Form 6-10

The authority for and required terms of this document are stated in Tex. Bus. Orgs. Code § 21.155. This document is appropriate only if the corporation’s certificate of formation expressly authorizes the board of directors to create series of a class of the corporation’s capital stock, in accordance with sec­tion 3.007(b)(5)(D) of the Code, and if the board of directors has exercised that authority by adopting a resolution to create and designate a series.

The terms of the series of preferred stock in this document are somewhat typical, but are not legally required. A corporation has significant flexibility in determining the terms of such a series of preferred stock, as indicated by Tex. Bus. Orgs. Code §§ 21.152–.154. The terms are most often determined through negotiation between the corporation and the purchasers of the shares.

Statement of Resolution
Establishing
the Series “A” Preferred Stock
of [name of corporation]

TO THE SECRETARY OF STATE
OF THE STATE OF TEXAS:

Under section 21.155 of the Texas Business Organizations Code, the undersigned cor­poration submits the following statements for the purpose of establishing and designating a series of Preferred Stock and setting and determining the designations, preferences, limita­tions, and relative rights of that series:

The name of the Corporation is [name of corporation] (the “Corporation”).

The following resolution establishing and designating a series of shares of Preferred Stock of the Corporation, and fixing and determining the designations, preferences, limita­tions, and relative rights of that series, was duly adopted by the Board of Directors of the Cor­poration (the “Board”) as of [date]:

RESOLVED, that under the authority expressly granted to and vested in the Board, in accordance with the provisions of the certificate of formation of the Corporation, a series of Preferred Stock, par value $[amount] per share, of the Corporation (“Preferred Stock”) be, and it hereby is, established and given the distinctive designation of Series “A” Preferred Stock (the “Series “A” Preferred Stock”), with the following designations, preferences, limitations, and relative rights:

Section 1
Designation; Rank

The series of Preferred Stock designated and known as “Series “A” Preferred Stock” consists of [number spelled out] ([number in figures]) shares. As long as any Series “A” Pre­ferred Stock is outstanding, the Series “A” Preferred Stock will rank senior to any and all other Preferred Stock or equity securities of the Corporation with respect to the right to receive dividends or distributions, upon liquidation, dissolution, or winding-up of the affairs of the Corporation or otherwise. Except as otherwise permitted in this resolution, as long as any Series “A” Preferred Stock is outstanding, no other series of Preferred Stock or other class of equity securities of the Corporation ranking senior to or on parity with Series “A” Preferred Stock, whether with respect to dividends or other distributions, upon liquidation, dissolution, or winding-up or otherwise, may be created.

Section 2
Definitions

For purposes of this resolution the following definitions apply:

“Affiliate” means any Person who directly or indirectly controls, is controlled by, or is under common control with the indicated Person.

“Additional Shares of Common Stock” has the meaning assigned to it in section 7(h)(7) of this resolution.

“Approved Plan” means a compensatory plan approved or adopted by the Board for the sale, grant, award, or issuance of shares of Common Stock, or options to purchase shares of Common Stock, to management, directors, or employees of or consultants to the Corporation, the provisions of which require that any such sale, grant, award, or issuance be authorized or approved by the Board or any committee of the Board authorized by the Board to do so.

“Board” means the Board of Directors of the Corporation.

“Common Stock” means the Common Stock, $[amount] par value per share, of the Corporation.

“Conversion Price” means the initial Conversion Price of $[amount] per share of Com­mon Stock, as may be adjusted from time to time as provided by section 7 of this resolution.

“Conversion Stock” means the Common Stock into which the Series “A” Preferred Stock is convertible and issued on conversion.

“Convertible Securities” has the meaning assigned to it in section 7(h)(4) of this resolu­tion.

“Corporation” means [name of corporation].

“Dividend Payment Date” has the meaning assigned to it in section 3(a) of this resolu­tion.

“Effective Price” has the meaning assigned to it in section 7(h)(8) of this resolution.

“Equity Security” means (1) any stock or similar security, including, without limitation, securities containing equity features and securities containing profit participation features; (2) any security convertible or exchangeable, with or without consideration, into any stock or similar security; (3) any security carrying any option, warrant, or right to subscribe to or pur­chase any stock or similar security; or (4) any such option, warrant, or right.

“Initial Public Offering” means the first underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offering and sale of Common Stock for the account of the Corporation on a firm commitment basis in which the aggregate gross proceeds at the public offering price equal or exceed $[amount] and the public offering price equals or exceeds $[amount] per share of Common Stock (each such amount to be appropriately adjusted for subdivisions and combinations of shares of Common Stock and dividends on Common Stock payable in shares of Common Stock).

“Liquidation Value” means the Liquidation Value set forth in section 4(a) of this reso­lution.

“Majority of the Series “A” Preferred Stock” means more than 50 percent of the out­standing shares of Preferred Stock.

“Mandatory Conversion Date” has the meaning assigned to it in section 7(k) of this res­olution.

“Person” means all natural persons, corporations, business trusts, associations, limited liability companies, partnerships, joint ventures and other entities, and governments, agencies, and political subdivisions.

“Preferred Dividend” means a dividend [at the annual rate of $[amount] per share/at a simple rate of [percent] percent ([percent]%) per year on the Series “A” Original Issue Price on each share] of the Series “A” Preferred Stock accruing from the date of issuance until the date of redemption and cumulative to the extent not paid in any year.

“Preferred Stock” means the Preferred Stock, $[amount] par value per share, of the Corporation.

“Redemption Date” has the meaning assigned to it in section 5(a) of this resolution.

“Redemption Notice” has the meaning assigned to it in section 5(c) of this resolution.

“Redemption Price” has the meaning assigned to it in section 5(b) of this resolution.

“Required Series “A” Preferred Stock” means [percent] percent or more of the out­standing shares of Series “A” Preferred Stock.

“Series “A” Original Issue Price” means $[amount] per share of Series “A” Preferred Stock, subject to appropriate adjustment in the event of any stock dividend, stock split, combi­nation, or other similar recapitalization affecting the shares of Series “A” Preferred Stock.

“Subsidiary” means any corporation, limited liability company, partnership, joint ven­ture, association, or other business entity of which at least 50 percent of the outstanding voting stock or voting interests is owned at the time directly or indirectly by the Corporation, by one or more subsidiary entities, or both.

Definitions apply to both the singular and plural forms of the defined terms.

Section 3
Dividends

(a)Preferred Dividends will accrue on each share of Series “A” Preferred Stock from and after the date of issuance of that share. The Preferred Dividends will be subject to appropriate adjustment in the event of any stock dividend, stock split, combination, or other similar recap­italization affecting the shares of Series “A” Preferred Stock. The Preferred Dividends will accrue from day to day, whether or not earned or declared by the Board, and will be cumula­tive. [The Corporation will have no obligation to pay any Preferred Dividends except as pro­vided below in this section 3 or as provided in sections 4(a) and 5(b) of this resolution./The Preferred Dividends will be payable, out of legally available funds of the Corporation, on or before [the [specify] day of each month/[date]] (a “Dividend Payment Date”). To the extent that any Preferred Dividend is not paid on the Dividend Payment Date, that Preferred Divi­dend will accumulate and compound at the rate of [percent] percent ([percent]%) per year from such Dividend Payment Date until such Preferred Dividend is paid in full.]

(b)No dividend or distribution in cash or other property (other than shares of Common Stock) will be declared, paid, or set apart for payment on or with respect to the Common Stock unless all Preferred Dividends accrued through the date of any distribution have been paid in full before or at the time of the declaration, distribution, or setting apart with respect to the Common Stock.

(c)No dividend or distribution in cash or other property (other than shares of Common Stock) will be declared, paid, or set apart for payment on or with respect to the Common Stock unless, at the same time, an equivalent dividend or distribution in cash or other property is declared, paid, or set apart, on the outstanding shares of Series “A” Preferred Stock payable on the same day, at the rate per share of Series “A” Preferred Stock that the holders of shares of Series “A” Preferred Stock would be entitled to receive if they had converted the shares of Series “A” Preferred Stock to shares of Common Stock on the same date as the dividend or distribution on Common Stock.

Section 4
Liquidation Rights

(a)Preference.      In the event of any liquidation, dissolution, or winding-up of the Corpora­tion, whether voluntary or involuntary, the holders of the shares of Series “A” Preferred Stock then outstanding will be entitled to be paid out of the assets of the Corporation available for distribution to its shareholders, whether such assets are capital, surplus, or earnings, before any payment or declaration and setting apart for payment of any amount is made in respect of the Common Stock. The holders of shares of Series “A” Preferred Stock will be paid an amount per share (the “Liquidation Value”) equal to the sum of the Series “A” Original Issue Price plus an amount equal to all accrued and unpaid Preferred Dividends payable up to and including the date full payment is tendered to the holders of shares of Series “A” Preferred Stock with respect to the liquidation, dissolution, or winding-up, and no more. If, upon any liquidation, dissolution, or winding-up of the Corporation, whether voluntary or involuntary, the assets distributed to the holders of shares of Series “A” Preferred Stock are insufficient to permit the payment of the full Liquidation Value thereof, all of the assets of the Corporation will be distributed ratably to each holder of shares of Series “A” Preferred Stock on the basis of the Liquidation Value of the shares of Series “A” Preferred Stock held by each such holder.

(b)Remaining Assets.      After the payment or distribution of the full Liquidation Value of the Series “A” Preferred Stock to the holders of the Series “A” Preferred Stock, the holders of the Common Stock then outstanding will be entitled to receive ratably all remaining assets of the Corporation to be distributed.

(c)Reorganization.      A merger (including a consolidation) or an exchange of shares of the Corporation with any other entity or a sale of all or substantially all of the assets of the Corpo­ration (within the meaning of section 21.455 of the Texas Business Organizations Code) will be deemed a liquidation, dissolution, or winding-up of the Corporation under this section 4. However, any such transaction with a wholly owned Subsidiary and any such transaction that, in accordance with section 21.459 of the Texas Business Organizations Code, is not required to be approved by the Corporation’s shareholders will not be deemed a liquidation, dissolu­tion, or winding-up of the Corporation under this section 4.

Section 5
Redemptions

(a)Redemption.      The Corporation will redeem shares of Series “A” Preferred Stock, out of funds legally available for that purpose [in [number] equal installments on the [specify] day of [month], [year A], [year B], and [year C]/in [number] equal annual installments beginning [number] days after the Corporation receives a written notice of demand for redemption of all shares of Series “A” Preferred Stock by the holders of [a Majority of the/the Required] Series “A” Preferred Stock. That demand for redemption may not be made before [date]]. Each date on which shares of Series “A” Preferred Stock are to be redeemed is a “Redemption Date.” On each Redemption Date, the Corporation will redeem, on a pro rata basis in accordance with the number of shares of Series “A” Preferred Stock owned by each holder, that number of out­standing shares of Series “A” Preferred Stock determined by dividing the total number of shares of Series “A” Preferred Stock outstanding immediately before the Redemption Date by the number of remaining Redemption Dates, including the Redemption Date to which this cal­culation applies. If the Corporation does not have sufficient funds legally available to redeem all shares of Series “A” Preferred Stock to be redeemed on that Redemption Date, the Corpo­ration will redeem a pro rata portion of each holder’s shares of Series “A” Preferred Stock out of funds legally available for that purpose, based on the respective amounts that would other­wise be payable in respect of the shares to be redeemed if the Corporation had legally avail­able funds sufficient to redeem all of those shares. The Corporation will redeem the remaining shares as soon as practicable after the Corporation has funds legally available to permit the redemption.

(b)Price.      The “Redemption Price” of each share of Series “A” Preferred Stock will be an amount per share equal to the Series “A” Original Issue Price plus the amount of accrued and unpaid Preferred Dividends on that share (plus all other dividends declared but unpaid on that share, if any) up to and including the date on which the Redemption Price on the shares being redeemed has been paid in full. Partial payments on any share will be applied first to Preferred Dividends (and any other dividends declared but unpaid) and then to the Series “A” Original Issue Price.

(c)Redemption Notice.      Not later than the twenty-first day before each Redemption Date or earlier than the sixtieth day before each Redemption Date, the Corporation will mail or cause to be mailed written notice (the “Redemption Notice”), postage prepaid, to each holder of record of shares of Series “A” Preferred Stock to be redeemed at the holder’s mailing address last shown on the share transfer records of the Corporation. The Redemption Notice will state—

(1)the total number of shares of Series “A” Preferred Stock that the Corporation will redeem on the Redemption Date;

(2)the number of shares of Series “A” Preferred Stock held by the holder that the Corporation will redeem on the Redemption Date;

(3)the Redemption Date and the Redemption Price;

(4)that the holder’s right to convert the shares of Series “A” Preferred Stock to be redeemed will terminate on the last business day before the Redemption Date; and

(5)the time, place, and manner in which the holder is to surrender to the Corporation the certificate or certificates representing shares of Series “A” Preferred Stock to be redeemed.

(d)Surrender of Stock.      On or before a Redemption Date, each holder of shares of Series “A” Preferred Stock to be redeemed will surrender the certificate or certificates representing such shares to the Corporation, in the manner and at the place designated in the Redemption Notice, unless the holder has exercised the right to convert the shares as provided in section 7 of this resolution. On surrender of the certificate or certificates, the Redemption Price for the shares will be payable to the order of the person whose name appears on the certificate or cer­tificates as the owner, and each surrendered certificate will be canceled and retired. If less than all of the shares represented by a certificate are redeemed, a new certificate will be issued representing the unredeemed shares.

(e)Termination of Rights.      If the Redemption Notice is duly given and if, on or before the Redemption Date, the Redemption Price is either paid or made available for payment on or for the shares of Series “A” Preferred Stock called for redemption, then all rights with respect to such shares will terminate immediately after the Redemption Date, except the right of the holders of such shares to receive the Redemption Price (without interest) on surrender of their certificates. This termination of rights will not be affected by any failure to surrender, on or before the Redemption Date, any of the certificates representing the shares of Series “A” Pre­ferred Stock called for redemption.

Section 6
Voting Rights

(a)Each holder of shares of Series “A” Preferred Stock is entitled to vote (including, with­out limitation, executing a consent) on all matters presented to the shareholders of the Corpo­ration and, except as otherwise expressly provided herein, is entitled to a number of votes equal to the largest number of full shares of Common Stock into which all shares of Series “A” Preferred Stock held by such holder could be converted (under section 7 of this resolu­tion) at the record date for the determination of the shareholders entitled to vote on such mat­ters or, if no record date is established, at the date the vote is taken or any written consent of shareholders is first executed. This determination of the number of votes to which each holder of Series “A” Preferred Stock is entitled also applies in all cases in which the holders of shares of Series “A” Preferred Stock have the right to vote separately as a class.

(b)Except as otherwise expressly provided in this resolution or as required by law, the holders of Series “A” Preferred Stock and the holders of Common Stock will vote together and not as separate classes.

Section 7
Conversion

The holders of Series “A” Preferred Stock have the following conversion rights:

(a)Right to Convert.      Each share of Series “A” Preferred Stock is convertible at the option of the holder at any time on or before the last business day before the Redemption Date for such share of Series “A” Preferred Stock into the number of fully paid and nonassessable shares of Common Stock that is equal to the quotient of the Series “A” Original Issue Price of such share divided by the Conversion Price then in effect.

(b)Conversion Price.      The initial Conversion Price is $[amount], so that each share of Series “A” Preferred Stock is initially convertible into [number] share[s] of Common Stock. The Conversion Price is subject to adjustment from time to time as provided below.

(c)Mechanics of Conversion.      Each holder of shares of Series “A” Preferred Stock who desires to convert any of those shares into shares of Common Stock must surrender the certif­icate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Series “A” Preferred Stock or the Common Stock. The holder of shares of Series “A” Preferred Stock must give written notice to the Corporation that the holder elects to con­vert and state in the notice the number of shares of Series “A” Preferred Stock being con­verted. The conversion will be deemed to have been made immediately before the close of business on the date of the surrender of the certificate or certificates representing the shares of Series “A” Preferred Stock to be converted, and the person entitled to receive the shares of Common Stock issuable on conversion will be treated for all purposes as the record holder of the shares of Common Stock on that date. The Corporation will as soon as practicable thereaf­ter issue and deliver at that office to the holder a certificate or certificates for the number of shares of Common Stock to which the holder is entitled and a certificate or certificates for the number of shares of Series “A” Preferred Stock, if any, represented by the surrendered certifi­cate or certificates that the holder elected not to convert.

(d)Adjustment for Stock Splits and Combinations.      If the Corporation at any time effects a subdivision of the outstanding shares of Common Stock, the Conversion Price in effect immediately before the subdivision will be proportionately decreased. Conversely, if the Cor­poration at any time combines the outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately before the combination will be propor­tionately increased. Any adjustment under this section 7(d) will become effective at the close of business on the date the subdivision or combination becomes effective.

(e)Adjustment for Certain Dividends and Distributions.      If the Corporation at any time makes or issues a dividend or other distribution on the outstanding shares of Common Stock payable in additional shares of Common Stock or fixes a record date for the determination of holders of shares of Common Stock entitled to receive such a dividend or other distribution, the Conversion Price then in effect will be decreased as of the time of such issuance or, if a record date is fixed, as of the close of business on the record date. The new Conversion Price will be calculated by multiplying the Conversion Price then in effect by a fraction, the numer­ator of which is the total number of shares of Common Stock issued and outstanding immedi­ately before the issuance or the close of business on that record date and the denominator of which is the sum of (1) the total number of shares of Common Stock issued and outstanding immediately before the issuance or the close of business on the record date and (2) the number of shares of Common Stock issuable in payment of the dividend or distribution. However, if a record date is fixed and the dividend is not fully paid or if the distribution is not fully made on the date fixed for that distribution, the Conversion Price will be recomputed accordingly as of the close of business on that record date, and thereafter the Conversion Price then in effect will be adjusted pursuant to this section 7(e) as of the time of actual payment of that dividend or distribution.

(f)Adjustment for Reclassification, Exchange, and Substitution.      If at any time the Com­mon Stock issuable on the conversion of the Series “A” Preferred Stock is changed into any other stock, securities, or other property, whether by recapitalization, reclassification, or oth­erwise (other than a subdivision or combination of shares, stock dividend or distribution, or reorganization, merger, or sale of assets provided for elsewhere in this section 7), each holder of shares of Series “A” Preferred Stock will have the right to convert each share of Series “A” Preferred Stock into the kind and amount of stock, securities, or other property receivable on recapitalization, reclassification, or other change by holders of the number of shares of Com­mon Stock into which such share of Series “A” Preferred Stock was convertible immediately before the recapitalization, reclassification, or change, all subject to further adjustments as provided herein.

(g)Reorganizations, Mergers, or Sales of Assets.      Subject to section 4 of this resolution, if at any time there is (1) a capital reorganization of the Common Stock (other than a recapital­ization, subdivision, combination, reclassification, or exchange of shares provided for else­where in this section 7), (2) a merger (including, without limitation, a consolidation) of the Corporation with another entity, or (3) the sale of all or substantially all of the Corporation’s assets to any other Person, then, as a part of that reorganization, merger, or sale, provision will be made for the holders of the shares of Series “A” Preferred Stock to be entitled to receive (on conversion of the shares of Series “A” Preferred Stock) the number of shares of stock, securities, or other property which a holder of the number of shares of Common Stock deliver­able on conversion of the shares of Series “A” Preferred Stock is or will be entitled to because of the reorganization, merger, or sale. In such case, appropriate adjustments will be made when applying the provisions of this section 7 so that these provisions (including the adjust­ment of the Conversion Price and the number of shares issuable on conversion of the Series “A” Preferred Stock) will apply after that event and be as nearly equivalent as practicable.

(h)Issuance of Shares Below Conversion Price.

(1)If at any time the Corporation issues, sells, or is deemed by the pro­visions of this section 7(h) to have issued or sold Additional Shares of Com­mon Stock (other than as a dividend or other distribution on any class of stock as provided in section 7(e) of this resolution and other than as a subdi­vision of shares of Common Stock as provided in section 7(d) of this resolu­tion) for an Effective Price less than the Conversion Price then in effect, the Conversion Price will be reduced as of the opening of business on the date of the issue or sale. The new adjusted Conversion Price will be determined by multiplying the Conversion Price then in effect by a fraction the numerator of which is the sum of (A) the number of shares of Common Stock outstanding immediately before the issue or sale and (B) the number of shares of Com­mon Stock that the aggregate consideration received (or deemed to have been received by the provisions hereof) by the Corporation for the total number of Additional Shares of Common Stock so issued would purchase at the Conver­sion Price and the denominator of which is the number of shares of Common Stock outstanding immediately after the issue or sale, after giving the effect to that issue or sale of Additional Shares of Common Stock.

(2)For the purpose of the calculation described in this section 7(h), the “number of shares of Common Stock outstanding” (whether immediately before or immediately after the issue or sale of Additional Shares of Common Stock) will include the number of shares of Common Stock into which the then-outstanding shares of Series “A” Preferred Stock and all other Convert­ible Securities are convertible or exchangeable immediately before the issue or sale of Additional Shares of Common Stock.

(3)For the purpose of making any adjustment required under this sec­tion 7(h), the consideration received by the Corporation for any issue or sale of securities will, to the extent it consists of cash, be computed as the gross amount of cash received by the Corporation before deduction of any usual and reasonable expenses payable by the Corporation and any usual and rea­sonable underwriting or similar commissions, compensation, or concessions paid or allowed by the Corporation in connection with that issue or sale. To the extent the consideration consists of property other than cash, the value will be computed at the fair value of that property as determined in good faith by the Board. If (A) Additional Shares of Common Stock, Convertible Secu­rities, or rights or options to purchase either Additional Shares of Common Stock or Convertible Securities are issued or sold together with (B) other stock, securities, or other assets of the Corporation for a consideration that covers both (A) and (B), the value will be computed as the portion of the con­sideration received that is determined in good faith by the Board to be alloca­ble to those Additional Shares of Common Stock, Convertible Securities, or rights or options.

(4)For the purpose of the adjustment required under this section 7(h), if the Corporation issues or sells any rights or options for the purchase of stock, or issues or sells stock or other securities convertible or exchangeable, with or without consideration, into Additional Shares of Common Stock (such convertible or exchangeable stock or securities being “Convertible Securities”), and if the Effective Price of the Additional Shares of Common Stock is less than the Conversion Price then in effect, the Corporation will be deemed (A) to have issued at that time the maximum number of Additional Shares of Common Stock issuable on exercise or conversion of such rights, options, or Convertible Securities and (B) to have received as consideration for the issuance of such Additional Shares of Common Stock an amount equal to the total amount of the consideration (if any) received by the Corpo­ration for the issuance of such rights, options, or Convertible Securities, plus, in the case of such rights or options, the minimum amount of consideration (if any) payable to the Corporation on the exercise of such rights or options, or plus, in the case of Convertible Securities, the minimum amount of consider­ation (if any) payable to the Corporation (other than by cancellation of liabil­ities or obligations evidenced by such Convertible Securities) on the conversion of such Convertible Securities. No further adjustment of the Con­version Price, adjusted on the issuance of such rights, options, or Convertible Securities, will be made as a result of the actual issuance of Additional Shares of Common Stock on the exercise of any such rights or options or the conver­sion of any such Convertible Securities.

(5)If any rights or options, or the conversion or exchange rights of any Convertible Securities, expire without having been exercised, the Conversion Price adjusted on the issuance of the rights, options, or Convertible Securities will be readjusted to the Conversion Price that would have been in effect had an adjustment been made on the basis that (A) the only Additional Shares of Common Stock so issued were the Additional Shares of Common Stock actu­ally issued or sold on the exercise of the rights or options or on the conver­sion or exchange of the Convertible Securities, and (B) the Additional Shares of Common Stock were issued or sold for the consideration actually received by the Corporation on that exercise, plus the consideration (if any) actually received by the Corporation for the granting of the rights or options, whether or not exercised, plus the consideration received for issuing or selling the Convertible Securities actually converted or exchanged, plus the consider­ation (if any) actually received by the Corporation (other than by cancellation of liabilities or obligations evidenced by the Convertible Securities) on the conversion or exchange of those Convertible Securities.

(6)For the purpose of the adjustment required under this section 7(h), if the Corporation issues or sells any rights or options for the purchase of Convertible Securities and if the Effective Price of the Additional Shares of Common Stock underlying such Convertible Securities is less than the Con­version Price then in effect, the Corporation will be deemed (A) to have issued, at the time of the issuance of the rights or options, the maximum num­ber of Additional Shares of Common Stock issuable on conversion or exchange of the maximum number or amount of the Convertible Securities covered by the rights or options and (B) to have received as consideration for the issuance of such Additional Shares of Common Stock an amount equal to the amount of consideration (if any) received by the Corporation for the issu­ance of the rights or options, plus the minimum amount of consideration (if any) payable to the Corporation on the exercise of such rights or options, plus the minimum amount of consideration (if any) payable to the Corporation (other than by cancellation of liabilities or obligations evidenced by the Con­vertible Securities) on the conversion or exchange of the Convertible Securi­ties. No further adjustment of the Conversion Price, adjusted on the issuance of the rights or options, will be made as a result of the actual issuance of the Convertible Securities on the exercise of the rights or options or on the actual issuance of Additional Shares of Common Stock on the conversion or exchange of the Convertible Securities. The provisions of section 7(h)(5) of this resolution regarding the readjustment of the Conversion Price on the expiration of rights or options or the rights of conversion or exchange of Con­vertible Securities will apply mutatis mutandis to the rights, options, and Convertible Securities referred to in this section 7(h)(6).

(7)“Additional Shares of Common Stock” means all shares of Com­mon Stock (including treasury shares) issued after the initial issuance of Series “A” Preferred Stock by the Corporation, whether or not subsequently reacquired or retired by the Corporation, (A) other than shares of Common Stock issued on conversion or exchange of the Series “A” Preferred Stock and (B) up to the number of shares of Common Stock as is approved by hold­ers of a Majority of the Series “A” Preferred Stock issued, directly or by grant of rights or options, pursuant to Approved Plans (with the number of shares appropriately adjusted for subdivisions and combinations of shares of Com­mon Stock and dividends on Common Stock payable in shares of Common Stock subsequent to the most recent approval by a Majority of the Series “A” Preferred Stock).

(8)The “Effective Price” of Additional Shares of Common Stock means the quotient determined by dividing (A) the total number of Additional Shares of Common Stock issued, sold, or deemed to have been issued or sold by the Corporation under this section 7(h) into (B) the aggregate consideration received or deemed to have been received by the Corporation for the issuance or sale, or deemed issuance or sale, under this section 7(h) for those Additional Shares of Common Stock.

(i)Certificate of Adjustment.      For each adjustment of the Conversion Price or the number of shares of Common Stock or other securities issuable on conversion of the Series “A” Pre­ferred Stock, the Corporation, at its expense, will [include if applicable: cause independent public accountants of recognized standing selected by the Corporation (who may be the inde­pendent public accountants then auditing the books of the Corporation) to] compute such adjustment in accordance with the provisions of this section 7, prepare a certificate showing how the adjustment was completed, and mail that certificate, by first-class mail, postage pre­paid, to each registered holder of the Series “A” Preferred Stock at the holder’s address as shown in the Corporation’s shareholder records. The certificate will set forth the adjustment, showing in detail the facts on which the adjustment is based, including a statement of (1) the consideration received or deemed received by the Corporation for any Additional Shares of Common Stock issued, sold, or deemed to have been issued or sold; (2) the Conversion Price in effect at the time for the Series “A” Preferred Stock; (3) the number of Additional Shares of Common Stock issued or sold, or deemed to be issued or sold; and (4) the type and amount, if any, of other property that at the time would be received on conversion of the Series “A” Pre­ferred Stock.

(j)Notices of Record Date.      In the event of (1) the Corporation’s taking a record of the holders of any class of securities for the purpose of determining the holders entitled to receive any dividend or other distribution or (2) any capital reorganization of the Corporation, any reclassification or recapitalization of the capital stock of the Corporation, any merger (includ­ing, without limitation, a consolidation) or share exchange of the Corporation with any other entity, any sale of all or substantially all of the assets of the Corporation to any other Person, or any voluntary or involuntary dissolution, liquidation, or winding-up of the Corporation, the Corporation will send, or cause to be sent, to each holder of shares of Series “A” Preferred Stock, at least [number] days before the record date, a notice specifying the record date for that dividend or distribution and a description of that dividend or distribution; the date on which that reorganization, reclassification, merger, share exchange, sale, dissolution, liquida­tion, or winding-up is proposed to become effective; and the date (if any is to be fixed) when the holders of record of Common Stock or other securities will be entitled to exchange their shares of Common Stock or other securities for securities or other property deliverable on that reorganization, reclassification, merger, share exchange, sale, dissolution, liquidation, or winding-up.

(k)Automatic Conversion.      On the closing of the Initial Public Offering or, if earlier, on a date specified by the vote or consent of the holders of the Required Preferred Stock (the “Mandatory Conversion Date”), each outstanding share of Series “A” Preferred Stock will automatically be converted into shares of Common Stock based on the Conversion Price then in effect, and the outstanding shares of Series “A” Preferred Stock will be converted without any further action by the holders of those shares, whether or not the certificates representing the shares are surrendered to the Corporation or its transfer agent, provided, however, that the Corporation will not be obligated to issue certificates evidencing the shares of Common Stock issued on the conversion unless the certificates evidencing such shares of Series “A” Preferred Stock are delivered to the Corporation or its transfer agent as provided below or the holder notifies the Corporation or its transfer agent that the certificates have been lost, stolen, or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corpo­ration from any loss incurred by the Corporation in connection with those certificates. The Corporation will give written notice of mandatory conversion under this section 7(k) to each holder of record of shares of Series “A” Preferred Stock. The notice, which need not be given in advance of the Mandatory Conversion Date, will indicate the Mandatory Conversion Date and the place and other procedures for conversion. On receipt of that notice, the holders of shares of Series “A” Preferred Stock will surrender the certificates representing the shares at the office of the Corporation or any transfer agent for the Series “A” Preferred Stock or the Common Stock, or such other place as the notice may specify. Thereupon, each holder will be issued promptly, at that office and in the holder’s name as shown on the surrendered certifi­cate or certificates, a certificate or certificates for the number of shares of Common Stock into which the shares of Series “A” Preferred Stock were converted. On the Mandatory Conver­sion Date, all rights with respect to shares of Series “A” Preferred Stock will terminate, and all shares of Series “A” Preferred Stock will be deemed converted into shares of Common Stock for all purposes. This termination of rights and conversion will not be affected by any failure to surrender any of the certificates representing the shares of Series “A” Preferred Stock.

(l)Fractional Shares.      No fractional shares of Common Stock will be issued on conver­sion of shares of Series “A” Preferred Stock. If more than one share of Series “A” Preferred Stock is surrendered for conversion at any one time by the same holder, the number of full shares of Common Stock to be issued on conversion will be computed on the basis of the aggregate number of shares of Series “A” Preferred Stock surrendered. In lieu of any frac­tional share to which the holder would otherwise be entitled, the Corporation will pay cash equal to the product of the fraction multiplied by the fair market value of one share of the Common Stock on the date of conversion as determined in good faith by the Board.

(m)Reservation of Stock Issuable on Conversion.      The Corporation will 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 “A” Preferred Stock) a num­ber of its shares of Common Stock sufficient to effect the conversion of all outstanding shares of Series “A” Preferred Stock. If at any time the number of authorized but unissued shares of Common Stock is not sufficient to effect the conversion of all outstanding shares of Series “A” Preferred Stock, the Corporation will take any corporate action that may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to a number of shares sufficient for that purpose.

(n)Notices.      All notices and other communications required by this section 7 will be in writing and will be deemed to have been duly given if delivered personally, mailed by certi­fied mail (postage prepaid with return receipt requested), sent by local or overnight delivery service, or transmitted by facsimile or electronic message (as permitted by section 6.051 of the Texas Business Organizations Code) to each holder of record at the address of that holder appearing on the share transfer records of the Corporation.

(o)Payment of Taxes.      The Corporation will pay all taxes (other than taxes based on income) and other governmental charges imposed with respect to the issue or delivery of shares of Common Stock on conversion of shares of Series “A” Preferred Stock, excluding any tax or other charge imposed in connection with the issue and delivery of shares of Com­mon Stock in a name other than that in which the converted shares of Series “A” Preferred Stock were registered.

(p)No Dilution or Impairment.      The Corporation will not amend its certificate of forma­tion or participate in any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, for the purpose of avoiding the obser­vance or performance of any of the terms of this resolution, but will at all times in good faith assist in carrying out all actions reasonably necessary or appropriate to protect the conversion rights of the holders of the Series “A” Preferred Stock against dilution or other impairment.

(q)Rounding of Calculations; Minimum Adjustment.      All calculations under this section 7 will be made to the nearest one thousandth of a dollar or to the nearest one thousandth of a share, as the case may be. Any provision of this section 7 to the contrary notwithstanding, no adjustment in the Conversion Price will be made if the amount of the adjustment would be less than $0.001, but any such amount will be carried forward, and an adjustment will be made when any subsequent adjustment, together with that amount and any other amount carried for­ward, will aggregate $0.001 or more.

Section 8
Restrictions and Limitations

(a)As long as any shares of Series “A” Preferred Stock are outstanding, the Corporation will not, and will not permit any Subsidiary to, directly or indirectly, without the vote or writ­ten consent of the holders of the Required Series “A” Preferred Stock as a separate class—

(1)liquidate or dissolve the Corporation or wind up its business and affairs, effect any transaction of any of the kinds described in section 4(c) of this resolution (subject to the exception), or agree or obligate itself to do any of the foregoing;

(2)amend, alter, or repeal any provision of the certificate of formation or the bylaws of the Corporation in a manner adverse to the Series “A” Pre­ferred Stock;

(3)redeem, purchase, or otherwise acquire for value any share or shares of Series “A” Preferred Stock other than by redemption or conversion in accordance with section 5 or section 7 of this resolution;

(4)purchase, redeem, or otherwise acquire for value (or pay into or set aside as a sinking fund for that purpose) any shares of Common Stock, except for any repurchase of shares of Common Stock from directors, employees, consultants, or advisers to the Corporation or any Subsidiary under agree­ments under which the Corporation or Subsidiary may repurchase shares on the occurrence of certain events, including upon the termination of employ­ment or service to the Corporation or Subsidiary;

(5)create, authorize, issue, or obligate itself to issue any other Equity Security senior to or on a parity with the Series “A” Preferred Stock as to div­idend or redemption rights, liquidation preferences, conversion rights, voting rights, or otherwise;

(6)declare or pay any dividends on or declare or make any other distri­bution, direct or indirect (other than a dividend or distribution payable solely in additional shares of Common Stock), on account of the Common Stock or set apart any sum for that purpose;

(7)increase or decrease (other than by redemption or conversion) the total number of outstanding shares of Series “A” Preferred Stock; or

(8)enter into any agreement, contract, or understanding, or otherwise incur any obligation, that would violate, be in conflict with, restrict, or bur­den the rights of the holders of Series “A” Preferred Stock or the Corpora­tion’s performance of the terms of its certificate of formation.

Section 9
No Reissuance of Series “A” Preferred Stock

No shares of Series “A” Preferred Stock acquired by the Corporation by reason of redemption, purchase, or conversion or otherwise will be reissued, and all such shares will be canceled, retired, and eliminated from the shares that the Corporation is authorized to issue. The Corporation may, after any acquisition of shares of Series “A” Preferred Stock, take such appropriate action (without the need of shareholder consent or approval) as may be necessary to reduce the authorized number of shares of Series “A” Preferred Stock accordingly.

Section 10
Waivers; Amendments

Without the written consent of the holders of the Required Series “A” Preferred Stock, the obligations of the Corporation and the rights of the holders of Series “A” Preferred Stock under this resolution may not be waived or amended. If any waiver or amendment is effected, the Corporation will promptly give written notice of the waiver to any holders of Series “A” Preferred Stock who or which have not previously consented thereto in writing.

The foregoing resolution was adopted by all necessary action on the part of the Corpo­ration.

IN WITNESS WHEREOF, the Corporation has caused this statement to be signed by its duly authorized officer as of [date].

[Name of corporation]

   
[Name of officer], [title]