Document:

exv10w1

 

EXHIBIT 10.1

TEJAS INCORPORATED

 

CERTIFICATE OF DESIGNATIONS

Pursuant to Section 151 of the General

Corporation Law of the State of Delaware

 

Series A Convertible Preferred Stock

(Par Value $0.001 Per Share)

     Tejas Incorporated (the “Corporation”), a corporation organized and existing under and by
virtue of the provisions of the General Corporation Law of the State of Delaware (the “General
Corporation Law”), hereby certifies that, pursuant to the authority expressly granted to and vested
in the Board of Directors of the Corporation (the “Board of Directors”) by the Certificate of
Incorporation, as amended, of the Corporation the “Certificate of Incorporation”) which authorizes
the issuance, by the Corporation, in one or more series of up to 100,000 shares of preferred stock,
par value $0.001 per share (the “Preferred Stock”), and in accordance with the provisions of
Section 151 of the General Corporation Law, the Board of Directors by unanimous written consent
dated August 9, 2005 duly adopted the following resolutions:

     RESOLVED, that, pursuant to the authority expressly granted to and vested in the Board of
Directors by the provisions of Article III of the Certificate of Incorporation of the Corporation
and in accordance with the provisions of Section 151 of the General Corporation Law, the Board of
Directors hereby creates a series of Preferred Stock, herein designated as the Series A Convertible
Preferred Stock, which shall, upon issuance, consist initially of 1,000 shares of Preferred Stock
(subject to increase or decrease as described herein in accordance with Section 151(g) of the
General Corporation Law), and the powers, designations, preferences and relative, participating,
optional or other rights, and the qualifications, limitations or restrictions thereof, of the
shares of such series (in addition to the powers, designations, preferences and relative,
participating, optional or other rights, and the qualifications, limitations or restrictions
thereof, set forth in the Certificate of Incorporation that are applicable to the Preferred Stock
of all series) are hereby fixed as follows (certain terms used herein
being defined in Section 7):

1. General.

            (a) The shares of such series shall be designated the Series A Convertible Preferred Stock
(hereinafter referred to as the “Series A Preferred Stock”).

            (b) Each share of Series A Preferred Stock shall be identical in all respects with the other
shares of Series A Preferred Stock.

            (c) The number of shares of Series A Preferred Stock shall initially be 1,000, which number
may from time to time be increased (but not above the total number of authorized shares of
Preferred Stock or decreased (but not below the number of shares of Series A Preferred Stock then
outstanding) by resolution of the Board of Directors. Shares of Series A Preferred Stock

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redeemed or purchased by the Corporation or converted into Common Stock shall be cancelled
and shall revert to authorized but unissued Preferred Stock, undesignated as to series.

            (d) No fractional shares of Series A Preferred Stock shall be issued.

            (e) In any case where any dividend payment date or redemption date shall not be a Business
Day, then (notwithstanding any other provision of this Certificate of Designations) payment of
dividends or redemption price need not be made on such date, but may be made on the next succeeding
Business Day with the same force and effect as if made on the dividend payment date or redemption
date; provided, however, that no interest shall accrue on such amount of dividends or redemption
price for the period from and after such dividend payment date or redemption date, as the case may
be.

2. Dividends.

            (a) The holders of shares of Series A Preferred Stock shall be entitled to receive, when and
as declared by the Board of Directors, out of funds legally available for the payment of dividends,
cumulative dividends at the annual percentage of ten percent (10%), and no more, payable quarterly
on the 1st day of April, July, October and January, respectively, in each year,
commencing on the issuance date of the Series A Preferred Stock, with respect to the quarterly
dividend period (or portion thereof) ending on the day preceding such respective dividend payment
date.

            (b) Any dividend payments made with respect to the Series A Preferred Stock pursuant to
Section 2(a) shall be made in cash.

Dividends on the Series A Preferred Stock shall be computed for any period less than or greater
than a full quarter on the basis of a year of 360 days of equal 30-day months.

     Dividends shall be payable to the holders of record of the Series A Preferred Stock appearing
on the stock books of the Corporation at the close of business on March 15, June 15, September 15
or December 15 preceding the next applicable dividend payment date.

            (c) All dividends paid with respect to shares of Series A Preferred Stock shall be paid pro
rata.

            (d) No interest, or sum of money in lieu of interest, shall be payable in respect of any
dividend payment on the Series A Preferred Stock which may be in arrears.

            (e) Subject to the foregoing, and not otherwise, such dividends (payable in cash, stock
or otherwise) as may be determined by the Board of Directors may be declared and paid on any Junior
Stock from time to time out of any funds legally available therefor, with such effect, if any, as
is specified in Section 4, and the Series A Preferred Stock shall not be
entitled to participate in any such dividends, howsoever payable.

3. Liquidation.

            (a) In the event of any liquidation (complete or partial), dissolution or winding up of the
affairs of the Corporation, whether voluntary or involuntary, after payment or provision for
payment of the debts and other liabilities of the Corporation, the holders of the Series A
Preferred

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Stock shall be entitled to receive an amount in cash equal to $1,000.00 per share (the
“Liquidation Value”), plus an amount equal to all accrued dividends on each such share to the date
fixed for distribution or payment (the “Liquidation Payment”) before any distribution is made to
holders of shares of Junior Stock upon any such liquidation (complete or partial), dissolution or
winding up of the affairs of the Corporation. If, upon any liquidation (complete or partial),
dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, the
assets of the Corporation, or proceeds thereof, distributable among the holders of the then
outstanding shares of Series A Preferred Stock and the holders of any shares of capital stock
ranking on a parity with the Series A Preferred Stock with respect to any distribution of assets
upon liquidation (complete or partial), dissolution or winding up of the affairs of the
Corporation, whether voluntary or involuntary, are insufficient to pay in full all such
preferential amounts payable to such holders, then all such assets and proceeds of the Corporation
thus distributable shall be distributed among the holders of Series A Preferred Stock and the
holders of such capital stock so ranking on a parity with the Series A Preferred Stock ratably in
proportion to the respective aggregate amounts otherwise payable with respect thereto.

            (b) Notice of any liquidation (complete or partial), dissolution or winding up of the affairs
of the Corporation, whether voluntary or involuntary, shall be given by mail, postage prepaid, not
less than 30 days prior to the distribution or payment date stated therein, to each holder of
record of Series A Preferred Stock appearing on the stock books of the Corporation as of the date
of such notice at the address of said holder shown therein. Such notice shall state a distribution
or payment date, the amount of the Liquidation Payment and the place where the Liquidation Payment
shall be distributable or payable.

            (c) For the purposes of this Section 3, neither the voluntary sale, lease,
conveyance, exchange or transfer of all or substantially all the property or assets of the
Corporation (whether for cash, shares of stock, securities or other consideration), nor the
consolidation or merger of the Corporation with one or more other entities, shall be deemed to be a
liquidation (complete or partial), dissolution or winding up of the affairs of the Corporation,
unless such voluntary sale, lease, conveyance, exchange or transfer shall be in connection with a
plan of liquidation (complete or partial), dissolution or winding up of the affairs of the
Corporation.

            (d) After the payment in cash to the holders of shares of the Series A Preferred Stock of the
full amount of the Liquidation Payment with respect to outstanding shares of Series A Preferred
Stock, the holders of outstanding shares of Series A Preferred Stock shall have no right or claim,
based on their ownership of shares of Series A Preferred Stock, to any of the remaining assets of
the Corporation.

4. Conversion.

     4.1. Conversion. The holders of shares of Series A Preferred Stock shall have
the right, at their option, to convert such shares into shares of Common Stock at any time on and
subject to the following terms and conditions:

            (a) The Series A Preferred Stock shall be convertible at the principal office of the
Corporation, into fully paid and nonassessable shares (calculated as to each conversion to the
nearest 1/100 of a share) of Common Stock, at the Conversion Price, determined as hereinafter
provided, in effect at the time of conversion, each share of Series A Preferred Stock being taken
at $1,000.00 for the purpose of such conversion. The price at which shares of Common Stock shall
be delivered upon

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conversion (herein called the “Conversion Price”) shall be initially the Conversion Price as
set forth and defined in that certain Replacement Subordinated Convertible Promissory Note,
effective as of July 7, 2004, made by the Corporation to Salter Family Partners, Ltd. (as amended,
modified, amended and restated, or replaced pursuant to the terms thereof) at the time the
principal portion of such promissory note is converted into shares of Series A Preferred Stock
pursuant to the terms thereof. The Conversion Price (as defined herein) shall be adjusted in
certain instances as provided in Section 4.2.

            (b) In order to convert shares of Series A Preferred Stock the holder thereof shall surrender
at the office hereinabove mentioned the certificate or certificates therefor, duly endorsed or
assigned to the Corporation or in blank, and give written notice to the Corporation at such office
that such holder elects to convert such shares. No payment or adjustment shall be made upon any
conversion on account of any dividends accrued on the shares of Series A Preferred Stock
surrendered for conversion or on account of any dividends on the Common Stock issued upon
conversion.

            (c) Shares of Series A Preferred Stock shall be deemed to have been converted immediately
prior to the close of business on the day of surrender of the certificates for such shares for
conversion in accordance with the foregoing provisions, and at such time the rights of the holder
of such shares as holders thereof shall cease and from and after such time the person or persons
entitled to receive the Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such Common Stock. As promptly as practicable on or
after the conversion date, the Corporation shall issue and shall deliver at such office a
certificate or certificates for the number of full shares of Common Stock issuable upon such
conversion, together with payment in lieu of any fraction of a share, as provided in Section
4.6, to the person or persons entitled to receive the same.

            (d) If fewer than all the shares of Series A Preferred Stock represented by a certificate are
converted, upon such conversion the Corporation shall (or cause a transfer agent for the Series A
Preferred Stock to) issue a new certificate representing the shares not so converted.

            (e) Notwithstanding the foregoing, the Corporation shall have the right to cause the
conversion of the shares of Series A Preferred Stock into Common Stock following a Conversion Event
subject to the terms and conditions set forth herein. If the Corporation exercises such right, the
Corporation shall promptly provide written notice of such conversion to the holders of the Series A
Preferred Stock.

     4.2. Adjustments. In order to prevent dilution of the rights granted under the
shares of Series A Preferred Stock and to grant the holders certain additional rights, the
Conversion Price shall be subject to adjustment from time to time as provided in this Section
4.2. For the avoidance of doubt, the adjustment provisions in this Section 4.2
shall apply only to shares of Series A Preferred Stock outstanding at the time of the event
giving rise to such adjustment rights.

            (a) Subdivisions and Combinations. In the event the Corporation shall, at any time or from
time to time after the Original Issue Date while the shares of Series A Preferred Stock remain
outstanding, effect a subdivision (by any stock split or otherwise) of the outstanding shares of
Common Stock into a greater number of shares of Common Stock (other than (x) a subdivision upon a
merger or consolidation or sale to which Section 4.2(f)  applies or (y) a stock
split effected by means of a stock dividend or distribution to which Section
4.2(b) applies), then and in each such

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event the Conversion Price in effect at the opening of business on the day after the date upon
which such subdivision becomes effective shall be proportionately decreased. Conversely, if the
Corporation shall, at any time or from time to time after the Original Issue Date while the shares
of Series A Preferred Stock remain outstanding, effect a combination (by any reverse stock split or
otherwise) of the outstanding shares of Common Stock into a smaller number of shares of Common
Stock (other than a combination upon a merger or consolidation or sale to which Section
4.2(f) applies), then and in each such event the Conversion Price in effect at the
opening of business on the day after the date upon which such combination becomes effective shall
be proportionately increased. Any adjustment under this Section 4.2(a)  shall
become effective immediately after the opening of business on the day after the date upon which the
subdivision or combination becomes effective.

            (b) Common Stock Dividends. In the event the Corporation shall, at any time or from time
to time after the Original Issue Date while the shares of Series A Preferred Stock remain
outstanding, make or issue to the holders of its Common Stock a dividend or distribution payable
in, or otherwise make or issue a dividend or other distribution on any class of its capital stock
payable in, shares of Common Stock (other than a dividend or distribution upon a merger or
consolidation or sale to which Section 4.2(f)  applies), then and in each such
event the Conversion Price in effect at the opening of business on the day after the date for the
determination of the holders of shares of Common Stock entitled to receive such dividend or
distribution shall be decreased by multiplying such Conversion Price by a fraction (not to be
greater than 1):

      (i) the numerator of which shall be the total number of shares of Common
Stock issued and outstanding at the close of business on such date for determination; and

      (ii) the denominator of which shall be the total number of shares of Common
Stock issued and outstanding at the close of business on such date for determination plus
the number of shares of Common Stock issuable in payment of such dividend or distribution.

Any adjustment under this Section 4.2(b) shall, subject to Section 4.2(e)(iv),
become effective immediately after the opening of business on the day
after the date for the determination of the holders of shares of Common Stock entitled to receive
such dividend or distribution.

            (c) Reclassifications. A reclassification of the Common Stock (other than any such
reclassification in connection with a merger or consolidation or sale to which Section
4.2(f)  applies) into shares of Common Stock and shares of any other class of stock
shall be deemed:

      (i) a distribution by the Corporation to the holders of its Common Stock of
such shares of such other class of stock for the purposes and within the meaning of
Section 4.2(d) (and the effective date of such reclassification shall be
deemed to be “the date for the determination of the holders of Common Stock entitled to
receive such dividend or distribution” for the purposes and within the meaning of
Section 4.2(d)); and

      (ii) if the outstanding shares of Common Stock shall be changed into a
larger or smaller number of shares of Common Stock as a part of such reclassification, such
change shall be deemed a subdivision or combination, as the case may be, of the outstanding
shares of Common Stock for the purposes and within the meaning of Section
4.2(a) (and the effective date of such reclassification shall be deemed to
be “the date upon which such subdivision becomes effective” or “the date upon which such
combination becomes

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  effective,” as applicable, for the purposes and within the meaning of Section 4.2(a)).

            (d) Property Dividends. In the event the Corporation shall, at any time or from time to
time after the Original Issue Date while the shares of Series A Preferred Stock remain outstanding,
make or issue a dividend or distribution to holders of Common Stock a Property Dividend (other than
a Receivable Dividend, a Received Dividend or an Excluded Dividend), then and in each such event
the Conversion Price in effect immediately prior to the close of business on the date for the
determination of the holders of Common Stock entitled to receive such dividend or distribution
shall be decreased by multiplying such Conversion Price by a fraction (not to be greater than 1):

      (i) the numerator of which shall be the Current Market Price per share of
Common Stock on such date for determination minus the portion applicable to one share of
Common Stock of the fair market value (as determined in good faith by the Board of Directors
of the Corporation, whose determination shall be conclusive and evidenced by a Board
Resolution) of such Property Dividend so distributed; and

      (ii) the denominator of which shall be such Current Market Price per share of Common Stock.

Any adjustment under this Section 4.2(d) shall, subject to Section 4.2(e)(iv),
become effective immediately prior to the opening of business on the
day after the date for the determination of the holders of Common Stock entitled to receive such
dividend or distribution. If the Board of Directors determines the fair market value of any
Property Dividend for purposes of this Section 4.2(d) by reference to the
actual or when issued trading market for any securities comprising such Property Dividend, it must
in doing so consider the prices in such market over the same period used in computing the Current
Market Price per share of Common Stock.

            (e) Other Provisions Applicable to Adjustments. The following provisions shall be
applicable to the making of adjustments to the Conversion Price under this Section 4.2:

      (i) Treasury Stock. The dividend or distribution of any issued
shares of Common Stock owned or held by or for the account of the Corporation shall be
deemed a dividend or distribution of shares of Common Stock for purposes of this Section
4.2. For the purposes of this Section 4.2, the number
of shares of Common Stock at any time outstanding shall not include shares held in the
treasury of the Corporation but shall include shares issuable in respect of scrip
certificates issued in lieu of fractions of shares of Common Stock.

      (ii) When Adjustments Are to be Made. The adjustments required by
Sections 4.2(a), 4.2(b), 4.2(c), and
4.2(d), shall be made whenever and as often as any specified event
requiring an adjustment shall occur, except that no adjustment of the Conversion Price that
would otherwise be required shall be made unless and until such adjustment either by itself
or with other adjustments not previously made increases or decreases the Conversion Price
immediately prior to the making of such adjustment by at least 1%. Any adjustment
representing a change of less than such minimum amount (except as aforesaid) shall be
carried forward and made as soon as such adjustment, together with other adjustments
required by Sections 4.2(a), 4.2(b), 4.2(c), and
4.2(d), and not previously made, would result in such minimum
adjustment.

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      (iii) Fractional Interests. In computing adjustments under
Section 4, fractional interests in Common Stock shall be taken into
account to the nearest one-thousandth of a share.

      (iv) Deferral Of Issuance Upon Conversion. In any case in which
Sections 4.2(b) or 4.2(d) shall require that a decrease in the
Conversion Price be made effective prior to the occurrence of a specified event and any
share of Series A Preferred Stock is converted after the time at which the adjustment became
effective but prior to the occurrence of such specified event and, in connection therewith,
Section 4.1(a) shall as a result of such reduction in the Conversion Price require a
corresponding increase in the number of shares of Common Stock into which such share of
Series A Preferred Stock is convertible, the Corporation may elect to defer until the
occurrence of such specified event (A) the issuance to the holder of such share of Series A
Preferred Stock (or other Person entitled thereto) of, and the registration of such holder
(or other Person) as the record holder of, the Common Stock over and above the Common Stock
issuable upon such conversion on the basis of the number of shares of Common Stock
obtainable upon conversion of such share of Series A Preferred Stock immediately prior to
such adjustment and (B) the corresponding reduction in the Conversion Price; provided,
however, that the Corporation shall deliver to such holder or other person a due bill or
other appropriate instrument that meet any applicable requirements of the principal national
securities exchange or other market on which the Common Stock is then traded and evidences
the right of such holder or other Person to receive, and to become the record holder of,
such additional shares of Common Stock, upon the occurrence of such specified event
requiring such adjustment (without payment of any amount in respect of such additional shares).

            (f) Changes in Common Stock. In case at any time or from time to time after the Original
Issue Date while the shares of Series A Preferred Stock remain outstanding, the Corporation shall
be a party to or shall otherwise engage in any transaction or series of related transactions
constituting:

      (i) a merger of the Corporation into, a consolidation of the Corporation
with, or a sale of all or substantially all of the Corporation’s assets to, any other Person
(a “Non-Surviving Transaction”), or

      (ii) any merger of another Person into the Corporation in which the
previously outstanding shares of Common Stock shall be cancelled, reclassified or converted
or changed into or exchanged for securities of the Corporation or other property (including
cash) or any combination of the foregoing (a “Surviving Transaction”; any Non-Surviving
Transaction or Surviving Transaction being herein called a “Transaction”),

then, as a condition to the consummation of such Transaction, the Corporation shall (or, in the
case of any Non-Surviving Transaction, the Corporation shall cause such other Person to) make
lawful provision as a part of the terms of such Transaction whereby:

      (x) so long as any share of Series A Preferred Stock remains outstanding, on such terms
and subject to such conditions as shall be as nearly equivalent as may be practicable to the
provisions set forth in this Certificate of Designations, each share of Series A Preferred
Stock, upon the conversion thereof at any time on or after the consummation of such
Transaction, shall be convertible into, in lieu of the Common Stock issuable upon such

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conversion prior to such consummation, only the securities or other property
(“Substituted Property”) that would have been receivable upon such Transaction by a holder
of the number of shares of Common Stock into which such share of Series A Preferred Stock
was convertible immediately prior to such Transaction, assuming such holder of Common Stock:

      (A) is not a Person with which the Corporation consolidated or into which the
Corporation merged or which merged into the Corporation or to which such sale or
transfer was made, as the case may be (“Constituent Person”), or an Affiliate of a
Constituent Person; and

      (B) failed to exercise his rights of election, if any, as to the kind or amount
of securities, cash and other property receivable upon such Transaction (provided
that if the kind or amount of securities, cash and other property receivable upon
such Transaction is not the same for each share of Common Stock held immediately
prior to such Transaction by other than a Constituent Person or an Affiliate thereof
and in respect of which such rights of election shall not have been exercised
(“Non-Electing Share”), then, for the purposes of this Section 4.2(f),
the kind and amount of securities, cash and other property
receivable upon such Transaction by each Non-Electing Share shall be deemed to be
the kind and amount so receivable per share by a plurality of the Non-Electing
Shares); and

      (y) the rights and obligations of the Corporation (or, in the event of a Non-Surviving
Transaction, such other Person) and the holders of shares of Series A Preferred Stock in
respect of Substituted Property shall be as nearly equivalent as may be practicable to the
rights and obligations of the Corporation and holders of shares of Series A Preferred Stock
in respect of Common Stock hereunder as set forth in Section 4.1 hereof
and elsewhere herein.

Such lawful provision shall provide for adjustments which, for events subsequent to the effective
date of such lawful provision, shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 4.2. The above provisions of this
Section 4.2(f) shall similarly apply to successive Transactions.

            (g) Compliance with Governmental Requirements. Before taking any action that would cause
an adjustment reducing the Conversion Price below the then par value of any of the shares of Common
Stock into which the shares of Series A Preferred Stock are convertible, the Corporation will take
any corporate action that may be necessary in order that the Corporation may validly and legally
issue fully paid and non-assessable shares of such Common Stock at such adjusted Conversion Price.

            (h) Optional Tax Adjustment. The Corporation may at its option, at any time while the
shares of Series A Preferred Stock remain outstanding, increase the number of shares of Common
Stock into which each share of Series A Preferred Stock is convertible, or decrease the Conversion
Price, in addition to those changes required by Sections 4.2(a),
4.2(b), 4.2(c) or 4.2(d), as deemed advisable by the Board
of Directors, in order that any event treated for Federal income tax purposes as a dividend of
stock or stock rights shall not be taxable to the recipients.

            (i) Shares of Series A Preferred Stock Deemed Convertible. For purposes solely of
this Section 4, the number of shares of Common Stock which the holder of any
share of Series A

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Preferred Stock would have been entitled to receive had such share of Series A Preferred Stock
been converted in full at any time or into which any share of Series A Preferred Stock was
converted at any time shall be determined assuming such share of Series A Preferred Stock was
convertible in full at such time, although such share of Series A Preferred Stock may not be
convertible in full at such time pursuant to Section 4.1.

            (j) Notice of Adjustment. Upon the occurrence of each adjustment of the Conversion
Price pursuant to this Section 4.2, the Corporation at its expense shall
promptly:

      (i) compute such adjustment in accordance with the terms hereof;

      (ii) after such adjustment becomes effective, deliver a notice to each
holder of record of the shares of Series A Preferred Stock appearing on the stock books of
the Corporation as of the date of such notice at the address of said holder shown therein
which notice shall set forth such adjustment (including the kind and amount of securities,
cash or other property for which the shares of Series A Preferred Stock shall be convertible
and the Conversion Price) and showing in detail the facts upon which such adjustment is
based; and

      (iii) deliver to the transfer agent or agents for the Series A Preferred
Stock a certificate of the Treasurer of the Corporation setting forth the Conversion Price
and the number of shares of Common Stock into which each share of Series A Preferred Stock
is convertible after such adjustment and setting forth a brief statement of the facts
requiring such adjustment and the computation by which such adjustment was made (including a
description of the basis on which the Current Market Price of the Common Stock or the fair
market value of any evidences of indebtedness, shares of capital stock, securities, cash or
other assets or consideration used in the computation was determined).

            (k) Statement on Certificates. Irrespective of any adjustment in the Conversion Price
or the amount or kind of shares into which the shares of Series A Preferred Stock are convertible,
certificates for shares of Series A Preferred Stock theretofore or thereafter issued may continue
to express the same Conversion Price initially applicable or amount or kind of shares initially
issuable upon conversion of the Series A Preferred Stock evidenced thereby.

      4.3. Fractional Interest. The Corporation shall not be required upon the
conversion of any share of Series A Preferred Stock to issue any fractional shares, but may, in
lieu of issuing any fractional share of Common Stock that would otherwise be issuable upon such
conversion, pay a cash adjustment in respect of such fraction in an amount equal to the same
fraction of the Current Market Price per share on the date of such conversion. If more than one
share of Series A Preferred Stock shall be presented for conversion at the same time by the same
holder, the number of full shares of Common Stock which shall be issuable upon such conversion
thereof shall be computed on the basis of the aggregate number of shares of Series A Preferred
Stock so to be converted. The holders expressly waive their right to receive any fraction of a
share of Common Stock or a stock certificate representing a fraction of a share of Common Stock if
such amount of cash is paid in lieu thereof.

      4.4. Reservation and Authorization of Common Stock. The Corporation
covenants that, so long as any shares of Series A Preferred Stock remain outstanding, the
Corporation will at all times reserve and keep available, from its authorized and unissued Common
Stock solely for issuance and delivery upon the conversion of the shares of Series A Preferred
Stock and free of

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preemptive rights, such number of shares of Common Stock and other securities, cash or
property as from time to time shall be issuable upon the conversion in full of all outstanding
shares of Series A Preferred Stock.

      4.5. No Dividend Rights. Subject to the provisions of Sections
4.2 and 4.6  hereof and except as may be specifically provided for
herein, until the conversion of any share of Series A Preferred Stock:

      (i) no holder of any share of Series A Preferred Stock shall have or
exercise any rights by virtue hereof as a holder of Common Stock, including, without
limitation, the right to receive dividends and other distributions as a holder of Common
Stock or to receive notice of, or attend, meetings or any other proceedings of holders of
Common Stock;

      (ii) the consent of any such holder as a holder of Common Stock shall not
be required with respect to any action or proceeding of the Corporation;

      (iii) no such holder, by reason of the ownership or possession of a share
of Series A Preferred Stock, shall have any right to receive any cash dividends, stock
dividends, allotments or rights or other distributions paid, allotted or distributed or
distributable to the holders of Common Stock prior to, or for which the relevant record date
preceded, the date of the conversion of such share of Series A Preferred Stock; and

      (iv) no such holder shall have any right not expressly conferred hereunder
or by applicable law with respect to the share of Series A Preferred Stock held by such
holder.

      4.6. Required Notices to Holders. In the event the Corporation shall propose:

      (i) to make or issue any dividend or other distribution to holders of
Common Stock of any stock, other securities, cash, assets or property or of any rights to
subscribe for or purchase any shares of stock of any class or any other securities, rights
or options; or

      (ii) to effect any Transaction; or

      (iii) to effect the voluntary or involuntary dissolution, liquidation or
winding-up of the Corporation; or

      (iv) to effect any reclassification of its Common Stock,

then, and in each such case, the Corporation shall cause to be filed with the transfer agent or
agents for the Series A Preferred Stock and shall give notice of such proposed action to each
holder of record of the shares of Series A Preferred Stock appearing on the stock books of the
Corporation as of the date of such notice at the address of said holder shown therein. Such notice
shall specify (x) the date on which a record is to be taken for the purposes of such dividend or
distribution; or (y) the date on which such reclassification, Transaction, liquidation, dissolution
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, cash or other property deliverable upon such reclassification, Transaction,
liquidation, dissolution or winding up. Such notice shall be given, in the case of any action
covered by clause (i) above, at least 10 days prior to the record date for determining holders of
the Common Stock for purposes of much action

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or, in the case of any action covered by clauses (ii) through (iv) above, at least 20 days prior to
the applicable effective or expiration date specified above or, in any such case, prior to such
earlier time as notice thereof shall be required to be given pursuant to Rule l0b-17 under the
Exchange Act.

      If at any time the Corporation shall cancel any of the proposed transactions for which notice
has been given under this Section 4.6  prior to the consummation thereof, the
Corporation shall give prompt notice of such cancellation to each holder of record of the shares of
Series A Preferred Stock appearing on the stock books of the Corporation as of the date of such
notice at the address of said holder shown therein.

      4.7. Payment of Taxes. The Corporation shall pay any and all taxes (other than
income taxes) that may be payable in respect of the issue or delivery of shares of Common Stock on
conversion of shares of Series A Preferred Stock pursuant hereto. The Corporation shall not be
required, however, to pay any tax or other charge imposed in respect of any transfer involved in
the issue and delivery of any certificates for shares of Common Stock or payment of cash or other
property to any Recipient other than the holder of the share of Series A Preferred Stock converted,
and in case of such transfer or payment, the transfer agent or agents for the Series A Preferred
Stock and the Corporation shall not be required to issue or deliver any certificate or pay any cash
until (a) such tax or charge has been paid or an amount sufficient for the payment thereof has been
delivered to the transfer agent or agents for the Series A Preferred Stock or the Corporation or
(b) it has been established to the Corporation’s satisfaction that any such tax or other charge
that is or may become due has been paid.

5. Voting.

            (a) The holders of shares of Series A Preferred Stock shall vote on an “as converted” basis
with the holders of Common Stock on all matters put to a vote of holders of Common Stock. As to
matters upon which holders of shares of Series A Preferred Stock are entitled to vote as a separate
class, the holders of Series A Preferred Stock shall be entitled to one vote per share.

            (b) Except as provided under Section 5(a) and as otherwise required by law, the
holders of shares of Series A Preferred Stock shall not have the right or power to vote on any
question or in any proceeding or to be represented at or to receive notice of any meeting of
capital stock of the Corporation.

6. Rank.

      In the payment of dividends and in the distribution of assets upon the liquidation (complete
or partial), dissolution or winding up of the affairs of the Corporation, the shares of Series A
Preferred Stock shall rank senior and prior to the shares of Common Stock, par value $0.001 per
share, of the Corporation.

7. Certain Definitions.

      As used herein with respect to the Series A Preferred Stock, the following terms shall have
the following meanings:

11

 

      “Accrued Dividends”, with respect to any share of any class or series, means an amount
computed at the annual dividend rate for the class or series of which the particular share is a
part, from and including the date on which dividends on such share became cumulative to and
including the date to which such dividends are to be accrued, less the aggregate amount of all
dividends theretofore paid thereon.

      “Board of Directors” has the meaning set forth in the introductory paragraph of this
Certificate of Designations.

      “Business Day” means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a legal
holiday in the State of New York or a day on which banking institutions and trust companies in
Borough of Manhattan, The City of New York are authorized or obligated by law, regulation or
executive order to close.

      “Certificate of Incorporation” has the meaning set forth in the introductory paragraph of this
Certificate of Designations.

      “Common Stock” means any capital stock of any class or series of the Corporation (including,
on the Original Issue Date, the Common Stock, par value $0.001 per share, of the Corporation) which
has no preference in respect of dividends or of amounts payable in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation. However, subject to the
provisions of Section 4.2(f), shares issuable upon conversion of Series A
Preferred Stock shall include only shares of the class of capital stock of the Corporation
designated as Common Stock, par value $0.00l per share, of the Corporation on the Original Issue
Date or shares of any class or classes resulting from any reclassification or reclassifications
thereof and which have no preference in respect of dividends or of amounts payable in the event of
any voluntary or involuntary liquidation, dissolution or winding up of the Corporation and which
are not subject to redemption by the Corporation; provided, however, that if at any time there
shall be more than one such resulting class, the shares of each such class then so issuable shall
be substantially in the proportion which the total number of shares of such class resulting from
all such reclassifications bears to the total number of shares of all such classes resulting from
all such reclassifications.

      “Constituent Person” has the meaning set forth in Section 4.2(f).

      “Conversion Event” means the occurrence of the Common Stock trading above $10.00 per share (as
appropriately adjusted based on any adjustments to the Conversion Price) for 10 consecutive Trading
Days with a trading volume of at least 50,000 shares (as appropriately adjusted based on any
adjustments to the Conversion Price) for each such Trading Day.

      “Conversion Price” means the conversion price per share of Common Stock, initially set as set
forth in Section 4.1(a) and subject to adjustment as provided in Section
4.2.

      “Corporation” has the meaning set forth in the introductory paragraph of this Certificate of
Designations.

      “Current Market Price” means on any date:

      (i) if the reference is to the per share price of Common Stock on any date
herein specified and if on such date the Common Stock is listed or admitted to trading on
any

12

 

national securities exchange or quoted on the National Association of Securities
Dealers, Inc. National Market System or otherwise traded in the over-the-counter market in
the United States:

      (A) for the purpose of any computation under this Certificate of
Designations (except under Section 4.3), the average of the
Quoted Prices for the five consecutive Trading Days selected by the Corporation
commencing not more than 20 Trading Days before, and ending not later than, the
earlier of (x) the date in question and (y) in the case of any computation under
Section 4.2(d), the day before the “ex” date for the issuance or
distribution requiring such computation; provided, however, that if the “ex” date
for any event (other than the issuance or distribution requiring such computation)
that requires an adjustment to the Conversion Price pursuant to Sections
4.2(a), 4.2(b), or 4.2(d),
occurs on or after the 20th Trading Day prior to the day in question and prior to
the “ex” date for the issuance or distribution requiring such computation, the
Quoted Price for each Trading Day prior to the “ex” date for such other event shall
be adjusted by multiplying such Quoted Price by the same fraction by which the
Conversion Price is so required to be adjusted pursuant to Sections
4.2(a), 4.2(b), or 4.2(d),
as applicable, as a result of such other event; or

      (B) for the purposes of any computation under Section
4.3, the Quoted Price for such date or, if such date is not a
Trading Day, for the next preceding Trading Day; or

      (ii) if the reference is to the per share price of Common Stock on any date
herein specified and if on such date the Common Stock is not listed or admitted to trading
on any national securities exchange or quoted on the National Association of Securities
Dealers, Inc. National Market System or otherwise traded in the over-the-counter market in
the United States, the amount which a willing buyer would pay a willing seller in an arm’s
length transaction on such date (neither being under any compulsion to buy or sell) for one
share of the Common Stock as determined as of such date (x) for the purposes of any
computation under this Certificate of Designations (except under Section
4.3), by an Independent Financial Expert as set forth in value report
thereof using one or more valuation methods that such Independent Financial Expert, in its
best professional judgment, determines to be most appropriate or (y) for the purposes of any
computation under Section 4.3, by the Treasurer or Chief Financial
Officer of the Corporation in good faith, whose determination shall be conclusive and
evidenced by a certificate of such officer.

“‘Ex’ Date” means:

      (i) when used with respect to any issuance or distribution, the first date on
which the Common Stock trades regular way on the relevant exchange or in the relevant market
from which the Quoted Price was obtained without the right to receive such issuance or
distribution; or

      (ii) when used with respect to any subdivision or combination of shares of
Common Stock, the first date on which the Common Stock trades regular way on the relevant
exchange or in the relevant market after the time at which such subdivision or combination
becomes effective.

13

 

      “Exchange Act” means the Securities Exchange Act of 1934, and any statute successor thereto,
in each case as amended from time to time.

      “Financial Expert” means any broker or dealer registered as such under the Exchange Act that
conducts an investment banking business of nationally recognized standing.

      “Fully Junior Stock” means any Junior Stock over which the Series A Preferred Stock has
preference and priority in the payment of dividends and in the distribution of assets on any
liquidation (complete or partial), dissolution or winding up of the affairs of the Corporation.

      “General Corporation Law” has the meaning set forth in the introductory paragraph of this
Certificate of Designations.

      “Holder” of shares of Series A Preferred Stock shall mean the stockholder in whose name such
Series A Preferred Stock is registered in the stock books of the Corporation.

      “Independent Financial Expert” means any Financial Expert selected by the Corporation that
either (i) is reasonably acceptable to the holders of shares of Series A Preferred Stock evidencing
a majority of the outstanding shares of Series A Preferred Stock or (ii) is a firm (x) which does
not (and whose directors, officers, employees and affiliates, to the knowledge of the Corporation,
do not) have a material direct or indirect financial interest in the Corporation or any of its
Affiliates (other than by virtue of compensation paid for advice or opinions referred to in the
exception to clause (z)), as determined by the Board of Directors of the Corporation in its
reasonable good faith judgment, (y) which has not been, within the last two years, and, at the time
it is called upon to give independent financial advice to the Corporation or any of its Affiliates,
is not (and none of whose directors, officers, employees or affiliates, to the knowledge of the
Corporation, is) a promoter, director or officer of the Corporation or any of its Affiliates or an
underwriter with respect to any of the securities of the Corporation or any of its Affiliates and
(z) which does not provide any advice or opinions to the Corporation or Affiliates except as an
independent financial expert in connection with this Certificate of Designations.

      “Junior Right” means any option, right or share of Series A Preferred Stock convertible into,
or convertible or exchangeable for, any Junior Stock.

      “Junior Stock” means the Common Stock, par value $0.001 per share, of the Corporation and any
other class or series of shares of the Corporation hereafter authorized over which the Series A
Preferred Stock has preference or priority in the payment of dividends or in the distribution of
assets on any liquidation (complete or partial), dissolution or winding up of the affairs of the
Corporation.

      “Liquidation Value” has the meaning set forth in Section 3(a).

      “Liquidation Payment” has the meaning set forth in Section 3(a).

      “Non-Electing Share” has the meaning set forth in Section 4.2(f).

      “Non-Surviving Transaction” has the meaning set forth in Section 4.2(f).

      “Original Issue Date” means the date on which shares of Series A Preferred Stock are
originally issued under this Certificate of Designations.

14

 

      “Preferred Stock” has the meaning set forth in the introductory paragraph of this Certificate
of Designations.

      “Property Dividend” means any payment by the Corporation to all holders of its Common Stock of
any dividend, or any other distribution by the Corporation to such holders, of any shares of
capital stock of the Corporation, evidences of indebtedness of the Corporation, or assets
(including rights, warrants or other securities (of the Corporation or any other Person)), other
than any dividend or distribution (i) paid in cash, (ii) upon a merger or consolidation or sale to
which Section 4.2(f) applies or (iii) of any Common Stock referred to in
Section 4.2(b).

      “Quoted Price” means, on any Trading Day, with respect to any security, the last reported
sales price regular way or, in case no such reported sale takes place on such Trading Day, the
average of the reported closing bid and asked prices regular way, in either case on the New York
Stock Exchange or, if such security is not listed or admitted to trading on such exchange, on the
principal national securities exchange on which such security is listed or admitted to trading or,
if not listed or admitted to trading on any national securities exchange, on the National
Association of Securities Dealers Automated Quotations National Market System or, if such security
is not listed or admitted to trading on any national securities exchange or quoted on such National
Market System, the average of the closing bid and asked prices in the over-the-counter market in
the United States as furnished by any NASD member firm that shall be selected from time to time by
the Corporation for that purpose.

      “Series A Preferred Stock” has the meaning set forth in Section 1(a).

      “Substituted Property” has the meaning set forth in Section 4.2(f).

      “Surviving Transaction” has the meaning set forth in Section 4.2(f).

      “Trading Day” means each Monday, Tuesday, Wednesday, Thursday and Friday, other than any day
on which securities are not traded on the applicable securities exchange or in the applicable
securities market.

      “Transaction” has the meaning set forth in Section 4.2(f).

8. No Other Rights.

      The shares of Series A Preferred Stock shall not have any powers, designations, preferences or
relative, participating, optional, or other special rights, nor shall there be any qualifications,
limitations or restrictions or any powers, designations, preferences or rights of such shares,
other than as set forth herein or in the Certificate of Incorporation or as may be provided by law.

[The Remainder of this Page Intentionally Left Blank]

15

 

      IN WITNESS WHEREOF, Tejas Incorporated has caused this Certificate to be duly executed in its
name and on its behalf by its authorized officer this 9th day of August 2005.

	 	 	 	 	 
	 	 	TEJAS INCORPORATED
	 
	 	 	 	 
	 

	 	By:
	 	/s/ John F. Garber
	 

	 	 	 	 
	 	 	Name: John F. Garber
	 	 	Title: Chief Financial Officer

16exv10w2

 

EXHIBIT 10.2

THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE
TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
WITH RESPECT TO THIS NOTE OR SUCH SECURITIES, FILED AND MADE EFFECTIVE UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND SUCH APPLICABLE STATE SECURITIES LAWS, OR UNLESS THE COMPANY RECEIVES AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER SUCH ACT AND
SUCH APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 UNDER
SUCH ACT.

REPLACEMENT SUBORDINATED CONVERTIBLE PROMISSORY NOTE

	 	 	 	 	 
	$1,000,000.00

	 	Austin, Texas
	 	Effective as of July 7, 2004

     For value received, Tejas Incorporated, a Delaware corporation (the “Company”), hereby
promises to pay to Salter Family Partners, Ltd. or registered assigns (the “Holder”), the
principal sum of ONE MILLION DOLLARS AND NO CENTS ($1,000,000.00), on the dates specified herein,
with interest as specified herein.

     This Note is subject to the following additional provisions, terms and conditions:

ARTICLE 1. DEFINITIONS.

     Section 1.1.
Certain Definitions.

     “Applicable Rate” means 10% per annum.

     “Bankruptcy Law” means Title 11, United State Code or any similar federal or state law
for the relief of debtors.

     “Business Day” means any day that is not a Saturday or Sunday or a day on which banks
are required or permitted to be closed in Austin, Texas.

     “Common Stock” means the Company’s common stock, $0.001 par value.

     “Conversion Price” means Ten Dollars ($10.00).

     “Default Rate” means 14% per annum.

     “DGCL” means the Delaware General Corporation Law, as amended from time to time.

     “Distribution Event” means any insolvency, bankruptcy, receivership, liquidation,
reorganization or similar proceeding (whether voluntary or involuntary) relating to the Company or
its property, or any proceeding for voluntary or involuntary liquidation, dissolution or other
winding up of the Company, whether or not involving insolvency or bankruptcy.

1

 

     “Holder” has the meaning given to such term in the first paragraph of this Note.

     “Interest Payment Date” means the first day of each calendar quarter.

     “Maturity Date” means December 1, 2005.

     “Maximum Rate” means the maximum nonusurious interest rate permitted under applicable
law.

     “Note” means this Replacement Subordinated Convertible Promissory Note made by the
Company payable to the Holder, together with all amendments and supplements hereto, all
substitutions and replacements herefor, and all renewals, extensions, increases, restatements,
modifications, rearrangements and waivers hereof from time to time.

     “Person” means any individual, corporation, partnership, joint venture, association,
limited liability company, joint-stock company, trust, unincorporated organization or government or
any agency or political subdivision thereof.

     “Preferred Stock Conversion Price” means One Thousand Dollars ($1,000.00).

     “Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.

     “Subsidiary” means Tejas Securities Group, Inc., a wholly-owned subsidiary of the
Company.

ARTICLE 2. BASIC TERMS.

     Section 2.1.
Principal.

          (a) Scheduled Repayment. The principal of this Note shall be due and payable on the
Maturity Date.

          (b) Prepayment. The principal and/or interest on this Note may not be prepaid
in whole or in part without the prior consent of Holder.

     Section 2.2. Interest.

          (a) The Company agrees to pay interest in respect of the unpaid principal amount of this Note
at a rate per annum equal to the lesser of the Applicable Rate or the Maximum Rate.
Notwithstanding the preceding sentence, the Company agrees to pay interest in respect of overdue
principal, and, to the extent permitted by law, overdue interest, at a rate per annum equal to the
lesser of the Default Rate or the Maximum Rate.

          (b) Interest on the unpaid principal amount of this Note shall be due and payable (i) on each
Interest Payment Date and the Maturity Date, (ii) upon the payment or conversion of any of the
principal of this Note, (iii) at the maturity of this Note (whether by

2

 

acceleration or otherwise), and (iv) after maturity (whether by acceleration or otherwise), on
demand.

          (c) All computations of interest, both before and after maturity, shall be made on the basis
of a year of 365 days (or 366 days, as applicable) for the actual number of days (including the
first day but excluding the last day) occurring in the period for which such interest is payable.

     Section 2.3. Payments in General. Whenever any payment to be made under this Note
shall be stated to be due on a day that is not a Business Day, the due date thereof shall be
extended to the next succeeding Business Day, and, with respect to payments of principal, interest
thereon shall be payable at the applicable rate during such extension. Each payment received by
the Holder shall be applied first to collection expenses, if any, then to the payment of accrued
but unpaid interest hereunder, and then to the reduction of the unpaid principal balance hereof.

     Section 2.4. Surrender of Note on Transfer or Conversion. This Note shall, as a
condition to transfer, be surrendered to the Company in exchange for a new Note in a principal
amount equal to the principal amount remaining unpaid on the surrendered Note, and with the same
terms and conditions as this Note. In case the entire principal amount of this Note is prepaid or
converted pursuant to Article 4, this Note shall be surrendered to the Company for
cancellation and shall not be reissued.

     Section 2.5. No Collateral. This Note is unsecured.

     Section 2.6. Subordination. The Holder’s rights to payments hereunder are subordinate
to the rights and security interests of First United Bank pursuant to Promissory Note dated
February 17, 2004, as amended, modified, revised or restructured from time to time. The Company
shall obtain the prior written consent of Holder prior to (i) incurring any indebtedness for
borrowed money following the date of this Note or (ii) subordinating this Note to any rights and
security interests granted to a bank or other third party institutional lender following the date
of this Note. Upon giving such written consent, the Holder agrees to execute all documentation
reasonably requested by a bank or other third party institutional lender to subordinate the
Holder’s rights to payment under this Note.

ARTICLE 3. DEFAULT AND REMEDIES.

     Section 3.1.
Events of Default. An “Event of Default” occurs if:

          (a) the Company defaults in the payment of principal or interest on the Note when the same
becomes due and payable and such default continues for 3 days after the Company has received
written notice thereof;

          (b) default by the Company in the punctual performance of any other obligation, covenant, term
or provision contained in this Note, and such default shall continue unremedied for a period of 10
days or more following written notice of default by Holder to the Company;

3

 

          (c) the closing price of the Company’s publicly traded Common Stock, as reported on a national
or regional securities exchange, quotation system, or over-the-counter bulletin board, is less than
$1.00 per share for ten (10) consecutive trading days;

          (d) Mark Salter is no longer employed by the Company or the Subsidiary;

          (e) the net liquidating equity of the Subsidiary held at its clearing organization as of the
close of business on the last Business Day of a calendar month is less than Two Million Dollars
($2,000,000); or

          (f) the Company (i) commences a voluntary case concerning itself under any Bankruptcy Law now
or hereafter in effect, or any successor thereof; (ii) is the object of an involuntary case under
any Bankruptcy Law; or (iii) commences any Distribution Event or is the object of an involuntary
Distribution Event.

     Section 3.2. Remedies.

          (a) If an Event of Default (other than an Event of Default under Section 3.1(f)) shall
occur, the Holder may declare by notice in writing given to the Company, the entire unpaid
principal amount of the Note, together with accrued but unpaid interest thereon, to be immediately
due and payable, in which case the Note shall become immediately due and payable, both as to
principal and interest, without presentment, demand, default, notice of intent to accelerate and
notice of such acceleration, protest or notice of any kind, all of which are hereby expressly
waived, anything herein or elsewhere to the contrary notwithstanding; provided, that if the only
Event of Default arises under Section 3.1(d) because Mark Salter has died or become
disabled, then the Notice shall become due and payable, both as to principal and interest, sixty
(60) days after receipt of such notice by the Company.

          (b) If an Event of Default under Section 3.1(f) shall occur and be continuing, the
entire unpaid principal amount of the Note, together with accrued but unpaid interest thereon,
shall automatically become immediately due and payable, both as to principal and interest, without
presentment, demand, default, notice of intent to accelerate and notice of such acceleration,
protest or notice of any kind, all of which are hereby expressly waived, anything herein or
elsewhere to the contrary notwithstanding.

          (c) If any Event of Default shall have occurred, the Holder may proceed to protect and enforce
their rights either by suit in equity or by action at law, or both.

ARTICLE
4. CONVERSION.

     Section 4.1.
Right of Conversion.

          (a) The Holder shall have the right at any time, to convert, subject to the terms and
provisions of this Article 4, the unpaid principal of this Note into a number of fully paid
and nonassessable shares of Common Stock equal to (i) the amount of unpaid principal that the
Holder elects to convert pursuant to Section 4.2, divided by (ii) the Conversion Price.

4

 

          (b) In the event (i) the Company amends its certificate of incorporation in accordance with
the DGCL and its existing certificate of incorporation and bylaws (including but not limited to
obtaining approval of the Company’s stockholders for such amendment) to authorize the Company to
issue shares of preferred stock with such terms as described in (c) below and (ii) the Board of
Directors of the Company establishes, in accordance with the DGCL and its amended certificate of
incorporation and bylaws, a separate series of the Company’s preferred stock with such terms as
described in (c) below and for the purpose of enabling the Holder to convert this Note into shares
of such preferred stock, then the Holder shall have the right at any time to convert, subject to
the terms of this Article 4, the unpaid principal of this Note into a number of fully paid
and nonassessable shares of the Company’s preferred stock (the terms of which are described in
Section 4.1(c) below, the “Preferred Stock”) equal to (i) the amount of unpaid
principal that the Holder elects to convert pursuant to Section 4.2, divided by (ii) the
Preferred Stock Conversion Price.

          (c) The terms of the Preferred Stock shall generally include (i) a 10% cumulative dividend
payment requirement, payable on a quarterly basis, (ii) a right of the Company to mandatorily
convert the Preferred Stock into Common Stock at the Conversion Price in the event that the Common
Stock of the Company trades above $10.00 per share for ten (10) consecutive trading days with a
trading volume of at least 50,000 shares for each such trading day, (iii) a liquidation preference
over the Common Stock equal to the Conversion Price (as appropriately adjusted for any stock
splits, stock dividends or similar events), (iv) a right of the Holder to convert the Preferred
Stock into Common Stock on a one-for-one basis, subject to antidilution provisions similar to the
antidilution provisions set forth in Section 4.8, (v) the Preferred Stock shall vote on an
as converted basis with the Common Stock on all matters requiring a stockholder vote except where a
separate class vote is required pursuant to the terms of the DGCL, and (vi) such other terms as
agreed to by the Holder and the Company. Notwithstanding Section 4.1(b), if the Company
and the Holder are unable to reasonably agree on the terms of the Preferred Stock, the Note shall
not be convertible into Preferred Stock.

     Section 4.2. Mechanics of Exercise. The right of conversion shall be exercised by the
surrender of this Note to the Company during usual business hours at its principal place of
business accompanied by written notice (a) that the Holder elects to convert all or a portion of
the unpaid principal of this Note and such portion being so converted, and (b) specifying the name
(with address) in which the certificate for shares is to be issued and, if the certificate is to be
issued to a Person other than the Holder, (i) a written instrument of transfer in form reasonably
satisfactory to the Company, duly executed by the Holder, together with transfer tax stamps or
funds therefor if required pursuant to Section 4.7 and (ii) an opinion of counsel
satisfactory to the Company to the effect that registration of such transfer under the Securities
Act is not required. Upon surrender for conversion, this Note shall be cancelled and, if less than
all of the unpaid principal amount of this Note is to be converted, the Company shall issue a new
Note to the Holder in a principal amount equal to the unpaid principal amount of this Note not so
converted.

     Section 4.3. Issuance of Shares; Time of Conversion. As promptly as practicable after
the surrender, as herein provided, of this Note for conversion, the Company shall deliver or cause
to be delivered at the Company’s office (or such other location that the Holder reasonably requests
in writing) a certificate for the shares of Common Stock or Preferred Stock (as the case

5

 

may be) issuable in connection with such conversion. To the extent permitted by law, the
rights of the Holder as the Holder shall cease as of the date of actual receipt of such stock
certificate by the Person entitled to receive the stock certificate, and the Person entitled to
receive the stock certificate deliverable upon such conversion shall be treated for all purposes as
having become the record holder of the stock represented by such certificate at such time.
Notwithstanding delivery of this Note to the Company for conversion, the Holder shall be deemed to
continue to hold this Note and shall be entitled to all of the rights hereunder (including
interest) until the delivery of such stock certificate to the Person entitled to receive such stock
certificate, other than rights arising from any Event of Default that results solely from the
expiration of a time period (including the Maturity Date) for so long as the Company is taking all
reasonable efforts to provide such stock certificate promptly.

     Section 4.4. No Stockholder Rights. Prior to the issuance of Common Stock or
Preferred Stock (as the case may be) upon conversion, the Holder shall not be entitled to any
rights of a stockholder with respect to the Common Stock or Preferred Stock, including (without
limitation) the right to vote such stock, receive dividends or other distributions thereon,
exercise preemptive rights or be notified of stockholder meetings, and the Holder shall not, by
virtue of holding this Note, be entitled to any notice or other communication concerning the
business or affairs of the Company.

     Section 4.5. Shares to be Reserved. Prior to the time this Note is repaid in full or
is converted pursuant to the terms hereof, the Company covenants that it will reserve and keep
available out of its authorized but unissued Common Stock or Preferred Stock (as the case may be),
free from preemptive rights, solely for the purpose of issuance upon conversion of this Note as
herein provided, such number of shares of Common Stock or Preferred Stock (as the case may be) as
shall then be issuable upon the conversion of all principal on this Note. The Company covenants
that all Common Stock or Preferred Stock (as the case may be) which shall be so issuable shall,
when issued, be duly and validly issued and fully paid and nonassessable and shall be free of any
liens, encumbrances, or restrictions on transfer (other than those created by applicable state
and/or federal securities law).

     From and after the date of this Note, the Company shall take all necessary or desirable
actions within its control, including without limitation calling board and stockholder meetings,
sending appropriate notices and proxy materials for such meetings and actively soliciting proxies,
in order to amend its certificate of incorporation in accordance with the DGCL and its certificate
of incorporation and bylaws (including but not limited to obtaining the approval of the Company’s
stockholders for such amendment) to authorize the Company to issue shares of preferred stock as
soon as is reasonably practicable. The board of directors of the Company shall (i) adopt a
resolution setting forth such proposed amendment, declaring its advisability and calling a meeting
of the stockholders entitled to vote in respect thereof for the consideration of such amendment,
(ii) recommend to the stockholders the approval of such amendment and not change such
recommendation, and (iii) following the approval of such amendment by the Company’s stockholders,
establish in accordance with the DGCL and the Company’s amended certificate of incorporation and
bylaws a separate series of the Company’s preferred stock having the terms of the Preferred Stock.

     Section 4.6. No Registration or Listing of Shares.

6

 

          (a) The shares of Common Stock or Preferred Stock (as the case may be) issuable on conversion
will not be registered with any governmental authority or, in the case of Preferred Stock, listed
on any exchange or trading system, and except as set forth in this Section 4.6, the Company
shall have no obligation to register or, in the case of Preferred Stock, list such stock. The
stock issued upon conversion of the Note shall bear a restrictive legend describing limitations of
the transferability of such stock under the Securities Act and any other restrictions imposed by
law or contract.

          (b) The Holder shall be granted piggy back registration rights in the shares of Common Stock
issuable upon conversion of this Note or the Preferred Stock, pursuant to the Registration Rights
Agreement dated as of this date hereof between the Company and Holder.

     Section 4.7. Taxes and Charges. The issuance of certificates for stock upon the
conversion of this Note shall be made without charge to the Holder for such certificates or for any
tax in respect of the issuance of such certificates or the securities represented thereby, and such
certificates shall be issued in the respective names of, or in such names as may be directed by,
the Holder; provided, however, that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any such certificate in
a name other than that of the Holder of the Note, and the Company shall not be required to issue or
deliver such certificates unless or until the Person or Persons requesting the issuance thereof
shall have paid to the Company the amount of such tax or shall have established to the satisfaction
of the Company that such tax has been paid.

     Section 4.8. Adjustments. In the event of a reorganization, recapitalization, stock
split, stock dividend, combination of shares, merger, consolidation or any other change in the
corporate structure of the Company, or a sale by the Company of all or substantially all of its
assets, or any distribution to stockholders other than a normal cash dividend, the Board of
Directors of the Company shall make appropriate adjustment in the number and kind of shares of
Common Stock into which this Note is convertible; provided, that in no event shall (a) the
Preferred Stock Conversion Rate be less than $1,000.00 or (b) more than 1,000 shares of Preferred
Stock be issued as a result of conversion of this Note. Without the advance written approval of
the Holder, the Company shall not authorize or issue, or obligate itself to issue, any capital
stock of the Company for a price per share less than the then applicable Conversion Price, other
than Common Stock issued to employees, directors, or consultants of the Company pursuant to a stock
option plan, stock incentive plan, stock appreciation right, or other plan or arrangement in the
ordinary course of the Company’s business.

ARTICLE 5. MISCELLANEOUS.

     Section 5.1. Amendment. This Note may be amended, modified, superseded or cancelled,
and any of the terms, covenants, representations, warranties or conditions hereof and thereof may
be waived, only by a written instrument executed by the Holder and the Company.

7

 

     Section 5.2. Successors and Assigns.

          (a) The rights and obligations of the Company and the Holder under this Note shall be binding
upon, and inure to the benefit of, and be enforceable by, the Company and the Holder, and their
respective permitted successors and assigns.

          (b) The Holder may not sell, assign (by operation of law or otherwise), transfer, pledge,
grant a security interest in, or otherwise dispose of this Note or any portion hereof or any rights
or obligations hereunder unless (i) the Company has granted its prior written consent, and (ii) the
Company shall have received a written opinion of counsel acceptable to the Company, addressed to
the Company, to the effect that any such proposed transfer or other disposition complies with all
applicable Federal and state securities laws; provided, that the written consent of the Company
shall not be required for any sale, assignment, transfer or other disposition to Mark Salter or his
spouse, parents, siblings or lineal descendants (by blood, marriage or adoption), or any trust,
partnership, corporation, limited liability company or other similar entity solely for the benefit
of Mark Salter or his spouse, parents, siblings or lineal descendants (by blood, marriage or
adoption).

          (c) The registered owner of this Note may be treated as the owner of it for all purposes.

     Section 5.3. Defenses. The obligations of the Company under this Note shall not be
subject to reduction, limitation, impairment, termination, defense, set-off, counterclaim or
recoupment for any reason.

     Section 5.4. Replacement of Note. Upon receipt by the Company of evidence,
satisfactory to it, of the loss, theft, destruction, or mutilation of this Note and (in the cases
of loss, theft or destruction) of any indemnity reasonably satisfactory to it, and upon surrender
and cancellation of this Note, if mutilated, the Company will deliver a new Note of like tenor in
lieu of this Note. Any Note delivered in accordance with the provisions of this Section
5.4 shall be dated as of the date of this Note.

     Section 5.5. Attorneys’ and Collection Fees. Should the indebtedness evidenced by
this Note or any part hereof be collected at law or in equity or in bankruptcy, receivership or
other court proceedings, the Company agrees to pay, in addition to principal and interest due and
payable hereon, all costs of collection, including reasonable attorney’s fees and expenses,
incurred by the Holder in collecting or enforcing this Note.

     Section 5.6. Governing Law. This Note and the validity and enforceability hereof
shall be governed by and construed and interpreted in accordance with the laws of the State of
Texas without giving effect to conflict of laws rules or choice of laws rules thereof.

     Section 5.7. Waivers. Except as may be otherwise provided herein, the makers,
signers, sureties, guarantors and endorsers of this Note severally waive demand, presentment,
notice of dishonor, notice of intent to demand or accelerate payment hereof, notice of
acceleration, diligence in collecting, grace, notice, and protest, and agree to one or more
extensions for any period or periods of time and partial payments, before or after maturity,
without prejudice to the Holder.

8

 

     Section 5.8. No Waiver by Holder. No failure or delay on the part of the Holder in
exercising any right, power or privilege hereunder and no course of dealing between the Company and
the Holder shall operate as a waiver thereof; nor shall any single or partial exercise of any
right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege.

     Section 5.9. No Impairment. The Company will not, by amendment of its certificate of
incorporation or through any reorganization, recapitalization, 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 hereunder by
the Company, but will at times in good faith assist in the carrying out of all the provisions of
this Note.

     Section 5.10. Limitation on Interest. Notwithstanding any other provision of this
Note, interest on the indebtedness evidenced by this Note is expressly limited so that in no
contingency or event whatsoever, whether by acceleration of the maturity of this Note or otherwise,
shall the interest contracted for, charged or received by the Holder exceed the maximum amount
permissible under applicable law. If from any circumstances whatsoever fulfillment of any
provisions of this Note or of any other document evidencing, securing or pertaining to the
indebtedness evidenced hereby, at the time performance of such provision shall be due, shall
involve transcending the limit of validity prescribed by law, then, ipso facto, the obligation to
be fulfilled shall be reduced to the limit of such validity, and if from any such circumstances the
Holder shall ever receive anything of value as interest or deemed interest by applicable law under
this Note or any other document evidencing, securing or pertaining to the indebtedness evidenced
hereby or otherwise an amount that would exceed the highest lawful rate, such amount that would be
excessive interest shall be applied to the reduction of the principal amount owing under this Note
or on account of any other indebtedness of the Company to the Holder, and not to the payment of
interest, or if such excessive interest exceeds the unpaid balance of principal of this Note and
such other indebtedness, such excess shall be refunded to the Company. In determining whether or
not the interest paid or payable with respect to any indebtedness of the Company to the Holder,
under any specific contingency, exceeds the highest lawful rate, the Company and the Holder shall,
to the maximum extent permitted by applicable law, (a) characterize any non-principal payment as an
expense, fee or premium rather than as interest, (b) exclude voluntary prepayments and the effects
thereof, (c) amortize, prorate, allocate and spread the total amount of interest throughout the
term of such indebtedness so that the actual rate of interest on account of such indebtedness does
not exceed the maximum amount permitted by applicable law, and/or (d) allocate interest between
portions of such indebtedness, to the end that no such portion shall bear interest at a rate
greater than that permitted by applicable law. The terms and provisions of this paragraph shall
control and supersede every other conflicting provision of this Note and all other agreements
between the Company and the Holder.

     Section 5.11. Severability. If one or more provisions of this Note are held to be
unenforceable under applicable law, such provision(s) shall be excluded from this Note and the
balance of this Note shall be interpreted as if such provision(s) were so excluded and shall be
enforceable in accordance with its terms.

[remainder of page intentionally left blank]

9

 

EXECUTED as of the date first written above.

	 	 	 	 	 
	 	 	TEJAS INCORPORATED
	 
	 	 	 	 
	 

	 	By:  /s/ John F. Garber

	 
	 	 

	 

	 	Name:
	 John F. Garber
	 

	 	Title:
	 Chief Financial Officer

S-1

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