EXHIBIT 10.2
Certificate of Designation of Class B Common Stock
CLASS B STOCK PROVISIONS
(A) Classification.
The class B common stock of the corporation (the "Class B Common
Stock") shall be equal in all respects to the common stock of the corporation
(the "Common Stock"), except as otherwise provided herein. Such Common Stock and
Class B Common Stock are sometimes hereinafter collectively referred to as the
"capital stock."
(B) Voting Privileges.
(a) General. Each holder of Class B Common Stock shall have that number
of votes on all matters submitted to the stockholders that is equal to the
number of shares of Common Stock into which such holder's shares of Class B
Common Stock are then convertible as hereinafter provided. Except as otherwise
provided herein, and except as otherwise required by agreement or law, the
shares of capital stock of the corporation shall vote as a single class on all
matters submitted to the stockholders.
(b) Election of Directors. So long as Northland Business Capital,
L.L.P. or its affiliates shall continue to own at least 100,000 shares of Class
B Common Stock, (i) the Board of Directors of the corporation shall consist of
not more than nine (9) members, (ii) the holders of the Class B Common Stock,
exclusively and voting as a single class, shall be entitled, by a vote of a
majority of the outstanding shares of Class B Common Stock held by such holders,
to elect one (1) director of the corporation and to exercise any right of
removal or replacement of such director, and (iii) the holders of the Common
Stock, exclusively and voting as a single class, shall be entitled, by a vote of
a majority of the outstanding shares of Common Stock held by such holders, to
elect not more than eight (8) of the directors of the corporation and to
exercise any right of removal or replacement of such directors.
(c) Additional Class Votes by Class B Common Stock. Without the
affirmative vote or written consent of the holders (acting together as a class)
of a majority of the shares of Class B Common Stock at the time outstanding, the
corporation shall not:
(1) authorize or issue any additional shares of Class B Common
Stock; or
(2) amend the Articles of Incorporation of the corporation so as
to alter any existing provision relating to Class B Common
Stock or the holders thereof or waive any of the rights
granted to the holders of the Class B Common Stock by the
Articles of Incorporation of the corporation.
(C) Dividends.
In the event any dividend or distribution is declared or made with
respect to the Common Stock, each holder of shares of Class B Common Stock shall
be paid such dividend or receive such distribution on the basis of the number of
shares of Common Stock into which such holder's shares of Class B Common Stock
are then convertible, as hereinafter provided. Dividends on shares of Class B
Common Stock shall be payable only out of funds legally available therefor.
(D) Conversion Right.
At the option of the holders thereof, the shares of Class B Common
Stock shall be convertible, at the office of the corporation (or at such other
office or offices, if any, as the Board of Directors may designate), into fully
paid and nonassessable shares (calculated as to each conversion to the nearest
1/100th of a share) of Common Stock of the corporation, at the conversion price,
determined as hereinafter provided, in effect at the time of conversion, each
share of Class B Common Stock being deemed to have a value of $1.10 for the
purpose of such conversion. The price at which shares of Common Stock shall be
delivered upon conversion (herein called the "conversion price") shall be
initially $1.10 per share of Common Stock, provided, however, that such initial
conversion price shall be subject to adjustment from time to time in certain
instances as hereinafter provided. The following provisions shall govern such
right of conversion:
(1) In order to convert shares of Class B Common Stock into shares
of Common Stock of the corporation, the holder thereof shall
surrender at any office herein above mentioned the certificate
or certificates therefor, duly endorsed to the corporation or
in blank, and give written notice to the corporation at such
office that such holder elects to convert such shares. Shares
of Class B Common Stock shall be deemed to have been converted
immediately prior to the close of business on the day of the
surrender of such shares for conversion as herein provided,
and the person entitled to receive the shares of Common Stock
of the corporation issuable upon such conversion shall be
treated for all purposes as the record holder of such shares
of Common Stock at such time. As promptly as practicable on or
after the conversion date, the corporation shall issue and
deliver or cause to be issued and delivered at such office a
certificate or certificates for the number of shares of Common
Stock of the corporation issuable upon such conversion.
(2) The conversion price shall be subject to adjustment from time
to time as hereinafter provided. Upon each adjustment of the
conversion price each holder of shares of Class B Common Stock
shall thereafter be entitled to receive the number of shares
of Common Stock of the corporation obtained by multiplying the
conversion price in effect immediately prior to such
adjustment by the number of shares issuable pursuant to
conversion immediately prior to such adjustment and dividing
the product thereof by the conversion price resulting from
such adjustment.
(3) Except for the issuance of options to purchase Common Stock
referred to in Section 5.11 of that certain Stock Purchase
Agreement dated January 9, 1996 between the corporation and
Northland Business Capital, L.L.P. and except for shares of
Common Stock issued upon the exercise of such options
(provided that the aggregate number of shares thus awarded and
covered by unexercised options and thus issued pursuant to
such options shall not be in excess of 1,231,750
(appropriately adjusted to reflect stock splits, stock
dividends, reorganizations, consolidations and similar
changes)), if and whenever the corporation shall issue or sell
any shares of its Common Stock for a consideration per share
less than the lower of (i) the conversion price in effect
immediately prior to the time of such issue or sale, and (ii)
the market price (as defined below) on the date of such issue
or sale, then, forthwith upon such issue or sale, the
conversion price shall be reduced to the price (calculated to
the nearest cent) determined as follows:
(i) by dividing (A) an amount equal to the sum of (1) the
number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by
the then existing conversion price and (2) the
consideration, if any, received by the corporation
upon such issue or sale, by (B) an amount equal to
the sum of (1) the number of shares of Common Stock
outstanding immediately prior to such issue or sale
and (2) the number of shares of Common Stock thus
issued or sold; or
(ii) by multiplying the conversion price in effect
immediately prior to the time of such issue or sale
by a fraction, the numerator of which shall be the
sum of (1) the number of shares of Common Stock
outstanding immediately prior to such issue or sale
multiplied by the market price immediately prior to
such issue or sale, plus (2) the consideration
received by the corporation upon such issue or sale,
and the denominator of which shall be the product of
(1) the total number of shares of Common Stock
outstanding immediately after such issue or sale,
multiplied by (2) the market price immediately prior
to such issue or sale.
Solely for purposes of calculating the number of
shares of Common Stock outstanding in clauses (i) and (ii)
above, the term "Common Stock outstanding" shall include those
shares of Common Stock issuable upon conversion of outstanding
shares of Class B Common Stock.
No adjustment of the conversion price, however, shall
be made in an amount less than 2% of the conversion price in
effect on the date of such adjustment, but any such lesser
adjustment shall be carried forward and shall be made at the
time and together with the next subsequent adjustment which,
together with any such adjustment so carried forward, shall be
an amount equal to or greater than 4% of the conversion price
then in effect.
For the purposes of this subparagraph (3), the
following provisions (i) to (v), inclusive, shall also be
applicable:
(i) In case at any time the corporation shall grant
(whether directly or by assumption in a merger or
otherwise) any rights to subscribe for or to
purchase, or any options for the purchase of, (a)
Common Stock or (b) any obligations or any shares of
stock of the corporation which are convertible into,
or exchangeable for, Common Stock (any of such
obligations or shares of stock being hereinafter
called "Convertible Securities") whether or not such
rights or options or the right to convert or exchange
any such Convertible Securities are immediately
exercisable, and the price per share for which Common
Stock is issuable upon the exercise of such rights or
options or upon conversion or exchange of such
Convertible Securities (determined by dividing (x)
the total amount, if any, received or receivable by
the corporation as consideration for the granting of
such rights or options, plus the minimum aggregate
amount of additional consideration payable to the
corporation upon the exercise of such rights or
options, plus, in the case of such rights or options
which relate to Convertible Securities, the minimum
aggregate amount of additional consideration, if any,
payable upon the issue of such Convertible Securities
and upon the conversion or exchange thereof, by (y)
the total maximum number of shares of Common Stock
issuable upon the exercise of such rights or options
or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of
such rights or options) shall be less than the lower
of (i) the conversion price in effect immediately
prior to the time of the granting of such rights or
options and (ii) the market price on the date of the
granting of such rights or options, then the total
maximum number of shares of Common Stock issuable
upon the exercise of such rights or options or upon
conversion or exchange of the total maximum amount of
such Convertible Securities issuable upon the
exercise of such rights or options shall (as of the
date of granting of such rights or options) be deemed
to have been issued for such price per share. Except
as provided in subparagraph (6) below, no further
adjustments of the conversion price shall be made
upon the actual issue of such Common Stock or of such
Convertible Securities upon exercise of such rights
or options or upon the actual issue of such Common
Stock upon conversion or exchange of such Convertible
Securities.
(ii) In case the corporation shall issue or sell (whether
directly or by assumption in a merger or otherwise)
any Convertible Securities, whether or not the rights
to exchange or convert thereunder are immediately
exercisable, and the price per share for which Common
Stock is issuable upon such conversion or exchange
(determined by dividing (x) the total amount received
or receivable by the corporation as consideration for
the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional
consideration, if any, payable to the corporation
upon the conversion or exchange thereof, by (y) the
total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such
Convertible Securities) shall be less than the lower
of (i) the conversion price in effect immediately
prior to the time of such issue or sale and (ii) the
market price on the date of such issue or sale, then
the total maximum number of shares of Common Stock
issuable upon conversion or exchange of all such
Convertible Securities shall (as of the date of the
issue or sale of such Convertible Securities) be
deemed to be outstanding and to have been issued for
such price per share, provided that (a) except as
provided in subparagraph (6) below, no further
adjustments of the conversion price shall be made
upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible
Securities, and (b) if any such issue or sale of such
Convertible Securities is made upon exercise of any
rights to subscribe for or to purchase or any option
to purchase any such Convertible Securities for which
adjustments of the conversion price have been or are
to be made pursuant to other provisions of this
subparagraph (3), no further adjustment of the
conversion price shall be made by reason of such
issue or sale.
(iii) In case any shares of Common Stock or Convertible
Securities or any rights or options to purchase any
such Common Stock or Convertible Securities shall be
issued or sold for cash, the consideration received
therefor shall be deemed to be the amount received by
the corporation therefor, without deducting therefrom
any expenses incurred or any underwriting
commissions, discounts or concessions paid or allowed
by the corporation in connection therewith. In case
any shares of Common Stock or Convertible Securities
or any rights or options to purchase any such Common
Stock or Convertible Securities shall be issued or
sold for a consideration other than cash, the amount
of the consideration other than cash received by the
corporation shall be deemed to be the fair value of
such consideration as determined by the Board of
Directors of the corporation, without deducting
therefrom any expenses incurred or any underwriting
commissions, discounts or concessions paid or allowed
by the corporation in connection therewith. In case
any shares of Common Stock or Convertible Securities
or any rights or options to purchase such Common
Stock or Convertible Securities shall be issued in
connection with any merger or consolidation in which
the corporation is the surviving corporation, the
amount of consideration therefor shall be deemed to
be the fair value as determined by the Board of
Directors of the corporation of such portion of the
assets and business of the non-surviving corporation
or corporations as such Board shall determine to be
attributable to such Common Stock, Convertible
Securities, rights or options, as the case may be. In
the event of any consolidation or merger of the
corporation in which the corporation is not the
surviving corporation or in the event of any sale of
all or substantially all of the assets of the
corporation for stock or other securities of any
other corporation, the corporation shall be deemed to
have issued a number of shares of its Common Stock
for stock or securities of the other corporation
computed on the basis of the actual exchange ratio on
which the transaction was predicated and for a
consideration equal to the fair market value on the
date of such transaction of such stock or securities
of the other corporation, and if any such calculation
results in adjustment of the conversion price, the
determination of the number of shares of Common Stock
issuable upon conversion immediately prior to such
merger, conversion or sale, for purposes of
subparagraph (7) below, shall be made after giving
effect to such adjustment of the conversion price.
(iv) In case the corporation shall take a record of the
holders of its Common Stock for the purpose of
entitling them (a) to receive a dividend or other
distribution payable in Common Stock or in
Convertible Securities, or in any rights or options
to purchase any Common Stock or Convertible
Securities, or (b) to subscribe for or purchase
Common Stock or Convertible Securities, then such
record date shall be deemed to be the date of the
issue or sale of the shares of Common Stock deemed to
have been issued or sold upon the declaration of such
dividend or the making of such other distribution or
the date of the granting of such rights of
subscription or purchase, as the case may be.
(v) The number of shares of Common Stock outstanding at
any given time shall not include shares owned or held
by or for the account of the corporation, and the
disposition of any such shares shall be considered an
issue or sale of Common Stock for the purpose of this
subparagraph (3).
(4) In case the corporation shall (i) declare a dividend upon the
Common Stock payable in Common Stock (other than a dividend
declared to effect a subdivision of the outstanding shares of
Common Stock, as described in subparagraph (5) below) or
Convertible Securities, or in any rights or options to
purchase Common Stock or Convertible Securities, or (ii)
declare any other dividend or make any other distribution upon
the Common Stock payable otherwise than out of earnings or
earned surplus, then thereafter each holder of shares of Class
B Common Stock upon the conversion thereof will be entitled to
receive the number of shares of Common Stock into which such
shares of Class B Common Stock have been converted, and, in
addition and without payment therefor, each dividend described
in clause (i) above and each dividend or distribution
described in clause (ii) above which such holder would have
received by way of dividends or distributions if continuously
since such holder became the record holder of such shares of
Class B Common Stock such holder (i) had been the record
holder of the number of shares of Common Stock then received,
and (ii) had retained all dividends or distributions in stock
or securities (including Common Stock or Convertible
Securities, and any rights or options to purchase any Common
Stock or Convertible Securities) payable in respect of such
Common Stock or in respect of any stock or securities paid as
dividends or distributions and originating directly or
indirectly from such Common Stock. For the purposes of the
foregoing a dividend or distribution other than in cash shall
be considered payable out of earnings or earned surplus only
to the extent that such earnings or earned surplus are charged
an amount equal to the fair value of such dividend or
distribution as determined by the Board of Directors of the
corporation.
(5) In case the corporation shall at any time subdivide its
outstanding shares of Common Stock into a greater number of
shares, the conversion price in effect immediately prior to
such subdivision shall be proportionately reduced, and
conversely, in case the outstanding shares of Common Stock of
the corporation shall be combined into a smaller number of
shares, the conversion price in effect immediately prior to
such combination shall be proportionately increased.
(6) If (i) the purchase price provided for in any right or option
referred to in clause (i) of subparagraph (3), or (ii) the
additional consideration, if any, payable upon the conversion
or exchange of Convertible Securities referred to in clause
(i) or clause (ii) of subparagraph (3), or (iii) the rate at
which any Convertible Securities referred to in clause (i) or
clause (ii) of subparagraph (3) are convertible into or
exchangeable for Common Stock, shall change at any time (other
than under or by reason of provisions designed to protect
against dilution), the conversion price then in effect
hereunder shall forthwith be increased or decreased to such
conversion price as would have obtained had the adjustments
made upon the issuance of such rights, options or Convertible
Securities been made upon the basis of (a) the issuance of the
number of shares of Common Stock theretofore actually
delivered upon the exercise of such options or rights or upon
the conversion or exchange of such Convertible Securities, and
the total consideration received therefor, and (b) the
issuance at the time of such change of any such options,
rights, or Convertible Securities then still outstanding for
the consideration, if any, received by the corporation
therefor and to be received on the basis of such changed
price; and on the expiration of any such option or right or
the termination of any such right to convert or exchange such
Convertible Securities, the conversion price then in effect
hereunder shall forthwith be increased to such conversion
price as would have obtained had the adjustments made upon the
issuance of such rights or options or Convertible Securities
been made upon the basis of the issuance of the shares of
Common Stock theretofore actually delivered (and the total
consideration received therefor) upon the exercise of such
rights or options or upon the conversion or exchange of such
Convertible Securities. If the purchase price provided for in
any right or option referred to in clause (i) of subparagraph
(3), or the rate at which any Convertible Securities referred
to in clause (i) or clause (ii) of subparagraph (3) are
convertible into or exchangeable for Common Stock, shall
decrease at any time under or by reason of provisions with
respect thereto designed to protect against dilution, then in
case of the delivery of Common Stock upon the exercise of any
such right or option or upon conversion or exchange of any
such Convertible Security, the conversion price then in effect
hereunder shall forthwith be decreased to such conversion
price as would have obtained had the adjustments made upon the
issuance of such right, option or Convertible Security been
made upon the basis of the issuance of (and the total
consideration received for) the shares of Common Stock
delivered as aforesaid.
(7) If any capital reorganization or reclassification of the
capital stock of the corporation, or consolidation or merger
of the corporation with another corporation, or the sale of
all or substantially all of its assets to another corporation
shall be effected in such a way that holders of Common Stock
shall be entitled to receive stock, securities or assets with
respect to or in exchange for Common Stock, then, as a
condition of such reorganization, reclassification,
consolidation, merger or sale, and subject to subparagraph (a)
above, lawful and adequate provision shall be made whereby the
holders of Class B Common Stock shall thereafter have the
right to receive upon the basis and upon the terms and
conditions specified herein and in lieu of the shares of the
Common Stock of the corporation immediately theretofore
receivable upon the conversion of Class B Common Stock, such
shares of stock, securities or assets as may be issued or
payable with respect to or in exchange for a number of
outstanding shares of such Common Stock equal to the number of
shares of such stock immediately theretofore receivable upon
the conversion of Class B Common Stock had such
reorganization, reclassification, consolidation, merger or
sale not taken place, plus all dividends unpaid and
accumulated or accrued thereon to the date of such
reorganization, reclassification, consolidation, merger or
sale, and in any such case appropriate provision shall be made
with respect to the rights and interests of the holders of
Class B Common Stock to the end that the provisions hereof
(including without limitation provisions for adjustments of
the conversion price and of the number of shares receivable
upon the conversion of Class B Common Stock) shall thereafter
be applicable, as nearly as may be in relation to any shares
of stock, securities or assets thereafter receivable upon the
conversion of Class B Common Stock. The corporation shall not
effect any such consolidation, merger or sale, unless prior to
the consummation thereof the successor corporation (if other
than the corporation) resulting from such consolidation or
merger or the corporation purchasing such assets shall assume
by written instrument executed and mailed to the registered
holders of Class B Common Stock, at the last addresses of such
holders appearing on the books of the corporation, the
obligation to deliver to such holders such shares of stock,
securities or assets as, in accordance with the foregoing
provisions, such holders may be entitled to receive.
(8) Upon any adjustment of the conversion price, then and in each
case the corporation shall give written notice thereof, by
first-class mail, postage prepaid, addressed to the registered
holders of Class B Common Stock, at the addresses of such
holders as shown on the books of the corporation, which notice
shall state the conversion price resulting from such
adjustment and the increase or decrease, if any, in the number
of shares receivable at such price upon the conversion of
Class B Common Stock, setting forth in reasonable detail the
method of calculation and the facts upon which such
calculation is based.
(9) In case at any time:
(i) the corporation shall declare any cash dividend on
its Common Stock at a rate in excess of the rate of
the last cash dividend theretofore paid;
(ii) the corporation shall pay any dividend payable in
stock upon its Common Stock or make any distribution
(other than regular cash dividends) to the holders of
its Common Stock;
(iii) the corporation shall offer for subscription pro rata
to the holders of its Common Stock any additional
shares of stock of any class or other rights;
(iv) there shall be any capital reorganization, or
reclassification of the capital stock of the
corporation, or consolidation or merger of the
corporation with, or sale of all or substantially all
of its assets to, another corporation; or
(v) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the
corporation;
then, in any one or more of said cases, the corporation shall
give written notice, by first-class mail, postage prepaid,
addressed to the registered holders of Class B Common Stock at
the addresses of such holders as shown on the books of the
corporation, of the date on which (a) the books of the
corporation shall close or a record shall be taken for such
dividend, distribution or subscription rights, or (b) such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up shall take place, as
the case may be. Such notice shall also specify the date as of
which the holders of Common Stock of record shall participate
in such dividend, distribution or subscription rights, or
shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation, or winding up, as the case may be.
Such written notice shall be given at least 20 days prior to
the action in question and not less than 20 days prior to the
record date or the date on which the corporation's transfer
books are closed in respect thereto.
(10) If any event occurs as to which in the opinion of the Board of
Directors of the corporation the other provisions of this
paragraph (D) are not strictly applicable or if strictly
applicable would not fairly protect the rights of the holders
of Class B Common Stock in accordance with the essential
intent and principles of such provisions, then the Board of
Directors shall make an adjustment in the application of such
provisions, in accordance with such essential intent and
principles, so as to protect such rights as aforesaid.
(11) As used in this paragraph (D) the term "Common Stock" shall
mean and include the corporation's presently authorized Common
Stock and shall also include any capital stock of any class of
the corporation hereafter authorized which shall not be
limited to a fixed sum or percentage in respect of the rights
of the holders thereof to participate in dividends or in the
distribution of assets upon the voluntary or involuntary
liquidation, dissolution or winding up of the corporation;
provided that the shares receivable pursuant to conversion of
shares of Class B Common Stock shall include shares designated
as Common Stock of the corporation as of the date of issuance
of such shares of Class B Common Stock, or, in case of any
reclassification of the outstanding shares thereof, the stock,
securities or assets provided for in subparagraph (7) above.
(12) No fractional shares of Common Stock shall be issued upon
conversion, but, instead of any fraction of a share which
would otherwise be issuable, the corporation shall pay a cash
adjustment in respect of such fraction in an amount equal to
the same fraction of the market price per share of Common
Stock as of the close of business on the day of conversion.
"Market price" shall mean if the Common Stock is traded on a
securities exchange or on the NASDAQ National Market System,
the closing sale price of the Common Stock on such exchange or
the NASDAQ National Market System, or, if the Common Stock is
otherwise traded in the over-the-counter market, the average
bid price at the end of the day in the over-the-counter
market, in each case averaged over a period of 20 consecutive
business days prior to the date as of which "market price" is
being determined; provided, however, that in the event of a
private placement of the Common Stock the term "market price"
shall mean the fair value of the Common Stock as determined by
an independent appraiser mutually acceptable to the
corporation and the holders of the Class B Common Stock. If at
any time the Common Stock is not traded on an exchange or the
NASDAQ National Market System, or otherwise traded in the
over-the-counter market, the "market price" shall be deemed to
be the higher of (i) the book value thereof as determined by
any firm of independent public accountants of recognized
standing selected by the Board of Directors of the corporation
as of the last day of any month ending within 60 days
preceding the date as of which the determination is to be
made, or (ii) the fair value thereof determined in good faith
by the Board of Directors of the corporation as of a date
which is within 15 days of the date as of which the
determination is to be made.