1
EXHIBIT 4 (a)
2
COMSTOCK RESOURCES, INC.
Certificate of Voting Powers, Designations,
Preferences, and Relative, Participating,
Optional or Other Special Rights of
Series 1995 Convertible Preferred Stock
We, M. Jay Allison, President, and Roland O. Burns, Secretary,
of Comstock Resources, Inc. (the "Company"), a corporation organized and
existing under the General Corporation Law of the State of Nevada, in
accordance with the provisions of Section 78.195 of the Nevada Revised Statutes
thereof, DO HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of
Directors by the Restated Articles of Incorporation of the Company, said Board
of Directors, at a meeting of the Board of Directors held pursuant to the
General Corporation Law of the State of Nevada, duly adopted a resolution
providing for the issuance of One Million Five Hundred Thousand (1,500,000)
shares of a new series of preferred stock designated as Series 1995 Convertible
Preferred Stock, which resolution is as follows:
RESOLVED, that pursuant to the Restated Articles of
Incorporation of the Company, there be and hereby is authorized and created a
series of preferred stock, to consist of 1,500,000 shares with a par value of
$10.00 per share and that the voting powers, designations, preferences, and
relative, participating, optional or other special rights of the Series 1995
Convertible Preferred Stock (the "Series 1995 Preferred Stock") and the
qualifications, limitations or restrictions thereof be as follows:
1. Certain Definitions.
The following terms shall have the following meanings:
"5-Day Average Price" per share of Common Stock, for purposes
of any provision herein at the date specified in such provision, shall mean the
average closing price of the Common Stock on the securities exchange or other
national market system on which the Common Stock is then listed over the
5-trading day period immediately prior to such date.
"30-Day Average Price" per share of Common Stock, for purposes
of any provision herein at the date specified in such provision, shall mean the
average closing price of the Common Stock on the securities exchange or other
national market system on which the Common Stock is then listed over the
30-trading day period immediately prior to such date.
"1994 B Preferred" shall mean the 1,000,000 shares of the
Company's 1994 Series B Convertible Preferred Stock, $10.00 par value per
share, issued pursuant to that certain Exchange Agreement dated as of July 21,
1994 between the Company, Enron Reserve
3
Acquisition Corp. and Enron Risk Management Services Corp, and any additional
shares of 1994 Series B Convertible Preferred Stock issued as a dividend
thereon.
"1994 Preferred" shall mean the 600,000 shares of the
Company's Series 1994 Convertible Preferred Stock, $10.00 par value per share,
issued pursuant to that certain Stock Purchase Agreement dated as of January 7,
1994 between the Company, Trust Company of the West in the capacities described
therein, and others.
"Additional Shares of Nonpreferred Stock" shall mean all
shares of Nonpreferred Stock issued by the Company after the Closing Date other
than (i) the shares of Common Stock issued to a holder of the Series 1995
Preferred Stock or Senior Stock upon conversion or redemption of, or dividends
on, the Series 1995 Preferred Stock or Senior Stock, (ii) any issuance of
Common Stock or rights or warrants to purchase Common Stock at the then market
price pursuant to the Company's 1991 Long-Term Incentive Plan (the "LTIP")
provided that such plan will not provide for the issuance of options, rights,
warrants or grants in excess of 1,286,375 shares of Common Stock (and counting
as a portion of such shares the 801,750 shares reserved for issuance for
outstanding options granted under the LTIP as of the Closing Date) plus a
number of shares equal to ten percent (10%) of the number of shares of Common
Stock issued after the Closing Date (excluding Common Stock issued upon
conversion or redemption of the Series 1995 Preferred Stock or the Senior
Stock), (iii) any shares of Common Stock issued at then current market prices
in payment of the annual retainers paid to members of the Board of Directors of
the Company, provided that such annual retainers do not exceed a value or
amount of $128,000 in the aggregate per year based on five non-employee
directors, (iv) up to 1,990,307 shares of Common Stock issued pursuant to the
options and warrants outstanding on the Closing Date (and counting as a portion
of such shares the 801,750 shares reserved for issuance for outstanding options
granted under the LTIP as of the Closing Date), and (v) the issuance of up to
250,000 shares of Common Stock after the Closing Date at a price per share less
than the Conversion Price.
"Applicable IRR Amount", means, for purposes of any provision
herein at the date specified in such provision, that amount which, when added
to the amount of all dividend payments received by the holders of the Series
1995 Preferred Stock (including dividends the Cash Equivalent Amount of which
were paid in the form of Common Stock) through such date, would result in such
holders receiving a 25% cumulative cash-on-cash internal rate of return,
compounded quarterly, on such holders' initial investment of $10.00 per share
of Series 1995 Preferred Stock.
"Business Day" means any day other than a Saturday, a Sunday,
any day on which the New York Stock Exchange is closed or any other day on
which banking institutions in New York or California are authorized or required
by law to be closed.
"Cash Equivalent Amount" means, with respect to any cash
amount which may be paid to the holders of the Series 1995 Preferred Stock by
way of dividend, redemption or other distribution, the number of shares (or
fraction thereof) of Common
- 2 -
4
Stock equal in value to such cash amount. For purposes of determining the Cash
Equivalent Amount, the shares of Common Stock shall be valued at 80%
multiplied by the lower of (i) the 30-Day Average Price of the Common Stock or
(ii) the 5- Day Average Price of the Common Stock; provided, that if the Cash
Equivalent Amount cannot be ascertained by such methods, then the Common Stock
shall be valued at 80% multiplied by the lower of (i) the net book value per
share of Common Stock, determined in accordance with generally accepted
accounting principles, or (ii) the fair value per share of Common Stock
determined pursuant to the Valuation Procedure. The Cash Equivalent Amount
shall be determined as of the date immediately prior to the date of issuance of
any such Common Stock.
"Closing Date" means the date of the closing of the first sale
of the Series 1995 Preferred Stock.
"Conversion Price" shall initially be $5.25 and shall be
adjusted and readjusted from time to time as provided in Section 8.
"Convertible Securities" shall mean evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable
for Additional Shares of Nonpreferred Stock, either immediately or upon the
arrival of a specified date or the happening of a specified event.
"Development Plan" shall mean the development plan attached to
the Secretary's Certificate pursuant to Section 3.7.1(a) of the Stock Purchase
Agreement relating to the Series 1995 Preferred Stock, as such development plan
may be amended from time to time with the consent of TCW pursuant to Section
6.5(g) hereof.
"Events of Noncompliance" shall mean each of the events
specified in Sections 6 and 7 hereof.
"Fair Market Price" per share of Common Stock, for purposes of
any provision herein at the date specified in such provision, shall mean the
greater of (i) the 30-Day Average Price of the Common Stock or (ii) the 5- Day
Average Price of the Common Stock; provided, that if the Fair Market Price per
share of Common Stock cannot be ascertained by such methods, then the Fair
Market Price per share of Common Stock shall be deemed to be the greater of (i)
the net book value per share of Common Stock, determined in accordance with
generally accepted accounting principles, or (ii) the fair value per share of
Common Stock determined pursuant to the Valuation Procedure.
"Junior Stock" shall have the meaning set forth in Section 2.
"Liquidation Amount" means $10.00, plus a sum equal to all
accumulated but unpaid dividends and interest thereon, if any, through the date
of any determination thereof, per share of Series 1995 Preferred Stock.
- 3 -
5
"Long-Term Incentive Plan" shall mean the Company's 1991
Long-Term Incentive Plan, as in effect on the Closing Date and as such plan may
be amended from time to time with the consent of the holders of the Series 1995
Preferred Stock pursuant to Section 6.5(f) hereof.
"Nonpreferred Stock" shall mean the Common Stock and shall
also include stock of the Company of any other class which is not preferred as
to dividends or assets over any other class of stock of the Company and which
is not subject to redemption.
"Senior Stock" shall mean, collectively, the 1994 Preferred
and 1994 B Preferred.
"Valuation Procedure" shall have the meaning set forth in
Section 8.3(b).
2. Ranking of the Series 1995 Preferred Stock.
So long as any shares of Series 1995 Preferred Stock shall be
outstanding, the Series 1995 Preferred Stock shall (i) be junior with respect
to the right to receive dividends or assets upon liquidation, dissolution or
winding up of the Company to the Senior Stock and (ii) rank senior with respect
to the right to receive dividends or assets upon liquidation, dissolution or
winding up of the Company to the Common Stock and to all other series of
preferred stock or classes or series of capital stock hereafter or heretofore
established by the Board of Directors (collectively, the "Junior Stock").
3. Dividends; Restricted Payments.
3.1. Dividend Payment Dates. The holders of the Series 1995
Preferred Stock shall be entitled to receive when, as and if declared by the
Board of Directors out of funds legally available for the purpose, cumulative
dividend payments, payable quarterly in accordance with this Section 3, on
March 31, June 30, September 30 and December 31 of each year commencing on June
30, 1995. Dividends on the Series 1995 Preferred Stock shall be cumulative
from the date of original issue of the Series 1995 Preferred Stock.
Accumulations of dividends shall bear interest at a rate of 9% per annum,
compounded quarterly, which interest shall be deemed accrued dividends payable
in the same manner and at the same time as dividends and redemptions shall be
paid on the Series 1995 Preferred Stock.
3.2. Form of Payment. Dividends on the Series 1995 Preferred
Stock may, at the option of the Company, be paid:
(a) in cash at a quarterly rate of $.2250 per share;
- 4 -
6
(b) in shares (whether whole or fractional) of
Common Stock valued at the Cash Equivalent Amount for the purposes of
determining the number of shares (or fraction thereof) of Common Stock
to be issued; or
(c) by combination of cash and such shares;
provided, that if any such dividend shall be paid in a combination of cash and
shares of Common Stock, all holders of the Series 1995 Preferred Stock shall
receive cash and shares of Common Stock in the same ratio, except that the
Company, at its option, may pay cash in lieu of fractional shares of Common
Stock valued at the Cash Equivalent Amount.
3.3. Record Date. The Board of Directors shall fix a
record date for the determination of holders of the Series 1995 Preferred Stock
entitled to receive payment of a dividend declared thereon, which record date
shall be not more than sixty (60) days prior to the date fixed for the payment
thereof.
3.4. Restricted Payments. Unless full cumulative dividends
on the Series 1995 Preferred Stock have been paid, no dividends shall be
declared or paid or set apart for payment or other distribution upon any Junior
Stock nor shall any Junior Stock be redeemed, purchased or otherwise acquired
by the Company for any consideration (or any payment made to or available for a
sinking fund for the redemption of any shares of such stock) by the Company.
4. Redemption.
4.1. Mandatory Redemption. On June 30, 2000 and on June 30
of each year thereafter, the Company shall redeem 300,000 shares (or such
lesser number of shares if (i) a lesser number of shares shall be outstanding
on such date or (ii) such redemption is restricted or prohibited by the terms
of the Senior Stock provided that if such redemption is restricted or
prohibited by the terms of the Senior Stock, and such restriction or
prohibition terminates, then such greater number of shares shall be redeemed as
is necessary to make up for a lesser number of shares being redeemed in a prior
year) of the Series 1995 Preferred Stock. Redemptions pursuant to this Section
4.1 shall be paid, at the option of the Company, (i) in cash for a price per
share of Series 1995 Preferred Stock equal to the Liquidation Amount, (ii) with
shares (whether whole or fractional) of Common Stock having a Cash Equivalent
Amount equal to the Liquidation Amount or (iii) by combination of cash and such
shares; provided, that if such redemption shall be paid in a combination of
cash and shares of Common Stock, all holders of the Series 1995 Preferred Stock
shall receive cash and shares of Common Stock in the same ratio, except that
the Company, at its option, may pay cash in lieu of fractional shares of Common
Stock valued at the Cash Equivalent Amount. In the event that at any time less
than all of the shares of Series 1995 Preferred Stock outstanding are to be
redeemed pursuant to this Section 4.1, the Company shall effect such redemption
pro rata according to the number of shares of Series 1995 Preferred Stock held
by each holder thereof.
- 5 -
7
4.2. Redemption Upon Change of Control. Upon the sale,
conveyance or disposition of all or substantially all of the assets of the
Company, the net proceeds of which, after making provisions for all liabilities
(contingent or otherwise) of the Company, exceed the amount required to pay the
full Liquidation Amount to which each holder of the Series 1995 Preferred Stock
is entitled upon liquidation of the Company, or a sale, conveyance or
disposition of a majority of the outstanding shares of Common Stock in a
transaction or series of related transactions (except for a merger or
consolidation after the consummation of which the stockholders of the Company
own a majority of the voting securities of the surviving corporation or its
parent corporation), each holder of the Series 1995 Preferred Stock shall have
the right to require that the Company redeem all or any part of such holder's
Series 1995 Preferred Stock for cash out of legally available funds at a price
per share equal to the Liquidation Amount.
If on the date of such sale, conveyance or disposition funds
legally available for such redemption shall be insufficient to redeem all of
the outstanding shares of Series 1995 Preferred Stock held by holders who have
elected to have their shares redeemed, funds to the extent legally available
shall be used for such purpose and the Company shall effect such redemption pro
rata according to the number of shares of Series 1995 Preferred Stock held by
each holder thereof. The redemption requirements provided hereby shall be
continuous, so that if on the date of such sale, conveyance or disposition such
requirements can not be fully discharged, without further action by any holder
of the Series 1995 Preferred Stock funds legally available shall be applied
therefor until such requirements are fulfilled.
Upon payment in full of the amounts owing under this Section
4.2 to any holder of Series 1995 Preferred Stock who has elected to have its
shares redeemed, then notwithstanding that the certificate or certificates
evidencing such shares shall not have been surrendered, the dividends with
respect to such shares shall cease to accrue after the date of such payment in
full and all rights with respect to such shares shall forthwith terminate.
4.3. Optional Redemption Prior to June 30, 1998. The shares
of Series 1995 Preferred Stock may be redeemed, in whole but not in part, at
the option of the Company, at any time prior to June 30, 1998, if the Common
Stock has traded on a recognized securities exchange or national market system
more than 80,000 shares per day (as adjusted for stock dividends, split-ups,
mergers, recapitalizations, combinations, exchanges of shares or the like) over
the 30-trading day period prior to the date of the Redemption Notice required
by Section 4.5 below at an average closing price on such securities exchange or
national market
- 6 -
8
system equal to or greater than the following amounts (as adjusted for stock
dividends, split-ups, mergers, recapitalizations, combinations, exchanges of
shares or the like):
On or prior to
June 30: Average Closing Price:
------------- ----------------------
1996 $ 6.55
1997 8.25
1998 9.75
Redemptions pursuant to this Section 4.3 shall be paid, at the
option of the Company, (i) in cash for a price per share of Series 1995
Preferred Stock equal to the 30-Day Average Price of the Common Stock
immediately prior to such date of redemption multiplied by the number of shares
of Common Stock issuable upon the conversion of one share of Series 1995
Preferred Stock at the then applicable Conversion Price, (ii) with freely
tradeable shares (whether whole or fractional) of Common Stock valued at a Cash
Equivalent Amount equal to the cash amount provided in clause (i) above, or
(iii) with a combination of cash and such shares in amounts determined pursuant
to clauses (i) and (ii) above, respectively; provided, that if such redemption
shall be paid in a combination of cash and shares of Common Stock, all holders
of the Series 1995 Preferred Stock shall receive cash and shares of Common
Stock in the same ratio, except that the Company, at its option, may pay cash
in lieu of fractional shares of Common Stock valued at the Cash Equivalent
Amount.
4.4. Optional Redemption After June 30, 1998. The shares of
Series 1995 Preferred Stock may be redeemed, in whole but not in part, at the
option of the Company, at any time on or after June 30, 1998, if the Common
Stock has traded on a recognized securities exchange or national market system
more than 80,000 shares per day (as adjusted for stock dividends, split-ups,
mergers, recapitalizations, combinations, exchanges of shares or the like) over
the 30-trading day period prior to the date of the Redemption Notice required
by Section 4.5 below.
Redemptions pursuant to this Section 4.4 shall be made, at the
option of the Company, (i) in cash for a price per share of Series 1995
Preferred Stock equal to the Applicable IRR Amount, (ii) with shares (whether
whole or fractional) of Common Stock valued at a Cash Equivalent Amount equal
to the Applicable IRR Amount or (iii) with a combination of cash and such
shares in amounts determined pursuant to clauses (i) and (ii) above,
respectively; provided, that if such redemption shall be paid in a combination
of cash and shares of Common Stock, all holders of the Series 1995 Preferred
Stock shall receive cash and shares of Common Stock in the same ratio, except
that the Company, at its option, may pay cash in lieu of fractional shares of
Common Stock valued at the Cash Equivalent Amount.
- 7 -
9
4.5. Redemption Notice. The Company shall give written
notice (the "Redemption Notice") to each holder of the Series 1995 Preferred
Stock at least 20 Business Days prior to the date (the "Redemption Date") of
any redemption required or permitted under this Section 4, such notice to be
addressed to each holder at the address as it appears on the stock transfer
books of the Company. Such notice shall specify (i) the Redemption Date, (ii)
the number of all shares of the Series 1995 Preferred Stock of each holder to
be redeemed and (iii) the amount and form or forms of payment therefor and the
method of calculation thereof (the "Redemption Amount"). On or after each such
Redemption Date, each holder of the Series 1995 Preferred Stock shall surrender
a certificate or certificates representing the number of shares of the Series
1995 Preferred Stock to be redeemed as stated in the Redemption Notice provided
by the Company. If the Redemption Notice shall have been duly given, and if on
the Redemption Date the Redemption Amount is either paid or made reasonably
available for payment in immediately available funds, Common Stock or a
combination thereof as provided herein to the holders of the Series 1995
Preferred Stock being redeemed, then notwithstanding that the certificates
evidencing any of the Series 1995 Preferred Stock so called for redemption
shall not have been surrendered, the dividends with respect to such shares
shall cease to accrue after the Redemption Date and all rights with respect to
such shares shall forthwith terminate after the Redemption Date, except only
the right of the holders to receive the Redemption Amount without interest upon
surrender of their certificate or certificates. Notwithstanding anything to
the contrary contained herein, with respect to any shares of Series 1995
Preferred Stock scheduled for redemption pursuant to a Redemption Notice, the
holders of such shares may at any time prior to the Redemption Date, upon
written notice to the Company as provided herein, exercise their right to
convert all or any portion of such shares into Common Stock at the Conversion
Price.
5. Liquidation Rights.
Upon any liquidation, dissolution or winding up of the affairs
of the Company, no distribution shall be made to the holders of any Junior
Stock unless, prior to the first such distribution, the holders of the Series
1995 Preferred Stock shall have received the Liquidation Amount (subject to the
liquidation rights of the Senior Stock). If the assets distributable in any
such event to the holders of the Series 1995 Preferred Stock are insufficient
to permit the payment to such holders of the full preferential amounts to which
they may be entitled, such assets shall be distributed ratably among the
holders of the Series 1995 Preferred Stock in proportion to the full
preferential amount each such holder would otherwise be entitled to receive.
6. Voting Rights of Series 1995 Preferred Stock.
6.1. Voting Rights. The holders of the Series 1995
Preferred Stock shall be entitled, on all matters submitted for a vote of the
holders of shares of Common Stock, whether pursuant to law or otherwise, to a
number of votes per share of the Series 1995 Preferred Stock equal to the
number of shares of Common Stock issuable upon conversion of one share of the
Series 1995 Preferred Stock on the date of such vote, and on all such
- 8 -
10
matters shall vote together as one class with the holders of Common Stock and
the holders of all other shares of stock entitled to vote with the holders of
Common Stock on such matters.
6.2. Special Voting Rights. In addition, the holders of
the Series 1995 Preferred Stock shall have the voting powers provided for by
law and shall have the further voting powers provided for below. If one or
more of the Events of Noncompliance (defined below) occurs and remains
outstanding and has not been specifically waived in writing by 70% or more of
the shares of the Series 1995 Preferred Stock, then, to the extent permitted by
law as relating to directorships, the holders of such Series 1995 Preferred
Stock shall have the right, voting separately from all other classes and
series, to elect two directors of the Company, the remaining directors to be
elected by the other classes or series of stock entitled to vote therefor,
including the Series 1995 Preferred Stock as set forth in Section 6.1 other
than those elected by the holders of Senior Stock. If and when such right of
the holders of the Series 1995 Preferred Stock becomes operative, the maximum
authorized number of members of the Board of Directors of the Company shall
automatically be increased to the extent necessary to create any vacancy or
vacancies to be filled only by vote of the holders of the Series 1995 Preferred
Stock then outstanding as hereinafter set forth. Whenever such right of the
holders of the Series 1995 Preferred Stock shall become operative, such right
shall be exercised initially either at a special meeting of the holders of the
Series 1995 Preferred Stock called as provided in Section 6.3 below or at any
annual meeting of stockholders held for the purpose of electing directors, and
thereafter at such annual meetings. In electing the directors to be elected by
the holders of the Series 1995 Preferred Stock, each holder of such stock shall
have one vote for each share thereof held. The right of the holders of the
Series 1995 Preferred Stock, voting separately from all other classes and
series, to elect two members of the Board of Directors of the Company as
aforesaid shall continue until such event is cured or waived as set forth
above, at which time the right of the holders of the Series 1995 Preferred
Stock to vote separately and as a class as provided in this Section 6.2 shall
terminate (subject to becoming operative again in the event of a subsequent
default of the nature set forth above) and the maximum authorized number of
members of the Board of Directors of the Company shall automatically be reduced
if such number was increased at the time when the terminated voting right of
the holders of the Series 1995 Preferred Stock became operative.
Notwithstanding the foregoing, in no event shall the Company increase the
number of members of the Board of Directors above six, plus those members of
the Board of Directors elected by the holders of the Series 1995 Preferred
Stock and Senior Stock.
Such "Events of Noncompliance", in addition to those set forth
in Section 7, are:
(a) the failure by the Company to pay, in the
aggregate, four quarterly dividends or the equivalent on the Series
1995 Preferred Stock or Senior Stock on the dates on which the same
should be payable according to the terms hereof whether or not
consecutive and whether or not such dividends have been declared and
whether or
- 9 -
11
not there are any monies of the Company properly applicable to the
payment of dividends;
(b) the failure by the Company to redeem the Series
1995 Preferred Stock or Senior Stock when such redemption is required
hereunder;
(c) the occurrence of any event or condition in
respect of any debt or security of the Company or any of its
subsidiaries, or under any agreement securing or relating to such debt
or security, the effect of which is to cause or to permit any holder
of such debt or other security or trustee to cause (whether or not
such holder or trustee elects to cause) such debt or security, or a
portion thereof, to become due prior to its stated maturity or prior
to its regularly scheduled dates of payment provided that, with respect
to any debt other than the Company's senior bank or other credit
facility, such debt exceeds $1,000,000;
(d) a breach by the Company of any covenant, term or
condition hereof, or in respect of any debt or security, including,
without limitation, the Senior Stock of the Company or any of its
subsidiaries, or any under any agreement securing or relating to such
debt or security, which breach is continuing and uncured for a period
of at least 30 days after delivery of written notice thereof to the
Company; provided that, with respect to any debt other than the
Company's senior bank or other credit facility, such debt exceeds
$1,000,000;
(e) Mr. M. Jay Allison shall cease to be the chief
executive officer of the Company, or the occurrence of any material
decrease in, or the termination of, for any reason, the active
involvement of Mr. Allison in the operations and affairs of the
Company and its subsidiaries as Mr. Allison is involved on the Closing
Date, unless Mr. Allison has been replaced in such capacities by a
person or persons approved in writing by the holders of a majority or
more of the Series 1995 Preferred Stock, in their sole discretion;
(f) the commencement of an involuntary case or other
proceeding against the Company or any of its subsidiaries, other than
Comstock-DR II Oil & Gas Acquisition Limited Partnership ("DR II") or
Comstock Management Corporation ("CMC")(provided that CMC shall own no
other assets and conduct no other business other than owning its
general partnership interest in DR II), which seeks liquidation,
reorganization or other relief with respect to it or its debtor, other
liabilities under any bankruptcy, insolvency or other similar law now
or hereafter in effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or the entry of an order for relief
against the Company or any of its subsidiaries in any such case under
the United States Bankruptcy Code;
- 10 -
12
(g) the commencement by the Company or any of its
subsidiaries other than DR II or CMC (provided that CMC shall own no
other assets and conduct no other business other than owning its
general partnership interest in DR II) of a voluntary case or other
proceeding, seeking liquidation, reorganization or other relief with
respect to itself or its debts or other liabilities under any
bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of
its property, or consent to any such relief or to the appointment of
or taking possession by any such official in an involuntary case or
other proceeding commenced against it, or the making by the Company or
any of its subsidiaries of a general assignment for the benefit of
creditors, or failure by the Company or any of its subsidiaries
generally to or written admission of its inability to pay its debts
generally as they become due, or the taking of any corporate action to
authorize or effect any of the foregoing;
(h) the dissolution of the Company or the
discontinuation of its usual business; or
(i) the failure of the Company or any of its
subsidiaries to pay, bond or otherwise discharge any judgment or order
for the payment of money in excess of $1,000,000 that is not otherwise
being satisfied in accordance with its terms and is not stayed on
appeal or otherwise being appropriately contested in good faith and if
reserves adequate under generally accepted accounting principles shall
not have been established therefor.
6.3. Procedures Relating to Special Voting Rights.
(a) At any time when the special voting rights of
the holders of the Series 1995 Preferred Stock provided in Section 6.2
above shall have become operative and not have been exercised, a
proper officer of the Company shall, upon the written request of the
holders of record of at least 20% of the shares of Series 1995
Preferred Stock then outstanding addressed to the Secretary of the
Company, call a special meeting of the holders of the Series 1995
Preferred Stock for the purpose of electing the two directors to be
elected by the Series 1995 Preferred Stock. Such meeting shall be
held at the earliest practicable date upon the notice required for
annual meetings of stockholders at such place in the continental
United States as may be specified in such written request. If such
meeting shall not be called by the proper officer of the Company
within twenty (20) days after the personal service of such written
request upon the Secretary of the Company, or within twenty (20) days
after mailing the same within the United States by registered or
certified mail enclosed in a postpaid envelope addressed to the
Secretary of the Company at its principal office, then the holders of
record of at least 20% of the shares of Series 1995 Preferred Stock
then outstanding may designate in writing one of their number to call
such meeting at the expense of the Company, and such meeting may be
called by the
- 11 -
13
person so designated upon the notice required for annual meetings of
stockholders and shall be held at such place in the continental United
States as may be specified in such notice. Notwithstanding the
provisions of this Section 6.3, no such special meeting shall be
called during the period of sixty (60) days immediately preceding the
date fixed for any annual or special meeting of stockholders if the
staff of the Securities and Exchange Commission shall have advised the
Company that the calling of any such meeting shall require the Company
to amend or supplement its proxy soliciting materials relating to such
annual or special meeting of stockholders; and no such special meeting
shall be called if in connection with such meeting a proxy
solicitation conforming to the rules and regulations issued under the
Securities Exchange Act of 1934, as amended, shall be required, but in
such event the election of directors by the holders of the Series 1995
Preferred Stock shall take place at the next annual meeting of
stockholders, unless the right of the holders of the Series 1995
Preferred Stock to elect directors shall in the meantime have
terminated.
(b) Upon any termination of the right of the holders
of the Series 1995 Preferred Stock to elect directors as hereinabove
provided, the term of office of any director then in office elected by
the Series 1995 Preferred Stock shall terminate immediately. If the
office of any director elected by the holders of the Series 1995
Preferred Stock becomes vacant by reason of death, resignation,
retirement, disqualification, removal from office or otherwise, then
the procedure provided for in Section 6.3(a) above shall be used to
fill the vacancy.
(c) Subject to the provisions of Section 6.2, the
By-Laws of the Company shall automatically be deemed amended from time
to time to provide for the increase or reduction in the maximum
authorized number of members of the Board of Directors and for the
election procedure as hereinabove in this Section 6.3 provided.
6.4. Rights Relating to Board of Directors.
The Company will promptly execute and deliver to any
individual elected to the Board of Directors, pursuant to Section 6.2,
an agreement by the Company to indemnify and hold harmless such
individual for any and all actions taken by such individual in his
capacity as a member of the Board of Directors to the fullest extent
permitted by the laws of the state of incorporation of the Company.
Unless waived or modified by the holders of a majority of the Series
1995 Preferred Stock, the Company will also use its best efforts to
promptly provide for such individual such amount of director's
liability insurance as is normal and customary for corporations which
have common stock that is publicly traded on the NASDAQ National
Market System.
6.5. Certain Actions by the Company. So long as any shares
of the Series 1995 Preferred Stock are outstanding, the Company will not,
without the affirmative vote or consent of all of the holders of the
outstanding shares of Series 1995 Preferred Stock, voting
- 12 -
14
as a separate class, amend or repeal any provision of, or add any provision to,
the Company's Articles of Incorporation which affect the dividend rate,
Liquidation Amount, liquidation preference, conversion price, dividend and
liquidation priority, or mandatory redemption rights and terms of the Series
1995 Preferred Stock.
Unless the vote or consent of the holders of a greater number
of shares shall then be required by law or as provided in the immediately
preceding paragraph, and so long as any shares of the Series 1995 Preferred
Stock are outstanding, the Company will not, without the affirmative vote or
consent of the holders of at least seventy percent (70%) of the outstanding
shares of Series 1995 Preferred Stock, voting as a separate class:
(a) amend or repeal any provision of, or add any
provision to, the Company's Articles of Incorporation which affect the
other rights, powers, preferences or terms of the Series 1995
Preferred Stock;
(b) consolidate or merge with or into any other
corporation where (1) the Company is not the surviving corporation or
(2) the Company shall issue to any person as consideration in respect
of such consolidation or merger any capital stock of the Company
representing 20% or more of the Company's outstanding capital stock
prior to such consolidation or merger;
(c) sell or convey all or substantially all of the
assets of the Company, or dissolve or liquidate the Company;
(d) reclassify any Common Stock into shares having
any preference or priority as to the payment of dividends or the
distribution of assets superior to or on a parity with any such
preference or priority of the Series 1995 Preferred Stock; or
(e) declare or pay any dividend, or make any
distribution, or purchase, redeem or otherwise acquire for value any
capital stock or other interest in the Company now or hereafter
outstanding, or make any other distribution of its assets, to the
holders of any Junior Stock, unless (i) no Event of Noncompliance
shall have occurred and be continuing immediately prior to and after
such distributions, (ii) all accumulated dividends with respect to the
Series 1995 Preferred Stock have been paid in full immediately prior
to such distribution and (iii) the aggregate amount of all such
distributions in any 12-month period does not exceed $50,000.
7. Covenants of the Company. The failure by the Company to
comply with any of the covenants set forth below, unless specifically waived in
writing by holders of a majority or more of the Series 1995 Preferred Stock,
shall be an Event of Noncompliance. The holders of the Series 1995 Preferred
Stock shall have no remedies for violation of the covenants set forth below
other than (i) election of directors as provided in Section 6.2 and (ii) a
right to specific performance or other equitable remedies.
- 13 -
15
7.1. Board of Directors. So long as the Series 1995 Preferred
Stock shall remain outstanding, the Company shall not increase the number of
directors above six, except in connection with the right of the holders of the
Series 1995 Preferred Stock or Senior Stock to appoint directors.
7.2. Dividend Payments. At least once during any 12-month
period while any shares of Series 1995 Preferred Stock shall remain
outstanding, the Company shall pay to the holders of shares of the Series 1995
Preferred Stock all accumulated dividends, if any, with respect to such shares,
whether or not such dividends have been declared and whether or not there are
any monies of the Company properly applicable to the payment of dividends.
7.3. Financial Statements. Whether or not the Company
remains subject to the reporting requirements of the Securities Exchange Act of
1934, as amended, the Company will furnish or cause to be furnished to any
holder of the Series 1995 Preferred Stock:
(a) As soon as available and in any event within 105
days after the close of each fiscal year of the Company, the audited
balance sheet of the Company as of the end of such fiscal year and the
audited statements of operations and cash flow of the Company for such
fiscal year prepared in accordance with generally accepted accounting
principles which fairly present the information included therein
(showing any material change in the consistency of the application of
such principles from the prior period), accompanied by an opinion of a
nationally recognized independent certified public accountant,
together with a certificate by the President or the Chief Financial
Officer of the Company certifying that no Event of Noncompliance has
occurred in such year;
(b) Promptly upon the written request of any holder,
a budget for the consolidated operations of the Company and its
subsidiaries for the subsequent fiscal year, broken down by months,
certified by the Chief Financial Officer of the Company;
(c) Promptly upon the written request of any holder,
a written statement discussing the operations of the Company in such
quarter and explaining any material variations in the results of such
operations from the budget delivered pursuant to subparagraph (ii)
above, certified by the Chief Financial Officer of the Company;
(d) As soon as available and in any event prior to
45 days after the end of each quarter of each fiscal year of the
Company, the unaudited balance sheet of the Company at the end of such
quarter, the unaudited statements of operations of the Company for
such quarter and for the period from the beginning of the fiscal year
to the close of such quarter, and unaudited statements of cash flow of
the Company from the beginning of the fiscal year to the close of such
quarter, all prepared in
- 14 -
16
accordance with generally accepted accounting principles which fairly
present the information included therein (showing any material change
in the consistency of the application of such principles from the
prior quarter) and certified by the Chief Financial Officer of the
Company;
(e) Promptly upon written request, any monthly
financial statements prepared by the Company in the ordinary course of
business of the Company;
(f) Promptly upon receipt thereof, one copy of each
other report submitted to the Company by independent accountants in
connection with any annual, interim or special audit made by them of
the books of the Company or any of its subsidiaries;
(g) Promptly upon written request, production,
independent engineering and other reports; and
(h) Promptly upon the occurrence of an Event of
Noncompliance and in no event later than 3 Business Days after the
occurrence of such event, a certificate of the Chief Financial Officer
of the Company stating that an Event of Noncompliance has occurred and
specifying the material facts related to such Event of Noncompliance
and steps being taken or contemplated to be taken to cure such Event
of Noncompliance.
7.4. Inspection of Property. In addition to any rights of
the holders of the Series 1995 Preferred Stock under applicable law to inspect
the property of the Company, the Company will permit any representative
designated by any holder of the Series 1995 Preferred Stock, upon reasonable
notice and during normal business hours, to (i) visit and inspect any of the
properties of the Company and its subsidiaries, (ii) examine the corporate and
financial records of the Company and its subsidiaries and make copies thereof
or extracts therefrom and (iii) discuss the affairs, finances and accounts of
the Company and its subsidiaries with the directors, officers, key employees
and independent accountants of the Company and its subsidiaries.
7.5. Conduct of Business. The Company shall carry on and
conduct, and cause each of its subsidiaries to carry on and conduct, its
business in substantially the same manner and in substantially the same fields
of enterprise as it is conducted on the Closing Date; and do, and, unless
merged into the Company, cause each of its subsidiaries to do, all things
necessary to remain duly incorporated, validly existing and in good standing as
a domestic corporation in its jurisdiction of incorporation and maintain all
requisite authority to conduct its business in each jurisdiction in which its
business is conducted.
7.6. Insurance. The Company shall maintain, and cause each
of its subsidiaries to maintain, insurance with financially sound and
responsible insurance carriers
- 15 -
17
of the kinds, against the risks and in the relative proportions and amounts
usually carried by companies engaged in similar businesses.
7.7. Maintenance of Property; Development and Maintenance.
The Company shall maintain, and cause each of its subsidiaries to maintain, all
of its tangible property in good condition and repair and make all necessary
replacements thereof and operate the same properly and efficiently and shall
develop and maintain, or cause to be developed and maintained (by the prompt
payment of all royalties, delay rentals and other sums due thereunder or
otherwise), the leases, wells, units and acreage constituting proven property
owned or leased by the Company and its subsidiaries as of the Closing Date in a
prudent manner, and as may be reasonably necessary for the prudent and
economical operation of such leases, wells, units and acreage in compliance
with all proration and conservation laws and all applicable rules, regulations
and orders of any governmental authority. In addition, the Company shall cause
all work and development described in the Development Plan to be performed by
or before the dates specified for completion thereof in the Development Plan.
7.8. Common Stock Reserved; Legality. The Company shall at
all times reserve and keep available out of its authorized but unissued Common
Stock such number of shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of the Series
1995 Preferred Stock; all of such shares of the Common Stock which are issuable
to the holders of the Series 1995 Preferred Stock by way of conversion,
redemption or dividend will, when issued, be duly authorized and validly
issued, fully paid and nonassessable, and free from all taxes, liens and
charges.
8. Conversion. The Series 1995 Preferred Stock shall be
convertible as follows:
8.1. Right to Convert. Each share of the Series 1995
Preferred Stock shall be convertible, without the payment of any additional
consideration by the holder thereof and at the option of the holder thereof, at
any time after the date of issuance of such share, at the office of the Company
or any transfer agent for the Series 1995 Preferred Stock, into the whole
number of fully paid and nonassessable shares of Common Stock determined by
dividing the Liquidation Amount by the Conversion Price in effect at the time
of conversion, plus, in lieu of any fractional share to which such holder would
otherwise be entitled, cash equal to such fraction multiplied by the Conversion
Price.
8.2. Mechanics of Conversion. In order for any holder of the
Series 1995 Preferred Stock to convert the same into Common Stock, such holder
shall deliver a written notice to the Company that he elects to convert all or
a specified number of such shares and stating therein his name or the name or
names of his nominees in which he wishes the certificate or certificates for
Common Stock to be issued (the "Conversion Notice"). The holder shall also
surrender to the Company at the office of the Company or of any transfer agent
for the Series 1995 Preferred Stock, the certificate or certificates
representing the Series 1995 Preferred Stock to be converted. The Company
shall, as soon as practicable
- 16 -
18
thereafter, issue and deliver at such office to such holder of the Series 1995
Preferred Stock, or to his nominee or nominees, a certificate or certificates
representing the number of shares of Common Stock to which he shall be entitled
as aforesaid and, if less than the full number of shares of the Series 1995
Preferred Stock evidenced by such surrendered certificate or certificates are
being converted, a new certificate or certificates, of like tenor, for the
number of shares of the Series 1995 Preferred Stock evidenced by such
surrendered certificate less the number of such shares being converted. Any
conversion made at the election of a holder of the Series 1995 Preferred Stock
shall be deemed to have been made immediately prior to the close of business on
the date the Conversion Notice has been received by the Company, and the person
or persons entitled to receive the Common Stock issuable upon conversion shall
be treated for all purposes as the record holder or holders of such Common
Stock on such date.
8.3. Adjustments to Conversion Price for Diluting Issues:
(a) Stock Dividends, Subdivisions and Combinations.
In case at any time or from time to time the Company shall:
(1) take a record of the holders of its
Nonpreferred Stock for the purpose of entitling them to
receive a dividend payable in, or other distribution of,
Nonpreferred Stock;
(2) subdivide its outstanding shares of
Nonpreferred Stock into a larger number of shares of
Nonpreferred Stock; or
(3) combine its outstanding shares of
Nonpreferred Stock into a smaller number of shares of
Nonpreferred Stock;
then the Conversion Price in effect immediately after the happening of
any such event shall be proportionately decreased, in case of the
happening of events described in subparagraphs (1) or (2) above, or
proportionately increased, in case of the happening of events
described in subparagraph (3) above.
(b) Certain Other Dividends and Distributions. In
case at any time or from time to time the Company shall take a record
of the holders of its Nonpreferred Stock for the purpose of entitling
them to receive any dividend or other distribution of:
(1) cash (other than a cash distribution
made as a dividend and payable out of earnings or earned
surplus legally available for the payment of dividends under
the laws of the jurisdiction of incorporation of the Company,
to the extent, but only to the extent, that the aggregate of
all such dividends paid or declared after the date hereof,
does not exceed the consolidated net income, net of
consolidated net losses, of the Company and its consolidated
- 17 -
19
subsidiaries earned subsequent to the date hereof determined
in accordance with generally accepted accounting principles);
(2) any evidence of its indebtedness (other
than Convertible Securities), any shares of its stock (other
than Additional Shares of Nonpreferred Stock) or any other
securities or property of any nature whatsoever (other than
cash and other than Convertible Securities or Additional
Shares of Nonpreferred Stock); or
(3) any warrants or other rights to
subscribe for or purchase any evidences of its indebtedness
(other than Convertible Securities), any shares of its stock
(other than Additional Shares of Nonpreferred Stock) or any
other securities or property of any nature whatsoever (other
than cash and other than Convertible Securities or Additional
Shares of Nonpreferred Stock);
then the Conversion Price in effect shall be adjusted to that number
determined by multiplying the Conversion Price then in effect by a
fraction (x) the numerator of which shall be the Fair Market Price per
share of Common Stock immediately prior to the date of taking such
record minus the portion applicable to one share of Common Stock of
any such cash so distributable and of the fair value of any and all
such evidences of indebtedness, shares of stock, other securities or
property, or warrants or other subscription or purchase rights, so
distributable and (y) the denominator of which shall be the Fair
Market Price per share of Common Stock immediately prior to the date
of taking such record. Such fair value shall be determined pursuant
to the Valuation Procedure. The "Valuation Procedure" is a
determination of fair value of any property made in good faith by the
Board of Directors; provided, that if the holders of a majority of the
Series 1995 Preferred Stock object to such determination within 10
days of receipt of written notification thereof, then the fair value
of such property shall be determined in good faith by a recognized
national investment bank selected by unanimous vote or consent of the
Board of Directors, which investment bank is not reasonably objected
to by the holders of a majority of the Series 1995 Preferred Stock.
The fees and expenses of such investment bank shall be paid by the
Company. A reclassification of the Nonpreferred Stock into shares of
Nonpreferred Stock and shares of any other class of stock shall be
deemed a distribution by the Company to the holders of its
Nonpreferred Stock of such shares of such other class of stock within
the meaning of this Section 8.3(b) and, if the outstanding shares of
Nonpreferred Stock shall be changed into a larger or smaller number of
shares of Nonpreferred Stock as a part of such reclassification, shall
be deemed a subdivision or combination, as the case may be, of the
outstanding shares of Nonpreferred Stock within the meaning of Section
8.3(a).
(c) Issuance of Additional Shares of Nonpreferred
Stock. In case at any time or from time to time after the Closing
Date, the Company shall (except as hereinafter provided) issue,
whether in connection with the merger of a corporation
- 18 -
20
into the Company or otherwise, any Additional Shares of Nonpreferred
Stock for a consideration per share less than either the Conversion
Price or the Fair Market Price per share of Common Stock on the
Computation Date (determined as set forth in the last sentence of this
Section 8.3(c)), then the Conversion Price shall be adjusted to the
lower of either:
(i) that number determined by multiplying
the Conversion Price in effect immediately prior to such
adjustment by a fraction (x) the numerator of which shall be
the number of shares of Nonpreferred Stock, plus the number of
shares of Nonpreferred Stock which the aggregate consideration
for the total number of such Additional Shares of Nonpreferred
Stock so issued would purchase at the Fair Market Price per
share of Common Stock and (y) the denominator of which shall
be the number of shares of Nonpreferred Stock plus the number
of such Additional Shares of Nonpreferred Stock so issued; or
(ii) the value of the consideration per
share for which such Additional Shares of Nonpreferred Stock
were issued (or, in the case of adjustments under Sections
8.3(d) or 8.3(e), are issuable).
No adjustment of the Conversion Price shall be made under this Section
8.3(c) upon the issuance of any Additional Shares of Nonpreferred
Stock which are issued pursuant to the exercise of any warrants or
other subscription or purchase rights or pursuant to the exercise of
any conversion or exchange rights in any Convertible Securities, if
any such adjustment shall previously have been made upon the issuance
of such warrants or other rights or upon the issuance of such
Convertible Securities (or upon the issuance of any warrant or other
rights therefor) pursuant to Section 8.3(d) or 8.3(e). For purposes of
this Section 8.3(c), the Computation Date shall be the earlier of (i)
the date on which the Company shall enter into a firm contract for the
issuance of such Additional Shares of Nonpreferred Stock, or (ii) the
date of actual issuance of such Additional Shares of Nonpreferred
Stock.
(d) Issuance of Warrants, Options or Other Rights.
In case at any time or from time to time after the Closing Date, the
Company shall take a record of the holders of its Nonpreferred Stock
for the purpose of entitling them to receive a distribution of, or
shall otherwise issue, any warrants, options or other rights to
subscribe for or purchase any Additional Shares of Nonpreferred Stock
or any Convertible Securities and the consideration per share for
which Additional Shares of Nonpreferred Stock may at any time
thereafter be issuable pursuant to such warrants, options or other
rights or pursuant to the terms of such Convertible Securities shall
be less than either the Conversion Price or the Fair Market Price per
share of Common Stock on the Computation Date (determined as set forth
in the last sentence of this Section 8.3(d)), then the Conversion Price
shall be adjusted as provided in Section 8.3(c). Such adjustment
shall be made on the basis that (i) the maximum number of
- 19 -
21
Additional Shares of Nonpreferred Stock issuable pursuant to all such
warrants, options or other rights or necessary to effect the
conversion or exchange of all such Convertible Securities shall be
deemed to have been issued as of the Computation Date (determined as
set forth in the last sentence of this Section 8.3(d)), and (ii) the
aggregate consideration for such maximum number of Additional Shares
of Nonpreferred Stock shall be deemed to be the minimum consideration
received and receivable by the Company for the issuance of such
Additional Shares of Nonpreferred Stock pursuant to such warrants,
options or other rights or pursuant to the terms of such Convertible
Securities. For purposes of this Section 8.3(d), the Computation Date
shall be the earliest to occur of (a) the date on which the Company
shall take a record of the holders of its Nonpreferred Stock for the
purpose of entitling them to receive any such warrants, options or
other rights, (b) the date on which the Company shall enter into a
firm contract for the issuance of such warrants, options or other
rights, and (c) the date of actual issuance of such warrants, options
or other rights.
(e) Issuance of Convertible Securities. In case at
any time or from time to time after the Closing Date, the Company
shall take a record of the holders of its Nonpreferred Stock for the
purpose of entitling them to receive a distribution of, or shall
otherwise issue, any Convertible Securities and the consideration per
share for which Additional Shares of Nonpreferred Stock may at any
time thereafter be issuable pursuant to the terms of such Convertible
Securities shall be less than either the Conversion Price or the Fair
Market Price per share of Common Stock on the Computation Date
(determined as set forth in the last sentence of this Section 8.3(e)),
then the Conversion Price shall be adjusted as provided in Section
8.3(c). Such adjustments shall be made on the basis that (i) the
maximum number of Additional Shares of Nonpreferred Stock necessary to
effect the conversion or exchange of all such Convertible Securities
shall be deemed to have been issued as of the Computation Date
(determined as set forth in the penultimate sentence of this Section
8.3(e), and (ii) the aggregate consideration for such maximum number
of Additional Shares of Nonpreferred Stock shall be deemed to be the
minimum consideration received and receivable by the Company for the
issuance of such Additional Shares of Nonpreferred Stock pursuant to
the terms of such Convertible Securities. No adjustment of the
Conversion Price shall be made under this Section 8.3(e) upon the
issuance of any Convertible Securities (i) which are issued pursuant
to the exercise of any warrants or other subscription or purchase
rights therefor, if any such adjustment shall previously have been
made upon the issuance of such warrants or other rights pursuant
to Section 8.3(d) or (ii) which constitute shares of 1994 B Preferred
and are issued to the holders of the 1994 B Preferred as a dividend
payment on shares thereof at a rate not to exceed 6.25% of the par
value thereof and as provided in the Certificate of Designation
therefor as in effect on July 22, 1994. For purposes of this
Subsection, the Computation Date shall be the earliest of (a) the date
on which the Company shall take a record of the holders of its
Nonpreferred Stock for the purpose of entitling them to receive any
such Convertible Securities, (b) the date on which the
- 20 -
22
Company shall enter into a firm contract for the issuance of such
Convertible Securities, and (c) the date of actual issuance of such
Convertible Securities.
(f) Superseding Adjustment of Conversion Price. If,
at any time after any adjustment of the Conversion Price shall have
been made pursuant to the foregoing Section 8.3(d) or 8.3(e) on the
basis of the issuance of warrants or other rights or the issuance of
other Convertible Securities, or after any new adjustment of the
Conversion Price shall have been made pursuant to this Section 8.3(f):
(1) all of such warrants, options or rights
or the right of conversion or exchange in such other
Convertible Securities shall expire, and none of such
warrants, options or rights, or the right of conversion or
exchange in respect of such other Convertible Securities, as
the case may be, shall have been exercised; or
(2) the consideration per share, for which
Additional Shares of Nonpreferred Stock are issuable pursuant
to all of such warrants, options or rights or the terms of all
of such other Convertible Securities, shall be increased
solely by virtue of provisions therein contained for an
automatic increase in such consideration per share upon the
arrival of a specified date or the happening of a specified
event, and none of such warrants, options or rights, or the
right of conversion or exchange in respect of such other
Convertible Securities, as the case may be, shall have been
exercised;
such previous adjustment shall be rescinded and annulled and the
Additional Shares of Nonpreferred Stock which were deemed to have been
issued by virtue of the computation made in connection with the
adjustment so rescinded and annulled shall no longer be deemed to have
been issued by virtue of such computation. Thereupon, a recomputation
shall be made of the effect of such warrants, rights or options or
other Convertible Securities on the basis of treating any such
warrants, options or rights or any such other Convertible Securities
which then remain outstanding as having been granted or issued
immediately after the time of such increase of the consideration per
share for such Additional Shares of Nonpreferred Stock are issuable
under such warrants or rights or other Convertible Securities; and, if
and to the extent called for by the foregoing provisions of this
Section 8.3 on the basis aforesaid, a new adjustment of the Conversion
Price shall be made, which new adjustment shall supersede the previous
adjustment so rescinded and annulled.
(g) Other Provisions Applicable to Adjustments Under
this Section. The following provisions shall be applicable to the
making of adjustments of the Conversion Price hereinbefore provided
for in this Section 8.3:
- 21 -
23
(1) Treasury Stock. The sale or other
disposition of any issued shares of Nonpreferred Stock owned
or held by or for the account of the Company shall be deemed
an issuance thereof for purposes of this Section 8.3.
(2) Computation of Consideration. To the
extent that any Additional Shares of Nonpreferred Stock or any
Convertible Securities or any warrants, options or other
rights to subscribe for or purchase any Additional Shares of
Nonpreferred Stock or any Convertible Securities shall be
issued solely for cash consideration, the consideration
received by the Company therefor shall be deemed to be the
amount of cash received by the Company therefor, or, if such
Additional Shares of Nonpreferred Stock or Convertible
Securities are offered by the Company for subscription, the
subscription price, or, if such Additional Shares of
Nonpreferred Stock or Convertible Securities are sold to
underwriters or dealers for public offering without a
subscription offering, the initial public offering price, in
any such case excluding any amounts paid or receivable for
accrued interest or accrued dividends and without deduction of
any compensation, discounts or expenses paid or incurred by
the Company for and in the underwriting of, or otherwise in
connection with, the issue thereof. The consideration for any
Additional Shares of Nonpreferred Stock issuable pursuant to
any warrants, options or other rights to subscribe for or
purchase the same shall be the consideration received or
receivable by the Company for issuing such warrant, options or
other rights, plus the additional consideration payable to the
Company upon the exercise of such warrants, options or other
rights. The consideration for any Additional Shares of
Nonpreferred Stock issuable pursuant to the terms of any
Convertible Securities shall be the consideration received or
receivable by the Company for issuing any warrants or other
rights to subscribe for or purchase such Convertible
Securities, plus the consideration paid or payable to the
Company in respect of the subscription for or purchase of such
Convertible Securities, plus the additional consideration, if
any, payable to the Company upon the exercise of the right of
conversion or exchange in such Convertible Securities. To the
extent that any issuance shall be for a consideration other
than solely for cash, then, except as herein otherwise
expressly provided, the amount of such consideration shall be
deemed to be the fair value of such consideration at the time
of such issuance as determined pursuant to the Valuation
Procedure.
(3) When Adjustments to be made. The
adjustments required by the preceding subsections of this
Section 8.3 shall be made whenever and as often as any
specified event requiring an adjustment shall occur, except
that no adjustment of the Conversion Price that would
otherwise be required shall be made (except in the case of a
subdivision or combination of shares of the Nonpreferred Stock
as provided for in Section 8.3(a)) unless and until such
adjustment, either by itself or with other adjustments not
previously made,
- 22 -
24
adds or subtracts at least $0.05 to the Conversion Price, as
determined in good faith by the Board of Directors of the
Company. Any adjustment representing a change of less than
such minimum amount shall be carried forward and made as soon
as such adjustment, together with other adjustments required
by this Section 8.3 and not previously made, would result in a
minimum adjustment. For the purpose of any adjustment, any
specified event shall be deemed to have occurred at the close
of business on the date of its occurrence.
(4) Fractional Interests. In computing
adjustments under this Section 8.3, fractional interests in
Nonpreferred Stock shall be taken into account to the nearest
one-thousandth of a share.
(5) When Adjustment Not Required. If the
Company shall take a record of the holders of its Nonpreferred
Stock for the purpose of entitling them to receive a dividend
or distribution or subscription or purchase rights and shall,
thereafter and before the distribution thereof to
shareholders, legally abandon its plan to pay or deliver such
dividend, distribution, subscription or purchase rights, then
thereafter no adjustment shall be required by reason of the
taking of such record and any such adjustment previously made
in respect thereof shall be rescinded and annulled.
(h) Merger, Consolidation or Disposition of Assets.
In case the Company shall merge or consolidate into another
corporation, or shall sell, transfer or otherwise dispose of all or
substantially all of its property, assets or business to another
corporation and pursuant to the terms of such merger, consolidation or
disposition, shares of common stock of the successor or acquiring
corporation are to be received by or distributed to the holders of
Nonpreferred Stock of the Company, then each holder of a share of the
Series 1995 Preferred Stock shall have the right thereafter to
receive, upon exercise of such share of the Series 1995 Preferred
Stock, shares of common stock each comprising the number of shares of
common stock of the successor or acquiring corporation receivable upon
or as a result of such merger, consolidation or disposition of assets
by a holder of the number of shares of Common Stock into which one
share of the Series 1995 Preferred Stock could be converted
immediately prior to such event. If, pursuant to the terms of such
merger, consolidation or disposition of assets, any cash, shares of
stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) are to
be received by or distributed to the holders of Nonpreferred Stock of
the Company in addition to common stock of the successor or acquiring
corporation, then the Conversion Price in effect shall be adjusted to
that number determined by multiplying the Conversion Price then in
effect by a fraction (x) the numerator of which shall be the Fair
Market Price per share of Common Stock immediately prior to the
closing of such merger, consolidation or disposition minus the portion
applicable to one share of Common Stock of any such cash so
distributable and of the fair value of any such shares of stock or
other securities or
- 23 -
25
property so received or distributed and (y) the denominator of which
shall be the Fair Market Price per share of Common Stock immediately
prior to the closing of such merger, consolidation or disposition.
The fair value of any such shares of stock or other securities or
property shall be determined pursuant to the Valuation Procedure. In
case of any such merger, consolidation or disposition of assets, the
successor acquiring corporation shall expressly assume the due and
punctual observance and performance of each and every covenant and
condition hereof to be performed and observed by the Company and all
of the obligations and liabilities hereunder, subject to such
modification as shall be necessary to provide for adjustments to the
Conversion Price which shall be as nearly equivalent as practicable to
the adjustments provided for in this Section. For the purposes of
this Section, "common stock of the successor or acquiring corporation"
shall include stock of such corporation of any class, which is not
preferred as to dividends or assets over any other class of stock of
such corporation and which is not subject to redemption, and shall
also include any evidences of indebtedness, shares of stock or other
securities which are convertible into or exchangeable for any such
stock, either immediately or upon the arrival of a specified date or
the happening of a specified event, and any warrants or other rights
to subscribe for or purchase any such stock. The foregoing provisions
of this Section 8.3(h) shall similarly apply to successive mergers,
consolidations or dispositions of assets.
(i) Other Action Affecting Nonpreferred Stock. In
case at any time or from time to time the Company shall take any
action affecting its Nonpreferred Stock, other than an action
described in any of the foregoing Sections 8.3(a) through (h),
inclusive, then, unless in the opinion of the Board of Directors such
action will not have a materially adverse effect upon the rights of
the holders of the Series 1995 Preferred Stock, the Conversion Price
shall be adjusted in such manner and at such time as the Board of
Directors may in good faith determine to be equitable in the
circumstances.
8.4. No Impairment. Other than in connection with the
amendment of its Articles of Incorporation approved by the requisite number of
stockholders, the Company will not, through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid the observance or performance of any of the terms
to be observed or performed hereunder by the Company but will at all times in
good faith assist in the carrying out of all the provisions of this Section 8
and in the taking of all such action as may be necessary or appropriate in
order to protect the conversion rights of the holders of the Series 1995
Preferred Stock against impairment. Without limiting the generality of the
foregoing, the Company (i) will not permit the par value of any shares of stock
at the time receivable upon the conversion of the Series 1995 Preferred Stock
to exceed the Conversion Price then in effect, (ii) will take all such action
as may be necessary or appropriate in order that the Company may validly and
legally issue fully paid nonassessable shares of stock on the conversion of the
Series 1995 Preferred Stock, and (iii) will not issue any Additional Shares of
Nonpreferred Stock or Convertible
- 24 -
26
Securities or take any action which results in any adjustment of the Conversion
Price if the total number of shares of Common Stock issuable after such
issuance or action upon the conversion or redemption of, or payment of all
outstanding dividends on, all of the then outstanding shares of Series 1995
Preferred Stock will exceed the total number of shares of Common Stock then
authorized by the Company's Articles of Incorporation and available for the
purpose of issue upon such conversion or redemption or payment of such
dividend.
8.5. Certificate as to Adjustments. Upon the occurrence of
each adjustment or readjustment of the Conversion Price pursuant to this
Section 8, the Company at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
the Series 1995 Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based, including a statement of (i) the consideration received
or to be received by the Company for any Additional Shares of Nonpreferred
Stock issued or sold or deemed to have been issued, (ii) the number of shares
of Nonpreferred Stock outstanding or deemed to be outstanding, and (iii) the
Conversion Price in effect immediately prior to such issue or sale and as
adjusted and readjusted on account thereof, showing how it was calculated. The
Company shall, upon the written request at any time of any holder of the Series
1995 Preferred Stock furnish or cause to be furnished to such holder a like
certificate setting forth (i) the Conversion Price at the time in effect,
showing how it was calculated, and (ii) the number of shares of Common Stock
and the amount, if any, of other property which at the time would be received
upon the conversion of the Series 1995 Preferred Stock.
8.6. Notices of Record Date. In the event of any taking by
the Company of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, the Company shall mail to each holder
of the Series 1995 Preferred Stock at least ten days prior to the date
specified therein, a notice specifying the date on which any such record is to
be taken for the purpose of such dividend or distribution.
8.7. Conversion Option. The Company will have the option, at
any time, to convert the Series 1995 Preferred Stock, on the same terms and
conditions set forth herein, to convertible subordinated debt of the Company,
provided that all of the following conditions are satisfied: (i) the Company
has obtained the consent of the holders of each series of Senior Stock; (ii)
the Company shall have delivered to the holders thereof all necessary
approvals, subordination agreements and other documentation, in form and
substance satisfactory to TCW in its sole and absolute discretion, required in
connection with such conversion (which will provide for an increase in the
number of demand registrations, the reasonable costs and expenses of which
shall be payable by the Company, to a number acceptable to TCW in its sole and
absolute discretion) and (iii) the holders thereof shall have received an
opinion of counsel to the Company (a) that such conversion neither breaches nor
- 25 -
27
violates any existing agreement to which the Company is a party or any other
obligation of the Company, (b) such conversion shall not cause an adjustment in
the conversion price, option price or exercise price in any convertible
security issued by the Company, and (c) such other matters as TCW may request.
- 26 -
28
IN WITNESS WHEREOF, COMSTOCK RESOURCES, INC. has caused its
corporate seal to be hereunto affixed and this certificate to be signed by M.
Jay Allison, its President, and Roland O. Burns, its Secretary, this 16th day
of June, 1995.
By /s/ M. JAY ALLISON
M. Jay Allison
President
By /s/ ROLAND O. BURNS
Roland O. Burns
Secretary
[SEAL]
- 27 -