<PAGE>
UNITED STATES
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, 2000 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period from ______to______
Commission file number: 0-20758
HA-LO INDUSTRIES, INC.
----------------------
(Exact name of registrant as specified in its charter)
Illinois 36-3573412
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
5980 TOUHY AVENUE, NILES, ILLINOIS 60714
----------------------------------------
(Address of principal executive offices, Zip Code)
Registrant's telephone number, including area code: (847)647-2300
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. Yes[X] No[ ].
As of May 12, 2000, the registrant had an aggregate of 63,729,674 shares of its
common stock outstanding.
<PAGE>
HA-LO INDUSTRIES, INC.
INDEX
Part I. FINANCIAL INFORMATION Page
Number
------
Item 1. Financial Statements
Consolidated Balance Sheets as of
March 31, 2000 and December 31, 1999...................... 2
Consolidated Statements of Operations for the three months
ended March 31, 2000 and 1999............................. 3
Consolidated Statements of Cash Flows for the three months
ended March 31, 2000 and 1999............................. 4
Notes to Financial Statements............................. 5
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations......................... 9
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote
of Security Holders.............................. 12
Item 6. Exhibits and Reports on Form 8-K................. 12
Signatures............................................................ 13
1
<PAGE>
PART 1. FINANCIAL INFORMATION
HA-LO INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
(in thousands, except share amounts) 2000 1999
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 17,672 $ 10,729
Receivables 148,887 178,712
Inventories 40,824 37,746
Prepaid expenses & deposits 15,973 17,406
--------- ---------
Total current assets 223,356 244,593
--------- ---------
PROPERTY AND EQUIPMENT, net 39,228 37,003
--------- ---------
OTHER ASSETS:
Intangible assets, net 76,342 77,111
Other 36,738 21,596
--------- ---------
Total other assets 98,080 98,707
--------- ---------
$ 375,664 $ 380,303
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 799 $ 984
Book overdraft 4,562 3,177
Customer deposits 5,712 6,975
Accounts payable 58,094 58,729
Accrued expenses 19,435 31,590
Reserve for restructuring 3,041 3,771
--------- ---------
Total current liabilities 91,643 105,226
--------- ---------
LONG-TERM DEBT 33,500 21,230
RESERVE FOR RESTRUCTURING 11,863 11,863
DEFERRED LIABILITIES 5,540 5,438
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, no par value; 10,000,000
shares authorized and none issued -- --
Common stock, no par value; 100,000,000
shares authorized and 48,867,205 issued
and outstanding in 2000 and 48,515,862 in 1999 215,123 214,060
Other (1,356) (1,488)
Accumulated other comprehensive loss (2,269) (2,259)
Retained earnings 21,620 26,233
--------- ---------
Total shareholders' equity 233,118 236,546
--------- ---------
$ 375,664 $ 380,303
========= =========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
2
<PAGE>
HA-LO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS ENDED
MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------
March 31, March 31,
(in thousands, except per share amounts) 2000 1999
----------- ----------
<S> <C> <C>
NET SALES:
Products $ 120,946 $ 119,503
Services 40,252 37,464
--------- ---------
Net Sales 161,198 156,967
COST OF SALES:
Products 82,370 77,627
Services 27,915 24,621
--------- ---------
Cost of Sales 110,285 102,248
Gross profit 50,913 54,719
SELLING EXPENSES 23,730 20,697
GENERAL AND ADMINISTRATIVE EXPENSES 34,211 27,310
--------- ---------
Income from operations (7,028) 6,712
INTEREST EXPENSE (892) (1,092)
INTEREST INCOME 232 1,379
--------- ---------
Income (loss) before taxes (7,688) 6,999
PROVISION (BENEFIT) FOR TAXES (3,075) 2,800
--------- ---------
NET INCOME (LOSS) FOR THE PERIOD $ (4,613) $ 4,199
========= =========
EARNINGS PER SHARE:
Basic $ (0.09) $ 0.09
Diluted $ (0.09) $ 0.09
========= =========
WEIGHTED AVERAGE SHARES
OUTSTANDING:
Basic 48,867 48,457
Diluted 48,867 49,171
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
HA-LO INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, March 31,
(in thousands) 2000 1999
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income for the period $ (4,613) $ 4,199
Adjustments to reconcile net income to net
cash used for operating activities-
Depreciation and amortization 4,076 2,887
Increase in cash surrender value (128) 170
Increase (decrease) in deferred liabilities - other (5) 148
Changes in assets and liabilities, net of effects
of acquired companies -
Receivables 29,825 12,518
Inventories (3,078) (285)
Prepaid expenses and deposits 1,425 (2,029)
Accounts payable, accrued expenses and
due to related parties (13,845) (18,447)
-------- --------
Net cash provided (used) by operating activities 13,657 (839)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (3,660) (4,854)
Decrease (increase) in short-term investments -- 36,906
Decrease (increase) in other assets (117) (1,199)
Cash paid for acquisitions, net of cash acquired (1,522) (26,259)
-------- --------
Net cash provided (used) for investing activities (5,299) 4,594
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) on long-term debt (32) (1,768)
Net borrowings (payments) under line of credit 12,117 112
Advances to related party (15,000) --
Increase (decrease) in book overdraft 1,385 2,884
Net proceeds from issuance of common stock 125 2,685
-------- --------
Net cash provided by financing activities (1,405) 3,913
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS (10) (2,438)
-------- --------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 6,943 5,230
CASH AND EQUIVALENTS, beginning of period 10,729 7,276
-------- --------
CASH AND EQUIVALENTS, end of period $ 17,672 $ 12,506
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
HA-LO INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 1. BASIS OF PRESENTATION:
The accompanying financial statements have been prepared by the Company, without
audit, in accordance with generally accepted accounting principles for interim
financial information and in conjunction with the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring matters) considered necessary for a fair
presentation have been included.
The results of operations for the three month period ended March 31, 2000 are
not necessarily indicative of the results that may be expected for the full
year. These financial statements should be read in conjunction with the
Company's financial statements and related notes in the Company's 1999 Annual
Report on Form 10-K.
NOTE 2. CAPITAL STOCK:
During the first three months of 2000, options to acquire an aggregate of
742,172 shares of the Company's common stock were issued under the Company's
Stock Plans at exercise prices ranging from $6.88 to $12.19 per share.
Additionally, 39,245 options were exercised during the same period at prices
ranging from $1.87 to $9.11 per share.
Basic earnings per share is calculated using the average number of common shares
outstanding. Diluted earnings per share is computed on the basis of the average
number of common shares outstanding plus the effect of outstanding stock options
and warrants using the "treasury stock" method.
<TABLE>
<CAPTION>
(in thousands, except per share amounts) THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
----------- ------------
<S> <C> <C>
Net income available to common
shareholders' (A) $ (4,163) $ 4,199
======== ========
Average outstanding:
Common stock (B) 48,667 48,457
Effect of stock options and warrants - 714
-------- --------
Common stock and common stock
equivalents (C) 48,667 49,171
======== ========
Earnings per share:
Basic (A/B) $ (0.09) $ 0.09
======== ========
Diluted (A/C) $ (0.09) $ 0.09
======== ========
</TABLE>
5
<PAGE>
NOTE 3. STATEMENTS OF CASH FLOWS:
The supplemental schedule of non-cash activities for the three months ended
March 31, 2000 and 1999 includes the following:
<TABLE>
<CAPTION>
(in thousands) 2000 1999
---- ----
<S> <C> <C>
Issuance of common shares in connection
with business acquisitions, net $ 853 $ 9,787
Payments accrued and liabilities assumed in
connection with business acquisitions $ 218 $14,725
Recognition of tax benefits from options and
restricted stock $ 84 $ 872
</TABLE>
NOTE 4. RELATED-PARTY TRANSACTIONS:
A member of the Board of Directors renders acquisition consulting services to
the Company pursuant to an agreement. The director's compensation is directly
contingent upon the successful completion of an acquisition. During the first
quarter of 2000, the director earned approximately $200,000 and was granted
21,971 options at fair market value under this agreement.
NOTE 5: BUSINESS SEGMENTS:
The Company's reportable segments are strategic business units that offer
different products and services. Summarized financial information by business
segment follows:
<TABLE>
<CAPTION>
Three months ended March 31,
(in thousands) 2000 1999
----------------------------
<S> <C> <C>
Net Sales:
- --------------------------------------------------------------------------------
Promotional products $ 120,946 $119,503
Marketing services 40,252 37,464
- --------------------------------------------------------------------------------
Total $ 161,198 $156,967
================================================================================
Operating income:
- --------------------------------------------------------------------------------
Promotional products $ (5,884) $ 5,541
Marketing services (1,144) 1,171
- --------------------------------------------------------------------------------
Total consolidated $ (7,028) $ 6,712
================================================================================
</TABLE>
6
<PAGE>
NOTE 6: COMPREHENSIVE INCOME:
The Company's comprehensive income includes net income and unrealized gains and
losses from currency translation. The calculation of total comprehensive income
for the three month periods ending March 31, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
Three months ended
---------------------
March 31, March 31,
(in thousands) 2000 1999
--------- ---------
<S> <C> <C>
Net income $(4,613) $ 4,199
Other comprehensive loss, net of taxes (6) (1,463)
------- -------
Comprehensive income $(4,619) $ 2,736
======= =======
</TABLE>
NOTE 7: RESTRUCTURING AND OTHER CHARGES:
In July 1999, the Company adopted a plan to restructure its promotional product
operations and to a lesser extent its telemarketing and marketing service
divisions. The focus of the restructuring is to centralize back office
functions, consolidate distribution capabilities and information systems and
streamline the management reporting structure. The restructuring will result in
the elimination of approximately 200 positions and the consolidation and closing
of over 20 offices/warehouses.
During the third quarter of 1999 the Company recorded a charge to operations of
$30.0 million. Major components of the charge related to lease buyouts and
accruals, asset write-downs, severance and termination costs and other charges.
As of March 31, 2000, approximately 50 of the anticipated employee terminations
have occurred. The Company anticipates the restructuring will be completed by
September 30, 2000.
<TABLE>
<CAPTION>
(in thousands) 12/31/99 3/31/00
Accrual Utilized Accrual
------- -------- -------
<S> <C> <C> <C>
Facility consolidation $12,795 $ 191 $12,604
Asset write-downs - - -
Severance and termination costs 2,579 504 2,075
Other charges 260 35 225
------- ------- -------
Total $15,634 $ 730 $14,904
======= ======= =======
</TABLE>
Asset write-downs are the result of consolidating the operations of various
promotional product operations. These asset write-downs relate to duplicate
computer systems and warehouse systems that will not be used due to the
consolidation. The entire accrual for inventory write-downs (approximately $2.7
million) was written off prior to December 31, 1999 and was classified as a
component of cost of sales, for the cancellation of certain promotional programs
and exiting certain lines of business.
7
<PAGE>
The other charges captioned above primarily relate to sample products utilized
by the sales force. These long-term assets were previously capitalized when
purchased and amortized over six years. The restructuring plan includes a sales
force reduction. In conjunction with the implementation of the sales force
reduction, the company changed its policy to provide that ownership of the
sample products would revert to the sales force. Accordingly, the unamortized
balance of sample products is being written off as part of the restructuring
charge.
NOTE 8- SUBSEQUENT EVENT
On May 3,2000, the shareholders of the Company approved the acquisition of
Starbelly.com, a privately held e-commerce provider of branded merchandise
for approximately $19 million of cash and 17 million shares of the Company's
common and 5.1 million shares of convertible preferred stock (including
shares of common and preferred stock underlying assumed stock options). Terms
of the acquisition are disclosed in the Form 8-K filed on May 12, 2000.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Net sales for the first quarter of 2000 increased 2.7% to $161.2 million
compared to $157.0 million in the corresponding quarter of 1999. Sales
generated by the promotional products and marketing services segments
increased 1.2% and 7.5%, respectively over the prior year.
Gross profit decreased to 31.6% of net sales ($50.9 million) in the first
quarter of 2000 from 34.9% of net sales ($54.7 million) in the first quarter of
1999. The decrease was primarily due to a change in the sales mix of products
sold in the promotional products business segment. The first quarter of 1999
included certain high margin consumer premium sales which did not recur in
2000.
Selling expenses as a percentage of net sales increased to 14.7% in the first
quarter of 2000 ($23.7 million) compared to 13.2% in the first quarter of 1999
($20.7 million). The increase as a percentage is due primarily to the change in
the promotional products business mix as mentioned above as such consumer
premium sales are not subject to the Company's standard sales commissions.
General and administrative expenses as a percentage of net sales were 21.2%
in the first quarter of 2000 ($34.2 million) compared to 17.4% in the first
quarter of 1999 ($27.3 million). The increase in the percentage is due to
infrastructure investments, primarily personnel, required to support the
growth of the marketing services businesses.
The Company incurred an operating loss of $7.0 million in 2000 compared to
operating income of $6.7 million in 1999. The decreased operating performance is
primarily due to the change in the promotional products sales mix and the
infrastructure investments in the marketing services business segment.
In the first quarter of 2000 the Company had net interest expense of $660,000
compared to net interest income of $287,000 in the first quarter of 1999. The
change is primarily due to the increase of outstanding borrowings required to
fund the working capital of the business and infrastructure investments as
mentioned above.
LIQUIDITY AND CAPITAL RESOURCES
On March 31, 2000, the Company refinanced its unsecured revolving line of credit
with a secured revolving credit facility ("Revolver") totaling $80 million. The
facility allows for available borrowings based on a calculation related to the
domestic accounts receivable balance of the Company. The facility bears interest
at either a range of prime plus .20% to .85% or LIBOR plus a range between 1.25%
and 2.35% based on a defined ratio. The agreement contains certain financial
covenants that the Company must meet, including minimum tangible net worth,
maximum leverage, and interest coverage.
Additionally, in the first quarter of 2000, the Company advanced $15 million
to Starbelly.com, Inc., a related party. The amount of the advance is
reflected in other assets in the accompanying balance sheet.
9
<PAGE>
In addition to the facility discussed above, one of the Company's European
subsidiaries has revolving credit facilities with several banks. These
facilities provide for borrowings of up to $5 million at rates ranging from
8-13% and are generally unsecured.
As of March 31, 2000, the Company's working capital was $147.3 million compared
to $139.4 million at December 31, 1999. Capital expenditures for property and
equipment were approximately $3.7 million for the first three months of 2000,
and management expects capital expenditures to be approximately $25 million for
the full year of 2000, excluding acquisitions.
The Company anticipates its current level of cash and cash equivalents as well
as future operating cash flows and funds available under its credit facilities
will be adequate to satisfy its cash needs for the foreseeable future.
10
<PAGE>
FORWARD-LOOKING STATEMENTS
Statements contained in this Management's Discussion and Analysis of Financial
Condition and the Results of Operations regarding the amount and nature of
planned capital expenditures, the seasonality of the Company's future business,
the Company's belief that available cash will be sufficient to satisfy its
future needs, expected costs to be incurred in relation to Year 2000 issues and
HA-LO'S anticipated profitability in 2000 are forward-looking statements that
involve substantial risks and uncertainties. Following are important factors
that could cause the Company's actual results to differ materially from those
implied by such forward-looking statements: The Company's growth will be
dependent, in large part, upon its ability to hire, motivate and retain high
quality sales representatives. The Company does not maintain its own
manufacturing facilities and is dependent upon domestic and foreign
manufacturers for its supply of promotional products. The promotional products,
marketing services and telemarketing industries are very competitive. The
Company has experienced and may continue to experience rapid growth, which
growth has placed and may place significant demands on its management and
resources. Increased profitability will depend upon the Company's ability to
manage its growth and to integrate acquired companies into its existing
operations. Readers are encouraged to review HA-LO'S 1999 Annual Report on Form
10-K and quarterly reports on Form 10-Q for other important factors that may
cause actual results to differ materially from those implied in these forward
looking-statements.
11
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
2.1 Restated Articles of Incorporation of the Company
including amendments thereto.
2.2 Amended and Restated By-Laws of the Company.
4.1 Certificate of Designation Establishing the Company's
Series A Convertible Participating Preferred Stock.
27.0 - Financial Data Schedule for the three month period
ended March 31, 2000
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on January 21, 2000
with respect to the proposed acquisition of Starbelly.com, Inc.
12
<PAGE>
SIGNATURE
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.
HA-LO INDUSTRIES, INC.
Dated: May 15, 2000 /s/ GREGORY J. KILREA
---------------------
Gregory J. Kilrea
Duly Authorized Officer
and Chief Financial Officer
13
<PAGE>
RESTATED ARTICLES OF INCORPORATION
OF
HA-LO INDUSTRIES, INC.
(effective September 1, 1992)
FIRST: The name of the Corporation is HA-LO Industries, Inc.
SECOND: The registered office of the Corporation is to be located at
Two North LaSalle Street, Chicago, Illinois 60602. The name of its registered
agent at that address is Marc S. Simon.
THIRD: The purpose of the Corporation is to engage in any lawful
business for which corporations may be incorporated under the Business
Corporation Act of 1983 of the State of Illinois.
FOURTH:
(a) The number of shares which the Corporation shall be
authorized to issue, itemized by class, series and par value, if any, is:
<TABLE>
<CAPTION>
====================================================================================================================
PAR VALUE NUMBER OF
CLASS SERIES PER SHARE SHARES AUTHORIZED
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common - No par 25,000,000
- --------------------------------------------------------------------------------------------------------------------
Preferred To Be Designated By the No par 10,000,000
Board of Directors
====================================================================================================================
</TABLE>
(b) The preferences, qualifications, limitations, restrictions
and the special or relative rights in respect of the shares of each class are:
(i) No holder of any class or series of stock of the
Corporation shall have any preemptive rights to subscribe for
additional shares of stock of the Corporation, except as may be
expressly agreed to by the Corporation. No holders of any class or
series of voting stock of the Corporation shall be entitled to cumulate
their votes for the election of directors of the Corporation. Whenever
a vote of shareholders is required by law or these Articles of
Incorporation to approve amendments to the Articles of Incorporation,
or any merger, consolidation or the sale of substantially all of the
assets of the Corporation outside of the ordinary course of business,
such approval shall require the affirmative vote of a majority of the
total outstanding shares entitled to vote and, if required by law, a
majority of the outstanding shares of each class and series of shares
entitled to vote as a separate class or series in respect thereof.
(ii) Each issued and outstanding share of Common
<PAGE>
Stock will entitle the holder thereof to one (1) vote on any matters
submitted to a vote or for consent of shareholders. Subject to the
rights of the holders of any outstanding series of Preferred Stock, if
any, each holder of Common Stock may be entitled to receive dividends
from funds or other assets legally available therefor, at such rates,
and payable at such times, as may be determined and fixed by the Board
of Directors. No shares of Common Stock shall have any conversion,
redemption, or sinking fund rights. In the event of any voluntary or
involuntary dissolution or liquidation of the Corporation, each holder
of Common Stock shall be entitled to share equally and ratably in the
assets of the Corporation, if any, remaining after the payment of all
debts and liabilities of the Corporation and the liquidation
preference, if any, of any outstanding series of Preferred Stock.
(iii) The Board of Directors is authorized to provide
from time to time for the issuance of shares of Preferred Stock in one
or more series and to fix from time to time, before issuance, the
designations, preferences and relative, participating, optional or
other special rights, qualifications, limitations, restrictions and
privileges of the shares of each series of Preferred Stock, including,
without limiting the generality of the foregoing, the following:
A. The serial designation and authorized number of
shares;
B. The dividend rights, the dividend rate, the date or
dates on which such dividends will be payable and the
extent to which such dividends may be cumulative;
C. The amount or amounts to be received by the holders
thereof in the event of the voluntary or involuntary
dissolution or liquidation of the Corporation;
D. Whether such shares may be redeemed, and if so, the
price or prices at which the shares may be redeemed
and any terms, conditions and limitations upon such
redemption;
E. Any sinking fund provisions for redemption or
purchase of shares of such series;
F. The terms and conditions, if any, on which shares may
be converted, at the election of the holders thereof,
into shares of other capital stock or of other series
of Preferred Stock of the Corporation;
2
<PAGE>
and
G. The voting rights, if any.
The Board of Directors may also from time to time:
(I) Alter, without limitation or restriction,
the rights, preferences, privileges and
restrictions granted to or imposed upon any
wholly unissued series of Preferred Stock;
and
(II) Within the limits or restrictions stated in
any resolution or resolutions of the Board
of Directors originally fixing the number of
shares constituting any series, increase or
decrease (but not below the number of shares
then outstanding) the number of shares of
any such series subsequent to the issuance
of shares of that series.
Each series of Preferred Stock may, in preference to the
Common Stock, be entitled to dividends from funds or other assets
legally available therefor, at such rates, payable at such times and
cumulative to such extent as may be determined and fixed by the Board
of Directors pursuant to the authority herein conferred upon it.
Each series of Preferred Stock may be subject to redemption in
whole or in part at such price or prices and on such terms, conditions
and limitations as may be determined and fixed by the Board of
Directors prior to the issuance of such series. Unless otherwise
determined by the Board of Directors by authorizing resolution, if less
than all of the shares of any series of Preferred Stock are to be
redeemed, they will be selected in such manner as the Board of
Directors shall then determine. Nothing herein contained is to limit
any right of the Corporation to purchase or otherwise acquire any
shares of any series of Preferred Stock. Any shares of Preferred Stock
redeemed or otherwise acquired by the Corporation will have the status
of authorized and unissued shares, undesignated as to series, and may
thereafter, in the discretion of the Board of Directors and to the
extent permitted by law, be sold or reissued from time to time as part
of another series or (unless prohibited by the terms of such series as
fixed by the Board of Directors) of the same series, subject to the
terms and conditions herein set forth.
If the Preferred Stock is issued as a class, then the Board of
Directors of the Corporation will determine liquidation rights and
dividend rights by filing Articles of
3
<PAGE>
Amendment to the Articles of Incorporation of the Corporation prior
to the issuance of any shares of the Preferred Stock;
FIFTH: The number of directors constituting the Board of Directors of
the Corporation shall be such as from time to time shall be fixed by, or in the
manner provided in, the By-laws. Election of directors need not be by written
ballot unless the By-laws so provide.
SIXTH: In furtherance and not in limitation of the powers conferred by
the laws of the State of Illinois, the Board of Directors and/or the
shareholders of the Corporation are expressly empowered to make, alter, amend or
repeal, the By-laws of the Corporation at any meeting of the Board of Directors
or of the shareholders, as the case may be, provided, however, that notice of
the proposed change was given in the notice of such meeting of the Board of
Directors or of the shareholders, as the case may be.
SEVENTH: 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 the laws of the State of Illinois and all rights
and powers conferred herein on shareholders, directors and officers are subject
to this reservation.
The number of shares which are issued and outstanding is 1,000 and the
paid-in capital of the Corporation is $1,000.
4
<PAGE>
AMENDMENT TO THE ARTICLES OF INCORPORATION
OF
HA-LO INDUSTRIES, INC.
(effective August 29, 1994)
RESOLVED, that the Articles of Incorporation of the Corporation be
amended to add a new Article Eight, said Article Eight to read in its entirety
as follows:
"ARTICLE EIGHT: OTHER PROVISIONS.
(a) To the fullest extent permitted by the Act,* a
director of this Corporation shall not be liable to the
Corporation or its shareholders for monetary damages for
breach of fiduciary duty as a director.
(b) The Corporation shall, to the fullest extent
permitted by the Act*, indemnify all officers and directors of
the Corporation and advance expenses reasonably incurred by
all officers and directors of the Corporation.
* Illinois Business Corporation Act of 1983 as amended and as
may be amended hereafter,
<PAGE>
AMENDMENT TO THE ARTICLES OF INCORPORATION
OF
HA-LO INDUSTRIES, INC.
(effective February 21, 1997)
RESOLVED, that Paragraph 1 of Article Four of the Corporation's
Articles of Incorporation is amended to read in its entirety as follows:
ARTICLE FOUR
PARAGRAPH 1: The number of shares which the Corporation shall
be authorized to issue, itemized by class, series and par value, if
any, is:
<TABLE>
<CAPTION>
Per Share
---------
Class Series Par Value Shares Authorized
----- ------ --------- -----------------
<S> <C> <C> <C>
Common None No par value 100,000,000
Preferred None No par value 10,000,000
</TABLE>
FURTHER RESOLVED, that the Articles of Incorporation of the Corporation
are further amended by the addition of Article Nine which shall read as follows:
Article Nine OTHER PROVISIONS.
Pursuant to the authorization of the Business Corporation Act of 1983
of the State of Illinois (as amended from time to time), the requirement of
approval for certain acts by the affirmative vote of at least two-thirds of the
votes of shares entitled to vote is hereby reduced to the affirmative vote of a
majority of the votes of the shares entitled to vote on the issue and a majority
of the shares of each class or series of shares entitled to vote as a class or
series.
<PAGE>
AMENDMENT TO THE ARTICLES OF INCORPORATION
OF
HA-LO INDUSTRIES, INC.
(effective May 3, 2000)
I. Paragraph (a) of Article Four is hereby amended in its entirety to read as
follows:
(a) The number of shares which the corporation shall be authorized
to issue, itemized by class, series and par value if any, is:
<TABLE>
<CAPTION>
NUMBER OF
SHARES
CLASS SERIES PAR VALUE AUTHORIZED
- ----- ------ --------- ----------
<S> <C> <C> <C>
Common -- No par value 250,000,000
Preferred To be designated No par value 20,000,000
by the Board of
Directors
</TABLE>
II. The last paragraph of Article Four, which currently reads as follows:
"If the Preferred Stock is issued as a class, then the Board of
Directors of the Corporation will determine liquidation rights and
dividend rights by filing Articles of Amendment to the Articles of
Incorporation of the Corporation prior to the issuance of any shares of
the Preferred Stock."
shall be deleted in its entirety.
<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
HA-LO INDUSTRIES, INC.*
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL OFFICE. The principal office of the Corporation in
the State of Illinois shall be located in the City of Skokie and County of Cook.
The Corporation may have such other offices, either within or without the State
of Illinois, as the Board of Directors may determine or the business of the
Corporation may require from time to time.
SECTION 2. REGISTERED OFFICE. The registered office of the Corporation
required by the Illinois Business Corporation Act to be maintained in the State
of Illinois may be, but need not be, identical with the principal office in the
State of Illinois, and the address of the registered office may be changed from
time to time by the Board of Directors.
ARTICLE II
MEETING OF SHAREHOLDERS
SECTION 1. ANNUAL MEETING. The annual meeting of shareholders shall be
held on the first Monday of June, at the hour of 10:00 a.m., or in the event the
annual meeting is not held at such time, then at the time designated by the
Board of Directors, for the purpose of electing a Board of Directors and for the
transaction of such other business as may properly be brought before the
meeting. If the day fixed for the annual meeting shall be a legal holiday, such
meeting shall be held on the next succeeding business day. If the election of
directors shall not be held on the day designated herein for an annual meeting,
or any adjournment thereof, the Board of Directors shall cause the election to
be held at a meeting of the shareholders as soon thereafter as may be
convenient.
SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders may
be called at any time by the President or by a majority of the Board of
Directors and shall be called by the Secretary upon the written request of
shareholders holding of record at least twenty percent (20%) of the issued and
outstanding
- ------------------------
* AS AMENDED AND RESTATED IN THEIR ENTIRETY AND ADOPTED BY ACTION OF
THE BOARD OF DIRECTORS EFFECTIVE ON MAY 2, 2000.
<PAGE>
shares entitled to vote at such meeting. Such request shall state the purpose or
purposes of the proposed meeting. Business transacted at any special meeting of
shareholders shall be limited to the purposes stated in the notice.
SECTION 3. PLACE OF MEETINGS. The Board of Directors may designate any
place, either within or without the State of Illinois, as the place of meeting
for any annual meeting or for any special meeting called by the Board of
Directors by designating such place in the notice thereof. A waiver of notice
signed by all shareholders may designate any place, either within or without the
State of Illinois, as the place for the holding of such meeting. If no
designation is made, or if a special meeting be otherwise called, the place of
meeting shall be the principal office of the Corporation in the State of
Illinois.
SECTION 4. NOTICE OF MEETINGS. Written or printed notice stating the
place, day and hour of the meeting, and in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be given to each
shareholder of record entitled to vote at such meeting, either personally or by
mail, by or at the direction of the President, Secretary or the persons calling
the meeting, not less than ten (10) nor more than sixty (60) days before the
date of the meeting, or, in the case of a merger, consolidation, share exchange,
dissolution or sale, lease or exchange of assets, not less than twenty (20) nor
more than sixty (60) days before the date of the meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail,
addressed to the shareholder at his address as it appears on the records of the
Corporation, with first-class postage thereon prepaid.
SECTION 5. MEETING OF ALL SHAREHOLDERS. If all of the shareholders
shall meet at any time and place, either within or without the State of
Illinois, and shall consent to the holding of a meeting at such time and place,
such meeting shall be valid without call or notice, and any corporate action may
be taken at such meeting.
SECTION 6. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders, or shareholders entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
proper purpose, the Board of Directors of the Corporation may provide that the
stock transfer books shall be closed for a stated period but not to exceed, in
any case, sixty (60) days. If the stock transfer books shall be closed for the
purpose of determining shareholders entitled to notice of or to vote at a
meeting of shareholders, such books shall be closed for at least ten (10) days,
or in the case of a merger, consolidation, share exchange, dissolution or sale,
lease or exchange of assets, at least twenty (20) days, immediately
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<PAGE>
preceding such meeting, but in neither case for a period exceeding sixty (60)
days. In lieu of closing the stock transfer books, the Board of Directors may
fix in advance a date as the record date for any such determination of
shareholders, such date in any case to be not more than sixty (60) days and,
for a meeting of shareholders, not less than ten (10) days, or in the case of
a merger, consolidation, share exchange, dissolution or sale, lease or
exchange of assets, not less than twenty (20) days, immediately preceding
such meeting but in neither event more than sixty (60) days. When a
determination of shareholders entitled to vote at any meeting of shareholders
has been made as provided in this Section, such determination shall apply to
any adjournment thereof; provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting. If the stock transfer books
are not closed and no record date is fixed for the determination of
shareholders entitled to notice of or to vote at a meeting of shareholders,
or shareholders entitled to receive payment of a dividend, the date on which
notice of the meeting is mailed or the date on which the resolution of the
Board of Directors declaring such dividend is adopted, as the case may be,
shall be the record date for such determination of shareholders.
SECTION 7. SHAREHOLDER LIST. The officer or agent who has charge of the
stock transfer books for shares of the Corporation shall prepare and make,
within twenty (20) days after the record date for a meeting of shareholders or
ten (10) days before such meeting, whichever is earlier, a complete list of the
shareholders entitled to vote at such meeting, arranged in alphabetical order
and indicating the address of and number of shares held by each, which list, for
a period of ten (10) days before such meeting, shall be kept on file at the
registered office of the Corporation and shall be subject to the examination of
any shareholder, or his duly authorized legal representative, at any time during
ordinary business hours. Such list shall also be produced and kept open at the
time and place of the meeting and shall be subject to the inspection of any
shareholder during the whole time of the meeting. The original share ledger or
transfer book, or a duplicate thereof kept in the State of Illinois, shall be
PRIMA FACIE evidence as to who are the shareholders entitled to examine such
list or share ledger or transfer book or to vote at any meeting of shareholders.
SECTION 8. QUORUM. A majority of the outstanding shares entitled to
vote, present in person or represented by proxy, shall constitute a quorum at
all meetings of the shareholders for the transaction of business, except as
otherwise provided by statute or by the Articles of Incorporation, but in no
event shall a quorum consist of less than one-third (1/3) of the outstanding
shares entitled to vote. If a quorum is present at any meeting, the affirmative
vote of the holders of a majority of the shares represented at such meeting
shall be the act of the shareholders, unless the vote of a greater number or
voting by classes is required by the Business Corporation Act of the State of
Illinois,
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<PAGE>
the Articles of Incorporation or these By-laws.
SECTION 9. PROXIES. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his duly authorized
attorney-in-fact delivered by the beginning of the meeting. Such proxy shall be
filed with the Secretary of the Corporation before or at the time of the
meeting. No proxy shall be valid after eleven (11) months from the date of its
execution, unless otherwise provided in the proxy.
SECTION 10. VOTING OF SHARES. Unless otherwise provided in the Articles
of Incorporation, or in any Certificate of Designation containing the rights and
preferences of any class or series of stock of the Corporation, each outstanding
share, regardless of class, shall be entitled to one vote in person or by proxy
upon each matter submitted to a vote of the shareholders.
SECTION 11. VOTING OF SHARES BY CERTAIN HOLDERS. Shares registered in
the name of another corporation, domestic or foreign, may be voted by such
officer, agent or proxy as the by-laws of such corporation may prescribe, or, in
the absence of such provision, as the Board of Directors of such corporation may
determine.
Shares registered in the name of a deceased person, a minor ward or a
person under legal disability may be voted by his administrator, executor,
court-appointed guardian or conservator, either in person or by proxy without a
transfer of such shares into the name of such administrator, executor,
court-appointed guardian or conservator.
Shares registered in the name of a trustee may be voted by him, either
in person or by proxy.
Shares registered in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his name if authority so to do
is contained in an appropriate order of the court by which such receiver was
appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
SECTION 12. INSPECTORS. At any meeting of shareholders, the chairman of
the meeting may, or upon the request of any shareholder shall, appoint one or
more persons as inspectors for such meeting.
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<PAGE>
Such inspectors shall ascertain and report the number of shares
represented at the meeting, based upon their determination of the validity and
effect of proxies; count all votes and report the results; and do such other
acts as are proper to conduct the election and voting to ensure impartiality and
fairness to all of tho shareholders.
Each report of an inspector shall be in writing and signed by him or by
a majority of the inspectors if there is more than one inspector acting at such
meeting. If there is more than one inspector, the report of a majority shall be
the report of the inspectors. The report of the inspector or inspectors on the
number of shares represented at the meeting and the results of the voting shall
be PRIMA FACIE evidence thereof.
SECTION 13. INFORMAL ACTION BY SHAREHOLDERS. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of the shareholders, may be taken without a meeting and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed (i) by the holders of outstanding shares having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voting or
(ii) by all of the shareholders entitled to vote with respect to the subject
matter thereof. If such consent is signed by less than all of the shareholders
entitled to vote, then such consent shall become effective only if at least five
(5) days prior to the execution of the consent a notice in writing is delivered
to all the shareholders entitled to vote with respect to the subject matter
thereof and, after the effective date of the consent, prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be delivered in writing to those shareholders who have not
consented in writing.
SECTION 14. VOTING BY BALLOT. Voting on any question or in any election
may be VIVA VOCE unless the presiding officer or any shareholder shall demand
that voting be by ballot.
-5-
<PAGE>
ARTICLE III
DIRECTORS
SECTION 1. NUMBER, TENURE AND QUALIFICATIONS. The number of directors
which shall constitute the whole Board of Directors shall be not less than five
nor more than eleven and shall be fixed from time to time, within such minimum
and maximum, by the Board of Directors. The minimum and maximum number of
directors constituting the Board of Directors may be increased or decreased from
time to time by amendment to these by-laws. Each director elected shall hold
office until the next annual meeting of the shareholders or until his successor
shall have been elected and shall have qualified. Directors need not be
residents of Illinois nor shareholders of the Corporation.
SECTION 2. VACANCIES. Vacancies and newly created directorships
resulting from an increase in the number of directors may be filled by election
at a meeting of the directors then in office, though less than a quorum, or by a
sole remaining director, or at any annual meeting of the shareholders or special
meeting of the shareholders called for that purpose. A director elected by the
shareholders to fill a vacancy shall hold office for the balance of the term for
which he or she was elected. A director elected by the directors to fill a
vacancy shall serve until the next meeting of shareholders at which directors
are to be elected.
SECTION 3. DUTIES OF DIRECTORS. The business and affairs of the
Corporation shall be managed by its Board of Directors, except as may be
otherwise provided by statute or the Articles of Incorporation.
SECTION 4. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held, without other notice than this by-law, immediately following, and
at the same place as, the annual meeting of the shareholders. The Board of
Directors may provide, by resolution, the time and place, either within or
without the State of Illinois, for the holding of additional regular meetings
without other notice than this by-law.
SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the President, any Vice-President or
one-third of the directors. The person or persons authorized to call special
meetings of the Board of Directors may fix any place, either within or without
the State of Illinois, as the place for holding any special meeting of the Board
of Directors called by them.
SECTION 6. NOTICE. Notice of special meetings shall be given to each
director, in person or by mail, at least five (5) days prior to the date
designated therein for such meetings. If mailed,
-6-
<PAGE>
such notice shall be deemed to be delivered when deposited in the United
States mail so addressed, with first-class postage thereon prepaid. Any
director may waive notice of any meeting. The attendance of a director at any
meeting shall constitute a waiver of notice of such meeting, except where a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
SECTION 7. QUORUM. A majority of the directors in office shall
constitute a quorum for the transaction of business at any meeting of the Board
of Directors; provided, that if less than a majority of such number of directors
are present at any meeting of the Board of Directors, a majority of the
directors present may adjourn the meeting from time to time without further
notice. The vote of the majority of the directors present at a meeting at which
a quorum is present shall be the act of the Board of Directors, unless the vote
of a greater number is required by the Business Corporation Act of the State of
Illinois, the Articles of Incorporation or these by-laws. The Board may
participate in and act at any meeting through the use of a conference telephone
or other communications equipment by means of which all persons participating in
the meeting can hear each other, provided that a written record of such action
and meeting are made a permanent part of the Corporation's records.
SECTION 8. RESIGNATIONS. Any director may resign at any time by giving
written notice to the Board of Directors, the President or the Secretary of the
Corporation. A resignation need not be accepted in order to be effective.
SECTION 9. INFORMAL ACTION BY DIRECTORS. Any action required to be
taken at a meeting of the Board of Directors, or any other action which may be
taken at a meeting of the Board of Directors or a committee thereof, may be
taken without a meeting if a consent in writing, setting forth the action so
taken, shall be signed by all the directors entitled to vote with respect to the
subject matter thereof, or by all the members of such committee, as the case may
be. Any such consent signed by all the directors shall have the same effect as
an unanimous vote of all of the directors or all of the members of such
committee, as the case may be, at a duly called meeting thereof, and may be
stated as such in any document filed with any third party, including but not
limited to, the Secretary of State of Illinois, any bank or savings and loan
association, Internal Revenue Service, Illinois State Department of Revenue,
Cook County Recorder's Office and the Attorney General of Illinois, and shall be
filed with the minutes of the proceedings of the Board or such committee.
SECTION 10. COMPENSATION. The Board of Directors, by the
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<PAGE>
affirmative vote of a majority of directors then in office, and irrespective
of any personal interest of any of its members, shall have authority to
establish reasonable compensation of all directors for services to the
Corporation as directors, officers or otherwise. By resolution of the Board
of Directors the directors may be paid their expenses, if any, of attendance
at each meeting of the board.
SECTION 11. PRESUMPTION OF ASSENT. A director of the Corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be conclusively presumed to have assented to the action
taken unless his dissent shall be entered in the minutes of the meeting or
unless he shall file his written dissent to such action with the person acting
as the Secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered or certified mail to the Secretary of the Corporation
within three (3) business days after the adjournment of the meeting. Such right
to dissent shall not apply to a director who voted in favor of such action.
SECTION 12. REMOVAL OF DIRECTORS. One or more of the directors of the
Corporation may be removed, with or without cause, at a meeting of shareholders
by the affirmative vote of the holders of a majority of the outstanding shares
then entitled to vote at an election of directors as provided by law.
SECTION 13. COMMITTEES. A majority of the directors may create one or
more committees and appoint members of the Board to serve on the committee or
committees. Each committee shall have two or more members, who shall serve at
the pleasure of the Board. Each committee, to the extent provided in the
resolution creating the same, may exercise the authority of the Board of
Directors except as otherwise provided by law. The committees shall keep regular
minutes of their proceedings and when required by the Board of Directors shall
report the same to the Board of Directors.
ARTICLE IV
OFFICERS
SECTION 1. NUMBER. The officers of the Corporation shall be chosen by
the Board of Directors and shall be a President, a Secretary, a Treasurer and
one or more Vice-Presidents. There shall be such other officers and assistant
officers as the Board of Directors may from time to time deem necessary. Any
number of offices may be held by the same person.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the Corporation
shall be elected annually by the Board of Directors at the regular meeting of
the Board of Directors held after each
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<PAGE>
annual meeting of shareholders. If the election of officers shall not be held
at such meeting, such election shall be held as soon thereafter as may be
convenient. Vacancies may be filled or new offices created and filled at any
meeting of the Board of Directors. Each officer shall hold office until his
successor shall have been duly elected and shall have qualified or until his
death or until he shall resign or shall have been removed in the manner
hereinafter provided. New offices may be created at any meeting of the Board
of Directors. Election or appointment of an officer or agent shall not of
itself create contract rights.
SECTION 3. COMPENSATION. The salaries and additional compensation, if
any, of all officers of the Corporation shall be fixed from time to time by the
Board of Directors and no officer shall be prevented from receiving such salary
by reason of the fact that he is also a director of the Corporation.
SECTION 4. RESIGNATIONS. Any officer may resign at any time by giving
notice to the Board of Directors or to the President or Secretary. A resignation
of an officer need not be accepted in order to be effective.
SECTION 5. REMOVAL. Any officer or agent elected or appointed by the
Board of Directors may be removed by the Board of Directors whenever in its
judgment the best interests of the Corporation would be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed.
SECTION 6. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled at any
meeting of the Board of Directors for the unexpired portion of the term.
SECTION 7. DUTIES OF OFFICERS. The duties and powers of the officers
shall be as follows:
CHIEF EXECUTIVE OFFICER
The Chief Executive Officer will be the principal executive officer of
the Corporation and subject to the control of the Board of Directors, shall in
general be responsible for the administration and operations of the business and
affairs of the Corporation. He shall preside at all meetings of the Shareholders
and the Board of Directors. He may sign with the Secretary, or any other proper
officer of the Corporation thereunto authorized by the Board of Directors,
certificates for shares of the Corporation and any deeds, mortgages, bonds,
contracts or other instruments which the Board of Directors has authorized to be
executed or the execution of which is in the ordinary course of the
Corporation's business, except in cases where the signing and execution thereof
shall be expressly delegated by the Board of Directors of the these Bylaws of
some other officer or agent of the Corporation, or shall
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<PAGE>
be required by law to be otherwise signed or executed and in general shall
perform all duties commensurate to the office of Chief Executive Officer, and
such other duties as may prescribed by the Board of Directors from
time-to-time.
PRESIDENT
The President shall in the absence, disability or refusal to act of the
Chief Executive Officer, perform the duties of the Chief Executive Officer, and
once so acting shall have all the powers and be subject to all of the
restrictions upon the Chief Executive Officer. He may sign with the Secretary or
any other proper officer of the Corporation thereunto authorized by the Board of
Directors, certificates for shares of the Corporation, and any deeds, mortgages,
bonds, contracts or other instruments which the Board of Directors has
authorized the execution of which is in the ordinary course of the Corporation's
business, except in cases where the signing and execution thereof shall be
expressly delegated by the Board of Directors or by these Bylaws to some other
officer or agent of the Corporation, or shall be required by law to be otherwise
signed or executed and shall perform such other duties as may be prescribed by
the Board of Directors from time-to-time. The President shall report to the
Chief Executive Officer.
VICE-PRESIDENT
The Vice-President, or if there shall be more than one (1), the
Vice-President in the order determined by the Board of Directors (or if there be
no such determination, then in the order of their election), shall in the
absence, disability or refusal to act of the President and the Chief Executive
Officer , perform the duties of the President or Chief Executive Officer, and
once so acting shall have all power of and be subject to all of restrictions
upon the President and Chief Executive Officer. He may sign with the Secretary
or any other proper officer of the Corporation thereunto authorized by the Board
of Directors, certificates for shares of the Corporation, and any deeds,
mortgages, bonds, contracts or other instruments which the Board of Directors
has authorized to be executed or the execution of which is in the ordinary
course of the Corporation's business, except in cases where the signing and
execution thereof shall be expressly delegated by the Board of Directors or by
these Bylaws to some other officer or agent of the Corporation, or shall be
required by law to be otherwise signed or executed and shall perform such other
duties as may be prescribed by the Board of Directors from time-to-time.
SECRETARY
The Secretary shall: (a) keep the minutes of the meetings of the
shareholders, the Board of Directors and committees of directors in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions
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<PAGE>
of these by-laws or as required by law; (c) be custodian of the corporate
records and of the seal of the Corporation and see that the seal of the
Corporation is affixed to all certificates for shares prior to the issue
thereof and to all documents the execution of which on behalf of the
Corporation under its seal is duly authorized in accordance with the
provisions of these bylaws; (d) keep or cause to be kept a register of the
name and post-office address of each shareholder, which shall be furnished to
the Corporation by such shareholder, and the number and class of shares held
by each shareholder; (e) sign with the President, or a Vice-President,
certificates for shares of the Corporation, the issue of which shall have
been authorized by resolution of the Board of Directors; (f) have general
charge of the stock transfer books of the Corporation; and (g) in general
perform all duties incident to the office of Secretary and such other duties
as from time to time may be assigned by the President or by the Board of
Directors.
TREASURER
If required by the Board of Directors, the Treasurer shall give a bond
for the faithful discharge of his duties in such sum and with such surety or
sureties as the Board of Directors shall determine. The Treasurer shall be the
principal financial and accounting officer of the Corporation, and shall: (a)
have charge and custody of, and be responsible for, all funds and securities of
the Corporation; (b) keep or cause to be kept complete books and records of
account including a record of all receipts and disbursements; (c) receive and
give receipts for moneys due and payable to the Corporation from any source
whatsoever, and deposit all such moneys not otherwise employed in the name of
the Corporation in such bank, savings and loan association, trust company or
other depositories as shall be selected in accordance with the provisions of
Article V of these by-laws; (d) from time to time prepare or cause to be
prepared and render financial statements of the Corporation at the request of
the President or the Board of Directors; and (e) in general perform all the
duties incident to the office of Treasurer and such other duties as from time to
time may be assigned by the President or the Board of Directors.
ASSISTANT SECRETARIES AND ASSISTANT TREASURERS
The Assistant Treasurers, if any, shall respectively, if required by
the Board of Directors, give bonds for the faithful discharge of their duties in
such sums and with such sureties as the Board of Directors shall determine. In
the absence of the Treasurer or Secretary or in the event of the inability or
refusal of the Treasurer or Secretary to act, the Assistant Treasurer and the
Assistant Secretary (or in the event there is more than one of either, in the
order designated by the Board of Directors or in the absence of such
designation, in the order of election) shall
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<PAGE>
perform the duties of the Treasurer and Secretary, respectively, and when so
acting, shall have all the authority of and be subject to all the
restrictions upon such office. The Assistant Treasurers and Assistant
Secretaries shall also perform such duties as shall be assigned to them from
time to time by the Treasurer or the Secretary, respectively, or by the
President or the Board of Directors.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. The Board of Directors may authorize any officer
or officers, agent or agents, to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the Corporation, and such
authority may be general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the
Corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors. Such authority may be
general or confined to specific instances.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation, shall be signed by such officer or officers, agent or
agents, of the Corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
SECTION 4. DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such bank, savings and loan association, trust company or other depositories
as the Board of Directors may select.
ARTICLE VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. The issued shares of the
Corporation shall be represented by certificates or shall be uncertificated
shares. Certificates representing shares of the Corporation shall be in such
form as may be determined by the Board of Directors. Such certificates shall be
signed by the President or a Vice-President and by the Secretary or an Assistant
Secretary and shall be sealed with the seal of the Corporation. Any or all of
the signatures on the certificates may be a facsimile. All certificates for
shares shall be consecutively numbered or
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otherwise identified. The name of the person to whom the shares represented
thereby are issued, with the number of shares and date of issue, shall be
entered on the books of the Corporation. All certificates surrendered to the
Corporation for transfer shall be cancelled and no new certificate shall be
issued until the former certificate for a like number of shares shall have
been surrendered and cancelled, except that in case of a lost, destroyed or
mutilated certificate, a new one may be issued therefor upon such terms and
indemnity to the Corporation as the appropriate officers of the Corporation
may prescribe.**
SECTION 2. TRANSFER OF SHARES. Transfers of shares of the Corporation
shall be made only on the books of the Corporation by the holder of record
thereof or by his legal representative, who shall furnish proper evidence of
authority to transfer, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the Corporation, and on
surrender for cancellation of the certificate for such shares. The Board of
Directors shall have the power to make all such rules and regulations,
consistent with applicable law, as the Board of Directors may deem appropriate
concerning the issue, transfer and registration of certificates for shares of
the Corporation. The person in whose name shares stand on the books of the
Corporation shall be deemed the owner thereof for all purposes as regards the
Corporation.
SECTION 3. FACSIMILE OF SIGNATURE. Where a certificate is signed (1) by
a transfer agent, or (2) by a transfer clerk, acting on behalf of the
corporation and a registrar, the signature of any such President, Vice
President, Treasurer, Assistant Treasurer, Secretary or Assistant Secretary may
be by facsimile. In case any officer or officers who have signed, or whose
facsimile signature or signatures have been used on any such certificate or
certificates, shall cease to be such officer or officers of the corporation,
whether because of death, resignation or otherwise, before such certificate or
certificates have been issued, such certificate or certificates may nevertheless
be adopted by the corporation and be issued and delivered as though the person
or persons who signed such certificate or certificates or whose facsimile
signature or signatures have been used thereon had not ceased to be such officer
or officers of the corporation.
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** THIS SENTENCE WAS AMENDED AND RESTATED IN ITS ENTIRETY AND ADOPTED
BY ACTION OF THE BOARD OF DIRECTORS EFFECTIVE ON NOVEMBER 22, 1999.
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ARTICLE VII
VOTING OF SECURITIES
The President shall have full authority, in the name and on behalf of
the Corporation, to attend, act and vote at any meeting of security holders of
any corporation in which the Corporation may from time to time hold securities,
and at any such meeting shall possess and may exercise any and all rights and
powers incident to the ownership of such securities and which, as the holder
thereof, the Corporation might possess and exercise if personally present, and
may exercise such power and authority through the execution of proxies, or the
President or the Board of Directors may delegate such power and authority to any
other officer, agent or employee of this Corporation.
ARTICLE VIII
FISCAL YEAR
The fiscal year of the Corporation shall end on December 31 of each
year, unless otherwise determined by the Board of Directors.
ARTICLE IX
INDEMNIFICATION
SECTION 1. ACTIONS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION.
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 (other than an action by or in the right of the Corporation) by
reason of the fact that he or she is or was a director, officer, employee or
agent of the Corporation, or who 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 expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit,
or proceeding if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, 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 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 in
which he or she reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
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proceeding, had reasonable cause to believe that his or her conduct was
unlawful.
SECTION 2. ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. 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 he or she 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 expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the Corporation, provided that no indemnification shall be made in
respect of any claim, issue or matter as to which such person has been adjudged
to have been liable to the Corporation unless, and only to the extent that, the
court in which such action or suit is finally adjudicated shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper.
SECTION 3. INDEMNIFICATION AGAINST EXPENSES. Anything in Sections 1 or
2 of this Article IX to the contrary notwithstanding, to the extent that any
person referred to therein has been successful, on the merits or otherwise, in
the defense of any action, suit or proceeding referred to therein or in the
defense of any claim, issue or matter therein, he or she shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith.
SECTION 4. AUTHORIZATION OF INDEMNIFICATION. Any indemnification under
Sections 1 and 2 of this Article IX (unless ordered by a court) shall be made by
the Corporation only as authorized in the specific case by the Board of
Directors and upon a determination that the indemnification of the director,
officer, employee or agent is proper in the circumstances because he or she has
met the applicable standard of conduct set forth in Sections 1 and 2 of this
Article IX. Such determination shall be made (i) by the Board of Directors by a
majority vote of a quorum (as defined in the bylaws of the Corporation)
consisting of directors who are not parties to such action, suit or proceeding,
or (ii) if such quorum is not obtainable, or, even if obtainable, if a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (iii) by the shareholders.
SECTION 5. PAYMENT OF EXPENSES IN ADVANCE. Expenses incurred in
defending a civil or criminal action, suit or proceeding may be
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paid by the Corporation in advance of the final disposition of such action,
suit or proceeding, upon receipt of an undertaking by or on behalf of the
director, officer, employee or agent to repay such amount unless it shall
ultimately be determined that he or she is not entitled to be indemnified by
the Corporation.
SECTION 6. PROVISIONS NOT EXCLUSIVE. The indemnification and
advancement of expenses provided by or granted under the other subsections of
this Article IX shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
statute, agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action in
another capacity while holding such official capacity and as to action in
another capacity while holding such office.
SECTION 7. INSURANCE. The Corporation shall have the power to 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 him and incurred by him in any such capacity or
arising out of his or her status as such, whether or not the Corporation would
have the power to indemnify him against such liability under the provisions of
this Article IX.
SECTION 8. NOTICE TO SHAREHOLDERS. If a Corporation has paid indemnity
or has advanced expenses to a director, officer, employee or agent, the
Corporation shall report the indemnification or advance in writing to the
shareholders with or before the notice of the next shareholder's meeting.
SECTION 9. DEFINITIONS. For purposes of this Article IX, references to
"the Corporation" shall include, in addition to the surviving corporation, any
merging corporation (including any corporation having merged with a merging
corporation) absorbed in a merger which, if its separate existence had
continued, would have had the power and authority to indemnify its directors,
officers, and employees or agents, so that any person who was a director,
officer, employee or agent of such merging corporation, or was serving at the
request of such merging corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Article IX with
respect to the surviving corporation as such person would have with respect to
such merging corporation if its separate existence had continued. For the
purposes of this Article IX, references to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to any employee benefit plan; and references
to "serving at the request of the Corporation" shall include any service as a
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director, officer, employee or agent of the Corporation which imposes duties on,
or involves services by, such director, officer, employee, or agent with respect
to an employee benefit plan, its participants, or beneficiaries. A person who
acted in good faith and in a manner he or she reasonably believed to be in the
best interests of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interest of
the Corporation" as referred to in this Article IX.
SECTION 10. CONTINUANCE OF INDEMNIFICATION. The indemnification and
advancement of expenses provided by or granted under this Section shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of that person.
ARTICLE X
WAIVER OF NOTICE
Whenever any notice is required to be given under the provisions of
these by-laws, the Articles of Incorporation or the Business Corporation Act of
the State of Illinois, a waiver thereof in writing, signed by the person or
persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice.
ARTICLE XI
AMENDMENTS
These by-laws may be altered, amended or repealed and new by-laws may
be adopted at any properly constituted meeting of the shareholders or Board of
Directors by a majority vote of a quorum (as defined in the by-laws of this
Corporation), provided that notice of the proposed change was given in the
notice of such meeting of the shareholders or the Board of Directors, as the
case may be.
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Exhibit 2
CERTIFICATE OF DESIGNATION ESTABLISHING SERIES A
CONVERTIBLE PARTICIPATING PREFERRED STOCK OF
HA-LO INDUSTRIES, INC.
HA-LO Industries, Inc., an Illinois corporation (the "CORPORATION"),
acting pursuant to Section 6.10 of the Illinois Business Corporation Act, does
hereby submit this Certificate of Designation Establishing Series A Convertible
Participating Preferred Stock.
WHEREAS, Article Fourth of the Articles of Incorporation of the
Corporation authorizes Preferred Stock consisting of 20,000,000 shares, without
par value, issuable from time to time in one or more series;
WHEREAS, the Board of Directors of the Corporation is authorized,
subject to limitations prescribed by law and by the provisions of Article Fourth
of the Corporation's Articles of Incorporation, as amended, to establish and fix
the number of shares to be included in any series of Preferred Stock and the
designations, rights, preferences, privileges, powers, restrictions, limitations
and qualifications of the shares of such series; and
WHEREAS, it is the desire of the Board of Directors to establish and
fix the number of shares to be included in a new series of Preferred Stock
entitled "Series A Convertible Participating Preferred Stock," and with the
designations, rights, preferences, privileges, powers, restrictions, limitations
and qualifications as set forth herein.
NOW, THEREFORE, BE IT RESOLVED, that pursuant to Article Four of the
Corporation's Articles of Incorporation, there is hereby established Series A
Convertible Participating Preferred Stock, of which the Corporation is
authorized to issue 5,100,000 shares (the "SERIES A PREFERRED"), which shares
shall have the designations, rights, preferences, privileges, powers,
restrictions, limitations and qualifications set forth in a supplement to
Article Fourth of the Articles of Incorporation of the Corporation as follows:
SECTION 1. DIVIDENDS.
1A. GENERAL OBLIGATION. Except as otherwise provided herein,
no preferential dividends shall accrue on any share of the Series A Preferred (a
"SHARE").
1B. PARTICIPATING DIVIDENDS. If the Corporation declares or
pays any dividends upon the Common Stock (whether payable in cash, securities or
other property), other than dividends payable solely in shares of Common Stock,
the Corporation shall also declare and pay to the holders of the Series A
Preferred at the same time that it declares and pays such dividends to the
holders of the Common Stock, the dividends which would have been declared and
paid with respect to the Common Stock
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issuable upon conversion of the Series A Preferred had all of the outstanding
Series A Preferred been converted immediately prior to the record date for
such dividend, or if no record date is fixed, the date as of which the record
holders of Common Stock entitled to such dividends are to be determined.
Dividends payable to the holders of the Shares pursuant to this Section 1B
are referred to as "PARTICIPATING DIVIDENDS."
SECTION 2. LIQUIDATION PREFERENCE. Upon any liquidation,
dissolution or winding up of the Corporation (whether voluntary or involuntary),
each holder of Series A Preferred shall be entitled to be paid (i) before any
distribution or payment is made upon any Junior Securities, an amount in cash
equal to the aggregate Liquidation Value of all Shares held by such holder (plus
all accrued but unpaid Participating Dividends), and (ii) in addition to the
payment under foregoing clause (i), an amount equal to such holder's pro rata
portion (based upon the aggregate number of Shares then outstanding) of the
Participating Liquidation Amount (such amounts, collectively the "SERIES A
PREFERENCE AMOUNT"). If, upon any such liquidation, dissolution or winding up of
the Corporation, the Corporation's assets to be distributed among the holders of
the Series A Preferred hereunder are insufficient to permit payment to such
holders of the aggregate Liquidation Value to which they are entitled, then the
entire assets available to be distributed to the Corporation's stockholders
shall be distributed pro rata among the holders of Series A Preferred. Not less
than 30 days prior to any payments under this Section 2A, the Corporation shall
mail written notice of the liquidation, dissolution or winding up to each record
holder of Series A Preferred, setting forth in reasonable detail the amount of
proceeds to be paid with respect to each Share and each share of Common Stock in
connection with such liquidation, dissolution or winding up.
SECTION 3. REDEMPTIONS.
3A. REDEMPTIONS UPON REQUEST.
(i) Each holder of Shares may require the
Corporation to redeem all or any part of such holder's Shares of Series A
Preferred by delivering a written request for redemption, together with a
certificate or certificates representing the Series A Preferred to be
redeemed (collectively, a "REDEMPTION NOTICE"), to the principal office of
the Corporation at any time during the 30-day period commencing on the one
year anniversary of the Date of Issuance (such 30-day period, the "REDEMPTION
PERIOD"); the redemption right provided by this Section 3A shall terminate
and cease to be exercisable with respect to any Shares for which the
Corporation has not received a Redemption Notice within the Redemption
Period. The Corporation shall redeem all Shares of Series A Preferred
properly surrendered for redemption at a price per Share equal to the
Liquidation Value plus all accrued and unpaid Participating Dividends, if
any. As soon as practicable following the Corporation's receipt of a
Redemption Notice timely delivered in accordance with this Section 3A, but in
any event within 60 days thereafter, the Corporation shall deliver to the
holder of the Shares surrendered for redemption cash in an amount equal to
the product of the Liquidation Value multiplied by the number of Shares being
redeemed, plus all accrued but unpaid Participating Dividends (the
"REDEMPTION PAYMENT AMOUNT"). If the funds of the Corporation legally
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available for redemption of Shares are insufficient to pay the Redemption
Payment Amount in full, then those funds that are legally available will be
used to redeem the maximum possible number of such Shares ratably among the
holders of Shares required to be redeemed.
(ii) Upon the occurrence of an Event of
Noncompliance, any Shares properly tendered for redemption for which the
Redemption Payment Amount has not been paid ("DEFAULT SHARES") shall remain
outstanding and entitled to all the rights and preferences of Series A Preferred
provided herein. If and for so long as an Event of Noncompliance continues, the
Default Shares shall accrue dividends, at a rate of 8% per annum on the Issuance
Price (the "INTEREST RATE"), for the period commencing on the date such Event of
Noncompliance first occurs with respect to such Default Shares until the date
the Corporation pays in full the Redemption Payment Amount plus interest payable
pursuant to this Section 3A for such Default Shares. If an Event of
Noncompliance continues for six months or longer, the Interest Rate with respect
to the Default Shares that are the subject of such Event of Noncompliance shall
increase by 4% per annum on each six month anniversary of the date the Event of
Noncompliance first occurred.
(iii) At any time prior to a redemption pursuant to
this Section 3A, the holder of such Shares shall be entitled instead to convert
all or any portion of the Shares pursuant to Section 5 hereof.
3B. REDEMPTION UPON SIGNIFICANT SALE. If the Corporation sells
all of the capital stock, or all or substantially all of the assets, of any
Subsidiary or significant business division of the Corporation for consideration
consisting, in whole or in part, of cash (each such sale, a "SIGNIFICANT SALE")
while any Shares of Series A Preferred remain outstanding, then the Corporation
shall use all of the cash proceeds of such Significant Sale to fund the working
capital and general corporate needs of the Corporation (including repayment of
outstanding indebtedness under the Corporation's line of credit or other
commercial bank loan) and/or to redeem the maximum possible number of Shares of
Series A Preferred that can be redeemed with such cash proceeds. The Corporation
shall deliver written notice of each Significant Sale to each holder of Series A
Preferred no later than 15 days after the Significant Sale has been consummated.
To the extent that the Corporation does not use all of the cash proceeds of any
Significant Sale for working capital and general corporate purposes within 90
days of such Significant Sale, the Corporation, within 15 days after the
expiration of such 90-day period, shall deliver a written purchase offer to all
holders of Series A Preferred then outstanding and promptly shall purchase
Shares of Series A Preferred from the holders who accept such offer, pro rata
among all such accepting holders based on the number of Shares then held by
each. The purchase price per Share shall equal the Liquidation Value plus all
accrued and unpaid Participating Dividends, if any.
3C. DIVIDENDS AFTER REDEMPTION DATE. No Share shall be
entitled to any dividends accruing after the date on which the Redemption
Payment Amount (plus accrued interest pursuant to Section 3A) in respect of all
Shares tendered for redemption pursuant hereto has been paid to the holder of
such Share in full in cash. On such date,
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all rights of the holder of such Shares shall cease, and such Shares shall no
longer be deemed to be issued and outstanding.
3D. REDEEMED OR OTHERWISE ACQUIRED SHARES. Any Shares which
are redeemed or otherwise acquired by the Corporation shall, at the
Corporation's election, be held in treasury, canceled and retired to authorized
but unissued shares and shall not be reissued, sold or transferred.
3E. OTHER REDEMPTIONS OR ACQUISITIONS. The Corporation shall
not be entitled to redeem or otherwise acquire any Shares of Series A Preferred,
except as expressly authorized herein or pursuant to a purchase offer made pro
rata to all holders of Series A Preferred on the basis of the number of Shares
owned by each such holder and, in such event, such offer shall be subject to the
acceptance of the applicable holder (in each case in such holder's sole
discretion).
3F. PROHIBITIONS ON REDEMPTIONS. In the event of any
prohibition on the redemption (whether pursuant to this Section 3 or otherwise)
of the Shares pursuant to any agreement, instrument or other arrangement to
which the Corporation is a party or its assets are bound, the Corporation will
use best efforts to obtain waivers or other appropriate relief from such
restrictions in order to permit any redemptions required pursuant to these
Articles of Incorporation and use commercially reasonable efforts to obtain
replacement financing for the Shares in order to permit any such required
redemption. This Section 3F shall not be interpreted as authorizing or otherwise
empowering the Corporation to enter into any such agreement, instrument or other
arrangement.
3G. OPTIONAL REDEMPTION UPON A CHANGE OF CONTROL. Upon the
consummation of a Change of Control, each holder of Series A Preferred shall be
entitled, at such holder's option and in such holder's sole discretion, to
require the Corporation to redeem all but not less than all Shares of Series A
Preferred owned by such holder for a redemption price equal to the greater of
(i) the aggregate Liquidation Value of such Shares (plus all accrued but unpaid
Participating Dividends), or (ii) the amount of consideration that would be
payable to such holder if such holder had converted all Shares owned by such
holder into Common Stock immediately prior to the effective time of the Change
of Control. Each holder of Series A Preferred shall have the right to elect the
benefits of either this Section 3G, Section 5A or Section 5G hereof in
connection with any such transaction.
SECTION 4. VOTING RIGHTS. The holders of the Series A
Preferred shall be entitled to notice of all stockholder meetings in accordance
with the Corporation's bylaws, and shall be entitled to vote on all matters
submitted to the stockholders for a vote together with the holders of the Common
Stock and any other classes of capital stock voting with the Common Stock all
voting together as a single class. Each Share of Series A Preferred (including
any Default Shares not yet redeemed pursuant to Section 3) shall be entitled to
one vote for each share of Common Stock issuable upon conversion of
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such Share of Series A Preferred as of the record date for such vote or, if
no record date is specified, as of the date of such vote.
SECTION 5. CONVERSION.
5A. OPTIONAL CONVERSIONS. At any time and from time
to time, any holder of Series A Preferred may convert all or any portion of the
Series A Preferred held by such holder into a number of shares of Conversion
Stock computed by multiplying the number of Shares to be converted by a fraction
("CONVERSION RATIO"), the numerator of which is the Issuance Price and the
denominator of which is the Conversion Price then in effect.
5B. AUTOMATIC CONVERSIONS. Each Share of Series A
Preferred automatically, without action on the part of the Corporation or the
holder thereof, shall be converted into shares of Common Stock, at the then
effective Conversion Ratio, in the event that the average of the closing prices
of the Common Stock on the New York Stock Exchange (or, if the Common Stock at
any time is not listed on the New York Stock Exchange, on the primary securities
exchange on which the Common Stock may at the time be listed) equals or exceeds
$24.00 per share for any 10 consecutive trading days that occur on or after the
Date of Issuance. Any such automatic conversion shall be deemed to have occurred
as of the close of trading on the 10th such consecutive trading day.
5C. CONVERSION PROCEDURE.
(ii) Except as otherwise provided herein, each
conversion of Series A Preferred shall be deemed to have been effected as of the
close of business on the date on which the certificate or certificates
representing the Series A Preferred to be converted have been surrendered for
conversion at the principal office of the Corporation. In the event of an
automatic conversion pursuant to Section 5B, all Shares of Series A Preferred
then outstanding shall be converted automatically without any further action by
the holders of such shares and whether or not the certificates representing such
shares are surrendered to the Corporation or its transfer agent; PROVIDED,
HOWEVER, that the Corporation shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such automatic conversion
unless the certificates evidencing such Shares of Series A Preferred are
delivered to the Corporation or its transfer agent as provided above. On the
date any such conversion has been effected, the rights of the holder of the
Shares converted, as a holder of Series A Preferred, shall cease and the Person
or Persons in whose name or names any certificate or certificates for shares of
Conversion Stock are to be issued upon such conversion shall be deemed to have
become the holder or holders of record of the shares of Conversion Stock
represented thereby.
(iii) The conversion rights with respect to any Share
surrendered to the Corporation for redemption shall terminate on the date such
Share has been redeemed, unless the Corporation has failed to pay to the holder
thereof the full Redemption Payment Amount payable with respect to such Share.
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(iv) Notwithstanding any other provision hereof,
if a conversion of Series A Preferred is to be made in connection with a
Change of Control or other transaction affecting the Corporation, the
conversion of any Shares may, at the election of the holder thereof, be
conditioned upon the consummation of such transaction, in which case such
conversion shall not be deemed to be effective until such transaction has
been consummated.
(v) As soon as possible after a conversion has been
effected (but in any event within three business days), the Corporation shall
deliver to the converting holder:
(a) a certificate or certificates
representing the number of shares of Conversion Stock issuable by
reason of such conversion in such name or names and such denomination
or denominations as the converting holder has specified;
(b) the amount of all Participating
Dividends declared and remaining unpaid with respect to the Shares
converted, plus the amount payable under subsection (viii) below with
respect to such conversion; and
(c) a certificate representing any Shares
which were represented by the certificate or certificates delivered to
the Corporation in connection with such conversion but which were not
converted.
(vi) The Corporation shall not close its books
against the transfer of Series A Preferred or of Conversion Stock issued or
issuable upon conversion of Series A Preferred in any manner which significantly
interferes with the timely conversion of Series A Preferred. The Corporation
shall assist and cooperate with any holder of Shares required to make any
governmental filings or obtain any governmental approval prior to or in
connection with any conversion of Shares hereunder (including, without
limitation, making any filings required to be made by the Corporation).
(vii) The Corporation shall at all times reserve and
keep available out of its authorized but unissued shares of Conversion Stock,
solely for the purpose of issuance upon the conversion of the Series A
Preferred, such number of shares of Conversion Stock issuable upon the
conversion of all outstanding Series A Preferred. All shares of Conversion Stock
which are so issuable shall, when issued, be duly and validly issued, fully paid
and nonassessable and free from all taxes, liens and charges. The Corporation
shall take all such actions as may be necessary to assure that all such shares
of Conversion Stock may be so issued without violation of any applicable law or
governmental regulation or any requirements of the New York Stock Exchange
and/or any other domestic securities exchange upon which shares of Conversion
Stock may be listed (except for official notice of issuances which shall be
immediately delivered by the Corporation upon each such issuance). The
Corporation shall not take any action which would cause the number of authorized
but unissued shares of Conversion Stock to be less
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than the number of such shares required to be reserved hereunder for issuance
upon conversion of the Series A Preferred.
(viii) In lieu of any fractional shares to which the
holder of Series A Preferred Stock otherwise would be entitled, the Corporation
shall pay to such holder cash equal to such fraction multiplied by the closing
price of the Common Stock on the New York Stock Exchange, or any other domestic
securities exchange on which the Common Stock is listed or admitted to unlisted
trading privileges, on the trading date immediately prior to the conversion
date.
5D. CONVERSION PRICE.
(i) In order to prevent dilution of the conversion
rights granted under this Section 5, the Conversion Price shall be subject to
adjustment from time to time pursuant to this Section 5D.
(ii) If and whenever the Corporation issues or sells
or, in accordance with paragraph 5E is deemed to have issued or sold, any shares
of its Common Stock for a consideration per share less than the Conversion Price
in effect immediately prior to the time of such issuance or sale, then
immediately upon such issue or sale (or deemed issue or sale) the Conversion
Price shall, except with respect to the Shares then held by any holder of Shares
who actually purchases any such securities from the Corporation in such issuance
or sale (or deemed issuance or sale), be reduced to the Conversion Price
determined by dividing (a) the sum of (x) the product derived by multiplying the
Conversion Price in effect immediately prior to such issue or sale (or deemed
issue or sale) by the number of shares of Common Stock Deemed Outstanding
immediately prior to such issue or sale, plus (y) the consideration, if any,
received by the Corporation upon such issue or sale, by (b) the number of shares
of Common Stock Deemed Outstanding immediately after such issue or sale.
(iii) Notwithstanding the foregoing, there shall be
no adjustment in the Conversion Price as a result of any issue or sale (or
deemed issue or sale) of shares of Common Stock (a) issued to, or issued upon
exercise of options granted to, employees, directors or consultants of the
Corporation and its Subsidiaries pursuant to stock option plans and stock
ownership plans approved by the Corporation's Board of Directors, (b) issuable
upon the conversion of the Series A Preferred, or (c) issued by the Corporation
in connection with acquisitions, bank financing, the formation of strategic
partnership and similar transactions approved by the Corporation's Board of
Directors.
5E. EFFECT ON CONVERSION PRICE OF CERTAIN EVENTS. For purposes
of determining the adjusted Conversion Price under paragraph 5D, the following
shall be applicable:
(i) ISSUANCE OF RIGHTS OR OPTIONS. If the
Corporation in any manner grants or sells any Options and the price per share
for which Common Stock is issuable upon the exercise of such Options, or upon
conversion or exchange of any
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Convertible Securities issuable upon exercise of such Options, is less than
the Conversion Price in effect immediately prior to the time of the granting
or sale of such Options, then the total maximum number of shares of Common
Stock issuable upon the exercise of such Options or upon conversion or
exchange of the total maximum amount of such Convertible Securities issuable
upon the exercise of such Options shall be deemed to be outstanding and to
have been issued and sold by the Corporation at the time of the granting or
sale of such Options for such price per share. For purposes of this
paragraph, the "price per share for which Common Stock is issuable" shall be
determined by dividing (a) the total amount, if any, received or receivable
by the Corporation as consideration for the granting or sale of such Options,
plus the minimum aggregate amount of additional consideration payable to the
Corporation upon exercise of all such Options, plus in the case of such
Options which relate to Convertible Securities, the minimum aggregate amount
of additional consideration, if any, payable to the Corporation upon the
issuance or sale of such Convertible Securities and the conversion or
exchange thereof, by (b) the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon the conversion or exchange
of all such Convertible Securities issuable upon the exercise of such
Options. No further adjustment of the Conversion Price shall be made when
Convertible Securities are actually issued upon the exercise of such Options
or when Common Stock is actually issued upon the exercise of such Options or
the conversion or exchange of such Convertible Securities.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the
Corporation in any manner issues or sells any Convertible Securities and the
price per share for which Common Stock is issuable upon conversion or exchange
thereof is less than the Conversion Price in effect immediately prior to the
time of such issue or sale, then the maximum number of shares of Common Stock
issuable upon conversion or exchange of such Convertible Securities shall be
deemed to be outstanding and to have been issued and sold by the Corporation at
the time of the issuance or sale of such Convertible Securities for such price
per share. For the purposes of this paragraph, the "price per share for which
Common Stock is issuable" shall be determined by dividing (a) the total amount
received or receivable by the Corporation as consideration for the issue or sale
of such Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the conversion or
exchange thereof, by (b) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities. No
further adjustment of the Conversion Price shall be made when Common Stock is
actually issued upon the conversion or exchange of such Convertible Securities,
and if any such issue or sale of such Convertible Securities is made upon
exercise of any Options for which adjustments of the Conversion Price had been
or are to be made pursuant to other provisions of this Section 5, no further
adjustment of the Conversion Price shall be made by reason of such issue or
sale.
(iii) CHANGE IN OPTION PRICE OR CONVERSION RATE. If
the purchase price provided for in any Options, the additional consideration, if
any, payable upon the conversion or exchange of any Convertible Securities or
the rate at which any
8
<PAGE>
Convertible Securities are convertible into or exchangeable for Common Stock
changes at any time, the Conversion Price in effect at the time of such
change shall be immediately adjusted to the Conversion Price which would have
been in effect at such time had such Options or Convertible Securities still
outstanding provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time initially
granted, issued or sold. For purposes of this Section 5E, if the terms of any
Option or Convertible Security which was outstanding as of the date of the
initial issuance of the Series A Preferred are changed in the manner
described in the immediately preceding sentence, then such Option or
Convertible Security and the Common Stock deemed issuable upon exercise,
conversion or exchange thereof shall be deemed to have been issued as of the
date of such change; PROVIDED THAT no such change shall at any time cause the
Conversion Price hereunder to be increased.
(iv) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED
CONVERTIBLE SECURITIES. Upon the expiration of any Option or the termination of
any right to convert or exchange any Convertible Security without the exercise
of any such Option or right, the Conversion Price then in effect hereunder shall
be adjusted immediately to the Conversion Price which would have been in effect
at the time of such expiration or termination had such Option or Convertible
Security, to the extent outstanding immediately prior to such expiration or
termination, never been issued. For purposes of paragraph 5E, the expiration or
termination of any Option or Convertible Security which was outstanding as of
the date of the initial issuance of the Series A Preferred shall not cause the
Conversion Price hereunder to be adjusted unless, and only to the extent that, a
change in the terms of such Option or Convertible Security caused it to be
deemed to have been issued after the date of issuance of the Series A Preferred.
(v) CALCULATION OF CONSIDERATION RECEIVED. If any
Common Stock, Option or Convertible Security is issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor shall be
deemed to be the amount received by the Corporation therefor (net of
non-customary discounts, commissions and related expenses). If any Common Stock,
Option or Convertible Security is issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the
Corporation shall be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration
received by the Corporation shall be the Market Price thereof as of the date of
receipt. If any Common Stock, Option or Convertible Security is issued to the
owners of the non-surviving entity in connection with any merger in which the
Corporation or any Subsidiary of the Corporation is the surviving corporation,
the amount of consideration therefor shall be deemed to be the fair value of
such portion of the assets and business of the non-surviving entity as is
attributable to such Common Stock, Option or Convertible Security, as the case
may be. The fair value of any consideration other than cash and securities shall
be determined by the Board of Directors of the Corporation, in good faith, and
reported to the holders of Series A Preferred in writing. If any holders of
Shares object to such determination of fair value within 20 days after receipt
of such written notice, the Board of Directors and such holder shall negotiate
in good faith to reach agreement regarding such fair market value; provided
that, if such parties are unable to reach
9
<PAGE>
agreement within a reasonable period of time, the fair value of such
consideration shall be determined by an independent appraiser experienced in
valuing such type of consideration selected by the Corporation and approved
by the holders of at least a majority of the then outstanding Shares (such
approval not to be unreasonably withheld). The determination of such
appraiser shall be final and binding upon the parties, and the fees and
expenses of such appraiser shall be borne by the Corporation.
(vi) INTEGRATED TRANSACTIONS. In case any Option is
issued in connection with the issue or sale of other securities of the
Corporation, together comprising one integrated transaction in which no specific
consideration is allocated to such Option by the parties thereto, the Option
shall be deemed to have been issued for the Market Price of the shares of Common
Stock issuable thereunder (taking into account the securities issued in such
integrated transaction).
(vii) TREASURY SHARES. The number of shares of Common
Stock outstanding at any given time shall not include shares owned or held by or
for the account of the Corporation or any Subsidiary, and the disposition of any
shares so owned or held shall be considered an issue or sale of Common Stock.
(viii) RECORD DATE. If the Corporation takes a record
of the holders of Common Stock for the purpose of entitling them (a) to receive
a dividend or other distribution payable in Common Stock, Options or in
Convertible Securities, or (b) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date shall be deemed to be
the date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or upon the making of such
other distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(ix) MINIMAL ADJUSTMENTS. All calculations under
this Section 5 shall be made to the nearest cent or to the nearest one
hundredth (1/100) of a share, as the case may be. No adjustment in the
Conversion Price shall be made if such adjustment would result in a change in
the Conversion Price of less than $0.01; however, any adjustment of less than
$0.01 that is not made shall be carried forward and shall be made at the time
of and together with any subsequent adjustment which, on a cumulative basis,
amounts to an adjustment of $0.01 or more in the Conversion Price.
5F. SUBDIVISION OR COMBINATION OF COMMON STOCK. If the
Corporation at any time subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Conversion Price in effect
immediately prior to such subdivision shall be proportionately reduced, and if
the Corporation at any time combines (by reverse stock split or otherwise) one
or more classes of its outstanding shares of Common Stock into a smaller number
of shares, the Conversion Price in effect immediately prior to such combination
shall be proportionately increased.
10
<PAGE>
5G. CONVERSION UPON A RECAPITALIZATION. Prior to the
consummation of any recapitalization, reorganization, reclassification,
consolidation or merger involving the Corporation which is effected in such a
manner that the holders of Common Stock are entitled to receive (either directly
or upon subsequent liquidation) stock, securities, cash or assets with respect
to or in exchange for Common Stock (any such event, a "RECAPITALIZATION"), the
Corporation shall make appropriate provisions (in form and substance
satisfactory to the holders of a majority of the then outstanding Shares of
Series A Preferred Stock) to insure that each of the holders of Series A
Preferred shall thereafter have the right to acquire and receive, in lieu of or
in addition to (as the case may be) the shares of Conversion Stock immediately
theretofore acquirable and receivable upon the conversion of such holder's
Series A Preferred, such shares of stock, securities, cash or assets as such
holder would have received in connection with such Recapitalization if such
holder had converted its Series A Preferred immediately prior to such
Recapitalization. In each such case, the Corporation also shall make appropriate
provisions (in form and substance satisfactory to the holders of a majority of
the then outstanding Shares of Series A Preferred Stock) to insure that the
provisions of this Section 5 thereafter shall be applicable to the Series A
Preferred (including, in the case of any such consolidation, merger or sale in
which the successor entity or purchasing entity is not the Corporation, an
immediate adjustment of the Conversion Price to the value for the Common Stock
reflected by the terms of such Recapitalization, and a corresponding immediate
adjustment in the number of shares of Conversion Stock acquirable and receivable
upon conversion of Series A Preferred, if the value so reflected is less than
the Conversion Price in effect immediately prior to such Recapitalization).
5H. CERTAIN EVENTS. If any event occurs of the type
contemplated by the provisions of this Section 5 but not expressly provided for
by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features),
then the Corporation's Board of Directors shall make an appropriate adjustment
in the Conversion Price so as to protect the rights of the holders of Series A
Preferred; provided that no such adjustment shall increase the Conversion Price
as otherwise determined pursuant to this Section 5 or decrease the number of
shares of Conversion Stock issuable upon conversion of each Share of Series A
Preferred.
5I. NOTICES.
(i) Promptly upon any adjustment of the Conversion
Price, the Corporation shall give written notice thereof to all holders of
Series A Preferred, setting forth in reasonable detail and certifying the
calculation of such adjustment.
(ii) The Corporation shall give written notice to all
holders of Series A Preferred at least 20 days prior to the date on which the
Corporation closes its books or takes a record (a) with respect to any dividend
or distribution upon Common Stock, (b) with respect to any pro rata subscription
offers to holders of Common Stock or (c) for determining rights to vote with
respect to any Change of Control, dissolution or liquidation.
11
<PAGE>
(iii) The Corporation shall also give written notice
to all holders of Series A Preferred at least 20 days prior to the date on which
any Recapitalization shall take place.
SECTION 6. PROTECTIVE PROVISIONS. In addition to any other
class vote that may be required by law or as provided herein, so long as any
Shares of Series A Preferred are outstanding, the Corporation shall not, without
first obtaining the affirmative vote of the holders of at least a majority of
the Shares of Series A Preferred then outstanding, voting as a class:
(i) increase the number of authorized Series A Preferred or
issue any additional shares of Series A Preferred, except as
contemplated by the terms of the Series A Preferred;
(ii) amend or modify the powers, preferences or rights of the
Series A Preferred or amend, alter or repeal any of the provisions of
the Corporation's Articles of Incorporation or By-laws (including by
merger or similar transaction or otherwise) so as to eliminate the
Series A Preferred or otherwise affect adversely the powers,
preferences or rights of the holders of Series A Preferred; or
(iii) other than the Series A Preferred, create, authorize,
issue or permit to exist any class of capital stock or series of
preferred shares that ranks senior to the Series A Preferred with
respect to dividend rights or rights on liquidation, winding up or
dissolution, or reclassify any class or series of any junior stock
into, or authorize any securities exchangeable for, convertible into or
evidencing the right to purchase, any such class or series.
SECTION 7. TRANSFERS; REGISTRATION OF TRANSFER. The Shares of
Series A Preferred shall be freely transferable, subject to compliance with
applicable securities laws. The Corporation shall keep at its principal office a
register for the registration of Series A Preferred. Upon the surrender of any
certificate representing Series A Preferred at such place, the Corporation
shall, at the request of the record holder of such certificate, execute and
deliver (at the Corporation's expense) a new certificate or certificates in
exchange therefor representing in the aggregate the number of Shares represented
by the surrendered certificate. Each such new certificate shall be registered in
such name and shall represent such number of Shares as is requested by the
holder of the surrendered certificate and shall be substantially identical in
form to the surrendered certificate, and dividends shall accrue on the Series A
Preferred represented by such new certificate from the date to which dividends
have been fully paid on such Series A Preferred represented by the surrendered
certificate.
SECTION 8. REPLACEMENT OF CERTIFICATES. Upon receipt of
evidence reasonably satisfactory to the Corporation (an affidavit of the
registered holder shall be satisfactory) of the ownership and the loss,
theft, destruction or mutilation of any certificate evidencing Shares of
Series A Preferred, and in the case of any such loss, theft
12
<PAGE>
or destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or, in the
case of any such mutilation upon surrender of such certificate, the
Corporation shall (at its expense) execute and deliver in lieu of such
certificate a new certificate of like kind representing the number of Shares
of such class represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate, and dividends shall accrue on the Series A Preferred represented
by such new certificate from the date to which dividends have been fully paid
on such lost, stolen, destroyed or mutilated certificate.
SECTION 9. DEFINITIONS.
"CHANGE OF CONTROL" means any (i) reorganization or merger of
the Corporation with or into any other corporation or entity (other than a
consolidation or merger in which the Corporation is the continuing entity and
which does not result in any adverse change in the rights, preferences or
privileges of the Common Stock), (ii) a sale, lease, exchange or transfer of all
or substantially all of the assets of the Corporation in one transaction or
series of related transactions, (iii) a change in the majority of the Board of
Directors, occurring during any 13-month period commencing on January 17, 2000
that was not approved by a majority of the directors serving on January 17, 2000
or by a majority of those subsequently elected directors whose election or
nomination for election was approved by a majority of the directors then serving
on the Board of Directors, (iv) merger, consolidation, reorganization or similar
transaction involving the Corporation, or the issuance, sale or transfer of
voting capital stock of the Corporation, by the Corporation or otherwise, in one
transaction or series of related transactions, such that, after the consummation
of any such transaction(s), the stockholders of the Corporation prior to the
transaction(s) own less than 50% of the voting securities of the surviving
corporation or entity or the Corporation, as the case may be, or (v) the
acquisition by any "person" (as such term is used in Sections 13(d) and 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT")), or two
or more persons acting in concert, of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 51% or more of the
outstanding shares of voting stock of the Corporation; PROVIDED, HOWEVER, that
the foregoing shall exclude any such acquisition (A) made by the Corporation or
any Subsidiary, or (B) made by an employee benefit plan (or related trust)
sponsored or maintained by the Corporation.
"COMMON STOCK" means, collectively, the Corporation's no par
value common stock and any capital stock of any class of the Corporation
hereafter authorized that is not limited to a fixed sum or percentage of par or
stated value in respect to the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution or
winding up of the Corporation.
"COMMON STOCK DEEMED OUTSTANDING" means, at any given time,
without duplication, the number of shares of Common Stock actually outstanding
at such time, plus the number of shares of Common Stock deemed to be outstanding
pursuant to subparagraphs 5D(i) and 5D(ii) hereof whether or not the Options or
Convertible
13
<PAGE>
Securities are actually exercisable at such time, plus the number of shares
of Common Stock issuable upon conversion of the outstanding Series A
Preferred, plus the number of shares of Common Stock issuable upon exercise
of outstanding options and warrants to purchase Common Stock as such number
of shares is proportionately adjusted for stock splits, stock dividends,
stock combinations and other recapitalizations.
"CONVERSION PRICE" initially shall be equal to $10.00, but is
subject to adjustment in accordance with Section 5.
"CONVERSION STOCK" means shares of the Corporation's Common
Stock; provided that if there is a change such that the securities issuable upon
conversion of the Series A Preferred are issued by an entity other than the
Corporation or there is a change in the type or class of securities so issuable,
then the term "Conversion Stock" shall mean the security issuable upon
conversion of each share of the Series A Preferred if such security is issuable
in shares, or shall mean the smallest unit in which such security is issuable if
such security is not issuable in shares.
"CONVERTIBLE SECURITIES" means any stock or securities
directly or indirectly convertible into or exchangeable for Common Stock.
"DATE OF ISSUANCE" means the date on which the Corporation
initially issues any Shares, regardless of the number of times transfer of such
Share is made on the stock records maintained by or for the Corporation and
regardless of the number of certificates which may be issued to evidence such
Share.
"EVENT OF NONCOMPLIANCE" means, with respect to any Shares for
which a redemption notice and the certificates representing such Shares have
been timely received by the Corporation, the failure by the Corporation to have
paid, within the 60-day period described in Section 3A, the Redemption Payment
Amount (including any accrued and unpaid Participating Dividends).
"ISSUANCE PRICE" shall be equal to $10.00 (as proportionately
adjusted for stock splits, stock dividends, stock combinations and other
recapitalizations).
"JUNIOR SECURITIES" means the Common Stock and any capital
stock or other equity securities of the Corporation with rights and preferences
(including with respect to liquidation) subordinate to the Series A Preferred.
"LIQUIDATION VALUE" of any Share as of any particular date
shall be equal to $10.00 (as proportionately adjusted for stock splits, stock
dividends, stock combinations and other recapitalizations).
"MARKET PRICE" of any security means the average of the
closing prices of such security's sales on the primary securities exchange on
which such security may at the time be listed, or, if there has been no sales on
such exchange on any day, the average of the highest bid and lowest asked prices
on such exchange at the end of such day, or, if
14
<PAGE>
on any day such security is not so listed, the average of the representative
bid and asked prices quoted in the Nasdaq System as of 4:00 P.M., New York
time, or, if on any day such security is not quoted in the Nasdaq System, the
average of the highest bid and lowest asked prices on such day in the
domestic over-the-counter market as reported by the National Quotation
Bureau, Incorporated, or any similar successor organization, in each such
case averaged over a period of 21 trading days consisting of the days as of
which "Market Price" is being determined and the 20 consecutive business days
prior to such day. If at any time such security is not listed on any
securities exchange or quoted in the Nasdaq System or the over-the-counter
market, the "Market Price" shall be the fair value thereof determined jointly
by the Corporation and the designee of holders of at least a majority of the
then outstanding Shares. If such parties are unable to reach agreement within
a reasonable period of time, such fair value shall be determined by an
independent appraiser experienced in valuing securities selected by the
Corporation and approved by the designee of holders of at least a majority of
the then outstanding Shares (such approval not to be unreasonably withheld).
The determination of such appraiser shall be final and binding upon the
parties, and the Corporation shall pay the fees and expenses of such
appraiser.
"OPTIONS" means any rights, warrants or options to subscribe
for or purchase Common Stock or Convertible Securities.
"PARTICIPATING LIQUIDATION AMOUNT" means that portion of all
remaining assets and funds of the Corporation available for distribution to the
stockholders of the Corporation after payment in full of the aggregate
Liquidation Value with respect to the Shares of Series A Preferred then
outstanding, expressed as a fraction the numerator of which is the number of
shares of Common Stock issuable upon the conversion under Section 6 of all
Series A Preferred outstanding immediately prior to such event and the
denominator of which is the sum of the number of shares of Common Stock
outstanding immediately prior to such event plus the number of all shares of
Common Stock issuable upon conversion under Section 6 of all Series A Preferred
outstanding immediately prior to such event.
"PERSON" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization or a governmental entity or any
department, agency or political subdivision thereof.
"SUBSIDIARY" means, with respect to any Person, any
corporation, limited liability company, partnership, association or other
business entity of which (i) if a corporation, a majority of the total voting
power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by that Person or
one or more of the other Subsidiaries of that Person or a combination thereof,
or (ii) if a limited liability company, partnership, association or other
business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more
15
<PAGE>
Subsidiaries of that person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity
if such Person or Persons shall be allocated a majority of limited liability
company, partnership, association or other business entity gains or losses or
shall be or control the managing general partner of such limited liability
company, partnership, association or other business entity.
SECTION 10. AMENDMENTS AND WAIVERS. No amendment, modification
or waiver shall be binding or effective with respect to any provision of this
Statement of Resolution without the prior written consent of the holders of at
least 60% of the then outstanding Shares; provided that no change in the terms
hereof may be accomplished by merger or consolidation of the Corporation with
another corporation or entity unless the Corporation has obtained the prior
written consent of the holders of the applicable percentage of the Series A
Preferred then outstanding.
SECTION 11. NOTICES. Except as otherwise expressly provided
hereunder, all notices referred to herein shall be in writing and shall be
delivered by reputable overnight courier service, charges prepaid, and shall be
deemed to have been given when so sent (i) to the Corporation, at its principal
executive offices and (ii) to any stockholder, at such holder's address as it
appears in the stock records of the Corporation (unless otherwise indicated by
any such holder).
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH
31, 2000 CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTH PERIOD THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 17,672
<SECURITIES> 0
<RECEIVABLES> 152,497
<ALLOWANCES> 3,610
<INVENTORY> 40,824
<CURRENT-ASSETS> 223,356
<PP&E> 73,365
<DEPRECIATION> 34,137
<TOTAL-ASSETS> 375,664
<CURRENT-LIABILITIES> 91,643
<BONDS> 33,500
0
0
<COMMON> 215,123
<OTHER-SE> 17,996
<TOTAL-LIABILITY-AND-EQUITY> 375,664
<SALES> 161,198
<TOTAL-REVENUES> 161,198
<CGS> 110,285
<TOTAL-COSTS> 110,285
<OTHER-EXPENSES> 57,710
<LOSS-PROVISION> 983
<INTEREST-EXPENSE> 892
<INCOME-PRETAX> (7,688)
<INCOME-TAX> (3,075)
<INCOME-CONTINUING> (4,613)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,613)
<EPS-BASIC> (.09)
<EPS-DILUTED> (.09)
</TABLE>
