EXHIBIT B
The Certificate of Designation, Preferences and Rights of the Senior Series
A Preferred Stock, Stated Value of $1,000 of Allen Drilling Acquisition
Company.
CERTIFICATE OF DESIGNATION
PREFERENCES AND RIGHTS
of
Senior Series A Preferred Stock, Stated Value of $1,000
of
ALLEN DRILLING ACQUISITION COMPANY
Allen Drilling Acquisition Company., a corporation organized and
existing under the laws of the State of Nebraska (herein referred to as the
"Corporation" or "ADAC"), does hereby CERTIFY:
THAT the Amended Articles of Incorporation fixes the total number of
shares of all classes of capital stock which the Corporation shall have the
authority to issue at twenty thousand (20,000) shares, of which ten thousand
(10,000) shares shall be shares of preferred stock, with a par value of $10.00
per share ("Preferred Stock") and ten thousand (10,000) shares shall be common
stock, with a par value of $10.00 per share ("Common Stock"); and
THAT the Amended Articles of Incorporation of the Corporation expressly
grant to the Board of Directors of the Corporation authority to provide for the
issuance of the Preferred Stock in one or more series, with such voting powers,
full or limited, and with such designations, preferences, and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, as shall be stated and expressed in the Restated
Certificate of Incorporation or any amendment thereto, or in the resolution or
resolutions providing for the issue of such stock adopted by the Board of
Directors; and
THAT pursuant to the authority conferred upon the Board of Directors by
the Amended Articles of Incorporation of the Corporation, the Board of
Directors, by action duly taken on April 4, 2003, adopted resolutions that
provided for a series of the Preferred Stock as follows:
RESOLVED, that the Corporation is hereby authorized to issue a series
of Preferred Stock of the Corporation (such Preferred Stock being
herein referred to as "Series A Preferred Stock", consisting of Nine
Hundred (900) shares with a stated value of $1,000 per share. Such
shares, with a total stated value of $900,000, are authorized to be
issued to shareholders as fully paid consideration for providing
certain Credit Enhancements totaling $900,000 to Corporation for
delivery to the Southwest Bank of Texas under the terms and conditions
as set forth in that certain agreement between Gateway Energy
Corporation and certain of its subsidiaries (collectively "Gateway")
and the Corporation dated March 6, 2003, a copy of which is attached
hereto as Exhibit A (The "Madisonville Project Agreement"). Any
capitalized terms used in the Madisonville Project Agreement and not
specifically defined in these resolutions shall have the same meaning
as in the Madisonville Project Agreement. The voting power,
designation, preference and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions of the
shares are hereby fixed as follows:
Page 1 of 12
1. Designation. The designation of the series of Series A
Preferred Stock shall be Senior Preferred Stock, $1,000,
Series A, par value $10.00 per share (hereinafter referred to
as the "Series A Preferred Stock") and the number of shares
constituting such series shall be nine hundred (900). The
number of authorized shares of Series A Preferred Stock may be
reduced by further resolution duly adopted by the Board of
Directors of the Corporation and by the filing of a
certificate pursuant to the provisions of the Nebraska
Corporation Act stating that such reduction has been so
authorized, but the number of authorized shares of Series A
Preferred Stock shall not be increased.
2. Dividends. So long as any shares of the Series A Preferred
Stock will be outstanding, the holders thereof will be
entitled to receive cumulative preferential dividends as set
forth in this Section 2.
a. Dividends on each share of Series A Preferred Stock
will accumulate and be cumulative from and after the
date of issuance of such Series A Preferred Share as
provided in subsection c hereof.
b. The Series A Preferred Stock shall pay monthly
dividends in cash commencing fifteen (15) days
following the end of the first calendar month when
the Corporation shall have received the first Price
Upside Payment from Gateway pursuant to the terms of
the Madisonville Project Agreement, or the first
distribution from the LLC to be formed pursuant to
the terms of the Madisonville Project Agreement (the
"LLC") in the event the Corporation has elected the
Equity Participation Option pursuant to the terms of
the Madisonville Project Agreement, whichever payment
or distribution (collectively "Gateway Payment") is
received first (the "Dividend Commencement Date").
c. For purposes of this Section 2, the last date of each
calendar month following the Dividend Commencement
Date on which any Series A Preferred Stock will be
outstanding will be deemed to be a "Dividend Due
Date." The holders of Series A Preferred Stock will
be entitled to receive out of funds legally available
therefore, dividends equal to sixty-six and
two-thirds percent (66?%) of the entire Gateway
Payment received by the Corporation. The record date
for the payment of dividends will, unless otherwise
altered by the Corporation's Board of Directors, be
the 15th day following the Dividend Due Date (the
"Dividend Payment Date"). The record date for the
payment of dividends on the Series A Preferred Stock
shall be 15 days prior to a Dividend Due Date. Each
such dividend shall be paid to the holders of record
of shares of Series A Preferred Stock as they appear
on the stock register of the Corporation. Dividends
shall be payable in cash, and shall end upon
redemption of such Series A Preferred Stock as
provided for herein.
Page 2 of 12
d. Any dividend which is not be paid on the Dividend
Payment Date shall be deemed to be "past due" until
the dividend is paid or until the Share of Series A
Preferred Stock with respect to which the dividend
became due will no longer be outstanding, whichever
is the earlier to occur. All dividends will be
declared only upon outstanding shares of Series A
Preferred Stock and will be declared pro rata so that
in all cases the amount of dividends declared per
share on the outstanding Series A Preferred Stock
shall be the same.
e. So long as any shares of Series A Preferred Stock
shall remain outstanding, the Corporation shall not
declare or pay any dividend, make a distribution, or
purchase, acquire, redeem, or set aside or make
monies available for a sinking fund for the purchase
or redemption of, any shares of stock of the
Corporation ranking junior to the Series A Preferred
Stock with respect to the payment of dividends or the
distribution of assets on redemption, liquidation,
dissolution or winding up of the Corporation
including Common Stock of the Corporation (the Common
Stock and any other stock being herein referred to as
"Junior Stock"), unless:
i. all dividends in respect of the Series A
Preferred Stock for all past dividend
periods have been paid and such dividends
for the current dividend period have been
paid or declared and duly provided for,
ii. all amounts in respect of the redemption of
Series A Preferred Stock pursuant to the
terms of Section 3 below have been paid for
all prior applicable periods and all amounts
in respect of such redemption for the
current applicable period have been paid or
duly provided for, and
iii. the Corporation shall not be in default with
respect to any matters included herein with
respect to the Series A Preferred Stock, and
iv. the Term Note issued in connection with the
Madisonville Project Agreement has been paid
in full, and the Term Note cancelled, and
the Credit Enhancement returned to the
holders of the Series A Preferred Stock,
except if the Corporation has exercised the
Equity Participation Option.
Subject to the foregoing, and not otherwise,
dividends (payable in cash, stock or otherwise) as
may be determined by the Board may be declared and
paid on any Junior Stock from time to time out of any
funds legally available, and the Series A Preferred
Stock will not be entitled to participate in any such
dividends, whether payable in cash, stock or
otherwise.
f. In addition to the foregoing paragraph, unless full
cumulative dividends on the Series A Preferred Stock
have been paid or set aside for payment: (i) no
Series A Preferred Stock may be (A) redeemed pursuant
to a sinking fund or otherwise (unless all the Series
A Preferred Stock is redeemed or a pro rata
Page 3 of 12
redemption is made from all holders of Series A
Preferred Stock, or (B) purchased or otherwise
acquired for any consideration by the Corporation
except pursuant to an acquisition or offer made pro
rata and on the same terms to all holders of Series A
Preferred Stock.
g. To secure the payment of dividends hereunder, the
Corporation shall, no later than thirty (30) days
following the Closing of the Loan provided for in the
Madisonville Project Agreement, assign to the Series
A Preferred Stockholders the security interests,
liens, and other items of collateral given to the
Corporation by Gateway and as more fully described in
Paragraph 7 of the Madisonville Project Agreement
(collectively referred to hereing as the "Gateway
Collateral"). The collateral documents necessary to
make the assignment referred to herein shall be
executed by the Corporation simultaneously with the
execution of the collateral documents evidencing the
Gateway Collateral, and any public filings required
to perfect the assigned security interests in favor
of Series A Preferred Stockholders shall be made
simultaneously with the filing of the Gateway
Collateral. If the Corporation fails to take the
actions set forth in this paragraph within the time
allotted, the Series A Preferred Stockholders may, in
their sole discretion, deem such failure to be a
default of the Corporation's obligations set forth
hereunder and shall have the right, upon thirty (30)
days notice to the Corporation, to require the
Corporation to immediately redeem their preferred
shares at their stated value plus all accrued but
unpaid dividends.
3. Redemption. The Series A Preferred Stock shall be redeemable
at the option of the Corporation or the holders thereof as
follows:
a. The holders of the Series A Preferred Stock,
individually or collectively (the "Redeeming
Stockholder"), shall have the right to require the
Corporation to redeem their preferred shares at their
stated value plus all accrued but unpaid dividends
(the "Redemption Price") in the event that:
i. The Redeeming Stockholder(s) give written
notice to the Corporation not later then
ninety (90) days prior to the maturity date
of the Term Note issued in connection with
the Madisonville Project Agreement of their
intent not to elect the Equity Participation
Option as provided in the Madisonville
Project Agreement. Upon such notice, the
Corporation shall cause the release of the
Credit Enhancement with respect to the Term
Note under the terms and conditions as set
forth in the Madisonville Project Agreement.
Upon release and delivery of the Credit
Enhancement to the Redeeming Stockholder(s),
and the payment of the stated value plus all
accrued but unpaid dividends, the redeemed
Series A Preferred Stock shall then be
surrendered to the Corporation and
cancelled, and the Redeeming Stockholder(s)
shall have no further rights as preferred
stockholders in the Corporation.
Page 4 of 12
ii. The Redeeming Stockholder(s) give written
notice to the Corporation at any time after
June 30, 2010, and all of the outstanding
Series A Preferred Stock have not been
called for redemption by the Corporation
prior to its receipt of the notice referred
to in this subsection.
iii. The Redemption Price as set forth in
Paragraph 3. a. above shall be adjusted as
illustrated in Exhibit B attached hereto.
b. In the event a default shall have occurred with
respect to the Credit Enhancement, the Corporation
shall immediately give written notice of such default
to the holders of the Series A Preferred Stock.
Unless the holders of the Series A Preferred Stock
unanimously give the Corporation notice of their
election to continue as preferred shareholders in the
Corporation within the timeframe provided for in
subsection 3.b.i. below, then the Corporation shall
immediately initiate legal action and/or other
available remedies to which the Corporation may be
entitled to retire and/or secure the Credit
Enhancement, and the Corporation shall have the right
to call for redemption all of the outstanding Series
A Preferred Stock, as a whole, at its stated value
plus all accrued and past due dividends. The
Corporation shall have the right to redeem pro-rata
the Series A Preferred Stock by payment in cash or
distribution to the Series A Stockholders of their
pro-rata share of any recovery of the Gateway
Collateral, less costs incurred by the Corporation to
recover such Gateway Collateral. In the event the
Corporation elects to redeem the Series A Preferred
Stock by distribution of the Gateway Collateral, then
the value of such Gateway Collateral shall be deemed
to be equal to the stated value of the Series A
Preferred Stock plus all accrued and past due
dividends.
i. In the event of a default referred to in
subsection 3.b. above, the holders of the
Series A Preferred Stock shall have the
right to elect to not be redeemed by giving
the Corporation written notice of such
election no less than 30 days following
receipt of the notice of default pursuant to
subsection 3.b. above. In the event that any
one or more of the Series A Preferred
Stockholder(s) do not make the election to
not be redeemed, then the other Series A
Preferred Stockholder(s) shall have an
opportunity to acquire the shares of Series
A Preferred Stock of the Stockholder(s) at
the stated value herein within thirty (30)
days of the receipt of the notice of
default. If the other Series A Preferred
Stockholder(s) does not acquire the shares
of the the Series A Preferred Stockholders
within such thirty (30) day period then all
of the Series A Preferred Stockholders shall
be redeemed by the Corporation.
c. The Corporation shall have the right to call for
redemption all of the outstanding Series A Preferred
Stock, as a whole at any time after June 30,
Page 5 of 12
2010. The Redemption Price shall be determined as set
forth in Paragraph 3. a. above. The Corporation may
only exercise this right upon authorization to do so
by unanimous action of the Corporation's board of
directors.
d. If, at the time of any redemption pursuant to this
Section 3, the funds of the Corporation legally
available for redemption of the Series A Preferred
Stock are insufficient to redeem the number of shares
required to be redeemed, those funds which are
legally available shall be used to redeem the maximum
possible number of such shares, pro rata based upon
the number of shares to be redeemed by the holders of
the Series A Preferred Stock. At any time thereafter
when additional funds of the Corporation become
legally available for the redemption of the Series A
Preferred Stock, the funds shall immediately be used
to redeem the balance of the shares of the Series A
Preferred Stock which the Corporation is obligated to
redeem pursuant to this Section 3, but which it has
not redeemed, and such funds shall not be used by the
Corporation for any other purpose.
4. Liquidation Preference. In the event of any liquidation,
dissolution or winding up of the Corporation, whether
voluntary or involuntary, the holders of the Series A
Preferred Stock then outstanding are entitled to be paid out
of the assets of the Corporation available for distribution to
its shareholders, whether such assets are capital, surplus or
earnings, before any payment or declaration and setting apart
for payment of any amount will be made in respect of any
shares of any Junior Stock with respect to the payment of
dividends or distribution of assets on liquidation,
dissolution or winding up of the Corporation, an amount equal
to $1,000 per share plus all accumulated, past-due and unpaid
dividends (including a prorated monthly dividend from the last
Dividend Due Date to the date of such payment) in respect of
any liquidation, dissolution or winding up. In each such
event, each holder shall have the right, at such holder's
option, to receive in lieu of cash a proportionate interest in
the Equity Participation Option if the Corporation exercises
it, subject however, to the terms and conditions of the
Madisonville Project Agreement.
If upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the assets to
be distributed among the holders of Series A Preferred Stock
shall be insufficient to permit the payment to the holders of
the full preferential amounts aforesaid, then the entire
assets of the Corporation, including, without limitation, the
Equity Participation Option, shall be distributed ratably
among the holders of the Series A Preferred Stock, based upon
the number of shares of Series A Preferred Stock held by each
holder.
5. Consolidation. A consolidation or merger of the Corporation
with or into any other corporation or corporations in which
the stockholders of the Corporation receive solely capital
stock of the acquiring or surviving corporation (or of the
direct or indirect parent corporation of the acquiring
corporation) shall also be deemed to be a liquidation,
dissolution, or winding up of the Corporation as those terms
are used in Section 4.
Page 6 of 12
6. Voting. Except as otherwise expressly provided herein or as
required by law, the holder of each share of Series A
Preferred Stock shall not be entitled to vote.
a. Equity Participation Option. The holders of the
Series A Preferred Stock shall have the sole right by
a two-thirds vote to cause the Corporation to
exercise the Equity Participation Option in a meeting
called and noticed by any Series A Preferred
Stockholder to the remaining Series A Preferred
Shareholders to determine whether to exercise the
Equity Participation Option set forth in the
Madisonville Project Agreement. In the event that any
one or more of the Series A Preferred Stockholders
vote against the Equity Participation Option (the
"Non-electing Shareholder"), then the other Series A
Preferred Stockholders shall have an opportunity to
acquire the shares of Series A Preferred Stock of the
Non-electing Shareholder at the stated value herein
plus accrued but unpaid dividends within thirty (30)
days of the Meeting Date. If the other Series A
Preferred Stockholder(s) do not acquire the shares of
Series A Preferred Stock of the Non-electing
Shareholder(s) within such thirty (30) day period
then the Equity Participation Option shall not be
exercised by the Corporation.
b. In any case in which the holders of the Series A
Preferred Stock are entitled to vote pursuant to this
Section 6 or pursuant to law, each holder of the
Series A Preferred Stock is entitled to one vote for
each share of Series A Preferred Stock held.
c. As long as any shares of the Series A Preferred Stock
remain outstanding, the Corporation will not, without
the affirmative vote at a meeting or the written
consent with or without a meeting of the holders of
at least two-thirds of the outstanding shares of the
Series A Preferred Stock, (1) create any class or
classes of stock ranking prior to or on a parity with
the the Series A Preferred Stock either as to
dividends or upon liquidation, (2) amend, alter or
repeal any of the provisions of the Corporation's
Articles of Organization or Bylaws so as to affect
adversely the preferences, special rights or powers
of the Series A Preferred Stock; provided, however,
that the amendment of the provisions of the Articles
of Incorporation so as to authorize or create, or to
increase the authorized amount of, any Junior Stock
will not be deemed to affect adversely the voting
powers, rights or preferences of the holders of the
Series A Preferred Stock, (3) issue any additional
shares of the Series A Preferred Stock, (4)
consolidate or merge with or into any other
corporation, (5) liquidate, wind up or dissolve
itself, or (6) convey, sell, assign, transfer or
otherwise dispose of, all or substantially all of its
assets.
7. No Reissuance of Series A Preferred Stock. No Series A
Preferred Stock acquired by the Corporation by reason of
redemption, purchase, or otherwise will be reissued, and all
shares acquired by the Corporation will be cancelled, retired
and eliminated from the shares which the Corporation will be
authorized to issue.
Page 7 of 12
8. Right to Audit Books and Records of Corporation. As long as
any shares of the Series A Preferred Stock remain outstanding,
each holder of 20% or more of the Series A Preferred Stock
shall have the right, during normal business hours, and upon
reasonable prior notice, to review and audit the books and
records of the Corporation to ensure that the Corporation has
properly accrued and paid all dividends to which the holders
of the Series A Preferred Stock may be entitled.
9. Right of First Refusal. As long as any shares of the Series A
Preferred Stock remain outstanding, in the event that a holder
of the Series A Preferred Stock ("Selling Stockholder")
desires to sell, or receives a bona fide offer which it
desires to accept from a prospective purchaser to buy its
Series A Preferred Stock, it shall first offer such shares of
Series A Preferred Stock to the other holders of the Series A
Preferred Stock as provided in this Section.
a. The other holders of the Series A Preferred Stock
shall have the right either to purchase the Selling
Stockholder's stock in accordance with the terms of
the written offer by written notice to the Selling
Stockholder of their intent to purchase such
interest, such notice to be delivered to the Selling
Stockholder within 30 days following the date on
which the Selling Stockholder's written offer is
delivered to the other holders of the Series A
Preferred Stock.
b. Payment of the purchase price shall be made upon the
payment terms of the written offer.
c. Right to Sell to Third Party. In the event the other
holders of Series A Preferred Stock elect not to
purchase the Selling Stockholder's shares, the
Selling Stockholder shall be free to sell its shares
to the prospective purchaser upon the purchase price,
terms and conditions contained in the original offer
for a period of 60 days from the expiration of the
other Series A Preferred Stockholders right to
purchase the Selling Stockholders shares. If the
Selling Stockholder's stock is not sold to the
prospective purchaser within the 60 day period, then
the Selling Stockholder may not transfer the Selling
Stockholder's stock to the prospective purchaser
without once again offering the stock as provided in
this paragraph.
10. Notices. All notices to the Corporation permitted here will be
personally delivered or sent by first class mail, postage
prepaid, addressed to its principal office located at 5425
Martindale, Shawnee, KS 66218, Attention: Treasurer, or to
other address at which its principal office is located and as
to which notice is similarly given to the holders of the
Series A Preferred Stock at their addresses appearing on the
books of the Corporation.
Page 8 of 12
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
hereunto affixed and this certificate to be signed by its Secretary, and
witnessed this 4th day of April, 2003.
ALLEN DRILLING ACQUISITION COMPANY
By /s/ Larry J. Horbach
-------------------------------
Secretary
Witness:
/s/ Charles A. Holtgraves
- -----------------------------
Page 9 of 12
Exhibit A
See attached
Page 10 of 12
EXHIBIT B
CALCULATION OF REDEMPTION PRICE OF SERIES A PREFERRED STOCK
(Illustration attached to next page)
For purposes of a redemption any or all of the Series A Preferred stock
pursuant to Paragraph 3. a. or Paragraph 3. c., or the liquidation of the
Corporation pursuant to Paragraph 4, the stated value of the Series A Preferred
Stock to be redeemed shall equal the "Adjusted Redemption Value" (the "ARV") as
calculated by the following formula:
A "Redemption Credit" shall be calculated by multiplying the sum of
$0.75 per day per share of deemed dividend interest accrued from the date the
shares of Series A Preferred Stock are issued (the "Issue Date") to the date
such shares are redeemed (the "Redemption Date") and then subtracting the
resulting product from the actual aggregate dividends accrued and/or paid to the
Series A Preferred Stockholders from the Issue Date through the Redemption Date.
The remainder shall be defined as the "Return Credit."
The ARV shall be calculated by subtracting one-half of the Return
Credit from the original stated value of the redeemed Series A Preferred Stock,
subject to the following:
If the ARV, as calculated above, is equal to or less than
zero, the ARV of the redeemed Series A Preferred Stock shall be equal
to zero.
If the ARV, as calculated above, is greater than zero but less
than the original stated value set forth in Paragraph then the ARV of
the redeemed Series A Preferred Stock shall be equal to the amount
calculated.
If the ARV, as calculated above, is greater than the original
stated value then the ARV shall be equal to the original stated value
of the redeemed Series A Preferred Stock.
Page 11 of 12
ALLEN DRILLING ACQUISITION COMPANY ("ADAC')
PREFERRED STOCK REDEMPTION
ILLUSTRATIVE CALCULATIONS
Redemption Notice-June 30, 2010
All Accrued Dividends Paid
(Illustrative assumptions derived from the Madisonville
Economics as set forth in the Madisonville Project
MEMORANDUM DATED FEBRUARY 21, 2003)
ARV
ARV Greater Than
Equal To Zero and ARV
or Less Than Less Than Greater Than
Zero Stated Value Stated Value
------------ ------------ ------------
Cumulative dividends paid to $900,000 Stated Value of
of Series A Preferred Shares through the 7 year initial term
of the Gateway Energy Corporation Restated Master
Agreement $ 4,252,823 $ 2,863,439 $ 1,000,000
Redemption Credit for Company (ADAC)-
$0.75 per share per day accrued for 2520 days (7 years) 1,701,000 1,701,000 1,701,000
----------- ----------- -----------
Return credit $ 2,551,823 $ 1,162,439 $ (701,000)
----------- ----------- -----------
50% of return credit $ 1,275,912 $ 581,219 $ (350,500)
Stated Value of Series A Preferred Shares 900,000 900,000 900,000
----------- ----------- -----------
Adjusted Redemption Value $ (375,912) $ 318,781 $ 1,250,500
CASH ON REDEMPTION $ 0 $ 318,781 $ 900,000
=========== =========== ===========
Page 12 of 12