SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
FILED BY THE REGISTRANT [X]
FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
CHECK THE APPROPRIATE BOX:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as
permitted by Rule 14a-6(e)(2))
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c)
or Section 240.14a-12
GLADSTONE RESOURCES, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[ X ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-
6(I)(1) and 0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the amount
on which the fling fee is calculated and state how it was
determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided
by Exchange Act Rule 0-11(a)(2) and identify the
filing for which the offsetting fee was paid
previously. Identify the previous filing by
registration statement number, or the Form or Schedule
and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
GLADSTONE RESOURCES, INC.
3500 Oak Lawn Ave., Suite 590, LB 49
Dallas, TX 75219
------------------------
NOTICE OF 1999 ANNUAL MEETING OF SHAREHOLDERS
to be held July 15, 1999
------------------------
To the shareholders of Gladstone Resources, Inc.:
NOTICE IS HEREBY given that the 1999 Annual Meeting of
Shareholders (the "Meeting") of Gladstone Resources, Inc. (the
"Company") will be held at 3500 Oak Lawn Avenue, Suite 590,
Dallas, TX 75219 on July 15, 1999 at 10:00 a.m., for the
following purposes:
1. To elect five (5) Directors to serve until the 2000 Annual
Meeting of Shareholders and until their respective successors
are duly elected and qualified;
2. To approve a one-for-five reverse stock split (the "Reverse
Stock Split") of the Company's outstanding Common Stock;
3. To approve the merger of the Company into a wholly-owned
subsidiary of the Company to be organized under the laws of the
State of Delaware ("Gladstone-Delaware") in order to effect the
change of the Company's state of incorporation from Washington to
Delaware (the "Reincorporating"), pursuant to an Agreement and
Plan of Merger in the form attached as Exhibit A to the
accompanying proxy statement (the "Reincorporating Merger
Agreement"). Upon the consummation of the Reincorporating, the
Company shall continue its operations as a Delaware corporation;
4. In connection with the Reincorporating to approve and adopt
provisions of the Certificate of Incorporation of
Gladstone-Delaware ("Delaware Certificate") in the form attached
as Exhibit B to the attached proxy statement which provisions
would (i) authorize up to 10 million shares of Common Stock
("Delaware Certificate Proposal One"), (ii) authorize up to
5 million shares of a new class of undesignated Preferred Stock
("Blank Check Preferred Stock"), which would allow the Board of
Directors of the Company to issue, without further shareholder
action, one or more series of Preferred Stock, ("Delaware
Certificate Proposal Two"), (iii) require that all shareholder
actions be taken at a shareholders meeting ("Delaware Certificate
Proposal Three"), (iv) eliminate cumulative voting in the election
of directors ("Delaware Certificate Proposal Four"), (v) provide
that officers and directors of the Company shall receive indemnification
from the Company to the fullest extent permitted by Delaware law
("Delaware Certificate Proposal Five"),(vi) require the vote of the
holders of 66-2/3% of the voting power of the Company to amend the
provisions of (iii) and (v) above, or to amend or repeal the Bylaws of
Gladstone-Delaware ("Delaware Bylaws"), if shareholders ever seek to
amend or repeal the Delaware Bylaws ("Delaware Certificate Proposal
Six", and together with the foregoing proposals the "Delaware Certificate
Proposals"); and
5. To transact such other business as may properly come before
the Meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on
June 17, 1999 as the record date for the determination of
shareholders entitled to notice of and to vote at the Meeting or
any adjournments thereof.
A list of shareholders of the Company entitled to notice of and
to vote at the Meeting will be available for examination at the
Meeting and during ordinary business hours from July 15, 1999 to
the date of the Meeting at the principal offices of the Company
at the address set forth above.
You are cordially invited to attend the Meeting.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING
REGARDLESS OF THE NUMBER OF SHARES YOU HOLD. YOU ARE INVITED TO
ATTEND THE MEETING IN PERSON, BUT WHETHER OR NOT YOU PLAN TO
ATTEND, PLEASE COMPLETE, DATE, SIGN AND RETURN THE ACCOMPANYING
PROXY IN THE ENCLOSED ENVELOPE. IF YOU DO ATTEND THE MEETING, YOU
MAY, IF YOU PREFER, REVOKE YOUR PROXY AND VOTE YOUR SHARES IN
PERSON.
By Order of the Board of Directors,
/s/ SHEILA IRONS
- ------------------
Sheila Irons
SECRETARY
June 17, 1999
TABLE OF CONTENTS
Page
INTRODUCTION............................................. 1
THE MEETING.............................................. 1
TIME, DATE AND PLACE OF MEETING......................... 1
RECORD DATE AND OUTSTANDING SHARES...................... 1
INTENTIONS TO VOTE...................................... 2
VOTING OF PROXIES; REVOCATION........................... 2
VOTE REQUIRED; DISSENTERS' RIGHTS........................ 2
PROXY SOLICITATION AND EXPENSES......................... 3
ELECTION OF DIRECTORS (ITEM 1) AND MANAGEMENT
INFORMATION............................................. 4
DIRECTORS............................................... 4
MEETINGS OF THE BOARD OF DIRECTORS...................... 5
DIRECTORS FEES.......................................... 5
BENEFICIAL OWNERSHIP OF FIVE PERCENT OR
GREATER SHAREHOLDERS................................... 5
BENEFICIAL OWNERSHIP OF DIRECTORS AND
EXECUTIVE OFFICERS..................................... 6
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......... 6
EXECUTIVE COMPENSATION.................................. 7
OPTION/SAR GRANTS IN LAST FISCAL YEAR................... 7
AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR END OPTION/SAR VALUES...... 7
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR..... 8
EMPLOYMENT CONTRACTS AND TERMINATION OF
EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS.......... 8
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT....... 8
REVERSE STOCK SPLIT (ITEM 2)............................. 8
GENERAL................................................. 8
REASONS FOR THE REVERSE STOCK SPLIT..................... 8
EFFECT OF THE REVERSE STOCK SPLIT....................... 9
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS............... 9
REINCORPORATING PROPOSAL (ITEM 3)........................ 10
GENERAL................................................. 10
PRINCIPAL FEATURES OF THE REINCORPORATING
AND THE MERGER......................................... 11
PRINCIPAL REASONS FOR THE REINCORPORATING............... 11
POSSIBLE DISADVANTAGES OF REINCORPORATING............... 12
AMENDMENT, DEFERRAL OR TERMINATION OF THE
REINCORPORATING MERGER AGREEMENT....................... 13
FEDERAL INCOME TAX CONSQUENCES OF THE
REINCORPORATING........................................ 13
EXCHANGE OF STOCK CERTIFICATES........................... 13
DISSENTERS' RIGHTS....................................... 14
ADOPTION OF DELAWARE CERTIFICATE PROPOSALS (ITEM 4)...... 15
DELAWARE CERTIFICATE PROPOSAL ONE:
INCREASE IN AUTHORIZED CAPITAL STOCK.................... 16
GENERAL................................................. 16
PRINCIPAL REASONS FOR AUTHORIZATION..................... 16
POSSIBLE DISADVANTAGES.................................. 16
DELAWARE CERTIFICATE PROPOSAL TWO:
AUTHORIZATION OF BLANK CHECK PREFERRED.................. 16
GENERAL................................................. 16
I
PRINCIPAL REASONS FOR AUTHORIZATION..................... 16
POSSIBLE DISADVANTAGES OF AUTHORIZATION................. 17
DELAWARE CERTIFICATE PROPOSAL THREE:
ELIMINATION OF SHAREHOLDER CONSENTS...................... 17
GENERAL................................................. 17
REASONS FOR PROPOSAL.................................... 17
POSSIBLE DISADVANTAGES OF PROPOSAL...................... 18
DELAWARE CERTIFICATE PROPOSAL FOUR:
ELIMINATION OF CUMULTIVE VOTING......................... 18
GENERAL................................................. 18
REASONS FOR PROPOSAL.................................... 18
POSSIBLE DISADVANTAGES OF PROPOSAL...................... 18
DELAWARE CERTIFICATE PROPOSAL FIVE:
INDEMNIFICATION......................................... 19
DELAWARE CERTIFICATE PROPOSAL SIX:
SUPERMAJORITY VOTING REQUIREMENTS TO AMEND OR
REPEAL CERTAIN PROVISIONS OF THE CERTIFICATE
OF INCORPORATION OR BYLAWS.............................. 19
INTERESTED PARTIES....................................... 19
MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS............................. 20
MARKET FOR COMMON STOCK................................. 20
DIVIDENDS............................................... 20
HOLDERS OF RECORD....................................... 20
INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE................................ 20
SHAREHOLDER PROPOSALS.................................... 20
OTHER MATTERS............................................ 20
EXHIBIT A - REINCORPORATING MERGER AGREEMENT
EXHIBIT B - CERTIFICATE OF INCORPORATION OF GLADSTONE - DELAWARE
EXHIBIT C - WBCA DISSENTERS' RIGHTS
EXHIBIT D - COMPARISON OF WASHINGTON AND DELAWARE CORPORATE LAW
II
PROXY STATEMENT
---------------------
GLADSTONE RESOURCES, INC.
3500 OAK LAWN AVE., SUITE 590, LB 49
DALLAS, TEXAS 75219
------------------------
1999 ANNUAL MEETING OF SHAREHOLDERS
JULY 15, 1999
------------------------
INTRODUCTION
This Proxy Statement is furnished in connection with the
solicitation of proxies on behalf of the Board of Directors of
Gladstone Resources, Inc., a Washington corporation (the
"Company" or "Gladstone"), for use at the 1999 Annual Meeting of
Shareholders (the "Meeting") to be held at 3500 Oak Lawn, Suite
590, Dallas, Texas 75219, on July 15, 1999 at 10:00 a.m., and
at any adjournments thereof.
This Proxy Statement, the accompanying proxy card and the
Annual Report of the Company are first being mailed on or about
June 22, 1999, to all shareholders of the Company. Although the
Annual Report and this Proxy Statement are being mailed together,
the Annual Report shall not be deemed a part of this Proxy
Statement.
At the Meeting, the Company's shareholders will vote upon
(i) the election of five (5) directors of the Company to serve
until the next annual meeting of shareholders; (ii) a proposal to
effect a one-for-five reverse stock split of the Company's
outstanding Common Stock (the "Reverse Stock Split"); (iii) a
proposal to reincorporate the Company in Delaware (the
"Reincorporating"); (iv) certain proposals to adopt provisions of
the Certificate of Incorporation of Gladstone-Delaware (the
"Delaware Certificate"); and (v) such other business as may
properly come before the meeting or any adjournments thereof.
The Board of Directors of the Company has nominated the five
(5) directors presented in this proxy statement for election and
has approved the Reverse Stock Split, the Reincorporating, each
proposal to adopt provisions of the Delaware Certificate (the
"Delaware Certificate Proposals") and recommends that holders of
Common Stock vote "FOR" the election of the five (5) nominees for
election as directors and "FOR" the approval of the Reverse Stock
Split, the Reincorporating, and the Delaware Certificate
Proposals.
THE MEETING
Time, Date and Place of Meeting
This Proxy Statement is being furnished in connection with
the solicitation of proxies by the Board of Directors of the
Company for use at the Meeting of Shareholders to be held at
10:00 a.m. on July 15, 1999 at 3500 Oak Lawn Avenue, Suite 590,
Dallas, Texas 75219.
Record Date and Outstanding Shares
The Board of Directors of the Company has fixed the close of
business on June 17, 1999 as the record date (the "Record Date")
for the determination of shareholders entitled to notice of, and
to vote at, the Meeting or any adjournment thereof. Accordingly,
only holders of record of the Company's Common Stock, no par
value per
1
share (the "Common Stock"), at the close of business on the
Record Date will be entitled to vote at the Meeting, either by
proxy or in person. As of the Record Date, there were 4,244,060
shares of Common Stock of the Company outstanding. Each share of
Common Stock entitles the holder to one vote. There is no
cumulative voting and there are no other voting securities of the
Company outstanding.
Intentions to Vote
The members of the Board of Directors and the executive officers
of the Company, which hold an aggregate of approximately 70.29% of the
outstanding shares of Common Stock of the Company, have indicated to the
Company that they intend to vote their shares for the five (5) nominees for
director and for the Reverse Stock Split, the Reincorporating and the
Delaware Certificate Proposals. As of the Record Date, the total number
of shares of Common Stock which the Board and the executive officers
has indicated a desire to vote equals 2,983,062 shares of Common Stock.
See "Beneficial Ownership of Directors and Executive Officers".
Voting of Proxies; Revocation
All properly executed proxies received by the Company prior
to the Meeting and not revoked will be voted in accordance with
the instructions marked thereon. Unless instructions to the
contrary are marked thereon, proxies will be voted "FOR" the
election as directors of those persons named below, "FOR" the
Reverse Stock Split, "FOR" the Company's proposed Reincorporating
and "FOR" the adoption of each of the Delaware Certificate
Proposals. The Board of Directors of the Company knows of no
business other than that mentioned herein, which will be
presented for consideration at the Meeting. If any other matter
is properly presented, it is the intention of the persons named
in the enclosed proxy to vote in accordance with their best
judgment. Any shareholder may revoke his or her proxy at any time
prior to the exercise thereof by giving written notice to the
Secretary of the Company at the Company's address indicated
above, by submitting a duly executed proxy bearing a later date,
or by attending the Meeting and expressing a desire to
vote in person. Attendance at the Meeting will not, in itself,
constitute revocation of a proxy.
Vote Required; Dissenters' Rights
A majority of the outstanding Common Stock must be
represented in person or by proxy at the Meeting in order to
constitute a quorum for the transaction of business. Pursuant to
the Washington business corporation act ("WBCA"), directors shall be elected
by plurality vote at each annual meeting of shareholders and accordingly
abstentions and broker non-votes will have no effect on the election of
directors. A broker non-vote occurs if a broker or other nominee does
not have discretionary authority and has not received instructions with respect
to a particular item. Shareholders are entitled to cumulate their votes in
the election of directors. Under cumulative voting, each shareholder is
entitled to cast as many votes as shall equal the number of shares held by
the shareholder multiplied by the number of directors to be
elected, and such votes may all be cast for a single director or
may be distributed among the directors to be elected as the
shareholder wishes. If a shareholder desires to cumulate his or
her votes, the accompanying proxy should be marked to indicate
clearly that the shareholder desires to exercise the right to
cumulate votes and to specify how the votes are to be allocated
among the nominees for directors. For example, a shareholder may
write "cumulate" on the accompanying proxy card and write below
the name of the nominee or nominees for whom the shareholder
desires to cast votes the number of votes to be cast for such
nominee or nominees. Alternatively, without exercising his or her
right to vote cumulatively, a shareholder may instruct the proxy
holders not to vote for one or more of the nominees by writing in
the space provided on the accompanying proxy card for withholding
authority to vote for a nominee the nominee name. If
the accompanying proxy card is not marked with respect to the
election of directors, authority will be granted to the persons
named in the accompanying proxy card to cumulate votes if they so
choose and to allocate votes among the nominees in such a manner
as they determine is necessary in order to elect all or as many
of the nominees as possible.
The Reverse Stock Split must be approved by the affirmative
vote of the holders of a majority of the outstanding shares of
Common Stock. The Reincorporating and the Delaware Certificate
Proposals must be approved by the affirmative vote of the holders
of two thirds (2/3) of the outstanding shares of Common Stock.
Abstentions and broker non-votes will have the effect of a "no"
vote with respect to the approval of the Reverse Stock Split, the
Reincorporating and the Delaware Certificate Proposals. A broker
non-vote occurs if a broker or other nominee does not have
discretionary authority and has not received instructions with
respect to a particular item. Pursuant to the WBCA, holders of
Company Common Stock who do not vote in favor of the
Reincorporating
2
and holders of less than five shares of the Common Stock who do
not vote in favor of the Reverse Stock Split and comply with the
detailed provisions contained in Chapter 23B.13 of the WBCA will
be entitled to dissent and seek the payment of the fair value of
their shares of Gladstone-Washington. See "Dissenters' Rights." A
copy of Chapter 23B.13 of the WBCA is reproduced as Exhibit C to
this Proxy Statement. Shareholders desiring to dissent should
read such materials carefully. A vote for those proposals will
result in a waiver of any shareholder's dissenters' rights. A
vote against those proposals without otherwise complying with the
additional notice and other provisions of Chapter 23B.13 of the
WBCA will not effectively exercise a dissenting shareholder's
dissenters' rights. BECAUSE AN EXECUTED PROXY CARD WILL BE VOTED
FOR THE APPROVAL AND ADOPTION OF THE PROPOSALS UNLESS OTHERWISE
SPECIFIED, A SHAREHOLDER RETURNING A SIGNED BUT UNMARKED PROXY
CARD WILL WAIVE HIS OR HER RIGHT TO DISSENT FROM THE
REINCORPORATING OR, IF APPLICABLE, THE REVERSE STOCK SPLIT.
Proxy Solicitation and Expenses
The accompanying proxy is being solicited on behalf of the
Board of Directors of the Company. All expenses of this
solicitation, including the cost of preparing, assembling, and
mailing this proxy soliciting material and Notice of Meeting of
Shareholders, will be paid by the Company. Solicitation of
holders of Common Stock by mail, telephone, facsimile or by
personal solicitation may be done by directors, officers and
regular employees of the Company, for which they will receive no
additional compensation. Brokerage houses and other nominees,
fiduciaries and custodians nominally holding shares of Common
Stock as of the Record Date will be requested to forward proxy
soliciting material to the beneficial owners of such shares, and
will be reimbursed by the Company for their reasonable out-of-
pocket expenses.
3
ELECTION OF DIRECTORS (ITEM 1) AND MANAGEMENT INFORMATION
Directors
Five directors are to be elected at the Meeting, to serve
until the Company's next annual meeting of shareholders and until
their respective successors are elected and qualified, or until
their earlier resignation or removal.
The following table sets forth certain information for each
nominee and present director of the Company. Each of the nominees
for director named in the following table is now serving as a
director of the Company and was appointed to the Board of
Directors in March, 1999. There is no family relationship between
any of the directors or between any director and any executive
officer of the Company.
NAME AGE POSITION WITH THE COMPANY
--------------- --- -------------------------------------------
Johnathan M. Hill 49 President, Chief Executive Officer and
Director
Charles B. Humphrey 43 Director
H. Wayne Gifford 61 Director
Katherine R. Murphy 42 Treasurer, Assistant Secretary and Director
Fred Oliver 74 Director
Johnathan M. Hill has served as President, Chief Executive
Officer and a director of Gladstone since March, 1999. Mr. Hill
also is the President of Hill & Hill Production Company, an oil
and gas production company, the Secretary and Treasurer of Hill
Energy Company, an oil and gas investment company, and the Vice
President of HPC Operating Company, an oil and gas operating
company, all based in Dallas, Texas, positions he has held since
1985.
Charles B. Humphrey has served as a director of the Company
since March, 1999. Mr. Humphrey also is the President, Treasurer,
and sole Director of Humphrey Oil Corporation, an oil and gas
exploration company based in Dallas, Texas, and the President and
a Director of Lindenshire, Inc., a real estate development
company based in Dallas, Texas, positions he has held since 1984.
Mr. Humphrey also has been engaged in real estate development and
investment individually and through numerous other partnerships,
joint ventures and corporations since 1984.
H. Wayne Gifford has served as a director of Gladstone since
March, 1999. Mr. Gifford also is the President and a Director of
Gifford Operating Company, an oil and gas operating company based
in Dallas, Texas, positions he has held since 1987. Mr. Gifford
has also been active as an independent geological consultant
since 1980.
Katherine R. Murphy has served as Treasurer, Assistant
Secretary and a director of Gladstone since March, 1999. Ms.
Murphy also is the Vice President and Assistant Secretary of
Humphrey Oil Corporation, a position she has held since 1989.
4
Fred Oliver has served as a director of Gladstone since
March, 1999. Mr. Oliver also is the President of Petroleum
Ventures of Texas, Inc., an oil and gas investment company based
in Dallas, Texas, positions he has held since 1975. Mr. Oliver
also has been engaged in geological and engineering consulting
since 1953.
Unless authority to vote for one or more nominees is
withheld, the enclosed proxy will be voted "FOR" the election of
all of the nominees listed below. Although the Board of Directors
does not contemplate that any of the nominees will be unable to
serve, if such a situation arises prior to the Meeting, the
persons named in the enclosed proxy will vote for the election of
such other person(s) as may be nominated by the Board of
Directors.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT THE SHAREHOLDERS
VOTE FOR EACH OF THE FIVE NOMINEES NAMED ABOVE.
Meetings of the Board of Directors
The Board of Directors acted by unanimous written consent on
one occasion during the fiscal year ended December 31, 1998. The
Board of Directors did not have an audit, compensation, executive
or other committee during the fiscal year ended December 31,
1998.
Directors Fees
During the fiscal year ended December 31, 1998, the
directors were not paid any fees for services as a director or
attendance at meetings of the Board of Directors. On April 19,
1999, the Board of Directors of the Company approved a fee of
$250 for each meeting attended by a director.
Beneficial Ownership of Five Percent or Greater Shareholders
The following table sets forth beneficial owners of five
percent or more of the Company's outstanding shares of Common
Stock known to the Company as of June 17, 1999. All shares
shown in the table reflect sole voting and investment power
unless otherwise indicated.
Number of
Shares Percent
Name and address Beneficially of Total
of beneficial owner Owned(1) Shares
- --------------------------------- ---------- ---------------
Charles B. Humphrey 1,080,819 25.47%
3500 Oak Lawn, Suite 590, LB 49
Dallas, TX 75219
Johnathan M. Hill 1,080,819 25.47
3500 Oak Lawn, Suite 590, LB 49
Dallas, TX 75219
Sheila Irons, Individually and as Trustee of
Humphrey Children's Trust 302,630(2) 7.13
3500 Oak Lawn, Suite 590, LB 49
Dallas, TX 75219
Fred Oliver 259,397 6.11
4625 Greenville Ave., Suite 205
Dallas, TX 75206
David Tyrrell, individually and as Trustee of
the Katherine Desporte Tyrrell Trust 216,164(3) 5.09
4625 Greenville Ave., Suite 203
Dallas, TX 75206
____________________
(1) Based upon the joint Schedule 13D filed January 29, 1999 by Mr. Charles B.
Humphrey, Mr. Johnathan M. Hill, Mr. Fred Oliver, Mr. David Tyrrell, Mr. H.
Wayne Gifford, Ms. Katherine R. Murphy and Ms. Sheila Irons (the "Group")
as a group and certain of the members of the Group individually. Each
member
5
of the Group disclaims beneficial ownership of the shares of Common Stock
held by the Group or any other member of the Group.
(2) Includes 216,164 Shares held by Humphrey Children's Trust. Ms. Irons
disclaims beneficial ownership of the shares of Common Stock held by the
Humphrey Children's Trust.
(3) Includes 108,082 shares held by Katherine Desporte Tyrrell Trust. Mr.
Tyrrell disclaims beneficial ownership of the shares of Common Stock held
by the Katherine Desporte Tyrrell Trust.
Beneficial Ownership of Directors and Executive Officers
The following table sets forth the number of shares of
Common Stock beneficially owned by each director of the Company,
each executive officer of the Company and all directors and
executive officers as a group as of June 17, 1999. All shares
shown in the table reflect sole voting and investment power
unless otherwise indicated.
Number of
Shares Percent
Name and address of Beneficially of Total
beneficial owner Owned(1) Shares(1)
- --------------------------------- ---------- --------
Directors and Executive Officers
Charles B. Humphrey 1,080,819 25.47%
3500 Oak Lawn, Suite 590, LB 49
Dallas, TX 75219
Johnathan M. Hill 1,080,819 25.47
3500 Oak Lawn, Suite 590, LB 49
Dallas, TX 75219
Sheila Irons, Individually and as Trustee of 302,630(2) 7.13(2)
Humphrey Children's Trust
3500 Oak Lawn, Suite 590, LB 49
Dallas, TX 75219
Fred Oliver 259,397 6.11
4625 Greenville Ave., Suite 205
Dallas, TX 75206
H. Wayne Gifford 172,931 4.07
4625 Greenville Ave., Suite 203
Dallas, TX 75206
Katherine R. Murphy 86,466 2.04
3500 Oak Lawn, Suite 590, LB 49
Dallas, TX 75219
Directors and Executive Officers as a Group
(6 individuals) 2,983,062 70.29
_____________________
(1) Based upon the joint Schedule 13D filed January 29, 1999 by Mr. Charles B.
Humphrey, Mr. Johnathan M. Hill, Mr. Fred Oliver, Mr. David Tyrrell, Mr. H.
Wayne Gifford, Ms. Katherine R. Murphy and Ms. Sheila Irons (the "Group")
as a group and certain of the members of the Group individually. Each
member of the Group disclaims beneficial ownership of the shares of Common
Stock held by the Group or any other member of the Group.
(2) Includes 216,164 Shares held by Humphrey Children's Trust. Ms. Irons
disclaims beneficial ownership of the shares of Common Stock held by the
Humphrey Children's Trust.
Certain Relationships and Related Transactions
Pursuant to certain operating agreements by and between the
Company and Mr. Edward B. Brooks, Jr., the President and a
director of the Company during the fiscal year ended December 31,
1998, Mr. Brooks serves as the operator of certain of the
Company's oil and gas interests. Pursuant to such operating
agreements, the Company
6
paid the following described amounts to Mr. Brooks in 1997 and
1998 and Mr. Brooks paid the following described amounts to the
Company in 1997 and 1998.
Mr. Brooks paid the Company $90,802 and $72,602,
respectively, in 1997 and 1998 as the Company's share of gas
sales from properties in Schleicher County. The Company paid
Mr. Brooks $68,881 and $52,306, respectively, in 1997 and 1998
for the Company's share of operating costs on properties in Kent
County and Schleicher County. In 1998, the Company also paid
Mr. Brooks $4,734 for the Company's share of operating expenses
on the Schleicher and Kent County properties that were paid by
Mr. Brooks in 1997.
In 1997, the Company paid Mr. Brooks $228,472 for the
Company's share of the cost of a seismic study on properties in
Stonewall County and the cost of drilling two wells in other
counties in Texas, which turned out to be non-productive. In
1998, the Company paid Mr. Brooks $18,915 for the Company's share
of the seismic study on properties in Stonewall County and
$37,591 for the Company's share of the cost of drilling a well in
Stonewall County that was nonproductive. In 1998, the Company
paid $24,335 to Mr. Brooks for the Company's share of lease costs
of properties in Stonewall County.
In 1997 and 1998, the Company reimbursed Mr. Brooks $1,769
and $1,159, respectively, for expenses incurred by him in
operating a Company owned vehicle that was provided to him for
Company business.
Executive Compensation
The table below includes compensation paid by the Company
for services rendered in fiscal 1998, 1997 and 1996 to Mr. Edward
B. Brooks, Jr., the former President and Chief Executive Officer
of the Company. None of the other executive officers of the
Company had total salary and bonus in excess of $100,000 during
the fiscal year ended December 31, 1998.
Long-Term
Compensation
Annual Compensation Awards
------------------------------------------- -----------
Securities All Other
Name and Principal Other Annual Underlying Compensation
position Year Salary($) Bonus($) ($) Compensation Options(#) ($)
- -------------------- ---- --------- -------- --- ------------ -------- ----------
Edward B. Brooks, Jr. 1998 0 --- (1) --- --- ---
President and CEO 1997 0 --- (1) --- --- ---
1996 0 --- (1) --- --- ---
_______________
(1) The Company provided Mr. Brooks a vehicle for Company business. The
Company's depreciation expense for 1996, 1997 and 1998 for the vehicle was
$3,060, $4,900 and $2,664, respectively. The Company also reimbursed
Mr. Brooks $1,769 and $1,159 in 1997 and 1998, respectively, for costs
incurred by Mr. Brooks in connection with the operation of such vehicle.
Option/SAR Grants in Last Fiscal Year
No stock options or stock appreciation rights were granted to the President
by the Company during fiscal 1998.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year End
Option/SAR Values
No stock options or stock appreciation rights were exercised by the
President in fiscal 1998, and no stock options or stock appreciation rights were
outstanding at the end of fiscal 1998.
7
Long-Term Incentive Plan Awards in Last Fiscal Year
The Company did not have any long-term incentive plans in effect during
fiscal 1998.
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
The Company does not have any employment agreements with any of its
officers.
Compliance With Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers and persons who own more than 10%
of the Company's common stock to file with the Securities and Exchange
Commission ("SEC") initial reports of ownership and reports of changes in
ownership of common stock and other equity securities of the Company. Officers,
directors and greater than 10% shareholders are required by SEC regulations to
furnish the Company with copies of all Section 16(a) reports they file. To the
Company's knowledge, based solely on the review of the copies of such reports
filed during the fiscal year ended December 31, 1998, all required Section 16(a)
filings were made.
REVERSE STOCK SPLIT (ITEM 2)
General
The Board of Directors of the Company has approved a proposal to amend the
Company's Restated Articles of Incorporation (the "Restated Certificate") to
effect a one-for-five reverse stock split of the Company's outstanding Common
Stock, subject to the approval of the Company's shareholders. This proposal
provides for the combination and reclassification of the presently issued and
outstanding shares of Common Stock, into a smaller number of shares of identical
Common Stock, on the basis of one share of Common Stock for each five shares of
Common Stock previously issued and outstanding (the "Reverse Stock Split").
Except as may result from the payment of cash for fractional shares resulting
from the Reverse Stock Split and as to those shareholders owning fewer than five
shares, each shareholder will hold the same percentage of Common Stock
outstanding immediately following the Reverse Stock Split as each shareholder
did immediately prior to the Reverse Stock Split. If approved by the Company's
shareholders as provided herein, the Reverse Stock Split will be effected by
filing the following amendment to Article Sixth of the Company's Restated
Certificate (the "Reverse Stock Split Amendment").
"Upon the filing of this Amendment to the Restated Articles of
Incorporation (the "Effective Time"), each five shares of the
corporation's Common Stock theretofore outstanding shall, without any
action on the part of the holder thereof, be automatically converted
into one share of the corporation's Common Stock, provided that no
fractional shares shall be issued and in lieu thereof, each holder of
Common Stock who holds any number of shares of Common Stock not evenly
divisible by five immediately prior to the Effective Time will be
entitled to receive cash in the sum of such holder's post split
fractional interest multiplied by $1.00."
At the Effective Time, each five shares of Common Stock issued and
outstanding will automatically be reclassified and converted into one of share
of Common Stock. Fractional shares of Common Stock will not be issued as a
result of the Reverse Stock Split. Shareholders entitled to receive a fractional
share of Common Stock as a consequence of the Reverse Stock Split will, instead,
be entitled to receive cash in the sum of such shareholder's post split
fractional interest multiplied by $1.00.
Reasons For The Reverse Stock Split
The primary purpose of the Reverse Stock Split is to increase the per share
value of the Company's Common Stock. The higher per share value of the Common
Stock will bring the Company closer to meeting listing standards of the Nasdaq
Stock Market. The Board of Directors also believes that the current low per
share
8
price of the Common Stock has or may have a negative effect on the Company's
ability to use the Common Stock in connection with possible future transactions
such as financings, strategic alliances, acquisitions and other uses not
presently determinable.
For the above reasons, the Company believes that the Reverse Stock Split is
in the best interests of the Company and its shareholders. However, there can be
no assurances that the Reverse Stock Split will have the desired consequences.
Effect Of The Reverse Stock Split
Subject to shareholder approval, the Reverse Stock Split will be effected
by filing the Reverse Stock Split Amendment to the Company's Restated
Certificate and will be effective immediately upon such filing. Although the
Company expects to file the Reverse Stock Split Amendment with the Washington
Secretary of State's office promptly following approval at the Meeting the
actual timing of such filing will be determined by the Company's management
based upon their evaluation as to when such action will be most advantageous
to the Company and its shareholders. The Company reserves the right to forego
or postpone filing the Reverse Stock Split Amendment if such action is
determined to be in the best interests of the Company and its shareholders.
Each of the Company's shareholders who owns five or more shares of Common
Stock will continue to own one or more shares of Common Stock and will continue
to share in the assets and future growth of the Company as a shareholder. Each
shareholder that owns five or more shares of Common Stock will own that number
of shares as equals 1/5th as many shares as such shareholder owned before the
Reverse Stock Split, subject to the adjustment for fractional shares, in which
case such shareholder shall receive cash in lieu of such fractional share. Each
shareholder that owns fewer than five shares of Common Stock will have such
shareholder's fractional share of Common Stock paid in cash.
The Reverse Stock Split will also result in some shareholders owning "odd
lots" of less than 100 shares of Common Stock received as a result of the
Reverse Stock Split. Brokerage commissions and other costs of transactions in
odd lots may be higher, particularly on a per-share basis, than the cost of
transactions in even multiples of 100 shares.
The Company is currently authorized to issue Six Million (6,000,000) shares
of Common Stock of which Four Million Two Hundred Forty-Four Thousand Sixty
(4,244,060) shares were issued and outstanding at the close of business on the
record date.
Adoption of the Reverse Stock Split will reduce the shares of Common Stock
outstanding on June 17, 1999, the record date, from Four Million Two Hundred
Forty-Four Thousand Sixty (4,244,060) to approximately 848,812, but will not
affect the number of authorized shares of Common Stock. (However, such number
of authorized shares will be increased if Delaware Certificates Proposal One is
adopted.) After the Reverse Stock Split, the Company estimates that it will have
approximately 544 shareholders of record.
Certain Federal Income Tax Considerations
The following discussion describes certain material federal income tax
considerations relating to the Reverse Stock Split. This discussion is based
upon the Internal Revenue Code of 1986, as amended (the "Code"), existing and
proposed regulations thereunder, legislative history, judicial decisions, and
current administrative rulings and practices, all as amended and in effect on
the date hereof. Any of these authorities could be repealed, overruled, or
modified at any time. Any such change could be retroactive and, accordingly,
could cause the tax consequences to vary substantially from the consequences
described herein. No ruling from the Internal Revenue Service (the "IRS") with
respect to the matters discussed herein has been requested, and there is no
assurance that the IRS would agree with the conclusions set forth in this
discussion.
9
This discussion may not address certain federal income tax consequences
that may be relevant to particular shareholders in light of their personal
circumstances (such as persons subject to the alternative minimum tax) or to
certain types of shareholders (such as dealers in securities, insurance
companies, foreign individuals and entities, financial institutions, and tax-
exempt entities) who may be subject to special treatment under the federal
income tax laws. This discussion also does not address any tax consequences
under state, local or foreign laws.
SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS AS TO THE PARTICULAR
TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT FOR THEM, INCLUDING THE
APPLICABILITY OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, CHANGES IN APPLICABLE TAX
LAWS AND ANY PENDING OR PROPOSED LEGISLATION.
The Reverse Stock Split is intended to be a tax-free re-capitalization to
the Company and its shareholders, except for those shareholders who receive cash
in lieu of a fractional share. Shareholders will not recognize any gain or loss
for federal income tax purposes as a result of the Reverse Stock Split, except
for those shareholders receiving cash in lieu of a fractional share (as
described below). The holding period for shares of Common Stock after the
Reverse Stock Split will include the holding period of shares of Common Stock
before the Reverse Stock Split, provided that such shares of Common Stock are
held as a capital asset at the Effective Time. The adjusted basis of the shares
of Common Stock after the Reverse Stock Split will be the same as the adjusted
basis of the shares of Common Stock before the Reverse Stock Split excluding the
basis of fractional shares.
A shareholder who receives cash in lieu of fractional shares will be
treated as if the Company has issued fractional shares to such shareholder and
then immediately redeemed such shares for cash. Such shareholder would
generally recognize gain or loss, as the case may be, measured by the difference
between the amount of cash received and the basis of such shareholder's shares
(prior to the Reverse Stock Split) allocable to such fractional share.
THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE REVERSE STOCK SPLIT AND
RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THIS PROPOSAL.
REINCORPORATING PROPOSAL (ITEM 3)
General
The Board of Directors of the Company has approved and recommends that the
shareholders approve the proposed merger of the Company into a wholly owned
subsidiary to be incorporated under the laws of the State of Delaware for the
purpose of changing the Company's state of incorporation from the State of
Washington to the State of Delaware (the "Reincorporating"). The Board of
Directors believes that the Reincorporating will result in significant
advantages as more fully described in the section entitled "Principal Reasons
For The Reincorporating" below.
The following discussion summarizes certain aspects of the proposed
Reincorporating of the Company from the State of Washington to the State of
Delaware pursuant to the Agreement and Plan of Merger (the "Reincorporating
Merger Agreement") between the Company and a wholly owned subsidiary to be
incorporated under the laws of the State of Delaware ("Gladstone-Delaware").
This summary is not intended to be complete and is subject to, and qualified in
its entirety by, reference to (i) the "Comparison Of Washington And Delaware
Corporate Law" attached as Exhibit D to this Proxy Statement, (ii) the
Reincorporating Merger Agreement, a copy of which is attached to this Proxy
Statement as Exhibit A, (iii) the Certificate of Incorporation of Gladstone-
Delaware ("Delaware Certificate"), a copy of which is attached to this Proxy
Statement as Exhibit B, and (iv) the WBCA Dissenters' Rights Statute, a copy of
which is attached to this Proxy Statement as Exhibit C. Copies of the Restated
Articles of Incorporation of the Company ("Washington Articles") are available
for inspection at the principal executive office of the Company and copies will
be sent to shareholders, without charge, upon oral or written request directed
to Gladstone Resources, Inc., 3500 Oak Lawn, Suite 590, LB 49, Dallas, Texas
75219, Attention:
10
Corporate Secretary, (214) 528-9710. In this discussion of the Reincorporating,
the terms "Company" or "Gladstone-Washington" refer to the existing Washington
corporation and the term "Gladstone -Delaware" refers to the new Delaware
corporation which is the proposed successor to Gladstone-Washington.
Principal Features Of The Reincorporating and The Merger
The Reincorporating will be effected by the merger (the "Merger") of
Gladstone-Washington with and into Gladstone-Delaware, which will be
incorporated under the Delaware General Corporation Law ("DGCL") for purposes of
the Merger. Gladstone-Delaware will be the surviving corporation in the Merger.
Gladstone-Washington will cease to exist as a result of the Merger.
Upon completion of the Merger, each outstanding share of Common Stock, no
par value per share, of Gladstone-Washington after giving effect to the Reverse
Stock Split will be converted into one share of Common Stock, $.001 par value,
of Gladstone-Delaware. As a result, the existing shareholders of Gladstone-
Washington will automatically become shareholders of Gladstone-Delaware,
Gladstone-Washington will cease to exist, and Gladstone-Delaware will continue
to operate the business of the Company. Gladstone-Washington stock certificates
will be deemed to represent the same number of Gladstone-Delaware shares as were
represented by such Gladstone-Washington stock certificates prior to the
Reincorporating after giving effect to the Reverse Stock Split.
The Reincorporating will not result in any change to the daily business
operations of the Company or the present location of the principal executive
offices of the Company in Dallas, Texas. The financial condition and results of
operations of Gladstone-Delaware immediately after the consummation of the
Reincorporating will be identical to that of Gladstone-Washington immediately
prior to the consummation of the Reincorporating. In addition, at the effective
time of the Merger, the Board of Directors of Gladstone-Delaware will consist of
those persons who were directors of Gladstone-Washington immediately prior to
the Merger. In addition, the individuals serving as executive officers of
Gladstone-Washington immediately prior to the Merger will serve as executive
officers of Gladstone-Delaware upon the effectiveness of the Merger.
Principal Reasons For The Reincorporating
As the Company plans for the future, the Board of Directors and management
believe that it is essential to be able to draw upon well established principles
of corporate governance in making legal and business decisions. The prominence
and predictability of Delaware corporate law provide a reliable foundation on
which the Company's governance decisions can be based. The Company believes that
the shareholders will benefit from the responsiveness of Delaware corporate law
to their needs and to those of the corporation they own.
For many years the State of Delaware has followed a policy of encouraging
incorporation in that state and, in furtherance of that policy, has adopted
comprehensive, modern and flexible corporate laws which are periodically updated
and revised to meet changing business needs. As a result, many corporations have
been initially incorporated in Delaware or have subsequently reincorporated in
Delaware in a manner similar to that proposed by the Company. Because of
Delaware's prominence as a state of incorporation for many corporations, the
Delaware courts have developed considerable expertise in dealing with corporate
issues and a substantial body of case law has developed construing the DGCL and
establishing public policies with respect to corporations incorporated in
Delaware. Consequently, the DGCL is comparatively well known and understood. It
is anticipated that, as in the past, the DGCL will continue to be interpreted
and explained in a number of significant court decisions. The Board of Directors
believes that reincorporation in Delaware should provide greater predictability
with respect to the Company's corporate affairs.
In addition, the Delaware Secretary of State is particularly flexible,
expert and responsive in its administration of the filings required for mergers,
acquisitions and other corporate transactions. Delaware has become a preferred
domicile for most major corporations in the United States and Delaware law and
administrative practices have become comparatively well-known and widely
understood. As a result of these
11
factors, it is anticipated that Delaware law will provide greater efficiency,
predictability and flexibility in the Company's legal affairs than presently
available under Washington law.
The Board believes that the proposed Reincorporating under Delaware law
will enhance the Company's ability to attract and retain qualified directors and
officers as well as encourage directors and officers to continue to make
independent decisions in good faith on behalf of the Company. The law of
Delaware offers greater certainty and stability from the perspective of those
who serve as corporate officers and directors. To date, the Company has not
experienced difficulty in retaining directors or officers. However, as a result
of the significant potential liability and relatively small compensation
associated with service as a director, the Company believes that the better
understood, and comparatively stable, corporate environment afforded by Delaware
will enable it to compete more effectively with other public companies, most of
which are incorporated in Delaware, in the recruitment of talented and
experienced directors and officers. The parameters of director and officer
liability are more extensively addressed in Delaware court decisions and
therefore are better defined and better understood than under Washington law.
The Board believes that Delaware law strikes an appropriate balance with
respect to personal liability of directors and officers, and that
Reincorporating in Delaware will enhance the Company's ability to recruit and
retain directors and officers in the future, while providing appropriate
protection for shareholders from possible abuses by directors and officers.
Delaware law permits a corporation to eliminate or limit the personal liability
of its directors to the corporation or any of its shareholders for monetary
damages for breach of fiduciary duty as a director of the corporation; however,
directors' personal liability is not, and can not be, eliminated under Delaware
law for intentional misconduct, bad faith conduct or any transaction from which
the director derives an improper personal benefit, or for violations of federal
laws such as federal securities laws.
The Board of Directors has not viewed the increased protections permitted
under the DGCL as a reason for recommending the Reincorporating. Shareholders
should note, however, that since members of the Board of Directors will receive
the benefit of expanded indemnification provisions and limitations on liability,
the Board of Directors may be viewed as having a personal interest in the
approval of the Reincorporating at the potential expense of shareholders.
As a Delaware corporation, Gladstone-Delaware would qualify for the
provisions of Section 203 of DGCL (the "Delaware Business Combination Statute"),
which regulates certain business combinations between a corporation and an
"Interested Shareholder" thereof. With certain exceptions, section 203 prevents
a person who acquires 15% or more of the voting stock of a Delaware corporation
(an "Interested Shareholder") from effecting a merger or certain other business
combinations with such corporation for three years, unless the corporation's
board of directors, prior to the date the acquiror becomes an Interested
Shareholder, approves either the business combination or the transaction that
results in the acquiror's becoming an Interested Shareholder. While the
Reincorporating Proposal is not being recommended in response to any specific
effort of which the Company is aware to accumulate the Company's shares or to
obtain control of the Company, the Board believes that the provisions of the
Delaware Business Combination Statute will enhance the Board's ability to assure
more equitable treatment of the Company's shareholders in the event that a
possible take over attempt. For a more complete description of the Delaware
Business Combinations Statute, see "Business Combinations with Interested
Shareholders" of Exhibit D attached to this Proxy Statement.
Possible Disadvantages of Reincorporating
As a result of the Merger, the Company would be subject to the Delaware
Business Combination Statute which may deter certain acquisitions of the Company
in transactions that are not approved by the Board of Directors. In addition,
the DGCL has been publicly criticized on the grounds that it does not afford
minority shareholders all the same substantive rights and protections that are
available under the laws of a number of other states (including Washington).
For example, if the Reincorporating is consummated, the Company will not be
required in the future under the DGCL to obtain shareholder approval, or to
grant class voting and appraisal rights, in connection with certain kinds of
mergers and corporate reorganizations which under Washington law would be
subject to those requirements. For information regarding those and other
material differences between the WBCA
12
and the DGCL, see Exhibit D attached to this Proxy Statement. The Board of
Directors believes that the advantages of the Reincorporating to the Company and
its shareholders outweigh its possible disadvantages.
SHAREHOLDERS ARE URGED TO READ THE SUMMARY OF CERTAIN SIGNIFICANT DIFFERENCES IN
THE PROVISIONS OF THE WBCA AND THE DGCL AFFECTING THE RIGHTS AND INTERESTS OF
SHAREHOLDERS SET FORTH IN EXHIBIT D ATTACHED TO THIS PROXY STATEMENT.
Amendment, Deferral or Termination of the Reincorporating Merger Agreement
If approved by the shareholders at the Meeting, it is anticipated
that the Reincorporating will become effective at the earliest practicable date.
However, the Reincorporating Merger Agreement provides that it may be amended,
modified or supplemented before or after approval by the shareholders of the
Company; but no such amendment, modification or supplement may be made if it
would have a material adverse effect upon the rights of the Company's
shareholders unless it has been approved by the shareholders. The
Reincorporating Merger Agreement also provides that the Company may terminate
and abandon the Merger or defer its consummation for a reasonable period,
notwithstanding shareholder approval, if in the opinion of the Board of
Directors or, in the case of deferral, of an authorized officer, such action
would be in the best interests of the Company and its shareholders.
Federal Income Tax Consequences of the Reincorporating
The Company believes that, for federal income tax purposes, no gain or loss
will be recognized by the holders of Common Stock as a result of the
consummation of the Reincorporating and no gain or loss will be recognized by
Gladstone-Washington or Gladstone-Delaware. Each holder of Common Stock will
have the same basis in the Gladstone-Delaware Common Stock received pursuant to
the Reincorporating (other than those who exercise dissenters' rights) as such
shareholder had in the Common Stock held immediately prior to the
Reincorporating, and the shareholder's holding period with respect to the
Gladstone-Delaware Common Stock will include the period during which such
shareholder held the corresponding Common Stock, so long as the Common Stock was
held as a capital asset at the time of consummation of the Reincorporating.
ALTHOUGH IT IS NOT ANTICIPATED THAT STATE OR LOCAL INCOME TAX CONSEQUENCES
TO SHAREHOLDERS WILL VARY FROM THE FEDERAL INCOME TAX CONSEQUENCES DESCRIBED
ABOVE, SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE EFFECT OF
THE REINCORPORATING UNDER STATE, LOCAL OR FOREIGN INCOME TAX LAWS.
The Company also believes that it will not recognize gain or loss for
federal income tax purposes as a result of the Merger, and that Gladstone-
Delaware will succeed without adjustment to the tax attributes of the Company.
Shareholders should be aware that franchise taxes in the State of Delaware are
likely to be higher than those in the State of Washington. Based on the
Company's present financial position, the estimated annual franchise tax in the
State of Delaware will be approximately the same as the amount of tax paid last
year to the State of Washington.
A dissenting shareholder who receives payment for his shares upon exercise
of his rights of dissent may recognize capital gain or loss for federal income
tax purposes, measured by the difference between the basis for his shares and
the amount of the payment received. Shareholders who may dissent and seek cash
payment for their shares should consult with their tax advisors.
THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE REINCORPORATING PROPOSAL
AND THE MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THIS PROPOSAL.
13
EXCHANGE OF STOCK CERTIFICATES
The combination and reclassification of shares of Common Stock pursuant to
the Reverse Stock Split will occur automatically on the Effective Date without
any action on the part of shareholders of the Company and without regard to the
date certificates representing shares of Common Stock prior to the Reverse Stock
Split are physically surrendered for new certificates. If the number of shares
of Common Stock to which a holder is entitled as a result of the Reverse Stock
Split would otherwise include a fraction, the Company will issue to the
shareholder, in lieu of issuing fractional shares of the Company, the cash
payment described above under "Reverse Stock Split-General". The conversion of
shares of Gladstone-Washington Common Stock into Gladstone-Delaware Common Stock
will occur automatically upon the completion of the Merger without any action on
the part of shareholders of the Company and without regard to the date
certificates representing shares of Common Stock prior to the Merger are
physically surrendered.
As soon as practicable after the Effective Date of the Reverse Stock Split
Amendment and consummation of the Merger, transmittal forms will be mailed to
each holder of record of certificates for shares of Common Stock to be used in
forwarding such certificates for surrender and exchange for certificates
representing the number of shares of Gladstone-Delaware Common Stock such
shareholder is entitled to receive as a consequence of the Reverse Stock Split
and the Merger. The transmittal forms will be accompanied by instructions
specifying other details of the exchange. Upon receipt of such transmittal
form, each shareholder should surrender the certificates representing shares of
Common Stock, in accordance with the applicable instructions. Each holder who
surrenders certificates will receive new certificates representing the whole
number of shares of Gladstone-Delaware Common Stock that he or she holds as a
result of the Reverse Stock Split and the Merger and the cash payment for
fractional shares resulting from the Reverse Stock Split. SHAREHOLDERS SHOULD
NOT SEND THEIR STOCK CERTIFICATES UNTIL THEY RECEIVE A TRANSMITTAL FORM.
After the Effective Date of the Reverse Stock Split and the consummation of
the Merger, each certificate representing shares of Common Stock outstanding
prior to the Effective Date and consummation of the Merger (an "Old
Certificate") will, until surrendered and exchanged as described above, be
deemed, for all corporate purposes, to evidence ownership of that number of
shares of Gladstone-Delaware Common Stock into which the shares of Common Stock
evidenced by such certificate have been converted by the Reverse Stock Split and
as a result of the consummation of the Merger, and the cash sum payable in
respect of any fractional shares resulting from the Reverse Stock Split.
DISSENTERS' RIGHTS
Holders of fewer than five shares of Common Stock of Gladstone-Washington
will have the right to dissent and seek the payment of "fair value" of their
shares with regard to the Reverse Stock Split and holders of any number of
shares of Common Stock of Gladstone-Washington will have the right to dissent
and seek payment of the "fair value" of their shares with regard to the
Reincorporating Proposal. Pursuant to Chapter 23B.13 of the WBCA, such holders
of record of Gladstone-Washington Common Stock who object and who follow the
procedures prescribed by Chapter 23B.13 of the WBCA will be entitled to receive
a cash payment equal to the "fair value" of the shares of Gladstone-Washington
Common Stock held by them. Set forth below is a summary of the procedures such
holders of Gladstone-Washington Common Stock must follow in order to exercise
their dissenters' rights under the WBCA. This summary does not purport to be
complete and is qualified in its entirety by reference to Chapter 23B.13 of the
WBCA (a copy of which, as of the date hereof, is attached to this Proxy
Statement as Exhibit C) and to any amendments to, or modifications of, such
provisions as may be adopted after the date hereof.
Any such holder of shares of Common Stock of Gladstone-Washington
contemplating a possibility of objecting to the Proposals should carefully
review the text of Exhibit C (particularly the specified procedural steps
required to perfect their dissenters' rights) and should consult as appropriate
with such holder's legal counsel. The dissenters' rights will be lost if the
procedural requirements of Chapter 23B.13 of the WBCA are not fully and
precisely satisfied.
14
A record shareholder may assert dissenters' rights to fewer than all shares
registered in his name only if he dissents with respect to all shares
beneficially owned by a beneficial holder for whom he acts as nominee and
notifies the Company in writing of the name and address of each person on whose
behalf he has such dissenters' rights. A beneficial holder may assert
dissenters' right as to shares held on his behalf only if he submits to the
Company the record holder's written consent to the dissent not later than the
time the beneficial shareholder asserts dissenters' rights and does so with
respect to all shares to which he is beneficial owner.
Under Chapter 23B.13 of the WBCA, any shareholder who desires to assert
dissenters' rights shall deliver to the Company before the vote is taken written
notice of his intent to demand payment for his shares if the proposed action is
effected and shall not vote his shares in favor of the proposed action. If the
proposed corporate action is effected, the Company shall deliver a written
dissenters' notice to all shareholders who properly exercised their dissenters'
rights within ten (10) days after the corporate action is effected. Such notice
from Company shall include, among other items, a form for demanding payment (and
deliver certificates representing shares of Gladstone-Washington), as well as a
date not less than thirty (30) days and not more than sixty (60) days after the
date of the Company's delivery of the initial dissenters' notice by which the
Company must receive the payment demand. A shareholder who demands payment and
deposits his share certificates in accordance with the terms of the Company's
payment demand shall be entitled to receive from the Company the amount that the
Company estimates to be the "fair value" of the shares plus accrued interest.
Such payment is to be accompanied by specified financial information regarding
the Company, a statement of the Company's estimate of the fair value of the
shares and an explanation of how any accrued interest was calculated. If a
dissenting shareholder disagrees with the Company's calculation of the "fair
value" for the shares tendered, he may notify the corporation in writing of his
own estimate of fair value or reject the Company's offer and demand payment of
fair value of his shares. If a dissenting shareholder waives his rights to
contest the Company's determination of "fair value," he must notify the Company
of his demand of payment of a different value in writing within thirty (30) days
after the Company made or offered payment for his shares.
If a demand for payment remains unsettled, the Company may commence a
proceeding within sixty (60) days after receiving the payment demand and
petition the court to determine the fair value of the shares and accrued
interest. If the Company does not commence a proceeding within the sixty day
period, it must pay to each dissenting shareholder the amount demanded by such
shareholder.
ADOPTION OF DELAWARE CERTIFICATE PROPOSALS (ITEM 4)
In connection with the Reincorporating, shareholders of the Company are
being asked to approve certain provisions of the Delaware Certificate set forth
in its entirety as Exhibit B hereto which differ from the current provisions of
the Washington Articles and alter the rights currently given to shareholders
under the Washington Articles. The proposed provisions include that the
Delaware Certificate (i) would authorize up to 10 million shares of Delaware
Common Stock; (ii) would authorize up to 5 million shares of a new class of
undesignated Preferred Stock, which would allow the Board of Directors of the
Company to issue, without further shareholder action, one or more series of
Preferred Stock; (iii) will eliminate the ability of shareholders to take action
by written consent thus requiring that all shareholder action be taken at a
meeting of shareholders; (iv) will eliminate cumulative voting in the election
of directors;(v) will permit directors and officers to be
indemnified to the fullest extent permitted by Delaware law; and (vi) will
require a two-thirds vote of the shareholders to amend the provisions
described in (iii) and (v) above and, if shareholder action is ever sought to
amend the Delaware Bylaws, to amend the Delaware Bylaws. Shareholders should
review the sections describing the principal provisions of the Delaware
Certificate below and Exhibit D for a more complete summary of material
differences in the rights of shareholders of Gladstone-Washington compared
to the rights available to shareholders of Gladstone-Delaware.
APPROVAL OF THE REINCORPORATING WILL AFFECT CERTAIN RIGHTS OF SHAREHOLDERS.
ACCORDINGLY, SHAREHOLDERS ARE URGED TO READ CAREFULLY THIS ENTIRE PROXY
STATEMENT AND THE EXHIBITS TO THE PROXY STATEMENT BEFORE VOTING.
15
DELAWARE CERTIFICATE PROPOSAL ONE:
INCREASE IN AUTHORIZED CAPITAL STOCK
General
The Company's presently authorized capital stock consists of Six Million
shares, all of which are Common Stock, no par value. On June 17, 1999, Four
Million Two Hundred Forty-Four Thousand Sixty (4,244,060) shares of Common Stock
were outstanding. Thus, as of such date, One Million Seven Hundred Fifty-Five
Thousand Nine Hundred Forty (1,755,940) shares of Common Shares remain
unreserved and available for future issuance.
Principal Reasons for Authorization
The proposed Delaware Certificate provides for authorized capital
consisting of 10 million shares of Delaware Common Stock, par value $.001 per
share. The Board of Directors believes that the increase in authorized Common
Stock is in the best interests of the Company and its shareholders and believe
that it is advisable to authorize increasing the authorized Common Stock and
have it available in connection with possible future transactions such as stock
dividends, stock option or other benefit plans, financings, strategic alliances,
acquisitions and other uses not presently determinable and as may be deemed to
be feasible and in the best interests of the Company.
Possible Disadvantages
The Board of Directors is not proposing the increased capitalization as a
means of discouraging tender offers or takeover attempts. However, in the event
of an unsolicited tender offer or takeover proposal, the increased number of
shares could give the Board of Directors greater opportunity to issue shares to
persons who are friendly to management. Such shares might also be available to
make acquisitions or enter into other transactions which might frustrate
potential offerors.
THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED DELAWARE CERTIFICATE PROPOSAL
ONE AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THIS PROPOSAL.
DELAWARE CERTIFICATE PROPOSAL TWO:
AUTHORIZATION OF BLANK CHECK PREFERRED
General
The Washington Articles presently do not authorize any class of equity
securities other than the Common Stock. The proposed Delaware Certificate would
authorize the issuance by the Company of up to 5 million shares of preferred
stock, par value $.001 per share (the "Preferred Stock").
Principal Reasons for Authorization
The Board of Directors believes that the authorization of the Preferred
Stock is in the best interests of the Company and its shareholders and believes
that it is advisable to authorize such shares and have them available in
connection with possible future transactions, such as financings, strategic
alliances, acquisitions and other uses not presently determinable and as may be
deemed to be feasible and in the best interests of the Company. In addition,
the Board of Directors believes that it is desirable that the Company have the
flexibility to issue shares of Preferred Stock without further shareholder
action, except as otherwise provided by law.
16
The Preferred Stock will have such designations, preferences, conversion
rights, cumulative, relative, participating, optional or other rights, including
voting rights, qualifications, limitations or restrictions thereof as may be
determined by the Board of Directors. Thus, if the Delaware Certificate is
approved, the Board of Directors would be entitled to authorize the creation and
issuance of up to 10 million shares of Preferred Stock in one or more series
with such limitations and restrictions as may be determined in the Board's sole
discretion, without further authorization by the Company's shareholders.
Possible Disadvantages of Authorization
It is not possible to determine the actual effect of the Preferred Stock on
the rights of the shareholders of the Company until the Board of Directors
determines the rights of the holders of a series of the Preferred Stock.
However, such effects might include (i) restrictions on the payments of
dividends to holders of the Common Stock; (ii) dilution of voting power to the
extent that the holders of shares of Preferred Stock are given voting rights;
(iii) dilution of the equity interests and voting power if the Preferred Stock
is convertible into Common Stock; and (iv) restrictions upon any distribution of
assets to the holders of the Common Stock upon liquidation or dissolution and
until the satisfaction of any liquidation preference granted to the holders of
Preferred Stock. Shareholders will not have preemptive rights to subscribe for
shares of Preferred Stock.
The Board of Directors is required by Delaware law to make any
determination to issue shares of Preferred Stock based upon its judgment as
advisable and in the best interests of the shareholders and the Company.
Although the Board of Directors has no present intention of doing so, it could
issues shares of Preferred Stock (within the limits imposed by applicable law)
that could, depending on the terms of such series, make more difficult or
discourage an attempt to obtain control of the Company by means of a merger,
tender offer, proxy contest or other means, when, in the judgment of the Board
of Directors, such action would be in the best interests of the shareholders and
the Company. The issuance of shares of Preferred Stock could be used to create
voting or other impediments or to discourage persons seeking to gain control of
the Company, for example, by the sale of Preferred Stock to purchasers favorable
to the Board of Directors. In addition, the Board of Directors could authorize
holders of a series of Preferred Stock to vote either separately as a class or
with the holders of the Common Stock on any merger, sale or exchange of assets
by the Company or any other extraordinary corporate transaction. The existence
of the additional authorized shares could have the effect of discouraging
unsolicited takeover attempts. The issuance of new shares could also be used to
dilute the stock ownership of the person or entity seeking to obtain control of
the Company should the Board of Directors consider the action of such entity or
person not to be in the best interests of the shareholders and the Company. Such
issuance of Preferred Stock could also have the effect of diluting the earnings
per share and book value per share of the Common Stock.
THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED DELAWARE CERTIFICATE PROPOSAL
TWO AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THIS PROPOSAL.
DELAWARE CERTIFICATE PROPOSAL THREE:
ELIMINATION OF SHAREHOLDER CONSENTS
General
Under the WBCA any action to be taken or which may be taken at an annual or
special meeting of shareholders may be taken without prior notice and without a
vote if a consent in writing setting forth the action so taken is signed by the
holders of all the outstanding stock of the Company. The Delaware Certificate
would eliminate the ability of the shareholders to take action without a meeting
of shareholders.
Reasons for Proposal
Under Delaware law, when shareholders are to take action at a meeting, a
corporation must give written notice of the meeting to all shareholders entitled
to vote, even when one shareholder or group will have a majority
17
of the votes to be cast. This prior notice allows minority shareholders to take
whatever action they deem appropriate to protect their interests, including
seeking to persuade majority shareholders to follow a different course, selling
their shares or litigation. If action is taken by majority holders by written
consent, no prior notice is necessary and minority holders may not have any
opportunity to protect their interests. The primary purpose of this provision
is to prevent shareholder action without prior notice to all shareholders.
Possible Disadvantages of Proposal
The proposed provision will have the effect of preventing the shareholders
of the Company from taking action at any time other than an annual meeting (or a
special meeting authorized by the Board of Directors or other authorized
persons) to replace directors, amend the Certificate of Incorporation or take
any other action authorized to be taken by shareholders under Delaware law.
Such a provision may have the effect of discouraging potential purchasers from
attempting to acquire control of the Company or, in some cases, may discourage
the accumulation of large blocks of Common Stock.
THE BOARD OF DIRECTORS HAS APPROVED DELAWARE CERTIFICATE PROPOSAL THREE AND
RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THIS PROPOSAL.
DELAWARE CERTIFICATE PROPOSAL FOUR:
ELIMINATION OF CUMULATIVE VOTING
General
Under the DGCL, cumulative voting for the election of directors is
permitted if provided in the corporation's certificate of incorporation. The
Delaware Certificate would not provide for cumulative voting in the election of
directors. Under the WBCA, unless otherwise provided in the articles of
incorporation, shareholders are entitled to cumulate their votes in the election
of directors. The Gladstone-Washington Articles do not provide that shareholders
may not cumulate their votes in the election of directors.
Reasons for Proposal
As stated above, the DGCL does not automatically provide for cumulative
voting in the election of directors. Rather, cumulative voting must be provided
in the certificate of incorporation. Cumulative voting does create a possibility
for some minority representation on the Board of Directors. However, the Board
of Directors believes that a director elected by a small group of shareholders
would feel obligated to act primarily in the special interests of the
shareholders responsible for his or her election. The Board of Directors
believes that such representation of a special interest could encourage
devisiveness and dissension on the Board of Directors that would be detrimental
to the Company and would render more difficult the overridding obligation of
the Board of Directors to manage the business of the corporation for the
benefit of all shareholders. Accordingly, the Board of Directors does not.
believe it is necessary to provide for cumulative voting in the Delaware
Certificate.
Possible Disadvantages of Proposal
The proposed provision will have the effect of eliminating cumulative
voting in the election of directors. This may discourage candidates of minority
shareholders from seeking nomination as a director and may prevent minority
shareholder candidates from being elected to the Board of Directors without the
support of a majority of the shareholders.
THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED DELAWARE CERTIFICATE PROPOSAL
FOUR AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THIS PROPOSAL.
18
DELAWARE CERTIFICATE PROPOSAL FIVE:
INDEMNIFICATION
The Delaware Certificate would, to the fullest extent permitted under
applicable law as from time to time in effect, (i) require indemnification
(including advancement of expenses) of the Company's directors and officers and
(ii) at the option of the Board of Directors in any particular case the
Company's employees and agents.
The Board of Directors believe that this proposal is desirable for the
Company to be able to continue to attract and retain responsible individuals to
serve as its directors and officers, in light of the present difficult
environment in which such persons, particularly directors, must serve. In recent
years, investigations, claims, actions, suits or proceedings (including
derivative actions) seeking to impose liability on directors and officers of
corporations have become increasingly common. Such proceedings can be extremely
expensive, whatever their eventual outcome. In view of the costs and
uncertainties of litigation in general, it is often prudent to settle
proceedings in which claims against a director or officer are made. Settlement
amounts, even if immaterial to the corporation involved and minor compared to
the enormous amounts frequently claimed, often exceed the financial resources of
most individual director or officer defendants. As a result, an individual may
conclude that potential exposure to the costs and risks of proceedings in which
he or she may become involved may exceed any benefit to him or her from serving
as a director or officer of a corporation.
THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED DELAWARE CERTIFICATE PROPOSAL
FIVE AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THIS PROPOSAL.
DELAWARE CERTIFICATE PROPOSAL SIX:
SUPERMAJORITY VOTING REQUIREMENTS TO AMEND OR REPEAL CERTAIN
PROVISIONS OF THE CERTIFICATE OF INCORPORATION OR BYLAWS
The Delaware Certificate requires that to amend, repeal or adopt any
provision inconsistent with elimination of shareholder consents or
indemnification of directors, the affirmative vote of at least 66-2/3% of the
outstanding shares of Common Stock of the Company shall be required. The
Delaware Certificate also requires the same threshold for the shareholders to
amend the Bylaws, if shareholders are seeking to amend the Bylaws.
Under the DGCL, amendments to the Certificate of Incorporation would
generally require the approval of the holders of a majority of the outstanding
stock entitled to vote thereon, but the law also permits a corporation to
include provisions in its charter documents which require a greater vote than
the vote otherwise required by law for any corporate action. The requirement of
an increased shareholder vote is designed to prevent a person holding or
controlling a majority, but less than 66-2/3%, of the shares of the Company from
avoiding the requirements of the proposed amendments by simply repealing them.
Further, the Board of Directors of the Company deems it advisable and in the
best interests of the Company and its shareholders to provide that the Company's
Bylaws may not be amended by the shareholders unless such action is approved by
the affirmative vote of the holders of not less than 66-2/3% of the voting power
of all shares of stock of the Company entitled to vote thereon. The Bylaws may
still be amended without shareholder approval by the Board of Directors
consistent with the provisions of applicable Delaware law and the express
permission given in the Delaware Certificate.
THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED DELAWARE CERTIFICATE PROPOSAL
SIX AND RECOMMENDS THE SHAREHOLDERS VOTE FOR THIS PROPOSAL.
INTERESTED PARTIES
Except as described above with regard to potential benefits to be received
by the officers and directors of the Company arising from the liability
limitation and indemnification provisions under the DGCL, no director or
executive officer of the Company has any interest, direct or indirect, in the
Reverse Stock Split, the Merger, the
19
proposed Reincorporating, or the Delaware Certificate Proposals other than any
interest arising from the ownership of securities of the Company.
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Market for Common Stock
Currently there is no public market for the Company's Common Stock.
Dividends
The Company has never declared or paid any cash dividends on the Common
Stock and does not presently intend to pay cash dividends on the Common Stock in
the foreseeable future. The Company intends to retain future earnings for
reinvestment in its business.
Holders of Record
There were 539 shareholders of record at June 17, 1999, and approximately
600 beneficial shareholders.
INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE
The information in the Annual Report on Form 10-K for the fiscal year ended
December 31, 1998 filed by the Company with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934, as amended, is
incorporated by reference in this Proxy.
SHAREHOLDER PROPOSALS
Any shareholder who wishes to submit a proposal for inclusion in the
Company's proxy material and for presentation at the Company's 2000 Annual
Meeting of Shareholders must forward such proposal to the Secretary of the
Company at the address indicated on the first page of this proxy statement, so
that the Secretary receives it no later than January 1, 2000.
OTHER MATTERS
The Board of Directors is not aware of any other matters that are to be
presented for action at the Meeting. However, if any other matters properly come
before the Meeting or any adjournment(s) thereof, it is intended that the
enclosed proxy will be voted in accordance with the judgment of the persons
voting the proxy.
By Order of the Board of Directors.
/s/ SHEILA IRONS
- ----------------------------
Sheila Irons
Secretary
June 17, 1999
20
GLADSTONE RESOURCES, INC.
ANNUAL MEETING OF SHAREHOLDERS
JULY 15, 1999
This proxy is solicited on behalf of the Board of Directors
The undersigned hereby constitutes and appoints Johnathan M. Hill and
Katherine R. Murphy, or either of them, as the true and lawful attorneys and
proxies of the undersigned, with full power of substitution, to represent the
undersigned and to vote all of the shares of Common Stock of Gladstone
Resources, Inc. (the "Company"), that the undersigned is entitled to vote at the
Annual Meeting of Shareholders of the Company to be held on July 15, 1999
and at any adjournments thereof.
1. Election of FOR All nominees named below WITHHOLD AUTHORITY TO
Directors (EXCEPTAS MARKED TO THE VOTE FOR ALL NOMINEES
CONTRARY) / / NAMED BELOW / /
Nominees: Charles B. Humphrey Johnathan M. Hill Fred Oliver
------------------- ----------------- -----------
H. Wayne Gifford Katherine R. Murphy
------------------- -------------------
(INSTRUCTION: TO CUMULATE VOTES, WRITE BELOW THE NAME OF THE NOMINEE OR
NOMINEES FOR WHOM YOU DESIRE TO CAST VOTES THE NUMBER OF VOTES TO
BE CAST FOR SUCH NOMINEE OR NOMINEES.)
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
WRITE THE NOMINEE'S NAME ON THE LINE BELOW.)
-----------------------------------------------------
2. To approve a one-for-five reverse stock split of the Company's outstanding
Common Stock.
FOR / / AGAINST / / ABSTAIN / /
3. To approve the merger of the Company into a wholly-owned subsidiary to be
organized under the laws of Delaware in order to effect the change the Company's
state of incorporation from Washington to Delaware.
FOR / / AGAINST / / ABSTAIN / /
4. To approve and adopt provisions of the Certificate of Incorporation of
Gladstone-Delaware ("Delaware Certificate") which would authorize up to 10
million shares of common stock, par value $.001 per share of the Company.
FOR / / AGAINST / / ABSTAIN / /
5. To approve and adopt provisions of the Delaware Certificate of which would
authorize up to 5 million shares of preferred stock, par value $.001 of the
Company.
FOR / / AGAINST / / ABSTAIN / /
6. To approve and adopt provisions of the Delaware Certificate which would
require all shareholder action to be taken at a shareholder meeting.
FOR / / AGAINST / / ABSTAIN / /
7. To approve and adopt provisions of the Delaware Certificate which
eliminates cumulative voting in the election of directors.
FOR / / AGAINST / / ABSTAIN / /
8. To approve and adopt provisions of the Delaware Certificate which would
permit officers and directors of the Company to receive indemnification to the
fullest extent permitted by law.
FOR / / AGAINST / / ABSTAIN / /
9. To approve and adopt provisions of the Delaware Certificate that would
require a 66-2/3% vote of shareholders to amend the foregoing, provisions No. 6
and No. 8 and to amend the Bylaws of Gladstone-Delaware (Delaware Bylaws")
if shareholders ever seek to amend or repeal the Delaware Bylaws.
FOR / / AGAINST / / ABSTAIN / /
10. In their discretion, to vote upon such other business as may properly come
before the meeting or any adjournments thereof.
FOR / / AGAINST / / ABSTAIN / /
THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFIC DIRECTIONS ARE GIVEN,
THIS PROXY WILL BE VOTED "FOR" THE ELECTION OF DIRECTORS, "FOR" EACH OF THE
PROPOSALS SET FORTH HEREIN AND IN THE DISCRETION OF THE PROXY HOLDERS ON ALL
OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING.
Please sign exactly as the name appears on the certificate or certificates
representing shares to be voted by this proxy. When signing as executor,
administrator, attorney, trustee or guardian, please give full title as such. If
a corporation, please sign in full corporate name by president or other
authorized person. If a partnership, please sign in partnership name by
authorized person.
Dated:_____________________________
___________________________________
Signature of Shareholder
___________________________________
Signature (if jointly owned)
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY
PROMPTLY USING THE ENCLOSED ENVELOPE.
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Merger Agreement")
is entered into on this ____ day of __________, 1999 by and
between GLADSTONE RESOURCES, INC., a Washington corporation
("Gladstone-Washington") and GLADSTONE RESOURCES, INC., a
Delaware corporation (hereinafter referred to as
"Gladstone-Delaware").
R E C I T A L S:
WHEREAS, Gladstone-Washington is a corporation duly
organized and existing under the laws of the State of
Washington;
WHEREAS, Gladstone-Delaware is a corporation duly
organized and existing under the laws of the State of
Delaware;
WHEREAS, on the date hereof, the authorized capital of
Gladstone-Washington consists of Six Million (6,000,000)
shares of common stock, no par value per share ("Gladstone-
Washington Common Stock"), of which ____________ shares are
issued and outstanding;
WHEREAS, on the date hereof, the authorized capital of
Gladstone-Delaware consists of Ten Million (10,000,000)
shares of common stock, par value $.001 per share
("Gladstone-Delaware Common Stock"), of which 100 shares are
issued and outstanding and Five Million (5,000,000) shares
of preferred stock, par value $0.001 per share, of which no
shares are issued and outstanding;
WHEREAS, the respective Boards of Directors of
Gladstone-Washington and Gladstone-Delaware have determined
that it is advisable and in the best interests of each such
corporation that Gladstone-Washington merge with and into
Gladstone-Delaware upon the terms and subject to the
conditions of this Merger Agreement for the purpose of
effecting the reincorporation of Gladstone-Washington in the
State of Delaware, and the respective Boards of Directors of
Gladstone-Washington and Gladstone-Delaware have, by
resolutions duly adopted, approved and adopted this Merger
Agreement; and
WHEREAS, the parties intend by this Merger Agreement to
effect a "reorganization" under Section 368 of the Internal
Revenue Code of 1986, as amended.
NOW, THEREFORE, in consideration of the foregoing and
the representations, warranties and agreements contained
herein, the parties hereto agree as follows:
1
A G R E E M E N T S:
A. Merger. At the Effective Time (as hereinafter
defined), Gladstone-Washington shall be merged with and into
Gladstone-Delaware (the "Merger"). Gladstone-Delaware shall
be the surviving corporation of the Merger (hereinafter
sometimes referred to as the "Surviving Corporation"), and
the separate corporate existence of Gladstone-Washington
shall cease. The Merger shall become effective upon the
filing of a Certificate of Merger with the Secretary of
State of the State of Delaware and the Secretary of State of
the State of Washington. The date and time when the Merger
shall become effective is herein referred to as the
"Effective Time."
B. Governing Documents.
1. The Certificate of Incorporation of Gladstone-Delaware
as it may be amended or restated subject to applicable law,
and as in effect immediately prior to the Effective Time,
shall constitute the Certificate of Incorporation of the
Surviving Corporation without further change or amendment
until thereafter amended in accordance with the provisions
thereof and applicable law.
2. The Bylaws of Gladstone-Delaware as in effect
immediately prior to the Effective Time shall constitute the
Bylaws of the Surviving Corporation without change or
amendment until thereafter amended in accordance with the
provisions thereof and applicable law.
C. Officers and Directors. The persons who are officers
and directors of Gladstone-Washington immediately prior to
the Effective Time shall, after the Effective Time, be the
officers and directors of the Surviving Corporation, without
change until their successors have been duly elected or
appointed and qualified or until their earlier death,
resignation or removal in accordance with the Surviving
Corporation's Certificate of Incorporation and Bylaws and
applicable law.
D. Rights, Privileges, Etc. At the Effective Time, the
separate corporate existence of Gladstone-Washington shall
cease, and the Surviving Corporation shall possess all the
rights, privileges, powers and franchises of a public or
private nature and be subject to all the restrictions,
disabilities and duties of Gladstone-Washington; and all the
rights, privileges, powers and franchises of Gladstone-
Washington on whatever account, as well for share
subscriptions and all other things in action, shall be
vested in the Surviving Corporation; and all property,
rights, privileges, powers and franchises, and all and every
other interest shall be thereafter as effectively the
property of the Surviving Corporation as the same were of
Gladstone-Washington, and the title to any real estate
vested by deed or otherwise shall not revert or be in any
way impaired by reason of the Merger, but all rights of
creditor and liens upon any property of Gladstone-Washington
shall be reserved unimpaired, and all debts, liabilities and
duties of Gladstone-Washington shall thenceforth attach to
the Surviving Corporation and may be enforced against it to
the same extent as if such debts, liabilities and duties had
been incurred or contracted by it; provided, however, that
such liens upon property of Gladstone-Washington will be
limited to the
2
property affected thereby immediately prior to the
Merger. All corporate acts, plans, policies, agreements,
arrangements, approvals and authorizations of Gladstone-
Washington, its shareholders, Board of Directors and
committees thereof, officers and agents which were valid and
effective immediately prior to the Effective Time, shall be
taken for all purposes as the acts, plans, policies,
agreements, arrangements, approvals and authorizations of
the Surviving Corporation, its shareholders, Board of
Directors and committees thereof, respectively, and shall be
as effective and binding thereon a the same were with
respect to Gladstone-Washington.
E. Conversion of Shares. At the Effective Time, by virtue
of the Merger and without any action on the part of the
holder thereof:
1. Each share of Gladstone-Washington Common Stock
outstanding immediately prior to the Effective Time shall,
except as provided in Section 8 hereof, be converted into,
and shall become, one fully paid and nonassessable share of
Gladstone-Delaware Common Stock.
2. Each share of Gladstone-Washington Common Stock held in
the treasury of Gladstone-Washington immediately prior to
the Effective Time shall be automatically converted into one
share of Gladstone-Delaware Common Stock, which shares shall
continue to be retained and held by Gladstone-Delaware in
the treasury thereof.
3. Each option, warrant, purchase right, convertible debt
instrument or other security of Gladstone-Washington issued
and outstanding immediately prior to the Effective Time
shall be changed and converted into and shall be an
identical security of Gladstone-Delaware, and the same
number of shares of Gladstone-Delaware Common Stock shall be
reserved for purposes of the exercise of such option,
warrant, purchase right, convertible debt instrument or
other securities as is equal to the number of shares of
Gladstone-Washington Common Stock so reserved at the
Effective Time; and
4. Each share of Gladstone-Delaware Common Stock issued
and outstanding immediately prior to the Effective Time
shall be canceled and retired, and no payment shall be made
with respect thereto, and such shares shall resume the
status of unauthorized and unissued shares of Gladstone-
Delaware Common Stock.
F. Stock Certificates. At and after the Effective Time,
all of the outstanding certificates which immediately prior
to the Effective Time represented shares of Gladstone-
Washington Common Stock shall be deemed for all purposes to
evidence ownership of, and to represent shares of, Gladstone-
Delaware Common Stock into which the shares of Gladstone-
Washington Common Stock formerly represented by such
certificates have been converted as herein provided. The
registered owner on the books and records of Gladstone-
Washington or its transfer agent of any such outstanding
stock certificate shall, until such certificate shall have
been surrendered for transfer or otherwise accounted for to
the Surviving Corporation or its transfer agent, have and be
entitled to exercise any voting or other rights with respect
to and to receive
3
any dividends and other distributions upon the shares
of Gladstone-Delaware Common Stock evidenced by such
outstanding certificate as above provided.
G. Other Employee Benefit Plans. As of the Effective
Time, the Surviving Corporation hereby assumes all
obligations of Gladstone-Washington under any and all
employee benefit plans in effect as of the Effective Time or
with respect to which employee rights or accrued benefits
are outstanding as of the Effective Time.
H. Dissenting Shareholders.
1. Notwithstanding the provisions of Section 5.a. hereof,
any outstanding shares of Gladstone-Washington Common Stock
held by a shareholder who shall have elected to dissent from
the Merger and who shall have exercised and perfected his
right to dissent with respect to such shares in accordance
with Chapter 23B.13 of the Washington Business Corporation
Act (a "Dissenting Shareholder") shall not be converted into
shares of Gladstone-Delaware Common Stock as a result of the
Merger, but such Dissenting Shareholders shall be entitled
to receive in lieu thereof only such consideration as shall
be provided in such Chapter 23B.13, except that shares of
Gladstone-Washington Common Stock outstanding immediately
prior to the Effective Time and held by a Dissenting
Shareholder who shall thereafter withdraw his election to
dissent from the Merger or lose his right to dissent from
the Merger as provided in such Chapter 23B.13 shall be
deemed converted, as of the Effective Time, into such number
of shares of Gladstone-Washington Common Stock as such
holder otherwise would have been entitled to receive as a
result of the Merger.
2. Gladstone-Delaware hereby agrees that it may be served
with process in the State of Washington in any proceeding to
enforce any obligation or the rights of a Dissenting
Shareholder arising from the Merger. Gladstone-Delaware
appoints the Secretary of State of Washington as its agent
to accept service of process for any such proceeding and a
copy of such process shall be mailed by the Secretary of
State of the State of Washington to Gladstone-Delaware at
3500 Oak Lawn, Suite 590, LB 49, Dallas, Texas 75219,
Attention: Corporate Secretary.
I. Governing Law. This Merger Agreement shall be governed
by and construed in accordance with the laws of the State of
Delaware.
J. Amendment. Subject to applicable law and subject to
the rights of Gladstone-Washington's shareholders further to
approve any amendment which would have a material adverse
effect on such shareholders, this Merger Agreement may be
amended, modified or supplemented by written agreement of
the parties hereto at any time prior to the Effective Time
with respect to any of the terms contained herein.
4
K. Deferral or Abandonment. At any time prior to the
Effective Time, this Merger Agreement maybe terminated and
the Merger may be abandoned or the time of consummation of
the Merger may be deferred for a reasonable time by the
Board of Directors of either Gladstone-Washington or
Gladstone-Delaware or both, notwithstanding approval of this
Merger Agreement by the shareholders of Gladstone-Washington
or the stockholders of Gladstone-Delaware, or both, if
circumstances arise which, in the opinion of the Board of
Directors of Gladstone-Washington or Gladstone-Delaware,
make the Merger inadvisable or such deferral of the time of
consummation thereof advisable.
L. Counterparts. This Merger Agreement may be executed in
any number of counterparts, each of which shall constitute
an original document but all of which together shall
constitute one and the same Agreement.
M. Further Assurances. From time to time, as and when
required or requested by either Gladstone-Washington or
Gladstone-Delaware, as applicable, or by its respective
successors and assigns, there shall be executed and
delivered on behalf of the other corporation, or by its
respective successors and assigns, such deeds, assignments
and other instruments, and there shall be taken or caused to
be taken by it all such further and other action, as shall
be appropriate or necessary in order to vest, perfect or
confirm, of record or otherwise, in the Surviving
Corporation the title to and possession of all property,
interests, assets, rights, privileges, immunities, powers,
franchise and authority of Gladstone-Washington and
otherwise to carry out the purposes of this Merger
Agreement, and the officers and directors of each
corporation are fully authorized in the name and on behalf
of such corporation or otherwise, to take any and all such
action and to execute and deliver any and all such deeds,
assignments and other instruments.
5
IN WITNESS WHEREOF, Gladstone-Washington and Gladstone-
Delaware have caused this Merger Agreement to be signed by
their respective duly authorized officers and delivered this
___ day of _______________, 1999.
GLADSTONE RESOURCES, INC.,
a Washington corporation
By:________________________________
Name: Johnathan M. Hill
Title: Chief Executive Officer
GLADSTONE RESOURCES, INC.
a Delaware corporation
By:_________________________________
Name: Johnathan M. Hill
Title: Chief Executive Officer
6
EXHIBIT B
CERTIFICATE OF INCORPORATION
OF
GLADSTONE RESOURCES, INC.
FIRST: The name of the Corporation is Gladstone
Resources, Inc. (the "Corporation").
SECOND: The name and mailing address of the
Incorporator of the Corporation is Robin Bradford, c/o Arter
& Hadden LLP, 1717 Main Street, Suite 4100, Dallas, Texas
75201.
THIRD: The address of its registered office in the
State of Delaware is 1209 Orange Street, in the City of
Wilmington, County of New Castle 19801. Its registered
agent at such address is The Corporation Trust Company.
FOURTH: The purpose of the Corporation is to engage
in any lawful act or activity for which corporations may be
organized under the Delaware General Corporation Law.
FIFTH: The Corporation is to have perpetual
existence.
SIXTH: The aggregate number of shares of all classes
of stock which the corporation shall have authority to issue
is Fifteen Million (15,000,000) shares, consisting of
(A) Ten Million (10,000,000) shares of common stock, par
value $0.001 per share (the "Common Stock"), and (B) Five
Million (5,000,000) shares of preferred stock, par value
$0.001 per share (the "Preferred Stock").
The designations, powers, preferences and relative,
participating, optional and other special rights, and the
qualifications, limitations and restrictions thereof with
respect to the Common Stock and the Preferred Stock are as
follows:
(A) Common Stock.
Each holder of the Common Stock of the corporation
shall be entitled to one vote for every share of Common
Stock outstanding in his name on the books of the
corporation. Except for and subject to those rights
expressly granted to the holders of the Preferred Stock or
except as may be provided by the laws of the State of
Delaware, the holders of Common Stock shall have exclusively
all other rights of stockholders including, without
limitation, (i) the right to receive dividends, when and as
declared by the Board of Directors out of assets legally
available therefor, and (ii) in the event of any
distribution of assets upon liquidation, dissolution or
winding up of the corporation or otherwise, the right to
receive ratably and equally with all holders of all Common
Stock all the assets and funds of the corporation remaining
after the payment to the holders of the Preferred Stock of
the specific amounts that they are entitled to receive upon
such liquidation, dissolution or winding up of the
corporation, if any.
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(B) Preferred Stock.
Preferred Stock may be issued from time to time in
one or more series, each of such series to have such
terms as stated in the resolution or resolutions
providing for the establishment of such series adopted
by the Board of Directors of the corporation as
hereinafter provided. Except as otherwise expressly
stated in the resolution or resolutions providing for
the establishment of a series of Preferred Stock, any
shares of Preferred Stock that may be redeemed,
purchased or acquired by the corporation may be
reissued except as otherwise expressly provided by law.
Different series of Preferred Stock shall not be
construed to constitute different classes of stock for
the purpose of voting by classes unless expressly
provided in the resolution or resolutions providing for
the establishment thereof. The Board of Directors of
the corporation is hereby expressly authorized to
issue, from time to time, shares of Preferred Stock in
one or more series, and, in connection with the
establishment of any such series by resolution or
resolutions, to determine and fix the number of shares
constituting that series and the distinctive
designation of that series and to determine and fix
such voting powers, full or limited, or no voting
powers, and such other powers, designations,
preferences and relative, participating, optional and
other rights, and the qualifications, limitations and
restrictions thereof, including, without limitation,
dividend rights, conversion rights, redemption
privileges and liquidation preferences, as shall be
stated in such resolution or resolutions, all to the
fullest extent permitted by the DGCL. Without limiting
the generality of the foregoing, the resolution or
resolutions providing for the establishment of any
series of Preferred Stock may, to the extent permitted
by law, provide that such series shall be superior to,
rank equally with or be junior to the Preferred Stock
of any other series. Except as otherwise expressly
provided in the resolution or resolutions providing for
the establishment of any series of Preferred Stock, no
vote of the holders of shares of Preferred Stock or
Common Stock shall be a prerequisite to the issuance of
any shares of any series of the Preferred Stock
authorized by and complying with the conditions of this
Certificate of Incorporation.
SEVENTH: In furtherance and not in limitation of the
powers conferred on it by the laws of the State of Delaware,
the Board of Directors is expressly authorized to adopt,
amend or repeal the Bylaws of the Corporation.
EIGHTH: No action required to be taken or which may
be taken at any annual or special meeting of stockholders of
the corporation may be taken without a meeting, and the
power of stockholders to consent in writing, without a
meeting, to the taking of any action is specifically denied.
NINTH: No director of the Corporation shall be
personally liable to the Corporation or any of its
stockholders for monetary damages for breach of fiduciary
duty as a director of the Corporation; PROVIDED, HOWEVER,
that the foregoing is not intended to eliminate or limit the
liability of a director of the Corporation for (i) any
breach of a director's duty of loyalty to the Corporation or
its stockholders, (ii) acts or omissions not in good faith
or which involve intentional misconduct or a knowing
violation of law, (iii) a violation of Section 174 of the
Delaware General Corporation Law, or (iv) any transaction
from which the director derived an improper personal
benefit. No amendment to or repeal of this Article NINTH
shall apply to or have any effect on the liability or
alleged liability of any director of the Corporation for or
with respect to any acts or omissions of such director
occurring prior to such amendment.
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TENTH: The Corporation shall, to the fullest extent
permitted by Section 145 of the Delaware General Corporation
Law, as that section may be amended and supplemented from
time to time, indemnify any director or officer of the
Corporation (and any director, trustee or officer of any
corporation, business trust or other entity to whose
business the Corporation shall have succeeded) which it
shall have power to indemnify under that Section against any
expenses, liabilities or other matter referred to in or
covered by that Section. The indemnification provided for
in this Article TENTH (a) shall not be deemed exclusive of
any other rights to which those indemnified may be entitled
under any Bylaw, agreement or vote of stockholders or
disinterested directors or otherwise, both as to action in
their official capacities and as to action in another
capacity while holding such office, (b) shall continue as to
a person who has ceased to be a director or officer and
(c) shall inure to the benefit of the heirs, executors and
administrators of such a person. To assure indemnification
under this Article TENTH of all such persons who are
determined by the Corporation or otherwise to be or to have
been "Fiduciaries" of any employee benefit plan of the
Corporation which may exist from time to time and which is
governed by the Act of Congress entitled "Employee
Retirement Income Security Act of 1974," as amended from
time to time, such Section 145 shall, for the purposes of
this Article, be interpreted as follows: an "other
enterprise" shall be deemed to include such an employee
benefit plan; the Corporation shall be deemed to have
requested a person to serve an employee benefit plan where
the performance by such person of his duties to the
Corporation also imposes duties on, or otherwise involves
services by, such person to the plan or participants or
beneficiaries of the plan; excise taxes assessed on a person
with respect to an employee benefit plan pursuant to such
Act of Congress shall be deemed "fines;" and action taken or
omitted by a person with respect to an employee benefit plan
in the performance of such person's duties for a purpose
reasonably believed by such person to be in the interest of
the participants and beneficiaries of the plan shall be
deemed to be for a purpose which is not opposed to the best
interests of the Corporation.
ELEVENTH: Notwithstanding anything contained in this
Certificate of Incorporation to the contrary, the
affirmative vote of at least 66% of the outstanding shares
of the Common Stock of the corporation shall be required to
amend or repeal Articles EIGHTH and TENTH of this
Certificate of Incorporation or to adopt any provision
inconsistent therewith. Further, the affirmative vote of at
least 66% of the outstanding shares of the Common Stock of
the corporation shall be required to amend or repeal the
Bylaws of the corporation, if the stockholders of the
corporation are required by the DGCL, the Certificate of
Incorporation or the Bylaws to vote thereon. Except as
provided herein, the Corporation reserves the right to
amend, alter, change or repeal any provision contained in
this Certificate of Incorporation in the manner now or
hereafter prescribed by the laws of the State of Delaware,
and all rights herein conferred are granted subject to this
reserve power.
TWELFTH: Meetings of stockholders may be held within
or without the State of Delaware as the Bylaws may provide.
The books of the Corporation may be kept (subject to any
provision contained in the Delaware General Corporation Law)
outside the State of Delaware at such place or places as may
be designated form time to time by the Board of Directors or
in the Bylaws of the Corporation.
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IN WITNESS WHEREOF, I have hereunto set my hand this
______ day of __________, 1999, and affirm the statements
contained therein as true under penalties of perjury.
-------------------
Robin Bradford
Incorporator
EXHIBIT C
DISSENTERS' RIGHTS
23B.13.010 DEFINITIONS. - As used in this chapter:
(1) "Corporation" means the issuer of the shares held by a
dissenter before the corporate action, or the surviving or
acquiring corporation by merger or share exchange of that
issuer.
(2) "Dissenter" means a shareholder who is entitled to
dissent from corporate action under RCW 23B.13.020 and who
exercises that right when and in the manner required by RCW
23B.13.200 through 23B.13.280.
(3) "Fair value," with respect to a dissenter's shares,
means the value of the shares immediately before the
effective date of the corporate action to which the
dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action unless
exclusion would be inequitable.
(4) "Interest" means interest from the effective date of
the corporate action until the date of payment, at the
average rate currently paid by the corporation on its
principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name
shares are registered in the records of a corporation or the
beneficial owner of shares to the extent of the rights
granted by a nominee certificate on file with a corporation.
(6) "Beneficial shareholder" means the person who is a
beneficial owner of shares held in a voting trust or by a
nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the
beneficial shareholder.
23B.13.020 RIGHT TO DISSENT - (1) A shareholder is
entitled to dissent from, and obtain payment of the fair
value of the shareholder's shares in the event of, any of
the following corporate actions:
(a). Consummation of a plan of merger to which the
corporation is a party (i) if shareholder approval is
required for the merger by RCW 23B.11.030, 23B.11.080, or
the articles of incorporation and the shareholder is
entitled to vote on the merger, or (ii) if the corporation
is a subsidiary that is merged with its parent under RCW
23B.11.040;
(b). Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will
be acquired, if the shareholder is entitled to vote on the
plan;
(c). Consummation of a sale or exchange of all, or
substantially all, of the property of the corporation other
than in the usual and regular course of business, if the
shareholder is
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entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a
sale pursuant to court order or a sale for cash
pursuant to a plan by which all or substantially all of
the net proceeds of the sale will be distributed to the
shareholders within one year after the date of sale;
(d). An amendment of the articles of incorporation that
materially reduces the number of shares owned by the
shareholder to a fraction of a share if the fractional share
so created is to be acquired for cash under RCW 23B.06.040;
or
(e). Any corporate action taken pursuant to a shareholder
vote to the extent the articles of incorporation, bylaws, or
a resolution of the board of directors provides that voting
or nonvoting shareholders are entitled to dissent and obtain
payment for their shares.
(2) A shareholder entitled to dissent and obtain
payment for the shareholder's shares under this chapter may
not challenge the corporate action creating the
shareholder's entitlement unless the action fails to comply
with the procedural requirements imposed by this title, RCW
25.10.900 through 25.10.955, the articles of incorporation,
or the bylaws, or is fraudulent with respect to the
shareholder or the corporation
(3) The right of a dissenting shareholder to
obtain payment of the fair value of the shareholder's shares
shall terminate upon the occurrence of any one of the
following events:
(a). The proposed corporate action is abandoned or
rescinded;
(b). A court having jurisdiction permanently enjoins or sets
aside the corporate action; or
(c). The shareholder's demand for payment is withdrawn with
the written consent of the corporation.
23B.13.030 DISSENT OF NOMINEES AND BENEFICIAL OWNERS - (1)
A record shareholder may assert dissenters' rights as to
fewer than all the shares registered in the shareholders'
name only if the shareholder dissents with respect to all
shares beneficially owned by any one person and notifies the
corporation in writing of the name and address of each
person and notifies the corporation in writing of the name
and address of each person on whose behalf of the
shareholder asserts dissenters' rights. The rights of a
partial dissenter under this subsection are determined as if
the shares as to which the dissenter dissents and the
dissenter's other shares were registered in the names of
different shareholders.
(2). A beneficial shareholder may assert dissenters' rights
as to shares held on the beneficial shareholder's behalf
only if:
(a). The beneficial shareholder submits to the corporation
the record shareholder's written consent to the dissent not
later than the time the beneficial shareholder asserts
dissenters' rights; and
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(b). The beneficial shareholder does so with respect to all
shares of which such shareholder is the beneficial
shareholder or over which such shareholder has power to
direct the vote.
23B.13.200 NOTICE OF DISSENTERS' RIGHTS - (1) If proposed
corporate action creating dissenters' rights under RCW
23B.13.020 is submitted to a vote at a shareholders'
meeting, the meeting notice must state that shareholders are
or may be entitled to assert dissenters' rights under this
chapter and be accompanied by a copy of this chapter.
(2). If corporate action creating dissenters' rights under
RCW 23B.13.020 is taken without a vote of shareholders, the
corporation, within ten days after the effective date of
such corporate action, shall notify in writing all
shareholders entitled to assert dissenters' rights that the
action was taken and send them the dissenters' notice
described in RCW 23B.13.220.
23B.13.210 NOTICE OF INTENT TO DEMAND PAYMENT - (1) If
proposed corporate action creating dissenters' rights under
RCW 23B.13.020 is submitted to a vote at a shareholders'
meeting, a shareholder who a wishes to assert dissenters'
rights must (a) deliver to the corporation before the vote
is taken written notice of the shareholder's intent to
demand payment for the shareholder's shares if the proposed
action is effected, and (b) not vote such shares in favor of
the proposed action.
(2). A shareholder who does not satisfy the requirements of
subsection (1) of this section is not entitled to payment
for the shareholders shares under this chapter.
23B.13.220 DISSENTERS' NOTICE - (1) If proposed corporate
action creating dissenters' rights under RCW 23B.13.020 is
authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who
satisfied the requirements of RCW 23B.13.210.
(2). The dissenters' notice must be sent within ten days
after the effective date of the corporate action, and must:
(a). State where the payment demand must be sent and where
and when certificates for certified shares must be
deposited;
(b). Inform holders of uncertified shares to what extent
transfer of the shares will be restricted after the payment
demand is received;
(c). Supply a form for demanding payment that includes the
date of the first announcement to news media or to
shareholders of the term of the proposed corporate action
and requires that the person asserting dissenters' rights
certify whether or not the person acquired beneficial
ownership of the shares before that date;
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(d). Set a date by which the corporation must receive the
payment demand, which date may not be fewer than thirty nor
more than sixty days after the date the notice in subsection
(1) of this section is delivered; and
(e). Be accompanied by a copy of this chapter.
23B.13.230 DUTY TO DEMAND PAYMENT - (1) A shareholder sent
a dissenters' notice described in RCW 23B.13.220 must demand
payment, certify whether the shareholder acquired beneficial
ownership of the shares before the date required to be set
forth in the dissenters' notice pursuant to RCW
23B.13.220(2)(c), and deposit the shareholder's certificates
in accordance with the terms of the notice.
(2). The shareholder who demands payment and deposits the
shareholder's share certificates, under subsection (1) of
this section retains all other rights of a shareholder until
the proposed corporate action is effected.
(3). A shareholder who does not demand payment or deposit
the shareholders' certificates where required, each by the
date set in the dissenters' notice, is not entitled to
payment for the shareholder's shares under this chapter.
23B.12.240 SHARE RESTRICTIONS - (1) The corporation may
restrict the transfer of uncertified shares from the date
the demand for their payment is received until the proposed
corporate action is effected or the restriction is released
under RCW 23B.13.260.
(2). The person for whom dissenters' rights are asserted as
to uncertificated shares retains all other rights of a
shareholder until the effective date of the proposed
corporate action.
23B.13.250 PAYMENT - (1) Except as provided in RCW
23B.13.270, within thirty days of the later of the effective
date of the proposed corporate action, or the date the
payment demand is received, the corporation shall pay each
dissenter who complied with RCW 23B.l3.230 the amount the
corporation estimates to be the fair value of the
shareholder's shares plus accrued interest.
(2). The payment must be accompanied by:
(a). The corporation's balance sheet as of the end of a
fiscal year ending not more than sixteen months before the
date of payment, an income statement for that year, a
statement of changes in shareholders' equity for that year,
and the latest available interim financial statements, if
any;
(b). An explanation of how the corporation estimated the
fair value of the shares;
(c). An explanation of how the interest was calculated;
(d). A statement of the dissenter's right to demand payment
under RCW 23B.13.280; and
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(e)E. A copy of this chapter.
23B.13.260 FAILURE TO TAKE ACTION - (1) If the corporation
does not effect the proposed action within sixty days after
the date set for demanding payment and depositing share
certificates, the corporation shall return the deposited
certificates and release any transfer restrictions imposed
on uncertificated shares.
(2). If after returning deposited certificates and releasing
transfer restrictions, the corporation wishes to undertake
the proposed action, it must send a new dissenters' notice
under RCW 23B.13.220 and repeat the payment demand
procedure.
23B.13.270 AFTER-ACQUIRED SHARES - (1) A corporation may
elect to withhold payment required by RCW 23B.13.250 from a
dissenter unless the dissenter was the beneficial owner of
the shares before the date set forth in the dissenters'
notice as the date of the first announcement to news media
or to shareholders of the terms of the proposed corporate
action.
(2). To the extent the corporation elects to withhold
payment under subsection (1) of this section, after taking
the proposed corporate action, it shall estimate the fair
value of the shares, plus accrued interest, and shall pay
this amount to each dissenter who agrees to accept it in
full satisfaction of the dissenter's demand. The
corporation shall send with its offer an explanation of how
it estimated the fair value of the shares, an explanation of
how the interest was calculated, and a statement of the
dissenter's right to demand payment under RCW 23B.13.280.
23B.13.280 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH
PAYMENT OR OFFER - (1) A dissenter may notify the
corporation in writing of the dissenter's own estimate of
the fair value of the dissenter's shares and amount of
interest due, and demand payment of the dissenter's
estimate, less any payment under RCW 23B.13.250, or reject
the corporation's offer under RCW 23 B.13.270 and demand
payment of the dissenter's estimate of the fair value of the
dissenter's shares and interest due, if:
(a). The dissenter believes that the amount paid under RCW
23B.13.250 or offered under RCW 23B.13.270 is less than the
fair value of the dissenter's shares or that the interest
due is incorrectly calculated;
(b). The corporation fails to make payment under RCW
23B.13.250 within sixty days after the date set for
demanding payment; or
(c). The corporation does not effect the proposed action and
does not return the deposited certificates or release the
transfer restrictions imposed on uncertificated shares
within sixty days after the date set for demanding payment.
(2) A dissenter waives the right to demand payment
under this section unless the dissenter notifies the
corporation of the dissenter's demand in writing under
subsection (1) of this section within thirty days after the
corporation made or offered payment for the dissenter's
shares.
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23B.13.300 COURT ACTION - (1) If a demand for payment
under RCW 23B.13.280 remains unsettled, the corporation
shall commence a proceeding within sixty days after
receiving the payment demand and petition the court to
determine the fair value of the shares and accrued interest.
If the corporation does not commence the proceeding within
the sixty-day period, it shall pay each dissenter whose
demand remains unsettled the amount demanded.
(2). The corporation shall commence the proceeding in the
superior court of the county where a corporation's principal
office, or, if none in this state, its registered office, is
located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence
the proceeding in the county in this state where the
registered office of the domestic corporation merged with or
whose shares were acquired by the foreign corporation was
located.
(3). The corporation shall make all dissenters, whether or
not residents of this state, whose demands remain unsettled,
parties to the proceeding as in an action against their
shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or
certified mail or by publication as provided by law.
(4). The corporation may join as a party to the proceeding
any shareholder who claims to be a dissenter but who has
not, in the opinion of the corporation, complied with the
provisions of this chapter. If the court determines that
such shareholder has not complied with the provisions of
this chapter, the shareholder shall be dismissed as a party.
(5). The jurisdiction of the court in which the proceeding
is commenced under subsection (2) of this section is plenary
and exclusive. The court may appoint one or more persons as
appraisers to receive evidence and recommend decision on the
question of fair value. The appraisers have the powers
described in the order appointing them, or in any amendment
to it. The dissenters are entitled to the same discovery
rights as parties in other civil proceedings.
(6). Each dissenter made a party to the proceeding is
entitled to judgment (a) for the amount, if any, by which
the court finds the fair value of the dissenter's shores,
plus interest, exceeds the amount paid by the corporation,
or (b) for the fair value, plus accrued interest, of the
dissenter's after-acquired shares for which the corporation
elected to withhold payment under RCW 23B.13.270.
23B.13.310 COURT COSTS AND COUNSEL FEES - (1) The court in
a proceeding commenced under RCW 23B.13.300 shall determine
all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the
court. The court shall assess the costs against the
corporation, except that the court may assess the costs
against all or some of the dissenters, in amounts the court
finds equitable, to the extent the court finds the
dissenters acted arbitrarily, vexatiously, or not in good
faith in demanding payment under RCW 23B.13.280.
(2). The court may also assess the fees and expenses of
counsel and experts for the respective parties, in amounts
the court finds equitable:
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(a). Against the corporation and in favor of any or all
dissenters if the court finds the corporation did not
substantially comply with the requirements of RCW 23B.13.200
through 23B. 13.280;
(b). Against either the corporation or a dissenter, in favor
of any other party, if the court finds that the party
against whom the fees and expenses are assessed acted
arbitrarily, vexatiously, or not in good faith with respect
to the rights provided by Chapter 23B.13 RCW.
(3). If the court finds that the services of counsel for any
dissenter were of substantial benefit to other dissenters
similarly situated, and that the fees for those services
should not be assessed against the corporation, the court
may award to these counsel reasonable fees to be paid out of
the amounts awarded the dissenters who were benefited.
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EXHIBIT D
COMPARISON OF WASHINGTON AND DELAWARE CORPORATE LAW
The rights of the shareholders of Gladstone Resources, Inc.,
a Washington corporation ("Gladstone-Washington") are governed by
the Washington Business Corporation Act ("WBCA"). The former
shareholders of Gladstone-Washington will become stockholders of
a Delaware corporation to be formed as a wholly-owned subsidiary
of Gladstone-Washington ("Gladstone-Delaware") upon the
consummation of the merger of Gladstone-Washington into Gladstone-
Delaware (the "Merger"). As stockholders of Gladstone-Delaware,
the shareholders' rights will differ in certain respects (in some
cases materially) from those presently held under the WBCA and
the Articles of Incorporation of Gladstone-Washington (the
"Gladstone-Washington Articles").
Certain differences and similarities between the rights of
stockholders of Gladstone- Delaware and those of Gladstone-
Washington are set forth below. This summary is not intended to
be relied upon as an exhaustive list of the differences or
detailed description and analysis of the provisions discussed and
is qualified in its entirety by the WBCA, the Gladstone-
Washington Articles, Delaware General Corporation Law ("DGCL")
and the Certificate of Incorporation of Gladstone-Delaware (the
"Gladstone-Delaware Certificate").
Authorized Capital
The Gladstone-Washington Articles authorize an aggregate of
6,000,000 shares of Gladstone-Washington Common Stock.
The Gladstone-Delaware Certificate authorizes an aggregate
of 10,000,000 shares of Gladstone-Delaware Common Stock and an
aggregate of 5,000,000 shares of Gladstone-Delaware Preferred Stock.
Business Combinations
Under the DGCL and the Gladstone-Delaware Articles, the
approval by the affirmative vote of the holders of a majority of
the outstanding stock of a corporation entitled to vote on the
matter is required for a merger or consolidation or sale, lease
or exchange, of all or substantially all of a corporation's
assets to be consummated. No vote of stockholders of a
constituent corporation surviving a merger, however, is required
(unless the corporation provides otherwise in its certificate of
incorporation) if (i) the merger agreement does not amend the
certificate of incorporation of the surviving corporation, (ii)
each share of stock of the surviving corporation outstanding
before the merger is an identical outstanding or treasury share
after the merger, and (iii) the number of shares to be issued by
the surviving corporation in the merger does not exceed 20% of
the shares outstanding immediately prior to the merger. The
Gladstone-Delaware Certificate does not make any provision with
respect to such mergers.
Under the WBCA, unless the WBCA, the Articles of
Incorporation or the Board of Directors acting pursuant to the
WBCA require a greater vote or a vote by voting groups, (i) a
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merger or share exchange must be approved by each voting group
entitled to vote separately on the merger or share exchange by
two-thirds (66.67%) of all the votes entitled to be cast by the
voting group and (ii) the sale, lease, exchange or other
disposition of all or substantially all of a corporation's assets
otherwise than in the usual and regular course of business, must
be approved by two thirds (66.67%) of all votes entitled to be
cast on the sale, lease, exchange or other disposition. The
Articles of Incorporation may provide for a lesser vote or for a
lesser vote by voting groups, so long as the vote provided for
each group entitled to vote separately on the matter is not less
than a majority of all of the votes entitled to be cast on the
matter by that voting group.
The WBCA also provides that certain mergers need not be
approved by the shareholders of the surviving corporation if (i)
the articles of incorporation will not change in the merger,
except for specified permitted amendments, (ii) no change occurs
in the number, designations, preferences, limitations, and
relative rights of shares held by those shareholders who were
shareholders prior to the merger, (iii) the number of voting
shares outstanding immediately after the merger, plus the voting
shares issuable as a result of the merger, will not exceed the
authorized voting shares specified in the surviving corporation's
articles of incorporation immediately prior to the merger, and
(iv) the number of participating shares outstanding immediately
after the merger, plus the number of participating shares
issuable as a result of the merger, will not exceed the
authorized participating shares specified in the corporation's
articles of incorporation immediately prior to the merger.
Dissenters' Rights
Under the DGCL, stockholders generally have the right to
demand and receive payment of the fair value of their stock in
the event of, a merger or consolidation; provided, however, that
no dissenters or appraisal rights are available for the shares of
any class or series of stock which, at the record date for the
meeting held to approve such transaction, were either (i) held of
record by more than 2,000 stockholders or (ii) listed on a
national securities exchange or, only under the DGCL, designated
as a national market system security on an inter-dealer quotation
system by the NASD. Even if the shares of any class or series of
stock meet the requirements of clause (i) or (ii) above,
appraisal rights are available for such class or series if the
holders thereof receive in the merger or consolidation anything
except: (a) shares of stock of the corporation surviving or
resulting from such merger or consolidation; (b) shares of stock
of any other corporation which at the effective date of the
merger or consolidation will be either listed on a national
securities exchange or held of record by more than 2,000
stockholders or, only under the DGCL, designated as a national
market system security on an inter-dealer quotation system by the
NASD; (c) cash in lieu of fractional shares of the corporations
described in clause (a) or (b) of this sentence; or (d) any
combination of shares of stock and cash in lieu of fractional
shares described in the foregoing clauses (a), (b) and (c).
Under the WBCA, shareholders generally have the right to
dissent from, and to obtain payment of the fair value of their
shares in the event of, a merger or consolidation, a share
exchange or a sale or exchange of all or substantially all of the
property of a corporation. The
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WBCA imposes significant duties on shareholders who wish to avail
themselves of the right to demand and receive payment of the fair
cash value of their stock, and any shareholder who does not
satisfy these duties will not be entitled to payment for his or
her shares. The shareholders of Gladstone-Washington will be
entitled to exercise dissenters' rights in connection with the
proposed Merger, and shareholders of Gladstone-Washington holding
fewer than five (5) shares will be entitled to exercise
dissenters' rights in connection with the Reverse Stock Split.
Business Combinations With Interested Stockholders
Section 203 of the DGCL generally prohibits any business
combination (defined to include a variety of transactions,
including (i) mergers and consolidations; (ii) sales or
dispositions of assets having an aggregate market value equal to
10% or more of the aggregate market value of the corporation
determined on a consolidated basis; (iii) issuances of stock
(except for certain pro rata and other issuances); and (iv)
disproportionate benefits from the corporation (including loans
and guarantees)) between a Delaware corporation and any
interested stockholder (defined generally as any person who,
directly or indirectly, beneficially owns 15% or more of the
outstanding voting stock of the corporation) for a period of
three years after the date on which the interested stockholder
became an interested stockholder. These restrictions do not
apply, however, (a) if, prior to such date, the board of
directors of the corporation approved either the business
combination or the transaction which resulted in such stockholder
becoming an interested stockholder; (b) if, upon consummation of
the transaction resulting in such stockholder becoming an
interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation at the time the
transaction was commenced (excluding, for the purposes of
determining the number of shares outstanding, shares owned by
persons who are directors and also officers and by certain
employee plans of the corporation); (c) if, on or subsequent to
such date, the business combination is approved by the board of
directors and the holders of at least two-thirds () of the shares
not involved in the transaction; or (d) under certain other
circumstances.
In addition, a Delaware corporation may adopt an amendment
to its Certificate of Incorporation or Bylaws expressly electing
not to be governed by Section 203 of the DGCL if, in addition to
any other vote required by law, such amendment is approved by the
affirmative vote of a majority of the shares entitled to vote.
Such amendment will not, however, be effective until twelve (12)
months after such stockholder vote and will not apply to any
business combination with an interested stockholder who was such
on or prior to the effective date of such amendment.
Gladstone-Delaware has not adopted an amendment to the
Gladstone-Delaware Articles electing not to be governed by
Section 203 of the DGCL. Therefore, Gladstone-Delaware will be
entitled to the protections of Section 203 of the DGCL.
Section 23B.19.040 of the WBCA generally restricts the
ability of a "target corporation" (defined in the WBCA to include
public corporations incorporated in Washington) to engage in
significant business transactions (defined to include a variety
of transactions, including (i) any merger, share exchange or
consolidation; (ii) any sale, lease, exchange, mortgage, pledge,
3
transfer, or other disposition or encumbrance of assets having an
aggregate market value equal to 5% or more of the aggregate
market value of either the assets, outstanding shares or net
income of the corporation, determined on a consolidated basis;
(iii) the termination of five percent or more of the employees of
the target corporation and its subsidiaries over a five-year
period; (iv) any issuance, transfer or redemption of stock or
options, warrants, or rights to acquire stock (except for certain
pro rata and other issuance); (v) the liquidation or dissolution
proposed by or pursuant to an agreement, arrangement or
understanding; (vi) a reclassification of securities, including
any share split, shares dividend or other distribution of shares
in respect of stock, or any reverse share split, or
recapitalization, or merger or consolidation, or any other
transaction that has the effect of disproportionately increasing
the shares of voting securities; and (vii) loans, advances,
guarantees, pledges or other financial assistance or tax credits
(except proportionately as a shareholder) with an acquiring
person (defined generally as any person who, directly or
indirectly, beneficially owns 10% or more of the outstanding
voting stock of the corporation) for a period of five years after
the date on which the acquiring person became an acquiring
person. Additional restrictions apply to any merger, share
exchange or consolidation and liquidation or dissolution. These
restrictions do not apply, however, if (a) the board of directors
of the corporation approved in advance either the significant
business transaction or the transaction which resulted in such
shareholder becoming an interested shareholder, or (b) under
certain other circumstances.
Transactions With Officers or Directors
The DGCL provides that contracts or transactions between a
corporation and one or more of its officers or directors or an
entity in which they have an interest is not void or voidable
solely because of such interest or the participation of the
director or officer in a meeting of the board or a committee
which authorizes the contract or transaction if: (i) the
material facts as to the relationship or interest and as to the
contract or transaction are disclosed or are known to the board
or the committee, and the board or committee in good faith
authorizes the contract or transaction by the affirmative votes
of a majority of disinterested directors, even though the
disinterested directors are less than a quorum; or (ii) the
material facts as to the relationship or interest and as to the
contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to
the corporation as of the time it is authorized, approved or
ratified, by the board of directors, a committee thereof, or the
stockholders.
The WBCA sets forth a safe harbor for transactions between a
corporation and one or more of its directors. A conflicting
interest transaction may not be enjoined, set aside or give rise
to damages if: (i) it is approved by a majority of qualified
directors, but no fewer than two; (ii) it is approved by the
affirmative vote of all qualified shares; or (iii) at the time of
commitment, the transaction was fair to the corporation. For
purposes of this provision, "qualified director" is one who does
not have: (a) a conflicting interest respecting the transaction;
or (b) a familial, financial, professional, or employment
relationship with a second director which relationship would
reasonably be expected to exert an influence on the first
director's judgment when voting on the
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transaction. "Qualified shares" are defined generally as shares
other than those beneficially owned, or the voting of which is
controlled, by a director who has a conflicting interest
respecting the transaction.
Amendments to Certificate of Incorporation
Under the DGCL, unless otherwise provided in the Certificate
of Incorporation, a proposed amendment to the Certificate of
Incorporation requires the affirmative vote of a majority of all
shares outstanding and entitled to be cast on the matter. If any
such amendment would adversely affect the rights of any holders
of shares of a class or series of stock, the vote of the holders
of a majority of all outstanding shares of the class or series,
voting as a class, is also necessary to authorize such amendment.
The Gladstone-Delaware Certificate does not provide additional
requirements regarding amendments to its Certificate of
Incorporation.
The WBCA authorizes a corporation's board of directors to
make various changes to its articles of incorporation without
shareholder approval. These so called housekeeping changes
include changes of corporate name, and, if the corporation has
only one class of shares outstanding, to change the number of
outstanding shares in order to effectuate a stock split or stock
dividend in the corporation's own shares or to change or
eliminate provisions with respect to par value of its shares.
Otherwise, amendments to a corporation's articles of
incorporation must be recommended to the shareholders by the
board of directors, unless the board determines that because of a
conflict of interest or other special circumstances, it should
make no recommendation and communicates the basis for its
determination to the shareholders with the amendment. Such
amendment then must be approved, in the case of a public company,
by a majority of all votes entitled to be cast by each voting
group which has a right to vote on the amendment.
Preemptive Rights
Under the DGCL, a stockholder does not possess preemptive
rights unless such rights are specifically granted in the
Certificate of Incorporation. The Gladstone-Delaware Certificate
does not provide for preemptive rights.
Under the WBCA, a shareholder possesses preemptive rights
unless such rights are specifically denied in the Articles of
Incorporation. The Gladstone-Washington Articles denies
preemptive rights.
Dividend Sources
Under the DGCL, a board of directors may authorize a
corporation to make distributions to its stockholders, subject to
any restrictions in its Certificate of Incorporation, either (i)
out of surplus; or (ii) if there is no surplus, out of net
profits for the fiscal year in which the dividend is declared
and/or the preceding fiscal year. Under the DGCL, no
distribution out of net profits is permitted, however, if the
corporation's capital is less than the amount of capital
represented by
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the issued and outstanding stock of all classes having a
preference upon the distribution of assets, until such deficiency
has been repaired. The Gladstone-Delaware Certificate does not
provide additional requirements regarding the distribution of
dividends.
Under the WBCA, a board of directors may authorize a
corporation to make distributions to its shareholders subject to
any restrictions imposed by the Articles of Incorporation,
provided that no distribution may be made if after giving it
effect (i) the corporation would not be able to pay its debts as
they become due in the usual course of business, or (ii) the
corporation's total assets would be less than the sum of its
total liabilities plus (unless the Articles of Incorporation
permit otherwise) the amount that would be needed, if the
corporation were to be dissolved at the time of distribution, to
satisfy the preferential rights upon dissolution of shareholders
whose preferential rights are superior to those receiving the
distribution. The Gladstone-Washington Articles do not provide
additional requirements regarding the distribution of dividends.
Duration Of Proxies
Generally, under the DGCL, no proxy is valid for more than
three years after its date unless otherwise provided in the
proxy. The Gladstone-Delaware Bylaws do not alter the effective
period of a proxy.
Under the WBCA, no proxy is valid for more than eleven
months unless a longer period is expressly provided in the proxy.
Stockholder Action Without A Meetng
Under the DGCL, action requiring the vote of stockholders
may be taken without a meeting, without prior notice and without
a vote, by the written consent of stockholders having not less
than the minimum number of votes that would be necessary to take
such action at a meeting at which all shares entitled to vote
thereon were present and acted. The Gladstone-Delaware
Certificate would eliminate the ability of stockholders to take
action without a meeting of stockholders.
Under the WBCA, action without a meeting by shareholders of
corporations that are public companies may be taken only if
written consents setting forth such action are signed by holders
of all of the outstanding shares entitled to vote thereon.
Special Stockholder Meetings
The DGCL provides that a special meeting of stockholders may
be called by the Board of Directors or by such person or persons
as may be authorized by the Certificate of Incorporation or by
the Bylaws.
6
The WBCA provides that a special meeting of shareholders may
be called by the Board of Directors, any person or persons
authorized by the Articles of Incorporation or Bylaws, or the
holders of at least 10% of all votes entitled to be cast on any
issue proposed to be considered at the proposed special meeting
upon one or more written demands by such holders.
Cumulative Voting
The DGCL permits cumulative voting for the election of
directors if provided for in a corporation's Certificate of
Incorporation. The Gladstone-Delaware Certificate does not
provide for cumulative voting for the election of directors.
The WBCA permits cumulative voting for the election of
directors unless otherwise provided in the corporation's Articles
of Incorporation. The Gladstone-Washington Articles do not deny
cumulative voting for the election of directors.
Number and Election of Directors
The DGCL permits the Certificate of Incorporation or the
Bylaws of a corporation to contain provisions governing the
number and terms of directors. However, if the Certificate of
Incorporation contains provisions fixing the number of directors,
such number may not be changed without amending the Certificate
of Incorporation. The Gladstone-Delaware Certificate does not
fix the number of directors.
The DGCL permits the Certificate of Incorporation of a
corporation, the initial Bylaws or a Bylaw adopted by the
stockholders to provide that directors be divided into one, two
or three classes. The term of office of one class of directors
shall expire each year with the terms of office of no two classes
expiring the same year. Gladstone-Delaware has not established a
classified Board of Directors.
The WBCA permits the Articles of Incorporation or the Bylaws
of a corporation to contain provisions governing the number and
terms of directors, provided that the number of directors shall
not be less than one. The terms for all directors expire at the
next annual meeting of the shareholders following their election
unless their terms are staggered under the provisions of the
WBCA. The Gladstone-Washington Articles provide that the number
of directors shall be not less than three nor more than nine.
Removal Of Directors
The DGCL provides that a director or directors may be
removed with or without cause by the holders of a majority of the
shares then entitled to vote at an election of directors, except
that (i) members of a classified board may be removed only for
cause, unless the Certificate of Incorporation provides otherwise
and (ii) in the case of a corporation having cumulative voting,
if less than the entire board is to be removed, no director may
be removed without cause if the votes
7
cast against such director's removal would be sufficient to elect
such director if then cumulatively voted at an election of the
entire board of directors or of the class of directors of which
such director is a part.
The WBCA provides that the shareholders may remove one or
more directors with or without cause unless the Articles of
Incorporation provide that the directors may be removed only for
cause, except that (i) if a director is elected by a one or more
authorized classes or series of shares, only the holders of those
classes or series may participate in the vote to remove him; (ii)
if cumulative voting is authorized, and if less than the entire
Board is to be removed, a director may not be removed if the
number of votes sufficient to elect him under cumulative voting
is voted against his removal, or if cumulative voting is not
authorized, a director may be removed only if the number of the
votes cast to remove him exceeds the number of votes cast not to
remove him; and (iii) a director may be removed by the
shareholders only at a meeting called for the purpose of removing
him and the meeting notice shall state that the purpose or one of
the purposes of the meeting is removal of a director.
Vacancies
Under the DGCL, unless otherwise provided in the Certificate
of Incorporation or the Bylaws, vacancies on the Board of
Directors and newly created directorships resulting from an
increase in the authorized number of directors may be filled by a
majority of the directors then in office, although less than a
quorum, or by the sole remaining director, provided that, in the
case of a classified board, such vacancies and newly created
directorships may be filled by a majority of the directors
elected by such class, or by the sole remaining director so
elected. In the case of a classified board, directors elected to
fill vacancies or newly created directorships shall hold office
until the next election of the class for which such directors
have been chosen, and until their successors have been duly
elected and qualified. In addition, if, at the time of the filing
of any such vacancy or newly created directorship, the directors
in office constitute less than a majority of the whole board (as
constituted immediately prior to any such increase), the Delaware
Court of Chancery may, upon application of any stockholder or
stockholders holding at least 10% of the total number of
outstanding shares entitled to vote for such directors, summarily
order an election to fill any such vacancy or newly created
directorship, or replace the directors chosen by the directors
then in office. The Gladstone-Delaware Certificate does not
provide additional requirements regarding vacancies of directors.
Under the WBCA, unless the Articles of Incorporation provide
otherwise, if a vacancy occurs on the Board of Directors,
including a vacancy resulting from an increase in the number of
directors, the shareholders or the Board of Directors may fill
the vacancy, except that if the directors remaining in office
constitute fewer than a quorum, the board of directors may fill
the vacancy by the affirmative vote of a majority of all
directors remaining in office. If the vacancy was held by a
director elected by a holders of one or more authorized classes
or series of shares, and if such vacancy is to be filled by the
shareholders, only the holders of those classes or series of
shares are entitled to vote to fill such vacancy. A director
chosen to fill a position resulting from
8
an increase in the number of directors shall hold office until
the next election of directors by the shareholders and until his
or her successor shall have been elected and qualified.
Indemnification of Directors and Officers
Under the DGCL, a corporation may indemnify a director,
officer, employee or agent of a corporation against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or her if he
or she acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct
was unlawful. In the case of an action brought by or in the
right of a corporation, the corporation may indemnify a director,
officer, employee or agent of the corporation against expenses
(including attorneys' fees) actually and reasonably incurred by
him or her if he or she acted in good faith and in a manner he or
she reasonably believed to be in the best interests of the
corporation, except that no indemnification may be made in
respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the corporation unless
the court in which such action or suit was brought or, the
Delaware Court of Chancery determines that, in view of all the
circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses as the court shall deem
proper.
A director, officer, employee or agent who is successful, on
the merits or otherwise, in defense of any proceeding subject to
the DGCL's (as the case may be) indemnification provisions must
be indemnified by the corporation for reasonable expenses
incurred therein, including attorneys' fees. The DGCL states
that any indemnification, unless ordered by a court, shall be
made only upon a determination that a director or officer has met
the required standard of conduct before the director or officer
may be indemnified. The determination may be made (i) by a
majority vote of a quorum of disinterested directors; (ii) if a
quorum of disinterested directors is not obtainable, or even if
obtainable, a quorum of disinterested directors so directs, by
independent legal counsel; or (iii) by the stockholders.
The DGCL requires Gladstone-Delaware to advance reasonable
expenses to a director or officer after such person provides an
undertaking to repay the corporation if it is determined that the
required standard of conduct has not been met. This
indemnification and advancement of expenses is not exclusive of
any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any Bylaw,
agreement, vote of stockholders or disinterested directors or
otherwise. Delaware corporations may procure insurance for
purposes of indemnification of directors and officers.
Under the WBCA, if authorized by the Articles of
Incorporation, a Bylaw adopted or ratified by shareholders, or a
resolution adopted or ratified, before or after the event, by the
shareholders, a corporation has the power to indemnify a director
or officer made a party to a proceeding, or advance or reimburse
expenses incurred in a proceeding, under any circumstances,
9
except that no such indemnification shall be allowed on account
of: (i) acts or omissions of the directors finally adjudged to
be intentional misconduct or a knowing violation of the law; (ii)
conduct of the director finally adjudged to be an unlawful
distribution; or (iii) any transaction with respect to which it
was finally adjudged that such director personally received a
benefit in money, property or services to which the director was
not legally entitled.
Under the WBCA, a corporation may indemnify an individual
made a party to a proceeding because the individual is or was a
director, officer, employee or agent against reasonable expenses
(including counsel fees), judgments, settlements, penalties and
fines incurred by him or her if he or she acted in good faith and
in a manner he or she reasonably believed to be in the best
interests of the corporation in the case of conduct in his or her
official capacity as a director, officer, employee or agent and
in all other cases not opposed to the best interests of the
corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct
was unlawful. In the case of an action brought by or in the
right of a corporation, indemnification is limited to reasonable
expenses incurred in connection with the proceeding and the
corporation may not indemnify a director, officer, employee or
agent if the director, officer, employee or agent was adjudged to
be liable to the corporation. A corporation also may not
indemnify a director, officer, employee or agent in connection
with any other proceeding charging improper personal benefit to
the director, officer, employee or agent in which the director,
officer, employee or agent was adjudged liable on the basis that
personal benefit was improperly received. A director, officer,
employee or agent who was wholly successful, on the merits or
otherwise, in defense of any proceeding to which the director,
officer, employee or agent was a party because of being a
director, officer, employee or agent of the corporation must be
indemnified by the corporation for reasonable expenses incurred
therein in connection with the proceeding. The WBCA states that
any indemnification described above in this paragraph shall be
made only upon a determination that the director, officer,
employee or agent has met the required standard of conduct before
the director, officer, employee or agent may be indemnified. The
determination shall be made (i) by a majority vote of a quorum of
directors not at the time a party to the proceedings; (ii) if a
quorum of directors not at the time a party to the proceedings is
not obtainable, by a majority vote of a committee duly designated
by the Board of Directors, consisting solely of two or more
directors not at the time a party to the proceedings; or (iii) by
special legal counsel.
The WBCA permits Gladstone-Washington to pay for or
reimburse the reasonable expenses of a director, officer,
employee or agent who is a party to a proceeding in advance of
final disposition of the proceeding if such director, officer,
employee or agent provides a written affirmation of his or her
good faith belief that he or she meets the standard of conduct
and a written undertaking to repay the corporation if it is
determined that the required standard of conduct has not been
met. This indemnification and advancement of expenses is not
exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under
any Bylaw, agreement, vote of stockholders or otherwise.
Washington corporations may procure insurance for purposes of
indemnification of directors and officers.
Gladstone-Washington's Articles of Incorporation make no
provision for the indemnification of its directors and officers.
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Limitation Of Personal Liability Of Directors
The DGCL provides that a corporation's Certificate of
Incorporation may include a provision limiting the personal
liability of a director to the corporation or its stockholders
for monetary damages for breach of a fiduciary duty as a
director. However, no such provision can eliminate or limit the
liability of a director for (i) any breach of the director's duty
of loyalty to the corporation or its stockholders; (ii) acts or
omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law; (iii) violation of
certain provisions of the DGCL; (iv) any transaction from which
the director derived an improper personal benefit; or (v) any act
or omission prior to the adoption of such a provision in the
Certificate of Incorporation. The Gladstone-Delaware Certificate
provides a provision eliminating the personal liability for
monetary damages of its directors to the fullest extent permitted
under the DGCL.
The WBCA provides that a corporation's Articles of
Incorporation may include a provision that eliminates or limits
the personal liability of a director to the corporation or its
shareholders for monetary damages for conduct as a director. The
provision, however, may not eliminate or limit liability of a
director for acts or omissions that involve intentional
misconduct by a director, a knowing violation of law by a
director, for unlawful distributions, or for any transaction from
which the director will personally receive a benefit in money,
property, or services to which the director is not legally
entitled. Gladstone-Washington's Articles make no provision for
such limitation of liability.
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