<PAGE> 1
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C) OF THE
SECURITIES EXCHANGE ACT OF 1934
Check the appropriate box:
/ / Preliminary information statement
/X/ Definitive information statement
AMERICAN RICE, INC.
- - - --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
AMERICAN RICE, INC.
- - - --------------------------------------------------------------------------------
(Name of Person(s) Filing the Information Statement)
Payment of filing fee (check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), or 14c-5(g).
/ / Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock; Preferred Stock, Series A; Preferred
Stock, Series B; Preferred Stock, Series C
- - - --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
31,608,350 Shares
- - - --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
Not Applicable.
- - - --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
Not Applicable.
- - - --------------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- - - --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- - - --------------------------------------------------------------------------------
(3) Filing party:
- - - --------------------------------------------------------------------------------
(4) Date filed:
- - - --------------------------------------------------------------------------------
- - - ---------------
(1) Set forth the amount on which the filing fee is calculated and state how
it was determined.
<PAGE> 2
AMERICAN RICE, INC.
A TEXAS CORPORATION
16825 NORTHCHASE DRIVE, SUITE 1500
HOUSTON, TEXAS 77060
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 1, 1994
DEAR STOCKHOLDER:
A Special Meeting of Stockholders of American Rice, Inc. (the "Company") will
be held at 16825 Northchase Drive, Suite 1500, Houston, Texas 77060 on
September 1, 1994, commencing at ten o'clock a.m. local time for the following
purposes:
(1) To amend the Company's Articles of Incorporation to effect a
one-for-five reverse stock split of the Company's Capital Stock and to thereby
reduce the stated capital of the Company; and
(2) To transact such other business as may properly come before the
meeting.
The Board of Directors has fixed the close of business on August 17, 1994, as
the record date (the "Record Date") for the determination of shareholders
entitled to notice of and to vote at the Special Meeting. Only shareholders of
record at the close of business on the Record Date are entitled to notice of
and to vote at the Special Meeting. The stock transfer books will not be
closed. A list of shareholders entitled to vote at the Special Meeting will be
available for examination at the offices of the Company for ten days prior to
the Special Meeting.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
By Order of the Board of Directors
Douglas Murphy, President
Houston, Texas
August 21, 1994
<PAGE> 3
AMERICAN RICE, INC.
16825 NORTHCHASE DRIVE, SUITE 1500
HOUSTON, TEXAS 77060
INFORMATION STATEMENT FOR
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 1, 1994
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
The following information is being provided by the Board of Directors of
American Rice, Inc. (the "Company") in connection with a Special Meeting of
Stockholders to be held September 1, 1994, at 10:00 a.m., for the purposes set
forth in the accompanying Notice of Special Meeting of Stockholders and at any
adjournment thereof. This information statement is first being sent to
stockholders of the Company on or about August 22, 1994 .
VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS
General
The Board of Directors has fixed the close of business on August 17, 1994, as
the record date (the "Record Date") for the determination of shareholders
entitled to notice of and to vote at the Special Meeting. Only shareholders of
record at the close of business on the Record Date are entitled to notice of
and to vote at the Special Meeting. At the close of business on the Record
Date, the following securities of the Company were issued and outstanding
(herein called the "Capital Stock"):
1. 12,219,461 shares of Common Stock, $1.00 par value, each of
which is entitled to one (1) vote on each matter presented to the shareholders
("ARI Common Stock");
2. 3,888,889 shares of Preferred Stock, Series A, $1.00 par
value, each of which is entitled to one (1) vote on each matter presented to
the shareholders ("Series A Preferred Stock");
3. 14,000,000 shares of Preferred Stock, Series B, $1.00 par
value, each of which is entitled to two (2) votes on each matter presented to
the shareholders ("Series B Preferred Stock"); and
4. 1,500,000 shares of Preferred Stock, Series C, $1.00 par
value, none of which is entitled to vote on matters presented to the
shareholders of the Company except where class voting is mandated by applicable
law ("Series C Preferred Stock"); therefore, the Series C
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<PAGE> 4
Preferred Stock will be entitled to vote on Item (1) listed in the accompanying
Notice of Special Meeting of Stockholders.
Required Vote
The affirmative vote of the holders of two-thirds (2/3) of the outstanding
shares of the ARI Common Stock, the Series A Preferred Stock, and the Series B
Preferred Stock (herein sometimes collectively referred to as the "Voting
Stock"), and the affirmative vote of the holders of two-thirds (2/3) of all
series of the outstanding Preferred Stock, voting as a class, is necessary for
approval of the proposed amendment to the Company's Articles of Incorporation
to effect the one-for-five reverse stock split of the Company's Capital Stock
and to thereby reduce the Company's stated capital. ERLY Industries Inc. has
indicated it will vote all of its shares of the Company's Capital Stock "FOR"
the proposed amendment described below, and, because ERLY Industries Inc. owns
sufficient Capital Stock to control the vote, the proposal is expected to pass.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth the share ownership at July 1, 1994 of (i) ERLY
Industries Inc. ("ERLY"), the only person or entity known by the Company to own
more than five percent (5%) of the outstanding voting shares of any of the ARI
Common Stock, the Series A Preferred Stock and Series B Preferred Stock and
(ii) the share ownership of each person or entity known by the Company to own
more than five percent (5%) of the outstanding shares of the Series C Preferred
Stock:
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF
OF BENEFICIAL OWNER TITLE OF CLASS BENEFICIAL OWNERSHIP CLASS
- - - ------------------- -------------- -------------------- -----
<S> <C> <C> <C>
ERLY Industries Inc. (1)(3) ARI Common Stock 35,777,778 (4) 81%
10990 Wilshire Blvd. Series A Preferred 3,888,889 (4) 100%
Suite 1800 Stock (2)
Los Angeles, CA 90024 Series B Preferred 14,000,000 (4)(7) 100%
Stock (2)
Gerald D. Murphy (1)(3) ARI Common Stock 35,777,778 (4) 81%
10990 Wilshire Blvd. Series A Preferred 3,888,889 (4) 100%
Suite 1800 Stock (2)
Los Angeles, CA 90024 Series B Preferred 14,000,000 (4)(7) 100%
Stock (2)
Douglas A. Murphy (1)(3) ARI Common Stock 35,777,778 (4) 81%
10990 Wilshire Blvd. Series A Preferred 3,888,889 (4) 100%
Suite 1800 Stock (2)
Los Angeles, CA 90024 Series B Preferred 14,000,000 (4)(7) 100%
Stock (2)
</TABLE>
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<PAGE> 5
<TABLE>
<S> <C> <C> <C>
William H. Burgess (1)(3) ARI Common Stock 35,777,778 (4) 81%
550 Palisades Series A Preferred 3,888,889 (4) 100%
Palm Springs, CA 99262 Stock (2)
Series B Preferred 14,000,000 (4)(7) 100%
Stock (2)
Aetna Life
Insurance Company
City Place Series C Preferred 399,960 (6) 27%
Hartford, CT 06156 Stock (5)
Nationwide Life
Insurance Co.
One Nationwide Plaza Series C Preferred 459,360 (6) 31%
Columbus, OH 43216 Stock (5)
National Bank
for Cooperatives
P.O. Box 5110 Series C Preferred 200,000 (6) 13%
Denver, CO 80217 Stock (5)
John Alden Life
Insurance Company
7300 Corporate Center Dr. Series C Preferred 200,040 (6) 13%
Miami, Fl 33126 Stock (5)
Texas Commerce Bank
707 Travis, 6th Floor Series C Preferred 100,000 (6) 7%
Houston, TX 77002 Stock (5)
</TABLE>
- - - -----------------------------------
(1) On May 26, 1993, American Rice, Inc. ("ARI") consummated a transaction
("the Transaction") to acquire substantially all of the assets of
Comet Rice, Inc. ("Comet"), other than the ARI capital stock owned by
Comet, and assume all of Comet's liabilities. Comet was a
wholly-owned subsidiary of ERLY Industries Inc. ("ERLY").
In exchange for the assets acquired from Comet, ARI issued to Comet 14
million shares of a newly created Series B $1.00 par value preferred
stock. Each share of the Series B preferred stock provides for annual
cumulative, non-participating dividends of $.37, is convertible into
two shares of ARI common stock, is entitled to two votes, and has a
liquidation preference of $1.00 per share. The Series B preferred
stock issued to Comet carries an aggregate dividend of approximately
$5.2 million per year. The loan agreements with the new lenders
described below prohibit the payment of any dividends and do not
provide any basis on which the lenders would approve a dividend
payment. The assets acquired by ARI did not include any of the ARI
stock previously held by Comet. Comet's combined holdings of ARI
common stock and ARI Series A preferred stock, prior to the
Transaction, represented approximately 48 percent of the voting power
of the outstanding ARI stock. As a result of the Transaction, Comet
held 81 percent of the combined voting power of ARI stock outstanding
after the Transaction. In connection with the Transaction, ERLY has
succeeded to the ARI stock held by Comet by the liquidation of Comet.
In May 1993, ARI also refinanced the combined indebtedness of ARI and
Comet ("the Refinancing"). ARI received $47.5 million in revolving
credit lines from a new revolving credit lender, Congress Financial
Corporation ("Congress"), and loans from new term lenders for $65.3
million. The new term lenders are
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<PAGE> 6
Chase Manhattan Bank National Association ("Chase"), Internationale
Nederlanden Bank, N.V. ("INB"), and Texas Commerce Bank National
Association ("TCB"). As partial consideration for the new financing,
ARI issued warrants to these lenders to purchase up to 776 thousand
shares of ARI's common stock of $1.00 per share. As additional
consideration for the new financing, 13 million shares of ARI Series B
$1.00 par value preferred stock were pledged by ERLY for the benefit
of the new term lenders.
(2) ERLY owns 3,888,889 shares of common stock, 3,888,889 shares of Series
A Preferred Stock and 14,000,000 shares of Series B Preferred Stock.
Because each share of the Series A Preferred Stock is convertible into
one share of the ARI Common Stock, and each share of Series B
Preferred Stock is convertible into two shares of ARI Common Stock, a
holder of shares of Series A Preferred Stock or Series B Preferred
Stock may be deemed to be the beneficial owner of shares of ARI Common
Stock. If ERLY were to convert all of the shares of Series A
Preferred Stock and Series B Preferred Stock owned by it, ERLY would
hold 35,777,778 shares, or approximately 81 percent of the outstanding
shares, of ARI Common Stock.
(3) Gerald D. Murphy, Chairman of the Board of ERLY, 10990 Wilshire
Boulevard, Suite 1800, Los Angeles, California 90024, is the direct
record and beneficial owner of 1,056,658 shares of the common stock,
$0.01 par value, of ERLY ("ERLY Common Stock") representing
approximately 26.4 percent of the outstanding shares of ERLY Common
Stock, and is the indirect beneficial owner of 510,123 shares of the
ERLY Common Stock, representing 12.7 percent of the outstanding shares
of ERLY Common Stock. Douglas A. Murphy, President and a director of
ERLY, 16825 Northchase Drive, Suite 1600, Houston, Texas 77060, is the
beneficial owner of 506,130 shares of ERLY Common Stock, representing
12.6 percent of the outstanding shares of ERLY Common Stock. William
H. Burgess, a director of ERLY, 550 Palisades Drive, Palm Springs,
California 99262, beneficially owns 310,686 shares of ERLY Common
Stock, representing approximately 8.5 percent of the outstanding
shares of ERLY Common Stock. Messrs. Gerald D. Murphy, Douglas A.
Murphy and William H. Burgess may be deemed to be the beneficial
owners of any shares of the ARI Common Stock, Series A Preferred Stock
or Series B Preferred Stock held by ERLY as a result of their
positions with ERLY and their stock ownership of ERLY.
(4) ERLY has sole voting and dispositive power over such shares.
(5) The Company's Articles of Incorporation do not provide for voting
rights for the Series C Preferred Stock, however, class voting on the
proposed amendment to the Company's Articles of Incorporation is
mandated by applicable state law.
(6) Sole voting and dispositive power.
(7) ERLY has pledged 13,000,000 of these shares to secure the payment of
the Company's term debt. A default in the payment of such debt could
result in a change of control of the Company. An additional 1,000,000
shares were pledged to secure $3,000,000 of ERLY's indebtedness to the
Company's former lenders.
The following table sets forth the share ownership of the ARI Common
Stock by each director of ARI and by all directors and executive officers of
ARI as a group:
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY OWNED AS PERCENT OF
NAME OF MAY 18, 1994 (1) CLASS
----------------- ---------------------- ------------
<S> <C> <C>
S.C. Bain, Jr. 22,213 (2) *
William H. Burgess 35,777,778 (3) 81.1%
</TABLE>
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<PAGE> 7
<TABLE>
<S> <C> <C>
John M. Howland -0- *
Gerald D. Murphy 35,777,778 (3) 81.1%
Douglas A. Murphy 35,777,778 (3) 81.1%
George Prchal -0- *
Lee Adams 100 *
Bill J. McFarland -0- *
Richard N. McCombs -0- *
John Poole -0- *
All directors and officers as a group 35,800,091 81.2%
</TABLE>
----------------------
* Less than one percent.
- - - -----------------------------------
(1) Except as otherwise indicated, the persons indicated have sole voting
and dispositive power with respect to these shares.
(2) Mr. Bain has sole voting and dispositive power with respect to 1,482
shares and shared voting and dispositive power with respect to 20,731
shares.
(3) Messrs. Gerald Murphy, Douglas Murphy and William H. Burgess could be
deemed to be the beneficial owners of 3,888,889 shares of the ARI
Common Stock, 3,888,889 shares of the Series A Preferred Stock (which
is convertible into ARI Common Stock), and 14,000,000 shares of the
Series B Preferred Stock (which is convertible into 28,000,000 shares
of ARI Common Stock) because of their positions as directors and
significant shareholders of ERLY. See Notes 1, 2 and 3 to the table
next preceding the table above.
The following table sets forth the share ownership of the ERLY Common
Stock by each director of ARI and by all directors and executive officers of
ARI as a group:
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY OWNED AS PERCENT OF
NAME* OF JUNE 30, 1994 CLASS
----------------- --------------------- ----------
<S> <C> <C>
S. C. Bain, Jr. - -
William H. Burgess 310,686 8.5%
John M. Howland - -
Gerald D. Murphy 1,566,781 39.1%
Douglas A. Murphy 506,130 12.6%
George Prchal - -
All directors and officers
as a group (6 persons) 1,972,674 46.8%
</TABLE>
---------------------
* See notes following the table below describing Security Ownership
of Certain Beneficial ERLY Owners and ERLY Management.
The following table sets forth the ownership of ERLY Common Stock as
of July 1, 1994 of (i) each person or entity known by ERLY to own more than
five percent (5%) of the outstanding Common Stock of ERLY, (ii) each director
of ERLY, (iii) each executive officer of ERLY named in the Compensation Table
and (iv) all directors and executive officers of ERLY and its subsidiaries as a
group. Except as otherwise indicated, each of the stockholders has sole voting
and investment power with respect to the shares owned by such stockholder.
-5-
<PAGE> 8
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT OF
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS*
- - - ------------------- -------------------- ------
<S> <C> <C>
Gerald D. Murphy, Chairman 1,566,781 shares 39.1%
ERLY Industries Inc. Direct (1) and
10990 Wilshire Blvd. Indirect (2)
Los Angeles, CA 90024
Douglas A. Murphy, President 506,130 shares 12.6%
ERLY Industries Inc. Direct (3)
10990 Wilshire Blvd.
Los Angeles, CA 90024
William H. Burgess, Director 310,686 shares 8.5%
550 Palisades Drive Direct
Palm Springs, CA 92262
State Treasurer of the 362,368 shares 9.9%
State of Michigan Direct
301 W. Allegan Street
Lansing, MI 48922
Gentleness 220,000 shares 6.0%
P. O. Box N776 Direct (4)
Lyford Cay
Nassau, Bahamas
Bill J. McFarland 41,647 shares 1.1%
ERLY Industries Inc. Direct
10990 Wilshire Blvd.
Los Angeles, CA 90024
Frank M. Feffer 12,546 shares .3%
ERLY Industries Inc. Direct
10990 Wilshire Blvd.
Los Angeles, CA 90024
Richard N. McCombs 36,922 shares 1.0%
ERLY Industries Inc. Direct
10990 Wilshire Blvd.
Los Angeles, CA 90024
All directors and executive
officers as a group (10
persons) 2,033,013 shares (5) 50.0%
</TABLE>
- - - -------------------
* The percentages of shares held assume that options or convertible
notes held by the particular individual, if any, have been exercised
or converted, and no others.
(1) Mr. Gerald D. Murphy, Chairman of the Board of ERLY, is the record
holder of 1,566,781 shares.
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<PAGE> 9
(2) Mr. Gerald D. Murphy's indirect beneficial ownership represents
510,123 shares owned (1) directly by his son Douglas A. Murphy,
President of ERLY, and (2) held in trust for his grandson. Of this
total, Gerald D. Murphy has voting control of the 3,993 shares held in
trust for his grandson, however, he denies holding voting or
investment control of the balance of the 506,130 shares owned directly
by his son, Douglas A. Murphy. Mr. Gerald D. Murphy has pledged
431,805 shares of his ERLY Common Stock as collateral for personal
loans totalling $647,500 from three financial institutions.
(3) Mr. Douglas A. Murphy, President of ERLY, is the record holder of
172,984 shares and has the right to acquire an additional 66,550
shares pursuant to options granted under the ERLY's 1982 Incentive
Stock Option Plan. In addition, Mr. Douglas A. Murphy has the right
to acquire an additional 266,596 shares pursuant to the conversion
features of a $1,000,000 note receivable from ERLY. Mr. Douglas A.
Murphy has pledged 150,175 shares of ERLY Common Stock as collateral
for personal loans totalling $360,000 from two financial institutions.
(4) Based upon Schedule 13D filed as of October 30, 1992 with the
Securities and Exchange Commission. Gentleness is an Isle of Man
Corporation indirectly controlled by John M. Templeton. Mr. Templeton
may be deemed to be the beneficial owner of the shares of ERLY owned
by Gentleness by virtue of his ability to direct the voting or
disposition of such shares.
(5) All directors and officers as a group owned of record or beneficially
2,033,013 shares, representing 50.0% of the Company's issued and
outstanding voting securities. This includes stock options held by
officers to purchase 123,184 shares under ERLY's Incentive Stock
Option Plan and 266,750 shares issuable pursuant to notes payable by
ERLY.
PROPOSED AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION TO EFFECT A
ONE-FOR-FIVE REVERSE STOCK SPLIT OF THE COMPANY'S CAPITAL STOCK AND TO DECREASE
THE COMPANY'S STATED CAPITAL
General
On October 29, 1993, the Board of Directors of the Company unanimously approved
an amendment to the Articles of Incorporation of the Company to effect a
one-for-five reverse stock split of the presently issued and outstanding shares
of the Company's Capital Stock. Board members who are not affiliates of the
Company's preferred stockholders did not vote separately on the proposal. Under
the proposed amendment, the par value of the Capital Stock will remain at $1.00
per share. As a result, on the effective date of the amendment to the Articles
of Incorporation of the Company, the stated capital on the Company's Balance
Sheet ($31,608,000 at March 31, 1994,) will be reduced to one-fifth (1/5) of
its present amount with the additional paid-in capital account being credited
with the amount by which the stated capital is reduced. Accordingly, the
stated capital account and the additional paid-in capital account of the
Company as of March 31, 1994, and immediately upon the effective date of the
amendment to the Articles of Incorporation are as follows:
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<PAGE> 10
<TABLE>
<CAPTION>
EFFECTIVE DATE
MARCH 31, 1994 OF AMENDMENT
-------------- ------------
<S> <C> <C>
Capital Stock (all classes) $31,608,000 $ 6,322,000
Additional Paid-in Capital -0- $25,286,000
</TABLE>
The restatement of these accounts will result in and alteration of the amount
available for distribution by the Company to its equity security holders under
Texas law. Under Texas law the Company may distribute cash or other property
to its shareholders only out of "Surplus", which is defined as "net assets"
minus "stated capital". "Net assets" means the value of all assets of the
Company minus all liabilities of the Company, and "stated capital" means the
number of shares of the Company outstanding multiplied by their respective par
values. Accordingly, by reducing stated capital by $25,286,000 as described
above, the Company would be permitted under Texas law to distribute such
amounts to its shareholders to the extent it has sufficient Surplus. Based on
the Company's audited balance sheet, at March 31, 1994, the Company had Surplus
of $8,691,000. If the reverse stock split had been effective at September 30,
1993, the Surplus of the Company would have been $33,977,000. However, even
though the Company would be permitted to distribute such amounts under Texas
law, the Company is subject to covenants in its loan agreements which restrict
and prohibit the Company from paying any dividends or making any distributions
to its shareholders.
The complete text of the proposed amendments for the reverse stock split and
the related decrease in the stated capital of the Company are set forth as
Exhibit A to this Information Statement. If the reverse stock split is
approved by requisite vote of the stockholders, each holder of record of
Capital Stock on the effective date of the reverse stock split will thereafter
be deemed to hold one share of Capital Stock for every five (5) presently
issued and outstanding shares of Capital Stock held of record on that date.
Fractional shares will not be issued, and cash will be paid in lieu thereof.
Purpose and Effect of the Reverse Stock Split
Other than as set forth above, the reverse stock split will not change the
stockholder's equity of the Company or the par value of the authorized shares.
However, the number of authorized shares will decrease. Any conversion rate,
liquidation value, redemption price, and dividends rate applicable to each
share of Series A, Series B and Series C Preferred Stock will also be
proportionately adjusted. The principal effect of the proposed reverse stock
split will be to decrease the number of outstanding shares of Capital Stock as
follows:
<TABLE>
<CAPTION>
COMMON SERIES A SERIES B SERIES C
------ -------- -------- --------
<S> <C> <C> <C> <C>
Pre-Split 12,219,461 3,888,889 14,000,000 1,500,000
Post-Split 2,443,892* 777,777 2,800,000 300,000
</TABLE>
- - - -----------------------------------
*This number will be slightly smaller as a result of the purchase of
fractional shares by the Company.
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<PAGE> 11
The Capital Stock issued pursuant to the reverse stock split will be fully paid
and nonassessable. The voting rights and other rights that accompany Capital
Stock will not be altered by the change. It is not anticipated that the number
of stockholders of record of Capital Stock will be reduced in any material
respect by this transaction.
Any tax liability to stockholders resulting from the reverse stock split will
be insubstantial. The receipt of Capital Stock in the reverse stock split
should not result in any taxable gain or loss to shareholders for federal
income tax purposes. If the proposed reverse stock split is approved, the tax
basis of Capital Stock received in the reverse stock split (excluding any
fractional share interests for which a stockholder will receive cash payment)
will be equal, in the aggregate, to the basis of the shares exchanged for the
Capital Stock. For tax purposes, the holding period of the shares immediately
prior to the effective date of the reverse stock split will be included in the
holding period of the Capital Stock received in the reverse stock split
(excluding any fractional share interests to which a stockholder is entitled).
Stockholders who receive cash in lieu of fractional shares of Capital Stock
will be treated as receiving cash as payment in exchange for their fractional
shares of Capital Stock, and they will recognize capital gain or loss (assuming
the minimum holding period is met) in an amount equal to the difference between
the amount of cash received and the adjusted basis of the fractional shares
surrendered for cash.
The Company's Common Stock had formerly been listed on NASDAQ as a National
Market ("NM") company. As a NM company, the Company was subject to Schedule D,
Part III, Section 5(i) of the By-Laws of the National Securities Dealers, Inc.
("NASD") which requires NM companies to obtain shareholder consent to certain
transactions, including transactions that result in a change in control of such
companies (the "Shareholder Approval Requirement"). The Shareholder Approval
Requirement applies even when relevant state law, such as the Texas Business
Corporation Act, does not mandate shareholder approval of a transaction that
results in a change of control. Additionally, as a NM company, the Company was
subject to Schedule D, Part III, Section 5(j) of the By-Laws of the NASD which
prohibits such companies from issuing securities that have per share voting
rights greater than the per share voting rights of any outstanding class of
common stock of the issuer (the "Shareholder Disenfranchisement Rule").
The Company issued shares of its Series B Preferred Stock in connection with
the acquisition of the assets of Comet Rice, Inc. ("Comet"). The Company's
Series B Preferred Stock is entitled to vote with the Company's Common Stock
and is entitled to two votes per share. The rights of the Series B Preferred
Stock, including the voting rights, were negotiated with all parties involved
in the acquisition of Comets assets and restructuring of the Company's
indebtedness. As a result of the issuance of additional shares of Company
Capital Stock in connection with the acquisition of substantially all of the
assets of Comet, ERLY's beneficial ownership of the Company's Common Stock
increased from approximately 48% to 81.1%. However, the approval of the
Company's shareholders was not obtained in connection with the Transaction even
though the issuance of shares by the Company resulted in ERLY becoming the
beneficial owner of more than a majority of the Company's Common Stock.
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<PAGE> 12
In connection with the acquisition of the assets of Comet, the Company sought
an exemption from the application of the Shareholder Approval Requirement and
the Shareholder Disenfranchisement Rule. The basis for requesting the exemption
was the Company's belief that the delay caused by calling a meeting of its
shareholders to secure approval would seriously jeopardize the Company's
financial viability. The NASD refused the Company's request for an exemption
because the Series B Preferred Stock is entitled to two votes per share. The
NASD suggested the Company consider de-listing from the NM System and become an
NASDAQ "Small Capitalization Company". The Shareholder Approval Requirement to
which NM companies are subject do not apply to NASDAQ Small Capitalization
Companies. The basic requirements for listing as an NASDAQ Small
Capitalization Company are as follows:
- the securities must be registered under Section 12(g)(1) of
the Securities Exchange Act of 1934;
- there must be at least two registered and active market makers
in the security;
- public float of at least 100,000 shares and at least 300
shareholders;
- the public float must have a market value of at least
$1,000,000;
- the bid price for the securities must be at least $3.00 per
share; and
- the issuer must have assets of at least $4,000,000, and
capital and Surplus of at least $2,000,000.
In connection with the issuance of the Series B Preferred Stock ARI terminated
its status as a NM company and was listed on NASDAQ as a "Small Capitalization
Company." On September 15, 1993, the Company's Common Stock was delisted by
NASDAQ because of the failure of the Company to timely file the Form 10-Q
report for the quarter ended June 30, 1993, and the Company's Common Stock has
now been approved for listing on the "OTC Bulletin Board".
The Board of Directors believes that the proposed one-for-five reverse stock
split will result in an increase in the market price of the Company's Common
Stock and a broader market for the Company's Common Stock than currently
exists. The Board of Directors also believes such an increase in price per
share of the Company's Common Stock will allow the Company to meet the NASDAQ's
$3.00 per share bid price requirement for obtaining and maintaining a listing
on NASDAQ as a "Small Capitalization Company". The Company currently satisfies
the other requirements for obtaining and maintaining a listing on NASDAQ as a
Small Capitalization Company. The increased price level may encourage interest
and trading in the Company's Common Stock and possibly promote greater
liquidity for the holders of the Company's Common Stock, although such
liquidity could be adversely affected by the reduced number of shares
outstanding after the proposed reverse stock split. However, the amount, if
any, by which the price per share will increase is uncertain, and there is no
assurance that there will be a five fold increase in the price per share as a
result of the reverse stock split. If there is not a
-10-
<PAGE> 13
five fold increase in the market price of the Company's Common Stock any stock
position will have a lower market value after the reverse stock split. There is
also no assurance that if the per-share price level of the Company's Common
Stock increases following the reverse stock split that such increased price
will be maintained for any extended period of time.
The Board of Directors is of the opinion that the reverse stock split is
advisable and in the best interest of the Company and its stockholders.
Benefit of Reverse Stock Split to Holders of Preferred Stock
After the reverse stock split, the Company's Series B Preferred Stock, all of
which is owned by ERLY but pledged to lenders, will be entitled to a cumulative
quarterly cash dividend at an aggregate rate of $1.85 per share per annum
consisting of a Base Dividend at an aggregate rate of $0.2678575 per year
("Base Dividend") and an Excess Dividend at a rate of $1.5821425 per year
("Excess Dividend"). The Company's Series C Preferred Stock will be entitled to
a cumulative quarterly cash dividend at an aggregate rate of $2.50 per share
per annum. Payment of dividends on the Series C Preferred Stock is pari passu
with the payment of the Base Dividend on the Series B Preferred Stock. The
Company is not in arrears with respect to dividends on any of its Capital
Stock, although at March 31, 1994, the amount of undeclared dividends cumulated
with respect to the Company's Series B and Series C Preferred Stock was, in the
aggregate, $4,942,000. No dividends can be paid with respect to the Company's
Common Stock if there are any declared but unpaid or overdue dividends on
shares of Series B Preferred Stock or Series C Preferred Stock.
As indicated above, the proposed amendment to the Company's Articles of
Incorporation will increase the Company's Surplus by $25,286,000, and the
Company would be permitted under Texas law to distribute such additional
amounts to its shareholders. Since the Company's Preferred Stock is preferred
over its Common Stock with respect to the payment of dividends and there are
cumulative unpaid dividends on the Company's Series B and Series C Preferred
Stock, the holders of these series of the Company's Preferred Stock will
benefit from the reduction in stated capital before the holders of the
Company's Common Stock realize any benefit from the reduction in stated
capital. However, even though the Company would be permitted to distribute such
amounts under Texas law, the Company is subject to covenants in its loan
agreements which restrict and prohibit the Company from paying any dividends or
making any distributions to its shareholders. Under these circumstances, the
Company does not anticipate paying any dividends on any of its shares, Common
or Preferred, in the foreseeable future.
Certificates and Fractional Shares
The certificates presently representing shares of Capital Stock will be deemed
to represent one-fifth the number of shares of Capital Stock after the reverse
split. No fractional shares of
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<PAGE> 14
Capital Stock will be issued and, in lieu thereof, stockholders holding a
number of shares of common stock not evenly divisible by five, and stockholders
holding less than five shares of Capital Stock, upon surrender of their
certificates, will receive cash in lieu of fractional shares of Capital Stock.
The price payable by the Company for fractional shares of its Common Stock will
be determined by multiplying the fraction of a share by the equivalent of the
average of the closing bid prices for one share of ARI Common Stock for the ten
business days immediately preceding the effective date (i.e., the date of
filing of the Articles of Amendment with the Secretary of State of the State of
Texas) for the reverse stock split for which transactions in the Common Stock
are reported, as reported by NASDAQ. This amount, in the aggregate, is expected
to be immaterial. The closing bid price for one share of Common Stock at July
15, 1994, was $1,125. The following table shows the range of high and low
closing bid prices for Common Stock for each quarterly period beginning March
1, 1992 to March 31, 1994 (prior to any adjustment for the one-for-five reverse
stock split):
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
------------- ---- ---
<S> <C> <C>
Fiscal Year 1993:
-----------------
June 30, 1992 $0.375 $0.2188
September 30, 1992 $0.375 $0.125
December 31, 1992 $0.25 $0.0938
March 31, 1993 $0.9375 $0.1563
Fiscal Year 1994:
-----------------
June 30, 1993 $0.75 $0.2188
September 30, 1993 $0.625 $0.3438
December 31, 1993 $1.75 $0.375
March 31, 1994 $1.50 $0.50
</TABLE>
The price payable by the Company for fractional shares of its Series A
Preferred Stock shall be calculated in the same manner as the cash purchase
price is calculated in accordance with the provisions of the Articles of
Incorporation of the Company relating to the purchase of fractional shares
incident to a conversion of the Series A Preferred Stock into Common Stock.
Those provisions provide for payment of fractional shares at the rate of $5.14
per share of Common Stock (prior to the Effective Date of the one-for-five
reverse stock split), which, since each share of Series A Preferred Stock is
convertible into one (1) shares of Common Stock, equates to $5.14 per share of
Series A Preferred Stock for purposes of the one-for-five reverse split.
There will be no fractional shares of the Series B Preferred Stock since the
total number of authorized shares is held by one holder, and since such number
is evenly divisible by five.
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<PAGE> 15
Similarly, there will be no fractional shares of the Series C Preferred Stock
since the number of shares of outstanding Series C Preferred Stock held by each
holder of Series C Preferred Stock is evenly divisible by five.
The funds required to purchase the fractional shares are available and will be
paid from the current cash reserves of the Company. The Company's stockholder
list indicates that a portion of the outstanding Common Stock is registered in
the names of clearing agencies and broker nominees. It is, therefore, not
possible to predict with certainty the number of fractional shares and the
total amount that the Company will be required to pay to redeem such shares.
However, it is not anticipated that the Company will be required to borrow any
funds to effect the cancellation of fractional shares.
Upon the effective date of the reverse stock split, the Company will mail to
each stockholder a letter of transmittal with instructions for the surrender of
each stockholders' shares of Capital Stock. Please do not transmit shares of
Capital Stock for exchange prior to receiving the letter of transmittal.
Effectiveness
If the proposal is approved by the stockholders, the Company will file an
amendment to its Articles of Incorporation, effecting the reverse stock split,
with the Secretary of State of Texas promptly after such approval. The
proposed reverse stock split will become effective on the date of that filing.
Voting
Assuming the presence of a quorum, the affirmative votes of the holders of
two-thirds (2/3) of the issued and outstanding shares of Voting Stock, as well
as the affirmative vote of holders of two-thirds (2/3) of all issued and
outstanding shares of Preferred Stock, voting as a class, and the affirmative
vote of holders of two-thirds (2/3) of all issued and outstanding shares of
Common Stock, voting as a class, is necessary for the adoption of this
proposal.
ERLY Industries Inc. has indicated it will vote all of its shares of the
Company's Capital Stock "FOR" the proposed amendment, and, because ERLY
Industries Inc. owns sufficient Capital Stock to control the vote, the proposal
is expected to pass.
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<PAGE> 16
EXHIBIT "A"
TEXT OF ARTICLES OF AMENDMENT
I. Article IV of the Articles of Incorporation of the Company is
hereby deleted in its entirety and there is hereby substituted therefor the
following:
ARTICLE IV
The total number of shares of all classes of stock that the
corporation shall be authorized to issue is 14,000,000 shares divided
into the following: (i) 4,000,000 shares of preferred stock, of the
par value of $1.00 per share (hereinafter called "Preferred Stock");
and 10,000,000 shares of common stock, of the par value of $1.00 per
share (hereinafter called "Common Stock").
A description of the respective classes of stock and a
statement of the designations, preferences, limitations and relative
rights of such classes of stock and the limitations on or denial of
the voting rights of the shares of such classes of stock are as
follows:
A. PREFERRED STOCK
(1) Issuance and Series.
The Preferred stock may be divided into and issued in
one or more series. The Board of Directors is hereby vested
with authority from time to time to establish and designate
such series, and within the limitations prescribed by law or
set forth herein, to fix and determine the relative rights and
preferences of the shares of any series so established, but
all shares of Preferred Stock shall be identical except as to
the following relative rights and preferences as to which
there may be variations between different series: (a) the
rate of dividend; (b) whether shares may be redeemed, and if
so, the price at and the terms and conditions on which shares
may be redeemed; (c) the amount payable upon shares in the
event of liquidation, involuntary or voluntary; (d) sinking
fund provisions for the redemption or purchase of shares; (e)
the terms and conditions upon which shares may be converted,
if the shares of any series are issued with the privilege of
conversion; and (f) voting rights.
The Board of Directors shall exercise such authority
by the adoption of a resolution or resolutions as prescribed
by law.
TEXT OF ARTICLES OF AMENDMENT PAGE 1
<PAGE> 17
B. COMMON STOCK
(1) Dividends.
Subject to all the rights of the Preferred Stock or
any series thereof, and on the conditions set forth in Part A
of this Article IV or in any resolution of the Board of
Directors providing for the issuance of any series of
Preferred Stock, the holders of the Common Stock shall be
entitled to receive, when, as and if declared by the Board of
Directors, out of funds legally available therefor, dividends
payable in cash, stock or otherwise.
(2) Voting Rights.
Each holder of Common Stock shall be entitled to one
vote for each share held.
C. PROVISIONS APPLICABLE TO ALL CLASSES
(1) Preemptive Rights.
Ownership of shares of any class of the capital stock
of the corporation shall not entitle the holders thereof to
any preemptive right to subscribe for or purchase or have
offered to them for subscription or purchase any additional
shares of capital stock of any class of the corporation or any
securities convertible into any class of capital stock of the
corporation, however acquired, issued or sold by the
corporation, it being the purpose and intent hereof that the
Board of Directors shall have full right, power and authority
to offer for subscription, sell or make any disposal of any or
all unissued shares of the capital stock of the corporation or
any securities convertible into stock for such consideration,
not less than the par value thereof, or, in the case of any
class of stock without par value, the stated value thereof, in
money, property or labor, as the Board of Directors shall
determine and to offer for subscription, sell or make any
disposal of any or all shares of stock or convertible
securities issued and thereafter acquired by the corporation
for such consideration as the Board of Directors shall
determine.
(2) Cumulative Voting.
No shareholder of the corporation shall have the
right of cumulative voting at any election of directors or
upon any other matter.
TEXT OF ARTICLES OF AMENDMENT PAGE 2
<PAGE> 18
II. Article IV of the Articles of Incorporation is hereby further
amended by amending and restating that certain Statement of Resolution
Establishing Series of Shares filed by the Company with the Office of the
Secretary of State of Texas on March 14, 1988, and by incorporating same into
said Article IV as follows:
D. PREFERRED STOCK, SERIES A
The Preferred Stock, Series A shall consist of 777,777 shares
of the Preferred Stock and shall have the following rights and
preferences:
(1) Voting.
Each share of Preferred Stock, Series A, shall entitle the
holder thereof to one vote. The holders of shares of Preferred Stock,
Series A, shall be entitled to vote upon all matters upon which the
holders of shares of Common Stock have the right to vote. Except as
provided in the Articles of Incorporation or by law, holders of shares
of the Preferred Stock, Series A, shall not be entitled to vote on any
matter as a class. In all cases where the holders of shares of
Preferred Stock, Series A, have the right to vote separately as a
class, all such holders shall be entitled to one vote for each share
held by them. If at any meeting or any adjournment thereof, the
holders of at least a majority of the then outstanding shares of the
Preferred stock, Series A, entitled to vote thereof shall be present
or represented by proxy, then, unless the vote of a larger percentage
is required by the Articles of Incorporation or by law, the
affirmative vote of at least a majority of all such shares of
Preferred Stock, Series A, present or represented at such meeting
shall be sufficient to take any action as to which a class vote of the
holders of shares of Preferred Stock, Series A, is required.
(2) Conversion.
The Preferred Stock, Series A, shall be convertible into
Common Stock as follows:
(a) Conversion Right. Subject to and upon
compliance with the provisions of this Section (2), the holder
of any shares of Preferred Stock, Series A, shall have the
right, at such holder's option, to convert any of such shares
into fully paid and nonassessable shares of Common Stock upon
the terms and conditions hereinafter set forth.
(b) Conversion Rates. Each share of the
Preferred Stock, Series A, shall be convertible into one (1)
share of the Common Stock.
TEXT OF ARTICLES OF AMENDMENT PAGE 3
<PAGE> 19
(c) Mechanics of Conversion. The holder of any
shares of Preferred Stock, Series A, may exercise the
conversion right specified in Section(2)(a) above as to any
part thereof by surrendering to the Corporation the
certificate or certificates for the shares to be converted,
accompanied by written notice stating that the holder elects
to convert all or a specified portion of the shares
represented thereby. Conversion pursuant to Section (2)(a)
above shall be deemed to have been effected on the date when
delivery has been made to the Corporation of both of the
notice of an election to convert and the certificates
representing the shares to be converted, and such date in
respect of conversion pursuant to Section (2)(a) above is
referred to herein as the "Conversion Date". As promptly as
practicable after the Conversion Date, the Corporation shall
issue and deliver to the holder of shares of Preferred Stock,
Series A, that have been converted a certificate or
certificates for the number of full shares of Common Stock to
which such holder is entitled and a check or cash with respect
to any fractional interest in a share of Common Stock as
provided in Section (2)(d) below. Shares of Common Stock
issues upon conversion of shares of Preferred Stock, Series A,
may only be issued to the holder of such shares to be
converted. The person in whose name the certificate or
certificates for shares of Common Stock are to be issued shall
be deemed to have become a holder of record of such shares of
Common Stock on the Conversion Date unless the transfer books
of the Corporation are closed on that date, in which event
such person shall be deemed to have become a holder of record
of such shares of Common Stock on the next succeeding date on
which the Corporation's transfer books are open. Upon
conversion of only a portion of the number of shares
represented by a certificate representing shares of Preferred
stock, Series A, surrendered for conversion pursuant to
Section (2)(a) above, the Corporation shall issue and deliver
to the holder of the certificate so surrendered for
conversion, at the expense of the Corporation, a new
certificate covering the number of shares of Preferred Stock,
Series A, representing the unconverted portion of the
certificate so surrendered.
(d) Fractional Shares. No fractional shares of
Preferred Stock, Series A, may be converted and no fractional
shares of Common Stock shall be issued upon conversion of
shares of Preferred Stock, Series A. If more than one share
of Preferred Stock, Series A, shall be surrendered for
conversion at any one time by the same holder, the number of
full shares of Common stock issuable upon conversion thereof
shall be computed on the basis of the aggregate number of
shares of Preferred Stock, Series A, so surrendered. Instead
of any fractional shares of Common Stock that would otherwise
be issuable upon conversion of any
TEXT OF ARTICLES OF AMENDMENT PAGE 4
<PAGE> 20
shares of Preferred Stock, Series A, the Corporation shall pay
a cash adjustment in respect of such fractional interest in an
amount equal to that fractional interest of the Base Price.
The Base Price per share of Common Stock shall be deemed to be
$25.70.
(e) Conversion Rate Adjustment. If the number of
shares of Common Stock outstanding at any time after the date
of issuance of the Preferred Stock, Series A, is increased by
a stock dividend payable in shares of Common Stock or by a
subdivision or split-up of shares of Common Stock, or is
reduced by a reverse stock split or a combination of shares,
then immediately after the record date fixed for the
determination of holders of Common Stock entitled to receive
such stock dividend or the effective date of such subdivision
or split-up, as the case may be, the Conversion Rates shall be
appropriately adjusted so that the holder of any shares of
Preferred Stock, Series A, thereafter converted shall be
entitled to receive the number of shares of Common Stock that
he would have owned immediately following such action had the
applicable Conversion Rate been in effect immediately prior
thereto. The Conversion Rate shall also be adjusted to
reflect any stock dividend, split-up or reverse stock split
with respect to shares of the Preferred Stock, Series A. All
calculations under this Section (2)(e) shall be made to the
nearest one hundredth (1/100th) of a share.
(f) Statement Regarding Adjustments. Whenever
the Conversion Rates shall be adjusted as provided in Section
(2)(e), the Corporation shall forthwith file, at the principal
office of the Corporation, a statement showing in detail the
facts requiring such adjustment and the Conversion Rates to be
in effect after such adjustment, and the Corporation shall
also cause a copy of such statement to be sent by mail, first
class postage prepaid, to each holder of shares of Preferred
Stock, Series A, at its address appearing on the Corporation's
records.
(g) Costs. The Corporation shall pay all
documentary, stamp, transfer or other transactional taxes
attributable to the issuance or delivery of shares of Common
Stock upon conversion of any shares of Preferred Stock, Series
A.
(h) Reservation of Shares. The Corporation shall
reserve at all time, free from preemptive rights, out of its
treasury stock or its authorized but unissued shares of Common
Stock, or both, solely for the purpose of effecting the
conversion of the shares of Preferred Stock, Series A,
sufficient shares of Common Stock to provide for the
conversion of all outstanding shares of Preferred Stock,
Series A.
TEXT OF ARTICLES OF AMENDMENT PAGE 5
<PAGE> 21
(i) Valid Issuance. All shares of Common Stock
that may be issued upon conversion of the shares of Preferred
Stock, Series A, will upon issuance by the Corporation be duly
and validly issued, fully paid and nonassessable and free from
all taxes, liens and charges with respect to the issuance
thereof, and the Corporation shall take no action that will
cause a contrary result.
(3) Dividends.
The holders of shares of Preferred Stock, Series A, shall be
entitled to receive, when, as and if declared by the Board of
Directors, out of funds legally available therefor, dividends payable
in cash, stock or otherwise, on the same terms and in the same amounts
as dividends payable to the holders of the Common Stock.
(4) Liquidation.
Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of shares
of Preferred Stock, Series A, shall be entitled, before any
distribution or payment is made upon any shares of Common Stock, to be
paid an amount per share, equal to the Liquidation Value applicable to
such Preferred Stock, Series A, and the holders of shares of Preferred
Stock, Series A, shall not be entitled to any further distribution of
assets. As used herein, the term "Liquidation Value" shall mean
$25.70 per share. The Liquidation Value shall be appropriately
adjusted to reflect any stock dividend, split-up or reverse stock
split with respect to shares of the Preferred Stock, Series A. If
upon any dissolution, liquidation or winding up of the Corporation,
the net assets available for distribution to the Corporation's
stockholders shall be insufficient to permit payment to the holders of
shares of Preferred Stock, Series A, of the amount distributable as
aforesaid, the entire assets of the Corporation to be so distributed
shall be distributed ratably among the holders of shares of Preferred
Stock, Series A. Upon any such liquidation, dissolution or winding
up, after the holders of shares of Preferred Stock, Series A, shall
have been paid in full the amount to which they shall be entitled
hereunder, the remaining net assets of the Corporation may be
distributed to the holders of shares of Common Stock. Written notice
of such liquidation, dissolution or winding up, setting a payment
date, the amount of the payment, the names of the holders of shares of
Preferred Stock, Series A, and the place where said amount shall be
payable shall be given not less than 20 days prior to the payment date
stated therein, to each holder of record of such shares. A
consolidation, merger, sale of assets or the reduction of capital
stock of the Corporation shall not be deemed to be a liquidation,
dissolution or winding up of the Corporation within the meaning of
this Section (4). The Liquidation Value of the shares of Preferred
stock, Series A, shall be equitably adjusted to reflect any stock
dividend, split-up, or reverse stock split with respect to shares of
Preferred Stock, Series A.
TEXT OF ARTICLES OF AMENDMENT PAGE 6
<PAGE> 22
(5) Retirement of Shares.
Shares of Preferred Stock, Series A, that have been issued and
converted, repurchased or reacquired in any manner by the Corporation
shall be cancelled and shall not be reissued.
III. Article IV of the Articles of Incorporation is hereby further
amended by amending and restating that certain Statement of Resolution
Establishing and Designating Two Series of Shares of American Rice, Inc. filed
by the Company with the Office of the Secretary of State of Texas on May 25,
1993, and by incorporating same into said Article IV as follows:
E. PREFERRED STOCK, SERIES B
(1) Designation and Number.
A series of Preferred Stock is established and designated
"Preferred Stock, Series B"; the number of shares of Preferred Stock
constituting such series, and the number of shares of Preferred Stock,
Series B which the Corporation shall be authorized to issue is
2,800,000.
(2) Voting.
The holders of Preferred Stock, Series B, shall be entitled to
cast two votes for each share held by them upon all matters upon which
the holders of shares of the Corporation's common stock, $1.00 par
value ("Common Stock"), have the right to vote and such votes shall be
counted together with those of any other shares of capital stock of
the Corporation having general voting powers. Except as provided in
the Articles of Incorporation or bylaws, holders of shares of the
Preferred Stock, Series B, shall not be entitled to vote on any matter
as a class. In all cases where the holders of shares of Preferred
Stock, Series B, have the right to vote separately as a class, all
such holders shall be entitled to one vote for each share held by
them. If at any meeting or any adjournment thereof, the holders of at
least a majority of the then outstanding shares of the Preferred
Stock, Series B, entitled to vote thereat shall be present or
represented by proxy, then, unless the vote of a larger percentage is
required by the Articles of Incorporation or by law, the affirmative
vote of at least a majority of all shares of Preferred Stock, Series
B, present or represented at such meeting shall be sufficient to take
any action as to which a class vote of the holders of shares of
Preferred Stock, Series B, is required. The voting power of a share
of the Preferred Stock, Series B, shall be appropriately adjusted to
reflect any stock dividend, split-up or reverse stock split with
respect to the shares of the Preferred Stock, Series B, or with
respect to shares of the Common Stock in order that the relative
voting powers of a share of Common Stock and a share of Preferred
TEXT OF ARTICLES OF AMENDMENT PAGE 7
<PAGE> 23
Stock, Series B, shall remain unaffected by any such stock dividend,
split-up or reverse stock split.
(3) Conversion.
The Preferred Stock, Series B, shall be convertible into
Common Stock as follows:
(a) Conversion Right. Subject to and upon
compliance with the provisions of this Section (3), the holder
of any shares of Preferred Stock, Series B, shall have the
right, at such holder's option, to convert any of such shares
into fully paid and nonassessable shares of Common Stock or
any other stock or securities into which such Common Stock
shall have been changed ("Conversion Stock") upon the terms
and conditions hereinafter set forth.
(b) Conversion Rate. Each share of the Preferred
Stock, Series B, shall be convertible into two (2) shares of
the Conversion Stock (as adjusted pursuant to the terms
hereof, "Series B Conversion Rate").
(c) Mechanics of Conversion. Each holder of
shares of Preferred Stock, Series B, may exercise the
conversion right specified in Section (3)(a) above as to any
part thereof by surrendering to the Corporation the
certificate or certificates for the shares to be converted,
accompanied by written notice stating that the holder elects
to convert all or a specified portion of the shares
represented thereby. Conversion pursuant to Section (3)(a)
above shall be deemed to have been effected on the date
("Conversion Date") when delivery has been made to the
Corporation of both the notice of an election to convert and
properly endorsed certificates representing the shares to be
converted or in the event the holder of such shares has lost
the certificate representing such shares to be converted, the
holder shall execute an affidavit of lost certificate and
provide a bond, each in such form and amount as required by
the Corporation. As promptly as practicable after the
Conversion Date, the Corporation shall issue and deliver to
the holder of shares of Preferred Stock, Series B, that have
been converted a certificate or certificates for the number of
full shares of Conversion Stock to which such holder is
entitled and a check or cash with respect to any fractional
interest in a share of Conversion Stock as provided in Section
(3)(d) below. Shares of Conversion Stock issued upon
conversion of shares of Preferred Stock, Series B, may only be
issued to the holder of such shares to be converted. The
person in whose name the certificate or certificates for
shares of Conversion Stock are to
TEXT OF ARTICLES OF AMENDMENT PAGE 8
<PAGE> 24
be issued shall be deemed to have become a holder of record of
such shares of Conversion Stock on the Conversion Date unless
the transfer books of the Corporation are closed on that date,
in which event such person shall be deemed to have become a
holder of record of such shares of Conversion Stock on the
next succeeding date on which the Corporation's transfer books
are open. Upon conversion of only a portion of the number of
shares represented by a certificate representing shares of
Preferred Stock, Series B, surrendered for conversion pursuant
to Section (3)(a) above, the Corporation shall issue and
deliver to the holder of the certificate so surrendered for
conversion, at the expense of the Corporation, a new
certificate covering the number of shares of Preferred Stock,
Series B, representing the unconverted portion of the
certificate so surrendered together with certificates
representing the Conversion Stock and cash or check with
respect to any fractional interest in shares of Conversion
Stock, as set forth above.
(d) Fractional Shares. No fractional shares of
Preferred Stock, Series B, may be converted and no fractional
shares of Conversion Stock shall be issued upon conversion of
shares of Preferred Stock, Series B. If more than one share
of Preferred Stock, Series B, shall be surrendered for
conversion at any one time by the same holder, the number of
full shares of Conversion Stock issuable upon conversion
thereof shall be computed on the basis of the aggregate number
of shares of Preferred Stock, Series B, so surrendered.
Instead of any fractional shares of Conversion Stock that
would otherwise be issuable upon conversion of any shares of
Preferred Stock, Series B, the Corporation shall pay a cash
adjustment in respect to such fractional interest in an amount
equal to that fractional interest of the Base Price. The Base
Price per share of Conversion Stock shall be deemed to be the
market price per share, determined as follows: (i) if the
Conversion Stock is traded on any national exchange, the
market price per share shall be the arithmetical average
closing price of a share of the Conversion Stock as reported
by such national exchange for the trading days for which such
closing price is reported that are included within the 30
calendar days immediately preceding the date of determination,
(ii) if the Conversion Stock is quoted by the National
Association of Securities Dealers, Inc. Automated Quotations
System ("NASDAQ") on a high and low sales price basis, the
market price per share of the Conversion Stock shall be the
arithmetical average of the high and low price average for the
trading days for which such prices are quoted for a share of
the Conversion Stock by NASDAQ included within the 30 calendar
days immediately preceding the date of determination, (iii) if
the Conversion Stock is quoted by NASDAQ on a bid and asked
price basis and not quoted by NASDAQ on a high and low sales
price
TEXT OF ARTICLES OF AMENDMENT PAGE 9
<PAGE> 25
basis, the market price per share of the Conversion Stock
shall be the arithmetical average of the bid and asked price
average for the trading days for which such prices are quoted
for a share of the Conversion Stock by NASDAQ included within
the 30 calendar days immediately preceding the date of
determination and (iv) in all other instances, the market
price per share of the Conversion Stock shall be the fair
market value of the share of the Conversion Stock on the date
of determination as determined by an appraiser. For purposes
of this paragraph, "high and low price average" means the
arithmetical average of the closing high and low sales prices
for a share of the Conversion Stock as quoted by NASDAQ for
each trading day; the "bid and asked price average" means the
arithmetical average of the closing bid and asked prices for a
share of the Conversion Stock as quoted by NASDAQ for each
trading day; and "an appraiser" shall mean a person selected
by the Corporation who is independent of the Corporation and
is reasonably qualified by training and experience to
determine the fair market value of a share of the Conversion
Stock.
(e) Conversion Rate Adjustment.
(i) If the number of shares of Conversion
Stock outstanding at any time after the date of
issuance of the Preferred Stock, Series B, is
increased by a stock dividend payable in shares of
Conversion Stock or by a subdivision or split-up of
shares of Conversion Stock, or is reduced by a
reverse stock split or a combination of shares, then
immediately after the record date fixed for the
determination of holders of Conversion Stock entitled
to receive such stock dividend or the effective date
of such subdivision or split-up, as the case may be,
the Series B Conversion Rate shall be appropriately
adjusted so that the holder of any shares of
Preferred Stock, Series B, thereafter converted shall
be entitled to receive the number of shares of
Conversion Stock that he would have owned or been
entitled to receive immediately following such action
had such shares of Preferred Stock, Series B, been
converted immediately prior thereto. The Series B
Conversion Rate shall also be adjusted to reflect any
stock dividend, split-up or reverse stock split with
respect to shares of the Preferred Stock, Series B.
All calculations under this Section (3)(e) shall be
made to the nearest one hundredth (1/100th) of a
share.
TEXT OF ARTICLES OF AMENDMENT PAGE 10
<PAGE> 26
(ii) In case of any reclassification of
the Common Stock, any reorganization of the
Corporation (or any other corporation the stock or
other securities of which are at the time receivable
by virtue of the conversion of shares of Preferred
Stock, Series B) or in case the Corporation (or any
such other corporation) shall consolidate with or
merge into another corporation (other than a
consolidation or merger in which the Corporation is
the survivor) or convey all or substantially all its
assets to another corporation, then and in each such
case holders of shares of Preferred Stock, Series B,
upon conversion as provided herein at any time after
the consummation of such reclassification,
reorganization, consolidation, merger or conveyance,
shall be entitled to receive, in lieu of the
Conversion Stock receivable upon the exercise of
conversion prior to such consummation, the stock or
other securities or property to which holders of
shares of Preferred Stock, Series B, would have been
entitled upon such consummation if such holder had,
immediately prior thereto, converted the shares of
Preferred Stock, Series B, then being exercised, all
subject to further adjustment as required by the
preceding paragraph, and in each such case, the terms
hereof shall be applicable to the shares of stock or
other securities or property receivable upon
conversion hereunder after such consummation. The
subdivision or combination of shares of Common Stock
at any time outstanding into a greater or lesser
number of shares of Common Stock shall not be deemed
to be a reclassification of the Common Stock for
purposes of this subparagraph (e)(ii).
(f) Statement Regarding Adjustments. Whenever
the Series B Conversion Rate shall be adjusted as provided in
Section (3)(e), the Corporation shall forthwith file, at the
principal office of the Corporation, a statement showing in
detail the facts requiring such adjustment and the Series B
Conversion Rate to be in effect after such adjustment, and the
Corporation shall also cause a copy of such statement to be
sent by mail, first class postage prepaid, to each holder of
shares of Preferred Stock, Series B, at its address appearing
on the Corporation's records.
TEXT OF ARTICLES OF AMENDMENT PAGE 11
<PAGE> 27
(g) Costs. The Corporation shall pay all
documentary, stamp, transfer or other transactional taxes
attributable to the issuance or delivery of shares of
Conversion Stock upon conversion of any shares of Preferred
Stock, Series B.
(h) Reservation of Shares. The Corporation shall
reserve at all times, free from preemptive rights, out of its
treasury stock or its authorized but unissued shares of Common
Stock, or both, solely for the purpose of effecting the
conversion of the shares of Preferred Stock, Series B,
sufficient shares of Common Stock (or other Conversion Stock,
as the case may be) to provide for the conversion of all
outstanding shares of Preferred Stock, Series B.
(i) Valid Issuance. All shares of Common Stock
that may be issued upon conversion of the shares of Preferred
Stock, Series B, will upon issuance by the Corporation be duly
and validly issued, fully paid and nonassessable and free from
all taxes, liens and charges with respect to the issuance
thereof, and the Corporation shall take no action that will
cause a contrary result.
(4) Dividends.
(a) Payment of Dividends. The holders of shares of
Preferred Stock, Series B, shall be entitled to receive, when, if and
as declared by the Board of Directors, quarterly cash dividends,
commencing with the date of issue of such shares, at an aggregate rate
of $1.85 per share per annum consisting of a Base Dividend at an
aggregate rate of $0.2678575 per year ("Base Dividend") and an Excess
Dividend at the rate of $1.5821425 per year ("Excess Dividend"),
payable on the first day of January, April, July and October of each
year; provided, however, that the aggregate quarterly cash Base
Dividends declared in respect of the Preferred Stock, Series B, shall
be pari passu with the dividends declared in respect of the Preferred
Stock, Series C, as and to the extent set forth in subparagraph 4(c)
below. The Base Dividend for any quarterly period must be declared in
full before an Excess Dividend may be declared for such period. In
the case of the Preferred Stock, Series B, any dividend with respect
thereto shall be cumulative from the date of issuance of any such
shares, and the initial quarterly dividend on such shares shall be
prorated for the period from the date of issuance through the first
day on which dividends are payable. Any payment of dividends shall be
made to the record holders on the date of payment. The Board of
Directors shall declare each quarterly dividend declared such that it
can be timely paid if the Corporation has funds legally available
therefor. References to funds legally available for payment of
dividends refer to funds that the Corporation may legally use to pay
dividends on shares of its issue. The aggregate dividend rate of
$1.85 per year shall be appropriately adjusted to reflect
TEXT OF ARTICLES OF AMENDMENT PAGE 12
<PAGE> 28
any stock dividend, split-up or reverse stock split with respect to
the shares of the Preferred Stock, Series B.
(b) Dividend Preference. With respect to Base Dividends,
the Preferred Stock, Series B, shall be pari passu with the Preferred
Stock, Series C, as and to the extent set forth in paragraph 4(c)
below. Whenever there are any declared but unpaid and overdue
dividends on shares of Preferred Stock, Series B, or Preferred Stock,
Series C, or if the Board of Directors has failed to declare any
quarterly cash dividends thereon, and such failure has not been cured
by a subsequent declaration of a cumulative dividend, no dividends
whatsoever, whether in cash, stock or otherwise (except for dividends
paid in shares of "junior stock" as defined herein), shall be paid or
declared on, any junior stock, nor shall any shares of junior stock be
purchased, redeemed, retired or otherwise acquired for valuable
consideration by the Corporation. The term "junior stock" as used
herein shall mean the Common Stock and all other shares of stock of
the Corporation by their terms ranking junior to the Preferred Stock,
Series B, and the Preferred Stock, Series C, as to dividends. Subject
to the foregoing provisions, such dividends (payable in cash, property
or junior stock) as may be determined by the Board of Directors may be
declared and paid from time to time on the shares of any junior stock
without any right of participation therein by the holders of Preferred
Stock, Series B.
(c) Pari Passu. The phrase "pari passu", when used with
reference to the declaration of Base Dividends, shall mean that the
proportion of full quarterly Base Dividends declared in any quarterly
period in respect of the Preferred Stock, Series B, shall not exceed
the proportion of full quarterly dividends declared in the same
quarterly period in respect of the Preferred Stock, Series C. As a
result, if the aggregate amount determined by the Board of Directors
to be declared as a dividend is not sufficient to pay both the full
quarterly Base Dividends in respect of the Preferred Stock, Series B,
and the full quarterly dividend in respect of the Preferred Stock,
Series C, then the amount of Base Dividends and Preferred Stock,
Series C, dividends declared, respectively, shall be determined as
follows:
(i) The aggregate amount determined by the Board
of Directors to be declared as a dividend is hereafter
referred to as the "Quarterly Dividend Fund."
(ii) The full quarterly Base Dividend in respect
of the Preferred Stock, Series B, is $0.06696425 (subject to
adjustment as provided in paragraph 4(a) above) per share
multiplied by the number of outstanding shares of Preferred
Stock, Series B, and is hereafter referred to as the "Series B
Quarterly Base Amount."
(iii) The full quarterly dividend in respect of the
Preferred Stock, Series C, is $0.625 (subject to adjustment as
provided in the resolutions designating Preferred Stock,
Series C)
TEXT OF ARTICLES OF AMENDMENT PAGE 13
<PAGE> 29
per share multiplied by the number of outstanding shares of
Preferred Stock, Series C, and is hereafter referred to as the
"Series C Quarterly Amount."
(iv) The portion of the Quarterly Dividend Fund
that shall be declared as a Base Dividend in respect of the
Preferred Stock, Series B, shall be determined by the ratio
that (a) the Series B Quarterly Base Amount bears to (b) the
sum of the Series B Quarterly Base Amount and the Series C
Quarterly Amount.
(v) The portion of the Quarterly Dividend Fund
that shall be declared as a dividend in respect of the
Preferred Stock, Series C, shall be determined by the ratio
that (a) the Series C Quarterly Amount bears to (b) the sum of
the Series B Quarterly Base Amount and the Series C Quarterly
Amount.
(vi) If the Quarterly Dividend Fund exceeds the
sum of the Series B Quarterly Base Amount and the Series C
Quarterly Amount, then the Board of Directors may declare
Excess Dividends in respect of the Preferred Stock, Series B.
(5) Liquidation.
Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after the Corporation
has paid, satisfied or discharged its liabilities and obligations or
has made adequate provision therefor, after declaration and payment of
any cumulative declared but unpaid and overdue dividends on the
Preferred Stock, Series B, and any other capital stock with respect to
which there are cumulative declared but unpaid and overdue dividends,
and after the payment of all liquidating distributions to be made to
the holders of Preferred Stock, Series A, the holders of the Preferred
Stock, Series B, shall be entitled to receive out of the remaining net
assets of the Corporation, exclusively the amount of $5.00 in cash for
each share of Preferred Stock, Series B, plus an amount equal to all
dividends declared and unpaid on each such share up to the date fixed
for distribution ("Liquidation Payment"), before any distribution
shall be made to the holders of any other stock of the Corporation as
to the distribution of assets upon liquidation, other than Preferred
Stock, Series C, which shall rank pari passu as to liquidation
preference rights with Preferred Stock, Series B. The holders of
Preferred Stock, Series B, shall not otherwise participate in the
distribution of assets upon liquidation. If the assets of the
Corporation are insufficient to permit the payment of the full
preferential amounts payable to the holders of the Preferred Stock,
Series B, and of any other series of preferred stock ranking on a
parity with the Preferred Stock, Series B, as to distributions upon
liquidation, (including the Preferred Stock, Series C) then the assets
available for distribution to holders of the Preferred Stock, Series B
and the holders of such other series of preferred stock ranking on a
parity with the Preferred Stock, Series B (including the Preferred
Stock, Series C) as to
TEXT OF ARTICLES OF AMENDMENT PAGE 14
<PAGE> 30
distributions of assets on liquidation shall be distributed ratably to
the holders of the Preferred Stock, Series B, and the holders of all
such other series of preferred stock ranking on a parity with the
Preferred Stock, Series B, as to distributions of assets on
liquidation in proportion to the preferential amounts payable on their
respective shares upon liquidation. The Preferred Stock, Series B,
shall be deemed to rank on a parity with the Preferred Stock, Series
C, in the distribution of assets upon liquidation. A consolidation,
merger, sale of assets or the reduction of capital stock of the
Corporation shall not be deemed to be a liquidation, dissolution or
winding up of the Corporation within the meaning of this Section (5).
(6) Retirement of Shares.
Shares of Preferred Stock, Series B, that have been issued and
converted, repurchased or reacquired in any manner by the Corporation
shall be cancelled and shall not be reissued.
(7) Restrictions on Certain Actions Affecting Preferred Stock,
Series B.
(a) So long as any shares of Preferred Stock,
Series B, are outstanding, the Corporation will not amend,
alter or repeal any of the provisions of its Articles of
Incorporation so as to affect adversely the preferences,
special rights or powers of the holders of the Preferred
Stock, Series B, without the consent given in writing without
a meeting, or the affirmative vote given in person or by proxy
at a meeting called for the purpose, by the holders of at
least two-thirds of the shares of Preferred Stock, Series B,
then outstanding.
(b) So long as any shares of Preferred Stock,
Series B, are outstanding, the Corporation will not authorize
or create any class or series of stock ranking, either as to
payment of dividends or distribution of assets, prior to the
Preferred Stock, Series B, or increase the authorized amount
of preferred or any other class or series of capital stock of
the Corporation ranking, either as to payment of dividends or
distribution of assets on a parity with the Preferred Stock,
Series B, without the consent given in writing without a
meeting, or the affirmative vote given in person or by proxy
at a meeting called for the purpose, by the holders of at
least two-thirds of the shares of Preferred Stock, Series B,
then outstanding.
TEXT OF ARTICLES OF AMENDMENT PAGE 15
<PAGE> 31
F. PREFERRED STOCK, SERIES C
(1) Designation and Number.
A series of Preferred Stock is established and designated
"Preferred Stock, Series C"; the number of shares of the Preferred
Stock, Series C which the Corporation shall be authorized to issue is
300,000.
(2) Voting.
The holders of Preferred Stock, Series C shall not be entitled
to any voting rights except as required by the Texas Business
Corporation Act or as provided in the Articles of Incorporation.
(3) Conversion
Preferred Stock, Series C, shall not be convertible.
(4) Dividends.
(a) Payment of Dividends. The holders of shares
of Preferred Stock, Series C, shall be entitled to receive,
when, if and as declared by the Board of Directors, quarterly
cash dividends, commencing with the date of issue of such
shares, at the rate of $2.50 per share per annum, payable on
the first day of January, April, July and October of each
year; provided, however, that the aggregate quarterly cash
dividends declared in respect of the Preferred Stock, Series
C, shall be pari passu with the Base Dividends declared in
respect of the Preferred Stock, Series B, as and to the extent
set forth in subparagraph 4(c) below. In the case of the
Preferred Stock, Series C, any dividend with respect thereto
shall be cumulative from the date of issuance of any such
shares, and the initial quarterly dividend on such shares
shall be prorated for the period from the date of issuance
through the first day on which dividends are payable. Any
payment of preferred dividends shall be to the record holders
on the date of payment. The Board of Directors shall declare
each quarterly dividend declared such that it can be timely
paid if the Corporation has funds legally available therefor.
References to funds legally available for payment of preferred
dividends refer to funds that the Corporation may legally use
to pay dividends on shares of its issue. The dividend rate of
$2.50 per year shall be appropriately adjusted to reflect any
stock dividend, split-up or reverse stock split with respect
to the shares of the Preferred Stock, Series C.
TEXT OF ARTICLES OF AMENDMENT PAGE 16
<PAGE> 32
(b) Dividend Preference. With respect to Base
Dividends declared in respect of the Preferred Stock, Series
B, the Preferred Stock, Series C, shall be pari passu with the
Preferred Stock, Series B, as and to the extent set forth in
paragraph 4(c) below. Whenever there are any declared but
unpaid and overdue preferred dividends owing on shares of
Preferred Stock, Series C, or Preferred Stock, Series B, or if
the Board of Directors has failed to declare any quarterly
cash dividends thereon, and such failure has not been cured by
a subsequent declaration of a cumulative dividend, no
dividends whatsoever, whether in cash, stock or otherwise
shall be paid or declared on, any other junior stock, nor
shall any shares of junior stock be purchased, redeemed,
retired or otherwise acquired for valuable consideration by
the Corporation. The term "junior stock" as used herein shall
mean Preferred Stock, Series B, and all other shares of
capital stock of the Corporation by their terms ranking junior
to the Preferred Stock, Series C, and the Preferred Stock,
Series B, as to dividends. Subject to the foregoing
provisions, such dividends (payable in cash, property or
junior stock) as may be determined by the Board of Directors
may be declared and paid from time to time on the shares of
any junior stock without any right of participation therein by
the holders of Preferred Stock, Series C.
(c) Pari Passu. The phrase "pari passu", when
used with reference to the declaration of dividends, shall
mean that the proportion of full quarterly dividends declared
in any quarterly period in respect of the Preferred Stock,
Series C, shall not exceed the proportion of full quarterly
Base Dividends declared in the same quarterly period in
respect of the Preferred Stock, Series B. As a result, if the
aggregate amount determined by the Board of Directors to be
declared as a dividend is not sufficient to pay both the full
quarterly Base Dividends in respect of the Preferred Stock,
Series B, and the full quarterly dividend in respect of the
Preferred Stock, Series C, then the amount of Base Dividends
and Preferred Stock, Series C, dividends declared,
respectively, shall be determined as follows:
(i) The aggregate amount determined by
the Board of Directors to be declared as a dividend
is hereafter referred to as the "Quarterly Dividend
Fund."
(ii) The full quarterly Base Dividend in
respect of the Preferred Stock, Series B, is
$0.06696425 (subject to adjustment as provided in the
resolutions designating Preferred Stock, Series B)
per share multiplied by the number of
TEXT OF ARTICLES OF AMENDMENT PAGE 17
<PAGE> 33
outstanding shares of Preferred Stock, Series B, and
is hereafter referred to as the "Series B Quarterly
Base Amount."
(iii) The full quarterly dividend in
respect of the Preferred Stock, Series C, is $0.625
(subject to adjustment as provided in paragraph 4(a)
above) per share multiplied by the number of
outstanding shares of Preferred Stock, Series C, and
is hereafter referred to as the "Series C Quarterly
Amount."
(iv) The portion of the Quarterly
Dividend Fund that shall be declared as a Base
Dividend in respect of the Preferred Stock, Series B,
shall be determined by the ratio that (a) the Series
B Quarterly Base Amount bears to (b) the sum of the
Series B Quarterly Base Amount and the Series C
Quarterly Amount.
(v) The portion of the Quarterly
Dividend Fund that shall be declared as a dividend in
respect of the Preferred Stock, Series C, shall be
determined by the ratio that (a) the Series C
Quarterly Amount bears to (b) the sum of the Series B
Quarterly Base Amount and the Series C Quarterly
Amount.
(vi) If the Quarterly Dividend Fund
exceeds the sum of the Series B Quarterly Base Amount
and the Series C Quarterly Amount, then the Board of
Directors may declare Excess Dividends in respect of
the Preferred Stock, Series B.
(5) Callable.
(a) The shares of Preferred Stock, Series C, may
be called for redemption by the Corporation in whole or in
part from time to time at any time in accordance with
paragraph (5)(b) below and at the option of the Board of
Directors at a price ("Base Price") equal to the difference
between (i) $26.35 per share and (ii) the aggregate amount of
all dividends paid by the Corporation in respect of such
shares through the date fixed for the payment in redemption
("Redemption Date").
(b) Redemption is exercisable by the Board of
Directors of the Corporation upon 30 days' notice by mail to
the holders of
TEXT OF ARTICLES OF AMENDMENT PAGE 18
<PAGE> 34
such shares as are to be redeemed, by paying therefor in cash
the Base Price for the shares which are to be redeemed
together with a sum equal to the amount of all accumulated and
unpaid dividends thereon at the dividend rate fixed therefor
to the Redemption Date. If at any time less than the whole of
the Preferred Stock, Series C, then outstanding shall be
called for redemption, the particular shares called for
redemption shall be determined by lot or by such other
equitable method as may be determined by the Board of
Directors. If, on the Redemption Date, funds necessary for
such redemption shall have been set aside by the Corporation,
separate and apart from its other funds, in trust for the pro
rata benefit of the holders of the Preferred Stock, Series C,
so called for redemption, then, notwithstanding that any
certificate for shares so called for redemption shall not have
been surrendered for cancellation, the shares so called for
redemption shall no longer be deemed to be outstanding, the
right to receive dividends thereon shall cease to accrue from
and after the date so fixed for redemption, and all rights of
holders of Preferred Stock, Series C, so called for redemption
shall forthwith after such redemption date cease and
terminate, excepting only the right of the holders thereof to
receive the redemption price thereof, but without interest;
and if, on or before the Redemption Date, the Corporation
shall deposit with a bank or trust company in the City of
Houston, Texas, having a capital and surplus of at least
$100,000,000 according to its last published statement of
condition, in trust to be applied to the redemption of the
Preferred Stock, Series C, so called for redemption, the funds
necessary for such redemption, then, from and after the date
fixed as the Redemption Date, the shares so called for
redemption shall no longer be deemed to be outstanding and all
rights of holders of the shares so called for redemption shall
cease and terminate, excepting only the rights of holders
thereof to receive the redemption price thereof, but without
interest. Any interest accrued on funds so deposited shall be
paid to the Corporation from time to time. In case the
holders of shares which shall have been called for redemption
shall not, within six years after the making of such deposit,
claim the amount deposited with respect to the redemption of
such shares, the bank or trust company in which such deposit
was made shall upon demand pay over to the Corporation such
unclaimed amounts and thereupon such bank or trust company
shall be relieved of all responsibility in respect thereof to
such holder.
(6) Liquidation.
Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, after the Corporation
has paid, satisfied or discharged its liabilities and obligations or
has made adequate provision therefor,
TEXT OF ARTICLES OF AMENDMENT PAGE 19
<PAGE> 35
after declaration and payment of any cumulative declared but unpaid
and overdue dividends on the Preferred Stock, Series C, and any other
capital stock with respect to which there are cumulative declared but
unpaid and overdue dividends, and after the payment of all liquidating
distributions to be made to the holders of Preferred Stock, Series A,
the holders of the Preferred Stock, Series C, shall be entitled to
receive out of the remaining net assets of the Corporation,
exclusively the amount of $5.00 in cash for each share of Preferred
Stock, Series C, plus an amount equal to all dividends declared and
unpaid on each such share up to the date fixed for distribution,
including any and all interest thereon ("Liquidation Payment"), before
any distribution shall be made to the holders of any other stock of
the Corporation as to the distribution of assets upon liquidation,
other than Preferred Stock, Series B, which shall rank pari passu as
to liquidation preference rights with Preferred Stock, Series C. The
holders of Preferred Stock, Series C, shall not otherwise participate
in the distribution of assets upon liquidation. If the assets of the
Corporation are insufficient to permit the payment of the full
preferential amounts payable to the holders of the Preferred Stock,
Series C, and of any other series of preferred stock ranking on a
parity with the Preferred Stock, Series C, as to distributions upon
liquidation (including the Preferred Stock, Series B), then the assets
available for distribution to holders of the Preferred Stock, Series
C, and the holders of such other series of preferred stock ranking on
a parity with the Preferred Stock, Series C (including the Preferred
Stock, Series B) as to distributions of assets on liquidation shall be
distributed ratably to the holders of the Preferred Stock, Series C,
and the holders of all such other series of preferred stock ranking on
a parity with the Preferred Stock, Series C, as to distributions of
assets on liquidation in proportion to the preferential amounts
payable on their respective shares upon liquidation. The Preferred
Stock, Series C, shall be deemed to rank on a parity with the
Preferred Stock, Series B, in the distribution of assets upon
liquidation. A consolidation, merger, sale of assets or the reduction
of capital stock of the Corporation shall not be deemed to be a
liquidation, dissolution or winding up of the Corporation within the
meaning of this Section (6).
(7) Retirement of Shares.
Shares of Preferred Stock, Series C, that have been
repurchased or reacquired in any manner by the Corporation shall be
cancelled and shall not be reissued.
(8) Restrictions on Certain Actions Affecting Preferred Stock,
Series C.
(a) So long as any shares of Preferred Stock,
Series C, are outstanding, the Corporation will not amend,
alter or repeal any of the provisions of its Articles of
Incorporation so as to affect adversely the preferences,
special rights or powers of the holders of the Preferred
Stock, Series C, without the consent given in writing without
a meeting, or the affirmative vote given in person or by proxy
at a meeting called for the purpose, by the holders of
TEXT OF ARTICLES OF AMENDMENT PAGE 20
<PAGE> 36
at least two-thirds of the shares of Preferred Stock, Series
C, then outstanding.
(b) So long as any shares of Preferred Stock,
Series C, are outstanding, the Corporation will not authorize
or create any class or series of stock ranking, either as to
payment of dividends or distribution of assets, prior to the
Preferred Stock, Series C, or increase the authorized amount
of preferred or any other class or series of capital stock of
the Corporation ranking, either as to payment of dividends or
distribution of assets on a parity with the Preferred Stock,
Series C, without the consent given in writing without a
meeting, or the affirmative vote given in person or by proxy
at a meeting called for the purpose, by the holders of at
least two-thirds of the shares of Preferred Stock, Series C,
then outstanding.
TEXT OF ARTICLES OF AMENDMENT PAGE 21
