GulfWest Oil & Gas Company Series A Preferred Stock Designation and Rights Resolution

 STATEMENT OF RESOLUTION ESTABLISHING AND DESIGNATING A SERIES OF SHARES OF GULFWEST OIL amp; GAS COMPANY Series A Preferred Stock, par value $.01 per share Pursuant to the provisions of Article 2.13 of the Texas Business Corporation Act and pursuant to Article 4.1 of its Articles of Incorporation, as amended, the undersigned, GulfWest Oil amp; Gas Company (the "Company") ------- hereby submits the following statement for the purposes of establishing and designating a series of shares and fixing and determining the relative rights and preferences thereof: FIRST: The name of the Company is GulfWest Oil & Gas Company SECOND: The following resolution establishing and designating a series of shares and fixing and determining the relative rights and preferences thereof was duly adopted by the Board of Directors of the Company on April 21, 2004: "RESOLVED, by the Board of Directors (the "Board") of the Company, that pursuant to authority expressly ----- granted to and vested in the Board by the provisions of the Articles of Incorporation of the Company, as amended (the "Articles of Incorporation"), the Board hereby creates a series of the class of authorized Preferred Stock, -------------------------- par value $.01 per share, of the Company, and authorizes the issuance thereof, and hereby fixes the designation and amount thereof and the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions of such series, as set forth below; RESOLVED FURTHER, that such provisions supercede any prior certificate of designation filed by the Company with the Secretary of State of the State of Texas with respect to such series of the class of Preferred Stock authorized hereby. 1. Designation and Number of Shares. The designation of the Series of Preferred Stock authorized hereby shall be Series A Cumulative Exchangeable Preferred Stock ("Series A Preferred Stock") with a par value of $.01 per share. The number of shares of Series A Preferred Stock shall be 10,000. 2. Subordination. The Company is a party to that certain Amended and Restated Credit Agreement dated as of April 29, 2004, among the Company, each of the Lenders from time to time party thereto, and Highbridge/Zwirn Special Opportunities Fund L.P. as administrative agent for the Lenders (the "Credit Agreement"). The Series A Preferred Stock is hereby expressly subordinated to the prior payment in full of all amounts that may be owed from time to time under the Credit Agreement and any indebtedness that replaces or refinances the indebtedness under the Credit Agreement (collectively, the "Senior Debt"). Such subordination is for the benefit of the holders of the Senior Debt and may be enforced against the Company and the holders of the Series A Preferred Stock by 1  the holders of the Senior Debt. No dividends shall be paid to the holders of the Series A Preferred Stock until the Senior Debt has been paid in full or the holders of the Senior Debt provide their written consent. Upon any payment or distribution of assets of the Company in connection with any dissolution, winding up, liquidation or reorganization of the Company, whether in bankruptcy, insolvency or receivership proceedings or upon an assignment for the benefit of creditors or any other marshalling of assets and liabilities of the Company or otherwise, the holders of all Senior Debt shall first be entitled to receive payment in full in cash in accordance with the terms of such Senior Debt of all obligations with respect thereto before the holders of the Series A Preferred Stock shall be entitled to receive any payment with respect to the Series A Preferred Stock. Such subordination and restriction on payment of dividends shall not represent an event of default with respect to the Series A Preferred Stock. 3. Dividends. 3.1 Rate. The dividend rate for each share of the Series A Preferred Stock shall be $45.00 per share per annum. Dividends on shares of the Series A Preferred Stock shall be cumulative, accruing, without interest, from the date of original issuance of the Series A Preferred Stock (the "Original Issue Date") through the date of exchange thereof, and shall be payable quarterly in arrears, as declared by the Board out of funds legally available for the payment of dividends, except that no dividends can be paid until the Senior Debt has been paid in full or the holders of the Senior Debt provide their written consent. Thereafter, payments will be due fifteen days following the end of the Company's fiscal quarter, except that if such date is not a Business Day (as defined below), then the Dividend Payment date shall be payable on the first immediately succeeding business day (a "Dividend Payment Date") to holders of record of the Series A Preferred Stock as they appear on the Company's stock records as of the date 15 days prior to the Dividend Payment Date (the "Record Date"). No interest shall be payable with respect to any dividend payment that may be in arrears. As used herein, "Business Day" shall mean any day except Saturday, Sunday or any day on which banking institutions are legally authorized to close in Houston, Texas. If the Company is in arrears for payment of dividends over two quarters, it will cause its Parent and Sole Shareholder (the "Parent") to issue an aggregate of 200,000 shares of the Parent's Common Stock per delinquent quarter to the holders of the Series A Preferred Stock, on a pro rata basis. 3.2 Rank. Subject to the Subordination in Section 1 hereof, the Series A Preferred Stock shall rank as to dividends (i) senior to the Company's Common Stock (the "Common Stock") and any other class or series of capital stock that by its express terms provides that it ranks junior to the Series A Preferred Stock as to dividends or that does not expressly provide for any ranking as to dividends and (ii) on parity with any other class or series of capital stock that by its express terms provides its ranks on a parity with other classes of preferred stock of the Company as to payments of dividends ("Parity Securities"). Such dividends shall first be payable in preference and priority of any payment of any cash dividend on any stock ranking junior to the Series A Preferred Stock, including without limitation the share of the Common Stock. 2  4. Preference. Subject to the Subordination in Section 1 hereof, the rights of the Series A Preferred Stock are of equal preference to other outstanding preferred stock of the Company regarding payment of dividends and liquidation. As long as the Series A Preferred Stock is outstanding, the Company will not issue additional preferred stock with greater preference regarding payment of dividends or liquidation. No distribution shall be declared or paid or set apart for payment on any stock ranking, as to dividends, junior to the Series A Preferred Stock, including without limitation the shares of the Common Stock, for any period unless full cumulative dividends have been or contemporaneously are declared and paid on the Series A Preferred Stock for all dividend payment periods terminating on or prior to the date of payment of the distribution on such junior stock; provided that the foregoing restriction shall not be applicable to dividends payable in Common Stock to the holders of Common Stock in connection with any stock split. 5. Retirement of Shares. Shares of Series A Preferred Stock that have been issued and have been exchanged or reacquired in any manner by the Company shall be retired and not reissued and shall resume the status of authorized but unissued and non-designated shares of preferred stock of the Company. 6. Voting. Subject to the Subordination in Section 1 hereof, each share of Series A Preferred Stock shall have one (1) vote and the following matters require the approval of holders of two-thirds of the Series A Preferred Stock: (i) the creation, authorization or issuance of any capital stock that ranks senior to the Series A Preferred Stock as to dividends or liquidation payments; (ii) increasing the authorized number of shares of Series A Preferred Stock; (iii) increasing the indebtedness of the Company to exceed $26 million dollars, except in the normal course of business; or (iv) the amendment, alteration, repeal or waiver of any provision of the bylaws, the Articles of Incorporation or this Certificate of Designation so as to adversely affect the preferences, rights and powers of the Series A Preferred Stock. Except as provided above or as required by law, the holders of the Series A Preferred Stock shall not be entitled to vote on any matter submitted to the vote of the shareholders of the Company. 7. Liquidation. Subject to the Subordination in Section 1 hereof, the holders of the Series A Preferred Stock shall, in case of voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, be entitled to receive in full out of the assets of the Company, including its capital, before any amount shall be paid or distributed among the holders of the Company's Common Stock or other capital stock designated as junior to the Series A Preferred Stock with respect to liquidation, the amount of $500 per share of Series A Preferred Stock plus all accrued and undeclared or unpaid dividends. If, upon any liquidation, dissolution or winding up of the Company, the assets of the Company, or proceeds thereof, distributed among the holders of shares of Series A Preferred Stock and the holder of all Parity Securities shall be insufficient to pay in full the respective preferential amounts on shares of Series A Preferred Stock and all Parity Securities, then such assets, or the proceeds thereof, shall be distributed among the holder of Series A Preferred Stock and the holders of Parity Securities ratably in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. After payment of the full amount of the liquidation preference to which the holders of Series A Preferred Stock are entitled, such holders will not be entitled to any further participation in any distribution of assets of the Company. For the purpose of this Section 7, 3  none of the merger or consolidation of the Company into or with another corporation or the merger or consolidation of any other corporation into or with the Company shall be deemed to be a voluntary or involuntary liquidation, dissolution, or winding-up of the Company. 8. Exchange for Common Stock. The Company shall cause its Parent to agree to exchange the Series A Preferred Stock for its Common Stock (the "Exchange Common Stock"), under certain terms and conditions contained in a letter agreement (the "Letter Agreement"), at any time by the holder by providing written notice (the "Exchange Notice") to the Company of the holder's election to exchange any or all of the shares of the Series A Preferred Stock for Exchange Common Stock. The shares of Exchange Common Stock to be issued upon exchange shall be issued by the Parent once the holder of the Series A Preferred Stock to be exchanged tenders the certificates evidencing such shares of Series A Preferred Stock to the Company for cancellation. 8.1 Exchange Price. Each share of Series A Preferred Stock shall be exchangeable in accordance with this Section 8 into the number of shares of Exchange Common Stock that results from dividing the liquidation value for Series A Preferred Stock (including the stated liquidation preference and accrued but unpaid dividends) by the exchange price for Series A Preferred Stock that is in effect at the time of exchange (the "Exchange Price"). The initial Exchange Price for the Series A Preferred Stock shall be $.35 per share. The Exchange Price of the Series A Preferred Stock shall be subject to adjustment from time to time as provided below. 8.2 Adjustment Upon Exchange Common Stock Event. Upon the happening of an Exchange Common Stock Event (as hereinafter defined), the Exchange Price of the Series A Preferred Stock shall, simultaneously with the happening of such Exchange Common Stock Event, be adjusted by multiplying the Exchange Price of Series A Preferred Stock in effect immediately prior to such Exchange Common Stock Event by a fraction, (a) the numerator of which shall be the number of shares of Common Stock issued and outstanding immediately prior to such Exchange Common Stock Event, and (b) the denominator of which shall be the number of shares of Exchange Common Stock issued and outstanding immediately after such Exchange Common Stock Event, and the product so obtained shall thereafter be the Exchange Price for Series A Preferred Stock. The Exchange Price for Series A Preferred Stock shall be adjusted in the same manner upon the happening of each subsequent Exchange Common Stock Event. As used herein, the term "Exchange Common Stock Event" means, Subject to the Subordination in Section 1 hereof, (i) the issue by the Parent of additional shares of its Common Stock as a dividend or other distribution on its outstanding Common Stock, (ii) a subdivision of the outstanding shares of its Common Stock into a greater number of shares of Common Stock or (iii) a combination of the outstanding shares of its Common Stock into a smaller number of shares of Common Stock. 8.3 Adjustment for Other Dividends and Distributions. Subject to the Subordination in Section 1 hereof, if at any time or from time to time after the Original Issue Date the Parent pays a dividend or makes any other distribution to the holders of its Common Stock payable in its securities 4  other than shares of Exchange Common Stock, then in each such event provision shall be made so that the holders of the Series A Preferred Stock shall receive upon exchange thereof, in addition to the number of shares of Exchange Common Stock receivable upon exchange thereof, the amount of securities of the Company that they would have received had their Series A Preferred Stock been exchanged into Exchange Common Stock on the date of such event (or such record date, as applicable) and had they thereafter, during the period from the date of such event (or such record date, as applicable) to and including the exchange date, retained such securities receivable by them as aforesaid during such period, subject to all other adjustments called for during such period under this Section 8 with respect to the rights of the holders of the Series A Preferred Stock or with respect to such other securities by their terms. 8.4 Adjustment for Reclassification, Exchange and Substitution. If at any time or from time to time after the Original Issue Date, the Common Stock issuable upon the exchange of the Series A Preferred Stock is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification or otherwise (other than by an Exchange Common Stock Event or a stock dividend, reorganization, merger, consolidation or sale of assets provided for elsewhere in this Section 8), then in any such event each holder of Series A Preferred Stock shall have the right thereafter to exchange such Series A Preferred Stock into the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification or other change by holders of the number of shares of Exchange Common Stock into which such shares of Series A Preferred could have been exchanged immediately prior to such recapitalization, reclassification or change, all subject to further adjustment as provided herein or with respect to such other securities or property by the terms thereof. 8.5 Certificate of Adjustment. In case of an adjustment or readjustment of the Exchange Price for Series A Preferred Stock, the Company, at its expense, shall cause its Chief Financial Officer to compute such adjustment or readjustment in accordance with the provisions hereof and prepare a certificate showing such adjustment or readjustment, and shall mail such certificate, by first class mail, postage prepaid, to each registered holder of the Series A Preferred Stock at the holder's address as shown in the Company's books. 8.6 Dilution or Impairments. Subject to the Subordination in Section 1 hereof, the Company and the Parent will not, by amendment of the certificate or articles of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, intentionally avoid or seek to avoid the observance or performance of any of the terms hereunder, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate hereunder. Without limiting the generality of the foregoing, the Parent: (a) shall at all times reserve and keep available, solely for issuance and delivery upon the exchange of the Series A Preferred Stock, all shares of the Common Stock from time to time issuable upon such exchange; and 5  (b) will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassesable shares of Common Stock upon the exchange of the Series A Preferred Stock from time to time outstanding. 8.7 Fractional Shares. No fractional shares of Exchange Common Stock shall be issued upon any exchange of Series A Preferred Stock. Any resulting fractional shares shall be rounded up to the next whole share. 9. Transfer of Shares. Shares of the Series A Preferred Stock may only be transferred by presentment of a bona fide offer to purchase the shares and upon the approval of two-thirds of the directors serving on the Company's Board of Directors. 10. Action by Consent. Any action required or permitted to be taken at any meeting of the holders of the Series A Preferred Stock may be taken without such a meeting if a consent or consents in writing, setting forth the actions so taken, are signed by the holders of the requisite number of the outstanding shares of Series A Preferred Stock." IN WITNESS WHEREOF, the Company has caused this Statement to be signed by its duly authorized officer as of the 21st day of April, 2004. GULFWEST OIL & GAS COMPANY By: /s/ Thomas R. Kaetzer ------------------------------- Name: Thomas R. Kaetzer Title: President