EXHIBIT 3(i)1(a)
CERTIFICATE OF DESIGNATIONS, PREFERENCES, AND RIGHTS
of
SERIES A CONVERTIBLE PREFERRED STOCK
of
SABA PETROLEUM COMPANY
(Pursuant to Section 151 of the
Delaware General Corporation Law)
Saba Petroleum Company, a corporation organized and existing under the
Delaware General Corporation Law (the "Corporation"), hereby certifies that the
following resolutions were adopted by the Executive Committee of the Board of
Directors of the Corporation on December 29, 1997 pursuant to authority of the
Board of Directors as required by Section 151(g) of the Delaware General
Corporation Law:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (the "Board of Directors" or the "Board")
in accordance with the provisions of its Certificate of Incorporation, the Board
of Directors hereby authorizes a series of the Corporation's previously
authorized Preferred Stock, par value $0.001 per share (the "Preferred Stock"),
and hereby states the designation and number of shares, and fixes the relative
rights, preferences, privileges, powers and restrictions thereof as follows:
Series A Convertible Preferred Stock:
I. Designation and Amount
The designation of this series, which consists of 10,000 shares of
Preferred Stock, is Series A Convertible Preferred Stock, par value $0.001 per
share (the "Series A Preferred Stock") and the stated value shall be One
Thousand Dollars ($1,000) per share (the "Stated Value").
II. Rank
The Series A Preferred Stock shall rank (i) prior to the
Corporation's common stock, par value $.001 per share (the "Common Stock"); (ii)
prior to any class or series of capital stock of the Corporation hereafter
created (unless, with the consent of the holders of Series A Preferred Stock
obtained in accordance with Article IX hereof, such class or series of capital
stock specifically, by its terms, ranks senior to or pari passu with the Series
A Preferred Stock) (collectively, with the Common Stock, AJunior Securities@);
(iii) pari passu with any class or series of capital stock of the Corporation
hereafter created (with the consent of the holders of Series A Preferred Stock
obtained in accordance with Article IX hereof) specifically ranking, by its
terms, on parity with the Series A Preferred Stock (APari Passu Securities@);
and (iv) junior to any class or series of capital stock of the Corporation
hereafter created (with the consent of the holders of Series A Preferred Stock
obtained in accordance with Article IX hereof) specifically ranking, by its
terms, senior to the Series A Preferred Stock (ASenior Securities@), in each
case as to distribution of assets upon liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary. The term Junior Securities
shall not include the Company's 9% Convertible Senior Subordinated Debentures
due December 15, 2005.
III. Dividends
The Series A Preferred Stock shall be entitled to cumulative
dividends at the rate of 6% per annum from the date of issuance of the Series A
Preferred Stock (the "Issue Date"), payable quarterly on March 31, June 30,
September 30 and December 31 (each, a "Dividend Payment Date") to the holders of
the Series A Preferred Stock. Dividends shall accrue daily from the Issue Date
whether or not such dividends are declared by the Board of Directors and until
actually paid to the holders of the Series A Preferred Stock. Accrued and unpaid
dividends shall be payable to each holder of the Series A Preferred Stock in
cash, in whole, but not in part, on the applicable Dividend Payment Date or, at
the sole option of the Corporation, shall be added to the Conversion Amount (as
defined in Article VI.A.) in accordance with Article VI.A. In no event, so long
as any Series A Preferred Stock shall remain outstanding, shall any dividend
whatsoever be declared or paid upon, nor shall any distribution be made upon,
any Junior Securities, nor shall any shares of Junior Securities be purchased or
redeemed by the Corporation nor shall any moneys be paid to or made available
for a sinking fund for the purchase or redemption of any Junior Securities
(other than a distribution of Junior Securities), without, in each such case,
the written consent of the holders of a majority of the outstanding shares of
Series A Preferred Stock, voting together as a class.
IV. Liquidation Preference
A. If the Corporation shall commence a voluntary case under
the Federal bankruptcy laws or any other applicable Federal or State bankruptcy,
insolvency or similar law, or consent to the entry of an order for relief in an
involuntary case under any law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the
Corporation or of any substantial part of its property, or make an assignment
for the benefit of its creditors, or admit in writing its inability to pay its
debts generally as they become due, or if a decree or order for relief in
respect of the Corporation shall be entered by a court having jurisdiction in
the premises in an involuntary case under the Federal bankruptcy laws or any
other applicable Federal or state bankruptcy, insolvency or similar law
resulting in the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of forty-five (45) consecutive days and, on account of any such event,
the Corporation shall liquidate, dissolve or wind up, or if the Corporation
shall otherwise liquidate, dissolve or wind up (each such event being considered
a "Liquidation Event"), no distribution shall be made to the holders of any
shares of capital stock of the Corporation (other than Senior Securities) upon
liquidation, dissolution or winding up unless prior thereto, the holders of
shares of Series A Preferred Stock, subject to Article VI, shall have received
the Liquidation Preference (as defined in Article IV.C) with respect to each
share. If upon the occurrence of a Liquidation Event, the assets and funds
available for distribution among the holders of the Series A Preferred Stock and
holders of Pari Passu Securities (including any dividends or distribution paid
on any Pari Passu Securities after the date of filing of this Certificate of
Designation) shall be insufficient to permit the payment to such holders of the
preferential amounts payable thereon, then the entire assets and funds of the
Corporation legally available for distribution to the Series A Preferred Stock
and the Pari Passu Securities shall be distributed ratably among such shares in
proportion to the ratio that the Liquidation Preference payable on each such
share bears to the aggregate liquidation preference payable on all such shares.
Any prior dividends or distribution made after the date of filing of this
Certificate of Designation shall offset, dollar for dollar, the amount payable
to the class or series to which such distribution was made.
B. At the option of any holder of Series A Preferred Stock,
the sale, conveyance or disposition of all or substantially all of the assets of
the Corporation, the effectuation by the Corporation of a transaction or series
of related transactions in which more than 50% of the voting power of the
Corporation is disposed of, or the consolidation, merger or other business
combination of the Corporation with or into any other Person (as defined below)
or Persons when the Corporation is not the survivor shall either: (i) be deemed
to be a liquidation, dissolution or winding up of the Corporation pursuant to
which the Corporation shall be required to distribute upon consummation of such
transaction an amount equal to 115% of the Liquidation Preference with respect
to each outstanding share of Series A Preferred Stock in accordance with and
subject to the terms of this Article IV or (ii) be treated pursuant to Article
VI.C(b) hereof. "Person" shall mean any individual, corporation, limited
liability company, partnership, association, trust or other entity or
organization.
C. For purposes hereof, the "Liquidation Preference" with
respect to a share of the Series A Preferred Stock shall mean an amount equal to
the sum of (i) the Stated Value thereof plus (ii) all accrued and unpaid
dividends for the period beginning on the Issue Date and ending on the date of
final distribution to the holder thereof (prorated for any portion of such
period). The liquidation preference with respect to any Pari Passu Securities
shall be as set forth in the Certificate of Designation filed in respect
thereof.
V. Redemption
A. If any of the following events (each, a "Mandatory
Redemption Event") shall occur:
(i) The Corporation fails to issue shares of
Common Stock to the holders of Series
A Preferred Stock upon exercise by the holders of their conversion rights in
accordance with the terms of this Certificate of Designation (for a period of at
least sixty (60) days if such failure is solely as a result of the circumstances
governed by the second paragraph of Article VI.F below and the Corporation is
using all commercially reasonable efforts to authorize a sufficient number of
shares of Common Stock as soon as practicable), fails to transfer or to cause
its transfer agent to transfer (electronically or in certificated form) any
certificate for shares of Common Stock issued to the holders upon conversion of
the Series A Preferred Stock as and when required by this Certificate of
Designation or the Registration Rights Agreement, dated as of December 31, 1997,
by and among the Corporation and the other signatories thereto (the
"Registration Rights Agreement"), fails to remove any restrictive legend (or to
withdraw any stop transfer instructions in respect thereof) on any certificate
or any shares of Common Stock issued to the holders of Series A Preferred Stock
upon conversion of the Series A Preferred Stock as and when required by this
Certificate of Designation, the Securities Purchase Agreement dated as of
December 31, 1997, by and between the Corporation and the other signatories
thereto (the "Purchase Agreement") or the Registration Rights Agreement, or
fails to fulfill its obligations pursuant to Sections 4(c), 4(e), 4(h), 4(i),
4(j) or 5 of the Purchase Agreement (or makes any announcement, statement or
threat that it does not intend to honor the obligations described in this
paragraph) and any such failure shall continue uncured (or any announcement,
statement or threat not to honor its obligations shall not be rescinded in
writing) for ten (10) business days;
(ii) The Corporation fails to obtain
effectiveness with the Securities and Exchange
Commission (the "SEC") of the Registration Statement (as defined in the
Registration Rights Agreement) prior to June 28, 1998 (plus any days for which
the delay of such effectiveness is primarily attributable to changes required by
the holders of the Series A Preferred Stock with respect to information relating
to such holders) or such Registration Statement lapses in effect (or sales
otherwise cannot be made thereunder, whether by reason of the Company's failure
to amend or supplement the prospectus included therein in accordance with the
Registration Rights Agreement or otherwise but excluding any act or omission by
the holders) for more than thirty (30) consecutive days or sixty (60) days in
any twelve (12) month period after such Registration Statement becomes
effective;
(iii) The Corporation shall make an assignment
for the benefit of creditors, or
apply for or consent to the appointment of a receiver or trustee for it or for
all or substantially all of its property or business; or such a receiver or
trustee shall otherwise be appointed;
(iv) Bankruptcy, insolvency, reorganization or
liquidation proceedings or other
proceedings for relief under any bankruptcy law or any law for the relief of
debtors shall be instituted by or against the Corporation or any subsidiary of
the Corporation; provided, however, that in the case of any involuntary
bankruptcy, such involuntary bankruptcy shall continue undischarged or
undismissed for a period of forty-five (45) days;
(v) The Corporation shall fail to maintain the
listing of the Common Stock on the
Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock Exchange
or the American Stock Exchange ("AMEX") and such failure shall remain uncured
for at least ten (10) days,
then, upon the occurrence and during the continuation of any Mandatory
Redemption Event specified in subparagraphs (i), (ii) or (v) at the option of
the holders of at least 50% of the then outstanding shares of Series A Preferred
Stock by written notice (the "Mandatory Redemption Notice") to the Corporation
of such Mandatory Redemption Event, or upon the occurrence of any Mandatory
Redemption Event specified in subparagraphs (iii) or (iv), the Corporation shall
purchase each holder=s shares of Series A Preferred Stock for an amount per
share equal to the greater of (1) the sum of (a) 115% multiplied by the Stated
Value of the shares to be redeemed plus (b) all accrued unpaid dividends for the
period beginning on the Issue Date and ending on the date of payment of the
Mandatory Redemption Amount (the "Mandatory Redemption Date") (prorated for any
portion of such period), and (2) the "parity value" of the shares to be
redeemed, where parity value means the product of (a) the number of shares of
Common Stock issuable upon conversion of such shares in accordance with Article
VI below (without giving any effect to any limitations or conversions of shares
set forth in Article VI.A(b) below, and treating the Trading Day (as defined in
Article VI.B.) immediately preceding the Mandatory Redemption Date as the
"Conversion Date" (as defined in Article VI.B(a)) unless the Mandatory
Redemption Event arises as a result of a breach in respect of a specific
Conversion Date in which case such Conversion Date shall be the Conversion
Date), multiplied by (b) the Closing Price (as defined in Article VI.A(b)) for
the Common Stock on such "Conversion Date" (the greater of such amounts being
referred to as the "Mandatory Redemption Amount").
In the case of a Mandatory Redemption Event, if the
Corporation fails to pay the Mandatory Redemption Amount for each share within
five (5) business days of written notice that such amount is due and payable,
then (assuming there are sufficient authorized shares) in addition to all other
available remedies, each holder of Series A Preferred Stock shall have the right
at any time, so long as the Mandatory Redemption Event continues, to require the
Corporation, upon written notice, to immediately issue (in accordance with and
subject to the terms of Article VI below), in lieu of the Mandatory Redemption
Amount, with respect to each outstanding share of Series A Preferred Stock held
by such holder, the number of shares of Common Stock of the Corporation equal to
the Mandatory Redemption Amount divided by the Conversion Price then in effect.
B. If at any time on or after one hundred twenty (120) days
after the Issue Date the Series A Preferred Stock ceases to be convertible as a
result of the limitations described Article VI.A(c) below (a "19.9% Redemption
Event"), and the Corporation has not prior to, or within sixty (60) days of, the
date that such 19.9% Redemption Event arises, (i) obtained approval of the
issuance of the additional shares of Common Stock by the requisite vote of the
holders of the then-outstanding Common Stock (not including any shares of Common
Stock held by present or former holders of Series A Preferred Stock that were
issued upon conversion of Series A Preferred Stock) or (ii) received other
permission pursuant to AMEX Requirement 713 allowing the Corporation to resume
issuances of shares of Common Stock upon conversion of Series A Preferred Stock,
then the Corporation shall be obligated to redeem immediately all of the then
outstanding Series A Preferred Stock, in accordance with this Article V.B. An
irrevocable Redemption Notice shall be delivered promptly to the holders of
Series A Preferred Stock at their registered address appearing on the records of
the Corporation and shall state (1) that 19.9% of the Outstanding Common Amount
(as defined in Article VI.A) has been issued upon exercise of the Series A
Preferred Stock, (2) that the Corporation is obligated to redeem all of the
outstanding Series A Preferred Stock and (3) the Mandatory Redemption Date,
which shall be a date within five (5) business days of the date of the
Redemption Notice. On the Mandatory Redemption Date, the Corporation shall make
payment of the Mandatory Redemption Amount (as defined in Article V.A. above) in
cash.
C. Subject to the fourth paragraph of this Article IV.C., at
any time after the Issue Date, the Corporation shall have the right, exercisable
on not less than five (5) Trading Days prior written notice to the holders of
Series A Preferred Stock to redeem all of the outstanding shares of Series A
Preferred Stock in accordance with this Article V. Any notice of redemption
hereunder (an "Optional Redemption") shall be delivered to the holders of Series
A Preferred Stock at their registered addresses appearing on the books and
records of the Corporation and shall state (1) that the Corporation is
exercising its right to redeem all of the outstanding shares of Series A
Preferred Stock and (2) the date of redemption (the "Optional Redemption
Notice"). On the date fixed for redemption (the "Optional Redemption Date"), the
Corporation shall make payment of the Optional Redemption Amount (as defined
below) to or upon the order of the holders as specified by the holders in
writing to the Corporation at least one (1) business day prior to the Optional
Redemption Date. If the Corporation exercises its right to redeem the Series A
Preferred Stock, the Corporation shall make payment to the holders of an amount
in cash (the "Optional Redemption Amount") equal to the sum of (i) 115%
multiplied by the Stated Value of the shares of Series A Preferred Stock to be
redeemed and (ii) all accrued and unpaid dividends for the period beginning on
the Issue Date and ending on the Optional Redemption Date, for each share of
Series A Preferred Stock then held; provided, however, that in the event that an
Optional Redemption Notice is sent during a period in which a Mandatory
Redemption Event shall have occurred and be continuing, the Optional Redemption
Amount shall equal the Mandatory Redemption Amount.
Notwithstanding notice of an Optional Redemption, on or after
one hundred twenty (120) days from the Issue Date, the holders shall at all
times prior to the Optional Redemption Date maintain the right to convert all or
any shares of Series A Preferred Stock in accordance with Article VI and any
shares of Series A Preferred Stock so converted after receipt of an Optional
Redemption Notice and prior to the Optional Redemption Date set forth in such
notice and payment of the aggregate Optional Redemption Amount shall be deducted
from the shares of Series A Preferred Stock which are otherwise subject to
redemption pursuant to such notice.
In the event the Corporation redeems the Series A Preferred
Stock pursuant to this Article V.C., in addition to the Optional Redemption
Amount payable in cash pursuant to this Article V.C., on the Optional Redemption
Date the Corporation shall issue to each holder of the Series A Preferred Stock
their pro rata portion of a maximum of 200,000 warrants to purchase Common Stock
of the Corporation (based on the number of shares of Series A Preferred Stock
held by each holder on the Optional Redemption Date relative to the total number
of shares of Series A Preferred Stock issued on the Issue Date), which warrants
will have a five (5) year term, an exercise price equal to 105% times the
average Closing Bid Prices for the five (5) consecutive Trading Days ending one
(1) Trading Day prior to the Optional Redemption Date and shall otherwise be in
the form of the Warrant attached as Exhibit D to the Purchase Agreement.
"Trading Day" shall mean any day on which the Common Stock is traded for any
period on the AMEX, or on the principal securities exchange or other securities
market on which the Common Stock is then being traded.
From time to time following the Issue Date, the holders may
request in writing advance notice as to whether the Corporation intends to
redeem the shares of Series A Preferred Stock. Such request shall be made in
writing and the Corporation shall respond in writing as promptly as practicable
but prior to 5:00 p.m. New York City time one (1) business day after receipt of
the request. The Corporation will be bound by such response for a period of
twenty (20) Trading Days (the "Term") from the date of its response. A failure
to respond within one (1) business day shall be deemed to be an election not to
redeem the Series A Preferred Stock during the Term. The holders may not request
such notice in the event that the Corporation files a registration statement
where the use of proceeds set forth in such registration statement are
identified for purposes of redemption of the outstanding Series A Preferred
Stock.
VI. Conversion at the Option of the Holder
A. (a) Subject to the conversion schedule set forth in Article
VI.A(b) below, each holder of shares of Series A Preferred Stock may, at its
option at any time on or after one hundred twenty (120) days after the Issue
Date and from time to time, upon surrender of the certificates therefor, convert
any or all of its shares of Series A Preferred Stock into Common Stock as
follows (an "Optional Conversion"). Each share of Series A Preferred Stock shall
be convertible into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing (1) the Conversion Amount (as defined below),
by (2) the then effective Conversion Price (as defined below); provided,
however, that, unless the holder delivers a waiver in accordance with the
immediately following sentence, in no event (other than pursuant to the
Automatic Conversion (as defined herein)) shall a holder of shares of Series A
Preferred Stock be entitled to convert any such shares in excess of that number
of shares upon conversion of which the sum of (x) the number of shares of Common
Stock beneficially owned by the holder and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of the shares of Series A Preferred Stock) and (y) the
number of shares of Common Stock issuable upon the conversion of the shares of
Series A Preferred Stock with respect to which the determination of this proviso
is being made, would result in beneficial ownership by a holder and such
holder=s affiliates of more than 4.9% of the outstanding shares of Common Stock.
For purposes of the proviso to the immediately preceding sentence, (i)
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13D-G thereunder,
except as otherwise provided in clause (x) of such proviso and (ii) a holder may
waive the limitations set forth therein by written notice to the Corporation
upon not less than sixty-one (61) days prior written notice (with such waiver
taking effect only upon the expiration of such sixty-one (61) day notice
period). The "Conversion Amount" means the sum of (a) the Stated Value of the
shares of Series A Preferred Stock issued for conversion plus (b) the Unpaid
Dividend Amount where the "Unpaid Dividend Amount" means .06 times the Stated
Value of the shares of Series A Preferred Stock issued for conversion times
N/365 where N equals the number of days since the later of (x) the Issue Date or
(y) the last Dividend Payment Date on which the Corporation paid the then
accrued and unpaid dividends in cash; provided, however, that the Corporation
shall have the option to pay the Unpaid Dividend Amount in cash, in whole, but
not in part, by wire transfer to the account of the holder of the Series A
Preferred Stock issued for conversion simultaneously with the delivery of the
shares of Common Stock issued upon such conversion, in which event the
Conversion Amount shall equal the Stated Value of the shares of Series A
Preferred Stock issued for conversion.
(b) (i) Each holder of shares of Series A Preferred
Stock may convert only up to that
percentage of the aggregate Stated Value of all shares of Series A Preferred
Stock received by such holder on the Issue Date specified below during the time
period set forth opposite such percentage.
Percentage Time Period
20% 120-150 days following the Issue Date
40% 151-180 days following the Issue Date
60% 181-210 days following the Issue Date
80% 211-240 days following the Issue Date
100% 241 days following the Issue Date
; provided, however, that, on or after one hundred twenty (120) days after the
Issue Date, the restrictions on conversion set forth above shall not apply to
conversions taking place on any Conversion Date (i) if on the Conversion Date
the Closing Price (as defined below) of the Common Stock is greater than or
equal to (a) the Fixed Conversion Price (as defined in Article VI.B(a)) or (b)
120% times the then applicable Conversion Price (as defined in Article VI.B(a))
or (ii) on or after the date the Corporation makes a public announcement that it
intends to merge or consolidate with any other corporation (other than a merger
in which the Corporation is the surviving or continuing corporation and its
capital stock is unchanged) or sell or transfer substantially all of the assets
of the Corporation or (iii) on or after the date any person, group or entity
(including the Corporation but excluding any holders of Series A Preferred
Stock) publicly announces a tender offer to purchase 50% or more of the
Corporation's Common Stock or otherwise publicly announces an intention to
replace a majority of the Corporation's Board of Directors by waging a proxy
battle or otherwise. "Closing Price," as of any date, means the last sale price
of the Common Stock on the AMEX as reported by Bloomberg Financial Markets or an
equivalent reliable reporting service mutually acceptable to and hereafter
designated by the holders of a majority in interest of the shares of Series A
Preferred Stock and the Corporation ("Bloomberg") or, if AMEX is not the
principal trading market for such security, the last sale price of such security
on the principal securities exchange or trading market where such security is
listed or traded as reported by Bloomberg, or if the foregoing do not apply, the
last sale price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
last sale price of such security or in the over-the-counter market on the
electronic bulletin board for such security in any of the foregoing manners the
average of the bid prices of any market makers for such or security as reported
in the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Price
cannot be calculated for such security on such date in the manner provided
above, the Closing Price shall be the fair market value as mutually determined
by the Corporation and the holders of a majority in interest of shares of Series
A Preferred Stock being converted for which the calculation of the Closing Price
is required in order to determine the Conversion Price of such Series A
Preferred Stock.
(ii) In addition to the limitation set
forth in Article VI.A(b)(i) above,
and notwithstanding anything else contained herein to the contrary, on any
Conversion Date in which the Closing Price is above $7.00, holders of shares of
Series A Preferred Stock may only convert a minimum number of shares of Series A
Preferred Stock equal to 1,000 shares of Series A Preferred Stock.
(c) So long as the Common Stock is listed for
trading on AMEX or an exchange or
quotation system with a rule substantially similar to Rule 713 then,
notwithstanding anything to the contrary contained herein if, at any time, (i)
the aggregate number of shares of Common Stock then issued upon conversion of
the Series A Preferred Stock (including any shares of capital stock or rights to
acquire shares of capital stock issued by the Corporation which are aggregated
or integrated with the Common Stock issued or issuable upon conversion of the
Series A Preferred Stock for purposes of such rule) equals or exceeds 19.9% of
the "Outstanding Common Amount" (as hereinafter defined) or (ii) the conversion
of Series A Preferred Stock into Common Stock would otherwise violate such rule,
the Series A Preferred Stock shall, from that time forward, cease to be
convertible into Common Stock in accordance with the terms of this Article VI
and Article VII below, unless the Corporation (i) has obtained approval of the
issuance of the Common Stock upon conversion of the Series A Preferred Stock by
a majority of the total votes cast on such proposal, in person or by proxy, by
the holders of the then-outstanding Common Stock (not including any shares of
Common Stock held by present or former holders of Series A Preferred Stock that
were issued upon conversion of Series A Preferred Stock) ("Stockholder
Approval"), or (ii) shall have otherwise obtained permission to allow such
issuances from AMEX in accordance with AMEX Requirement 713. If the
Corporation's Common Stock is not then listed on AMEX or an exchange or
quotation system that has a rule substantially similar to Rule 713 limitations
set forth herein shall be inapplicable and of no force and effect. For purposes
of this paragraph, "Outstanding Common Amount" means (i) the number of shares of
the Common Stock outstanding on the date of issuance of the Series A Preferred
Stock pursuant to the Purchase Agreement plus (ii) any additional shares of
Common Stock issued thereafter in respect of such shares pursuant to a stock
dividend, stock split or similar event. The maximum number of shares of Common
Stock issuable as a result of the 19.9% limitation set forth herein shall be
2,153,344 (19.9% of the Outstanding Common Amount on December 31, 1997 (subject
to adjustment in accordance with clause (ii) of the definition of Outstanding
Common Amount)) and is hereinafter referred to as the "Maximum Share Amount."
With respect to each holder of Series A Preferred Stock, the Maximum Share
Amount shall refer to such holder's pro rata share thereof determined in
accordance with Article X below. In the event that Corporation obtains
Stockholder Approval or the approval of AMEX, by reason of the inapplicability
of the rules of AMEX or otherwise and concludes that it is able to increase the
number of shares to be issued above the Maximum Share Amount (such increased
number being the "New Maximum Share Amount"), the references to Maximum Share
Amount, above, shall be deemed to be, instead, references to the greater New
Maximum Share Amount. In the event that Stockholder Approval is not obtained,
there are insufficient reserved or authorized shares or a registration statement
covering the additional shares of Common Stock which constitute the New Maximum
Share Amount is not effective prior to the Maximum Share Amount being issued (if
such registration statement is necessary to allow for the public resale of such
securities), the Maximum Share Amount shall remain unchanged; provided, however,
that the holder may grant an extension to obtain a sufficient reserved or
authorized amount of shares or of the effective date of such registration
statement. In the event that (a) the aggregate number of shares of Common Stock
previously issued pursuant to the Series A Preferred Stock represents at least
twenty percent (20%) of the Maximum Share Amount and (b) the sum of (x) the
aggregate number of shares of Common Stock previously issued pursuant to the
Series A Preferred Stock plus (y) the aggregate number of shares of Common Stock
that remain issuable upon conversion of Series A Preferred Stock, represents at
least one hundred percent (100%) of the Maximum Share Amount (the "Triggering
Event"), the Corporation will use its best efforts to seek and obtain
Stockholder Approval (or obtain such other relief as will allow conversions
hereunder in excess of the Maximum Share Amount) as soon as practicable
following the Triggering Event and before the Mandatory Redemption Date.
Notwithstanding the foregoing, the Corporation may, in lieu of seeking
Shareholder Approval as set forth above, elect to provide the holders of the
Series A Preferred Stock the option to redeem the shares of Series A Preferred
Stock convertible into shares of Common Stock in excess of the Maximum Share
Amount pursuant to Article V.B. above, and shall promptly provide to the holders
of the Series A Preferred Stock, but no later than ten (10) days following the
Triggering Event, written binding notification of such election to redeem,
together with reasonable assurances that the Corporation has access to a readily
available source of funds for such redemption, including evidence of such source
of funds (e.g., bank commitment letter, letter of credit, etc.). At any time
after such notification, the holders of the Series A Preferred Stock shall have
the option to require the Corporation to redeem the shares of Series A Preferred
Stock convertible into shares of Common Stock in excess of the Maximum Share
Amount pursuant to Article V.B. above.
B. (a) Subject to subparagraph (b) below, the "Conversion
Price" shall be the lesser of the Market Price (as defined herein) and the Fixed
Conversion Price (as defined herein), subject to adjustments pursuant to the
provisions of Article VI.C below. "Market Price" shall mean the average Closing
Bid Prices for any three (3) consecutive Trading Days, during the thirty (30)
Trading Day period ending one (1) Trading Day prior to the date (the "Conversion
Date") the Conversion Notice is sent by a holder to the Corporation via
facsimile (the "Pricing Period"). "Fixed Conversion Price" shall mean $9.345.
"Closing Bid Price" means, for any security as of any date, the closing bid
price on AMEX as reported by Bloomberg or, if AMEX is not the principal trading
market for such security, the closing bid price of such security on the
principal securities exchange or trading market where such security is listed or
traded as reported by Bloomberg, or if the foregoing do not apply, the closing
bid price of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price of such security in the over-the-counter market on the electronic bulletin
board for such security or in any of the foregoing manners, the average of the
bid prices of any market makers for such security or as reported in the "pink
sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price cannot
be calculated for such security on such date in the manner provided above, the
Closing Bid Price shall be the fair market value as mutually determined by the
Corporation and the holders of a majority in interest of shares of Series A
Preferred Stock being converted for which the calculation of the Closing Bid
Price is required in order to determine the Conversion Price of such Series A
Preferred Stock.
(b) Notwithstanding anything contained in
subparagraph (a) of this Paragraph B to
the contrary, in the event the Corporation (i) makes a public announcement that
it intends to consolidate or merge with any other corporation (other than a
merger in which the Corporation is the surviving or continuing corporation and
its capital stock is unchanged) or sell or transfer all or substantially all of
the assets of the Corporation or (ii) any person, group or entity (including the
Corporation) publicly announces a tender offer to purchase 50% or more of the
Corporation=s Common Stock or otherwise publicly announces an intention to
replace a majority of the corporation's Board of Directors by waging a proxy
battle or otherwise (the date of the announcement referred to in clause (i) or
(ii) is hereinafter referred to as the AAnnouncement Date@), then the Conversion
Price shall, effective upon the Announcement Date and continuing through the
Adjusted Conversion Price Termination Date (as defined below), be equal to the
lower of (x) the Conversion Price which would have been applicable for an
Optional Conversion occurring on the Announcement Date and (y) the Conversion
Price that would otherwise be in effect. From and after the Adjusted Conversion
Price Termination Date, the Conversion Price shall be determined as set forth in
subparagraph (a) of this Article VI.B. For purposes hereof, AAdjusted Conversion
Price Termination Date@ shall mean, with respect to any proposed transaction,
tender offer or removal of the majority of the Board of Directors which a public
announcement as contemplated by this subparagraph (b) has been made, the date
upon which the Corporation (in the case of clause (i) above) or the person,
group or entity (in the case of clause (ii) above) publicly announces the
termination or abandonment of the proposed transaction or tender offer which
caused this subparagraph (b) to become operative.
C. The Conversion Price shall be subject to adjustment
from time to time as follows:
(a) Adjustment to Conversion Price Due to Stock
Split, Stock Dividend, Etc. If at
any time when Series A Preferred Stock is issued and outstanding, the number of
outstanding shares of Common Stock is increased or decreased by a stock split,
stock dividend, combination, reclassification, rights offering below the Trading
Price (as defined below) to all holders of Common Stock or other similar event,
which event shall have taken place during the reference period for determination
of the Conversion Price for any Optional Conversion or Automatic Conversion of
the Series A Preferred Stock, then the Conversion Price shall be calculated
giving appropriate effect to the stock split, stock dividend, combination,
reclassification or other similar event. In such event, the Corporation shall
notify the Transfer Agent of such change on or before the effective date
thereof.
(b) Adjustment Due to Merger, Consolidation,
Etc. If, at any time when Series A
Preferred Stock is issued and outstanding and prior to the conversion of all
Series A Preferred Stock, there shall be any merger, consolidation, exchange of
shares, recapitalization, reorganization, or other similar event, as a result of
which shares of Common Stock of the Corporation shall be changed into the same
or a different number of shares of another class or classes of stock or
securities of the Corporation or another entity, or in case of any sale or
conveyance of all or substantially all of the assets of the Corporation other
than in connection with a plan of complete liquidation of the Corporation, then
the holders of Series A Preferred Stock shall thereafter have the right to
receive upon conversion of the Series A Preferred Stock, upon the bases and upon
the terms and conditions specified herein and in lieu of the shares of Common
Stock immediately theretofore issuable upon conversion, such stock, securities
or assets which the holders of Series A Preferred Stock would have been entitled
to receive in such transaction had the Series A Preferred Stock been converted
in full (without regard to any limitations on conversion contained herein)
immediately prior to such transaction, and in any such case appropriate
provisions shall be made with respect to the rights and interests of the holders
of Series A Preferred Stock to the end that the provisions hereof (including,
without limitation, provisions for adjustment of the Conversion Price and of the
number of shares of Common Stock issuable upon conversion of the Series A
Preferred Stock) shall thereafter be applicable, as nearly as may be practicable
in relation to any securities or assets thereafter deliverable upon the
conversion of Series A Preferred Stock. The Corporation shall not effect any
transaction described in this subsection (b) unless (a) it first gives, to the
extent practical, thirty (30) days' prior written notice (but in any event at
least fifteen (15) days prior written notice) of such merger, consolidation,
exchange of shares, recapitalization, reorganization or other similar event or
sale of assets (during which time the holders of Series A Preferred Stock shall
be entitled to convert the Series A Preferred Stock) and (b) the resulting
successor or acquiring entity (if not the Corporation) assumes by written
instrument the obligations of this subsection (b). The above provisions shall
similarly apply to successive consolidations, mergers, sales, transfers or share
exchanges.
(c) Other Securities Offerings. If, at any
time after the Issue Date and prior to
the earlier of (i) one (1) year after the date the Registration Statement (as
defined in the Registration Rights Agreement) is declared effective plus any
days for which sales cannot be made thereunder and (ii) the date on which 25% or
less of the Series A Preferred Stock issued on the Issue Date remains
outstanding, the Corporation sells Common Stock or securities convertible into,
or exchangeable for, Common Stock, other than (a) a sale pursuant to a bona fide
firm commitment underwritten public offering of Common Stock by the Corporation
(not including a continuous offering pursuant to Rule 415 under the Securities
Act of 1933, as amended), (b) sales pursuant to employee stock option plans, (c)
equity issued as consideration for a merger, consolidation or sale of assets, or
in connection with any strategic partnership or joint venture (the primary
purpose of which is not to raise equity capital), (d) sales at or above the then
applicable Conversion Price or (e) equity issued in connection with
recapitalizations and rights offerings at not more than a 5% discount to the
market price of the Common Stock (collectively, the "Other Common Stock"), then,
if the effective or maximum sales price of the Common Stock with respect to such
transaction (including the effective or maximum conversion, or exchange price)
("Other Price") is less than the effective Conversion Price of the Series A
Preferred Stock at such time and such Other Common Stock is eligible for resale
prior to June 30, 1999, the Corporation shall adjust the Conversion Price
applicable to the Series A Preferred Stock not yet converted in form and
substance reasonably satisfactory to the holders of Series A Preferred Stock so
that the Conversion Price applicable to the Series A Preferred Stock shall not,
in any event, be greater, after giving effect to all other adjustments contained
herein, than the Other Price.
(d) Adjustment Due to Distribution. Subject
to Article III, if the Corporation
shall declare or make any distribution of its assets (or rights to acquire its
assets) to holders of Common Stock as a dividend, stock repurchase, by way of
return of capital or otherwise (including any dividend or distribution to the
Corporation's shareholders in cash or shares (or rights to acquire shares) of
capital stock of a subsidiary (i.e., a spin-off)) (a "Distribution"), then the
holders of Series A Preferred Stock shall be entitled, upon any conversion of
shares of Series A Preferred Stock after the date of record for determining
shareholders entitled to such Distribution, to receive the amount of such assets
which would have been payable to the holder with respect to the shares of Common
Stock issuable upon such conversion had such holder been the holder of such
shares of Common Stock on the record date for the determination of shareholders
entitled to such Distribution.
(e) Purchase Rights. Subject to Article
III, if at any time when any Series A
Preferred Stock is issued and outstanding, the Corporation issues any
convertible securities or rights to purchase stock, warrants, securities or
other property (the "Purchase Rights") pro rata to the record holders of any
class of Common Stock, then the holders of Series A Preferred Stock will be
entitled, upon any conversion of shares of Series A Preferred Stock after the
date of record for determining shareholders entitled to such Purchase Rights, to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such holder could have acquired if such holder had held
the number of shares of Common Stock acquirable upon complete conversion of the
Series A Preferred Stock (without regard to any limitations on conversion
contained herein) immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights, or, if no such record is taken,
the date as of which the record holders of Common Stock are to be determined for
the grant, issue or sale of such Purchase Rights.
(f) Adjustment for Restricted Periods.
In the event that (1) the Corporation
fails to obtain effectiveness with the Securities and Exchange Commission of the
Registration Statement (as defined in the Registration Rights Agreement) prior
to one hundred twenty (120) days following the Issue Date, or (2) such
Registration Statement lapses in effect, or sales otherwise cannot be made
thereunder, whether by reason of the Corporation's failure or inability to amend
or supplement the prospectus (the "Prospectus") included therein in accordance
with the Registration Rights Agreement or otherwise (but excluding any acts or
omission by the holders), after such Registration Statement becomes effective,
then the Pricing Period shall be comprised of, (i) in the case of an event
described in clause (1), the twenty (20) Trading Days preceding the 120th day
following the Issue Date plus all Trading Days through and including the third
Trading Day following the date of effectiveness of the Registration Statement;
and (ii) in the case of an event described in clause (2), the number of Trading
Days preceding the date on which the holder of the Series A Preferred Stock is
first notified that sales may not be made under the Prospectus that would
otherwise then be included in the Pricing Period in accordance with the
definition thereof set forth in Article VI.B(a), plus all Trading Days through
and including the third Trading Day following the date on which the Holder is
first notified that such sales may again be made under the Prospectus. If a
holder of Series A Preferred Stock determines based on the advice of counsel
that sales may not be made pursuant to the Prospectus (whether by reason of the
Corporation's failure or inability to amend or supplement the Prospectus), it
shall so notify the Corporation in writing and, unless the Corporation provides
such holder with a written opinion of the Corporation's counsel to the contrary,
such determination shall be binding for purposes of this paragraph.
(g) Notice of Adjustments. Upon the occurrence
of each adjustment or readjustment
of the Conversion Price pursuant to this Article VI.C, the Corporation, at its
expense, shall promptly compute such adjustment or readjustment and prepare and
furnish to each holder of 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. The Corporation shall, upon the written
request at any time of any holder of Series A Preferred Stock, furnish to such
holder a like certificate setting forth (i) such adjustment or readjustment,
(ii) the Conversion Price at the time in effect and (iii) the number of shares
of Common Stock and the amount, if any, of other securities or property which at
the time would be received upon conversion of a share of Series A Preferred
Stock.
D. For purposes of Article VI.C(a) above, "Trading Price,"
which shall be measured as of the record date in respect of the rights offering
means (i) the average of the last reported sale prices for the shares of Common
Stock on AMEX as reported by Bloomberg, as applicable, for the five (5) Trading
Days immediately preceding such date, or (ii) if AMEX is not the principal
trading market for the shares of Common Stock, the average of the last reported
sale prices on the principal trading market for the Common Stock during the same
period as reported by Bloomberg, or (iii) if market value cannot be calculated
as of such date on any of the foregoing bases, the Trading Price shall be the
fair market value as reasonably determined in good faith by (a) the Board of
Directors of the Corporation or, (b) at the option of a majority-in-interest of
the holders of the outstanding Series A Preferred Stock by an independent
investment bank of nationally recognized standing in the valuation of businesses
similar to the business of the Corporation.
E. In order to convert Series A Preferred Stock into full
shares of Common Stock, a holder of Series A Preferred Stock shall: (i) submit a
copy of the fully executed notice of conversion in the form attached hereto as
Exhibit A ("Notice of Conversion") to the Corporation by facsimile dispatched on
the Conversion Date (or by other means resulting in notice to the Corporation on
the Conversion Date) at the office of the Corporation that the holder elects to
convert the same, which notice shall specify the number of shares of Series A
Preferred Stock to be converted, the applicable Conversion Price and a
calculation of the number of shares of Common Stock issuable upon such
conversion (together with a copy of the first page of each certificate to be
converted) prior to 9:00 p.m., New York City time (the "Conversion Notice
Deadline") on the date of conversion specified on the Notice of Conversion; and
(ii) surrender the original certificates representing the Series A Preferred
Stock being converted (the "Preferred Stock Certificates"), duly endorsed, along
with a copy of the Notice of Conversion to the office of the Corporation for the
Series A Preferred Stock as soon as practicable thereafter. The Corporation
shall not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon such conversion, unless either the Preferred Stock
Certificates are delivered to the Company as provided above, or the holder
notifies the Corporation that such certificates have been lost, stolen or
destroyed (subject to the requirements of subparagraph (a) below). In the case
of a dispute as to the calculation of the Conversion Price, the Corporation
shall promptly issue such number of shares of Common Stock that are not disputed
in accordance with subparagraph (b) below. The Corporation shall submit the
disputed calculations to its outside accountant via facsimile within two (2)
business days of receipt of the Notice of Conversion. The accountant shall audit
the calculations and notify the Corporation and the holder of the results no
later than 48 hours from the time it receives the disputed calculations. The
accountant=s calculation shall be deemed conclusive absent manifest error.
(a) Lost or Stolen Certificates. Upon receipt
by the Corporation of evidence of
the loss, theft, destruction or mutilation of any Preferred Stock Certificates
representing shares of Series A Preferred Stock, and (in the case of loss, theft
or destruction) of indemnity reasonably satisfactory to the Corporation
(including the posting of a bond, if requested by the Corporation), and upon
surrender and cancellation of the Preferred Stock Certificate(s), if mutilated,
the Corporation shall execute and deliver new Preferred Stock Certificate(s) of
like tenor and date.
(b) Delivery of Common Stock Upon Conversion.
Upon the surrender of certificates
as described above together with a Notice of Conversion, the Corporation shall
issue and, within two (2) business days after such surrender (or, in the case of
lost, stolen or destroyed certificates, after provision of agreement and
indemnification pursuant to subparagraph (a) above) (the "Delivery Period"),
deliver (or cause its Transfer Agent to so issue and deliver) to or upon the
order of the holder (i) that number of shares of Common Stock for the portion of
the shares of Series A Preferred Stock converted as shall be determined in
accordance herewith and (ii) a certificate representing the balance of the
shares of Series A Preferred Stock not converted, if any. In addition to any
other remedies available to the holder, including actual damages and/or
equitable relief, the Corporation shall pay to a holder $2,000 per day in cash
for each day beyond a two (2) day grace period following the Delivery Period
that the Corporation fails to deliver Common Stock (a "Conversion Default")
issuable upon surrender of shares of Series A Preferred Stock with a Notice of
Conversion until such time as the Corporation has delivered all such Common
Stock (the "Conversion Default Payments"); provided, however, that such payments
shall not be payable if the Series A Preferred Stock is not convertible into
Common Stock pursuant to Article VI.A(c) above. Such cash amount shall be paid
to such holder by the fifth day of the month following the month in which it has
accrued or, at the option of the holder (by written notice to the Corporation by
the first day of the month following the month in which it has accrued), shall
be convertible into Common Stock in accordance with the terms of this Article
VI.
In lieu of delivering physical certificates representing the
Common Stock issuable upon conversion, provided the Corporation's Transfer Agent
is participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer ("FAST") program, upon request of the holder and its
compliance with the provisions contained in Article VI.A. and in this Article
VI.E., the Corporation shall use its reasonable best efforts to cause its
Transfer Agent to electronically transmit the Common Stock issuable upon
conversion to the holder by crediting the account of holder's Prime Broker with
DTC through its Deposit Withdrawal Agent Commission ("DWAC") system. The time
periods for delivery and penalties described in the immediately preceding
paragraph shall apply to the electronic transmittals described herein.
(c) No Fractional Shares. If any conversion
of Series A Preferred Stock would
result in a fractional share of Common Stock or the right to acquire a
fractional share of Common Stock, such fractional share shall be disregarded and
the number of shares of Common Stock issuable upon Conversion of the Series A
Preferred Stock shall be the next higher number of shares.
(d) Conversion Date. The "Conversion Date"
shall be the date specified in the
Notice of Conversion, provided that the Notice of Conversion is submitted by
facsimile (or by other means resulting in notice) to the Corporation or its
Transfer Agent before 9:00 p.m., New York City time, on the Conversion Date. The
person or persons entitled to receive the shares of Common Stock issuable upon
conversion shall be treated for all purposes as the record holder or holders of
such securities as of the Conversion Date and all rights with respect to the
shares of Series A Preferred Stock surrendered shall forthwith terminate except
the right to receive the shares of Common Stock or other securities or property
issuable on such conversion and except that the holders preferential rights as a
holder of Series A Preferred Stock shall survive to the extent the corporation
fails to deliver such securities.
F. A number of shares of the authorized but unissued Common
Stock sufficient to provide for the conversion of the Series A Preferred Stock
outstanding at the then current Conversion Price shall at all times be reserved
by the Corporation, free from preemptive rights, for such conversion or
exercise. As of the date of issuance of the Series A Preferred Stock, 5,000,000
authorized and unissued shares of Common Stock have been duly reserved for
issuance upon conversion of the Series A Preferred Stock (the "Reserved
Amount"). The Reserved Amount shall be increased from time to time in accordance
with the Company's obligations pursuant to Section 4(h) of the Purchase
Agreement. In addition, if the Corporation shall issue any securities or make
any change in its capital structure which would change the number of shares of
Common Stock into which each share of the Series A Preferred Stock shall be
convertible at the then current Conversion Price, the Corporation shall at the
same time also make proper provision so that thereafter there shall be a
sufficient number of shares of Common Stock authorized and reserved, free from
preemptive rights, for conversion of the outstanding Series A Preferred Stock.
If at any time a holder of shares of Series A Preferred Stock
submits a Notice of Conversion, and the Corporation does not have sufficient
authorized but unissued shares of Common Stock available to effect such
conversion in accordance with the provisions of this Article VI (a "Conversion
Default"), the Corporation shall issue to the holder (or holders, if more than
one holder submits a Notice of Conversion in respect of the same Conversion
Date, pro rata based on the ratio that the number of shares of Series A
Preferred Stock then held by each such holder bears to the aggregate number of
such shares held by such holders) all of the shares of Common Stock which are
available to effect such conversion. The number of shares of Series A Preferred
Stock included in the Notice of Conversion which exceeds the amount which is
then convertible into available shares of Common Stock (the "Excess Amount")
shall, notwithstanding anything to the contrary contained herein, not be
convertible into Common Stock in accordance with the terms hereof until (and at
the holder=s option at any time after) the date additional shares of Common
Stock are authorized by the Corporation to permit such conversion, at which time
the Conversion Price in respect thereof shall be the lesser of (i) the
Conversion Price on the Conversion Default Date (as defined below) and (ii) the
Conversion Price on the Conversion Date elected by the holder in respect
thereof. The Corporation shall use its best efforts to effect an increase in the
authorized number of shares of Common Stock as soon as possible following a
Conversion Default. In addition, the Corporation shall pay to the holder
payments ("Conversion Default Payments") for a Conversion Default in the amount
of (a) (N/365), multiplied by (b) the sum of the Stated Value plus all accrued
and unpaid dividends for the period beginning on the Issue Date and ending on
the Authorization Date (as defined below) per share of Series A Preferred Stock
through the Authorization Date (as defined below), multiplied by (c) the Excess
Amount on the day the holder submits a Notice of Conversion giving rise to a
Conversion Default (the "Conversion Default Date"), multiplied by (d) .24, where
(i) N = the number of days from the Conversion Default Date to the date (the
"Authorization Date") that the Corporation authorizes a sufficient number of
shares of Common Stock to effect conversion of the full number of shares of
Series A Preferred Stock. The Corporation shall send notice to the holder of the
authorization of additional shares of Common Stock, the Authorization Date and
the amount of holder's accrued Conversion Default Payments. The accrued
Conversion Default Payment for each calendar month shall be paid in cash or
shall be convertible into Common Stock at the Conversion Price, at the
Corporation's option with the consent of the holder (which consent shall not be
unreasonably withheld), as follows:
(a) In the event the Corporation elects to make
such payment in cash, cash payment
shall be made to the holder by the fifth day of the month following the month in
which it has accrued; and
(b) In the event the Corporation (with the
consent of the holder as set forth
above) elects to make such payment in Common Stock, the Corporation may convert
such payment amount into Common Stock at the Conversion Price (as in effect at
the time of Conversion) at any time after the fifth day of the month following
the month in which it has accrued in accordance with the terms of this Article
VI (so long as there is then a sufficient number of authorized shares).
Nothing herein shall limit the holder's right to pursue actual
damages for the Corporation's failure to maintain a sufficient number of
authorized shares of Common Stock, and each holder shall have the right to
pursue all remedies available at law or in equity (including a decree of
specific performance and/or injunctive relief).
G. Upon the occurrence of each adjustment or readjustment of
the Conversion Price pursuant to this Article VI, the Corporation, at its
expense, shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to each holder of 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.
The Corporation shall, upon the written request at any time of any holder of
Series A Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustment or readjustment, (ii) the
Conversion Price at the time in effect and (iii) the number of shares of Common
Stock and the amount, if any, of other securities or property which at the time
would be received upon conversion of a share of Series A Preferred Stock.
H. Subject to the other provisions of this Certificate of
Designation, upon submission of a Notice of Conversion by a holder of Series A
Preferred Stock, (i) the shares covered thereby (other than the shares, if any,
which cannot be issued because their issuance would exceed such holder's
allocated portion of the Reserved Amount) shall be deemed converted into shares
of Common Stock and (ii) the holder's rights as a holder of such converted
shares of Series A Preferred Stock shall cease and terminate, excepting only the
right to receive certificates for such shares of Common Stock and to any
remedies provided herein or otherwise available at law or in equity to such
holder because of a failure by the Corporation to comply with the terms of this
Certificate of Designation. Notwithstanding the foregoing, if a holder has not
received certificates for all shares of Common Stock prior to the tenth (10th)
business day after the expiration of the Delivery Period with respect to a
conversion of shares of Series A Preferred Stock for any reason, then (unless
the holder otherwise elects to retain its status as a holder of Common Stock by
so notifying the Corporation) the holder shall regain the rights of a holder of
such shares of Series A Preferred Stock with respect to such unconverted shares
of Series A Preferred Stock and the Corporation shall, as soon as practicable,
return such unconverted shares of Series A Preferred Stock to the holder or, if
such shares of Series A Preferred Stock have not been surrendered, adjust its
records to reflect that such shares of Series A Preferred Stock have not been
converted. In all cases, the holder shall retain all of its rights and remedies
(including, without limitation, the right to receive Conversion Default Payments
pursuant to Article IV.E. to the extent required thereby for such Conversion
Default and any subsequent Conversion Default).
VII. Automatic Conversion
So long as the Registration Statement is effective and there
is not then a continuing Mandatory Redemption Event, each share of Series A
Preferred Stock issued and outstanding on December 31, 2000, subject to any
adjustment pursuant to Article V.A.(ii) (the "Automatic Conversion Date"),
automatically shall be converted into shares of Common Stock on such date at the
then effective Conversion Price in accordance with, and subject to, the
provisions of Article VI hereof (the "Automatic Conversion"). The Automatic
Conversion Date shall be the Conversion Date for purposes of determining the
Conversion Price and the time within which certificates representing the Common
Stock must be delivered to the holder.
VIII. Voting Rights
The holders of the Series A Preferred Stock have no voting
power whatsoever, except as otherwise provided by the Delaware General
Corporation Law ("DGCL"), in this Article VIII, and in Article IX below.
Notwithstanding the above, the Corporation shall provide each
holder of Series A Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). In the event of any taking by the Corporation of a record of its
shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed sale, lease or conveyance
of all or substantially all of the assets of the Corporation, or any proposed
liquidation, dissolution or winding up of the Corporation, the Corporation shall
mail a notice to each holder, at least ten (10) days prior to the record date
specified therein (or thirty (30) days prior to the consummation of the
transaction or event, whichever is earlier), of the date on which any such
record is to be taken for the purpose of such dividend, distribution, right or
other event, and a brief statement regarding the amount and character of such
dividend, distribution, right or other event to the extent known at such time.
To the extent that under the DGCL the vote of the holders of
the Series A Preferred Stock, voting separately as a class or series as
applicable, is required to authorize a given action of the Corporation, the
affirmative vote or consent of the holders of at least a majority of the shares
of the Series A Preferred Stock represented at a duly held meeting at which a
quorum is present or by written consent of a majority of the shares of Series A
Preferred Stock (except as otherwise may be required under the DGCL) shall
constitute the approval of such action by the class. To the extent that under
the DGCL holders of the Series A Preferred Stock are entitled to vote on a
matter with holders of Common Stock, voting together as one class, each share of
Series A Preferred Stock shall be entitled to a number of votes equal to the
number of shares of Common Stock into which it is then convertible using the
record date for the taking of such vote of shareholders as the date as of which
the Conversion Price is calculated. Holders of the Series A Preferred Stock
shall be entitled to notice of all shareholder meetings or written consents (and
copies of proxy materials and other information sent to shareholders) with
respect to which they would be entitled to vote, which notice would be provided
pursuant to the Corporation=s bylaws and the DGCL.
IX. Protective Provisions
So long as shares of Series A Preferred Stock are outstanding,
the Corporation shall not, without first obtaining the approval (by vote or
written consent, as provided by the DGCL) of the holders of at least a majority
of the then outstanding shares of Series A Preferred Stock:
(a) alter or change the rights, preferences
or privileges of the Series A
Preferred Stock or any Senior Securities so as to affect adversely the Series A
Preferred Stock;
(b) create any new class or series of capital
stock having a preference over the
Series A Preferred Stock as to distribution of assets upon liquidation,
dissolution or winding up of the Corporation (as previously defined in Article
II hereof, "Senior Securities");
(c) create any new class or series of capital
stock ranking pari passu with the
Series A Preferred Stock as to distribution of assets upon liquidation,
dissolution or winding up of the Corporation (as previously defined in Article
II hereof, APari Passu Securities@); or
(d) increase the authorized number of shares of
Series A Preferred Stock.
In the event holders of at least a majority of the then
outstanding shares of Series A Preferred Stock agree to allow the Corporation to
alter or change the rights, preferences or privileges of the shares of Series A
Preferred Stock, pursuant to subsection (a) above, so as to affect the Series A
Preferred Stock, then the Corporation will deliver notice of such approved
change to the holders of the Series A Preferred Stock that did not agree to such
alteration or change (the "Dissenting Holders") and Dissenting Holders shall
have the right for a period of thirty (30) days to convert pursuant to the terms
of this Certificate of Designation as they exist prior to such alteration or
change or continue to hold their shares of Series A Preferred Stock.
X. Pro Rata Allocations
The Maximum Share Amount and the Reserved Amount (including
any increases thereto) shall be allocated by the Corporation pro rata among the
holders of Series A Preferred Stock based on the number of shares of Series A
Preferred Stock then held by each holder relative to the total aggregate number
of shares of Series A Preferred Stock then outstanding.
IN WITNESS WHEREOF, this Certificate of Designation is
executed on behalf of the Corporation this 30th day of December, 1997.
SABA PETROLEUM COMPANY
By:
Walton C. Vance
Secretary
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series A Preferred Stock)
The undersigned hereby irrevocably elects to convert ______
shares of Series A Preferred Stock, represented by stock certificate No(s).
__________ (the "Preferred Stock Certificates") into shares of common stock
("Common Stock") of Saba Petroleum Company (the "Corporation") according to the
conditions of the Certificate of Designation of Series A Preferred Stock, as of
the date written below. If securities are to be issued in the name of a person
other than the undersigned, the undersigned will pay all transfer taxes payable
with respect thereto and is delivering herewith such certificates. No fee will
be charged to the Holder for any conversion, except for transfer taxes, if any.
A copy of each Preferred Stock Certificate is attached hereto (or evidence of
loss, theft or destruction thereof).
The undersigned represents and warrants that all offers and
sales by the undersigned of the securities issuable to the undersigned upon
conversion of the Series A Preferred Stock shall be made pursuant to
registration of the securities under the Securities Act of 1933, as amended (the
"Act"), or pursuant to an exemption from registration under the Act.
Date of Conversion:___________________________
Applicable Conversion Price:____________________
Number of Shares of
Common Stock to be Issued:_____________________
Signature:____________________________________
Name:_______________________________________
Address:______________________________________
*The Corporation is not required to issue shares of Common Stock until the
original Series A Preferred Stock Certificate(s) (or evidence of loss, theft or
destruction thereof) to be converted are received by the Corporation or its
Transfer Agent. The Corporation shall issue and deliver shares of Common Stock
to an overnight courier not later than two (2) business days following receipt
of the original Preferred Stock Certificate(s) to be converted, and shall make
payments pursuant to the Certificate of Designation for the number of business
days such issuance and delivery is late.