EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
SHOWCASE CORPORATION
ARTICLE I
The name of this Corporation is ShowCase Corporation.
ARTICLE II
The registered office of this Corporation is located at 4909 North Highway
52, Rochester, Minnesota 55901.
ARTICLE III
Section 1. Shares and Series Authorized.
The aggregate number of shares of capital -stock which this Corporation is
authorized to issue is 15,000,000 shares, 10,000,000 of which shall be
designated common shares, $.01 par value, 473,757 of which shall be designated
series A convertible preferred shares, $.01 par value (hereinafter referred to
as "Series A Preferred Shares"), and 4,526,243 of which shall be undesignated
preferred shares with respect to which the Board of Directors is authorized to
designate the rights and preferences attributable thereto.
Section 2. Description of the Series A Preferred Shares.
The rights, preferences, privileges and restrictions granted to or imposed
upon the Series A Preferred Shares or the holders thereof are as follows:
(A) Voting Rights.
Each holder of Series A Preferred Shares shall have one vote on all matters
submitted to the shareholders for each share of this Corporation's common stock,
$.01 par value (hereinafter referred to as "Common Shares") which such holder of
Series A Preferred Shares would be entitled to receive upon the conversion of
his Series A Preferred Shares pursuant to the provisions of subsection 2(B)(4).
In addition, each holder of Series A Preferred Shares shall have the special
voting rights which are described in subsection 2(B)(3). Common Shares and
Series A Preferred Shares shall sometimes be collectively referred to as
"Capital Stock."
(B) Other Preferences and Special Rights.
(1) Dividends. Dividends shall be payable on the Series A Preferred Shares
out of funds legally available for the declaration of dividends, only if and
when declared by this Corporation's Board of Directors. However, in no event
shall any dividend be paid on any
Common Shares unless comparable dividends are paid on the Series A Preferred
Shares. Series A Preferred Shares shall be counted on an as-if-converted basis
in determining whether dividends on Series A Preferred Shares and Common Shares
are comparable.
(2) Liquidation Right and Preference. In the event of the liquidation,
dissolution or winding up of this Corporation, whether voluntary or involuntary,
or in the event of the sale of all or substantially all of its assets to another
Corporation, or in the event of a consolidation or merger of this Corporation
with another Corporation, the holders of Series A Preferred Shares shall be
entitled to receive in cash, out of the assets of this Corporation, an amount
equal to $5.0658 per share for each outstanding Series A Preferred Share, plus,
all declared but unpaid dividends, before any payment shall be made or any
assets distributed to the holders of Common Shares or any other class of shares
of this Corporation ranking junior to the Series A Preferred Shares. If, upon
any liquidation or dissolution of this Corporation or the sale by this
Corporation of all or substantially all of its assets or such reorganization or
consolidation or merger, the assets of this Corporation are insufficient to pay
such $5.0658 per Series A Preferred Share, plus all declared but unpaid
dividends, the holders of Series A Preferred Shares shall share pro rata in any
such distribution in proportion to the full amounts to which they would
otherwise be respectively entitled. Following such payment to the holders of
Series A Preferred Shares upon such liquidation, dissolution, sale,
reorganization, consolidation or merger, the holders of Common Shares shall then
be entitled, to the exclusion of the holders of Series A Preferred Shares, to
share ratably in all the assets of this Corporation thereafter remaining.
The merger or consolidation of this Corporation into or with another
Corporation or the merger or consolidation of any other Corporation into or with
this Corporation (in which consolidation or merger the shareholders of this
Corporation receive distribution of cash or securities or other property as a
result of such consolidation or merger), or the sale, transfer or other
disposition of all or substantially all of the assets of this Corporation, shall
be deemed to be a liquidation or dissolution of this Corporation for purposes of
this subsection 2(B)(2).
(3) Special Voting Rights.
(a) The holders of a majority (determined on an as-if-converted basis) of
Series A Preferred Shares (acting together as a class) shall have the right to
elect one (1) member of this Corporation's Board of Directors at all times.
(b) Without the affirmative vote of the holders (acting together as a
class) of at least a majority (with respect to (i), (ii), (iii) and (v) below
determined on an as-if-converted basis) or at least 90% (with respect to (iv)
below) of Series A Preferred Shares at the time outstanding given in person or
by proxy at any annual meeting, or at such special meeting called for that
purpose, or, if permitted by law, in writing without a meeting, this Corporation
shall not:
(i) authorize or issue any (A) additional Series A Preferred Shares, (B) shares
of stock (other than Common Shares) having priority over Series A Preferred
Shares or ranking on a parity therewith as to the payment of dividends or
as to the payment or distribution of assets upon the liquidation or
dissolution, voluntary or involuntary, of this Corporation, or (C) any
share
of stock having special voting rights that are not available to the Series A
Preferred Shares; or
(ii) declare or pay any dividend or make any other distribution on any shares of
Capital Stock of this Corporation at any time created and issued ranking
junior to Series A Preferred Shares with respect to the right to receive
dividends and/or the right to the distribution of assets upon liquidation,
dissolution or winding up of this Corporation (hereinafter called "Junior
Stock"), other than dividends or distributions payable solely in shares of
junior Stock, or purchase, redeem or otherwise acquire for any
consideration (other than in exchange for or out of the net cash proceeds
of the contemporaneous issue or sale of other shares of junior Stock or
debt securities convertible into other shares of Junior Stock), or set
aside a sinking fund or other fund for the redemption or repurchase of any
shares of junior Stock or any warrants, rights or options to purchase
shares of Junior Stock;
(iii) issue Common Shares at a price below $5.0658 per share or any stock
purchase rights, except for such share issuances or stock purchase rights
specifically permitted by the terms of the Investment Agreement dated
February 28,1991 by and between Norwest Equity Partners IV, a Minnesota
Limited Partnership and this Corporation (the "Investment Agreement");
(iv) alter or amend the rights or preferences of Series A Preferred Shares as
stated in article 3 of these articles of incorporation; or
(v) sell, lease, license or otherwise dispose of all or substantially all of
its assets, or any asset or assets which have a material effect upon the
business or financial condition of this Corporation, or consolidate with or
merge into any other Corporation or entity, or permit any other Corporation
or entity to consolidate or merge into it, or enter into a plan of exchange
with any other Corporation or entity, or otherwise acquire any other
Corporation or entity; or permit any subsidiary to do any of the forgoing,
except that any subsidiary of this Corporation may merge into another
subsidiary or into this Corporation.
(c) If an unremedied event of default (an "Event of Default") occurs under
section 15 of the Investment Agreement, which Investment Agreement may not be
amended without the approval of the shareholders of this Corporation, the
holders of Series A Preferred Shares, voting jointly as a separate class, shall
be entitled to designate and elect that number of directors that is the lowest
number that constitutes a majority (the "Majority") of the members of this
Corporation's Board of Directors, and the holders of Common Shares, voting
separately as a class, shall be entitled to elect the remaining members of this
Corporation's Board of Directors. Such right of the holders of Series A
Preferred Shares to designate and elect the Majority of the members of the Board
of Directors may be exercised until the Event of Default under the Investment
Agreement has been cured or waived. When such Event of Default under the
Investment Agreement shall have been cured or waived, the holders of Series A
Preferred Shares shall be divested of such right to elect the Majority of the
members of the Board of Directors, and any directors elected by the holders of
Series A Preferred Shares shall be automatically removed from the Board of
Directors without further action by the Directors or shareholders; subject
always to the same provisions in the vesting of such
right in the holders of the Series A Preferred Shares in the case of the
occurrence of any future Event of Default under the Investment Agreement.
The foregoing right of the holders of Series A Preferred Shares with
respect to the election of directors of this Corporation may be exercised at any
annual meeting of shareholders or, within the limitations hereinafter provided,
at a special meeting of the shareholders held for such purpose. If the date upon
which such right of the holders of Series A Preferred Shares shall become vested
shall be more than thirty (30) days preceding the date of the next ensuing
annual meeting of shareholders as fixed by the Bylaws of this Corporation, the
President of this Corporation shall, immediately after delivery to this
Corporation at its principal office of a request to such effect signed by the
holders of at least a majority of Series A Preferred Shares then outstanding,
call a special meeting of the shareholders, to be held within fifteen (15) days
after the delivery of such request for the purpose of electing the directors who
they shall designate as the representatives of Series A Preferred Shares on the
Board of Directors, which directors shall serve until the next annual meeting,
until their successors shall be elected and shall qualify or until they are
divested of such office pursuant to the immediately preceding paragraph. Notice
of such meeting shall be mailed to each shareholder not less than ten (10) days
prior to the date of such meeting.
Whenever the holders of Series A Preferred Shares shall be entitled to
elect the Majority of the members of the Board of Directors, any holder of such
Series A Preferred Shares shall have the right, during regular business hours,
in person or by a duly authorized representative, to examine and to make
transcripts of the stock records of this Corporation for Series A Preferred
Shares for the purpose of communicating with other holders of Series A Preferred
Shares with respect to the exercise of such right of election.
At any annual or special meeting of shareholders held for the purpose of
electing directors when the holders of Series A Preferred Shares shall be
entitled to elect the Majority of the members of the Board of Directors, the
presence in person or by proxy of the holders of a majority of the outstanding
Series A Preferred Shares shall be required to constitute a quorum for the
election by such class of such directors, and the presence in person or by proxy
of the holders of a majority of the outstanding Common Shares shall be required
to constitute a quorum for the election by such class of the remaining
directors; provided, however, that the holders of a majority of either such
class of stock who are present in person or by proxy shall have power to adjourn
such meeting for the election of directors by such class from time to time
without notice other than announcement at the meeting. No delay or failure by
the holders of either of such classes of stock to elect the members of the Board
of Directors whom such holders are entitled to elect shall invalidate the
election of the remaining members of the Board of Directors by the holders of
the other such class of stock.
If, during any interval between annual meetings of shareholders for the
election of directors and while the holders of Series A Preferred Shares shall
be entitled to elect the Majority of the members of the Board of Directors, the
number of directors in office who have been elected by the holders of Series A
Preferred Shares or Common Shares, as the case may be, shall, by reason of
resignation, death or removal, be less than the total number of directors
subject to election by the holders of shares of such class, the vacancy or
vacancies in the directors elected by the holders of Common Shares, shall be
filled by a majority vote of the remaining directors then in office who were
elected by the holders of Common Shares or succeeded a director so elected,
although such majority be less than a quorum, and the vacancy in the directors
elected by the holders of Series A Preferred Shares shall be filled by a
majority vote of the remaining directors then in office who were elected by the
holders of Series A Preferred Shares or succeeded a director so elected,
although such majority may be less than a quorum.
(4) Conversion Rights.
(a) Optional Conversion. Each Preferred Share shall be convertible at the
option of the holder thereof into Common Shares of this Corporation in
accordance with the provisions and subject to the adjustments provided for in
subsection 2(C)(4)(c). In order to exercise the conversion privilege, a holder
of Series A Preferred Shares shall surrender the certificate representing such
Series A Preferred Shares to this Corporation at its principal office, duly
endorsed to this Corporation and accompanied by written notice to this
Corporation that the holder elects to convert a specified portion or all of such
shares. Series A Preferred Shares converted at the option of the holder shall be
deemed to have been converted on the day of surrender of the certificate
representing such shares for conversion in accordance with the foregoing
provisions, and at such time the rights of the holder of such Series A Preferred
Shares, as such holder, shall cease and such holder shall be treated for all
purposes as the record holder of Common Shares issuable upon conversion. As
promptly as practicable on or after the conversion date, this Corporation shall
issue and mail or deliver to such holder a certificate or certificates for the
number of Common Shares issuable upon conversion, computed to the nearest one
hundredth of a full share, and a certificate or certificates for the balance of
Series A Preferred Shares surrendered, if any, not so converted into Common
Shares.
(b) Automatic Conversion. Series A Preferred Shares shall be automatically
converted into Common Shares, upon the election of this Corporation and delivery
of written notice of such election to the holders of Series A Preferred Shares
(which election and notice may be delivered within ninety (90) days before or
after the automatic conversion events described below without effecting the
effective time of such automatic conversion), if this Corporation closes the
issuance and sale of Common Shares in an underwritten public offering, pursuant
to an effective registration statement under the Securities Act of 1933, as
amended, in which (i) the net proceeds received by this Corporation equal or
exceed $7,500,000 and (ii) the public offering price equals or exceeds $28.1433
per share (as adjusted from time to time to reflect stock splits, share
dividends or other corporate recapitalizations effected subsequent to February
28,1992).
(c) Conversion Price and Adjustments. The number of Common Shares issuable
in exchange for Series A Series A Preferred Shares upon either optional or
automatic conversion shall be equal to $5.0658 divided by the conversion price
then in effect (the "Conversion Price") for that series of Series A Preferred
Shares. The Conversion Price for Series A Preferred Shares shall initially be
$5.0658, but shall be subject to adjustment from time to time as hereinafter
provided:
(i) In case this Corporation shall at any time after February 28,1992
subdivide or split its outstanding Common Shares into a greater number of shares
or declare any dividend payable in Common Shares, the Conversion Price for each
series of Series A Preferred Shares in effect immediately prior to such
subdivision, split or dividend shall be proportionately decreased,
and conversely, in case the outstanding Common Shares of this Corporation shall
be combined into a smaller number of shares, the Conversion Price for each
series of Series A Preferred Shares in effect immediately prior to such
combination shall be proportionately increased.
(ii) Except for issuances of shares or other equity purchase rights
specifically permitted by the terms of the Investment Agreement and except for
the issuance to Marc Shinbrood of options to purchase up to 84,809 Common Shares
and to others of options to purchase up to an additional 62,133 Common Shares,
if and whenever this Corporation shall issue or sell any Common Shares prior to
January 1, 1993, for a consideration per share less than the Conversion Price
then in effect for the Series A Preferred Shares (other than dividends payable
in Common Shares), or shall issue any options, warrants or other rights for the
purchase of such shares at a consideration per share of less than the Conversion
Price then in effect for the Series A Preferred Shares, the Conversion Price for
the Series A Preferred Shares in effect immediately prior to such issuance or
sale shall be adjusted and shall be equal to the consideration per share at
which such Common Shares were issued or sold or at which such options, warrants
or other rights are exercisable. Except for issuances of shares or other equity
purchase rights specifically permitted by the terms of the Investment Agreement,
if and whenever this Corporation shall issue or sell any Common Shares after
December 31, 1992, for a consideration per share less than the Conversion Price
then in effect for the Series A Preferred Shares (other than dividends payable
in Common Shares), or shall issue any options, warrants or other rights for the
purchase of such shares at a consideration per share of less than the Conversion
Price then in effect for the Series A Preferred Shares, the Conversion Price for
the Series A Preferred Shares in effect immediately prior to such issuance or
sale shall be adjusted and shall be equal to (i) the Conversion Price for the
Series A Preferred Shares then in effect, multiplied by (ii) a fraction, the
numerator of which shall be an amount equal to the sum of (a) the number of
Common Shares outstanding immediately prior to such issuance or sale multiplied
by the Conversion Price for the Series A Preferred Shares then in effect, and
(b) the total consideration payable to this Corporation upon such issuance or
sale of such shares and such purchase rights and upon the exercise of such
purchase rights, and the denominator of which shall be the amount determined by
multiplying (aa) the number of Common Shares outstanding immediately after such
issuance or sale plus the number of the Common Shares issuable upon the exercise
of any purchase rights thus issued, by (bb) the Conversion Price for the Series
A Preferred Shares then in effect. If any options or purchase rights that are
taken into account in any such adjustment of the Conversion Price for the Series
A Preferred Shares subsequently expire without exercise, the Conversion Price
for that the Series A Preferred Shares shall be recomputed by deleting such
options or purchase rights. If the Conversion Price for the Series -A Preferred
Shares is adjusted as the result of the issuance of any options, warrants or
other purchase rights, no further adjustment of the Conversion Price for the
Series A Preferred Shares shall be made at the time of the exercise of such
options, warrants or other purchase rights.
(iii) The anti-dilution provisions Of this subsection 2(B)(4)(c) may be
waived by the affirmative vote of the holders (acting together as a class) of at
least ninety percent (90%) of the then outstanding Series A Preferred Shares.
(d) Notice of Conversion Price Adjustment. Upon any adjustment of the
Conversion Price, then and in each such case the Corporation shall give written
notice thereof, by first-class mail,
postage prepaid, addressed to the registered holders of Series A Preferred
Shares at the addresses of such holders as shown on the books of this
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 Series A Preferred Shares,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based.
(e) Rights to Preconversion Distributions. The holders of Series A
Preferred Shares shall have the following rights to certain properties received
by the holders of Common Shares:
(i) In case this Corporation shall declare a dividend or distribution upon
Common Shares payable other than in cash out of earnings or surplus or other
than in Common Shares, then thereafter each holder of Series A Preferred Shares
upon the conversion thereof will be entitled to receive the number of Common
Shares into which such Series A Preferred Shares shall be converted, and, in
addition and without payment therefor, the property which such holder would have
received as a dividend if continuously since the record date for any such
dividend or distribution such holder (A) had been the record holder of the
number of Common Shares then received, and (B) had retained all dividends or
distributions in stock or securities payable in respect of such Common Shares or
in respect of any stock or securities paid as dividends or distributions and
originating directly or indirectly from such Common Shares.
(ii) Subject to the provisions of subsection 2(B)(2) regarding liquidation
rights, if any capital reorganization or reclassification of the capital stock
of this Corporation, or consolidation or merger of this 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 Shares shall
be entitled to receive stock, securities or assets with respect to or in
exchange for Common Shares, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the holders of Series A Preferred Shares shall thereafter
have the right to receive, in lieu of Common Shares of this Corporation
immediately theretofore receivable upon the conversion of such Series A
Preferred Shares, such shares of stock, securities or assets as may be issued or
payable with respect to or in exchange for a number of outstanding Common Shares
equal to the number of Common Shares immediately theretofore receivable upon the
conversion of such Series A Preferred Shares had such reorganization,
reclassification, consolidation, merger or sale not taken place, and in any such
case appropriate provision shall be made with respect to the rights and
interests of the holders of the Series A Preferred Shares 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 such Series A Preferred Shares) 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 such Series A Preferred Shares. This
Corporation shall not effect any such consolidation, merger or sale, unless
prior to the consummation thereof the surviving corporation (if other than this
Corporation), the corporation resulting from such consolidation or the
corporation purchasing such assets shall assume by written instrument executed
and mailed to the registered holders of the Series A Preferred Shares at the
last address 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.
(f) Notice of Certain Events. In case any time:
(i) this Corporation shall pay any dividend payable in stock upon Common
Shares or make any distribution (other than regular cash dividends) to the
holders of Common Shares; or
(ii) this Corporation shall offer for subscription pro rata to the holders
of Common Shares any additional shares of stock of any class or other rights; or
(iii) there shall be any capital reorganization, reclassification of the
capital stock of this Corporation, or consolidation or merger of this
Corporation with, or sale of all or substantially all of its assets to, another
corporation; provided, however, that this provision shall not be applicable to
the merger or consolidation of this Corporation with or into another corporation
if, following such merger or consolidation, the shareholders of this Corporation
immediately prior to such merger or consolidation own at least 80% of the equity
of the combined entity; or
(iv) there shall be a voluntary or involuntary dissolution liquidation or
winding up of this Corporation; then, in any one or more of said cases, this
Corporation shall give written notice, by first-class mail, postage prepaid,
addressed to the holders of Series A Preferred Shares at the addresses of such
holders as shown on the books of this Corporation, of the date on which (A) the
books of this 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 Shares of record shall participate in
such dividend, distribution or subscription rights, or shall be entitled to
exchange their Common Shares 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 this Corporation's transfer books
are closed in respect thereto.
(g) Definition of Common Shares. As used in this subsection 2(B)(4) the
term "Common Shares" shall mean and include this Corporation's presently
authorized Common Shares and shall also include any capital stock of any class
of this Corporation hereafter authorized which shall have the right to vote on
all matters submitted to the shareholders of this Corporation and 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 this
Corporation; provided that the shares receivable pursuant to conversion of
Series A Preferred Shares shall include shares designated as Common Shares of
this Corporation as of the date of issuance of such Series A Preferred Shares,
or, in case of any reclassification of the outstanding shares thereof, the
stock, securities or assets provided for in subsection 2(B)(4)(e)(ii) above.
ARTICLE IV
The shareholders of the Corporation shall not have any preemptive rights to
subscribe for or acquire securities or rights to purchase securities of any
class, kind or series of the Corporation.
ARTICLE V
No shareholder of this Corporation shall have any cumulative voting rights.
ARTICLE VI
The shareholders shall take action by the affirmative vote of holders of a
majority of the voting power of the shares present, except where a larger
proportion is required by law, these Articles or a shareholder control
agreement.
ARTICLE VII
Any action required or permitted to be taken by the Board of Directors of
this Corporation may be taken by written action signed by that number of
directors that would be required to take the same action at a meeting of the
Board at which all directors are present, except as to those matters requiring
shareholder approval, in which case the written action must be signed by all
members of the Board of Directors then in office.
ARTICLE VIII
No director of this Corporation shall be personally liable to the
Corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director; provided, however, that this Article shall not eliminate or
limit the liability of a director to the extent provided by applicable law (i)
for any breach of the director's duty of loyalty to the Corporation or its
shareholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) under section
302A.559 or 80A.23 of the Minnesota Statutes, (iv) for any transaction from
which the director derived an improper personal benefit, or (v) for any act or
omission occurring prior to the effective date of this Article. No amendment to
or repeal of this Article shall apply to or have any effect on the liability or
alleged liability of any' director of the Corporation for or with respect to any
acts or omissions of such director occurring prior to such amendment or repeal.
CERTIFICATE OF DESIGNATION
OF
SERIES B CONVERTIBLE PREFERRED STOCK
AND
SERIES B-1 CONVERTIBLE PREFERRED STOCK
OF
SHOWCASE CORPORATION
The undersigned hereby certifies that the Board of Directors of ShowCase
Corporation (the "Corporation"), a corporation organized and existing under the
Minnesota Business Corporation Act, duly approved the terms contained in the
following resolution effective on March 11, 1998:
RESOLVED, that two series of preferred stock of the Corporation are hereby
created, and the designations and amounts thereof and the relative rights and
preferences of the shares of each series, are as follows:
Section 1. Designation and Amount. The shares of one series shall be
designated as "Series B Convertible Preferred Stock" (the "Series B Preferred
Shares"), and the number of shares constituting the Series B Preferred Shares
shall be 902,500, $.01 par value per share. The shares of the other series shall
be designated as "Series B-1 Convertible Preferred Stock" (the "Series B-1
Preferred Shares" and, together with the Series B Preferred Shares, the "Series
B Shares"), and the number of shares constituting the Series B-1 Preferred
Shares shall be 875,000, $.01 par value per share. The number of shares of each
such series may be increased or decreased by resolution of the Board of
Directors and any necessary shareholder approval; provided, however, that no
decrease shall reduce the number of Series B Preferred Shares or Series B-1
Preferred Shares to a number less than the number of shares of such series then
outstanding plus the number of shares of such series reserved for issuance upon
the exercise of outstanding options, rights or warrants or upon the conversion
of any outstanding securities issued by the Corporation convertible into Series
B Preferred Shares or Series B-1 Preferred Shares, as the case may be.
Section 2. Voting Rights. Each holder of Series B Shares shall have one
vote on all matters submitted to the shareholders for each share of the
Corporation's common stock, $.01 par value per share ("Common Shares"), which
such holder of Series B Shares would be entitled to receive upon the conversion
of his Series B Shares pursuant to the provisions of Section 6. In addition,
each holder of Series B Shares shall have the special voting rights described in
Section 3. Except as otherwise provided in this Section 2 or as required under
the Minnesota Business Corporation Act, the holders of the Company's Series A
Convertible Preferred Shares, $.01 par value per share (the "Series A Preferred
Shares"), Series B Preferred Shares, Series B-1 Preferred Shares and Common
Shares shall vote together as a single class. The Series A Preferred Shares and
the Series B Shares shall be hereinafter be referred to as the "Preferred
Shares."
Section 3. Special Voting Rights. So long as ten percent (10%) of the
originally issued Series B Shares are outstanding, without the affirmative vote
or consent of holders of at least a majority of the Series B Shares, at the time
outstanding, the Corporation shall not:
(i) authorize or issue any (A) additional Series A Preferred Shares, (B)
additional Series B Preferred Shares, except as specifically permitted
by the terms of that certain Stock Purchase Agreement dated March 26,
1998 (the "Stock Purchase Agreement") between the Corporation and the
Purchasers named therein, (C) additional Series B-1 Preferred Shares,
except as provided in Section 6 hereof or (D) shares of capital stock
having priority over Series B Preferred Shares or Series B-1 Preferred
Shares or ranking on a parity therewith as to the payment of dividends
or as to the payment or distribution of assets upon the liquidation or
dissolution, voluntary or involuntary, of the Corporation;
(ii) declare or pay any dividend or make any other distribution on any
shares of capital stock of the Corporation at any time created and
issued ranking junior to Series B Preferred Shares or Series B-1
Preferred Shares with respect to the right to receive dividends and/or
the right to the distribution of assets upon liquidation, dissolution
or winding up of the Corporation (hereinafter called "Junior Stock"),
other than dividends or distributions payable solely in shares of
Junior Stock, or purchase, redeem or otherwise acquire for any
consideration (other than in exchange for or out of the net cash
proceeds of the contemporaneous issue or sale of other shares of
Junior Stock), or set aside as a sinking fund or other fund for the
redemption or repurchase of any shares of Junior Stock or any
warrants, rights or options to purchase shares of Junior Stock;
(iii) sell, lease, license or otherwise dispose of all or substantially all
of its assets, or any asset or assets which have a material effect
upon the business or financial condition of the Corporation, or
consolidate with or merge into any other corporation or entity, or
permit any other corporation or entity to consolidate or merge into
it, or enter into a plan of exchange with any other corporation or
entity, or otherwise acquire any other corporation or entity or permit
any subsidiary to do any of the foregoing, except that any subsidiary
of the Corporation may merge into another subsidiary or into the
Corporation;
(iv) alter or amend the rights or preferences of Series B Shares as stated
in this Certificate of Designation; or
(v) issue Common Shares or Common Share purchase rights at a price below
$3.00 per share (as adjusted from time to time to reflect stock
splits, share dividends or other corporate recapitalizations effected
subsequent to March 26, 1998), except for issuance of Common Shares or
Common Share purchase rights (A) upon conversion of Preferred Shares,
(B) pursuant to options, warrants, notes or other rights to acquire
Common Shares outstanding as of the date hereof, (C) to employees,
directors or consultants of the Corporation pursuant to any stock
option plan approved by the Corporation's Board of Directors, or (D)
as specifically permitted by Section 3.3 of the Stock Purchase
Agreement.
Section 4. Dividends. Dividends shall be payable on the Series B Shares out
of funds legally available for the declaration of dividends, only if and when
declared by the Corporation's Board of Directors. In no event shall any dividend
be paid or declared, nor shall any distribution be made, on Common Shares,
unless holders of Series B Shares shall participate in such dividend on a pro
rata basis with the holders of Common Shares, counting Series B Shares on an
as-if-converted basis.
Section 5. Liquidation Preference. In the event of the liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
the holders of Series B Shares shall be entitled to receive out of the assets of
the Corporation, prior and in preference to any distribution of any of the
assets or surplus funds of the Corporation to the holders of Common Shares or
any other class of shares of the Corporation ranking junior to the Series B
Shares, a cash amount equal to $4.00 per share for each outstanding Series B
Share, plus any dividends declared but not paid on Series B Shares (the "Series
B Preferred Liquidation Amount"); provided, however, if the assets of the
Corporation are insufficient to pay (x) the liquidation preference the holders
of Series A Preferred Shares are entitled to under Section 2(B)(2) of Article
III of the Corporation's Amended and Restated Articles of Incorporation, as
amended (the "Articles") plus (y) the Series B Preferred Liquidation Amount, the
holders of the Preferred Shares shall share pro rata in any such distribution in
proportion to the full amounts to which they would otherwise be entitled.
Following such payment to the holders of Preferred Shares, the holders of Series
B Shares shall then share ratably on an as-if converted basis with the holders
of Common Shares in all remaining assets of the Corporation.
For purposes of this Section 5, a consolidation or merger of the
Corporation with or into any other person or entity or a consolidation or merger
of any other person or entity with or into the Corporation (in which
consolidation or merger the shareholders of the Corporation receive distribution
of cash or securities or other property as a result of such consolidation or
merger), or a sale, transfer or disposition of all or substantially all the
Corporation's assets, shall be considered a liquidation, dissolution or winding
up of the Corporation, unless, with respect to a merger, consolidation or sale,
the holders of Common Shares immediately preceding such merger or consolidation
hold at least a majority of the equity securities of the surviving entity
entitled to vote in the election of directors (or similar governing body) of the
surviving entity.
Section 6. Conversion Rights.
(a) Optional Conversion. Each Series B Share shall be convertible at the
option of the holder thereof at any time into Common Shares in accordance with
Section 6(c) below. In order to exercise the conversion privilege, a holder of
Series B Shares shall surrender the certificate(s) representing such Series B
Shares to the Corporation at its principal office, duly endorsed to the
Corporation and accompanied by written notice to the Corporation that the holder
elects to convert a specified portion or all of such shares. Series B Shares
converted at the option of the holder shall be deemed to have been converted on
the day of surrender of the certificate
representing such shares for conversion in accordance with the foregoing
provisions, and at such time the rights of such holder of Series B Shares, as
such holder, shall cease and such holder shall be treated for all purposes as
the record holder of the Common Shares issuable upon conversion. As promptly as
practicable on or after the conversion date, the Corporation shall issue and
mail or deliver to such holder or to the nominee or nominees of such holder a
certificate or certificates representing the number of Common Shares issuable
upon conversion, computed to the nearest one hundredth of a full share, and a
certificate or certificates for the balance of the Series B Shares surrendered,
if any, not so converted into Common Shares.
(b) Automatic Conversion. Series B Shares shall be automatically converted
into Common Shares upon the election of the Corporation and delivery of written
notice of such election to the holders of Series B Shares (which election and
notice may be delivered within ninety (90) days before or after the automatic
conversion events described below without effecting the effective time of such
automatic conversion), if the Corporation closes the issuance and sale of Common
Shares in an underwritten public offering, pursuant to an effective registration
statement under the Securities Act of 1933, as amended, in which (i) the net
proceeds received by the Corporation equal or exceed $15,000,000 and (ii) the
public offering price equals or exceeds $10.00 per share (as adjusted from time
to time to reflect stock splits, share dividends or other corporate
recapitalizations effected subsequent to March 26, 1998).
(c) Special Mandatory Conversion.
(i) At any time following the date of the Stock Purchase Agreement, if (a)
the holders of Series B Preferred Shares are entitled to exercise the
right of first refusal (the "Right of First Refusal") set forth in
Section 8.11 of the Stock Purchase Agreement with respect to any
issuance or sale by the Corporation of Additional Securities (as
defined in such Section 8.11) at a price per share that is less than
the Conversion Price (as defined below) for the Series B Preferred
Shares then in effect (the "Equity Financing"), (b) the Corporation
has complied with its notice of obligations, or such obligations have
been waived with respect to such holder, under the Right of First
Refusal with respect to such Equity Financing, and the Corporation
thereafter proceeds to consummate the Equity Financing and (c) such
holder or Purchaser Affiliate (as defined in the Stock Purchase
Agreement) (a "Non-Participating Holder") does not by exercise of such
holder's Right of First Refusal to acquire its pro rata share (as
defined in Section 8.11 of the Stock Purchase Agreement) offered in
such Equity Financing (a "Mandatory Offering"), then all of such
Non-Participating Holder's Series B Preferred Shares shall
automatically and without further action on the part of such holder be
converted effective upon, subject to, and concurrently with, the
consummation of the Mandatory Offering (the "Equity Financing Date")
into an equivalent number of shares of Series B-1 Preferred Shares;
provided, however, that no such conversion shall occur in connection
with a particular Equity Financing if, pursuant to the written request
of the Corporation, holders of 80% of the issued and outstanding
Series B Preferred Shares agree in writing to waive their Right of
First Refusal with respect to such Equity Financing. The Conversion
Price for such Series B-1
Preferred Shares shall be the Conversion Price of the Series B
Preferred Shares in effect immediately prior to the issuance of such
Series B-1 Preferred Shares as adjusted pursuant to the provisions of
Section 6, except for this Section 6(c). Upon conversion pursuant to
this Section 6(c), the Series B Preferred Shares so converted shall be
canceled and not subject to reissuance.
(ii) The holder of any Series B Preferred Shares converted pursuant to this
Section 6(c) shall deliver to the Corporation during regular business
hours at the office of any transfer agent of the Corporation, or at
such other place as may be designated by the Corporation, the
certificate or certificates for the shares so converted, duly endorsed
or assigned in blank or to the Corporation. As promptly as practicable
thereafter, the Corporation shall issue and deliver to such holder, at
the place designated by such holder, a certificate or certificates for
the number of full shares of the Series B-1 Preferred Shares to be
issued and such holder shall be deemed to have become a shareholder of
record of Series B-1 Preferred Shares on the Equity Financing Date
unless the transfer books of the Corporation are closed on that date,
in which event it shall be deemed to have become a shareholder of
record of Series B-1 Preferred Shares on the next succeeding date on
which the transfer books are open. Series B-1 Preferred Shares may be
issued only in exchange for Series B Preferred Shares pursuant to this
Section 6(c).
(iii) In the event that any Series B-1 Preferred Shares are issued,
concurrently with such issuance, the Corporation shall use its best
efforts to take all such action as may be required, including amending
the Articles, (a) to cancel all authorized Series B Preferred Shares
that remain unissued after such issuance; (b) to create and reserve
for issuance upon any future Special Mandatory Conversion of any
Series B Preferred Shares, a new series of preferred stock designated
Series B-2 Convertible Preferred Stock ("Series B-2 Preferred Shares")
equal in number to the number of authorized Series B Preferred Shares,
with the designations, powers, preferences and rights and the
qualifications, limitations and restrictions identical to those then
applicable to the Series B Preferred Shares, except that the
Conversion Price for such Series B-2 Preferred Shares once initially
issued shall be the Conversion Price of Series B Preferred Shares in
effect immediately prior to such issuance; and (c) to amend the
provisions of this Section 6(c) to provide that any subsequent Special
Mandatory Conversion will be into Series B-2 Preferred Shares rather
than Series B-1 Preferred Shares. The Corporation shall take the same
actions as provided in this Section 6(c)(iii) with respect to the
Series B-2 Preferred Shares and each subsequently authorized series of
preferred stock created pursuant to this Section 6(c)(iii) upon
initial issuance of shares of the last such series to be authorized.
The right to receive any dividend declared but unpaid at the time of
conversion on any shares of Series B Shares converted pursuant to the
provisions of this Section 6(c) shall accrue to the benefit of the new
shares of preferred stock issued upon conversion thereof.
(iv) This Section 6(c) shall be applicable only upon amendment of Article
IV of the Articles to eliminate the reference to the Investment
Agreement dated February 21, 1991 by and between this Corporation and
Norwest Equity Partners IV, a Minnesota Limited Partnership.
(d) Conversion Price and Adjustments. The number of Common Shares issuable
in exchange for Series B Shares upon either optional or automatic conversion
shall be equal to $4.00 divided by the conversion price then in effect (the
"Conversion Price") for the Series B Shares. The Conversion Price shall
initially be $4.00, but shall be subject to adjustment from time to time as
hereinafter provided:
(i) In case the Corporation shall at any time after March 26, 1998
subdivide or split its outstanding Common Shares into a greater number
of shares or declare any dividend payable in Common Shares, the
Conversion Price in effect immediately prior to such subdivision,
split or dividend shall be proportionately decreased, and conversely,
in case the outstanding Common Shares 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.
(ii) If the Corporation's total revenues for the fiscal year ended March
31, 1999 is less than $35,000,000, the Conversion Price then in effect
shall be adjusted and shall be equal to $3.00 plus the dollar amount
obtained by dividing (x) the difference between the Corporation's
total revenues for the fiscal year ended March 31, 1999 and
$30,000,000 by (y) 5,000,000; provided, however, that if the
Corporation's total revenues for the fiscal year ended March 31, 1999
is less than $30,000,000, the Conversion Price shall be $3.00.
Notwithstanding the foregoing, the Conversion Price shall be adjusted
pursuant to this Section 6(c)(ii) only if the Conversion Price then in
effect is greater than the Conversion Price obtained pursuant to this
Section 6(c)(ii).
(iii) If the Corporation's total revenues for the fiscal year ended March
31, 1999 is greater than $35,000,000 and the Conversion Price then in
effect is $4.00, the Conversion Price then in effect shall be adjusted
and shall be equal to $4.00 plus the dollar amount obtained by
dividing (x) the difference between the Corporation's total revenues
for the fiscal year ended March 31, 1999 and $35,000,000 by (y)
10,000,000; provided, however, that if the Corporation's total
revenues for the fiscal year ended March 31, 1999 is greater than
$40,000,000, the Conversion Price shall be $4.50.
(iv) Except for (a) issuances of Common Shares upon conversion of Preferred
Shares, (b) issuances of capital stock pursuant to options, to acquire
capital stock of the Corporation outstanding as of the date hereof and
(c) issuance of options and/or shares of capital stock to employees,
directors or consultants of the Corporation pursuant to any stock
purchase plan or stock option plan approved by the Corporation's Board
of Directors (including any such plan in effect prior to March
26, 1998), if and whenever the Corporation shall issue or sell any
Common Shares or shares of stock of the Corporation which are
convertible into, or exchangeable for, Common Stock or other shares of
capital stock of the Corporation ("Convertible Shares") for a
consideration per share (the amount, if any, payable upon the
conversion of such Convertible Share for each Common Share receivable
thereby shall be included in determining such consideration per share)
less than the Conversion Price for Series B Preferred Shares then in
effect (other than dividends payable in Common Shares), or shall issue
any options, warrants or other rights for the purchase of such Common
Shares or Convertible Shares at a consideration per share (the amount,
if any, payable upon the exercise of such warrant, option or right for
each Common Share receivable thereby shall be included in determining
such consideration per share) of less than the Conversion Price for
Series B Preferred Shares then in effect, then, forthwith upon such
issuance or sale, the Conversion Price for Series B Preferred Shares
(but not for Series B-1 Preferred Shares) in effect immediately prior
to such issuance or sale shall be adjusted and shall be equal to the
consideration per share at which such Common Shares or Convertible
Shares were issued or sold or at which such options, warrants, or
other purchase rights are exercisable. If any such options, warrants
or other purchase rights that are taken into account in any such
adjustment of the Conversion Price for Series B Preferred Shares
subsequently expire without exercise, the Conversion Price for Series
B Preferred Shares shall be recomputed at the time of expiration by
deleting such options, warrants or other rights.
(v) For the purposes of Sections 6(d)(ii) and 6(d)(iii), the calculation
of the Company's total revenues for the fiscal year ended March 31,
1999 shall be in accordance with generally accepted accounting
principals and consistent with past practice. Furthermore, the
calculation of the Company's total revenues for the fiscal year ended
March 31, 1999 shall not include revenues due to acquisitions,
consolidations, mergers, exchanges or similar transactions by the
Company after March 26, 1998 or the introduction of new lines of
business by the Company after March 26, 1998.
(vi) The anti-dilution provisions of this Section 6(d) may be waived by the
affirmative vote of the holders of at least fifty percent (50%) of the
then outstanding Series B Preferred Shares voting together as a class,
and in the event the anti-dilution provisions of Section 6(d)(iv) are
so waived, the special mandatory conversion provisions of Section 6(c)
shall not apply to the Equity Financing which is the subject of such
waiver. Such waiver shall be at the sole discretion of the holders of
the then outstanding Series B Preferred Shares.
(e) Notice Regarding Conversion Price Adjustments. Upon any adjustment of
the Conversion Price, then and in each such case the Corporation shall promptly
give written notice thereof, by first-class mail, postage prepaid, addressed to
the registered holders of the Series B Shares 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 Series B Shares, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
(f) Rights to Preconversion Distributions. The holders of Series B Shares
shall have the following right to certain properties received by the holders of
Common Shares:
(i) In case the Corporation shall declare a dividend or other distribution
upon Common Shares payable otherwise than in cash out of earnings or
surplus or other than in Common Shares, then thereafter each holder of
Series B Shares upon the conversion thereof will be entitled to
receive the number of Common Shares into which such Series B Shares
shall be converted, and, in addition and without payment therefor, the
property which such holder would have received as a dividend if
continuously since the record date for any such dividend or
distribution such holder (A) had been the record holder of the number
of Common Shares then received, and (B) had retained all dividends or
distributions in stock or securities payable in respect of such Common
Shares or in respect of any stock or securities paid as dividends or
distributions and originating directly or indirectly from such Common
Shares.
(ii) Subject to the provisions of Section 5 regarding liquidation rights,
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 Shares shall be entitled to receive stock,
securities or assets with respect to or in exchange for Common Shares,
then, as a condition of such reorganization, reclassification,
consolidation, merger or sale, lawful and adequate provision shall be
made whereby the holders of the Series B Shares shall thereafter have
the right to receive, in lieu of Common Shares of the Corporation
immediately theretofore receivable upon the conversion of the Series B
Shares, such shares of stock, securities or assets as may be issued or
payable with respect to or in exchange for a number of outstanding
Common Shares equal to the number of Common Shares immediately
theretofore receivable upon the conversion of such Series B Shares had
such reorganization, reclassification, consolidation, merger or sale
not taken place, and in any such case appropriate provision shall be
made with respect to the rights and interests of the holders of Series
B Shares 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 such Series B
Shares) 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 such Series B Shares. The
Corporation shall not effect any such consolidation, merger or sale,
unless prior to the consummation thereof the surviving corporation (if
other than the Corporation), the corporation resulting from such
consolidation or the corporation
purchasing such assets shall assume by written instrument executed and
mailed to the registered holders of the Series B Shares at the last
address 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.
(g) Notice of Certain Events. In case any time:
(i) the Corporation shall pay any dividend payable in stock upon Common
Shares or make any distribution (other than regular cash dividends) to
the holders of Common Shares; or
(ii) the Corporation shall offer for subscription pro rata to the holders
of Common Shares any additional shares of stock of any class or other
rights; or
(iii) there shall be any capital reorganization, 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; provided, however, that this provision shall
not be applicable to the merger or consolidation of the Corporation
with or into another corporation if, following such merger or
consolidation, the shareholders of the Corporation immediately prior
to such merger or consolidation own at least 80% of the equity of the
combined entity; or
(iv) 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 holders of the
Series B Shares at the addresses of such holders as shown on the books of the
Corporation, on 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
Shares of record shall participate in such dividend, distribution or
subscription rights, or shall be entitled to exchange their Common Shares 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
twenty (20) days prior to the action in question and not less than twenty (20)
days prior to the record date or the date on which the Corporation's transfer
books are closed in respect thereto.
(h) Definition of Common Shares. As used in this Section 6, the term
"Common Shares" shall mean and include the Corporation's presently authorized
Common Shares and shall also include any capital stock of any class of the
Corporation hereafter authorized which shall have the right to vote on all
matters submitted to the shareholders of the Corporation and 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 Series B Shares shall include shares
designated as Common Shares of the Corporation as of the date of issuance of
such Series B Shares, or, in case of any reclassification of the outstanding
shares thereof, the stock, securities or assets provided for in Section 6(e)(ii)
above.