PROPOSAL ONE
APPROVAL AND ADOPTION OF AN AMENDMENT TO OUR ARTICLES OF INCORPORATION, AS AMENDED, TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON
STOCK
General
On September 23, 2022, the Board unanimously approved the Increased Share Amendment, which amended subparagraph (a) of Article Fourth
of the Articles of Incorporation of Abraxas, as amended, and which, subject to stockholder approval, will increase the number of shares of Common Stock that Abraxas is authorized to issue from 20,000,000 shares to 150,000,000 shares. Biglari
Holdings also consented to the Increased Share Amendment. The proposed Increased Share Amendment would be effectuated by amending subparagraph (a) of Article Fourth to read, in its entirety, as follows:
(a) The total number of shares of all classes of stock which the corporation shall have authority to issue is (i) 150,000,000 shares with par
value $.01 per share which are to be of a class designated Common Stock and (ii) 1,000,000 shares with par value $.01 per share which are to be of a class designated Preferred Stock. The shares of Common Stock shall not be
entitled to cumulative voting and shall not have preemptive rights to subscribe for or to purchase any additional shares of the corporations capital stock.
The terms of the additional shares of Common Stock will be identical to those of the currently outstanding shares of Common Stock. However,
because Common Stockholders have no preemptive rights to purchase or subscribe for any unissued stock of the Company, the issuance of additional shares of Common Stock will reduce the current Common Stockholders percentage ownership interest
in the total outstanding shares of Common Stock. The relative rights and limitations of the shares of Common Stock will remain unchanged under the Increased Share Amendment.
Reasons For the Increased Share Amendment
On September 16, 2022, the Company filed a Current Report on Form 8-K with the SEC to report
that Biglari Holdings had acquired the 685,505 Preferred Shares that were previously owned by AGEF pursuant to the Private Sale between AGEF and Biglari Holdings. As a result of the Private Sale, Biglari Holdings became the Companys
controlling stockholder. Subsequently, Biglari Holdings proposed, and the Board approved, an Exchange of Biglari Holdings Preferred Shares for 90,631,287 of shares of the Companys Common Stock, which would entitle Biglari Holdings to own
an aggregate of 90% of the Companys total issued and outstanding Common Stock.
The Preferred Shares acquired by Biglari Holdings in
the Private Sale and proposed to be exchanged for Common Stock have a face value of approximately $140,000,000, rank senior to and have first priority rights over Common Stockholders with respect to any distributions, dividends, or liquidation
proceeds, and are entitled to receive initial and accreted preference amounts that Common Stockholders do not receive when the Company pays distributions or dividends, including a Tier One preferred return that holders of Preferred
Shares are owed before any payment can be made to the Common Stockholders. Specifically, the Preferred Shares are entitled to any and all distributions from the Company until the distribution to the Preferred Shares total approximately $100,000,000,
and thereafter, 95% of the amount distributed would be allocated and paid to holders of the Preferred Shares, and 5% would be allocated and paid to the holders of Common Stock until the Preferred Shares have received in the aggregate the
Accreted Preference Amount, which is $137,101,000 plus 6% per annum accretion, compounded quarterly, from January 3, 2022, the date of issuance of the Preferred Shares. Once the Preferred Shares have received
distributions from the Company equal to the Accreted Preference Amount, any subsequent distributions would be allocated and paid 75% to the Preferred Shares and 25% to the Common Stock. The Preferred shares also (i) have greater per-share voting power on matters presented to the stockholders by being able to cast 69 votes per Preferred Share held compared to one vote per share of Common Stock that Common Stockholders can cast; and
(ii) vote as a separate class from the Common Stockholders on certain material actions proposed by the Company (including amending the Articles of Incorporation, as amended, or effecting a liquidation event), which the Company is prohibited
from taking without approval from the holders of a majority of the voting power of the outstanding Preferred Shares even if the action is approved by a majority of the voting power of the Common Stockholders. If the Increased Share Amendment is
approved and the Exchange is effected, Biglari Holdings will no longer be entitled to the rights and preferences attributable to Preferred Shares.
Currently, the Companys Articles of Incorporation, as amended, authorize the Company to issue up to 20,000,000 shares of Common Stock.
In order to effectuate the Exchange and to enable the Companys issuance of the Exchange Shares to Biglari Holdings, the Board has determined that it is necessary for the Company to increase the number of authorized shares of Common Stock to
ensure that the Company has adequate shares of Common Stock to issue the Exchange Shares to Biglari Holdings.
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