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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) September 25, 1996
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SI DIAMOND TECHNOLOGY, INC.
(Exact name of Registrant as specified in charter)
TEXAS 1-11602 76-0273345
(State of (Commission (IRS Employer
Incorporation) File Number) Identification Number)
12100 Technology Boulevard
Austin, Texas 78727
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (512) 331-6200
(Former name or former address, if changed since last report):
Not Applicable
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Item 5. Other Events
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On September 27, 1996, SI Diamond Technology, Inc. (the "Company")
amended its Amended and Restated Articles of Incorporation by reducing the Fixed
Conversion Price of the Company's Series E Preferred Stock from $6.75 to $3.00.
Each share of the Company's Series E Preferred Stock converted after September
27, 1996 shall be convertible into the number of shares of the Company's Common
Stock determined by dividing (i) the original issue price of the Series E
Preferred Stock plus an amount equal to 8% of the issue price per annum from the
date the escrow agent first had in its possession the funds representing payment
of the Series E Preferred Stock to the conversion date by (ii) the conversion
price, which is the lesser of $3.00 or 85% of the average closing bid price for
the Company's Common Stock for the five trading days immediately preceding the
conversion date. Any shares of Series E Preferred Stock outstanding on January
15, 1999 shall be automatically converted into the Company's Common Stock on
such date.
Pursuant to the terms of the agreement between the Company and the
remaining holders of the Series E Preferred Stock (the "Series E Agreement") in
which the Company agreed to change the Fixed Conversion Price for the Series E
Preferred Stock to $3.00, the holders of the Series E Preferred Stock agreed to
(i) convert shares of Series E Preferred Stock into an aggregate of
approximately 300,000 shares of the Company's Common Stock (the "Mandatory
Conversion Amount") and (ii) not convert any additional shares of the Series E
Preferred Stock until October 31, 1996, with the proviso that if the Company has
raised $1,000,000 in net proceeds from debt or equity sources prior to such
date, the holders shall not convert any Series E Preferred Stock until January
15, 1997. Additionally, if the Company does raise $1,000,000 from debt or equity
sources by October 31, 1996, the holders of the Series E Preferred Stock agreed
to only convert Series E Preferred Stock during the period from and including
January 15, 1997 to February 28, 1997 in an amount equal to one-third of the
shares held of record by each holder of Series E Preferred Stock on September
16, 1996, less the pro rata portion of the Mandatory Conversion Amount already
converted. The obligations of each holder of Series E Preferred Stock pursuant
to the Series E Agreement shall cease and be of no further effect at any time
after (i) the average closing bid price of the Company's Common Stock exceeds
$3.00 per share for five (5) consecutive trading days or (ii) Marc W. Eller
ceases to be employed by the Company in substantially the same capacity as he
occupies as of the date hereof.
Item 7. Financial Statements and Exhibits
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3.1 Amended and Restated Articles of Incorporation of SI Diamond
Technology, Inc. filed with the Secretary of State of Texas as of
September 27, 1996.
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10.1 Form of Agreement by and among the Holders of the Company's Series E
Preferred Stock and the Company Concerning Agreements Relating to
Series E Preferred Stock.
SIGNATURES
Pursuant to the Securities Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereto duly authorized.
SI DIAMOND TECHNOLOGY, INC.
By: /s/ Douglas P. Baker
________________________________
Douglas P. Baker
Vice President and
Chief Financial Officer
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EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
SI DIAMOND TECHNOLOGY, INC.
(THE "CORPORATION" OR THE "COMPANY")
ARTICLE ONE
The name of the corporation is SI Diamond Technology, Inc.
ARTICLE TWO
The period of its duration is perpetual.
ARTICLE THREE
The objects and purposes for which the Corporation is organized, the nature
of the business to be conducted by the Corporation, and the powers which may be
exercised by the Corporation are stated and declared to be as follows:
(a) To enter into and engage in any business activities that lawfully may be
conducted by a Corporation organized and existing under the Texas Business
Corporation Act (the "TBCA") either directly, or through affiliated or
subsidiary companies which may be
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formed under the laws of any State or foreign nation where the conduct of
such activities is lawful;
(b) To enter into and engage in business activities either for its own
account, or for the account of others, as agent, and either as agent or
principal, to enter upon or engage in any kind of business of any nature
whatsoever, in which corporations organized under the TBCA may engage; and
to the extent not prohibited thereby to enter upon and engage in any kind
of business of any nature whatsoever in any other state of the United
States of America, any foreign nation, and any territory of any country to
the extent permitted by the laws of such other state, nation or territory;
(c) To acquire, organize and create subsidiary and affiliated companies under
the laws of any State or foreign nation;
(d) To engage in any other lawful act or activity for which a Corporation may
be organized under the TBCA; and
(e) Nothing in this Article shall be construed as authorizing the Corporation
to transact any business in the State of Texas prohibited by any law of the
State of Texas, or to engage in any activity in the State of Texas which
lawfully cannot be engaged in without first obtaining a license under the
laws of the State of Texas and such license cannot be granted to a
corporation, or to transact any of the business referred to in Section
(B)(3)(a) or Section (B)(4) of Article 2.01 of the TBCA.
ARTICLE FOUR
The Corporation is hereby authorized to issue a total of 122,000,000 shares
of capital stock which shall be subdivided into classes as follows:
DIVISION A - COMMON STOCK
One Hundred Twenty Million (120,000,000) shares of the Corporation's capital
stock shall be denominated as Common Stock, have a par value of $0.001 per
share, and have the rights, powers and preferences set forth in this paragraph.
(i) The holders of Common Stock shall share ratably, with all other
classes of common equity, in any dividends that may, from time to
time, be declared by the Board of Directors;
(ii) No dividends may be paid with respect to the Corporation's Common
Stock, however, until dividend distributions to the holders of
Preferred Stock, if any, have been paid in accordance with the
certificate or certificates of designation relating to such Preferred
Stock;
(iii) The holders of Common Stock shall share ratably, with all other
classes of common equity, in any assets of the Corporation that are
available for distribution to the
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holders of common equity securities of the Corporation upon the
dissolution or liquidation of the Corporation;
(iv) The holders of Common Stock shall be entitled to cast one vote per
share on all matters that are submitted for a vote of the
shareholders;
(v) There are no redemption or sinking fund provisions that are
applicable to the Common Stock of the Corporation; and
(vi) Subject only to the requirements of the TBCA and the foregoing
limitations, the Board of Directors is expressly authorized to issue
shares of Common Stock without stockholder approval, at any time and
from time to time, to such persons and for such consideration as the
Board of Directors shall deem appropriate under the circumstances.
DIVISION B - PREFERRED STOCK
Two Million (2,000,000) shares of the Corporation's authorized capital stock
shall be denominate as Preferred Stock, par value of $1.00 per share. Shares of
Preferred Stock may be issued from time to time in one or more series as the
Board of Directors, by resolution or resolutions, may from time to time
determine, each of said series to be distinctively designated. The voting
powers, preferences and relative, participating, optional and other special
rights, and the qualifications, limitations or restrictions thereof, if any, of
each such series of Preferred Stock may differ from those of any and all other
series of Preferred Stock at any time outstanding, and the Board of Directors is
hereby expressly granted authority to fix or alter, by resolution or
resolutions, the designation, number, voting powers, preferences and relative,
participating, optional and other special rights, and the qualifications,
limitations and restrictions thereof, of each such series of Preferred Stock,
including, but without limiting the generality of the foregoing, the following:
(i) The distinctive designation of, and the number of shares of Preferred
Stock that shall constitute, each series of Preferred Stock, which
number (except as otherwise provided by the Board of Directors in the
resolution establishing such series) may be increased or decreased
(but not below the number of shares of such series then outstanding)
from time to time by the Board of Directors without prior approval of
the holders of such series;
(ii) The rights in respect of dividends, if any, of such series of
Preferred Stock, the extent of the preference or relation, if any, of
such dividends to the dividends payable on any other class or classes
or any other series of the same or other class or classes of capital
stock of the Corporation, and whether such dividends shall be
cumulative or noncumulative;
(iii) The right, if any, of the holders of such series of Preferred Stock
to convert the same into, or exchange the same for, shares of any
other class or classes or of any other series of the same or any other
class or classes of capital stock of the Corporation and the terms and
conditions of such conversion or exchange, including, without
limitation, whether or not the number of shares of such other class or
series into which shares of
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such series may be converted or exchanged shall be adjusted in the
event of any stock split, stock dividend, subdivision, combination,
reclassification or other transaction or series of transactions
affecting the class or series into which such series of Preferred
Stock may be converted or exchanged;
(iv) Whether or not shares of such series of Preferred Stock shall be
subject to redemption, and the redemption price or prices and the time
or times at which, and the terms and conditions on which, shares of
such series of Preferred Stock may be redeemed;
(v) The rights, if any, of the holder of such series of Preferred Stock
upon the voluntary or involuntary liquidation, dissolution or winding
up of the Corporation or in the event of any merger or consolidation
of or sale of assets by the Corporation;
(vi) The terms of any sinking fund or redemption or repurchase account, if
any, to be provided for shares of such series of Preferred Stock;
(vii) The voting owners, if any, of the holders of any series of Preferred
Stock generally or with respect to any particular matter, which may be
less than, equal to or greater than one vote per share, and which may,
without limiting the generality of the foregoing, include the right,
voting as a series by itself or together with the holders of any other
series of Preferred Stock or all series of Preferred Stock as a class,
to elect one or more Directors of the Corporation (which, without
limiting the generality of the foregoing, may include a specified
number or portion of the then-existing number of authorized
Directorships of the Corporation, or a specified number or portion of
Directorships in addition to the then-existing number of authorized
Directorships of the Corporation), generally or under such specific
circumstances and on such conditions, as shall be provided in the
resolution or resolutions of the Board of Directors adopted pursuant
hereto; and
(viii) Such other powers, preferences and relative, participating, optional
and other special rights, and the qualifications, limitations and
restrictions thereof, as the Board of Directors shall determine.
Notwithstanding the foregoing, and with the sole exception of shares issued
pursuant to the duly adopted stock option plans of the Corporation, no shares of
Preferred Stock shall be issued or sold to any officer or director of the
Corporation, or any shareholder who directly or indirectly owns more than 5% of
the issued and outstanding voting stock of the Corporation, or any affiliate of
such person, without the affirmative vote of a majority in interest of the
disinterested shareholders of the Corporation. Upon the creation of any new
class or series of Preferred Stock of the Corporation, the Board of Directors
shall prepare and file with the records or the Corporation a Certificate setting
forth the rights and preferences of such class or series of Preferred Stock,
which Certificate shall be deemed an amendment to these Amended and Restated
Articles of Incorporation (the "Amended and Restated Articles") and shall not
require the consent of any shareholder.
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DIVISION C - SERIES OF PREFERRED STOCK
Series A Convertible Preferred Stock
Pursuant to the authority vested in the Board of Directors of the Corporation by
Article Four of the Corporation's Amended and Restated Articles, the Board of
Directors of the Corporation does hereby provide for the issuance of a series of
Preferred Stock, One Dollar ($l.00) par value, of the Corporation to be
designated "Series A Convertible Preferred Stock", consisting of One Hundred
(100) shares of Preferred Stock of the Corporation currently authorized for
issuance, and to the extent that the designations, preferences and relative,
participating, optional and other special rights and qualifications, limitations
and restrictions thereof are not stated and expressed in the Amended and
Restated Articles, does hereby fix and herein state and express such
designations, preferences and relative, participating, optional and other
special rights and qualifications, limitations and restrictions thereof as
follows (unless otherwise expressly defined herein, all terms defined in the
Amended and Restated Articles shall have the same meaning ascribed to them in
this Statement of Designations, Preferences and Rights):
I. Dividends. The Series A Convertible Preferred Stock shall not carry
dividend rights. However, holders of the Series A Convertible Preferred
Stock shall participate with Common Stock shareholders to the extent
dividends are declared on the Common Stock. In such circumstances,
dividends shall be paid on each of the common shares into which the Series
A Convertible Preferred Stock may be converted at the time the dividend is
declared as described in section V.C. below.
II. Liquidation. The shares of Series A Convertible Preferred Stock shall be
preferred over the shares of Common Stock and any other series of Preferred
Stock as to assets so that in the event of any liquidation, dissolution or
winding up of the affairs of the Corporation, whether voluntary or
involuntary, the holders of the Series A Convertible Preferred Stock shall
be entitled to receive out of the assets of the Corporation available for
distribution to its shareholders, whether from capital, surplus or
earnings, before distribution is made to holders of shares of Common Stock
or any other series of Preferred Stock ranking junior as to liquidation
rights to the Series A Convertible Preferred Stock, an amount equal to One
Thousand Dollars ($1000.00) per share plus an amount equivalent to all
dividends (whether or not earned or declared) accrued and unpaid on the
shares of the Series A Convertible Preferred Stock to the date of final
distribution. If upon any liquidation or dissolution or winding up of the
affairs of the Corporation the amounts payable on or with respect to this
Series A Convertible Preferred Stock are not paid in full, the holders of
shares of the Series A Convertible Preferred Stock of the Corporation shall
share ratably in any distribution of assets according to the respective
amounts payable in respect of the shares held by them upon such
distribution. Holders of the Series A Convertible Preferred Stock shall
also share equally and simultaneously with common shareholders after the
liquidation preference has been distributed. The liquidation preference
will not change over time. In the event of a merger or acquisition in which
the Corporation is not the surviving entity, holders of the Series A
Convertible Preferred Stock may elect liquidation treatment under the terms
herein.
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III. Voting. Holders of the Series A Convertible Preferred Stock shall vote with
the Common Stock on all matters and be entitled to one vote for each share
into which the Preferred Stock may be converted at the time of the vote as
described in section V.C. below.
IV. Redemption. The Corporation shall not have the right or obligation to
redeem the Series A Convertible Preferred Stock, in whole or in part, at
any time.
V. Conversion.
A. Right to Convert. Holders of the Series A Convertible Preferred Stock
shall have the right to convert their shares into common shares at anytime,
except as limited by provisions contained herein.
B. Conversion Ratio. Each share of the Series A Convertible Preferred
Stock shall be convertible into four and seventeen one-hundredths (4.17)
shares of Common Stock (the "Conversion Ratio"), subject to the adjustments
contained herein.
1. The Corporation shall maintain detailed records which track the
ownership of the 10,000 currently outstanding shares of Common Stock
(the "Original Issue"). The Corporation shall calculate the net
effect on the ownership per share of the Original Issue of:
a. stock splits, stock dividends, consolidations and similar
revaluations, and
b. dilutive Common Stock issuances, during the time between
initial issuance of the Series A Convertible Preferred Stock and
its conversion into Common Stock (the "Conversion Interval"),
(collectively, the "Adjustment Factor").
2. At the time of conversion, the Conversion Ratio shall be adjusted
by the Adjustment Factor.
C. Certification. Holders of the Series A Convertible Preferred Stock
shall have the right to have the conversion ratio verified by an
independent accountant if they so desire. The fee for such service shall be
split equally between the Holder and the Corporation.
D. Exercise Procedure.
l. Delivery of Preferred Shares. Before all of the outstanding Series
A Convertible Preferred Stock is converted into Common Stock, the
holder thereof shall:
a. surrender the certificate or certificates for such shares of
Series A Convertible Preferred Stock, which certificate or
certificates if the Corporation shall so request, shall be duly
endorsed to the Corporation or
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in blank or accompanied by proper instruments of transfer to the
Corporation or in blank and shall be accompanied by funds in the
amount of any tax or taxes payable or which may be payable in
respect of any transfer involved in the issue and delivery of
certificates for shares of Common Stock in a name other than
that of a record holder of shares of Series A Convertible
Preferred Stock in respect of which shares of Common Stock are
issued, and
b. shall state in writing therein the name or names in which he
wishes the certificate or certificates of Common Stock to be
issued.
2. Delivery of Common Shares. The Corporation will, as soon as
practicable after such surrender of certificates for shares of Series A
Convertible Preferred Stock, in accordance with the above provisions,
issue and deliver at the office at which such certificates for shares
of Series A Convertible Preferred Stock shall have been surrendered, to
the person for whose account such shares of Series A Convertible
Preferred Stock were so surrendered or to his nominee or nominees,
certificates for the number of shares of Common Stock to which he shall
be entitled as aforesaid. The person or persons entitled to receive the
shares of Common Stock issuable upon the conversion of such shares of
Series A Convertible Preferred Stock, shal1 be treated for all purposes
as the record holder or holders of such Common Stock on such date. The
Corporation shall not be required to convert, and no surrender of
shares of Series A Convertible Preferred Stock shall be effective for
that purpose, while the stock transfer books of the Corporation are
closed for any purpose, but the surrender of shares of Series A
Convertible Preferred Stock for conversion while such books are closed
shall become effective for conversion immediately upon the reopening of
such books.
3. Sufficient Common Stock. The Corporation shall set aside, at all
times during which shares of Series A Convertible Preferred Stock may
be outstanding, out of its treasury stock or authorized and unissued
stock, or both, solely for the purpose of effecting the conversion of
the shares of Series A Convertible Preferred Stock, such number of
shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all shares of Series A Convertible Preferred
Stock from time to time outstanding, and shall take such action as
from time to time be necessary to assure that such shares of Common
Stock will be when issued upon conversion of Series A Convertible
Preferred Stock, fully paid and nonassessable.
VI. Shareholders' Agreement. Each and every holder of the Series A Convertible
Preferred Stock shall execute a copy of the Corporation's Shareholders'
Agreement, which governs disposition of the Corporation's Common Stock.
VII. Sale or Exchange of Corporation or Assets. If prior to issuance of Common
Stock under this Preferred Stock Conversion:
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A. There occurs any reclassification of the Common Stock of the
Corporation (other than a subdivision or a combination of its
outstanding shares of Common Stock), or any consolidation or merger to
which the Corporation is a party and for which approval of any
shareholders of the Corporation is required or of the sale or transfer
of all or substantially all the assets of the Corporation; or
B. There occurs the voluntary or involuntary dissolution or winding up of
the Corporation;
Then:
A. Special Notice. The Corporation shall cause to be filed at the office
or agency of the Corporation specified in Section IX and shall cause
to be mailed to the holders of Series A Convertible Preferred Stock at
their addresses as they shall appear on the stock register of the
Corporation at least twenty (20) days before the date specified below,
a Written Notice stating:
The date on which said reclassification, consolidation, merger,
sale, transfer, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities
or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation
or winding up.
B. Entitled Conversion. The holders of Series A Convertible Preferred
Stock at their option may receive, in lieu of the stock otherwise
issuable hereunder, such money or property they would have been
entitled to receive if this Preferred Stock Conversion had been
exercised prior to such sale or exchange.
VIII. Restriction on Certain Corporation Actions.
A. Amend Statement of Designations. Except as hereinafter provided, so
long as any shares of Series A Convertible Preferred Stock are
outstanding, the Corporation shall not, without the consent of all
holders of the Series A Convertible Preferred Stock at the time
outstanding, given in person or by proxy, either in writing with or
without a meeting or by vote at the annual meeting of shareholders of
the Corporation called for the purpose, amend, alter or repeal any
provision of this Statement of Designations, Preferences and Rights so
as to affect adversely the rights, powers or preferences set forth
herein with respect to Series A Convertible Preferred Stock or the
holders thereof.
B. Amend By-laws. So long as any shares of Series A Convertible Preferred
Stock are outstanding, the Corporation shall not, without the consent
of the holders of all of the number of shares of Series A Convertible
Preferred Stock at the time outstanding, given in person or by proxy,
either in writing with or without a meeting or by vote at the annual
meeting of shareholders of the Corporation
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called for the purpose of amending, altering or repealing any
provision of the By-laws of the Corporation, amend, alter or repeal
any provision of the By-laws of the Corporation if the effect of such
proposed amendment, alteration or repeal would adversely affect the
rights of the holders of Series A Convertible Preferred Stock.
IX. Written Notice. For all purposes, a "Written Notice" shall mean any
notice or communication required or permitted herein with respect to the
Series A Convertible Preferred Stock and, except where, by other provisions
hereof, receipt of a particular Written Notice is specifically required for
that Written Notice to be deemed to be a sufficient Written Notice, shall
be deemed to be sufficiently given (1) when personally delivered; (2) when
given pursuant to the Amended and Restated Articles; or (3) by registered
or certified mail, return receipt required, when deposited in the U.S.
Mail, correct postage prepaid: (i) if to the Corporation, addressed to SI
Diamond Technology, Inc., 12100 Technology Boulevard, Austin, Texas, 78727,
marked for the attention of "Secretary", or to such other or different
address as the Corporation may be Written Notice designate, or (ii) if to
any holder of shares, the address appearing on the stock register
maintained or provided for by the Corporation for the Series A Convertible
Preferred Stock.
X. Office or Agency of the Corporation. Unless and until otherwise designated
by Written Notice from the Corporation to the holders of shares of the
Series A Convertible Preferred Stock, the initial office and agency of the
Corporation designated as the place of redemption or conversion of any
shares of Series A Convertible Preferred Stock shall be SI Diamond
Technology, Inc., 12100 Technology Boulevard, Austin, Texas, 78727. The
Corporation may by Written Notice designate one or more additional offices
or agencies for these purposes.
Series C Preferred Stock
The following Statement and Certificate of Resolution Establishing Rights,
Preferences and Privileges for 225,015 shares of the $33.33 Stated Value, $1.00
Par Value, Preferred Stock of the Corporation was duly adopted and approved by
the Board of Directors of the Corporation.
The designations, preferences, limitations and relative rights of the
Series C Preferred Stock of the Corporation in addition to and subject to the
preferences, limitations and relative rights set forth in the Corporation's
Amended and Restated Articles of Incorporation, as amended to date, which are
applicable to Preferred Stock of al1 series, are as follows:
l. ESTABLISHMENT AND DESIGNATION OF SERIES. The Series C Preferred Stock of
the Corporation is hereby established as follows: TWO HUNDRED TWENTY-FIVE
THOUSAND FIFTEEN (225,015) shares of the Preferred Stock of SI Diamond
Technology, Inc., are hereby designated "Series C Preferred Stock"
(hereinafter referred to as the "Series C Stock") with the rights,
preferences and privileges specified herein. The Series C Stock will,
hereafter, be offered and sold by the Corporation for such consideration,
including cash, services rendered and property, as may be determined from
time to time in the sole discretion of the Board of Directors.
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2. LIQUIDATION PREFERENCE. Subject to adjustment in the manner provided in
Paragraph 5 hereof, the holders of Series C Stock shall be entitled to receive
prior and in preference to any distribution of any of the assets or surplus
funds of the Corporation to the holders of the Common Stock, the amount of
$33.33 per share (which is the Stated Value of the Series C Stock) (the "Series
C Liquidation Preference") for each share of Series C Stock then held by them.
Notwithstanding any other provision of this Certificate of Designation, the
liquidation preference granted to the holders of Series C Stock shall, in all
events, be fully subordinated to the liquidation preference previously granted
to the holders of Series A Preferred Stock ("Series A Liquidation Preference").
Until the Corporation amends its Restated Articles of Incorporation to increase
its authorized capital stock as provided in Section 7.5 of the Option, Share and
Warrant Purchase Agreement by and between the Corporation and Diagascrown, Inc.
of even date herewith (the "Agreement"), the Series C Stock shall rank senior to
all other series of the Corporation's Preferred Stock, except the Series A
Preferred Stock. After such amendment, the Series C Stock shall be subordinate
to all other series of Preferred Stock of the Corporation. In the event of any
liquidation, dissolution, or winding up of the Corporation, either voluntary or
involuntary, and after the full satisfaction of the Series A Liquidation
Preference, distributions to the stockholders of the Corporation shall be made
in the following manner:
(a) Until the Corporation amends its Restated Articles of Incorporation to
increase its authorized capital stock as provided in Section 7.5 of the
Agreement, (i) the holders of the Series C Stock shall be entitled to
receive, prior and in preference to any distribution of any of the
assets or surplus funds of the Corporation to the holders of the Common
Stock or Preferred Stock of the Corporation (other than Series A
Preferred Stock) by reason of their ownership of such stock, an amount
equal to the adjusted Series C Liquidation Preference for each share of
Series C Stock then held by them, and (ii) if, on the liquidation,
dissolution, or winding up of the Corporation, the assets and funds
thus distributed among the holders of the Series C Stock shall be
insufficient to permit the payment to such holders of the full adjusted
Series C Liquidation Preference, then the entire assets and funds of
the Corporation legally available for distribution to the holders of
Series C Stock, shall be distributed among the holders of the Series C
Stock in proportion to the full amount each such holder is otherwise
entitled to receive. After such amendment of the Corporation's Restated
Articles of Incorporation as aforementioned, the Series C Stock shall
have no priority over the Common Stock of the Corporation.
(b) A consolidation or merger of the Corporation with or into any other
corporation or corporations, or a sale of all or substantially all of
the assets of the Corporation, shall not be deemed to be a liquidation,
dissolution, or winding up within the meaning of this paragraph.
3. DIVIDENDS. On a fully participating basis, the Corporation shall pay
dividends of the Series C Stock when and as declared by the Corporation's board
of directors, out of any funds legally available therefor, on the same basis as
dividends are paid on shares of Common Stock, in an amount equal to the
dividends that would have been paid on the Shares of Common Stock into which the
Series C Stock could be converted pursuant to paragraph 5 hereof.
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4. VOTING RIGHTS. Except as otherwise required by law, the holders of Series C
Stock shall (a) be entitled to the number of votes equal to the number of shares
of Common Stock into which such shares of Series C Stock could be converted
pursuant to paragraph 5 hereof, at the record date for the determination of
stockholders entitled to vote on such matters or; if no such record date is
established, at the date such vote is taken or any written consent of the
stockholders is solicited, (b) have voting rights and powers equal to the voting
rights and powers of the Common Stock except as otherwise stated herein, and (c)
be entitled to notice of any stockholders' meeting in accordance with the by-
laws of the Corporation. Fractional votes shall not be permitted and any
fractional voting rights resulting from the above formula (after aggregating al1
shares into which shares of Series C Stock held by each holder could be
converted) shall be rounded to the nearest whole number. Except as otherwise
provided herein or required by law, the holders of Series C Stock and the
holders of Common Stock shall vote together as a single class and not as
separate classes.
5. CONVERSION. The holders of the Series C Stock shall have conversion rights
as follows (the "Conversion Rights");
(a) Right to convert. Each share of Series C Stock shall be convertible,
at the option of the holder, at any time after the date on which the
Corporation amends its Restated Articles of Incorporation as provided
in Section 7.5 of the Agreement, at the office of the Corporation or
any transfer agent for such stock, into fully paid and nonassessable
shares of Common Stock at the Conversion Ratio in effect at the time of
conversion, determined as provided herein.
(b) Conversion Ratio. In general, each share of Series C Stock shall be
convertible into ten (10) shares of Common Stock, subject to adjustment
pursuant to this Paragraph 5. The ratio of the number of shares of
Common Stock into which each share of Series C Stock is convertible at
any time as provided herein, is the "Conversion Ratio".
(c) Mechanics of Conversion. Before any holder of Series C Stock shall be
entitled to convert the same into shares of Common Stock, he shall
surrender the certificate or certificates for such shares at the office
of the Corporation or of any transfer agent for such stock, and shall
give written notice to the Corporation at such office that he elects to
convert the same and shall state in the notice the number of shares of
Series C Stock being converted and the name or names in which he wishes
the certificate or certificates for shares of Common Stock to be
issued. The Corporation shall then, as soon as is practicable, issue
and deliver at such office to such holder, or to his nominee or
nominees, a certificate or certificates for the number of shares of
Common Stock to which he shall be entitled. Such conversion shall be
deemed to have been made immediately prior to the close of business on
the date of surrender of the shares of Series C Stock to be converted,
and the person or persons entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes
as the record holder or holders of such shares of Common Stock on such
date.
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(d) Adjustment for Subdivisions or Combinations of Common Stock. In the
event the Corporation at any time or from time to time after the date
on which the Series C Stock is first issued (the "Original Issue
Date") effects a subdivision or combination of its outstanding Common
Stock into a greater or lesser number of shares, then and in each such
event the Conversion Ratio for the Series C Stock shall be increased
(for subdivisions) or decreased (for combinations) proportionately.
Any adjustment under this paragraph 5(d) shall become effective at the
close of business on the date the subdivision or combination becomes
effective.
(e) Adjustment for Certain Dividends, Distributions and Common Stock
Equivalents. In the event the Corporation at any time or from time to
time after the Original Issue Date shall make, issue, or fix a record
date for the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in additional shares
of Common Stock or other securities or rights ("Common Stock
Equivalents") convertible into or entitling the holder to receive
additional shares of Common Stock, without payment of any
consideration by such holder for the additional shares of Common Stock
or the Common Stock Equivalents (including the additional shares of
Common Stock issuable upon conversion or exercise), then, and in each
such event, the maximum number of shares (as set forth in the
instrument relating thereto without regard to any provisions contained
therein for subsequent adjustment of such number) of Common Stock
issuable in payment of such dividend or distribution or upon
conversion or exercise of such Common Stock equivalents shall be
deemed to be issued and outstanding as of the time of such issuance
or, in the event such record date shall have been fixed, as of the
close of business on such record date. In such event the Conversion
Ratio shall be decreased as of the time of such issuance or, in the
event such a record date shall have been fixed, as of the close of
business on such record date, by multiplying the Conversion Ratio then
in effect by a fraction,
(i) the numerator of which shall be the total number of shares of
Common Stock issued and outstanding or deemed to be issued and
outstanding immediately prior to the time of such issuance or the
close of business on such record date; and
(ii) the denominator of which shall be the total number of shares
of Common Stock issued and outstanding or deemed to be issued and
outstanding immediately prior to the time of such issuance or the
close of business on such record date plus the number of shares
of Common Stock issuable in payment of such dividend or
distribution or upon conversion or exercise of such Common Stock
Equivalents;
provided, however, (A) if such record date shall have been fixed and
such dividend is not fully paid or if such distribution is not fully
made on the date fixed for such distribution, then the Conversion
Ratio shall be recomputed accordingly as of the close of business on
such record date and the Conversion Ratio shall be adjusted pursuant
to this paragraph 5(e) as of the time of actual
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<PAGE>
payment of such dividends or distributions; (B) if such Common Stock
Equivalents provide, with the passage of time or otherwise, for any
decrease in the number of shares of Common Stock issuable upon the
conversion or exercise (or upon the occurrence of a record date with
respect thereto), and any subsequent adjustments based thereon, the
Conversion Ratio shall, upon any such decrease becoming effective, be
recomputed to reflect such decrease insofar as it affects the rights
of conversion or exercise of the Common Stock Equivalents then
outstanding; (C) upon the expiration of any rights or conversion or
exercise under any unexercised Common Stock Equivalents, the
Conversion Ratio computed upon the original issue (or upon the
occurrence of a record date with respect thereto) and any subsequent
adjustments based thereon, shall, upon such expiration, be recomputed
as if the only additional shares of Common Stock issued were the
shares of such stock, if any, actually issued upon the conversion or
exercise of such Common Stock Equivalents; and (D) in the case of
Common Stock Equivalents that expire by their terms not more than
sixty (60) days after the date of issuance, no adjustment of the
Conversion Ratio shall be made until the expiration or exercise of all
such Common Stock Equivalents, whereupon such adjustment shall be made
in the manner provided in clause (C).
(f) Adjustments for Other dividends and Distributions. In the event the
Corporation at any time or from time to time after the Original Issue
Date shall make, issue, or fix a record date for the determination of
holders of Common Stock entitled to receive a dividend or other
distribution payable in securities of the Corporation other than
shares of Common Stock, then, and in each such event, provision shall
be made so that the holders of Series C Stock shall receive upon
conversion, and in addition to the number of shares of Common Stock
otherwise receivable thereupon, the amount of other securities of the
Corporation that they would have received had their Series C Stock
been converted into Common Stock on the date of such event and had,
thereafter, during the period from the date of such event to and
including the conversion date, retained such other securities giving
application to all adjustments called for during such period under
this paragraph 5 with respect to such other securities.
(g) Adjustment for Reclassification, Exchange, or Substitution. If
the Common Stock issuable upon the conversion of the Series C Stock
shall be changed into the same or a different number of shares of any
class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination
of shares or stock dividend provided for above) or a reorganization,
merger, consolidation or sale of assets provided for elsewhere in this
paragraph 5, then and in each such event the holder of each share of
the Series C Stock shall have the right thereafter to convert such
shares into the kind and amount of shares of stock and other
securities and property receivable upon such reorganization,
reclassification, or other change, by holders of the number of shares
of Common Stock into which such shares of the Series C Stock might
have been converted immediately prior to such reorganization,
reclassification, or change, all subject to further adjustment as
provided herein.
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(h) Reorganization, Mergers, Consolidations or Sales of Assets. If at
any time or from time to time there shall be a capital reorganization
of the Common Stock (other than a subdivision, combination,
reclassification, or exchange of shares provided for elsewhere in this
paragraph 5), or a merger or consolidation of the Corporation with or
into another corporation, or the sale of all or substantially all of
the Corporation's properties and assets to any other person, then, as
a part of such reorganization, merger, consolidation or sale,
provision shall be made so that the holder of each share of the
Series C Stock shall thereafter be entitled to convert such Series C
Stock into the kind and amount of stock or other securities or
property receivable upon such merger or consolidation or sale by a
holder of the number of shares of Common Stock into which such shares
of Series C Stock might have been converted immediately prior to such
reorganization, merger, consolidation or sale, subject to adjustments
which shall be as nearly equivalent as practicable to the adjustments
provided for in this paragraph 5.
(i) No Dilution or Impairment. The Corporation will not, by amendment of
its Restated Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale
of securities, or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms to be observed or
performed under this article by the Corporation, but will at all times
in good faith assist in the carrying out of all the provisions of
paragraph 5 and in the taking of all such action as may be necessary
or appropriate in order to protect the Conversion Rights of the
holders of Series C Stock against dilution or other impairment.
(j) Certificate as to Adjustments. Upon the occurrence of each adjustment
or readjustment of the Conversion Ratio pursuant to paragraph 5, the
Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms of this article and cause
independent public accountants selected by the Corporation to verify
such computation and prepare and furnish to each holder of Series C
Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment
is based. The Corporation shall, upon the written request at any time
of any holder of Series C Stock, furnish or cause to be furnished to
such holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Ratio in effect at the time for the
Series C Stock, and (iii) the number of shares of Common Stock and the
amount, if any, of other property that at the time would be received
upon the conversion of the Series C Stock.
(k) Notices of Record Date. In the event of (i) any taking by the
Corporation of a record of the holders of any class of securities for
the purpose of determining the holders of such securities who are
entitled to receive any dividend (other than a cash dividend) or other
distribution, any Common Stock Equivalents or any right to subscribe
for, purchase, or otherwise acquire any shares of stock of any class
or any other securities or property, or to receive any other right, or
(ii) any reclassification or recapitalization of the capital stock of
the Corporation, or any transfer of all or substantially all of the
assets of the Corporation to any other
14
<PAGE>
corporation, entity or person or any voluntary or involuntary
dissolution, liquidation or winding up of the Corporation, the
Corporation shall mail to each holder of Series C Stock at least
twenty (20) days prior to the date specified in such notice, a notice
specifying (a) the date on which any such record is to be taken for
the purpose of such dividend, distribution, or rights, (b) the date on
which any such reorganization, reclassification, transfer,
consolidation, merger, dissolution, liquidation, or winding up is
expected to come effective, and (c) the time, if any is to be fixed,
as to when the holders of record of Common Stock (or other securities)
shall be entitled to exchange their shares of Common Stock (or other
securities) for securities or other property deliverable upon such
reorganization, reclassification, transfer, consolidation, merger,
dissolution, liquidation or winding up.
(l) Issue Taxes. The Corporation shall pay any and all issue and other
taxes or governmental charges that may be payable in respect of any
issue or delivery of shares of Common Stock on conversion of shares of
Series C Stock.
(m) Reservation of Stock Issuable Upon Conversion. As soon as the
Corporation amends its Restated Articles of Incorporation as it has
agreed to do in the Agreement, the Corporation shall at all times
reserve and keep available out of its authorized but unissued shares
of Common Stock solely for the purpose of effecting the conversion of
the shares of Series C Stock such number of its shares of Common Stock
as shall from time to time be sufficient to effect the conversion of
all outstanding shares of Series C Stock. If, at any time after the
Corporation has amended its Restated Articles of Incorporation to
increase the number of authorized shares of Common Stock, the number
of authorized but unissued shares of Common Stock again shall not be
sufficient to effect the conversion of all then outstanding shares of
Series C Stock, the Corporation will take such corporate action as
may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
(n) Fractional Shares. No fractional share shall be issued upon the
conversion of any share or shares of Series C Stock. All shares of
Common Stock (including fractions) issuable upon conversion of more
than one share of Series C Stock by a holder of such stock shall be
aggregated for purposes of determining whether the conversion would
result in the issuance of a fractional share of Common Stock, the
Corporation shall, in lieu of issuing any fractional share, pay the
holder otherwise entitled to such fraction a sum in cash equal to the
current market price of such fraction on the date of conversion, as
determined in good faith by the Board of Directors.
(o) Notices. Any notice required by the provisions of paragraph 5 to be
given to the holders of shares of Series C Stock shall be deemed given
five days after such notice shall have been deposited in the United
States mail, postage prepaid, and addressed to each holder of record
at his address appearing on the books of the Corporation.
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<PAGE>
6. DILUTION.
(a) Subject to subparagraph (b), if the aggregate percentage interest of
Investor (as hereinafter defined) of the Total Voting Power of the
Corporation is or would be reduced as a result of an issuance by the
Corporation of Voting Stock (including any issuance following
conversion of any security convertible into or exchangeable for Voting
Stock or upon exercise of any option, warrant, or other right to
acquire any Voting Stock), the Corporation shall so notify the
Investor promptly after establishing the material terms of such
proposed issuance. In such notice, the Corporation shall offer to sell
to the Investor that number of shares of Voting Stock which, if so
purchased, would result in the retention by the Investor, in the
aggregate, of its and its Affiliate's aggregate percentage interest in
the Total Voting Power in effect immediately prior to such proposed
reduction of its aggregate interest. If such offer is accepted by the
Investor within thirty (30) days following receipt of same, the
Corporation shall sell such shares to the Investor at a purchase price
per share determined as provided in subparagraphs (a)(l), (2) or (3)
below.
If issuance of Voting Stock in any such transaction would result in
the recipient of such Voting Stock obtaining 5% or more of the total
outstanding Common Stock of the Corporation, notice shall be promptly
provided to Investor as required above. However, if such
transaction(s) should be less than 5% then the Corporation will
notify the Investor and make the offer as set forth above on an annual
basis on or before December 3l with respect to all such transactions
under 5% which have occurred during that year. Investor will have
thirty (30) days following receipt of such offer in which to accept.
(l) If the Voting Stock is registered under the Exchange Act,
the purchase price per share shall be the Average Market Price
per share on the day prior to the date of issuance. For purposes
of this paragraph 5, the "Average Market Price" of the Voting
Stock at any date shall be the average of the daily closing
prices, per share, of such security on the 30 consecutive
trading days ending on the trading day last preceding the date
of determination of such price. The closing price for each
trading day shall be the last sale price, regular way, or, in
case no such sale takes place on such trading day, the average
of the closing bid and ask prices, regular way, in either case
as reported in the principal consolidated transaction reporting
system with respect to a security listed or admitted to trading
on a national securities exchange or, if such security is not
listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the
average of the high bid and low asked prices in the over-the-
counter market, as reported by the National Association of
Security Dealers, Inc. Automated Quotation System ("NASDAQ") or
such other system then in use, or, if on any such Trading Day
the applicable securities are not quoted by any such
organization, the average of the closing bid and asked prices as
furnished
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<PAGE>
by a professional market maker making a market in such securities
selected by the Board of Directors of the Corporation.
(2) In the case of an issuance proposed to be effected by means of
an underwritten primary public offering, private offering
transaction or other similar private placement of Voting Stock, the
notice given pursuant to this subparagraph (a) shall be to the
effect that the Investor shall be entitled to participate in such
public offering or private placement as a recipient of a directed
sale, or otherwise, at a price per share equal to that paid by the
public or the other purchasers, as the case may be.
(3) If the Voting Stock is not registered under the Exchange Act,
and subparagraph (a)(2) above is not applicable (e.g., upon
exercise of any option, warrant, or other right to acquire Voting
Stock not excepted under subparagraph (b)), then the purchase price
per share shall be the price at which Voting Stock was most
recently issued in a private placement of Voting Stock.
(b) The Corporation shall not be obligated to deliver notices or offer
Voting Stock for sale pursuant to subparagraph (a) in respect of the
following issuances of Voting Stock or other voting securities: (i)
pursuant to employee, director or consultant stock option, purchase,
bonus, exchange or other such plans or upon the exercise of options or
other rights granted thereunder, and (ii) in connection with
transactions in which shares of Voting Stock are being issued to
security holders of a company being acquired by the Corporation or to a
company some or all of whose assets (including subsidiaries, technology
or other tangible or intangible property) are being acquired by the
Corporation or in similar merger and acquisition situations.
Furthermore, on each occasion for which the Investor is eligible to
exercise its rights to retain its Total Voting Power under Paragraph
6(a), the Corporation shall be obligated to permit the Investor to
exercise such rights only once after other holders of antidilution
rights exercise their rights.
(c) If the Corporation's offer under this paragraph 6 is accepted, the
purchase and sale of any such shares of Voting Stock shall take place
on the second business day following the expiration or early
termination of all waiting periods which may be imposed on such
purchase and sale by the HSR Act, or, if no waiting period is imposed
on such purchase and sale by the HSR Act, on the second business day
following the receipt of the acceptance of such offer at the offices of
the Corporation, or at such other time and place as the Corporation and
the Investor may agree. Payment of the purchase price shall be made
promptly upon effectuation of the purchase and sale of such shares of
Voting Stock by wire transfer of collected funds, and delivery of the
shares shall be made promptly upon such payment. The Corporation and
the Investor will use their best efforts to comply with all federal and
state laws and regulations and stock exchange listing requirements
applicable to any purchase and sale of shares of Voting Stock under
this paragraph 6.
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<PAGE>
(d) The Investor's and its Affiliates' rights under this paragraph 6 to
additional shares of Voting Stock shall terminate and be of no further
effect on the Termination Date.
(e) The antidilutive rights granted Investor under this paragraph 6 are not
assignable.
(f) For purpose of this paragraph 6, the following terms have the
respective meanings set forth below:
"Affiliates" or "Affiliate" of Diagascrown, Inc. shall mean (i) any
person or entity that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common
control with, Diagascrown, Inc., and (ii) East/West Technology
Partners, Ltd., a British Virgin Islands corporation. "Control" in,
of or by an Affiliate requires ownership of more than fifty percent
(50%) of (i) voting stock of a company which issued voting stock, or
(ii) ownership interest in any enterprise; an entity or person is an
Affiliate only as long as control exists.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976.
"Investor" means, collectively, Diagascrown, Inc., its Affiliates and,
with the written consent of the Corporation (which will not be
unreasonably withheld), the first (but only the first) transferee or
assignee of 100% of the shares of Series C Stock.
"Termination Date" means the sooner to occur of (i) the first day on
which the Investor shall not beneficially own (within the meaning of
Rule l3d-3 promulgated under the Securities Exchange Act of 1934) more
than four percent (4%) of the outstanding Voting Stock of the
Corporation, following its failure to exercise its rights against
dilution under this paragraph 6, (ii) the expiration or other
termination, without exercise, of that certain Warrant of Investor to
acquire 75,000 shares of Series C Stock issued by the Corporation, or
(iii) the date on which the Corporation files a registration statement
for a public offering of Voting Stock with the United States Securities
and Exchange Commission.
"Total Voting Power" means the total Voting Power of all Voting Stock
outstanding and entitled to vote at any meeting of shareholders of the
Corporation.
"Voting Power" means the ability to vote or to control, directly or
indirectly, by proxy or otherwise the vote of any share of Voting
Stock.
"Voting Stock" means any of the Common Stock, Preferred Stock or other
securities of the Corporation entitled to vote at a meeting of
shareholders of the Corporation.
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7. AMENDMENT. Any of the rights specified in this designation may be amended
with the mutual written consent of (a) the board of directors of the Corporation
and (b) holders of not less than a majority of all Series C Stock then
outstanding. All amendments to this Certificate of Designation shall be made in
accordance with the provisions of the Texas Business Corporation Act as in
effect from time to time, provided that any such amendment must be approved by
the holders of not less than a majority of all Series C Stock then outstanding.
Any such amendment so effected shall be binding upon the Corporation and any
holder of Series C Stock or Common Stock.
Series D Preferred Stock
The following Statement and Certificate of Resolution Establishing Rights,
Preferences and Privileges for 90,000 shares of $1.00 Stated Value, $1.00 Par
Value, Preferred Stock was duly adopted and approved by the Board of Directors
of the Corporation.
The designations, preferences, limitations and relative rights of the
Series D Preferred Stock of the Corporation, in addition to and subject to the
preferences, limitations and relative rights set forth in the Corporation's
Amended and Restated Articles of Incorporation, as amended to date, which are
applicable to Preferred Stock of all series, are as follows:
l. ESTABLISHMENT AND DESIGNATION OF SERIES. The Series D Preferred Stock of
the Corporation is hereby established as follows: NINETY THOUSAND (90,000)
shares of the Preferred Stock of SI Diamond Technology, Inc., are hereby
designated "Series D Preferred Stock" (hereinafter referred to as the "Series
D Stock") with the rights, preferences and privileges specified herein. The
Series D Stock will, hereafter, be offered and sold by the Corporation for such
consideration, including cash, services rendered and property, as may be
determined from time to time in the sole discretion of the Board of Directors.
2. LIQUIDATION PREFERENCE. Subject to adjustment in the manner provided in
Paragraph 5 hereof, the holders of Series D Stock shall be entitled to receive
prior and in preference to any distribution of any of the assets or surplus
funds of the Corporation to the holders of the Common Stock, the amount of $1.00
per share (which is the Stated Value of the Series D Stock) (the "Series D
Liquidation Preference") for each share of Series D Stock then held by them.
Notwithstanding any other provision of this Certificate of Designation, the
liquidation preference granted to the holders of Series D Stock shall, in all
events, be fully subordinate to the liquidation preference previously granted to
the holders of Series A Preferred Stock ("Series A Liquidation Preference").
Until the Corporation amends its Restated Articles of Incorporation to increase
its authorized capital stock as provided in Section 7.5 of the Option, Share and
Warrant Purchase Agreement by and between the Corporation and Diagascrown, Inc.
dated as of February 9, 1995 (the "Agreement"), the Series D Stock shall rank
senior to all other series of the Corporation's Preferred Stock, except the
Series A Preferred Stock and the Series C Preferred Stock. After such amendment,
the Series D Stock shall be senior to al1 other series of Preferred Stock of the
Corporation (including the Series C Preferred Stock), except for the Series A
Preferred Stock. In the event of any liquidation, dissolution, or winding up of
the Corporation, either voluntary or involuntary, and after the full
satisfaction of the Series A Liquidation Preference, distributions to the
stockholders of the Corporation shall be made in the following manner:
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(a) Until the Corporation amends its Restated Articles of Incorporation to
increase its authorized capital stock as provided in Section 7.5 of the
Agreement, (i) the holders of the Series D Stock shall be entitled to
receive, prior and in preference to any distribution of any of the
assets or surplus funds of the Corporation to the holders of the Common
Stock or Preferred Stock of the Corporation (other than Series A
Preferred Stock or Series C Preferred Stock) by reason of their
ownership of such stock, an amount equal to the adjusted Series D
Liquidation Preference for each share of Series D Stock then held by
them, and (ii) if, on the liquidation, dissolution, or winding up of
the Corporation, the assets and funds thus distributed among the
holders of the Series D Stock shall be insufficient to permit the
payment to such holders of the full adjusted Series D Liquidation
Preference, then the entire assets and funds of the Corporation legally
available for distribution to the holders of Series D Stock, shall be
distributed among the holders of the Series D Stock in proportion to
the full amount each such holder is otherwise entitled to receive.
After such amendment of the Corporation's Restated Articles of
Incorporation as aforementioned, the Series D Stock shall have no
priority over the Common Stock of the Corporation but it will have
priority and preference over all other series of Preferred Stock,
except for the Series A Preferred Stock.
(b) A consolidation or merger of the Corporation with or into any other
corporation or corporations, or a sale of all or substantially all of
the assets of the Corporation, shall not be deemed to be a liquidation,
dissolution, or winding up within the meaning of this paragraph.
3. DIVIDENDS. On a fully participating basis, the Corporation shall pay
dividends of the Series D Stock when and as declared by the Corporation's Board
of Directors, out of any funds legally available therefor, on the same basis as
dividends are paid on shares of Common Stock, in an amount equal to the
dividends that would have been paid on the Shares of Common Stock into which the
Series D Stock could be converted pursuant to paragraph 5 hereof.
4. VOTING RIGHTS. Except as otherwise required by law, the holders of Series D
Stock shall (a) be entitled to the number of votes equal to the number of shares
of Common Stock into which such shares of Series D Stock could be converted
pursuant to paragraph 5 hereof, at the record date for the determination of
stockholders entitled to vote on such matters or, if no such record date is
established, at the date such vote is taken or any written consent of the
stockholders is solicited, (b) have voting rights and powers equal to the voting
rights and powers of the Common Stock except as otherwise stated herein, and (c)
be entitled to notice of any stockholders, meeting in accordance with the by-
laws of the Corporation. Fractional votes, shall not be permitted and any
fractional voting rights resulting from the above formula (after aggregating all
shares into which shares of Series D Stock held by each holder could be
converted) shall be rounded to the nearest whole number. Except as otherwise
provided herein or required by law, the holders of Series D Stock and the
holders of Common Stock shall vote together as a single class and not as
separate classes.
5. CONVERSION. The holders of the Series D Stock shall have conversion
rights as follows (the "Conversion Rights");
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(a) Right to convert. Each share of Series D Stock shall be convertible, at
the option of the holder, at any time after the date on which the
Corporation amends its Restated Articles of Incorporation as provided in
Section 7.5 of the Agreement, at the office of the Corporation or any
transfer agent for such stock, into fully paid and nonassessable shares
of Common Stock at the Conversion Ratio in effect at the time of
conversion, determined as provided herein.
(b) Conversion Ratio. In general, each share of Series D Stock shall be
convertible into ten (10) shares of Common Stock, subject to adjustment
pursuant to this Paragraph 5. The ratio of the number of shares of Common
Stock into which each share of Series D Stock is convertible at any time
as provided herein, is the "Conversion Ratio".
(c) Mechanics of Conversion. Before any holder of Series D Stock shall be
entitled to convert the same into shares of Common Stock, he shall
surrender the certificate or certificates for such shares at the
office of the Corporation or of any transfer agent for such stock, and
shall give written notice to the Corporation at such office that he
elects to convert the same and shall state in the notice the number of
shares of Series D Stock being converted and the name or names in which
he wishes the certificate or certificates for shares of Common Stock to
be issued. The Corporation shall then, as soon as is practicable, issue
and deliver at such office to such holder, or to his nominee or nominees,
a certificate or certificates for the number of shares of Common Stock to
which he shall be entitled. Such conversion shall be deemed to have been
made immediately prior to the close of business on the date of surrender
of the shares of Series D Stock to be converted, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date.
(d) Adjustment for Subdivisions or Combinations of Common Stock. In the event
the Corporation at any time or from time to time after the date
on which the Series D Stock is first issued (the "Original Issue Date")
effects a subdivision or combination of its outstanding Common Stock into
a greater or lesser number of shares, then and in each such event the
Conversion Ratio for the Series D Stock shall be increased (for
subdivisions) or decreased (for combinations) proportionately. Any
adjustment under this paragraph 5(d) shall become effective at the close
of business on the date the subdivision or combination becomes effective.
(e) Adjustment for Certain Dividends Distributions and Common Stock
Equivalents. In the event the Corporation at any time or from
time to time after the Original Issue Date shall make, issue, or fix a
record date for the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in additional shares of
Common Stock or other securities or rights ("Common Stock Equivalents")
convertible into or entitling the holder to receive additional shares of
Common Stock, without payment of any consideration by such holder for the
additional shares of Common Stock or the Common Stock Equivalents
(including
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the additional shares of Common Stock issuable upon conversion or
exercise), then, and in each such event, the maximum number of shares
(as set forth in the instrument relating thereto without regard to any
provisions contained therein for subsequent adjustment of such number)
of Common Stock issuable in payment of such dividend or distribution
or upon conversion or exercise of such Common Stock equivalents shall
be deemed to be issued and outstanding as of the time of such issuance
or, in the event such record date shall have been fixed, as of the
close of business on such record date. In such event the Conversion
Ratio shall be decreased as of the time of such issuance or, in the
event such a record date shall have been fixed, as of the close of
business on such record date, by multiplying the Conversion Ratio then
in effect by a fraction,
(i) the numerator of which shall be the total number of shares of
Common Stock issued and outstanding or deemed to be issued and
outstanding immediately prior to the time of such issuance or the
close of business on such record date; and
(ii) the denominator of which shall be the total number of shares
of Common Stock issued and outstanding or deemed to be issued and
outstanding immediately prior to the time of such issuance or the
close of business on such record date plus the number of shares
of Common Stock issuable in payment of such dividend or
distribution or upon conversion or exercise of such Common Stock
Equivalents;
provided, however, (A) if such record date shall have been fixed and
such dividend is not fully paid or if such distribution is not fully
made on the date fixed for such distribution, then the Conversion
Ratio shall be recomputed accordingly as of the close of business on
such record date and the Conversion Ratio shall be adjusted pursuant
to this paragraph 5(e) as of the time of actual payment of such
dividends or distributions; (B) if such Common Stock Equivalents
provide, with the passage of time or otherwise, for any decrease in
the number of shares of Common Stock issuable upon the conversion
or exercise (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, the Conversion
Ratio shall, upon any such decrease becoming effective, be recomputed
to reflect such decrease insofar as it affects the rights of
conversion or exercise of the Common Stock Equivalents then
outstanding; (C) upon the expiration of any rights or conversion or
exercise under any unexercised Common Stock Equivalents, the
Conversion Ratio computed upon the original issue (or upon the
occurrence of a record date with respect thereto) and any subsequent
adjustments based thereon, shall, upon such expiration, be recomputed
as if the only additional shares of Common Stock issued were the
shares of such stock, if any, actually issued upon the conversion or
exercise of such Common Stock Equivalents; and (D) in the case of
Common Stock Equivalents that expire by their terms not more than
sixty (60) days after the date of issuance, no adjustment of the
Conversion Ratio shall be made until the expiration or exercise of all
such Common Stock Equivalents, whereupon such adjustment shall be made
in the manner provided in clause (C).
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(f) Adjustments for Other Dividends and Distributions. In the event the
Corporation at any time or from time to time after the Original Issue
Date shall make, issue, or fix a record date for the determination of
holders of Common Stock entitled to receive a dividend or other
distribution payable in securities of the Corporation other than shares
of Common Stock, then, and in each such event, provision shall be made
so that the holders of Series D Stock shall receive upon conversion,
and in addition to the number of shares of Common Stock otherwise
receivable thereupon, the amount of other securities of the Corporation
that they would have received had their Series D Stock been converted
into Common Stock on the date of such event and had, thereafter, during
the period from the date of such event to and including the conversion
date, retained such other securities giving application to all
adjustments called for during such period under this paragraph 5 with
respect to such other securities.
(g) Adjustment for Reclassification, Exchange, or Substitution. If the
Common Stock issuable upon the conversion of the Series D Stock shall
be changed into the same or a different number of shares of any class
or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination
of shares or stock dividend provided for above) or a reorganization,
merger, consolidation or sale of assets provided for elsewhere in this
paragraph 5, then and in each such event the holder of each share of
the Series D Stock shall have the right thereafter to convert such
shares into the kind and amount of shares of stock and other securities
and property receivable upon such reorganization, reclassification, or
other change, by holders of the number of shares of Common Stock into
which such shares of the Series D Stock might have been converted
immediately prior to such reorganization, reclassification, or change,
all subject to further adjustment as provided herein.
(h) Reorganization, Mergers, Consolidations or Sales of Assets. If at any
time or from time to time there shall be a capital reorganization
of the Common Stock (other than a subdivision, combination,
reclassification, or exchange of shares provided for elsewhere in this
paragraph 5), or a merger or consolidation of the Corporation with or
into another corporation, or the sale of al1 or substantially all of
the Corporation's properties and assets to any other person, then, as a
part of such reorganization, merger, consolidation or sale, provision
shall be made so that the holder of each share of the Series D Stock
shall thereafter be entitled to convert such Series D Stock into the
kind and amount of stock or other securities or property receivable
upon such merger or consolidation or sale by a holder of the number of
shares of Common Stock into which such shares of Series D Stock might
have been converted immediately prior to such reorganization, merger,
consolidation or sale, subject to adjustments which shall be as nearly
equivalent as practicable to the adjustments provided for in this
paragraph 5.
(i) No Dilution or Impairment. The Corporation will not, by amendment of
its Restated Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale
of securities, or any other voluntary action, avoid or seek to avoid
the observance or performance of any of
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<PAGE>
the terms to be observed or performed under this article by the
Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of paragraph 5 and in the taking of
all such action as may be necessary or appropriate in order to protect
the Conversion Rights of the holders of Series D Stock against
dilution or other impairment.
(j) Certificate as to Adjustments. Upon the occurrence of each adjustment
or readjustment of the Conversion Ratio pursuant to paragraph 5, the
Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms of this article and cause
independent public accountants selected by the Corporation to verify
such computation and prepare and furnish to each holder of Series D
Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment
is based. The Corporation shall, upon the written request at any time
of any holder of Series D Stock, furnish or cause to be furnished to
such holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Ratio in effect at the time for the
Series D Stock, and (iii) the number of shares of Common Stock and the
amount, if any, of other property that at the time would be received
upon the conversion of the Series D Stock.
(k) Notices of Record Date. In the event of (i) any taking by the
Corporation of a record of the holders of any class of securities for
the purpose of determining the holders of such securities who are
entitled to receive any dividend (other than a cash dividend) or other
distribution, any Common Stock Equivalents or any right to subscribe
for, purchase, or otherwise acquire any shares of stock of any class
or any other securities or property, or to receive any other right, or
(ii) any reclassification or recapitalization of the capital stock of
the Corporation, or any transfer of all or substantially all of the
assets of the Corporation to any other corporation, entity or person
or any voluntary or involuntary dissolution, liquidation or winding up
of the Corporation, the Corporation shall mail to each holder of
Series D Stock at least twenty (20) days prior to the date specified
in such notice, a notice specifying (a) the date on which any such
record is to be taken for the purpose of such dividend, distribution,
or rights, (b) the date on which any such reorganization,
reclassification, transfer, consolidation, merger, dissolution,
liquidation, or winding up is expected to come effective, and (c) the
time, if any is to be fixed, as to when the holders of record of
Common Stock (or other securities) shall be entitled to exchange their
shares of Common Stock (or other securities) for securities or other
property deliverable upon such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding
up.
(l) Issue Taxes. The Corporation shall pay any and all issue and other
taxes or governmental charges that may be payable in respect of any
issue or delivery of shares of Common Stock on conversion of shares of
Series D Stock.
(m) Reservation of Stock Issuable Upon Conversion. As soon as the
Corporation amends its Restated Articles of Incorporation as it has
agreed to do in the
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<PAGE>
Agreement, the Corporation shall at all time reserve and keep
available out of its authorized but unissued shares of Common Stock
solely for the purpose of effecting the conversion of the shares of
Series D Stock such number of its shares of Common Stock as shall from
time to time be sufficient to effect the conversion of all outstanding
shares of Series D Stock. If, at any time after the Corporation has
amended its Restated Articles of Incorporation to increase the number
of authorized shares of Common Stock, the number of authorized but
unissued shares of Common Stock again shall not be sufficient to
effect the conversion of all then outstanding shares of Series D
Stock, the Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be
sufficient for such purpose.
(n) Fractional Shares. No fractional share shall be issued upon the
conversion of any share or shares of Series D Stock. All shares of
Common Stock (including fractions) issuable upon conversion of more
than one share of Series D Stock by a holder of such stock shall be
aggregated for purposes of determining whether the conversion would
result in the issuance of a fractional share of Common Stock, the
Corporation shall, in lieu of issuing any fractional share, pay the
holder otherwise entitled to such fraction a sum in cash equal to the
current market price of such fraction on the date of conversion, as
determined in good faith by the Board of Directors.
(o) Notices. Any notice required by the provisions of paragraph 5 to be
given to the holders of shares of Series D Stock shall be deemed given
five days after such notice shall have been deposited in the United
States mail, postage prepaid, and addressed to each holder of record
at his address appearing on the books of the Corporation.
6. DILUTION.
(a) Subject to subparagraph (b), if the aggregate percentage interest of
Investor (as hereinafter defined) of the Total Voting Power of the
Corporation is or would be reduced as a result of an issuance by the
Corporation of Voting Stock (including any issuance following
conversion of any security convertible into or exchangeable for Voting
Stock or upon exercise of any option, warrant, or other right to
acquire any Voting Stock), the Corporation shall so notify the
Investor promptly after establishing the material terms of such
proposed issuance. In such notice, the Corporation shall offer to sell
to the Investor that number of shares of Voting Stock which, if so
purchased, would result in the retention by the Investor, in the
aggregate, of its aggregate percentage interest in the Total Voting
Power in effect immediately prior to such proposed reduction of its
aggregate interest. If such offer is accepted by the Investor within
thirty (30) days following receipt of same, the Corporation shall sell
such shares to the Investor at a purchase price per share determined
as provided in subparagraphs (a)(1), (2) or (3) below.
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If issuance of Voting Stock in any such transaction would result in the
recipient of such Voting Stock obtaining 5% or more to the total
outstanding Common Stock of the Corporation, notice shall be promptly
provided to Investor as required above. However, if such transaction(s)
should be less than 5% then the Corporation will notify the Investor and
make the offer as set forth above on an annual basis on or before
December 31 with respect to all such transactions under 5% which have
occurred during that year. Investor will have thirty (30) days following
receipt of such offer in which to accept.
(1) If the Voting Stock is registered under the Exchange Act, the
purchase price per share shall be the Average Market Price per share
on the day prior to the date of issuance. For purposes of this
paragraph 5, the "Average Market Price" of the Voting Stock at any
date shall be the average of the daily closing prices, per share, of
such security on the 30 consecutive trading days ending on the trading
day last preceding the date of determination of such price. The
closing price for each trading day shall be the last sale price,
regular way, or, in case no such sale takes place on such trading day,
the average of the closing bid and ask prices, regular way, in either
case as reported in the principal consolidated transaction reporting
system with respect to a security listed or admitted to trading on a
national securities exchange or, if such security is not listed or
admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the
National Association of Security Dealers, Inc. Automated Quotation
System ("NASDAQ") or such other system then in use, or, if on any such
Trading Day the applicable securities are not quoted by any such
organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in such
securities selected by the Board of Directors of the Corporation.
(2) In the case of an issuance proposed to be effected by means of an
underwritten primary public offering, private offering transaction or
other similar private placement of Voting Stock, the notice given
pursuant to this subparagraph (a) shall be to the effect that the
Investor shall be entitled to participate in such public offering or
private placement as a recipient of a directed sale, or otherwise, at
a price per share equal to that paid by the public or the other
purchasers, as the case may be.
(3) If the Voting Stock is not registered under the Exchange Act, and
subparagraph (a)(2) above is not applicable (e.g., upon exercise of
any option, warrant, or other right to acquire Voting Stock not
excepted under subparagraph (b)), then the purchase price per share
shall be the price at which Voting Stock was most recently issued in a
private placement of Voting Stock.
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<PAGE>
(b) The Corporation shall not be obligated to deliver notices or offer
Voting Stock for sale pursuant to subparagraph (a) in respect of the
following issuances of Voting Stock or other voting securities: (i)
pursuant to employee, director or consultant stock option, purchase,
bonus, exchange or other such plans or upon the exercise of options or
other rights granted thereunder, and (ii) in connection with
transactions in which shares of Voting Stock are being issued to
security holders of a company being acquired by the Corporation or to
a company some or all of whose assets (including subsidiaries,
technology or other tangible or intangible property) are being
acquired by the Corporation or in similar merger and acquisition
situations. Furthermore, on each occasion for which the Investor is
eligible to exercise its rights to retain its Total Voting Power under
Paragraph 6(a), the Corporation shall be obligated to permit the
Investor to exercise such rights only once after other holders of
antidilution rights exercise their rights.
(c) If the Corporation's offer under this paragraph 6 is accepted, the
purchase and sale of any such shares of Voting Stock shall take place
on the second business day following the expiration or early
termination of all waiting periods which may be imposed on such
purchase and sale by the HSR Act, or, if no waiting period is imposed
on such purchase and sale by the HSR Act, on the second business day
following the receipt of the acceptance of such offer at the offices
of the Corporation, or at such other time and place as the Corporation
and the Investor may agree. Payment of the purchase price shall be
made promptly upon effectuation of the purchase and sale of such
shares of Voting Stock by wire transfer of collected funds, and
delivery of the shares shall be made promptly upon such payment. The
Corporation and the Investor will use their best efforts to comply
with all federal and state laws and regulations and stock exchange
listing requirements applicable to any purchase and sale of shares of
Voting Stock under this paragraph 6.
(d) The Investor's rights under this paragraph 6 to acquire additional
shares of Voting Stock shall terminate and be of no further effect on
the Termination Date.
(e) The antidilutive rights granted Investor under this paragraph 6 are
not assignable.
(f) For purpose of this paragraph 6, the following terms have the
respective meanings set forth below:
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976.
"Investor" means, Howard K. Schmidt and his affiliates and, with the
written consent of the Corporation (which will not be unreasonably
withheld), the first (but only the first) transferee or assignee of
100% of the shares of Series D Stock.
"Termination Date" means the sooner to occur of (i) the first day on
which the Investor shall not beneficially own (within the meaning of
Rule 13d-3 promulgated under the Securities Exchange Act of 1934) more
than four percent
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<PAGE>
(4%) of the outstanding Voting Stock of the Corporation, following its
failure to exercise its rights against dilution under this paragraph 6,
(ii) the expiration or other termination, without exercise, of that
certain Warrant of Investor to acquire 75,000 shares of Series D Stock
issued by the Corporation, or (iii) the date on which the Corporation
files a registration statement for a public offering of Voting Stock with
the United States Securities and Exchange Commission.
"Total Voting Power" means the total Voting Power of all Voting Stock
outstanding and entitled to vote at any meeting of shareholders of the
Corporation.
"Voting Power" means the ability to vote or to control, directly or
indirectly, by proxy or otherwise the vote of any share of Voting Stock.
"Voting Stock" means any of the Common Stock, Preferred Stock or other
securities of the Corporation entitled to vote at a meeting of
shareholders of the Corporation.
7. AMENDMENT. Any of the rights specified in this designation may be
amended with the mutual written consent of (a) the board of directors of the
Corporation and (b) holders of not less than a majority of all Series D Stock
then outstanding. All amendments to this Certificate of Designation shall be
made in accordance with the provisions of the Texas Business Corporation Act as
in effect from time to time, provided that any such amendment must be approved
by the holders of not less than a majority of all Series D Stock then
outstanding. Any such amendment so effected shall be binding upon the
Corporation and any holder of Series D Stock or Common Stock.
Series E Preferred Stock
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series E Preferred Stock" (the "Series E Preferred Stock") and
the number of shares constituting the Series E Preferred Stock shall be 1,500,
Such number of shares may be increased or decreased by resolution of the Board
of Directors; provided, that no decrease shall reduce the number of shares of
Series E Preferred Stock to a number less than the number of shares then
outstanding plus the number of shares reserved for issuance upon the exercise of
outstanding options, rights or warrants or upon the conversion of any
outstanding securities issued by the Corporation convertible into Series E
Preferred Stock.
Section 2. Rank. The Series E Preferred Stock shall rank: (i) prior to
all of the Corporation's Common Stock, par value $.001 per share ("Common
Stock"); (ii) prior to any class or series of capital stock of the Corporation
hereafter created specifically ranking by its terms junior to any Series E
Preferred Stock of whatever subdivision (collectively, with the Common Stock,
"Junior Securities"); (iii) on parity with the Corporation's Series A, Series C
and Series D Preferred Stock, and any class or series of capital stock of the
Corporation hereafter created specifically ranking by its terms on parity with
the Series E Preferred Stock ("Parity Securities") in each case as to
distributions of assets upon liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary (all such distributions being
referred to collectively as "Distributions").
Section 3. Dividends. The Series E Preferred Stock will bear no
dividends, and the holders of the Series E Preferred Stock shall not be entitled
to receive dividends on the Series E Preferred Stock.
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<PAGE>
Section 4. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, the holders of shares of Series E
Preferred Stock shall be entitled to receive, immediately after any
distributions to senior securities required by the Corporation's Amended and
Restated Articles of Incorporation or any statement of designation of
preferences, and prior and in preference to any distribution to Junior
Securities but in parity with any distribution of Parity Securities, an amount
per share equal to the sum of (i) $10,000 for each outstanding share of Series E
Preferred Stock (the "Original Series E Issue Price") and (ii) an amount equal
to 8% of the Original Series E Issue Price per annum for the period that has
passed since the date of issuance of any Series E Preferred Stock (such amount
being referred to herein as the "Premium"). If upon the occurrence of such
event, the assets and funds thus distributed among the holders of the Series E
Preferred Stock and Parity Securities shall be insufficient to permit the
payment to such holders of the full preferential amounts due to the holders of
the Series E Preferred Stock and the Parity Securities, respectively, then the
entire assets and funds of the Corporation legally available for distribution
shall be distributed among the holders of the Series E Preferred Stock and the
Parity Securities, pro rata, based on the respective liquidation amounts to
which each such series of stock is entitled by the Corporation's Articles of
Incorporation and any statement(s) of designation of preferences.
(b) Upon the completion of the distribution required by subsection 4(a),
if assets remain in this Corporation, they shall be distributed to holders of
Parity Securities (unless holders of Parity Securities have received
distributions pursuant to subsection (a) above) and Junior Securities in
accordance with the Corporation's Amended and Restated Articles of Incorporation
including any duly adopted statement(s) of designation of preferences.
(c) A consolidation or merger of the Corporation with or into any other
corporation or corporations, or a sale, conveyance or disposition of all or
substantially all of the assets of the Corporation or the effectuation by the
Corporation of a transaction or series of related transactions in which more
than 50% of the voting power of the Corporation is disposed of, shall not be
deemed to be a liquidation, dissolution or winding up within the meaning of this
Section 4, but shall instead be treated pursuant to Section 7 hereof.
Section 5. Conversion.
The record Holders of this Series E Preferred Stock shall have conversion rights
as follows (the "Conversion Rights"):
(a) Right to Convert. The record Holder of the Series E Preferred Stock
shall be entitled, as set forth below, and, subject to the Company's right of
redemption set forth in Section 6(a) and the restrictions on conversion set
forth in Section 5(b) below, at the office of the Company or any transfer agent
for the Series E Preferred Stock, to convert the shares of Series E Preferred
Stock held by such Holder into that number of fully-paid and nonassessable
shares of the Company's Common Stock at the Conversion Rate as set forth below.
The number of shares of Common Stock into which this Series E Preferred Stock
may be converted is hereinafter referred to as the "Conversion Rate" for such
Series E Preferred Stock, and is computed as follows:
Number of shares issued upon conversion of one share of Preferred Stock
= [(.08)(N/365)(Issue Price)] + Issue Price
-------------------------------------------
Conversion Price
where
*N = the number of days between (i) the date that, in connection with the
consummation of
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the initial purchase of the Preferred Stock from the Company, the escrow
agent first had in its possession funds representing full payment for the
Preferred Stock for which conversion is being elected, and (ii) the
applicable date of conversion for the Preferred Stock for which
conversion is being elected,
*Issue Price = the Original Series E Issue Price, as defined in Section
4(a), and
*Conversion Price = the lesser of (x) $3.00 (the "Fixed Conversion
Price"), as may be adjusted pursuant to Section 5(f) below, or (y) 85% of
the average Closing Bid Price, as that term is defined below, of the
Company's Common Stock for the five (5) trading days immediately
preceding the Date of Conversion, as defined below. For purposes hereof,
the term "Closing Bid Price" shall mean the closing bid price of the
Company's Common Stock as reported by NASDAQ (or, if not reported by
NASDAQ, as reported by such other exchange or market where traded).
(b) Restrictions on Conversion. No shares of Series E Preferred Stock may
be converted prior to 45 days after the last Closing (as defined in the
Subscription Agreement). Thereafter, each Holder of Series E Preferred Stock may
convert one-third of his shares of Series E Preferred Stock on or after the 45th
day after the last Closing, an additional one-third on or after the 75th day
after the last Closing, and all additional remaining Series E Preferred Stock on
or after the 105th day after the last Closing.
(c) Mechanics of Conversion. No fractional shares of Common Stock shall
be issued upon conversion of this Series E Preferred Stock. In lieu of any
fractional share to which the Holder would otherwise be entitled, the Company
shall pay cash to such Holder in an amount equal to such fraction multiplied by
the Conversion Price then in effect. In the case of a dispute as to the
calculation of the Conversion Rate, the Company's calculation shall be deemed
conclusive absent manifest error. In order to convert Series E Preferred Stock
into full shares of Common Stock, the Holder shall surrender the certificate or
certificates therefor, duly endorsed, by either overnight courier or 2-day
courier, to the office of the Company or of any transfer agent for the Series E
Preferred Stock, and shall give written notice ("Notice of Conversion") to the
Company at such office that he elects to convert the same, the number of shares
of Series E Preferred Stock so converted and a calculation of the Conversion
Rate (with an advance copy of the certificate(s) and the notice by facsimile);
provided, however, that the Company shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such conversion unless
either the certificates evidencing such Series E Preferred Stock are delivered
to the Company or its transfer agent as provided above, or the Holder notifies
the Company or its transfer agent that such certificates have been lost, stolen
or destroyed and executes an agreement satisfactory to the Company to indemnify
the Company from any loss incurred by it in connection with such certificates.
The Company shall use best efforts to issue and deliver within three (3)
business days after delivery to the Company of such certificates, or after such
agreement and indemnification, to such Holder of Series E Preferred Stock at the
address of the Holder on the books of the Company, a certificate or certificates
for the number of shares of Common Stock to which the Holder shall be entitled
as aforesaid. The date on which conversion occurs (the "Date of Conversion")
shall be deemed to be the date set forth in such Notice of Conversion, provided
(i) that the advance copy of the Notice of Conversion is faxed to the Company
before midnight, New York City time, on the Date of Conversion and (ii) that the
stock certificates (the "Preferred Stock Certificates") representing the Series
E Preferred Stock to be converted are received by the transfer agent or the
Company within five (5) business days thereafter. The person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock on such date. If the original Preferred Stock Certificates to
be converted are not received by the transfer agent or the Company within five
(5) business days after the Date of Conversion, the Notice of Conversion shall
become null and void.
(d) Reservation of Stock Issuable Upon Conversion. The Company shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock, solely for the purpose of effecting the conversion of the
Series E Preferred Stock, such number of its shares of
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Common Stock as shall from time to time be sufficient to effect the conversion
of all then outstanding shares of Series E Preferred Stock; and if at any time
the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of Series E
Preferred Stock, the Company will take such corporate action as may be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
(e) Automatic Conversion. Each share of Series E Preferred Stock
outstanding on January 15, 1999 automatically shall be converted into Common
Stock on each date at the Conversion Price then in effect and January 15, 1999
shall be deemed the Date of Conversion with respect to such Conversion.
(f) Adjustment to Fixed Conversion Price.
In computing the Fixed Conversion Price for purposes of Section
5(a):
(i) If, prior to the conversion of all of the Series E Preferred
Stock, the number of outstanding shares of Common Stock is increased by a stock
split stock dividend, or other similar event, the Fixed Conversion Price shall
be proportionately reduced, or if the number of outstanding shares of Common
Stock is decreased by a combination or reclassification of shares, or other
similar event, the Fixed Conversion Price shall be proportionately increased.
(ii) If, prior to the conversion of all Series E Preferred Stock,
there shall be any merger, consolidation, exchange of shares, recapitalization,
reorganization, or other similar event, as a result of which shares of Common
Stock of the Company shall be changed into the same or a different number of
shares of the same or another class or classes of stock or securities of the
Company or another entity, then the Holders of Series E Preferred Stock shall
thereafter have the right to purchase and receive upon conversion of Series E
Preferred Stock, upon the basis and upon the terms and conditions specified
herein and in lieu of the shares of Common Stock immediately theretofore
issuable upon conversion, such shares of stock and/or securities as may be
issued or payable with respect to or in exchange for the number of shares of
Common Stock immediately theretofore purchasable and receivable upon the
conversion of Series E Preferred Stock held by such Holders had such merger,
consolidation, exchange of shares, recapitalization or reorganization not taken
place, and in any such case appropriate provisions shall be made with respect to
the rights and interests of the Holders of the Series E Preferred Stock to the
end that the provisions hereof (including, without limitation, provisions for
adjustment of the Fixed Conversion Price and of the number of shares issuable
upon conversion of the Series E Preferred Stock) shall thereafter be applicable,
as nearly as may be practicable in relation to any shares of stock or securities
thereafter be deliverable upon the exercise hereof. The Company shall not
effect any transaction described in this subsection 5(f) unless the resulting
successor or acquiring entity (if not the Company) assumes by written instrument
the obligation to deliver to the Holders of the Series E Preferred Stock such
shares of stock and/or securities as, in accordance with the foregoing
provisions, the Holders of the Series E Preferred Stock may be entitled to
purchase.
(iii) If any adjustment under this Section 5(f) would create a
fractional share of Common Stock or a right to acquire a fractional share of
Common Stock, such fractional share (on an aggregate basis) shall be disregarded
and the number of shares of Common Stock issuable upon conversion shall be the
next lower number of shares with the balance paid in cash.
Section 6. Redemption by Company.
(a) Company's Right to Redeem in Case of Conversion.
(i) In the event the Conversion Price shall be $3.00 or
less per share, the Company shall have the right, in its sole
discretion, upon receipt of a Notice of Conversion pursuant to
Section 5, to redeem in whole or in part any Series E Preferred
Stock submitted for conversion, immediately prior to conversion. If
the
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Company elects to redeem some, but not all, of the Series E Preferred
Stock submitted for conversion, the Company shall redeem from among the
Series E Preferred Stock submitted by the various shareholders for
conversion on the applicable date, a pro-rata amount from each
shareholder so submitting Series E Preferred Stock for conversion.
(ii) Mechanics of Redemption. Any shareholder considering
submitting Preferred Stock for conversion at such time as the Company's
right of redemption under Section 6(a) is or may be in effect may provide
notice to the Company of his possible desire to convert within five
business days of the date of the notice, and ask the Company to determine
whether or not the Company would exercise its right of redemption if the
Preferred Stock were submitted for conversion. The Company shall respond
within two business days of the date of that notice, and state whether it
would redeem the shares, in whole or in part, or allow conversion into
shares without redemption, which election will be applicable to
conversion by such shareholder within the next five business days after
the date of the Company's response. Failure of the Company to respond
within the two-day period shall be deemed an election by the Company not
to redeem the shares covered by that notice if submitted for conversion
within the next five business days. If the shareholder does not provide
advance notice of intention to convert as contemplated in this section
(ii), the Company shall effect each such redemption of shares submitted
for conversion by giving notice of its election to redeem, by facsimile
within 2 business days following receipt of a Notice of Conversion from a
Holder, with a copy by 2-day courier, to (A) the Holder of Series E
Preferred Stock submitted for conversion at the address and facsimile
number of such Holder appearing in the Company's register for the Series
E Preferred Stock and (B) the Company's Transfer Agent. Such redemption
notice shall indicate whether the Company will redeem all or part of the
Series E Preferred Stock submitted for conversion and the applicable
redemption price. The Company shall not be entitled to exercise its right
to redeem shares submitted for conversion under this Section 6(a) unless
it has (x) the full amount of the redemption price, in cash, available in
a demand or other immediately available account in a bank or similar
financial institution or (y) immediately available credit facilities, in
the full amount of the redemption price, with a bank or similar financial
institution on the date the redemption notice is sent to shareholders.
(iii) Redemption Price. In the case of a redemption under this
Section 6(a), the redemption price shall equal:
=[[(.08)(N/365)(Issue Price)] + Issue Price] [Closing Bid Price]
----------------------------------------------------------------
Conversion Price
where "N", "Issue Price," "Closing Bid Price" and "Conversion Price" have
the meanings set forth in Section 5.
The redemption price shall be paid to the Holder of Series E Preferred
Stock redeemed within 10 business days after the redemption; provided,
however, that the Company shall not be obligated to deliver any portion
of such redemption price unless either the certificates evidencing the
Series E Preferred Stock redeemed are delivered to the Company or its
transfer agent as provided in Section 4(b), or the Holder notifies the
Company or its transfer agent that such certificates have been lost,
stolen or destroyed and executes an agreement satisfactory to the Company
to indemnify the Company from any loss incurred by it in connection with
such certificates.
(b) Company's Right to Call Redemption. The Company shall have the
right to redeem the Series E Preferred Stock on the following terms and
conditions:
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<PAGE>
(i) The Company may redeem the Series E Preferred Stock at any
time, in its discretion, at the redemption price listed in 6(b)(iii)
below. The Company may elect to redeem some, but not all, of the Series E
Preferred Stock, but in no event less than $5,000,000 per redemption. If
the Company elects to redeem some, but not all, of the Series E Preferred
Stock, the Company shall redeem a pro-rata amount from among all the
Series E Preferred Stock holders. The holders of the Preferred Stock shall
have the right to convert their Preferred Stock until the redemption date.
(ii) Mechanics of Redemption. The Company shall effect each such
redemption by giving notice of its election to redeem, by facsimile with a
copy by 2-day courier, no less than 20 business days prior to the intended
redemption date. Such redemption notice shall indicate whether the Company
will redeem all or part of the Series E Preferred Stock and the applicable
redemption price. The Company shall not be entitled to send any notice of
redemption and begin the redemption procedure unless it has (x) the full
amount of the redemption price, in cash, available in a demand or other
immediately available account in a bank or similar financial institution
or (y) immediately available credit facilities, in the full amount of the
redemption price, with a bank or similar financial institution on the date
the redemption notice is sent to shareholders. If the Company has met the
requirements of the preceding sentence, and a holder has not submitted his
Series E Preferred Stock for redemption as required by this Section 6(b)
by the redemption date, the Company may pay the redemption price described
in (iii) below and cancel the Series E Preferred Stock subject to the
redemption notice, and such redeemed Series E Preferred Stock shall be of
no further validity, force or effect.
(iii) Redemption Price. In the case of a redemption under this
Section 6(b), the redemption price per share of Series E Preferred Stock
shall be as follows:
Redemption Price Elapsed Time since Last Closing
--------------------------------------------------------------
130% of Stated Value 90 days - 6 months
125% of Stated Value 6 months and 1 day - 12 months
120% of Stated Value 12 months and 1 day - 18 months
115% of Stated Value 18 months and 1 day - 24 months
110% of Stated Value 24 months and 1 day - 30 months
105% of Stated Value 30 months and 1 day - 36 months
For purposes of this paragraph, the "Stated Value" shall equal the
Original Series E Issue Price plus the Premium. The redemption price shall
be paid to the Holder of Series E Preferred Stock redeemed within 10 days
of the date of such redemption to such Holder; provided, however, that the
Company shall not be obligated to deliver any portion of such redemption
price unless either the certificates evidencing the Series E Preferred
Stock redeemed are delivered to the Company or its transfer agent as
provided in Section 4(b), or the Holder notifies the Company or its
transfer agent that such certificates have been lost, stolen or destroyed
and executes an agreement satisfactory to the Company to indemnify the
Company from any loss incurred by it in connection with such certificates.
Section 7. Corporate Change.
In the event of a merger, reorganization, recapitalization or similar
event of or with respect to the Company (a "Corporate Change") (other than a
Corporate Change in which or substantially all of the consideration received by
the holders of the Company's equity securities upon such Corporate Change
consists of cash or assets other than securities issued by the acquiring entity
or any affiliate thereof), this Series E Preferred Stock shall be assumed by the
acquiring entity and thereafter this Series E Preferred Stock shall be
convertible into such class and type of securities as the Holder would have
received had the Holder converted this Series E Preferred Stock immediately
prior to such Corporate Change.
33
<PAGE>
Section 8. Voting Rights. Except as otherwise provided by the Texas
Business Corporation Act and Section 9 below, the holders of the Series E
Preferred Stock shall be entitled to a number of votes equal to the number of
shares of Common Stock into which their respective shares of Series E Preferred
Stock are then convertible using the record date for the taking of such vote of
stockholders as the date as of which the Conversion Price is calculated. Holders
of the Series E Preferred Stock shall be entitled to notice of all shareholder
meetings or written consents with respect to which they would be entitled to
Vote, which notice would be provided pursuant to the Corporation's by-laws and
applicable statutes.
Section 9. Protective Provisions. So long as shares of Series E
Preferred Stock are outstanding, the Corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least a majority of the then outstanding shares of Series E
Preferred Stock:
(a) alter or change the rights, preferences or privileges of the shares
of Series E Preferred Stock or any senior securities so as to affect adversely
the Series E Preferred Stock;
(b) create any new class or series of stock having a preference over the
Series E Preferred Stock with respect to Distributions (as defined in Section 2
above); or
(c) do any act or thing not authorized or contemplated by this
Designation which would result in taxation of the holders of shares of the
Series E Preferred Stock under Section 305 of the Internal Revenue Code of 1986,
as amended (or any comparable provision of the Internal Revenue Code as
hereafter from time to time amended).
Section 10. Status of Redeemed or Converted Stock. In the event any
shares of Series E Preferred Stock shall be redeemed or converted pursuant to
Section 5 or Section 6 hereof, the shares so converted or redeemed shall be
canceled, shall return to the status of authorized but unissued Preferred Stock
of no designated series, and shall not be issuable by the Corporation as Series
E Preferred Stock.
34
<PAGE>
DIVISION D - PROVISIONS APPLICABLE TO ALL CLASSES OF STOCK
(c) No holder of any stock of the Corporation shall be entitled as of right to
purchase or subscribe for any part of any unissued or treasury stock of
the Corporation, or of any additional stock of any class, to be issued by
reason of any increase of the authorized capital stock of the Corporation,
or to be issued from any unissued or additionally authorized stock, or of
bonds, certificates of indebtedness, debentures or other securities
convertible into stock of the Corporation, but any such unissued or
treasury stock, or any such additional authorized issue of new stock or
securities convertible into stock, may be issued and disposed of by the
Board of Directors to such persons, firms, corporations or associations,
and upon such terms as the Board of Directors may, in its discretion,
determine, without offering to the shareholders then of record, or any
class of shareholders, any thereof, on the same terms or any terms.
ARTICLE FIVE
The Corporation will not commence business until it has received for the
issuance of its shares consideration of the value of not less than $1000.00
consisting of money paid, labor done, or property actually received.
35
<PAGE>
ARTICLE SIX
The address of the registered office and the name of its registered agent
is as follows:
C T Corporation System
811 Dallas Avenue
Houston, Texas 77002
ARTICLE SEVEN
(a) The business and affairs of the Corporation shall be conducted and managed
by, or under the direction of, the Board of Directors. Except as otherwise
provided for or fixed pursuant to the provisions of Article 4 of these
Amended and Restated Articles relating to the rights of the holders of any
series of Preferred Stock to elect additional directors, the total number
of directors constituting the entire Board of Directors shall be not less
than three (3) nor more than nine (9), with the then-authorized number of
directors being fixed from time to time solely by or pursuant to a
resolution passed by the Board of Directors.
(b) The Board of Directors shall have the power to make, adopt, alter, amend
and repeal from time to time the By-Laws of this Corporation, subject to
the right of the shareholders entitled to vote with respect thereto to
adopt, alter, amend and repeal the By-Laws; provided, however, that By-Laws
shall not be adopted, altered, amended or repealed by the stockholders of
the Corporation except by the vote of the holders of not less than sixty
percent (60%) of the outstanding shares of the capital stock of the
Corporation entitled to vote generally in the election of directors,
considered for this purpose as one class.
(c) No director of the Corporation shall be liable to the Corporation or its
shareholders for monetary damages for an act or omission (or an alleged
act or omission) in a director's capacity as director, except that this
Article Seven (c) does not eliminate or limit the liability of a director
to the extent the director is found liable for:
(1) a breach of a director's duty of loyalty to the Corporation or its
shareholders;
(2) an act or omission not in good faith which constitutes a breach of
duty of the director to the Corporation, or an act or omission which
involves intentional misconduct or a knowing violation of the law;
(3) a transaction from which a director received an improper benefit,
whether or not the benefit resulted from an action taken within the
scope of the director's office;
(4) an act or omission for which the liability of a director is expressly
provided for by an applicable statute; or
36
<PAGE>
(5) an act related to an unlawful stock repurchase or payment of a
dividend.
If the Texas Miscellaneous Corporation Laws Act or the TBCA or any other
applicable law is amended or adopted to authorize action further
eliminating or limiting the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited
to the fullest extent permitted by such law(s), as so amended or adopted.
Any repeal or modification of the foregoing paragraph shall not adversely
affect any right of protection of a director of the Corporation existing at
the time of such repeal or modification.
(d) The Board of Directors shall be divided into three classes, designated as
Class I, Class II, and Class III. Each class shall consist, as nearly as
may be possible, of one-third of the total number of directors constituting
the entire Board of Directors. Initially, Class I directors shall be
elected for a one-year term, Class II directors for a two-year term and
Class III directors for a three-year term. At the annual meeting of
shareholders beginning in 1993, successors to the class of directors whose
term expires at that annual meeting shall be elected for a three-year term.
If the number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors in
each class as nearly equal as possible, and any additional director of that
class elected to fill a vacancy resulting from an increase in such class
shall hold office for a term that shall coincide with the remaining term of
that class, but in no case shall a decrease in the number of directors
shorten the term of any incumbent director. A director shall hold office
until the annual meeting for the year in which his term expires and until
his successor shall be elected and shall qualify, subject, however, to
prior death, resignation, retirement, disqualification or removal from
office. Any vacancy on the Board of Directors that results from an increase
in the number of directors may be filled only by action of majority of the
Board of Directors then in office, provided that a quorum is present, any
other vacancy occurring in the Board of Directors may be filled only by
action of a majority of the directors then in office, even if less than a
quorum, or by a sole remaining director. Any director elected to fill a
vacancy not resulting from an increase in the number of directors shall
have the same remaining term as that of his predecessor.
(e) Notwithstanding the foregoing, whenever, pursuant to the provisions of
Article 4 of these Amended and Restated Articles, the holders of any one or
more series of Preferred Stock shall have the right, voting separately as a
series or together with holders of other such series, to elect directors at
an annual or special meeting of shareholders, the election, term of office,
filling of vacancies and other features of such directorships shall be
governed by the terms of these Amended and Restated Articles and the
Statement of Designations applicable thereto, and such directors so elected
shall not be divided into classes pursuant to this Article 7 (e) unless
expressly provided by such terms.
(f) Directors must be at least 21 years of age and need not be shareholders.
There shall be no qualifications for directors of the Corporation other
than as set forth in these Amended and Restated Articles.
37
<PAGE>
(g) The number of directors presently constituting the Board of Directors of
the Corporation is six (6), and the names and addresses of the persons now
serving as directors are as follows:
Name Address
---- -------
Lee B. Arberg New York, New York
Ronald J. Berman Farmington Hills, Michigan
Marc W. Eller Farmington Hills, Michigan
Howard K. Schmidt Houston, Texas
Philip C. Shaffer Houston, Texas
David R. Sincox Houston, Texas
Thomas J. Smith Fort Worth, Texas
Igor Leontiev Moscow, Russia
Zvi Yaniv Austin, Texas
ARTICLE EIGHT
[Deleted pursuant to Article 4.07 (C) of the TBCA, as amended.]
ARTICLE NINE
(a) At an annual meeting of the shareholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting business must be (a) specified in
the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors, (b) otherwise properly brought before
the meeting by or at the direction of the Board of Directors, or (c)
otherwise properly brought before the meeting by a shareholder. For
business to be properly brought before an annual meeting by a shareholder,
the shareholder must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a shareholder's notice must be
delivered to or mailed and received at the principal executive offices of
the Corporation not less than 60 days nor more than 90 days prior to the
meeting; provided, however, that in the event that less than 70 days'
notice or prior to public disclosure of the date of the meeting is given or
made to shareholders, notice by the shareholder to be timely must be so
received not later than the close of business on the 10th day following the
day on which such notice of the date of the annual meeting was mailed or
such public disclosure was made. A shareholder's notice to the Secretary
shall set forth as to each matter the shareholder proposes to bring before
the annual meeting (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (ii) the name and address, as they appear
on the Corporation's books, of the shareholder proposing such business,
(iii) the class and number of shares of the Corporation which are
beneficially owned by the shareholder, and (iv) any material interest of
the shareholder in such business. The Chairman of the annual meeting shall,
if the facts warrant, determine and declare to the meeting that business
was not properly brought before the
38
<PAGE>
meeting in accordance with the provisions of this Article 9 (a), and if he
should so determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
(b) Only persons who are nominated in accordance with the procedures set forth
in this Article 9 (b) shall be eligible for elections as Directors.
Nominations of persons for election to the Board of Directors of the
Corporation may be made at a meeting of shareholders by or at the direction
of the Board of Directors or by any shareholder of the Corporation entitled
to vote for the election of Directors at the meeting who complies with the
notice procedures set forth in this Article 9 (b). Such nominations, other
than those made by or at the direction of the Board of Directors, shall be
made pursuant to timely notice in writing to the Secretary of the
Corporation. To be timely, a shareholder's notice shall be delivered to or
mailed and received at the principal executive offices of the Corporation
not less than 60 days nor more than 90 days prior to the meeting; provided,
however, that in the event that less than 70 days' notice or prior public
disclosure of the date of the meeting is given or made to shareholders,
notice by the shareholder to be timely must be so received not later than
the close of business on the 10th day following the date on which such
notice of the date of the meeting was mailed or such public disclosure was
made. Such shareholder's notice shall set forth (i) as to each person whom
the shareholder proposes to nominate for election or re-election as a
Director, (A) the name, age, business address and residence address of such
person, (B) the principal occupation or employment of such person, (C) the
class and number of shares of the Corporation which are beneficially owned
by such person, and (D) any other information relating to such person that
is required to be disclosed in solicitations of proxies for election of
Directors, or is otherwise required, in each case pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended (including
without limitation such persons' written consent to being named in the
proxy statement as a nominee and to serving as a Director if elected); and
(ii) as to the shareholder giving the notice (1) the name and address, as
they appear on the Corporation's books, of such shareholder and (2) the
class and number of shares of the Corporation which are beneficially owned
by such shareholder. No person shall be eligible for election as a Director
of the Corporation unless nominated in accordance with the procedures set
forth in this Article 9 (b). The Chairman of the meeting shall, if the
facts warrant, determine and declare to the meeting that a nomination was
not made in accordance with the procedures prescribed herein, and if he
should so determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
ARTICLE TEN
No shareholder of the corporation shall have the right of cumulative
voting at any election of directors or upon any other matter.
ARTICLE ELEVEN
Holders of the Series A Convertible Preferred Stock shall also share
equally and simultaneously with the holders of Common Stock after the
liquidation preference has been distributed.
39
<PAGE>
ARTICLE TWELVE
(a) With respect to any matter for which the affirmative vote of the holders of
a specified portion of the shares entitled to vote is required by the TBCA,
including but not limited to, the amendment of these Amended and Restated
Articles pursuant to Article 4.02 of the TBCA, the approval of any action
or plan of merger or exchange pursuant to Article 5.03 of the TBCA or the
disposition of assets requiring special authorization of shareholders
pursuant to Article 5.10 of the TBCA, the approval of those matters shall
be the affirmative vote of the majority of the shares entitled to vote on
these matters, rather than the affirmative vote otherwise required by the
TBCA.
(b) With respect to any matter for which the affirmative vote of the holders of
a specified portion of the shares of any class or series is required by the
TBCA, including but not limited to those matters identified in paragraph
(a) of this Article Twelve, the approval of those matters shall be the
affirmative vote of the holders of a majority of the shares of that class
or series, rather than the affirmative vote of that class or series
otherwise required by the TBCA.
(c) If the TBCA or any other applicable law is amended or adopted wth respect
to a matter requiring the affirmative vote of the holders of a specified
portion of the shares entitled to vote on that matter, then this Article
Twelve shall also require a vote of a majority of the holders of the shares
entitled to vote on that matter, rather than the affirmative vote otherwise
required.
IN WITNESS WHEREOF, the undersigned has executed these Amended and Restated
Articles as of September 27, 1996.
SI DIAMOND TECHNOLOGY, INC.
/s/ Douglas P. Baker
------------------------------
Douglas P. Baker
Vice President and Chief Financial
Officer
40
<PAGE>
THE STATE OF TEXAS S
S
COUNTY OF HARRIS S
BEFORE ME, the undersigned authority, on this day personally appeared
Douglas P. Baker, the Vice President and Chief Financial Officer of SI Diamond
Technology, Inc., known to me to be the person whose name is subscribed to in
the foregoing instrument, and acknowledges to me that he executed the same for
the purposes and consideration therein expressed, as the act and deed of said
corporation and in the capacity therein expresses.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this the 27th day of September, 1996
-------------------------------
Notary Public in and for
the State of Texas
41
<PAGE>
EXHIBIT 10.1
CITADEL INVESTMENT GROUP, INC.
225 West Washington Street, Ninth Floor
Chicago, Illinois 60606
September 24, 1996
Mr. Marc W. Eller
SI Diamond Technology, Inc.
12100 Technology Blvd.
Austin, Texas 78727
Re: Holdback and Other Agreements Relating to Series E Preferred Stock
Reference is made to the Statement of Designations, Preferences and Rights
of Series E Preferred Stock of SI Diamond Technology, Inc. filed with the Office
of the Secretary of State of Texas on January 4, 1996 (the "Designation").
Capitalized terms used but not defined herein have the respective meanings set
forth in the Designation.
In order to accommodate the Corporation's attempt to acquire additional
financing and subject to your acceptance of this letter (as indicated by your
execution and delivery of a signed counterpart hereof to each of the
undersigned), the undersigned holders of the Series E Preferred Stock agree to
take the following actions on the following terms subject to the conditions set
forth herein.
1. Conversion. During the period beginning on or after September 16, 1996,
and ending on or prior to the date of your acceptance of this letter, the
Holders of Series E Preferred Stock shall convert shares of Series E Preferred
Stock (the "Mandatory Conversion Amount") into an aggregate of approximately
300,000 shares of Common Stock at the Conversion Rate in effect on September 16,
1996. Unless otherwise agreed to by the Holders of Series E Preferred Stock, the
conversions contemplated by this paragraph 1 shall be made by the Holders pro
rata based on the number of shares of Series E Preferred Stock originally
issued to each such Holder.
2. Holdback. Each Holder of Series E Preferred Stock agrees not to convert
any shares of Series E Preferred Stock into Common Stock pursuant to Section 5
of the Designation during the period from the date of acceptance of this letter
to and including October 31, 1996 (the "Financing Period"). In addition, if and
only if (a) the Corporation has raised $1,000,000.00 in net proceeds from its
issuance of debt and/or equity during the Financing Period, (b) such proceeds
are available to the Corporation for general working capital purposes prior to
the expiration of the Financing Period and (c) the Corporation has delivered to
each of the Holders of Series E Preferred Stock a certificate of the chief
financial officer of the Corporation certifying the receipt and availability of
such proceeds prior to the expiration of the Financing Period, each Holder of
Series E Preferred Stock agrees (x) not to convert any shares of Series E
Preferred Stock into Common Stock during the period from and including November
1, 1996 to and including January 14, 1997, and (y) not to convert shares of
Series E Preferred Stock in excess of the Agreed Convertible Amount into Common
Stock during the period from and including January 15, 1997 to and including
February 28, 1997. For purposes of this paragraph 2, the "Agreed Convertible
Amount" shall mean, with respect to any Holder of Series E Preferred Stock, an
amount of shares of the Series E Preferred Stock equal to one-third of the
shares of Series E Preferred Stock held of record by such Holder as of the start
of the trading day on September 16, 1996, less the number of shares of Series E
Preferred Stock converted into Common Stock by such Holder during the period
from and including September 16, 1996 to and including the date of the
acceptance of this letter pursuant to paragraph 1.
<PAGE>
Mr. Marc W. Eller
September 24, 1996
Page 2
3. Consideration for Holdback. In consideration for the agreements of
each of the Holders of Series E Preferred Stock set forth in paragraph 2
above, the Corporation agrees that the Fixed Conversion Price shall be reduced
from $6.575 to $3.00. The Corporation hereby agrees to take all necessary and
desirable action, including without limitation the preparation of definitive
documentation evidencing such agreement and/or the amendment of the
Designation, to give legal and binding effect to the agreement referred to in
the preceding sentence on or prior to September 27, 1996, or, in the event
that this letter is not executed by the number of Holders of Series E
Preferred Stock required under law to effect an amendment to the Designation,
as soon thereafter as practicable. Each of the Holders of Series E Preferred
Stock hereby agrees that this letter constitutes such Holder's written consent
to amend the Designation as provided in the first sentence of this paragraph 3
as required by Section 9 of the Designation.
4. Condition to Holdback. The obligation of each Holder of the Series E
Preferred Stock set forth in paragraph 2 above shall cease and be of no
further force or effect at any time after (a) the average Closing Bid Price of
the Corporation's Common Stock for five consecutive trading days exceeds $3.00
or (b) Marc W. Eller ceases to be employed by the Corporation in substantially
the same capacity as he occupies as of the date hereof.
If you are in agreement with the foregoing terms and conditions, please
execute a counterpart to this letter in the space below and return a copy by
facsimile with hard copy to follow by overnight courier to each of the
undersigned Holders of Series E Preferred Stock at the address set forth on the
books and records of the Corporation prior to 5:00 p.m. EDT, September 25, 1996.
Sincerely,
OLYMPUS SECURITIES, LTD. NELSON PARTNERS
- ---------------------------- -----------------------------
Name: Name:
Title: Title:
LEONARDO, L.P. GRACECHURCH & CO.
- ---------------------------- -----------------------------
Name: Name:
Title: Title:
RAPHAEL L.P. AG SUPERFUND INT'L
- ---------------------------- -----------------------------
Name: Name:
Title: Title:
WEST MERCHANT BANK NOMINEES LTD GAM L.P.
- ---------------------------- -----------------------------
Name: Name:
Title: Title:
<PAGE>
Mr. Marc W. Eller
September 24, 1996
Page 3
The undersigned Holders of Series E Preferred Stock are executing this
letter solely for the purpose of consenting to the amendment of the Designation
as provided in the first sentence of paragraph 3 as required by Section 9 of the
Designation.
LA ROCQUE TRADING GROUP LLC KA TRADING L.P.
- ---------------------------- -----------------------------
Name: Name:
Title: Title:
Accepted and agreed
as of September 25, 1996:
SI DIAMOND TECHNOLOGY, INC.
- ----------------------------
Marc W. Eller
