<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-10902
INTERFACE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
MICHIGAN 38-1857379
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
5855 INTERFACE DRIVE, ANN ARBOR, MICHIGAN 48103
(Address of principal executive offices)
(734) 769-5900
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [ X ] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, no par value, 4,424,950 shares as of May 12, 1998.
<PAGE> 2
INTERFACE SYSTEMS, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets at March 31, 1998
and September 30, 1997 3
Consolidated Statements of Operations for the Quarter
and Six Month Periods Ended March 31, 1998 and 1997 4
Consolidated Statements of Cash Flows for the
Six Months Ended March 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 7
Item 3. Quantitative and Qualitative
Disclosures about Market Risk 10
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 11
</TABLE>
2
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
INTERFACE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
------------- ---------------
(unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,048,583 $ 830,086
Accounts receivable, net 2,708,868 3,010,737
Refundable income taxes 1,507,634 1,182,182
Inventories 3,169,797 3,841,747
Prepaid expenses and other 300,224 741,053
Deferred income taxes 309,000 475,000
Net current assets of discontinued operations 11,165,524 11,825,867
------------- -------------
Total current assets 20,209,630 21,906,672
Property and equipment, net 3,701,648 3,949,616
Property and equipment of discontinued operations 327,667 653,080
Goodwill, net 1,067,760 1,160,634
Software development costs, net 166,216 874,652
Other assets 244,187 285,853
------------- -------------
$ 25,717,108 $ 28,830,507
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 7,609,420 $ 8,640,611
Accounts payable 1,428,420 1,738,596
Accrued expenses 563,482 630,287
Deferred revenue 541,840 638,709
Current portion of long-term debt 50,200 50,004
Current liabilities of discontinued operations 7,473,513 6,603,668
------------- -------------
Total current liabilities 17,666,875 18,301,875
Long-term debt 145,633 170,829
Deferred income taxes 565,000 615,000
------------- -------------
Total liabilities 18,377,508 19,087,704
------------- -------------
Stockholders' equity:
Common stock, no par value,
12,500,000 shares authorized; 4,424,950
shares issued and outstanding for both periods 442,495 442,495
Additional paid-in-capital 10,547,447 10,547,447
Cumulative translation adjustment (318,340) (281,441)
Retained deficit (3,332,002) (965,698)
-------------- --------------
Total stockholders' equity 7,339,600 9,742,803
------------- -------------
$ 25,717,108 $ 28,830,507
============= ================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE> 4
INTERFACE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Quarter ended Six months ended
March 31, March 31,
1998 1997 1998 1997
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net revenues $5,066,318 $ 4,861,140 $ 10,690,528 $ 9,030,253
Cost of revenues 2,336,183 4,500,873 4,728,124 7,212,403
------------- ------------ ------------- ------------
Gross profit 2,730,135 360,267 5,962,404 1,817,850
Expenses:
Product development 944,285 625,780 1,848,213 1,127,530
Selling, general and administrative 1,890,463 2,107,239 4,067,765 4,089,508
------------- ------------ ------------- ------------
Operating income (loss) from
continuing operations (104,613) (2,372,752) 46,426 (3,399,188)
Interest expense (15,643) (54,364) (21,372) (116,806)
Other income 19,543 1,091 25,885 115,432
------------- ------------ ------------- ------------
Income (loss) from continuing
operations before income taxes (100,713) (2,426,025) 50,939 (3,400,562)
Income tax benefit (122,000) (609,943) (122,000) (803,530)
-------------- ------------- ------------- ------------
Income (loss) from continuing operations 21,287 (1,816,082) 172,939 (2,597,032)
Income (loss) from discontinued operations (533,963) 316,353 (748,243) 372,250
Loss on disposal of discontinued operations (1,791,000) -- (1,791,000) --
-------------- ------------ ------------- ------------
Net loss $ (2,303,676) $ (1,499,729) $(2,366,304) $ (2,224,782)
============== ============ ============= ============
Basic and diluted income (loss) per share:
Income (loss) from continuing operations $ 0.01 $ (0.41) $ 0.04 $ (0.58)
Income (loss) from discontinued operations (0.53) 0.07 (0.57) 0.08
------------- ------------ ------------- ------------
Net loss per share $ (0.52) $ (0.34) $ (0.53) $ (0.50)
============= ============ ============= ============
Weighted average shares outstanding 4,424,950 4,408,384 4,424,950 4,472,132
============= ============ ============= ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE> 5
INTERFACE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended March 31,
1998 1997
---- ----
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,366,304) $(2,224,782)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,132,489 1,650,801
Loss on sale of discontinued operations (1,791,000) --
Deferred income taxes 116,000 --
Gain on sale of securities -- (74,777)
Loss on sale of fixed assets -- 2,056
Write-off of software development costs -- 357,358
Change in operating assets and liabilities:
Accounts receivable 301,869 (967,008)
Refundable income taxes (325,452) (424,189)
Inventories 671,950 1,355,741
Prepaid expenses and other 440,829 117,017
Other assets 41,666 (248,393)
Accounts payable (310,176) 1,629,343
Accrued expense (66,805) (238,990)
Deferred revenue (96,869) (67,033)
Discontinued operations - depreciation
and working capital changes 3,646,601 (3,392,674)
------------ -----------
Net cash used in operating activities 1,394,798 (2,525,530)
------------ -----------
Cash flows from investing activities:
Additions to property and equipment (83,211) (365,822)
Additions to software development costs -- (953,675)
Reduction of notes receivable -- 52,811
Proceeds from sale of securities -- 177,612
------------ -----------
Net cash used in investing activities (83,211) (1,089,074)
------------ -----------
Cash flows from financing activities:
Change in notes payable (1,031,191) 2,655,393
Reduction of long-term debt (25,000) (41,361)
------------ -----------
Net cash provided by financing activities (1,056,191) 2,614,032
------------ -----------
Effect of exchange rate changes on cash (36,899) 16,835
------------ -----------
Net increase (decrease) in cash and cash equivalents 218,497 (983,737)
Cash and cash equivalents, beginning of period 830,086 1,694,725
------------ ----------
Cash and cash equivalents, end of period $ 1,048,583 $ 710,988
============ ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE> 6
INTERFACE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The interim consolidated financial statements of Interface Systems, Inc. have
been prepared by the Company without audit pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The information included in this report
should be read in conjunction with the financial statements for the year ended
September 30, 1997 and notes thereto included in the Company's Annual Report on
Form 10-K.
In the opinion of management, the accompanying interim consolidated financial
statements reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the Company's financial
position, results of operations and cash flows for the periods presented. The
results for the quarter ended March 31, 1998 are not necessarily indicative of
the results to be expected for any future period or for the entire year.
Certain prior year amounts have been reclassified to conform to the 1998
financial statement presentation. As more thoroughly discussed in Note 2,
Interface Systems International, Ltd. ("ISIL") is presented as a discontinued
operation for all periods presented.
2. SALE OF INTERFACE SYSTEMS INTERNATIONAL LTD. DISTRIBUTION BUSINESS;
DISCONTINUED OPERATIONS
In May 1998, the Company consummated a sale of substantially all assets and
certain liabilities of the distribution business of ISIL to Fayrewood plc, a
U.K. company quoted on the Alternative Investment Market of the London Stock
Exchange. The sale did not include the assumption by Fayrewood of all of ISIL's
liabilities, and therefore, no assurances can be given that claims will not be
made against the Company in the future arising out of ISIL's former operations.
Such claims could have a material adverse effect on the Company's financial
condition and results of operations.
The consideration of $3.6 million is approximately equal to 83% of the net
assets sold and is subject to audit. The net assets sold, estimated at $4.3
million, consist of accounts receivable (exclusive of certain aged receivables),
inventory and fixed assets, net of accounts payable. The consideration is
payable in cash with an initial payment of $2.9 million and the balance of the
consideration due in approximately 60 days upon completion of an audit of the
net assets sold. The Company recorded a charge of approximately $1.8 million in
the quarter ended March 31, 1998 for the loss on sale and related expenses.
Accordingly, the operating results of ISIL have been segregated from continuing
operations and reported as a separate line item on the Company's consolidated
statement of operations. In addition, the assets and liabilities of ISIL,
excluding its note payable, have been reclassified on the Company's consolidated
balance sheets and reported as assets and liabilities of the discontinued
operation. The Company has restated its prior financial statements to present
the operating results of ISIL as a discontinued operation.
6
<PAGE> 7
3. BORROWINGS
The Company has bank credit facilities which provide for aggregate borrowings of
up to $11.5 million. As of March 31, 1998, $7.6 million was outstanding under
these facilities. Advances under these facilities bear interest at the bank's
prime rate (8.5% at March 31, 1998) plus 1%, are payable on demand and are
collateralized by substantially all of the Company's assets. The credit facility
covering $3.5 million of the aggregate borrowings expires February 28, 1999 and
the facility covering the balance of the borrowings is subject to review on
August 28, 1998. The amount available for borrowing at any one time under the
facilities is based on borrowing base formulas relating to levels of accounts
receivable, inventories and other bank covenants. Under such formulas,
approximately $1.4 million was available to the Company as of March 31, 1998.
Under the terms of the agreements, the Company is required to maintain certain
minimum working capital, net worth and profitability levels and other specific
financial ratios. The Company was in violation of the minimum net worth covenant
of the credit facilities at March 31, 1998. The Bank waived the default through
an amendment to the facilities. In addition, the agreements prohibit the payment
of cash dividends and contain certain restrictions on the Company's ability to
borrow money or purchase assets or interests in other entities without the prior
written consent of the bank.
4. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share." The Company
adopted the new standard for the quarter ended December 31, 1997, as required by
the statement. The implementation of this standard had no effect on the
consolidated financial statements for the periods presented.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SALE OF INTERFACE SYSTEMS INTERNATIONAL LTD. DISTRIBUTION BUSINESS;
DISCONTINUED OPERATIONS
In May 1998, the Company consummated a sale of substantially all assets and
certain liabilities of the distribution business of ISIL to Fayrewood plc, a
U.K. company quoted on the Alternative Investment Market of the London Stock
Exchange. The sale did not include the assumption by Fayrewood of all of ISIL's
liabilities, and therefore, no assurances can be given that claims will not be
made against the Company in the future arising out of ISIL's former operations.
Such claims could have a material adverse effect on the Company's financial
condition and results of operations.
The consideration of $3.6 million is approximately equal to 83% of the net
assets sold and is subject to audit. The net assets sold, estimated at $4.3
million, consist of accounts receivable (exclusive of certain aged receivables),
inventory and fixed assets, net of accounts payable. The consideration is
payable in cash with an initial payment of $2.9 million and the balance of the
consideration due in approximately 60 days upon completion of an audit of the
net assets sold. The Company recorded a charge of approximately $1.8 million in
the quarter ended March 31, 1998 for the loss on sale and related expenses.
7
<PAGE> 8
Accordingly, the operating results of ISIL have been segregated from continuing
operations and reported as a separate line item on the Company's consolidated
statement of operations. In addition, the assets and liabilities of ISIL,
excluding its note payable, have been reclassified on the Company's consolidated
balance sheets and reported as assets and liabilities of the discontinued
operation. The Company has restated its prior financial statements to present
the operating results of ISIL as a discontinued operation.
RESULTS OF OPERATIONS
Net Revenues. Revenues for the second quarter ended March 31, 1998 were $5.1
million, an increase of 4.2% over revenues of $4.9 million for the second
quarter of fiscal 1997. The increase was due primarily to increased sales of
Oasis Document Server software and related consulting and integration services.
Revenues for the first six months of fiscal 1998 were $10.7 million, an increase
of 18.4% over revenues of $9.0 million for the same period of fiscal 1997. The
increase for the six month period was primarily due to increased sales of
Enterprise Network products as well as increased sales of Oasis products offset
by decreased sales of printer products.
Cost of Revenues. Cost of revenues were $2.3 million and $4.5 million, or 46.1%
and 92.6% of net revenues for the quarters ended March 31, 1998 and 1997,
respectively; and $4.7 million and $7.2 million, or 44.2% and 79.9% of net
revenues for the six months ended March 31, 1998 and 1997, respectively. Cost of
revenues decreased as a percentage of net revenues due primarily to write-offs
in the second quarter of fiscal 1997 of $1.8 million related to printer business
inventory and capitalized software development costs. Additionally, the decrease
resulted from higher sales of core business software products, which have higher
gross profit margins. Cost of revenues included amortization of capitalized
software development costs of $353,000 and $470,000 for the quarters ended March
31, 1998 and 1997, respectively, and $708,000 and $1,011,000 for the six months
ended March 31, 1998 and 1997, respectively. In the future, amortization of
capitalized software development costs is expected to be less than $50,000 per
quarter.
Product Development Costs. Product development costs were $944,000 and $626,000,
or 18.6% and 12.9% of net revenues for the quarters ended March 31, 1998 and
1997, respectively; and $1,848,000 and $1,128,000, or 17.3% and 12.5% of net
revenues for the six months ended March 31, 1998 and 1997, respectively. The
absolute dollar increase for both periods primarily reflects a decrease of
$420,000 and $1,087,000 in the amount of expense deferred through capitalization
of internally developed software for the quarter and six months ended March 31,
1998, respectively, as compared with the same periods of fiscal 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $1.9 million and $2.1 million, or 37.3% and 43.3%
of net revenues for the quarters ended March 31, 1998 and 1997, respectively;
and were $4.1 million and $4.1 million, or 38.1% and 45.3% of net revenues for
the six months ended March 31, 1998 and 1997, respectively. The absolute dollar
decrease for the second quarter was primarily due to a reduction in the
Company's core business sales force in the United Kingdom offset by an increase
in marketing expenses to promote sales of Oasis Document Server software and
related consulting and integration services.
Income Taxes. The income tax benefit for the quarter and six months ended March
31, 1998 results from the utilization of net operating losses and other tax
attributes.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company's primary sources of liquidity included cash and
cash equivalents of $1.0 million and short-term credit facilities with a bank
providing for $11.5 million of borrowings, of which approximately $1.4 million
was available.
8
<PAGE> 9
For the six months ended March 31, 1998, net cash of $1.4 million was provided
by operating activities compared to net cash of $ 2.2 million used in operating
activities for the same period of fiscal 1997. Cash was provided by operating
activities for the first six months of fiscal 1998 primarily due to increased
accounts payable, decreased inventory and non-cash charges partially off-set by
increased accounts receivable and net loss for the period. Net cash used in
financing activities was $1.1 million for the first six months of fiscal 1998
due primarily to a reduction in notes payable.
The Company has bank credit facilities which provide for aggregate borrowings of
up to $11.5 million. As of March 31, 1998, $7.6 million was outstanding under
these facilities. The borrowings are used primarily by ISIL in the operation of
its distribution business. Advances under these facilities bear interest at the
bank's prime rate plus 1%, are payable on demand and are collateralized by
substantially all of the Company's assets. The credit facility covering $3.5
million of the borrowings expires February 28, 1999 and the facility covering
the balance of the borrowings is subject to review on August 28, 1998.
Under the terms of the agreements, the Company is required to maintain certain
minimum working capital, net worth and profitability levels and other specific
financial ratios. The Company was in violation of the minimum net worth covenant
of the credit facilities at March 31, 1998. The Bank waived the default through
an amendment to the facilities. In addition, the agreements prohibit the payment
of cash dividends and contain certain restrictions on the Company's ability to
borrow money or purchase assets or interests in other entities without the prior
written consent of the bank.
The Company believes that its existing cash balances, available credit
facilities and future operating cash flows will be sufficient for near term
operating needs. The Company believes it will renew the bank credit facilities
prior to expiration of the facilities. The foregoing statements are "forward
looking statements" within the meaning of the Securities Exchange Act of 1934.
The extent to which such sources will be sufficient to meet the Company's
anticipated cash requirements is subject to a number of uncertainties including
the ability of the Company's operations to generate sufficient cash to support
operations, and other uncertainties described in "Management's Discussion and
Analysis of Results of Operations - Uncertainties Relating to Forward-Looking
Statements."
INTERFACE SYSTEMS YEAR 2000 DISCLOSURE
Interface Systems, Inc. initiated a Year 2000 Project in 1997.
The Company has determined that its products are Year 2000 compliant. The
Company is currently implementing plans to upgrade or replace business
computers, network servers and work stations and other components of its
information technology infrastructure for Year 2000 compliance. The Company does
not expect that the cost to modify its information technology infrastructure to
be Year 2000 compliant will be material to its financial condition or results of
operations. The Company does not anticipate any material disruption in its
operations as a result of any failure by the Company to be in compliance. The
Company does not currently have complete information concerning the Year 2000
compliance of its suppliers or customers, and is in the process of gathering
additional information concerning whether its vendors are Year 2000 compliant
and their timetables for addressing any deficiencies. In the event that any of
the Company's significant suppliers or customers do not successfully and timely
achieve Year 2000 compliance, the Company's business or operations could be
adversely affected.
9
<PAGE> 10
UNCERTAINTIES RELATING TO FORWARD-LOOKING STATEMENTS
"Management's Discussion and Analysis of Results of Operations" contains
"forward-looking statements" within the meaning of the Securities Exchange Act
of 1934, as amended, based on current management expectations. Actual results
could differ materially from those in the forward-looking statements due to a
number of uncertainties, including, but not limited to: general economic
conditions particularly related to demand for the Company's products and
services, changes in Company strategy, product life cycles, competitive factors
(including the introduction or enhancement of competitive products), pricing
pressures, the results of the audit of the ISIL net assets sold, component price
increases, delays in introduction of planned hardware and software products,
software defects and latent technological deficiencies in new products, changes
in operating expenses, inability to attract or retain sales and/or engineering
talent, changes in customer requirements and evolving industry standards.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders was held on February 20, 1998 in
Ann Arbor, Michigan, and was adjourned to March 20,1 998 in order to provide
stockholders with additional opportunity to vote their shares of stock with
respect to the matters voted upon at the Annual Meeting. There were four matters
voted on, which were: (I) the election of directors; (ii) the approval of a
change in the Company's state of incorporation from Delaware to Michigan; (iii)
the approval of the adoption of the Employee Stock Purchase Plan; and (iv) the
approval of an amendment to the 1993 Stock Plan for Non-Employee Directors to
provide the board with discretionary authority to grant options. All director
nominees were elected and the other proposals were approved. The following table
sets forth the results of the voting on the matters voted on.
<TABLE>
<CAPTION>
(1) Election of Directors Votes For Votes Against
--------------------- --------- -------------
<S> <C> <C>
Garnel F. Graber 3,794,811 173,373
Robert A. Nero 3,824,910 143,274
Bruce E. Rhoades 3,822,785 145,399
David C. Seigle 3,710,944 257,240
Robert A. Seigle 3,711,340 256,844
Lloyd A. Semple 3,818,518 149,666
</TABLE>
(2) Approval of change in the company's state of incorporation to Michigan.
<TABLE>
<CAPTION>
For Against Abstain Non-Vote
--- ------- ------- --------
<S> <C> <C> <C>
2,273,877 44,426 22,439 1,627,442
</TABLE>
(3) Approval of Employee Stock Purchase Plan
<TABLE>
<CAPTION>
For Against Abstain Non-Vote
--- ------- ------- --------
<S> <C> <C> <C>
2,197,314 101,041 57,226 1,612,603
</TABLE>
10
<PAGE> 11
(4) Approval of Amendment to 1993 Stock Plan for Non-Employee Directors
<TABLE>
<CAPTION>
For Against Abstain Non-Vote
--- ------- ------- --------
<S> <C> <C> <C>
3,144,483 699,225 66,941 57,535
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
3(i) Articles of Incorporation, as amended
3(ii) Bylaws
10.1 Third Amendment to Credit Authorization Agreement
10.2 Non-Qualified Stock Option Agreement dated as of January 15, 1995
between Interface Systems, Inc., and David O. Schupp.
10.3 Interface Systems, Inc. 1993 Stock Plan for Non-Employee Directors
10.4 Interface Systems, Inc. Employee Stock Purchase Plan
27 Financial Data Schedule
(b) No reports on Form 8-K have been filed during the quarter for which this
report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
INTERFACE SYSTEMS, INC.
Date: May 20, 1998 /S/ John R. Ternes
------------------
John R. Ternes
Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer
and a duly authorized
officer of the Registrant)
11
<PAGE> 1
EXHIBIT 3(i)
<TABLE>
<S><C>
- --------------------------------------------------------------------------------
MICHIGAN DEPARTMENT OF CONSUMER AND INDUSTRY SERVICES
CORPORATION, SECURITIES AND LAND DEVELOPMENT BUREAU
- --------------------------------------------------------------------------------
Date Received (FOR BUREAU USE ONLY)
JAN 15 1998
- ----------------------------------------------------------------
Name
Steven C. Tyshka (313) 568-6585 FILED
- ----------------------------------------------------------------
Address JAN 15 1998
Dykema Gossett PLLC, 400 Renaissance Center
City State Zip Code
Administrator
Detroit Michigan 48243 MI DEPARTMENT OF CONSUMER & INDUSTRY SERVICES
CORPORATION, SECURITIES & LAND DEVELOPMENT BUREAU
EFFECTIVE DATE:
- -----------------------------------------------------------------
Document will be returned to the name and address you enter above
CID Number: 508-822
</TABLE>
ARTICLES OF INCORPORATION
For use by domestic profit corporations
Pursuant to the provisions of Act 284, Public Acts of 1972, as amended,
the undersigned corporation executes the following Articles:
ARTICLE I
The name of the corporation is Michigan Interface Systems, Inc.
ARTICLE II
The purposes for which the corporation is organized is to engage in any
lawful activity within the purposes for which corporations may be organized
under the Business Corporation Act of Michigan, as it exists on the date hereof
and as it may be amended from time to time hereafter (the "Michigan Business
Corporation Act").
ARTICLE III
The total number of shares of the capital stock which the corporation
has authority to issue is Sixty Thousand (60,000) shares of common stock
("Common Stock").
Holders of Common Stock shall be entitled to receive such dividends as
may be declared by the Board of Directors of the Corporation from time to time
and in the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, to receive pro rata all the
remaining assets of the Corporation available for distribution.
<PAGE> 2
Holders of the Common Stock shall have equal voting and other rights
share for share, and each holder of Common Stock is entitled to one vote per
share.
ARTICLE IV
The address and the mailing address of the registered office of the
corporation is 5855 Interface Drive, Ann Arbor, Michigan 48103.
The name of the resident agent at the registered office is Robert A.
Nero.
ARTICLE V
The name and address of the incorporator is as follows: Steven C.
Tyshka, Dykema Gossett, PLLC, 400 Renaissance Center, Detroit, Michigan
48243-1668.
ARTICLE VI
When a compromise or arrangement or a plan or reorganization of this
corporation is proposed between this corporation and its creditors or any class
of them or between this corporation and its shareholders or any class of them, a
court of equity jurisdiction within the state, on application of this
corporation or of a creditor or shareholder thereof, or on application of a
receiver appointed for the corporation, may order a meeting of the creditors or
class of creditors or of the shareholders or class of shareholders to be
affected by the proposed compromise or arrangement or reorganization, to be
summoned in such manner as the court directs. If a majority in number, and
representing three-fourths in value of claims, of the creditors or class of
creditors, or if the shareholders or class of shareholders to be affected by the
proposed compromise or arrangement or a reorganization representing
three-fourths of such shares, agree to a compromise or arrangement or a
reorganization of this corporation as a consequence of the compromise or
arrangement, the compromise or arrangement and the reorganization, if sanctioned
by the court to which the application has been made, shall be binding on all the
creditors or class of creditors, or on all the shareholders or class of
shareholders, as the case may be, and also on this corporation.
ARTICLE VII
The number of directors which shall constitute the whole Board of
Directors shall be the number from time to time fixed by the Board of Directors.
During the intervals between annual meetings of shareholders, any vacancy
occurring in the Board of Directors caused by resignation, removal, death or
incapacity, and any newly created directorships resulting from an increase in
the number of directors, shall be filled only by a majority vote of the
directors then in office, whether or not a quorum. Each director chosen to fill
a vacancy shall hold office until the next election of directors. No decrease in
the number of directors shall have the effect of shortening the term of any
incumbent director. Any director may be removed from office as a director at any
time, but only for cause, by the affirmative vote of shareholders of record
holding a majority of the outstanding shares
2
<PAGE> 3
of stock of the corporation entitled to vote in elections of directors given at
a meeting of the shareholders specifically called for that purpose.
ARTICLE VIII
No director of the corporation shall be personally liable to the
corporation or its shareholders for money damages for any action taken or any
failure to take any action as a director, except liability for any of the
following: (i) the amount of financial benefit received by the director to which
the director is not entitled; (ii) intentional infliction of harm on the
corporation or its shareholders; (iii) a violation of Section 551 of the
Michigan Business Corporation Act; or (iv) an intentional criminal act. If the
Michigan Business Corporation Act hereafter is amended to authorize the further
elimination or limitation of the liability of directors, then the liability of a
director of the corporation, in addition to the limitation on personal liability
contained herein, shall be eliminated or limited to the fullest extent permitted
by the Michigan Business Corporation Act as so amended. No amendment or repeal
of this Article VIII 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 the effective date of any
such amendment or repeal.
ARTICLE IX
The Corporation reserves the right to amend, alter, change, or repeal
any provision contained in these Articles of Incorporation in the manner now or
hereafter prescribed by law, and all rights and powers conferred herein on
shareholders, directors and officers are subject to this reserved power.
ARTICLE X
Directors and officers of the corporation shall be indemnified in
connection with any actual or threatened action or proceeding (including civil,
criminal, administrative or investigative proceedings) arising out of their
service to the corporation or to another organization at the corporation's
request, and shall be paid expenses incurred in defending any such proceeding in
advance of its final disposition to the fullest extent permitted by law. Persons
who are not directors or officers of the corporation may be similarly
indemnified in respect of such service to the extent authorized at any time by
the Board of Directors or the Bylaws of the corporation. The provisions of this
Article shall be applicable to actions or proceedings commenced after the
adoption hereof, whether arising from acts or omissions occurring before or
after the adoption hereof, and to persons who have ceased to be directors,
officers or employees, and shall inure to the benefit of their heirs, executors
and administrators. The right to indemnification and advancement of expenses
conferred hereunder shall be a contract right which may not be modified
retroactively without the written consent of the director or officer and shall
not be deemed exclusive of any other rights to indemnification or advancement of
expenses such person may have or to which such person may be entitled.
3
<PAGE> 4
If a claim under this Article X is not paid in full by the corporation
within thirty days after a written claim has been received by the corporation,
the indemnitee may at any time thereafter bring suit against the corporation to
recover the unpaid amount of the claim. If successful in whole or in part in any
such suit or in a suit brought by the corporation to recover advances, the
indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such claim. In any action brought by the indemnitee to enforce a right
hereunder (other than an action brought to enforce a claim for expenses incurred
in defending any proceeding in advance of its final disposition where the
required undertaking has been tendered to the corporation) it shall be a defense
that, and in any action brought by the corporation to recover advances the
corporation shall be entitled to recover such advances if, the indemnitee has
not met the applicable standard of conduct set forth in the Michigan Business
Corporation Act. Neither the failure of the corporation (including its Board of
Directors, a committee of its Board of Directors, independent legal counsel, or
its shareholders) to have made a determination prior to the commencement of such
action that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Michigan Business Corporation Act, nor an actual determination by the
corporation (including its Board of Directors, a committee of its Board of
Directors, independent legal counsel or its shareholders) that the indemnitee
has not met such applicable standard of conduct, shall be a defense to an action
brought by the indemnitee or create a presumption that the indemnitee has not
met the applicable standard of conduct. In any action brought by the indemnitee
to enforce a right hereunder or by the corporation to recover payments by the
corporation of advances, the burden of proof shall be on the corporation.
ARTICLE XI
Notwithstanding any other provisions of these Articles of
Incorporation, no amendment to these Articles of Incorporation shall amend or
repeal any or all of the provisions of Articles VII, VIII, X or this Article XI
of these Articles of Incorporation, and the shareholders of the corporation
shall not have the right to amend or repeal any or all provisions of the Bylaws
of the corporation, unless so adopted by the affirmative vote of the holders of
not less than three-fourths of the outstanding shares of stock of the
corporation generally entitled to vote in the election of directors, considered
for purposes of this Article XI as a class; provided, however, that in the event
the Board of Directors of the corporation shall recommend to the shareholders
the adoption of any such amendment of a nature described in this Article XI, the
shareholders of record holding a majority of the outstanding shares of stock of
the corporation entitled to vote in elections of directors, considered for the
purposes of this Article XI as a class, may amend, modify or repeal any or all
of such provisions.
Signed this 14th day of January, 1998.
By: /s/ Steven C. Tyshka
---------------------------------------
Steven C. Tyshka, Incorporator
4
<PAGE> 5
<TABLE>
<CAPTION>
<S><C>
- -----------------------------------------------------------------------------------------------------------------------
MICHIGAN DEPARTMENT OF CONSUMER AND INDUSTRY SERVICES
CORPORATION, SECURITIES AND LAND DEVELOPMENT BUREAU
- -----------------------------------------------------------------------------------------------------------------------
Date Received
MAR 26 1998 (FOR BUREAU USE ONLY)
- --------------------------------
- ---------------------------------------------------- FILED
Name: Janice M. Thieleman c/o Dykema Gossett PLLC MAR 26 1998
- ----------------------------------------------------
Address: 400 Renaissance Center Administrator
- ---------------------------------------------------- MI DEPARTMENT OF CONSUMER & INDUSTRY SERVICES
City: Detroit State: Michigan Zip Code: 48243-1668 CORPORATION, SECURITIES & LAND DEVELOPMENT BUREAU
- ---------------------------------------------------- EFFECTIVE DATE:
- -----------------------------------------------------------------------------------------------------------------------
Document will be returned to the name and address you enter above
</TABLE>
CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION
FOR USE BY DOMESTIC PROFIT AND/OR NONPROFIT CORPORATIONS
Pursuant to the provisions of Act 284, Public Acts of 1972 (profit
corporations), or Act 162, Public Acts of 1982 (nonprofit corporations), the
undersigned corporation executes the following Certificate:
1. The present name of the corporation is: Michigan Interface Systems, Inc.
2. The identification number assigned by the Bureau is: 508-822.
3. The location of the registered office is:
5855 Interface Drive Ann Arbor , Michigan 48103
---------------------------------------------- --------------------
(Street Address) (City)
(ZIP Code)
4. Article III of the Articles of Incorporation is hereby amended
to read as follows:
The total number of shares of the capital stock which the corporation has
authority to issue is Twelve Million Five Hundred Thousand (12,500,000) shares
of common stock ("Common Stock").
Holders of Common Stock shall be entitled to receive such dividends as may
be declared by the Board of Directors of the Corporation from time to time and
in the event of any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, to receive pro rata all the remaining assets
of the Corporation available for distribution.
Holders of Common Stock shall have equal voting and other rights share for
share, and each holder of Common Stock is entitled to one vote per share.
<PAGE> 6
5. (For amendments adopted by unanimous consent of incorporators before the
first meeting of the board of directors of trustees.)
The foregoing amendments to the Articles of Incorporation was duly
adopted on the day of , 19 , in accordance
with the provisions of the Act by the unanimous consent of the
incorporator(s) before the first meeting of the Board of Directors or
Trustees.
Signed this day of , 19
------ --------------------- ---
------------------------- ---------------------------
(Signature) (Signature)
------------------------- ---------------------------
(Type or Print Name) (Type or Print Name)
------------------------- ---------------------------
(Signature) (Signature)
------------------------- ---------------------------
(Type or Print Name) (Type or Print Name)
6. (For profit corporations, and for nonprofit corporations whose articles
state the corporation is organized on a stock or on a membership basis.)
The foregoing amendment to the Articles of Incorporation was duly adopted
on the 15th day of January, 1998 by the shareholders if a profit
corporation, or by the shareholders or members if a nonprofit corporation
(check one of the following)
[ ] at a meeting. The necessary votes were case in favor of the
amendment.
[ ] by written consent of the shareholders or members having not
less than the minimum number of votes required by statute in
accordance with Section 407(1) and (2) of the Act if a nonprofit
corporation, or Section 407(1) of the Act if a profit corporation.
Written notice to shareholders or members who have not consented in
writing has been given. (Note: Written consent by less than all of
the shareholders or members is permitted only if such provision
appears in the Articles of Incorporation.)
[X] by written consent of all the shareholders or members
entitled to vote in accordance with section 407(3) of the Act if a
nonprofit corporation, or Section 407(2) of the Act if a profit
corporation.
Signed this 24th day of March , 19 98
-------------- ---------------------- ----
<PAGE> 7
By: /s/ Robert A. Nero
----------------------------------------
Robert A. Nero President
-------------------------------------------
(Type of Print Name) (Type or Print Name)
<PAGE> 8
<TABLE>
<CAPTION>
<S><C>
- -----------------------------------------------------------------------------------------------------------------------
MICHIGAN DEPARTMENT OF CONSUMER AND INDUSTRY SERVICES
CORPORATION, SECURITIES AND LAND DEVELOPMENT BUREAU
- -----------------------------------------------------------------------------------------------------------------------
Date Received
MAR 26 1998 (FOR BUREAU USE ONLY)
- --------------------------------
- ------------------------------------------------------- FILED
Name: Janice M. Thieleman c/o Dykema Gossett PLLC MAR 27 1998
- -------------------------------------------------------
Address: 400 Renaissance Center Administrator
- ------------------------------------------------------- MI DEPARTMENT OF CONSUMER & INDUSTRY SERVICES
City: Detroit State: Michigan Zip Code: 48243-1668 CORPORATION, SECURITIES & LAND DEVELOPMENT BUREAU
- ------------------------------------------------------ EFFECTIVE DATE: March 30, 1998
- -----------------------------------------------------------------------------------------------------------------------
Document will be returned to the name and address you enter above
</TABLE>
CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION
FOR USE BY DOMESTIC PROFIT AND/OR NONPROFIT CORPORATIONS
Pursuant to the provisions of Act 284, Public Acts of 1972 (profit
corporations), or Act 162, Public Acts of 1982 (nonprofit corporations), the
undersigned corporation executes the following Certificate:
1. The present name of the corporation is: Michigan Interface Systems, Inc.
2. The identification number assigned by the Bureau is: 508-822.
3. The location of the registered office is:
5855 Interface Drive Ann Arbor ,Michigan 48103
------------------------------------------------- ------------------
(Street Address) (City) (ZIP Code)
4. Article I of the Articles of Incorporation is hereby amended
to read as follows:
The name of the corporation is Interface Systems, Inc.
************************************************************************
Name Change to be effective on March 30, 1998.
************************************************************************
5. (For amendments adopted by unanimous consent of incorporators before the
first meeting of the board of directors of trustees.)
The foregoing amendments to the Articles of Incorporation was duly
adopted on the ______ day of _________________, 19 ___, in accordance
with the provisions of the Act by the
<PAGE> 9
unanimous consent of the incorporator(s) before the first meeting of the
Board of Directors or Trustees.
Signed this day of , 19
------ --------------------- ---
------------------------- ---------------------------
(Signature) (Signature)
------------------------- ---------------------------
(Type or Print Name) (Type or Print Name)
------------------------- ---------------------------
(Signature) (Signature)
------------------------- ---------------------------
(Type or Print Name) (Type or Print Name)
6. (For profit corporations, and for nonprofit corporations whose articles
state the corporation is organized on a stock or on a membership basis.)
The foregoing amendment to the Articles of Incorporation was duly adopted
on the 15th day of January , 19 98 by the
shareholders if a profit corporation, or by the shareholders or members
if a nonprofit corporation (check one of the following)
[ ] at a meeting. The necessary votes were case in favor of the
amendment.
[ ] by written consent of the shareholders or members having not
less than the minimum number of votes required by statute in
accordance with Section 407(1) and (2) of the Act if a nonprofit
corporation, or Section 407(1) of the Act if a profit corporation.
Written notice to shareholders or members who have not consented in
writing has been given. (Note: Written consent by less than all of
the shareholders or members is permitted only if such provision
appears in the Articles of Incorporation.)
[X] by written consent of all the shareholders or members
entitled to vote in accordance with section 407(3) of the Act if a
nonprofit corporation, or Section 407(2) of the Act if a profit
corporation.
Signed this 24th day of March , 19 98
--------------- ---------------------- ----
By: /s/ Robert A. Nero
------------------------------------------------------------
Robert A. Nero President
----------------------------------------------------------------
(Type of Print Name) (Type or Print Name)
<PAGE> 1
EXHIBIT 3(ii)
BYLAWS
of
INTERFACE SYSTEMS, INC.
ARTICLE I
OFFICES
1.01 PRINCIPAL OFFICE. The principal office of the corporation shall be
at such place within or outside the State of Michigan as the Board of Directors
shall determine from time to time.
1.02 OTHER OFFICES. The corporation also may have offices at such other
places as the Board of Directors from time to time determines or the business of
the corporation requires.
ARTICLE II
SEAL
2.01 SEAL. The corporation may have a seal in such form as the Board of
Directors may from time to time determine. The seal may be used by causing it or
a facsimile to be impressed, affixed, reproduced or otherwise.
ARTICLE III
CAPITAL STOCK
3.01 ISSUANCE OF SHARES. The shares of capital stock of the corporation
shall be issued in such amounts, at such times, for such consideration and on
such terms and conditions as the Board shall deem advisable, subject to the
provisions of the Articles of Incorporation of the Corporation and the further
provisions of these Bylaws, and subject also to any requirements of the laws of
the State of Michigan.
3.02 CERTIFICATES FOR SHARES. The shares of the corporation shall be
represented by certificates signed by the Chairman of the Board, Vice Chairman
of the Board, President or a Vice President of the corporation, and may be
sealed with the seal of the corporation or a facsimile thereof. A certificate
representing shares shall state upon its face that the corporation is formed
under the laws of the State of Michigan, the name of the person to whom it is
issued, the number and
<PAGE> 2
class of shares, and the designation of the series, if any, which the
certificate represents and such other provisions as may be required by the laws
of the State of Michigan.
3.03 TRANSFER OF SHARES. The shares of the capital stock of the
corporation are transferable only on the books of the corporation upon surrender
of the certificate therefor, properly endorsed for transfer, and the
presentation of such evidences of ownership and validity of the assignment as
the corporation may require.
3.04 REGISTERED SHAREHOLDERS. The corporation shall be entitled to
treat the person in whose name any share of stock is registered as the owner
thereof for purposes of dividends and other distributions in the course of
business, or in the course of recapitalization, consolidation, merger,
reorganization, sale of assets, liquidation or otherwise and for the purpose of
votes, approvals and consents by shareholders, and for the purpose of notices to
shareholders, and for all other purposes whatever, and shall not be bound to
recognize any equitable or other claim to or interest in such shares on the part
of any other person, whether or not the corporation shall have notice thereof,
save as expressly required by the laws of the State of Michigan.
3.05 LOST OR DESTROYED CERTIFICATES. Upon the presentation to the
corporation of a proper affidavit attesting the loss, destruction or mutilation
of any certificate or certificates for shares of stock of the corporation, the
Board of Directors shall direct the issuance of a new certificate or
certificates to replace the certificates so alleged to be lost, destroyed or
mutilated. The Board of Directors may require as a condition precedent to the
issuance of new certificates a bond or agreement of indemnity, in such form and
amount and with such sureties, or without sureties, as the Board of Directors
may direct or approve.
ARTICLE IV
SHAREHOLDERS AND MEETINGS OF SHAREHOLDERS
4.01 PLACE OF MEETINGS. All meetings of shareholders shall be held at
the principal office of the corporation or at such other place as shall be
determined by the Board of Directors and stated in the notice of meeting.
4.02 ANNUAL MEETING. The annual meeting of the shareholders of the
corporation shall be held on such date and at such time and place as may be
specified in the notice of annual meeting to be sent to shareholders. Directors
shall be elected at each annual meeting and such other business transacted as
may come before the meeting. Any annual meeting of shareholders may be adjourned
by the Chairman of the meeting or pursuant to a resolution of the Board of
Directors.
4.03 SPECIAL MEETINGS. Special meetings of shareholders may be called
by the Board of Directors, the Chairman of the Board (if such office is filled)
or the President. At any special
2
<PAGE> 3
meeting of shareholders, the business which may be transacted shall be limited
to that which was specifically stated in the notice of such special meeting
provided to shareholders.
4.04 NOTICE OF MEETINGS. Except as otherwise provided by statute,
written notice of the time, place and purposes of a meeting of shareholders
shall be given not less than 10 nor more than 60 days before the date of the
meeting to each shareholder of record entitled to vote at the meeting, either
personally or by mailing such notice to his last address as it appears on the
books of the corporation. No notice need be given of an adjourned meeting of the
shareholders provided the time and place to which such meeting is adjourned are
announced at the meeting at which the adjournment is taken and at the adjourned
meeting only such business is transacted as might have been transacted at the
original meeting. However, if after the adjournment a new record date is fixed
for the adjourned meeting a notice of the adjourned meeting shall be given to
each shareholder of record on the new record date entitled to notice as provided
in this Bylaw.
4.05 RECORD DATES. The Board of Directors may fix in advance a date as
the record date for the purpose of determining shareholders entitled to notice
of and to vote at a meeting of shareholders or an adjournment thereof, or to
express consent or to dissent from a proposal without a meeting, or for the
purpose of determining shareholders entitled to receive payment of a dividend or
allotment of a right, or for the purpose of any other action. The date fixed
shall not be more than 60 nor less than 10 days before the date of the meeting,
nor more than 60 days before any other action. In such case only such
shareholders as shall be shareholders of record on the date so fixed shall be
entitled to notice of and to vote at such meeting or adjournment thereof, or to
express consent or to dissent from such proposal, or to receive payment of such
dividend or to receive such allotment of rights, or to participate in any other
action, as the case may be, notwithstanding any transfer of any stock on the
books of the corporation, or otherwise, after any such record date. Nothing in
this Bylaw shall affect the rights of a shareholder and his transferee or
transferor as between themselves.
4.06 LIST OF SHAREHOLDERS. The Secretary of the corporation or the
agent of the corporation having charge of the stock transfer records for shares
of the corporation shall make and certify a complete list of the shareholders
entitled to vote at a shareholders' meeting or any adjournment thereof. The list
shall be arranged alphabetically, showing the name of, the address of, and the
number of shares held by, each shareholder; be produced at the time and place of
the meeting; be subject to inspection by any shareholder during the whole time
of the meeting; and be prima facie evidence as to who are the shareholders
entitled to examine the list or vote at the meeting.
4.07 QUORUM. Unless a greater or lesser quorum is required in the
Articles of Incorporation or by the laws of the State of Michigan, the
shareholders present at a meeting in person or by proxy who, as of the record
date for such meeting, were holders of a majority of the outstanding shares of
the corporation entitled to vote at the meeting shall constitute a quorum at the
meeting. Whether or not a quorum is present, a meeting of shareholders may be
adjourned by a vote of the shares present in person or by proxy.
3
<PAGE> 4
4.08 PROXIES. A shareholder entitled to vote at a meeting of
shareholders or to express consent or dissent without a meeting may authorize
other persons to act for the shareholder by proxy. A proxy shall be signed by
the shareholder or the shareholder's authorized agent or representative and
shall not be valid after the expiration of three years from its date unless
otherwise provided in the proxy. A proxy is revocable at the pleasure of the
shareholder executing it except as otherwise provided by the laws of the State
of Michigan.
4.09 VOTING. Each outstanding share is entitled to one vote on each
matter submitted to a vote, unless otherwise provided in the Articles of
Incorporation. Votes shall be cast in writing and signed by the shareholder or
the shareholder's proxy. When an action, other than the election of directors,
is to be taken by a vote of the shareholders, it shall be authorized by a
majority of the votes cast by the holders of shares entitled to vote thereon,
unless a greater vote is required by the Articles of Incorporation or by the
laws of the State of Michigan. Except as otherwise provided by the Articles of
Incorporation, directors shall be elected by a plurality of the votes cast at
any election.
4.10 MEETINGS OF SHAREHOLDERS.
(A) Annual Meetings of Shareholders. (1) Nominations of persons for
election to the Board of Directors of the corporation and the proposal of
business to be considered by the shareholders may be made at an annual meeting
of shareholders (a) pursuant to the corporation's notice of meeting, (b) by or
at the direction of the Board of Directors or (c) by any shareholder of the
corporation who was a shareholder of record at the time of giving of notice
provided for in this Bylaw, who is entitled to vote at the meeting and who
complied with the notice procedures set forth in this Bylaw.
(2) For nominations or other business to be properly brought before an
annual meeting by a shareholder pursuant to clause (c) of paragraph (A)( 1) of
this Bylaw, the shareholder must have given timely notice thereof in writing to
the Secretary of the corporation. To be timely, a shareholder's notice shall be
delivered to the Secretary at the principal executive offices of the corporation
not less than 60 days nor more than 90 days prior to the first anniversary of
the preceding year's annual meeting; provided, however, that in the event that
the date of the annual meeting is advanced by more than 30 days or delayed by
more than 60 days from such anniversary date, notice by the shareholder to be
timely must be so delivered not earlier than the 90th day prior to such annual
meeting and not later than the close of business on the later of the 60th day
prior to such annual meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made. Such shareholder's
notice shall set forth (a) as to each person whom the shareholder proposes to
nominate for election or reelection as a director, all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected); (b) as to
any other business that the shareholder proposes to bring before the meeting, a
brief description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting
4
<PAGE> 5
and any material interest in such business of such shareholder and the
beneficial owner, if any, on whose behalf the proposal is made; (c) as to the
shareholder giving the notice and beneficial owner, if any, on whose behalf the
nomination or proposal is made (i) the name and address of such shareholder, as
they appear on the corporation's books, and of such beneficial owner and (ii)
the class and number of shares of the corporation which are owned beneficially
and of record by such shareholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (A)(2)
of this Bylaw to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the corporation is increased and there is
no public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the corporation at least 70
days prior to the first anniversary of the preceding year's annual meeting, a
shareholder's notice required by this Bylaw shall also be considered timely, but
only with respect to nominees for any new positions created by such increase, if
it shall be delivered to the Secretary at the principal executive offices of the
corporation not later than the close of business on the 10th day following the
day on which such public announcement is first made by the corporation.
(B) Special Meetings of Shareholders. Only such business shall be
conducted at a special meeting of shareholders as shall have been brought before
the meeting pursuant to the corporation's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special meeting
of shareholders at which directors are to be elected pursuant to the
corporation's notice of meeting (a) by or at the direction of the Board of
Directors or (b) by any shareholder of the corporation who is a shareholder of
record at the time of giving of notice provided hereunder, who shall be entitled
to vote at the meeting and who complies with the notice procedures set forth in
this Bylaw. Nominations by shareholders of persons for election to the Board of
Directors may be made at such a special meeting of shareholders if the
shareholder's notice required by paragraph (A)(2) of this Bylaw shall be
delivered to the Secretary at the principal executive offices of the corporation
not earlier than the 90th day prior to such special meeting and not later than
the close of business on the later of the 60th day prior to such special meeting
or the 10th day following the day on which public announcement is first made of
the date of the special meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting.
(C) General. (1) Only such persons who are nominated in accordance with
the procedures set forth in this Bylaw shall be eligible to serve as directors
and only such business shall be conducted at a meeting of shareholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Bylaw. The Chairman of the meeting shall have the power and duty to
determine whether a nomination or any business proposed to be brought before the
meeting was made in accordance with the procedures set forth in this Bylaw and,
if any proposed nomination or business is not in compliance with this Bylaw, to
declare that such defective proposal shall be disregarded.
(2) For purposes of this Bylaw, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news
5
<PAGE> 6
service or in a document publicly filed by the corporation with the Securities
and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Exchange
Act.
(3) Notwithstanding the foregoing provisions of this Bylaw, a
shareholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Bylaw. Nothing in this Bylaw shall be deemed to affect any rights
of shareholders to request inclusion of proposals in the corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
ARTICLE V
DIRECTORS
5.01 NUMBER. The business and affairs of the corporation shall be
managed by a Board of not less than three nor more than twelve directors as
shall be fixed from time to time by the Board of Directors. The directors need
not be residents of Michigan or shareholders of the corporation.
5.02 ELECTION, RESIGNATION AND REMOVAL. Directors shall be elected at
each annual meeting of the shareholders, each to hold office for the term for
which the director is elected and until the director's successor is elected and
qualified, or until the director's resignation or removal. A director may resign
by written notice to the corporation. The resignation is effective upon its
receipt by the corporation or a subsequent time as set forth in the notice of
resignation. A director or the entire Board of Directors may be removed, with
cause, by the affirmative vote of shareholders of record holding a majority of
the outstanding shares entitled to vote at an election of directors given at a
meeting specifically called for that purpose.
5.03 VACANCIES. Vacancies in the Board of Directors occurring by reason
of death, resignation, removal, increase in the number of directors or otherwise
shall be filled by the affirmative vote of a majority of the remaining directors
though less than a quorum of the Board of Directors. Each person so elected
shall be a director for a term of office continuing until the next election of
directors.
5.04 ANNUAL MEETING. The Board of Directors shall meet each year
immediately after the annual meeting of the shareholders, or within three (3)
days of such time excluding Sundays and legal holidays if such later time is
deemed advisable, at the place where such meeting of the shareholders has been
held or such other place as the Board may determine, for the purpose of election
of officers and consideration of such business that may properly be brought
before the meeting; provided, that if less than a majority of the directors
appear for an annual meeting of the Board of Directors the holding of such
annual meeting shall not be required and the matters which might have been taken
up therein may be taken up at any later special or annual meeting, or by consent
resolution.
6
<PAGE> 7
5.05 REGULAR AND SPECIAL MEETINGS. Regular meetings of the Board of
Directors may be held at such times and places as the majority of the directors
may from time to time determine at a prior meeting or as shall be directed or
approved by the vote or written consent of all the directors. Special meetings
of the Board may be called by the Chairman of the Board (if such office is
filled) or the President and shall be called by the President or Secretary upon
the written request of any two directors.
5.06 NOTICES. No notice shall be required for annual or regular
meetings of the Board or for adjourned meetings, whether regular or special.
Twenty-four hours written notice shall be given for special meetings of the
Board, and such notice shall state the time, place and purpose or purposes of
the meeting.
5.07 QUORUM. A majority of the Board of Directors then in office, or of
the members of a committee thereof, constitutes a quorum for the transaction of
business. The vote of a majority of the directors present at any meeting at
which there is a quorum shall be the acts of the Board or of the committee,
except as a larger vote may be required by the laws of the State of Michigan. A
member of the Board or of a committee designated by the Board may participate in
a meeting by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can communicate with
the other participants. Participation in a meeting in this manner constitutes
presence in person at the meeting.
5.08 EXECUTIVE AND OTHER COMMITTEES. The Board of Directors may, by
resolution passed by a majority of the whole Board, appoint three or more
members of the Board as an executive committee to exercise all powers and
authorities of the Board in management of the business and affairs of the
corporation, except that the committee shall not have power or authority to (a)
amend the Articles of Incorporation, except that a committee may prescribe the
relative rights and preferences of shares of a series; (b) adopt an agreement of
merger or share exchange; (c) recommend to shareholders the sale, lease or
exchange of all or substantially all of the corporation's property and assets;
(d) recommend to shareholders a dissolution of the corporation or revocation of
a dissolution; (e) amend these Bylaws; (f) fill vacancies in the Board; or (g)
unless expressly authorized by the Board, declare a distribution or dividend or
to authorize the issuance of stock.
The Board of Directors from time to time may, by like resolution,
appoint such other committees of one or more directors to have such authority as
shall be specified by the Board in the resolution making such appointments. The
Board of Directors may designate one or more directors as alternate members of
any committee who may replace an absent or disqualified member at any meeting
thereof.
5.09 DISSENTS. A director who is present at a meeting of the Board of
Directors, or a committee thereof of which the director is a member, at which
action on a corporate matter is taken is presumed to have concurred in that
action unless the director's dissent is entered in the minutes of the meeting or
unless the director files a written dissent to the action with the person acting
as secretary of the meeting before the adjournment thereof or shall forward such
dissent by registered
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mail to the Secretary of the corporation promptly after the adjournment of the
meeting. Such right to dissent does not apply to a director who voted in favor
of such action. A director who is absent from a meeting of the Board, or a
committee thereof of which the director is a member, at which any such action is
taken is presumed to have concurred in the action unless the director files a
written dissent with the Secretary of the corporation within a reasonable time
after the director has knowledge of the action.
5.10 COMPENSATION. Except as provided in the Articles of Incorporation,
the Board of Directors, by affirmative vote of a majority of directors in office
and irrespective of any personal interest of any of them, may establish
reasonable compensation of directors for services to the corporation as
directors or officers.
ARTICLE VI
NOTICES, WAIVERS OF NOTICE AND MANNER OF ACTING
6.01 NOTICES. All notices of meetings required to be given to
shareholders, directors or any committee of directors may be given by mail,
telecopy, telegram, radiogram or cablegram to any shareholder, director or
committee member at his last address as it appears on the books of the
corporation. Such notice shall be deemed to be given at the time when the same
shall be mailed or otherwise dispatched.
6.02 WAIVER OF NOTICE. Notice of the time, place and purpose of any
meeting of shareholders, directors or committee of directors may be waived by
telecopy, telegram, radiogram, cablegram or other writing, either before or
after the meeting, or in such other manner as may be permitted by the laws of
the State of Michigan. Attendance of a person at any meeting of shareholders, in
person or by proxy, or at any meeting of directors or of a committee of
directors, constitutes a waiver of notice of the meeting except when the person
attends the meeting for the express purpose of objecting, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened.
6.03 ACTION WITHOUT A MEETING. Any action required or permitted at any
meeting of shareholders or directors or committee of directors may be taken
without a meeting, without prior notice and without a vote, if all of the
shareholders or directors or committee members entitled to vote thereon consent
thereto in writing.
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ARTICLE VII
OFFICERS
7.01 NUMBER. The Board of Directors shall elect or appoint a President,
a Secretary and a Treasurer, and may select a Chairman of the Board, and one or
more Vice Presidents, Assistant Secretaries or Assistant Treasurers. Any two or
more of the above offices, except those of President and Vice President, may be
held by the same person. No officer shall execute, acknowledge or verify an
instrument in more than one capacity if the instrument is required by law, the
Articles of Incorporation or these Bylaws to be executed, acknowledged, or
verified by one or more officers.
7.02 TERM OF OFFICE, RESIGNATION AND REMOVAL. An officer shall hold
office for the term for which he is elected or appointed and until his successor
is elected or appointed and qualified, or until his resignation or removal. An
officer may resign by written notice to the corporation. The resignation is
effective upon its receipt by the corporation or at a subsequent time specified
in the notice of resignation. An officer may be removed by the Board with or
without cause. The removal of an officer shall be without prejudice to his
contract rights, if any. The election or appointment of an officer does not of
itself create contract rights.
7.03 VACANCIES. The Board of Directors may fill any vacancies in any
office occurring for whatever reason.
7.04 AUTHORITY. All officers, employees and agents of the corporation
shall have such authority and perform such duties in the conduct and management
of the business and affairs of the corporation as may be designated by the Board
of Directors and these Bylaws.
ARTICLE VIII
DUTIES OF OFFICERS
8.01 CHAIRMAN OF THE BOARD. The Chairman of the Board shall preside at
all meetings of the shareholders and of the Board of Directors at which the
Chairman is present. The Chairman shall see that all orders and resolutions of
the Board are carried into effect and the Chairman shall have the general powers
of supervision and management usually vested in the chief executive officer of a
corporation, including the authority to vote all securities of other
corporations and organizations held by the corporation.
8.02 VICE CHAIRMAN. The Vice Chairman, if such position is filled,
shall, in the absence or disability of the Chairman, perform the duties and
exercise the powers of the Chairman of the Board and shall perform such other
duties as the Board of Directors or the Chairman of the Board may from time to
time prescribe.
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8.03 PRESIDENT. The President shall have the general powers of
supervision and management over the day-to-day operations of the corporation.
The President shall see that all orders and resolutions of the Board are carried
into effect and shall be ex officio a member of all management committees. He
may execute any documents in the name of the corporation and shall have such
other powers and duties as may be prescribed by the Board.
8.04 VICE PRESIDENTS. The Vice Presidents, in order of their seniority,
shall, in the absence or disability of the President, perform the duties and
exercise the powers of the President and shall perform such other duties as the
Board of Directors or the President may from time to time prescribe.
8.05 SECRETARY. The Secretary shall attend all meetings of the Board of
Directors and of shareholders and shall record all votes and minutes of all
proceedings in a book to be kept for that purpose, shall give or cause to be
given notice of all meetings of the shareholders and of the Board of Directors,
and shall keep in safe custody the seal of the corporation and, when authorized
by the Board, affix the same to any instrument requiring it, and when so affixed
it shall be attested by the signature of the Secretary, or by the signature of
the Treasurer or an Assistant Secretary. The Secretary may delegate any of the
duties, powers and authorities of the Secretary to one or more Assistant
Secretaries, unless such delegation is disapproved by the Board.
8.06 TREASURER. The Treasurer shall have the custody of the corporate
funds and securities; shall keep full and accurate accounts of receipts and
disbursements in books of the corporation; and shall deposit all moneys and
other valuable effects in the name and to the credit of the corporation in such
depositories as may be designated by the Board of Directors. The Treasurer shall
render to the President and directors, whenever they may require it, an account
of his or her transactions as Treasurer and of the financial condition of the
corporation. The Treasurer may delegate any of his or her duties, powers and
authorities to one or more Assistant Treasurers unless such delegation is
disapproved by the Board of Directors.
8.07 ASSISTANT SECRETARIES AND TREASURERS. The Assistant Secretaries,
in order of their seniority, shall perform the duties and exercise the powers
and authorities of the Secretary in case of the Secretary's absence or
disability. The Assistant Treasurers, in the order of their seniority, shall
perform the duties and exercise the powers and authorities of the Treasurer in
case of the Treasurer's absence or disability. The Assistant Secretaries and
Assistant Treasurers shall also perform such duties as may be delegated to them
by the Secretary and Treasurer, respectively, and also such duties as the Board
of Directors may prescribe.
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ARTICLE IX
SPECIAL CORPORATE ACTS
9.01 ORDERS FOR PAYMENT OF MONEY. All checks, drafts, notes, bonds,
bills of exchange and orders for payment of money of the corporation shall be
signed by such officer or officers or such other person or persons as the Board
of Directors may from time to time designate.
9.02 CONTRACTS AND CONVEYANCES. The Board of Directors of the
corporation may in any instance designate the officer and/or agent who shall
have authority to execute any contract, conveyance, mortgage or other instrument
on behalf of the corporation, or may ratify or confirm any execution. When the
execution of any instrument has been authorized without specification of the
executing officers or agents, the Chairman of the Board, the President or any
Vice President, and the Secretary or Assistant Secretary or Treasurer or
Assistant Treasurer, may execute the same in the name and on behalf of this
corporation and may affix the corporate seal thereto.
ARTICLE X
BOOKS AND RECORDS
10.01 MAINTENANCE OF BOOKS AND RECORDS. The proper officers and agents
of the corporation shall keep and maintain such books, records and accounts of
the corporation's business and affairs, minutes of the proceedings of its
shareholders, Board and committees, if any, and such stock ledgers and lists of
shareholders, as the Board of Directors shall deem advisable, and as shall be
required by the laws of the State of Michigan and other states or jurisdictions
empowered to impose such requirements. Books, records and minutes may be kept
within or without the State of Michigan in a place which the Board shall
determine.
10.02 RELIANCE ON BOOKS AND RECORDS. In discharging his or her duties,
a director or an officer of the corporation is entitled to rely on information,
opinions, reports, or statements, including financial statements and other
financial data, if prepared or presented by any of the following: (a) one or
more directors, officers, or employees of the corporation, or of a business
organization under joint control or common control whom the director or officer
reasonably believes to be reliable and competent in the matters presented, (b)
legal counsel, public accountants, engineers, or other persons as to matters the
director or officer reasonably believes are within the person's professional or
expert competence, or (c) a committee of the Board of Directors of which he or
she is not a member if the director or officer reasonably believes the Committee
merits confidence. A director or officer is not entitled to rely on such
information if he or she has knowledge concerning the matter in question that
makes such reliance unwarranted.
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ARTICLE XI
INDEMNIFICATION
11.01 NON-DERIVATIVE ACTIONS. Subject to all of the other provisions of
this Article XI, the corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative and whether formal or informal (other than an action by or in the
right of the corporation), by reason of the fact that the person is or was a
director or officer of the corporation, or is or was serving at the request of
the corporation as a director, officer, partner, trustee, employee, or agent of
another foreign or domestic corporation, partnership, joint venture, trust or
other enterprise, whether for profit or not, against expenses (including
attorneys' fees), judgments, penalties, fines and amounts paid in settlement
actually and reasonably incurred by him or her in connection with such action,
suit or proceeding, if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
corporation or its shareholders, and with respect to any criminal action or
proceeding, if the person had no reasonable cause to believe his or her conduct
was unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which the person reasonably believed to be in
or not opposed to the best interests of the corporation or its shareholders,
and, with respect to any criminal action or proceeding, had reasonable cause to
believe that his or her conduct was unlawful.
11.02 DERIVATIVE ACTIONS. Subject to all of the provisions of this
Article XI, the corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its favor
by reason of the fact that the person is or was a director or officer of the
corporation, or is or was serving at the request of the corporation as a
director, officer, partner, trustee, employee, or agent of another foreign or
domestic corporation, partnership, joint venture, trust or other enterprise,
whether for profit or not, against expenses (including attorneys' fees) and
amounts paid in settlement incurred by the person in connection with such action
or suit if the person acted in good faith and in a manner the person reasonably
believed to be in or not opposed to the best interests of the corporation or its
shareholders. However, indemnification shall not be made for any claim, issue or
matter in which such person has been found liable to the corporation unless and
only to the extent that the court in which such action or suit was brought has
determined upon application that, despite the adjudication of liability but in
view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnification for the expenses which the court considers proper.
11.03 EXPENSES OF SUCCESSFUL DEFENSE. To the extent that a person has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Section 11.01 or 11.02 of these Bylaws, or in defense
of any claim, issue or matter in the action, suit or proceeding, the person
shall be indemnified against expenses (including attorneys' fees) incurred by
such person
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in connection with the action, suit or proceeding and any action, suit or
proceeding brought to enforce the mandatory indemnification provided by this
Section 11.03.
11.04 DEFINITIONS. For the purposes of Sections 11.01 and 11.02, "other
enterprises" shall include employee benefit plans; "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan;
"serving at the request of the corporation" shall include any service as a
director, officer, employee, or agent of the corporation which imposes duties
on, or involves services by, the director or officer with respect to an employee
benefit plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner the person reasonably believed to be in the interest of
the participants and beneficiaries of an employee benefit plan shall be
considered to have acted in a manner "not opposed to the best interests of the
corporation or its shareholders" as referred to in Sections 11.01 and 11.02.
11.05 CONTRACT RIGHT; LIMITATION ON INDEMNITY. The right to
indemnification conferred in this Article XI shall be a contract right, and
shall apply to services of a director or officer as an employee or agent of the
corporation as well as in such person's capacity as a director or officer.
Except as provided in Section 11.03 of these Bylaws, the corporation shall have
no obligations under this Article XI to indemnify any person in connection with
any proceeding, or part thereof, initiated by such person without authorization
by the Board of Directors.
11.06 DETERMINATION THAT INDEMNIFICATION IS PROPER. Any indemnification
under Section 11.01 or 11.02 of these Bylaws (unless ordered by a court) shall
be made by the corporation only as authorized in the specific case upon a
determination that indemnification of the person is proper in the circumstances
because the person has met the applicable standard of conduct set forth in
Section 11.01 or 11.02, whichever is applicable. Such determination shall be
made in any of the following ways:
(i) By a majority vote of a quorum of the Board consisting of
directors who were not parties to such action, suit or proceeding.
(ii) If the quorum described in clause (i) above is not
obtainable, then by a committee of directors who are not parties to the
action, suit or proceeding. The committee shall consist of not less
than two (2) disinterested directors.
(iii) By independent legal counsel in a written opinion. Legal
counsel for this purpose shall be chosen by the Board or its committee
prescribed in clauses (i) or (ii), or if a quorum of the Board cannot
be obtained under clause (i) and a committee cannot be designated under
clause (ii), by the Board.
(iv) By the shareholders. Shares held by directors or officers
who are parties or threatened to be made parties to the action, suit or
proceeding may not be voted.
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11.07 AUTHORIZATION OF PAYMENT OF INDEMNIFICATION. (1)The payment of
indemnification as conferred by this Article XI to a person entitled to such
indemnification shall be authorized in any of the following ways:
(a) By the Board in one of the following ways:
(i) If there are two (2) or more directors who are not parties
or threatened to be made parties to the action, suit, or proceeding, by
a majority vote of directors who are not parties or threatened to be
made parties, a majority of whom shall constitute a quorum for this
purpose.
(ii) By a majority of the members of a committee of two (2) or
more directors who are not parties or threatened to be made parties to
the action, suit, or proceeding.
(iii) If the corporation has one (1) or more independent
directors who are not parties or threatened to be made parties to the
action, suit, or proceeding, by a majority vote of all independent
directors who are not parties or are threatened to be made parties, a
majority of whom shall constitute a quorum for this purpose.
(iv) If there are no independent directors and less than two
(2) directors who are not parties or threatened to be made parties to
the action, suit, or proceeding, by the vote necessary for action by
the Board in accordance with section 5.07 of these Bylaws, in which
authorization all directors may participate.
(b) By the shareholders, but shares held by directors, officers,
employees, or agents who are parties or threatened to be made parties to the
action, suit, or proceeding may not be voted on the authorization.
(2) To the extent that the articles of incorporation include a
provision eliminating or limiting the liability of a director pursuant to the
Michigan Business Corporation Act (MBCA) 450.1209(1)(c), the corporation may
indemnify a director for the expenses and liabilities described below without a
determination that the director has met the standard of conduct set forth in
sections 11.01 and 11.02, but no indemnification may be made except to the
extent authorized in MBCA 450.1564c, if the director received a financial
benefit to which he or she was not entitled, intentionally inflicted harm on the
corporation or its shareholders, violated MBCA 450.1551, or intentionally
violated criminal law. In connection with an action or suit by or in the right
of the corporation, as described in section 11.02, indemnification under this
section 11.07(2)may be for expenses, including attorneys' fees, actually and
reasonably incurred. In connection with an action, suit or proceeding other than
one by or in the right of the corporation, as described in section 11.01,
indemnification under this section 11.07(2) may be for expenses, including
attorneys' fees, actually and reasonably incurred, and for judgments, penalties,
fines, and amounts paid in settlement actually and reasonably incurred.
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11.08 PROPORTIONATE INDEMNITY. If a person is entitled to
indemnification under Section 11.01 or 11.02 of these Bylaws for a portion of
expenses, including attorneys' fees, judgments, penalties, fines, and amounts
paid in settlement, but not for the total amount thereof, the corporation shall
indemnify the person for the portion of the expenses, judgments, penalties,
fines, or amounts paid in settlement for which the person is entitled to be
indemnified.
11.09 EXPENSE ADVANCE. Expenses incurred in defending a civil or
criminal action, suit or proceeding described in Section 11.01 or 11.02 of these
Bylaws shall be paid by the corporation in advance of the final disposition of
such action, suit or proceeding if the corporation receives from the person
requesting such advance the following: (i) a written affirmation of the person's
good faith belief that the person has met the applicable standard of conduct in
Section 11.01 or 11.02 and (ii) a written undertaking by or on behalf of the
person to repay the expenses if it is ultimately determined that the person is
not entitled to be indemnified by the corporation. The undertaking shall be an
unlimited general obligation of the person on whose behalf advances are made but
need not be secured. Determinations and evaluations under this section 11.09
shall be made as specified in section 11.06, and authorizations shall be made in
the manner specified in section 11.07. A provision in the articles of
incorporation, these bylaws, a resolution by the board or the shareholders, or
an agreement making indemnification mandatory shall also make advancement of
expenses mandatory unless the provision specifically provides otherwise.
11.10 NON-EXCLUSIVITY OF RIGHTS. The indemnification or advancement of
expenses provided under this Article XI is not exclusive of other rights to
which a person seeking indemnification or advancement of expenses may be
entitled under a contractual arrangement with the corporation. However, the
total amount of expenses advanced or indemnified from all sources combined shall
not exceed the amount of actual expenses incurred by the person seeking
indemnification or advancement of expenses.
11.11 INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION. The
corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification and to the advancement of expenses to
any employee or agent of the corporation to the fullest extent of the provisions
of this Article XI with respect to the indemnification and advancement of
expenses of directors and officers of the corporation.
11.12 FORMER DIRECTORS AND OFFICERS. The indemnification provided in
this Article XI continues as to a person who has ceased to be a director or
officer and shall inure to the benefit of the heirs, executors and
administrators of such person.
11.13 INSURANCE. The corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against the
person and incurred by him or her in any such capacity or arising out of his or
her
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status as such, whether or not the corporation would have power to indemnify
the person against such liability under these Bylaws or the laws of the State of
Michigan.
11.14 CHANGES IN MICHIGAN LAW. In the event of any change of the
Michigan statutory provisions applicable to the corporation relating to the
subject matter of this Article XI, then the indemnification to which any person
shall be entitled hereunder shall be determined by such changed provisions, but
only to the extent that any such change permits the corporation to provide
broader indemnification rights than such provisions permitted the corporation to
provide prior to any such change. Subject to Section 11.15, the Board of
Directors is authorized to amend these Bylaws to conform to any such changed
statutory provisions.
11.15 AMENDMENT OR REPEAL OF ARTICLE XI. No amendment or repeal of this
Article XI shall apply to or have any effect on any director or officer of the
corporation for or with respect to any acts or omissions of such director or
officer occurring prior to such amendment or repeal.
ARTICLE XII
AMENDMENTS
12.01 AMENDMENTS. Subject to Section 11.15, the Bylaws of the
corporation may be amended, altered or repealed, in whole or in part, by a
majority vote of the Board of Directors at any meeting duly held in accordance
with these Bylaws, provided that notice of the meeting includes notice of the
proposed amendment, alteration or repeal.
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EXHIBIT 10.1
THIRD AMENDMENT TO CREDIT AUTHORIZATION AGREEMENT
-------------------------------------------------
THIS THIRD AMENDMENT TO CREDIT AUTHORIZATION AGREEMENT, dated as of May
20, 1998 ( this "Amendment" ) by and between INTERFACE SYSTEMS, INC., a Delaware
Corporation, the ("Borrower" ), and NBD BANK, a Michigan banking corporation
(the "Bank" ).
RECITALS
--------
A. The Borrower and the Bank are parties to a Credit Authorization
Agreement dated as of August 31, 1997, as amended by a First
Amendment To Credit Authorization Agreement dated as of December
10, 1997 and a Letter Agreement dated March 11, 1998 (as amended
the "Agreement" ).
B. The Borrower has defaulted under the Agreement due to a breach of
the NET WORTH covenant in Section 9.3(H), for the period ended
March 31, 1998.
C. The Borrower has requested that the Bank waive such covenant
default, and the Bank is willing to do so strictly in accordance
with the terms hereof, and provided the Agreement is amended as
set forth herein, and the Borrower has agreed to such amendment.
AGREEMENT
---------
Based upon these recitals, the parties agree as follows:
1. Upon satisfaction of the conditions set forth in paragraph 4
hereof, the Agreement shall hereby be amended as of the effective
date hereof as follows:
A. Section 3.1 "Borrowing Base" definition shall be amended
to include the following subsection 3.1(C):
C. 100% of the Borrower's "refundable income taxes" as
recorded on its balance sheet as of the fiscal quarter
ended March 31, 1998. "Refundable income taxes" will cease
to be an addition to the Borrowing Base upon collection of
the amount recorded at March 31, 1998.
B. The definition of " Net Worth " in section 9.3(H) shall be
deleted in its entirety and the following shall be
inserted in place thereof:
Net Worth . Permit its Net Worth at any time to be less
than $7,300,000 and increasing by the sum of (A)
$7,300,000 plus (B) 75% of quarterly net income, without
reduction for any loss periods, for each fiscal quarter,
commencing with the quarterly period ending June 30,
1998.
C. Section 4.2 "Out-of-Pocket Expenses is amended to
include the addition of the following sentences:
"Furthermore, Borrower also acknowledges and agrees that it
shall be responsible to pay all fees, expenses, and
out-of-pocket disbursements incurred by NBD, including legal
fees and expenses, including, without limitation: (1) fees
incurred in connection with audits by NBD of
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the Borrower's facilities, books and records or the
collateral, which audits NBD may conduct as frequently as it
reasonably desires; (2) all fees and expenses of NBD and
counsel for NBD for the preparation, examination, approval,
negotiation, execution, and delivery of this Agreement; (3)
all fees and out-of-pocket disbursements incurred, in any way
arising from or in connection with any action taken by NBD to
monitor, advise, administer, enforce or collect any of the
obligations of the Borrower under the Agreement; and (4) all
costs, expenses, and fees incurred by NBD or its counsel in
connection with consultants, expert witnesses or other
professionals retained by NBD or its counsel , to assist,
advise, appraise, or give testimony with respect to any matter
relating to the collateral, the obligations, the Loan
Documents, or the business relationship between NBD, on the
one hand, and the Borrower, on the other hand. All of the
foregoing costs, expenses, reimbursement obligations , and
indemnification obligations are part of the borrowings and
other obligations and are secured by all of the Collateral.
2. From and after the effective date of this Amendment, references to
the "Agreement" in the Credit Authorization Agreement, the Note, the Security
Documents, and all other documents executed pursuant to the Credit Authorization
Agreement shall be deemed references to the Credit Authorization Agreement as
amended hereby.
3. The Borrower represents to the Bank that:
(a) (i) The execution, delivery and performance of this
amendment by the Borrower and all agreements and documents
delivered pursuant hereto by the Borrower have been duly
authorized by all necessary action and do not and will not
require any consent or approval of its shareholders,
violate any provision of any law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award
presently in effect having applicability to it or of its
articles of incorporation or by-laws; (ii) no
authorization, consent, approval, license, exemption of or
filing a registration with any court or governmental
department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or will be
necessary to the valid execution, delivery, or performance
by the Borrower of this amendment and all agreements and
documents delivered pursuant hereto and (iii) this
Amendment and all agreements and documents delivered
pursuant hereto by the Borrower are the legal, valid
binding obligations of the Borrower enforceable against it
in accordance with the terms thereof.
(b) After giving effect to the amendment contained herein and
effected pursuant hereto, the representations and
warranties contained in Section 10.0 of the Agreement are
true and correct on and as of the effective date hereof
with the same force and effect as if made on and as of
such effective date.
(c) Other than the Existing Default, as defined in and to be
waived pursuant to paragraph 5, no Events of Acceleration
(as defined in Section 11.0 of the Agreement) and no
default shall have occurred and be continuing or will
exist under the Agreement as of the effective date hereof.
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4. This Amendment shall not become effective until it shall be duly
executed by the Borrower and the Bank and the Borrower shall have
paid to the Bank an amendment fee of $10,000, which the Borrower
acknowledges has been earned by the Bank .
5. The Borrower acknowledges that an Event of Acceleration has
occurred because the Borrower has breached a covenant contained in
Section 9.3(H) of the Agreement for the period of the Borrower
ended March 31, 1998 ( the "Existing Default" ). The Borrower
acknowledges that the Bank has the ability to accelerate all
indebtedness and exercise all of its rights and remedies under the
Agreement. In consideration of the execution of this Amendment and
subject to the satisfaction of the condition required by Paragraph
4 hereof, the Bank agrees to waive the Existing Default, provided
that such waiver shall waive only the Existing Default and does
not waive any other Events of Acceleration, including without
limitation any future Events of Acceleration caused by any
violation of Section 9.3(H). This waiver shall not be deemed to be
a waiver, or a consent to any modification or amendment, of any
other term or condition of the Agreement or any term or condition
of any agreement, instrument, or document referred to therein or
executed pursuant thereto, or to prejudice any present or future
right or rights which the Bank now has or may have hereunder.
6. The terms used but not defined herein shall have the respective
meanings ascribed thereto in the Agreement. Except as expressly
contemplated hereby, the Agreement, and all related notes,
guaranties, certificates, instruments and other documents, are
hereby ratified and confirmed and shall remain in full force and
effect, and the Borrower acknowledges that it has no defense,
offset, or counterclaim thereunder.
7. This Amendment shall be governed by and in accordance with the
laws of the State of Michigan.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered as of the day and year first written
above.
NBD BANK INTERFACE SYSYEMS, INC.
By: /S/ Michael Kelly By: /S/ John Ternes
-------------------------- ---------------------------
Its: First Vice President Its: Chief Financial Officer
-------------------------- ---------------------------
14
<PAGE> 1
EXHIBIT 10.2
NON-QUALIFIED STOCK OPTION AGREEMENT
This Agreement is made as of January 15, 1998 by and between INTERFACE
SYSTEMS, INC., a Delaware corporation (the "Company"), and DAVID O. SCHUPP (the
"Optionee").
WHEREAS, the Optionee has entered into a Retirement Agreement with the
Company dated as of January 15, 1998; and
WHEREAS, the Company has agreed to grant the Optionee an option to
acquire 20,000 shares of the Company's Common Stock in consideration for the
Optionee's surrender to the Company of all of his existing options to acquire
Company Common Stock and his agreement to be bound by the terms and conditions
of the Retirement Agreement;
NOW, THEREFORE, it is agreed between the parties as follows:
1. Grant of Option. Subject to the terms and conditions hereof, the
Company hereby grants to the Optionee the right and option to purchase from the
Company up to 20,000 shares of the Company's common stock (the "Common Stock"),
at a price of $3.00 per share (the "Exercise Price").
2. Exercise of Option. During the period commencing on the date
hereof and ending on January 31, 2000, the Optionee shall have the right to
purchase, at the Exercise Price, up to 20,000 shares of Common Stock. The
Optionee shall exercise the option by delivering to the Company: (a) a written
notice in the form of Exhibit A attached hereto signed by the Optionee, (b)
payment of the total option price, which shall be the Exercise Price multiplied
by the number of shares to be purchased (the "Total Option Price"), in the form
of cash, certified check, bank draft, or money order in an amount equal to the
Total Option Price of the shares then to be purchased pursuant to this
Agreement, and (c) payment of applicable withholding taxes in connection with
the exercise or partial exercise of the option (the "Tax Payment"), in the form
of cash, certified check, bank draft, or money order. Notwithstanding the
foregoing, the Optionee shall also be able to pay the Total Option Price and the
Tax Payment by delivering irrevocable instructions to his broker to deliver to
the Company a sufficient amount of cash to pay such amounts in accordance with a
written agreement between the Company and the brokerage firm if, at the time of
exercise, the Company has entered into such an agreement (a "Cashless
Exercise"). Promptly following receipt and acceptance of the notice of exercise
and payment for the Total Option Price and the Tax Payment, the Company shall
issue the shares in the name of the Optionee and deliver the certificates
therefor to the Optionee. If the Optionee fails to pay for all or any part of
the number of shares specified in the written notice or fails to accept delivery
of same upon tender of delivery thereof, the Optionee's right to exercise his
option with respect to such undelivered shares may be terminated by the Company.
Anything to the contrary herein notwithstanding, the Company's
obligation to sell and deliver stock under this Agreement is subject to
compliance with federal and state laws, rules and regulations applying to the
authorization, issuance or sale of securities, and applicable stock exchange and
automated quotation system requirements as the Company deems necessary or
advisable. The Company shall not be required to sell and deliver stock pursuant
hereto unless and until it receives proof satisfactory to it that the issuance
or transfer of such shares will not violate any
<PAGE> 2
of the provisions of the Securities Act of 1933 or the Securities Exchange Act
of 1934 or the rules and regulations of the Securities and Exchange Commission
promulgated thereunder, or the rules and regulations of any stock exchange or
automated quotation system on which the Company's securities are traded or
quoted, or the provisions of any state law governing the sale of securities, or
that there has been compliance with the provisions of such acts, rules,
regulations and state laws.
3. Effect of Death. If the Optionee shall die while such option
remains exercisable, the executor or administrator of the estate of the
Optionee, or the person or persons to whom the option shall have been
transferred by will or by the laws of descent and distribution, shall have the
right, prior to the expiration of the option to exercise the option to the
extent that it was exercisable and unexercised on the date of death, subject to
any other limitation on exercise in effect at the date of exercise.
4. Investment Representation. The Company agrees to use all
reasonable efforts to register the shares of Common Stock acquired upon exercise
of this option on a Form S-8 registration statement. The Company will use its
best efforts to file such registration statement with the Securities and
Exchange Commission on or before March 1, 1998. The Optionee represents that,
unless a registration statement under the Securities Act of 1933 is in effect
with respect to the shares of Common Stock acquired upon exercise of this
option, all of such shares will be acquired solely for his own account, for
investment purposes and not with a view to any further sale or distribution
thereof. All certificates representing any option shares subject to the
provisions of this Agreement shall have endorsed thereon the following legends:
(a) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR TRANSFERRED UNLESS THE SAME
ARE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND
APPLICABLE STATE SECURITIES LAWS, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL
THAT REGISTRATION UNDER THE ACT AND SUCH LAWS IS NOT REQUIRED FOR SALE OR
TRANSFER."
(b) Any legend required to be placed thereon under any
applicable state or federal securities law or any other agreement to which the
Optionee and the Company may be a party.
5. Non-Assignability. Neither this option nor any part hereof may
be transferred by the Optionee other than by will or the laws of descent and
distribution. The option may be exercised during the Optionee's lifetime only by
the Optionee. Any transferee of this option shall take the option subject to the
terms and conditions hereof. No such transfer of this option shall be effective
to bind the Company unless the Company shall have been furnished with (i)
written notice thereof and (ii) a copy of the will and/or such other evidence as
the Company may deem necessary to establish the validity of the transfer and the
acceptance by the transferee or transferees of the terms and conditions of this
Agreement. No assignment or transfer of this Agreement, or of the right
represented thereby, whether voluntary or involuntary, by operation of law or
otherwise, except a transfer by the Optionee by will or by the laws of descent
and distribution, shall vest in the purported assignee or transferee any
interest or right whatsoever.
6. Disputes. As a condition of the granting of the option granted
hereby, the Optionee and the Optionee's successors and assigns agree that any
dispute or disagreement which shall arise
2
<PAGE> 3
under or as a result of this Agreement shall be determined by the Board of
Directors of the Company in its sole discretion and judgment and that any such
determination and any interpretation by the Board of Directors of the Company of
the terms of this Agreement shall be final and shall be binding and conclusive
for all purposes.
7. Adjustments. In the event that any dividend or other
distribution (whether in the form of cash, Common Stock, other securities, or
other property), recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Common Stock or other securities of the Company,
issuance of warrants or other rights to purchase Common Stock or other
securities of the Company, or other similar corporate transaction or event
affects the Common Stock such that an adjustment is determined by the Board of
Directors to be appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Plan,
then the Board of Directors shall, in such manner as it may deem equitable,
adjust any or all of (a) the number and type of shares of Common Stock or other
securities which thereafter may be made the subject of options, (b) the number
and type of shares of Common Stock or other securities subject to outstanding
options, and (c) the exercise price with respect to any option, or, if deemed
appropriate, make provision for a cash payment to the holder of an outstanding
option; provided, however, that the number of shares of Common Stock subject to
any option shall always be a whole number.
8. Rights as Shareholder. The Optionee shall have no rights as a
shareholder of the Company with respect to any of the shares of Common Stock
covered by this Agreement until a stock certificate or stock certificates are
issued upon the proper exercise of this option, in full or in part, and then the
Optionee shall have shareholder rights only with respect to the shares
represented by such certificate or certificates. No adjustment shall be made for
dividends or other rights with respect to such shares for which the record date
is prior to the date such certificate or certificates are issued.
9. Notices. Every notice relating to this Agreement shall be in
writing and if given by mail shall be given by registered or certified mail with
return receipt requested. All notices to the Company shall be delivered to the
President personally or addressed to the President of the Company at its
principal office at 5855 Interface Drive, Ann Arbor, Michigan 48103. All notices
by the Company to the Optionee shall be delivered to the Optionee personally or
addressed to the Optionee at the Optionee's last residence address as then
contained in the records of the Company or such other address as the Optionee
may in writing designate. Either party may by written notice to the other party
designate a different address to which notices shall be addressed. Any notice
given by the Company to the Optionee at the Optionee's last designated address
shall be effective to bind any other person who shall acquire rights hereunder.
10. "Optionee" to Include Certain Transferees. Whenever the word
"Optionee" is used in any provision of this Agreement under circumstances where
the provision should logically apply to any other person or persons to whom this
Agreement, in accordance with the provision of Section 6 hereof, may be
transferred, the word "Optionee" shall be deemed to include such person or
persons.
11. Governing Law. This Agreement has been made in Michigan and
shall be construed in accordance with the laws of the State of Michigan.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
INTERFACE SYSTEMS, INC.
/s/ Robert A. Nero
--------------------------------------
By: Robert A. Nero
Its: President and
Chief Executive Officer
/s/ David O. Schupp
------------------------------------------
OPTIONEE,
David O. Schupp
4
<PAGE> 5
EXHIBIT A
NOTICE OF EXERCISE OF NON-QUALIFIED STOCK OPTION
President
Interface Systems, Inc.
5855 Interface Drive
Ann Arbor, Michigan 48103
An Option was granted to me on _______, 1998 to purchase 20,000 shares
of Interface Systems, Inc. Common Stock at a price of $3.00 per share (the
"Option").
Check one:
_____ I hereby elect to exercise the Option with respect to shares. A
certified check (or cash, money order, or bank draft) is enclosed in the amount
of the sum of the Total Option Price and the Tax Payment.
_____ I hereby elect to exercise the Option with respect to shares. I
have delivered irrevocable instructions to my broker to deliver to the Company
a sufficient amount of cash to pay the Total Option Price and the Tax Payment
in accordance with a written agreement between the Company and
________________________ dated ____________.
(name of brokerage firm)
I hereby represent that the shares of Common Stock that I am purchasing
upon this exercise of my option are being purchased for investment purposes and
not with a view to resale. This representation shall not be binding upon me if
the shares of Common Stock that I am purchasing are subject to an effective
registration statement under the Securities Act of 1933.
________________________
OPTIONEE,
David O. Schupp
Dated:____________
5
<PAGE> 1
EXHIBIT 10.3
INTERFACE SYSTEMS, INC.
1993 STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
(AS AMENDED AND RESTATED ON AUGUST 8, 1997)
1. CERTAIN DEFINITIONS.
The "Board" is the Board of Directors of the Company.
The "Code" is the Internal Revenue Code of 1986, as amended.
The "Common Stock" is the common stock, $.10 par value per share, of
the Company.
The "Company" is Interface Systems, Inc., a Delaware corporation.
"Disabled" or "Disability" means permanently disabled as defined in
Section 22(e)(3) of the Code.
"Employee" means an individual with an "employment relationship" with
the Company, or any Parent or Subsidiary, as defined in Regulation 1.421-7(h)
promulgated under the Code, and shall include, without limitation, employees who
are directors of the Company, or any Parent or Subsidiary.
"Employment" means the state of being an Employee.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" shall mean the last sale price on the Nasdaq Stock
Market National Market, as reported in the Wall Street Journal, for the last
preceding day on which the Common Stock was traded prior to the date with
respect to which the fair market value is to be determined, as determined by the
Board of Directors in accordance herewith.
A "Nonqualified Stock Option" is an option granted under the Plan other
than an Incentive Stock Option, intended to meet the requirements of Section 422
of the Code.
The "Plan" is the 1993 Stock Option Plan for Non-Employee Directors.
2. PURPOSE.
<PAGE> 2
The purpose of the Plan is to promote the best interests of the Company
and its shareholders by attracting and retaining the best available personnel to
serve as directors of the Company, to provide the non-employee directors with
additional incentive to direct the Company's future affairs in the long-term
benefit of the Company and its shareholders and to encourage continued service
on the Board.
3. ADMINISTRATION.
The Board of Directors shall interpret the Plan as it deems necessary
or advisable for administration of the Plan. The decision of the Board on any
matter on which it may make a determination under the immediately preceding
sentence shall be final and binding on all participants.
4. PARTICIPANTS.
Participants in the Plan shall be directors of the Company who are not
Employees and who are members of the Board on the date an option is granted
under the Plan.
5. STOCK.
The stock subject to options under the Plan shall be the Common Stock.
The total amount of Common Stock on which options may be granted under the Plan
shall not exceed 175,000 shares, subject to adjustment in accordance with
Section 11. Shares subject to any unexercised portion of a terminated, canceled,
forfeited or expired option granted under the Plan may again be available for
subsequent option grants under the Plan.
6. AWARD OF OPTIONS.
(a) Automatic Grants.
On the later of the effective date of the Plan or the date on
which a participant first becomes a member of the Board, each
participant shall, automatically and without discretion, be granted an
initial option to purchase 6,000 shares of Common Stock (a
"Pre-Amendment Option") with an exercise price equal to the Fair Market
Value per share of Common Stock on the date of grant. Effective January
11, 1996, on the later of the effective date of the Plan or the date on
which a participant becomes a member of the Board, each participant
shall automatically and without discretion be granted an initial option
to purchase 5,100 shares of Common Stock (an "Initial Option") with an
exercise price equal to the Fair Market Value per share of Common Stock
on the day of grant. Subsequent thereto, (a) on January 11, 1996, and
every third January 11 thereafter, until the termination of the Plan,
every participant who is a member of the Board of Directors on January
11, 1996, shall automatically and without discretion be granted an
option to purchase 5,100 shares of Common Stock (a "Subsequent Option")
with an exercise price equal to the Fair Market
2
<PAGE> 3
Value per share of Common Stock on the date of grant, and (b) on the
third anniversay of the date a person became a member of the Board of
Directors and, thereafter, on the third anniversary of the date of
grant of the prior Subsequent Option until the termination of the Plan,
every participant who becomes a member of the Board of Directors after
January 11, 1996, shall automatically and without discretion be granted
a Subsequent Option to purchase 5,100 shares of Common Stock with an
exercise price equal to the Fair Market Value per share of Common Stock
on the date of the grant. Pre-Amendment, Initial and Subsequent Options
may be exercised in installments as follows: (i) Beginning on the date
after the first anniversary date of grant, an option may be exercised
up to 1/3 of the shares subject to the option; (ii) After the
expiration of each succeeding anniversary date of the grant, the option
may be exercised up to an additional 1/3 of the shares subject to
option, so that after the expiration of the third anniversary the
option shall be exercisable in full; (iii) To the extent no exercised,
installments shall be cumulative and may be exercised in whole or in
part.
(b) Discretionary Grants.
Subject to the limitations set forth in the Plan, the Board of
Directors from time to time may grant options to such participants and
for such number of shares of Common Stock and upon such other terms
(including, without limitation, the exercise price and the times at
which the option may be exercised) as it shall designate (a
"Discretionary Option"). The exercise price per share for Discretionary
Options shall not be less than the Fair Market Value per share of the
Common Stock on the date of grant and the expiration date shall be no
later than the tenth anniversary of the date of grant.
(c) General.
References herein to Options shall mean Pre-Amendment,
Initial, Subsequent and Discretionary Options, unless otherwise
provided. Options granted pursuant to this Plan shall be Nonqualified
Stock Options. Each option granted under the Plan shall meet all the
terms and conditions of the Plan.
7. PAYMENT FOR SHARES.
The purchase price for shares of Common Stock to be acquired upon
exercise of an option granted hereunder shall be paid in full, at the time of
exercise, in cash, by certified check, bank draft or money order or by tendering
to the Company shares of Common Stock then owned by the participant, duly
endorsed for transfer or with duly executed stock power attached, which shares
shall be valued at their Fair Market Value as of the date of such exercise and
payment. Notwithstanding the foregoing, the option exercise price may be paid by
delivery to the Company of a properly executed exercise notice, acceptable to
the Company, together with irrevocable instructions to the participant's broker
to deliver to the Company a sufficient amount of cash to pay the exercise price,
in accordance with a written agreement, if any, between the Company and the
brokerage firm ("Cashless Exercise").
3
<PAGE> 4
8. NON-ASSIGNABILITY.
No option shall be transferable by a participant except by will or the
laws of descent and distribution or pursuant to a qualified domestic relations
order as defined by the Code or Title I of the Employee Retirement Income
Security Act, or the rules thereunder. During the lifetime of a participant, an
option shall be exercised only by the optionee. No transfer of an option shall
be effective to bind the Company unless the Company shall have been furnished
with written notice thereof and such evidence as the Company may deem necessary
to establish the validity of the transfer and the acceptance by the transferee
of the terms and conditions of the option.
9. TERMINATION OF DIRECTORSHIP.
(a) If, prior to the date that an option shall first become
exercisable, the participant shall cease to be a director of the Company, with
or without cause, or due to the act, death, Disability, or retirement of the
participant, the participant's right to exercise the option shall terminate and
all rights thereunder shall cease. (b) If, on or after the date that an option
shall first become exercisable, a participant shall cease to be a director of
the Company for any reason other than death or Disability, the participant shall
have the right, prior to the earlier of (i) the expiration of the option or (ii)
the day which is three months after the date on which the Participant ceased to
be a director of the Company, to exercise the option to the extent that it was
exercisable and is unexercised on the date the participant ceased to be a
director of the Company, subject to any other limitation on the exercise of the
option in effect at the date of exercise. (c) If, on or after the date that an
option shall have become exercisable, the participant shall die or become
Disabled which a director of the company or while such option remains
exercisable, the participant or the executor or administrator of the estate of
the participant (as the case may be), or the person or persons to whom the
option shall have been transferred by will or by the laws of descent and
distribution, shall have the right, prior to the earlier of (i) the expiration
of the option or (ii) the day which is one year after the date of the
participant's death or Disability to exercise the option to the extent that it
was exercisable and unexercised on the date of death, subject to any other
limitation on exercise in effect at the date of exercise.
10. ADJUSTMENTS.
In the event that any dividend or other distribution (whether in the
form of cash, Common Stock, other securities, or other property),
recapitalization, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase, or exchange of
Common Stock, or other securities of the Company, issuance of warrants or other
rights to purchase Common Stock or other securities of the Company, or other
similar corporate transaction or event affects the common Stock such that an
adjustment is determined by the Board of Directors to be appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan, then the Board of Directors shall, in such
manner as it may deem equitable, adjust any or all of (a) the number and type of
shares of Common Stock or other securities which thereafter may be made the
subject of options, (b) the number and type of shares
4
<PAGE> 5
of Common Stock or other securities subject to outstanding options, and (c) the
exercise price with respect to any option, or, if deemed appropriate, make
provision for a cash payment to the holder of an outstanding option; provided,
however, that the number of shares of Common Stock subject to any option shall
always be a whole number.
11. RIGHTS PRIOR TO ISSUANCE OF SHARES.
No participant shall have any rights as a shareholder with respect to
any shares covered by an option until the issuance of a stock certificate to the
participant for such shares. No adjustment shall be made for dividends or other
rights with respect to such shares for which the record date is prior to the
date such certificate is issued.
12. TERMINATION AND AMENDMENT.
The Board may terminate the Plan, or the granting of options under the
Plan, at any time. No Option shall be granted under the Plan ten years after
adoption of the Plan by the Board or approval of the Plan by the Company's
shareholders, whichever is earlier. Termination of the Plan shall not affect the
rights of the holders of any options previously granted.
The Board may amend or modify the Plan at any time and from time to
time. No amendment, modification, or termination of the Plan shall in any manner
affect any option granted under the Plan without the consent of the participant
holding the option.
13. APPROVAL OF PLAN.
The Plan shall be subject to the approval of the holders of at least a
majority of the shares of Common Stock of the Company present and entitled to
vote at a meeting of shareholders of the Company. No option granted under the
Plan may be exercised in whole or in part until the Plan has been approved by
the shareholders as provided herein. If not approved by shareholders the Plan,
any options granted hereunder shall become void and of no effect.
APPROVED BY BOARD OF DIRECTORS: MARCH 26, 1993
APPROVED BY SHAREHOLDERS: MARCH 25, 1994
AMENDED: JANUARY 11, 1996
APRIL 17, 1997
AMENDED AND RESTATED: AUGUST 8, 1997
APPROVED BY SHAREHOLDERS: FEBRUARY 20, 1998
5
<PAGE> 1
EXHIBIT 10.4
INTERFACE SYSTEMS, INC.
EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. The purpose of the Interface Systems, Inc. Employee
Stock Purchase Plan (the "Plan") is to promote the best interests of Interface
Systems, Inc. (the "Company") and its stockholders by encouraging employees of
the Company to acquire a proprietary interest in the Company, thus identifying
their interests with those of stockholders and encouraging the employees to make
even greater efforts on behalf of the Company. The Plan is intended to
constitute an "employee stock purchase plan" under Section 423 of the Internal
Revenue Code of 1986, as amended (the "Code").
2. Certain Definitions. As used in this Plan, the term "employee"
means an individual with an "employment relationship" with the Company as
defined in Regulation 1.421-7(h) of the Income Tax Regulations; the term
"employment" means employment with the Company, the term "Purchase Period" means
a six month offering period commencing each June 1 and December 1; and the term
"compensation" means cash compensation, not including overtime and bonuses.
3. Stock. The stock subject to option and purchase under the Plan
shall be the Common Stock of the Company (the "Common Stock") and may be either
authorized and unissued shares or shares that have been reacquired by the
Company. The total amount of Common Stock on which options may be granted under
the Plan shall not exceed 225,000 shares, subject to adjustment in accordance
with Section 12. Shares of Common Stock subject to any unexercised portion of a
terminated, canceled or expired option granted under the Plan may again be used
for option grants under the Plan.
4. Administration. The Plan shall be administered by the
Compensation Committee (the "Committee") of the Board of Directors ("Board"),
comprised of nonemployee members of the Board, as defined in Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended ("Exchange
Act"). The Committee may prescribe rules and regulations from time to time for
the administration of the Plan and may decide questions which may arise with
respect to its interpretation or application. The decisions of the Committee in
interpreting the Plan shall be final, conclusive and binding on all persons,
including the Company, its employees and optionees. In the event of insufficient
shares during a Purchase Period, the Committee shall allocate shares
proportionately on the basis of compensation.
5. Participants. (a) Except as provided in Section 6, below, any
employee who is employed by the Company on the first day of a Purchase Period is
eligible to participate in the Plan in accordance with its terms.
<PAGE> 2
6. Ownership and Purchase Limitations. Notwithstanding anything
herein to the contrary, no employee shall be entitled to participate in an
offering under the Plan if such employee, immediately after a grant under this
Plan, would, in the aggregate, own or hold options to purchase shares of Common
Stock equal to or exceeding five percent (5%) or more of the total combined
voting power or value of all classes of stock of the Company or of its
subsidiary corporations. For the foregoing purposes, the rules of Section 424(d)
of the Code shall apply in determining stock ownership. With respect to
individual employees, Section 424(d) provides that an employee shall be
considered as owning the stock owned directly or indirectly, by or for his
brothers and sisters (whether by the whole or half blood), spouse, ancestors,
and lineal descendants. No employee shall be granted an option under the Plan
which, together with options granted under all employee stock purchase plans
(qualified under Section 423 of the Code) of the Company and its subsidiaries
permits the employee to accrue option rights to purchase shares in any calendar
year in excess of $25,000 of fair market value of such shares (determined at the
time the option is granted). For purposes of this Plan, the "grant date" shall
be the first day of each Purchase Period, as defined in Section 9(b), below. The
Company's non-employee directors are not eligible to participate in the Plan.
7. Option Price. The option price of the shares shall be the lower
of 85% the fair market value of the Common Stock on first day of the Purchase
Period or 85% of the fair market value of the Common Stock on the last day of
the Purchase Period. For purposes of this paragraph, the fair market value as of
any date and in respect of any share of Common Stock shall be the last sale
price of the Common Stock on The Nasdaq Stock Market, National Market (the
"National Market"), on the date of determination or, if no such reported sale of
the Stock shall have occurred on such date on the National Market, on the
preceding date on which there was such a reported sale on such National Market.
8. Payment for Option Shares.
(a) Shares Under Option. An eligible employee may elect to
participate in an offering by filing with the Human Resources Department a
payroll deduction form within the election period designated by the Company
prior to each Purchase Period (the "Election Period"). An eligible employee's
election to participate and payroll deduction form from the preceding Election
Period automatically shall carry over to the next Election Period unless
affirmatively revoked by the employee. An employee who elects to participate may
not authorize payroll deductions which, in the aggregate, are less than one
percent (1%) of the employee's cash compensation during the Purchase Period (not
including overtime and bonus payments) or are more than 15% of the employee's
cash compensation during the Purchase Period (not including overtime and bonus
payments). Only whole shares of' Common Stock may be purchased under the Plan.
(b) A participating employee must authorize payroll
deductions over a six month Period beginning on June 1 or December 1 (the
"Purchase Period"). Purchase Periods automatically shall run successively unless
designated otherwise by the Company. An employee may suspend payroll deductions
during a Purchase Period at any time upon written notice to the Human Resources
2
<PAGE> 3
Department which shall become effective no later than the next payroll period
following the suspension; provided, however, that payroll deductions made prior
to the suspension shall still be used to purchase Common Stock for the employee
at the end of the Purchase Period. Upon suspension of such deductions, no
further deductions will be made during the Purchase Period or any future
Purchase Periods unless the employee submits the appropriate form to the Human
Resources Department electing to again participate in the Plan.
(c) Payroll deductions shall commence on the first payroll
date in the Purchase Period and shall continue until the last payroll date in
the Purchase Period; provided, however, that unless an election is revoked, such
election shall continue into successive six month Purchase Periods.
(d) A participating employee's option shall be deemed to
have been exercised on the last business day of the Purchase Period.
(e) The Company retains the right to designate an exclusive
broker to handle the Common Stock transactions under the Plan. As soon as
practicable after the end of the Purchase Period, the Company shall deliver to
each employee or a designated brokerage account, through a certificate or
electronic transfer, the shares of Common Stock that such employee has
purchased. Any amount that has been deducted and withheld in excess of the
option price automatically shall be applied toward the purchase of option shares
in the next Purchase Period. An employee who elects not to participate in the
following Purchase Period shall receive a check from the Company for any amount
that has been deducted and withheld in excess of the cost of shares.
9. Interest. No interest shall accrue or be paid on any amounts
paid by payroll deduction by any participating employee.
10. Termination of Employment, Unpaid Leave of Absence or Layoff. If
a participating employee ceases to be employed by the Company for any reason
(with or without severance pay), including but not limited to, voluntary or
forced resignation, retirement, death, layoff, or if an employee is on an unpaid
leave of absence, or during any period of severance, within a reasonable time
after notice of the termination or unpaid leave of absence, the Company shall
issue a check to the former employee (or executor, administrator or legal
representative, if applicable) in the aggregate amount of the employee's payroll
deductions that had not yet been applied towards the purchase of shares as of
the employee's date of separation.
11. Non-Assignability. No option shall be transferable by an
employee, and an option shall be exercised only by an employee. Upon the death
of a participating employee, his or her executor, administrator or other legal
representative shall receive a check from the Company representing the aggregate
amount of the deceased employee's payroll deductions that had not yet been
applied towards the purchase of option shares as of the date of death.
3
<PAGE> 4
12. Adjustments. The total amount of Common Stock for which options
may be granted under the Plan, and the number of shares subject to any option
granted to a participant (both as to the number of shares of Common Stock and
the option price), shall be appropriately adjusted for any increase or decrease
in the number of outstanding shares of Common Stock resulting from payment of a
stock dividend on Common Stock, a subdivision or combination of shares of Common
Stock, or a reclassification of Common Stock, and, pursuant to the paragraph
below, in the event of a merger in which the Company shall be the surviving
corporation.
After any merger of one or more corporations into the Company, or after
any consolidation of the Company and one or more corporations in which the
Company shall be the surviving corporation, each participant shall, at no
additional cost, be entitled upon the exercise of an option, to receive (subject
to any required action by stockholders), in lieu of the number of shares to
which such option shall then be exercised, the number and class of shares of
stock or other securities to which such participant would have been entitled to
receive pursuant to the terms of the agreement of merger or consolidation if at
the time of such merger or consolidation such participant had been a holder of
record of a number of shares of Common Stock equal to the number of shares to
which such option shall then be so exercised. Comparable rights shall accrue to
each participant in the event of successive mergers or consolidations of the
character described above.
Anything contained herein to the contrary, upon the dissolution or
liquidation of the Company or upon any merger or consolidation in which the
Company is not the surviving corporation, the Purchase Period for any option
granted under this Plan shall terminate as of the date of the aforementioned
event, but each participant who is then an employee of the Company or a
subsidiary shall have the right, immediately prior to such dissolution,
liquidation, merger or consolidation, to exercise his option for such Purchase
Period in full on the earlier of the date of the merger or liquidation or the
last day of the Purchase Period.
The foregoing adjustments and the manner of application of the
foregoing provisions shall be determined by the Committee in its sole
discretion. Any such adjustment may provide for the elimination of any
fractional share which might otherwise become subject to an option.
13. Termination and Amendment. The Board may terminate the Plan, or
the granting of options under the Plan, at any time. No option shall be granted
under the Plan after October 30, 2007.
The Board may amend or modify the Plan at any time and from time to
time, but no amendment or modification shall disqualify the Plan under Section
423 of the Code.
No amendment, modification, or termination of the Plan shall in any
manner affect any option granted under the Plan without the consent of the
participant holding the option.
14. Rule 16b-3 Requirements. Notwithstanding any other provision of
the Plan, the Committee may impose such conditions on the exercise of an option
as may be required to satisfy
4
<PAGE> 5
the requirements of Rule 16b-3 of the Exchange Act, as amended from time to time
(or any successor rule).
15. Rights Prior to Delivery of Shares. No participant shall have
any rights as a stockholder with respect to shares covered by an option until
the issuance of a stock certificate or electronic transfer to the employee or
his brokerage account of such shares. No adjustment shall be made for dividends
or other rights with respect to such shares for which the record date is prior
to the date the certificate is issued or the shares electronically delivered to
a brokerage account.
16. Securities Laws. Anything to the contrary herein
notwithstanding, the Company's obligation to sell and deliver stock pursuant to
the exercise of an option is subject to such compliance with federal and state
laws, rules and regulations applying to the authorization, issuance or sale of
securities as the Company deems necessary or advisable. The Company shall not be
required to sell and deliver stock unless and until it receives satisfactory
assurance that the issuance or transfer of such shares will not violate any of
the provisions of the Securities Act of 1933 or the Exchange Act, or the rules
and regulations of the Securities Exchange Commission promulgated thereunder or
those of any stock exchange on which the stock may be listed, the provisions of
any state laws governing the sale of securities, or that there has been
compliance with the provisions of such acts, rules, regulations and laws.
The Committee may impose such restrictions on any shares of Common
Stock acquired pursuant to the exercise of an option under the Plan as it may
deem advisable, including, without limitation, restrictions (a) under applicable
federal securities laws, (b) under the requirements of any stock exchange or
other recognized trading market upon which such shares of Common Stock are then
listed or traded, and (c) under any blue sky or state securities laws applicable
to such shares. No shares shall be issued until counsel for the Company has
determined that the Company has complied with all requirements under appropriate
securities laws.
17. Approval of Plan. The Plan shall be subject to the approval of
at least a majority of the votes cast by the holders of the Company's Common
Stock entitled to vote at a meeting of stockholders of the Company held within
12 months after the October 31, 1997 adoption of the Plan by the Board. If not
approved by stockholders within such 12-month period, the Plan and any options
granted hereunder shall become void and of no effect, and the participating
employees shall receive a check from the Company for all payroll deductions
relating to the Plan.
18. Effect on Employment. Neither the adoption of the Plan nor the
granting of an option pursuant to it shall be deemed to create any right in any
employee to be retained or continued in the employment of the Company.
19. Use of Proceeds. The proceeds received from the sale of shares
of Common Stock pursuant to the Plan shall be used for corporate purposes by the
Company.
5
<PAGE> 6
THIS EMPLOYEE STOCK PURCHASE PLAN is hereby executed on this the 21st
day of November, 1997.
INTERFACE SYSTEMS, INC.
By:/s/ Robert A. Nero
------------------------------------
Robert A. Nero
President
BOARD OF DIRECTORS APPROVAL: October 31, 1997
STOCKHOLDER APPROVAL: March 20, 1998
6
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<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1998
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