PREFERRED STOCK AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
R-TEC HOLDING, INC.
R-Tec Holding, Inc., an Idaho corporation (the "Corporation"), pursuant to
Article Second of the Articles of Incorporation and ss.30-1-602 of the Idaho
Business Corporation Act certifies that the Board of Directors of the
Corporation duly adopted at a meeting held April 12, 2000, the following
resolution amending the Articles of Incorporation and providing for the
designations, preferences and issuance of a series of Preferred Stock to be
designated the Series "A" Convertible Preferred, par value $0.23437 per share,
and to consist of 2,133,399 shares:
Resolved, that Article "Second" of the Articles of Incorporation is hereby
amended to read as follows:
"Second: The aggregate number of shares that the Corporation shall have
authority to issue is 30,000,000 shares of voting Common Stock, all of which
shares shall be of non par value, and 5,000,000 shares of Preferred Stock. The
Preferred Stock shall be divided into series. The first series consists of
2,133,399 shares with a par value of $0.23437 per share, and is designated
"Series "A" Convertible Preferred". The remaining one or more series shall
consist of such number of shares and shall be designated as the Board of
Directors shall determine into classes, series, and preferences, limitations,
restrictions and relative rights of each class or series of Preferred Stock as
authorized in ss.30-1-602 of the Idaho Business Corporation Act.
Further Resolved, that the powers, designations, preferences, rights,
qualifications, limitations, and restrictions on all of the Series "A"
Convertible Preferred stock shall be as follows:
1. Issuance: The series of Preferred Stock designated as the Series "A"
Convertible Preferred shall consist of 2,133,399 shares, par value $0.23437
per share.
2. Dividends:
(a) The holders of the Series "A" Convertible Preferred shall be entitled
to receive dividends at the rate of $0.0222, per share (as adjusted for any
stock dividends, combinations, or splits with respect to such shares) per
annum, payable out of funds legally available therefor. Such dividends
shall be payable only when, as, and if declared by the Board of Directors,
and shall accumulate beginning from the date of issue, payable annually.
No dividends (other than those payable solely in the Common Stock of the
Corporation) shall be paid on any Common Stock of the Corporation during
any fiscal year of the
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Corporation until dividends (as adjusted for any stock dividends,
combinations or splits with respect to such shares) on the Series "A"
Convertible Preferred shall have been paid or declared and set apart during
that fiscal year and any prior year in which dividends accumulated but
remain unpaid. Any dividend paid on Common Stock during any fiscal year may
not exceed the dividend rate paid on each share of Series "A" Convertible
Preferred, attributable to the Common Stock into which the Series "A"
Convertible Preferred is convertible, i.e. if a dividend is paid on Common
Stock in the amount of $0.05, and each share of the Series "A" Convertible
Preferred is convertible into one share of Common Stock, the Corporation
would be required to pay $0.05 per share to the holders of Series "A"
Convertible Preferred, $0.0222 per share as the preferred stock dividend
and an additional $0.0278 per share to take into account the dividend to
the holders of the Common Stock.
An undeclared or unpaid dividend shall not bear or accrue any interest.
(b) If the Corporation declares a distribution, other than a liquidation or
redemption distribution covered by the provisions of Sections 3 or 4
hereof, payable other than in cash, the holders of Series "A" Convertible
Preferred shall be entitled to a proportionate share of any such
distribution as though they held the number of shares of Common Stock of
the Corporation into which their shares of Series "A" Convertible Preferred
are convertible as of the record date fixed to determine the holders of
Common Stock of the Corporation entitle to the distribution.
3. Liquidation Preference.
(a) If the Corporation is liquidated, dissolved, or wound up, the holders
of the Series "A" Convertible Preferred shall be entitled to be paid
$0.23437 per share (as adjusted for any stock dividends, combinations or
splits) plus all cumulative and unpaid dividends on such shares, before and
in preference to any distributions of the Corporation's assets to the
holders of Common Stock. If the Corporation's assets available for
distribution to its shareholders are insufficient to pay the holders of
Series "A" Convertible Preferred the full amount to which they are
entitled, then all assets of the Corporation legally available for
distribution shall be distributed among the holders of Series "A"
Convertible Preferred in proportion to the preferential amount that each
such holder is otherwise entitled to receive.
(b) If the Corporation is liquidated, dissolved, or wound up, after the
payment in full of the liquidation preferences to the holders of Series "A"
Convertible Preferred as set forth in 3.(a), the holders of the Common
Stock shall be entitled to be paid $0.23437 per share ( as adjusted for any
stock dividends, combinations or splits) before and in preference to any
further distribution of any assets of the Corporation to the holders of the
Series "A" Convertible Preferred . After payment in full of the liquidation
preference to the holders of Series "A" Convertible Preferred, if the
assets distributed to the holders of
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the Common Stock are insufficient to pay the full preferential amount, then
all remaining assets of the Corporation legally available for distribution
shall be distributed among the holders of the Common Stock in proportion to
their shares.
(c) After the holders of the Series "A" Convertible Preferred and the
Common Stock are paid the amounts set forth in Sections 3.(a) and (b)
hereof, any and all remaining assets of the Corporation legally available
for distribution shall be distributed among the holders of the Common Stock
and the Series "A" Convertible Preferred in proportion to the shares of
Common Stock then held by them, determined as though all shares of Series
"A" Convertible Preferred were converted as provided herein.
(d) For purposes of this Section 3, (i) any acquisition of the Corporation
by means of merger or other form of corporate reorganization in which
outstanding shares of the Corporation are exchanged for securities or other
consideration issued, or caused to be issued, by the acquiring corporation
or its subsidiary (other than a mere reincorporation transaction) or (ii) a
sale, transfer or lease of all or substantially all of the assets of the
Corporation (but not including a transfer or lease by or to a bona fide
lender) shall be deemed a liquidation, dissolution or winding up of the
Corporation and shall entitle the holders of Series "A" Convertible
Preferred and Common Stock to receive at the closing in cash, securities or
other property (valued as provided in Paragraph 3 (e) below) amounts as
specified in Sections 3. (a) through (c) above, provided, however, that if
the consideration to be paid in respect of the Series "A" Convertible
Preferred, assuming conversion of such shares to Common Stock, is valued at
greater than $0.23437 per share, then such merger or sale of assets shall
not be deemed a liquidation, dissolution or winding up of the Corporation.
(e) If the distribution provided for in this Section 3 is payable other
than in cash, the value of such distribution shall be its fair market value
as determined in the good faith of the Board of Directors.
4. Conversion. The holders of the Series "A" Convertible Preferred shall have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each outstanding share of Series "A" Convertible
Preferred shall be convertible, at the option of the holder, (i) at any
time on or before the fifth day before any Redemption Date, if any, fixed
in any Redemption Notice to the holder with respect to such share; (ii) at
any time on or before the fifth day before the closing date for the public
offering of any securities of the Corporation; (iii) at any time on or
after December 31, 2002. A conversion of shares shall be at the office of
the Corporation or any transfer agent for such stock, into fully paid and
nonassessable shares of Common Stock. The price at which shares of Common
Stock are deliverable on conversion of shares of the Series "A" Convertible
Preferred, the "Conversion Price", shall initially be $0.23437 per share of
Common Stock. The initial Conversion Price shall be adjusted as
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hereinafter provided. The number of shares of Common Stock into which each
share of the Series "A" Convertible Preferred may be converted shall be
determined by dividing $0.23437 by the Conversion price determined as
hereinafter provided in effect at the time of the conversion.
(b) Automatic Conversion. Each share of Series "A" Convertible Preferred
shall automatically be converted into shares of Common Stock on the earlier
of (i) the date specified by vote or written consent or agreement of
holders of at least two-thirds of the outstanding shares of such series, or
(ii) immediately on the closing of the sale of the Corporation's Common
Stock in a firm commitment, underwritten public offering registered under
the Securities Act of 1933, as amended (the "Securities Act"), at a price
to the public (before underwriter's discounts and expenses) of $5.00 or
more per share of Common Stock (as adjusted for any stock dividends,
combinations or splits) and the total proceeds to the Corporation of which
exceed $1,000,000 (after deducting underwriter's discounts and expenses
relating to the issuance, including without limitation fees of the
Corporation's counsel). The number of shares of Common Stock into which
each share of the Series "A" Convertible Preferred may be converted shall
be determined by dividing $0.23437 by the Conversion Price determined as
herein after provided in effect at the time of the conversion.
(c) Mechanics of Conversion.
(i) Before any holder of Series "A" Convertible Preferred stock may
convert to Common Stock, he shall surrender the certificate(s)
therefor, duly endorsed, at the office of the Corporation or transfer
agent for such stock, together with written notice to the Corporation
at such office that he elects to convert the same and shall state
therein the name or names in which he wishes the certificate(s) for
the number of full shares of Common Stock to which such holder is
entitled and a check for cash with respect to any fractional interest
in a share of Common Stock as provided herein. The Corporation shall,
as soon as practicable thereafter, issue and deliver to such holder of
Series "A" Convertible Preferred stock, certificates for the number of
shares of Common Stock to be issued on conversion. The conversion
shall be deemed to have been made immediately before the close of
business on the date of surrender for conversion of the Series "A"
Convertible Preferred (the "Conversion Date"). The holder shall be
deemed to have become a shareholder of record on the applicable
Conversion Date unless the transfer books of the Corporation are
closed on such date, in which event he shall be deemed to have become
a shareholder of record on the next succeeding date on which the
transfer books are open, but the Conversion Price shall be that in
effect on the Conversion Date.
(ii) No fractional shares of Common Stock shall be issued on
conversion of Series "A" Convertible Preferred stock. If more than one
share of Series "A"
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Convertible Preferred stock is surrendered for conversion at any one
time by the same holder, the number of full shares of Common Stock
issuable on conversion thereof shall be computed on the basis of the
total number of shares of Series "A" Convertible Preferred stock so
surrendered. Instead of any fractional shares of Common Stock, the
Corporation shall pay a cash adjustment in respect of any fractional
interest that would be issuable equal to the fair market value of such
fractional interest as determined by the Corporation's Board of
Directors.
(iii) If the conversion is in connection with an underwritten public
offering of securities, the conversion may, at the option of any
holder tendering shares of Series "A" Convertible Preferred stock for
conversion, be conditioned on the close of the offering, in which
event the person(s) entitled to receive the Common Stock on conversion
of the Series "A" Convertible Preferred stock shall not be deemed to
have converted such Series "A" Convertible Preferred stock until
immediately before the close of such offering.
d. The Corporation shall at all times reserve and keep available, out of
its authorized but unissued Common Stock, solely for the purpose of
effecting the conversion of the Series "A" Convertible Preferred , the full
number of shares of Common Stock deliverable on the conversion of all
outstanding shares of Series "A" Convertible Preferred . The Corporation
shall from time to time (subject to obtaining necessary director and
shareholders action), in accordance with the laws of the state of Idaho,
increase its authorized Common Stock if at any time the authorized number
of shares of its Common Stock remaining unissued is insufficient to permit
the conversion of all outstanding shares of Series "A" Convertible
Preferred.
5. Adjustments for Antidilution:
The amount of Common Stock which the holders of the Series "A" Convertible
Preferred stock shall be entitled to receive upon conversion shall be subject to
adjustments for "diluting issuances" based upon the initial Conversion Price of
$0.23437 per share. The Conversion Price shall be subject to adjustment, and the
number of shares of Common Stock issuable upon conversion shall be subject to
adjustment, to prevent dilution in certain events including (a) any
subdivisions, combinations or reclassifications of the Corporation's Common
Stock or (b) any payment, issuance or distribution by the Corporation to its
stockholders of (i) a stock dividend, (ii) debt securities of the Corporation,
or (iii) assets (other than cash dividends payable out of earnings or surplus in
the ordinary course of business, to holders of Common Stock. The Conversion
Price shall also be subject to adjustment, and the number of shares subject to
issuance upon conversion shall be subject to adjustment, on a "full-rachet"
(reduced to the same purchase price) basis upon the Corporation's issuance of
Common Stock, warrants or rights to purchase Common Stock or securities
convertible into Common Stock for a consideration per share which is less than
the then-applicable conversion price of the Series "A" Convertible Preferred
stock, as it may have been adjusted as a result of prior diluting issuances.
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On each adjustment of the Conversion Price, the Corporation at its expense
shall promptly compute such adjustment in accordance with these terms, and send
to all holders of Series "A" Convertible Preferred stock a certificate setting
forth such adjustment and showing in detail the basis for the adjustment.
6. Redemption.
(a) At the option of each holder of shares of Series "A" Convertible
Preferred stock, the Corporation shall redeem, on January 31 of each year
starting with the year 2006 and continuing thereafter (each "Redemption
Date"), the number of shares of Series "A" Convertible Preferred stock held
by such holder that is specified in a written request for redemption
delivered to the Corporation by the holder at least 30 days before the
applicable Redemption Date, by paying in cash therefore $0.23437 per share
of Series "A" Convertible Preferred stock (as adjusted for any stock
dividends, combinations or splits) plus all declared but unpaid dividends
on such shares (the "Redemption Price"). However, the Corporation shall not
be required under this paragraph to redeem from any particular holder (i)
on the first redemption date a number of shares of Series "A" Convertible
Preferred stock greater than one-third of the total number of shares held
by such holder immediately before the redemption, and (ii) in connection
with the next Redemption Date, a number of shares greater than two-thirds
of the total number of shares of Series "A" Convertible Preferred stock
held by such holder prior to the first redemption date, and (iii) in
connection with the third Redemption Date the remainder of the shares of
Series "A" Convertible Preferred stock held by such holder.
(b) At least 15 but no more than 25 days before each Redemption Date the
Corporation shall send written notice by first class mail, postage prepaid,
to each holder of record (at the close of business on the business day
immediately before notice is given) of the Series "A" Convertible Preferred
stock requested to be redeemed, at the holder's address last shown on the
records of the Corporation, specifying the number of shares to be redeemed
from such holder, the Redemption Date, the Redemption Price, and the place
at which payment may be obtained (the "Redemption Notice"). Except as
provided in paragraph 6.(c), on or after the Redemption Date, each holder
of Series "A" Convertible Preferred stock to be redeemed shall surrender to
the Corporation the certificates for such shares, as directed in the
Redemption Notice, and thereon the Redemption Price of such shares shall be
payable to the order of the registered owner of such certificates and all
surrendered certificates shall be canceled. If less than all the shares
represented by any such certificates are redeemed, the Corporation shall
issue to the holder a new certificate for the unredeemed shares.
(c) After the Redemption Date, unless the Corporation fails to pay the
Redemption Price (in which case all the rights of the holders of such
shares shall continue) the holders of the shares of the Series "A"
Convertible Preferred stock designated in the Notice of Redemption shall
not have any rights as shareholders of the Corporation except the right
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to receive, without interest, the Redemption Price thereof upon surrender
of certificates for the redeemed shares, or to exercise, on or before the
fifth day before the Redemption Date, the right to convert the shares so
designated, and such shares shall not thereafter be transferred (except
with the consent of the Corporation ) on the books of the Corporation and
shall not be deemed outstanding for any purpose whatsoever. If the funds of
the Corporation legally available for redemption of shares of Series "A"
Convertible Preferred stock on any Redemption Date are insufficient to
redeem the total number of shares of Series "A" Convertible Preferred stock
requested to be redeemed on such date, those funds that are legally
available will be used to redeem the maximum possible number of such shares
ratably among the holders of such shares requested to be redeemed based on
their ownership of shares so requested to be redeemed. If funds of the
Corporation thereafter become legally available for the redemption of
Series "A" Convertible Preferred such funds will immediately be used to
redeem the remainder of the shares that the Corporation has been requested
to redeem on any Redemption Date, but which has not redeemed.
(d) On or before each Redemption Date, the Corporation shall deposit the
Redemption Price of all shares of Series "A" Convertible Preferred stock
designated for redemption in the Redemption Notice and not yet redeemed
with a bank as a trust fund for the holders of the shares to be redeemed,
with irrevocable instructions to the depositary to pay the Redemption Price
for such shares to their respective holders on or after the Redemption Date
on receipt of notice from the Corporation that such holder has surrendered
his share certificate to the Corporation . Funds deposited by the
Corporation pursuant to this paragraph as the Redemption Price for shares
thereafter converted to Common Stock before the Redemption Date shall be
promptly returned to the Corporation.
7. Voting Rights.
Holders of shares of Series "A" Convertible Preferred stock shall have
voting rights and powers equal to the voting rights and powers of the Common
Stock at any annual or special meeting of shareholders of the Corporation , or
may act by written consent in the same manner as the Common Stock, voting
together with the Common Stock as a single class, and shall be entitled to the
number of votes equal to the number of shares of Common Stock into which such
shares of Series "A" Convertible Preferred stock could be converted at the close
of business on the record date fixed for such meeting, or on the effective date
of any written consent. Holders of shares of Series "A" Convertible Preferred
stock shall be entitled to notice of any shareholders' meeting in accordance
with the By Laws of the Corporation. Fractional votes shall be rounded to the
nearest whole number (with one-half being rounded upward). Holders of Common
Stock shall be entitled to one vote per share.
If the Corporation fails to redeem shares tendered for redemption for two
or more consecutive Redemption Dates after such shares are tendered, the holders
of the Series "A"
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Convertible Preferred stock, voting as a class, shall be entitled to elect the
smallest number of directors that, will constitute a majority of the total
number of directors, and the other holders of Common Stock shall be entitled to
elect the remaining members of the Board of Directors. At such time as the
shares of Series "A" Convertible Preferred stock are redeemed so that the
Corporation is current with respect to its Redemption Notices, the contingent
rights of the holders of the Series "A" Convertible Preferred stock to elect a
majority of the Board as provided in this subsection shall cease, subject to
renewal from time to time upon the same terms and conditions.
At any time after the voting power to elect a majority of the directors has
vested in the holders of the Series "A" Convertible Preferred stock as provided
above, the president or any vice president of the Corporation shall, at the
request of the record holders of at least twenty percent (20%) of the Series "A"
Convertible Preferred stock then outstanding call a special meeting of the
holders of the Series "A" Convertible Preferred stock and such other of the
Corporation 's stock as shall then have the right to vote for the election of
directors, to be held at the place and on the notice provided in the By Laws of
the Corporation for the holding of meetings. If the meeting is not so called
within two days after the request is delivered to the offices of the
Corporation, then the record holders of at least ten percent of the Series "A"
Convertible Preferred stock, as a class, may designate in writing one of their
number to call such meeting, and the person so designated may call such meeting
at the place and on the notice above provided, and for that purpose shall have
access to the stock books of the Corporation. At any meeting so called or at any
annual meeting held while the holders of the Series "A" Convertible Preferred
stock, as a class, have the voting power to elect a majority of the Board of
Directors, the holders of a majority of the then outstanding Series "A"
Convertible Preferred stock, as a class, present in person or by proxy, shall be
sufficient to constitute a quorum for the election of directors the holders of
Series "A" Convertible Preferred stock are entitled to elect, and the persons so
elected as directors, together with such persons, if any, as may be elected as
directors by the holders of Common Stock and such other of the Corporation's
stock as shall then have the right to vote for directors, shall be the duly
elected directors of the Corporation
When the rights of the holders of Series "A" Convertible Preferred stock to
vote as provided in this section have ceased, the terms of office of the persons
so elected by them as directors shall end and the vacancies shall be filled by
the remaining directors elected by the holders of the outstanding stock,
regardless of class, of the Corporation then having the right to vote for
directors.
8. Restrictive Covenants:
The Corporation may not, without the consent of the holders of 67% of the
Series "A" Convertible Preferred Stock (i) issue any class or series of equity
security other than Common Stock; (ii) enter into any agreement that would
restrict the Corporations's right to perform under the obligations of the Series
"A" Convertible Preferred Stock; (iii) amend the charter or bylaws in any manner
which would impair or reduce the rights of the Series "A" Convertible Preferred
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Stock; (iv) effect a merger or consolidation or share exchange or sell
substantially all of the Corporations's assets; (v) liquidate or dissolve; (vi)
redeem or repurchase any outstanding stock, except for the redemption of the 20%
of stock held by Hastings and Clayton previously agreed to by the Corporation;
(vii) commence or amend any employee stock plan or employee benefit or
compensation arrangements in a material manner; (viii) enter into any material
transaction with affiliated persons or entities; (ix) enter into any other line
of business other than business substantially similar or related to the existing
business; (x) acquire the stock, assets or business of any other entity in any
form of transaction or engage in a joint venture with any other entity, other
than plans for IntorCorp; or (xi) incur or create indebtedness other than
institutional indebtedness for operating purposes.
9. Rights of First Refusal and Co-Sale:
The holders of Series "A" Convertible Preferred Stock shall have (i) the
Right of First Refusal to purchase any shares of Common Stock held by Clayton or
Hastings in the event that such holders seek to sell any of their Common Stock,
and (ii) the right of co-sale of an equal percentage of their holdings, in the
event Clayton and/or Hastings transfer 15% or more of their Common Stock in the
Company to a third party.
10. Preemptive Right:
Holders of Series "A" Preferred Stock (or shares of Common Stock issued
upon conversion thereof) shall have a contractual preemptive right to purchase
shares offered in future private offerings of equity securities (or warrants or
securities convertible into equity securities) of the Corporation, each in a
proportion equal to the percentage derived by dividing the number of shares of
Common Stock issued or issuable upon conversion of Series "A" Convertible
Preferred Stock held by each holder by the total number of shares of Common
Stock issued or issuable upon conversion thereof outstanding. This right shall
terminate upon the occurrence of a public offering.
The foregoing amendment was adopted by the Board of Directors of R-Tec
Holding, Inc. without shareholder action, which is not required.
Dated this 24th day of April, 2000.
R-TEC HOLDING, INC.
By /s/
--------------------------------
Robert C. Montgomery, Secretary
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