors set forth on SCHEDULE 1 attached hereto.
"PROVED DEVELOPED NON-PRODUCING RESERVES" are Proved Reserves
comprised of "SHUT-IN RESERVES" and "BEHIND-PIPE RESERVES" as determined in
accordance with the then existing standards of the Society of Petroleum
Engineers and Society of Petroleum Evaluation Engineers.
"PROVED DEVELOPED PRODUCING RESERVES" means Proved Reserves that are
expected to be recovered from completion intervals open and producing at the
time of the estimate.
"PROVED RESERVES" means those Reserves which are "Proved Oil and Gas
Reserves" within the meaning of Rule 4-10 of Regulation S-X, 17 C.F.R. Section
210.4-10 of the Commission and as determined in accordance with the then
existing standards of the Society of Petroleum Engineers and Society of
Petroleum Evaluation Engineers.
"PROVED UNDEVELOPED RESERVES" means those Reserves which are "Proved
Undeveloped Reserves" within the meaning of Rule 4-10 of Regulation S-X, 17
C.F.R. Section 210.4-10 of the Commission and as determined in accordance with
the then existing standards of the Society of Petroleum Engineers and Society of
Petroleum Evaluation Engineers.
"RESERVES" means estimated volumes of crude oil, condensate, natural
gas, natural gas liquids, and associated substances anticipated to be
commercially recoverable from known accumulations from a given date forward,
under then existing economic conditions, by established operating practices, and
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under current government regulations. Reserve estimates are based on
interpretation of geologic and/or engineering data available at the time of the
estimate. Reserves do not include volumes of crude oil, condensate, natural gas
(including storage gas), or natural gas liquids being held in inventory.
"SPECIAL VOTING EVENTS" shall mean each of the events specified in
SECTION 6.2.1.
"VALUATION PROCEDURE" shall have the meaning set forth in
SECTION 8.3(b).
"VOTING EVENTS" shall mean the Special Voting Events and the Limited
Voting Events.
"1993 SERIES A PREFERRED STOCK" shall mean the preferred stock of the
Company with a par value of $.001, issued pursuant to a Certificate of
Designation filed with the Nevada Secretary of State on May 21, 1993.
2. RANKING OF THE 1996 SERIES A PREFERRED STOCK.
So long as any shares of 1996 Series A Preferred Stock shall be
outstanding, the 1996 Series A Preferred Stock shall rank senior with respect to
the right to receive dividends or assets upon liquidation, dissolution or
winding up of the Company to the Common Stock and to all other series of
preferred stock, except with respect to the rights of the 1993 Series A
Preferred Stock to receive a liquidation preference from the liquidation
proceeds of the interests of the Company the West Dilley Prospect, Frio County,
Texas and the Hope Prospect, Gonzales County, Texas in an amount equal to the
lesser of such proceeds or the remaining unpaid dividends on such 1993 Series A
Preferred Stock, or classes or series of capital stock hereafter or heretofore
established by the Board of Directors (collectively, the "JUNIOR STOCK").
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3. DIVIDENDS; RESTRICTED PAYMENTS.
3.1. DIVIDEND PAYMENT DATES. The holders of the 1996 Series A
Preferred Stock shall be entitled to receive when, as and if declared by the
Board of Directors out of funds legally available for the purpose, cumulative
dividend payments, payable quarterly in accordance with this SECTION 3, on March
31, June 30, September 30 and December 31 of each year commencing on December
31, 1996. Dividends on the 1996 Series A Preferred Stock shall be cumulative
from the date of original issue of the 1996 Series A Preferred Stock.
Accumulations of dividends, whether or not declared, shall bear interest at a
rate of 8.75% per annum, compounded quarterly, which interest shall be deemed
accrued dividends payable in the same manner and at the same time as dividends
and redemptions shall be paid on the 1996 Series A Preferred Stock.
3.2. FORM OF PAYMENT. Dividends on the 1996 Series A Preferred Stock
shall be paid in cash at a quarterly rate of $.21875 per share; PROVIDED,
HOWEVER, that if any such dividend shall not be declared on or before the fifth
Business Day of the month after the quarterly payment date on which it accrues
or paid by the penultimate Business Day of such calendar month (the "DIVIDEND
PAYMENT DATE"), the holders shall have the option to require the Company to pay
such accumulated dividends in shares (the "DIVIDEND SHARES") (whether whole or
fractional) of Freely Tradeable Common Stock valued at the Cash Equivalent
Amount for the purposes of determining the number of shares (or fraction
thereof) of Freely Tradeable Common Stock to be issued, PROVIDED, FURTHER, that
with respect to the first time any such dividend is not both declared and paid
in cash on or before the Dividend Payment Date, the Company shall, within thirty
(30) days of the Dividend Payment Date, prepare and file with the Commission a
"shelf" registration statement (a "SHELF REGISTRATION") on any appropriate form
pursuant to Rule 415 under the Act (or similar rule that may be adopted by the
Commission) with respect to the Dividend Shares having a Cash Equivalent Amount
equal to the projected dividends over a one year period, and use best efforts to
cause such Shelf Registration to become and remain continuously effective until
the first to occur of two years after the date of such Shelf Registration or the
sale of all
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Dividend Shares covered thereby; and prepare and file with the Commission
such amendments and supplements to the Shelf Registration and the prospectus
used in connection therewith as may be necessary to keep the Shelf
Registration continuously effective and to comply with the provisions of the
Act with respect to the transfer of all securities covered by the Shelf
Registration whenever the holder or holders of the 1996 Series A Preferred
Stock shall desire to sell or otherwise dispose of the same; PROVIDED, that
no amendment to the Shelf Registration naming any holder of the 1996 Series A
Preferred Stock as selling shareholders shall be filed with the Commission
until such holder shall have had at least seven (7) days to review the Shelf
Registration as originally filed and theretofore amended and to approve or
disapprove any portion of the Shelf Registration describing or referring to
such holder. The Company shall file a new Shelf Registration, pursuant to
the same procedures and subject to the same rights of the 1996 Series A
Preferred Stock as set forth above with respect to the prior Shelf
Registration, covering a like number (ie: having a Cash Equivalent Amount
equal to the projected dividends over a one year period) of Dividend Shares
at such time that the Cash Equivalent Amount (determined on the date of
calculation) of the unissued Dividend Shares covered by the prior Shelf
Registration filed under this SECTION 3.3 shall be less than an amount equal
to one quarter (1/4) of the dividends projected to accrue on the outstanding
1996 Series A Preferred Stock. At any time from and after any holder of the
1996 Series A Preferred Stock shall be entitled to exercise the option to
require the Company to pay accumulated accrued dividends in Dividend Shares,
any such holder may notify the Company of its intent to exercise its option
to require the Company to pay accumulated dividends in shares of Freely
Tradeable Common Stock no later than the fifteenth Business Day of any month
and the Company shall issue the Freely Tradeable Common Stock to the holders
of the 1996 Series A Preferred Stock within ten (10) Business Days after such
notification by TCW. Any holder receiving Dividend Shares shall submit to
the Company no less frequently than once each calendar quarter written notice
of the amount and date of receipt of any Net Cash Receipts as described in
clause (ii) of the definition thereof received by such holder in the prior
calendar quarter.
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3.3. RECORD DATE. The Board of Directors shall fix a record date for
the determination of holders of the 1996 Series A Preferred Stock entitled to
receive payment of a dividend declared thereon, which record date shall be not
more than sixty (60) days prior to the date fixed for the payment thereof.
3.4. RESTRICTED PAYMENTS. Unless full cumulative dividends on the
1996 Series A Preferred Stock have been paid, no dividends shall be declared or
paid or set apart for payment or other distribution upon any Junior Stock nor
shall any Junior Stock be redeemed, purchased or otherwise acquired by the
Company for any consideration (or any payment made to or available for a sinking
fund for the redemption of any shares of such stock) by the Company except that
the Company shall be permitted to redeem, purchase or otherwise acquire any
existing outstanding shares of the 1993 Series A Preferred Stock and the
warrants described in ATTACHMENT 1 hereto provided that the aggregate
consideration paid by the Company in connection therewith shall not exceed
$100,000.
4. REDEMPTION.
4.1. MANDATORY REDEMPTION. In the event that the Company has not
received before June 30, 1997 at least $15,000,000 of net cash proceeds from the
issuance and sale by the Company of Common Stock which was not issued and
outstanding on the Closing Date, the Company shall redeem annually on each of
June 30, 2006, June 30, 2007 and June 30, 2008, 333,333 shares of the 1996
Series A Preferred Stock. Redemptions pursuant to this SECTION 4.1 shall be
paid, at the option of the Company, (i) in cash for a price per share of 1996
Series A Preferred Stock equal to the Liquidation Amount, (ii) with shares
(whether whole or fractional) of Freely Tradeable Common Stock having a Cash
Equivalent Amount equal to the Liquidation Amount or (iii) by combination of
cash and such shares; PROVIDED, that if such redemption shall be paid in a
combination of cash and shares of Common Stock, all holders of the 1996 Series A
Preferred Stock shall receive cash and shares of Common Stock in the same ratio,
except that the Company, at its option, may pay cash in lieu of fractional
shares of Common Stock valued at the Cash Equivalent Amount. In the event that
at any time less than all of the
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shares of 1996 Series A Preferred Stock outstanding are to be redeemed
pursuant to this SECTION 4.1, the Company shall effect such redemption pro
rata according to the number of shares of 1996 Series A Preferred Stock held
by each holder thereof.
4.2. REDEMPTION UPON CHANGE OF CONTROL. Upon the sale, conveyance or
disposition of all or substantially all of the assets of the Company, the net
proceeds of which, after making provisions for all liabilities (contingent or
otherwise) of the Company, exceed the amount required to pay the full
Liquidation Amount to which each holder of the 1996 Series A Preferred Stock
is entitled upon liquidation of the Company, or a sale, conveyance or
disposition of a majority of the outstanding shares of Common Stock in a
transaction or series of related transactions (except for a merger or
consolidation after the consummation of which the stockholders of the Company
own a majority of the voting securities of the surviving corporation or its
parent corporation), each holder of the 1996 Series A Preferred Stock shall
have the right to require that the Company redeem all or any part of such
holder's 1996 Series A Preferred Stock for cash out of legally available
funds at a price per share equal to the Liquidation Amount.
If on the date of such sale, conveyance or disposition funds legally
available for such redemption shall be insufficient to redeem all of the
outstanding shares of 1996 Series A Preferred Stock held by holders who have
elected to have their shares redeemed, funds to the extent legally available
shall be used for such purpose and the Company shall effect such redemption
pro rata according to the number of shares of 1996 Series A Preferred Stock
held by each holder thereof. The redemption requirements provided hereby
shall be continuous, so that if on the date of such sale, conveyance or
disposition such requirements can not be fully discharged, without further
action by any holder of the 1996 Series A Preferred Stock funds legally
available shall be applied therefor until such requirements are fulfilled.
Upon payment in full of the amounts owing under this SECTION 4.2 to
any holder of 1996 Series A Preferred Stock who has elected to have its
shares redeemed, then notwithstanding
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that the certificate or certificates evidencing such shares shall not have
been surrendered, the dividends with respect to such shares shall cease to
accrue after the date of such payment in full and all rights with respect to
such shares shall forthwith terminate.
4.3. OPTIONAL REDEMPTION. The shares of the 1996 Series A Preferred
Stock may be redeemed, in whole but not in part, at the option of the
Company, if (i) the Board of Directors of the Company has approved a bona
fide merger, consolidation or acquisition opportunity of the Company which is
evidenced by a duly executed letter of intent or agreement between all
applicable parties and which would require the affirmative vote or consent of
the holders of at least 70% of the outstanding shares of the 1996 Series A
Preferred Stock pursuant to SECTION 6.5(b) below, (2) the Company has made a
detailed presentation to the holders of the 1996 Series A Preferred Stock
regarding the proposed merger or acquisition, and (3) within five (5)
Business Days of such presentation such holders (A) do not provide their
consent to such transaction or (B) do not convert the 1996 Series A Preferred
Stock to Common Stock.
Redemption pursuant to this SECTION 4.3 shall be paid, in
immediately available funds for a price per share of 1996 Series A Preferred
Stock equal to $21.50.
4.4. REDEMPTION NOTICE. The Company shall give written notice (the
"REDEMPTION NOTICE") to each holder of the 1996 Series A Preferred Stock at
least 20 Business Days prior to the date (the "REDEMPTION DATE") of any
redemption required or permitted under this SECTION 4, such notice to be
addressed to each holder at the address as it appears on the stock transfer
books of the Company. Such notice shall specify (i) the Redemption Date,
(ii) the number of all shares of the 1996 Series A Preferred Stock of each
holder to be redeemed and (iii) the amount and form or forms of payment
therefor and the method of calculation thereof (the "REDEMPTION AMOUNT"). On
or after each such Redemption Date, each holder of the 1996 Series A
Preferred Stock shall surrender a certificate or certificates representing
the number of shares of the 1996 Series A Preferred Stock to be redeemed as
stated in the Redemption Notice provided by the
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Company. If the Redemption Notice shall have been duly given, and if on the
Redemption Date the Redemption Amount is either paid or made reasonably
available for payment in immediately available funds, Freely Tradeable Common
Stock or a combination thereof as provided herein to the holders of the 1996
Series A Preferred Stock being redeemed, then notwithstanding that the
certificates evidencing any of the 1996 Series A Preferred Stock so called
for redemption shall not have been surrendered, the dividends with respect to
such shares shall cease to accrue after the Redemption Date and all rights
with respect to such shares shall forthwith terminate after the Redemption
Date, except only the right of the holders to receive the Redemption Amount
without interest upon surrender of their certificate or certificates.
Notwithstanding anything to the contrary contained herein, with respect to
any shares of 1996 Series A Preferred Stock scheduled for redemption pursuant
to a Redemption Notice, the holders of such shares may at any time prior to
the Redemption Date, upon written notice to the Company as provided herein,
exercise their right to convert all or any portion of such shares into Common
Stock at the Conversion Price.
5. LIQUIDATION RIGHTS.
Upon any liquidation, dissolution or winding up of the affairs of
the Company, no distribution shall be made to the holders of any Junior Stock
unless, prior to the first such distribution, the holders of the 1996 Series
A Preferred Stock shall have received the Liquidation Amount. If the assets
distributable in any such event to the holders of the 1996 Series A Preferred
Stock are insufficient to permit the payment to such holders of the full
preferential amounts to which they may be entitled, such assets shall be
distributed ratably among the holders of the 1996 Series A Preferred Stock in
proportion to the full preferential amount each such holder would otherwise
be entitled to receive.
6. VOTING RIGHTS OF 1996 SERIES A PREFERRED STOCK.
6.1. VOTING RIGHTS. The holders of the 1996 Series A Preferred
Stock shall be entitled, on all matters submitted for a vote of the holders
of shares of Common Stock, whether pursuant
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to law or otherwise, to a number of votes per share of the 1996 Series A
Preferred Stock equal to the number of shares of Common Stock issuable upon
conversion of one share of the 1996 Series A Preferred Stock on the date of
such vote, and on all such matters shall vote together as one class with the
holders of Common Stock and the holders of all other shares of stock entitled
to vote with the holders of Common Stock on such matters. Notwithstanding
the foregoing, the holders of the 1996 Series A Preferred Stock shall at all
times have the right, as a class, to elect at least one member of the Board
of Directors of the Company; PROVIDED, that in the event that the holders of
the 1996 Series A Preferred Stock do not exercise their right to elect a
board member, they may appoint an observer who may attend and participate in
all meetings (including committee meetings) of the Board of Directors of the
Company and who shall be entitled to the same expense reimbursement as
Directors of the Company.
6.2. SPECIAL VOTING RIGHTS. In addition to the voting rights
described in SECTION 6.1 above, the holders of the 1996 Series A Preferred
Stock shall have the voting powers provided for by law and the further voting
powers provided for below:
6.2.1 SPECIAL VOTING EVENTS. If one or more of the Special
Voting Events (as defined below) occurs and remains outstanding and has not
been specifically waived in writing by holders of 70% or more of the shares
of the 1996 Series A Preferred Stock, then, to the extent permitted by law as
relating to directorships, the holders of such 1996 Series A Preferred Stock
shall have the right, voting separately from all other classes and series, to
call a special meeting of all Shareholders and to elect a total of 75% of the
directors of the Company. The remaining directors shall be elected by the
other classes or series of stock entitled to vote therefor. If and when such
right of the holders of the 1996 Series A Preferred Stock becomes operative,
the maximum authorized number of members of the Board of Directors of the
Company shall automatically be increased to the extent necessary to create
any vacancy or vacancies to be filled only by vote of the holders of the 1996
Series A Preferred Stock then outstanding as hereinafter set forth. Whenever
such right of the holders of the 1996 Series A Preferred Stock shall become
operative, such right shall be
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exercised initially either at a special meeting of the holders of the 1996
Series A Preferred Stock called as provided in SECTION 6.3 below or at any
annual meeting of stockholders held for the purpose of electing directors,
and thereafter at such annual meetings. In electing the directors to be
elected by the holders of the 1996 Series A Preferred Stock, each holder of
such stock shall have one vote for each share thereof held. The right of the
holders of the 1996 Series A Preferred Stock, voting separately from all
other classes and series, to elect 75% of the members of the Board of
Directors of the Company as aforesaid shall continue until such Special
Voting Event is cured or waived as set forth above, at which time the right
of the holders of the 1996 Series A Preferred Stock to vote separately and as
a class as provided in this SECTION 6.2.1 shall terminate (subject to
becoming operative again in the event of a subsequent Special Voting Event)
and the maximum authorized number of members of the Board of Directors of the
Company shall automatically be reduced if such number was increased at the
time when the terminated voting right of the holders of the 1996 Series A
Preferred Stock became operative. Notwithstanding the foregoing, in no event
shall the Company increase the number of members of the Board of Directors
above nine, plus those members of the Board of Directors elected by the
holders of the 1996 Series A Preferred Stock.
Such "SPECIAL VOTING EVENTS" are:
(a) the failure by the Company to redeem the 1996 Series A
Preferred Stock when such redemption is required hereunder;
(b) the occurrence of any event or condition in respect of any
debt or security of the Company or any of its subsidiaries, or under any
agreement securing or relating to such debt or security the effect of which
is to cause or to permit any holder of such debt or other security or
trustee to cause (whether or not such holder or trustee elects to cause)
such debt or security, or a portion thereof, to become due prior to its
stated maturity or prior to its regularly scheduled dates of payment
PROVIDED, that, with respect to any debt other than the Company's senior
bank or
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other credit facility, such debt exceeds $3,000,000; and the Company is
given notice of the acceleration of such debt or other security;
(c) the commencement of an involuntary case or other proceeding
against the Company or any of its subsidiaries, which seeks liquidation,
reorganization or other relief with respect to it or its debtor, other
liabilities under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of it or any substantial
part of its property, or the entry of an order for relief against the
Company or any of its subsidiaries in any such case under the United States
Bankruptcy Code;
(d) the commencement by the Company or any of its subsidiaries of
or the approval by a majority of the Board of Directors of the Company or
any of its subsidiaries of the commencement of a voluntary case or other
proceeding, seeking liquidation, reorganization or other relief with
respect to itself or its debts or other liabilities under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking the
appointment of a trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, or consent to any
such relief or to the appointment of or taking possession by any such
official in an involuntary case or other proceeding commenced against it,
or the making by the Company or any of its subsidiaries of a general
assignment for the benefit of creditors, or failure by the Company or any
of its subsidiaries generally to or written admission of its inability to
pay its debts generally as they become due, or the taking of any corporate
action to authorize or effect any of the foregoing;
(e) the dissolution of the Company or the discontinuation of its
usual business;
(f) a breach by the Company of any covenant, term or condition of
this Certificate of Designation or the Stock
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Purchase Agreement, which breach is continuing and uncured for a period of
at least 60 days after delivery of written notice thereof to the Company; or
(g) the failure by the Company to declare accumulated dividends
or issue Freely Tradeable Common Stock upon the request of any holder of
the 1996 Series A Preferred Stock where the Company has accumulated
dividends and where such breach is continuing and uncured for a period of
at least 60 days after delivery of written notice thereof to the Company;
In the event at any time after January 1, 1999 that the average
closing price of the Company's Common Stock (as adjusted for stock dividends,
split-ups, mergers, recapitalizations, combinations, exchanges of shares or
the like) on the securities exchange or other national market system on which
the Common Stock is then listed over a period of at least 60 continuous
trading days commencing after December 31, 1998 shall be in excess of 120% of
the Required Forced Conversion Market Price described in SECTION 8.3 below in
effect on each of such trading days, the Special Voting Events set forth
above shall become Limited Voting Events.
6.2.2 LIMITED VOTING EVENTS. If one or more of the Limited
Voting Events occurs and remains outstanding and has not been specifically
waived in writing by the holders of 70% or more of the shares of the 1996
Series A Preferred Stock, then, to the extent permitted by law as relating to
directorships, the holders of such 1996 Series A Preferred Stock shall have
the right, voting separately from all other classes and series, to elect one
additional director of the Company every 60 days until such time as the
Limited Voting Event no longer remains outstanding, PROVIDED, HOWEVER, that
if the Board of Directors shall increase above seven (7) persons, excluding
those directors appointed by the holders of the 1996 Series A Preferred
Stock, the holders of the 1996 Series A Preferred Stock shall have the right,
voting separately from all other classes and series, to elect one additional
director of the Company every 45 days until such time as the Limited Voting
Event no longer remains outstanding. The remaining directors shall be
elected by the
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other classes or series of stock entitled to vote therefor, including the
1996 Series A Preferred Stock as set forth in SECTION 6.1. If and when such
right of the holders of the 1996 Series A Preferred Stock becomes operative,
the maximum authorized number of members of the Board of Directors of the
Company shall automatically be increased to the extent necessary to create
any vacancy or vacancies to be filled only by vote of the holders of the 1996
Series A Preferred Stock then outstanding as hereinafter set forth. Whenever
such right of the holders of the 1996 Series A Preferred Stock shall become
operative, such right shall be exercised initially either at a special
meeting of the holders of the 1996 Series A Preferred Stock called as
provided in SECTION 6.3 below or at any annual meeting of stockholders held
for the purpose of electing directors, and thereafter at such annual
meetings. In electing the directors to be elected by the holders of the 1996
Series A Preferred Stock pursuant to this SECTION 6.2.2, each holder of such
stock shall have one vote for each share thereof held. The right of the
holders of the 1996 Series A Preferred Stock, voting separately from all
other classes and series, to elect the members of the Board of Directors of
the Company as aforesaid shall continue to accrue and increase until such
Limited Voting Event is cured or waived as set forth above, at which time the
right of the holders of the 1996 Series A Preferred Stock to vote separately
and as a class as provided in this SECTION 6.2.2 shall terminate (subject to
becoming operative again in the event of a subsequent Limited Voting Event)
and the maximum authorized number of members of the Board of Directors of the
Company shall automatically be reduced if such number was increased at the
time when the terminated voting right of the holders of the 1996 Series A
Preferred Stock became operative. Notwithstanding the foregoing, in no event
shall the Company increase the number of members of the Board of Directors
above nine, plus those members of the Board of Directors elected by the
holders of the 1996 Series A Preferred Stock.
Such "LIMITED VOTING EVENTS" are:
(a) the occurrence of a Coverage Deficiency;
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(b) a breach by the Company of any material covenant, term or
condition in respect of any debt of the Company in excess of $2,000,000 which
breach is continuing and uncured;
(c) the occurrence of a failure to perform on a timely basis any
material component of the Development Plan; or
(d) the failure of the Company to cause all shares of the 1993
Series A Preferred Stock to be redeemed or cancelled on or before July 1,
1997.
6.3. PROCEDURES RELATING TO SPECIAL VOTING RIGHTS.
(a) At any time when the special voting rights of the holders of
the 1996 Series A Preferred Stock provided in SECTION 6.2 above shall have
become operative and not have been exercised, a proper officer of the
Company shall, upon the written request of the holders of record of at
least 20% of the shares of 1996 Series A Preferred Stock then outstanding
addressed to the Secretary of the Company, call a special meeting of the
holders of the 1996 Series A Preferred Stock for the purpose of electing
the allotted directors to be elected by the 1996 Series A Preferred Stock.
Such meeting shall be held at the earliest practicable date upon the notice
required for annual meetings of stockholders at such place in the
continental United States as may be specified in such written request. If
such meeting shall not be called by the proper officer of the Company
within twenty (20) days after the personal service of such written request
upon the Secretary of the Company, or within twenty (20) days after mailing
the same within the United States by registered or certified mail enclosed
in a postpaid envelope addressed to the Secretary of the Company at its
principal office, then the holders of record of at least 20% of the shares
of 1996 Series A Preferred Stock then outstanding may designate in writing
one of their number to call such meeting at the expense of the Company, and
such meeting may be called by the person so designated upon the notice
required for annual meetings of stockholders and shall be held at such
place in the continental United States as may be specified in such
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notice. Notwithstanding the provisions of this SECTION 6.3, no such special
meeting shall be called during the period of sixty (60) days immediately
preceding the date fixed for any annual or special meeting of stockholders
if the staff of the Securities and Exchange Commission shall have advised
the Company that the calling of any such meeting shall require the Company
to amend or supplement its proxy soliciting materials relating to such
annual or special meeting of stockholders; and no such special meeting
shall be called if in connection with such meeting a proxy solicitation
conforming to the rules and regulations issued under the Securities
Exchange Act of 1934, as amended, shall be required, but in such event the
election of directors by the holders of the 1996 Series A Preferred Stock
shall take place at the next annual meeting of stockholders, unless the
right of the holders of the 1996 Series A Preferred Stock to elect
directors shall in the meantime have terminated.
(b) Upon any termination of the right of the holders of the 1996
Series A Preferred Stock to elect directors as hereinabove provided, the
term of office of any director then in office elected by the 1996 Series A
Preferred Stock shall terminate immediately. If the office of any director
elected by the holders of the 1996 Series A Preferred Stock becomes vacant
by reason of death, resignation, retirement, disqualification, removal from
office or otherwise, then the procedure provided for in SECTION 6.3(a)
above shall be used to fill the vacancy.
(c) Subject to the provisions of SECTION 6.2, the By-Laws of the
Company shall automatically be deemed amended from time to time to provide
for the increase or reduction in the maximum authorized number of members
of the Board of Directors and for the election procedure as hereinabove in
this SECTION 6.3 provided.
6.4. RIGHTS RELATING TO BOARD OF DIRECTORS.
The Company will promptly execute and deliver to any individual
elected to the Board of Directors, pursuant to SECTION 6.2, an agreement by
the Company to indemnify and
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hold harmless such individual for any and all actions taken by such
individual in his capacity as a member of the Board of Directors to the
fullest extent permitted by the laws of the state of incorporation of the
Company. Unless waived or modified by the holders of a majority of the
1996 Series A Preferred Stock, the Company will also use its best efforts
to promptly provide for such individual such amount of director's liability
insurance as is normal and customary for corporations which have common
stock that is publicly traded on the American Stock Exchange.
6.5. CERTAIN ACTIONS BY THE COMPANY. So long as any shares of the
1996 Series A Preferred Stock are outstanding, the Company will not, without
the affirmative vote or consent of all of the holders of the outstanding
shares of 1996 Series A Preferred Stock, voting as a separate class, amend or
repeal any provision of, or add any provision to, the Company's Articles of
Incorporation which affect the dividend rate, Liquidation Amount, liquidation
preference, conversion price, dividend and liquidation priority, voting
rights, or mandatory redemption rights and terms of the 1996 Series A
Preferred Stock.
Unless the vote or consent of the holders of a greater number of
shares shall then be required by law or as provided in the immediately
preceding paragraph, and so long as any shares of the 1996 Series A Preferred
Stock are outstanding, the Company will not, without the affirmative vote or
consent of the holders of at least seventy percent (70%) of the outstanding
shares of 1996 Series A Preferred Stock, voting as a separate class:
(a) amend or repeal any provision of, or add any provision to,
the Company's Articles of Incorporation which affect the other rights,
powers, preferences or terms of the 1996 Series A Preferred Stock;
(b) consolidate or merge with or into any other corporation where
(1) the Company is not the surviving corporation or (2) the Company shall
issue to any person as consideration in respect of such consolidation or
merger any capital stock of the Company representing 50% or more of the
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Company's outstanding capital stock prior to such consolidation or merger;
(c) sell, transfer or convey all or substantially all of the
assets of the Company, or dissolve or liquidate the Company;
(d) reclassify any Common Stock into shares having any preference
or priority as to the payment of dividends or the distribution of assets
superior to or on a parity with any such preference or priority of the 1996
Series A Preferred Stock;
(e) declare or pay any dividend, or make any distribution, or
purchase, redeem or otherwise acquire for value any capital stock or other
interest in the Company now or hereafter outstanding, or make any other
distribution of its assets, to the holders of any Junior Stock, unless
(i) no Voting Events shall have occurred and be continuing immediately
prior to and after such distributions, and (ii) all accumulated dividends
with respect to the 1996 Series A Preferred Stock have been paid in full
immediately prior to such distribution; or
(f) amend or otherwise modify in any material respect the
Company's Development Plan.
Subsection (b) of this SECTION 6.5 shall be of no further force or
effect at such time that the total number of the Conversion Shares issuable
upon conversion of all outstanding shares of the 1996 Series A Preferred
Stock at the Conversion Price in effect from time to time, is equal to or
less than five percent (5%) of the Company's total issued and outstanding
shares of Common Stock.
7. COVENANTS OF THE COMPANY. The failure by the Company to comply
with any of the covenants set forth below, unless specifically waived in
writing by holders of a majority or more of the 1996 Series A Preferred
Stock, shall be a Special Voting Event. The holders of the 1996 Series A
Preferred Stock
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shall have no remedies for violation of the covenants set forth below other
than (i) election of directors as provided in SECTION 6.2 and (ii) a right to
specific performance or other equitable remedies.
7.1. BOARD OF DIRECTORS. So long as the 1996 Series A Preferred
Stock shall remain outstanding, the Company shall not increase the number of
directors above nine except in connection with the right of the holders of
the 1996 Series A Preferred Stock to appoint directors.
7.2. FINANCIAL STATEMENTS. Whether or not the Company remains
subject to the reporting requirements of the Securities Exchange Act of 1934,
as amended, the Company will furnish or cause to be furnished to any holder
of the 1996 Series A Preferred Stock:
(a) As soon as available and in any event within 120 days after
the close of each fiscal year of the Company, the audited balance sheet of
the Company as of the end of such fiscal year and the audited statements of
operations and cash flow of the Company for such fiscal year prepared in
accordance with generally accepted accounting principles which fairly
present the information included therein (showing any material change in
the consistency of the application of such principles from the prior
period), accompanied by an opinion of a nationally recognized independent
certified public accountant, together with a certificate by the President
or the Chief Financial Officer of the Company certifying that no Voting
Event has occurred in such year;
(b) As soon as available and in any event prior to the close of
each fiscal year of the Company, a budget for the consolidated operations
of the Company and its subsidiaries for the subsequent fiscal year, broken
down by months, certified by the Chief Financial Officer of the Company;
(c) As soon as available and in any event prior to 50 days after
the end of each quarterly period of each
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fiscal year of the Company, a written report discussing the results of
operations and activities described in the Development Plan and explaining
any material variations in the results of such operations from the
Development Plan, certified by the Chief Financial Officer of the Company;
(d) As soon as available and in any event prior to 50 days after
the end of each quarter of each fiscal year of the Company, the unaudited
balance sheet of the Company at the end of such quarter, the unaudited
statements of operations of the Company for such quarter and for the period
from the beginning of the fiscal year to the close of such quarter, and
unaudited statements of cash flow of the Company from the beginning of the
fiscal year to the close of such quarter, all prepared in accordance with
generally accepted accounting principles which fairly present the
information included therein (showing any material change in the
consistency of the application of such principles from the prior quarter)
and certified by the Chief Financial Officer of the Company;
(e) Promptly upon written request, any monthly financial
statements prepared by the Company in the ordinary course of business of
the Company;
(f) Promptly upon receipt thereof, one copy of each other report
submitted to the Company by independent accountants in connection with any
annual, interim or special audit made by them of the books of the Company
or any of its subsidiaries;
(g) As soon as available and in any event within 90 days after
each January 1, an Independent Engineering Report covering all of the oil
and gas properties of the Company; and
(h) Promptly upon the occurrence of a Voting Event and in no
event later than 15 calendar days after the occurrence of such event, a
certificate of the Chief Financial Officer of the Company stating that such
Voting Event has occurred and specifying the material facts related
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to such Voting Event and steps being taken or contemplated to be taken to
cure such Voting Event.
7.3. INSPECTION OF PROPERTY. In addition to any rights of the
holders of the 1996 Series A Preferred Stock under applicable law to inspect
the property of the Company, the Company will permit any representative
designated by any holder of the 1996 Series A Preferred Stock, upon
reasonable notice and during normal business hours, to (i) visit and inspect
any of the properties of the Company and its subsidiaries, (ii) at the
expense of the Company (not to exceed $2,000 per year), examine the corporate
and financial records of the Company and its subsidiaries and make copies
thereof or extracts therefrom and (iii) discuss the affairs, finances and
accounts of the Company and its subsidiaries with the directors, officers,
key employees and independent accountants of the Company and its subsidiaries.
7.4. DEVELOPMENT OF COMPANY'S PROPERTIES. The Company shall take all
actions necessary to develop its properties in accordance with the
Development Plan.
7.5. CHANGE IN CONTROL/MANAGEMENT. Gary C. Evans shall remain the
President and Chief Executive Officer of the Company with the customary
authority and in the full time employment and active involvement in the
operations and affairs of the Company as Mr. Evans is involved on the Closing
Date.
7.6. CONDUCT OF BUSINESS. The Company shall carry on and conduct,
and cause each of its subsidiaries to carry on and conduct, its business in
substantially the same manner and in substantially the same fields of
enterprise as it is conducted on the Closing Date; and do, and, unless merged
into the Company, cause each of its subsidiaries to do, all things necessary
to remain duly incorporated, validly existing and in good standing as a
domestic corporation in its jurisdiction of incorporation and maintain all
requisite authority to conduct its business in each jurisdiction in which its
business is conducted.
7.7. INSURANCE. The Company shall maintain, and cause each of its
subsidiaries to maintain (a) insurance with financially sound and responsible
insurance carriers of the
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kinds, against the risks and in the relative proportions and amounts usually
carried by companies engaged in similar businesses and (b) from and after the
earlier of (i) ninety (90) days after the Closing Date; or (ii) the election
by the holders of the 1996 Series A Preferred Stock of any director,
Directors and Officers Liability insurance, in an amount not less than ten
million dollars ($10,000,000), with insurance carriers and covering such
risks as approved in writing by the holders of a majority of the 1996 Series
A Preferred Stock, naming as insured any directors of the Company elected by
the holders of the 1996 Series A Preferred Stock.
7.8. MAINTENANCE OF PROPERTY; DEVELOPMENT AND MAINTENANCE. The
Company shall maintain, and cause each of its subsidiaries to maintain, all of
its tangible property in good condition and repair and make all necessary
replacements thereof and operate the same properly and efficiently and shall
develop and maintain, or cause to be developed and maintained (by the prompt
payment of all royalties, delay rentals and other sums due thereunder or
otherwise), the leases, wells, units and acreage constituting proven property
owned or leased by the Company and its subsidiaries as of the Closing Date in a
prudent manner, and as may be reasonably necessary for the prudent and
economical operation of such leases, wells, units and acreage in compliance with
all proration and conservation laws and all applicable rules, regulations and
orders of any governmental authority. In addition, the Company shall cause all
work and development described in the Development Plan to be performed by or
before the dates specified for completion thereof in the Development Plan.
7.9. COMMON STOCK RESERVED; LEGALITY. The Company shall at all times
reserve and keep available out of its authorized but unissued Common Stock such
number of shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of the 1996 Series A Preferred
Stock; all of such shares of the Common Stock which are issuable to the holders
of the 1996 Series A Preferred Stock by way of conversion, redemption or
dividend will, when issued, be duly authorized and validly issued, fully paid
and nonassessable, and free from all taxes, liens and charges.
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8. CONVERSION. The 1996 Series A Preferred Stock shall be
convertible as follows:
8.1. RIGHT OF HOLDER TO CONVERT. Each share of the 1996 Series A
Preferred Stock shall be convertible, without the payment of any additional
consideration by the holder thereof and at the option of the holder thereof, at
any time after December 31, 1996, in whole or in part, at the office of the
Company or any transfer agent for the 1996 Series A Preferred Stock, into the
whole number of fully paid and nonassessable shares of Common Stock determined
by dividing the Liquidation Value by the Conversion Price in effect at the time
of conversion, plus, in lieu of any fractional share to which such holder would
otherwise be entitled, cash equal to such fraction multiplied by the Conversion
Price.
8.2. MECHANICS OF CONVERSION BY HOLDER. In order for any holder of
the 1996 Series A Preferred Stock to convert the same into Common Stock, he
shall surrender to the Company at the office of the Company or of any transfer
agent for the 1996 Series A Preferred Stock, the certificate or certificates
representing such 1996 Series A Preferred Stock, accompanied by written notice
to the Company that he elects to convert all or a specified number of such
shares and stating therein his name or the name or names of his nominees in
which he wishes the certificate or certificates for Common Stock to be issued.
The Company shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of the 1996 Series A Preferred Stock, or to his nominee or
nominees, a certificate or certificates representing the number of shares of
Common Stock to which he shall be entitled as aforesaid and, if less than the
full number of shares of the 1996 Series A Preferred Stock evidenced by such
surrendered certificate or certificates are being converted, a new certificate
or certificates, of like tenor, for the number of shares of the 1996 Series A
Preferred Stock evidenced by such surrendered certificate less the number of
such shares being converted. Any conversion made at the election of a holder of
the 1996 Series A Preferred Stock shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the 1996 Series
A Preferred Stock to be converted, and the person or persons
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entitled to receive the Common Stock issuable upon conversion shall be
treated for all purposes as the record holder or holders of such Common Stock
on such date.
8.3. RIGHT OF THE COMPANY TO CONVERT. The shares of 1996 Series A
Preferred Stock may be converted, in whole but not in part, at the option of the
Company, into Freely Tradeable Common Stock at any time after December 31, 1998
if (i) there shall not have occurred within the six months prior to the date of
delivery of the Conversion Notice described in SECTION 8.4 below or be
outstanding on the date of conversion any event or condition that would give
rise to or constitute a Voting Event and (ii) the Common Stock of the Company
has traded on a recognized securities exchange or national market system more
than an average of 50,000 shares per day (as adjusted for stock dividends,
split-ups, mergers, recapitalizations, combinations, exchanges of shares or the
like) over the 20-trading day period prior to the date of the Conversion Notice
at an average closing price (the "REQUIRED FORCED CONVERSION MARKET PRICE")
equal to or greater than the difference of
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(a) the following percentage of the Conversion Price per share then in
effect (i.e., as adjusted for stock dividends, split-ups, mergers,
recapitalizations, combinations, exchanges of shares or the like but
without adjustment as provided in either SECTION 8.5 or SECTION 8.6 or
SECTION 8.7 below):
Date of Percentage of
Calculation: Conversion Price:
------------ -----------------
On or after December 31, 1998
but prior to March 31, 1999 170%
On or after March 31, 1999
but prior to June 30, 1999 181.25%
On or after June 30, 1999
but prior to September 30, 1999 192.50%
On or after September 30, 1999
but prior to December 31, 1999 203.75%
On or after December 31, 1999 215%
minus
(b) the NPV30 Amount per share of 1996 Series A Preferred Stock actually
received by the holders of outstanding shares of 1996 Series A Preferred
Stock with respect to such shares
PROVIDED, HOWEVER, that with respect to any calculation of Required Forced
Conversion Market Price on or after January 1, 2000, the NPV30 Amount to be
deducted pursuant to clause (b) shall be deemed to be zero (0). Such conversion
shall be without the payment of any additional consideration by the holder and
shall be into the whole number of fully paid and nonassessable shares of Freely
Tradeable Common Stock determined by dividing (i) the aggregate Liquidation
Value relating to all outstanding shares of the 1996 Series A Preferred Stock by
(ii) the Conversion Price in effect at the time of conversion, plus, in lieu of
any fractional share to which such holder would otherwise
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be entitled, cash equal to such fraction multiplied by the Conversion Price.
8.4. MECHANICS OF CONVERSION BY THE COMPANY. In order for the Company
to convert the 1996 Series A Preferred Stock into Freely Tradeable Common Stock
pursuant to SECTION 8.3 above, the Company shall deliver written notice to the
holders of the 1996 Series A Preferred Stock that it elects to convert all of
such shares (the "CONVERSION NOTICE"). Such Conversion Notice shall set forth
the effective date of such conversion (the "CONVERSION DATE") which shall be not
less than five (5) Business Days after the date the Conversion Notice is
delivered to the holders of the 1996 Series A Preferred Stock and the Company's
calculation of the number of shares of Freely Tradeable Common Stock to be
issued to the holders of the 1996 Series A Preferred Stock upon such conversion
including without limitation the component calculations of the Liquidation Value
NPV30 and Net Cash Receipts. Such calculations by the Company shall not be
binding upon the holders of the 1996 Series A Preferred Stock and if the holders
of the 1996 Series A Preferred Stock shall dispute the accuracy of such
calculations the holders shall not be obligated to surrender the certificate or
certificates representing the 1996 Series A Preferred Stock to be converted as
provided in the immediately following sentence and the conversion of the 1996
Series A Preferred Stock shall not be effective until such dispute is resolved
pursuant to the arbitration procedure described in Section 6.9 of the Stock
Purchase Agreement and the Conversion Date shall be automatically extended to
the date such dispute shall be resolved. Prior to the Conversion Date, the
holders of the 1996 Series A Preferred Stock shall continue to have all rights
and benefits with respect thereto as set forth herein. Upon the Conversion
Date, the holders shall surrender to the Company at the office of the Company or
of any transfer agent for the 1996 Series A Preferred Stock, the certificate or
certificates representing the 1996 Series A Preferred Stock to be converted.
The Company shall, as soon as practicable thereafter, issue and deliver at such
office to such holders of the 1996 Series A Preferred Stock, or to their nominee
or nominees, certificates representing the number of shares of Freely Tradeable
Common Stock to which they shall be entitled as aforesaid. Any conversion made
at the election of the Company
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pursuant to SECTION 8.3 above shall be deemed to have been made immediately
prior to the close of business on the second Business Day after the date the
Conversion Notice has been received by the holder of the 1996 Series A
Preferred Stock, and the person or persons entitled to receive the Common
Stock issuable upon conversion shall be treated for all purposes as the
record holder or holders of such Common Stock on such date.
8.5. ADJUSTMENTS TO CONVERSION PRICE FOR VOTING EVENTS. In the event
that a Voting Event shall occur and is occurring the Conversion Price in effect
shall be adjusted to that number determined by multiplying the Conversion Price
then in effect by 80%.
8.6. ADJUSTMENT TO CONVERSION PRICE ON JUNE 30, 1997. In the event
that the Company has not received on or before June 30, 1997 at least
$15,000,000 of net cash proceeds from the issuance and sale by the Company of
Common Stock which was not issued and outstanding on the Closing Date, the
Conversion Price in effect on June 30, 1997 shall be reduced to the lower of (i)
$4.875 (as reduced or increased, for stock dividends, split-ups, mergers,
recapitalizations, combinations, exchanges of shares or the like) or (ii) 25%
above the lower of, as calculated on June 30, 1997, (A) the 10-Day Average Price
or (B) the 60-Day Average Price.
8.7. ADJUSTMENT TO CONVERSION PRICE ON JULY 1, 1997. In the event
that the mean average price per share (the "7/1/97 AVERAGE PRICE") received by
the Company upon the issuance of Common Stock in connection with the public
offerings described in clause (iv) of the definition of "Additional Shares of
Nonpreferred Stock" shall be less than the amount set forth in the column
entitled "7/1/97 Average Price" below, then the Conversion Price in effect on
July 1, 1997 shall be reduced (but not increased) to an amount equal to the
product of the percentage set forth in the column entitled "Applicable
Percentage" below opposite the applicable 7/1/97 Average Price multiplied by the
7/1/97 Average Price.
7/1/97 AVERAGE PRICE: APPLICABLE PERCENTAGE:
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$4.6999 to $4.60 125%
$4.5999 to $4.50 124%
$4.4999 to $4.40 123%
Below $4.40 122%
8.8. ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES:
(a) Stock Dividends, Subdivisions and Combinations. In case at
any time or from time to time the Company shall:
(1) take a record of the holders of its Nonpreferred Stock
for the purpose of entitling them to receive a dividend payable in, or
other distribution of, Nonpreferred Stock;
(2) subdivide its outstanding shares of Nonpreferred Stock
into a larger number of shares of Nonpreferred Stock; or
(3) combine its outstanding shares of Nonpreferred Stock
into a smaller number of shares of Nonpreferred Stock;
then the Conversion Price in effect immediately after the happening of any
such event shall be proportionately decreased, in case of the happening of
events described in subparagraphs (1) or (2) above, or proportionately
increased, in case of the happening of events described in subparagraph (3)
above.
(b) Certain Other Dividends and Distributions. In case at any
time or from time to time the Company shall take a record of the holders of
its Nonpreferred Stock for the purpose of entitling them to receive any
dividend or other distribution of:
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(1) cash (other than a cash distribution made as a dividend
and payable out of earnings or earned surplus legally available for
the payment of dividends under the laws of the jurisdiction of
incorporation of the Company, to the extent, but only to the extent,
that the aggregate of all such dividends paid or declared after the
date hereof, does not exceed the consolidated net income, net of
consolidated net losses, of the Company and its consolidated
subsidiaries earned subsequent to the date hereof determined in
accordance with generally accepted accounting principles);
(2) any evidence of its indebtedness (other than Convertible
Securities), any shares of its stock (other than Additional Shares of
Nonpreferred Stock) or any other securities or property of any nature
whatsoever (other than cash and other than Convertible Securities or
Additional Shares of Nonpreferred Stock); or
(3) any warrants or other rights to subscribe for or
purchase any evidences of its indebtedness (other than Convertible
Securities), any shares of its stock (other than Additional Shares of
Nonpreferred Stock) or any other securities or property of any nature
whatsoever (other than cash and other than Convertible Securities or
Additional Shares of Nonpreferred Stock);
then the Conversion Price in effect shall be adjusted to that number
determined by multiplying the Conversion Price then in effect by a fraction
(x) the numerator of which shall be the Fair Market Price per share of
Common Stock immediately prior to the date of taking such record minus the
portion applicable to one share of Common Stock of any such cash so
distributable and of the fair value of any and all such evidences of
indebtedness, shares of stock, other securities or property, or warrants or
other subscription or purchase rights, so distributable and (y) the
denominator of which shall be the Fair Market Price per share of Common
Stock immediately prior to the date of taking such record.
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<PAGE>
Such fair value shall be determined pursuant to the Valuation
Procedure. The "Valuation Procedure" is a determination of fair value
of any property made in good faith by the Board of Directors; PROVIDED,
that if the holders of a majority of the 1996 Series A Preferred Stock
object to such determination within 10 days of receipt of written
notification thereof, then the fair value of such property shall be
determined in good faith by a recognized national investment bank
selected by unanimous vote or consent of the Board of Directors, which
investment bank is not reasonably objected to by the holders of a
majority of the 1996 Series A Preferred Stock. The fees and expenses
of such investment bank shall be paid by the Company. A
reclassification of the Nonpreferred Stock into shares of Nonpreferred
Stock and shares of any other class of stock shall be deemed a
distribution by the Company to the holders of its Nonpreferred Stock of
such shares of such other class of stock within the meaning of this
SECTION 8.3(b) and, if the outstanding shares of Nonpreferred Stock
shall be changed into a larger or smaller number of shares of
Nonpreferred Stock as a part of such reclassification, shall be deemed
a subdivision or combination, as the case may be, of the outstanding
shares of Nonpreferred Stock within the meaning of SECTION 8.3(a).
(c) Issuance of Additional Shares of Nonpreferred Stock. In case
at any time or from time to time after the Closing Date, the Company shall
(except as hereinafter provided) issue, whether in connection with the
merger of a corporation into the Company or otherwise, any Additional
Shares of Nonpreferred Stock for a consideration per share less than either
the Conversion Price or the Fair Market Price per share of Common Stock on
the Computation Date (determined as set forth in the last sentence of this
SECTION 8.3(c)), then the Conversion Price shall be adjusted to the lower
of either:
(i) that number determined by multiplying the Conversion
Price in effect immediately prior to such adjustment by a fraction (x)
the numerator of which shall be the number of shares of Nonpreferred
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Stock, plus the number of shares of Nonpreferred Stock which the
aggregate consideration for the total number of such Additional Shares
of Nonpreferred Stock so issued would purchase at the Fair Market
Price per share of Common Stock and (y) the denominator of which shall
be the number of shares of Nonpreferred Stock plus the number of such
Additional Shares of Nonpreferred Stock so issued; or
(ii) the value of the consideration per share for which
such Additional Shares of Nonpreferred Stock were issued (or, in the
case of adjustments under SECTIONS 8.3(d) or 8.3(e), are issuable).
No adjustment of the Conversion Price shall be made under this SECTION
8.3(c) upon the issuance of any Additional Shares of Nonpreferred Stock
which are issued pursuant to the exercise of any warrants or other
subscription or purchase rights or pursuant to the exercise of any
conversion or exchange rights in any Convertible Securities, if any such
adjustment shall previously have been made upon the issuance of such
warrants or other rights or upon the issuance of such Convertible
Securities (or upon the issuance of any warrant or other rights therefor)
pursuant to SECTION 8.3(d) or 8.3(e). For purposes of this SECTION 8.3(c),
the Computation Date shall be the earlier of (i) the date on which the
Company shall enter into a firm contract for the issuance of such
Additional Shares of Nonpreferred Stock, or (ii) the date of actual
issuance of such Additional Shares of Nonpreferred Stock.
(d) Issuance of Warrants, Options or Other Rights. In case at
any time or from time to time after the Closing Date, the Company shall
take a record of the holders of its Nonpreferred Stock for the purpose of
entitling them to receive a distribution of, or shall otherwise issue, any
warrants, options or other rights to subscribe for or purchase any
Additional Shares of Nonpreferred Stock or any Convertible Securities and
the consideration per share for which Additional Shares of Nonpreferred
Stock may at any time thereafter be issuable pursuant to such warrants,
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options or other rights or pursuant to the terms of such Convertible
Securities shall be less than either the Conversion Price or the Fair
Market Price per share of Common Stock on the Computation Date (determined
as set forth in the last sentence of this SECTION 8.3(d)), then the
Conversion Price shall be adjusted as provided in SECTION 8.3(c). Such
adjustment shall be made on the basis that (i) the maximum number of
Additional Shares of Nonpreferred Stock issuable pursuant to all such
warrants, options or other rights or necessary to effect the conversion or
exchange of all such Convertible Securities shall be deemed to have been
issued as of the Computation Date (determined as set forth in the last
sentence of this SECTION 8.3(d)), and (ii) the aggregate consideration for
such maximum number of Additional Shares of Nonpreferred Stock shall be
deemed to be the minimum consideration received and receivable by the
Company for the issuance of such Additional Shares of Nonpreferred Stock
pursuant to such warrants, options or other rights or pursuant to the terms
of such Convertible Securities. For purposes of this SECTION 8.3(d), the
Computation Date shall be the earliest to occur of (a) the date on which
the Company shall take a record of the holders of its Nonpreferred Stock
for the purpose of entitling them to receive any such warrants, options or
other rights, (b) the date on which the Company shall enter into a firm
contract for the issuance of such warrants, options or other rights, and
(c) the date of actual issuance of such warrants, options or other rights.
(e) Issuance of Convertible Securities. In case at any time or
from time to time after the Closing Date, the Company shall take a record
of the holders of its Nonpreferred Stock for the purpose of entitling them
to receive a distribution of, or shall otherwise issue, any Convertible
Securities and the consideration per share for which Additional Shares of
Nonpreferred Stock may at any time thereafter be issuable pursuant to the
terms of such Convertible Securities shall be less than either the
Conversion Price or the Fair Market Price per share of Common Stock on the
Computation Date (determined as set forth in the last sentence of this
SECTION 8.3(e)), then the
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Conversion Price shall be adjusted as provided in SECTION 8.3(c).
Such adjustments shall be made on the basis that (i) the maximum
number of Additional Shares of Nonpreferred Stock necessary to
effect the conversion or exchange of all such Convertible Securities shall
be deemed to have been issued as of the Computation Date (determined as set
forth in the penultimate sentence of this SECTION 8.3(e)), and (ii) the
aggregate consideration for such maximum number of Additional Shares of
Nonpreferred Stock shall be deemed to be the minimum consideration received
and receivable by the Company for the issuance of such Additional Shares of
Nonpreferred Stock pursuant to the terms of such Convertible Securities.
No adjustment of the Conversion Price shall be made under this SECTION
8.3(e) upon the issuance of any Convertible Securities which are issued
pursuant to the exercise of any warrants or other subscription or purchase
rights therefor, if any such adjustment shall previously have been made
upon the issuance of such warrants or other rights pursuant to SECTION
8.3(d). For purposes of this Subsection, the Computation Date shall be the
earliest of (a) the date on which the Company shall take a record of the
holders of its Nonpreferred Stock for the purpose of entitling them to
receive any such Convertible Securities, (b) the date on which the Company
shall enter into a firm contract for the issuance of such Convertible
Securities, and (c) the date of actual issuance of such Convertible
Securities.
(f) Superseding Adjustment of Conversion Price. If, at any time
after any adjustment of the Conversion Price shall have been made pursuant
to the foregoing SECTION 8.3(d) or 8.3(e) on the basis of the issuance of
warrants or other rights or the issuance of other Convertible Securities,
or after any new adjustment of the Conversion Price shall have been made
pursuant to this SECTION 8.3(f):
(1) all of such warrants, options or rights or the right of
conversion or exchange in such other Convertible Securities shall
expire, and none of such warrants, options or rights, or the right of
conversion or exchange in respect of such other Convertible
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Securities, as the case may be, shall have been exercised; or
(2) the consideration per share, for which Additional Shares
of Nonpreferred Stock are issuable pursuant to all of such warrants,
options or rights or the terms of all of such other Convertible
Securities, shall be increased solely by virtue of provisions therein
contained for an automatic increase in such consideration per share
upon the arrival of a specified date or the happening of a specified
event, and none of such warrants, options or rights, or the right of
conversion or exchange in respect of such other Convertible
Securities, as the case may be, shall have been exercised;
such previous adjustment shall be rescinded and annulled and the Additional
Shares of Nonpreferred Stock which were deemed to have been issued by
virtue of the computation made in connection with the adjustment so
rescinded and annulled shall no longer be deemed to have been issued by
virtue of such computation. Thereupon, a recomputation shall be made of
the effect of such warrants, rights or options or other Convertible
Securities on the basis of treating any such warrants, options or rights or
any such other Convertible Securities which then remain outstanding as
having been granted or issued immediately after the time of such increase
of the consideration per share for such Additional Shares of Nonpreferred
Stock are issuable under such warrants or rights or other Convertible
Securities; and, if and to the extent called for by the foregoing
provisions of this SECTION 8.3 on the basis aforesaid, a new adjustment of
the Conversion Price shall be made, which new adjustment shall supersede
the previous adjustment so rescinded and annulled.
(g) Other Provisions Applicable to Adjustments Under this
SECTION. The following provisions shall be applicable to the making of
adjustments of the Conversion Price hereinbefore provided for in this
SECTION 8.3:
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(1) Treasury Stock. The sale or other disposition of any
issued shares of Nonpreferred Stock owned or held by or for the
account of the Company shall be deemed an issuance thereof for
purposes of this SECTION 8.3.
(2) Computation of Consideration. To the extent that any
Additional Shares of Nonpreferred Stock or any Convertible Securities
or any warrants, options or other rights to subscribe for or purchase
any Additional Shares of Nonpreferred Stock or any Convertible
Securities shall be issued solely for cash consideration, the
consideration received by the Company therefor shall be deemed to be
the amount of cash received by the Company therefor, or, if such
Additional Shares of Nonpreferred Stock or Convertible Securities are
offered by the Company for subscription, the subscription price, or,
if such Additional Shares of Nonpreferred Stock or Convertible
Securities are sold to underwriters or dealers for public offering
without a subscription offering, the initial public offering price, in
any such case excluding any amounts paid or receivable for accrued
interest or accrued dividends and without deduction of any
compensation, discounts or expenses paid or incurred by the Company
for and in the underwriting of, or otherwise in connection with, the
issue thereof. The consideration for any Additional Shares of
Nonpreferred Stock issuable pursuant to any warrants, options or other
rights to subscribe for or purchase the same shall be the
consideration received or receivable by the Company for issuing such
warrant, options or other rights, plus the additional consideration
payable to the Company upon the exercise of such warrants, options or
other rights. The consideration for any Additional Shares of
Nonpreferred Stock issuable pursuant to the terms of any Convertible
Securities shall be the consideration received or receivable by the
Company for issuing any warrants or other rights to subscribe for or
purchase such Convertible Securities, plus the consideration paid or
payable to the Company in respect of the
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subscription for or purchase of such Convertible Securities, plus
the additional consideration, if any, payable to the Company upon
the exercise of the right of conversion or exchange in such
Convertible Securities. To the extent that any issuance shall be
for a consideration other than solely for cash, then, except as
herein otherwise expressly provided, the amount of such consideration
shall be deemed to be the fair value of such consideration at the
time of such issuance as determined pursuant to the Valuation
Procedure.
(3) When Adjustments to be made. The adjustments required
by the preceding subsections of this SECTION 8.3 shall be made
whenever and as often as any specified event requiring an adjustment
shall occur, except that no adjustment of the Conversion Price that
would otherwise be required shall be made (except in the case of a
subdivision or combination of shares of the Nonpreferred Stock as
provided for in SECTION 8.3(a)) unless and until such adjustment,
either by itself or with other adjustments not previously made, adds
or subtracts at least $0.05 to the Conversion Price, as determined in
good faith by the Board of Directors of the Company. Any adjustment
representing a change of less than such minimum amount shall be
carried forward and made as soon as such adjustment, together with
other adjustments required by this SECTION 8.3 and not previously
made, would result in a minimum adjustment. For the purpose of any
adjustment, any specified event shall be deemed to have occurred at
the close of business on the date of its occurrence.
(4) Fractional Interests. In computing adjustments under
this SECTION 8.3, fractional interests in Nonpreferred Stock shall be
taken into account to the nearest one-thousandth of a share.
(5) When Adjustment Not Required. If the Company shall take
a record of the holders of its
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Nonpreferred Stock for the purpose of entitling them to receive
a dividend or distribution or subscription or purchase rights
and shall, thereafter and before the distribution thereof
to shareholders, legally abandon its plan to pay or deliver
such dividend, distribution, subscription or purchase rights, then
thereafter no adjustment shall be required by reason of the taking of
such record and any such adjustment previously made in respect
thereof shall be rescinded and annulled.
(h) Merger, Consolidation or Disposition of Assets. In case the
Company shall merge or consolidate into another corporation, or shall sell,
transfer or otherwise dispose of all or substantially all of its property,
assets or business to another corporation and pursuant to the terms of such
merger, consolidation or disposition, shares of common stock of the
successor or acquiring corporation are to be received by or distributed to
the holders of Nonpreferred Stock of the Company, then each holder of a
share of the 1996 Series A Preferred Stock shall have the right thereafter
to receive, upon exercise of such share of the 1996 Series A Preferred
Stock, shares of common stock each comprising the number of shares of
common stock of the successor or acquiring corporation receivable upon or
as a result of such merger, consolidation or disposition of assets by a
holder of the number of shares of Common Stock into which one share of the
1996 Series A Preferred Stock could be converted immediately prior to such
event. If, pursuant to the terms of such merger, consolidation or
disposition of assets, any cash, shares of stock or other securities or
property of any nature whatsoever (including warrants or other subscription
or purchase rights) are to be received by or distributed to the holders of
Nonpreferred Stock of the Company in addition to common stock of the
successor or acquiring corporation, then the Conversion Price in effect
shall be adjusted to that number determined by multiplying the Conversion
Price then in effect by a fraction (x) the numerator of which shall be the
Fair Market Price per share of Common Stock immediately prior to the
closing of such merger, consolidation or disposition minus the portion
applicable to one share of Common Stock of any
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such cash so distributable and of the fair value of any such shares of
stock or other securities or property so received or distributed and
(y) the denominator of which shall be the Fair Market Price per share of
Common Stock immediately prior to the closing of such merger,
consolidation or disposition. The fair value of any such shares of stock
or other securities or property shall be determined pursuant to the
Valuation Procedure. In case of any such merger, consolidation or
disposition of assets, the successor acquiring corporation shall expressly
assume the due and punctual observance and performance of each and every
covenant and condition hereof to be performed and observed by the Company
and all of the obligations and liabilities hereunder, subject to such
modification as shall be necessary to provide for adjustments to the
Conversion Price which shall be as nearly equivalent as practicable to the
adjustments provided for in this SECTION. For the purposes of this SECTION,
"common stock of the successor or acquiring corporation" shall include stock
of such corporation of any class, which is not preferred as to dividends or
assets over any other class of stock of such corporation and which is not
subject to redemption, and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible
into or exchangeable for any such stock, either immediately or upon the
arrival of a specified date or the happening of a specified event, and any
warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this SECTION 8.3(h) shall similarly apply to
successive mergers, consolidations or dispositions of assets.
(i) Other Action Affecting Nonpreferred Stock. In case at any
time or from time to time the Company shall take any action affecting its
Nonpreferred Stock, other than an action described in any of the foregoing
SECTIONS 8.3(a) through (h), inclusive, then, unless in the opinion of the
Board of Directors such action will not have a materially adverse effect
upon the rights of the holders of the 1996 Series A Preferred Stock, the
Conversion Price shall be adjusted in such manner and at such time as the
Board of
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<PAGE>
Directors may in good faith determine to be equitable in the circumstances.
8.9. NO IMPAIRMENT. Other than in connection with the amendment of
its Articles of Incorporation approved by the requisite number of stockholders,
the Company will not, through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company but will at all times in good
faith assist in the carrying out of all the provisions of this SECTION 8 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 1996 Series A Preferred
Stock against impairment. Without limiting the generality of the foregoing, the
Company (i) will not permit the par value of any shares of stock at the time
receivable upon the conversion of the 1996 Series A Preferred Stock to exceed
the Conversion Price then in effect, (ii) will take all such action as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid nonassessable shares of stock on the conversion of the 1996 Series A
Preferred Stock, and (iii) will not issue any Additional Shares of Nonpreferred
Stock or Convertible Securities or take any action which results in any
adjustment of the Conversion Price if the total number of shares of Common Stock
issuable after such issuance or action upon the conversion or redemption of, or
payment of all outstanding dividends on, all of the then outstanding shares of
1996 Series A Preferred Stock will exceed the total number of shares of Common
Stock then authorized by the Company's Articles of Incorporation and available
for the purpose of issue upon such conversion or redemption or payment of such
dividend.
8.10. CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this SECTION 8,
the Company at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
the 1996 Series A Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based, including a
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<PAGE>
statement of (i) the consideration received or to be received by the Company
for any Additional Shares of Nonpreferred Stock issued or sold or deemed to
have been issued, (ii) the number of shares of Nonpreferred Stock outstanding
or deemed to be outstanding, and (iii) the Conversion Price in effect
immediately prior to such issue or sale and as adjusted and readjusted on
account thereof, showing how it was calculated. The Company shall, upon the
written request at any time of any holder of the 1996 Series A Preferred
Stock furnish or cause to be furnished to such holder a like certificate
setting forth (i) the Conversion Price at the time in effect, showing how it
was calculated, and (ii) the number of shares of Common Stock and the amount,
if any, of other property which at the time would be received upon the
conversion of the 1996 Series A Preferred Stock.
8.11. NOTICES OF RECORD DATE. In the event of any taking by the
Company of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, or any right to subscribe for, purchase or otherwise acquire
any shares of stock of any class or any other securities or property, or to
receive any other right, the Company shall mail to each holder of the 1996
Series A Preferred Stock at least ten days prior to the date specified therein,
a notice specifying the date on which any such record is to be taken for the
purpose of such dividend or distribution.
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<PAGE>
IN WITNESS WHEREOF, MAGNUM PETROLEUM, INC. has caused its corporate
seal to be hereunto affixed and this certificate to be signed by Gary C. Evans,
its President and Morgan Johnston, its Secretary, this ____ day of December,
1996.
By
-------------------------------------
Gary C. Evans
President and Chief Executive Officer
By
-------------------------------------
Morgan Johnston
Secretary
[SEAL]
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<PAGE>
EXHIBIT A
Approved List of Engineering Consultants
1. Gaffney, Cline & Associates Inc.
2. Ryder, Scott
3. Netherland, Sewell & Associates
4. Cawley Gillespie
5. DeGolyer & MacNaughton
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<PAGE>
SCHEDULE 1
NPV30 Discount Factors
[to be provided by TCW]
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<PAGE>
ATTACHMENT 1
Outstanding Warrants
1. Whitestone Group Limited - 25,000 shares at $4.50 per share. Expire
October 16, 1997.
2. Dean Dumont - 37,500 shares at $3.00 per share. Expire December 31, 1997.
3. Frank Girardi - 100,000 shares at $4.125 per share. Expire June 30, 1997.
4. American Founders Life Insurance - 75,000 shares in the aggregate at
various exercise prices (25,000 at $5.18, 25,000 at $5.65, and 25,000 at
$6.13 per share). Expire three to five years from October 31, 1996.
5. Research Works, Inc. - total of 60,000 shares (of which 45,000 have been
earned as of December 6, 1996) at $3.375 per share. Expire January 16,
1999.
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<PAGE>
ATTACHMENT 2
Outstanding Options
1. R. Renn Rothrock, Jr. - 10,215 shares
2. Richard R. Frazier - 10,215 shares
3. David Keglovits - 8,938 shares
4. Francis Evans - 7,661 shares
5. Jon Kolstad - 2,554 shares
6. Bob Jackson - 2,554 shares
7. Vicki Newman - 2,043 shares
8. Nicki J. Lutz - 1,660 shares
9. Ursula Kuehn - 1,660 shares
All of the above options were granted at an exercise price of $.73425 per share.
The board of Hunter authorized the granting of these options on November 20,
1991. These options are reported after adjustment for the Hunter Magnum
transaction as these options were substituted for Hunter options upon
consummation of the Hunter Magnum transaction.
Options granted to Directors:
1. Matthew C. Lutz - 51,073 shares
2. James Upfield - 25,536 shares
3. Gerald Bolfing - 25, 536 shares
4. Oscar Lindemann - 25,536 shares
5. Gary C. Evans - 89, 377 shares
All of the above options were granted, with the exceptions noted above, at an
exercise price of $.73425 per share, except for Oscar Lindemann's whose exercise
price is $1.65 per share. The board of Hunter authorized the granting of these
options at the time the individual person became a board member. These options
are reported after adjustment for the Hunter Magnum transaction as these options
were substituted for Hunter options upon consummation of the Hunter Magnum
transaction.
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<PAGE>
EXHIBIT 10.1
EXECUTION ORIGINAL
STOCK PURCHASE AGREEMENT
Among
MAGNUM PETROLEUM, INC.
and
TRUST COMPANY OF THE WEST
and
TCW ASSET MANAGEMENT COMPANY,
in the capacities described herein,
TCW DEBT AND ROYALTY FUND IVB
and
TCW DEBT AND ROYALTY FUND IVC
Dated as of December 6, 1996
<PAGE>
TABLE OF CONTENTS
SECTION 1. DEFINITIONS..................................................... 2
SECTION 2. PURCHASE AND SALE OF SECURITIES................................. 5
2.1. Authorization and Issuance of 1996 Series A
Preferred Stock and Conversion Shares........................... 5
2.2. The Closing..................................................... 5
2.3. Purchase for Holder's Account................................... 6
2.4. Compliance...................................................... 6
2.5. Expenses........................................................ 6
2.6. Conversion Option............................................... 7
SECTION 3. WARRANTIES, REPRESENTATIONS AND COVENANTS OF THE COMPANY........ 8
3.1. Sale is Legal, etc. ............................................ 8
3.2. Governmental Consent............................................ 12
3.3. Private Offering................................................ 12
3.4. Litigation...................................................... 13
3.5. No Material Misstatements....................................... 13
3.6. Ownership of Subsidiaries....................................... 13
3.7. Material Adverse Change......................................... 13
SECTION 4. RESTRICTIONS ON TRANSFERABILITY; REGISTRATION RIGHTS............ 13
4.1. Restrictive Legend.............................................. 14
4.2. Notice of Proposed Transfers.................................... 14
4.3. Demand Registration............................................. 15
4.4. Piggy-Back Registration......................................... 18
4.5. Registration Procedures......................................... 19
4.6. Expenses; Limitations on Registration........................... 22
4.7. Indemnification................................................. 23
4.8. Termination of Restrictions..................................... 25
4.9. Rule 144........................................................ 25
SECTION 5. COVENANTS OF THE COMPANY........................................ 25
5.1. Delivery Expenses............................................... 25
5.2. Taxes........................................................... 26
5.3. Replacement of Instruments...................................... 26
5.4. Restrictions on Certain Actions................................. 26
5.5. Use of Proceeds................................................. 27
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<PAGE>
5.6. Implementation of the Development Plan.......................... 27
5.7. Name Change..................................................... 27
SECTION 6. MISCELLANEOUS................................................... 27
6.1. Notices......................................................... 27
6.2. Survival........................................................ 28
6.3. Successors and Assigns.......................................... 28
6.4. Amendment and Waiver, etc. ..................................... 28
6.5. Duplicate Originals............................................. 29
6.6. Severability.................................................... 29
6.7. Governing Law................................................... 29
6.8. Specific Performance............................................ 29
6.9. Arbitration..................................................... 29
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<PAGE>
TABLE OF EXHIBITS AND SCHEDULES
Exhibit A - Certificate of Designation
Exhibit B - Legal Opinion
Exhibit C - Shareholders Agreement
Exhibit D - Approved List of Engineering Consultants
Schedule A - List of Holders
Schedule B - List of Affiliates
Schedule 3.1.1 - Options and Warrants
Schedule 3.1.5 - Holders of Registration Rights
Schedule 3.6 - Ownership of Subsidiaries
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<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT dated as of December __, 1996 between Magnum
Petroleum, Inc., a Nevada corporation (the "COMPANY"), and Trust Company of the
West, a California trust company ("TRUSTCO"), as Trustee of the TCW Debt and
Royalty Fund IVA established pursuant to a Declaration of Trust executed
December 31, 1992 ("FUND IVA"); Trustco, in its capacities as Investment Manager
pursuant to the Investment Management Agreement dated as of June 6, 1988 between
General Mills, Inc. and Trustco and as Custodian pursuant to the Custody
Agreement dated as of February 6, 1989 among General Mills, Inc., Trustco and
State Street Bank and Trust Company, as trustee ("GENERAL MILLS"); TCW Asset
Management Company, a California corporation ("TAMCO"), as Investment Manager
pursuant to the Investment Management and Custody Agreement dated as of June 1,
1993 among The Trustees of Columbia University in the City of New York, Tamco
and Trustco ("COLUMBIA"); Tamco, as Investment Manager pursuant to the
Investment Management Agreement dated as of March 1, 1993 between The Board of
Trustees of The Leland Stanford Junior University and Tamco ("LSJU"); Tamco, as
Investment Manager under the Investment Management Agreement dated as of June 8,
1993 between the Searle Trusts Limited Partnership X, a Delaware limited
partnership (the "SEARLE PARTNERSHIP X"), Harris Trust and Savings Bank, as
Custodian for the Searle Partnership X, and Tamco ("SPX"); Tamco, as Investment
Manager under the Investment Management Agreement dated as of June 8, 1993
between the John G. Searle Charitable Trusts Partnership, a Delaware limited
partnership (the "SEARLE CHARITABLE PARTNERSHIP"), Harris Trust and Savings
Bank, as Custodian for the Searle Charitable Partnership, and Tamco ("SCP");
Tamco, as Investment Manager under the Investment Management Agreement dated as
of December 31, 1993 between Tamco and Delta Air Lines, Inc. ("DELTA"); Trust
Company of the West, as Custodian pursuant to the Investment Management and
Custody Agreement dated as of April 26, 1994 among The City and County
Employee's Retirement System of San Francisco, TCW Asset Management Company and
Trust Company of the West; and TCW Debt and Royalty Fund IVB, a California
Limited Partnership ("FUND IVB"); and TCW Debt
<PAGE>
and Royalty Fund IVC, a California Limited Partnership ("FUND IVC") (Trustco,
in the capacities designated above; Tamco, in the capacities designated
above; Fund IVB and Fund IVC are hereinafter collectively referred to as "TCW").
TCW, on behalf of each of the parties set forth on SCHEDULE A hereto
(together with their successors and assigns, the "HOLDERS"), hereby subscribes
for an aggregate of one million shares of the Company's 1996 Series A
Convertible Preferred Stock, $.001 par value per share and a $10.00 stated value
per share (the "1996 SERIES A PREFERRED STOCK"), at a purchase price of $10.00
per share, with the rights, restrictions, preferences and privileges as stated
in the Certificate of Designation with respect to the Preferred Stock attached
hereto as EXHIBIT A (the "CERTIFICATE OF DESIGNATION") and as provided by law.
The 1996 Series A Preferred Stock is convertible into, redeemable for, and, at
the option of the holders of the 1996 Series A Preferred Stock, dividends
thereon may be payable in, shares of the Company's common stock, $.002 par
value per share (the "COMMON STOCK"), as stated in the Certificate of
Designation. Accordingly, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
As used herein, the following terms shall have the following meanings.
"AFFILIATE" shall mean, with respect to a specified Person, any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person and, with respect to any fund
or trust, any Person which is a participant in or beneficiary of such fund or
trust. For purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of such
Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing. Notwithstanding the foregoing provisions of this
definition (i) in no event shall any Holder (or any Affiliate thereof) be deemed
to be an Affiliate of the Company and (ii) the
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<PAGE>
Persons listed on SCHEDULE B shall be deemed to be Affiliates of the Company
for purposes of this Agreement.
"ARTICLES OF INCORPORATION" shall mean the Articles of Incorporation
of the Company, as in effect on the date hereof and as at any time amended or
otherwise modified.
"COMMISSION" shall mean the Securities and Exchange Commission or any
other similar or successor agency of the federal government administering the
Securities Act.
"CONTROLLING PERSON" shall have the meaning defined in SECTION 4.7.
"CONVERSION SHARES" shall mean the shares of Common Stock into which
the 1996 Series A Preferred Stock is convertible or converted, for which the
1996 Series A Preferred Stock is redeemed, and in which dividends on the 1996
Series A Preferred Stock are paid.
"DEVELOPMENT PLAN" shall mean the plan of development attached to the
Secretary's Certificate pursuant to SECTION 3.1.7(a), as approved by TCW and as
the same may be amended from time to time with the consent of TCW as provided in
the Certificate of Designation.
"DIVIDEND SHARES" shall mean the shares of Common Stock in which
dividends on the 1996 Series A Preferred Stock are paid.
"EXCLUDED REGISTRATION" shall mean any registration pursuant to
SECTION 4.3 hereof, any registration of debt securities under Form S-3, or any
comparable successor Form, or any registration of shares of Common Stock in an
aggregate amount not to exceed 5,750,000 shares issued and registered pursuant
to one or more underwritten public offerings after the Closing Date and on or
before June 30, 1997 at a price per share not less than $4.00 and/or the
exercise of the IPO Warrants (as defined in the Certificate of Designation) at a
price of $5.50 per share on or before November 12, 1998.
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<PAGE>
"INDEMNITEE" and "INDEMNITOR" shall have the meanings defined in
SECTION 4.7.
"INDEPENDENT ENGINEER" shall mean Gaffney, Cline & Associates Inc. or
such other engineering consultant selected by the Company from those on TCW's
approved list, attached hereto as EXHIBIT D.
"INDEPENDENT ENGINEERING REPORT" shall mean the engineering report
prepared by the Independent Engineer evaluating the Reserves of the Company
described in Section 3.1.7(i).
"PERSON" shall mean any individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization or
government or agency or political subdivision thereof.
"PIGGY BACK RIGHT" shall have the meaning defined in SECTION 4.3.
"PROVED DEVELOPED RESERVES" shall have the meaning set forth in the
Certificate of Designation.
"REDEMPTION SHARES" shall mean the shares of Common Stock for which
the 1996 Series A Preferred Stock is redeemed.
"REIMBURSABLE REGISTRATION" shall have the meaning defined in
SECTION 4.6.
"REQUISITE HOLDERS" shall mean the holders of 1996 Series A Preferred
Stock and Conversion Shares representing at least 70% of the Conversion Shares.
"RESERVES" shall have the meaning set forth in the Certificate of
Designation.
"RESTRICTED CERTIFICATE" shall mean a certificate for 1996 Series A
Preferred Stock or Conversion Shares bearing the restrictive legend set forth in
SECTION 4.1.
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<PAGE>
"RESTRICTED SECURITIES" shall mean 1996 Series A Preferred Stock or
Conversion Shares evidenced by a Restricted Certificate. Notwithstanding any
provision of this Agreement, the Certificate of Designation or any other
agreement or document which may be construed otherwise, Dividend Shares or
Redemption Shares shall not be Restricted Securities.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or
any similar Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"SELLER" shall mean a holder of Restricted Securities for which the
Company shall be required to file a registration statement or which shall be
registered under the Securities Act at the request of such holder pursuant to
any of the provisions of SECTION 4. Neither the Company nor any Affiliate of
the Company shall be deemed a "Seller" for any purposes of this Agreement.
"TCW FUNDS" means TCW Debt and Royalty Fund IVA, a collective trust
fund formed under California law; Fund IVB; Fund IVC; Trustco, in its capacities
as Investment Manager pursuant to the Investment Management Agreement dated as
of June 6, 1988 between General Mills, Inc. and Trustco and as Custodian
pursuant to the Custody Agreement dated as of February 6, 1989 among General
Mills, Inc., Trustco and State Street Bank and Trust Company, as trustee; Tamco,
as Investment Manager under the Investment Management and Custody Agreement
dated as of June 1, 1993 among The Trustees of Columbia University in the City
of New York, TCW and Tamco; Tamco, as Investment Manager pursuant to the
Investment Management Agreement dated March 1, 1993 between The Board of
Trustees of The Leland Stanford Junior University and Tamco; Tamco, as
Investment Manager under the Investment Management Agreement dated as of June 8,
1993 between the Searle Partnership X, Harris Trust and Savings Bank, as
Custodian for the Searle Partnership X, and Tamco; Tamco, as Investment Manager
under the Investment Management Agreement dated as of June 8, 1993 between the
Searle Charitable Partnership, Harris Trust and Savings Bank, as Custodian for
the Searle Charitable Partnership, and Tamco; and Tamco, as Investment Manager
under the Investment
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<PAGE>
Management Agreement dated as of December 31, 1993 between Delta Air Lines,
Inc. and Tamco.
"TRANSACTION FEE" shall mean a transaction fee in an amount equal to
$62,500.
"TRANSFER" shall mean any sale, transfer or other disposition of any
Restricted Securities, or of any interest in any thereof, which would
constitute an offer or sale thereof within the meaning of the Securities Act.
"1993 SERIES B PREFERRED STOCK" shall mean the preferred stock of
the Company with a par value of $.001 per share, issued pursuant to a
Certificate of Designation filed with the Nevada Secretary of State on
January 25, 1993.
"1993 SERIES A PREFERRED STOCK" shall mean the preferred stock of
the Company with a par value of $.001 per share, issued pursuant to a
Certificate of Designation filed with the Nevada Secretary of State on May
21, 1993.
SECTION 2. PURCHASE AND SALE OF SECURITIES
2.1. AUTHORIZATION AND ISSUANCE OF 1996 SERIES A PREFERRED STOCK
AND CONVERSION SHARES. The Company has authorized for issuance the issue of
the 1996 Series A Preferred Stock in one or more certificates to the Holders
pursuant to this Agreement and the Certificate of Designation, and authorized
and reserved for issuance the issue of such number of Conversion Shares as
will permit the compliance by the Company with its obligations to issue
Conversion Shares pursuant to the Articles of Incorporation and the
Certificate of Designation.
2.2. THE CLOSING. Subject to the conditions set forth in SECTION
3.1.7, the Company hereby agrees to issue to each Holder, and each Holder
hereby agrees to purchase, the number of 1996 Series A Preferred Stock set
out opposite such Holder's name on SCHEDULE A attached hereto, at a purchase
price of $10.00 per share. The Company will deliver to each Holder a single
certificate for the 1996 Series A Preferred Stock, registered in the name of
such Holder, except that, if any such Holder shall
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<PAGE>
notify the Company in writing prior to such issuance that it desires
certificates for 1996 Series A Preferred Stock to be issued in other
denominations or registered in the name or names of any Person or Persons
referred to in the proviso at the end of the first sentence of SECTION 4 or
any nominee or nominees for its or their benefit, then the certificates for
1996 Series A Preferred Stock shall be issued to such Holder in the
denominations and registered in the name or names specified in such notice.
Concurrently with the issuance of the 1996 Series A Preferred Stock, the
Company shall pay to TCW, in immediately available funds, the Transaction Fee.
2.3. PURCHASE FOR HOLDER'S ACCOUNT. Each Holder represents and
warrants to the Company that such Holder is purchasing and will purchase the
1996 Series A Preferred Stock, for its own account, with no present intention
of distributing or reselling the 1996 Series A Preferred Stock or the
Conversion Shares or any part thereof and that such Holder is prepared to
bear the economic risk of retaining the 1996 Series A Preferred Stock and the
Conversion Shares for an indefinite period, all without prejudice, however,
to the right of such Holder at any time, in accordance with this Agreement,
lawfully to sell or otherwise dispose of all or any part of the 1996 Series A
Preferred Stock or the Conversion Shares held by it. It is understood that,
in making the representations set forth in SECTION 3.1, 3.2 and 3.3, the
Company is relying, to the extent applicable, upon the representations and
warranties of each such Holder. Each Holder represents and warrants that it
is an accredited investor, as such term is defined in Rule 501 of Regulation
D promulgated under the Securities Act.
2.4. COMPLIANCE. Further in reliance upon the representations and
warranties of each Holder in SECTION 2.3, the Company has not registered the
1996 Series A Preferred Stock or the Conversion Shares under the Securities
Act and each Holder agrees that neither the 1996 Series A Preferred Stock nor
the Conversion Shares will be sold or offered for sale without registration
under said Act or the availability of an exemption therefrom or if said Act
is not applicable, all as more fully provided in SECTION 4, nor in violation
of any other law of the United States of America or any state.
- 7 -
<PAGE>
2.5. EXPENSES. Whether or not the 1996 Series A Preferred Stock is
sold to any Holder, the Company will pay all costs and expenses incurred by
the Holders (a) relating to the negotiation, execution and delivery of this
Agreement and the issuance of the 1996 Series A Preferred Stock (including,
without limitation, fees, office charges and expenses of counsel to the
Holders, Milbank, Tweed, Hadley & McCloy and reasonable third party
engineering, outside accounting and other out-of-pocket costs), (b) provided
for in SECTIONS 4.6, 4.7, 5.1 and 5.2, (c) relating to printing the
instruments evidencing the 1996 Series A Preferred Stock or the Conversion
Shares, (d) expenses relating to any amendments, waivers or consents under
this Agreement and (e) incident to the enforcement by any Holder of, or the
protection or preservation of any right or remedy of any Holder under, this
Agreement, the Articles of Incorporation, the Certificate of Designation or
any other document or agreement furnished pursuant hereto or thereto or in
connection herewith or therewith (including, without limitation, fees and
expenses of counsel). The Company shall pay such costs and expenses, to the
extent then payable, on the date of issuance of the 1996 Series A Preferred
Stock or, with respect to those matters described in clauses (b), (c), (d)
and (e) above thereafter from time to time upon demand by any Holder against
presentation, in each such case, of a statement thereof. The Company shall
also pay any fees or disbursements incurred by Weisser, Johnson & Co. or any
person other than a party engaged solely by TCW in connection with
identifying the Holders to whom the offers and sales of the shares of the
1996 Series A Preferred Stock were made.
2.6. CONVERSION OPTION. On or after the second anniversary of the
Closing Date, the Company shall have the option, at any time, to convert, in
whole but not in part, the 1996 Series A Preferred Stock, on the terms and
conditions set forth herein, to 8.75% convertible debentures of the Company
due 2008 (the "DEBENTURES") having an aggregate principal amount equal to the
Liquidation Value (as defined in the Certificate of Designation) of the 1996
Series A Preferred Stock, PROVIDED THAT all of the following conditions are
satisfied: (i) the Company shall have delivered to the Holders all necessary
approvals, subordination agreements and other documentation, in form and
substance satisfactory to TCW in its reasonable discretion,
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<PAGE>
required in connection with such conversion (which will include such
provisions acceptable to TCW in its reasonable discretion, which will entitle
the holders of such Debentures to the same voting and other rights as if they
held the 1996 Series A Preferred Stock including without limitation the right
to vote as a separate class with respect to any plan of reorganization in a
bankruptcy or insolvency proceeding relating to the Company) and (ii) the
Holders shall have received an opinion of counsel to the Company (a) that
such conversion neither breaches nor violates any existing agreement to which
the Company is a party or any other obligation of the Company, (b) such
conversion shall not cause an adjustment in the conversion price, option
price or exercise price in any convertible security issued by the Company,
and (c) such other matters as TCW may reasonably request. In the event that
the Company exercises the option set forth in this SECTION 2.6 and the
Company had not received before June 30, 1997 at least $15,000,000 of net
cash proceeds from the issuance and sale by the Company of Common Stock which
was not issued and outstanding on the Closing Date, the Company shall redeem
annually on each of June 30, 2006, June 30, 2007 and June 30, 2008, one third
(1/3) of the original principal amount of the Debentures. The Debentures
shall be subject to redemption at the option of the Company by the issuance
of Freely Tradeable Common Stock (as defined in the Certificate of
Designation) in the manner and subject to the terms and conditions of a
conversion of the 1996 Series A Preferred Stock at the option of the Company
pursuant to Section 8.3 of the Certificate of Designation but otherwise the
Debentures shall not be redeemable at the option of the Company. The
Debentures shall be redeemed by the Company on June 30, 2008 at par value
with all unpaid and accrued interest. The Debentures shall bear interest at a
rate of 8.75% per annum, compounded quarterly, which interest payments shall
be payable quarterly on March 31, June 30, September 30 and December 31 of
each year commencing on the first of such date to occur immediately following
the conversion option set forth in this SECTION 2.6. Interest on the
Debentures shall be paid in cash; PROVIDED, HOWEVER, that if any such
interest payment is not paid on the penultimate Business Day of the month
after the quarterly payment date on which it is due (the "INTEREST PAYMENT
DATE"), the holders of the Debentures shall have the option to require the
Company to pay such accumulated interest in shares (whether
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<PAGE>
whole or fractional) of Freely Tradeable Common Stock valued at the Cash
Equivalent Amount (as defined in the Certificate of Designation) for the
purposes of determining the number of shares (or fraction thereof) of Freely
Tradeable Common Stock to be issued.
SECTION 3. WARRANTIES, REPRESENTATIONS AND COVENANTS OF THE COMPANY
The Company hereby represents, warrants and covenants to each Holder
that as of the date of the Company's execution of this Agreement:
3.1. SALE IS LEGAL, ETC.
3.1.1. Upon the issuance of the 1996 Series A Preferred Stock under
this Agreement, the total number of shares of capital stock which the Company
has authority to issue is 60,000,000 shares, consisting of 50,000,000 shares
of Common Stock and 10,000,000 shares of Preferred Stock. The Company has
the power and authority and has taken all actions (corporate or other)
necessary to authorize it to enter into and perform its obligations and
undertakings under this Agreement. Immediately prior to the issuance of the
1996 Series A Preferred Stock under this Agreement, 13,708,327 shares of
Common Stock and 80,000 shares of 1993 Series A Preferred Stock will be
issued and outstanding. Upon the issuance of the 1996 Series A Preferred
Stock under this Agreement, the Company does not have outstanding any stock
or securities convertible into or exchangeable for any shares of capital
stock nor does it have outstanding any rights to subscribe for or to
purchase, or any options for the purchase of, or any agreements providing for
the issuance (contingent or otherwise) of, or any calls, commitments or
claims of any character relating to, any capital stock or stock or securities
convertible into or exchangeable for any capital stock other than (i) the
1996 Series A Preferred Stock to be issued pursuant to this Agreement and
(ii) options and warrants to purchase an aggregate of 1,388,976 shares of
Common Stock as set forth on SCHEDULE 3.1.1 hereto.
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3.1.2. The 1996 Series A Preferred Stock will, when issued against
payment therefor in accordance with this Agreement, be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens and
charges.
3.1.3. The Company will at all times reserve and keep available out
of its authorized but unissued shares of Common Stock, solely for the purpose
of the conversion of the 1996 Series A Preferred Stock, such number of
Conversion Shares issuable upon the conversion of all outstanding 1996 Series
A Preferred Stock. All Conversion Shares will, when issued, in accordance
with the provisions of the Articles of Incorporation and the Certificate of
Designation of the Company, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges. The Company will
take all such actions as may be necessary to assure that all Conversion
Shares may be so issued without violation of any applicable law or
governmental regulation or any requirements of any domestic securities
exchange or national market upon which the Conversion Shares may be listed.
3.1.4. None of the execution and delivery of this Agreement, or the
issue and sale of the 1996 Series A Preferred Stock and the Conversion
Shares, or the consummation of the transactions herein or therein
contemplated or compliance with the terms and provisions hereof and thereof
will conflict with or result in a breach of, or require any consent under,
the Articles of Incorporation of the Company, or any applicable law or
regulation, or any order, writ, injunction or decree of any court or
governmental authority or agency (other than filings which will be made by
the Company as required by applicable state securities laws), or any
agreement or instrument to which the Company is a party or by which it is
bound or to which it is subject, or constitute a default under any such
agreement or instrument, or result in the creation or imposition of any lien
upon any of the revenues or assets of the Company pursuant to the terms of
any such agreement or instrument.
3.1.5. There is not in effect on the date hereof any agreement by
the Company (other than this Agreement) pursuant to which any holders of
securities of the Company have a right to
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cause the Company to register such securities under the Securities Act other
than as set forth on SCHEDULE 3.1.5 hereto.
3.1.6. The Company is a corporation duly organized and validly
existing in good standing under the laws of the State of Nevada and has the
corporate power and authority to execute and deliver this Agreement, the 1996
Series A Preferred Stock and the Conversion Shares and to perform the terms
hereof and thereof. The Company has taken all action necessary to authorize the
execution, delivery and performance of this Agreement, the issuance of the 1996
Series A Preferred Stock and the Conversion Shares. This Agreement has been
duly authorized and executed and constitutes the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
its terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable principles relating to
or limiting creditors' rights generally.
3.1.7. As a condition to the obligations of the Holders hereunder and
prior to the issuance of the 1996 Series A Preferred Stock, the Company shall
have delivered to the Holders (in form and substance satisfactory to Holders
and their counsel):
(a) a certificate, dated the date hereof, of the Secretary or
an Assistant Secretary of the Company, (A) attaching a true and complete
copy of the resolutions of the Board of Directors of the Company, and of
all documents evidencing other necessary corporate or shareholder action
(in form and substance satisfactory to the Holders and to their counsel)
taken by the Company in connection with the matters contemplated by this
Agreement, (B) attaching a true and complete copy of the Articles of
Incorporation and by-laws of the Company and each of its subsidiaries, (C)
setting forth the incumbency of the officer or officers of the Company who
sign this Agreement, any document delivered by the Company pursuant hereto
and each certificate for the 1996 Series A Preferred Stock, including
therein a signature specimen of such officer or officers and (D) attaching
a true and complete copy of the Development Plan;
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(b) a certificates of good standing (including tax status, if
applicable) of the Company and each of its subsidiaries under the laws of
their respective states of incorporation and as foreign corporations in
every state in which they own property or conduct business;
(c) an opinion of Looper, Reed, Mark & McGraw Incorporated in
the form attached hereto as EXHIBIT B;
(d) a copy of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995, which report shall contain audited
financial statements of the Company for such fiscal year prepared in
accordance with generally accepted accounting principles which fairly
present the information included therein, accompanied by an opinion of the
Company's certified public accountants;
(e) copies of the Company's Quarterly Report on Form 10-Q for
the fiscal quarter September 30, 1996, which reports may contain unaudited
financial statements of the Company for such fiscal quarter prepared in
accordance with generally accepted accounting principles which fairly
present the information included therein, certified by the Company's
chief financial officer;
(f) an opinion of Nevada counsel, which counsel shall be
recommended by the Company and approved by TCW, to the Company with respect
to the nature of any class rights (including class voting rights) of the
holders of the 1993 Series A Preferred Stock under Nevada law;
(g) copies of that certain Shareholder Agreement executed by
Gary C. Evans, the Company and TCW in the form attached hereto as EXHIBIT C;
(h) a summary of the principal terms of the incentive stock
option plan to be adopted by the Board of Directors of the Company on or
before December 31, 1996;
(i) an Independent Engineering Report reflecting an NPV10 (as
defined in the Certificate of Designation but
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using unescalated twelve (12) month forward NYMEX strip pricing adjusted
for basis and hedges) of at least sixty million dollars ($60,000,000) of
the Proved Developed Reserves attributable to the Company's oil and gas
properties;
(j) evidence satisfactory to TCW that all the 1993 Series B
Preferred Stock has been converted into Common Stock of the Company;
(k) a Phase 1 Environmental Audit acceptable to TCW of the
salt water disposal facility owned by Cushing Disposal, Inc., an Oklahoma
corporation and wholly owned subsidiary of the Company, together with
evidence satisfactory to TCW that (i) the Company has reasonably sufficient
liability and other insurance coverages with respect to such facility and
(ii) no material environmental liability could be imposed upon the Company
with respect to such salt water disposal facility; and
(l) such other documents and evidence relating to the matters
contemplated by this Agreement as the Holders or their counsel shall
reasonably require, including without limitation, evidence that the
Company has sufficient authorized and reserved shares of Common Stock on
the date hereof to meet the Company's obligations herein and in the
Certificate of Designation.
3.2 GOVERNMENTAL CONSENT. Other than filings required by applicable state
securities laws which shall be made by the Company, neither the nature of the
Company or of any its subsidiaries, or of any of their respective businesses or
properties, nor any relationship between the Company or any subsidiary and any
other Person, nor (except as expressly provided for in this Agreement) any
circumstance in connection with the offer, issue or sale of the 1996 Series A
Preferred Stock and Conversion Shares is such as to require consent, approval or
authorization of, or filing, registration or qualification with, any
governmental authority on the part of the Company as a condition to the
execution and delivery of this Agreement or the execution and filing of the
Certificate of
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Designation or any amendment of the Articles of Incorporation required in
connection with the authorization, offer, sale and/or issuance of the 1996
Series A Preferred Stock or the Conversion Shares.
3.3. PRIVATE OFFERING. Neither the Company nor any other Person
acting on behalf of the Company has offered any of the 1996 Series A Preferred
Stock or any similar securities of the Company for sale to, or solicited offers
to buy any thereof from, or otherwise approached or negotiated with respect
thereto with any prospective purchasers who are not accredited investors, as
defined in Rule 501 of Regulation D promulgated under the Securities Act. The
Company agrees that neither the Company nor anyone acting on its behalf has
offered or will offer the 1996 Series A Preferred Stock or any part thereof or
any similar securities for issue or sale to, or has solicited or will solicit
any offer to acquire any of the same from, anyone so as to bring the issuance
and sale of the 1996 Series A Preferred Stock within the provisions of Section 5
of the Securities Act. Based in part on the representations of the Holders set
forth herein, the offer, sale and issuance of the 1996 Series A Preferred Stock
in conformity with the terms of this Agreement are exempt from the registration
requirements of the Securities Act and any applicable state securities laws.
3.4. LITIGATION. There is no action, suit, proceeding or
investigation pending or currently threatened against the Company that
questions the validity of this Agreement or the Company's right to enter into
this Agreement, or to consummate the transactions contemplated hereby or
which, if decided in a manner adverse to the Company, would have a material
adverse effect on the Company or on any of its subsidiaries.
3.5. NO MATERIAL MISSTATEMENTS. No representation, warranty, or
statement by Company in this Agreement or in any written statement or
certificate furnished or to be furnished to the Holders pursuant to this
Agreement contains any untrue statement of a material fact or, when taken
together, omits a material fact necessary to make the statements made herein or
therein not misleading.
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3.6. OWNERSHIP OF SUBSIDIARIES. The Company has good and marketable
title to all the outstanding stock of each of its subsidiaries, except Hunter
Butcher International, a Wyoming limited liability company, as to which the
Company has good and marketable title to a member interest comprising 51% of all
member interests thereof, in each case, free and clear of all liens other than
as set forth on SCHEDULE 3.6 hereof. None of the Company's subsidiaries have
outstanding (i) any stock or securities convertible into or exchangeable for any
shares of capital stock or (ii) any rights to subscribe for or to purchase, or
any options for the purchase of, or any agreements providing for the issuance
(contingent or otherwise) of, or any calls, commitments or claims of any
character relating to any capital stock or stock or securities.
3.7. MATERIAL ADVERSE CHANGE. There has been no material adverse
change in the business, prospects or financial standing of the Company since
the filing of the Company's most recent Annual Report on Form 10-KSB or
Quarterly Report on Form 10-QSB.
SECTION 4. RESTRICTIONS ON TRANSFERABILITY; REGISTRATION RIGHTS
The Restricted Securities shall not be transferable except upon the
conditions specified in this SECTION 4; provided that, notwithstanding any other
provisions of this SECTION 4, each Holder (and each other Person mentioned below
in this clause) shall have the right to transfer any Restricted Securities to
any Affiliate, fund participant, trust beneficiary, or limited partner of such
Holder, any party to any investment management or other similar agreement with
Trustco or Tamco, any fund, foundation, trust or other Person for whose benefit
any such agreement with Trustco or Tamco relates or any trustee, custodian or
nominee of or for any such Person. Each such transferee shall be subject to the
same transfer restrictions imposed on the Holders by this Agreement. All rights
and obligations of the Holders set forth in this SECTION 4 will inure to the
benefit of and be binding upon any transferee of the Restricted Securities.
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4.1. RESTRICTIVE LEGEND. Unless and until otherwise permitted by this
SECTION 4, each certificate for 1996 Series A Preferred Stock issued under this
Agreement, each certificate for any 1996 Series A Preferred Stock issued to any
subsequent transferee of any such certificate, each certificate for any
Conversion Shares other than (i) Redemption Shares, (ii) Dividend Shares, (iii)
Conversion Shares issued upon the exercise by the Company of the conversion
rights granted pursuant to Section 8.3 of the Certificate of Designation and
(iv) each certificate for any Conversion Shares issued to any subsequent
transferee of any such certificate, shall be stamped or otherwise imprinted with
a legend in substantially the following form:
"The shares evidenced by this certificate have not been registered
under the Securities Act of 1933, as amended, and may be reoffered and sold
only if registered pursuant to the provisions of said Securities Act or if
an exemption from registration is available."
4.2. NOTICE OF PROPOSED TRANSFERS. Prior to any transfer or attempted
transfer of any Restricted Securities not covered by the proviso contained in
the introductory paragraph to SECTION 4, the holder of such Restricted
Certificate shall give written notice to the Company of such holder's intention
to effect such transfer. Each such notice (i) shall describe the manner and
circumstances of the proposed transfer in sufficient detail, and (ii) shall be
accompanied (except in transactions in compliance with Rule 144) by either (A) a
written opinion of legal counsel who shall be reasonably satisfactory to the
Company (provided that, in the case of any holder which is a person or an entity
affiliated with the TCW Funds, Trustco or Tamco, any counsel which is a
director, officer or employee of any such Person, shall be satisfactory to the
Company) to the effect that the proposed transfer of the Restricted Securities
may be effected without registration under the Securities Act, or (B) a "no
action" letter from the Commission to the effect that the transfer of such
securities without registration will not result in a recommendation by the staff
of the Commission that enforcement action be taken with respect thereto,
whereupon the holder of such Restricted Securities shall be entitled to transfer
such Restricted Securities in accordance with the terms
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of the notice delivered by the holder to the Company. Each certificate
evidencing the Restricted Securities thus to be transferred (and each
certificate evidencing any untransferred balance of the Restricted Securities
evidenced by such Restricted Certificate) shall bear the restrictive legend
set forth in SECTION 4.1.
4.3. DEMAND REGISTRATION. Subject to the limitations contained in
SECTION 4.6, at any time and from time to time, the holders of at least 51% of
the outstanding 1996 Series A Preferred Stock and Conversion Shares may give
written notice to the Company (i) of their intention to convert all or part of
the 1996 Series A Preferred Stock held by them and to transfer the Conversion
Shares held or obtained by conversion of 1996 Series A Preferred Stock and (ii)
requesting the registration of said Conversion Shares, and thereupon, the
Company shall, as expeditiously as possible, effect the registration of such
Conversion Shares under the Securities Act. Such Sellers shall have the right
to select the managing underwriter or underwriters for the offering of such
Conversion Shares.
In the case of an underwritten public offering of Restricted
Securities to be so registered pursuant to a registration under this SECTION
4.3, if the managing underwriter advises in its opinion that (i) the inclusion
in such registration of some or all of such Common Stock requested to be
registered (including without limitation, securities to be included pursuant to
incidental or "piggyback" rights heretofore or hereafter granted by the Company
to other Persons) will cause the proceeds or price per share to the Sellers to
be reduced or (ii) that the number of securities to be registered at the request
of the Sellers pursuant to this SECTION 4.3 plus the number of securities sought
to be registered by such other Persons is too large a number to be reasonably
sold, then the number of securities to be included in such registration will be
reduced as set forth below:
(i) the number of shares of Common Stock sought to be registered
by the Company or any holders of Common Stock, other than the Conversion
Shares and the Other Shares (as defined below), shall be reduced pro rata
to the extent
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necessary to reduce the number of securities to be registered
to the number recommended by the managing underwriter (the "RECOMMENDED
NUMBER");
(ii) if the reduction provided for in clause (i) above does not
reduce the number of shares of Common Stock to be registered to the
Recommended Number, then the number of Other Shares sought to be registered
shall be reduced pro rata, in proportion to the number of shares of Common
Stock sought to be registered by the holders of such Other Shares, to the
extent necessary to reduce the number of shares of Common Stock to be
registered to the Recommended Number; and
(iii) if the reductions provided for in clauses (i) and (ii)
above do not reduce the number of shares of Common Stock to be registered
to the Recommended Number, then the number of Conversion Shares sought to
be registered shall be reduced pro rata, in proportion to the number of
shares of Common Stock sought to be registered by the holders of such
Common Stock, to the extent necessary to reduce the number of shares of
Common Stock to be registered to the Recommended Number;
PROVIDED, that in no event shall the holders of the Conversion Shares so
included in such registration be required to pay any expenses relating to such
registration, including, without limitation, all the expenses described in the
first paragraph of SECTION 4.6, which are related to the inclusion of any other
holders' Common Stock in the registration.
The Company shall have the right to include in any registration
pursuant to this SECTION 4.3, Common Stock held by its management which the
Company shall desire to have registered (collectively, "Other Stock"), PROVIDED,
that (i) such Other Stock shall not comprise more than ten (10) percent of
Conversion Shares included in the registration and (2) the managing underwriter
approves of the inclusion of such Other Stock in such registration as not having
an adverse impact on the price to be received by the holders of Conversion
Shares therein.
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The Company will not grant to any Person at any time on or after the
date hereof the right (a "PIGGYBACK RIGHT") to request the Company to register
any securities of the Company under the Securities Act by reason of the exercise
by any Holder of its rights under this SECTION 4.3 unless such Piggyback Right
provides that such securities shall not be registered and sold at the same time
if the managing underwriter for the respective Sellers believes that sale of
such securities would adversely affect the amount of, or price at which, the
respective Conversion Shares being registered under this SECTION 4.3 can be
sold.
The Company agrees (a) not to effect any public or private sale or
distribution of its equity securities, including a sale pursuant to Regulation D
under the Securities Act but excluding (i) a sale or distribution which the
Company is obligated to make pursuant to an acquisition or other agreement in
effect as of the date the holders of the 1996 Series A Preferred Stock or
Conversion Shares give notice under the first sentence of this SECTION 4.3, (ii)
the issuance of not more than 100,000 shares of Common Stock per calendar
quarter in connection with the Company's acquisition of (A) mineral leases, (B)
gas gathering systems, (C) pipelines, (D) producing and non-producing oil and
gas properties, and (E) other similar oil and gas assets (which shall not be
made during the 10-day period prior to, and during the 20-day period beginning
on, the closing date described below), and (iii) the issuance of shares of
Common Stock either (A) pursuant to the warrants and options listed on Schedule
3.1.1 in connection with the exercise thereof or (B) pursuant to one or more
underwritten public offerings after the Closing Date and on or before June 30,
1997 at a price per share less than the Conversion Price but not less than $4.00
and/or the exercise of the IPO Warrants (as defined in the Certificate of
Designation) at a price of $5.50 per share on or before November 12, 1998,
PROVIDED, THAT in the aggregate such shares shall not exceed 5,750,000 shares of
Common Stock, during the 10-day period prior to, and during the 120-day period
beginning on, the closing date of an underwritten offering made pursuant to a
registration statement filed pursuant to this SECTION 4.3 and (b) to cause each
holder of its privately placed equity securities purchased from the Company at
any time on or after the date of this
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Agreement to agree not to effect any public sale or distribution of any such
securities during such period, including a sale pursuant to Rule 144 under
the Securities Act (except as part of such underwritten registration, if
permitted).
Except pursuant to a registration statement filed pursuant to this
SECTION 4.3, each Holder agrees not to effect any public sale or distribution,
including a sale pursuant to Rule 144 or 144A under the Securities Act, of any
Restricted Securities during the 10-day period prior to, and during the 120-day
period beginning on, the closing date of an underwritten offering made pursuant
to a registration statement filed pursuant to this SECTION 4.3.
The Company recognizes that money damages may be inadequate to
compensate Holders for a breach by the Company of its obligations under this
SECTION 4.3, and the Company agrees that in the event of such a breach the
Holders may apply for an injunction of specific performance or the granting of
such other equitable remedies as may be awarded pursuant to the arbitration
described in SECTION 6.9 below or by a court of competent jurisdiction after the
arbitration in SECTION 6.9 below in order to afford Holders the benefits of this
SECTION 4.3 and that the Company shall not object to such application, entry of
such injunction or granting of such other equitable remedies on the grounds that
money damages will be sufficient to compensate the Holders.
4.4. PIGGY-BACK REGISTRATION. Subject to the limitations contained
in SECTION 4.6, if the Company at any time proposes to register any of its
securities under the Securities Act on Form S-1, S-2 or S-3 or the equivalent
(other than an Excluded Registration), whether of its own accord or at the
request of any holder or holders of such securities, it will each such time
give written notice to all holders of outstanding 1996 Series A Preferred
Stock and Conversion Shares of its intention so to do.
Upon the written request of a holder or holders of any such 1996
Series A Preferred Stock and Conversion Shares given within 30 days after
receipt of any such notice (stating the
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intended method of disposition of such securities by the prospective Seller
or Sellers), the Company will use its best efforts to cause all Conversion
Shares, the holders of which shall have so requested registration thereof, to
be registered under the Securities Act, all to the extent requisite to permit
the sale or other disposition (in accordance with the intended methods
thereof as aforesaid) by the prospective Seller or Sellers of the Conversion
Shares so registered; PROVIDED, HOWEVER, the Company may elect not to file a
registration statement pursuant to this SECTION 4.4 or may withdraw any
registration statement filed pursuant to this SECTION 4.4 at any time prior
to the effective date thereof. In the case of an underwritten public equity
offering by the Company, each Seller shall, if requested by the managing
underwriter, agree not to sell publicly any equity securities of the Company
held by such Seller (other than the Conversion Shares so registered) for a
period of up to 120 days following the effective date of the registration
statement relating to such offering.
If the managing underwriter for the respective offering advises that
the inclusion in such registration of some or all of the Conversion Shares
sought to be registered by the Seller in its opinion will cause the proceeds or
price per unit the Company or the requesting or demanding holder of securities
will derive from such registration to be reduced or that the number of
securities to be registered at the instance of the Company or such requesting or
demanding holder plus the number of securities sought to be registered by the
Sellers is too large a number to be reasonably sold, then the number of
securities to be included in such registration will be reduced as set forth
below:
(i) the number of shares of Common Stock sought to be registered
by any holders of Common Stock, other than the Conversion Shares, shall be
reduced pro rata to the extent necessary to reduce the number of securities
to be registered to the Recommended Number;
(ii) if the reduction provided for in clause (i) above does not
reduce the number of securities to be registered to the Recommended Number,
then the number of shares of the Common Stock sought to be issued and
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registered on account of the Company shall be reduced to the extent
necessary to reduce the number of shares of Common Stock to be registered
to the Recommended Number; and
(iii) if the reduction provided for in clauses (i) and (ii)
above does not reduce the number of shares of Common Stock to be registered
to the Recommended Number, then the number of Conversion Shares sought to
be registered shall be reduced pro rata, in proportion to the number of
Conversion Shares sought to be registered by the holders thereof, to the
extent necessary to reduce the number of shares of Common Stock to be
registered to the Recommended Number.
The Company will not grant to any Person at any time on or after the
date hereof the right to request the Company to register any securities of the
Company under the Securities Act unless such right provides that such securities
shall not be registered and sold at the same time if the managing underwriter
for the respective sellers believes that sale of such securities would adversely
affect the amount of, or price at which, the respective Conversion Shares being
registered under this Section 4.4 can be sold.
4.5. REGISTRATION PROCEDURES. If and whenever the Company is
required by the provisions of this SECTION 4 to use its best efforts to
effect the registration of any of the Conversion Shares under the Securities
Act, the Company will (except as otherwise provided in this Agreement), as
expeditiously as possible:
(a) cooperate with any underwriters for, and the Sellers of,
such Conversion Shares, and will enter into a usual and customary
underwriting agreement with respect thereto and take all such other
reasonable actions as are necessary or advisable to permit, expedite and
facilitate the disposition of such Conversion Shares in the manner
contemplated by the related registration statement in each case to the same
extent as if all the securities then being offered were for the account of
the Company and the Company will provide to any Seller of Conversion
Shares, any
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underwriter participating in any distribution thereof pursuant to
a registration statement, and any attorney, accountant or other agent
retained by any Seller or underwriter, reasonable access to appropriate
Company officers and employees to answer questions and to supply
information reasonably requested by any such Seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
(b) furnish or cause to be furnished to each Seller of Conversion
Shares covered by such registration statement, addressed to such Sellers, a
copy of the opinion of counsel for the Company, and a copy of the "comfort"
letter signed by the independent public accountants who have certified the
Company's financial statements included in the registration statement,
delivered on the closing date to the underwriters of such Conversion Shares;
(c) 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; and 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; PROVIDED that no such registration
statement will be filed by the Company until counsel for the Sellers of
securities included therein shall have had a reasonable opportunity to
review the same and to exercise their rights under clause (a) above with
respect thereto and no amendment to any such registration statement naming
such Sellers as selling shareholders shall be filed with the Commission
until such Sellers shall have had at least seven days to review such
registration statement as originally filed and theretofore amended, to
exercise their rights under clause (a) above and
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to approve or disapprove any portion of such registration statement
describing or referring to such Sellers;
(d) furnish to each Seller such numbers of copies of a summary
prospectus or other 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;
(e) use its best efforts to register or qualify the securities
covered by such registration statement under such other securities or blue
sky laws of such jurisdictions as each Seller shall request, and do any and
all other acts and things which may be necessary or advisable to enable
such Seller to consummate the public sale or other disposition in such
jurisdictions of the securities owned by such Seller, except that the
Company 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 or to file therein any general consent to service;
(f) in the event of the issuance of any stop order suspending
the effectiveness of any registration statement or of any order suspending
or preventing the use of any prospectus or suspending the qualification of
any Conversion Shares for sale in any jurisdiction, use its best efforts
promptly to obtain its withdrawal;
(g) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission;
(h) make available to its security holders, as soon as
reasonably practicable, an earnings statement covering the period of at
least twelve months, beginning with the first fiscal quarter beginning
after the effective date of the registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities
Act; and
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(i) list such securities on any securities exchange on which
any stock of the Company is then listed, if the listing of such securities
is then permitted under the rules of such exchange;
PROVIDED, HOWEVER, that notwithstanding any other provision of this SECTION 4,
the Company shall not be required to maintain the effectiveness of any
registration statement for a period in excess of two years (plus any period
during which the effectiveness of such registration has been suspended) except
that from time to time after a transfer of Conversion Shares pursuant to a
registration statement the Company will file all reports required to be filed by
it under the Securities Act and the Securities Exchange Act of 1934, as amended,
and the rules and regulations adopted by the Commission thereunder, and will
take such further action as any holder or holders of Conversion Shares may
reasonably request, all to the extent required to enable such holders to sell
Conversion Shares pursuant to Rule 144 and Rule 144A promulgated under the
Securities Act (or any successor thereto). Upon written request, the Company
will deliver to such holders a written statement as to whether it has complied
with such requirements.
4.6. EXPENSES; LIMITATIONS ON REGISTRATION. All expenses incident
to the Company's performance of its obligations in connection with any
registration of the Sellers' Conversion Shares under this Agreement
including, without limitation, printing expenses, fees and disbursements of
counsel for the Company, fees of the National Association of Securities
Dealers, Inc. in connection with its review of any offering contemplated in
any registration statement and expenses of any special audits and independent
engineering reports to which the Company shall agree or which shall be
necessary to comply with governmental requirements in connection with any
such registration shall be paid by the Company. In connection with each
Reimbursable Registration (as defined below in this SECTION 4.6), the Company
shall pay (i) all registration and filing fees for the Sellers' Conversion
Shares under Federal and State securities laws, (ii) expenses of complying
with the securities or blue sky laws of any jurisdictions pursuant to SECTION
4.5(e), and (iii) fees and expenses of not more than one special counsel for
the Seller or
- 26 -
<PAGE>
Sellers but shall not be obligated to pay underwriter's discount or
commissions with respect to the Conversion Shares. In connection with any
registration of any Conversion Shares which is not a Reimbursable
Registration, all expenses of the kind specified in the preceding sentence
shall be borne by the respective Seller or Sellers in such proportions as
they may agree.
It shall be a condition precedent to the obligation of the Company to
take any action pursuant to this SECTION 4 in respect of the Conversion Shares
which are to be registered at the request of any prospective Seller that (i)
subject to the immediately preceding paragraph, the Company shall have received
an undertaking satisfactory to it from such prospective Seller to pay, or have
deducted from the proceeds from the sale of Conversion Shares pursuant to a
registration, all expenses to be incurred by or for the account of and required
to be paid by such Seller, and (ii) such prospective Seller shall furnish to the
Company such information regarding the securities held by such Seller and the
intended method of disposition thereof as the Company shall reasonably request
and as shall be required in connection with the action to be taken by the
Company.
The Holders of 1996 Series A Preferred Stock and Conversion Shares
shall be entitled to an aggregate of two effective registrations pursuant to
requests made under SECTION 4.3; PROVIDED, that any registration request made by
the requisite number of Holders, as set forth in the first paragraph of SECTION
4.3, which request shall be withdrawn (other than by reason of the Company's
failure to perform its obligations hereunder or a material adverse change in its
financial position or business) by the holders of at least 75% of the shares
evidenced or covered by the Conversion Shares sought to be registered, after the
respective registration statement shall have become effective, shall be treated
as an "effective" registration for purposes hereof. Each registration which
either uses up one of the two registration rights granted in the preceding
sentence or is filed pursuant to a request subsequently withdrawn for any of the
reasons set forth in the final parenthetical clause of the preceding sentence
and each "piggy-
- 27 -
<PAGE>
back" registration pursuant to SECTION 4.4 shall be deemed a "Reimbursable
Registration."
The Company agrees that it will not file a registration statement
under the Securities Act, either for securities held by any of the Company's
security holders other than holders of 1996 Series A Preferred Stock and
Conversion Shares or for securities newly issued by the Company, until 30
days after the effective date of any registration statement filed pursuant to
the request of a Seller or Sellers made under SECTION 4.3.
4.7. INDEMNIFICATION.
4.7.1. In the event of any registration of any of its securities
under the Securities Act pursuant to this SECTION 4, the Company shall
indemnify and hold harmless the Seller of such Conversion Shares, such
Seller's directors and officers, and each other person, if any, who controls
such Seller within the meaning of the Securities Act (a "CONTROLLING
PERSON"), against any losses, claims, damages or liabilities, joint or
several, to which such Seller or any such director or officer or Controlling
Person may become subject under the Securities Act or any other statute or at
common law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon (i) any alleged
untrue statement of any material fact contained, on the effective date
thereof, in any registration statement under which such securities were
registered under the Securities Act, or in any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereto,
or (ii) any alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
and shall reimburse such Seller or such director, officer or Controlling
Person for any legal or any other expenses reasonably incurred by such Seller
or such director, officer or Controlling Person in connection with
investigating or defending any such loss, claim, damage, liability or action;
PROVIDED, HOWEVER, that the Company shall not be liable in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon any alleged untrue statement or alleged omission made in such
registration statement, preliminary prospectus,
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<PAGE>
prospectus, or amendment or supplement in reliance upon and in conformity
with written information furnished to the Company through an instrument duly
executed by such Seller specifically for use therein. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of such Seller or such director, officer or Controlling Person, and
shall survive the transfer of such securities by such Seller.
4.7.2. Each holder of any Conversion Shares shall, by acceptance
thereof, indemnify and hold harmless the Company, its directors and officers
and each other person, if any, who controls the Company against any losses,
claims, damages or liabilities, joint or several, to which the Company or any
such director or officer or any such person may become subject under the
Securities Act or any other statute or at common law, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of
or are based upon (i) any untrue statement or omission of any material fact
contained, on the effective date thereof, in any registration statement under
which securities were registered under the Securities Act, or in any
preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereto, or (ii) any omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to
the extent that such untrue statement or omission was contained in written
information furnished to the Company through an instrument duly executed by
such holder specifically for use therein, and shall reimburse the Company or
such director, officer or other person for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
loss, claim, damage, liability or action.
4.7.3. INDEMNIFICATION similar to that specified in SUBSECTIONS
4.7.1 and 4.7.2 shall be given by the Company and each holder of any
Conversion Shares (with such modifications as shall be appropriate) to any
underwriter with respect to any required registration or other qualification
of any Conversion Shares under any Federal or state law or regulation of
governmental authority. The indemnity and expense reimbursements obligations
of the Company and the Holders under SUBSECTIONS
- 29 -
<PAGE>
4.7.1 and 4.7.2 shall be in addition to any liability the Company and the
Holders may otherwise have.
4.7.4. Each Person (an "INDEMNITOR") who under the preceding
provisions of this SECTION 4.7 agrees to indemnify another Person (an
"INDEMNITEE") shall have the right, subject to the provisions hereto, to
designate counsel (acceptable to the Indemnitee) to defend any case or
proceeding against the Indemnitee arising in respect of any claim of
liability for which such INDEMNIFICATION may be claimed, to the end that
duplication of legal expense may be minimized; provided that, if the
Indemnitee notifies the Indemnitor that the former has been advised by its
counsel that any single counsel in such case or proceeding would have a
conflict of interest in representing both the Indemnitor and the Indemnitee,
the Indemnitee may designate its own counsel in such case or proceeding and,
to the extent so provided above in this SECTION 4.7, shall be entitled to be
reimbursed for its legal expenses reasonably incurred in connection with
defending itself in such case or proceeding.
4.8. TERMINATION OF RESTRICTIONS. Notwithstanding the foregoing
provisions of this SECTION 4, the restrictions imposed by this SECTION 4 upon
the transferability of the Restricted Securities shall cease and terminate as
to any particular Restricted Security when such Restricted Security shall
have been effectively registered under the Securities Act and sold by the
holder thereof in accordance with such registration or sold under Rule 144 or
144A promulgated by the Commission. Whenever the restrictions imposed by
this SECTION 4 shall terminate as to any Restricted Certificate, as
hereinabove provided, the holder thereof shall be entitled to receive from
the Company, without expense, a new certificate not bearing the restrictive
legend otherwise required to be borne thereby.
4.9. RULE 144. At all times, in order to permit the holders of
1996 Series A Preferred Stock and Conversion Shares to sell the same, if they
so desire, pursuant to Rule 144 or 144A promulgated by the Commission (or any
successor to such rule), the Company will comply with all rules and
regulations of the Commission applicable in connection with use of Rule 144
and 144A (or any successor rules thereto), including the provision of
- 30 -
<PAGE>
information concerning the Company and the timely filing of all reports with
the Commission in order to enable such holders, if they so elect, to utilize
Rule 144 or 144A, and the Company will cause any restrictive legends to be
removed and any transfer restrictions to be rescinded with respect to any
sale of 1996 Series A Preferred Stock or Conversion Shares which is exempt
from registration under the Securities Act pursuant to Rule 144 or 144A.
SECTION 5. COVENANTS OF THE COMPANY
5.1. DELIVERY EXPENSES. If any Holder surrenders any certificate
for 1996 Series A Preferred Stock or Conversion Shares to the Company or a
transfer agent of the Company for exchange for instruments of other
denominations or registered in another name or names, the Company will,
subject to the provisions of SECTION 4, cause such new instruments to be
issued and will pay the cost of delivering to or from the office of the
Holder from or to the Company or its transfer agent, duly insured, the
surrendered instrument and any new instruments issued in substitution or
replacement for the surrendered instrument.
5.2. TAXES. The Company will pay all taxes (other than Federal,
State or local income taxes) which may be payable in connection with the
execution and delivery of this Agreement or the issuance and sale of the 1996
Series A Preferred Stock and Conversion Shares hereunder or in connection
with any modification of the 1996 Series A Preferred Stock or Conversion
Shares and will save the Holders harmless without limitation as to time
against any and all liabilities with respect to or resulting from any delay
in paying, or omission to pay such taxes. The obligations of the Company
under this SECTION 5.2 shall survive any redemption, repurchase or
acquisition of 1996 Series A Preferred Stock or Conversion Shares by the
Company and the termination of this Agreement.
5.3. REPLACEMENT OF INSTRUMENTS. Upon receipt by the Company of
evidence reasonably satisfactory to it of the ownership of and the loss,
theft, destruction or mutilation of
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<PAGE>
any certificate or instrument evidencing any 1996 Series A Preferred Stock or
Conversion Shares, and
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (provided that, if the owner of the same is a
commercial bank or an institutional lender or investor, its own agreement
of indemnity shall be deemed to be satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation
thereof,
the Company, at its expense, will execute, register and deliver, in lieu
thereof, a new certificate or instrument for (or covering the purchase of) an
equal number of shares of 1996 Series A Preferred Stock or Conversion Shares.
5.4. RESTRICTIONS ON CERTAIN ACTIONS. From and after the date
hereof to the day immediately following the issuance of 1996 Series A
Preferred Stock hereunder the Company will not:
(a) pay or declare any dividend payable in shares of its
common stock or take any other action which, if taken after the date of
such issuance, would result under the terms of the Preferred Stock in a
change in the number of Conversion Shares into which the 1996 Series A
Preferred Stock may be converted; or
(b) make any amendment to the Articles of Incorporation of the
Company, or file any resolution of the board of directors with the Nevada
Secretary of State containing any provisions, which would materially and
adversely affect or otherwise impair the rights of the holders of the 1996
Series A Preferred Stock.
5.5. USE OF PROCEEDS. The Company shall use the proceeds of the
sale of the 1996 Series A Preferred Stock as follows:
(a) development of proved undeveloped properties, including but
not limited to, installation of water floods
- 32 -
<PAGE>
and development drilling in the Panoma Field in accordance with the
Development Plan; and
(b) working capital or reduction of any outstanding debt
obligations of the Company under its existing credit facilities with Wells
Fargo Bank (Texas) National Association, as agent for the Banks extending
credit to the Company.
5.6. IMPLEMENTATION OF THE DEVELOPMENT PLAN. The Company shall take
all action necessary to commence and implement the Development Plan not later
than the time periods set forth therein.
5.7. NAME CHANGE. The Company has advised TCW that it intends to
change its name to Magnum Hunter Resources, Inc. Promptly after the filing
thereof, the Company shall deliver to the Holders true and correct copies of
all documents effecting or evidencing the name change of the Company to
Magnum Hunter Resources, Inc. under the laws of the State of Nevada and shall
concurrently therewith reissue to the Holders the certificates for the 1996
Series A Preferred Stock with the changed name of the Company.
SECTION 6. MISCELLANEOUS
6.1. NOTICES.
6.1.1. All communications under this Agreement shall be in writing
and shall be mailed by first class mail, postage prepaid:
(a) if to any party hereto at its address for notices
specified beneath its name on the signature page hereof, or at such other
address as it may have furnished in writing to each other party hereto and
all other holders of 1996 Series A Preferred Stock and Conversion Shares at
the time outstanding, or
(b) if to any other Person who is the registered holder of any
1996 Series A Preferred Stock or Conversion
- 33 -
<PAGE>
Shares, to the address for the purpose of such holder as it appears in the
stock ledger of the Company.
6.1.2. Any notice shall be deemed to have been duly given when
delivered by hand, if personally delivered, and if sent by mail, two Business
Days after being deposited in the mail, postage prepaid.
6.2. SURVIVAL. All warranties, representations and covenants made
by the Company herein or in any certificate or other instrument delivered by
it or on its behalf under this Agreement shall be considered to have been
relied upon by the Holders and shall survive the issuance of the 1996 Series
A Preferred Stock regardless of any investigation made by or on behalf of the
Holders. All statements in any such certificate or other instrument so
delivered shall constitute representations and warranties by the Company
hereunder.
All representations, warranties and covenants made by the Holders
herein shall be considered to have been relied upon by the Company and shall
survive the issuance to the Holders of the 1996 Series A Preferred Stock
regardless of any investigation made by the Company or on its behalf.
The provisions of SECTION 4 hereof shall survive the issuance to the
Holders of the 1996 Series A Preferred Stock and the Conversion Shares.
6.3. SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, this Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties whether so expressed or not.
6.4. AMENDMENT AND WAIVER, ETC. This Agreement may be amended, and
the observance of any term of this Agreement may be waived, but only with the
written consent of the Requisite Holders. No failure or delay on the part of
the Holders in exercising any right, power or remedy hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any such
right, power or remedy preclude any other or further exercise thereof or the
exercise of any other right, power or
- 34 -
<PAGE>
remedy. The remedies provided for herein are cumulative and are not
exclusive of any remedies that may be available to the Holders at law or in
equity or otherwise. No waiver of or consent to any departure by the Company
from any provision of this Agreement shall be effective unless signed in
writing by the Holders.
6.5. DUPLICATE ORIGINALS. Two or more duplicate originals of this
Agreement may be signed by the parties, each of which shall be an original but
all of which together shall constitute one and the same instrument.
6.6. SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance,
is held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.
6.7. GOVERNING LAW. This Agreement shall be construed in accordance
with and governed by the law of the State of California.
6.8. SPECIFIC PERFORMANCE. The Company acknowledges that the Holders
have no adequate remedy at law for breaches by the Company of its obligations
hereunder or under the Articles of Incorporation, and accordingly the Company
irrevocably agrees that the Holders shall be entitled to the remedy of specific
performance granted pursuant to SECTION 6.9 below, and waives any right the
Company may have to object to such remedy.
6.9. ARBITRATION. THE PARTIES AGREE THAT IF ANY DISPUTE SHOULD ARISE
UNDER THE TERMS AND PROVISIONS OF THIS AGREEMENT, EACH PARTY WAIVES ANY RIGHT TO
COMMENCE LEGAL ACTION OR ARBITRATION OTHER THAN AS PROVIDED UNDER THE TERMS OF
THIS AGREEMENT, AND THIS AGREEMENT SHALL PROVIDE THE SOLE AND EXCLUSIVE REMEDY
FOR RESOLUTION OF DISPUTES.
(a) THE DETERMINATION OF THE ARBITRATOR WILL BE FINAL AND BINDING
UPON EACH PARTY AND EACH PARTY SPECIFICALLY WAIVES ANY RIGHT TO CLAIM THAT THE
ARBITRATOR HAS EXCEEDED THE SCOPE OF
- 35 -
<PAGE>
THE ARBITRATION, HAS DISREGARDED EVIDENCE OR PRINCIPLES OF LAW, AND FURTHER
WAIVES ANY RIGHT TO DISCLAIM THE QUALIFICATION OR FUNCTION OF THE ARBITRATOR
IN ANY MANNER OR FASHION.
(b) APPOINTMENT OF THE ARBITRATOR SHALL BE MADE BY MUTUAL AGREEMENT
OF THE PARTIES. IF THE PARTIES CANNOT AGREE UPON THE IDENTIFICATION OF THE
ARBITRATOR WITHIN THIRTY (30) DAYS FROM THE MAILING OF THE OBJECTION, A PETITION
FOR APPOINTMENT OF ARBITRATOR SHALL BE FILED WITH THE SUPERIOR COURT OF THE
COUNTY OF LOS ANGELES, CALIFORNIA. THE ARBITRATION SHALL BE HELD IN LOS
ANGELES, CALIFORNIA PURSUANT TO THE COMMERCIAL ARBITRATION RULES OF THE AMERICAN
ARBITRATION ASSOCIATION AND TITLE 9 OF THE CALIFORNIA CODE OF CIVIL PROCEDURE
(SECTION 1280 ET SEQ.) INCLUDING WITHOUT LIMITATION PROVISIONS OF CALIFORNIA
CODE OF CIVIL PROCEDURE SECTION 1283.05 WHICH IS HEREBY INCORPORATED HEREIN BY
REFERENCE.
(c) THE ARBITRATOR'S FEES AND FEES AND COSTS OF PETITIONING FOR THE
APPOINTMENT OF THE ARBITRATOR SHALL BE PAID BY THE COMPANY. THE ARBITRATOR UPON
RENDERING ITS AWARD SHALL DETERMINE THE PARTY THAT PREVAILED BASED UPON WRITTEN
STATEMENTS MADE BY EACH PARTY AT THE COMMENCEMENT OF THE ARBITRATION AS TO THE
POSITION OF THE PARTIES AND THEIR ALTERNATIVES FOR SETTLING THE MATTER. A
STATEMENT OF A PROPOSED SETTLEMENT SHALL NOT BE BINDING UPON ANY PARTY AND SHALL
NOT BE CONSIDERED AS EVIDENCE BY THE ARBITRATOR EXCEPT TO THE EXTENT THAT THE
ARBITRATOR UPON MAKING ITS SOLE AND INDEPENDENT DETERMINATION SHALL DETERMINE
THE PARTY WHICH PREVAILED BASED UPON THE PROPOSALS FOR SETTLEMENT OF THE MATTER
MADE BY EACH PARTY AND SHALL DETERMINE THAT THE NON-PREVAILING PARTY SHALL PAY
SOME OR ALL OF THE COSTS OF ARBITRATION INCLUDING ANY COSTS INCURRED BY THE
ARBITRATOR AND IN EMPLOYING EXPERTS TO ADVISE THE ARBITRATOR IN REGARD TO
SPECIFIC SUBJECTS OR QUESTIONS. THE ARBITRATOR MAY FURTHER AWARD THE COST OF
ATTORNEYS' FEES OR EXPERT WITNESSES CONSULTED OR EMPLOYED IN THE PREPARATION OR
PRESENTATION OF EVIDENCE TO THE ARBITRATOR BY THE PREVAILING PARTY IF, IN THE
ARBITRATOR'S DETERMINATION, THE POSITION OF THE NONPREVAILING PARTY WAS NOT
REASONABLY TAKEN OR MAINTAINED OR WAS BASED UPON A FAILURE TO PROPERLY EXCHANGE
OR COMMUNICATE INFORMATION WITH THE PREVAILING PARTY IN REGARD TO THE SUBJECT
SUBMITTED TO ARBITRATION.
- 36 -
<PAGE>
(d) THE ARBITRATOR'S DETERMINATION MAY FURTHER PROVIDE FOR
PROSPECTIVE ENFORCEMENT AND DIRECTIONS FOR THE PARTIES TO COMPLY WITH INCLUDING
WITHOUT LIMITATION PERMANENT INJUNCTIVE RELIEF. UNDER SUCH CIRCUMSTANCES, THE
ARBITRATOR'S AWARD SHALL BE BINDING UPON THE PARTIES AND SHALL BE UNDERTAKEN AND
PERFORMED BY EACH OF THE PARTIES UNTIL SUCH TIME AS THE ARBITRATOR'S DIRECTIONS
TO THE PARTY SHALL LAPSE BY THEIR TERM, OR THE ARBITRATOR SHALL NOTIFY THE
PARTIES THAT THOSE TERMS ARE NO LONGER IN FORCE OR EFFECT OR SHALL MODIFY THOSE
TERMS.
- 37 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Stock Purchase Agreement as of the date first above written.
MAGNUM PETROLEUM, INC.,
a Nevada corporation
By:
----------------------------
Gary C. Evans
President
Address for Notices:
600 East Las Colinas Boulevard
Suite 1200
Irving, Texas 75039
TRUST COMPANY OF THE WEST, a California
trust company, as Trustee of TCW Debt and
Royalty Fund IVA
By:
----------------------------
George R. Hutchinson
Managing Director
By:
----------------------------
Marc MacAluso
Vice President
- 38 -
<PAGE>
TRUST COMPANY OF THE WEST, a California trust
company, in its capacities as Investment Manager
pursuant to the Investment Management Agreement
dated as of June 6, 1988 between General Mills,
Inc. and the Trust Company of the West and as
Custodian pursuant to the Custody Agreement dated
as of February 6, 1989 among General Mills, Inc.,
the Trust Company of the West and State Street
Bank and Trust Company, as trustee
By:
----------------------------
George R. Hutchinson
Managing Director
By:
----------------------------
Marc MacAluso
Vice President
- 39 -
<PAGE>
TCW ASSET MANAGEMENT COMPANY, a California
corporation, as Investment Manager pursuant to the
Investment Management and Custody Agreement dated
as of June 1, 1993 with The Trustees of Columbia
University in the City of New York and Trust
Company of the West
By:
----------------------------
George R. Hutchison
Managing Director
By:
----------------------------
Marc MacAluso
Vice President
TCW ASSET MANAGEMENT COMPANY, a California
corporation, as Investment Manager pursuant to the
Investment Management Agreement dated as of
March 1, 1993 with The Board of Trustees of the
Leland Stanford Junior University
By:
----------------------------
George R. Hutchinson
Managing Director
By:
----------------------------
Marc MacAluso
Vice President
- 40 -
<PAGE>
TCW ASSET MANAGEMENT COMPANY, a California
corporation, as Investment Manager under the
Investment Management Agreement dated as of
June 8, 1993 between the Searle Trusts Limited
Partnership X, Harris Trust and Savings Bank and
TCW Asset Management Company
By:
----------------------------
George R. Hutchinson
Managing Director
By:
----------------------------
Marc MacAluso
Vice President
TCW ASSET MANAGEMENT COMPANY, a California
corporation, as Investment Manager under the
Investment Management Agreement dated as of
June 8, 1993, between the John G. Searle
Charitable Trusts Partnership, Harris Trust and
Savings Bank and TCW Asset Management Company
By:
----------------------------
George R. Hutchinson
Managing Director
By:
----------------------------
Marc MacAluso
Vice President
- 41 -
<PAGE>
TCW ASSET MANAGEMENT COMPANY, a California
corporation, as Investment Manager under the
Investment Management Agreement dated as of
December 31, 1993 with Delta Air Lines, Inc.
By:
----------------------------
George R. Hutchinson
Managing Director
By:
----------------------------
Marc MacAluso
Vice President
TCW DEBT AND ROYALTY FUND IVB, A CALIFORNIA
LIMITED PARTNERSHIP
By: TCW Asset Management Company,
a California corporation,
General Partner
By:
---------------------------------
George R. Hutchinson
Managing Director
By:
---------------------------------
Marc MacAluso
Vice President
- 42 -
<PAGE>
TCW DEBT AND ROYALTY FUND IVC, A CALIFORNIA
LIMITED PARTNERSHIP
By: TCW Asset Management Company,
a California corporation,
General Partner
By:
---------------------------------
George R. Hutchinson
Managing Director
By:
---------------------------------
Marc MacAluso
Vice President
TRUST COMPANY OF THE WEST, as Custodian pursuant
to the Investment Management and Custody Agreement
dated as of April 26, 1994 among The City and
County Employee's Retirement System of San
Francisco, TCW Asset Management Company and Trust
Company of the West
By:
---------------------------------
George R. Hutchinson
Managing Director
By:
---------------------------------
Marc MacAluso
Vice President
- 43 -
<PAGE>
Address for Notices:
865 South Figueroa Street,
Suite 1800
Los Angeles, California 90017
- 44 -
<PAGE>
Exhibit A
Certificate of Designation
- 45 -
<PAGE>
Exhibit B
Legal Opinion
- 46 -
<PAGE>
Exhibit C
Shareholders Agreement
- 47 -
<PAGE>
Exhibit D
Approved List
1. Gaffney, Cline & Associates Inc.
2. Ryder Scott Company Petroleum Engineers
3. Netherland, Sewell & Associates Inc.
4. Cawley Gillespie & Assoc.
5. DeGolyer and MacNaughton
- 48 -
<PAGE>
SCHEDULE A
SERIES A
CONVERTIBLE
PREFERRED NUMBER
HOLDER AND TAX I.D. NUMBER OF SHARES
-------------------------- ----------------
TRUST COMPANY OF THE WEST, as Trustee of 37,484
the TCW Debt and Royalty Fund IVA
established pursuant to a Declaration of
Trust executed December 31, 1992 (95-6950242)
TRUST COMPANY OF THE WEST, as Custodian pursuant 36,301
to the Investment Management and Custody Agreement
dated as of June 1, 1993 among The Trustees of Columbia
University in the City of New York, TCW Asset Management
Company and Trust Company of the West (13-5598093)
TRUST COMPANY OF THE WEST, as Custodial Agent for 100,144
TCW DEBT AND ROYALTY FUND IVB, A CALIFORNIA LIMITED
PARTNERSHIP (95-4403617)
TRUST COMPANY OF THE WEST, as Custodial Agent for 48,512
TCW DEBT AND ROYALTY FUND IVC, A CALIFORNIA LIMITED
PARTNERSHIP (95-4468901)
THE CHASE MANHATTAN BANK, as Custodian for The 115,676
Trustees of The Leland Stanford Junior University
(94-1156365)
HARRIS TRUST AND SAVINGS BANK, as Custodian pursuant 81,248
to the Custody Agreement dated as of June 8, 1993
between Harris Trust and Savings Bank and the Searle
Trusts Limited Partnership X (36-6839902)
HARRIS TRUST AND SAVINGS BANK, as Custodian pursuant 32,498
to the Custody Agreement dated as of June 8, 1993 between
Harris Trust and Savings Bank and the John G. Searle
Charitable Trusts Partnership (36-6882464)
- 49 -
<PAGE>
SERIES A
CONVERTIBLE
PREFERRED NUMBER
HOLDER AND TAX I.D. NUMBER OF SHARES
-------------------------- ----------------
TRUST COMPANY OF THE WEST, as Custodian pursuant 16,395
to the Investment Management and Custody Agreement dated
as of April 26, 1994 among The City and County Employee's
Retirement System of San Francisco, TCW Asset Management
Company and Trust Company of the West (94-6078495)
TRUST COMPANY OF THE WEST, in its capacities as Investment 500,000
Manager pursuant to the Investment Management Agreement
dated as of June 6, 1988 with General Mills, Inc. and as
Custodian pursuant to the Custody Agreement dated as of
February 6, 1989 with General Mills, Inc. and State Street
Bank and Trust Company, as trustee (04-6736853)
HARRIS TRUST AND SAVINGS BANK, as Trustee under the master 31,742
trust agreement, Delta Master Trust, dated as of May 27,
1982 with Delta Air Lines, Inc. (36-6751614)
Total: ---------
1,000,000
The Company shall pay dividends in cash by wire transfer in immediately
available funds as follows (or as otherwise directed by TCW or any Holder):
FOR ALL HOLDERS EXCEPT TCW-GENERAL MILLS
Sanwa Bank California
1977 Saturn
Monterey Park, CA 91754
Trust Operations
- 50 -
<PAGE>
Attn: Charles McKinley
ABA#122003516
Account # 40010-30
TCW Debt & Royalty Funds IV - Magnum
FOR TCW-GENERAL MILLS
Sanwa Bank California
1977 Saturn
Monterey Park, CA 91754
Trust Operations
Attn: Charles McKinley
ABA # 122003516
Account #400-0587
G. MILLS EQUITY O&G - Magnum
- 51 -
<PAGE>
Schedule B
List of Affiliates
[to be provided by the Company]
- 52 -
<PAGE>
Schedule 3.1.1
Options and Warrants
[to be provided by the Company]
- 53 -
<PAGE>
Schedule 3.1.5
Holders of Registration Rights
[to be provided by the Company]
- 54 -
<PAGE>
SCHEDULE 3.6
TITLE EXCEPTIONS
[TO BE PROVIDED BY THE COMPANY]
- 55 -
<PAGE>
MAGNUM PETROLEUM, INC.
600 East Las Colinas Blvd., Suite 1200, Irving, TX 75039
Phone (972) 401-0752 Fax (972) 401-3110
INTERNET ADDRESS: http://www.magnumhunter.com
FOR IMMEDIATE RELEASE
NEWS
American Stock Exchange
- - Common MPM
- - Warrants MPM.WS
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MAGNUM COMPLETES PRIVATE PLACEMENT OF
$10 MILLION IN CONVERTIBLE PREFERRED STOCK
Irving, Texas, December 9, 1996, MAGNUM PETROLEUM, INC. ("Magnum") announced
today it has executed the definitive agreements concerning the private
placement of $10 million in convertible preferred stock with Trust Company of
the West and TCW Asset Management Company, as agent for certain institutional
investors (collectively herein referred to as "TCW"). Terms of the 1996
Series A Convertible Preferred Stock call for (1) a fixed annual cumulative
dividend rate of 8.75%, payable quarterly in arrears commencing December 31,
1996, (2) convertibility into common shares of the Company at a conversion price
of $5.875 per share, and (3) if not already converted, an option by the Company
after two years to exchange the 1996 Series A Convertible Preferred Stock for
a Convertible Subordinated Debenture of equivalent value. Financial funding
of the equity placement is anticipated prior to year-end and will be applied
to the Company's senior bank credit facility. As a condition of the private
placement, when required, the Company will fund the capital costs necessary
for developing existing proved oil and gas properties owned by the Company by
utilizing the availability under its existing senior bank credit facility.
Commenting on this new convertible preferred stock issue, Mr. Gary C. Evans,
President and CEO of Magnum, stated "We are pleased to have completed this
significant transaction for Magnum with TCW, an institution with an
excellent reputation in the energy industry. We have been working diligently
on this transaction for several months and are pleased to have reached terms
and conditions which we believe are most satisfactory to the Company and will
allow our new institutional investors to participate in the upside potential
of the Company. As part of the conditions of the private placement, Magnum
will significantly increase the development plans on the Company's proved
properties over the next twelve months."
MAGNUM PETROLEUM, INC. is an exploration and development company engaged in
four principal activities: (1) the acquisition, production and sale of crude
oil, condensate and natural gas; (2) the gathering, transmission and marketing
of natural gas; (3) the managing and operating of producing oil and natural gas
properties for interest owners; and (4) providing consulting and U.S. export
services to facilitate Latin American trade in energy products.
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The information in this release includes certain forward-looking statements
that are based on assumptions that in the future may prove not to have been
accurate. Those statements, and Magnum Petroleum, Inc.'s business and
prospects, are subject to a number of risks, including volatility of oil and
gas prices, the need to develop and replace reserves, the substantial capital
expenditures required to fund its operations, environmental risks, drilling
and operating risks, risks related to exploration and development drilling,
uncertainties about estimates of reserves, competition, government
regulation, and the ability of the company to implement its business
strategy. These and other risks are described in the company's reports that
are available from the SEC.
FOR FURTHER INFORMATION CONTACT: STEVEN P. SMART (214) 401-0752
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