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    FIRST AMENDMENT, dated as of October 31, 2000 (this "Amendment"), to the Credit Agreement, dated as of November 23, 1999
(as heretofore amended, the "Credit Agreement"), among MERRILL CORPORATION, a Minnesota corporation, as a guarantor
("Holdco"), MERRILL COMMUNICATIONS LLC, a Delaware limited liability company, as the borrower (the
"Company"), the various financial institutions from time to time parties to the Credit Agreement (collectively, the
"Lenders"), DLJ CAPITAL FUNDING, INC. ("DLJ"), as syndication agent for the Lenders (the
"Syndication Agent"), WELLS FARGO BANK, N.A., as documentation agent for the Lenders (the "Documentation
Agent"), and U.S. BANK NATIONAL ASSOCIATION, as administrative agent for the Lenders (the "Administrative Agent"). 

W I T N E S S E T H:  

    WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to make, and have made, certain loans and other extensions of credit to the Company and its
Subsidiaries; 

    WHEREAS,
but for the effectiveness of this Amendment, the Company would be in violation of certain covenants contained in the Credit Agreement and in default thereunder; and 

    WHEREAS,
the Company has requested, and, upon this Amendment becoming effective, the Required Lenders have agreed, that certain provisions of the Credit Agreement be amended in the
manner provided for in this Amendment. 

    NOW,
THEREFORE, in consideration of the premises contained herein, the parties hereto hereby agree as follows: 

    1.  Defined Terms.  Terms defined in the Credit Agreement and used herein shall have the meanings given
to them in the Credit Agreement. 

    2.  Amendments to Section 1.1 of the Credit Agreement.  Section 1.1 of the Credit Agreement
is hereby amended as follows: 

	(a)
	by
adding the following definitions in their proper alphabetical order: 

    "Amendment Period" means the period from October 31, 2000 through April 30, 2001. 

    "DLJMB Contribution" means each of the Initial DLJMB Contribution, the Required DLJMB Contribution and any other capital contribution
made to the Company by any of the DLJMB Entities, their affiliates, or members of management or employees of the Company and its Subsidiaries, in each case subject to the terms and conditions of the
proviso to clause (b) of Section 2.1.4. 

    "Initial DLJMB Contribution" shall have the meaning given to such term in  clause (b) of Section 2.1.4.

    "Monthly Payment Date" means the last day of each month, or, if such day is not a Business Day, the next succeeding Business Day. 

    "Required DLJMB Contribution" shall have the meaning given to such term in the proviso in  Section 8.1.3. 

    "Senior Leverage Ratio" means, at the end of any Fiscal Quarter, subject to  clause (b) of Section 1.4,
the ratio of 

    (a)
total Debt consisting of Obligations under this Agreement outstanding at such time; 

to 

    (b)
EBITDA for the period of four consecutive Fiscal Quarters ended on such date. 

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    (b) by
inserting immediately after the chart in the definition of "Applicable Commitment Fee" therein the following: 

;
provided, however, that, during the Amendment Period, the Applicable Commitment Fee shall be 0.750%. 

    (c) by
inserting at the end of clause (b) of the definition of "Applicable Margin" therein the following: 

    ; provided, however, that, during the Amendment Period, the following margins shall apply: 

Applicable Margin For Revolving Loans, Swing Line Loans and Term-A Loans  

	 	Leverage Ratio
 
	 	Applicable Margin

For Base Rate Loans
	 	Applicable Margin

for LIBOR Loans
	 
	 	greater than 4.5.:1	 	2.25	%	3.50	%
	 	Greater than 4.0:1 and less than or equal to 4.5:1	 	2.00	%	3.25	%
	 	Greater than 3.5:1 and less than or equal to 4.0:1	 	1.75	%	3.00	%
	 	Greater than 3.0:1 and less than or equal to 3.5:1	 	1.50	%	2.75	%
	 	less than or equal to 3.0:1	 	1.25	%	2.50	%

    (d) by
inserting immediately prior to the period at the end of clause (c) of the definition of "Applicable
Margin" therein the following: 

;
provided, however, that, during the Amendment Period, with respect to the unpaid principal amount of each (i) Term-B Loan
maintained as a Base Rate Loan, 3.00% per annum, and (ii) Term-B Loan maintained as a LIBOR Loan, 4.25% per annum. 

    (e) by
inserting immediately prior to the period at the end of clause (f) of the definition of "EBITDA" therein
the following: 

    plus

    (g)
the amount deducted in determining Net Income representing (i) the amount of severance and restructuring costs expended or charges incurred by the Company (all taken in
accordance with GAAP)
in connection with the Company's cost savings program initiated in the Fiscal Quarter ended October 31, 2000, in an amount not to exceed $2,705,000 in the aggregate, (ii) the amount of
severance and restructuring costs expended or charges incurred by the Company (all taken in accordance with GAAP) (including, among other items, in connection with the combination of the Company's
Investment Company Services and Managed Communications Programs units) in an amount not to exceed $2,500,000 in the aggregate, (iii) legal fees and expenses incurred in connection with the
First Amendment to the Agreement, dated as of October 31, 2000, and (iv) fees and expenses paid to the consultant retained pursuant to Section 7.1.13;
provided, however, that, during the Amendment Period, all non-recurring or extraordinary expense items (other than the items already included in clauses
(i) through (iv) above) shall not be added to the above calculation of EBITDA. 

    (f)  by
deleting from the definition of "Net Debt Proceeds" therein the phrase "as in effect on the date hereof"; 

;
and 

2

 

    (g) by deleting the definition of "Revolving Loan Commitment Account" therein and substituting in lieu thereof the
following definition: 

"Revolving Loan Commitment Amount" means (i) prior to the receipt by the Company of the Initial DLJMB Contribution, $28,500,000 and
(ii) from and after the receipt by the Company of the Initial DLJMB Contribution, $35,000,000, as such amount may be increased, on or after the receipt by the Company of the Initial DLJMB
Contribution, by the amount by which the aggregate amount of DLJMB Contributions (excluding the Required DLJMB Contribution) exceeds $11,000,000 or reduced from time to time pursuant to  Section 2.2; provided, however, that the Revolving Loan Commitment Amount shall in no event be
greater than $40,000,000. 

    3.  Amendment to Section 1.4 of the Credit Agreement.  Section 1.4 of the Credit Agreement
is hereby amended by inserting immediately after the phrase "Interest Coverage Ratio" in clause (b) thereof the phrase ", Senior Leverage Ratio". 

    4.  Amendment to Section 2.1.1 of the Credit Agreement.  Section 2.1.1 of the Credit
Agreement is hereby amended by deleting clauses (b) and (d) thereof in their entireties. 

    5.  Amendments to Section 2.1.2 of the Credit Agreement.  Section 2.1.2 of the Credit
Agreement shall hereby be amended by deleting clause (c) thereof in its entirety. 

    6.  Amendments to Section 2.1.4 of the Credit Agreement.  Section 2.1.4 of the Credit
Agreement is hereby amended by (a) deleting the comma immediately after the word "if" in clause (b) thereof and substituting in lieu thereof the phrase "(a)" and (b) inserting
immediately prior to the period at the end of clause (b) thereof the following: 

or
(b) the Company shall not have received a new capital contribution, from any of the DLJMB Entities, their affiliates, or members of management or employees of the Company and its
Subsidiaries, in the form of senior unsecured debt, of at least $9,100,000 by January 15, 2001 (the "Initial DLJMB Contribution");  provided,
however, that the terms and conditions of such capital contribution shall (i) be
consistent with the terms annexed hereto as Exhibit "A" and otherwise in form and substance satisfactory to the Lenders and permissible under the terms of the Senior Subordinated Note Indenture,
(ii) have a maturity date beyond the final maturity date of the Loans, (iii) provide for the assignment to the Lenders of the rights to receive all payments and distributions thereunder
such that those making such a capital contribution shall purchase a participation (without voting rights) in the Loans, and (iv) not permit prepayment of such capital contribution prior to the
payment of the Obligations in full. 

    7.  Amendment to Section 2.2 of the Credit Agreement.  Section 2.2 of the Credit Agreement
is hereby amended by deleting in the proviso at the end thereof the phrase ", whether pursuant to clause (c) of  Section 2.1.2 or otherwise,".

    8.  Amendment to Section 3.2.2 of the Credit Agreement.  Section 3.2.2 of the Credit
Agreement is hereby amended by inserting immediately at the end thereof the following: 

In
the case of any Event of Default, the rate that would otherwise be applicable to all Loans shall be increased by 2% during the occurrence of such Event of Default. 

    9.  Amendment to Section 3.2.3 of the Credit Agreement.  Section 3.2.3 of the Credit
Agreement is hereby amended by deleting in clause (c) thereof the phrase "Quarterly Payment Date" and substituting in lieu thereof the phrase "Monthly Payment Date". 

3

 

    10.  Amendments to Section 7.1.1 of the Credit Agreement.  Section 7.1.1 of the Credit
Agreement is hereby amended by (a) inserting immediately prior to the semi-colon at the end of clause (b) thereof the following: 

;
provided, however, that for the Fiscal Year ending January 31, 2001, the Company shall furnish the information required by this  clause (b) within
74 days after the end of such Fiscal Year; and, provided, further, that,
to the extent that such financial information for the Fiscal Year ended January 31, 2001 is furnished earlier than 105 days following the end of such Fiscal Year, such financial
information need not be audited, so long as (i) such financial information is certified by the Company's chief financial officer to have been prepared in accordance with GAAP and
(ii) audited financial information for such Fiscal Year is furnished no later than 105 days following the end of such Fiscal Year. 

    (b) inserting
immediately prior to the semi-colon at the end of clause (c) thereof the following: 

; provided, however, that, in addition to the delivery of the foregoing, a Compliance Certificate for the Fiscal Quarter ended January 31, 2001,
containing the most current financial information available at that time for such period and which meets the reasonable requirements set forth by the Lenders, including, without limitation,
certification of compliance with all financial covenants as of January 31, 2001, shall be furnished to the Administrative Agent and each Lender no later than April 15, 2001. 

;
and (c) by inserting immediately after clause (g) thereof the following new clauses (h) and (i): 

(h)
weekly, the cash flow projections of Holdco and its Subsidiaries for such week and each of the following 12 weeks, including in each case a comparison of the prior week's actual cash flow against
forecasted cash flow; provided, however, that the foregoing obligation shall cease upon Holdco and the Company achieving and reporting to the Lenders
EBITDA for four consecutive Fiscal Quarters in an amount equal to or greater than $82,500,000; 

(i)
notwithstanding the terms of Section 7.1.5, as soon as available and in any event within 20 days after the end of each month of each Fiscal Year of Holdco, a consolidated balance
sheet of Holdco and its Subsidiaries as of the end of such month, together with the related consolidated statement of operations for such month, the related consolidated statement of cash flows for
each month and a detailed summary of the calculation of EBITDA (and, with respect to the provisions of clause (e) of  Section 7.2.4 of the Credit
Agreement, compliance with the EBITDA test set forth therein), certified by an Authorized Officer to have been
prepared in accordance with GAAP (subject to normal year end audit adjustments and the absence of footnotes) (and within 25 days after the end of each month, to the extent EBITDA for such
period of the four immediately prior consecutive Fiscal Quarters is less than $75,000,000, the chief executive officer, chief financial officer and such other members of senior management of the
Company as the Lenders shall reasonably request shall be available to meet, or participate in conference calls, with the Lenders to review and discuss such reports); and 

and
(3) by relettering the existing clauses (h) and (i) thereof as clauses (j) and (k). 

    11.  Amendment to Section 7.1 of the Credit Agreement.  Section 7.1 of the Credit Agreement
is hereby amended by adding immediately after Section 7.1.12 the following new Section 7.1.13: 

SECTION 7.1.13. Consultants. The Company shall (a) retain by no later than January 2, 2001, Nightingale &
Associates, or such other company as is reasonably acceptable to the Lenders, as professional consultants, whose work product in connection with the Company shall be shared with the Lenders and who
may not be dismissed without the prior written consent of the Required Lenders and (b) enter into an agreement by no later than January 15, 2001, agreeing to the 

4

 

payment
of professional consultants selected and retained by the Lenders to perform such functions for the Lenders as the Lenders reasonably request. 

    12.  Amendments to Section 7.2.2 of the Credit Agreement.  Section 7.2.2 of the Credit
Agreement is hereby amended by (i) deleting the word "and" at the end of clause (i) thereof; (ii) replacing the period at the end of clause (j) thereof with the phrase ";
and" and (iii) adding a new clause (k) following clause (j) to read in its entirety as follows: 

(k)
unsecured Indebtedness consisting of DLJMB Contributions. 

    13.  Amendments to Section 7.2.4 of the Credit Agreement.  Section 7.2.4 of the Credit
Agreement is hereby amended as follows: 

    (a) by
deleting the minimum EBITDA dollar amounts in clause (a) thereof for the following periods and substituting in lieu thereof the following: 

	 	Period
	 	EBITDA

	 	8/1/00—10/31/00	 	$62,500,000
	 	11/1/00—1/31/01	 	$60,000,000
	 	2/1/01—4/30/01	 	$63,500,000

    (b) by
deleting the Leverage Ratio in clause (b) thereof for the following periods and substituting in lieu thereof the following: 

	 	Period
	 	Leverage Ratio

	 	8/1/00—10/31/00	 	5.50:1.00
	 	11/1/00—1/31/01	 	5.98:1.00
	 	2/1/01—4/30/01	 	6.30:1.00

    (c) by
deleting the Interest Coverage Ratio in clause (c) thereof for the following periods and substituting in lieu thereof the following: 

	 	Period
	 	Interest Coverage Ratio

	 	8/1/00—10/31/00	 	1.50:1.00
	 	11/1/00—1/31/01	 	1.40:1.00
	 	2/1/01—4/30/01	 	1.40:1.00

    (d) by
inserting immediately before the period at the end of clause (d) thereof the following: 

; provided, however, that the Fixed Charge Coverage Ratio as of the end of the Fiscal Quarter ended October 31, 2000 shall not be less than 1.00
to 1.00, as of the end of the Fiscal Quarter ended January 31, 2001 shall not be less than 1.00 to 1.00 and as of the end of the Fiscal Quarter ended April 30, 2001 shall not be less
than 1.00 to 1.00. 

;
and 

    (e) by
inserting immediately after clause (d) thereof the following new clauses (e) and (f): 

    (e)  March 31, 2001 EBITDA.  Holdco and the Company will not permit EBITDA for the period of
twelve consecutive months ending on March 31, 2001 to be less than $55,000,000. 

5

 

    (f)  Senior Leverage Ratio.  Holdco and the Company will not permit the Senior Leverage Ratio as of the
end of any Fiscal Quarter occurring during any period set forth below to be greater than the amount set forth opposite such period: 

	 	Period
	 	Senior Leverage Ratio

	 	11/1/01—1/31/01	 	3.75:100
	 	2/1/01—4/30/01	 	4.10:1.00
	 	5/1/01—7/31/01	 	2.93:1.00
	 	8/1/01—10/31/01	 	2.93:1.00
	 	11/1/01—1/31/02	 	2.82:1.00
	 	2/1/02—4/30/02	 	2.82:1.00
	 	5/1/02—7/31/02	 	2.82:1.00
	 	8/1/02—10/31/02	 	2.82:1.00
	 	11/1/02—1/31/03	 	2.42:1.00
	 	2/1/03—4/30/03	 	2.42:1.00
	 	5/1/03—7/31/03	 	2.42:1.00
	 	8/1/03—10/31/03	 	2.42:1.00
	 	11/1/03—1/31/04	 	2.01:1.00
	 	2/1/04—4/30/04	 	2.01:1.00
	 	5/1/04—7/31/04	 	2.01:1.00
	 	8/1/04—10/31/04	 	2.01:1.00
	 	11/1/04—1/31/05	 	1.59:1.00
	 	2/1/05—4/30/05	 	1.59:1.00
	 	5/1/05—7/31/05	 	1.59:1.00
	 	8/1/05—10/31/05	 	1.59:1.00
	 	11/1/05—1/31/06	 	1.51:1.00
	 	Thereafter	 	1.51:1.00

    14.  Limitations on Investments.  During the Amendment Period, Holdco will not, nor permit any of its
Restricted Subsidiaries, to make any cash loans otherwise permitted under Section 7.2.5(g) of the Credit Agreement. 

    15.  Limitations on Restricted Payments and Acquisitions.  During the Amendment Period, Holdco will not,
nor permit any of its Restricted Subsidiaries, (a) to make any Restricted Payments otherwise permitted under Section 7.2.6 of the Credit Agreement in excess of $100,000 in the aggregate,
and (b) to liquidate, or dissolve, consolidate with, or merge into or with, any other entity, or purchase or otherwise acquire all or substantially all of the assets of any Person or any
division thereof, as otherwise permitted under clause (b) of Section 7.2.8 of the Credit Agreement. 

    16.  Amendments to Section 7.2.11 of the Credit Agreement.  Section 7.2.11 of the Credit
Agreement is hereby amended by (i) replacing the word "and" immediately before the expression "(v)" on the fourteenth line thereof with a comma and (ii) adding, immediately before the
period at the end of such Section, the following new language: "and (vi) enter into and perform their obligations in respect of DLJMB Contributions and the agreements, instruments and documents
entered into in connection therewith." 

    17.  Amendment to Section 7.2 of the Credit Agreement.  Section 7.2 of the Credit Agreement
is hereby amended by adding thereto the following new Section 7.2.16: 

SECTION 7.2.16. Limitations on Cash Balances. From and after December 20, 2000, each of Holdco and the Company will not,
and will not permit any other Restricted Subsidiary to, at any time at which any Revolving Loans are outstanding, (a) maintain cash balances, bank deposits and 

6

 

Cash
Equivalent Investments (other than cash balances, bank deposits and Cash Equivalent Investments in an aggregate amount not exceeding $6,500,000 held by Merrill Corporation, Canada and 793473
Ontario Ltd.) in an aggregate amount greater than $12,000,000 for three (3) consecutive days, and (b) except with respect to cash balances, bank deposits and Cash Equivalent
Investments in (i) an aggregate amount not exceeding $6,500,000 and held by Merrill Corporation, Canada and 793473 Ontario Ltd. and (ii) an aggregate amount not exceeding
$1,200,000 and held by non-Canadian Non-U.S. Subsidiaries, maintain cash balances, Cash Equivalent Investments or bank deposits other than with a Lender. 

    18.  Amendments to Section 8.1 of the Credit Agreement.  Section 8.1 of the Credit
Agreement is hereby amended (a) (i) by inserting immediately before the reference to "7.1.9" at the end of Section 8.1.3 the reference to "7.1.1 (solely to the extent of (i) the
proviso contained in clause (c) thereof and (ii) the delivery of the financial statements for the twelve month period ending March 31, 2001 pursuant to clause (i)
thereof)," and (ii) by inserting immediately prior to the period at the end of Section 8.1.3 the following: 

;  provided, however, that a default in the observance of the obligation under clause (e) of  Section 7.2.4
may be cured if, on or prior to April 25, 2001, the Company shall have received the net proceeds from a new DLJMB
Contribution in an aggregate amount of at least $8,100,000 (the "Required DLJMB Contribution") 

;
and 

    (b) by
adding immediately after Section 8.1.11 the following new Section 8.1.12: 

SECTION 8.1.12. New Investment. The Company shall fail to receive the net proceeds from the Initial DLJMB Contribution in an
aggregate amount of at least $9,100,000 by January 15, 2001. 

    19.  Designation of Restricted Subsidiaries.  Notwithstanding anything contained in the Credit Agreement
to the contrary, for all purposes of the Credit Agreement, Merrill Corporation Ltd. and Merrill Corporation S.A.R.L. shall be deemed to be Restricted Subsidiaries for all periods ending on or
after, and on all dates on or after, October 31, 2000; provided, however, that the foregoing designation is without prejudice to, and subject to
the terms and provisions of, the definition of "Unrestricted Subsidiary" contained in Section 1.1 of the Credit Agreement. 

    20.  Conditions to Effectiveness.  This Amendment shall become effective on the date first written above
upon satisfaction of each of the following conditions: 

    (a) the
Administrative Agent shall have received: 

	(i)
	counterparts
of this Amendment duly executed and delivered by Holdco, the Company and the Required Lenders together with a consent to this Amendment
duly executed and delivered by the Subsidiary Guarantors;

	(ii)
	an
amendment fee for the account of each Lender in the amount equal to 0.25% of the sum of such Lender's aggregate outstanding extensions of credit
and its unutilized Commitments (as reduced in accordance with the terms of this Amendment) as of such date; and

	(iii)
	payment
of all interest accrued through November 30, 2000 at the rates provided for in the Credit Agreement after giving effect to this
Amendment; 

    (b) notwithstanding
any provisions of the Credit Agreement, the Company shall have made a prepayment of the outstanding amount of the Revolving Loans in an amount equal
to $18,000,000; 

    (c) DLJ
Capital Funding, Inc. shall have resigned as Syndication Agent; and 

7

 

    (d) the Company shall have paid the reasonable fees and disbursements of Weil, Gotshal & Manges LLP, counsel to the Lenders, incurred in connection with this
Amendment. 

    21.  Representation and Warranties.  On and as of the date hereof after giving effect to this Amendment,
each of Holdco and the Company hereby represents and warrants to the Lenders that (i) each of its representations and warranties contained in Article VI of the Credit Agreement or in any
certificate, document or financial or other statement furnished at any time under, or in connection therewith, are true and correct in all material respects on and as of such date as if made on and as
of such date, except to the extent that such representations and warranties specifically relate to an earlier date, in which case such representations and warranties shall be true and correct in all
material respects as of such earlier date and (ii) upon the effectiveness of this Agreement, each of Holdco and its Subsidiaries are not in default of any of the provisions of the Credit
Agreement. 

    22.  General.  (a) Payment of Expenses. The Company
agrees to pay or reimburse the Administrative Agent and the Lenders for all of its respective out-of-pocket costs and reasonable expenses incurred in connection with this
Amendment, any other documents prepared in connection herewith, including,
without limitation, the reasonable fees and disbursements of (x) counsel to the Administrative Agent and (y) counsel to the Lenders. 

    (b) No Other Amendments; Confirmation. Except as expressly amended, modified and supplemented hereby, the provisions of
the Credit Agreement and the Notes are and shall remain in full force and effect. 

    (c) GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

    (d) Counterparts. This Amendment may be executed by one or more of the parties to this Amendment on any number of
separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Amendment signed by all the parties shall be
lodged with the Company and the Administrative Agent. 

    (e) Successors. The execution and delivery of this Amendment by any Lender shall be binding upon each of its successors
and assigns (including transferees of its commitments and Loans in whole or in part prior to effectiveness hereof) and binding in respect of all of its Commitment and Loans. 

[Remainder
of page intentionally left blank] 

8

 
    IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. 

	 	 	MERRILL CORPORATION
	

 	
 	

By:	
 	

/s/ ROBERT H. NAZARIAN   
 Name: Robert H. Nazarian

Title: E.V.P. & C.F.O.
	

 	
 	
MERRILL COMMUNICATIONS LLC
	

 	
 	

By:	
 	

/s/ ROBERT H. NAZARIAN   
 Name: Robert H. Nazarian

Title: E.V.P. & C.F.O.
	

 	
 	
DLJ CAPITAL FUNDING, INC.,

as the Syndication Agent and as a Lender
	

 	
 	

By:	
 	

/s/ TOM NEWBERRY   
 Name: Tom Newberry

Title: Managing Director
	

 	
 	
U.S. BANK NATIONAL ASSOCIATION,

as the Administrative Agent and as a Lender
	

 	
 	

By:	
 	

/s/ JOSHUA R. PIROZZOLO   
 Name: Joshua R. Pirozzolo

Title: Assistant Vice President
	

 	
 	
WELLS FARGO BANK, N.A.,

as the Documentation Agent and as a Lender
	

 	
 	

By:	
 	

/s/ HUGH DIDDY   
 Name: Hugh Diddy

Title: AVP

9

 

LENDERS  

	 	 	CREDIT LYONNAIS NEW YORK BRANCH,

as a Lender
	

 	
 	

By:	
 	

 
	 	 	 	 	
 Name:

Title:
	

 	
 	
HARRIS TRUST & SAVINGS BANK,

as a Lender
	

 	
 	

By:	
 	

/s/ ANDREW T. CLAAR   
 Name: Andrew T. Claar

Title: Vice President
	

 	
 	
TRANSAMERICA BUSINESS CREDIT CORP.,

as a Lender
	

 	
 	

By:	
 	

 
	 	 	 	 	
 Name:

Title:
	

 	
 	
BANK ONE, N.A.,

as a Lender
	

 	
 	

By:	
 	

/s/ KEVIN CHRISTENSEN   
 Name: Kevin Christensen

Title: 1st VP
	

 	
 	
COMERICA BANK,

as a Lender
	

 	
 	

By:	
 	

/s/ TIMOTHY O'ROURKE   
 Name: Timothy O'Rourke

Title: Vice President

10

 

	

 	
 	
THE FUJI BANK, LIMITED,

as a Lender
	

 	
 	

By:	
 	

 
	 	 	 	 	
 Name:

Title:
	

 	
 	
GE CAPITAL CORPORATION-SFG,

as a Lender
	

 	
 	

By:	
 	

/s/ R. T. STURGEON   
 Name: R. T. Sturgeon

Title: Manager-Operations
	

 	
 	
GENERAL ELECTRIC CAPITAL CORPORATION,

as a Lender
	

 	
 	

By:	
 	

/s/ ROBERT M. KADLICK   
 Name: Robert M. Kadlick

Title: Duly Authorized Signatory
	

 	
 	
FIRST UNION NATIONAL BANK,

as a Lender
	

 	
 	

By:	
 	

/s/ DOUGLAS A. NICKEL   
 Name: Douglas A. Nickel

Title: Vice President
	

 	
 	
APEX (IDM) CDO I, LTD.,

as a Lender
	

 	
 	

By:	
 	

/s/ E.A. KRATZMAN, III   
 Name: E.A. Kratzman, III

Title: Managing Director IDM
	

 	
 	
ELC (CAYMAN) LTD. 1999-II,

as a Lender
	

 	
 	

By:	
 	

/s/ E.A. KRATZMAN, III   
 Name: E.A. Kratzman, III

Title: Managing Director IDM

11

 

	

 	
 	
ELC (CAYMAN) LTD. 1999-III,

as a Lender
	

 	
 	

By:	
 	

/s/ E.A. KRATZMAN, III   
 Name: E.A. Kratzman, III

Title: Managing Director IDM
	

 	
 	
ELC (CAYMAN) LTD. 2000-I
	

 	
 	

By:	
 	

/s/ E.A. KRATZMAN, III   
 Name: E.A. Kratzman, III

Title: Managing Director IDM
	

 	
 	
THE DAI-ICHI KANGYO BANK, LTD.,

as a Lender
	

 	
 	

By:	
 	

/s/ TAKAYUKI KUMAGAI   
 Name: Takayuki Kumagai

Title: Vice President
	

 	
 	
BALANCED HIGH-YIELD FUND I LTD.,

as a Lender
	

 	
 	

By:	
 	

BHF (USA) Capital Corporation

Acting As Attorney-In-Fact
	

 	
 	

By:	
 	

/s/ EVON CONTOS   /s/ CHRISTINE NORMAN   
 Name: Evon Contos/Christine Norman

Title: Managing Director/Associate
	

 	
 	
BALANCED HIGH-YIELD FUND II LTD.,

as a Lender
	

 	
 	

By:	
 	

BHF (USA) Capital Corporation

Acting As Attorney-In-Fact
	

 	
 	

By:	
 	

/s/ CHRISTOPHER J. RUZZI   /s/ CHRISTINE NORMAN   
 Name: Christopher J. Ruzzi/Christine Norman

Title: Vice President/Associate

12

 

	

 	
 	
ARCHIMEDES FUNDING, LLC,

as a Lender
	

 	
 	

By:	
 	

ING Capital Advisors LLC,

as Collateral Manager
	

 	
 	

By:	
 	

/s/ AMY GRENIER   
 Name: Amy Grenier

Title: Vice President
	

 	
 	
ARCHIMEDES FUNDING III, LTD.,

as a Lender
	

 	
 	

By:	
 	

ING Capital Advisors LLC,

as Collateral Manager
	

 	
 	

By:	
 	

/s/ AMY GRENIER   
 Name: Amy Grenier

Title: Vice President
	

 	
 	
KZH ING-2 LLC,

as a Lender
	

 	
 	

By:	
 	

/s/ SUSAN LEE   
 Name: Susan Lee

Title: Authorized Agent
	

 	
 	
SEQUILS-ING I (HBDGM), LTD.,

as a Lender
	

 	
 	

By:	
 	

ING Capital Advisors LLC,

as Collateral Manager
	

 	
 	

By:	
 	

/s/ AMY GRENIER   
 Name: Amy Grenier

Title: Vice President

13

 

	

 	
 	
SWISS LIFE US RAINBOW LIMITED,

as a Lender
	

 	
 	

By:	
 	

ING Capital Advisors LLC,

as Investment Manager
	

 	
 	

By:	
 	

/s/ AMY GRENIER   
 Name: Amy Grenier

Title: Vice President
	

 	
 	
CYPRESSTREE INVESTMENT FUND, LLC,

as a Lender
	

 	
 	

By:	
 	

/s/ JEFFREY W. HEUER   
 Name: Jeffrey W. Heuer

Title: Principal
	

 	
 	
CYPRESSTREE SENIOR FLOATING RATE FUND,

as a Lender
	

 	
 	

By:	
 	

/s/ JEFFREY W. HEUER   
 Name: Jeffrey W. Heuer

Title: Principal
	

 	
 	
CYPRESSTREE INVESTMENT PARTNERS I, LTD.,

as a Lender
	

 	
 	

By:	
 	

/s/ JEFFREY W. HEUER   
 Name: Jeffrey W. Heuer

Title: Principal
	

 	
 	
CYPRESSTREE INVESTMENT PARTNERS II, LTD.,

as a Lender
	

 	
 	

By:	
 	

/s/ JEFFREY W. HEUER   
 Name: Jeffrey W. Heuer

Title: Principal

14

 

	

 	
 	
KZH CYPRESSTREE-1 LLC,

as a Lender
	

 	
 	

By:	
 	

/s/ SUSAN LEE   
 Name: Susan Lee

Title: Authorized Agent
	

 	
 	
CYPRESSTREE INVESTMENT MANAGEMENT COMPANY INC.
	

 	
 	
As:	
 	

Attorney-in-Fact and on behalf of First Allmerica Financial Life Insurance Company as Portfolio Manager
	

 	
 	

By:	
 	

/s/ JEFFREY W. HEUER   
 Name: Jeffrey W. Heuer

Title: Principal
	

 	
 	
NORTH AMERICAN SENIOR FLOATING RATE FUND,

as a Lender
	

 	
 	

By:	
 	

/s/ JEFFREY W. HEUER   
	 	 	 	 	
 Name: Jeffrey W. Heuer

Title: Principal
	

 	
 	
MORGAN STANLEY DEAN WITTER

PRIME INCOME TRUST,

as a Lender
	

 	
 	

By:	
 	

 
	 	 	 	 	
 Name:

Title:
	

 	
 	
PPM SPYGLASS FUNDING TRUST,

as a Lender
	

 	
 	

By:	
 	

/s/ ANN E. MORRIS   
 Name: Ann E. Morris

Title: Authorized Agent

15

 

	

 	
 	
HELLER FINANCIAL, INC.,

as a Lender
	

 	
 	

By:	
 	

/s/ ROBERT M. REEG   
 Name: Robert M. Reeg

Title: Assistant Vice President
	

 	
 	
SENIOR DEBT PORTFOLIO,

as a Lender
	

 	
 	

By:	
 	

 
	 	 	 	 	
 Name:

Title:
	

 	
 	
EATON VANCE SENIOR INCOME TRUST,

as a Lender
	

 	
 	

By:	
 	

 
	 	 	 	 	
 Name:

Title:
	

 	
 	
OXFORD STRATEGIC INCOME FUND,

as a Lender
	

 	
 	

By:	
 	

 
	 	 	 	 	
 Name:

Title:
	

 	
 	
EATON VANCE INSTITUTIONAL SENIOR LOAN FUND,

as a Lender
	

 	
 	

By:	
 	

 
	 	 	 	 	
 Name:

Title:
	

 	
 	
AVALON CAPITAL LTD.,

as a Lender
	

 	
 	

By:	
 	

 
	 	 	 	 	
 Name:

Title:

16

 

	

 	
 	
AMARA-1 FINANCE, LTD.,

as a Lender
	

 	
 	

By:	
 	

 
	 	 	 	 	
 Name:

Title:
	

 	
 	
CARLYLE HIGH YIELD PARTNER II, LTD.,

as a Lender
	

 	
 	

By:	
 	

 
	 	 	 	 	
 Name:

Title:
	

 	
 	
STEIN ROE FLOATING RATE LIMITED LIABILITY COMPANY,

as a Lender
	

 	
 	

By:	
 	

 
	 	 	 	 	
 Name:

Title:
	

 	
 	
LIBERTY-STEIN ROE ADVISOR FLOATING RATE ADVANTAGE FUND,

as a Lender, by Stein Roe & Farnham Incorporated As Advisor
	

 	
 	

By:	
 	

 
	 	 	 	 	
 Name:

Title:
	

 	
 	
SRF ADVANTAGE,

as a Lender
	

 	
 	

By:	
 	

 
	 	 	 	 	
 Name:

Title:

17

 

	

 	
 	
MAGNETITE ASSET INVESTORS, LLC,

as a Lender
	

 	
 	

By:	
 	

 
	 	 	 	 	
 Name:

Title:
	

 	
 	
STANFIELD CLO LTD.,

as a Lender,
	

 	
 	

By:	
 	

Stanfield Capital Partners LLC as its Collateral Manager
	

 	
 	

By:	
 	

/s/ CHRISTOPHER A. BONDY   
 Name: Christopher A. Bondy

Title: Partner

18

QuickLinks<PAGE>

                                   EXHIBIT 4.1

          CERTIFICATE OF THE POWERS DESIGNATION, RIGHTS AND PREFERENCES
                                     FOR THE
                      SERIES A CONVERTIBLE PREFERRED STOCK
                                       OF
                         PRECIS SMART CARD SYSTEMS, INC.

          Precis Smart Card Systems, Inc. (the "CORPORATION"), a corporation
organized and existing under and by virtue of the General Business Corporation
Act of the State of Oklahoma,

          DOES HEREBY CERTIFY THAT:

          Pursuant to authority vested in the Board of Directors pursuant to
Section 4 of the Certificate of Incorporation, the Board of Directors of the
Corporation, pursuant to a Record and Memorandum of Action, dated March 17,
2000, duly adopted the certain resolutions creating a series of Preferred Stock,
$1.00 par value per share, designated as "Series A Convertible Preferred Stock,"
as follows:

               RESOLVED, that pursuant to the authority expressly granted
          to the Board of Directors of the Corporation pursuant to Section 4 of
          the Certificate of Incorporation of the Corporation, the Board of
          Directors hereby (i) creates a series of Preferred Stock, par value
          $1.00 per share, of the Corporation, to consist of 166,667 shares,
          (ii) reserves for issuance the number of shares of the Corporations
          common stock, $.001 par value (the "Common Stock") issuable upon
          conversion of such Preferred Stock as hereinafter set forth, and (iii)
          fixes and determines the powers, preferences and rights of the shares
          of such series and the qualifications, limitations or restrictions
          thereof in addition to those relating to all series of Preferred Stock
          as set forth in Section 4 of the Certificate of Incorporation of the
          Corporation, as follows:

               (a) DESIGNATION OF SERIES AND NUMBER OF SHARES. There shall
          be a series of the Preferred Stock, par value $1.00 per share, of the
          Corporation which shall consist of 166,667 shares having a stated
          value of $12.00 per share (the "Stated Value"), and shall be
          designated as the "Series A Convertible Preferred Stock" (hereinafter
          referred to as this "Series").

               (b) DIVIDENDS. Out of the surplus or net profits of the
          Corporation legally available for dividends, the holder of this Series
          shall be entitled to receive, when and as declared or paid upon or set
          apart for, dividends in cash in the amount of One Dollar Forty-Four
          Cents ($1.44) per share per annum, payable monthly on such date as
          determined by the Board of Directors of the Corporation (the "BOARD").
          Dividends on shares of this Series are cumulative from the Date of
          Accrual with respect to the shares (whether or not there will be net
          profits or net assets of the Corporation legally available for payment
          of the dividends) so that, if at any time Full Cumulative Dividends
          upon this Series to the end of the last completed dividend period will
          not have been paid, or declared and a sum sufficient for payment
          thereof set apart, the amount of the deficiency in the dividends will
          be fully paid, but without interest, before any dividend will be
          declared or paid or any other distribution ordered or made upon, or
          any purchase or redemption made of, any stock ranking as to dividends
          or upon liquidation junior to this Series (other than a dividend
          payable in junior stock, or a purchase or redemption made by issue or
          delivery of the junior stock); provided, however, that any moneys
          deposited in any sinking fund with respect to any preferred stock or
          preference stock of the Corporation in compliance with the provisions
          of the sinking fund may thereafter be applied to the purchase or
          redemption of such preferred sock or preference stock in accordance
          with the terms of the sinking fund regardless of whether at the time
          of the application Full Cumulative Dividends upon shares of this
          Series outstanding to the end of the last completed dividend period
          will have been paid or declared and set apart for payment. All
          dividends declared upon the shares of this Series and any other
          preferred stock or preference stock ranking on a parity as to dividend
          with this Series will be declared pro rata, so that the amounts of
          dividends declared per share on this Series and the other preferred
          stock and preference stock will in all cases bear to each other the
          same ratio that accrued dividends per share on the shares of this
          Series and the preference stock bear to each other. Holders of shares
          of this Series will not be entitled to any dividends, whether payable
          in cash, property or stock, in excess of Full Cumulative Dividends. As
          used herein the term "DATE OF ACCRUAL", as to any shares of this
          Series, means the date on which the

<PAGE>

          shares in question were issued. The term "FULL CUMULATIVE DIVIDENDS"
          means (whether or not in any dividend period, or any part of it, in
          respect of which the term is used there will have been net profits or
          net assets of the Corporation legally available for payment of such
          dividends) that amount which will be equal to dividends at the full
          rate fixed for this Series provided in this Section (b) for the period
          of time elapsed from the Date of Accrual to the date as of which Full
          Cumulative Dividends are to be computed (including an amount equal to
          the dividend at the rate for any fraction of a dividend period
          included in the period of time calculated on the basis of a 360-day
          year of 12 30-day months).

               (c) VOTING RIGHTS. This Series shall be non-voting, except the
          consent of the holders of at least a majority of the outstanding
          shares of this Series, voting separately as a single class in person
          or by proxy, at a special or annual meeting of shareholders called for
          the purpose, shall be necessary to amend the Certificate of
          Incorporation, including the provisions of this Certificate of
          Designations, Preferences and Rights of Series A Convertible Preferred
          Stock, in any manner which would adversely affect the holders thereof.
          The authorization or creation of any class or series of preferred
          stock of the Corporation ranking senior to, or on parity with, this
          Series as to dividends or liquidation, will be deemed to adversely
          affect the holders. Notwithstanding the foregoing or anything herein
          to the contrary, no approval by the holders of this Series, voting as
          a class, shall be required for (i) the approval of any amendment which
          effects the division of this Series into a greater number of shares or
          creates other series of Preferred Stock, which may be senior or junior
          to, or on parity with, this Series, (ii) the approval of any action
          concerning the issuance or sale by the Corporation of its Common
          Stock, or (iii) the approval of the Corporation incurring any debt,
          whether secured or unsecured, and issuing any debt or security
          instruments. The holders of this Series shall have no voting rights
          except as expressly granted in this Section (c).

               (d) CONVERSION RIGHTS. The holders of shares of this Series
          shall the right, at their option exercisable in whole and not in part,
          to convert the shares of this Series into One Hundred Sixty-Six
          Thousand Six Hundred Sixty-Seven (166,667) shares of Common Stock, in
          the aggregate, or One (1) share of this Series per share of Common
          Stock at any time on and subject to the following terms and
          conditions:

                       (i)  The shares of this Series shall be convertible
               at the office of the Corporation or at the office of any transfer
               agent for this Series, and at such other office or offices, if
               any, as the Board may designate, into fully paid and
               nonassessable shares of Common Stock of the Corporation.

                       (ii) In order to convert the shares of this Series into
               Common Stock, the holders of this Series shall surrender at any
               office hereinabove mentioned the certificate or certificates
               therefor, duly endorsed in blank or accompanied by proper
               instruments of assignment and transfer thereof duly endorsed in
               blank, together with any payment required by this paragraph (ii)
               and transfer tax stamps or funds therefor, is required pursuant
               to paragraph (vii) below, and give written notice to the
               Corporation at said office that the holders elect to convert
               the shares of this Series.

                       Shares of this Series shall be deemed to have been
               converted immediately prior to the close of business on the
               day of the surrender of the shares for conversion in accordance
               with the foregoing provisions, and 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 at such time; provided,
               however, that any such surrender on any date when the stock
               transfer books of the Corporation shall be closed shall
               constitute the person or persons in whose name or names the
               certificates for such shares of Common Stock are to be issued
               as the record holder or holders thereof for all purposes
               immediately prior to the close of business on the next succeeding
               day on which such stock transfer books are opened and such
               conversion shall be at the conversion ratio in effect at such
               time on such succeeding day. As promptly as practicable after
               the conversion date, the Corporation shall issue and shall
               deliver at said office a certificate or certificates for the
               number of shares

                                       -2-

<PAGE>

               of Common Stock issuable upon such conversion to the person or
               persons entitled to receive same.

                       (iii) No fractional shares of Common Stock shall be
               be issued upon conversion of shares of this Series and any
               fractional shares shall be rounded to the nearest full share.

                       (iv)  The number of shares of Common Stock to be
               issued upon conversion of shares of this Series shall be
               adjusted from time to time as follows:

                               (A) In case the Corporation shall (I) subdivide
               its outstanding shares of Common Stock, (II) combine its
               outstanding shares of Common Stock into a smaller number of
               shares, or (III) issue any shares by reclassification of its
               shares of Common Stock, in such case the number of shares of
               Common Stock to be issued upon conversion of shares of this
               Series at the time of the effective date of such subdivision,
               combination or reclassification shall be adjusted, effective
               at the opening of business on the business day next following
               such record date or effective date so that the holder of any
               shares of this Series surrendered for conversion after such
               record date or effective date shall be entitle to receive the
               number of shares of capital stock of the Corporation which he
               would have owned or been entitled to receive had such shares
               of this Series been converted immediately prior to such time.
               If, as a result of an adjustment made pursuant to this clause
               if the holder thereafter surrendered for conversion shall
               become entitled to receive shares of two or more classes of
               capital stock of the Corporation, the Board of Directors
               (whose determination shall be conclusive) shall determine the
               allocations of the adjusted conversion ratio between or among
               shares of such classes of capital stock.

                               (B) In any case in which this paragraph (iv)
               shall require that an adjustment as a result of any event
               become effective at the opening of business on the business
               day next following a record date, the Corporation may elect to
               defer, until after the occurrence of such event, issuing to
               the holder of any shares of this Series converted after such
               record date and before the occurrence of such event the
               additional shares of Common Stock issuable upon such
               conversion and, in lieu of the shares the issuance of which is
               so deferred, the corporation shall issue or cause its transfer
               agent to issued due bills or other appropriate evidence of the
               right to reserve such shares should such event occur.

               (v) In the event (A) the Corporation shall declare a dividend or
          any other distribution on its Common Stock payable otherwise than
          in cash out of its retained earnings, (B) the Corporation shall
          authorize the granting to the holders of its Common Stock of rights
          to subscribe for or purchase any shares of capital stock of any
          class or of any other rights, (C) of any reclassification of the
          capital stock (other than a subdivision or combination of its
          outstanding shares of Common Stock), or of any consolidation or
          merger to which the Corporation is a party and for which approval
          of any shareholders of the Corporation is required, or of the sale
          or transfer of all or substantially all of the assets of the
          Corporation, or (D) of the voluntary or involuntary dissolution,
          liquidation or winding up of the Corporation, then in such event
          the Corporation shall cause to be mailed to the transfer agent for
          this Series, in the event the Corporation is not acting as its
          transfer agent for this Series, and to the holders of record of the
          outstanding shares of this Series, at least 20 days (or 10 days in
          any case specified in (A) or (B) above) prior to the applicable
          record date hereinafter specified, a notice stating (I) the date on
          which a record is to be taken for the propose of such dividend,
          distribution or rights, or, if a record is not to be taken, the date
          as of which the holders of Common Stock of record to be entitled to
          such dividend, distribution or rights are to be determined, or (II)
          the date on which such reclassification, consolidation, merger, sale,
          transfer, dissolution, liquidation or winding up is expected to become
          effective, and the date as of which its is expected that holders of
          Common Stock of

                                       -3-
<PAGE>

          record shall be entitled to exchange their shares of Common Stock for
          securities or other property deliverable upon such reclassification,
          consolidation, merger, sale, transfer, dissolution, liquidation or
          winding up.

               (vi)   The Corporation shall at all times reserve and keep
          available, free from pre- emptive rights, out of its authorized but
          unissued Common Stock, for the purpose of effecting the conversion
          of the shares of this Series, the full number of shares of Common
          Stock then deliverable upon the conversion of all shares of this
          Series then outstanding, provided that nothing contained herein
          shall be construed to preclude the Corporation from satisfying its
          obligations in respect of the conversion of the shares of this
          Series by delivery of this Series by delivery of purchased shares
          of Common Stock which are held in the treasury of the Corporation.

               (vii)  The Corporation shall pay any and all taxes that may be
          payable in respect to the issuance or delivery of shares of Common
          Stock on conversion of shares of this Series pursuant hereto. The
          Corporation shall not, however, be required to pay any tax which
          may be payable in respect to any transfer involved in the issuance
          and delivery of shares of Common Stock in a name other than that in
          which the shares of this Series so converted were registered, and
          no such issue or delivery shall be made unless and until the person
          requesting such issue shall have paid to the Corporation the amount
          of any such tax or shall have established, to the satisfaction of
          the Corporation, that such tax shall have been paid.

               (viii) For the purpose of this Section (f), the term "COMMON
          STOCK" shall include any stock of any class of the Corporation
          which has no preference in respect of dividends or of amounts in
          the event of any voluntary or involuntary liquidation, dissolution
          or winding up of the Corporation, and which is not subject to
          redemption by the Corporation. However, except as otherwise
          provided in paragraph (ix), shares issuable on conversion of shares
          of this Series shall include only shares of the class designated as
          Common Stock of the Corporation as of the original date of issue of
          this Series 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 amount 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 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.

               (ix)   If either of the following shall occur, namely: (A) any
          consolidation or merger to which the Corporation is a party, other
          than a consolidation or a merger in which consolidation or merger
          the Corporation is a continuing corporation and which does not
          result in any reclassification of or change (other than a change in
          par value or from par value to no par value or from no par value to
          par value, or as a result of a subdivision or combination) in,
          outstanding shares of Common Stock, or (B) any sale or conveyance
          to another corporation of the property, of the Corporation as an
          entirety or substantially as an entirety; then the holder of each
          share of this Series then outstanding shall have the right to
          convert such share only into the kind and amount of shares of stock
          or other securities and property receivable upon such
          consolidation, merger, sale or conveyance subject to adjustments
          which shall be nearly equivalent as may be practicable to the
          adjustments provided for in paragraph (iv) above. The provisions of
          this paragraph (ix) shall similarly apply to successive
          consolidations, mergers, sales or conveyances.

               (x)    Any shares of this Series which shall at any time have
          been converted into shares of Common Stock shall, after such
          conversion, have the status of authorized but unissued

                                       -4-
<PAGE>

          shares of Preferred Stock, without designation as a series until such
          shares are once more designated as part of a particular series by the
          Board of Directors.

          (e)  LIQUIDATION RIGHTS.

                     (i)   Upon the liquidation, dissolution or winding up of
          the Corporation, the holders of the shares of this Series shall be
          entitled to receive out of the assets of the Corporation available
          for distribution to its shareholders, before any payment or
          distribution shall be on the Common Stock or any other capital
          stock of the Corporation, the Stated Value per share, plus a sum
          equal to any unpaid Full Cumulative Dividends per share to the date
          of final distribution.

                     (ii)  This Series shall be preferred over the Common
          Stock and any other capital stock of the Corporation as to assets
          in the event of any liquidation, dissolution or winding up of the
          Corporation, and in that event the holders of the Series shall be
          entitled to receive, out of the assets of the Corporation available
          for distribution to its shareholders, an amount determined as
          provided in this Certificate for every share of their holdings of
          the shares of this Series before any distribution of the assets
          shall be made to the holders of the Common Stock and any other
          capital stock of the Corporation; and, if in the event of any such
          liquidation, dissolution or winding up the holders of this Series
          shall have received all amounts to which they shall be entitled as
          aforesaid, the holders of the Common Stock and other capital stock
          of the Corporation shall be entitled, to the exclusion of the holders
          of the shares of this Series, to share ratably in all of the assets
          of the Corporation available for distribution to the shareholders
          then remaining according to the number of shares of the Common
          Stock and other capital stock of the Corporation held by them
          respectively and in accordance with the rights of the holders of
          the Common Stock and such capital stock. If upon any liquidation,
          dissolution or winding up of the Corporation the amounts payable on
          or with respect to the shares of this Series are not paid in full,
          the holders of the shares of this Series shall share ratably in any
          distribution of assets according to the respective amount which
          would be payable in respect of the shares of this Series held by
          them upon such distribution if all amounts payable on or with
          respect to the shares of this Series were paid in full.

                     (iii) Neither the sale, lease or exchange (for cash,
          shares of stock, securities or other consideration) of all or
          substantially all the property and assets of the Corporation nor
          the merger or consolidation of the Corporation into or with any
          other corporation or the merger or consolidation of any other
          corporation into or with the Corporation shall be deemed to be a
          liquidation, dissolution or winding up of the Corporation for the
          purposes of this Section (e).

               (f) OPTIONAL REDEMPTION. This Series will be redeemable, in
          whole and not in part, at the option of the Corporation at any time on
          not less than 30-days' written notice, at the Stated Value per
          share, plus a sum equal to all dividends accrued and unpaid thereon
          to the redemption date. Notice of redemption of this Series shall
          be mailed to each holder of record of the shares of this Series not
          less than 30 days prior to the redemption date. For at least 30
          days following the notice of redemption and until two full business
          days prior to the date of redemption, the holders shall have the
          right to convert shares of this Series into shares of Common Stock
          in accordance with Section (f) hereof. The notice of redemption shall
          specify the date and place of redemption shall specify the date and
          place of redemption, the redemption price and the date when the
          shares of this Series cease to be convertible. Unless default shall
          be made in the payment in full of the redemption price and any
          accrued and unpaid dividends, dividends on the shares of this
          Series shall cease to accrue on the redemption date, and all rights
          of the holders of the shares of this Series as shareholders of the
          Corporation by reason of the ownership of the shares of this Series
          shall cease on the redemption date, except the right to convert to
          Common Stock any shares theretofore tendered for conversion and
          except the right to receive the amount payable upon redemption of
          the shares of this Series and surrender of the respective certificates

                                       -5-
<PAGE>

          representing the shares of this Series, and the shares of this Series
          shall not, after the redemption date, be deemed to be outstanding.

          IN WITNESS WHEREOF, Precis Smart Card Systems, Inc. has caused this
certificate to be signed by its Chief Executive Officer and attested by its
Secretary, this 17th day of March, 2000.

                                   PRECIS SMART CARD SYSTEMS, INC.
                                   By: /s/ LARRY E. HOWELL
                                   --------------------------------------------
                                       Larry E. Howell, Chief Executive Officer
ATTEST:

/s/ MARK R. KIDD
--------------------------
Mark R. Kidd, Secretary

                                     -6-

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