Amended and Restated Articles of Amendment to the
Articles of Incorporation of
Rocky Mountain Gas, Inc.
The articles of incorporation of Rocky Mountain Gas, Inc. (the
"Corporation") are amended by the creation of Series A Preferred Stock, pursuant
-----------
to W.S. 17-16-602(d) of the Wyoming Business Corporation Act (the "Act"):
---
(i) The name of the Corporation is Rocky Mountain Gas, Inc.
(ii) The text of the amendment, to create the Series A Preferred Stock out
of the general unlimited class of preferred stock, follows. No change is made to
the provisions of article FOURTH of the original articles of incorporation with
respect to the common stock.
TERMS OF SERIES A PREFERRED STOCK
Section 1. Designation, Amount and Par Value. The series of preferred stock
---------------------------------
shall be designated as its 10% Series A Convertible Preferred Stock (the
"Preferred Stock") and the number of shares so designated shall be 1,333,333
----------------
(which shall not be subject to increase without the consent of all of the
holders of the Preferred Stock (each, a "Holder" and collectively, the
------
"Holders")). Each share of Preferred Stock shall have no par value and a stated
-------
value equal to $3.00 (the "Stated Value"). Capitalized terms not otherwise
-------------
defined herein shall have the meaning given such terms in Section 8 hereof.
Section 2. Dividends.
---------
(a) Holders shall be entitled to receive and the Corporation shall pay,
cumulative dividends at the rate per share (as a percentage of the Stated
Value per share) of 10% per annum (subject to increase pursuant to Sections
6(a) and 7(a)), payable annually on March 1, beginning with March 1, 2005
and on any Conversion Date (except that, if such date is not a Trading Day,
the payment date shall be the next succeeding Trading Day)("Dividend
--------
Payment Date"). The form of dividend payments to each Holder shall be made,
------------
(i) if funds are legally available for the payment of dividends and the
Equity Conditions are not met, in cash only, (ii) if funds are legally
available for the payment of dividends and the Equity conditions are met,
subject to the notice conditions contained herein, at the option of the
Corporation, (A) in cash (in lieu thereof and at the option of a Holder,
the Holder may elect to receive shares of Corporation Common Stock which
shall be valued at $3.00 per share (subject to adjustment for any stock
splits, reverse splits and similar capital events after the Original
Issuance Date)) or (B) in Parent Common Stock, which shall be valued at 90%
of the average of the 5 VWAPs immediately prior to the Dividend Payment
Date (but in no event less than $1.50 per share, as adjusted for any stock
splits or similar capital events subsequent to the Original Issue Date) or
(iii) if funds are not legally available for the payment of dividends and
the Equity conditions are met, in Parent Common Stock, which shall be
valued at 90% of the average of the 5 VWAPs immediately prior to the
Dividend Payment Date (but in no event less than $1.50 per share, as
adjusted for any stock splits or similar capital events subsequent to the
Original Issue Date), and (iv) if funds are not legally available for the
payment of dividends and the Equity conditions are not met, at the election
of the Holder, (A) in unregistered Parent Common Stock, which shall be
valued at 90% of the average of the 5 VWAPs immediately prior to the
Dividend Payment Date (but in no event less than $1.50 per share, as
adjusted for any stock splits or similar capital events subsequent to the
Original Issue Date), (B) in shares of Corporation Common Stock which shall
be valued at $3.00 per share (subject to adjustment for any stock splits,
reverse splits and similar capital events after the Original Issuance
Date), (C) by the accrual of such dividend payment to the next Dividend
Payment Date or (D) by the accretion of such dividend payment to the
outstanding Stated Value. The Holders shall have the same rights and
remedies with respect to the delivery of any such shares as if such shares
were being issued pursuant to Section 5. 30 days prior to the first
Interest Payment Date, the Corporation shall have notified the Holders
whether it may lawfully pay cash dividends. The Corporation shall promptly
notify the Holders at any time the Corporation shall become able or unable,
as the case may be, to lawfully pay cash dividends. If at any time the
Corporation has the right to pay dividends in cash and Parent Common Stock,
the Corporation must provide the Holder with at least 20 Trading Days'
prior notice of its election to pay a regularly scheduled dividend in
Parent Common Stock. Dividends on the Preferred Stock shall be calculated
on the basis of a 360-day year, shall accrue daily commencing on the
Original Issue Date, and shall be deemed to accrue from such date whether
or not earned or declared and whether or not there are profits, surplus or
other funds of the Corporation legally available for the payment of
dividends. Any dividends, whether paid in cash or shares, that are not paid
within three Trading Days following a Dividend Payment Date shall continue
to accrue and shall entail a late fee, which must be paid in cash, at the
rate of 18% per annum or the lesser rate permitted by applicable law (such
fees to accrue daily, from the Dividend Payment Date through and including
the date of payment).
(b) So long as any Preferred Stock shall remain outstanding, neither the
Corporation nor any subsidiary thereof shall redeem, purchase or otherwise
acquire directly or indirectly any Junior Securities. So long as any
Preferred Stock shall remain outstanding, neither the Corporation nor any
subsidiary thereof shall directly or indirectly pay or declare any dividend
or make any distribution (other than a dividend or distribution described
in Section 5 or dividends due and paid in the ordinary course on preferred
stock of the Corporation at such times when the Corporation is in
compliance with its payment and other obligations hereunder) upon, nor
shall any distribution be made in respect of, any Junior Securities so long
as any dividends due on the Preferred Stock remain unpaid, nor shall any
monies be set aside for or applied to the purchase or redemption (through a
sinking fund or otherwise) of any Junior Securities or shares pari passu
with the Preferred Stock.
Section 3. Voting Rights. Except as otherwise provided herein and as
--------------
otherwise required by law, the Preferred Stock shall have no voting rights.
However, so long as any shares of Preferred Stock are outstanding, the
Corporation shall not, without the affirmative vote of the Holders of a
seventy-five percent majority of the shares of the Preferred Stock then
outstanding, (a) alter or change adversely the powers, preferences or rights
given to the Preferred Stock or alter or amend this Certificate of Designation,
(b) authorize or create any class of stock ranking as to dividends, redemption
or distribution of assets upon a Liquidation (as defined in Section 4) senior to
or otherwise pari passu with the Preferred Stock, (c) amend its certificate of
incorporation or other charter documents so as to affect adversely any rights of
the Holders, (d) increase the authorized number of shares of Preferred Stock, or
(e) enter into any agreement with respect to the foregoing.
Section 4. Liquidation. Upon any liquidation, dissolution or winding-up of
-----------
the Corporation, whether voluntary or involuntary (a "Liquidation"), the Holders
-----------
shall be entitled to receive out of the assets of the Corporation, whether such
assets are capital or surplus, for each share of Preferred Stock an amount equal
to the $4.05 per share plus any accrued and unpaid dividends thereon and any
other fees or liquidated damages owing thereon before any distribution or
payment shall be made to the holders of any Junior Securities, and if the assets
of the Corporation shall be insufficient to pay in full such amounts, then the
entire assets to be distributed to the Holders shall be distributed among the
Holders ratably in accordance with the respective amounts that would be payable
on such shares if all amounts payable thereon were paid in full. A Fundamental
Transaction or Change of Control Transaction shall not be treated as a
Liquidation. The Corporation shall mail written notice of any such Liquidation,
not less than 45 days prior to the payment date stated therein, to each record
Holder.
Section 5. Conversion.
----------
(a) (i) Conversions at Option of Holder. Each share of Preferred Stock
shall be convertible into that number of shares of Parent Common Stock
(subject to the limitations set forth in Sections 5(a)(ii) and (iii)) or
Corporation Common Stock determined by dividing the Stated Value of such
share of Preferred Stock by the applicable Set Price, at the option of the
Holder, at any time and from time to time from and after the Original Issue
Date. Holders shall effect conversions by providing the Corporation with
the form of conversion notice attached hereto as Annex A (a "Conversion
------- ----------
Notice"). Each Conversion Notice shall specify the number of shares of
------
Preferred Stock to be converted (which shall not be less than 25,000
shares, unless the Holder then holds less than 25,000 shares), the number
of shares of Preferred Stock owned prior to the conversion at issue, the
number of shares of Preferred Stock owned subsequent to the conversion at
issue and the date on which such conversion is to be effected, which date
may not be prior to the date the Holder delivers such Conversion Notice to
the Corporation by facsimile (the "Conversion Date"). If no Conversion Date
---------------
is specified in a Conversion Notice, the Conversion Date shall be the date
that such Conversion Notice to the Corporation is deemed delivered
hereunder. The calculations and entries set forth in the Conversion Notice
shall control in the absence of manifest or mathematical error.
(ii) Beneficial Ownership Limitation. The Corporation shall not effect
any conversion of the Preferred Stock into Parent Common Stock, and the
Holder shall not have the right to convert any portion of the Preferred
Stock into Parent Common Stock to the extent that after giving effect to
such conversion, the Holder (together with the Holder's affiliates), as set
forth on the applicable Conversion Notice, would beneficially own in excess
of 4.99% of the number of shares of the Parent Common Stock outstanding
immediately after giving effect to such conversion. For purposes of the
foregoing sentence, the number of shares of Parent Common Stock
beneficially owned by the Holder and its affiliates shall include the
number of shares of Parent Common Stock issuable upon conversion of the
Preferred Stock with respect to which the determination of such sentence is
being made, but shall exclude the number of shares of Parent Common Stock
which would be issuable upon (A) conversion of the remaining, nonconverted
Stated Value of Preferred Stock beneficially owned by the Holder or any of
its affiliates and (B) exercise or conversion of the unexercised or
nonconverted portion of any other securities of the Parent (including the
Warrants) subject to a limitation on conversion or exercise analogous to
the limitation contained herein beneficially owned by the Holder or any of
its affiliates. Except as set forth in the preceding sentence, for purposes
of this Section 5(a)(ii), beneficial ownership shall be calculated in
accordance with Section 13(d) of the Exchange Act. To the extent that the
limitation contained in this Section 5(a)(ii) applies, the determination of
whether the Preferred Stock is convertible (in relation to other securities
owned by the Holder together with any affiliates) and of which shares of
Preferred Stock is convertible shall be in the sole discretion of such
Holder, and the submission of a Conversion Notice into Parent Common Stock
shall be deemed to be such Holder's determination of whether the shares of
Preferred Stock may be converted (in relation to other securities owned by
such Holder) and which shares of the Preferred Stock is convertible, in
each case subject to such aggregate percentage limitations. To ensure
compliance with this restriction, the Holder will be deemed to represent to
the Corporation each time it delivers a Conversion Notice that such
Conversion Notice has not violated the restrictions set forth in this
paragraph and the Corporation shall have no obligation to verify or confirm
the accuracy of such determination. For purposes of this Section 5(a)(ii),
in determining the number of outstanding shares of Parent Common Stock, the
Holder may rely on the number of outstanding shares of Parent Common Stock
as reflected in the most recent of the following: (A) the Parent's most
recent Form 10-Q or Form 10-K, as the case may be, (B) a more recent public
announcement by the Parent or (C) any other notice by the Parent or the
Parent's transfer agent setting forth the number of shares of Parent Common
Stock outstanding. In any case, the number of outstanding shares of Parent
Common Stock shall be determined after giving effect to the conversion or
exercise of securities into Parent Common Stock, including the Preferred
Stock, by the Holder or its affiliates since the date as of which such
number of outstanding shares of Parent Common Stock was reported.
(iii) Limitation on Number of Shares Issuable. Notwithstanding
anything herein to the contrary, the Corporation shall not issue to any
Holder any shares of Parent Common Stock, including pursuant to any rights
herein, including, without limitation, any conversion rights or right to
issue shares of Common Stock in payment of dividends, to the extent such
shares, when added to the number of shares of Parent Common Stock issued or
issuable (A) upon conversion of any shares of Preferred Stock pursuant to
Section 5(a)(i) and (B) upon exercise of those certain warrants issued
pursuant to that certain Securities Purchase Agreement would exceed
2,479,327 [19.999% of the Parent's outstanding Parent Common Stock
immediately prior to the Closing Date], or such greater or lesser number of
shares of Parent Common Stock permitted pursuant to the corporate
governance rules of the Nasdaq Stock Market Inc. or other Principal Market
that is at the time the principal trading exchange or market for the Parent
Common Stock, based upon share volume, as confirmed in writing by counsel
to the Parent (the "Maximum Aggregate Share Amount"), unless the Parent
------------------------------
first obtains shareholder approval permitting such issuances in accordance
with Nasdaq Stock Market Inc. rules or other Principal Market rules
("Shareholder Approval"). Each Holder shall be entitled to a portion of the
--------------------
Maximum Aggregate Share Amount equal to the quotient obtained by dividing
(x) such the number of shares of Preferred Stock initially purchased by
such Holder by (y) the aggregate number of shares purchased by all Holders.
Such portions shall be adjusted upward ratably in the event all of the
shares of Preferred Stock of any Holder are no longer outstanding. If at
any time the number of shares of Parent Common Stock which could,
notwithstanding the limitation set forth herein, be issuable and sold to
all Holders during the following 12 months (assuming all dividends are paid
in shares of Parent Common Stock during such period of determination)
equals or exceeds the Maximum Aggregate Share Amount, then the Preferred
Stock shall thereafter only be convertible into Corporation Common Stock.
(b) (i) Not later than five Trading Days after each Conversion Date (the
"Share Delivery Date"), the Corporation shall deliver to the Holder (A) a
---------------------
certificate or certificates which, after the Effective Date, shall be free
of restrictive legends and trading restrictions (other than those required
by Section 4.1 of the Purchase Agreement) representing the number of shares
of Corporation Common Stock or Parent Common Stock being acquired upon the
conversion of shares of Preferred Stock, and (B) a bank check in the amount
of accrued and unpaid dividends (if the Corporation is required to pay
accrued dividends in cash). After the Effective Date, the Corporation
shall, upon request of the Holder, deliver any certificate or certificates
required to be delivered by the Corporation under this Section which
represent Parent Common Stock electronically through the Depository Trust
Corporation or another established clearing corporation performing similar
functions. If in the case of any Conversion Notice such certificate or
certificates are not delivered to or as directed by the applicable Holder
by the fifth Trading Day after the Conversion Date, the Holder shall be
entitled to elect by written notice to the Corporation at any time on or
before its receipt of such certificate or certificates thereafter, to
rescind such conversion, in which event the Corporation shall immediately
return the certificates representing the shares of Preferred Stock tendered
for conversion.
(ii) The Corporation's obligations to issue and deliver the Conversion
Shares (whether of Corporation Common Stock or Parent Common Stock) upon
conversion and redemption of Preferred Stock in accordance with the terms
hereof are absolute and unconditional, irrespective of any action or
inaction by the Holder to enforce the same, any waiver or consent with
respect to any provision hereof, the recovery of any judgment against any
Person or any action to enforce the same, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by
the Holder or any other Person of any obligation to the Corporation or any
violation or alleged violation of law by the Holder or any other person,
and irrespective of any other circumstance which might otherwise limit such
obligation of the Corporation to the Holder in connection with the issuance
of such Conversion Shares. If the Corporation fails to deliver to the
Holder such certificate or certificates pursuant to Section 5(b)(i) by the
Share Delivery Date applicable to such conversion, the Corporation shall
pay to such Holder, in cash, as liquidated damages and not as a penalty,
for each $5,000 of Stated Value of Preferred Stock being converted, $50 per
Trading Day (increasing to $100 per Trading Day after 3 Trading Days and
increasing to $200 per Trading Day 6 Trading Days after such damages begin
to accrue) for each Trading Day after the Share Delivery Date until such
certificates are delivered. Nothing herein shall limit a Holder's right to
pursue actual damages for the Corporation's failure to deliver certificates
representing shares of Corporation Common Stock or Parent Common Stock, as
applicable, upon conversion within the period specified herein and such
Holder shall have the right to pursue all remedies available to it
hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief.
(iii) If the Corporation fails to deliver to the Holder such
certificate or certificates pursuant to Section 5(b)(i) by a Share Delivery
Date, and if after such Share Delivery Date the Holder purchases (in an
open market transaction or otherwise) Parent Common Stock to deliver in
satisfaction of a sale by such Holder of the Conversion Shares which the
Holder was entitled to receive upon the conversion relating to such Share
Delivery Date (a "Buy-In"), then the Corporation shall pay in cash to the
------
Holder the amount by which (x) the Holder's total purchase price (including
brokerage commissions, if any) for the Parent Common Stock so purchased
exceeds (y) the product of (1) the aggregate number of shares of Parent
Common Stock that such Holder was entitled to receive from the conversion
at issue multiplied by (2) the price at which the sell order giving rise to
such purchase obligation was executed. For example, if the Holder purchases
Parent Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted conversion of shares of Preferred Stock
with respect to which the aggregate sale price giving rise to such purchase
obligation is $10,000, under clause (A) of the immediately preceding
sentence the Corporation shall be required to pay the Holder $1,000. The
Holder shall provide the Corporation written notice indicating the amounts
payable to the Holder in respect of the Buy-In, together with applicable
confirmations and other evidence reasonably requested by the Corporation.
Nothing herein shall limit a Holder's right to pursue any other remedies
available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with
respect to the Corporation's failure to timely deliver certificates
representing shares of Parent Common Stock or Corporation Common Stock upon
conversion of the shares of Preferred Stock as required pursuant to the
terms hereof.
(c) (i) The conversion price for each share of Preferred Stock into Parent
Common Stock shall be 90% of the average of the 5 VWAPs immediately prior
to the Conversion Date (but in no event less than $1.50, as adjusted for
any stock splits or similar capital events subsequent to the Original Issue
Date), or in shares of the Corporation Common Stock which shall be valued
at $3.00 per share (the "Set Price"), subject to adjustment as set forth
---------
below.
(ii) if the Corporation, at any time while the Preferred Stock is
outstanding: (A) shall pay a stock dividend or otherwise make a
distribution or distributions on shares of its Corporation Common Stock or
any other equity or equity equivalent securities payable in shares of
Corporation Common Stock, (B) subdivide outstanding shares of Corporation
Common Stock into a larger number of shares, (C) combine (including by way
of reverse stock split) outstanding shares of Corporation Common Stock into
a smaller number of shares, or (D) issue by reclassification of shares of
the Corporation Common Stock any shares of capital stock of the
Corporation, then the Set Price shall be multiplied by a fraction of which
the numerator shall be the number of shares of Corporation Common Stock
Outstanding before such event and of which the denominator shall be the
number of shares of Corporation Common Stock Outstanding after such event.
Any adjustment made pursuant to this Section shall become effective
immediately after the record date for the determination of stockholders
entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a
subdivision, combination or reclassification.
(iii) if the Corporation, at any time while the Preferred Stock is
outstanding, shall issue rights, options or warrants to all holders of
Corporation Common Stock (and not to Holders) entitling them to subscribe
for or purchase shares of Corporation Common Stock at a price per share
less than the Set Price at the record date mentioned below, then the Set
Price shall be multiplied by a fraction, of which the denominator shall be
the number of shares of the Corporation Common Stock Outstanding on the
date of issuance of such rights or warrants plus the number of additional
shares of Corporation Common Stock offered for subscription or purchase,
and of which the numerator shall be the number of shares of the Corporation
Common Stock Outstanding on the date of issuance of such rights or warrants
plus the number of shares which the aggregate offering price of the total
number of shares so offered (assuming receipt by the Corporation in full of
all consideration payable upon exercise of such rights, options or
warrants) would purchase at the Set Price. Such adjustment shall be made
whenever such rights or warrants are issued, and shall become effective
immediately after the record date for the determination of stockholders
entitled to receive such rights, options or warrants.
(iv) if the Corporation or any subsidiary thereof at any time while
the Preferred Stock is outstanding, shall offer, sell, grant any option or
warrant to purchase or offer, sell or grant any right to reprice its
securities, or otherwise dispose of or issue any Corporation Common Stock
or any equity or equity equivalent securities (including any equity, debt
or other instrument that is at any time over the life thereof convertible
into or exchangeable for Corporation Common Stock) (collectively, "Common
------
Stock Equivalents") entitling any Person to acquire shares of Corporation
------------------
Common Stock, at an effective price per share less than the Set Price (a
"Dilutive Issuance"), as adjusted hereunder (if the holder of the
------------------
Corporation Common Stock or Common Stock Equivalent so issued shall at any
time, whether by operation of purchase price adjustments, reset provisions,
floating conversion, exercise or exchange prices or otherwise, or due to
warrants, options or rights per share which are issued in connection with
such issuance, be entitled to receive shares of Corporation Common Stock at
a price per share which is less than the Set Price, such issuance shall be
deemed to have occurred for less than the Set Price), then (A) from the
Original Issue Date until the 30th day following the Effective Date (if the
Registration Statement is unavailable for use by the Holder during such
period, such period shall be extended for such number of unavailable days),
the Set Price shall be reduced to equal the effective conversion, exchange
or purchase price for such Corporation Common Stock or Common Stock
Equivalents (including any reset provisions thereof), at issue and (B)
after 30th day following the Effective Date (as extended in clause (A)
above), the Set Price shall be reduced by multiplying the Set Price by a
fraction, the numerator of which is the number of shares of Corporation
Common Stock Outstanding immediately prior to the Dilutive Issuance plus
the number of shares of Corporation Common Stock which the offering price
for such Dilutive Issuance would purchase at the Set Price, and the
denominator of which shall be the sum of the number of shares of
Corporation Common Stock Outstanding immediately prior to the Dilutive
Issuance plus the number of shares of Corporation Common Stock so issued or
issuable in connection with the Dilutive Issuance. Such adjustment shall be
made whenever such Corporation Common Stock or Common Stock Equivalents are
issued. The Corporation shall notify the Holder in writing, no later than
the Business Day following the issuance of any Corporation Common Stock or
Common Stock Equivalent subject to this section, indicating therein the
applicable issuance price, or of applicable reset price, exchange price,
conversion price and other pricing terms.
(v) if the Corporation, at any time while the Preferred Stock is
outstanding, shall distribute to all holders of Corporation Common Stock
(and not to Holders) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security other than the
Corporation Common Stock (which shall be subject to Section 5(c)(iii), then
in each such case the Set Price shall be adjusted by multiplying the Set
Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the Set Price determined as of
the record date mentioned above, and of which the numerator shall be such
Set Price on such record date less the then per share fair market value at
such record date of the portion of such assets or evidence of indebtedness
so distributed applicable to one outstanding share of the Corporation
Common Stock as determined by the Board of Directors in good faith. In
either case the adjustments shall be described in a statement provided to
the Holders of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of
Corporation Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the
record date mentioned above.
(vi) All calculations under this Section 5(c) shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be. The
number of shares of Corporation Common Stock outstanding at any given time
shall not include shares owned or held by or for the account of the
Corporation, and the disposition of any such shares shall be considered an
issue or sale of Corporation Common Stock. For purposes of this Section
5(c), the number of shares of Corporation Common Stock deemed to be
outstanding (the "Corporation Common Stock Outstanding") as of a given date
------------------------------------
shall be the sum of the number of shares of Corporation Common Stock
(excluding treasury shares, if any) issued and outstanding.
(vii) Notwithstanding anything to the contrary herein, no adjustment
shall be made hereunder in connection with the following (a) the granting
or issuance of shares of Corporation Common Stock or options to employees,
officers and directors of the Corporation pursuant to any stock option plan
or employee incentive plan or agreement duly adopted or approved by a
majority of the non-employee members of the Board of Directors of the
Corporation or a majority of the members of a committee of non-employee
directors established for such purpose, (b) the conversion or exercise of
any Preferred Stock or any other security issued by the Corporation in
connection with the offer and sale of this Corporation's securities
pursuant to this Agreement, (c) the exercise of or conversion of any
convertible securities, options or warrants issued and outstanding on the
date hereof, provided that such securities have not been amended since the
date hereof, or (d) acquisitions or strategic investments, the primary
purpose of which is not to raise capital.
(viii) Whenever the Set Price is adjusted pursuant to this Section the
Corporation shall promptly mail to each Holder, a notice setting forth the
Set Price after such adjustment and setting forth a brief statement of the
facts requiring such adjustment.
(d) Mandatory Conversion. Any shares of Preferred Stock which have not been
converted or redeemed on the second year anniversary of the Original Issue
Date shall be automatically converted into shares of Corporation Common
Stock at the Set Price then in effect.
Section 6. [Intentionally Omitted].
Section 7. Redemption Upon Triggering Events.
------------------------------------
(a) Upon the occurrence of a Triggering Event, each Holder shall (in
addition to all other rights it may have hereunder or under applicable law)
have the right, exercisable at the sole option of such Holder, to require
the Corporation to redeem all of the Preferred Stock then held by such
Holder for a redemption price, in cash, equal to the Triggering Redemption
Amount. The Triggering Redemption Amount, in cash shall be due and payable
within 5 Trading Days of the date on which the notice for the payment
therefore is provided by a Holder (the "Triggering Redemption Payment
-----------------------------
Date"). If the Corporation fails to pay the Triggering Redemption Amount
----
hereunder in full pursuant to this Section on the date such amount is due
in accordance with this Section, the Corporation will pay interest thereon
at a rate of 18% per annum (or such lesser amount permitted by applicable
law), accruing daily from such date until the Triggering Redemption Amount,
plus all such interest thereon, is paid in full. For purposes of this
Section, a share of Preferred Stock is outstanding until such date as the
Holder shall have received Conversion Shares upon a conversion (or
attempted conversion) thereof that meets the requirements hereof or has
been paid the Triggering Redemption Amount plus all accrued but unpaid
dividends and all accrued but unpaid liquidated damages in cash.
(b) "Triggering Event" means any one or more of the following events
-----------------
(whatever the reason and whether it shall be voluntary or involuntary or
effected by operation of law or pursuant to any judgment, decree or order
of any court, or any order, rule or regulation of any administrative or
governmental body):
(i) the failure of the Registration Statement to be declared effective
by the Commission on or prior to the 210th day after the Original Issue
Date;
(ii) if, during the Effectiveness Period, the effectiveness of the
Registration Statement lapses for any reason for more than an aggregate of
60 calendar days (which need not be consecutive days) during any 12 month
period, or the Holder shall not be permitted to resell Registrable
Securities under the Conversion Shares Registration Statement for more than
an aggregate of 60 calendar days (which need not be consecutive days)
during any 12 month period;
(iii) the Corporation shall fail to deliver certificates representing
Conversion Shares issuable upon a conversion hereunder that comply with the
provisions hereof prior to the 10th Trading Day after such shares are
required to be delivered hereunder, or the Corporation shall provide
written notice to any Holder, including by way of public announcement, at
any time, of its intention not to comply with requests for conversion of
any shares of Preferred Stock in accordance with the terms hereof;
(iv) one of the Events (as defined in the Registration Rights
Agreement) described in subsections (i), (ii) or (iii) of Section 2(c) of
the Registration Rights Agreement shall not have been cured to the
satisfaction of the Holders prior to the expiration of 30 days from the
Event Date (as defined in the Registration Rights Agreement) relating
thereto (other than an Event resulting from a failure of an Registration
Statement to be declared effective by the Commission on or prior to the
210th day after the Original Issue Date, which shall be covered by Section
7(b)(i));
(v) the Corporation shall fail for any reason to pay in full the
amount of cash due pursuant to a Buy-In within 10 days after notice
therefor is delivered hereunder or shall fail to pay all amounts owed on
account of an Event within five days of the date due;
(vi) the Corporation shall fail to have available a sufficient number
of authorized and unreserved shares of Corporation Common Stock or Parent
Common Stock to issue to such Holder upon a conversion hereunder;
(vii) the Corporation shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any
breach of the Transaction Documents, and such failure or breach shall not,
if subject to the possibility of a cure by the Corporation, have been
remedied within 30 calendar days after the date on which written notice of
such failure or breach shall have been given;
(ix) The occurrence of a Change of Control Transaction or the
Corporation shall redeem more than a de minimis number of Junior
Securities;
(x) there shall have occurred a Bankruptcy Event; or
(xi) the Common Stock shall fail to be listed or quoted for trading on
a Principal Market for more than 5 consecutive Trading Days.
Section 8. Definitions. For the purposes hereof, the following terms shall
-----------
have the following meanings:
"Bankruptcy Event" means any of the following events: (a) the Corporation,
-----------------
Parent or any Significant Subsidiary (as such term is defined in Rule
1.02(s) of Regulation S-X) thereof commences a case or other proceeding
under any bankruptcy, reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law of
any jurisdiction relating to the Corporation or any Significant Subsidiary
thereof; (b) there is commenced against the Corporation, Parent or any
Significant Subsidiary thereof any such case or proceeding that is not
dismissed within 60 days after commencement; (c) the Corporation, Parent or
any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or
any order of relief or other order approving any such case or proceeding is
entered; (d) the Corporation, Parent or any Significant Subsidiary thereof
suffers any appointment of any custodian or the like for it or any
substantial part of its property that is not discharged or stayed within 60
days; (e) the Corporation, Parent or any Significant Subsidiary thereof
makes a general assignment for the benefit of creditors; (f) the
Corporation, Parent or any Significant Subsidiary thereof calls a meeting
of its creditors with a view to arranging a composition, adjustment or
restructuring of its debts; or (g) the Corporation, Parent or any
Significant Subsidiary thereof, by any act or failure to act, expressly
indicates its consent to, approval of or acquiescence in any of the
foregoing or takes any corporate or other action for the purpose of
effecting any of the foregoing.
"Change of Control Transaction" means the occurrence after the date hereof of
--------------------------------
any of (a) an acquisition after the date hereof by an individual or legal
entity or "group" (as described in Rule 13d-5(b)(1) promulgated under the
Exchange Act) of effective control (whether through legal or beneficial
ownership of capital stock of the Corporation or Parent, by contract or
otherwise) of in excess of 33% of the voting securities of the Corporation
(other than by Parent) or Parent, or (b) a replacement at one time or
within a one year period of more than one-half of the members of the
Corporation's or Parent's board of directors which is not approved by a
majority of those individuals who are members of the board of directors on
the date hereof (or by those individuals who are serving as members of the
board of directors on any date whose nomination to the board of directors
was approved by a majority of the members of the board of directors who are
members on the date hereof), or (c) the execution by the Corporation or
Parent of an agreement to which the Corporation or Parent is a party or by
which it is bound, providing for any of the events set forth above in (a)
or (b).
"Closing" means closing of the purchase and sale of the Preferred Stock.
-------
"Commission" means the Securities and Exchange Commission.
----------
"Conversion Amount" means the sum of the Stated Value at issue.
------------------
"Conversion Date" shall have the meaning set forth in Section 5(b)(i).
----------------
"Conversion Shares" means, collectively, the shares of Corporation Common Stock
------------------
or Parent Common Stock into which the shares of Preferred Stock are
convertible (and issuable in lieu of cash dividends) in accordance with the
terms hereof.
"Corporation Common Stock" means the Corporation's Common Stock, and stock of
--------------------------
any other class into which such shares may hereafter have been reclassified
or changed.
"Corporation Common Stock Outstanding" shall have the meaning set forth in
---------------------------------------
Section 5(c)(vi).
"Dividend Payment Date" shall have the meaning set forth in Section 2(a).
-----------------------
"Effective Date" means the date that the Registration Statement is declared
---------------
effective by the Commission.
"Equity Conditions" Unless waived by a Holder as to a particular event (which
------------------
waiver shall apply only to such Holder), as of such event date, the
following conditions have been met: (i) the Corporation shall have duly
honored all conversions and redemptions scheduled to occur or occurring
prior to such date, (ii) there is an effective Registration Statement
pursuant to which the Holders are permitted to utilize the prospectus
thereunder to resell all of the Parent Conversion Shares issued to the
Holders and all of the Parent Conversion Shares as are issuable to the
Holders upon conversion in full of the Preferred Stock (and the Corporation
believes, in good faith, that such effectiveness will continue
uninterrupted for the foreseeable future), (iii) the Parent Common Stock is
listed for trading on the Principal Market (and the Corporation believes,
in good faith, that trading of the Parent Common Stock on the Principal
Market will continue uninterrupted for the foreseeable future), (iv) all
liquidated damages and other amounts owing in respect of the Preferred
Stock shall have been paid or will, concurrently with the issuance of the
Conversion Shares, be paid in cash; (v) there is a sufficient number of
authorized but unissued and otherwise unreserved shares of Parent Common
Stock and Corporation Common Stock for the issuance of all the Conversion
Shares as are issuable to the Holder upon conversion in full of the
Preferred Stock; (vi) no Triggering Event has occurred and is continuing;
(vii) all of the Parent Conversion Shares issuable to the Holder upon
conversion in full of the Preferred Stock will not violate the limitations
set forth in Sections 5(a)(ii) and (iii); (viii) the average of the 5 VWAPs
immediately prior to the date in question is greater than $1.67, as
adjusted for any stock splits or similar capital events subsequent to the
Original Issue Date, and (ix) no public announcement of a pending or
proposed Fundamental Transaction or Change of Control Transaction has
occurred that has not been consummated.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
-------------
"Fundamental Transaction" means the occurrence after the date hereof of any of
------------------------
(a) the Corporation or Parent effects any merger or consolidation of the
Corporation with or into another Person, (b) the Corporation or Parent
effects any sale of all or substantially all of its assets in one or a
series of related transactions, (c) any tender offer or exchange offer
(whether by the Corporation, Parent or another Person) is completed
pursuant to which holders of Common Stock or Parent Common Stock, as the
case may be, are permitted to tender or exchange their shares for other
securities, cash or property, or (d) the Corporation or Parent effects any
reclassification of the Common Stock or Parent Common Stock, as the case
may be, or any compulsory share exchange pursuant to which the Common Stock
or Parent Common Stock, as the case may be, is effectively converted into
or exchanged for other securities, cash or property.
"Holder" shall have the meaning given such term in Section 1 hereof.
------
"Junior Securities" means the Common Stock and all other equity or equity
------------------
equivalent securities of the Corporation other than those securities that
are (a) outstanding on the Original Issue Date and (b) which are explicitly
senior in rights or liquidation preference to the Preferred Stock.
"Original Issue Date" shall mean the date of the first issuance of any shares of
-------------------
the Preferred Stock regardless of the number of transfers of any particular
shares of Preferred Stock and regardless of the number of certificates
which may be issued to evidence such Preferred Stock.
"Parent" means U.S. Energy Corp., a Wyoming corporation.
------
"Parent Common Stock" means the common stock of the Parent, and stock of any
other class into which such shares may hereafter have been reclassified or
changed.
"Parent Conversion Shares" means the shares of Parent Common Stock into which
--------------------------
the shares of Preferred Stock are convertible (and issuable in lieu of cash
dividends) in accordance with the terms hereof.
"Person" means a corporation, an association, a partnership, an organization, a
------
business, an individual, a government or political subdivision thereof or a
governmental agency.
"Principal Market" shall initially mean the Nasdaq Small-Cap Market and shall
-----------------
also include the New York Stock Exchange, the NASDAQ National Market, or
the American Stock Exchange, whichever is at the time the principal trading
exchange or market for the Parent Common Stock, based upon share volume.
"Purchase Agreement" means the Securities Purchase Agreement, dated as of
-------------------
February __, 2004, to which the Corporation, the Parent and the original
Holders are parties, as amended, modified or supplemented from time to time
in accordance with its terms.
"Registration Rights Agreement" means the Registration Rights Agreement, dated
-------------------------------
as of February __, 2004, to which the Parent and the original Holders are
parties, as amended, modified or supplemented from time to time in
accordance with its terms.
"Registration Statement" means a registration statement that meets the
-----------------------
requirements of the Registration Rights Agreement and registers the resale
of all Parent Conversion Shares by each Holder, who shall be named as a
"selling stockholder" thereunder, all as provided in the Registration
Rights Agreement.
"Securities Act" means the Securities Act of 1933, as amended.
---------------
"Set Price" shall have the meaning set forth in Section 5(c)(i).
---------
"Trading Day" shall mean any day during which the Principal Market shall be open
-----------
for business.
"Transaction Documents" shall mean the Purchase Agreement and all agreements
----------------------
entered into in connection therewith, including the Registration Rights
Agreement and the Warrants.
"Triggering Event" shall have the meaning set forth in Section 7(b).
-----------------
"Triggering Redemption Amount" for each share of Preferred Stock means the sum
------------------------------
of (i) the greater of (A) 130% of the Stated Value and (B) the product of
(a) the VWAP on the Trading Day immediately preceding the date of the
Triggering Event and (b) the Stated Value divided by the then Set Price as
it relates to Parent Conversion Shares, (ii) all accrued but unpaid
dividends thereon and (iii) all liquidated damages and other amounts due in
respect of the Preferred Stock.
"VWAP" means, for any date, the per share price of Parent Common Stock
----
determined by the first of the following clauses that applies: (a) if the
Parent Common Stock is then listed or quoted on a Principal Market, the
daily volume weighted average price of the Parent Common Stock for such
date (or the nearest preceding date) on the Principal Market on which the
Parent Common Stock is then listed or quoted as reported by Bloomberg
Financial L.P. (based on a trading day from 9:30 a.m. Eastern Time to 4:02
p.m. Eastern Time); (b) if the Parent Common Stock is not then listed or
quoted on a Principal Market and if prices for the Parent Common Stock are
then quoted on the OTC Bulletin Board, the volume weighted average price of
the Parent Common Stock for such date (or the nearest preceding date) on
the OTC Bulletin Board; (c) if the Parent Common Stock is not then listed
or quoted on the OTC Bulletin Board and if prices for the Parent Common
Stock are then reported in the "Pink Sheets" published by the National
Quotation Bureau Incorporated (or a similar organization or agency
succeeding to its functions of reporting prices), the most recent bid price
per share of the Parent Common Stock so reported; or (d) in all other
cases, the fair market value of a share of Parent Common Stock as
determined by an independent appraiser selected in good faith by the
Holders and reasonably acceptable to the Corporation.
Section 9. Fundamental Transactions and Change of Control Transactions. If
-----------------------------------------------------------
a Fundamental Transaction occurs, then upon any subsequent conversion of shares
of Preferred Stock, the Holder shall have the right to receive, for each
Conversion Share that would have been issuable upon such conversion absent such
Fundamental Transaction, the same kind and amount of securities, cash or
property as it would have been entitled to receive upon the occurrence of such
Fundamental Transaction if it had been, immediately prior to such Fundamental
Transaction, the holder of one share of either Parent Common Stock or
Corporation Common Stock, as the case may be (the "Alternate Consideration").
-----------------------
For purposes of any such conversion, the determination of the Set Price shall be
appropriately adjusted to apply to such Alternate Consideration based on the
amount of Alternate Consideration issuable in respect of one share of Parent
Common Stock or Corporation Common Stock in such Fundamental Transaction, and
the Corporation shall apportion the Set Price among the Alternate Consideration
in a reasonable manner reflecting the relative value of any different components
of the Alternate Consideration. If holders of Parent Common Stock or Corporation
Common Stock are given any choice as to the securities, cash or property to be
received in a Fundamental Transaction, then the Holder shall be given the same
choice as to the Alternate Consideration it receives upon any conversion of
shares of Preferred Stock following such Fundamental Transaction. To the extent
necessary to effectuate the foregoing provisions, any successor to the
Corporation or surviving entity in such Fundamental Transaction shall issue to
the Holder new preferred stock consistent with the foregoing provisions and
evidencing the Holder's right to convert such preferred stock into Alternate
Consideration. The terms of any agreement pursuant to which a Fundamental
Transaction is effected shall include terms requiring any such successor or
surviving entity to comply with the provisions of this Section 9 and insuring
that the Preferred Stock (or any such replacement security) will be similarly
adjusted upon any subsequent transaction analogous to a Fundamental Transaction.
Section 10. Miscellaneous.
-------------
(a) If (i) the Corporation shall declare a dividend (or any other
distribution) on the Corporation Common Stock, (ii) the Corporation shall
declare a special nonrecurring cash dividend on or a redemption of the
Corporation Common Stock, (iii) the Corporation shall authorize the
granting to all holders of Corporation Common Stock rights or warrants to
subscribe for or purchase any shares of capital stock of any class or of
any rights, (iv) the approval of any stockholders of the Corporation shall
be required in connection with any Fundamental Transaction or Change of
Control Transaction, or (v) the Corporation shall authorize the voluntary
or involuntary dissolution, liquidation or winding up of the affairs of the
Corporation; then the Corporation shall file a press release or Current
Report on Form 8-K to disclose such occurrence and notify the Holders at
their last addresses as they shall appear upon the stock books of the
Corporation, at least 20 calendar days prior to the applicable record or
effective date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be
taken, the date as of which the holders of Corporation Common Stock of
record to be entitled to such dividend, distributions, redemption, rights
or warrants are to be determined or (y) the date on which any such
Fundamental Transaction or Change of Control Transaction is expected to
become effective or close, and the date as of which it is expected that
holders of Corporation Common Stock of record shall be entitled to exchange
their Corporation Common Stock for securities, cash or other property
deliverable upon any such Fundamental Transaction or Change of Control
Transaction. Holders are entitled to convert the Conversion Amount of
Preferred Stock during the 20-day period commencing the date of such notice
to the effective date of the event triggering such notice.
(b) The Corporation covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of Corporation Common
Stock solely for the purpose of issuance upon conversion of Preferred
Stock, each as herein provided, free from preemptive rights or any other
actual contingent purchase rights of persons other than the Holders, not
less than such number of shares of Corporation Common Stock as shall be
issuable upon the conversion of all outstanding shares of Preferred Stock.
The Corporation covenants that all shares of Corporation Common Stock that
shall be so issuable shall, upon issue, be duly and validly authorized,
issued and fully paid and nonassessable.
(c) Upon a conversion hereunder the Corporation shall not be required to
issue stock certificates representing fractions of shares of Corporation or
Parent Common Stock, but may if otherwise permitted, make a cash payment in
respect of any final fraction of a share based on the fair market value at
such time.
(d) The issuance of certificates for Parent or Corporation Common Stock on
conversion of Preferred Stock shall be made without charge to the Holders
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the
Corporation shall not be required to pay any tax that may be payable in
respect of any transfer involved in the issuance and delivery of any such
certificate upon conversion in a name other than that of the Holder of such
shares of Preferred Stock so converted.
(e) To effect conversions or redemptions, as the case may be, of shares of
Preferred Stock, a Holder shall not be required to surrender the
certificate(s) representing such shares of Preferred Stock to the
Corporation unless all of the shares of Preferred Stock represented thereby
are so converted, in which case the Holder shall deliver the certificate
representing such share of Preferred Stock promptly following the
Conversion Date at issue. Shares of Preferred Stock converted into Parent
or Corporation Common Stock or redeemed in accordance with the terms hereof
shall be canceled and may not be reissued.
(f) Any and all notices or other communications or deliveries to be
provided by the Holders of the Preferred Stock hereunder, including,
without limitation, any Conversion Notice, shall be in writing and
delivered personally, by facsimile or sent by a nationally recognized
overnight courier service, addressed to the attention of the Chief
Financial Officer of the Corporation addressed to Robert Scot Lorimer Fax
Number: (307) 857-3050 or to such other address or facsimile number as
shall be specified in writing by the Corporation for such purpose. Any and
all notices or other communications or deliveries to be provided by the
Corporation hereunder shall be in writing and delivered personally, by
facsimile or sent by a nationally recognized overnight courier service,
addressed to each Holder at the facsimile telephone number or address of
such Holder appearing on the books of the Corporation, which address shall
initially be the address of such Holder set forth on the signature pages of
the Purchase Agreement, or such other address as the Corporation or a
Holder may designate by ten days advance written notice to the other
parties hereto. Any notice or other communication or deliveries hereunder
shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at
the facsimile telephone number specified in this Section prior to 6:30 p.m.
(New York City time) (with confirmation of transmission), (ii) the date
after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section later than 6:30 p.m. (New York City time) on any date and earlier
than 11:59 p.m. (New York City time) on such date (with confirmation of
transmission), (iii) five days after having been sent by registered or
certified mail, return receipt requested, postage prepaid, (iv) one day
after deposit with a nationally recognized overnight courier service,
specifying next day delivery, with written verification of service, or (v)
upon actual receipt by the party to whom such notice is required to be
given.
(g) For purposes hereof, a share of Preferred Stock is outstanding until
such date as the Holder shall have received the Conversion Shares or
redemption amount (as the case may be) issuable or payable to it in
accordance with this Articles of Amendment.
This Amendment was adopted on February 25, 2004 and is effective on February 25,
2004.
This Amendment was duly adopted by the Board of Directors of Rocky Mountain Gas,
Inc.
Dated: February 25, 2004.
-----------
- ------------------------------------ -----------------------------
Name: Keith G. Larsen
Title: Chief Executive Officer
ANNEX A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert shares of Preferred
Stock)
The undersigned hereby elects to convert the number of shares of 10% Series A
Convertible Preferred Stock indicated below, into shares of common stock of (the
"Common Stock"), of
-------------
/_/ U.S Energy Corporation, a Wyoming corporation
/_/ Rocky Mountain Gas, Inc., a Wyoming Corporation
according to the conditions hereof, as of the date written below. If shares are
to be issued in the name of a person other than undersigned, the undersigned
will pay all transfer taxes payable with respect thereto and is delivering
herewith such certificates and opinions as reasonably requested by the issuing
corporation in accordance therewith. No fee will be charged to the Holder for
any conversion, except for such transfer taxes, if any.
Conversion calculations:
Date to Effect Conversion
-----------------------------------------
Number of shares of Preferred Stock owned prior to Conversion
-----------------------------------------
Number of shares of Preferred Stock to be Converted
-----------------------------------------
Stated Value of shares of Preferred Stock to be Converted
-----------------------------------------
Number of Conversion Shares to be Issued
-----------------------------------------
Applicable Set Price
-----------------------------------------
Number of shares of Preferred Stock subsequent to Conversion
-----------------------------------------
[HOLDER]
By:_______________________
Name:
Title: