EXHIBIT 10.1
CITADEL INVESTMENT GROUP, INC.
225 West Washington Street, Ninth Floor
Chicago, Illinois 60606
September 24, 1996
Mr. Marc W. Eller
SI Diamond Technology, Inc.
12100 Technology Blvd.
Austin, Texas 78727
Re: Holdback and Other Agreements Relating to Series E Preferred Stock
Reference is made to the Statement of Designations, Preferences and Rights
of Series E Preferred Stock of SI Diamond Technology, Inc. filed with the Office
of the Secretary of State of Texas on January 4, 1996 (the "Designation").
Capitalized terms used but not defined herein have the respective meanings set
forth in the Designation.
In order to accommodate the Corporation's attempt to acquire additional
financing and subject to your acceptance of this letter (as indicated by your
execution and delivery of a signed counterpart hereof to each of the
undersigned), the undersigned holders of the Series E Preferred Stock agree to
take the following actions on the following terms subject to the conditions set
forth herein.
1. Conversion. During the period beginning on or after September 16, 1996,
and ending on or prior to the date of your acceptance of this letter, the
Holders of Series E Preferred Stock shall convert shares of Series E Preferred
Stock (the "Mandatory Conversion Amount") into an aggregate of approximately
300,000 shares of Common Stock at the Conversion Rate in effect on September 16,
1996. Unless otherwise agreed to by the Holders of Series E Preferred Stock, the
conversions contemplated by this paragraph 1 shall be made by the Holders pro
rata based on the number of shares of Series E Preferred Stock originally
issued to each such Holder.
2. Holdback. Each Holder of Series E Preferred Stock agrees not to convert
any shares of Series E Preferred Stock into Common Stock pursuant to Section 5
of the Designation during the period from the date of acceptance of this letter
to and including October 31, 1996 (the "Financing Period"). In addition, if and
only if (a) the Corporation has raised $1,000,000.00 in net proceeds from its
issuance of debt and/or equity during the Financing Period, (b) such proceeds
are available to the Corporation for general working capital purposes prior to
the expiration of the Financing Period and (c) the Corporation has delivered to
each of the Holders of Series E Preferred Stock a certificate of the chief
financial officer of the Corporation certifying the receipt and availability of
such proceeds prior to the expiration of the Financing Period, each Holder of
Series E Preferred Stock agrees (x) not to convert any shares of Series E
Preferred Stock into Common Stock during the period from and including November
1, 1996 to and including January 14, 1997, and (y) not to convert shares of
Series E Preferred Stock in excess of the Agreed Convertible Amount into Common
Stock during the period from and including January 15, 1997 to and including
February 28, 1997. For purposes of this paragraph 2, the "Agreed Convertible
Amount" shall mean, with respect to any Holder of Series E Preferred Stock, an
amount of shares of the Series E Preferred Stock equal to one-third of the
shares of Series E Preferred Stock held of record by such Holder as of the start
of the trading day on September 16, 1996, less the number of shares of Series E
Preferred Stock converted into Common Stock by such Holder during the period
from and including September 16, 1996 to and including the date of the
acceptance of this letter pursuant to paragraph 1.
Mr. Marc W. Eller
September 24, 1996
Page 2
3. Consideration for Holdback. In consideration for the agreements of
each of the Holders of Series E Preferred Stock set forth in paragraph 2
above, the Corporation agrees that the Fixed Conversion Price shall be reduced
from $6.575 to $3.00. The Corporation hereby agrees to take all necessary and
desirable action, including without limitation the preparation of definitive
documentation evidencing such agreement and/or the amendment of the
Designation, to give legal and binding effect to the agreement referred to in
the preceding sentence on or prior to September 27, 1996, or, in the event
that this letter is not executed by the number of Holders of Series E
Preferred Stock required under law to effect an amendment to the Designation,
as soon thereafter as practicable. Each of the Holders of Series E Preferred
Stock hereby agrees that this letter constitutes such Holder's written consent
to amend the Designation as provided in the first sentence of this paragraph 3
as required by Section 9 of the Designation.
4. Condition to Holdback. The obligation of each Holder of the Series E
Preferred Stock set forth in paragraph 2 above shall cease and be of no
further force or effect at any time after (a) the average Closing Bid Price of
the Corporation's Common Stock for five consecutive trading days exceeds $3.00
or (b) Marc W. Eller ceases to be employed by the Corporation in substantially
the same capacity as he occupies as of the date hereof.
If you are in agreement with the foregoing terms and conditions, please
execute a counterpart to this letter in the space below and return a copy by
facsimile with hard copy to follow by overnight courier to each of the
undersigned Holders of Series E Preferred Stock at the address set forth on the
books and records of the Corporation prior to 5:00 p.m. EDT, September 25, 1996.
Sincerely,
OLYMPUS SECURITIES, LTD. NELSON PARTNERS
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Name: Name:
Title: Title:
LEONARDO, L.P. GRACECHURCH & CO.
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Name: Name:
Title: Title:
RAPHAEL L.P. AG SUPERFUND INT'L
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Name: Name:
Title: Title:
WEST MERCHANT BANK NOMINEES LTD GAM L.P.
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Name: Name:
Title: Title:
Mr. Marc W. Eller
September 24, 1996
Page 3
The undersigned Holders of Series E Preferred Stock are executing this
letter solely for the purpose of consenting to the amendment of the Designation
as provided in the first sentence of paragraph 3 as required by Section 9 of the
Designation.
LA ROCQUE TRADING GROUP LLC KA TRADING L.P.
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Name: Name:
Title: Title:
Accepted and agreed
as of September 25, 1996:
SI DIAMOND TECHNOLOGY, INC.
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Marc W. Eller